Weak global cocoa prices have caused much grief to African producers. Global cocoa futures were down 40% in late April from August 2016, when the decline started.
Côte d&#8217;Ivoire, the world’s largest producer of the commodity, has cut its 2017 budget by 10% consequently. Neighbouring Ghana, and second largest cocoa producer, also missed out on about $1 billion in cocoa export earnings due to the bearish market, according to Joseph Boahen Aidoo, Chief Executive of the Ghana Cocoa Board (Cocobod), on the sidelines of the emergency International Cocoa Organization (ICCO) meeting held in Abidjan in late April.
The $1.8-billion loan the Cocobod took for the 2016-17 season was spent carelessly or misappropriated to road contracts by Ghana’s erstwhile John Dramani Mahama administration ahead of elections in December 2016, causing it to run out in March. The Cocobod had to seek $400 million in bridge financing via cocoa bills from the Bank of Ghana, the country’s central bank.
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In light of the debilitating effects their cocoa troubles are having on their finances, Côte d&#8217;Ivoire and Ghana have been forced to collaborate more. Unfortunately, the countries, which together account for about 60% of global cocoa supply, have different pricing systems.
“We are trying to harmonize how we do our systems for trading so we can use that to monitor the market and coordinate the sale of cocoa,” said Aidoo in April.
To reduce price volatility, cocoa producers resolved at the ICCO meeting to better manage supply.
Poor bean quality, especially high acidity, is a downer as well. Farmers also worry about above normal humidity levels. In mid-March, Ivorian cocoa grinders were rejecting as much as half of the beans from farmers, as acidity levels were sometimes more than double the European Union ceiling. Dry weather and bad storage are believed to be responsible for the bad beans.
Although it is hoped improved, but late, rains could see better beans come from the April-September mid-crop harvest, worries remain. The rains were quite heavy in mid-April for instance. As a deluge tends to make pods fall from trees, the harvest may not be bumper. Also, heavy rains raise the risk of a disease or pest outbreak. They also make road transportation more difficult, as roads become less than ideal.
Still, a supply crunch is highly unlikely. For the 2016-2017 season, the ICCO forecasts in its February market review that world cocoa bean production would increase by about 15% to 4.55 million tons, with grindings to also rise by about 3% to 4.24 million tons.
Out of this, Côte d&#8217;Ivoire is expected to produce at least 1.9 million tons, 42% of the world total and 20% more than its production of 1.58 million tons in the last season. ICCO projections for Ghana in February for the 2016-2017 season is 850,000 tons. However, Cocobod lowered the target to 800,000 tons in March, a little above the 780,000 tons it produced in the previous season.
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With a glut of the commodity in Côte d&#8217;Ivoire and room for more in Ghana, unsurprisingly cross-border smuggling has been rampant. Depending on the times, cocoa price disparities between the two countries tend to encourage smuggling either way. Although farmgate cocoa prices were set at 1,100 CFA francs per kilogram by the Ivorian Coffee and Cocoa Council for the 2016-2017 main crop harvest, a supply glut due to stockpiles in warehouses from crops as late as December have crashed prices. Suddenly, the 900 CFA francs per kilogram for the commodity in Ghana seemed like a steal. Guinea has also been a beneficiary of Ivorian cocoa smugglers, where it is sold for about 850 CFA francs per kilogram. Such is the despair that Ivorian grinders have been able to strike attractive bargains, with offers ranging from 500 to 600 CFA francs per kilogram. A common market would eliminate these distortions.
Incidentally, the prices for manufactured cocoa products, such as liquid deodorized butter and natural powder, have been steady this year. With cocoa prices so low, and European manufacturers enjoying a boom, there couldn’t be a stronger case for more value addition by African producers. &#8211; Written by Rafiq Raji

Tough Times For The Cocoa Bean Counters

Edison Gbenga Ade believes agriculture will transform Africa. That faith, however, was not born overnight.
Born in Nigeria to a father who was a cocoa exporter, the information technology major from the prestigious Berkeley, in California, United States, was once told that he was too short to be a pilot. Undeterred, he knew he wanted to help society, no matter what career path he took. After graduation, Gbenga went on a journey of self-discovery, which took him to India.
“I wanted to know what to do with my life. I was interested at the time in solving problems and adding value to people’s lives,” says Gbenga.
The first service he started was a healthcare center in the heart of India that helped those who could not afford medical care. After six months, the business could not be financially sustained and closed down. However, the short experience sparked a desire for business, which Gbenga didn’t know existed.
Edison tried his hand at his own modeling management agency and also opened an internet café providing ISP services. Edison also dabbled in the training space, providing free ICT training to schools around Africa. Six years ago, Gbenga arrived in Ghana to attend a religious camp;  he now calls the country home. The first thing he did when he arrived in Ghana in 2009 was to organize a summit called the Kumasi Economic Summit. It attracted around 400 people.
“I think Kumasi will become one of the most sought after cities in the world in the next 15 years, don’t ask me how I know, I just do,” says Gbenga.
The Youth Alliance for Leadership and Development in Africa conference was set up by Harvard University graduates in 2004 to bring together young people passionate about Africa’s development.
“Agriculture is not the way to solve Africa’s problem, the best way to solve a problem in Africa is through the creative economy. I think that agriculture is slow-paced and hence very difficult to provide solutions to develop any economy,” Gbenga told his peers at the conference in Nigeria.
Six months after that speech, Gbenga started an agribusiness company in Ghana.
“I think, psychologically, I was against the idea of agriculture because my dad failed at it. He was a large exporter of cocoa, exporting millions of tons but did not make a lot of money from it due to the large overheads associated with the business,” says Gbenga.
His outlook changed when a chance agricultural opportunity came his way. There was a conference in Senegal that was looking to sponsor young people interested in agriculture. Edison decided to find some budding agriculture entrepreneurs who could benefit from this opportunity. After searching the country, the closest person he could find was a young man who had inherited a cocoa farm from his father but did not have a passport to travel to Senegal.
“I realized that food security in the next 10 years will be a problem, simply because young people were not interested in agriculture,” says Gbenga.
He decided to lead by example. He entered a business competition in Ghana and pitched an innovative idea, which finished in third place. The idea was simple – connecting investors to farmers and buyers to sellers. That idea has evolved over time.
“We realized that if you do not have professional farmers who understand their numbers and their books, investors would not trust their money in their hands. You also have to prove to investors that you are an expert in your field.”
Most of the local farmers could not meet these criteria. There needed to be a long-term plan to address these challenges for the business model to work. In the process of identifying their strategy, which would set them apart from other agribusinesses, Gbenga decided to focus on the niche market of organic farming. In 2013, Gbenga and his team organized the first organic food market in Ghana, which was covered by the Guardian newspaper in Britain. The article gave the company worldwide publicity.
“I remember getting emails from India and all over the world and I thought to myself ‘what do we do now?’ People think we know everything about the organic market in Africa and this was just our first try.”
After this initial success, he returned to his original model but refined the process.
“We now have a cluster of people who are interested in agrobusiness and we crowd fund and crowd source knowledge, investment and experience. The idea is that people have money but want to share the risks, so it’s easier for 50 people to invest GHC10,000 ($2,600) in a business than one person.”
Using the expertise and resources from various people, Gbenga attempted to reduce the risk of investing in agriculture. He expanded his business into another brand, Just Fresh. It is an organic fruit and vegetable delivery service for people who do not want to go to the market. Last year, they added a smoothie making delivery service to local businesses and residents in Accra.
The organization is now focusing on pig and poultry farming. They supply market access and give advice on the farming system for around 25% of the farmer’s sales. Unlike his father, Gbenga is determined to be successful in agriculture. He aims to generate $100 million in investment in agriculture within the next 10 years, helping 100 businesses make $1 million in revenue.
Lofty ambitions for an entrepreneur who now believes agriculture can solve Africa’s poverty.

The Born Again Farmer

The world’s second largest exporter of cocoa is currently experiencing serious economic pain.
Proceeds from Ghana’s cocoa, timber and gold exports have not been enough to cater for its national lifestyle. Add liquid gold to the mix and suddenly this regional champion is showing symptoms of the proverbial Dutch disease so early in its crude oil career.
Ghana’s financial system is now frequently constipated, coping with low savings and high borrowing rates. Its also is characterized by unsustainable appetite for foreign goods, resulting in missed spending targets, inflation and dollar-denominated thinking. Sustaining real economic growth has therefore been difficult. In a nutshell, West Africa’s second largest economy is engulfed in a failing currency crisis.
The Ghanaian cedi is suffering its worst humiliation against major trading currencies in decades. Consumer price inflation peaked at 14.5% in April. Public sector spending has remained way above the regional sub-Saharan average for many years, even as the country continues to record fairly strong growth.
By contrast, the cedi has depreciated in recent years. As a result, equities on the Ghana Stock Exchange (GSE) have also been losing weight, shedding about 16% of their value in US dollar terms this year alone.
The business community and ordinary Ghanaians feel helpless. Their view is that politics now threaten to transform their currency into ordinary tissue paper.
“Notwithstanding the fact that Ghanaians are resourceful and resilient people, local businesses have been hit hard by this currency crisis… the authorities need to cultivate public empathy, they need to involve the business community in their fiscal planning process,” says Albert Ngumba, general manager of e-commerce firm Cellulant Ghana.
The crisis has induced a total slowdown of the once stable polity and left politicians and economists puzzled on how to stop this once bubbling economy from drifting away.
How is it that Ghana now finds it difficult to pay its bills after years of sustained economic growth and after commercial production of crude oil began in 2010? How can a nation be growing into poverty?
For those interested in the fortunes and foibles of African nations over the last five centuries, this is an old tale. The logic of the international marketplace is a simple linear equation: if weaker economies have weak currencies then stronger currencies will produce stronger, more robust economies. This is the turf of the world’s central banks.
Of course, beyond the currency conundrum, one of the reasons why economies fail is fiscal indiscipline. This has been the bane of Ghana’s current economic woes. Its current account deficit, according to the Bank of Ghana (BoG), the banking industry regulator, was a whopping 12.30% of its GDP, as at December, 2013. Debt-to-GDP ratio is forecast to reach 51.2% by the end of 2014. If this figure ever gets to the 60% mark, Ghana might lose its status as a lower middle-income country, according to the IMF.
Government’s quest to increase teachers and civil servants pay blew up in its face: public sector salaries now gulp 70% of internally generated revenue. These civil servants represent less than 1% of the population. With falling commodity prices, and energy supply hiccups, the fiscal deficit is expected to persist for at least another five years.
To stem the negative currency tide, the BoG outlawed companies from maintaining domiciliary accounts and engaging in foreign currency denominated transactions in February. It also limited withdrawals to approximately $10,000. The plan did not work. The cedi has depreciated by more than 6.4% since then. The BoG promptly unfastened the guidelines in July. The effect of this policy flip-flop on the psychology of the markets has been mixed: macro- and micro-level economic pains, heightened currency and sovereign risk ratings, faith in the ability of the economy to turn around in the long term, and erosion of confidence in government’s economic management capabilities.
The matter is threatening Ghana’s hard won reputation as a magnet for foreign investment. Ghana’s share of Africa-bound FDI ($3.3 billion per annum) needs to grow. The value of exports also needs to grow. Ghana’s business and political elite need to be stimulated to increase their appetite local products.
For most Ghanaians, whose outlook on life has been defined by decades of mass penury and perseverance, this is proving to be a bitter pill to swallow, especially after President John Mahama made promises of steady and sustained economic progress.

Tag: Cocoa

FORBES AFRICA SOCIAL MEDIA

Tough Times For The Cocoa Bean Counters

The Born Again Farmer

Growing Into Poverty