When Raw Materials Have More Value than Processed Goods: The Cocoa Scenario

Cocoa plant

Processing cocoa can reduce the value from $2.00 per kilogram to $1.50 per kilogram.

There’s a growing demand from the people for the government to process all raw materials before exporting it to increase the cash amount that can be gained from the trade. The common perception is that if 1kg of cocoa beans cost $2.00, processing it into powder should increase the price to $2.20. Unfortunately this is hardly the situation on the cocoa market as it has consistently proven that processing the bean into a further step such as powder or liquid will reduce the market size of the product at hand and Ghana can be forced to sell at a lower price of about $1.50 (25% less than the price of the bean). This is a big blow to the processing cost from bean to powder and a big loss in revenue and time.

How does this happen?
Cocoa bean can be processed into finished products such chocolates, toffees, drinks, ingredients, and body lotions. Each of the products made by a company requires a unique processing step. A company producing three taste-varieties in their chocolate brand will require them to differentiate their manufacturing process. The difference in taste can be due to the amount of time spent in roasting the beans; say 1 hour, 2 hours and 3 hours for product “A”, “B” and “C” respectively.

If Ghana roast her beans and grinds it using the same process as the company above and a roast time of 2 hours, the product becomes eligible to be purchased for producing product “B” which limits it to a specific company and a specific product. This scenario reduces competition for the product from other buyers and creates a purchasing control from the buyer. This buyer with the knowledge that the product is not wanted on the market and the fact that the flexibility of the product has been lost even for him makes him reluctant to buy at a higher price thereby forcing the country to sell at a price equal or lower than the market price of the dried beans.

The market limitations created also arises form companies willing to protect the details of their manufacturing process as a trade secret and will see buying of processed goods will give away their trade secret, and therefore chooses to avoid such purchases.

This is not a new problem that the country will face if we begin to process cocoa for the world market. During the reign of Nkrumah cocoa was processed from the bean to liquid to increase its value on the world market but was rather shocked by the massive drop in the value of the liquid compared to the bean. The country then had to revert to selling the highly valuable bean and leaving the processing plant to ruin. A more analysis and considerations needs to be done if the country intends to pursue their interest of exporting processed cocoa.

Processing the cocoa bean to a more finish product for export is preferred but this has to be done from an entrepreneurial perspective where the export revenue generated for the country is huge with the government taking a percentage as taxes compared to the government monopoly on bean export.