INTERNATIONAL FOOD
POLICY RESEARCH INSTITUTE
sustainable solutions for ending hunger and poverty
Ghana Strategy Support Program
Producer Price Determination, Quality Control
and Service Provision in Ghana’s
Partially Liberalized Cocoa Sector
Shashidhara Kolavalli
Marcella Vigneri
Key messages
• Ghana cocoa sector is only partially liberalized, but passes on
significant share of export prices to producers
›
Considered a success: production, productivity, quality, support to local
businesses
•
Producer prices are set through administered process on the basis
of recommendations of a stakeholder committee.
•
The spirit of sharing FOB in this administered process lacks any
pressures on various marketing agents to seek efficiency.
•
Producer shares have increased largely because of reduced taxes
•
Surpluses above budgeted revenues are left with Cocobod
this has encouraged expansion of service provision that the board argues
necessary to sustain the sector
Ghana Strategy Support Program
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Page 2
“FOB Sharing” Method
• Producer Price Recommendation Committee
(finance ministry, farmers, LBCs, haulers, etc.)
recommends producer and other shares:
1. Projects prices, exchange rates and crop size
2. Makes deductions for provision of public goods or “industry costs”
3. Then balance “net FOB” available for sharing (producers marketing functionaries – government)
Ghana Strategy Support Program
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
FOB sharing in 2009-2010
Projected average FOB price ($/ton)
Projected exchange rate (GHc/$)
2,550
1.46
Projected crop size (tons)
700,000
Projected revenues (GHc)
2,606,100,000
Allocation of industry costs
Disease and pest control
162,565,019
Scholarship fund
10,000,000
Jute sacks
19,800,000
CSSVD
14,093,830
Hi-tech
69,430,000
Child labor certification
Total industry costs
Projected revenues net of industry costs
(GHc)
Net revenue per ton or “net FOB” (GHc)
Ghana Strategy Support Program
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
2,000,000
277,888,849
2,328,211,150
3,326
Page 4
FOB Sharing in 2009-10 – contd..
Cost Items
Percent share of
Net FOB
GHc per ton
GHc per bag
(64kg)
72.16
2400.05
150.00
Stabilization fund
1.50
49.89
3.12
Buyer’s margin
8.42
280.05
17.50
Hauliers’ cost
3.40
113.08
7.07
Storage and shipping (CMC)
1.16
38.58
2.41
Quality control
1.66
55.21
3.45
Crop finance
1.06
35.26
2.20
Scale inspection and phytosanitary
0.01
0.33
0.02
Government/Cocobod
9.34
310.65
19.42
Farmer’s housing scheme
0.04
1.33
0.08
Replanting/rehabilitation
0.64
21.29
1.33
Farmers’ social security
0.61
20.29
1.27
Total
100
3326.01
207.87
Producer price
Ghana Strategy Support Program
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Page 5
The Shares to Producers, Other Agents
and Cocoa Revenues
0.8
350,000,000
0.7
300,000,000
0.6
250,000,000
0.5
200,000,000
0.4
150,000,000
0.3
100,000,000
0.2
50,000,000
0.1
0
0
1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10
Total industry costs
Total maketing costs
Transfers to government (duty)
Gross Revenue (constant 1996 GhC)
Ghana Strategy Support Program
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Producer proceeds + bonus
Page 6
Summary
• After peaking in 2003, the producer share is
declining and is less than 60 percent of FOB
• The reduction in duty or transfers to government
has contributed largely to increased producer
shares
• The shares of other marketing agents are not
declining despite dramatic increases in
revenues: there are no market mechanisms in
the system to seek efficiency improvements.
Ghana Strategy Support Program
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Page 7
What Accounts for Significant
Producer Share?
• A number of programs set targets for producer share, taxes,
and Cocobod expenses to be achieved over time
• Cocoa pricing as political issue: two parties push each other
although cocoa producers are not an organized group
• PPRC takes into consideration prices in neighboring countries
two parties (NPP and NDC) also hold each other accountable for smuggling
• Growing revenues have enabled the board to pass on growing
shares to producers without making marketing more efficient
• If not for increasing “Industry costs” producer shares would
have exceeded the target of 70 percent of FOB
Ghana Strategy Support Program
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Budgeted and Actual Revenues in Cocoa Sector
Year/Item
Revenues
Surplus from
Projected
Actual
Difference
Ratio
Price
Quantity
1996/97
82,688
90,922
8,235
1.10
14,734
-6,500
1997/98
116,725
155,777
39,052
1.33
19,256
19,796
1998/99
140,333
148,700
8,368
1.06
-10,788
19,155
1999/00
127,754
217,844
90,090
1.71
84,936
5,155
2000/01
198,900
266,935
68,035
1.34
51,586
16,448
2001/02
292,486
285,909
-6,577
0.98
54,258
-60,836
2002/03
540,540
752,513
211,973
1.39
63,884
148,089
2003/04
726,000
998,491
272,491
1.38
-71,597
344,088
2004/05
915,566
794,204
-121,362
0.87
10,325
-131,687
2005/06
720,940
998,500
277,560
1.38
27,908
249,652
2006/07
819,000
929,504
110,504
1.13
90,668
19,836
2007/08
998,660
1,405,656
406,996
1.41
359,704
47,292
2008/09
1,689,350
2,311,314
621,964
1.37
464,356
157,609
2009/10
2,452,800
2,627,355
174,555
1.07
412,743
-238,188
2010/11
3,280,200
4,668,907
1,388,707
1.42
-132,092
1,520,799
Ghana Strategy Support Program
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Page 9
Transfers to Government
• Transfers to the government (duties) have come
down from nearly 30 per cent of the revenues in
1996/97 to about 6 per cent in 2009/10
• What might account for lowered tax rates?
• More stable macro-economic situation
• Growing tax revenues
• Reduced dependence on export taxes
Ghana Strategy Support Program
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Services
• Reduced service provision following liberalization
• Substantial increase in service provision
particularly with increases in revenues
• Welfare oriented
• Scholarship; social security; housing; child labor
• Production sustainability
• Short term: High tech; CODAPEC; extension
• Long term: CSSVD, replanting; seeds;
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Incentives to expand service provision
Industry costs or expenditures on provision of
services have grown along with the surpluses
Actual ICs are nearly double those recommended
by PPRC
The process that leaves surpluses in the hands of
Cocobod perhaps encourages the expansion of its
roles
Ghana Strategy Support Program
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
The Cost of cocoa quality control
0.00
0.00
Quality control cost/ton (nominal)
Quality control cost/ton (constant 1996)
Ghana Strategy Support Program
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2009/10
0.00
2008/09
0.50
2007/08
0.00
2006/07
1.00
2005/06
0.01
2004/05
1.50
2003/04
0.01
2002/03
2.00
2001/02
0.01
2000/01
2.50
1999/00
0.01
1998/99
3.00
1997/98
0.01
1996/97
3.50
as % tot cocoa revenue
Page 13
Costs and Benefits
• The benefits appear to exceed the regulation
costs
• Control over exports combined with quality offer
• Ability to sell in advance
• Financing of local companies
• Opportunities for rent seeking
• Limited incentives to seek efficiency
• Considerable potential to privatize operations
Ghana Strategy Support Program
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE