Ghana - Agricultural sector performance review and accountability on the National Agricultural Research, National Agricultural Extension, National Livestock Services, Agricultural Diversification, and Agricultural Sector Investment Projects

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 20686-GH AGRICULTURAL SECTOR PERFORMANCE REVIEW AND ACCOUNTABILITY IMPLEMENTATION COMPLETION REPORTS (Credit Nos. 2180-GH, 2247-GH, 2346-GH, 2441-GH, 2555-GH) FOR THE REPUBLIC OF GHANA June 30, 2000 Rural Development m Country Department 10 Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Cedi Cedis Per US$ 1990 - 326.28 1991 - 367.73 1992 - 437.09 1993 - 648.98 1994 - 956.71 1995 - 1,200.40 1996 - 1,637.24 1997 - 2,050.29 1998 - 2,314.15 1999 - 2,647.32 WEIGHTS AND MEASURES Metric System FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS AGSSIP Agricultural Services Support Program CAS Country Assistance Strategy DRC Domestic Resource Cost ERP Economic Recovery Program FOB Free on Board GEPC Ghana Export Promotion Council GOPDC Ghana Oil Palm Development Corporation GOG Government of Ghana IDA International Development Association MOFA Ministry of Food and Agriculture MTADS Medium Term Agricultural Development Strategy MTADP Medium Term Agricultural Development Programme Vice-President: Callisto Madavo, AFRVP Country Director: Peter Harrold, AFC 10 Sector Manager: Jean-Paul Chausse, AFTR3 Task Team Leader: Eustacius Betubiza, AFTR3  FOR OFFICIAL USE ONLY REPUBLIC OF GHANA AGRICULTURAL SECTOR PERFORMANCE REVIEW AND ACCOUNTABILITY IMPLEMENTATION COMPLETION REPORTS TABLE OF CONTENTS Page Preface .............................................................i Executive Summary ............................................................. ii PART I: RECENT AGRICULTURAL PERFORMANCE AND FUTURE GROWTH PROSPECTS ........................................................ 1 1. Macro economic and Agricultural Sector Policy Setting .............................................................1I 1.1 Macroeconomic Framework ..............................................................1 1.2 Agricultural Sector Strategy ..............................................................1 2. Implementation of Government's Strategy and Investment Program ............................................. 3 2.1 Overview of Government's Strategy Implementation .3 2.2 World Bank's Support to Government's Investment Program .4 2.3 Sector Issues Addressed by Bank-Supported Operations .4 2.4 Achievement of planned objectives .5 2.5 Cross-cutting design and implementation issues .7 3. Recent Agricultural Performance .................................................................8 3.1 Recent Agricultural Growth .................................................................8 3.2 Recent Poverty Trends .................................................................9 4. Growth Prospects ................................................................ 10 4.1 Current incentive framework and diversification prospects ................................................. 10 4.2 Unfinished Reform/Institutional Framework Agenda .......................................................... 12 4.3 Policy Implications ................................................................ 14 PART II: ACCOUNTABILITY IMPLEMETATION COMPLETION REPORTS ... 15 1. Implementation Completion Reports for the Projects Closed in 199 .15 National Agricultural Research Project .15 National Agricultural Extension Project .19 National Livestock Services Project .22 Agricultural Diversification Project .25 Agricultural Sector Investment Project .29 2. Related IDA Credits .......................... 32 3. Agricultural Production, 1980-1998 .......................... 33 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.   REPUBLIC OF GHANA AGRICULTURAL SECTOR PERFORMANCE REVIEW AND ACCOUNTABILITY IMPLEMENTATION COMPLETION REPORTS Preface This is a combined Implementation Completion Report for a set of projects in the Agricultural Sector that closed during 1999, namely, the: 1) National Agricultural Research Project; 2) National Agricultural Extension Project; 3) National Livestock Services Project; 4) Agricultural Diversification Project; and 5) Agricultural Sector Investment Project. The fact that a wide range of projects in the same sector were closing at the same time provided a unique opportunity for not only assessing each project's implementation performance and impact, but also examining the overall performance of the agricultural sector over the implementation period, and the role played by IDA in the process, as well as identifying needs for further support. The report has two parts. Part I traces Government's policies and strategies relating to the agricultural sector starting from 1983, the year in which Government undertook major reforms in the context of the Economic Recovery Program, following many years of economic decay, and the World Bank extended a series of investment credits to the Government of Ghana in support of the Program. In order to consolidate the gains resulting from this Program's implementation, the Government elaborated the Medium Term Agricultural Development Strategy and Program in 1990, which was supported by another series of Bank credits, including the five projects cited above. The report assesses these credits' implementation performance and preliminary impact, and draws key lessons. It also examines the agricultural sector's overall performnance in response to these policies, strategies and accompanying investments, and looks at the way forward, including the sector's major sources of growth and the resulting policy implications. In keeping with the Comprehensive Development Framework for Ghana, the borrower prepared detailed Implementation Completion Reports for each of the projects, which, together with other materials in Project Files and Bank staffs own assessments, served as the basis for the Summary Implementation Completion Assessments presented in Part II of this report. The original, borrower-prepared detailed Implementation Completion Reports are available in Project Files. This report was prepared by a team led by Eustacius Betubiza, AFTR31, of the Africa Region, and reviewed by Jean-Paul Chausse, Sector Manager, AFTR3, and Peter Harrold, Country Director, AFC 10. ' Other team members included: Patience Mensah, Solomon Bekure, Charles Annor-Phrempong, Gregoria Dawson, Wendy Wiltshire, Joan Grigsby (Bank Staff), Abdoul Barry, Seth Vodjogbe, Alima Mahama, Anka Kitunzi, and Prabuddha Sanyal (Consultants). Valuable comments were provided by Theresa Jones, Rocio Castro, and Malathi Jayawickrama (Bank Staff).   REPUBLIC OF GHANA AGRICULTURAL SECTOR PERFORMANCE REVIEW AND ACCOUNTABILITY IMPLEMENTATION COMPLETION REPORTS Executive Summary Introduction 1. Prior to 1983, Ghana's macro-economic framework was characterized by, among other things: i) pervasive controls of internal and external trade, including fixed prices for food non-food agricultural commodities; ii) government ownership of loss making enterprises, including agricultural inputs supply and output marketing; iii) poor revenue collection; iv) huge budget deficits; v) large civil service; and vi) an overvalued exchange rate which helped to maintain the prices of both imported food and other items artificially low, at the expense of local production and local industry. The resulting economic declined was reversed when Government embarked on an Economic Recovery Program in 1983 that restored competitivity and growth to the Ghanaian economy, including agriculture. However, lingering pervasive controls still stifled full-fledged recovery, and the need for a comprehensive for accelerated agricultural growth led to the elaboration of the Medium Term Agricultural Investment Program (MTADP)in 1990. 2. MTADP aimed to creating market signals through further trade liberalization, catalyze the expected supply response through investments in extension and research, capacity building, rural infrastructure development, environmental management, and increased private sector participation in agricultural development. Several programs were prepared for financing the various aspects of the finance. Overview of Government's Strategy Implementation 3. The government's sector strategy was relevant and consistent with Government's overall policy direction: concentrating its limited resources on key public sector functions, including the formulation of policy, research and extension, and sector monitoring, and creating a favorable environment for the private sector to provide services to the productive sector, including input supply, output marketing and processing. 4. Overall, Government's succeeded in implementing its strategy, although the private sector's response to the new opportunities was less than expected, in due to the prevailing high interest rates and limited medium/long term credit opportunities that made it difficult for would-be entrepreneurs to generate sufficient resources for capital purchases and operating funds. Although Government reoriented its expenditures in line with the new strategy (e.g. more research and extension resources were reallocated to non-cocoa crops in line with its diversification policy), delayed release of budgeted resources remained a major cause of implementation delays. In addition, arrangements for but budgetary coordination through an inter-agency Agricultural Policy Coordination Committee was not as effective as hoped. However, several reform measures were indeed undertaken and investment programs carried out. World Bank's Support to Government's Investment Program  iii 5. Through a series of investment projects totaling some US$ 468 million, the World Bank supported Government efforts in capacity building of the Ministry in charge of agriculture as well as farmers' associations; policy reforms, mainly focussing on trade liberalization and private sector promotion; improving the quality of, and increasing access to basic services, especially rural transportation, credit, agricultural technology through research and extension; promoting diversification and environmental protection. 6. Although the project's objectives were indeed in tune with Government's strategy (the projects having evolved from the Government's own program), there were some problems regarding design complexity, limited donor integration, less than ideal linkage with poverty reduction, weak project monitoring by the client, poor contract performance in some cases, unfamiliarity with Bank procedures in others, and chronic counterpart funding delays. Nevertheless, the projects largely attained their objectives, particularly with regard to physical goals. The institutional framework was strengthened, and growth was restored. However, the high real interest rates remained an impediment to significant private expansion into the export market, particularly that of non-traditional crops. Overall agricultural performance 7. There was general growth in agricultural output, with the per capita food production increasing by 37 percent over the past decade, implying significant food production in excess of population growth. Moreover, in several cases, incremental output emanated from improved agricultural productivity compared to area expansion. Agricultural cliversification occurred, but not sufficiently large to diminish cocoa dominance is the principal foreign exchange earner. Although significant improvement were registered in coffee and cotton production, total production for these two crops remains constrained by poor prices, largely due to market inefficiencies, poor product quality, and high cost of credit impeding increased use of modern farm inputs. Recent Poverty Trends 8. There has been a significant reduction in overall poverty nationwide during the past decade, with the proportion of the absolute poor decreasing from 36 percent to around 29 percent. However, rural poverty remains high, at 36 percent compared to half that in the urban areas. Moreover, the Savannah zone seems to have not experienced any reduction in poverty, which calls into question the efficacy of the targeting mechanisms in the nation's investment program. 9. Indeed, the Savannah has tremendous potential in cotton production, and according to preliminary comparative advantage analysis, Ghana coald potentially profitably export lint on the World Market. However, Ghana's cotton sector remains constrained by market inefficiencies resulting in low producer prices (37 percent lower than in neighboring countries), poor selection and distribution, lack of better suited credit delivery mechanisms, and high cost of capital, among other things. Potential Sources of Growth 10. Apart from cotton production, which remains at a miniscule 45,000 tons, Ghana could expand on cocoa production, again with better prices incentives and improved extension and research services, and fruit and vegetable exports to neighboring and overseas market. This will require investment in suitable transport, and storage facilities, improvements in product quality, and a reduction in real cost of capital. Policy Implications  iv 11. It comes out clearly from this review that although Government has made great strides in liberalizing the economy and setting the stage for growth, one of the remaining stumbling blocks is the high real cost of capital. Government's excessive dependence on domestic borrowing to finance its budget has resulted in interest rates and is crowding out the private sector. The absence of medium to long credit is also impeding private investment in storage and other infrastructure needed to promote export development, particularly for highly perishable products. Other issues to address include better targeting for poverty alleviation, and sustained investment in agricultural services and rural infrastructure, particularly rural roads for increased productivity, and market access.   REPUBLIC OF GHANA AGRICULTURAL SECTOR PERFORMANCE REVIEW AND ACCOUNTABILITY IMPLEMENTATION COMPLETION REPORTS PART l: RECENT AGRICULTURAL PERFORMANCE AND FUTURE GROWTH PROSPECTS 1. Macro economic and Agricultural Sector Policy Setting 1.1 Macroeconomic Framework 1. Prior to 1983, Ghana's macro-economic framework was characterized by, among other things: i) pervasive controls of internal and external trade; ii) government ownership of loss making enterprises; iii) poor revenue collection; iv) huge budget deficits; v) large civil service; and vi) an overvalued exchange rate which helped to maintain the prices of both imported food and other items artificially low, at the expense of local production and local industry. 2. It is against this backdrop of years of failed interventionist policies, which had distorted incentives and led to economic ruin, that the Government of Ghana (GOG), with donor support, introduced remedial actions, culminating in the adoption of the Economic Reform Program (ERP) in 1983. With the ERP, GOG embarked on, among other things: i) internal and external trade liberalization; ii) privatization of public entities; iii) improved revenue collection; iv) civil service reform; v) tighter budgetary control; and vi) currency devaluation. 3. This reversed the economy's decline, and the Gross National Product increased by over 50% over the period 1983-90, in contrast to its contraction of nearly 15% between 1973 and 1983. However, this economic renewal suffered a setback in 1992 when public expenditure, financed by borrowing from the banking sector, increased markedly in the wake of substantial hikes in civil service salaries2 This increase resulted in a 50% expansion in the money supply and high inflation, causing an appreciation of the real exchange rate and adversely affecting the export sector and the balance of payments. Although some degree of stability was macro economic stability was restored, high real interest rates, which had a negative impact on private investment, persevered throughout most of the 1990s. 1.2 Agricultural Sector Strategy 4. In the agricultural sector, pre-1983 sector-specific constraints to growth included: (i) restrictions in grain purchasing and storage, with food prices fixed by Government, thus keeping them low for urban 2 This coincided with the general elections held that year.  2 consumers; (ii) undue government involvement in the marketing of cocoa, cotton, coffee and palm oil, where the low, government-determined producer prices acted as disincentives for improved farm productivity and better household income; (iii) government involvement in input supply with the attendant ineffectiveness; and (iv) public agencies designed to distribute inputs and outputs that very often created market inefficiencies. 5. These adverse macro and sector policies severely hampered agricultural growth, resulting in food and cash crop output decline, which, coupled with a rising population, resulted in a decline in the per capita food production index from 100 in 1974-76 to 62 by 1983. In the years following the adoption of the ERP, farm-gate prices for State-administered prices, e.g. cocoa price, were increased; agricultural support services were rationalized and strengthened; and input subsidies were removed. As a result of the improved incentive framework, real Agricultural Gross National Product growth averaged 1.9 percent between 1984 and 1989, with about 4.2 percenit real growth in 1989 alone. However, although free trade existed for basic foods, e.g. roots, tubers, and vegetables, significant government interference remained in grain purchasing and storage, and most importantly in the marketing of cocoa, cotton, coffee and oil palm, the main sources of cash for the rural economy. 6. In order to consolidate the gains made under the ERP, GOG, in collaboration with its development partners, most notably the World Bank, elaborated in 1990 the Medium Term Agricultural Development Strategy (MTADS) and the accompanying program (MTADP). MTADP was to establish and support market-led growth in agriculture with the private sector as the engine of growth. The principal objectives of this policy reorientation were to reduce the drain on the Government budget resulting from unprofitable production and marketing activities where public sector involvement was a potential hindrance to private sector development, and to concentrate the Ministry of Agriculture's limited resources on policy planning and guidance. A number of steps were to be taken towards the realization of these policy goals: * fertilizer imports and domestic marketing were to be liberalized, as would be the supply of seed and other inputs: the freeing of trade would reduce marketing costs, raise producer prices and stimulate investment in processing, and the privati2ation of input supply (already under way at the time) would improve the reliability of supply and, through competition, reduce costs; * most state-owned enterprises were to be phased out and prices for outputs, except for a few commodities such as cocoa, were to be de termined by market forces; non-market-determined prices would be increased to reflect a significant share of the import parity price; * measures were to be taken to enhance public expenditure coordination in the sector in order to improve the setting of sectoral priorities, and thus help to channel domestic and external resources to areas of greatest impact; * there would be a strong focus on the rural poor and especially women farmers by: - shifting from the traditional approach of responding to gender concerns in agriculture through a parallel extension program comprising mainly of women extension staff to a strategy that enables all male and female staff to target women farmers; - promoting women group formation and development and providing training in food processing, utilization and nutrition.; - promoting agro-processing through women organizations;  3 - strengthening women's groups involved in grain marketing and processing through training in book keeping, financial management and marketing; providing extension services through women groups; and - providing credit to women's groups as an alternative to physical collateral;