Bloomberg News reported today that Ghana’s COCOBOD will seek a $1.2 billion loan to finance the cocoa purchase for the next season. That amount represents a 20% increase over the amount secured for the current season. Clearly, the COCOBOD is optimistic that Ghanian farmers will reach their production goal for the 2009/2010 season. During the current season, the board has bought 530,000 tons, about 120,000 tons less than planned for.
COCOBOD CEO Tony Fofie blames smuggling to the Cote d’Ivoire for the shortfall. The board indicated that will continue to pay farmers 70 percent of the world market price. However, fixing the price at the beginning of the cocoa year poses problems. If the world market price increases after the price is set, farmers have an incentive to smuggle to the Côte d’Ivoire which does not have a fixed pricing system. During the last season, the board found that it had to increase the price towards the end of the season.
Raising this much cash will pose a problem given the current credit squeeze. Since the last consortium approved the $1 billion load, the credit markets have seized up even more and Ghana may find itself in a position of having to pay higher interest rates if it can secure the loan at all. But Fofie is optimistic that the board will succeed in obtaining the financing package.