Ivory Coast cancels defaulted cocoa, fines exporters

Ivory Coast's Coffee and Cocoa Council (CCC) marketing board has begun cancelling cocoa contracts which are in default and plans to resell those volumes, exporters said on Wednesday, in a move that will saddle some companies with heavy penalties.
The CCC auctioned the volumes before world prices fell last year and reselling them at current price levels will mean a loss of revenues for the world's top producer.
Exporters and traders were expecting a wave of defaults by local Ivorian firms who secured export permits at auction and failed to hedge, wrongly speculating that prices would rise and they could agree better deals with counterparties later.
Instead the beans are worth less than they are obliged to pay.
The auction system was introduced five years ago. Prices had risen gradually but fell sharply last year.
"The Council started sending letters to companies who are in default and normally all of those concerned will receive a letter," said Martyr Djikalou, secretary-general of GIE-PMIEX-COOPEX, one of four Ivory Coast exporter groups.
Exporters and traders said on Wednesday that the CCC has already sold up to 200,000 tonnes of cocoa for export between January and March in spot auctions in anticipation of the defaults.
Exporters in default will be held responsible for covering lost revenues caused by the resales and will be banned from forward sales auctions until they pay what they owe, according to the exporters and a CCC letter.
In the letter seen by Reuters, the CCC billed one exporter for 2.4 billion CFA francs ($3.9 million) in compensation.
Djikalou said his members had received bills for up to 11 billion CFA francs.
"The bill is terrible ... It's impossible for us to pay that," he said, adding that the CCC had already seized exporters' deposits and called in the bank guarantees they are obliged to furnish after winning volumes at auction.
GIE-PMIEX-COOPEX told Reuters last week that its members alone had defaulted on around 80,000 tonnes of contracts. Other exporters said they believed that, across the sector, much more cocoa was in default.
No one at the CCC was immediately available for comment.
Ivory Coast has sold forward the bulk of its cocoa crop for the past five seasons via an electronic auction system.
According to CCC regulations, exporters must provide a counterparty contract locking in prices within six days of winning volumes.
The measure is aimed at preventing defaults caused by speculation. However many local exporters are believed to have circumvented the requirement.
"The CCC will need hundreds of millions of euros to sort out this situation," said one international trader. "The question is how they allowed cooperatives to buy beyond their capacity. That's their responsibility."