COVID-19 effects on cocoa sectors in Ghana and Côte d’Ivoire

Nieuwsbericht | 25-02-2021 | 11:18

Cocoa in Ghana and Côte d’Ivoire

Cocoa production circles around 2.000.000 mln tons in Côte d’Ivoire and 850.000 tons in Ghana. It accounts for some 14% of combined GDP and finances at least 10% of the national budgets. Cocoa is the largest export crop in both countries, bringing in nearly 40% of total export earnings. Europe (53%) and Asia (26%) are Ghana’s main export destinations for cocoa beans, while Europe accounts for 67% of Cote d'Ivoire’s exports. Cocoa orchards are concentrated in a limited number of regions in both countries.

Cocoa engages a substantial number of the farmer population in both countries, most being smallholder farmers with an average size of 2-3 acres in Ghana, and 3-5 acres in Côte d'Ivoire. Combined, the sector employs more than 1,800,000 farmers, one million in Côte d’Ivoire and more than 800,000 in Ghana. The average age of a cocoa farmer is 50-55 years.

Over the years, cocoa production in Ghana, has been faced with structural problems. Lack of innovation – in particular with regard to farm practices-, insufficient replacement of the cocoa tree stock (much of it is 30 years old), diminishing size of farm plots, the aging of the farmer population and the reluctance of the youth to venture into cocoa farming, have resulted in low productivity per acre and hence low incomes. Moreover, pest and diseases infestation, deforestation and child labour persist. Efforts of governments, CSO’s and the cocoa industry in consumer countries to bring about a more sustainable and socially responsible cocoa production have initiated changes but these have not yet resulted in addressing the sector’s fundamental problems, i.e. low productivity and low incomes.

In January 2020 the government of Ghana – i.e. COCOBOD, the country’s cocoa parastatal, contracted a $ 600 million AfDB facility to help rehabilitate the cocoa sector and hence help farmers to improve their incomes. This will hopefully double production, modernize the sector and make it more sustainable.

In Côte d’Ivoire, the World Bank and the Government of Côte d'Ivoire have signed a US$200 million credit agreement to support , inter alia, reforms to encourage investment in cocoa and agroforestry.

Some Development Partners have since years provided assistance for the modernization of the cocoa sector, in particular the Netherlands with its Cocoa Rehabilitation and Intensification Program (CORIP), implemented by Solidaridad. Switzerland and the EU have recently joined. It is intended to be rolled out in Côte d’Ivoire as well but the Ivorian Government has put this on hold in view of oversupply concerns.

The Living Income Differential (LID)

In their efforts to get a better share of the worldwide 100 billion USD chocolate industry, thereby improving the incomes of cocoa farmers, Ghana and Côte d'Ivoire introduced a Living Income Differential (LID) in July 2019. Implication of the LID is that, as from the 20/21 season, cocoa would only be sold to the chocolate industry with a $400 per ton premium on top of the prevailing world market price. The initiative was a political move to strengthen the position of both countries in the world market of cocoa and to reduce widespread poverty among cocoa producers. Governments of main chocolate consumer countries, including the Netherlands, but also (mostly) the chocolate industry have publicly expressed their support for the LID-initiative. Some of the main buying companies have already taken contracts at the higher price. The exact volume is however unclear.

Although both governments have expressed their commitment to implement the LID from the start of the 2020/2021 cocoa season, which was supposed to begin in October 2020, its start may be jeopardized because of COVID-19. With a much-slowed down international economy, generally lower demand and hence slump in cocoa prices, and the industry facing the adverse economic effect, the immediate future of the LID-initiative is not very clear.

Another challenge is how to make sure that the LID at 400 USD per ton actually reaches the cocoa farmers. In Ghana, the COCOBOD controls production and supply and sells the cocoa beans on the world market, giving the cocoa farmers a de facto long-term guaranteed price. Companies paying the LID should hence hold the governments of the producing countries accountable for their commitment to pay the LID to the cocoa farmers. This is by no means certain as COCOBOD has suffered losses in its cocoa operations in recent years due to world market prices not being sufficient to cover the total costs of the prices paid to the farmers.

The effects of the COVID-crisis on the cocoa sector

The COVID-19 crisis poses a serious threat to the sector. Ongoing market uncertainty could affect farmers' decision to create, renew, or maintain their cocoa plantations. This could lead to a reduction in yield levels, which would affect processing and chocolate companies in the long run. In turn, this will affect the income levels of cocoa farmers and cocoa workers.

The COVID-19 pandemic in both countries has also affected many cocoa export destinations. Due to the strict health and social measures taken by government and, in some cases, the closure of ports of entry, the supply chain was somewhat disrupted and reduced the volume and value of exports. Although the internal marketing of cocoa (i.e. the purchase of cocoa beans on the farm) for the 2019-2020 crop year began in October 2019 and ended in February 2020 before COVID-19 became an issue in Ghana and Côte d'Ivoire, there was an impact on exports.

Supply chain disruptions could also limit farmers’ access to inputs such as fertilizers and plant protection products. This is evidenced in reduced arrival of containers from China and Europe at the ports. Goods from China constitute the highest volume and value of Ghana’s imports, goods to China the second highest of Ghana exports. Europe is export destination number one.

Cocoa could face a further slump in the longer term as chocolate demand has slowed down in Europe. Demand is expected to fall as a direct result of contraction in economic growth, which will diminish consumer disposable income for luxury goods. Many experts believe that the impact of the economic slowdown will result in less retail sales in shops, airport duty free stores (travels restrictions).

Mitigating measures

In view of the COVID-crisis, the government of Ghana has set up a CAP fund of $219 million to mitigate the impact of COVID-19 on businesses and households by ensuring that economic activities are sustained as much as possible while minimizing job losses. It is expected that besides other parts of the economy, also households and SMEs in the cocoa sector will benefit from this fund.

In Ghana, the farmers will most likely continue to receive the guaranteed price for cocoa, which has stood 8.24 GHC per kilo since 2019. This figure was after a raise of some 7.8%, with possibly even an increased fixed price later in 2020.

In Côte d’Ivoire where 60% of the CIF price goes to the farmers, lower world market prices would immediately result in a loss of income for the farmer despite a guaranteed price per kilo.

Global cocoa- and chocolate companies have donated $835,000 to national emergency plans of governments in West Africa. This comes on top of what individual companies are already doing to support their clients. Olam and Mondelez have donated medical supplies to hospitals and cocoa farming co-operatives in Ghana.

The CORIP Program has set some funds aside for the distribution of Personal Protective Equipment to Health Facilities and the dissemination of information on how to prevent COVID-19 in the project catchment area. This is to ensure the continuation of cocoa farming as much as possible.

The way forward

Covid-19 has emphasized the vulnerability of the cocoa sectors in Ghana and Cote d'Ivoire and has underlined the need to rigorously and systematically continue the efforts to increase productivity and sustainability. Modernization of the sector would include increasing productivity though professionalization, encouraging new techniques, much more widespread use of best farming practices as well as better prices for the farmers. Any modernization effort needs serious attention for sustainability issues such as child labour and deforestation. Continued implementation and expansion of the ongoing sustainability schemes is therefore important.

Some further technological and institutional improvements could include:

• Scaling the use of e-money in cocoa purchasing: traditionally, cocoa merchants deal with farmers with physical money. The COCOBOD in Ghana for example introduced Akuafo Cheque systems to eliminate the physical manipulation of money. This has not stood the test of time due to a mediocre enabling environment. Now, with the widespread use of mobile money transactions in the country, the time has come to retry. This will strengthen farmers' confidence and transparency in the purchase of cocoa. Also, for both countries, the completion of the process of taking census of cocoa producers would be an opportunity to promote the scaling up of e-money promotion initiatives.

• Introduce digital distance learning systems for extension workers and cocoa producers: although the in-person cocoa extension offer remains relevant, the current crisis could accelerate the use of more efficient methods using IT-tools and -platforms.

• Strengthen the creation and training of cocoa farmers' cooperatives. Cooperatives are scarce in the region but would be an excellent tool to work on behalf of their members. If strengthened, they could play very good roles in providing inputs, technical assistance and other services. These groups also have advocacy power and give farmers a voice to contribute to policy making. Cooperatives would also foster access to finance for the cocoa farmer as creditors feel comfortable working with identifiable, well-organized groups rather than individuals.