Academic journal article Journal of Marketing and Management

An Empirical Investigation into the Costs and Benefits from Moving Up the Supply Chain: The Case of Ghana Cocoa

Academic journal article Journal of Marketing and Management

An Empirical Investigation into the Costs and Benefits from Moving Up the Supply Chain: The Case of Ghana Cocoa

Article excerpt

INTRODUCTION

The cocoa industry in Ghana employs almost thirty percent of the labor force and makes up thirty percent of annual gross domestic product or Ghana's GDP (Amoah, 2008). To put the importance of the cocoa industry to Ghana in perspective, it is estimated that there are about 265,000 cocoa farm owners and roughly 800,000 people involved in cocoa growing in Ghana (Awua, 2002).1 Further, since cocoa revenue makes up a significant portion of GDP and the cocoa sector employs so many Ghanaians, increased cocoa revenue is typically associated with rising economic growth in Ghana (Brempong Gyimah, 1986; Armah, 2009). Ghana goes as cocoa goes (Brempong Gyimah, 1986).

Paradoxically despite feasible opportunities for increased revenue through value addition by processing raw cocoa into semi products such as cocoa butter and cocoa liquor and finished products such as chocolate, Ghana has maintained a strategy of exporting majority of the beans produced in the country instead of processing the cocoa for export. One explanation for this strategy may be that Ghana enjoys the enviable position of producing the highest quality cocoa the world over, and enjoys the related quality premiums from exporting raw cocoa beans. If the revenue from exporting the raw cocoa beans is not much smaller than the revenue from processing the cocoa on a per tonne basis then Ghana's current strategy makes sense. However, little research has been carried out to determine whether it is more profitable on a per tonne basis for Ghana to produce for export or to process its cocoa so this research hopes to make that determination. Why does Ghana not process more of its cocoa into chocolate especially given the fact that the locally manufactured golden tree is the most popular chocolate brand in the domestic market which is sizable and in nearby markets such as Nigeria? Do the cocoa quality premiums that Ghana enjoys make production for export more profitable on a per tonne basis than processing the cocoa? Why is it that Ghana processes only a fraction of cocoa produced given the recent ramp up in Ghanaian cocoa production and the decline in Cote d'Ivoire's ability to export cocoa? Finally given the increasing interest in cocoa-based drinks in China which was non-existent a few years ago, Ghana might profit from exporting processed cocoa to the potentially enormous Chinese market.

We concede that the Ghana cocoa marketing board (COCOBOD) has privately provided to us evidence of plans to move up the chain from production for export to processing and has been in fact processing cocoa on a small scale but we still maintain that it has taken an inexplicably long time for such plans to materialize. Why? This paper will thus provide a historical perspective on Ghana's preference for production for export instead of processing. Next using cost benefit analysis the optimum strategy (exportation of raw beans i.e. ERB or processing for export PE) that will maximize returns for the Ghanaian cocoa industry going forward will be identified and explained. This optimum strategy will be obtained by comparing the returns from ERB to PE. Apart from identifying the economic constraints that have dragged down the effort to move up the cocoa supply chain for the Ghana COCOBOD, the results of this research will help in validating or undermining the stated future strategy of COCOBOD to process more cocoa. Policy makers in other cocoa growing countries such as Togo and Uganda will also benefit tremendously from the results of this research as it will guide them in the production versus processing decision.

LITERATURE REVIEW

Despite the possibility of a bigger pay off by processing a majority of the total cocoa beans produced, Ghana, the world's second largest cocoa producer has faithfully followed a strategy of producing majority of its bean for export over the years. Is this strategy optimal? Should Ghana continue to produce raw beans for export or should more of the beans be processed domestically. …

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