The Cocoa Coast: The Board Managed Cocoa Sector in Ghana

1. The Cocoa Coast: The Board Managed Cocoa Sector in Ghana Shashi Kolavalli Sr. Research Fellow and Leader

2. 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

3. 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

4. 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

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6. 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

7. 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

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9. 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

10. 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

11. Budgeted and actual producer shares Page 11

12. Nominal, real and USD producer prices Page 12

13. Quantity of cocoa purchased by COCOBOD Page 13

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. Inputs and yields by holding size Page 20

21. Gross margins per ha and adult equivalent Page 21

22. 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

23. 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