Ghana Could Earn $26.00 More on Every Pound of Cocoa Exported Abroad

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This is how Steven C.Wallace, Founder and President of US Based, Omanhene Cocoa Bean Company explains it in a TEDx Accra 2016 Talk.



This is my Ghanaian family and I wonder if you can figure out which one I am in this picture?  You'll get bonus points.Steven C. Wallace


I'd like to start by taking you back to 1978, because 1978 was the year I first came to Ghana as a sixteen-year-old foreign exchange student in high school.  I was placed up in Sunyani, in Brong-Ahafo, with the family of Yaw Brobbey.  And Yaw Brobbey, as you can see, presided over a very large family.  I had 18 brothers and sisters.  I was the 19th.  I was his obruni son.  And every day we cooked outside over an open fire and every morning I had a fufu for breakfast.  And every day for lunch I had fufu.  And every day for dinner I had . . . actually I had boiled yams.  It was boiled yams every dinner. 

But it was an absolutely wonderful experience and I learned so much living with this terrific family.   The soundtrack of my summer in Sunyani was Bob Marley, a little Peter Tosh -- this dates back before most of you were born.  And my favorite, the two Ghanaian bands I loved the most were: The Super-Uppers International and JK and His Boom Talents, if any of you remember that.


And TV back then was very different.  There was but one channel.  It was black and white.  It broadcast only four hours a day -- if you were lucky -- if there was electricity.  And speaking of electricity, I had this electric charge of excitement when General Achaempong was overthrown by General Akuffo in a coup d’état.  So, I got to have my first coup d’état here in Ghana.  Things I never forget . . . 


You might think from these bits of sort of exotic stone and glass that the mosaic of my Ghana experience was very different from that of my hometown of Whitefish Bay, Wisconsin.  But you'd be wrong.  I mean the love and affection I found from this wonderful family and two others in the Natafgi family here in Accra in the Ansre family in Legon made me feel very welcome and very much at home so it was not a very difficult transition for me. 


I have only to close my eyes and I'm back in Suyani . . .  and I see my host father: He's shirtless standing by the fire.  He’s got a towel around his neck, a shaver in one hand and he's patting his big Santa Claus belly and he's extemporizing on all matters of life, love, commerce.  And it was commerce that he taught me the very best. It was commerce, it was something he excelled at.  He was a small businessman, a trader, he had a kiosk.  He put me in the back seat of his Toyota Corolla and we drive to Berekum from to Suyani to Techiman and he'd meet with customers.  He’d collect debts, he’d listen to their problems, he’d count inventory and he taught me more about running a small business and a large enterprise than any MBA program possibly could have done.  


So, it should come as no surprise that 25 years ago when I returned to Ghana in the hopes of starting a business I came with a lot of affection, a lot of curiosity about business, and lots of questions to ask if I were the President of Ghana.  So, I want all of you right now to pretend you are the President of Ghana. Pretty nice being President of Ghana.  


Again here's what we know; Ghana grows the finest cocoa in the world.  By dint of Cocoa Board's quality controls and the topography here, Ghana cocoa fetches a premium on the world markets.  And this is great because 25 years ago almost half of the foreign exchange revenues of Ghana, all your hard currency, half of it comes from the sale of raw cocoa beans. So that's pretty good.


And cocoa employs up to six million people, and you are president -- you're a politician -- and that's six million votes.  So you can see it's pretty, pretty nice to have this attribute.  But not all is not good because as a matter of fact the price of cocoa is very volatile.  As you can see here just in eight years it goes from $800 a metric ton to over $3,200 dollars.  That's a "4x" increase.  So how do you run a budget, how do you invest for the country when you know half your revenues have that degree of volatility?


But it gets worse.  Here I charted: again the blue line is the volatility and the green line below it is the supply of cocoa.  And every once in a while, maybe there's a drought in Côte d'Ivoire or Brazil.  Or maybe there are cocoa speculators in London that get a peak price.  So what happens is every tropical country in the world wants to start a cocoa program.  So they plant their trees and about five years later, look what happens: The quantity of cocoa goes up.  And elemental economics teaches us that as the quantity rises, the price goes down, and you see it here like clockwork. 



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So what happens if you’re President of Ghana, you never get to capture that premium price It always drives back down to the mean, the lowest common denominator.  So I thought here it is time to rethink cocoa.  How can we possibly disengage Ghana’s revenues that are so closely tied to this commodity price of raw cocoa beans?  And I thought the way to do it is with a value chain analysis.  So what we have here -- the value chain is simply steps on a ladder of increasing value and it's how everything relates in the cocoa sector.  So at the bottom you have a cocoa bean, you have a cocoa farmer.  And at the top you have the head pastry chef at the Plaza Hotel in New York City.  And how are they related?  They are related by a cocoa value chain.  Because the chocolate that served on that plated dessert came from someplace -- and it came from Ghana.  So, if you can move up the value chain -- process the cocoa, make cocoa butter and use it for cosmetics, or cocoa cake or cocoa liquor or finished chocolate or a plated dessert you've moved up the value chain.  And hopefully you've captured more money.  And the interesting thing about it is you get rid of price volatility, right?  Because the price of that chocolate bar doesn't vary "4x" every year.  The price of a chocolate bar is pretty constant from year-to-year.


So, this is what I thought were the intellectual underpinnings of why I came back to Ghana.  Now, if I was right, there was going to be money to be captured for Ghana, What was Ghana really giving up?


Here we see a chart.  At the very bottom is the price of $1.50.  That's the price of a cocoa bean right now -- and that's at the $3,000 level -- so $1.50 per pound for cocoa beans is a good price; that's probably at the top of a 30-year span.  But if chocolate sells in Switzerland for $27.50 per pound, for really good chocolate, then all the tradecraft, all the marketing, all the chocolate production --  that green part [of the chart] -- that $26.00 represents opportunity cost -- that's captured offshore, right?


So, instead of getting excited about getting $1.50, I looked at that and said, "Oh my goodness!  We're losing $26.00 for every pound of chocolate -- for every pound of cocoa beans that gets moved offshore!"


So, I began to think of what countries have done this very well and I began to also think about "comparative advantage of international trade" and that's this concept that goes back to Adam Smith and David Ricardo back in the 1800s. It says: "Every country does what it does best, and it trades for the rest."  Right?  That's "every country does what it does best."


I thought to myself, "What countries do chocolate best?"  I thought of France and

I thought of Belgium and I thought of Switzerland, of course.  And then I asked myself, "How many cocoa trees grow in Zurich?"


            "How many cocoa trees grow in Zurich?" 


            "Not many!"


So, I thought what's the real competitive advantage?  What's the advantage that Zurich has over Accra?  Well, they have wonderful machinery and recipe development but I thought to myself, "We could buy the Swiss machines and the German machines and the Italian machines.  We could bring them to Ghana, begin to recapture that $26.00 opportunity cost."


And then I thought about the packaging we might need.  In my home state of Wisconsin, it used to be covered in forests; it was a big paper-making state.  That's what it does still, to this day; it makes paper.  And because of that, and because of German immigrants who came over 100 years ago -- they brought printing technology.  So, we have the paper being grown there and had very fine printing.  So, I said, "We could print the labels and really fine global quality packaging in Wisconsin and bring it here."


Again: comparative advantage of international trade.  Find what everyone does best and try to bring it to the locus of Ghana which, in my mind, was the venue that should most capture the chocolate benefits -- the benefits of the money.  So how do we do it?  


We do it through design.  And whether it's a Birken bag or it's Beats stereophone, or an Apple store, I think we all realize that good design adds value, right?"  But for us, design of chocolate is not simply a label -- it's the recipe.  Does our chocolate melt when it's put in an ice cream cone?  Or does it form a swirl?  Or does it form a little hard chunk?  If you bake with it, what are the qualities of melting, in the snap of the chocolate?  So for us, design is really recipe development.  


So, our algorithm is pretty simple.  We take product, we take story, we take design and we create a product: Omanhene, which means paramount chief in Twi (we want to be very true to our roots).


Image resultSo, we export to Canada, to the United States primarily; and to Japan, that most demanding of all consumer markets.   


But it really hasn't been easy and what I want to share with you is this bit of graffiti I found just really a couple months ago in Los Angeles.  Truth told the odds are not in your favor."  It's very difficult; building brands takes years.  This isn't something where an investment banker would come in and say, "Let's do this.  And in five years, if it doesn't work, we execute our remorseless exit strategy."


  But the end of that quote “that's what will make a good story” is I think very important.   


And this story has a happy ending.  Remember I talked about Japan?  I want to show you right here.  This is a "Ghana" chocolate bar. I don’t know if you know this, but in Japan, it is one of the most popular chocolate bars.  It's been sold for decades.  It's actually very good chocolate.  It's called "Ghana" but it's not made in Ghana and to my knowledge, it's not even made from cocoa beans grown in Ghana So it was one of my dreams that someday, we could take chocolate made in Ghana and get it to Japan. 



            In fact, we did so.  


It wasn't so many years ago that we debuted Omanhene chocolate at one of the finest, most prestigious department stores in Tokyo. 



So, there you have a very happy ending!  So, I think it's possible -- I think it's possible for Ghana to go up that value chain, not stay on that bottom rung where it sells cocoa beans for pennies a pound but to begin to ascend: make chocolate, participate in hospitality assets, and occupy its place at the very highest rung of the value chain. 


Read More: Chris Kirubi, Kenyan Multi-Millionaire


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