* Ivory Coast seeks to eventually grind all its cocoa
* Traders say incentives are favourable towards grinding
By Tim Cocks and Ange Aboa
SAN PEDRO, Ivory Coast, Aug 17 (Reuters) - Ivory Coast is on track to become the world's top cocoa grinder in the next few years as the West African state seeks more value from its raw materials exports.
Investments in cocoa processing facilities in the country, already the No. 1 grower of the main ingredient in chocolate, have pushed its share of the global grind up sharply since 2008 and could allow it to overtake the Netherlands for the top spot as early as next season.
"We're the world's biggest cocoa producer. We will also be the world's biggest grinder," said Ali Lakis, the director of cocoa export firm SAF Cacao, which handled a fifth of the beans arriving at the port of San Pedro so far this season.
Processing beans close to where they are grown is increasingly appealing to cocoa producers keen to cut costs. The government of Ivory Coast has set an initial goal of grinding half of the roughly 1.2 million tonnes it produces each year.
"We have to grind 100 percent of our cocoa. It's the only logical step. In 5-10 years time, I'm sure we'll achieve this," said Lakis.
Ivory Coast ground 420,000 tonnes of cocoa in the 2008/09 season, only 20,000 tonnes behind the Netherlands, according to a World Bank report on the sector last December.
Its total grinding capacity has been around 489,000 tonnes a year since SACO-Barry Callebaut nearly tripled capacity at its San Pedro factory to 105,000 tonnes last year.
The SAF Cacao group has also just built a new grinding factory in San Pedro that will have an initial capacity of 32,000 tonnes when it opens next month. Ahmed Amer, director of the firm Choco-Ivoire, says it can be upgraded to 100,000 tonnes.
On Tuesday Singapore commodity firm Olam International said it was building a $43.5 million plant in Abidjan with a 60,000 tonne capacity. That would put Ivory Coast's total grinding capacity at around 580,000 tonnes, at a time when demand for chocolate is expected to rise, especially in Asia.
Ivory Coast has clear advantages as a process location.
Its rich, well-watered fields supply 40 percent of the world market for raw beans. The government offers what cocoa traders say are some attractive tax breaks for grinders. And unlike many neighbours, it usually has enough electricity.
"Strong incentives are definitely there to encourage grinding," said one Abidjan-based cocoa trader.
But there are problems: energy and industrial inputs are costly, customs are riddled with corruption and roads are choked by racketeering police and soldiers who slow deliveries and drive up costs by extorting money from truckers.
Cocoa volumes are in decline and reforms needed to improve them have been held back by a political crisis that only long overdue elections stand a chance of resolving.
In a speech when an Oct 31 date for the polls was announced two weeks ago, President Laurent Gbagbo made a campaign pledge to "open discussions" with cocoa importing countries to get better terms of trade for semi-finished cocoa products.
"It's not feasible that a big company installs itself here and builds nothing," Lakiss said. "They have no factories, they hire everything, take no risk but still make money."
The SAF Cacao group's $30 million factory was financed with loans from banks including Ecobank Cote D'Ivoire and a subsidiary of France's Credit Agricole.
"We wanted something that the chocolate makers would see instantly is the same standard of processing as anywhere in Europe," Amer told Reuters during a visit to the new factory, a maze of brown and yellow rooms with machines for drying, treating and crushing up cocoa beans. "Ivory Coast can be competitive." (Editing by Richard Valdmanis)