Blame COCOBOD’s indecision for current crisis, not financing issues – Awal Mohammed
A member of the New Patriotic Party’s (NPP) National Communications Team, Awal Mohammed, has argued that the current cocoa debt crisis should be attributed to poor decision-making by the management of the Ghana Cocoa Board (COCOBOD) rather than mere financing challenges.
According to him, the current crisis originates from COCOBOD’s decision to shift away from what he described as traditional hedging strategies that once protected the industry from market volatility.
During an appearance on Joy News’ AM Show, Awal Mohammed asserted that the sector’s problems are not rooted in difficulties securing syndicated loans or foreign financing, but rather comes from a “critical failure” by COCOBOD’s CEO and the entire management to maintain “proven risk management practices.”
“The problem we have today is not really about foreign financing of cocoa or it’s about the finances. It’s about a decision that was not taken at the right time. That is the problem we have today,” Awal Mohammed stated. “It’s not really about whether it is syndicated loan or it’s not syndicated loan. The problem today is that indecision by the COCOBOD CEO and his executives is what has brought us where we are today and that’s it.”
He further blamed COCOBOD’s decision to “dramatically” reduce forward sales, a hedging mechanism that locks in prices in advance to protect the domestic cocoa sector against market fluctuations, noting that over the years, Ghana sold about 70% of cocoa through forward contracts, leaving just about 30% for spot market sales, but COCOBOD recently reversed this ratio, selling just 30% through forward contracts while exposing the 70% to volatile spot market prices.
“We have been selling our cocoa through hedging. We’ve been doing a lot of forward selling, forward selling of our 70%, then you decided to do only 30% forward sales. When you are to do spot today, it means you’ll be hit hard,” he argued.
Awal Mohammed pointed out that this shift in strategy has proven costly as cocoa prices plummeted dramatically on international markets, adding that if COCOBOD had maintained the traditional hedging strategy, Ghana would have secured prices when cocoa was trading at $7,000 to $10,000 per ton.
“Hedging has always been the program that we’ve been using over time because we know that going into the market, it can go up, it can come down,” he said. “So definitely let’s hedge about 70% so that before the cocoa season is even in, you know that this is the amount of money you will pay.”
“Today if we had done that forward sales, they will still pay us the $7,000 or $8,000 per ton if we had done that the time prices were around $8,000, $9,000, $10,000. If we had done forward sales, they will still have paid us and we’ll just not hear anything here in this country again because the spot sale will only be 30%,” claimed.
The NPP communicator stated that the effects of this shift in strategy extend beyond COCOBOD’s balance sheet, warning that it has had “devastating effects” on cocoa farmers.
“But now what we have done, we are impoverishing the cocoa farmer,” he said.
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