21.04.2010 Feature Article

Cocoa smuggling: thinking the unthinkable

Cocoa smuggling: thinking the unthinkable
21.04.2010 LISTEN

We all seem to have been shocked by revelations in the secret tapes of Anas Aremeyaw Anas, where security and CEPS officials openly aided the smuggling of cocoa and fertilizer to Ivory Coast.

Anas is to be commended for his bravery and for doing what he does; exposing degenerate behaviour that is becoming rampant in our society. And those nine government officials exposed in the video should be made to face the full rigours of the law.

But I am shocked rather that we are shocked at all by the revelations. Smuggling has been a fact of our existence and CEPS and security officials have aided smugglers since the beginnings of that activity, whether the motivation is out of greed or the need to survive.

We have smuggled just about every item out from Ghana to neighbouring countries at different times, when the benefits were deemed right by our nationals, and so also do we continue to smuggle into the country manufactured products that ultimately saturate our markets to the detriment of local producers.

The point is that smuggling is a fact of our life. Only this time the item involved is one to which we, as a people, have an emotional attachment to. Ghana has a global identity as the country that produces the world's best cocoa beans, which commands premium price on the world market, even if we have lost our position as the number one producer.

The special role of cocoa in the national economy, perhaps, should be the focus of our discussions on this current matter rather than the fact that government officials resourced and charged with the responsibility of fighting the menace, are rather major accomplices.

Cocoa conundrum
The smuggling of cocoa immediately throws up a number of questions. The first and most important question being; "why do we do it?"

Obviously the smugglers obtain better value for it in those markets than at home. And that is where the puzzle lies because Ghana's cocoa commands premium price on the global market, meaning ours is the best and we can, and indeed do, sell all our beans before others do.

So why does Ghana offer a lower producer price than Ivory Coast?

Currently, Ivory Coast pays its farmers 64,000 CFA, the equivalent of GH¢213 for a 64kg bag of cocoa while the Ghanaian government purchases the same 64kg bag at GH¢150 from our farmers. Ivory Coast therefore is paying 42% more to its farmers. I don't know a Ghanaian cocoa farmer or merchant who will not be attracted to the Ivorian market.

Of course government could be paying our farmers less because of government support in the form of subsidized fertilizers to cocoa farmers, and then also the subsidized mass spraying exercise.

That immediately should inform policy makers that subsidies to cocoa farmers will only help to increase our export volumes if the arbitrage conditions currently prevailing are removed.

We cannot get Ivory Coast to pay their farmers lower rates so we must raise our producer price to eliminate the price deferential that is the incentive for smuggling.

The system of guaranteed minimum price, for our farmers, adopted by the Cocoa Marketing Board (CMB) which ensured that cocoa farmers received some healthy income irrespective of world market prices of cocoa was to encourage sustained high outputs even during periods of slumps in coca prices.

That policy may also have necessitated the need for Ghana to sell its beans in the futures market and that, coupled with the fact that the quality of our beans is the best meant there were buyers willing to take a gamble on us.

Ivory Coast however largely sells its cocoa on the spot. In the face of sustained high spot market prices, this is allowing the country the space to pay higher producer prices. A space that may not be available to Ghana, because we are locked in the future market?

Given that we have superior quality beans and therefore could sell more easily, and that now coupled with the fact that our cocoa production being on the rise, recording average annual outputs exceeding 600,000 tonnes, compared to less than 300,000 tonnes about a decade ago, couldn't the conventional wisdom of selling on the futures market be now outmoded?

Another important matter to consider is the recent complaints by farmers in the Western Region that the mass spraying exercise is below their expectations since they have to buy two thirds of chemicals required to spray their farms since the spraying agents only provide the first of three chemicals required annually.

When farmers bear costs, which they must have for free, it could undermine the purpose of the whole effort to raise productivity and output levels, while they will also want to do everything to recover their costs.

Perhaps our overdependence on cocoa as a foreign exchange earner for the country, which we have used to support national development over the years, and until as recent as 2007, have for instance, contracted to payoff the US$600 million Chinese funding of the Bui hydroelectric dam, with future deliveries of cocoa beans all contribute to how little space in paying higher producer prices to our farmers.

Cocoa farmers in the Western Region have suggested, earlier when the producer price was raised this year at the end of the buying season and they therefore could not benefit from that action, that should half the price differential between the producer prices in the two countries be added to theirs, bringing Ghana's producer price to a minimum of GH¢180 there would be no incentive to smuggle since the remaining half of the amount is the cost they incur in smuggling.

But now there is a situation on hand. Smuggling of the crop is lucrative and rampant, to the extent of security personnel, resourced to arrest the situation rather participating in it with impunity.

The hard lesson to learn from this episode is that, perhaps now is the time to rethink how we manage our national resources and our internal market to ensure all productive agents operating within the country receive fair market values for our products and services.

When we receive a fair reward for our economic activities, then we may not need to invest so much in security agents - to apprehend smugglers - who after all, themselves would end up being compromised because they also are underpaid or greedy or both.

Credit: Emmanuel Kwablah/B&FT
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