Competing in a world of value chains
There is a saying in Ghana that ‘Ghana is cocoa, and cocoa is Ghana’. Not only is Ghana the second-largest producer of cocoa in the world, but cocoa is an integral part of the nation’s fabric. It is the country’s most important export, accounting for 8% of the country’s gross domestic product (GDP)_and 30% of export earnings. It also provides employment for approximately 4 million cocoa-farming households, most of which are family-run on plots of less than 1.2 acres and suffer from food and income insecurity.
In the late 19th century, Ghana first started exporting raw cocoa beans to the industrialized world, where it was processed and turned into chocolate. In the 21st century, little has changed. Although some of the biggest international cocoa processing factories in the world are in Ghana, a relatively low amount of value-added processing is done locally. The same is true for refined chocolate, since the majority of chocolate bars in Ghanaian supermarkets are imported.
Meanwhile, the global cocoa value chain is at a critical point. While cocoa demand from industrial nations is stable, demand from developing economies is on the rise as a result of increasing per-capita chocolate consumption At the same time harvests are decreasing in producing countries due to ageing cocoa plantations and the impacts of pests, disease and climate change. On a cocoa-farmer level, sustainability and traceability challenges combine with inequality in trade gains to force many out of business. On top of all this, sharp price decreases and increased price volatility makes planning and infrastructure investment very difficult.
In this context the story of Niche Cocoa Industry Ltd., which I head, is compelling. Niche is a Ghanaian-owned company established in 2007 with 75 employees and a focus on grinding cocoa beans into cocoa paste for international export. Ten years on, it now presses cocoa butter and pulverizes powder for export as well and has recently begun refining high-quality chocolate for both domestic and international consumption. Today it is Ghana’s largest processor with 60,000 tons annual capacity and it employs some 400 people. All its beans are sourced from thousands of farms that in turn support the livelihood of approximately one million people.
As Niche has moved up the value chain by transitioning from cocoa grinder to presser to refiner, its success has stemmed from an ability to develop new product lines while continuing current operations. It competes strongly in established sectors while simultaneously expanding its reach to new buyers in new domestic, regional, and international markets. This success is underpinned by Niche’s ability to obtain working capital on affordable terms and use retained earnings to continuously upgrade its capacity, processes and technology.
In addition to running a world-class factory committed to sensible long-term growth, Niche has shown a long-term dedication to corporate social responsibility (CSR). For example, the company received Fair Trade certification in 2011 and is now implementing a programme to provide chocolate milk to many primary schools in Ghana. This programme introduces low-income children to the taste of chocolate while providing an innovative means of increasing chocolate consumption in the country.
One additional way that Niche would like to combine its long-term growth focus with CSR initiatives is by diversifying into other processed food products such as yam tubers. Yams are a low maintenance cash crop that grows well in shaded areas, so farmers can plant them in the same acreage used for cocoa and bring them to market alongside their cocoa harvests. In this way farmers will be able to increase their income while simultaneously improving their food security as yams are a staple food in Ghana. For its part, Niche aims to use its existing supply chain to take delivery of yam tubers and process them within its existing factory footprint.
This type of initiative cannot be undertaken by Niche alone. Rather, it would require a concerted effort by a number of different stakeholders. Among these are local farmer cooperatives; the Ghanaian government; support institutions; financial institutions; international buyers; local retailers; and international organizations. Helping to bring these parties together is where the International Trade Centre (ITC) has relevant expertise. Its Alliance for Action (A4A) model allows each entity to advance its individual goals in a way that mutually benefits all others.
A4A is a multi-stakeholder initiative that brings together public and private actors within an agro-processing industry. Its goal is to help small-scale farmers and SMEs increase their competiveness and income and risk diversification by linking them to leading companies which purchase their crop at a fair premium. This, in turn, unlocks the farmers’ earnings potential and helps them capture more value.
For example, in 2015 a group of cocoa value chain stakeholders, including Kuapa Kokoo Farmer Union, Fair Trade, Yam Development Council, and the Government of Ghana collaborated with ITC to form a commercially driven alliance. Partnership and market opportunities were identified with an emphasis on income diversification, women’s empowerment and climate-smart agriculture. A total of US$260,000 in partner contributions was received, which were used to support 250 cocoa farmers purchase yam tuber seedlings. These farmers ultimately achieved a 22% average revenue increase while simultaneously addressing their food security concerns.
Niche was intrigued by A4A’s approach and joined the alliance in 2017. With a major cocoa industry player now aboard, ITC’s yam tuber initiative can be scaled up by the thousands of farmers in Niche’s supply chain who are also a part of Kuapa Kokoo. For its part, Niche is proud to play an even more active role in helping Ghana progress towards a more inclusive, sustainable and competitive cocoa industry.