Ivorian cocoa buyers seek end to grinders tax break

Thu Dec 29, 2011 6:00am GMT

 

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By Ange Aboa

ABIDJAN (Reuters) - Major buyers of Ivorian cocoa have urged the government of the world's top producing nation to cut a 20-year old tax break given to local grinders, arguing the incentive handed grinders an unfair market advantage.

Members of an international and local buyers association, which includes France-based commodities firm Sucden and leading cocoa trader Armajaro, said in a letter to Ivorian authorities the tax benefit distorted the market.

The Ivorian government introduced the tax incentives during the 1991/1992 cocoa season to encourage investments in the country, create jobs in the cocoa sector and increase the country's grinding capacity.

The tax benefits were supposed to last for five years and are in the form of a reduced DUS ("droit unique de sortie") tax, the main cocoa export tax.

Until the 2008/09 cocoa season, the tax was fixed at 220 CFA francs per kg, while for grinders, the tax was reduced by about 70 CFA francs per kg.

The letter, seen by Reuters on Wednesday, said the subventions cost the Ivorian government about 34 billion CFA francs in 2010.

"The tax exemptions granted to local grinders enables them to buy more beans from cooperatives and producers," the letter to Ivory Coast's agriculture minister said.

"This has as immediate consequence, a monopoly situation that could in the medium and long term, force buyers out of the procurement system at the farm level," said the buyers association, whose members export about 36 percent of Ivorian cocoa and employ about 6,200 people.

"UNFAIR COMPETITION"

The association urged the government to cut the tax exemption, saying buyers will not be able to match prices paid by local grinders at farmgate level in the long run, thus pushing them out of the market.

"We can no longer endure this unfair competition, especially in a stabilised market where one group has a significant advantage over another. It is not possible," said Mariam Diabate, secretary general of the buyers association.

Diabate said because the tax exemptions had been in place for nearly 20 years instead of 5 years as was intended, local grinders such as Cargill and Barry Callebaut and ADM had recovered the capital invested in plants and therefore did not need the exemptions.

Cargill, ADM, Barry Callebaut and Cemoi are the top four grinders, crushing between 415,000 and 450,000 tonnes of cocoa annually. Barry Callebaut and Cemoi are planning to increase their grinding capacity in 2012.

In 2010, Ivory Coast became the world's top cocoa grinder with a capacity of 532,000 tonnes, turned mainly into cocoa butter and powder.

The cocoa grinders have however said the incentives does not give them any advantage and that removing them could hurt the local grinding industry and even push some to move plants to neighbouring Ghana, the world's second-biggest producer after Ivory Coast.

"The grant does not give us any advantage over other companies. It is just a matter of business strategy. We have been here for years and we are heavily investing large sums, the grant does not even cover our expenses," a director of a grinding firm said, requesting not to be named.

The Ivorian government is carrying out reforms in the sector, which it has said will guarantee farmers receive at least 60 percent of the market price for the cocoa they produce.

The latest draft of the sector reform in November said the revision of the tax benefits would be decided after an impact analysis on employment and grinding capacity.