Economic Incentives Necessary for Adoption of Environmentally Friendly Cocoa Production in Ghana

Concerns about cocoa production in Africa at the expense of forests, biodiversity and its effects on sustainability necessitate the investigation of price premiums to incentivize cocoa producers to abandon the practices of plantation style cocoa for more sustainable practices shaded cocoa. Thus, this study first employs a multiple regression on a sample of 2,076 Ghanaian cocoa households over five cocoa growing seasons (2002, 2004, 2006, 2008, and 2010), to estimate the yield difference among three varieties of cocoa. These yield differentials in addition to published yield curves are then used to simulate variety specific yield curves under shaded and unshaded cocoa production. These yield curves in addition to cost curves, are then used to estimate the price premium that reflects the opportunity cost of cultivating shaded cocoa. Results indicates that the mean price premium of approximately 4.95% currently offered by third-party production certification schemes (e.g. UTZ Certified) for biodiversity friendly cocoa are well below this study’s price premium of 20.5%. Estimating the opportunity cost of shaded cocoa production is important to producers to determine whether growing cocoa under shade is sufficiently profitable. For manufacturers and consumers, these premiums indicate the cost needed to secure a supply of sustainably produced cocoa