GHANA'S RECORD LEVEL COCOA EXPORTS IN 2004

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
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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
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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
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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