Ghana Master Concept Note - 3.22.12 - · PDF fileGhana Concept Note Virginia Castro, Anish...

Ghana Concept Note

Virginia Castro, Anish Tailor, Ellen Ai, Yvonne Chen, and Maridela Ortiz

March 2012

Section 2

Concept Discussion

2 Concept Discussion

2.1 Introduction to Ghana

Political Situation

The current government of President John Atta Mills appears to enjoy broad support with their “Better Ghana” campaign. The ruling National Democratic Charter (NDC) is a social democratic party. They seek to harness the power of the free market to protect worker rights and reduce poverty. They also support the rule of law and basic human rights. Atta has announced plans to review the 1993 constitution and he supports decentralization of the government. As Ghana approaches elections this November, it will be important to monitor the political situation as well as the activities of the National Patriotic Party (NPP), the main opposition party.

Economic Situation

Ghana has had steady GDP growth for the past several years. In 2010, Ghana’s GDP was about $31.3 billion, a 6.6% increase compared to the previous year. The growth rate is expected to be 7% in 2012, and around 7.5% in 2013. Agriculture accounted for 30% of Ghana’s GDP in 2010, the industrial sector was 18.6% and the services sector was 51.4%. The services sector accounts for more than half of Ghana’s GDP and has been the fastest growing sector in the past few years. Tourism comprises most of the services sector. It is one of the most important subsectors because it provides a means for socio-economic mobility. Tourism is the fastest growing subsector in the Ghanaian economy with a growth rate of 17%. It has a huge potential for poverty reduction and wealth creation for the population. Ghana’s inflation rate was comparatively steady for the last several years. In 2011, each month’s year-on-year inflation rate stayed below 10% and finished the year at 8.6%. Average inflation in 2012 is expected to be around 8.7%. Ghana is entering a time of traditionally higher food prices due to seasonality, higher fuel prices, and the impact of the new minimum wage. In response to inflation and currency trends, the BoG decided to increase its policy interest rate by 100 basis points, from 12.5% to 13.5%, in February. Leading Indicator 2010 GDP: $31.3 billion GDP growth: 6.6% Inflation rate: 10.7% Exports of Goods & Services: 25% of GDP Imports of Goods & Services: 38% of GDP Trade Balance: -13% of GDP Discount rate: 12.5% Deposit Interest rate: 17.1% (2009) Credit Ratings (S&P): B Key Export Partners: Netherlands (11.8%); UK (7.1%); France (5.8%); US (5.7%)


Financial Sector Overview

Ghana’s banking and finance industry is generally healthy. There are currently twenty-eight private banks operating in Ghana, and the top quartile makes up 53% of the total banking industry. They are mainly domestic banks, and specialize in a full spectrum of commercial banking. Agricultural Development Bank is the only bank that is focused on agriculture, with 9% of market share. The Bank of Ghana is the government-run body that provides regulatory oversight for the industry. Under the Bank of Ghana’s umbrella banks such as Ghana Commercial Bank, Barclays Bank, Standard Chartered Bank, Ecobank, and Stanbic Bank are included. The banking sector is generally healthy, with 70% of assets highly dependent on interest bearing liabilities. Over 80% of the population is unbanked. [See Appendix E].

Legal and Regulatory Environment

Legislation was recently issued against money laundering. Ghana has made progress towards improving the effectiveness of the rules on contract enforcement, security, and collateral foreclosure by establishing a collateral registry, commercial courts, and fast-track procedures for realizing collateral; however, there are still challenges in actual implementation. Furthermore, recently a law was passed to facilitate the operation of credit reference bureaus; recently, a credit reference bureau has started operating with a license. Licenses have also been issued for two others. The Ghana Investment Promotion Centre Act of 1994 (Act 478) makes provision for the automatic award of investment incentives and benefits without prior approval. One benefit this Act provides investors is ownership in local companies and joint start-ups. The minimum required entry for foreign investment in a joint venture is US$10,000. The corresponding amount for enterprises that are wholly owned by a foreign, non-Ghanaian is US$50,000. Foreign investors are also permitted to lease land for a period of up to fifty years with an option for renewal. Another benefit is the exemption from customs import duties on plant and machinery. These include equipment and accessories imported exclusively and especially for establishing enterprises. Act 478 also provides for a depreciation or capital allowance of 50% in the year of investment, and 25% in subsequent years for plant and machinery. For building materials, the capital allowance is 20% in the first year, and 10% in subsequent years. Investors are also provided with full repatriation of earnings in the currency of investment, and free transferability of capital, profits, and dividends. Agro-processing businesses established in Ghana after January 1, 2004 enjoy a five-year tax holiday from the date of commencement of business. Companies producing cocoa by-products from cocoa waste also enjoy a five-year tax holiday from date of commercial production. Incomes from cocoa for farmers are exempt from income taxes. Ghana is a signatory to the World Bank’s Multilateral Investment Guarantee Agency (MIGA) Convention, which provides insurance against non-commercial risks.

State of Agriculture Sector

The main food crops grown in Ghana are maize, yams, and cassava. Ghana has to import key staple crops used for food sustenance. Ghana excels in the fruit sector, producing mango and pineapples for export to Europe. Cocoa is Ghana’s key cash crop however, controlling a fifth of the world market.


2.2 Ghana’s Agriculture Sector

Agriculture-related Policy Overview

The Food and Agriculture Sector Development Policy (FASDEP) was first developed in 2002 as a framework for the implementation of strategies to modernize the agricultural sector. After four years of its implementation, it became necessary to revise FASDEP based on lessons learned and to respond to the changing needs of the sector. As a result, a revised policy, FASDEP II was created. FASDEP II has a market-driven growth strategy, and emphasizes using resources in a sustainable manner to commercialize agricultural activities. It also places importance on enhancing the productivity of the value chain through application of science and technology. FASDEP II has six main goals: 1. A Secure food supply

Productivity of staple crops is low. Seasonal variation in food supply and prices, due to climate change and other natural events, makes it difficult for Ghana to meet its food demands year-round. The broad strategy to improve food security is to focus on five staple crops. Growers of these crops will receive support with irrigation, improved planting materials, and mechanization to enhance productivity.

2. Increased income with reduced variability Agriculture generally brings in lower earnings compared to other sectors of the economy. Incomes from staple food crops are not growing compared to cash crops for export. Seasonal production cycles and prices lead to big swings in income. To alleviate these issues, certain crops that grow well in Ghana will be promoted and commercialized through linkages to industry. Urban agriculture will be promoted as a sustainable way for poor migrants to make a living.

3. Greater competitiveness and better integration into local, regional, and international markets Ghana does not have a standardized way to differentiate between products in domestic markets. Different producers use different weights, measures, grades, and standards. Infrastructure is poor and market information is inadequate, which results in weak connections between local, district, and regional markets. To achieve this goal, Ghana will encourage partnerships between private sector and district assemblies to boost trade in local and regional markets with better infrastructure and sanitary conditions.

4. Sustainable management of land and environment There is a poor understanding of environmental issues related to agriculture. This leads to abuse and destruction of natural resources. There is also no national policy on agricultural land use. FASDAP II will mandate practices for sustainable land and environmental management into agricultural plans and programs. The government will also create awareness about environmental issues among all stakeholders, and form a strong alliance among agencies to ensure environmental compliance. They will also create and enforce the use of community land use plans, particularly in urban and peri-urban agriculture.

5. Application of science and technology to food and agriculture There is often a failure to apply research findings often enough. There is also frequent duplication of research efforts, or poor funding and commitment to agricultural research. Ghana has limited use of biotechnology, and limited research on industrial uses of indigenous crops and livestock. To combat this, a high priority will be given to applied research. There will be more efforts to


introduce innovations for improved production systems, higher productivity and small and large-scale industrialization and processing. The Ministry of food and Agriculture will work with the national agriculture research system to ensure that research focuses on the value chains of commodities targeted by policy.

6. Better coordination among government agencies, development partners, and the private sector The public sector has dominated the delivery of services in agriculture. However, expansion and transformation of the sector requires greater involvement of the private sector as a whole. The Ministry of Food and Agriculture (MoFA) will lead the way in coordinating and harmonizing the activities of municipal and district agencies with donors. The MoFA will strengthen coordination within the sector and between ministries. They are charged with developing and carrying out a communications strategy to improve coordination

Financial Sector Overview Although agriculture accounts for 57% of the country’s foreign exchange earnings, many financial institutions still find it difficult to invest their resources in the sector because of the high risks involved. In general, commercial banks still have significant doubts about increasing their exposure to the agricultural sector. While rural banks are much more conscious of this area, they lack the balance sheet and expertise to address this segment with term finance effectively. Studies have shown that majority of the people in rural occupations such as farming have no access to rural bank credit because of lack of securities. There is evidence, however, that some rural banks are beginning to offer longer terms to some farmers of up to three years. In 1976, the Ghanaian government, through the Bank of Ghana, established Rural Banks to channel credit to productive rural ventures and promote rural development. Currently, there are over 125 rural banks operating in the ten regions of Ghana with over two million account holders. A mandatory allocation of rural banks’ loans have been developed by the Bank of Ghana to ensure that the bulk of the resources go into agriculture, the priority sector in rural bank lending. Crop Overview

Ghana is the second-largest producer of cocoa, with about 20% of the world market. Despite the fact that agriculture accounts for about 40% of GDP and more than half the workforce, Cocoa is the only commercial crop of economic significance. While other industrial crops, including cotton, rubber, and tobacco are grown, they are small potatoes compared to cocoa and other exports. The main food crops grown in Ghana are maize, yams, cassava, and, to a lesser extent, sorghum, and millet. All cocoa grown for export must be sold to the Ghana Cocoa Board (COCOBOD), which aggregates the crop for sale in the international market. International demand and the presence of a single buyer to coordinate trade means the market for cocoa is guaranteed. COCOBOD has experimented over the last thirty years with various market liberalization tactics in order to make the industry more competitive, including privatizing more companies and investing in the development of the market. Technoserve currently runs the Cocoa Abrapopa project in Ghana, which has raised farmer incomes by a remarkable 270%. In terms of staple crops, Ghana is largely a net importer. Of all the key food crops, Ghana is only self-sufficient for one—plantains. Rice has not always been a staple crop in Ghana, and only recently has it become more common. The majority of the rice in the country originates in Vietnam and Thailand, where a combination of small-scale Green Revolution coupled with a high labor capacity yields top-quality jasmine rice at a fraction of the cost of local producers. Rice quality is rated on a scale of 1 to 5, with 1 being the highest quality. Rice from Southeast Asia receives a 2.4 on average. In contrast, Ghanaian rice receives a 4.7. As a result, Thai and Vietnamese rice are popular in the urban areas, where


customers are less price-conscious (even though the difference in price is not huge). Other top rice importers include the United States and Pakistan. One area where Ghana excels in is the fruit sector. The country produces flavorful varieties of pineapple and mango, which are exported to Europe and sold at a premium in supermarkets as fresh cut fruit. Ghana is highly competitive in one key cash crop, namely cocoa, for which it controls 20% of the world market – and involved in the exportation of several others. While agriculture accounts for over 35% of GDP, this percentage spreads across hundreds of thousands of 1-2 hectare, smallholder farms. The big export-industries – timber, gold, other mining varieties, and very soon, oil – are the key drivers of economic growth. However, there are still many opportunities for import-substitution and raising food output for domestic consumption, even if export is out of the question in some cases (i.e. maize, rice, poultry, etc.).

Value Chain Overview

Cocoa: Cocoa has historically been a key economic sector and a major source of export and fiscal earnings for Ghana. The country is the second largest cocoa producer in the world, after Cote d’Ivoire. During 2009-2010, about 570 million tons of cocoa were exported generating revenue of over 1.5 billion dollars. The cocoa sector of arguably makes up about 9% of the Ghana GDP, and is growing at a rate of around 5 percent. Cocoa is harvested in the forest vegetation zone, which consists of parts of Western, Eastern, Ashanti, Brong-Ahafo and Volta Regions. Total land area utilized for cocoa production is about 1.2 million hectares. Notably, the majority of cocoa is exported in its raw state; only about 18-22 percent of output is processed into liquor, paste, and butter for export markets. The cocoa sector in Ghana suffers from a yield gap of about 60%. Despite its importance, cocoa production in Ghana is relative unproductive, with an average yield of about 300 kg/ha compared to a potential yield of over 1,000 kg/ha. Furthermore, the agro-processing industry is limited since agriculture is heavily reliant on the export of unprocessed produce. Raw materials and production is the first stage in the value chain, conducted mainly by smallholder farmers mainly on less than two-hectare farms. Collection and Bagging is the second stage, fulfilled by Licensed Buying Companies (LCBs). The Ghana Cocoa Board (COCOBOD) carries out quality assurance. They are the regulating entity for all cocoa production in Ghana. Afterwards is haulage, warehousing, and other logistics, which are operated by COCOBOD as well as private companies. Marketing/Export is the final step in the value chain. The Cocoa Marketing Company (CMC), domestic processors, external brokers, trade houses, manufacturers, all take part in this step of the chain. [Appendix A]. Rice: Rice yields less than 2.5 metric tons per hectare. There is a total of 122,700 hectares of land under cultivation for rice in Ghana. Rice requires many inputs like pesticides, fertilizers, and seeds in the first step of the value chain. Companies such as Dizengoff Ltd and Wienco Ghana Ltd provide these inputs. The next step, production, occurs on smallholder farms roughly 0.8 to 2.79 hectares in size. In the next step, transport service providers assist aggregators. Processing is the next step. Rice is processed either by milling, or by parboiling. Aveyime is the only modern milling facility in the South. Nasia is a plant that processes rice from the northern regions. The final step is Wholesale Distributors and Warehousing. [Appendix B] Cashews: Cashews comprise of about 6.1% of national GDP. There are 60,000 hectares of cultivated land that produces about 26.4 tons of Raw Cashew Nut (RCN). There are an estimated 70,000 farmers growing


cashews. Seed dealers and agrochemical dealers provide raw material inputs for the first step of the cashew value chain. Production, the second step, is carried out by seed sowing, weeding/spraying, hiring of wage laborers. The third step, processing is conducted by sorting, cracking, peeling, grading, roasting, and packaging RCN. Post-harvest handlers who sell to exporters and traders carry out distribution. [Appendix C]. Pineapples: Pineapples had an export value of US$10.63 million in 2009; the primary market was Europe. There are different varietals of pineapples. “MD2” is the varietal that is most demanded. The major commercial production areas are located in the southern sectors. Small and large-scale farmers conduct the first step in the value chain. Seed inputs for MD2 pineapples are imported from Costa Rica. Large-scale, specialized farms conduct the second step in the value chain, primary production. Major processors and exporters operating in the next step are Blue Skies, HPW, Sunripe Food, Compagnie Fruitiere, Pinora, and Bio Exotica. The Sea-freight Pineapple Exporters Group (SPEG) carries out the final step of distribution and marketing. [Appendix D].


2.3 Opportunity Overview

Value Chain Deficiencies

Cocoa: As mentioned above, Ghana exports the majority of its cocoa in its raw state. The Ghanaian cocoa value chain’s main deficiency is processing, and the fact that the COCOBOD has only partially liberalized the industry. Furthermore, the cocoa sector in Ghana suffers from a yield gap of about 60% due to onerous and traditional farming techniques, lack of use of hybrid seedlings, fertilization, poor irrigation infrastructure and lack of access to finance for farmers/producers. Investment opportunities exist in the agro-processing industry to add value, reduce post-harvest losses, promote price stability and expand demand for local agricultural produce. There is an immense lost opportunity for Ghanaians to benefit from their most important cash crop. If Ghana increased processing of coca beans into more products for consumption, locals could benefit from nutritional value. Ghana has potential to expand its position as a supplier within the mainstream segments of the chocolate industry, especially because its cocoa beans are considered of the highest quality. Rice: Low levels of trust among value chain participants reduce incentives for them to invest in upgrading. The deficiencies vary across all of the different segments of the value chain. Irrigation is currently operating in only publicly owned lands that are managed by the National Irrigation Authority. Property rights in Ghana prevent new Greenfield projects from being developed without the permission of local communities. It is not expected that new land will open up for public development – authorities will have to further develop privately owned rain-fed farms that are unlikely to be sold in large, comprehensive plots. However, with proper management and speedy development of irrigation schemes that are in the pipeline for the Irrigation Development Authority (main implementer of irrigation projects in Ghana), by a trusted and experienced agribusiness manager such as AMSCO—Ghana can take full advantage of this investment opportunity. The assets in the vehicle structure would be some seventy-five valley farms that are yet to be developed. Investors could include the Government of Ghana but a wide variety of equity investors could invest in the assets and convert it into a fund to the great interest of domestic investors such as the three major rice distributors who stand to gain from increasing rice sales and avoidance of buying taxed imported rice. Cashews: Most of Ghana’s cashew value chain is mainly realized through processing and packaging activities. In addition, about 98% of raw cashew nuts (RCN) are exported to India and Vietnam for processing. In order to bolster this market, the Ghanaian government has put in place policy initiatives such as the Food and Agriculture Sector Development Policy (FASDEP) and other favorable export policies. Currently, the cashew industry in Ghana has twelve processing companies with a capacity of 2,137 tons per year. However, only 17% of installed capacity is utilized. It has been estimated that the cashew sub-sector can contribute to pro-poor economic growth by generating over 200,000 permanent and seasonal jobs, particularly for farm laborers and intermediaries (Cashew Development Project, 2008). Furthermore, marketing, distribution and processing of RCN offer more than 5,000 permanent and seasonal jobs annually in the cashew industry as it now stands (CDP 2009a). Among other things, the marketing of cashews stands out as one of the most critical issues of concern for


farmers. There is no central, structured organization to the underlying process, and farmers institute agent to sell RCN to the market. There are a number of major bottlenecks hindering the development of the cashew value chain in Ghana. At the farmer level, these would be limited access to good planting material; a high incidence of pest infestations; weak extension services, and weak farmers’ associations. Meanwhile, limited access to working capital, an inconsistent supply of raw cashew nuts, inadequate transport facilities, and frequent fuel price fluctuations that result in high transportation costs are major bottlenecks on the side of processing companies. Please see APPENDIX C for a more detailed value chain analysis. In an effort to mitigate these bottlenecks, there are opportunities for growth in scaling up production, processing RCN bi-products, improvements in technical training and knowledge sharing among the farming community, increased access to capital to invest in agrichemical and higher quality materials, and creating a governance body to institute quality control measures. Pineapples: Ghana’s pineapples are grown mainly in the Greater Accra, Central, Eastern, and Volta regions. According to the Ghana Living Standards Survey (2009), about 170,000 households (2% of all households in Ghana) grow pineapple, but not all of them on a commercial basis. Ghana’s pineapple production is estimated between 120,000‐150,000 tons annually. Between 2003 and 2007 on average 63% of Ghana’s pineapple production was exported. Since 2004, Ghana’s pineapple export has declined and never recovered, and thus whipped out all the small processors in the market at the end of 2010. According to the value chain and SWOT analysis for Ghana pineapple processing industry, we suggest using SPV to acquire a former processing plant that was forced to shut down due to the lack of supply and financing. Moreover, USAID or the fund manager should think about bringing in Chinese investors and the local government in order to finance and assistant in acquiring idle assets.

3 Items to Consider and Next Steps

Section 3

Items to Consider & Next Steps


3.1 Outstanding Items & Planned Course of Action

o Outstanding item to consider: There is no guarantee for Class B investors, in the vehicle structure as it stands. We believe they should be made Class A because there is no “FDIC” type of organization, or insurance for their investment in these underdeveloped financial markets. It does not appear that incentives are aligned in the current schema.

• Planned Course of Action

Lobby government; ensure investor protection laws are enforced.

• Potential Mitigant Providing a guarantee to Class B.


Section 4

Appendices


APPENDIX A: Cocoa Value Chain Value Chain Deficiencies and Trends The cocoa value chain in Ghana consists of five main stages: 1. Cocoa bean production by farmers

Local smallholder farmers grow the cocoa beans on plots of land less than two hectares. There are approximately 720,000 cocoa farmers in Ghana. The farmers’ estimated mean per capita daily income from cocoa alone is about $0.42; members of farm households depend on cocoa for two thirds of their income and on average earn less than $1.00 per day per capita overall. As a result, investment opportunities exist in the provision of agricultural inputs such as improved/hybrid seeds and fertilizers and pesticides. Farmers do not have access to financial markets and therefore cannot afford the inputs that would make cocoa bean production more efficient and productive.

Figure A.1: Ghana’s cocoa value chain.1

1 Mike Coates, Richard Kitchen, Geoffrey Kebbell, Catherine Vignon, Claude Guillemain and Robin Hofmeister. Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH. Financing Agricultural Value Chains in Africa: Focus on Pineapples, Cashews and Cocoa in Ghana. March 2011.


Figure A.2: Ghana cocoa value chain2

2. Collection and Bagging

Licensed Buying Companies (LBC) does collection and bagging. COCOBOD licenses such buyers. COCBOD uses the network of LBCs as agents to buy bulk and transport production at the local level to its facilities. The LBCs, in turn, are to some extent financed by COCOBOD, which allows them to extend trade credit and other finance to growers. LBCs and growers also use the formal financial system to a minimal degree. Technological and support services require investment. Key areas are in the payment systems and packaging.

3. Quality Assurance The key player is COCOBOD, the national marketing monopoly. COCOBOD raises over one billion dollars of short-term finance annually on the international markets, syndicated between a number of international banks, which it uses to pre-finance production. Though it has an exclusive franchise on the marketing of cocoa, it has released some of its powers to the private sector further down the value chain.

4. Haulage, Warehousing and Other Logistics Investment opportunity also exists in the storage industry. Inadequate and inappropriate storage facilities are constraints to agricultural production thereby contributing to high post-harvest losses and low returns for farmers and processors. In addition, investment in road infrastructure and haulage trucks is necessary.

5. Sales and Exports Sales are conducted by the , an arm of the COCOBOD.As before mentioned, domestic processors have a very small role considering current domestic processing of cocoa is low, at less than 20

2 Isaac Osei. Sustainable Practices in the Global Cocoa Economy: A Producer’s Perspective. Fourth Indonesia International Cocoa Conference. June 28, 2007.


percent. COCOBOD has facilitated the entry of some major industrial concerns into the market. Now, COCOBOD wants to enhance local processing of cocoa to perhaps as much as 50 percent.

SWOT Analysis for Cocoa in Ghana Strengths

• Cocoa is Ghana’s most important cash crop • Cocoa prices on average are less volatile than for example, coffee • Chocolate manufacturers say their main priority is security of supply and diversification of

origins, especially away from Cote d’Ivoire due to instability. • Taxes are less than in Cote d’Ivoire • Better quality cocoa • The cocoa industry is differentiated by the involvement of some major private sector players,

including well-known brands such as Barry Callebaut and Cadbury. These companies sponsor major initiatives to develop both cocoa production and the livelihoods of cocoa growing communities.

• Cocoa can be intercropped successfully during the early plantation development, which can provide farmers with a substitute income stream during the period. It is also possible to adopt progressive re-plantation, which means that cocoa farmers can phase the upgrade of their plantation.

Weaknesses • There is little coordination or cooperative between smallholder farmers. • In terms of productivity, Ghanaian cocoa is still performing relatively poorly—there is a huge

yield gap (60%). • New hybrid varieties need at least five years to produce a crop, and only reach full maturity after

10-15 years. • Only three major cocoa processing enterprises exist in Ghana: The Cocoa Processing Company,

West African Mills, and Taksi. • In economic terms, a lot of efforts and resources go into maintaining the high quality of Ghana

cocoa. Cost-benefit analysis of quality system mostly points to the need to re-consider spending so much to keep quality if efforts are not adequately rewarded by the market.

• According to the World Bank “Ease of Doing Business” report, Ghana ranked amongst the lowest countries for starting a business (104 out of about 180). Costs to starting a business increased 70% this past year.

Opportunities

• There are opportunities to add to the value chain by investing in cocoa processing. • Growing consumer markets • Developing irrigable land through irrigation infrastructure. While Ghana has a potential irrigable

area of 346,000 hectares, only 10,000 hectares have been developed.

Threats • Increasing supply of cocoa, especially from Asia • Increased cost of farming • Ghanaian youth are not interested in continuing cocoa farming


Investment and Optimization Opportunities The most optimal investment opportunity seems to be in processing due to the higher value output, considerably lower spoilage rate, and demand. Currently, the Ghana Investment Promotion Center has identified three projects sponsored by three different companies that are looking for investment partners.3

1) Akanfo Cocoa Processing Ltd.- Establishment of Modern Cocoa Processing Facility

Project Intention

Introduce more efficient processing of cocoa beans (cocoa powder, liqueur and cocoa butter) for export. This is in line with the Government's policy of enabling private companies to add value to raw cocoa beans before export and as a response to the fluctuating cocoa bean price.

Type of Cooperation

Financial

Company's Input

US$ 1,300,000

Anticipated Partners' Inputs

US$ 5,500,000

2) Mahob Holding Company Ltd.- Establishment of Cocoa Processing Plant

Project Intention

Project seeks to establish a processing plant to produce semi finished products such as cocoa liquor, cocoa powder, cocoa cake and butter from cocoa beans for export, particularly Europe. The facility is projected to have a processing capacity of 26,000 tons. The plant requires about 26,000 MT of cocoa beans annually. The company has entered into a bean supply agreement with the Ghana Cocoa Board which states amongst others that; the supplier will sell up to 15, 000 MT of light crop beans in the initial year and subsequently 20,000MT each year for five years. The company has acquired 10.2 acres of land.

Type of Cooperation

Financial, Production

Company's Input

US$9,603,000


US$34,397,000

3 Ghana Investment Promotion Center. http://www.gipcghana.com/page.php?page=168&section=32&typ=1&subs=


3) Fujotek Ltd.- Establishment of a Chocolate Manufacturing Plant

Project Intention

The projects aim at establishing a plant to manufacture chocolate of excellent quality by adding value to Ghana's semi-finished cocoa products. This is based on identified high demand/market for chocolate products in and outside the country. It has obtained land of two acres located in Somanya (in the Eastern Region) for implementing the proposed project. The promoters also have access to lands located in Otinshie (East Legon) and Tema, all in the Greater Accra Region, which could be made available for the project.

Type of Cooperation

Commercial, Financial, Technical

Company's Input

US$190,000


US$2,300,000

Proposed Solution While the general lack of term finance in Ghana is a problem, the major impediment to the capital financing of small-scale cocoa production is the very long payback. Working with COCOBOD, perhaps a partial guarantee scheme could be developed for high-potential farmers, which would encourage the entry of more private sector finance. Cocoa farmers do have options for working capital, but perhaps these could be leveraged through the application of development finance credit guarantees. Asset Acquisition and Management Since secondary processing companies are not as prevalent in Ghana and are still a relatively new and limited sector, the asset for acquisition will likely be idle land that can be used to construct a processing plant. Partnership Roles • Borrower/Beneficiary COCOBOD, Enterprises stated above (project partners), farmer cooperatives

• Financing Partners IFC, CBN, Export Development and Investment Fund, Ghana Venture Capital Fund, CDC Capital Partners, Private Enterprise & Export Development Fund, GTZ Fund for the Promotion of Micro and Small Enterprises

• Guarantors USAID, MIGA (The World Bank Group)

• Technical Assistance USAID, IITA, IFPRI, FAO, UNDP

• Farmer Co-ops N/A

• Private Equity Firms Carlyle, Pan African Fund

• Owner/Operator Akanfo Cocoa Processing Ltd, Mahob Holding Company Ltd., Fujotek Ltd.


Vehicle Structure and Execution Strategy While the proposed vehicle structure is mostly suitable to implementing larger scale industrial processing facilities, there needs to be some modification these assets do not currently exist or enter in a joint-venture with one of the proposed projects above. The model will need to be modified to include an equity investor who can contribute a larger amount of capital for construction costs. In this case, USAID either need to consider only equity investors who can provide that much capital, or allow for some junior debt in the construction and capital improvements portion of the vehicle structure. There are no farmer cooperatives in the cocoa sector, which would be beneficial to implement in order for them to be involved. COCOBOD will be a major player in the structure as they are currently the body that provides guarantees and facilitates financing to the other entities.


APPENDIX B: Rice Value Chain Value Chain deficiencies and trends In the interest of simplicity, Ghana’s domestic rice value chain can be split into four segments: 1. Input supply

The local rice channel starts with input distributors that import and then sell inputs such as fertilizer and pesticides to retail shops, who then sell to smallholder farmers and a few commercial farmers.

2. Production The majorities of rice farmers in Ghana are sustenance farmers who do not sell commercially, do not use mechanized farming methods, and depend on rain for paddy growing. As a result, the yields are incredibly low: less than 2.5 metric tons (MT) of rice per hectare (compared to four MT/ha in Vietnam). A few commercial farmers are able to buy from individual smallholder farmers and then sell to aggregators and processors. In total, 122,700 Ha are under cultivation and 181 MT milled accounts. This domestic rice production accounts for 30-40% of the 600,000 MT in annual domestic consumption of milled rice. Farmers receive support services (land preparation, animal traction and irrigation services) from the Irrigation Development Authority, loans to increase land under production from financial service providers and mechanization services from private mechanization firms.

3. Aggregators/Processors After the rice is harvested, aggregators buy from commercial farmers and sell to rice processors, who then parboil and/or mill the rice manually. Some are sent to commercial mills that are scattered throughout the growing regions. Then processors package and sell the rice to the rice importers. Millers form part of the processor group and transport service providers assist aggregators in the collection of the paddy from farm to farm.

4. Distributors and Retailers Finally, rice is sold to major rice buyers who then sell to urban retailers. Several rice importers serve as buyers of domestic rice, who then re-bag and sell and the local rice under various brand names (Togo Marshall is the most popular brand). Retailers include urban markets and supermarkets.

As it stands, the value chain faces a number of deficiencies across each node of the chain in addition to the fragmented coordination among the various actors. Some sort of financing can address the following deficiencies: 1. Input: Finance to introduce varieties with import substitution potential to large buyers in dedicated supply chains (requires expanding importation of certified seed) 2. Production: Finance to private distributors and service providers to expand service of small-scale tractors for planting and transplanting, harvesters and threshers to farmers, and thus allow production to become mechanized; Increase farmers’ access to irrigation infrastructure such as energy-efficient pumps to add an extra growing season; text messaging service for market information. 3. Aggregators: Finance for line of credit to farmers and introduce quality control; improve poor roads and small-scale transport


4. Distributors and Retailers: Finance to upgrade from inadequate bulking and storage facilities; poor roads; small scale transport; finance to reduce warehousing costs for retailers in South who are currently making losses.

Figure B.1: Rice Value Chain

SWOT Analysis for Rice in Ghana Strengths • Rice is a staple crop. Currently, Ghana imports up to 70% of its domestic rice consumption. The

Food and Agricultural Sector Development Policy (FASDEP) has identified rice as an important food crop that should be given special attention for food self-sufficiency.

• Ghana has ideal rice growing climate, there is high rainfall and fertile soil, especially in lowland rain-fed areas in the North and the South. There are over 120,000 hectares already under cultivation for rice.

• There are already mills, warehouses and other rice-processing infrastructure in Ghana so there is no need to send it to another country for processing.

Weaknesses • Low levels of trust among value chain participants reduce incentives for participants to invest in

upgrading. • The deficiencies vary across all of the different segments of the value chain. • Many of the changes require amendments.


• Property rights are not always clear in Ghana. • Irrigation is currently operating in only publicly owned lands that are managed by the Irrigation

Development Authority. Property rights in Ghana prevent much new Greenfield from being developed without the permission of communities. It is expected that not much new land will open up for public development – authorities will have to develop privately owned, rain-fed farms that are unlikely to be sold in large comprehensive plots, even further.

Opportunities • There is increasing demand for rice. In fact, there are special export licenses granted for imported

rice during Easter and December because of a shortage of supply during that time. Demand is growing and it is in Ghana’s interest to increase production of rice, especially those aromatic long grain varieties that are similar to the imported ones (import substitution varieties).

• Ghana has the best business-enabling environment in SSA, attributed largely to its political and economic stability. Ghana compares favorably to other SSA economies in terms of financial market development. There is a functioning Securities Exchanges Agency that oversees investment and REIT vehicles .

• The purchase of rice from smallholders by larger commercial farmers creates a market for small holders and serves as an aggregation point where quality-control measures can be implemented.

Threats • There is increasing competition from neighboring West African countries such as Nigeria and

Senegal. • Import tariffs on rice create a situation in which domestic rice producers do not actively compete to

become more competitive in production. Once the tariffs are lifted, imports would cancel out production gains even if Ghana were to become self-sufficient based on relative price and supply reliability. Imported rice comes primarily from Pakistan, India, Vietnam, Thailand and Taiwan.

• Ghana suffers from poor roads and thus relies on a network of small private trucks that do not take advantage of economies of scale. Transport costs are mainly added at the point of aggregation and distribution of packaged rice, which means low profit margins for participants at the end of the value chain.

Investment and Optimization Opportunities The most optimal investment opportunity seems to be in irrigation provision for lowland rice farmlands. While there are many possible assets that could be acquired to upgrade the value chain, investments that introduce irrigation technology, such as simple pumps, will have the biggest impact. They can solve the main problems behind production: inability to take advantage of a second growing season each year through irrigation. Currently, irrigated fields with similar climate suggest that rice yields could increase by over 100 percent and possibly upwards of 300 percent. Higher rice production can create more business at all points on the value chain and move production forward to meeting the quantity demanded of the domestic rice consuming market. Proposed Solution Asset Acquisition and Management Since irrigation has not yet reached the majority of the lowland rain-fed rice farm in Ghana, the asset for acquisition will likely be idle irrigation equipment such as pumps. Given the high default rates of farmers to pay back agriculture credit lines, these services should be provided to them through the government, who already provides support services to smallholder farmers though the Irrigation Development Authority.


Partnership Roles • Borrower Government of Ghana

• Financing Partners Debt contributors will be Oikocredit, Ghana Commercial Bank, Agricultural Development Bank, National Investment Bank, SIC Insurance Company Ltd, FMO, FINNFUND, Ghana Union Assurance, HFC Bank, IFC, and CBN. Given past funds (Venture Capital Trust Fund), the debt to equity ratio should be 80 to 20.

• Guarantors USAID, MIGA

• Technical Assistance USAID, AFD, JICA, Ghana Irrigation Authority, ACDI/VOCA, FAO

• Irrigation schemes Smallholder farms identified by aggregators in the lowland rain-fed growing areas in the North as potentially adding a growing season with irrigation development of their farms

• Private Equity Firms Activity Venture Finance Company, Ebankese Venture Fund, Gold Venture Capital Limited, Bedrock Venture Capital Finance Company, and Fidelity Equity Fund Limited

• Owner/Operator African Management Services Company (AMSCO)

• Regulatory Bodies Customs Excise and Preventive Service (CEPS)

Ghana Standards Board and the Food and Drugs Board (FDB)


Vehicle Structure and Execution Strategy With proper management and speedy development of irrigation schemes that are in the pipeline for the Irrigation Development Authority (main implementer of irrigation projects in Ghana) by a trusted and experienced agribusiness manager such as AMSCO – Ghana can take full advantage of this investment opportunity. The assets in the vehicle structure would be 75 valley farms that are yet to be developed. Investors could include the Government of Ghana but a wide variety of equity investors could invest in the assets and convert it into a fund to the great interest of domestic investors such as the three major rice distributors who stand to gain from increasing rice sales and avoidance of buying taxed imported rice. However, instead of the Irrigation Authority running the project as it normally does, which have shown mixed results, AMSCO or an AMSCO subcontractor that specializes in agribusiness will implement the irrigation upgrades. The project will support lowland rice production of up to 6,000 hectares of smallholder farms located in 75 valley bottoms in the Northern, Upper East, Upper West Regions and northern parts of the Volta Region of Ghana. By the project completion date of 2018, a total of 16,250 metric tons of milled rice would be produced annually to add to the existing production. 2,500 farm families (or 15,000 people) will be involved at the production level. The model will include an equity investor, such as the PE firms mentioned and the Government of Ghana through its Irrigation Development Authority, who can contribute a large amount of capital for investment in irrigation infrastructure in existing rain-fed lowland rice farms. Debt owners will invest in much of the initial investment before the firm breaks even. The internal rates of return per year should not fall below 16%, assuming we can benchmark against high performing agribusiness funds in SSA.

To finance asset acquisition and manage production, Cash Investors (Class B) deploy capital with a variety of risk profiles to Local “REIT”:

• Capital investment via Feeder Fund (partially guaranteed)

• Direct loan (partially guaranteed)• Direct equity investment

(unguaranteed)• Direct loan (unguaranteed)

Original Owners (Class A or Farmers) offer “defunct” asset to “REIT”-type company retaining 50% ownership of asset.

The REIT is invested in by banks and equity investors. An In-country Operator can invest in the REIT as well.

Fund Manager enters into Investment Advisory Agreement with HoldCo and receives management fees [and upside payments via (a) cash proceeds from exercise of Class C options or (b) a “sweep” of cash balances at Asset SPVs at change of control

FundManager

Local“REIT”

OriginalOwners

(ClassA)

CashInvestors

(ClassB)

Irrigation1 Irrigation2 Irrigation3

ClassC

In-CountryOperator

1 2

Guarantors (USAID& OTHER)

4

3

1

2

3

4

HoldCo

LocalBank


To address the problem of price fluctuations and stable demand across the value chain, the domestic debt should be issued in cedi as fixed interest loans. Notably, it is hard to securitize in an environment where there is no information on yield curves. Equity investors will be assured that inflation and foreign exchange rate risk is hedged through swaps but that calculation will have to be further explored. Since Ghana does not have a sophisticated futures market for rice, which is not a cash crop, the contract will have to be between the buyers and the commercial farmers who buy from the smallholder farmers. To address the problem of weak linkages across the value chain, commercial farmers can be utilized to buy in large amounts, and offer production bonuses to farmers who sell large amounts of rice, thus forcing farmers to coordinate in producing a certain amount of a certain quality of rice. These commercial farmers, much like aggregators already do, could also make agreements to sell at certain prices and quantities to the processors and even hire their own transport providers who collect all the rice from these 75 valley bottoms in a speedy and efficient manner through fixed contracts. As in the Nigeria case, the price guarantee would act as an informal futures contract where one party agrees to buy a certain quantity of input from another party at a specified price to be paid at a specific date in the future.


APPENDIX C: Cashews Value Chain Value Chain Analysis and Deficiencies There are a number of major bottlenecks hindering the development of the cashew value chain in Ghana. At the farmer level, these would be limited access to good planting material; a high incidence of pest infestations; weak extension services, and weak farmers associations. Meanwhile, limited access to working capital, an inconsistent supply of raw cashew nuts, inadequate transport facilities, and frequent fuel price fluctuations that result in high transportation costs are major bottlenecks on the side of processing companies.4 The following is an in depth analysis of the cashew value chain: 1. Primary Production and Farming This part of the value chain consist of suppliers that provide producers with specific inputs such as seedlings, pesticides, herbicides, fertilizers, processing equipment and packaging materials. It is important to note, that seed dealers are found only in a few cashew producing areas and that only a limited number of agro-chemical dealers are located in Greater Accra. The table and map below illustrates the major area of geographic areas where the Cashew Industry operates.

Deficiencies

Access to Capital: A majority of smallholder famers need loan to purchase materials and agrichemical products for their crops. Due to high interest rates and the hesitance of bank to lend to smallholder farming communities this is prohibitive to yield production. Difficulty in accessing farm inputs and good planting materials: The existing distribution system for farm inputs is generally weak and characterized by a lack of funds, unreliable

4 African Cashew Initiative: A Value Chain Analysis of Cashew Sector in Ghana February 2010


suppliers and poor infrastructure (feeder road networks, storage facilities) in rural areas. Furthermore, farmers lack access to agro-chemicals needed for increasing the productivity of cashew farming. High incidence of pest infestations: Devastating effects from pests and stem borers lead to secondary infections and subsequent losses in yield and quality. There is a need for the distribution of agrichemical products. Technical Training: Modern farming methods would prove to be cost effective for famers, than using antiquated methods.

2. Production & Processing Smallholder farmers (88%), who are usually organized into associations, mostly carry out a majority of cashew production. Most of these producers rely on family labor or hired labor, especially for weeding and harvesting activities. On the other hand, cashew process is mainly located outside of Ghana in south East Asia, where there is a high demand for cashews. As for RCN originating from Ghana, the vast majority are exported to India, where they are converted into plain kernels that are then exported in bulk to markets in developed and emerging countries. It is mostly, outside of Ghana that the further processing takes place with regard to roasting, salting/seasoning, packaging, and labelling/branding.

In Ghana there are only 12 processing companies, with a total installed capacity of 2,137 t per year, and 21 kernel-roasting companies dispersed around different parts of the country However, in a study published by the Cashew Development Project in 2009, only 17% of the installed capacity was used. Furthermore, the only medium processing company is Mim Cashew Products, which has an installed capacity of 1,000 t per year .The remainder are small enterprises with an installed capacity ranging from 10 to 250 t per year.

Deficiencies High Prices: The “Cashew Processing, Marketing and Consumption in West Africa” (USAID 2007) study concludes that the average retail price of locally processed cashews is highest in Ghana and Côte d’Ivoire – higher even than that of imported Asian cashews. If prices cannot be reduced significantly, the local market for cashews will be dominated by imports. It is important to note that 98% of Raw Cashew nuts are exported, because it is cheaper to process cashew products abroad than at home. High interest rates and lack of working capital: High interest rates charged by financial institutions on loans and overdrafts are said to be one of the major factors negatively impacting processing. In addition, lack of working capital prevents the expansion of processing companies. Inconsistent supply of RCN to processing companies: although RCN are exported, there is an inadequate supply to meet the needs of existing local processing companies.

Weak farmer associations: These associations do not have a strong enough collective voice to promote the interests of their members when it comes to selling RCN. Members lack the bargaining power needed for negotiations with traders.


3. Distribution This part of the value chain consists of local traders, intermediaries, retailers and exporters. In Ghana, there are nine local raw cashew nut buyers and four foreign companies in operation. The agents of these companies purchase raw cashew by travelling to marketing centers to another and sometimes travel to the farming communities themselves. Agents and traders are responsible for transporting cashews to ports and pay for the related costs. Price for raw cashew varies widely within the season and high transportation costs make it difficult to move raw cashew nuts within the country.

Deficiencies

Training on road safety issues & Technical Training: Employee training and technical knowledge of how to operate large truck is necessary as well as adequate knowledge of maintenance issues about using large machinery.

Strong and reliable haulage trucks: There needs to be investment into good quality vehicles to carry and distribute raw cashew nuts for timely delivery to processing facilities and export.

4. Marketing The marketing channel consists of producers, village merchants, or agents and exporters. Since this is an activity restricted to only four months in the year, there are no exclusive traders for raw cashew nuts. Often, there are intermediaries or agents acting between traders, exporters and processing companies who provide information services and make deals.

Deficiencies

Lack of Structure for Whole Market: Marketing is one of the most critical issues of concern for farmers. There is no structured organization to the underlying process of the wholesale market of raw cashew nuts. The few marketing companies visit known and established cashew farming communities either individually to purchase RCN directly, or to collect the RCN already purchased at an agreed price by their locally commissioned people and local marketing agents. Lack of Centralized Information & Quality Control of Exports: There is no central information system or agency that monitors the global distribution of products and market trends, nor that is able to disseminate information to stakeholders in the sector effectively.


SWOT Analysis for Cashew in Ghana Strengths • Cashew has been found to be a valuable tropical cash crop that can grow on marginal lands. • Cashew tree has the ability to stabilize the soil in which is grows, provide an alternative a source of

fuel wood, and mitigate the effects of drought. • Increased global demand for cashews in both developed and developing countries. • Strong government and policy support for growth of this industry.

Weaknesses • Industry suffers from asymmetric information on demand, supply and prices. • There are no large-scale processors; only one medium sized processor in the country and the rest of

the market is small-scale processors. • There is very limited amount of access to capital for growers to produce higher yielding and better

quality crops. • Severe lack of technical training and • Decentralized export market farmers are unable to command prices in the brokering of wholesale

cashew transactions. • Insufficient transportation infrastructure and vehicles to move production. • Extremely dispersed and fragmented value chain.

Opportunities • Availability of land in environments suitable for cashew production • Increased farmer interest in cashew production due to a flourishing export market • The enabling environment facilitated by government support for infrastructure support (e.g. 70% of • the feeder roads in major producing areas have been rehabilitated • Geographical proximity to primary consumption markets in the U.S. and Europe • Associated employment opportunities (seasonal and permanent) for rural people • Donor agencies that support cashew production • The positive contribution of cashew trees in terms of desertification, plus their resistance to drought

Threats • There is increasing competition from competitors in south East Asia, which produce better quality

cashews for a cheaper price. • High transportation costs due to lack of infrastructure and decentralized market place. • There is only a 4-month harvesting period, which does not provide stable cash flow; it might benefit

USAID to look into cashew bi-product alternatives. Investment and Optimization Opportunities Some opportunities for investment and optimization include:

Scaling-up of processing plants and consolidate the small scale producers In doing this it will be important to implement training activities and promote good agricultural practices and sharing information on marketing agricultural goods.

Forming a trade association and a central governance entity to oversee the cashew industry will address quality control issues and standardize process of sales. An improved legal, organizational


and policy framework will help organizing this industry. Furthermore, supporting a strong cashew farmers’ co-operative will enable members to gain access to credit and possible achieve economies of scale, thus reducing the domestic prices for cashew products.

Increasing access to improved planting material for farmers: The production of grafts for planting helps increase smallholder access to better planting material, and thereby raises the productivity of Ghanaian farmers.

Mapping of Farms and development training on quality standards: Ghanaian cashews have to meet national and international quality standards in order to be competitive in national and global markets. This is why training on quality standards is of crucial importance to project success.

Increased Access to short and long term credit: For both farmers and processors, access to credit will increase the economic profitability of small-scale cashew farmers and raise the turnover of national processing companies. In Ghana, 98% of the cashew nuts produced are exported in their raw form due to bottlenecks in processing that reflect poor access to credit. There is limited support for the cashew processing industry in terms of credit.

Secondary processing: Because the cashew harvest season is only 4 months, there should be an investment in utilizing installed capacity year round by focusing on cashew bi-products. For example, a bi-product of cashews nut could be the production of alcoholic and non-alcoholic beverages from cashew apples.

It is through large quantities and sophisticated production methods that stability in the value chain since they can give some assurance on the quantity demanded to primary processors and farmers. Proposed Solution Asset Acquisition and Management Since there are only 12 processing plants and only 1 medium size company, the asset for acquisition proposal will be fore already existing smaller processing plants or idle land in which a processing plant can be constructed in a geographically central area. Partnership Roles • Borrower/Beneficiary Shop Best Ltd., Nsuro Farms. Kona Agro-

Processing, Mim Cashew Products, NASAKA, Latemu • Financing Partners Ghana Commercial Bank, Agriculture Development Bank, EcoBank, Standard

Chartered, Stanbic.

• Guarantors USAID

• Technical Assistance Cashew Development Program, CDP/TECHNOSERVE, SGS, Quality Control Division of COCOBOD

• Farmer Co-ops Department of Co-operatives

• Private Equity Firms Pan African Capital, EmVest, StanChart, Pearl Capital Partners (PCP), Advanced Finance and Investment Group (AFIG Funds), Phatisa’s African Agriculture Fund (AAF).


Vehicle Structure and Execution Strategy While the proposed vehicle structure is mostly suitable to implementing commercial and industrial processing facilities, it fails to take into account the development aspects of the value chain, such as the government investments in developing better transportation infrastructure and technical training and awareness of the agriculture sector’s needs. For the cashew industry, the potential investment opportunity lies in getting domestic production online. Thus, there are no idle state assets to be acquired unless the state has claims to the processing plants. Within the context of the Cashew industry, it would be of interest to consider creating marketing channels for cashew bi-products into large-scale production. The model needs to be reconsidered in the case that the current owners do not want to sell their company to foreign or domestic investors. In fact, the concept of granting Class A investors bonds and senior debt holder ahead of Class B institutional investors needs to be revised. The Class B investors in the proposed structure have the capital and need incentives and or some form of investor protection to invest into these portfolio companies. Thus, it is recommended that Class B investors become the senior debt holder to these assets. Furthermore, this model assumes that the operators of the facilities will take on the purchasing risk of a highly price sensitive product. These risks need to be mitigated by hedging against these price fluctuations as part of the investment strategy.


APPENDIX D: Pineapples 1. Primary Production and Farming

In this category, these are small-scale and large-scale farmers, and most of the small-scale farmers are contract suppliers to processing/exporting corporation. Exporters rarely purchase from spot markets, i.e. from smallholders without contracts (Fold and Gough, 2008).

According to the Ghana Living Standards Survey (2009), 170,627 households (2% of all households in Ghana) grow pineapple, but not all of them on a commercial basis. Ghana’s pineapple production is estimated between 120,000‐150,000 tons annually. Between 2003 and 2007 on average 63% of Ghana’s pineapple production was exported. An estimated 30% of them was used for processing (juice, dried, fresh‐cut) whilst the remaining was exported as fresh pineapple. Pineapples from Ghana are almost entirely directed to the EU.

Unfortunately, the current structure of the Ghanaian pineapple industry has been affected by shifts in the international demand from the formerly dominant Smooth Cayenne variety to the MD2 variety. MD2 pineapple requires high cost of inputs such as planting materials and appropriate chemicals and fertilizers. Meanwhile, rural smallholder farmers tend to be poor and have nonexistent cash flow. Moreover, this higher input cost was accompanied by low prices that have stabilized again since 2007. The shift to the MD2 variety has driven many farmers, in particular smallholder‐based cooperatives, out of the export market.

On the other hand, out growers associated with major processors are able to get funds because the banks trust the farmers to repay since they have contracts with a specific buyer.

2. Large Farmer/Processor/Exporter The main private pineapple exporters are large-scale plantations that also offer contract farming to smallholders (so called out grower schemes). Some of these Exporters with own plantations use external purchase to dampen the risks from unexpected EU demand fluctuation. Conventional pineapples are primarily produced in large-scale plantations owned by a small number of transnational companies.

3. Small Farmer/Processing Company In 2008, the exportable pineapple, which was produced by smallholder, was estimated to be 40-45 percent (UNCTAD, 2008). According to the Sea-Freight Pineapple Exporters of Ghana (SPEG), today smallholders produce 39% of exports of pineapple. During the shift to the new MD2 variety many smallholders have lost, and up to today not regained, their access to the export market. Up to 2010, all the small players had been wiped out from the market. Efforts by the government and donors are under way trying to re-link smallholders to the export market for fresh and processed pineapple.

4. Marketing and Distribution Most fruit is shipped to the EU by sea (about 90 percent); some fruit is exported by air (about 10 percent). Ships usually land in Belgium (35.3 percent in 2007) or France (41.8 percent in 2007) and the pineapple is transported to other European countries from there.

SWOT Analysis for Ghana Pineapple Strengths

• Ghana is the third largest pineapple supplier for European Market.


• Strong support for pineapple from Ghana government. Government and donors are still making efforts and trying to link smallholders to the export market for fresh and processed pineapple.

Weaknesses • Poor infrastructure condition for pineapple exporting. For example, the port is usually out of

power and cannot equip fresh pineapples container to the cargo ship, while these fresh pineapples go rot.

• High domestic transport cost; delays at port. • Small processors usually cannot reach the scale of export. They used to account for about half of

the export volumes, but have been completely wiped out until 2010 • Due to the lack of funds, pineapple farmers cannot store their products during the high season

and sell for a higher price during the low season. • The link between pineapple farmers and small processors/exporters are weak. • A 2008 World Bank report cited doubts in consistency and quality of Ghanaian pineapples as a

significant barrier to entry (Jaeger, 2008). Opportunities

• Demand for fresh pineapple in Western Europe has shown strong growth over the past 30 years, with a compound annual growth rate (CAGR) of 9.2%, and CBI5 predicts that demand for pineapple will continue to grow (CBI, April 2009). Market demand for all types of processed pineapple (fresh-cut, juice concentrate, dried, and canned) also increased over the past two decades.

• Historically, Ghana fresh pineapple that was imported by EU experienced a CAGR of 13.64% over the last ten years, and fresh-cut fruit has grown by 7.95% CAGR. Meanwhile, canned pineapple has had slow and steady growth of 2.79% CAGR and dried fruit has 3.37% CAGR

• Due to the trend of health concern, there is also a potential opportunity for organic pineapple product, and it generates higher value premium than conventional products. Furthermore, large multinational food companies do not control the distribution chain for organic production; organic production mostly produced by smallholders and does not rely as much on vertically integrated supply chains.

• There are existing experienced pineapple farmers/processors, meaning that if Ghana is going to increase their export production, they do not need to train new workers.

Threats • The supermarkets and retailers, which have huge advantage, define the market for fruits in

Europe and influence over what is produced. • Most pineapple leaves the producing country free on board (FOB), which means the transport

cost is paid by the European importers. The EU importers normally have the power to decide the FOB price.

• The greatest threat now facing the county's pineapple sector is the inability of producers and exporters to increase production, mainly due to lack of financing for expansion.

Investment and Optimization Opportunities The most optimal investment opportunity seems to be in smallholders for conventional and even organic pineapple products, based on a report Organic Pineapple Farming in Ghana - A Good Choice for Smallholders. by Linda Kleemann. “Since organic food in general, and organic pineapple in particular, are strongly growing niche products with value chains that are not yet dominated by large multinationals, organic production might be a valuable alternative for developing countries with many smallholders.”

5 CBI is a center that promotes imports from developing countries.


Proposed Solution Asset Acquisition and Management Given that there used to be more than thirty processors out of business since 2004, there must be idle plants that could be acquired, and experienced employees to hire through these producers. For example, Tongu Fruits Ghana Ltd was a small pineapple producer and forced to shut down due in part to supply constraints. Besides idle plant, Tongu Fruits Ghana Ltd started a shoot farm in 2004 to grow shoots for MD2 pineapples for export and processing. Partnership Roles • Borrower/Beneficiary

• Financing Partners Ghana banks, Chinese Agribusiness Investors

• Guarantors USAID

• Technical Assistance USAID,

• Farmer Co-ops Former processing plant owner

• Private Equity Firms

• Owner/Operator Vehicle Structure and Execution Strategy We believe the original structure is mostly suitable for the pineapple processing industry. However, we believe that there needs to be some modification. The first modification is to switch the Class A and Class B players’ benefit position. Otherwise, the Class B player bares the real risk if the project does not goes well and there is possibility that these cash investors would get nothing back. For this reason, financially speaking, these Class B investors should be the senior debt holder rather than original assets owners. Secondly, based on an international perspective from China, we suggest that USAID partner with the local government agency in the area where the idle asset is located. Unlike the United States, there is seldom independent valuation company to evaluate the fair market value of an idle asset, and the owner and fund manager may have huge dispute about what the fair value is. The experience in China suggests that if there is intervention of government agency, things can be done more smoothly. Thirdly, we suggest bringing in Chinese investors. China is now investing huge amounts in the agricultural sector in Africa, including Ghana, and most of them are government investments. Furthermore, China is holding considerable foreign currency that cannot convert back to RMB due to the possibility of increasing pressure on RMB appreciation. Consequently, China is seeking investment opportunities with better returns than US Treasury Bonds.


APPENDIX E: Ghana Financial Sector Overview 2000-2010

Source: IMF

Date post:	06-Mar-2018
Category:	Documents
Upload:	vodat
View:	213 times
Download:	0 times

Ghana Master Concept Note - 3.22.12 - · PDF fileGhana Concept Note Virginia Castro, Anish...

Documents