Current State of the Cocoa Processing Industry in Ghana

Ghana’s cocoa processing is expanding at an impressive rate. According to Oxford Business Group, Ghana’s processing activities have increased by 69.1% to 225,000 tonnes during the last five seasons.

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However, although Ghana accounts for 20% of the $9 billion global cocoa bean market, it is estimated that less than 30% of the country’s cocoa beans grown are locally processed. This means that Ghana captures only 5% of the US$ 28 billion global intermediate cocoa processing industry and only an insignificant share of the global final consumer market of US$ 87 billion. Meanwhile, the global chocolate industry alone is also valued at an estimated US$ 110 billion dollars, but remarkably, Ghana exports over 80% of cocoa in its raw state.  

There has been a downward revision to estimates for world grindings of cocoa beans for the 2015/2016 cocoa year to 4.141 million tonnes (down by 19,000 tonnes compared to the position three months ago). This reduction results mainly from the sharp fall in the level of processing activities in Côte d’Ivoire, down to 492,000 tonnes (a reduction by 18,000 tonnes compared to the earlier forecast), in Ghana, down to 202,000 tonnes (a reduction by almost 9,000 tonnes) as well as in The United States, where processing activities were 12,000 tonnes lower than previously expected, at 398,000 tonnes. Conversely, grindings are now estimated to be higher in Indonesia by 13,000 tonnes to 383,000 tonnes.

Despite the reduction in grinding for the 2015/2016 season, cocoa prices bounced off 10-year lows on April 21 2017 after demand data out of North America and Asia showed signs of a slight recovery, North American cocoa processors reported a 1.2% increase in beans processed during the first quarter of 2017 from a year earlier, the highest first-quarter tonnage since 2015.

The 120,152 tonnes of cocoa beans processed by North American factories in the first quarter of 2017 was also an increase over the previous quarter when 117,588 tonnes of beans were processed. The Cocoa Association of Asia reported grindings on April 20 2017 at 177,450 tonnes, a 19% increase over the same quarter in 2016.

Overall, grindings are forecast to slightly increase by almost 3% to 4.242 million tonnes. If realized, this would increase the total statistical stocks of cocoa beans as at the end of the 2016/2017 cocoa year from 1.401 million tonnes to 1.665 million tonnes, equivalent to 39.3% of projected annual grindings for the 2016/2017 season, according to the ICCO.

China, India, and Brazil are emerging cocoa markets as recent years have given way to more disposable income. Chocolate products are becoming more popular in these countries. India is the fastest growing market for chocolate, at a rate of 17% since 2010 compared to a 9% growth rate in China. Lastly, in Brazil, by 2020, the premium chocolate market is projected to reach 26%.

Consumption processor grindings serve as the key metric for market analysis of bulk cocoa beans and is the last phase in which demand and supply can be equitably compared. The Netherlands is the largest processor of cocoa beans, undertaking approximately 13% of world grindings, followed closely by Côte d’Ivoire, then the United States of America, Germany, Indonesia, Malaysia, Brazil and Ghana. These 8 countries process 70% of all cocoa beans. OLAM, Cargill, and Barry Callebaut are the three dominant global grinders. The global cocoa processing market is valued at US $16 billion.

Value addition has been a long-standing national goal in enhancing earnings from the cocoa industry in Ghana. The current goal in Ghana is to achieve a 50% processed cocoa as a proportion of the exported. Considering the contributions to the total value of exports, the percentage of cocoa export earnings accounted for by processed cocoa beans has risen markedly since 2004, from a little over 10% in 2004 to nearly 40% in 2010. While the proportion of export earnings attributable to locally processed cocoa averaged 25% from 2007 to 2011, ranging from a low of 10% in 2006/2007 to a high of 36% in 2008/2009 and 23% in 2011/2012.

  

There has been a consistent increase in value addition with the percentage processed cocoa increasing from 16.09% in 2007, to 21.38% in 2008, and to 31.19% in 2009 and then to 37.66% in 2010. It appears that this trend will continue as Ghana strengthens its efforts in attaining the goal of 50% processed cocoa exports.

Cocoa beans are first processed into intermediate products, such as liquor, butter, cake, and powder. Between the 2009/2010 season and the 2012/2013 season, Ghana processed 32% of its cocoa bean production. Liquor constitutes the largest portion of the processed cocoa products and is either exported “as is” or compressed to produce butter, cake, and powder before being exported, mainly to Europe.

Processed intermediate cocoa products are in high demand worldwide, especially in America and Europe, where demand for cocoa reached 2.5 million tonnes per year.

The top 5 value added products exported from Ghana comprises cocoa paste and cocoa butter at the very top of the ranking with US$ 539.1 million and US$ 127.1 million in 2010 respectively. The percentage increases of these values compared to the preceding year of 88.68% and 40.80% illustrate the growing significance of cocoa manufacturing economic activities in Ghana and the importance of this in the overall manufacturing activities. This is a positive development and the trend is likely to remain positive.

Ghana’s value chain is therefore confined to the intermediate processing with the grinding of nibs into cocoa paste which increased by 340% compared to cocoa butter exports which increased by 190% over the same period in 2010.

Within this, however, there are substantial differences in the prices of individual intermediates, with cocoa butter earning the highest premium and cocoa powder tending to be less valuable than cocoa beans on a per-tonne basis, as the demand for cocoa powder is lower than that for butter or liquor.

Table 1: Production of Intermediate Cocoa Products in Ghana

Production year	Cocoa beans bought by local processors (in MT)	Processing output (in MT)
		Liquor	Butter	Cake	Powder
2009/10	212,245	122,715	25,326	7,237	16,975
2010/11	229,695	118,437	38,564	12,024	29,593
2011/12	211,709	114,274	30,381	10,375	21,817
2012/13	230,896	117,711	37,174	12,444	26,250

Source: COCOBOD, 2013

Germany and the United States are the largest importers of cocoa butter. The United States – by a significant margin – is the largest importer of cocoa powder (and accordingly, the largest producer of cocoa complementary products). Germany, France and the Netherlands are the largest importers of cocoa paste.

The ICCO Quarterly Bulletin of Cocoa Statistics forecasts cocoa grinding in Ghana to increase from 202,000 tonnes in 2015/1016 to 210,000 tonnes in 2016/2017. Local processors in Ghana include Barry Callebaut, Cocoa Processing Company Limited, Niche Cocoa Industries Limited, Plot Enterprise, Cargill (Ghana) Limited, ADM/Olam, BD Associates and Real Products Limited. The three biggest processing factories owned by foreign companies ADM/Olam, Barry Callebaut and Cargill control 47% of the market. The government owned Cocoa Processing Company controls another 17% of the entire capacity. The rest is divided between local players. Overall, cocoa processing factories in Ghana employ over 1,293 workers.

Exports of cocoa products by eight (8) cocoa processing factories during the 2013/2014 year comprised 111,289 tonnes of cocoa liquor, 35,195 tonnes of cocoa butter, 18,278 tonnes of cocoa cake and 26,991 tonnes of cocoa powder. These products were valued at GH¢892,006,570 (US$ 278,752,053), GH¢539,354,360 (US$168,548,238), GH¢78,401,220 (US$24,500,381) and GH¢152,126,200 (US$47,539,438) respectively - (the dollar equivalents are based on exchange rates at that time).

On a weighted average price basis, intermediate processed outputs earn a relatively stable premium of approximately 200%–220% over the price of raw cocoa beans, However, cocoa paste and cocoa butter are not in the categories of high value-added products such as chocolates, sweets, beverages and cocoa-based cosmetics and the challenge for Ghana remains, how it can break into these high value-added products.

As African markets and industry analysts, we differ from the international view or perception that Africa has no tradition of consuming products made from cocoa due to the relatively high price for chocolate products, hence the low local consumption. According to Nestle West Africa’s 2015 Annual report, consumption of beverages, which includes mainly cocoa brands like MILO and CHOCOMILO as well as NIDO, Nescafe and Nestle Pure Life produced an estimated annual revenues of US$ 306 million (60.9 billion Naira) in Nigeria alone. In emerging markets like Africa, consumers prefer chocolate in the form of drinks/beverages, and cocoa drinks like Nestle’s MILO have a very huge market share in Africa which they have monopolized for decades. With innovation, Africa and therefore Ghana has a huge untapped cocoa beverage and chocolate market. 

Image Credit: Akintunde Akinleye/Reuters