The years 2020 and 2021 have been very peculiar, at best challenging, not only because these years were pandemic-ridden, but they also revealed potential disruptions to the status-quo of Ghana’s cocoa industry. The first of these disruptions is news that emerged, indicating that the Chinese Island province of Hainan had exported its first consignment of 500 kg of cocoa beans to Belgium, as reported by Chinadaily, (an online news portal of China Daily Information Co.) on October 28, 2020. Many Ghanaians panicked over the report of the Chinese entry into the cocoa industry, one of the few feelings of pride of Ghana. While some agricultural professionals like myself believed the government ought to be cautioned to initiate steps to mitigate the potential impact of this development, relevant governmental stakeholders in the cocoa industry allayed the fears of the panicking Ghanaians.
The second disruption that struck my chord was the news by SWI, a branch of the Swiss Broadcasting Corporation, on July 9, 2021, reporting the success of laboratory-developed chocolate in taste. This new lab chocolate is a novelty of the Zurich University of Applied Sciences (ZHAW), which came to this development by imitating processes that happen in nature, and they are now looking at commercial production.
It is worth stating unequivocally the need for attention to be given to the above or else regret treating these threats with kid gloves by all stakeholders within the cocoa industry. Let me take you through what we, as a country, gain from the cocoa industry, what we stand to lose, and also take you through bottlenecks within the industry. I would additionally offer a few suggestions to help stabilize the industry should the inevitable happen.
Cocoa (Theobroma cacao Lineus) has remained a valuable crop and a major foreign exchange earner, among other agricultural commodities exported by the Ghanaian economy. Cocoa contributes significantly to the country’s total foreign exchange earnings, coming second after mineral exports. In the report of the Institute of Statistical, Social and Economic Research (ISSER) in 2017, the cocoa sector’s overall annual contribution to the national gross domestic product (GDP) is about 3 per cent. It makes up about 25 per cent of total export receipts, provides about two-thirds of cocoa farmers’ incomes, and supports the livelihoods of approximately four million farming households.
The cocoa sector in Ghana is estimated to be worth over $5billion. Ghana’s export revenue from cocoa has been rising in recent years; in 2018 the total export value was $3.2 billion, a 34% increase from 2017 and up 71% from 2016, according to TradeMap data. The sector has been a major foreign exchange earner and a catalyst for the financial market for over 3 decades. With the ongoing reforms in the sector, it is going to be a major catalyst to drive industrialization via the government’s policy of value addition and the emergence of a good number of small and medium-scale processors.
The Global Chocolate Industry
Data shows West Africa supplies 70% of the cocoa beans for the global chocolate industry worth over USD150 billion. However, 70-80% of the value in chocolate products is generated in North America and Europe. The West African economies receive less than USD 6 billion of this value despite the growing demand for consumer chocolate in West Africa, albeit the purchasing power is very low.
The pattern is typical in economies that mostly rely on exporting raw materials. They have to choose between generating revenue from these commodity exports and adding value to products locally. The trade-off arises because industries that add value take time to build up and tend to supply the domestic market first before being able to compete internationally. Value addition does not immediately generate foreign exchange. The choice is usually in favour of exporting primary commodities because foreign exchange earnings cannot be compromised.
Potential Risk to Ghana
Exports of raw cocoa beans are a key source of forex for the Bank of Ghana. Ghana’s cocoa sector is regulated by the state-owned marketing board, Ghana COCOBOD. COCOBOD has a monopoly, through its subsidiary Cocoa Marketing Company, over the marketing of Ghanaian cocoa beans.
Ghana obtains reasonably-priced loans from international markets, using cocoa contracts as collateral. Often, contracts with multinational buyers only qualify as collateral since domestic buyers tend to have poor credit ratings. It is through this means that COCOBOD has been borrowing billions of syndicated loans since time immemorial.
Some identified potential risk situations in Ghana are as follows:
- Ghana has expanded its cocoa processing in recent years, from 200,000 tonnes to 400,000 tonnes in 2019. However, it frequently remains in the state of semi-finished merchandise. The major share of the price of a chocolate bar continues to be generated overseas. The cause is the focus on Ghana’s forex income, as such policies prioritise cocoa trade for forex rather than adding value domestically.
- Most large cocoa processing companies in Ghana operate in designated areas called the Ghana Free Zone Area which provides incentives to firms that export a minimum of 70% of their products. Under Free Zone, investors are offered elaborate fiscal, trade and investment incentives to encourage the production of goods and services primarily destined for export markets through the attraction and utilization of Foreign Direct Investment and increasing the role of the local private sector.
- Chocolate production for the domestic consumer market is further discouraged by an extreme tax rate of nearly 60% on domestic sales of chocolate and semi-finished cocoa products. For example, natural cocoa butter is presently sold at an export price of around USD 4,600 per tonne but is sold locally at around USD 7,300 per tonne.
- All sales within the free zones are tax-exempt, but the tax applies to domestic chocolate makers operating outside the free zone. This, therefore, translates into the domestic chocolate enterprises buying semi-finished products at a cost, plus tax, including other imported ingredients at taxed costs too. This makes it difficult for these small enterprises to compete with their foreign counterparts.
- Key cocoa processing factories in Ghana include the leading global cocoa processors like Cargill, Barry Callebaut, and Olam. Only two Ghanaian owned factories, the state-dominated Cocoa Processing Company (Golden Tree brand) and Niche Cocoa make chocolate for the domestic consumer market. For the small-scale processors, the Artisanal Cocoa Processors in Ghana comprise 40 small-to medium-scale cocoa-adding artisans. Most of the time, local artisans are reported to be pleading with the government to support their businesses.
It is clear from the above that Ghana could fall into a ditch if it does not grow the cocoa industry beyond the stage of primary processing or low-value addition.
It is my position that to truly benefit from its resource wealth in terms of income generation and job creation within the cocoa industry, Ghana ought to move efficiently into higher-value-added activities. The following are some suggestions for consideration by stakeholders:
- Since COCOBOD, through the Bank of Ghana, currently relies on offshore US dollar funding, COCOBOD can provide credit at cheaper rates than the universal banks to local companies, mostly small-scale artisans, so they can continue to improve their capacity and process more.
- Local Ghanaian cocoa processing companies should be offered their raw materials—the semi-processed cocoa products from the larger processing companies at a tax-free arrangement. In addition, they should also be given tax holidays like those in the Free Zone areas so they can be very competitive in the pricing of their finished products.
- There should be a deliberate review of companies and investors who intend to invest in the development of the domestic chocolate industry. This should include those who will produce and focus on over 70% of their products within the sub-region and Africa as a whole. This, in my view, will provide a buffer to withstand any shocks from the western world now or later.
Ghana has made remarkable progress in expanding primary cocoa processing and chocolate production capacity. Now it is time to develop a vibrant domestic chocolate industry and benefit from the USD1.3 billion-strong market for chocolate and other cocoa confectionaries provided by the African Continental Free Trade Area.