Financing the Ghanaian Cocoa Sector

In this episode, Sophie Van Huellen (Senior Lecturer in Development Economics at GDI) and Fuad Mohammed Abubakar (Head of Ghana Cocoa Marketing Company UK LTD and Simon Industrial Fellow) talk to Caroline Cornier (PhD Candidate at GDI) about their recent work on the political economy of the Ghanaian cocoa sector. They discuss the implications of poor harvests, changes to the sector's financing model, impacts on farmers, and more. 

Read Sophie and Fuad's policy brief here. 

Read their GDI working paper here. 

Find out more about the Global Development Institute:

• Website
• Blog
• BlueSky
• LinkedIn
• Facebook
• Instagram
• Newsletter

Intro music Anna Banana by Eaters

Transcript

Speaker 1 [00:00:02] Welcome to the Global Development Institute podcast. Based at the University of Manchester, we're Europe's largest research and teaching institute addressing poverty and inequality. Each episode, we'll bring you the latest thinking, insights, and debate in development study. 

Speaker 2 [00:00:31] Good morning, everyone, our listeners. I'm Kaonin Korné. I'm a second year PhD student at GDI working on the political economy of cocoa and Kuntivor. And I am here this morning with Sophie Van Hullen, senior lecturer in development economics at GEI and Fuad Mohamed, head of Ghana cocoa marketing company, UK limited and Simon industrial fellow with the GEI. And we are here this morning to discuss financing in the cocoa sector. And so I would like to start by asking you what are the reasons that pushed you to write a policy brief together because you have been collaborating on the political economy of cocoa pricing and price risk for a few years now. And so, yeah, why this policy brief? Can you tell us a bit more about it? And maybe also in general, why is cocoa very important for the Ghanaian economy? 

Speaker 3 [00:01:35] I can start with our collaboration. Um, so yeah, we have been collaborating for over a decade now. Um, not only on the political economy of pricing, but probably the political economy, of Kuiper and Ghana more broadly covering different things like upgrading for naturalization. But our most recent collaboration, which came out as a GI working paper, um, quite recently. It wasn't the political economy of a cocoa pricing and price risk. And that was very much born out of the context of the 2023-24 season, which was a season that was particularly bad, much worse in terms of the Western volume for a very long time, for various reasons, which then resulted in CNC or CocoBot being left. With a lot of cocoa being sold, which wasn't harvested because the harvest was so low. That meant that these contracts had to be rolled over into the next season. At the same time, we saw that global reference prices, which is the London Ice price, went through proof. Um, so, uh, I think more than five time, five fold increase. 

Speaker 4 [00:02:57] So from 2000 to about over 10,000 here within a few months. 

Speaker 3 [00:03:01] And that exposed CNC to an incredible price risk at the time, CMC, the cocoa marketing company, which has, so there's the cocoa marketing company in Ghana, who is selling as a monopoly seller of all cocoa beans that are being produced and harvested in Ghana. Um, and it's the counterparty to everyone who wants to purchase and then export or also use these focal beans domestically. So they've been domestically processed. So every contract of our Canyon cocoa is being signed, um, by CMC with CMC and before it is in the London office, um of CMC. Yeah. So that was a period of crisis and we analyzed this and that was a moment when, um, while we were writing the policy brief, the syndicated loan that was in existence for over 30 years, um was abandoned because it was tied to a forward sending system that for contributed to the perils that CMC and CoboBot found, uh, found itself. 

Speaker 4 [00:04:19] I think just to chip in, so as Sophie mentioned, Ghana recorded its lowest harvest in over 20 years, with output dropping from over 800,000 to 425,000. Within the same period, we had the London Oil International CoCo prices jump in five folds. Now the question we then started asking ourselves was that what then happens to the farmer. So the cocoa farmers in Ghana realize that farmers in liberalized markets in Cameroon, in Nigeria, in Brazil, were getting so much in line with the skyrocketing cocoa price, but farmers in gonna were left out. Then we start asking the question, why are farmers in going to be left behind? And that is why the question about the risk then came in, okay, output is low. One way or the other, if output drops by 30% but prices jump by over 300 or 400%, there should be a net benefit to farmers. But what are the structural issues that makes it very difficult for farmers in Ghana to make more revenue? And then we looked at the financing as a key drawback to that effect. And as Sufi mentioned, this financing scheme CMC has to sell after about 70% of its cocoa in the forwards. Now, when you do that and prices rally, what it means is that you don't take advantage of the rally. You sold contracts as around $2,500, but now prices are 10,000. Meanwhile, you don't have adequate volumes to take advantage off the price. And whatever the price, whatever the farmers get in terms of what we call farm gate prices, are a function of the sale and price the CMC receives. So that was the main motivation for us to start looking at that. And then we identified that the structure of the syndicated loan, which has served its purpose since 1993 for about 32 years, maybe to give a brief history of the Syndicated Loan as well. But I think it's important also to put into context why cocoa is very important for Ghana. There's an adage in Ghana that Ghana is cocoa and cocoa in Ghana. So if you look at the political settlement, you appreciate that most of the factory's development infrastructure in Ghana were built on the back of cocoa revenue, pre-independence through to independence. And there are even a lot of narratives that some infrastructure developments in West Africa were financed through Ghana's cocoa revenue by the first president. Again, in terms of employment generation, nearly about over a million cocoa farming households depend on cocoa as their primary source of income. That indirectly with goats, more than 3 million people depend on cocoa as a source of livelihood. In extension to that, cocoa used to be the largest source of foreign exchange for the country until the heights and Gold prices and also with a discovery of oil in in Ghana 

Speaker 2 [00:07:41] Yeah, so maybe for our listeners that are not really familiar with the Coco sect and how it's being sold. So you mentioned it's forward selling and a syndicated loan used to be involved in it. So how does, what is forward selling maybe to start with, and then how is that linked to the, or what's linked to the syndicated loans and then how has that changed now? 

Speaker 3 [00:08:05] Well, forward contractors are basically a non-standardized futures that doesn't help a lot of people, but maybe those who know about futures markets. So what you do is at a particular point in time, you're selling a quantity of cocoa that you don't yet have, but you're going to have in the future. And there are different types of forward contracts, but the types that seem to use predominantly at the time were the ones where you to decide on the price or you settle the price at the time of signing the contract. So let's say CMC sells a cocoa of a particular volume to Olam. It would sign or there's a contract that is being signed between Olam and CMC which specifies a particular volumes of cocoa of particular quality which is the Ghana quality which has a quantity premium attached to it. To be delivered at a particular point in time to a price. That price is set at the time of signing the contract. And this is important because the price that is then set at the of signing contract is usually the price that is the going price of a futures that matures at the same months where the forward contract would also be due for delivery. Why is that the case? Because there's a trust in futures or derivative markets. To discover prices on the basis of market fundamentals, so true demand and supply. Now, there's always a day forward looking, of course, because we're talking about future demand and supplies, so they are speculative in nature, so no one knows exactly what is going to happen in the future. Now, in that particular year, what materialized is that the harvest in Ghana, but also other West African countries was particularly poor, but Ghana was particularly underperforming at that in that year. And it shook a lot of practitioners by surprise. So at that point when CMC had signed these forward contract, they had locked in an average of 2,600 USD per ton. Now in the following months after these contracts were signed, it materialized the harvest was poor, the reference price went up to 10,000. Which is a massive increase, but already CMC committed to deliver these beans which hadn't been yet harvested to a price of 2,600. And that also meant they locked in the price of 2600. Now, the reason why CMC had to lock in the prize early is because these contracts, these forward contracts were used as collateral. Against which a syndicated loan was taken out every year. And it usually came in around September. So the season starts in October. So it had to be in place before the season started. 

Speaker 2 [00:11:00] Maybe just what exact day is this indicated. 

Speaker 3 [00:11:02] A syndicated loan isn't a normal loan, but because of the volume, we'll be able to give you exact values on this, the volume involved is huge. So you need a lot of money, which in this case will be a lot of US dollars. So what the Ghanaian, what CocoBot did, it went to the international capital markets in order to facilitate that amount of volume of credit. The domestic banking sector is not liquid enough to facilitate that because cocoa is huge and it's very extensive. Plus the interest rate that you would get domestically is very high. So instead you would go abroad, get a relatively good interest rate. And instead of borrowing for one bank, because the risk is too huge, you borrow from a syndicate of banks. 

Speaker 4 [00:11:52] Group of banks. Exactly. And here we are talking about an average of about 1.5 billion to 2 billion dollars annually. Over the past 20, over the past 30 years, I mean, the cumulative loan had been nearly 30 billion dollars. So that is the size of the money we have. And as Sophie indicated, if you require 2 billion for a period, for a short period, and the repayment is often within a second month. One bank, it will be quite difficult for a single bank to give you that finance. And again, it does expose the bank to obligal limits in terms of the concentration of the risk to one counterparty. So the banks by themselves also want to diversify their or spread their risk. So they share in both the reward and the risk. So generally, that is what the syndicated loan is. But again, Sophie did perfectly explain the forward contract. It's important also to pinpoint. Maybe with clear examples, if we say a forward contract, we are in July. So the cocoa marketing company will engage with the clients, maybe a chocolate term or a trading company. And Sophie indicated Olam, which is one of Ghana's biggest clients. So I'll still restrict the example to Olam. July, 2025, CMC goes into a contract with Olam sell cocoa to them at a price of, say, $4,000. So the contract is agreed in July 2025, today being 14th, July 2025. It's agreed that, okay, CMC is selling 10,000 tons at $4000 to be delivered in May 2026. So that is the futures. That is the forward. Now it is using a certain price, which is, which is treating presbyopia. However, when the time for delivery, which is mid-2026, is due, the prices might be different. And that was the exposure that the CMC had. But why is that relevant? It is relevant because it needs those contract as a collateral for that financing. I hope you understand the next. 

Speaker 2 [00:14:07] And I think what's important to say is that Ghana is the only country that has this system, right, in the code, because you were saying before that you were getting interested in the financing because when the prices were high, Nigeria, Cameroon, Brazil, they were in a different situation. Why was that? So how was that 

Speaker 4 [00:14:26] Ghana's cocoa sector is unique. Ghana is the, in quotes, the only sort of regulating cocoa marketing system, where you have a regulator in cocoa board with a marketing arm, which is CMC. And as Sophie indicated, CMC has the monopoly on the sales of cocoa from Ghana. Now the syndicated loan started back in 93 because cocoa is seen as a strategic assets. Which you can use as a lever to source sort of cheaper source of cheaper FX from the international capital market. And that's revenue. The FX was used to support the government balance of payment, i.e. The import of crude oil. So even though it saved the cocoa financing, the primary objective then was how do we get USD to import crude? Whereas in other countries, there's no- Cocoa marketing company or CocoaBot that will provide this financing. Ghana does have that. So there are internal operators who we call the licensed buying companies who ideally should be going to the open or commercial banking sector to get financing, to source the cocoa. In our case or in the case of Ghana, that is quite difficult because it requires a lot of capital. If the banking sector provide that financing, there will be credit crunch. Are within the within the domestic system. So the cocoa board uses is bigger balance sheet again is regulatory powers to go out there for that for that financing. It is only in Ghana where you have the CMC or the regulator sort of being a counterparty to a contract. You've got experience in Côte d'Ivoire. In Côde d' Ivoire, the CCC is not a counterpart to a contact. If an exporter does a contract, they do a contract with a local exporter or a local player, even though the Ccc has some control. In the case of Ghana, no. The party that has the obligation to make sure that the cocoa is exported. And delivered to that party is the CMC. And that is why financing, providing finance for that cocoa to be secured is very important for the CMT and for the cocoa board by XH. 

Speaker 2 [00:16:50] And, but this system was discontinued in August, 2024. So why was that and what does that mean for the Ghanian economy in the cocoa system? 

Speaker 4 [00:17:03] Okay, so as we indicated, the experience of 2023-24 review that, yes, the syndicated loan has been in operation for 32 years, and it's important to also understand the structure of the international cocoa markets, I mean, the reference pricing. Yes, we've explained what the forward price and what the Ford sales means. You are, we are in July, but the London terminal or the New York cocoa terminal would have indicated prices when you want to sell cocoa into the futures, be it in December, 2025, be it March 2026 or May 2026. So in a normal market structure, you expect cocoa to be delivered in the futures to be priced higher than cocoa to delivered today. So that is how the normal structure of the market is. And that is an indication of adequate supply or availability of cocoa. When you have supply challenges where we are in a deficit season, what it means is that nobody has the patience to wait for cocoa in 2026. So they are ready to pay more for cocoa today than for cocoa tomorrow. And that changes the whole dynamics. So if you really have a system as Ghana or CMC had. You are selling in a market, which is a normal market. And as I indicate by normal market, Ford prices or futures prices are higher than current prices. With that supply hitch in West Africa, the structure of the market changed. So there's a deficit and immediate or current prices much higher than futures prices. So what it meant is that CMC or Ghana has sold cocoa at a lower price, but then when it's gonna deliver that cocoa, it has to be delivered at cocoa in a period where prices are much higher. The consequence was that you cannot pay farmers. And the worst case scenario, and that was what we revealed in the paper, was that there's what we call smuggling risk. And smuggling risks basically means that if we are not paying permits, prices, which are comparable to prices being paid along the borders, we share borders with Cote d'Ivoire, we share border with Togo and Burkina Faso to the north. If you don't pay prices that can match these bordering countries, most of cocoa from Ghana will find its way smuggled out to these countries. So then the question was, what caused CMC's inability to get these prices? And the syndicated loan was one of them, because you needed to pay, you needed to sell forward to use the collateral for the loan. Before the start of the 2012-2014-2015 season, so a lot of reports came out that farmers, garden farmers were the least paid globally and that was the case. So how do we change that? To change that, you need to look at what we're holding you back to realizing higher prices, selling too much in the forward. Why were we selling too in the forwards? Because you needed those collateral. As you needed to those contracts, ask collateral for the loan. So then the leadership or the management team at Cocoa Board then decided that, okay, why don't we shift to a new pricing system when it doesn't sort of commit us to sell too much in the following? And I think the foresight was that it's a big deficit year, we're still in a deficit season. So in a normal cocoa season or in a norm market structure, it does make sense. You are getting much higher when you are selling forward but at deficit period it looks a bit stupid in quote to be selling with lower prices when you can get higher prices by holding that cocoa so that resulted in the shift in a new system 

Speaker 2 [00:21:15] And what are the benefits and the limitations of this new system? What does it look like? And, um, because that's what your policy brief is about basically. 

Speaker 3 [00:21:26] I can start with the benefits maybe, so as Fu had explained excellently, one of the shortcomings of the syndicated loan system in a market that is rising is that the opportunity posts of course are huge because you could have gotten 10,000 USD for your ton of coir coir but you only got 2,600. And of course the present shortchange on this is then ultimately also the coir coir They only get just below the 2,600, but seeing global reference price at around 10,000 and then reports of other farmers in other countries getting much more, that was politically very tenable. So the advantage of not going for a syndicated loan, the key advantage is that CMC has flexibility. So it doesn't have. To, it is not forced to sign a forward contract with a fixed price if it doesn't think that is beneficial in terms of price risk management. So as Pruitt explained, actually signing a forward contact and fixing the price early in a normal market has resulted in cocoa farmers being relatively protected from downside risk and historically, and this has worked relatively well. But in the current market, for a multiplicity of different reasons, we're seeing a lot of supply challenges, which means this is no longer favorable to do this. So what you would want to do as a person selling beans is waiting for the harvest to come in. If you think the harvest is below what the demand is going to be, that means at that time of the year, prices are expected to increase. So you would want to be flexibly enough to make use of that price rise. And CMC has now the flexibility to sign contracts that have a flexible price or a dynamic price as well as a fixed price, depending on the market intelligence rate that is being collected by CocoBot. And that then feeds into the decision of CMC and the negotiation that they have with bias. However, the flip side of the system, and then I hand back to Ford, is that the syndicated line of course was taken out for a reason. It was taken a, in order to bolster the foreign exchange reserve of the country in order to meet the balance of payment requirements, but then also it was reverted or transferred is a Ghana CD amount, which then was available for CocoBot to extend credit to the license-buying companies. And these are companies who are doing the domestic purchasing of cocoa beans on behalf of CMCO, on behalf CocoaBot. Now, the domestic banking sector, as Fruit said, is not liquid enough in order to support the amount of credit that is required to finance the cocoa season when the cocoa is coming in. Plus, interest rates are very, very large. Which means through the syndicated law and the gala city that was unavailable to CocoBot, just before the main season starts, allow CocoBots to extend seed funding to these Dyson buying companies so they could actually purchase cocoa beans from farmers when the harvest was coming in. With the new system, no, an alternative has to be found because the syndicative law is no longer in place. And this is where from that kind of new financing system, are advantages and they're also disadvantages for CMC and the cocoa sector in jail. 

Speaker 4 [00:25:14] Yeah, so I think back to the main point. So the syndicated loan, as I explained, has injected over nearly about 30 billion USD into the guardian cocoa sector and the economy. And that has been over a 32-year period. Now, if a decision is made to move away from the syndicate loan, because the market dynamics have changed, the question then is, where do you get replacement? How do you replace that finance? Or that is $2 billion annually. And the decision for that shift was done just before the opening of a new season and as Sophi indicates. So the secondary objective of this indicated loan was for the board to extend credit to license-buying companies who buy from farmers so that you get the volume that is required. Now, the... Whatever contract you sell, you are selling to either a processing factory or an international drilling company or offtaker. So they are the immediate stakeholders when you have your output or supply. In the absence of the syndicated loan, these off-takers jumped in to provide. And it's important to also mention that even during the syndicator-owned era, they were, one way or the other, extending some advanced financing to the cocoa port. Even if the board goes for a $2 billion syndicated, that is not adequate to finance cocoa for the whole season. So the domestic banking sector support by providing overdrafts the license-buying companies. The multinational companies or international traders also do advance some financing to the cocoa pod. So that was a practice that had been in motion, but that wasn't the main source of financing for the cocoa sector or for Ghana cocoa. The major source of finance was the syndicated loan. Now, when the decision came that, okay, let's move away from the syndicate loan, the ones which were the secondary and tertiary source of finances. Took over as a dominant source of financing. And that is the international trading companies or the off-takers. What happened was that they now advance financing or some loan to the licensed buying companies to buy cocoa for CMC. Now the challenge is when whoever provides the financing has ownership of the cocoa one way or the other. So you have a case where Whereas, previously, the Ghana Cocoa Bond and CMC pre-financed its license by companies to buy the cocoa on its behalf. The cocoa board doesn't provide that financing. The international buyers who are supposed to be the counterparty to CMC are now providing the financing to licensed buy-in companies. So a tripartite structure was developed that's an international company pre-finances a licensed buy in company to buy the cocoa on behalf of cocoa board, which was a bit abstract or imaginary, I will say. They provide the finance in one way or the other, they own the cocoa. But then the ownership is labeled as owned by the Ghana Cocoa Polo. The immediate benefit as Sophie indicated was that it gives CMC some flexibility on the timing of sales. Whereas during the syndicated loan period, they expected to sell as much as required for collateral for the syndicated loan, even if prices are lower pre-August. You still have to sell because you needed those contracts for the syndicated load. In the absence of that syndicated loan, you're not pushed to sell as much as too much volume to be able to get that. But then who is providing the financing? It is the one that you are going to sell to who is now providing the financing. So they provide financing to the LBCs. The LBC is by the COCO. Even when the cocobo is in the hands of CMC, it is one way or the other. Owned by the international companies and that also opened a new window of um of risk i'll call it so yes it gave cmc the flexibility to sell but now cmc is also restricted to who to sell to the question of when to sell has one way or the other been solved in the beginning but now it two other questions. Who to sell to and even when to sell too. Because if they're providing the financing to you, that means they one way or the other own the cocoa. Again, since they own the coco, they've already pre-financed it, you also have to sell that cocoa to them. And that is the new challenge or the challenge that the new system has also unveiled. 

Speaker 2 [00:30:21] And I think especially local license buying companies now are facing a financing problem. So how does this problem look like exactly? And what do you propose to limit it or to improve their situation? 

Speaker 3 [00:30:39] Let me start with the challenges and then if we can report on the new developments. So we have two types of LBCs, which is very different from most of the liberalized markets. In Ghana, they are very strong and very large, Ghanian owned local buy companies, so LBC's. And so they do, but I don't know the exact percentage, so I have to rely on Ford. They drew significant volumes, especially some of them are very very large in the nest, they are multitudes which are way smaller in terms of the volume that they can deliver. And then we have all of the multinationals who also have a licensed buying company that is located locally in Ghana and is operating or was operating beforehand on behalf of CMC as any other licensed buying company. They're licensed by CocoBot. And therefore are operating on behalf of, at least that's how it was before. Now, the ones that are owned or are subsidiaries of the multinational companies, they do have a natural financier. They have a multinational company, it's huge, but she's direct access to international financial markets and international capital markets. So they had a direct financier that was able to extend credit to them almost immediately. And you must keep in mind that the change of the system, so the move away from the syndicated line was on a very, happened very short before the start of the season. So there was a very brief adjustment time for the LBCs that were operating domestically. The domestic LBC's, they depend on the domestic banking sector or their own capital. So sometimes they are part of a larger domestic conglomerate. And they might have a larger balance sheet to tap into and have their own capital. Others don't have that and they are so willing to rely on the domestic banking sector at very high interest rates. We'd be talking about 20% at minimum, 25, even up to 35% interest rate. Why, of course, the multinationals, you could get interest rate up to 3% to 6% maybe nowadays. So there's a huge imbalance when it comes to the competition. Now, the season when this was introduced, the multinationals were too small to source all the beings that were required by their multinational owners, which meant a lot of the multinational companies were also extending pre-financing or were willing to extend pre- financing to Ghanaian-owned license-buying companies. Which meant some of those, especially the larger ones, were getting access to pre-vines financing by signing agreements with some of the multinationals. However, if you see how the sector looks like in more liberalized markets, one thing that you would expect if the system doesn't change, as it is now, is that now the multinational companies have a strong incentive to increase the volume and the capacity of the licensed buying community that they have on the ground. So they have a massive incentive to expand. Before they were there for strategic reasons, for market intelligence, good relationships with CocoaBot, and of course, it was a profitable business. But given the other operational income that Eastern multinational companies have, it's not a massive, they weren't only there for the profits, right? But now, it's a mechanism for them. To secure volume and to secure a volume without having to go through CMC and CocoBot because you can pre-finance and through the pre- financing, you can secure volume, which is very attractive in a market where you'd have a shortage of supply. So there's an incentive for them to expand quite significantly, but that's a risk. And the question is, is that desirable from the perspective of Ghana or the Guinean government or the Guinea and Coco sector? Because ideally you would want to have domestic capital. Or domestic license-buying companies, because they are strong capital companies, so they have often diversified portfolios, they're part of conglomerates, they supply all sorts of other sectors, unless they're way more likely to invest domestically as well, right? If we have a license-binding company that is particularly well-insured in the own company, it is likely to look for other investment opportunities within Ghana. If you had a multinational company, the profits earned by that company, and they don't end up in Ghana. They end up overseas because they're being repatriated. So there isn't an incentive or a desire to protect or at least level the playing field for the domestically owned license buying companies. And there's a lot of things, so a lot our policy brief is about this, so thinking about how this can be achieved. And there has been some thinking that revolved since then, since we published that for this brief. 

Speaker 4 [00:35:49] Yes, so the transition from this indicator don't create a gap. Licensed buying companies. But as Sophie indicated, the multinational Thai LBCs had a natural financier in their parent companies. What it meant was that the look-up, the indigenous look-out buy-in companies struggled to get finance, which previously they got through the syndicated loan. Some of them had some support from their domestic banks. And again, some of them were well structured to court some financing for the most national companies. As Sophie indicated, there are quite a number of most national competitors who couldn't secure adequate volumes through their one-to-one licensed buying company. So they had to rely on other well-performing licensed buyer companies. So the other licensed buying companies who struggle to find financing are nearly out of business. And that is the gap that has been created. There are over 60 licensed buying companies and less than 10 of them. Multinational companies. So if with access to financing, they've gained so much control to the extent that, I mean, cumulatively, they could have more than 50% or 60% of the total of the crop size. That is a big risk. So the new discussion is that how do we ensure that, yes, we've gained some flexibility in when to sell the cocoa, but again, we don't allow multinational companies who are performing an incredible role to crowd out indigenous companies because they have access to financing. And that is the ongoing discussions. I would also. Quite a number of them have been, have structured themselves well, and they are attracting financing from multinational companies. But their preference would be that they get their own source of financing, maybe from the domestic banking sector, or from the, or from Cocoa Board. The reason being that they don't want to be. To a company and the ideally they should be competitors, but now they are sort of working on behalf of a competitor and that is on a good position that they wanna find themselves. So the current discussions are that, okay, this indicated the new structure, which is what we call Optica financing has been in place for nearly a year, is under review, but the COCO board has given clear indication the 25, 26 season will still have the new system in place. Now, with the 25-26 season about starting in August, what needs to be done to ensure that these licensed buying companies have access to financing? But most importantly, CocoBorne and CMC gets control of the cocoa. And that is why it's important to look at an independent financing or complementary financing. The off-takers who provide some financing, but then Ghana or Ghana Cocoa Board needs to also develop a new source of financing to one, gain control or to maintain control, but two, also safeguard the license-buying companies. Discussions are being held with the central bank and I think So if you made a very important point in the beginning, we've mentioned USD. Because it's an international trading currency, too much that one would easily assume that is it USD which is required to source cocoa from Ghana? The answer is no. What is required to source the cocoa from the farmers is the Ghana cities. So if there will be a primary financier in USD to LBCs to buy cocoa from farmers, then that addresses this baker. But who has the capability to do that? In the past, the cocoa bond has partly relied on the domestic banking sector through the central bank for what we call cocoa bonds, cocoa bills. Yeah, so it goes to the central bond. The central bank will bring together a group of commercial banks to provide some financing, but has come with a lot of challenges. So the caring discussions are that, can the central banks provide financing to the cocoa board to finance the LBCs? And I think this is a recommendation we made back in 2021, when we wrote the potential upgrading, a paper on potential upgrading in Ghana's cocoa sector. So it's quite refreshing that discussions are being held at that level. And one of the key confidence that the regulator has now is that Ghana has set up a gold board, which is a replica of the cocoa board. Now their responsibility is to purchase gold using the Ghana currency from local miners. I wouldn't say on behalf of the of the central bank but you cannot export gold out of Ghana without going through the central banks. So the gold board is open in that role. Now if the central Bank is provided pre-seed financing to the gold port in cities to buy gold from local miners, sell in USD and then recover the loan. Can the same model be done with the copper sector? And if that is done, that gives so much control to the CMC beyond when to sell, but also who to sell to and when to serve. And most importantly, also safeguard the existence of these local buy-in companies. 

Speaker 2 [00:41:43] So it's very much in progress still, the whole restructuring of the system, it seems. So maybe to wrap up, how hopeful are you that it will go in that direction? And will you be involved with another policy brief or in another way on giving new recommendations or can we hope to hear from you again in the upcoming months, quickly to wrap it up. 

Speaker 5 [00:42:11] We will certainly continue collaborating, this is for sure. 

Speaker 3 [00:42:16] In whatever capacity, because we have a shared interest in the Ghanaian coca-sector and the coca sector more generally. I'm not sure whether we're going to write another policy brief on the financing, but we have a lot of ideas and a lot of things we are interested in. So the pricing value addition is something that is very close to our heart. It goes back to the first paper that we wrote together, which actually had that as a recommendation. In it, it's quite refreshing to see that this is being picked up because we suggested the seed fundings through the Bank of Ghana there. Not sure whether this had actually any cause of impact on the discussions that then materialized, but I think there are wider implications of finding a good financing model for the that we haven't talked about in this podcast. But it has implications for value addition domestically for the domestic processing industry and ultimately also the domestic chocolate producers, which ideally you want to support as a government for value edition and structural transformation. So this is very important and it's part of a parcel of things that, or strategic. Decisions that the government is making and is very much discussing. So I think Ghana has been aware of the strategic value of the cocoa sector for a really long time. The cocoa farmers have not always agreed with that and it's easy to see why, but the sector is going to continue to be a strategic value. And with gold now are coming into the picture again It also means that some of the pressure on the cocoa sector to generate foreign exchange, because you have to remember that for a long time, cocoa was the only direct source of foreign exchange earnings for the government. So it was incredibly important to retain control and a particular control over that sector. So the hope is actually with the diversification of foreign-exchange income and control by the central bank. That there's a space that opens for the Guinean cocoa sector that goes beyond just the war being, but actually enables domestic entrepreneurs or supports the existing domestic entrepreneurs because Ghana already produces delicious chocolate. And that sector enables that sector to strive further. So that's, well, that's maybe is my hope. And we're definitely going to continue working on Koukou. 

Speaker 4 [00:45:09] Yes, I mean, definitely confident and hopeful. Some always say hope is not a strategy. Yeah, so the whole point is that we've unveiled the pitfalls and the pathways. So what is a strategy? And it's very refreshing as we indicated that this recommendation about with the central bank providing finance and has been picked up, it is a key factor in discussions. But there are. A lot of other strategies that can be looked at. I think in the policy brief, we also hinted on the use of the National Pensions Fund. In all countries, pension funds are a big source of investments for the government. So it's important for Cocoa Board or the government to start looking at the pension fund as a source of financing for the cocoa. But to be able to do that, you need. Very good structures or same guards because these pension funds are the livelihood of people and it's very important that there are structures to safeguard that. So it's very refreshing that these strategic thinking are going on. One thing that the new system has also brought up is the enormous interest from international tree finance banks who want to deal directly with the licensed buying companies. It wasn't the case in the past. Any financier just wants to learn to the cocoa board. Now, when you have the cocoa board out of the picture as a borrower, then these multi-machinery companies want to go directly to licensed buying companies and processes. Three months ago, I mean, it's a discussion that we have in currently one of the big top five global banks who is engaging with a local buying and indigenous Ghanaian buying company to provide financing to them. And we've seen. These interests over the past period. But it's also important that we've, I think we focus much on the licensed buying companies who have been exposed. The processing companies, so within the processing sector in Ghana, we've got multinational companies and we also have indigenous processing companies. So the same challenge that the LBCs have been, the indigenous LBC's have been expose to, the indigenous processing factories have also been exposed to that. We've got niche processing, cocoa processing company, plot, these are indigenous Ghanaian companies. Previously, they buy contract from the CMC or they buy cocoa from this and they don't have to pre-finance it. But now, in the absence of the syndicate, they also have to find a way to pre- finance this, which they don t have. So that is also a challenge. Now, in addressing the financing challenge for the LPCs, it also addresses Ghana's upgrading capabilities because the biggest challenge that these guys have has to do with liquidity to source base. So if we have a new financing model that enables LBCSB, multinational and indigenous, to source cocoa, it also makes it easier for processing factories to get access to raw materials as in cocoa base to process. And I link that with the Ike Greening because in the absence of raw base, these guys I'm going to produce cocoa butter, cocoa liquor, cocoa cake, cocoa powder. And then Ghana would then be restricted to, because the interest of most of the multinational companies, especially those who don't have processing factories in Ghana is to export raw bees, because that is what they need. But these are Ghanaian players, and it's quite important to also mention that there are multinational company who are processing locally. But because they have national finances from their parent company, it's much easier. The gap is also with the processing factories. So for me, concluding from my end, we've moved from a syndicated loan period to an optical finances period, which has provided some opportunities and some challenges. The strategy going forward is not for us to hope. It's to be pragmatic in how do we ensure that we have a financing scheme that addresses the control of the Ghanaian cocoa sector by the cocoa world and the CMC, but most importantly, it enables CMC to get to optimize revenue so that the farmers will get what they desire because the more farmers get the more they are able to invest in their farms and ultimately or i'll say and secondary also the LBCs are protected and the processing companies are also protected to get access to for upgrading to take place within the Galleon economy. 

Speaker 2 [00:49:55] Yeah, thank you so much. I think that really showed how this study, which can seem very specific, has actually wider implications about local capitalism, local economic actors, and ultimately also farmers and how to ensure that they have a living income. So thank you so, much to our listeners. If you got interested in the policy brief, it's called Financing the Ghanaian Cocoa Sector. You can find it online. So don't hesitate to Google it.