AGRICULTURE AND THE NEW TRADE AGENDA IN THE WTO 2000 NEGOTIATIONS. ECONOMIC ANALYSES OF INTERESTS
AND OPTIONS FOR GHANA
ABENA D. ODURO
Centre for Policy Analysis
P.O. Box 19010
Draft chapter prepared for the World Bank Project on Agriculture and the New Trade Agenda in the WTO
2000 Negotiations. September 2001
AGRICULTURE AND THE NEW TRADE AGENDA IN THE WTO.
ECONOMIC ANALYSES OF INTERESTS AND OPTIONS FOR GHANA
The development of the agriculture sector is an integral part of Ghana’s development and poverty reduction strategy. Although only a small fraction of total production in the agriculture sector is currently traded internationally, developments in the world market for agriculture products has ramifications for domestic production. Expansion in production to supply export markets is an objective of the current agriculture strategy. It is imperative for Ghana that market access is maintained and if possible improved. Market access will be eroded if importing countries maintain high tariff and/or non-tariff barriers. It will also be undermined if some suppliers to third markets have undue advantage because they receive domestic subsidies and support that are not available to the Ghanaian farmer.
Ghana’s agriculture is constrained by several problems that are not tackled by the World Trade Organisation. Ghana has several commitments to meet under the WTO that will require not only changes in regulations but also substantial amounts of investment. It is critical that the trade liberalisation that the implementation of the WTO is supposed to achieve does occur. Failing that, countries like Ghana for which the immediate costs of implementing the WTO Agreements appear to be greater than the long-term gains may be less than willing to participate in the process.
II. The Agriculture Sector in Ghana
Agriculture (as defined in the national accounts) comprises of five sub-sectors with the following contributions, i.e. cocoa (14%), other crops (61%), livestock (7%), fisheries 1(5%) and forestry and logging (11%). The agriculture sector currently contributes
approximately 40% to GDP. Approximately 54% of the workforce aged between 15 and 64 are employed in agriculture. In the rural sector the proportion rises to about 70%. Small-holder farms dominate the sector accounting for about 80% of total agricultural production. Subsistence production is still prevalent in the food crop sector.
A wide range of food crops is produced in Ghana. The area under cultivation of many of these crops has increased in the 1990s. Agriculture and food production increased in the 1990s. However, on a per capita basis the picture is less encouraging (Table 1). Both food production per capita and agriculture production per capita peaked in 1995 and have followed a declining trend since then (Table 2). This pattern of production over time is evident amongst cereals (Table 2). Production indices in 1999 are lower than the 1995 indices for maize, sorghum, millet and paddy rice production.
1 Forestry and logging includes activities such as timber felling, planting and replanting of trees, transportation of logs up to permanent transportation links, gathering of uncultivated materials and charcoal burning in the forest.
Table 1. Indices of Agriculture and Food Production 1989-91=100
Agriculture Agriculture Per Food Food Per
Production Capita Production Capita 1990 82.4 82.5 82.3 82.4 1992 118.4 115.0 118.3 114.8 1992 117.2 110.3 116.8 109.8 1993 126.2 115.1 125.3 114.2 1994 120.4 106.5 120.0 106.1 1995 136.5 117.2 136.1 116.9 1996 139.6 116.5 138.7 115.8 1997 138.9 112.8 137.6 111.7 1998 145.3 114.9 144.0 113.0 1999 145.3 111.9 144.0 110.9 Source: FA0 Quarterly Bulletin of Statistics, Vol.11 No. 3, Rome.
Table 2. Index of Production of Selected Food Crops (1984-86=100)
Crop 1992 1993 1994 1995 1996 1997 1998 1999 Cassava 170 179 180 198 213 210 215 234 Yam 300 350 219 273 293 310 348 418 Plantain 88 108 121 134 149 147 156 167 Cocoyam 76 78 73 94 98 97 99 108 Maize 144 189 185 203 198 196 200 199 Sorghum 159 201 199 221 217 204 218 185 Millet 108 161 137 170 157 117 132 130 Paddy Rice 176 209 216 295 287 263 375 278 Source: Ministry of Agriculture (1999) Agriculture in Ghana. Facts and Figures, SRID,
Table 3. Production of Industrial Crops (Mt)
Cocoa Coffee Seed Cotton Tobacco Oil Palm 1990 293352 4872 11160 1160 470430 1991 242817 2710 14250 1740 508780 1992 312122 370 17460 1725 544970 1993 254652 4116 23350 2230 572990 1994 309406 6330 26290 1700 418380 1995 403000 6330 34640 2000 478980 1996 322490 2880 40250 2020 481910 1997 409360 8370 45670 2390 523350 Source: Ministry of Agriculture (1999) Agriculture in Ghana. Facts and Figures, SRID,
The production of cocoa has followed an upward trend in the 1990s. Seed cotton production has increased steadily with a quadrupling of production levels between 1990 and 1997. Oil palm production rose continuously between 1990 and 1993 and then declined to levels below the 1995 peak in subsequent years (Table 3).
Productivity in the food crop sector is quite low. Estimates of achievable yields (i.e. yields that have been achieved in isolated cases due to more effective extension and other logistic support) show that there is a wide gap between actual yields and the potential.
The agriculture sector faces several constraints that impact negatively on increased production and productivity. The small-holder farms are dispersed and this makes the provision of support services expensive. Production is largely rain-fed and traditional techniques of production tend to dominate. Less than 1% of the arable land is irrigated. The rainfall patterns can explain much of the wide fluctuation in the recorded growth rates. Fertiliser and insecticide use is limited amongst small-holders. A poor marketing and distribution network is a constraint on the expansion of production. In the agriculture sector there exists well-established marketing chains (for example in the cocoa industry) that transfer the produce from the farm to the final consumer. However the coverage of the marketing chains is limited. Many farmers are not part of these marketing chains and the cost of accessing them is high. Transport costs are a major constraint to the development of market chains for all commodities in all localities.
The sector’s contribution to tax revenue has followed a cyclical upward trend. Except for cocoa there are no export duties on agricultural exports and agricultural exports are zero 2rated in the new tax regime. The cocoa sector generates the bulk of the tax revenue of the sector.
The growth of foreign exchange earnings from the sector in the 1990s has been quite variable. Initially export earnings declined but picked up in 1994. The sector’s contribution to merchandise exports has declined in the 1990s. Cocoa beans and products dominate agriculture exports. Most of the developments in agriculture export earnings are due mainly to developments in cocoa earnings. However the share of cocoa bean exports has been declining in the 1990s.
Further liberalisation of agriculture trade and domestic policies in its major trading partners is important to Ghana. However the market potential that the liberalisation offers will not be taken advantage of if it is not possible to increase the marketable surplus.
III. Ghana’s Agriculture Trade.
Ghana’s agricultural exports are dominated by cocoa beans and products. They made up approximately 80% of agricultural exports between 1990 and 1995. The European Union
2 The value-added tax was introduced in December 1998. This replaced the sales tax. Some agricultural imports were subject to the sales tax.
Table 4. Market Share for Ghana’s Major Trading Partners for Selected Agricultural
1992 1995 1998
European Union 43.430 57.46 75.7
Belgium 2.051 9.23 4.91
France 1.088 5.74 7.85
Italy 1.076 3.53 4.40
Germany, F 13.025 11.78 9.37
Netherlands 8.393 10.73 22.60
Spain 0.986 5.74 2.65
United Kingdom 16.130 8.51 21.02
United States 5.480 5.76 4.18
Japan 5.333 5.16 8.44
Russia 1.180 5.01 2.59
Notes. This table provides data for 16 HS commodity codes at the 8 digit level. They
account for about 80% of the total agricultural exports. 1. A major trading partner is a country that receives at least 3% of the total value of the
Source: Ghana Statistical Services External Trade Statistics various issues, Accra
Table 5. EU share of selected agricultural exports 1995, 1997, 1998 (%). HS code Product name 1995 1997 1998
0702 Tomatoes, fresh or chilled 100 0 0
0714 Roots & Tubers with high starch 84 75 70
0803 Bananas – Plantain 99 99 85
0804 Pineapples, mangos… 64 87 78
0901 Coffee; coffee husks 89 68 79
1511 Palm oil & its fractions 46 87 98
1801 Cocoa beans 51 69 74
1802 Cocoa shells 100 94 97
1803 Cocoa paste 85 48 42
1804 Cocoa butter 93 88 88
1805 Cocoa powder 0 0.1 47
1806 Chocolate & other food 42 5 47
2006 Fruits, nuts & peel 100 0.0 76
2009 Fruit juices 2 75 94
Source: Calculated from Ghana Statistical Services data files.
is the major destination for most agricultural exports (Table 4). The share of agriculture
exports going to the European Union has increased in the 1990s and is estimated at 75%
in 1998. For some commodities the EU accounts for more than 90% of what is exported
(Table 5). This suggests that for Ghana developments in the EU agriculture and trade policies are of critical importance.
The trend in cocoa export volumes has been upward since 1995 (Table 6). Cocoa prices paid for Ghana’s cocoa rose until 1999 when they declined. The effect was therefore for
cocoa export earnings to rise until 1999 when they recorded a decline. The export volumes of pineapples, yam, bananas and plantains were higher in 1999 than in 1995. However in the instance of pineapple exports, these peaked in 1996. Volumes have declined since then although they remain higher than levels recorded in 1995 (Table 6).
Table 6. Trends in Export Volumes of Selected Agricultural Products
1995 1996 1997 1998 1999
Cocoa Beans 237.2 349.0 261.25 327.32 346.76
Cocoa Products 13.86 43.38 53.26 48.38 35.32
Pineapple 15.7 27.6 25.12 24.8 23.44
Yam 6.86 8.08 7.01 7.42 9.76
Plantain/Banana 1.85 3.29 4.00 2.90 3.38
Source: Ghana Export Promotion Council and Bank of Ghana.
Table 7. Market Share of Ghana’s Major Trading Partners for Selected Agriculture
Country 1992 1995 1998
European Union 16.892 25.92 24.6
Belgium 4.417 1.63 3.36
Germany, F. 2.501 2.11 2.30
Netherlands 3.298 5.23 7.12
France 4.224 5.34 2.61
United Kingdom 1.071 8.12 4.78
United States 22.320 21.50 22.77
Canada 3.741 9.03 15.87
Thailand 10.906 13.08 1.53
Vietnam 10.320 3.97 4.23
Notes. This table provides data for 20 HS commodity codes at the 4 digit level. They account for about 90% of the total agricultural imports.
1. A major trading partner is a country that receives at least 3% of the total value of the selected exports.
Source: Ghana Statistical Services External Trade Statistics various issues, Accra
The European Union emerges as a major source of imports. However it does not dominate the direction of import trade as it does the direction of export trade. On the basis of selected imports that account for at least 80% of Ghana’s agricultural imports in
1992, imports from the European Union account for about 17% (Table 7). The share of imports originating from the European Union is estimated at about a quarter in 1998. The USA and Canada are major sources of agricultural imports. This is largely because wheat imports are sourced from these countries. Wheat imports accounted for over a fifth
Table 8. Developments in the Structure of Exports and Imports since 1995
HS Selected Imports 1995 1998
Milk and Cream, not concentrated or sweetened 0.112 0.153
Milk and cream concentrated or sweetened 2.662 7.869
Maize 0.984 0.879
Rice 16.501 14.404
Wheat or meslin flour 0.169 0.135
Wheat or meslin 21.250 28.935
Soya bean oil and its fractions 0.738 0.921
Palm oil and its fractions 0.329 3.308
Cane or beet sugar and chemically pure sucrose 18.296 18.700
Other sugars in solid form 0.161 0.295
Coffee; coffee husks and skins 0.033 0.037
Tea 0.349 1.197
Cereal Grains otherwise worked 0.373 0.620
Malt 3.88 4.332
Margarine 1.620 2.787
Malt extract 2.983 1.266
Tomatoes prepared or preserved otherwise than 1.527 1.804
Wine or fresh grapes(incl. Fortified wines) 1.146 1.331
Ethyl alcohol undernaturated of 3.418 2.562
Bread, pastry, cakes etc; communion wafers 1.438 3.090
Roots and tubers with high starch content 1.863 0.687
Bananas including plantains, fresh or dried 0.553 0.430
Dates, figs, pineapples…etc, fresh or dried 2.244 1.382
Melons and pawpaws, fresh 0.036 0.112
Coconuts 0.152 0.850
Coffee, coffee husks and skins 11.726 1.082
Pepper of the Genus of piper… 0.079 0.139
Cocoa beans, whole or broken 51.840 68.260
Cocoa shells, husks skins and other cocoa waste 0.435 0.034
Cocoa paste, whether or not defatted 0.615 2.028
Cocoa butter, fat and oil 14.120 8.645
Cocoa powder not containing added sugar 0.114 0.010
Chocolate and other food preparations containing 8.283 0.125
Fruit juices (incl. Grape must) and vegetable 3.275 0.045
Source: Estimated on the basis of data obtained from data files of Ghana Statistical Services
of agricultural imports. The East Asian countries also emerge as major agricultural exporters to Ghana. This again can be explained largely by the structure of imports. Rice imports made up about 15% of agricultural imports (Table 8).
There is a fair degree of concentration in the structure of Ghana’s agricultural imports. Rice, wheat and sugar account for just over half the agricultural imports. They accounted for 55.9% of total imports in 1995. Their share rose to 62% of the imports in 1998 (Table 8). The value of rice imports have declined between 1995 and 1998 and rose quite substantially in 1999. The value of wheat imports on the other hand rose continuously between 1995 and 1998, declining in 1999. Unlike rice where there is some domestic production, there is no domestic production of wheat and sugar.
IV. The Trade Regime In Agriculture Before the Uruguay Round.
A. Border Protection –tariffs and non-tariff barriers.
The economic reform package in April 1983 aimed at reversing the decline in the economy and began a process of liberalisation that has pervaded all sectors of the economy.
Import Tariffs and other Import Restrictions
In 1990 there were five tariff lines, i.e. 0%, 10%, 15%, 20% and 25%. Sales taxes were imposed on imported items in addition to import duties. In 1990 there were four sales tax lines, i.e. 0%, 10%, 22.5% and 35%. A super sales tax ranging from 75%-500% on luxury goods was introduced in that year. The super sales tax of 500% was imposed on imports of edible fruits and nuts (HS code 8) and some fruit preparations (HS code 200819 to 200990). A rate of 200% was imposed on alcoholic drinks (HS code 2204-2208) and caviar. Vegetable preparations, i.e. HS code 2001-2007, some miscellaneous edible preparations under HS code 21, margarine, cheese and butter were subject to the 100% super sales tax.
The import tariff regime was restructured in 1994 to 0%, 10% and 25%. Items that had tariff rates of 20% had their rates increased to 25%. A zero tariff rate applied to imports of seeds, some inputs and baby food. Raw materials for domestic industry had a 10% tariff rate and the 25% tariff rate applied to agricultural consumer goods.
The import licensing system was dismantled in 1989. Except for a limited number of items on a negative list, all items could be imported without prior approval.
B. Export Regimes
Export Taxes and Other Export Restrictions
With the exception of cocoa, there were no export taxes on agricultural products. The cocoa tax is what remains after farmers have received the producer price and the
marketing costs of the Cocoa Board have been deducted. Restrictions on the export of cotton and palm oil and on the import of palm oil were removed.
Export Promotion 3A package of incentives was introduced in 1983 to encourage non-traditional exports.
The package included a customs duty drawback scheme, income tax rebate scheme and retention of foreign exchange earnings for non-traditional exports. Export subsidies were withdrawn in 1983.
C. Domestic Agricultural Policies
At the start of the reforms in 1983 the economy suffered two shocks. The first was the drought and bush fires that adversely impacted agriculture and the second was the return of approximately a million Ghanaian emigrants from Nigeria. The effect was to increase tremendously the demand for food. The focus of the agriculture policy in 1984-1986 was to increase the production of food crops through an increased supply of inputs.
In the following period the focus of policy shifted towards self-sufficiency in food crops, industrial raw materials and animal products. Other objectives during this period were increasing the production of export crops, reducing post-harvest losses, improving credit and market facilities and the research stations, and maintaining buffer stocks for price stabilisation and security.
The emphasis of the agriculture strategy during the period of reforms was on privatisation. It was considered that privatisation of the supply of inputs would increase their availability and the expected increase in competition would reduce the price to farmers. The liberalisation of the food marketing system was expected to result in higher prices being offered farmers compared to what Government could offer. Another reason given for the privatisation of the sector was that the shedding of some functions performed by staff of the Ministry of Agriculture would allow them to concentrate more on policy issues and monitoring. Finally the parastatals were a drain on state coffers.
By 1990, except for cocoa beans, the farm gate prices of agricultural products were determined by market demand and supply conditions. The prices of cotton were based on negotiations between the producers and the commercial enterprises. The monopsony of the Ghana Cotton Company in the buying of cotton and its monopoly in cotton ginning was broken. The Ghana Seed Company, responsible for the production and distribution of seeds to farmers was abolished. The monopoly of the Produce Buying Company of the Cocoa Board in cocoa haulage was removed. In 1990 the guaranteed minimum price scheme for maize and rice was ended. Input subsidies were phased out and their sale was privatised. Subsidised credit to agriculture had ended in 1987. In 1990 the requirement that at least 25% of commercial bank loans go to the agriculture sector was removed. The Livestock Marketing Board was closed down and the Ghana Food Distribution Corporation ceased to expand its storage facilities for price stabilisation purposes and
3 Traditional exports are exports of cocoa beans, timber, minerals and electricity. Non-traditional exports are all others.
food distribution. Plantations of the Cocoa Board and 40 livestock farms were either closed down or divested.
There has been a definite movement in agricultural strategy away from the state’s direct involvement in the production, distribution and marketing of output and inputs. There is also a clear movement away from directly intervening in the market through minimum prices and the provision of production and/or input subsidies.
The medium term agricultural development programme (MTADP) for the period 1991-2000 reflected quite clearly this re-thinking of the direction and bias in agricultural strategy and policy-making in Ghana. The objectives of the strategy were food security, rural employment, increased agricultural exports and increased production of raw materials.
Critical to achieving these objectives was the provision of an appropriate incentive structure, improvements in agriculture support, increased private sector participation, strengthening of agriculture management and more rational allocation of public resources. Unfortunately the performance of agriculture during the period of implementation of the MTADP was poor. Production rates did not rise significantly and the constraints of marketing and access to credit remained.
V. URAA Commitments Made by Ghana
A. Export Subsidies.
The URAA requires that provision of export subsidies conform with what has been agreed upon. The Agreement stipulates the types of export subsidies that are subject to reduction commitments (Article 9). Ghana did not make any export subsidy reduction commitments because it does not have any export subsidies.
B. Market Access.
By the time URAA had been concluded Ghana did not have any quantitative restrictions, so that the issue of tariffication did not apply to it. Ghana chose to bind its tariffs and reduce them over a ten-year period. It bound its tariffs at rates much higher than actually applied (Table 9). Ghana does not have tariff quotas so did not submit a schedule of commitments. Ghana’s trade regime does not have non-tariff measures such as non-
automatic licensing, tariff quotas, variable levies and import monitoring.
C. Domestic Support.
Ghana had very little in the way of price or income support measures for its farmers. The URAA exempted investment subsidies and agricultural input subsidies provided to low-income or resource poor producers in developing countries from domestic support reduction commitments. Ghana provided a schedule indicating the investment subsidies it had in place. Subsidies are provided to the extension services, research services, veterinary services and to encourage afforestation and control of post-harvest losses.