Minister of Food and Agriculture, Dr. Bryan Achaempong, has stated that major cocoa processors, as opposed to banks, will be the main providers of funding to address any possible financial gaps the Ghana Cocoa Board (Cocobod) could encounter ahead of the 2024/2025 season.
In response to concerns regarding local banks’ readiness to finance the cocoa regulator’s bean purchases, he clarified that the “alternative funding” the government is pursuing will largely involve direct agreements with processing companies at prevailing market prices.
“We are going to deal with them directly at world market price, which can bring more benefits to our farmers,” Dr. Acheampong stated during the monthly Economic Press Briefing for August held at the Ministry of Finance. He however declined to name specific companies due to ongoing negotiations.
Dr. Achaempong’s remarks come as Cocobod announces a shift in its cocoa financing strategy for the 2024-2025 season, transitioning from a heavy dependence on syndicated loans to more direct, uncollateralized sales.
Although this departure from over three decades of tradition by the cocoa regulator has been met with widespread skepticism regarding its motives and viability, the Agriculture Minister contended that the change is designed to leverage rising cocoa prices and enhance benefits for local farmers.
Finance Minister Dr. Mohammed Amin Adam had earlier assured stakeholders that the country would continue using syndicated loans for cocoa financing in the upcoming 2024-2025 season, though with notable adjustments.
He disclosed that while Cocobod initially aimed to secure up to US$1.5 billion through syndication, the actual figure is expected to be closer to US$600 million. This marks a considerable reduction from previous years, when syndicated loans typically ranged between US$1 billion and US$1.2 billion.
The Minister for Food and Agriculture offered additional insights into this strategic change, explaining that Ghana intends to increase its reliance on uncollateralized sales, potentially raising them from the usual 10-30 percent of total sales to a significantly higher proportion.
This shift is influenced by recent market dynamics, which have seen cocoa prices soar from US$2,800 per tonne to nearly US$10,000 per tonne.
He noted that these substantial price hikes have created a disparity between committed sales prices and current market rates, underscoring the drawbacks of relying heavily on pre-season syndicated loans that lock in prices and can prevent farmers from benefiting from market upturns.
“We are aiming to flip our sales model. Traditionally we’ve relied heavily on syndicated loans, which account for 70-90 percent of our sales. We are now looking to increase uncollateralised sales to 30 percent or more of total sales,” he explained.
“We have committed to contracts at US$2,800, but the market is now at US$10,000. Our farmers see these high world market prices and demand more money, but earlier commitments bind us,” he added.
This new strategy is anticipated to enable more flexible pricing and potentially greater earnings for Ghana’s cocoa farmers, who have frequently missed out on global price hikes due to prior commitments made through syndicated loans.
By shifting away from fixed-price pre-season loans, the government aims to ensure that local producers reap more of the benefits from the rising global cocoa prices.
The shift in financing strategy coincides with a period when Ghana is facing broader economic challenges. Dr. Adam noted that ongoing negotiations are taking place with private banks and contractors regarding an outstanding US$2.8 billion debt, adding that the government has directed its advisors to present proposals to commercial creditors.