C O N F I D E N T I A L SECTION 01 OF 02 ABIDJAN 001347

SIPDIS

SIPDIS

STATE PASS TO USTR

E.O. 12958: DECL: 12/01/2016
TAGS: EAGR ECON AID PREL IV
SUBJECT: COCOA STRIKE ENDS WITH HARDLY A WHIMPER,
UNDERSCORING OPAQUE NATURE OF THE SECTOR

REF: ABIDJAN 1167

Classified By: Econ Chief EMassinga, Reasons 1.4 (b,d)


1. (C) Summary. The strike in the cocoa sector has come to
a quiet, almost stealthy end although most of the putative
demands made by strikers remain unaddressed. The harvest is
proceeding, and a good crop is expected. According to
industry observers, the government was essentially able to
buy off the strikers, and cooperative executives never truly
intended to push for reforms to benefit farmers. Prices paid
to farmers remain very low, reflecting effective governmental
control over the ostensibly farmer-run bodies that set the
prices. The industry effectively remains a cash cow for the
government and some of its supporters. End Summary.


2. (SBU) In early November, the press reported that cocoa
cooperatives had lifted their strike order after several
weeks (reftel). After the government's announcement that it
would 'loan' the striking cooperatives $20 million, things
quieted down considerably, even though the negotiators had
yet to work out the main issue, i.e., the cocoa purchasing
board's (BCC) offer of CFA 400/kg, which has effectively
stood firm. Since the early November reports of the
suspension of the strike and the granting of the loan to the
cooperatives, the 2006-2007 cocoa campaign has proceeded
normally. Industry experts are predicting a good harvest,
and world prices have remained stable despite brief supply
disruption in the world's largest producer (approximately
40%). There have been no reports in the press on the
grievances of farmers or cooperatives, with the exception of
back page articles detailing squabbling among cooperatives
over use of the loan along with more recent complaints that
the money has not, in fact, been received. But for all
intents and purposes, the strike is over even though the
issues that motivated farmers to action are unaddressed.


3. (C) What happened? Multinational cocoa purchasing
company executives and senio

r representatives of NGOs working
with cocoa farmers are unsurprised at the turn of events
(strictly protect). Local Cargill and ADM representatives,
as well as senior local representatives from the USG-funded
NGOs, Sustainable Tree Crops Program and Winrock
International, all commented to Econ Chief in separate
conversations that the principal aim of the main striking
cooperative, ANAPROCI, had always been to receive
governmental assistance to develop its internal
organizational machinery (hiring cadres, purchasing
equipment, office supplies, etc), and that demands related to
the price of cocoa paid to farmers showed up in later demands
circulated closer to the eve of the strike announcement.
These industry and NGO sources confirm privately that once
the private interests of the cooperatives' chiefs were
addressed, the main impetus behind the strike faded.
Additionally, each opined that the loan was in effect a
bribe, and was never expected to be repaid.


4. (SBU) In describing the turn of events to Econ Chief,
sources indicated the structure of the industry, subsequent
to its liberalization in 1998-99, makes it vulnerable to
governmental manipulation of its revenues. Cocoa generates
over $2.0 billion annually in exports, second (for the first
time ever accoring to the WB and IMF) only to oil and gas,
with projected revenues of $3.0 billion for the first time in

2006. From the world price for cocoa of approximately 800
CFA/kg (492 CFA = USD 1), farmers receive a little over 200
CFA/kgbefore they have to pay for inputs such as fungicides
and fertilizers. This contrasts sharply with the
approximately 650 CFA/kg Ghanaian farmers receive, a
discrepancy that accounts for the significant level of
illegal smuggling of cocoa across the border (reftel).


5. (C) The '98 liberalization of the cocoa industry was
designed, in theory, to benefit producers, but has failed in
that aim. The liberalization plan created a brace of cocoa
industry governing bodies that are all ostensibly controlled
by farmers through elections:
The Authority for the Regulation of Coffee and Cocoa (ARCC)
that controls the issuance of export licenses,
The Cocoa and Coffee Exchange (BCC) that sets the field price
middlemen are to pay cooperatives, and
The Cocoa and Coffee Financial Regulator (FRC), the
administrator of the Cocoa and Coffee Development Fund
(FDPCC) and the Prudential Reserve, which invests in rural
electrification, roads, etc. and smoothes out price
fluctuations, respectively.
Given the supposed governance of these structures, the recent

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strike's demand to raise the field price (400 CFA/kg for
2006-2007) as well as reduce the fees (totaling 52 CFA/kg)
paid to support these organizations and funds made, in
theory, no sense. However, industry and NGO executives
unanimously note that the government wields effective control
over the BCC and other cocoa bodies (vice formally controls
them, as erroneously reported in reftel).


6. (SBU) Cooperatives justified their demand for reducing
fees associated with the cocoa governing bodies by recalling
long-standing complaints that money destined for the
Prudential Reserve and FDPCC are not being paid by the
government, despite that farmers are obligated to pay these
fees immediately upon sale of their product to middlemen.
Additionally, the interaction between the BCC, the government
and middlemen is particularly suspect: middlemen (who are
reportedly close to government officials) benefit enormously
by the BCC's decision to keep prices paid in the field low
thus keeping their margins fat when they sell to
multinationals, who are in turn barred from contracting with
farmers and cooperatives directly. Cooperatives play their
role in squeezing farmers; of the 400 CFA/kg they get from
middlemen, they pay the farmers themselves 250 to perhaps 300
CFA/kg. After fees, producers are left with not much more
than 200 CFA/kg. Between 200 and 300 CFA/kg (up to 40% of
the world price) in the form of taxes and registration fees
paid by exporters (multinationals are exempted 94 CFA/kg) go
directly to government coffers.


6. (C) Comment. The cocoa sector is a cash cow for the
government and has played that role for many years, and it
appears that little if anything has changed. The lack of
transparency in the cocoa industry has been a long-standing
concern for the international community; the IMF was unable
to audit the sector in 2003 due to the lack of cooperation on
the part of the government. As mentioned to Econ Chief by
World Bank representatives and others (septel), a similar
lack of transparency plagues the oil and gas sector. In
light of the continuing squeeze on official government
revenues affecting the Ministry of Finance (septel), it
appears likely the President's faction controlling these
quasi-state bodies will not give up the benefits they provide
easily. End Comment.
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