Cocoa Prices are Surging: West African countries should seize the moment to negotiate a better deal for farmers
The global price of cocoa is spiking, a direct response to dwindling cocoa output in west Africa. In September, cocoa futures reached a 44-year price peak due to mounting concerns over reduced supplies from the region.
The price surge could prove to be a critical moment for cocoa farming and policy in west Africa.
The cocoa-producing belt of west Africa is responsible for generating over 80% of the total global output. Between them, Ghana and Côte d’Ivoire contribute more than 60% to the global output. Ghana is the second-biggest producer in the world and cocoa is a vital component of the country’s economy.
The global price spike has led west African governments to increase the guaranteed producer prices to farmers. Ghana recently raised the state-guaranteed cocoa price paid to farmers by two thirds. The announcement means that Ghana’s cocoa farmers will be paid 20,943 cedis (US$1,837) per tonne for the upcoming 2023-2024 season, up from 12,800 cedis.
Cameroon, the world’s fourth-largest cocoa producer, raised the price cocoa farmers get to 1,500 CFA francs (US$2.50) per kilogram, a 25% jump from the previous rate of 1,200 CFA francs. This increase is even more significant than Ghana’s when factoring in Cameroon’s single-digit inflation. Additionally, the Cote d’Ivoire government has announced a rise in the producer price.
As an economics researcher who has extensively studied and written about cocoa production in west Africa, I contend that the recent shortages can be harnessed to strengthen the position of cocoa producers. This will enable them to address the structural challenges ingrained in the cocoa production value chain. Rising production costs have not been recognised in the value of cocoa beans. Farmers therefore haven’t been able to earn enough income and this has led to unsustainable farming practices.
In my view, west African countries should use the cocoa shortage as negotiating leverage against multinational corporations to address these structural issues. Both Ghana and Côte d’Ivoire must recognise this pivotal moment. They must take the lead, and frame the current production challenges as deep-seated structural problems requiring solutions, rather than as short-term issues.
What’s driving the change?
Ghana’s cocoa regulator recently indicated that its farmers might not be able to meet some cocoa contract obligations for another season. Ghana’s projected cocoa yield for the 2022/23 planting season was the lowest in 13 years, falling 24% short of the initial estimates of 850,000 metric tonnes.
This trend has been repeated across the region, with production falling in Côte d’Ivoire and Cameroon.
Reduced output means demand can’t be met and global prices rise.
The reduction in cocoa output is attributed to short-term and long-term factors.
Commentators typically emphasise the short-term factors:
- poor weather conditions
- black pod disease, which causes cocoa pods to rot
- the decline in the number of cocoa farmers, some of them selling their land to illegal miners
- a shortage of fertilisers and pesticides, especially since the conflict in Ukraine has curtailed Russia’s export of potash and other fertilisers.
A number of long-term structural issues have beset cocoa farming in west Africa for decades. They shouldn’t be overshadowed by concerns with short-term problems.
The first is the declining availability of forest land and its connection to increasing production costs.
Over the last two decades, depletion of forest land has led farmers to turn to grasslands for replanting cocoa plants. This requires extensive land preparation, regular weeding around the cocoa trees, pruning, and the application of fertilisers and pesticides. What’s more, the plants are highly susceptible to disease. All these things result in increased labour costs.
None of these additional burdens have been incorporated into the pricing for sustainable cocoa production. In light of the new cost structure, cocoa beans have been undervalued for decades. Farmers have become poorer and are exploring alternative sources of livelihood.
The cost of sustainably cultivating cocoa in grasslands must be reflected in the price that farmers receive. Relying solely on market forces will not achieve this. For instance, every year, typically in September, the Ghana Cocoa Board announces the official producer price for cocoa beans for the upcoming cocoa season on behalf of the government. This official price is based on the anticipated export market price, with an understanding in Ghana that farmers should receive approximately 70% of it. However, the resulting market price, and consequently the producer price derived from it, often falls short of covering the costs of sustainable cocoa cultivation.
A path forward
What would it cost for cocoa farmers to cultivate cocoa beans sustainably, and ensure a living income, without contributing to deforestation or resorting to child labour?
If the market price falls below this cost (which isn’t static), then the farmers face exploitation, giving rise to many of the problems that plague the industry.
A few years ago, Ghana and Côte d’Ivoire pioneered the introduction of the “living income differential” – a premium that cocoa buyers would pay on top of the market price to ensure that farmers earned a sustainable income from their produce. Despite its noble intent, the initiative faltered. It was not well thought through. And it came at a time when these countries had diminished bargaining clout in a saturated market. Now is a favourable moment.
The crisis in the sector puts cocoa producers in a stronger negotiating position.
Ghana and Côte d’Ivoire could collaborate with other regional countries, such as Nigeria and Cameroon, to negotiate a better position for their cocoa farmers, ensuring sustainable cultivation. There are many strategies these countries can explore, including supply management (such as buffer stocks, export controls, or quotas), price premiums and value addition.
Thanks for this thought-provoking article. What can we say as a result of identified state of affairs are the main overriding factors for the fall in cocoa production?
For me there are the following:
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.
Charles Zwennes Esq.