The Ghana Cocoa Board (Cocobod) is seeking $1.8bn in pre-export financing (PXF) for its 2015/16 crop, despite the slump in this season’s harvest. The financing target is greater than last season’s $1.7bn of financing, and reflects strong appetite from banks who face a dearth of attractive commodity finance deals in Africa.
However, the bullish fund-raising is clouded by uncertainty over the precipitous drop in this season’s outturn, with purchases totalling 652,900 tonnes by June 25, about 25 percent behind the same point last season. The slump in production has wrong-footed industry watchers, notably traders, who did not identify any troubling signs during pre-season pod counts, notably any impact from the late distribution of inputs or outbreaks of black pod disease.
‘This could indicate that problems arose during the opening months of the season, following heavy rainfall in September which damaged flowers. More likely, cyclical and structural factors are at play, from the competition from artisanal mining for land and labour, to the weakening of the cedi and rampant inflation, all of which have driven farmers and seasonal workers out of the sector,’ said an analyst at Ecboank in Accra.
‘Despite the current shortfall, Cocobod is sticking to its production target of 750,000-800,000 tonnes in 2014/15. But given that we are already moving into the light crop, which has historically struggled to reach 100,000 MT, we expect a total outturn of between 650,000 MT and 680,000 tonnes,’ the analyst added.
The slump in production has left Cocobod short of 150,000-200,000 MT of beans, forcing it to roll back contracts with traders to the 2015/16 season. In an effort to boost bean volumes, Cocobod has also delayed the official start of the light crop, as there are still volumes of large beans being produced which can be counted towards the main crop, helping the Cocoa Marketing Company (CMC) meet its export contracts.
The delay in starting the light crop will put further stress on Ghana’s grinding sector, which is already suffering from severe power cuts, as grinders’ profitability depends on the smaller light crop beans, which are discounted 20 percent by Cocobod. Moreover, the steady improvement in bean size, thanks to new hybrid trees, has been reducing the size of the light crop in recent seasons, reducing the availability of discounted beans to grinders. This trend could spell the death knell for Ghana’s grinding sector, unless new incentives are offered to grinders.
The other key losers are the traders, who must absorb an estimated $40 million of costs from rolling back missed contracts with offtakers, who can dictate better pricing terms. This will be a blow to traders of cocoa from West Africa’s largest producers, Côte d’Ivoire and Ghana, especially the medium-sized ones, whose margins are already razor-thin. Cocobod’s hard-won reputation as a reliable supplier of high quality beans, which command a premium, could also be damaged, and there is a danger that buyers could switch their purchases to abundant Ivorian beans, which are of the same quality.