Going downstream: Value-added manufacturing holds promise for an export-led economy

Accounting for a third of all cocoa exports, and blessed with an ideal climate for a range of cash crops, Côte d’Ivoire has long derived the bulk of its export income from raw, unprocessed agricultural produce. This reliance has, however, made it dependent to a large degree on the vagaries of international commodity markets, while much of the value added during processing has gone elsewhere.

COCOA & CASHEWS: Only a third of the 1.5m tonnes of cocoa produced in the country during 2010-11 was ground locally, for instance, let alone transformed into chocolate or other products. The vast bulk of the added value derived from Ivoirian cocoa is captured abroad, notably Germany and the Netherlands, where it is processed and transformed into high-value end products. Medium-term prospects for the global $13bn cocoa market are bright, as demand from Asia – notably China – is more than offsetting the decline in imports from Europe. Ivoirian cocoa exports to China alone have increased five-fold in recent years. Overall, global demand for cocoa is set to continue growing at roughly 2% per annum.

Similarly, the country also produced 335,000 tonnes of cashew nuts in 2011, making it the world’s second-biggest supplier, with a 16% market share. Only 5000 tonnes of this was processed in-country, however. Now, Côte d’Ivoire wants to capture more of the added value, reducing the proportion of agricultural produce being exported in its raw state. The government has made development of the food-processing industry a core priority, with a particular focus on cocoa and cashews.

PRIVATE SECTOR RESPONSE: With the return of political stability, the private sector response has been impressive, not least in the food-processing sector. Both new and well-established players have embarked on investment programmes that should see the sector blossom in the coming years. According to estimates, the total amount of cocoa beans being ground in the country increased by 30%, or 440,000 tonnes, over the 2011-12 period alone. By 2015, the government is aiming to have 50% of all cocoa beans ground in the country before being exported, which would see Côte d’Ivoire become the largest cocoa grinder globally, overtaking the Netherlands. To support this aim, the government offers fiscal incentives to potential investors.

HOT CHOCOLATE: While the government aspires to stimulate a dynamic and broad-based food-processing sector, cocoa undoubtedly and unsurprisingly continues to take centre stage. For now, cashews, cotton and other cash crops are of secondary importance. As part of the IMF’s country programme and the sovereign debt relief process, reform of the cocoa sector was made a priority, and big steps were taken in 2012. A new central body, the Coffee Cocoa Council (Conseil du Café Cacao, CCC), was created to manage, regulate and develop the sector, as well as to stabilise the price of cocoa. To provide a greater degree of income certainty to farmers, twice-daily auctions were instituted to ensure forward sales of 70-80% of the following season’s crop. A new, guaranteed fixed price equivalent to 60% of the expected export price was introduced. In theory, this should facilitate investment by small farmers, improving in turn the quality and reliability of supplies to cocoa grinders and processors. The fixed price was CFA725 (€1.09) per kg for the 2012/13 growing season, less than the CFA1000 (€1.50) recommended price set by the government for the previous year but more than was typically received by farmers that year in practice. The government financed these efforts through the withdrawal of a long-standing tax incentive applied to cocoa grinders.

Cocoa grinders were given a temporary exemption from export taxes 20 years ago to encourage investment and job creations. Originally, it was intended to last five years and only apply during the April-September mid-crop season. It became permanent, however, and applied in practice on a year-round basis until the incentive was abolished in September 2012 to finance the new fixed pricing mechanism. The rebate had been worth CFA75 (€0.11) per kg and cost the government CFA35bn-40bn (€52.5m-60m) annually. Abolition of the tax rebate was fiercely resisted by the grinding companies, with some threatening to move their operations to neighbouring Ghana, the world’s second-largest cocoa producer. To soften the blow, the transport allowance received by exporters and intermediaries was increased from 18% to 22% of the cost, insurance and freight.

PROCESSING INVESTMENTS: Algeria’s Cevital Food Processing Industry announced plans in mid-2012 to invest $1bn in the country over a five-year period to acquire land and construct production facilities capable of processing cocoa, rice, maize, sugar and vegetable oil. During 2013 $200m of this was to be used to build a factory capable of processing 100,000 to 150,000 tonnes of cocoa per year. Cevital plans an initial $40m investment in rice production, having sought to lease 300,000 ha of land for the purpose. Côte d’Ivoire currently imports 800,000 to 850,000 tonnes of rice every year.

Olam, a Singapore-based supply chain manager and processor of agricultural products and food ingredients, is also active in the processing of Ivoirian agricultural produce, employing 4000 staff in the production of cocoa, cashew nuts, cotton and coffee. In early 2012 the company, which has seen significant expansion in West and Central Africa in recent years, announced two significant investments: a mechanised cashew-processing facility in Bouaké and Francophone West Africa’s first dairy processing plant, to be located in Abidjan. The latter will produce evaporated milk and sweetened condensed milk to meet the necessary standards for export to Europe. The facility will have sufficient production capacity to meet the entire domestic demand for these products as well as contribute to exports. The company’s total investments are expected to come to CFA100bn (€150m) over a five-year period. Olam expects eventually to open two further cashew-processing plants nearby and to double the size of its cotton plantations to 50,000 ha. The first new cashew plant alone is expected to benefit 30,000 local farmer-suppliers. The fully mechanised dairy processing plant will employ a further 250 workers, and will serve as the regional hub for the firm’s dairy business. Later in 2012 Olam announced plans to open a new CFA30bn (€45m) cocoa-processing plant capable of grinding 120,000 tonnes per year by end-2013. As currently planned, the facility is to be located near the port of San Pédro, which already boasts several other cocoa-processing plants.

Zurich-based Barry Callebaut owns a plant near San Pédro with a grinding capacity of 145,000 tonnes per year, with plans to ultimately expand capacity to 175,000 tonnes and to open a new plant with grinding capacity of 70,000 tonnes. The firm invested €800,000 in a “cocoa excellence centre” in 2012, the first of its kind in West Africa. There are also two smaller plants nearby that aim to expand their capacity in the near future as well: Choco Ivoire expects to double its grinding capacity to 60,000 tonnes within two years, while local producer Suso plans a 25% increase to 25,000 tonnes. Between the new Olam plant and the expansions at the three existing plants, cocoa-grinding capacity in the vicinity of San Pédro is expected to surpass 300,000 tonnes by 2015.

Unilever, one of the biggest food processors in Côte d’Ivoire, also announced a €6m plan in mid-2012 to upgrade its Ivoirian factories, with a view towards expanding capacity and serving the north of the country in particular. Several Chinese operators have expressed interest as well in establishing local food-processing facilities to satisfy their own surging domestic demand. Finally, the Ivoirian government has invited Indian players to explore potential investment opportunities in the sector.

MULTILATERAL ASSISTANCE: The country has benefitted from the support of multilateral partners in its industrialisation drive. The International Finance Corporation (IFC), the private sector arm of the World Bank, signed an agreement in mid-2012 to invest €2.4m in the equity of the Société Ivoirienne de Productions Animales (SIPRA), the leading Ivoirian poultry processor. The primary aims of this investment are to support the firm’s expansion programme, create jobs, improve food security and support economic growth more generally. More specifically, it will be used to increase poultry meat, egg and day-old chick production to expand its retail network and boost its feed mill capacity. Together, SIPRA and the IFC are also developing a linkage programme as well as a community investment strategy aimed at building capacity and increasing the number of farmers and small and medium-sized enterprises with which the company works. It is hoped that these projects will help deepen connections with the local economy, providing revenue to small-scale producers in SIPRA’s operations and supporting rural incomes.

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The Report: Côte d'Ivoire 2013

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