Agricultural sector paradox: Backbone of the economy and primary source of inflation

I n 2023 (Q1), agriculture contributed 21.0 percent to the gross domestic product (GDP). The sector generates over 30 percent of export earnings and is a major source of jobs. Before the discovery of oil and gas in 2007, agriculture was the largest contributor to economy with over 60 percent share of the GDP. Ghana produces food for its population but not enough to stop import of staple commodities such as rice and wheat. The country also imports fertilizers and phyto-sanitory products. This import dependence exposes the country to external price shocks and inflation. Food inflation erodes the purchasing power and living standards of Ghanaians¹.

Backbone of the economy

Over the past three decades, the agricultural sector has developed into specialized value chains. The first segment consists of small holders and large industrial farms, who produce subsistence and cash crops to supply local processing companies and also exporters. In recent years, an emerging processing industry is feeding demand for packaged ready-made food for the urban market.

Ghana is the world's second producer of cocoa after Côte d'Ivoire. It also exports cotton, coffee, and palm oil. In West Africa, Ghana is the second largest producer and exporter of cassava and yam after Nigeria. Ghana produced 8.5 million tons of yams and 21.7 million tons of cassava in 2020². Other products where Ghana leads include sheasbutter and cashew nuts. On average, Ghana produces 110,000 of sheabutter and 130,000 tons of raw cashew nuts every year. The country earned US$128.70 million from cashew nuts exports in the first quarter of 2021 (Bank of Ghana). Another important value chain is livestock, which supplies fish, animal dairy, and meat. Finally, the country produces timber and non-timber forest products, the majority of which targets the export market.

The Ministry of Food and Agriculture (MoFA) wants to diversify the sector by targeting non-traditional export products. The MoFA launched the Ghana National Export Development Strategy (NEDS) in 2020 and forecast that non-traditional exports (NTEs) will grow from US$2.8 billion in 2020 to US$25.3 billion by 2029.

Horticulture is a part of the diversification drive. This value chain is growing on average by 10 percent per year and emerging as a major foreign exchange earner for Ghana³.

Investments, demography, per capita income, business climate, and policy incentives drive growth in the agricultural sector. Reports from the African Development Bank indicate that The African Continental Free Trade Agreement could yield a double digit growth for the sector over the next ten years.

Primary source of inflation

Food is a major inflation pass through in Ghana. Between In September 2023, inflation was 37.3 percent for domestic items and 39.9 percent for imported items. These two figures pushed food inflation to a historical record of 55.2 percent during the same period. The difference between non-food inflation and food inflation was 20.1 percent. However, the headline consumer price index has since fallen to 23.5 percent in March 2024.

Challenges

The agricultural sector faces severe climate challenges, market dysfunctions and low access to modern technology. Climate change has a negative impact on Ghana’s agriculture⁴. The rainy season means high production for crops and fresh produce. On the contrary, the dry season corresponds to a period of low production. At the level of the markets, asymmetric price information distorts transparency and reflects a lack of connectivity between buyers and producers.

Limited access to modern biotechnology and to processing technologies increases post-harvest losses. According the African Union, the country has a limited agro-processing capacity. In a 2020 report, the Pan-African organization found that despite recent progress, the share of local processing actually dropped from 15 percent in 2001 and to 5 percent in 2019⁵. This means that farmers who cannot take their goods to urban markets face financial losses⁶.

In the export market, Ghana must learn to manage and adjust to changes in international regulations. This is the case with the European Union Regulation 2023/1115 (or EUDR), which bans the import and sale into the EU, of commodities and products associated with deforestation and forest degradation. This new regulation also applies to other commodities like coffee, timber and livestock.

Reform

In 2023, the Ministry of Food and Agriculture outlined plans to increase access to finance⁷. It promised to improve access to land. Ghana's land tenure system ‟is a constraint to the sector, especially for commercial investments”, according to the African Union⁸. Despiste decades of efforts, complex customary land ownership and robust resistance from traditional rulers against reform, continue to limit access to agricultural land for young farmers and women.

In livestock and fisheries, scientific progress show that modern technology improves animal health and prevent diseases. Selective breeding techniques and vaccination, for example, improve dairy production and the quality of meat. The authorities admit that the agricultural value chains need modern technology to enhance productivity⁹. However, despite efforts by public and civil society stakeholders and also donors, Ghana continues to record a low adoption of biotechnology.

Ghana has more ambitious plans for the cocoa sub-sector. On 26th March 2018, the country teamed up with other cocoa producers in West and Central Africa to set up the Côte d’Ivoire and Ghana Cocoa Initiative (CIGHCI). The goal of this new body is to seek a fair price for cocoa farmers. But since, the launch, the CIGHCI is facing a stiff resistance from multinational chocolate and confiseries manufacturers.

Related Articles