Higher Prices for Ghana’s Cocoa farmers

Reuters reported today that Ghana’s Cocoa Board (COCOBOD) has decided to increase the farm gate price for the next cocoa year from 1,200 cedis ($1,090) to 1,632 cedis ($1,384) per ton. This is welcome news for cocoa farmers all over Ghana who have been complaining about the low prices offered by COCOBOD during the last season.

At a time where the world market price for cocoa rose to a 28 year high of over $3,000/ton, Ghanaian cocoa farmers continued to receive only a fraction of that price. Obviously, the world market price does not necessarily translate into actual money paid to the farmers. Most cocoa is sold on forward contracts with prices specified well in advance. So the prices determined on the futures markets don’t translate into real money until sometime later, if at all. And, since July cocoa prices have dropped again to about $2,700/ton.

Still, COCOBOD found that its hand was forced by the  higher prices offered for cocoa in neighboring Côte d’Ivoire. There, farm gate prices fluctuate with the world market prices and farmers were generally offered about 35 percent more than in Ghana. With such price differential, it was not surprising that farmers who had the opportunity smuggled their cocoa across the border to receive the higher prices.

The problem was so big that COCOBOD took the unprecedented step of raising farm gate prices by 25 percent in February. But that was not enough and Bloomberg reports that as much as 3 percent of the light season crop was smuggled to the Côte d’Ivoire. The price increases announced for the next season are supposed to fix that problem.

The difference between the two countries highlights different approaches to dealing with a key export crop. Both countries faced pressures to liberalize their cocoa sector in the early 1990s. Ghana took cautious steps, liberalized the cocoa buying process but maintained the COCOBOD export monopoly. The Côte d’Ivoire, on the other hand, liberalized the entire process from cocoa buying to exporting.

At a time of high prices, the latter approach seems to be favored by farmers, they get the benefit of these prices sooner. At the same time, knowing ahead of the season what price you will get also provides some security and allows farmers to plan.

During my visit with cocoa farmers in Boakyeasua, Ghana, I asked which they preferred and even though they complained about the low prices paid by COCOBOD, they preferred predictability over fluctuating prices. Since that visit, however, world market prices have increased quite a bit more and their position may have chanced.

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