Cocoa libralisation or chaos?

In his proposal that Ghana should consider liberalising the cocoa sector, it is not clear whether the outgone Science and Technology Minister, Mahama Ayariga, is fully apprised of the facts regarding liberalisation or the lack thereof in La Cote D’Ivoire.

The fact of the matter is that La Cote D’Ivoire has, since 2012, begun to hasten slowly on liberalisation, where the state did not intervene in pricing, with the full backing of the Breton woods folk who, in the first place, persuaded that country’s government to stop setting prices.

That country’s government revamped Cocobod’s equivalent – the Coffee and Cocoa Council – and reinstated guaranteed prices for farmers, whilst establishing a marketing mechanism involving the forward sale of 70 to 80% of the next year’s crop through twice-daily auctions.

“These forward sales auctions – due to end each year in August just before the new crop starts – allow the establishment of a benchmark price for the next crop year and ensure a guaranteed minimum share of 60% of the CIF [cost, insurance and freight] price to farmers,” a report by Agritrade indicates.

So, La Cote D’Ivoire, which Mahama Ayariga suggested to incoming Agric Minister Dr. Owusu Afriyie, to emulate, has actually reversed course on liberalisation, and Ghana would have to carefully consider the pros and cons before taking a decision on same.

In a June 18, 2014 article titled: “Ivory Coast cocoa reforms leave bittersweet taste,” the Financial Times of the UK quotes the CEO of the Coffee and Cocoa Council, Massandjé Touré-Litsé, as describing the decade of liberalisation as “a mess,” since smallholder farmers were ill-equipped to negotiate with middlemen, leading to lower incomes.

In fact, the IMF, which got that country to pursue liberalisation, was later to make the reforms that established the Coffee and Cocoa Council in 2012, condition precedent to a debt relief package for the Alassane Ouattara government which was elected in November 2010.

But under the new reforms, La Cote D’Ivoire has done something that has been hailed by industry watchers: it set up a reserve fund at the Central Bank of West African States (Banque Centrale des États de l’Afrique de l’Ouest – BCEAO) to cover risks beyond the normal operations of the price guarantee scheme.

This is meant to support the new marketing arrangements in a fiscally neutral manner,” Agritrade reports.

In response to Mahama Ayariga’s suggestion, the incoming Agric Minister, Dr Owusu Afriyie Akoto said the NPP government will consider the liberalisation idea.

But for good reason, he cautioned: “Cocoa, in Ghana, is a very sensitive subject. It is a very conservative arrangement that we have for cocoa. So, one has to tread very carefully if one wants to change the way things are done. But definitely it is a suggestion which is attractive and something that is worth considerate…”

Liberalisation would mean that the state would have to stop setting producer prices and relinquish its hold on exports, whilst Ghana Cocoa Board (Cocobod), would, probably, cease to hold sway over the industry, even though under the current arrangement, the involvement of Licensed Buying Companies suggests some level of liberalisation.  

Ghana, the world’s second-biggest cocoa producer, produced between 850,000-900,000 metric tonnes for the 2015-16 season that began October--up from production in the previous season of about 740,000 metric tonnes.

But Ghana’s production is hardly half that of its western neighbour, and the two main political parties – the NDC and the NPP – are often at one another’s throat regarding which side has let the country down.

“Ghana has the same land area as Cote D’Ivoire in terms of cocoa production--1.7million hectares--yet our production is not up to half of that of Cote d’Ivoire. Our production has been about 800,000 metric tonnes but Coat D’Ivoire’s production has been between 1.6million -1.7million metric tons,” Dr Afriyie Akoto said.  

The poor production, he noted, is purely down to underinvestment in the cocoa sector. “You cannot, based on this statistics, say that the Ghanaian farmer is lazy. The Ghanaian farmer as I know, is the hardest working person you can find anywhere in the world. The difference between Cote D’Ivoire and Ghana is that public resources are streaming into the cocoa sector compared to Ghana, where we have actually been cutting back. There has been disinvestment in agriculture.

“All the resources that are required in terms of the last 8 years when the government of the NDC took over nearly 4 % of total allocation of budget was going to the Ministry of Food and Agriculture for agriculture development. That figure has steadily declined to 1.1% in 2014 and 2015,” he added.

In his proposal that Ghana should consider liberalising the cocoa sector, it is not clear whether the outgone Science and Technology Minister, Mahama Ayariga, is fully apprised of the facts regarding liberalisation or the lack thereof in La Cote D’Ivoire.

The fact of the matter is that La Cote D’Ivoire has, since 2012, begun to hasten slowly on liberalisation, where the state did not intervene in pricing, with the full backing of the Breton woods folk who, in the first place, persuaded that country’s government to stop setting prices.

That country’s government revamped Cocobod’s equivalent – the Coffee and Cocoa Council – and reinstated guaranteed prices for farmers, whilst establishing a marketing mechanism involving the forward sale of 70 to 80% of the next year’s crop through twice-daily auctions.

“These forward sales auctions – due to end each year in August just before the new crop starts – allow the establishment of a benchmark price for the next crop year and ensure a guaranteed minimum share of 60% of the CIF [cost, insurance and freight] price to farmers,” a report by Agritrade indicates.

So, La Cote D’Ivoire, which Mahama Ayariga suggested to incoming Agric Minister Dr. Owusu Afriyie, to emulate, has actually reversed course on liberalisation, and Ghana would have to carefully consider the pros and cons before taking a decision on same.

In a June 18, 2014 article titled: “Ivory Coast cocoa reforms leave bittersweet taste,” the Financial Times of the UK quotes the CEO of the Coffee and Cocoa Council, Massandjé Touré-Litsé, as describing the decade of liberalisation as “a mess,” since smallholder farmers were ill-equipped to negotiate with middlemen, leading to lower incomes.

In fact, the IMF, which got that country to pursue liberalisation, was later to make the reforms that established the Coffee and Cocoa Council in 2012, condition precedent to a debt relief package for the Alassane Ouattara government which was elected in November 2010.

But under the new reforms, La Cote D’Ivoire has done something that has been hailed by industry watchers: it set up a reserve fund at the Central Bank of West African States (Banque Centrale des États de l’Afrique de l’Ouest – BCEAO) to cover risks beyond the normal operations of the price guarantee scheme.

This is meant to support the new marketing arrangements in a fiscally neutral manner,” Agritrade reports.

In response to Mahama Ayariga’s suggestion, the incoming Agric Minister, Dr Owusu Afriyie Akoto said the NPP government will consider the liberalisation idea.

But for good reason, he cautioned: “Cocoa, in Ghana, is a very sensitive subject. It is a very conservative arrangement that we have for cocoa. So, one has to tread very carefully if one wants to change the way things are done. But definitely it is a suggestion which is attractive and something that is worth considerate…”

Liberalisation would mean that the state would have to stop setting producer prices and relinquish its hold on exports, whilst Ghana Cocoa Board (Cocobod), would, probably, cease to hold sway over the industry, even though under the current arrangement, the involvement of Licensed Buying Companies suggests some level of liberalisation.  

Ghana, the world’s second-biggest cocoa producer, produced between 850,000-900,000 metric tonnes for the 2015-16 season that began October--up from production in the previous season of about 740,000 metric tonnes.

But Ghana’s production is hardly half that of its western neighbour, and the two main political parties – the NDC and the NPP – are often at one another’s throat regarding which side has let the country down.

“Ghana has the same land area as Cote D’Ivoire in terms of cocoa production--1.7million hectares--yet our production is not up to half of that of Cote d’Ivoire. Our production has been about 800,000 metric tonnes but Coat D’Ivoire’s production has been between 1.6million -1.7million metric tons,” Dr Afriyie Akoto said.  

The poor production, he noted, is purely down to underinvestment in the cocoa sector. “You cannot, based on this statistics, say that the Ghanaian farmer is lazy. The Ghanaian farmer as I know, is the hardest working person you can find anywhere in the world. The difference between Cote D’Ivoire and Ghana is that public resources are streaming into the cocoa sector compared to Ghana, where we have actually been cutting back. There has been disinvestment in agriculture.

“All the resources that are required in terms of the last 8 years when the government of the NDC took over nearly 4 % of total allocation of budget was going to the Ministry of Food and Agriculture for agriculture development. That figure has steadily declined to 1.1% in 2014 and 2015,” he added.

- See more at: http://thebftonline.com/commodities/cocoa/22758/cocoa-libralisation-or-chaos.html#sthash.AHt464VD.dpuf