The Price Incentive to Smuggle and the Cocoa Supply in Ghana, 1950-96

From the early 1960s to the mid-1980s, the officially recorded production of cocoa beans in Ghana declined by 60 percent, and although it has begun to recover recently, it is still well below peak levels. This paper argues that the contraction of the Ghanaian cocoa sector can be explained by several external adverse factors and by the distortionary effect of domestic taxes, which, by widening the producer pace differential between Ghana and Côte d'Ivoire, increased the incentive to smuggle. On the one hand, real international cocoa prices receded from their peak levels in the late 1950s, the relative prices of competing domestic crops increased, and the sector experienced several years of severe drought in the 1970s and 1980s. On the other hand, the cocoa sector has been badly affected by a high cocoa export duty and implicit taxes in the form of exchange rate distortions and marketing inefficiencies.