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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?
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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? 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 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 Page 4
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 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 Page 7
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 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 Page 10
Table 4.1: Share of producers and other costs in FOB (per cent share in FOB) - Period Averages Source: Authors’ estimates using IFPRI;COCOBOD (2014). Will administered pricing continue to work? 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 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 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? Page 17
Cocoa intensification • Westward movement in search of “forest rent” • Intensification has been an environmental objective • Technologies: • “fertilizers for forests” • Shade vs. sun systems; need for external inputs in sun systems • Declining response to fertilizer application in the western region? 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. Page 19
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 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 Page 23