Ghana's cocoa regulator Cocobod is investigating a shortfall of around 70,000 tonnes of beans between official cocoa purchases and its inventory after buyers reported inflated volumes, a Cocobod official told Reuters.

A fall in cocoa output in the world's second largest producer, combined with tight credit conditions, could have contributed to local buyers overstating cocoa purchases in order to gain advance funding - bruising Cocobod's reputation for being a low risk loan recipient.

"It is true that we are dealing with an issue of discrepancy of almost 70,000 tonnes," said a Cocobod official with knowledge of the situation, who asked not to be named.

"But some of us are not worried because the season is still on and we'll be able to close the gap before it ends."

The government of Ghana has a monopoly over the export of cocoa beans. But domestic purchasing of beans is carried out by licensed buying companies (LBCs) who pay a fixed price to cocoa farmers, before selling to Cocobod, who pays them commission and transport costs on top of the producer price.

Cocobod provides seed funding to the LBCs for purchases at the beginning of the cocoa season, based on a combination of the LBC's market share in the previous season and the set price.

There is usually a lag between official purchases and warehouse stocks as it takes time from when cocoa is bought for it to be graded and sealed, but traders said the difference is wider than usual for this point in the season.

The Cocobod official was unable to give the average discrepancies in the past.

As LBCs are also entitled to top-up funds midway into the season from Cocobod, if they are able to prove that they have exhausted the initial seed fund, some could be misrepresenting their purchases in order to get additional money.

Cocobod's purchasing data is based on information provided by licensed buyers and the official said that at least one of the licensed buyers has admitted that they sometimes report targets instead of actual purchases.

BUYERS MEETING INCONCLUSIVE

Cocobod held a meeting with licensed buyers in early April in an effort to resolve the issue, said the official.

"The meeting was inconclusive because Cocobod needed to investigate further," said the official.

"What is important now is to quickly conclude the investigation to establish which buyers were involved."

Traders said a sharp fall in Ghana's official purchases in recent weeks could indicate Cocobod is already addressing the issue.

"Maybe there was a discrepancy because some people were over declaring the crop in which case the CMC (Cocobod's Cocoa Marketing Company) proposes slowing down the amount of cocoa purchases that have been declared because they need to adjust the purchased data compared to what was actually delivered to them, into their warehouses," said a European trader.

The latest figures showed that cocoa purchases declared to Cocobod for the week ended April 5 were 1,777 tonnes - down from 2,108 tonnes the week before and substantially lower than the 9,373 tonnes purchases in the comparable week last year.

"I'd expect figures to stay low for another couple of weeks for deliveries to catch up to purchasing figures," said a second trader.

Cocobod's official purchases data hit 720,000 tonnes by April 5 since the season began in October.

"If you consider that almost no cocoa has been declared over the past 2/3 weeks, normally people expect April purchases to amount to between 30,000-50,000 tonnes, if it continues this way it might be only 10-15,000 tonnes," said the European trader.

That will make it tough for Cocobod to hit an 870,000-tonnes target for the October-to-May main crop.

If purchases remain at historically low levels into the coming months it may also prompt some trade houses to revise down their estimate for the Ghana crop, said a trader.

Ghana produced a record over 1 million tonnes during the 2010/11 season and was aiming to rival that level this year.

Cocobod funds its cocoa purchases with an annual syndicated loan facility which totalled $2 billion and was oversubscribed by over 20 international and local banks for the 2011/12 crop.

It's the largest soft commodity deal in sub Saharan Africa and Cocobod financing has been seen as one of Africa's most solid investments.

"If it is true that there has been misreporting of up to 70,000 tonnes and it turns out the mid crop is not good and the suppliers cannot make up the difference, then it could damage the reputation of this financing for Cocobod, because in the past it has been one of the safe bets when it comes to trade finance in Africa," said Edward George, head of soft commodities research at Ecobank, which participated in the 2011/12 syndicated loan.

"But ultimately if the shortfall is only 70,000 tonnes it won't affect the ability of Cocobod to repay as this represents less than 10 percent of expected production for the season."**