Commodities & Futures: Chances of cocoa pact improve

NEGOTIATIONS resume today on a new international agreement aimed at improving world cocoa prices and ensuring long-term market stability.

Chances of progress at the three-week meeting being held at Unctad's Geneva headquarters are looking good, although no deal is expected to be finalised this time round because so many complex political and practical questions have to be settled first.

A third negotiating session has already been pencilled in for November and a fourth early in 1993 may be necessary.

Attitudes have changed since the first round of negotiations in April, with many consuming countries now prepared to listen more sympathetically to the appeals for help from the Ivory Coast, Ghana and other African producers, whose economies are being battered by cocoa at its cheapest in real terms since proper records began in the last century.

The depression, which has halved producers' export earnings over the past two years, is proving to be much longer and more severe than expected, while any recovery is likely to be slow and uneven if left to free market forces.

Some traders reckon that an upturn may have started, as the price of beans on the London commodity exchange has risen by more than 10 per cent from the 17- year low in nominal terms of pounds 509 a tonne touched two weeks ago.

But - with world stocks at record levels following overproduction in seven of the past eight seasons, crop prospects in West Africa and Brazil improving and Russian demand collapsing - this could be just another false dawn.

There have, after all, been so many already.

The EC is 'committed to trying to get a durable and realistic agreement for cocoa,' according to a German negotiator, Hagen Streichert.

The community, which has traditionally had close relations with Africa, is the key player on the consumers' side in the Geneva negotiations as the US is not actively involved and will almost certainly refuse to be a party to any price pact that emerges. But the EC is not fully united, which may cause problems and delays.

At the one extreme are France and Italy, which are enthusiasts for a new accord and the most flexible.

At the other is Britain, whose opposition to commodity price agreements is no secret although the Government formally supported the decision a year ago to seek one for cocoa.

EC members - with Russia, other Eastern European countries and Scandinavia falling in behind them - are agreed, however, that the African producers' proposal of an export quota system as the price-stabilisation mechanism is unacceptable. Instead, the consumers are proposing an export withholding scheme.

Under it, the producers would be obliged to withdraw unwanted cocoa from the market and put it into storage at times of surplus and low prices and to release it when the market was rising.

Negotiations over the coming weeks are expected to centre on the detailed operation and financing of this scheme, with the producers' proposal - although remaining on the table - being ignored. The EC is determined to call the tune and the African producers, because of their desperation to see a new cocoa pact, have little option but to dance to it.

The positions of Brazil, Malaysia and Indonesia are less clear, but they are not expected to rock the boat.

Brazil, the world's second biggest producer, only last month finally decided to support the quota proposal, having previously opposed any international regulatory system.

The main issues related to the consumers' scheme are whether a limit should be placed on the volume of cocoa that can be withheld and the financing arrangements.

The Africans are opposed to limits, arguing that the amount held back from the market in any year should simply be the difference between exportable production and import demand.

They also want the consumers to share the costs, perhaps through a levy charged on both exports and imports of beans.

The EC says that an open- ended scheme would be too risky, with some governments wanting a limit set on both the overall and the annual withholding capacity.

The main source of finance, say EC negotiators, should be the payment by producers of the dollars 150m they owe the International Cocoa Organisation.

This London-based producer- consumer body carried out intervention buying to support prices until 1988, when the money ran out and the present cocoa agreement's price-stabilisation provisions were frozen indefinitely. It would administer any new cocoa accord.

More cash could be raised by limited sales from the ICCO's 240,000-tonne stockpile, according to the EC, and a levy should be seen as only a last resort - although even this is opposed by some countries.

But proponents within the community argue that most producers are too poor to pay off their debts and that a levy would be the only fair way of ensuring that possible new ICCO members, like Indonesia and Malaysia, contributed to the withholding costs.