P 220640Z OCT 09
FM AMEMBASSY ABIDJAN
TO SECSTATE WASHDC PRIORITY 5468
INFO ECOWAS COLLECTIVE PRIORITY
DEPT OF TREASURY WASHDC PRIORITY
DEPT OF AGRICULTURE WASHDC PRIORITY

C O N F I D E N T I A L ABIDJAN 000618 
 
 
E.O. 12958: DECL: 10/16/2019 
TAGS: EAGR ECON EFIN IV
SUBJECT: NEW COCOA SEASON:  WHAT'S CHANGED, WHAT HASN'T, 
WHAT MIGHT 
 
REF: (A) 2008 ABIDJAN 657 (B) 2008 ABIDJAN 403 
     (C) 2008 ABIDJAN 893 (D) ABIDJAN 401 
 
 
Classified By: POL/ECON Chief for reasons 1.4 (b) and (d) 
 
¶1. (U) Summary.  October 1 marked the official start of Cote 
d'Ivoire's 2009-2010 cocoa season.  Experts expect 
this year's output to be the same as or somewhat less than 
last year's.  In keeping with recommendations of the 
international financial institutions (IFIs), the Cocoa and 
Coffee Sector Management Committee lowered taxes on cocoa 
for the season.  Nevertheless, the Committee, which has been 
playing a care-taker management role for the past year 
(ref A), followed past practice by setting an "indicative" 
price.  On October 15, the Cocoa and Coffee Sector Reform 
Committee submitted to President Gbagbo its recommendations 
on restructuring the cocoa sector, which we are told may 
advocate for an expanded government role.  End summary. 
 
¶2. (U) October 1 is the official date marking a new cocoa 
harvest cycle.  While cocoa beans are harvested year-round, 
the vast majority are harvested in the six-month period 
beginning October 1. 
 
¶3. (U) In the 2008-2009 season Cote d'Ivoire produced 
approximately 1.2 million metric tons of cocoa, a decrease of 
14 percent from the previous year.  According to press 
reports, experts believe Cote d'Ivoire's 2009-2010 crop will 
probably not exceed last year's.  The sector continues to 
suffer from neglect, with productivity and quality declining 
each year.  Supply is further diminished as farmers switch to 
less labor-intensive and more lucrative crops, such as rubber 
or palm oil. 
 
¶4. (U) In keeping with IFI recommendations, the Management 
Committee announced a reduction in cocoa taxes for this 
season.  The cocoa export tax (known as the "DUS," or "droit 
unique de sortie") is now CFA 210 (USD 0.48) per kilo, down 
from CFA 220 (USD 0.50) per kilo.  Additionally, the 
Management Committee reduced the tax used to finance cocoa 
agencies, revenue that in theory should be invested in the 
sector:  last season the tax was 10 percent of the price; 
this year it is 5 percent.  One of the "triggers" of the 
GOCI's Enhanced Heavily Indebted Poor Countries (HIPC) 
program is a reduction of total cocoa taxes to 22 percent of 
the CIF (cost, insurance, and freight) price.  In the 
2008-2009  season the overall rate was approximately 32 
percent.  The IFIs believe a decrease in the tax burden will 
increase farmer income and help address Cote d'Ivoire's 49 
percent poverty rate. 
 
¶5. (SBU) In one of the rituals preserved from the days in 
which the GOCI fixed cocoa prices, the Management 
Committee--established in September 2008 to fill the void 
created by the imprisonment of key cocoa officials (ref 
B)--announced an "indicative" farmgate price for cocoa beans. 
 The announced price is CFA 950 (USD 2.16) per kilo--a record 
high.  Last year the indicative price was CFA 700 per kilo. 
As noted in ref C, the reasoning behind the establishment of 
an "indicative" price is supposedly to send a signal to 
farmers regarding the price they should use as a basis for 
bargaining with buyers in the field.  Yet the Management 
Committee has no authority to enforce the "indicative price." 
 The actual price is set in thousands of individual 
transactions between buyers and farmers in the field.  In 
most cases, given their limited financial means and their 
inability to store beans for extended periods, farmers have 
very little bargaining power.  In fact, press reports 
indicate that the average price paid at the farmgate in the 
last 10 days of September was only CFA 560.  One might 
interpret the establishment of a high indicative price as an 
acknowledgment that this year's crop may be smaller than last 
year's.  (Demand for cocoa generally grows rather steadily, 
tracking world economic growth very closely.)  But the high 
price is likely the result of political factors, as the 
country awaits presidential elections.  By setting a high 
indicative price, the GOCI seems to be encouraging  farmers 
to believe that they deserve a higher price--if only buyers 
would pay more. 
 
¶6. (C) On October 15 the Reform Committee, whose members were 
named April 30 (ref D), submitted to President Gbagbo its 
proposals on cocoa and coffee sector reform.  At Gbagbo's 
direction, the Committee gave the document to World Bank 
staff for review and comment prior to submitting it to the 
head of state.  Although we have not seen the "confidential" 
document, World Bank country director Madani Tall recently 
told the Ambassador that the plan he reviewed was a throwback 
to the days of centrally controlled sectors.  Tall hoped to 
convince the GOCI to modernize its approach and incorporate 
more market principles into their reform proposals.  Embassy 
is not sure whether the plan given to Gbagbo on October 15 
differs markedly from the one World Bank staff saw, but we 
suspect it still calls for a much-expanded role for the GOCI 
or for a government-regulated private monopoly that could 
pre-sell much of the harvest each year and guarantee farmers 
a set price each season.  The Reform Committee Chair, 
Geraldine Odehouri, was quoted in the local press as saying 
"pursuant to the head of state's recommendations, the farmer 
is at the heart of this reform." 
 
7.(SBU) As noted in ref D, farmers generally believe an 
increase in government involvement is needed, and do not 
support further "liberalization" of the sector.  This 
perspective stems, in large part, from the fact that most 
cocoa producers in remote areas are unable to transport their 
product to market and are obliged to sell to Lebanese truck 
operators who, for a variety of reasons, generally do not pay 
farmers the indicative price set by the government.  Many 
cocoa farmers do not understand the dynamics of the cocoa 
market, but they do know that their income is (in real terms) 
lower than it used to be, and they believe the GOCI should be 
responsible for ensuring they get higher, more stable prices. 
 
¶8. (SBU) Comment.  The Management Committee's change of the 
cocoa tax structure is the most recent evidence that the 
HIPC program has been effective in influencing GOCI policy. 
Yet it is unclear to what extent farmers vis-a-vis 
other market participants will benefit from the lower taxes. 
Nevertheless, lowering taxes in an election year is 
not an exceptionally difficult step, and the Gbagbo regime 
probably bears some responsibility for the Management 
Committee's establishment of a record-high indicative price. 
 
¶9. (SBU) Any serious reform of the cocoa sector will impact 
revenue currently being enjoyed by Gbagbo supporters.  It is 
therefore unlikely that the president will push hard for 
potentially painful reforms to be carried out until the 
presidential election is over. This may not be difficult. 
The Reform Committee's original deadline for submitting its 
report was July 30.  But in a pattern well known to Ivorians, 
submission of the report--only one step in the reform 
process--took place almost three months late.  Still, as with 
elections, the wait will be worthwhile if it results in a 
better system for managing the cocoa sector. 
 
 
NESBITT