- ASSESSING KOA’S DEFINITION OF SUSTAINABILITY AND THE TREATMENT OF THEIR PARTNER FARMERS￼
- KOA’S ECONOMIC OPERATING MODEL IN GHANA
- WHY IS IT PROBLEMATIC FOR KOA TO PAY COCOA FARMERS THROUGH MOBILE MONEY?
Continued from Part One
KOA’S Definition of Sustainability
One of my most important questions was asking them what KOA’s definition of sustainability meant and how it influenced their business model and relationship with their partner farmers. To KOA, they preferred to replace the word “Sustainability” with “Responsibility”.
They believe investing in the humans (The people) first would lead to the humans protecting the planet as expected. They decried chocolate companies focused on environmental sustainability when investing in the people and boosting their incomes can have a positive trickle-down effect on protecting the environment and labour-related issues more easily without a struggle. KOA prefers to pursue this by first ensuring the economic well-being of the farmers by offering farmers a net income of $344 per 40% of cocoa pulp from wet beans required to produce a metric ton of dried beans.
Another interesting thing they added was that their business with the farmers helps the farmers to eliminate the cost of transporting their wet beans from their farms to the fermentation area, which is mostly away from the pod-breaking area. However, their business interest is not in the dried beans value chain. However, they still contribute to reducing the cost of production of dried beans with their commitment to transporting wet beings on behalf of farmers to their fermentation area.
Socially, their continuous inclusion and collaboration with farmers allow them to be in touch with what the community wants, ensuring that their operations align with the interest of the people of Assin Akrofuom. To ensure that the farmers’ business is financially sustainable, they deal directly with farmers with no intermediary. Hence the farmers maintain all the margins.
KOA is currently working with over 2,200 farmers and hopes to expand to 10,000 farmers in the next ten years, consequently expanding the GDP of Assin Akrofuom and spreading the benefits of pulp processing to more cocoa farmers and their communities. True to their word, after the interview, KOA announced their $10m investment to expand their pulp processing to include 10,000 farmers and 250 new jobs.
Concerning their environmental impact, they highlighted that the value added to the cocoa pulp is an environmental achievement because the excess cocoa pulp, which otherwise would have gone to waste, is processed into something of economic value. They added that their factory is also solar-powered, reducing the carbon footprint of their final products, hence protecting the ecology of Assin akrofuom. They said that the cocoa pulp extraction also reduced the farmers’ turnaround time for cocoa fermentation. Their pulp extraction reduces the moisture of the wet beans, reducing the fermentation period to 3 to 4 days compared to the 5 to 8 days. To ensure that cocoa farmers can still ferment their beans properly, KOA only extracts a maximum of 40% of the pulp.
I followed up on how much farmers are paid for the pulp and in which currency the farmers are paid. They explained that their partner farmers are paid GH¢10 per 2.5 to 3 litres of pulp extracted from 16Kg of wet beans. They added that they had set a price floor of GH¢10 per pulp extracted from 16kg of wet beans regardless of the number of litres they could extract.
I probed further to understand why the Farmer is not paid in Swiss Franc/Euro/US$ as that is the currency(s) in which they sell their product. In their answer, they felt that the erratic nature of forex exchange rates might pose a challenge when at one point, they must pay the farmers less due to the appreciation of the Ghana cedi.
I vehemently disagreed with this argument and highlighted that they wouldn’t need to pay the farmer the Cedi equivalent but rather the Swiss Franc/US$/Euros so that the farmer exchanges it at any point they want. I added that for the past 30 years (i.e., 1992 to 2022), the US$, on average, has appreciated against the Ghana Cedi by 20% annually. When converted to Ghana Cedi by the farmer, this allows them to gain extra Ghana Cedi to offset their local inflation rate.
Does KOA Adjust Cocoa Pulp purchase price from farmers to Inflation?
Since they currently pay the farmers in Ghana Cedi, I inquired whether they adjust their selling prices to inflation to ensure that their real income doesn’t trend downwards. This question was crucial to me as KOA buys the Pulp in Ghana Cedis but sells the final product in Swiss Franc/Euros/US$. Of course, this is not unique to KOA. Almost all companies that produce for export but procure locally pay their local suppliers in Ghana Cedi.
My view, as expressed in my article “why cocoa farmers need to be paid in US$, The Gh¢ has depreciated against the US$ by 19,490% within the last 30 years (Feb 1992 to Feb 2022). This means that in the past 30 years, the US$ has appreciated against the Gh¢ at an annual average of 20%. So first, on an annualised basis, the US$ appreciation can counterbalance the effects of Ghana’s inflation and improve cocoa farmers’ real income. KOA answered that as a new startup, they haven’t yet decided to adjust their purchase price to inflation, but they will discuss this internally after the interview. They also agreed to discuss my suggestion on the need to pay the farmers in Swiss Franc/Euro/US$ due to the benefits I outlined.
Farmers’ Stake in KOA
I asked about farmers’ stake in KOA aside from what they earn as pulp suppliers. This question was crucial for me as I disagree with the weaponisation of empathy to extort poorer people of their resources even when such resources have never been utilised for economic benefits. KOA mentioned that the farmers’ stake in KOA is a cocoa pulp supplier.
In addition, they focus more on researching ways to create new revenue streams for farmers to increase the breadth of income sources from by-product processing. Notwithstanding, they have provided numerous supports to the farmers, including capacity building, supplying them with seedlings for agroforestry and facilitating their ability to access their inputs from Ghana Cocoa Board in time.
So, where they may be suppliers of KOA, their partnership goes beyond just pulp sourcing. I found this very positive because KOA, per the interview, demonstrated the Ghanaian approach to managing partnership which most times goes beyond the scope to provide more, as opposed to most Europe and European firms, which prefer to be as distant from the people as possible, very inflexible, fixed, mechanical and robotic.
We ended the interview with a question about KOA’s Freezones status and how Ghana gets the foreign exchange earnings from their exports in practice. Again, this question is vital to my exploration of Freezones companies treating their subsidiaries in Ghana as strategic business units and not as an independent company that receives all their export revenue into their Ghanaian bank accounts. KOA Ghana confirmed via email that they receive all their export revenues into their Ghana bank account. This is something I cannot prove and hence remains sceptical. But kindly note that Ghana’s policy allows KOA to repatriate 100% of their profits legally, so they wouldn’t have done anything wrong if they repatriate their earnings or retain their sales internationally.
I emailed the Ghana Freezones Board to ascertain how they validate Ghana’s reception of the foreign exchange expected of Freezones enterprises. They first responded that they consider the value of exports from these enterprises as the foreign exchange Ghana has earned.
This means Ghana Freezones Authority does not have any way of validating foreign exchange earnings and assumes that the worth of the free zone companies is equivalent to what Ghana automatically gets as foreign exchange. In fact, how can new even think that there are foreign exchange benefits from foreign direct investment through the economic free zones when part of the incentives is the ability for the investor to repatriate 100% of their profits to their home country? When I have emailed Ghana Revenue Authority for further information, including this; hence, I will report on it when I get some feedback.
In the next article, I will offer my concluding thoughts with an analysis of what KOA’s business exploits expose about the inconsistencies between policy, Practice and Rhetoric of Governments, Chocolate manufacturers, cocoa processors, and Governments.