In 2017, a German Investor who initially came to Ghana to explore the viability of a solar business ended up establishing the first cocoa-pulp manufacturing factory in Ghana. They recently also launched their blockchain-based transparency system to demonstrate to their customers how much they pay their partner farmers.
While this business venture converts what was initially a waste material into products of economic value, creating an additional income stream for the farmer, it shouldn’t be left un-scrutinised. As a Ghanaian Cocoa farmer’s son, I remain sceptical of sweet talks from Western investors using “sustainability” as their talking point when describing the impact of their venture. At least Fairtrade has taught us a lesson on how they can help chocolate companies and governments’ virtue signal about their “Sustainability ambition” while pushing its cost to the ordinally poor smallholder cocoa farmers.
So, I interviewed some of KOA’s management members to understand their business and probe further to understand their transparency system. This series of articles will focus on exploring the business operations of KOA, their radical transparency digital platform and my concluding thoughts on each. Ultimately, KOA is doing what Ghana Cocoa Board has refused to incentivise indigenous Ghanaian investors to do, i.e. Cocoa by-product processing. With the cocoa sector remaining a blue ocean, its by-product commercialisation has massive potential. However, Ghana Cocoa Board has decided to focus on wasting the resources on strategies with short-term and long-term effects on cocoa farmers’ livelihoods. That is, Increased cocoa production with a harmful impact on price and increased barriers to entry by indigenous Ghanaian investors.
Let’s get it going!
Who is KOA, and what is their interest?
KOA is a Cocoa Pulp processing company registered in Ghana and Switzerland. In Ghana, they are in Assin Akrofuom in the Central Region of Ghana. They highlight that KOA came into being after its founders’ unsuccessful Solar Business Development in Ghana in 2017. However, the founders’ first taste of cocoa pulp, its delicious taste, and the fact that no one in Ghana added value to the cocoa pulp became an opportunity they felt was worth exploring. To ensure that their potential company (now KOA) make a social impact, they researched and engaged farmers directly to understand how they (KOA) could secure their trust and co-design an operations process suitable for them.
The core of the numerous issues they realised was the enormous burden the cocoa chocolate value chain put on the farmer and the level at which no investment has been made in the by-product value addition to help raise the net income of farmers to be able to deal with the burden levied on them. They also realised how sustainability by various organisations that work with farmers was narrowly focused on “the environment” with less focus on the people, their community and their net income. So their business was essential to demonstrate how a tripartite sustainability approach can be implemented, significantly impacting the farmer’s income, community and environment.
So, before they incorporated the company, they acknowledged that cocoa pulp processing required the borrowing and returning of the farmers’ wet beans; hence earning the farmers’ trust and mutually designing a procurement and handling system that both parties were happy with was essential. So, they sought the stakeholder engagement expertise from their Ghanaian colleagues to meet with the farmers and discuss what KOA needed to do to earn their trust to make this new business sustainable. This stakeholder engagement led to implementing a decentralised system where KOA handles the evacuation of the wet beans from the farmers’ pod-breaking area for processing and returns the beans to the fermentation area as agreed by the farmer (Ref to Fig 1).
As indicated in Fig 1, going to the Farm in this context means KOA creates a central location in the farming community where their mobile processing unit is. With the aid of tricycles, KOA goes to each of their client’s (The farmer) farms to evacuate the wet beans to their mobile processing units and returns them to the farmer at their cocoa beans’ fermentation area. KOA fully caters for the cost of transportation services. In this case, the Cocoa Pulp processing isn’t only bringing the farmer an extra net income; it’s also decreasing the cost of producing the dried cocoa beans. As compared to some chocolate companies that have entered commercial cocoa production as a solution to smallholder farmers’ livelihood (The irony of it), KOA instead supports the farmer to be efficient at producing dried cocoa beans which even isn’t an input KOA’s need for its cocoa pulp processing, at least for now.
I was curious why they called KOA a “Ghanaian-Swiss” startup. They highlighted that they call it so because of the deeper cultural bond their business model allows them to have with their partner farmers and their community. Secondly, KOA is an incorporated company in Ghana and Switzerland. So, to be clear, KOA is a wholly-owned Swiss company with a subsidiary in Ghana.
I asked about the products they produce from the cocoa pulp, the level of value addition in Ghana before export, their target markets and price points. The team mentioned that they currently have three products, i.e., Cocoa Juice (KOA Pure), Cocoa Pulp Concentrate Juice (KOA Concentrate 72•) and Dried Cocoa Pulp Powder (KOA Powder), as shown in Fig 2.
Their target market, industry-wise, is the beverage and food industries. Geographically, they added that their initial market was Switzerland, then expanded to Luxembourg, France, and Germany. They hope to also extend to other Europe markets. I asked why Ghana wasn’t part of their target markets. They admitted that this was due to their products’ high price point, making them more accessible to the west instead of Ghana.
They realised where I was going with this question, so they added that they are looking at creating a market in Ghana but would like to expand and gain economies of scale advantages to offer their products to the Ghanaian market at a very affordable price. This, they said, includes the ability of the farmers to afford it. We must note that regardless of how low the price points of their products become, their membership to the Ghana Freezones Authority will allow their potential Ghanaian customer to buy their products as an imported product though produced in Ghana. This means the Ghanaian customer would need to pay import duties.
Ghana Freezones mandate Ghanaian customers to pay import duties on products made in Ghana at the Ghana Freezones enclave. The irony is that whereas Ghana Freezones Authority provides incentives that reduce the cost of production of its registered members, hence exporting to western buyers at lower prices, their policies make it very expensive for the same products to be purchased by Ghanaians.
For no fault of KOA, Ghanaians would be allowed to buy KOA’s products at high prices by paying import duties. So, KOA would have to decide if they would de-register with Ghana Freezones to be able to offer their products at lower prices to their Ghana customers or maintain their Freezones status and inform their buyers that they are buying their products at higher prices due to Ghana government policy; or, they would have to reduce their products further to cater for the extra import taxes Ghanaian customers are supposed to pay to access their products;
Another issue is that Ghana’s economic free zones policy allows a maximum of 30% of the products of their registered companies to be sold in Ghana; hence if KOA identifies a market in Ghana that can consume more than 30% of their produce, it will mean they would have to think about their Ghana Freezones status. Imagine a country that decries our reliance on imported products and its effect on our currency depreciation. Yet almost all our policies “do not” support foreign direct investment focused on producing substitute imports, boosting our currency’s strength against the primary trading currency.
The next article will explore what KOA said was their definition of sustainability, their partner farmers’ stake in their business, the price at which they purchase the cocoa pulp, and how that price is determined and managed as time goes by.
The Authors views and opinions are their own and don’t necessarily represent that of Bartalks