Singapore, Aug 27 - The International Cocoa Association has cut Indonesia's 2007/08 cocoa output by 16 percent from an earlier forecast to 480,000 tonnes due to a fungal disease.
Falling output from Indonesia, the world's third-largest cocoa producer after Ivory Coast and Ghana, prompted the ICCO to cut global output forecast in the current year by 94,000 tonnes to 3.646 million tonnes in a report issued last week.
Details of the report, seen by Reuters on Wednesday, show Indonesia's output revised down 90,000 tonnes from the previous forecast of 570,000 tonnes.
Cocoa futures have risen sharply this year, setting a 28-year peak around $3,300 a tonne <0#CC:> on ICE in July, partly driven by crop concerns in both Ivory Coast and Indonesia.
"The spread of Vascular-Streak Dieback disease in Sulawesi has been much more devastating than previously expected," the ICCO said.
Indonesia, which sells cocoa to grinders in Asia, the United States and Brazil, produced 530,000 tonnes in 2006/07.
The VSD disease attacks leaves, branches and trunks and was spreading rapidly in the provinces of South, Central and Southeast Sulawesi, which account for 75 percent of Indonesia's cocoa output, said dealers.
"Thecombination of a large number of mature cocoa trees and excessive rainfall due to the La Nina related weather conditions has provided favourable ground for the disease to develop," said the ICCO.
"The situation was worsened by the generally low level of good agricultural practices in the cocoa sector of the country and the late response from the local authorities," it said.
The VSD is another blow to the cocoa industry in Indonesia, which has been battling another disease, cocoa pod borer, since the 1980s. Pod borer is a worm-like pest which feeds on cocoa beans.
Indonesia has been struggling to increase output, but its ageing cocoa trees are vulnerable to pests and disease. The government said 450,000 hectares (1.1 million hectares) planted with cocoa trees in Sulawesi have been affected by the VSD.
"ICCO's earlier forecast of 570,000 tonnes was too optimistic. I guess the revised number is more realistic and we know the quality of the beans is not good," said a dealer in Singapore.
"Fundamentally the market is aware with the developments in Indonesia, although I guess other factors such as the dollar will also affect movements in cocoa," he said.
An agriculture official said last month Indonesia will spend as much as $175 million this year on revitalising cocoa plantations and tackling the spread of pests and diseases which threaten output.