What price organic cocoa in Ghana?

BY REBECCA SELVARAJAH · APRIL 22, 2013
http://blog.worldagroforestry.org/index.php/2013/04/22/what-price-organic-cocoa/

A price premium between 28% and 30% would have to be offered to entice cocoa producers in Ghana to grow cocoa organically. This is according to a study by Mahrizal et al published in Horticultural Science. Credit to purchase inorganic inputs is becoming more accessible to Ghanaian cocoa producers, who now have the choice to produce either organically or conventionally. That makes the results of this study more pertinent to their decision making process.

Mounting concerns about food safety, health, environmental and social welfare issues have increased demand for organic cocoa. Worldwide sales of organic chocolate increased to $304 million in 2005 from $171 million in 2002. However, the total market share of organic cocoa accounted for less than 0.5% of total cocoa production in the same period, possibly because conventional cocoa yields more and is more profitable than organic cocoa.

When a conventional producer converts to organic production, there is an immediate yield loss. Organic cocoa production has an estimated 30% lower yield than inorganic production. Additionally, a producer must wait three years for the organic certification that will allow him or her to be compensated with an organic price premium. A sufficient and stable organic price premium is, therefore, needed to encourage producers to continue growing cocoa organically. Issues of profitability, productivity and sustainability of forestry and agroforestry, are a key focus of the CGIAR’s Collaborative Research Project 6 on Trees, Forests and Agroforestry—of which the World Agroforestry Centre is a key partner.

Key questions producers ask themselves when considering a switch from conventional to organic production are: is switching from conventional to organic profitable? If so, when to switch given that the productivity of cocoa trees plateaus and then diminishes over time? The decision of when to switch is a function of orchard growth stage, price premiums and yield loss. This study provides a tool for producers to determine ‘if’ and ‘when’ it would be optimal to produce organic cocoa; and an estimated organic premium that bulk, organic cocoa purchasers must pay to incentivize cocoa producers to continually produce organic cocoa.

The study indicates that as yields decline, the profitability of converting from conventional to organic cocoa declines. Second, as price premiums rise, conversion becomes more profitable and the incentive to switch to organic production increases. Given a yield loss and price premium, this study investigates whether the age of the orchard influences when a conventional producer can profitably switch to organic production, and concludes that tree age is not a major determinant of when to switch.

The study also estimates the yield loss and premium price trade-off for organic cocoa, revealing that a price premium between 28% and 30% should be offered to entice cocoa producers to grow cocoa organically. The current premium price of organic cocoa is far below the estimated premium needed to entice producers to switch to organic production. Information on yield loss and price premium trade-off is very important to cocoa producers to determine whether organic production is sufficiently profitable to be adopted. For manufacturers, the information indicates the price premium necessary to secure a reliable supply of organic cocoa.

The obvious challenge for producers to produce conventionally is to obtain credit up front to purchase inorganic inputs. Given the advent of organizations like the Cocoa Abrabopa Association (CAA) established in 1998 in Ghana, credit is becoming more accessible to producers. The CAA works with input suppliers such as Ghana COCOBOD and Wienco Ghana Ltd. to supply agricultural inputs to producers. They extend credit in the form of inputs such as fertilizer, insecticide, and fungicide. As a result, producers now have the choice to produce either organically or conventionally making the results from this study more pertinent to their decision making process.