US embassy cable - 04ACCRA2083

UNCLAS SECTION 01 OF 02 ACCRA 002083 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EAGR, EFIN, ECON, GH 
SUBJECT: GHANA'S RECORD LEVEL COCOA EXPORTS IN 2004 
 
 
Summary 
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1. (SBU) The Government of Ghana (GoG) purchased an all-time 
high of close to 710,000 metric tons of cocoa for the 
2003/2004 season, a 40 plus percent increase over the 
2002/2003 season that should bring in nearly USD 1 billion 
revenue for 2004.  The massive increase reflects higher cocoa 
yields and the movement of cocoa across the border from Cote 
D'Ivoire.  U.S. importers purchased lower amounts of Ghana's 
cocoa, contributing to a widening U.S. trade surplus with 
Ghana.  The record level cocoa revenues will boost 2004 
economic growth, but also exacerbate Ghana's vulnerability to 
terms of trade shocks.  End Summary 
 
Phenomenal Increase in 2003/2004 
-------------------------------- 
2. (U) The GoG purchased 707,884 metric tons of cocoa between 
October 2003 and August 2004, exceeding last season's total 
by 42 percent.  The total 2003/2004 amount may exceed 720,000 
by September, the formal end of the season.  This crop is the 
largest in the history of the country, surpassing the 591,031 
metric-ton record of 1964/1965 and cementing Ghana's position 
as the world's second largest exporter of cocoa.  The 
2003/2004 increase extends a trend from the 2002/2003 season, 
which produced 496,846 metric tons.  Cocoa revenues are also 
steadily increasing along with the larger crops.  Initial GoG 
projections for cocoa export proceeds for 2004 were roughly 
USD 930 million, but recent estimates put it closer to USD 1 
billion.  This compares to the USD 818 million revenues in 
2003 and USD 463 million in 2002. 
 
Government Support 
------------------ 
3. (SBU) GoG support for farmers and favorable climatic 
conditions are the main factors contributing to improved 
cocoa yields.  During 2003 and 2004, GoG support included the 
free spraying of cocoa farms for pest and disease control, 
free supply of improved seedlings, and road rehabilitation in 
cocoa growing areas.  In 2004 the GoG spent about USD 93 
million on its improvement program.  Ghanaian farmers have 
also increased the use of fertilizers.  Also, cocoa farming 
is largely rain-fed and favorable rainfall over the last five 
years improved yields significantly.  However, the driving 
force behind increased production is the higher price the GoG 
pays to farmers, known as the farm gate price.  The GoG has 
raised the farm gate price from 3,475,000 cedis per metric 
ton in 2000/2001 to 9,000,000 cedis per metric ton (roughly 
USD 1,000, or about 69 percent of f.o.b. price) in 2003/2004. 
 
 
Cote D'Ivoire Cocoa Crossing the Border 
--------------------------------------- 
4. (SBU) Cote D'Ivoire's relatively low farm gate price and 
its political difficulties encouraged the movement of cocoa 
into Ghana.  Some market analysts estimate that 120,000 to 
170,000 metric tons of Ghana's 2003/2004 sales originate in 
Cote D'Ivoire.  Cote D'Ivoire's relatively liberal cocoa 
market allows the farm gate price to fluctuate with the world 
price, whereas the GoG fixes prices in Ghana.  Since 2003, 
the farm gate price of cocoa beans in Cote D'Ivoire has 
remained at around 350,000 CFA per metric ton as compared to 
the 550,000 CFA equivalent available in Ghana.  The 
relatively stable Ghanaian currency also helped keep the 
Ghanaian price high.  Lower prices in Cote D'Ivoire reflect 
the relatively low world price, compared to 2003, and are 
also partially the result of high transportation costs in 
Cote D'Ivoire's rebel-controlled areas. 
 
5. (SBU) Traditionally, cocoa is smuggled by individuals 
between Ghana and Cote D'Ivoire to take advantage of price 
differences between the two countries.  However, the current 
situation is different.  According to sources in Customs and 
companies such as Nestle and Kilian, Ghanaian buyers are 
purchasing Ivorian cocoa on the open market in large 
quantities and trucking it into Ghana with the tacit approval 
of Ghanaian authorities.  Local market observers are 
reluctant to call this "smuggling," since the transactions 
are taking place above board. 
 
6. (SBU) The acting head of research at the Ghana Cocoa Board 
(COCOBOD) said his unit does not capture information on cocoa 
imports from Cote D'Ivoire, since the GoG forbids the 
importation of cocoa beans.  The GoG therefore records all 
cocoa beans that it purchases in Ghana as Ghanaian.  Although 
he acknowledged that some cocoa is entering from Cote 
D'Ivoire to take advantage of Ghana's current price 
advantage, he thinks the figures quoted in the local press 
are too high.  He declined, however, to estimate the amount 
crossing the border. 
 
7. (SBU) Market analysts at the Ghana offices of Nestle and 
Kilian tell Post they suspect that official data on cocoa 
crops from the Ghana/Cote D'Ivoire border region have been 
altered to conceal origin.  They also suspect that the buying 
period was extended by 2 months from April to June 2004 to 
accommodate the movement of beans from Cote D'Ivoire.  (Note: 
 there are generally two buying periods in a season.  The 
largest crop comes in between October and April, and a 
second, smaller crop comes in around August and September. 
End Note) 
 
8. (SBU) Possibly the best indication of wide-scale 
cross-border movement of cocoa is that the premium Ghanaian 
cocoa traditionally commands on world markets has fallen from 
USD 80 to USD 20 per metric ton.  Local market analysts say 
this is mainly a result of mixing high-quality Ghanaian beans 
with lower-quality Ivorian beans, thus eroding the quality of 
the overall crop. 
 
Cocoa - Major Contributor to Lower Exports to U.S. 
--------------------------------------------- ----- 
9. (SBU) Ghana's exports to the U.S. in 2003 were USD 82 
million, the lowest in more than a decade, and down from USD 
116 million in 2002 and USD 187 million in 2001.  (Note:  the 
U.S. exported USD 210 million to Ghana in 2003.  End Note) 
Lower cocoa and aluminum exports were the main contributors 
to the decline.  The closure of Kaiser's Valco smelter 
reduced aluminum exports from USD 14.6 million in 2002 to USD 
0.9 million in 2003.  Cocoa exports to the U.S. fell from 
almost USD 25 million in 2002 to USD 7.3 million in 2003. 
Despite Ghana's increasing cocoa production, less of it is 
going to the U.S. market because of competition from Asian 
sources.  Kilian's CEO argues that the decline reflects U.S. 
buyers' strong preference for cheaper product from Indonesia. 
 
GoG Secures USD 850 Million Loan to Purchase Cocoa 
--------------------------------------------- ----- 
10. (U) COCOBOD signed an agreement with a group of 32 
offshore and four local banks for a loan of USD 850 million 
to purchase cocoa from farmers in the 2004/2005 season. 
Ghana has borrowed from offshore banks to finance the 
purchase of beans from farmers since 1994.  In the 2003/2004 
season, COCOBOD borrowed USD 650 million for purchases.  The 
increase anticipates significantly higher volume in the 
coming season. 
 
Comment 
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11. (SBU) The current stability of Ghana's economy hinges on 
the unprecedented cocoa harvest and the relatively stable 
world cocoa price.  Foreign exchange earnings from cocoa 
increased gross reserves to 1.4 billion, or 4 months of 
imports.  Ghana's 5.2 percent real GDP growth rate in 2003 
was achieved in large part because of the 16.4 growth in the 
cocoa sector during the 2002/2003 season.  The even larger 
increase for the 2003/2004 season provides strong support to 
the GoG's goal for 2004 of a second consecutive year of plus 
five percent growth, even taking into account large imports 
from Cote D'Ivoire.  Nevertheless, greater reliance on the 
cocoa crop leaves Ghana even more exposed to external shocks 
due to falling commodity prices.  End Comment. 
 
YATES