SIKAKROM with  Gideon DONKOR: Unprotected and unpaid: The true cost of cocoa pricing policies

We have been curious about how the government was going to address the challenges brought on by the widening gap between global cocoa prices and the farmgate rate it had set for the crop season. Last week, we finally received some answers.

Faced with the option of maintaining the farmgate rate and absorbing losses for a financially struggling Cocobod or adjusting rates for farmers, the government opted for the latter. When it announced a nearly 28% cut of farmgate rate in response to falling cocoa prices, it effectively broke the core promise of a marketing board: to protect farmers from such price volatility. Otherwise, why would farmers continue giving over a third of their revenue (not profits!) consistently to a board for so many years?

Although this result was expected, it seems that the country’s financial condition may be more fragile than previously assumed, leading the government to undertake the political risk of distancing 800,000 farmers.

As usual, both political parties have spent recent days attempting to shift responsibility for the cocoa crisis onto one another. Management has tried to justify their inability to pay the Licensed Buying Companies (LBCs)—and, by extension, the farmers—by citing that they inherited a financially weak company and rollover contracts from the previous administration.

While I agree that the prior administration poorly managed the board during their eight-year tenure, the current situation—in which farmers and other stakeholders remain unpaid, leading to a halt in purchasing harvests since last November—is primarily the result of poor planning, politicized decisions, and market mistiming.

The previous management remains accountable for the significant repercussions stemming from roll-over contracts, which resulted when its forward-selling strategy failed during the 2023/2024 crop season. The Board was unable to deliver 333,767 tons of cocoa that had been pre-sold at US$2,661 per ton, necessitating the postponement of these sales to the 2024/2025 season.

This trading error contributed to substantial financial losses for farmers, particularly during a period of reduced production and rising global prices. The increase in market prices could have helped mitigate the impact of lower yields on farmers’ incomes. Nonetheless, the contracts should not be held responsible for the current crisis for the reasons outlined below.

• Roll over contracts were not monetized or wasted; the real issue was delayed settlement, resulting in sales at lower prices instead of higher prevailing ones.
• The prior management primarily mitigated losses by adjusting farmgate rates to match contract pricing, thereby transferring the burden to farmers. It chose not to incur debt to pay higher prices to producers, thus avoiding residual strain on the board’s balance sheet.
• Prior to the commencement of this crop season, COCOBOD had fulfilled 235,000 tons of roll-over contracts. The outstanding 98,000 tons were incorporated into the calculation of this season’s farmgate prices and, as a result, have no impact on the ongoing process once the season has commenced.

Despite the above, someone must be held accountable, particularly since the pre-export financing facility connected to the roll-over contracts was completed four months after purchasing for that crop season had started. It is hard to believe that, halfway through that season, management did not have up-to-date information necessary to predict the production shortfall. It appears they seemingly pledged to deliver more cocoa than was realistically feasible just to generate sufficient collateral for a desired funding. Parliament should create a commission to assess these trades. If expert forecasts were ignored during the forward sales, that behavior could amount to criminal negligence.

In my opinion, this current crisis was rather caused by political considerations in the establishment of the farmgate price, along with poor decisions related to trading. In August 2025, authorities established the initial farmgate price for the 2025/2026 season at $5,040 per ton (GH¢3,228.75 per bag), which was predicated on an anticipated FOB weighted average of $7,200 per ton and a production goal of 650,000 tons. Of this total, 98,000 tons were undelivered from previous contracts, and at least 100,000 tons were to be sold to local processors at a 20% discount.

To achieve the desired price, the remaining 450,000 tons would have had to be sold at $8,740 per ton. At the time of the announcement, prices hovered around $8,700 and market sentiment was bearish, so the only realistic way to justify such a price would have been if the company had pre-sold the cocoa far in advance. Otherwise, it is difficult to believe they were merely relying on market prices staying high for the next nine months.

Unfortunately, we are gradually realizing that the amount presold was far less than expected. The rationale for setting the price of the unencumbered tonnage seems to have been based on simply offering a slight increase from last year’s GH¢3,100, rather than informed by detailed planning. The situation became even more perplexing when, in October, farmgate prices were raised again to GH¢58,000 per ton, despite a significant drop in global cocoa prices and a stronger cedi against the dollar.

By the close of that month, cocoa prices had declined to $5,940 per ton, whereas the local farmgate price stood at $5,370 per ton. Considering additional sales and logistics expenses of approximately $1,200, it is evident that both the initial and revised farmgate rates were not realistic.

Despite declining prices, the company made a fundamental trading error by holding onto its losing position. These losses, combined with COCOBOD’s limited capacity to absorb them, have resulted in unsold cocoa stockpiles and contributed to liquidity challenges. This has caused delays in payments to LBCs which has subsequently led to postponed payments to farmers. The political decision to offer farmers a higher price—despite it being unrealistic—along with poor sales strategies, is as problematic as the much-critical roll-over contracts.

Across both administrations, COCOBOD has managed to achieve the remarkable feat of losing money when prices rise and when they fall! It is evident that any experienced trader would have sold as much as possible in advance before establishing such a bold local price. However, the recommendation from the minority advising COCOBOD to consistently forward sell 70% of their product should also be dismissed. Sticking rigidly to nakedly selling a large portion of each crop in advance—regardless of market trends—has resulted in losses when prices increased.

Traders need to make risk decisions grounded in market intelligence and their own interpretive abilities. If they make mistakes, the losses should be absorbed by them and, by extension, the state—not the farmers.

Beyond trading challenges, some recent statements from management raise concerns and at times seem somewhat uninformed. For example, characterizing Ghana’s cocoa as “too expensive” when selling into a unitary market reflects a misunderstanding; commodity prices are determined by global markets, where one may influence price by adjusting supply or set a desired selling quantity and accept the corresponding market price—rarely both.

It is also incorrect to claim that forward sales are impossible under the current financing model. There are several affordable derivative strategies available, such as using knock-in (specifically down-and-in) put options to set a minimum selling price without connecting it to actual physical trading. Even the fact that they are attempting to introduce a funding strategy midway through the season indicates a lack of adequate prior planning. An organization with eighty years of history ought to have multiple funding strategies in place to ensure the continuity of its operations.

According to Cocobod, 580,000 tons of cocoa have already been purchased, with an additional 50,000 tons yet to be sold. However, I question the reported unsold inventory figures, as the GH¢11 billion reportedly owed to LBCs suggests that the actual unsold inventory may be closer to 160,000 tons or more. This stock, acquired at previous farmgate prices and logistics costs, will be sold into a market currently pricing March, May, and July contracts at $3,589, $3,683, and $3,743, respectively.

Additionally, considering the pause in purchases last November, I estimate that the outstanding harvest could amount to at least another 300,000 tons, rather than the stated 70,000 tons, which would be bought at the revised farmgate rate of $3,780. Consequently, significant losses may be incurred over the next six months as the company unwinds its long positions while markets remain in bear territory. With Cocobod’s estimated administrative costs at GH¢4 billion and scheduled debt payments, it is reasonable to project that the company will require a cash injection of GH¢15–20 billion to cover cash shortfalls and trading losses.

Ghana’s cocoa sector faces a pivotal moment. As the primary purpose of the marketing board is to protect farmers from volatile markets, its inability to fulfill this mandate suggests it may be time to consider allowing farmers to manage their own risk. My advice is for the board to exit cocoa trading, letting LBCs set prices and manage exports, with all foreign exchange going to the Bank of Ghana. LBCs would cover their logistics costs, ending preferential contracts, while Cocobod is scaled down to focus solely on regulation and technical support.

To remedy historical challenges encountered by farmers, it is recommended that cocoa sales be granted tax exemption for a period of 80 years. Why 80 years? For the same duration, we have observed the state exploiting and depleting the resources of some of our poorest citizens. But what do I know?

Gideon Donkor, an avid reader, dog lover, foodie, closet sports genius but a non-financial expert

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