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Improving the Productivity and Income of Ghanaian Cocoa Farmers While

Maintaining Environmental Services: What Role for Certification?

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DOI: 10.1080/14735903.2013.772714

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Improving the productivity and income of

Ghanaian cocoa farmers while maintaining
environmental services: what role for
certification?
a a b c
James Gockowski , Victor Afari-Sefa , Daniel Bruce Sarpong , Yaw B.
c a
Osei-Asare & Nana Fredua Agyeman
a
Sustainable Tree Crops Program (STCP), International Institute of Tropical
Agriculture (IITA), House No. 18, Okine Street, East Legon Ambassadorial
Area, P. O. Box Private Mail Bag L-56, Legon, Accra, Ghana
b
AVRDC-The World Vegetable Center (AVRDC), Regional Center for Africa
(RCA), P. O. Box 10 Duluti, Arusha, Tanzania
c
Department of Agricultural Economics and Agribusiness, University of
Ghana, P. O. Box LG 511, Legon, Accra, Ghana
Version of record first published: 27 Feb 2013.

To cite this article: James Gockowski , Victor Afari-Sefa , Daniel Bruce Sarpong , Yaw B. Osei-Asare & Nana
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environmental services: what role for certification?, International Journal of Agricultural Sustainability,
DOI:10.1080/14735903.2013.772714

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 International Journal of Agricultural Sustainability, 2013
http://dx.doi.org/10.1080/14735903.2013.772714

RESEARCH ARTICLE
Improving the productivity and income of Ghanaian cocoa farmers while
maintaining environmental services: what role for certification?
James Gockowskia, Victor Afari-Sefaab∗ , Daniel Bruce Sarpongc, Yaw B. Osei-Asarec and
Nana Fredua Agyemana
a
Sustainable Tree Crops Program (STCP), International Institute of Tropical Agriculture (IITA), House
No. 18, Okine Street, East Legon Ambassadorial Area, P. O. Box Private Mail Bag L-56, Legon, Accra,
Ghana; bAVRDC-The World Vegetable Center (AVRDC), Regional Center for Africa (RCA), P. O. Box 10
Duluti, Arusha, Tanzania; cDepartment of Agricultural Economics and Agribusiness, University of
Downloaded by [Victor Afari-Sefa] at 18:58 27 February 2013

Ghana, P. O. Box LG 511, Legon, Accra, Ghana

Ghana, as the second largest global producer of cocoa, is strategically positioned on the world
market. Consumer concerns over ethical and environmental issues associated with cocoa
production are a potential threat to its position. These concerns have given rise to
certification. Certification dictates the way cocoa can be produced and consequently affects
producers’ incomes and environmental services. The expected profitability, yield, and
environmental impact of Rainforest Alliance certified shade-grown cocoa production (RA-
Cocoa) is estimated and compared to an extensive shaded production system (Ext-Cocoa)
and an intensified full sun production system (High-Tech). Ext-Cocoa represents most cocoa
production systems in Ghana, while High-Tech is promoted by the government as a tool for
attaining its target output of 1 million tons. Under the baseline assumptions High-Tech was
the most profitable; RA-Cocoa generated positive returns, while Ext-cocoa was a break even
proposition. Simulation of different policy scenarios did not affect the rank order of the
baseline outcome. The Ext-Cocoa yield was 28% of the RA-Cocoa yield, which was 78% of
the High-Tech yield. The environmental services maintained at the plot level of RA-Cocoa
production system are greater than those of the High-Tech production system. However, the
228,000 ha of additional forest land required to produce 1 million tons with RA-Cocoa
questions which system would impact environmental services the least.
Keywords: cost –benefit analysis; intensification; fertilizer subsidy; sustainable production;
cocoa agroforestry; ecoagriculture; land sharing; land sparing; ecosystem services

Introduction
Cocoa is Ghana’s chief cash crop and the single most important export product. Ghana is the
world’s second largest producer of cocoa producing on an average 734,000+133,000 tons,
accounting for approximately 20% of the world’s bulk cocoa from 2006 to 2011 (ICCO 2012).
Cocoa production is the major economic activity for over 700,000 households, with around
6.3 million Ghanaians (representing around 30% of the total population) depending upon
cocoa production for their livelihood. In the 2009 –2010 production season, exports of cocoa
butter, powder, beans, paste, and waste totalled US$1.66 billion, equivalent to more than 21%
of Ghana’s merchandise exports (Bank of Ghana 2011).
The Ghana Cocoa Marketing Board (COCOBOD) supports farmers, principally through the
purchase and distribution of subsidized fertilizer and pesticides. Pesticides are actually applied by

∗
Corresponding author. Email: victor.afari-sefa@worldveg.org

# 2013 International Institute of Tropical Agriculture (IITA)

 2 J. Gockowski et al.

spray gangs engaged by the COCOBOD. These are elements in the High-Tech production system
currently being promoted by the COCOBOD as the principal tool for achieving an annual pro-
duction target of 1 million tons. The COCOBOD also markets all the cocoa produced in
Ghana and sets producer prices and marketing margins for the semi-liberalized internal market.
Quality controls exercised by the COCOBOD have helped maintain a price premium of
7 – 10% for Ghanaian cocoa on world markets.
A typical Ghanaian producer has on average 2 ha of low-yielding cocoa, does not use ferti-
lizer, and applies limited amounts of pesticides (Barrientos et al. 2008, MMYE 2008). Poverty is
widespread within the cocoa sector where the mean per capita income among cocoa farming
households was US$ 0.63 per day (Barrientos et al. 2008). Limited innovation underlies the
poor productivity performance of the Ghanaian cocoa sector over the last 20 years. Hybrid
cocoa varieties developed by the Cocoa Research Institute of Ghana (CRIG) have seen limited
adoption (Padi and Owusu 1998, cf. Asare 2005). When they had been adopted rapid senescence
owing to the physiological stresses of higher yields required more frequent replanting (Ruf and
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Burger 2001, World Bank 2011).

Concerns over the environmental impact of cocoa farming and its sustainability have been
raised in the recent times. The rapid expansion of extensive cocoa production systems in the
last 20 years has been found to be a major cause for deforestation and forest degradation in
West Africa (Obiri et al. 2007, Norris et al. 2010, Gockowski and Sonwa 2011). The western
region of Ghana is the most important cocoa-producing region in the country and is also the
region with the maximum remaining closed canopy forests and the highest timber production
(Asare 2005, Gockowski and Sonwa 2011). The western region has also been targeted by the
High-Tech programme of the COCOBOD in recognition of the limited possibility for area
expansion.
To address the lack of innovation, low returns and a degrading natural resource base certified
production systems based on ‘good agricultural practices’ are being proposed for West African
cocoa farmers by a partnership of environmental NGOs and industry. In this study, the costs
and benefits of producing Rainforest Alliance certified cocoa (RA-Cocoa) are compared with
those generated by a representative smallholder extensive production system (Ext-Cocoa), as
well as a representative no-shade intensified system (High-Tech) promoted by the COCOBOD.
To become certified, the Rainforest Alliance dictates that farmers adhere to the production and
social standards promulgated by the Sustainable Agriculture Network (SAN 2008a). In the
western region of Ghana where most of the cocoa is grown either with no shade or very little
shade (,20 shade trees/ha) this would entail, among other things, planting compatible indigenous
tree species to increase biodiversity and other environmental services.
Producer benefits of certification depend on (1) the extent to which consumers are willing to
pay premiums for process attributes such as ‘child labour-free’ or ‘shade-grown’ cocoa; (2) the
efficiency of market actors in adapting to the demands of differentiated markets; and (3) the pro-
ductivity of the proposed system. The first two elements are concerned with consumer demand
and marketing efficiency, which are not addressed in this study other than to assume some
level of certification premium. Our focus is on the productivity and profitability of RA-Cocoa
relative to the existing Ext-Cocoa and High-Tech procedures. The profitability of the proposed
RA-Cocoa will be a key factor in the willingness of Ghana’s cocoa farmers to participate in cer-
tification. The specific objectives of the study are

. to estimate the economic returns per hectare of RA-Cocoa, Ext-Cocoa, and High-Tech of
production.
. to estimate mean system productivity over time and the land required to produce 1 million
tons of cocoa by each of these three production systems.
 International Journal of Agricultural Sustainability 3

Certification of sustainable cocoa production

Agricultural production systems inevitably lead to environmental degradation, economic pro-
blems, and even social conflicts. Most proponents of the concept of sustainability will agree
that sustainable agriculture is not a defined set of agricultural practices, but rather a utopian
and dynamic condition, a long-term goal (River 1996, Ikerd et al. 1997). Although sustainable
agriculture does not refer to a standard set of production practices, there are certain methods or
practices that enhance sustainability (Derpsch 1998). Methods such as maintaining crop
hygiene, using hybrid and disease-resistant varieties, managing shade, rational pesticide use,
maintaining plant nutrients and other ethical production standards have been proposed as sustain-
able cocoa production practices (American Cocoa Research Institute 2009).
RA-Cocoa is differentiated by attributes associated with the way the cocoa is produced and
not with quality characteristics. Organic cocoa presents a similar model where adherence to a
set of organic production standards when certified by an independent third party generates an
‘organic’ premium with consumers. Similarly, Rainforest Alliance (RA) cocoa is differentiated
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by a certificate issued by a recognized certification body that ensures standards have been met.
There may be no difference in the quality characteristics of the cocoa from that of bulk cocoa.
The difference may not even lie in the social and environmental characteristics of the production
process, but rather in the certification of those characteristics. For example, the 2001 baseline
survey of the Sustainable Tree Crop Program (STCP) revealed that over 50% of Ghanaian pro-
ducers used no agrochemicals and were in essence de facto organic producers.
RA-cocoa beans are differentiated from other cocoa beans through verification and monitor-
ing of farming practices that are deemed to be environmentally sustainable and conserve bio-
diversity. RA follows the SAN standards, an independent certification body and issues its
farmers with the RA certification seal. The first certification of cocoa in Africa was in Cote
D’Ivoire in early 2006.
The RA certification seal is a guarantee to consumers that the product has been produced
according to their set of sustainability criteria (Duchicela 2008). RA certification can occur at
either individual or collective group level. Smallholders are often certified as a group to reduce
transaction costs and information asymmetries by transferring verification responsibilities to a
group administrator, i.e. the cooperative, exporter, or other ‘manager’ of the group (Divney
2007). In Ghana, where farmer organisations are not well developed, it was assumed that
Licensed Buying Companies (LBCs) operating in the internal market would take up the role of
implementing certification and organising farmer groups as a means of securing the farmers’
cocoa through non-price competition. At present, several LBCs are developing certification pro-
grammes with groups of farmers.
The SAN has a set of standards, which are binding. SAN (2008a) provides the criteria and
indicators specifically developed for Ghana. Shade cover according to this standard should be
40% and must be provided by a minimum of 12 native species per hectare and the tree crowns
should comprise at least two strata or stories. To obtain RA-SAN certification, a farm must (i)
be evaluated during the 3-year certification cycle; (ii) comply with the SAN scoring system for
farm audits, defined by sustainable agriculture standards; (iii) comply with audits justified by
the certification body; and (iv) sign the RA certification agreement with RA (see SAN 2008b).

Study area and research methods

Background of study area and approach
The study was conducted in the western region of Ghana which covers an area of approximately
23,921 km2, representing about 10% of Ghana’s total land area and 10% of the country’s popu-
lation. In this region, cocoa is mostly grown under complete sunlight or low shade with associated
 4 J. Gockowski et al.

deforestation and destruction of wildlife habitat. This region is the wettest part of Ghana and has
about 75% of its vegetation within the high forest zone of Ghana and accounts for 44% of the total
closed forest in the country.
Results from long-run trials conducted at the CRIG in which shade and fertilizer levels were
varied led to extension recommendations to reduce or entirely eliminate shade trees and apply
fertilizer (Cunningham et al. 1961, Ahenkorah et al. 1974, 1987). While the low-shade rec-
ommendation was widely followed in the rapid expansion of the sector in the western region
in the 1980s and 1990s, the improved Amazon hybrid/fertilizer package recommended by
research saw little adoption owing to a combination of underdeveloped input and credit
markets in Ghana (see for example, Gockowski and Sonwa 2011). Without fertilizers, the fertility
status of the converted forest will eventually decline to exhausted levels and the production
system will collapse. The COCOBOD recognised this situation and began to implement elements
of the High-Tech programme in 2003. Today over 75% of producers in the western region have
adopted fertilizers and only 30% of immature cocoa has been planted to against hybrids. As a
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result, yields and income have more than doubled among these farmers (Gockowski et al. 2011).
Evidence for the non-sustainability of the cocoa industry without soil amendments can be
found in almost all cocoa-growing regions of the world by visiting the region where cocoa
was first introduced including the eastern region of Ghana, where 50 years ago the cocoa industry
thrived, but hardly exists today. While the Rainforest Alliance was initially ambivalent to the use
of fertilizers, the fundamental role that they play in productivity and land sparing is now recog-
nized and fertilizer use is permitted by their standards. Even with fertilizers, the economic life of
improved hybrid cocoa trees is reduced, which has been attributed to the physiological stresses of
high yields (Ahenkorah et al. 1974, Asase and Tetteh 2010). The implication of this is that hybrid
tree stocks should be replaced every 15– 20 years rather than the 30– 40-year cycles commonly
practiced with traditional Amelonado varieties.

Data sources
Secondary data sources were augmented with primary data on input and output prices and labour
estimates from purposive and expert interviews conducted in several communities in the western
region in March 2009.
Ahenkorah et al. (1987) reported 25 years of shade and fertilizer research conducted at the
Tafo station of CRIG. They found that the cultivation of hybrid Amazon cocoa without fertilizers
did not give any appreciable gains over farmer practices. They also found that the fertilizer
response increased as the level of shade decreased. Twenty years of productivity results for the
“no-shade – fertilized”, “medium-shade-density-fertilized”, and “medium-shade-density – non-
fertilized” treatments of the CRIG trial are used in our economic modelling of the High
Impact, RA-Cocoa and Ext-cocoa systems, respectively (Figure 1).
Productivity growth of timber species over time and estimated volume of timber were
obtained from the Forestry Research Institute of Ghana and Forestry Commission of Ghana.
These were used to calculate the timber value in RA-Cocoa at the end of a 20-year production
cycle. Farmgate price data were obtained from the COCOBOD. An impact survey of graduated
Farmer Field School trainees was also provided by the STCP. Data from these secondary sources
were combined with primary data collected from farmers in the cocoa belt of Ghana to develop the
representative enterprise models.

CRIG shade fertilizer trial

To accurately evaluate the long-run economic performance of the proposed RA-Cocoa production
system relative to the existing Ext-Cocoa and Hi-Tech production systems currently practised in
 International Journal of Agricultural Sustainability 5

Figure 1. Average annual yield of cocoa for experimental plots representative of High-Tech, RA-Cocoa
and Ext-Cocoa over 20 years of observation, CRIG-Tafo, Ghana 1959 to 1982.
Source: Ahenkorah et al. (1987).
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Ghana would require a multi-year comparative study over a minimum of 25 years. Fortunately,
the CRIG has conducted such a study (Ahenkorah and Akrofi 1968, Ahenkorah et al. 1987)
making the concerned data available for our analysis.
From 1959 to 1982 annual production data were gathered from 16 ha of research plots planted
in 1959 with hybrid Amazon cocoa seedlings. The treatments included three levels of shade pro-
vided by the fast-growing pioneer species Terminalia ivorensis. The three levels of shade were S0
at no shade; S1 at an initial density of 67 trees/ha; and S2 at an initial density of 269 trees/ha. The
densities of S1 and S2 were reduced, 12 years after planting, to 34 and 132 trees/ha, respectively.
Additional treatments included NPK fertilizers. The fertilized plots of S0 and S1 are researcher-
managed prototypes of the High-Tech and RA-Cocoa production systems. According to Ahen-
korah et al. (1987), who discovered declining production beginning at year 18 of the data
(Figure 1), cocoa trees over 20 years old on farms in Ghana may have already passed their econ-
omic bearing age.

Labour inputs and wage rates

Estimates of the labour input per hectare were obtained from 40 cocoa farmers surveyed in the
western region in 2007 (STCP, unpublished data). Farm size was measured using GPS handsets
which reduced measurement error in the estimates of person-days per hectare for the various cul-
tural management practices. Cost data on land clearing by chainsaw operators and insecticide
application were lump sum custom labour costs per hectare basis. A wage rate of GH¢ 3.50
per 6-hour person-day of work was used based on farmer interviews.

Farm gate price estimation

The mean of the International Cocoa Organization (ICCO) reference prices for the period 1997 –
2006 (Figure 2) was increased by 10% to account for Ghana’s quality premium. An estimated
insurance and freight cost of $20 per ton was subtracted from the premium adjusted reference
price to arrive at an estimate of the annual mean free on board (FOB) price from the shipping
ports in Ghana. The Producer Price Review Committee of the COCOBOD sets the official pan
territorial producer price at a target of 70% of ‘net FOB’. The net FOB price is derived by adjust-
ing the FOB price per kilogram for the costs of the fertilizer and pesticide subsidy programmes of
the COCOBOD. Applying the 70% rule to the mean net FOB from 1997 to 2006 resulted in a
farm gate price of 1,443 GH¢/t.
 6 J. Gockowski et al.
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Figure 2. Variation in nominal farmgate price for Ghanaian bulk cocoa based on 70% Net FOB price
policy, 1997–2006.

A certification premium of 72 GH¢ per ton was assumed, since no premium had been paid at
the time the research was conducted. Reported premiums for certified organic cocoa, which fluc-
tuate considerably, may provide an indication of the potential size of the premium (New Agricul-
turalist 2007, ICCO 2008, Liu 2008, Pay 2009).

Description of cocoa production systems

The costs and returns include all field preparation and planting efforts including operations associ-
ated with seedling nurseries and food crop production. Crops used by farmers as temporary shade
at the early stages of cocoa establishment commonly include plantain and cocoyam. In this study,
plantain intercropped by cocoa farmers during the first 2 years of the establishment phase of their
farm had an assumed yield of 4,500 and 2,500 kg/ha in the years 1 and 2 of the production cycle
for all systems analysed. The production cycle for all systems was 21 years at which point it was
assumed that the cycle would repeat itself with the uprooting and replanting of new tree stock.
Fertilizers are sold to farmers at a subsidised price of 14.70 GH¢ per 50-kg bag instead of the
unsubsidised price of 51 GH¢/bag.

Extensive non-fertilized Amazon cocoa (Ext-Cocoa)

Costs and returns are estimated for 1 ha of cocoa planted at 3.05×3.05 m spacing (1,086 plants/
ha). No nursery costs are incurred as the farm is directly seeded in April along with plantain and
cocoyam. Plantain and cocoyam are intercropped for the first 2 years of the cocoa production
cycle. Typical of most farmers, we assume no use of agrochemicals other than those provided
by the mass spraying programme of COCOBOD. Shade levels are assumed to be moderate at
a density of 55 trees/ha.

Fertilized no-shade Amazon cocoa (High-Tech)

Costs and returns are estimated for 1 ha of mixed Amazon hybrids planted at 3.05×3.05 m
spacing (1,086 plants/ha) with no permanent shade. Hybrid cocoa pods at a nominal cost of
 International Journal of Agricultural Sustainability 7

GH¢ 0.1 per pod are obtained in November from a COCOBOD seed garden and cultivated in
a nursery for 5 months. One thousand four hundred seedlings are started with 1,086 selected
for planting after rouging out the off types. Plantain and cocoyam are intercropped for the
first 2 years of the cocoa production cycle. In addition to the chemicals provided by the
COCOBOD’s mass spraying programme, the farmer purchases and applies 1.8 kg/ha of
copper oxide plus metalaxyl to control black pod disease and 480 ml/ha of imidacloprid
for capsid control. NPK fertilizers specifically formulated for cocoa are applied at the
CRIG recommended rate of 371 kg/ha on an annual basis beginning in year 4 of the pro-
duction cycle.

Certified fertilized medium-shade Amazon cocoa (RA-Cocoa)

Costs and returns are estimated for 1 ha of mixed Amazon hybrids planted at
3.05×3.05 m spacing (1,086 plants/ha) with permanent shade provided by 12 indigenous
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timber species planted at a spacing of 15.8 m2 in accordance with the proposed SAN shade
standard. Cocoa and timber trees are grown under the temporary shade canopy provided by
plantains planted at a density of 1,600/ha. Rational use of agrochemicals adhering to SAN
application standards occurs at the same level as in High-Tech. In addition to the cocoa
and food crop revenues, the timber species in the system are assumed to yield a total
of 56 m3 of timber in the 21st year of the production cycle. A value of 100 GH¢/m3
was assumed.

Estimation of farmer costs –benefits

Costs and returns over a 20-year production cycle were discounted to net present value (NPV).


t=n
Bt − Ct
NPV = , (1)
t=1
(1 + i)t

where Bt ¼ benefit/ha in each year; Ct ¼ cost of production/ha in each year; t ¼ 1, 2, 3, . . .n;

n ¼ number of years; i ¼ interest rate.
The opportunity cost of capital is usually unknown (Gittinger 1982). For this study, a discount
rate of 20% is the value which currently best reflects the time value of money in Ghana.
The study also estimated the benefit – cost ratio (BCR):
t=n
t=1 (Bt /(1 + i) )
t
BCR = t=n t . (2)
t=1 (Ct /(1 + i) )

We also estimated the Labour Internal Rate of Return (LIRR) as opposed to the standard
Internal Rate of Return (IRR) for our analysis. The IRR determines the discount rate that
makes the NPV equal to zero. It represents the maximum interest that a project could pay
for the resources used if the project is to break even (Gittinger 1982). As labour is often
the smallholder’s most scarce and productive resource, high returns to labour are often critical
in the adoption process. The LIRR is the level of wage which makes BCR unity and
NPV equal to zero and is found by an iterative grid search over different wage rates. It rep-
resents the maximum wage rate that a project could pay, if the enterprise is to break even. For
households where all the labour is supplied by the family, it represents the value of a day’s
labour.
 8 J. Gockowski et al.

Results and discussion

Farmer returns
Table 1 presents financial measures of system performance under various policy scenarios for the
three production systems under consideration. The baseline results of scenario I show that Ext-
cocoa which is representative of the majority of cocoa systems in Ghana was not quite a break
even proposition with negative NPV and a BCR slightly ,1. High-Tech, which has become
more widespread in the study area, was profitable. The profitability of RA-Cocoa lay between
the two existing production systems. In all of the policy scenarios considered the performance
of RA-Cocoa maintained its position between High-Tech and Ext-Cocoa. Elements of High-
Tech had been adopted by three of every four cocoa producers in the western region since the
unveiling of the High-Tech programme by COCOBOD in 2003 (Gockowski et al. 2011).
The performance disparity between High-Tech and RA-Cocoa is owing to the negative impact
of shade trees which compete for plant nutrients, water, and sunlight. Ahenkorah et al. (1987)
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reported a yield gap of 274 kg/ha between fertilized complete sunlight systems represented by
High-Tech and fertilized shaded production systems represented by RA-Cocoa (Figure 3).
Unlike other West African cocoa-producing countries, Ghana maintains state control over the
prices paid to producers. Historically, producers received 50 –60% of the export FOB price with
the remaining 40– 50% used to cover marketing costs, agrochemical subsidies, and as an impor-
tant source of government revenue. Since 2002, the Ghanaian government desires to pay cocoa
farmers 70% of the FOB price.
Although a producer price equivalent to 70% of the FOB represents an increase for Ghanaian
farmers over previous levels of pricing by the COCOBOD, in the completely liberalized markets
of Nigeria and Cameroon, farmers regularly receive 80– 85% of the FOB price. To simulate such

Table 1. Measures of economic performance for three cocoa production systems under various policy and
economic scenarios.
Measure of system economic performance
Net annual
NPV (GhC Labour IRR return t ¼ 10
Policy scenario System per ha) BCR (GhC per day) (GhC per ha)
(I) Discount rate equal to 20% Ext-Cocoa 219 0.99 3.45 143
and farm-gate price equal to High-Tech 1517 1.31 4.72 782
70% of FOB RA-Cocoa 983 1.20 4.35 652
(II) Increase in farm-gate price Ext-Cocoa 300 1.12 4.05 291
from 70 to 85% of FOB price High-Tech 2090 1.38 4.97 1049
RA-Cocoa 1469 1.27 4.65 879
(III) Decrease in farm-gate Ext-Cocoa 2231 0.91 3.08 45
price from 70 to 60% of FOB High-Tech 1136 1.25 4.50 604
price RA-Cocoa 659 1.14 4.12 500
(IV) 15% Yield gain following Ext-Cocoa Not applicable
certification training on best High-Tech Not applicable
practices RA-Cocoa 1340 1.3 4.56 819
(V) Fertilizer subsidies are Ext-Cocoa Not applicable
removed with no change in High-Tech 767 1.14 4.11 513
use or yield RA-Cocoa 233 1.04 3.70 382
(VI) Fertilizer subsidies Ext-Cocoa Not applicable
removed, use declines by High-Tech 717 1.18 4.21 409
71%, and yields by 30% RA-Cocoa 78 1.02 3.58 229
(HT) and 38% (RA)
 International Journal of Agricultural Sustainability 9

Figure 3. Mean cocoa yield per hectare from 4 to 23 years after planting for three production technologies;
High-Tech ¼ 1,076 hybrid Amazon cocoa trees with no shade, plus 371 kg of NPK fertilizer per hectare, plus
complete agrochemical and cultural control of pests and disease; RA-Cocoa ¼ 1,076 hybrid Amazon cocoa
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trees with 34 Terminalia ivorensis shade trees per hectare, plus 371 kg of NPK fertilizer per hectare, plus
complete agrochemical and cultural control of pests and disease; Ext-Cocoa ¼ 1,076 hybrid Amazon
cocoa trees with 55 Terminalia ivorensis per hectare, plus full agrochemical and cultural control of pests
and disease.
Source: Ahenkorah et al. (1987).

a competitive outcome, we assumed that producers received 85% of the FOB price instead of the
70% target (scenario II). We also simulate a price regime where COCOBOD reverts to a 60%
target (scenario III). The results of these simulation exercises reveal the important impact of gov-
ernment price policy on the cocoa revenues. The extensive production system, Ext-Cocoa, gen-
erates positive returns at 85% FOB price with an estimated annual income at year 10 of the
production cycle, which is more than double that achieved under a 70% of net FOB price. As
extensive production is still the most typical mode of cocoa farming in Ghana, we conclude
that increasing the producer’s share of FOB price would have a major impact on rural poverty.
Unfortunately, on the basis of recent pricing tendencies there appears to be a higher likelihood
of producer price falling to 60% of FOB than rising to 85%. Under the 60% price regime, Ext-
Cocoa generates negative NPVs and had a miniscule return in year 10. It is interesting to note
the profitability of High-Tech farming methodology even at this relatively low price. Enabling
the extensive producer to adopt the key elements of High-Tech or RA-Cocoa is likely to be a
more effective poverty-reduction strategy than changes in price policy in the long run, especially
given the volatility of global commodity markets.
Most certification standards concern adherence to good agricultural practices and provide train-
ing to producers on those practices. Although the production data underlying our modelling of
cocoa production systems come from on-station research trials where best practices were followed,
we assume that the training provided by the certification agency results in a small 15% improvement
in the cocoa yields of RA-Cocoa (scenario IV). Under this assumption, the IRR to labour in RA-
Cocoa approaches the return to labour of the High-Tech system under scenario I.
The removal of fertilizer subsidies is modelled in policy scenarios V and VI. In scenario V, it is
assumed that the quantity of fertilizer applied remains at 371 kg/ha as price rises from the subsi-
dised level of 14.7 to 51 GH¢ per 50-kg bag. Annual fertilizer expenditures increase from 109 to
377 GH¢/ha and the NPV of High-Tech is cut by more than 50%. The reduction in NPV of
RA-Cocoa exceeds that of the High-Tech. The assumption that farmers would not decrease the
quantity of fertilizer applied in the face of a four-fold increase in fertilizer price is somewhat
unrealistic. Policy scenario VI assumes that fertilizer expenditure remains constant at
109 GH¢/ha, while the quantity is reduced from 370 to 107 kg/ha. Using the estimate of the
 10 J. Gockowski et al.

Figure 4. Sensitivity of NPV returns to variation in discount rate.

Source: Author’s calculations.
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marginal product of a kilogram of fertilizer reported in Gockowski et al. (2011), the reduction in
fertilizer results in a yield decline of 30% for High-Tech and 38% for RA-Cocoa. The perform-
ance measures for both systems under scenario VI are the lowest of the six scenarios considered.
RA-Cocoa with a BCR of 1.04 is essentially a break even proposition. The results suggest that
without subsidization, High-Tech fertilizer use would still be profitable although much
diminished. However, the much higher level of expenditures required to apply the recommended
quantity of fertilizer would likely limit adoption among credit constrained smallholders due to the
poorly developed rural financial sector.
In Figure 4 the NPVof the three production systems is plotted against incremental increases in
the discount rate, starting at a value of 8% and continuing to a value of 24%. There was a negative
relationship between the NPV and the discount rate for the High-Tech and RA-Cocoa, while Ext-
Cocoa exhibited a positive relationship. The net returns profitability of High-Tech was greater
than that in RA-Cocoa at all the discount rates modelled.
The positive relationship exhibited by Ext-Cocoa reflects the consistently negative annual
returns from years 10 to 21 versus the generally positive returns from years 1 to 9.

Cash flow analysis

The level of investment costs is an important determinant of smallholder adoption for perennial crop
systems (Vosti et al. 2005). To assess medium- and long-term credit needs of smallholders consider-
ing adoption of RA cocoa, cash flows are projected on an annual basis over the 21-year production
cycle. Expenditures were split into labour and physical inputs (planting material, tools and equip-
ment, agrochemicals etc.). Short-term expenditures for production, i.e. occurring prior to the harvest
season were distinguished from expenditures for harvesting and post-harvest processing.
Negative net returns were incurred in year 1; but by year 3 the net position of the enterprise
was positive (Table 2). This is owing to the assumed production and sale of plantain in years 2 and
3. Amazon hybrid cocoa begins to produce by year 4 of the production cycle and reaches its peak
production in year 6, at nearly 1,600 kg/ha. Year 6 generated the largest net annual return from the
production of cocoa. Net returns were positive for every year with the exception of year 13. Recall
that the assumed yields for the three systems are based on the stochastic results reported by Ahen-
korah et al. (1987) for the CRIG shade fertilizer trial. Year 13 (1973) of the CRIG trial was a
drought year in which all three of the production systems experienced a dramatic drop in pro-
duction (see Figure 1).
As seen in Figure 5, total costs tend to decline in the last 6 – 7 years of the production cycle. A
good portion of the total costs of production is incurred during the harvest. When production
 International Journal of Agricultural Sustainability 11

Table 2. Annual cash flow budget for RA-Cocoa production system from years 1 to 21.
Physical Production Harvest
Labour Labour costs input costs Net return expenditures expenditures
Year quantity per ha (GhC per ha) (GhC per ha) (GhC per ha) (GhC per ha) (GhC per ha)
1 121 424 222 2646 646 0
2 85 298 64 538 309 53
3 91 320 7 173 297 29
4 273 955 279 78 562 672
5 341 1,193 179 404 462 909
6 432 1,513 179 709 462 1,230
7 406 1,422 179 622 462 1,138
8 295 1,031 179 250 462 747
9 424 1,486 279 583 562 1,202
10 325 1,139 179 353 462 855
11 415 1,453 179 652 462 1,170
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12 301 1,054 179 272 462 771

13 169 592 179 2168 462 308
14 308 1,077 279 194 562 794
15 330 1,154 179 367 462 871
16 305 1,068 179 285 462 784
17 306 1,069 179 287 462 786
18 261 915 179 139 462 631
19 301 1,055 279 173 562 771
20 236 825 179 54 462 542
21 1369 4,792 179 1,232 462 4,509
Source: Author’s estimation.

increases, harvest costs likewise increases and vice versa. Thus, as the cocoa farm ages and yields
decline, expenditures on hired labour also decline.
Establishing 1 ha of RA-Cocoa would cost more than 2,500 GH¢ over the first 4 years which
is essentially the same as that for High-Tech. Approximately 77% of this cost is for labour, the
majority of which is provided by the household. In terms of material inputs, an expenditure of

Figure 5. Estimated annual production costs and revenues per hectare for RA-Cocoa from start (t ¼ 1) to
finish (t ¼ 21) of production cycle.
Source: Author’s calculations.
 12 J. Gockowski et al.

500 GH¢ /ha would be required. Once in the productive stage at t ¼ 4, expenditures on fertilizers
and agrochemicals are projected to average 200 GH¢/ha/annum. Finally, upturns in both costs and
revenues at t ¼ 21 are due to charges and revenues from the harvesting and sale of timber from
the timber trees included in RA-Cocoa, which are assumed to yield 56 m3/ha of commercial
timber had a price of 100 GH¢/m3.

Environmental services of High-Tech versus RA-Cocoa

Agroforestry systems such as RA-Cocoa are generally considered more environmentally sustain-
able production options, especially relative to no-shade production systems such as High-Tech
(Gockowski et al. 2010). The RA website for cocoa certification states that no-shade systems
result in higher rates of soil erosion and run-off – reducing soil fertility and contributing to
water contamination and health problems (http://www.rainforest-alliance.org/agriculture/crops/
cocoa). Including native trees in shaded cocoa systems like RA-Cocoa results in a forest-like land-
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scape of threatened plant and animal species, which protects natural pollinators and predators of
cocoa pests and creates biological corridors that maintain large-scale ecological and evolutionary
processes. Economically, the revenues generated from shade trees can reduce income risks con-
nected with monocultures and because of their higher carbon stocks are expected to generate
income for carbon sequestration.
We do not have the data to examine the relative erosion rates of shaded versus non-shaded
cocoa systems. Both systems begin as food crop fields with cocoa planted simultaneously with
cassava, cocoyam, and plantain, and therefore, there should be little difference in terms of
erosion during the first 3 years of the production system. By year 4, High-Tech has already
closed the cocoa canopy and blanketed the floor of the cocoa farm with a mulch of cocoa
leaves. Prima facie, the assertion that non-shaded systems would result in higher rates of soil
erosion and run-off is not evident. Rapid nutrient depletion may be a more significant issue for
soil fertility as higher yielding systems are obviously associated with higher rates of nutrient
export. In the CRIG shade fertilizer trial the level of available phosphorus declined by 38% in
the non-shaded treatment, while P levels in the shaded treatments remained roughly constant.
The CRIG trial also found that losses to capsid insects and cocoa swollen shoot virus were
greater under the no-shade system. However, in terms of pollinating midges and allied species
CRIG entomologists actually found higher levels of these beneficial species in the no-shade
and medium-shade treatments as compared to the heavy-shade treatment (Ahenkorah et al.
1987). While not decisively clear cut, shaded cocoa systems do appear to generate higher
levels of environmental services on a per hectare basis as compared to no-shade systems.
These additional services are due to the presence of native tree species in the shade canopy;
however, these services do cost something to the producer.
The cost is the reduction in cocoa yield owing to the competition between the shade tree and
cocoa for the essential factors for plant growth (water, nutrients, and sunlight). The CRIG trial
found that the yield of cocoa grown under a moderate level of shade (34 trees/ha) was only
78% of that of the non-shaded system, while under a heavy level of shade (68 trees/ ha) the
yield was only 50% of that of the non-shaded system (Ahenkorah et al. 1987). Reconciling
the trade-off between yield and environmental services demands the empirical resolution of the
size of aggregate services conserved under a land-sparing versus land-sharing strategy, e.g. the
High-Tech versus RA-Cocoa system.
Burney et al. (2010) conducted a global macro-analysis of the trade-offs between agricultural
intensification and land use change and carbon emissions. While the per-hectare emissions of
intensive agriculture were greater than that from low-input organic agriculture, the avoided
expansion of agricultural land use owing to the development of modern practices more than
 International Journal of Agricultural Sustainability 13

compensates for the higher per-hectare emissions of these practices. Gockowski and Sonwa
(2011) applied a similar analysis to the cocoa industry in West Africa and also estimated that pur-
suing land-sparing cocoa technologies, e.g. High-Tech, would result in a larger aggregate carbon
stock despite the fact that land-sharing technology, e.g. RA-Cocoa, emits more carbon per hectare.
Phalan et al. (2011) applied rigorous survey methodology to measure crop yields and densities of
bird and tree species across gradients of agricultural intensity in southwest Ghana and northern
India. They concluded that more biodiversity was conserved in both countries by pursuing
land-sparing rather than land-sharing production systems. These results suggest that the pro-
motion of land-sharing strategies such as RA-Cocoa may actually result in a higher level of
environmental degradation.
Consider the COCOBOD annual target of 1 million tons which was first stated in 2006.
Assume that COCOBOD wishes to minimise the environmental impact of growth. Which pro-
duction strategy should it pursue? To produce this quantity of cocoa using only the Ext-Cocoa
system would require 3,650,000 ha of land versus 1,033,000 ha with the RA-Cocoa system
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and 805,000 ha with the High-Tech production system. Certainly, the expansion of the Ext-
Cocoa system would generate an unacceptably high rate of deforestation and forest degradation.
To answer the question for the remaining two systems, we must first quantify the environmental
services at the plot and landscape levels for High-Tech, RA-Cocoa, and the climax ecosystem.
This is beyond the scope of our study.

Conclusions
At the national level, Ghana set an ambitious target of producing 1 million tons of cocoa on a
sustainable basis by 2012. As forest lands for new cocoa plantings have all but disappeared,
COCOBOD has undertaken a concerted effort to increase yields through the promotion of the
High-Tech production system. Average cocoa yields for most regions are low and production
is still mostly based on systems like Ext-Cocoa. Transforming the production techniques of
these relatively inefficient producers will be necessary if the COCOBOD production target is
to be reached without destroying Ghana’s remaining forest reserves.
As an alternative to COCOBOD High-Tech, the Rainforest Alliance and its industry partners
are proposing systems of certified cocoa production which follow the standards of the Sustainable
Agricultural Network. Despite a premium of 72 GH¢/ton for RA certified cocoa beans, the profit-
ability of RA-Cocoa was, in all of the policy scenarios, inferior to that of High-Tech. RA-Cocoa
was significantly more profitable than Ext-Cocoa and would represent an improvement over the
status quo in terms of both economic and environmental benefits. However, RA-Cocoa yield was
only 78% of High-Tech yield because of the competition between shade trees and cocoa trees.
Both of these production systems are land sparing in relation to Ext-Cocoa that still characterises
most of the cocoa production in Ghana. Our costs and returns analyses suggest that producing
1 million tons of cocoa with High-Tech would generate greater producer income than that with
RA-Cocoa, while requiring over 200,000 fewer hectares of land to do so. From the producer’s
private economic calculus, we would expect a preference for the intensified non-shaded pro-
duction system rather than the shaded agroforestry system owing to its better economic perform-
ance. Ruf (2011) in an empirical investigation of Ghanaian cocoa farmers’ preferences for shaded
agroforestry versus complete sunlight production systems confirms these expectations and the
motivations behind them.
Certification in the global cocoa sector is being propelled by industry forces as well as gov-
ernment policies in importing countries. Some of these actors have committed to sourcing 100%
certified cocoa by the year 2020. This is laudable and can generate significant benefits for
 14 J. Gockowski et al.

producers in many dimensions (KPMG 2012). However, producers and the institutions support-
ing them have to be careful about standards which may not be welfare promoting to the extent
claimed.
More field research is needed to determine the economic and environmental impacts of land-
sharing versus land-sparing technologies. The methodologies of Phalan et al. (2011) provide a
useful foundation for future studies in this realm. In the case of perennial crops with long pro-
duction cycles questions remain unanswered about the long-run sustainability of these systems.
The CRIG trial was terminated after 20 years because of the senescence of the tree stocks (Ahen-
korah et al. 1987). Would similar results have been obtained over the next 20 years if those tree
stocks had been replanted? Very little research has been conducted on the replanting and rehabi-
litation of intensified perennial systems. As a consequence, smallholders continue to seek forest
land for establishing new tree stocks.
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Acknowledgement
The authors wish to gratefully thank the Rainforest Alliance through Counterpart International for funding
this study.

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