THE THE COCOA COAST COCOA COAST T H E BOARD-MANAGED COCOA SECTOR IN GHANA COCOA SECTOR IN GHANACOCOA BOARD-MANAGED THE Shashi Kolavalli and Marcella Vigneri & Vigneri& Kolavalli About IFPRI The International Food Policy Research Institute (IFPRI), established in 1975, provides research-based policy solutions to sustainably reduce poverty and end hunger and malnutrition. The Institute conducts research, communi- cates results, optimizes partnerships, and builds capacity to ensure sustainable food production, promote healthy food systems, improve markets and trade, transform agriculture, build resilience, and strengthen institutions and gover- nance. Gender is considered in all of the Institute’s work. IFPRI collaborates with partners around the world, including development implementers, public institutions, the private sector, and farmers’ organizations. 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With the director general’s approval, the manu- script enters the editorial and production phase to become an IFPRI book. The Cocoa Coast The Board-Managed Cocoa Sector in Ghana Shashi Kolavalli and Marcella Vigneri A Peer-Reviewed Publication International Food Policy Research Institute Washington, DC Copyright © 2017 International Food Policy Research Institute (IFPRI). This publication is licensed for use under a Creative Commons Attribution 4.0 International License (CC BY 4.0). Subject to attribution, you are free to share (copy and redistribute the material in any medium or format) or adapt (remix, transform, and build upon) the material for any purpose, even commercially. Third-party content: The International Food Policy Research Institute does not necessarily own each component of the content contained within the work. 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International Food Policy Research Institute, 1201 Eye Street NW, Washington, DC 20005, USA Telephone: 202-862-5600 DOI: https://doi.org/10.2499/9780896292680 Library of Congress Cataloging-in-Publication Data may be found on page vi. Cover Design: Jason Chow/IFPRI Project Manager: John Whitehead/IFPRI Book Layout: BookMatters Abstract The book examines how after nearly two decades of decline in cocoa pro- duction, Ghana was able to make reforms that increased the share of export prices going to producers, thus stabilizing and more than doubling produc- tion in the past decade. Moreover, these reforms did not include liberaliza- tion of domestic and export marketing. The issues examined include how a stakeholder-advised process for determining producer prices is delivering an increasing share of export prices to producers; how effective the Ghana Cocoa Board (COCOBOD) is in the activities it undertakes to retain a portion of the producer revenues to enhance productivity on smallholder farms and what the impact is on the private sector; and how centralized marketing and mainte- nance of the high export quality for which Ghana is reputed enables the coun- try to offer stable prices to producers and opportunities for local businesses to participate in the sector and retain some power in the global value chain. Insight into the history, management, and political economy of COCOBOD is combined with detailed analysis of smallholder production, domestic mar- keting, and the global cocoa value chain. These lines of inquiry portray a sec- tor that reemerged as a leading producer of cocoa after periods of disarray under different political administrations. The book concludes with recom- mendations on how Ghana can improve the efficiency of COCOBOD’s nec- essary functions while cutting back on services that would be better provided by a private sector that could emerge. v Library of Congress Cataloging-in-Publication Data Names: Kolavalli, Shashi, author. | Vigneri, Marcella, 1971– author. Title: The cocoa coast : the board-managed cocoa sector in Ghana / by Shashi Kolavalli and Marcella Vigneri. Description: Washington, DC : International Food Policy Research Institute, [2017] | Includes bibliographical references and index. | Description based on print version record and CIP data provided by publisher; resource not viewed. Identifiers: LCCN 2017029888 (print) | LCCN 2017033294 (ebook) | ISBN 9780896292697 (ebook) | ISBN 9780896292680 (pbk. : alk. paper) Subjects: LCSH: Ghana Cocoa Board. | Cocoa trade—Ghana. Classification: LCC HD9200.G42 (ebook) | LCC HD9200.G42 K65 2017 (print) | DDC 338.1/737409667—dc23 LC record available at https://lccn.loc.gov/2017029888 Contents Abstract v Figures and Tables ix Foreword xiii Acknowledgments xv Chapter 1 Introduction 1 Chapter 2 The Decline of the Cocoa Sector in Ghana 17 Chapter 3 Reforms, Recovery, and Growth 33 Chapter 4 Efficiency of Current Institutions 53 Chapter 5 Environment, Intensification, and Attractiveness of Cocoa 73 Chapter 6 Effectiveness of Board Programs 97 Chapter 7 Upgrading in the Value Chain by Maintaining Quality 119 Chapter 8 Implications and Options 137 References 149 Appendix Tables 169 Authors 187 Index 189 Figures and Tables Figures 2.1 Direct and indirect taxation of cocoa producers, 1966/1967 to 2008/2009 28 3.1 Nominal, real, and US$ prices received by Ghana cocoa producers, 1996/1997 to 2012/2013 50 3.2 Quantity of cocoa purchased by COCOBOD (tons), 1996/1997 to 2012/2013 51 4.1 Distribution of FOB cocoa price in main producing countries (percentage) 55 5.1 Trends in cocoa yields, 1992 to 2011 85 6.1 COCOBOD expenditures on the Hi- Tech fertilizer and CODAPEC pesticide programs, September 2000 to August 2011 99 Tables 3.1 Timeline of key cocoa events and reforms 41 3.2 Accuracy of projections used by the PPRC (ratio of actual to projected) 44 3.3 Derivation of net FOB price in 2013/2014 cocoa season 46 3.4 Producer shares as a proportion of gross FOB and net FOB, PPRC recommended and actual, 1996/1997 to 2012/2013 49 ix x FIGURES AND TABLES 4.1 Share of producers’ proceeds and other costs in FOB (period averages) 55 4.2 Procurement costs before and after the introduction of licensed buying in 1993 62 4.3 Trends in marketing costs, (GH¢) per ton, 1996/1997 to 2012/2013 66 4.4 Projected and actual revenues from cocoa (thousands of GH¢), 1996/1997 to 2010/2011 68 4.5 Growth in industry costs (GH¢), 2002/2003 to 2010/2011 69 5.1 Characteristics of cocoa farms in three regions 75 5.2 Indicators of intensification within a decade, 2001/2002 to 2009/2010 82 5.3 Input application by technology type 83 5.4 Determinants of yield 87 5.5 Yields and application of inputs by holding size, 2002 to 2010 88 5.6 Gross margins in 2009/2010 89 5.7 Trends in yields in selected districts of Western and Ashanti Regions, 2002 to 2014 90 6.1 Quantities and prices of granular and liquid fertilizer purchased by COCOBOD, 2006/2007 to 2009/2010 100 6.2 Reported occurrence, by farmers, of cocoa farm-related problems 104 6.3 Yields losses from black pod and use of preventive measures 105 6.4 Percentages of farmers receiving different chemicals under CODAPEC, 2006 to 2010 107 6.5 Descriptive statistics of variables underlying the fixed effects– augmented models, 2005/2006, 2007/2008, and 2009/2010 107 6.6 Fixed effects model to estimate the effect of public and private sprays 108 6.7 Descriptive statistics for the impact evaluation analysis, ICI data, 2013/2014 109 6.8 Level of imbalance pre- and post-matching 111 6.9 Sample composition: CEM results 111 FIGURES AND TABLES xi 6.10 First- stage regressions, spray initiative beneficiaries, and land under cocoa 113 6.11 Second- stage equation results, evaluating the impact of the spray initiative 114 6.12 Impact of 2009/2010 Hi- Tech and CODAPEC programs on net FOB and producer price 116 6.13 A model simulation of gross returns to fertilizer use at four levels 117 7.1 Share of quality- control costs in total revenues, 1996/1997 to 2012/2013 131 7.2 Reduced incidence of poverty among cocoa households (%), 2005 to 2012 134 7.3 Annual gross margin per household and adult equivalent (GH¢), 2010 135 A.1 Cocoa revenues and expenditures, 1996/1997 to 2012/2013 170 A.2 PPRC projected revenues and recommended expenditures 179 A.3 Ghana cocoa quality-control processes 185 Foreword Ghana has achieved sustained per capita growth over several decades, mak- ing it an economic success story.