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IMANI's summer interns Ms Ebi Botei and Mr. Antoine Bichara take a critical look at Ghana's cocoa sector and offer advice to Ghana's government on a sustainable path to realising the full potential of the industry. Ghana is currently the second largest exporter of cocoa after C�te D�Ivoire. Revenue derived from cocoa is Ghana�s second largest source of export earnings - accounting for 30% of its total exports. In other words, cocoa has been described as the backbone of the Ghanaian economy. Over the past decade, there have been a number of issues affecting the cocoa industry - such as cocoa smuggling into C�te D�Ivoire and a reduced supply of light beans for local processing, both of which have left cocoa farmers and producers dissatisfied. This calls for the Government of Ghana (GoG) making appropriate changes to better utilize Ghana�s cocoa reserve. Cocoa production started off well in the early 20th century, then plummeted in the 1990�s, and is currently on a high production scale. Yet, future predictions have it that production will decline in 2030 and worsen by 2050 due to changing weather conditions. The cocoa industry in Ghana is monopolised by the Ghana Cocoa Board (COCOBOD). COCOBOD buys the bulk of Ghana�s cocoa product through its 26 Licensed Buying Companies (LBCs) and then exports it throughout the world. To protect Ghanaian farmers from fluctuations in the world market price, COCOBOD fixes the price of cocoa. This price determines the fate of Ghana�s 720,000 cocoa farmers who have little choice in where else to sell their output. Surrounding West African countries have similar price fixing schemes, but differences between the prices in neighbouring countries have led to smuggling. Most notable is the smuggling across the border between Ghana and C�te D�Ivoire. Until recently, the trend was that of large amounts of cocoa being smuggled from C�te D�Ivoire to Ghana due to Ghana�s higher cocoa price and quality. But, for several months now, the trend has reversed. The FOB prices offered to farmers in Ghana have sunk beneath those offered by neighbours C�te D�Ivoire and Togo. This disparity has propelled cocoa smuggling that has been exposed through the video footage of Anas Aremeyaw Anas�, a Ghanaian investigative journalist. Furthermore, Lambert Aka, a local cocoa farmer at the C�te D�Ivoire border explains, �now it's the Ghanaians who are sending their cocoa here. It's not a lot for the moment. But we often see little trucks coming from Ghana to unload beans.� GoG must quantify rather than brush aside the smuggling that is occurring and conduct a closer analysis of price relations in West Africa. Keeping in mind the changing strength of the cedi related to other currencies, recommendations should be made for changes to the COCOBOD policy. COCOBOD currently pays 78.4% of the FOB price and has been unwilling to accommodate a price increase, despite high poverty rates among cocoa farmers. In addition to managing exports, COCOBOD sells Ghana�s light crop beans to local industries at a discount for processing. The light crop beans are of lower quality than the main crop as they have a shorter growing season from July to September, whereas the main crop season is from October to June. Roughly 10% of Ghana�s total cocoa is light crop, and about 40% of the light crop is sold to local processing firms including the government owned Cocoa Processing Company (CPC). There is liberalisation policy in which sales and distribution of cocoa input is privatized to allow private sector companies into the industry. However, current shortages of light beans have processing companies operating below capacity. In moving forward, Ghana must look to invest in local processing to drive economic development and gain value addition in the sector. While processing companies are currently working at small capacity, with the right discounts, import permits, and credit payments, Ghana can upscale its operation. Industrialization is a well-known model for growth and Ghana can learn from the successful models in South America and Asia. The bottom line is that Ghana must utilize its commodities to the fullest. With the cocoa output already predicted to decrease within twenty years, there are no visible future gains from continuing to export high quantities of unprocessed beans. Operating on a larger processing scale, Ghana will certainly face challenges. These will include: a) The industry requiring access to constant water and electricity - and since these are major issues in Ghana, securing alternatives like generators and bore-holes; b) Low consumption of cocoa products within West Africa, meaning a small market compared to the west; c) Packaging - the economics of scale benefit of producing more for less will take time to kick in; d) Branding - consumers are more likely to trust brands like nestle and Cadbury, making it difficult for Ghana to break into the market. Yet, in the long term, the socio-economic benefits of switching to local industry will outweigh the cost of investment and purchase subsidies for domestic firms. The reasons are the following: a) Cocoa processing will encourage more foreign investment. b) Employment opportunities, technology transfer, and increased tax revenues. c) Packaging companies will be encouraged to meet the packaging demands of the companies. d) Through processing and rebranding of finished products such as chocolate and butter, Ghana can better dictate the prices of the goods that are usually set by the international market. Ghana should look to increase the supply of light beans to local firms, but should also begin a major shift towards supplying the main crop as well. To do this, COCOBOD should withhold 200,000 out of every 700,000 tons of cocoa beans from the main crop for the purpose of processing, thereby providing incentives for local producers and greater value overall for Ghana. As development occurs and the proper machinery is imported, the number of tons can look to increase above 200,000. COCOBOD should also put a premium on transparency in its allocation process, as this will encourage more processors to take part in the process and increase their level of value addition to earn more cocoa beans. Unlike Ghana�s natural resources, the cocoa cash crop cannot run out but can continue to serve as the backbone of Ghana if the utilization of cocoa is transformed. It is essential for the proper preparations to be made to allow cocoa in Ghana to be more successful in the future. *Ebi Botei is a Law graduate at the University of Nottingham (&American Graduate School in Paris) Antoine Bichara is a Computer Science Major at the University of California, Berkeley( With school time at Harvard and London School of Economics) Both were some of IMANI�s Summer Interns.