Ghana - Agricultural Sector Adjustment Program Project

Document of The World Bank FOR OFFICIAL USE ONLY MICROFICHE COPY Report No. P- 5523-GH Type: (PR) ReportNo.P-5523-GH BUNYASI, S/ X34490 / / AF4AG REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT IN THE AMOUNT EQUIVALENT TO SDR 57 MILLION TO THE REPUBLIC OF GHANA FOR AN AGRICULTURAL SECTOR ADJUSTMENT PROGRAM FEBRUARY 27, 1992 Tis docunent has a restricted distribution and may be used by recipients only in the performance of wtheir offidal duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY AND EOUIVALENCY UNITS Currency Unit = Cedi (C) US$1 = e385 (Variable Auction Rate) 1 = US$0.0026 ABBREVATIONS ADF African Development Fund AGSAC Agricultural Sector Adjustment Credit APCC Agricultural Policy Coordinating Committee APIP Agricultural Public Investment Program CIDA Canadian International Development Agency COCOBOD Ghana Cocoa Board CPA Cotton Producers Association CRIG Cocoa Research Irstitute of Ghana CSIR Council for Scientific and Industrial Research DRC Domestic Resource Cost EAP Environmental Action Plan EPC Environmental Protection Council ERP Economic Recovery Program FASCOM Farmers Services Company FFB Fresh Fruit Bunches GCC Ghana Cotton Company GDP Gross Domestic Product GFDC Ghana Food Distribution Corporation GIS Geographic Information System GMP Guaranteed Minimum Price IDA International Development Association KfW Kreditanstalt fuer Wiederaufbau MFEP Ministry of Finance and Economic Planning MOA Ministry of Agriculture MTADS Medium-Term Agricultural Development Strategy NGO Non-Governmental Organization PNDC Provisional National Defence Council PPMED Policy Planning, Monitoring and Evaluation Department SAC Structural Adjustment Credit FISCAL YEAR January 1 - December 31 FOR OFFICIAL USE ONLY GHANA AGRICULTURAL SECTOR ADJUSTMENT CREDIT TABLE OF CONTENTS CREDIT AND PROGRAM SUMMARY ........................... i-l PART I. THE ECONOMY ..................................... I A. Background ........................................ I B. RecentEconomcDevelopments ........................... 2 C. Medium-TemProspectsand2Policies ....................... 2 PARTII. THEAGRICULTURALSECTOR ......................... 5 A. Struc ureandPerformance .............................. 5 B. PotentialCandnConstrats ............................... 6 C. The Medium Term Agricultural Development Strategy (M fADS) . . . . . 7 D. LendingtorAgriculture ................................ 9 PART III. PROPOSED AGRICULTURAL SECTOR ADJUSTMENT PROGRAM ........................................... 10 A. Objectives ......................................... 10 B. Agricultural Pricing and Marketing ........................ 11I C. Improving Sector Management and Coordination ............... 20 D. Social and Environmental Aspects ................ ........ 23 PARTIV. THEPROPOSEDCREDIT ............................. 24 A. OriginsandRationae ................................. 24 B. External Fhiancing Requirements .......................... 25 C. Credit Administration, Procurement and Disbursement ........... 25 D. Monitorable Actions and Tranche Release Conditions ............. 27 . Risks............................................. 30 PARTV. RECOMMENDATION ................................ 31 This report Is based on the findings of an appraisal mission which visited Ghana In February 1991, comprising Messrs. Sakwa Busyasi (Task Manager, Sr. Agricultural EconomIst); Khaled Sherif (Financial Analyst); Chandrashekhar Ranade (Agricultural Economist); Takamusa Aklama (Principal Economist); Sean Coaln (Sr. Social Scientist); Chad Leechor (Sr. Fiscal Economist); Aan Johnston and Tony Lass (Consultants). Mr. Od. K Knudsen was the quality enhancement reviewer. Secretarial and administrative support was provided by Ms. Aara S. Ahmed. Messrs. John Joyce and Edwin R. Lim are the managing Divisla Chief and Department Director, respectively, for this operation. This document has a restricted distribution and may be used by recipients only in the verfoir.iance of their official duties. Its contents may not otherwise be disclosed without World Bank autnorization. ANE I GHANA ECONOMIC AND FINANCIAL INFORMATION Table 1 - Key Economic Indicators Table 2 - Balance of Payments Table 3 - Projected Financing Needs and Avallabiltles Table 4 - Statement of Bank loans and IDA Credits Table S - Statement of IFC Investments H LETTER OF SECTORAL DEVELOPMENT POLICY - Attachment 1: Matrix of Policy Actions III REGULATIONS AND GUIDELINES FOR THE PRIVATIZATION OF INTERNAL COCOA MARKETING IV SUPERVISION PLAN AND IMPLEMENTATION SCHEDULE V SUPPLEMENTARY DATA SHEEr MAP IBRD 18112R1 GHANA AGRICULTURAL SECTOR ADJUSTMENT PROGRAM CREDIT AND PROGRAM SUMMARY Borrower : Republic of Ghana Amount : SDR57 million (US$80 million equivalent) Terms Standard IDA with 40 years maturity Program : The agricultural sector adjustment program has two principal objectives, the liberalization of agricultural pricing, marketing, and input supply, and the strengthening of agricultural sector coordination and management. The first will virtually eliminate the public sector role in price determination; allow competitive trading for all agricultural inputs and outputs; remove external trade restrictions for all agricultural commodities except cocoa; and thereby create conditions for increased private investment in storage, input supply and processing. The second will provide for a more efficient allocation of public resources and will increase the focus of the public sector on poverty and the environment. The proposed adjustment program is designed to address policy and regulatory impediments in the sector so that overall growth can be enhanced. Agreed actions under this program are: (a) to abolish the monopsony of the Ghana Cocoa Board (COCOBOD) in the purchase of cocoa from farmers; (b) to issue new regulations governing the entry of private firms into the cocoa market; (c) to make cocoa export taxation more explicit; (d) to restrict the role of COCOBOD to overall policy formulation and, for the time being, to continued management of cocoa research and extension; (e) to streamline the activities of the Ghana Food Distribution Corporation by divesting its processing and cold storage facilities, eliminating its price support functions, and freezing its storage capacity at the current level; (t) to establish a coordinating mechanism for managing emergency food imports to avoid disruption to the private marketing system; (g) to withdraw from producer price determination for all crops; (h) to lift restrictions on exports of cotton and palm oil; (i) to restructure the Ghana Cotton Company and the Farmers Services Companies; (j) to eliminate government control of fertilizer marketing margins; (k) to eliminate public sector commercial participation in input marketing; (1) to empower the Agricultural Policy Coordinating Committee to review budget proposals for the Ministry of Agriculture, COCOBOD, Forestry, Agricultural Research, and Feeder Roads, and also to advise the Government on sector-wide priorities; and (m) to improve internal mechanisms for program and budget formulation. - ii - Benfits : The program to be supported by this Credit will revitalize the agricultural sector by removing regulatory restrictions on production and marketing and will Increase the efficiency of public sector resource allocation. The lntroducton of competition into the cocoa market will be a strong signal that the Government is committed to private sector-led growth. The lifting of restrictions on exports of agricultural commodities is also a signal to local producers of the Governments intention to pursue an outward-looking and competitive development strategy. Risks (a) Elections will take place half-way through the implementation of this program and there is an obvious risk that a new government may not share the commitment of the present government to the reform program. However, a large part of the program has already been completed, and there has been extensive consultation with farmers, private investors, traders and government officials on all remaining aspects of the program. On the politically sensitive issue of cocoa sector reforms, the Head of State has already announced the Government's intention to introduce competition in domestic cocoa trading. There is evAdatly a strong ownership of the program that is likely to extend beyond the term of the present Government. (b) Initially, the private sector may be slow to enter the market for cocoa and other commodities, as it gauges the Government's commitment and mobilizes resources. However, there is a strong precedent for private participation in agricultural marketing in Ghana, including cocoa. The positive experience of the recent privatization of coffee and sheanut marketing suggests that the private sector is willing to mobilize rapidly to undertake such a role when given the incentive to do so. (c) The inability of COCOBOD to pay terminal benefits to its redundant workers could create a backlash that would undermine the momentum created by the privatization initiative. Some donors have already expressed interest in financing the cost of staff redundancies, however. In addition to the guarantees to be furnished by the Government, there would be three main ways to review the program which would provide an opportunity to take corrective action: (I) quarterly supervision by IDA providing regular updates of progress; (ii) the proposed second tranche review to be held in June, 1993; and (iii) a proposed third tranche review expected in June 1994. Economic Rate of Return : Not applicable. FAtimated Disbu m : The credit would be disbursed in three tranches as follows: US$30 million equivalent upon effectiveness; US$30 million equivalent in June 1993; and US$20 million equivalent in June 1994. The second and third tranches would be conditional on performance reviews to be held before June 1993 and June 1994, respectively. INENATIONL DEVLMENT ASSOCATIN REPORT AND RECOMMENDATION OF THE PRESIDENT OF IDA TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF GHANA FOR AN AGRICULTURAL SECTOR ADJUSTMENT PROGRAM 1. 1 submit for your approval the following report and recommendation on a proposed development credit of SDR 57 million ($80 million equivalent) on standard IDA terms with 40 years maturity to the Republic of Ghana to support a program of actions which are part of an Agricultural Sector Adjustment Program (AGSAP). The proposed program would be co- financed by the Kreditanstalt fuer Wiederaufbau (KtW) with an amount equivalent to DM 25.7 million (about US$18.0 million equivalent). The Japanese Government has also expressed interest in co-financing. 2. A sector report entitled Ghana: Medium Term Aricultural Development Strate r (MTADSL An Agenda for Sustained Growth and Develoment (199l-2000 (Report No. 8914-GH1) was issued to the Executive Directors in July 1991. Earlier, a Country Economic Memorandum entitled Ghana: Progress on Adiustment (Report No. 9475-GH) was distributed to the Executive Directors in April 1991. The macroeconomic framework and the country asistance strategy were presented to the Board in the Financial Sector Adjustment Credit 11 (Cr. No. 231-GH) on December 19, 1991. Key economic and financial information is shown in Annex 1. PART I. THE ECONOMY A. BacMond 3. Ghana once enjoyed a relatively high standard of living compared with other West African countries, but poor economic management during the 1970s and the early 1980s led to protracted economic decline. Expansionary fiscal and monetary policies, high inflation and an overvalued exchange rate caused a substantial real appreciation of the currency, leading to external payments imbalances. Policy makers imposed a range of administrative controls on prices, imports, foreign exchange use and the distribution of goods and services. This policy mix contributed to a downward economic spiral from 1970 to 1982. 4. In 1983 the Government adopted an Economic Recovery Program (ERP) and has since devalued the currency, dismantled most price and distribution controls, eliminated many subsidies, broadened the tax base, improved tax collection, and provided more adequately for maintenance and capital expenditure. Under the ERP, economic growth has averaged about 5 percent a year. The current emphasis on ensuring macroeconomic stability includes a fiscal discipline designed to increase public savings, a monetary policy consistent with price stability and a market-determined exchange rate that is kept stable by a fairly low rate of domestic -2- inflation. The ERP has been supported by: two Reconstruction Import Credits, an Industrial Sector Adjustment Credit, Structural Adjustment Credits I and II, two Financial Sector Adjustment Credits, and a Program to Promote Private Investment and Sustained Development Credit. The Government has also made substantial efforts to achieve a lasting reduction of poverty through creation of opportunities for employment, improved access to social services, and a targeted program of actions to mitigate social costs of adjustments (PAMSCAD). B. RCentF=gJ Ecno a DeelpMent 5. Significant progress has been made in curbing inflation. Between 1987 and 1989, the average annual rate of inflation declined from 40 percent to 25 percent. In 1990, however, it rose to 37 percent, in part as a result of much higher oil prices and a shortfall in agricultural output. Since late 1990, the Government has taken new measures to restrict monetary growth, including the sales of Bank of Ghana bills to mop up excess liquidity in the economy and a sharp increase in the discount rate. The results have been impressive, with the average annual rate of inflation reduced to 18 percent in 1991, or 10 percent from December 1990 to December 1991. 6. The overall fiscal deficit (excluding official grants) fell to 4.8 percent of GDP In 1991 from 5.5 percent in 1990 as a result of sustained fiscal adjustment. Throughout the period of the ERP the Government has shifted to long-term concessional foreign borrowing as the main source of deficit financing to reduce the burden on the domestic banking system. There has been a net repayment from the Government to the domestic banking system every year since 1987, and the Government became a net creditor to the system in 1989. 7. The current account deficit (excluding official transfers) widened from about 5 percent of C in 1987 to about 8 percent in 1990, reflecting a significant deterioration In the terms of traue. Nevertheless, because net aid disbursements rose and non-concessional debt amortization obligations declined, a sizable overall balance of payments surplus has been maintained between 1987 and 1991. As a result, gross official reserves have been raised by the end of 1991 to about $480 million or 4.1 months of import requirements. The current account deficit is projected to decline from 7 percent of GDP in 1991 to less than 5 percent in 1995. Most of this improvement needs to come from increases in the volume of exports, changes in export composition towards higher value-added products, continued prudent aggregate demand management, and maintenance of a competitive exchange rate. After peaking in 1988 at 68 percent of exports of goods and services, the debt service ratio, including IMF and arrears payments, dropped to about 30 percent in 1991. The debt service burden is projected to decline further to 22 percent by 1995. Annex I. Tables 2.and 3 provide data on balance of payments, financing needs and availabilities. C. Medium-Term Prosnects and Policies 8. Ghana has made significant progress in recent years in restructuring the economy and restoring macro-economic balance. Early in 1991 the Government reaffirmed its commitment .3- to maintain the course of economic adjustment, by Introducing a set of Initiatives designed to create a more suitable environment for productive investment, especially from the private sector. While public investment Is expected to grow more slowly than in the past, private investment would have to grow at an average of about 15 percent a year In real terms to maintain a GDP growth rate of about 5 to 6 percent a year. 9. Private investors have been showing some reluctance to commit themselves to new investments, particularly in the run-up to the elections, scheduled for later in 1992. Among the factors responsible for this reluctance are: (a) poor Infrastructure and the dominance of public enterprises in some sectors; and (b) the need for less intervention in private economic decisions, a more transparent legal and regulatory system, and better information on the economy and Government policies and operations. The Government of Ghana recognizes that it will take more than good economic management to transcend these legacies from the past. Consequently it has taken the initiative to demonstrate its support for private sector development. 10. In agriculture, the Governments strategy is designed to increase its contribution to rural Incomes and employment and to encourage higher output of commodities, in addition to cocoa, for which Ghana has a comparative advantage. Reforms to eliminate subsidies and privatize marketing of fertilizer and other inputs are taking hold. Furthermore, a medium term agricultural development strategy (MTADS) which helps to define the measures needed to promote growth has been prepared. Policy and institutional reforms are being supported through the Agricultural Sector Adjustment operation, complemented by investment lending to increase smallholder access to strengthened support services and infrastructure. These activities would pay careful attention to preserving the natural resource base. 11. Support for private sector development also calls for streamlining the role of the public sector in the economy. An important theme is the disengagement of Government from the production of goods and services which could be more efficiently provided by the private sector. Accelerating the divestiture program is important for several reasons: to send a strong signal that the Government does not intend SOEs to crowd out the private sector and to allow the Government to focus its limited resources on activities where it has a comparative advantage. The divestiture of some state-owned enterprises and improvements in the operations of other SOEs providing essential public goods or services is being supported under the program to promote Private Investment and Sustained Development. 12. A critical role of Government in support of the private sector, and one that Ghana has played well in recent years, is the provision of public goods and services, particularly infrastructure. Major programs to improve telecommunications and water supplies are also underway. The strategy for the future is to: (I) continue to focus public expenditures on high priority infrastructure investments; (ii) introduce sound maintenance practices to prevent the existing capital stock from deteriorating; (iii) reduce the budgetary costs of infrastructure investments through increased commercialization, cost recovery, and reforms in local taxation; and (iv) encourage the private provision of public goods and services, particularly urban services. 13. With the deepening of the adjustment process and the build up of investment activities, absorptive capacity of the civil service is being challenged. The Government has -4- made some progress in invigorating the civil service by Implementing organizational, and salary and grading reforms. 14. Human capital development and poverty alleviation continue to be central concerns. The Government recognizes that Ghana's development prospects depend not only on restructuring the economy but also on developing the human, and preserving the natural, resource base. First, progress in lowering the population growth rate is essential if the gains from economic recovery are to translate into improved incomes and living standards. A continuation of current fertility levels will triple the poptilation by the year 2020, with serious repercussions for health and education services, water supplies, housing, employment and the environment. Secondly, the Government has made substantial progress in drawing up a comprehensive Environmental Action Plan (EAP). This is now being followed by initiatives to stem environmental degradation and to ensure that environmental costs are taken into account in economic decision making. It is expected that a substantial proportion of the nvestments and policy and Institutional measures in the EAP will be incorporated into ongoing or new programs, many of which are expected to be supported by the Bank. Direct investments, institutional strengthening, and policy actions that do not lend themselves to integration with other activities could be included in a free-standing environmental project that would, inter alia, develop the capacity of the Environmental Protection Council to provide policy guidance and effective oversight on environmental issues. 15. Through Its macroeconomic and sector operations, the Government continues to support policies which emphasize the efficient use of capital and foreign exchange and encourage the growth of such relatively labor-intensive activities as smallholder agriculture, labor-intensive road works and smaliscale manufacturing all of which encourage the demand for labor and promote higher productivity. In designing an approach to support women in development, the Government is committed to: bringing services physically closer to women; involving women in the formulation and management of programs benefiting them; and working with and strengthen women's groups so that they are better placed to take advantage of economic opportunities. Agricultural extension services are being geared to women farmers who will account for the majority of farmers at the turn of the century. In addition, the participation of women in road work under road rehabilitation projects would increase their off-farm income. 16. Government believes that the real test of the success of economic reforms is the extent to which they lead to an enduring reduction in poverty in the country. The strategy for alleviating poverty comprises four components: first, increasing the demand for labor through high levels of growth and a labor-intensive pattern of development; second, increasing the availability and efficiency of capital to raise the productivity of labor; third, increasing the productive assets of the poor through improved health and education services and rural mobility; and fourth, allocating public expenditures to programs which particularly benefit the poor. Although the program of actions to mitigate the social costs of adjustment (PAMSCAD) took time to gain momentum, implementation of some components is well underway. These include community initiative projects, support to women's groups, hand- dug wells and low-cost sanitation, priority public works and non-formal education. In addition, experience gained under PAMSCAD is being factored into follow-on investments in health, education and community projects. -5- 17. On the political front, the Government has taken major steps toward democratization. A Consultative Assembly has been set up and is in the process of drifting a new constitution. A national referendum on the constitution is scheduled to be held in April 1992, to be followed by parliamentary and presidential elections in the last quarter of the year. 18. The Government recently embarked on the development of a new strategy and program to achieve more dynamic growth over the next decade. The aim is to shift the focus from economic recovery to policies and investments needed to stimulate a more dynamic supply response, especially from the private sector. A high-level steering committee within the Government has been formed to map out a strategy to achieve this objective, building on the achievements of sustained adjustment and improved macro-economic stability over the last 8 years. A fairly major Increase in domestic private savings and investment is required to support this strategy over the next years, supplemented by direct foreign investment and a return of flight capital. Public investment for social and physical infrastructure is also expected to grow, but in a way that does not generate inflation nor crowd out the private sector. There are two important concerns that are being kept in mind in the build-up towards faster growth - the potential risks of macro-instability and the likelihood of increasing inequities in the system. A broad range of already completed or on-going works will be used to guide this strategy, including the MTADS, the work of the National Population and Human Resource Commission, a recent private sector development study entitled "Towards a Dynamic Investment Response", and a new National Environmental Action Plan. The Government has requested Bank assistance in evaluating policy and investment options needed to achieve sustained growth. PART U. THE AGRICULTURAL SECTOR A. SIut and ft orMance 19. The total land area of Ghana is about 22.4 million ha, of which 12 percent is cultivated, 7 percent is under permanent crops (cocoa, oil palm and rubber) and 5 percent is under other crops. The main system of farming is traditional, with use of simple hand tools such as the axe, hoe and cutlass. The use of draught power is still relatively uncommon. Animal draught power is confined to northern parts of the country because the region is free from tsetse fly, and rchanized farming is confined to the eastern and northern regions and to the Afram plains. The use of purchased inputs is very low in this traditional bush-fallow system of shifting cultivation. 20. The traditional nature of Ghanaian agriculture is reflected in its land tenure. The mean farm size is less than 1.6 ha (4 acres). Small and medium-sized farms of up to 10 ha account for 95 percent of all cultivated land. Of the total 2.37 million farms operated in Ghana by small-holders, about 25 percent produce mainly for subsistence, 55 percent sell up to 50 percent of their output and only about 20 percent market most of their output. These figures signify the importance of small-holders for family, regional and national food security and for achieving sustained growth in agricultural production. 21. Agriculture accounts for about half of total GDP and provides a livelihood for about 70 percent of the population. The breakdown of agricultural GDP is approximately 60 percent roots, tubers, and plantains; 13 percent cocoa; 7 percent cereals; 9 percent livestock and fisheries; and 11 percent forestry and miscellaneous products. Agricultural output declined steadily (at about 1.0 percent per annum) between 1975 and 1982, and in 1983 it declined by over 4 percent due to drought. However, the decline was reversed, beginning in 1984, as a result of an improved incentive framework under the ERP. Inflation was reduced, the exchange rate was freed, and trade was liberalized allowing a significant Increase in the flow of Imports. Growth in agricultural GDP averaged about 1.9 percent per year between 1984 and 1989 and about 4.2 percent in 1989. Due to late rains, however, it fell by 6.7 percent in 1990. 22. Underlying these figures, there has been a significant change in the relative importance of the main sub-sectors, and particularly in the importance of cocoa. In the 1970s cocoa represented over 30 percent of agricultural GDP; today it represents only 13 percent, an effect brought about mainly by a long-term decline in the world price of this commodity. By contrast, non-cocoa GDP has grown fairly steadily, especially in the period since 1984. On the whole, however, the performance of the agricultural sector has been weak due to a combination of controls and other structural impediments, especially infrastructure. This operation is designed to address the policy-related problems. B. tenal and Costraints 23. The key to accelerated growth and increased competitiveness in agriculture lies in improving the incentive framework - maintaining a market-based exchange rate, removing remaining trade restrictions, reducing export levies on cocoa and improving marketing efficiency through free pricing and greater competition. There is also great scope for reducing production and marketing costs through public investment in transport and communications it. astructure. 24. Since the launching of the ERP in 1983, there have been fundamental changes in macro-economic policy, especially the exchange rate depreciation which has improved production Incentives for tradable goods, and the freeing of trade policy which has increased competition to domestic producers. However, in the agricultural sector, price and trade liberalization has been only partial, at best. In recent years, free markets have existed for basic foods (roots, tubers, vegetables), but there has been significant government interference in grain purchasing and storage and, more important, the marketing of cocoa, cotton, coffee and oil palm (the main sources of cash for the rural economy) has continued to be controlled. Far-reaching changes in these policies are now under way and, when fully implemented, will have an important impact on the investment and growth potential of the rural sector. This impact will be strengthened by other changes which have recently taken place in the liberalization of input supply and the creation of a more favorable environment for private sector participation in grain storage and agro-processing. 25. Ghanaian agriculture is well diversified, and with more liberal trade policies the country could be expected to exploit its comparative advantage in a number of crops, particularly cocoa, fruits, vegetables, cotton, tobacco, root crops and some grains. There is -7- scope for sustainable area expansion of tree crops in the forest zone, and of rice, cotton, vegetables and tobacco in the middle belt and the northern sector of the country. Throughout the sector, proven technology already exists for increasing productivity, and this is especially so for maize, cassava, rice, yam, sorghum and livestock. In general, crop yields are very low, and through relatively simple changes in crop husbandry (weeding, plant spacing and fertilizer application) quite dramatic increases in yield are possible. 26. To achieve these changes on a wide scale, however, basic structural constraints have to be removed which go beyond the freeing of trade and prices. These constraints include a primitive marketing system; an extension service that needs retraining and enhanced mobility; and an agricultural research system that is unresponsive to the needs of small farmers, who are responsible for well over 90 percent of all agricultural output. In the livestock sub-sector, where services and infrastructure are almost non-existent, significant gains in productivity could be expected from relatively modest improvements in drinking water and health care and from supplemental feeding of crop by-products. 27. As the area available for extensive agricultural development has become more limited, the need for natural resource conservation and environmental protection has emerged as a major concern for policy-makers, and it will become more urgent in the future. Increasing land fragmentation, low crop yields, and rapid population growth (2.7 percent per annum) threaten increasing environmental degradation, as the bush-fallow cycle is altered through a shortening of the regeneration phase and clear felling of forest areas for crop production. Clearly, the solution lies in increasing the productivity of farming on those areas already under cultivation through the use of improved land management and production techniques, but further study is also needed to determine how to minimize the environmental damage which will result from the inevitable changes in farming systems which this will imply. Meanwhile, policy actions aimed at improving the management of the forests are urgently needed and are currently being supported by the IDA-financed Forestry Resources Management Project. This is designed to introduce a market-based system for allocating concessions, to tighten the control of logging and to introduce a systematic forest management regime. C. The Medium Term Aaricultural Develooment Stratey (MTADS 28. Acrond. The MTADS was developed by the Government in 1990, in collaboration with the Bank. Its preparation involved all the key agencies in the agricultural sector and benefitted from intensive interaction with policy makers and technical staff. The recommendations were discussed with local representatives of the main donor agencies and NGOs In Accra in June, 1990. The objective of the MTADS was to define a program of policy and istitutional reforms and a complementary set of investments needed to achieve a higher growth rate in agriculture than had been achieved hitherto. The strategy which emerged from this process forms the basis of the Agricultural Sector Adjustment Program (AGSAP), which Is described in the Letter of Sectoral Develooment Policy (Annex II) and elaborated in greater detail in Part III below. The proposed Agricultural Sector Adjustment Credit would support the policy reforms which underlie the Adjustment Program. The investments and the strengthening of agricultural services, which are also proposed as part of -8- the Program, would be supported by a series of additional Investment credits which are now under preparation for submission to IDA (Section D below). 29. MTAD Poos. The program set out in the MTADS aimed at a sustained annual growth in agricultural GDP of around 4 percent. Given the importance of agriculture in total GDP, sectoral growth of this order is the minimum required if accelerated growth is to be achieved in the economy as a whole. It is also crucial in achieving increased food security, mitigating poverty and lowering inflationary pressures. The proposed policy reforms concentrated primarily on the Incentive framework for agricultural production, trade and processing. The MTADS proposed an increase in private participation in agricultural marketing, a move to free market pricing and the liberalization of the supply of seed, fertilizer and other agricultural Inputs. The freeing of trade would reduce marketing costs, raise producer prices and stimulate investment in processing; the privatization of input supply (already under way) would improve the reliability of supply and, through competition, reduce costs. Finally, more clearly articulated action programs and improved sector management were proposed to provide better coordination of public expenditure in the sector, to improve the setting of sectoral priorities and thus to help channel domestic and external resources to areas of greatest impact. 30. The policy reforms envisaged under the MTADS were to be accompanied by increased public investment in transport infrastructure, especially feeder roads, in communications for the dissemination of market information, and in small-scale irrigation. A significant strengthening of public services for agriculture was also proposed, covering research, extension and livestock services. Other important aspects of the strategy involved: expenditures on forest protection and soil conservation; a strong focus on the rural poor and especially women farmers; promotion of more efficient financial markets to support the rural sector; and establishment of legal and institutional mechanisms for the standardization of weights and measures and guarantees of free entry into markets. 31. Reforms proposed for the cocoa sub-sector are especially important to future sectoral growth. The dominant role of cocoa in foreign exchange earnings and tax revenue has given rise to a system of rigid price setting and market controls. Inefficiencies in the marketing system and high levels of taxation have resulted in low producer prices, disinvestment and declining yields and output. Some relief was felt as a result of the devaluation under the ERP, which provided the domestic resources for higher producer prices. However, this is not likely to be repeated. In future, improved incentives to cocoa producers will have to come from greater marketing efficiency and reduced reliance by the Government on the cocoa export levy. Continued reforms in cocoa marketing are therefore a crucial part of the country's program of sectoral adjustment and economic recovery. 32. Public oversight of the agricultural sector is split among several autonomous agencies, and as a result there is no sector-wide prioritization of development programs. The MTADS devoted considerable time to examining the way sector policies are implemented and programs managed. It concluded that, while there is a need to introduce greater coordination between autonomous agencies through the budget process, there is also a need to decentralize program management and expenditure authority. This would shorten communication lags with Accra and Increase flexibility for front-line managers. Decision-making would be delegated to the regional level initially, with strong program monitoring at the center, and progressively thereafter to lower local government strata. There is already a suitable institutional structure -9- In place for this purpose, given that each region has a PNDC Deputy Secretary of Agriculture. Recent experience with decentralized program implementation and budget management in VORADEP 1/ indicates that implementation capacity can be significantly enhanced. The proposal is that regions should initiate budget estimates based on an agreed regional program, and the approved sum should be treated as a subvention to be paid out regularly in advance against justification of expenditure in the previous reporting period. 'That was the VORADEP experience and it worked well. 33. Resources. The resources needed to finance the investments and services proposed in the MTADS could be found partly by reallocating funds away from existing programs such as large-scale irrigation (up to US$30.0 million over the next five years) and by canceling a proposed expansion of Ghana Food Distribution Corporation (GFDC) storage (up to US$20.0 million). In the cocoa sub-sector, the introduction of competition in domestic marketing would help lower operating costs of the COCOBOD and release resources for other productive uses. Further gains would come from more careful review of intra-sectoral allocations and by establishing an effective process of budget review. Meanwhile, there was a clear understanding that substantial external resources would be needed if the aims of the MTADS were to be achieved. D. Lending for Agriculture 34. PEious Ledin. Total lending by IDA to the agricultural sector in Ghana for the period 1986-91 has been US$154.9 million, equivalent to 11.4 percent of total IDA lending to Ghana during that period. The composition of this program is as follows: (a) two Credits for the re-establishment of essential agricultural support services, the Agricultural Services Rehabilitation Project (Cr. 1801-GH, FY87) and the Cocoa Rehabilitation Project (Cr. 1854- GH, FY88); (b) a Forest Resources Management Project (Cr. 1976-GH, FY89); (c) two Credits to support the private sector, the Rural Finance Project (Cr. 2040-GH, FY89) and the Agricultural Diversification Project (Cr. 2180-GH, FY91); and (d) a National Agricultural Research Project (Cr. 2247-GH, FY91). 35. Lesons Le ed. The principal lessons from the Bank's experience in the agricultural sector in Ghana relate to: (a) the need for a comprehensive and coherent strategy for sectoral development; and (b) the need for a supportive economic environment, especially in the incentive framework for private sector investment in production and trade. Past lending to the sector has tended to be piecemeal, because the management of the sector itself has been fragmented and incoherent. The efforts which have been devoted in the last two years to assist the Government in developing the MTADS reflect a clear understanding on the part of the Bank that a more comprehensive approach is needed in future. The new strategy defines and limits the public sector's role in agriculture much more clearly than in the past, and this should provide greater confidence to the private sector. At the same time, the MTADS provides a strong and unequivocal commitment from the public sector to provide those services which legitimately remain under its control. This too is a major advance in encouraging private participation in sectoral development. I/ Voka Radon Amimud DmWgmftt Proiect. Credit H, closed 12/31/8. - 10- 36. The lack of a suitable incentive framework has been a significant constraint on private investment in agricultural production, trade and services. In Ohana, as in many other countries served by the Bank, the great importance of agriculture to the nation's economy and social well-being has been reflected more in political rhetoric than in political action. Until very recently, the willingness of the Government to free prices and trade in agriculture and to create a supportive environment for private investment has lagged significantly behind its more general willingness to liberalize the economy under the ERP. Inefficient public monopolies have dominated the commercialization of inputs and outputs, rural Infrastructure has been woefully neglected, and external trade in key commodities has been controlled or totally restricted. Efforts to accelerate the growth of the economy through radical reforms at the macro level (as supported by IDA in its Structural Adjustment Credits) have been only partially successful in reforming the agricultural sector in that they have failed to address the structural constraints holding back the development of the sector, which represents half of GDP. 37. Future Stratev for Aericulture. The profound changes which are now under way in agricultural policy are fully supported by the Banc, and they provide an opportunity to assist sectoral development in an unprecedented way. issistance from IDA will be sought for virtually all phases of development through invesment, technical assistance and policy-based lending. The key component is the removal of trade restrictions on the main cash crops and the liberalization of input and output marketing, storage and agro-processing, which form the basis of the Credit now being proposed. Investment and technical assistance operations are now under preparation for presentation to IDA over the coming few years, covering rural roads, small-scale irrigation, extension services, livestock services, natural resource conservation and rural marketing. In each case, the aim is to keep the assistance simple and well focussed within the management capacity of the sector institutions. This capacity will itself be the subject of detailed scrutiny and reform under the MTADS, and also with support from the Adjustment Credit now being proposed. PART III. PROPOSED AGRICULTURAL SECTOR ADJUS7MENT PROGRAM A. Qbecive 38. The Agricultural Sector Adjustment Program has two principal objectives, which are discussed in detail below. The central objective is the reform of agricultural pricing and marketing, to improve resource allocation, to foster private initiative and, through greater competition, to develop greater efficiency. Secondly, the program will strengthen agricultural sector coordination and management, and provide for a better allocation of public resources. In this, the aim will be to reduce waste and to improve the focus on poverty and the environment. 39. Specific conditions related to these objectives have been set under the proposed Adjustment Credit (Part IV below), linked to monitorable short- and medium-term actions, especially in the area of agricultural input and output marketing. In addition, in the Letter of - 11 - Sectoral Development Policy (Annex I) submitted in support of the proposed Credit, the Government has committed itself to achieving progress in the longer-term aspects of the Adjustment Program, especially those concerning sectoral management, resource allocation, poverty focus, and environmental protection. B. AWricultural PriciEn and Marketing 40. Despite some progress in decontrolling consumer prices in the period 1983-85 and in removing fertilizer and other input subsidies since 1989, government producer price setting still remains for cocoa, and It has until recently also been in effect for coffee, cotton, palm oil, maize and rice. The process of liberalization now under way will virtually eliminate the public sector role in price determination; allow competitive trading for all agricultural inputs and outputs; remove external trade restrictions for all agricultural commodities except cocoa; and thereby create conditions for increased private investment in storage, agro-industry and input supply. At the end of the process, within 12-18 months, the Government will have withdrawn almost completely from the business of agricultural marketing. The only major exception will be its continued control of cocoa exports (a market in which the bulk of its trade is conducted with a few buyers) and a continuing interest in regulation and quality control in the cocoa trade. It will also (through GFDC) retain a role in importing and distributing emergency food supplies and a residual role in rice milling. 41. Imotac of Cocoa. Cocoa is a strategic crop in the Ghanaian economy. In the 1970s it accounted for two thirds of foreign exchange earnings, and although this share has declined over the last two decades, it still accounts for about 45 percent of foreign exchange earnings. Its share of total tax revenue is 15 percent, down from 40 percent in the early 1970s. Similarly, its contribution to GDP has fallen by half, to about 7 percent over the same period. The decline in the share of cocoa in the national economy has reflected a major decline in production, from a peak of about 550,000 tons in 1965 to a low of under 200,000 tons in the early 1980s. This decline, resulting from falling investment and static yields, is attributed largely to inadequate producer incentives caused by inefficient marketing and declining world market prices. Farm-gate prices as a share of fob had fallen to an all-time low of about 20 percent in early 1980s, but had been raised to about 46 percent in 1990. 42. Although Ghana has a strong comparative advantage in producing cocoa, with a domestic resource cost (DRC) in 1990 below 0.2, the current producer price for cocoa does not provide adequate financial incentives for investment and proper maintenance. The returns to labor are lower for cocoa than for the main competing crops in the farming system including oil palm and rubber. The removal of subsidies on cocoa inputs and the decline in world market prices have accentuated the problem. In particular, the producer price does not provide adequate incentives for replanting and rehabilitation, although the certainty of market outlets and the relatively better support services for cocoa have together provided some compensating incentives. The reforms now proposed are aimed at reducing the inefficiency in the marketing system through competitive domestic buying, and thus at increasing the returns to producers. Increased producer prices would stimulate investment and, in the longer term, Ghana's cocoa exports. Because Ghana remains a relatively low-cost producer and has a high - 12 - quality premium, it should manage to increase its market share without a major impact on world market prices. 43. Role of lle Ghana Cocoa Board (COCOBOD). COCOBOD is responsible for: (a) monopoly purchase of cocoa through the Produce Buying Company (PBC) for domestic operations, and through the Cocoa Marketing Company (CMC) for external marketing; (b) quality control through the Quality Control Division (QCD); (c) domestic processing through the Cocoa Processing Factories (CPC); (d) research through the Cocoa Research Institute of Ghana (CRIG); (e) extension and disease control services through the Cocoa Services Division (CSD); and, until recently (t) some direct production of cocoa and coffee through Plantations Ltd. In all, the COCOBOD has about 42,000 staff (down from 101,000 in 1984), and its budget takes about one third of total cocoa export revenue. Of the total projected expenditure by COCOBOD in 1990/91, 37 percent can be classified as direct marketing expenses (33.5 percent for PBC, 0.5 percent for CMC, and 3 percent for QCD); and the remaining 63 percent comprise the headquarters, including financing charges related to cocoa marketing (28 percent), extension (19 percent), cocoa processing (12 percent), plantations (2 percent) and research (2 percent). Cocoa processing and plantations have recently been delinked from the budget and are in the process of being divested. 44. The COCOBOD budget, producer prices and Government revenue are determined by a Producer Price Review Committee (PPRC) whose membership comprises the Chairman, Committee of Secretaries; Secretary for Finance and Economic Planning; COCOBOD; and farmers' representatives. The PPRC determines a three-way share of projected cocoa revenues (normally in April) and announces a producer price which takes effect in the minor cocoa crop season which begins in June. Through the same process, the shares of the expected revenue going to COCOBOD and to tax revenue are determined. 45. Reforms to . Significant reforms have already taken place in an effort to reduce waste in the COCOBOD system, to pass on savings in the form of higher producer prices, while at the same time retaining close control over quality, which is the basis on which Ghana cocoa fetches a premium price on the export market. The rationalization which has already taken place includes: (a) elimination of input subsidies; (b) divestiture of subsidiaries (plantations, a chemical formulation plant, cocoa feeder roads); (c) elimination of PBC monopoly of cocoa haulage; and (d) streamlining of buying operations and cocoa extension services. All these changes have been implemented since 1987 with support from the Bank through SAC I & II and through the Cocoa Rehabilitation Project. These measures have had a major impact on the level of COCOBOD operating costs, lowering them by a third since 1987 and allowing the producer price to rise to 46 percent of the fob price from only 20 percent in 1983. However, these reforms have not gone far enough, and more radical changes are now needed if the share of export earnings for producers is to rise to the pre-tax levels (between 65 and 90 percent) enjoyed by farmers in competing cocoa-producing countries. 46. Since mid-1990, the Government has begun to implement a restructuring plan for the COCOBOD in an attempt to make further efficiency gains. This has so far resulted in: (a) the appointment of new Boards of Directors and management committees for the COCOBOD and its subsidiaries; (b) the merger of the two quality control units into a single Quality Control Division, which will be operationally and financially autonomous with a statutory responsibility to inspect all Ghanaian cocoa; (c) removal of the companies in charge * 13 - of processing factorles and plantations from the budget, while continuing their divestiture; and (d) a staff retrenchment program for all units of the COCOBOD, involving so far a reduction of 11,900 jobs. 47. owW Parther Riforms. The Government has recognized that its efforts to achieve cost savings within the COCOBOD will have a limited Impact unless there is effective competition to COCOBOD, combined with more transparency in its operations. Competition in the provision of marketing services would induce each market intermediary to control costs or risk going out of business. Competition in domestic trading is expected to lead to increased marketing efftdency and higher producer prices as buyers compete for cocoa. The overall goal is to create a competitive cocoa marketing system. Clearly, the first and most important step is to abolish the monopsony of the PBC by introducing private buyers. It is Government intention to allow private share-holding in PBC Itself. The Government has prepared selection and performance criteria and regulations for new firms wishing to enter domestic cocoa marketing (Annex I). The criteria relate to the ability of firms to mobilize capital and to maintain monitorable operations for purposes of quality control. 48. The maintenance of the high quality standards achieved so far is of prime importance to the industry and to the Government. The QCD will therefore continue to have statutory responsibility for quality control, using the same standards as are currently in force. It will, have increased financial and managerial autonomy and will charge a fee for its services. External marketing will remain with the Cocoa Marketing Company (CMC). Under the proposed new arrangements, COCOBOD will be much reduced in size, its main residual functions being policy formulation and, for the time being, continued management of cocoa research and extension services. The long-term objective is to merge cocoa extension with the rest of agriculture, and cocoa research with the national agricultural research system. 49. The Producer Price Review Committee will continue to exist, but it will be expanded to include representatives of the new buyers.Z/ PBC, which may continue to have majority government ownership, at least in the early years, will operate on a commercial basis, as will other firms in the market as far as financing, access to information and payment of fees are concerned. All buyers, including PBC, will be free to offer higher prices than the minimum price. The price to licensed buyers will be determined by the PPRC on the basis of the projected FOB prices less: (a) an explicit government tax for government revenue and to finance the cost of remaining COCOBOD services (research and extension) and the headquarters; (b) fees for quality control; and (c) marketing charges including costs of purchasing and stockholding for CMC. Tax collection arrangements will remain essentially the same, with collection being done through CMC at the point of export. 50. The CMC buying price, net of the export tax and other established fees, will be the effective upper limit of the trading range for domestic buyers. The lower limit will be the minimum price. This price will be set at a level no higher than the current nominal PBC buying price and, except in some remote areas, it is generally expected to be below the 2/ The Psnducer Price Review Comminee is Chaind by the Chairman of te Comnitee of Sewearis, and comprises the Sootary for Finance and Economic Planning, the Chief Executive of the COCOBOD, two sprwsonatives of fanmers, and will benceforth include two epresentatives of buyers. The PPRC is supported by a tomicalcn conitee comprising gaff fiom the Ministry of Finance and Eoonomic Planning, COCOBOD, end the University. - 14- effective market price. It is expected that tUll-fledged competitive buying, In which farmers understand and expect variable market pricing, may take a year or two to establish. Nevertheless, experience with the liberalization of coffee and sheanut marketing suggests that from the outset private buyers will enter the market and will bid the market price above the established minimum. In remote areas, where the poor state of the roads raises evacuation costs, the current system of compensatory payments from government revenues, based on road conditions and costs of transportation, will be maintained in order to encourage buyers to operate in those areas. Currently, the Western Region, which accounts for about 45 percent of the total cocoa crop, and parts of Ashanti region are considered remote on account of the bad state of roads. This classification of remote areas will change as the program of road rehabilitation and construction expands to these areas. 51. All licensed buying agents (LBA), including PBC, will deliver their cocoa to CMC at designated points. The ports of Tema and Takoradi will be two such points, but there will also be some inland points to avoid congestion at the port and to align domestic movement of cocoa towards the ports with the external shipment schedule. These internal points will also facilitate the control of cocoa movement. The CMC will then pay for the cocoa and be responsible for subsequent storage, pre-shipment handling and final shipment. CMC will manage Its buying and shipping operations in a manner that minimizes carrying costs. The COCOBOD will no longer intermediate between LBAs and the CMC since the warehousing function will be attached to CMC. 52. The proposed reforms will provide added incentives to producers quite rapidly. However, further substantial scope for improvement exists if the current high level of implicit taxation on cocoa producers, estimated to be about 40 percent, can be brought in line with tax levels of 15-20 percent prevalent in other cocoa producing countries. In fixing the tax rate it Is also expected that the Government will progressively reduce the share of tax in the fob price to allow for higher domestic prices. This goal is fully consistent with maintaining the real value of cocoa taxation, provided that rate reductions are accompanied by a recovery in production and an increase in world prices. Over recent years, there has been a steady decline in the share of cocoa taxation in total government revenues, and it Is the Government's intention to continue this process of broadening the tax base and increasing its reliance on less distortionary forms of taxation. Grain Marketin 53. Backgroui. Grains, principally maize, rice, millet and sorghum, are important food- crops in Ghana. Between them, they account for over 60 percent of the calorie supply of rural households and for about half the calorie supply of urban households. They account for about 7 percent of agricultural GDP. The consumption of millet and sorghum is concentrated in the savannah zone, and its trade is localized in the area. Maize is grown throughout the country and accounts for about half the land area under crops. Both maize and rice are increasingly being substituted in the national diet for roots and tubers. Ghana produces all of its maize requirements in a normal crop year and about half of its rice requirements. In recent years maie production has increased from 395,000 tons (1985) to about 700,000 (1991), of which half is marketed. Rice production is currently about 80,000 tons per annum, equivalent to half the current national demand. * is - 54. The retail grain marketing system is mainly private, being dominated by a large number of small traders, predominantly women, and is generally efficient. However, the wholesale grain marketing system is less efficient and is constrained by a lack of suitable storage, poor marketing and transport facilities and a lack of credit. Ghana Food Distribution Corporation (GFDC), a para-statal marketing agency, is the largest single buyer of maize, even though its purchases account for only 8-10 percent of total marketed output.1I The GFDC has not been able to increase its market share to enable It to fulfil its twin objectives of price stabilization and minimum producer price support, although it has substantial storage and logistical facilities, as well as large, though under-used, processing facilities. GFDC is also involved in running rice mills and managing cold storage facilities. 55. GFDC Is the only agency with significant storage facilities in the country. They have a total of about 50,000 tons and a further 25,000 tons is under construction. Until recently, plans existed for the construction of a further 75,000 tons, which would have raised the total to 150,000 tons (total marketed grain is about 750,000 tons a year). The location of GFDC's storage facilities does not serve satisfactorily the storage needs of the country because of shifts in the relative importance of different producing areas and to more domestic production rather than imports. GFDC's storage also tends to be highly sophisticated technically, and therefore costly to operate. 56. GFDC inherited the rice milling facilities of the former Ghana Rice Production Company. Most of the facilities were in a state of disrepair. GFDC has continued to operate these facilities as a matter of national policy, even though they are operated at less than one third of their capacity. By contrast, private sector facilities are operating at near full capacity. GFDC also inherited cold storage facilities with a capacity of 10,800 tons, of which, 5,700 tons are usable while 5,100 tons are not usable because they would need further construction and rehabilitation work. Furthermore, new economic and financial evaluation will be required to ascertain whether additional investment is justified. Private sector demand for cold storage is increasing, especially among fish traders and butchers. Some of the cold storage is located within the GFDC storage facilities and cannot be sold without significant reconstruction to provide separate title and access. These cold rooms are being under-utilized by GFDC. 57. The aim of the Government in the grain marketing sector is to eliminate subsidies, promote small- and medium-scale storage, lease and, where possible, privatize rice milling and cold storage and rationalize food import policy to make it compatible with domestic producer incentives. This strategy includes some actions already taken and some to be undertaken within the next year. 58. Refrms to Date, First, the Government has abolished the guaranteed minimum price for both maize and rice, effective from the 1990 crop season. Secondly, to encourage the development of medium-sized commercial grain storage, it has frozen all plans to construct further GFDC storage beyond the 75,000 tons capacity now in existence or under construction. At the same time it has approached bilateral donors (China and Denmark) to assist in financing small- to medium-sized storage facilities for the private sector, and it is II Othr public sector buying agencies include the Gn Washousing Coqpation and state owned poulry and food-mill aterprises. Of the state agencies, OFDC handles 90 pment of the purchases. - 16- also preparing a market improvement program 1or consideration by donors, which will develop municipal and village market structures, provide water and sanitation, overnight storage, banking and telecommunications services. Thirdly, GFDC has completed a detailed survey of Its rice milling facilities, as was agreed at pro-appraisal for the proposed Credit, and It Is in the process of transferring Its rice mills In Tamale, Bolgatanga, and Yendi to the Divestiture Implementation Committee. It is also seeking a buyer for a mill that was never installed, and it has started selling Its stock of spares and auxiliary equipment. GFDC Iatends to continue running the mill at the Afife Irrigation scheme and will continue to convert its milling operations to a fee basis. It will also complete the rehabilitation of its mill at the Astuare irrigation scheme and will manage it on a commercial fee-paying basis. Finally, GFDC will continue to lease or sell its cold storage facilities. So far, it has leased about 42 percent of the space. The Government has given assurances that the leasing program will continue and will be monitored under the adjustment program. 59. EWrood Further Rfo s. The Government proposes to make food import policy consistent with the maintenance of incentives for domestic food producers. Lack of coordination among various public sector agencies involved in handling food imports and food aid has led in the past to Imports of food in quantities and with timing that has undermined domestic producer prices. Enhanced food security remains an important target of government policy, and in spite of efforts to increase supply, there will be a continuing need to import basic foods for the foreseeable future. It is extremely important therefore to focus on the management of those imports and to abolish the present system of public food imports which involves at least three para-statals. To this end, the following actions are proposed to streamline food import management: (a) MOA will publish regular estimates of aggregate national food Import needs; (b) public sector imports of food will be limited to the maintenance of emergency stocks which will be replenished either from food aid or commercial imports; (c) for efficient determination of stocks, monitoring and control, the respective roles of government institutions involved in food imports would be streamlined and the GFDC would become the main handler of public sector food security stocks and food aid imports. 60. Under the reforms described above, the role of the GFDC would be significantly reduced from what it has been in the past. To the extent possible, its processing and cold storage facilities would be either sold or leased to the private sector; its remaining milling facilities would be operated on commercial lines; its domestic buying of grains for price support purposes would have ceased; and its remaining grain storage capacity would either be leased for private use or used in their commercial operations and management of the national food security program. GFDC has already completed the preparation of restructuring options and will under its plan lay off 25 percent of its 1,100 staff, create separate profit centers in the management of its finances, create separate accounting for the management of operations on Government food security stocks,&/ and cut back its non-core activities (for instance it will sell the staff transport fleet to the staff union, and lease its catering facilities). if The level of food security stoos have been detennined as follows: 10,000 tons each of maize and rice - eVuivalet to 2 and 5 percet of estimated annual consumption; 5,000 tons each of sorghum and millet; and 2,000 tons each of groundnuts and cowpeas. - 17 - 61. BackgrouW. Cotton is produced by smallholders on contract to buyers. Until five years ago, the Cotton Board was the sole buyer. Its buying price was determined by the Government and was generally a small fraction of import parity. The Cotton Board had a monopoly on the buying and ginning of cotton. Because of low prices and Irregular payments to farmers, cotton production had virtually ceased. In 1986, the Government formed a new company, the Ghana Cotton Company (GCC) with joint equity participation by textile companies.5./ Prices for cotton were still determined by the Government and they were kept generally low (below 20 percent of import parity). The large economic rent implicit in this arrangement was needed to enable the newly-established GCC to meet its high overhead expenses and inefficient operations. The formation of GCC improved neither its level of efficiency nor its liquidity because the new partners did not control the company and they viewed it as a bloated bureaucratic institution. 62. efo To . Mounting pressure from within the industry caused the Government to abolish the GCC monopsony over cotton buying as well as its monopoly of cotton ginning, and new cotton buying companies have entered the market. These companies have generally pre-financed farmers for part of the cost of production and paid cash for the remainder when farmers delivered their cotton, and they have used GCC ginning facilities on a lease basis. Under pressure from the Cotton Producers Association (CPA), which maintained that government pricing policy was biased in favor of cotton buying companies, the Government Instituted two key reforms in December 1990: (a) it withdrew from fixing producer prices, allowing the Cotton Producers Association to negotiate directly with cotton buyers; and (b) It lifted the restriction on exports of cotton. As a result, significant further increases in producer incentives can be expected in the coming season. 63. Im c of R n Rem . Domestic production has continued to rise, accounting for about 60 percent of the estimated total demand of about 17,000 tons of lint in 1991. It is now expected that if the recent growth in cotton production continues, Ghana will have exportable surpluses within five years. The present situation, with few buyers and limited competition, is changing fast as new firms are interested in establishing out-grower schemes and new ginning facilities. Cotton producers are getting better organized and are beginning to negotiate from a position of relative strength. Farmers obtained farm-gate price Increases equivalent to 46 and 50 percent of the import parity prices in 1990 and 1991, respectively, when the services provided by the buying companies are factored in. The cotton buying and processing companies meanwhile have succeeded in maintaining, through direct negotiations with the textile companies, a price comparable to the import parity price for cotton lint. Although there is no effective price competition among buyers, some of the buying companies have introduced a credit scheme for farmers for the purchase of consumer durable goods (bicycles, radios) as an added incentive to win and retain producers. 64. Prpoe Further Reforms. GCC needs to rationalize the large asset base it inherited from the predecessor company and it requires effective leadership. It is not operating commercially, and has therefore failed to attract investors. Textile companies, who are I The Govomut bas a 30 pmoet am in GCC and textile companies nominally own 70 penma nt tavo not P in ia1 - 18 - supposed to hold 70 percent of the equity share, have not fully paid up their required contributions. GCC's Inability to operate efficiently affects the other cotton companies because it owns most of the ginning facilities. Complete capitalization of GCC will enhance its capacity to modernize its facilities and enable it to attract private, profit-oriented shareholders. The Government proposes to prepare and implement, during 1992, an action program for the restructuring of GCC and to seek full contributions of equity holding from existing and new shareholders, including cotton producers. The services of a consulting firm will be required for this task. Palm Ol 65. BMkgrom. The palm oil sub-sector has a sharply divided structure, with about two thirds of production coming from small-scale producers using basic, traditional technology, and one third from modem, relatively large public companies. Prices are market-determined for smallholder production. For the large companies, however, the prices were determined through a process of consultation between producers and processors in collaboration with the Government. The prices for fresh fruit bunches (FFB) and the wholesale prices for palm oil and palm kernels are set on a cost-plus basis. Most of the output from industrial producers is sold to a single buyer (manufacturer of soaps and detergents). Exports have been restricted. Imports have been subject to high tariffs and effective quotas. Lack of competition in the palm oil sector has been the main obstacle to raising productivity and also because estate producers have benefitted from protective pricing arrangements. Small-holders, on the other hand, have failed to take advantage of their more competitive production base because they produce an oil which is more attractive to domestic consumers in the villages than to the industrial buyers and because of their fragmented marketing arrangements. 66. Romto . Tne Government has recently lowered protection on imported palm oil and is encouraging exports. Competitive pressures from cheaper Imports have begun to break up the domestic cartel of large-scale producers, forcing them to seek new domestic and external markets. The trade option has been an effective stabilizing factor, which has simultaneously provided competition to local processors and an outlet for surplus production. The Government has also withdrawn from fixing prices, and producers now negotiate directly with buyers. 67. E rs. ttherlEfoms. To further the process of restructuring, the Government has removed the special import tax and the super sales tax of 100 percent. It has also stated In its Letter of Sectoral Development Policy that it will continue its present policy of not providing any special protection to the large-scale producers against competition from imports and will continue to allow exports of palm oil without prior government approval. It is expected that pressure from domestic competition and the discipline of meeting export standards will force a rationalization of the industry and make it more attractive to potential investors. - 19- Makwnl of Aaultal Ins 68. BkMrond. Although many agricultural inputs are now handled by the private sector, the major ones (fertilizer and wholesale agro-chemicals for cocoa and coffee) are still imported and traded by the public sector. Under public sector management, input supply and distribution have become increasingly inefficient because of fluctuations in budgetary allocations which have affected the quantity and timeliness of supplies. Under the Adjustment Program, the objective is to establish a competitive private market that is able to Improve availability and timeliness of delivery. 69. Reoms t Date. Over a three-year period ending in January 1990, the Government eliminated subsidies on fertilizer and launched a phased privatization of input marketing, beginning iaitially at the retail level. Under this program, registration of potential retailers is being expanded nationwide. The reforms implemented so far have helped to increase the availability of fertilizer which has led to a three-fold increase in consumption, from 11,000 tons in 1986 to 32,000 tons in 1990, notwithstanding a three-fold increase In fertilizer prices resulting from subsidy removal and devaluation. The next phase will include the privatization of imports and of the wholesale trade. Though some private sector involvement has begun, the great majority of fertilizer imports is still handled by the Ministry of Agriculture and by two Farmers' Agricultural Supply Companies (FASCOMs). 70. PaOeFuther Refrms. Under the Adjustment Program, the objective is to consolidate the limited gains made under the retail privatization program and to remove the second generation constraints that have emerged. These consist mainly of government controls on fertilizer distribution margins, which do not allow viable commercial operations to flourish. FASCOMs are also allowed to operate on a subsidy through non-payment of their past debt to the Government and have therefore an unfair advantage over private dealers. Proposed reforms would: (a) eliminate Government control of fertilizer marketing margins; (b) divest the FASCOMs to force them to operate commercially; and (c) discontinue public sector participation in imports of agricultural inputs. The reforms would increase the participation of the private sector in the fertilizer trade and strengthen the wholesale and import trade in fertilizer. 71. The Government has, since appraisal, appointed a two-member group to oversee the divestiture of the FASCOMs. The group comprises the Deputy Secretary for Agriculture in charge of Crops and Director of Policy Planning, Monitoring and Evaluation (PPMED) of the Ministry of Agriculture. They will supervise consultants who will design divestiture plans for the FASCOMs. Preparatory work on the divestiture of the FASCOMs will be closely coordinated with the Divestiture Implementation Committee. Traders and producer groups have expressed interest in buying into the FASCOMs. Appointment of consultants to prepare divestiture proposals, including asset valuation and updating balance sheets, has already been done. It is expected that completed divestiture proposals will be submitted to IDA for review by June 30, 1992 and the launching of a program of divestiture of the FASCOMs will follow soon thereafter. 72. The success of the privatization of input marketing will depend on the role of the Government in their import and trade. Since 1988, the MOA has stopped using budgetary resources for the import of agricultural inputs for sale, although it continues to use donor- funded projects to import fertilizer and fishing gear. Similarly, the COCOBOD Is using -20- project funds to import cocoa Inputs because of obligations under the projects. For new projects, government policy is that the financing of agricultural Inputs will be channelled through auction or by contract with the private sector. Some donors, however, prefer to continue to channel their funding through public sector agencies. For ongoing projects, whenever contractual obligations allow, government agencies are expected to relinquish responsibility for Input distribution. Current stocks of fertilizer and fishing gear, held by the Ministry of Agriculture, will be auctioned. The COCOBOD will transfer to the private sectoral imports of cocoa inputs. The Government Is expected to facilitate private sector participation in the agricultural Input trade by providing, by June 30, 1992, explicit guidelines for quality and environmental standards for use by all importers and traders. C. Improving Sector Management and Coordination Sectoral Coo dno 73. The strengthening of the capacity for policy formulation has focussed mainly on the capability of the Policy Planning, Monitoring and Evaluation Department of MOA. Support for PPMED has been provided through jointly funded programs by IDA, FAO and the Government. This assistance has enabled PPMED: (a) to produce weekly marketing information (prices and quantities by location); (b) to conduct agricultural census, process data and make crop forecasts; and (c) to undertake project evaluation and conduct sectoral and sub- sectoral studies. Further support will be required when current programs expire in about two years. Through the IDA-financed ASRP, funds for technical assistance are being made available to help MOA in the articulation of policy choices needed for the implementation of the Adjustment Program. 74. The dispersed nature of responsibilities for the sector is a major problem. The sector is currently managed by three ministries and by the COCOBOD. Agricultural research Is under the Council for Scientific and Industrial Research (CSIR), which is itself under the oversight of the Ministry of Industry, Science and Technology (MIST); while forestry is under the Ministry of Lands and Natural Resources (MLNR). The dispersion is greatest for the forest zone, where the Ministry of Agriculture has very limited control of agricultural policy. Cocoa and coffee are under COCOBOD, which reports to the office of the Chairman of the Committee of Secretaries; forestry is under MLNR; and rubber and oil palm have no clear ministerial home. COCOBOD's recurrent budget is separate from the official Government budget, although its investment expenditure is summarized in the Public Investment Program, as is done for other autonomous state organizations. 75. The key issue Is the extent to which there is harmony in the criteria for determining priorities in the sub-sectors in a manner that forces sector-wide trade-offs. One of the priority reforms, therefore, is to unify the responsibility for sector-wide policy formulation and monitoring under an inter-ministerial body, while retaining program implementation under existing Institutions In line with the Government's objective of decentralization. Several options have been considered for sectoral coordination, in particular whether: (a) to use the -21 - APCC 01 with appropriate amendments to its current terms reference; (b) to create a Cabinet level subcommittee; and (c) to leave COCOBOD affairs out of APCC. 76. The Government has decided to authorize the APCC to be the main sectoral coordinating group with responsibility for: (a) joint review of budget proposals of key agricultural sector agencies comprising MOA, COCOBOD, Forestry, Agricultural Research, and Feeder Roads; (b) establishing and advising the Government on sector priorities; and (c) monitoring consistency between sectoral and macro policy in key areas such as pricing, food aid and agricultural Incentives, environment and poverty. The Government has also expanded membership of the APCC to include the Cocoa Secretariat and the Environment Protection Council. Revised Terms of Reference for the APCC were discussed with IDA during appraisal and were found satisfactory. Proaramming and Nudfting 77. One of the keys to effective implementation of projects will be progress in delegating responsibilities for planning and implementation to the regions and districts. Specific actions have been taken recently to adapt MOA operations to the Governments decentralization program including a new sample framework for agricultural statistics for the 110 districts, strengthening technical staff at the regional and district levels, and increasing the role of regional and district officers in the process of project identification, determination of priorities and budget allocation decisions. MOA will analyze the extent to which the 1992 disbursement for recurrent and development budget expenditure was dis-aggregated by region and district. Based on the ratios to be identified for the 1992 budget, MOA is expected progressively to increase the share of total expenditure for which authority is delegated to regions and districts, beginning with the 1993 budget. The MOA proposes to monitor this trend closely. 78. An effective monitoring and evaluation function will be a vital part of the decentralized approach. The role of national Directors will need to be modified to comprise the following core functions: (a) program design; (b) technical supervision of field staff, including annual evaluation jointly with Regional Program Coordinators; (c) monitoring of the field program for the Secretary of Agriculture; and (d) dissemination of inter-regional experiences. The regional agricultural management team comprising department heads will focus on the following functions: (I) support to the districts in Identification and formulation of agricultural projects; (ii) technical support for project implementation; (ii) coordination of district budget requests and facilitating the financial management process; and (v) monitoring and evaluation of project and program implementation. AlOMiOnA of Puli E ntu 79. Over the period 1987-1991, public expenditure on the agricultural sector has averaged about 11-12 percent of the total budget, representing about 2 percent of GDP. Although this is expected to remain essentially unchanged, public expenditure in the agricultural sector needs to be aligned with new priorities. This will require a more careful review of budget it The Agricultual Policy Coordinating Commite (APCC) was established uWder tho Agricultural Sevim Rehablitation Projfet. It is chaired by the PNDC Deputy Seaty (Ministry of Finace) and ha sepmentative at dihector level from all agricultural sector agencies. The APCC has so far proved an affective osm for suicamnia. sec1medaton destined for tM Committee of Series (Cabinet) and th" PNDC. -22 - proposals to ensure compliance with MTADS objectives, as well as the strengthening of internal mechanisms for review of the budget in order: (a) to minimize duplication across projects; (b) to reduce the number of projects (the number increased to 94 from a five-year average of 75-80 projects) and to monitor more carefully the introduction of new projects in the agricultural public investment program (APIP); (c) to prepare an explicit socio-economic evaluation of all projects in the APIP; (d) to develop realistic implementation and disbursement profiles; and (e) to strengthen the system to provide information on actual budget expenditures. 80. Recurrent expenditures have generally been biased towards cocoa. In the 1990 budget, 80 percent of the total sectoral recurrent expenditure was on cocoa, as compared to 15 percent for the Ministry of Agriculture, and another 5 percent for forestry and agricultural research. The 1991 budget shows some important shifts. The share of agricultural research is up by about 4 percent; and the share going to non-cocoa extension is up almost 19 percent; while the share going to forestry is also up by about 8 percent, reflecting the growing importance of environmental conservation. Over the five-year period, 1991-95, expenditures on non-cocoa are expected to double, while those on cocoa will decline by over a third in real terms through a reduction in waste in the use of public resources in domestic cocoa marketing and in cocoa extension and research. 81. Biases in the development budget are somewhat less pronounced. A primary objective of the Agricultural Sector Adjustment Program will be to channel public expenditures into areas that would contribute most to sustainable agricultural growth and poverty alleviation. Two-thirds of the development budget will be spent on three main areas. Feeder roads will take 30 percent, because of the years of neglect of feeder road maintenance and construction. Development and dissemination of agricultural technology will take 30 percent. Finally, the development of small-scale irrigation will take 10 percent. The remaining resources will be spread among marketing infrastructure, inland fisheries and aquaculture, and livestock services. The main focus on irrigation will be to shift expenditures from large-scale Irrigation, which has proved to be inefficient and a major drain on budgetary resources, to low-cost small-scale, farmer-managed schemes. It is expected that as increased competition in cocoa marketing occurs, COCOBOD's demand for public sector resources will also diminish to a core of research, extension, disease control, quality control, and regulatory services. 82. These adjustments in budget priorities may face obstacles because nearly two thirds of the development budget is funded by donors. There have always been difficulties in coordinating donor resources with Government priorities. With the MTADS, the Government is now in a position to provide donors with a coherent strategy and a set of programs reflecting sector priorities. The Government has already initiated discussions with the local aid group and the response has been positive. The Government has agreed that within available resources it will give higher priority in the budget to agreed sectoral priorities, and specific magnitudes will be agreed during the annual review of public expenditure. The Ministry of Agriculture has completed a proposal laying out a framework and criteria for evaluating its budget, which was reviewed by IDA and found satisfactory. - 23 - D. SOc and Envir al Asoet Povrt Alleia 83. In Ghana, the incidence of poverty is heavily associated with agriculture. About 70 percent of the rural population depends on agriculture for Its livelihood, and of the nearly 1.8 million households in the rural sector 84 percent have holdings below 1.6 hectares, totalling about three quarters of the cultivated area. The majority of poor households in Ghana have agriculture as their main source of income, and for the poor the consumption of home-produced food accounts for 33 percent of total expenditure. The incidence of poverty is highest in the Savannah Region and in the Volta Basin. The region with the lowest incidence of poverty is the Western Region. 84. There are very few remaining policy distortions (such as subsidized credit or artificially high minimum wages) aimed explicitly at alleviating poverty. More targeted forms of poverty alleviation through income transfers are more efficient, and these will occur, for example, through the proposed labor-intensive investment programs in feeder road construction, and through the rehabilitation and construction of new dugouts for the supply of drinking water to livestock. Migration of labor from the high population density and poorer Upper East Region to the high-potential regions in the South offers an additional avenue for poverty alleviation. Proposed improvements in storage and grain marketing are expected to have a beneficial impact on food security, especially in the North which is more vulnerable to grain price fluctuations and market deficiencies. 85. Further information on the profile and incidence of poverty is being developed from the GLSS data. Meanwhile, it is proposed to monitor both the impact of agricultural policies and the allocation of public expenditure in alleviating poverty. An explicit policy will be implemented to ensure that agricultural policies and public expenditure programs respond to the needs of target groups (the poor, women). Such programs include expenditure on research and extension for roots and tubers, crop rotation and soil fertility improvement, and post-harvest improvement. The Government has begun to focus on issues of the spatial distribution of public expenditure in relation to the poor and is identifying poverty reduction programs as a basis for preparing the 1992 budget. Actions for the 1993 budget will be agreed during the mid-term review of the Adjustment Program. Explicit public policy focus on poverty is just beginning and more analytical work is required. Immediate analytical work should cover: (a) profile and incidence of poverty; (b) impact of agricultural policy on poverty; and (c) incorporation of poverty reduction in the planning process at the national, regional and district levels. The completion of the analytical work on poverty and agreement on actions to be taken to formulate policy in the agricultural sector are expected to be completed by July 1992. 86. The emphasis now being placed by the Government on expansion of tree crops in areas already cleared of forest cover, promoting agro-forestry, and pursuing greater croplivestock Integration is consistent with a sound environmental approach. The Adjustment Program described above has been classified as "C" category. An Environmental Action Plan (BAP), has been prepared, with World Bank assistance, by the Environmental Protection -24- Council of Ghana (EPC). It emphasizes the need for a more comprehensive approach to land resource management. The main land resource issues are deforestation, soil degradation and soil loss due to erosion. The EAP estimates show that the annual economic losses due to environmental degradation are in the order of 4 percent of GDP per annum, though their consequences are not palpable in the short run. The forestry sub-sector alone accounts for a quarter of the annual loss in GDP referred to above. Under the ongoing Forestry Resources Management Project, the Government is introducing a market-based system for allocating forest utilization rights. It is also strengthening the control of logging and introducing a systematic management of the forests in order to arrest the decline of the resource base. 87. About two-thirds of the country is subject to moderate to severe sheet or gully erosion. This is accentuated by settlement in ecologically fragile areas. The EAP has identified several priority areas for intervention: (a) strengthening land use planning and implementing a geographical Information system (GIS) for environmental monitoring; and (b) investment, including programs for soil fertility regeneration, soil conservation, education and training. The Government has already prepared Terms of Reference for the preparation of a Land Resource Management Strategy and has also prepared a program of investment and technical assistance for which it will seek IDA support. PART IV. THE PROPOSED CREDIT A. Origin and R a 88. The Bank has been closely involved for several years in the development of the Adjustment Program described above. Initially, SAC I and SAC II supported significant reforms in the management of COCOBOD. Subsequently, the Bank gave extensive support to the Government in producing the MTADS, which is the first coherent statement of objectives and policy for the sector as a whole. Following the completion and discussion of that work, the Government asked the Bank to engage in discussions which might lead to an Agricultural Sector Adjustment Credit (AGSAC) in support of the policy reforms contained in the Program. 89. Agreement was reached in October 1989 on the main components of a possible Credit. Elaboration of the Credit was assisted by a preparation mission in May 1990, and a pre-appraisal mission visited Ghana in October 1990. An appraisal mission visited Ghana in February 1991, and since then two further missions (September and November 1991) have discussed the privatization of the cocoa trade. During this period, the Government carried out an extensive evaluation of the impact of introducing competition in cocoa buying, and this provided the basis for the decision, in September 1991, to break the COCOBOD monopsony. -25- B. tr Finmdog Reuirements 90. Prudent management of aggregate demand and a market-determined exchange rate are expected to contribute towards maintaining a manageable external payments position during the next few years. The average current account deficit over 1992-94 Is projected to be 14 percent lower than the average level of the last two years. Amortization of official medium-term debt has shrunk as the maturity structure of debt has been extended. As a result, total foreign exchange requirements for the period 1992-94 will on average be slightly lower than in 1990-91. Requirements include provision for a build-up in international reserves. 91. In view of the existing pipeline of concessional assistance and anticipated new commitments, disbursements of official grants and long-term loans from both bilateral and multilateral sources are expected to average about US$700 million a year during 1992-94, inclusive of resources mobilized through the Special Program of Assistance. A slow but steady decline in the real level of concessional commitments is projected. IDA disbursements would amount to about US$650 million during 1992-94. 92. In 1991 total external public debt was estimated to have been US$3.7 billion, equivalent to 58 percent of GDP, after taking into account the cancellation of outstanding bilateral debt by the United Kingdom, Canada, Denmark, France, the Federal Republic of Germany, and the United States. With declining repurchase obligations to the IMF and lower levels of commercial debt, the debt service ratio fell from 68 percent in 1988 to 30 percent in 1991. A fiurther decline in the debt service ratio to 22 percent is expected by 1995. In addition, the share of debt outstanding and disbursed from commercial sources is expected to decline from 7 percent in 1989 (already down from 12 percent in 1987) to 2 percent in 1995, and that from non-concessional bilateral and multilateral sources from 14 percent to 10 percent. C. Credit Administration. Procurement and Disbursement 93. The proceeds of the proposed Credit (US$80 million equivalent) would be used to finance the foreign exchange cost of eligible imports through the foreign exchange auction of the BOG. Except for military equipment, luxury goods and environmentally hazardous products, any imports would be eligible for financing. Not more than US$20 million equivalent of the proceeds of the Credit would be used for petroleum imports. Up to US$15 million could be used to finance imports paid for up to four months prior to signing of the Credit. To speed up disbursements, imports below US$2 million by private entitles and para-statals would be procured in accordance with established commercial practices which have been reviewed and generally involve competitive procurement. Quotations from at least two eligible countries would be sought, except for proprietary procurement or standardized equipment required for reasons of compatibility. Imports by the government sector below US$2 million would be procured according to its procedures which have been reviewed and are acceptable to IDA. For contracts between US$500,000 (SOE limit) and US$2 million, a -26- minimum of three quotations would be obtained except for proprietary spares or where compatibility with existing equipment requires the use of standardized equipment. Imports exceeding US$2 million by the public and private sectors would be subject to ICB, according to Bank guidelines, using standard documents acceptable to IDA. Imports of commodities such as petroleum and foodstuffs by any purchaser would be packaged for bulk procurement following simplified ICB procedures. In isolated cases, where such procurement is less than US$2 million, competitive bids would be invited with a minimum of three quotations. IDA would assist the Government, if necessary, by providing sample bidding documents for simplified ICB for these products. International suppliers are well represented in Ghana; this, together with the ongoing auction system and trade liberalization, should ensure an internationally competitive market in which Importers can be relied on to procure their goods and services from the least costly and most reliable sources. Pre-shipment inspection on quality, quantity and price verification of imports would be done by an external independent agency already in place. 94. To facilitate procurement and disbursement, a special account would be established in U.S. dollars at a commercial bank, on terms and conditions acceptable to the Association. Initially, US$15 million of the IDA credit would be deposited in the special account. Applications for replenishment of the special account would be submitted monthly, or when withdrawals equal one-sixth of the amount advanced. Applications would be fully documented (including final invoices, bills of lading/shipping documents and evidence of payment) with respect to payment against contracts of more than US$500,000 equivalent. Reimbursements for payments against contracts below US$500,000 would be made on the basis of statements of expenditure certified by the BOG. All supporting documents (including final invoices, bills of lading/shipping documents and evidence of payment) would be retained by BOG for review by visiting IDA missions and the external auditors. 95. Technical Assistance requirements of Adjustment Program would be funded under ongoing projects: the Cocoa Rehabilitation Project for cocoa sector components and the Agricultural Services Rehabilitation Project for the others. 96. The proceeds of the Credit would be disbursed in three equal tranches as follows: (I) a first tranche of US$30 million equivalent would be released upon effectiveness (March 1992); (ii) a second tranche of US$30 million equivalent would be released upon review of performance to determine that the reform program is being implemented satisfactorily (June 1993); and (ift) a third tranche of US$20 million equivalent would be released after completion of the divestiture of GCC and the FASCOMs (June 1994). o-financing 97. The Kreditanstalt fuer Wiederaufbau (KtW) is expected to contribute DM25.7 million (about US$18 million). The KfW sent a team to Ghana during the last week of the IDA appraisal mission. The KfW team indicated that their financing would be untied and would be - 27 - on similar terms as IDA. They would, however, restrict their disbursements to a positive list of agricultural inputs broadly defined. The Japanese Government has expressed interest in co- financing the AGSAP and is expected to make a commitment of US$50 million. Auditing and Reporting 98. BOG would maintain separate records of the accounts and transactions under this credit and would arrange for an audit of such accounts and transactions by auditors acceptable to IDA. Audited statements would be submitted to IDA within six months of the end of the fiscal year. The audit report would include an opinion on whether satisfactory procedures are in operation at BOG with respect to the use of the special account and the statements of expenditure. 99. Key sectoral performance indicators have been developed to monitor the impact of the actions under the AGSAC. The indicators focus on: (a) the formal actions agreed under the AGSAC; (b) parallel actions contained in the Letter of Sectoral Policy; and (c) performance Indicators including the input supply status, output, commodity trade, credit, and agricultral prices as well as the pace of change in the strengthening of key agricultural services. Quarterly reports on (a) and (b) would be submitted to IDA, beginning with the quarter ending June 1992. ImpLemetation 100. The APCC would have the responsibility for coordinating the Sector Adjustment Program. To assist the Chairman of the APCC, the responsibility for monitoring and evaluation of performance under the Credit would be vested in the Agricultural Policy Unit of the Ministry of Finance and Economic Planning. D. Moniterable Actions and Tranche Release Conditions 101. The Letter of Sectoral Development Policy (Annex II) and the accompanying matrix of policy actions describe the measures contained in this phase of the Agricultural Sector Adjustment Program. Board presentation and the second and third tranche releases would be conditional on the overall progress of the Program, as outlined in the Letter of Sectoral Development Policy, and on the completion of the following actions in a manner satisfactory to IDA. Actons Alreadv Taken 102. The Government has completed a number of actions under the agricultural sector adjustment program. Key actions Include: (a) COCOBOD Reforms: (I) an announcement by the Head of State, Chairman Rawlings, on Farmers Day (December 6, 1991), of the Government's intention to introduce competition in domestic cocoa marketing; (ii) liberalization of coffee and sheanut marketing (domestic and external) in June 1991; (i) removal of subsidies on cocoa inputs and privatization of -28- cocoa Input marketing, beginning with the 1991 season now in progress; (lv) sale of 51 percent of public sector equity in a chemical formulation plant; (v) reduction by one third of the number of cocoa buying centers; (vi) reduction by two thirds of the number of extension districts; and (vii) reduction by 28 percent of the COCOBOD staff. (b) Other Markting-Reform: (i) abolition of the guaranteed minimum price for malze and rice, effective from the 1990 crop season; (ii) withdrawal from price determination for cotton and tobacco effective December 1990; (iII) freeing of exports of cotton lint and palm oil; (iv) liquidation of the Ghana Seed Company in October 1989 and privatization of seed production, beginning with the 1990 crop season; (v) removal of fertilizer subsidies in 1990 and Introduction of spatial variations in ex-depot prices; and (vi) freezing of GPDC storage capacity. (c) Sector Coordination and Management: (I) empowering the APCC to review sector-wide budget proposals and expansion of it to include senior representation from the COCOBOD and the Environmental Protection Council. 103. Conditions ftor Bard Presentation. The Government would: (a) o= (I) issue regulations, satisfactory to IDA, governing entry of private firms into the cocoa market and agree with IDA on who will implement them; (i) agree with IDA on the process for determining minimum producer prices, cocoa export tax rates and fees for quality control (QCD) and export marketing (CMC); and (iii) agree with IDA on the residual role of COCOBOD and the method of its financing; (b) Marketing of Agricultural Innuts (i) issue invitations to consulting firms for bids to prepare FASCOM divestiture proposals. 104. Codiel The Government would: (a) QMca (I) Implement the new regulations during the 1992/93 cocoa marketing season in a manner satisfactory to IDA; -29- (ii) complete minimum price negotiations (expected before June 1993) for the 1993 marketing season; (b) GnM (1) complete the transfer to the Divestiture Implementation Committee of the rice mills at Tamale, Yendi, and Bolgatanga, and offer for sale or lease the rice milling facilities at Afife and Astuare; (i) initiate the agreed restructuring plan of GCC; (d) Marketing of Arrcultural Inputs () launch divestiture of the FASCOMs; (ii) sell all publicly-held stocks of fertilizer and fishing gear (MOA), and cocoa inputs (COCOBOD); and (II) prepare directive for quality and environmental standards for agricultural chemicals for use by all importers (MOA and COCOBOD). () S Coordination and Management (I) agree with IDA on the agricultural sector budgets for 1993; (ii) design and implement a long-term sectoral monitoring system, focussing on key indicators of performance; and 105. Conditions of Third Tranche Release. The Government would: (a) Coo (1) implement the new regulations during the 1993194 cocoa marketing season in a manner satisfactory to IDA; (b) Ages (1) complete the restructuring of the GCC; c Maketg of Aadcultural Iu () complete divestiture of the FASCOMs; (ii) enforce the directive for quality and environmental standards for agricultural chemicals for use by all importers and distributors. -30- (d) Seo Coordination and Maaeent () agree with IDA on the agricultural sector budgets for 1994. 106. SpedaL Cnditon. (a) Satisfactory progress In the Implementation of the Agricultural Sector Adjustment Program, as set out In the Letter of Sectoral Development Policy, and consistency of the macroeconomic policy framework with the objectives of this Program. 107. Rort -and Iane El R . The Government would submit to IDA a report evaluating the progress made In implementing the Adjustment Program, starting from the date of credit approval, which would provide the basis for the second tranche release review scheduled for June, 1993. IDA would have the option to cancel all or part of the second and third tranches if the conditions for their release had not been fulfilled within 90 days after the review. The Government would submit to IDA a final report on the implementation of the Adjustment Program within six months of the full disbursement of the Credit. 108. (a) Parliamentary elections will take place half-way through the Implementation of this program and there is an obvious risk that a new government may not share the commitment of the present Government to the reform program. However, a large part of the Program has already been completed, and there has been substantial consultation with farmers, private investors, traders and government officials on all remaining aspects of the Program. On the politically sensitive issue of cocoa sector reforms, the Head of State has already announced Government Iatention to introduce competition in the cocoa trade. There is evidently strong ownership of the Program that Is likely to transcend the current Government. (b) Initially, the private sector may be slow to enter the market for cocoa and other commodities, as it gauges Government commitment to reform and mobilizes resources. However, there is a history of successful Iatervention by the private sector in agricultural marketing in Ghana, even in cocoa, and the positive experience of the privatization of coffee and sheanut marketing suggsts that in fact the private sector can mobilize itself for such roles fairly quickly when given the incentive to do so. (c) The inability of COCOBOD to pay terminal benefits to its redundant workers could create a backlash that would undermine the momentum created by the privatization initiative. Some donors have already expressed interest in financing the cost of staff redundancies, however. 109. In addition to the actions agreed with the Government, there would be three main ways to review the program which would provide an opportunity to take corrective action: (a) quarterly supervision by IDA providing regular updates of progress; (b) the proposed review In June, 1993; and (c) the third tranche release review expected in June, 1994. -31- PART V. RECOMMENDATION 110. 1 am satisfied that the proposed Development Credit would comply with the Articles of Agreement of the Association. I recommend that the Executive Directors approve the proposed Development Credit. Lewis T. Preston President Attachments Washington, D.C. February 27, 1992 - 32 - Page 1 of5 AGRICULTURAL SECToR ADJtUSrMzNT pROGRAM ___ __ jo ~os Acftza ELk Peted 1988 1989 1990 1991 1992 1993 1994 ODP Goth Rdu 5.6 3.1 3.5 5.0 GDY Grwth Rate al 5.1 2.9 2.5 47 . ODY/Capita Growth Rate bi ol 2.3 0.2 -0.1 2.0 Total Consumpton/Capita Growth Ratol 0.9 1.0 1.1 O. s Private ComiCapa Growt ~ Rat el 0.5 1.0 2.0 0.1 CPI G RowthRae b 31.4 25.2 37.2 18.0 8.0 . Dét Service (M$ min) d/ 651.2 516.6 372.6 323. 290& 2 Det Sørvc0/X08 e/ 68.0 58.1 38.0 29.5 9 " D4t tviOe/GDP 12.5 9.8 6.4 5.1 '4. 34 . Gross am /GDPf/ 14.2 15.5 16.0 16.5 7 19 . Do~m goSdavng/GDP 5.5 5.9 6.0 7.9 9 u .15.5 Nat~ ioS1ving/ODP &/ 9.3 9.7 7.6 9.5 PbI IuveametlGDP h/ 1/ 8.0 7.9 7.3 8.2 k. 9 Pubio Savings/GDP 4.0 3.2 1.8 3.4 Private inVaanJGDP vl 6.1 1.6 8.7 8.3 Private avna/DP 5.3 6.5 5.9 6.0 Rato of Publie/Privatenvahyhnt 1.31 1.03 0.83 0.98 .f GovWrM~ut RevmaueGDP g/ 13.5 13.6 12.6 15.0 offam~e ~ ~-h"/DP bi 18.9 18.9 18.1 19.8 ( 9 p ovan D IGDP 5.3 5.3 5.5 4.8 ExportGrowth Ratj/ .4 11.6 6.1 10.2 _ Export/GPy 10.5 11.2 11.5 12.1 2 lmporGrowth RateY k/ 0.2 2.0 7.8 2.6 fmports/GDPy/ 13.4 13.0 13.6 13.3 Curret Account (US$ min) 1 -264.4 -314.3 -484.5 -441.9 4$41 . Curm~ Acout/GDP 1/ -5.0 -6.0 -8.4 -7.0 .. . Ters of Trad<Index) 94 78 71 68 NOTE: Pigurs are rounded. Growth rates and export and import atios are showa Is annatant prices. at GDYGDP adjusted for chan8as athe tres oftads. b/ Yarly ave~ag. el Rned oa Govemat of Ghana's pop~lan growth rate esimatu a d/ing1mida ndP but emtda arruers paymants. e Exports of goods and servioe. 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'. if.;/' ,. ..' . .: ,i:Mi�,�i' ;.�:.�,:.s::.. -: ;•..•::. л........ ., .., :..,�.х,.tл,.$��.'а7r:л2У.:гг:r:.:и. а. . �,�: 3?k.:�,: •... •.;•..,.s::::г.rг�;э:�:•�.а....м'�f-.': ~ И м� ::ь�� "� с�� � ��i�� � r� о � :Qa � � � 5��.• �.�rwN 3�S � � � � ����v � 1 .» N � •+ И ^� ��О�Q �О �+ �v Ci од g 1N .++ о �+ 1`� � � aS'о�. °'� or�i�c7�iй � �� й °� �"ic~v�i�i'v�w�i.,и а'� °.�c�et .�'� � t ,�`'�s � � в�� оO1��� �,,,И"',�$ й м�VN�c�in��°� м� д'9j'°.�Т� � О � ао�а�� �"r,�i8°S�� .л�. � м� � +� °�iё��й�йИм � "��I и��.°�..,л°� � � � �i у � "�д b'ьо��� Fiь�� � Rie� �� е��""���и.еr о� r�«�`'►�� С. ., « i г � i i � '^ а v� ,.+ t � � 1 1 � � � ` � д � Vf � � � � Z � � ��� �„ � ��� �� � ` а � � �в �� � � � � � ����� ��� � �, ,. �. � � с� � � � о '�'� .� .� о .. о • � � � ��� � � � � � � � _ � � н g � ai � � •и а � и �с � � � �� � �-х z� ��� �� � . . . °� � о ?. t� � w.+им~гаi �. � � .С .: �v � ..» c�i �j д '"' R1 �г; С? ^' c�i �л .г х ..: .: х � 34 - GHANA AGRICULTURAL SECTOR ADJUSIMM PROGRAM E~ m* and ÅY~ities (le M~ U.S. Do~ A~ rIL Pro~ FINANCING~ s 1987 Im 1989 1990 1991 Im 1993 1%4 WANCING~ A Cw~ Aø~ Dd" 224 264 314 485 442 B. 0~ M&LT Amorft~ 182 209 175 135 132 C. DØ R%w~ 174 264 175 113 7-6- D. An~ 72 35 48 17 o..~ ...... E. Odm Lid^ 31 23 17 9 tg F. Rum* Rapka~ 35 43 99 37 211 ... w.ý.g T~ 719 ua an 795 A. C~ 122 175 216 218 304 3G 344 360 406 Qý a. MÅ ønd. $FA) 191 203 170 205 210 - P~ 80 97 73 74 99 - pw~ 112 106 97 131. til b. ~ multu~ 113 104 174 155 196 c. imera~ m=~ Fund 149 219 179 65 153 a. &and-by Anma~ 59 0 0 0 0 b. Ext~ Fund Fa~ 35 tot 0 0 SAFAMAF (190% at q~ 56 118 179 65 LU D. Odm C~ kfi~ 35 35 51 87 25 E. Nolk-conoc~ 1 109 102 34 65 71 Tdal 719 m 795 881 Noto- F¥~ u* ro~. Sw^ Vodd Bæk ~ edlm~ ”〕’頰．〕―煎‘〕〕―〕，〕 36 ~ 1 - Table 5 P9V 5 of 5 AGRICULT~ SECTOR ADJUSr~ pROGItAm h%~ d me Investm im =IRCM year Borra~ T L~ TOW MM of Du 1984 Åskand CT*ldficlds måkg 55.0 55.0 11 Corp. 1986 Kota Basin 011 Oil - 4.S 4.5 21 Exploratim 1983 ca~ ~ mkus 0.6 0.6 R~um« UL 1989 can~ bosm WWVAS - 0.4 0.4 Rot~ 11 1989 w~ O &M IAL ~1 mk. 3.2 - 3.2 1939 ca~ BO~ mbåns 47.5 0.5 48.0 31 Rmurm m 1989 cmtin«tai Uct~ B~ - 0.9 0.9 UL 1990 Asbaud U~ MW4 70.0 - 70.0 4/ Corp. II 100 Idmipriem bfildns - 3.0 3.0 Iwi Alusm (AEP) Al=in= 03 - 0.3 1991 Plastic Laxak~ (AM Plastka 0.6 - 0.6 mi Hotet lweittn~, Lta. Toudsma 4.2 - 4.2 1991 Difflu ha (ARI) To~ 0.2 - 0.2 1991 Cen~ Bosom 0.8 0.4 1.2 7~64 iv mi contimtal 3.0 0.0 3.0 1991 Ohazul - 0.4 0.4 1991 swurities Div~ Riom 0.2 0.2 Mw~ 90= Mi Appkb-ma** ~ S«p Iffs. 0.9 - 0.9 1991 ~ =IL 48.0 - 48.0 st 1991 rumte (ÅEn Boxa Mfs. 0.6 - 0.6 P4~ Projects but not ~ u of Deg.31, 1991 im wa~ ~1 UL11 5~1 wg. 2.0 - 2.0 im Mura Fat= 1.6 - 1.6 im mo Swap/Uba& To~ 1.3 - 1.3 Total 0~ CC>WA~ 2m3 10.9 2452 1~ ~~ and w~ 26.3 30.8 Total cumu~ts Now sa by IFC 2m0 6.4 214.4 term~ Tåtel Undiebu~ 49.4 1.1 50.5 Total U=*==Uted 4.9 4.9 V ubdu i MM.S wiffim pesu~ A~ wo O&UY -dom *M - 37 - Annex II Page 1 of 8 REPUBLIC OF GHANA MINISTRY OF FINANCE AND ECONOMIC PLANNING P.O. BOX M.40 ACCRA Our Ref. No. PAD/AG/36 25th February, 1992 Mr. Lewis T. Preston President The World Bank 1818 H Street, N.W. Washington D.C. 20433 USA Dear Mr. Preston, LETTER OF SECTORAL DEVELOPMENT POLICY 1. As part of our ongoing adjustment program, it was agreed under the Second Structural Adjustment Credit that we would put greater emphasis in the future on removing structural impediments in the productive sectors. As you know, the key productive sector in our economy is agriculture, and we have placed great emphasis in the last two years on defining a program to stimulate growth in the sector and to create the conditions for sustaining that growth while preserving the natural resource base on which it depends. With the assistance of the World Bank, the Government has prepared a Medium-Term Agricultural Development Strategy (MTADS) for the period 1990-2000 and an indicative investment program for the five-year period, 1990-95. The purpose of this letter is to inform you of the main elements of that strategy and to outline a program of reforms and actions through 1994. 2. Ghana's Economic Recovery Program (ERP), since its launching in 1983, has focused on stabilization and structural reforms in the economy. The Structural Adjustment Program (SAP) has sought to consolidate the gains of the initial phase of the ERP during which the main emphasis was on stabilization. Major policy initiatives included exchange rate adjustments; price deregulation for - 38 - Page 2 of 8 a wide range of products; trade liberalization to increase the volume of international transactions and to help increase competitive pricing in the economy; and the freeing of interest rates. These reforms led to an improvement in the Government's fiscal balance through the removal of subsidies and improved mobilization of resources both domestic and external. Rehabilitation was also started in several areas including the transport, cocoa, timber and mining sectors; and budgetary support for education and health was significantly increased. 3. Economic performance over the reform period has generally been satisfactory and the broad objectives set out at the inception of the ERP have been achieved. Specifically, incentive schemes have favored the productive, particularly the export, sectors; the country's productive base and economic and social infrastructure have begun to be rehabilitated; fiscal and monetary discipline has been restored; private savings and investment are being encouraged; and reforms have been carried out in the public sector to enhance productivity and to improve the management of public resources. Recently, however, we have begun to shift the emphasis to growth-oriented sectoral initiatives to ensure that the gains of the ERP become more visible to the Ghanaian people. In particular, we are concentrating on agriculture, industry, health and education as key sectors in meeting the ERP's growth objectives. Mriculture in the NoonoW 4. The primacy of agriculture in the economy and in the well-being of the majority of our people cannot be over- emphasized. Agriculture accounts for about 50 percent of Gross Domestic Product (GDP), close to 70 percent of merchandise exports and 70 percent of employment. The discussions we have recently conducted with the Bank on the achievement of an accelerated rate of growth over the coming decade, beyond that envisaged in the ERP, have led us to the conclusion that any such growth strategy must include a significantly increased rate of growth in agriculture. Following a stagnant period during the 1970s and early 1980s, growth in the sector was renewed under the ERP, benefiting from the realignment of the exchange rate, increases in the producer price of cocoa and greater access to fertilizer through improved input marketing. However, a further acceleration of growth in the sector is still impeded by marketing inefficiencies, weak support services, limited processing capacity, poor rural roads and insufficient water and soil conservation efforts. 39 - Annex II Page 3 of 8 5. The 4TADS referred to above set out to assess the potential for growth in the agricultural sector and to analyze what needs to be done to raise agricultural growth from an average of 1.9 percent per year, achieved in 1984 to 1988, to a sustained level of around 4 percent. A cause for optimism is the fact that Ghana has a strong comparative advantage in a wide range of crops. The key to realizing this potential lies in providing a suitable environment for private investment by freeing prices, opening up agricultural input and output markets, raising agricultural productivity through investment in our agricultural research and extension system, improving rural transport infrastructure, and promoting better soil and water conservation practices. The private initiative of farmers and entrepreneurs will be crucial to this process, and this will require actions to eliminate remaining subsidies and to reduce marketing costs by subjecting inefficient para-statals to competition. At the same time, we must improve the rural financial markets. It is the objective of the Government to pursue policies such as these, designed to promote agriculture as a key component of our economic development. 6. The public sector will continue to have a major, but selective, role in sectoral development. The first task is to provide a framework for a more efficient allocation of public expenditures in accordance with agreed sectoral priorities. While the total requirements for the agricultural sector will remain at about 11 percent to 12 percent of the budget (equivalent to about 2 percent to 3 percent of GDP), the composition will shift to feeder roads, in order to lower transport costs and increase marketing efficiency; to technology development and dissemination, with added emphasis on soil and water conservation; and to increased investment in small-scale irrigation. 7. With suitable conditions for private investment and with more effective agricultural support services, we hope that accelerated growth can be achieved through: (a) productivity increases through the use of improved varieties and crop protection measures; (b) rehabilitation of industrial tree crops; (c) development of small-scale irrigation schemes, better management of flood plains and a more efficient use of existing irrigation facilities; (4) stronger crop/livestock links, such as the use of crop residues and grain surpluses for animal feed; (e) improved productivity in the livestock sub-sector through better animal extension services and increased expenditure in water supplies; and (f) training and re-equipping the fisheries extension staff with physical and logistical - 40 - ADnex II Page 4 of 8 facilities to enable them to disseminate technical messages on the development of aquaculture and inland fisheries. Proposed Adustment Proaram 8. The Government will enhance competition by eliminating statutory monopsonies in agricultural markets and introducing market pricing for all agricultural inputs and outputs. In effect, the Government will withdraw from price determination and marketing, except for the export of cocoa. 9. Cocoa. Cocoa is a strategic crop in our economy, accounting for 45 percent of our foreign exchange earnings and 11 percent of tax revenues. In many respects, the Government has already established a strong track record in reforming the sub-sector. For example, the Ghana Cocoa Board (COCOBOD) has reduced its staff from 101,000 in 1984 to 43,000 in 1990, and further reductions will be implemented as part of the ongoing restructuring. COCOBOD has also divested 52 plantations and will now divest the remaining 40 with the exception of a few still needed for research. It has successfully divested its majority ownership of an insecticide plant at Abuakwa; it has reduced the number of cocoa buying districts from 1,334 in the 1986/87 season to 120 in the 1988/89 season; and further reductions are expected to bring the number to below 100. The number of extension districts has also been reduced from 99 to 39, and COCOBOD has continued to increase its reliance on the private sector for cocoa haulage, which now carry about 75 percent of the tonnage from inland depots to the ports. Finally, COCOBOD has divested the marketing of cocoa inputs. 10. While the above measures will go a long way to increase efficiency in the cocoa sub-sector, they are not enough to create a fully competitive industry. It is the Government's intention to liberalize domestic cocoa marketing. Private buyers will be allowed to compete with the domestic buying wing of COCOBOD (the Produce Buying Company - PBC), starting from the 1992/1993 crop season. The Government will ensure that the private sector is allowed to operate without hindrance and that PBC has no preferential treatment in access to finance or other marketing facilities. The liberalization of cocoa buying is expected to reduce marketing costs and consequently to improve producer incentives and increase output and exports. 11. We realize that, even though the share of cocoa taxation in total government revenue has declined over the 41 - Annex II Page 5 of 8 last five years, the level of tax paid by producers is still high relative to taxes on equivalent personal income. It is the Government's intention, therefore, to continue the trend already established, as fiscal conditions permit, and to move towards a more diversified and less distortionary tax base. The Government will also encourage buyers to seek their own financing of cocoa by phasing out the sale of Government-guaranteed cocoa bills. 12. Palm 011. Palm oil production by small-holders, which accounts for two thirds of total production, has been shown in a recent analysis to be competitive as an import substitute. The same analysis indicates that the para- statals which account for the remainder of national output are uncompetitive despite the higher average price that they currently receive on the domestic market. Lack of competition in the palm oil sector has been the main obstacle to raising productivity: estate producers have benefitted from protective pricing arrangements, and small- holders have failed to take advantage of their more competitive position on account of institutional and infrastructural weaknesses. The public sector has had a significant influence in price determination of palm oil. We are aware that the public sector can do more to improve the efficiency of the palm oil industry. The Government has taken several measures: (a) withdrawn entirely from price determination; (b) eased restrictions on imports; and (c) lifted restrictions on exports. These measures are expected to foster competition and to promote exports. 13. Cotton. Cotton is an important import substitute and has the potential to become an export crop. The Government has, therefore, abolished the monopoly of the cotton marketing para-statal and established a joint venture company, the Ghana Cotton Company (GCC), with the private textile companies. The Government has also withdrawn from price determination and lifted restrictions on exports of cotton. New cotton companies are entering the market and are beginning to provide competition to GCC. Cotton production has recovered and we expect to have exportable surpluses in about three to five years. It is also our intention to consolidate the gains so far made by restructuring the GCC and significantly reducing its operating costs, with the object of eventually attracting the private sector to assume its full ownership and management. 14. fains. In the grains sub-sector the Government has previously maintained minimum producer prices for maize and rice, and has been responsible for nearly all commercial storage. Over the years, it has become evident that the Government cannot support minimum producer prices and that - 42 - Ann2X Il Page 6 of 8 it has not provided suitable, low-cost storage in the major production and consumption areas. The Government, therefore, has abolished guaranteed minimum prices and it has decided to freeze its storage capacity at the current level of 75,000 tons. The para-statal marketing agency, the Ghana Food Distribution Company (GFDC), is being substantially reduced to a small core operation, mandated primarily to manage the nation's food security program. The GFDC is implementing an extensive program to lease its storage space, and it will seek outright sale in some cases. The GFDC is also divesting its rice milling operations. We expect to see a healthy private grain marketing system that will be fully responsive to market signals. 15. Ar;iultural Inputs. In line with our ongoing reforms in the grain sector it is our intention to privatize the entire marketing r-hain for agricultural inputs. The Government has al' ady initiated a number of reforms in this respect. ,t has: (a) eliminated subsidies on fertilizer and on cocoa inputs (1990); (b) abolished its monopoly on fertilizer imports and marketing; and (c) liquidated the Ghana Seed Company and privatized seed production. So far, the private sector response has been encouraging: fertilizer supply has improved in its timeliness and availability, and its consumption has increased; and seed production and quality have improved. 16. Rural Finance. In rural areas, the formal banking system offers very poor service, and informal intermediaries such as money lenders and 'susu' groups are left to fill the gap. Though they do perform a useful service, these groups make only very small loans of short maturity, and a substantial strengthening of the rural financial system is needed. Banks are reluctant to increase their level of direct financing to the rural sector, largely on account of high administrative costs of lending to small dispersed borrowers and to a lack of collateral. Reducing high transaction costs for lenders and borrowers is of high priority. The restructuring of the banking system which is underway is intended to make banks more competitive and efficient. This will be complemented by measures aimed-at strengthening the links between the formal and informal financial sectors which include rural banks, credit unions and 'susu' operators. The aim is to create less cumbersome processes for the recovery of loans and easier entry and exit regulations for operators. These aspects of our program are being addressed under the ongoing financial sector adjustment - 3 annex II Page 7 of 8 program which has been supported by IDA through three Credits. 1/ 17. Publia Sector anagement. As we move towards a more strongly market-oriented economy, we are also seeking to ensure that there is an effective public oversight for the sector. Currently, this function is split between several agencies, which has greatly increased the difficulty of implementing a coherent sector-wide strategy. The NTADS now provides such a framework and will help us improve the prioritization of public expenditure in the sector. The Agricultural Policy Coordinating Committee (APCC), established under the Agricultural Services Rehabilitation Project as an information clearing house for interagency actions, has been significantly strengthened and will perform a central role in inter-agency coordination. The APCC has been an effective organ for streamlining roicommendations destined for the cabinet and the PNDC, and it is also a policy advisory body to the Secretary for Agriculture. The APCC has been given the responsibility for coordinating budget submissions of the MOA, COCOBOD, forestry, agricultural research and feeder roads, before submission to the Ministry of Finance and Economic Planning. Through the annual budgetary process we will ensure that adequate allocations of funds for recurrent expenditures are made to support the implementation of priority projects in the agricultural sector. &ooial Dimensions of Adiustment 18. The Government attaches the highest priority to ensuring that its agricultural sector adjustment efforts are consistent with the overall national objective of alleviating poverty. Although there are very few remaining policy distortions aimed at alleviating poverty, a conscious policy will be implemented to ensure that agricultural sector expenditure programs respond to the needs of target groups, for example, the poor and women. Priority programs that have an impact on such target groups will be identified and supported. Targeted forms of poverty alleviation through income transfers will be implemented such as the proposed labor-intensive construction and rehabilitation of feeder roads and water dug-outs for the supply of animal drinking water. Proposed improvements in grain marketing and storage will have a beneficial impact on food security especially in the North which is more vulnerable to grain price fluctuations and 1/ Financial Sector Adjustment Credits I & II (Credit Nos. 1911-GH and 2318-GH); and the Rural Finance Project, Credit No. 2040-GH. - 44 - AnneX II Page 8 of 8 market deficiencies. The Government will establish a system of monitoring the poverty impact of public policy interventions. 19. The Government continues to place a high priority to the development of environmentally sound programs. The Government has prepared, with the help of the World Bank, a comprehensive Environmental Action Plan (EAP) which emphasizes the urgent need for a more comprehensive approach to land resource management. The EAP estimates that annual economic losses due to environmental degradation are in the order of 4 percent of GDP per annum, with the forestry subsector accounting for a quarter of the annual loss. The Government has identified several actions which when fully implemented will help alleviate the problem of land degradation. These actions are: (a) introducing a system of market-based forest utilization rights; (b) strengthening the control of. logging; (c) implementing a geographical information system for environmental monitoring; and (d) implementing programs for soil fertility regeneration and conservation. Conaluin Remarks 20. Continued progress in achieving our growth targets depends to a very large extent on structural reforms in the agricultural sector. The Government intends to implement such reforms in the context of its Agricultural Sector Adjustment Program. It is our intention to expedite the program at a pace that is politically, administratively, and technically feasible and consistent with our overall macroeconomic objectives. The success of the program, however, depends on the provision of adequate financial assistance. It is in this context that the Government requests your favorable consideration of the proposed Agricultural Sector Adjustment Credit of US$80 million equivalent. This amount would help cover the current account deficit for the period 1992-94, repay external debts, and replenish our foreign exchange reserves. The Government would also appreciate IDA's assistance in arranging co-financing from other multilateral and bilateral sources to support the program. Yours sincerely, (signed) DR. XWESI BOTCHWY (PNDC Secretary for Finance and Economic Planning) - 45 - Attad~n to AnnU a pag t of 6 GHANA AGRICULTURAL SECTR ADJUSTENT PROGRAM Prp~se Reform and A~ton ADJUSTMENT THEME RECENT ACTIONS MONITORABLE ACTIONS AND TIMING TAKEN 1. PRn~ AND MARfiNG LIBRALZATION OBJECTIVE: To provid. improved Incentives for more kfficnt farm production and markting through increabed competition. Efticny of cocoa sector Is Domic input distribution 1. Nuta crucial to tho m of diveated and subsidies on producer incentivs, foreign inputs abolished (Feb 1991); *(a) Implment measur~s to lower uang. earnings and tax deision taken to grant COCOBOD'S operating costa including: rmveno and to the development autonomy to PaC, CMC (i) divestiture of coco procesing factoris; of the economy. land Quality Control (ii) pantatn; (iii) staff retrenhment; Division (QCD), April (iv) divestitue input distribution; (v) abolish 1991; prcesaing fatories subuidies, and cocoa plantations delinked from the budget 2. ~eor Ba nt (Otober 1990); retrenchnent or 11,900 staff *(a) Governmt to announce introdu~tion complted but sverance of competition in domestic ocoa m ~arketing to payments not fly paid; start in the 1992 cocoa crop season. coffee and sheanut mar~eting fly lberalied **(b) Government to ise rcgulations in June 1991. COCOBOD satisfactoiy to IDA, governing etry of private ownership of Abuakwa firns into the coco market and agr.e with Formulation Plant reducod IDA on who wil implement them. from 100% to 49%. Extension distrits reduced *(n) Agre with IDA on th process of from 101 to 39 and 30% of determining minim m producer prices, coco. the buying centers olosed export tax rmvenue, and fes for quality conrol down. COCOBOD (QCD) and export markedng (CMC). monopoly of coco haulage abolished and shar of the *(d) Ag=o. with IDA on tho residual role of raways and privat. sector COCOBOD and the method of ite finanoing. inrased to about 90%. 3. For Second Tranche Release (a) Govenment to apply the nw rogulations during tho 1992/93 rop season in a manner satisfactory to IDA. (b) Govafment to have completed C 0n a t. minimum pric - (expeted April, 1993) for tho 1993 coco. marketing season. **hU ~cted to bo mat by March 16, 1992. - 46 - Atadhmqt to Annex H Pi.2 of 6 GHANA AGRICULTURAL SECTOR ADJUSMENT PROGRAM AUSMENT THEME RECENT ACIONS MONITORABLE ACTIONS AND TIMING TAEN 4. For TrdTnheR~las (a) Governm~nt to apply th new regulations during 1993/94 orop season in a mnne d atldfanty to IDA. Bl. Public Setor Grain Rola of GFDC: Operations With ~ffect from the 1990 l. B Nm under the GMP for maie and orop s~ason, government has rim, covering st east 80% of tho abolished tho GMP for *(a) Government to wihdraw from tho turnover of the domesti mac and rico. sxing of guaranteed mimum pris for mm operations of GFDC, arm and rico. Inefetivo and Mad to signigant GFDC storago has been ~eses for GFDC. Rico mieing froxen at 75,000 tons. *(b) Ghana Pood Distribution Corporation opertins are inffetive with 9 BIlateral domn have been Storage to be frozen at 75,000 tons. out of 15 rio mils not IeiSd to support the futioning and thO remining development of sma and *(ö) Issue a more rstrictive mandate for oporating at lss than 30% medium storag ~ capacity. GFDC ex~luding operations in rico milling, paoity. Private trad is in GFDC has easd 42% of retal trading, and non-gram operations. ma~resing and procussing highly the cold htorge facides; compotitivo but ned upgrading program of as. is 2. of fkciltis to reduce orop lsse. ontinuing. Rico m~lig and duterioration of quality. faities at Tamalo, *(a) GFDC to losm down unconomio rice Bolgatanga and Yndl have millk. OFDC's long4erm stouage goals been ~losed; and buyer should ho eartailed to r a.n being sought for tho miW in *(b) GFDC to se or lesse its cold stoage resources for upse~m stora~ orte; chattes being sold. faciliis. development. 3. Por o T Re Inappropriate timing of impouts of food by multiple public se~r (a) Complt. tho transfer to the Divstiture agencis (GFDC, GNTC, ~ .atmentatin Committe of rim mils at GNPA) and of food aid ~reate Tamal , Yend, and Bolg~tanga and offer for dilin,mdths ft dou~sl or leas the GFDC rico mis at Afifi and pod~_rs Ash^re 4. For Third Tranch Releas Non. C ~n~tions aheady mot. S47 - Attah n to A 1 Pag$ of 6 GHANA AGRICULTURAL SECTOR ADJUSTMENT PROGRAM AWDUSTMENT THEME RECENT ACTIONS MONITORABIE ACTIONS AND TMING TAKEN C. Cto Goverannt inolvement in ~seuhng pr loeshsd to Geverment ha wilhdrawa i. B Ngio impliilly pr~itig the from price se~ing with industrial etor at the cot of offee from December 1990. *(a) Government to w ~thdraw from the farmrs in can. Reatriions 70% of OCC hare capital fixing of produer prices. on lin exporta limia tho abiliy assigned to txe mia. of processors to s* bmter Government holds 30%. 2. pis.Undm~ä~etinta of G C~ CMOPaY (CC) *(a) Government to climinate reraint on hab n doe raionl cotton lut export. of ging fasl11ties. 3. For e Tra R s (a) Govemment to complte the financial and statutory arrangement for off~ively divesting GCC, inludig offer for sal of GCC shares to interested investors inh~nang intre~ ottn prou~rs 4. For Thir Trach Relas (a) Complete the restructuring of Ghana Cotton Company. Dome~ti modern palm oil setor Presaure from imported 1. ef Neots cannot compete wi im~ported palm ofi broke the domes o, whOe smi production eartel in 1990. Palm oil *(a) Government to withdmrw fmm tho is an elialent Import aubstitute. millrs sir*ng nw fixing of produer prices. domesti and regional markets. 2.B *(a) Govement to lit retritons on export of palm oh. 3. For so Tn R a Non. 4. For Ti Tr R Non. C M'adtiona aheady met. - 48 - GIIANA AGRCULTURAL SECMIR ADJUSTMENT PROGRAM Pb ~oe Refrm and A"ton ADJUSTMENT THEME RECENT ACTIONS MONITORABLE ACTIONS AND TIMING TAKEN I. Matin of Apriultural PASCOM ae iefielemt s Patiier subsid 1. B Nem wholesal and ~elaß enes abolisuhd. Sed company bemuse of strutural wadmuesse liquidated, and sed *(a) Govem~et to privati u sd in their operaannt and flanel production privati~ed. production. stup. 'Ib pubm sor Goverment hus ageed to arowding out private se or relinquish its equity in th e() Govem ent to dotrol fe~tii commrolal activities. IleaJizar PASCOMs to the privat prices. pr kept unifom osss the setor. Government - country, thuM rducing oprting to fix only ex-depot pris 2. B r d Pr o n margin of distat operators and of their own sto~ks aud to taxlng uss in the souther duce minimum quantity of b*(a) Jssue invitations to conmuhing firms to nes. e-depot sal~ to one ton. submit bids to prepare PASCOM diveutitue. Privat~ fertiiser iuporttrs frms to fix their own pries. 3. Por eh (a) Lmh the divetiture of PASCOMs as ageed wih IDA. (b) Sll stook of ftiar and lahing gear (MOA), aud co lnpuls (COCoOD). (0) Prepar dire~ve for qualty aud environmental standards to guide all hmportse (joit MOA/COCOBOD to be ratim~d by the Eniromea~ Proteon Cone). 4. For Thir Tr Reia (a) Comp~ the divetiture of PASCOMs. (b) Enfoirm the diretiv for qualiy and environmetal utend~rd for agriuural hemi~ls for use by al huportr and distributors. * r'andano aheady met. **~Epected to bo el by Marbh 16, 1992. At49 -th to An U Pago5 of 6 AGRICULTURAL SECTOR ADJUSTMENT PROGRAM Prot se Refrm and Adtions ADJUSIMENT THEME RECENT ACTIONS MONITORALE ACTIONS AND TIMING TAKEN n. SECROINA DMå&m OBJECTIVE: (i) Strengthen intrasctora l ooordinutinn sgriu,e; (i) bnprov the immework for reaource aUocation W agricuure; (i) atrengthen storal budget formulation; and (Iv) math budget with setoral p i . 1. Setor managmnet di~persed APCC extensively reviewed 1. Befre NOtao anong several public metor and approved the Medium- nies inoluding MOA, Tern Agri . Develop ent *(a) Revise the TORs for the Agric. Policy COCOBOD, Forestry Dept., Strategy. Govement hau Coordinating Commite to upgrade MIST, and DFL Agriktural issued røvimed TORs for represetatwn; extent embership to Poliy Coordin~ing Commin APCC, expamding Envaiometal Protetion Council and Coooa (APCC) proved useful forum for membership to ino~de the Secretariat; and give It authority to reviw diswussig and cordinating Cocoa Seoretarit, and sector-wide budget. mectorwide issues. Envhonmental Protection Counll and elevating *(b MOA to eablish a permanent, high 2. Regions ahould be more representation to Director or leve internal budget comm~nee for the involved in demision maring on above. APCC authorised to evaluation of projeta in the agricultural publio prog d and rview th budget of MOA, invetsent program. impleme n in order to r~&ct CMB, Forestry, Ag. pri . Hdqua Rsearh, aud Feedr 2. Prosenttio ~taff mhould provid exprtise to Road. back up the regions. None. Government ham issued a 3. Ned for daed ation direciveon he .Fo R program for hy ativiti: detai to d . aubsectora/aervicea: agric. (a) Agreement on the agriouRural metor researh, etesion, and aR- Preparation of a~tion budgets for 1993. sale irrigation. prog~uma for agric. resarb, extmain sæd, (b) Deaign and implement a bong-erm 4. Need for a meoral feeder roads, and livestock mectoral monitoring aystem, focusaing on køy monitoring ystem to help policy have been completed. indicatora of performacoe. maera to foom on prority area Preparation for ma~l-scale ambc as poverty, environnt, irr is U y. 4. For T Tra Re grwt, etc. MOA ham established a (a) Agreement on tho agricultural meotor 5. No mm for permanent high leve budgts for 1994. eva~uatlng new projects and for nternal budget commite establimhing mectorwid priorities. for te evaluation of project Fina budget submissions do not for APIP. conform to sectoral priorities. * Condit~na aheady nt. - 50 - Anachmnt to A n Page6of6 AGRICULTURAL SECOR ADUSIMENT PROGRAM pro~e d=fom and Aåton ADJUSTMENT THEME RECEN« ACTIONS MONITORALE ACTIONS AND TIMING TAKEN I. PME LLEVIANQAND THE ENIONMENT ORJECRIVE: Pat~trng response of tho poor to hiceaivs by removing constrans on acesato public services. 1. Us of povety oritoria ln 1. Process of identifying (a) Implement a system to monitor the projects and programs lacking. impact of Government spatial distribution of public expcnditure in budget on poverty is now relation to th poor, Government to idntify 2. Lack of a cohrent acoepted as a priority povety-red~cing programs in the 1992 budget hramwork for tho «ntenable objectiv. nd encure priity fnding for similar use of land rnsouroes. programa in the 1993 budgt 2. Preparation of an Environmntal Action Plan (b) Completo an action program for Land (AP) nearing copletion. Rsource Management. Land resourco degradation identified s major issm. (e) Complete a study on tw profik and Action program for Land inoidence of poverty in tho rurdl stor and on Resource Managment the impact of agricultural policy on poverty. complcted. Prepar an action program. - 51 - Page 1 of 13 GHANA AGRICULTURAL SEC[OR ADJUSTMENT CREDIT DRAEQQ-RRi3AIZ ReultinsaiGuidelinesforthe.Privatto ofIneralMakeinof COco 1. By Ghana Cocoa Board Law 1984 PNDCL.81 the Ghana Cocoa Board is authorized to purchase, market and export cocoa produced in Ghana which Is graded under Cocoa Industry (Regulation) Consolidation Decree 1968 (NLCD.278) or any other enactmeDt as suitable for export. 2. Under Section 4 (1) of the said PNDCL.81, No person shall purchase cocoa except COCOBOD through its wholly-owned subsidiary buying company; or a person or organization authorized in writing by the Board to purchase cocoa for sale to Cocobod. 3. The Government of Ghana has decided to allow competition in the internal marketing of cocoa. In pursuance of this objective Cocobod has, by virtue of the powers conferred on it by Section 34 PNDCL 81, come out with the regulations hereunder to guide the conduct of participants in the internal marketing of cocoa. 1.0 MNRI 1.1 SelectionPredures: This may include vetting and interviews. The objective is to ascertain the state of preparedness of the company; organization and structure of the company; its operational strategy, financial strength, extent of logistic support and when it can commence business when licensed. 1.2 P culars of Cany: Any company, which should be a Limited Liability Company, desirous of being licensed to operate as a dealer in the purchase of cocoa should furnish Ghana Cocoa Board with the under-listed particulars: (J) name of the company and registered trade mark (fi) date of incorporation (il) nature of business (v) major shareholders of the company (v) names of directors and management personnel (vi) registered head office - address (vil) bankers reference - 52 - A U Page 2 of 13 1.3 fianca S : The company has to demonstrate a financial base sufficient to ensure that every cheque issued by it in the purchase of cocoa will be honored by the bank on which it is drawn. 1.4 Opeaina Set U: The company shall provide Cocobod the following: (1) detailed list and addresses of Regional/District Offices and Buying Centers; (i) detailed listoutlines of areas of operations of the company in Ghana In at least three cocoa growing Regions; (iii) tools of trade; (iv) location of sheds and depots of the company in Ghana which should be subject to inspection and certification by the Quality Control Division of Cocobod. 2.0 *(200k 2.1 PranaW Licsing: Provisional licenses shall be given to companies that would have met requirements under 1.1, 1.2, 1.3. 2.2 License o mene busi=ne: The companies which meet requirements under 1.1 to 1.4 shall be issued with license to commence business. 2.3 Licenses will be renewed annually unless there is a breach of the dealers' regulations contained herein. 2.4 Any company engaged in cocoa waste collection trade shall not be licensed to purchase good quality cocoa. 3.0 DR A M 3.1 The company shall comply with operational requirements set out in Appendix I. 3.2 Jute bags used by dealers to purchase cocoa must conform to specifications as set out in Appendix I. 3.3 Bagging weight for cocoa dealers shall conform to standard weight of 64.0 kilos gross at grading and sealing. Take-over weight shall be 63.7 kilos gross. 3.4 Gradin and Sealing: Grading and sealing of produce prior to evacuation to take- over Depots shall be the same as prescribed by law and the attached Appendix I. -53 - Page 3 of 13 3.5 Ca Waeoing (1) Where a dealer Intends using Cocobod's facilities, this shall be clearly indicated. (ll) All storage sheds for cocoa shall be clearly marked and the dealer's logo indicated or embossed. (ll) All storage sheds shall conform with provisions under "the care and storage of cocoa" in the Cocoa Industry Regulations, 1968 or other relevant regulations. 3.6 bmison of Retrs 3.6.1 The company must declare its returns weekly, such returns must indicate locations of various categories of stocks for inspection by Cocobod's accredited personnel. 3.6.2 The returns shall be as set out in Appendix II and may be modifled from time to time after appropriate consultations. 3.6.3 The Company shall submit monthly, operational reports to the Chief Executive of Cocobod. 4.0 ERIKM 4.1 Prdu P e The minimum producer price to be paid to the farmer shall be determined by the Producer Price Review Committee made up of Government, Cocobod, Farmers, Dealers or such members as may from time to time be determined. 4.2 Ta Over Prce: The Producer Price Review Committee shall announce from time to time the price per ton at which cocoa may be taken over at the designated depots. 5.0 O RMC Mf RG 5.1 Licensed Dealers shall be required to have all their empty storage sheds and gratings disinfested, prior to the opening of each cocoa season, with an approved insecticide. 5.2 Licensed Dealers may engage the services of Quality Control Division for the fumigation of cocoa and the treatment of sheds and containers. - 54 - AnnxM Page 4 of 13 6.1 Th Producer Price Review Committee shall be responsible for setting of fees to be paid to the Quality Control Division in respect of each bag of cocoa inspected, graded and sealed at up-country centers and check-sampled at take-over depots. 6.2 Quality Control Division shall negotiate with the Licensed Dealers the appropriate fees chargeable for the fumigation of cocoa and the treatment of sheds and containers. 6.3 The Cocobod shall also negotiate with the Licensed Dealers the appropriate fees chargeable for services that may be provided by Cocobod. 7.0 QOA TAMK OERCEDJ 7.1 At take-over depots, the weight and quality of cocoa being delivered by Licensed Dealers shall be ascertained by personnel of Cocobod, the Quality Control Division and the Licensed Dealers. 7.1.1 Sound bags of cocoa of the approved weight and exportable quality shall be received into shed. 7.1.2 Shortweight bags of cocoa shall be rejected for restandardization by the Licensed Dealers. 7.1.3 Cocoa Take Over Receipts (CTOR) will be issued in favor of Licensed Dealers to cover produce received into shed. 7.1.4 Dealers shall submit CTOR and Invoices to Cocobod for prompt payment. 7.2 Sub-standard The Licensed Buying Agent shall not have the option to recondition any sub-standard cocoa. 7.2.1 Any such sub-standard cocoa shall be taken over by Cocobod and an appropriate price paid to the Licensed Buying Agent for it. 8.0 8.1 All disputes, controversies, differences, and questions arising out of these regulations which cannot be amicably settled may be settled by arbitration. 8.2 The arbitration will be conducted in accordance with the Arbitration Act 1961 (Act 38) or by a special Arbitration Tribunal established for the purpose. - 55 - Annaz Page 5 of 13 9.0 SAW=*0 * Y 9.1 In addition to any other sanctions imposed by law. Cocobod shall have the right to withdraw the license of any company upon breach of any of the dealer's obligation contained herein. Ie Cocobod reserves the right to do a mandatory inspection as and when necessary for this purpose. 10.0 10.1 The above Regulations and Guidelines are subject to such legislation, amendments, additions, and bye-laws as may from time to time be issued by the Government and/or Ghana Cocoa Board. - 56 - Anne= Page 6 of 13 QuaHty Control Division - Guidelines for Cocoa Marketing 1. !CARE AN 11ORA OF COCA 1.1 Storage Sheds Licensed Wing AMts shall ensure that: (a) the building is rainproof; (b) its floors are dry and properly constructed of cement, concrete, stone, brick or wood; (c) it is provided with sufficient doors and windows to allow adequate ventilation; (d) the inside walls are painted or white-washed and repainted or white- washed annually or at such other periods as the Executive Director may specify; (e) cocoa is stored on gratings or deckings made with seasoned wood which allows at least three inches air space above the floor; (t) cocoa is stored in such a manner as to allow adequate ventilation and access to all sides of each stack and between the stacks and walls; (g) the buildlag is kept clear of dust and refuse and the air space beneath the gratings or deckings is free therefrom; (h) the premises are kept free from insects and rodents or grain and other foodstuffs that harbor these pests; (i) substances which may be injurious or deleterious to cocoa in particular cement, kerosene or tar are not kept in a building in which cocoa is stored; (j) empty bags are kept away from any building in which cocoa is stored; (k) doors and windows are kept open during the day to provide adequate ventilation. 1.2. After purchase from the farmer, cocoa: (a) shall not be stored in bags infested with insects; (b) shall be bagged in clean, dry bags of strong and unimpaired texture; (c) shall be inspected, graded and sealed. -57 - A.I Page 7 of 13 1.3. After Inspection, grading and sealing, cocoa shall not be transported, or loaded on to, or unloaded from vehicles under conditions which may cause the cocoa to deteriorate or become contaminated by any substance which might injuriously or deleteriously affect the cocoa. 1.4. Cocoa shall be protected from rain, moisture and dust by being covered by waterproof coverings. (a) All storage sheds shall be inspected for their suitability by the Executive Director or an officer acting on his behalf and a certificate of registration shall be issued if conditions are ideal and in accordance with the Cocoa Industry Regulations, 1968, L.I.598 or other relevant or applicable regulations/ guidelines. (b) A certificate issued shall be applicable to the shed to which it refers and shall not be transferable. (c) The certificate shall be prominently displayed in the storage premises at all times. (d) The Certificate is liable to revocation by the Executive Director or any officer acting on his behalf by notice in writing if the shed is no longer suitable for the continued storage of cocoa or for any other purpose. (e) Revoked Certificates shall be returned to the Executive Director within a period of 2 (two) weeks of revocation by a holder on whom has been served a notice of revocation. 3. .--COUNTR STORAGE PRMIE Storage premises of a Licensed Buying Agent of cocoa at the up-country centers shall not be located within two hundred meters radius of any shed, WarehouselDepot for Coffee, cocoa waste, or sheanuts. Such promises should have enough space for bulking of produce. WHERE COCOA IS HANDEIL3ERMAKE OVER A Licensed Buying Agent should have discrepancy sheds at designated centers where cocoa will normally be taken over by COCOBOD. Such premisses will be used for the treatment of discrepant cocoa (i.e., shortweight, reconditioning of cocoa by picking, etc.) before handing them over to COCOBOD. - 58 - Page 8 of 13 Licensed Buying Agents should register (name, photograph, location, etc.) with COCOBOD all brokers or Produce Clerks who are in direct contact with farmers. COCOBOD to be informed immediately of any dismissals/resignations/retirement, etc., of such brokers, Produce/Purchasing Clerks. 6. 2 OEMM The Licensed Buying Agents shall have sufficient stocks of the following tools of trade in each storage premises: (a) Gratings (made of seasoned wood) (b) Tarpaulins (c) Weighing Scale (d) Empty/clean jute/B Twill bags (e) Wooden Shovel (f) Black Stencil Ink Block (g) Ink Brushes (h) Twine (Jute) 7. A I Q Q (a) Strong, new and clean unimpaired "B" TwillfJute bags shall be used for both export and collection of cocoa from farmers. (b) Such bags shall bear the Trade Mark registered with COCOBOD. (c) Shall be marked "Cocoa, Produce of Ghana" in letters at least 2m Inches (about 7 cm) in size. (d) And any relevant particulars that may be required by COCOBOD. 8. SEM ZNG Machine sewing of the bags shall be allowed. In case of hand sewing, each bag shall be securely sewn with a continuous twine without knots and the stitches shall be such that cocoa shall not be wasted through the stitches in transit or during storage. 9. IPETO AND CITFCATION OF COCOA (a) The Quality Control Division shall carry out the inspection, grading and sealing of cocoa in accordance with the Cocoa Industry Regulations, 1968 and General Procedure and Instructions. Annex II Page 9 of 13 Aponlt (b) The Grading Officer shall issue a Certificate, i.e., P.I. Form 1 in respect of the consignment which has been so Inspected, graded and sealed. (c) The official Inspection, grading and sealing and check-sampling shall be carried out in approved and registered storage sheds only at the up-country centers and at designated depots/sidings as may be directed by COCOBOD. 10. UIAVUKMGOFDMUMLRQDMLC Sealed produce should be stacked according to seal numbers and in a manner that at the time of evacuation first sealed produce could be moved out first. 11. APPIA I FOR-GRADNG AND SEALING AN CA Applications for grading and sealing of cocoa at up-country centers and check-sampling at the Ports shall be submitted to the District/Port Officer inviting the grading officer. The application shall state the following: (a) Name of the Licensed Buying Agent; (b) Situation of premises; (c) Number of Bags for Inspection; (d Address of Store. 11.1 Treatment of Agsmit (1) Immediately on receipt of an application for grading and sealing of a parcel of cocoa, the officer will enter upon the application in Ink the date and time of receipt and a number in order of receipt starting from the first of each month. (il) He will then place the application at the bottom of his set of applications awaiting attention. All applications will be dealt with strictly in their order of receipt. That is, the application next due for attention is always at the top of the file. All such applications will be treated within 72 hours after receipt of application. 12. METHO OF INSEIONM (UPCOUNTRY (a) Inspection, grading and sealing of cocoa sall be in smaller lots of 32 or 48 bags. (b) In practice, 100% samples shall be drawn. (c) Samples drawn from any particular lot shall be bulked and thoroughly mixed; samples shall be quartered after every round of mixtaglbulklag and final samples of about three (3) sampling bags full-normally 300 beans - are realized. - 60 - Annex MW Page 10 of 13 Appndik (d) 100 beans shall be cut lengthwise through the middle from each of the 3 sampling bags. (e) The 300 beans cut shall be examined for various defective classes of mouldy, germinated, slaty, weevily and other defects/foreign matter and the defective beans shall be counted. From the count of defective beans made, the grade shall be determined as follows: GRADE1: Cocoa which is thoroughly dry, free from foreign matter, smoky beans and any evidence of adulteration and which contains not more than 3% by count of mouldy beans, not more than 3% by count of slaty beans and not more than 3% by count of all other defects. GRADE I: Cocoa which is thoroughly dry, free from foreign matter, smoky beans and any evidence of adulteration and which contains not more than 4% by count of mouldy beans, not more than 8% by count of slaty beans and not more than 6% by count of all other defects. SUBS&ADR: All cocoa which fails to reach the standard of Grade II will be regarded as sub-standard. Any produce (cocoa) which contains high proportion of defective beans and which in the opinion of the Executive Director or any officer acting on his behalf cannot be reconditioned to either GRADE I or GRADE II should be double sealed and stencilled 'XS'. 13. GRAD MARNG. SEALI AN IM NUM The Grading Officer having satisfied himself of the grade of the cocoa in any particular lot will mark the appropriate grade found and seal the bags containing the cocoa beans from which the sample was obtained. The seal used shall bear a number denominated by the Executive Director which shall indicate the month in which the cocoa is sealed. 14. EVACUATION OF PRODUCE Sealed produce shall be evacuated according to seal numbers, i.e., FIRST SEALED FIRST OUT. 15. YALIDITY OF SEALS AND GRADE MARKSON COCOA Seals and Grade marks on cocoa shall expire at the end of the fourth month succeeding the month in which the produce was graded and sealed. - 61 - Annex M Page 11 of 13 App=Wk 16. TAMPERIG OF SEA GRADE MARKS, AND CONNT No person other than an officer of the Quality Control Division shall tamper or interfere with or change any seal or grade mark placed on a bag of cocoa or tamper with or change any cocoa in a bag so graded and sealed. 17. SEALS AND GRADE MARKS TO BE ATTACHED TO BAGS Q COCOA No person other than officer of the Quality Control Division may attach a seal of any description to any bag containing cocoa or place on any bag any grade mark. 18. COCOA FOR SALE. ETC.. TO BE THOROUGHLY DRY No person shall buy or sell or offer or expose for sale or tender in satisfaction of any claim or demand, or shall export any cocoa which is not thoroughly dry or which contains any foreign matter. 19. POWEITONSPE= COCOA An officer of the Quality Control Division may require any person in possession of or transporting or offering for sale any cocoa, to submit the same for inspection. 20. ECTION AND SALI OF COCOA FOR No person shall export or cause or permit to be exported or attempt to export any cocoa unless and until the same has been inspected by an Inspector who shall have affixed to each bag a seal and grade-mark. 21. POYM TO jT= PRE Any officer of the Quality Control Division may at all reasonable times enter any premises in which cocoa is kept or suspected of being kept and inspect any cocoa found therein and may affix, remove or alter any seal or grade-mark on any bag containing cocoa. 22. DISINEESTATION.OF PRODUCE AN SUORAGE (a) Licensed Dealers shall be required to have all stocks of produce purchased within a season treated, as often as necessary, with an approved insecticide to control insect infestation during storage. - 62 - Annex W Page 12 of 13 Append (b) Prior to shipment, every consignment of produce shall be thoroughly disinfested with an approved fumigant. (c) The use of any approved insecticide or fumigant for the treatment of storage sheds or produce shall be subject to clearance by the Quality Control Division. (4) The Quality Control Division shall ensure that approved insecticides/fumigants for the above purpose are appropriately applied. (e) The Quality Control Division shall from time to time analyze cocoa bean samples for taint and pesticide residues. 23. TRAINING OF LICENSED BUYING AGENTS All Licensed Buying Agents, their buyers/brokers or staff shall have a wider knowledge of the Cocoa Industry. Licensed Buying Agents shall present their field staff for training in the: (a) Recognition of Defective Beans (b) Analyzing and determining grade of cocoa (c) Storage hygiene (d) Regular and immediate evacuation, etc., etc. 24. S M EQ R The Producer Price Review Committee shall prescribe fees to be paid by Licensed Buying Agents to the Quality Control Division in respect of each bag inspected, graded and sealed at up-country centers and check-sampled at Port for export. 25. CERTICAT OF DEERIORATION (a WA N A I is a certificate issued to Licensed Buying Agents whose cocoa had fallen to sub-standard at forts and other take-over points after the expiration of the seal validity period. This certificate entities the Licensed Buying Agent to claim full value compensation from the Ghana Cocoa Board provided the Licensed Buying Agent can satisfy the Board that the Agent: (a) Evacuated the cocoa in order of seal numbers. (b) Endeavored to ship or evacuate the cocoa within the seal validity period. (c) Maintained good storage and transported the cocoa under ideal conditions to maintain quality. (d) The (P.1 Form 1) Certificate of Inspection was free from any adverse endorsement at the time of the original sampling. - 63 - Page 13 of 13 Appendix 26. ALLOWANCE "A" - SEALED VALID Y EXPIRED Sealed cocoa originally marked Grade I or Grade II which has been degraded at the time of delivery to the Board to Sub-standard after the expiration of 4 months from the end of the month of sealing will qualify for payment in full provided: (a) The Board is satisfied that the Licensed Buying Agent has correctly marshalled his stock and made every endeavor to deliver the cocoa to the Board or in the case of other local deliveries, has made every endeavor to despatch the cocoa as early as possible within the period of seal validity. (b) A covering certificate containing details of seals, date, grade, etc., is obtained by the Licensed Buying Agent from the Quality Control Division of the Ghana Cocoa Board at the time of delivery. If in the opinion of the Board, the Licensed Buying Agent has failed to carry out the terms of (a) above then any sealed cocoa which has been degraded will be dealt with in accordance with Allowance "B". 27. ALIWANCE "B" - SUB-STANDARD COCOA-VALIDITY NOT EXPIRED Sealed cocoa originally of Grade I or Grade II quality which has been down-graded, at the time of delivery to the Board, to Sub-standard within a period of 4 months from the end of the month of sealing will qualify for payment at half the naked beans' cost plus the cost of transportation per ton for such cocoa taken over. A covering certificate from the Quality Control Division of the Ghana Cocoa Board will not be required. Provided the work is completed within a reasonable time, the Licensed Buying Agent will have the option of reconditioning such cocoa to Grade I or Grade II. Attention is, however, drawn to the provisions of the Cocoa Industry Regulations 1968 and the subsequent amendments whereby it is an offence to adulterate any cocoa intended for sale. Any sub-standard cocoa tendered to the Board not fully qualifying for Allowance "A" will be dealt with under the terms of Allowance "B". 29. SUlSTANDARID COCOA- UP-COUNTRY VALIDITY NOT EXPIRED Sealed cocoa originally of Grade I and Grade II quality which has been down-graded either at the Port or at up-country center to sub-standard within a period of 4 months from the end of the month of sealing will be taken over by the Board and paid for at a price to be fixed by the Board. Such sub-standard cocoa will not be desealed but will be grade- marked "sub-standard" in accordance with separate standard instructions in force from time to time. - 64 - Pag 1 of 3 GHANA AGRICULTURAL SECTOR ADJUSTMENT CREDIT Snoervislon Plan and Imolementation Schedle A. IDA S69e2 isO In0=t A total of 15 staff weeks (SW) for FY92, 20 SW FY93, 18 SW FY94 and 4 SW FY95 would be required for supervision. Routine activities such as review of progress repotts, procurement actions, correspondvnce, and donor discussions would take about 5 SW during the first year (WY92) of the operation, 4 SW for FY93. The additional time would be required for substantive review of the adjustment status as detailed below. AGSAC is expected to become effective March 1992 and to close on December 30, 1994. During implementation, IDA will send main supervision missions. The missions will include staff and consultants in the areas of price policy and marketing, commodity fiancing, fertilizer marketing, public expenditure management and an institubonlal specialist. Close coordination will be maintained with the IMP. Most of the routine follow- up will be done in the Resident Mission in Ghana. Date Activity Skills Required SW EMIS Focus on issues of disbursement arrangements, establishment Task Manager 2 5/92 of special accounts. 6/92 Technical review of cocoa pricing and financing issues. Task Manager 4 Launching of preparatory studies. Trade Economist 3 Financial Analyst 3 Marketing Spec. 3 EF Pollow-up on the Implementation of Competitive Cocoa Task Manager 4 11/92 Marketing. Marketing Spec. 3 Financial Analyst 3 06/93 Second Trenche Release Review Task Manager 4 Marketing Spec. 4 Macro-Economist 2 12/93 Routine Supervision Task Manager 6 06/94 Third Tranche Release Review Task Manager 4 Marketing Spec. 4 Public Expd. Spec. 4 FLU Task Manager 4 12/94 Prepare PCR - 65 - Pag. 2 of 3 .Gomeriment.Crb~o te Suerws~ The APCC will submit status repots on all of the areas covered under the Ltater of Sctoral Policy, in accordmnce with the folowing Schedulo: erio Covre TO bkReä ie by Up to 0630/92 07130/92 Up to 09/30/92 10/30/92 Up to 12/30/92 01/30/93 Up to 03/30/93 04/30~93 Up to 06/30/93 07130/93 Up to 09/30/93 10/30/93 Up to 12/30/93 01/30/94 Up to 03/3094 04/30/94 Up to 06/30/94 07/30194 Up to 09/30/94 10/30/94 Draft PCR - 12/30/94 C. AGSAC: PrioritW Acivitie and Tindna åsligag Propoe T~mn and Romes~niblt (a) Announe introduction of privat. competition Done (b) Töhnical review of pring and finance arrangements 06/92 06/92 (0) Imsu new cocoa regulations 03/92 (d) Announc 1992/93 producor price 06192 (a) EiMinare r~straints on int exports Donc (b) Comple updating the GCC balance sheet and determine unit sharm values, isaue prospe~tus 06/92 10/92 Lift restritions on export. Done ~ri Mardn~ (a) Undetake studis for the streamining of GFDC 07/91 don (b) R~view of MFDC rice nilling operations 09/91 don. (e) Preparo inventory of GPDC cold storag facilities 09/91 don (d) Complt Food Secuuity Study - don. (e) Dtermin ~ rsponsibility for Public Sector Pood Imports - 06(93 - 66 - Page 3 of 3 Actins iProposed Timning and Res=nsbt (a) MOA to appoint consulttan and prepare FASCOM divestiture plan. Offor shares for sale. 02/92 09/92 (b) Prepare and isse guidelines for quality and environmental standard for importers of fertilizer, agrochenicals and cocoa inputs. 06/92 12/93 Sä~e Maboeen and Caorinai~ (a) Review and agree with IDA the composition of tho 1993 budgets. 11/92 (b) Prepare sumary format for presenting a sectorwide budget for APCC - 06/92 review. Povertv Alleviation (a) Review 1992 budget to identif poverty-reducing programs, incorporate findings in tho preparation of 1993 budget. 09/92 (b) Prepare studies on the incidence of poverty, impact of agricultural policy on poverty and on ways of incorporating the poverty dimension in the planning process at the national, regional and district levles. 07/92 06/94 Complete a Land Resourco Management Strategy. - don Second Tranche Review -0693 Third Tranche Review - 06/94 12194 - 67 - Annex V Page 1 of 1 GHANA AGRICULTURAL SECTOR ADJUSTMENT CREDIT Suplmear=.Data.Shee L TIetable of Ke Events (a) Time taken to prepare project 19 months (4/90-11/91) (b) Project prepared by GOG with assistance from IDA (c) Identification Mission April 1990 (d) Appraisal commenced February 1991 (e) Negotiations February 1992 (f) Planned date of Effectiveness April 1992 (g) Second Tranche Release Review June 1993 (h) Third Tranche Release Review June 1994 (i) Start of PCR Preparation December 1994 EL Spi Ation IDA will undertake reviews for second and third tranche releases in June, 1993 and 1994, respectively. I. Documents in the Project File (a) Ghana: Medium Term Agricultural Develpment Strategy (MTADS), An Agenda for Sustained Growth and Development (1990-2000) Report No. 8914-GH. (b) Cocoa Policy in Ghana: Current Practise, Issues and Options (c) The Volta and Upper Region FASCOMs: An Agenda for Financial Restructuring and Development (d) Decentralization of Program and Budget Implementation (e) Instutionalizing Budget Planning in the MOA (f) Poverty Alleviation in the Agricultural Sector (g) Selected Performance Indicators iвя� зв�згяз roггыюоиоа ^�"wo'°°г"а' �' �r �''д � 'r уΡ�'виякзNа У Fдso ° ' '0�.. " "� � - � �' •т1 � ,a.J�'�\...�.� •1,��,� �+ .t wп гоаа> _i ° �. • . g i Т • NCYron4o f, е, � в�в+++r. Ча�lьаьs 7, /' !J . I q ^'•""'•" lегг> ;'l' � { i � � t ./YI л 1. ' ,,��� � / � 801бАТ0 !бА ьювиnqьо ьоип�агьеs ��' �� "� �''� х�� U Р Р Е R ".i •�•�. 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