A major example of the growing credit-worthiness of Ghana in global financial markets may be gleaned from the high-quality and volumes of financing that the Ghana cocoa sector has been enjoying in recent years.

Cocoa has over the years proven to be one of the major pillars of the economy of Ghana, being the second largest export earner after gold. And the industry has been boosted with the pre-export facility offered every year to the Ghana COCOBOD – the state-owned purchasing and global marketing agency – to facilitate the purchase of the commodity from farmers. The syndication book runners for last year’s financing for COCOBOD were Bank of Tokyo-Mitsubishi UFJ Ltd, Dresdner Kleinwort, Natixis, Societe Generale and Standard Chartered Bank, among others.

This year also the COCOBOD and a consortium of 36 banks with Standard Bank as one of the joint mandated lead arrangers for the transaction along with Credit Agricole, International Commercial Bank of China, Ghana International Bank and Sumitomo Mitsui Banking Corporation have signed a trade finance facility for the purchase of cocoa for the 2010/2011 season. This year’s transaction was oversubscribed at $1.8 billion and the borrower, COCOBOD, increased the facility size to $1.5 billion from last year’s $1.2 billion.

Such has been the growing appetite of financial institutions for supporting the cocoa industry, Ghana’s most stable agro sector, thereby helping to raise the production levels and overall foreign income earnings for the country. Ghana currently produces about 20 percent of world traded cocoa bean volume, and the country’s cocoa is considered one of the most superior by way of quality and trades at about 10% premium on Global Cocoa exchanges. The health-related benefits of the crop – as recent scientific study has confirmed that, the antioxidants and other  plant-based nutrients in chocolate and cocoa products are highly associated with the amount of non-fat cocoa-derived ingredients in the product – is expected to drive world demand for the commodity and Ghana’s cocoa bean, with its premium quality, will continue to attract growing international demand. One of the challenges that COCOBOD must manage  is to ensure that there is an adequate production volume of cocoa beans to cover the financing facility. The successful track record of the Board is such that  it has never defaulted in its obligations under any of the previous financing facilities arranged. Over the last ten crop seasons, a total of USD 7.09 billion has been raised by the COCOBOD.

The total facility drawdown over the years totalled USD 6.74 billion for the period. The COCOBOD’s achievement of 100 percent repayment record in all facilities arranged to date provides a high level of integrity for the organisation.

Considering the total number of 36 international commercial banks involved in the cocoa business in Ghana, the total drawdown of such huge amounts with a 2.5 percent interest rate against a collateral of a minimum of 441,000 MT of fixed cocoa contracts valued at about USD 1.32 billion, it is remarkable that there have been no defaults ever.

Repayment obligations to the financial institutions have been met from the collection of sales proceeds paid into the COCOBOD’s Collateral Accounts.

A COCOBOD official at a seminar on Trade Finance Facility in London in June 2010 noted that “our obligations have already been met and it is anticipated that the total collateral amount will be used to repay the loan in full.”

The part being played by other industry stakeholders, such as the Cadbury’s of the United Kingdom, or Nestle’s of Switzerland, has been commendable regarding the support to cocoa farmers and the provision of social amenities to farming communities. The chocolate sector looks set for further consolidation with the smaller players struggling to offset higher cocoa prices, claims one market analyst, and therefore chocolate manufacturers whose primary raw material is cocoa will face stiff competition amongst each other. Cadbury purchased about 70 percent of cocoa beans it requires for chocolate manufacturing from Ghana. In January this year, the company marked its 100th year anniversary of cocoa buying from Ghana.

Allison Ward, Head of Global Corporate Responsibilities told GB&F that the company spent £30 million out of a total of  £45 million on social amenities globally in Ghana alone over the last decade. Cadbury is also exploring carbon reduction techniques to secure more sustainable cocoa farming. “By 2018, Cadbury estimates, it will have made a demonstrable difference to the lives of half a million Ghanaian farmers.” Mrs Ward noted.  A lot is going on to ensure the flourishing of the cocoa industry. However, there is a view that if the cocoa industry is to grow substantially, then increased local consumption by Ghanaians of cocoa products must be encouraged.
Figures available from the COCOBOD indicate that the level of Ghana’s cocoa production has nearly doubled with massive increase in annual production from 389,000 metric tons (MT) to 700,000MT over the past nine years. The country continues to target an annual production of one million metric tons of raw beans even as it also attempts to process locally more beans into value-added products like cocoa butter, cocoa cake, cocoa powder, cocoa milk and chocolates. The growth and continued diversification of the industry has been hailed by all stakeholders as very encouraging. Indeed the Government of Ghana, the cocoa farmers, the COCOBOD and all its six affiliate organisations as well as the foreign partners in the Ghanaian cocoa industry such as the buyers and processors, and the industrious lenders have all in their diverse ways been a part of the huge success. COCOBOD, the statutory public board, established in 1947, to regulate Ghana’s cocoa industry has six subsidiary companies responsible for; quality control, research, produce buying, seed production, disease control and marketing. Farmers, who are the primary source of the commodity, have been involved in most major decisions and programmes in the industry.

They have also seen a sturdy rise in remuneration. For example, farmers currently earn 75 percent of the net of the “Free On Board” (FOB) price, paid in the local currency equivalent, compared to 71 percent during the previous season. Mr. Theophilus Agyare-Asare, General Manager . Operations for Akuafo Adamfo, one of several independent licensed cocoa purchasing companies, remarked that the Ghanaian cocoa farmer has seen a lot of improvement in their standard of living.

The corporate social responsibility programmes of COCOBOD and other corporate bodies with interest in the industry both local and foreign have included such assistance over the years as scholarship schemes, rural housing schemes, health services, access to clean water, roads and even solar street lights in certain parts of the cocoa growing areas. This obviously has meant significant investments in infrastructure and other facilities by the COCOBOD and the other stakeholders. The COCOBOD, for instance, successfully arranged a US$200 million medium term capital expenditure facility in March 2007 to facilitate the expansion of storage facilities and improvement in quality assurance.

Currently there are no official figures on how many cocoa farmers there are in the country, but it is estimated that the 14 buying companies have registered nearly one and half million farmers around the country. The two top licensed buying companies (LBCs), Kuapa Kookoo and Akuafo Adamfo, have altogether more farmers on their registers than all others like Adwumapa, Cocoa Merchant, Transroyal, Royal Commodities, Olam and Fedco Evando among others. The LBCs have formed an association to work towards the interest of farmers and the development of the industry.
Known as The Licensed Cocoa Buyers Association of Ghana (LCBAG), the companies have joined forces to help combat the spate of smuggling of the commodity to neighbouring countries which has over the years contributed to Ghana’s production decline.  In general, smuggling has occurred when Ghanaian farmers, buying agents or other criminal foreign operatives have tried to take advantage of differentials in the purchase prices, currency exchange rates, corrupt customs officials, and porous borders between Ghana and its neighbours. In most years, Ghana has suffered because cocoa prices  offered in adjoining countries in the CFA currency zone, has been higher than the price offered locally, and this has provided opportunities for arbitrage to enterprising criminals. The chairman of the buyers association, Nana Adade Boamah, has admitted the negative effect of cocoa smuggling “threatened the existence of licensed cocoa buying companies in particular and the cocoa industry in general.”

The high commitment of the association has also seen the association investing in weighing scales, tarpaulins, vehicles, and the development of other facilities. “Our interest is directly linked to the interest of cocoa farmers, the cocoa haulers, COCOBOD, and the government,” he said. As of the end of September 2010, provisional figures from the industry regulator, COCOBOD, for both the main and light crop seasons stood at 632,024 tonnes, 10 percent lower than the projected figure of 700,000 tons.

The highest cocoa production figure in Ghana of 740.458 tonnes was recorded in the 2005/2006 crop season, but the highest export figure was rather in the following season,
2006/2007. That season’s production stood at 614.528.