Ivory Coast is seeking to avoid a wave of cocoa-export defaults with a plan to compensate shippers for losses caused by a surprise increase in the price paid to farmers, according to people familiar with the matter.

The world’s top cocoa producer wants to use reserves stored in the so-called stabilization fund — a pile of cash designed to mitigate price risks — to compensate shippers, said the people, who asked not to be identified because the information isn’t public. The move comes after complaints from a group of exporters including Cargill and Olam.

The losses stem from a 50% hike in the price to be paid to farmers, the first time Ivory Coast will sell beans from the smaller of two annual harvests at a higher cost than the main crop. Shippers that were asked to roll contracts forward due to unprecedented shortages would end up having to pay more for their beans.

Traders were concerned the potential losses would generate a wave of defaults, worsening a global cocoa shortage that has caused factories from Germany to Ivory Coast and Malaysia to slow down or shut altogether. In an April 17 letter to Ivorian regulator Le Conseil Cafe-Cacao, the exporters group known as Gepex said the losses would total 75 billion CFA francs ($122.5 million).

Yves Kone, head of the regulator known as CCC, said there’s no cause for concern because the stabilization fund is designed to reduce price risks for exporters. He declined to provide further details.

Traders familiar with the process have said it’s unclear if all the impacted exporters will be compensated.

Ivory Coast usually sells about 80% of its cocoa crop before the harvest starts to guarantee a minimum price to farmers. Buying so far ahead is a risk for traders and exporters. To ease that, the stabilization fund was created. 

If a contract to export cocoa is at a higher price than what farmers get plus logistical and operational costs, traders pay the difference into the stabilization fund. If the opposite happens, the government compensates shippers. 

It’s unclear how much money is in the stabilization fund and if that will be enough to compensate all exporters, according to the traders. Ivory Coast is yet to communicate to exporters how the process will work, they said.

Cocoa futures have more than doubled over the past year as bad weather, older trees and crop disease hit West Africa, which accounts for more than half of global supplies. Output is set to fall short of consumption for a third season, and there are now concerns production in Ivory Coast and Ghana has entered a period of structural decline. 

The difference in the farmgate price is not the only loss traders are incurring. Prices for short-dated futures contracts are much higher than longer-dated ones, so for every ton of cocoa delivered late, traders are losing money. That’s a loss that Ivory Coast won’t compensate traders for, the people said.

“In normal circumstances, when I sell far ahead, the price is higher than when I sell on short period, but right now it’s the opposite,” Kone said. “That doesn’t favor us.”

“Our main objective is to ensure that the farmer doesn’t feel the impact of price swings, and doesn’t face uncertainty,” he said.