Cocoa Prices Soar on Ivory Coast Ban

A map of the Ivory Coast that illustrates the military forces loyal to both the incumbent Gbagbo and Ouattara who is supported by the UN and the West. ECOWAS is threatening to enter the country.
Originally uploaded by Pan-African News Wire File Photos

Cocoa prices soar on Ivorian ban

Commodity traders react to Cote d'Ivoire leader's ban on exports, but trade appears uninterrupted

Last Modified: 24 Jan 2011 14:46 GMT

Cote d'Ivoire produces more than a third of the world's supply of cocoa

Cocoa prices have soared after Alassane Ouattara, the internationally-recognised president of Cote d'Ivoire, called for a month-long ban on exports from the world's top cocoa producer, a move intended to starve his rival of cash.

It was unclear how effective the ban would be, but commodity traders appear to have reacted nonetheless, buying up cocoa and pushing prices to their highest levels in 30 years.

"The larger players are taking measures to secure themselves. People have bought cocoa and cocoa products to mitigate their risks," the Reuters news agency quoted an unnamed European cocoa trader as saying.

ICE May cocoa jumped 3.4 per cent or $109 to $3,282 per tonne by 1120 GMT, having earlier touched a one-year peak of $3,340 per tonne.

Ouattra has been locked in an electoral dispute with Laurent Gbagbo, his election rival who has refused to relinquish the presidency, since Cote d'Ivoire's November 28 polls.

The export-ban is aimed at cutting revenues to Gbagbo in an effort to force him to step down, but Ouattra's power to enforce the ban is in doubt.

His administration is run from a hotel guarded by United Nations forces, while Gbagbo, who runs his own cabinet, controls the supply routes to ports.

Market 'over-reaction'

Cote d'Ivoire is the world's largest cocoa exporter, producing more than a third of the world's supply, and the commodity is the main source of income for the government.

Any stoppage in exports would cut the funding Gbagbo relies on to pay loyal civil servants and the military, while causing a hike in international prices of cocoa.

"If it's enforced prices of cocoa will go through the roof," Gary Mead, an analyst with the VM Group in London, said.

"If he [Ouattra] is serious, if they can enforce such a trade embargo, the disruption would be huge."

But Andrey Kryuchenkov, an analyst at VTB Capital, said that Monday's spike in cocoa prices was an over-reaction by traders.

"The market is just overreacting today. Ivorian cocoa farmers and exporters still want to make their money," he said.

Indications on Monday suggested trading was continuing, but Reuters reported a senior official with US-based agribusiness giant Cargill as saying the company had told its Cote d'Ivoire unit to suspend purchases of Ivorian cocoa.

EU embargo 'unlikely'

Elsewhere, the European Union appeared unwilling to apply an embargo on cocoa.

"A trade embargo is an option, but unlikely because of the potential impact. It's not an immediate option," Maja Kocijancic, a spokeswoman for Catherine Ashton, the EU foreign policy chief, said in Brussels.

The 27-member EU and other Western powers have imposed sanctions on Gbagbo.

Ahoua Don Mello, a spokesman for Gbagbo's government, said efforts to stem the flow of funds to his boss would be futile.

"Isolation cannot work ... Those who think that [Cote d'Ivoire] will be isolated are those who think that [we] have no choice but to operate with them," he said.

He also said that businesses were still paying taxes and revenues collected would be deposited in accounts elsewhere.

West African regional body ECOWAS has threatened to oust Gbagbo by force if he does not step down but analysts say any such operation is some time off and squeezing the finances of Gbagbo's administration is the priority for now.

Source: Agencies