bittersweet: ivorian cocoa reform

reform of the cocoa sector is one of the major hurdles for côte d’ivoire to achieve debt relief, an important step that will let the ivorian government begin crafting a plan to pay the three missed coupon payments (~$89 million dollars) on its $2.3 billion dollar eurobond. well-managed reform could see new forms of commodity financing emerge in côte d’ivoire, similar to what was seen in ghana this season after its state-run marketing board, cocobod, issued a $2 billion dollar bond.

the most difficult aspect of reform has been securing farmgate prices (prix bord champ in french) for farmers. those involved in the reform process have touted that farmgate prices—the amount the government pays to farmers—will be set at 60% of the export price, which is largely based on the international cocoa price. this proposed farmgate price is in contrast to the 40% guaranteed under the gbagbo regime, and is more in line with the 60-70% received by ghanaian farmers. although côte d’ivoire has said it would purchase one kilogram of cocoa from farmers at 1,000 CFA ($2.08), the government has been unable to guarantee this payment to farmers, and has purchased beans for as low as 500 CFA. ivorian farmers often smuggle their beans in to neighboring ghana, where they fetch higher for their crop, and occasionally hoard beans if they think they can manipulate global prices by decreasing global supply.

collateralization, which would be done through pre-export financing, makes it easier for governments to create a stable pool of revenue, which facilitates the establishment of a farmgate price that can be maintained throughout the season. it would also lay the groundwork for a more stable fiscal management. before the current round of cocoa reforms, ivory coast had been unable to collateralize—or guaranteeing the worth of the season’s harvest by estimating the quality of the cocoa bean—its crop because the country has based the price of beans on the global spot market instead of purchasing them forward. when the ivorian government guaranteed the price of beans as a percentage of international spot prices (as it was in the past), farmers were subject to extreme global price swings, as the cfa franc wildly fluctuates against western currencies. currency yo-yoing increases the incentive to smuggle cocoa beans in to neighboring ghana, which makes it harder for the government to confidently say that there are ‘x’ metric tons of beans available this season at ‘y’ quality. this is probably why participation was weak in ivory coast’s first forward cocoa sale.

for example, if the spot price of cocoa were to be at $2800 one day, $3400 five months later, and falls back down to $3100 three months after—like it was in the 2010/2011 season—it would be difficult for the government to promise farmers a set price for their beans. an ivorian farmer on a 4 hectare plot producing 2000 kg a season could make as low as $832 (if the global price were $2800) and as high as $1,664 (if the price were $3400), depending on when they sold their crop. subtract from this number the cost of seeds and bags the ivorian government sells to farmers to certify that cocoa beans came from ivory coast, and profits are even less. of course, prices were this high for the first time in 33 years, and is unlikely to reach this level again for a long time. getting the farmgate pricing mechanism right is key to the country reducing poverty, an important step in reaching HIPC completion status—a program set by the IMF for debt relief.

the government may continue to trip up working toward cocoa reform and poverty reduction. aging ivorian trees produce half of the cocoa as ghana, and to compete with increasing output from ghana, indonesia, and caribbean/latin american producers, farmers will need to buy more fertilizer to increase their output (the average yield in côte d’ivoire is 500 kg/hectare), or the government will need to buy fast growing, high yielding trees. fertilizer is expensive—which costs on average the equivalent of 50kg of cocoa —and many farmers find themselves indebted to those who own the land. without new trees, farmers will sink further in to debt.

how closely the body in charge of managing the cocoa (and also coffee) sector, the ARCC resembles the now defunct state marketing board (caistab), established by houphouët-boigny and used as his personal bank account, remains in doubt. the ARCC has the overarching mandate to keep statistics on cocoa production and sales, grant export licenses, prevent monopolies from forming, and arbitrating disputes. ivorian politicians have used the cocoa sector to form strong patronage networks with farmers, distributing bags, seeds, and fertilizer at a discount to those that supported their campaigns. in the long-run, it remains yet to be seen whether the centralized coffee and cocoa regulator authorty (ARCC), will become a slushfund for ouattara to distribute political patronage.

it’s not surprising that the violence of the 2010/11 electoral crisis was so relatively low-intensity (in relation to violence seen in liberia, sierra leone, etc.), yet so prolonged. farmers, who had established deep networks with politicians with links to gbagbo and bedie, enjoyed the freebies (agricultural inputs) often distributed in exchange for political support. the possibility of a ouattara presidency was an uncertain prospect for them, an economic gamble many did not want to take because it was unsure that a muslim northerner (“foreigner” in some circles) could guarantee the same access to subsidized inputs like gbagbo or bedie had over the past decade.

although there is certainly no threat to stability like that seen in 2011 or 2002/4, it is when it’s time for côte d’ivoire to choose its next president, the same structures that produced violence, will create a situation we see each decade when ivorian presidents are elected. ouattara has replaced key officials in charge of managing the cocoa sector with some of his closest supporters, like massandjé touré-listé. more interestingly, he has drummed up support among the grand barons, or the traditionally baulé, wealthy PDCI supporters (the party of henri konan bedie), to his camp. absent any fallout in the near term over ouattara’s inability to find a compromise between current prime minister guillaume soro (gbagbo’s #2) and the pdci’s bedie, it is likely that the coalition between the two men could isolate the former supporters of gbagbo. it is possible that disgruntled supporters of gbagbo—if and when they are able to regroup—could express their frustration at the ballot box, just like the supporters of bedie and ouattara have done in the past.