Breakthrough cocoa pricing benchmark is a blessing!

Despite realising an increasingly diversified local agric sector, Cocoa remains entrenched as Ghana’s primary agricultural export. Cocoa is predominantly farmed in the Ashanti Region, Brong-Ahafo Region, Central Region, Eastern Region, Western Region and Volta Region.

Having enjoyed significant government support through the much-venerated Ghana Cocoa Board (COCOBOD), the sub-sector has been a direct beneficiary of several interventions which have collectively upheld cocoa as an apex foreign exchange earner.

As of 2017 Ghana was ranked number-two for Cocoa exports, just a notch behind Cote d’Ivoire – raking in US$1,914 per metric tonne received. Cocoa is projected to outstrip the national average supply by 97,500 metric tonnes.

The conspicuous significance of cocoa and the attendant support from government has however not inoculated the sector of all its troubles. The niggling issue of pricing has pervaded the subsector for ages – despite efforts by several stakeholders to address it. The outcry by farmers who, despite backbreaking shifts on the farm have had to contend with penury has since time immemorial, has ascended with very little change for a consolation.

Refreshingly, this narrative has changed. A new era, long overdue, has arrived –and the excitement reverberating within key cocoa enclaves around the country is telling.

Disclosing the landmark news, Joseph Boahen Aidoo-chief executive of the COCOBOD, told a news conference that their (Ghana and Ivory Coast) demands had been accepted in principle by the relevant stakeholders.
“ Over the years, it has been the buyers who have determined the price for the suppliers.

“Ivory Coast and Ghana have suspended sale of the 2020/2021 crop until further notice in preparation for implementation of the floor price,” he said.
Referring to the feat as “historic”, he said that “this is the first time producers have called consumers, and the first time suppliers have called buyers to come and engage on price,” he said.
“Over the years, it has been the buyers who have determined the price for suppliers.”
The world’s chocolate market is worth around US$100billion, of which only US$6billion goes to cocoa producers.

It will be recalled that the two countries had earlier proposed a floor price of US$2,600 for every tonne against an International Cocoa Organisation price that is averaging US$2,436 – following a two-day meeting called by the two top cocoa producers, who together account for over 60% of the world’s production. This followed a threat by the two nations to stop selling their production to buyers unwilling to meet a minimum price.

Ghana and Ivory Coast account for 65% of global cocoa supplies, and argue that the former pricing structure did not reflect an adequate recompense for farmers.

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An understandably excited Chief Executive Officer of COCOBOD, Joseph Boahen Aidoo, also took to his Facebook account to say: “…the joint effort of Ghana and Côte d’Ivoire to improve the income of farmers in our two countries has reached a historic milestone.

“Beginning from the 2020/21 cocoa season, all cocoa produced in Ghana and Côte d’Ivoire will be sold at US$2,600 FOB – the equivalent of US$2,700 CIF per tonne – and will also attract a fixed Living Income Differential (LID) of US$400, which will be applied to all categories of beans.

“The Floor Price mechanism was first agreed in principle at the two-day stakeholder engagement meeting in Accra, on 11th and 12th June 2019. Subsequent to that, a Technical Committee made up of a working group from Ghana, Cote d’Ivoire and representatives from trade and industry met in Abidjan on the 3rd of July 2019 to work out the processes for smooth implementation of the mechanism.

“After extensive deliberations at that meeting, Ghana and Cote d’Ivoire decided to implement the floor price concept starting from the 2020/21 season.
What this means is that, for the very first time, the two cocoa producing countries have taken charge of the mechanism for determining the price at which the cocoa they produce will be sold to buyers.

“For any of our dear cocoa farmers who to date have doubts or fear that the price of cocoa will be reduced, you can now rest assured that my outfit, COCOBOD, and the government of President Nana Addo Danquah Akufo-Addo can once again reinforce our earlier assurance with renewed conviction that the price of cocoa will not reduce.

In fact, all cocoa farmers in Ghana now have reason to look forward to a steady and sustainable increase in the price paid to them for their produce so that they can begin to afford a much-improved standard of living from their cocoa earnings,” he assured.

Mr. Boahen Aidoo further added that a stabilisation fund account will be created for the two countries, to serve as a backup to boost prices in case of a fall below the stipulated floor price.

“A stabilisation fund account shall be established under the cocoa initiative of both countries and provided for in the Charter; and two accounts are to be set up for each country within the secretariat in Accra.

“Any extra value above US$3000 CIF or US $2900 gross FOB of the Achieved weighted Average will be placed in these accounts.”

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Conclusion

In July 2017, President Nana Akufo-Addo together with his counterpart in Cote d’Ivoire, President Alassane Ouattara, began negotiations over a fixed producer price for Cocoa. The negotiations carried on for about two years and saw a successful conclusion in 2019, with US$2,600 set as the floor price for a tonne of Cocoa beans. This, however, is the first time African Cocoa-producing countries are dictating prices for international processors and marketers.

While this feat is a great victory for the cocoa farmer, it is not necessarily the panacea for a subsector that has never been short of potential. To ensure productivity that is meaningful to the farmer, the surest way to sustain income for farmers will be to roll out a comprehensive policy that hinges on gradually processing our beans into finished and semi-finished product,s which will naturally multiply our earnings from sales of the product.

With the country set to earn more from its cocoa beans, it is important to ensure even more responsible production. Ghana, particularly, must work to strictly comply with international standards in Cocoa production, thereby eradicating all forms of child labour and deforestation associated with Cocoa farming in some rural areas.

Policymakers must set parameters for a clear distinction between child work and child labour, to ensure we don’t court negative global feedback for the country.
If this and several other challenges confronting the subsector are addressed, the pervasive farmer poverty that has become commonplace will soon see a natural reversal.
“We believe cocoa farmers should earn sufficient income to maintain a decent standard of living,” John Ament, Global Vice President of Cocoa for Mars, told Reuters.

“The reality today is that many are a long way from this.”
Mars makes a number of iconic chocolate treats – including M&M’s, Snickers and Twix. Mars has said Ivory Coast and Ghana are crucial sources of cocoa for its business. One industry analyst estimated that the company uses around 430,000 tonnes of West African cocoa and cocoa derivatives annually.

Though farmer advocacy groups have applauded the decision, major players in the chocolate industry have remained largely silent since the decision was announced on June 12.

Privately, some complain they were not consulted on the plan and worry it could push companies to buy their beans elsewhere or over-stimulate production – leading to a global price crash.
The floor price is not the first attempt to combat farmer poverty.
Third-party certification schemes, corporate sustainability programmes, and government-guaranteed minimum prices in both countries have aimed to raise living standards for farmers.

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