A move by Cote d’Ivoire’s Laurent Gbagbo to take the cocoa sector into state hands triggered an alarm on Tuesday, as industry officials feared a huge financial hit if it meant their stocks in the country would be seized.
Exporters said they were seeking urgent clarification on whether a late-night decree issued on Monday covered 475,000 tonnes of unexported beans in storage since a power struggle strangled supplies from the world’s top grower.
“If it doesn’t affect our existing stocks, it could be less dramatic. But if it does, it is a catastrophe,” said one Ivorian sector source, who like others, declined to be named on security and commercial grounds.
At market prices that have been pushed to near 32-year highs , stocks of Ivorian beans held in deteriorating conditions in warehouses around the main ports and elsewhere are worth some $1.8 billion. They account for over a third of the annual crop.
The Ivorian cocoa sector has been paralysed by international sanctions and the aftermath of a disputed November election that has killed hundreds and brought it to the brink of a civil war. Gbagbo has defied calls to step down after U.N.-certified results showed him as the poll loser.
Monday’s decree appeared to be a bid to maintain a grip on his government’s main source of revenues, needed to pay army and public sector wages. But industry players said the near-collapse of the local banking system and the logistical demands involved in bringing beans to world buyers could thwart Gbagbo’s aim of installing the state as sole purchaser and exporter of the crop.
“The problem is, how are they going to pay the farmers for the cocoa given that the country has barely any banks or money left?” asked an Ivorian sector source, who like others contacted, declined to be. One option would be for Gbagbo to hand out “IOU” notes to farmers instead of cash payments – a risky move that could severely hit his popularity if the loans were not paid back.
Quality concerns grow
A second industry source questioned how the state would handle the transport, conditioning, and storage of beans even before they were made ready for export.
“From afar, it all looks easy. But there is a huge machine behind each kilo of cocoa that comes to port. Does the government have the time, the means, and the manpower to do all that in the time required?”
Under the decree read out on state TV late on Monday, the state would purchase beans from farmers at a set price and would then seek to get it to world markets, replacing the role of exporters who have widely followed a call by rival presidential claimant, Alassane Ouattara, to suspend supplies.
“The export of products in the coffee and cocoa sector are to be carried out by the state, by those mandated by the state, or holders of an exporter’s licence under terms determined by the decree,” state television said.
Ouattara’s camp warned that any exporter cooperating with Gbagbo would lose their licence on the arrival of any Ouattara government to power.
“He (Gbagbo) is obviously in a difficult position, he’s certainly upping the ante,” said Jonathan Parkman, joint head of agriculture at Marex Financial.
“He’s putting pressure on the exporters … They’re between a rock and a hard place. The stakes are higher, given the risk that the unexported beans will deteriorate the longer they are left in storage. The stores are not sufficiently aired to keep the beans there for weeks on end – it’s okay for 10 days at most and we have been storing since January 15-20. Quality is becoming an issue, and that is our main concern,” said the second source.
Ultimately, even if Gbagbo manages to overcome all those challenges, the question remains as to who will buy from him. Western governments have put pressure on multinationals to avoid any trade that could fund Gbagbo.
Analysts estimate the Chinese and Russian markets for cocoa products account for barely 50,000 tonnes a year each.
“It’s not like the old days when the Russian government bought all the cocoa and then allocated it to various factories,” said another sector source. “Gbagbo won’t be able to sell it, as none of the multinationals can touch it.”
