Sweet like Cocoa: Insights on Ghana's Cocoa Industry

Updated: Nov 21, 2019

Chocolate makes everyone smile, even bankers -Ben Strohecker

“Ghana is the world's second largest cocoa exporter accounting for over 22% of global cocoa”

This article explores the Ghanaian market for cocoa and various business/financial opportunities that lie within the market. Unknown to many, Ghana is the world’s second largest cocoa exporter accounting for over 22% of global cocoa export. This cash crop plays a significant role in Ghana’s economy as it generates about $2 billion dollars in foreign exchange annually and is a major contributor to the country’s GDP. While this may seem spectacular, it is shocking to see the world’s second largest cocoa exporter accounting for just $2 billion dollars in a $100 billion dollar industry. This shocking fact led me to deep dive into the cocoa market, to get a better understanding of why Ghana is not maximising the clear potential in the chocolate and cocoa industry. While this article does not serve as an extensive analysis of this market, it highlights problems ready to be solved and opportunities waiting to be unlocked.

The first set of questions that came to my mind when I came across this market were;

  1. What’s the demand for cocoa and chocolate?

  2. Where is it most demanded?

  3. Has the market reached its peak or still expanding?

  4. And of course, I also questioned factors such as the purchasing power of the consumers in countries demanding the product.

It was great to find out that there is indeed a juicy market waiting to be explored. For one, demand has definitely increased, Mintel Global New Product Database (GNPD) points out that in the past year alone, Easter chocolate production has risen by 23%. Euromonitor further reveals that global demand for chocolate has risen by double-digits. In fact, the only recorded fall in consumption over the last 20 years occurred during the financial crisis in 2008/2009.

Secondly, our largest market is Europe. About 40% of cocoa produced per year is consumed in Europe, with 85% being imported from West Africa. Studies further show that there is a huge chocolate market in Asia with Japan, Korea and China being the largest.

What about purchasing power? The complexity of Brexit and several other issues in Europe poses suspicions about the future purchasing power of consumers there, however, in relation to the prices of cocoa in Ghana and considering the exchange rate between Euro and Ghanaian Cedi, it’s safe to say they are doing just fine! Also, the increase in China’s middle-income population provides a new set of potential customers.

Global dark chocolate market is projected to grow at 8.5% CAGR from 2017-2026”

Does this mean we can safely expect the demand to keep growing? Well..Yes! According to a research study published by Persistence Market Research, the global dark chocolate market is projected to grow at 8.5% CAGR during the assessment period 2017-2026, and reach a valuation of over $84 billion by the end of 2026 (Bear in mind, dark chocolate is only a portion of the various final goods derived from cocoa and since dark chocolate requires higher cocoa content than milk chocolate, it gives us a good picture of the potential for the cocoa market). The increase in demand for dark chocolate specifically, can be attributed to increasing health consciousness by consumers.  So as more people become health conscious (hopefully :)) we can expect demand to continue expanding.

Ok so we know the market is there, let’s see what we are supplying.

According to the International Cocoa Organisation (ICCO), 70% of the world’s cocoa comes from Africa with Ivory Coast and Ghana being the largest global producers. Fortunately, Ghana’s position within the narrow belt around the earth’s equator makes it best suited for cocoa cultivation (the adequate rainfall and favourable temperatures make it a great spot for cocoa production). However, the problem lies in the imbalance between supply and demand. The lack of technology, proper fertilisers, and adequate expertise has led to the difficulties of cocoa farmers meeting the global demand for cocoa. These challenges facing the market has led the Ghanaian government to set ambitious targets to raise output while maintaining its quality standards.

Another issue is that NONE! Of the top 10 largest chocolate companies in the world is African. So how are you going to be the top cocoa producing country and not have a large cocoa processing or chocolate producing company? Sigh, instead of ranting let’s get right into the opportunities in this market;

Cocoa Processing: Although Ghana is the world’s second largest cocoa exporter, the finished products are mainly imported. This presents an opportunity for cocoa processing factories to refine the cocoa into different finished products which can then be sold locally and internationally. Persons interested in accessing this sector have the full backing of Cocobod (the regulating authority in charge of the Ghanaian cocoa market) which aims at promoting the profitability and sustainability of cocoa production. The problem here, however, is that if there is a shortage of cocoa supply from farmers, how can the cocoa processing companies meet global chocolate demand? This leads to another opportunity!

Research: Research on how cocoa cultivation can be more efficient is needed (eg fertilisers, research on new cultivation techniques etc). Also, the lack of technology poses a big threat to future cocoa cultivation. Imagine if farmers had access to a platform that posts developments on cocoa cultivation research, that way, farmers are able to constantly improve upon their cultivation skills. Again, there are opportunities for potential collaborations with Cocobod as they aim at improving the sustainability of cocoa production.

Financial Investment: Bank of Ghana periodically issues short-dated bills to support its monetary operations for the purchase of cocoa in Ghana. These bills are secured by the predicted income from selling the cocoa of the next harvest. Also, one could consider investing in Exchange-traded products (ETP) which can help individuals gain exposure to cocoa futures.

Due to the imbalance between supply and demand, the price of cocoa has been on average, rising, making these products a lucrative investment for investors. There are several ETPs, such as the iPath Dow Jones-UBS Cocoa Subindex Total Return ETN (NIB) and ipath pure beta cocoa ETN (CHOC) which tracks the performance of the Barclays Cocoa Pure Beta Total Return Index. One limitation, however, is the lack of data to adequately forecast the growth of the commodity. This also calls for another business opportunity! Data production!

Data production: Since the main drivers of cocoa prices are supply-side factors, any hint that cocoa supply will be short or in excess of expectation will affect market prices. Market analysts miss essential data on factors that drive the supply trend, such as cocoa planted areas and age distribution of the cocoa trees etc. The availability of these sort of data will enhance market research on this market and improve forecasting of the commodity.

In conclusion, depending on your expertise and risk appetite, there are several opportunities in this market. Whether you’re interested in this sector for the long-run or short-run the financial and business opportunities are there. Sweet tooth, sweet cocoa…sweet pocket.