Authors: David Boansi and Rita Mawuena Favour
Site of publication: Center for Development Research (Zef)
Type of publication: Article
Date of publication: 24th August 2015
The fear of potential shocks (due to uncertainty) from global rice markets (as occurred in 2007/2008), increasing consumer demand and increasing annual drainage of foreign exchange (through importation of large quantities of rice to meet deficits in domestic supply) have intensified government efforts in Ghana to promote rice production as a mean of substituting rice imports, pursuing self-sufficiency, enhancing food security and reducing poverty.
From the outmoded perception of rice being food only for the rich and urban elites in the 1960s and 1970s (thereby attracting minimum policy attention), rice has not only become a vital component of the average Ghanaian diet (in both rural and urban areas) since the late 1990s, but also a political and strategic commodity in the country.
Besides providing livelihood through production, processing and marketing services for a greater share of rural (and some urban) dwellers in the country, rice was the 10th agricultural commodity in Ghana by value of production and ranked 8th in terms of production quantity during the period 2005-2010.
The focus of rice policy in Ghana in the 1960s and 1970s (before liberalizing rice trade) was on achieving selfsufficiency in rice and maintaining adequate buffer stock for price stabilization and food security in periods of shortfall. With this, government efforts were channeled towards improving productivity and competitiveness of the rice subsector through mechanization, granting subsidies on purchase of inputs like fertilizer and tractors and promoting commercial farming. Liberalization of trade (in 1983 and the general adverse implications thereof on local rice producers) and the subsequent withdrawal of government support led to a drop in profits accrued to commercial farmers and a progressive disengagement on their part.
Evolution of rice policy in Ghana
As a commodity with political interest, rice has been given an in-depth look under various umbrella policies, programs and strategies in the country. With the focus of rice-related policy measures pre-liberalization of trade being focused on achieving self-sufficiency in rice and maintaining adequate buffer stock for price stabilization and food security in periods of shortfall, emphasis has over the past two decades been placed rather on promoting local rice production and consumption and more importantly on minimizing imports through imposition of high import tariffs.
During the postindependence to the immediate pre-liberalization period (1958-1982), the rice-subsector received various productivity-enhancing incentives/support from the then government, notable amongst which were granting of subsidies on purchase of fertilizer and tractors (as a means of inciting intensification and commercialization of rice in the country) and use of controlled prices (to incite appropriate farmer investment in their rice fields).
Liberalization of trade, and the accompanying Structural Adjustment Program (SAP) led to partial abolition of controlled prices, privatization of certain state monopolies and a progressive withdrawal of subsidies.
Food aid was however found to be statistically the most significant short-run factor
This led to stagnation in annual growth of rice output. The exposition of consumers to a variety of high quality rice during the liberalization period, however, amongst other factors, led to increasing local demand for rice, increasing rice supply deficit, increasing volume and value of rice imports, drainage of foreign exchange reserves, declining share of local rice on domestic markets, and consequent food insecurity and poverty implications.
Literature review on determinants of food imports
Although surges in rice imports for Ghana and increasing import bill are of greater concern to the government and rice producers in the country, not a single article has been produced (to the best of our knowledge) that directly source identification of the determinants of rice imports in Ghana. Efforts made so far at the national level, have placed emphasis on identifying the determinants of aggregate imports in Ghana using traditional import demand and macroeconomic models.
The basic traditional import demand model relates import of a commodity to real domestic income (either aggregate or per capita) of the importer and relative prices (assuming a degree of substitutability between the foreign and domestic representations of the commodity of interest). The basic a priori expectation in such a model is a positive association between income and import demand (since increasing income increases the purchasing power of consumers in the importing country and their capacity to demand and meet cost of high quality (either cheap or expensive) products) and a negative association between import demand and relative prices.
Several investigations carried-out so far into identifying the determinants of rice and other food imports have however gone beyond these simple associations by covering other variables including local production (output) of the imported commodity, total import value, external reserves, exchange rate, a dummy for trade liberalization, population density on arable land, general population estimate, degree of trade openness, price of substitutes in consumption, per capita calorie intake, lagged import demand (by volume) and food aid per capita.
For example, in investigating the determinants of cereal imports by developing countries by region, by income group and by commodity, Morrison discovered that the level of economic development and population density on arable land are statistically the most significant long-run factors explaining cereal imports in developing countries.
Food aid was however found to be statistically the most significant short-run factor. In assessing trade liberalization and import demand for rice in Nigeria, Ogundele found nominal exchange rate, per capita income and local output of rice to be significant determinants of rice imports, although only per capita income had appropriate sign in terms of effect. Inelastic (and insignificant) positive cross price elasticity for substitution of imported rice with local rice was found.
This, he inferred, indicates that imported rice and local rice are not directed substitutes in Nigeria and that there appeared to be segregation in market demand for the two commodities.
The level of economic development and population density on arable land are statistically the most significant long-run factors explaining cereal imports in developing countries
In examining trends and drivers of production and import demand for four selected agricultural commodities for leading producers and importers, Rickard and St. Pierre  discovered some interesting relationships. A review of the respective results for the production and import demand models revealed that prices were more important in the import demand models than they were in the production models. The four commodities covered in the respective import demand models were chicken (with beef as a substitute in consumption), corn (with wheat as a substitute), tomatoes (with banana as a substitute) and coffee (with cocoa as a substitute).
Regardless of the import absorption capacity of the importer, we expect both volumes and value of rice imports to decrease significantly with increasing value of lagged imports (this expectation would only be violated if the importer is highly constrained in production or has rice quality management challenges which shifts consumer preferences away from the local rice brand thereby making them generally irresponsive to increments in cost of imports). This is and should generally be a rational consumer’s adjustment towards increment in cost of imports. A rational consumer seeks maximization of his/her utility but at a relatively lower cost.
In assessing determinants of rice and other food imports, emphasis has so far been generally placed on a single explained variable (either volume or value of imports) using various import demand and macroeconomic models. In this study however, we source assessment of the determinants of both volume and value of rice imports using two separate multiple regression equations. This is to enable us assess the effect of selected predictors on volume of rice imports and translations of such effects on the value of rice imports.
We found that both volume and value of rice imports increase significantly with increasing real per capita income, increasing millet price (keeping that for imported rice unchanged), increasing demand for meat, urbanization and with trade liberalization. Although increments in beginning stock of the country has a negative marginal effect (significant at the 10% level) on volume of rice imports, the effect on value was not significant.
Among these variables, increments in the price ratio between millet and imported rice, and urbanization yield relatively higher impacts on both volume and value of rice imports, and are therefore deemed the two most important determinants of rice imports. The effects of local rice production, relative price ratio between imported and local rice, relative price ratio between maize and imported rice, consumer tax equivalent of tariff on rice imports, and lagged value of rice imports were not significant in either equation.
The two brands of rice (foreign and local) are not even close to being true substitutes, probably due to high quality gap between them, and response of local rice producers to production incentives (in the form of import tariffs and production subsidy as captured by increment in consumer tax equivalent of tariff on rice imports) has not been strong enough to yield significant import reduction effect (possibly due to price transmission challenges, other production challenges, and more importantly a strong consumer preference for high quality foreign rice).
In addition, the country has poor adjustment towards increasing cost of imports. This indirectly indicates that the country is either highly challenged/constrained in production and quality management of rice or that consumers in the country have an extremely high preference for imported rice thereby making them generally irresponsive to increment in cost of imports or a combination of these.
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