HOW FARMERS LOSE FROM COCOBOD’S CURRENCY MANAGEMENT

This entry is part 2 of 3 in the series ARE COCOBOD CHEATING FARMERS?

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.

Continued from Part 1

Is it time for the Ghanaian Cocoa Farmers to be paid in United States Dollars?

Why is the US$ to Gh¢ Exchange rate significant in the cocoa farmers’ livelihood debate?

Every business in Ghana that buys in US$ and sells in Gh¢ is most concerned and affected by the Ghana Cedi depreciation. This is because the currency depreciation would require them to use more Gh¢ to purchase the same US$, hence causing forex-driven inflation other than the demand and supply-driven inflation. However, businesses that buy in Gh¢ and sell in US$ are heavily insulated against the Ghana Cedi depreciation. Such companies benefit significantly as they need fewer US Dollars to buy more Ghana Cedi. Juxtaposing this onto the Ghana Cocoa Sector, Cocobod buys cocoa from Ghana Cocoa Farmers in Ghana Cedi and sells it in United States Dollars.

This has meant that with the consistent annual increase in depreciation of the Ghana Cedi against the United States Dollars (as shown in graph 1) since the 1990s, Cocobod has consistently benefitted economically from the exchange rate without transferring part of these benefits to cocoa farmers whose products they trade. In fact, from the blue dotted trendline in graph two, you would see that the annual average world market price of Cocoa in US$ between 2008/09 to 2020/21 crop year declined slightly. However, from the red-dashed trendline in graph two, the annual average world market price of cocoa in “Ghana Cedi” terms between 2008/09 to 2020/21 is on a sharp increase. The difference is the depreciation of the Ghana Cedi in favour of Cocobod, with none being transferred to the cocoa farmer.

Graph 5:  Annual Average World Market Price of Cocoa/Mt in United States Dollars (Us$) and Ghana Cedi (Gh¢) from 2008/09 To 2020/21 Crop Years
Source: Kwame Asamoah Kwarteng (2022) – Raw Data from IMF & Ghana Cocoa Board

This is a massive blow to Cocoa Farmers because Ghana Cocoa Board refuses to adjust their Farmgate price to reflect inflation. So, the farmers lose the foreign exchange benefits, which could have reduced the inflation effects counts.

This is why cocoa farming is heavily unprofitable and creates more poverty than it alleviates. Further to this, as explained in graphs 2 and 3, within a period where there was a consistent increase in the world market price of cocoa in USD and a rise in its Ghana Cedi equivalent, Ghana Cocoa farmers did not receive any increment in their farmgate year-on-year. This means the farmgate price wasn’t adjusted to inflation, reducing the cocoa farmers’ purchasing power and increasing poverty-driven challenges. What can be the excuse for the Ghana cocoa board not to increase the farmgate price during periods when the Ghana Cedi has depreciated, and the USD value of the cocoa in the world market goes up?

This is happening because they know the Ghana cocoa farmer isn’t literate enough to see this detail and fight for a change. Stakeholders in the sector who claims to be “Experts” do not know this, hence are unable to champion the actual changes that can resort to the trickling down of the global call for cocoa producers’ value capture to the pockets of cocoa farmers.

Ghanaian Cocoa Farmers Purchasing power (Inflation on their incomes)

Inflation plays a crucial role in ending poverty within the cocoa sector. Inflation is a gradual increase in the prices of goods and services. The rise in these prices reduces the currency’s value; hence if $100 could buy 2kg of Rice in 2021, the same $100 in a country that records inflation would accept less than 2kg of rice.

Most organisations, including cocoa processing and chocolate manufacturing firms, can adjust the salaries of their staff to inflation to ensure that they are insured against inflation. For example, civil servants in Ghana received a 7% salary increment for 2022. Comparing this increase to the annual average inflation rate of 9.3% for the past three years, i.e., 2019 to 2021, One could say that Civil servants were somewhat protected against inflation, hence not affecting their purchasing power substantially.

But how about the smallholder cocoa farmer? How are they or Ghana Cocoa Board able to adjust their incomes to protect them against the consequences of inflation? Graph 5 compares the nominal and real income smallholder cocoa farmers receive from the farmgate price awarded to them at the sale of a metric tonne of cocoa for each crop year. First, you would notice that I did not include the LID as part of farmers’ 2020/21 nominal income.

The reason has been explained here. When you study graph six closely, you would realise the continuous drop in the real income of cocoa farmers year on year from 2008/09 till date. Whereas Ghana Cocoa Board cannot be blamed for the rising inflation in Ghana hence its effects on farmers’ income, they can be legitimately held responsible for not adjusting their income to insulate cocoa farmers from the impact of the inflation. As highlighted in graphs 2 and 3, the world market price for cocoa in both USD and Ghana Cedi terms increased yearly. Yet, cocoa farmers did not receive an increase in the producer price to reflect this and insulate them against the staggering inflation rate. What better explanation can be given to this if not an institutionalised corruption against smallholder cocoa farmers.

What makes the real income of cocoa farmers critical is that they are geographically located in areas with unmotorable roads and lack social amenities like water, electricity, good health care, schools, etc. So as compared to someone living in the city, the cocoa farmers’ real income is further made worse as their quest to access these social amenities comes at an extra cost. What further worsens their plight is that teachers and healthcare workers find it challenging to accept postings to geographical areas like theirs. Secondly, the unmotorable roads, less demand due to poverty, and the continual increase in fuel prices have meant that the cocoa farmer pays an extra cost to access food like rice, oil, etc., than the one living in the city. Similarly, they have had to pay an additional fee to access good healthcare in urban areas compared to the urban dwellers. This demonstrates the gap between the rural and urban inflation experiences and their effects on their purchasing power.

The income and expenditure patterns are more complex than is normally allowed for in the economic analysis of poor countries.

Keith Hart (2008)

One of Amanda Peacher’s interviewees in one of her newsletters, the marketplace in 2022, but it so well. She spoke: “Households in rural places spend their money differently than households in cities—For example, gasoline. Rural residents spend more to fill their tanks and more often, Lawson said. “Because you just have farther to go to get to school, get to the grocery store.” – Meghan Lawson.

The national average annual inflation rate doesn’t account for the extra costs incurred by rural dwellers like smallholder cocoa farmers in accessing products and services, hence signalling much worse livelihood challenges that Ghana Cocoa Board and the government have refused to tackle.

Graph 6: Nominal and Real Income of Smallholder Cocoa Farmers in Ghana Cedi/Mt of Cocoa Sold
Source: Kwame Asamoah Kwarteng (2022) – Raw Data from IMF & Ghana Cocoa Board

Note: the 2020/21 nominal income excludes the LID payment. The reason has been explained here.

Graph 6 shows how cocoa farmers’ real income keeps reducing yearly. At the same time, Ghana Cocoa Board’s staffs, like any Ghanaian civil servant, are at least assured of an annual commitment to adjusting their wages to inflation to make their lives much better. Amidst these concerns, the then Chief Executive of Ghana Cocoa Board, Dr Opuni, was allegedly receiving Gh¢ 900,000 in annual Salary; a conversion of this to pounds sterling within that period was higher than the salary of Boris Johnson as a Prime Minister and an MP combined.

End of Part Two:

In part three (the last part), I will offer my concluding thoughts and recommendations to round this work up.

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’re going 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.

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