7.1.2.1 – The Role of Cocobod Subsidiaries
Within Ghana the Cocobod remains active in the cocoa market, not only through tight regulatory conditions, but also through its control of the QCD and CMC. The institutions of QCD and CMC impact extensively on the daily operations of the LBC’s. Across both rounds of interviews all LBC participants209, except one, have indicated that the Cocobod’s close relationship with these two institutions was something they had hoped would change in the process of liberal reform in Ghana. When commenting on the role of the CMC and the QCD one LBC manager noted that,
‘The controls being exercised by the Cocobod are not on the decrease as I was expecting’.
As observed above change in this area has not occurred and findings from the LBC segment strongly suggest that the Cocobod’s continual attachment to the QCD and CMC acts as the most significant factor negatively affecting the credibility of reform. The QCD and CMC are negatively associated with market credibility because, as subsidiaries of the Cocobod, LBC’s perceive there to be a regulatory bias towards these institutions. This can be seen from the following passage:
‘If a regulator is only overseeing what people are doing it is fine, but the QCD they play a very vital role in the success of the LBC’s, the CMC they do the same, but he [Cocobod] controls them and when he does the rules he favours them a little bit’.
209 Unless stated otherwise, ‘all LBC participants’ includes all those under the title ‘LBC Participants’ in appendix eighteen. This does not include any of the ‘rural participants’ in appendix eighteen. This rule will apply for all findings sections in chapter seven.
197 As observed in chapter two, the government’s lack of commitment to reform has been highlighted as a factor leading to the failure of liberalisation policies throughout sub-Saharan Africa [Jayne et al, 2002; Kherallah et al, 2000]. In light of this, the Cocobod’s strong links with these institutions and the resultant perception of bias within their regulatory actions appears to significantly affect the credibility of reform in Ghana. This is particularly so given that the functions of these institutions are closely integrated with the daily operations of LBC’s.
Indeed, all LBC respondents considered these institutions to be the Cocobod’s representatives in the field, somewhat diminishing the perception of liberalisation within the internal market.
7.1.2.2 – Moral Hazard and Rent seeking
Throughout both stages of research all LBC respondents were highly critical of the Cocobod’s regulation of the QCD and CMC. In particular all LBC respondents complained about the Cocobod’s failure to hold QCD agents accountable in cases of malpractice. Within interview accounts the problem of accountability is particularly evident in relation to the Cocobod’s response to inconsistent grading of cocoa from QCD officers. Typically this inconsistency involves cocoa being passed by QCD’s graders at the first quality check upcountry and then failed by a different set of QCD graders once cocoa has been transported to the takeover centres where the second quality check takes place.
Despite the Cocobod’s contention that this is not a regular occurrence, every LBC participant across both stages observed this problem210 and associated it with costly delays incurred when they have to take time fixing quality defects at the port. In criticism of this, all LBC respondents noted that it is much more costly and logistically problematic to fix quality problems at the port compared with the upcountry level. If a problem is detected at the upcountry level then given the traceability211 system used in Ghanaian cocoa it is possible to get the
210 On average LBC’s found that between 5-10% of their cocoa would have to be reconditioned at the takeover centres before being taken over by the Cocobod.
211 Each sack of cocoa in Ghana displays information on the PC who first bought the cocoa, the LBC it was sold to and the grader who gave it his/her seal of approval.
198 purchasing clerk, who originally bought the poor quality cocoa, to carry out the additional work at no extra cost to the LBC. However, if the defect is noticed at the port, it is more costly and time consuming to rework the cocoa and tracing the problem back to the original point of quality failure is much more challenging. Commenting on this problem one LBC manager observed that,
‘The upcountry check, they don’t regard it when it comes to the port’.
Indeed, this problem has been in the system for some time as observed in the LMC report [1996]. The most high profile example of this occurred during the purple bean problem of 2004/05, where LBC’s were being fined up to 50% of their commission for a quality defect, which had not been detected by the upcountry QCD graders. Understandably LBC management consider this to represent poor performance on the part of the QCD and therefore not something they should have to pay for.
Another scenario, as described by the Deputy Managing Director of the QCD and two respondents from the LBC’s, is that QCD staff may be captured by LBC district level staff in the form of a bribe. As observed in chapter two, the risk of public agents being captured by interest groups is one of the biggest organizational challenges facing public sector bureaucracies [Tirole, 1994; Dixit, 2002]. Where this problem occurs in Ghana, a financial incentive may be given to a member of the QCD’s upcountry staff by an LBC district officer212 to either ignore poor quality cocoa or speed up the grading process, in the hope that any poor quality that is passed will not be detected at the later takeover centre grading.
However, as observed earlier, where any quality problems are detected at the takeover centre this will typically result in the LBC having to carry out expensive reconditioning on the cocoa. In light of this, LBC management do not want their
212 This could include any member of staff working at the district level. Within appendix eighteen such participants are under the title of ‘rural participants’.
199 field agents to act in this way, as indicated by all LBC participants. This can be seen in the following passage taken from an LBC interview,
‘You see it is not in the interest of we the LBC’s for him to take big money, seal the wrong product, take it all the way to the port, for it to be rejected and confiscated’.
Nevertheless, this problem occurs due to the inability of the top management, in both the LBC’s and the QCD, to effectively monitor the actions of the staff in the field. The problem of rent seeking is so extensive within the Ghanaian quality control system that all LBC managers, with the exception of one, complain that no cocoa will ever be graded and sealed by the QCD without some financial incentive being given. As noted by one LBC manager,
‘As for that, you have pay, there is no cocoa sealed where you don’t pay something’
This problem, which was also observed by Laven [2007], is known in the market as QCD VAT. Indeed, as observed by Bardhan and Udry [1999] in chapter two, the problem of de-centralized corruption in the form of bribe taking is highly problematic within Africa markets.
QCD officers are not remunerated in the form of a high powered incentive contracts and instead have fixed rate salaries. As such, faced with low powered incentives, QCD officers have the opportunity to take advantage of the colossal information asymmetries that exist between themselves and their managers.
Information asymmetries in this area exist in a number of forms, and to a large extent it appears that this may be the main reason for the frequency of this problem.
Cocobod sources have indicated that given the organisation’s centralised operations it is very difficult for them to monitor the actions of both their subsidiaries and LBC’s in the field. Indeed, two Cocobod respondents highlighted
200 this as an area where the organisation needs to improve. The vast majority of the Cocobod’s monitoring is based on reports submitted from the field, as opposed to actual field observations. Commenting on the Cocobod’s monitoring one industry source found that,
‘Everybody [in Cocobod] likes to sit in Accra and look at paper’.
Similarly a Cocobod source noted that,
‘Sometimes we who sit in Accra are not in touch with the reality down there [in the field]’.
As such, it is the QCD themselves who are seen as the Cocobod’s monitors in the field, thus making it highly problematic to collect information which may render a QCD officer culpable in the case of quality failure. Coupled with this problem is the disincentive LBC’s face to report QCD officers in any case of malpractice. In an environment where QCD resources are already thinly spread, the favour of QCD officers is something that LBC upcountry staff will attempt to court in order to speed up the grading procedure. All LBC managers therefore find that reporting QCD officers is not something which their upcountry staff are willing to do. Indeed, this problem is also observed by the DMD of the QCD, finding that,
‘They will try to cover themselves up, they live in the same village, they live in the same town, they drink together, they eat together, if there is a problem this one will say it is not true’
Further information asymmetries are caused by the subjectivity of quality grading itself, where the QCD upcountry staff and the QCD staff at the takeover centre may have a difference of opinion. Indeed, this problem is observed by the LBC respondent in appendix twenty-three. Resultantly, it appears that QCD officers are given some margin of error in the grading process, ultimately enabling them greater freedom in terms of moral hazard behaviour. To a large extent this problem is further heightened by the negative effect that weather