Opoku Acheampong Emmanuel, 54, returns from a 5-mile roundtrip to his 8-acre cocoa farm. He makes this routine journey on foot.
The farm is located on the outskirts of Kokotro, near Bekwai in the Ashanti Region of Ghana. He has been producing cocoa for 15 years and says “It is nothing to write home about.”
With proceeds from his annual production of between 23 – 25 bags, he caters for his 9-member family including the children’s education.
Acheampong tucks away his machete safely, removes his wellies and fetches a cup of water to appease his thirst.
But without much rest, he paces about 10 metres within his homestead to a cocoa drying mat propped by 3-foot bamboo poles.
He gently stirs the cocoa beans on the mat to ensure they are thoroughly and uniformly dry.
Intermittently, Acheampong would pause to pick out debris from the pile in line with quality standards.
“If you don’t get the quality right, it will be rejected at the shed,” he said, adding “That will amount to a double loss.”
Acheampong regrets that farmers are saddled with perennial income losses as the cost of producing cocoa beans has not kept pace with the price for years, and even worse in recent times.
“The cost of labour, fertilizer, agrochemicals and other farm input has doubled, and in some cases tripled, compared to prices just about a year ago,” Acheampong complained.
He averred, My family is barely making ends meet with the measly income from our cocoa farm after we have settled creditors.
No voice in cocoa pricing
Acheampong, like the many thousands of cocoa growers across West Africa, still finds it puzzling how producers have no voice in the processes of setting cocoa prices on the international market.
But besides cocoa farmers, this issue has for many years remained a serious concern for cocoa authorities, governments and civil society in cocoa producer nations.
“Even though Africa produces around 75% of the global crop, we do not have a say when it comes to price determination. It is rather the importers who decide what price to give,” lamented Joseph Boahen Aidoo, Chief Executive of Ghana Cocoa Board.
An estimated six million smallholder farmers account for the world’s annual cocoa crop, which is the principal ingredient in chocolate manufacturing and other confectionery.
Global cocoa production is centred in Africa, Central America and parts of Asia, and together represent the downstream of the international cocoa and chocolate industry estimated to be worth $130 billion per annum.
While production is located in these regions, the industry’s upstream activities including trading, processing, manufacturing and consumption are driven mainly in Europe and North America.
At the heart of these upstream activities is cocoa trading on the two international commodities markets, where prices for the farmers’ produce are determined.
This happens at the Intercontinental Exchange (ICE) and New York Mercantile Exchange (NYMEX), based in London UK and New York, USA, respectively. It is here that producers complain they have no voice.
System unfair to farmers
In July 2022, civil society organisations from Cote d’Ivoire and Ghana joined forces to launch an advocacy campaign to demand reforms in the cocoa pricing mechanism implemented by the markets.
“Between Ghana and Cote d’Ivoire we agree that, currently, the system for setting the international cocoa prices is not fair on the farmers,” Obed Owusu-Addai, Co-coordinator of the Ghana Civil-society Cocoa Platform (GCCP), told Cocoa Post.
They believe the London and New York cocoa prices have only succeeded in perpetuating generational poverty among millions of smallholder cocoa farmers.
The West African civil society front insists that such reforms must take into account the farmers’ cost of production as an integral factor for determining how much producers receive. The markets are yet to react if they ever will.
Africa Cocoa Exchange
From the 21st to the 22nd of June this year, the world’s top cocoa producers met in Accra under the auspices of the International Cocoa Organisation (ICCO) to take a historic step that clearly signalled an end to the advocacy and appeals era.
Africa Cocoa Exchange (AfCX), an idea first mooted by Cote d’Ivoire and Ghana exactly three years ago is about to see the light of day.
“We sat together and indicated that the narrative had to be changed to ensure that we had another international market based in Africa,” Aidoo told Cocoa Post on the sidelines of the Accra stakeholder workshop.
Nigeria and Cameroon are also backing the idea, despite the fact that all these four countries have different cocoa marketing systems.
“However, one thing that is common to them all is that farm-gate prices are benchmarked on the international cocoa prices on the London and New York cocoa futures market. Therefore, to have higher farm-gate prices, the cocoa prices at the international markets must be higher,” said Michel Arrion, the Executive Director of ICCO.
The dynamics of the international cocoa markets pre-determine that cocoa-producing countries are price takers, added Arrion.
The ICCO said this and other challenges facing the cocoa marketing systems in Africa have necessitated the need to reform the cocoa marketing systems in Africa to be commodity-exchange based leading to the establishment of an African Cocoa Exchange.
At the Accra stakeholder workshop, representatives of Cote d’Ivoire, Nigeria, Ghana and Cameroon together with civil society, NGOs, commodities experts, insurance and finance practitioners, among others, worked alongside the ICCO’s consultants.
The common goal was to deliberate on the report and recommendations of a year-long feasibility study for the establishment of an Africa-owned international cocoa futures market – Africa Cocoa Exchange.
Farmers must earn a living income
The ICCO boss, like the proponents of the concept, is not oblivious to the pushback this journey is likely to face.
“Why do we need a cocoa exchange and why an African cocoa exchange? These questions are as difficult as they are easy and as complex as they are simple,” Arrion noted.
From whichever perspective you look at it and however strong your opinions may be, we can all agree that cocoa farmers must earn a living income for the long-term sustainability of the cocoa sector.
Arrion has, since assuming office in 2018, pushed the issue of living income for cocoa farmers to the front burner.
“This is an issue that we must deal with decisively because it is central to the sustainability of the world cocoa economy,” he stressed.
For Ghana’s cocoa czar, Joseph Boahen Aidoo, this successful first step changes the question from how feasible is AfCX to how to design a suitable commodity exchange model tailored for the continent’s peculiarities.
“A viable African Cocoa Exchange must address the key issues of prices, quality control, fair trade and sustainability, promote exports, agro-industrialisation, market access for both beans and processed products,” he emphasised.
Industry experts say a fundamental question to address in any attempt to establish a commodity exchange, aside from the physical commodities, is finance, logistics and human capital.
“We may not have the huge hedge funds providing the kind of liquidity on the Chicago Mercantile Exchange or the Intercontinental Exchange. What we need to do is to fashion out an African financing model for an African Cocoa Exchange,” Aidoo argued.
Change the paradigm
The key question some observers have raised is, how will a commodity exchange situated in Africa deliver the promise of living income for cocoa farmers?
Alex Assanvo is a former chocolate industry executive in Europe and, is currently, the Executive Secretary of the Cote d’Ivoire-Ghana Cocoa Initiative.
He has no doubt that the location of a commodity exchange matters in the outcomes of the prices churned out by the platform.
“Experience shows that futures market prices reflect the fundamentals of their very location. London price reflects the fundamentals of international processors and traders – global demand, and international supply,” he stated.
Asanvo cited case studies from North America and Asia to make a spirited defence of why Africa needs its own cocoa exchange:
“Good examples are US CBOT, where US soybean futures are priced. They reflect local market conditions. And yet they are considered as a world reference price.
Another example is the futures price of Crude palm oil, with a futures in Kuala Lumpur. It reflects local supply and demand conditions – and yet it is a reference price for international traders.”
The situation on cocoa is exactly the opposite. And we have to change this paradigm.
He is convinced that “An AfCX would reflect African fundamentals, and in particular supply conditions.”
Assanvo is positive that prices would be better, in the sense of being closer to supply conditions, adding that “These conditions are poorly reflected by the demand-centred and speculative international futures market.”
A number of non-governmental organisations (NGOs) have been implementing schemes aimed at adding a little more into the pockets of cocoa farmers.
One such body is Fairtrade Africa, which works with farmer cooperatives to market certified cocoa that attracts additional premiums.
AfCX Holds Greater Potential
Edward Akapire, Head of Fairtrade Africa (West Africa Region), explains that the biggest challenge in the West African cocoa sector now is the inability of the majority of cocoa farmers to earn a living income from their cocoa farming.
“This challenge is largely influenced by the low and irregular pricing of cocoa as well as the inability of farmers and producing countries to determine or influence these prices,” Akapire told Cocoa Post in an emailed response.
FTA believes that an African Cocoa Exchange holds greater potential than the current system does.
He is hopeful that cocoa-producing countries and farmers, through their cooperatives, can participate more in cocoa trading and thus influence prices more in their favour or draw greater benefits from engaging higher in the cocoa value chain.
We, therefore, laud and support the effort by the ICCO and other stakeholders to achieve this, said Akapire.
Ahead of the possible tolling of the trading commencement bell, the African cocoa producers must settle between them a host country for the platform. Will it be Ghana, Nigeria, Cameroon or Cote d’Ivoire?
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