Closed borders can be an opportunity: A farmers’ cooperative achieved record cocoa sales during Ebola

Cocoa farming is the main source of income for inhabitants of northern Lofa County. Most of this cocoa is sold to traders in nearby Sierra Leone and Guinea, exiting through unregulated land border crossings rather than via official export channels in Monrovia. However, during the Ebola epidemic – and potentially again during COVID-19 – formal and informal border crossings were closed, enabling those Liberian cooperatives and buyers with capital to scale trade.

Fofie Nyeh, the business manager of Sebehill Kulasumai Multi-Purpose Farmers’ Cooperative Society in Lofa’s Kolahun district, estimates that about 60 percent of farmers in his region currently sell their cocoa to buyers from Sierra Leone. As well as offering a higher price than cooperatives supplying Monrovia-based exporters, these foreign buyers also pay cash upfront or even in advance of receiving cocoa, providing much-needed support to farmers during the pre-harvest “hungry season”. Liberian cooperatives like Sebehill lack the financial strength to compete with them.

Border closures during Ebola reduced competition for cooperatives

During the 2014-16 Ebola epidemic, which resulted in thousands of deaths in all three countries, official and unofficial border crossings were closed. Nyeh describes how community-enforced restrictions on strangers entering towns and villages near informal crossings led to a decline in cocoa buyers entering from Sierra Leone.

“Villagers didn’t want to see strangers in the community,” he says.

The closure of these trading routes, continues Nyeh, led to farmers taking more of their cocoa and coffee to Sebehill’s warehouse for sale. And the proof is in the figures: Sebehill traded 261 metric tonnes (MT) of cocoa and coffee in the 2014/15 season – more than double the quantity of the previous year.

Border closures are not enough – sustained financing is critical.

Border closure was one of two key factors that resulted in Sebehill’s uptick in trade during Ebola. The other? Timely capital flows.

Sebehill was able to take advantage of the increased volumes of cocoa available for purchase through steady pre-financing offered by its cocoa buyer at the time, as well as a competitive price, which meant the cooperative presented a viable sales channel for farmers. Supported by its buyer, Sebehill was able to secure a permit to travel between counties throughout the Ebola crisis and chartered two trucks to transport the cocoa to Monrovia for export.

According to Nyeh, financing from Sebehill’s buyer became erratic in 2016, and the business relationship ended the following year. The absence of a replacement buyer that would supply reliable financing at critical purchasing times has been the main obstacle to Sebehill’s ability to trade cocoa at the same scale. As a result, when borders opened once more, farmers resumed business with Sierra Leonean buyers. In the 2017/18 season, Sebehill’s sales dropped to 57.6 MT. They fell to 36.3 MT in 2018/19.

Although recent border closures associated with Liberia’s COVID-19 response suggest that there is an opportunity for Sebehill to again increase its trade volume, the cooperative will need to secure financing for the upcoming season to turn the opportunity into a reality.

Liberia’s cocoa financing gap is a complex problem

Inconsistent financing is a long-standing and systemic constraint preventing Liberia’s cocoa sector from reaching its full potential. Accordingly, solving the financing challenge is more complex than simply handing out funds (which has happened many times in Liberia and is yet to sustainably address the financing gap).

One issue is the absence of suitable financial products which cater to the needs of cocoa traders requiring high levels of liquidity during the buying season. Clemenceau Urey, CEO of Atlantic Cocoa, which has become Sebehill’s principal buyer, complains of capital constraints: “We took a loan from a commercial bank and are pressed to marshal funds to repay,” he says. “We hope to get another loan from somewhere to give us more operational capital.”

Another challenge is poor liquidity in Liberia’s banking system, which is more pronounced in rural areas. Lofa’s only commercial bank closed in February, but even while it was open customers experienced difficulties in accessing cash.

Nyeh describes how, during the Ebola crisis, he would travel over ten hours by motorbike to Monrovia to collect cash from Sebehill’s buyer for cocoa purchases, or meet the buyer along the road: “We weren’t dealing with a bank at that time. It was difficult to get money.”

Aside from the obvious security risks, this form of exchange slows the operations of a cash-intensive business. And Nyeh notes that where he previously received US$50,000 at a time from the buyer to purchase cocoa, recent buyers have been reluctant to disburse more than $10,000.

“It’s a long, convoluted process to get cocoa beans down to Monrovia,” says Urey. This, he believes, will make purchasing during the upcoming buying season riskier, because “money is in people’s hands for longer.”

To mitigate this risk, Urey plans to send an employee from Monrovia with cash to buy cocoa directly, but this will further slow operations and reduce Atlantic’s competitiveness. Timely disbursements – from exporters to buyers and cooperatives to farmers – are key to optimising turnover and increasing trade volumes.

COVID-19 has again closed borders, creating a new opportunity for Liberia’s cocoa traders who are able to gain access to working capital

Sebehill’s experience during Ebola highlights the opportunity presented by border closures prompted by COVID-19 for cooperatives and their Monrovia-based buyers to purchase greater volumes of cocoa in the upcoming season. However, timely capital flows are essential to enable them to profit from cross-border trade disruption and the corresponding removal of competition from Sierra Leone.

“Finance is the most significant factor,” says Nyeh. “Without money, can we buy equal to before? No!”

About GROW Liberia

GROW is an agri-business and investment advisory program that partners with businesses, investors, associations, and government agencies to accelerate inclusive economic returns within high growth industries in Liberia. GROW is supporting public and private partners and markets to respond to the COVID-19 emergency. Learn more about our research, advisory, and support here. 

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