Global Policy Forum

By Alan Cowell

As civil war raged in Ivory Coast, the world's biggest cocoa producer, speculative traders here and in New York sent prices this month to 17-year highs. Investors cashed in, as did middlemen along the global food chain. Candy makers like Hershey and Nestlé are thought to have secured their Halloween profits by carefully hedging their exposure.

But in Africa, war and economics are imposing a harsher tariff. The fighting has killed hundreds of people in cocoa-growing regions, destroyed crops and kept farmers from harvesting what remains — and sharing in the higher prices. The fighting has also shut down a project to eradicate what international aid workers consider the farmers' abusive child labor practices.

Even as persistently small cocoa crops drove prices up over the last two years, cocoa bean farmers enjoyed little of the gain. Under international pressure, Ivory Coast shifted from fixed prices to free-market pricing of cocoa in the fields. Industry experts say that local exporters have systematically shortchanged the growers, buying their beans cheaply and selling at big profits in the rising market.

"The one person who doesn't benefit very much is the farmer," said Ann Prendergast, an analyst with Refco, a big commodities trading firm in New York. "He really lives a much more precarious existence. The product makes a profit for middlemen all the way."

The economics of cocoa — a $5 billion trade that winds from African ports through Dutch and American processing plants to store shelves and children's goody bags — recall other harsh contrasts in industries like diamonds, textiles and sporting goods, where the glitter of wealth is produced through the sweat of penury.

On one end of the food chain are people like Salifou Kabore, a 57-year-old grower from Burkina Faso who moved to Ivory Coast when he was 5 and is now the owner of two midsize farms, one about 30 acres and the other 37 acres, from which he supports 3 wives and 16 children. Both his farms lie in the path of a rebellion that took hold with a failed coup d'état on Sept. 18. The dispute has not been resolved, though the first direct talks aimed at ending the unrest opened today in Lomé, Togo.

Suggestions from the Ivoirian government that neighboring Burkina Faso was behind the military revolt set off reprisals against the largely Muslim growers like Mr. Kabore who came here from the north and dominate the cocoa-farming business, adding to their woes. "I am so sad and bitter because I don't know what is happening in my plantations," Mr. Kabore said in a telephone interview from the still unsettled Daloa region.

Further along the food chain lie London's traders, who serve as brokers between African exporters and Western cocoa processors, or buy and sell speculatively in the futures markets. One trader, Anthony Ward, heads a company called Armajaro that was reported to have bought 150,000 to 200,000 tons of cocoa during the summer — more than 5 percent of global production — just before the price soared, to produce a $90 million gain.

Among fellow traders, Mr. Ward's exploits won him the nickname Chocolate Finger, the name of a British confection as well as a pun on the James Bond character Goldfinger. Mr. Ward could not be reached for comment, but in an interview with The Independent newspaper, he attributed high cocoa prices to "market fundamentals" after two years of production shortages.

More fortunes were made and lost over the last two weeks. After cocoa soared to a 17-year high of $2,405 a ton on Oct. 11, reports of an Ivoirian truce sent prices tumbling. In trading here today, cocoa settled at £1,309, or $2,040. Prices in London mean little to Mr. Kabore, and news arrives with a long lag time. "I've heard that prices of commodities are going up," he said. "But now, when we could take advantage of it, we are blocked by a war that is none of our business."

Even before the fighting expanded, the growers were in trouble. Under pressure from the World Bank and the International Monetary Fund, Ivory Coast freed up its cocoa market in 1999, abandoning fixed prices in favor of those set by the market. The result is that the cocoa farmers have been persistently underpaid, according to the 42-nation International Cocoa Organization in London.

"Ivory Coast's mostly illiterate farmers are ill equipped to negotiate with hard-bargaining commodity buyers," the group concluded in a report in 2000. A European cocoa industry executive added, "It is somewhat ironic that while European and American agriculture is protected, we should argue to developing countries that they should be fully exposed to the vagaries of the market."

In the meantime, the fighting in Ivory Coast has interrupted a global campaign against child labor abuses in the region. According to the United States Labor Department, some 284,000 child laborers in West Africa — 200,000 of them in Ivory Coast — work in hazardous conditions in the cocoa business. Last year, this began to raise the same kind of protests among advocacy groups that have dogged other industries linked to low-cost third world operations.

The chocolate industry says that the use of child labor is part of longstanding local tradition that the advocates have distorted for their own ends. "This was presented as slavery, but it was just the normal practice of families using children to run the family freeholding," said Franí§ois-Xavier Perroud, a spokesman for Nestlé in Switzerland.

Nonetheless, the industry has signed onto a project put together by the International Labor Organization, a United Nations specialized agency, aimed at allowing chocolate makers to certify by 2005 that their products are free of abusive child labor. The participants include candy companies like the Hershey Foods Corporation, Mars and Nestlé; food processors like Archer Daniels Midland and Barry Callebaut; and various nongovernmental organizations.

As a first step, the I.L.O. undertook a $6 million effort to chart and begin to eliminate child labor abuses, but withdrew its aid workers as reports began filtering back to Abidjan, the principal Ivoirian city, of bloody fighting in the cocoa-growing belt to the north and west. Eventually, the I.L.O. project will seek to persuade farmers to send younger children to school while ensuring that older children are not exposed to such hazards as handling pesticides or using machetes to clear the underbrush on cocoa plantations.

But child labor is not the bottom-line issue confronting the chocolate business. For two years, the consumption of cocoa has outpaced production and the forecasts for the coming year are for a third deficit, worsened by Ivory Coast's problems during the harvesting season.

Even before the fighting, the industry was slow to react to the supply-and-demand trend. "The industry, the users, didn't really believe that the cocoa market was going up and waited a long time" before realizing that prices were likely to climb, said Jean-Michel Boehm, a cocoa analyst with ABN Amro in London. "They did not take cover."

As a result, grinders who buy the raw beans and turn it into cocoa powder and cocoa butter are caught on both sides. Raw material prices are high, but the candy makers they supply will not pay more for semifinished products. Some smaller grinders, particularly in Asia, have closed plants over the last year, and big chocolate producers like Nestlé say they plan to leave the cocoa-grinding business.

To some extent, candy makers are cushioned by the nature of their finished product. Compared with the cost of packaging, marketing and other ingredients, cocoa sometimes represents a modest fraction of the overall cost of a candy bar, said Susan Smith, a spokeswoman for the United States Chocolate Manufacturers Association.

Moreover, the most sophisticated food companies rarely let themselves be surprised by shifts in prices in the commodities markets. For example, "Hershey is a very active and very efficient hedger of cocoa," said Leonard Teitelbaum, an analyst with Merrill Lynch in New York. "Cocoa is only one of their commodities. Milk is substantially down in price."

Even so, candy makers feel something of a squeeze as well, with big retail outlets unwilling to countenance price increases on individual chocolate bars. We are working on tighter margins than we used to," said David Zimmer, secretary general of Caobisco, the European candy makers' association.

Half a world away, the concerns are more vivid. We hold the cocoa economy in our hands," Mr. Kabore said, referring to growers like himself from Burkina Faso and Mali. Yet now, "we are forced to live like rats, hidden away in our homes."

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