Comparative Advantage and Rice Policy in Ghana

Abstract

ASUMING-BREMPONG, SAMUEL, University of the Philippines at Los Banos (UPLB), October 1987. COMPARATIVE ADVANTAGE AND RICE POLICY IN GHANA. Major Professor: Dr. John C. Flinn. Even though rice is a minor staple in Ghana (WARDA estimated per capita consumption to be 6.7 kg. in 1983), and accounts for about 1 0 % of all cereals, its imports to the country have been second only to wheat which is not grown domestically. Successive governments in Ghana have therefore declared an objective of rice self-sufficiency. This means that the option of import-substitution for rice has been adopted as a means of conserving or generating foreign exchange. The issues that arise then are: (a) Would domestically produced import substitute rice benefit the economy, that is, will benefits accruing from import substitution in rice outweigh the cost to the economy? (b) How supportive are rice policies in Ghana to domestic rice production? (c) What is the target clientele of the import substitution approach? Following after Scandizzo and Bruce (1980), an attempt was made at answering the above questions by analyzing government, market intervention effects and the economic/social cost of rice production in Ghana. The Nominal Protection Rate (NPR), Implicit Tariff (IT) rate, and Effective Protection Coefficient (EPC) were estimated to determine the impact of government input-output pricing policies on the domestic rice industry; and the Domestic Resource Cost (DRC) criterion which is actually an index of the domestic cost of rice production, was used as a measure of Ghana1s comparative advantage in rice production. The study has clearly shown that Ghana has no comparative advantage in rice production for all the production systems outlined in the study, namely: Traditional (less-intensive), Improved, partially mechanized (semi-intensive), and Irrigated, fully mechanized (Intensive) systems. However, relative comparative advantage lies with the traditional system (DRC/SER = 2.86), while both the Improved (DRC/SER = -1.42) and Irrigated (DRC/SER = -1.04) systems result in absolute loss of foreign exchange. This was further buttressed by the EPC values which were positive for the traditional system and negative for the Improved and Irrigated systems. Ironically, the NPR and IT estimates show that government policies greatly favor the rice industry. Domestic rice prices for the last decade have been 200 percent to 1700 percent higher than comparable world prices, indicating that rice consumers in Ghana have been greatly taxed to finance inefficient rice, industry. Furthermore, government has made huge investments in irrigation and land development, and subsidized inputs to promote the rice industry. The policy thrust has been area expansion which was not matched by adequate yield increases, therefore the overall performance of the rice industry has been poor and very costly to the domestic economy. Also, by being biased towards large-scale rice production as against the small-scale farmer, government policies failed to ensure equitable income distribution as the bulk of the benefits resulting from policies accrued to large-scale farmers. It is recommended that government rice policy must be redirected from area expansion by means of irrigation and mechanization to concentrate on yield increasing innovations for the small-scale farmer. Support price and ceiling price policies should be discontinued for the present since they have been, in general, ineffective due to financial and administrative problems in effective implementation. Meanwhile, a gradual development of the domestic rice industry should be preferred as rice imports continue to supplement the domestic effort. Also, a serious look must be taken of possible crop diversification that will direct domestic factors of production into economic activities that are more efficient in saving or generating foreign exchange.