Exports of Palm Oil from Ghana: A Demand Analysis

Studies have shown that the economy of Ghana cannot afford to rely solely on cocoa exports. It is imperative to diversify the export base of the Ghanaian economy. In this respect, the palm oil sub-sector of the agricultural sector, which until the early part of the 20th century was the major agricultural export commodity of Ghana, needs to be considered for promotion. Currently the palm oil industry faces the challenge of bleak export potential. This study examines trends in the quantity exported of Ghana's palm oil and quantifies the effects and magnitudes of the determinants of export demand. Empirical analysis of Ghana's palm oil exports from 1987 to 2006 reveals a general upward growth over the study period at an annual growth rate of 23.2 percent.This result can be attributed to the privatization of state-owned oil palm plantations in the 1980s and 1990s.The effects and magnitudes of the determinants of the demand for Ghana palm oil were achieved with ordinary least squares regression. The study identifies the following significant determinants of the demand for Ghana's palm oil: real export price and real domestic price of Ghana's palm oil, real export price of Malaysia's palm oil (a competitor with Ghana's palm oil exports), and real exchange rate in Ghana.A one-percent fall in the real domestic price of Ghana's palm oil will bring about an 11.9-percent increase in the quantity exported (demanded) of Ghana's palm oil by her trading partners; a one-percent increase in the export price of Malaysia's palm oil will increase the demand for Ghana's palm oil by 2.1 percent; quantity demanded of Ghana's palm oil increases by 0.4 percent for every one-percent decrease in the export price of Ghana's palm oil; and a one-percent depreciation of the Ghana cedi against the U.S. dollar will bring about an 11.1-percent increase in the demand for Ghana's palm oil by her trading partners, all other things being equal. This study recommends that a price support system (i.e., maximum­ price legislation) be instituted in the domestic palm oil market to minimize domestic price increases. Policymakers and stakeholders in the palm oil industry should consider the export price of Malaysia's palm oil when pricing Ghana's palm oil in the international market. Exchange-rate stabilization policies should be strengthened in order to promote mutually beneficial trade between Ghana and palm oil-importing countries.