Business News of 2014-04-15

More trouble for economy as cocoa proceeds slump

Government revenues from cocoa have fallen drastically to GH¢40 million in the 2012/2013 crop season from the region of GH¢153.9 million in the 2009/2010 season, primarily due to declining prices of the crop on the international market and low productivity.

Cocoa receipts accruing to the government mainly come from duties on cocoa exports.

In spite of this decline, the government had to sacrifice 62 per cent of its revenue from cocoa exports to maintain the producer price of cocoa, as farmers were not ready to peg their prices to the behaviour of the world market price.

This was because although prices dropped from US$3,392.97 in March 2011 to US$2,359.25 in March to 2012, the government had to pay farmers based on the former price.

Consequently, COCOBOD also recorded a loss of GH¢14.94 billion in the 2011/12 season, compared to a profit of GH¢9.82 million in 2010/11.

These were contained in a Policy Brief prepared by the Agriculture and Agribusiness Unit of the newly established Real Sector Division at the Ministry of Finance, a copy of which has been made available to the GRAPHIC BUSINESS.

Output and prices

After reaching a record one million tonnes in the 2010/2011 crop season, cocoa production dropped by 14 per cent to 879,300 tonnes the following season and further by 4.4 per cent to 835,466 tonnes at the close of the crop season last year.

The report explained that following weakening demand for the commodity on the international market due to the Eurozone crisis, demand for the country’s cocoa, considered the best beans on the international market, suffered a 17.3 per cent reduction.

This consequently led to a slump in the prices of cocoa on the international market from US$3,392.97 in March 2011 to US$2,359.25 in March 2012, and further down to US$2,153.36 in March last year.

Effects on economy

The drop in cocoa receipts to the government has far-reaching debilitating implications that can affect jobs, about 800,000 of them farmers found particularly in the rural economy. In total the sector employs about two million Ghanaians.

It also has implications for government projects and budget management, occupational mobility from the cocoa sector and consequently to output reduction.

This is because the cocoa sector accounts for 30 per cent of all revenues from exports and about 57 per cent of total agricultural export, according to the Agriculture and Agribusiness Unit of the Ministry of Finance.

In 2012, receipts from cocoa and cocoa products amounted to US$2.28 billion, out of the US$13.55 billion merchandise exports from the country. According to the Bank of Ghana, estimates for cocoa receipts last year amounted to US$2.17 billion, a further reduction.

Impact on international reserves

The decline of cocoa prices and output is already affecting the country’s international reserves position.

The gross and net international reserves, which stood at US$5.38 billion and US$4.44 billion respectively at the end of December 2011, worsened to US$ 5.35 billion and US$3.23 billion, respectively, at the end of December 2012.

As of the end of March 2013, gross international reserves reduced further to US$5.23 billion, able to cover 2.9 months of imports of goods and services. This compares to the US$5.35 billion, which provided cover for three months of imports at the end of December 2012.

At the end of June 2013, the value of reserves amounting to US$4.9 billion could only finance the import of goods and services for up to 2.7 months.

It is expected that the reduction in the value of cocoa export from US$2.83 billion at the end of 2012 to US$ 2.17 billion at the end of 2013, could further worsen the international reserves position.

A representative of the World Cocoa Farmers, Mr Sona Ebal, told the GRAPHIC BUSINESS after a Policy Brief Series on cocoa that the country needed to adopt a forecasting module in cocoa production.

He said the module would enable the country to determine what outputs to produce at every particular point in time and accurately forecast expenditure and revenues likely to be raked in, saying it would help the country to have a regular productivity in cocoa.

“With the forecasting module, the difference between what we forecast and what we realise will not be much,” he said.

According to Mr Ebal, Africa lacked the necessary technology to be efficient and maximise cocoa production, saying that “there is no reason why Africa has to be growing cocoa on five million hectares of land.”

“This region produces 71 per cent of the world crop and that is about over three million tonnes of cocoa. Growing that on five million hectares of land means you are producing less than 450 kilos per hectare,” he said.

According to the cocoa farmer, Africa has to reach a point where productivity could yield at least one tonne per hectare.

“This will need good planting materials, access to inputs and knowing how to use them,” he stressed.

Scaling over the challenge

The Agriculture and Agribusiness Unit, therefore, wants the government to design measures to boost international demand and cocoa consumption, shifting focus from traditional buyers to new buyers and trading partners, mainly in Asia.

Boost in cocoa productivity in the 2010/2011 crop season was driven by effective disease and pest control through what has become known as the mass spraying exercise and fertiliser subsidy programme.

“These programmes should be encouraged, since these have proved very productive in the cocoa sector,” the report recommended.

Besides stepping up local processing of the commodity, the unit also wants actions towards encouraging the tourism industry to use an appreciable amount of cocoa to the guests. These are part of the measures to encourage consumption and hence demand for the beans.

Source: graphic.com
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