The hidden sponsors in cocoa smuggling: the cost of the economic struggles

By Samuel Lartey (Prof.)

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 Cocoa has long been the backbone of Ghana’s agricultural sector, providing jobs for millions and serving as a significant source of foreign exchange. However, recent developments threaten the stability of this vital industry.

Ivory Coast’s recent decision to increase its farmgate price for cocoa by 20%, a move aimed at curbing illicit exports from its borders has sparked concerns in Ghana.

This decision is set to create ripple effects, fueling the smuggling of cocoa beans from Ghana, where the farmgate price is lower, and aggravating an already complex economic situation.

Ivory Coast, the world’s largest cocoa producer, will raise its farmgate price from 1,500 CFA francs (approximately GH? 40) to 1,800 CFA francs (about GH? 48) per kilogram, effective October 1, 2024.

This means that for every 64 kg bag of cocoa, Ivorian farmers will receive about GHS 3,072, surpassing Ghana’s rate of GH?3,000 per bag. While this may seem like a minor difference, it presents a significant opportunity for smuggling, one of the oldest and most hidden practices in the cocoa trade.

The Menace of Cocoa Galamsey

The menace of galamsey (illegal small-scale mining) is indirectly facilitating cocoa smuggling by worsening economic conditions in cocoa-growing regions. As galamsey destroys farmlands, contaminates water sources, and displaces farmers, many are left with reduced income and fewer viable farming options.

Faced with rising production costs and environmental degradation, some cocoa farmers are drawn to smuggling to earn more, especially when neighboring Ivory Coast offers higher farmgate prices. The financial strain caused by galamsey thus drives farmers to engage in or support illegal cross-border cocoa trade.

The Incentives Behind Cocoa Smuggling

For cocoa farmers in Ghana, this disparity in prices between the two countries becomes an irresistible lure. Farmers struggling with high production costs, increasing inflation, and lower returns are naturally drawn to a market where they can earn more for their produce. Smuggling across the porous borders into Ivory Coast becomes a means of survival for many.

Over the past few decades, cocoa smuggling has been a persistent issue for Ghana. It is estimated that during periods of price differentials, Ghana loses hundreds of thousands of metric tons of cocoa annually. The smuggling not only deprives Ghana of the much-needed revenue but also creates distortions in the cocoa market, further complicating efforts by the government to stabilize the industry.

The Hidden Sponsors Behind the Practice

While many view cocoa smuggling as a grassroots problem fueled by farmers’ desire for higher earnings, the reality is that there are hidden, powerful forces behind this practice. Smuggling networks are often controlled by well-funded entities that include middlemen, local political actors, and even some industry insiders.

These individuals, often referred to as “hidden faces,” sponsor smuggling operations, ensuring that farmers have the logistics to move their cocoa beans across the border.

These hidden sponsors provide access to transport networks, storage facilities, and buyers in the Ivory Coast, enabling a sophisticated smuggling operation. The proceeds of these activities rarely benefit the farmers, as most of the profits are siphoned off by those who organize and fund the illicit trade.

The result is an exacerbation of economic inequality in rural farming communities and a weakening of Ghana’s ability to manage its cocoa sector effectively.

The Economic Impact on Ghana

The consequences of cocoa smuggling are profound for Ghana’s economy. Cocoa contributes approximately 10% of Ghana’s GDP and accounts for about 20% of export earnings. When large volumes of cocoa are smuggled out of the country, the government loses critical revenue, leading to shortfalls in foreign exchange and budgetary allocations to critical sectors like healthcare, education, and infrastructure development. The smuggling of cocoa is not just a local economic issue; it is a matter of national interest.

In recent years, Ghana’s economy has been hit by fluctuating cocoa prices on the global market, rising production costs, and inflation. Between 2017 and 2023, inflation in Ghana surged from 11.8% to 42.5%, putting tremendous pressure on cocoa farmers as the cost of fertilizers, labor, and transportation increased.

In 2023 alone, the country saw a 30% increase in production costs for cocoa farmers. These financial strains, coupled with lower farmgate prices compared to the Ivory Coast, create the perfect environment for smuggling to thrive.

To put the financial loss into perspective, Ghana’s cocoa production for the 2022/2023 season was approximately 850,000 metric tons, generating export revenue of about $3 billion. However, it is estimated that between 5% and 10% of Ghana’s annual cocoa output is smuggled into Ivory Coast during periods of price differentials. This means that Ghana could be losing anywhere between $150 million and $300 million annually due to smuggling activities.

A Broader Impact on the Global Cocoa Market

The illicit cocoa trade not only impacts the economies of Ghana and Ivory Coast but also disrupts the global cocoa market. These two nations account for over 60% of global cocoa production, making them key players in determining international cocoa prices. When large volumes of cocoa are smuggled from Ghana into Ivory Coast, it skews production data, making it difficult for regulators and international markets to accurately predict supply trends.

As a result, Ghana’s cocoa sector loses its competitive edge in global trade, and its ability to negotiate favorable export terms with international buyers is diminished. The long-term effect of this is a gradual weakening of Ghana’s influence in the global cocoa supply chain.

Government Efforts to Curb Smuggling

The Ghanaian government has long been aware of the problem of cocoa smuggling, but efforts to curb it have often fallen short. Security agencies frequently conduct raids and tighten border controls, yet the sheer scale of the operation and the involvement of powerful sponsors make it difficult to eradicate.

To address the issue, the government has begun exploring new policies to improve farmgate prices and make the domestic cocoa market more attractive for local farmers. In 2021, Ghana and Ivory Coast formed a Cocoa Initiative, introducing a Living Income Differential (LID) of $400 per metric ton to increase the price farmers receive for their cocoa. However, while the LID has helped raise prices, disparities between the two countries remain, especially with the latest price hike by Ivory Coast.

Conclusion

Ivory Coast’s decision to raise its farmgate price for cocoa presents both a challenge and an opportunity for Ghana. The disparity in prices is likely to fuel cocoa smuggling, depriving Ghana of vital revenue and disrupting its cocoa industry. Hidden networks and sponsors are driving these illegal practices, and unless there are stronger interventions, Ghana risks further economic damage.

To mitigate this risk, the Ghanaian government must take immediate steps to harmonise farmgate prices with Ivory Coast, strengthen border security, and dismantle the smuggling networks operating in the region. Furthermore, addressing the financial incentives driving farmers into smuggling through targeted support and subsidies could help stabilize the sector.

In the end, Ghana’s cocoa industry is at a crossroads. The government must act swiftly to protect the livelihoods of its farmers and secure the future of one of the country’s most critical economic pillars. Otherwise, the hidden cost of cocoa smuggling will continue to undermine Ghana’s economic growth and stability.

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