Ivory Coast to scrap grinding subsidy, lift transport support

ABIDJAN Sat Sep 22, 2012 11:29am EDT

ABIDJAN (Reuters) - Ivory Coast will abolish a 20-year-old tax break given to local cocoa grinders when the 2012/13 season starts on October 1, an official with the top grower's marketing board told Reuters on Saturday, in a victory for exporters who don't grind locally.

The move was announced at a board meeting of the Coffee and Cocoa Council (CCC) late on Friday during which the body also decided to increase a key transportation-reimbursement allowance at the heart of a row threatening reform of the sector.

Exporters Cargill, Barry Callebaut, CEMOI and ADM, who process a portion of their cocoa domestically, all benefit from a reduced DUS ("droit unique de sortie") tax - the main cocoa export tax - and stand to lose if the tax break is scrapped.

Rival exporters say the subsidy gives the grinders an unfair advantage and cost Ivory Coast 34 billion CFA francs in 2010. Farmers argue that this lost tax money should have been reinvested in the sector.

"The president of the (CCC) informed the board of directors of the government's decision to totally repeal the fiscal advantage given to cocoa grinders," a board member told Reuters, asking not to be named.

"This decision takes effect starting with the next harvest and should allow everyone to work together on equal footing," he said.

The government introduced tax incentives for local grinders during the 1991/1992 cocoa season to encourage investment in the country, create jobs in the cocoa sector, and increase grinding capacity.

Initially meant to last five years and apply only to exports during the April to September mid-crop, the incentives are now granted year-round and are currently worth about 75 CFA francs per kilogram of cocoa.

In 2010, Ivory Coast became the world's top cocoa grinder with a capacity of 532,000 tonnes, turned mainly into cocoa butter and powder.

As part of a sweeping reform of the cocoa sector, the government is aiming to locally grind half of its cocoa bean production by 2015. Currently around 35 percent of beans are processed locally.

Cocoa grinders have however said the incentives do not give them any special advantage and that removing them could hurt the local grinding industry and even push some to move plants to neighbouring Ghana, the world's second-biggest producer after Ivory Coast.

TRANSPORT COSTS

The new cocoa season opens next month under a government-led scheme that uses the proceeds from forward-selling of the crop to guarantee prices for farmers and encourage them to reinvest in their plantations.

The Coffee and Cocoa Council (CCC) is due within days to set a farmgate price, as well as a scale of cost reimbursement for exporters, including handling costs incurred to get the beans from farm to port.

But exporter and merchant groups have said that if the anticipated transportation and collection cost allowances are not increased, they will ignore the government's farmgate price.

The CCC has now informally suggested an increased allowance of 70 CFA francs per kg, but exporters have demanded an increase to 94.2 francs.

"The transport and collection cost...was raised from 70 francs to 80 francs," the CCC official said.

"The board of directors decided on this increase to avoid a blockage in October...This is the maximum we can do for them."