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Business News of Tuesday, 9 May 2017

Source: Graphic.com.gh

GH¢3.9billion Cocoa target under threat

Plans to rake in GH¢3.92 billion from the cocoa sector this year are on the line, following a 17.7 per cent fall in prices of the soft commodity in the first three months of the year.

After ending the first quarter at an average of US$2,039 per tonnes, cocoa prices have already fallen short of the 2017 benchmark price, which was quoted at US$2,440 per ton in the year’s budget.

With the crop now trading at US$1,839 – close to the government’s farm gate price of GH¢7,530 (US$1,738.53) – investment firm Databank said the country could be on its way to missing the 2017 revenue target from the sector and that could have dire consequences on national revenue targets and growth.

This requires that talk of discounting the price of the main crop at five per cent for domestic processors should be “seen in context,” else its implementation aggravates the expected loss from the sector, an economic analyst with Databank, Mr Courage Kwesi Boti, told the GRAPHIC BUSINESS on May 5.

“Already, the projected value of GH¢3.92 billion for the cocoa sector is in doubt and will most likely not be achieved,” he said in reaction to a recent announcement by the industry regulator, COCOBOD, that it was considering discounting prices of the main crop to domestic grinders.

Despite the good intentions behind the plan, Mr Boti said: “Discounting cocoa at about five per cent for domestic processors should be seen in a proper context.”

“To what extent will that discount boost domestic processing towards the level we desire?” he asked.

Raising domestic processing

For decades, domestic capacity to process the beans into finished and semi-finished products has overtaken actual processing, causing more than half of the installed capacity to idle.

As of December last year, installed capacity totalled 500,000 tonnes, although 201,000 tonnes were fully utilised, as the six domestic processors struggle to procure sufficient beans to meet their respective demands.

Of total annual production, about 20 per cent, comprising mainly the light crop beans, are discounted to the processors, while the main crop is exported.

Given that the main crop beans sells at a premium on the international market, processors of the crop have long called on the government to discount the price for them to be able to buy for the factories.

After a working visit on May 3, the Board Chairman of the Ghana Cocoa Board (COCOBOD), Mr Hackman Owusu-Agyemang, said the government was considering a five per cent discount as a motivation for them to increase local processing.

He explained that discount would be taken after a cost-benefit analysis had been done.

“We will have to look at the dynamics of the trade and see what we can do about it,” he said.

As part of plans to boost industrialisation, the government announced earlier that it would work to raise cocoa production to at least one million tonnes, starting with the ongoing cocoa season. It also intends to process more than 50 per cent of the beans locally.

Increasing local processing is expected to enable the country to earn more foreign exchange, increase employment and raise revenue from taxes.

“Assuming we give them five per cent discount as some of them were suggesting, and we are able to ensure that the processors take in another 100,000 tonnes and that creates additional employment, then it means it’s a good thing, so we will look at the dynamics and work it out,” he added.

Although the board was yet to reach a decision on the matter, Mr Owusu-Agyemang said: “I am inclined to believe that there must be a way of assisting them to run at full capacity.”

“The total capacity available in the nation equals the 50 per cent processing that we are targeting but because they are not getting the light crops, they are not able to take it to that level, so we will do all we can to help them meet their full capacity,” he added.

While that is commendable, Mr Boti said, it should be taken with the larger picture in mind.

“If local processing can increase significantly as a result, that will mean more employment, more taxes and premium on the export of the processed beans,” he stated.

“Those revenue streams could somewhat compensate for the losses from discounting the beans,” he explained.

“If the immediate return even falls short, we need to look beyond the immediate impact towards the longer term. So, yes we will lose revenue in the immediate term but the longer-term benefits can be enormous,” he added.