The cocoa price debate: COCOBOD CEO writes to John Mahama

I have read your social media post following the announcement of the Producer Price of cocoa, it is essential to address certain misconceptions and misinformation arising from your post. While advocating for the welfare of our hard-working cocoa farmers is imperative, it is equally important to approach the issue in good faith and consider the broader context before passing judgement.

Since you have had the privilege of being in government as the number one gentleman, it is expected that you will be familiar with the process for determining the producer price of cocoa. I am therefore surprised that you chose, rather erroneously, to use the current international market price of cocoa at US$3,600 per tonne as the basis for your calculation in your post the recently announced producer price.

Reasons

You are fully aware that Ghana’s cocoa beans are mostly sold forward. This means that the 2023/24 crop was sold between October 2023 and March 2023 at international prices ranging between US$2,200 per tonne and US$2,400 per tonne. The international price of cocoa then began to increase in April 2023, when a greater percentage of the 2023/24 crop had already been sold.
The forward sale strategy enables COCOBOD to give farmers a guaranteed producer price and raise the syndicated loan offshore to pay farmers promptly for their produce.
The international price of cocoa, as alluded to, is quoted on a CIF (Cost, Insurance and Freight) basis, which includes insurance and freight, but COCOBOD receives only the FOB price (which is the cost of beans only). Insurance and freight are received by the insurance companies and shipping lines, respectively.
Additionally, Mr. Mahama, Ghana produces both the Main Crop size category of beans (big-sized cocoa beans) and the Light Crop size category of beans (small-sized cocoa beans). The light-crop beans are sold at discounts ranging from 20% to 40% on the international market. The FOB price received by COCOBOD from the international market is therefore the weighted average price of both main crop and light crop beans. This situation depresses the average weighted FOB price received by COCOBOD for the two crop categories (main and light crop beans) which form the basis for determining the producer price for cocoa.
For the 2023/24 season, the weighted average FOB achieved by COCOBOD was US$2,600 per tonne.
Contrary to your assertion, that the producer price of GH¢1,308 per bag for the 2023/24 season is paltry, the current producer price translates to US$1,821 per tonne, which is 70.03% of the Gross FOB of US$2,600 per tonne.
In the 2015/16 season, the NDC government announced a producer price of GH¢6,800 per tonne. This was 61.71% of the gross FOB of US$2,900 per tonne at the time, and not the 66.06% as you boldly stated. This cannot be said to be better than the 70.03% achieved for the 2023/24 season. Also, key parameters such as the exchange rate and production volumes which could have influenced an increase in the Gross FOB were not significant enough to trigger an increase in producer price beyond GH¢1,308 per bag.

It is significant to note that the operational cost of COCOBOD for the 2023/24 season is about 4% of the gross FOB; the remaining share of the FOB goes into industry costs, LBC margins, and transportation. Generally, the operation cost of COCOBOD has hovered around 4% to 5% of gross FOB since the NPP took over the government.

It is also worth noting that the government, through COCOBOD, has invested heavily in productivity enhancement programmes; such as mass spraying, pruning, hand pollination, rehabilitation of diseased farms, and subsidised fertilizer programmes.

The implementation of the productivity-enhancement programmes has led to an increase in productivity for cocoa farms – from an average of 450 kilos per hectare in the 2015/16 season to an average of 650 kilos per hectare for the 2022/23 season. This has led to an increase in the cocoa farmers’ income.

It is my considered view that this explanation will be a useful guide and source of information in your future engagements on the topic.

Your friend and former colleague,

HON JOSEPH BOAHEN AIDOO

CHIEF EXECUTIVE