Reshaping The Future of Cocoa in Ghana After COVID-19

RESHAPING THE FUTURE OF COCOA IN GHANA AFTER COVID-19

The end of the 19th century, saw Ghana export its first cocoa yield, later , it became the backbone of Ghana’s economy. According to the Ghana Cocoa Board, cocoa has created employment for approximately 800,000 families and generated $2 billion annually in foreign exchange through export. Cocoa seeds, which are harvested from cocoa pods, are used to make a variety of products. These include; cocoa butter which is used in the production of toilet soap, body pomade and soft soap; cocoa powder which is used in the baking of chocolate cakes and cocoa liquor (non-alcoholic) that is used as a base for making chocolate and other sweet chocolate treats.

However, amongst the many by-products produced from cocoa seeds, chocolate is the most popular, particularly because of its sweet satisfying taste. In fact, in many parts of the world, chocolate is regarded as a delicacy treat and an affordable luxury snack. During ecstatic moments, uncertain times, and moments of boredom, eating chocolate has a way of putting a smile on our faces. A study published in theJournal of Psychopharmacology revealed that cocoa polyphenols (a healthy organic compound found in chocolate) contribute to the enhancement of positive mood in most people.  While the global COVID-19 pandemic is negatively affecting almost all sectors of the global economy, the cocoa sector in Ghana has suffered a huge blow, especially in terms of its supply chain.  This article shall discuss the contribution of cocoa to Ghana’s economy and will make a comparative analysis of Ghana’s revenue from cocoa to the earnings from the consumption of chocolate globally, which is primarily made from cocoa. Further, it will consider the impact of COVID-19 on cocoa production and shall propose solutions targeted towards sustaining the cocoa industry in Ghana.

Globally, some of the common chocolate brands are Mars Wrigley, Ferrero Rocher, Cadbury and Lindt & Sprungli. Most of these brands are made in Western Europe, which accounts for approximately 35% of total world chocolate production. This is closely followed by the United States of America which accounts for approximately 30%. However, it is interesting to note that none of the major producers of chocolate produce cocoa, which is an essential ingredient for chocolate production. To illustrate this disparity, 70% of the world’s cocoa beans come from four West African countries; Ivory Coast, Ghana, Nigeria and Cameroon.  Ivory Coast and Ghana account for nearly 60% of the total global cocoa production.

Undoubtedly, these four African countries have benefited from significant foreign exchange income due to the export of cocoa beans, however, they have missed out on the vast majority of profits from the processing of chocolate. The global chocolate industry is a booming business generating close to  $100 billion. Local Ghana chocolate makers struggle with local value addition to their cocoa. Neil Munshi argues that this is mainly because of the lack of a refrigerated supply chain and the inability to source locally the four main key ingredients used in making chocolate – milk, sugar, vanilla and lecithin.

Source:  https://makechocolatefair.org/sites/makechocolatefair.org/files/abb1.gif

Cocoa growing in Ghana

At the end of 2019, Ghana’s Gross Domestic Product was ranked 9th in Africa at an approximate $66 billion worth of its products and services. Agriculture remains the major backbone for the economy, with cocoa production in the country ranking the second largest in the world.

Top 10 African countries in terms of GDP (Source: Trading Economics)

As a result of this significant contribution to the economy, the cocoa sector in Ghana is highly regulated, with the government being involved in almost all aspects of the industry. From production to exportation. The Ghanaian government can achieve this involvement through the Ghana Cocoa Board, which is the only institution permitted to sell Ghanaian cocoa to the world market. As can be seen from the chart below, cocoa is produced in large tons, most of which is exported. It is estimated that 70% of the cocoa produced in Ghana is sold abroad, which contributes to a large amount of foreign exchange income.

Source: https://www.statista.com/statistics/497844/production-of-cocoa-beans-in-ghana/

The Supply Chain

Cocoa thrives in Ghana largely due to the suitable weather: a mix of hot temperature, rain, and shade. A cocoa tree bears pods which contain the cocoa beans. A pod is ripe when they turn to a colourful yellow/orange colour and each pod contains roughly 20 – 30 cocoa beans. Farmers will harvest these pods, cut them open to remove the cocoa beans and then start the process of fermenting the beans before drying them. Occasionally, the fermented cocoa beans are exposed to the sun for 7 – 14 days and turned over regularly for consistent drying. Once dried, the beans will be packed into sacks and sold to intermediaries who must be licensed buying companies (LBCs). These companies will grade and check the quality before export. In the country, they are approximately 46 LBCs, of which one is publicly listed. This established system goes on to show the magnitude of cocoa production in the country.

Source: https://asokoinsight.com/content/market-insights/ghana-cocoa-value-chain

Once the licensed buying companies have bought from the farmers, they will mainly export to foreign countries cocoa in its raw form. Studies show that 80% of all cocoa exports from Ghana are usually in raw form, with the main exports being cocoa beans, cocoa butter, cocoa butter, cocoa paste and cocoa husks. Most of these exports head into the European Union, the United States of America and Asia.

Source: https://asokoinsight.com/content/market-insights/ghana-cocoa-value-chain

The Impact of COVID-19 on cocoa prices

As countries continue to grapple with the negative impact caused by COVID-19, global food supply chains are enduring the pain of lockdowns and restricted movement. In Nigeria for instance, the farming of rice has been hugely affected. A report by the World Economic Forum indicates that mounds of paddy rice remain unsold and some go to waste due to lockdown restrictions. Kobo360, a logistics firm, notes that 30% of its fleet across Nigeria, Togo, Kenya, Ghana and Uganda were not operating implying that crops that were to be transported by its trucks across the continent are redundantly in storage.

Besides, exports and imports that were being transported by air, sea or land have also been affected due to the respective closures and restrictions.  Cocoa in Ghana which as mentioned previously is largely exported has experienced a global decline of the price it fetches in the global market. This is largely due to reduced demand by its leading importers, Europe and the U.S – who have been significantly affected by the pandemic – and have closed down most of their factories, restaurants and malls. Also, a review by the International Cocoa Organization reveals that the prices of cocoa future contracts also fell in the Intercontinental Exchange (ICE) Futures for Europe and USA.

As a result, Ghana has felt the pinch.  Last month, the Chief Executive Officer of the Ghana Cocoa Board mentioned that the fall in cocoa prices in the international market cost the country revenue amounting to $1 billion in lost revenue. Not only does the fall in cocoa prices hurt the general economy, but also Ghanaian families and companies that rely on income from cocoa production. The Ghana government and the Central Bank of Ghana (The Central Bank) are instituting certain measures to help its people. These include a reduction of borrowing rates from 16% to 14.5% and a reduction of the cost of funds transfers through mobile money by the Central Bank.

While measures targeting cocoa farmers have not been implemented, the Ghana Government can use the existing cocoa supply chain to distribute basic amenities such as healthcare supplies, soap and water for hygiene and most importantly, food, since most families have experienced reduced household income. Also, given that the Government is highly involved with the cocoa sector, it can use the established systems to identify individuals, families and companies that have been severely impacted. It can also provide financial support from its emergency funds and the $100 million granted to it from World Bank. This may be a more sustainable way to deal with the current situation.

Written by Frank Muhoho
@naima_frank