8399 WORLD BANK I COMPARATIVE STUDIES I F !ILE CO>Y The Political Economy of Agricultural Pricing Policy Trade, Exchange Rate, and Agricultural Pricing Policies in Ghana J. Dirck Stryker with the assistance of Emmanuel Dumeau, Jennifer Wohl, Peter Haymond, Andrew Cook, and Katherine Coon A - _ :_ i1:it rOF The Political Economy of Agricultural Pricing Policy Trade, Exchange Rate, and Agricultural Pricing Policies in Ghana J. Dirck Stryker with the assistance of Emmanuel Dumeau, Jennifer Wohl, Peter Haymond, Andrew Cook, and Katherine Coon WORLD BANK COMPARATIVE STUDIES The World Bank Washington, D.C. Copyright © 1990 The International Bank for Reconstruction and Development/THE WORLD UANK 1818 H Street, N.W. Washington, D.C. 20433 All rights reserved Manufactured in the United States of America First printing February 1990 World Bank Comparative Studies are undertaken to increase the Bank's capacity to offer sound and relevant policy recommendations to its member countries. Each series of studies, of which The Political Economy of Agricultural Pricing Policy is one, comprises several empirical, multicountry reviews of key economic policies and their effects on the development of the countries in which they were implemented. A synthesis report on each series will compare the findings of the studies of individual countries to identify common patterns in the relation between policy and outcome-thus to increase understanding of development and economic policy The series The Political Economy of Agricultural Pricing Policy, under the direction of Anne 0. Krueger, Maurice Schiff, and Alberto Valdes, was undertaken to examine the reasons underlying pricing policy, to quantify the systematic and extensive intervention of developing countries in the pricing of agricultural commodities during 1960-85, and to understand the effects of such intervention over time. Each of the eighteen country studies uses a common methodology to measure the effect of sectoral and economywide price intervention on agricultural incentives and food prices, as well as their effects on output, consumption, trade, intersectoral transfers, government budgets, and income distribution. The political and economic forces behind price intervention are analyzed, as are the efforts at reform of pricing policy and their consequences. The findings, interpretations, and conclusions in this series are entirely those of the authors and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to Director, Publications Department, at the address shown in the copyright notice above. The World Bank encourages dissemination of its work and will normally give permission promptly and, when the reproduction is for noncommercial purposes, without asking a fee. Permission to photocopy portions for classroom use is not required, though notification of such use having been made will be appreciated. The complete backlist of World Bank publications is shown in the annual Index of Publications, which contains an alphabetical title list and indexes of subjects, authors, and countries and regions; it is of value principally to libraries and institutional purchasers. The latest edition is available free of charge fiom Publications Sales Unit, Department F, The World Bank, 1818 H Street, N.W., Washington, D.C. 20433, U.S.A., or from Publications, The World Bank, 66, avenue d'Iena, 75116 Paris, France. J. Dirck Stryker, an economist with Associates for International Resources & Development, is a consultant to the World Bank. Library of Congress Cataloging-in-Publication Data Stryker, J. Dirck. Trade, exchange rate, and agricultural pricing policies in Ghana ! J. Dirck Stryker ; with the assistance of Emmanuel Dumeau [et al.]. P. cm. ISBN 0-8213-1443-2 1. Agricultural prices--Government policy--Ghana. 2. Coco.a trade- -Government policy--Ghana. 3. Ghana--Commercial policy. I. Title. HD2146.Z775S76 1990 338.1'8--dc2O 89-77546 CIP Abstract At the time it achieved independence in 1957, the West African country of Ghana was the world's leading producer of cocoa and the most prosperous nation in Sub-Saharan Africa other than South Africa. By 1984, however, per capita gross domestic product (GDP) measured in constant prices had fallen 30 percent below its level in 1950. Ghana's economic decline during the period covered by this study of agricultural prices obviously cannot be attributed solely to government price intervention. But intervention in the workings of the cocoa sector, this study shows, contributed heavily to the country's inability to achieve prosperity and stability after 1957. More than half of Ghana's population was still employed in agriculture in 1984, and the sector provided about two-thirds of the country's export earnings, with cocoa by far the country's major export. Other important factors in Ghana's difficulties included a succession of military coups between the late 1960s and the early 1980s that were ordinarily followed by repression and coercion of the general population, and deterioration of the country's road system. During the decades since independence, direct intervention in Ghana's all-important cocoa sector has been in the hands of a Cocoa Marketing Board (CMB), which sets annual producer prices, purchases the crop from domestic producers, and markets it to foreign buyers. (The importance of cocoa to Ghana's economy during the study period was considerable in most years, with the product frequently accounting for 20 percent or more of the government's annual revenues, and in some years more than 50 percent.) Although the chief reason for creating the CMB was to assure Ghana's cocoa farmers a stable and decent income, the agency's direct intervention helped to keep producer prices lower than they might have been otherwise. The problems of cocoa farmers in earning income were compounded during much of the study period by export taxes on cocoa and overvaluation of the domestic currency, both of which also tended to depress Ghana's earnings of foreign exchange. The government's direct and indirect intervention in the cocoa market, according to the study, far outweighed its incentives to cocoa producers, including free entry of imported inputs like fertilizer and pesticides, subsidized tractor services, and cheap credit. Moreover, most of the benefits of these incentives went to large producers rather than the far more numerous smallholders. Another important finding of this study (which also surveys the effects of intervention on two principal imports, rice and maize, and on the nontraded products cassava, yams, and sorghum/millet) is that government regulation of the cocoa sector had the serious negative long- term effect of deferring the replacement of old coffee trees with new ones. iv By 1982, the CMB and its subsidiaries had 109,000 employees in a country with a population of approximately 12 million, and low producer prices were encouraging the smuggling of large amounts of cocoa to neighboring Cote d'Ivoire. Large segments of the population had abandoned productive economic activities in favor of cultivating influential patrons (e.g., those who had licenses to import goods in a country where imports had been sharply restricted), and the government was hard at work seeking emergency assistance from the International Monetary Fund (IMF). With this assistance in hand, Ghana then began to dismantle its administrative controls over the price of cocoa, rice, and maize. v Table of Comtents Pa-ne FRRT CNE: EIINIMIC POLICY AND AGRICLLURE I. CWPTER I: INTRODUCTION 1 II. O-PTER II: AIQULTFE IN FELATICN TO tHAN'S EIXN2Y 6 Background 6 Agricultural Resatr-ce Endrbawnent 6 Regional Cropping Patterns 7 Pbpulation 9 Overall Econsmic Perfor-mance 13 The Balance of Payments and Exchange Rate Disequilibrium 17 The Agricultural Sector 21 Importance of Agriculture in the Economy 21 Production of Specific Crops 23 Food Cmsumptimn 30 II. CFRPTER III: THE EVOLVING PCLITICPL ECONOMY - THE PLAYERS 32 Interest Groups 32 Sole of the State 35 Patrmns 3B IV. CHAPTER IV: THE EVOLVING POLITICAL ECUONOY - THE PERIOD6 39 Liberal Regime, 1950-60 39 Imposition of Cbntrols, 1961-63 43 Breakdown of the System, 1964-66 48 Austerity, 1966-67 50 Devaluatimn and Import Liberalization, 1967-70 53 Collapse of Import Liberalizatim, 1971-72 56 Early Years of the NRC, 1972-75 59 Ecoromic Disintegratimn, 1976-78 65 Struggle for Reform, 1978-81 69 PNDC and the Ecrnomic Recovery Program, 1982 - Present 76 V. CHPTER V: OEKbR%NMENT PCLICIES TOWP1DS AGRICL*TURE 86 Cocoa Pblicies 87 Tradable Foxds 103 Transportation and Nbntradable Foods 111 Policies Related to Agricultural Inputs 112 Input Subsidies 113 Fertilizer 113 Machinery Services 116 Improved Seeds 117 Other Inputs 118 Credit 120 Research and Extension 121 vi Page State Prnidctian 124 Cbnclusions 126 FPAT W i EFFt TB OF PRICE INTERON0TIME 129 VI. OHPPTER VI: MEASURES OF INTERVENTION 129 Direct Effects 129 Producer, Consumler, and Border Prices 129 Relative Prices 136 Measurement of Direct Price Interventions 142 Indirect Effects 150 VII. CHWPTER VII: EFFECTS ON OLTRJT, COELUFPrTI(N, PM FCEIGNJ EXWY*3E 156 Effects on Agricultural Production 156 Supply Functicns 157 Cocoa 156 Food Crops 164 Price Elasticities of Supply 166 EquilibriLmn Levels of Output 167 Effect on Consumption 179 Effect on Net Foreign Exchange Earnings 184 VIII. CHAPTER VIII: GiNVEFIIENT LEUGET AND OTH}ER FE9URCE TFW1SFERS 200 Effects of Price Policy cn the Eovermnent BEdget 200 Transfers of Resources Between Agriculture and the Rest of the Ecconwoy 204 Estimates of Resource Transfers 204 Gbvernment Investment and Expenditure Bias 217 IX. CHAPTER IX: OTHER FRICE INTEF&ENTIONI EFFECTS 219 Farm Income Effects 219 Variability Effects 230 PART THRE: THE FAILLUE CF THE POLITICPL SYSTEM 248 X. CHFrMR X: HYPOTHEEES PAD CONCLULIONS 24B The HypDtheses 248 Importance of Macroeconomic Disequilibrium 248 Loss of Real Incone 248 Failure of the Political System 249 Rise of Rent-Seeking Activity 249 Neglect of Price Policy 250 Failure to Achieve National Objectives 250 The Phases 250 Colonial Period 251 Nkrumah 251 vi i Paqe National Liberation Ccucil (NLC) and Busia 252 Natianal Redemption Cox,cil (NFC), Sepme Military Caoncil (SM), ard Limam2 Prfvisicmal National Defence cxuricil (PNDC) 252 Smnmary 253 Testing of the Hypotheses 255 Macraeccxnic Disequilibriun 255 Loss of Real Inccwme 257 Failure of the Political System 256 Rent-Seeking Activity 258 Neglect of Price Policy 260 Failure to Achieve National Objectives 261 Canc lusions 263 ANNEXES AMEX 1: AmIOrC T FFXCDIWI 265 System for Data Collection 265 Cocoa ~~~~~~~~~~~~~265 Other Crops 269 Agricultural Production Data 270 ANNEX 2: ERWILIBRIUM EXCHANGE RATE 276 Purchasing Power Parity Approach 276 The Real Exchange Rate 276 The Equilibrium Exchange Rate 282 Elasticities Approach 287 Equilibrium Exchaige Rate Mbdel 294 Import Demand Function 294 Export Supply Functions 295 Adjustment for Mbnopoly Power 296 The Exchange Rate Model 298 PPRENDIX TO INNEX 2: DERIVATION OF A FCRULLA FUR ESTIPFTING THE EaJILIBRIUM EXCOM RATE USING THE EATICITY PPRAH301 ANNEX 3: DERIVATION CF PRICES PAD RRICE IMDICES 305 ANNEX 4: COMA SUPLFY FUNCTICN 316 ANNEX 5: :FEMTS OF INDIFECT AND NNARICULTLUR DIFECT RICE INTEVENTIO6 329 ANNEX 6: NEr AVAILABILITY OF RICE AM M%iIZE 334 ANNEX 7: TONERS AM 9USLIDIES 335 ANNEX 8: REAL ELJILIRIUM INME 346 viii List of Tables Panie Table 1 Population 10 Table 2 Gross Domestic Product, 1950 - 1984 14 Table 3 Economic Indicators Related to Inflation 16 Table 4 Current ARccount Balance, Actual and Equilibrium Exchange Rates 18 Table 5 Agricultural Sector 22 Table 6(1) Prouction Indices 24 Table 6(2) Productian Indices 25 Table 6(3) Production Indices 26 Table 7 Food Production and Consumption Indices 31 Table 8 Cocoa Sales, Marketing Costs, and Public Revenue 89 Table 9 Real Producer Price of Cocoa 101 Table 10 Domestic Producer Prices 133 Table 11 Domestic Consumer Prices 134 Table 12 Border Price Equivalents 135 Table 13(l) Prevailing Relative Price Indices 137 Table 13(2) Prevailing Relative Price Indices 138 Table 13(3) Prevailing Relative Price Indices 139 Table 13(4) Prevailing Relative Price Indices 140 Table 14 Producer Price Ratios 143 Table 15 Consumer Price Ratios 144 Table 16 Effect of Direct Price Interventions en Relative Producer Price Differences 146 Table 17 Effect of direct Price Interventicons on Relative Consufer Price Differences 147 Table 18 Effect of Direct and Indirect Price Interventions on Relative Prices 152 Table 19 Effect of Direct and Indirect Price Interventions on Relative Price Differences 153 Table 20 Direct Effect en (btput, Short-fRn 170 Table 21 Direct Effect en Ohtput, Long-Fiun 171 Table 22 Direct Effect en Output, Very Long-fRn 172 Table 23 Total Effect en Output, Short-Run 173 Table 24 Total Effect an Output, Long-Run 174 Table 25 Total Effect en Output, Very Long-fhn 175 Table 26 Direct Effect on Consumption 182 Table 27 Total Effect en Consumption 183 Table 2B Direct, Short-fun Effect of Price Interventions on Foreign Exchange Earnings 116 Table 29 Direct, Lcng-Rufn Effect of Price Interventions an Foreign Exchange Earnings 188 Table 30 Direct, Very Long-Run Effect of Price Interventions on Foreign Exchange Earnings 190 Table 31 Total, Short-Rkn Effect of Price Interventicns on Foreign Exchange Earnings 192 ix Paae Table 32 Total, Long-fin Effect of Price Interventions on Foreign Exchange Earnings 194 Table 33 Total, Very Long-Run Effect of Price Interventions on Foreign Exchange Earnings 196 Table 34 Effect of the Pricing Policy an the Budget 202 Table 35 Tax on Cocoa 203 Table 36 Direct and Total Nominal Short-fin Transfers Due to Ckitput Price Interventions Into (+)/ Out of (-) Agriculture 209 Table 37 Direct and Total Nominal Long-Rhn Transfer-s Due to GOitput Price Interventions Into (+)/ Out of (-) Agriculture 210- Table 38 Direct and Total Nominal Very Long-Run Transfers Due to Output Price Interventions Into (+)/ Ouit of (-) Agriculture 211 Table 39 Short-Run Transfers Into (+)/ Out of (-) Agriculture 212 Table 40 Long-fin Transfers Into (+)/ Out of C-) Agriculture 213 Table 41 Very Long-fun Transfers Into (+)/ Ouit of (-) Agriculture 214 Table 42 Gbvernmnt Investment (GIB) and Total Expenditure (GEB) Bias 218 Table 43 Real Instantaneous Income Effect of Direct Interventinu 2 721 Table 44 Real Short-Run Income Effect of Direct Intervention 222 Table 45 Real Long-fRun Income Effect of Direct Intervention 223 Table 46 Real Very Long-Run Income Effect of Direct Intervention 224 Table 47 Real Instantaneous Income Effect of Total Intervention 225 Table 48 Real Short-Rfn Income Effect of Total Intervention 726 Table 49 Real Long-Run Income Effect of Total Interventian 227 Table 50 Real Very Long-Run Income Effect of Total Intervention 22B Table 51 Domestic Maize Prices Under Alternative Price Scenarios 232 Table 52 Domestic Rice Prices Under Alternative Price Scenarios 236 Table 53 Domestic Cocoa Prices Ukhder Alterative Price Srenarios 240 Table 54 Per Capita Production and Consumption 244 Table 55 Relative Weight of Agricultural Price Policy Objectives 254 fnnex Tables Table 1-1 Cocoa Production and Smuggling 1960-1962 1.2 Table 1-2(1) Agricultural Production 1.8 Table 1-2(2) Agricultural Production 1.9 Table 1-2(3) Agricultural Production 1.10 Table 2-1 Exchange Rates, 1956-85 2.4 Table 2-2 Balance of Payments Current Account 2.8 Table 2-3 Nominal Exchange Rates and Nominal Purchasing Power 2.13 Parity Equilibrium Rates Table 2-4 Estimation of the Equilibrium Exchange Rate Using 2.18 the Elasticities Approach Table 2-5 Norninal Exchange Rate and Alternaltive Nominal 2.25 Equilibrium Exchange Rates Table 3-1 Wholesale Market Prices 3.2 Table 3-2 Official Producer Prices 3.4 Table 3-3(1) Structure of Domestic Prices 3.5 x Table 3-3(2) Structure of Domestic Prices 3.6 Table 3-4(1) Stucture of Rice Border Price Equivalents 3.8 Table 3-4(2) Structure of Maize Border Price Equivalents 3.10 Table 3-4(3) Structure of Border Price Equivalent for Cocoa 3.12 Table 3-5(1) National Consuimer Price Indices 3.13 Table 4-1 Estimation of Cocoa Planting, Traditional Varieties 4.6 Table 4-2 Estimation of bormal Cocoa Production 4.8 Table 4-3 Regression Results for the Cocoa Supply Equation 4.11 Table 5-1 Effect of Indirect and Nonagricultural Direct Price 5.3 Interventions an Relative Prices Table 5-2 Effect of Indirect and Nonagricultural Direct Price 5.5 Interventions on Relative Prices Table 6-1 Net Availability of Rice and Maize 6.1 Table 7-1(1) Short-Rgn Producer Price Transfer to and from 7.1 Maize Production Table 7-1(2) Long-fu-i Producer Price Transfer to and from 7.2 Maize Production Table 7-2(1) Short-Rn Producer Price Transfer to and fromn 7.3 Rice Pr-oduction Table 7-2(2) Lanx-flun Producer Price Transfer to and fron 7.4 Rice Producticn Table 7-3(1) Short-FRn Producer Price Transfer from Cocoa Production 7.5 Table 7-3(2) Long--Run Producer Price Transfer from Cocoa Production 7.6 Table 7-3(3) Very Long-Run Producer Price Transfer from Ccxoa 7.7 Production Table 7-4 Indirect Input Subsidies to Agriculture 7.8 Table 7-5 Government Expenditure Transfers to Agriculture 7.9 Table 7-6 Total, Very Long-fRn Estimation of Agricultural GDP 7.10 in the Absence of Price Interventions Table 7-7 Ciovernment Expenditures 7.11 Table 8-1(1) Large Cocoa Farmers, Direct Real Equilibrium Income 8.1 Table 8-1(2) Large Conoa Farmers, Total Real Equilibrium Income 8.3 Table B-2(1) Large Rice Farmers, Direct Real Equilibrium Inca.r 8.5 Table 8-2(2) Large Rice Farmers, Total Real Equilibrium Income 8.7 Table 8-3(1) Large Maize Farmers, Direct Real Equilibrium Income 8.9 Table E-3(2) Large Maize Farmers, Total Real Equilibrium Income 8.11 Table 8-4(1) Expenditure Shares and Dircet Equilibrium Price Indices 8.13 Table 8-4(2) Expenditure Shares and Total Equilibrium Price Indices 8.14 xi List of Fioures PaFe Figure 1 Domestic Prmducer Prices of Maize 234 Figure 2 Domestic ronsumer Prices of Maize 235 Figure 3 Domestic Prcducer Prices of Rice 23B Figure 4 Domestic Consumer Prices of Rice 239 Figure 5 Domestic Producer Prices of Cocoa 242 Figure 6 Domestic Consumer Prices of Cocoa 243 Figure 7 Maize Producticn and Availability 246 Figure 8 Cbnsumer Price of Maize 246 Figure 9 Rice Productim and Availability 247 Figure 10 Consumer Price of Rice 247 Annex Figures Figure 11 Log Normal and Log Actual Production 4.9 PART OlE: ECONOMIC POLICY AND AGRICLLTIFE CHPTER I: INTFUJCITIEN At the time of independence in 1957, Ghana was perhaps the mDst developed country in black Africa. It was the world's mDst important producer of cocoa, which permitted the accumulatian of substantial foreign exchange reserves, and it also exported timber, gold, bauxite, and other products. Its physical infrastructure and educaticnal establishment were relatively well developed, and its per capita incaume was the highest outside of South Africa. Two and cne-half decades later, the Ghanaian eccnrmy was in ruins. Cocoa exports were less than half their level of the mid-1960s, the black market exchange rate was many times the official rate, graft and corruptimn were rampant, and real per capita incamne had fallen by 30 percent. Only in 1963 did the Ghanaian government at last begin to undertake the extensive eco-nomic reforms required to rise out of this abyss. The succeeding four years witnessed a slcw but steady pracess of price and exchange rate realignment and a dismantling of many of the extensive administrative c.ntrols that had been utilized to allocate an ever decreasing supply of available resources. Funtdamental to the dissolution of the Ghanaian eccwmy during this period was agricultural price policy. To some extent this policy was the result of deliberate decisimns regarding producer and ccnsumer prices. This was true of cocoa, for example, as well as other export and industrial crops. Official price policy regarding foodgrains, an the other hand, was unimportant in relation to trade policy, especially restrictions mn imports of cereals. The most important influence on agricultural prices, however, was not agricultural price and trade policy per se, but the overall macrouconaomic situation in which these policiles were fornmuilated and implemented. Of special importance were periodic bouts of inflation and overvaluatimn of the exchange rate.' These were especially severe during the last half of the 1970s and the early 1960s before the recent reforms un-dertaken by the Rawlings government. This study analyzes the past three decades of Ghanaian economic history in light of the impact that agricultural price distortions have had an the allocation of resources and the welfare of producers and consumers. The analysis is concerned not only with the magnitude of these effects but also with how the resulting gains and losses of different graups in Ghanaian soriety have fed back into the political process to shape agricultural price policy. A major ccnclusion of the analysis is that these feedback effects did not work very well because the political system increasingly prevented the voices of special interest groups from being heard. Instead of resources being allocated through policy decisions influenced by these groups, access to goods and services came to depend on a vast network of patrcn-client relations, which depended on favoritism, personal connections, and outright bribery. So much time and energy was devoted to enhancing these relationships that there was little left over for productive endeavor. As a result, the total supply of resources available for allocation continued to dwindle until the rewards no longer justified the effort, and people simply withdrew from the formal sector of the ecanomy. ± The use of the term overvaluation in this report with reference both to the exchange rate and to local currency (the cedi) implies N' 1$ rate is low in relation to its equilibrium level. 2 Finally Jerry Rawlings cmsted the civilian regime in power and, after an initial period of varillatimn and hesitancy, embarked on a process of fundamental ecorinnic reform that is yet to be concluded. This study is divided into three parts. The first discusses the economic policies that have affected agriculture. Chapter II describes the agricultural sector in relation to the rest of the eccnomy. It provides some general background on Ghana's agricultural resource endcwrient, regional cropping patterns, population, cverall economic performance, and balance of payments. Included in the last section is a discussion of the exchange rate disequilibrium that existed in Ghana during most of the past three decades and the methods that were used to estimate the free trade equilibrium exchange rate. These methods, including an econometric model of the demand for and supply of foreign exchange, are described in detail in Aninex 2. The rest of Chapter II looks quantitatively over 30 years at the relative importance of agriculture in the Ghanaian economy, the production of specific crops, and food consumption. Chapters III and IV discuss the evolving political economy of Ghana. The first of these chapters describes the major players in this evolution, including interest groups, the state, and the patrons. Chapter IV examines each of the periods through which the political economy has evolved from 1950 to the mid-1980s. In particular, it analyzes qualitatively the ways in which the policies and instituticns created during the early years of independence created allocative and distribution mechanisms that inhibited the exertion of influence by interest groups on the formulation of policy in ways that would have directly increased their inCome and wealth. Later the dependence of successive governnents on 3 patronage networks and their inability to draw upon interest grmups for political support reduced their capacity to unrdertake fundamental reform. Chapter V describes the government policies that have affected agriculture, especially those related directly or indirectly to relative prices. Emphasis is placed on price distortions introdcijed by trade and exchange rate policies, which have often run couinter to policies designed to influence agricultural incentives directly. Attention is also paid to the use of administrative decisions in place of price incentives as a mechanism for allocating resources and the rent-seeking activity that has resulted. Policies are examined as these have affected the prices of cocoa, tradable foods, transportation and nontradable foods, and agricultural inputs. There is also some discussion of non-price policies regarding credit, research and extension, and state production. Part Two asse quantitatively the effects of price interventions for three major crops: cocoa, rice, and maize. Chapter VI discusses the measurement of these interventions, including both the direct effects of trade and price policy and the indirect effects resulting frc distortions in the exchange rate. The methods used to obtain these measurements are described, and the results are discussed. Chapter VII looks at the direct and indirect effects of price interventions on output, consumption, and net earnings of foreign exchange. The effects on output and cotsumption are measurned using economictrically estimated supply and demand functicns for cocoa, rice, and maize. The estimation proceduwres are described summarily in this chapter and in more detail for cocoa in Ainex 4. Changes in output and consuimption resulting frcom price interventions are then used together w:ith border prices in U.S. 4 dollars to estimate the effects of the interventions an net foreign exchange earnings. Chapter VIII examines the effects of price interventicns an the government budget and an the welfare of producers and consmiers. Net transfers into and out of agriculture are estimated as these result from price distortians and government expenditures. The bias of government investment and total expenditures an agriculture in relation to the whole ecacnwy is also assessed. Chapter IX estimates the impact of agricultural price interventicns an the real income of several representative types of farmers. It also examines the effects an urban consumers and other interest groups but concludes that these effects were dwarfed during most of the period studied by large distortions in real wages that were anly to a very minor extent the result of changes in the relative prices of the crops under ccnsideratimn. The last part of this chapter looks at the effect of price interventions an the variability of domestic prices and quantities. Part Thr-ee of the study integrates the qualitative discussion in Part One with the quantitative analyses of Part Two by elaborating several major hypotheses that may be drawn from the study. These hypotheses are first described and then analyzed over six major historical phases, each of which is defined by the relative priorities-given by successive governments to various naticnal objectives. In the end, it is argued, the instruments employed to attain these objectives were inadequate in the face of much more powerful political and economic pressures that resulted in the demise of each of these regimes until the present ane. Whether this pattern has now beEn changed remains to be seen. 5 CHETER II: AGRICLLLUE IN FELATION TO G~V S EEXU'W This chapter describes the agricultural sector in relation to Ghana s overall econouy. The first sectim provides backgrmund on the agricultural resource endowhent, regional cropping patterns, population characteristics, and overall economic performance. The seccand section examines the relative importance of agriculture in the econcomy, the productin of specific crops, and levels of food consumption. Backqround APricultural Resource Endowment' Ghana is located on the coast of West Africa, bordered in the east by Togo, in the West by Ivory Coast, and in the north by Burkina Fasso. The ccintry s total area is roughly 92,100 square miles, with elevaticns generally ranging between sea level and 1000 feet. The ccxntry is divided administratively into ten regions - Greater Accra, Eastern, Western, Central, Brung Ahafo, Ashanti, Vol1ta, Upper East, UJpper West, and Northern (see Map 1). Generally, the resource endaowent ccnsists of a forest zone in the south, occupying roughly me-third of the country, and a wooded savanna in the norrth. The forest zone receives much nmre rainfall than the savanna. The highest rainfall area in the southwest averages 1950-2125 mm per year. X MDre extensive discussions of the agricultural resource endowment in Ghana are cantained in Area Handbook for Ghana, prepared by Foreign Area Studies of the American LUniversity, 1971 and World Bank, Ghana: Aqricultural Sector Review, April 12, 1978, Arnex I. 6 In contrast, the northern savanna averages 800-1200 mm per year and scme areas of the southern coast average only 625-1000 mm per year. The principal features of rainfall in Ghana are its seasDnality and its interannual variability. The distribution during the year varies considerably from region to region. Two principal types may be recognized, though adjacent types grade into one another. The first is characterized in the scuth by relatively heavy rains in May and June and a lesser rainy season around October; the second is a single rainy season in the north, principally from June through September. Large variations exist between successive rainy seasons in time of onset, duration, and amounts received. In snme seasons, individual rains are numerous and well distributed and in other years they are scattered and infrequent. The result is high variability of crop production. Soils in Ghana are of generally pmor quality and easily become exhausted. The maintenance of the topsoil organic matter is of prime importance in cultivating these soils. This is largely achieved through traditional arable farming techniques involving extensive periods of fallow. In some areas, howEver, growing population density necessitates shortening of fallow, leading to a loss of nutrients and the possibility of erosion. Reqional Croopinq Patterns There are five major geographic regions: the coastal plains in the south, the forest uplands further north, the high plains of the far north and northwest, the basin area surrounding Lake Volta and its assoriated rivers, and the rugged, mountainous region of the Akwapim-Togo ranges. 7 The coastal savanna area along the ocean receives little rainfall compared to the rest of the country but contains alluvial soils of good fertility. Mbst of the region is characterized by subsistence farming of maize, cassava, and grcaxuinuts. Sugar cane is grawin under irrigation. The section of the Arccra Plains near the coast is nearly free of the tsetse fly and has therefore become a popular area for livestock breeding. Market gardening has also been increasing near Accra. The coastal plain to the west of Accra is unsafe for cattle, but a number of commercial centers and fishing villages are found in the region. Cocanut palms are also maintained. The Volta Delta area is characterized by flat la-nd cavered with grass and fan palms. Coconuts, oil palm, cassava, corn, and a variety of vegetables are grown. Near Keta there is intensive cultivation of shallots. Fishing is also important. The Densu River basin in the eastern section of the lowlands area is a rich cocoa and food producing region. The forested uplands of the Eastern, Western, Central, Brong Ahafo, and Ashanti Regicns receive substantial amouts of rainfall and have beccne Ghana s most important area for cocoa prcouction. Traditicnal oil palm production is also faund extensively in the higher rainfall areas in the southwesterm part of this zone. Subsistence crops include maize, cassava, plantains, cocaiyams, and yams. The western part of the region is least densely populated, and forestry is an important activity. The potential for rubber production here is also caosiderable. The high plains of the north and northwest average between 500 and 100 feet in elevation. Soils are generally more fertile than in the Volta Basin, and population density is accordingly higher. Food crops include yams, maize, sorghum, millet, and grounchnuts. Cash crops are H cottan, tobacco, and kenaf, with rice being proKuced for sale in the river valley bottomlands. Largely because of the virtual absence of the tsetse fly, this regimn is the cauntry s primary area for livestock producticm. The Volta Basin regimD occupies the central part of the ccuntry and is characterized by poor soil ccnditimns and low annual rainfall. Pbpulatian density is quite low, and the terrain is subject to drying and erosim. Fishing is an important activity in the volta Lake regim. Finally, the AkwapimrTago ranges in the eastern part of the country cansist mainly of rugged complexes of folded strata and volcanic rocks. The area is covered with deciduous forest, and temperatures tend to be a bit cooler than in other parts of the country. tost farming activity is subsistence-oriented, though some cocoa and coffee are growh along with staple craps. Ptclatim As Table 1 illustrates, populatimn in Ghana has been growing rapidly. A high crude birth rate of 49 per thousand and a comparatively low crude death rate of 13 per thousand, estimated in 1982, imply a natural rate of increase in that year of 3.6 percent per annum. Overall growth was aily 2.9 percent, however, because of substantial cutmigration.m The ccuntry as a whole in 1970 had an average populatimn density of about 36 persons per square kilometer.: Outside of Accra, the highest densities were 91 persmns in the Central Regian and 62 persons in the Wobrld Bank, Ghana: Pblicies and Program for Adjustment, Washingtm, D.C., 1984, p.26. ~ Ghana, Central Bureau of Statistics, Statistical Yearbook 1969-70, p.7. 9 Table I Population Arabil Land Labor Force Adult per Agri Total (a) Urban lb) Concentra- Rural Id) Urban as I Part Rate (f) Literacy Worker (h) Year (000) (000) tion (c) (000) Total (e) II) Rate (g) (ha) 1948 4118 326 3 3793 7.9 NIA N/A NIA 1950 4368 N/A N/A N/A N/A N/A N/A N/A 1960 6804 1585 39 5219 23.3 42.9 27 7.9 1970 8559 2507 46 6107 29.1 39.7 30 7.5 1980 11100 4129 N/A 7372 35.9 37.1 30 6.5 1984 12206 3825 N/A 8380 31.3 N/A N/A N/A Notes to Table 1: (a) 1949 population obtained from Ghana, Central Bureau of Statistics, Statistical Yearbook, 1969-1970. 1950-1969 populations obtained from World Bank, World Tables, 1983, Vol. 1. 1970-1985 population figures are from Ghana: Policies i Issues of Structural Adjustment, March 30, 1974. Missing data are interpolated using a growth rate of 2.661. Population data for 1948 and 1960 are based on censuses conducted in those years. (bI 1948 urban population is from Statistical Yearbook, 1969-1970, and includes all people in cities and towns with a population of at least 5000. 1960-1984 figures are derived from data in World Tables, 1983, Vol. 2. (c) Source: Statistical Yearbook, 1969-1970. The concentration of the urban population is measured by the number of cities in which the most concentrated 75I of the urban population lives. (d) Same sources as (a) and (b). le) Derived from same sources as (b). (If) Source: World Tables, 1983, Vol. 2. (q) Source: World Tables, 1983, Vol. 2, for 1960 and 1970; World Banit, Ghana: Policies and Proqraes for Adjustment, 1984, p. 28, for 1980. (h) Arable land of 14.8 million ha is defined as current cultivation plus fallow from FAD, Perspective Study of Agriculture and Development for Ghana, 1976. 10 Eastern and Ashanti Regimns. By 1962, average population density overall was about 50 persons per square kilometer. The highest growth rate during this period was in the NDrth-ern Regicn at 3.4 percent per year; the Vbota Region had the lcwest growth rate at 1.7 percent per annum. The rate of growth in urban areas has in most years exceeded that in rural areas, with the percentage of total population residing in urban areas rising from, 7.9 percent in 1948 to 35.9 percent in 1980.4 This is a higher level of urbanization than is fcaind in most middle-incame ccuntries in Africa south of the Sahara. With the growth in urban population, there has been increasing demand for urban services, including the marketing of food. The rise in the number of cities making up 75 percent of the urban population also attests to the fact that the increase in urbanization is not restricted to Accra and a few other larger cities, hut is well distributed througqhut the country. The labor force participation rate has declined steadily since 1960. In part this reflects the changing age/sex stricture of the population resulting from a high birth rate and a relatively low mortality rate amoig ycLing children. It also undoubtedly is the result of econcmic stagnation and a falling rate of investment, one effect of which has been to encourage emigration of persons of working age. In 1980, about 53 percent of the total labor force was in agriculture and 10 percent was employed in the formal wage sector, mostly in urban areas.' With 18 percent of the The apparent decline in urban population from 1990 to 1984, shown in Table 1, may reflect a movement back to the land resulting from the collapse of the economy, as discussed elsewhere in this report, or it may simply indicate that growth rates extrapolated from the 1960s overestimated urban growth during the 1l70s. W Wbrld Bank, Ghana: Policies and Prouram for Adjustment, p.26. 11 labor force officially counted as "unemployed", 19 percent of all workers were in the informal sector. In fact, the number was much larger than this since many agricultural, formal sector, and "unemplayed" workers also were involved with informal sector activities. The effect of a deteriorating eccromy is also reflected in a number of social indicators, of which the literacy rate shcown in Table 1 is ane example. Whereas most middle-income African cauntries made significant progress in educating their populations during the first two decades following independence, Ghana, which had ane of the highest literacy rates in Africa in 1960, has achieved little since then. This situatim is likely to be aggravated in the future, moreover, because of the lack of recent investment in social infrastructure to keep up with expanding population.- Equally important is the loss of Itunan resources associated with substantial outmigratimn over the past 15 years. The last indicator shown in Table :L is the average amount of arable land per person emplcyed in agriculture. While this average does not indicate any strring pressure m land resourrces, the fact that it is falling under the influence of growing population implies that more intensive techniques must be employed if land and labor productively are to be increased, or at least maintained. Otherwise the reductimn of fallow will lead to a decline in yields and eventually to degradation of the land. Given spacial variaticns in population density, moreover, this problem is much more acute in some areas than in others. This has obvious implicaticns concerning the need for systems to distribute improved seeds, fertilizers, and other inputs. IWorld Bank, Ghana: Policies and Procram for Adjustment, p.27. 12 Overall Economic Performance The overall economic performance of Ghana from 1950 to 1984, shown in Table 2, was very poor. Pbr capita (MP in constant prices during the entire period declined by 30 percent. Frnm 1950 to 1964, despite some fluctuations, per capita GDP remained relatively constant at about N* 600 per head. Thereafter there was a reduction, which reached N 559 in 1968, fol lowed by an increase to NW 640 in 1971. By 1975, a much sharper and more sustained decrease occurred in per capita GDP that reached a trough of N 396 in 1983. This poor overall performance was echoed by the behavior of investment and savings. As a proportion of LIP, gross investment rose f ran 13 percent in 1950 to 21 percent in 1960. The absolute value of investment continued to rise in constant prices until 1964, when it attained a peak to which it has never returned. EBth in absolute terms and as a percentage of GDP, investment fell during the late 1960s, peaked again in 1971, and began a decline that became especially severe after 1977. By 1982, gross investment was only 7 percent of GlP and net investment was probably negative.' The performance of savings was even worse. In 1950, gross savings are estimated to have equaled 19 percent of GDP. This figure fluctuated from year to year, but reached a trough of 4 percent in 1967. It recovered and attained a maximum of 20 percent in 1972, but thereafter it declined sharply to only 5 percent in 1980. It later increased scmewhat during the early 19EKs. 7 WDrld Bank, Ghana: Policies and Program for Adjustment, p.4. 13 Table 2 Gross Domestic Product, 1950-84 (a) (Million New Cedis, 1975 Prices) lP per Invt.l Savings Savings/ Imports/ Exports/ Year GDP capita Invt. GDP (Z) (b) 6DP (2) Imports GDP (2) Exports GDP (2) __ -- -- -- -- -- -- -- - - --- -- -------_ - -- - - -- -- - --- -- --------_ _ _ 1950 2631 602 355 13 488 19 584 22 716 21 1955 2975 547 462 16 755 25 687 23 979 33 1959 3680 568 771 21 627 17 1067 29 923 25 1960 3986 586 836 21 450 11 1370 34 984 25 1961 4123 592 693 17 308 7 1490 36 1105 27 1962 4292 602 663 15 655 15 1305 30 1297 30 1963 4481 613 803 19 590 13 1444 32 1231 27 1964 4580 612 954 21 777 17 1261 28 1084 24 1965 4643 606 932 20 593 13 1738 37 1399 30 1966 4445 567 667 15 638 14 1279 29 1249 28 1967 4582 570 471 10 201 4 1336 29 1066 23 1968 4599 559 505 11 474 10 1115 24 1084 24 1969 4975 579 582 12 402 8 1206 25 1026 21 1970 5349 625 757 14 804 15 1181 22 1228 23 1971 5628 640 793 14 976 17 966 17 1149 20 1972 5488 609 418 8 1084 20 668 12 1334 24 1973 5646 610 544 10 904 16 968 17 1328 24 1974 6033 635 789 13 686 11 1146 19 1042 17 1975 5293 541 673 13 722 14 974 18 1023 19 1976 5097 509 530 10 678 13 926 18 1074 21 1977 5212 507 772 15 595 11 994 19 806 15 1978 5654 536 605 11 465 8 911 16 771 14 1979 5512 509 537 10 525 10 770 14 758 14 1980 5538 499 490 9 303 5 842 15 655 12 1981 5344 469 447 8 317 6 727 14 597 11 1982 4974 425 344 7 583 12 449 9 688 14 1983 4747 396 343 7 360 9 469 10 486 10 1984 5158 423 392 8 276 5 526 10 410 8 1995 5420 429 N/A N/A N/A N/A N/A N/A N/A N/A Notes to Table 2: (a) Source: Economic Analysis and Projections Department, World Bank, except where otherwise noted. Source for 1959a D. Walters, The National Accounts of Ghana, 1955-1961, U.N. Report I TAO/6HA/8, February 4, 1965. (b) 6ross Domestic Savings, derived as a residual by subtracting Private Consueption and General Gverneentq Consumption from Gross Domestic Product. 14 Imports and exports tell a similar story. During the early 1950s, exports of goods and nonfactor services exceeded imports try a ccmifortable margin. This was a period during which foreign exchange reserves were being substantially increased. By 1957, however, the current acccwnt was in deficit, requiring a drawing dcw of these reserves. Despite this, imports continued to rise both in absolute ternms (in constant prices) and as a proportion of GDP. In 1965 imports attained a peak, equal to 37 percent of GDP, despite the fact that exports were mnly 30 percent of GDP and foreign exchange reserves were nearly exhausted.3 From this peak, Ghana experienced an almost continuruis decline in imports, both in absolute terms and as a share of GAP, until they accounted for mnly 9 percent of GDP in 1982. Exports behaved similarly and reached a low of 8 percent of GOe in 19B4. One reason for this dismal ec:onomic performance was inflation engendered by large government budget deficits, as shown in Table 3. The budget was in surplus in most years until the 1960s, when rising deficits under Nkrumah led to double digit inflation from 1964 to 1966. A considerable effort was made to bring the budget under control during the ensuing years, which resulted in the rate of inflation dropping to a low of 3.7 percent (0PI) in 1970. With the coming to power of the NRC, however, the size of the budget deficit in relation to total revenuies increased steadily until it reached a maximum of 127 percent in 1978. The inflation rate by this time had reached triple digits. Again there was an effort to tighten the fiscal situation after the NRC was deposed, but a massive 8 At the end of 1956, Ghana's foreign exchange reserves totaled N* 366.5 million; by the end of 1964, these had declined to Nt 83.8 million, or 21 percent of the total value of imports in 1965. J. Clark Leith, Foreiqn Trade Regimes and Economic Development: Ghana, New York: Columbia Uhiversity Press, 1974, p.22. 15 Table 3 Econoeic Indicators Relited to Inflation (millions NC) I Share of Surplus Budget (Deficit) in Consumer Annual Surplus -------------------- Nominal Price Index Ic) Rate of Year Govt Rev (a) Govt Exp (a) (Deficit) Govt Rev GDP GDP (bl (1972lOOl Inflation (1) 1950 36 27 9 25.9 2.4 3B8 I/A NIA 1951 42 34 7 17.7 1.6 473 32.2 N/A 1952 78 46 32 41.0 6.8 469 37.7 17.0 1953 96 75 11 12.4 2.1 505 38.4 1.9 1954 101 96 5 5.1 .7 696 36.5 -4.8 1955 161 91 70 43.5 10.5 668 37.3 2.0 1956 106 96 10 9.0 1.4 690 38.0 2.0 1957 99 111 -11 -11.3 -1.5 726 39.4 3.B 1958 120 106 15 12.1 1.9 766 39.8 .9 1959 134 124 10 7.3 1.1 1170 39.8 .0 1960 140 156 -16 -11.5 -1.9 869 40.9 2.6 1961 167 216 -49 -29.7 -5.3 730 41.4 1.3 1962 150 229 -79 -52.5 -9.0 997 43.7 5.7 1963 165 266 -101 -61.0 -9.2 1100 47.9 9.5 1964 245 289 -43 -17.7 -3.5 1236 53.0 10.6 1965 284 371 -87 -30.7 -5.9 1466 66.9 26.4 1966 231 273 -42 -18.2 -2.8 1519 75.9 13.3 1967 254 321 -67 -26.4 -4.5 1504 69.5 -9.4 1968 298 400 -102 -34.3 -6.0 1700 75.1 9.1 1969 332 395 -63 -19.1 -3.2 2001 80.4 7.1 1970 437 46B -31 -7.0 -1.4 2259 93.4 3.7 1971 451 524 -73 -16.2 -2.9 2501 91.2 9.3 i972 419 543 -124 -29.7 -4.4 215 100.0 9.7 1973 391 549 -157 -40.2 -4.5 3501 117.9 17.9 1974 579 754 -175 -30.3 -3.8 4660 139.5 19.4 1975 910 1146 -337 -41.6 -6.4 5293 180.9 29.7 1976 870 1483 -613 -70.5 -9.4 6526 282.9 56.3 1977 1141 2137 -996 -97.3 -8.9 11163 611.7 116.3 1978 1392 3165 -1773 -127.3 -8.4 20996 1058.9 73.1 1979 2600 4296 -1696 -65.2 -6.0 28231 1635.1 54.4 1980 2950 4668 -1718 -58.2 -4.0 421353 2454.2 50.1 1991 3234 7719 -4495 -139.7 -6.2 72626 5313.4 116.5 1982 4903 9530 -4726 -99.4 -5.5 86151 6499.0 22.3 1993 10195 14755 -4570 -44.9 -2.5 194038 14482.0 122.8 1994 21728 26694 -4966 -22.9 -1.9 270561 20212.6 39.6 1985 38691 45763 -7072 -18.3 -1.9 372982 22310.9 10.4 Notes to Table 3: (a) 1950-1964 data on government revenue and expenditures are from O8G Statistical Yearbooks through 19691 1965-1995 data on governeent revenue and expenditures are from INF International Financial Statistics. (b) Source: Economic Analysis and Projections Departeent, borld Bank. (c) Coobined National Consueer Price Index from Table 3-5(1) Annex 3. 16 deficit in 1981 led ance more -to triple digit inflation. Since 1982, the buiget has been progressively decreased, and, with the exception of the severe drought year in 1983, inflatimn has been steadily reduced until it was only 10.4 percent in 1985. The Balance of Payments and Exchange Rate Disequilibrium The inflatimnary situation in Ghana has had important consequences for the balance of payments. As seen in Table 4, the current account has been in deficit more years than in surplus, reflecting for the most part inflows of capital and foreign aid. What has characterized the balance of payments most, however, has been a persistent, and in most years growing, overvaluatimn of the exchange rate resulting from import and exchange controls. This can be seen by caciparing the official exchange rate in Table 4, in either nominal or real terms, with any of several indicators of the scarcity value of foreign exchange: the black market exchange rate, the equilibrium exchange rate estimated using the purchasing power parity (PPP) approach, and the equilibrium exchange rate estimated using a simulation model based on econometrically derived demand and supply functicns for foreign exchange. The methods used to estimate the equilibrium exchange rates and to adjust nominal to real rates are discussed in detail in Annex 2. A brief summary of that discussion is presented in what follows. The purchasing power parity approach to estimating the equilibrium exchange rate perceives that rate as reflecting the ratio of the prices of nontradable to the prices of tradable goods and services. Starting with a situation of balance of payments equilibrium in the absence of major 17 Table 4 Current Account Dalance, Actual and Equilibriue Exchange Rates (ml Nominal Exchange Rates (NCIIUSI Real Exchange Rates (MCK/US) (Ib Current Actual Equilibrium Actual Equilibrius Account -------------------- --------------------- ------------------- --------------------- Balante (cl Official Black Model Official Black Model Year (hillions SU9I (di Market (dl PPP (el If) 1g9 Market (1g PPP 11g lhi 19S8 41.2 .71 .71 .80 .88 .71 .71 .80 .89 1959 -19.4 .71 .71 .81 .99 .70 .70 .80 .90 1960 -94.9 .71 .71 .82 1.15 .70 .70 .80 1.13 1961 -135.1 .71 .71 .81 1.30 .70 .70 .80 1.20 1962 -62.7 .71 .71 .85 1.17 .67 .67 .90 1.11 1963 -107.9 .71 .56 .94 1.17 .61 .48 .80 1.00 1964 -74.9 .71 .59 1.02 1.30 .56 .46 .80 1.03 1965 -212.1 .71 .65 1.29 2.05 .44 .40 .90 1.27 1966 -117.5 .71 2.13 1.43- 1.58 .40 1.20 .80 .89 1967 -69.3 .84 1.67 1.26 1.24 .53 1.06 .J0 .79 1968 -42.9 1.02 1.75 1.37 1.51 .60 1.03 .80 .99 1969 -48.6 1.02 1.75 1.39 1.46 .59 1.01 .80 .94 1970 -66.0 1.02 1.64 1.36 1.57 .60 .97 .80 .92 1971 -146.1 1.03 1.75 1.42 1.55 .58 .99 .80 .87 1972 94.9 1.15 1.64 1.45 1.43 .64 .91 .80 .79 1973 114.2 1.15 1.49 1.47 1.35 .63 .81 .90 .74 1974 -285.6 1.15 1.73 1.42 1.47 .65 .98 .80 .83 1975 -26.9 1.IS 1.99 1.66 1.66 .56 .96 .80 .90 1976 -100.9 1.15 2.91 2.59 2.06 .36 .90 .90 .64 1977 -138.2 1.15 9.20 5.34 4.17 .17 1.38 .80 .63 1978 -104.2 1.51 0.76 7.76 6.29 .16 .93 .80 .65 1979 43.2 2.75 15.56 10.74 9.31 .21 1.16 .90 .62 1980 -50.4 2.75 15.87 14.95 13.71 .15 .86 .90 .74 1981 -503.7 2.75 26.25 30.93 36.45 .07 .69 .90 .95 1982 -191.1 2.75 61.67 39.74 42.41 .06 1.25 .90 .96 1983 -246.5 3.45 76.58 94.38 81.79 .03 .65 .90 .70 1994 -201.1 35.34 135.00 123.49 107.47 .23 .89 .80 .70 1985 -276.3 54.05 160.00 129.32 NIA .34 1.00 .80 N/A Notes to Table 4: (a) All figures are taken or derived from data in Annex 2. (b) Real exchange rates are calculated from nominal rates by deflating by the ratio of Ghanas nontradable CPI (inclusive of agriculturel to the Manufacturing Unit Value (MUVI index of exports by industrial earket economies to 4e turping countries, given in Table 2-1. (ci Table 2-2. (dl Table 2-1. (el Table 2-5, column 1I1. (f1 Table 2-5, column (41. (g1 The nominal equilibrium exchange rate from Table 2-5, coluen (1), deflated as described In note (bi of this table. (hl Nominal equilibrium exchange rate from Table 2-59 column (41, deflated as described in note (bh of this table. 18 distortions in 1957-59, the equilibrium rate was estimated by multiplying the actual rate by the ratio of Ghana's nantradable consumer price index (CPI) to the manufacturing unit value (MIN) index of industrial ccountries' exports to the developing natiuiss.9 The simulation model involves an import demand function, a cDcoa supply function, and a noncocoa export supply function. Each of these was estimated using annual data for at least twenty years. For the import demanid function, the domestic price of importables relative to the price of nontradables was estimated as a function of the level of imports determined exogenously by government, GDP deflated by the price of nontradables, and an index of food production. Cocoa supply was estimated as a functim of the current official producer price of cocoa, the previous year's market price for maize, the quantity produced of cocoa in the previcnis year, and the "normal" level of prnduction given the existing stock of cocoa trees. The last variable was estimated using the "vintage-matrix" model described in Prnex 4, which takes into accaunt the number of cocoa trees of different ages, their yields over time, and the rate of new planting, which is partly a function of price. Finally, a supply function for an index of timber, gold, and other exports was estimated using as independent variables the domestic prices of these exportables and GDP, each deflated by the price of nontradables. In Annex 2, calculaticns were also made using a weighted average of the whDIlesale price index of Ghana's principal trading partners. The results were essentially the same as with the MIV index, which is more comprehensive given the multiplicity of these partners. The MNV index leaves out petroleum imports, which accounted for 10 to 15 percent of the total value of imports in most years since 1972. The greater rise in petroleum prices is partially compensated, however, by a decline in the relative prices of primary foods, which are also omitted from the MUV index. 19 It was assumned in the model that Ghana would have exploited its mmonpoly power in the cocoa market by applying an optimal export tax to equate marginal revenue and marginal cost. This tax rate was related to the world's elasticity of demand for cocoa, the lamg run supply elasticity of Ghana s competitors, and Ghana's share of the wDrld market.L° The first twD parameters were based an independent estimates and were assumed to be canstant aver time. Ghana s market share was allowed to vary with its level of cocoa expDrts. The demand and supply funrctimns were then incorporated into the model, and the exchange rate was calculated that equates the quantities demanded and supplied of foreign exchange, assuming no capital flows for reasmns discussed in Arinex 2. The free trade equilibrium rate was determined by remraving all distorticns, except for the optimal tax an cocoa expDrts, a,nd by allowing domestic prices to equal world prices times the exchange rate. It is obvious from Table 4 that Ghana's exchange rate has been substantially avervalued for most of the period studied. This was first evident at the end of the Nkrumah era in 1965 and 1966. With the devaluation of the cedi and the partial liberalizatim that followed, the degree of overvaluatimn decreased somewhat for a few years. All indicators suggest, however, that it resumed its upward course by 1975 or 1976. In 1983, the equilibrium exchange rate was at least 20 times the official rate. Oily in 1964 did the degree of overvaluation decline. 10 The long run elasticity was used rather than the shDrt run elasticity because it is assumed that a raticnal geverTiment would want to avoid undercutting its longer term position in the world market to gain short-term profits. 20 Thus the disequilibrium that occurred in the balance of payments was expressed not primarily in terms of a current acccunt deficit but by the degree of exchange rate overvaluatimn in the face of import and exchange restrictics. The price distortions introcduced had profound implications for the allocatim of resources that were highly detrimental to economic growth. Furthermore, the replarement of a market rate of exchange with the controls necessary to maintain the official exchange rate meant that substantial quantities of resources were allocated by administrative decisions rather than by market price signals. This contributed to the corruption of the public sector and created opportuinities for rent-seeking behavior that wasted resources and discouraged political action aimed at seeking policy change. The Aciricultural Sector Importance of APriculture in the Ecoraw Agriculture is the most important sector of the Ghanaian ecocWXmy. Over ne half of the available wDrk force is engaged in agricultural production, and arcud 50 percent of total GOP is contributed by the agricultural sector in a good crop year. Agricultural prckucts make up only about one-fifth of the total value of imports, but the sector accounts for approximately two thirds of total export earnings. As Table 5 illustrates, the share of agriculture in real GDP fluctuated scmiewhat from year to year but on average remained arLund 50 percent from 1955 through 1983. The share of agricultural workers in the total labor force declined, however, from 67 percent in 1955 to about 53 percent in 1980. Preliminary results from the 1984 centsus also indicate 21 Table 5 Agricultural Sector (a) Share Agri Share Agri Share Agri Exports in Share Agri Share Agri Share Agri Imports Exports Total Noe In NoM in Real In Labor Agri in Total Agri in Total Value Agri BP (bl GDP (b) Force (c) leports (d) laports (d) Exports Id) Exports (dl Prod le) Year (1) ) 2 (Million NC) 1) (Hillion NC) 1) 12) 1955 57 50 67 36 20 134 70 38 1956 55 52 66 37 21 107 62 31 1957 52 51 66 43 22 104 57 30 1958 55 51 65 38 22 129 61 33 1959 56 53 65 47 21 144 63 33 1960 41 N/A 64 50 19 140 60 39 1961 35 N/A 63 62 22 146 64 44 1962 38 N/A 63 51 22 147 64 39 1963 36 N/A 62 42 16 147 68 37 1964 35 N/A 62 46 19 149 65 34 1963 41 47 61 43 13 151 67 25 1966 43 49 60 46 18 121 63 18 1967 40 50 60 52 20 161 66 27 1968 42 50 59 65 21 220 65 31 1969 46 50 59 66 19 191 57 21 1970 47 51 58 95 23 338 72 32 1971 44 50 59 82 19 230 64 21 1972 47 54 57 85 22 336 60 26 1973 49 51 57 142 27 407 56 24 1974 51 52 56 186 20 548 65 23 1975 48 48 56 122 13 645 70 26 1976 51 49 55 166 17 608 64 19 1977 56 45 55 149 12 817 70 13 1979 61 49 54 225 13 1127 71 9 1979 60 52 54 229 10 2056 75 12 1990 58 53 53 313 10 2030 64 8 1981 53 54 N/A 307 9 1196 44 3 1982 57 55 N/A 303 11 N/A N/A N/A 1983 60 53 N/A N/A N/A N/A N/A N/A 1994 49 54 N/A N/A N/A N/A N/A N/A 1985 41 52 N/A N/A N/A N/A N/A N/A Notes to Table 5: 1a) Includes forestry and fishing. (bl 1955-1959 data from D. Walters, The National Accounts of Ghana, U.N. Report ITA0/GHA/t, February 4, 1965. 1960-1978 data based on World Bank, World Tables, various issues. 1979-1995 data froe Norld Dank, Ghana: Policies and Issues of Structural Adjustment, March 30, 1987. Ic) Data for 1960, 1965, 1970, and 1975-1981 from World Dank, World Tables, 1993, Vol. 2; estimates for all other data interpolated or extrapolated from these years using linear trends. Cd) Ghana, External Trade Statistics, various years. Data for agricultural imports and exports for 197S, 1979-e1 frog World Dank, Ghana: Towards Structural Adjustment, Volume 11. Data for total exports for 1972, 1975, and 1979-91; and data for total imports for 1975 and 1979-81 froa World Dank, Ghana: Towards Structural Adjustment, Volume 11. Ce) Agricultural exports divided by the vale of agricultural sector 6DP obtained from sources listed in Note (b), except for the years 1975 and 1979-91, which come from World Dank, Ghanai Towards Structural Adjustment, Volume II. 22 that the Greater Accra Region grew more rapidly than the rest of the country from 1970 to 1964,11 though the figures presented earlier in Table 1 suggest that the pace of urbanization has at least slackened, and may have even reversed itself during the early 19EKs. Agricultural imports consist principally of cereals, meat, fish, sugar, oils, and fats. These imports maintained a fairly constant share of the total value of imports until 1975, when their share began to decline. Agricultural exports, consisting overwhelmingly of cocoa (96 percent of the total in 1960), have fluctuated as a proportion of total expDrts because of variations in local supply ccnditions (principally rainfall) and world market prices. 2 There has been no consistent trend. Agricultural exports as a share of total agricultural production, on the other hand, fell sharply from an average of 36 percent in 1955-64 to less than 10 percent by 1978. Productimn of Specific Crops iMre detailed time series data on production of specific crops are shown in Tables 6(1) thrcugh 6(3). The tables are drawn from Annex 1, which discusses in detail the sairces of the data and assesses their reliability. Two major issues energe from this discussion. The first is the extent to tL' Wbrld Bank, Ghana: Towards Structural Adjustment, October 7, 1965, Vol. 2, p-3. M Ghana is a sufficiently large exporter of cocoa to the world market that these two influences are not independent. Uhtil the 1970s, the short-run elasticity of demand abroad for Ghanaian cocoa was estimated to be somewhat less (absolutely) than -1 (Leith, Foreian Trade ReFimes and Economic Development: Ghana, p.44). Consequently, a shortfall in production, for example, wculd force world prices up to the point that export earnings would actually increase in comparison with years of average yield. This situation has changed considerably in the last 15 years as a result of the erosion that has taken place in Ghana s share of the world market. 23 Table 6(1) Production Indices (a) (1972:100) Cereals Staples Year Maize Rice Sarghus Millet Cassava Yai Cacoyam Plantain 1950 N/A N/A NIA N/A N/A NIA NIA N/A 1951 N/A N/A NIA N/A N/A N/A N/A N/A 1952 N/A N/A N/A N/A N/A NIA N/A N/A 1953 N/A N/A N/A N/A N/A N/A N/A NIA 1954 N/A N/A 52 100 18 71 N/A NIA 1955 42 33 52 100 18 71 N/A N/A 1956 42 33 52 100 18 71 N/A N/A 1957 42 33 59 114 29 71 NIA N/A 1958 45 43 H/A N/A 38 N/A N/A N/A 1959 N/A N/A N/A N/A N/A N/A N/A N/A 1960 N/A 46 N/A N/A N/A N/A N/A N/A 1961 N/A 43 66 81 N/A N/A N/A N/A 1962 42 44 69 66 28 147 N/A N/A 1963 45 47 72 69 42 162 N/A N/A 1964 42 60. 74 71 43 170 N/A N/A 1965 51 46 58 58 39 155 N/A N/A 1966 88 41 70 67 41 172 N/A N/A 1967 69 60 54 79 41 1B0 N/A N/A 1968 63 60 47 58 37 204 N/A N/A 1969 75 86 63 91 48 295 N/A 42 1970 120 70 122 143 84 134 120 98 1971 116 78 113 132 84 134 120 98 1972 100 100 100 100 100 100 100 100 1973 106 88 109 110 101 89 140 124 1974 121 104 116 157 127 125 160 121 1975 85 101 121 124 84 104 116 75 1976 71 100 124 146 64 85 82 75 1977 69 155 119 127 64 79 76 56 1978 54 154 79 99 67 80 77 56 1979 94 133 104 151 62 89 79 49 1990 95 111 87 83 82 96 69 44 1981 94 138 86 121 73 87 67 50 1982 86 51 56 77 87 87 66 45 1983 43 57 37 41 61 128 76 20 1984 143 94 N/A N/A 144 N/A N/A N/A 1985 102 .128 41 55 108 71 61 40 Notes to Table 6(1): (a) Calculated from data found in Annex 1, Table 1-2(1). Table 6(2) Production Indices (a) (1972:100) Edible Oil Nuts & Seeds ground- Coco- Dilpals Year nuts nuts bunches Cowpeas Sugar Cane 1950 N/A N/A N/A N__ ---------- 1950 N/A N/A N/A N/A N/A 1951 N/A N/A N/A N/A N/A 1952 N/A N/A N/A N/A N/A 1953 N/A N/A N/A N/A N/A 1954 NA N/A N/A N/A N/A 1955 49 N/A N/A N/A N/A 1956 49 N/A NR/A N/A N/A 1957 46 N/A N/A N/A N/A 1959 46 N/A N/A NIA NIA 1959 N5 N/A N/A N/A N/A 1960 N/A N/A N/A N/A N4A 1961 NIA NIA NIA NIA 49 1962 N/A NIA N/A N/A N/A 1963 53 N/A N/A N/A 270 1964 56 N/A N/A NIA 276 1965 30 NIA N/A N/A 69 1966 43 NIA N/A N/A 101 1967 44 NIA N/A N/A 203 1968 69 N/A N/A N/A 165 1969 68 N/A N/A NIA 206 1970 114 102 99 116 77 1971 114 102 98 116 77 1972 100 100 100 100 100 1973 142 103 110 81 111 1974 175 104 129 119 118 1975 124 105 127 119 141 1976 126 77 39 133 131 1977 91 51 104 121 178 1978 93 54 131 B8 187 1979 120 54 142 99 131 1980 103 N/A N/A N/A 132 1981 112 N/A N/A N/A 131 1982 123 N/A N/A N/A 76 1993 79 N/A N/A N/A 69 1934 N/A N/A N/A N/A N/A 1965 N/A N/A N/A N/A N/A Notes to Table 6(2): (a) Calculated froe data found in Annex 1, Table 1-2(2). 25 Table 6131 Production Indices (a) (1972100) Seed Year Cocoa lb) Cocoa (c) Cotton Rubber Tobacco 1950 64 61 N/A N/A N/A 1951 52 49 N/A N/A N/A 1952 61 58 N/A N/A N/A 1953 52 49 N/A N/A 6 1954 54 52 N/A 25 & 1955 56 54 NIA 25 6 1956 65 62 N/A 25 6 1957 51 48 N/A 25 6 1958 63 60 N/A 33 18 1959 78 74 N/A 50 N/A 1960 106 101 N/A 50 N/A 1961 100 96 N/A 67 NIA 1962 101 97 N/A 25 41 1963 105 100 N/A 25 47 1964 132 126 N/A 25 53 1965 99 94 N/A 11 59 1966 90 87 NIA N/A 59 1967 102 99 N/A N/A 71 1968 79 78 N/A N/A 65 1969 99 98 NIA N/A 65 1970 101 102 15 5t 53 1971 112 112 31 83 82 1972 100 100 100 100 100 1973 84 84 146 108 153 1974 92 93 192 150 194 1975 97 97 231 175 135 1976 79 79 692 225 124 1977 67 68 877 225 47 1978 65 67 346 275 47 1979 73 76 400 275 47 1990 63 67 231 142 24 1991 55 58 54 56 29 1982 44 46 38 59 35 1983 39 41 38 42 29 1994 42 44 N/A N/A N/A 1985 53 53 N/A NIA N/A Notes to Table 613): (a) Calculated from data found in Annex 1, Table 1-2(3). (b) Based on official earketing data. (c) Corrected for estimates of sauggling, as described in Annex 1. 26 which figures on cocoa production in Ghana are underestimated because they are based an official marketings and do not include the effects of snuggling. Analysis of alternative estimates of cocoa smuggling suggest that it may in recent years have amounted to as much as 20 percent of producktian. This is probably an overestimate, hcwever, since it does not adequately take into account the deterioration of the transportation system or the efforts of the government to suppress smuggling. Consequently, the Cocoa Marketing Board data on official purchases were adjusted more modestly to show same increase in smuggling during the late 1960s, and again during the late 1970s, to obtain a maximum of 10 percent of official marketings by 1990. L The second issue relates to the quality of the production statistics after the early 1970s. With the general breakdown in the transport system and the deteriorating situation regarding the governrent budget, it became increasingly difficult to gather accurate data on area cultivated, yields, and production through agricultural censuses and sample surveys. Informed judgements concerning movements in these variables therefore played a greater role in the collection of data, with all the possibilities that this implies for error and bias. Nevertheless, the trends in production that occurred were so significant and were corroborated by other information to such an extent that the orders of magnitude, at least, appear to be correct. In addition, efforts to estimate supply functions for maize and rice, which are described in Chapter 7 of this report, were quite successful despite the poor quality of data. -' The alternative indices of cocoa production in Table 6(3) are each based on 1972--100, when it is estimated (Annex 1) that actual production exceeded reported production by about 5 percent. 7 Perhaps the most significant trends shown in Tables 6(1)-6(3) are a general increase in food procduction until the early 1970s, followed by a steep decrline during the ensuing years. The only exceptions to this are rice and sugar cane, both crops that are irrigated. As examples of this trend, between 1972-74 and 1981-B3, the following production decreases were recorded: maize 33 percent, sorghum 45 percent, cassava 33 percent, and plantain bananas 67 percent. Production of yams did less poorly, declining by only 4 percent. Production of rice and sugar reached a peak in 1977 and 1978, with production falling off thereafter. For sugar, this peak was well below the levels of production that had been attained in the 1960s. Rice production, on the other hand, grew fairly steadily from the mid-1950s until the late 1970s. Thereafter it experienced a sharp, though somewhat erratic, decline. Production of the cash crops - seed cotton, rubber, and tobacco - tells a similar story. Cotton and rubber production peaked about 1977, tobacco a few years earlier. Each of these crops suffered a precipitous decline in output during the late 1970s and early 1900s. Ohe reasnm for the decrease in production of tobacco and food crops that occurred after 1974 was severe drought from 1975 to 1979, and then again in 1982 and 1983. The last two years of drought also had a significant effect on output of rice and sugar because of lack of water for irrigatimn. Cbtton prcduction appears to have been less affected during the first period of drought, perhaps because a major program was being introduced to encourage its cultivation in the north. With improved weather in 1984 and 1985, production of most crops revived somewhat, though it is still unclear whether this revival will be sustainRed. 2E3 By the middle to late 1970s, crop production wa5 also influenced by the disintegration of the system of transportatimn. Shortages of fuel, tires, and spare parts, plus the deterioration of the road network, raised transport costs and dramatically decreased the availability of vehicles. In addition, the decline in the real value of producer prices, discussed later in this report, contributed to the lack of incentives for cash crop production. With cocoa, by far the most important cash crop, the origins of decline go further back in view of the long gestation period and productive life of cocoa trees. L After having reached a level of production in excess of 400,000 tons in 1960, and despite some fairly substantial fluctuations due chiefly to weather, Ghana maintained output near this level for the next 12 years. Starting in 1973, however, cocoa production began a steep decline that resulted in a level of production in 1982-64 that was less than half that achieved earlier. Given the fact that yields of cocoa trees, with proper maintenance, do not seriously start to decline until at least 25 years after they are planted, much of the decrease after 1972 appears to have been due to a failure after the early 1950s to replant at a rate sufficient to maintain prcduction. In addition, declining producer incentives and the deterioration of the transport system led to decreased tree maintenance, infestation by insects and disease, lower yields, and reduced harvests. These issues are explored further in Chapter VII and in Pnnex 4. 1 Rubber has an even longer gestation period and productive life, but the dramatic decrease in production after 1979 appears to have bEen due more to an inability to cover variable costs than to a decrease in the capital stock invested in trees. 29 Food Constmntian Indices of total and per capita food production and consumption, from FAD Producction Yearbooks and Food Balance Sheets, are presented in Table 7, alcng with data on the average number of calories consunmed per day per capita. Although incomplete, the data suggest that per capita food availability, which grew steadily during the 19605 and early 1970s, later declined to alarming levels. In part this was because of the failure of food production after 1972 to keep up with population growth. It was also because the Ghanaian economy during this period was unable to increase food imports to fill this gap. Per capita consumption of 1769 calories per day in 1980 must be considered very low, even if food was spread uniformly across the population. When one considers differential access to food resulting from variations in family income and from intrahousehold distribution, the evidence points strcngly to a problem of severe malnutrition. ND direct data are available from household consumption and nutrition surveys, (mweyer, to verify this. There is, in addition, the possibility that the data on agricultural production are sufficiently imprecise that they do not serve as a reliable guide to the extent of the nutritional problem that existed at this time. The food availability situation appears to have improved after 1983, with the return of good harvests, but the problem of lack of direct household consumption and nutrition data remains. 30 Table 7 Food Production and Consumption Indices (19722100) Agricultural Food Agricultural Food Production (a) Consumption (b) Year Total Per Capita Total Per Capita Cal/Day 1961 68 89 N/A N/A N/A 1962 68 87 73 93 2015 1963 71 89 N/A N/A N/A 1964 86 105 77 94 2033 1965 73 87 79 94 2034 1966 74 86 83 96 2099 1967 83 94 87 99 2139 1968 77 86 91 101 2177 1969 82 89 95 103 2224 1970 91 97 98 103 2240 1971 101 104 101 104 2260 1972 100 100 100 100 2166 1973 101 99 106 103 2241 1974 104 99 111 105 2272 1975 104 96 104 96 2072 1976 95 85 103 92 1986 1977 89 77 106 92 1996 1978 88 74 N/A N/A N/A 1979 93 76 N/A N/A N/A 1980 90 72 102 82 1769 1981 91 71 N/A N/A N/A 1982 98 69 N/A N/A N/A 1983 85 64 NIA N/A N/A 1984 100 75 N/A N/A N/A Notes to Table 7i (a) Source for Food Production data is FAO Production Yearbooks. For source for popualtion data used to calculate per capita figures sit Table 1. (b) Source for Food Consueption data is FAD Food Balance Sheets. For source for popualtian data used to calculate per capita figures see Table 1. 1962 Food Consumption figures represent an average of 1961-1963 totals; 19M Food Consuaption figures represent an average of 1979-1981 totals. 31 CHWTER III: TIE EVOLVING PCLITICPL EQMNY-THE RPAYERS Phy analysis of the political econcmy of price policy in Ghana must begin by ccotsidering the varicus players involved in its determination. At one level, these can be described as prcxucers and consumers of different agricultural products and the government that receives revenue frnm and contributes resources to the farm sector. The impact of price policy an these groups is estimated in Part II. This is insufficient to suggest, however, why certain policies have existed and what has caused them to be altered over time. The history of Ghana during the past three decades has been characterized by frequent changes of govermment and, until recently, by a generally deteriorating economy. The reasons for this are deeply imbedded in the sociopolitical fabric of Ghanaian scniety, and any explanatim of policy change must take into account the role of interest grcups not only as producers and consumers but also as political actors. It must also investigate the role of the state as well as that of the brokers, who have acted as political intermediaries. Interest Groups The best articulated interest groups are based cn residence and occupation. The major residential distincticn is urban and rural. Among the occupational groups in the cities, sone of the most politically vocal are teachers and professicnals organized into variaus formal groups such as the Ghana Associatian of Llniversity Lecturers and the Ghana Bar Associatim. In the ccuntryside, there are large farmers, who frequently are absentee and employ sharecroppers or wage laborers to maintain and harvest 32 cocoa trees, to extend and replant cocoa fanrs, and to cultivate food crops. There are also smaller farmers who live on their farms and under-take these activities themselves, though they may employ snme outside laborers or work off their own farms during part of the year. A third group is ccarosed of sharecroppers who are engaged by larger farmers as caretakers to tend their cocoa farms once they are planted and to undertake some extension and replanting. Finally, there are wage laborers hired by the day or task to plant cocoa trees, harvest cocoa beans, weed and harvest food crops, and undertake other agricultural tasks. During the Nkrumah period, the United Ghana Farmers Cboperative Counxvcil (UGFCC) was established to help organize farmers. Althcigh it was supposed to be a nationwide organization, its activities were restricted to the cocoa growing areas. Mbre importantly, it was an arm of the Convention People's Party (C1P), that was designed to extend the authority of the state into rural areas and was highly centralized and bureaucratic in its structure. Although it co-opted a few larger farmers into its organization, local agents were not elected and it only very imperfectly represented farmers' interests.L The LEFOC was banned after the fall of Nkrumah in 1966. More recently the Ghana Federation of Agricultural Cooperatives has represented Ghanaian farmers in various discussions, such as those involving the determination of the cocoa producer price, but, though agricultural cooperatives achieved some importance during the colonial period, their power was severely undermined by the LUGFCC and their ± Bjoro Eeckman, Organizing the Farmers: Cocoa Politics and National Development in Ghana, Uppsala: Scandinavian Institute of African Studies, 1976. 33 fnemtership has never included more than a small fractimn of all Ghanaian farmers. Aside from farmers, the most important occupational groups in rural areas consist of traders, transporters, and shopkeepers. Sone of the more important of these are also large farmers, who are relieved of the need to remain on their farms by the caretakers they engage. In addition, there are also vestiges of the urban elite, including civil servants and a few professicnals. During the late 1960s and the 1970s, a radical transformatim occurred in the composition of groups within rural areas. Low cocoa prices resulted in a marked decline in the number of wage laborers migrating into the cocoa produring regicns from other areas, especially the north. These workers instead emigrated to the Ivory Coast with its booming cncoa industry, stayed in the north to work m ccumercial rice farms, or simply remained an their subsistence food farms. Second, significant numtiers of professionals, former politicians and civil servants, workers, and others frustrated with ecmnomic depressim and low wages in the formal urban ecanomy renewed their ties with or physically moved back to the countryside. In the north, they purchased large tracts of uncultivated land and began to grow commercial food crops, especially rice. Elsewhere, this rural bourgeoisie invested in a variety of productive activities outside the purview of the state. Cutting across the urban and rural groups described here is the binding tie of ethnicity and regimal affiliatim. Of particular importance, in this respect, are the Ashanti in the central and west central part of the country, the other Akan groups to the south of the Ashanti, the 34 Ewe of the vlulta Regian bordering Togo, and a number of other numerically less important groups along the coast and in the north. Regicnal identification is also especially strong in the Northern and Upper Regions, which have lagged ecnonmically behind other areas of the country, and in the Volta Region, where the Ewe span both sides of the border and are cut off from the rest of Ghana by the Vol ta Lake. The Brong-Ahafo and Ashanti Regions, with Kumzasi the Ashanti capital, have for years dominated the cocoa industry and prcrvided the main resistance to the erosion of its wealth. Role of the State The role of the state in Ghana was greatly increased during the early Nkrumah years as the CRP, with its socialist ideology and its political base among the new elite of young and educkated, scught to increase its power in every area of political and economic activity. With the bankruptcy of this regime brcught on by its continuing efforts to mobilize resources for its investment program in the face of depleted reserves and the collapse of the cocoa economy, however, the government lost the confidence and support of broad segments of the population. Efforts were made following Nkrumah s overthrow to bolster its legitimacy by the National Liberation Council, and particularly by the Ehsia governrent, but continued economic difficulties and a growing lack of confidence resulted in a narrowing of its constituency and increased centralization of decisionm-aking in the hands of the Prime Minister. This tred continued under the military government of Acheampong and the National Redemption CcLricil (NRC), especially after the October 1975 purge and the creation of the Supreme Military Council (9MC), which became 35 the paramonmt decisicar-making body. By 1976, the NRC/613 had bercame highly authoritarian and was cut off to a large extent not only from the mass of the population but also frnm the urban elite of professicnals and civil servants. Important segments of the populatim simply withdrew from areas of state influence. The state, in turn, became increasingly coercive as its power base dwindled. AcheampoM was forced by the military to abdicate the chairmanship of the SMC in July 1976, and General Akuffo was installed in his place. Only minimal changes were introdurced, hnwever, in the centralized apparatus of decisian-making. After a brief interlude of rule by the Armed Forces Fevolutionary Counicil (AFRC), Hilla Linann assumed the presidency, but overwhelming ecornomic difficulties and the lack of a strong political base som led to a resumption of the centralized, personalized style of decision-making which alienated practically the entire Ghanaian popilation. One of the main characteristics of the state in Ghana has been the institutionalizatimn since independence of judicial and administrative structures inherited from the colonial regime at the expense of representative mechanisms that would have allowed for more widespread political participation. A major reasmn for this has been the monopoly that these structures have held over the mobilization and distribution of scarce resources. Furthermore, to the extent that representative structures have existed, they have beei elitist in nature and have not had clear-cut links to major portians of the population. Uhder Nkrumah, "the state grew at an extremely high rate, but without developing an organized base capable of supporting, financially and politically, its maintenance and 36 reproduction".- Sucrcessive goverrments cantinud "the separation of the state apparatus frnm representational control that their predecessors had set in motion."~ The administrative institutions of the state, in the meantime, became increasingly amenable to social pressures in their control of scarce resources. Continuation in office depended an the bureaucracy's ability to placate powerful groups, and, in the absence of political representation for broad segments of the population, this resulted not in policies to stimulate growth and development but in increasing corruption and favoritism in the distribution of the resources at the disposal of the state. This process was exacerbated as the magnitude of those resources decreased. Eventually, the capacity of the state to maintain power through the distribution of resources was so eroded that it had to resort increasingly to the use of force in place of administrative control. As the power and influence of the state decreased, that of alternative political institutions was strengthened. This occurred particularly in local communities, which were well defined in terms of kin groups, resident alien migrants, traders, and civil servants. Local institutions were not dependent upon the distribution of rescurces by the state at the national level but rather relied on crops grcwn on land held by local chiefs, kin groups, and landbwiiers. This production was, in turn, traded for the output of local industries, commercial concerns, and service 2 Beckman, Orcianizinm the Farmers..., p.239 Naomi Chazan, in Anatawv of Ghanaian Politics: Managing Political Recession. 1969 - 1962, Hbulder, Colorado: Westview, 1983, p.24. Mi-ch of the discussion that follows is based on this work, which brings together the results of much of the political research on Ghana during this period. 37 establisihments, through both market and collective forms of exchange. Local institutions differ-ed froun the state apparatus most markedly with respect to their representation, consensus, and legitimacy. They were primarily political and not administrative in nature and were rooted in a common set of values and guiding codes. Accountability was a key feature of leadership status. Patrons As the power of the 5tate to guarantee physical security, status, and wealth weakened, local patronage networks grew in importance. With direct access to the state and its resources increasingly blocked, personal ties with "big-men" assumed greater importance as a means of gaining entry into the state orbit. Patrons whox took on the role of broker or intermediary were at varicus times paramount chiefs, ethic leaders, religious men, professionals, businessmen, former office holders, military officers, union organizers, and others with access to decisicn-makers. They played a key role in linking the top echelons of the state with specific local constituencies. Patron leaders arose to assist in the allocation of goods and services when other channels for their distribution became increasingly closed. In return, they were rewarded by deference, status aggrandizement, gifts, favors, and outright bribery. Patron - client relations remained voluntary, however, and patrons were expected to perform and to avoid overstepping their boundaries. As the state became increasingly unable to deliver rescurces through the patronage network, the patrons broke off their relations with it and joined forces with local community leaders. 38 CHAPTER IV: THE EVOLVINE POLITICAL EOIX74W - THE PERIOD6 This section analyzes the periods thrcugh which the political ecKormy of Ghana evolved fram 1950 to 1985. It contends that the policies and instituticns created during the early years of independence not only were directly inimical to growth and development but also led to the creation of allocative and distribution mechanisms that inhibited the exertion of influence by major segments of the populatimn on policy-making in ways that wculd have contributed directly to their income and welfare. Furthermore, as successive governments fcunud their resource base dwindling, their dependence m patrmage networks and their inability to draw upm the support of important sociopolitical groups resulted in an inability to undertake the major reforms that would have been necKessary to strengthen the ec-nomy and to set the stage for long run development. Liberal Regime. 1950-60 A liberal ecKnomic regime characterized Ghana during its period of decolonization from 1950 to 1960. The econroy at this time was centered an the cocoa industry, which was the most important scurce of govermment revenue and foreign exchange. High prices mn the world market, following a decline in production capacity during the Depression and World War II, provided a windfall of resaurces available to the Ghanaian economy. The Nkrumah regime was strongly committed to enhancing the power of the state and to mobilizing the resources necessary for its investment program. To a very large extent, this meant capturing revenue from cocoa. The regime was aided by the creation of the Cocoa Marketing Ebard (CMH) under the colonial government during Warld War II, partly in response to 39 pressures exerted by cocoa farmers concerned over the market-sharing and price-fixing arrangements of foreign firms buying cocoa in Ghana.9- The C(H became the nmnoipoly buyer of cocoa at a fixed price paid to prnducers, even though the foreign firms and a few local traders actually purchased and marketed the cocoa as Licensed Buying Agents (LBA) of the CMP in return for a fixed allowance per ton. The Board was not supposed to make a profit at the expense of the producers, though surpluses were to be set aside for purposes of price stabilization and for activities that wauld benefit the industry such as research, disease control, credit prugrams, and cooperatives. The foreign firms, which were interested principally in maintaining a steady supply of cocoa, agreed to this policy even though it restricted their freedom of operation. With the sweeping victory of the CFP in the election of 1951, the transitional governnient led by Nkrumah brought the EBard increasingly under its control. The competition for cocoa revenue was no longer between the foreign firms and the farmers, but between the latter and the government run by the CRP. Che implication of this was an increasing share of cocoa revenue appropriated directly by the government. Prior to 1951, the bulk of cocoa profits had been absorbed by the reserves of the Ebard. In 1950-51, tax rates were revised and the government collected one-fifth of cocoa export earnings as duties. This trend ccntinued under the CPP transition govemnment as cocoa profits were increasingly diverted from the cocoa sector to general public investment through a steeply graduated export tax. a Beckman, OrnanizinQ the Farmers..., p.41. Mich of this section is drawn from Beckman's work. 40 Duiring the next few years, the CPP struggled to maintain its place as the party leading Ghana to independence. Che of its major political opponents was the Naticnal Liberatimn Pbvement, established in Ashanti with strucg support from cocoa farmers. This organization was never very successful because of its failure to extend its regional and separatist appeal to a naticnal constituency. Nevertheless, it served as an important focal point for farmer discontent over the large share of cocoa revenues being diverted from producers to the governnent and the compulsory cutting-out of cocoa trees to control swollen shoot disease. In an effort to extend its influence in the rural sector, the t&zumah negime in 1953 founded the Uhited hanw Farnmer s CLoperative Cbunicil (L1F0C). Although ostensibly supposed to cover the entire country, the Cbunmicil s activities were confined almost entirely to the cocoa growing areas. It was financed almost entirely from the commercial operations of the Cocoa Purchasing Company (CPC), established by the CQB in 1952 to purchase cocoa in competition with other licensed agents. The CPC had a decided advantage over the LBA's, however, in that it was also responsible for the distribution of interest-free advances and loans financed by the Board to assist planters in redeeming farms pledged to money lenders. Many of these loans were never repaid. In 1957, the CPC was liquidated as a result of large-scale financial irregularities, and the UEFCC tmok over its funicticns. Unlike the Ccmoa Purchasing Company, the L[FOC was not a subsidiary of the E1ard and operated as any other LBA, except that it was financed with public capital. By 1957, the CFP had established its political preeminence in three elections, and "state powers could now be more directly applied to the 41 largely unsolved problem of establishing an organized political base among the agricultural producers.`"2 The 1GFCI was declared the only officially recognized farmer organization in the cauntry. By 1959-'0, it was purchasing 17 percent of the cocoa crop. Within two years it was granted a mmnopoly am all purchases of cocoa from farmers within Ghana. The extensive marketing network of private agents, traders, brokers, and other middlemen was replaced by an urban-based parastatal organizatian of clerks and bureaucrats. Since these private middlemen had been drawn principally from the upper stratum of the farming cammunity, and were "...those most likely to turn farmer organizaticns against the central government and its heavy appropriation of cocoa incme`"3, the process of extending CPP control into the countryside was complete. The capture of the windfall from high cocoa prices had important fiscal implicaticris. Government expenditures grew dramatically during these years. In real terms, total cnnsolidated public expenditures increased by almost six times over the decade.4 As a proportimn of GDP, government expenditures rose from 7 tD 18 percent over the same period.' At the same time, the share of extraordinary and development expenditures in the total increased from 27 to 36 percent.- Mrbst of these expenditures were directed 2 Beckman, Orhanizina the Farmers*..., p.72. B Heckman, OrCcanizinc the Far.ers...., p.107. Stephen Htymer, "The Pblitical Ecanomy of the Gold Coast and Ghana," in Gustav Ranis, ed., Government and Economic Development, New Haven: Yale University Press, 1971, p.173. Coisolidated expenditures include those of the central government, Cocoa Marketing BDard, railways and harbors, and local government. ° See Table 3, Chapter II. F tymer, "The Political Economy...," p.131. 42 tnwards improving the transport system, expanding health and educational services, and providing agricultural research and extension. Imposition of Controls, 1961-63 Cocoa prices began to slump seriously after 1957 as a result of increases in world supply stimulated by the high prices of the post World War II period.-- Despite substantial increases in producktion resulting from new planting because of these earlier high prices, Ghana's export earnings remained relatively constant. Since produiction and marketing costs increased more or less proportionately with the expansion of output, profits were squeezed. Public revenue from cocoa declined in nominal terms from W 67 millicn in 1957 to Nu 36 million in 1960 and NW 13 million in 1965.a The governnent, with its large-scale investment program in full swing, was able to sustain its expenditures for a time by draw.ing down reserves, but the financial base for its program was seriously eroded. Government budget deficits accelerated sharply from 11.5 percent of total government revenue in 1960 to 61 percent in 1963.7 As a ccrseqtence, the government drew down heavily on CMB reserves and cut prices to prodLicers from Nt 224/tan in 1961 to N! 167/ton in 1964.10 In this way it was able to stabilize its cash flows for a time but at the cost of seriously depleting the liquidity of the CMB. ' The FOB price of cocoa fell from a high of Nk 637/ton in 1954 to a low of W 262/ton in 1965. Annex 3, Table 3-4(3). Table 34, Chapter VIII. 9 Table 3, Chapter II. 0 Table 10, Chapter VI. 43 To a ccnsiderable extent, the fall in cocoa prices was due to the expansim of produictian in Ghana during the 1950s and early 1960s since Ghana acccunted for about 40 percent of total world exports. Despite Ministry of Finance fears cooncerning the wisdom of continuing to expand output in the face of falling prices, however, the Ministry of Trade and the Ministry of Agriculture supported measures to increase production, such as the mass capsid spraying program of 1958 and the sustained efforts to cmtrol swollen shoot disease. In the meantime, public sector investment comtinued to expand as resources were diverted from cocoa to general development. During the 1950s, emphasis had been placed m infrastructure and social services, especially educatimn. Che consequence was an increase in requirements for recurrent expenditures to maintain the roads and to staff the schools built at this time. The CPP government was also strongly committed to diversifying the economy and promoting industrialization. The Seccnd Development plan, launched in 1959, envisaged a radical increase in public development expenditures commnitted to this goal. Whereas the First and the "Consolidated" Plans, covering the period 1951-59, had absorbed 118 million (N 236 millim), the Secm d Plan called for 350 million to be spent in five years." Although private foreign investment was to finance a major portim of this plan, public expenditures were also to be accelerated. By 1960-61, government expenditures had been raised to a level that was twice that of the mid-1950s.' Furthermore, when difficulties were experienced in finding EB eckman, Organizing the Farmers..., p.201. Table 3, Chapter II. 44 foreign private investment, the government remained deterTined to proceed with its industrialization program. The problems in the wDrld cocoa market mnly accentuated this desire because of the perceived need to diversify the economy. "By 1961, much of the econc3mic philosophy which had marked the 'liberal' 1959 plan had been replaced by a professed belief in the overriding importance of direct state participation in productimn and comprehensive state planning."'l Falling cocoa prices and a rising demand for imports by the government, for its investment program, and by the private sector, because of increased income coupled with a liberal trade regime, resulted in a sharp increase in the current account deficit from $19.4 million in 1959 to $94.9 million in 1960 and $135.1 million in 1961.2o With foreign exch,ange reserves declining sharply and its budget deficits rising rapidly, the Nkrumah gcermnent in 1961 resorted to a series of strong measures. An austerity budget was introduced and taxes were raised. Foreign exchange controls were also extended, and conprehensive import licensing was instituted later in the year as it became clear that high duties m imports were insufficient to achieve a balanced current account. In additimn, there was a significant reorientation of public investment away from the infrastructure that had supported small-scale, export-oriented agriculture during the 1950s and towards large-scale, state-owned agricultural and industrial enterprises designed to substitute domestic productiom for imports. E- Eeckman, Orcanizinq the Farmers..., p.206. §4 Table 4, Chapter I1. 45 The expansion of public sector agencies that was initiated during this period resulted by March 1966 in 53 state enterprises, 12 joint state/private enterprises, and 23 public boards.I5 These were involved in a wide range of activities, such as brick and tile manufacturing, vegetable oil milling, paper conversion, gold mining, and food marketing, to give just a few examples. Although the state enterprises were supposed to be profitable ventures that would contribute to public revenues, they were also saddled with a number of political and social objectives, such as providing jobs for party loyalists, reducing unemployment, and maintaining low cmsumer prices. As a result of this and general managerial inefficiency, out of 23 enterprises for which data were available on profits and losses in 1964-65, mnly 9 appeared to have been making any profits, and the net losses of this sample of firms were in excess of YS 14 million despite the fact that many operated as virtual monopolies in well protected markets.'6 ANnalysis of individual firms reveals, in fact, that profits were often earned only because outputs were priced artificially high and inputs artificially low in relation to world market prices valued in cedis at a reasomable equilibrium rate of exchange. The introduction of the 1961 budget and accompanying taxes and quantitative restrictions was an important turning point in the fortuies of the CPP goverrnent. Prior to this, Nkrumah had been supported by a fairly broad segment of the population, especially in urban areas. The austerity '° Killick, Dtevelopment Ecoanmics..., p.217. 6 Killick, Development Economics..., pp.219-21. Although there was sDme improvement in the profitability of these firms by the end of the 1960s, partly because they had passed thrcugh their "infant" stage, net losses were still close to Ni 10 million annually. 46 policies of 1961, however, alienated many grnups that had been close to the party, including workers, junior civil servants, and small businessmen. In addition, farmers were incensed by the continued decline in producer prices in the face of rising costs of production and prices of consumer goods, as well as by the imposed cocoa purchasing monopoly of the U1GFOC, which led to cheating, extortimn, favoritism, misappropriatimn of funds, and other abuses.'" This resentment was intensified in 1963, when the compulsory savings scheme forced on cocoa farmers in 1961 was converted into an explicit tax on cocoa, which was readily supported by the LEFCC as the "representative of the farmers." The result was heavy criticism of the 1963 budget and of the UGFCC in the National Assembly by representatives fr-m the cocoa growing areas, joined by backbenchers from the CRP. Although import restrictions and exchange controls helped to alleviate the deficit in the balance of payments, the decrease in imports implied a decline in tax revenues from import duties, which in the immediate pre-1961 period had replaced the tax on cocoa exports as the major source of government revenue. This contributed further to the growth in goverTwnEnt budget deficits, which increased from N% 49 million in 1961 to N. 101 million in 1963.2- Despite its financial difficulties, however, the government was determined to go ahead with its Seven-Year Development Plan published in 1964. ' These are described in more detail in the next chapter. @ Table 3, Chapter II. 47 Breakdcw of the System, 1964-66 With its foreign exchange reserves seriously depleted, the governaent increased its borrowings abroad. By the time of the coup in February 1966, the external debt totaled N 805.3 million, of which only 20 percent was in the form of long-term loans. The remainder was made up in large part of suppliers' credits (57.9 percent), arrears of current payment (10.6 percent), and bank loans (6.5 percent).'9 Aside frem the debt problem, leakages in the trade licensing system resulted in imports not being allocxated whkere they would have done the most good. Shortages of essential intermediate inputs resulted in factory closings and underutilization of productive capacity. Inadequate supplies at official prices of essential foods contributed to urban unrest. The development plan never had a chance. Despite a substantial increase in tax revenue generated by the Nkrumah government in 1964 and 1965, rising government expenditures resulted in substantial deficits, financed by an expansion in the money supply. World cocoa prices collapsed in the second half of 1964 as it became apparent that West Africa had a bumper crop. Farmers were paid a previously agreed price, how.ever, for the largest crop in Ghana's history - 538,000 tons. After the purchasing and marketing costs of the CQB and the UGFCC were covered, there was almost nothing left over frem current income to be paid to the government and the CM's liquid resources were exhausted. With the government printing money to meet its expenses and with imports restricted and substantial purchasing power in the hands of cocoa farmers, inflation increased to 35 percent V9 Leith, Foreimn Trade Regimes...., p.2B. 48 annually between Orktober 1964 and July 1965. ° The external payments crises became acute with short-term trade and suppliers credits falling due. In the face of such pressure, the UGFOC agreed in July 1965 to reduce the cocoa producer price by 26 percent to 40 shillings per headload, its lowest level in years. It was also agreed that governnent subsidies an insecticides and spraying machines would be eliminated and that farmers would voluntarily reduce further cocoa planting. This agreement was achieved, however, in meetings involving mnly the CMB, the Cabinet, the Ministry of Finance, the Bank of Ghana, and other governmment bodies. The sole voice of the farmers was through the LIFOC. -- In contrast to the situatimn in 1963, and because of the general atmosphere of natimnal emergency, no protest was raised in the Natimnal Assembly regarding this sharp reduction in the producer price despite clear evidence that farmers understood that the setting aside of CM reserves was supposed to cushimn them from such changes in world market prices. 'Instead, the debate developed into a general attack mn the Farmer's Council as a monopoly buyer of Ghana's cocoa. Its vulnerable political basis in the cocoa areas was highlighted by the collapse of market prices. It was hardly a coincidence that it was the Minister of Finance who launrched the belated attempt in early 1966 to reform the Farmer's Cbuxncil in a more democratic and representative directimn. Eeing responsible for fiscal policy, he had particular reason to be worried about the government's B Beckman, Organizinci the Farmers ..., p.216. Beckman, Orcianizinq the Farmers ..., pp.216-17. 49 political relations with the cocoa farmers and the fictitic.is nature of the agreenents struck on their behalf by the Farmer' s Council.`2O The impact of inflation, and especially the rise in food prices, which increased ckring the first half of the 1960s almnst twice as fast as those of other consumer goods,23 ccupled with the impossibility of raising public sector wages because of the disastruLs budget situation, was the last element in undermining political support for Nkrumah amcang the urban population. His regime was overthrown by the military in February 1966 and was replaced by the National Liberation Cbuncil. Austerity. 1966-67 The officers who led the ccup had a mich clearer idea of what they were against than what they were for. In particular, they were opposed to loss of civil liberties, economic hardship, and widespread corruption. In this they mirrored the bulk of the civilian populatin. They also resented discriminatory treatment in favor of the President's Cwn Guard Regiment in comparison with the regular army, which suffered a reduction in living standards similar to the rest of the urban population. Abowe all, they wanted "... to restore the political landscape which had existed at the time of independence in 1957 and which they felt had been eroded..." by the creation of a one-party state, concentration of power in the hands of an 2 Beckmnan, Organizing the Farmers ..., p.218. 2 Tables 13(1) and 13(2), Chapter VI. 50 executive president, erosion of the influence of the chieftaincy, and the program of socialist development.24 ohe consequence of this lack of clear focus was that the NLMC reached out to various interest groups to help it determine what its objectives should be and how these should be attained. A network of advisory cOMMittees, commissions, and committees of inquiry was appointed with representation from these groups. The traditional political structure - the chieftaincy - was consulted, grievances were aired, and efforts were made to correct the injuries of the CPP, including the restoration of traditional authority (stools) and customary rules of land tenure. a In addition, local private businesses were encouraged through abolition of the property tax and reduction of sales taxes on local manufacturers, while rates of taxation on imports competing with domestic production were increased. There was also a reorientation in the pattern of investment. The CFP had concentrated development along the coast, with emphasis on capital-intensive, publically-owned enterprises, many of which were not financially viable. The NLC favored profitable, labor-intensive projects that would ease the unemployment problem and bolster the rural econouy.2 Most importantly, the NLC set about trying to stabilize the econroy and getting inflation under control. This was, in fact, a precondition for returning to civilian rule. Major responsibility for economic stabilization was vested in a National Economic Cmnmittee, under '4 FkRbert Pinkey, Ghana Uhder Military Rule. 1966-1969, Lnndon: Methuen, 1972, pp.1-3. Pinkney, Ghana Lhder Military Rile ..., pp.21-28. Pinkney, Ghana Lhder Military Rile ..., pp.30-31. 51 the chairmanship of E.N. Anaboe, the JOverNrent Statistician. There was a major rescheduling of short-term external debt and the imposition of strict controls cNer public expenditures and subsidies. The IMF agreed for the first time to a standby arrangement and provided technical assistance to the government. The system for allocating import licenses was altered to try to ensure efficient mobilization of domestic resources and adequate supplies of essential commodities for consumers.27 Preference was given to larger established firms with proven trade and financial contacts. In order to avoid wasteful competition and underutilized capacity. Nevertheless, although the corruption of the last years of the Nkrumah period was avoided, there was still a substantial amount of arbitrariness and inefficiency in the allocation procedure. 3 The results of this effort were enccuraging. The current accout deficit was reduced from $212.1 million in 1965 to $42.9 million in 1966.9 Inflation was negative in 1967, principally because of a decrease in food prices associated with good harvests, and only 8.1 percent in 1968.3° There was an increase in unemplcyment as government workers were laid off, but higher cocoa producer prices helped to ease the transition for workers who returned to rural areas. Nevertheless, urban unrest increase because of 2 Leith, Foreign Trade Regimes..., pp.31-33. a The operation of the import licensing system under Nkrumah is described in more detail in the next chapter. Table 4, Chapter II. *° Table 3, Chapter II. 52 growing unemplcyment, reduced real incomes, and declining expenditures on educational and health services. Devaluation and Import Liberalization. 1967-70 The balance of payments situation remained precarious, and there was considerable dissatisfaction with rigid controls and macroeconomic austerity. There was also concern over the effect that the risk of changes in the exchange rate was having on potential private foreign investment and a realization that donor assistance was unlikely until Ghana corrected its balance of payments. 9- Rescheduling of medium-term debt prcvided some immediate relief but was not a long term solution. In the meantime, civilians were gaining increased influence within the NLC government as plans for a return to civilian rule were being made, and many of these people were concerned about the lack of growth in the economy and the need for liberalization. Ohe of the more influential of these was Dr. K.A. Eiusia, long an outspoken opponent of Nkrumah's sncialist ideology. Busia and others who organized the Progress Party (PP), once party activity became legal in 1969, provided the intellectual and ideological underpinning that the NLC lacked. They saw traditional institutions as the fcundation for continuity and viewed the state as a regulator of private activity rather than as having an important, directly productive role. As a national leader, Bhisia conderned the colonial presence, but he was also steeped in the British heritage and bound to the preservation of colonial values. He therefore had a high regard for civil liberties and :3 Leith, Foreiqn Trade REciimes..., p.111. 53 opportu-ities for individual mDbility. He was less concerned over issues of equality. Finally, Busia and the RP favored close relations with the West, foreign business interests, aid private investment. 2 This philosophy was especially appealing to professionals, businessmen, and traditional rulers because it reinforced their basic position in society. On top of this political base, Busia built an Akan party that was the successor to the National Liberation Movement, which had battled the CPP on behalf of Ashanti cocoa farmers during the 1950s. The Progress Party did not duplicate the forest-coast split of the 1950s upon which Nkrumah had capitalized, however, but sought to unite all Akan under one umbrella movement.32 In July 1967, the currency was devalued by about 43 percent, the producer price of cocoa was raised by 30 percent, and wages and salaries were increased by 5 to 8 percent.34 Import duties were lowered an some essential commodities, and the government committed itself to liberalizing imports over the next few years. As this occurred in the absence of restrictive macroeconomic policies, h:ovEver, the trade balance began to deteriorate. For the first few years, this was masked by high world cocoa prices, substantial foreign aid inflows, and sane debt relief. Nevertheless, cocoa production remained stagnant in the face of producer prices that were still low in real terms compared with those that characterized the 1950s, and non-cocoa exports were frustrated by excessive s Chazan, An Anatomy of Ghanaian Politics ..., pp.124-25. Chazan, An Anatomw of Ghanaian Politics .... p.772. 3' Leith, Foreign Trade Reuimes..., p.111. 54 regulations and inadequate incentives in the face of a still overvalued exchange rate.'5 The Progress Party won the election in August 1969, and Busia' s government of the Second Republic came to power. Since many members of this gcvernment had played an important role during the last years of the NLC, its economic policies were marked more by continuity than by change from those of the previous regime. What did alter, however, was the economic environment and the constraints which the government increasingly faced. Confrcnted with a deteriorating economic situation, the Busia government undertook a number of policy measures. Shortly after coming to power, it attempted to alleviate unemployment by expelling all aliens from the ccuntry thrcough passage of the Aliens Expulsion Act in rbvember 1969. This antagonized neighboring ccuntries and deprived the economy of some of its seasonal agricultural labor. The government also tried to accelerate Ghanaization of small retail trade and other businesses thr-wngh passage of the Ghana Business Bill, but lack of capital and expertise inhibited this measure's success. Furthernmore, though the govemment was ostensibly ccmmitted to improving incentives for farmers, the Cocoa Marketing Enard retained its monopoly of the cocoa trade, buying from cooperatives and indigenous Licensed Buying Agents after the LGFOC was discredited in 1966. Mbst significantly, the goverrnment took advantage of windfall cocoa profits resulting from high world market prices in 1970 to permit a rapid expansion of imports and public expenditures. This increased the balance of payments deficit and flooded markets with imports purchased : Table 4, Chapter II suggests that the official exchange rate was overvalued from 1967 to 1969 by 40 to 50 percent in comparison with the equilibrium rate. 55 primarily by the urban middle and upper classes. Food actually became cheaper during this period in the cities than in rural areas because of increased imports. As cocoa prices dropped in 1971, however, the balance of payments deficit became acute.`: Collapse of Import Liberalization. 1971-72 With accelerating inflation eating away at the devaluation of 1967, the real effective exchange rate on imports declined at the same time that the import regime was being liberalized. Cocoa prices on the world market were down and the ga%'ernment was reluctant to raise producer prices because of its revenue needs. Despite various promoticnal schemes, non- cocoa exports remained frustrated by neglect and unnecessary regulation. Exports of timber and minor agricultural crops were controlled by marketing boards of "dubious prcmoticnal value."`Y With a substantial government deficit budgeted for 1971-72, upward pressure on prices seemed likely to erode further import taxes and export subsidies. In 1971, the trade accoumt surplus that GCana had rum since 1967 to cover its services and transfers deficit, as well as its debt service payments, no longer existed. Foreign exchange reserves at the end of the third quarter of 1971 were less than half the trade deficit over the first three quarters of that year.3 On December 27, 1971, Prime Minister Ehsia -~ Chazan, Anatomy of Ghanaian Politics ..., pp.159-61. 7 Leith, Foreign Trade Regimes ., p.150. 3X Leith, Foreign Trade Regimes..., p.l51. 56 announced a devaluation of the cedi frnm Ni 1.02/$tI to !K 1.82/$SE.z' At the same time, import surcharges and taxes on current account payments were abolished, making the net devaluation about 12 percentage points less than the gross change in the exchange rate. The 25 percent export and tourist bmurses were also abolished, thouxgh the affected items acccunted for less than 10 percent of total current acccunt receipts. Although timber and minerals received the full benefit of the devaluation, the cocoa producer price was raised by cnly 25 percent, allowing the government to skim off a substantial portion of the increased FOB price measured in domestic currency. Despite some wage increases, the devaluation implied a huge loss of real income, especially for heavy users of importables. This was in contrast to the 1967 devaluation, when suppression of demand and limitations an imports over the previous 12 months lessened the real impact of the change in the exchange rate. Instead, it resembled more the situation in early 1966, when a tightening of import licensing resulted in a sharp fall in the availability of external resources.° As in the earlier instance, the result was a toppling of the government, with Eusia being replaced in a coup in January 1972 by Colonial I.K. Acheampong and the National REdemption Council (NRC). In retrospect, it appears that the Busia regime was undermined as much by its own political weaknesses as by the economic crisis. From the day it took over the government, it faced strong opposition. First, in 5" Leith, Foreicn Trade Reaimes ..., p.152. Since the dollar had itself been devalued a few days earlier, the weighted (by trade shares) average depreciation against all currencies was 92 percent. 40 Leith, Foreign Trade Regimes ..., p.154. 57 ethnic terms, its Akan base assured the animosity of noncAkan whDo were excluded from access to state power. Second, in urban areas it was an elitist party without strong ties to workers and other lower income groups. This strengthened patron-client relations as chief means by which the nonelite could gain access to resources controlled by the sate. Third, it made policy errors that alienated important grcups such as the muslim community, trade unions, the civil service, students, and the military. Mbst protests were designed, however, merely to encourage a redistribution of state controlled resources rather than to change radically the political system. Opposition was urban based, small in scope, and of limited impact. Nevertheless, the Busia government s reaction was entirely out of proportion to the severity of the threat. It broke up demonstrations, quelled strikes, outlawed opposition newspapers, disbanded the TUC, and detained political oppcnents. In this way the state became increasingly isolated and ineffective, more because of its own actions than because of the stridency of its opposition. The military takeover that followed had been planned shortly after Busia's inauguration by a small group of middle-level officers concerned by the erosion of the military's status and by the decrease of their own material benefits. Its success was made possible, however, more by the ineptitude of the government in handling what could be considered reasonable opposition to policy measures in time of economic difficulty than by the fundamental economic forces at work. 58 Early Years of the NRC. 1972-75 When it first came to power by means of force, the NRC was confronted with the problem of establishing some degree of legitimacy in its right to rule. Demonstrations by the Trade Uhion Congress and the National Uhion of Ghanaian Students in favor of the new regime indicated some measure of popular support, but reacticns elsewhere were far more ambivalent. Many people were of the opinion that the structures of the Second Republic were fundamentally scund and that more time had been needed to find workable solutions to the economic crisis.`' The immediate response of the NRC was to slash prices, revalue the currency, and reimpose strict import licensing. Debts incurred during previous years in the form of medium-term suppliers' credits were repudiated. Blame for the country's economic ills was cast on the politicians, and depoliticization of the political network commEnced with the detention and arrest of Progress Party leaders and over 1300 ex-politicians. Freedom of speech was limited, and attacks on government action were specifically prohibited. On the more pDsitive side, Acheampong scight to create an alliance between the military and the civil service, arguing that what was needed was a technocratic/administrative, rather than a political, approach to development. He tried to suppress ethnic divisiveness, creating the most ethnically balanced cabinet since independence, and to promote regional balance and ties with traditional political units. Economically, the Acheampong government emphasized self-reliance, embodied first in the launching of Operation Feed Yourself, which was a 4 Chazan, An Anatomv of Ghanaian Politics..., p.230. 59 program intended to achieve self-sufficiency in food production and to reduce heavy expenditures of foreign exchange on essential ccmnodities. To promote greater regional balance, Regional Development Corporations were set up and charged with overseeing local development projects.4 This became an important mechanism for channeling input subsidies to particular groups of farmers, such as those growing rice in the north. Although the NFC envisaged it role as regulatory and incentive-oriented, its emphasis was on exhortaticm and moral incentives rather than economic ones. Operation Feed Yourself, for example, depended largely upon direct farmer response rather than price incentives. It was followed in 1973 by Operation Feed Your Industries and Operation Haul the Food to the Markets. Some success was achieved through backyard gardens and other public efforts, but fluctuations in production during this period were probably due more to variations in weather than to anything else. Furthermore, despite these successes, shortages of food at official retail prices abounded, and the governoent was compelled to subsidize food imports and to request large amounts of food aid, especially during the period from 1972 to 1975 of very high world grain prices. In the cocoa sector, the expensive mass spraying campaigns of the Busia government were abandoned, and subsidies were instead offer ed for the purchase of insecticides and sprayers. High prices on world markets also meant that the government was able to increase producer prices substantially without cutting into public revenues. This resulted in some 2 Chazan, An Anatomv of Ghanaian Politics .., p.163. 60 continuation of the planting that had occurred under the NLC and Busia following the disastrous years of the Nkrumah regime.43 On the industrial side, the government promoted self-sufficiency by the naticnalization and indigenization of foreign owned or staffed firms. At the same time, road maintenance all but ceased and import restrictions severely limited the availability of spare parts. Distributimn of petroleum products was also closely controlled. One result was a marked rise in transport costs. The governmmnt, in addition, attempted to curb smuggling and black marketeering, to control prices of essential goods, and to divert retail trade from private markets to the outlets of the Ghana National Trading Corporation.44 The widening gap between official and parallel market prices, however,only offered an increasingly strong incentive for rent-seeking activity. Other policies consisted of tariff reform to increase collection of import duties, nontraditional export incentives, interest rate ceilings, and investment incentives. More importantly, however, was the gcverrment s overall economic policy between 1972 and 1975. The National F*demption Cbuncil cane to power in 1972 committed to resuscitating the economy principally by decreasing its dependence on imports. In addition to tightening import controls, it attempted to decrease the demand for imports by promoting import substitution activities, especially food producktion. In addition, efforts were made to reduce the size of the budget deficit. A3 Annex 4. 4 Chazan, An Anatonm of Ghanaian Pblitics ..., pp.165-66. 61 Considerable scrcess was at first achieved. In canstant dollars, the value of imports declined from 1971 to 1972 by 43 percent.4* With extremely favorable prices on the world market for cocoa, gold, and timber, Ghana's traditicnal exports, the balance of payments situation improved dramatically from a current account deficit of $146 million in 1971 to surpluses of $95 million in 1972 and $114 million in 1973.46 Net foreign exchange reserves increased to $210 millimn at the beginning of 1974. Nevertheless, despite the fact that Ghana had repudiated much of its mediue-term debt, there were still trade credit arrears of about $85 millimn, a backlog of applications to remit profits and dividends of about $60 million, and government equity capital obligations of $50-70 million at the end of March, 1974.-' Furthermore, despite higher cocoa prices, there continued to be substantial gDvernment deficits that rose from 1971 to 1975 both in absolute terns and as a share of government revenue and GUP.48 The major causes of these deficits were an ambitious government investment program and large wzoe increases to public sector employees in October, 1973 and March, 1974. The budget deficit, along with N 200 million in domestic debt which fell due for repayment in 1973-74, was largely financed through central bank borrowing, especially after March, 1973. Net credit to the government Ik World Bank, Current Economic Position and Prospects of Ghana, October 18, 1974, Table 39, Statistical Appendix. k6 Table 4, Chapter II. 4' World Bank, Current Economic..., 1974, p. 1. 1 Table 3, Chapter II. 62 during the following twelve months increased by 23 percent.49 In 1974, credit to the central govemment rose by 53 percent and that to state enterprises by 61 percent. In March, 1974, Ghana and its Western creditors reached an agreement m rescheduling of the payments dcue n Ghana s medium-term external debt. Despite this, the balance of payments situation deteriorated sharply in 1974 because of increased petroleum prices and because issuance of import licenses far exceeded the import program. In September, 1974, the value of all outstanding import licenses was reduced across the board by 50 percent and the Open General License system was terminated. Cnmmercial banks were instructed not to increase credit to finance imports, and import deposits were required. As the balance of payments situatin wrsened, the governaient tried to structure the import bill increasingly away from consumer goods and toaards industrial raw materials and producers equipment. Restrictions on food imports, especially rice and maize, resulted in increases in food prices that were only partially dampened by shifts in production towards these importables.'° Furthermore, industrial output continued to be constrained by the lack of availability of imported inputs. All this contributed to inflatian and undermined increases in wages, producer prices, and other incentives. Political support for the regime remained fairly strcrig for its first two years. The ethnic issue was suppressed by lack of ethnically inspired favoritism. Patrons associated with the PP who were of Ashanti and 9 World Bank, Current Economic...., 1974, pp. 3,4. See Table 9, Chapter V. 63 Brcng-Ihafo origin were detained, but, at the same time, Acheampong himself was Ashanti. There was a feeling of greater equaility of distribution by the state and less dependence upon the elite-client relations of the Busia period. There was also fairly widespread support ancig workers, farmers, civil servants, and other state-based occupational groups. Even the students were supportive.-L Macroeconomic mismanagement, however, led to increasing unrest after mid-1l74. Inflation, which was 9.7 percent per anutmj in 1972, rose to 18.4 percent in 1974 and 29.7 percent in 1975.n= Formal sector wages, despite the increases of 1973 and 1974, became progressively eroded in real terms. A series of coup attempts emanated from vestiges of the CRP and PP opposition or from the mne ethnic group that was in serious conflict with the government - The Ewe along the border with Togo. In Ortober 1975, Acheampong iridertook a purge of the NFC and created the Supreme Military Council (SMC), made up entirely of military conuanders. Decision-making was further concentrated in the hands of Acheampong himself, and the regime, feeling itself increasingly isolated, became more and more authoritarian. In effect, it retreated from the broader, somewhat populist political base that it had forged when it first came to power to its narrower original base of middle generation military officers concerned principally with power and protection of their material interest. M. Chazan, An Anatowv of Ghanaian Politics ..., pp.236-37. am Table 3, Chapter II. 64 Economic Disintegration, 1976-78 The year 1975 was a critical turning point. Uhtil then, cocoa prices were high an the wDrld market, food production supplementd by commercial imports and fool aid was adequate to satisfy most consumption needs, the macroeccnomic situation was WDrsening but still not out of control, and state rulers retained a measure of political power. Thereafter, however, production spiraled doKnwards, cocoa prices fell, the transportation system deteriorated, food prices rose, and the macroeconomy cDllapsed. The gDvernmEnt budget deficit rose to 127 percent of total government revenue in 1976, inflation accelerated to 116 percent per annum in 1977,53 and balance of payments deficits were held in check only by rigid trade and exchange controls. Corruption and patronage were rampant, and civil servants capable of advising on economic policy were without access to decision-makers. ".w. By 1975 it was clear to even the mDst casual observers that the state, far from commanding the heights of the economy, was rapidly losing ccntrol of even the most rudimcntary aspects of econamic supervision."'4 At the same time, there was widespread evidence that mosebers of the military were benefitting enormously from the profitable opportunities created by administrative controls and regulations.40 The economic reasons for this deterioration are apparent. Large current account deficits, together with sharply rising capital expenditures, 53 Table 3 Chapter II. '4 Chazan, An InataiW of Ghanaian Politics ..., p. 169. 35 Mike Oquaye, Politics in Ghana (1972-1979), Accra: Tornado, 1980. 65 forced the govermnment to borrow heavily from the Bank of Ghana.O& an the revenue side, the tax system was heavily dePendent an proceeds frnm cocoa, and as this sector declined because of lack of incentives, so did public revenue. In addition, the increasing overvaluatian of the cedi (see Chapter 2) implied that there was less domestic currency to divide the FEB price of cocoa between government and the farmer. FRvenue from cocoa in 1974, for exanple, accounted for 46 percent of total governnent revenue; by 1979, it was only 23 percent, and in 1930 and 1981 it was actually negative because of the low FOB price for cocoa measured in local currency at the overvalued exchange rate.-' Furthermore, rising costs of the Cocoa Marketing Ebard reduced the profits that were available to contribute to government revenue.A9 In additimn, the ad valorem equivalent of a number of indirect taxes that were specific, or based on controlled prices, tended to be eroded by inflation, and collection performance for statutory levies deteriorated. From 1973-74 to 1977-78, tax revenue as a percentage of GDP declined from 15.1 to 7.8 percent.09 Equally important were such factors as the growth in gonerrnent expenditures resulting from rising public sector employment, inadequate administrative control procedures, and the high priority given to the provision of health, education, and other social services. In addition, capital expenditures constituted a growing share of the claim an government -5I6i World Bank, Ghana: Economic Position and Prospects:- Prosperts for Exports of Processed Products: Financial Structure - A Flaw of Funds Approach, June 29, 1977, p.11. 57 Table 8, Chapter V. 5a See Chapter V for further details. I9 Wbrld Bank, Ghana: Economic Memorandum, April 24, 1979, p.15. 66 resources. Despite efforts to reduce expenditure an low priority development projects, contracts were awarded or amended without reference to the availability of funrds and in the absence of effective expenditure controls.w° Although scoe external financing was available after the debt rescheduling agreement in March 1974, most of the deficit continued to be financed by borrowing from the central bank. The result was a quadrupling of credit to the government and a growth rate of the money supply (MI) that averaged 34 percent per arnnum fram June 1973 through June 1976, and 45 percent per annum in the following year. The result was an increase in the annual rate of inflation from 9.7 percent in 1972 to 116.3 percent in 1977. This was the highest rate in West Africa and far exceeded increases in public sector wage rates and in cocoa producer prices. To check the rise in prices, the government relied mainly an its prices and inctomes policy. Price controls were ineffective, however, except in a few formal-sector establisthmEnts, where supplies at these prices were very scarce. Furthernmore, despite official restraints, private sector wages adjusted reasanably well to changes in the cost of living, resulting in substantial disparities between public and private sector wage rates. Traders, too, benefitted frnm inflation to the extent that they could get access to goods at officially controlled prices. In any case, trading margins increased drastically.,1 Low reserves and lack of access to external credit implied that substantial balance of payments deficits were not possible during the mid ° World Bank, Ghana - Economic Memorandum, April 24, 1979, p.14. 6 World Bank, Ghana: Ecconmic Position...., 1977, pp.4-9. 67 and late 1970s and early 1980s. The level of imports thus followed the vagaries of West African weather and the international cocoa market, together with an overall reduc:tion in the quantities of cocoa produced and exported because of the aging stock of trees. By 1977, inflation in Ghana had reached triple-digit levels, fueled by food shortages and an annual increase in the money supply of 50 percent. Corruption, shortages, and unemployment were rampant as exchange controls were tightened, taxes on foreign travel were increased, and export subsidies were raised to 30 percent (20 percent for traditional exports other than cocoa).2 The smuggling of cocoa exports increased as the disparity in producer prices for cocoa measured at the black market exchange rate heightened between Ghana and its neighNDrs. Nevertheless, marketing and trade of any sort was severely handicapped by the breakdown of the transportation system due to shortages of fuel and spare parts, and lack of road maintenance. All of this served to alienate nearly every political pressure group in Ghanaian society. The professicnals were at the forefront of the opposition, and their associations flourished and became highly politicized. They were soon joined by individual trade unions, teachers, and students. Religious leaders and women, particularly traders, joined those opposed to the ErC. Ethnic opposition proliferated as well, as the Ewe were joined by the Ga, Fante, Ashanti, Brong, Akim, and some groups in the north. Kumasi, the capital of Ashanti, became the hotbed of World Bank, Ghana: Economic Pbmorandum, April 24, 1979 p. 18. 68 anti-governmEnt organization. Regional discontent, of ten overlapping with ethnic dissatisfaction, was widespread.'6 In contrast to opposition during the fusia regime, which was relatively narrow in focus, the NFC/SMC was faced with opponents from every quarter. Although this opposition was somewhat elitist and lacked the populist dimension that later characterized Jerry Rawlings' ascent to power, it nevertheless was too formidable to permit continuation of the existing regime. A series of strikes immobilized the country between May and June 1978. Food shortages became acute. Patrons withdrew from the state and reestablished themselves in self-reliant localities. "In the waning days of June 1978 the fragmentation was so complete that it became abundantly clear the SMC was doomed. The only questions were whether the masses would simply withhold all support for the regime, whether the electorate would wait for the 1979 date for civilian rule, whether the military would itself intervene, whether a civilian coup would take place, or whether an all-out violent uprising would erupt."-', The next month, Acheampong was deposed by his fellow officers and Lt. General Fred W. K. Akuffo became head of state. Struggle for Reform. 197E-81 The Akuffo government set about putting the economy back on the right track in preparation for the return to civilian rule in the summer of 1979. Under prompting from the IMF, the cedi was devalued in Pugust 1978 to Ni 2.75/$U6, an Austerity budget was introduced, and interest rates were increased. A currency reform was instituted in March 1979 to rid the Chazan, An Anatoyw of Ghanaian Politics..., p.242. 4 Chazan, An Anatomv of Ghanaian Pblitics ..., p.269. 69 ecmnomy of some of its mniey in circulation and to sabotage smuggling and the currency black market. The cocoa prorucer price was increased and price controls on essential ccmnodities were strengthEned. As a result of these policies, inflation was reduced to 54.4 percent in 1979.4° The capacity of the Akuffo governnent to follow through on these measures, however, was severely limited. It was never thought to be more than a caretaker govermrnt commnitted to a return to civilian rule in 1979. As a result of heavy pressure, Akuffo decided to lift the ban on political parties and to convene a constituent assembly. This failed to reach the radicalized workers, who had beaome alienated from the entire system, and those local collectivities that had disengaged themselves from the state. Eighty strike actions were recorded between August and November 1978. Many of these were spontaneous, volatile, and intense. They continued into 1979 and were met with raids, arrests, and harassmnmts. Fueled by the austerity program and currency reform, urban unrest finally resulted in early May in police firing on a group of student dem nstrators in downtown Accra. The moment was ripe for another military takeover of the government on June 4, 1979.4e Unlike previous regimes, the Armed Forces Revolutionary Counlcil (PFRC), headed by Jerry Rawlings, had strong populist roots. It was composed of junior and non-ccmnissioned officers with a strong sense of moral outrage at the crimes and corruption that had characterized the 6 Table 3, Chapter II. Chazan, An Anatomy of Ghanaian Politics ..., pp.276-60. 70 previous military goverTnnent.-.' 5MC leaders, including Acheampcng and Akuffo, were tried in special courts and executed. Sme bureaucrats were dismissed; others were tried and convicted. The PFFC sweep was so extensive that hardly any component of the state apparatus was left unscathed. A major campaign was also directed against those thought to be manipulating the economic situation to further their personal interests. Smiggling, black marketeering, and hoarding were condemned. Market women were harassed by soldiers and vigilantes, and the Makola market in Arcra was razed. Controlled prices for basic commodities were closely supervised, and the Prices and Incomes Board was reactivated to adninister price controls. Above all, the idea was instilled that people dealing with the public must abide by fundamental notions of probity and must put the good of the community above their awn personal well-being.69 There were some adverse consequences of this moral and populist outburst. Che was a withdrawal of traders from the urban economy, resulting in high prices and lack of availability of food and other consumer goods. Another was a fueling of class antagonism, with wtrkers and students outraged over elite exploitation of the masses. Ethnic cleavages were also accentuated. Rawlings, an Ewe, was perceived as heading an PFRC that was dominated by Ga and Ewe. Reactions by Akan, and particularly by the Ashanti, to OFRC actions were believed to be ethnically inspired. 9 6'- It was reported, for example, that "...66% of all licenses needed to deal in foreign exchange was negotiated through the central bank and that the Colonel took a kickback of 107.". Pick's Currency Yearbook, 1977-79, p.259. dE Chazan, An Anatomy of Ghanaian Politics ..., p. 262. 9 Chazan, An Anatomw of Ghanaian Politics ..., pp.282-83. 71 Uhdoubtedly, the most significant outcome of the AFFC interventim was the emergence of Jerry Rawlings as "...the embodiment of the reformist and the true patriot. The FRC intercession fostered a peculiar distaste for military intervention at the same time as it highlighted the Popularity of its leader.-"7C` This image was strongly enhanced by the PFRC's rigid adherence to the timetable for civilian electims. The winner of that electim, which took place in early July, was the People's Naticnal Party (PNP), constructed fron the remnants of the old CPP organizatim by Imoru Egala, a northerner who had financed clandestine cells of the CPP since 1966. Uhable to stand for public office himself, Egala put forward his nephew, Dr. Hilla Limann, as the party's presidential candidate. Supporting the party were wealthy patrons, trade-union leaders, farmers, students, clerks, and the "urban dispossessed." The party was ethnically heterogeneous, with strcng bases in the north and west. Party activists had supported Acheampong, Akuffo, and even Rawlings, demmstrating their opportunism and political survivability. The PNP's major ccmpetition came frnm the Popular Front Party (PFP), successor to &ksia s Progress Party, and the Lhited National Cmvention (LtC), which was similar to the PFP socially but differed from it ethnically in that it constituted a Ga - Ewe alliance with some Akan representation.'- The major characteristic of these parties and the candidates they offered was the reemergence of recognized politicians of the past. All of these were patrons with strcng ethnic and local ties. There was little to distinguish between party platforms, despite the ideological differences Chazan, An Anatcmv of Ghanaian Politics -, p.284. 71 Chazan, An Anatomy of Ghanaian Politics .,.. pp.2Bt6-7. 72 that had characterized their predecessors. Above all the campaign failed to reach out to the radicalized elements and local communities of Ghanaian society and had little to do with the poverty and social tensions that plagued it in 1979. Indeed, the small voter tumnout could be construed as a rejection by many Ghanaian voters of the hegemony of the middle-class and their disengagement from the political scene at the state level.-' Dr. Hilla Limamn came to power in 1979 as the first president of the Third Republic in a highly ambiguous situation. The econcmy was in a state of near total collapse, with a budget deficit equal to about 65 percent of total revenue, inflation running at 54 percent annually, severe shDrtages of all imported goods, and cocoa exports that were less than 75 percent of their level a few years earlier.-- The RNP had few political resources and was confronted with a Ghanaian public that was cynical and hostile vis-a-vis the state. Government institutions were in disarray following the purges of the PfhL Finally, there was Rawlings in the wings: "My colleagues and I on the PFRC yield the stage to you. You are at the center of it and the world watches your performance."'4 Despite significant inprovements in the import licensing system, good harvests, and some decrease in inflation, the government quickly fcund itself in trouble. The announcement in the spring of 1980 of a bwo-year agricultural program was unaccompanied by any indication as to how this would be implemented. A major campaign for reviving the gold industry and Chazan, An Pnatomy of Ghanaian Politics ..., p.299. 7' Table 3, Chapter II and Pnnex 1. I Jerry Rawlings, "Address Before Parliament - Inauguration of Third Republic: 24 September 1979." 73 local manufacturing ran up against the problem of how to mDbilize investment rescurces. New taxes were introduced and tax col]ection was tightened, but the tax base had been severely eroded When the government raised the prices of such items as beer, cigarettes, gasoline, and water, consumers complained that they had already suffered encugh. Efforts to reduce public expenditures and balance the budget met resistance from workers, who induced the government to raise the minimum wage, and f rom cocoa farmers, who wanted higher producer prices. Improvements in the administration of the licensing system were inadequate to control discretionary allocations and malpractice induced by the increasing overvaluation of the cedi. As a result the government was forced to seek larger amounts of foreign aid. When this failed to yield sufficient revenue, a $1 billion loan was requested from the IMF, which set as preconditions various stabilization measures, an increased producer price for cocoa, and devaluation. Limann balked particularly at the idea of devaluatimn, protesting that this had led to the fall of Ghanaian governmEnts in the past .7 Cocoa production declined steeply in 1980 and 1981. Output was at its lowest level since 1958. At the same time, world prices plummeted. Gbvernment revenues from cocoa were actually negative in 1980 and 1981 since the world price at the official exchange rate was less than the producer price plus marketing costs.'* Total debt reached $1.4 billion in 1981 and the goverunnent was $400 million in arrears on short-term debt repayments. Faced with a growing fiscal and debt crisis, the government Chazan, An Anatomv of Ghanaian Politics ..., p.312. ' Table 8, Chapter V. 74 resorted to increased deficit spending, which equalled 139 percent of total revenue in 1961. Inflation rose in the same year to an annual rate of 116 percent.'' The real value of public sector wages eroded despite a tripling of the minimxm wage in November 1990. With short-term trade payment arrears piling up, import flows were drastically reduced, resulting in more shortages and higher prices. Confronted with these difficulties, the Limann regime suffered from its identification with the middle-class elite. It was also alienated from grcnps in the core Akan regions and from the Ewe. The inadequacy of its rescuirce base implied that the a patronage system was unable to reach major segments of society. - - Given the severity of the economic situation and the weakness of its political position, the government's energies were directed principally towards averting a further collapse of the formal economy. In its quest for centralized control, however, the regime proved to be weak and often inept. Its well-intentioned, but superficial, actions were completely inadequate to deal with the overwhelming magnitude of the problems. The failure of the govermment to handle the crisis effectively provoked expressions of discontent from the organized opposition, which refrained, however, from seeking immediate changes in the ruling coalition. Urban gruaps tied to the AFRC and largely excluded from PNP decision-making, mn the other hand, were mutch more vocal in their opposition. Students demonstrated, iorkers struck, and farmers agitated. The Limann government was unable to mollify these highly politicized `' Table 3, Chapter II. Chazan, ,n Anatowy of Ghanaian Politics ..., p.310. 75 groups. Heavy-handed tactics began to be emplioyed. Student demonstrations were forcefully quelled, strikes were repressed, ex-members of the PFRC were harassed, and Jerry Rawlings was disavowed. Finally, the PNP itself began to disintegrate as it was increasingly clear that the center of the Ghanaian state had collapsed. Early in the morning of December 31, 1981, Flight Lieutenant Jerry Rawlings ance more assumed power and formed the Provisional National Defense Council (PNDC) to run the government.7 PNDC and the Economic Recovery Program, 1982 - Present The takeover by the PNDC in early 1962 was in marked contrast to the intervention of the (FRC in 1979. Whereas the latter was accompanied by violent bloodshed, the former was relatively quiescent. While the AFR2 was exclusively military, the PNDC incorporated civilians. Finally, the (FRC assumed control of the state for a delimited period of time, but the PNDC was there to stay..° The new government was faced immediately with a disastrcus economic situation, includinrg massive budget deficits, spiraling inflation, the lowest export earnings in years, no foreign exchange reserves, and a huge foreign debt. To top it off, Nigeria had ,cut off fuel shipments for lack of payment. The Rawliings government's immediate response was to curtail current spending, halt the printing of money, demonetize much of the currency in circulation, close land borders to stem smuggling, and tighten foreign exchange controls. 79 Chazan, An Anatcov of Ghenaian Politics ..., pp. 314-21. O Chazan, An Anatomy of Ghanaian Politics ..., p.321. 76 Nagotiations with the 1F, which had been going on under the Limann govemmnent, were suspEnded until the new regime decided what economic strategy to pursue. At first it appeared that the PNPC government was determined to regulate market activity rather tightly since it began in early 1982, as the AFRC had in 1979, to harass traders in an effort to free up hoards of goods and to depress market prices. In addition, People' s Defence Cbmmittees (PDC' s) were set up at plac es of work in towns and villages to oversee management, with particular emphasis on rooting out corruption and ensuring the people's participation. To link the PNDC and the PDC s, an interim national coordinating committee was established with representatives composed of students and members of the PDCs. On the other hand, the PNDC also set up the Naticnal Economic Review Committee (NERC), a high powered body open to varicus opinions, which began to consider seriously the kinds of policies that would find a welcome in the IMF and western creditor governments.9- The Committee was charged with formulating short term policies to get economic recovery underway and with establishing a medium term recovery program. The NERC completed its work by May 1982, paving the way for the appointment of Kwesi Botchway, formerly a law lecturer at the Uhiversity of Ghana and member of the NERC, to the key post of Minister of Finance and Economic Planning. The ccumittee' s report appeared at the end of May in the form of a revised budget for the 1981-B2 fiscal year, which ended one month after the report was issued. The budget statement listed in detail the failings of the previous regime but argued that the data base for planning was so eroded 3> Economic Intelligence Unit, Quarterly Economic Review: Ghana, ND. 2, 1962. 77 that fundamental restructuring of the economy could not be undertaken as rapidly as the situation debanded. The statement went on to list six broad, but fairly innrcruius, ecanomic objectives. No mention was made of the plight of the external economy or of the potential roles of either foreign capital or the multilateral institutions, in particular the IMF. Any immediate change in this direction was ruled out, in fact, by Rawlings assertion in April that devaluation was not an option. Instead the policy goals were more in line with Rawlings' views on the desirability of self-reliance and self-sufficiency.O- During the next few mnnths, officials in Ghana maintained contact with the IMF and the major donors, but the price of needed aid was a change in the exchange rate, and the government was mcre concemned with institution building and participation by workers in decision-making than with correcting the massive price distortions that existed in the economy. Stronger links were also forged with the eastern block. The anly indication of an emerging economic strategy was an outline of a three year program, presented by Hbtchway, which lacked details but seemed to imply increased self-reliance, self-sufficiency in cotton and major foods, increased use of local raw materials in domestic industry, and a decrease in the consumption of petroleum products. A greater role for state control over industry and trade was envisaged as the primary means of accomplishing these objectives.Os am Economic Intelligence Uinit, Quarterly Economic Review: Ghana, Nb.3, 1982. 3 Economic Intelligence Unit, Quarterly Economic Review: Ghana, Nb. 4, 1982. 78 By late 1982, the government still remained undecided as to whether the costs of restructuring the econmWy would be sufficiently eased by IMF lending to warrant accepting the canditions that would be imposed. Botchway at this point appeared to favor a modest devaluation. The PNPC was also torn between its pledge to help the overburdened cocoa farmer and the dilemma created by converting the FOB price of cocoa into local currency at the official exchange rate. If the existing rate were to be retained, the CMB would have to borrow an estimated N 1.8 billion just to pay farmers the difference between the producer price annouxced by Limann and the expected FOB price. This would risk adding further to an already high rate of inflation. Thus the govermeent delayed the start of the buying campaign while it tried to reach a decision on whether to force farmers to accept a price cut or to devalue the currency. - During the closing weeks of 1982 and the first part of 1983, pressures on the government tightened. Approximately one million Ghanaian workers were forced to leave Nigeria and return to Ghana. This placed an enormous burden on the econcmy and its food supplies, especially in view of the maize shortfall estimated in early 1963 at 378,000 tons following the poor rains of 1982. As food prices rose in urban areas, BDtchway anncuriced a plan to rehabilitate the econamy over the next four years. The emphasis was plared on reducing foreign exchange leakages, improving tax collection, and achieving moderate increases in production. Figures for the last quarter of 1982, however, showed that the goverrnent was operating at a large deficit, 04 Economic Intelligence Uhit, Quarterly Economic Review: Ghana, No.4, 1982. 79 with three quarters of its total spending on recurrent costs. In the absence of capital inflows from abroad, it was unclear as to how any substantial rehabilitation of the economy was to be achieved. Such inflows appeared unlikely not only because of Ghana's refusal to devalue the cedi but also because of the government' s continued emphasis on the need to strengthEn state control over economic activity. The plan called, for example, for expansion of the functions of the Ghana National Trading Corporation in order to put an end to the corruption of officials involved in import licensing and to insure that ccamissions and profits accrued to the state. 5 In February 19E3, Rawlings put down the fourth coup attempt in little more than a year. Negotiaticns with the IMF continued as the government toyed with the possibility of a dual exchange rate, but it instead opted for an intricate system of surcharges on imports and subsidies on exports, amounting to de facto devaluation on current account. The new 1985-64 budget called for substantial increases in the official prices of most domestically produced goDds, with rice and maize being notable exceptions, but the T11C quickly expressed its concern about the disparity between wage and price increases.c- In June there was another coup attempt. Students protested the austerity budget and lack of civil liberties, deiwanded a return to civilian rule, and clashed with workers who supported Rawlings. The TIC continued to back the government but pressed hard for a substantial wage increase. E° Economic Intelligence Lhion, Quarterly Economic Review: Ghana, No.1, 1983. a6 Economic Intelligence Unit, QuarterlY Economic Review: Ghana, Nob.2, 1983. 60 Finally, in August 1963, the IMF approved standby and compensatory financing facility arrangements totalling $382 million. Once the Fund had granted its seal of approval, other donors fell in line quickly with offers of further grants and loans. This began a process of structural adjustment embodied in the Ecanomic Recovery Program (ERP) amorunced by the government. The main objectives of the ERP were: 1. to remove the distortions in the ecnanmy; 2. to rehabilitate the industrial, agricultural, and mining sectors; 3. to repair and restore the infrastructural base of the ecanomy; 4. to use sound fiscal and monetary policies to achieve and sustain reasonable economic growth over the years thereafter. Phase one of the ERP, termed the Stabilizatimn Phase, concentrated on eliminating or reducing some of the distortimns in the ecncmry. During the succeeding Rehabilitation Phase, capacity utilization of local industries was to be improved by rehabilitation of existing assets. Finally, the Liberalization Phase was supposed to diminish government interventimn in the economy by relaxing trade restrictions, thus setting the economuy on a sounid growth path. On October 10, 1983, the multiple exchange rates that had been established the previous April were unified at NW 30/$U6. Subsequently, Ghana pursued a policy of periodic adjustment, with the rate rising to Nf 90/$4S by early 1966. In September, 1966, a second tier exchange market was established for most transactions except those involving cocoa, petroleum, and official debt service, with the rate determined at public 81 auction. On February 20, 1987, the official and auction exchange markets were unified at the auction rate. An effort was also made to establish prices, tariff rates, wages and salaries, and interest rates at realistic levels. Cocoa prices were raised by 67 percent in April, 1983, by 50 percent in May, 1984, and by 87 percent in May, 1985. Tariff rates for major utilities were adjusted upward to reflect their cost structures at the new exchange rate. Importers and domestic producers were also permitted to alter their prices periodically to reflect the higher cost of imports and increases in wages and other costs. In December 1983, price ceilings were renmoved an a nurtmer of imported products, including maize, rice, and sugar, and these prices were increased to equal the prices of domestically produced equivalents. Where controls were maintained on 23 other items, prices were jointly determined by the Prices and Incentives Board (PIB) and by prodxcers/traders under guidelines established by a tripartite committee of government, employers, and trade unions. This list was progressively reduced to 8 items by July, 1985. Prices of noncontrolled items allowed full--cost plus a profit margin to be passed on to consumers but were subject to official surveill lance under a "reference" price system. With the depreciation of the cedi, the government was able to ease restriction on imports. Almost all controls were lifted on imports of consumer goods paid for with importers own foreign exchange under the Special Import License scheme. In addition, restrictions on most produicer goods were removed through access to the foreign exchange auction. In addition to the easing of quantitative controls, import tariffs were simplified and lowered. E2 A number of wage increases were put into effect starting in May, 1983, to offset partially the effects of inflation. The gcvernment's policy was to reduce the impact of the wage increases on the budget tyy reducing levels of public sector employment. On October 10, 1983, all interest rates were raised 3-5 percentage points. Real rates of interest became positive in 1985 but declined slightly below zero again in 1966 as inflation accelerated. Rates were raised again in March 1987, with the maximum lending rate of 26 percent, about double its level fcur years earlier.°' Fiscal discipline was a major component of the stabilization program. This was to be achieved in the short run by curtailing the govemrment's recciurse to the banking system and through large expenditure cuts. Over the medium-term, fiscal policy objectives included increased domestic resource mobilization to support larger outlays an operations and maintenance and an increase in public investment to support the recovery program. The government was also committed to a phased reduction of its external payments arrears. Rehabilitation reforms were drawn up for transport, energy, cocoa, timber, and mining as part of the goverrnent's 1984-86 recovery program. These reforms were designed to assure adequate incentives, to improve management, and to provide inputs and replacement capital. The key export sectors were allowed to retain part of their foreign exchange earmings to inport essential raw materials, spare parts, and equipment.aO °' World Bank, Ghana: Policies and Issues of Structural Adjustment, March 30, 1987, pp.2-3. aI Wbrld Bank, Ghana: Managing the Transition, Nbvember 7, 1984, pp.5-7; Wbrld Bank, Ghana: Towards Structural Adjustment, October 7, 1985, pp.1-3. E13 These policy reforms were seriously handicapped in 1913 by severe drought and the related decrease in domestic energy production. In addition, slow response on the part of donors greatly increased the problem of managing Ghana's foreign exchange. Nevertheless, strict fiscal discipline helped curb the growth of the money supply in 19B4 and 1965, decreasing the rate of inflation, which was also aided by lower food prices following good harvests. Furthermore, gross disbursements of medium- and long-term loans and grants rose sharply in 1964 and 1965, resulting in greater availability of consumer goods, spare parts, and petroleum products. The fact that the rate of inflation fell -frcn 123 percent in 1963 to 40 percent in 1964 and 10 percent in 1965, despite substantial devaluations, is strong evidence that prices prior to 1964 reflected scarcity values rather than border prices at the official exchange rate. The result was a significant revival of economic activity as real GDP increased by 8.6 percent in 1964, 5.1 percent in 1985, and 5.3 percent in 19B6. 9 Government revenues as a proportion olf GDP also rose from 5.5 percent in 1963 to 8.0 percent in 19B4, and 10.4 percent in 1985.5° The budget deficit was substantially reduced and re]liance on bank financing became almost insignificant at 0.9 percent of GDP in 19B4 and 0.8 percent in 1985. Food production decreased in 19E5 in response to the bumper harvests and lower prices of 1964, but cocoa production rose fran 169,000 tons in 19B4-65 to 226,000 tons in 19E5-61-' as farmers responded to the sharp W Wbrld Bank, Ghana: Pblicies and Issues..., pp.3-4. 90 Table 3, Chapter II. 9 See Pnnex 1, Table 1-2(3). 64 producrer price increase anncuinced in May 1985. This contributed to a 12 percent expansion of export earnings in 1985..2 Although the Economic Recowvery Program had been largely successful in achieving most of its initial stabilization objectives by the end of 1986, the process of structural adjustment had just begun. The rehabilitation of traditional export sectors, particularly cocoa, was seen as critical to the likelihood of continued success of the ERP. This included raising proiducer prices, increasing supplies of inputs and ccnsumer goods as incentives to cocoa farmers, and reducing the operating costs of the Cocoa Marketing Board. Similar programs were underway for timber and mining. Equally important were the increased availability of tires, batteries, and vehicle spare parts, along with the rebuilding of Ghana's roads, railroads, and ports. =World Bank, Ghana: Policies and Issues..., p.11. 85 CPdTrER V: G(NOE*EwW PCRLICIES TOWWFRS AGRICL1TURE The system of government incentives affecting Ghanaian agriculture consists of the tariffs, taxes, and quantitative restrictians an exports and imports, as well as the officially regulated prices of outputs and inputs, credit policies, research and extension services, and general infrastructure established by the central government.1- The Cocoa Marketing Board has also played an important role in the extension and marketing services it had delivered, the input subsidies it has offered farmers, and the claims it has made an the resources generated by the cocoa subsectar. In addition, semi-autonomous agencies have administered specific projects and pragrams aid in so doing have affected the prices and canditions of credit faced by individual farmers for their autputs and inputs. Finally, there have been the state farms and other publicly oweed agricultural enterprises. The implementation of government policies towards agriculture has been heavily influenced by the evolving political economy in Ghana described in the previous chapter. Of particular importance have been the price distortions introduced by policies regarding trade and foreign exchange, which have often run counter to policies designed to directly influence agricultural incentives. Equally crucial has been the relative importance of administrative decisions versus price incentives as mechanisms for influencing the allocation of resources. Where scarcities have developed ± Mhch of this discussion of government policies towards agriculture is taken from J. Dirck Stryker, "World Bank Western Africa Regional Project: Ghana, Part II, Economic Incentives and Costs in Agriculture," Nbvember 1964, which in turn is based on World Bank reports and an interviews with Ghanaian officials and other experts in Ghana during 1974 and 1975. Various Wbrld Bank reports and other studies have been used to examine the changes that have taken place in these policies before and after this period. 86 because of price distortions, goods have tended to be allocated administratively rather than in response to market signals, aid this has given rise to bribery, extortion, and other kinds of rent-seeking behavior. This has resulted in substantial losses in economic efficiency, a transfer of income and wealth towards the powerful and influential, and an undermining of the political mechanisms for influencing policy choices. cocoa Pblicies Producer prices and the purchasing and marketing of cocoa have historically been controlled by the Coroa Board (designated the Ccxoa Marketing Daard, or CMB, thrcughout most of its history), which has used its surpluses both for stabilization purposes and as a source of government revenue. Uhtil 1963, the Ibard limited its activities to cocoa, but in that year it was also made responsible for palm produckts, copra and coconut oil, shea nuts and butter, coffee, grouncdnuts, and bananas. During Wbrld War II, the colonial government established a public miopoly for cocoa exports, replacing the foreign firms that had previously controlled the export trade. After the war, the export . nopoly was retained as the Cocoa Marketing Board, while the foreign firms continued to organize the local purchase and collection of cocoa as the Ebard's "Licensed Biying Agents" (LBAs). Among the reasons for establishing the CMB monopoly were: (1) concern over market-sharing and price-fixing arrangements among the foreign trading firms, and (2) a desire to stabilize domestic prices to producers in the face of sharp fluctuations in world market prices. 87 Uhder the CMB arrangement, an official prcducer price was determined by the gpvernnent and anuniciced before each buying seasm. The LAs received a fixed allcwuance per ton, to cover all expenses of haidling cocoa from huying point to the ports, plus a profit margin that varied with the price. Surpluses generated during periods of high world prices were to be used to finance CMB deficits when wDrld prices were low. In addition, these surpluses could "... be used for other purposes of general benefit to the cocoa producers and the industry', including research, cantrol of crop diseases, credits, cooperatives, and the provision of other amenities and facilities to the producers"'.2 From the begiming, the CQB accumulated large surpluses, mDst of which were invested in British governnent securities in order to prevent inflation in Ghana at a time of high world market prices. The surpluses were also used for cocoa research and extension and to pay for the control of swollen shoot disease, including coffpensation for the destructian of diseased trees. Local expenditures, however, were quite small. Beginning in 1950-51, the government increased substantially its export duties and began, as shown in Table 8, to draw off a muich larger share of cocoa revenue. This was partly because the specific duty previously in effect was replaced with a graduated ad valorum tax in 1948-49, and the amount of revenue received from this tax increased dramatically as the average selling price per ton of Ghana' s cocoa rose by over two and ane-half times from 1948-49 to 1953-54.3 It was also because of an upward revision in the ad valor-un rates in 1951, which enabled the gavernment to claim almost one- 2 Beckman, Organizina the Farmers..., pp.40-42. Eeckman, Organizing the Farmers..., pp.193-94, 279. Table 8 CKOA Sales, narketing Costs, and Public Revenue Share of Sales Mi) Current Total ClP Producer Narketing Payeents Cne Public Current Total Sales (a) Income (b) Costs to 6oYt (c) Surplus Revenue (d1 Producer Narketing Paysents CHO Public Year lmill NC) loill NCI lmill NC) msill NC) lmill NC) (sill NC) Income (bJ Costs to Govt Surplus Revenue 1947148 93.0 30.2 3.9 .9 48.2 49.0 .36 .05 .01 .58 .59 1949149 75.0 65.2 6.6 3.4 -.2 3.2 .97 .09 .05 .00 .04 1949150 90.2 41.2 6.0 7.0 36.0 43.0 .46 .07 .08 .40 .48 1950151 140.6 66.2 7.4 26.8 40.2 67.0 .47 .05 .19 .29 .49 1951/52 103.2 60.0 6.8 29.4 7.0 36.4 .59 .07 .28 .07 .35 1952153 114.2 60.8 0.6 32.0 12.8 44.0 .53 .08 .28 .11 .39 1953154 149.4 52.0 7.2 69.0 22.2 90.2 .35 .05 .46 .15 .60 1954/55 155.0 54.4 7.6 76.0 16.2 93.0 .35 .05 .50 .10 .60 1955/56 104.6 64.8 9.0 29.2 1.6 30.8 .62 .09 .29 .02 .29 1956/57 101.4 77.4 10.4 24.0 -10.4 13.6 .76 .10 .24 -.10 .13 1957/58 125.9 52.0 9.2 52.6 13.0 65.6 .41 .07 .42 .10 .52 1958159 141.8 61.4 11.0 52.4 17.0 69.4 .43 .08 .37 .12 .49 1959/60 139.9 65.4 13.4 52.6 8.4 61.0 .47 .10 .39 .06 .44 1960161 143.2 83.8 21.9 49.4 -11.9 37.6 .59 .15 .34 -.08 .26 1961/62 138.0 83.6 20.0 54.8 -20.4 34.4 .61 .14 .40 -.15 .25 1962/63 139.2 81.4 20.6 55.2 -19.0 36.2 .59 .15 .40 -.14 .26 1963/64 153.9 91.6 22.4 43.6 6.2 49.9 .53 .15 .29 .04 .32 1964/65 142.4 115.0 37.6 35.6 -45.9 -10.2 .81 .26 .25 -.32 -.07 1965/66 105.1 75.0 17.2 N/A N/A 12.8 .71 .16 N/A N/A .12 1966/67 147.3 83.3 17.5 N/A N/A 46.5 .57 .12 N/A NIA .32 1967/68 237.7 107.4 19.5 N/A N/A 110.9 .45 .08 N/A NIA .47 1968/69 253.4 94.6 16.3 N/A N/A 142.5 .37 .06 N/A NIA .56 1969/70 342.7 122.8 19.9 N/A N/A 201.1 .36 .06 N/A N/A .59 1970/71 279.1 127.2 34.3 N/A N/A 117.6 .46 .12 NIA N/A .42 1971/72 329.2 139.9 42.0 N/A N/A 146.4 .43 .13 N/A N/A .45 1972173 351.8 156.3 62.3 N/A N/A 133.2 .44 .18 N/A N/A .39 1973/74 462.0 156.7 75.3 N/A N/A 229.9 .34 .16 N/A N/A .50 1974/75 666.0 193.2 124.0 NIA N/A 349.6 .29 .19 N/A N/A .52 1975/76 634.8 243.4 165.2 N/A N/A 226.3 .38 .26 N/A N/A .36 1976/77 980.0 248.1 113.9 N/A NIA 519.0 .28 .13 N/A N/A .59 1977/78 1,143.2 386.6 310.6 N/A N/A 446.0 .34 .27 N/A N/A .39 1978/79 2,973.3 762.9 426.7 N/A N/A 1,793.8 .26 .14 N/A N/A .60 1979/80 2,945.8 1,292.0 694.8 N/A N/A 969.0 .44 .23 N/A N/A .33 1990/81 1,799.2 1,136.0 1,014.7 N/A N/A, -361.5 .63 .57 NIA N/A -.20 1981/82 1,240.0 2,976.0 1,209.6 N/A N/A -3,025.6 2.40 1.04 N/A N/A -2.44 1982/83 6,050.5 2,376.0 2,178.0 N/A N/A 1,496.5 .39 .36 N/A N/A .25 1998314 10,380.0 3,460.0 4,671.0 N/A N/A 2,249.0 .33 .45 N/A N/A .22 1984/85 15,749.0 5,670.0 8,320.5 N/A N/A 1,757.5 .36 .53 N/A N/A .11 1995/86 27,342.2 12,791.6 12,524.0 N/A N/A 2,026.5 .47 .46 N/A N/A .07 89 Notes to Table St Sources: 1947148 through 1964/65 froe Bjorn Becktan, Organizing the Farmers, Uppsilta Scandinavian Institute of African Studies, 1976, pp 279-80. Data are converted fron IC to L using the exchange rate .5NC/L. 1965/66 through 1995/86 from Tables 3-312) and 3-413) multiplied by cocoa production adjusted for smuggling in Table 1-23). Notes: (a) Measured as the FOB price converted to local currency at the official exchange rate. (b1 1947/48 through 1964/65, Sales minus (Marketing Costs plus Total Public Revenue); 1965/66 through 1985/8b, Producer Price from Table 3-3(2) and 3-413) multiplied by cocoa production (adjusted for smuggling) from Table 1-213). kc) Export and local duty, voluntary contributions, compulsory savings/ farsers' income tax. Loans and grants against reserves not included. (d) 1947/48 through 1964/65, Current CNM Payments to 6overneent plus C.i Net Surplus; 1965/66 through 1985/86, Sales minus (Marketing Costs plus Producer Income). 90 half of the total sales value in 1953-54, at the same time that the reserves of the CMB were increased. The farmers share in this year, on the other hand, was only 32 percent (Table 8). The cocoa export tax was further increased following the June 1954 elections, while the prcducer price was pegged to its existing level for four years. Whereas farmers had been reasonably passive regarding the share of the total value of cocoa sales being sipthed off by the g=vernmlent as long as producer prices were increased in real terms by two or three times during the years follcawing Wbrld War II, by 1951 they were pressing for an increased share. The result was political agitation, expressed partially through the Ghana Farmers' Congress, which the CPP at the time was trying to mold into a reliable party organization but later abandoned in favor of the IGFOC.4 The Coroa Ordinance of 1954 therefore provided a powerful platform for the Ashanti and other opponents, who left the UGFOC and joined the National Liberation Mbvement. The Ashanti, in particular, were incensed by the fact that they shouldered a large part of the fiscal burden but received little in return since most payments for rehabilitation and compensation were collected by farmers outside the Ashanti region, and public investment in general was concentrated in the south, and especially in the capital of Qccra. The Naticnal Liberation Mbvement used the cocoa price issue to reduce the dcudnaince of the CPP by advocating the establishment of a federal type of government that would redirect a greater portion of cocoa revenue to the region of origin. This emphasis on changing the structure of government rather than just its policies, however, enabled the UGFCC to take up the Beckman, Organizing the Farmers ..., p.193. 91 issue of raising the producer price without being identified with the opponents of the government. Anxics to dismiss this issue from the ensuing political struggle, the gcpermwent abandcned its policy of price stability and increased the producer price from 72 to 80 shillings per headlload. Despite the decline in world cocoa prices taking place at the time, this price was maintained thrciugh the 1956-57 season in an effort to demmstrate that CMB reserves were being used to support the producer price. 5 The cost to the governsnent of depoliticizing the cocoa price issue was high, as the govermment's share of cocoa sales, inclusive of the CM1 surplus, dropped from 60 percent in 1954-55 to 13 percent in 1956-57 (Table 6), but political victory in March 1957 greatly strengthened the capacity of the CRP to tap the resources of the rural sector and to penetrate it politically with the UGFOC. The first step was to restore the share of cocoa revenue going to the public sector by reducing the producer price to its 1954 level of 72 shillings per load. The secord step, which follo.wed the introduction of the Second Development Plan in March 1959, was for the LGhOC to aninunce on behalf of the cocoa farmers that they were prepared to accept a reduction in the cocoa price from 72 to 60 shillings per load as their "voluntary contribution" to the development effort. Shortly thereafter, the Ccru.ncil was rewarded as the CMB withdrew cocoa-buying licenses from all the foreign trading companies. Farmer opposition by this time was fragmented and incapable of generating the political support necessary to reverse these policies.^ - Beckman, Orcoanizina the Farmers ..., pp.1'96-98. B Eeckman, Organizinq the Farmers ..., pp. 198-204. 92 The governnent was also subsidized at this time with soft loans from the CM1, drastically decreasing the BDard's liquid reserves and its ability to stabilize farmer income. This canfirmed the transformatim of the Board into an instrument of public finance and ended the illusim that it had an important independent role in fixing the producer price. Partly as a result of the expansiam of Ghanaian production of cocoa from about 220,000 tans in 1951-54 to over 400,000 tans in 1960-63 (Amnex Table 1-2(3)), world prices plummeted, creating severe financial difficulties for the c(.2'V In an effort to restore falling public revenues, a compulsory savings scheme was introduced in 1961. Cocoa farmers were required to pay 10 percent of their gross earnings in exchange for Naticnal Development Ebnds, redeemable after ten years. COtce again, the Farmers' Council supposedly spoke for the farmers in agreeing to such a scheme, as it also did six months later when the farmers purportedly agreed to renounce their claims to their savings ten years hence. In 1963, the compulsory savings scheme was replaced by a farmers' inccme tax charged at a flat rate equal to the previous savings deduction.0 Farmer hostility towards the L[FCC was not confined to its role in mobilizing ccntributians from the cocoa sector. The monKopoly granted to the LGFCC in 1961 created enormous opportunities for the Secretary-Receivers, the clerks in charge of the local biying centers, to exploit their 7 Beckman, Oruanizina the Farmers ..., pp.204-06. 9 Beckman, Organizing the Farmers ..., pp.207-11. 93 positions. The list of farmer grievances was very long.9 They included manipulation of scales and weights, imposition of unofficial levies, misappropriation of funds, profiteering on the distributicn of farm inputs, and extortion. Secretary-Receivers were, in turn, required to pay off their superior officers, thus creating an pyramid of corruption. In addition, farmers were frequently confronted with delays in selling because the Secretary-Receivers were not at their posts. Payments were also occasicnally made with promissory notes rather than with cash, and ultimate payment was delayed at times up to four months. Another problem created by the CMB, and the mcnopoly position of the UGFCC, was the application of high quality standards without offering farmers a corresponding price incentive. Secretary-Receivers would sometimes refuse to accept cocoa even though the farmer cansidered it to be perfectly good. Farmers did not know what to do with grade I! cocoa, which was no longer accepted. With respect to inputs such as spraying machines, the problem was that effective demand was substantially greater than available supply at subsidized prices. The Secretary-Receivers who handled most of these inputs were clearly in a position to profit handsomely. After the LUGCC took aver distribution of insecticides from the Ministry of Agriculture in 1963, mismanagement resulted in severe shortages in scme areas. Because of considerable public pressure, responsibility for distribution wes handed back to the Ministry of Agriculture, but the LUFCC continued to play a role 9 Many of these grievances were aired to the Committee of Enquiry on the Local Purchasing of Cocoa, chaired by John Colemen de Graft-Johnson, which was established after the NLC came to power. The problems cited here are taken from the discussion of the report of this committee in Beckman, Oroanizino the Farmers... 94 in identifying "legitimate farmers" to be allowed to purchase other inputs, such as machetes, at subsidized prices through state-owned Ghana National Trading Corporation stares."0 Dedurtimn of local UGFCC al lowances and expenses was authorized by the National Delegates Conference in 1962.11 Acccountability for these funds was totally absent, however, and misappropriation was common. Delays at the buying centers also offered abundant opportunities for extortion and bribery, even though the reasons for the delays may have been beyond the ccntrol of the local marketing staff. The same was true of shortages of cash, though rn-the-side lending of these deposits also contributed to the shortages. Extortion was also cammn as the price to be paid by transporters in order to haul cocoa away. With its share of sales revenue seriously reduced and its reserves frozen in loans to the government, the CM had great difficulty in meeting its payments during the early 1960s. With the collapse of cocoa prices in the second half of 1964, after farmers had already been paid the agreed producer price for a very large crop, there was nothing left to pay the governnent its cocoa export duty after the purchasing and marketing costs of the CM and the LUFCC had been covered. In July 1965, the Cocoa Marketing Board requested, and the Farmers' Council agreed, that the producer price should be reduced to 40 shillings per load, government subsidies on insecticides and sprayers should be discontinued, and farmers should ±0 In 1965, and as a result of strong import controls, the free market price of machetes was quoted as being six times the official price (Beckman, OrCanizino the Farmers ..., p.117). aJ Beckman, Organizina the Farmers ..., describes the very utndemocratic process by which these delegates were chosen. 95 voluntarily restrict further cocoa planting. In return, farmers were to be exempt from inccae tax, and local caoucils and other bodies were prohibited from imposing levies an cocoa farmers without their approval. Farmers were strcngly opposed to this agreement, but "No voice was raised against the sharp reduction in the producer price in the Natimnal Assembly debate on the motimn. Instead, the debate developed into a general attack on the Farmers Crunrcil as a monopoly buyer of Gbana's cocoa."'-a As had been true with the National Liberation Mbvement nine years earlier, cocoa farmers were more concerned to change the structure of the system than to influence producer prices. This illustrated the degree to which price policy and its administration were linked with the issue of political representatic. The vulnerability of the political base of the UGFCC in the cocoa growing areas was highlighted by the collapse of world market prices, and it was ultimately the Minister of Finance, worried about the fiscal implicaticns of the governfent's relaticos with the cocoa farmers, who belatedly tried in 1966 to push the CoLzlcil in the directimn of more democratic representation. The 26 percent decrease in the producer price of cocoa seriously reduced incomes in the cocoa sectors, especially in view of the fact that prices in late 1965 were rising at about 30 percent per year. With production in 1965-66 returning to more normal levels following the bumper harvest of 1964-65, producer income from cocoa decreased in real terms by about 60 percent of its level in 1964-65. Yet salaries of UGFCC staff were Be Eeckman, Orcanizina the Farmers ..., p.218. 96 increased in 1965, and CM employees were granted a cne mnnth salary bEnus. 1 With the fall of Nkrumah and the coming to power of the NLC, the LFGOC was dissolved and African individuals, partnerships, cooperatives, and companies that could handle at least 5000 tons of the main cocoa crop were licenced to purchase cocoa from the CMB. Because the number of buying agents was judged insufficient to handle the crop, however, the Produce Buying Company was established in 1966 as a subsidiary of the CMB to participate in the purchase of cocoa. To further encourage cocoa harvesting and marketing under the new system, the producer price was increased to 50 shillings (NX 5.00) per headload. In addition, farmers were paid a bonus for Grade I cocoa in order to upgrade the quality being sold. Finally, public sales of insecticides and sprayers at subsidized prices were resumed, initially through the Ministry of Agriculture and later through the Cocoa Marketing Board. 4 During the period from 1967 to 1977, the system for purchasing and marketing cocoa progressively broke down as economic conditions in general deteriorated and CMB costs became an ever greater proportion of total F(B sales converted to local currency at the increasingly overvalued exchange rate. As shown in Table 8, these costs in 1967-68 accounted for 8 percent of the total value of sales, whereas by 1977 the CB s share had risen to 27 percent. Producers, on the other hand, received 45 percent of total Bateman, Oroanizina Cocoa Farmers ..., pp.218-22. P4Republic of Ghana, "Government Statement on the Report of the Comnittee Appointed to Enquire into the Lncal Purchasing of Cocoa," W.P. ND. 3/67. 97 sales in 1967-68 and 34 percent in 1977-71, while the government s share was 47 percent in 1967-68 and 39 percent in 1977-78. The initial CMB ordinance of 1947 specified that surpluses of the CMB should be retained as reserves to be used to stabilize producer prices, to finance cocoa purchases, and to prmsvide assistance to farmers in all aspects of production. New legislation enacted by the Nkrumah goverrnenet in March 1965, however, required the CMB to transfer all operating surpluses to the central governeent, including all reserves held at the time.-" Thus the distinction between CMB payments to the gvernment and its net surpluses was erased. As the macroeconomic situatimn deteriorated during the 1970s, the block allowance provided to the Licensed Buying Agents (LEs) became increasingly inadequate to cover their costs. Further-more, the smaller companies had difficulty in financing cocoa purchases following the abolition of the chit system in 1973 and its replacement with the statutory requirement that all purchases be paid for in cash. Censequently, the LBAs began to withdraw from the cocoa buying campaign, and the Produce Buying Agency (formerly the Produce Buying Company) increased its share of the market. By 1975, the PEA was purchasing about twor-thirds of the crop, and almost all the rest was being bought by the Ghana Cooperative Marketing Associatimn Ltd. (GCMA) from farmer cooperatives acting as sub-agents." This did not solve the problem, however, since lack of road maintenance and Wbrld Bank, Eastern Region Cocoa Project - Ghana, Arnex 1, p.3. IWorld Bank, ADmpraisal of Ashanti ReFion Cocoa Project - Ghana, Nbvember 18, 1975, p.12. 98 a shortage of spare parts caused transportation costs to rise more rapidly than the share of cocoa sales allocated to the CMB. In 1977, the PBA and the GEMQ were merged into the Produce Euying Division of the CMB, which was granted a moiopoly on cocoa purchases, ostensibly because of the inability of the LBQs to settle outstanding debts totalling N65 million and because of favoritism and corruption associated with their activities.." In practice, however, the PBD (later the Produce Buying Ccmpany) became a very costly organization, which by 196l was operating 4300 buying centers, each with four full-time, year-rcxund employees.1- The problem of burgeoning employment was not limited to the PHC. At the time of its dissolution in 1966, the LUFCC was the largest commercial establishment in Ghana, employing over 13,000 people. By 1982, the Cocoa Marketing Ebard and its subsidiaries were paying the salaries of 105,000 workers, 20,000 of which were later determined to have died or to be no longer working for the Ebard. The large fixed costs of the CMB implied that, with declining production and an increasingly overvalued cedi, the share of the Ebard in total sales continued to rise. In 1981-82, with the equilibrium exchange rate equal to 15 times the official rate, CMB costs exclusive of the price paid to the producer actually exceeded the value of FOB sales at the official exchange rate. Even in 1985-86, after the cedi 1 Kwesi Ahwoi and Pn-andan Nar-ayanan, "Restructuring the Cocoa Marketing System in Ghana - Some Application of the Malaysian Experience," World Bank, July 1 - August 15, 19b6, p.5. 1E FAD, Ghana - Third Cocoa Project, Draft Report of the FAO/World Bank Cooperative Programme, Investment Centre, 29 August 1986, p.15. 99 had moved frm Ng 2.75/$ to NW 90/$, CMB costs still accounted for 28 percent of the total value of sales.' Although there are no detailed studies, such as the de Graft- Joh-ism report cn the ULFCC, to document the administrative problems involved in cocoa purchasing in recent years, there is evidence to suggest that the PBC's oxnopoly m cocoa purchases has had similar problems. By the 1981-82 crop year, for example, there was a cumulative backlog of unshipped cocoa equal to me-half the harvest of that year because of weak management and inadequate transportation.7-0 Lack of credit, moreover, resulted in delayed payment and farmers being issued ICUs in lieu of cash. Corruption, embezzlement, and diversim of cash was so commnm that, in 1982-83, a system was instituted in which farmers were paid by check. For this purpose, 14 banks were established in the cocoa growing areas. This posed severe problems, however, for farmers who had to travel, in many cases, lang distances to cash their checks. As the costs of the CMB increased relative to total sales, the share of farmer inccae declined. At first, however, there was a concerted effort following Nkrumah's overthrow to raise produicer prices.21 As can be seen from Table 9, the real prockacer price increased, as a result, by 35 percent frcxn 1965 to 1968. It then fell by 16 percent from 1968 to 1971 9 J. Dirck Stryker, "Determination of the Cocoa Producer Price: A Technical Nbte," prepared for the Gcvernment of Ghana and the World Bank, October 22, 1986. I? Eccnomic Intelligence Uhit, Quarterly Economic Review, 1982. 21 Following the initial price hike by the NLC to NV 5 per headload in 1966, the producer price for cocoa was increased to NV 6.50 in 1967, NV 7.00 in 1968, and NV 8.00 in 1969 (World Bank, Easter Reoion Cccoa.... Annex 1, p.31. 100 Table 9 Real Producer Price of Cocoa INC/at) Nominal Real Producer Rural Producer Price la) CPI lb) Price (c) INC/et) (1972=100) (in 1972 NC) Year (1) (21 (3) 1953 269 39 698 1954 287 37 792 1955 299 37 799 1956 280 38 733 1957 269 40 679 1958 239 40 599 1959 224 40 560 1960 224 41 546 1961 224 42 539 1962 220 44 501 1963 202 48 420 1964 197 53 351 1965 187 67 279 1966 224 76 294 1967 254 70 364 1968 284 76 376 1969 293 81 363 1970 293 84 349 1971 293 92 320 1972 366 100 366 1973 439 117 374 1974 499 138, 354 1975 585 176 333 1976 732 279 263 1977 1333 606 220 1978 2667 1058 252 1979 4000 1685 237 1980 4000 2714 147 1981 12000 5683 211 1982 12000 6962 172 1983 20000 15985 125 1984 30000 22119 136 1985 56600 24064 235 Notes to Table 9: (a) From Table 3-3(2). (bi 1953-1966 figures are linked to the national combined UI from Table 3-5(1). Source for 1967-1969 and 1971-1972 is lorld lank, Shana: Economic Position and Prospects, vol. 1, June 29, 1977, Table 6. Source for 1970 and 1973-1982 Is Shana Policies and Program for Adjustment, World lank, June, 1913, Table 7.3. Source for 1993-1994 Is Ghana Towards Structural Adjusteunt, World lank, vol. 11. October 7, 1995, p. 80. Source for 1985 is Statistical News Letter, Statistical Service, August 18, 1996, vol. 11. lc) Column 11) divided by coluen 12) multiplied by 100. 101 under Bisia' s civilian regime, increased by 17 percent during the next two years under the NRC, and began a prolonged plunge in 1974, which did not bottcm out until 1983 when the real produkcer price was only 34 percent of its level in 1972. Only in 19B5, after inflation had been seriously slowed, was the increase in the nominal producer price sufficient to cause a significant rise in the real price. The share of farmer income in the total value of sales follced a different course. Because of low world market prices, farmers earned 81 percent of sales in 1964-65 but only 36 percent in 1969-70 after world prices had recovered. Their share subsequently increased to 44 percent in 1972-73 and then declined to 29 percent in 1974-75 as a result of the international commodity boom. Thereafter the farmers share oscillated between 26 and 47 percent except for 1980-81 and 1981-62, when world prices was depressed and government revenue was actually negative. As produicer prices declined in real terms, farmers and middlemen were encouraged to smuggle cocoa across the frontiers with neighboring comutries, particularly the Ivory Coast, where prices were quite favorable at the black market rate of exchange. Estimates of the extent of this smuggling are presented in Annex 1. They suggest that as much as 20 percent of the crop may have been smuggled out of Ghana in recent years, though because of poor transport conditions and periodic government crackdwnis a more reasonable estimate is about 10 percent. The effort going into smuggling and attempts at its control resulted in a substantial waste of resources and contributed to the undermining of governmental authority through bribery and other forms of corruption. 102 Tradable Foods Imported agricultural products have over the years been subject to a variety of controls and regulations that, in gener-al, have caused the domestic price to consumners to exceed the CIF price plus relevant margins. During the colonial period, food was imported into Ghana by a number of general import/export houses with wholesale and buying branches throughaut the country. The main depots in the regional capitals served as the principal outlets for this food. Although these networks remained in place after independence, the government reduced their market shares by establishing public trading monopolies and import licensing policies that favored small Ghanaian importers, exclusive government departmental trade, and subsidization of nonccommercial distribution systems.~ During the Nkrumah era, the Ghana National Trading Corporation (GNTC) was given a public ffonopoly on imports of "essential" food commodities, such as wheat, rice, maize, sugar, and vegetable oils. These were sold, in turn, to licensed wholesalers or thraugh the GNTC's own retail outlets in urban areas. To the CIF price was added an import duty that varied over time and across commodities, but averaged 10-25 percent, plus the cost of handling, transport, and working capital. Retail prices of these ccmmodities were supposed to be officially controlled. These controls were generally respected in retail stores, but prices in the market were apt to be higher.23 As inflationary pressures built up, nmreover, these &'World Bank, "Marketing and Input Supply," Ghana: Agricultural Sector Review Background Paper 5, January 15, 1985, pp.151-2. = R.N. Ghosh, "Price Build-ups of a Few Imported Food Commodities in Ghana," Technical Publication Series No. 32, Institute of Statistical, Social and Econonic RPesearch, Legon, 1972. 103 differences were accentuated and cammodities became increasingly scarce in the state-coned retail outlets, as well as in other stores that were required to sell at controlled prices. The gap between the free market price and the cost of acquiring imports at the official exchange rate led, during the Nkrumah period, to widespread rent-seeking behavior. ' In the granting of import licenses, for example, bribes of 5 to 10 percent of the value of the license were the norm unless importers had personal contact with the Ministers of Trade or Industries. Cumbersome procedures were evolved to assure the issuance of licenses for priority purposes, but these inevitably allciied a certain amoumt of discretion to government officials in charge of implementation. The result was not only a transfer of income to these officials but also substantial inefficiencies. In some instances, for example, import licenses were revoked after imported goods had already arrived and were awaiting clearance at the port. After goods were imported under official license, the government had neither the administrative controls nor the data to influence their allocation and to prevent profit-taking. Instead, a number of mechanisms came into existence that bypassed any effort towards public regulation of private sector marketing of imported goods, including food. Of particular importance was the grcuth of sales by large distributor firms, including the GNTC, to wholesalers rather than to ccnsumers directly through the distributors' own retail outlets, which tended to be more tightly controlled. Since large open sales to individual wholesalers would attract attention, these were frequently disguised as retail sales, with people 2 WDrld Bank, "Marketing and Input Supply," p.156. 104 hired to stand in line for cash purchases. Q^Eues were also used by the distributors as a means of discouraging retail sales at official prices since very limited quantities of restricted items such as milk, sugar, and rice wwld be sold at a time. Once the token public sales were made, the rest of the goods wculd be clandestinely transferred to selected customers at much higher prices. Goods that were in scarce supply at visible retail outlets were often sold in much larger quantities using the passbook system, which originated in Ghana following the First Wbrld War. Under this system, women would receive goods on credit from the large trading hauses and would sell retail on commission within the informal sector. This proved to be an excellent mechanism to subvert the price control system since passbook holders generally sold only to clients that were well known to them personally. Of the 20,000 or so passbook holders in 1964, very few used shops or stores for their retail, or in sawe cases sub-wholesale, sales. Since the passbook system was legal and yet the prices at which goods were eventually sold to consumers were much higher then their actual cost, district and sales managers of the distributors received substantial kickbacks. In some cases they had passbooks operated on their cw4n behalf. In addition, the "chits" issued by sales managers for the release of goods were often sold separately. Even where outright graft was not involved, scarce goods were frequently allocated on the basis of family ties, friendships formed in student days, and other types of favoritism. This often required repeated visits to the person able to authorize the release of gccds, long waits outside his office, and other wasted resources. In many cases, the goods 105 were never actually acquired by the individuals involved, but the chits were sold to waiting dealers an leaving the office. Although there was a major effort after Nkrumah tD clean up the graft and corruption associated with import and exchange controls, official price structures, and administrative allocaticn of resources, the impact of this effort was short-lived as long as the incentives for rent-s eeking activity existed. In the traded goods sector, these incentives are perhaps best exemplified by the ratio of the black market to the official exchange rate. In 1966, at the end of the Nkrtunah era, this ratio reached its first peak of 3.0.A5 By 1969, the ratio had fallen to 1.7, and it remained at approximately this level until 1975, when under the SMC the macroeconomic situation began to deteriorate sharply. Thereafter, the incentives to divert goods from the official distribution network to the private market increased dramatically, with the ratio of the black market to the official rate of exchange rising to a peak of 8.0 in 1977, then falling to 5.9 in 1978, and finally increasing to a new high of 22.2 in 1983 before a series of devaluations and, ultimately, adjustment through public auctions reduced the ratio to about 1.2 by late 19B6. The consequences of these distortions relating to govermnEnt policies regarding tradable foods were predictable. With increasing differences between the CIF price in local currency and the domestic market price of rice, maize, sugar, milk, and most other importable products, the profits to be gained from access to scarce goods at official prices became 2 Table 4, Chapter II. 106 immense. This gave rise to rent-seeking behavior an a massive scale.2 Frequently involved were military officers, who obtained the necessary chits that they then turned over to Ghmnaian women with access to the pr-ivate marketing network. The right chits, especially if signed in green ink by Colonel Acheampong, provided access to foreign exchange, import licenses, bags of grain, or whatever else the bearer desired. By 1976, sugar, rice, flour, and other coimmodities acquired in this way sold on the private market for at least five times the controlled price. Less and less time was spent in formal sector employment, including the gvernmnent, in which wage increases did not match the rate of inflation, and an increasing amount of effort was devoted to informal rent-seeking. What was particularly disturbing about this system, as it continued through successive gpvernnts into the 19EKs, was that people who potentially had access to scarce goods through the system spent a great deal of time and effort attempting to acquire the goods at the expense of directly productive activity. Furthermore, periodic gcPvernment crackdowns on smuggling and profiteering only increased the cost of rent-seeking activity without substantially reducing its level. As the economic situaticn continued to deteriorate, imported goods became increasingly scarce, and time spent in rent-seeking activity became less privately productive. It was at this point during the late 1970s and early 1980s that a large number of Ehanaians dissociated themselves from the kalabule system and committed themselves simply to informal sector -6 The system of profiteering took on the name of "kalabule", probably from the Hausa expression "kere kabure", which means "keep it quiet". A detailed description of this system in contained in Mike Oquaye, Politics in Ghana (l972-1979), Accra - Tema: Tornado, 1980. 107 activities in the cities or, in many cases, in the coutryside. Imports of tradable foods, such as rice and maize, had by this time fallen to less then 10,000 tons per year, except when food aid could be obtained, so that domestic grain prices were largely divorced from those on the world market and were determined instead principally by local demand and supply conditicns. This situaticn continued until very recently, when food imports were increased ance more under the Economic Recovery Program. In additian, the mnxropoly of the Ghana National Procurement Agency (GNPA) on imports of essential foods, which had been initiated in 1976 to take advantage of bulk buying opportunities, was broken as private traders were authorized as of the end of 1985 to use their own foreign exchange to import fod. Despite a 35 percent margin on the CIF price, which was designed to cover administrative overhead, working capital costs, a "ca..ission", and profit, the GNPA was at this time in severe financial difficulties because of mismanagement and inefficient purchasing from overseas suppliers.27 In an effort to substitute local production for food imports and to stabilize prices for local produciers, the government for many years tried to increase the share of oatput being handled by public trading agencies. During the late 1960s and early 1970s, the Grains and Legumfes Developnent Board (GDB) was responsible for buying and storing maize, rice, and palm oil in an effort to stabilize prices. In 1975, the Marketing Division of this agency was taken over by the Ghana Food Distribution Corporation (GFDC), which had been established in 1971 to market perishable foodstuffs on which it experienced substantial losses. At the same time, IWobrld Bank, "Marketing and Input Supply", p.156. 106 the Rice Mills Uhit (FRIU), which had been part of the GDB, was made an autciomxis body under the Ministry of Agriculture. The grain marketing activities of the GDB/GFDC were chiefly oriented towards implementing the minimum guaranteed price for maize.2 This price was established for foodcrops by a Committee an Agricultural Conmmodity Prices, composed of Ministry of Agriculture and university-based officials, on the basis of estimated costs of producticn.29 In most years the minimum guaranteed price for maize was well belaw the market price, but when the market price fell, neither the storage facilities nor the financial resources of the GDBJGFDC were sufficient for the buying activities to have a significant influence. The anuual purchases of the GE1/GFDC, in fact, never exceeded 12 percent of estimated total marketings. In 1974/75, for example, when there was a substantial surplus of maize, shortages of storage facilities and lack of finance prevented the GMB from supporting the floor price.30 The Rice Mills Uhit, in additian to being unable to support the minimum guaranteed price for paddy for similar reasms, also suffered from high milling costs that prevented it from competing with private rice millers, resulting in substantial excess capacity. 3 In 1984, maize accounted for 54 percent of total GFDC purchases and imported rice for another 27 percent. Other purchases were divided among starchy staples, legumes, charcoal, and imported "rural trade" items such as machetes. World Bank, "Marketing and Input Supply," pp.160-62. -- Wbrld Bank, "Agricultural Pricing and Trade Policy Framework," Draft Working Paper ND. 9 for the Ghana Agricultural Sector Rehabilitatim Project, by Lynn Salinger, April 1986, p.22. -C0 Whrld Bank, Ghana: Agricultural Sector Review, April 12, 1976, Vol.II, Annex 5, p.11. 109 The influence of the state trading agencies on domestic marketing of food was thus of little importance, though they occasionally had a detrimental effect by obliging large producers and Agricultural Developnent Bank borrowers to sell at official prices when market prices were in fact higher. In addition, high operating costs coupled with low allowable marketing margins resulted in severe financial difficulties and the need for frequent government subsidies. As a result, buying of maize was reduced franm about 30,000 tons in 1973 to a mere 6,000 tons in 1933.:3- The GFDC was also allowed to purchase imported rice and other foods from the GNPA and to sell these on the private market at substantial markups in order to cover part of its losses on domestic purchases. - For a time this created opportunities for bribery and favoritism, but the windfall was reduced when devaluation brought border prices more in line with domestic market prices. In the face of fluctuating harvests, Ghana has procedures designed to ensure adequate food security. Estimates of shortfalls made by the Ministry of Agriculture are passed on to the Ministry of Finance, which manages the foreign exchange budget and coordinates concessional food aid. The Ministry of Finance is then supposed to inform the Ministry of Trade how much food is to be imported. In reality, however, neither the governent nor the international donors has a very clear idea of expected concessional imports.:' As a result, there are years in which there are significant surpluses or shortages, with corresponding price fluctuaticns that the -' L Wbrld Bank, "Marketing and Input Supply," p.159. 32World Bank, "Marketing and Input Supply," p.161-62. W obrld Bank, "Agricultural Pricing ...," pp.2-29. 110 goernment is unable to control thrcugh either its domestic or its foreign buying and selling operations. Transnortation and Ncntradable Foods Motre important than the activities of the grain marketing agencies has been the effect of gavernment policy on the transportation system. From 1961 to 1966, during the Nkrumah gDvernment, the average age of trucks increased markedly because of restrictions on imports, and the number in operation declined because of shortages of tires and spare parts. RcNad ccnditimis also deteriorated with inadequate maintenance. 4 Ccnditions improved somewhat thereafter for a few years, but a survey of farmers and traders in 1970 ftirid that road canditicns and the scarcity of vehicles were major constraints on marketing and resulted in high transportation charges, especially on feeder roads.~ It is estimated that the total capacity of trucks declined from 8,271 tons in 1956 to 4,442 tons in 1968. In 1968 almost 38 percent of the trucks were more than six years old.2 By the mid-1970s the situatim had deteriorated even further. Imports of vehicle spare parts declined by 40 percent in real terms from 1970 to 1975. Althtgh statistics on the total truck fleet were not ;54 World Bank, Current Ecnomic Position and Prospects of Dhana, Vol. V: Agriculture, C3ctober 26, 1970, p.8. ;so V.K. Nyanteng and G.J. van Apeldomrn, "Sane Development Implications of Farmers' Problems in Marketing Their Foodcrops," in I.M.Ufori (ed.), Factors of Paricultural Growth in West Africa, Institute of Statistical, Social, and Economic Research, Iniversity of Ghana, Legon, 1973, pp.26E,69. Kadwo Ewusi, "The Rate of Inf lation, Variation in Local Food Prices, and the Effect of Transport Facilities on Local Food Prices in Ghana in the Sixties," in Ofori (ed), Factors of Agricultural Growth ..., p.2B4. 111 maintained after 1970, figures on registration of new trucks suggest that the total number of trucks fell 29 percent from 1960 to 1970 and 16 percent fram 1971 to 1975.57 As a result, it was estimated in 1977 that 70 percent of farmers had to headload crops to market.10 By 19Y83, approximately 70 percent of the road vehicle fleet was out of service because of lack of tires and spare parts.39 The impact of the deterioration of the transportatimi system was especially severe for the marketing of starchy staples, such as cassava and yams, and of millet and sorghum, since these crops have relatively low value in relation to weight. Since no government policies affected the prices of these products directly, the most important influence that the public sector has had has been through its policies concerning transportation. Policies Related to Agricultural Inputs In contrast to output price policy, which historically has tended to discourage agriculture, the government has intervened, especially since the early 1970s, to encourage production through the provision of subsidized inputs and credit, through its research and extension services, and through interventions by specialized agencies in specific areas and crops. In addition, in contrast to other sectors of the economy, there are no direct taxes in agriculture. Most of these interventions have favored larger, more modern farmers. -'7 Wbrld Bank, Ghana: APricultural Sector Review, April 12, 1978, Annex 5, p.15. as Inception Report, Building and Road Research Institute, " Highway Research Programme", 1977. W obrld Bank. Ghana: Policies and Program for Adjustment, 1984, p.63. 112 Input Subsidies. There are no import tariffs mn fertilizers, insecticides, and agricultural machinery and equipment, though some inputs not used solely in agriculture, such as trucks, are subject to duty. Domestic prices of most inputs, however, have been influenced less by trade taxes than by government policy and practice in relation to input distribution. The overvaluation of the cedi has had an especially important effect on the pricing of inputs - favoring capital-intensive, mechanized techniques aver those that absorb more labor. Fertilizer. Numerous agricultural inputs have wver the years been distributed at subsidized prices by the Ministry of Agriculture. The subsidy for fertilizers, for example, was initiated in 1968 and has evolved as shown in the following table, Fertilizer Cost, Price, and Subsidy (Nf/mt) (a) Ccwnxouid Ammoniumn Sulphate Sales Sub- % Sub- Sales Sub- % Sub Year Cost(b) Price(c) sidvyd) sidy(e) Cost(b) Price(c) sidy(d) sidy (e) 1970 110.6 56.0 54.6 49% 81.4 40.0 41.4 517. 1971 122.3 56.0 66.3 547. 85.6 40.0 46.5 54% 1972 163.9 56.0 107.9 667. 110.7 40.0 70.7 647. 1973 183.2 56.0 127.2 697. 155.2 40.0 115.2 74%. 1974 353.7 56.0 297.7 847. 293.1 40.0 253.1 867. 1975 408.6 56.0 352.6 86. 275.6 40.0 235.6 85% 1976 297.5 56.0 241.5 81% 227.5 40.0 187.5 E8Z. 1977 306.0 130.0 176.0 567. 296.0 100.0 196.0 66% N/A N/A N/A N/A N/A N/A N/A N/A 1984 2E000.0 9000.0 19000.0 6EMX. 20,100.0 7000.0 13100.0 65% 113 NOTES: (a) Source is WDrld Bank, Ghana: Aciricultural Sector Feview, April 12, 1978, Vol. III, Annex 7, Appendix Table I, and calculaticns for World Ebank, Ghana: Agricultural Sector Review, Background Paper Nb.l: Incentives and Comparative Advantage, January 15, 1985. (b) Cost ex-warehouse Tamale, Upper Region. (c) W2.80 per bag of 50 kg for compound fertilizer and N&2.O0 per bag of 50 kg for ammonium sulphate from 1970 to 1976. In 1977, the prices per bag were raised to NW6.50 and NW5.00 respectively, By 1984 these prices had attained !S450 and N350. (d) Cost minus Sales Price. (e) Subsidy as a percent of cost. It is clear from the table that there was a tendency for the official price of fertilizer to remain fixed for a number of years, during which time the subsidy became increasingly important as a percentage of delivered cost. Over the years for which we have data, the subsidy rate ranged from 49 to 86 percent. This does not include, of course, the additional indirect subsidy resulting from overvaluation of the cedi. A major problem was inadequate supplies of fertilizer, imported by the Ghana Natimnal Procurement Agency (GNRA) and distributed by the Ministry of Agriculture.4" During the 1960s and early 1970s the problem was largely mne of the GNPA s inability to gain access to adequate foreign exchange. As foreign aid was tied increasingly to fertilizer imports, however, those imports rose from 9980 tons in 1971 to 69,630 tons in 1976.4- Utilization increased less rapidly, however, and 17,900 tons were carried over from 1976 into 19/7. Small farmers, particularly, obtained timely access to *° Prior to the end of 1976, the Ministry of Agriculture was also responsible for importing fertilizer. 4L Fertilizer imports were only 2900 tons in 1962 and 6340 tons in 1969, indicating the absence of any concerted effort to develop agriculture other than cocoa bef-re the 1970s. Wirld Bank, Ghana: Agricultural Sector Review, August 12, 1978, Vol.III, Amnex 7, Appendix Table 5. 114 fertilizer with difficulty because of late arrivals, complex administrative procedures, and heavy competition from large farmers at the subsidized prices. There was also some smuggling of fertilizer across the borders. As a result, the village market price paid by small farmers for fertilizer in March 1977 was NP9.00 per bag, while the official price was Ni2.00.,4 By 1984, the situation was no better, with shipments arriving too late for planting because of the Ministry of Agriculture's inability to finance the imports, slow mobilization of transport to inland distribution points at least partly because of low official transport rates, and indecision an pricing under the government's new desubsidization policy.43 As a result, fertilizer distribution was transferred to government-uwned Farmers' Services CAmpanies (FPSCOM) in the Lpper East, Upper West, and Volta Regions."4 Aside from inefficiency and inequity in allocatimn and delays in distribution, the fertilizer subsidy grew to be an important public sector expense. Government outlays increased from NW0.4 millimn in 1970 to W9.2 million in 1976. In 1976/77, the subsidy amounted to 25 percent of the current budget for all agricultural development, excluding cocoa. ' Although the government was conunitted to phasing the subsidy out over the period from 1976 to 1990, this still had not been accomplished by 1984. 42 World Bank, Ghana: Agricultural Sector Review, April 12, 1978, Vol.Il, Annex 5, p.21. Wobrld Bank, Ghana: Auricultural Sector Review, BackgrouxJd Paper 5: Marketing and Input Supply, January 15, 1985, p.153. 4 I World Bank, Ghana: Agricultural Sector Review, August 6, 1985, p.42. 0 Wobrld Bank, Ghana: Agricultural Sector Review, April 12, 1978, Vol.III, Amnex 7, pp.8-9. 115 Machirery Services. In order to encourage farm mechanization, all farm machinery in Ghana is imported duty free. In addition, tractor services were for imany years provided at subsidized rates by the Mechanization and Transport Division of the Ministry of Agriculture (MEY). These services included clearing, tillage, and harvesting, and the aouint of subsidy during the early 1970s was about 50 percent of private sector costs. Again, it was the large farmers who benefitted most from these services. The candition of the equipment was so poor and the inefficiencies of the services were so great, however, that the government rapidly declined in importance relative to private tractor operators, who charged rates considerably in excess of those of the governmeit. In 1969, for example, it was estimated that only about 40 percent of the govermEnt's wheel tractors were serviceable and each of these was annually able to prepare an area of land that averaged only 12 to 18 hectares. Private tractor naiers, in contrast, were able to prepare up to 240 hectares.46 As a result, by 1976 the goverrwnmt owied only 3 percent of all wheel tractors and harvesters in Ghana.4` Subsidies an mechanized land preparation and harvesting services provided by the MtA varied in 1977 from 3 to 74 percent of estimated costs, depending on the service rendered. Except for a -few favored farmers, these subsidies were irrelevant because of the very limited extent to which the services were available fram the M1O, though the govermEnt did operate about 90 percent of the crawler tractors used for clearing at subsidy rates 6 k WDrld Bank, The Current Econcmic Position and Prospects of Ghana, October 26, 1970, Vol 5: Agriculture, pp.14-15. 4' Ghana Ministry of Agriculture, Economic Research and Planning Service, "Agricultural Price Policy in Ghana, " by Frederick D. Kerfker, April 1976, p.9. 116 of 0 to 17 percent.49 Far more important in determining the prices of mechanized services, hwever-, was the influence of Ghana's overvalued exchange rate an private operator costs. Improved Seeds. The Ministry of Agriculture operated during the early 1970s a seed multiplication and import program, which primarily benefitted producers of maize and rice. Farmers in 1974 paid ane-third of the cost of maize seed and three-fourths of the cost of paddy, though only 10 to 20 percent of all farmers were reached.49 By 1976, the subsidy rate had been reduced to nil for paddy and 50 percent for maize."Q Seed price policy lacked adequate flexibility to cope with varying grain prices. Paddy seed was sold by the Rice Mills Uhit in 1976, for example, for mnly one-half the market price, resulting in many cases in the seed being purchased for direct consumption rather than for planting. Similarly, the MOh offered registered seed grawers N!55/bag of maize seed while the market price for seed of lower quality was about N80, and the M0A consequently was unable to buy any of the certified seed.89 Because of the administrative difficulties of running a seed program from the Ministry, the state-owned Ghana Seed Company (GSC) was established in the mid-1970s to produce fou,dation seed from the breeder' s 4 World Bank, Ghana: Agricultural Sector Review, April 12, 1978, Vol.III, Amex 7, p.11. World Bank, The Current Economic Position and Prospects of Ghana, October 18, 1974, p.16. eC) Ghana, Ministry of Agriculture, "Agricultural Price Policy...," p.9. 51 World Bank, Ghana: Agricultural Sector Review, April 12, 1976, Vol.III, Annex 7, p.7. 117 seed made available by the Crps Fsearch Institute. The fotundaticn seed was then issued to registered private farmers to produce certified seed on ccntract. This seed was in turn cleaned, processed, and sold by the GEE. The G5C proved to be no more adept at seed pricing than the MEA, however, and by 1984 it was in severe finamcial trouble, with large unsold seed stocks. At the same time, there was a sharp decline in seed producticn because of financial problems, unavailability of inputs and spare parts, and a decline in the number and acreage of participating growers.3- Other Inputs. The MOA also maintained subsidies cn insecticides and hand tools, but quantities supplied were insufficient in relation to demand at the subsidized price, as evidenced by market prices two or three times official levels. Despite the establishment of two machete factories in Ghana, farmers by the end of the 1970s were continuing to experience difficulty purchasing this basic tool at the official price. Smuggling to neighboring countries also appeared to be a major problem.53 Cocoa farmers benefitted fr-om a number of additional subsidies provided by the Cocoa Marketing Board. These were temporarily suspended in 1965, as noted earlier, but were later resumed under the NLC. In 1974, the CMB sold Gammalin, the main insecticide used on cocoa farms, at a price equal to about one-quarter of its costs. Sprayers that cost the Board V12B.00 were sold, in turn, for e3O.0O and were repaired free of charge. Cocoa pods and seedlings were also sold at subsidized prices, estimated at Om World Bank, Ghana: Aaricultural Sector Review, Background Paper No.5: Marketing and Input Supply, January 15, 1965, p.167. 53 World Bank, Ghana: Restorina Economic Growth, October 22, 1981, pp.10E-09. 118 about 50 percent of cost. In addition, the CMB financed the constructian and repair of feeder roads in cocoa growing areas. By 1977, in the face of constant official input prices and rising inflation, subsidy rates at the official exchange rate had increased to 81-95 percent.s4 Input supplies and local support services furnished by the CMB were inadequate. Between 1970 and 1975, sufficient insecticides were available to spray only 150,000 hectares, compared with the 1.2 to 1.8 million hectares in cocoa. Ghanaian seed multiplicatian farms had a total annual production capacity of 1.65 million cocoa pods in 1976, which was enough to replant only 20,000 ha per year.55 The major reason for these insufficient supplies of inputs was the gcvernment subsidy, which posed financial problems for the CMB and led to smuggl1ing. It was estimated that at 1976 import levels the subsidy annually cost the government NV- 2.4 million for sprayers and W 15.9 million for insecticides.-~ Despite the announ,ced intention to eliminate all input subsidies as part of the Economic Recovery Program, the CMB in 1985 imported sprayers at a landed cost of W14,000 apiece and resold them to farwers for W3,400.-7 The reason for this ostensibly was to help offset low producer prices, but the incentives for smuggling under this policy were enormous. 54 World Bank, Ghana: Agricultural Sector Review, April 12, 1978, Vol.III, Annex 7, p.9. 54 World Bank, Ghana: Agricultural Sector Review, April 12, 1978, Vol.Il, Amex 2, pp.9- TM World Bank, Ghana: Agricultural Sector Review, April 12, 1976, Vol.Ill, Ann-ex 7, p.10. M' World Bank, Ghana: Towards Structural Adjustment, October 7, 1985, Vol.1, p.48. 119 Credit. In addition to the informal credit network, agricultural credit in Ghana is formally provided by a number of institutions, including conmner-ial banks, the Agricultural Developmnnt Bank (ADB), and the National Investment Bank (NIB). In addition, the Bank of Ghana initiated a scheme in 1969 whereby it guaranteed twr-thirds of the value of loans granted by commercial or development banks to small borrowers. Loans by commercial banks and the NIB have gone primarily to larger farmers and agroindustrial enterprises. Small farmers have been limited to the ADB, but most of its loans have gone instead to middle-size farnms.0 Overall, less than 10 percent of farmers in Ghana receive institutional credit.>9 Conditions of credit have varied markedly. Most ccunercial bank loans have been short- or medium- term, whereas the loans of the NIB have been almDst exclusively for periods in excess of five years. The ADB in 1972 granted 70 percent of its credit as medium-term loans, 18 percent as s-hort-term, and 12 percent as long-term. Commercial bank credit was generally available to agriculture at this time at an interest rate of about 14 percent. Interest at 11 percent was charged on medium-term ccmmercial bank loans guaranteed by the Bank of Ghana. The NIB and ADB, on the other hand, provided subsidized credit to agriculture at 6 percent. Since inflation at the time was ruming at about 10 percent per annum, real rates of interest to agriculture were negative. WE In 1968, the average loan of the ADB was for Ni 11,000. H. Mettrick, Policies and Institutions in Ghanaian Pariculture, LUiiversity of Reading, Department of Agricultural Economics and Management, June 1971, p.60. - World Bank, Ghana: Aaricultural Sector Review, Val.III, Anmex 6, p.l. 120 Repayment rates have varied over time, but the ADB in particular had problems recovering loans. As a result, the Bank initiated in 1969 a Commcdity Credit Scheme in which a group of farmers would apply for a loan in co,m,n in order to invest in the production of a particular commodity. The loan was guaranteed by all members of the group. The scheme was designed to reach the small farmer and to assist in the expansion of staple food cultivation. By 1975, however, only 6.6 percent of all small farmers in Ghana had been reached by the scheme. Loan recovery rates were about K0-90 percent.4° The major problem with rural credit in Ghana has been that high rates of inflation lowered real rates of interest to negative levels, especially after 1977 when inflation reached triple digits. This encouraged misuse of credit and made it extremely difficult for credit institutions to remain financially viable. The result was a virtual cessation of the flow of credit resources out of national financial institutions and greater reliance on rural banks established by the Bank of Ghana beginning in 1976 as private institutions dependent on local savings.62 Research and Extension. Agricultural research has traditionally been the responsibility of the Faculty of Agriculture and the Economics Department at the universities and of several research institutions under the Council for S&ientific and Industrial Research (ORIS). Research activities related to cocoa and cotton Ib World Bank, Ghana: APricultural Sector Review, April 12, 1976, vol.III, Annex 6, p.12. tb World Bank, Ghana: Agricultural Sector Review, April 12, 1978, vol.III, Annex 6, p.16. 121 come under the Cocoa Marketing Board and Cotton Development Bcard respectively. In addition, the Crop Production Division of the Ministry of Agriculture has certain responsibilities with respect to field trials. Eecause of this fragmentation and lack of coordination of research activity, thowever, the Ministry of Agriculture has tended to ignore the work of the universities and research institutes as not being very relevant and has gone to the other extreme "of relying very heavily on ad hoc introductions of crop varieties without adequate attention to the need for local, adaptive research. The situation is exacerbated by lack of an effective extension service. During the colonial period the British were primarily interested in agricultural research and extension as these related to cocoa. By the 1950s, however, a national extension service concerned with a broader range of crops had been developed within the Ministry of Agriculture. The Nkrimnah gavernment uprooted this service in 1962 and transferred it to the Uhited Ghana Farmers'Cooperative Cnoncil (1UGFC), the farmers' wing of the Convention People' s Party that had previously only been concerned with the marketing of cocoa. Other extension staff were transferred to state farms. As Tony Killick has described it, The results were disastrnLxs . The UIGFC lacked the expertise, administrative capabilities and motivation to operate an extension service. Its officials used their positions to cheat the farmers, who became increasingly hostile to the organization which was supposed to help them. Extension work was further hamstrung by sericus shortages of imported supplies such as machetes, fertilizers and seed. The result was that such extension service World Bank, The Current Economic Position and Prospnets of Ghana, (ktober 26, 1970, Vol.V: Agriculture, p.11. 122 as had existed at the beginning of the sixties deteriorated drastically..3 After the Nkrumah era, respansibility for extension was transferred back to the Crop Producrtian Divisimn of the Ministry of Agriculture, which was also responsible for the distributicn of seeds and fertilizers..4 This comnplicated considerably the work of extension agents and took their attention away from advising farmers on agricultural tech-iology. In addition, agents were handicapped by inadequate means of transport and lack of a clear focus for their activities. To bridge the gap between research and extension, the Grains and Legumes Development Board embarked on a number of activities, such as demn:stration and foundaticn seed prcduction, that partly cverlapped with those of the Ministry, creating additional confusion. During the late 1960s and early 1970s, an increasing amount of research and extension took place within the context of particular project organizations. In 1969, the FAO Fertilizer Program began fertilizer and rotation trials and extension an maize, cotton, cassava, groundnuts, and ccwpeas in the Ashanti, Central volta, and Erung Ahafo Regions, which led to substantial increases in fertilizer utilization. The Ghanaian/German Agricultural Development Project in the Nbrthern Region undertook research on rice,-5 and the World Bank financed an important project in the Uipper Region involving applied research and extension. While these and other Killick, Development Economics ..., p. 191. 64 World Bank, The Current Economic Position and Prospects of Ghana, October 26, 1970, Vol, V: Agriculture, p.12. is World Bank, Ghana: Agricultural Sector Review, April 12, 1978, Vb1.III, Annex1X, p.3.23 123 projects were more successful in instituting adaptive research and in ccncentrating extension on particular goals, they were also plagued by shortages and late delivery of inputs, high local currency costs, insufficient farmer incentives, and rapid turnover of project personnel. Since the mid-1970s, declining real income and research facilities have induced a large exodus of trained research staff to other countries. At the same time, there has been overstaffing at lower levels, which has consumed budgetary funds at the expense of the money required to operate research programs. This, coupled with the usual problems of coordination and extension, has limited the impact of agricultural research on Ghanaian farming techniques.4- State Production As part of its general orientation toaards public ownership and industrialization, the Nkrumah government under-took a major effort to shift Ghanaian agriculture away from its predcminant form - small-scale, cwnaer-operated farms. The State Farms Corporation was created, which rapidly increased the number of its farms and its total land holdings. By 1965 it was managing 105 farms, about half of which were new, the rest being former demonstration and experiment stations marnaged by the Ministry of Agriculture. In addition, the U[FCC was responsible for mechanized co-operative farms, and the Workers' Brigade operated 10 mec-hanized farms. ^' "These enterprises affected a very small proportion of the ,1 World Bank, Ghana: Agricultural Sector Review, August 6, 1985, pp.34-35. e' Killick, Development Eccnomics...., p.192. 124 population engaged in agriculture and accounted for only about 1 percent of total agricultural production during the period, but they absorbed large anmunts of capital and diverted resources, manpower and facilities away from the smalIholder sector of the economy".19 The state farms, for example, cost Ng 19.8 million in subsidies in 1963-65. Despite the fact that they had the services of many of the MIA s agricultural officers and had much better access to capital and intermediate inputs than did small farmers, both their yields and their labor productivity were only about one-fifth as great. Partly as a result of this, between 1966 and 1971 the number of state farms was cut to 33. Nevertheless, the financial deficits of the Corporation still averaged NY 1.4 million in 1969 and 1970. 9 Since then, the State Farms Corporation has continued in existence, along with other government parastatals involved with agriculture, such as the Ghana Tobacco Cbmpany, Ghana Rubber Estates Limited, Ghana Sugar Estates Limited, the State Fishing Corporation, and the Volta River Authority. Although today they are not the major focus of gavernment development efforts in agriculture, these enterprises nevertheless constitute a continuing drain on the public treasury and absorb a disproportionate share of management time. tb World Bank, The Current Economic Position and Prospects of Ghana, October 26, 1970, Vol.V: Agriculture, p.13. 9 Killick, Development Economics..., p.193-94. 125 Conclusions This discussimn of the history of policy interventions in Ghana leads to a numrber of conclusions. First, and of greatest importance, the general deterioration in the economy, accompanied until recently by rising inflation and an increasingly overvalued currency, had a profound impact on agricultural incentives. This became especially evident during the last part of the 1970s and the early 19E0s, when the rate of inflation was in triple digits and the exchange rate was overvalued by a factor of at least twenty. Cne result was an increasingly hopeless struggle between government, farmers, and the Cocoa BDard to extract revenue from the plunging local currency value of cocoa exports. On the import substitution side, agriculture benefitted from the restrictions un grain and other food imports, which caused their domestic prices to rise steeply in relation to CIF prices converted at the official rate of exchange. Oh the other hand, this created abundant opportunities for corruption and other rent-seeking behavior on the part of officials responsible for food imports. In addition, the governent's frequent efforts to control domestic prices and to intervene in the food distribution system led to confusion and marketing disincentives. Furthermore, the scarcity of foreign exchange that accompanied the overvalued exchange rate led to a collapse of the transportation system, which severely disrupted the transmission of higher prices to farmers for both tradable and nontradable foods. Second, the disenfranchisement of Ghana s cocoa farmers and the penetration of the LEFOC into the cocoa growing areas urnder the Nkrumah regime led to a system for allocating resources that depended on favoritism 126 and bribery rather than on the exertion of political pressure and influence. Suaceeding regimes attempted at first to correct this, but their narrow political basis and their macroeconomic managerial incompetence soon led to a reversion to the old system under the auspices of the Produce Buying Ccmpany's at first de facto, and later de jure, monopoly on cocoa purchases. The main difference between the LUFOC mrnopoly and that of the PBC was that the former had strong political overtones related to the desire of the CFP to neutralize the cocoa farmers, whereas the latter was ideologically neutral and was designed simply to keep the ever dwindling supplies of cocoa moving as the government wrestled to maintain its share of sales revenue. The end result, however, was the same - resource allocation based on influence and corruption rather than an political process. As in the import competing sector, the result was wasteful rent-seeking rather than productive activity. Third, the bias against tradable agriculture resulting from trade, price, and exchange rate policies was only to a very minor extent offset by input subsidies and cheap credit. These were often channeled through rural development projects in which officials developed strong vested interests, abetted in many cases by foreign donors. The projects were a weak base on which to develop the agricultural sector, however, because they required high levels of managerial skill and were vulnerable to the price distortions that increased in intensity with the collapse of the macroeccnoimy. In the end, input subsidies and cheap credit never effectively reached the smaller farmers who were responsible for most of the nation s agricultural output. The other alternative to small farmers - the state farms and agricultural parastatals established under Nkrumah - proved to be a 127 disaster. Productivity was lower than on private farms, and yet these public sector activities continued to exert a disproportionate claim on managerial and financial resources even after Nkrumah. With the advent of the Economic RecoverY Program, steps were taken to improve the incentive structure. The cocoa pr-oducer price was increased significantly in real terms for the first time in 1986. Efforts were made to improve the transportation system and to alleviate some of the problems of input supply. Nevertheless, years of neglect had exacted their toll, and it was clear that considerable time would be necessary before the agricultural sector could be fully revived. 128 PART 11T: EFFEC`TS OF PRIC INTERVENTIONS OHPTER VI: fEfFES OF INTEFENTION In order to quantitatively measure the effects on incentives of governwent policy, a number of indicators have been calculated. These pertain both to the direct effects an relative prices of trade and price policy related to agricultural outputs and inputs and to the indirect effects of distortions in the economy that result in a deviation of the equilibrium from the official exchange rate. This chapter discusses the methods used in calculating the indicators of price distortions and presents the results. Subsequent chapters examine the effects of these distortions an production, consumption, foreign exchange f low3s, gcverrnent revenue, producer and consumer welfare, and producer incoom. Direct Effects The direct effect of policy occurs as a result of taxes and subsidies on trade, quantitative import restrictions, and domestic price policies. Import taxes and restrictions act to increase domestic prices in relation to those an the wDrld market; export taxes and restrictions depress domestic prices relative to thDse at the border. In addition, price policy has also been important, especially for cocoa, in determining farmer incentives. Producer, Consumer, and Border Prices To measure these incentives, data were gathered on the domestic and border prices of six major agricultural ccomsodities. These data are presented and the adjustments made to them are detailed in Annex 3. Of 129 these six crops, three are tradable and three are ncontradable. Of the tradable crops, cocoa was chosen because it is by far the major export crap and its fortunes are closely linked with the rest of the economy. Rice has been the major imported food, with imports in many years exceeding local production. Maize is also an imported food, but imports are smaller and production and consumptim are much more important than for rice. In additim to these tradable crops, three major nontradable foods are included in the analysis of this chapter to see to what extent mEvements in the domestic price of the tradable foods, rice and maize, have been correlated with price movements for the nontradables. Since these nontradables are not directly influenced by governoent policy, however, they are not included in the analysis of subsequent chapters. Of the naitradable crops, millet and sorghum, are the major foods produced and consumed in the north. These two cereals are closely related in production and consumption, and sorghum alcne is included here. In the south, the rot crops, cassava and yams, are important nontradable food crops for which relatively long price series exist. Since experience with these crops has differed somewhat, both are retained in the analysis. Domestic prices for most of the crops shown - maize, rice, sorghum, cassava, and yams - are based m monthly surveys of wholesale markets in Accra, Kumasi, and Tamale. The prices are those actually observed rather than official minima or maxima. As such they fluctuate relatively freely. Adjustments to arrive at producer prices were made on the basis of detailed data obtained for 1975 on transport, storage, handling, and other costs involved in moving aommodities from farm to wholesale market. The 1975 figures were then adjusted to other years using 130 the overall CcLnumer Price Index- This matched fairly well with fragmentary data on these costs in other years. L Retail prices were estimated by adjusting wholesale prices for data cn average percentage markups available for a few years. For cocoa, the official producer price was used at the farm level. To this were added puiblished Cocoa Marketing Board costs of collection and delivery to the port of Tema in order to obtain the domestic price of cocoa at the border. As discussed in the previous chapter, these costs increased markedly over the years as a result of swelling employment within the CM. In addition, the distinction between the cMB and the central government has often been fairly arbitrary as input delivery, extension, and research activities have been shifted back and forth between the ministries and the Board. It is impossible, however, to dissociate over time purely marketing costs from the other elements in the CMB's budget. Cbnsequently, the domestic price of cocoa at the border in most years is overestimated in comparison with what it wculd be if it included only actual marketing costs. Border prices were estimated on the hasis of unit values calculated from trade data, with some corrections, interpolations, and extrapolations based on changes in world market prices where unit value data are missing or clearly in error. Pbrt handling charges available for 1975 were adjusted to other years using the CPI in order to obtain the whDlesale price equivalent of the border price. Retail margins similar to those used ± Although transpDrt costs tended to rise somewhat relative to the CPI, for reasons explained earlier in Chapter V, the cost of services, including those involved in marketing, had a tendency to fall. In addition, food purchased in urban areas is heavily weighted in the CPI, implying that any increases in the cost of transport and marketing were largely reflerted in the CPI. 131 for domestic prices were applied to estimate retail price equivalents to consumers. The same collection, procressing, and distribution costs used for donestic prices were subtracted frcmN the wholesale price equivalents to obtain producer price equivalents. Tables 10 and 11, derived from PInnex 3, show the sharp increases in food prices that have occurred in Ghana, especially since 1975. Mbvements in relative prices are discussed later, but for now it is useful to point to the growth in the margin between producer and ccrnsumer prices that has occurred. The best example is cocoa, which was discussed in the previcous chapter. Although increases in this margin were less important for other crops because, unlike cocoa, they were subject to competitive marketing, these increases were significant nonetheless. This especially true of the starchy staples for which transpDrtaticn costs are important in relation to the value of output. Yam producers, for example, rereived 70 percent of the price to consumers in 1953 but crly 56 percent in 1984. Maize producers received 69 percent of the retail price in 1953 and 60 percent in 1984. One result of these rising costs is that producer price equivalents of border prices for rice and maize, shown in Table 12, are negative in the later years of the period studied as a result of subtracting high marketing costs frnm low border prices measured at the overvalued official exchange rate. This is also true of cocoa in 1981, when CMB costs were in excess of the FEO price converted to cedis at the official exchange rate. 132 Table 10 Domestic Producer Prices INC per Metric Ton) Year Maize (a) Rice (a) Sorghum (a) Cassava (b) Yam (bl Cocoa Ib) 1953 46 130 61 N/A 54 269 1954 37 118 72 N/A 49 287 1955 34 99 48 N/4 52 299 1956 44 100 49 N/A 56 280 1957 25 101 59 N/A 52 269 1958 39 100 70 N/A 58 239 1959 29 86 70 N/A 54 224 1960 28 69 38 NIA 54 224 1961 47 63 55 N/A 53 224 1962 44 54 79 N/A 57 220 1963 50 137 85 15 50 202 1964 66 97 99 14 52 187 1965 86 135 114 29 63 187 1966 85 128 113 23 70 224 1967 37 125 83 15 60 254 1968 73 116 83 14 63 284 1969 119 160 134 22 71 293 1970 87 185 133 20 72 293 1971 87 186 138 31 89 293 1972 137 275 159 38 95 366 1973 142 332 235 34 117 439 1974 151 355 243' 41 154 489 1975 185 497 230 72 213 585 1976 469 1109 659 181 302 732 1977 970 1355 1477 486 622 1333 1978 834 1611 1430 319 1007 2667 1979 1134 1399 1558 261 1160 4000 1980 3261 5777 5654 848 1735 4000 1981 5845 6545 7035 2274 2791 12000 1982 5659 15530 10038 2423 4148 12000 1983 31537 45165 31239 10935 11436 20000 1984 16118 61571 37872 3721 11716 30000 1985 11819 28453 N/A 1742 62104 56600 …---- Notes to Table 10: (a) Data from Annex 3, Table 3-3(1). (b) Data froa Annex 3, Table 3-3(2). 133 Table 11 Domestic Consumer Prices (NC per Metric Ton) Year Maize (a) Rice (a) Sorghum (a) Cassava (b) Ya (Ib) CNoa (bI 1953 67 190 09 N/A 77 301 1954 57 176 102 N/A 70 320 1955 54 155 74 N/A 75 335 1956 66 158 77 N/A s0 317 1957 44 159 89 N/A 75 306 1958 61 158 101 N/A 82 277 1959 49 143 101 N/A 77 260 1960 49 124 65 N/A 78 259 1961 71 121 86 N/A 78 259 1962 70 115 115 N/A 83 259 1963 77 211 124 34 76 245 1964 98 174 143 35 80 229 1965 126 233 169 58 97 230 1966 129 236 172 53 109 271 1967 71 224 134 41 95 300 1968 115 221 136 42 101 333 1969 170 278 198 53 112 338 1970 135 310 198 52 114 372 1971 138 320 209 67 137 281 1972 199 433 238 79 147 512 1973 212 519 334 90 190 650 1974 231 571 356 95 231 603 1975 287 782 t3 14 315 982 1976 656 1604 912 311 456 1068 1977 1368 2269 2032 796 949 2404 1978 1396 3083 2223 733 1559 4159 1979 1979 3509 2685 854 1934 6120 1980 4763 9495 7842 1931 2895 7573 1981 8914 13701 10992 4489 5109 17200 1982 9190 25409 15092 5060 7131 23000 1983 42245 68767 43833 17920 18520 47000 1984 26885 94313 54600 11167 20761 74024 1985 22790 58617 N/A 9474 91908 112016 Notes to Table 11: (a) Data from Annex 3, Table 3-3(1). Ib) Data from Annex 3, Table 3-3(2). 134 Table 12 Border Price Equivalents (NC Per Metric Ton) Rice (a) Maize (b) Cocoa (c) Producer Retail Producer Retail Producer Retail Price Price Price Price Price Price Year Equivalent Equivalent Equivalent Equivalent Equivalent Equivalent 1954 131 191 67 92 604 637 1955 106 164 103 133 400 436 1956 94 151 97 127 354 391 1957 101 160 114 146 595 632 1959 100 159 90 119 512 550 1959 85 143 66 92 403 439 1960 76 133 93 123 307 342 1961 70 128 103 135 293 318 1962 63 125 80 111 298 337 1963 67 132 24 47 314 357 1964 47 116 69 102 236 278 1965 59 146 29 61 219 262 1966 62 159 24 59 349 396 1967 90 184 29 62 516 562 1968 153 264 113 161 712 761 1969 140 255 115 166 773 819 1970 112 225 18 55 598 643 1971 88 206 50 95 600 688 1972 111 244 367 463 678 824 1973 218 388 42 97 1083 1294 1974 411 634 131 208 1374 168B 1975 209 450 119 212 1129 1526 1976 237 600 104 236 2260 2596 1977 -118 575 234 521 2871 3942 1978 -305 890 384 879 8904 10396 1979 -475 1354 1014 1841 7000 9120 1980 -931 1781 312 1372 2727 6300 1981 -3488 2163 -321 1823 -200 5000 1982 -4762 2074 -881 1669 19558 30558 1983 -12081 2933 -2331 3296 33000 60000 1984 -3639 19322 4415 13427 39299 83323 1985 -749 25034 6266 16404 65567 120983 Notes to Table 12: (a) Data from Annex 3, Table 3-4(1). (b) Data from Annex 3, Table 3-4(2). (c) Data from Annex 3, Table 3-4(3). Retail Price Equivalent is the FOB price for cocoa. 135 Relative Prices Domestic price ratios of these crops were calculateJ at the producer and conruiier levels fron the prices presented in Tables 10, 11, and 12. In addition to the ratios of agricultural prodcit prices, the ratios of the price of each product to the nonagricultural consumer price index was also calculated. The derivation of this index is explained in the footnotes to Table 3-5(1) in Anex 3. It is the mDst relevant index to compare with agricultural prices fron both the producer and consumer perspectives, in comparison with the GDP deflator, which measures changes in value added prices. The price ratios are presented in Tables 13(1) - 13(4) in the form of indices calculated with 1972 as a base yar. This facilitates the comparison of trends between the various series. The indices are presented at both producer and consumer levels. It is evident from the tables that, relative to the price of nonagricultural goods and services, foodcrop prices have fluctuated markedly and have shown a tendency to increase somewhat over time, especial ly since about 1974. Cocoa prices, an the other hand, fell markedly to farmers during the late 1950s and early 1960s, when producer prices dropped by 56 percent of their average level in 1953-55. Following this there was a modest improvement, followed by fluctuaticns arcound a level that was approximately me-half that experienced during the early 1950s. Looking at the price of rice, the principal tradable crop, relative to the prices of ncntradable foods, there are marked changes from year to year but no clear overall trend. This suggests that restricticns on rice imports have been sufficiently important that the overvalued exchange 136 Table 13(l) Prevailing Relative Price Indices (a) (1972 100) Maize/Non-Ag Rice/Nan-Ag Sorghum/Non-Ag Producer Retail Producer Retail Producer Retail Date Price Price Price Price Price Price 1953 81 81 114 106 93 90 1954 69 73 109 103 115 109 1955 62 67 90 89 75 78 1956 79 81 89 89 75 79 1957 42 52 86 87 88 88 1958 67 71 84 85 102 99 1959 49 58 73 77 102 99 1960 47 56 57 65 54 62 1961 78 81 52 63 78 81 1962 69 74 42 56 105 103 1963 68 72 92 91 99 96 1964 83 84 60 68 105 102 1965 94 96 73 81 107 106 1966 84 88 63 74 96 98 1967 36 48 60 69 70 75 1968 66 71 52 63 64 71 1969 101 100 68 75 98 97 1970 73 78 77 82 95 95 1971 69 75 74 80 94 95 1972 100 100 100 100 100 100 1973 92 94 106 106 130 124 1974 79 84 93 94 109 107 1975 76 82 102 102 81 86 1976 143 137 168 154 172 159 1977 203 197 141 150 264 244 1978 97 112 93 114 143 149 1979 87 105 54 85 103 119 1990 172 173 152 158 256 238 1981 140 147 78 104 145 151 1982 119 133 162 169 181 182 1983 338 312 240 233 287 269 1984 96 111 183 178 194 187 1985 55 73 65 86 N/A N/A Notes to Table 13(1): (a) Based on crop prices from Tables 10 and 11 and the Non-Agricultural Consuser Price Index from Annex 3, Table 3-S11). 137 Table 13(2) Prevailing Relative Price Indices la) (1972 100) Cassava/Non-Ag Yam/Non-Ag Cocoa/Non-Ag Producer Retail iroducer Retail Producer Retail Date Price Price Price Price Price Price 1953 N/A N/A 136 126 179 142 1954 N/A N/A 131 121 199 159 1955 N/A N/A 137 126 203 163 1956 N/A N/A 144 132 187 151 1957 N/A N/A 129 119 173 141 1958 N/A N/A 142 130 152 126 1959 N/A N/A 132 122 143 119 1960 N/A N/A 129 120 139 115 1961 N/A N/A 1Z6 119 137 113 1962 N/A N/A 128 120 129 107 1963 73 79 98 95 102 89 1964 63 75 93 92 97 76 1965 115 109 99 99 77 67 1966 e1 90 99 100 83 72 1967 51 69 54 86 92 78 1968 46 66 53 85 96 s0 1969 66 78 88 89 93 77 1970 60 74 87 89 91 83 1971 89 92 102 101 87 60 1972 100 100 100 0oo 100 1oo 1973 79 89 109 109 106 112 1974 76 86 116 112 96 112 1975 106 104 126 121 90 108 1976 196 163 132 129 83 87 1977 362 283 187 184 104 134 1978 133 148 169 169 116 130 1979 72 114 129 139 115 126 1990 160 167 132 142 79 107 1991 195 186 96 114 108 110 1982 182 184 126 139 94 129 1913 419 331 176 184 80 134 1914 79 IS 101 115 67 118 1 91 29 76 414 352 98 138 Notes to Table 13(2): (a) Based on crop prices from Tables 10 and 11 and the Non-Agricultural Consumer Price Index from Annex 3, Table 3-5(l). 138 Table 13(3) Prevailing Relative Price Indices (al (1972:100 Rice/Cassava Rice/Sorghum Rice/Yams Producer Retail Producer Retail Producer Retail Date Price Price Price Price Price Price 1953 N/A N/A 123 128 83 91 1954 N/A N/A 95 100 83 90 1955 N/A N/A 120 115 66 71 1956 N/A N/A 119 112 62 67 1957 N/A N/A 99 98 67 72 1958 N/A N/A 93 56 59 65 1959 N/A N/A 71 73 55 59 1960 N/A N/A 105 91 44 47 1961 N/A N/A 66 64 41 43 1962 N/A N/A 40 41 33 35 1963 126 115 93 95 94 97 1964 95 91 57 59 65 65 1965 64 74 68 69 74 74 1966 79 82 66 65 64 63 1967 119 101 87 81 72 70 1968 114 96 81 74 63 61 1969 103 96 69 70 78 76 1970 129 110 91 81 89 87 1971 84 97 78 77 72 73 1972 100 100 100 100 100 100 1973 134 119 82 86 98 99 1974 122 110 85 87 90 82 1975 9b 99 125 119 81 84 1976 85 94 98 105 127 130 1977 39 53 53 59 75 76 1979 70 77 65 63 55 55 1979 75 75 52 45 42 39 1980 95 95 59 64 115 107 1991 40 56 54 52 81 69 1992 89 92 90 89 129 116 1983 58 70 84 89 136 130 1984 230 155 94 98 181 159 1985 227 113 N/A N/A 16 19 Notes to Table 13(3). (a) Based on crop prices tram Tables 10 and 11. 139 Table 13(4) Prevailing Relative Price Indices (a) (1972=100) Rice/Maize Rice/Cocoa (a) Yams/Cocoa (a) Producer Retail Producer Retail Producer Retail Date Price Price Price Price Price Price 1953 140 131 64 75 77 89 1954 159 142 55 65 66 76 1955 145 133 44 55 67 77 1956 113 110 48 59 77 87 1957 204 167 50 62 74 85 1958 126 120 55 68 93 103 1959 147 134 51 65 92 103 1960 120 117 41 57 93 104 1961 66 77 38 55 92 105 1962 61 76 33 52 100 112 1963 135 125 90 102 96 107 1964 73 a1 69 90 107 121 1965 78 84 96 120 129 147 1966 75 84 76 103 120 140 1967 167 144 65 88 91 110 1968 79 88 54 79 86 106 1969 67 75 73 97 94 116 1970 105 105 84 98 95 107 1971 106 106 84 135 117 169 1972 100 100 100 100 100 100 1973 116 112 101 94 103 96 1974 117 113 97 84 121 100 1975 134 125 113 94 140 112 1976 117 112 202 178 159 149 1977 69 76 135 112 190 137 1978 96 101 80 88 146 131 1979 61 81 47 68 112 110 1980 s8 91 192 148 167 133 1981 56 70 73 94 90 103 1982 136 127 172 131 133 108 1983 71 75 301 173 221 137 1914 190 161 273 151 151 98 1995 120 118 67 62 423 255 Notes to Table 13(4): (a) Based on crop prices fros Tables 10 and 11. 140 rate has not resulted in cheap food imports flooding the Ghanaian market for any sustained periods of time. On the other hand, there have been shorter periods during which the price of rice has been low in relation to the prices of ncntradable foods. The first of these was fromu 1964 until about 1967. The data an rice availability (Annex 6) do not indicate any increase in dcmestic production or imports over previouis years, but the price series in Tables 10 and 11 suggest that there was a fairly sharp rise in sorghum and cassava prices, especially in 1965 and 1966, which may have been at least partly due to a moderate decline in prockicticn of these crops in 1965. This, of ccurse, was a critical period for the Nkrumah regime. What is important is not that government policy regarding food imports changed drastically at this time but that it did not change in response to the domestic pressures created by inflation and poor harvests. During the next few years, the price of rice rose quite sharply in relation to the prices of nentradable foods. Again, this was not due to production shortfalls or import ccnstraints since net availability of rice increased fram an average of 56 tans per years in 1964-67 to 70 tons per year in 1968-74. Rather these were years of relatively good harvests, which caused the prices of nontradable foods to decline in real, if not nominal, terms. They were also years during which the difference between the black market or equilibrium exchange rate and the official rate decreased, which tended to increase the price of tradables relative to that of nontradables. The succeeding decade was characterized by a reversal in these price movements. With generally poor harvests and an increasingly overvalued exchange rate, the domestic price of rice fell not mnly in 141 relatim to the prices of sorghum and cassava but also to that of maize. In fact, niany of the movements in the price of rice relative to those of millet and sarghum have been similar to muvements of the prices of rice and maize. This is because maize was until recently traded internationally by Ghana only in small quantities and had a relatively high cross-price elasticity of demand with the other coarse grains. After 1981 maize imports increased substantially and over the next four years equaled 20 percent or more of total availability (Annex 6). The relationship between the price of rice relative to the price of yams has been scnewhat different. Although there have been year to fluctuations, the broader movements that have characterized the price of rice relative to that of sorghtum, cassava, and maize have not been so apparent with yams. If anything the price of rice might have risen in recent years relative to that of yams. The reascns for this are not clear since the productim data show no strcng increase in the output of yams. What is clear is that the prices of rice and yams have risen stroigly relative to the price of cocoa. This is especially evident after 1974. Since the prices of maize and the nmtradable foods have tended to rise relative to those of rice and yams, cocoa prices have fallen to an even greater extent in comparism with these crops. Ptasurement of Direct Price Interventims. Tables 14 and 15 present a series of ratios, measured at both the producer and ccnsumer levels, for domestic and border prices. The dcnestic price ratios, measured in cedis per metric ton, are essentially the same as those used to construct the indexes of Table 13, and there is no need to 142 Table 14 Producer Price Ratios la) RicelNon-Aq cKoa/Non-Ag Raise/Non-Ag Rice/Sorghum Rice/Yam Ricelmtaize Cocoa/Rite Cocoalflaize Domestic (a) Border (lii Domestic (a) Border (bi DOmestic (a) Border (bi Domestic (c) Border (di Domestic (ci Border (di Domestic (ci Border (di Domestic (ci Border (di Domestic (ci Border (d) 1954 2.99 3.32 7.29 15.34 .93 1.71 1.63 1.91 2.42 2.69 3.20 1.94 2.44 4.62. 7.90 9.9 1955 2.46 2.64 7.45 9.96 .94 2.57 2.07 2.22 1.99 2.03 2.93 1.03 3.03 3.77 9.99 3.99 1956 2.44 2.29 6.94 9.64 1.07 2.36 2.02 1.90 1.79 1.67 2.29 .97 2.90 3.79 6.40 3.66 195 2.36 2.39 6.33 14.00 .59 2.67 1.69 1.71 1.94 1.95 4.10 .99 2.69 5.97 10.97 5.23 195 2.32 2.34 5.57 11.94 .91 2.09 1.43 1.44 1.72 1.73 2.54 1.12 2.40 5.10 6.10 5.71 1959 2.00 1.9 5.22 9.39 .67 1.55 1.23 1.23 1.60 1.59 2.97 1.29 2.61 4.72 7.75 6.06 MO6 1.56 1.73 5.09 6.99 .65 2.12 1.91 2.00 1.27 1.41 2.41 .91 3.27 4.04 7.99 3.29 196 1.42 1.57 5.02 6.35 1.06 2.31 1.14 1.26 1.19 1.31 1.34 .69 3.54 4.05 4.73 2.75 2962 1.15 1.34 4.67 6.32 .94 1.70 .69 .90 .95 1.11 1.22 .79 4.07 4.72 4.97 3.72 196 2.53 1.25 3.75 5.93 .93 .44 1.60 .79 2.73 1.35 2.71 2.95 1.49 4.65 4.01 13.29 196 1.66 .92 3.19 4.01 1.13 1.19 99 .40 1.99 .92 1.47 .69 1.92 4.IM 2.92 3.41 1965 2.02 .99 2.90 3.29 1.29 .44 1.19 .52 2.15 .94 1.57 2.03 1.39 3.70 2.19 7.51 1966 1.74 .93 3.03 4.72 1.25 .33 1.13 .55 1.94 .89 1.52 2.55 1.74 5.65 2.64 14.42 2967 1.66 1.20 3.39 6.97 .49 .39 1.50 1.09 2.09 1.50 3.36 3.14 2.04 5.75 6.95 19.04 1969 1.44 1.90 3.51 9.90 .90 1.40 1.40 1.95 1.93 2.42 1.60 1.35 7.45 4.64 3.99 6.29 1969 1.97 1.64 3.42 9.02 1.39 1.34 1.29 1.05 2.25 1.97 1.35 1.22 1.93 5.51 2.47 6.71 1970 2.12 1.29 3.35 6.93 1.00 .20 1.39 .84 2.57 1.55 2.12 6.35 1.59 5.34 3.36 33.93 1972 2.02 .95 3.19 6.53 .95 .54 1.34 .63 2.10 .99 2.14 1.75 2.59 6.95 3.37 12.03 1972 2.75 1.11 3.66 6.79 1.37 3.67 1.73 .69 2.90 1.17 2.01 .30 1.33 6.13 2.69 1.95 1973 2.92 1.92 3.87 9.54 1.25 .37 1.41 .93 2.93 1.96 2.33 5.20 1.32 4.97 3.09 25.93 1974 2.55 2.94 3.50 9.94 1.09 .94 1.46 1.69 2.31 2.67 2.35 3.13 1.39 3.35 3.23 10.47 1975 2.90 1.17 3.29 6.36 1.04 .67 2.16 .91 2.34 .99 2.69 1.75 1.19 5.43 3.16 .9.41 p. 1976 4.61 .9B 3.04 9.39 1.95 .43 1.69 .36 3.67 .79 2.37 2.29 .66 9.56 1.56 21.92 1977 3.97 -.34 3.90 9.19 2.77 .67 .92 -.09 2.19 -.19 1.40 -.50 .9 -24.33 1.37 12.29 1979 2.57 -.49 4.26 14.21 1.3.3 .61 1.13 -.21 1.60 -.30 1.93 -.79 1.66 -29.23 3.20 23.19 1979 1.47 -.50 4.21 7.37 1.19 1.07 .90 -.30 1.21 -.41 1.23 -.47 2.96 -24.74 3.53 6.90 19910 4.17 -.67 2.99 1.97 2.35 .23 1.02 -.16 3.33 -54 1.77 -2.99 .69 -2.93 1.23 9.74 1991 2.15 -1.14 3.94 -.07 1.9 -.11 .93 -.50 2.35 -1.25 1.12 10.95 1.93 .06 2.05 .62 1992 4.46 -1.37 3.45 5.62 1.63 -.25 1.55 -.47 3.74 -1.15 2.74 5.40 .77 -4.11 2.12 -22.20 1993 6.61 -1.77 2.93 4.93 4.62 -.34 1.45 -.39 3.95 -1.06 1.43 5.19 .44 -2.73 .63 -14.16 1994 5.03 -.30 2.45 3.21 1.32 .36 1.63 -.10 5.26 -.31 3.92 -.92 .49 -10.90 1.96 9.90 1995 1.90 -.05 3.59 4.15 .75 .40 N/A N/A .46 -.01 2.41 -.12 1.99 -97.51 4.79 10.46 Notes to Table 14: (a) Domestic price lrom Annex 3, Table 3-3(11 for rice and maize and from Table 3-3i2i for cocoa, deflated by the Nonagricultural Indexr from Table 3-5(1). (hi Producer Price Equivalent (DER) from Table 3-4(1) for rice, Table 3-4(2) for maize, and Table 3-4(3) for cocoa, deflated by the Nonagricultural Index from Table 3-5M1. (c) Ratio of producer prices from Table 3-3(1) and Table 3-3(21. (d) Ratio of Producer Price Equivalents from Table 3-4(2), Table 3-4(21, and Table 3-4(3), except for sorghum and yams for which the producer prices from Table 3-3(1) and Table 3-3(2) are used. Table 15 Consuwr Price Ratios Rice/Non-Ag Cocoa/Non-Ag Naize/Non-Ag Rice/Sorqhus Rice/Yam Rice/Kaize Cocoa/Rice Cocoa/Naize Dmestic (a) Border (bI Domestic (a) Border bI) Domestic la) Border (b) Domestic (c) Border id) Domestic (c) Border (d) Domestic (c) Border (d) Domestic (c) Border (dl Domestic (c) Border (dl 1954 4.47 4.05 9.13 16.19 1.44 2.33 1.73 1.87 2.52 2.73 3.10 2.09 1.82 3.33 5,63 6.94 1I55 3.87 4.07 8.34 10.86 1.33 3.32 2.09 2.20 2.09 2.19 2.90 1.23 2.16 2.67 6.26 3.27 1956 3.86 3.69 7.74 9.55 1.60 3.09 2.05 1.96 I.99 1.90 2.41 1.19 2.00 2.59 4.92 3.09 1957 3.75 3.77 7.20 14.87 1.03 3.44 1.79 1.90 2.13 2.15 3.64 1.10 1.92 3.95 7.00 4.32 195 3.69 3.71 6.46 12.82 1.41 2.77 1.57 1.59 1.93 1.94 2.61 1.34 1.75 3.46 4.57 4.64 1959 3.34 3.33 6.06 10.23 1.15 2.15 1.42 1.41 1.96 1.85 2.92 1.55 1.91 3.07 5.29 4.75 1960 2.82 3.01 5.88 7.77 1.11 2.91 1.91 2.04 1.60 1.71 2.54 1.07 2.09 2.58 5.31 2.77 Itl 2.71 2.89 5.81 7.13 1.60 3.04 1.40 1.49 1.55 1.65 1.69 .95 2.15 2.48 3.63 2.35 1962 2.43 2.65 5.50 7.15 1.49 2.35 .99 1.09 1.37 1.50 1.65 1.13 2.26 2.69 3.72 3.05 196.3 3.92 2.45 4.55 6.62 1.43 .96 1.71 1.07 2.90 1.75 2.74 2.84 1.16 2.70 3.17 7.67 1964 2.95 1.99 3.B9 4.72 1.67 1.73 1.22 .82 2.19 1.46 1.77 1.15 1.32 2.39 2.33 2.74 1965 3.49 2.19 3.45 3.93 1.90 .92 1.39 .87 2.39 1.50 1.94 2.39 .n 1.79 1.82 4.28 196 3.19 2.16 3.66 5.35 1.74 .80 1.38 .93 2.17 1.46 1.93 2.69 1.15 2.48 2.10 6.69 1967 2.99 2.45 3.99 7.49 .95 .82 1.68 1.39 2.37 1.94 3.14 2.9 1.34 3.05 4.20 9.11 1968 2.73 3.26 4.12 9.40 1.42 2.00 1.62 1.94 2.19 2.61 1.93 1.64 1.51 2.88 2.90 4.71 H 196 3.25 2.99 3.95 9.55 1.99 1.94 1.40 1.29 2.48 2.27 1.64 1.54 1.22 3.21 1.99 4.93 Xs 1970 3.54 2.5B 4.25 7.35 1.54 .62 1.56 1.14 2.71 1.98 2.30 4.13 1.20 2.85 2.76 11.79 1971 3.48 2.25 4.14 7.48 1.50 1.03 1.53 .99 2.34 1.51 2.32 2.17 1.19 3.33 2.77 7.25 1972 4.33 2.44 5.12 8.24 1.98 4.63 1.82 1.02 2.94 1.66 2.18 .53 1.18 3.39 2.59 1.78 1973 4.57 3.42 5.73 11.40 1.87 .85 1.55 1.16 2.99 2.16 2.44 4.00 1.25 3.34 3.06 13.35 1974 4.09 4.54 5.75 12.09 1.66 1.49 1.60 1.78 2.47 2.75 2.47 3.04 1.41 2.66 3.47 8.10 1975 4.41 2.53 5.53 8.59 1.62 1.19 2.15 1.24 2.48 1.43 2.72 2.13 1.26 3.39 3.42 7.21 1976 6.67 2.50 4.44 10.79 2.73 .98 1.76 .66 3.52 1.32 2.45 2.55 .67 4.32 1.63 11.01 1977 6.47 1.64 6.86 11.25 3.90 1.49 1.12 .28 2.39 .61 1.66 1.10 1.06 6.95 1.76 7.56 1979 4.92 1.40 6.64 16.59 2.23 1.40 1.39 .40 1.98 .56 2.21 1.00 1.35 11.81 2.99 11.83 1979 3.70 1.43 6.45 9.61 2.08 1.94 1.31 .50 1t81 J7 1L77 .74 1.74 6.74 3.09 4.95 IS90 6.86 1.29 5.47 4.55 3.44 .99 1.21 .23 3.28 .62 1.99 1.30 .80 3.54 1.5S 4.59 1981 4.49 .71 5.64 1.64 2.92 .60 1.25 .20 2.68 .42 1.54 1.19 1.26 2.31 1.93 2.74 1982 7.30 .60 6.61 8.78 2.64 .4B 1.68 .14 3.56 .29 2.76 1.24 .91 14.73 2.50 18.31 1983 10.07 .43 6.88 8.78 6.1B .48 1.57 .07 3.71 .16 1.63 .89 .68 20.46 1.11 18.20 1984 7.71 1.58 6.05 6.81 2.20 1.10 1.73 .35 4.54 .93 3.51 1.44 .78 4.31 2.75 6.21 1985 3.71 1.59 7.08 7.65 1.44 1.04 N/A N/A .72 .31 2.57 1.53 1.91 4.83 4.92 7.38 Notes to Table 15: (al Domstic price from Annex 3, Table 3-3(11 for rice and maize and the Rendered Port Price from Table 3-3(21 for cocoa, deflated by the Nonagricultural Index from from Table 3-5M11. (bI Retail Price Equivalent (DER) from Table 3-4(11 for rice, Table 3-4(2) for maize, mad FOB price from Table 3-413) for cocoa deflated by the Nonagricultural Index from Table 3-5(1M. Cc) Ratio of retail prices from Table 3-3(1) and Table 3-3(2). (d) Ratio of Rttail Price Equivalents froo Table 3-4(11, Table 3-4(2). and Table 3-4(31, except for sorghum and yams for which the retail prices from Table 3-3(1) and Table 3-3(2) are used. discuss them further here. It is useful, however, to offer a few comments concerning the bDrder price ratios. First of all, it is very evident that the border prices of tradable products have declined relative to the nonagricultural CPI and to the domestic prices of nontradable foods. This is principally because of the overvaluation of the exchange rate. Where producer bDrder price equivalents from Table 12 are negative because high transport and marketing costs are greater than prices at the border converted to local currency at the official rate of exchange, the ratios are of course negative as well. Looking at relative border prices of the tradable crops, it appears that, despite year to year fluctuations, there is no clear trend in the price of rice compared with that of maize. There is also no obviaus trend in the terms of trade between cocoa and the traded cereals, thowgh any such trend might be overwhelmed by wide price fluctuaticns, particularly in recent years. In Tables 16 and 17, the difference between the dcmestic price ratio and the border price ratio, shown in Tables 14 and 15, is divided by the border price ratio. This is equivalent to the ratio of the nominal rates of protection (NRP) of the tWiD products or of the product and the index as presented. Where the nonagricultural CPI is the denominator of the price ratio, however, the figure shown is simply the NRP of the crop indicated. Table 16 suggests that direct price interventions, in this case principally trade and exchange controls for rice and maize and the producer price established for cocoa, have in most instances caused the domestic price to the procnier to be less than its border price equivalent. While 145 Table 16 Effect of Direct Price Interventions on Relative Producer Price Differences (a) …----- ----- ------ ----- ------ ----- Rice/Non-Ag Cocoa/Non-Ag Maize/Non-Ag Rice/Maize Cocoa/Rice Cocoa/Maize 1954 -.10 -.52 -.45 .65 -.47 -.13 1955 -.07 -.25 -.67 1.85 -.20 1.29 1956 .07 -.21 -.55 1.36 -.26 .75 1957 -.01 -.55 -.78 3.60 -.54 1.10 1958 -.01 -.53 -.56 1.27 -.53 .07 1959 .00 -.44 -.57 1.31 -.45 .28 1960 -.10 -.27 -.70 1.96 -.19 1.40 1961 -.09 -.21 -.54 .97 -.13 .72 1962 -.14 -.26 -.45 .55 -.14 .33 1963 1.02 -.36 1.13 -.05 -.68 -.70 1964 1.05 -.21 -.04 1.14 -.61 -.17 1965 1.28 -.15 1.94 -.23 -.62 -.71 1966 1.08 -.36 2.50 -.41 -.69 -.82 1967 .39 -.51 .30 .07 -.65 -.62 1968 -.24 -.60 -.36 .18 -.47 -.38 1969 .14 -.62 .03 .11 -.67 -.63 1970 .65 -.51 3.95 -.67 -.70 -.90 1971 1.12 -.51 .74 .22 -.77 -.72 1972 1.48 -.46 -.63 5.68 -.78 .45 1973 .52 -.59 2.39 -.55 -.73 -.88 1974 -.13 -.64 .15 -.25 -.59 -.69 1975 1.39 -.48 .55 .54 -.78 -.67 1976 3.69 -.68 3.53 .04 -.93 -.93 1977 -12.48 -.54 3.15 -3.77 -1.04 -.89 1978 -6.29 -.70 1.17 -3.44 -1.06 -.86 1979 -3.95 -.43 .12 -3.64 -1.19 -.49 1980 -7.21 .47 9.45 -1.59 -1.24 -.86 1981 -2.88 -61.00 -19.19 -.90 30.97 2.30 1982 -4.26 -.39 -7.42 -.49 -1.19 -1.10 1983 -4.74 -.39 -14.53 -.72 -1.16 -1.04 1984 -17.92 -.24 2.65 -5.64 -1.05 -.79 1985 -38.97 -.14 .89 -21.13 -1.02 -.54 Notes to Table 16: (a) (Domestic Price Ratio - Border Price Ratio)/Border Price Ratio, froe Table 14. 146 Table 17 Effect of Direct Price Interventions on Relative Consumer Price Differences (a) Rice/Non-Ag Cocoa/Non-Ag Naize/Non-Ag Rice/Maize Cocoa/Rice Cocoa/Maize 1954 -.08 -.50 -.38 .49 -.45 -.19 1955 -.05 -.23 -.60 1.37 -.19 .91 1956 .05 -.19 -.48 1.02 -.23 .56 1957 -.01 -.52 -.70 2.33 -.51 .62 1958 -.01 -.50 -.4? .95 -.49 -.01 1959 .00 -.41 -.47 .88 -.41 .11 1960 -.06 -.24 -.60 1.37 -.19 .92 1961 -.06 -.19 -.47 .78 -.13 .54 1962 -.08 -.23 -.37 .46 -.16 .22 1963 .60 -.31 .66 -.04 -.57 -.59 1964 .49 -.18 -.03 .54 -.45 -.15 1965 .59 -.12 1.06 -.23 -.45 -.57 1966 .48 -.32 1.17 -.32 -.54 -.69 1967 .22 -.47 .16 .05 -.56 -.54 1968 -.16 -.56 -.29 .18 -.48 -.38 1969 .09 -.59 .02 .06 -.62 -.60 1970 .37 -.42 1.47 -.44 -.58 -.77 1971 .55 -.45 .45 .07 -.64 -.62 1972 .77 -.38 -.57 3.14 -.65 .45 1973 .34 -.50 1.19 -.39 -.62 -.77 1974 -.10 -.52 .11 -.19 -.47 -.57 1975 .74 -.36 .36 .28 -.63 -.53 1976 1.67 -.59 1.78 -.04 -.85 -.85 1977 2.95 -.39 1.62 .50 -.85 -.77 1978 2.50 -.60 .59 1.21 -.89 -.75 1979 1.59 -.33 .07 1.41 -.74 -.38 1980 4.33 .20 2.47 .54 -.77 -.65 1981 5.33 2.44 3.89 .30 -.46 -.30 1982 11.25 -.25 4.51 1.22 -.94 -.86 1983 22.44 -.22 11.82 .83 -.97 -.94 1984 3.88 -.11 1.00 1.44 -.82 -.56 1985 1.34 -.07 .39 .69 -.60 -.33 Notes to Table 17: (a) (Doeestic Price Ratio - Border Price Ratio)/Border Price Ratio, from Table 15. 147 this has been true for cocoa, it has not generally been true for rice and maize, which have been the subject of severe import restrictions. The reason for the apparent paradox is that the estimation of a border price equivalent for these crops at the producer leve-l yields negative signs during the late 1970s and early 19EKs because of high transport costs and especially because of the highly overvalued exchange rate. The results are therefore misleading. Turming to Table 17, a clearer picture emerges. During the 1950s and early 1960s, the domestic consumer price of rice was just slightly lower than its border price equivalent, reflecting largely free trade and perhaps minor quality differences. By 1963, however, the impact of import restrictions was being felt and the NRP had risen to 60 percent. These restrictions were relaxed during the late 1960s and then tightened again during the 1970s..2 In 1975, imports of rice were c{lose to zero. Protection increased markedly fram 1974 to 1983 except when the cedi was devalued in 1979. Rice imports (see Anm-nex 6) were sporadic but generally very low between 1975 and 1979, and then increased to an average of about 43,000 tons from 1980 through 1985. This was low, however, in relation to pent-up demand, given the rise in domestic food prices that occurred during this period. Protection decreased substantially in 1984 and again in 1985 as the exchange rate was successively devalued. The overall pattern of maize protection has been similar to that of rice, but the degree of protection has fluctuated to a muich greater extent because the domestic market is less integrated with import trade and I The apparent relaxation suggested by the figures in 1973 and 1974 was due to very high prices on international markets rather than to any significant increase in imports during those years. 148 there are large supply, and therefore domestic price, fluctuatims due to variations in rainfall. There are also longer term movements revealed by the data that are important. During the late 1950s and early 1960s, nominal protection for maize was negative, as it was for rice, but its absolute magnitude was much greater for maize than for rice because imports of maize equalled less then 1 percent of domestic production whereas for rice they were in most years greater than local production (Aninex Table 6-1). Maize was essentially a nantradable, and its price was influenced by domestic demand and supply, which established a local price well below the CIF price of imports. Over the next twenty years, imports of maize remained very low in relatimn to local productiin, but domestic prices increased relative to border prices so that protection in most years was positive and in many years it was greater than that for rice. After 1979, maize imports increased rapidly to almost 24 percent of domestic production in 1982 as protecticn for maize decreased substantially relative to that for rice. Rates of protection on cocoa, have bee negative in almost every year but have varied substantially with fluctuaticns in world market prices and with changes in the domestic prodcLcer rice. SevLral phases can be identified. The first was one of heavy taxation of cocoa exports during the 1950s when world prices were relatively high. Following this, there was a period of relatively low taxation during the early 1960s as world prices plummeted and the Nkrumah regime adjusted the producer price duwnward to a lesser extent. Thereafter, rates of taxation increased steadily upwards as world prices increased but producer prices failed to keep up with accelerating dcmestic inflation. In 1979, world prices once again fell sharply, and in 1980 and 1981 the exchange rate was so overvalued and the 149 world price was so low that the government ended up by subsidizing cocoa exports, though most of this subsidy was necessary only because of inflated CM1 costs. The following year world prices recovered, and rates of protection once again were negative. Successive devaluations thereafter left room for increases in both producer prices and government revenue from cocoa as the tax rate was once more increased. Indirect Effects The indirect effects of policy on the agricultural sector occur as a result of its impact both in agriculture and elsewhere in the ecormWy on the exchange rate. In most countries this takes the form of overvaluation resulting from tariffs and quantitative restrictions on imports. In Ghana the exchange rate has also been influenced by the taxation of cocoa exports. This has tended to cause the cedi to be undervalued, but this effect has been dwarfed by import restrictions, which have worked in the opposite direction. Indirect price interventions are measured by adjusting domestic prices for exchange rate disequilibria. This adjustment is made for rice, maize, and cocoa in An,nex 5, which also describes the methodology employed. He-re the combined effect of direct and indirect price interventions an relative prices is measured by multiplying border prices, rather than domestic prices, by the ratio of the equilibrium to the official exchange rate. The equilibrium exchange rate used in these calculations is that obtained from the simulation model described in Chapter II, with the results presented in Table 4. 150 These adjusted border prices for each crop are divided by the nmagricultural CPI adjusted for direct distortions and for exchange rate disequilibria. The details ccerning these adjustments are cotained in Pninex 5 and in the footnotes to Table 18, which presents the resulting ratio, P* / P* i NA Large fluctuatims from year to year make it difficult to draw many inferences from Table 18 regarding trends, but there is me tendency that seems fairly pronounced. That is the decline in cocoa producer prices that occurred because of the widening margin taken up by the Cocoa Marketing Bard. From 195B to 1964, there was a severe decline in the relative price of cocoa at both the border and the producer level because of the fall in world market prices. When cocoa prices revived after 1972, hoever, the producer did not share in this improvement. The same tendency is true to a lesser extent for rice and maize because of the general deterioratim of the transportation system, though costs of private agricultural marketing did not rise to nearly the same extent as did those of the CM. Table 19 shcw.s the relative price differences betwen the distorted domestic price ratios in Tables 14 and 15 and the adjusted ratios in Table 18: P, P.,* P,* Phw P* p w For rice and maize the net effect of dirert price distorticns and indirect exchange rate disequilibria varies cmsiderably from year to year, but there are scane patterns that emerge. In most years, for exanple, the overall effect for maize is negative. Durwing the early years of the period under 151 Table 18 Effect of Direct and Indirect Price Interventions on Relative Prices haize Rice Cocoa Year Producer la) Consueer (b) Producer (a) Consuser (b) Producer la) Consumer (b) _-- -- - -- - - -- - -- - - -- - -- - - -- - -- - - ------------_--_-_-_-_-_ - 1958 2.56 3.29 3.00 4.44 9.99 10.85 1959 2.10 2.76 2.92 4.34 8.54 9.32 1960 3.22 4.03 3.00 4.38 6.81 7.53 1961 3.83 4.74 3.14 4.54 6.47 7.15 1962 2.67 3.43 2.54 3.94 6.06 6.82 1963 .79 1.24 2.41 3.71 5.69 6.43 1164 2.17 2.84 2.05 3.34 3.51 4.17 1965 1.46 2.04 3.80 5.39 4.82 5.39 1966 .94 1.48 2.87 4.42 4.69 5.29 1967 .67 1.16 2.22 3.64 4.93 5.55 1968 2.18 2.90 3.25 4.82 5.55 6.16 1969 2.06 2.76 2.79 4.33 7.91 8.44 1970 .41 .85 2.39 3.82 5.00 5.50 1971 .92 1.47 1.90 3.33 3.58 4.53 1972 4.60 5.70 1.60 3.01 2.86 4.32 1973 .47 .97 2.41 3.97 6.15 8.00 1974 1.23 1.82 3.93 5.65 5.82 8.01 1975 1.06 1.64 2.11 3.61 3.24 5.47 1976 1.02 1.69 2.77 4.62 6.32 7.78 1977 3.27 4.44 2.98 5.36 4.35 7.26 1978 3.93 5.12 3.13 5.62 13.69 16.13 1979 4.02 5.34 1.81 4.09 9.39 11.64 1980 2.50 3.55 3.12 5.51 7.18 9.58 1981 3.05 4.17 4.70 7.26 5.74 7.31 1982 1.82 2.79 3.99 6.53 6.52 9.34 1983 2.33 3.48 3.47 6.24 7.70 11.32 1984 1.91 2.91 2.39 4.74 5.97 9.70 1985 N/A N/A N/A N/A N/A N/A Notes to Table 18: (a) Calculated as the Producer Price Equivalent at the equilibrium exchange rate (Table 3-4(1) for rice, Table 3-4(2) for maize, and Table 3-4(3) for cocoa), divided by the Nonagricultural CPI from Table 3-5(1), adjusted as described in Annex 5. (b) Calculated the same way as (a) using the Retail Price Equivalent from Table 3-4(1 for rice, Table 3-4(2) for maize, and the Optimum Domestic Price at the border, valued at the equilibrium exchange rate, from Table 3-4(3) for cocoa. 1 52 Table 19 Effect of Direct and Indirect Price Interventions on Relative Price Differences maize Rice Cocoa Year Producer (a) Consuser (b) Producer (a) Consumer (b) Producer (a) Consumer lb) 1958 -.643 -.571 -.228 -.170 -.442 -.405 1959 -.679 -.586 -.316 -.230 -.388 -.350 1960 -.799 -.725 -.481 -.356 -.253 -.219 1961 -.723 -.662 -.548 -.405 -.223 -.188 1962 -.648 -.569 -.549 -.382 -.230 -.194 1963 .189 .160 .051 .058 -.342 -.293 1964 -.479 -.412 -.191 -.114 -.094 -.068 1965 -.121 -.073 -.469 -.352 -.419 -.360 1966 .212 .173 -.394 -.277 -.354 -.307 1967 -.263 -.180 -.252 -.181 -.314 -.281 1968 -.588 -.511 -.558 -.433 -.368 -.332 1969 -.326 -.283 -.330 -.250 -.567 -.533 1970 1.422 .800 -.114 -.074 -.331 -.228 1971 .025 .020 .066 .045 -.110 -.086 1972 -.703 -.652 .715 .440 .278 .185 1973 1.664 .934 .213 .151 -.372 -.284 1974 -.121 -.088 -.351 -.276 -.398 -.282 1975 -.020 -.014 .326 .221 .016 .011 1976 .901 .615 .662 .442 -.518 -.429 1977 -.153 -.121 .297 .208 -.126 -.055 1979 -.652 -.565 -.179 -.124 -.689 -.589 1979 -.703 -.610 -.184 -.097 -.551 -.446 1980 -.057 -.032 .335 .245 -.598 -.429 1981 -.371 -.298 -.543 -.381 -.315 -.228 1982 -.109 -.052 .118 .118 -.471 -.293 1983 .964 .779 .907 .613 -.620 -.392 1994 -.311 -.244 1.108 .627 -.589 -.377 1985 N/A NIA NIA N/A N/A N/A Notes to Table 19: (a) Producer Price from Table 3-3M1) for rice and maize and from Table 3-3(2) for cocoa divided by the Nonagricultural CPI froe Table 3-5(1) sinus the effect on producer prices from Table 19, all divided by the effect on producer prices from Table 18. Ib) Retail Price from Table 3-311) for rice and maize and Rendered Part Price from Table 3-3(2) for cocoa divided by the Nonagricultural CPI minus the effect on consumer prices from Table 18, all divided by the effect on consumer prices from Table 18. 1 53 consideration, this was because both the direcft and indirect distortions operated in the same direction. After 1964, when trade restrictions in most years caused the domestic price to exceed the border price, the twD influences on relative prices worked in opposite directions, with the exchange rate distortions generally being dominant. This is consistent with the fact that, until recently, maize was imported by Giana in only small quantities and trade restrictions had less of an influence an its dcmestic price than did local demand and supply. During the early 19E)s, moreover, substantial increases in maize imports kept domestic prices from rising very much, except during the drought year of 1963. Rice imports, on the other hand, were subject to much more restrictive trade controls, especially after 1970. In only 4 out of the following 14 years, for example, were import restrictions sufficiently lax that the overall effect of trade and exchange rate policies on the domestic price of rice was negative. This is confirmed by the data in Prnex 6, which show that imports of rice were not allowed to rise nearly as much as those of maize. The combined influence of direct and indirect interventions is even more striking in the case of cocoa. The prcokdcer price was depressed below its optimal level at the equilibrium exchange rate in every year but two over the period studied. During those two years - 1972 and 1975 - the producer price was increased significantly, world cocoa prices were relatively low, and the exchange rate was not highly overvalued. Even though the producer price was below its border price equivalent in those years, the difference was less than at the optimal rate of export taxation. 154 In every other year, the total impact of policy was to penalize, and in most years very heavily, the cocoa sector. It is interesting to note, as well, the changes in the degre of price distortions over time. By and large, the adverse impact of policy an cocoa prices decreased during the Nkrumah years because of falling world market prices. In 1965, however, the year before Nkrumah fell, cocoa was heavily penalized as a result of a sharp increase in the overvaluation of the exchange rate without any corresponding increase in producer prices. Despite the change in government in 1966, cocoa continued to be penalized until 1971, when low world market prices lessened the impact of the failure of the Busia regime in that year to increase the producer price. There thEn followed a few years of fairly high producer prices under Acheampong, though these are not evident in Table 19 because 1973 and 1974 were years of very high prices on the world cocoa market. Finally, there ensued, from 1976 to 1984, a period during which the cocoa price was highly distorted in relation to its optimal level. 155 CHlTER VII: EFFECT ON Oa RJT, IWNfPTION, i1n FOFEIGN EXCH*M Trade, price, and exchange rate policies in Ghana have affected not only relative prices, as shlwn in the previous chapter, but also the al location of resources. In this chapter the impact of these relative price changes is assessed as these have influenced output, consumption, and foreign exchange flwas. The effects of price interventions are examined in the short run, the long run, and the very long run. This is particularly important for the cocoa sector, in which capital investmLent has a long gestation period. In Ghana the capital stock of cocoa trees has been declining for a lcng period of time. INt only has production been falling, but the average age of trees has been increasing, indicating that replanting has not been sufficient to offset the depreciation of the capital stock. A major issue to be explored in this study is the extent to which this has been due to price policy. Effects on Aqricultural Production This section examines the effects of policy influencing relative prices on agricultural production. Only changes in output prices are considered because of the lack of reliable census or survey data an use of inputs. Except for mechanized rice cultivation, hoever, labor and capital are by far the most important production inputs, and most of the capital consists of labor embodied in cocoa farms. For traditional, manual techniques of production, intermediate inputs used on the farm acccunt for less than 10 percent of the value of cocoa output and less than 5 percent of protection on these inputs was not very far from unity, the error 156 introduced by not al lowing for direct subsidies does not appear to be very great. Mbre important may have been the indirect subsidies resulting from the overvalued cedi, which made the CIF price of imported fertilizer, tractors, and other inputs artificially low when converted to local currency at the official exchange rate. Imports of these inputs were severely constrained because of foreign exchange shortages, however, so that only a few producers had access to them at these artificially low prices. Instead, middlemen captured the rents created by these shortages as seccndary markets developed in which inputs were sold at prices nuch higher than those officially authorized. Finally, delivery delays were cammnn, decreasing considerably the effectiveness of the inputs. In the absence of detailed time-series information on the relative importance of these various factors, it is impossible to estimate their overall impact on produjction. It is clear, hawever, that only a few larger farmers benefitted from either direct or indirect government subsidies and that the vast majority of cultivators used few, if any, nontraditional intermediate inputs. Consequently, limitation of the analysis to consideration of the effects of distortions in output prices does not seriously bias the results. Supply Funictions. The impact of policies affecting output prices on agricultural production may be estimated using the relative producer price distortions show.n in Tables 16 and 19 and the elasticity of supply for each of the tradable crops included in that table. Although the method for estimating supply elasticities is relatively straight-forward, for annual 157 crops, such as rice and maize, it is considerably more complicated in the case of cocoa. These methods and their results are described below. Cocoa A number of estimates exist of supply elasticities for cocoa. Perhaps the best of these for many years were those of Bateman.1- These suggested that short-run elasticities from 1949 to 1962 were in the range of 0.39 to 0.87, depending on region, and long-run elasticities were from 0.77 to 1.2B.- This was a period, however, during which cocoa production and acreage increased in respanse to strong positive price incentives, in contrast to later years of declining production. Subsequent analysis by Bateman covered a longer period from 1932/33 to 1969/70.: Price elasticity estimates for this period were generally much laher. Short-term elasticities for different regions, for example, ranged from 0.14 to 0.21. Long-term elasticities were not given. Mbre recently, the Ccmmodity Studies and Projections Division of the World Bank estimated supply elasticities for a number of producier countries.4 The production decision, in these analyses, was viewed as a x Merrill J. Bateman, Cocoa in the Ghanaian Econcmwv: An Econometric Model, Amsterdam: NorthHbl land, 1968. 2 Hossein Askari and John Thomas Cummings, Aaricultural SuWplv Rrssonse: A Survey of the Eccrometric Evidence, New York: Praeger, 1976, p.404. M errill J. Bateman, "An Ecorxmetric Analysis of Ghanaian Cocoa Supply," in R.A. Kotey, C. Okali, and B.E. Rburke, (eds.), Eccnomics of Cocoa Production and Marketincq, Institute of Statistical, Social and Economic Research, Liniversity of Ghana, Legon, 1974, pp.28E&-326. Takamara Akiyama and Ronald C. Duncan, Analysis of the World Cocoa Market, Wbrld Bank Staff Commodity Working Paper ND. 8, 1982; T. Akiyama and A. Bowers, SuPplY Response of Cocoa in Major Produking Coaxtries, Division Wbrking Paper Nb. 1984-3, Commodity Studies and Projections Division,Economic Analysis and Projections Department, Wbrld Bank, April 19B4. 158 two-stage process involving (1) the stock of cocoa trees and (2) the level of production given a particular stock. Time series data on initial area planted, new area planted, and yields were used to estimate production capacity, which was an input along with prices into the supply function. Short-run elasticities in Brazil, Ivory Coast, and Malaysia ranged fron 0.21 to 0.30. Long-run, steady-state elasticities, including feedback fron acreage response over a period of 10 years, were 0.8 for Brazil and 1.8 for the Ivory Coast. For Ghana, the most recent estimates of cocoa supply elasticities are contained in a draft annex prepared by Akiyama for the World Bank Commodity Studies and Projections Division.25 These estimates are consistent with the findings of the Cocoa Land Intensive Survey carried out during the 1970s by the Ghana Cocoa Services Division and analyzed in a Wbrld Bank background paper., The estimates are based on the vintage matrix approach used by the International Coroa Organization (IC02). This approach estimates "normal" cocoa production based on a matrix of estimated acreage of trees classified by age and average yield. A regression equation is then estimated in the Akiyama study to explain actual production fram 1968/69 to 1963/84 by variations in normal production and other variables affecting short-term supply, such as the producer price. The Akiyama analysis results in short-run elasticities of cocoa production with respect to price of 0.24 and with respect to insecticide 0 Takamara Akiyama, "Cocoa Supply Projections" Prriex C draft, July 30, 1985. ' World Bank, Ghana: The Cocoa Sector, Backgrcoind Paper Nb. 1 of 4 prepared for the Ghana: Policies and Program for Adjustment Report, October 14, 1983. 159 sales to farmers of 0.29. The price variable is a weighted average of prices lagged two and three years. This does not allow for any immediate impact of the producer price an harvesting but does show saoe effect on production thrcugh improved maintenance. The insecticide sales variable is an unweighted average of sales over the previous three years. Elasticities of new plantings with respect to price are also estimated at 0.5 for the short run and 1.5 for the lang run. New plantings are calculated, however, an the basis of hybrid seed distribution by the government, which has been constrained tyy the capacity of its seed gardens and does not take into account farmers use of their own traditional plant: materials. Furthermore, much of the planting at this time was undertaken within the context of two large cocoa projects for which the producer price was not a major determinant of the planting schedule. The elasticity of new plantings estimates are therefore not very reliable. The procedure used here, and explained in detail in Annex 4, involves emplcyying the methodology and some of the parameters developed by Bateman to estimate new planting of traditional varieties over the period 1945/46 to 1985/86.7 New planting of hybrid varieties, which began in 1968/69, is estimated mn the basis of seed garden deliveries and is not directly related to price. Each year's new planting hectarage of bDth varieties is carried through the vintage matrix model, where it is multiplied by the profile of yields over the age distribution of the trees. Production from traditional and hybrid trees planted since 1945/46 is added to production of trees planted earlier than 1945/46, with an adjustment to ' Bateman s estimates are for the period 1932/33 to 1969/70, but planting of traditional varieties decreased rapidly to zero after the 1960s, and his model, as modified here, predicts this quite well. 160 take into acccunt the rate at which these trees must have been going out of productimn to reach the area planted in them revealed by the surveys of the 1970s. The resulting time-series of "normal" production is then compared with actual production as estimated by official marketings.3 Same adjustments are made to Bateman's parameters, as described in Annex 4, until normal production corresponds reasonably well with actual producticn, due allowance being made for the short-term influence of weather and prices. As a final step, actual production is estimated as a function of normal production and of current and past prices, using the following specification: -~ 2 co co cof lnQt = Bo + B1lnNt + BElnQ*-,L + B31r7Pt + B4lnPe + et ...(1) where QF° is actual production, N'° is normal production, P-- is the producer price of cocoa, Fr is the producer price of food crops, and t is the year in which production takes place. The lagged dependent variable in this equation represents the effect on current production of previous years' prices. In the usual Nerlavian formulation, these prices are determinants of the price the farmer expects to receive in the current year. In the cocoa sector, however, the producer price is annxouced well in advance of the main harvest season so there is no unmcertainty for the farmer. Previous E Actual production differs from official marketings by the quantity of cocoa smuggled to neighboring countries. This quantity is judged (see Annex 1) to have been about 10 percent of production in recent years, but it is impossible to estimate, with any degree of accuracy, the year to year variatimns in smuggling because of marked shifts in the degree to which anti-smuggling laws have been enforced. Instead, the approach used here is to treat official marketings as production and to assume that smuggling is ane aspect of producers' supply response to price incentives. 161 prices do influence current production, however, because of their effects cn weeding, pruning, spraying, canopy repair, and other types of maintenance, the full impact of which may not be felt for several years. Cbnsequently, this term is included to distinguish the short run price elasticity BR from the long run elasticity EB/(1-8a=), where B6 is the coefficient of adjustment. The price of food crops is represented here by that of maize, which tends to be closely correlated, as noted earlier, with the prices of the other major food staples. The current price is used rather than the lagged price since farmers are able to predict focd crop prices sufficiently in advance during the growing seasm to influence their decisions as to how intensively to harvest cocoa. To the extent that past food crop prices also influence cocoa production, this is captured in the autoregressive term, with the long-run elasticity being given by BE/( 1-E6). The parameters estimated for equation (1), using data for 1944/45- 1985/86, are given by: 1nQt = - 1.480 + .498 lnN4 + .643 lnQ]_ + .223 ln P* -.143 lnP* ...(2) (-1.344)(2.644) (5.123) (2.953) (1.787) R = 0.824 H - 0.547 where the figures in parentheses are the t-statistics for the regression coefficients. All slope coefficients have the expected signs and the first three are significantly different from zero, using a two-tailed test, at the .01 level of significance. The coefficient of the price of maize is significantly different from zero at the .10 level. The short-run elasticity of output with respect to the price of' cocoa is .22, which is 162 consistent with previous estimates for Ghana and other major producing countries. The short-run elasticity with respect to the price of maize is -.14. The lngr-rum elasticity of cocoa output, given the stock of cOCoa trees, is .62 with respect to the price of cocoa and -.40 with respect to the price of maize. This is different from the long-rrn, steady-state elasticity assuming that the stock of trees changes in response to price. The latter parameter is, in fact, quite difficult to calculate, especially for large changes in price, for several reasons. Annex 4 describes in detail the factors influencing the rate at which new planting takes place and the impact that this has on subsequent production. Briefly summarized, new planting depends, in the Bateman fornmulation, on (1) the difference between the real producer price and a threshold level below which planting would be unprofitable, (2) a nonlinear planting effort function, and (3) the absorptive capacity of the agricultural sector to undertake new investment linked to the size of the populaticn, the supply of capital, and other constraining variables. Even if the relationship between the rate of planting and produrer price could be established, the relative production response also depends on the time period over which that response is measured, the size and age distribution of the existing tree stock, and the yield profile of the trees. The vintage matrix model is able to incorporate the complexity of this price response mechanism without having to focus on a single parameter - the long-run elasticity of supply. This is particularly important in Ghana, where the response in recent years to changing producer prices has not been new planting but rather the failure to replant as praductive capacity has decreased with aging of the existing trees. 163 The pracedure for estimating the impact that price policy distortions have had on cocoa prnduction in Ghana therefore involves several steps. The first is to calculate the replanting of traditicnal trees that would have taken place with unrdistorted equilibrium prices using the procedure described in Anex 4. This planting series is then carried thrcugh the vintage matrix model to derive normal production under equilibrium conditions. The final step is to calculate Qt from equation (2) using this series on normal production and data on undistorted prices. Food Crops As discussed in Annex 1, the quality of the production data for food crops is very poor. Nevertheless, the magnitude of distortions is such that large variations in prices ever time could compensate, to a considerable extent, for the errors in the data. Consequently, supply functions were rxun using the existing data, and the results were assessed for reasonableness in comparison with other estimates that have been made outside of Ghana. The following regression equation was estimated for maize: m m m lnt*, = 4.304 + .142 lnQD_± + .794 lnPt.m_ -.267 lnPt - .440 lnP-±L ... (3) (3.434)(2.535) (2.519) (1.771) (1.802) -2 R = .32 H = 0.981 where the superscripts designate maize (m), cocoa (co), and cassava (ca). All coefficients have the predicted signs and those for the lagged values of On and Pm are statistically significant at the .05 level. The estimators for the cross-price elasticities for cocoa and cassava are significant at the .10 level. The short-rmu price elasticity for maize of .79 seems 164 somewhat high in relatimn to most estimates for cereals outside of Africa,v but it is within the range of elasticities estimated in Nigeria for cottan and groauxnduts, annual crops that may be substitutes for maize. - Furthermore, the coefficient of the autoregressive term is fairly low, implying that the long-run elasticity of maize with respect to its own price is mnly .93, which does not seem unreasonable given high substitutability in production with cocoa and other food crops such as cassava, yams, millet, and sor-ghum. In cmntrast to maize, rice, which is grown principally in the river valleys of the north, does not use land that is suitable for other major crops. Nevertheless, there is some substitutability in production with cocoa, which competes with rice for migrant labor during the harvest period. With both rice and cocoa prices as explanatory variables, the following regression equation was run, a ,- r- co lnQG = 3.006 + .242 1nQG.- + .427 lnP*-1 - .391 inP* ... (4) (2.424) (2.773) (2.273) (2.340) -2 R = .467 H = 2.644 Al1 coefficients have the expected signs and are significant at the .05 level. This is misleading, however, since the H statistic suggests the presence of positive serial correlation, implying that the standard errors 9 Askari and Cummings, Agricultural SuPPly Response ..., pp.390-96. 20 Marian E. Bond, "Agricultural Responses to Prices in Sub-Saharan African Comtries," IMF Staff Papers, 30 (4), December 1963. pp. 710-11. There are no reliable existing estimates of food crop elasticities for neighboring countries in West Africa. 165 of the regression coefficients are uiderestimated. L An attempt was made to redress this situation using the Cochrane-Orcutt procedure. This led to a decrease in the short-run elasticity of rice with respect to its oaw price from .43 to .17 and a decrease in the long-run elasticity from .56 to .33. The coefficients of the price of rice and cocoa, however, were in this case not statistically significant. This implies that the null hypothesis that the prices of rice and cocoa have no influence on rice output cannot be reliably rejected. Nevertheless, it does not mean that equation (4) cannot be used to predict the output of rice under a regime of different prices as long as the same omitted variables that resulted in serial correlation would have continued to operate during the same period with the different price regime. The implied owu-price elasticities in the short-run of .43 and in the long-run of .56 do not appear to be unreasonable. Price Elasticities of Supply As a way of verifying the reasonableness of the estimates, it is useful to construct the following matrix of short-run elasticities: Short-Run Supply Elasticities Output Price Cocoa Maize Cassava Rice Cocoa +.22 -.14 Maize -.27 +.79 -.44 Rice -.39 +.43 " The H statistic, which is more appropriate than the Durbin-Watson statistic in the presence of an auto-regressive term, is not significant for- either the cocoa or the maize supply equations. 166 Only those coefficients that are significant at the .10 level or greater are show. With the possible exceptim of the elasticity of maize output with respect to its own price, discussed earlier, the results appear reasmable and consistent with mne another. The cross elasticity of maize with respect to the price of cocoa, for example, is about double the elasticity of cocoa with respect to the price of maize, which is consistent with the synmnetry conditim (dg(/dP- = dg=/dPm) and the relative importance of the tWo crops in production. The fact that the elasticity of rice with respect to the price of cocoa is statistically significant but that the elasticity of cocoa with respect to the pr-ice of rice is not significant is not surprising in view of the much greater relative importance of cocoa. Finally, the greater substitutability in production of maize and cassava than of maize and cocoa is cmsistent with the relative magnitude of these two cross-elasticities. Equilibrium Levels of Output Equilibrium levels of output were calculated using equatic-s (2) through (4) for the short run, lamg run, and very lang run. In the short run, real equilibrium prices were substituted for real actual prices, where the equilibrium prices were obtained from Tables 14 and 18 adjusted so that the nmagricultural price deflator equals unity in 1963, the base year used in estimating these equations. Actual lagged values of the dependent variable were used in this calculation, and the residuals were added to the 167 predicted values assuming stochastic variation, largely due to fluctuations in rainfall, to be the same in equilibrium as in the distorted situation.12 The equilibrium level of output in the long run is predicted in the same way as in the short run except that the lagged value of the dependent variable, after the first year, is its predicted rather than its actual value. The deviation of equilibrium prices frcm distorted prices influences output in twD ways. First, it affects output directly in the current year. Second, it affects autput indirectly by influencing previous levels of output, which in turn have an impact on current output. Attempts to predict the long-rum equilibrium level of cocoa production in this way result in output rising to very high levels because of the influence of the autoregressive term. This implies that the ability of farmers to increase production through improved tree maintenance is much greater than it is kncwn in fact to be. The problem is at least partially that the coefficient of the log of the autoregressive term is estimated largely on the basis of a historical decline in output resulting from lack of maintenance in the face of low producer prices. While some reversal of this process can be anticipated, it would not be unlimited, and diminishing returns must set in as the trees approach their maxinum yield. In the very long run, cocoa output is influenced by the same variables that affect output in the long run, but prices also have an impact on production through their effect on planting. Whereas normal production 2t This deals with the problem raised in A.0. Krueger, M. & hiff, and A. Valdes, "Note 7. On Measure.ent of Quantitative Effects and Regressicn Residuals," Memo No. 27, July 11, 1986. Use of the original equations, rather than just estimated elasticities, to calculate equilibrium levels of autput is very important for Ghana because of the large distorticns involved. These can lead to very biased results if changes conforming to the elasticities are calculated using a single base point. 168 in equation (2) is based on estimated actual planting for the short and Iong runs, for the very icng run is derived, using the vintage matrix model, from the plantings that would have occurred had prices been in equilibrium. These plantings are estimated in the same way as actual plantings, with equilibrium prices used in place of distorted prices. The equilibrium output level for maize and rice is the same, of course, as in the long run. The results of this exercise are shown in Tables 20-22 for the direct effect of price distortions on output, and in Tables 23-25 for the total effects. From Table 20 it appears that the effect of direct price distortions on production of maize and rice in the short run has been almost uniformly positive, since during the early years in which the effect on maize appears to have been negative, maize imports were very low in relation to production and domestic prices were scarcely influenced by the cost of these imports. Even later, when the equilibrium level of maize production was usually higher than its actual level, there were sharp variations from year to year, which were less a result of changes in trade policy than of fluctuations in domestic supply. Towards the end of the 1970s, the exchange rate became so overvalued that the price of maize and rice to producers in most areas of the country would have reached zero if these cereals had continued to be marketed in the major urban centers, As noted earlier, this was because of the low border prices at the official exchange rate and the high cost of transport and marketing.5 This gives rise to very low levels of output for these years in Tables 20-22. In fact, of course, farmers would have ceased to sell to urban markets as producer prices fell, and 3 In estimating the output of maize and rice for Tables 20-22, the negative prices for these later years shown in Table 14 were set equal to unity because of the logarithmic nature of the supply function. 169 Table 20 Direct Effect on Output, Short-Run (000 at) maize Rice Cocoa Year 0 la) 01 (b) A D/0 Ic) O (a) 01 (b) Q/0O tc) 0 (a) 0t lb) A 0/0 kc) 1955 169 N/A NIA 23 NIA N/A 229 221 .035 1956 169 363 -.534 23 22 .033 264 259 .018 1957 169 238 -.289 23 16 .396 205 211 -.027 1958 183 475 -.615 30 23 .287 256 280 -.095 1959 N/A 392 N/A N/A 32 N/A 317 340 -.067 1960 N/A N/A N/A 32 N/A N/A 430 410 .050 1961 N/A N/A N/A 30 29 .038 409 416 -.016 1962 169 NIA N/A 31 28 .110 413 436 -.052 1963 183 238 -.232 33 29 .141 428 563 -.240 1964 170 82 1.076 42 28 .476 538 589 -.087 1965 206 15B .306 32 20 .574 401 534 -.250 1966 353 102 2.472 29 15 .883 372 545 -.317 1967 278 72 2.861 42 23 .824 423 537 -.213 1968 253 131 .934 42 25 .696 333 401 -.169 1969 300 260 .154 60 47 .282 419 529 -.208 1970 482 307 .570 49 35 .380 434 639 -.321 1971 465 84 4.568 55 34 .633 477 608 -.215 1972 402 166 1.416 70 40 .747 427 428 -.001 1973 427 530 -.194 62 30 1.087 357 524 -.318 1974 486 94 4.176 73 41 .783 395 511 -.227 1975 343 162 1.116 71 59 .208 416 514 -.191 1976 286 83 2.432 70 31 1.242 339 539 -.371 1977 274 31 7.863 109 42 1.598 290 413 -.298 1978 218 17 12.059 108 9 10.693 286 408 -.300 1979 380 45 7.423 93 12 6.836 323 357 -.096 1980 382 83 3.595 78 19 3.128 284 341 -.166 1981 378 36 9.390 97 B1 .199 248 137 .805 1982 346 2 209.524 36 5 5.875 198 355 -.442 1983 173 1 190.515 40 4 8.174 173 349 -.505 1984 574 1 529.637 66 7 8.389 189 224 -.157 1985 411 10 40.514 90 10 7.856 226 248 -.090 Notes to Table 20: (a) Actual output froe Anne% 1, Table 1-2(1) for maize and rice, and Table 1-2(31) or cocoa. (b) Short-Run Equilibrium outpt trom equations (2)-(41 as described in text. Ic) Relative change in outputX. 0/A obtained by dividing CO-OR) by 01. 170 Table 21 Direct Effect on Output, Long-Run (000 at) Maize Rice Cocoa Year a (a) 01 (b) '4 0/9 (c) 0 (a) Ot 1(b) A /0 (c) Q (a) 1 (b) A. 0/a (c) 1955 169 N/A N/A 23 N/A N/A 229 221 .035 1956 169 363 -.534 23 22 .033 264 254 .041 1957 169 265 -.362 23 16 .407 205 205 -.002 1958 183 506 -.639 30 21 .397 256 279 -.084 1959 N/A 453 N/A N/A 30 N/A 317 359 -.118 1960 N/A 373 N/A 32 64 -.503 430 444 -.032 1961 N/A 462 N/A 30 34 -.124 409 424 -.036 1962 169 631 -.732 31 29 .075 413 446 -.074 1963 183 287 -.363 33 28 .161 428 592 -.277 1964 170 87 .947 42 27 .531 538 726 -.258 1965 206 144 .435 32 18 .745 401 648 -.381 1966 353 97 2.655 29 13 1.154 372 742 -.498 1967 278 60 3.641 42 19 1.197 423 843 -.490 1968 253 105 1.405 42 20 1.052 333 632 -.473 1969 300 229 .307 60 39 .525 419 815 -.406 1970 482 296 .631 49 32 .529 434 1006 -.569 1971 465 78 4.968 55 30 .808 477 1077 -.557 1972 402 129 2.113 70 35 1.015 427 745 -.427 1973 427 451 -.053 62 25 1.474 357 772 -.538 1974 486 95 4.136 73 33 1.220 395 866 -.544 1975 343 129 1.669 71 48 .466 416 880 -.527 1976 286 72 2.946 70 28 1.460 339 900 -.623 1977 274 25 9.771 109 34 2.231 290 804 -.639 1978 218 12 17.302 108 7 14.530 286 822 -.652 1979 380 30 11.727 93 6 14.219 323 739 -.563 1980 382 58 5.594 78 10 6.977 284 614 -.537 1981 378 28 12.581 97 49 .982 248 240 .034 1982 346 1 303.915 36 4 7.112 198 370 -.465 1983 173 .4 430.476 40 3 14.225 173 553 -.687 1984 574 .5 1,254.9178 66 4 17.147 189 504 -.625 1985 411 4 113.352 90 5 16.859 226 496 -.544 Notes to Table 21: (a) Actual output froo Annex 1, Table 1-2(1) for maize and rice, and Table 1-2(3) for cocoa. (b) Long-Run Equilibrius output from equations (2)-(4) as described in text. (c) Relative change in output Ai Q/ obtained by dividing (Q-O1) by 01. 17 1 Table 22 Direct Effect on Output, Very Long-Run (000 It) maize Rice Cocoa Year Q (a) 0Q (b) AO /0 (c) 0 (a) f l(b) Q/Q Cc) 0 (a) 0Q (b) A Q/Q (c) 1955 169 N/A N/A 23 N/A N/A 229 221 .036 1956 169 363 -.534 23 22 .033 264 253 .042 1957 169 265 -.362 23 16 .407 205 205 -.002 1958 183 506 -.639 30 21 .397 256 279 -.084 1959 N/A 453 NIA N/A 30 N/A 317 360 -.119 1?60 N/A 373 N/A 32 64 -.503 430 444 -.032 1961 N/A 462 N/A 30 34 -.124 409 424 -.036 1962 169 631 -.732 31 29 .075 413 446 -.074 1?63 183 287 -.363 33 28 .161 428 592 -.277 1964 170 67 .947 42 27 .531 538 726 -.259 1965 206 144 .435 32 18 .745 401 648 -.381 1966 353 97 2.655 29 13 1.154 372 742 -.499 1967 278 60 3.641 42 19 1.197 423 845 -.500 1968 253 105 1.405 42 20 1.052 333 637 -.477 1969 300 229 .307 60 39 .525 419 828 -.494 1970 482 296 .631 49 32 .529 434 1034 -.580 1971 465 78 4.968 55 30 .808 477 1130 -.578 1972 402 129 2.113 70 35 1.015 427 806 -.470 1973 427 451 -.053 62 25 1.474 357 865 -.587 1?74 486 95 4.136 73 33 1.220 395 1013 -.610 1975 343 129 1.669 71 48 .466 416 1084 -.616 1976 296 72 2.946 70 28 1.460 339 1179 -.713 1977 274 25 9.771 109 34 2.231 290 1124 -.742 1978 218 12 17.302 1o8 7 14.530 286 1227 -.767 1979 380 30 11.727 93 6 14.219 323 1177 -.726 1980 382 58 5.594 78 10 6.977 284 1037 -.726 1981 378 28 12.581 97 49 .982 248 429 -.421 1982 346 1 303.915 36 4 7.112 198 694 -.715 1983 173 .40 430.476 40 3 14.225 173 1086 -.841 1984 574 .46 1,254.918 66 4 17.147 189 1031 -.817 1985 411 4 113.352 90 5 16.859 226 1055 -.786 Notes to Table 22: (a) Actual output from Annex 1, Table 1-2(1) for saize and rice, and Table 1-2(3) for cocoa. (b) Very Long-Run Equilibrium output from equations (2)-(4) as described in text. (c) Relative change in output A Q/Q obtained by dividing (0-02) by Ql. 172 Table 23 Total Effect on Output, Short-Run (000 It) Maize Rice Cocoa Year 0 (a) as (b) a 0/0 (c) 0 (a) 0 (b) A 0/0 (c) 0 (a) 01 (b) A Q/g Icl 1955 169 N/A N/A 23 N/A N/A 229 203 .128 1956 169 406 -.584 23 26 -.124 264 235 .124 1957 169 261 -.352 23 19 .219 205 194 .054 1958 183 494 -.629 30 25 .215 256 262 -.022 1959 N/A 476 N/A N/A 37 N/A 317 320 -.009 1960 N/A N/A N/A 32 N/A N/A 430 387 .110 1961 N/A N/A N/A 30 36 -.165 409 393 .040 1962 169 N/A N/A 31 39 -.206 413 408 .013 1963 183 363 -.496 33 39 -.149 428 519 -.175 1964 170 141 .209 42 40 .053 538 526 .022 1965 206 235 -.124 32 25 .261 401 498 -.195 1966 353 292 .209 29 30 -.025 372 470 -.209 1967 278 193 .442 42 46 -.084 423 450 -.077 1968 253 229 .104 42 38 .093 333 338 -.014 1969 300 384 -.218 60 62 -.038 419 482 -.131 1970 482 457 .056 49 49 -.007 434 538 -.193 1971 465 177 1.634 55 56 -.021 477 490 -.027 1972 402 320 .255 70 75 -.072 427 339 .261 1973 427 714 -.402 62 41 .503 357 406 -.121 1974 486 131 2.718 73 55 .327 395 436 -.094 1975 343 245 .400 71 87 -.187 416 412 .010 1976 286 136 1.106 70 48 .462 339 432 -.215 1977 274 69 2.958 109 80 .356 290 285 .016 1978 218 62 2.499 108 63 .702 286 311 -.080 1979 380 178 1.136 93 73 .278 323 312 .034 1980 382 165 1.321 78 59 .324 284 329 -.135 1981 378 66 4.747 97 74 .309 248 239 .037 1982 346 55 5.260 36 39 -.079 198 214 -.076 1983 173 18 8.565 40 27 .503 173 223 -.223 1984 574 23 23.830 66 37 .763 189 203 -.070 1985 411 N/A N/A 90 N/A N/A 226 N/A N/A Notes to Table 23: (a) Actual output from Annex 1, Table 1-2(1) for maize and rice, and Table 1-2(3) for cecoa. (b) Short-Run Equilibrium output from equations (2)-(4) as described in text. (cl Relative chanqe in output.J9/0 obtained by dividing (0-0*) by 0*. 173 Table 24 Total Effect on Output, Long-Run (000 at) Maize Rice Cocoa Year 0 (a) Os (b) A i0/ (c) 9 (a) as (b) A 0/0 (c) 0 (a) 01 (b) A/0/3 (ci 1955 169 N/A N/A 23 N/A N/A 233 203 .147 1956 169 406 -.584 23 26 -.124 264 217 .214 1957 169 295 -.428 23 19 .181 205 172 .194 1958 183 535 -.658 30 24 .265 256 233 .100 1959 N/A 554 N/A N/A 35 N/A 317 301 .054 1960 N/A 504 N/A 32 79 -.593 430 375 .148 1961 N/A 697 N/A 30 45 -.328 409 360 .137 1962 169 1100 -.846 31 43 -.279 413 376 .100 1963 183 473 -.613 33 42 -.214 428 488 -.123 1964 170 161 .057 42 42 -.006 538 573 -.061 1965 206 233 -.117 32 25 .259 401 518 -.226 1966 353 297 .188 29 28 .031 372 555 -.329 1967 278 180 .478 42 46 -.078 423 596 -.291 1968 253 217 .167 42 39 .072 333 427 -.219 1969 300 375 -.201 60 61 -.022 419 576 -.273 1970 482 471 .023 49 50 -.012 434 677 -.359 1971 465 176 1.642 55 56 -.025 477 674 -.292 1972 402 279 .441 70 76 -.078 427 453 -.058 1973 427 678 -.370 62 42 .474 357 513 -.304 1974 486 140 2.482 73 50 .457 395 606 -.348 1975 343 205 .671 71 80 -.109 416 609 -.317 1976 286 126 1.266 70 49 .422 339 631 -.463 1977 274 62 3.445 109 74 .476 290 442 -.344 1978 218 50 3.325 108 58 .871 286 426 -.328 1979 380 144 1.630 93 63 .487 323 424 -.238 1980 382 143 1.662 78 54 .458 284 414 -.314 1981 378 57 5.604 97 68 .433 248 324 -.234 1982 346 42 7.185 36 36 .004 198 271 -.269 1983 173 13 11.893 40 27 .505 173 289 -.401 1984 574 16 34.699 66 34 .946 189 301 N/A 1985 411 N/A N/A 90 N/A N/A 226 N/A N/A Notes to Table 24: (a) Actual output from Annex 1, Table 1-2(1) for maize and rice, and Table 1-213) for cocoa. (b) Lonq-Run Equilibrius output from equations (2)-(4) as described in text. (c) Relative change in output, il/9 obtained by dividing (0-01) by 01. 174 Table 25 Total Effect on Output, Very Long-Run (000 It) maize Rice Cocoa Year Q (a) t I(b) A 0/Q (c) Q (a) Ot (b) A 0/0 lc) 0 (a,) Of (b) 0/0 Cc) 1955 169 N/A N/A 23 N/A N/A 229 203 N/A 1956 169 406 -.584 23 26 -.124 264 217 N/A 1957 169 295 -.428 23 19 .181 205 172 N/A 1958 183 535 -.658 30 24 .265 256 233 N/A 1959 N/A 554 N/A N/A 35 N/A 317 301 -.040 1960 N/A 504 N/A 32 79 -.593 430 375 .070 1961 N/A 697 N/A 30 45 -.328 409 360 .103 1962 169 1100 -.846 31 43 -.279 413 376 .070 1963 £83 473 -.613 33 42 -.214 428 488 -.143 1964 170 161 .057 42 42 -.006 538 573 -.096 1965 206 233 -.117 32 25 .259 401 519 -.240 1966 353 297 .188 29 28 .031 372 555 -.332 1967 278 188 .478 42 46 -.078 423 598 -.305 1968 253 217 .167 42 39 .072 333 430 -.238 1969 300 375 -.201 60 61 -.022 419 587 -.297 1970 482 471 .023 49 50 -.012 434 704 -.379 1971 465 176 1.642 55 56 -.025 477 723 -.340 1972 402 279 .441 70 76 -.078 427 491 -.135 1973 427 678 -.370 62 42 .474 357 570 -.381 1974 486 140 2.482 73 50 .457 395 693 -.435 1975 343 205 .671 71 80 -.109 416 715 -.426 1976 286 126 1.266 70 49 .422 339 761 -.569 1977 274 62 3.445 109 74 .476 290 616 -.556 1978 218 50 3.325 108 58 .871 286 666 -.597 1979 380 144 1.630 93 63 .487 323 729 -.584 1980 382 143 1.662 78 54 .458 284 769 -.652 1981 378 57 5.604 97 68 .433 248 641 -.635 1982 346 42 7.185 36 36 .004 198 563 -.667 1983 173 13 11.893 40 27 .505 173 627 -.744 1984 574 16 34.699 66 34 .946 189 680 -.739 1985 411 N/A N/A 90 N/A N/A 226 N/A NIA Notes to Table 25: (a) Actual output from Annex 1, Table 1-2(1) for maize and rice, and Table 1-2(3) for cocoa. (b) Very Long-Run Equilibrium output from equations (2)-(4) as described in text. (c) Relative change in outputAO 9/ obtained by dividing (0-02) by a1. 175 marketing costs wculd have been lowered, maintaining producer prices at positive levels for sales within the local rural area.9* The positive effect of price distortions on producition of maize and rice occurred for two reasons. First, from 1963 cnwards, inflation and restrictions on imports resulted in domestic producer prices exceeding their border price equivalents in most years. Second, distortions in the producer price of cocoa encouraged production of alternative crops such as maize and rice. The figures on cocoa production confirm this hypothesis regarding the allocation of resources. During the period up to 1962, the domestic price of cocoa was in some years substantially lower than its border price, but this was offset in some cases by a domestic price of maize that was much lower than its border price. As a result, the direction of the effect of price distortions on cocoa output varied from year to year. After 1963, a combination of inflation and import restrictions resulted in a domestic price for maize that was higher in most years than its border price. This, coupled with continued taxatimn of cocoa exports, led to a decline in cocoa production below the equilibrium level in every year but one.-s' Tables 21 and 22, which show the direct effect of distortions on output in the long and very long run, confirm these tendencies in more ±4 Subtracting all transport and marketing costs from the CIF price of cereals imports implicitly assumes that consumption takes place in Accra. In fact, most maize production and a substantial share of the output of rice are consumed in the interior so that transport costs would have to be added to, rather than subtracted from, the border price in order to obtain its producer price equivalent. Existing data do not permit, however, estimation of the quantities involved. Lf The only year in which there was an exception to this was 1981, when the wDrld price for cocoa was so low, at the official exchange rate, that the export tax was actually negative. 176 exaggerated form. They suggest that if free trade had bee permitted at the official rate of exchange, prcducticn of rice and maize wold have virtually ceased by the early 1980s, and that of cocoa wsuld have expanded, with new plantings, to almost five times its actual level. These results are based, hoever, on extrapolation well beyond the range over which equations (2)- (4) were originally estimated. They must therefore be treated with a great deal of caution. Expansion of cocoa production to over 1 million tons per year, for example, would have encountered severe constraints in terms of both the effect this would have had on wDrld market prices and the availability of suitable land. Despite these caveats, however, it is clear that the direct effect of distortions on output has been very considerable. Table 23, shows the total effect of price distortions an output in the short-run. Since the cedi in Ghana was always overvalued during the period under consideratio, the equi l ibrium level of producer prices is higher relative to the actual level than when this distortion is not taken into accoLmt. The impact this has on production depends, however, on the relative importance of the own-price and cross-price effects. For maize and rice, a comparison of Table 23 with Table 20 suggests that these price effects result in a consistently higher level of equilibrium output relative to its actual level when all distortions are taken into accat. This is because of the own-price effects, which tend to increase the equilibrium level of cereals output compared with the situation in which the change in the exchange rate is ignored. The cross-price effects resulting from the difference between the actual and equilibrium price of cocoa, on the other hand, are more complicated. While the impact of overvaluation of the currency tends to raise the equilibrium producer price of cocoa in relation 177 to its actual level, the introduction of an optimun export tax for the purpose of calculating the total effect, tends to lower the equilibrium price. Mbving fron the direct to the total effect does not, therefore, always result in an increase in the cocoa price distortion, and its effect on output of cereals varies from year to year. The same is of course also true of its influence on cocoa output. Except for 1981, when cocoa exports were subsidized rather than taxed, the equilibrium level of cocoa production, taking into acconmt both the overvaluation of the exchange rate and the optimal export tax, was less than its level would have been if producer prices had equalled their border price equivalents. Not only would the equilibrium price of cocoa have been lower because of the optimal export tax but also the exchange rate effects would have increased the equilibrium producer price of maize, drawing resources away from cocoa. As a result, there are a number of years in which actual cocoa output was greater than equilibrium output in the short run. This pattern changes as allowance is made for the responsiveness of tree maintenance (long run) and new planting (very long run) to prices, as shown in Tables 24 and 25. After an initial period up until 1963, when Ghana might have benefitted from restricting output so as to hold up wDrld cocoa prices, the total effect of cocoa price policy was uniformly negative, especially in the very long run because of the disastrous effect of policy on planting. Even if Ghana had optimally restricted cocoa exports, the level of production in the mid-19E8s would have been 3.5 times its actual level. With rice and maize, the decreased level of equilibrium, in 178 cmnparison with actual, output in the long run is less a functian of cwn price response than of farmers being influenced by higher cocoa prices. Effect on Consumptimn Goverrvint policy influencing relative prices also affects consumption of tradable foods. This influence can be estimated by incorporating the equilibrium consumer prices used in Tables 15 and 18 into estimated demand functions to predict the levels of consumption that would have existed in the absence of direct and total distortion. ND distinction is made, however, between short- and long-rum elasticities since it is assumed that the entire consumption response would occur within one year. Estimates of own-and cross-prices elasticities of Ghanaian demand are available for maize, sorghum/mi llet, cassava, cocyyams/yams, and rice from Haessel. - Prior information on income elasticities was combined by Haessel with annual net import, price, and production data from 1953 to 1970, using the Theil-Goldberger mixed estimation tecrhnique, and two-stage least-squares regression analysis was performed. X The price elasticity for rice of about -1.25, obtained by Haessel, was highly significant and robust under alternative specifications. The elasticity for maize, on the other hand, was very high, but statistically insignificant. This is partly 1 Walter Haessel, "The Demand for Agricultural Commodities in Ghana: An Application of Nonlinear Two-Stage Least Squares with Prior Information," American Journal of Agricultural Economics, 58(2), May 1976, pp. 341-45. t' It is reasonable to base the estimated demand function on the period from 1953 to 1970, rather then the whole period under consideration, because by the mid-1970s the quantity consumed of rice and maize was highly constrained by quantative restrictions on imports, with price the endogenc/us dependent variable and quantity consumed the exogenous independent variable. 179 because maize and the other coarse grain cereals, millet and sorghum, are substitutable for nme another so that their prices tend to move closely together. This makes it difficult to distinguish the separate influence of the maize price variable. When the coarse grain cereals were lumped together, the resulting price elasticity of -2.323 was almost significant, with a standard error of 1.58. When the root crops, cassava and yams, were combined with the coarse grain cereals, the best results were obtained as follows: lnC* = 2.960 - 1.689 lnPf - 0.823 lnPt + 0.427 lnPr + 0.917 lnY*. ...(5) (.14) (0.99) (0.92) (0.59) (0.54) . ~ ~~c t r lnct = 1.90 - 0.362 ln Pf - 0.746 lnPt - 1.256 lnPr + 0.874 lnYt ...(6) (.933) (0.62) (0.58) (0.41) (0.49) where C is consumption, P is price, Y is per capita income, and the superscripts designate coarse grain cereals (c), roots and tubers (t), and rice (r). Figures in parentheses are the standard errors of the coefficients. None of the coefficients in equation (5) is statistically significant at the 0.10 level, though the coefficients of the cereals price and per capita income terms are almost so. The coefficient of the logarithm of the price of rice is significant at the 0.01 level in equatim (6) and that of the income term is significant at the 0.10 level. None of the cross-price elasticities is significant in this equaticns. In order to simulate levels of consumption under equilibrium prices, the following elasticities were used from the original equation: 180 Demand Elasticities Consumption Own-Price Per Capita Income Maize -1.689 40.917 Rice -1.256 +0.874 The con-price and income elasticities of total coarse grain cereals consumption were used in place of the elasticities estimated directly for maize because of the high correlation between the pr-ices of different coarse grains and the more reasonable results that were obtained with all these cereals aggregated together. These elasticities were incorporated into the following regression equation: InC*. - ,.lnP,, - mlnY+. = 0o + u. ...-(7) where is the estimated intercept coefficient and ut is the residual. Equation (7) was estimated for each food over the entire period (1955-85) for which there are data on consumption, estimated as net availability in Annex Table 5-1. Equilibrium prices at the retain level from Amiex Tables 3-4(1) and 3-4(2) were then inserted into this equation to determine the direct and total effects of distortions on consumption. The results are shown in Tables 26 and 27. Equilibrium levels of consumption fluctuate widely from year to year, partly because of the relatively high price elasticities that have been estimated and partly because the magnitude of distortions varies with local production conditions and the world market. As explained earlier, this is particularly true of maize, for which imports are a small share of total consumption. In the absence of cross-price effects, which make the influence of price distortions on production relatively complicated, their direct and indirect effects on consumption are fairly clear. In most years, especially 181 Table 26 Direct Effect on Consumption (000 *t) Maize Rice Year C (a) Ct (b) I C/C (c) C (a) CS (b A C/C (d) 1955 144 31 3.69 17 16 .07 1956 145 48 2.04 21 22 -.04 1957 145 19 6.67 31 31 .01 1958 156 50 2.12 31 31 -.01 1959 N/A N/A N/A N/A N/A N/A 1960 N/A N/A N/A 46 42 .10 1961 N/A N/A N/A 62 58 .08 1962 144 66 1.18 88 79 .11 1963 156 366 -.57 45 81 -.45 1964 148 140 .06 61 101 -.39 1965 176 602 -.71 47 84 -.44 1966 305 1133 -.73 62 101 -.38 1967 244 313 -.22 63 81 -.23 1968 215 121 .78 53 42 .26 1969 257 267 -.04 61 68 -.11 1970 415 1909 -.78 80 119 -.33 1971 399 749 -.47 65 113 -.42 1972 342 81 3.20 63 130 -.52 1973 364 1370 -.73 87 126 -.31 1974 413 494 -.16 78 68 .15 1975 292 490 -.41 40 80 -.51 1976 254 1432 -.82 43 134 -.68 1977 233 1186 -.80 69 386 -.82 1978 185 405 -.54 105 507 -.79 1979 323 364 -.11 52 172 -.70 1980 337 2762 -.88 109 893 -.88 1981 348 5061 -.93 85 862 -.90 1982 376 6701 -.94 36 837 -.96 1983 259 19251 -.99 55 2897 -.98 1984 617 1997 -.69 87 637 -.86 1985 449 781 -.43 110 321 -.66 Notes to Table 26: (a) Actual consueption C estiaated as net availability from Annex 6, Table 6-1. (b) Equilibrium consueption CS obtained from equation (7) as described in text. (c) Relative change in consumption A C/C obtained by subtracting equilibrius consumption from actual consumption and dividing by equilibrium consumption. 182 Table 27 Total Effect on Consumption (000 It) Maize Rice Year C (a) CS (b) A C/C (c) C (a) Ct (b) 6 C/C (c) 1-14-- N/A 17 N/A _ /- 1955 145 N/A N/A 17 N/A N/A 1956 145 N/A N/A 21 N/A N/A 1957 145 N/4 N/A 31 N/A N/A 1958 156 37 3.19 31 25 .24 1959 N/A N/A N/A N/A N/A N/A 1960 N/A N/A N/A 46 26 .76 1961 N/A N/A N/A 62 32 .92 1962 144 35 3.14 88 48 .83 1963 156 200 -.22 45 48 -.09 1964 148 60 1.45 61 52 .17 1965 176 156 .13 47 27 .73 1966 305 399 -.24 62 41 .52 1967 244 175 .39 63 49 .27 1968 215 64 2.34 53 26 1.06 1969 257 146 .76 61 43 .43 1970 415 1122 -.63 B0 73 .10 1971 399 414 -.04 65 69 -.06 1972 342 57 4.97 63 100 -.37 1973 364 1109 -.67 87 104 -.16 1974 413 354 .17 78 52 .51 1975 292 285 .02 40 51 -.23 1976 254 572 -.56 43 62 -.31 1977 233 187 .25 69 87 -.21 1978 185 45 3.08 105 89 .18 1979 323 66 3.92 52 46 .13 1980 337 319 .06 109 144 -.24 1981 348 191 .83 95 46 .84 1982 376 343 .10 36 41 -.12 1983 259 685 -.62 55 100 -.45 1984 617 385 .60 87 160 -.46 1985 449 N/A N/A 110 N/A N/A --- -- -- -- --- -- -- -- -- --- -- -- -- -- --- -- -- -- -- --- -- _ - --_ - -- -- -- -- Notes to Table 27: (a) Actual consueption C estimated as net availability from Annex 6, Table 6-1. (b) Equilibrius consumption Ct obtained from equation (7) as described in text. lc) Relative change in consumption A C/C obtained by subtracting equilibrium consueption from actual consumption and dividing by equilibrium consumption. 183 after 1962, import restrictims resulted in consumption of maize and rice that was substantially below the levels that would have occurred at the overvalued exchange rate if imports of these foods had been freely admitted (see Table 26). On the other hand, the considering impact of all distortions, including the overvalued rate of exchange, the picture is mixed (Table 27). In 7 out of the 24 years for which comparisons can be made, the equilibrium level of maize consumption would have been greater than its actual level. In other years, Ghana would have cansumed so little maize that it would have bEen self-sufficient or would have had a surplus for export. The situation regarding rice is somewhat different, especially after 1970 when Ghana in equilibrium would have consumed more rice that it actually did in 10 out of 14 years. Furthermore, the fact that in equilibrium there would have been a substantial growth in consumption from the early 1960s to the early 1980s is consistent with the general perception that rice consumption has been growing in West Africa for structural reasonis that are independent of economic policy. * Effect on Net Foreign Exchanae Earninis The effect of policy on net foreign exchange earnings is estimated by multiplying the changes in output and consumption that result from price distortions, as shown in Table 20-27, times the relevant FOB or CIF price. An adjustment is also made for the impact of the change in Ghan' s output (exports) of cocoa on its world market price by multiplying that change times the existing world price and dividing by the price elasticity of world 93 Scott R. Pearson, J. Dirck Stryker, Charles P. Ftunphreys, et al, Rice in West Africa: Policy and Economics, Stanford: Stanford University Press, 1961. 164 demand for cocoa times total world consumption (see notes to Tables 2B-33). In addition, there may be an effect on net foreign exchange earnings that occurs because of changes in imports of intermediate inputs induced by the changes in output. As discussed earlier, however, intermediate inputs are unimportant for the crops considered here except for mechanized rice cultivation. Even in this instance, the value of these inputs is only about 10 percent of the value of rice output measured in domestic prices. The tradable component of these inputs, nmreaver, accounts for only perhaps one-half of their total value, so that the adjustment necessary to take into account changes in imported inputs would have a minimal influence on flows of foreign exchange. The results are presented in Tables 26-33 for direct and total effects in the short, long, and very long runs. In general the net effects of price interventions on foreign exchange earnings are positive in the short run when only direct effects are considered and become increasingly negative as the length of run increases and as indirect, as well as direct, effects are taken into acccunt. For cocoa the effects of distortions on foreign excnange earnings due to changes in output are usually negative, but these effects tend to be at least partially offset by the positive effects that lower Ghanaian cocoa exports would have had on world prices. On balance, however, and especially after the mid-1970s, the net effect on earnings from cocoa is negative.. As expected, this effect on cocoa earmings increases the longer the period of supply response. Somewhat surprisingly, however, the direct effect is greater than the total effect despite the fact that both direct and indirect effects, in the case of cocoa, operate in the same direction. 185 Table 28 Direct, Short-Run Effect of Price Interventions on Foreign Exchange Earnings Effect an Export Crop Revenue Due to: Prop of Total ------------------------------------- Incremental Increaental Incremental Incremental Prop of Effect Effect on Foreign Change in Change in Prop of Effect Change in Change in Change in Change in Effect on on Food Crop in Exchange Earnings Quantity World Total on Export Crop maize Maize Rice Rice Imported Value of Total in Value of Total Exported (a) Prices (b) Change (c) in Value of Tot Prod (e) Cons (f) Prod (g) Cons (h) Food Crops (i) Exports (I) Exports (ZI (bill USS1) (ill US$) (sill USS) Exports (%I (d) (000 at) (000 at) (000 at) (000 at) (sill US) li) (kI) Year (11) (2) (3) (4) (5) (6) (7) (B) (9) . (10) (11) 1955 N/A N/A N/A N/A N/A 113 N/A 1 N/A N/A N/A 1956 N/A N/A N/A N/A -194 97 0 -1 N/A N/A N/A 1957 N/A N/A N/A N/A -69 126 4 0 N/A N/A N/A 1958 -18 20 2 1 -292 106 4 0 -54 -18 -17 1959 -14 16 2 1 N/A N/A N/A N/A N/A N/A N/A 1960 10 -13 -4 -1 N/A N/A N/A 4 N/A N/A N/A 1961 -3 3 0 0 N/A N/A I 5 N/A N/A N/A 1962 -11 13 2 1 N/A 78 2 9 N/A N/A N/A 1963 -68 83 15 5 -55 -210 3 -37 14 4 9 00 1964 -20 29 9 3 8B 8 9 -40 16 5 8 1965 -49 44 -5 -2 48 -425 8 -37 37 12 10 1966 -96 99 2 1 251 -828 9 -39 71 25 26 1967 -76 81 4 1 206 -69 12 -18 20 7 9 1968 -51 42 -9 -3 122 94 11 11 4 1 -2 1969 -89 101 12 3 40 -10 9 -7 10 3 6 1970 -129 132 2 1 175 -1495 9 -39 68 16 16 1971 -87 94 6 2 381 -350 14 -48 60 19 20 1972 0 0 0 0 236 260 19 -67 7 2 2 1973 -187 161 -26 -4 -103 -1005 21 -39 70 12 8 1974 -171 157 -14 -2 392 -81 21 10 72 11 B 1975 -131 117 -14 -2 18 -199 8 -41 69 9 7 1976 -451 340 -111 -14 203 -1179 25 -91 250 32 18 1977 -423 303 -120 -13 243 -953 44 -317 529 59 46 1978 -843 534 -309 -35 201 -219 64 -401 398 43 9 1979 -113 82 -32 -3 335 -41 53 -121 256 24 21 1980 -130 75 -54 -5 299 -2424 38 -784 1264 115 110 1981 201 -105 96 14 342 -4713 10 -777 2012 283 297 1982 -1745 705 -1040 -171 344 -6325 20 -800 1764 291 119 1983 -3069 1228 -1841 -418 172 -18992 23 -2842 6204 1410 992 1904 -83 35 -47 -8 573 -1380 38 -550 750 133 124 1985 -50 20 -30 -5 431 -332 52 -211 257 41 36 Notes to Table 28: (a) Difference between actual output and equilibrius output of cocoa (from Table 20) eultiplied by the FOB price of cocoa (from Table 3-4(3)), divided by the official exchange rate (from Table 4). (b) Actual output of cocoa (from Table 20) *ultiplied by the change in its in its FOB price, expressed in US$ at the official exchange rate. This price price change equals coluen (1) divided by 0.3 tiees total world exports of cocoa (froa Sill & Duffus, Cocoa Statistics, April 1981). (c) Column (1) plus column (21. (d) Coluen (31 divided by Exports FOB (from Table 2-2). (el Difference between actual output and equilibrium output of maize (from Table 20). (f) Difference between actual consumption and equilibrium consumption of maize (from Table 26). lg) Difference between actual output and equilibrium output of rice (from Table 20) multiplied by .65 to convert paddy into rice. (hI Difference between actual consumption and equilibrium consueption of rice (from Table 26). Ii) Column (5) - column (6) times CIF saize lconverted to USH using the OER) plus coluen (7) - column (1) times CIF rice (converted to US, using the OER). (jI Column (9) divided by Exports FOB (from Table 2-2). Ik) The sue of coluens (4) and (10). 187 Table 29 Direct, Long-Run Effect of Price Interventions on Foreign Exchange Earnings Effect on Export Crop Revenue Due to: Prop of Total ---------------------------------Incremental Incremental Incremental Incresental Prop of Effect Eftect on Foreign Change in Change in Prop of Effect Change in Change in Change in Change in Effect on on Food Crop in Exchange Earnings Quantity World Total on Export Crop Haile Naize Rice Rice Imported Value of Total in Value of Total Exported (a) Prices (b) Change (c) in Value of Tot Prod (e) Cons (f) Prod (g) Cons (h) Food Crops (i) Exports (Z) Exports (2) (till UBS) (sill US$) (mill US$) Exports (%) (d) (000 Mt) (000 at) (000 at) (000 Mt) (mill USS) (i (k) Year (1) (2) (3) (4) (5) (6) (7) (9) (9 (10) (11) 1955 N/A N/A N/A N/A N/A 113 NIA I N/A N/A N/A 1956 N/A N/A N/A N/A -194 97 .5 -1 NIA N/A N/A 1957 N/A N/A N/A N/A -96 126 4 .2 N/A N/A N/A 1959 -19 20 2 1 -323 106 6 -.3 -59 -19 -19 1959 -26 30 4 1 N/A N/A N/A N/A N/A NIA N/A 1960 -7 9 3 1 N/A N/A -21 4 NIA N/A N/A 1961 -7 9 I 0 N/A N/A -3 5 N/A N/A NIA 1962 -J 6 19 3 1 -462 79 1 9 -70 -22 -21 1963 -92 101 19 6 -104 -210 3 -37 11 4 10 OD 1964 -73 109 34 11 93 9 9 -40 15 5 15 00 1965 -91 91 -10 -3 62 -425 9 -37 38 12 9 1966 -206 211 4 2 256 -928 10 -39 72 26 27 1967 -201 296 15 5 219 -69 15 -19 21 7 13 1969 -223 195 -39 -13 149 94 14 It 9 2 -10 1969 -319 361 43 12 71 -10 13 -7 15 4 17 -1970 -360 367 7 2 186 -1495 11 -39 69 16 19 1971 -401 430 29 9 387 -350 16 -49 61 19 27 1972 -228 207 -21 -5 2173 260 23 -67 20 5 0 1973 -469 402 -66 -11. -24 -1005 24 -39 76 13 2 1974 -692 635 -57 -9 391 -81 26 10 74 11 3 1975 -616 550 -65 -9 214 -199 Is -41, 75 9 1 1976 -1267 954 -312) -40 214 -1179 27 -91 253 32 -e 1977 -1761 1262 -499 -56 249 -953 49 -317 533 60 4 1979 -3699 2335 -1353 -152 206 -219 66 -401 391 44 -109 1979 -1381 994 -397 -36 350 -41 56 -121 265 25 -11 1990 -755 438 -317 -29 324 -2424 44 -794 1275 116 97 1991 15 -9 7 1 350 -4713 31 -777 2026 295 296 1992 -1910 772 -1139 -195 345 -6325 21 -900 1764 291 103 1 993V -6615- 2647 -3969 -902 173 -19992 24 -2842 6204 1410 508 1994 -742 317 -425 -75 574 -1390 41 -550 751 133 59 1985 -604 243 -361 -57 437 -332 55 -211 260 41 -16 Notes to Table 29: (a) Difference between actual output and equilibrium output of cocoa (froe Table 21) eultiplied by the FOR price of cocoa (from Table 3-4(3)), divided by the official exchange rate (froe Table 4). (b) Actual output of cocoa (froe Table 21) multiplied by the change in its in its FOB price, expressed in US$ at the official exchange rate. This price price change equals column (1) divided by 0.3 times total world exports of cocoa ffrom Bill & Duffus, Cocoa Statistics, April 1981). (c) Column (1) plus column (2). (d) Column (3) divided by Exports FOB (from Table 2-2). (e) Difference between actual output and equilibrium output of maize (from Table 21). (f) Difference between actual consumption and equilibrium consumption of maize (from Table 26). (g) Difference between actual output and equilibrium output of rice (from Table 21) multiplied by .65 to convert paddy into rice. (h) Difference between actual consumption and equilibrium consumption of rice (from Table 26). li) Coluen (5) - coluen (6) times CIF maize (converted to US$ using the OER) plus column (7) - coluen (8) times CIF rice (converted to USS using the OER). (j) Column (9) divided by Exports FOB (from Table 2-2). (k) The sum of columns (4) and (10). 189 Table 30 Direct, Very Long-Run Effect of Price Interventions on Foreign Exchange Earnings Effect on Export Crop Revenue Due to: Prop of Total ---------------------------------Incremental Incremental Incremental Incremental Prop of Effect Effect on Foreign Change in Change in Prop of Effect Change in Change in Change in Change in Effect on on Food Crop in Exchange Earnings Quantity World Total on Export Crop flaize Naize Rice Rice Imported Value of Total in Value of Total Exported (a) Prices (b) Change (c) in Value of Tot Prod (e) Cons (f) Prod (g) Cons (h) Food Crops (i) Exports (Z) Exports (ii (mill USS) (sill US$) (sill US$) Exports CX) (d) (000 Mt) (000 at) (000 Mt) (000 it) (mill US$1 (i (k) Year (1) (2) (3) (4) (5) (6) (7) (B) (9) (10) (11) 1955 N/A N/A N/A N/A N/A 113 N/A I */A N/A N/A 1956 N/A N/A N/A NIA -194 97 .5 -1 NIA N/A N/A 1957 N/A N/A N/A N/A -96 126 4 .2 N/A N/A N/A 1959 -19 20 2 1 -323 106 6 -.3 -59 -19 -19 1959 -26 31 4 1 N/A NIA N/A N/A N/A N/A N/A 1960 -7 9 3 1 N/A N/A -21 4 N/A NIA N/A 1961 ~~-7 9 I 0 N/A N/A -3 5 N/A N/A N/A 1962 -16 19 3 1 -462 78 1 9 -70 -22 -21 J 1963 -82 101 19 6 -104 -210 3 -37 it 4 10 CD1964 -73 109 34 11 93 9 9 -40 1s 5 15 1965 -91 82 -10 -3 62 -425 9 -37 39 12 9 1966 -206 211 4 2 256 -028 10 -39 72 26 27 1967 -292 298 15 5 219 -69 15 -19 21 7 13 1968 -227 189 -39 -13 149 94 14 11 9 2 -10 1969 -329 373 44 13 71 -10 13 -7 15 4 17 1970 -378 395 7 2 196 -1495 11 -39 69 16 le 1971 -436 469 31 9 387 -350 lb -49 61 19 27 197 -271 24 6 -25 -6 273 260 23 -67 20 5 -1 1973 -572 492 -90 -14 -24 -1005 24 -39 76 13 -1 1974 -909 833 -74 -11 391 -91 26 10 74 11 0 1975 -997 793 -94 -12 214 -199 15 -41 75 9 -2 1976 -1997 1429 -468 -60 214 -1179 27 -91 253 32 -29 1977 -2960 2049 -910 -91 249 -953 49 -317 533 60 -31 197 -6490 4102 -2378 -266 206 -219 66 -401 391 44 -223 1979 -2932 2039 -794 -74 350 -41 56 -121 265 25 -50 1990 -1726 1001 -725 -66 324 -2424 44 -794 1275 116 50 1991 -328 171 -157 -22 350 -4713 31 -777 2026 295 263 1982 -5513 2227 -3296 -541 345 -6325 21 -900 1764 291 -251 1993 -15979 6355 -1525 -2165 173 -18992 24 -2942 6204 1410 -755 1984 -1996 949 -1139 -201 574 -1390 41 -550 751 133 -69 1995 -1956 747 -1109 -175 437 -332 55 -211 260 41 -134 Notes to Table 30: (a) Difference between actual output and equilibrium output of cocoa (from Table 22) eultiplied by the FOB price of cocoa (froe Table 3-4(3)), divided by the official exchange rate (from Table 4). (b) ctual output of cocoa (from Table 22) multiplied by the change in its in its FOB price, expressed in USf at the official exchange rate. This price price change equals column (1) divided by 0.3 times total world exports of cocoa (from Sill I Duffus, Cocoa Statistics, April 1991). kc1 Column (1) plus column (2). (d) Coluen (3) divided by Exports FOB (from Table 2-2). (e) Difference between actual output and equilibrium output of maize (from Table 22). (f) Difference between actual consumption and equilibrium consumption of maize (from Table 26). (I) Difference between actual output and equilibrius output of rice (fros Table 22) multiplied by .65 to convert paddy to rice. (h) Difference between actual consueption and equilibriua consumption of rice (from Table 26). (i) Column (5) - coluen (6) times CIF maize (converted to USH using the OER) plus column (7) - coluen (8) times CIF rice (converted to USS usinq the OER). (j) Coluen (1) divided by Exports FOB (from Table 2-2). (k) The sum of columns (4) and (10). 191 Table 31 Total, Short-Run Effect of Price Interventions on Foreign Exchange Earnings Effect on Export Crop Revenue Due to: Prop of Total ------------------------------------- . Incremntal Incremental Increwntal Incremental Prop of Effect Effect on Foreign Change in Change in Prop of Effect Change in Change in Change in Change in Effect on on Food Crop in Exchange Earnings Quantity World Total on Export Crop Naize Ibize Rice Rice lported Value of Total in Yalue of Total Exported (a) Prices (bi Change (c) in Value of Tot Prod (e) Cons (fI Prod (gi Cons (hi Food Crops lil Exports (1i Exports (X) (mill USS) Imill USS) (mill USSI Exports (XI (di (000 Mt) 1000 at) (000 at) (000 *tl (mill US$) (ij (kI Year (1) (2) (3) (4) (5) (6) (7) (9) (9) (10) (11) 1955 NIA N/A N/A N/A N/A N/A N/A N/A NIA N/A NIA 1956 NIA N/A N/A N/A -237 N/A -2 N/A NIA N/A N/A 1957 N/A N/A NIA N/A -92 N/A 3 N/A N/A N/A N/A 1958 -4 5 0 0 -311 11S 3 6 -60 -20 -20 1959 -2 2 0 0 NIA N/A N/A N/A N/A N/A N/A 1960 21 -28 -8 -2 N/A N/A N/A 20 N/A N/A N/A 1961 7 -8 -1 0 N/A N/A -4 30 N/A N/A N/A 1962 2 -3 -1 0 N/A 109 -5 40 N/A N/A N/A vo 1963 -46 56 10 3 -180 -44 -4 -4 -7 -2 1 1964 5 -7 -2 -1 29 87 1 9 -8 -2 -3 1965 -36 32 -4 -1 -29 21 4 20 -6 -2 -3 1966 -55 56 1 0 61 -94 0 21 5 2 2 1967 -23 25 1 0 85 69 -3 13 -2 -1 0 1968 -4 3 -1 0 24 151 2 27 -22 -7 -7 1969 -51 57 7 2 -84 111 -2 19 -30 -9 -7 1970 -66 67 1 0 25 -707 0 7 24 6 6 1971 -9 9 1 0 288 -15 -1 -4 21 6 7 1972 63 -57 6 2 82 294 -4 -37 -63 -i6 -i5 1973 -55 47 -8 -1 -297 -745 13 -17 36 6 5 1974 -60 55 -5 -1 355 59 12 26 35 5 4 1975 6 -5 1 0 98 6 -11 -12 13 2 2 1976 -210 159 -52 -7 150 -319 14 -19 82 11 4 1977 15 -11 4 0 205 46 19 -19 66 7 9. 1978 -171 108 -63 -7 156 140 29 16 12 1 -6 1979 35 -25 10 1 202 257 13 6 -25 -2 -1 -1980 -102 59 -43 -4 217 19 12 -35 86 8 4 1981 16 -e 9 1 312 157 15 39 34 5 6 1982 -190 73 -107 -19 291 33 -2 -5 54 9 -9 1983 -866 347 -519 -118 155 -426 9 -46 172 39 -79 I984 -34 14 -19 -3 551 231 19 -73 121 21 1l 1985 N/A N/A N/A NIA N/A N/A N/A N/A N/A N/A N/A Notes to Tible 31: (a) Difference between actual output and equilibrium output of cocoa (from Table 23) sultiplied by the FOB price of cocoa (from Table 3-4(3)), divided by the official exchange rate (from Table 4). (bl ctual output of cocoa (from Table 23) multiplied by the change in its in its FOI price, expressed in US5 at the official exchange rate. This price price change equals column (1) divided by 0.3 tiees total world exports of (from Sill I Duffus, Cocoa Statistics, April 1981). Ic) Coluen (1) plus column (2). (d) Coluen (3) divided by Exports FOB (from Table 2-2). (el Difference between actual output and equilibrium output of maize (from Table 23). (ft Difference between actual consumption and equilibrium consumption of maize (from Table 27). (g) Difference between actual output and equilibrium output of rice (from Table 231 *ultiplied by b5 to convert padddy to rice. (h) Difference between actual consumption and equilibrium consueption of rice (from Table 27). (it Coluen (5) - coluen (6) times CIF maize (converted to US$ using the GER) plus column (7) - column (8) times CIF rice (converted to USS using the OER). (jt Column (9) divided by Exports FOB (from Table 2-2). (k) The sum of columns (4) and (10). 193 Table 32 Total, Log-Run Effect af Price Interventions an Foreign Exchange Earnings Effect on Export Crop Revenue Due to: Prop of Total ---------------------------------Incrementil Incre,ental Incremental Incremental Prop of Effect Effect on Foreign Change in Change in Prop of Effect Change in Change in Change in Change in Effect on on Food Crop in Exchange Earnings guantity World Total on Export Crop Maize maize Rice Rice Imported Value of Total in Value of Total Exported (a) Prices (b) Change (c) in Yalue of Tot Prod (e) Cons (fi Prod (gI Cons (h) Food Crops (i) Exports (Z) Exports (ZI (mill US$1 (mill US$) (mill US1) Exports (ZI (d) (000 St) (000 at) (000 at) (000 at) (gill US$) (il (k) Year (1) (2) (3) (4) (5) (6) (7) (B) (9) (10) (11) …-- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1955 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 1956 N/A N/A N/A N/A -237 N/A -2 N/A N/A N/A N/A 1957 N/A N/A N/A N/A -126 N/A 2 N/A N/A N/A N/A 1958 19 -20 -2 -1 -352 119 4 6 -65 -22 -22 1959 10 -12 -2 0 N/A N/A N/A N/A N/A N/A NIA 1960 27 -37 -10 -3 N/A N/A -30 20 N/A N/A N/A 1961 22 -26 -3 -1 N/A N/A -10 30 N/A N/A NIA 1962 le -22 -4 -1 -931 109 -B 40 -139 -43 -45 1963 -30 37 7 2 -290 -44 -6 -4 -12 -4 -2 ~* 1964 -14 20 6 2 9 97 0 9 -10 -3 -1 1965 -43 39 -5 -1 -27 21 4 20 -6 -2 -3 1966 -102 104 2 1 56 -94 1 21 5 2 2 1967 -116 122 6 2 90 69 -2 13 -2 -1 2 19b9 -70 59 -12 -4 36 151 2 27 -20 -7 -11 1969 -126 143 17 5 -75 III -1 1e -21 -9 -3 1970 -153 156 3 1 11 -707 0 7 24 6 6 1971 -131 141 9 3 259 -15 -1 -4 21 6 9 1972 -19 17 -2 0 123 254 -4 -37 -49 -13 -13 1973 -175 151 -25 -4 -251 -745 13 -17 39 6 2 1974 -310 284 -25 -4 346 59 15 26 35 5 1 1975 -256 229 -27 -3 139 6 -6 -12 20 3 -1 1976 -659 497 -163 -21 -160 -319 14 -19 93 11 -10 1977 -520 373 -147 -17 212 46 23 -19 70 9 -9 1979 -961 609 -353 -40 169 140 33 16 19 2 -37 1979 -334 240 -94 -9 236 257 20 6 -5 -1 -9 1990 -297 172 -125 -11 239 19 16 -35 94 9 -3 1991 -139 72 -66 -9 321 157 19 39 39 6 -4 1982 -909 327 -482 -79 304 33 0 -5 57 9 -70 1913 -2011 905 -1206 -274 160 -426 9 -46 174 39 -235 1994 -264 113 -151 -27 556 231 21 -73 124 22 -5 1995 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A …-- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Notes to Table 32: (a) Difference between actual output and equilibrium output of cocoa (froo Table 24) eultiplied by the FOB price of cocoa (from Table 3-4(3)), divided by the official exchange rate (from Table 4). fb) Actual output of cocoa (from Table 24) multiplied by the change in its in its FOB price, expressed in USS at the official exchange rate. This price price change equals column (1) divided by 0.3 times total world exports of cocoa (from Bill & Dulfus, Cocoa Statistics, April 19B1). (c) Column (1 plus column (2). Cd) Coluen (3) divided by Exports FOB (from Table 2-2). le) Difference between actual output and equilibrium output of maize (frog Table 24). (f) Difference between actual consueption and equilibrium consumption of maize (from Table 27). (g) Difference between actual output and equilibrium output of rice (from Table 24) multiplied by .65 to convert paddy to rice. (h) Difference between actual consumption and equilibrium consumption of rice (from Table 27). ti) Coluen (5) - column (6) times CIF maize (converted to US$ using the OER) plus coluen (7) - column (8) times CIF rice (converted to USt using the OER). 1;) Column (9) divided by Exports FOB (from Table 2-2). (k) The sum of columns (4) and (10). 195 Table 33 Total, Very Long-Run Effect of Price Interventionts on Foreign Exchange Earnings Effect on Export Crop Revenue Due to: Prop of Total ---------------------------------Incremental Incremental Incremental Incremental Prop of Effect Effect on Foreign Change in Change in Prop of Effect Change ini Change in Change in Change in Effect on on Food Crap in Exchange Earnings guantity World Total on Export Crop Maize Maize Rice Rice Imported Value of Total in Value of Total Exported (a) Prices (b) Change (c) in Value of Tot Prod (e) Cons (f) Prod (g) Cons (h) Food Crops (i) Exports (Z) Exports (2) (mill US$1 (mill US$1 (mill USf) Exports (21 (d) (000 at) (000 at) (000 St) (000 at) (mill US$1 (i)( Year (1) (2) (3) (4) (5) (6) (7) (B) (9) (10) (1 1955 -------- N/A---- ------- --------- N/A---- N---- A- N---- A- N/A---- N/A----- ------- A-- ---- ------ 1955 N/A N/A N/A N/A -237 N/A -2A N/A N/A N/A N/A 1957 N/A N/A N/A N/A -1267 N/A -2 N/A NIA N/A N/A 1959 19 ~ 20 -2 -I -352 119 4 6 -65 -22 -22 1959 10 -11 -2 0 N/A N/A N/A N/A N/A N/A N/A 1960 27 -37 -10 -3 N/A N/A -30 20 N/A NIA N/A 1961 22 -26 -3 -1 N/A N/A -10 30 N/A N/A N/A 1962 19 -22 -4 -1 -931 109 -9 40 -139 -43 -45 1963 -30 37 7 2 -290 -44 -6 -4 -12 -4 -2 a' 164 -14 20 6 2 9 87 -.2 9 -10 -3 -1 1965 -43 39 -5 -1 -27 21 4 20 -6 -2 -3 1966 -102 104 2 1 56 -94 1 21 5 2 2 1967 -117 123 6 2 90 *69 -2 13 -2 -1 2 1969 -72 60 -12 -4 36 151 2 27 -20 -7 -11 1969 -135 153 19 5 -75 III -1 18 -29 -9 -3 1970 -170 173 3 1 11 -707 -.4 7 24 6 6 1971 -164 176 12 4 289 -15 -1 -4 21 6 10 1972 -46 42 -4 -i 123 294 -4 -37 -49 -13 -14 1973 -240 206 -34 -6 -251 -745 13 -17 39 6 1 1974 -437 401 -36 -5 346 59 15 26 35 5 0 1975 -397 355 -42 -5 138 6 -6 -12 20 3 -3 1976 -953 718 -235 -30 160 -319 14 -19 93 11 -19 1977 -1117 800 -317 -36 212 46 23 -19 70 9 -29 1979 -2617 1657 -960 -108 168 140 33 16 19 2 -105 1979 -1345 968 -377 -35 236 257 20 6 -s -1 -36 1980 -1111 644 -467 -42 239 18 16 -35 94 9 -34 1991 -715 372 -342 -49 321 157 19 39 39 6 -43 1992 -4057 1639 -2418 -399 304 33 .1 -5 57 9 -389 19B3 -7999 3157 -4732 -1075 160 -426 9 -46 174 39 -1036 1994 -1157 494 -663 -117 559 231 21 -73 124 22 -95 1995 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Motes to Table 33: (a) Difference between actual output and equilibrium output of cocoa (from Table 25) multiplied by the FOB price of cocoa (from Table 3-4(3)), divided by the official exchange rate (from Table 4). (b) Actual output of cocoa (from Table 25) *ultiplied by the change in its in its FOB price, expressed in USS at the official exchange rate. This price price change equals column (1) divided by 0.3 times total world exports of cocoa (from Bill i Duffus, Cocoa Statistics, April 1981). (cl Column (1) plus column (2). ld) Column (3) divided by Exports FOB (from Table 2-2). (e) Difference between actual output and equilibrium output of maize (from Table 25). (t) Difference between actual consumption and equilibrium consumption of maize (from Table 27). 19) Difference between actual output and equilibrium output of rice (from Table 25) multiplied by .65 to convert paddy to rice. (h) Difference between actual consumption and equilibrium consumption of rice (from Table 27). lil Column (5) - column (6) times CIF maize (converted to USH using the OER) plus column (7) - column (8) times CIF rice (converted to US$ using the OER). Ii) Column (9) divided by Exports FOB (from Table 2-2). lk) The sum of columns (4) and (10). 197 That is, both export taxation and overvaluation of the exchange rate tended to rechce foreign exchange earnings frtm cot:oa.. The reascn for this apparent ananly is that the equilibrium level olf cocoa output that takes into account distortions in the exchange rate also assumes that cocoa exports are being taxed at the optimal rate. When the direct effect of price interventicons alone is calculated, on the other hand, distortions are measured with respect to the border price at the official exchange rate in the absence of any export tax.19 The impact of policy intervention on net foreign exchange earnings from food crops is also somewhat complicated. The direct effect of import restrictions, coupled with the overvalued exchange rate, has generally been to raise domestic prices, increase production ard reduce consumption. This had tended to save foreign exchange, especially in later years. When the total effect is considered, hc3wever, the direct ard indirect effects work in opposite directions, resulting in an impact on foreign exchange earnings that varies in direction from year to year, thouqh it becomes increasingly positive tcwards the end of the period, and is on balance relatively smal 1 in magnitude. This implies that the overall impact of interventions on net foreign exchange earnings is dominated by food crops when only direct effects are ccnsidered. It thus tends to be positive in the short rmun but becomes increasingly negative as the length of rixi increases and the effects on cocoa productions assume greater importance. The total effects, on the '-' This is because the notion of optimality implies equating social marginal revenue and social marginal cost to detLermine the optimum export tax rate. Eht this equaticn is only meaningful, in the first-best world considered here, at the equilibrium exchange rate. 198 other hand, are more quickly dominated by cocoa as the supply respmse lengthens, and the detrimental impact of policy on foreign exchange earnings becomes more immediately obvious. 199 CHAPTER VIII: GIER%JE T ELDGET PM OTHER FESORE TRASERS In addition to affecting production, cansumption, and net eamnings of foreign exchange, price policy interventions have also resulted in transfers of rescurces and welfare between the grvernmnmt, producers, and ccnsumers. The next sectimn deals with the budgetary consequences of agricultural price policies in Ghana. This is followed by an analysis of the impact of these and other policies on transfers of rescurces between agriculture and the rest of the ecaomwny. Effects of Price Policy cn the GEbverrnoent azdcqet The major effect of price policy in Ghana an the goverTnent budget is the revenue that is earned an cocoa exports through the operations of the Coroa Marketing Board. Although data on actual fiscal receipts are unavailable, there is informatimn on CMB costs, and net revenu.e can be estimated by subtracting these costs plus income to producers from the FoB value of marketed cocoa. As discussed earlier-, CMB costs have varied aver time as the responsibilities of the Board have changed. In addition to marketing and quality control, these responsibilities have at various times included research, extension, plantatimn management, and processing. At other times these functions have been performed by the Ministry of Agriculture or other public agencies, in which case CMB costs were lower and revenue to the government was higher than when the CMB was directly respcnsible for these activities. Data on taxes and marketing profits for rice and maize imports are unavailable. The schedule of custcms and excise tariffs published for 1973 lists a 50 percent ad valorum duty an imports of maize and a Nf 0.025/lb 200 specific tax on rice imports. - These taxes do not apply to food aid, nor is there any sales tax on cereals imports. Actual tax receipts from maize and rice imports in 1972 are estimated at Ni 1.18 million.2 This is less than 1 percent of the revenue from cocoa exports. Given the low level of maize imports and the fact that inflation rapidly decreased the real value of the import tax on rice, these sources of government revenue appears to have been of minor importance. Agricultural inputs are exempt from tariffs. Subsidies exist, as described earlier, but it is impossible to put together consistent time series on their total amount. Nb effort has therefore been made to separate them from other government transfers and expenditures. As seen in Table 34, government revenue from cocoa has been an important part of total public resource inflows. Its share of total revenue has fluctuated, without any clear trend, between -63 percent and +69 percent, but in most years it has been between +20 and +50 percent. This is a high export tax share by the standards of most African ccuintries. Cocoa revenue as a proportion of the budget deficit has in many years exceeded 100 percent. The per unit tax on cocoa, shown in Table 35, has increased in nominal terms more rapidly than the total tax as a result of the decline in exports. In 1983, the per unit tax was 129 times its nominal value in 1955, whereas total tax revenue from cocoa was 98 times its value in 1955. As a percentage of the FOB price, the per unit tax an cocoa has fluctuated widely, but there are several movements of importance that ± Republic of Ghana, Customs and Excise Tariff. 1973 2 Data obtained frnm the Ministry of Finance. 201 Table 34 Effect of the Pricing Policy an the Budget (million NC) Net Revenue as a Proportion of (I) Total (Net) Total Budget Revenue (a) Budget (b) Deficit (c) Year (1) (2) (3) 1955 23 22 -231 1956 20 20 ;L78 1957 67 56 -4|46 1958 70 52 -699 1959 57 40 355 1960 36 21 73 1961 24 16 31 1962 32 20 32 1963 48 20 111 1964 26 9 30 1965 13 6 31 1966 47 18 69 1967 111 37 109 1968 143 43 226 1969 201 46 649 1970 118 26 161 1971 146 35 118 1972 133 34 85 1973 230 40 131 1974 350 43 104 1975 226 26 37 1976 518 45 52 1977 446 32 25 1978 1,784 69 105 1979 969 33 56 1980 -362 -11 -8 1981 -3,026 -63 -64 1982 1,496 15 33 1983 2,249 10 415 1984 1,758 5 25 1985 2,027 N/A N/A Notes to Table 34: (a) FOB Price of Cocoa (from Table 3-4(3)) minus Rendered Port Price of Cocoa (from Table 3-3(2)) multiplied by Official Cocoa Marketing Board production estieates based on sarketings (from Table 1-23)). (b) Coluen (1) divided by 6overnment Revenue (from Table 3) in the succeeding year. lc) Column i1) divided by I-) Budget Surplus (from Table 3) in the succeeding year. 202 Table 35 Tax on Cocoa Per Unit Tax on Cocoa Total Tax - --------------------- on Cocoa (NC/at) (a) I FOB (b) (mill NC) (c) Year (1) (2) (3) 1955 101 23 23 1956 74 19 20 1957 326 52 67 1958 273 50 70 1959 1.79 41 57 1960 83 24 36 1961 59 19 24 1962 78 23 32 1964 112 31 48 1963 49 18 26 1965 32 12 13 1966 125 32 47 1967 262 47 111 1968 428 56 143 1969 480 59 201 1970 271 42 118 1971 307 45 146 I172 312 38 133 1973 644 50 270 1974 885 52 350 1975 544 36 226 1976 1528 59 516 1977 1538 39 446 1978 6237 60 1784 1979 3000 33 969 1980 -1273 -20 -362 1981 -12200 -244 -3026 1982 7558 25 1496 1983 13000 22 2249 1984 9299 11 1758 1985 8967 7 2027 Notes to Table 35: (a) FOB Price of Cocoa from Table 3-4(3) minus Rendered Port Price of Cocoa from Table 3-3(2). (b) Coluen (1) divided by FOB Price of Cocoa from Table 3-4(3). (c1 FOB Price of Cocoa from Table 3-4(3) minus Rendered Port Price of Cocoa from Table 3-3(2) multiplied by official Cocoa Marketing Board production estimates based on marketings from Table 1-2(3). 203 should be noted in Table 35. First is the relatively low tax rate from 1960 to 1865, years in which Nkrumah is generally thought to have been exploiting cocoa farmers. In fact this was a period when world market prices were low, and the goverrwnent suffered alung with farmers. Following this, the tax rate rose to a very high level, averaging 49 percent from 1967 to 1978.5 Thereafter, as the exchange rate became increasingly overvalued lowering the real value of the FUH price for cocoa, the tax rate on cocoa declined. Transfers of Rescurces Between (Ariculture and the Rest of the Economy There are a number of ways in which government policy has transferred resources to and from Ghanaian agriculture. These include the direct effects of export taxes and trade and exchange controls on output prices and quantities, the indirect effects of the overvalued cedi on the prices and quantities of outputs and inputs, and government recurrent and investment expenditures. Estimates of Rescuirce Transfers The direct and indirect effects of trade and exchange taxes and ccntrols are calculated in Annex 7. Separate estimates are made of changes in producer surplus for maize (Tables 7-1(1) and 7-1(2)), rice (Tables 7-2(1) and 7-2(2)), and cocoa (Tables 7-3(1) thrnugh 7-3(3)) for the short, long, and very long run. Using a simple, partial-equilibrium dema-id and supply model, transfers to agriculture resulting frtm the direct effects of distortions are given by ULhweighted average of yearly rates. 204 (P - P ) Q + 1/2 (P - P ) (Q - Q) ...(a) where P is the domestic price, P is the border price at the official exchange rate, 0 is actual productim, and Q is production in the absence of price and trade distortions at the official exchange rate. Transfers from agriculture due to the indirect effects of the overvalued exchange rate, are given by (P* - P )Q* + 1/2 (P* - p )(Q* - Q*) (9) where P* is the producer price equivalent of the border price adjusted by multiplying the border price tby the ratio of the equilibrium exchange rate, calculated from the simulation model described in Chapter II, to the official exchange rate, and Q* is equilbrium production from Chapter VII. For maize and rice, each of these two expressicns is generally positive, especially when distorticns have been severe, and the direct and indirect effects of these distortions tend to offset mne another. With cocoa, an the other hand, the direct effect is in mo>st instances negative, since the domestic price is generally less than the border price because of the export tax. As a result, both effects tend to transfer rescuirces away from the agricultural sector. The only exception to this is years in which the introductian of an optimal export tax on cocoa offsets the overvaluation of the exchange rate. Direct and indirect producer price transfers also exist for tradable products other than maize, rice, and cocoa. These, however, are relatively unimportant. Production of the industrial crops - cottan, rubber, and tobacco - has never equaled more than about 5 percent of that of cocoa. Most production and processing of oilseeds is artisanal and results in products that are not traded internaticnally. Domestic prices of 205 these products are influenced by gDvernnent pDlicies with respect to imports of edible oils and tallow for the manufacture of soap, but the cross-price elasticities of supply are unknown, and the intricacies of the input-output relationships and uhbstitution effects involved are such that a detailed study of this sector would be necessary in order to estimate the effects of government policy on resource transfers. Sugar is another industrial product for which price policy could be important. It is an integrated industry, howdever, and price policy applies to output of the sugar mills rather than to sugar cane. Without a detailed study of the mills, therefore, it is impossible to assess the transfer of resources to or frnom agriculture. This is not a critical problem, however, since the total value of sugar cane production during 1965-1968 was never more than 4 percent of the value of cocoa production, and output has subsequently been much lower.< The rest of agricultural production is made up largely of nontradable food crops. These are not directly subject to price policy. They are influenced indirectly via substitution in production and conssumption, though the supply and demand analysis preseted earlier suggests that these effects are not very great. Taxes and subsidies on agricultural inputs are also direct and indirect. There are no import tariffs or other taxes on fertilizers, insecticides, and agricultural machinery and equipment. There are explicit subsidies on these inputs, but import restrictions prevent most producers from having access to them at subsidized prices. As a result, the prices 4 M.S. Singal and J.D.N. Nartey, Sources and Metheds of Estimation of National Income at Current Prices in Ghana, Ghana Central. Bureau of Statistics, 1971, pp.3-13. 206 for these inputs an the private market are quite high. Data an these prices are extremely limited, and costructian of a time series is not possible. In any event, the quantities involved are minimal since most farmers do not use any of these inputs, and when they do, their value is mnly a small part of the total cost of production. Direct subsidies an agricultural inputs are included with other government expenditures. An indirect subsidy also exists because of the overvalued exchange rate. This is estimated in Table 7-4, Annex 7, by multiplying the actual CIF value of imports of agricultural inputs times the ratio of the equilibrium exchange rate to the official rate. The actual value of imports is thEn subtracted fram the adjusted value to arrive at the total value of the implicit subsidy on fertilizers, agricultural chemicals, and agricultural machinery and equipment. Gorvernment expenditure transfers are calculated in Table 7-5, -nnex 7, for both recurrent and investment expenditures. These are derived from separate budgets that are used to distinguish ongoing activities from those that are developmental in nature. Included in the investment budget are some current, in addition to capital, expenditures. Since these normally are start-up costs, however, they may be cansidered as a form of investment. Transfers to agriculture include expenditures en roads and waterways, in additicn to those en agriculture and non-mineral rescurces. While not all of these transportatimn expenditures benefit agriculture, many do, and it is impossible to isolate expenditures more closely associated with agriculture, such as those en feeder roads. On the other hand, there may be other government expenditures that are not included but that do 207 benefit agriculture. Examples are rail transport and storage. These are less directly related to agriculture than roacds, however, and they have therefore been excluded. The results of this analysis are shown in Tables 36 through 41. The first three tables, based an Annex 7, show the direct and total nominal transfers out of and into agriculture because of distortions affecting maize, rice, and cocoa in the short, long, and very lng runs. The last three tables add to these transfers those that are not related to output price. Tables 36 thrcugh 38 show the magnitude of the net transfers out of agriculture due principally to the export tax on, cocoa and the overvalued exchange rate. Although both direct and total transfers have frequently been positive for maize and rice because of the influence of trade controls, these have been dominated in most years by the direct and total transfers out of the cocoa sector. The major exception to this is the period during the early 1980s when the extent of overvaluation was so great that it was difficult for the governnent to extract a positive export tax from the cocoa sector and the price of maize and rice farmers marketing their crops in Accra would have been zero, as explained in the previous chapter, if they had not received any trade proterticn. With the excepticn of these years, there was always an overall price-related direct transfer out of agriculture. Even during these years, the direction of total transfer was out of agriculture cnce the exchange rate effect is combined with the direct effect. COn the other hand, there are a few years when total price-related transfers into agriculture were positive (e.g., 1975 and 1977) . These are 20B Table 36 Direct and Total Nosinal Short-Run Transfers Due to Output Price Interventions Into (+) and Out of (-) Agriculture (lillion NC) Sum of Transfers as Importables Exportables All Products a Share of GDP (Z) Maize Rice Cocoa Direct Total Direct Total Direct Total Direct Total Direct Total Year (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) 1959 -16.61 -28.00 -.01 -.52 -73.1 -54.3 -89.8 -82.9 -11.7 -10.8 1959 N/A N/A N/A N/A -56.8 -54.6 NIA N/A N/A N/A 1960 N/A NIA N/A N/A -34.8 -44.6 N/A N/A N/A N/A 1961 N/A NIA -.13 -2.03 -24.3 -43.6 N/A N/A N/A N/A 1962 NIA NIA -.17 -1.67 -33.1 -40.0 N/A N/A NIA N/A 1963 5.63 -.99 1.39 -.21 -55.5 -64.6 -48.5 -65.9 -4.4 -6.0 1964 -.36 -7.84 1.14 -.66 -27.6 -19.2 -26.9 -27.7 -2.2 -2.2 1965 10.31 -6.01 1.28 -2.17 -15.0 -92.9 -3.4 -101.0 -.2 -6.9 1966 13.75 3.81 .96 -1.45 -57.3 -67.7 -42.6 -65.3 -2.9 -4.3 1967 1.49 -1.29 .74 -.93 -125.8 -50.6 -123.6 -52.8 -8.2 -3.5 1969 -7.80 -19.04 -.81 -3.03 -157.1 -59.1 -165.7 -81.2 -9.7 -4.8 1969 .98 -17.48 .69 -2.63 -227.6 -172.1 -225.9 -192.2 -11.3 -9.6 1970 27.48 20.07 2.01 -.83 -163.7 -76.6 -134.2 -57.4 -5.9 -2.5 1971 10.17 5.57 2.84 .27 -166.5 -18.7 -153.5 -12.9 -6.1 -.5 1972 -65.46 -88.50 5.88 4.00 -133.3 16.4 -192.9 -68.1 -6.9 -2.4 1973 48.03 40.68 3.40 2.07 -283.5 -107.0 -232.1 -64.3 -6.6 -1.8 1974 5.79 .72 -2.05 -6.76 -401.0 -144.7 -397.2 -150.9 -8.5 -3.2 1975 16.64 2.29 12.20 4.20 -253.1 2.0 -224.2 8.5 -4.2 .2 1976 67.42 53.03 28.70 18.43 -670.5 -276.6 -574.4 -205.1 -8.8 -3.1 1977 112.24 63.72 72.28 23.92 -540.9 -97.4 -356.4 -9.9 -3.2 -.1 1978 52.77 -24.51 72.97 20.56 -2165.6 -1971.8 -2039.9 -1975.7 -9.7 -9.4 1979 25.45 -284.52 63.88 3.92 -1020.2 -1643.0 -930.9 -1923.6 -3.3 -6.8 1980 685.75 264.13 211.23 70.15 397.5 -2264.6 1294.5 -1930.3 3.0 -4.5 1981 1277.54 744.26 580.11 -381.92 2350.9 -1276.5 4208.5 -914.2 5.8 -1.3 1982 1136.83 909.48 271.94 -20.91 -2090.0 -3757.5 -681.2 -2869.9 -.1 -.3 1993 2944.91 2757.94 825.33 443.34 -3396.2 -10397.8 374.1 -7196.5 .2 -3.9 1984 3364.99 3145.63 1547.71 1089.30 -1920.7 -9567.2 2992.0 -4333.3 1.1 -1.6 1985 1168.51 N/A 950.61 N/A -2127.1 N/A -7.9 N/A -.002 N/A Notes to Table 36: Coluens are derived as follows: (1) Transfers to maize from Annex Table 7-1(1). (2) Transfers to maize minus transfers from maize from Annex Table 7-1(1). (3) Transfers to rice from Annex Table 7-2(l). (4) Transfers to rice minus transfers from rice from Annex Table 7-2(l). (5) Minus Direct Transfers from cocoa from Table 7-3t1). (6) Minus (Direct Transfers from cocoa plus Indirect Transfers from cocoa) from Annex Table 7-3(l). (7) Sue of coluens (1), (3), and (5). (8) Sue of coluens (2), (4), and (6). (9) Column (7) divided by Nominal 6DP from Table 3. (10) Column (8) divided by Nominal GDP from Table 3. 209 Table 37 Direct and Total Noeinal Long-Run Transfers Due to Output Price Interventions Into (+1 and Out of (-) Agriculture (million NC) Sue of Transfers as Ieportables Exportables All Products a Share of GDP (Z) maize Rice Cocoa Direct Total Direct Total Direct Total Direct Total Direct Total Year (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) 1958 -17.40 -29.64 -.01 -.49 -73.1 -55.2 -90.5 -85.4 -11.8 -11.1 1959 N/A N/A N/A NIA -60.5 -56.4 NIA N/A N/A N/A 1960 N/A N/A -.23 -3.49 -36.3 -46.3 N/A N/A N/A N/A 1961 N/A N/A -.14 - -2.46 -21.6 -43.3 N/A N/A N/A N/A 1962 -14.29 -64.75 -.18 -1.78 -33.5 -40.2 -48.0 -106.7 -4.9 -10.8 1963 6.28 -2.09 1.38 -.28 -57.1 -66.2 -49.4 -68.6 -4.5 -6.2 1964 -.36 -8.72 1.13 -.72 -31.0 -21.1 -30.2 -30.6 -2.4 -2.5 1965 9.91 -5.74 1.23 -2.07 -16.8 -104.8 -5.6 -112.6 -.4 -7.7 1966 13.60 3.71 .92 -1.30 -69.6 -82.9 -55.1 -80.5 -3.6 -5.3 1967 1.43 -1.16 .69 -.87 -165.9 -57.1 -163.7 -59.1 -10.9 -3.9 1968 -7.27 -17.33 -.76 -2.85 -206.6 -66.2 -214.6 -86.3 -12.6 -5.1 1969 .92 -16.42 .64 -2.42 -296.3 -219.9 -294.7 -238.8 -14.7 -11.9 1970 27.08 19.63 1.93 -.80 -219.6 -95.1 -190.6 -76.3 -8.4 -3.4 1971 10.06 5.58 2.73 .25 -238.6 -2.8 -225.8 3.0 -9.0 .1 1972 -61.16 -80.48 5.59 3.79 -182.9 51.2 -238.4 -25.5 -8.5 -.9 1973 44.07 37.39 3.22 1.97 -363.7 -119.7 -316.4 -80.3 -9.0 -2.3 1974 5.79 .52 -1.90 -5.98 -558.2 -159.9 -554.3 -165.3 -11.9 -3.5 1975 15.54 3.77 11.23 4.22 -352.5 57.5 -325.7 65.5 -6.2 1.2 1976 65.44 52.39 27.92 17.83 -946.7 -325.2 -853.3 -255.0 -13.1 -3.9 1977 110.23 68.04 68.34 25.83 -841.1 -50.7 -662.5 43.2 -5.9 .4 1978 51.69 -9.27 71.55 24.90 -3454.4 -3118.3 -3331.1 -3102.6 -15.9 -14.8 1979 24.54 -217.81 60.38 11.74 -1593.6 -2675.3 -1508.7 -2881.4 -5.3 -10.2 1980 648.60 305.81 191.35 76.58 571.3 -3516.0 1411.2 -3133.6 3.3 -7.3 1981 1251.19 807.10 475.90 -247.73 2975.6 -2455.9 4702.7 -1896.5 6.5 -2.6 1982 . 1135.16 961.76 266.67 .65 -2146.1 -4022.8 -744.3 -3060.3 -.1 -.4 1983 2936.40 2800.34 793.08 432.82 -4721.5 -15023.3 -992.0 -11790.1 -.5 -6.4 1984 3361.34 3211.44 1475.81 1087.86 -3221.1 -15731.9 1616.1 -11432.6 .6 -4.2 1985 1151.00 N/A 901.99 N/A -3236.1 N/A -1183.1 N/A -.3 N/A --- --- --- --- -- --- --- --- --- -- --- --- --- --- -- --- --- --- _--- - _--- --- -- --- --- --- --- -- --- --- --- -- Notes to Table 37: Columns are derived as follows: (1) Transfers to maize from Annex Table 7-1(2). (2) Transfers to maize minus transfers from maize from Annex Table 7-1(2). (3) Transfers to rice from Annex Table 7-2(2). (4) Transfers to rice minus transfers from rice from Annex Table 7-2(2). (5) Minus Direct Transfers from cocoa from Table 7-3(2). (6) Minus (Direct Transfers from cocoa plus Indirect Transfers from cocoa) from Annex Table 7-3(2). (7) Sum of columns (1), (3), and (5). (8) Sum of columns (2), (4), and (6). (9) Column (7) divided by Nominal GDP from Table 3. (10) Column (8) divided by Nominal GDP from Table 3. 210 Table 38 Direct and Total Nominal Very Long-Run Transfers Due to Output Price Interventions Into (t) and Out of 1-) Agriculture (sillion NC) Sum of Transfers as lmportables Exportables All Products a Share of GDP MU "aize Rice Cocoa Direct Total Direct Total Direct Total Direct Total Direct Total Year (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) 1958 -17.40 -29.64 -.01 -.49 -73.1 -55.2 -90.5 -85.4 -11.9 -11.1 1959 N/A N/A N/A N/A -60.6 -56.4 N/A N/A N/A N/A 1960 N/A N/A -.23 -3.49 -36.3 -46.3 N/A N/A N/A N/A 1961 N/A N/A -.14 -2.46 -24.6 -43.3 N/A N/A N/A N/A 1962 -14.29 -64.75 -.18 -1.78 -33.5 -40.2 -49.0 -106.7 -4.9 -10.9 1963 6.28 -2.09 1.38 -.28 -57.1 -66.2 -49.4 -68.6 -4.5 -6.2 1964 -.36 -8.72 1.13 -.72 -31.0 -21.1 -30.2 -30.6 -2.4 -2.5 1965 9.91 -5.74 1.23 -2.07 -16.8 -104.9 -5.6 -112.7 -.4 -7.7 1966 13.60 3.71 .92 -1.30 -69.6 -93.0 -55.1 -90.5 -3.6 -5.3 1967 1.43 -1.16 .69 -.87 -166.1 -57.1 -164.0 -59.1 -10.9 -3.9 1968 -7.27 -17.33 -.76 -2.85 -207.6 -66.1 -215.7 -86.3 -12.7 -5.1 1969 .92 -16.42 .64 -2.42 -299.4 -221.7 -297.9 -240.5 -14.9 -12.0 1970 27.09 19.63 1.93 -.80 -223.9 -95.3 -194.9 -76.4 -9.6 -3.4 1971 10.06 5.58 2.73 .25 -246.7 2.8 -234.0 8.7 -9.4 .3 1972 -61.16 -80.48 5.59 3.79 -192.3 60.9 -247.9 -15.7 -8.8 -.6 1973 44.07 37.39 3.22 1.97 -393.6 -121.1 -346.3 -81.7 -9.9 -2.3 1974 5.79 .52 -1.90 -5.98 -623.2 -161.7 -619.3 -167.1 -13.3 -3.6 1975 15.54 3.77 11.23 4.22 -409.0 87.4 -381.3 95.4 -7.2 1.0 1976 65.44 52.39 27.92 17.93 -1159.9 -372.3 -1066.6 -302.1 -16.3 -4.6 1977 110.23 69.04 68.34 25.83 -1087.5 16.7 -909.0 110.6 -8.1 1.0 1978 51.69 -9.27 71.55 24.90 -4719.1 -4208.9 -4595.9 -4193.3 -21.9 -20.0 1979 24.54 -217.81 60.38 11.74 -2249.9 -4022.2 -2165.0 -4228.3 -7.7 -15.0 1980 648.60 305.81 191.35 76.58 841.0 -6345.2 1680.9 -5962.8 3.9 -13.9 1981 1251.19 807.10 475.90 -247.73 4127.3 -6178.3 5854.4 -5618.9 8.1 -7.7 1982 1135.16 961.76 266.67 .65 -3371.4 -7054.1 -1969.5 -6091.7 -.2 -.7 1983 2936.40 2800.34 793.09 432.92 -8184.0 -29137.7 -4454.5 -25904.6 -2.4 -14.1 1984 3361.34 3211.44 1475.81 1097.86 -5673.7 -32279.9 -836.5 -27980.5 -.31 -10.3 1985 1151.00 N/A 901.99 N/A -5743.3 N/A -3690.3 N/A -1.0 NIA Notes to Table 38: Columns are derived as followut (1) Transfers to maize from Annex Table 7-1(2). (2) Transfers to saize minus transfers from maize from Annex Table 7-1(2). (3) Transfers to rice from Annex Table 7-2(2). (4) Transfers to rice minus transfers from rice from Annex Table 7-2(2). (5) Minus Direct Transfers from cocoa from Table 7-313). (6) Minus (Direct Transfers from cocoa plus Indirect Transfers from cocoa) from Annex Table 7-3(3). (7) Sum of columns (1), (3), and (5). (8) Sum of columns (2), (4), and (6). (9) Column (7) divided by Nominal GDP from Table 3. (10) Column (9) divided by Nosinal 6DP from Table 3. 2 11 table 39 Short-Run Transfers Into (+1/ Out of (-1 Agriculturt (Sillion NC) Total of Price-Related Total of Price-Related and Non-Price Transfers Non-price Transfers Price-Related Transfers and Non-Price Transfers as a Share of GOP (11. _- - - -- - - - __ -- - - -- - - -- - - - - -- - __ -- - - -- - - - -- - - -- - - -------------------_--- -__-_ __-__ _ ____ -_- _ Public Roads and Indirect Input Investwnt Waterways Agriculture Subsidies Subtotal Direct Total Direct Total Direct Total tear (1I (21 (31 (49 (51 (60 (7) (a) (9t (10) (fil 1955 N/A N/A N/A NIA N/A N/A N/A N/A N/A N/A NIA 195 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 1957 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 1958 6.4 9.4 14.0 .59 29.4 -89.9 -92.8 -60.4 -53.4 -7.9 -7.0 195 9.9 8.4 13.5 1.94 33.6 N/A N/A N/A N/A N/A N/A 1960 10.7 9.2 14.0 3.73 36.6 N/1A N/A NIA N/A N/A N/A 1961 8.9 9.1 23.3 3.32 44.6 N/A NVA N/A N/A N/A N/A 1962 7.5 9.0 17.4 1.94 34.9 N/A N/A N/A N/A N/A N/A 1963 13.2 12.0 14.8 5.79 45.8 -49.5 -65.8 -2.7 -20.0 -.2 -1.3 1964 20.1 9.2 15.3 3.26 46.9 -26.9 -27.7 20.0 19.2 1.6 1.6 1965 24.9 6.8 20.4 13.14 65.2 -3.4 -101.0 61.9 -35.8 4.2 -2.4 1966 10.4 4.3 19.8 4.19 39.2 -42.6 -65.3 -3.4 -26.1 -.2 -1.7 1967 11.8 2.4 19.3 1.45 34.9 -123.6 -52.9 -99.6 -17.9 -5.9 -1.2 1969 17.9 3.8 19.7 1.05 42.5 -165.7 -91.2 -123.2 -38.7 -7.2 -2.3 1969 22.2 5.5 23.4 3.20 54.3 -225.9 -192.2 -171.6 -137.9 -9.6 -6.9 1970 30.6 5.3 25.1 3.47 64.5 -134.2 -57.4 -69.7 7.1 -3.1 .3 H 1971 32.4 4.9 25.3 3.79 66.3 -153.5 -12.9 -97.2 53.4 -3.5 2.1 1972 27.7 6.2 31.5 2.02 67.4 -192.9 -69.1 -125.5 -.7 -4.5 .0 1973 25.7 15.9 29.1 2.15 72.9 -232.1 -64.3 -159.3 8.6 -4.5 .2 1974 59.2 28.7 53.9 4.62 146.3 -397.2 -150.8 -250.9 - 4.4 -5.4 -.1 1975 111.4 36.8 70.1 10.07 228.4 -224.2 8S.5 4.1 236.8 .1 4.5 1976 196.6 19.5 125.7 16.91 359.6 -574.4 -205.1 -215.9 153.5 -3.3 2.4 1977 233.3 42.0 343.6 84.67 703.6 -356.4 -9.9 347.2 693.9 3.1 6.2 1978 256.0 78.5 342.9 101.30 779.7 -2039.9 -1975.7 -1261.2 -1197.0 -6.0 -5.7 1979 190.5 91.4 1497.0 1130.69 807.6 -930.9 -1923.6. -43.3 -1036.0 -.2 -3.7 1990 464.3 135.8 721.4 254.92 1576.4 1294.5 -1930.3 2870.9 -353.9 6.7 -.8 1931 375.5 131.6 903.1 926.11 2236.3 4209.5 -914.2 6444.9 1322.1 9.9 1.8 1992 396.2 123.4 927.6 628.48 1975.7 -691.2 -2969.9 1294.5 -993.2 1.5 -1.0 1993 86.9 177.8 1399.6 N/A N/A 374.1 -7196.5 N/A N/A N/A N/A 1994 1851.7 423.3 936.3 N/A N/A 2 . 0 -4333.3 N/A N/A N/A N/A 1995 N/A N/A N/A N/A N/A -7.9 N/A N/A N/A N/A N/A IYh3 --. 12. ----- 5.7 -4-------------------- 8 --4B.5- --65.8--------------- -2. -2. -. ---1.8--- Notes to Table 39: Colums are derive as follows: (1) AneNx table 7-5, column 6. (29 From Annex Table 7-5. (3) From Annex Table 7-5. (49 Indirect Input Subsidie-s from Annex Table 7-4. (5) Sum of column (19 through (41. (69 Fro Table 36. 979 From Table 36. 18) Suo of column (51 and (6). (9) Sum of, columns a5 nd (19. (101 Column (9) divided by 4ominal SOP from Table 3. (119 Column (99 divided by Nominal 6DP from Table- 3. Table 40 Long-Ran Transfers Into (41/ Out o1 - Aqriclture loillion ICI Total of Price-Related Total of Price-Related and Non-Price Transfers Non-price Transfers Price-Related Transfers and Non-Price Transfers as a Share of DP (121. Public Roads and Indirect Input Investnent Waterways Agriculture Subsidies Subtotal Direct Total Direct Total Direct Total Year (1 (21 131 (44 (5) (61 (7) (I8 (9) (101 (11) 1955 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A IV56 N/A N/A N/A N/A N/A N/A N/A N/A N/A NIA NIA 1957 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 1959 6.4 8.4 14.0 .59 29.4 -90.5 -85.4 -61.1 -56.0 -9.0 -7.3 1959 9.9 8.4 13.5 1.94 33.6 N/A N/A N/A N/A N/A N/A 1960 10.7 B.2 14.0 3.73 36.6 N/A N/A N/A N/A N/A N/A 1961 8.9 9.1 23.3 3.32 44.6 NIA N/l N/A N/A NiA N/A 1962 7.5 8.0 17.4 1.94 34.8 -49.0 -106.7 -13.1 -71.9 -1.3 -7.3 1963 13.2 12.0 14.8 5.79 45.8 -49.4 -6S.6 -3.6 -22.8 -.3 -2.1 1964 20.1 0.2 15.3 3.26 46.9 -30.2 -30.6 16.7 16.3 1.3 1.3 1965 24.9 6.9 20.4 13.14 65.2 -5.6 -112.6 59.6 -47.4 4.1 -3.2 16 10.4 4.8 19.8 4.19 39.2 -55.1 -90.5 -15.9 -41.3 -1.0 -2.7 1967 11.8 2.4 19.3 1.45 34.9 -163.7 -59.1 -128.9 -24.2 -9.6 -1.6 9I68 17.9 3.9 19.7 1.05 42.5 -214.6 -86.3 -172.2 -43.9 -10.1 -2.6 S1969 22.2 5.5 23.4 3.20 54.3 -294.7 -238.8 -240.4 -184.5 -12.0 -9.2 1970 30.6 5.3 25.1 3.47 64.5 -190.6 -76.3 -126.1 -11.9 -5.6 -.5 1971 32.4 4.9 25.3 3.79 66.3 -225.8 3.0 -159.5 69.3 -6.4 2.9 1972 27.7 6.2 31.5 2.02 67.4 -238.4 -25.5 -171.0 42.0 -6.1 1.5 1973 25.7 15.9 29.1 2.15 72.9 -316.4 -80.3 -243.5 -7.5 -7.0 -.2 1974 59.2 28.7 53.0 4.62 146.3 -554.3 -165.3 -401.0 -19.0 -8.8 -.4 1975 111.4 36.8 70.1 10.07 229.4 -325.7 65.5 -97.4 293.9 -1.8 5.6 1976 196.6 19.5 125.7 16.81 358.6 -853.3 -255.0 -494.7 103.7 -7.6 1.6 1977 233.3 42.0 343.6 84.67 703.6 -662.5 43.2 41.0 746.7 .4 6.7 1979 256.0 79.5 342.9 101.30 778.7 -3331.1 -3102.6 -2552.4 -2323.9 -12.2 -11.1 1979 188.5 91.4 497.0 130.69 887.6 -1508.7 -2981.4 -621.1 -1993.8 -2.2 -7.1 1980 44.3 135.8 721.4 254.92 1576.4 1411.2 -3133.6 2987.7 -1557.2 7.0 -3.6 1981 375.5 131.6 803.1 926.11 2236.3 4702.7 -1896.5 6939.0 339.8 9.6 .5 1992 396.2 123.4 827.6 628.48 1975.7 -744.3 -3060.3 1231.4 -1084.7 1.4 -1.3 1993 986.9 177.8 1389.6 N/A N/A -992.0 -11790.1 N/A N/A N/A N/A 1984 1851.7 423.3 936.3 N/A N/A 1616.1 -11432.6 N/A N/A N/A N/A 1985 N/A N/A N/A N/A N/A -1193.1 N/A N/A N/A N/A N/A Notes to Table 40: Columns are derived as follows: (1) Annet Table 7-5, coluan 6. (2) Fro Annex Table 7-5. (31 From Annex Table 7-5. (41 Indirect Input Subsidies fra Annex Table 7-4. (51 Sum of columns 11( through (41. (6) Fro Table 37. (7) Froe Table 37. (8) Sue of columns (5) and (61. (9) Son of colvmns (5) and (7). (101 Coluan (9) divided by Noinal WP froe Table 3. (111 Column (9t divided by Nominal SP from Table 3. Table 41 - -- -- - -- - - - - - -- -- -- -- -- -- -- --- - -- -- - -- - -- -- -- -- - Very Lng-Run Transfers Into 14)/ ht of (-3 Agriculture luillion ICI Total of Price-Related Total of Price-Related and Nln-Price transfers Non-price Transfers Price-Related Transfers and Non-Price Transfers as a Share of SP (ZI. Public Roads and Indirect Input Investwnt WItervays Agriculture Subsidies Subtotal Direct Total Direct Total Direct Total Year (13 (23 (3) (43 (51 (61 (7) (89 (93 (103 (11I 155 N/A N/A N/A N/A N/A N/A N/A N/A N/A NIA N/A 1956 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 1957 N/A N/A N/A W/A N/A N/A N/A N/A N/A N/A N/A 1951 6.4 9.4 14.0 .59 29.4 -90.5 -85.4 -61.1 -56.0 -8.0 -7.3 1959 9.9 0.4 13.5 1.94 33.6 NI/A N/A N/A N/A N/A N/A 1960 10.7 8.2 14.0 3.73 36.6 N/A N/A N/A N/A N/A N/A 191 9.9 9.1 23.3 3.32 44.6 N/A N/A N/A N/A N/A N/A 1962 7.5 9.0 17.4 1.94 34.9 -48.0 -106.7 -13.1 -71.9 -1.3 -7.3 1963 13.2 12.0 14.9 5.79 45.8 -49.4 -69.6 -3.6 -22.8 -.3 -2.1 I164 20.1 8.2 15.3 3.26 46.9 -30.2 -30.6 16.7 16.3 1.3 1.3 1965 24.9 6.8 20.4 13.14 65.2 -5.6 -112.7 59.6 -47.4 4.1 -3.2 1966 10.4 4.8 19.9 4.19 39.2 -55.1 -80.5 -15.9 -41.4 -1.0 -2.7 197 11.9 2.4 19.3 1.45 34.9 -164.0 -59.1 -129.1 -24.2 -8.6 -1.6 196I 17.9 3.9 19.7 1.05 42.5 -215.7 -96.3 -173.2 -43.9 -10.2 -2.6 1969 22.2 5.5 23.4 3.20 54.3 -297.8 -240.5 -243.5 -106.2 -12.2 -9.3 1970 30.6 5.3 25.1 3.47 64.5 -194.9 -76.4 -130.3 -12.0 -5.8 -.5 1971 32.4 4.9 25.3 3.79 66.3 -234.0 9.7 -167.7 75.0 -6.7 3.0 1972 27.7 6.2 31.5 2.02 67.4 -247.9 -15.7 -100.4 51.7 -6.4 1.8 1973 25.7 15.9 29.1 2.15 72.9 -346.3 -91.7 -273.5 -8.9 -7.8 -.3 1974 59.2 29.7 53.9 4.62 146.3 -619.3 -167.1 -473.0 -20.8 -10.2 -.4 1975 111.4 36.9 70.1 10.07 229.4 -381.3 95.4 -152.9 323.7 -2.9 6.1 1976 196.6 19.5 125.7 16.81 358.6 -1066.6 -302.1 -709.0 56.5 -10.3 .9 1977 233.3 42.0 343.6 84.67 703.6 -909.0 110.6 -205.4 914.1 -1.9 7.3 1979 256.0 79.5 342.9 101.30 770.7 -4595.9 -4193.3 -3817.2 -3414.6 -10.2 -16.3 1979 199.5 81.4 487.0 130.69 897.6 -2165.0 -4228.3 -1277.4 -3340.7 -4.5 -11.i IS90 464.3 135.8 721.4 254.92 1576.4 I19O.9 -5962.0 3257.3 -4336.4 7.6 -10.2 199 375.5 131.6 903.1 926.11 2236.3 5854.4 -5619.9 09S0.7 -3362.6 11.1 -4.7 1992 396.2 123.4 827.6 628.48 1975.7 -1969.5 -6091.7 6.1 -4116.0 .0 -4.8 193 896.0 177.0 139.6 NI/A N/A -4454.5 -25904.6 N/A N/A N/A N/A 1994 1951.7 423.3 936.3 N/A N/A -936.5 -27990.5 N/A N/A N/A N/A (995 N/A N/A NIA N/A N/A -3690.3 N/A N/A N/A N/A N/A Notes to Table 41: Coluns are derived as follons: (11 Annen Table 7-5, coluen 6. (2) From Annex Table 7-5. (31 Fre Annex Table 7-5. 141 lireKt Input Subsidie from Annex Table 7-4. (51 So of coluns (13 through (51 1(6 Free Table 38. (71 From Table 36. (83 So of coluns (53 and (63. (9) So of colans 151 and (71. (103 ColI (8n divided by Nominal 6DP from Table 3. (111 Colmn (9I divided by Nominal GDP fro Table 3. years in which the optimumn domestic price for coCOa at the borTder measured at the equilibrium exchange rate was substantially less than the FEB price measured at the official rate.. On the whole, however, net price-related transfers have been away from agriculture, and the magnitude of these transfers became very substantial after 1977, especially when a very-long- run autput response is assumed. As a percentage of GDP, the magnitude of net transfers out of agriculture due to output price interventions has varied markedly from year to year. In 1958 the transfer was quite large since domestic prices were well below world market prices for both maize and cocoa. Thereafter the share of total price-related short-run transfers decreased from 11 percent in 1956 to an average of 5 percent during the final four years of the Nkrumah regime. From 1967 to 1977, total price-related short-rumn transfers out of agriculture averaged less than 3 percent of GDP. They increased to 9.4 percent in 197E and then dropped steadily to 0.3 percent in 1962 as government taxation of the cocoa sector eroded in the face of a highly overvalued exchange rate and accelerating inflation. Moving to the Icng and the very Icng run, the same trends are evident but in much more exaggerated form because the higher response of output to price distortions increases the magnitude of the transfers involved. In the very long run, for example, agricultural losses associated with price interventions frequently exceeded 10 percent of GDP, especially after 1977. This is especially important for cocoa because of the long gestation periods involved. It also implies that, even under the reforms 5 See Phnex Table 7-3(1). 215 of the Rawlings regime, it will be years before the effects of past policies are fully overcome. Price-related transfers are combined with nm-price transfers in Tables 39-41. The latter include public investment in agriculture and recurrent government expenditures an roads, waterways, and agriculture, inclusive of direct input subsidies, as well as the indirect subsidy on inputs that results from the overvalued exchange rate. In most years net transfers were aut of agriculture and tended to increase as the supply response period lengthened. Exceptions to this occurred in 1964 and 1965, when public expenditures were relatively large and incawe from cocoa was reduced because of low world prices. Again during the period 1970-79, total price related transfers were sometimes positive for reasons explained earlier, and even when they were negative, their magnitude was fairly low in relation to government expenditures. In 1990 total transfers were positive in the short and long run, largely because the cocoa price to producers was subsidized in that year. Thereafter, though data on indirect subsidies are incomplete, total transfers were negative and very substantial. The fact that government expenditures and the indirect input subsidy have at times offset price related transfers does not necessarily imply that agriculture was better off. In many cases, investments in agriculture were relatively unproductive, and recurrent expenditures were related more to public sector employment than to benefitting the farmer. This was especially true during the twD periods mentioned above, which were each characterized by the government s strong orientation towards direct intervention in agriculture rather than the use of price policy to induce increased production. 216 Government Investment and Expenditure Bias In order to estimate the degree of bias that has existed towards agriculture with respect to government investment and total expenditures, it is useful to campare the share of agriculture in each of these with its share in GDP. This GOP share may be estimated for either the distorted or the undistorted situatimns. Here we are interested in the share that would have prevailed if prices had been undistorted by trade policy and exchange controls. The value of agricultural GEP in the undistorted situation is estimated for the very long run in Table 7-6. Aijustments are made in this table for changes in prices and quantities produced of maize, rice, and cocoa. The price changes include both the direct effects of trade policy and the indirect effects of exchange rate adjustments. (iiantity changes are those estimated earlier using equaticns (2)-(4). Government Investment Bias (GIB), or the share of agriculture in government investment expenditures divided by its share in GDP, is shown in Table 42. It is clear from this table that public investment has bee strogly biased away from agriculture. In many years the ratio was less than 0.4, especially during the Nkrumah regime. During the period from 1968 to 1972, it averaged in excess of 0.55, but then slipped scoewhat until 1981-84, when the average was 0.75. The Government Expenditure Bias (GEB) has been even more unfavorable for agriculture, with the ratio in most years less than 0.3. Since 1977 it has been only slightly in excess of 0.2. 217 Table 42 Government Investment (6IB) and Total Expenditure (GEB) Bias Ni 6DP /GDP (a) 61 /61 lb) BE /BE Id) A A 61B (c) A 6EB (e) Year (1) (21 (3) (4) (5) 1958 .62.3 .194 .311 .232 .373 1959 N/A .178 N/A .203 N/A 1960 N/A .130 N/A .146 N/A 1961 N/A .098 N/A .177 N/A 1962 .557 .074 .133 .133 .238 1963 .440 .126 .286 .150 .341 1964 .384 .157 .409 .132 .344 1965 .495 .175 .354 .144 .290 1966 .510 .160 .314 .130 .255 1967 .477 .171 .359 .107 .224 1968 .490 .267 .546 .113 .230 1969 .610 .264 .433 .116 .190 1970 .539 .283 .526 .130 .241 1971 .471 .312 .661 .124 .263 1972 .485 .289 .595 .122 .252 1973 .550 .152 .276 .092 .168 1974 .584 .207 .355 .125 .214 1975 .503 .253 .502 .146 .290 1976 .613 .309 .503 .171 .279 1977 .593 .336 .566 .202 .341 1978 .830 .337 .406 .181 .218 1979 .786 .317 .403 .159 .202 1980 .723 .334 .462 .166 .230 1981 .642 .405 .631 .137 .214 1982 .692 .485 .701 .152 .220 1983 .740 .655 .885 .166 .225 1984 .604 .464 .768 .120 .199 1985 N/A N/A N/A N/A N/A Notes to Table 42: (a) Non-intervention Agricultural GDP from Annex 7, Table 7-6 divided by nominal GDP from Table 3. (bl Total Investment Boverneent Expenditure Transfers to Agriculture from Annex 7, Table 7-5 divided by overall Investment Expenditures from Annex 7, Table 7-7. (ci Column (2) divided by column (1). (d) Total Recurrent plus Total Investment Government Expenditure Transfer to Agriculture from Annex 7, Table 7-5, divided by Total Government Expenditures from Annex 7, Table 7-7. (e1 Column (4) divided by column (1). 218 CFPPTER IX: OTH0ER PRICE INTERMENTION EFFECTS There are a number of other effects of agricultural price interventica s. Two of these are examined in this chapter. The first is the impact on the inclme of different types of farmers. It w.uld also be desirable to measure the effects of price policy mn other interest groups, biut the data do not permit this, and these effects would be swamped by the muich larger changes in real income that all groups have experienced and that are only partially related to agricultural prices.1 The second effect of price interventions analyzed here is related to the variability of prices due to changes in domestic demand and supply and to price fluctuations on the world market. Farm Income Effects The effects of price policy mn farm income were estimated for three different types of farms. The first consists of large-scale cocoa farmers, who in 1970 harvested approximately 200 headloads of cocoa weighting 60 posunds each.2 This quantity was adjusted for other years by multiplying it times the ratio of total natimnal production in that year to total producrtion in 1970. The land-owner generally retains twoi-thirds of the revenue received. He is usually absntee and received income from other A According to a 1974-75 hausehDld budget survey, for example, rice and wheat accounted for mnly 3.2 percent of total household expenditures in urban areas. Ghana Central Bureau of Statistics, SLumnary Reiport in Hbusehold Economics Survey. 1974-1975, Accra: July 1979. 2 C. Okali, M. Owusuansha, and B.E. Rourke, "The Development Pattern of Large Cocoa HDidings in Ghana: Scme Case Studies," in R.A. Kotey, C. Okali, and B.E. Rourke, Eds., Economics of Cocoa Production and Marketina, Institute of Statistical, Social and Economic Research, Uhiversity of Ghana, 1974. 219 sources, but there are no data on the amnuLnts involved. Nbminal income is therefore estimated by multiplying twe-thirds of total cocoa production per farm by the relevant producer price. This is converted to real income by dividing by a weighted average of the overall c1nsumer price index and the prices of rice and maize. The weights pertain to urban consumption patterns obtained from the results of a survey canducted during the mid 1970s.3 A similar analysis was unidertaken for large-scale rice farmers cultivating an average of 119.3 acres, each acre yielding 7.1 bags of 160 pounds per.' The base year in this case is 1973. Production was adjusted for the costs of labor and other inputs used in cultivation. The same expenditure coefficients were used as for cocoa farmers, and no adjustment was possible for off-farm income because of lack of data. The third type of farmer grwas maize and is assumed to cultivate 10 acres, with yields of 1300 poLinds per acre.5 Data are not available by farm type on the mix of crops groAwn so no adjustment is possible for other sources of income. Expenditure weights pertaining to rural csansumption weights were obtained from the same scurce as for the other farmers. The results of this analysis are contained in Tables 43-50 for direct and total interventions in the instantaneous, short, long, and very long runs. The instantanecous run assumes no ou-tput response, whereas the other runs are calculated under the set of assuffptions used in Chapter VII. Ghana, Central Bireau of Statistics, Summarv Report..., 1979. Fred Everett Winch III, Costs and Returns of Alternative Rice Production Systems in Nbrthern Ghana: Implications for Oitput. Employmnent and Income Distribution, Ph.D., Dissertation, Michigan State University, 1976. Ghana, Ministry of Agriculture, Economics and Marketing Division, Report on Ghana Sample Census of Agriculture 1970, Accra: March 1972. 220 Table 43 Real Instantaneous Income Effect of Direct Intervention (a) (NC) Large Scale Large Scale Small Scale Year Cocoa Farmers Rice Farners Maize Farmers 1953 N/A N/A N/A 1954 -.519 N/A N/A 1955 -.242 -.055 -.669 1956 -.203 .076 -.544 1957 -.541 .008 -.781 1958 -.529 .001 -.559 1959 -.440 N/A N/A 1960 -.262 -.087 N/A 1961 -.203 -.088 N/A 1962 -.258 -.139 -.444 1963 -.362 1.007 1.113 1964 -.212 1.041 -.047 1965 -.155 1.252 1.913 1966 -.364 1.062 2.469 1967 -.508 .388 .297 1968 -.598 -.238 -.354 1969 -.622 .139 .028 1970 -.513 .643 3.918 1971 -.515 1.110 .731 1972 -.460 1.485 -.628 1973 -.597 .513 2.372 1974 -.642 -.129 .160 1975 -.486 1.371 .541 1976 -.683 3.583 3.423 1977 -.546 -12.223 3.054 1978 -.704 -6.217 1.142 1979 -.433 -3.923 .109 1980 .433 -7.063 9.207 1981 -59.837 -2.840 -18.833 1982 -.401 -4.186 -7.276 1983 -.417 -4.594 -14.007 1994 -.251 -17.592 2.579 1985 -.144 -38.663 .871 Notes to Table 43: (a) Real Actual Income minus Real Equilibrium Instantaneous Income divided by Real Instantaneous Equilibrium Income (from Annex Table 8-1(1) for Cocoa, Table 8-2(1) for Rice, and Table 8-3(1) for Maize). 221 Table 44 Real Short-Run Income Effect of Direct Intervention (a) (NC) Large Scale Large Scale Seall Scale Year Cocoa Farners Rice Farmers Maize Farsers 1953 N/- N/A NIA 1954 N/A N/A N/A 1955 -. 242 N/A N/A 1956 -.215 .076 -.544 1957 -.568 .361 -.666 1958 -.583 .247 -.635 1959 -.495 N/A N/A 1960 -.252 N/A N/A 1961 -.242 -.084 N/A 1962 - .320 -.076 N/A 1963 -.531 1.216 2.486 1964 -.305 1.916 3.250 1965 -.387 2.430 7.167 1966 -.580 2.757 24.868 1967 -.625 1.451 9.755 1968 -.678 .252 1.684 1969 -.711 .413 1.549 1970 -.681 1.186 15.578 1971 -.632 2.329 19.702 1972 -.479 3.207 .931 1973 -.735 2.057 4.834 1974 -.733 .507 11.890 1975 -.599 1.775 6.001 1976 -.807 8.942 31.598 1977 -.692 -29.220 76.161 1978 -.800 -60.029 59.069 197? -.505 -23.165 19.058 L980 .154 -25.219 99.722 1981 -103.635 -3.135 -398.906 1982 -.677 -22.200 -2838.208 1983 -.721 -32.908 -5350.330 1984 -.390 -151.762 4077.951 1995 -.247 -323.781 165.772 Notes to Table 44: (a) Real Actual Income minus Real Equilibrium Short-Run Income divided by Real Short-Run Equilibrium Income (from Annex Table 8-1(1) for Cocoa, Table 8-2(1) for Rice, and Table 8-3(1) for Maize). 222 Table 45 Real Long-Run Income Effect of Direct Intervention (a) (NC) Large Scale Large Scale Small Scale Year Cocoa Farmers Rice Farmers Maize Farsers 1953 N/A N/A N/A 1954 N/A N/A N/A 1955 -.242 N/A N/A 1956 -.198 .076 -.544 1957 -.557 .372 -.700 1958 -.583 .354 -.657 1959 -.522 N/A N/A 1960 -.310 -.561 N/A 1961 -.258 -.227 N/A 1962 -.336 -.105 -.680 1963 -.554 1.255 1.892 1964 -.436 2.023 2.986 1965 -.495 2.802 7.978 1966 -.692 3.299 26.229 1967 -.761 1.951 11.928 1968 -.7?6 .514 2.338 1969 -.812 .682 1.887 1970 -.797 1.421 16.221 1971 -.792 2.686 21.188 1972 -.701 3.853 1.488 1973 -.820 2.623 5.856 1974 -.842 .877 11.789 1975 -.765 2.368 7.831 1976 -.885 9.910 36.481 1977 -.842 -36.088 92.768 1978 -.901 -79.400 83.183 1979 -.761 -44.046 29.309 1980 -.359 -47.805 143.543 1981 -59.800 -4.529 -521.116 1982 -.690 -26.015 -4110.303 1983 -.824 -53.956 -12052.824 1984 -.729 -292.386 9653.111 1995 -.623 -651.935 458.383 Notes to Table 45: (a) Real Actual Income minus Real Equilibrium Long-Run Income divided by Real Long-Run Equilibrium Income (from Annex Table 8-111) for Cocoa, Table 8-2(1) for Rice, and Table 8-3(1) for Maize). 223 Table 46 Real Very Long-Run Income Effect of Direct Intervention (a) (NC) Large Scale Large Scale Small Scale Year Cocoa Farsers Rice Farsers Maize Fareers 1953 NIA NIA N/A 1954 N/A N/A NlA 1955 -.242 N/A N/A 1956 -. ?8 ,076 -.544 1957 -.557 .372 -.700 1958 -.583 .354 -.657 1959 -.523 N/A N/A 1960 -.310 -.561 NIA 1961 -.258 -.227 NIA 1962 -.337 -.105 -.680 1963 -.554 1.255 1.892 1964 -.436 2.023 2.986 1965 -.495 2.802 7.978 1966 -.692 3.299 26.229 1967 -.762 1.951 11.928 1968 -.797 .514 2.338 1969 -.815 .682 1.887 1970 -.803 1.421 16.221 1971 -.802 2.686 21.188 1972 -.724 3.853 1.488 1973 -.840 2.623 5.856 1974 -.865 .877 11.789 1975 -.810 2.368 7.831 1976 -.912 9.910 36.481 1977 -.887 -36.088 92.768 1978 -.933 -79.400 83.183 1979 -.850 -44.046 29.309 1980 -.621 -47.805 143.543 1981 -33.875 -4.529 -521.116 1982 -.835 -26.015 -4110.305 1983 -.910 -53.956 -12052.824 1994 -.868 -292.386 9653.111 1995 -.823 -651.935 458.383 Notes to Table 46: (a) For Cocoa: Real Actual Income minus Real Equilibrium Very Long-Run Income divided by Real Very Long-Run Equilibrium Income tfrom Annex Table 9-111)). For Rice and Maize: Very Long-Run in considered to be the as Long-Run so values are from Table 45. 224 Table 47 Real Instantaneous Income Effect of Total Intervention (a) (NC) Large Scale Large Scale Snall Scale Year Cocoa Farmers Rice Farmers Maize Farmers 1953 NIA N/A N/A 1954 N/A N/A N/A 1955 N/A -.062 -.671 1956 N/A .068 -.547 1957 N/A .000 -.783 1958 -.454 -.244 -.650 1959 -.420 N/A N/A 1960 -.312 -.521 N/A 1961 -.312 -.597 N/A 1962 -.292 -.584 -.675 1963 -.391 -.027 .102 1964 -.153 -.242 -.512 1965 -.491 -.533 -.226 1966 -.393 -.429 .142 1967 -.302 -.237 -.249 1968 -.357 -.550 -.581 1969 -.558 -.314 -.311 1970 -.351 -.140 1.351 1971 -.117 .057 .017 1972 .274 .710 -.704 1973 -.380 .196 1.627 1974 -.409 -.363 -.136 1975 .006 .314 -.030 1976 -.503 .716 .964 1977 -.178 .226 -.199 1978 -.682 -.155 -.642 1979 -.549 -.176 -.700 1990 -.629 .235 -.128 1981 -.369 -.577 -.418 1982 -.530 -.002 -.204 1983 -.660 .713 .782 1984 -.579 1.169 -.291 1985 N/A N/A NIA Notes to Table 47: (a) Real Actual Incose minus Real Equilibrium Instantaneous Incose divided by Real Instantaneous Equilibrium Income (from Annex Table 8-1(2) for Cocoa, Table 8-2(2) for Rice, and Table 8-3(2) for Maize). 225 Table 48 Real Short-Run Income Effect of Total Intervention (a) (NC) Large Scale Large Scale Small Scale Year Cocoa Farsers Rice Farmers Naize Farmers 1953 N/A N/A N/A 1954 N/A N/A N/A 1955 N/A N/A N/A 1956 N/A .068 -.547 1957 N/A .392 -.661 1958 -.527 .049 -.688 1959 -.490 N/A N/A 1960 -.323 N/A N/A 1961 -.365 -.616 N/A 1962 -.365 -.623 N/A 1963 -.554 -.054 .336 1964 -.232 -.08B .419 1965 -.636 -.327 .629 1966 -.574 -.365 2.319 1967 -.428 -.203 1.606 1968 -.438 -.438 .112 1969 -.659 -.247 .296 1970 -.536 -.029 4.967 1971 -.238 .180 5.441 1972 .424 .815 -.107 1973 -.517 1.053 2.779 1974 -.525 -.032 6.723 1975 -.099 .222 2.266 1976 -.654 1.865 8.943 1977 -.259 .897 6.620 1978 -.740 .642 2.010 1979 -.587 .202 .540 1980 -.716 .867 3.866 1961 -.420 -.368 7.048 1982 -.615 .049 10.979 1983 -.766 1.941 39.996 1984 -.653 3.365 41.316 1985 N/A N/A N/A Notes to Table 48: (a) Real Actual Income minus Real Equilibrium Short-Run Income divided by Real Short-Run Equilibrium Incose (from Annex Table 8-1(2) for Cocoa, Table 8-2(2) for Rice, and Table 8-3(2) for Maize). 226 Table 49 Real Long-Run Incose Effect of Total Interyention (a) (NC) Large Scale Large Scale S uall Scale Year Cocoa Farmers Rice Farmers Maize Farmers 1953 N/A N/A N/A 1954 N/A N/A N/A 1955 N/A N/A N/A 1956 N/A .068 -.547 1957 N/A .348 -.701 1958 -.468 .092 -.712 1959 -.458 N/A N/A 1960 -.300 -.777 N/A 1961 -.306 -.691 N/A 1962 -.310 -.657 -.880 1963 -.526 -.126 .024 1964 -.294 -.140 .240 1965 -.651 -.328 .642 1966 -.639 -.329 2.261 1967 -.561 -.197 1.670 1968 -.555 -.449 .176 1969 -.715 -.234 .325 1970 -.631 -.034 4.780 1971 -.446 .175 5.461 1972 .064 .803 .025 1973 -.618 1.014 2.980 1974 -.658 .064 6.233 1975 -.391 .339 2.899 1976 -.763 1.787 9.697 1977 -.521 1.066 7.559 1978 -.810 .B05 2.720 1979 -.695 .399 .896 1980 -.774 1.056 4.582 1981 -.572 -.308 8.249 1982 -.695 .144 14.661 1983 -.819 1.944 54.257 1984 -.765 3.819 59.838 1985 N/A N/A N/A Notes to Table 49: (a) Real Actual Income minus Real Equilibrius Long-Run Income divided by Real Long-Run Equilibrium Incone (from Annex Table 8-1(2) for Cocoa, Table 8-2(2) for Rice, and Table 8-3(2) for Maize). 227 Table 50 Real Very Long-Run Incoae Effect of Total Intervention (a) (NC) Large Scale Large Scale Seall Scale Year Cocoa Farmers Rice Farmers Naize Farmers 1953 N/_ N/A N/A 1953 N/A N/A N/A 1954 N/A N/A N/A 1955 N/A MIA N/R 1956 N/A .068 -.547 1957 N/A .348 -.701 1958 -.468 .092 -.712 1959 -.459 N/A N/A 1960 -.301 -.777 N/A 1961 -.307 -.691 N/A 1962 -.310 -.657 -.880 1963 -.526 -.126 .024 1964 -.295 -.140 .240 1965 -.651 -.328 .642 1966 -.639 -.329 2.261 1967 -.562 -.197 1.670 1968 -.558 -.449 .176 1969 -.720 -.234 .325 1970 -.645 -.034 4.780 1971 -.484 .175 5.461 1972 -.018 .803 .025 1973 -.656 1.014 2.980 1974 -.701 .064 6.233 1975 -.481 .339 2.899 1976 -.804 1.787 9.697 1977 -.657 1.066 7.559 1978 -.879 .805 2.720 1979 -.823 .399 .896 1980 -.879 1.056 4.582 1981 -.784 -.308 8.249 1982 -.854 .144 14.661 1983 -.917 1.944 54.257 1984 -.896 3.819 59.838 1965 N/A N/A N/A Notes to Table 50: (a) For Cocoa: Real Actual Income minus Real Equilibrium Very Long-Run Incose divided by Real Very Long-Run Equilibrium Income (from Annex Table 8-1(2)). For Rice and Maize: Very Lang-Run in considered to be the as Long-Run so values are from Table 49. 228 The tables present deviations of real actual from real equilibrium income as a perc:entage of real equilibrium income. They are based an the detailed tables of Arnex 8. All farms are assumed to have produced the same output in the absence of direct or total price interventions as they actually produuced in the first year for which such comparisons can be made. The income effect for cocoa is negative for the entire period between 1953 and 1985 due to increasingly distorted autput prices. The high negative values for 1981 in Tables 43-46 are due to the fact that the world price of cocoa was so low in that year that the equilibrium producer price in the absence of direct intervention was actually negative. As is to be expected, the magnitude of the inccme effect for cocoa increases dramatically as the length of the run increases. This is due to the accelerating magnitude of the price and output effects.- The directicn of the income effect for both rice and maize varies over the period between 1953 and 1985. The effect of direct intervention is very large in absolute magnitude in later years because of the problems noted earlier of negative producer prices calculated by subtracting transport and marketing margins from the border price at the official rate of exchange. The income effects of total interventions, which are more meaningful, are negative in most years in the instantaneous run. They became positive in the short and long run in most years, especially after 1l970, because production in equilibrium is less than actual production despite the awl-price effect, which would tend to increase equilibrium producticn. Instead, the strong cross-price effects of higher equilibrium d Described in Chapters VI and VII. 229 cocoa prices offset the own-price effects and result in decreased equilibrium production. Overall, then, the effects of price interventions generally tended to benefit rice and especially maize farmers, but resulted in severe income losses to cocoa producers. These different tendencies became especially prcxounced towards the end of the three decades considered. Variability Effects A frequent argument for governnent price interventions in agriculture is that it reduces price variability resulting from fluc-tuations in prices on the world market or changing demand and supply conditions at home. To examine this issue calculations were made of the variances of and P./P-, P-/P P./P . where P1, is the actual producer price, Par is the producer price in the absence of direct interventions, P*ro is the producer price in the absence of direct and indirect interventions, P, is the actual consu-mer price, P'. is the consumer price in the absence of direct interventions, P*, is the consumer price in the absence of direct and indirect interventions, and P_ is an index of nanagricultural prices. Separate calculations were made by crop and for both producers and consumers. The results are presented in Tables 51-53 and in the graphs that accompany these tables. The conclusions drawn from the tables are mixed. They indicate that both direct and indirect price interventions have decreased the 230 variability of maize prices.7 On the other hawd, these interventicns appear to have increased the variability of rice prices. For cocoa, which is subject to wide price swings mn the world market, these interventicns have clearly reducced the variability of prices. In additim to reducing the variability of prices, policy interventicns may also have an effect on the variability of per capita food consumptim. Table 54 presents data an per capita productim and consumptimn of rice and maize. It indicates that the availability of these cereals actually varied more than did their domestic produckticm. The correlatim between the quantities produced and those cansumaed are, of course, much higher for maize than for rice given hana s higher degree of self-sufficiency in maize. ' The results for maize and rice are probably more reliable for cmsumer than for producer prices because of the anomaly discussed earlier ccnceming their negative values in later years. 231 Table 51 Domestic haize Prices Under Alternative Price Scenarios Producer Producer Consuser Consumer Price in the Price in the Price in the Price in the Actual Absence of Absence of Actual Absence of Absence of Producer Direct Indirect Consumer Direct Indirect Price Intervention Intervention Price Intervention Intervention (Pp/Pna) (P'p/Pna) (Ptp/Pna) (Pc/Pnal IP'c/Pna) IPlc/Pnal Year (a) (b) (c) (d) (e) (f) 1953 110 N/A N/A 161 N/A N/A 1954 93 171 171 144 233 233 1955 84 257 257 133 332 332 1956 107 236 236 160 309 309 1957 58 267 267 103 344 344 1958 91 209 264 141 277 340 1959 67 155 224 115 215 295 1960 65 212 356 111 281 446 1961 106 231 440 160 304 544 1962 94 170 294 148 235 377 1963 93 44 85 143 86 133 1964 113 118 232 167 173 304 1965 129 44 168 190 92 235 1966 115 33 101 174 80 159 1967 49 38 66 95 82 114 1968 90 140 217 142 200 288 1969 139 134 201 198 194 271 1970 100 20 42 154 62 98 1971 95 54 93 150 103 147 1972 137 367 462 198 463 572 1973 125 37 47 187 85 97 1974 109 94 126 166 149 186 1975 104 67 107 162 119 165 1976 195 43 98 273 98 161 1977 277 67 343 390 149 467 1978 133 61 374 223 140 499 1979 119 107 400 208 194 531 1980 235 23 269 344 99 382 1981 192 -11 332 292 60 454 1982 163 -25 204 264 49 312 1983 462 -34 254 618 49 380 1984 132 36 184 220 110 280 1985 75 40 N/A 144 104 N/A Variance 5740 9140 12921 9803 10381 19533 232 Notes to Table 51: (a) Actual Producer Price froo Table 3-3(1), deflated by the Nonagricultural Price Index froe Table 3-511 (bl Producer Price Equivalent (OER) froe Table 3-4(2), deflated Nonagricultural Price Index from Table 3-511. (c) Producer Price Equivalent (EER) from Table 3-4(2), deflited Nonagricultural Price Index froe Table 3-5(1). ld) Actual Consuser Price from Table 3-3(1), deflated by the Nonagricultural Price Index from Table 3-51). (e) Retail Price Equivalent lOER) from Table 3-4(2), deflated Nonagricultural Price Index from Table 3-5(1). lf) Retail Price Equivalent JEER) from Table 3-4(2), deflated Nonagricultural Price Index from Table 3-51). 233 L *~ -s.L _ _ * _ _ _ _ L L _ _ X.- _ * .L L L - f LC- LL LO f . '.: ;:r L-J :Z- . Ld 0 4L Lo LCJ Uzi ;:J- L. 1L -.JD -L Q if) ' ' l LIZ, LJ LpC DL -:.0 .Z r . W r i M -,j *-.j :j -.j -.j -j -.j --1 --j --1j gi -i la. i-_.. ._1! J.7 1 CrJ C Li L,_l D1 rn 01 r1 1 0n -> S -S- ;- --- -- -- -- -- ----.* n fi W - rilz - -1-;:rn W -- r--------- --- 0g.- ! I I I I I I Ii I I I I I I I I I I I I I II IJ I I i i I l 0 0 r-i' UU E t, U'.- Ud,, - ,di ° ,J~~~~~~~~~~Jo f cj, sLJd -I Ii - - - n '--31 t | t'|1 1;-11 -~-'s----'1 !-1d j @ :t r-a ;si lj t3z@-*@ Il J f'fiFr <,, 1 @~-; II r\ -~ -~ -~ L * -~ -. -~ -~ _ '- * . _ ' L -J *4 .- -- L A ,; LL ro . 0 i J 0 LJ ;0 LZ Z . LO 0 tz J LO i to '-f J Zi 0S LO0 ; .-J i; Lo . i Lg ."- Lg jW w , c (i, i.j r..j- ..J --Lj - - -.j -- .-J - c: 4.. q **a F. ..-.-, c, i r n r n r i rn r n rn vn A hD-e.i t txl-.1_tJ C.,,n 4- ',> ec- CD --_J 1-. , - 1. ;v[- rL C --.J .;, L9 4- CA ci IN~~~ **f~ -A - Ut (CllJ ~ ~ 1 d 1/'-$r lii '.I . oc It~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I f CS U d '' |l ' s.',Dljd,y"Z:'9'3;i-~ 111 .i I rI|:!g @ ! r:-i z 1 ; ;-J ,r=-,,, .,} !--t , -4 a l Ji rl s iz I: rD '.1 J A '-> a :> 5I! I ri.1 ~ ~ ': ci G L n*L -i'. ~I n i Table 52 Domestic Rice Prices Under Alternative Price Scenarios Producer Producer Consumer Consumer Price in the Price in the Price in the Price in the Actual Absence of Absence of Actual Absence of Absence of Producer Direct Total Consumer Direct Total Price Intervention Intervention Price Intervention Intervention (Pp/Pnal lP'p/Pnal (Ptp/Pna) (PclPna) (P'c/Pna) (PIc/Pna) Year (a) (b) (c) (d) (e) (f) 1953 315 N/A N/A 459 N/A NIA 1954 299 332 332 447 485 485 1955 246 264 264 387 407 407 1956 244 229 229 386 369 369 1957 236 238 238 375 377 377 1958 232 234 310 369 371 458 1959 200 199 311 334 333 462 1960 156 173 332 282 301 484 1961 142 157 360 271 288 521 1962 115 134 280 243 265 433 1963 253 125 260 392 245 400 1964 166 81 219 295 198 357 1965 202 89 437 349 219 619 1966 174 83 305 319 216 471 1967 166 120 218 299 245 359 1968 144 190 323 273 326 480 1969 187 164 273 325 298 424 1970 212 128 246 354 258 393 1971 202 95 191 348 225 334 1972 275 111 161 433 244 302 1973 292 192 242 457 342 400 1974 255 294 402 409 454 579 1975 280 117 212 441 253 362 1976 461 98 264 667 250 441 1977 387 -34 313 647 164 563 1978 257 -49 306 492 140 548 1979 147 -50 180 370 143 407 1980 417 -67 336 686 129 592 1981 215 -114 512 449 71 791 1982 446 -137 447 730 60 731 1983 661 -177 379 1007 43 682 1994 503 -30 230 771 158 457 1985 180 -5 N/A 371 158 N/A Variance 14167 15996 6473 28028 11676 13336 236 Notes to Table 52: (a) Actual Producer Price from Table 3-3(1l), deflated by the Nonagricultural Price Index from Table 3-5(1). (b) Producer Price Equivalent (OER) froe Table 3-4(1), deflated Nonagricultural Price Index from Table 3-5(1). (c) Producer Price Equivalent JEER) from Table 3-4(1), deflated Nonagricultural Price Index froa Table 3-51). (d) Actual Consuser Price from Table 3-3(1), deflated by the Nonagricultural Price Index froe Table 3-5(l). (e) Retail Price Equivalent IOER) from Table 3-4(1), deflated Nonagricultural Price Index from Table 3-5(1). (f) Retail Price Equivalent (EER) froe Table 3-4(1), deflated Nonagricultural Price Index from Table 3-5(1) 237 Fi qu re 35: 3 mE:-.elti s R cProdu-c-er Pr'ices of lF ;ie 9(,;Ae _ § ~~~~~~~~~~~~(Pp/,Pna) -9- (P'p/Pno) (Pp,a/Pno) %~~~~~~~~ 0063000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - ------ - --- - - - -- - 43' -300LC et 0 1 C r---c cr mD or-4 I< rt -t. ; r- CO r,- ,~ c-4 r-ry - Lf.l -¢ r--Ir x, N cx -. - ,n IDDeLfi l 0 4 C iL: fLE. 0 z§t& ~0 S s r-- r-. r- .r-r-- r-.r .r- N r. n , m ~~~~~~~~~--- - - T- - T- In, Ch .1-Ti -;n m m 4 m roll ae CIN ci rzh m m T". m m :T., C-) Ch Ch m m C.I. m m QllrU C) .72h 11-1h Yea r~~~~~~ 6EZ 1 9 53 } 1954 1955- 1956- 1957 - I 1958 1962 196) -O - ' 1962 - ' 19713 1 97.3 -. 8+_ 19674 -L +A-. ' 1 975 -~(: -( 1976 -~~ 1 978 - 1* E ' 1-.. * .A Li -) 'I1972- 1972 - 197J4 - :c 1 9 7 e.f \ ~-~- _ 1 9 /3 - jo- 1984 1985 +~~~~ .,6 t 1982~~~~~~~~~~~~~~~~. . .s . . -6 Table 53 Doaestic Cocoa Prices Under Alternative Price Scenarios Producer Producer Consuser Consumer Price in the Price in the Price in the Price in the Actual Absence of Absence of Actual Absence of Absence of Producer Direct Total Consumer Direct Total Price Intervention Intervention Price Intervention Intervention (Pp/Pna) (P'p/Pna) (Ptp/Pna) (Pc/Pna1 1P c/Pna) (PIciPna) Year (a) (b) (cI (d) (e) (f) 1953 651 N/A N/A 728 N/A N/A 1954 729 1534 N/A 813 1618 N/A 1955 745 996 N/A 834 1086 N/A 1956 684 864 N/A 774 955 N/A 1957 633 1400 N/A 720 1487 N/A 1958 557 1194 1031 646 1282 1120 1959 522 939 910 606 1023 994 1960 509 698 753 588 777 832 1961 502 635 742 581 713 820 1962 467 632 667 550 715 750 1963 375 583 614 455 662 694 1964 318 401 375 389 472 447 1965 280 328 555 345 393 619 1966 303 472 500 366 535 563 1967 338 687 486 399 748 547 1968 351 890 552 412 940 613 1969 342 902 774 395 955 827 1970 335 683 514 425 735 566 1971 319 653 360 414 748 455 1972 366 679 287 512 824 433 1973 387 954 619 573 1140 805 1974 350 984 597 575 1209 822 1975 329 636 326 553 859 549 1976 304 939 602 444 1079 742 1977 380 819 457 686 1125 763 1978 426 1421 1335 664 1659 1573 1919 421 737 933 645 961 1157 1980 289 197 772 547 455 1030 1981 394 -7 626 564 164 796 1982 345 562 730 661 878 1046 19n3 293 483 841 688 878 1236 1994 245 321 575 605 681 935 19"5 358 415 N/A 708 765 N/A Variance 18243 116222 51440 17713 108695 70045 240 Notes to Table 53i (a) Actual Producer Price from Table 3-3(2), deflated by the Nonagricultural Price Index from Table 3-5(1). (b) Producer Price Equivalent IOER) from Table 3-4(3), deflated Nanagricultural Price Index from Table 3-511). (c) Producer Price Equivalent (EER) from Table 3-4(3), deflated Nonagricultural Price Index from Table 3-51). (dl Rendered Port Price from Table 3-3(2), deflated by the Nonagricultural Price Index froe Table 3-5(1). (eJ FOI price, converted at the official exchange rate, froo Table 3-4(3) deflated by the Nonagricultural Price Index from Table 3-5(1). (f) Optieum Domestic Price at Border from Table 3-4(3), deflated by the Nonagricultural Price Index from Table 3-5(1). 241 .~ a L -~ .... - * L L L --A - J6 -A -L - L - A . --I-. -_ co co O z z. {4 ;S LLL L O; ; 4D --Z (O L. O sL;NL 0 (o o ;D LI C.-tD iC. LO ss> Di 4;j 0 z W r m 1 m . al sJ --,- -, -j-, -j M m} 1. > lD lm. M -- -m .S 15) Ln rJ rn ;n ;n . I 4- O- N) -, ' -'C -j , ,- ,-J .-Ai ,-J - , ,T co , , C, 4, ,, NaI i CT' ' ' '0'' I ul Q I Vi P---- ---------------------------------<--D ~~~~~~~~~~~-k4~~~~~~~~~~~~~~~~~~~~~~~~~~~~~C I,~~~~~~~~~~~~~~~~I D Ud/-.'Jd) o C I *d:/'S.j) I _('.'.if.71 I D~~~~~~~~~~~ C.i: G~ ! - ' 2dJ@; - ! 1; r n@1r 1! 0 4; LO CO {D L : LO -L L -D -L L * * * -- LO LCD 'S -D * L CJ ** W L 1. t- i L . * _ CO C ry m CO CO --i * _ -*i -_ J 4-- '- - j *.as CQ. u' crz C>m a/ ,c Cn -i n7 M rCTy rJi C. u n ry ui 4. l * (a { 4- --J { 1 t4 "J - .) - ) tP '-.J U(i 4- (A,J -D 0 D' X -.J a,) 4- t j , I , , I I I I I I I I I I I II O c II4 + I f: l-4d/;3,d.,' ~ ~ ~ "' O , * f~~~~~~~~~1 ~ ~ 1 I,DLd ,"Q, d: El-- E ;) o'4C qs . ii j i _U n 3 L C