By Francis OWUSU-ACHAMPONG(FCIB)
When the international price of cocoa surged to approximately USD 7,000 per ton, Dr. Ato Forson was outspoken in his criticisms of the government, accusing it of short-changing cocoa farmers through our central marketing board approach.
The over- riding advantage of the marketing board concept is the maintenance of price stability to insulate farmers from violent price fluctuations on the international market.
The now Minister of Finance’s argument centred around the claim that the government could afford to pay GHS 7,000 per bag of cocoa but was instead paying a mere GHS 3,000, thereby significantly undercutting farmers.
Obviously, that was a great campaign strategy that resonated with voters, the inherent fallacy notwithstanding. This contributed to the incumbent government’s loss in the election, among other reasons.
The central marketing board’s system provides a stable pricing mechanism that protects farmers from volatile fluctuations in international cocoa prices. Dr. Forson’s claims were part of an effective campaign strategy that tapped into the frustrations of cocoa farmers, including myself.
However, it’s important to recognize that his statements (whether candidly or mischievously made) did not fully account for the complexities of the global cocoa market, nor the financial mechanisms at play.
Now, with cocoa prices hovering around USD 8,000 per tonne on output/demand forecasts, and having reached a high of USD 11,700 in recent weeks, we are still waiting for the government to fulfill its promises to cocoa farmers.
As an international trade finance lecturer, I understood that Dr. Forson’s assertions were politically motivated, designed to sway public opinion.
Let me briefly explain why Ghana cannot immediately benefit from the rise in international cocoa prices in the short term.
Despite being the second-largest producer of cocoa globally, (accounting for some 20% of global output) Ghana is a price taker, not a price setter. The true price makers are international buyers and their financiers who influence market prices based on forecasts of global demand and supply.
These players possess superior market intelligence, enabling them to speculate and manipulate prices through their control of the commodity’s supply chain. Factors such as weather changes, production patterns, the operational costs of Ghana Cocobod, and sovereign risks all impact pricing forecasts.
These agencies have superior information in the market and can “conspire” to influence the demand for the commodity by chocolate and other users of the commodity; supply being fairly inelastic and rigid for various reasons and times.
Significantly, Ghana’s approach to selling cocoa is not based on spot prices, regardless of how favourable those prices may seem. The country sells its cocoa output forward, securing an agreed price over a defined period to ensure liquidity. This arrangement involves syndicated financing, which provides Cocobod with immediate cash for cocoa yet to be delivered.
Once delivery is completed, Ghana can renegotiate fresh contracts based on prevailing spot prices. Financiers are subsequently paid from the proceeds of these deliveries, ceteris paribus. However, this process means that the financial benefits of increased cocoa prices go to the financiers and counterparties, not directly to Ghana Cocobod.
Recent challenges have compounded these issues. Factors such as poor weather, unpredictable diseases, and land degradation caused by illegal mining (galamsey) and a dearth of farm labourers, have led to a decrease in cocoa production, with output in the 2023-2024 season estimated to have dropped by 40% over the previous season.
As a result, Cocobod is struggling to meet its previous contractual obligations, further delaying any potential benefits from the higher cocoa prices. Losses have been incurred as a result.
For instance, if Ghana had contracted to sell a specific quantity of cocoa at USD 2,500 per tonne, and the international price later soared to USD 8,000, the country would still be obligated to fulfill the contract at the original price of USD.2500 until all deliveries are completed. In such cases, the windfall from higher spot prices benefits the counterparties, not Ghana Cocobod.
This is a crucial point that needs to be understood to avoid misleading the public into thinking that Ghana is profiting from current high cocoa prices.
At the time of writing Ghana Cocobod has to find about 300,000 tonnes to fully execute earlier contracts before we begin to benefit from increased international prices for the 2024-2025 crop season at a new negotiated price.
Price fluctuations in the commodities market pose diverse risks for market participants. These are managed through a complex web of option contracts in the Futures market with embedded right to sell or buy cocoa at agreed prices over defined time frames.
I would have expected an intellectual to be abreast with these dynamics and not whip up antagonism against a government which increased cocoa prices from a low of GHC. 2070 to GHS. 3100 per 64 bag load.
As a cocoa farmer myself, I would be highly elated about earning GHS.7000 for my 64- bag load but as someone who earned my academic qualification genuinely, I shudder to find politicians playing mind games with the populace.
If the world market price falls for any reason below USD 7000 per tonne now, it will be a monumental tragedy to even maintain the current local price of GHS. 3100, let alone consider a local price reduction.
Realistically, Ghana Cocobod is handicapped in terms of buffers to cushion farmers in the event of a major price blip. This can backfire tragically for the entire economy.
Falling Treasury Bill Rates… some implications
In recent months, Ghana has witnessed a notable decline in Treasury bill rates across 91-day, 180-day, and 360-day instruments, with rates now at 15.25%, 15.86%, and 15.60%, respectively. This shift appears to be an attempt by the government to manage its borrowing costs and correct the previous yield curve, where short-term instruments attracted higher rates than long-term instruments.
This is in line with conventional economic principles, which suggest that long-term interest rates should generally be higher due to the risk associated with uncertain future conditions.
There is also an implicit signal that the government intends to borrow relatively less into the medium to long term, partly in response to managing borrowing costs and ensuring prudent fiscal management to align with a manageable Debt/GDP ratio.
This decline in short-term rates signals the government’s intention to reduce medium- to long-term borrowing, partly to alleviate the pressure on the national debt and manage fiscal prudence.
While this may be a positive step toward correcting the fiscal regime, the disconnect between these lower Treasury bill rates and the high inflation rate of 23%, along with the benchmark Monetary Policy rate of 27%, poses a concern.
This gap signals a potential mismatch between fiscal and monetary policies, creating real challenges for investors.
Ordinarily, this is a welcome development in the quest to correct the fiscal regime, especially the cost of principal and interest payments on the national kitty, a bane of the previous government that led to the unfortunate hair cuts.
Investors who purchase Treasury bills are effectively losing real income, as the returns do not keep pace with inflation. This trend will particularly affect commercial banks, pension funds, insurance companies, and other institutional investors, who are required to hold significant portions of marketable assets.
As a result, many will be forced to reassess their portfolios and look for other investment opportunities that provide a return higher than inflation. Budget expectations will require re-tuning in an economy with few low- risk investment vehicles.
While one might expect this shift to stimulate interest in the stock market, there are several factors that may prevent such a boom. Corporate governance issues related to honesty, integrity and professionalism exhibited by the key participants on the market in the financial reporting framework, business costs, and economic confidence all play pivotal roles in stock market performance.
In an economy with weak fundamentals, investors might choose to invest in real estate or foreign exchange. This could further exacerbate the volatility of exchange rates and make it more difficult to stabilize the forex market, given the relative rigidities in the forex supply dimension.
General costs of doing business affect the fortunes of the players in the market, as also is confidence in the economy (expectations theory), affect economic growth forecasts. Whether stock exchange participants would rely on fresh capital injection from existing and new shareholders would be determined by the market outlook.
A farcical fight against galamsey?
The fight against illegal mining, or galamsey, has become a symbol of political hypocrisy. Dr. Ken Ashigbey and his team of anti-galamsey activists have faced vilification for their efforts to protect the environment, while the political class has failed to deliver on their promises to tackle the menace. The initial resolve to curb illegal mining was undermined when it became clear that galamsey had become an easy avenue for corruption and self-enrichment.
If the price of being patriotic to fight for the conservation of our natural resources is vilification as being suffered by Dr. Ken Ashigbey and his team of anti-galamsey activists, then I will be too glad to be a punching bag for the hypocrites bent on their treacherous expeditions and name calling.
I would like to be a Simeon ready and glad to assist Jesus to carry his cross on the road to Golgotha for the ultimate sacrifice. If the river gods have failed us for reasons we cannot fathom, pretending to be oblivious of the devastation of our environment, we can only expect political leaders to live up to their oath to defend this country.
Unfortunately, the insincerity of political office holders who have sworn to uphold the interest of Mother Ghana has become too glaring and hopelessly farcical.
The unwritten refrain has been… “If you can earn several multiples of your expected pension, why not look the other way when armed with authority to stop galamsey?”
So, the hypocrisy was magnified as a new source of illicit wealth had emerged. The few galamsey offenders who were jailed or lost their equipment were emboldened by political assurances of reprieve. Others became instant millionaires by illicitly distributing seized equipment.
Despite efforts to crack down on illegal mining, the situation has worsened, with some political figures now defending the very activities they once opposed, feebly on unemployment.
The government’s response has been lukewarm at best, with some officials even offering ultimatums to illegal miners that have proven ineffective. Why legitimise criminal behaviour? Meanwhile, the country’s environmental degradation continues, and the very activists working to expose the damage are now being targeted instead of supported.
Election outcomes clearly showed that those who pushed the fight ended up as losers. So, they became lukewarm in their earlier resolve to kill the canker, with “party no hia sika” (the party needs funds) becoming a shameless cliche.
Eventually, political power changed. “Yen aban aba” (Our government is in power). Impunity flew out of the window, emboldened by naked political hypocrisy. Negotiating with known criminals and legitimizing their crimes? The period ends without any renewed effort to stop the menace. The circus time has been extended while the devastation continues.
Dr. Ken Ashigbey mentions that the devastation is continuing unabated, just that the key perpetrators are now activists of the government in power. Suddenly, the whistle blower becomes a monster to be crushed. No one is interested in the substance of his allegation, nor the increasing degradation of the environment. He simply must be hounded for being concerned. Why kill a messenger and ignore the message that could spell a death knell to all?
Rather comically, a group of 400 youth has been reportedly recruited to police the forests and rivers! Something even trained, armed soldiers were disabled to enforce is now to be handled by hapless youth after some short drills. These are youths some of whom would hardly pass regular police physical and mental recruitment criteria but now entrusted with the task of stopping galamsey operators, some of whom are armed to the teeth and could potentially metamorphose into militias, if care is not taken.
Then, we wake up to the news of the cancellation of mining licences issued after December 7th, 2024 without exception. How would this lead to reclamation of the devastated lands or prevent further degeneration of water bodies?
This cycle of inaction and political expediency threatens the future of Ghana’s natural resources and the livelihoods of those who depend on them. Until political leaders demonstrate genuine commitment to protecting the environment and curbing illegal mining, the country will continue to pay a heavy price.
Conclusion
Ghana’s political landscape is fraught with contradictions, and the challenges facing the cocoa industry and the fight against galamsey are but a microcosm of the broader issues facing the nation.
As a farmer, I am all too aware of the struggles we face, but as a citizen, I am equally disillusioned by the political games being played at the expense of our national interests.
Only through genuine, transparent leadership can we hope to address these issues and secure a sustainable future for Ghana’s economy and environment. If we continue to latch on to such naked hypocrisy, we shall all pay a heavy price someday.
The writer is a Fellow of the Chartered Institute of Bankers, a former adjunct Lecturer at the National Banking College, a farmer and the author of “Risk Management in Banking” textbook. Email; [email protected] Tel. 0244 324181
