Ghana has raised its farm gate price for cocoa by 21% after implementing a $400 per metric ton premium on futures prices for the 2020-21 harvest, according to two people familiar with the matter.
Growers of cocoa beans in the world’s second-largest producer of the crop will receive 625 cedis ($108) per 64-kilogram bag, or 10,000 cedis per ton, for the harvest season that begins Oct. 1 and continues through Sept. 2021 after the so-called Living-Income Differential (LID) was charged on the beans. This compares to 515 cedis per a bag and 8,240 cedis per a ton in the current season that ends Sept. 30, the people said, asking not to be named as the information is not yet public.
Ghana and neighboring Ivory Coast, the world’s largest grower of the crop, announced in July last year that the LID would raise the pay of farmers. The pricing mechanism received mixed reactions from traders as the premium couldn’t be hedged.
The farm gate price increase for Ghana’s estimated 800,000 cocoa farmers may boost President Nana Akufo-Addo’s chances of re-election in December’s election. He is running against former leader and main opposition candidate John Dramani Mahama.
In meetings with CEOs of major international cocoa processors ( Barry Callebaut, Cargil, WAMCO and Nutkao Group) and the Parliamentary Committees on Finance, Agriculture, Food and Cocoa Affairs in late February to early March 2020, IMANI presented highlights of it’s Cocoa Sector Research Report, titled “Exploring the Revenue Management and Producer Pricing Mechanism within Ghana’s Cocoa Sector”.
This was followed by a discussion of the results, issues in the sector and the implications of some.
On the living income differential (LID) whick kicks in October 2020, it was recommended that it would be relevant to first advocate for more clarity on how the fund would be used and the effect on the farmers before it is implemented. This is very essential as political commitments in this election year could touch on the sector which could have future implications. But of course, as the Bloomberg story suggests, “The farm gate price increase for Ghana’s estimated 800,000 cocoa farmers may boost President Nana Akufo-Addo’s chances of re-election in December’s election. He is running against former leader and main opposition candidate John Dramani Mahama.”. It is the season and he who reigns and negotiated the LID must profit from it.
IMANI’s Meeting with the Parliamentary Committee on Finance
Venue: Job 600, 7th Floor 7West, Parliament House
Time: 2:00pm – 3:00pm
Date: Wednesday, 26th February 2020
IMANI presented the highlights of the Cocoa Report (‘Exploring the Revenue Management and Producer Pricing Mechanism within Ghana’s Cocoa Sector’) which was followed by a short period of discussions. There are some noteworthy issues raised by the members of the committee.
Possibility of Cocoa Sector Revenue Management Regulation
There was concern raised as to whether a regulation should be made on how the revenue for the cocoa sector is managed by government as it is done for the petroleum sector of Ghana.
The members indicated that the sole aim of COCOBOD is not for profit maximization so the assessment of the financials should not be too much profit focused. This was discussed as it was clarified that while COCOBOD is a government entity, excessive losses absorb its equity or results in government providing financial support with tax payers’ money. In effect, it would be important for the entity to at least break-even. A concern was also raised to the fact Section 29 of the PNDC Law indicated that the board should pay monies into the consolidated fund suggesting that there is the assumption that at some point, the board should be making positive bottom-line.
There were concerns raised on why amounts are not added to the stabilization fund sometimes.
Akuafo Cheque System
There was a concern as to whether there are some positive gains from the use of the Akuafo Cheque system by the farmers. The report has a section for financial inclusion of the cocoa farmers through a survey on what financial services they utilise. However, the focus was not on the Akuafo Cheque system.
The meeting involved a presentation of the highlights of IMANI’s Cocoa Sector Research Report. This was followed by a discussion of the results, issues in the sector and the implications of some.
Imani And Cocoa Processors’ Meeting – Notes
Venue: Barry Callebaut, Tema Free-Zones.
Time: 11am – 1:00 pm,
Date: Tuesday, 3rd March, 2020
The high production recorded in 2011 has been attributed to smuggling of beans from Ivory Coast when the country was going through civil war.
Cocoa Farm Practices
The cocoa farmers have to own their farms because currently, they do not show the requisite commitment to sustaining their farms. They tend to rely on COCOBOD for the basic farm practices needed to keep the farms and enhance productivity. The crop per hectare and beans per pod could be enhanced if farmers engage in requisite farm practices.
The cocoa farms continue to be divided in Ghana’s case while in countries like Ecuador, cocoa farming is a business on itself with high productivity and efficiency achieved.
Perspectives of Stakeholders Hinge on Regulatory Issues
Issues of adjustment of scales and inefficiency in the supply of inputs are all regulatory issues. The regulator has to be the one to explain why such inappropriate practices still exist. Moreover, issues about fake inputs and smuggling of inputs cannot be appropriated at the farmer level but at higher levels.
Productivity Enhancement Programmes (PEPs)
There are 8 key areas that COCOBOD aim to use the African Development Bank (AfDB) loan. Notwithstanding, the facility of about $600 million is woefully inadequate to meet all the objectives.
There are many narratives that do not add up. In terms of domestic processing, processors are producing below capacity at the moment. If given beans today, the processors would be able to utilise it. Initial arrangements for domestic processors are for them to purchase the light crops at a discount but things have changed. As a result of the insufficient light crops, local processors now purchase the main crop at a high price making them uncompetitive. Any claim that the full discount is given to processors is not true.
To say you want to encourage domestic processing to the tertiary level would not hold because other ingredients are needed which if imported would not make economic sense (as a result of high costs). More so, primary processors may not be interested in taking over the value chain of their customers who do further processing, marketing and packaging of the products. As firms operating in the Free Zone area, selling the products in the local market could result in taxes as high as 70 percent.
The coming of the Chinese into processing of the cocoa does not really match up as the consumption in China is not really high. Similarly, propositions for students to consume cocoa products needs to be mapped out well.
Some Areas for Further Examination
The living income differential (LID) kicks start in October, 2020. It would be relevant to first advocate for more clarity on how the fund would be used and the effect on the farmers before this time. This is very essential as political commitments in this election year could touch on the sector which could have future implications.
There is the need to conduct a value chain analysis on the implications of government’s commitment to include cocoa products in the meals of students. What does the cost benefit analysis look like? Are there other ways that this can be rolled out which could be better?
There is the need to relook at the Cocoa Sector Development Strategy (CSDS) since the basis of agreement with the processors in starting local processing seems to be defeated with the high cost of beans.
The dichotomy between the primary processors and the secondary processors has to be critically considered. The primary processors could not oust their customers who do further processing from business.
The effects of the under-utilisation of processing capacity across the various processors would be assessed and the results used to advocate for policy changes.
The justifications for bringing the Chinese processors could be critically assessed. Market information indicates that world largest processors find it difficult to push their products through the Chinese market. What were the agreements, what were the impacts and how successful would the actions be amidst positive narratives by government?
IMANI’s Meeting with the Parliamentary Committee on Agriculture, Food and Cocoa Affairs
Venue: New Administration Block, Parliament House
Time: 2:00pm – 5:00pm
Date: Wednesday, 4th March 2020
IMANI made a presentation of the results of the Cocoa Report to the Honourable members, followed by a section where members ask the research teach some questions. Generally, the engagement has been very detailed with a lot of questions from the members of the committee.
Subsidy and Industry Costs
The members were concerned about whether or not subsidies should be given to the farmers and whether such have the requisite impact on the cocoa farmers. From discussions, it has been noted that an assessment of all benefits that the farmers receive (including supports from processors and other stakeholders) and the effect on the farmers would be beneficial.
Concerns were also raised as to whether or not the industry costs should be included in the sharing structure. This is because if the Gross FOB is to be shared to the farmers, their price would be much better that what they receive now, which is based on the Net FOB.
Apart from the insights from the research output, some members of the committee raise the concern that Quality Control Company Limited (QCC) charges the License Buying Companies (LBCs) about GHS12 per bag of cocoa they seal which could be some reasons they could adjust scales to cover costs. Notwithstanding, they highlighted the fact that the practice of adjusting scales is illegal.
Climate Change and Productivity Enhancement
The members also raised questions about how climate change is affecting the activities of the sector. An issue was raised as to what extent the hand pollination initiatives have been successful having that no significant increase in production projections have been made in recent years.
Effects of Projections
There were concerns about how the differences in projection in production and exchange rate are accounted for. Some members asked how increases in projection values which lead to increases in the revenues COCOBOD receive are accounted for. Similarly, concerns were raised about how the premium cocoa gains are accounted for? It has been argued that there could be high gains in these areas which if not shared to the farmers would not be fair.
There are concerns raised about the dominance of foreign players in the market which have advantage over the local players.
Transparency of Price Setting
A member of the committee who has served under the PPRC indicated that the price setting process is transparent although he acknowledged that the communication of decisions back to the farmers is not effectively done.
The members clarified that the propositions at the moment is to patronize the cocoa products for the Free SHS (to consume it twice in a week), for prison services and the military.
Relevance of the Report and Future Concerns
The committee acknowledged IMANI’s commitment for the work and the relevance of the work. For its timely nature, they indicated the report and its presentation slides would be used in their engagements with regard to policy formation. They wished some further work is done in the sector and in agriculture in general.
- To provide an assessment across all cash crops and also compare the performance of other cash crops with that of cocoa.
- To assess whether input subsidies should be removed and be given to the private sector to manage or not.
- To assess the effectiveness of Ghana’s forward sale of cocoa.