Cocoa in Crisis: The Bitter Truth Behind Ghana's Declining Cocoa Story

In the heart of Ghana's economic landscape lies the cocoa industry, a cornerstone of the nation's agricultural heritage and a vital source of livelihood for thousands of farmers. However, recent revelations and happenings in the cocoa subsector have cast a pale shadow over the sector, sparking market rigidities and increased smuggling to neighboringmarkets. Once celebrated as the land of rich, flavorfulchocolate, Ghana now faces a bitter truth—it's a cocoa industry in crisis.

In the intricate world of cocoa trade, where global demand intersects with local livelihoods, Ghana's cocoa industry stands as a pivotal player. However, the recent revelations have thrown the operations of the Ghana Cocoa Board (COCOBOD) into sharp relief, sparking debates on pricing policies, managerial competence, and, most importantly, the welfare of cocoa farmers.

Despite global cocoa prices soaring to unprecedented heights, reaching over $3,280 per metric ton (MT) in 2023, Ghanaian cocoa farmers find themselves grappling with stagnant or declining incomes. What lies behind this alarming trend? At the heart of the crisis lies the diminishing share of profits reaching cocoa farmers, making farmers less efficient with low productivity levels and heavily disincentivized to continue the production of cocoa. Historically, Ghana's cocoa pricing policy aimed to ensure farmers received a minimum of 70% of the Free On Board (FOB) price—the price at which cocoa is exported. However, under the current NPP government, this percentage has plummeted severely as reported by reputable sources like the World Bank for the 2022/2023 cocoa season, farmers received a meager 25% of the FOB price, marking a historical low. Government claims of farmers receiving around 76% of the FOB price are not just misleading but insultingly deceptive, undermining the toil of those laboring in the cocoa value chain.

At this juncture let's take a journey through what government earns from the toil of the farmers; according to the International Cocoa Organisation and the International Food Policy Research Institute as of March 26, prices on the May 2024 cocoa futures contract on the ICE exchange were over $9,600 per metric ton (MT) whiles the international spot price of cocoa stood at $6,650.25/MT or 158.49% since the beginning of 2024.

It is noteworthy, that the average international FOB price of $6,650.25 excludes the Living Income Differential (LID) of $400 per tonne that is paid by the market to Ghana for the direct benefit of the cocoa farmer. Meanwhile, the average international FOB price of $6,650.25 excludes the premium of $497 per metric tonne that Ghana got in June 2023 for every tonne of cocoa.

At the current interbank (dollar to cedi) rate of $1 to GHC 14.05 and granted cocoa price had remained stagnant from April, the government should be making an average gross FOB price of GHC 93,432.5 per tonne of cocoa, excluding the LID of $400 per tonne and premium of $497 per tonne. Whenyou factor the LID of $400 per tonne and premium of $497 per tonne into the pricing formula, the price per bag of cocoa comes to about GHS 105,332.35, making the average price of a 64kg bag GHC 6,583.27. It is therefore heavily insensitive and rather unconscionable for the government to be offering the already burdened cocoa farmers a paltry GHS2,070 per bag as farm-gate price, which currently only constitutes 31.44% of the gross FOB price (including premium and LID) that the government will be getting from spot sales.

As a ship pile of insult is being added to injury, COCOBOD continues to report substantial financial losses year after year, despite the buoyant cocoa prices and the exploitation of farmers and the other hand currently producing about 492,000 metric tons of cocoa beans in the 2023/2024 crop season, about 27.9% less than the 683,000 metric tons of cocoa beans recorded in the 2022/2023 season. Where did we go wrong? Already the lack of transparency regarding COCOBOD expenditure, budgetary allocations, cocoa debts, and financial mismanagement is fuelling public suspicion, eroding trust in the cocoa governance structure.

At the center of the storm is the revelation that COCOBOD, Ghana's cocoa regulatory body, engages mostly in forward sales of cocoa, a fact confirmed by COCOBOD CEO Joseph Boahen Aidoo, has ignited a firestorm of controversy, particularly regarding the pricing mechanisms and their implications for cocoa farmers. While it is an undeniable fact that Ghana over the years has been combining various pricing strategies including spot sales and forward sales, it has been guided by the principle of maximizing income for farmers through proper market forecasting. The objective has been to identify the highest price points on the futures market tosecure the best price for our cocoa and maximize farmers'income. Therefore, the quantity of cocoa sold through forward sales for various futures positions is carefully managed, leaving reasonable portions for possible spot sales and other lucrative forward deals when the market price rises.

The government and its assigns have posited that, the “giveaway” forward deals was because of the large levels of light crop beans being produced, which beans do not perform better on the international market. This is grossly misleading considering the fact that we have had to import light-crop beans from Nigeria to support the local manufacturing industry in the past few years, and the fact that Ghana’s light-crop beans form only a small portion of the total production volume of the country. This argument only qualifies as a smoke screen for the reckless dissipation of Ghana’s cocoa at cheap prices. More importantly so, because it has been amply clear from every available data since last year, that the international market price was going to significantly increase on account of the huge global supply deficit of cocoa.

Let mat this point reveal that amidst the 46-year record highselling price of over $9,600 per metric ton (MT) at forward sales and at $6,650.25/MT at spot sales of cocoa, the highest since 1977. The Akufo Addo/Bawumia government’s much-touted forward sale at gross FOB price of $2,600 is a total rip-off, woefully inappropriate, and can only be a product of gross incompetence, obscene corruption, and wilful negligence.

Moreover, the NPP government's approach to the cocoa sector is characterized by a glaring lack of innovation. While neighboring countries like Cote d'Ivoire embrace new technologies and partnerships to enhance efficiency and sustainability, Ghana remains mired in stagnation. Minimal funding for research and development stifles the exploration of high-yielding cocoa varieties resistant to pests and diseases. Shockingly, estimates from the International Cocoa Organization indicate that over two-thirds of Ghana's cocoa trees are over 30 years old, diminishing productivity and increasing vulnerability to pests and diseases. A 2021 study by the International Institute of Tropical Agriculture (IITA) underscores this, highlighting the inadequate knowledge and skills among Ghanaian cocoa farmers for optimal farm management and disease control. Without forward-thinking leadership, Ghana risks lagging behind in the global cocoa market.

Ghana's cocoa sector stands at a critical juncture. To navigate this crisis and ensure the industry's long-term sustainability, a holistic approach is imperative. Transparency within COCOBOD must be enhanced, with a focus on fairer pricing for farmers and a thorough audit of reported financial losses. Investment in research and development is paramount to promote disease-resistant cocoa varieties and replace aging trees. Crucially, empowering farmers through education and training in modern cocoa cultivation techniques is essential for a brighter future.

To Ghana, cocoa represents more than just a commodity; it is a national treasure intertwined with the country's economic and cultural identity. The current crisis not only threatens the economic stability of Ghana but also carries profound socio-cultural implications. With the livelihoods of approximately 1.6 million people at stake, the government bears a moral and economic responsibility to take decisive action. The evidence of the past seven years overwhelmingly demonstrates that the NPP government is woefully incapable of meeting this challenge.

Authored by: Dr. Peter Boamah Boamah Otokunor, Ch.FE, F.ChE

(The author is an Agricultural Economist, a Chartered Financial Economist, a Fellow of the Association of Chartered Economists, a Lecturer at the University of Professional Studies, and a Politician)