Ghana, the world’s second largest cocoa producer, requires GH₵1.5billion ($300 million) to address its financing gap for the 2018/2019 crop season, a parliamentary report has revealed.
This was contained in the Finance Committee of the house report on the terms of a medium-term receivables-backed trade finance facility between Ghana Cocoa Board (as borrower) and a consortium of banks and financial institutions (lenders), with government (as guarantor) for an amount of US$300 million to refinance cocoa bills for the 2018/2019 crop season.
Additionally, US$1.5 million was waived as stamp duty on the loan facility.
Explaining the need to address that financing gap to parliament during approval of the facility, the Chief Executive Officer of Cocobod, the sector’s regulator, Joseph Boahen Aidoo said: “In order to address the financing gap, Cocobod has put in place a number of mitigating measures, including cutting down its operational costs.
“As a result of these measures, the financing gap expected for the 2018/2019 crop season is GH₵1.05 billion.”
Parliament last December approved a US$300 million loan for Cocobod to raise additional funds.
The trade facility was to enable Cocobod raise adequate funds to refinance cocoa bills from the 2018/2019 cocoa season.
Mr. Boahen Aidoo told parliament’s Finance Committee at the time that Cocobod’s average annual cocoa production was 900,000 metric tonnes and would service the syndicated loan for this crop year with about 600,000 metric tonnes. Out of this, 50,000 metric tonnes will be made available annually to service loans as required.
The loan will be repaid over a three-year period, with a one-year moratorium. As with the annual cocoa syndication, the payment of this medium-term loan shall be receivables-backed with cocoa contracts equivalent to 150,000 metric tonnes of cocoa at a projected price of US$2,200 for the three years.
This will be equivalent to about 50,000 metric tonnes of cocoa per annum.
The cocoa industry has contributed significantly to the economic development of Ghana over the years. Cocoa contributes about a quarter of Ghana’s Gross Domestic Product (GDP).
The industry has over the years created employment for millions of Ghanaians and serves as a major source of foreign exchange for the country.
One of the main functions of Ghana Cocoa Board (Cocobod) is to purchase, market and export cocoa and cocoa products produced in Ghana. In recent years, prices of cocoa on the international market have been fluctuating.
The average free-on-board (fob) price of cocoa recorded in the 2017/2018 season was US$2,080 – a drastic fall from US$2,950 per tonne in the previous year.
This decline in prices coincided with a significant rise in cocoa production by over 120,000 tonnes above the projected 850,000 tonnes for 2016/17 season, which remained above 900,000 tonnes for the subsequent 2017/2018 season.
Thus, the financial requirement for cocoa purchases and other operations of Cocobod was adversely impacted; thereby requiring more funding than budgeted for.
Notwithstanding the fall in prices, government maintained its commitment to pay farmers remunerative prices. In addition, fertiliser and chemical stock requirements which were needed to maintain production levels had to be borne by Cocobod.