Government Intervention to

Control Maize Price in Ghana

Mohammad Ehsanuzzaman
Shahrear Nasrin
Muntasir Mamun
Buddhadev Sinha
Rupak Thapa
 Government Intervention
Any action carried out by the government that affects
the free market economy to achieve political, social or
economic objectives.
Motivated by:
Equity considerations
Efficiency consideration
Ethical or moral arguments
Forms of Government Intervention
 Price Ceiling
 Price Floor
 Taxes
 Subsidy
 Quota
 Local Content Requirement
 Countervailing/anti dumping duty
 Buffer Stock
 Ghana and Maize

 Agriculture sector employs 54% of workforce

 Contributes about half of GDP and Export Earning
 Maize is major food in Ghana’s people
 One of five major crops in Ghana
 Government is sensitive about Maize price
 Maize Production in Ghana

Figure 1: The production of Maize in Ghana from 1960 to 2008

 Government Intervention in Ghana

Price Floor for Maize:

•Guaranteed Minimum Price (GMP) policy for producers
Objectives:
To Increase farmers’ income
To keep reasonable price level for customers
Reduce dependency on import
Effect of GMP Policy in Ghana
Cost-Benefit Analysis (CBA) of GMP Policy in Ghana

Data Used for Calculation:

A. Quantities (Thousand metric tonnes)

1. Domestic consumption of maize (Qc) 474.00

2. Domestic output of maize (Qo) 461.08

3.Government purchase of maize in domestic trading 28.44

4. Additional maize imported (Qc- Qo) 12.92

Cost-Benefit Analysis (CBA) of GMP Policy in Ghana

Data Used for Calculation:

B. Prices (Cedis per tonne)

5. Intonational price of maize (Pw) 18,503.30

6. Domestic producer price (Ps) 22,651.33

7. Domestic consumer price (Pc) 22,154.00

8. Guaranteed producer price 28,887.00

Cost-Benefit Analysis (CBA) of GMP Policy in Ghana

1. Loss arising from domestic trading operations:

Government Purchase= 28.44 kt
Purchase Price (Guaranteed Producer Price)= 28,887
cedis/t
Selling Price = 22,154 cedis/t
Total loss = 191.49 million cedis
Cost-Benefit Analysis (CBA) of GMP Policy in Ghana

2. Gain arising from import operations:

Imported amount = 12.92 kt)
Import price (International Price) = 18,503 cedis/t
Selling price = 22,154 cedis/t
Total gain = 47.17 million cedis
Cost-Benefit Analysis (CBA) of GMP Policy in Ghana

3. Net Loss due to implementation of GMP Policy:

The government had to incur a net of loss of
144.32 million cedis.
 Cost-Benefit Analysis (CBA) of GMP Policy in Ghana

4. Producer Surplus gain:

maize producers received an average price of 22,65l cedis/t
under the GMP policy instead of l8,503 cedis/t
Output is increased from 383 kt to 461 kt
The producer surplus gain = 1,909 million cedis
Cost-Benefit Analysis (CBA) of GMP Policy in Ghana

5. Consumer Surplus loss:

A higher average price 22,154 cedis/t is fixed with the GMP
policy instead of l8,503 cedis/t
This is associated with a fall in consumption
The Consumer surplus loss = 2,252 million cedis
Cost-Benefit Analysis (CBA) of GMP Policy in Ghana

6. Net social cost:

The implementation of GMP policy in maize
market resulted in the net social cost of about 487
million cedis.
Cost-Benefit Analysis (CBA) of GMP Policy in Ghana

7. Foreign exchange savings:

Without GMP policy imports of maize = 236.54 kt
with GMP policy import of maize = 12.92 kt
At a world price of 18,503 cedis/t, this represents a foreign
exchange saving of 4,137 million cedis.
 Effect of Floor Price System

Criterion Total Maize Industry

Net producer benefit +1,909

Net consumer benefit -2,252

Net government benefit -144

Savings in foreign exchange +4,137

Net social benefit -487

Merits of Government Intervention in Ghana

 Decreased import
 Foreign Exchange Saving
 Reduced dependency on import
 High consumer price in absence of intervention
Demerits of Government Intervention in Ghana

 Loss to consumers and overall society

 Lower competitiveness of producers
 Motivate other producers to seek protection
 Sustainability of Policy

Not sustainable for long:

Society is bearing loss
Country is bearing loss (0.11% of GDP)
Overprotecting producers harms economy in long run
Market needs automatic stabilizer
Developed countries have free market economy
Reduced market efficiency and market transparency
 Conclusion

 Price support system for staple food items

 Economic costs outweighed economic benefits
 Fund can be used for development
 Consumer should be protected
 Equitable distribution of resources
Contribution of Group Members
All members: Topic selection and policy analysis:
Mohammad Ehsanuzzaman: Background part & intervention tools
Shahrear Nasrin: Government Intervention, advantages & Dis-advantages
Muntasir Mamun: Calculation of impact and analysis, Slides preparation
Buddhadev Sinha: Positives and negatives of Policy, questions to be
answered to in group project (matrix for group project)
Rupak Thapa: Sustainability and conclusion part; Report compilation
Thank You 