Ghana's Cocoa Value Chain
Over 60% of cocoa produced globally originates from West Africa, with Ghana recognised as one of the world’s largest producers, second only to Côte d’Ivoire. The contribution of the cocoa industry to the Ghanaian economy is significant, employing approximately 800,000 farm families and generating $2 billion annually through foreign exchange of export crops.
Government Influence & Pricing
The cocoa sector is highly regulated due to its economic importance as an export revenue generator. The government is involved in almost all aspects of the industry, most prominently through the Ghana Cocoa Board (Cocobod), the state-controlled institution responsible for regulating prices of cocoa and coordinating marketing activities. Cocobod is the only institution permitted to sell Ghanaian cocoa to the world market; selling about 70% of cocoa produced in the country through the futures market after fixing the price of beans for the full crop year.
The sector has benefited from a number of government interventions over the years which supported sector growth. One such scheme is the Cocoa Rehabilitation Project, introduced in 1984 to provide improved varieties of seed for farmers, in particular introducing hybrid seeds that offer better yields in shorter time frames. More recently, a mass spraying programme carried out by Cocobod in 2001 helped reduce (or in some cases eliminate) pests and diseases at no cost to the farmers. According to World Bank research, at its initial stage the scheme increased the productivity of farmers by 30%. Taking into account various other programmes geared towards increasing yields, Cocobod’s influence on the sector has been cited as a factor in the accrual of surplus crops which have been used in periods of deficits.
Ghana’s farmgate price of cocoa, which had been unchanged for the past four years, was increased by 5.2% in August 2019 to $1,523.81 for the 2019/20 season. Efforts to increase cocoa prices have been ongoing, with Côte d'Ivoire and Ghana taking concrete steps towards a more collaborative system since 2018 in order to exert more control on global prices. In March 2019, an agreement was signed to set new standards for exported cocoa beans, a move which is expected to result in higher-quality cocoa and create a sub-regional standard for cocoa bean exports.
In another step to regulate production levels and increase returns to local producers, representatives from the two countries met in June 2019 to set a floor price for beans, establishing a threshold of $2,600 per tonne. Price setting has become imperative because farmers have long since complained that current prices are inadequate to sustain their livelihoods. In July 2019, agencies from the two countries met with stakeholders to discuss the implementation of fixed premium on cocoa sales. It was agreed that from the 2020/21 season buyers would pay an additional $400 on every tonne of cocoa, as a living income differential (LID). LID funds will be used to protect farmers’ income with the aim of with the aim of giving 70% of a $2,600 a tonne free-on-board (FOB) to farmers.
Ghana’s export revenue from cocoa has been rising in recent years; in 2018 the total export value was $3.2 billion, a 34% increase from 2017 and up 71% from 2016, according to TradeMap data. Trade is highly concentrated, with Malaysia and the Netherlands account for just over half of the market. The United States, Germany and France round out the top-five trading partners, representing 69% of cocoa export earnings.
Approximately 80% of exported cocoa is sold in its raw form to be processed in importing countries; less than 20% of Ghana’s cocoa is processed in-country, either for local consumption or semi-processed for export.
The major players in the value chain are farmers, licensed buying companies (LBCs) and Cocobod. Through Cocobod, the government remains a key player in the cocoa value chain, selling beans in the central market and regulating the price for producers and buyers.
In general, cocoa is grown and harvested by farmers who ferment and dry the cocoa beans before sale to the LBCs. These companies then store bagged beans for quality checks. According to Cocobod, there are 46 LBCs in the market, of which the largest - PBC ltd (Ghana) - holds 31% of the market and is publicly listed.
Over 80% of beans purchased by the LBCs is shipped abroad in raw form. The processing segment is dominated by three multinationals (Cargill (USA), Barry Callebaut (Switzerland) and Olam (Singapore)) that have a combined market share of 71%.
The majority of companies are concentrated in the Greater Accra area. Of these, ten are purchasing companies and eight are processors. The Ashanti region hosts 33% of the companies, all of which are purchasing companies. One purchasing company operates out of the Eastern region and one processing company is based in the Western region.
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