Daniel Sarpong
A key objective of this chapter is the identification of types of policy options, which could improve the opportunities of smallholders to exploit globalization and to minimize its negative impacts on the smallholder in Ghana.
In Ghana, more than 80 percent of all agricultural production is produced on atomized land holdings of less than one hectare. Larger holdings of agricultural production are mostly in the export or import substituting crops of pineapples, rubber, oil palm, etc. Overall, about a third of the land area in Ghana is currently being cultivated.
The overall Government strategy for poverty reduction in smallholder farmers is to increase agricultural growth through the promotion of selected products (cocoa, yam, pineapples, cashew, maize, cassava, etc.) for export. Open market principles of encouraging private sector development and devolution of central government controls to district assemblies are in place.
In Ghana, with these economic and institutional reforms, some groups have gained, others have lost and overall, outcomes are ambiguous (Bussolo and Round 2003).
Smallholders in Ghana dominate in the agricultural sector. Traditional export crop smallholder in cocoa, coffee and sheanut collection have gained with adjustments in exchange rates and reduction in explicit government taxes on these export commodities.
The most dramatic smallholder participation in globalization has been in the non-traditional export (NTE) sector. Since 1990 the value of non-traditional exports in nominal USD terms has increased by a factor of 8, so overall it can be regarded as a success story. The value of NTE started from a relatively low level of US$ 62.3 million and reached US$ 504.3 million in 2002.
The number of exporting firms grew from 1729 enterprises in 1990 to 3083 enterprises in 2002, which is an increase by 78 percent, although fluctuation has been much higher.
By 2002 the bulk of NTE was processed and semi-processed products mainly wood products, prepared foods and beverages and other processed and semi-processed products constituted more than 80 percent of the total. The most important products in this category are canned tuna, cocoa products, wood and aluminium products as well as processed food. Next are agricultural products with 17 percent where pineapples and yams make the bulk of exports. Handicrafts only constituted two percent.
The performance of the different sectors is quite diverse. The increase in handicraft was fastest but it started from a very low base and took off only in the second half of the 1990s. At the same time, the number of exporting firms saw little change. Processed and semi-processed products exports increased by more than 10-fold with the highest increase in prepared food and beverage. In the latter sector also the increase in the number of exporting enterprises was highest. Exports of aluminium products grew significantly slower. The growth of agricultural exports was slowest. This was mainly driven by the almost stagnant exports of fish. In contrast exports of horticultural products increased considerably.
Smallholder farmers and industries engaged in import substituting activities have suffered the effect of globalization in Ghana. Smallholder rice and poultry farmers have lost particularly strongly, having to face cheap imports from the EU and Asia. However, other smallholders have gained from globalization:
Smallholder farmers are mostly not directly involved in the marketing chain of the export trade. They have mostly developed linkages with export agents. Hence the smallholder gains depend on the market structure.
Resources and shifts in the resources of smallholders have led to a stronger integration into the monetary economy.
Generally, faster growth in the NTE is based on the natural resources, dominated by agriculture (smallholders).
Smallholder livelihoods have become integrated with the performance of the monetary economy and to globalization shocks in an open economy.
In aggregation, smallholder stakes in the NTE are enormous. However, needs assessments are critical in the following.
Land in Ghana is generally communally owned. Land availability is not a problem, but the tenure system is. This is a major disincentive for investment and leads to lacking collaterals from farmers for institutional credit to expand their farms or fund investment. Reactions to inadequate credit availability have led in part to a further decrease in farm holding size per head.
In Ghana only a very small proportion of the land is irrigated making exports highly seasonal. In a recent national economic dialogue, it is planned to increase the current 0.04 percent of land under irrigation to 0.12 percent over 2002-2005.
Overall, productivity is low compared to neighbouring countries in most of the agricultural products exported.
The above, among others, critically limit the smallholder capacity to expand production even if favourable export prices hold and they benefit from preferential treatment under the AGOA and Cotonou agreement. As Ghana is small, sustainability of policies depends on external shocks, especially the terms of trade and donor finance.
Ghana has liberalized its trade regime significantly. The simple average applied MFN tariff rate was 15 percent in 2000. Tariffs are applied in four categories ranging from 0 to 20 percent. In addition the tariff structure has been simplified and little non-tariff-barriers are applied. ECOWAS is of growing importance for Ghanaians. Likewise the envisaged Economic Partnership Agreement between the ECOWAS and the EU and the Doha round will further liberalize the trade regime.
How can smallholder farmers benefit and be protected from Globalization? The key policy options are:
Regional integration
ECOWAS is of growing importance for Ghanaian smallholder exports. ECOWAS protocols and agreements have enabled smallholder farmers to directly participate in cross-border trade with neighbouring countries. For instance, Ghana’s cross-border trade with Togo in maize, rice and processed fish in 1996 were 93.4, 99.8 and 70.5 percent respectively of Ghana’s world export trade in these commodities. Location specific modelling should be able to include these in household and village economy modelling.
Selected protection
In the 2003 budget statement tariffs were increased for poultry and rice. These products compete with imports that are subsidized in other regions. Ghana has since withdrawn these protection covers because of concerns by ECOWAS and the EU. Bussolo and Round (2003) simulations with tariff adjustments infer substantial poverty reduction among different household categories.
Access to credit
Access to credit is a major problem of the Ghanaian private sector in general. Lack of finance is mainly caused by a huge government debt that also results in high interest rates. Therefore a reduction of government debt would be beneficial for all sectors including agriculture. To target the smallholder farmer directly, micro-credit is an option. Access to credit has serious implications for supply adjustment in the long run.
Subsidies for agricultural inputs
During the ERP subsidies for agricultural inputs have been reduced or eliminated. However as bigger farms seem to benefit more from globalization subsidies for smallholders (in irrigation partly financed by government; fertilizers, etc) could help them to grow and become competitive on their own in the medium term.
Agricultural extension
Compared to neighbouring countries agricultural productivity differs considerably. For some products like starchy root crops or tuber crops, Ghana has higher yields than other West African countries, but for many export crops yields are low. In these areas agricultural extension can help to increase productivity and therefore competitiveness. To capture this effect, different levels of efficiency can be used for the model simulations.
Ghana Poverty Reduction Strategy
It could also help to compensate the losers from globalization as it includes measures like the development of a modernized agriculture.
Tax policies
As micro-credit, subsidies and agricultural extension and reduction of debt have to be financed by an increase in government revenues, tax policies are very important for the village modelling. Since the smallholder economies are relatively under-developed and not specialized, taxation of the rural economy must be based on incentive enhancing interventions. Bussolo and Round show that different financing option of government transfers lead to very different effects on poverty reduction on smallholder households.
Transport costs
Improvement of infrastructure (road, ports, air transport, cold storage, railway, etc) including reduction of delays, simplification of procedures will reduce internal and external transport costs and therefore intensify globalization. It also has the potential to increase the transmission of prices and therefore complimentary to trade liberalization. The recent increase in fuel prices in Ghana has the reverse effect. Improvements in marketing infrastructure will enhance regional cross-border trade.
Increase of processing capacity
This does not only increase value addition but also helps to smooth demand for agricultural products as processed products can be stored. Domestic processing of agricultural produce is very important in ECOWAS trade. Attempts to increase processing capacity by policies to attract FDI had limited success; however agriculture was the sector where FDI has increased most in recent years. A continuous supply of high quality agro-raw materials has to be ensured.
Diversification
In recent years, several non-traditional export crops such as sunflower cultivation have been introduced, mainly to smallholder farmers. As it has several advantages for small farmers like little requirement for herbicide, pesticide and fertilizer and modest water requirement, it is expected to grow significantly. Yields are high as varieties adjusted to African conditions exists and four harvests per year are possible. Currently there are the Presidents Special Initiatives in cassava, cotton, salt and oil palm that are being promoted to diversify smallholder agricultural incomes. However, too much diversification on the level of the smallholder can lead to a loss of economies of scale.
Land Tenure System
Intensive policy reforms are needed in the interface between communal type of property holding and private property holding rights.
In the assessment of ex ante policy impacts of globalization through household and village economy modelling, the key policy options that emerge include the following.
Firstly, smallholders could participate directly in globalization through regional cross-border trade with neighbouring countries. Hence regional integration as envisaged by ECOWAS needs to be given more explicit attention.
Secondly, the policy of letting all compete in the global market place is having a toll on several, otherwise profitable, smallholder activities. The issue of tariff adjustments as a protection mechanism in smallholder economy modelling is germane. Agriculture in smallholder farming systems is everywhere under-capitalized and insufficiently competitive in the global market.
Thirdly, smallholder group dynamics including social security role of agricultural households have explicit impact on institutional and contractual arrangements (problems of contract enforcement and access to finance to purchase inputs independently to improve bargaining positions). This is a major area for policy focus to strengthen rural institutions.
Bussolo, M. & Round J. I. 2003. Poverty Reduction Strategies in a Budget-Constrained Economy: The case of Ghana, OECD, Paris.
