Cocoa Value Chain

Over 60% of cocoa produced globally originates from West Africa, with Ghana recognised as one of the world’s largest producers, second only to Côte d’Ivoire. The contribution of the cocoa industry to the Ghanaian economy is significant, employing approximately 850,000 farm families and generating more than $2 billion annually through foreign exchange of export crops.

Due to its significant impact on Ghanaian farmers’ livelihoods, the cocoa industry has strong potential to alleviate poverty and hunger. Sector stakeholders are moving ahead with development plans that put renewed efforts on tackling sustainability challenges such as deforestation and child labour. Regulators and leading confectionery companies have led initiatives to tackle these issues through the implementation of sustainable production methods and anti-child labour programmes.

One mechanism for achieving these objectives is the Alliance on Sustainable Cocoa announced in June 2022 between the governments of Ghana, Côte d’Ivoire and the EU to take further steps to promote a more sustainable cocoa industry in West Africa. Aimed at halting deforestation and child labour whilst improving farmers’ incomes, the alliance will also help producing countries and the cocoa sector prepare for the implementation of the EU sustainability legislation. Its members have committed to implementing traceability systems that will allow them to connect incidents of child labour to specific cocoa consignments and plots. To support the Alliance’s objectives, the EU and the European Investment Bank’s will contribute some €12 million to Ghana up to 2023 for its work.

The cocoa sector is highly regulated due to its economic importance as an export revenue generator. The government is involved in almost all aspects of the industry, most prominently through the Ghana Cocoa Board (Cocobod), the state-controlled institution responsible for regulating prices of cocoa and coordinating marketing activities. Cocobod is the only institution permitted to sell Ghanaian cocoa to the world market, trading about 70% of cocoa produced in the country through the futures market after fixing the price of beans for the full crop year.

Efforts to increase cocoa prices have been ongoing since 2018, with Côte d’Ivoire and Ghana taking concrete steps towards a more collaborative system to exert more control on global prices. In 2019, to increase returns to local producers, the two countries set a floor price for beans at $2,600 per tonne and implemented a fixed premium on cocoa sales. The living income differential (LID) added $400 on every tonne of cocoa, effective from the 2020/21 season to protect farmers’ income, with the aim of giving 70% of the free-on-board threshold price to farmers.

This led to a 28% increase in the price of cocoa in the 2020/21 season, with the farmgate price set at GHS10,560 ($1837 at the time). This price was maintained in the following season, despite a dip in global cocoa prices. However, the LID has in some cases been cancelled out by the introduction of negative origin differentials, a premium on quality which sometimes falls below zero in response to commodity price pressures. Furthermore, enforcement of the LID has been lax, with some buyers refusing to pay despite rising prices of chocolate to consumers.

Efforts are being made to redress the poor pricing for farmers. In early October, Ghana raised its farmgate price for the 2022/23 season to GHS12,800 ($1,249), an increase of 21%. As well as the higher price, ongoing collaboration by Ghana and Côte d’Ivoire to coordinate origin differentials should support the meaningfulness of the LID, while Nigeria’ decision to apply the LID to its price setting further strengthens the programme.

Ghana’s export revenue from cocoa peaked in 2018 when the total export value reached $3.2 billion, a 34% increase from 2017 and up 71% from 2016, according to TradeMap data. In 2019 exports totalled $2.7 billion, falling to $2.4 billion in 2020 as the Covid-19 pandemic hit markets and Europe’s largest cocoa importer, the Netherlands, imported lower amounts of cocoa beans from West Africa. As the global economy recovered, 2021 recorded an increase in the value of exports to $2.8 billion, up 17%.

Trade is concentrated, with the Netherlands, Malaysia and US, which together account for around 40% of the market. Germany and France round out the top-five trading partners. Approximately 80% of exported cocoa is sold in its raw form to be processed in importing countries; less than 20% of Ghana’s cocoa is processed in-country, either for local consumption or semi-processed for export.

The major players in the value chain are farmers, licensed buying companies (LBCs) and Cocobod. Through Cocobod, the government remains a key player in the cocoa value chain, selling beans in the central market and regulating the price for producers and buyers.

In general, cocoa is grown and harvested by farmers who ferment and dry the cocoa beans before sale to the LBCs. These companies then store bagged beans for quality checks. According to Cocobod, there are 46 LBCs in the market, of which the largest holds 31% of the market and is publicly listed. The two leading private buyers hold a combined market share of 25%.

Over 80% of beans purchased by the LBCs are shipped abroad in raw form, meaning value is added in other markets. Local processing is largely limited to the production of semi-finished goods which are then exported or consumed locally.

Ghana is the world’s second-largest producer of cocoa, after Côte d’Ivoire, and its economic model relies excessively on the exploitation of natural resources. In addition to operational inefficiencies, the Ghanaian cocoa supply chain is currently facing significant difficulties. In the medium term, it is primordial to deal with the sector’s inherent structural problems. Considering financial reforms and striving to develop processing activities are preconditions to its long-term viability