INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE sustainable solutions for

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE sustainable solutions for ending hunger and poverty Ghana Strategy Support Program The Cocoa Coast: The Board Managed Cocoa Sector in Ghana Shashi Kolavalli Sr. Research Fellow and Leader

Key questions • How is the sector managed successfully without liberalized markets? • How effectively does COCOBOD offer the services that it finances by retaining a share of export prices? • How centralized marketing and quality enable Ghana to offer stable prices to producers and opportunities for local businesses to participate in the sector? Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 2

Development and the decline • Developed primarily by capitalist indigenous farmers, often by buying the land required • Following the establishment of a board in 1947, substantial reserves built up by independence • Cocoa reserves and revenues were used to implement an ambitious but unsuccessful industrialization strategy • Despite declining producer prices, production peaked in the 1960’s Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 3

Decline contd. • Nkrumah used political measures to squash demands for a greater say in how the cocoa revenues would be utilized. • Similar policies continued past Nkrumah – government revenue vs. producer revenue • Exacerbated by overvalued exchange rate – a policy no one would touch • Halving of production and per capita incomes by the early 80’s Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 4

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Reforms • No option but to reform; revival of cocoa was an important aspect -- political ambitions in the tilt towards rural areas? • Economic reforms were quickly implemented • Structural Adjustment Programs fail to convince Ghanaians of a superior model for cocoa • Government commits to increase producer share of export prices, primarily by reducing marketing costs – corporatize COCOBOD Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 6

Subsequent negotiations • Following pressures, a conference is organized to discuss the sector • A world bank supported study suggests that it is desirable to retain centralized marketing • Hopes persist that Ghana will continue to liberalize the sector • Plans are drawn to permit LBCs to export 30 percent of their purchases • Kufuor administration shelves the plans Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 7

Year Events or reforms 1983 Economic Recovery Program 1984 Establishment of PPRC and initiation of stakeholder advised administrative setting of producer prices and margins for other services. 1984 Structural adjustment program begins 1993 Introduction of licensed buying companies (LBCs) 1996 A study commissioned by the government with the support of the World Bank suggests that Ghana benefits from centralized marketing 1999 A medium term development strategy is developed. It calls for even playing fields, privatization of Produce Buying Company and LBCs to export by 2000; PBC is privatized. 2000 New administration that comes into power does not follow the recommendation to permit licensed buying companies to export. 2004 Initiation of high tech program; introduction of the concept net FOB to retain a share of the revenues to Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 8

Partial liberalization? • Streamlining of COCOBOD activities • Producer Price Review Committee recommended producer and other pricing • Pan seasonal and territorial prices • Use of Licensed Buying Companies to buy from producers, at no less than declared prices • Continued quality control • Monopoly on exports • Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 9

Outcomes • Increasing real prices and shares in export prices • Stabilized production and dramatic increase in production to reach a million tons in 2010 • Stabilized around 850, 000 tons Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 10

Budgeted and actual producer shares PPRC recommendation Actual Gross FOB Net FOB 1996/97 0. 508 0. 426 1997/98 0. 540 0. 473 1998/99 0. 561 0. 602 1999/00 0. 740 0. 451 2000/01 0. 621 0. 670 0. 510 0. 522 2001/02 0. 644 0. 671 0. 739 0. 829 2002/03 0. 649 0. 681 0. 563 0. 593 2003/04 0. 652 0. 690 0. 666 0. 701 2004/05 0. 688 0. 730 0. 679 0. 740 2005/06 0. 687 0. 727 0. 670 0. 712 2006/07 0. 670 0. 722 0. 588 0. 724 2007/08 0. 618 0. 710 0. 566 0. 652 2008/09 0. 628 0. 705 0. 492 0. 590 2009/10 0. 630 0. 711 0. 578 0. 747 2010/11 0. 683 0. 752 0. 702 0. 807 2011/12 0. 611 0. 648 0. 631 0. 684 2012/13 0. 788 0. 832 0. 738 0. 802 Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 11

Nominal, real and USD producer prices Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 12

Quantity of cocoa purchased by COCOBOD Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 13

producers and other costs in FOB (per cent share in FOB) - Period Averages estimates using IFPRI; COCOBOD (2014). Will administered pricing continue to work? Year FOB ($/MT) Producers' Proceeds Direct Marketing Cocobod Exp. Tot Marketing Industry costs Go. G duty 1996/97 - 2002/03 1, 406 0. 54 0. 19 0. 12 0. 31 0. 02 0. 16 2003/04 - 2007/08 1, 658 0. 61 0. 16 0. 08 0. 24 0. 09 0. 07 2008/09 - 2012/13 2, 826 0. 61 0. 17 0. 08 0. 25 0. 13 0. 03 Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 14

Contd. • Limited collective action by producers or clout • Cocoa pricing is a political issue • But do cocoa votes matter? • But weak participation and representation – powerful and connected CEOs • Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 15

Contd. • A goose to be kept alive • Similar views on exploiting without alienating smallholders • Cocoa production as an indicator of economic management/performance • Benefits from syndicated loans and links to advanced sale, quality, reputation for delivery • Resources for whichever party is in power to offer services -- patronage Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 16

Contd… • Producer share targets met largely by reducing taxes than by reducing marketing costs • Little political will to reform the marketing bureaucracies • Indiscipline related to industry costs • “Has handed out more mosquito nets than the health ministry” • Going back on reforms? Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 17

Cocoa intensification • Westward movement in search of “forest rent” • Intensification has been an environmental objective • Technologies: • “fertilizers forests” • Shade vs. sun systems; need for external inputs in sun systems • Declining response to fertilizer application in the western region? Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 18

Green revolution? • Yield growth of 5. 5 percent between 2002 and 2011 • Cocoa yields inversely related to farm size and strongly associated with fertilizers and plant protection measures • Tree age matters, but surprisingly hybrids or Amazonian varieties do not matter. Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 19

Inputs and yields by holding size Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 20

Gross margins per ha and adult equivalent Land Quintiles Gross margin (Gh. C/ha) Gross margin (per Adult Equivalent)* Ashanti Brong Ahafo Western Total Q 1 508. 55 636. 28 940. 24 745. 66 142. 35 175. 60 266. 16 209. 00 Q 2 348. 64 484. 08 777. 01 539. 54 84. 72 123. 37 224. 42 142. 30 Q 3 245. 80 430. 40 722. 78 539. 50 55. 97 94. 42 183. 01 128. 07 Q 4 272. 13 417. 38 526. 12 394. 68 63. 37 90. 95 126. 72 91. 65 Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 21

How did the COCOBOD services contribute? • Ambiguous direct impact of mass sprays (yield impact of less than 20 kg per ha); • positive yield response to private expenditures ( 50 kg per ha against a cost of GHC 37 per ha) • Higher costs of public sprays • Price incentives vs. subsidies and services • Rationale: externality, credit constraint, reluctance to adopt • Inefficiency and unequal incidence Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 22

Upgrading Ghana’s position • Substantial grinding capacity (430, 000 MT), but underutilized (55 percent) • Demand from processors for discounted beans • Value adding at primary processing is only 5 percent of the final value • 74 % comes from the final steps • Alternative: premium for quality • Policy has been far more beneficial to producers than programs such as fair trade and certification – particularly when prices are rising or fairly high Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 23