258. Information Memorandum From the Assistant Secretary of State for Economic Affairs (Johnson) to the Under Secretary of State for Economic Affairs (Mann)1
SUBJECT
- The Cocoa Situation
Cocoa is currently selling at 17 cents, which is a 19-year low. The prospect is for some further price decline. Production this year is about 20 percent higher than last year’s record crop, and almost 70 percent higher than the 1955–59 average. Manufacturers’ stock—already high—are likely to reach 8 months’ supply by the end of this crop year. Present low prices will stimulate consumption after a 6–9 month time lag, but it will be some years before demand begins to balance prospective supply. The situation of the cocoa producers (Ghana, Nigeria, Brazil, Ivory Coast, Cameroon), therefore, may be described as bad, and likely to get worse. Despite this, several of them are expanding cocoa plantings.
Since World War II cocoa prices have fluctuated widely. A poor crop in 1953–54 sent prices to 73 cents a lb. When prices plunged thereafter to 30 cents, there was pressure from the Africans and some Western European consumers to organize the market. The FAO created a Cocoa Study Group in 1956, and by 1962 a draft cocoa agreement emerged which seemed to provide an acceptable basis for negotiation. A UN negotiating conference was held in 1963. After seven weeks it collapsed, primarily on the price issue. The producers wanted an international cocoa agreement which would raise prices above the then current level of 25–26 cents. They asked for a price range of 31.25 to 43.75 cents. The consumers advocated a price range of 18 to 28 cents, and the gap was so wide it could not be bridged. The price ideas of the United States were the lowest of any consuming country throughout the negotiation. The U.S. Delegate was never authorized to go above 21 cents as the point at which export quotas would be mandatory, and 20 cents was our last public offer to the producers.
With the collapse of the Conference in 1963, the producers joined forces and their Cocoa Producers Alliance initiated a quota-type agreement in July 1964. Dissatisfied with prices of about 23ȼ, they announced 25.25ȼ as their target and withdrew from the market on October 15, 1964. Dealers and manufacturers were surprised and worried at the strength displayed by the Alliance as they continued withdrawn and supplies began tightening. Finally, however, non-compliance with the Agreement by the Ivory Coast and Cameroon (and questionable actions by Ghana) brought the Agreement down, and it collapsed on February 1, 1965. A race to sell cocoa ensued, and prices plunged to today’s level of 17ȼ. The three nearby months on the futures market are even lower, averaging less than 16ȼ for African cocoa. Brazilian cocoa normally sells somewhat lower than African. Although cocoa only provides around 5 percent of Brazil’s foreign exchange earnings, the impact of sharply lower prices will be felt in one state—Bahia.
The cocoa merchants, chocolate manufacturers, and confectionery industry in the United States have always strongly opposed an international cocoa agreement as an unwarranted restriction on free trade. Prior to the negotiating conference in 1963, they pooled funds and hired Clark Clifford’s [Page 671] firm to lobby in Washington against an international agreement. The present chaotic market and disaster prices have not changed their view—it can be anticipated that they will organize again and fight United States participation in an international cocoa agreement.2
At the time the 1963 negotiating conference broke up, provision was made for the Secretary-General to keep under review any further discussions which might make it desirable to resume the negotiating conference. Later, in June 1964, the FAO Director-General was instructed by the Committee on Commodity Problems to explore attitudes toward new discussions. The FAO in February 1965 found wide agreement among producing countries to a proposal that consultations be arranged at the time of (but outside) a meeting of the FAO Cocoa Statistical Committee. Consumer governments unanimously believed this was desirable, or unavoidable, and agreed to send representatives. Accordingly, a meeting has been scheduled for April 12–14.
The U.S. representative, all concerned have been informed, will be unable to enter into commitments regarding substance or procedure but will report what may be proposed.3
- Source: Department of State, EB/ICD/TRP Files: Lot 78 D 52, Cocoa—Resumption of Negotiations. Limited Official Use. Drafted by Paul E. Callanan (E/OR) and cleared by George R. Jacobs (OR) and Jerome Jacobson (E). A handwritten note on the source text indicates that Mann saw the memorandum. Three attached charts (“Cocoa Beans: 1963 Imports by Major Consuming Countries,” “Cocoa Producer Alliance: Value of Exports of Cocoa Beans and Products by Member Countries, 1958–63,” and “Importance of Cocoa to Developing Countries”) are not printed.↩
- This paragraph contains several handwritten emendations: brackets around “hired Clark Clifford’s firm to”; “lobby” changed to “lobbied”; “It is doubtful that” inserted as a new start to the next sentence; in which “not” has been bracketed; and brackets around the last sentence in the paragraph.↩
- Handwritten brackets have been inserted at the beginning and end of this paragraph.↩