How Ghana's higher cocoa farmgate prices impacts market dynamics
Starting today, Ghana cocoa farmers will get a 21 per cent price increase for the main crop in a bid to give farmers a decent income and make farming of the cocoa bean more lucrative. Meanwhile, the International Cocoa Council recently adopted the amended International Cocoa Agreement. Tedd George, Chief Narrative Officer, Kleos Advisory joins CNBC Africa to discuss the wider implications.
Fri, 07 Oct 2022 11:40:27 GMT
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AI Generated Summary
- Ghana implements a 21% price increase for cocoa, aiming to boost farmers' income and enhance cocoa farming viability.
- Challenges remain in ensuring transparent distribution of additional funds to farmers amidst the price hike.
- Amended International Cocoa Agreement underscores a global shift towards sustainability and monitoring ESG metrics in the cocoa industry.
Ghana, known for its significant cocoa production, has recently announced a 21% price increase for the main crop to enhance farmers' income and make cocoa farming more viable. This move comes as cocoa prices have been on the rise and are currently at their highest levels in two years. Ted George, Chief Narrative Officer at Kleos Advisory, shared insights on the implications of these developments, particularly in the cocoa industry of Ghana and Cote d'Ivoire. The increase in Ghana's farmgate price has positioned it at around $125 per kilogram, while Cote d'Ivoire stands at approximately $133 per kilogram. Despite the price hike, both countries are expected to sustain these prices throughout the season given the current economic environment. The rise in cocoa prices underscores the need to ensure that farmers benefit adequately from the increased revenues. While the 'living income differential' is meant to supplement farmers' earnings, there remains a need for greater transparency in how these funds are disbursed and allocated to the farmers. As cocoa buyers and international players adjust to these price increases, it is evident that the market dynamics have shifted, as seen in rising food prices and the general increase in agricultural prices globally. The higher prices are expected to impact various sectors, including the chocolate industry, which may witness cost adjustments to account for the increased cocoa prices. Furthermore, the recent $1.1 billion loan agreement secured by Ghana Cocoa Board underscores the commitment to bolstering the cocoa industry's financial stability. The pre-export finance mechanism, which has a solid track record, has proven essential in ensuring funding for cocoa purchases and operations. However, challenges persist in efficiently channeling funds to licensed buying companies on the ground. The successful implementation of the loan agreement is crucial for incentivizing farmers to sell their cocoa, given the improved farmgate prices. The amended International Cocoa Agreement adopted by the International Cocoa Council signals a positive step towards addressing emerging challenges in the cocoa industry. The inclusion of sustainability measures, such as ensuring a living income for farmers and monitoring ESG metrics, reflects a global shift towards sustainable supply chains. These amendments are poised to have a significant impact on West African cooperatives and their role in the global economy. Notably, there is a growing opportunity for cooperatives to attract impact investments for projects that enhance ESG impacts, such as improving access to education, infrastructure, and renewable energy. This financial support can drive positive change in the cocoa value chain, benefiting not only the farmers but also the broader community. While Ghana and Cote d'Ivoire have taken strides in enhancing their cocoa industries, neighboring Nigeria faces challenges in optimizing its cocoa market potential. Despite strong cocoa demand, Nigeria lacks a cohesive strategy and infrastructure to maximize its cocoa production. Strengthening coordination and infrastructure in the cocoa sector can unlock Nigeria's capacity to increase cocoa output and tap into the current favorable market conditions. Overall, the higher cocoa farmgate prices in Ghana signify a positive shift in market dynamics, signaling a promising outlook for the cocoa industry in the region.