COTE D'IVOIRE: TROUBLED COCOA SECTOR

C O N F I D E N T I A L SECTION 01 OF 02 ABIDJAN 000368

SIPDIS

SIPDIS

E.O. 12958: DECL: 04/05/2016
TAGS: EAGR EIND PGOV IV
SUBJECT: COTE D'IVOIRE: TROUBLED COCOA SECTOR

Classified By: POL/ECON Jim Wojtasiewicz, reasons 1.4 (B) and (D).


1. (C) Summary. Cote d'Ivoire's 2005-2006 cocoa harvest
looks to be up slightly from last year. The share of the
world market price that is going to the farmers is higher
than last year but still only 50 percent. Another 37 percent
goes in taxes and fees to the government and to four cocoa
support and regulatory organizations. Nearly all of the
money being collected from farmers ostensibly to provide
infrastructure and market support instead is disappearing.
Unless investment in the sector picks up, Cote d'Ivoire could
soon lose its place as the world's leading cocoa exporter.
There is no question that corruption in the cocoa sector, and
the corrupt political machine it keeps in motion, are an
enormous drain on this country's economic potential and its
hopes for becoming a prosperous free market democracy. End
Summary.


2. (U) Most of Cote d'Ivoire's cocoa harvest normally takes
place each year from October to March, though small amounts
continue to be harvested after that. In 2005, the harvest
started four weeks early due to exceptionally heavy rains,
which accelerated the growth of the cocoa crop. Uncertainty
about the political situation, as the October 31 date for
presidential elections approached and it became increasingly
clear that the elections would have to be postponed, also
acted as an incentive for farmers to get their cocoa crop in
early.


3. (U) The Cocoa and Coffee Marketing Board (BCC) usually
makes a formal announcement at the beginning of October that
the harvest has begun, and it announces the indicative price
that farmers should expect to receive. This year the
announcement was delayed by two weeks because of protracted
negotiations over the level of the indicative prices, as well
as the level of fees to be collected from farmers for cocoa
support and regulatory organizations. This means that cocoa
was flowing for six weeks before the indicative price was
announced.


4. (SBU) BCC told us that their estimate for the harvest in
the October - March period is 942,000 metric tons, up 3
percent from the previous year but slightly below the
initially anticipated level of one million tons. (Reuters
reported that this year's harvest was 914,000 tons, down 3
percent from last year. The local Reuters correspondent told
us their figure was based on company estimates, and probably
less reliable than BCC's figure.)


5. (SBU) For the full calendar year 2005, BCC told us
production was 1,405,000 metric tons, 6 percent higher than
the previous year. Exports in 2005 were 1,195,000 tons, or
86 percent of production.


6. (SBU) World cocoa prices are expected to average USD 1,720
per metric ton for the 2005-2006 harvest season, 2.5 percent
higher than the previous year. The expected average farm
gate price in Cote d'Ivoire this year is the equivalent of
about USD 866, a 25 percent increase from the previous year
as market conditions shifted somewhat in favor of the farmer.
However, farmers are still only receiving 50 percent of the
world market price this year, up from 41 percent last year,
but still low. Meanwhile, production costs are significantly
higher because of the near total collapse of centrally funded
infrastructure support programs (e.g. to buy fertilizer and
bags).


7. (SBU) This year the government is collecting the
equivalent of USD 526 per ton in export taxes and customs
fees. Another USD 107 per ton is being collected to fund
four parastatal cocoa organizations, bringing total taxes and
fees to 37 percent of the world market price. (With 50
percent of world price going to farmers and 37 percent to the
government and parastatals, the remaining 13 percent goes to
market intermediaries.)


8. (SBU) Among the parastatal organizations, USD 61 per ton
is being collected for the Fund for the Promotion and
Development of Cocoa and Coffee Producers (FDPCC),which is
supposed to be providing infrastructure support, and USD 24
per ton is being collected for the Fund for the Regulation of
Cocoa and Coffee (FRC),which is supposed to be intervening
in the market to stabilize prices.


9. (C) Although the government continues to collect money
from farmers to fund the FDPCC, it is actually passing only
part of this money to the FDPCC. For its part, the FDPCC is
passing almost no money back into the sector for
infrastructure support, because of embezzlement and bad
investments made in the past. The government is similarly
passing along only some of the fees collected for the FRC,
but this money too is disappearing -- the FRC is not
conducting any market support operations.

ABIDJAN 00000368 002 OF 002




10. (C) Besides the FDPCC and the FRC there are two other
parastatal cocoa organizations: the Authority for the
Regulation of Cocoa and Coffee (ARCC),which issues export
licenses, and the BCC (Cocoa and Coffee Marketing Board,
cited above). This year the equivalent of USD 13 per ton is
being collected for the ARCC, and USD 9 per ton for the BCC.
There has been somewhat less controversy surrounding the
operations of these two organizations.


11. (C) Since the farmers are receiving almost none of the
support their fees are supposed to be paying for, in February
they demanded that the government refund the equivalent of
USD 34 million in fees collected over the past few years. In
response, the government in March created a new special
committee with representatives from the ministries of finance
and agriculture as well as from the four parastatals, to
monitor more closely how the fees are being spent.


12. (C) The government remains heavily dependent on cocoa
export taxes. In recent years they have accounted for 20 -
25 percent of revenues, and for 2006 they are expected once
again to account for 20 percent.


13. (C) Comment. President Gbagbo recently warned publicly
that unless investment in the sector picks back up, Cote
d'Ivoire is in danger of losing its place as the world's
leading exporter of cocoa. Our industry contacts tell us
that will not happen this year, but it could happen in the
next few years. Nevertheless, there is no question that
corruption in the cocoa sector, and the corrupt political
machine it keeps in motion, are an enormous drain on this
country's economic potential and its hopes for becoming a
prosperous free market democracy. End Comment.

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