Over the years, the Ghana Cocoa Board (COCOBOD) has been the single institution around which Ghana’s cocoa sector has been built. It has played an important historical role.
It has helped stabilized prices, provided farmers with the needed support, and helped position Ghana as a reliable supplier in global cocoa markets. But there have been major changes in the world. Financial markets have evolved, commodity trading has become more sophisticated, and the risks facing cocoa exporters are no longer simple price fluctuations.
In this new environment, COCOBOD’s current structure is no longer fit for purpose. Privatization is not a radical idea. It is a necessary one.
At the center of the problem is how COCOBOD finances cocoa purchases and manages price risk. Every season, the institution relies heavily on syndicated loans backed by forward sales of cocoa. In simple terms, Ghana commits future cocoa deliveries at fixed prices in order to raise financing today. This approach once made sense.
Today, it exposes the country to unnecessary financial strain and persistent losses.
Forward contracts lock in prices far in advance. When prices rise sharply, as they have in recent years (before the current fall in prices), Ghana does not benefit.
The upside is gone. Worse, when production falls due to weather, disease, or smuggling, the country still has delivery obligations. COCOBOD then scrambles to meet contracts, often borrowing more or rolling positions forward at unfavorable terms. This is not risk management. It is risk accumulation.
The sustainability issue is clear. Forward contracts provide cash flow certainty, but they eliminate flexibility. They assume stable production and predictable markets. Cocoa markets are neither. Climate change has increased yield volatility. Global demand has become more cyclical.
Speculative flows now move prices faster and further than fundamentals alone would justify. Relying almost exclusively on forwards in such an environment is financially dangerous.
A key weakness of COCOBOD’s model is that it behaves like a government agency, not like a commodity trading firm. Modern commodity exporters do not simply sell forward and hope for the best. They actively manage price risk using futures, options, and dynamic hedging strategies.
They have trading desks staffed by professionals whose sole job is to monitor markets, manage exposures, and protect margins. COCOBOD does not operate this way, and structurally, it cannot.
Privatization would change this fundamentally. Private cocoa companies would not rely on a single blunt instrument like forward contracts.
They would operate trading desks that use futures contracts to hedge price risk in real time. Futures allow positions to be adjusted as market conditions change.
If prices move unexpectedly, exposures can be reduced or rebalanced. This flexibility alone is a major improvement over fixed forward sale.
More importantly, private firms would complement futures with options. Options are expensive, but they are powerful. They allow firms to protect against downside risk while keeping upside potential.
A cocoa exporter can buy put options to insure against price declines while still benefiting if prices rise. This is exactly what Ghana has been missing. Under the current system, Ghana gives up upside almost entirely yet still bears production and delivery risk.
With option-backed strategies, profits are not capped in advance. Losses are controlled. This is how commodity trading firms survive in volatile markets. It is also how they make money. A privatized cocoa sector would be positioned to capture favorable price movements instead of watching them from the sidelines.
Another advantage of privatization is transparency in performance. Under the current system, losses are often absorbed quietly through debt accumulation, exchange rate pressures, or delayed payments to farmers.
There is little market discipline. A private firm cannot hide inefficiency for long. Poor hedging decisions show up immediately in profits. Good decisions are rewarded. This feedback loop improves behavior over time.
Critics of privatization often raise concerns about farmer welfare. This concern is valid, but it is not an argument for maintaining the current structure.
It is an argument for proper regulation. Many countries have privatized commodity boards while maintaining minimum price guarantees, quality standards, and farmer support mechanisms. These objectives do not require government ownership. They require smart oversight.
In fact, the current system already fails farmers in important ways. Payment delays, mounting arrears, and uncertainty around producer prices hurt smallholders more than market volatility ever could. A financially stronger, better-hedged private sector would be in a better position to pay farmers promptly and invest in productivity.
There is also a fiscal argument.
COCOBOD’s debts ultimately sit with the state. When things go wrong; taxpayers carry the burden, as government has already directed the transfer of over GHS4.3 billion debt to the Ministry of Finance while restructuring some GHS5.8 billion debt to the Bank of Ghana.
Privatization would not only bring competition into the industry but will help shift financial risk away from government (COCOBOD’s) balance sheets and onto firms that are designed to manage it. This matters in a country facing tight fiscal constraints and repeated IMF programs.
Privatizing COCOBOD does not mean abandoning cocoa farmers or surrendering national interest. It means recognizing that cocoa is no longer just an agricultural product but globally traded financial commodity which serves as underlying asset for some derivatives.
Managing it requires tools, incentives, and expertise that government agencies are not built to provide.
Ghana’s cocoa sector deserves a structure that can thrive in modern markets. Forward contracts alone cannot help mitigate against the financial risk associated with the industry.
Active trading desks, futures, and options can. Privatization is not about ideology. It is about survival, profitability, and long-term stability.
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Source: www.myjoyonline.com