September 12, 2008 / 1:34 PM / 11 years ago

Ivory Coast cocoa sector faces season in turmoil

ABIDJAN (Reuters) - Corruption scandals, strikes and power struggles that have rocked Ivory Coast’s cocoa sector before a new harvest and upcoming elections could rattle markets if they persist.

An Ivory Coast soldier stands near cocoa nuts on at a cocoa field in the village of Tanokro in Tiassale, about 150 km (93 miles) from Abidjan, September 6, 2008. REUTERS/Luc Gnago

But analysts expect the world’s biggest cocoa grower, which has kept on producing big harvests despite a brief 2002/2003 civil war and long-running political crisis, will still get its beans to market despite the turmoil.

“If it goes on for longer than six to eight weeks, you would have an issue on your hands which could affect the price of cocoa on the markets,” Jonathan Parkman, Head of Agri Commodity Brokerage at Fortis Commodity Derivatives, told Reuters.

Cocoa export volumes in the West African nation are low, with just 7,000 metric tons arriving at ports last week. But this will quickly rise as the new 2008/2009 harvest gets under way on October 1. Fortis sees exports in November hitting 280,000 metric tons.

“If there are problems, yes, the market will be nervous ... but the cocoa will find its way out,” Parkman said. He suggested that if the Ivorian export sector was blocked, farmers might sell cocoa through neighboring Ghana or nearby Togo.

Ivory Coast’s 2002/2003 war split the country between a rebel-held north and government-controlled south, but the long-running political crisis did not stop cocoa exports.

A strike this month over unpaid salaries by employees in the Coffee and Cocoa Bourse (BCC) has disrupted export registration.

Moving to tackle the chaos, the Ivorian government announced plans on Thursday to overhaul the sector by replacing its five main administrative bodies with a single temporary organization, ahead of an intended longer-term reform.

“The war didn’t stop the cocoa so it is unlikely a strike will. The strike has put enough pressure on the authorities to force a decision,” one analyst in Ivory Coast, who asked not to be named, said.

The finances of the Ivorian cocoa industry have long been murky but the current crisis was sparked by the arrests of senior cocoa administrators in June on charges of embezzlement.

“Political interference and corruption are long standing problems ... The situation at the moment is very confusing and significant steps to increase transparency should be taken as soon as possible,” said Maria Lopez of anti-corruption campaign group Global Witness which has studied the Ivorian industry.

ELECTION DOUBTS, DISEASE FEARS

But after several past promises of change, many view the government’s latest reform moves with some skepticism.

“People have been talking about reform for years,” said the analyst. “They can maybe appoint a provisional administrator but they cannot decide today to set up a structure and expect it to be up and running by October 1.”

The organizations being replaced levied heavy taxes on cocoa that were meant to be reinvested in the sector. Instead, vast amounts of money disappeared, eventually leading to the arrests.

“We were waiting for the government to restore some order in the sector, especially as we are coming to the new season ... but let’s see if this will really change something,” said the director of a European exporting company.

The World Bank has tied future aid to cocoa sector reform, which it views as central to revitalizing what was once the West African region’s most robust economy.

But long-term overhaul of an industry that accounts for 40 percent of export income also hinges on the outcome of long-awaited presidential elections, which are meant to finally draw a line under Ivory Coast’s political crisis.

The polls are due on November 30 but preparations are far behind schedule and election experts say a further delay is inevitable.

Analysts question how the cocoa sector can be cleaned up amid the continuing political uncertainty.

Adding to concerns, Ivorian exporters have warned that black pod disease will lead to the 2008/09 main crop coming in 6-8 percent down on last year’s production of 1.05 million metric tons.

“The next couple of years are crucial,” said Fortis’ Parkman. “If for whatever reason they don’t plough money back into increasing production, the market will face problems”.

Additional reporting by Ange Aboa; Editing by Pascal Fletcher and Michael Roddy

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