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Opinion | Jan 16, 2019

Cocoa Producer Price: H.E Mahama Just Has An "Economic Analysis" Deficiency Syndrome

Cocoa Producer Price: H.E Mahama Just Has An

The continuous public display of the lack of understanding of simple economic analysis by the Former President of Ghana, His Excellency John Dramani Mahama over some time has become worrying because of its continuous attraction of shame to him.

He first attracted a huge public ridicule in June, 2018 when he attempted through his twitter account to tease the H.E Nana Addo Dankwa Akuffo-Addo led NPP government with respect to the management of the Ghana Cedi exchange rate depreciation as compared to that under his reign. He again in November, 2018 while addressing party faithfuls at Tepa in the Brong Ahafo region attracted same when he attempted to analyse how the then current producer price of cocoa should have been increased due to the exchange rate depreciation of the Ghana Cedi to the Dollar at that time. Despite the correction of the above wrong analysis of his through proper economic education, he has again in January, 2019 while addressing party faithfuls in the western region espoused his lack of appreciation of the economic analysis with respect to how the producer price of cocoa is set. I will as a result like to educate and explain to him briefly using very simple comprehensible mathematical coupled economic analysis.

The producer price of cocoa is just the amount of money paid to cocoa farmers for their cocoa beans bought by government. The producer price is in Ghana Cedis. The main factors which determine the producer price of cocoa in Ghana are the Ghana Cedi exchange rate against the Dollar and the world trade price of cocoa in Dollars. Aside these major factors, there are other minor factors such freight cost, and other operational costs and factors, of which the producer price is pecked at a minimum of 70% of the net Free On Board (FOB) achieved in the world market. The producer price has been 7,600 Ghana cedis per tonne since 2016, and the debate over it has been whether it should have been increased or not over the years per the prevailing Ghana Cedi exchange rates and the world prices of cocoa.

I will only tackle the major factors and how they can each have an impact on the producer price in this analysis of mine.

A)Ghana Cedi Exchange Rate Against The Dollar

Since the revenue gotten from the sale of cocoa is mostly an export one, where the government transacts this export trade mostly in dollars, and the producer price paid by the government to the farmers is done in cedis, the producer price as a result increases when there is higher depreciation of the cedi against the dollar and vice verse. Export is just sending of goods and services produced in one country to another country for sale.

B) The World Trade Price Of Cocoa

Since revenue gotten is mostly that of an export one, the producer price government pays to cocoa farmers increases when the world price of cocoa increases and vice verse.

From the above explanations of how the producer price of cocoa is determined with the analysis of its major determinants, I will now proceed to explain with mathematical and economic analysis why I think H.E Nana Addo Dankwa Akuffo-Addo is treating farmers better with respect to the producer price of cocoa, and that farmers are even paid better now than under the rule of H.E John Dramani Mahama, and through this debunk the non factual analysis by H.E John Dramani Mahama. I will use two methods to do this, and the first will be the use of the total revenue government gets per tonne in Ghana Cedi after selling the cocoa internationally, and the second will be the use of the percentage changes of the Exchange Rates and World Prices of Cocoa respectively.

1)Method 1: Total Revenue Per Tonne Generated By Government in Ghana Cedi

I will use this method to determine how much in Ghana Cedis per tonne the Ghana government generated in 2016 and 2019 respectively after selling the cocoa beans internationally. I will after compared what was generated in the respective years to check whether the H.E Nana Addo Dankwa Akuffo-Addo is treating the farmers well by maintaining the producer price of the cocoa or not.

A)Total revenue per tonne in Ghana Cedis generated by the Ghana government in 2016

Cedi to Dollar (Dec. 2016)= 1 Dollar : 4.2 Ghana Cedis

World Price of Cocoa per Tonne(2016)= 2,900 Dollars

Total revenue generated in Ghana Cedis per Tonne= 2,900 x 4.2 Ghana Cedis

= 12,180 Ghana Cedis

B)Total revenue per tonne in Ghana Cedis generated by the Ghana government in 2019

Cedi to Dollar (Jan. 2019)= 1 Dollar : 4.9 Ghana Cedis

World Price of Cocoa per Tonne(2019)= 2,200 Dollars

Total revenue generated in Ghana Cedis per Tonne= 2,200 x 4.9 Ghana Cedis

= 10,780 Ghana Cedis

From the above calculations, it can be noticed that the H.E Nana Addo Dankwa Akuffo-Addo led NPP government is generating less revenue from the sale of the cocoa per every tonne in Ghana cedis than what H.E John Dramani Mahama was generating, so it means the maintenance of the 2016 producer price of cocoa as was under H.E John Dramani Mahama by H.E Nana Addo Dankwa Akuffo-Addo is being done at a huge deficit to the national purse which from an economic expert's opinion would have been noted as not very economically prudent. It therefore shows that H.E Nana Addo Dankwa Akuffo-Addo has been fairer to the farmers with respect to the producer price of cocoa than H.E John Dramani Mahama.

2)Method 2: Percentage Change

With this method, I will compare the percentage change of the Ghana Cedi Exchange Rate Depreciation and that of the World Price of Cocoa in Dollars to check if there should have been an increase or decrease in the producer price of cocoa as compared to what is being currently paid to the farmers by the government.

A)Percentage Change of Ghana Cedi Exchange Rate Depreciation

Dollar to Cedi (Dec. 2016)=

1 Dollar : 4.2 Ghana Cedis

Dollar to Cedi (Jan. 2019)=

1 Dollar : 4.9 Ghana Cedis

Percentage Change= [(Change/Original)x100%]

=[(4.9-4.2)/4.2]x100%

Percentage Change= 16.67%

The 16.67% represents the percentage change of the depreciation of the Ghana cedis to the dollar between December 2016 and January 2019 which as a result represents a should be increase in the producer price of the cocoa government should pay to the farmers.

B)Percentage Change of World Price of Cocoa in Dollars per Tonne

World price of cocoa (2016)= 2,900 dollars

World price of cocoa (2019)= 2,200 dollars

Percentage Change= [(Change/Original)x100%]

=[(2,900-2,200)/2,900]x100%

Percentage Change= 24.13%

The 24.13% represents the percentage change of the reduction of the world price of cocoa between 2016 and 2019 which as a result represents a should be decrease in the producer price of the cocoa government should pay to farmers.

With the comparison of the two percentage changes, it clearly shows that the percentage change (i.e. 24.13%) which suggests the should be decrease in the producer price of cocoa is far bigger than that of the percentage change (i.e. 16.67%) which suggests the should be increase in the producer price of cocoa, it as a result explains that the H.E Nana Addo Dankwa Akuffo-Addo led NPP government maintaining the 2016 producer price of cocoa is doing that at a huge deficit to the nation's purse which from an economic expert's opinion would have been noted as not very economically prudent. It therefore shows that H.E Nana Addo Dankwa Akuffo-Addo has been fairer to the farmers with respect to the producer price of cocoa than H.E John Dramani Mahama.

Thank you

Hhhmm, may God be praised always

Nana Kwadwo Akwaa

Member, Critical Thinkers International (CTI)

00233246913905 / 00233209676413

[email protected]

Nana Kwadwo Akwaa
Nana Kwadwo Akwaa, © 2019

This author has authored 53 publications on Modern Ghana.
Author column: NanaKwadwoAkwaa

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