AGRICULTURAL AND RURAL SECTOR HIGHLIGHTS, JUNE-JULY 2009

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.

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A. COCOA SECTOR: FACING FALSE CHOICES?
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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.

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B. FOOD SECURITY AND AGRICULTURE PRODUCTION
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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.

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C. BETTER LIVING THROUGH FARMING
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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.

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COMMENT: COST-BENEFIT ANALYSIS NEEDED
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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