Ghana Cocoa Sector Reforms for Financial Viability and Long-Term Sustainability.
Ghana Cocoa Sector Reforms for Financial Viability and Long-Term Sustainability.
Cabinet has decided on the following reforms to guarantee a fair prices to farmers, secure the financial viability of the cocoa sector, and ensure the long-term sustainability of the industry.
a. To bring relief to unpaid cocoa farmers, Cabinet has directed COCOBOD to commence immediate payment of all affected cocoa farmers.
b. A new COCOBOD Bill will be presented to Parliament to implement an automatic adjustment of producer price to align with movement in the world market price, exchange rate, and other key variables, and guarantee a minimum of 70% of the gross FOB price to be paid to cocoa farmers.
A new Financing Model for Cocoa Purchases and related Operations, with associated benefits for increased processing as follows:
The current financing model was invented as a necessity after the syndicated loan failed, after 32 years of successful implementation, and it has proven not to be sustainable.
The financing model is entirely dependent on a buyer’s willingness to bear the financing cost and to prefinance the purchase of cocoa.
The key motivation for buyers in the previous season was the rollover contracts priced at about US$2,661 when the existing market prices were above US$8,000 per tonne.
Once the gap between the roll-over contract and the market price closes, and the majority of the rollover contracts are serviced, the buyer will not be willing to prefinance the purchase of the crop.
Alternatively, the previous syndicated Loan model required COCOBOD to sell forward most of the raw beans to lock in contracts, which repays the loan and serves as the collateral as well.
This system did not allow COCOBOD to optimise prices on the market. In addition, the use of the raw bean contracts as collateral for the loan meant that Ghana could not optimise its installed capacity for processing.
The new Financing Model will utilise domestic Cocoa Bonds to purchase cocoa and repay with cocoa proceeds within each crop year. The Bonds will be used to raise a revolving fund for COCOBOD to turn around at least once during the season.
The model will also revive the indigenous Licensed Buying Companies that have been completely thrown out of business as a result of the current financing model
The state-owned Produce Buying Company (PBC) will be revived to resume full operations and become the leading Licensed Buying Company (LBC) in the cocoa sector.
With this new financing model, COCOBOD can sell beans of any volume to local processing companies to promote value addition and job creation.
