[Case Study-Barry Callebaut] Is the "Export Processing Zones" Concept a tool to exploit Smallholders cocoa farmers?

Examining the ideals and realities of the impact of the Export processing Zones (EPZ) on Ghana and smallholder cocoa farmers.

Part One of a series on Policy and Practice, with a focus on the export processing zones (Ghana Freezones) and whether or not, its intended benefits is being realised when it comes to Cocoa processing companies benefiting from it.

—

Ghana's Free Zones programme, inspired by the global concept of export processing zones (EPZs), was established under in 1995. This initiative was aimed at boosting economic growth by attracting foreign investment and enhancing export activities. Key incentives offered to companies include up to 10 years of corporate tax holidays, followed by a maximum tax rate of 15%, exemptions from import duties on raw materials and equipment, and the ability to repatriate profits freely. Additionally, streamlined administrative procedures and infrastructure support are provided to facilitate efficient business operations within the Free Zones. Companies setting up in these zones would get tax breaks and other incentives, making it easier and cheaper for them to operate. Sounds like a win-win, right?

Barry Callebaut is one of the well-known in the cocoa processing industry. They’ve set up cocoa processing facility in Ghana's Free Zones area, taking full advantage of these incentives. On paper, this looks like a golden opportunity for Ghana’s economy and not necessary smallholder cocoa farmers who have long struggled with poverty and unfair market conditions. But as we dig deeper, it becomes clear that things are not as rosy as they seem.

This article aims to scrutinise the operations of Barry Callebaut within Ghana's Free Zones as an example. We’ll explore four major criticisms of this setup: the limited tax revenue it brings in, the illusion of economic growth, the lack of meaningful local value addition, and the ironic policies that seem to undermine local consumption of cocoa products. Throughout this discussion, we’ll keep our focus on the real impact these issues have on smallholder cocoa farmers and their families.

Why is it that, despite these grand promises, our cocoa farmers are still struggling? How can policies designed to help end up making things worse? It’s time to take a hard look at these questions and see if the reality matches the rhetoric.

Let’s start by understanding what Barry Callebaut’s operations in Ghana’s Free Zones look like and what benefits they’re supposed to bring.

Overview of Barry Callebaut's Operations in Ghana's Free Zones

Barry Callebaut, a leading player in the global cocoa processing industry, has established a significant presence in Ghana through its operations within the Free Zones. The company's decision to set up in these zones was influenced by the attractive incentives offered (not because they suddenly liked to save Ghana’s economy), including tax breaks, close proximity to supply and exemptions, which are designed to lower production costs, encourage foreign investment and access supply at source, as explained above.

Benefits Barry Callebaut Receives from the Free Zones Program

The Free Zones Act offers numerous benefits to companies like Barry Callebaut, aiming to create a favourable business environment. These benefits include:

1. Tax Holidays and Reduced Tax Rates: Companies enjoy up to 10 years of corporate tax holidays, followed by a maximum 15% tax rate on profits thereafter. This significantly reduces the financial burden on the company, allowing it to maximise profits.

2. Customs Exemptions: There are exemptions from import duties on raw materials, machinery, and equipment, which further reduces operational costs. Including consultants that the companies will bring from abroad.

3. Profit Repatriation: Companies can repatriate profits and dividends without any restrictions, making it easier for foreign investors to benefit financially from their operations in Ghana.

4. Simplified Procedures: The administrative processes for business operations and customs clearance are streamlined, reducing bureaucratic delays and improving efficiency.

5. Infrastructure Support: Access to developed infrastructure, such as roads, utilities, and communication networks.

[Remember Cocoa Farmers do not even get .0001% of these incentives both Ghana and Abroad. Obviously Cocoa farmers extent to the global market at the door step of Kokoo Krakye who is the buyer of their beans in the village)

These incentives have enabled Barry Callebaut and companies alike to operate more cost-effectively, enhancing their competitive edge and bottom line. The establishment of their processing plant in Tema is a testament to the strategic benefits provided by Ghana's Free Zones.

Intended Benefits for Local Cocoa Farmers and Communities

On the surface, the presence of Barry Callebaut in Ghana's Free Zones appears to promise several benefits for local cocoa farmers and their communities:

1. Job Creation: The company’s operations are expected to create employment opportunities, providing much-needed jobs for local residents.

2. Skill Development: The presence of a multinational company is anticipated to facilitate technology transfer and skill development, enhancing the capabilities of the local workforce.

3. Economic Growth: Increased foreign investment and enhanced export capacity are expected to contribute to overall economic growth, benefiting the country as a whole.

However, as we investigate deeper into the realities on the ground, it becomes evident that these promises often fall short. The benefits intended for local cocoa farmers and their communities are frequently overshadowed by significant shortcomings and criticisms, which we will explore in the following sections.

Next, we will get into the first major criticism: the limited tax revenue generated from Free Zones companies and its impact on local public services and infrastructure.

Ghana's Free Zones program, established under the Free Zones Act 1995 (Act 504), was designed to attract foreign investment by offering substantial tax incentives. Companies like Barry Callebaut benefit from these incentives, which include up to 10 years of corporate tax holidays followed by a maximum tax rate of 15%, and exemptions on import duties for raw materials, machinery, and equipment. These benefits are intended to reduce operational costs and make Ghana an attractive destination for foreign investors. While this strategy has successfully attracted major companies, it also has significant drawbacks, particularly in terms of limited tax revenue for the Ghanaian government.

Benefits of Tax Incentives

The tax incentives provided to companies in the Free Zones have indeed brought several benefits. By reducing the cost of production, these incentives allow companies like Barry Callebaut to offer their products at competitive prices in the global market. This lower cost of production benefits European consumers, who can enjoy more affordable chocolate products (if the incentives are transfer into reduced prices anyway). Additionally, the reduced operational costs help Barry Callebaut improve its profit margins, which in turn boosts its brand value and competitiveness. Shareholders also benefit from increased profitability, leading to higher returns on their investments.

Negative Effects on Local Public Services

However, the generous tax incentives come at a significant cost to the Ghanaian government. The limited tax revenue hampers the government's ability to fund essential public services such as education, healthcare, and infrastructure development. For smallholder cocoa farmers and their families, this shortfall has direct and detrimental effects.

Underfunded Public Services: With reduced tax revenue, the government struggles to provide adequate funding for public services. Schools in cocoa farming communities, aside being inadequate and poorly built due to lack of funding, often face shortages of teachers, school supplies, and infrastructure improvements. This means that children of smallholder cocoa farmers receive a subpar education, limiting their future opportunities and perpetuating the cycle of poverty. Yes, I know a reader is screaming that even if the money came, corrupt politicians (trained by these companies anyway) will spend the money. Well, they will but at least they will sue some to develop some of these essential infrastructures. At least Ghanaians are not living on a tree.

Inadequate Healthcare: Limited tax revenue also affects the healthcare system. Rural communities, where many cocoa farmers live, often lack access to quality healthcare facilities. This not only impacts the general health and well-being of the farmers and their families but also affects their productivity and ability to work. Ask why cocoa processing companies like Barry Callebaut established in Tema instead of the cocoa farming villages. Wouldn’t their presence there and the appetite by owners for quality healthcare led to a semi-improved healthcare? Off course we know that even if they do, they will still fly to the city or outside for healthcare anyway.

Poor Infrastructure: Inadequate infrastructure is another consequence of limited tax revenue. Poor roads and transportation networks make it difficult for cocoa farmers to transport their goods to market, reducing their income and increasing their costs. I remember clearly schooling at the university of Manchester during the election period and one campaign promise from one of the political parties was “Free internet for everyone” and I asked my self when will my peers back home in Ghana get that point when electricity is literally a privilege in cocoa farming communities. Offcourse maybe to the eyes of the western investor and the bought politician, that is too much to ask for. This, in turn, affects their overall economic stability and ability to invest in better farming practices as we shout on them to do. Imagine if the MD for Barry Callebaut was staying at Sankore, a big cocoa growing community, at least in other not for his or her car tire to burst, the roads for these village would be impriv

Who Pays the Tax?

The irony here is that while foreign companies enjoy tax holidays and exemptions, the burden of funding public services falls on the local population, including the cocoa farmers. Supporting businesses in good but not when locals are to pay to subsidised the production of something that are not meant to be sold to them so they can benefit from the reduced price their subsidies provide. These farmers, already struggling with low incomes,