Improving Agricultural Market Performance:
Creation and Development of Market Institutions
47
This failure has been attributed to a lack of controls on and vetting of purchasers, so that small
firms or individuals without the means to pay could sign contracts to buy tens of thousands of
tons of cocoa. For CCC, “these verification procedures were seen as a cost rather than as
insurance, even though CCC had the means to pay for them…Also, in the euphoria then
prevailing in the world cocoa market (world prices had shot up from about US$2,100 per ton
in 2011/12 to US$3,300 in 2015/16, before falling to less than US$2,000 in 2016/17), no one
expected the bottom to fall out of the market, not even Government, which was collecting
annual revenues of more than 500 billion FCFA (US$830 million) from cocoa.”
When some buyers defaulted on their contracts CCC had to find other buyers at current market
prices, which by that time were much lower than the previously contracted prices. Observers
also say that CCC failed to act, even as it became apparent that world cocoa prices were in
freefall. In January 2017 CCC firmly denied press reports that it would have to cancel contracts
for 200,000 to 300,000 tons awarded to buyers who could not honor them. It was not until
February that the CCC admitted that some contracts might have to be cancelled, without
specifying the quantities involved. This was left to the Ministry of Agriculture, which several
weeks later stated that the volume of cancelled contracts would be around 350,000 tons.
At the same time, CCC denied that the replacement of these contracts would entail any
reduction in producer prices, but on March 31, the farm gate price was lowered to 700 FCFA
per kg. According to some analysts, CCC was hoping for world prices to rebound before the
harvest, thus limiting the losses to farmers, and only lowered the producer price when it
became clear that this would not happen. In effect, CCC, rather than stabilizing prices, had
become an active speculator in the market.
To reduce the losses incurred by some exporters, CCC gave formal notice to all the companies
and cooperatives involved, demanding payment of penalties ranging from FCFA 2 billion to 10
billion (US$3.3 million to US$16.5 million), threatening to deny them access to future cocoa
purchases unless they made an immediate payment of 10% of the penalty, the balance to be
paid over five years. But in negotiations between CCC and PMEX-Coopex, the largest
cooperatives association, no agreement was reached.
The risk of future defaults by exporters remains, and by extension so does the price risk to
producers. According to some analysts, CCC is taking a speculative position, betting on a
rebound in world market prices. These analysts estimate contractual risks for the 2017/18
season at about 200,000 MT.
CAISTAB together with its successor, the CCC, is an example of a produce marketing board that
produced opposite effects to those that a produce marketing board is intended to – and
sometimes may be able to – produce. Instead of mitigating price fluctuations and protecting
market participants from price risk, CAISTAB and CCC interventions amplified price volatility
and increased participants’ exposure to price risk.