Ghana Cocoa Financing Unpacked: Why LBCs Owe Banks More Than Farmers After 7 Years

For over seven years, the backbone of Ghana’s cocoa sector—the Licensed Buying Companies (LBCs)—has operated on a precarious pre-financing model. This system, designed to bridge the gap between harvest and payment, has culminated in a severe liquidity crisis. According to Samuel Adimado, President of the Licensed Cocoa Buyers Association (LCBA), the current困境 (kùnjìng,困境) has created a reverse debt hierarchy: LBCs now owe commercial banks significantly more than they owe the farmers who supply the cocoa. This article provides a clear, structured, and SEO-optimized breakdown of the crisis, its historical context, and potential pathways forward.

Introduction: The Core of Ghana’s Cocoa Payment Delays

Ghana’s cocoa industry, a cornerstone of the national economy and the world’s second-largest producer, faces a chronic payment delay crisis. At the heart of this issue is the financial mechanism by which Licensed Buying Companies (LBCs) purchase cocoa beans from farmers. For the past seven years, LBCs have not received immediate funds from the primary buyer, the Ghana Cocoa Board (Cocobod). Instead, they have relied on pre-financing—borrowing from commercial banks to pay farmers upfront, then waiting for Cocobod to settle its invoices, sometimes for periods exceeding nine months. This model, once stable, has fractured, leading to a cascade of unpaid debts where the obligations of LBCs to banks now surpass those to the farmers they serve.

Key Points: The Crisis in Summary

Seven-Year Pre-Financing Norm: LBCs have consistently borrowed from banks to buy cocoa from farmers, awaiting reimbursement from Cocobod.
Systemic Shift: The traditional syndicated loan model, where Cocobod secured bulk financing for LBCs, has been replaced by a “trader-led” model, creating cash flow instability.
Severe Payment Delays: During the 2023/24 season, LBCs waited up to nine months for payment from Cocobod. Debts from prior seasons remain unsettled.
Inverted Debt Structure: LBCs’ debts to commercial banks are now larger than their arrears to cocoa farmers, contradicting public perception.
Massive Outstanding Amounts: Cocobod owes LBCs an estimated ¢10 billion to ¢11 billion (approx. $750 million – $825 million USD). Unpaid dues from the 2025/26 season total around $185 million.
Reliance on Trust-Based Network: The system depends on ~50,000 purchasing clerks who often extend credit to farmers based on trust, exacerbating cash flow issues when delays occur.
Stakeholder Engagement: The LCBA is in discussions with Cocobod, with the Ministry of Finance potentially poised to intervene.

Background: Understanding Ghana’s Cocoa Value Chain

The Role of Licensed Buying Companies (LBCs)

LBCs are private entities licensed and regulated by the Ghana Cocoa Board (Cocobod). Their statutory mandate is to purchase cocoa beans directly from farmers at farm gates or community levels and transport them to designated Cocobod takeover centers. They are the critical link between the over 800,000 smallholder farmers and the state-owned exporter. Historically, LBCs operated with financial guarantees provided through a syndicated loan arrangement orchestrated by Cocobod, ensuring they had liquidity to pay farmers promptly at the point of sale.

The Syndicated Financing Model (The Old System)

Under the traditional model, Cocobod, leveraging its sovereign credit and future export contracts, secured a large syndicated loan from a consortium of international and local banks. These funds were then disbursed to LBCs based on their purchase quotas. This created a predictable cycle: LBCs buy cocoa → deliver to Cocobod → Cocobod settles LBCs from the syndicated facility → LBCs repay their banks. This model insulated LBCs from direct, high-interest commercial borrowing and ensured farmer payments were timely.

The Shift to a Trader-Led Model (The New Reality)

As explained by Samuel Adimado, the financing architecture has fundamentally changed. The syndicated facility is no longer the primary source. Instead, the model has become “trader-led.” This means international cocoa traders, who eventually buy the beans from Cocobod for global markets, are now expected to provide the financing directly to the supply chain, often through advances to LBCs or Cocobod. This shift has increased vulnerability, as trader financing can be less predictable, more conditional, and subject to global market fluctuations, directly impacting the liquidity available to LBCs at the start of the season.

Analysis: The Mechanics of the Current Crisis

The Cash Flow Breakdown: From Farmer to Bank

The current dysfunction can be traced through the cash flow chain:

Farmer Sells Cocoa: A farmer delivers beans to a purchasing clerk employed by an LBC.
Immediate Payment Expectation: Culturally and contractually, the farmer expects immediate cash payment.
LBC’s Dilemma: The LBC’s purchasing clerk may not have physical cash on hand, especially early in the season or during delays. Payment is often promised “when the LBC receives money.”
Pre-Financing via Banks: To meet obligations, the LBC draws down on loans from commercial banks (e.g., Ghana Commercial Bank, Absa, Fidelity Bank).
Delivery & Invoice: The LBC delivers the cocoa to a Cocobod takeover center and submits an invoice for payment.
The Critical Delay: Cocobod, due to its own fiscal constraints or the failure of trader financing to materialize, does not pay the LBC’s invoice promptly. Delays of 6-9 months have been documented.
Accruing Debt: The LBC’s bank loan accumulates interest. The LBC cannot repay the bank because Cocobod hasn’t paid. Simultaneously, the LBC cannot pay its purchasing clerks, who in turn cannot pay farmers.

Why Banks Are Owed More Than Farmers

This counter-intuitive reality stems from the structure of the debt and the timing of payments. Farmers are typically paid on a transaction-by-transaction basis, even if delayed. An LBC might owe a farmer ¢5,000 for a specific delivery made three months ago. However, the LBC borrowed ¢100,000 from a bank at the start of the season to finance *all* its purchases. That entire loan principal, plus compounding interest, remains outstanding because no reimbursement from Cocobod has arrived. Therefore, the aggregate debt to the bank (¢100,000+) far exceeds the arrears to any individual farmer or the total farmer arrears at a given moment. The bank debt is larger, older, and accruing interest, while farmer debt is the immediate, visible symptom.

The Role of Purchasing Clerks and Trust

The ~50,000 purchasing clerks operate in a trust-based system. In communities, a clerk’s word and reputation are everything. A farmer may surrender his entire harvest on the promise of future payment, a practice deeply embedded in the social fabric of cocoa-growing areas. When the LBC fails to fund the clerk due to the Cocobod delay, this trust is broken. The clerk becomes the face of the failure, facing direct pressure from farmers, even though the root cause is systemic and several tiers up the chain. This dynamic fuels the public perception that LBCs are willfully withholding money.

Practical Advice: Navigating the Crisis for Stakeholders

For Cocoa Farmers

Document Everything: Insist on a written receipt for every cocoa delivery, signed by the authorized purchasing clerk, with the LBC’s official stamp and the date/quantity/price.
Know Your LBC: Verify the legitimacy of the purchasing clerk and the LBC they represent. Cross-check with the district office of the Ghana Cocoa Farmers Association or the LCBA.
Engage Farmer Groups: Leverage the collective voice of your local farmer group or cooperative to formally escalate payment delays to the LBC management and, if necessary, to the district office of Cocobod.
Understand the Chain: Recognize that payment delays are often due to systemic financing issues between Cocobod, traders, and LBCs, not necessarily malice from your local buyer. This knowledge can guide more effective advocacy.

For Purchasing Clerks

Transparent Communication: Clearly explain to farmers that payment depends on funds from the LBC’s head office, which is awaiting payment from Cocobod. Manage expectations honestly.
Formalize Advances: If you must advance cash to farmers from your own pocket, create a formal IOU to maintain a record and seek reimbursement promptly from your LBC.
Escalate in Writing: Report cash shortages and farmer agitations formally to your LBC’s operations manager. Use written communication (SMS, email) to create a paper trail.

For Licensed Buying Companies (LBCs)

Aggressive Receivables Management: Formally and persistently invoice Cocobod. Engage at the highest levels of Cocobod’s finance and operations departments. Consider formal mediation if dialogue stalls.
Bank Negotiation: Proactively negotiate with your commercial banks for loan restructurings, interest waivers, or bridging facilities, presenting the case of the sovereign debt owed by Cocobod as the root cause.
Stakeholder Coalition: Strengthen the LCBA to present a unified front. A collective, data-backed presentation of the ¢10-11 billion debt to the Ministry of Finance and Cocobod’s board is more powerful than individual pleas.
Transparency with Clerks: Provide clear, regular updates to your purchasing network about expected payment timelines from Cocobod to manage expectations in the field.

For Policymakers (Ministry of Finance, Cocobod Board)

Urgent Liquidity Injection: The most direct solution is for the Ministry of Finance, as the ultimate owner of Cocobod, to facilitate the settlement of the outstanding ¢10-11 billion debt. This could involve a specific budgetary allocation or a guarantee for a new syndicated loan.
Model Reform: Seriously reconsider the “trader-led” financing model. Explore a hybrid or re-established syndicated model where Cocobod’s sovereign guarantee secures affordable, bulk financing for LBCs, decoupling farmer payments from the vagaries of trader credit.
Independent Audit: Commission an independent audit of the exact amounts owed by Cocobod to each LBC, broken down by season, to eliminate disputes and create a clear repayment schedule.
Temporary Payment Plan: Implement a graduated payment plan from Cocobod to LBCs, prioritizing the oldest debts first, to break the cycle of compounding interest and restore basic functionality.

FAQ: Frequently Asked Questions on the Cocoa Financing Crisis

Q1: Is this a new problem, or has it been going on for years?

A: The pre-financing model has been in place for at least seven years, as stated by the LCBA President. However, the severity of the payment delays and the accumulation of unsustainable debt have intensified significantly in the last 2-3 seasons, particularly since the shift away from the reliable syndicated loan model.

Q2: Who is ultimately to blame—Cocobod, the traders, or the LBCs?

A: The LCBA positions this as a systemic failure, not a deliberate act by any single party. The root cause is the breakdown in the flow of financing. The shift to a trader-led model means the funds that used to arrive via the syndicated route are now inconsistent. Cocobod, as the entity that purchases from LBCs and sells to traders, holds the ultimate liability for paying its invoices. If traders have not provided adequate financing to Cocobod, or if Cocobod has mismanaged its own cash flow, the failure cascades down to LBCs and farmers.

Q3: Are LBCs using the money from Cocobod for other purposes?

A: The LCBA vehemently denies this. Their assertion is that LBCs are “trapped” between massive bank loans (taken specifically to buy cocoa) and non-payment from Cocobod. The claim that “banks are owed more than farmers” is presented as evidence that all borrowed funds were used for cocoa purchases and are now stuck in an unpaid invoice cycle with Cocobod. No evidence of misappropriation has been publicly presented.

Q4: What happens to the interest on the bank loans?

A: This is a critical, compounding part of the crisis. Interest continues to accrue on the commercial bank loans taken by LBCs. As payment from Cocobod is delayed, the total debt to the banks grows, making the eventual settlement much more expensive and further weakening the LBCs’ balance sheets. This interest burden is not always compensated by Cocobod.

Q5: Can farmers sue LBCs for non-payment?

A: Legally, the contract for sale is typically between the farmer (via the clerk) and the LBC. Therefore, the LBC is the entity with the primary legal obligation to pay the farmer. Farmers could potentially pursue legal action for breach of contract against their specific LBC. However, such action is often impractical for smallholders due to cost, time, and the fact that the LBC’s inability to pay stems from its own unpaid receivable from Cocobod. The more effective remedy is collective action through farmer groups to pressure the entire chain.

Q6: Is the Ghana Cocoa Board (Cocobod) bankrupt?

A: “Bankrupt” is a specific legal term. Cocobod is a state-owned corporation with significant assets, including future export contracts and physical stocks. However, it is clearly experiencing a severe liquidity crisis—it has liabilities (the ¢10-11 billion to LBCs) that it cannot meet with its available cash on hand. This is a solvency concern that requires urgent fiscal intervention from the Government of Ghana.

Conclusion: A Call for Systemic Intervention

The Ghanaian cocoa financing crisis is not a simple tale of unpaid farmers. It is a complex systemic failure in the financial plumbing of a vital national industry. The seven-year reliance on pre-financing exposed the sector to the risks of the post-syndicated, trader-led model. The result is a inverted debt pyramid where the foundational actors—the farmers—suffer, while the financial obligations of the intermediaries (LBCs) to banks have ballooned.

Resolving this requires acknowledging the true scale of the debt (¢10-11 billion) and the fact that the liability ultimately rests with Cocobod, a state entity. Piecemeal solutions will fail. The Ministry of Finance must lead a concerted effort to: 1) Settle the historic debt to LBCs to break the cycle, 2) Re-engineer