May 30, 2012 / 6:18 PM / 5 years ago

ICoast cocoa farmers demand end to grinder subsidy

* Farmers want end of tax break with reform

* Say money should be used to support farmers, infrastructure

* Government to decide after completion of study in June

By Ange Aboa

ABIDJAN, May 30 (Reuters) - Cocoa farmers in top producer Ivory Coast are calling for an immediate end to a 20-year-old tax break given to local grinders, saying the subsidy is wasted on wealthy international exporters and should be used instead to support growers.

The government introduced tax incentives for local grinders during the 1991/1992 cocoa season to encourage investment in the country, create jobs in the cocoa sector, and increase grinding capacity.

Initially intended to remain in place for five years and apply only to exports during the April to September mid-crop, the incentives are now granted year round and are currently worth about 75 CFA francs ($0.14)per kilogram of cocoa.

Farmers and exporters estimate the reduced DUS ("droit unique de sortie") tax, the main tax on cocoa, costs the government between 35 and 40 billion CFA francs annually.

Mamadou Kone, who heads the National Circle of Coffee and Cocoa Producers, CNPCC, said the tax break should be phased out as part of a major reform of the sector that aims to guarantee prices for farmers and encourage reinvestment in plantations.

"We are asking the state to put an end to this subsidy granted to grinders, who already have enough money, and to give it to us for a better price, to build schools and hospitals, and to rehabilitate roads," Kone told Reuters in a phone interview.

The CNPCC is one of three farmer organisations represented in the Coffee and Cocoa Council, Ivory Coast's marketing board.

Companies currently receiving the tax break include the top four grinders Cargill, ADM, Barry Callebaut and Cemoi , who together crush between 415,000 and 450,000 tonnes of cocoa annually. Barry Callebaut and Cemoi are planning to increase their grinding capacity in 2012.

GRINDERS THREAT

The subsidy has long been a point of tension between grinders and other major export firms, who claim it puts them at a disadvantage.

The exporters association GNI, which groups firms including Touton, Sucden, Armajaro, Novel, Coex, and Continaf, sent a letter to the government in December calling for the elimination of the subsidy. In January, the tax break was a principal reason the association boycotted the launch of a forward sales programme that was a key element of the reform.

Grinder companies have said they may consider moving their operations to neighbouring Ghana if the subsidy is lifted.

As part of a compromise aimed at ending the boycott, the government hired auditing firm PricewaterhouseCoopers to carry out a study and issue recommendations on whether or not the subsidy should be maintained. Its findings are due to be published next month.

"We are waiting for this study to be completed, and we will take a decision," agriculture minister Sangafowa Coulibaly told farmers earlier this month.

"For us, it is important to offer favourable conditions to those who want to set up here and transform our cocoa, but we also have to be even-handed and fair with everyone."

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.

As part of the reform, the government is aiming to locally grind half of its cocoa bean production by 2015. Currently around 35 percent of beans are processed locally.

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