Cocoa-debt crisis à la SONA: Na who cause am?

Two points caught my attention from President Mahama’s State of the Nation Address.

Firstly, poverty and food insecurity are rising among cocoa farmers while they are losing out on over GH¢ 20 billion (USD 1.3 billion) they could have been making from recent increases in global cocoa prices.

Secondly, COCOBOD is amid a debt crisis – owing a staggering GH¢32 billion (USD 2.1 billion).

The figures are upsetting, considering that they have real and significant impacts on the lives of cocoa farmers.

Some cocoa farmers have to wait for weeks, sometimes months, to be paid after supplying their cocoa beans to purchasing clerks.

Why is COCOBOD facing imminent bankruptcy and what’s the way forward? 

COCOBOD annual report

COCOBOD’s annual reports suggest the writing was long on the wall. COCOBOD posted GH ¢0.33 billion in profits in 2013.

By 2016, this had turned into a deficit of GH¢0.22 billion, rising to GH¢0.43 billion in 2020.

Why and how this could reach GH¢32 billion by the end of Akuffo-Addo’s administration speaks volumes about his administration, to note the least.

Many factors contribute to the COCOBOD debt crisis. This includes loans from local and international banks.

COCOBOD uses such loans to invest in cocoa rehabilitation, cocoa road construction and service its matured loans.

Cocoa supply contracts

Why COCOBOD is making itself and farmers forfeit over GH¢20 billion we are told is its failure to fulfil its prior cocoa supply contracts.

Basically, COCOBOD sells farmers’ cocoa beans well before the trees flower. COCOBOD does so with the assumption that farmers will produce enough cocoa beans every year to fulfil these contracts and return profits.

Unfortunately, this assumption relies on many factors that are completely outside COCOBOD’s control.

Examples include climate change impacts, pests and diseases and illegal mining on cocoa farms, which have reached unprecedented proportions.

When a cocoa farmer decides or is forced, to divest from cocoa by selling their farms to galamsey operators, COCOBOD loses out tremendously because this directly reduces cocoa bean supply and thereby COCOBOD’s ability to fulfil its forward contracts. 

Forward contract

This is how the forward contract works: a middleman or market queen who goes to the bank for a loan and distributes it to their customers, e.g., maize farmers, hoping that the farmers will repay with their produce.

In a good harvest season, the farmer repays, with the middleman going to reap profits. If there is an oversupply, the middleman could still run at a loss, especially if prices fall rapidly.

But what happens if the farmer’s maize fails due to poor rainfall, armyworm infestation or wildfire? You’re right — the middleman goes bust and out of business because they cannot get the produce to sell, it is a risk-reward game.

I’ve seen this happen so many times and even know intermediaries who committed suicide because they couldn’t live with incessant pressure from their creditors in a bad year, i.e. over-supply or under-supply.

Even among cocoa farmers, many are forced to “put their cocoa on press” every year when they do not have enough beans to repay loans procured to survive the “hunger/poverty season”, typically from August.

Unlike middlemen or cocoa farmers, COCOBOD cannot claim it does not know about these risk-reward dynamics, especially not when it pays professionals whose job is to know better, to manage such risks.  

The questions then are: Who negotiated the future contracts that are now crippling COCOBOD and farmers?

What insurance policies did they consider to mitigate the risks in the sector? Were they gambling when their actions had direct consequences on the lives and livelihoods of nearly 700,000 cocoa farmers?

As citizens, we must demand answers to these questions.

While doing so, we must also ask: Is there any hope COCOBOD can recoup its investments in cocoa rehabilitation vis-à-vis the escalation of mining in cocoa and rising climate impacts?

How and what should COCOBOD use its allocation of the USD 200 million loan it is receiving under the Tree Crop Diversification Project from the World Bank?

How is COCOBOD positioning itself for systemic risks such as lab-grown cocoa, which promises to decouple cocoa production from land users and producer countries entirely? 

How do we achieve justice for cocoa farmers who are being pushed into poverty and hunger by COCOBOD’s poor decisions?

Difficult as these questions are, they need to be at the forefront of public debate if we are to give ourselves a chance to save the cocoa sector from the mess it is in or perhaps even from COCOBOD itself.

The writer is the Post-Doc, Land, Society and Governance Group, Leverhulme Centre for Nature Recovery, University of Oxford, UK. Scientific Advisor, PACT | Partnership for Agriculture, Conservation and Transformation, Ghana.