Exports of palm oil from Ghana : A demand analysis

Abstract

Studies have shown that the economy of Ghana cannot afford to rely solely on cocoa exports. It is imperative to diversify the export base of the Ghanaian Economy. In this respect, the Palm Oil sub-sector of the Agricultural sector which until the early part of the 20th century used to be the major agricultural export commodity of Ghana needs to be considered for promotion. Currently the palm oil industry faces the challenge of bleak export potential. In this study, we examine the trend in quantity exported of Ghana’s palm oil; and quantify the effects and magnitudes of the determinants of the export demand. The empirical analysis of Ghana’s palm oil exports over the period 19872006 reveal a general upward growth over the study period at an annual growth rate of 23.2%.This result can be attributed to a large extent by the privatization of state owned oil palm plantations in the 1980s and 1990s. The effects and magnitudes of the determinants of the demand for Ghana’s palm oil were achieved with Ordinary Least Squares regression. The study identifies the following as the significant determinants of the demand for Ghana’s palm oil: real export and real domestic prices of Ghana’s palm oil, real export price of Malaysia’s palm oil (a competing country of Ghana’s palm oil exports), and real exchange rate in Ghana. A percentage fall in the real domestic price of Ghana’s palm oil will bring about 11.9 % increase in the quantity exported (demanded) of Ghana’s palm oil by her trading partners; a percentage increase in the export price of Malaysia’s palm oil will increase the demand for Ghana’s palm oil by 2.1 %; quantity demanded of Ghana’s palm oil will increase by 0.4 % for every percentage decrease in the export price of Ghana’s palm oil; and a percentage depreciation of the Ghana Cedi against the US dollar will bring about 11.1 % increase in the demand for Ghana’s palm oil by her trading partners, all things being equal. The study recommends that a price support system (i.e., maximum price legislation) be instituted in the domestic palm oil market to minimize domestic price increases. Policymakers and stakeholders in the palm oil industry should consider the export price of Malaysia’s palm oil when pricing Ghana’s palm oil in the international market. Exchange rate stabilization policies should be strengthened in order to promote a mutually beneficial trade between Ghana and her palm oil importing countries.