Value chain finance in Ghana’s cocoa sector is best short-term trade credit for producers in Africa – Report
Ghana’s cocoa farmers are said to have the best access to credit in Africa.
A new report has said the activities in Ghana’s cocoa sector in terms of access to credit by farmers is one of the most successful in Africa which helps growth of the industry.
The value chain finance in Ghana’s cocoa sector is one of the best examples of short-term trade credit for agricultural producers in Africa, according to the report prepared by the African Development Bank (AfDB), the World Bank and the German Federal Ministry for Economic Cooperation and Development.
Ghana is the second largest cocoa producer in the world after neighbouring Ivory Coast. It recently hit a million tonnes of cocoa production, according to figures posted by the Ghana Cocoa Board (COCOBOD).
The report titled, “Financing Africa through the Crisis and Beyond”, noted that licensed buying companies (LBCs) routinely provide significant amounts of short-term credit to producers for the purchase of the required inputs such as fertilizer and pesticides before the growing season commences.
“Perhaps one of the best examples of short-term trade credit for agricultural producers is the cocoa value chain in Ghana. Cocoa is a huge industry in Ghana, and the purchase of the output from producers is dominated by a market of private sector companies (licensed buying companies or LBCs) with licenses to sell to the state-owned marketing monopoly,” said the report co-authored by Thorsten Beck, Samuel Munzele Maimbo, Issa Faye and Thouraya Triki.
In return for the credit payment, the report indicates that cocoa growers commit to selling the resultant cocoa harvest to the LBCs at an agreed price saying, “the capital and interest are repaid to the LBCs through the proceeds of the sale, and the balance goes to the farmer.”
The report said credit can also be provided by the input supplier where one of the country’s largest suppliers of fertilizer and other agricultural inputs furnishes supplies on credit to members of a major cocoa growers association, with repayment due following the harvest.
The Ghana government, through the COCOBOD, recently secured a $2 billion syndicated loan from the private market.
According to a Daily Graphic publication September 23, 2011, officials say 70% of the Free On Board (FOB) amount will directly go to farmers in terms of produce prices and the remaining 30% will go into the expansion of the cocoa industry.
The Bank of Ghana on September 1, 2011 said the value of cocoa beans export from January to July was $1.5 billion which helped drive the country’s total export value to $7.5 billion during the period aside oil and gold.
The International Food Policy Research Institute (IFPRI) in a document titled “The role of cocoa in Ghana’s future development” which was co-authored by Clemens Breisinger, Xinshen Diao, Shashidhara Kolavalli, and James Thurlow in January 2008, says cocoa has historically been a key economic sector and a major source of export and fiscal earnings for the country.
The document said cocoa production more than doubled, from 395,000 tons in 2000 to 740,000 tons in 2005, contributing 28% of agricultural growth in 2006—up from 19% in 2001.
President Kufuor in a book titled “Ghana’s Transformation” published by IFPRI in May 2011 wrote that his government gave farmers a major incentive to expand production by increasing their share of the international export price from 40% in 2002 to about 70% in 2004 of which the result was dramatic.
“Between 2002 and 2005, cocoa production in Ghana doubled-from 350,000 tons to 734,000 tons, an all-time record in more than a century of cocoa farming in the country” he wrote.
By Ekow Quandzie