Coping with Agricultural Reforms in the 90s:The case of cocoa farmers in Ghana

Francis Teal and Marcella Vigneri

See also: Ghana Cocoa Farmers Survey 2004: Report to Ghana Cocoa Board by Francis Teal, Andrew Zeitlin and Haruna Maamah, on the GPRG website.

This project analyses the nature of changes affecting cocoa farmers production in Ghana under agricultural market reforms.  From the early 1970s until the mid 1980s Ghana’s cocoa output fell due to the combination of an overvalued exchange rate and heavy taxation of cocoa effected by means of a monopsonistic marketing board. From the mid 1980s markets have been liberalised. The progressive deregulation of the country’s cocoa sector has been on the policy agenda since the mid 1980s with specific measures to liberalise the marketing system taking place since 1989.

Ghana's Cocoa Production (Mt) And Producer Prices (constant 1987 USD)


SourceFaostat database and Ghana Cocoa Board.
Note: The clear bars show the period covered in the first part of the project. ERP is Economic Recovery Programme, CRP is Cocoa Rehabilitation Programme

The next set of policy reforms under consideration is to fully liberalise the marketing system by removing the role of the state marketing board.  The impact that this step would have on farmers has to be put in the context of both the institutional framework of the country and of the severely disadvantaged position of farmers who would become potential vulnerable losers in the liberalisation process.  Is it really the case that a full liberalisation of the marketing system will create a win-win scenario from which all cocoa farmers in Ghana will benefit?  This project addresses the above questions from an empirical angle in two sections, analysing two different periods of the reforms; 1991 to 1997 and 1997 to 2001. 

1991 to 1997

For the first period we use the last two cross sections of the nationally representative Ghana Living Standards Survey to assess how the expansion of cocoa production in Ghana in the 1990s was effected.

Changes in Cocoa-Farming Households Input use: 1991-1998


*The variable total real input is a more comprehensive measure of inputs which includes items such as irrigation, bags, containers, petrol/diesel/oil (to operate spraying machine and mist blowers), transport of crops, hand tools.

One concern has been the effect of removing subsidies on insecticides and fertilisers which occurred in 1996/97 as part of the CRP’s long term programme to reorganise more efficiently the distribution of inputs

Our results show that the measure of non-labour inputs increased. This is consistent with liberalisation having provided a framework by which inputs, although no longer subsidised, are used because they are now available.

A second concern is to assess the extent to which the production increase observed at the household level is consistent with the macro statistics of an increase in the level of production of 37% occurred between 1990/91 and 1997/98.   Below are the changes in the key production variables at the household level in the relevant period:

  • The average amount of cocoa produced by households increased by 6 percent.
  • The average size of households’ land holdings increased by 5 percent, though cocoa yields on average have remained unchanged. 
  • Non-labour inputs increased by 13%.
  • Total labour use decreased by 28%, a trend driven by the corresponding drop in the family labour component (36 percent). 
  • The percentage of hired labour increased by 7%.
  • The rise in output and large decrease in labour input imply labour productivity increase of 33%.
  • Significant declines of output and farm size in the Eastern region, consistently with the shift out of cocoa occurred in the region since the 1930s.

Two major conclusions emerge from the first part of the project:

  1. Output growth was almost entirely due to the traditional method of expanding output by means of additional labour and land. Of the 37 per cent increase in output over this period (presented in aggregate national statistics) only 6 per cent was due to increased output per household, the rest was due to the expansion of the number of cocoa households.
  2. Labour productivity was increased in part due to the expansion on non-labour inputs and land but mainly due to the large declines in labour input. Such a decline is consistent with rising labour prices to the household. We speculate that such rises may explain the lack of innovation in new crop technologies; they are labour using and land saving whereas it is labour that is scarce.

1997 to 2001

The second part of the project uses a unique dataset of farmers spread across the country’s cocoa belt.  The authors construct the first cocoa farmers panel based on the existing 1998 household dataset (Ghana Living Standards Survey) and on new data collected in 2002.

The findings from a growth analysis suggest that farmers operating more land under cocoa cultivation grow the most.  The underlying changes in the production characteristics of these producers show that for the same farmers interviewed four years apart:

  1. The total amount of cocoa sold has increased substantially,
  2. Total land operated increased by virtue of an increase in the number of farms,
  3. Yields and labor productivity have not increased significantly,
  4. Non-labor input use increased significantly despite the increase in the cost of chemicals.
Percentage changes in key production indicators: 1997-2001

Ashanti

B. Ahafo

West. Sefwi

West. Wassa

Total

No. Farmers

27

31

51

54

163

Cocoa sold (kg)

54%

60%

42%

49%

50%***

Cocoa farm size (ha)

27%

18%

91%

31%

47%***

Number of cocoa farms

35%

35%

48%

45%

43%***

Cocoa yield (kg/ha)

27%

42%

-50%

18%

3%

Real input exp.
(deflating with  P2001/P1997 for each input)

66%

358%

274%

69%

169%***

Labour productivity
(kg cocoa sold/man-days)

37%

20%

-39%

47%

13%

Note: *, **, *** denote statistical significance at respectively 10%, 5% and 1% on t-tests conducted on mean differences between the two years of the panel. 

Credit

Informal credit (friends/relatives and LBC agents) is still the dominant source of access to loans. Rural banks are the most common channel of formal credit.

Liberalisation

How would full liberalisation affect farmers?
Farmers are still divided on the desirability of full liberalization.

Sales

Why is PBC still preferred for cocoa sales?
61% of farmers prefer the former state owned company for accountability and trust

Funding of this programme

The U.K. Department for International Development (DFID) supports policies, programmes and projects to promote international development. DFID provided funds for this study as part of that objective but the views and opinions expressed are those of the authors alone