Regional Collaboration on Overcoming Binding Constraints on the Growth of Liberia’s Cocoa Value Chain

In Liberia, agriculture is a strategic economic pillar and provides the primary livelihood for 60 percent of the population. It accounted for approximately 37.2 percent of GDP in 2021. In 2018 and 2019, the agriculture industry employed over 43 percent of the working-age population, making it the country’s second most significant job market. The Liberian government is keen on transforming the economy and is striving to implement its Pro-Poor Agenda for Prosperity and Development. Upgrading the cocoa value chain is one pathway. This study examines the structure, opportunities, and constraints of the cocoa industry in Liberia and finds that it needs to develop its traditional cocoa commodity sector into a high-value-adding industry.

The analysis revealed some interesting findings along the value chain. There is a low availability of high-yielding seedlings, and the input cost was very high. In production, farmers used little or no fertilizer, and the trees were very old. They also faced many risks, including pests, drought, theft, and market collapse. There is a lack of technical knowledge in production practices, low financing, and a lack of mechanization. As such, there is a low-input, low-output production orientation. Logistics is a huge challenge for producers. There is a lack of adoption of quality control standards, a lack of tarpaulins for fermentation (which means low quality cocoa beans are being produced), and a lack of warehousing facilities. First-mile transport challenges are also widespread.

The study uncovered a single processor (which means value addition is low) who faced challenges with accessing markets for processed products, as well as low processing technology and high costs of machinery. Cocoa farmers face significant market hurdles. According to the analysis, farmers lack market information and are vulnerable to exploitation by informal traders. Price distortion and volatility are high in markets as a result of asymmetric price transmission and the prominence of spot markets as a result of a lack of storage facilities and the last-mile transportation challenge. Cocoa is often believed to be trafficked into neighboring nations, notably from Nimba County. Furthermore, the analysis found poor market links across the chain.

The cocoa value chain is largely competitive but with weak governance, an indication of inefficient relationships among the farmers, traders, exporters, service providers, and regulatory institutions. The lack of a strong actor who can govern the value chain means significant value that could be captured through increased productivity and quality is lost. If Liberia’s productivity could rise from 160 kg/ha to the level of neighboring Côte d’Ivoire at 460 kg/ha, this could easily double the profits of all actors. This will also mean higher costs for fertilizers, labor, and pesticides, but the incomes along the chain will almost triple.

Innovations to upgrade the sector

The study proposes a number of innovations and interventions as solutions to upgrade the cocoa sector and ultimately make it a driver of transformation in Liberia.

• Improve uptake of high-quality input and productivity. This can be done by running a franchise model to upgrade agrovets1 to solve the issues in input markets, and by developing climate-smart tools, such as weather tracking, and a business model that combines input supply, extension, warehousing, and risk management tools.
• Upgrade traders to provide logistics and a range of services and develop village-based quality control ambassadors to educate and support farmers on quality control. Innovations for the
  first-mile transport are key and innovations around the motorcycle platform, a common mode of transport, are needed. Technology transfer of the Nigerian Tryctor innovation that has transformed the motorcycle to a multipurpose vehicle that acts as transporter, a tractor, and power source was proposed.
• Focus on niche export markets to capture more value from cocoa. This can be done by linking artisanal chocolatiers with artisanal chocolatiers in the US and European Union to have direct
  supply while developing a unique Liberian brand. For example, leverage Liberia’s heritage to make soul food branded chocolate. Another important intervention is the need to create special economic zones and have cocoa processing as one of the targeted products.
• Collaborate with nongovernmental organizations, such as Farm Radio International, for specialized radio programs that can help solve gaps in market information.
• Create a cocoa innovation platform based on the “triple helix” model of innovation to aid in addressing numerous industry issues.
• The research also discovered a market failure in the industry that calls for an expanded mandate of the Liberia Agriculture Commodity Regulatory Authority (LACRA). In order to solve market failures such as price transmission asymmetry and smuggling, LACRA needs to become more interventionist.

Policy recommendations

The report makes two sets of policy recommendations to capture more value in cocoa and improve sector governance.

Policy proposals to scale innovations and address issues in the cocoa value chain

• Establish a revolving fund to aid in the development of the private sector, particularly through the franchise model. This can be fashioned after a public-private partnership in which the franchise owner and the government build the fund and individuals interested in joining the franchise can borrow from it after being vetted and trained. Investors willing to invest in this system may be eligible for tax breaks.
  
• Establish a specialized women-in-cocoa fund to focus on addressing inequalities. Innovation platforms can draw from this fund. It can also be used to subsidize bank lending to women
  farmers. Social innovators can also draw from this fund to drive social change.
  
• Review the mandate of the Cooperative Development Agency (CDA) to have a sharper focus on gender issues.
  
• Incentivize lenders to address issues of financial exclusion that particularly hamper women and youth from accessing finance.
  
• Mandate LACRA to build a triple helix platform and develop a fund to support innovation in the sector.
  
• Develop village-based quality control ambassadors to educate and support farmers on quality control.
  
• Formalize the arrangement between licensed buying companies (LBCs) and traders to support traders as core actors in the system.
  
• Promote local chocolate and cocoa powder consumption.
• Develop a technical and vocational education and training (TVET) curriculum to train graduates to become inputs-as-a-service entrepreneurs.
  
• Develop a risk fund for the sector—for example, the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending—to increase conventional financial institution lending to farmers

Policy proposals to strengthen the sector’s political economy

• Revisit the mandate of LACRA to give a greater role in shaping the market and providing missing infrastructure, e.g., storage through public-private partnerships with LBCs.
  
• Expand the mandate of the CDA to include entrepreneurship development, public relations, and monitoring.
  
• Develop a cocoa development fund that can be tapped to:
  • build capacity of the CDA in entrepreneurship development, public relations, and
    monitoring;
  • strengthen private sector federations in building public-private partnerships;
  • and incorporate intermediaries to draw on for research.
    

Close coordination of agricultural, industrial, and trade policies will be needed to guarantee that  gains are equitable and long term. Key stakeholder participation will also be needed, requiring the creation of a strategy to bring together and sell them on the vision.