The Cocoa Coast: The Board Managed Cocoa Sector in Ghana

INTERNATIONAL FOODPOLICY RESEARCH INSTITUTEsustainable 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

Ghana Strategy Support Program INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

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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?


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

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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

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Figure 2.1: Direct and indirect taxation of cocoa producers

Source: Authors’ calculations


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

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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

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Year Events or reforms 1983 Economic Recovery Program1984 Establishment of PPRC and initiation of stakeholder advised administrative setting of

producer prices and margins for other services.

1984 Structural adjustment program begins1993 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


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•

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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

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Budgeted and actual producer sharesPPRC recommendation Actual

Gross FOB Net FOB Gross FOB Net FOB1996/97 0.508 0.508 0.426 0.426

1997/98 0.540 0.540 0.473 0.473

1998/99 0.561 0.561 0.602 0.602

1999/00 0.740 0.740 0.451 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

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Nominal, real and USD producer prices

Figure 3.1: Nominal, real and USD prices received by Ghana cocoa producers.

.

Source: Authors’ calculations using IFPRI; COCOBOD (2014)

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Quantity of cocoa purchased by COCOBOD

Figure 3.2: Quantity of cocoa purchased by COCOBOD (1996-97 to 2012-13)

Source: COCOBOD.

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Will administered pricing continue to work?

Year FOB ($/MT)

Producers' Proceeds

Direct Marketing

Cocobod Exp.

Tot Marketing

Industry costs

GoG 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

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Table 4.1: Share of producers and other costs in FOB (per cent share in FOB) - Period AveragesSource: Authors’ estimates using IFPRI;COCOBOD (2014).


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•

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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

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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?

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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?

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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.

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Inputs and yields by holding size

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Quartiles 2002 2004 2006 2008 2010 First (1.65 ha)

Median yield (kg/ ha) 205.92 261.18 308.88 386.09 411.83 Fertilizers (kg/ ha) 2.20 40.84 47.78 82.25 155.24 Person days/ ha 72.21 117.28 79.42 77.35 81.83

Second (3.14 ha)


Third (5.24 ha)


Fourth (10.12 ha)



Gross margins per ha and adult equivalent

Land Quintiles

Gross margin (GhC/ha) Gross margin (per Adult Equivalent)*

Ashanti Brong Ahafo Western Total Ashanti Brong Ahafo Western Total

Q1 508.55 636.28 940.24 745.66 142.35 175.60 266.16 209.00

Q2 348.64 484.08 777.01 539.54 84.72 123.37 224.42 142.30

Q3 245.80 430.40 722.78 539.50 55.97 94.42 183.01 128.07

Q4 272.13 417.38 526.12 394.68 63.37 90.95 126.72 91.65

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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

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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

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Food

The Cocoa Coast: The Board Managed Cocoa Sector in Ghana