Ghana - Impact of Rising Food/Agricultural Commodity Prices

UNCLAS SECTION 01 OF 03 ACCRA 000602

SIPDIS

E.O. 12958: N/A
TAGS: EAGR EAID ETRD ECON PGOV PREL GH
SUBJECT: Ghana - Impact of Rising Food/Agricultural Commodity Prices

Ref: State 39410


1. Summary: Ghana is a net food importer and has seen a
significant increase in the price of food staples, some portion of
which may be explained in part by seasonal factors and the high cost
of petroleum. In general, Ghana tends to record surpluses in tubers
and deficits in cereals and the situation is currently not dire.
Ghana could produce more and surplus crops can be substituted to
cover deficit crops. While price increases are significant,
political and economic effects are still relatively muted. There
will, however, be a temptation in an election year to respond with
increased subsidies. Because of the high level of subsistence
farming in Ghana, the increased prices are unlikely to trigger a
significant increase in production in the near term. At the policy
level, Ghana needs to look beyond short term measures of aid or
increased government subsidies for agriculture to developing its
latent capacity to become a regional center of agricultural trade,
technology and supply. End Summary.

Demand
--------------

2. The major staple foods consumed in Ghana are cassava, yam,
plantain, cocoyam, maize, sorghum, millet, rice, and wheat. Despite
the drought and subsequent floods in 2007, food production was
better than most years in recent times. According to the Ministry of
Food and Agriculture, production of cassava, yam, plantains, cocoyam
and maize exceeded national demand in 2007. There was a deficit of
62% and 54% for sorghum and millet due to 2007 floods in the North
but those crops constitute a very small proportion of total food
production and consumption (e.g., 2006 sorghum and millet production
combined in 2006 was 480,000 metric tons, while maize production was
1,189,000 metric tons and yam production 4,288,000 metric tons).
About 80 percent of the 600,000 metric ton of rice consumed in Ghana
is imported. Ghana could potentially produce greater quantities but
there has been a consumer preference for imported rice. Ghana
imports all of its wheat and sugar; there is no domestic production
of these commodities.


3. Consumers of rice and bread (bread in Ghana is made of wheat
flour) have complained about the rising price of these products. In
spite of the rising prices, a reduction in sales has not been
reported. Shifting consumption to other products may occur in the
coming months but is not evident yet, probably because of the
general rise in prices of substitutes at this time of the year.

Supply
--------------


4. There are indications that domestic production of rice and maize
may increase this farming season because of the relatively high
world price and export restrictions being implemented by countries
that provide Ghana's imports. A new high yield, hardy rice variety
that may appeal to consumers, NERICA, is being promoted by the
Ministry of Food and Agriculture. The Government of Ghana (GoG) on
April 2, 2008 announced a joint venture with Prairie International
Rice Millers of Texas Inc. and Development Finance and Holding
Company to run a farm abandoned since 2001. The project was
established in 1997, by the GoG and Quality Grain of the USA with
ambitious production targets that were never realized.


5. A large proportion of Ghana's production comes from subsistence
farms. A relatively small proportion of most harvest is sold (only
about 12 percent of sorghum and millet is sold but 42 percent of
maize),response to the high price will be limited for most crops in
the near term. There are no current indications of shift in
production between food and non-food commodities. There is no
commercial cultivation of biofuels. There is a pilot program
focused on the Jatropha plant, a non-food crop and Brazil recently
signed an agreement with GoG to produce biofuels with sugarcane.
There has also been some exploration of using palm oil.


6. Post harvest losses are estimated at 20-30 percent for all farm
crops because of the poor nature of roads and lack of storage and
processing facilities. The price of agricultural inputs on the
local market, particularly fertilizer, has risen by about 50 percent
since April 2007. For most subsistence farmers the use of
fertilizer will be reduced unless there is some assistance or
subsidy provided.

Political Impact
--------------


7. Ghana has not experienced public protests, violence or
class-based clashes as a result of the rising food prices. However,
continuing increases may affect the ruling party's chances of
retaining power in the upcoming December, 2008 polls. There are
calls coming from some politicians and political commentators to
subsidize food and increase subsidies to agricultural producers.
There is currently no public resentment towards biotechnology and
biofuels policy. Ghana has a biotechnology policy which generally
accepts the import of biotech products. A legislative instrument
(akin to a regulation) was recently issued that allows trial testing

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of GMO crops but Ghana is some ways from embracing widespread use.

Economic Impact
--------------


8. Prices of all staple foods are increasing, but the Ghana
Statistical Service (GSS) attributes this primarily to petroleum
price increase and seasonal factors. Between January 2007 and March
2008, the price of imported rice went up by 39 percent while that of
maize was up 58 percent over the same period. Inflation has
increased over five consecutive months from 10.14 percent in October
2007 to 13.79 percent in March, 2008. The GSS specifically
mentioned food price increase as the primary cause of the February
and March rise in inflation, but added that these months are
planting months when the prices for some food items traditionally
increase. Food price increases are expected to slow down in June
when the harvests begin and then fall later in the year, if past
trends hold. Oil prices remain a key driver of inflation.


9. There will be an impact of food price increases in the trade
balance but it will be relatively small compared to the impact of
oil prices. If the price increases persist, public sector labor
demand for higher wages, which is already present for a variety of
reasons, could exacerbate government efforts to rein in an already
burgeoning fiscal deficit.


10. About 18 percent of Ghana's population of about 22 million are
considered extremely poor; they are currently unable to meet basic
nutritional consumption needs even if they spend all their income on
food. A total of 28.5 percent of the population is considered poor;
they make enough to meet basic food needs but do not earn enough to
meet both food and basic non-food consumption needs. We do not have
statistics on how many poor households are net consumers of
purchased food but some statistics may be available in the coming
months.

Environmental Impact
--------------

11. Ghana's environmental management is generally quite weak,
including in the agricultural sector, but we have not yet seen any
particular or new effect on the environment from rising food prices.


Government Policy Response
--------------


12. The GoG has not made any changes in tariffs, quotas or other
import restrictions. In a press statement on the world food
situation in April, the Minister of Food and Agriculture said
legislation is being proposed to make flour mills in Ghana
incorporate 20 percent of high quality cassava flour into bread and
pastry flour. There are no export restrictions, but the Minister
said there will be measures to check smuggling to the neighboring
countries, most of which have removed tariffs on rice. The GoG will
intensify its policies of increasing food production and encourage
people to see the rise in food prices as an opportunity to go into
agribusiness. The GoG has started implementing a
fertilizer-for-grain exchange to generate reserves, although the
process is not very clear, and also plans to import food for
strategic reserves.


13. The high retail oil prices have added to food hike prices and
inflation by increasing the costs of everything from packaging to
transportation. To rein in inflation, the central bank has
increased the prime rate from 12.5 percent to 14.5 percent since
November 2007. Lending rates have started to increase from an
already high level of about 20 percent. This could potentially
dampen the supply response to higher food prices as access to credit
will be needed for expanded production.

Impact on Post Programs
--------------

14. Post is extensively engaged in supporting Ghanaian agriculture,
primarily through the MCA Compact and USAID's TIPCEE (Trade and
Investment Program for a Competitive Export Economy). The increased
food prices are giving added impetus to projects that will address
supply, marketing, productivity and trade constraints. These
include an ongoing public-private Seed Alliance partnership and
scaling up a pilot Grain Alliance program geared to promoting
commercial grain production, milling and marketing. Increased food
prices could heighten farmer interest and commitment to
participating in MCC programs. The MCC will improve farmers' access
to credit and strengthen capacity of Ghana's rural banks, a
component that could be particularly valuable in ensuring access to
credit for expansion and new entrants. The increased cost of inputs
will be a challenge for all USG programs but will also serve as an
incentive to increase efficiencies and reduce costs of transport and
shipping.

Policy Recommendations
--------------

15. Post would recommend that Ghana view the food crisis as an
opportunity to take much needed steps to create and implement a

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strategic vision for agriculture in Ghana. While Ghanaian officials
pay heavy lip service to the importance of agriculture, the approach
tends to be project-oriented and piecemeal. Ghana has considerable
potential to increase production, particularly if it embraces
improved production technologies and seed distribution policies, and
places greater emphasis on fostering a commercial agricultural
sector. Ghana should resist the temptation to turn the crisis into
a generalized call for resumption of the U.S. food assistance
program, which is ending this year. Ghana also needs to develop
increased capacity to monitor developments in the sector to ensure a
timely response.


16. Post recommends that the USG focus strongly on working with
ECOWAS to move forward on reduction of tariff and non-tariff trade
barriers, not only on foodstuffs and inputs but on transportation
and corruption as well. The current crisis also presents
opportunities for Ghana to move ahead with exploration of the
viability of non-food crop biofuels.

Bridgewater