Main Risks In Cocoa Sector of Cameroon
By: Lawong Kinenla Edith
Program Coordinator at Douala School of Business
Many nations like Cameroon are emerging hence additional businesses are springing up, other are taking advantage of their strategic position in the ventures. All these businesses expose themselves to various risks through normal courses of their activities despite the cushions which management of the companies puts in place. No business can be conducted without a certain level of risk accepted. Main risks in Cameroon like for most agricultural depended countries are centered on commodity prices especially those been exported. Many African nations have a huge potential in agriculture which isaccommodating technology hence risk too is getting a peak.
Cocoa is one of the products that dominate the agricultural sector of Cameroon and West Africa. The cocoa sector is of great importance for rural livelihoods in these regions and provides direct employment for more than 2 million households (this is estimates for Ivory Coast, Ghana and Nigeria where more than 90% cocoa farmers are small scale). Ivory Coast is the world’s leading producer of cocoa and accounts for approximately 40 per cent of world production. Cameroon is the 4th African producer of cocoa. This commodity is one of the main exports to Europe from this part of the globe and about 60 per cent of the world’s cocoa is used in chocolate products, the other percent is used for a range of bakery, confectionery and drink products. World cocoa sales have been rising as demand grows in emerging market. In recent years, the cocoa sector in West Africa in particular has been criticized internationally for using forced child farm labor. Their governments installed committees to fight these. Certification schemes such as organic, Fairtrade, Utz Certified and Rainforest Alliance recently sprung up and are popular among consumers of commodity products such as coffee, cocoa. This schemes bring a range of benefits to farmers as well as to the buyers further down the supply chain, pricing variable been one of them.
In 2012, cocoa led agricultural exports from Cameroon at 10%. This paper will address its price risk issues in particular. Cameroonian cocoa has the strength of high quality compared to that of other neighbouring countries. This gives the country a competitive edge for the product which we could capitalize on to increase market share. The high quality also generates high and fluctuating pricing of the commodity.
This sector had liberalization some years ago, leaving both governments and farmers in cocoa producing countries with insufficient tools to manage especially fluctuations of cocoa prices at international level. It is worth mentioning that this industry has a longer value chain compared to others hence possibility to have so many barriers.
The oldest known risk in its supply chain is production risk, particularly increase in fertilizer prices and pest and diseases. These days we are seeing security of cash in transit and pricerisk consuming the industry like wild fire. For this reason many international organizations are working on managing the risks.Other risk issues facing the industry include aging plantations and older generation of farmers who in some instances are uneducated in the use of fertilizers hence could be related to reduced yields. As an additional risk, there is technological backwardness and lack of adequate conservation and storage equipment serving the industry which would better allow for the industry to fully flourish and develop.
In relationship to pricing, the domestic prices are no longer set by government but determined according to world market prices hence some seasons of low pricing. Therefore there is so much volatility in price of commodities which the author will coin as the biggest threat especially in periods of low market price.
Prices at farm gates also see an effect and as such financial risk is shifted from the state to the smallholder without the corresponding creation of a support mechanism for absorbing that risk. This is an issue which farmers here have difficulties understanding especially the price variability. Climate change has been noted to be an accompanying factor for price changes in the cocoa sector.This variation is an external source of vulnerability that cocoa producers generally are incapable of controlling. To address these issues and more the government is working via the cocoa and coffee marketing board and other related bodies to put measures. Typical measures are solid capacity building programs to relevant stakeholders involved such as representatives of farmers unions with instruments to assist in coping with price fluctuations.
The international market encourages long-term forward contracts and hedging of commodities to solve problems of price volatility be it for commodities or for fertilizers. In all, bodies also try to improve yields while integrating the supply chain. Also the government of Cameroon needs to create policy and other legal frameworks to make price risk management tools accessible to farmers. These policies should come to make the projectedproduction by 37% by 2016 happen.
To conclude, the general malaise in global economy can have a negative impact on African businesses and moral and ethical principles. If quality control the cocoa. To mitigate the above risks, the Government of Cameroon just like for other cocoa producing countries need to continue to compliment management of companies to set standards and follow policies. As other bodies such as the IITA, IRAD, STCP, Barry Callebaut, Mars continue to engage themselves in research and extensive service in the sector, this indirectly improves the pricing issues the sector faces. This will help companies to incorporate multivariable risk models and analysis and move beyond traditional approaches.
Moreso, developing the local market might help to reduce dependence on uncontrollable and fluctuating world market prices. In this case, price risk currently being absorbed by producers of Cameroon will be reduced and hence avoidance of the high tariffs imposed by importing countries. Price risk could be tackled by creating a local market or regional, which is a new value stream and which could potentially impact other feature of the economy and social development or intra-regional trade.
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