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LIMA/NEW YORK, Aug 14 (Reuters) - Latin American cocoa could soon demand a minimum price of $3,200 per tonne if a proposal from Peru finds support at a gathering of regional producers on Thursday, one month after their counterparts in West Africa announced a shift in how they price beans.
Cocoa-producing countries have been searching for ways to protect farmers from market swings after global overproduction sent prices crashing in 2016-17, and as ongoing oversupply has meant a slow recovery in prices.
Peru, the world's seventh-largest cocoa producer, is proposing a $3,200 per tonne price minimum, Luis Mendoza, president of the Peruvian Association of Cocoa Producers (APPCACAO), told Reuters. The proposal will be discussed this week with producers from Colombia, Ecuador and the Dominican Republic at a cocoa conference in Cartagena, Colombia.
Support for a price floor in Latin America has grown since West Africa's pricing reform, representatives of the cocoa associations of Peru, Ecuador and Costa Rica told Reuters.
Top growers Ivory Coast and Ghana last month said they would institute a minimum price of $2,600 per tonne and require buyers to pay an additional $400-per-tonne "living income differential."
Still, even that level would be inadequate for Peru, Mendoza said. Peru, Colombia, Ecuador and the Dominican Republic produce fine, organic cocoa, which demands higher prices than West African beans.
Ghana and the Ivory Coast produced more than 60% of the world's cocoa beans in 2018-19, while Latin America produced around 17%, according to the International Cocoa Organization.
Francisco Miranda, president of the National Association of Cocoa Exporters of Ecuador (Anecacao), said Ecuador backs Peru's proposal but said it should be offset by supply caps to counter the risk of overproduction.
"A higher price would increase cocoa production and create a surplus. Together with a higher price, we should also limit supply volumes to justify a unified price," Miranda said.
Several traders are already concerned that the West Africa agreement will result in overproduction there.
"A minimum price only works if there is a quota system in place," said one U.S. trader. And such systems often fail "because everyone wants to sell their entire crop," the trader added.
Unlike crude oil, where centralized production systems mean countries can abide by OPEC-type output mandates, production of commodities like cocoa is diffuse and more difficult to regulate.
A price floor is "difficult to do because every origin in Latin America has their own price and their own commercialization country strategy," said Javier Castro, chief executive of Ecuador-based cocoa exporter GrandSouth.
A differential system similar to what West Africa introduced could work better, especially given the relatively low price of cocoa, Castro said. "The futures market is below $2,200 at these prices, cocoa is not sustainable anywhere."
It was not yet clear how a price floor would be introduced, or if producers were considering a new differential system.
Many Peruvian growers already sell their cocoa at $3,200 per tonne, said Santiago Paz, president of Cooperatives without Borders, a Costa Rica-based association for organic cocoa producers. Some can even command five times the market price, Paz said.
Much rides on cocoa's viability in Peru. As global cocoa prices have recovered in recent years, bean sales helped pull about 90,000 Peruvian families out of poverty, the country's Agriculture Ministry said last year.
For years, the U.S. government has helped promote Peruvian cocoa as an alternative to coca, a key ingredient in cocaine. (Reporting by Maria Cervantes in Lima and Ayenat Mersie in New York Additional reporting by Mitra Taj; editing by David Gaffen and Leslie Adler)