President Fidel Castro, speaking at the Group of 77 meeting in Havana made the following observation on the commodities position of the world's exploited peoples:
âThe basic commodities are still the weakest link in world trade. In the case of 67 South countries such commodities account for no less than 50% of
their export revenues.â
âThe neoliberal wave has wiped out the defense schemes contained in the terms of reference for basic commodities. The supreme dictum of the marketplace could not tolerate any distortion, therefore, the Basic Commodities Agreements and other defense formulas designed to face unequal exchange were abandoned. It is for this reason that today the purchasing power of such commodities as sugar, cocoa, coffee and others is 20% of what it used to be in 1960; consequently, they do not even cover the production costs. â
According to the main association representing the global chocolate industry, the World Cocoa Foundation, the price of the cocoa commodity is strictly a function of supply and demand:
âThe price of cocoa beans changes constantly based on the market perception of supply (how many cocoa beans the market believes are harvested) and demand (how many are needed by chocolate manufacturers). Cycles of high and low cocoa prices affect the quality and amount of cocoa beans that are produced. â http://www.chocolateandcocoa.org/Process/Buying/prices.asp
The chocolate industry firmly defend the futures contract marketing of cocoa, and deny that these markets manipulate and control prices:
âMost cocoa is traded on a commodity exchange. Anyone wishing to trade in cocoa successfully must have a good understanding of the purposes, the functions and the workings of the exchanges. The primary purpose of a commodity exchange is to transfer the price risk of a commodity from those who do not want to accept it (hedgers) to those who do (speculators). This transfer is achieved by buying and selling standardized futures or options contracts at open outcry, or though a computer network (screen trading) at a public market place. The âplaceâ is an organization serving buyers and sellers by allowing them to establish the price by open bargaining, based on supply and demand. The exchange does not establish the price itself, but allows price discovery because of its open access to the public. To believe that exchanges set the prices is akin to believing that thermometers cause temperature.â
Back in 1979 the then Nigerian Oil Minister pointed out that the price of oil was manipulated through the use of nonexistent oil, that is oil that only exists on paper (the future contract), but nonetheless is figured in the projected supply of petroleum as if it was actual oil, thus affecting the âsupplyâ of oil. In the same way, futures trading institutions artificially alter the perceived supply of other commodities, such as cocoa, by the issuance of future contracts and options. (It is important here to remember that each commodity exchange has members of the exchange who participate in the trading, these members are in fact actual members of the exchange, and not patrons as others who sell and buy the contracts. Hence, the exchange can use the well financed members to create or stop a flurry of buying and selling in any of the commodities it offers.) By manipulating cocoa prices through the selling and purchasing of futures contracts, that is inflating or deflating the anticipated supply of a commodity through the time sensitive exchange of the fictitious commodities created by means of the future contract, they actually determine the pricing level offered to the producer of the real good, those that produce the actual physical commodity. Since it is exceedingly rare for a purchaser of a futures contract to actually take possession of the physical commodity, the commodities exchange does not have to deliver the physical good, so it doesnât matter that the majority of the supposed commodity they are buying and selling never really existed, that such exchange are strictly a fiat operations; operations, which nonetheless, as we have seen, determine the price of the physical commodity.
Imagine for a moment if you were growing apples, and you went to market once a year, obviously you would hope to get the best price for your apples, let us say you wanted 12.50 US a basket. However, there was a futures trading establishment issuing future contracts for the purchase of a basket of apples at 7.50 for the specifc month that you are going to market. Now the big, so-called "value added" concerns that buy apples, for manufactiuring pies, juice, jams, and what not, can go to the futures traders and purchase a future contract at the 7.50 price before hand, thus locking in a price 5.00 US lower than what you intend to ask for. Since, even though we know that the futures industry does not normally deliver tangible commodities to their customers, they have the capacity to do so if the customer wants or if circumstances dictate for other reasons you cannot simply assume that they won't be able to get the apples they want at that price. So, you could not afford to hold at your price of 12.50 because you, as an individual producer, are not big enough, not capitalized sufficiently to take on the futures exchanges, hence you would have a limited menu of choice. Basically you could hold on to your apples and not sell at the time you had intended, which is not a good option, as apples are highly perishable, and you do not have the means to freeze them or alter them so they do not spoil, Or you could find something else to do with your crop, such as eat them yourself, give them away, throw them away, all of which would mean you would not have the revenue you anticipated from the sell of the apples. Or you can sell your real apples at the price established by the futures industry. To avoid this connundrum, this dilema, you would have to find a way to aggregate with other growers. Hence, your only real viable option, other than those mentioned, would be the creation of a cartel of apple producers strong enough to counteract the collusion between the financial sector, the trading sector and the apple users industry, such a cartel would then attempt to set export and production numbers for its member apple growers.
However, since the apple users industry have the backing of their government(s), you would have to find a way to get around this even if you created a cartel. If you lived in an area under the same jurisdication as one of the governments in league with the apple users, you would have to find some way of keeping the apple users from deploying their influence to induce the government to block your cartel. If you lived in an area not controlled by the government(s) of the apple users, you would obviously turn to your government for protection and succor. But if your government is too weak, or perhaps is nothing more than a mere extension of the powerful apple sellerâs governments, then you would have to somehow help your geographical area get an innovative form of government that could and would respond to the apple growers and similarly impacted sectors of your country's economy.
Although the World Cocoa Foundation explicitly denies that the prices are set by the chocolate industry, on the very same website that they make these claims of explicit denial, you will find the a page entitled " Trading and Pricing Organizations, in which the list the organizations that they assert are Trading and PRICING Organizations. These entities are:
London International Financial Futures & Options Exchange
New York Board of Trade
Coffee, Sugar and Cocoa Exchange
Bloomberg LP
Reuters Commodity, Energy, and Financial Futures
Dow Jones & Company
E D & F Man Cocoa
Comdaq
http://www.chocolateandcocoa.org/Process/Buying/resources.asp
So obviously for the chocolate industry and their lobbies to assert that the prices are not fixed by the collusion between themselves and the financial/trading sectors is simply a bold face lie to cover up their grand and highly lucrative activity, what we would call in street jargon, a hustle. A hustle that has very negative implications for African countries such as Ivory Coast, Ghana and to a lesser extent, other African cocoa producers such as Cameroon and Nigeria; it is also a negative economic and social factor for countries such as Burkina Faso, whose citizens go to the Ivory Coast seeeking work in its cocoa agricultural sector.
These circumstance have obvious political implications for the producer countries as a whole, because the manipulation of commodity prices can be used to destabilize the country, as was the case in Ghana.
In the era of the CPP government in Ghana, the production of cocoa in Ghana increased but revenues from cocoa sales decreased because of the price offered (in fact the production doubled from the early fifties to the early sixties.)
The cold facts are that the West, here we refer specifically to the US, UK and France, which are major consumers of cocoa, the US being the major consumer, connived to destroy the Ghanaian economy by keeping the cocoa price down, thus causing massive dislocation in the society and giving cover for the treasonous, criminal actions of Generals Otu and Ankrah , and (Acting) Police Commissioner Harlley, the leaders of the coup against the then CPP government. Each of these three western countries had general and specific reasons for moving against the CPP government. Let us list a few.
The US for example was concerned because the CPP government was highly critical of its role in the Congo, its war against Vietnam, its leading role in neo-colonialist generally and the racism that is endemic to the society; the UK was upset because of the CPP governmentâs policy toward the Rhodesian settler colony and indeed the Republic of South Africa, its neo-colonialist and pro-settler policies in Kenya and elsewhere; France was specifically peeved because the CPP opposed their nuclear testing in Africa, was an obstacle to its plans to isolate the PDG government in Guinea, who had dared to reject the Gaullist governmentâs implicit demand that they become a part of France, and instead opted for true independence. In short, all of them were concerned with the support the Ghanaian government was giving to the armed movements against colonialism, settler colonialism and neo-colonialism, they opposed Ghanaâs attempts to build socialism, and maintain ties with the socialist states, in point of fact, they were against Ghana's role, in the words of Omowale Malcolm X, as the font of Pan-Africanism . Hence, they colluded to get rid of the CPP government, just as forty years or so earlier they colluded to get rid of Garvey and the UNIA movement.
And if there are any out there reading this who are still not sure about the purchasing states power to deliberately manipulate the prices of commodities such as cocoa, take a peak at this extract from a document concerning a meeting between then US Vice President Hubert Humphrey with the head of the illegal regime of the so-called National Liberation Council (NLC), Gen. Ankrah. The document which is the source of this quote is part of the official files of the Lyndon Johnson administration.
âAnkrah then turned to problem of cocoa, noting it major problem for his govt, because it represented 60 percent of exports, he said that some measure of price stabilization was absolutely necessary if country were to make intelligent plans for economic development. In very frank but firm manner, he recalled that last Oct he had asked President Johnson's help in achieving a cocoa agreement. The recent cocoa negotiations, however, went well until end of conf when US Delegation refused to move forward with an accord. He had been shocked by what appeared to be pressures of US manufacturers, and he could not help but feel this action was "real stab in back of Ghana" He then presented aide-memoire on subject (septel)/3/ and concluded with very strong plea to VP to seek reconsideration US stand this matter. VP sympathetically endorsed principle and value cocoa agreement. Noting he had helped push through coffee agreement when in the Senate, he also wished state very frankly that approval for cocoa agreement would face serious obstacles and pressures from US interests.â
271. Memorandum From the President's Special Assistant (Rostow) to President Johnson
Keep in mind that Ankrah was a key leader in the criminal enterprise that overthrew the CPP government, while Dr. Nkrumah was on a trip to Vietnam in an attempt to help end the war. Although more closely aligned to the UK than the US, the USâs man in the coup was Harlley, he was the consensus candidate of the coup plotters to be the leader of the criminal NLC junta. Thus we see that even a stooge of imperialism and the leading representative of a puppet government of imperialism could not counteract the power of the combination (the banks, chocolate manufacturers, cocoa future traders and so on) that really determine the price of cocoa.
This scenario is typical of every commodity, more or less, for in the case of petroleum, the existence of OPEC has modified that somewhat, however, since many of the OPEC members are in the pocket of imperialism, and there are petroleum producers who are not part of OPEC, even OPEC's power is severely limited.
In the specific case of cocoa, the the big chocolate combine has plans to introduce or increase cocoa bean production in other areas, they are specifically looking at Panama, Peru, Vietnam. I quote
"Due to devastation of the cocoa crop in many growing areas by factors such as pests, diseases, and adverse climatic conditions, the geographic base of cocoa production has dwindled. Currently, about 70% of the worldâs cocoa is grown in Western Africa.The SCP would diversify the cocoa supply base by identifying three new or dormant countries or regions with a tradition of small holder agriculture, and begin to introduce or increase sustainable production of cocoa to reach commercial levels within 10 years. Linking cocoa development to countries that are struggling to improve the quality of life of its small farmers is a key focus. The objectives of the Cocoa Plantings Program Area are to identify three new or dormant regions for sustainable cocoa growing such as Vietnam, Peru, and Central America (Panama) and to implement a sustainable approach to cocoa growing in these three countries in partnership with other stakeholders."
http://www.chocolateandcocoa.org/Programs/SCP/objectives.asp
This will further weaken Africaâs leeway in the cocoa trade.
If there was ever an economic argument for Pan-Africanism, for a continental socialist government, then the current commodity trading imbalance is certainly one.
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