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.