PROBLEMS MILITATING AGAINST LICENSED COCOA BUYING COMPANIES IN THE INTERNAL MARKETING OF COCOA

Page 30, Nov 8, 2007
By Emmanuel Adu-Gyamerah
There is no argument about the fact that cocoa is the lifeblood of the Ghanaian economy. For this reason the interest of all stakeholders in this multibillion-agro industry cannot be overemphasised.
The new cocoa season is with us and feverish preparations have already been made to ensure its smooth operation.
The privatisation of the internal marketing of cocoa dates back to the early 1990s. This was done to inject more efficiency into purchasing and evacuation of cocoa produce through competition. Hitherto, the Produce Buying Company (PBC) was the sole player in the buying process.
To some extent, the aim of the authorities has been achieved. The periods when large quantities of purchased cocoa could be left in cocoa sheds for over a year after purchasing has become a thing of the past.
The three main marketing systems adopted by cocoa producers globally are Marketing Board, Caisses de Stabilisation and the Free Market systems

The Marketing board system
This is mostly practised in Anglophone cocoa producing countries in Africa such as Ghana and until 1986, in Nigeria. It is characterised by the existence of a parastatal organisation with the monopoly for internal and external crop marketing. Once the cocoa is purchased from the farmer it is the property of the marketing board and will be handled by it in all the stages of the chain. Prices are determined by the board and are fixed for the entire crop year. Fixing the price allows producers to be less vulnerable to fluctuations in world market prices.

Caisses de Stabilisation
Although similar to the marketing board (it determines internal prices and has the ownership of the crop along the marketing chain) there is less intervention than in the above-mentioned system. Private agents authorised by the Caisse carry out the physical handling of the crop, from the farmer to the export points. This system used to be common in francophone producing countries in Africa, particularly Côte d'Ivoire and Cameroon. Until 1999 in Côte d'Ivoire, the stabilisation system was done through the "barême". The barême was a detailed system that fixed guaranteed producer prices and export reference prices for each step in the cocoa chain. When cocoa was sold, if the exporter's price was higher than the export reference price set by the Caisse de Stabilisation, the exporter had to compensate the Caisse with the difference, called the "reversement". If the world market price was lower, the Caisse made up the difference with payment (the "soutien") to the exporter from its financial resources.

Free Market System
Under this system there are many private agents that participate in the marketing chain. There is no direct intervention from the government in internal or external marketing and the world cocoa market determines prices. Government’s involvement is usually centred on quality control, taxation and supervision. Due to competition and the non-intervention of the government, producers usually receive a much higher percentage of the FOB price.
Until recently, centralised marketing systems prevailed in almost all-major cocoa producing countries in West and Central Africa. With liberalisation, countries such as Nigeria, Cameroon and Côte d'Ivoire have fully privatised their internal and external marketing structures while Ghana has introduced competition in domestic marketing by allowing private licensed agents to purchase cocoa from farmers. A liberalised environment has existed for some time in Brazil, Indonesia and Malaysia.

The Liberalisation of Internal Marketing System
The liberalisation brought in its wake the formation of Licensed Cocoa Buyers (LBCs). These are Limited liability companies both (private and public), which are issued with Dealers Licenses by Cocoa Board to purchase and evacuate cocoa to the designated take over ports. The license is renewed annually and may be withdrawn depending on one’s performance and other factors. Currently there are about 18 active LBCs operating within the industry.

Ghana Cocoa Board (COCOBOD) secures syndicated foreign and local loans and gives out to these LBCs to purchase cocoa. Before the loans, called Seed Funds are advanced, each LBC have to produce a Banker’s Guarantee from a financial institution which charges a flat rate between 2 and 3% depending on the financial institution and one’s level of risk factors. The seed fund is normally given at the Government’s prime rate and COCOBOD bears no risk in giving out the loans to these LBCs.

COCOBOD, the regulating authority, has various arms that ensure that the right quality of cocoa is purchased. Among them are the Quality Control Department (QCD) and the marketing arm- Cocoa Marketing Company (CMC). Annually before the commencement of the cocoa season the Producer Price Review Committee (PPRC) comprising all stakeholders; farmers, LBCs, Hauliers, etc determine the Producer Price to be paid to farmers, commission to be paid to the LBCs, and what to pay to Hauliers who carry the cocoa from the designated depots to the three main take over points in Ghana. These are Kaase in Kumasi, Takoradi Port and Tema Port.

The Buying and Grading Process

Most LBCs operate the District Managerial system. Under this system, monies are lodged into the accounts of the companies at the district level. A cheque system (the Akuafo cheque system) is practised where district managers coordinate with purchasing clerks to buy cocoa from farmers with the cheque which is not very popular with the farmers due to the usual uncooperative attitude of bank officials in Ghana. Farmers feel reluctant to accept these cheques and those who accept them travel long distances to cash them.

Cocoa purchased up country is sent to depots and inspected, graded and sealed by QCD personnel in the various districts. When cocoa is carried to the take over ports a second inspection is done to ascertain the right weight and quality, which is certified by a second batch of QCD personnel.

Problems Militating against LBCS
Though the industry has witnessed a lot of boost from the government in recent times with the re-introduction of the mass spraying exercise, introduction of high yielding hybrid cocoa among others, the industry is not without bottlenecks. Some of these bottlenecks sometimes threaten the very existence of up and coming LBCs.

These problems border on:

Inadequate infrastructure especially storage accommodation for delivered cocoa at the ports.

Congestions at the ports especially in October, November and December (peak season) leading to large sums of funds being locked up in stocks at the ports through no fault of LBCs. Sometimes loaded trucks wait for more than 30 days to be offloaded.

Restrictions to the quantity of cocoa to be graded and sealed per day by the QCD officials at the district level resulting in a lot of backlog of unsealed cocoa leading to extortion.

Though inspection and sealing of cocoa is supposed to be free QCD officials are alleged to be charging between ¢3,500 and ¢5,000 per bag.

Restrictions as to how many trucks at the ports could be offloaded on daily basis.

Alleged extortion of large sums of money by QCD, CMC and other port officials under the pretext of short weight, small beans, etc. Such practices create unbearable financial costs to LBCs

Delays in the processing of documents at the ports before and after delivering


Very high financial costs due to above problems and related issues.

COCOBOD was created in 1947 to manage the affairs of the cocoa industry in Ghana. The storage facilities at the various ports have not seen much growth until recently. About 60% of Ghana’s cocoa is delivered to the Takoradi port and this is where alleged extortion and other malpractices are at their zenith!
Congestion at the ports has become normal from October to December each year and though private investors have come to the aid of COCOBOD there is more to be done.

On the documentation processes, an official of one of the LBCs said “one is left in the woods as to why in this modern day when banks link up with each branch and even outside Ghana, an august institution like Ghana Cocoa Board acting through its marketing arm CMC, is not fully automated. Documents are handwritten and an officer may take between 5 to 10 days just to append his signature to a document”.

COCOBOD determines the producer price of cocoa, margins or commission to be paid to LBCs as well as how much to pay to transporters. These three elements form the invoice value sent to COCOBOD by LBCs. According to the official, the LBCs have been advocating a system where payments could be effected, for at least, the producer price and the buyers’ margin for cocoa delivered to the ports. That, he said is not out of place because it is possible to determine cocoa taken over by CMC from each LBC on daily basis at each port! “Why should the LBCs wait for between 5 and 60 days to be given Cocoa Taken Over Receipts (CTOR) and their underlying documents before they (LBCS) can also raise invoices on COCOBOD?”, he questioned adding that during the long waiting period, interests accruing on the loan given by COCOBOD are not frozen. “Indeed to the best of my knowledge COCOBOD is always in a win-win situation. Before any LBC accesses the Seed Fund you need a bankers guarantee, which absolves COCOBOD from any losses, should the LBC fails to pay back fully. The delays go in their favour because whilst they charge you interest on daily basis you do not have any redress when your payment processes are unduly delayed”.
The official said there should be cut off dates after which interests on Seed Fund should be frozen if payments for invoices are delayed beyond set times and also when truck loads of cocoa are delayed at the take over points.

He explained that 16 bags of cocoa, each weighing 62.5 kg make a tonne. But the LBCs are made to send the commodity at 64 kg per bag to make up for the difference in the weight of the sacks. “If a truck is loaded with say 600 bags of cocoa, it is assumed to be carrying 37.5 tonnes. At the take over ports and in this modern era we are still doing sample weighing instead of applying weighbridges! If a sample of 60 bags out of the 600 fail the test the whole consignment is rejected”.
When this happens, the whole consignment is de-sealed, at a discrepant stock shed, top ups are made and fresh application is made for resealing and this can take several weeks. “My problem is why should COCOBOD reject the whole consignment instead of paying the LBC what has been delivered?”. On the other hand when one brings cocoa in excess of the 64kg they are not rejected!
Experts in the cocoa industry say that since 1947 similar things have been done and one wonders why the COCOBOD has not installed weighbridges all these years? Is it because someone is benefiting from the re-weighing of delivered cocoa? The installation of weigh bridges, which is long overdue, can solve this problem, which is causing untold hardships to LBCs. It is known that sample weighing slows down the delivery system culminating in payment of avoidable interest charges on locked up capital.

This writer was informed that on the alleged extortion of monies, COCOBOD will always ask the LBCs to prove the allegations and to avoid victimization no one sticks out his neck. Companies are said to be paying between ¢500,000 and ¢10,000,000 depending on one’s “crime”. The crimes could be short weight, add mixture (mixing small with large beans), cocoon infestation, not thoroughly dried (NTD) beans, qmong others. The issue of short weight has been discussed above but the issues of add mixture is also a cost that should be borne by COCOBOD.
There is the need for these for the pertinent questions to be answered.
How can a hired truck stay at a take over point for more thirty days before being off loaded?

How can one explain a situation where documentation of take over process sometimes take close to sixty days without COCOBOD freezing interest payments?

Why are there no weighbridges at the take over points, which compel operatives to resort to sample weighing culminating in the rejection of whole consignments of cocoa for short weight? Why should the CMC reject whole consignments and not pay for what one delivers?

How does COCOBOD expect LBCs to operate effectively when next to nothing is given them when it comes to deductions of seed fund? Any invoice submitted has a return of only one million Cedis.

If produce is graded and sealed up-country and passed, how can the same people reject the work of the other?

CONCLUSION
It is my fervent hope that every thing possible would be done to assist the LBCs and the peasant cocoa farmers to enable them to work hard to ensure that the country maintain its position as the best producer of quality cocoa and recaptures its former enviable position as the world’s number one producer of cocoa.