Based on the cocoa pricing initiative of both Ghana and Cote d’Ivoire, the stabilization fund account that has recently been announced is expected to established to absorb any value above US$3,000, Cost, Insurance and Freight (CIF) or US$2,900 Gross Free on Board (FOB) of the achieved weighted average. Such monies accruing into the stabilization fund would be used to support farmers whenever the price falls below US$2,200 FOB.
This is expected to be provided for in the Charter, which is almost completed by both countries, where two accounts to be set up, one for each country within the collaboration secretariat in Accra. This floor establishes the financial circumstances under which the stabilization fund can be used.
When the market price is above this set floor, the stabilization fund cannot be used to support farmers incomes. This arrangement has been put in place on the basis that when the international market price for cocoa is above this floor, there would be no need to give them financial support.
In a media engagement on Monday, in Accra, the Chief Executive Officer of COCOBOD, Joseph Boahen Aidoo said, “the only mandate for the disbursement from these accounts will be for the sole purpose of supporting the achieved weighted average if it falls below US$2,300 CIF or US$2,200 Gross FOB.”
Over the past one year, the international market price for cocoa has remained well below the US$ 2,900 ceiling set for transferring monies into the stabilization fund and also the US$2,600 floor price set by the two countries and which includes a US$400 living income differential. A year ago it was US$2,373.0 per tonne.
However since the two biggest producers announced their insistence on a minimum international market price of US$2,600 in June, the price has been rising, reaching US$2,511.62 per tonne by July 9, 2019. Analysts suspect that the nervousness in the global market resulting from the announcement could push the price higher still, demand and supply fundamentals notwithstanding.
The structure of the investment portfolio for the stabilization fund has not yet been revealed. Expectedly though, it will have to be liquid enough to allow it make payments to farmers whenever the cocoa price on international commodity prices falls through the established floor price, a situation that could happen often given the volatility of cocoa prices on those markets.
After extensive deliberations in Abidjan on July 3, 2019, the two countries have decided to implement the floor price concept by agreeing on a fixed living income differential of US$400 per tonne for every cocoa sold by both countries starting from the 2020/21 season.
With this announcement, every tonne of cocoa that will be sold from Ghana and Cote d’Ivoire from the 2020/21 season will attract a fixed living income differential of US$400.
Mr. Aidoo noted that the fixed Living Income Differential (LID) would be applied to all categories of cocoa beans.
The two countries have further agreed that cocoa farmers would be guaranteed a minimum price of 70 percent of the floor price of US$2,600 price FOB and US$2,700 CIF per tonne.
This minimum producer price would be legislated in both countries. When the achieved average Gross FOB price at the end of the Cocoa Season is between the minimum price level of US$2,600 (US$2,700 CIF) US$2,900 (US$3,000 CIF), the former would be entitled to Bonus payments.
At the Accra stakeholders meeting, a technical committee made up of a working group from Ghana, Cote d’Ivoire and representatives from the trade and industry was tasked to work out the processes for the smooth implementation of the agreed Floor Price mechanism.
The primary purpose of the Accra stakeholders meeting was to agree on a floor price which will bring the two counties closer to achieving the important mandate of the presidents of both countries.
An amount of US$2,600 FOB the equivalent of US$2,700 CIF per tonne was agreed upon as the floor price of cocoa for the two countries to take effect from the next cocoa season.