In what has become an annual ritual, Ghana’s Cocoa Board (COCOBOD) managed to secure a $1.5 billion financing facility for the 2010/11 cocoa harvest. In a sign that international credit markets have eased up, the financing facility was oversubscribed. Banks from around the world actually offered $1.8 billion while COCOBOD was only seeking $1.2 billion. In light of the easy credit, COCOBOD increased the facility to $1.5 billion. In another piece of good news, the interest rate dropped from 250 points to 90 points over LIBOR.
What does this mean?
Ghana is one of the few countries left in the world that set the farm gate price for cocoa. Farmers sell their cocoa to traders who at that price. The traders, in turn, sell it to COCOBOD at a set margin. COCOBOD then exports the cocoa. The financing facility is necessary to raise the cash to pay farmers and traders. Once the cocoa is exported, COCOBOD uses the proceeds to pay back the loan.
The entire process depends on the ability of COCOBOD to raise the funds ahead of time. So a $1.5 billion credit line is good news for farmers and traders.
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