Ghana trades domestic cocoa processing for foreign exchange
For the want of foreign exchange, Ghana has over the years diligently exported over 75 per cent of total annual cocoa beans, leaving domestic processors of the crop to jostle for the remaining 25 per cent.
Although the export of the beans earns the country a minimum of about US$1.7 billion in foreign exchange yearly, it constrains growth in each of the six major processing companies, partly causing them to limit the industry's installed capacity to the current 450,000 tonnes per annum.
The decision of the Ghana Cocoa Board (COCOBOD) to export more of the cocoa beans as against processing is influenced by the premium price paid for the main crop in the international cocoa market.
The main crop beans, which constitute about 80 per cent of a season’s produce, fetch a premium price of 80-90 pounds sterling in addition to prevailing price per tonne on the international cocoa market.
The light crop beans, on the other hand, are less fanciful and are always sold at a discount to domestic processors, which include the local units of multinationals such as ADM, Barry Callebaut and Cargil. The discount is about 16 per cent to 18 per cent less the price of a tonne of cocoa.
Although the Ghana Cocoa Board (COCOBOD) fully supports industrialisation in the cocoa sector, its Public Relations Manager, Mr Noah Amenyah, said government’s desire for more foreign exchange means that processing companies looking for extra beans beyond the light produce would have to pay a premium to be able to obtain them.
“We are ever ready to sell to them provided they can pay. What we are not ready to do is to discount it because doing that will mean we will lose some money,” he told the paper on January 21.
"In fact, we actually wish that all our beans are main crop beans so that we can reap much more money for the farmer," Mr Amenyah said, stressing that the board's actions were aimed at giving value to cocoa farmers, whose efforts sustain the industry.
The ratio of raw cocoa exports to those processed locally was about 83:17 per cent in the 2009/2010 cocoa season but edged up to 77:23 per cent in the 2010/2011 season.
It increased further to 78.5:21.5 per cent in the recently concluded 2013/2014 season, where about 850,000 tonnes of the beans were bought from farmers.
Although the consistent rise in the amount of cocoa processed locally has been encouraging, it is not sufficient for the processors. As a result, most of them have been forced to operate below capacity or buy the main crop beans at the premium price to help make up for shortfalls created by the insufficiency of the light crop beans.
“In some cases, we have had to shut down and ask the workers to go home because there are no beans. It happens quite often and the industry stakeholders are aware of that,” a management executive in one of the processing companies told the GRAPHIC BUSINESS on January 22.
Niche Cocoa Industry Limited, which has an annual installed capacity of 40,000 tones, said it was prepared to double that should it be guaranteed of the availability of the beans.
“Our challenge with expansion is not necessarily finance. In fact, our factory was installed to process 40,000 tones because we did the mathematics and realised that that was what we could get in terms of beans from the light crop season,” the Chief Executive of Niche Cocoa, Mr Eric Poku, said in an interview.
“As things stand now, if we can get more beans at a similar discount than we are currently supplied, then we can easily expand our capacity,” Mr Poku added.
Cargil Ghana’s processing plant currently does 65,000 tones per annum although it has the potential to virtually double that capacity to 120,000 tonnes.
The current development particularly puts the indigenous processors, made up of the state-owned Cocoa Processing Company (CPC), Niche Cocoa Limited and Plot Enterprise, at a great disadvantage. That is because their weak balance sheets constrain them from raising enough money to buy the main crop beans to process.
The main crop beans are often harvested between June and October each year and are heavier and larger in weight and size compared to the light crop beans which are harvested between July and September.
A source in one of the indigenous processors confirmed that the company had been forced by lack of finance to do third party processing for foreign companies due to its inability to procure beans.
“What happens is the third party buys the beans for us, we discuss and reach an agreement and we process for them to take away. That way, we make use of our plant and it is better than leaving the equipment and the personnel idle because of lack of funds to buy main crop beans,” the source explained.
The processors appealed to COCOBOD to consider selling the main crop beans at a discount to enable them to operate at full capacity; an appeal the board says will be difficult to implement.
“Doing that will not benefit us. The main crop is selling at a competitive price in the international market and if we should buy at a higher price from the farmers and then discount for them, then it will not make any business sense.
“The better option is, it is selling at the international market at this price, if you want, then buy at that same price so that the farmer can benefit,” he said.
He explained that with the current system where the board sets a producer price yet buys both the main and light crop beans at the same price yet discounts the light crop beans to the processors was even costly in the long run.
Discounting the main crop beans in addition will then mean the board operates at a loss, Mr Amenyah said.
He further called on the processors to go into tertiary processing, where the beans can be converted into butter and powder to help improve upon the value chain.