Completed Project: Capacity Building on Price Risk Management Strategy for Cocoa Smallholder Farmers in Africa

Commodity market volatility has increasingly become a challenge for governments of developing countries which have progressively withdrawn their price stabilization programmes from the agricultural sector as part of trade liberalization and reform programmes. However, while advanced economies can trade and mitigate their risks via financial markets, developing countries have been struggling to adopt similar strategies. The project will equip cocoa producers in West Africa with knowledge and skills necessary to implement a risk mitigation strategies with a mix of instruments to reduce the costs of volatility in the global cocoa markets.

The knowledge and instruments necessary to mitigate the effects of global price volatility are, generally, the greatest impediment. In their earlier activities, the CFC and ICCO concluded that local cocoa sector stakeholders needed adequate and practical training in the implementation of hedging transactions in the countries. Based on this understanding, the project would seek to (i) focus on segments of the value chain vulnerable to risk; and (ii) develop the local capacity to apply specially designed set of integrated risk mitigation techniques to improve the producer situation and the overall efficiency of the value chain. To understand the effects of price volatility, cocoa cooperatives will be trained to pay attention to factors affecting price formation and to take advantage of market information available in the country to form an adequate risk assessment in terms of its costs and the need for mitigation.

The projects focuses on achieving more predictable incomes for cocoa farmers and, eventually, more sustainable long-term outlook for the cocoa sector in West Africa by working towards three practical objectives as shown below.

• The project investigated and identified the impact of price volatility on cocoa producers and traders in Cameroon and Sierra Leone where detailed surveys have been carried out. Surveys were targeted at key stakeholders in the cocoa value chain, namely cocoa producers, producer organisations and exporters. In Sierra Leone, local cocoa traders were also surveyed as another vulnerable group affected by price volatility.

• The project created an inventory of price risk management strategies and instruments available to cocoa producers based on the survey results from Cameroon and Sierra Leone. The final assessment that draws on the two data sets, has been discussed with cocoa value chain stakeholders and potential users of the strategies during awareness raising workshops in Cameroon, Nigeria and Togo. The project implementation in Sierra Leone resumed strongly after earlier delays due to the Ebola outbreak. Based on the progress made, the final workshop of the project is scheduled to be held in Sierra Leone in 2017.

• Training programmes and local experts have been prepared in Sierra Leone and Togo with training programmes rolled out in all four participating countries.

The PEA supported national implementation partners and local experts in guiding producer organizations through cocoa price risk management options during the 2016 cocoa season. A post-season assessment will be held to assess the PRM strategies and tools adopted and their impact. A “Guide” to cocoa trading by smallholder cocoa farmers in unregulated markets, based on the survey findings that suggests how different actors in the cocoa sector can support smallholder farmers to mitigate the risks associated with price is under preparation. A handbook for POs is also under consideration drawing on the feedback from the roll-out of the training.