Kwarme Kwateng has written an interesting analysis of the money paid to Cocoa farmers by COCOBOD, for their living income differential (LID). Ghana promised to pay farmers 100% of the money brought in by the Living Income Differential, but the devil, as they say, is in the detail, and Kwateng breaks down the numbers, and came up with a surprising result.
The LID is paid to Ghana in US dollars, but COCOBOD pays farmers in local currency (Cedis) when it purchases Cocoa at the price set each year by the regulator.
Since COCOBOD sets the price for the year ahead, they must estimate the exchange rate. For the 2020/21 crop, Kwateng states the rate was set at US$1 to GH₵5.8, which turned out to be very close to the actual rate, which stood at GH₵5.97 at the end of the season.
This year however, the current exchange rate looks to be much higher. I checked the rates myself and saw $1 would buy GH₵5.94. The government of course would get a significantly improved rate than one found on the internet.
Yet COCOBOD has not improved prices to farmers.
To be conservative, if the mean exchange rate for this crop year is GH₵6, with a forecasted Cocoa production volume of 1,000,000 tons, then COCOBOD would owe smallholder Cocoa farmers by a total of GH₵80m in LID arrears.Kwarme Kwateng
GH₵80m is equivalent to US$12,318,674, a substantial sum that could be used to make a real difference to the Cocoa farmers. By a strange coincidence, that number is almost exactly the loss made by the government owned chocolate company, CPC. I actually think that is a coincidence, but conspiracy theorists have something to get excited about.
Solving the problem isn’t hard. At Bartalks, our accounts has a line for ‘Foreign Exchange Gains/Losses’, to account for variances from our invoices, and the actual money we collect, which may be in different currencies.
I’d be surprised if Ghana wasn’t already accounting for this. They simply need to distribute the gains, perhaps holding back a percentage to offset future foreign transaction losses, and smooth the distribution curve.
The question remains if Ghana is going to be true to their word, to deliver all the money paid as an LID premium to the farmers, or not?
It may prove difficult for the country’s leaders to point the fingers at the Cocoa buyers and tell them of their obligations, if they, themselves, are pocketing some of the cash.
Kwarme Kwateng MBA, MSc. is an Agricultural Trade Policy Analyst, Cocoa-Chocolate Industry Expert, Digital & Industrial Project Manager, and we noted he is available for projects. You can contact him on LinkedIn
Photo courtesy of Nestlé