VZCZCXRO4257
RR RUEHPA
DE RUEHAB #0368/01 0961051
ZNY CCCCC ZZH
R 061051Z APR 06
FM AMEMBASSY ABIDJAN
TO RUEHC/SECSTATE WASHDC 1175
INFO RUEHZK/ECOWAS COLLECTIVE

C O N F I D E N T I A L SECTION 01 OF 02 ABIDJAN 000368 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 04/05/2016 
TAGS: EAGR EIND PGOV IV
SUBJECT: COTE D'IVOIRE: TROUBLED COCOA SECTOR 
 
Classified By: POL/ECON Jim Wojtasiewicz, reasons 1.4 (B) and (D). 
 
¶1. (C) Summary.  Cote d'Ivoire's 2005-2006 cocoa harvest 
looks to be up slightly from last year.  The share of the 
world market price that is going to the farmers is higher 
than last year but still only 50 percent.  Another 37 percent 
goes in taxes and fees to the government and to four cocoa 
support and regulatory organizations.  Nearly all of the 
money being collected from farmers ostensibly to provide 
infrastructure and market support instead is disappearing. 
Unless investment in the sector picks up, Cote d'Ivoire could 
soon lose its place as the world's leading cocoa exporter. 
There is no question that corruption in the cocoa sector, and 
the corrupt political machine it keeps in motion, are an 
enormous drain on this country's economic potential and its 
hopes for becoming a prosperous free market democracy.  End 
Summary. 
 
¶2. (U) Most of Cote d'Ivoire's cocoa harvest normally takes 
place each year from October to March, though small amounts 
continue to be harvested after that.  In 2005, the harvest 
started four weeks early due to exceptionally heavy rains, 
which accelerated the growth of the cocoa crop.  Uncertainty 
about the political situation, as the October 31 date for 
presidential elections approached and it became increasingly 
clear that the elections would have to be postponed, also 
acted as an incentive for farmers to get their cocoa crop in 
early. 
 
¶3. (U) The Cocoa and Coffee Marketing Board (BCC) usually 
makes a formal announcement at the beginning of October that 
the harvest has begun, and it announces the indicative price 
that farmers should expect to receive.  This year the 
announcement was delayed by two weeks because of protracted 
negotiations over the level of the indicative prices, as well 
as the level of fees to be collected from farmers for cocoa 
support and regulatory organizations.  This means that cocoa 
was flowing for six weeks before the indicative price was 
announced. 
 
¶4. (SBU) BCC told us that their estimate for the harvest in 
the October - March period is 942,000 metric tons, up 3 
percent from the previous year but slightly below the 
initially anticipated level of one million tons.  (Reuters 
reported that this year's harvest was 914,000 tons, down 3 
percent from last year.  The local Reuters correspondent told 
us their figure was based on company estimates, and probably 
less reliable than BCC's figure.) 
 
¶5.  (SBU) For the full calendar year 2005, BCC told us 
production was 1,405,000 metric tons, 6 percent higher than 
the previous year.  Exports in 2005 were 1,195,000 tons, or 
86 percent of production. 
 
¶6. (SBU) World cocoa prices are expected to average USD 1,720 
per metric ton for the 2005-2006 harvest season, 2.5 percent 
higher than the previous year.  The expected average farm 
gate price in Cote d'Ivoire this year is the equivalent of 
about USD 866, a 25 percent increase from the previous year 
as market conditions shifted somewhat in favor of the farmer. 
 However, farmers are still only receiving 50 percent of the 
world market price this year, up from 41 percent last year, 
but still low.  Meanwhile, production costs are significantly 
higher because of the near total collapse of centrally funded 
infrastructure support programs (e.g. to buy fertilizer and 
bags). 
 
¶7. (SBU) This year the government is collecting the 
equivalent of USD 526 per ton in export taxes and customs 
fees.  Another USD 107 per ton is being collected to fund 
four parastatal cocoa organizations, bringing total taxes and 
fees to 37 percent of the world market price.  (With 50 
percent of world price going to farmers and 37 percent to the 
government and parastatals, the remaining 13 percent goes to 
market intermediaries.) 
 
¶8. (SBU) Among the parastatal organizations, USD 61 per ton 
is being collected for the Fund for the Promotion and 
Development of Cocoa and Coffee Producers (FDPCC), which is 
supposed to be providing infrastructure support, and USD 24 
per ton is being collected for the Fund for the Regulation of 
Cocoa and Coffee (FRC), which is supposed to be intervening 
in the market to stabilize prices. 
 
¶9. (C) Although the government continues to collect money 
from farmers to fund the FDPCC, it is actually passing only 
part of this money to the FDPCC.  For its part, the FDPCC is 
passing almost no money back into the sector for 
infrastructure support, because of embezzlement and bad 
investments made in the past.  The government is similarly 
passing along only some of the fees collected for the FRC, 
but this money too is disappearing -- the FRC is not 
conducting any market support operations. 
 
ABIDJAN 00000368  002 OF 002 
 
 
 
¶10. (C) Besides the FDPCC and the FRC there are two other 
parastatal cocoa organizations: the Authority for the 
Regulation of Cocoa and Coffee (ARCC), which issues export 
licenses, and the BCC (Cocoa and Coffee Marketing Board, 
cited above).  This year the equivalent of USD 13 per ton is 
being collected for the ARCC, and USD 9 per ton for the BCC. 
There has been somewhat less controversy surrounding the 
operations of these two organizations. 
 
¶11. (C) Since the farmers are receiving almost none of the 
support their fees are supposed to be paying for, in February 
they demanded that the government refund the equivalent of 
USD 34 million in fees collected over the past few years.  In 
response, the government in March created a new special 
committee with representatives from the ministries of finance 
and agriculture as well as from the four parastatals, to 
monitor more closely how the fees are being spent. 
 
¶12. (C) The government remains heavily dependent on cocoa 
export taxes.  In recent years they have accounted for 20 - 
25 percent of revenues, and for 2006 they are expected once 
again to account for 20 percent. 
 
¶13. (C) Comment.  President Gbagbo recently warned publicly 
that unless investment in the sector picks back up, Cote 
d'Ivoire is in danger of losing its place as the world's 
leading exporter of cocoa.  Our industry contacts tell us 
that will not happen this year, but it could happen in the 
next few years.  Nevertheless, there is no question that 
corruption in the cocoa sector, and the corrupt political 
machine it keeps in motion, are an enormous drain on this 
country's economic potential and its hopes for becoming a 
prosperous free market democracy.  End Comment. 
 
Hooks