Explainer-How did Ivory Coast and Ghana's cocoa sales crisis come about?

By May Angel

LONDON, Feb 26 (Reuters) - The producers of half the world's cocoa - Ivory Coast and Ghana - have struggled to sell beans and pay farmers this year due to ample global harvests, lower cocoa prices and falling demand from chocolate makers for the ingredient.

Why did the two countries fare worse ‌than rival producers and what are they doing to address the problem?

HOW DID WE GET HERE?

Cocoa is not freely traded in Ivory Coast and Ghana.

Rather, the ‌two countries' cocoa regulators - appointed by the government - sell some 80% of their beans to global traders a year in advance and, on the basis of those sales, set a fixed price for farmers at the season ​start in October.

Farmers then sell their beans to local collectors at this price, and the collectors in turn sell them on to licensed buyers. After receiving the cocoa, licensed buyers either sell directly to global traders or to local traders who sell on to global traders.

The fixed farmer price set in October usually covers the October to March main crop as the countries' cocoa regulators tend to adjust the farmer price for the April to September mid-crop - considered to be of lower quality.

Last October, Ivory Coast set its main crop price at about $5,000 a metric ‌ton while Ghana set it at nearly $5,300 per metric ton.

World cocoa ⁠price futures have plunged to around $3,100 per ton, however, having lost half their value this year alone.

For global cocoa traders, the price plunge had the immediate impact of landing them with steep losses if they purchased Ivorian and Ghanaian beans and sold them at futures market rates. ⁠As a result, they mostly stopped buying them.

Ghanaian farmers said last month they had not been paid for their beans since November, while industry sources told Reuters the situation was similar for Ivorian farmers. They noted that unsold cocoa stocks have piled up across Ivory Coast.

WHAT HAVE IVORY COAST, GHANA DONE SO FAR IN RESPONSE?

To try get cash to farmers, Ivory Coast's government launched a programme ​late ​last month to buy 100,000 tons of unsold, main crop cocoa stocks from farmers at a cost ​of half a billion dollars.

In Ghana, the cocoa regulator on February 12 ‌cut the fixed farmer price by nearly a third to around $3,580 per ton after it estimated the country had about 50,000 tons worth of unsold cocoa stocks.

Ivory Coast is also planning, from March 1, to lower its fixed farmer price by about a third in the hope of providing an incentive for sales to international traders, sources told Reuters.

The government said earlier this week it will announce a new farmer price by the end of February, a month earlier than usual.