$1.3 Billion Loan Crisis Hits COCOBOD

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Ghana Cocoa Board may struggle to fully pay back loans of US$1.3 billion as this season’s harvest will likely be smaller than anticipated, according to the head of the industry regulator.

The world’s second-biggest grower signed for the loans with lenders such as Credit Agricole SA and Natixis SA, prior to the start of the annual harvest in October to pay farmers for their beans. Ghana will probably not meet its target of 850,000 metric tons due to dry weather and plant disease, Joseph Boahen Aidoo, chief executive officer of the regulator, said Monday in an interview in the capital, Accra.

While recent rains may improve yields in the smaller harvest that runs from June to September, they may not be sufficient to make up for losses suffered in the main harvest that continues until then, he said. He declined to give a new forecast for the crop.

“We are only praying that we’ll be able to meet our collateralized facility because the crop wasn’t as good as anticipated,” Aidoo said. “We just started paying the first installment” in February, he said in an interview with Bloomberg’s Ekow Donkoh based in Accra.

The board purchased 625,111 tons of cocoa for the season through Feb. 22, compared with 640,075 tons for the same period in the previous crop, according to a person familiar with the matter.

While Ghana may not achieve its forecast for the season, it’s already selling cocoa at a loss after it chose not to lower prices for farmers even as global prices slumped by a third from July 2016 through the end of last year. The regulator is losing the equivalent of about $600 for every ton sold this season, it said in February.

The board is in talks with the government on ways to pay for operational expenses and liabilities as the cost of debt on local markets is too expensive, said Aidoo. Over the past year, it sold bills and notes at rates of as much as 22 percent, according to data compiled by Bloomberg.

“We are still discussing with government and we’ll find some solutions,” Aidoo said.

For the next harvest, the cocoa board will target a harvest of 900,000 tons and again seek to raise $1.3 billion in syndicated loans, Aidoo said. Last month, the International Cocoa Organization forecast a 900,000 tons harvest for the season.

Neighboring Ivory Coast is the top global producer.

The government of President Nana Akufo-Addo in Ghana will struggle to sidestep one of its most difficult decisions since coming to power a year ago: telling a crucial constituency to accept a pay cut.

The New Patriotic Party-led government has little choice but to end subsidizing the prices it pays to 800,000 cocoa farmers, support that will likely cost almost $450 million this season. Ghana Cocoa Board, the industry regulator in the world’s second-biggest producer, is running out of cash with few options for funding left other than to sell short-term debt to local investors at rates as high as 22 percent.

Justifying a decision to end the support will be tricky. The NPP swept to power in the December 2016 polls after pledging to invest in farms and increase prices. The campaign paid off as the party won the four biggest cocoa-producing regions, compared with only one in the previous election four years earlier.

Farmers are unimpressed with the prospect of the government going back on its promises even though international prices have slumped by more than a third since the middle of 2016.

Loose Talking

“If the government cannot afford to pay for its own loose talking, then it must borrow,” said Michael Acheampong, 37, a cocoa farmer in Kwabeng, about 120 kilometers (75 miles) northwest of the capital, Accra. “To announce a cut after promising to help us is a sacrilegious crime. We will not accept that.”

Ghana has little room to support prices even if rising output from new oil fields are supporting an economic revival. While the World Bank forecasts that the economy will expand by 8.3 percent in 2018, the fastest rate in Africa, the country remains bound by conditions for disciplined spending that are attached to an almost $1 billion bailout from the International Monetary Fund, agreed to in April 2015.

Ghana Cocoa Board is reportedly losing the equivalent of about $600 for every metric ton of the 850,000 tons that it plans to purchase this season until September, the regulator said earlier this month. When the next harvest starts, farmers will be paid the equivalent of 70 percent of the freight-on-board price for cocoa, Deputy Finance Minister Charles Adu Boahen said in January.

London futures contracts for March rose 0.5 percent to 1,518 pounds ($2,121) per ton at 10:54 a.m., extending this year’s gains for most active contracts to 10 percent. Ghana has been paying farmers 7,600 cedis per ton ($1,700) since October 2016, an amount which excludes buyers’ fees, domestic and international freight costs and commissions.

The minimum price in Ivory Coast, the biggest producer, is the equivalent of $1,291 per ton.

To get by until next season, Ghana’s regulator will sell as much as 2.5 billion cedis ($559 million) of debt to pay for liabilities and operational costs. It will also be campaigning to explain to producers why their payments have to correspond with international trends, Boahen said.

“Paying realistic prices for cocoa is long overdue,” Edem Harrison, a research analyst at Frontline Capital Advisors in Accra, said by phone. The government “cannot spend money paying subsidies” and should prioritize spending on infrastructure and other programs that can support growth, he said.

No Transparency

Producers will not be convinced by the government’s arguments, said Courage Martey, an Accra-based economist at Databank Group. Very few past administrations have been transparent about a pricing policy because farmers are an important bloc of voters, he said.

Producers are not anticipating that the government will go through with the plan, said Johnson Mensah, head of a farmers cooperative in Enchi, a town near the western border with Ivory Coast. Cocoa is too important for Ghana for the government to make a decision that will set back the industry, said Boadi Yeboah, 69, who oversees a group of 2,000 farmers at Kwabeng.

“We have only heard rumors but neither the government nor the cocoa board has said anything to us,” Mensah said. “I don’t see farmers accepting reduced rates.”

 

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