Ghana’s cocoa sector faces challenges amid declining production, rising costs

Ghana’s cocoa production is anticipated to fall below 500,000 tons this season, primarily due to the devastating impact of the swollen-shoot disease, the World Bank’s Ghana Economic Update has revealed.

 This marks a significant decline from the previous season’s production of around 670,000 tons and a steep drop from the 800,000 tons recorded two years ago.

Declining production and disease impact

The swollen-shoot disease, which affects the cocoa trees’ ability to produce beans, has severely impacted Ghana’s cocoa sector. Despite efforts to control the disease, its spread has continued to debilitate cocoa farms across the country. This has resulted in a drastic reduction in output, creating substantial economic challenges for one of the nation’s most vital industries.

Price surge and financial pressures

While the price of cocoa has surged from $2.39 per kilogram in 2022 to a record high of $5.56 per kilogram in February 2024, the financial benefits of this increase are not straightforward for the Ghana Cocoa Board (COCOBOD). The rollover of presale contracts for unmet volumes over the past two seasons has complicated COCOBOD’s ability to pre-sell future production. This financial maneuver, typically used to manage cash flow and secure revenue, has instead led to significant financial strain.

COCOBOD has accumulated substantial losses in recent years, driven by high rollover costs of outstanding cocoa bills, elevated operational expenses, the provision of fertilizers, and rural roads development. These factors have collectively placed COCOBOD in a precarious financial position, undermining its ability to sustainably manage and invest in the sector.

Contingent liabilities and operational challenges

The World Bank report highlights significant contingent liabilities within Ghana’s cocoa sector, largely stemming from COCOBOD’s operations. As a state-owned entity responsible for purchasing, marketing, and exporting all cocoa beans produced in the country, COCOBOD’s revenues are almost entirely derived from selling cocoa beans. To secure its revenue stream, COCOBOD pre-sells approximately 80% of its crop production, equivalent to about 800,000 tons annually.

However, the persistent production shortfalls due to the swollen-shoot disease and other operational challenges have made it increasingly difficult for COCOBOD to meet these presale commitments. This has led to a cycle of financial stress, as the board struggles to balance its obligations with the realities of declining production.

Broader economic implications

The difficulties facing Ghana’s cocoa sector have broader economic implications. As one of the world’s largest cocoa producers, the sector plays a critical role in Ghana’s economy, providing employment and income for millions of farmers and contributing significantly to the country’s export earnings. The decline in production not only affects these farmers but also has a ripple effect on the national economy, potentially leading to reduced export revenues and increased economic instability.

Way forward

Addressing the challenges in Ghana’s cocoa sector will require a multifaceted approach. Efforts to combat the swollen-shoot disease must be intensified, including research into disease-resistant cocoa varieties and the implementation of more effective disease control measures. Additionally, COCOBOD needs to reassess its financial strategies, particularly its reliance on presale contracts, to ensure a more sustainable approach to managing revenues and expenditures.

Investment in infrastructure, such as rural roads, and support services for farmers, including access to affordable fertilizers and training in best farming practices, are also crucial. By strengthening the overall resilience of the cocoa sector, Ghana can better weather the challenges posed by both environmental and financial pressures.

The future of Ghana’s cocoa industry hinges on addressing the immediate impacts of swollen-shoot disease and the longer-term financial and operational challenges faced by COCOBOD. With strategic interventions and a commitment to sustainable practices, Ghana can work towards stabilizing its cocoa production and securing the economic benefits that come with being a leading cocoa producer.