Cocoa farmers deserve price increase

Dr. Owusu Afriyie Akoto Opinion May - 22 - 2014 , 09:26

In the midst of the still raging furore over the collapsing fortunes of the Cedi since late last year President John Mahama has, at long last, had to accept the need to increase the price paid to cocoa farmers.

He conceded during his recent visit to Tepa in Ashanti Region. But the critical question is how soon and by how much will the producer price be raised?

Last October 2013, the Government announced its decision not to increase the price paid to cocoa farmers in the current 2013/14 farming season.

The reason advanced by the Government in support of this decision was that prices of cocoa on the international market had declined.

A close examination of cocoa prices on the international market for the relevant marketing periods does not confirm a drop in Dollar prices to justify such a punitive decision against cocoa farmers.

On the contrary, the sharp devaluation of the Cedi (more than 20 per cent) in 2013 was a strong basis for an increase in the local price paid to cocoa farmers.

The incomes of cocoa farmers were already undermined by the fact that in the previous year (2012/13) they had been awarded only a token increase of five per cent, against a domestic inflation rate of some 10 per cent at the time and 14.8 per cent currently.

With galloping interest rates, sharp exchange rate depreciation and the widening fiscal deficit, inflation is likely to rise strongly in the coming months.

Export prices and the farmer:

The recent collapse of the Cedi against the major trading currencies has, at a stroke, thrown out of the window the long held Government policy of awarding the cocoa farmers a minimum 70 per cent of the FOB price of the crop. At current world prices, the FOB price of Ghana cocoa is some US$2,700 per tonne.

As at the time of writing, the Dollar to the Cedi rate was around GH¢2.85/US$. Thus the FOB price is equivalent to GH¢7,695 per tonne.

This compares to the current fixed price paid to the farmer of GH¢3392 per tonne equivalent to only 44.0 percent of the stipulated FOB price of cocoa. Hence at the current prices the cocoa farmer in Ghana is paid significantly less than half of the current FOB price, contrary to the Government’s own avowed target of a minimum of 70 per cent.

In contrast to the declining real prices paid to cocoa farmers in Ghana, prices of both imported and local farm inputs used on cocoa farms have been escalating on account of the drastic depreciation of the Cedi.

These include fertilisers, insecticides, weedicides, pesticides and farm machinery.

Farm labour cost is also going through the roof, in large part, as a result of galamsey activities which are widespread in the major cocoa producing areas.

To add to the woes of cocoa farmers, the government has refused to pay the annual bonuses to farmers for the past three years.

The President in his speech in Tepa, indicated that the bonus will be paid. But it is not clear whether he meant the bonuses which have accumulated over the past three years or whether he was referring to that outstanding in the current year (2013/2014). Urgent clarification is required.

Reduction in production:

Declining real producer prices combined with rising costs of production, means shrinking income incentives and consequent reduction in production.

No wonder, after hitting a historical peak of one million tonnes in 2010/11, cocoa production has steadily retreated to some 800,000 tonnes per annum.

The peak production of one million tonnes in 2010/11 was a direct result of policy initiatives (Hi-Tech and Mass Spraying programmes) undertaken by the New Patriotic Party (NPP) Administration from 2001 onwards.

If the current negative economic conditions on cocoa farms persist, the reduction in production and exports is likely to continue in the coming years, although good rains this year may act as a temporary respite.

It is significant to note that one of the factors which the Bank of Ghana attributes to the raging exchange rate crisis is the substantial (US$1.3billion) decline in foreign exchange earnings from Gold and cocoa.

The annual loss in output of 200,000 tonnes of cocoa (compared to the one million MT peak of 2010/2011) is valued at US$600million at current world prices (just below US$3,000/tonne).

Thus the reduction in foreign exchange earnings from cocoa due to reduced output (and NOT declining world prices) is indeed a major contributor to the current crisis in our foreign exchange markets.

Cocoa smuggling:

This brings to the fore the significance of government policies for domestic cocoa pricing and farm support. The reduced price incentives and the scaling down of subsidized fertilizers (HI-TECH) and pesticides (Mass Spraying) to farmers are having a negative impact on cocoa production.

But it is also encouraging the mass smuggling of cocoa across our borders to Cote D’Ivoire and Togo. Reports from the border areas indicate that a 64kg bag of cocoa is selling at GH¢240 as compared to GH¢212 in Ghana.

Without a substantial rise in local producer prices, the continued depreciation of the Cedi would encourage more smuggling of Ghana’s cocoa to our neighbours.

Increase the producer price:

The adverse economic effects discussed above, point to an urgent need for the President to be good to his word and award a substantial increase in the price paid to our cocoa farmers.

The government as a matter of urgency should restore its policy of awarding cocoa farmers 70% of the FOB price.

At today’s world prices and exchange rates, this means the price paid to producers should be increased from the current GH¢3,392 per metric ton (GH¢212 per 64kg bag) to GH¢5,387 (GH¢345 per bag), equivalent to a rise of 58.9 percent.

Workers at the cocoa loading bays of our sea ports were recently awarded nearly 100 per cent increase in wages following strong agitation and a prolonged strike action.

Similarly, workers in the public sector were awarded 10 percent pay rise by Government in 2013 and they are rightly advocating for further rises to cope with rising cost of living.

Who is advocating for cocoa farmers? They have suffered substantially declining farm incomes in the last three years.

They have seen their real incomes tumble to the ground on account of sliding real producer prices, rising farm cost and a reduction in production. It is important to rectify this anomaly, because starvation of cocoa farmers ultimately translates to starvation of the nation, as recent events are clearly and painfully demonstrating.

The author is Ranking Member for the Select Committee on Food, Agriculture and Cocoa Affairs of the Parliament of Ghana.