Cocoa production in Ghana is expected to receive a fillip in the current crop season with a substantial price hike for farmers and a new funding deal likely to encourage growth at a time when the global climate for cocoa remains uncertain and Ghana's output has dropped.
A 62.74% price rise for cocoa farmers announced on October 2 – and implemented immediately − is likely to boost production at the world's second largest exporter after Cote d'Ivoire, and also help cocoa farmers make long-delayed investments in new equipment to boost crop yields.
Government revenue has dropped on the back of factors such as falling gold and cocoa prices, prompting a sovereign ratings downgrade by Standard & Poor's (S&P) at the end of October, over concerns that external financial support will not be enough to help narrow the budget deficit.
S&P lowered the rating from "B" with a negative outlook to "B-" with a stable outlook.
Cocoa beans are one of the key crops in Ghana, accounting for more than 20% of all export earnings and 57% of agricultural exports, but declining global prices in the past three years has squeezed producers and hurt export revenues, dealing a further blow to the country’s fiscal and current account deficits.
An improving global market since the last Ghanaian producer price review, however, led the Ghana Cocoa Board (COCOBOD), the government-owned marketing agency and watchdog, to announce the price increase, taking farm-gate prices to GHS350 ($109) per standard 64kg bag of gross weight of produce.
Ghana's 800,000 cocoa farmers now stand to receive GHS5520 ($1718) per tonne for their product, up from GHS3392 ($1056) in the previous season, with a total price of GHS5600 ($1743).
The industry welcomed the price hike, which follows projections of stronger demand for Ghanaian cocoa and increased productivity, and comes amid growing calls from farmers for a better price for their product after being hit in recent years by a sharply weaker local currency against the dollar.
International market prices for cocoa have been rising steadily this year, reaching near three-year peaks in recent months, in part due to fears production could be disrupted because of the Ebola virus spreading through west Africa.
The chief executive of COCOBOD, Stephen Opuni, recently expressed optimism that good rains and other favourable factors could enable Ghana to produce more than 1m tonnes this season, a level that surpasses previous estimates on Ghana's 2014/15 production.
Bloomberg had previously reported that Ghana was raising its production target by almost 6% to 900,000 tonnes, the highest level for three years. This represented a hike from the previous estimate of 850,000 tonnes, but was still below the record level of 1.025m tonnes achieved in 2011.
The sector received a further boost in September in the form of a $1.7bn financing deal, which will enable COCOBOD to purchase the main cocoa crop this season. The deal, considerably more than the $1.2bn raised in 2013 and $1.5bn in 2012, is also the largest for financing soft commodities in sub-Saharan Africa.
The funding agreement, the latest of Ghana's annual deals for cocoa purchasing since 1992, involves a syndicated loan by international banks including major Asian and European players such as Bank of China, Intesa SanPaolo, ABN Amro, and Standard Chartered. The loan was oversubscribed by 15%, indicating strong confidence among financial institutions in their outlook for the Ghanaian cocoa sector, despite a challenging environment generally for lending in emerging economies.
The funding will be a valuable source of foreign currency earnings for the government, which receives the loans in US dollars, but pays farmers in Ghanaian cedis. This is particularly important at a time when foreign exchange reserves are falling.