George Stigler, the 1982 laureate in Nobel Memorial Prize in Economic Science stated that “…the machinery and power of the state- is a potential resource or threat to every industry in the society. With its power to prohibit or compel, to take or give money, the state can and does selectively help or hurt a vast number of industries”. With this machinery and power, cocoa farmers in Ghana(formerly Gold Coast) have suffered gravely under subsequent governments, whose supposed intentions were to develop the Ghanaian state and by extension help these cocoa farmers.
The cocoa industry of Ghana is still heavily regulated by the state and there are no signs this might change anytime soon. The continued regulation of the cocoa industry perpetuates attempts by the state to ‘take money’ away from the farmers and ‘selectively hurt’ the cocoa industry.
To have a better understanding of the conditions in the cocoa industry of Ghana, one needs to have a historical overview of the origin and changes in the regulatory environment surrounding the industry. The aim of this piece is to give an account of the origin and the entrenchment of government regulations in the cocoa industry from the 1930s to the end of the Nkrumah’s regime in 1966.
The Pre-Nkrumah era
The rulers of the Gold Coast colonial state had committed to the ideology of laissez-faire non-interventionism in economic activities and hence the production and trade in cocoa were free from any state involvement.
Although there were experiences of sharp seasonal price fluctuations, cocoa production and trade was still a lucrative long-term economic enterprise which had created a class of wealthy farmers and continued to attract more people into its fold. Prior to 1937, the trade in cocoa was devoid of government intervention. There existed a cocoa brokerage system in which cocoa largely passed from the smallholder farmers to a class of African middlemen, who acted as brokers between the smallholder cocoa farmers and European firms.
Chief among the objectives of the Gold Coast Cocoa Marketing Board ordinance of 1947 was the operation of a Price Stabilisation Fund to stabilise producer prices during the low-price periods. The Board was to further utilise the surpluses to finance cocoa purchases, and to provide assistance to farmers in all aspects of production. However, to finance his industrialisation ambitions, the Nkrumah government increasingly brought the Board under its control in order to access the reserves meant to cushion cocoa farmers in times of falling cocoa prices.
The actions of the Nkrumah government marked an end to the long-standing competition for cocoa revenue between farmers and foreign firms, simultaneously beginning a new competition, now between farmers and the government. The contribution of the cocoa sector to government revenue which was averagely around 9% in the 1930s topped at an average of 59% in the 1950s.
The depletion of the reserves of the Cocoa Marketing Board (CMB) culminated in the Board failing to fulfil its mandate of cushioning cocoa farmers in most critical times. Revenues from the cocoa sector were constantly being tapped by the government through various ways.The Nkrumah regime further instituted a steeply graduated export tax system that collected one-fifth of cocoa export earnings as duties. The little surpluses that ended up with CMB were further given out as soft loans to the government.
The constant drawing of revenues from CMB to the government marked a transformation of the Board into an instrument of public finance which increasingly diverted resources from the cocoa sector.
The monopolisation of most aspects of the cocoa sector came with all the negative effects of monopolies. The Nkrumah regime declared the United Ghana Farmers’ Cooperative Council (UGFCC) as the only official organisation of cocoa farmers in the country. The UGFCC was further granted a monopoly in all purchases of cocoa from farmers within Ghana as a reward for its leaders’ loyalty to the Nkrumah regime.
This monopoly implied that an urban-based parastatal of clerks and bureaucrats came to replace a network of private agents, traders, brokers and other middlemen who had emerged organically from the beginning of the cocoa trade.
The sudden concentration of power within the hands of clerks and bureaucrats shifted market relations from competition to one of a vast network of patron-client relations, which depended on personal connections, cheating, extortion, favouritism, and out-right bribery.
As the only authorised buyers of cocoa, clerks at various points, required their “cuts” from sales made by farmers or risk being blacklisted. The monopoly status invariably compelled farmers to give in to outrageous demands made of them. The buyers could arbitrarily declare cocoa beans from a farmer as a low-quality standard and refuse to accept them, and in such cases the farmers’ only choice was to dispose of the beans or if possible, smuggle it to neighbouring countries to sell them.
Other grievances of the farmers included the manipulation of scales and weights, imposition of unofficial levies, misappropriation of funds, profiteering on the distribution of farm inputs, and extortion. Moreover, payments were sometimes made with promissory notes rather than cash, and eventual payment could be delayed for as long as four months.
Theoretically, price has the single most important impact on the supply of a commodity. The colonial administration recognized this fact, hence their recommendation for producer prices to be stabilized during low world prices so as to incentivize farmers to continue the production of cocoa. However, Nkrumah held the view that revenue from agriculture, especially cocoa should be diverted to his industrialisation drive.
Producer prices were reduced through several means to make more revenue available for government’s industrial projects. For instance, a compulsory savings scheme was introduced in 1961 which required cocoa farmers to pay 10% of their gross earnings in exchange for a national development bond, redeemable after 10 years. Six months after the introduction of the scheme, the farmers’ council (a wing of the Convention Peoples’ Party) announced that farmers have renounced their claim to their savings and this paved the way for the replacement of the savings scheme with a farmers’ income tax equivalent to the savings rate. Producer prices got depressed severally during this period mostly through decisions by the farmers’ council to accept reductions.
Another instance was the announcement of a reduction in producer prices by 26% in 1965 while world prices had seen an increase of about 30%.
While resources from the cocoa sector were being diverted to other sectors of the economy, the objectives for setting up CMB got relegated to the background. Although it was mandated to provide input support to farmers, the Board did very little in that regard.
It is imperative to note that provision of input support was much needed in this period especially when producer prices were constantly being depressed. Available estimates show that the supply of inputs was woefully inadequate.For instance, inputs supplied in the 1959/60 period was just 16% of the estimated demand by farmers. By the 1965/66 period, only 11% of estimated input demand was supplied to farmers. Between 1959 to 1966, input supplied as a percentage of estimated input demand by cocoa farmers averaged around 21%.
The disparity between the estimated demand and supply further served as a fertile ground for corruption, where farmers invariably paid for favours to get access to the much-needed inputs. The indebtedness of the Board and government’s inability to finance the subsidy program led to the announcement of the elimination of government subsidies on inputs and also a voluntary reduction in cocoa planting in 1965.
As indicated by Milton Friedman, a great mistake is to judge policies and programs by their intentions rather than their results. However noble the intentions of the Nkrumah regime, its results have been disastrous to the Ghanaian cocoa farmer.
The occupation of being a cocoa farmer which occupied a prestigious position in the colonial state has evolved to become a poverty-stricken occupation in the post-colonial state. The policies pursued by the Nkrumah regime regarding the cocoa sector which became entrenched over the years made the cocoa industry less attractive to new entrants. The depressed producer prices paid farmers disincentive farmers to rehabilitate their farms.
A report on the age structure of cocoa farms in the 1970s indicated that cocoa farms in Ghana were on average over 30 years old and had passed their most productive stages. This can be attributed to the policies during the Nkrumah regime since most farmers during the period found cocoa farming to be financially unattractive and hence committed their resources to other crops that were not under heavy government control.
Most recent reports place productivity in Ghana’s cocoa sector as one of the lowest in the world. Evidently, such low productivity is attributable to the lack of innovation in the cocoa industry. The heavy handedness of government in the cocoa industry makes it less lucrative for innovators and more comfortable for less productive farmers to engage in cocoa farming.
A very competitive industry would ultimately displace unproductive farmers for the productive to thrive but that cannot be the case due to government policy on the cocoa industry. Moreover, the creation of an urban based bureaucratic class who enjoy large wages at the expense farmers disincentives the educated youth from engaging in cocoa farming.
Most educated youth would rather prefer being a bureaucrat with a sizable wage and other benefits rather than engage in direct cocoa production. This class of urban bureaucrats also have vested interest in making the cocoa industry dependent on them to continue to be of relevance.
In concluding, the solution to the long-standing problem in the cocoa sector is to allow market forces to operate within the sector. The liberalisation of the sector will help reverse most of the damage that has been done to the industry and encourage more youths to enter the industry through the various channels of the cocoa value chain.
Author: Jonathan Atta-Aidoo
He is an Agricultural Economist with interest in Free Market Policies to create prosperity. He is also a Research Fellow at ILAPI.