Processors, not banks to supplement syndicated loan – agric. minister
Minister of Food and Agriculture, Dr. Bryan Achaempong, has announced that major cocoa processors, rather than banks, will be the primary sources of funding to address any shortfalls Ghana Cocoa Board (Cocobod) may face ahead of the 2024/2025 season.
Addressing concerns about local banks’ willingness to finance the cocoa regulator’s bean purchases, he explained that the “alternative funding” government is seeking will primarily consist of direct deals with processing entities at current market prices.
“We are going to deal with them directly at world market price, which can bring more benefits to our farmers,” Dr. Acheampong stated during the monthly Economic Press Briefing for August held at the Ministry of Finance. He however declined to name specific companies due to ongoing negotiations.
Dr. Achaempong’s comments come as Cocobod has announced plans to revamp its cocoa financing strategy for the 2024-2025 season, moving away from heavy reliance on syndicated loans toward more direct, uncollateralised sales.
While the cocoa regulator’s break in its 30-plus year tradition has been met with broad scepticism over its motives and feasibility of the move, the Agric Minister argued that this shift aims to capitalise on rising cocoa prices and increase benefits for local farmers.
Dr. Mohammed Amin Adam, Finance Minister, earlier reassured stakeholders that the country will continue to utilise syndicated loans for cocoa financing in the upcoming 2024-2025 season, albeit with significant changes.
He confirmed that while Cocobod initially sought up to US$1.5billion through syndication, the actual amount is expected to be around US$600million. This represents a significant reduction from previous years’ syndicated loans, which often ranged from US$1billion to US$1.2billion.
The Minister for Food and Agriculture provided further context for this strategic shift. He explained that Ghana wants to increase its reliance on uncollateralised sales, potentially raising them from the traditional 10-30 percent of total sales to a more substantial portion.
This move is driven by recent market trends that saw cocoa prices surge from US$2,800 per tonne to approximately US$10,000 per tonne.
Such dramatic price increases, he said, have created a mismatch between committed sales prices and current market rates, and highlighted the limitations of heavy reliance on pre-season syndicated loans which lock-in prices and can prevent farmers benefitting from market upswings.
“We are aiming to flip our sales model. Traditionally we’ve relied heavily on syndicated loans, which account for 70-90 percent of our sales. We are now looking to increase uncollateralised sales to 30 percent or more of total sales,” he explained.
“We have committed to contracts at US$2,800, but the market is now at US$10,000. Our farmers see these high world market prices and demand more money, but earlier commitments bind us,” he added.
This new approach is expected to allow more flexible pricing and potentially higher returns for Ghana’s cocoa farmers, who have often seen limited benefits from global price increases due to pre-existing commitments through syndicated loans.
By reducing reliance on pre-season loans with fixed prices, government hopes to pass on more benefits from rising global cocoa prices to local producers.
The transition in financing strategy comes at a time when Ghana is also navigating broader economic challenges. Dr. Adam mentioned ongoing negotiations with private banks and contractors regarding an outstanding US$2.8billion debt, indicating that government has instructed its advisors to present offers to commercial creditors.