Copyright Note: The content of this publication should not be republished in any shape or form without official consent from the author. You can reach out to the author for publication discussions via Kwame.a.kwarteng@gmail.com. If you want the complete 5000 worded report sent to you in PDF, kindly reach out to the author for a quote
On the 1st of October 2021, Ghana Cocoa Board announced through a press release that Ghana had maintained the 2020/21 producer price of Cocoa as the producer price for the 2021/22 crop. Ghana’s producer price of Cocoa beans per metric tonne for 2020/21 (i.e., Gh¢10,560) was a combination of the 2019/20 producer price of GH¢8,240 and the 2020/2021 Living income differential (LID) levy of GH¢2,320. Without stating the forecasted price at which they will be selling Cocoa beans to their buyers,
Cocobod stated that the Gh¢10,560 producer price per metric ton for the 2021/2022 crop year forms “87.15%” of the world market price. As questionable as I found it to be, I did some digging for data to do the calculations of the actual producer price as a percentage of the world market price to confirm if Cocobod’s percentage was right.
In this article, I will be demonstrating the actual producer price as a percentage of the world market price so you can judge for yourself if Cocobod has been providing the public with false information about Cocoa farmers’ income and the percentage of the world market price that gets into the pocket of Cocoa farmers.
Secondly, I will highlight how at the point of increased Cocoa prices, depreciation of the Ghana Cedi and increased inflation in consecutive crop years, Cocoa farmers still experienced no increase in their producer price, hence worsening their economic and social wellbeing. I will conclude by advising that Cocoa Farmers need to be paid in USD to insure them against the livelihoods challenges that emanate from our Cedi depreciation and our high inflation rates. I recommend a Cocoa farmers’ led negotiation of the % of the world market price in USD that needs to be paid to them as farmgate price, as opposed to the Cocoa producer price committee deciding how much Cocoa farmers should be paid. As usual Ghana Cocoa Board is on the opposing side to this until we put unwavering pressure to force them beyond comprehension to change. We have professionalised a corrupt system against the very people Ghana Cocoa Board was instituted to protect.
Various Terminologies to understand
· Producer Price/farmgate price: This is the actual price set at the beginning of the crop year (Every Oct) in Ghana Cedi, at which Cocoa beans would be purchased from Cocoa Farmers. So, this qualifies as the income Cocoa farmers gain from their Cocoa trade.
· World Market Price: This is a daily changing price of Cocoa beans in the international market in Dollars, perpetuated by Demand and supply. That is the average price at which Ghana Cocoa Board sells Ghanaian Cocoa beans to buyers. In this article, we will be using the International Cocoa Organisation (ICCO) average prices as presented by Ghana Cocoa Board.
· Forex Exchange Rate: This is the rate at which one currency can be valued in another currency’s terms. So, in this article, we will be valuing the US$ in Ghana Cedi terms. We will be using data from the International Monetary fund.
· Crop Year: The crop year in the Cocoa sector is the Cocoa production cycle which begins in October and ends in September. The annual averages in this article are consistent with the crop year cycle (October to September).
· Syndicated Loans: These are money borrowed by the Ghana Cocoa Board in US$ from bankers to finance the purchasing of Cocoa beans from Ghanaian Cocoa Farmers.
· Living income Differential (LID): This is the newly agreed $400 per metric Tonne levy that is paid by buyers of Cocoa beans from Ghana and the Ivory Coast as a token to help improve the livelihoods of Cocoa farmers.
The misrepresentation of the Ghanaian Cocoa Producer Price as a % of the world market price
Ghana regulates the Cocoa sector through its regulator, Ghana Cocoa Board (Cocobod). Cocobod, through its Licensed Buying Companies (LBCs), procures Cocoa beans from farmers at a commission. Cocobod announces the producer price which is determined by the Producer Price Review Committee on Cocoa, for each crop year in Ghana Cedi.
As one would think that Cocoa farmers would get the full price of their Cocoa beans sold in the international market like any normal business, they only receive a percentage of it as a producer price, then the rest are retained with Cocobod to provide “Support services” for the farmers. Due to this arrangement, producing countries like Ghana demonstrate their commitment to improving smallholder Cocoa farmers’ economic wellbeing using the “producer price as a percentage of the world market price”.
As announced at the beginning of the 2021/22 crop year, Cocobod claimed that the producer price for the 2021/22 crop year was 87.15% of a world market price not known to Cocoa farmers. So, this caused us to investigate exactly the percentage of the world market price given to Cocoa farmers as a producer price and what is retained by Cocobod.
Logically calculating the Producer price as a percentage of the world market price should be as easy as (Producer Price/World Market price * 100). However, with the producer price being paid in Ghana Cedi and the Cocoa beans being sold in US Dollars, the US Dollar to Ghana cedi rate becomes a variable that needs consideration when calculating the percentage of the world market price awarded to farmers as the farmgate price.
The information on the average exchange rate at which Cocobod sold each crop year’s Cocoa beans is not made known to the public hence making it difficult for farmers to calculate exactly how much of the world market price in Ghana cedi terms they received as a producer price since the producer price is in Ghana cedi. Also, because the producer price is set at the beginning of the year, it remains static and doesn’t change daily, weekly, or monthly to reflect the actual fluctuations in the forex rate. Even though we understand that Cocobod sells the Cocoa beans using its forward sales strategy, the existence of a global oversupply of Cocoa beans means that they are unable to trade all the Cocoa beans at a go at the beginning of the crop year. Also, Cocoa beans are produced throughout the crop year, not just at the beginning.
This means that they have the chance throughout the year to correct their exchange rate forecast to reflect the actual forex changes to ensure they mitigate their forex risks. But the question is, is the Cocoa farmer paid any extra income at the end of the crop year to reflect the upward changes in the exchange rates? I am sure the economist will argue that if the Cedi performs better than the US$, will you be willing for Cocoa farmers to be paid less? The answer is yes. Cocoa farmers are not in competition with Ghana Cocoa Board to see who can swindle each other.
Ghana Cocoa Board is supposed to be selling the beans on behalf of farmers; hence if the world market price is high, the farmer should benefit, and if it’s low, they should deal with it. This is how business is. To those on the side of “if Ghana Cedi appreciates against the Dollar” what happens to farmers?
Historically the Ghana Cedi hasn’t outperformed the US$ in any way for us even to assume that the Farmers will be disproportionately affected if they are made to face the daily changing exchange rates. In fact, between February 1992 to February 2022 (30 years), the value of the one-dollar against one Ghana cedi appreciated from 0.0342 to 6.7. In percentage terms, the Gh¢ has depreciated against the US$ by 19,490% within the last 30 years.
This means that for the past 30 years, the US$ has appreciated against the Ghana Cedi at an annual estimated rate 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. So, there is a net economic benefit to the smallholder Cocoa farmers if their producer price is made to reflect the changing exchange rate at which the Cocoa beans can be traded, to ensure that the farmers have quality remuneration. Of course, this will work when Ghana Cocoa Board agrees to pay the farmers a % of the USD value of the Cocoa beans sales.
In the graphs below, I use data collected from the Ghana Cocoa Board and the IMF to demonstrate the percentage of the world market price that is given to Cocoa farmers as a producer price. I also used the graphs to demonstrate how even when both the world market price of Cocoa beans and the exchange rate depreciation increased, Cocoa farmers’ producer prices never changed; hence Cocoa farmers received less value than what they deserved. Also, with high inflation, their income is further devalued, leading to endemic poverty and poor livelihood experiences.
Graph 1, the world market price was converted to Ghana Cedi using the average annual US$ to Gh¢ exchange rate for each crop year. This helped us in knowing the trend for the world market price in Gh¢ to aid in our percentage calculations since the producer price is paid in Ghana cedi. From Graph 1 you would realize that the actual percentage of the world market price received by farmers as producer price was 60.34%.
In Cocobod’s announcement of the 2021/22 crop year producer price, they said that Cocoa farmers were being given 87.15% of the world market price. First, the 2021/22 crop year just started hence we do not even have the average world market price at which they traded Cocoa the entire crop year, for us to calculate the producer price as a percentage of it. In the commodities market, you can do a forward sale for up to 6 months, hence making it a bit impossible to forecast a year’s average price at the beginning of the year. Also, businesses including Cocobod itself will find it too risky to agree on a yearlong exchange rate with buyers. So, the question is, on what basis did they come up with the 87.15%?
Secondly, Cocobod stated that the Gh¢10,560 per metric ton of Cocoa beans (which is the actual producer price of Gh¢8,240 + the LID Levy GH¢ 2,320) represented 87.15% of the world market price Cocoa farmers were receiving. Adding the new LID levy to the previous years (2019/20 & 2020/21) producer prices and calculating it as a percentage of the world market price is factually wrong.
The LID is not part of the world market price of cocoa. It is a fixed levy paid by buyers regardless of the demand and supply of Cocoa. If we want to calculate what farmers receive as a percentage of what buyers pay for our Cocoa, then it should either be [(Producer Price + LID Levy) / (World market Price +LID Levy)] or [Producer Price excluding LID Levy / World Market Price).
You would see that Ghana Cocoa Board retains as much as 49.93% of the world market prices. Consider which business in the world if not slavery, that almost 50% of your sales proceeds are held by your regulator, hence leaving you with the remaining 50% not only to pay your production cost but your staff costs and sustain your livelihoods. In what ways can these smallholder farmers practically sustain themselves in such circumstances?
Graph 2 zooms in to highlight how even at a consistent increase in the world market price of Cocoa beans both in US Dollars & in Ghana Cedi terms between 2012/13 to 2013/14 crop year, Cocoa farmers never saw any increment in their annual producer price for both crop years. Also, with a combined average annual inflation rate of 21.8% for both crop years, the real value of the producer price was deeply affected, worsening cocoa farmers’ livelihood even during the period of a rise in the world market price of their produce.
Graph 3 further strengthens this argument by highlighting how between 2016/17 to 2018/19 crop years, the world market price for Cocoa increased consecutively in US$ and Gh¢ terms, yet Cocoa farmers didn’t see a penny increase in the producer price for these three crop years. Also, with a combined average inflation rate of 41.5% for the three crop years, the real value of the producer price was deeply affected, worsening cocoa farmers’ livelihood even during the period of a rise in the world market price of their produce.
To further highlight how the Ghana Cocoa Board and the government are deeply complicit in Cocoa farmers’ perpetual poverty situation, below are two figures to demonstrate how over 50 years, the Ghana Government through Cocobod retained between 80% to 100% of the world market price of the cocoa beans they sold, leaving the farmers with a maximum of 20% or absolutely nothing!
For over 50% years (with reference to Fig 1 and Fig 2), Ghanaian Cocoa farmers worked at a minimum of 80% sales tax on their produce. To Dr Kwame Nkrumah, the foreign exchange earnings coming from our Cocoa sales were essential in facilitating the import substitution industrialisation agenda. In what world do we intentionally trap the sales of the produce of the poor smallholder Cocoa farmers to finance industrialisation? What happened to the sales revenue from other business areas of the economy that were producing or selling services for both local and international consumption? Or did they just pay taxes as compared to Cocoa farmers’ sales being trapped? Cocoa farmers’ income is so low, that they are unable to educate their children in tertiary education to attain the degree that can help them secure the jobs that come with industrialisation.
Whereas the general rhetoric of the depressing Cocoa farmers’ livelihoods is mostly attributed to chocolatiers holding up a higher value share within the value chain, a deeper problem also sits with how much the ordinary Ghanaian Cocoa farmer receives as a percentage of the world market price.
Part two of this article which will be posted in the next fortnight will focus on explaining “Why the US$ to Gh¢ Exchange rate is important in the Cocoa farmers’ livelihood debate?
The content of this publication should not be republished in any shape or form without official consent from me. You can reach out to me for publication discussions via Kwame.a.kwarteng@gmail.com. If you want the complete 5000 worded report sent to you in PDF, kindly reach out to me for a quote. If you want to have a chat with me over Cocoa related issues or want to run your strategies with me for advice, you can email me for a quote and time.
