Ghanaian cocoa farmers are facing a challenge despite a historic surge in international cocoa prices, which have skyrocketed by over 300% in just a year. From £2,166 per tonne in April 2023, cocoa prices soared to £9,980 by April 2024. However, these prices have since dipped and are now hovering around £6,400 as of the latest figures.
This unprecedented price increase was fueled by poor harvests in major cocoa-producing countries, particularly Ghana and the Ivory Coast, which together account for nearly 60% of global production. Severe weather patterns, notably the El Niño phenomenon, coupled with years of underinvestment, have weakened Ghana’s cocoa trees, making them more susceptible to disease and dramatically reducing yields.
In February 2024, Ghana’s cocoa board, Cocobod, revised its crop forecast, downgrading its expected yield for the 2023–24 season by 40%, from an initial estimate of 820,000 metric tonnes. The news sent shockwaves through global markets, which rely heavily on cocoa from West Africa.
Despite this market upheaval, Ghanaian farmers have not been able to fully capitalize on the price hike. Cocoa prices at the farmgate, the price paid to farmers, have remained far below international market levels. While Cocobod raised farmgate prices by 58% in April 2024, followed by another 45% increase in September, these hikes have not kept pace with the surge in global prices. By September 2024, the price farmers were paid per tonne of cocoa increased from 33,120 Ghanaian cedis (£1,599) to 48,000 Ghanaian cedis (£2,304), but the gap between local farmgate prices and international prices has continued to widen.
A further 3.3% increase in farmgate prices was announced by President Nana Akufo-Addo during National Farmers Day celebrations on November 8, 2024, in an attempt to further incentivize cocoa farmers. However, experts argue that these price increases are still insufficient compared to the sharp rise in international cocoa prices.
The Impact of Forward Sales and Financing Structures
One of the key reasons Ghanaian farmers are not seeing the benefits of the price surge is the country’s long-standing forward sales strategy, coupled with a reliance on syndicated loans to finance cocoa purchases. For decades, Ghana’s Cocoa Marketing Company (CMC) has used forward contracts to secure prices for up to 70% of its anticipated crop, often up to a year in advance. This system, designed to protect farmers from price drops in declining markets, has also prevented them from benefiting when cocoa prices surge.
The forward prices secured by CMC, tied to global benchmarks, were significantly lower than the record-high spot prices in 2024. Consequently, farmers received only a fraction of the potential price increases.
Additionally, the financing structure that has underpinned the cocoa industry in Ghana for over three decades depends on a syndicated loan, raised from international banks, to fund the purchase of cocoa from farmers and to finance farming inputs such as fertilizers. This loan, which has totalled nearly $28 billion (£21.6 billion) since its inception, has been crucial not just for the cocoa sector but for the broader economy. It has provided the Ghanaian central bank with access to hard currency at lower interest rates, which is essential for the country’s import needs, particularly as Ghana grapples with a growing debt crisis.
However, because this loan is secured against forward contracts, the prices for cocoa must be locked in before the harvest season, limiting the country’s ability to take advantage of price increases after the contracts are signed.
A Shift in Financing Strategy
In August 2024, in response to rising global interest rates and the increasing volatility in cocoa prices due to climate change, Cocobod announced that it would not raise a loan for the 2024–25 season, marking the end of its 31-year reliance on this financing model. Instead, the new approach requires licensed buying companies (LBCs), which buy cocoa from farmers, to source their own financing independently.
Previously, LBCs received centralized funding through the syndicated loan. Now, they must secure funds from international cocoa traders or domestic banks. While this shift provides the CMC with more flexibility to sell cocoa at favorable prices, it also presents challenges, particularly for local buyers who may struggle to access affordable credit.
International traders have already started forming partnerships with local buyers to ensure a steady supply of cocoa, but this could lead to concerns about the growing influence of multinational companies in Ghana’s cocoa sector, as local buyers could become increasingly dependent on them.
The end of the cocoa-backed loan system represents a potential turning point for Ghana’s cocoa industry. The move gives the CMC greater flexibility in managing its cocoa sales, allowing it to balance forward and spot contracts more effectively. This could lead to improved liquidity and more timely payments for local buying companies.
If the new system is executed effectively, it has the potential to reshape Ghana’s cocoa sector and significantly improve the livelihoods of nearly 1 million cocoa farming families. With better financial stability and improved pricing strategies, Ghana could finally begin to reap the rewards of record cocoa prices, which have for too long remained out of reach for its farmers.
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