We recently heard of Ghana and Ivory Coast allegedly noticing Hershey’s invasion of the $400/t Living Income Differential agreed by the industry to pay to help improve cocoa farmers livelihoods. This realisation led to both countries cancelling the sustainability schemes run by Hershey’s, leaving the Cocoa Merchants Association of America and are currently reviewing their membership with the Federation of Cocoa Commerce in the United Kingdom.
(In my critique of Fairtrade, we spoke about the hidden dangers of these sustainability programmes and how counterproductive they are on the livelihoods of cocoa farmers).
In this article, I would like to help Ghana and Ivory Coast with arguments on why leaving the FCC is the only way for both countries to take control of the sector as expected.
What is the Federation of Cocoa Commerce “FCC”?
The FCC is a merger of the 1929 Cocoa Association of London (CAL) and the 1935’s Association of Francaise du Commerce des Cacaos (AFCC). The FCC aims to create a commercial trading framework of cocoa and its related derivatives and services for its members. This means any company that joins the FCC must have its buyers or suppliers of cocoa as part of FCC. The FCC through its Contracts and regulations committee develops and reviews sales/supply agreements used by its members in trading with each other. It also has its arbitration and appeals committee which handles disagreements/ reported breaches that arise between members in their utilization of any of FCC’s contracts. Members of the FCC are usually individual companies, regulators, associations, etc.
“Almost all the regulators and traders of Ghana and Ivory Coast’s cocoa beans are members of FCC, which means until you join FCC you can’t buy cocoa beans in Ghana. That is the power FCC holds now.”
Why is Ghana’s association with FCC Problematic?
Ghana Cocoa Marketing Company Limited (CMC), a subsidiary of Ghana Cocoa Board, which is the only organisation in Ghana responsible for selling all of Ghana’s cocoa beans, is a member of FCC. This means that anyone who wants to buy cocoa beans from Ghana for local or international value addition, by a Ghanaian investor or not, must compulsorily be a member of FCC.
So, most people have been wondering, why indigenous Ghanaians are not setting up cocoa processing factories in Ghana even after Ghana’s offer of a 20% discount on mid-crop beans to encourage local value addition? Below is the process an investor needs to go through before gaining a beans supply agreement with Ghana’s CMC and hence establishing a processing company in Ghana.
- The investor needs to secure a beans supply agreement with Ghana Cocoa Company Limited (CMC).
- Due to CMC being a member of FCC, the Investor needs to join the FCC first before CMC can grant them a cocoa beans supply agreement. This is so because the whole idea of being part of FCC is for both buyer and seller to use the agreed FCC draft sales agreements, supports systems and internal arbitration system.
- The FCC’s membership is in five categories i.e., Voting, Associate, Non-voting, Group and Honorary membership. Your ability to be in any of these categories above depends on the value of your capital assets. The group membership is open for organisations who affiliates/subsidiaries of are either a voting member or non-voting member.
- For the Investor to successfully apply for a voting, associate and non-voting membership with FCC, the investor needs to be nominated and seconded separately by voting members of FCC.
- The proposer and the seconder of this investor need to demonstrate, on the application form (see figure 1), that they have had a satisfactory contractual relationship with this applicant; personally, know some of the directors and employees of the applicant and finally knows that the applicant is engaged in activities that relate to the trade of cocoa beans.
“How will a Ghanaian investor who wants to diversify into the cocoa sector to process cocoa succeed, with the above conditionalities”
Figure 1: FCC Voting membership form – the section for the proposer to complete.
Source: FCC’s form for voting membership applicants
“Isn’t it surprising that FCC in London, has created a system such that they indirectly control who establishes a cocoa processing firm or purchase cocoa beans in Ghana?”
Why will voting members of FCC be sceptical of nominating and seconding a Ghanaian investor?
Investing in the building of a cocoa processing firm in Ghana is heavily influenced by the 20% discount up for grabs on the mid crop beans. However, the volume of mid-crop beans Ghana records is averagely 90,000 tonnes annually as shown. This makes the mid-crop gold to chase for. So, the question is, why would FCC members easily nominate or second any applicant to come and share in the limited and discounted mid/light crop beans in Ghana? Especially when being a Ghanaian investor will reduce the power of these FCC members over their indirect governance of cocoa beans supply in Ghana?
It is for this reason that three processing companies have control over 73% of Global Cocoa processing. Ghana’s Cocoa Marketing Company Limited’s (CMC) membership with FCC has crippled Ghanaian investors willing to invest in the processing of cocoa beans in Ghana and has given the multinational firms and FCC the first right of refusal.
“So, this implies that FCC has closed the entire cocoa sector to any Ghanaian who wants to diversify from a non-cocoa sector to the cocoa sector and also creates a recipe for nepotism since the applicants need to be known personally by voting members”
So, if Ghana and Ivory Coast, producers of an estimated 70% of the World’s cocoa beans, are reviewing their membership with FCC, then I would gladly welcome that decision and advise them to exit the FCC ASAP. After exiting, they should create their commercial trading agreements and give Ghanaians and Ivorians the first right of refusal. They should also establish arbitration centres in Ghana and Ivory Coast to deal with all commercial issues in the sector. Ghana should also expand the scope of work of its cocoa regulators to include end-to-end support for indigenous investors diversifying into the cocoa sector to add value. With the two countries’ massive control of cocoa beans production, every actor within the value chain would have no choice but to comply and hence the power over the sector can be transferred from FCC to Ghana and Ivory Coast.
The writer is an International Development & Trade Analyst with a deep research interest in issues affecting smallholder cocoa farmers in Ghana. He has over 10 years of work experience within the Global Cocoa, I.C.T and Higher education sectors. Currently, he is the General Secretary, Executive Director and Board Chair at The University of Manchester Students Union, as well as a Governor at the University of Manchester Board of Governors, United Kingdom.
LinkedIn: Kwame Asamoah Kwarteng