The Declining Ghana Cocoa Industry

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 and more than double production. Contrary to Washington Consensus prescriptions, these accomplishments were achieved through reforms that did not include market liberalization. In The Cocoa Coast: The Board-Managed Cocoa Sector in Ghana, the authors identify factors that have contributed to Ghana’s success in cocoa production. These include the accountability of the government for the sector’s performance (cocoa-sector performance being seen as a key dimension of economic management), its interest in maintaining the ability to raise funds globally as a reliable supplier of high-quality cocoa, and its policy of retaining a portion of producer revenues to promote the adoption of yield-enhancing measures. The authors also suggest how Ghana can improve the efficiency of the cocoa sector through measures such as increased transparency and curtailing services that would be better provided by the private sector. The Cocoa Coast will be a valuable resource for policy makers, development specialists, and others interested in different national development paths.

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. 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 opportunities for local businesses to participate in the sector and retain some power in the global value chain.

From the early 1960s to the early 1980s, the officially recorded production of cocoa in Ghana declined by 60 percent. During the 1983–95 Economic Recovery Program, however, cocoa production doubled. Although these developments have inspired much empirical research, most of the studies have been unable to explain the medium-term persistence of cocoa output to remain below its estimated capacity level. The paper argues that the price incentive to smuggle can explain as much as one-half of the observed decline in output and the subsequent recovery. A cointegration analysis and a dynamic error-correction model of cocoa supply support the analysis.

From the early 1960s to the early 1980s, the officially recorded production of cocoa in Ghana declined by 60 percent. During the 1983-95 Economic Recovery Program, however, cocoa production doubled. Although these developments have inspired much empirical research, most of the studies have been unable to explain the medium-term persistence of cocoa output to remain below its estimated capacity level. The paper argues that the price incentive to smuggle can explain as much as one-half of the observed decline in output and the subsequent recovery. A cointegration analysis and a dynamic error-correction model of cocoa supply support the analysis.

The cyclical boom-to-recession nature of the economics of cocoa supply is a major problem for the international cocoa industry - and especially for countries whose economies depend on cocoa exports. Only through an understanding of the dynamics of cocoa cycles can policy decisions be made through the various phases of supply cycles. Based on a major international cocoa conference, this book presents seventeen edited papers from leading experts, making a major contribution to that understanding. It explains the powerful economic, social and political factors which impact on the cocoa economy. It shows the laws of cocoa supply are closely linked to environmental, ecological and institutional factors.