Ghana cocoa woes put premium supplier reputation at risk

Concerns over Ghana's management of its cocoa sector, hit by a surprise crop failure this season, have undermined its relationship with the industry and threaten its reputation as the world's premier supplier of top-quality beans, traders said.

Ghana's cocoa regulator Cocobod initially forecast production of around 1 million tonnes for 2014/15, but a host of factors have combined to slash output.

The International Cocoa Organization now predicts Ghana, the world's number two producer behind neighbouring Ivory Coast, will have produced 696,000 tonnes by the season's end in September, down over 22 percent from last year.

Traders believe the shortfall means Ghana will likely be unable to supply around 150,000 to 200,000 tonnes of cocoa which it has sold and will have to roll those contracts forward to next season.

"Definitely some people have already been hurt and more will be this season. If our estimate of the size of the rollover is correct, there has to be a generalised change in attitude," one New York-based trader told Reuters.

Cocobod executives did not respond this week to requests for comment made via telephone, text and email. They said last week that this season's downturn was cyclical and Cocobod had responded by increasing farm inputs.

Cocobod's management of the cocoa sector has long been viewed as the gold standard in West Africa and is often credited with Ghana's explosive growth in output in the 2000s. Strict quality controls have allowed the country to produce beans that fetch a premium on the world market.

Cocoa Marketing Company (CMC), a state-run wholly-owned subsidiary of Cocobod charged with selling beans to international buyers, had built up a reputation as a reliable supplier. No longer, traders said.

CRISIS OF TRUST

"Irrespective of whether the crop will stabilise or not next season, a growing problem also lies in the declining trust the trade and industry can put in the CMC," said Damien Thouvenel, a trader with France's Sucres & Denrées.

Traders said a growing lack of transparency at Cocobod, including strict controls on purchasing data, allowed Ghana to hide the magnitude of its troubles this season. Other complaints included what traders said were the CMC's increasingly erratic logistics and major shipment delays.

Meanwhile, the decision to continue forward sales of next season's crop despite the expected rollover of many of this season's contracts has raised industry concerns that Ghana may be in the process of overselling 2015/16 cocoa as well.

"This is putting Ghana cocoa's reputation at risk with major international beans buyers. The risk for Ghana being that buyers would in the future refuse to pay a premium for Ghana beans over competing West African origins," Thouvenel said.

One senior government official, who asked not to be named, said Cocobod's relationship with the industry had deteriorated since the appointment of Stephen Opuni as the regulator's CEO in late 2013.

"(Traders) are used to a certain clear way of style with Cocobod in the past, but that seems not to be the case now. It is a genuine concern that we believe should be addressed immediately," he said.

Problems this season have led some traders to threaten Ghana's cocoa authorities with the prospect of outside arbitration, the official said. But he added that Cocobod's management was working to resolve those issues.

They were also reviewing marketing issues, he said.

"Critical among them is the issue of forward selling contracts, how much to sell and when to sell, as well as enhancing (Cocobod's) communication flow between it and other partners," he said.