EXPLAINER: Why COCOBOD has ditched plans to borrow from international banks after 32 years

Ghana’s cocoa regulator, COCOBOD, is breaking away from a 32-year tradition of seeking funds from international banks for the annual cocoa crop season to adopt a method of self-reliance at the start of the 2024/2025 cocoa crop season in September 2024.

Cocoa, which is a key export commodity for Ghana, has generated significant revenue streams for the country over the years. 

Cumulatively, Ghana and Ivory Coast account for about 60 percent of the global supply for cocoa beans. 

While some argue that cocoa and gold are Ghana’s top exports, there is contention over the country’s ability to meet global supply and consumer demand like its counterpart Ivory Coast.

Why is this transition necessary?

Chief Executive Officer of COCOBOD, Joseph Boahen Aidoo, has explained that the decision to move away from seeking syndicated loans from external sources is part of a broader strategy towards self-reliance and reducing dependency. 

Ghana's cocoa production output reached 429,323 metric tons at the end of the harvest in June this year, according to data released by COCOBOD.

This production output is less than 55 percent of the average seasonal output. The decline in output has been attributed to disastrous harvests caused by poor weather conditions, swollen pod disease, and illegal mining activities taking place in cocoa-growing areas.

These developments have not only disrupted COCOBOD’s operations but have impacted the supply chain, pushing prices for cocoa beans up on the international market.

Additionally, the COCOBOD CEO on Tuesday, August 21, 2024, told journalists that the regulator has often relied on these external funds to undertake activities in the cocoa crop season over three decades, a move which he says has strained its finances and operations with regards to loan repayment obligations.

“Is it good that COCOBOD should always be heard going to borrow? Are we comfortable with that tag? Today, you have heard that COCOBOD is not going to borrow. It is quite a good time for any human being to learn his or her lessons.

“In 32 years, we have learned our lessons and we think that it is high time we wean ourselves from the offshore international financial markets and then finance the crop ourselves here, and that is exactly what we are going to do. And I think it comes with a lot of projectory benefits,” he explained.

The COCOBOD boss said the regulator is aiming to save more than $150 million as part of this self-reliance strategy during the upcoming 2024-2025 cocoa season.

“We are looking for $1.5 billion this crop season, and looking at the interest rates last year, which were over 8 percent, plus the cost, it means that we can save more than $150 million by the decision not to go offshore,” he explained.

How will COCOBOD fund itself?

While Ghana’s cocoa regulator is yet to provide a more detailed insight into how it will fund its activities moving forward, it plans to tap from domestic sources to fund cocoa purchases from farmers in the new season.

However, the absence of cocoa funding will mean that the Bank of Ghana will have to tap into revenue accrued from the sale of cocoa beans to build foreign reserves instead of relying on the bulk amount it receives every October when the harvesting season begins.

“Whatever cocoa we sell is sold in dollars, and so the revenue from our cocoa will be paid in dollars. Our forward contracts will all be paid for in dollars when we deliver the cocoa so the dollars will come in to shore up the cedi,” the COCOBOD CEO briefly explained.

Also, for the upcoming 2024-2025 cocoa crop season, production output has been cut by 20 percent to 650,000 tons on the back of poor weather concerns, lack of fertilizer, disease, and poor environmental practices in growing areas also known as galamsey.

These disruptions have also placed Ghana in the second spot behind Ivory Coast, who is at the top spot of the summit.

On the international market, demand and supply disruptions continue to impact cocoa prices, with futures rising above $11,000 per ton for the first time, according to Bloomberg Commodities. 

What’s in it for farmers?

Ghana’s COCOBOD says farmers will remain the topmost priorities during this transition, emphasizing that they will not be short-changed in pricing measures and decisions.

“It is not true that COCOBOD is not giving the farmers a fair price. If you follow the narrative, you will notice that from 2017 on, COCOBOD has been even more than fair. The government had been more than fair to farmers because this was a time when prices had collapsed, but the government and COCOBOD did not reduce the farmers’ price,” the COCOBOD CEO stated.

Conclusion

Even as Ghana's cocoa regulator will continue to remain under significant scrutiny as it embarks on a transition toward self-reliance, the success of this strategy is crucial for the country. 

Cocoa is a significant contributor to the country's economy, providing livelihoods for millions of farmers and being a major export commodity for Ghana.

MA/OGB

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