Ghana's Cocoa Farmers Earned Just 15% of the Record High Cocoa Prices in 2023/24 crop year—A Historic Injustice!

Remember Chocolates are not purchased on a forward sale arrangement so why should Cocoa?

The global cocoa industry is currently experiencing a significant surge in prices, and the 2023/2024 crop year reflects this more dramatically than ever. As highlighted by Graph 2 below the International Cocoa Organization's (ICCO) daily average prices, you would see that the market has witnessed a staggering rise in cocoa prices. The annual average of cocoa beans sits at US$6,330 per tonne for the 2023/24 crop year, representing a historic high for the commodity. However, this price increase hasn’t translated into equitable financial benefits for all stakeholders—particularly the Ghanaian cocoa farmers, who have been left with a mere 24% of the global average price, despite the record hikes in the 2023/24 crop year. This article will discover the mechanisms and dynamics behind the discrepancy, examining the structural flaws that perpetuate such inequities and why Ghana’s forward sale agreements, once hailed as a safeguard, have become a financial trap. It is critical to juxtapose the situation in Ghana with that of Cameroon, where farmers have benefitted from the price hike, and examine how Ghanaian cocoa farmers remain at the mercy of multinational corporations and global traders.

Cocoa Price Hikes and Farmer’s Share

The global average cocoa price for 2023/24, as per the ICCO, is US$6,330 per tonne. For context, when one adds the Living Income Differential (LID) of US$400/tonne, the total is US$6730 which translates to approximately GHC83,961 per tonne. However, Ghanaian farmers received a fixed price of GHC20,928 for their produce representing a mere 24.03% of the global market average. The stark disparity begs the question: where did the other 75.07% of the value go? The dynamics behind this statistic underscore the deep-rooted inefficiencies and inequities in the cocoa supply chain, particularly within the Ghanaian context. Graph two contrasts the world market price against the producer price paid in Ghana Cedis over the years illustrating the widening gap in 2023/24. In the 2023/24 crop year, especially in April,  as shown in Graph one, the price of cocoa averaged almost at 10,000/tonne translating to an average of GHc 134,415. Ghanaian farmers still received a fixed nominal price of GHC20,928 per tonne throughout the crop year representing 15.57% of the average world market price in April 2024. And since the produce price includes the LID (USD 400/tonne) it means Ghanaian cocoa farmers received 14.97% of the world market price in April 2024. This static compensation structure leaves farmers locked out of market benefits; even as cocoa prices surged to historical highs.

Graph 1

Source: Authour’s graph using ICCO Average daily price (Exclude the LID)

Graph 2

Source: Authour’s calculation using data from Ghana cocoa board and ICCO. The world market price and the Producer price from 2020/21 to 2023/24 crop years include the LID as per Ghana Cocoa Board’s payment arrangement.

The system perpetuating this imbalance is underpinned by Ghana’s forward sale agreements. These agreements, once viewed as a stabilisation tool to shield farmers from market volatility, have exposed significant weaknesses in the current price surge. The forward sale mechanism essentially locks in a pre-agreed price for cocoa beans, ensuring predictable revenue for both the farmers and the state in the event of a market downturn. However, in a bullish market like that of 2023/24, it is the traders, chocolatiers, and grinders who purchase the beans ahead of time who reap the financial benefits of the price hike, not the farmers or even the Ghana Cocoa Board (COCOBOD).

Forward Sale Agreements As A Financial Trap for Farmers

Forward sale agreements are often presented as a double-edged sword, providing a measure of predictability in an otherwise volatile market. On one hand, they allow cocoa boards, such as Ghana's COCOBOD, to secure a price ahead of time, ostensibly safeguarding farmers from price slumps. On the other hand, these contracts render the country and its farmers vulnerable when prices rise unexpectedly, as has occurred during the current crop year.

In the case of Ghana, the forward sale agreements meant that most of the cocoa beans produced during the period of the price surge were already sold at much lower prices. The implication is that neither the COCOBOD nor the farmers have been able to capitalise on the remarkable increase in global prices, as highlighted in the ICCO chart. The financial windfall from this price hike instead flows towards the companies and traders who secured these agreements. Cocoa farmers, having locked in their sales, have no recourse to benefit from the market surge.