INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

sustainable solutions for ending hunger and poverty

Ghana Strategy Support Program

Ghana Cocoa Producer Price Determination

Shashidhara Kolavalli Marcella Vigneri

Liberalization of Commodity Sectors

Objectives:
Reduce taxes Reduce marketing margins the spread between producer and global prices: higher producer share of export prices

Reforms in Ghana
Privatization and reorganization Introduction of competition in local marketing Continued administrative/negotiated producer pricing

Key questions:
What is the producer share? What factors influence them?
Ghana Strategy Support Program
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

FOB Sharing Method

Producer Price Recommendation Committee (finance ministry, farmers, LBCs, haulers, etc.) recommends
Projects prices, exchange rates and crop size Makes deductions for provision of public goods or industry costs Takes the balance as net FOB available for sharing between producers and various marketing functionaries Surpluses are transferred to government, although government may take funds whenever it needs
Ghana Strategy Support Program
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

Example: 2009-2010

Ghana Strategy Support Program

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

Recommendations contd..

Ghana Strategy Support Program

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

3,500

Producer Price Changes (US$)

0.80

3,000

0.70

0.60 2,500 0.50 2,000 0.40 1,500 0.30 1,000 0.20 500

0.10

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

0.00

Achieved FOB /tonne (US$)

Producer Price + Bonus (US$)

Real Producer price (US$)

Share f.o.b. Price

Ghana Strategy Support Program

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

The Shares of Other Agents

0.80 0.70 0.60

0.50

0.40

0.30

0.20

0.10

0.00 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 Cocobod

Public goods

Marketing costs

Producer price (+ bonus)

GoG paid duties

Ghana Strategy Support Program

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

Transfers to Government

What might account for lowered tax rates?

more stable macro-economic situation? Growing tax revenues?
Ghana Strategy Support Program
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

Share of Marketing Costs in Cocoa Revenue

0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 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

Buyers' Margin Grading/Quality Control (QCD)

Haulage Cost Other*

Storage & Shipping % of cocoa revenue

*Other includes: jute sacks, crop finance, anti-smuggling funds, scale inspection and phyto-sanitory and social security for farmers

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Page 9

Share of Public Goods Expenditure

1.00 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 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 Page 10

CODAPEC

CSSDV + tree replanting

High-tech

Other*

Total as % of cocoa revenue

*Other includes scholarship fund, cost of elimination of WFCL, stabilization fund and farmers' housing scheme

Ghana Strategy Support Program

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Share of Cocobod Exp. in Cocoa Revenue

0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00 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

% of tot marketing costs

% of cocoa revenue

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Page 11

CMC Costs
60.00 0.14 50.00 0.12

0.10 40.00 0.08 30.00 0.06 20.00 0.04 10.00

0.02

0.00 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

0.00

Storage and shipping/ton (nominal) as % tot marketing costs

Storage and shipping/ton (constant 1996) as % tot cocoa revenue Page 12

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INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

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 has become a political issue: the two parties push each other although cocoa producers are not an organized group; PPRC takes into consideration prices in neighboring countries; the two parties also hold each other accountable for smuggling NPP recently stated that offering higher prices to farmers is a superior way to patrolling borders; Growing revenues make it feasible to pass on larger share to producers without improving efficiency assuming economies of scale in marketing operations; Lower government taxes have contributed more than anything else to higher producer shares; Increase in industry costs is the major reason for decline in producer share in FOB.

Ghana Strategy Support Program

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE