Ghana’s cocoa industry, a vital source of foreign earnings, has been grappling with challenges that hinder its growth.
Despite a recent bold move by the Government of Ghana to increase the price per bag of cocoa beans by 63.5% to incentivize farmers and boost yields, the country faced challenges in obtaining funds from cocoa-syndicated loans.
This shortfall in funding nearly undermined the positive impact of the price increase as authorities struggled to finance cocoa purchases.
This was exacerbated by Ghana’s economic crisis which compelled it to seek a rework of its domestic and external debt.
Consequently, instead of the over $1 billion, only $800 million was received, leading to delays and disruptions in purchasing beans. According to a Bloomberg report, this is the costliest syndicated facility the board has received since the annual loans started in 1992-93.
Adding to these challenges, illegal mining activities and the unauthorized sale of cocoa farms to these miners by farmers have posed serious threats to Ghana’s cocoa production.
Coupled with a notable decrease in cocoa yields, these issues have raised concerns about smuggling and hoarding, potentially disrupting the local cocoa market.
To address the shortage, the management of Cocobod (Ghana Cocoa Board) this year approved the importation of 3,500 metric tonnes of cocoa beans from Cote d’Ivoire and Nigeria.
Meanwhile, in Ivory Coast, the Cocoa Council (CCC) has urged cooperatives and buyers to swiftly sell their cocoa stocks to exporters within 21 days to prevent hoarding, a practice that contributes to market instability.
Cocobod’s Fiscal Challenges
Ghana’s Cocoa Board (Cocobod), the state entity responsible for cocoa production and exports, is encountering significant financial challenges, as highlighted in a recent report by the International Monetary Fund (IMF).
These difficulties stem from several factors, including high costs associated with outstanding cocoa bills, elevated purchase prices paid to cocoa producers that exceed operational expenses, and substantial quasi-fiscal activities such as providing fertilizers and developing rural infrastructure. These additional responsibilities have strained Cocobod’s administrative budget.
Within Ghana’s ongoing IMF program, Cocobod is identified as one of eight state-owned enterprises facing considerable fiscal risks.
Cocobod’s financial performance has been particularly troubling in recent years, reporting losses for six consecutive years since 2016, with its last profitable year recorded in 2015.
Over the years, Cocobod’s annual losses have risen sharply, increasing from less than GH¢300 million in 2016 to nearly GH¢2.5 billion in 2021. This significant surge in losses highlights a growing financial strain within the organization.
Additionally, Cocobod’s total debt has climbed to around 3.8% of Ghana’s Gross Domestic Product (GDP) in 2021.
Government’s Cocobod Turnaround Strategy
The Ghanaian government has informed the International Monetary Fund (IMF) of its intention to unveil a turnaround strategy for Cocobod, which has been endorsed by the Cabinet.
This strategy will involve several key measures, including the immediate implementation of joint ministerial oversight of Cocobod by the Ministry of Finance and the Ministry of Agriculture.
Authorities also informed the fund it will “phase out quasi-fiscal spending of the Board (this will require the announcement of termination of the road concession agreement with the Ministry of Roads, and discontinuation/rationalization of fertilizer/input subsidy programs including Hi-Tech).”
The challenges facing Ghana’s cocoa industry, from funding shortages to illegal mining threats, demand urgent action. As Cocobod seeks stability amid financial strains and declining yields, the government’s turnaround strategy, endorsed by the IMF, marks a critical step towards securing the future of this vital sector.
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