27 Apr

From Defaults to Poor Data, Cocoa Audit Shows Top Grower’s Woes

Ivory Coast’s cocoa regulator failed to prevent a crisis that sent prices plummeting last season, according to an audit of the world’s top producer by KPMG LLP.

Offering a rare glimpse into the workings of an opaque industry, KPMG shows how flaws in the West African nation’s sales system had a “catalyst effect” on the industry’s woes, according to a copy of the audit commissioned by the government and obtained by Bloomberg.

The crisis cost the country at least 185 billion CFA Francs ($333 million) in lost income, KPMG said. While reforms of the sector in 2012 were supposed to protect cocoa farmers from global swings, the last annual season that ended in September showed producers remained vulnerable.

Prices started tumbling amid forecasts for an oversupply, triggering a wave of defaults by local exporters which couldn’t fulfil their contracts because they had bet on higher prices.

A slow response from Ivory Coast deepened the rout and resulted in farmer pay being cut by more than a third.

KPMG and Yves Brahima Kone, head of the regulator known as Le Conseil du Cafe-Cacao, declined to comment.

These are the report’s main findings and recommendations:

1. Defaults

After prices reached a six-year high in July 2016, local shippers who speculated on further gains were caught wrong-footed.

The audit showed 32 exporters defaulted on 222,302 metric tons of cocoa, about a fifth of sales usually made ahead of the start of the season. Smaller exporters from groups known as Pmex and Coopex accounted for 68 percent of the unfulfilled contracts.

The defaults forced Ivory Coast to reauction beans, putting further pressure on prices. The CCC allowed some defaulting companies to continue making purchases, raising the risk for the current season, KPMG said.

The biggest defaulters during last season were Nocoacy with contracts for 35,975 tons, Saf Cacao with 15,000 tons and 2CICS SA with 14,900 tons, according to the report. Saf Cacao had also defaulted on 7,425 tons in the 2015-16 harvest, it said.

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