 Hello and welcome everybody to our second installment of the SOAS Economics summer lecture series. And I was just telling Sophie and Fuad earlier that actually now we can call it the summer series as the summer has finally arrived in London. And we are even more happier than before now to have you in here despite the nice weather. So welcome everybody. Let me also welcome Fuad and Sophie. Sophie is a lecturer here at SOAS in economics and a dear colleague, we also just talked about how long we've known each other, did our PhDs more or less at the same time in the economics department and on our colleagues at the department. We also have Fuad Mohammed Abu Bakar who works for the Kokoa marketing company GH Limited in Ghana and is joining us today from the Western region of Ghana. So welcome Fuad. Let me just quickly also share my screen with you guys. I hope you can see that. Now just trying to, there you go. So this is the second, as I said before the second lecture in our SOAS Economics summer lecture series that is organized by myself and my colleague Sara Stevano. And today's lecture by Sophie and Fuad is on the Ghana, on the Kokoa industry in Ghana. More specifically, Fuad and Sophie asked the question why Ghana doesn't get the full value of its Kokoa beans providing us with an analysis of global value chains and in general of the insertion of the Kokoa industry into global value chains and what can be actually changed for Ghana to get more value for its Koka production, I imagine. But let's find out from Sophie and Fuad themselves. They've also published their research in the European Journal of Development Research in which they present their findings. So I will share a link to that special issue article in the chat box in a little bit. And they also published on the back of these findings published a article in the conversation with the very same question that is asked today in this lecture. So I will also share that. The way in which these lecture series are organized. So after this introduction, Sophie and Fuad have about 45 minutes to present their papers and their findings. Within these 45 minutes, you can already start asking your questions or leaving comments in the chat box. These questions and comments I will collect and then put to the two presenters after they finished with their lecture and that they can respond directly to these questions. And if you will, then again, you can respond in the chat box again to their responses. So please feel free to already start as soon as you have a question coming into your mind or a comment that is provoked by something that Sophie of Fuad says, just feel free to put your comment or question in the chat box. So yes, I think this is it. Just a quick heads up this meeting is being recorded. It is also streamed on Facebook. We will share the Facebook stream with you in the chat box so you can share it widely with a family who might not have a Zoom and then can also have access to this lecture. And I think this is it from my side. So without further ado, let me pass it on to Sophie and Fuad who will present their findings. Thank you to Piers for this very kind introduction and Sarah and to Piers for inviting us. We're very happy to be here. And also thank you all for joining us today as to be a set despite the very nice weather. Let me share my screen to have you see our PowerPoint presentation. Okay, so as to be a set, we posed the question why Ghana doesn't have the full value of its cocoa beans and how could they change? We look at the cocoa chocolate sector as a whole rather than just focusing on cocoa beans. The presentation I will do the first half of the presentation then through it we'll take over the second half, we have four different parts. First the quick introduction of our research question and then to go focus, we then go into a very brief overview of the literature and financial system. And then I will move into the cocoa chocolate sector more generally and Fuad will then talk about Ghana's cocoa chocolate sector and we'll conclude this policy discussions. As to be a set at any point please post your questions in the chat function and we will respond to them at the end. The presentation is based on a paper that has been published in a special issue by the European Journal of Development Research especially issue was edited by Antonio Andreoni and Hadring Chang on putting production back into development on the development agenda. And the paper has a maybe less catchy title and is called Potentials for Upgrading in Financialized Agri-Food Change The Case of Ghana in Cocoa. To just give you some context within which we locate our research the global chocolate industry is worth broadly 150 billion US dollars. West Africa that is to say Coat of Argana, Nigeria supplies 70% of all cocoa beans globally. Cocoa beans of course are the primary input factor in the chocolate production process. However, the West African economy received less than 7% of that 150 billion US dollars worth of industry. Most of the value added in that sector or the value in a chocolate bar that you will consume is generated in Europe and North America. And this is despite a fast growing demand for chocolate on the African continent which however is commonly matched through imports from outside. So you're posing the question is what hinders so-called functional upgrading? So functional upgrading is the move into higher value added segments of a value chain. That's our research question. The different angles you can take to that particular research question that we're not claiming exclusivity in the sense that we're answering each and every dimension of it. However, the angle that we focus on is that we're looking at upgrading opportunities in the context of financialized food systems. And when we say financialization, we investigate the financialization forces or how financialization might affect upgrading opportunities from two different angles. The first one is financialization at the level of the global cocoa chocolate sector as a whole and in particular financialization of wheat firms. So that's very much in the shareholder doctrine tradition. And that's something that I will discuss in section number three of this presentation. The second part that we look at which complements this first angle that we take is financialization at the level of globalized finance. And this particularly becomes relevant when you talk about the particular case of Ghana. And this is how globalized finance does affect a small open economy such as Ghana. The hypothesis we put forward are two-fold. So we claim that financialization does act as limiting factor. However, there's contradicting tendencies. So that means it both pushes for towards upgrading but then constraints upgrading in important ways. So financialization of the, at the level of the sector, so from the DVC elite firm type of perspective has promoted outsourcing of so-called non-co-activities and that has promoted to some extent value addition in commodity producing economies including a Ghana to some certain extent. So to kind of a middle value semi-processed stage. But at the same time financialization has also contributed to the consideration of power at the lead firm segments, which does hinder and prevent further upgrading functional upgrading towards the actual production of chocolate. At the level of globalized finance we observed that the particular dependency of Ghana and other primary commodity exporting economies on cocoa or primary commodities in general, exports for foreign exchange earnings makes them very, very vulnerable to external shocks. So the challenges that are associated with commodity dependencies are widely known and it's quite difficult to manage your market economy as commodity prices are very volatile. So that makes upgrading or diversification into the higher value added processing stage even more necessary or urgent. However, that same dependency on the cocoa exports for foreign exchange also undermines some of the feasible upgrading strategies that are often proposed in the literature which do or would focus more on the domestic and regional markets first. See, we post the question of whether this actually constitutes middle value added trap where Ghana is being trapped at a position where it is able to move up towards semi processed cocoa beans but doesn't or isn't able to really kind of move in an international competitive stage for its chocolate industry. And the answer to this, there's a risk of it but it can be overcome. So just a spoiler towards the end as for what we'll explain to you later. The first part of our analysis is very much located within two important literatures. The first one is a borate from the global value chain tradition. But in particular, that married with the shareholder value doctrine which is something that hasn't or didn't come out of the global value chain tradition but it's increasingly recognized as a driving force of shaping global hungry food chains. And here again, as we saw just before there's a growing tendencies of multinationals to outsource so lower value added, these are kind of semi-finished products activities. And at the same time, we have an increase in concentration at the lead segment. The other tradition we built on is the food systems tradition where some of the authors have observed or proclaimed a new arrival of a new financialized food regime in which the distinction between those financial actors historically would additionally act only in the center of the sphere. And those who are actually involved in the production and processing of food for the non-financial corporations is increasingly blurry. So there's an increasing overlap across the different activities that these companies do or engage with. So how does that play out? And this is a very brief overview of the literature. So at the level of non-financial actors we observe that there's financialization of both of all three elements which is objectives, investment, and also operations. The first objective and investment is something that is very much linked with the associated with the shareholder value doctrine. Financialization of objectives is something that has been observed more in the food system tradition. Now we observe the first two are very much prominent across three lead segments across different food value chains which are here very typically called first two suppliers which are everything that ranges from trading houses to processes or the way to brand this. So these are the big brand names and then to retailers. Financialization of objectives does summarize kind of the tendencies of offshoring, outsourcing. So all of these different strategies that do boost the so-called rock which is the return on capital investment in order to please shareholders. And we have financialization of investments. So that is the observation that different companies are increasingly engaging in share buybacks. That's the tradition that is predominantly observed for US-based companies. And also that grows in different lead firm segment over the past decade have taken primarily place through mergers and acquisitions rather than investment in productive activities. On the first two supply and retailer segments we also observe financialization of operations and that now reaches into the realm of blurred the lines between financial and non-financial corporations being increasingly blurry in the food systems which means that first two suppliers do now count some first two suppliers count hedge funds and other financial institutions such as banks among their own subsidiaries. And both first two suppliers and retailers offer financial services to their clients that could include everything from insurance with management to credit provisions. And these clients could of course be consumers as well as other actors in the food system. So this is just a visualization of how interlinked these different segments have become. And it looks quite clattered but I think that in itself tells you how closely related these different stakeholders are now in their activities. Some of these linkages are very old and reach back to basically the origins of these value chains. Some more recently have more recently been established. First two suppliers which again are trading houses and major processes have always been heavily engaged in the trading of derivatives in order to manage their price and also their quantity risk. Now the counterparties that these derivatives market so that commodity futures markets commodity options markets their counterparties are usually now nowadays in next funds and investment banks and hedge funds and other financial traders who also trading or taking the other side of these services and buying and selling them. At the same time, first two suppliers are also repackaging these derivatives in order to offer insurance products to other lead segments which are mainly the brand and the retailers. So they offer these as services to their own clients which are the brand and the retailers. Now on the other hand, we have both three lead segments. So first is suppliers, brand and retailers engaging heavily in both trading so selling of debt. So you have corporate bonds and also if they are listed on the exchanges then equity. Now the equity as well as the corporate bonds is being heavily invested in by again investment banks, hedge funds and also private equity funds. At the same time, we have investment bank, hedge funds and private equity to funds being major shareholders of firstly suppliers, brand and retailers and at the same time, firstly suppliers are now accounting as some of their subsidiaries, hedge funds and also private equity funds among their portfolio of so they have diversified into these segments. Private equity funds are usually used by firstly suppliers in order to engage in land grabbing activities and often this can be quite opaque. So there are a couple of horses you've tried to trace this down. On the financial side, we have index funds and hedge funds. You now invest or have started in the early 2000s to heavily invest in any sort of food-based derivative instruments and that even stands the elements such as weather, food, fuel, fertiliser as well as farmland both driven by a very low yields and interest rate environment. At the same time, commodity derivatives at some points in the early 2000s were advertised as being a good hedge against inflation so it was a double win for these more institutional investors as well as the active ones. And also there is kind of a reoccurring narrative of having a commodity super-psychic, food shortages, a part of this being driven by climate change and that of course makes the prospects of rising prices loom on the horizon very prominently and encourages these investors to invest in all of these food-related derivatives. Now we also see hedge funds who invest heavily in equity or in food-based equity and now we package these products now in form of indices and sell them on to clients most prominently or the biggest hedge funds in that business is BlackRock and commodities in general or food-based companies are becoming a prominent part of any wealth managers portfolios. At the same time, we have the first-tier suppliers who are owning some of the hedge funds who are then exploiting their experience and their capabilities in both trading derivatives as well as dealing with actual physical commodity in terms of storage. Now, some of these activities have been made less profitable in 2016 because there was some regulations against insider trading which is something that wasn't prohibited for commodity market for well until then and so regulators have kind of quoted some of these activities and nearly 2000 we also saw investment banks who heavily invested both in indices as well as actual physical commodity most of these activities were abandoned by investment banks so they now only focus on the derivative trading and equities. So just to kind of a slightly less cluttered picture which gives a summary of the involvement of these financial actors in the actual goods market which here is based on the selling and trading of crops and again so that element has been reduced quite a bit and the other entanglement has been summarized by the previous picture. Now, how does all of this look for the cocoa chocolate sector and what are the implications of it? So what I presented previously is very much a summary of different types of literature brought together into these two stylized graphics if you want. We looked at the cocoa chocolate or the chocolate industry in particular and the conclusion there has to be that actually all of these different dynamics are playing out exactly as they're playing out in other food systems. So we see that shareholder payouts have increased quite steadily since the 2000s of the 1990s and that the level of shareholder payouts is very positively correlated with institutional investors so the more institutional investors are holding shares of a food-based company the higher their shareholder payouts they are. So that's very much the shareholder value doctrine. Most companies have now acquired multiple subsidiaries which are mainly managed via different holding companies often registered in tax havens and while branders have accumulated mainly other brands so they have kind of this has been more or less a horizontal concentration when they have diversified maybe in different product groups first two suppliers on the other hand have diversified into all sorts of different activities and also quite vertically now including elements of marketing, transport, storage, sourcing, trading and agricultural service provision so they now active across the whole upstream of the food chain and here also the chocolate cocoa chain. So that means these first two suppliers are heavily vertically integrated which also means staff and information advantage when they trade or manage their risk. Some of that trading is speculative some of it is for insurance purposes and they do benefit from having premium information by that vertical through that vertical integration. This is just a brief summary of the main branders and first two suppliers in the case of chocolate so Mars is the largest model as her say under the brander segment and first two suppliers starting this car guild which of course is not only dominant in chocolate and cocoa but also in grain trade more general also Barry same story and so forth. What you can see here so that couple of conclusions to draw from not all of them of course are listed those that are listed have that's the first kind of first couple of columns here. We see a larger share or percentage of dividends being paid out as a percentage of gross profits and that the higher the share of institutional investors in the entire portfolio of shareholders that hold the shares of these companies the higher the percentage of dividends being paid and we see that they're quite important region of differences so US based companies tend to have a much higher share of institutional investors in their shareholder portfolio than companies listed elsewhere and that's something that's being observed across different sectors in the financialization literature. We can also see that these companies have been heavily engaged in buying or mergers and acquisitions and counting from Mondales and Nestler up to 200 subsidiaries so these are the ones that I could find there might well be more. Now what financialization of or how does the story look like from the perspective of financial actors? So that's the counter side. Now we looked at the how financialization of non-financial actors has taken place now we see how financial actors become more involved in the actual cocoa and chocolate industry. The first is that through the information advantage of first is suppliers. However, this information advantage is increasingly undermined by something called index investors. Index investors are largely passive investors so they're batting on mainly rising prices in the long run and they investing in commodities irrespective of that particular commodities is just investing in the basket. They're not reacting to any sort of markets inside or market information and they have been accused of undermining price discovery in commodity markets and other speculative oriented traders have been accused of the same thing. And at the same time, we have seen a rise of rising volatility and again some of this has been associated with the entrance of non-traditional financial investors in commodity derivatives and commodity futures. And that has made the macroeconomic management of commodity-dependent economies ever more difficult. In the cocoa sector in particular, we had various attempts of hedge funds to corner the market most infamously Amajaro or Chockfinger Anthony Ward who was an infamous, well, he still is, infamous hedge funds manager in soft commodities mainly and he's also the owner of Amajaro which is one of the most until recently a large cocoa trading house. He tried to corner the market that went sideways. I think it was the second or third cornering attempt and in 2014, he had to sell his physical trading business. How about these things do happen every now and then? This is just a summary of, just to show you how much additional financial interest has been channeled into cocoa directives for cocoa futures. So in the left-hand side, we see the total interest so that's basically all the contracts that are being traded added at the exchange, the Ace Ice Futures Exchange here that are cocoa based and the line shows you what is the share of index traders in that group when we see that these days is up to 30% of all the actors in that market are index based. On the right-hand side, we see that there's increasing divergence between the gross in actual cocoa bean production which is dashed line and open interest again, the amount of cocoa that is being traded on exchanges and from the from the 99s but especially from the early 2000s that has started to divert quite dramatically with some interruption around the great financial global financial crisis. Now what are the implications of this? Increasing horizontal concentration at all lead segments also increasing vertical integration of firstly suppliers or in the cocoa context called grinders. So these are the ones that process the cocoa beans, the raw cocoa beans which has increased across or upstream the value chains, all elements of control by these main actors. We also see that only two companies are now controlling half of the world's grinding business which is Cargill and Barry Cullibout which is a high level of concentration and competition in both the grinder and brander sector and relies very heavily on access to international financial markets, very heavily on financial activities rather than productive activities or a mix of both. Also cocoa revenues are becoming increasingly volatile in their different episodes sometimes they're less so sometimes more but they tend to become more volatile which makes export diversification ever more so imperative. However, so at the same time that financialization has led to grinders to access some of their processing activities that some of those has been established in countries where cocoa beans are actually also being grown such as Ghana but at the same time that higher level of concentration are now firmly, so these doors are firmly shut both because competition is being constrained by that level of concentration but also because companies outside of companies have less often access to these international financial markets which are now very much essentially in order to compete. So that's the implication of the financialization of the cocoa chocolate sector on the global level. Now I'm handing over to Fuad who's going to talk you through the Ghanaian cocoa sector more carefully. Fuad, are you here? Yes, over to you. Yes, Sophie, thanks so much for the beautiful presentation. Well, I take over from chapter four where we take the Ghana's cocoa chocolate sector as a case. Now situating Ghana within the SPA producers in West Africa, Cote d'Ivoire, Nigeria, West Central Africa with Cameroon and even Ecuador. Ghana is the only country without a fully liberalized cocoa sector whereas in Cote d'Ivoire it's kind of liberalized in Nigeria, Cameroon fully liberalized with some export taxes. Ghana has a sole seller which is the cocoa marketing company a subsidiary of the regulator, Ghana Cocoa Board. However, the domestic sourcing from farmers has been delegated to licensed buying companies. Previously, it used also to be a monopoly of Cocoa Board but after the liberalization as part of World Bank Structural Adjustment Program, 1992, 93, private engagements was welcomed. So these licensed buying companies buy from the farmers and deliver to CMC at a commission. Within this group, there are multinational companies. Kaggle operates both as a grinder and as a primary buyer of cocoa, Barry does same, I mean, Olam does same as well. And as Sophie mentioned earlier, this gives them an advantage in terms of getting access to information on the crop performance and again, inform the marketing strategy within the financialized sector. CMC deploys or practices a forward selling system which enables Cocoa Board to raise financing largely offshore with a group of syndicated banks to enable it to buy cocoa from farmers. I will highlight on this point because the capital requirements on annual basis is in excess of two billion US dollars and this affords the Bank of Ghana to get access to cheaper US dollar loans. Again, this gives an advantage to other businesses to access financing from the commercial bank. If Cocoa Board or CMC was gonna raise this funds locally, it will lead to liquidity crunch on the domestic financing sector. Yeah, Sophie, let's proceed. Sophie, the next slide, okay. So this summarizes the forward selling strategy where maybe I have to start from the previous slide which talks about the syndicated loan. Now the syndicated loan, as I mentioned, is by a group of banks largely in Europe. Often we do have some local banks with foreign participation. I think we have the standard bank of South Africa also participating in some years. Now this loan is then extended to the buying companies to find out their source of operations from the farmers. Okay, that's fine, Sophie. So instead of these buying companies sourcing from the domestic banking sector which attracts a higher rate, the Cocoa Board or CMC, because it borrows at a much relatively cheaper rate, given out as loans, often at prime rates. So if the prime rate for the bank of Ghana which is Ghana Central Bank is at 14%, then Cocoa Board will extend it at 14 or 15% compared to about 30, 32% that they could have gotten from the commercial banks. Now, before Cocoa Board can raise these offshore loans, it needs to use forward selling contracts or forward sales contract as collateral to get these loans. Today being 2nd of June 2021, if I'm to be on this trading desk selling, I'll be selling crop against the 2021-2022 crop. So I'll be selling crop of June 2022. Now Cocoa Board can miss its high-finding requirements of Cocoa Purchases through this offshore financing. Again, as I mentioned, it relieved the banking sector, the domestic banking industry from liquidity crunch. Since its inception in 1993, Cocoa Board has raised in excess of $25 billion so far. I think the highest rates rarely goes beyond 3% compared to age 13% if it were to borrow locally. Now, the cost to that is, as I mentioned, the forward selling done by CMC. So this limits CMC's negotiating position. As Sophie explained, the highly financialized grinders and hedge funds are able to kind of forecast, okay, when is CMC gonna be in the market? How much has CMC sold or how many tons has CMC sold so far? And how much are they expected to sell before the next indicated load? So it's a bit an easy guess for most of these players. Now they can use that to enhance their market entry and exit strategy. Again, because of the Bank of Ghana's heavy reliance on cocoa revenue, and there's a lot of politicization risk, so for example, when you say the Cocoa Board forecast that the crop is gonna be a bit lower, what it means is that the financing that Cocoa Board is gonna go for should be lower. But again, the financing, even though it's primarily for the sourcing of cocoa beans from farmers, it plays a major role in currency stabilization for the Bank of Ghana, which is Ghana's central bank. Again, the use of some guys contracts. Sophie showed a chart of annual outputs and open interests on the now ice cocoa futures. Both Ghana, Codivoa, or producing countries reference the ice previously life as the price discovery tool for physical cocoa. And we do know that ice has participants which are physical traders as well as speculative traders. And the charts earlier showed the increase in participation or dominance of speculative traders since the 2008 financial crisis, because Cocoa kind of stood out as a good performing commodity despite the credit crunch. And again, the cable that's the GBP British pound and the USD or pounds telling and the USD interchange is risk. I recollect on the, I mean, June same period when the Brexit vote was done. I mean, we saw a huge drop in the cable. Ghana had no role in it, but then the consequence was in Ghana because the gross revenue then has to go down if the cable is down. The next slide, Sophie. I think you're seeing the slides with the next slide. Sophie, let's have the next slide. I already boarded up, but I think you see it with the leg board. You're still there. You might have lost forward. Yeah, Sophie, I think he has had some problems coming in and out of the session. So you might have to. It's fine. Maybe I slowly continue. And when he comes back then he, yeah. Okay, let me continue. Tobias, can you do that? What I'm going to do, Sophie, is possibly open up my, you can proceed with yours, but I'm going to open. Yeah. If you open your slides in parallel, because you're going to have a... Yeah, Sophie, can you hear me? I can hear you. No, no, no, I'm not going to share. I'm not going to share my slide. Okay. We are on slide 19 now. So on slide 18. 19. Is that fine? Should I go back to 18? Okay, that's fine. So, okay. Right. So then we look at the domestic value addition. The government of Ghana or the... No, that's fine. 19 is fine. That's fine. Can I proceed? Yes, you can. We are 19 now. Sorry. Okay, that's fine. So we look at the domestic value addition or the processing sector. Almost all the companies within the Ghana or the processing sector operate within the export zone where a certain kind of incentives are extended to them. One has to do with the bean count, bean discounts extended to these companies. So bean count above 120 bean count per 100 gram goes at a discount of 20%. And as the... That means a smaller bean than the higher the discount that is extended to these guys. Now you compare this 20% discount to about 8% discount if they were to buy these beans elsewhere or on the international market. In effect, the Ghana government and Cookaboard extend about 12% discount on the cost of beans for these guys to establish a factory locally. An additional incentive is the export free zone which gives them tax exemptions on import of raw machinery and others. And again, they are allowed to repatriate 100% of profit. Now these incentives are extended to these companies who are obliged to export minimum 70% of their output. However, Cookaboard operates or CMC operates balance sheets in USD. So the sales of cocoa beans be it for export markets or the domestic processing market is in USD. This ideally should have been a challenge or obstacle to these processing or domestic processing factories. But surprisingly, domestic value addition has dominantly been driven by the indigenous companies. None of the multinational companies be it the top three, Kaggle, Barrick-Hallibod, Olam, which bought over the ADM plant, none of them does tertiary processing. So they all do up to, I think, butter and cake. It is the indigenous Ghanaian companies who do up to consumables as in chocolate and other beverages. So if you are moving to the next slide, okay, so the chart shows how processing has evolved over the past few years. And I must mention, I think the highest processing we have seen was 320,000 tons in 2019. Yeah, 2019, 20. Now this compares with an installed capacity of over 500,000 tons. Now it implies that there's an excess processing gap of about 120,000 tons. And I must mention that this gap is largely by domestic companies or domestic processing companies because access to relatively cheaper funding is a bit of a challenge. So you have almost all the multinational operating at full capacity, but the domestic companies or processing companies operating below capacity. So for you to the next slide. Okay, so within the domestic companies, we have Cocoa Processing Company, which is CPC that is noted or reputed for the Golden Tree chocolate brand. It has been in existence since 1965 and has a variety of Cocoa products from chocolates, chocolate pastes, machine spread, as well as some beverages. Then we have niche Cocoa, so CPC or the Cocoa Processing Limited is Ghana's biggest chocolate producer. Then we have niche, which is a purely private company, also established in 2007, started initially only doing primary processing in Laker, but has extended to chocolates, which is a favorite of many within the Ghanaian markets. They also process butter as well. Then we have Plot Enterprise, which was established in 2009. It produces up to a secondary level, by secondary I mean going beyond just Laker into butter and cake. Beyond these three, there are a lot of small scale artisanal chocolate makers. And I must mention, there's a joint venture between a German investor and the Ghana Cocoa Board. That was the first Cocoa Processing Factory established in Ghana. They also process up to the cake level. Now, beyond all these four that I have mentioned, these guys are great within the export zones. There are a number of small scale artisanal chocolate makers and the chocolate that they are producing is amazing. I must say that when you process locally, you are likely to have more cocoa content in it than what you find somewhere in Europe or North America, which is dominated by milk and sugar. So we're proud to say that domestic artisanal chocolates process a lot of chocolate with high cocoa content in it. Now, despite this apparent success by these grinders and small scale chocolate manufacturers, growth in this area has been a bit of a challenge. We've seen a high level of indebtedness by some of these companies to CMC, largely because they are competing with highly financialized grinders. And again, because most of these guys lack the expertise to manage their risk, because even though you are a processor, you are buying beans, which you can easily hedge against the futures market, but the product doesn't have a market for you to hedge against price risk. So it's a bit of a challenge for these guys compared to the multinational companies who are highly financialized, they have the expertise for some of these things. Again, because most of these small scale chocolate manufacturers are not operating within the exports zone, they don't benefit from those tax incentives. And unfortunately, because the export zone was primarily to enhance exports so as to raise foreign exchange for the country or to relieve the central bank of foreign exchange pressures. Whenever a player within the export zone is selling within the domestic market, so for example, if plot enterprise processes liquor and wants to sell it or butter and wants to sell it to an artisanal chocolate maker, it attracts a tax of about 60%, which is really crippling. Couple with the fact that these guys, even if they are importing small scale machinery, then they pay taxes on it, they pay taxes on import of sugar as well as import of milk. So it's a bit of a challenge, even though they do have the capacity to process, to serve the Ghanaian market as well as the West African market. Now we look at the policy conclusions. So looking at the global sector, looking at the Ghanaian cocoa case, what are the policy recommendations or policy conclusions? The key constraints has been that Ghana cocoa beans remain the most important source of foreign exchange or foreign reserves for the bank of Ghana because investors within the gold and oil sectors are largely dominated by multinational firms. The shareholding of the Ghana government in these sectors, i.e. gold and oil is quite relatively low. And again, as I mentioned, because of the permissibility for these players to repatriate their revenue, I mean, definitely it takes a hit on the bank of Ghana's foreign reserve management. Now another constraint is if the CMC is gonna sell less of unprocessed cocoa beans forward, it implies that the collateral for borrowing is gonna be challenged. But we do have a solution to remedy this situation because what it means is that if CMC is gonna sell fewer volumes forward to get contracts for the offshore financing, it implies that the bank of Ghana or the central bank is gonna get lesser foreign exchange for currency stabilization as well as foreign reserve management. Upgrading strategies must include a system in which cocoa beans are sold to the local factories with lower balance sheets and lower credit raises in one of the charts that I showed. So some of these domestic processing companies are not, they are contracts and acceptable by some European banks in this financing structure, largely because they don't have the requested credit ratings for them to be accepted in there. So we have a way of managing these contract as well, what we call the non-sindicated group. Increasingly, we've seen that most of the banks are relaxing their requirements to allow some of these guys in. And often the challenge is that some of these banks do not have a clear understanding of the cocoa sector because of its Ghana's uniqueness. When you compare the risk levels in Ivory Coast, in Nigeria, I mean it's exceptionally higher compared to the risk level in Ghana. But increasingly we have in these companies or these banks accepting contracts from some local companies as part of the collateral. As a result, we believe that incentives for domestic processing, which are firmly targeted at preserving exchange rate returns, presents the middle value added trap, as Sophie showed earlier. Sophie, can you move to the next slide I have where we look at the ways forward? I already moved. I think it's just showing for you with the next. So recommending the way forward. We recommend the system that preserve the foreign exchange earnings. Okay, that's fine. Thanks so much. So we recommend the system that preserves the foreign exchange role that's cocoa place, as well as a fully supportive approach for domestic processing sector. Of previous discussions, one of the, maybe when we get to the next slide, I'll touch on that. There are proposals that okay, can we look at a long-term financing, maybe a bond, 10, 20 year bond, which gives Cocoa Board access to 2 billion or 3 billion for year one. Cocoa Board can use that for sourcing or partly for sourcing, but in subsequent years, it will gradually relieve itself from relying on this offshore financing. And forget not, Cocoa Board's receivables are in USD. So an approach where we relive or CNC Cocoa Board release itself from the annual, from the offshore financing, will give the Bank of Ghana much flexibility on how it manages its foreign reserve. Again, the domestic or regional markets are key for the chocolate industry before the African continental free trade area. One argument that one could have made is that as the government of Ghana and the private sector increasingly add value to Ghana's Cocoa, be it for the domestic or for the export market, there could be challenge with respect to tariff escalation where the more primary products you export is that there are tax incentives there, but as you export value added products, a heavy tax is slashed on it. At the moment, there are no taxes on Cocoa products into the EU markets, but who knows, as Ghana strives to become a giant chocolate producer for the African markets, possibly an attempt to export chocolate to the European markets could trigger some tariff escalation. But the good thing is that if Ghanaian chocolate makers are allowed to compete in Europe and North America with their chocolates, European consumers will have a good bite of chocolates with a higher cocoa content compared to what they are having at the moment. And as I mentioned, we suggest utilizing the current marketing system to overcome some of these strategies. And I think I did, Sophie, to the next slide. Already there, that's 24. Now, I did mention the factory that was, the first factory that was set up in this country, which is in Takrati in the western part of Ghana. The strategy that CMC and Cocoa Board deploys in this regard is that the CMC markets the products for these companies, and both these CPC, which is the golden tree brand, Cocoa Board is the majority shareholder in there, but with the one called as West African Mills company, Cocoa Board is the minority shareholder with I think 49% shares in there. Now, for these two companies, it has relieved them to some extent of their access to raw materials, which is the cocoa beans that they are supposed to buy with the USD. Again, in terms of their risk level as to how to manage their price risk and others, they leverage on the expertise of CMC, which is blessed with a group of world chain traders. We've all been trained with some of these multinational companies and we do have industrial attachment with them on a regular basis. So for these two companies, as in the public companies with Cocoa Board participation in there, they have access to overseas markets using the expertise of CMC. Can this strategy be extended to other domestic processing companies? Yes, it can be done, but then, hey, this has to be at their core. If they think it's a need, then CMC and Cocoa Board can step in and say that, okay, we can sell your products forward so that we use those contracts as a collateral to extend to you credits on cocoa beans. So there's a strategy that can be looked at. Sophie, so I've moved to the last slide. Okay, so we suggest extending the forward selling strategy to other private processing companies like niche cocoa processing, which is doing chocolates, like plots, enterprise, which is doing cake. Possibly if they have access to easy access to the raw materials, which is beans, it will also motivate them to process up to the chocolates level. Again, can there be a shift away from the annual syndication towards a system with where Cocoa Board finds, as I mentioned, the bond strategy or possibly the government finds a way to give it a seed fund so that it relieves CMC and Cocoa Board from the annual syndicated loan. I mentioned earlier that we can leverage on the African continental free trade area as well as the Ekoa free trade area to develop a chocolate industry to substitute imports. I mean, imports of chocolates into Africa is quite significant, especially to South Africa and the northern part of Africa. Now, when COVID-19 really tested to Borosho, I mean, COVID-19 really tested to Borosho because, I mean, COVID-19 kind of shattered Coa really took a big hit because airports were shut, small markets were closed. Now, for anybody who has lost his income, chocolate wouldn't be the first thing to go by. So demand for chocolate really took a hit. And what it means is that the demand for cocoa beans from Ghana also suffered. Now, as a result, Cocoa Board and CMC were not able to raise enough contracts in order to go for the offshore financing. And this presents a bigger challenge that extends back to the farmers. If Cocoa Board doesn't get easy access to financing, it implies that the license buying company that I mentioned from my meeting slide is that farmers cannot get ready access to cash. And there were instances where farmers have to pay, have to deliver their cocoa but with no money to pay them. And this is unusual within the Ghanaian sector. But COVID-19 presented a big challenge to the financial strategy of Cocoa Board. So maybe a strategy that relies less on annual financing could be a good solution. And as I mentioned previously, such a strategy will give the Bank of Ghana more flexibility in terms of its access to foreign exchange on a monthly basis. On a monthly basis, Cocoa Board receives in excess of $200 million. Now, with the financing strategy as in the offshore financing, if Cocoa Board goes for $1.5 billion, it starts repaying in February. So it uses about seven months maximum to repay the loan. What it implies is that all receivables between February and August or September are held up in the syndicated accounts to repay the loan. So the Bank of Ghana only gets access to the USD largely when Cocoa Board draws down the bigger amount, which is the loan. So if it is 1.5 billion or 2 billion that comes in October and November, that's when the Bank of Ghana gets access to that money. Now, can they, will they manage it much better within a shorter window or when they have it steadily on a monthly basis? Our belief is that a steady approach will be more appropriate. Again, we suggest greater independence between Cocoa Board and Bank of Ghana to avoid overselling in terms of crisis. And lastly, we highly recommend a tax incentive for domestic artisanal chocolates in order to turn Ghana into Africa's Domestic Chocolate Production Hub. And I must mention the current management led by the Chief Executive. I think I don't remember the time we had a Chief Executive who has been very aggressive on unpromoted domestic chocolate production than we have now. And we are fortunate to have the African Continental Free Trade ahead of us being in Accra. So that could be a big push for Ghana to become Africa's Chocolate Production Hub. Thanks so much for listening. Thank you very much, Fuat and Sophie for this very insightful and interesting presentation of a very thorough data collection and interesting findings and policy recommendations you make. There's a few questions that people posted to me in a private message that I first just shared with you that were some of them were definitional questions. There was a question about the meaning of open interest in cocoa trade. And if you could briefly talk about what that means, open interest. And then also in a private message was shared that the question was if any local Ghanaian companies export cocoa butter or other byproducts and if so, which countries do they primarily sell to and what is the value of those exports? So rather than fully processed cocoa, are there any byproducts that they sell to other countries? And if so, which countries? And yeah, and then also in the private message it was asked in the short run if Ghana redirects efforts and resources to improve cocoa processing in Ghana wouldn't that in the long run improve export opportunities and access to foreign currency? So basically it would an upscaling two more sort of capital intensive processing will also lead to an improvement of the local currency in terms of their hierarchy and the international currency hierarchy. If I understand that question correctly because it would improve export opportunities and thereby would make it more interesting for foreign investors. As far as I understand this question correctly please to the person who asked me the question in private correct me if I'm wrong. So these three questions maybe to start off with that were posted to me privately and then we go into other questions that have been posted as well. And in the meantime as well to anybody else if you have any questions please feel free to ask away. Right, I take the open interest one and you take the second one on what is being export at what level of processing? I think Sarah also posed the question of what are the different stages? So what is primary, what is secondary processing? Right. Okay, let me, so the open interest one is very simple. Shall I start with that one? Yep. Okay, so open interest is a term that is associated with all futures trading. So futures are basically standardized contracts. So when it was talking about forward selling cargo futures are the same thing but they standardized contract and or standardized versions of a forward contract and they've been traded on exchanges. So they have a clearing house they have an exchange like the ice in London. Now open interest is basically the number of contracts that are being traded. So if you have a contract that contractors over a set amount of cocoa beans or set amount of kilograms of cocoa beans and you have a buyer and a seller for each contract they are insured by something which is called the clearing house that every contract has a buyer and a seller. Now open interest counts the number of contracts that are outstanding at any point in time and you can compare this. So if you say you have 100 kilograms per contract of cocoa beans and per contract, yeah. And you have 100 contracts then you have a hundred times a hundred kilograms of cocoa beans being traded at that particular exchange at that point in time. So you can compare this with the actual amount of cocoa that is being produced in every single year. And that's what the second graph that governs the right hand side shows you. So what are the amount of contracts futures contracts that are being traded over a particular amount of kilograms of cocoa beans compared to what is the actual amount of cocoa beans that are being produced in every single year? That's what I've been interested in. Fouad over to you. Okay. There's a question on the volume of exports as well as the value. So as I mentioned in the presentation Ghana exports or processes about the maximum we have seen was 320,000 in 2019-2020. Now I must mention as well that the largest or the top non-traditional foreign exchange earner for Ghana is processed cocoa. So whereas a raw cocoa beans is the largest is a key foreign exchange earner for the government of Ghana. The non-traditional exports the top foreign exchange earner again is cocoa, processed cocoa, cocoa products, largely cocoa, cocoa, cocoa liquor, which is cocoa paste. And divide, I don't have the value at hand but maybe I'll find that in later share it with the team. Sarah asked a question about what I mean by primary, secondary and tertiary processing if I got it correctly. By primary, so you have the cocoa beans, the first stage. And again, I will suggest that you take a look at the main paper that was published by the European General of Development Research where we showed the stages in processing. By primary processing, we refer to just grinding the beans into chocolate paste. So you just like grinding peanuts into peanut paste. And that's what we call primary by moving further to press. So you press the paste to get butter, the butter cocoa butter which is the most expensive and the most cherished products it sells. So if cocoa beans is selling at $2,500, you could have butter selling above $6,000. There are times that butter is about $8,000 to $9,000. And that's a major ingredient for chocolate making. So by secondary, we mean pressing further the liquor into butter and cake bean as residual. Then by tertiary, processing further the butter into chocolate or the powder into beverages. We have quite a lot locally here. So these are the, I think those are the questions that Toby read out, except if I missed something. No, I think that was correct. I think maybe another question that is related to this is how these various levels of processing, and if I understood the question from Sada as well, directly are linked to the process of upgrading. So how can sort of a deepening maybe in the primary and secondary stages of processing help maybe also the learning processes along these levels of processing help with the upgrading into the tertiary levels and to more capital intensive processing stages if I understand this question correctly. Right, so I think Sophie on the first slide showed the value of the chocolate industry globally, which is about 150 billion US dollars. However, because these West African producing countries largely export raw materials, they get less than 7% of that global value, even though we must admit that the 150 billion dollars isn't only for cocoa, other raw materials, milk, sugar, packaging, advertising and others. But then the most important chocolate ingredient is cocoa. So it affects what can West African producers and governments do to end much more in the chain. And that's what the upgrading will achieve. Now, if Ghana exports 60% of its cocoa as robins, why wouldn't it export 40% as raw process 60% locally? As I mentioned in explaining the tertiary processing values or secondary processing values, if the cocoa beans, raw cocoa beans sells at $2,500, a primary processing products in terms like Leca, which is cocoa Leca, sells around 3,200, 3,500 US dollars. So that's value addition, both in terms of expertise, in terms of capital and in terms of access to foreign exchange. The higher the participation in the chain, the more the foreign exchange and expertise being built within the local market. And I must mention, there's an ambitious target by both Ghana and Côte d'Ivoire to process 50% of their cocoa output. At the moment, I think Côte d'Ivoire is the largest cocoa processing country in the world. And followed by I think Netherlands, but hey, let's see what happens. Maybe Ghana and Côte d'Ivoire become the, or West Africa will become both the cocoa production hub, as well as the cocoa processing hub, when we have Ghana, Côte d'Ivoire processing more than 50% of their annual output. Great, thank you very much. Tobias, can I just follow up on this? On the one question, I think we overlooked the first time around, which is that whether the medium value added products would not already stabilize foreign exchange earnings. So I just, it's just compliments, but I thought it was just that. So if we look at the different stages, so the raw cocoa beans, the liquor cocoa powder and cocoa butter, and then eventually chocolate, if you think about a particular chocolate bar that you really like, and you buy it maybe every year since your childhood, think about how much this price has fluctuated over the years, pretty little, I would assume. If you, however, and I probably should have included a figure on how a global cocoa prices are moving throughout the century, they're highly volatile. So the higher the level of processing you get, the less volatile. So it's not only the value addition that food has talked about before, which exactly is also like our main focus, but the other focus is of course also moving away from having a very volatile foreign exchange earnings. And the higher the level of processing, the lower the volatility there is. However, liquor is still priced as a reference against the raw beans, would correct me if I'm wrong, while butter and powder, they're usually also referenced as a ratio towards each other. So they offsetting sometimes, butter is more expensive and sometimes powder. So they still reference quite strongly against the raw cocoa bean price. So also quite volatile, while chocolate actually isn't volatile, isn't as volatile food, correct me there with the ratios? Yes, that is correct. And I must mention that you've hammered on the right point. The less cocoa beans the West African countries export, the lower the volume of beans available to the exchange. And what it means is that this can drive prices beyond the current levels, right? That is true. Yeah, and I think that very much links also to a question that Carol posted in the chat and also something that I wanted to put to you guys. Carol said that if this collateral role of Coa is related to the US, if this is similar to what happens with other commodities and whether the diversification of the exported products would help as a solution basically in that collab and what this collateral role of the US dollar, Coa is to the US dollars. And a similar question that was arising for me is that this vulnerability to price, through this price fluctuation and to sort of diversify, are there any attempts to use the high earnings that Ghana has from the export of Coa products and of Coa to diversify their economies and whether or not sort of these natural resource rents or commodity rents are used in any attempts to diversify and go into more high technology, maybe even industrial diversification? Which I start or you want to, you start, you start. Okay, that's fine. So the question by Carol, yes. Sorry. Unfortunately, so I did mention in the presentation that the structural adjustment program led to the dismantling of a lot of marketing boards, which Coa Coa was the only commodity board that was left standing. Everybody who has read about the development commodity trading within West Africa knows that West Africa is to have a lot of marketing boards for different commodities. As part of the World Bank Structural Adjustment Program, most of these boards were dismantled. Coa Coa was stood especially for Ghana. Now, that made it a bit difficult for the other sectors to benefit from these kind of collateral financing. But at the moment, what the government of Ghana has done is to set up what they call the free development authority, which looks at commodities like coffee, palm, cashew, shea, shea nut, shea butter, where they will learn from the expertise or experience of cocoa, so that these products will also bring in foreign exchange for the country. So that's a strategy being looked at. Now, Toby asked a question of using the earnings from cocoa to diversify other sectors. I must mention, so when you speak to farmers, even if a farmer is 25-year-old, he believes that the country is indebted to him because the whole Ghanaian economy was built on cocoa, pre-independence. Most of the educational institutions road infrastructure, the Ghanaian petroleum refinery, most of these sectors were built on the back of cocoa revenues, and it continues to be same. So, cocoa board is a major road funder of financier within the Ghanaian sector. It provides scholarship to words of farmers. There was a case where the government wanted to use cocoa revenue to develop the share sector. That has been a bit of a slow growth, but our expectation is that with the establishment of the tree development authority, this suggestion, as mentioned by Toby, could be aggressively pursued. Yeah, Sophie? Yes, excellent. Ghana is quite proactive in not only with cocoa, but also how to manage its revenues from oil and gold. So, Ghana is a massive importer for, not so much for oil and the global scale, but oilism has a big share in overall exports for Ghana. But it's the largest exporter of gold as well, second-large, I think, of gold in the region and the second-largest of cocoa. So, one could argue it's diversified in terms of primary commodities. However, the problem is that all of these three commodities are highly volatile. And when oil was discovered, which is a relatively recent addition from comparison to gold and cocoa, there were several studies that showed the typical Dutch disease type of effect. So, absorbing this windfall gain story has been present as well. And there are a couple of sovereign wealth funds that are being set up by the government in order to manage this, which is kind of the guidance that's usually provided by the international financial institutions. So, yeah, and historically, of course, Nakruma was one of the first ones who was very vocal about industrialisation after independence and using commodity revenues in order to finance that. Unfortunately, there was a commodity bust which then led to high-endeptiveness, but that is not a new idea. I think Sarah asked a question about the link between liberalisation and financialisation. Yes, also just going to come back as a last question. So, yes, thanks for picking it up, Sophie. Okay, so I think, as Fouad said, Ghana is very unique when it comes to... So, is there any country that hasn't liberalised the coca board? As a result of this, the capabilities of producing high-quality chocolate if you wouldn't have been preserved. So, Golden Tree brand has been in existence since the 60s. The brand name maybe not, but the company that is producing that chocolate. So, capabilities have been there and they haven't been destroyed through liberalisation that have been preserved. And I think that's a massive benefit now for an emerging chocolate industry because you have people who have the capabilities of actually producing chocolate. They know how it's being done, both at the kind of very small, small and medium level. And also large levels of niche is a very large company. So, that's something that has preserved because the system, well, one could argue because the system wasn't fully liberalised. If you go to neighbouring Cote d'Ivoire, what you see is that what the actors that are the licensed buying companies. So, these providers who buy the cocoa from farmers or from local kind of purchasing clerks. In Ghana, they are mixed off. So, some very, very few multinational companies have also registered licensed buying companies because these are only the ones that are also active in the derivative market because they're only there, not because they can earn much money from it, but or get much profit out of it, but they want to get the additional information, advantage and control over the cocoa production. So, for them, that's the only reason or one of the few reasons why they're there. Now, if you look at Cote d'Ivoire, that whole sphere is primarily dominated by multinationals. They're very, if any actually, if anyone might know, local providers that filling that role. So, it's quite an imbalance for it. Yes, you will know better. On that side. No, I mean, it's largely dominated by multinational companies. Yeah, so that's... 90% of them are dominated by local companies. Yeah, so that space has been preserved for domestic providers in Ghana because of that not full liberalisation. When it comes to financialisation, it depends on what kind of definition of financialisation. So, we kind of gobbled together. So, those who are familiar with the financialisation literature have realised that we gobbled together quite a lot of different financialisation traditions, also because that was the main theme of the special issue we were asked to write. But when it comes to the kind of shareholder value type of idea, maybe it has... I don't necessarily think that has made a great difference in the sense how even domestic companies or indigenous companies who grow now, if they want to compete internationally, I don't think they can avoid financialisation to that extent just because that's how companies are operating these days. So, yeah, mixed answer there, I think. Fouad, you might want to add something. You have to find a word before to be asked. No, I think you have answered it all. But one point I will mention, you did indicate oil. So, one of the key strategies why the syndicated loan came into effect was to use Koko Revenue to support Ghana's oil imports back in 1992-93. Yeah, so whereas Ghana requires a lot of... Even though since 2010, Ghana has become an oil-exporting country, we still export quite a volume of processed or refined oil, I should say, for the local market. And in this case, both the private sector and the government requires a lot of foreign exchange for that purpose. And Koko plays a very key role. But in summary, what we seek to say is that, yeah, the system is challenged, but there are solutions where the domestic processing industry can be upgraded to participate highly in the value chain and also allow the government or the Bank of Ghana, which is Ghana's central bank, to have access to cheaper financing through Koko. Okay, thank you very much to both Sophie and Fuat for a very insightful presentation and answering all the questions very thoroughly. And also, thank you to everybody who was here today, participated actively, asked you questions. And just quickly before we go, just to signpost it, in two weeks' time, Professor Mushta Khan from our department will present on feasible anti-corruption strategies and will more generally present on the work of the SOAS ACE project. So please join in on the 16th of June at 5 p.m. The details can be found on our departmental website. In the meantime, enjoy the summer and hopefully it will stay warm. We still have a few hours of sunlight to catch now. So thank you, everybody. Thank you very much, Sophie and Fuat and everybody for joining. Until next time, goodbye from all of us at the Economics Department at SOAS. Thank you for having us.