Ghana's Cocoa Pricing Policy

Abstract

Ghana's cocoa production has declined in the past 25 years from half the world market share to about one tenth of the market. This has been partly due to policies that overvalued the domestic currency and heavily taxed cocoa exports. This study addresses the dilemma Ghana's government faces: how to provide enough producer incentives to stimulate the cocoa exports Ghana need for foreign exchange while maintaining the government revenues needed to avoid unmanagable fiscal deficits. The key may be identifying acceptable revenue alternatives to cocoa export taxes. Among the conclusions reached in this study are: (a) the exchange rate regime should be liberalized; (b) the government should explore shifting taxes from cocoa producers to all consumers by increasing taxes on appropriate consumer goods; (c) taxing cocoa farmers directly lowers their income, indirectly lowers the income of food producers, and transfers incomes from those farmers to food consumers, thereby worsening income distribution; (d) yearly cocoa buying price should always be set above 140 cedis (in 1987 prices) to stimulate growth; and (e) COCOBOD should terminate its marketing activities for coffee, and all taxes on coffee exports should cease.