Ivorian banks are refusing to finance purchases of cocoa beans by some local exporters until they are guaranteed repayment of 160 billion CFA francs (€244.4 million) of debt from failed export giant SAF-Cacao, banking and industry sources told Reuters.
Exporters unable to provide strong guarantees to banks are being turned away, raising the risk of defaults and the growing dominance of the industry by foreign multinationals.
However, some analysts said the situation was not yet as bad as 2016/17, when Ivorian exporters saw a wave of defaults due to a plunge in world cocoa prices.
The losses associated with the bankruptcy of SAF-Cacao are so large that some banks do not have enough cash.
"Our boards do not want to engage in new loans in so long as the liquidation of SAF Cacao does not guarantee visibility on returns," one bank director said on condition of anonymity.
"It's a fact that the lack of financing increases the risk of default among some exporters, and we already hear that some of them find the situation stressful, but we can't finance this year," another said.
Potential Delays
Financing of cocoa bean purchases and exports is vital to Ivory Coast, the world's biggest producer of the commodity. Without it, farmers can see delays that lead to the degradation of their beans, in turn hurting their finances.
“Banks don't want to pre-finance this season. They're asking for so many guarantees that it is impossible to fulfil their requirements," said one exporter, who declined to be named due to the sensitivity of the matter.
"So we're working slowly and with small volumes for now, and the risk of default increases as well because we don't have many options left."
Five other exporters said they shared the same view.
According to industry sources, local exporters represent around 20% - 30% of the 1.7 million tonnes of export contracts sold by Ivory Coast's Coffee and Cocoa Council (CCC) for this season.
Adding to exporters' problems is a drop in the prices of New York and London cocoa futures since they hit a 2018 peak in May. The front-month New York contract has dropped more than 22% since then, while the London front-month contract is down more than 12%.
'Risk Of Default'
“The risk of default for local exporters awaiting pre-financing is high. We see exporters willing to give up their contracts just so they can avoid defaulting,” a CCC official said.
Still, Stephen Maass, commodities analyst at the Hightower Report, said the situation was not as bad as two years ago.
“There are likely to be some defaults, however it will not be anywhere to the size in 2016/17," he said.
But while local exporters struggle, major multinationals such as Cargill, Cemoi, Olam, SucDen, Barry Callebaut and Touton are likely to strengthen their position in Ivory Coast's cocoa sector.
“We are heading toward a cartel situation in the Ivorian cocoa sector because now it's mostly multinationals which will be able to get financing. The others will end up disappearing," another industry banker said.
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