On the trail of cocoa in Ghana

I spoke with Mr. Kofi Nimako, the operations manager  and Mr. Kwame Owusu, the finance manager of Kuapa Kokoo, Ltd. (KKL), the licensed buying company that forms the commercial arm of the Kuapa Kokoo Farmer’s Union. The system of private licensed buying agents was developed as part of the liberalization projects of the early 1990s (1993). As a matter of fact, KKL came into being as a reaction to this process. There are around 30 licensed buying companies in Ghana but the number fluctuates as new ones emerge while others disappear. KKL is the only cooperative-owned company.

 

The basic building block of the system are the buying centers at the village society level. Each society is run by an elected executive board one of these is elected as recorder/receiver. The term of office is 4 years and a person may stand for reelection. The recorder weighs the cocoa and records the name of the farmer, the amount of cocoa delivered and pays the farmer. Depending on the volume of the cocoa production of that particular society, the recorder orders a truck to come and pick up the cocoa from the village and deliver it to the district depot. The district manager cuts a check for the recorder for the next round of purchases. During the main season, a cocoa tree bears harvestable fruit about every two weeks, so farmers continuously deliver beans to the recorder during that time. Beans are bagged at the village level.

 

The position  of the recorder is powerful because the person handles a lot of money and, yes, there have been incidents of abuse. Mr. Nimako was quite open about this and did not mince words. In case of reported malfeasance by a recorder, the main office or the Research and Development department gets involved and helps the society deal with the problem. He did point out, however, that Kuapa Kokoo recorders live in the communities they serve and thus are subject to the social pressures these communities. That serves as a check on abuses.

 

The district manager collects cocoa from 10-20 societies. At the district depot, the cocoa is sometimes sometimes reconditioned, if the beans are not dry enough and sifted if the bean size varies too much.Then the beans are presented for grading and sealing to the Quality Control Department of the COCOBOD, the Ghana Cocoa Board. In regular intervals, the cocoa is then shipped to the two port cities Takoradi or Tema, or the inland take-over center at Kaase, right in Kumasi. At the port, the beans are checked and graded twice more before being loaded onto ships. Once the cocoa is accepted by COCOBOD, KKL will receive a CTO (cocoa taken over) certificate which allows them to get reimbursed by COCOBOD minus the advances and interest.

 

In Ghana, unlike in other West African countries, COCOBOD, that is the government, sets the producer price for cocoa. This price may be set for a season, a year or even for only part of a season. Mr. Nimako indicated that he usually has no idea as why prices are set a certain way and why, if they are changed. The government claims that the producer price represents 72% of the world market price, but Mr. Nimako pointedly stated: “I have no way to prove this.” Given that world market prices fluctuate a lot during a season, I can see why setting a price at the beginning of a season can lead to farm gate prices that are not in line with world market prices.

 

Each licensed buying company is also paid a fixed margin also set by COCOBOD. The LBCs have to live within that margin. They cannot decrease the producer price in order to increase their margin. This can have some problems as much of this system runs on credit. The government provides seed money to KKL to pay farmers for which it charges 12% interest. In addition, KKL must get a bank guarantee which costs another 3%. Sometimes, the seed money is not enough and KKL has to borrow money at a commercial bank at even higher interest rates. If the cocoa does not move (as happened during a strike at Takoradi, KKL was not issues a CTO and thus did not get paid by COCOBOD while interest charges continued to accumulate and eat into the margin.

 

For fairtrade cocoa, the process is almost identical. Since nobody in Ghana can sell directly to an overseas client, KKL cannot sell directly to a fairtrade partner (in the case of KKL the Day Chocolate Company). Instead, the must at the beginning of each season tell the government how much cocoa the plan on selling as fairtrade cocoa and to what partner. The government will then set aside this cocoa for that purpose. This explains why it is difficult to increase this number after the fact. The fairtrade partner pays the government the world market price and the pays KK Ltd. the fairtrade premium if any and the social premium of $150 per ton.