Financial analysis of shaded cocoa in Ghana

Abstract

The cultivation of cocoa has been an important driver of tropical deforestation globally. Efforts to reverse this trend are focusing on the reintroduction of shade trees to cocoa plantations. Shade trees are valuable in enhancing biophysical conditions on cocoa (Theobroma cacao) fields and contribute to biodiversity and product diversification for smallholder producers. Participatory trials of cocoa agroforests planted with indigenous shade tree species were undertaken with farmers in the Atwima District of the Ashanti Region of Ghana, to increase tree volume on cocoa fields while improving rural livelihoods and enhancing environmental sustainability. An ex ante financial analysis of the technology was undertaken to assess its economic viability. Input-output data were collected from farmer experiments over three seasons and supplemented with data from traditional cocoa fields of varying rotation ages, and secondary data on production in later years of an eighty-year cocoa rotation. A discounted cash flow analysis was carried out to estimate the benefit-cost (B/C) ratio, net present value (NPV), internal rate of return (IRR) and land expectation value (LEV) as well as the sensitivity to a 20% decline in cocoa prices and additional chemical costs for various shade scenarios at a 10% discount rate. It was observed that cocoa production is, in general, profitable. The change from the traditional system to one with hybrid cocoa raised the IRR from 31% to 57% with planted shade and 67% without, although extra agrochemical costs would tend to reduce the profitability of unshaded hybrid cocoa in particular. The age of maximum LEV for the various scenarios suggests that the optimum economic rotation for the hybrid cocoa is between 18 and 29 years, much less than the traditional system. © 2007 Springer Science+Business Media, Inc.