Cocoa Nigeria

IS NIGERIA’S COCOA SECTOR RENNAISANCE GOING TO CAUSE THE INTENDED WINNERS TO LOSE MORE THAN THEY WIN? 

My Analysis on Cocoa Diaries Interview with CFAN President.

My Thoughts

First, I think I can fairly say that since Mr Adeola is the Nigerian Cocoa Farmers Association of Nigeria’s president and one of the leading figures championing the Nigerian Cocoa sector Renaissance, his thoughts and opinions reflect close to the consensus of the team working on this. During the meeting, I sensed that Nigeria was waiting for an opportunity to diversify its economy as opposed to wanting to develop a sector where its farmers were experiencing significant livelihood issues.

This was evident in how the introduction of the LID by Ghana and Ivory Coast was the main incentive they felt they could latch on to revive their sector to fix national problems, with the benefit to the cocoa farmer being a consequence than the core. I also realised that Nigeria is seeking collaboration from Ghana and Ivory Coast to gain the information and tools that will make them competitive against them. Their quest for cooperation, I would argue, is in the short term.

In contrast, their long-term vision is to be the international buyers’ supplier of choice by succumbing to their whims and caprices to gain international legitimacy. Nigeria is only interested in the LID now because they have seen it as an extra income Ghanaian and Ivorian cocoa farmers earn. Nigeria has deliberately or uncritically forgotten that this LID agreement was possible because Ghana and the Ivory Coast control over 65% of the world’s cocoa beans production.

Hence avoiding these two countries, like any business will do when their supplier increases its prices, will be an enormous supply chain blander. Nigeria’s objective to produce more than Ghana and Ivory Coast is a destruction to the sustainability of the LID they seem to be interested in. This is in addition to Mondelez and Olam’s ignition of massive commercial cocoa farming in Indonesia using ideas allegedly laundered from Cocoa farmers in Ghana and the Ivory Coast.

This is because the oversupply of cocoa in the world market means some cocoa beans wouldn’t be bought; hence not everyone receives the “LID”. Ghana Cocoa Board which has already integrated the LID into the producer price in Ghana and also purchased all cocoa beans from farmers regardless of whether they can sell them or not, will now lose both on price and the LID. The oversupply will drive down prices and turn the sector into a buyers’ market. So to Nigeria, the earlier they revive their cocoa sector to benefit from the LID until it is struck down, the better. Secondly, Nigeria’s Cocoa sector, compared to Ghana, isn’t politically and economically strategic for their government.

So, whereas Nigeria playfully says that they want to outperform Ghana and Ivory combined in cocoa production, their underlining intention is to saturate the global cocoa supply globally. Ghana and Ivory Coast have forgotten that Nigeria has demonstrated questionable attitudes toward “Collaboration” and “Cooperation”. Evidence of this attitude from Nigeria was shown during the ratification of the African Continental Free Trade Agreement (AfCFTA), where they refused to ratify the agreement in 2018. 

We are more worried by the probable outcome of this policy initiative if it is given life because of its crippling effect on the local businesses and attendant effects on jobs. “We find it confounding that at a time nations, including the United States, are resorting to protectionism in defence of their local businesses and protection of jobs, we have the audacity to want to fling open our doors, windows and rooftops.

According to The Vanguard which reported this from Nigeria’s Labour congress

This is not to validate or invalidate the relevance of the AfCFTA but to highlight how selfish Nigeria is regarding issues of cooperation and collaboration. This line of attitude confirms Frank Hubert’s quote about people who seek power

When I am weaker than you, I ask you for freedom because that is according to your principles. When I am stronger than you, I take away your freedom because that is according to my principles.

Whereas Nigeria’s selfishness is more macro, Ghana and ivory Coast can’t be left off the hook either. During my days as a project manager of a cocoa processing plant in Ghana, I was eager to ensure that the plant I was building was cocoa beans supply resilient. So, I spoke with Ghana Cocoa Board and the Ivorian Embassy in Ghana to understand their cocoa beans trading policies between the two countries. i.e., Can Ghana import Ivorian beans for processing when there is a supply shortage and vice versa?

Ghana cocoa Board believed that they do not allow for the importation of cocoa beans to Ghana because that will become prone to diluting their reputation as producers of premium cocoa beans and hence lose the price premiums they are currently enjoying. They even added that they wouldn’t experience any shortage of cocoa beans supply now or in the future; hence no need to allow such imports.

The Ivorian Embassy was also of the view that they are competing with Ghana in the cocoa beans trade; therefore, allowing for the exportation of their beans to Ghana will reduce the incentives they have to attract investors in Ghana who may want to invest in the Ivorian cocoa value addition in Ivory Coast. If they can get beans imported from Ghana, then why would they come to the ivory Coast?

Whereas both countries may have a sound argument from a competition standpoint, it exposes the problem of how both countries have positioned themselves as “forever cocoa producers”. On the flip side, the buyers from Switzerland, Europe, America etc., as opposed to processors in Ghana, can import cocoa beans from any cocoa-producing country worldwide. This means they have options of suppliers to choose from when it suits them, as opposed to the local processors in Ghana who don’t, hence can’t iterate their supply to be globally competitive. 

So, whereas it took the LID for both Ivory Coast and Ghana to create a middle ground to focus on the farmer and their livelihood issues, Nigeria’s renewed focus on exploiting the LID to create a new class of cocoa farmers willing to help them diversify their economy will crash the lifespan of the LID.

Below are the key issues and recommendations for Nigeria and the rest of the cocoa-producing countries to consider with Nigeria’s renaissance:

1. Dangers in leveraging the LID to improve cocoa farmers’ income

As I argued in my article “Quantity or Quality of Cocoa production”, the data has proven over and over again that Cocoa as a financialised product has its global price primarily driven by demand and supply. So as a producing country, your strategy should be fixated on price. Even before Nigeria’s entry, the world market price had been falling due to the increased production by Ghana and ivory Coasts’ recent annual increase in cocoa production by 200,000MT. 

Nigeria’s renaissance will further guarantee chocolate manufacturers cheaper cocoa beans to buy without a corresponding reduction in the price of chocolate. This leaves Nigeria enhancing chocolate companies’ chances of making more profits off cocoa farmers globally. Whereas the LID is a fixed levy to be relieved by farmers, the world market price of cocoa beans remains vulnerable to demand and supply. So, Nigeria’s renaissance will incentivise more chocolate companies going into Nigeria to support the ambition to saturate cocoa beans production. The effect is that the price of cocoa will sink extremely low to compensate for the LID the buyers are paying. So, we come back to square one.

We have already seen evidence of how the LID implementation incentivised farmers to exceed a million tons in 2020/21 but recorded a consistent eight months price from US$3000 to around US$2,300 per metric ton of cocoa. The difference of around US$ 700 per metric already compensated for the US$400 LID buyers paid, hence making even more profit off the introduction of the LID. Profiting from the LID by chocolate manufacturers is expected to grow exponentially, as the expected oversupply of cocoa driven by Nigeria wouldn’t only cause the price to fall but will leave some countries’ cocoa beans unpurchased, hence causing severe poverty that we intended to solve with the LID.

I advise Nigeria to focus on rehabilitating their dying cocoa plantations instead of creating new farmers. They should diversify into other agricultural products that will substitute imports so they become less critical and dependent on the food their people need for survival. Nigeria’s focus, after focusing on farm rehabilitation, can now help the few farmers; they must explore by-product processing to create an additional stream of income for the farmers, whiles the non-expansive strategy can help maintain rather than sink cocoa prices, hence allowing the farmer to generate more revenue per acre of land than increase the profits of chocolate multinationals.

2. The problem of Leveraging Land size to increase production in the hopes of improving cocoa farmers’ income

Nigeria is convinced they have vast arable lands, making them very hopeful of a full-scale cocoa production drive to out-compete Ghana and ivory Coast Combined. I will advise Nigeria to check its forest cover data, its afforestation records, and how they can preserve the little forest they have from over-exploitation by chocolate companies who come with lousy faith clothed with good intentions. They should see Ghana and Ivory Coast after chocolate companies were heavily exploiting their lands to encourage more you to enter into cocoa farmers, and the overuse of fertiliser destroys the land fertility in the long run in the hopes of achieving high yields per acre; these same chocolate companies through their governments are pressuring Ghanaian government and its farmers to afforest the lands else they will stop the importation of their cocoa beans.

As shown in Figure 1 below, Nigeria and Ivory Coast are on a free fall with little to no record of afforestation. Nigeria has recorded annual average deforestation of 0.86% between 1990 to 2020. Nigeria’s forest cover per capita is 323 Sq Km compared to Ghana’s 3,226 sq km and China’s 1,488 sq km. From Figure 1, you would realise that Ghana and China have shown signs of afforestation compared to Nigeria; hence not surprisingly, their forest cover per capita is better than that of Nigeria.  So, I don’t know which lands Nigeria is looking up to using to produce more than Ghana and Ivory Coast combined.

Whereas I don’t care about more giant western chocolate corporations lecturing Africa on the need to leave their forest untouched to produce their home country good air to breathe, Nigeria has the prime opportunity to focus on something else as a country not heavily dependent on cocoa as compared to Ghana and Ivory. Why enter a sector that produces western countries’ desserts instead of the food your people eat yet have to import the worse version from the west? Ghana and ivory Coast has got stuck into this cocoa rabbit hole and have created political incentives that have tied them to a sector we should be diversifying from. So please don’t find me, a Ghanaian as a hypocrite but one advising you to stay away from the industry, which gets much worse with your renaissance.

Kwame Nigeria Chart 1
Graph 1:  annual % change in the forest cover from 1990 to 2020 (Ghana, China, Indonesia, Cote d’Ivoire, Nigeria)

3. The problem with Nigeria’s intent to establish a Cocoa marketing board

If Nigeria hasn’t learnt any lesson, it should look at how Ghana has used its marketing board to consolidate political power for the elites, not the farmers, to exploit the farmers by retaining over 30% of the cocoa proceeds. Creating a board like this only creates another layer of bureaucracy on top of Nigeria’s cocoa farmers association, creating the centralisation that breeds corruption in African countries.

Policies get enacted at the top level and are forced on farmers. Whereas having a marketing board may sound like a good idea, its benefit has never somehow outweighed its terrible flaws in Africa. When Ghana gained independence, Dr Kwame Nkrumah retained the Cocoa marketing board, only to be able to control the international trade of Ghana cocoa beans, pay farmers less than 1% of the global marketing price and use foreign exchange to embark on his industrialisation agenda. Those who find this a brilliant idea, think about your income being used by the government for development purposes only because it’s in US$, and other citizens can have their total income to themselves because their income is not in foreign currency.

Ghana cocoa board is currently paying farmers less than the Dollar value of the US$400 LID they will receive. All this happens when power is centralised at the political level. Mr Adeola and his team should wise up and ring-fence cocoa production and its trading to the confinement of the cocoa farmers of Nigeria, where I am assuming the ordinary farmer has direct access to the leadership and partake in decision-making without a hustle.

4. No Linkage of Value addition to increasing cocoa farmers’ income

I have explained in detail how there is no link between increased value addition and improved cocoa farmers’ income unless the farmer directly does the value addition. Mr Adeola and his team should focus on the farmers and not sacrifice cocoa farmers for some national political agenda. The cocoa sector should be reformed around the need to improve farmers’ income and livelihood. Then a trickle-down or the unintended consequence will be the benefit the economy gains. It shouldn’t be the other way round where a national objective of diversifying the Nigerian economy is agreed upon. The cocoa farmers are used as scapegoats or sacrificial lambs to achieve that. This was precisely the mistake Ghana made, as I have explained above. It has led to cocoa farmers’ being impoverished all these years while its marketing board’s CEO’s salary was more significant than the UK Prime Minister’s and his MP salaries combined.

I want to thank the President of the Cocoa Farmers Association of Nigeria (CFAN) for this interview.

Author

  • Kwame Kwateng

    organisation:

    Agricultural Trade Policy Analyst | Cocoa-Chocolate Industry Expert | Digital & Industrial Project Manager | A persuasive Negotiator | Columnist. Email: Kwame.a.Kwarteng@gmail.com / Kwame.Kwarteng@PolicyCON.com Twitter: @asamoahpeters

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