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Ghanaian cocoa farmers to benefit from new incentives PDF Cetak E-mail
Oleh Administrator   
Jumat, 09 Januari 2015 09:22

Ghana’s cocoa production sector received a boost in the current crop season with a substantial price hike for farmers.

In October, the state-owned marketing agency and watchdog, Ghana Cocoa Board (Cocobod), raised the 2014/15 farmgate price by 62.74 per cent to US$1,760 per tonne, 5.3 per cent higher than the producer price in Côte d'Ivoire.

Cocobod hopes the price increase will reduce incentives for smuggling to Cote d’Ivoire, boost production and also help cocoa farmers make long-delayed investments in new equipment to increase crop yields. Despite having built a sound reputation over the past decade, Ghana’s cocoa sector is facing challenges. The most serious has been the depreciation of the cedi, which lost 41 per cent of its value between January and October this year. Ghana’s budget deficit, the result of heavy spending on public sector salaries, coupled with high inflation - which averaged 15 per cent in June - caused the cedi to slide against the US dollar. This eroded farmers’ real incomes – which are linked to the fixed price – and drove a surge in bean smuggling to Côte d’Ivoire in search of better prices.

Before the price hike, the Ivorian fixed price of CFA750/kg was 58 per cent higher in dollar terms than Ghana’s fixed price of 3,392 cedis/kg. Another factor was the delay in Cocobod advancing funds to the field at the start of the season. Given that most licensed buying companies (LBCs) work under tight financing constraints, this forced them to periodically suspend purchases, in turn forcing cash-strapped farmers to sell their beans over the border.

The industry estimates that at least 60,000 tonnes of beans have been smuggled to Côte d’Ivoire so far this year, with some estimates ranging as high as 100,000 tonnes. In response, Cocobod has stepped up its efforts to recruit local communities in the border area to help identify smugglers and intercept smuggling routes.

Cocoa is one of the key crops in Ghana, accounting for more than 20 per cent of total export earnings and 57 per cent of agricultural exports. However, declining world prices in the past three years has squeezed producers and hurt export earnings, impacting adversely on the country’s fiscal and current account deficits. An improving global market since October, and an anticipated stronger demand for Ghana’s beans, led Cocobod to announce the price increase.

Ghana’s production has almost doubled over the past decade, rising from 340,000 tonnes in 2001-02 to 632,000 tonnes in 2009-10, owing to the improved provision of inputs, new plantings and better husbandry. Since then, production has fluctuated. Output subsequently returned to more characteristic levels, falling to 878,500 tonnes in 2011-12 and 835,400 tonnes in 2012-13. Ideal growing weather during the 2013-14 season raised expectations of a strong crop in 2013-14, after main crop purchases reached 879,000 tonnes by the end of June.

The outlook for Ghana’s 2014-15 crop is uncertain, owing to macroeconomic instability. With inflation remaining high and the cedi’s recent strength unlikely to last, it is unclear how long Ghanaian farmgate prices will retain a premium over Ivorian prices. "Given Cocobod’s financial constraints, the distribution of free fertilisers and insecticides will be constrained this season, but we do not expect this to have a significant impact on yields as, in the past, much of the fertiliser did not reach the intended farmers,’ regional commercial bank Ecobank said in a research note.

The impact of the depreciating cedi, however, has not been entirely negative. This is because the annual financing Cocobod raises is denominated in US dollars, as are the supply contracts with traders and exporters, which has insulated Cocobod from currency volatility. In addition, Cocobod advances all of its funds for field purchases in cedis. Given the depreciation of the cedi and the fixing of the farmgate price, this has meant that Cocobod has saved substantial dollar funds over the course of the season, by some

estimates as high as US$700mn. Cocobod may choose to return some of this surplus to farmers as an end-of-season bonus, as has occurred in previous seasons, but its ability to use these funds will be constrained.

The financial troubles of the licensed LBCs are another constraint, as relatively low-cost financing in Cocobod’s seed fund is stretched thin and commercial lending is expensive. This has delayed payments to farmers, who are facing their own liquidity problems.

However, Cocobod’s recent securing of US$1.7bn of financing for purchases in 2014-15 was a testament of investor confidence, and it should help boost sales. "Given the sharp improvement in the farmgate price – which has reduced the incentives for smuggling – we expect Ghana’s output to grow modestly in 2014-15, to 950,000 tonnes, 5.8 per cent higher than last season and just short of Cocobod’s one million tonnes target,’ said Ecobank.

Given the high volume of cocoa production and strong government support to develop grinding, Ghana is Africa’s second largest cocoa processing hub, after Côte d’Ivoire. Ghana has an estimated installed capacity of 430,000 tonnes; although only around 245,000 tonnes are currently being used, giving a capacity utilisation rate of less than 60 per cent. According to ICCO forecasts, Ghana’s grind will rise by 2.2 per cent to 230,000 tonnes in 2013-14, the equivalent of 28.9 per cent of West Africa’s cocoa grind. This means that Ghana has been losing market share to its rival, Côte d’Ivoire, whose own grind has risen by a stronger 16 per cent over the past two seasons to a forecast 500,000 tonnes in 2013-14.

Ghana’s cocoa grinding sector is dominated by a handful of multinationals and the former state-owned grinder, Cocoa Processing Company (CPC). Between them, Switzerland’s Barry Callebaut, the USA’s Cargill and CPC vie for the top share of the grind, with capacities of 67,000 MT, 65,000 tonnes and 64,500 tonnes, respectively. The USA’s ADM is not far behind, with a 42,000 tonnes capacity. Wamco, a joint venture between German investors and the Ghanaian government, has a capacity of 47,000 tonnes, but the company is not currently operating owing to severe financial and management problems, contributing to the country’s high level of unused grinding capacity. Numerous small-scale grinders exist, but currently few are grinding cocoa products. The market leaders have a varied output of cocoa products. Barry Callebaut only produces cocoa liquor and nibs at its Tema-based factory (which are intended for sale to other domestic subsidiaries), while ADM only produces liquor. In contrast, Cargill produces cocoa cake and butter, while CPC produces all cocoa products (liquor, cake, butter and powder).

Ghanaian grinders are dependent on a 20 per cent discount for smaller beans, which are mainly produced during the June-September light crop and which are used for blending with main-crop cocoa, which is too expensive for exclusive use in blends. Ghana’s grinders produce a variety of cocoa products, dominated by cocoa liquor (103,768 tonnes in 2011-12), but with significant volumes of cocoa butter (22,280 tonnes) and cocoa powder (18,555 tonnes).

Ghana’s processing sector continues to face limitations that constrain its growth. According to ICCO estimates, Ghana’s cocoa grind rose by a paltry 1 per cent in 2013-14 to 228,000 tonnes, well below average growth of 2.8 per cent the last three seasons. This has resulted in Ghana using less than 55 per cent of its installed capacity. Ghana’s high level of unused capacity results from many causes, notably the high costs imposed by erratic power supply, ageing equipment and the financial difficulties of local processors. But in the medium term, the most serious is the constrained supply of light-crop beans.

Ghana’s grinders need a constant supply of small beans, which are discounted by 20 per cent by Cocobod to help offset high production costs. Ghana, however, tends to have small light crops, with the 2013-14 light crop estimated at 20,714 tonnes, compared with 499,000 tonnes in Côte d’Ivoire. The lack of sufficient supply of light-crop beans has led grinders to suspend operations in the past, as did Barry Callebaut in 2008.

The underlying cause for this has been the gradual introduction of hybrid seedlings, which produce fatter beans that are exported directly. While drier weather resulting from climate change could have an impact on bean size—the proportion of small beans hit an all-time high of 28 per cent of total output in 2012-13, up from a ten-year average of 20 per cent — it is unlikely to affect the long-term outlook for larger and higher quality beans. This raises serious questions about the viability of Ghana’s grinding sector, which may require different fiscal incentives in order to operative competitively.