Apr 22, 2010

Cocoa smuggling from Ghana to Cote d’Ivoire

Ghanaian cocoa farmers can only sell their crop to the Cocoa Marketing Board, at a fixed price, which “ensures that cocoa farmers receive some healthy income irrespective of world market prices”. But in Cote d’Ivoire, merchants are now paying 160 CHF for a 64kg bag of cocoa while the Ghanaian government purchases it at 113 CHF. That’s a 42% premium (source), an incentive big enough for Ghanaian cocoa farmers to sell illegally to the Ivorian market. Plus, if they sell to smugglers they get “special gifts”.

Anas Aremeyaw Anas, a Ghanaian journalist recently went undercover and got on tape the bribing of border officials by cocoa smugglers (check his amazing YouTube video). The government reacted by increasing its buying price and arresting the corrupt border agents. Will it work?

A 2008 paper shows that a recent boom in cocoa exports was due to a reversal in price incentives to smuggle to Cote d’Ivoire and not due to productivity gains. An older IMF paper suggested that the long-term gap between potential and actual outputs, “the missing cocoa”, could be explained by smuggling to Cote d’Ivoire. In the last years, tons exported went down as the price went up...

So why the export board? It shifts rents from farmers to government, acting as an export tax, whose proceeds are supposed to go in infrastructure, fertilizer, insecticide, and equipment investment…and it creates smuggling and tax evasion...Would it be better to let farmers sell to who they want and tax their income? If the government was a benevolent economist, what would he do?

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