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ENCHI Ghana Three years ago, when James joined Ghana's anti-smuggling task force, his job was to intercept illicit cocoa shipments from neighboring Ivory Coast to preserve the superior quality of his country's beans. Now he has to stop it flowing the other way.
"We used to burn their cocoa because it was not good," said the wiry 60-year-old, one of the leaders of a network of growers and informants that monitors Ghana's porous border with its western neighbour.
"Now the Ivorians are buying our cocoa. They are sucking our blood," he said, as he set out to patrol muddy tracks that run from Enchi-Aowin district and cross the border.
Ivory Coast has partially closed the quality gap in the past two years, but it is a collapse in the Ghanaian currency, the cedi, that has driven the reversal of fortunes between Ivory Coast, the world's largest cocoa grower, and Ghana, second-largest. Between them, the two produce 60 percent of the global supply of the principal ingredient in chocolate.
Ghana's big budget and current account deficits have stripped the cedi of 45 percent of its value against the dollar since January.
That means farmers in Ghana, who get a fixed price for the season from the country's cocoa marketing board, Cocobod, can get much more for their crop by smuggling it into Ivory Coast, where the sector is recovering strongly after a decade of civil conflict and political turmoil.
At a time when chocolate consumption is booming in new markets, particularly in Asia, Ghana's problems may jeopardize its ambitious plans to nearly double production to mitigate the resulting global supply shortfall.
"Every time the cedi devalues against the dollar, it reduces the capacity to buy fertilisers and inputs to help the farmers," said a European analyst. "If you consider Ghana is going to produce 900,000 tonnes, about 21 or 22 percent of world demand, it's of enormous importance."
Ghana emerged as a success story during the 2000s, when war, political instability and a disastrous liberalization brought Ivory Coast's cocoa sector to its knees.
Ghana's output more than tripled from 340,000 tonnes in the 2001/02 season to a record 1,025,000 tonnes a decade later. Strict controls cemented its reputation as a producer of top quality beans, establishing a brand that fetches a premium.
A combination of better management of forward sales, increasing world prices and improvements in quality allowed Cocobod to increase the amount it paid farmers from 900 cedis per tonne in 2005 to 3,392 cedis ($989) per tonne for the current season.
IVORY COAST REVIVAL
Then the twin deficits mounted and the government finally abandoned its struggle to prop up the currency.
That also caused a spike in inflation, which was 15 percent year on year in June, hitting farmers' purchasing power.
At the market in Karlo, a border town not far from Andrews Assum's cocoa plantation, a bag of rice that cost 75 cedis a year ago now sells for 120 cedis.
"The market is very high, and the cedi is very low. You can't buy anything," said the 35-year-old farmer. "We don't have enough money to continue our children's schooling."
Little wonder, then, that in May, industry sources estimated that since the start of the season in October, up to 100,000 tonnes of beans had been trafficked across the border into Ivory Coast, where they can now sell for much more.
"It's the situation that is compelling them to do so," said Alfred Allotey, who manages a purchasing depot in Karlo for PBC Limited, Ghana's largest licensed buyer.
"No-one outside Ghana has realized how bad it's got," said Edward George, head of soft commodities research at Ecobank.
In Ivory Coast, meanwhile, the sector is on the up.
Last season, after a brief 2011 civil conflict ended years of political turmoil, its new President Alassane Ouattara ushered in reforms that established a single marketing board, the Coffee and Cocoa Council (CCC), to manage the sector.
It abandoned a system of spot sales and auctioned off the bulk of its crop in advance in order to set a guaranteed minimum price for farmers. In a single season it succeeded in stamping out a decade-long trafficking epidemic that saw a peak of around 200,000 tonnes of cocoa lost to smugglers in the 2010/11 season.
At the October start of the 2013/14 season - the second under the new reform regime - the CCC raised its farmgate price so it was roughly equal to Cocobod's. Not for long.
As the Ghanaian cedi plunged, Ivory Coast's CFA franc, a regional currency pegged to the euro, held stable. Today, in dollar terms, the Ivorian price is more than 55 percent higher.
"You hear people talk about (getting) 300 Ghana cedis, 350 Ghana cedis (per 62.5 kg bag) against our 212 Ghana cedis," said David Akuetteh, the regional manager for PBC responsible for 11 border districts in western Ghana.
While other parts of Ghana have had a bumper crop this year, in the west - traditionally home to some of the most productive areas - his buyers are missing their targets.
"You can see from the figures ... that much more cocoa has been lost by way of smuggling this year," he said.
NEED HIGHER PRICE
Standing beside a footpath cutting between a cornfield and a banana patch within a few kilometers of the Ivorian border, James, whose name has been changed to protect his identity, pointed out the footprints in the mud left by smugglers.
While his team has had some success in stopping trucks, several of which are now impounded at the district police station, much of the cocoa smuggled out of Ghana is leaving the country on the heads of porters.
"The government must try as much as possible to boost the price. That will be the only solution," James said. "Other than that, we are only 15 here. We cannot cover all of the routes."
Cocobod hopes to overtake Ivory Coast as the world's top producer, an ambitious target that requires it to double production from the sector, Ghana's third-largest export earner.
"We know that's not going to happen soon. It's a long-term goal and not a race," a senior Cocobod official told Reuters, asking not to be named. "We're confident of significantly raising output from the current levels."
The agency has pledged to close the price gap with Ivory Coast in order to curb smuggling when it begins marketing the 2014/15 crop in October.
"We take a lot of things into consideration when fixing the price. But for the coming season, we will have to use Ivory Coast prices as the key benchmark," the Cocobod source said.
That could prove a tall order.
"They need to increase the farmgate price next year, but that's very difficult. Given current international prices, they may actually need to double it," Ecobank's George said.
Although the currency crash means Cocobod will have received a windfall this year - selling in dollars, but buying in cedis - its resources have fallen prey to weak government finances.
With the finance ministry forecasting a year-end budget deficit of 8.8 percent of gross domestic product, there will be a lot of budget gaps to close.
Johannes Jansen, the World Bank's senior agricultural economist in Ghana, puts the windfall at hundreds of millions of dollars, helped by current high market prices, but he says little of that will find its way into the pockets of farmers.
"They are thinking of giving the farmers a bonus at the end of the season, but it is likely to be relatively small," Jansen said. "This is not a sustainable way of managing a value chain, since farmers seem to be receiving the short end of the stick."
Ghana's flagship subsidized fertilizer and pesticide spraying programs, slashed in half as a cost-cutting measure this season, were an early casualty of Cocobod's financial woes.
And though the marketing board now says it wants to breathe new life into the programs - credited by many as the principal driver of the meteoric rise in output since 2000 - how it will sustainably finance them remains unclear.
Ghana's processing sector, far from adding value, has created another major headache. As grinders have struggled to turn a profit, they have run up huge debts to Cocobod for beans.
"Cocobod may have to write off some or all of the $250 million debt owed by the grinders," according to an Ecobank research note, estimating that Ghana is using just 60 percent of its 430,000-tonne installed processing capacity.
Cocobod is consulting with sector actors, donors and analysts with a view to correcting deficiencies in the current system and mapping out a future. Jansen, while an enthusiastic supporter of the process, said implementing meaningful change would be a long and difficult process.
"In whose interest is it to reform the sector? Well, perhaps not Cocobod's, at least not in the short run, because they are doing well (from the currency windfall). And perhaps not the government's either, because they can use cocoa money to plug fiscal holes," he said.
"In the longer term reform is actually in everybody's interest, since the status quo is just not sustainable."
Across the border in the Ivorian town of Niable, where workers emerge from storehouses hauling burlap sacks marked "Produce of Ghana" to sun-dry the beans on giant tarpaulins, there is scant sympathy for Ghana's plight.
"If they send it over here, I'm going to buy it. That's how it is," says Adoni Nkanza, a 51-year-old who farms five hectares outside of town. "They're angry now, but before, our cocoa went over there and they were happy ... That's fair."
(Additional reporting by Loucoumane Coulibaly in Abidjan, Kwasi Kpodo in Accra and Sarah McFarlane in London; Editing by Daniel Flynn and Will Waterman)
(In March 17 item, corrects paragraph 10 to say shipyard is in Newport News, not Norfolk)
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