Freeing Ghana’s Cocoa Farmers from COCOBOD’s Monopoly

By Gideon Adjei-Mawutor
Article Freeing Ghanas Cocoa Farmers from COCOBODs Monopoly
FEB 8, 2024 LISTEN

Ghana's cocoa farmers are struggling to make ends meet as the Ghana Cocoa Board, known as COCOBOD, to which they are legally obligated to sell their produce, cannot pay them. COCOBOD is a state institution obligated to sell cocoa beans on the international market for all Ghanaian cocoa farmers. In November 2023, the annual reports from COCOBOD showed that it had not made any profit for the past six years. The report indicates that COCOBOD is projecting a loss of 2.6 billion cedis in the 2023/2024 season, on top of a 3.3 billion loss last season. If Ghana's COCOBOD cannot run at a profit to pay cocoa farmers their due, which will, in turn, raise the standard of living for cocoa farmers, then it needs dissolution. Viable solutions to restore cocoa farmers’ standard of living include removing the obligation to sell to COCOBOD, reducing government regulations, and providing an enabling environment for foreign investment in the country’s cocoa farming.

Ghana is the second leading producer of cocoa in the world, with cocoa making up 15 percent of the country's exports. COCOBOD sets cocoa prices, often lower than what is obtainable in the open market. The price setting negatively affects farmers' living conditions because their incomes remain constrained, affecting their ability to meet basic needs and invest in their farms. This precarious situation has forced farmers into smuggling out cocoa beans to buyers from Togo to make earnings. Some also resort to selling cocoa farms to small-scale miners, as has become a troubling trend since 2019.

Removing the obligations to sell to COCOBOD can increase farmers' job satisfaction. The government should review and revise existing policies that mandate cocoa farmers to sell their produce exclusively to COCOBOD. Allowing farmers to sell their cocoa beans to various buyers creates a free market system that could encourage competition, potentially resulting in better prices. The net benefit of opening the market to farmers outweighs any benefit of restricting their access. An example is cashew crop farming, which has no regulatory board but has increased farmer returns more than cocoa over the last five years.

The exemplary success of the cashew crop industry shows that direct sales can increase prices and profit by bypassing intermediaries and the transactional costs associated with intermediary negotiations. Adopting direct sales, therefore, integrates farmers into the global value chain. The integration occurs seamlessly because the farmer gets to know the buyer's needs and can optimize farming methods to help cultivate the best produce for the market. A 2016 policy intervention from the United Nations Conference on Trade and Development alludes to the critical need for cocoa farmers' integration into the global value chain.

Additionally, the Government must remove COCOBOD’s regulations that stifle the productivity of cocoa farmers. Regulations such as the Cocoa Stabilization Fund (CSF) policy, initiated by COCOBOD and adopted by the government, which aims to stabilise cocoa prices for farmers, have yet to have that impact. Rather, the reverse is the case, as substantiated by the World Bank research. The policy aimed to stabilize cocoa prices for farmers by accumulating surpluses. However, the agency's direct intervention unintentionally kept producer prices lower than they could have been, making cocoa farming economically unattractive.

Other incentives, like free fertilizer for cocoa farmers, have also led to farmers postponing the replacement of old cocoa trees with new ones. The consequence of delaying the replacement of older trees led to stagnation in productivity because older trees yield less, thus affecting cocoa output. The lower output usually leads to economic losses that negatively affect farmers. Therefore, removing regulations and incentives is a step toward increasing cocoa output and prices while incentivizing best farming practices.

Furthermore, there is a need to encourage foreign investment in the cocoa sector. With COCOBOD at the helm of affairs recently, securing investments and loans from foreign and other trading partners has been challenging due to mismanagement. Opening Ghana for more cocoa processing industries and exporting firms can encourage private sector participation. With private companies, both local and international, having a serene business environment to operate, Ghana can restore confidence in the cocoa sector. Diversifying buyers and value-addition firms reduces dependence on COCOBOD. Divestiture also attracts more demand since the cocoa produce is not only exported in its raw state. The opportunity may lead to possible partnerships with farmers to scale up production, thereby increasing their livelihoods.

In summary, Ghana's cocoa sector demands a transformative approach. The nation can rejuvenate its cocoa industry by freeing farmers from exclusive sales obligations to COCOBOD, revising counterproductive regulations, and attracting foreign investments. Embracing a model akin to the thriving cashew industry offers a blueprint for increased farmer income, improved productivity, and long-term sustainability.

Gideon Adjei-Mawutor is a writing fellow at African Liberty. He is on X (Twitter): @Giddijei.