Ghana and Cote D’Ivoire are both significant producers of cocoa and big consumers of rice, but due to the country’s differing agricultural regimes their farmers face completely different pricing structures.
The result? Massive smuggling.
For example, traders smuggle Ivorian rice into Ghana, where import tariffs make it an extremely profitable commodity. Marching the other way are Ghanaian cocoa beans, which fetch much higher price on the centralized Ivorian market.
It works this way due to the misaligned policies in these neighboring nations.
Not long ago, Cote d’Ivoire implemented a centralized cocoa buying regime, which mandates a fair and uniform price for each season’s crop of cocoa. According to Edward George, head of group research at Ecobank, the result has been higher production and better quality — a runaway success (easier because cocoa prices have been high on world markets).
In neighbouring Ghana, cocoa farmers can compare the Ivorian price to their own similar pricing regime, and, until recently, the smart money went to Cote d’Ivoire. Cocobod, the Ghanaian board, has responded by raising the offer price of cocoa by 8.5 percent. For now, the strategy is working, but a recent Ecobank report notes that high inflation and the potential for another drop in the value of the Ghanaian cedi could undermine the effort.
Further, one has to question the sustainability of the strategy. What if the price of cocoa falls? Will Ghana be able to accommodate a price premium in that situation as well? If prices don’t fall, will Ghana’s strategy attract smuggling from Ivorian farmers — essentially defeating the purpose of the exercise in the first place?
Local Consumptions
There’s a similar story when it comes to rice, only because it involves local consumption, rather than export, consumers are decidedly affected.
Ghana, for example, can only support 30 percent of its rice consumption with local production. However, instead of allowing a free pricing regime, it imposes a 37 percent duty on imports — making it a very profitable business to smuggle Ivorian rice into the nation.
To combat the problem, a secondary policy was implemented, which bans all rice importation over land borders and restricts importation to two ports. The result has been a massive increase in the cost of imported rice relative to local.
“The evidence is that the smuggling of Ghanaian beans has fallen off very sharply because Ghana hugely increased the price this season and it’s still currently higher, in dollar terms, than the Cote d’Ivoire price.”
The benefit is, of course, that local rice is more attractive to consumers, but because of the limited amount of local stock this policy necessarily puts pressure on consumers — and because of the price differential it doesn’t eliminate the potential gains to smuggling.
Taken together, these stories reflect the growing difficulty of managing agricultural policy in a region with porous borders and significant incentives to trade.
“You’re always going to get an incentive for smuggling at the borders because the two countries are from different economic zones, so there is huge potential always to play some kind of arbitrage with the import regimes,” George says.
Competing With Imports
Another way of dealing with the problem is to help the local industry better compete with imports. In the case of Ghana’s rice imports, a large USAID investment aims to improve productivity and quality so that Ghana’s rice farmers can better compete with their foreign counterparts.
Some suggest competitiveness can come through other means. “This year’s Africa Progress Report recommends cutting tariffs and non-tariff barriers to regional trade and developing marketing infrastructure,” says Ed Harris, head of communications for the Africa Progress Panel.
An elimination of import tariffs could result in a more normalized price regime, but it could also impose it’s own problems; namely, political ones. Ghanaian rice producers obviously have the ear of policy-makers and a lot to lose if tariffs are eliminated.
Another part of the problem is the issue of labor and employment. Over one-half of Ghana’s workforce is involved in agriculture; in Cote d’Ivoire, the sector employs two-thirds of the population.
Thus, protecting the sector also involves protecting the jobs of a significant number of people. A shift in employment through the elimination of trade barriers might be more efficient in the long run, but it would almost certainly also be painful in the short-term for those affected and, perhaps, politically untenable.
Competitiveness aside, one has to wonder if greater coordination in regional pricing and import regimes could help stabilize matters. After all, if cocoa and rice prices were essentially the same in Ghana and Cote d’Ivoire, it would eliminate a lot of the incentive to engage in smuggling.
However, this is no easy feat. George explains that Ghana’s Cocobod has a monopoly on cocoa, while in Cote d’Ivoire much of the buying is outsourced and pricing rules only come into effect once cocoa has been purchased.
“They’re just different systems, so to align them would be very difficult. But I do think there will be more cooperation certainly between Cote d’Ivoire and Ghana on trying to prevent the smuggling.”
That’s because the costs to both countries are rather high. “Obviously there’s a loss of revenue to the country if the beans go out of it, but it can also really lead to confusing signals about the health of the other country’s cocoa sector,” says George.
It’s thus a costly problem with many potential solutions, but no easy answers.
