Major cocoa buyers boycott local exporters scheme

July 30, 2015 6:18 AM

We have tacitly decided not to participate in the messaging system handling international contracts for the upcoming 2015/16 season because of that.

Women from a local cocoa farmers association called BLAYEYA lift a sack in a cocoa warehouse in Djangobo, Niable in eastern Ivory Coast, November 17, 2014. REUTERS/Thierry Gouegnon

Major cocoa buyers are boycotting a scheme in Ivory Coast aimed at guaranteeing local firms a share of the lucrative export market, arguing that these players lack the expertise and financing to ensure reliable deliveries.

A 2011 reform of the cocoa sector in Ivory Coast, the world's largest producer, specified that a significant share of the annual crop should be allocated to local companies for export, in a bid to develop the domestic industry.

This season, the Coffee and CocoaCouncil (CCC) regulator awarded contracts to local exporters for the delivery of 150,000 tonnes of cocoa, from an estimated total crop of 1.7 million tonnes.

The CCC uses a messaging system to pair up international firms seeking cocoa with local exporters who handle the shipment. Major international firms present in Ivory Coast include Cargill, Singapore's Olam, Sucden and Barry Callebaut.

The boycott could leave the CCC holding several thousands tonnes of unsold cocoa beans at the start of the 2015/2016 cocoa season.

"We know all the local exporters and we know that they are not able to buy and export the beans on a deadline," said a director at one of the main international exporters. He said that the process for awarding the contracts to local firms was opaque and mired in favouritism.

"We have tacitly decided not to participate in the messaging system handling international contracts for the upcoming 2015/16 season because of that," he said, asking not to be identified.

The CCC was not immediately available to comment.

Another director at a major export company told Reuters that they wanted the regulator to return to a previous arrangement under which international companies had a greater say in who handled their shipments.

Meanwhile, a group of six local exporters is lobbying the government to increase the total amount of beans allocated to them for export to 200,000 tonnes.

The CCC already provides local exporters with tax breaks and other incentives to increase capacity and boost their expertise.

Victoria Crandall, an analyst with pan-African lender Ecobank, said the initiative could expose the CCC to legal risks if shipment quality was sacrificed and that it was an ineffective use of subsidies.

She said many cocoa purchasers were not interested in the contracts due to counterparty risks, with traders complaining that the contracts were not awarded on the basis of logistical or financing competence.

"Unless there is a significant discount on these contracts ... interest will remain low," she added.