American Journal of Rural Development
ISSN (Print): 2333-4762 ISSN (Online): 2333-4770 Website: http://www.sciepub.com/journal/ajrd Editor-in-chief: Chi-Ming Lai
Open Access
Journal Browser
Go
American Journal of Rural Development. 2017, 5(3), 81-89
DOI: 10.12691/ajrd-5-3-4
Open AccessArticle

The Influence of Exchange Rate Changes on Agricultural Prices: The Case of Cocoa and Maize in Ghana (1966-2008)

Adu-Gyamfi Poku1,

1Social and Institutional Change in Agricultural Development, Hans-Ruthenberg-Institute, University of Hohenheim, Stuttgart, Germany

Pub. Date: July 25, 2017

Cite this paper:
Adu-Gyamfi Poku. The Influence of Exchange Rate Changes on Agricultural Prices: The Case of Cocoa and Maize in Ghana (1966-2008). American Journal of Rural Development. 2017; 5(3):81-89. doi: 10.12691/ajrd-5-3-4

Abstract

Exchange rates are a key determinant of the domestic prices for agricultural goods and therefore affect the quantity of these goods produced for domestic consumption and export. Accordingly, in competitive domestic markets with complete market integration with foreign markets, exchange rate changes are fully reflected in the domestic currency prices of traded goods. However, agricultural policy instruments such as intervention mechanisms tend to insulate domestic markets and impede exchange rate transmission. The study examines the influence of nominal exchange rate changes in Ghana on the annual domestic producer prices of cocoa, a traditional export crop, and maize, a non-traditional export crop from 1966 to 2008. Nominal exchange rate changes in Ghana were found to reflect the gradual shift from a fixed to a flexible exchange rate regime since independence. Using an Autoregressive Distributed Lag model, it was discovered that exchange rate transmission was extremely low for both crops. Therefore, it did not have a statistically significant effect on domestic producer prices of cocoa and maize in Ghana. Whiles market intervention was found to be the cause of this phenomenon in the case of cocoa, the very nature of maize as a non-traditional export with low export supply accounted for the lack of exchange rate transmission in the maize sub-sector. Consistently, world price transmission to domestic producer prices of both crops was also not statistically significant.

Keywords:
agricultural prices exchange rate transmission price transmission autoregressive distributed lag Ghana

Creative CommonsThis work is licensed under a Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/

References:

[1]  Abdulai, A. (2000). Spatial price transmission and asymmetry in the Ghanaian maize market, Journal of Development Economics, Vol. 63, pp. 327-349.
 
[2]  Baffes, J. and Ajwad, M. (2001). Identifying price linkages: A review of the literature and an application to the world market of cotton, Applied Economics, Vol. 33, pp. 1927-1941.
 
[3]  Baffes, J. and Gardner, B. (2003). The Transmission of World Commodity Prices to Domestic Markets under Policy Reforms in Developing Countries, The Journal of Policy Reform, Vol. 6, No. 3, pp. 159-180.
 
[4]  Bhattarai, K. R. and Armah, M. K. (2005). The Effects of Exchange Rate on the Trade Balance in Ghana: Evidence from Cointegration Analysis. Hull, Centre for Economic Policy, University of Hull.
 
[5]  Brinkman, H. (1999). Explaining prices in the global economy: A post-Keynesian model. Massachusetts, Edward Elgar Publishing.
 
[6]  Brooks, J., Croppenstedt, A. and Aggrey-Fynn, E. (2009). Distortions to Agricultural Incentives in Ghana. In: Anderson, K. and Masters, W. A. (eds.), Distortions to Agricultural Incentives in Africa, Washington DC, World Bank, pp. 413-440.
 
[7]  Damiani, O. (2003). Effects on Employment, Wages, and Labour Standards of Non-Traditional Export Crops in Northeast Brazil, Latin American Research Review, Vol. 38, No. 1, pp. 83-112.
 
[8]  Dickey, D. A. and Fuller, W. A. (1979). Distribution of the Estimators for Autoregressive Time Series with a Unit Root, Journal of the American Statistical Association, Vol. 74, No. 336, pp. 427-431.
 
[9]  Dordunoo, C. K. (1994). The Foreign Exchange Market and the Dutch Auction System in Ghana. Research Paper 24, Nairobi, African Economic Research Consortium.
 
[10]  Enke, S. (1951). Equilibrium among spatially separated markets: Solution by electrical analogue, Econometrica, Vol. 19, pp. 40-47.
 
[11]  Fold, N. (2002). Lead Firms and Competition in “Bi-polar” Commodity Chains: Grinders and Branders in the Global Cocoa-Chocolate Industry, Journal of Agrarian Change, Vol. 2, No. 2, pp. 228-247.
 
[12]  Gardner, B. L. (1975). The farm-retail price spread in a competitive food industry, American Journal of Agricultural Economics, Vol. 59, pp. 399-409.
 
[13]  Institute of Statistical, Social and Economic Research (ISSER) (2010). The State of the Ghanaian Economy in 2009. Accra, Institute of Statistical, Social and Economic Research, University of Ghana.
 
[14]  Jebuni, C. D., Sowa, N. K. and Tutu, K. A. (1991). Exchange Rate Policy and Macroeconomic Performance in Ghana. Research Paper 6, Nairobi, African Economic Research Consortium.
 
[15]  Koop, G. (2009), Analysis of Economic Data, 3rd Edition, Chichester, John Wiley.
 
[16]  Leith, J. C. and Söderling, L. (2000). Ghana: Long Term Growth, Atrophy, and Recovery, Emerging Africa. Research Report 125, Paris, OECD.
 
[17]  Liefert, W. and Persaud, S. (2009). The Transmission of Exchange Rate Changes to Agricultural Prices. Economic Research Report No. 76, Washington DC, U.S. Department of Agriculture, Economic Research Service.
 
[18]  Liew, V. K. (2004). Which Lag Length Selection Criteria Should We Employ? Economics Bulletin, Vol. 3, No. 33, pp. 1-9.
 
[19]  May, E. (1985). Exchange Controls and Parallel Market Economies in Sub-Saharan Africa: Focus on Ghana, World Bank Staff Working Paper No. 711, Washington DC, World Bank.
 
[20]  Menon, J. (2006). Exchange Rate Pass-Through, Journal of Economic Surveys, Vol. 9, No. 2, pp. 197-231.
 
[21]  Ministry of Food and Agriculture (MOFA) (2002). Food and Agriculture Sector Development Policy (FASDEP), Accra, Ministry of Food and Agriculture.
 
[22]  Ministry of Food and Agriculture (MOFA) (2007). Food and Agriculture Sector Development Policy (FASDEP II), Accra, Ministry of Food and Agriculture.
 
[23]  Ministry of Food and Agriculture (MOFA) (2010). Agriculture in Ghana, Facts and Figures (2009), Accra, Ministry of Food and Agriculture.
 
[24]  Mumuni, Z. and Owusu-Afriyie, E. (2004). Determinants of the Cedi/Dollar Rate of Exchange in Ghana: A Monetary Approach, Bank of Ghana Working Paper WP/BoG-06, Accra, Bank of Ghana.
 
[25]  Puplampu, K. P. (1999). The State, Agricultural Policies and Food Security in Ghana (1983-1994), Canadian Journal of Development Studies, Vol. 20, No. 2, pp. 337-359.
 
[26]  Samuelson, P. A. (1952). Spatial price equilibrium and linear programming, American Economic Review, Vol. 42, pp. 560-580.
 
[27]  Sanusi, A. R. (2010). Lessons from the Foreign Exchange Market Reforms in Ghana: 1983-2006, Journal of Economics and Allied Fields, Vol. 4, No. 2, pp. 1-19.
 
[28]  Sharma, R. (2003). The Transmission of World Price Signals: Concepts, Issues, and Some Evidence from Asian Cereal Markets. In: Tangermann, S. and Burgeat, E. (eds.), Agricultural Trade and Poverty: Making Policy Analysis Count, Paris, Organisation for Economic Co-operation and Development, pp. 141-160.
 
[29]  Sowa, N. K. (1994). Fiscal deficits, output growth and inflation targets in Ghana, World Development, Vol. 22, No. 8, pp. 1105-1117.
 
[30]  Takayama, T. and Judge, G. G. (1971). Spatial and temporal price allocation models, Amsterdam, North-Holland.
 
[31]  Ton, G., Hagelaar, G., Laven, A. and Vellema, S. (2008). Chain governance, sector policies and economic sustainability in cocoa: A comparative analysis of Ghana, Côte d’Ivoire, and Ecuador, Markets, Chains and Sustainable Development Strategy & Policy paper No. 12, London, Stichting DLO: Wageningen.
 
[32]  Werlin, H. (1994). Ghana and South Korea: Explaining Development Disparities, Journal of Asian and African Studies, Vol. 29, pp. 3-4.