Purchasing cocoa is a capital-intensive operation by Licensed Buying Companies (LBCs). The LBCs’ function is to purchase cocoa from farmers for the Ghana Cocoa Board (COCOBOD), who then export to the external market.
Being a capital-intensive operation, it comes with high transaction cost to the LBCs. High transaction costs significantly impact the industry, as it directly affects the margins of the LBCs and therefore the entire industry. The digital cocoa platform, CocoaAsempa, has proven to be potent in reducing the cost of transactions.
The Risk – Purchasing Cocoa
LBCs, on the average purchase as much as $1.2 billion worth of cocoa in a year. According to COCOBOD, in 2018/19, they purchased about 811,746 metric tonnes of cocoa purchased at approximately $1,300 per tonne from cocoa farmers. This money goes through the banking system which attracts charges. Any effort to drive such costs down is valuable to the LBCs and the overall industry.
The movement of cash for the purchasing activity also comes with its own risks, which may result in losses to the LBCs, their guarantors and other stakeholders. In an analysis coordinated by World Cocoa Foundation (WCF), it emerged that transaction costs and risk of cash handling to the cocoa sector is valued at $20 million or as much as 20% of turnover to the LBCs.
Reducing the costs for LBCs
The cocoa digital platform has directly or indirectly reduced operational costs of LBCs who have used the system.
Mr. Yaw Korankye Antwi, the Managing Consultant of TBM Risks, the solution provider, hinted on the ways the cocoa digital platform cuts transaction costs for LBCs as they performed their core function of purchasing cocoa. According to him, the three major ways the platform is reducing cost are;
- Reduction in insurance premiums amounts on guarantees secured for COCOBOD’s seed fund and other sources of financing
- Reduction in costs of bank transactions in carrying out LBCs operations
- Reduction in costs (including the risks) associated with the physical movement of money from one location to the other
Reduction in bank transaction charges – ARB APEX
‘ARB Apex Bank is prepared to offer their services at a lower cost to promote the digitalization of the cocoa industry. Reducing the transaction costs for the LBCs is ARB Apex Bank’s contribution towards digitalizing the cocoa purchasing activity and making the activity more efficient for the LBCs and for all stakeholders
Halima Oboshie Torto, Business Development Manager, ARB Apex Bank
The regular mode of operations for LBCs involves a lot of cash withdrawals and transportation. The Cocoa digital platform provides a digital platform for cash transfers from bank accounts of LBCs into the bank accounts of district managers/purchasing clerks. They in turn pay farmers electronically through farmers’ bank accounts or mobile money accounts.
One bank worth mentioning, which has partnered with the Cocoa digital software is ARB APEX Bank. Their existing systems offers banking services to the LBCs at much lower cost. One LBC indicated that, by using the CocoaAsempa platform they reduced their transaction costs by about 65 per cent.
Using the platform reduced instances of bulk withdrawals by LBCs. The software assures purchasing officers of availability of funds at the closest Rural and Community Bank (RCB) whenever required. ARB Apex, for instance, make money requested available through their Apexlink and Apexdirect services. The entire process is completed within a few minutes. The district manager or purchasing clerk receives the funds into their account instantly, and in turn also make payments electronically to the farmer. The cost of receiving funds is also lower for the farmers who opt to receive their payments through their bank accounts. The ARB Apex bank services make it possible for farmers to also link their bank accounts to their mobile wallets.
According to the Business Development Manager, Madam Halima Oboshie Torto, ‘ARB Apex Bank is prepared to offer their services at a lower cost to promote the digitalization of the cocoa industry. Reducing the transaction costs for the LBCs is ARB Apex Bank’s contribution towards digitalizing the cocoa purchasing activity and making the activity more efficient for the LBCs and for all stakeholders’, she said. ‘Farmers’ aversion to bank account is well-known, however our partnership with CocoaAsempa has brought them a new experience as they can link their bank accounts to their mobile wallets and withdraw or transfer Money at their convenience, she added.
Reduced Insurance Premiums on Guarantees – GLICO
A foremost insurance company in Ghana, GLICO, took the lead in subscribing to the CocoaAsempa software. Their motivation was simple. Find a way to monitor cash disbursement and the corresponding supply of cocoa to the regulator, and you have taken control of your risks. The cocoa digital platform offered a perfect tool for GLICO to manage the risks in providing guarantee for the cocoa purchasing funds. This resulted in reduced risks associated with the guarantee.
GLICO noted that the Cocoa software reduced their exposure to the LBCs and therefore they could reduce the premium LBCs pay for the guarantee.
Other avenues are available for LBCs to secure guarantees for their seed funds; however, they could be very costly to them.
Other Cost-Saving benefits
The Cocoa digital platform has provided the added benefit of reduction in costs associated with physically moving cash from one location to another to pay farmers. Cost of cash and its associated risks to LBCs are significantly reduced. Other universal banks that integrated with the cocoa digital platform likewise adjusted their transaction costs for the LBCs.
The use of the digital platform, I could say saved us as high as 60% of the regular transaction costs associated with purchasing cocoa.
The Farmers – Electronic Payment
The cost of cash to farmers are also reduced significantly, especially for those who received cash through their bank accounts. The Cocoa digital software thus offers farmers something more than just electronic payments in that they are absorbed into the banking system as well.
The cocoa digital platform, CocoaAsempa left tangible outcomes for the 2019/20 cocoa season and seeks to drive the 2020/21 season further.
TBM Risks Consult: 0248590955
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