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October 17, 2011

Ivorian cocoa reform to impose buy quotas for exporters

by Ange Aboa

Planned reforms to Ivory Coast's cocoa sector will impose quarterly quotas on
exporters' purchases to prevent big players from using their dominant position to manipulate the market, according to the latest draft obtained by Reuters on October 14.

The reforms in the world's top grower, which supplies 40 percent of the world market, will also scrap individually negotiated tax breaks to some exporters with local grinding capacity. The export tax is 14.6 percent, but some exporters who grind beans into semi-finished cocoa products locally managed to negotiate a discount, which will now be removed.And it will require exporters to pay a 10 percent deposit on all cocoa purchases from the state, the document from the agriculture ministry says, though it does not give details on how quotas would be worked out beyond saying they would apply to all exporters.

President Alassane Ouattara's government is attempting to introduce sweeping reforms to the sector with the core aim of guaranteeing its hundreds of thousands of smallholders a minimum selling  price. However, nothing has yet been finalised. Officials involved in
the reform talks say the government hopes to publish a definitive reform  plan by next month before it is adopted. The reform will also need the approval of the World Bank to
enable Ivory Coast to secure much needed debt relief, which was delayed by a violent four-month post-election conflict.

The reforms will effectively end a decade of liberalisation, which critics say left farmers beholden to the whims of international commodity markets, creating uncertainty that discouraged investment in their plantations and left the industry in disarray. Exporters have raised some concerns about the draft plans relating to transport costs and quality controls.

The reforms will guarantee farmers a minimum selling price, bringing the sector more in line with the regulated industry in Ghana, the world's No. 2 grower whose cocoa farming is more efficient and delivers yields per hectare around double those of Ivory Coast.

Farmers will get at least half of the average export price for the season, including insurance and transport costs -- a price the state will establish by selling more than three quarters of the cocoa ahead of time in forward contracts. But it will also place limits each quarter on the amount of cocoa each exporter can buy, according to the document obtained by Reuters on October 14. The limit will be the same for everyone, the document says.

 “To prevent the abuse of dominant positions in the market, an
upper limit will be imposed to licensed exporters," the document says.

Regulatory officials say this will not affect big buyers such as Cargill and Archer Daniels Midland, which will still be able to meet their production needs. It will deter only speculators seeking to buy up cocoa to manipulate the price, they say.

In another section, the draft says tax reforms would "erase the tax advantage currently accorded by the state to cocoa grinders".

Ivorian officials complain that grinders are registering beans for processing to get the tax break but only using some of them, while others are still exported raw.

Exporters will have to pay a 10 percent deposit on forward cocoa orders in order to "guarantee the viability of the system," the document adds. "Each trader will pay the deposit 48 hours in advance," it says.

Ouattara wants reforms in motion as soon as possible. They were temporarily derailed by a violent power struggle between him and former president Laurent Gbagbo over a disputed election last November. They now are seen as the last hurdle to IMF and World Bank debt relief on some $3 billion of obligations.

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