ABIDJAN, June 12 (Reuters) - Ivory Coast plans to tighten up conditions for awarding licences to cocoa exporters to avoid a repeat of defaults linked to the disastrous 2016/17 season, two sources at the Coffee Cocoa Council (CCC) marketing board said on Tuesday.
Ivory Coast is the world’s biggest cocoa producer, and it sells forward most of its expected harvest to set a minimum price for farmers for the October-September season.
So when world market prices fell 40 percent during 2016/17, exporters were unable to honour their commitments to suppliers, forcing the CCC to resell their contracts at a loss.
Many exporters had taken huge speculative bets that prices would rise, leaving some of them in financial distress when cocoa prices slumped. Banks in Ivory Coast are struggling to secure repayment on up to 200 billion CFA francs ($348 million) in related loans.
Tougher terms on licences are being worked out after a KPMG audit highlighted the financing problems, the senior CCC sources told Reuters.
“To avoid future defaults or to reduce the risk of default, it is necessary to have financially strong exporters with good counterparts,” one of them told Reuters. “This is not the case now because the (licence) criteria are not selective.”
From now on, applicants for export licences will have to provide strong financial commitments from their banks and counterparties, the sources said.
The CCC also aims to deter banks from taking on too much risk by imposing fines on those banks which provide financing for exporters who then default on their contracts.
Also, the applicants’ purchasing and export capabilities will need to be closely examined before issuing a licence.
The tightening up of the terms and conditions on licences should also reduce the number of exporters from 71 currently to 30 or 40 exporters starting next season, one of the sources said.
The measures aim to prevent losses on contracts covering 222,000 tonnes of cocoa that have cost the CCC and the government more than 500 billion CFA francs ($870.82 million) in 2016/17 but also in 2017/2018, the sources said. ($1 = 574.1700 CFA francs) (Editing by Tim Cocks and Jane Merriman)