Ghana Needs David Ricardo

David Ricardo was one of the great minds who helped lay the ground work for much of what is good about modern economics. He is attributed with the Theory of Comparative Advantage, which explains why voluntary trade, domestic and international, is good for all parties involved.

The Ghana National Association of Poultry Farmers (GNAPF) has called on the government to either prohibit or place quotas on imported chicken meat, and the idea is distressingly gaining ground. The measure may help some farmers to a certain extent, but necessarily to the detriment of the millions of Ghanaian consumers. Unfortunately, we are in an election year, and politicians are using ignorant populist sentiments that reject economic principles in order to gain votes.

The Ministry of Food & Agriculture already has reacted to this with enthusiasm. The Deputy Minister, Dr. Hannah Bissiw, summed it up in a media interview recently when she maintained that “The policy is part of measures that we are putting in place to make sure that we have a future where we do not import unemployment and export employment, but we have a future where employment is created in our country by reviving the poultry industry.”

Those comments are misleading and hollow, depicting how the policy battle on trade has been lost for the general public and won by Ghanaian politicians and special interests. Late last year I debated the Ashanti Regional Chairman of the Poultry Association on a local Radio Station in the City of Kumasi on whether Ghana should ban imported chicken or not. I must confess I was flabbergasted when listeners voted 80-20% in favour of import ban.

The problem with Ghana’s farmers, as well as all other industries here, is not that too much is being imported. It is that government interference, market restrictions, and high tariffs prevent progress and make production inefficient and costly. Modern equipment costs are prohibitive because unreasonable import taxes make them unaffordable. Lack of strong property rights prevents business people from getting financing, because property titles must be solid to be used for mortgages and business loans. Corruption and arbitrary regulations impose high costs on people who just want to be successful and feed their families. The import problem would diminish by itself if producers were allowed to access markets without costs being artificially inflated by taxes and regulations.

At this point, we don’t have more than 20 commercial poultry farms producing over 10,000 birds per farm, and even there, most of the chickens are layers kept for egg production. The hypocrisy of these same farmers calling for import bans is that they are actually exporting eggs to Sahel countries like Burkina Faso, Niger & Mali. They are not even supplying the needs of Ghana despite their fake patriotism.

A little over 60 per cent of day old chicks raised in Ghana in 2015, totalling 8,216,000, were imported from Europe. Most farmers prefer imported day old chicks from Belgium and Netherlands for two reasons. Firstly, with just seven commercial hatcheries, which operate at less than 50 per cent of capacity, many farmers have to depend on imports to fill the shortfall. More importantly farmers prefer well vaccinated and disease free chicks from European hatcheries. Domestic hatcheries cannot fill the need because they are made inefficient by government.

According to conservative estimates, Ghanaian consumers stand to save a whopping $80 million total in 2016 alone by consuming imported chicken. Domestic production is more expensive than imported frozen chicken, even though poultry attracts 20 per cent ECOWAS Common External Tariffs (CET).

When Ghanaians eat foreign chicken they save 30-40 per cent over domestic options. It is not the fault of the consumers and it is not the fault of the producers. It is the fault of politics. The money these consumers save goes to support households and investments elsewhere in the economy. It does not get lost in the ether. If they are forced to buy at higher prices due to the proposed measure, money that is no longer in the pockets of millions of people will no longer be available for them to either invest or to purchase for consumption.

Saving money to buy capital and using it to make things more efficiently is the way forward to prosperity. In the words of the investment pundit Doug Casey, “It is production and saving that drive an economy. You have to save to build capital, and capital is necessary for…everything”.

The wide perception that imports put pressure on our foreign reserves and on overall domestic employment is one of the greatest economic fallacies of our time. This isn’t just erroneous, it’s the exact reverse of what’s accurate.

In a world of sound money, the value of a good or service goes up or down based on market supply and demand. New investments are drawn to areas where prices are high because supply is low and demand is high. State interventionism distorts economic decisions and tends to cause mal-investment, drawing money into areas where demand is artificially low or supply is artificially high.

What Ghanaian poultry farmers urgently need is not protection from imports, but rather protection from their own government. They need a system that establishes legitimate ownership that is credible to lenders and that will lead to legal status and the resulting access to loans and other capital. They need freedom from arbitrary rules and corrupt officials. They need freedom from burdensome taxes that increase costs and decrease profitability.

If Ghanaian politicians are to help to bring prosperity to Ghana, they, as well as the rest of civil society, should familiarize themselves with David Ricardo. His theory of Comparative Advantage will bring about the progress that is desperately needed, and make sure that disadvantages are not multiplied by bad politics.

by Afrikanus Kofi Akosah Adusei

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