Making cocoa farmgate prices work

Smallholder farmers are the bedrock of the global cocoa and chocolate industry.

They produce most of the world’s cocoa beans but have no control over the price of their outputs.

For example, in Ghana, the Producer Price Review Committee (PPRC) sets farmgate prices of cocoa.

The PPRC - a multi-stakeholder group, chaired by the Ministry of Finance assumes smallholders are a uniform group.

This leads it to implement an equality-based cocoa pricing regime that is detrimental to our most vulnerable and neglected cocoa farmers.

The term “smallholder” is notoriously difficult to define. Several factors influence who may be called a smallholder. These include crop type, farm size and asset endowments.

Ghana’s recent agriculture census recognises farmers with less than two acres as small-scale or smallholders.

While useful, the size-orientation belies the lived experiences of many cocoa farmers.

First, cocoa farm sizes and cocoa bean outputs are always correlated. Second, the cocoa sector is experiencing structural transformation.

Land fragmentation is shrinking the per capita cocoa holding in some areas whilst cocoa-land grabbing is concentrating ownership in others. 

Cocoa pests and diseases, artisanal and small-scale mining (ASM) and climate change-related risks are shrinking cocoa yields considerably.

All these risks are redefining who and what it means to be a smallholder cocoa farmer today, precipitating the need for a new approach.

An example of such an approach could involve shifting from land size towards a cocoa beans output typology. Average cocoa yields in Ghana are 300-450 kg/ha, with striking variations across regions.

Concurrently, cocoa farmers are unevenly exposed to diseases such as the black pod and swollen shoot, and climate risks, a fact widely documented by COCOBOD.

This means that cocoa farmers across different areas require different levels of resources to produce the same output.

Status quo

Cocoa pricing today relies primarily on the free-on-board price of cocoa, secured through pre-established contracts.

It does not engage with many of the factors discussed. Nor does it embody any equity concerns despite ample evidence that marginalised cocoa farmers are less likely to benefit from COCOBOD interventions such as mass spraying, pruning, pollination and farm rehabilitation.

Against these facts: Must we price all cocoa equally, particularly when cocoa farmers do not operate on an equal playing field? I don’t think so! And this is why.

Every salaried worker in Ghana earns a critical, survival tax-free income, i.e., GHc 490, for the current tax year.

Businesses are taxed only on their profits not gross outputs. 

Our cocoa farmers have no tax-free income.

They are also taxed on their gross outputs. This is vampire exploitation.

Vampire state

Our governments, from Nkrumah-Akufo-Addo have historically taxed cocoa farmers at about 30-68 per cent. For context, corporate entities are taxed at 25 per cent.

Many also receive tax holidays and lower rates depending on their sector, location and age.

Currently, salaried workers begin to pay 35 per cent (the highest tax level) only on income after GHc 50,000. Cocoa farmers are, thus, one of the most highly taxed actors in the Ghanaian economy. 

A former governor of the Bank of Ghana,Frimpong-Ansah puts this tax exploitation bluntly, dubbing Ghana ‘The Vampire State of Africa,’ based on how the ruling class sucks the sweat, blood and life out of cocoa farmers. 

Transformative approach

The new Mahama government need not continue down this path, especially if it wants to end rising hunger and poverty among cocoa farmers.

One to achieve this would be to introduce a Cocoa Farmer Sustenance Cap (CFSC) to guarantee a tax-free, farmgate price premium for an established minimum of cocoa beans produced per farmer every season.

The CSFC quota could pay each cocoa farmer at least 85 per cent of the FOB of cocoa on an established minimum output e.g., 252 kg (3 bags) – the final tonnage may consider multiple factors such as minimum wage and food price indices.

Farmers may progressively lose benefits from the critical safety net when it no longer makes sense, e.g., after five tonnes per cocoa season.

Implemented properly, the CFSC will reduce hardships for the poorest cocoa farmers, ensuring their survival and self-reproduction. 

It will tackle poverty and hunger among several thousands of cocoa farmers and galvanise their participation in our democracy.

As a novel policy proposal, the CFSC is not faultless. Wouldn’t the CFSC increase government expenditure? This is a valid question.

However, the CFSC aligns with the government’s policy to progressively improve cocoa farmgate prices.

Besides, the CFSC may halt cocoa beans smuggling to Togo and Cote d’Ivoire which offer better prices. How will the CFSC be monitored is another risk.

Fortunately, the government has introduced a Cocoa Management System (CMS) that contains information on most farmers.

Integrating the CFSC into the CMS will be a natural fit and a way to accelerate our transition into a modernised cocoa sector.

The CFSC could be one of the new Mahama government’s flagship policies. Once functional, it will incentivise farmers to improve their production, especially among micro-smallholders.

It would also be our endogenous solution to complement international efforts to achieve living income among cocoa farmers.

I strongly recommend the CFSC to be on the agenda of Mahama’s next Cabinet, the PPRC, the CSO coalition on cocoa, economists and others working on sustainable cocoa.

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.