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UNCLAS ACCRA 001011 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAGR ECON GH
SUBJECT: AGRICULTURAL AND RURAL SECTOR HIGHLIGHTS, JUNE-JULY 2009 
 
¶1. SUMMARY: 
 
¶A. Difficulties faced by foreign investors in securing cocoa beans 
for domestic processing could compromise Ghana's investment 
attractiveness and the credibility of the GOG's stated goal of 
increased value-added processing of agricultural products. 
 
¶B. Food security is at the top of President Mills's agenda for 
agricultural sector development.  One major remaining issue is rice 
production.  Some experts suggest that strengthening Ghana's 
position as rice producer is contingent upon improving productivity. 
 Some media reports suggest that tariff protection may also be 
needed. 
 
¶C. President Mills declared government support for cocoa, sheanut, 
and coffee farmers while announcing new incentives aimed at 
attracting youth to agriculture. 
 
-------------------------------------- 
¶A. COCOA SECTOR: FACING FALSE CHOICES? 
-------------------------------------- 
 
¶2.  The Minister of Finance and Economic Planning Dr. Kwabena 
Duffuor warned of potential losses in investor confidence associated 
with cocoa bean supply constraints for local processing.  COCOBOD 
was asked by the Finance Ministry to reassure cocoa processors 
regarding the supply of cocoa beans.  With new investment from firms 
including Archer Daniels Midland and Cargill, Ghana's total cocoa 
processing capacity is poised to reach 500,000 tons in the near 
term. 
 
¶3. Increased domestic processing capacity will soon outstrip the 
supply of "light crop" beans, which are not exported.  Existing 
processing plants have already faced difficulties in securing an 
adequate volume of cocoa beans for processing.  The GOG's 
responsiveness to lobbying by U.S. investors to make good on 
promises of a steady supply is a positive sign of the government's 
commitment to domestic processing.  A new arrangement contemplates 
the expansion of existing capacity, and a mechanism for the sale of 
top grade beans for local processing. 
 
¶4. Cocoa exports account for about 40 percent of Ghana's foreign 
exchange earnings.  Cocoa provides the second largest source of hard 
currency to Ghana, bringing in over a billion dollars in export 
earnings.  Even more importantly, COCOBOD's monopoly on buying and 
selling cocoa beans makes it the government's single largest 
revenue-earner, acting in place of a broader tax system.  COMMENT: 
Allocating more beans for domestic processing increases net economic 
benefits to Ghana nationally, but compromises COCOBOD's ability to 
raise hard currency by exports of the raw beans.  END COMMENT.  U.S. 
investor Cargill reported to econoffs that they are commissioning an 
economic analysis of the multiplier effects of increased domestic 
processing (vice export of unprocessed beans) for submission to the 
GOG. 
 
¶5. The illicit movement of lower quality Ivorian cocoa into Ghana 
(driven by higher local prices for beans) could cause a reduction in 
the premium prices paid for Ghanaian cocoa beans on the 
international market.  In an effort to curtail smuggling of 
low-grade cocoa beans into Ghana from neighboring countries, COCOBOD 
will increase surcharges for the delivery of low-grade cocoa beans. 
 
 
¶6. Duffuor called for an increase in extension services to the cocoa 
sector to accomplish the national goal of producing one million 
tones of cocoa bean by 2011.  With its improved efforts at 
management of black pod disease, COCOBOD is optimistic about Ghana's 
2009 cocoa crop. 
 
------------------------------------------- 
¶B. FOOD SECURITY AND AGRICULTURE PRODUCTION 
------------------------------------------- 
 
¶7. The GOG is working to enhance food security in Ghana.  Specific 
effort to boost soybean and rice production is focused on the 
Fumbisi Valley, Naga and Tono regions, based on the high quality 
soil and climate.  The GOG is providing funds for land preparation, 
seed supply, fertilizer, and harvesting.  The project is expected to 
benefit 3,000-4,000 farmers. 
 
¶8. Local rice producers blame trade liberalization for further 
impoverishing small-scale domestic food producers, caused by the 
import of cheap rice from abroad.  Agricultural unions have called 
for the imposition of high tariffs on imported rice to reduce rice 
imports and increase demand for local rice. NOTE: Post has no 
further information regarding the proposed tariffs. END NOTE. 
 
¶9. Agricultural unions are also demanding government subsidies to 
reduce the costs of agricultural production.  AP reported that 
unions are blaming rice sector woes on the "harmful effects [sic] of 
U.S. policy on Ghana's rice-growers."  COMMENT: In fact, U.S. rice 
accounts for only a quarter of Ghana's rice imports, with larger 
shares by major producers such as India, China and Thailand.  U.S. 
rice is relatively expensive and seen as a high-quality product by 
Ghanaian consumers.  END COMMENT. 
 
¶10. The GOG has encouraged more Ghanaians to "grow what they eat and 
eat what they grow," while also encourage local production and 
consumption of rice. The GOG states that higher tariffs would not 
solve the issue, but agrees that subsidized inputs were needed to 
reduce the costs of growing rice locally.  In the meantime, the GOG 
has prepared a bill for Parliament requiring all government 
institutions to procure locally produced rice. 
 
¶11. International agricultural experts (such as the International 
Food Policy Research Institute) suggest that low efficiency 
compromises Ghana's competitiveness as a rice producer.  Ghana's 
rice mills are ten percent below industry standards in terms of 
productivity. 
 
--------------------------------- 
¶C.  BETTER LIVING THROUGH FARMING 
--------------------------------- 
 
¶12. The GOG seeks to make agriculture more attractive to Ghanaian 
youth, who in general appear more attracted to white-collar 
professions.  In September, the government announced a GHC 10.7 
million program to accomplish this goal.  The plan's goal is to 
support youth groups in planting 14,000 hectares of cash crops such 
as rice and soya.  The assumption behind this initiative is that an 
aging base population of farmers lowers productivity in the 
agriculture sector. 
¶13.  The GOG announced a 50 percent subsidy on fertilizer to benefit 
all crop farming.  The GOG is also assessing the viability of a 
pension scheme for farmers and a fund for farmers and fishermen that 
would allow them to borrow at lowered rates (bank lending rates are 
frequently above 25 percent).  The GOG also created a cassava 
cultivation project which plans to increase the production of 
cassava as a substitute for imported wheat flour. 
 
------------------------------------- 
COMMENT: COST-BENEFIT ANALYSIS NEEDED 
------------------------------------- 
 
¶14. According to USAID sector experts, the GOG's proffered grab-bag 
of incentives for the agriculture sector has likely not been 
subjected to a rigorous cost-benefit analysis.  Thus, the long-term 
effectiveness of these various schemes (if they are even 
implementated) should not be assumed. 
 
TEITELBAUM