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Ghana, wake up! China is exporting Cocoa to Belgium 

Kelvin Ayebaefie Emmanuel
By Kelvin Ayebaefie Emmanuel

Co-Founder, CEO at Dairy Hills

Posted on Tuesday, 3 August 2021 07:58

A farmer collects a cocoa pod at a farm in Alepe
A farmer collects a cocoa pod at a farm in Alepe, Ivory Coast December 7, 2020. REUTERS/Luc Gnago

Of the $130bn chocolate industry, African cocoa exporters make just a small slice. To seize more of the value of a bar of chocolate, it needs to bring financial stakeholders and industrial players into alignment.

In August 2013, Mondelez the parent company of Cadbury Australia announced that they were investing $59m in trials to grow cocoa trees along their Hobart plant in the Tasmania region of Northern Australia. The ideas was to increase their annual output of the primary production of cocoa beans to between 50,000 and 70,000 metric tonnes.

It should have been a wake-up call to African producers. Today, China is the next heavyweight economy to take a swing at producing cocoa, with experimental Chinese agribusiness operators already exporting cocoa to Belgium.

Sub Saharan Africa today contributes 86% of the total global output of cocoa beans with the remaining 12% by Brazil and 2% by Trinidad and Tobago.

But why does Africa earn only 5.35% of the value for supplying 86% of the world’s cocoa?

Copyright: Visual Capitalist

Some people might argue it’s because Africa has a low consumption of its derivative at an average of 1% per capita. While others might say it’s because Africa lacks the technical capacity to build integrated models for turning the raw material into finished products and manage the supply chain successfully; a skill the Europeans have mastered for centuries.

Today, our small holder farmers, cooperatives, regulatory boards and sitting government are failing to think big.

Some might also argue that it’s because Africans have cash-based systems and lack trust, with sky high interest rates on loans and lack of accountability to indemnify debt unless it is collaterised with physical assets, that a lot of borrowers lack.

‘Short-sightedness’

All these arguments are valid. But failure to trap value from the supply chain is just our short-sightedness.

Today, our small holder farmers, cooperatives, regulatory boards and sitting government are failing to think big.

They let the entire industry plant, harvest, and then sell to well-structured international brokers (who have also created a derivatives platform to trade paper contracts as hedges on so many factors), multinational off takers.

They sell at prices below those accepted by the international commodities exchange. The value chain is skewed against the prosperity of countries who depend on primary production.

There are four primary areas in Agriculture: Primary production, storage, processing, and distribution. There is an increasing amount of money to be made at each level.

Source: Dand, 2011; Euromonitor, 2014

Ghana, Côte d’Ivoire and Nigeria are barely involved in the process of micronising, milling, hydraulic pressing and purification, pulverisation of cocoa. Because the eye-watering interest rate in Ghana is currently 22% per annum, Ghana imports $56.49m worth of dairy milk annually, and $133.6m worth of sugar annually (two additives that are hugely important for processing cocoa butter into chocolate bars.

How can the industry to grow this way?

What should be done

One solution to try to seize more of the value chain was the decision by Ghana and Cote d’Ivoire to create a ‘Chocopec’: a price under which it will not sell its raw materials.

But a decision by the Cocobod (Cocoa regulator in Ghana), and the Ivorian Government to place a price floor on the cocoa bean, is counter productive. As much as Sub Saharan Africa controls 86% of the global supply chain for primary inputs, it doesn’t control the ‘buy’ side of the derivatives, neither does it control the secondary (manufacturing) and tertiary (logistics and distribution) side of the supply chain.

Could the the solution be in ensuring that Nigeria develops its National Livestock Transformation Plan (NLTP) under its dairy development programme? This would ensure it can supply its close neighbours across the borders with the raw materials in additives it needs, without having to go to South America  for it.

Or does Ghana need to build fully mechanised ranches for dairy milk production, and build vertically integrated models for sugar cane processing into sugar, of which it has imported $133m worth in 2020 alone?

These are questions that need to spark answers from regional level debates at economic summits put together by the political leadership of the continent.

In recent years, the Chinese Academy of Tropical Agricultural Sciences (CATAS) has been working assiduously at growing cocoa in the Hainan Province. It recently had a breakthrough in its research pilot, exporting 500kg worth of cocoa beans to Belgium, worth a paltry €3,044.00.

What does that spell for Africa?

China realises that it can capitalise on the lack of foresight of Africans by growing enough to sell to Europe, to reduce its balance of trade due from importing chocolate. Or, better yet, develop its own industries to manufacture chocolate bars and associated derivatives for use in feeding 1.4 billion people. The cocoa bean is rich, it can be used to make chocolate bars, cake mixes, breakfast foods, beverages, ice cream.

While Ghana’s COCOBOD (the parastatal the organises Ghana’s cocoa production) has said that the Chinese export of 500kg is nothing to worry about, the General Secretary of GAWU Edward Kareweh told reporters: “We have to immediately change how we produce cocoa in this country. For more than 100 years we have been using cutlasses and hoes on our cocoa farms”.

How to ensure Africa climbs the value chain

The answer is backward integration through import substitution.

Some countries like Côte d’Ivoire have already begun the process. But it has not reached scale, because most of the primary additives necessary for processing cocoa butter into chocolate like milk and sugar are imported from Europe.

For Côte d’Ivoire to achieve full benefits from its primary production of the cocoa bean, it needs to find markets in its country and within Africa (as it cannot build a supply chain without off takers), it must also be able to produce the major additives at scale.

The Cocoa Research Institute of Ghana (CRIG) has produced sample products from its research into uses for cocoa. It includes: Beverages, Snacks, Cosmetics, Toiletries, Fertilisers, Biofuels, Furniture Wood. Africa needs to commercialise on the results of this research by working the levers of private sector initiative.

What are the levers?

We need to develop a special intervention fund for companies that have bankable business and financial models to develop the cocoa bean into finished products.

Edmond Poku, the Ghanian entrepreneur who abandoned his job at Goldman Sachs to turn his MBA thesis at Columbia into a business opportunity said, when he started Niche Cocoa Processing Limited (a company that returned $120m in 2020 revenues), was only able to raise $2m of the $40m he sought to raise, and most of that funding came from his network in the US.

Africans lack access to patient capital because there is no system designed to track their financial footprints as a precursor to analyse the creditworthiness of borrowers. This makes it impossible for an aspiring businessperson to secure a loan without physical assets as collateral.

The Governments in Sub Saharan Africa in partnership with the African Development Bank, Afrexim, and Africa Finance Corporation, alongside deposit taking banks, must come together to provide patient, unencumbered capital to aspiring businesspeople with bankable projects who seek to build integrated models.

It is an opportunity to enable the continent increase dramatically its share of the pie, that is been for far too long unevenly skewed to the West.

As a popular Chinese proverb says: “The best time to plant a tree was 20 years ago, the second-best time to plant a tree is today”

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