Cocoa in Ghana: Shaping the Success of an Economy

No other country comes to mind more than Ghana when one speaks of cocoa. Likewise, one cannot think of Ghana without thinking of its cocoa sector, which offers livelihoods for over 700,000 farmers in the southern tropical belt of the country. Long one of Ghana’s main exports, cocoa has been central to the country’s debates on development, reforms, and poverty alleviation strategies since independence in 1957. The cocoa sector in Ghana has not been an unmitigated success, however. After emerging as one of the world’s leading producers of cocoa, Ghana experienced a major decline in production in the 1960s and 1970s, and the sector nearly collapsed in the early 1980s. Production steadily recovered in the mid-1980s after the introduction of economywide reforms, and the 1990s marked the beginning of a revival, with production nearly doubling between 2001 and 2003. These ups and downs offer interesting lessons. Various administrations in Ghana, including the colonial one, have used cocoa as a source of public revenue, and in so doing the Ghanaian experience offers a recurrent example of a policy practice followed by many other African countries: taxing the country’s major export sector to finance public expenditure (Herbst 1993). Revenue extraction by the state has had varying effects on production depending on global prices, marketing costs, explicit taxes on the sector, and macroeconomic conditions such as inflation and overvaluation of exchange rates and inelasticity of cocoa supplies. Regardless of the level of extraction, the need for sound macroeconomic management, of inflation and exchange rates in particular, becomes evident for continuing to offer incentives for production. The other is the need for Ghana’s cocoa pricing policy to arrive at a marketing arrangement that does not kill the goose that lays the golden eggs. Ghana appears to have achieved such as arrangement without fully liberalizing the sector as other producers in West Africa have.