Enhancing the quality of cocoa beans produced in Ghana through learning and price incentives

The Ph.D. researcher, William Quarmine, has analysed the institutional factors that affect the quality of cocoa beans that Ghana exports. His thorough analysis of the cocoa industry allows him to estimate the costs to the country of an institutional context that discourages smallholders. Cocoa currently provides one-third of the country’s export revenues, most of it produced by smallholders. It only exports premium quality. In his research William focuses on the quality of the beans that smallholders deliver to Licensed Buying Agents (LBAs). Farmers get paid the same for a bag of cocoa beans, irrespective of quality. A farmer can increase the quantity of his beans only during the production stage (pruning, fertilisation, pest & disease control) but not during processing (fermentation phase). Yet it is the latter stage that is vital for bean quality. Farmers therefore have no incentives to produce the best quality. Hence William is working with COCOBOD (the parastatal that controls all aspects of cocoa production and export) to mount an experiment in a number of villages to test ways of paying farmers for differential quality. This involves testing procedures for grading and their transparency, the logistics of handling different grades, and of course the impact on the quality of cocoa beans that farmers deliver.

The RA, Dr Richard Adu-Acheampong, works with the Cocoa Research Institute of Ghana (CRIG). He has established an Innovation Platform (CIG) that comprises major players in the cocoa industry. The institutional experiment in this case focuses on price setting. This group realised they lacked information about the mechanisms for price formation in cocoa, and the relationships between quality and price (LBAs do get paid according to quality). Prices paid to farmers get set by COCOBOD and these prices are announced at certain times of the year. But there is little insight in how that price relates to the F.O.B. and world market price, how price setting and its timing affects farmers’ production performance, and how farmers’ and national interests trade off. The CIG members have joined forces to gather information about price formation and the timing of the price announcement. This has already led to some important changes in decision making, e.g., a much earlier announcement of the price to farmers to fit the new reality that the new cocoa varieties produce throughout the year, and not seasonally, and, in 2011, an upward revision in the price paid to farmers, although world market prices had dropped, made possible by manipulation of other components of price formation.
Enhancing the quality of cocoa beans produced in Ghana through learning and price incentives

William Quarmine

PhD Student CoS-SIS Programme Cocoa domain, Ghana.

Cocoa is Ghana's most important export crop, contributing up to 3.5% of GDP and 35% of total export revenues. In the near future, the socio-economic development of Ghana has been projected to continue to depend on cocoa exports. Export revenues from the crop are reinforced by quality premia Ghana receives on the world market. Sustaining a premium quality status on the international cocoa market therefore remains an important policy goal for Ghana. Maintenance of this premium quality status of GhanaÕs cocoa would arise from continual improvement in the institutional environment of GhanaÕs cocoa sector

Whereas the quality of GhanaÕs cocoa beans exported is beyond question, because bad beans are sieved out before export, there is recent evidence that much more can be done about the production and post-harvest activities in the industry to enhance the quality of cocoa beans to meet export quality standards. We interpret the enhancement of the quality of cocoa produced in two ways; firstly, through increasing the production volume of exportable cocoa from the present annual average of 650,000 MT to a potential of over 1,000,000 MT and secondly, by increasing the proportion of cocoa beans graded as superior (Grade I) cocoa beans in total production

For farmers to enhance the quality of cocoa beans they produce, they will have to invest time and financial resource into taking care of the entire farm activities and post-production activities using methods which have been recommended by GhanaÕs Cocoa Research Institute. Often, farmers do not fully undertake recommended activities because there are no real incentives to do so. The argument is that, their production is hardly monitored, the quality of their produce is not graded before sale, pricing policy hardly factors in their quality effort.

Our objective in the cocoa domain PhD work is therefore to examine how farmers will react to incentives embedded in participatory learning and quality premia in terms of enhancing the quality of cocoa beans they produce. We are conducting these learning and price premia experimentations in 6 cocoa growing communities in the Suhum Cocoa District in the Eastern Region of Ghana.

At the end of these experiments we hope to have learnt, together with all stakeholders in the cocoa industry, various quality pricing options which will provide the right incentives for farmers in Ghana to enhance the quality of cocoa beans they produce in Ghana.

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