The politics and economics of cocoa producer price
I am the son of a cocoa farmer.
In 1970, my late father acquired a piece of land in the Ahafo Region and started cocoa farming with my mother.
After he passed in 1977, my now eighty-five-year-old mother continued with the project.
I grew up hearing stories of what life is like for cocoa farmers.
Years later, I examined the cocoa sector as part of my political economy PhD dissertation work. I, therefore, have a deep interest in what happens to cocoa farmers.
The announcement of the new cocoa producer price has generated a heated debate between our two main political parties.
While the government touts the historic increase in the producer price, the main opposition accuses the government of shortchanging farmers.
The welfare of Ghana’s cocoa farmers is important.
No one disputes that.
Governments, over the years, have tried to offer a decent producer price and other types of support to the cocoa farmer.
But we cannot overlook the politics that come with ensuring the welfare of our cocoa farmers.
We have a political duopoly (NDC-NPP) that regularly competes with each other to win the hearts and minds of Ghanaians, including our cocoa farmers, during elections.
That is why we regularly witness these “political fights” over which party has done a better job of looking out for the welfare of cocoa farmers.
of producer price
There are economic realities that politics must contend with.
First, I agree that we must pay the farmer a fair price.
If you have ever read “Chocolate Nations: Living and Dying for Cocoa in West Africa” by Órla Ryan, you will appreciate the plight of cocoa farmers.
In addition, if you have ever visited cocoa-growing areas, you will see why we must do more for our cocoa farmers.
The real challenge is how you determine what a fair price is.
Ghana has a producer price formula and a producer price review committee that determines and recommends a fair price to the government.
When estimating the revenue component of the pricing formula, there is little control over certain inputs – the FOB price on the international market, the crop estimate and the exchange rate.
These uncertainties mean that the committee must rely on a combination of historical data and best estimates to arrive at what that fair price should be.
Second, and related to the above, is the exchange rate implication for the computed expected revenue.
When the currency depreciates, the expected revenue in the local currency is higher.
Alternatively, when the currency appreciates, the expected revenue in the local currency is less.
For example, the Cedi equivalent when the exchange rate is GH₵11 is not the same when it is GH₵8.
It is, therefore, easier to point to increasing revenue accruing from cocoa sales when there is currency depreciation than when there is currency appreciation and use that as a basis to demand more from cocoa farmers.
Third is the choice of how Ghana sells its cocoa. In layman’s terms, we sell tomorrow’s cocoa at today’s price (forward sales).
This means that although tomorrow’s price could be higher, for whatever policy and budget imperatives we hedge our best bets and use this approach, we cannot judge the fairness of the producer price by comparing an approach that sells tomorrow’s cocoa at today’s price to an approach that sells tomorrow’s cocoa at tomorrow’s price (spot sales).
When the world market price of cocoa is good, it is much easier to wish you sold your cocoa using the spot sales approach.
Fourth, the strategy of your buyers can undermine genuine efforts to pay a fair price.
Think about the brilliant initiative where Ghana and Cote d’Ivoire jointly announced a Living Income Differential of four hundred dollars ($400) per metric tonne to ensure better producer prices for the farmers.
Documented research shows that there has been difficulty in implementing this because of the major buyers devising strategies to buy cocoa from other producers to avoid paying the living income differential.
When all is
said and done
I appreciate the concerns of how well a government treats cocoa farmers.
There is nothing new about this “fight” though.
I do not recall an opposition party ever applauding a ruling government whenever cocoa producer prices are announced.
Anytime a sitting government announces the cocoa producer price, the opposition response is “The government could have done better.”
I once applauded a sitting government for increasing the cocoa producer price.
By the next morning, someone had contacted a friend asking if I was a sympathiser of that ruling government.
I am only the son of a cocoa farmer interested in the political economy of the cocoa sector.
The writer is a Democracy and Development Fellow at the Ghana Centre for Democracy and Development (CDD-Ghana).