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Open in new tab EXECUTIVE SUMMARY
Cocoa has played a pivotal role in the economic development of Ghana. It provides employment across the cocoa value chain, serves as an export earner, provides interim liquidity support for the management of the foreign exchange, contributes to growth of the economy and ultimately helps reduce poverty. In spite of these benefits, the sector is bedevilled with challenges such as low yield gap, disease and pest infestation, producer incentivization vis-à-vis government deficit and dissatisfaction from cocoa farmers. The performance of the sector the has been assessed with scholars recording different results, albeit progressive. Some evidence suggests a remarkable performance of the sector, while others bemoan the limited of transparency, inefficiencies in the distribution of subsidized inputs and that the regulator is challenged in attaining its most important objective of stabilizing producer prices at levels that ensure an adequate return on farmers’ land, labour and capital. It appears to a number of stakeholders that, these objectives have not been met completely through time. Against this background, this report aims to explore the revenue management and producer pricing mechanism within Ghana’s cocoa sector.
Using a mixed methods approach for the core part of the report, a number of tools including, variance analysis, econometric analysis, survey analysis and interviews have been leveraged for analysing the data throughout the study, in answering the core research questions. There are four key objectives of the study:
- to understand the current cocoa pricing mechanism;
- to examine the nexus between cocoa prices and cocoa production in Ghana;
- to explore the perspectives of stakeholders in the cocoa sector; and
- to examine the revenue and expenditure management of COCOBOD.
The results suggest that the total revenue received by the sector (i.e. the Gross Free on Board (FOB)) is limited (since it is predetermined), primarily driven by developments which the country has little influence over. Beyond this, various players in the value chain, make demands for an increase in their share of revenue to increase. The regulator of the sector has through time guaranteed a minimum of 70 percent of net FOB to farmers. This criterion has been met over recent times, with accompanying variances in projections for Hi-Tech and Disease and Pest Control (CODAPEC) costs amidst some inefficiencies in distribution of inputs which questions. These undergird some of the questions that observers of the industry have had for years; whether the farmers are receiving a fair compensation.
Again, the results suggest that, the world price of cocoa does not drive production, contrary to some conventional thoughts. Rather, the producer price which increases production. Thus, policies should aim at increasing the compensation that farmers receive. The results also indicate that majority of the income of cocoa farmers come from the sale of cocoa while a little portion comes from others food crops. This suggests that there are still areas to explore so as to diversify the income sources of farmers.
Additionally, results from the farmers’ survey revealed that 94 percent of farmers are dissatisfied with the current producer price, 70 percent indicate they do not know COCOSHE and 70 percent believe that COCOBOD does not serve their interest. It is equally important to note that, regardless of the sentiments expressed by the farmers regarding the protection of their interest by COCOBOD, they are equally of the view that, COCOBOD plays a significant role in the industry, and will want the regulator to continue in this capacity. Based on these results, there is the need for more farmer engagement on policy decision making and implementation in order to change these farmer perspectives Other stakeholders in the cocoa value chain also express concerns about the corporate governance weaknesses in the sector, erratic supply of inputs, smuggling and supply of fake inputs, and the decrease in the margins of some stakeholders, at the expense of others, when the industry experiences exogeneous shocks. The analysis of COCOBOD’s financial data suggests that profitability, liquidity, efficiency or turnover and cash flow ratios have deteriorated over time, with marginal improvements in some areas in the 2017/18 financial year. The results of the study provide a strong basis for actions that should involve all stakeholders across the value chain with the intention of addressing the weaknesses in the sector. The following are worth noting for further policy interrogation;
- There is the need to increase efficiency in using industry costs to optimise the share of net FOB received by stakeholders. This should be combined with an aim to ensure the farmers receive a fair share as a means to stimulate production.
- There is the need to increase the level of transparency on the price setting mechanism. COCOSHE should broaden its membership base and the consultations on price setting should be clearer and targeted at reaching majority of farmers.
- The PPRC should also help in providing clarity and explanations to pricing decisions.
- Policies should aim at diversifying the income sources of cocoa farmers in order to enhance their overall welfare. To sustain production in the sector, youth involvement in cocoa cultivation must improve.
- Productivity enhancing mechanisms through Hi-TECH and CODAPEC, both considered industry costs, should be deployed through systems that insulate the industry from erratic input supplies to farmers, fake inputs, and smuggling of inputs. Crucially, there is the need for further extension services to be provided to farmers, given the current strategy of government to increase the output of the sector over the medium term.
- It is evident that the operational strategy of COCOBOD needs to improve along the lines of efficiency and effectiveness, over the medium to long term. The historical performance investigated in this report, leaves doubts about the ability of the institution to independently turn its operations around. However, current plans by management should be followed through to the latter. Asset identification and maintenance, due diligence, and other efficiency metrics in addition to some operating costs should be tamed. These should help the institution work towards breaking even in the medium term.
