The woes of Ghana Cocoa

Consider these disturbing statistics. Cote d’Ivoire and Ghana cultivate almost exactly the same land area for cocoa production - 1.7 million hectares. Yet in the just ending cocoa crop year 2014/2015, total production of cocoa in Cote d’Ivoire amounted to over 1.6 million metric tonnes while Ghana could barely manage 700,000 metric tonnes – less than half. The huge difference in production sums up the tragedy which has befallen the management of the cocoa industry in Ghana.

Instead of building upon the peak of one million metric tonnes achieved in crop year 2010/2011, cocoa production is beating a retreat to around 700,000 metric tonnes. If this negative trend continues, many experts fear that in the next few years, Ghana could find its production at the low levels of the late 1990s. It is the poor management of the industry and not the weather, which has been responsible for this disturbing trend. Low prices paid to cocoa farmers, mismanagement of chemical inputs and inadequate resources for cocoa development projects are major culprits.

Recent producer prices

As the 2014/2015 cocoa season draws to a close in the next few days, conflicting emotions are running high in the industry. While the government and Cocobod jubilate over the signing of the US $ 1.8 billion syndicated loan in Paris, cocoa farmers are filled with anxiety as to what price the almighty government will fix for their produce in the coming 2015/2016 season. Their anxiety is well placed, given their experiences in the last few years when there was little (five per cent in 2011/2012) or no increase (2012/2013 and 2013/2014) in the price paid for their produce.

In the face of rising domestic inflation, the sharp depreciation in the value of the cedi and rising world prices, the government was forced to increase the producer price for cocoa in the 2014/2015 season. But by how much? From GH¢ 212 per bag of 64 kg, the price was lifted to GH¢ 345 – an increase of only 63 per cent.

This was barely enough to compensate for three continuous years of virtually no increase in producer prices in the face of rising inflation, depreciation of the currency and rising prices of cocoa on the international market. To add insult to injury, the government refused to pay the bonuses due to the farmers in the three years.

Given these economic considerations and the disastrous harvest of 2014/2015, it is imperative the government takes a bold and fundamentally different approach to the pricing of cocoa resources (both inputs and produce).

International prices and producer prices

Since last year, cocoa prices on the international markets have risen sharply and is now trading up to US $ 3,350 per metric tonne. Ironically, this increase is on account of the significant drop in supplies from Ghana. At one time there was speculation on the international market that Ghana might even default on its contract obligations. All such speculations have contributed to shoring up cocoa prices on global markets.

The drop in the output has been such that the domestic processing industry with installed capacity of 360,000 metric tonnes, has been severely hit. Cocoa processing factories are forced by the shortage to operate well below capacity. Out of desperation, some are even having to import cocoa beans from neighbouring Cote d’Ivoire. This is a classic case of “carrying coal to Newcastle”. Here is an unimaginable situation of Ghana importing cocoa.

The rising strength in international prices contrasts sharply with the substantial decline in the real prices which the government has been paying to cocoa farmers in Ghana in the past few years. Apart from underpaying the cocoa farmers for their produce in the past, another major factor to explain the decline in cocoa production in Ghana is the massive mismanagement of the multi-million dollar cocoa input market.

“Free” cocoa inputs policy

The peak production of one million metric tonnes attained in 2010/2011 was a direct result of policy initiatives (Hi-Tech and Mass Spraying) undertaken by the NPP Administration from 2001 onwards. The two programmes have continued under the NDC Administration. But they have been cut back so severely that majority of cocoa farmers are no longer benefiting as they used to prior to 2009.

Equally worrying is the cut back in the number of times the chemicals are applied to the trees. From six sprays in a year to control swollen shoot disease, the number of applications has been reduced to only twice yearly. And from three sprays a year to control black pod and capsid, it is now only once a year. This information is easily verifiable from the few beneficiary farmers anywhere in the cocoa - growing zones and regions.

The “free” fertiliser and insecticides policy adopted by the government since 2014 is making a bad situation worse. By this policy, cocoa farmers in the country are supposed to receive all their chemical input needs free of charge.

This means 100 per cent subsidy for all farmers. Talking to the farmers in Sefwi, Ahafo and Amansie, it is clear that most cocoa farmers are not receiving supplies. And for those farmers lucky enough to benefit from the “free” input policy, it has become a “One-Size-Fits-All” programme. Many beneficiary farmers report that they receive the same quantity of inputs regardless of the size of their farms. Hence, it is common to find that the recommended quantity of inputs per acre is not applied. This has resulted in rising incidence of Black Pod and capsid in particular and declining yields in many producing areas.

One of the defects of the “free” input policy is the emergence of a huge domestic black market in cocoa inputs and smuggling across the borders to neighbouring countries. The daily media reports of the apprehension of offenders across the country (including some law enforcement officers themselves) attest to the seriousness of the situation on the ground. Ghana has become a major source of supply of the illegal trade in cocoa chemicals across West Africa – from Niger to Cameroun. “NOT FOR SALE” is the most popular “brand” in most West African countries.

Untested chemicals

What could be even more damaging for the future of cocoa in Ghana is the direct distribution of new untested brands of cocoa chemicals to farmers. These chemicals have not gone through the stringent scientific procedures of testing and piloting for efficacy and other agronomic effects.

Apart from the environmental risk, there is no scientific evidence that these newly-introduced chemicals perform any better in controlling diseases and improving yields. The high import prices of the new brands relative to those already on the market may indicate a substantial drain on the foreign exchange earnings of this country.

Increase the producer price

It is easy to point to bad weather to explain the substantial decline of 30 per cent in the production of cocoa from the peak of one million metric tonnes in 2010/2011 to 700,000 metric tonnes in the current crop year 2014/2015. The weather is one of the first factors which officialdom mentions for the medium- term decline in cocoa output. But with the same agronomic environment and the same land area under cocoa, we need not be reminded that our neighbours in Cote d’Ivoire are producing more than twice of what we are producing.

As discussed above, the factors for the low production are the severe underpayment to cocoa farmers for their produce, the short supply of inputs reaching the farms as a consequence of the “free” input policy, the mass smuggling of chemicals and cocoa to neighbouring countries and the scaled down Hi-Tech and Mass Spraying programmes.

In the coming weeks, the government should be announcing a new producer price for cocoa. This presents an opportunity to correct the undervaluation of the price paid to farmers.

With the signing of the cocoa syndicated loan in Paris, a total of US $ 1.8 billion is due to hit the account of the Bank of Ghana in the coming days. At the prevailing interbank rate of Gh¢ 4.05 per US dollar, the transfer from the Group of International Banks will provide Gh¢ 7.3 billion. I submit that a large part of this money should be returned to cocoa farmers through an increase in the price paid for their cocoa at the farm gate.

The practice has been for the government to deduct from these gross proceeds the cost of disease control, cocoa roads, farm chemicals, cocoa scholarships, government taxes and bonuses before determining the producer price to be paid to farmers.

This system of pricing is distortionary and repressive. Because there is no pre-determined yardstick with which to measure the efficiency of the funds set aside to construct and maintain cocoa roads, to control diseases and pests and to fix subsidies on prices for fertilisers, pesticides and insecticides.

Since the farmer is the primary producer of cocoa wealth, there is an urgent need to link his price directly to the world market. Hence the stated policy of paying the farmer 70 per cent of the F.O.B price should apply to the “gross” and not the arbitrarily fixed “net” value.

With prevailing international prices and the price premium for Ghana cocoa, we expect a minimum gross F.O.B price of US $3,100. Currently the interbank rate is around Gh¢4.05 per US dollar. These translate to Gh¢12,555 per metric tonne of which 70 per cent is recommended for payment to the cocoa farmer in the upcoming 2015/2016 season. This works out to Gh¢8,788.50 per metric tonne or Gh¢549 per bag of 64 kg. The recommended price of Gh¢549 compares to the current price of Gh¢345 per bag – an increase of 59 per cent.

Scrap the “free” input policy

The producer price of Gh¢549 per bag should provide enough income incentives to farmers and afford them the capacity to purchase adequate inputs at full market prices to control diseases and improve their yields. In other words, we are advocating for the abolition of the policy of “free” inputs to cocoa farmers. An added advantage is that the recommended new price of Gh¢549 per bag should bring the producer price in Ghana close to those of neighbouring countries to stop the smuggling of our Cocoa.

Raise the producer price to the level that the farmer himself can afford to buy all his inputs on the open market even without subsidy. Looked at another way, use the proceeds from imported chemical inputs to top up the producer price to ensure decent cocoa incomes for farmers and to ensure adequate supply of inputs for disease control and increased yields. Above all, step up the High-Tech and Mass Spraying programmes to the levels of the period prior to 2009.

The changes proposed here should set the stage for Ghana to recapture the peak of one million metric tonnes achieved six years ago and head towards the current productivity levels of Cote D’Ivoire.

The writer is the Ranking Member of the Select Committee on Food, Agriculture and Cocoa Affairs of the Parliament of Ghana.