COCOA LATEST FOCUS FOR COMMODITY PACT NEGOTIATORS

  The credibility of government efforts to
  stabilise fluctuating commodity prices will again be put to the
  test over the next two weeks as countries try to agree on how a
  buffer stock should operate in the cocoa market, government
  delegates and trade experts said.
      Only two weeks ago, world coffee prices slumped when
  International Coffee Organization members failed to agree on
  how coffee export quotas should be calculated. This week, many
  of the same experts gather in the same building here to try to
  agree on how the cocoa pact reached last summer should work.
      The still unresolved legal wrangle surrounding the
  International Tin Council (ITC), which had buffer stock losses
  running into hundreds of millions of sterling, is also casting
  a shadow over commodity negotiations.
      The ITC's failure has restricted negotiators' ability to
  compromise as governments do not want to be involved in pacts
  with built-in flaws or unlimited liability, but want clear
  lines drawn between aid and trade.
      A more hopeful sign of cooperation was agreement on basic
  elements of a new International Natural Rubber Agreement in
  Geneva at the weekend.
      Some importing countries insist the International Cocoa
  Organization (ICCO) buffer stock rules must not be muddied with
  quota type subclauses which might dictate the type of cocoa to
  be bought. One consumer country delegate said this would
  "distort, not support" the market.
      Trade and industry sources blame uncertainty about the ICCO
  for destabilising the market as the recent collapse in coffee
  prices has made traders acutely aware that commodity pacts can
  founder. On Friday this uncertainty helped push London cocoa
  futures down to eight month lows. The strength of sterling has
  also contributed to the recent slip in prices.
      The ICCO daily and average prices on Friday fell below the
  "must buy" level of 1,600 SDRs a tonne designated in the pact,
  which came into force at the last ICCO session in January but
  without rules for the operation of the buffer stock.
      Consumers and producers could not agree on how it should
  operate and what discretion it should be given. The agreement
  limits it to trading physical cocoa and expressly says it
  cannot operate on futures markets.
      A cash balance of some 250 mln dlrs and a stock of almost
  100,000 tonnes of cocoa, enough to mount large buying or
  selling operations, were carried forward from the previous
  agreement.
      Members finance the stock through a 45 dlrs a tonne levy on
  all cocoa they trade. It has an upper limit of 250,000 tonnes.
      The key arguments being faced by the ICCO working group on
  buffer stock rules which is meeting today and tomorrow will be
  over non-member cocoa and differentials the buffer stock should
  pay when trading different types of cocoa. Another working
  group is scheduled to meet Wednesday to discuss administrative
  matters, and the full council meets on Thursday.
      Producers have so far maintained that buffer stock funds
  should not help mop up surplus cocoa produced in non-member
  countries such as Malaysia.
      Consumers say when this cocoa is the cheapest the buffer
  stock should buy it rather than compete with chocolate
  manufacturers for premium-priced high quality cocoas.
      The argument over buying non-member cocoa is closely linked
  to the one over differentials for different qualities.
      European industry and trade advisers have suggested as a
  compromise that the buffer stock have a maximum share that can
  represent non-member cocoa and that it use the London futures
  market's existing differentials for different qualities.
      Currently, good West African cocoa is tendered at par onto
  the London market.
      Discounts, which are currently under review, range up to 50
  stg a tonne for Brazilian and Malaysian cocoa.
      Consumer delegates said the same arguments in reverse would
  operate when prices are high - the buffer stock should sell the
  highest priced cocoa in most demand, forcing all prices lower.
      The January talks were slowed by a split inside the
  European Community, a key ICCO consumer group, with France
  siding with producers. EC representatives met in closed session
  in Brussels on Friday in an attempt to reach a common ground
  and, a diplomatic source said, narrowed the range of positions
  among the 12 nations.
      The source said the EC will be looking for signs of
  flexibility on the part of producers in the next few days and
  will be able to respond if they are there.
      One ICCO delegate describing the producer/consumer split
  said consumer proposals mean buying more cocoa for less and
  backs the concept of the pact which is "meant to support the
  market where trade buying is not."
      In contrast, he said, producers seem to want to sell their
  cocoa to the buffer stock rather than consumers.
      Other, more technical, issues still outstanding include
  whether the buffer stock should buy at a single announced
  "posted price" as in the previous pact or by announcing it is
  buying then accepting offers.
      In either case, delegates said, it is accepted that
  producers must be given a clear opportunity to make offers of
  cocoa for forward shipment directly to the buffer stock in a
  way that is competitive with spot offers made by dealers.
  

