ECONOMIC AND SECTOR WORK AGRIBUSINESS INDICATORS: Ghana APRIL 2012 REPORT NUMBER 68163-GH E C O N O M I C A N D S E C TO R WO R K AGRIBUSINESS INDICATORS: Ghana Report Number 68163-GH © 2012 International Bank for Reconstruction and Development / International Development Association or The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This volume is a product of the staff of the International Bank for Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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Cover photo: Curt Carnemark AGR IBUSINES S IND IC ATOR S : GH A NA C O NT E NTS III TABLE OF CONTENTS Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii Acronyms and Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi Chapter 1: Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Background on Ghana’s Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Context of the Agribusiness Indicators Initiative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.3 Agribusiness Indicators Methodology—Ghana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.4 Organization of the Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Chapter 2: Improved Seed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.1 Legal and Regulatory Framework for Seed Production, Multiplication, and Certi�cation . . . . . . . . . 4 2.2 Supply of Improved Seed for Major Cereals and Legumes . . . . . . . . . . . . . . . . . . . . . . . . 4 2.3 Private Sector Participation in Seed Production and Distribution . . . . . . . . . . . . . . . . . . . . . 5 2.4 Process of Importing Seed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.5 Farmer Seed Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Chapter 3: Fertilizer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.1 Fertilizer Consumption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 3.2 Legal and Regulatory Framework for Fertilizer Imports and Distribution . . . . . . . . . . . . . . . . .10 3.3 Entry into the Fertilizer Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 3.4 Private Sector Participation in the Fertilizer Market . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 3.5 Fertilizer Prices and Subsidy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 Chapter 4: Mechanization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 4.1 Government Policy on Mechanization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 4.2 Government’s Current Program and Investment in Tractors. . . . . . . . . . . . . . . . . . . . . . . .16 4.3 Supply and Availability of Agriculture Machinery and Spare Parts . . . . . . . . . . . . . . . . . . . . .17 4.4 Private Sector Participation in the Agriculture Machinery Sector . . . . . . . . . . . . . . . . . . . . .18 4.5 Tractor Prices and Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 Chapter 5: Finance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 5.1 Policy and Legal Environment for Finance in Ghana. . . . . . . . . . . . . . . . . . . . . . . . . . . 22 5.2 Commercial Lending to the Agriculture Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 5.3 Access and the Cost of Agricultural Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 5.4 Special Mechanisms for Agriculture Financing in Ghana . . . . . . . . . . . . . . . . . . . . . . . . 25 E C O N O M IC AND S E CTOR WORK IV C ONTENTS Chapter 6: Transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 6.1 Transport Policy and Investments in Ghana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 6.2 Private Sector Participation in the Transport Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 6.3 Transport Prices in Ghana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 6.4 Rural Access and Quality of Roads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Chapter 7: Policy and Enabling Environment for Agribusiness Development . . . . . . . . . . . . . . . 35 7.1 Private Sector Perceptions of the Policy Environment for Agribusiness. . . . . . . . . . . . . . . . . 35 7.2 Policy Consistency and Role of Private Sector Advocacy . . . . . . . . . . . . . . . . . . . . . . . . 36 7.3 Government Expenditure on Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 7.4 Farmer Share of Cash Crop Export Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 7.5 Development of the Processing Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Annex 1: Supporting Tables and Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 AGR IBUSINES S IND IC ATOR S : GH A NA LI ST O F F IGUR E S V FIGURES GLOSSARY LIST OF Figure 2.1: Area Planted by Certi�ed Maize and Rice Seed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Figure 3.1: Total Fertilizer Consumption and the Value of Imports in Ghana . . . . . . . . . . . . . . . . . . . . . . . . .11 Figure 3.2: Average Prices of Major Fertilizers in Ghana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Figure 3.3: Fertilizer Domestic Cost Components per 50 kg Bags in Ghana (US$/bag) . . . . . . . . . . . . . . . . . . .13 Figure 5.1: Agriculture Sub-sector Composition of Commercial Lending in Ghana . . . . . . . . . . . . . . . . . . . . 23 Figure 6.1: Feeder Roads Routine Maintenance—Approved vs. Achieved . . . . . . . . . . . . . . . . . . . . . . . . . 30 Figure 6.2: International Comparisons: Quality of Trade and Transport Related Infrastructure . . . . . . . . . . . . . . . 33 Figure A.1: Ghana Fertilizer Cost Components per MT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 E C O N O M IC AND S E CTOR WORK VI LIST OF B OX ES LIST OF BOXES Box 2.1: Dynamic Female Seed Multiplier in Northern Ghana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Box 3.1: A Well-Established Agro-Dealer in the Brong-Ahafo Region . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 Box 4.1: Business Prospects on the Rise for a Tractor Importer and Distributor in Ghana . . . . . . . . . . . . . . . . .18 AGR IBUSINES S IND IC ATOR S : GH A NA LI ST O F TAB L E S V II TABLES GLOSSARY LIST OF Table E.1: Matrix of Agribusiness Indicators and Findings for Ghana . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii Table 1.1: Yields of Major Crops (MT/ha) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Table 1.2: Food Supply and Demand of Key Staples, 2009 (‘000 MT) . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Table 2.1: Summary Observations on Improved Seed in Ghanna. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Table 2.2: Major Barriers to Entry into the Seed Business Identi�ed by Seed Producers. . . . . . . . . . . . . . . . . . 5 Table 2.3: Maize Area Cultivated and Output by Masara N’Azariki Farmers in Northern Ghana, 2008–11 . . . . . . . . . 6 Table 2.4: Expenditures on Crops Inputs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Table 3.1: Summary Observations on Fertilizer Use and Prices in Ghana. . . . . . . . . . . . . . . . . . . . . . . . . . 9 Table 3.2: Private Sector Players: Ghana Fertilizer and Chemical Market . . . . . . . . . . . . . . . . . . . . . . . . . .12 Table 3.3: Wholesale Prices for Maize in Selected Markets in Ghana. . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Table 3.4: Fertilizer Subsidy Budget, Volume, and Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 Table 4.1: Summary Observations on Agriculture Mechanization in Ghana. . . . . . . . . . . . . . . . . . . . . . . . .15 Table 4.2: Tractor Imports by Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Table 4.3: Number of Farm Mechanization Centers Established/Operational . . . . . . . . . . . . . . . . . . . . . . . .17 Table 4.4: Tractor Availability in Ghana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Table 5.1: Summary Observations on Agricultural Finance in Ghana . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Table 5.2: Degree of Outstanding Loans to Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Table 5.3: Commercial Bank Lending to Key Sectors in Ghana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Table 5.4: Sources of Agriculture Credit (�rst/most important source) . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Table 5.5: Top Challenges to Running a Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Table 5.6: Interest Rate Spread, Selected Countries, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Table 5.7: Selected Examples of Agriculture and Value Chain Financing Programs in Ghana . . . . . . . . . . . . . . . 26 Table 6.1: Summary Observations on Transport Sector in Ghana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Table 6.2: Road Sector Funding Sources, US$ million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Table 6.3: Logistics Companies’ Response on Road Transport Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Table 6.4: Transport Prices between Major Markets in Ghana (in May–June 2011) . . . . . . . . . . . . . . . . . . . . 32 Table 6.5: Ghana’s Road Indicators Benchmarked against Low- and Middle-Income Countries . . . . . . . . . . . . . 32 Table 6.6: Ghana’s Performance in the Logistics Performance Index . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Table 7.1: Summary Observations on Policy Environment for Agribusiness in Ghana . . . . . . . . . . . . . . . . . . 35 Table 7.2: Government Agriculture Expenditure in Ghana. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Table 7.3: Producer Prices for Cocoa Beans in Ghana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Table 7.4: Industrial Processing of Maize (2009–2010) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Table A.1: Certi�ed Seed Supply and Its Potential Coverage of Cultivated Area in 2010 . . . . . . . . . . . . . . . . . 39 Table A.2: Fertilizer Consumption in Ghana, 2005–09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Table A.3: Fertilizer Prices in Ghana (2006–10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 E C O N O M IC AND S E CTOR WORK VIII AC K NOW LED GEM ENTS ACKNOWLEDGEMENTS This report was prepared by Samjhana Thapa of the Agribusiness Unit of the Agriculture and Rural Development Department under the overall guidance of Grahame Dixie (Senior Agribusiness Specialist, ARD). Ghana is one of the pilot countries of the Agribusiness Indicators (ABI) Program, where the indicators were first field-tested on the ease and consistency of available data. Samjhana Thapa, along with Samuel Seddoh, collected secondary data and conducted key informant interviews with major stakeholders in the agriculture sector in Ghana in April 2011. The team gratefully acknowledges very useful inputs and advice from Vikas Choudhary, John Holtzman, Chris Jackson, Augustine Langyintuo, Gunnar Larson, Jan Nijhoff, and Peter White. Patricia Van de Velde provided invaluable research sup- port and Kaisa Antikainen provided support with the publishing process. Without the generous time given to the team by the stakeholders during the data collection and interview process, the report would not have been possible. This report benefited from funding provided by the Bill and Melinda Gates Foundation. AGR IBUSINES S IND IC ATOR S : GH A NA AC R O N Y MS AND ABBRE VIAT IONS IX ACRONYMS GLOSSARY AND ABBREVIATIONS ADB Agriculture Development Bank AESD Agriculture Engineering Services Directorate AFD French Development Agency AGRA Alliance for a Green Revolution in Africa AMSEC Agriculture Mechanization Service Center BOG Bank of Ghana CAADP Comprehensive Africa Agriculture Development Program CEPS Customs, Excise, and Preventive Service CIF Cost, Insurance, and Freight COCOBOD Cocoa Board CRI Crop Research Institute COFOG Classification of the Functions of Government DANIDA Danish International Development Agency DCA Development Credit Authority DTMA Drought Tolerant Maize in Africa ECOWAS Economic Community of West African States EDIF Export Development Investment Fund EDAIF Export Development and Agriculture Investment Fund EPA Environmental Protection Agency FAOSTAT Food and Agriculture Organization Corporate Statistical Database FASDEP Food and Agriculture Sector Development Policy FBO Farmer-Based Organization FOB Free On Board GAIDA Ghana Agricultural Input Dealers Association GALCO Ghana Association of Leasing Companies GGC Ghana Grains Council GHA Ghana Highway Authority GIS Geographic Information System GLDB Ghana Grains and Legumes Development Board GLSS5 Ghana Living Standards Survey Round 5 GOG Government of Ghana GPHA Ghana Ports and Harbors Authority GREL Ghana Rubber Estates Ltd GRIB Ghana Rice Inter-professional Body GSS Ghana Statistical Service IITA International Institute of Tropical Agriculture E C O N O M IC AND S E CTOR WORK X ACR ONY MS AND A B B R EV IATIONS ICT Information Communication Technology IFAD International Fund for Agricultural Development IFC International Finance Company IFDC International Fertilizer Development Center IFPRI International Food Policy Research Institute ISSER Institute of Statistical, Social, and Economic Research KFW German Development Bank LPI Logistics Performance Index MiDA Millennium Development Authority MOFA Ministry of Food and Agriculture MOTI Ministry of Trade and Industry MT Metric Ton NAA MSECO National Association of Agriculture Mechanization Service Centers NEPAD New Partnership for Africa’s Development NGO Non-Governmental Organization NHIS National Health Insurance Scheme NIB National Investment Bank NPK Nitrogen, Phosphorus, and Potassium OISL Opportunity International Savings & Loan Ltd OP Open Pollinated PPRSD Plant Protection and Regulatory Services Directorate RAI Rural Access Index RAFiP Rural and Agricultural Finance Program RCB Rural and Community Bank RSA Republic of South Africa SARI Savannah Agriculture Research Institute SEEDPAG Seed Producers Association of Ghana SoA Sulphate of Ammonia TOPP Twifo Oil Palm Plantation Ltd USAID United States Agency for International Development WDI World Development Indicators AGR IBUSINES S IND IC ATOR S : GH A NA E X E C U T I V E S UMMARY XI EXECUTIVE GLOSSARY SUMMARY Agriculture plays an important role in the economies of most countries in Africa. However, few African countries have been able to capitalize on the sector’s considerable potential to contribute to economic development through commercialization. Few have created an enabling environment for agricultural finance in which lenders and other agents are encouraged to develop innovative financial products that are well tailored to meet the needs of local producers. Few African countries have purposefully set out to encourage the use of modern farm machinery. Some, however, have invested in road infrastructure and transport facilities to reduce transaction costs and improve producers’ access to markets. The countries that have under- taken initiatives to expand producers’ access to agricultural technologies such as certified or hybrid seeds and fertilizers have generally been the most effective at increasing agricultural productivity. The research described in this volume used a set of agribusiness indicators to collect data that capture the performance of the agriculture sector in the Republic of Ghana, using a list of preliminary indicators covering the following areas: (i) access to and availability of certified seed; (ii) availability of and access to fertilizer; (iii) access to farm machinery, particularly tractor hire services for land preparation; (iv) access to agricul- tural and agro-enterprise finance; (v) cost and efficiency of transport; (vi) measures of policy certainty and the orientation of the enabling environment as perceived by the private sector; and (vii) various policy, trade, and fiscal measures. Ghana was the first country in which these indicators were tested for ease and consistency. The indicators were then finalized and used for data collection in two other African countries (Ethiopia and Mozambique). Access to and availability of certified seed: The data collected in Ghana indicate that relatively few farmers who cultivate field crops have access to improved seeds, and seeds of high-yielding hybrid crops in particular. Seed supply is constrained by inadequate production of both breeder and foundation seed. According to Ministry of Food and Agriculture (MOFA) data, just 19 percent of the area used for maize production in 2010 was cultivated using certified seed, and only 8 percent of the area used for rice production. However, a number of recent Government initiatives are promising. In 2010, the Parliament of Ghana passed a national seed law known as the Plants and Fertilizer Act, which opens the door for an increased role for the private sector in producing seeds for a number of grains. The regulations of the Act have also been developed. The Parliament will not, however, approve new varieties from within the ECOWAS region or elsewhere until adaptive trials covering two growing sea- sons have been conducted to ensure that seeds are safe from viruses or other diseases. Until recently, imports of improved seed were banned altogether. Now it is open to private companies, although only a few of them have begun to import hybrid maize seed. Although the capacity of the private sector seed multiplication industry in Ghana remains limited, investment in seed technology and expanded production of improved seed are increasing. As a result, the number of certified seed growers is increasing, and private sector firms are exploring the possibility of producing hybrids and OP varieties for domestic use and for export to regional markets as well. Availability of and access to fertilizer: Fertilizers are another important input for raising agricultural productivity in Ghana. In the five years of 2006 to 2010, the country’s fertilizer imports increased from 189,878 metric tons to 308,786 metric tons, an increase of more than 60 percent. Fertilizer consumption has also increased to 40 kilograms per hectare, which is just 10 kilo- grams per hectare short of meeting the Abuja declaration on fertilizer. The nutrient output ratio of 2.6 indicates that fertilizer use is profitable for Ghanaian farmers, particularly as the grains they produce command higher prices in local markets. In the 1990s, the Government monopoly over fertilizer imports and distribution was abolished, and the resulting liberalized environ- ment made market entry relatively easy for importers, distributors, and retailers, who are able to obtain a license in a short period of time. With 8 major importers, between 35 and 50 distributors, and as many as 4,000 retailers, the market is already quite robust, and the density of agro-dealers in some regions is high. Access to farm machinery: In addition to improved seeds and fertilizer use, the third element our indicators sought to measure was modern farm machinery—for which the proxy used was the availability of tractor services. Agricultural production in E C O N O M IC AND S E CTOR WORK XII EX EC UTIV E S UM M A RY Ghana is labor intensive, with little use of machinery. In recent years, however, the demand for tractors has been on the rise, owing to an expansion in the amount of land that is cultivated by large commercial farms. As a result, a number of importers and distributors of well-known tractor brands have come into operation. Tractor services are utilized for land preparation and for other agricultural activities such as planting, post-harvest processing, and hauling. This trend toward mechanization has generally not applied to smallholders, who are unable to afford the purchase of tractors that have high financing requirements. The timely availability of spare parts has also been problematic. In 2010, Ghana had an estimated 11 tractors per 100 square kilometers of arable land—compared to 43 and 25 tractors in South Africa and Kenya, respectively. To promote commercializa- tion within the agriculture sector, the Government of Ghana has decided to enter the machinery market by providing tractors under a subsidized program of public-private partnership. The program has proven to be problematic in its implementation, with stakeholders raising concerns about mechanical breakdowns, poor after-sale services, unavailability of spare parts, and political interference and favoritism in distribution. Some are also concerned that the Government’s involvement in the agri- culture machinery market could crowd out the private sector. Access to agricultural and agro-enterprise finance: Agricultural finance is another critical input in enabling businesses to invest in scaling up and managing risk. Access to agricultural finance in Ghana is difficult to obtain, and where it is available, it is expensive. Agriculture receives substantially less commercial bank lending than other sectors—barely 6 percent.1 Interest rates of commercial bank loans are typically in the range of 25 to 40 percent. Many providers of financial services are hesitant to provide loans for agricultural purposes owing to land tenure issues, a history of non-repayment of subsidized loans, and the overall riskiness of investing in rain-fed agriculture. Although financial institutions have generally not tailored specific financial products or instruments for agricultural clients, more recently there have been a number of positive developments. Some banks and other financial institutions are showing interest in the sector. Loan guarantee funds are being designed and implemented, insurance products are being tested, a warehouse receipt system is being developed, and more financial institutions are becoming members of the credit registry bureau for increased transparency and information sharing. All of these are steps in the right direction for the development of the agriculture sector. Cost and efficiency of transport: In addition to agricultural finance, agricultural transport is found to be a major cost factor in doing business throughout much of Africa as the result of limited infrastructure in most of the countries. Roads are the predominant mode of transportation in Ghana. Field surveys have confirmed that transport costs are a major component in the marketing of both agricultural inputs and produce. Though Ghana’s transport sector is relatively well developed according to the country’s Rural Access Index, rural and feeder roads that are important for agriculture is not always in good operating condition.2 Despite increases in funding for road maintenance, a number of serious challenges still need to be overcome.3 One of them is overloading among commercial vehicles, a practice that has caused road quality to deteriorate, adding to the cost of transporting agricultural goods. In trans-border corridors, check points and bribery have added to the delays and increases in transport costs. Ultimately these challenges add significantly to transport prices. Agribusiness policy environment: Changes in agricultural and private sector development policy in Ghana have made for a more enabling environment for the private sector and market development, although some in the private sector express con- cerns over specific policies such as the subsidy on fertilizer and mechanization. The new Private Sector Development Strategy (PSDS II) emphasizes the need to foster public-private dialogues. Many associations either focusing on specific commodities or subsectors advocating the interests of the private sector exist. Yet, efforts are mainly fragmented, and there is an absence of an active establishment of one group that speaks in the interest of the sector overall. In 2009, 9 percent of the total federal government budget was allocated to agriculture. The agriculture budget as a percentage of GDP nearly doubled from 2008 to 2009. Still, budget allocations fall short of the CAADP compact that had set targets for allocating at least 10 percent of Government expenditure on agriculture. A summary table of study findings on the various indicators follows on the next two pages. 1 Agriculture sector is defined as cereal production, cocoa, livestock, poultry, forestry, logging, and fishing. 2 Rural Access Index for Ghana is 61 percent (RAI measures % of rural people living within 2 km of an all-season road (or 20 minutes walk- ing distances). 3 Government spending on road maintenance (routine, periodic, and minor rehabilitation/upgrading) has more than doubled from $34.22 .22 million in 2004 to $97 million in 2008. AGR IBUSINES S IND IC ATOR S : GH A NA E X E C U T I V E S UMMARY X III TABLE E.1: Matrix of Agribusiness Indicators and Findings for Ghana AGRICULTURE PRODUCTIVITY MEASURES INDICATOR FINDINGS Improved Seed Existence and implementation of regional and national seed laws and regula- Y; Rating 3 tions (Y/N; Scale: 0–5) % staple crop area planted to certified seed 19% (maize), 8% (rice), 12% (soybeans), 2010 Sales of imported seed as % total sales of certified seed. Maize: 7% (2010) Time required for registration, testing, and obtaining approval for imported 2–3 years seed % of foundation seed provided by government organizations 100% % of certified seed multiplied by private firms and farms vs. government 100% private sector supplied entities No. of private seed companies operating in country 10 No. of days to get an import permit (for seeds other than key grains) 5 days (Avg.) Ease of private sector participation in the seed market (Scale: 0–5) Rating 2.5 Fertilizer Total fertilizer use in past three years: 2008–10 172,733 MT (’08); 209,213 MT (’09); 295,900 MT (’10) Fertilizer application rates (kg/ha) 40 kg/ha (’10) gross Fertilizer growth rates in % 10% (total fertilizer, 2006 to 2010) Cost of 50 kg bag of NPK, urea, and SoA in main agricultural production zones NPK: $20.8; Urea: $18.8; SoA: $13.9 Ease of private sector participation in the fertilizer market (Scale: 0–5) Rating 3 (for importers and distributors, not retail agro-input dealers) Nutrient/Output Price Ratio {Pn/Po} Urea/maize price ratio in 2011 2.6. There is an incentive to use fertilizer in Ghana. Fertilizer subsidy (% of retail cost) 42% Tariffs and taxes on fertilizer 0% Agro-input dealers density (agro-dealers/1,000 farmers) 0.84 Mechanization Total # of tractors per 100 sq km of arable land 11 tractors per 100 sq km (2010) Cost of plowing one hectare of land $46/ha (national avg.); S. Savanna $42/ha; Forest $47/ha; and Coastal Savana $50/ha. Government subsidy on tractors 33% (of CIF price) Useful life of tractors Avg. of 10 years at an estimated 1,100–1,320 annual hours of operation for farm tillage purposes only. Tariff on tractor spare parts 10% import duty 12.5% VAT, 2.6% NHIS, 1% processing fee, 0.5% ECOWAS, & 0.5% EDIF levies Ease of private sector participation in the agricultural machinery market Rating 1.9 (Scale: 0–5) SUPPORTING SERVICE MEASURES Finance % of commercial bank lending to agriculture 6.1% (2010); 4.7% (2009); 4.3% (2008) Commercial bank interest rates (Avg. interest rates offered by the banks for 25–40% (2010). Interest rate spread in 2010 was 21.8%. Inflation loans to agriculture) rate was 16.5% in 2008, 19.3% in 2009, and 10.9% in 2010. % of nonperforming loans (within agriculture sector) 21% Bank branches per 100,000 rural adult population 5 banks % of rural HHs receiving credit for agriculture 8% (GLSS5 (2008)) Existence of a warehouse receipt system (Y/N; Scale: 0–5) Yes; Rating 1 Existence of a law on leasing (and extent of use of leasing) Yes; A taskforce has been formed with membership of Govt., Ghana Grains Council, and donors to prepare the groundwork for a warehouse receipt law and its accompanying regulations to be completed in 2012. Presence of a Collateral Registry Yes; The Parliament of Ghana enacted the Borrowers and Lenders Act (773) under which the Collateral Registry was established and began operations on February 1, 2011. E C O N O M IC AND S E CTOR WORK XIV EX EC UTIV E S UM M A RY Transport Price per bag of maize from major wholesale or assembly market to major $0.10–$0.44/ton per km urban center ($ per ton per km) Price paid to ship a standard 40-foot container to international destinations Tema-Newark: $4,638; Tema-Durban (South Africa): $3,827; Tema- Rotterdam (Netherlands): $2,006 Length of time required to register a truck for hauling agricultural products 5 days (days) Ease of entry into trucking of foodstuffs (Scale: 0–5) Rating 4 Opinion of traders and truckers on the competitiveness of trucking services Rating 3 (Scale: 0–5) Quality of trade and transport related infrastructure (e.g., ports, railroads, LPI 2.52 roads, IT)—LPI (Scale: 0–5) Rural Access Index: % rural population within 2 kilometers of a road RAI 61% (GLSS5, 2008) POLICY AND INSTITUTIONAL MEASURES Private Sector Private sector perception of agribusiness enabling environment (on 0–5 scale) Rating 2.9 Perception Policy Consistency: perceptions of foreign and domestic investors and Rating 2.6 of Policy concerns over frequent, unexpected, or arbitrary changes in policy, regula- Environment & tions, and rules that affect the operations and profitability of their businesses Advocacy Role (Scale: 0–5) Private sector advocacy group for agribusiness: existence and effectiveness Rating 1 (Scale: 0–5) Govt. Com- Federal government budget outlays on agriculture as % total budget 9% (2009); 10% (2008); 13% (2007) mitment to Agriculture Export Crop Proportion of a cash crop FOB export price paid to producers 53% (2005 to 2009) Indicators Development of Proportion of maize moving through formal marketing channels (including 10% of maize production Maize Process- large-scale processing and feed milling and mixing) ing Industry Source: Summary of Indicators presented in the Report. AGR IBUSINES S IND IC ATOR S : GH A NA C H A P T E R 1 — INT RODUCT ION 1 Chapter 1: INTRODUCTION 1.1 BACKGROUND ON GHANA’S AGRICULTURE to effectively prioritize intensification and large improve- Agriculture plays an important role in Ghana’s economy. The ments in productivity. The agriculture sector continues to sector accounts for 30 percent of GDP and employs nearly consist mainly of smallholder farmers using minimal inputs 60 percent of the labor force. The value of cocoa exports alone of improved seeds, chemical fertilizer, and irrigation. They cul- contributes nearly one third of the country’s total foreign tivate small and fragmented plots of land. For Ghana’s agri- exchange earnings. Income from non-traditional agricultural culture sector to successfully transform, these smallholders commodities such as seafood and horticultural products are will need either to become viable agribusinesses themselves also becoming increasingly important for Ghana’s economy. or to be linked to commercial enterprises that support the In recent years, agricultural GDP has been growing at about use of modern inputs and facilitate access to markets. If not, 6 percent per annum. Increases in commodity prices have the sector will continue to underperform with the low crop contributed to agriculture’s contribution to GDP However, . yields that currently prevail (Table 1.1). most of this growth can be attributed to an expansion in the Despite the low performance of the sector, national domestic area cropped with staples such as maize, rice, and cassava production of food staples has increased, and Ghana is now rather than to increases in agricultural productivity. Over the food sufficient in most of the crops produced in the country, medium to long term, this expansion into previously unculti- except for rice (Table 1.2). Certain regions in Ghana, how- vated areas will not be sustainable, and the country will need ever, remain food insecure. The challenge is twofold. It is to TABLE 1.1: Yields of Major Crops (MT/ha) ensure that the surplus food produced reaches food-insecure households and at the same time that commercialization COMMODITY 2007 2008 2009 extends to each stage of the value chain so that surplus food Maize 1.5 1.7 1.7 can be processed and even exported. The development of Rice (milled) 1.7 2.3 2.4 agribusinesses, in which private sector actors play an active Millet 0.7 1.1 1.3 role in value chains along with the Government will be critical Sorghum 0.7 1.2 1.3 in bringing this to pass. Cassava 12.8 13.5 13.8 Yam 13.5 14.1 15.3 The demographic shifts resulting from rural to urban migra- Plantain 10.6 10.7 10.9 tion have also had an impact on the agriculture sector. These Groundnut 0.8 1.3 1.5 too underscore the importance of agribusiness develop- Cocoyam 6.5 6.7 6.7 ment. In Ghana, 52 percent of people (age 7 or above) are Source: MOFA, 2010. migrants. Migrants comprise 55 percent of the population TABLE 1.2: Food Supply and Demand of Key Staples, 2009 (‘000 MT) TOTAL DOMESTIC PRODUCTION AVAILABLE ESTIMATED DEMAND COMMODITY PRODUCTION FOR HUMAN CONSUMPTION FOR FOOD SURPLUS (+)/DEFICIT ( ) Maize 1,620 1,198 1,052 146 Rice (milled) 235 204 577 373 Millet 246 214 24 190 Sorghum 351 305 12 293 Cassava 12,231 8,562 3,673 4,889 Yam 5,778 4,622 1,007 3,615 Plantain 3,563 3,028 2,037 991 Groundnut 526 474 288 186 Cocoyam 1,504 1,429 961 468 Source: MOFA, 2010. E C O N O M IC AND S E CTOR WORK 2 C H A PTER 1 — INTR OD UC TION of Accra (GLSS5, 2008). In 1980, 31 percent of the country’s 5. Measures of policy certainty and the orientation of population was classified as urban. By 2009, this propor- the enabling environment as perceived by the private tion had increased to 51 percent. The increased numbers of sector people in urban areas imply that there are fewer people left in 6. Various policy, trade, and fiscal measures rural areas who are available to produce food for the growing urban population. This calls for commercial farming that uses The pilot exercise confirmed that modernization of the agri- better seeds, fertilizer, and other inputs that raise agricultural cultural sector and agribusiness development cannot be productivity. enhanced without better access and availability of certified seeds, improvement in fertilizer application rates, and provi- sion of modern machinery. Agribusinesses enterprises require 1.2 CONTEXT OF THE AGRIBUSINESS access to credit and other financial services to invest in inputs INDICATORS INITIATIVE to increase yields or to scale up their business operations. Lack of good quality roads can raise the cost and affect the The Agribusiness Indicators program pilot tested an initial set timely availability of inputs such as fertilizer. Similarly, without of indicators on the ease (or difficulty) of operating agribusi- good road networks and transport services, farm produce will nesses in African countries. The indicators are used to assess have fewer options to reach external output markets. whether the countries have an enabling environment that is conducive to agribusiness investment, competitiveness, and ultimately agriculture-led growth. This pilot research will help 1.3 AGRIBUSINESS INDICATORS to clarify which factors are important for successful agribusi- METHODOLOGY—GHANA ness development. At the start of this applied research pro- gram, the Agribusiness Indicator team laid out six broad sets Based on these key critical factors, the Agribusiness of key success factors. Indicators (ABI) team has developed a matrix with selected indicators to be used to assess the agribusiness environ- 1. Access to critical factors of production (land, technol- ment in a country. The team is cognizant of the fact that other ogy, finance, etc.) factors may be equally important, such as access to water, 2. Access to markets (freedom to sell, absence of land, and even labor. Similarly, access to markets and avail- restrictions on internal movements of goods, etc.) ability of other types of infrastructure such as electricity and 3. Quality of supporting institutions and services communications are not included in the indicators examined. 4. Positive and transparent regulatory and legal The matrix was supplemented by a checklist that was pre- environment pared for each area of investigation: seeds, fertilizer, mecha- 5. Policy environment nization, agriculture finance, and transport. In Ghana, the ABI 6. Adequacy of rural infrastructure team conducted key informant interviews with Government agencies (MOFA, Customs, MOTI), private firms (fertilizer These were pilot-tested in Ghana in November 2010, focus- importers, seed companies, tractor importers and distribu- ing on two value chains—rice and maize. Based on this pilot tors, transporters), commercial banks, farmer-based organi- experience in Ghana, the broad sets of indicators that were zations, donors, and NGOs. In addition to the interviews, data identified at the start of the pilot were revisited, and a nar- were collected from the Statistics Unit of MOFA, FAOSTAT, rower set of indicators were selected for further work. The World Bank WDI indicators and from surveys undertaken by pilot exercise also determined that a value chain approach IFDC, IFPRI, and GSS. The interviews and sourcing of sec- was not appropriate for the purpose of cross-country com- ondary data were combined with literature reviews. parisons, as the same crops may not have equal importance in all countries. The new set of indicators is grouped into the The indicators are classified in three ways: (i) Absolute value; following categories. (ii) Ordinal ranking (0–5); and (iii) Yes/No. 1. Availability of and access to fertilizer 2. Access to farm machinery, particularly tractor hire 1.4 ORGANIZATION OF THE REPORT services for land preparation This report consists of seven chapters focusing on each of 3. Access to agricultural production and agro-enterprise the indicator groups. Each chapter begins with a summary of finance findings, followed by data generated for the indicators under 4. Cost and efficiency of transport, particularly trucking that specific category. AGR IBUSINES S IND IC ATOR S : GH A NA C H A P T E R 2 — IMP ROVE D SE E D 3 Chapter 2: IMPROVED SEED Few Ghanaian farmers who cultivate field crops have access recently, when two companies (Wienco and Agriserve) to improved seed, particularly high-yielding hybrids. Seed began to import hybrid maize seed from South Africa. Private supply is constrained by inadequate production of breeder sector seed multiplication is growing, though it lacks capac- seed (primarily by two research centers, CRI and SARI) and ity, and private firms are unable to obtain credit to expand of foundation seed (by a public agency, the GLDB). New seed certified seed multiplication. A private sector association, law has outlawed the monopoly foundation seed (FS) produc- SEEDPAG, participates in national seed deliberations and has tion by GLDB; private seed companies are now allowed to been instrumental, along with other actors in the agriculture produce FS but must be registered and certified by PPRSD. sector, in lobbying for change. One result of these efforts Imports of improved seed had been effectively barred until was enactment of the national Seed Law. TABLE 2.1: Summary Observations on Improved Seed in Ghana SUCCESS FACTOR INDICATORS RESULTS OF INDICATORS Improved Seed Existence of regional & national seed laws Y; Rating 3. Parliament passed a national Seed Law (Plants and Fertilizer Act, 2010) in 2010, & regulations (Y/N; Scale: 0–5) which is in line with the 2008 ECOWAS regional seed harmonization regulation.1 The regula- tions have also been developed. The new Seed Law opens the door for an increased role of the private sector in seed production of different types of grains. It will encourage international seed companies to introduce new open-pollinated and hybrid varieties. On a 0–5 ordinal scale,2 Ghana receives a 3. Over time, tracking of the seed law implementation will be a critical indicator for the seed sector. % staple crop area planted with improved Maize: 19% seed3 Rice: 8% Soybean: 12% Sales of imported seed (incl. from ECOWAS 7%—Most of the improved maize and rice seeds are currently produced within Ghana. Imports of region) as % total sales of certified seed improved seed were effectively barred until 2010, when some companies began importing hybrid maize seed for limited sale and are currently undertaking test trials for possible large volume commercial imports into Ghana. Time required for registering, testing, and 2–3 years of field-level adaptive trials are needed to obtain approval to import certified seeds for obtaining approval for imported seed cereals. National crop research institutes must confirm, in writing to the PPRSD, the authentic- ity of varietal attributes. The level of cooperation received from the above bodies significantly determines the length of the approval process. Under the new policy, this could improve, as Ghana now only requires adaptive trials for two seasons, which can be covered in one calendar year, if irrigation is available. % of foundation seed provided by Govt. 100%—Foundation seed production is monopolized by the Grain & Legume Development Board organization (GLDB) in Ghana. Multipliers of this foundation seed report inadequate supply and a varietal mix % certified seed multiplied by private firms not corresponding to farmer/market demand. and farms vs. government entities 100%—Currently, about 1,500 private certified seed producers are registered with the Ghana Seed Inspection unit. Of this number, 150 grow seeds on 10 hectares or more. Active member- ship of SEEDPAG is estimated around 600 growers. All certified seed-producing firms are 100% privately owned without any Government intervention. In the past few years, several local seed companies have emerged with support from AGRA, which is helping nascent companies with start-up grants, investment funds, and training. Seven companies have received support thus far. Number of private seed companies operat- 10 ing in the country No. of days to get an import permit (for Avg. 5 days—Application is submitted to the head of Plant Protection and Regulatory Services seeds other than key grains) Directorate and GH¢10 to be paid as application fee per each permit issued/consignment imported. Phyto-sanitary certificate and source documentation required. Seed to grain price ratio 2 to 1 Ease of private sector participation in the 2.5 seed market (Scale: 0–5) Source: Summary of Indicators presented in the Chapter. 1 Regulation C/REG. 4/05/2008 (harmonization of the rules governing quality control, certification, and marketing of plants seeds and seed- lings in ECOWAS Region). 2 Ordinal scale: 0 no framework; 1 draft law or revision, 2 passage/conforms with regional protocols, 3 development of bylaws or guidelines for implementation, 4 actual implementation, 5 effective implementation. 3 MOFA, 2010. E C O N O M IC AND S E CTOR WORK 4 CH A PTER 2 — IMPR OV ED S EED 2.1 LEGAL AND REGULATORY FRAMEWORK FOR GLDB uses is also obsolete, and the quality of seeds pro- SEED PRODUCTION, MULTIPLICATION, AND duced is not always good. CERTIFICATION On a 0–5 ordinal scale, Ghana receives a 3 for having passed Parliament passed a national Seed Law (Plants and Fertilizer a seed law and developed the regulations that were approved Act, 2010) that is in line with the 2008 ECOWAS regional by the Minister of Agriculture and validated by stakeholders. seed harmonization regulation. The new Seed Law opens the Currently, the regulations are with the Attorney General for door for an increased role for the private sector in seed pro- formatting before they are presented before Parliament duction of different types of grains. It will encourage interna- for approval. The Plant Protection and Regulatory Services tional seed companies to introduce new and hybrid varieties. Directorate (PPRSD) is responsible for regulating production Yet, Ghana will not approve a new variety from the ECOWAS and distribution of improved seed, including certification. The region or elsewhere until adaptive trials of two seasons have research centers are responsible for introducing new varie- been conducted in the country to protect seeds from pest ties, but they are under-funded and under-staffed. In addition, infestation carried from another country. Two trial seasons the GLDB and Seed Inspection Unit runs six seed processing could be carried out in Ghana in 1 calendar year if trials are and cleaning units in Tamale, Ho, Winneba, Bolga, Wa, and conducted in different regions and irrigation is available. This Kumasi. These plants use outdated equipment that needs to represents progress from earlier experiences of 2–3 years. be upgraded. And they could arguably be better managed by The seed legislation is the same for both grains and veg- private sector firms. etables, but they are applied differently. In Ghana, the breeder seeds are currently produced by the CRI and SARI. The foundation seeds are in the hands of the 2.2 SUPPLY OF IMPROVED SEED FOR MAJOR Ghana Grains and Legumes Development Board (GLDB), a CEREALS AND LEGUMES parastatal that exercises a monopoly.4 Private seed growers Data from MOFA indicate that in 2010 the supply of certified who have been involved in the multiplication of seeds since maize seed could be used to cover 19 percent of the total the 1990s report that the GLDB does not produce enough area cultivated with maize; coverage for rice is only 8 percent foundation seed to meet their multiplication needs and that (Figure 2.1). Most farmers retain seed from their prior year it does not produce the varieties most demanded by grow- cereal or legume crop for planting. According to agricultural ers (and the market of consumers and other end users). researchers in Ghana, seed from open pollinated (OP) varie- Inefficiency in coordination among these agencies, such as ties may be retained by smallholders for planting in two suc- late payment for seed supplied to private sector multipliers cessive years without a significant loss in productivity, but and GLDB’s inability to assess market demand for seeds, OP varieties need to be replaced by year 4. Nearly all seed has led to either shortages or excess production of some varieties developed for release in Ghana are OP varieties (with seed varieties. The seed cleaning and processing equipment a limited amount of hybrid maize seed). The adjusted percent- age calculation accounts for the requirement of one in every 4 Though this has been outlawed under the new seed law, and private seed companies are allowed to produce foundation seed three-year renewal of open pollinated seed varieties. Certified but must be registered and certified by PPRSD. , seed therefore needs to be provided in years 1, 4, 7 etc. FIGURE 2.1: Area Planted by Certified Maize and Rice Seed Key Key Area planted by maize certified seed (in 000’ ha) Area planted by rice certified seed (in 000’ ha) 1400 250 Total area planted by maize (in 000’ ha) Total area planted by rice (in 000’ ha) 1200 200 1000 Hectare Hectare 800 150 600 100 400 50 200 9.4% 9.4% 13% 18% 19.4% 4.1% 3.2% 4.1% 14.7% 8% 0 0 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 Source: MOFA, 2010. AGR IBUSINES S IND IC ATOR S : GH A NA C H A P T E R 2 — IMP ROVE D SE E D 5 In addition to the low production of seeds in a given year, the already registered as certified seed-producing companies, an marketing of seeds in Ghana is a major problem, according increase from just one company in 2006. It is the SEEDPAG to the PPRSD. On one hand, certified seed growers com- position that the existing monopoly in foundation seed pro- plain that they cannot sell the seed. On the other, farmers duction is not conducive to the sector’s development. Private complain about accessibility and availability. Processing facili- seed multipliers claim that foundation seed varieties pro- ties are found in regional capitals and are not always close to duced by GLDB do not correspond well to market demand farm-based growers. The other key challenge is weak exten- and that the volume of seed for multiplication is inadequate. sion. Agro-dealers were found to be more involved in fertilizer SEEDPAG also maintains that without clear and effective distribution and less likely to be engaged in supplying seeds. regulations, the new seed policy will not improve the policy Their relative lack of interest in seed may be the result of environment for the sector. In addition, private seed compa- limited available supply or of limited demand on the part of nies cannot access financing to expand the area multiplied farmers. to certified seed or to invest in seed-processing facilities. A study conducted in 2008 outlines some of the challenges faced by the seed sector (Table 2.2). 2.3 PRIVATE SECTOR PARTICIPATION IN SEED PRODUCTION AND DISTRIBUTION The private sector seed multiplication industry is limited but 2.4 PROCESS OF IMPORTING SEED keen to expand production of improved seed and develop seed Seed importers in Ghana are required to obtain a permit technology in Ghana. In addition to importing seeds, the private from the PPRSD. The importers interviewed indicated that sector is looking into breeding hybrids and OP varieties that the process is not cumbersome; if the appropriate papers are suitable for the prevailing conditions in Ghana. Currently, (which include a phyto-sanitary form) are submitted, an there are 1,500 certified seed growers, out of which in a given import permit can be obtained in an average of 5 days. If the year, there are about 150 growers producing improved seeds.5 imported seeds are for vegetables, the importer can bring In addition, two companies, Wienco and Agriserv, have under- the seed into the country and sell it in the market directly. taken trials for hybrid maize seeds (Pan53).6 Despite hundreds However, the process is not the same for grain seeds, which of growers in the certified seed sector, many are small and require in-country trials. A key finding of the USAID-funded have limited capacity (for example, see Box 2.1). Production AgCLIR study on Ghana, conducted in 2008, was that the of seeds is dispersed, and even larger seed growers do not time (three full cropping cycles) needed to undertake trials seem to control more than 1 percent of the total certified seed required obtaining approval from the Ghanaian agricultural produced. Foundation seed production is entirely dominated research establishment and MOFA to introduce imported by the public sector, primarily by GLDB but with CRI producing high-yielding hybrid seed was prohibitively long, deterring modest quantities. All seed multiplication is done by private farms or firms. The market shares (degree of concentration) of private seed producers are unknown, but the private seed TABLE 2.2: Major Barriers to Entry into the Seed industry is not oligopolistic (and there has been recent entry) Business Identified by Seed Producers and is actually quite fragmented. % OF SEED PRODUCERS BARRIERS (GHANA) The private sector seed association SEEDPAG was created in Competition with larger companies 8 2005, with 600 members, mainly producers. Three SEEDPAG Seed marketing problems 23 leaders sit on the National Seed Advisory Committee, repre- Lack of access to production credit and 23 senting three agro-climatic/production zones: middle, north, other credit facilities and south. AGRA is helping a number of SEEDPAG member Unfavorable seed policy environment 54 companies to undertake capacity building to enable them Low adoption rate by farmers — to emerge as viable private firms. Seven such growers are Lack of access to suitable germplasm 15 Lack of qualified manpower — Lack of access to extension services 8 5 Estimate obtained from an interview with the PPRSD, which High initial investment outlay 54 regulates and certifies production of improved seeds. 6 Pan53 was developed by Pannar of South Africa, which is now Unfavorable climatic conditions — majority owned by Pioneer Hi-Bred (of the Dupont group of Source: Drought Tolerant Maize in Africa (DTMA) Seed Sector Survey, IITA companies). (International Institute of Tropical Agriculture), 2008. E C O N O M IC AND S E CTOR WORK 6 CH A PTER 2 — IMPR OV ED S EED BOX 2.1: Dynamic Female Seed Multiplier in seed imports. Under an ECOWAS agreement on seed, Northern Ghana seed trade among member countries is permitted without a field testing requirement. However, this agreement does Aisha Idrissu Kadiri is a woman in the Tamale District, not appear to be enforced, and improved seed entry faces who is both a farmer (farm is 16 km away in Tugu Yapala) barriers to entry. In 2009, Ghana continued to import 100 and a multiplier of certified rice seed. In 2008, she first metric tons of maize seeds and 40 metric tons of rice seeds received 59 bags of certified rice seed from CRS/Tamale (MOTI, 2010). In addition, there is little evidence of importa- (in 12 kg bags), each supplying enough seed for 0.5 acre tion of improved seed from neighboring countries, except (hence, 29.5 acres total). This expanded to 72 bags in small-volume trade carried out informally and unofficially 2009 and 200 bags in 2010. across borders. Kadiri is also an input dealer who distributes fertilizer, seed, and various agro-chemicals (herbicides, pesticides, No well-known multinational seed companies have estab- rodenticides, nematicides) and sprayers. She joined the lished a presence in Ghana. However, Wienco, a Dutch and Ghana Agricultural Input Dealers Association (GAIDA) in Ghanaian joint venture specializing in the import and distri- 2009 as a registered input dealer. GAIDA has 156 mem- bution of agricultural inputs, began importing hybrid maize bers in the Northern Region and about 4,000 in all of seed from South Africa in 2010. The maize was used for trials Ghana, of which about half have been trained by EPA in northern Ghana, where it was limited to Masara N’Azariki and MOFA. Training focuses on safe handling of pesti- farmers. Masara N’Azariki is a producers’ cooperative in north- cides, calibration of sprayers to avoid overuse, concept ern Ghana, where 3,000 farmers produced approximately of establishing demonstration plots, and management 31,500 metric tons of maize on about 14,000 acres in 2010 and operations of an input dealership. (Table 2.3). Masara N’Azariki estimates that 10–15 percent of its output in 2010 consisted of yellow maize sold mainly According to Kadiri, YARA, one of the major importers for poultry, using South African varieties. Wienco brought in of fertilizer in Ghana, is the only supplier of fertilizer in these varieties from a seed producer in South Africa called the North, using Iddisal (whose office is very near the Pannar. Wienco and Masara N’Azariki requested and obtained MOFA Regional Office in Tamale) as its distributor. There permission from the PPRSD to import and use RSA hybrid are three or four prominent, well-established wholesale maize seed that has been supplied to their farmers. and retail distributors of inputs in Tamale. Kadiri claims to reach (female) farmers at their doorsteps with inputs. She also says she has some demonstration 2.5 FARMER SEED USE plots to show farmers how/when to apply inputs. Her inter- Farmer use of improved seed, which needs to be established est in being an agro-entrepreneur is relatively recent. Her quantitatively by survey research, is reported to be very low. husband had to negotiate with a chief in a village (away Farmers perceive certified seed to be expensive. Field inter- from her family’s farm) to acquire use rights to 40–45 acres views and observations revealed that seed found in the mar- of land. She claims that she would not have been able to ket is sometimes mixed and contaminated. Private sector access this much farm land without his help. The “leasing� players indicated that there is inadequate government moni- arrangement requires that she provide some of her output toring of seed purity, though this is part of MOFA/PPRSD’s (only two bags) to the chief for use of the land. mandate. Improved seed is almost entirely open pollinated Source: Field interview. varieties rather than more productive hybrids. In 2010, only TABLE 2.3: Maize Area Cultivated and Output by Masara N’Azariki Farmers in Northern Ghana, 2008–11 AVERAGE MAIZE AVERAGE MAIZE NO. OF TOTAL AREA PLANTED AREA CULTIVATED TOTAL OUTPUT AVERAGE OUTPUT PER FARM YEAR FARMERS TO MAIZE (ACRES) PER FARM OF MAIZE (MT) MAIZE YIELD (MT) 2008 1,250 3,200 2.6 2,300 0.72 1.84 2009 2,200 10,400 4.7 20,000 1.92 9.09 2010 3,000 14,000 4.7 31,500 2.25 10.50 2011 (est.) 5,000 40,000 8.0 100,000 2.50 20.00 2015 (est.) 7,500 57,143 7.6 200,000 3.50 26.67 Source: Masara N’Azariki, Tamale. Figures for 2011 and 2015 are optimistic projections. AGR IBUSINES S IND IC ATOR S : GH A NA C H A P T E R 2 — IMP ROVE D SE E D 7 TABLE 2.4: Expenditures on Crops Inputs % OF AMOUNT SPENT ON INPUT NORTHERN SOUTHERN INPUT ZONE AFRAM BASIN HORTICULTURAL ZONE Organic fertilizer 6.8 0.7 1.2 Inorganic fertilizer 7.4 1.6 1.2 Weedicides 1.3 3.3 2.5 Insecticides 0.1 0.7 0.2 Fungicides 0 0.3 0.1 Purchased seed, seedlings 15.9 11.8 14.5 Hired labor 43.1 59.7 43.2 Transport of crops 2.7 4.3 7.2 Renting of farm land 0.7 4.3 4.1 Tools 12.9 11.9 16.1 Others 9.2 1.5 9.8 Total 100 100 100 Source: Report of the Baseline Survey 2009, ISSER. 35 tons of Mamaba hybrid seed was multiplied by growers expenditures amounted to an average of 14 percent of input in Ghana.7 Despite the low adoption rate of improved seed cost for farmers based on a survey of 23 districts carried out by farmers, 22 percent of the rural households surveyed by ISSER for the MiDA program (Table 2.4). This relatively in the Ghana Living Standards Measurement Survey in high number could be more due to the tendency of farmers 2006 reported their seed expenditures (IFPRI 2011). Seed to purchase seeds for vegetables than for grain production. 7 Interview with PPRSD, April 2011. E C O N O M IC AND S E CTOR WORK C H A P T E R 3 — F E RT IL IZ E R 9 Chapter 3: FERTILIZER In the early 1990s, Ghana liberalized the fertilizer sector by market share of 50–60 percent of fertilizer imports. Despite abolishing the Government monopoly in fertilizer imports and the strong participation of the private sector in the market, distribution. Since then, a large number of importers, dis- fertilizer consumption on average is only about 40 kilograms tributors, and retailers have entered the market, and by the per hectare. Reported consumption of nitrogen fertilizer is accounts of those interviewed, they did so with considerable significantly lower, at 6 kilograms per hectare. As a result of ease. Currently, there are 8 major importers and between these low rates of fertilizer use, the yields of major crops are 35 and 50 major distributors, a few of which import as well very low. They average 1.7 tons per hectare for maize and 2.4 on an occasional basis. There are as many as 4,000 fertilizer tons per hectare for rice (MOFA, 2010). Moreover, over the retailers operating in the market. YARA, the leading fertilizer years, national yield levels of major crops have only improved company, is one of the major importers in Ghana and has a slightly. TABLE 3.1: Summary Observations on Fertilizer Use and Prices in Ghana SUCCESS FACTOR INDICATORS RESULTS OF INDICATORS Fertilizer Fertilizer consumption Fertilizer nutrient consumption per ha is low in Ghana at an average of 6 kg/ha. This contributes to low yields of major crops: 1.7 tons/ha for maize and 2.4 tons/ha for rice. Meanwhile, fertilization application rate1 is 40 kg/ha, which is reaching the Abuja declaration on fertilizer’s goal of 50 kg/ha by 2015 but falls short in compari- son to South Africa with 120 kg/ha and Kenya with 93 kg/ha. Fertilizer use2 295,900 MT (2010) Cost of 50 kg bag of NPK, urea, and SoA in 2–3 main Fertilizer cost in rural market towns in Ghana can be double that of the CIF cost agricultural production zones in a country due to finance and in-land transportation costs. Since 2008, to address the high prices of fertilizer in world markets, GOG decided to introduce a subsidy program in partnership with the major importers. Without the subsidy, fertilizer costs are high, and many smallholder farmers report that fertilizer is too costly to use. In 2010, the average prices for the following fertilizer products in Ghana were: NPK: $415/ton; SoA: $277/ton; and urea: $376/ton. Nutrient/output ratio (maize) The nutrient/output ratio in Ghana is 2.6, which imply that farmers in Ghana have good incentives to use fertilizer despite higher input prices as they are receiving good output prices. Timeliness in the importation of fertilizer (proxy for In 2010, about 40% of the fertilizer imports to Ghana were supplied for the subsidy timeliness in the application of fertilizer) program. The subsidy program is based on an annual decree from the Government, which is usually announced between May and July. As numerous documents need to be completed for fertilizer supply to be accepted under the subsidy program, it takes about 2 months (after the fertilizer is in the port) to get the approval from the Govt. for importers to distribute fertilizer into the market. Hence, the arrival of the fertilizer is late for the planting season in the Southern region, which is in late March through April. % of imported fertilizer that was delayed (2010) 37% (estimated figure) – In 2010, MOFA data shows that 91,244 MT of fertilizer were supplied under the subsidy program, out of the estimated volume of 244,395 MT of fertilizer imported. Due to late announcement from the Government, fertilizer under the subsidy was delayed, especially for the transitional zones. Time it takes the government to pay fertilizer Avg. 6 months; time lags for payment has progressively deteriorated over the 3 year importers period. Entry into the fertilizer market License from EPA to sell chemicals: Up to 2 months (as little as 2 weeks). Entry into the fertilizer market in Ghana is not difficult, but getting a license from EPA to be able to sell chemicals can take time—sometimes up to 2 months. On the other hand, for some companies, it took only 2 weeks. In addition to the operating license, agro-dealers are also required to register as formal businesses with the Registrar General’s Department. License renewal from EPA is done annually and is issued from Accra, though forms can be submitted in the regional offices. 1 This indicator is calculated based on total fertilizer use and arable land area. 2 This is an estimated number based on calculation of annual volume imported, discounted by the volume that is exported. Interviews with importers confirmed that there is very little carryover stock, and Ghana does not produce any fertilizer. E C O N O M IC AND S E CTOR WORK 10 C H A PTER 3 — FERTILIZER TABLE 3.1: (continued) SUCCESS FACTOR INDICATORS RESULTS OF INDICATORS Fertilizer subsidy % of the retail cost: 42% (in 2010) In 2008, Government decided to introduce a subsidy program that depended largely on the private marketing and distribution system. This has resulted in an increase in import volumes. but its impact on improved adoption rates are yet to be seen. Despite the good intention of the program, experience has been mixed as fertilizers are not always available on time for the major planting season (March–April) in Southern zones. The stocks from the previous year are not always adequate. (Details provided under section 5). Tariffs & taxes on fertilizer 0%. Although there are no tariffs and government has waived all taxes for fertil- izer imports, the following handling charges and levies apply: EDIF levy of 0.5%, ECOWAS levy of 0.5%, 1% processing fee for zero rated commodities and 2.5% NHIS levy. Additionally, importers have to pay for the following charges: stevedoring (including port charges), handling and possibly demurrages if delays occur in clear- ing of the commodity. Agro-input dealers3 density (Agro dealers/1000 0.84 farmers) Private sector participation in the fertilizer market Score—3; The private sector’s perception of the fertilizer market is an average of 3 (Scale: 0–5) due to the delays in payment from the Government for the fertilizer subsidy program. A significant delay in payment in 2010 led to late distribution of imported fertilizers. Source: Summary of Indicators presented in the Chapter. Note: EDIF (Export Development Investment Fund); NHIS (National Health Insurance Scheme). 3.1 FERTILIZER CONSUMPTION On fertilizer used and crop types, only about 30 percent of Fertilizer is not produced in Ghana. The country’s fertilizer fertilizer imported is absorbed by the food crops, followed imports have been increasing with a least square growth rate by another 20 percent by large industrial farms of plantation of 12 percent in the five-year period beginning 2006. Although crops like palm oil, rubber, cotton, pineapple, and banana. almost all fertilizer ingredients are imported, some blending The remaining 50 percent is then consumed by cocoa. No is done in-country by YARA. The general increase in imported recent field level surveys have been conducted to validate fertilizer beginning in the early 2000s slowed between 2006 this anecdotal evidence based on interviews with private and 2008, when it remained somewhat constant, before importers, but it is consider to be well-established knowl- resuming in 2009 (Annex, Table A.2). Most of the fertilizer edge. As for access to fertilizer, 19 percent of households in used in Ghana is NPK. In 2010, 68 percent of fertilizer used Ghana reported buying inorganic fertilizer during 2005–2006 was NPK, followed by urea and SoA. Out of the imports, (GLSS5, 2008). This figure does not encompass fertilizer small volumes are exported to neighboring countries. In 2010, offered through Government and donor programs, which is about 4 percent of total imports was subsequently exported. a small percentage of total fertilizer use in Ghana.4 This may have changed following the Government’s subsidy program Despite the increase in fertilizer prices beginning in 2007, that was introduced in 2008. fertilizer consumption has increased in Ghana, primarily 3.2 LEGAL AND REGULATORY FRAMEWORK due to the fertilizer subsidy schemes of the Government FOR FERTILIZER IMPORTS AND DISTRIBUTION (Figure 3.1). Compared to the Africa-wide average of 9 kilograms per hectare used, application rates in Ghana In the early 1990s, Ghana liberalized the fertilizer sector by average 40 kilograms per hectare. This higher-than-average abolishing the Government monopoly in fertilizer imports and rate is still significantly lower than South Africa and Kenya, distribution. Since then, many actors (importers, distributors, where the average is 120 and 93 kilograms per hectare, and retailers) have entered the market with relative ease. respectively. However, if the 10 percent rate of growth Prior to the newly enacted Plants and Fertilizer Act of 2010, in fertilizer use Ghana has seen in recent years persists, the fertilizer sector was not regulated under any specific act. the country is likely to reach the average 50 kilograms per The Crop Services Directorate and EPA shared the regulatory hectare prescribed by the Abuja Declaration by 2015. function, with importers, distributors, and retailers having to 3 Agro-input dealers are mainly small to mid-sized retailers who 4 According to GLSMM5, only 1 percent of rural households that distribute and sell key agriculture inputs such as fertilizer, seeds, used fertilizer referred to the Ministry of Agriculture providing and machinery. IFDC estimates that there are about 4500 agro- them fertilizer. input dealers in Ghana. AGR IBUSINES S IND IC ATOR S : GH A NA C H A P T E R 3 — F E RT IL IZ E R 11 FIGURE 3.1: Total Fertilizer Consumption and the Value of Imports in Ghana 350,000 Key 140,000 Volume (MT) 300,000 Value (000 USD) 120,000 250,000 100,000 Metric ton ‘ooo USD 200,000 80,000 60,000 150,000 40,000 100,000 20,000 50,000 0 0 2006 2007 2008 2009 2010 Source: MOTI, 2010. register prior to engaging in the sector. Very little monitoring sales have to find alternative means of financing. Despite of fertilizer quality within the country was undertaken. Under these challenges in start-up, there has been an increase in the new Act, the regulatory responsibilities are streamlined the numbers of new entrants in the market. According to the with the creation of a new fertilizer regulatory division under IFPRI/IFDC agriculture-input dealer survey of 2010, 357 agro- the PPRSD. This Act and its regulation will be critical for dealers started operations in 2008 and remained in opera- increased participation of private sector firms, because over tion in 2009, which is an 18 percent increase from the 1,978 the past two years, despite increases in fertilizer imports, . enterprises that existed in 2007 In 2009, 481 additional agro- farmers’ mistrust of fertilizer dealers has risen, as there have dealers were established that were still in operation at the been instances of adulterated products in the market, includ- time of the survey. ing violation of truth in labeling in terms of contents, quantity, and quality (Fuentes, Johnson & Bumb, 2011). 3.4 PRIVATE SECTOR PARTICIPATION IN THE FERTILIZER MARKET 3.3 ENTRY INTO THE FERTILIZER MARKET YARA has a market share of between 50 and 60 percent of Entry into the fertilizer market in Ghana is not difficult. fertilizer imports. The other four major players are Chemico, However, obtaining a license from EPA to sell agro- Golden Stork, Afcott (an Indian multinational), and Dizengoff chemicals, including fertilizers, can take time—sometimes (a subsidiary of the British-Israeli firm Balton CP Ltd). up to 2 months. For some companies it took only two weeks. Fertilizer retailers are spread throughout the country, though In addition to the operating license, agro-dealers are also the Ashanti region has the highest density, both in terms of required to register formally as a business with the Registrar the number of retailers active in the area and the number General’s Department. License renewal from EPA is done per 1,000 farmers. With the exception of the Upper East annually and is issued from Accra, though forms may be sub- Region, the northern part of the country has a significantly mitted in the regional offices. lower density of retailers (especially in terms of numbers per farmer) than the southern part of the country. Nationally, in Retail level input dealers have a major constraint in being able Ghana, the agro-dealer density is 1.215 (IFPRI, 2010). Despite to access credit (for example, see Box 3.1). Unlike import- the coverage, most of the larger and better-stocked retailers ers, who have access to financing in international markets are close to cities. Small-scale sellers tend to be less well at much more competitive interest rates, few smaller retail- stocked. ers who are closer to rural areas and to farmers are reached by financial institutions. Those who are reached are charged 5 Agro-dealer density is measured as a ratio of agro dealers and exorbitant interest rates. As a result, those who enter fertilizer farmers (no. of agro-dealers/1,000 farmers). E C O N O M IC AND S E CTOR WORK 12 C H A PTER 3 — FERTILIZER BOX 3.1: A Well-Established Agro-Dealer in the Brong-Ahafo Region The business started in 1999 and was registered in 2002. The company wholesales as well as retails fertilizer, pesticides, seeds, and agricultural machinery like drip irrigation equipment and spraying machines. In addition, the business owns and manages a 61 hetare maize farm and a 4 hectare cocoa farm. In 2009, the company’s turnover was about GH¢9 million, representing an estimated 50 percent market share in the region. It sells inputs to agents in rural areas as well as to farmers who come directly to the retail store. The agents in rural areas are given credit of 7 to 30 days. The default rate is low at about 3–7 percent. There is no written agreement with agents, so extension of wholesaler credit is based on trust against the issuance of an invoice. Although the business is performing well, the input dealer noted a number of constraints:  Loans from banks are not favorable. Interest rates are high, and lending is always for short terms of 6 months to 1 year.  There are no duties on fertilizer imports, but port charges are high for small and mid-sized fertilizer importation and distribution companies.  The dealer is of the view that Government directly supplying inputs to block farms does not favor increased partici- pation of the private sector in the fertilizer sector. The other major constraint the business faces is the quality of infrastructure. Roads in rural areas are not in good condition, and this increases costs and delivery time to rural areas. Rural road maintenance has devolved to the district level, and it is not clear that district assemblies have the budgets to fund road repair and maintenance adequately. Source: Field interview. received a rating of 3 out of 5).6 One of the key reasons given Private Sector Players: Ghana Fertilizer relates to the subsidy program that was introduced by the and Chemical Market Government in 2008. The Government has been making late Importers: payments to the importers from year to year. There is also YARA, Chemico, Golden Stork, Afcott, Dizengoff, Calli a perceived lack of transparency in the procedures through Ghana, Reiss & Co., and Sidalco which the Government negotiates the price of fertilizer with private importers. Distributors: About 35–50 local distributors (some are importers as well) 3.5 FERTILIZER PRICES AND SUBSIDY Retailers: Fertilizer Prices. In 2007 and 2008, there was a large increase in fertilizer prices globally. Since that time, prices remained 4,000-plus retailers in 10 regions high in Ghana until 2009 but have dropped since then due to the subsidies provided by Government. In addition to the increase in global fertilizer prices, high financial and transport Since 2003, some of the key private sector agro-dealers have costs within Ghana also served to raise domestic fertilizer been organized into the Ghana Agricultural Input Dealers prices. As a result, the retail prices in Ghana can be about Association (GAIDA), which has a strong regional presence 50 percent higher than CIF prices (IFDC/IFPRI, 2011). In in the country with 1,700 members. GAIDA was formed to rural areas where farmers buy fertilizer, the cost would be be a platform for advocacy to the government and is active in even higher. Figure 3.2 depicts the prices of three fertilizer facilitating capacity building among its members. products in Ghana. Despite the important role the private sector plays in the fer- 6 Rating was measured on a scale of 0–5 on perception of major tilizer sector of Ghana, private sector perception of the policy fertilizer importers and some dealers on govt. roles and interven- environment and the market overall is an average (Ghana tion in fertilizer market. AGR IBUSINES S IND IC ATOR S : GH A NA C H A P T E R 3 — F E RT IL IZ E R 13 FIGURE 3.2: Average Prices of Major Fertilizers TABLE 3.3: Wholesale Prices for Maize in Selected in Ghana Markets in Ghana 60 Key MAY 2011 MAY 2011 NPK-15 MARKETS ($/kg) MARKETS ($/kg) 50 SoA Agbogbloshie 0.50 Hohoe 0.39 Ghc/50 kg bag 40 Urea Tamale 0.35 Damango 0.32 30 Nima 0.48 Bole 0.34 Ashaiman Main Market 0.56 Navrongo 0.34 20 Tema 0.40 Jirapa 0.34 10 Tumu 0.34 Asafo 0.54 0 Sekondi 0.67 Ejura 0.40 2006 2007 2008 2009 2010 Takoradi 0.67 Kaneshie 0.40 Source: Fuentes et al., 2011 (Forthcoming); 2010 IFDC monthly price data (June–December 2011). Kotokuraba 0.58 Salaga 0.32 Bolgatanga 0.35 Bawku 0.32 Mankessim 0.54 Wenchi 0.47 In the IFDC/IFPRI report on field data in Ghana in 2009 and Koforidua 0.43 Sunyani 0.52 2010, finance emerged as the largest component of fertilizer Central Mkt 0.53 Wa 0.35 costs, averaging 30 percent (although varying somewhat by specific fertilizer product) (Figure 3.3). This cost is then fol- Techiman 0.39 Yendi 0.32 lowed by the marketing and distribution cost of an average Source: Esoko Price Bulletin, May 2011. 27 percent, which includes profit margins. Inland transporta- tion cost contributes on an average of 21 percent, and port nutrient output ratio was measured by calculating the average charges average 18 percent. Fertilizer imports are not subject wholesale price per kilogram of maize and the average price to taxes, but the Government charges fees that account for per kilogram of nitrogen. In May 2011, the average whole- about 4 percent of total costs. sale price for maize was $0.43 per kilogram (Table 3.3), while price of urea was $0.51 per kilogram (IFDC Monthly Price The Profitability of Fertilizer Use. The profitability of using Report).7 Based on this information, the price of the nitrogen fertilizer is determined in large measure by the price the nutrient was $1.10 per kilogram, giving a nutrient output ratio farmer must pay for the fertilizer and the price the farmer can get for his or her produce. The nutrient output ratio is used to assess the amount of grains in kilograms that is needed 7 Urea consists of 46% nitrogen. The price of nitrogen was then to purchase one kilogram of fertilizer nutrient. In Ghana, the calculated to be $1.10. FIGURE 3.3: Fertilizer Domestic Cost Components per 50 kg Bags in Ghana (US$/bag) Key Financial cost $0.40 SoA $3.15 $2.78 $3.37 $2.80 Marketing and distributtion cost Inland transportation cost Port charges $0.60 Govt charges (taxes and levies) Urea $4.63 $4.21 $3.09 $2.62 $0.70 NPKT-15 $5.53 $5.06 $3.27 $2.67 $0.60 NPK Blend $5.10 $4.66 $3.02 $2.57 $0.00 $2.00 $4.00 $6.00 $8.00 $10.00 $12.00 $14.00 $16.00 $18.00 Source: Fuentes et al., 2011 (Forthcoming). E C O N O M IC AND S E CTOR WORK 14 C H A PTER 3 — FERTILIZER of 2.6. This implies that fertilizer use is profitable in Ghana informally to neighboring countries. The bureaucratic process and that farmers should have sufficient incentives to use it, of redeeming the vouchers from the MOFA district offices especially given higher maize prices. To some extent, the also provided a disincentive. Some farmers reported having fertilizer subsidy may have contributed to this favorable ratio to make repeated visits because MOFA officials were not in in some areas and at certain times of the year when farmers their offices. The payments to importers came late, averag- had access to subsidized fertilizers. In 2010, the subsidy on ing 6 months, leading to late delivery of fertilizer to retailers. urea alone was 39 percent (Table 3.4). In the southern zones of the country this caused them to miss the most important planting season in March and April. The Fertilizer Subsidy Program. During the 1980s, the Although importers claim they maintain stocks from previous Government of Ghana provided input subsidies to farmers. years that are available for sale during the growing season, a The rate of the subsidy on fertilizer imports was as high as number of farmers complained that the subsidized fertilizer 65 percent. Following the liberalization of the fertilizer market was not available when it was needed. Many farmers would in the 1990s, the subsidy program was phased out. In 2007 , both wait for the fertilizer and apply it when the optimal however, global fertilizer prices began to rise, and the follow- period had passed or end up buying it at market rates. On ing year the Government introduced a new subsidy program the other hand, the three northern regions, where the major in partnership with the country’s major importers. planting season is 2–3 months later, have been more able to take advantage of the subsidy. In 2008, 21 percent of Ghana’s public agriculture budget went to support the subsidy program. Two years later in Beginning in 2010, a new program was introduced whereby 2010, that proportion had fallen to 12 percent. Despite the the Government and the importers negotiated a discounted decrease in allocation, sustainability of the Government’s price to be used for selling fertilizer in the local market. (See subsidy program is of a concern. average subsidy levels in Table 3.4.) The remaining amount would then be paid by the Government directly. The effective- The program started with the introduction of a voucher ness of this program has yet to be determined. On another system, which was disbanded after 2 years as the result of front, the problem of late payment to importers has not yet operational deficiencies and delays in payment to import- been resolved, and the resulting delays in fertilizer delivery ers. Subsidized fertilizer was not always reaching the small- persist, particularly in the south. holder farmers, and in some instances, it was re-exported TABLE 3.4: Fertilizer Subsidy Budget, Volume, and Cost ITEM 2008 2009 2010 Agric. budget (‘000 GH¢) 97,131 202,632 256,886 Subsidy amount (‘000 GH¢) 20,654 34,417 30,002 % Agric. budget 21.3% 17.0% 11.7% Total vol. fert. subsidy (MT) 43,176 72,795 91,244 Disbursement methodology Coupon Coupon Waybill Farmer pays (GH¢) 25 25 27 NPK Subsidy amt. (GH¢) 26 26 17 % subsidy 51% 51% 38% Farmer pays (GH¢) 26 26 25 Urea Subsidy amt. (GH¢) 26 26 16 % subsidy 50% 50% 39% Farmer pays (GH¢) 16 16 18 Sulfate of Ammonia Subsidy amt. (GH¢) 18 18 16 % subsidy 53 52 47% Yearly avg. fert. subsidy, 51% 51% 42% includes flat rate transport (%) Source: Agric. Extension Directorate, MOFA. AGR IBUSINES S IND IC ATOR S : GH A NA C H A P T E R 4 — ME CHANIZ AT ION 15 Chapter 4: MECHANIZATION The agricultural production system in Ghana is labor inten- It did so by providing tractors under a subsidized program of sive. Most farmers have little if any access to agricultural public-private partnership. Based in part on the experience machinery. In recent years, however, the demand for trac- of similar public sector involvement in managing commercial tors has been on the rise. This increase has, for the most ventures in other countries, this raises a number of concerns, part, been the result of an expansion in the area under including the risk that the government’s role will serve to cultivation. Much of this expansion has been on the part crowd out private sector investment. A number of reports of large commercial farms. However, it has also involved to date seem to support the legitimacy of these concerns, smallholders who traditionally used simpler tools such as including stakeholders’ accounts of tractor breakdowns, poor cutlasses and hoes. A number of importers and distributors after-sale services, and a lack of available spare parts. of well-known tractor brands have emerged to satisfy this demand. In addition, tractor services are available for land preparation, planting, post-harvest processing, hauling, and 4.1 GOVERNMENT POLICY ON MECHANIZATION other agricultural activities. Because mechanized farming reduces the drudgery of farm labor and can be instrumental The Food and Agriculture Sector Development Policy in expanding cultivation into areas where there is a signifi- (FASDEP II) is the overarching agriculture sector policy cant amount of unutilized arable land, such as in much of of the Government of Ghana. FASDEP II provides a broad northern Ghana, it is regarded as a positive development. A guideline for agricultural mechanization in Ghana. Its objec- 2011 survey by IFPRI found that mechanized land prepara- tive is to facilitate access of farmers and agro-processors tion for maize production led to a 25 percent decrease in to mechanized services at affordable cost. Six strategies labor demand and a 35 percent reduction in costs in Ghana’s have been developed under this broad policy framework: cereal belt (IFPRI, 2011). (i) Collaborate with the private sector to build capacity of individuals and companies to produce or assemble appropri- , In 2007 the Government of Ghana entered the machinery ate agricultural machinery, tools, and equipment locally; (ii) market to promote commercialization in the agriculture sector. Promote small-scale multi-purpose machinery, along the TABLE 4.1: Summary Observations on Agriculture Mechanization in Ghana SUCCESS FACTOR INDICATORS RESULTS OF INDICATORS Mechanization Total # of tractors per 100 sq km (or ha) of 11 tractors per 100 sq km arable land Cost of plowing one hectare of land (in 2010) Avg. $46/ha; S. Savanna $42/ha; Forest $47/ha; Coastal Savanna $50/ha Govt. subsidy on tractors 33% (of CIF price); GOG introduced the subsidy in 2006 through the establishment of the Agriculture Mechanization Service Centers (AMSECs). Government-imported tractors were then handed out to the private sector. The private operators received 5 tractors and were required to make a down payment of 10–30% (started with 10%; increased over time), with the remaining amount to be paid over 3 years. Useful life of tractors Average of 10 years, depending on brand, usage, and regularity of maintenance. Estimated hours of operation per year for farm tillage purposes only range from 1,100 to 1,320 hrs per year. Tariffs on tractor spare parts 0% when imported together with tractor, although levies and charges such as 2.5% NHIS levy, 1% processing fee, 0.5% ECOWAS, and 0.5% EDIF levies are applied. However, if one is unable to prove that the particular part is for agricultural machinery and secure a waiver with respect to applicable taxes, in addition to paying the above, the importer would need to pay 10% import duty and 12.5% VAT. The above levies, tariffs, and taxes apply to wheels/tires, gear boxes, and radiators, among other agricultural machinery parts. Ease of private sector participation in the 1.9; the private sector’s perception on the ease of private sector participation in the agri- agricultural machinery market by perception cultural machinery market is not very favorable. There is skepticism in the private sector of stakeholders (Scale: 0–5). about the ability of the Government to make an impact from the subsidized program, which is known to have problems. Source: Summary of Indicators presented in the Chapter. E C O N O M IC AND S E CTOR WORK 16 CH A PTER 4 — MEC H A NIZATION value chain, including farm level storage facilities; appropriate A subsidy is applied to reduce the price of the tractors. The agro-processing machinery and equipment, and intermedi- process of allocating the tractors is quite cumbersome, ate means of transport; (iii) Intensify the use of animal trac- requiring approval all the way up to the ministerial level. tion through the establishment of animal traction centers; (i) The farmer prepares an application to the Ministry of Food (iv) Facilitate the establishment of mechanization service and Agriculture through recommendation of the District centers and machinery hire-purchase and lease schemes Director of Agriculture; (ii) The Regional Director then writes that have adequate inventories of spare parts of all machin- a formal letter to the Minister of Agriculture, which is copied ery and equipment; (v) Promote local assembly of tractors, to AESD; (iii) The Minister then confers with AESD; (iv) The and encourage adaptation and local fabrication of process- AESD approves the deal and provides an allocation letter ing equipment; and (vi) Develop human capacity in agricul- indicating the price and the horsepower of the tractor; (v) An ture machinery management, operations, and maintenance agreement is signed between the farmer and the AESD. The within the public and private sectors. farmer produces a bank draft in MOFA’s name for the down payment of 30 percent of the two-thirds CIF value of the trac- The Government of Ghana introduced tractors in the late tor. The balance will then be paid over 3 years during which 1940s and early 1950s. Agricultural mechanization was later time the tractors remain the property of the Government. an integral component of the country’s seven year develop- ment plan covering the years 1963 to 1969. The objectives As of 2011, there were 89 AMSECs covering the country’s of the plan were to increase the cash incomes of farmers 10 regions (Table 4.3). A typical AMSEC offers services to and to effectively meet the demand for food and fiber in the between 400 and 1,000 farmers. With the increase in the domestic economy. For planners and policy makers, this number of AMSECs in the country, a national association of would entail moving away from traditional farming, which AMSECs (NAAMSECO) was established in 2008 to advo- relied on the use of cutlasses, hoes, and other simple tools cate an improved policy and business environment for trac- and moving toward intensification and diversification of farm tor businesses. In addition to the tractors provided by the resources. It would also involve eliminating shifting cultiva- Government, AMSECs have reached out to the private sector tion (IFPRI, 2011). Under the plan, the Government invested and have recently been offered financing from Stanbic Bank. in tractors and provided mechanization services directly The Bank is ready to sign an agreement with NAAMSECO to which lasted till late 1980s. But, as efforts did not result in finance the purchase of 28 tractors (125 horsepower each). sustainable impacts under the economic recovery program, policy makers decided to disengage from such direct involve- TABLE 4.2: Tractor Imports by Government ment and rely instead on private sector participation in the QTY sector. IMPORTED COUNTRY YEAR MAKE/ MODEL (UNITS) OF ORIGIN 2004 Farmtrac-70 tractor 200 India 4.2 GOVERNMENT’S CURRENT PROGRAM 2005 Farmtrac-70 tractor 350 India AND INVESTMENT IN TRACTORS Farmtrac-80 (4x4) 50 India After a hiatus in Government’s direct involvement in the 2006 Farmtrac-70 tractor 350 India machinery sector, the Government has again become active Farmtrac-80 (2x4) 50 India , in the agriculture machinery market. In 2007 it approved Landini tractors 50 Italy $3.4 million of public funds for the purchase of tractors. Most Kubota-Power Tillers 100 Japan of the tractors are imported from India and are between 60 2007 Farmtrac-60 tractor 230 India and 80 horsepower (Table 4.2). In addition, the Government Farmtrac-80 (2x4) 51 India has also received grants from the Japanese Government for Yukon compact tractors 120 Czech tractor imports that are usually tied to importing Japanese 2008 Farmtrac-60 tractor 200 India equipments. As of now, Ghana does not manufacture any Mahindra-705DI tractor 100 India tractors in the country, but a few distributors are in the plan- Mahindra-605DI tractor 132 India ning stages of developing the infrastructure necessary for John Deere tractor 500 India local assembly of tractors. Kubota tractor 78 Japan In the program, the Government imports tractors and sells Source: Agriculture Engineering Services Directorate (AESD), 2011. In 2009 and 2010, Government did not import tractors but is in final stages of import- them to private mechanization service centers, or AMSECs. ing tractors from Brazil. AGR IBUSINES S IND IC ATOR S : GH A NA C H A P T E R 4 — ME CHANIZ AT ION 17 TABLE 4.3: Number of Farm Mechanization Centers Established/Operational REGION 2008 2009 2010 2011 TOTAL Western 1 1 Central 1 2 1 4 Greater Accra 1 2 3 Eastern 2 6 2 10 Volta 1 6 2 9 Ashanti 5 5 Brong Ahafo 2 8 3 13 Northern 2 16 8 2 28 Upper East 2 3 1 1 7 Upper West 1 8 9 Total 12 57 15 5 89 Source: AESD, 2011. 4.3 SUPPLY AND AVAILABILITY OF AGRICULTURE per 100 square kilometer in 2006, and India had 158 in 2003. MACHINERY AND SPARE PARTS In field interviews with farmers, the lack of tractor services is In 2004, a census was carried out by the AESD, which found widely mentioned as one of the major constraints to increas- that there were 1,736 serviceable tractors in Ghana.1 This ing agricultural production. finding was far lower than the estimate many had made that Some wealthier Ghanaian farmers who own tractors offer there were nearly 4,000 tractors in the country. Since then, land preparation services to smallholders, although these there has been no systematic collection of data, but with the are usually not provided at the optimal time, and delays of increased involvement of the Government in the mechaniza- between 2 and 4 weeks are not uncommon. For farmers who tion sector and through grant funding from some donors, the are interested in buying a tractor, financing arrangements are number of tractors in the country has grown (Table 4.4). often difficult. Although smaller, 60 to 80 horsepower trac- In spite of the increase in the number of tractors in Ghana tors are available, especially under the Government’s subsidy since 2004, the average of 11 tractors per 100 square kilo- program, many users interviewed complained about the meters remains quite scarce compared to other developing durability of the types or brands of tractors offered under the countries. Both Kenya and South Africa, for instance, had subsidy scheme, as well as their suitability to the terrain in 43 tractors per 100 square kilometers in 2004. Brazil had 129 Ghana. In addition to financing, the timely availability of spare parts was often cited by farmers as being problematic. Access is TABLE 4.4: Tractor Availability in Ghana also a problem because very few distributors systematically NO. OF ARABLE LAND TRACTOR PER stock spare parts, which can therefore only be obtained in YEAR TRACTORS IN USE AREA (SQ Km) 100 SQ Km Accra or Tema. The distributors generally corroborate these 2004 1,736 40,000 4 accounts, explaining that it is not the result of neglect but 2005 2,264 40,000 6 rather of the lack of financing available to them. Aggravating 2006 2,988 42,000 7 these issues is the inefficiency of the duty drawback system 2007 3,899 44,000 9 for spare parts. Although tractors and the spare parts that are 2008 4,381 44,000 10 imported along with them are not subject to import duties, 2009 4,857 45,000 11 imports of stand-alone spare parts are. Importers and distrib- 2010 4,855 45,000 11 utors need to submit paperwork authenticating the imports Sources: AESD (2004); FAO (imports from 2005–2008); CEPS (2009–2010). to be for agricultural machinery in order to receive duty reim- Note: It is assumed that tractors have a life span of 10 years; therefore, from each year’s data, 10% is discounted. Arable land area excludes land area under permanent crops bursement. The paperwork to be prepared for MOFA can (palm, rubber, cocoa, etc.). take several weeks, so most of the time importers do not follow this procedure; instead, they pay import duties and 1 Interview with AESD, April 2011. then pass on the higher cost to their customers. As a result, E C O N O M IC AND S E CTOR WORK 18 CH A PTER 4 — MEC H A NIZATION some spare parts are found to be quite expensive and not have emerged in the conduct of the program and the large affordable to farmers or smaller tractor hire services. budgetary commitment that financing and administering it entails, many feel it is an area of the economy in which the Government should be less involved. Some respondents said 4.4 PRIVATE SECTOR PARTICIPATION that most of the tractors imported were not durable. Some IN THE AGRICULTURE MACHINERY SECTOR said the Government has not done its homework in selecting There are eight major tractor importers in Ghana. All of the brand of tractors suitable for the soil type of Ghana, as them are local representatives of leading tractor manufac- heavy soils in the certain regions (southern Ghana) require turers such as John Deere, Massey Ferguson, Farmtrac, . higher HP Instead, decisions seem to have been driven by and Mahindra (for example, see Box 4.1). In the past, when costs. The Government-managed program is fraught with the Government would import tractors, it would either do it political interventions that could lead to local elite capture directly or donors would import them on their own. But, from and leverage for political patronage. time to time, some of the importers have also imported trac- tors on behalf of the Government. 4.5 TRACTOR PRICES AND COST Despite good prospects for private sector tractor busi- Tractor prices are high in Ghana, but the Government has nesses in Ghana, private sector perceptions of the ease of imported less expensive Indian brands under the subsidy doing business in the agricultural machinery market are not program. The average cost of 55 to 70 horsepower Indian favorable. Out of 5, Ghana received a rating of 2.2 Private tractors is GH¢30,000 and goes up to GH¢35,000 for trac- sector representatives interviewed expressed skepticism tors that are 75 horsepower and above. Well-known brands over the prospects that the program of government subsidy like John Deere and Massey Fergusson tractors could cost can have any real positive impact. Given the problems that nearly double. In interviews with tractor service providers and farmers, the consensus was that inexpensive brands are 2 Rating was measured on a scale of 0–5 on perception of major importers and distributors on government roles and intervention not in popular demand due to their unfavorable experiences. in the machinery market. Some argue that these brands’ durability was much less of BOX 4.1: Business Prospects on the Rise for a Tractor Importer and Distributor in Ghana Mechanical Lloyd is a company that imports, sells, and services vehicles in Ghana and is one of the leading tractor brands in the world. The company has been importing tractors (mainly 65–80 HP) for the past 40 years and operates service centers in Kumasi, Accra, and Tamale with a total staff of 16 for the tractor business alone. In addition, Mechanical Lloyd makes use of mobile vans to provide services to distant areas. The company has seen increased demand for tractors recently. In past years, it sold an average 28 tractors annually, but in 2011, it had already sold 20 in April. Hence, market prospects look good, but there are constraints for buyers as their brand of tractors is more expensive (but durable) and financing is a major problem. A 2 WD, 72 HP tractor sells for US$35,000, while a 4WD costs $42,000. As for financing, the company does not offer credit to its buyers, though it receives an interest-free 150 days credit from the parent manufacturing company. In the view of the company’s manager, Government’s involvement in the machinery sector has not affected its business. The Government program caters to the needs of small farmers who otherwise would be unable to receive services. It also creates demand for machinery services. Up to now, its main customers have been commercial farms and big farm- ers. The company’s tractors have not been included in the Government’s subsidy program due to their relatively higher cost. The company manager agrees that spare parts are expensive but indicates that spare parts are not difficult to get for its tractors. The company keeps stocks of most smaller parts, but due to cash flow issues, bigger and expensive parts may need to be ordered from overseas, which takes no more than 3–4 weeks. As the duty drawback system is cumbersome, the company pays all the duties and charges to import spare parts, which are included as part of the selling price. This raises the cost of tractor operation and may discourage ownership. Source: Field interview. AGR IBUSINES S IND IC ATOR S : GH A NA C H A P T E R 4 — ME CHANIZ AT ION 19 an issue than availability of skilled tractor users and after-sale AMSECs, there are commercial farms or farmers who pro- services. On the other hand, certain brands such as John vide tractor hire services after they have completed their own Deere and Massey Fergusson are popular but much more field operations. In Ghana, the current national average rate expensive. for rental of tractors is $46; regionally, average rates are: S. Savanna = $42; Forest = $47; and Coastal Savanna = $50.3 Because most farmers in Ghana do not own a tractor, they are dependent on tractor hire services. In addition to the 3 Interview with NAAMSECO. E C O N O M IC AND S E CTOR WORK C H A P T E R 5 — F INANCE 21 Chapter 5: FINANCE Over the years, Ghana has experienced growth in the finan- nominal rates, the combination of domestic inflation and the cial market with an increased number of banks, non-bank steady depreciation of the Ghana cedi have contributed to financial institutions, and microfinance institutions. The num- an overall increase in interest rates. Agriculture receives sub- ber of borrowers has expanded as well. Yet access to finan- stantially less attention on the part of commercial banks than cial services by businesses, particularly in the rural areas, is other sectors, accounting for about 6 percent of commercial difficult and, when it is available, expensive. Despite falling loans (BOG, 2011).1 Many providers of financial services are TABLE 5.1: Summary Observations on Agricultural Finance in Ghana SUCCESS FACTOR INDICATORS RESULTS OF INDICATORS Finance % of commercial bank lending to agriculture 6.1% (includes crops, livestock, forestry, and fishing) (2010) % of non-performing loans within the agricul- 21% ture portfolio of commercial banks Commercial bank interest rates (avg. inter- 25–40%; The lending tier is as follows: (i) farmer organizations and small scale traders tend to pay est rates offered by the banks for loans to about 35–40%, while mid-sized processing firms or input dealers pay 30–35%. Bigger importers are agriculture) offered better rates between 25–30%, while rates lower than 25% are offered where some kind of guarantee is available.2 % of rural HHs receiving credit for agriculture 8%; this indicator is based on the Ghana Living Standards Measurement Survey, which interviewed 8,687 households (5,069 rural households) in 2006 all across Ghana.3 Bank branches per 100,000 rural adult Ghana has 5 banks per 100,000 rural adults. population % of Farmer-Based Organizations (FBOs) with 43%; MOFA monitors the existence of functioning agricultural FBOs in all regions of Ghana and has access to finance maintained a database since 2006. From 2008 to 2009, there was a 62% increase in the number of FBOs in Ghana that accessed finance. Additional details were not monitored by MOFA. Existence of a warehouse receipt program Y; Rating = 1; A task force has been formed with membership of Govt., Ghana Grains Council, and (Y/N; Scale: 0–5)4 donors to prepare the groundwork for a warehouse receipt law and its accompanying regulations, to be completed in 2012. Availability of loan guarantee programs for Y; Since 2010, Stanbic Bank has offered a $15 million guarantee fund from AGRA. Recently, an agriculture (Y/N) additional $15 million is offered by DANIDA. USAID/DCA also have a credit guarantee program with ECOBANK for $9.3 million. NIB, ADB, and a couple of rural banks have funds from MiDA, AFD, and KFW for onward lending to farmers. Existence of law on leasing (Y/N) Y; Law on leasing exists and is accepted by all FIs and utilized as such by them. In 2007, there were 14 leasing companies in Ghana, including 9 banks and 5 non-bank financial institutions. Existence of a law for use of movable assets Y; The Parliament of Ghana enacted the Borrowers and Lenders Act (773) under which the Collateral as collateral (Y/N) Registry was established and began operations on February 1, 2011. Existence of a credit reference bureau (Y/N) Y; Government of Ghana enacted the Credit Reporting Law (Act 726) in 2007. As a result, in 2009, the first license was awarded to a private company to operate as a credit reference bureau. Source: Summary of Indicators presented in the Chapter. 1 Agriculture sector is defined as cereal production, cocoa, livestock, poultry, forestry, logging, and fishing. Processing of agriculture goods are not included and was not possible to be tracked as the banks did not keep disaggregated data. Hence, this indicator captures lending to “agriculture production� only, but as this exercise evolves, it is expected that the scope will expand and there will be a way to capture data that finances the remaining stages of the agriculture value chain. 2 The breakdown is given based on interviews with various actors of the agriculture value chain. 3 Note that IFPRI planned to launch national surveys of rural households in collaboration with MOFA in 2011 that would generate current estimates. 4 (0) Does not exist; (1) Warehouse receipt system under development; (2) WR law developed & passed/approved by a legislature/WR law, by-laws, and supporting regulations developed; (3) WR law, by-laws, regulations implemented & certified commercial warehouses & banks begin participating in a WRS; (4) Warehouse receipts are accepted by commercial banks; farmers/traders able to use them as col- lateral; (5) WRS expands—increased no. banks & certified warehouses, increased grain stored in certified warehouses; (6) A secondary market emerges for tradable warehouse receipts. E C O N O M IC AND S E CTOR WORK 22 CH A PTER 5 — FINA NC E hesitant to provide loans to the agriculture sector due to a and microfinance institutions. These include domestic, history of non-repayment of subsidized loans, land tenure regional, and international institutions (see box). Despite issues, the risky nature of rain-fed agriculture business, and these changes, the Government still has major shareholding in many instances, a general lack of knowledge about how in some of the banks. to tailor programs for the purpose of agricultural finance. Alternative sectors such as trade, commerce, and govern- Commercial banks and savings and loan companies operate ment bonds are widely perceived as being less risky and under the supervision of the Central Bank, while rural and more likely to generate higher yield returns. community banks are monitored by ARB Apex Bank. Credit unions are separately monitored through an association, and However, in part owing to Government interest in agriculture, the same type of mechanism is in place for financial NGOs. especially after the food and fuel crisis, banks and other finan- The overall legal framework for finance in Ghana has been cial institutions are showing greater interest in the sector. found to be flexible, and laws allow bank and non-bank Loan guarantee funds are being designed and implemented, financial institutions, with very few restrictions, to: (i) accept private equity funds are coming up, insurance products are pledges of livestock and equipment as collateral; (ii) allow being tested, a warehouse receipt system is in development, purchase of livestock or equipment on credit; (iii) finance and more financial institutions are becoming members of the standing crops as preferred collateral; (iv) provide a security credit registry bureau for increased transparency and infor- interest that can attach to rotating inventory or to proceeds mation sharing. All of these developments potentially have of collateral; and (v) lend on the strength of a signature (credit positive implications for investment in the agriculture sector. card)(AgCLIR, 2008). 5.1 POLICY AND LEGAL ENVIRONMENT 5.2 COMMERCIAL LENDING FOR FINANCE IN GHANA TO THE AGRICULTURE SECTOR Since the 1980s, the financial sector in Ghana has under- In Ghana, there are numerous financial providers in the mar- gone a series of reforms. It has moved from a sector that ket, such as commercial banks, rural development banks, consisted primarily of state-owned banks to a diverse market non-bank financial institutions like finance companies and of private commercial banks, non-bank financial institutions, credit unions, and microfinance institutions. Most of the institutions in the private sector are doing well financially and have expanded their businesses over time. Yet, many Ghana’s Financial Landscape5 institutions are not targeting the agriculture sector and Banks production-related farm activities. In reviewing the portfolio Deposit money banks—26; of 26 commercial banks for the month of February 2011, it Rural and community banks—135 was found that only 5.6 percent of their total lending goes Non-Bank Financial Institutions to agriculture. Three out of the 26 banks do not lend to agri- Finance companies—19; cultural borrowers. Ten banks are lending in the range of Leasing and hire purchase companies—7; GH¢1–20 million (Table 5.2). Some modest improvements Venture capital funds—5; TABLE 5.2: Degree of Outstanding Loans to Mortgage finance companies—1; Agriculture, Feb. 2011 Savings and loan companies—18; NO. OF VOLUME, GH¢ Credit unions—500 (approximately) BANKS Other Microfinance Institutions No Lending 3 Less than 500,000 3 Financial NGOs; Susu collectors6—4,000 500,000 & 1 million 3 (of which 1,200 are Susu companies); 1 million & 20 million 10 Micro insurance and leasing companies 20 million & 40 million 5 40 million & 100 million 0 5 Ghana Financial Sector Strategic Plan II 2010 (draft). 100 million 2 6 Susu collectors in Ghana are financial agents (some are informal) that offer credit and savings to clients that are in need of short- Total 26 term loans. Source: Bank of Ghana, 2011. AGR IBUSINES S IND IC ATOR S : GH A NA C H A P T E R 5 — F INANCE 23 TABLE 5.3: Commercial Bank Lending to Key Sectors7 in Ghana 2008 2009 2010 SHARE OF GH¢ SHARE OF GH¢ SHARE OF SECTOR GH¢ MILLION LENDING MILLION LENDING MILLION LENDING Agriculture, Forestry, & Fishing 255.2 4.3% 328.3 4.7% 489.8 6.1% Cocoa Marketing 59.7 1.0% 47.1 0.7% 39.1 0.5% Mining & Quarrying 172.7 2.9% 190.4 2.7% 216.8 2.7% Manufacturing 709.3 11.9% 805.8 11.6% 1,060.3 13.3% Construction 404.7 6.8% 543.1 7.8% 601.8 7.5% Electricity, Gas, & Water 237.9 4.0% 437.3 6.3% 521.0 6.5% Import, Export, & Domestic Trade 1,952.1 32.7% 2,155.8 31.1% 2,476.0 31.0% Transport, Storage, & Communication 176.0 2.9% 276.5 4.0% 321.3 4.0% Services 1,425.2 23.9% 1,452.6 21.0% 1,650.0 20.6% Miscellaneous 574.1 9.6% 691.9 10.0% 618.6 7.7% Total 5,966.8 100% 6,928.6 100% 7,994.7 100% Source: Bank of Ghana, 2011. are evident in 2010 as compared to previous years. In 2008 sector, it is omitted from agricultural investment figures. Data and 2009, the shares of commercial bank lending to agricul- from February 2011 indicate that the subsector termed as ture (which excludes financing that goes for cocoa marketing) “food, drink, and tobacco� amount to GH¢207 million lending were 4.3 percent and 4.7 respectively (Table 5.3). from commercial banks, which accounts to 2.8 percent of total lending. Investment in general agricultural production accounts for more than 50 percent of the agriculture portfolio of commer- In addition to Ghana’s commercial banks, the Agricultural cial banks in Ghana (Figure 5.1). This is followed by fishing (16 Development Bank was established in the mid-1960s to percent), cocoa (13 percent), and forestry and logging (10 per- provide financing specifically for agriculture. The Bank’s per- cent). Because agro-processing is classified as manufacturing formance since that time has been mixed. Loan repayment rates have been poor even though the Bank offers lower FIGURE 5.1: Agriculture Sub-sector Composition interest rates than commercial banks, with a base rate of of Commercial Lending in Ghana 19 percent for maize farmers and 22 percent to the rest of the agriculture sector. Despite its name, most of the Agricultural 1% Development Bank’s lending portfolio is not devoted to agri- 16% 13% cultural investment. In 2009, just 25 percent of its lending 4% went to agriculture, a proportion that rose to 29 percent in 9% 2010.8 Two-thirds of its lending portfolio is invested in con- 1% struction, services, manufacturing, commerce and finance, and mining and quarrying (ADB 2009 and 2010). Within the Bank’s agricultural lending portfolio, just 3 percent went to 56% Key food crop production in 2009. The rest went to industrial Cocoa production Livestock breeding crops, cocoa, poultry and livestock, and agricultural mar- Poultry farming keting. The Government is in the process of setting up the Other agriculture Ghana Export Development and Agriculture Investment Fund Forestry Logging (EDAIF) to offer financing on reasonable terms and potentially Fishing serve as an alternative to the Agricultural Development Bank. Note: The chart contains data for the month of February 2011. Source: Bank of Ghana, 2011. Rural and Community Banks (RCBs) are major players among the financial institutions that serve rural Ghana. As of 2010, 7 This table excludes financing COCOBOD raises to finance the cocoa sector. 8 Interview with ADB Staff at the Head Office in Accra. E C O N O M IC AND S E CTOR WORK 24 CH A PTER 5 — FINA NC E 135 such banks were licensed and supervised by the Bank of only 8 percent of rural households in Ghana reported receiv- Ghana. Data collected from a sample of 11 RCBs indicated ing credit for agricultural purposes. Out of the households that the sectoral composition of their lending portfolio was that received credit, more than 50 percent received financing as follows: trading (41 percent); personal loans for salaried through informal means (money lender, traders, relatives, clients (42 percent); agriculture, forestry, and fishing (9 per- friends, etc.). In the formal sector, a larger percentage of cent); cottage industries (6 percent); transport (3 percent) households’ sources of credit are from State Banks and (Nair and Fissha, 2010). Although a proportion of personal Cooperatives (Table 5.4). loans and loans for trading may very well be made for agricul- tural purposes, information that is collected by the RCBs do Access to Finance for Agro-Enterprises not specify whether this is the case. It can be as difficult for aggregators, wholesale traders, and processors in Ghana to get access to credit as it is for farms In addition to banking, there has been an increase in the and rural households. Because banks and financial institu- number of leasing companies in Ghana. Fourteen companies tions do not keep disaggregated data on their borrowers or were engaged in leasing at the end of 2007; nine were bank track purposes of their loans, it has not yet been possible lessors, and five were non-bank. By then, the value of new to measure what proportion of agricultural lending goes to leases booked had increased dramatically. In 2006, new these agro-enterprises. A formal survey would be required to , leases had amounted to $31.46 million. In 2007 this value had ascertain this. What is evident is that agro-enterprises have risen to $93.31 million. Less than 1 percent of this amount difficulty in securing a loan from banks and have to rely on related to the agriculture sector. The retail sector accounted personal and informal means. A study undertaken by IFDC for 20 percent of the value of leases, while construction, min- and IFPRI found that 79 percent of registered agro-input ing, and manufacturing sectors together constituted more dealers reported lack of working capital as a top challenge than 35 percent of total leases booked (IFC 2008). in effectively running their business (Table 5.5). The problem with financing is consistent across all regions of the coun- try and is a barrier to firms based in urban as well as rural 5.3 ACCESS AND THE COST areas. An enterprise survey that focused on collecting data OF AGRICULTURAL CREDIT from formal firms in Ghanaian cities found that 56 percent Access to Finance for Farmers of food and beverage companies (many of whom may even Though finance is a key input for agriculture, access to be exporting internationally) indicated that access to finance finance is a major constraint in Ghana. According to the is a major constraint for their business. Only 30 percent of Living Standards Measurement Survey (GLSMS5, 2008), the same firms had a line of credit or loan from financial institutions, and just 28 percent took loans from the bank TABLE 5.4: Sources of Agriculture Credit to finance investments. The value of collateral for the loans (first/most important source) was very high, at an average of 169 percent of the total loan (Enterprise Survey, 2007). NUMBER OF RURAL SOURCE HOUSEHOLDS % OF RURAL HHS State bank 46 11% Cost of Credit and Loan Periods Private bank 22 5% For those agro-enterprises or farmers who are offered loans Cooperative 34 8% from financial institutions, the cost of credit in terms of inter- Government agencies 16 4% est rates and additional fees charged are high. Based on NGO 11 3% data provided by commercial banks, Bank of Ghana quotes Business firm 4 1% a range of 25–40 percent. Those lower interest rates closer Employer 0 0% to the 25 percent level are generally only offered in cases Money lender 10 2% in which a guarantee program is available. The larger import- ers tend to get relatively favorable rates at about 25–30 Trader 53 13% percent (although international companies that import are Farmer 22 5% able to much more favorable rates in international markets).9 Relative, friend, etc. 189 45% Other 11 3% 418 100% 9 But they do expose themselves to currency risk, especially if Source: GLSS5 2008, IFPRI 2011. they are net exporters. AGR IBUSINES S IND IC ATOR S : GH A NA C H A P T E R 5 — F INANCE 25 TABLE 5.5: Top Challenges to Running a Business BRONG- GREATER UPPER UPPER ASHANTI AHAFO CENTRAL EASTERN ACCRA NORTH EAST WEST VOLTA WEST Low customer demand 16 10 10 15 6 8 19 5 25 17 for items for sale Lack of reliable 4 5 4 4 3 13 3 15 6 5 suppliers Lack of capital 49 65 55 55 76 53 65 59 56 46 High cost to transport 10 7 14 8 5 16 6 12 5 13 goods Lack of tech. 3 1 5 5 0 3 2 2 1 1 knowledge Lack of adequate & 3 1 3 2 6 5 2 5 1 2 safe storage facilities Low quality of products 1 1 2 1 0 0 0 1 0 1 Others 9 8 6 8 3 2 3 0 6 14 Source: IFPRI/IFDC 2009. Medium-sized firms reported being charged 30–35 per- efficiently. They may be experiencing high operational costs or cent, while farmer-based organizations and smaller agro- have higher than expected levels of non-performing loans. enterprises (aggregators, traders) are offered rates as high as 35–40 percent. Most loans have short repayment periods that usually do not exceed one year. Such terms do not make 5.4 SPECIAL MECHANISMS FOR AGRICULTURE capital expenditure attractive to agro-enterprises and com- FINANCING IN GHANA mercial farms where investments have to be made for a lon- A number of potentially important private initiatives and ger time period. Those that cultivate tree crops, for instance, public programs have been introduced or are being planned have little interest in a loan that must be repaid in less than to increase the availability and improve the performance of a year, given that their investment will take several years to agricultural finance in Ghana (Table 5.6). yield returns. (A mango tree takes at least 5 years to produce commercial quality fruit.) Stanbic/AGRA Loan Guarantee Program In addition to the interest rates themselves, interest rate Stanbic Ghana is part of the Standard Bank Group of South spreads among Ghanaian banks are quite high (Table 5.6). This Africa. Stanbic started operations 10 years ago and has may be the result of any number of factors, or combination 23 branch offices in 9 regions in Ghana. Over the past few of factors. The banks may be mismanaged or not be lending years Stanbic Ghana has become interested in the agriculture sector. Before this, the firm was mainly involved in financ- TABLE 5.6: Interest Rate Spread,10 Selected ing projects in the construction and manufacturing sectors. Countries, 2009 The AGRA Program, signed in March 2010, is being imple- mented in four countries: Ghana, Mozambique, Tanzania, and INTEREST RATE NON-AFRICAN INTEREST COUNTRY SPREAD COUNTRIES RATE SPREAD Uganda. The Agriculture Finance Facility, referred to as “first Ghana 21.8% Thailand 4.9% � loss guarantee, operates as follows: Stanbic will lend its South Africa 3.2% Malaysia 3.2% own funds, and for every US$10 the Bank invests, AGRA pro- Tanzania 7.1% Singapore 5.1% vides a first loss guarantee of $1 (as of years 3–5). For year 1, AGRA guarantees 20 percent, which is reduced to 15 percent Kenya 8.8% Indonesia 5.2% during the second year, and to 10 percent between years Mozambique 6.2% Sri Lanka 5.1% 3 and 5. The AGRA program aims to cover a total lending Source: International Financial Statistics 2010, IMF; Note: Data on Ghana is for 2010 (Bank of Ghana). volume of $25 million, targeting at least 5,000 smallholders. Establishment of a Collateral Registry 10 Interest rate spread is the interest rate charged by Banks on loans to prime customers minus the interest rate paid by com- The Parliament of Ghana enacted the Borrowers and Lenders mercial or similar banks for demand, time, or savings deposits. Act (773) under which the Collateral Registry was established E C O N O M IC AND S E CTOR WORK 26 CH A PTER 5 — FINA NC E TABLE 5.7: Selected Examples of Agriculture and Value Chain Financing Programs in Ghana IMPLEMENTING DEVT. TYPE OF TOTAL TIME TITLE PROGRAM OBJECTIVES AGENCIES PARTNERS FUNDING BUDGET PERIOD Program for the Promotion The program will support smallholder farm- MOFA, GREL, TOPP, KFW Loan Eur 40.7 2006–2012 of Perennial Crops (Rubber, ers in expanding production of rubber and oil ADB, NIB million Oil Palm) palm subsectors through the arrangement of outgrower schemes in partnership with industrial operators. Outgrower and value chain The fund will provide medium- to long-term Private Fund KFW Loan Eur 32 2011–2016 fund loans to commercially viable value chains, Management Team million (Successor of Promotion of especially outgrower schemes that will Perennial Crops) improve the income of small-scale farmers. Development Credit The program will encourage short-, medium-, Opportunity USAID Grant US$9.3 2009–2013 Authority and long-term financing to SMEs through a International Savings & million guarantee program. Loans (OISL) Ltd Rural and Agricultural The program will improve the rural and Bank of Ghana, finan- IFAD Loan US$41.8 2010–2016 Finance Program (RAFiP) agricultural population’s access to sustain- cial institutions, MOFA, million able financial services through enhanced Apex Bank outreach, sustainability, and linkages. The program will target rural poor, particularly women and vulnerable groups. Source: MOFA. and began operations on February 1, 2011. The system pro- a membership-based organization that represents the inter- motes transparency of information about borrowers’ assets ests of the grain industry, including advocacy on policy and that are registered as collateral for bank borrowing. When regulatory issues before the Government. A task force has fully operational, the system will be 100 percent electronic. been formed to prepare the groundwork for a warehouse Both movable and immovable properties are registered. The receipt law and its accompanying regulations to be com- registration fee is GH¢7 per user. Companies that are inter- pleted in 2012. Once the law and regulations are in place, the ested in doing a search on assets pay GH¢5 and a GH¢2.00 GGC will help link these warehouses with banks to provide annual renewal fee. The fees are low because the Registry collateral management services. The task force consists is operating under the Central Bank and there are plans for of the Government of Ghana, GGC members, and donors. it to be placed in the private sector once it is fully functional The Government participates through representatives from and builds its reputation. Seventy entities are currently reg- Ministry of Justice, Attorney General’s Office, Ministry of istered. These include commercial and rural banks as well Trade, Ministry of Finance, Ministry of Agriculture, and Ghana as some of the non-bank financial institutions. As of March Standard Board. The donors are the World Bank and the UN 2011, 6,000 searches had been conducted in the database. Development Program. In addition to transparency of information, the system allows financial institutions to recover assets from defaulters and Establishment of a Credit Reference Bureau place them on sale (with 30 days notice) without having to The Government of Ghana enacted the Credit Reporting Law go to court. This feature is attractive to lenders and may have . (Act 726) in 2007 As a result, the first license was awarded a positive impact on agricultural lending that lenders consider to a private company named XDS Data Ghana to operate as high risk. a credit reference bureau. The bureau started operations in April 2010 and collects credit information on borrowers, mak- Warehouse Receipt System ing it available for banks and non-bank financial institutions. In the absence of easy access to credit, a warehouse receipt Two new companies are currently in the process of getting system that would allow secure storage of commodities licenses. All commercial banks and about 25 non-bank finan- and reduce price volatility will be instrumental in increasing cial institutions in Ghana have signed up for the services of investment in agriculture. Inventory credit on an informal XDS Data. XDS Data is currently discussing service fees and basis is common practice in Ghana. No formal receipt system payment modalities with commercial banks. In June 2011, has yet been put in place. The Ghana Grains Council (GGC) about 8,000 enquiries were recorded. So far, banks are only has taken the lead in training owners of private grain storage sharing negative information. It is hoped that in the future, centers and has so far certified five warehouses. The GGC is the amount of information shared about clients with good AGR IBUSINES S IND IC ATOR S : GH A NA C H A P T E R 5 — F INANCE 27 credit histories will increase. In a market where the banks are averaging more than GH¢500,000 per project. Agricultural hesitant to lend to new borrowers, this mechanism will help projects accounted for 16 percent of the finance provided. reduce information asymmetries by providing the lending In addition, EDIF operates a development facility that awards institutions with credit history information about borrowers. grants to producer associations to develop their capacity to secure or apply for commercial loans. Though the financing Export Development Investment Fund (EDIF) is available, the process to access loans for enterprises has EDIF was established in 2001 by Parliamentary Act 582 been characterized as cumbersome. With the renewed inter- to provide financing for the development of export trade. est in agricultural financing, the fund is being reorganized to It offers a low subsidized interest rate of 12.5 percent per make agricultural lending a priority, and an amendment bill annum and includes short (up to 1 year), medium (5 year) and is awaiting action by the Parliament. The name of the fund long term (5 years plus) financing. Loans approved from April will be changed to the Export Development and Agriculture 2002 to May 2010 totaled GH¢125 million for 214 projects, Investment Fund (EDAIF). E C O N O M IC AND S E CTOR WORK C H A P T E R 6 — T R ANSP ORT 29 Chapter 6: TRANSPORT Ghana’s transport sector is relatively well developed. Roads roads averaged an estimated 15 percent in 2009 (Vision are the predominant mode of transport, accounting for Consult Ltd, 2011). The resulting deterioration in road qual- 94 percent of freight and 97 percent of all traffic movement ity adds to the costs of transporting agricultural goods. In in the country (World Bank 2009). The transport sector is trans-border corridors, check points and demands for bribes fully liberalized, and the trucking industry is for the most can add to further delays, increasing transport costs and part a private sector activity, with relatively easy entry for ultimately leading to higher transport prices. new businesses. As of 2009, the road network in Ghana consisted of 12,400 kilometers of urban roads, 42,209 kilometers of feeder roads, and 12,839 kilometers of trunk 6.1 TRANSPORT POLICY AND INVESTMENTS roads.1 Over the years, sustained investments have been IN GHANA made in expanding road infrastructure.2 Road density has The transport sector accounts for about 5 percent of GDP increased to 158 kilometers per 1,000 square kilome- and plays a critical role in the economy of Ghana. Since ters, and rural access has improved (Rural Access Index: the 1990s, the Government has undertaken major efforts 61 percent). Despite a recent funding increase for road to develop the sector through increased involvement of the maintenance, however, improvements in existing roads are private sector in port operations, maritime trade, and roads. needed.3 Overloading of commercial vehicles traveling on In the roads subsector, Ghana established the Roads Fund to provide funding for maintenance. The current transport policy aims at further developing the sector by establish- 1 Urban roads are almost entirely paved, whereas feeder roads are ing Ghana as a transportation hub for the greater West typically not, ranging from hard lateritic surfaces to sandy or dirt Africa region. During the past decade, this objective has tracks. Trunk roads are primarily paved roads, though some have not been upgraded from hard lateritic (yet graded) surfaces. been complicated by ongoing political problems, insecurity, 2 Total financing for roads in 2009 was $274 million. and harassment on roads in neighboring Côte d’Ivoire. The 3 Government spending on roads maintenance (routine, periodic, and minor rehabilitation/upgrading) has increased nearly two Government is working toward creating an accessible and times from $34.22 in 2004 to $97 million in 2008. .22 affordable transport system that meets the needs of the TABLE 6.1: Summary Observations on Transport Sector in Ghana SUCCESS FACTOR INDICATORS RESULTS OF INDICATORS Transport Price per bag ($/bag converted to ton/km) of maize from major Kumasi-Accra: $0.10/ton/km wholesale or assembly market to major urban center Wenchi-Accra: $0.12/ton/km Kumasi-Ejura: $0.35/ton/km Opinion of traders and truckers on the competitiveness of trucking Rating 3.4 services (Scale: 0–5) Price paid to ship a standard 40-foot container to international Tema-Rotterdam (Netherlands): €970 (20ft), €1,464 (40ft) destinations Tema-Newark (U.S. East Coast): $3,763 (20ft), $4,638 (40ft) Tema-Durban (South Africa): $2,374 (20ft), $3,827 (40ft) Tema-Apapa (Lagos/Nigeria): $1,700 (20ft), $2,700 (40ft) Ease of entry into trucking of foodstuffs (Scale: 0–5) Rating 4 Government intervention in setting transport prices None Length of time required to register a truck for hauling agricultural 5 days (Avg.) products LPI–Quality of trade and transport related infrastructure (e.g., ports, Rating 2.52 (Scale: 0–5) railroads, roads, IT) Rural Access Index Rural Accessibility Index—HH Survey: 61 percent (2006) Source: Summary of Indicators presented in the Chapter. E C O N O M IC AND S E CTOR WORK 30 C H A PTER 6 — TR A NS PORT TABLE 6.2: Road Sector Funding Sources, US$ million There is considerable dissatisfaction with the quality of SOURCES OF 5 YR rural roads in Ghana. Maintenance works are identified and FUND 2005 2006 2007 2008 2009 AVG. included as part of the road sector annual plans (referred as Ghana Road Fund 108 121 119 170 97 123 “approved� in the bar chart below), but are not achieved due Consolidated Fund 73 93 40 231 54 98 to budget constraints resulting from increased priority for other capital-intensive investments for road reconstruction Donor Fund 91 93 173 101 123 116 and rehabilitation. As a result, funds available for mainte- Total Financing 272 307 332 502 274 337 nance are inadequate. Poor quality roads, particularly feeder Source: Statistical and Analytical Report, Ministry of Roads and Highways roads, affect the agriculture sector and add to the cost of and GSS, 2011. transporting goods from farms and rural areas to major wholesale markets. people and business enterprises, including farmers and agro-entrepreneurs. Government investment to the subsector accounts for 6.2 PRIVATE SECTOR PARTICIPATION IN THE TRANSPORT SECTOR 99 percent of its overall investment in the sector, which is mainly financed by three main sources. A key source, which The transport sector in Ghana is liberalized and free of is a dedicated financing mechanism for maintenance, is Government interventions. Trucking firms are privately owned the Road Fund, which is generated from fuel levies, road and are free to set prices based on supply and demand. Entry tolls, and registration fees. An additional Consolidated Fund barriers are relatively low, and Ghana receives a high score of is used to finance development works, including minor 4 on a scale of 5. Once a truck is purchased and delivered, it rehabilitation and upgrading. Donors play a critical role and takes about 5 days to go through registration formalities and financed 45 percent of total funding for roads in 2009 (Table get the truck ready for business. Although no formal registra- 6.2). From 2008 to 2009, there was an increase in donor tion with a transport association is mandated, a number of funding, but a sharp decline was observed in the Road formalities are required. These include obtaining a certificate Fund due to the depreciation of the national currency. This verifying that the vehicle is roadworthy, the purchase of insur- decreased the real value of the fuel levy, which is the princi- ance covering the driver and any third party, and payment of pal source of revenue for the Ghana Road Fund. a vehicle income tax. FIGURE 6.1: Feeder Roads Routine Maintenance—Approved vs. Achieved 30,000 25,000 20,000 Length (km) 71.3% 65.2% 15,000 51.2% 50.6% 10,000 40.3% 5,000 0 2005 2006 2007 2008 2009 Approved 24,000 26,580 26,600 23,600 23,600 Achieved 17,119 17,340 13,620 11,938 9,517 Source: Statistical and Analytical Report, Ministry of Roads and Highways and GSS, 2011. AGR IBUSINES S IND IC ATOR S : GH A NA C H A P T E R 6 — T R ANSP ORT 31 The private operators (truckers) find the environment to 6.3 TRANSPORT PRICES IN GHANA be conducive to doing business and assign a rating of 3.4 Transport prices paid by businesses in Africa are among the on a 5-point scale.4 The major concern they express is the highest in the world.5 Transport costs add to the high cost inability of regulatory authorities to enforce some of the of doing business in Africa and several country transport regulations governing the road sector. Axle load limit non- corridor studies have confirmed it. The cost of transporting compliance, overloading, and unlawful parking on high- goods along the Tema-Ouagadougou corridor is 35 percent ways and trunk roads are among the major concerns truck higher than the average for other African and Asian corri- operators express. In Ghana, the transport sector com- dors such as Dacca-Chittagong, Laem Chabang-Vientiane, prises not only registered companies but also individuals Durban-Nelspruit, and Maputo-Nelspruit (analyzed by Nathan who own vehicles they operate informally. Operators in Associates and USAID, 2010). According to the Logistics the formal sector are more favorable about the business Performance Index survey conducted in 2009, 64 percent environment than informal actors. Factors such as pay- of the logistics companies (global freight forwarders and ment of unauthorized fees, vehicle maintenance fees, and express carriers) consider transport rates in Ghana to be higher down time, among others, could contribute to the high or very high. In comparison, only 40 percent in South lower rating given by the informal sector. As their busi- Africa and 32 percent in India find transport rates to be high nesses are not well organized, they are more vulnerable or very high (Table 6.3). to changing market conditions, especially their ability to manage down times efficiently. Yet they are contracted by Among domestic routes in Ghana, cost per ton of transport- agro-processing firms to undertake short distance deliver- ing material varies among different routes resulting from ies, as they charge relatively lower charges due to their a number of factors. The high-cost routes are those that low fixed costs. consist of old 5–10 metric ton trucks that carry between 50 and 100 125-kilogram bags. Poor quality roads lead to For truckers who import vehicles, the process of clearing high maintenance and operational costs that the transport- trucks through customs can take up to 30 days, depend- ers then pass on to traders. Some routes have low volume ing on the source, type, and capacity of truck. It can take commodities and inadequate competition, and sometimes up to 7 days to clear trucks through the port, another collusion by truckers leads to high rates. On the other hand, 7 days to complete processing with the Driver and the routes between major cities such as Accra, Kumasi, Vehicle Licensing Authority (DVLA), and about 14 days and Tamale are much lower owing to competition, the to bring the vehicles into compliance with standards—a availability of more vehicles, and better maintained roads. process that often entails increasing clearance, replacing On some routes such as Accra-Tamale, the use of larger balloon shock absorbers with springs, and refitting axles. 40-foot articulator trucks has led to lower costs. According to customs officials, it is possible to clear vehicles in between 1 and 3 days if the importer is able to Almost all the routes referred to in Table 6.4 are paved, present all necessary documentation up front. However, but with intermittent construction on certain sectors. customs is not the only agent involved. Importers report The Wenchi-Techiman route has the highest cost per that most delays relate to the number of approvals that are required from agencies other than customs, includ- 5 Global comparisons are referenced in the study done by Teravan- inthorn and Raballand, showing that the average transport prices ing National Security, Ghana Port and Harbors Authority are more than two-thirds less in Pakistan than in major corridors (GPHA), the Shippers Council, freight and terminal in Africa. operators, and in some cases laboratory requirements. Because these other agencies may not be employing ICT at all stages of their operations, the process can easily TABLE 6.3: Logistics Companies’ Response on Road be delayed. Transport Rates PERCENTAGE OF RESPONDENTS ANSWERING HIGH/VERY HIGH Ghana South Africa India 4 Rating was measured on a scale of 0–5 on perception of private 64% 40% 32% operators of trucks about their opinion on the business environ- ment and competitiveness of the trucking services. Source: LPI, WB 2010. E C O N O M IC AND S E CTOR WORK 32 C H A PTER 6 — TR A NS PORT TABLE 6.4: Transport Prices between Major Markets in Ghana (in May–June 2011) WEIGHT/ COST ($)/ FROM TO BAG(kg) PRICE ($)/BAG PRICE/kg($) PRICE/MT($) DISTANCE (km) MT/km Wenchi Sunyani 130 4.00 0.03 30.77 97 0.32 Wenchi Techiman 130 2.67 0.02 20.51 29 0.71 Wenchi Accra 130 6.67 0.05 51.28 427 0.12 Kumasi Accra 50 1.33 0.03 26.67 272 0.10 Kumasi Tamale 50 1.67 0.03 33.33 382 0.09 Kumasi Ejura 50 1.73 0.03 34.67 98 0.35 Kumasi Nkoranza 50 1.73 0.03 34.67 150 0.23 Abofour Nkekensu/ Aseuso/ Asuboi 130 2.00 0.02 15.38 35 0.44 Wenchi Kumasi 50 1.33 0.03 26.67 155 0.17 Accra Tamale 50 2.33 0.05 46.67 654 0.07 Accra Nkoranza 130 5.33 0.04 41.03 428 0.10 Source: Interview with traders and transporters in main transport terminals in Ghana. kilometer. Despite being a busy route, many of the trucks cent, while the GIS Rural Accessibility, which would be more operating on this route are older, and there is limited reliable, shows a much lower performance at 24 percent.6 competition. Over the years, Ghana’s agricultural exporters have been seeking entry into foreign markets. Some horticultural pro- 6.4 RURAL ACCESS AND QUALITY OF ROADS duce has found markets in Europe. Other subsectors are being developed, and there is a high potential for Ghana’s Major road indicators show that Ghana is doing quite well in agricultural goods to be exported. Because roads are the pri- comparison to other low-income countries but fares poorly in mary mode of transport, the current system of logistics will most indicators when compared to middle-income countries require significant improvement. According to the Logistics (Table 6.5). Roads in rural areas are particularly important for the Performance Index (LPI), Ghana received an overall rating of agriculture sector. Many actors who were interviewed identify 2.47 out of 5 (Table 6.6). The LPI is the weighted average of the poor quality of rural roads as one of key constraints to doing business in the agriculture sector in Ghana. Due to poorly main- tained roads, transporting goods from the farm to the markets 6 Rural Access Index measures the percentage of rural people liv- ing within 2 km of an all-season road. This data was generated has resulted in delays in delivery and has added to the cost of based on the Ghana Living Standards Measurement Survey con- agriculture goods. The Rural Access Index for Ghana is 61 per- ducted in 2006. TABLE 6.5: Ghana’s Road Indicators Benchmarked against Low- and Middle-Income Countries LOW-INCOME MIDDLE-INCOME INDICATORS UNIT COUNTRIES GHANA COUNTRIES Paved road density Km/1000 sq km of arable land 86.6 158.1 507.4 Unpaved road Km/1000 sq km of arable land 504.7 804 1,038.3 Paved network condition % in good or fair condition 80 75 79 Unpaved network condition % in good or fair condition 57.6 74 58.3 % of rural population within 2 km of GIS rural accessibility all-season road 21.7 24 59.9 Source: AICD National Database (as reported in Ghana’s Infrastructure: A Country Perspective, World Bank 2011). AGR IBUSINES S IND IC ATOR S : GH A NA C H A P T E R 6 — T R ANSP ORT 33 TABLE 6.6: Ghana’s Performance in the Logistics Performance Index SUB-SAHARAN AFRICA WORLD GHANA SCORE DIFFERENCE SCORE DIFFERENCE Overall LPI score 2.47 2.42 0.05 2.87 –0.39 rank 117 Customs score 2.35 2.18 0.17 2.59 –0.24 rank 86 Infrastructure score 2.52 2.05 0.47 2.64 –0.12 rank 71 International score 2.38 shipments 2.51 –0.12 2.85 –0.46 rank 129 Logistics score 2.42 competence 2.28 0.14 2.76 –0.34 rank 99 Tracking & tracing score 2.51 2.49 0.02 2.92 –0.41 rank 108 Timeliness score 2.67 2.94 –0.27 3.41 –0.74 rank 142 Source: Logistics Performance Index, World Bank 2010. the country scores on the six key dimensions: (i) Efficiency in reaching destination within the scheduled or expected of the clearance process (i.e., speed, simplicity, and predict- delivery time. Compared to the rest of Sub-Saharan Africa, ability of formalities) by border control agencies, including Ghana’s performance is better in all indicators, except on Customs; (ii) Quality of trade and transport related infrastruc- the ease of arranging competitively priced international ture (e.g., ports, railroads, roads, information technology); shipments and in timeliness of shipments to reach their (iii) Ease of arranging competitively priced shipments; destinations. However, when the indicator on Quality of (iv) Competence and quality of logistics services (e.g., Trade and Transport related infrastructure is compared with transport operators, customs brokers); (v) Ability to track selected countries outside Africa and South Africa, Ghana is and trace consignments; and (vi) Timeliness of shipments found to lag behind (Figure 6.2). FIGURE 6.2: International Comparisons: Quality of Trade and Transport Related Infrastructure Singapore United States China South Africa Ghana Mozambique Ethiopia 1 2 3 4 5 Source: Logistics Performance Index, World Bank 2010. E C O N O M IC AND S E CTOR WORK C H A P T E R 7 — P OL ICY AND E NABL ING E NVI RO N MENT FOR AGR IBUSINES S D EVELOPMENT 35 Chapter 7: POLICY AND ENABLING ENVIRONMENT FOR AGRIBUSINESS DEVELOPMENT Ghana’s agriculture sector accounts for 30 percent of GDP It . 7.1 PRIVATE SECTOR PERCEPTIONS OF THE employs more than 60 percent of the labor force, and it is an POLICY ENVIRONMENT FOR AGRIBUSINESS important source of export earnings. The policy direction pro- The general perception among private stakeholders is that the vided by the Food and Agriculture Sector Development Policy agribusiness environment is favorable but could be improved. (FASDEP II) toward a value chain approach to agricultural devel- This perception did not, however, reflect in the final score opment, with a focus on value addition and market access, (2.9) received on this indicator. In the fertilizer sector, private has created a favorable environment for agribusiness develop- actors are supportive of the Plants and Fertilizers Act of 2010 ment. The new Private Sector Development Strategy (PSDS II) and the regulations that are being prepared. Procedural and emphasizes the need to foster public private dialogues. Many operational aspects of the fertilizer subsidy program are associations either focusing on specific commodities or sub- the main concern they expressed. The Government negoti- sector advocating the interests of the private sector exist. Yet, ates the prices of subsidized fertilizers with only a small, efforts are mainly fragmented, and there is an absence of an restricted number of importers, which makes the process active establishment of one group that speaks on the interest less than transparent. The average 6-month delay in provid- of the sector overall. While Ghana’s policy is found to be con- ing private importers with payment for subsidized inputs is ducive for agribusiness development, the private sector does also considered highly unfavorable, particularly where it has have reservations from time to time on certain policy issues led to late delivery of fertilizers, such as in the South and in such as the fertilizer subsidy. In some agricultural subsectors, transitional zones. Private seed business operators express cocoa in particular, Ghana has performed well and producers’ optimism about the effects of the Plants and Fertilizers Act of share of export prices is relatively good. 2010, which they hope will allow the private sector to play an TABLE 7.1: Summary Observations on Policy Environment for Agribusiness in Ghana SUCCESS FACTORS INDICATORS RESULTS OF INDICATORS Private sector percep- Private sector perception Rating 2.9; Managers of private sector representing the fertilizer, seed, machinery, transport, and finance sec- tion of policy environ- of agribusiness enabling tors gave an average rating of the enabling environment to do business in Ghana. Overall environment seems to ment & advocacy role environment (Scale: 0–5) be good for all, but some sectors seem to be concerned about policies (i.e., subsidy) of the Government that has influenced their ratings. Policy consistency Rating 2.6; Private sector expects that the Government changes its policy from time to time, but the frequency (Scale: 0–5) is not that high, as shown from their average rating. More than policy inconsistency, private sector respondents were concerned that there is not a lot of transparency from the side of the Government in sharing policy and strategies. Private sector advocacy Rating 1; In Ghana, there are a lot of advocacy groups, including major business associations, such as the group for agribusiness: Association of Ghana Industries (AGI). In the agriculture sector, advocacy groups represent issues related to existence and effective- specific commodities. Only recently, there has been an initiative to start focusing on commercial agriculture with ness (Scale: 0–5) the advent of a group called Consultative Group for a Competitive Ghana (CG²), which is at an early stage of operation. The 1 rating signifies that an agribusiness advocacy organization has been formed but has not done much in the way of policy advocacy (as of this writing). Selected policy % of annual federal 9% (2009, latest year available); Ghana has signed the CAADP compact, which has set a target to allocate 10% measures budget allocated to agri- of Government expenditure on agriculture. In 2009, GOG spent 9% of Government expenditure on agriculture, but culture (CAADP/NEPAD over the last three-year period (2007–09), the average percentage was higher, at 11%. indicator) Farmer share of cash crop 57% (2009–10); COCOBOD is ensuring that producers receive better prices and as a result, they have been receiv- export price (cocoa) ing more than 50% of FOB prices on cocoa exports. % of a key staple (maize) 10%; This indicator measures the proportion of maize that is bought as processed food products (as flour, grits, industrially processed meal, etc.) or feed or that is used as an input into beer brewing. Source: Summary of Indicators presented in the Chapter. E C O N O M IC AND S E CTOR WORK 36 CHAPTER 7 — POLIC Y A ND ENA B LING ENVIRONMENT FOR AGR IBUSINES S D EV ELOPM ENT increasingly important role in producing seeds for the internal that ensures private sector inclusion in policy and program as well as external markets. Private operators appear to be development for agriculture. somewhat less concerned about the Government’s role in the agro-machinery sector. Much of the concern they have about the Government’s implementation of the mechaniza- 7.3 GOVERNMENT EXPENDITURE tion problem involves operational modalities that have led the ON AGRICULTURE Government to import brands of tractors that are not durable The Government of Ghana has signed the CAADP compact. and suitable for the soil type found in many zones of Ghana. It is working toward achieving one of the compact’s key Other than this, dealers consider the policy environment to targets—to allocate 10 percent of Government expenditure on be conducive to profitably providing tractors to mechaniza- agriculture. Ghana achieved this target from 2006 to 2008 but tion centers, which in turn will be better able to profitably fell short in 2009 despite a budget that nearly doubled (Table expand services to smallholders. .2). 7 A large proportion of the MOFA budget covers recurrent costs, which increased substantially in 2008 and 2009. In 2009, the Government decided to add the budget line item for feeder 7.2 POLICY CONSISTENCY AND ROLE roads. OF PRIVATE SECTOR ADVOCACY Private sector perceptions of policy consistency in Ghana The current methodology for calculating this indicator has are comparable to perceptions of the broader policy environ- been questioned, because it does not capture agricultural ment (rating of 2.6). Most firms and individuals interviewed investments by bilateral donor investments, which are chan- reported their impression to be that the Government pro- neled directly through the Ministry of Finance. A more com- vides a consistent policy environment. Some exceptions to prehensive view of public agricultural investment in Ghana this related to government input policies that had changed will be needed for all investments and expenditures that go to more frequently. One example was the fertilizer subsidy the sector, not only by MOFA but by the Ministry of Finance policy, the implementation of which had changed twice in and other institutions. For this purpose, an Agriculture Public 3 years. Import duties on rice have also been less stable. Expenditure Review (PER) is now underway in Ghana. Every other year, the budget statements refer to changes in tariff rates, though these changes are not always applied in TABLE 7.2: Government Agriculture Expenditure practice. The tariff on rice was removed in mid-2008 through in Ghana the end of 2009 to soften the blow of world rice price hikes BUDGET ITEM on urban consumers in Ghana. It was then reimposed in (GH¢ ‘000) 2006 2007 2008 2009 2010, although some importers of rice through Tema com- MOFA 74,964 77,636 155,320 338,598 plain that imports of rice from Cote d’Ivoire escape either Fisheries 4,184 5,404 17,950 14,567 tariffs or taxation. Some private sector players are of the Forestry 15,480 25,923 34,234 67,815 view that there is very little information sharing that takes Agriculture-related research 67,180 94,181 56,510 93,332 place about Government’s policies and strategies that affect Debt servicing 42,343 47,166 68,418 5,462 their operations. Presidential support initiatives 15,709 30,868 2,168 650 A variety of lobby groups have been formed in Ghana to Cocoa 1 148,716 112,915 57,613 169,225 engage public officials in dialogue, often advocating for Feeder roads — — — 91,732 reforms. Many of these groups are quite new. There are Total agriculture 368,576 394,093 392,213 781,381 some commodity-focused horticulture associations and a Total government expenditure 3,569,970 3,064,297 3,842,750 8,659,268 few in the grains sector (e.g., GRIB; GGC) that have been Agriculture Expenditure effective in their advocacy work. GRIB, in particular, is well as % of Government organized and has useful contacts in MOFA, regularly engag- (CAADP indicator) 10% 13% 10% 9% ing with relevant public agencies to advocate on behalf of its Source: MOFA 2010. members in the rice industry. A recent private sector initiative called the Consultative Group for a Competitive Ghana (CG²), representing commercial farms, traders, and processors of 1 There is some dispute on whether the budget for cocoa should be counted, as it is spending by a parastatal marketing company a number of agricultural commodities, is proposing that the that should not count as public expenditure according to COFOG MOFA establish a permanent Private Sector Liaison Office definition. AGR IBUSINES S IND IC ATOR S : GH A NA C H A P T E R 7 — P OL ICY AND E NABL ING E NVI RO N MENT FOR AGR IBUSINES S D EVELOPMENT 37 TABLE 7.3: Producer Prices for Cocoa Beans in Ghana hire basis by local millers. Most maize in urban areas is pro- 2005– 2006– 2007– 2008– 2009– cessed using small hammer mills, where households go to 2006 2007 2008 2009 2010 have their maize ground. Larger poultry farms have their own Producer 978.26 943.30 888.43 1,141.26 1,536.00 milling facilities. This small scale of processing leads to sub- price/ stantially less value addition than would be achieved through MT ($) larger scale industrial processing. However, a small segment FOB/ MT 1,487.18 1,790.00 2,103.69 2,400.00 2,702.20 of the market has emerged in recent years for both packaged ($) maize flour and pre-mixed food that contains prepared maize Producer 66% 53% 42% 48% 57% price as products such as banku, kenke, and porridge. The value addi- % FOB tion is mainly done by small processing firms, either at the export price household level or in small/medium processing plants found in large towns. The packaged products are then sold in retail Source: COCOBOD. stores and supermarkets in big cities. 7.4 FARMER SHARE OF CASH CROP Some of the medium-sized processing firms are exploring EXPORT PRICE opportunities to enter the consumer breakfast cereal mar- Ghana is one of the leading producers of cocoa in the world. ket. So far, they are processing grits for the breweries and Cocoa exports account for nearly a third of total foreign exchange operating well under capacity. The domestic urban market for earnings. It also plays an important role in the domestic econ- maize and other packaged goods is not easy to penetrate omy, with more than 700,000 farmers whose livelihoods are for local manufacturing companies, as the market is domi- dependent on cocoa cultivation. Over time, the industry has nated by multinational brands such as Nestle and Unilever. contributed significantly to poverty reduction in Ghana. Nonetheless, with technical assistance and innovations, there are prospects for local firms to expand into packaged Since the early 1990s, world prices have been favorable for food based on maize. the cocoa sector, providing the COCOBOD with an important incentive to introduce reforms. Cocoa was an important priority For the sector to modernize, industrial processing of maize is of the Economic Recovery Program, which began during the necessary to add value to the crop. The indicator we propose early 1980s, seeking to improve producer prices. With internal on industrial processing of maize would help measure the reforms of the COCOBOD itself and by introducing initiatives proportion of maize that is bought as processed food prod- to reform cocoa marketing with the opening of licensed buying ucts (as flour, grits, meal, etc.) or as feed. So far, only about companies, farmers have benefited through timely payments, 10 percent of the maize available in Ghana is processed by access to subsidized input supplies, improvement in farming medium to large-scale firms. More than 95 percent of pro- practices, etc. As a result, producer prices in proportion to cessed maize is for the feed industry, and there is minimal FOB prices have been favorable (Table 7.3). processing for human consumption (Table 7 .4). TABLE 7.4: Industrial Processing of Maize (2009–2010) 7.5 DEVELOPMENT OF THE Maize Production and Trade PROCESSING INDUSTRY Production 1,871,695 Ghana’s agriculture sector has experienced growth through Import 955 increased production of staple crops, as well as diversifica- tion leading to increasing exports of cocoa and other nontra- Export 121 ditional products, such as horticultural products and seafood. Net maize available (MT) 1,872,529 As a result, food security has improved, and the rate of pov- Buyers of Maize for Processing erty has declined. In addition, the Government offers incen- Multinational companies (e.g., Nestle)* 1,100 tives for foreign investment in agro-processing activities with Poultry industry* 175,000 a 5-year tax holiday and provision of reduced corporate tax Breweries* 5,640 incentives based on location of the industry. Despite these Total estimated maize processed (MT) 181,740 incentives, the processing industry is still at a nascent stage. % processed industrially 10 percent Maize is an important component of the Ghanaian diet. It Source: MOFA, MOTI. is sold to households as grain and is milled on a custom *Data on buyers based on interviews. E C O N O M IC AND S E CTOR WORK A N N E X 1 — S UP P ORT ING TABL E S AND F IG U R ES 39 Annex 1: SUPPORTING TABLES AND FIGURES TABLE A.1: Certified Seed Supply and Its Potential Coverage of Cultivated Area in 2010 CERTIFIED SEED ESTIMATED AREA % CROPPED AREA THAT CAN BE PRODUCTION SEEDING RATE CROPPED WITH PLANTED WITH CERTIFIED SEED AREA CULTIVATED CERTIFIED SEED % TOTAL CROP (Ha) 2010 (MT) (Kg) (Kg/Ha) (Ha) AREA ADJUSTED % Maize 991,669 4326.6 4,326,600 22.5 192,294 19.4 58.2 Cowpea 166,980 27.2 27,210 17.5 1,555 0.9 2.8 Rice 181,228 1451.3 1,451,000 100.0 14,511 8.0 24.0 Soybean 76,220 339.8 339,760 37.5 9,060 11.9 35.7 Sorghum 252,555 5.04 5,040 7.5 672 0.3 0.8 Groundnut 353,376 19.7 19,700 70.0 281 0.1 0.2 Source: MOFA 2010. Note: As the recommended or optimal seeding rate may not always be followed by farmers, the estimated area cropped to improved seed should be viewed as an approximation. Also, as the seeds used are open pollinated varieties that are found to be effective for 3 years, the cropped area is adjusted accordingly. TABLE A.2: Fertilizer Consumption in Ghana, 2005–09 FERT. ARABLE TOTAL IMPORTS FERT. NUT. LAND TOTAL TOTAL CONS CONS AREA VOLUME VALUE CONSUMPTION YEAR (Kg/Ha) (Kg/Ha) (‘000 Ha) (MT) (‘000 USD) (MT) NPK % NPK UREA SoA TOTAL 2005 19 6 6,800 128,745 42,551 128,551 55,325 60.0% 4,491 32,341 92,157 2006 27 12 7,000 189,879 39,087 185,607 82,573 74.8% 8,771 19,090 110,434 2007 25 10 7,250 189,633 77,022 178,846 79,172 78.5% 4,262 17,458 100,892 2008 24 6 7,250 185,605 113,337 172,733 17,136 49.5% 13,456 4,047 34,639 2009 29 — 7,312 220,176 111,627 209,213 80,250 78.0% 8,685 13,991 102,926 2010 40 — 7,312 308,786 131,722 295,900 98,917 68.3% 13,025 32,965 144,908 Source: MOFA (Arable land data for 2009); MOTI 2010; IFDC 2010; FAOSTAT, Author’s calculation. Note: Total consumption is less than total imports, reflecting exports. Arable land includes data for permanent crops. TABLE A.3: Fertilizer Prices in Ghana (2006–10) FERTILIZER AVERAGE PRICES (GH¢/50 KG BAG) PERCENTAGE CHANGES PRODUCT 2006 2007 2008 2009 2010 2006–07 2007–08 2008–09 2009–10 NPK-15 20.4 21.7 36.1 51.2 30.1 6.3% 66.2% 41.7% –41.2% SoA 17.5 18.1 28.1 32.4 20.1 3.2% 55.2% 15.4% –37.9% Urea 24.6 25.8 37.1 49.0 27.3 5.1% 43.7% 32.1% –44.3% Source: IFDC/IFPRI 2011 (Forthcoming); Price data for 2010 (IFDC 2010). E C O N O M IC AND S E CTOR WORK 40 A NNEX 1 — SUPPORTING TAB LES A ND FIGUR ES FIGURE A.1: Ghana Fertilizer Cost Components per MT (US$) Urea 321.45 302.15 48% SoA 177.48 250.00 59% NPKT-15 400.43 342.08 46% NPK Blend 366.42 319.54 47% $0 $100 $200 $300 $400 $500 $600 $700 $800 Key CIF plus clearance charges Inland additional cost Source: Fuentes et al., 2011 (Forthcoming). AGR IBUSINES S IND IC ATOR S : GH A NA B I B L I O G R AP HY 41 BIBLIOGRAPHY Aboagye A.Q., M. Barnor, and I. 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