Cocoa producer price of FoB NPP and NDC paid farmers

Data available at Ghana Cocoa Board (COCOBOD) shows that the National Democratic Congress’ (NDC) claim that government has shortchanged cocoa farmers in respect of the producer price share of Free on Board (FoB) is without basis.

This is because, the data reveals that the NDC government under President John Dramani Mahama achieved a higher weighted average Free on Board (FoB) price in 2015/16 season than what NPP has achieved in 2023/24 season but NDC paid a lower per centage to farmers compared to what the current government has paid.

$2,950 FoB price under NDC

In the 2015/16 season, the NDC government announced a producer price of $1,800 or GH₵6,800 per tonne representing 61.71% of the gross FoB of $2,950 per tonne.

$2,600 FoB under NPP

On the other hand, the current New Patriotic Party (NPP) government has announced GH¢20,943 or $1,821 per metric tonne for the 2023/24 season which is 70.03% of the weighted average FoB of $2,600 per tonne.

It means the weighted average FoB under the NDC government was $350 higher than what the current government secured.

NDC paid 8.59% lower FoB than NPP

Despite this, NDC paid 61.71% of the FoB to farmers which is 8.59% lower than the 70.3% of FoB the current government announced.

2 Crop size categories of beans

Ghana produces both the Main Crop size category of beans (big sized cocoa beans), and the Light Crop size category of beans (small sized cocoa beans).

Light crop beans discounted

The light crop beans are sold at discounts ranging from 20% to 40% on the international market.

Weighted average price from international market

The FoB price received by COCOBOD from the international market is therefore the weighted average price of both the main crop and light crop beans.

This situation depresses the average weighted FoB price received by COCOBOD for the two crop categories (main and light crop beans) which forms the basis for the determination of the producer price for cocoa.

Cost, Insurance and Freight

The NDC and its leader former President John Mahama’s claim of farmers being shortchanged are based on quoting the international price of cocoa which includes Cost, Insurance and Freight (CIF).

COCOBOD’s price excludes insurance and freight

However, COCOBOD receives only the FoB price which is cost of the cocoa beans only.

This is because, insurance and freight are received by the insurance companies and shipping lines respectively.

Forward sales

In addition, it is important to note that Ghana’s cocoa beans is mostly sold forward.

This means that the 2023/24 crop was sold between October 2022 and June 2023 at international prices ranging between $2,060 per tonne and $ 2,800 per tonne.

The international price of cocoa then began to increase in April 2023, when a greater percentage of the 2023/24 crop had been sold already.

Guaranteed producer price to cocoa farmers

The forward sale strategy enables COCOBOD to give farmers a guaranteed producer price and raise the syndicated loan offshore to pay farmers promptly for their produce.

Change in Producer Price determination mechanism

The Producer Price determination mechanism has changed from Net FoB to Gross FoB.

The difference is that with the use of net FoB, the amount farmers are paid is arrived at after all industry costs had been deducted.

With this method, farmers receive less of the total proceeds from the sale.

However, with the change in the mechanism to gross FoB, the amount that farmers are paid is determined first before all other industry costs.

This method ensures that farmers get more from the sale of the beans

Industry cost capped at a maximum of 40% of gross FoB

There is a reduction in industry cost, which is capped at a maximum of 40% of gross FoB and not net FoB.

Increase in production

The implementation of the productivity enhancement programmes has led to an increase in productivity of cocoa farms from an average of 450 kilos per hectare in 2015/16 season to an average of 650 kilos per hectare in the 2022/23 season.

This has led to an increase in the income of cocoa farmers.

It is significant to note that the operational cost of COCOBOD for the 2023/24 season is about 4% of the gross FOB, the rest of the share of the FOB goes into industry costs, LBC margins, and transportation.

Generally, the operation cost of COCOBOD has hovered around 4% to 5% of gross FoB since the NPP took over government.

It is also worth noting that government through COCOBOD has invested heavily in productivity enhancement programmes such as the mass spraying, pruning, hand pollination, rehabilitation of diseased farms and the subsidized fertilizer programmes.