Why CPC is down
Cocoa is unarguably the second most sought-after commodity in the world, after gold, and Ghana is fortunate to be blessed with the crop in abundance.
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With cocoa production averaging 800,000 tonnes over the past five years, Ghana is only second to Côte d'Ivoire and well ahead of the likes of Indonesia, Nigeria, Ecuador and Brazil, whose output are around 400,000 tonnes per annum.
Beyond yielding an average of US$2.5 billion in export earnings annually, the local cocoa sector provides a real incentive for industrialisation in the domestic economy.
This explains why heavyweights in the cocoa processing sector have set up in the country, where they concern themselves with almost every aspect of the crop's life – from seedlings to harvesting – in their strive to become responsible and sustainable corporates, while gaining easy access to the beans to feed their plants.
The latest to join the established cocoa processors in Ghana is French-based processor Cocoa Touton Processing Factory, which began operations in April last year.
As a free zone company in the Tema Free Zones Enclave, Touton is off to a good start, with the hope of exporting more than 70 per cent of its initial production of 25,000 tonnes of the beans per annum.
There are Cargill, ADM and Barry Calibuat, the three world-acclaimed cocoa processors also feeding on Ghana's premium bean to enrich their global operations.
Over the years, these companies have run operations very well while enhancing their shareholders’ value.
Besides these multinationals are the local private processors – Niche Cocoa and Plot Enterprise – which continue to keep their heads above water.
However, the positive strides these companies are making cannot be said of the only state-owned company playing in that arena, the Cocoa Processing Company (CPC) Limited.
Source of challenges
Established in 1965 initially as a public entity, the CPC's vision was to become "a first class food factory of international repute" that will major in the processing of the country’s premium cocoa beans into finished and semi-finished products for the local and international markets.
For over three decades, that vision was on course until the early 2000s, when high demand for processed cocoa in the international market led the company into taking a decision it would forever regret.
After realising a steady demand for its products vis-a-vis a limited installed capacity, the CPC management around 2002 secured three credit facilities - 22 million Euros, US$22 million and GH¢1.6 million - from different lenders at different rates to help it rehabilitate factories and expand to meet the increasing demand.
The five-year programme began in 2003 and included the upgrading of the capacity of its maiden factory from 25,000 tonnes to 34,500 tonnes and the installation of a new plant to process 30,000 tonnes of the beans into liquor.
That more-than doubled CPC's capacity from 25,000 to 64,500 tonnes in 2008, then making it the biggest processor in the country at the time.
But as the pomp and ceremony that greeted the expansions subsided, remnants of the loans started showing, buoyed by the 2008 financial crisis, which dampened growth in all sectors, including the cocoa sector.
The situation was compounded by the depreciation of the cedi to its trading partners, especially the US Dollar and the Euro, which hugely exposed the company to foreign exchange losses.
In 2008, the cedi lost about 30 per cent of its value to the US Dollar and seven per cent to the Euro, resulting in an increase in the cedi value of the two loans.
The impact
CPC's predicament was compounded by its inability to pay for beans to process in the upgraded facilities.
Because the company was using a lot of its earnings to service the two loans, it was unable to buy enough beans to process. The few it bought were mostly on credit, another arrangement that will return to hurt its finances.
Thus, although the company had toiled to install state-of-the-art plants, it was starved of beans to process due to lack of funds.
The result was reduction in revenues and the dwindling of its fortunes, which finally translated into a GH¢16.95 million loss in 2009.
The years that followed will now see CPC move from a profitable venture every investor yearned to invest in to a loss making business that investors will scramble to sell their stakes in.
For 10 years running, the company has not paid dividend, as its losses increased from the GH¢16.95 million in 2009 to US$16.28 million (GH¢57.6 million using an exchange of US$1 to GH¢3.54) in 2014
Its debt to the Ghana Cocoa Board (COCOBOD) for beans supplied on credit also rose to US$45 million last year, causing the industry regulator, which is the majority shareholder, to drastically reduce supplies until all arrears are settled.
"We still supply them but we manage the quantities now," the board's Public Affairs Manager, Mr Noah Amenyah, said in an interview.
This resulted in a reduction in beans processed, causing it to slump from some 40,000 tonnes around 2008 to 20,000 tonnes in 2014.
Last year, the company reportedly processed a palpable 8,000 tonnes of the crop and that could aggravate its losses to a state akin of a company requiring an emergency salvage.
Reviving CPC
The CPC's challenges, however daunting, are not historic. Its competitors, ADM, Barry Calibault, Plot Enterprise, Niche Cocoa, have gone through similar challenges but through professionalism and prudent use of resources, they have emerged even stronger and more experienced.
Although the company does not have access to the private sector expertise that these companies have, it can easily leverage its clout as a listed entity on the Ghana Stock Exchange (GSE) to revive its fortunes.
The options available are many but the most plausible one is the bringing in of a strategic investor that can take some of the shares of COCOBOD or the Ministry of Finance (MoF).
Given its unenviable records in business, it is unreasonable to have the Government of Ghana, through COCOBOD and MoF, hold a total of 84 per cent of a company that is listed on the GSE.
By that unusual arrangement, CPC only prides itself as a listed entity but still suffers the same disease state-owned enterprises are engulfed in, where gross mismanagement dominates, state institutions buy their products on credit and the business is seen as an extension of the state, such that corporate governance can sometimes be overlooked for political expediency.
The situation also suppresses investments as the "lack of funds" mantra will continue to play out whenever issues of reinvestment come up.
This explains why the company took the risk of overexposing itself to loans in 2002, when the rehabilitation and expansion agenda was conceived.
Thus, for the CPC to return to winning ways, which is very possible, the MoF must, as a matter of urgency, get the COCOBOD to divest its 57.73 per cent stake in the company in a manner that will preserve the national identity while injecting private sector capital and expertise in its operations.
For now, it is demeaning that a company whose products are a national and international sensation continues to post losses year-in year-out to the extent that threats of a final collapse are now real.
With its good reputation, product line and fairly functioning plants, the CPC can quickly become a sensation similar to what it was in the 1980s and 1990s if the right commercial arrangements are made.
Those arrangements should aim at salvaging the company from its current state, where it is presently reduced to a laughing stock in a profitable sector that continues to lead the pack of revenue generators for the economy.