Abstract
Cocoa production contributes largely to Ghana’s export earnings. Cocoa farmers in Ghana face both price risks and production risks. Ghana’s cocoa sector faces negligible price risk because the government pays a fixed producer price. However the cocoa sector is faced with different forms of production risks due to pest and disease, climate change, variations in weather patterns and outbreak of bush fires among others. Cocoa farmers in the Atiwa District, known to be one of the major cocoa producing districts in Ghana face these uncertain production risks that cause crop failures leading to low production yields. Therefore, one strategy to mitigate such risks is to insure their cocoa farms against uncertain risks to hedge against crop loss. Insurance helps to measure risk and protect farmers against crop failures. This study evaluated the major production risks faced by cocoa farmers in Ghana, the extent of the awareness of cocoa farmers in general insurance products, identified the factors that influence the willingness of cocoa farmers to insure their farms and identify the average price cocoa farmers are willing to pay to insure their farms. A random sampling approach was used to sample 133 cocoa farmers in the Upper West Akim District in the Eastern Region of Ghana. A Contingent Valuation Model is used to infer the utility maximization levels and design an appropriate questionnaire to measure the willingness of farmers to adopt crop insurance. Using a probit and logistic model, age and other income sources of cocoa farmers were found to influence the willingness of farmers to adopt crop insurance.
Abbreviations
CVM- Contingent Valuation Model
GAIS – Ghana Agricultural Insurance Program
LBC – Licensed Buying Company
PPRC – Production Price Review Committtee
WTP- Willingness to Pay
WTA- Willingness to Accept
Table of Contents
DECLARATION………………………………………………………………………………………………….. i
ACKNOWLEDGEMENT…………………………………………………………………………………….. ii
Abstract……………………………………………………………………………………………………………… iii
Abbreviations……………………………………………………………………………………………………… iv
CHAPTER 1: INTRODUCTION…………………………………………………………………………… 1
Introduction, Background and Problem Statement……………………………………………………. 1
Research Question………………………………………………………………………………………………… 9
CHAPTER 2: LITERATURE REVIEW……………………………………………………………….. 11
Applications and determinants of CVM………………………………………………………………… 22
CHAPTER 3: METHODOLOGY………………………………………………………………………… 26
3.21 Sample Size And Sampling Technique……………………………………………………………. 29
3.22. Instruments For Data Collection…………………………………………………………………… 29
3.23 Data Collection……………………………………………………………………………………………. 30
3.41 Description Of Variables………………………………………………………………………………. 32
3.5 Data Analysis………………………………………………………………………………………………… 34
CHAPTER 4: RESULTS AND ANALYSIS…………………………………………………………. 35
- Introduction………………………………………………………………………………………………………… 35
- Cocoa Farmers’ Awareness, Sources Of Information And Willingness To Take Crop Insurance Schemes…………………………………………………………………………………………………………….. 46
CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS……………………………. 54
Appendix…………………………………………………………………………………………………………… 56
References…………………………………………………………………………………………………………. 58
CHAPTER 1: INTRODUCTION
Introduction, Background and Problem Statement
The contribution of agriculture to developing countries in the world cannot be overemphasized. African countries continue to pursue a competitive edge to promote growth in their economies. To be able to achieve this comparative advantage, developing economies tend to make efforts to increase foreign exchange to promote economic growth through commodity exports (World Bank, 2003). Many developing economies such as Ghana depend hugely on earnings from the export of major agricultural products such as cocoa.
Countries that produce cocoa get sizable proportions of their export earnings from cocoa (FAO, 2004). Over the past 19 years, the African continent, notably West African countries, have done well to be the leading producers of cocoa in the world. Africa was estimated to have produced about 3.2 million tons of cocoa beans for the 2013/2014 crop year (Ameyaw et al., 2018). This contributed to 73% of the world’s cocoa production, with Cote D’Ivoire and Ghana, the two principal cocoa-producing countries (Ameyaw et al., 2018). Awuah (2002) and FAO (2004) estimated that West African countries contribute between 54% and 71% of the world’s total cocoa output. For example, Cote d’Ivoire exported a record of 1.4 million tons of cocoa beans in 2001. This milestone added to 14% of the country’s GDP, 40% of export, and about 20% of government revenue (Nkamleu & Kielland, 2006).
Cocoa is successfully cultivated in the Western, Eastern, Brong -Ahafo, Volta, Central, and the Ashanti regions of Ghana (Anim-Kwapong & Frimpong, 2004). Ghana is ordered as the second highest producer of cocoa in the world, only behind Cote D’Ivoire, producing almost a fifth of the world’s total output of cocoa (Vigneri & Santos, 2007). Ghana produced a record high of 1,004,000 metric tons in the 2010 and 2011 crop years (COCOBOD, 2011). Ghana is also regarded on the international market for producing the world’s quality cocoa beans (Armah, 2008).
The cocoa sector in Ghana has been contributing immensely to its export earnings over the past decade (Tutu, 2011). The cocoa sector generates employment, food, foreign exchange earnings, income, and tax revenue for the Ghanaian economy. For example, out of the 38% foreign exchange earnings contributed by the agriculture sector, the cocoa sector contributed about 28.5 percent in 2008 (ISSER, 2008). The Ghana cocoa sector contributes mostly, if not only, sources of revenue, livelihood, and incomes for farmers (Tutu, 2011). The Ghana cocoa sector creates a lot of employmet for Ghanaians as it employs an estimated 3,200,000 people along its commodity chain, and about 800,000 smallholders (farmers owning less than 12 acres of cocoa land) farmers nationwide (Lundstedt & Pärssinen, 2009).
Anim-Kwapong and Frimpong (2004) provided a synopsis of the impact of cocoa producing by asserting that about 800,000 smallholder cocoa farmers in Ghana earn a lot of their annual earnings primarily from cocoa production. The Ghana cocoa sector generates domestic income and accounts for about 25 percent of foreign exchange earnings (ISSER, 2014). Reports approximate that in 2013, 16.48% (US$ 2267.3 million)
of all the agriculture export receipts were foreign revenue earnings from cocoa (ISSER, 2014).
Cocoa has contributed more than 30 percent of Ghana’s export earnings over the crop years 1995 to 2014 (ACET, 2014). Subsequently, other stakeholders such as the licensed cocoa buying companies, agrochemical suppliers, input and output distributors get their products, income and employment from the cocoa industry (Asamoah & Baah, 2003).
Ghana is not only known for producing high quantities of cocoa, but it is the most central origin of high-quality cocoa beans with the country’s cocoa considered as the standard for measuring the quality of bulk cocoa on the international market (International Trade Center, 2001; Ntiamoah & Afrane,2008; Armah, 2009; Gockowski et al.; 2011).
The Ghanaian cocoa sector has seen significant progress in recent years although dependence on a small number of export commodities has often created susceptible international price volatilities (UNCTAD, 2005; Wilson, 1985). Nevertheless, with world prices of agricultural export goods increasing, and coupled with rapid global economic growth indicates how the demand-driven prices might continue (IMF, 2018; World Bank, 2007).
Ghana is a leading example, where internal reforms and favorable external conditions have brought about an increase in traditional exports with Ghana regaining its top place among the world’s largest producers of cocoa (Mackay and Aryteey, 2005). It is, therefore, not coincidental that the Ghana’s cocoa sector continues to perform well
after a poor output performance between 1970-1990 (Armah, 2009; Ghana Ministry of Agriculture, 2005). The contributions the cocoa market has made to the Ghanaian economy has been outstanding and immense. That notwithstanding, the Ghana cocoa sector has been witnessing fluctuations in production over the last decades. Two major risks affect cocoa farmers (Freshwater & Jette-Nantel, 2008). The risks are production and price risks. Price risk is concerned about the disparities in the market prices of cocoa seeds and production inputs. The Government of Ghana in conjunction with the Producer Price Review Committee (PPRC) and COCOBOD set a fixed producer price every year for cocoa farmers in Ghana (Lundstedt & Pärssinen, 2009). The objective is to reduce the negative impact of cocoa price fluctuations on farmers (Lundstedt & Pärssinen, 2009).
