Deregulation of the cocoa industry

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Ghana’s Cocoa sector is estimated to contribute about 3.5 percent to GDP and makes up about 25 percent of total export receipts. It is one of the most beneficial traditional commodities that have been the bedrock for the country. Despite its enormous potential, the sector has been at risk from the proliferation of illegal mining in recent times; lack of appropriate modern technologies low-yielding plants; land tenure litigations and poor remuneration of farmers among others.

Regardless of challenges bedevilling the sector, Ghana is able to sell most of its annual cocoa production due to the high premium international firms’ places on it. This gives Ghana a pivotal edge to maximise its production to surpass any other country and attract FDI inflows into the sector.

Reuters reported that by September 1, 2022 Ghana’s cocoa production for the 2021/2022 crop season was down at around 689,000 tonnes, after a previous forecast of 800,000 tonnes. However, for this year’s crop season COCOBOD is forecasting about 750,000 tonnes of cocoa production. When comparing Ghana’s figures to Cote d’lvoire – which produces 2 million tonnes per year and their beans are estimated to account for 45 percent of world production, generating 40 percent of the country’s export earnings – then much work needs to be done in that sector.

Over the years, COCOBOD – set up to coordinate the production and marketing of Cocoa, and offer farmers stable farmgate prices that shield them from price volatility – has not been able to satisfactory live up to this mandate… indirectly shortchanging the farmers through maintaining overvalued exchange rates coupled with high inflation rates. There is therefore a need for policy changes in the operations of COCOBOD so that it can be relevant in this fast-changing technological age, and position Ghana to once again become the world’s number-one cocoa producing nation.

Most industry players, including producers, buying companies, industrialists and recently the immediate-past trade minister, have reiterated the need for Ghana to review COCOBOD’s operations to make them more productive – particularly full deregulation of the sector, as has been modern practice in the sub-region. There has never been a better time than now for Ghana to take a bolder look at the sector as it is today.

In the 80’s, when government during the Structural Adjustment Programme scrapped the autonomy of PBC Ltd. in buying of cocoa from producers, there was a massive surge in production of the commodity. The emergence of cocoa buying companies offered producers lots of benefits; including subsidised fertiliser, competitive prices above the minimum set by COCOBOD, extension support, improved seeds and award schemes.

The sector’s review must focus on liberalising the monopoly held by COCOBOD as sole exporter of the beans, and by encouraging individual companies to obtain their licence at a competitive rate. COCOBOD will assume the role of regulator by: ensuring that beans exported are of high quality; focusing more on research and extension; and adjudicating matters in the sector and offering policy direction. In this case, the producer price will be adjusted to exclude the cost of pest and disease control, fertiliser distribution, jute sacks and social projects.

The formula for determining the new producer price will thus be:

Producer Price = Gross FOB price – Cost margins

Where –

Gross FOB price: World cocoa price, projected production size, projected exchange rate
Cost margin: LBC price margin, shipping cost, COCOBOD operational cost

Prices of the cocoa produce will be adjusted at a regular pricing window by a committee that takes into consideration the current world market price of cocoa beans; exchange rate and inflation, and other macro-economic indicators.

In turn, government should amend the Income Tax Act, 2015 (Act 896) to impose a 10 percent withholding tax rate on payments made to cocoa farmers by the buying companies. Export of these products will be subject to the Customs Act without any exemptions.

Ghana will be on the receiving end to benefit enormously from these, as more investors will be attracted into the sector to enhance production – thereby creating employment and increased production. The procurement breaches that are mostly associated with supply of seeds, fertiliser and pest-control will be reduced drastically. From projection, cocoa’s contribution to GDP will be doubled in the mid- to long-term.

>>>the writer has an MSc in Economic Policy, member of CITG, Big Data Analyst with specialty in Predictive Analytics, CISA trained and a staff of GRA

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