The Board-Managed Cocoa Sector in Ghana

Abstract

Ghana has achieved sustained per capita growth over several decades, making
it an economic success story. Its cocoa sector, which has seen sustained
growth in exports of high quality cocoa, is no less of a success. Ghana’s
accomplishments are even more significant given the poor state of the
cocoa sector and of the country’s economy 40 years ago. The Cocoa Coast:
The Board-Managed Cocoa Sector in Ghana seeks to understand how Ghana
achieved such success without liberalizing its marketing, as Washington
Consensus standards would call for, but instead through continued management
by a marketing board.
The authors review the history and political economy of the Ghana
Cocoa Board and analyze the Ghanaian cocoa sector using various survey
data on cocoa farmers. The analysis shows that government accountability
for cocoa-sector performance, centralized marketing, and high export quality
have been important factors in Ghana’s accomplishments. Looking forward,
the authors find that Ghana could further improve its cocoa-sector performance
through changes to the marketing board, including changes to reduce
marketing costs. Marketing costs can be reduced through more transparent
cocoa pricing and a greater role for the private sector. These reforms would
offer farmers a larger share of prices and increase their access to inputs.
The Ghanaian cocoa sector’s history, and The Cocoa Coast’s analysis of it,
has important implications for economic development. While one school of
economic thought holds that developing countries must liberalize their markets
and abolish marketing boards, Ghana’s experience shows that alternative
approaches are possible, and aspects of Ghana’s experience may be relevant to reforms in other sectors and in other countries. This book provides a valuable
case study in how a country can achieve high production levels in an agricultural
sector without full market liberalization.

Full text

THE COCOA COAST
The Board-Managed Cocoa Sector in Ghana
Shashi Kolavalli and Marcella Vigneri September 2017
After almost 20 years of declining cocoa production, Ghana has been able in
the last decade to increase the share of export prices going to producers,
more than doubling production. Contrary to Washington Consensus prescriptions,
these accomplishments were achieved through reforms but without liberalization of
domestic and export marketing.
SYNOPSIS
The Cocoa Coast: The Board-Managed Cocoa Sector in
Ghana seeks to understand the success of a sector that
was not liberalized. The authors identify three major
reasons for Ghana’s success in cocoa production. First,
cocoa producers receive an increasing share of export
prices, because of factors including a stakeholder-advised
process for determining producer prices that also pays
explicit attention to discouraging smuggling of cocoa
to neighboring countries and the popular perception
that cocoa performance is tied to the country’s general
economic performance. Second, the Ghana Cocoa Board
(COCOBOD) has a policy of retaining a portion of producer
revenues to promote the adoption of yield-enhancing
measures. Third, centralized marketing and maintenance
of the high export quality for which Ghana is known
enables the country to offer stable prices to producers
and oppor tunities for local businesses to participate in the
sector and retain some power in the global value chain.
The authors also explain how Ghana can improve the
efficiency of the cocoa sector by measures that include
increasing transparency and cutting back on services better
provided by the private sector.

TABLE 1 Reduced incidence of poverty among cocoa-producing households (2005 to 2012)
ITEM
REDUCTION IN POVERTY AMONG COCOA-PRODUCING
HOUSEHOLDS
POVERT Y AMONG COCOA- AND
NON-COCOA-PRODUCING HOUSEHOLDS IN 2012
Poverty Extreme poverty Poverty Extreme poverty
2005 20 12 2005 2012 Non-Cocoa Cocoa Non-Cocoa Cocoa
Obs. 780 140 5 780 140 5 4213 140 5 4213 140 5
Mean 33.43*** 26.9 3*** 12. 44 *** 7.2 8 *** 32.28*** 26 .93*** 9. 88*** 7. 2 8 ***
Std. Dev. 3.85 7.9 0 5.9 0 5. 41 5 .51 7.90 1.9 6 5 .41
Source: Author s’ estimate s using Ghana L iving Standa rds Survey Ro unds 5 and 6.
Note: *** signi ficant at p<0. 001; ** sign ificant at p <0.005; * signif icant at p<0. 05; Obs. = number o f observat ions; the samp le size was more t han doubled in t he 2012 survey; hen ce, the
dif ference in numb er of observ ations; in 2012, ext reme pover ty was defin ed as expendi tures that ar e barely adequ ate to meet the c aloric requ irements, a nd they were at 27.1 percent of
the mea n consumptio n. The pover ty line was at 4 4.9 percent of mea n consumptio n.
GHANA COCOA SECTOR HISTORY
Ghana had become the largest cocoa producer in the world
by the 1940s. When the country gained independence in 1957,
it had the second highest per capita income in Africa south of
the Sahara. Its relative prosperity was largely due to its foreign
trade in cocoa, as well as timber and gold. However, heavy
taxation, inefficient state marketing combined with inflation,
and overvalued exchange rates that eroded real producer
prices contributed to the sector’s rapid decline.
Cocoa production, which had peaked at 581,000 tons in
1964/65, making Ghana the largest producer globally with
a market share of 38 percent, was down to 160,000 tons by
1983/84, bringing Ghana’s share down to 10 percent. These
distor tions in the cocoa and larger agricultural sector played
an important role in the economy’s deterioration. By the early
1980s, the per capita income in Ghana was half of what it had
been at independence.
Ghana adopted an Economic Reform Program in 1983.
Resisting Washington Consensus–based reforms that called for
abolishing quasi-governmental marketing agencies—known
as parastatals—the country committed instead to increase
the share of export prices going to farmers. The government
increased farmers’ share of export prices primarily by having
a stakeholder group recommend producer prices and
marketing costs and by reducing marketing costs through
the removal of many functions of the cocoa marketing board
(COCOBOD’s predecessor). Among the cocoa marketing
board func tions eliminated were its participation in production
and processing. In addition to increasing farmers’ share
of export prices, the government also adopted policies to
improve and expand cocoa farming.
By 2000, Ghana had increased the producer share in export
prices to above 50 percent and brought production close
to 400,000 tons. Beginning in 2001, as global cocoa prices
rose, the government retained a significant portion of export
revenues, as much as one-fifth in some years, to subsidize
inputs and undertake plant protection spraying to increase
and stabilize production. Production more than doubled in
2002 and grew to more than one million tons in 2010/2011,
restoring Ghana’s status as the second largest cocoa producer
in the world.
Cocoa households have experienced significant improve-
ments in their living conditions compared with food crop
farmers; poverty rates among cocoa households dropped
36 percentage points between the early 1990s and 2005.
Between 2005 and 2012, the incidence of pover ty decreased
more among cocoa-producing households than among
non-cocoa-producing households. There was less than a
percentage point difference in the level of poverty between
the two groups in 2005, but by 2012 cocoa-producing house-
holds were significantly less poor than non-cocoa-producing
households (see Table 1).
Ghana retained its reputation as a producer of
high-quality cocoa, which earns a premium in the global
market. The country is now celebrated as a development
success story, as it has increased produc tion and productivity
while maintaining the quality that gives it a level of power in
the global value chain.
IMPLICATIONS & FUTURE
POLICIES
Ghana’s experience has implications for the appropriateness
of economic reform measures that routinely include market
liberalization and abolishing marketing boards. The Cocoa
Coast identifies some general implications of the study’s
findings and some suggestions for making cocoa-sector
management more effective.
2

Reforms without Market Liberalization
In addition to a stakeholder-advised pricing process that
aims to empower cocoa producers, the reasons Ghana
has increased the producer share of export prices include
the following:
XThe government has become accountable for the sector’s
performance, which is treated as a key dimension of
economic management.
XCocoa-producer pricing has emerged as a key
agricultural policy that reflects the government’s
commitment to agriculture.
XCOCOBOD can raise funds globally for the sector.
To maintain this fundraising ability and Ghana’s status as
a reliable supplier of high-quality cocoa, the government
offers prices that discourage the smuggling of cocoa
into neighboring countries, where prices are more
market determined.
Ghana’s cocoa experience suggests some considerations
that should go into identifying appropriate reform options
for Ghana and other countries with similar economies:
1. Capacity for producer management
Collective producer management of a sector is a commonly
suggested alternative to market liberalization. Ghana
currently lacks an effective organization that can represent
cocoa producers. An intermediate step would be to give
stakeholders a greater say in parastatals’ management,
but this would depend on whether the producers are
adequately organized to have appropriate representation
in the management and, more impor tantly, whether they
develop or are granted a voice over time. Ghana’s cocoa
experience would suggest not.
2. Potential for an indigenous private sector
What kind of markets would emerge following liberalization
and would there be opportunities for domestic firms to
participate in the sector? Countries are often reluctant to
privatize because they are unwilling to permit foreign firms
to dominate critical economic sectors. Ghana’s cocoa sector,
however, has retained practices that offer opportunities
and suppor t for local enterprises to participate in the
sector without discouraging investments by international
firms. Offering opportunities for local participation is also
important politically, to make reforms sustainable.
3. Ability to tame the parastatals
Reforms without market liberalization entail a key role for
quasi-public organizations in a sector’s management. For
this reason, determining whether it would be feasible to
reorganize the parastatals to reduce costs and increase
their efficiency is critical. Political and other pressures
to offer adequate incentives to producers translate into
pressures to reduce marketing costs as well, but that
may not be enough. In Ghana, the producer share of
export prices has been increased largely by forgoing tax
revenues rather than reducing marketing costs. As cocoa
taxes became a less important revenue source, reducing
taxes became easier for Ghana’s government to undertake
than making cocoa-sector parastatals more efficient.
4. Sector-specific government accountability
Ghana’s experience shows that a crucial consideration
when examining sectoral reform approaches is whether
a government will be held accountable for a sector’s
weak performance. Such accountability might occur if
the various actors within the cocoa sector, as well as
international investors in cocoa markets, continue to regard
production levels and producer price share as indicators
of government performance or if the government has
political incentives to seek sector expansion.
Government accountability could develop over time
and may not be apparent when considering reform
options. For example, in the cocoa sector, the use of
licensed buying companies was abandoned in the past
primarily because of the misuse of the funds extended to
them for procuring cocoa from producers. There appears
to be a greater political commitment now to limit the
abuses within parastatals so the government will benefit
from a better performing sector.
5. Is a board appropriate?
Would marketing boards be appropriate for sectors
that currently lack them? Certain services offered by
COCOBOD, particularly pan-seasonal prices, would be
valuable for other export crops. To offer such prices,
however, requires selling in advance of the season
and borrowing at low cost to finance purchases from
producers. This option is not available for many export
crops. Offering pan-seasonal prices without advance
sales may be feasible but would require considerable
political management.
Boards could also play an important role in ensuring
standards and helping sectors build a reputation for quality.
Some exports would benefit considerably from investment
in research and efforts to maintain quality.
Administered pricing, which is what may be demanded
most from a board, is risky. Unless pricing is determined
through a demonstrably objective market price–related
process, prices will be perceived as a government policy.
Governments then will be under pressure to keep increasing
them, at least nominally, even when export prices begin to
fall. While administered price increases are feasible when
export prices are not falling, such a system probably could
not be sustained when export prices are falling.
3

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
A world free of hunger and malnutrition
1201 Eye Street NW, Washington, DC 20005 | T. +1-202- 862-560 0 | F. +1-202-8 62-560 6 | Email: ifpri@cgiar.org | www.ifpri.org
Copyright © 2017 International Food Policy Research Institute. Licensed for use under a Creative Commons Attribution 4.0 International License (CC BY 4.0).
DOI: https://doi.org/10.2499/9780896292703
The Last Mile of Reforms
Although Ghana’s cocoa sector seems to be performing
well at an aggregate level, productivity is low. Increasing
yields is necessary to maintain cocoa’s competitiveness
with other crops and livelihood options. Doing so requires
better genetic material, more effective inputs, and improved
cultivation practices. The strategy recommended here is
to offer an even higher share of prices to producers and to
increase access to inputs at lower costs.
These goals can be achieved through the following steps:
1. Making cocoa pricing even more transparent, particularly to
strengthen the process of determining the size and scope
of industry activities. This could lead to streamlining and
modernizing COCOBOD’s and other marketing organizations’
operations to reduce their costs and limit their operations’
(currently excessive and therefore inefficient) scope.
2. Engaging the private sector in marketing wherever
feasible to reduce costs and improve effectiveness.
Transparency could result in bet ter use or allocation of sector
resources, and the use of the private sector would make many
activities more ef ficient. Some opportunities to increase
transparency and private-sector involvement in the cocoa
sector are reviewed below.
Transparency
Beginning in 1984, the Ghanaian government set producer
prices and established set fees that the actors in the sector
can charge for their services. This price and fee setting
followed the recommendations of the Producer Price Review
Committee (PPRC). The PPRC comprised representatives of
major actors in the sector including producers, transporters,
the Ministry of Finance and Economic Planning (MoFEP),
COCOBOD, and others. However, how much influence this
committee has on pricing is not clear.
While producer prices and costs of other services are
announced at the beginning of the season, the rationale for
and details of the budget for carrying out industr y activities
are not published—even though this budget affects the size
and scope of industry activities. Publicizing a summary of the
PPRC recommendations would make the committee members
more accountable to the public. The committee members, in
turn, would demand more extensive committee deliberations
and a say in determining prices and budgets. Whenever actual
revenues exceed projections, the PPRC should also deliberate
on how surplus revenue should be used—whether these
revenues should be passed on to producers as bonuses, put
into the price stabilization fund, or spent on industr y activities.
Transparency is required in other spheres of Ghana’s
cocoa sec tor, as well. The only information available about the
operations of COCOBOD’s marketing unit, which is one of the
largest sellers of cocoa beans, is the prices provided in the
annual repor ts. Understanding how to make the cocoa marketing
unit’s operations transparent, without compromising the unit’s
operations, would help in introducing appropriate reforms.
Using the Private Sector
Ghana’s marketing organizations could reduce costs if the
private sector took over certain functions. Even if private-sector
organizations do not reduce costs, they can at least be held
accountable to deliver services more effectively. Two options
to consider are (1) cocoa producers raising and supplying
seedlings, as a complementary enterprise; and (2) private
agencies competing to certify cocoa without delay, thereby
streamlining cocoa quality-control procedures.
CONCLUSION
Reforming the cocoa sector has spurred production
increases and improved marketing to offer a higher price
share to producers. However, while centralized marketing
enables COCOBOD to reliably deliver large quantities of
uniform-quality Ghanaian cocoa and thus earn a premium that
exceeds quality-control costs, some of the ser vices provided by
COCOBOD are wasteful, functioning as a tax on producers that
does not benefit them universally. If the private sector emerged
to provide those services, farmers might be able to earn the
revenues COCOBOD saves by eliminating those services.
Ghanaian cocoa seems to be dependent on many
conditions that may not be applicable in other sectors and
countries. Nevertheless, Ghana’s case is interesting as an
alternative to full market liberalization; despite the general
acceptance of liberalization across the African continent,
some sectors in Ghana and other countries still could benefit
from marketing board arrangements.
Shashi Kolavalli (s.kolavalli@cgiar.org) is a senior research fellow in the Development St rategy and Governance Division of the International Food Policy Research
Institute, Accra, Ghana. Marcella Vigneri (marcella.vigneri@gmail.com) is an independent researcher based in Oxford, United Kingdom. This publication is based
on the peer-reviewed book The Cocoa Coast: The Board-Managed Cocoa Sector in Ghana, published by t he International Food Policy Research Institute. Any
opinions stated in this book are those of the author(s) and are not necessarily representative of or endorsed by IFPRI. For more information about the book,
see https://doi.org/10.2499/9780896292680.