Ghana Secures Financing for 2008/09 Cocoa Season

The Ghana Cocoa Board (COCOBOD) has just signed a $1 billion financing deal with a syndicate of international banks to finance cocoa buying for the 2008/09 cocoa season. The bank consortium includes both European and  Japanese banks and is believed to be the largest soft commodity financing deal ever.

Readers of this blog will recall my analysis of financial flows that make the Kuapa Kokoo cooperative work (April 16th). The flow chart showed that the cooperative, as a licensed cocoa buyer, reports its anticipated target capacity to COCOBOD and then receives (as loans) the necessary funds to cover the buying of the cocoa from the farmers.

The flow chart did not show where COCOBOD got the money from because, frankly, I did not know and had not considered the question. But with an annual harvest around 650,000 tons and the exporting of cocoa still centralized by COCOBOD, the financing requirements are so large, that the money could not possibly be raised locally. After all, the entire government budget is only about $5 billion with about a 1$ billion deficit.

For the current season, Ghana had secured a $900 million loan from a consortium of banks led by Standard Chartered and Societé Général. That loan has been repaid according to Isaac Osei, the CEO of COCOBOD.

Interestingly, COCOBOD expects next season to yield 650,000 tons down from a projected 700,000 tons for the current season. But I should add that the current target was not reached as the light season crop was smaller than expected. There was also a lot of reported smuggling of cocoa from Ghana to the Côte d’Ivoire as the prices offered there were higher than the prices set by COCOBOD. So the current harvest will probably yield about 650,000 tons as well.

I wonder what that means for the goal of producing 1 million tons by the 2010/11 season. Isaac Osei believes that Ghana will reach that goal. But that’s only two years away. A daunting task given that land is scarce. On the other hand, the current high prices will probably incude farmers find new ways to increase the yield of their crops.