March 27, 2015 / 5:58 PM / 3 years ago

Big cocoa mergers pose risk to farmers and sector, growers say

* Last years have seen spate of mergers and acquisitions

* Farmers worry deals will reduce their bargaining power

* Resulting lower farmer prices could lead growers to quit cocoa

By Joe Bavier

ABIDJAN, March 27 (Reuters) - A spate of corporate mergers between major cocoa and chocolate players risks reducing farmers’ choices and bargaining power, lowering incomes to levels that could threaten the sector’s future, growers and campaigners said on Friday.

Mergers, either completed or under way, in recent years include the fusion of Cadbury and Mondelez, Archer Daniels Midland’s sale of its chocolate arm to Cargill and its cocoa business to Olam International.

Swiss agricultural commodities trader Ecom Agroindustrial Corp is also purchasing Britain’s Armajaro Holdings’ coffee and cocoa trading arm, and Barry Callebaut AG bought Petra Food’s cocoa ingredients business.

“We could face a kind of monopolistic situation that would have an impact on the farmgate price,” Edmond Konan, executive secretary of the World Cocoa Producer Association (WCPA), said on the sidelines of an International Cocoa Organization meeting.

The WCPA, which represents farmers from nine cocoa producing nations, was recently created to lobby for the interests of growers and represent them in dialogue with the industry.

In expanding their businesses, Konan said companies needed to ensure they benefited the entire cocoa supply chain, particularly farmers.

“They need to bear this in mind, because if farmers are not making money, they will do something else. They will cut down their cocoa trees and plant other commodities,” he told Reuters.

PROTECTING FARMERS’ INTERESTS

Olam buys around 500,000 tonnes of cocoa annually, and it said it will increase its processing capacity to more than 700,000 tonnes, or 16 percent of world supply, with its acquisition of ADM’s cocoa business.

The deal will allow Olam to compete better with industry leaders Barry Callebaut and Cargill.

However, Antonie Fountain, the managing director of the Voice Network -- a group that campaigns to improve the lives of farmers -- said such market concentration will decrease farmers’ already weak bargaining power.

“The fact that you have fewer global players dictating the game of supply and demand that the commodities markets depend on means you can be sure that farmers’ interests are going to be less served by such a price-setting mechanism,” he said.

Fountain called upon governments to scrutinise mergers under competition law and potentially take action to ensure companies do not develop dominant positions at home that could hurt farmers in other countries.

“In the corporate field, it makes sense to try to expand your activities and absorb your competitors,” ICCO executive director Jean-Marc Anga told Reuters. “Whether this is the right approach in the interest of the farmer remains to be seen.”

Reporting by Joe Bavier, editing by David Evans

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