Cocoa firms invest in Ghana to minimize more crop losses - Report

As part of efforts to secure supplies and minimize another heavy seasonal loss, international buyers of Ghana’s cocoa beans have made at least half a billion in upfront payments to the cocoa regulator, Ghana COCOBOD.

The decision comes after companies have been left with little choice but to continue purchasing the crop. For every ton of cocoa they can source at the low prices of last season's unexecuted contracts, they aim to reduce exposure.

According to a Reuters report, this move is aimed at addressing heavy losses that have led cocoa producers and traders to take on an expanded financing role to secure cocoa beans.

"You know how much you've lost. You just don't know how much more you might lose," the head of cocoa for one major trade house told Reuters.

The Ghana COCOBOD recently announced plans to abandon a three-decade-old marketing system where it involved securing syndicated loans from banks to purchase cocoa beans for farmers during the crop season and then selling the contracts for the crop forward to international companies.

In light of declining cocoa production in Ghana and financial constraints, COCOBOD believes that adopting the self-financing model will reduce borrowing costs while depending on private sector players.

"They've totally become dependent on private players to manage everything," another trader operating in Ghana told Reuters.

He, however, pointed out that despite the cocoa industry being on board with the current model, further decline in cocoa output could result in buyers seeking opportunities elsewhere.

Already, the two top cocoa producers in the world, Ivory Coast and Ghana, have experienced failed harvests that have affected global cocoa prices, reaching all-time highs this year.

Furthermore, Ghana COCOBOD found that it had significantly oversold and was unable to meet contractual obligations.

Currently, the industry is managing the situation, but if further losses occur, buyers may start looking elsewhere.

A cocoa fund manager who spoke on condition of anonymity told Reuters that "There's all the ingredients for bad things," particularly due to crop output and election-related risks in Ghana.

Meanwhile, cocoa traders are still owed up to 350,000 metric tons of cocoa for contracts from last season, where Ghana COCOBOD failed to deliver on its obligations. This has cost them at least $1 billion on their corresponding futures market hedges.

Reuters, however, pointed out that officials at COCOBOD did not respond to a request for comment on its new marketing system and industry concerns over the current crop.

MA