Ghana’s cocoa industry stable but looking for growth

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As one of Ghana’s main sources of export revenue and employment, cocoa is of critical importance to the economy. Production is expected to be relatively stable for the 2013/14 season, while rising prices worldwide should lead to revenue growth. With the demand forecast still robust, the country is looking to improve the sustainability of harvest increases over the medium term through a number of supporting initiatives, although threats such as black pod disease are a concern.

Ghana, the world’s second-largest cocoa producer after Côte d’Ivoire, harvested around 835,000 tonnes of cocoa during the 2012/13 season, about 21% of the global total. For the 2013/14 season, which began in early October, the Ghana Cocoa Board (COCOBOD), the industry regulator, has revised its target national cocoa production to 830,000 tonnes, down from 850,000 tonnes, due to low projected rainfall.

On September 20, COCOBOD signed a $1.2bn syndicated loan from a group of domestic and international banks for the purchase of cocoa beans over the course of the season. The loan was oversubscribed by just over two-thirds, as it was last year when COCOBOD borrowed $1.5bn.

Fluctuations in production

Despite the mild drop in forecasts for the 2013/14 season, the government intends over the longer term to raise cocoa production to 1m tonnes per year. This would match the output level from the bumper crop of the 2010/11 season, which briefly made Ghana the world’s largest cocoa producer.

The government has rolled out several programmes over the past 24 months to boost production, which can be tricky given that virtually all producers are smallholder farmers. For the 2012/13 cocoa season, COCOBOD raised the price paid to farmers by 3.4% to GHS3392 ($1754), despite international cocoa prices’ dropping. The increase brought the farmers’ take to 78.4% of the free-on-board price, more than the 70% minimum that Ghanaian law mandates must be paid. The government has also distributed 20m hybrid seeds to cocoa producers, and sought to expand farm rehabilitation services, accelerate the replacement of old trees and initiate mass pesticide spraying six times a year.

However, there have been challenges in rolling out these initiatives. Some farmers have reported to the local press that the spraying programme is intermittent at best and non-existent in some regions. In August the government announced that it would phase out the spraying programme in an effort to encourage farmers to buy their own pesticide. Critics of the phase-out, including MP Robert Sarfo-Mensah, have raised concerns about whether ordinary Ghanaian smallholder farmers will be able to acquire the proper pesticides.

Furthermore, even the best-laid plans to boost output are at the mercy of the weather. “Our agricultural sector depends on the rainfall pattern. If we have low rainfall it will affect production,” COCOBOD spokesman Noah Amenyah told local press.

Global impact of black pod disease

However, one of the bigger challenges facing the sector is an increase in the incidence of black pod disease on crops. According to COCOBOD, more than 200,000 tonnes of cocoa were lost to the fungal infection, which rots beans from the inside, during the 2012/13 season.

In June COCOBOD entered into a public-private partnership (PPP) with the Embassy of the Netherlands, the Ghana Cocoa Growing Research Association in the UK, and US-based food producers Mars and Mondelez International to help improve efforts to eradicate the disease. As part of the PPP, some £4m will be used to fund the continuation of the Mabang Megakarya Selection Programme (MMSP), an initiative set up in 2005 to introduce advanced breeding approaches and develop new varieties of cocoa that are resistant to black pod rot.

Because of the scale of the problem in Ghana, even an incremental improvement could have a significant impact on the entire sector. A global challenge, the disease has affected other markets as well. Wet weather in Indonesia, the world’s third-largest cocoa producer, has led to an outbreak of black pod disease and resulted in a contraction of global supply.

Demand and prices rising

The constrained global supply has helped further underwrite a rise in cocoa prices, given the sector is facing elevated levels of demand. Processors reported grinding more beans into cocoa powder in the third quarter of 2013 than a year earlier. The International Cocoa Organisation has projected a global cocoa supply deficit of 70,000 tonnes for the 2013/14 season, following an estimated 52,000-tonne deficit for the 2012/13 season.

In response, cocoa futures have jumped. Cocoa for December 2013 delivery traded at slightly under $2700 per tonne in early November, up about 25% since August.

Cocoa production appears stable and will continue to meaningfully contribute to the country’s GDP, employment and balance of trade. Higher cocoa prices will help offset slowdowns in production due to climactic conditions and disease but for the sector’s production levels to continue to rise, the government’s agriculture programmes will have to successfully boost yields.

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