 |
Around the World in 80 Ideas |
|
PRIVATIZATION 2: Hot cocoa Agriculture reform through commercialization The problem: marketing boards The desire to manage agricultural prices has prompted many countries to set up official marketing boards. Too often, these become over-large, bureaucratic, and ineffective. The solution: more markets Experience shows that the abolition of price-fixing should not be feared; a functioning market soon reasserts itself (see the chapter Farming for Profit). Can over-blown marketing boards be reformed to foster that market and promote stable and improved production?
The West African state of Ghana is highly dependent on the export of primary goods, particularly cocoa, timber, gold and diamonds. Of these cocoa is predominant, providing about 60% of total export earnings. Its importance is great: the sector employs about a quarter of the country's labour force, uses about half the land under cultivation and generates 10% of the GNP. Ghana was for many years the world's largest producer of cocoa, with production at around 400,000 tonnes per annum. Then from the mid-1970s there was a rapid decline to about 150,000 tonnes in 1983. Many reasons were suggested for the decline: price, unusually dry seasons, a shortage of farm labourers, deterioration of the railways and roads, and lack of insecticides. But a large factor was the falling efficiency of the Cocoa Board itself. As it had grown from a small regulatory and advisory body to an organization involved in all aspects of cocoa production. The payroll of the Board had grown to around 115,000 by 1981. Government interference - perhaps inevitable when cocoa has such an important role in Ghana's economy - permeated down to even minor operational and management matters. Management was poor, with little delegation, and staff were terrified of making decisions for which they might be accountable: even trivial items were referred up to the chief executive. A 1981 study suggested that the Board was 50% over-staffed, with many functions being duplicated. Few tasks had documented procedures of any kind, though there were mountains of forms (but no detailed instructions on how to complete them and so provide useful information). Eventually the government and the World Bank recognized that the revival of the cocoa sector was essential to Ghana's economic recovery, and brought in consultants to help. The advisers reported that the main cause of the decline in cocoa production was the totally inadequate price paid by the Board, as the monopoly purchaser of the crop. Farmers could get ten times that price on the black market: and unless the price rose substantially, farmers would prefer to grow food crops or risk smuggling their cocoa to Togo and the Ivory Coast. The Board too was to be reorganized. The almost autonomous agriculture and buying divisions were brought under a single structure, which eliminated the duplication of a number of central functions and facilitated planning and financial management for the whole sector. Any activities which were not essential, or which could be combined with work elsewhere, were eliminated. This restructuring made possible a reduction in staff numbers from 115,000 in 1981 to abut 80,000 by 1985 - achieved largely through natural turnover, but also through the elimination of thousands of 'phantom workers' as a consequence of better payroll controls. (Much of the cash paid to these 'phantom workers' ended up in the pockets of powerful local politicians: advisers working on the restructuring programme needed the protection of bodyguards as they tackled this vast corruption.) But compulsory redundancies were needed too. So personnel management was strengthened, with new procedures and training to help managers select new staff for jobs or to identify where cuts should be made. Personnel committees, including staff representatives, carefully studied each worker's file and took soundings before making any decisions. Eighteen months later, staff numbers were down to 63,000; a short time later they were down to under 40,000 - and the Board was operating more effectively, as well as more efficiently. Generous redundancy pay (three years' salary in three annual instalments), was an important factor in achieving all this without major disruption. But, just as important, the staff knew that enormous effort had been made to ensure the process was fair and, where possible, they had been provided with training to make them more valuable in other jobs. Most important of all, however, was the firm commitment to the process at the highest levels within the government. Example: stimulating the coffee market Ghana is not the only African country to liberalize its commodity markets. As part of a programme to create a stable economy, opening up foreign exchange, and abolishing state monopolies and price controls, Uganda liberalized its coffee market in 1991. Before then, the Coffee Marketing Board had a virtual monopoly of coffee marketing and exports; but it presided over a long period of decline. Before nationalization, Uganda exported some 3.7 million bags of coffee in 1972-3. This had fallen to just 2 million by 1991-2. Clearly, reform was needed. The Board's regulatory role was moved to another agency, charged with promoting marketing, quality control, and price monitoring. The commercial functions of the Board were transformed into the Coffee Marketing Board Limited - so that it still existed, but only as one player in a market. Within five years, its 84% control of the market had dwindled to almost nothing as other trading companies overtook it. Coffee currently accounts for around 55% of Uganda's exports. The liberalization of the industry generated clear benefits: exports almost doubled, up to 3 million bags, in the five years, while the number of exporters rose to over 50. Farm gate prices have risen too, as a result of increased competition in local procurement and processing. Plantations are being rehabilitated and expanded, and new stock varieties are being planted. Despite large fluctuations in world coffee prices caused by weather and other factors, the Ugandan coffee industry continues to grow. Assessment: reform to grow The twenty advisers who worked in Ghana were all paid in foreign currency under a World Bank loan of $2 million - a sum far outweighed by the benefit to the Ghana economy that resulted from the reforms. Arguably the Ghana government and the World Bank could have been bolder in terms of abolishing the state monopoly - as happened in Nigeria - rather than merely reforming the Board's operations. After all, the system existed to stabilize the cocoa price for farmers, but in fact they were getting so poor a price that they were leaving the sector or smuggling their produce anyway. But abolition would have been politically very difficult: cocoa is absolutely vital to Ghana's economy; the functions of the Board included other essential services to farmers; and people were not willing to see large foreign buyers such as Nestlé and Cadbury dominate the market. In summary, the Cocoa Board experience shows how easy it is for government bodies to become bureaucratic, over-large, and inefficient - even corrupt - and just how much inefficiency there can be. It also demonstrates that by the application of firm, but fair, management principles, it is possible to run a state function at much lower cost and with much greater efficiency. For further information:
|
