Charles Zwennes highlights three critical issues facing the cocoa sector
Former Board Chair of Republic Bank Ghana, Charles Zwennes Esq, has in an article to norvanreports, highlighted three critical issues facing Ghana’s cocoa industry.
The article was a response to an earlier article titled Cocoa Prices are Surging: West African countries should seize the moment to negotiate a better deal for farmers published by norvanreports.
According to Mr Zwennes, addressing issues of price-fixing, adapting to climate change and making some structural adjustments to the economy, are crucial steps for Ghana’s cocoa industry and broader economic sustainability.
Read article below:
1. Price-Fixing – Ghana’s cocoa industry suffers from structural free-market contradictions which serve as a disincentive to Ghanaian farmers. So COCOBOD fixes the price that all Ghanaian cocoa growers are paid per ton of the bean; your article informs us that the Ghanaian farmer is paid USD1,837 per ton, compared to the Cameroonian farmer who is paid USD2,500 per ton.
The Ghanaian farmer is paid more than 25% (more than a quarter) less than his Cameroonian counterparts. Interestingly, the current spot price for cocoa on the World Market is USD3,480 per ton. So the Ghanaian farmer is paid by COCOBOD something like half what his produce is being sold by them on the World Market for. Naturally, this would be a disincentive to the Ghanaian farmer to continue growing the pod. It is also a disincentive for people in Ghana with surplus capital to go into large-scale industrial cocoa farming as a business venture.
The local price ceiling which is set at half the World Market price makes any feasibility study a loss-maker from a mile away. This means that ever since going into cocoa we will continue to rely on peasant farmer holdings to aggregate total export production from. It was a clever, innovate and near-brilliant system at its beginning, devised by a Leader who wanted to virtually launch the Nation into becoming a World Leader in the production of the crop. However its structure does have systemic contradictions within it, and after a while free market forces begin as they always do to affect our human choices. Basic. In practice, COCOBOD pockets this huge margin between the price it pays the farmers and the price it sells to the World at, and uses only a small amount of it to procure and provide agricultural inputs like fertiliser and insecticides for the farmers.
But it is simply not enough. Where does the rest of the margin go? A lot of it goes also into the bridging loan financing through Commercial Paper that is structurally in place to front finance logistics and settlement in front-selling the upcoming seasons harvest. These arrangements are costly, inefficient and profitable only to those organising and offering the arrangements.. The internal workings of the Nkrumah-old structure and model has over the years become plagued by “gig and deal opportunities“ for business adventurists. Ultimately, They drain governments resources and deprive the farmer of what should be a fair share belonging to him.
The farmer naturally sees a better livelihood for himself in growing other cash crops which are not price fixed and therefore which would give him better returns. Price-fixing (especially when so drastically implemented such as by paying the grower only half of the real value price of the commodity) distorts the Free Market Hand of demand and supply, so badly that supplier will migrate to growing other crops. In some cases other alternatives may present themselves to the grower that easily turn him away from agriculture altogether – Galamsey and such other socio-economic ills spring to mind, which also account for the fall in cocoa production and the depletion of the forest belt.
These are all major cause-and-knock-on-effects contributing to the fall in supply cocoa, and im saying that the root cause is the price fixing mechanism which has to be seriously looked at if we want farmers to stay incentivised by restoring the risk/reward balance to reposition the Scale of Preference how we want it with cocoa in pole position.
2. Climate Change – what you refer to as “poor weather conditions” in your article is better described as Climate Change. We are told by world scientists that the change in the average termprature of the planet by 1.5 degrees Celsius is going to have hugely catastrophic consequences on countries like Ghana who have a loop-sided economy dependent on one agric crop. The case with cocoa is no exception.
The strain of trees we have here are highly susceptible to even the slightest increases in temperature and we are beginning to see it from the yields dropping. There are other robust strains in the world which other countries have offered to help us introduce but to date nothing has been done about this initiative. Considering that these trees take between 5 – 7 years to get in their stride of bearing, we are already very late.
3. Structural Adjustment to the Ghanaian Economy – Perhaps it is time that we started moving away from such a high dependence on one industrial crop and diversify into equally gainful, value-add crops and their processing. Frankly-speaking, cocoa was never “our thing”. It was brought here and given to us by someone to grow it for them. We are not eaters of chocolate, and therefore we not really makers of the stuff either.
Sure, we have some chocolate manufactures but it is just not our thing like it is for the Swiss, Swedes or Germans which are just some of the countries that are the masters of chocolate making in the World. I do not think that in order for Ghana to became a great nation one day, we should continue to embrace so tightly the role given us, to be the bean growers for those who feed the sweet teeth of the children of Europe and North America.
If we don’t wish to leave it behind then at the very least we need to change focus from what I call “Bean to Brand”, and become a world leader in making chocolate. Alternatively, Shear Butter and its derivatives is a far better and higher value-add crop that far more emphasis (for sake of structurally adjusting our economic to a better balance) should be being placed on.
There are many others that can be grown and processed for profit by the private sector for export – the total aggregate of taxes paid by a whole new industrial scale agricultural drive for the export market will adequately replace Cocoa revenues once we assiduously apply ourselves to the task.