Cocoa deal fuels hedge-fund debate

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Credit: Francesco Marino

Armajaro took delivery of 240,100 tonnes of cocoa last week, according to media reports, worth close to a billion dollars.

That constitutes the biggest amount of cocoa, a key ingredient of chocolate, in 14 years to be physically delivered on the NYSE Liffe market.

The huge pile represents around 15% of global stocks and 25% of estimated European stocks, according to the International Cocoa Organisation.

Soaring cocoa price

The purchase is the main reason why cocoa bean prices have hit a 33-year high, experts say, while stressing that the deal was perfectly legitimate.

Armajaro, whose co-founder Anthony Ward has now been nicknamed "Choc Finger" in the British press, is expected to end up big winners from the deal by buying low and selling high.

Specialist agricultural commodity publication The Public Ledger reported Tuesday that Barry Callebaut, the world's largest chocolate wholesale manufacturer, has bought around 100,000 tonnes of the cocoa Armajaro has taken.

Armajaro declined to comment when contacted by AFP.

This kind of deal is made possible by the particular character of the London cocoa market, according to expert Kona Haque of the bank Macquarie.

"The London cocoa market is fairly illiquid ... it's also not that transparent," said Haque. "Cocoa is actually one of the few markets where you can do this sort of trade."

Knock-on effect

But it has been sharply criticised by some development campaigners for the potential effect on developing countries.

The world's biggest producer of cocoa is Ivory Coast and 75% of the globe's cocoa is grown in west Africa, according to the International Cocoa Initiative.

The London-based World Development Movement said the deal was "designed to make millions for the hedge fund but losses for people in the UK who are partial to a Twix (a popular chocolate bar) or farmers in developing countries who are finding it impossible to plan what to grow when the prices are rising and falling like a yo-yo."

Source: AFP