* Government mulling changes to import tariff as industry
* Cutting import duty may halt gains in Indonesian cocoa
* Farmers resisting duty cuts, fearing hits to profits
By Michael Taylor and Yayat Supriatna
JAKARTA, April 8 Indonesia's cocoa grinding
industry - which includes firms such as Cargill and
Barry Callebaut - is squaring off against farmers over
import duties, the outcome of which could shake up the market
for the chocolate-making ingredient.
Cocoa bean production in the world's third-largest producer
is set to hit the lowest in more than a decade this year at
410,000 tonnes - far behind soaring grinding capacity of 600,000
With Indonesia's cocoa bean imports forecast to jump nearly
300 percent to 150,000 tonnes this year, a major grinder group
and government officials want to scrap or cut the 5 percent
import duty to give the processing industries easier access to
the beans they desperately need.
If the Southeast Asian nation agrees, it could make farmers
curtail their growing of cocoa and switch to other crops. That
would curb global availability of cocoa - already forecast to
post a second straight annual deficit for 2013/14 - and boost
futures prices that are hovering near two-and-a-half-year highs.
With presidential elections due in July and farmers
constituting a significant voting bloc in Indonesia, an
immediate decision is seen as unlikely, even though some key
ministries have voiced their support for a cut in the duties.
The duty cut could lead to a flood of cheap imports that
would hurt Indonesian cocoa farmers' profits and hinder
much-needed gains in output, traders and analysts say.
Vanessa Tan, an investment analyst at Phillip Futures in
Singapore, said how much the farmers would be impacted would
depend on bean prices in the local and global markets.
"If there is a large difference then local farmers won't be
able to compete and will suffer. If we get to the point where
farmers see it as more profitable to plant something else
instead, then you will see less supply," Tan said.
A big Asia-based cocoa buyer said imports from the top two
producers Ivory Coast and Ghana cost 10 percent less than
Indonesian beans due to their superior quality and lower
Farmers will find it hard to raise production above 425,000
tonnes next year if the import tariff is scrapped, said Zulhefi
Sikumbang, chairman of the Indonesia Cocoa Association, which
mostly represents exporters and traders.
"If the government scraps the cocoa bean import duty, cocoa
grinders will be the winners and farmers will be the losers,"
CRAVING FOR CHOCOLATE
As wealth levels increase in Asia, demand for chocolate has
flourished and contributed to an expected second consecutive
global cocoa deficit for 2013/14, International Cocoa
Organization data shows.
The global supply-demand outlook has boosted cocoa futures
, which hit a 2-1/2 year high of $3,039 a tonne in March.
The prospect of increased import demand from Indonesia if it
cuts the duty may support prices further, say analysts.
Firms such as Cargill, world No.1 chocolate maker Barry
Callebaut, JB Cocoa and PT Bumitangerang Mesindotama have made
multi-million dollar grinding investments in Indonesia, looking
to feed a growing regional appetite for chocolate.
Despite the government spending more than $350 million to
increase output, Indonesian cocoa farmers have struggled to
contain increased crop diseases such as cocoa pod borer and many
have switched to crops such as palm that are easier to care for.
Concerns over soaring grinder capacity and lagging
production are now rife, with the country's deputy trade
minister making the case for a lowering of the import duty in
September, and the Indonesian Cocoa Industries Association also
pushing for a total scrapping last week.
But with politicians keen to highlight their nationalistic
credentials in the upcoming elections, observers say it is
unlikely that the government will make any decision on the cocoa
import tariff before votes are cast.
"We have to do in-depth study on this before deciding, to
avoid the wrong decision," Gamal Nasir, director general of
plantation at the agriculture ministry, said earlier this month.
"If we make a wrong decision, farmers will be the victims."
(Editing by Muralikumar Anantharaman)