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I {’5 kr-r‘: J Wmmmm ._ Mn‘ Ill“ \lll‘llllllllllNlllll‘lllll W“ \l “3&2.“ 3 1293 00764 1693 ' l University v—f This is to certify that the dissertation entitled AN ASSESSMENT OF THE BUDGET AS AN INSTRUMENT FOR DEVELOPMENT IN GHANA presented by Francis Enu-Kwesi has been accepted towards fulfillment of the requirements for Doctor of PhilosophLdegreein Resource Development Date June 2, 1989 MS U is an Affirmative Action/Equal Opportunity Institution 0.12771 ." / (3; 1' L9,!" (" . «XL-7 /i.‘7 9' »/ ‘.-—-_,——- ..———-__. '__ PLACE IN RETURN BOX to move this checkout from your record. TO AVOID FUNES return on or before duo duo. . DATE DUE DATE DUE DATE DUE 001 16-81:}: l NOV 2 3 199; ' l r . 'DC‘Pfi—ZOUB' 0': 2 2 ’2 _ . usu Io An mum Action/Equal Opportunity Institution Wanna-9.1. % H AN ASSESSMENT OF THE BUDGET AS AN INSTRUMENT FOR DEVELOPMENT IN GHANA By Francis Enu-Kwesi A DISSERTATION Submitted to Michigan State University in partial Fulfillment of the requirements For the degree of DOCTOR OF PHILOSOPHY Department of Resource Development 1989 C 0 57 o e; 2. ABSTRACT AN ASSESSMENT OF THE BUDGET AS AN INSTRUMENT FOR DEVELOPMENT IN GHANA By Francis Enu—Kwesi The introductory chapter oF this paper deals with the historical development oF Ghana’s problems aFter independence. The three major problems were noted to be Balance oF Payments. Unemployment and InFlation. To deal with these problems Four alternatives were suggested namely Direct Foreign Investment. Trade. Aid. and Budgeting. Budgeting was chosen to be the Focus oF this study because it was thought to be the least dependent on external inFluences. The budget has been used by the governments oF Ghana to play an activist role in development by building inFrastructure as well as engaging in directly productive activities. and also as an avenue For the establishment oF monetary and Fiscal policies. The development budget was selected as the area oF Focus with emphasis on the selection oF projects For inclusion in the budget. I hypothesized that the project analyses that are undertaken For projects included in the development budget are not done with appropriate prices because they do not account For the distortions in the economy. In an attempt to present a better way oF undertaking the analysis I chose as a typical example the Upper Region Agricultural Development Project and used the net present value method to reFormulate the beneFit-cost analysis. By using the shadow exchange rate and a more meaningFul discount rate the project in its original design was unproFitable due mainly to Four Farm models that had combined losses that outweighed proFits From the other eight models. An alternative design that eliminated the unproFitable models proved to be proFitable aFter twenty years. Chapter one is the introduction. chapter two deals with the budget. chapter three deals with the data. Chapter Four deals with issues concerning shadow prices. notably exchange rates. discount rate and other inFluences on input and output prices. Chapter Five contains the analysis and results. Chapter six deals with other Factors that aFFect the budget in its role as an instrument For development - such Factors including resource scarcity and power. The concluding chapter is essentially a summary oF the First six chapters. ACKNOWLEDGMENTS I started this essay with a hazy idea oF what I actually wanted to achieve. However. with the considerable support and guidance oF my advisor I was able to narrow it down to a. manageable size. I like. thereFore. to take this opportunity to express my deepest gratitude and appreciation to Dr. Daniel Chappelle For his patience and eFForts. In the same regard Dr. Milton Steinmueller also deserves considerable gratitude. The probing questions oF ProFessor Strassman and Dr. Lawrence Martin also enabled me to be properly Focussed and I am very grateFul to them For that. My typist. Sun Young Ahn. also deserves my gratitude For tolerating my phone calls at odd hours and For doing such a Fine job. and so does George Acquaah For putting the Final shape together. Finally. but not the least. I like to thank my wiFe Georgina Aggrey and my two sons Kwesi and Kojo (Jojo) For the hardships that they had to endure while I undertook this impoverishing assignment. Thanks Gina. Kwesi and Jojo. iv l.\ 44<<F Agricultural Projects" and presented below. The Figures aare in c’0003.. For the purpose of this essay the table in cmuestion is being reproduced as Table 3.1 titled "Economic Analysis of the Upper Region Agricultural Development Project." The First part of the table deals with on-farm costs earn: benefits. Incremental crop benefit refers to the ‘frncrease in crop output resulting From the project while the fI'Wcremental livestock benefit is the increase in livestock l"‘esulting from the project. The incremental crop and I 7 \restock inputs refer to input increases incurred on the ‘FiEir‘m as a result of the project. It is maintained that these Figures are not true reflections of costs and benefits 3 ‘ hce they do not take into account with and without project 3 ‘ tuations. The other parts of the table subtitled "crops and livestock" deal with off-Farm costs for the crops and 62 Table 3.1: Economic Analysis of the Upper Regional 63 Agricultural Development Project ('000 cedis) Project year Item 1 2 3 4-20 Incremental cr0p benefit 1,829 7,071 14,217 36,822 Incremental livestock benefit 763 1 065 2,542 9,482 Total inflow 2,592 8,136 16,759 46,304 Incremental crop input 2,635 5,836 9,464 18,724 Incremental livestock input 299 477 385 234 Total on-farm cost 2,934 6,313 9,849 18,958 Craps Buildings 4,709 3,476 1,895 0 Plants, vehicles, equipment 6,249 1,505 240 383 Salaries, allowances 1,487 1,730 1,840 482 Plant and vehicle operation 446 1,254 1,335 967 General administration 65 43 25 0 Physical contingencies 648 396 267 92 Total crop administrative and processing cost 13,604 8,404 5,602 1,924 Livestock Buildings 942 662 0 0 Plants, vehicles, equipment 245 65 0 S7 Salaries and allowances 264 275 275 215 Plant and vehicle operation 71 82 82 82 Physical contingencies _16 _54 _1§ _1§. Total livestock administrative and processing cost 1,598 1,138 375 372 Total outflow 18,136 15,769 15,826 21,254 Incremental net benefit (cash flow) (15,544) (7,633) 933 25,150 Figures in parenthesis are negative. net present worth at 12 percent opportunity cost of capital - 1 85,274 64 livestock projects respectively. The items in these sections include oFFice buildings as well as residential quarters For the project staFF. "Plants. vehicles. and equipment" include generators. cars and tractors while "salaries and allowances" constitute renumeration For the project staFF. "General administration" includes stores and stationery. equipment like typewriters. duplicating machines. stencils and administrative and clerical activities. "Physical contingencies" generally reFer to allocations set aside to take care oF damages caused by brush Fires and deterioration to the buildings and other structures. The problem with physical contingency is that it acknowledges the seriousness oF damages only in the First three years oF the project. 3.2 CROP DATA The targeted acreage For the listed crops as estimated in the 1975/76 - 1979/80 Development Plan Part II are as shown in Table 3.2. According to oFFicials at the Ministry oF Finance and Economic Planning the acreage For each crop will be the same For all the diFFerent enterprises under this crop heading. Even though these oFFicials could not state categorically the acreage to be brought under. cultivation each year. they did agree that since a lot oF the expenditures are being incurred in the First 3 years they expected much oF the acreage to be cultivated in the First 3 years. As to what Formula will be used they indicated that perhaps the acreage should 65 Table 3.2: Acreage Targeted for Listed Crops CROP LAND (acres or hectares) Rice 48,000 or 19,200 ha. Millet 65,000 or 26,000 ha. Cotton 50,000 or 20,000 ha. Groundnut 63,000 or 25,200 ha. where 2.5 acres = 1 hectare Source: 1975/76 - 1979/80 Development Plan Part II 66 reFlect in proportionate terms the percentage oF costs incurred For the particular year. Out oF this acreage each enterprise gets equal share oF land area. 0F course this is important mostly For the First 3 years For the reason that has been stated above. This means that about twenty Five percent (25%) 0F the acreage will be brought under cultivation in the First year. about twenty two percent (22%) in the second year andabout twenty two percent (22%) in the third year. The remaining thirty one percent (31%) ~will be brought under cultivation in equal amounts over the the next seventeen (17) years. From Table 3.2 the total acreages For the crops are: rice (48.000 acres or 19.200 hectares). millet (65.000 .acres or 26.000 hectares). cotton (50.000 acres or 20.000 hectares) and government (63.000 acres or 25. 200 hectares). 3. 3 FARM noosg These models are just simpliFied representations oF typical Farms included in the project. These models serve two important Functions as discussed by H. L. Brown (1982). They Facilitate analysis oF the attractiveness oF the project to diFFerent groups oF Farmers and help in the aggregation oF the projects' total costs and beneFits. One can observe changes in output and also in input structures between models. Except where explicitly stated; harvesting includes dehusking and shelling. No reasons were given in situations where these activities 67 were separated. The number oF models reFlects the wishes oF bureaucrats rather than what the nature oF the project determined. As will become evident in the analysis. not all enterprises are proFitable. Assumptions made by oFFicials at the Ministry oF Finance and Economic Planning about phasing oF the area to be brought under the inFluence oF the project and projection oF increases in productivity all reFlect what these oFFicials would like the Farmer to do and not necessarily what the Farmers are likely to do. The years Four to twenty (4-20) have been aggregated For convenience. No aggregation error is incurred and hence the analysis is not aFFected because each year has been worked out separately and then added in order to save space. Table 3.3 reFers to the traditional method For rice cultivation. The estimated output per hectare is one thousand kilograms per year (1000 kg/year) over the liFe oF the project. As regard inputs. mandays oF labor required in the First year are three hundred and Forty three (343) days. This number reduces to two hundred and ninety three (293) days over each oF the next nineteen years. Landclearing required FiFty mandays and this was only in the First year. With constant usage and weeding there was no need For any clearing in subsequent years. Seed °broadcasting took Five mandays oF labor per year over the liFe oF the project. Since this is the traditional 68 Table 3.3: (Rice) Traditional Method (1.0 hectare) Project Year Physical Unit 1 2 3 4-20 Output kg 1000 1000 1000 17,000 Inputs Labor: mandays 343 293 293 4,981 Landclearing 50 - - - Seedbroadcasting 5 5 5 85 Fertilizer application - - - - weeding 100 100 100 1,700 Birdscaring 148 148 148 2,516 Harvesting 40 40 40 680 Seed kg 70 70 70 1,190 Fertilizer: kg - - - - 15:15:15 - - - - Sulphate of ammonia - - - - Seed dressing gm - - - - Storage chemical gm - - - - Tools and others nos. Hoe 1 - 1 8 Sickle 1 - l 8 Sack 5 - 5 40 Source: Ministry of Agriculture; Ghana Agricultural Sector Review 69 method there was no Fertilizer application. It took one hundred mandays oF labor per year For weeding over the liFe oF the project. Child labor was used to scare away birds From destroying the crop and this required one hundred and Forty eight days oF labor per year over the lilFe oF the project. It took Forty mandays oF labor per year to harvest the output. Seventy kilograms oF seeds was applied per hectare per year. No Ferilizers oF other chemicals were used. The tools used by the Farmers were hoes and sickles (cutlasses) and For each hectare the Farmers used one hoe and one sickle. These tools had a liFe span oF two years so no tool purchases were made or included For every other year over the project’s liFe. Each sack could load approximately two hundred kilograms oF grain so Five sacks were required. The liFespan oF a sack was also estimated at two years so no sack purchases were made or included For every other year over the project's liFe. Table 3.4 reFers to the improved method For rice cultivation. The output per year over the project’s liFe is Fourteen hundred. There are some variations in the input structure when compared with the traditional method. The improved method required three hundred mandays oF labor in the First year and three hundred mandays For each oF the subsequent years. These requirements are slightly higher that the requirements For the traditional method over the years that they represent. Landclearing still required 70 Table 3.4: (Rice) Improved Method (1.0 hectare) Project Year Physical Unit 1 2 3 4-20 Output kg 1400 1400 1400 23,800 Inputs Labor: mandays 350 300 300 5,100 Landclearing 50 - - - Seedbroadcasting 5 5 5 85 Fertilizer application 2 2 2 34 Weeding 100 100 100 1,700 Birdscaring 148 148 148 2,516 Harvesting 45 45 45 765 Seed kg 70 70 70 1,190 Fertilizer: kg 15:15:15 125 125 125 2,125 Sulphate of ammonia 125 125 125 2,125 Seed dressing gm 210 210 210 3,570 Storage chemical gm - - - - Tools and others nos. Hoe 1 — l 8 Sickle 1 - 1 8 Sack 7 - 7 56 Source: Ministry of Agriculture; Ghana Agricultural Sector Review 7i FiFty mandays oF labor and this took place in the project's First year. Seed broadcasting also required Five mandays oF labor per year. Unlike the traditional method. the improved method included the use oF Fertilizers For which two mandays oF labor were required per year over the project's liFe. One hundred mandays oF labor were required For weeding per year while one hundred and Forty eight days oF child labor were required to scare away the birds. Because oF the estimated increase in output. harvesting required Forty Five mandays per year as opposed to Forty mandays under the traditional method. the same number oF kilograms oF seed (seventy) was also required per year over the project's liFe. The signiFicant change in the input structure was the the use oF Fertilizer. Two .types oF Fertilizer wer used. One hundred and twenty Five kiolgrams oF 15:15:15 and the same weight oF sulFate oF ammonia were applied per hectare per year over the project’s liFe. The seeds were also treated with seed dressing For which two hundred and ten grams were required per year. One hoe and one sickle were required For every other year. Seven sacks were required in the First year and For every other year to hold the output. The Table 3.5 reFers to the advanced method oF rice cultivation. The estimated output per year is two thousand kiligrams per hectare over the span oF the project. As regards inputs a total oF two hundred and eighty mandays will be required every year. One diFFerence between the 72 Tab1e 3.5: (Rice) Advanced Method (1.0 hectare) Project Year Physical Unit 1 2 3 4-20 Output kg 2000 2000 2000 34,000 Inputs Labor: mandays 280 280 280 4,760 Landclearing — - - - Seedbroadcasting 5 5 5 85 Fertilizer application 2 2 2 34 Weeding 75 75 75 1,275 Birdscaring 148 148 148 2,516 Harvesting 50 50 50 850 Seed kg 80 80 80 1,360 Fertilizer: kg 15:15:15 125 125 125 2,125 Sulphate of ammonia 250 250 250 4,250 Seed dressing gm 240 240 240 4,080 Storage chemical gm 800 800 800 13,600 Tools and others nos. Hoe 1 - l 8 Sickle 1 - 1 . 8 Sack 10 - 10 80 Source: Ministry of Agriculture; Ghana Agricultural Sector Review 73 advanced method and the . previous two methods is that 'government machinery was used For the landclearing For which.a lump sum Fee oF two hundred and sixty Five cedis was charged per hectare For the First year. Seed broadcasting required Five mandays per year, while Fertilizer application took two mandays per year. The seventy Five mandays oF labor required For weeding was less than was required under the traditional and advanced methods because the machines were able to uproot most oF the roots and thus limit weed growth. The same number oF days oF child labor (one hundred and Forty eight) was needed to scare away birds From the crop. There was an increase in the number oF mandays oF labor needed For harvesting From Forty Five For the advanced method to FiFty because oF the expected increase in output. Eighty kilograms oF seeds was needed per year. while one hundred and twenty Five kilo grams oF the Fertilizer 15:15:15 was required. Two times the weight oF 15:15:15 was required in the use oF the other Fertilizer. sulFate oF ammonia. Two hundred and Fory grams oF seed dressing was required. The other variation For this enterprise was the usage oF storage chemicals oF eight hundred grams per hectare per year. The increase in output was matched by a corresponding increase in the number oF sacks required to bag the output. I Table 3.6 reFers to the irrigated method For rice cultivation. The output per hectare per year over the project’s liFe span was estimated at thirty Five hundred 74 Table 3.6: (Rice) Irrigated Method (1.0 hectare) Prgject Year Physical Unit 1 2 3 4-20 Output kg 3500 3500 3500 59,500 Inputs Labor: mandays 125 125 125 2,125 Landclearing - - - - Seedbroadcasting 5 5 5 85 Irrigation 15 15 15 255 Weeding 45 45 45 765 Harvesting 6O 60 60 1,020 Seed kg 90 90 90 1,530 Fertilizer: kg 15:15:15 250 250 250 4,250 Sulphate of ammonia 250 250 250 4,250 Seed dressing gm 270 270 270 4,590 Storage chemical gm 1,400 1,400 1,400 23,800 Tools and others nos. Hoe 1 - 1 8 Sickle 1 - 1 8 Sack 18 - 18 144. Source: Ministry of Agriculture; Ghana Agricultural Sector Review 75 kilograms. There was a decline in the total number oF mandays oF labor but this is translated into an increased in the cost structure because oF the reliance on geovernment owned and operated mechanization Facilities For landclearing. irrigation. harvesting and seed broadcasting. As a result oF the mechanization activities Fice mandays oF labor were required For seedbroadcasting and FiFteen mandays For irrigation related activities. Weeding required Forty Five mandays oF labor while harveting took sixty mandays. Ninety kilos oF seed For planting was needed while two hundred and FiFty kilos oF 15:15:15 and the same quantity oF sulFate oF ammonia will be used. Two hundred and seventy grams oF seed dressing will be requires as well as Fourteen hundred grams oF storage chemical. To bag the output eighteen sacks will be needed. Table 3.7 reFers to mechanized method oF rice cultivation. There is a signiFicant reduction in the estimated output when compared to the irrigated method oF rice cultivation. The estimated output is one thousand kilos per hectare per year. On the input side thirty mandays oF labor were required per year For weeding. All the other activities classiFied under labor are accounted For in the cost structures. Seed broadcasting. Fertilizer application and harvesting were all accounted For in lump sum Fees paid to the government For services obtained by use oF government machinery and their operators. About seventy 76 Table 3.7: (Rice) Mechanized Method (1.0 hectare) Project Year Physical Unit 1 2 3 4-20 Output kg 1000 1000 1000 17,000 Inputs Labor: mandays 30 30 30 510 Landclearing - - - - Seedbroadcasting - - - - Fertilizer application - - - - Weeding 30 30 30 510 Harvesting - - - - Seed kg 70 70 70 1,190 Fertilizer: kg 15:15:15 250 250 250 4,250 Sulphate of ammonia 125 125 125 2,125 Seed dressing gm 210 210 210 3,570 Storage chemical gm 400 400 400 6,800 Tools and others nos. Hoe 1 - 1 8 Sickle 1 - 1 8 Sack 5 - 5 40 Source: Ministry of Agriculture; Ghana Agricultural Sector Review 77 kilos 0F seed were required. while two hundred and FiFty kilos oF 15:15:15 Fertilizer was required per hectare per year. On the other hand only a hundred and twenty Five kilos oF sulFate oF ammonia Fertilizer were required. Despite the relatively low seed requirement and output level. about two hundred and ten grams oF seed dressing and Four hundred grams oF storage chemical were required. Due to the estimated output oF a thousand kilos only Five sacks were required. The important point to note about the mechanized method is that while it led to increases in input costs it only yielded just as much as was estimated For the traditional method. Table 3.8 reFers to the traditional method oF millet cultivation. Millet is not a widely consumed product although it is a major staple oF the peoples in the northern and upper regions oF the country. Its inclusions in the project is in line with the policy oF satisFying domestic Food consumption by encouraging local production. By also encouraging Farmers in the area to improve eFFiciency it is hoped that their output and incomes will increase. The estimated output per hectare per year was Four hundred kilos. Millet cultivation is a tedious process which requires a lot oF labor. Three hundred and eighty Five mandays oF labor were required in the First year oF the project. Two hundred and Forty oF these days were required For land clearing while Forty days were required 78 Table 3.8: (Millet) Traditional Method (1.0 hectare) Project Year Physical Unit 1 2 3 4-20 Output kg 400 400 400 6,800 Inputs Labor: mandays 385 90 145 1,970 Clearing 240 - - - Land preparation 40 - 40 - 320 Planting 15 - 15 120 Weeding 40 40 40 680 Harvesting 30 30 30 510 Dehusking & shelling 20 20 20 340 Fertilizer application - - - — Seed kg 14 14 112 Seed dressing gm - - - - Storage chemical gm - - - — Fertilizer: kg 15:15:15 - - - - Sulphate of ammonia - - - - Tools and others nos. Hoe 1 - 1 8 Sickle 1 - 1 8 Sack 2 - 2 16 Source: Ministry of Agriculture; Ghana Agricultural Sector Review 79 For land preparation and another FiFteen days For planting. The clearing. as was the case with rice cultivation. was a one time thing. The millet crop also has two major yields thus there was no need For land preparation or planting in the second year. These activities took place every other year. There had to be weeding every year oF which Forty mandays oF labor were required. Harvesting required thirty mandays oF labor per year while dehusking and shelling required twenty mandays per year. Under the traditional method there was no Fertilizer application. Fourteen kilos oF seed were required For planting every year. The seeds were not treated so there was no need For seed dressing. neither was there any need For storage chemical because the outpUt per year was expected to be consumed that year. A hoe and sickle were required in the First year and every other year. Two sacks were also required every other year to bag the output. Table 3.9 reFers to the improved method oF millet cultivation. The estimated output per hectare per year is eight hundred kilos over the liFe oF the project. There is also an increase in the number oF mandays required in the First year From three hundred and eighty Five (traditional) to Four hundred and FiFteen. The same number oF mandays required For clearing. land preparation. planting and weeding under the traditional method also apply under the improved method. More mandays are. however. 80 Table 3.9: (Millet) Improved Method (1.0 hectare) Project Year Physical Unit 1 2 3 4-20 Output kg 800 800 800 13,600 Inputs Labor: mandays 415 115 175 2,435 Clearing 240 - - - Land preparation 40 - 40 320 Planting 15 - 15 120 Weeding 40 40 40 680 Harvesting 45 45 45 765 Dehusking & shelling 30 30 30 510 Fertilizer application 5 5 40 Seed kg 14 - 14 112 Seed dressing gm 42 - 42 336 Storage chemical gm - - — - Fertilizer: kg 15:15:15 100 - 100 800 Sulphate of ammonia 100 - 100 800 Tools and others nos. Hoe l - 1 8 Sickle 1 - 1 8 Sack 4 - 4 32 Source: Ministry of Agriculture; Ghana Agricultural Sector Review 81 required For harvesting and dehusking and shelling respectively due to the expected increase in estimated output. Fertilizer is also applied under this method and this requires Five mandays in the First year and every other year. The same quantity oF seeds (Fourteen kilos) will also be required every other year For planting. BeFore planting the seeds were expected to be treated and this would require Forty two grams oF seed dressing. Two hundred kilograms oF Fertilizer was also applied. and Four sacks were needed every other year to bag the output. As I have already stated. millet is a grain that is consumed locally in the northern and upper regions. The limited marketability prevents many Farmers From producing traditional and improved methods oF cultivation. Labor usage also declines aFter the First year because oF the absence oF clearing and the accompanying need For mandays oF labor. Table 3.10 reFers to the traditional method oF cotton cultivation. The estimated yield per hectare per year is Five hundred kilos over the project's liFe span. Two hundred and Forty mandays oF labor are required in the First year oF the project but this reduces to one hundred and ninety mandays per year over the next nineteen years because oF the absence oF land clearing and its labor requirement oF FiFty mandays. Land preparation requires mandays per year over the project's liFe while planting requires about twenty mandays oF labor per hectare per year 82 Table 3.10: (Cotton) Traditional Method (1.0 hectare) Project Year Physical Unit 1 2 3 4-20 Output kg 500 500 500 8,500 Inputs Labor: mandays 240 190 190 3,230 Landclearing 50 - - - Land preparation 50 50 50 850 Fertilizer application - - - - Planting 20 20 20 340 Weeding 40 40 40 680 Harvesting 80 80 80 1,360 Seed kg 70 70 70 1,190 Fertilizer: kg 15:15:15 - - - - Sulphate of ammonia - - - - Seed dressing gm - - - - Tools and others nos. Hoe 1 - 1 8 Sickle 1 - 1 8 Sack 3 - 3 24 Source: Ministry of Agriculture; Ghana Agricultural Sector Review 83 over the project’s duration. Weeding will require about Forty mandays oF labor per hectare per year while harvesting required eighty mandays per hectare per year. Fertilizer was not applied. neither was seed dressing. Seventy kilos oF seed were required For planting. and three sacks were required For bagging the out put. As will become evident in the cost tables corresponding to these physical input tables. there seem to be too many inputs For too little output For the diFFerent kinds oF enterprises For cotton cultivation and this will have adverse eFFects on the proFitability oF the project as a whole. Table‘ 3.11 reFers to the improved method oF cotton cultivation. It was estimated that output per hectare per year would be about a thousand kilos. On the input side two hundred and sixty two mandays oF labor were required For the First year oF the project. This Figure reduced to two hundred and twelve mandays per hectare per year over the next nineteen years accounting For the Fact that landclearing which required FiFty mandays in the First year is a one time activity and was not required in the Following years. Land preparation required FiFty mandays per hectare per year over the project's duration while Fertilizer application required only two mandays per hectare per year. The number oF days required For Fertilizer application and the quantity oF Fertilizer appeared to be compatible with requirements For other enterprises except those For improved method For millet cultivation. 84 Table 3.11: (Cotton) Improved Method (1.0 hectare) Project Year Physical Unit 1 2 3 4-20 Output kg 1000 1000 1000 17,000 Inputs Labor: mandays 262 212 212 3,604 Landclearing 50 - - - Land preparation 50 50 50 850 Fertilizer application 2 2 2 34 Planting 20 20 20 340 Weeding 40 40 40 680 Harvesting 100 100 100 1,700 Seed kg 70 70 70 1,190 Fertilizer: kg 15:15:15 125 125 125 2,125 Sulphate of ammonia 125 125 125 2,125 Seed dressing gm 210 210 210 3,570 Storage chemical gm Tools and others nos. Hoe 1 — 1 8 Sickle 1 - 1 8 Sack 5 - 5 40 Source: Ministry of Agriculture; Ghana Agricultural Sector Review 85 Planting required twenty mandays oF labor per hectare per year while weeding required Forty mandays per hectare per year. Because oF the estimated increase in yield From Five hundred to one thousand it was also estimated that labor requirements For harvesting will increase to one hundred mandays per hectare per year. Seed requirements remained unchanged at seventy kilos per hectare per year over the liFe oF the project. One hundred and twenty Five kilos oF sulFate oF ammonia Fertilizer was required per hectare per year and the same quantity was required oF 15:15:15 Fertilizer. The seeds were treated with seed dressing oF which two hundred and ten grams were required per hectare per year. A hoe and a sickle were required every other year while Five sacks were required every two years to bag the output. Table 3.12 reFers to the irrigated method oF cotton cultivation. The estimated output per hectare per year For this enterprise is FiFteen hundred kilos. The input side shows a very signiFicant decrease in the number oF mandays required per year. This is due to the Fact that many oF the activities are undertaken by government operated Facilites. SpeciFically. landclearing. land preparation. Fertilizer application. planting. irrigation and harvesting are all undertaken by government operated machinery. Each oF these services perFormed carries with it a lump sum service charge‘oF two hundred and sixty Five cedis per hectare per year. Labor input is thereFore accounted For in the 86 Table 3.12: (Cotton) Irrigated Method (1.0 hectare) Project Year Physical Unit 1 2 3 4-20 Output kg 1500 1500 1500 25,500 Inputs Labor: manday 30 30 30 510 Landclearing - — _ - Landpreparation - - _ _ Fertilizer application - - - - Planting - - - - Irrigation - - - - Weeding 30 30 30 510 Harvesting - - - - Seed kg 90 90 90 1,530 Fertilizer: kg 15:15:15 250 250 250 4,250 Sulphate of ammonia 250 250 250 4,250 Seed dressing gm 270 270 270 4,590 Tools and others nos. Hoe 1 - 1 8 Sickle 1 - 1 8 Sack 8 - 8 64 Source: Ministry of Agriculture; Ghana Agricultural Sector Review 87 perFormance oF these services. The only easily identiFiable labor activity is weeding which required thirty mandays per hectare per year. Seed requirements were ninety kilos per hectare per year. The seeds were treated with dressing oF which two hundred and seventy grams were required per hectare per year. Ferilizer was applied and this required two hundred and FiFty kilos oF 15:15:15 and the same quantity oF sulFate oF ammonia per hectare per year. One hoe and one sickle were required per hectare per year and per every other year while eight sacks were required to bag the output. Table 3.13 reFers to the traditional method oF groundnut cultivation. The estimated output per hectare per year was eight hundred kilos. On the input side one hundred and sixty mandays oF labor per hectare were needed in the First year. This number decreased to one hundred and ten mandays per hectare per year over the remaining nineteen years because landclearing. which by itselF required FiFty mandays per hectare in the First year oF the project. was not an activity needed in the remaining years oF the project's duration. Twenty mandays oF labor were required per hectare per year For planting. No Fertilizer was applied under this method. Weeding requited Forty mandays per hectare per year over the project's duration while the activities oF harvesting. and dehusking and shelling each required twenty Five mandays oF labor per hectare per year. Eighty kilos oF seed were Table 3. 13: (Groundnut) 88 Traditional Method (1.0 hectare) Prgject Year Physical Unit 1 2 3 4-20 Output kg 800 800 800 13,600 Inputs Labor: mandays 160 110 110 1,870 Landclearing 50 - ~ - Planting 20 20 20 340 Fertilizer application - — - - Weeding 40 40 40 680 Harvesting 25 25 25 425 Dehusking and shelling 25 25 25 425 Seed kg 80 80 80 1,360 Seed dressing gm - - - - Fertilizer: 15:15:15 gm - - - - Sulphate of ammonia gm - - - - Tools and others nos. Hoe 1 - 1 8 Sickle 1 - 1 8 Sack 4 - 4 32 Source: Ministry of Agriculture; Ghana Agricultural Sector Review 89 required per hectare per year For planting. One hoe and one sickle were required in the First year and every other year while Four sacks were needed to bag the output. Each sack had a liFespan oF two years. It can be seen that no requirements were made For land preparation. This is due to the Fact that the process oF harvesting groundnut is such that by the time the harvesting is over the land is ready For use. Table 3.14 reFers to the improved method oF groundnut cultivation. The estimated output per hectare per year was FiFteen hundred kilos over the project’s duration. On the input side two hundred and FiFteen mandays oF labor were required per hectare in the First year. This total labor requirement decreased to one hundred and sixty Five mandays per hectare per year over the next nineteen years. The reduction in labor requirement is attributable to the satisFaction oF the requirement For land clearing which took place only in the First year and utilized FiFty mandays oF labor. Planting required twenty mandays per hectare per year over the project’s duration while Fertilizer application utilized FiFteen mandays per hectare per year. This requirement diFFered From the requirement For the other enterprises which ranged From two mandays to Five mandays except where a lump sum charge applied For the use oF government operated machinery. Weeding required Forty mandays per hectare per year over the project's duration. There was an increase in the number oF 90 Table 3.14: (Groundnut) Improved Method (1.0 hectare) Project Year Physical Unit 1 2 3 4-20 Output kg 1500 1500 1500 25,500 Inputs Labor: mandays 215 165 165 2,805 Landclearing 50 - - - Planting 20 20 20 340 Fertilizer application 15 15 15 255 Weeding 40 40 40 680 Harvesting 45 45 45 765 Dehusking & shelling 45 45 45 765 Seed kg 90 90 90 1,530 Seed dressing gm 200 200 200 3,400 Fertilizer: 15:15:15 gm 120 120 120 2,040 Sulphate of ammonia gm 120 120 120 2,040 Tools and others nos. Hoe 1 - 1 8 Sickle 1 - 1 8 Sack 8 - 8 64 Source: Ministry of Agriculture; Ghana Agricultural Sector Review 91 mandays required For harvesting Form twenty Five (traditional) to Forty Five because oF the expected increase in output. Dehusking and shelling also required Forty Five mandays oF labor per hectare per year over the duration oF the project. Ninety kilos oF seed were required For planting each year and these seeds were treated with two hundred .grams oF seed dressing. One hundred and twenty kilos oF sulFate oF ammonia and the same quantity oF 15:15:15 Fertilizer were applied per hectare per year. One hoe. one sickle and eight sacks were required in the First year and every other year. The corresponding revenue and cost tables For these physical output and input tables will be presented in the. analysis. It will be shown that not all oF these enterprises were proFitable. Their inclusion in the project’s design thus aFFected the net worth oF the project. An alternative design would have deleted these unproFitable enterprises and increased the acreage For the proFitable enterprises thereby reducing wastage oF resources while at the same time increasing the eFFectiveness oF the budget. 3,4 ADMINISTRATIVE DATA There is one administrative unit For the crop project. 'The administrative data have two parts: the Foreign exchange component and the local component. The assumption underlying this dichotomy according to the Ministry oF Finance and Economic Planning representatives 92 is that generally about 90% 0F expenditure on buildings. plants. vehicles. and their operation and physical contigencies require Foreign exchange while 10% is in local currency. Salaries and allowances and general administration did not have andy Foreign component. Foreign participation was by way oF the World Bank. Table 3.15 showing the Foreign exchange component oF the administrative data was arrived at by applying the shadow exchange rate. The estimation oF this shadow exchange rate will be discussed under methods and concepts. Buildings under Table ‘ 3.15 reFer to oFFice buildings and storage depots. Plants. vehicles. equipment reFer to machinery For irrigation. pumps. oFFice equipment. tractors and cars. Plant and vehicle operation reFers to maintenance oF the machinery. spare parts. Fuel. and other operating expenses. Physical contigencies reFer to appropriations that are necessary to restore Facilites that may be destroyed by weather events Such as harmattan and bush Fires. Upon reading this discussion one would Find that no numbers For speciFic items have been stated. That in general is how the government operates. Funds are allocated lump sum and expended thus creating an avenue For misappropriation. The Foreign exchange component table also shows that the total expenditures For the years 4-20 are small relative to the First years. This is because the bulk oF the expenditures are in the First 3 years during Table 3.15: 93 Foreign Exchange Component (cedis) Yr 1 Yr 2 Yr 3 Yrs 4-20 Buildings 7,416,675 5,474,700 2,984,625 0 Plants, vehicles, 9,842,175 2,370,375 378,000 603,225 equipment Plant and vehicle 702,450 1,975,050 2,102,625 1,523,025 Operation Physical contingencies 1,020,600 623,700 420,525 144,900 Source: Ministry of Agriculture; Ghana Agricultural Sector Review 94 which the government maintained an active part in the 1 project. In the years 4-20 the government’s attention is Focussed on plant and vehicle operation because it is expected that repair and maintenance oF vehicles and plants will have to be undertaken. Table 3.16 shows the other 10% 0F the administrative data and Follows generally the same trend. The Funds in this table were also appropriated lump sum. Salaries and allowances For the First 3 years are expenditures incurred For projec oFFicers as well as For extension oFFicers. However. during the years 4-20 where the project would have reverted to the participants. salaries and allowances are expended mostly on extension oFFicers and their activities. Table 3.16: 95 Local Currency Component (cedis) Yr 1 Yr 2 Yr 3 Yrs 4-20 Buildings 470,900 347,600 189,500 0 Plants, vehicles, 624,900 150,500 24,000 38,300 equipment Salaries, allowances 1,487,000 1,730,000 1,840,000 482,000 Plant and vehicle 44,600 125,400 133,500 96,700 operation General administration 65,000 43,000 25,000 0 Physical contingencies 64,800 39,600 26,700 9,200 Source: Ministry of Agriculture; Ghana Agricultural Sector Review CHAPTER 4 METHODS AND CONCEPTS 4.1. METHOD 1 have discussed the Farm models as well as the administrative data but beFore I go on to the analysis I have to discuss the methods and concepts that will enable me to carry out a successFul analysis. There are a number oF methods available For project analysis but that oF interest to me is the NET PRESENT WORTH (also known as net present value). This is the method that will be used mostly because. it is the most straightForward discounted cash Flow measure oF project worth, the method with the least inconsistencies. and that most universally accepted by analysts. The net present worth method can be mathematically stated as 20 Bt-Ct NPW = E t t=l (1+1) where NPW is net present worth. Bt is beneFits. Ct is costs and i is the discount rate. 96 97 4.2. VALUATION OF COSTS AND BENEFITS Costs are anything -that lessen the value oF the objective while beneFits add to FulFillment oF the objectives. In this instance beneFits are expected to be the increase in output. This immediate beneFit' is straightForward and easily deFined. Since this is an economic analysis there are other beneFits which are not easily deFined but nonetheless have to be mentioned such as improved Farming techniques that the project will bring to the area. the downward pressure that increased output will exert on crop prices in general (Turtiainen and Pischke. 1986). To evaluate these increases in output requires that economic prices be used. Economic prices diFFer From Financial prices especially in Ghana where the government through the Prices and Incomes Board administers prices irrespective oF market Forces. Since a lot oF trading (smuggling) occurs between Ghana and her neighbors especially at the border towns. border prices minus transportation cost can be used as economic prices which to a greater extent represent society’s Opportunity cost. These transportations costs are. however. relatively small because the project's locations are all border areas. These economic prices become relevant when the absence oF competition makes oFFicially Fixed Farm gate prices unreliable measures oF output value. These economic prices derived From border prices however. do Function as real prices since they are based on prices prevailing in 9B neighboring countries. Since smuggling oF Farm produce to neighboring countries like Ivory Coast and Togo persist in the Face oF costly consequences upon apprehension it is not inaccurate to say that these prices are a better measure oF market prices than the Farm gate prices. Based upon these prices. we will use real prices which do not take inFlation into account. That is. the price level at the time oF the project's inception is assumed to apply continuously. The assumption is that inFlation will aFFect all prices (both costs and beneFits) to the same extent so that prices will retain their general relations (Gittinger. p. 76). Using' these constant 1976 prices to estimate costs and beneFits will enable interested observers and the analyst to judge the eFFects oF the project on the incomes oF participants and its income-generating potential For society as a whole. By using these constant prices the absolute or in this case money values oF costs and beneFits will be incorrect but the relationship between costs and beneFits will still remain valid because they are subjected to the same treatment. It is worth noting that the changes in the administrative costs over at least the First three years should not be attributed to inFlation. but to changes in volume oF such inputs or ' services. In Table 4.1 the prices oF the crops that will be used in calculating beneFits are being shown. These are 1976 real prices (cedis). I am using 1976 prices because this was the year oF the project's inception. 99 Table 4.1. Other Prices Crop Price/metric ton Price/kg Rice 463 .46 Millet 259 .26 Groundnut 413 .41 Cotton 256 .26 Source: Ghana Agricultural Sector Review: Annex 4. p. 62. 100 These prices per metric ton are quoted in cedis while the prices per kilo are quoted in decimals oF a cedi. These can be read also in pesewas which are subdivisions oF the cedi. One hundred pesewas equal one cedi so .46 0F 6 cedi can also be read as 46 pesewas. Rice was sold at c463 per tonne (metric ton) and c.46 kilo (46 pesewas per kilo) wholesale. Millet Fetched c259/tonne and 26 pesewas/kilo while groundnut Fetched c413/tonne and 41 pesewas/kilo. Cotton also Fetched c256/tonne and 26 pesewas/kilo. -Cost is a sacriFice that must be made in order to do or acquire something and to most oF us the concept oF cost that readily comes to mind is what we may call outlay costs. These are the Funds expended in order to carry on a particular activity or project (Milton Spencer. 1983). However. there is a more basic concept oF cost which economists call opportunity cost. This can be deFined as the value oF the beneFit Forgone by choosing one alternative rather than another. It measures the real cost oF an activity. In project analysis we can simpliFy this by saying that cost is anything that subtracts From the objectives. To get the costs For the Farm models we have to multiply the physical inputs by their appropriate prices. 101 4,3, LABOR Apart From the costs incurred on plants. vehicles. buildings. etc.. the major on-Farm costs are incurred on labor thus making the valuation oF labor an important issue. Theories about shadow wage computations in developing countries are usually based on the assumption that such economies have an overabundance oF labor in relation to demand. The shadow wage rates that are computed are used to determine socially desirable levels oF employment. A prominent proponent oF the surplus labor model is Arthur. Lewis who argues that labor becomes available to industry at the subsistence wage thus permitting the generation oF surplus For Further investment. . In order For Lewis’ model to hold there is among others the assumption that the .subsistence wage is Fixed according to labor productivity in terms oF Food production. However. by using economic theory we can criticize this assumption. It is likely that as more and more labor moves From the land to industry aFter a point any Further migration oF labor will reduce .marginal productivity. To avoid this reduction, labor will have to be paid above the subsistence level in order to retain it on the land. Given this possibility the opportunity cost oF labor will not be zero in the long run and may even be higher than the subsistence wage level. In public project analysis the opportunity cost oF labor will be deFined as the highest alternative social value to be Forgone by switching labor From its current uses 102 to the project. The implication is that in order For the net social beneFit oF the project to be positive the project must yield social beneFit in excess oF any alternative social beneFits that might be produced with the inputs. In deriving the opportunity cost oF labor For the project it is important that we do not ignore movement costs and occupational preFerences. There is also the implication that labor and other inputs should not be used on a public project that produces a social value lower than what these inputs would produce iF used on an existing public project. IF there are no political constraints. however. then labor and other inputs should be used so long as there is a potential Pareto improvement over the existing situation. Can we measure the social cost oF using additional units oF labor For the project by the price at which labor is bought? According to Sugden and Williams (1981. p. 102- 104) the price oF labor measures the amount that is necessary to pay to compensate additional or marginal workers For giving up their leisure to work. This price also measures the value oF the extra output that would result From hiring the labor (value oF marginal product). In a purely competitive economy. this price oF labor measures the marginal social cost oF using an additional unit oF labor and this will be equal to the value marginal product. However. the signiFicance oF the market price oF labor as a measure oF the social cost and social value depends on how Freely market transactions are conducted. 103 Problems arise in cost—beneFit analysis when constraints in the market prevent supply and demand From reaching equilibrium. Given the presence oF the Trades Union Congress in Ghana the market mechanism is not able to bid down wages despite high unemployment. thus the prevailing price oF labor is not an accurate reFlection oF the opportunity cost oF labor. Since the shadow wage rate aims at measuring the opportunity cost oF labor. we can argue that with the prevalence oF high unemployment the shadow wage rate would be zero and not the market wage that is actually being paid. But should this hold? Not necessarily. because seasonal Fluctuations in labor demand. varying degrees oF labor mobility all cast doubts on this conclusion. In addition the creation oF one additional job in the city may cause several rural laborers to migrate to the city thus making the Forgone output the multiple oF one worker’s marginal product (assuming that marginal product is positive). It is also likely that where there are variations in skills. times. and locations there will be more than one shadow wage rate thus average shadow wage rates may not be a true reFlection oF the total cost oF labor to society For using labor on the project. The inception 0F 3 project that increases labor incomes may lead to increased consumption when the marginal propensity to consume is high. Some will argue that the increase in consumption should be regarded as a cost and added to the shadow wage rates because increased 104 consumption reduces savings and consequently increases the cost oF capital. There are a number oF other Factors that may invalidate the shadow wage rates. The project may create additional employment and likely increase the incomes oF the poorest oF the society. IF reduction oF poverty is a priority than it is necessary that the shadow wage rate be lower. People may also preFer to stay unemployed than to work at low pay depending on their income situation. value oF leisure. leisure activities. and pleasantness or otherwise oF the available job. Unemployed labor may preFer staying unemployed to being employed below a reservation wage. In this latter case the shadow wage may have to be higher than that indicated by a narrow interpretation oF the opportunity cost oF labor. While agreeing generally with the discussion above Gittinger (1982. p. 258-263) notes that even in labor abundant societies there are probably peak seasons at planting and harvesting when most rural workers can Find employment. At those seasons the market wage paid to rural labor is probably a pretty good estimate oF its opportunity cost and its marginal value product and we could thereFore! accept the market wage as the economic value oF the rural labor. He argues. however. that because in most instances the marginal product oF such labor is negligible we can consider the opportunity cost oF using this labor on the project to be close to zero. In many developing countries however. there can be pressure on prosperous Farmers to be 105 generous with their less Fortunate neighbors thus making rural wages higher than the marginal value product. ImperFect markets oFten exist in rural areas especially during slack agricultural seasons and Frequently the market wage will be above the supply price oF labor (that is the wage at which labor is willing to work). implying that labor surplus exists (Squire 8 Van Der Tak. p. 79). Output Forgone in employing workers From this area is less than the market wage here but is not necessarily zero. While in theory the worker may be unemployed. he may in practice occupy himselF with some Form oF selF employment such as house repair and hunting. It is also natural to assume that it still requires resources For an unemployed laborer to merely exist and these resources obviously have some positive value. Also those workers who migrate From Upper Volta (Burkina Fasso) to the project area in search OF jobs do have to bear some costs at least For transportation. It is not surprising that almost all economists now agree that the marginal value product oF agricultural labor on an annual basis worldwide is more than zero so that in every instance our opportunity cost oF labor will be positive even though it may still be very low. We have in principle agreed that labor should be valued at its opportunity cost but the problem. as Schmid (p. 160-167) indicates. is whose Opportunity cost is to count. Schmid distinguishes between cyclical and structural or regional unemployment and their eFFects on wages. In situations oF 106 cyclical unemployment should wages be allowed to decline to a new Full employment equilibrium? Is this possible in the presence oF labor unions and politics? Government action and objectives will determine what wage rate should be used as the opportunity cost oF labor. In the words oF Schmid. "iF government chooses to trade-oFF Full use oF the economy's labor in the pursuit oF other objectives it would not make sense to have public inputs priced below nominal costs (1983. p. 162)." Agreeing on the principle oF opportunity cost as the optimum valuation OF labor does not solve the problem entirely because there arises the question oF what data reFlects the true opportunity cost. Should the market wage be the opportunity cost oF unemployed labor? Or should the shadow wage For the unemployed be below the going market wage? How do we value what they did beFore the project? Should this valuation be the same For those who had neither income nor savings and those who did? Or should the preFerences oF third parties suFFering negative externalities oF unemployment be taken into account? IF we do and their willingness to pay to reduce or remove unemployment is high. would that not render costly such projects and make them unproFitable? There may be pockets OF unemployment even in times oF Full employment due to short term labor immobility. transactions costs and asset Fixity. How then do we price these unemployed laborers? 107 In Ghana. as in most developing countries. skilled labor is in short supply and would most likely be Fully employed even without the project being considered. But since the government Fixes the wages paid to workers such as mechanics. Foremen. project managers. accountants and others. it is likely that these wages would not represent the true marginal value product OF these workers. In Fact these oFFicially Fixed wages do undervalue skilled labor including extension oFFicers. Having said this I however want to say that since unskilled labor is oFten overvalued it is possible to assume that these two situations will come close to reconciling each other and thus it would not be wrong to take the nominal wages OF skilled and unskilled labor given as the true opportunity costs OF labor in analyzing the project. We know the salaries For skilled labor is given in the salaries and allowances under the administrative data and we are going to assume that the Figures are correct. As regards unskilled labor the minimum wage per day was Fixed and the average monthly earnings are about c52 (FiFty two cedis) based on the minimum daily wage OF c2 (two cedis) set by the government in 1976 which usually applies to workers- hired by the day. These are casual laborers and thus do not qualiFy For cost OF living allowances. transportation allowances. rent allowances and allowance in lieu OF canteen services. that are applicable tO permanent laborers. They work an average OF twenty six days a month and earn about c2 (two cedis) a day. Child 108 labor on the other hand receives less because the government does not recognize it and consequently does not control its earnings. The Farmers themselves set the wage which is usually at about 80% OF the adult wage (this is arbitrary). Child labor which is used mostly For scaring away birds also does not qualiFy For rent allowance. transportation allowance. cost OF living allowance and canteen allowance thus earning an eFFective minimum wage OF only cl.60. This disparity can be explained by the Fact that the children work Far Fewer hours just to scare the birds away From destroying the rice crop. Adult labor includes Family labor which is not represented on the Farm input structures. This Family labor works an average OF, 8 hours a day and since this contribution is not included in the input structure. the wage that would. otherwise be earned is regarded as a beneFit or a return and added to total beneFits. At 8 hours a day Family labor accounts For about 121.67 mandays thus leading to an eFFective net return OF c243.33 per year (Gittinger. p. 259). 4.4. DISCOUNT RATE Theoretically using too low a rate OF interest to discount social proFits would lead the economy to attempt to invest too much creating inFlationary eFFects. while too high a rate could leave savings unutilized and cause excessive unemployment. It is necessary thereFore to naintain some kind OF balance between investment and lnvestit discoun‘ ranking "Projec rate 5 capital Tl the p EXDres van de set tc posit; sUppl aIgurn the n I."lDac Ghana prod, alte rate betH Sect tirne Droj appr‘ in 109 investible resources. It is convenient to use a single discount rate in order to avoid problems OF comparison and ranking (Little and Mirrlees. 1974. p. 291). Harberger in "Project Evaluation" (1975. p. 72) argues that the discount rate should be equal to the marginal productivity OF capital. The discount rate provides the link between diFFerent time periods and allows all costs and beneFits to be expressed in present value. In similar Fashion Squire and van der Tak (1981. p. 76) argue that iF the discount rate is set too high too Few projects will pass the test OF 3 positive net present value and there will be an excess supply OF public investment Funds. They add to Harberger’s argument by saying that the discount rate should be equal to the marginal productivity OF capital minus distributional impact. Both arguments are sound. but unlikely to work in Ghana because OF problems in measuring the marginal productivity OF capital. Sugden and Williams (1978. p. 211-228) consider two alternative approaches to the choice OF a social discount rate. One approach is based on the pursuit OF consistency between decision-making in the public and in the private sectors. and the other is based on the concept OF 'social time preFerence'. TO achieve consistency and eFFiciency in project- appraisal the social discount rate used in appraising public projects must be consistent with that used in appraising private projects. IF there is any 110 inconsistency then it will be possible to reallocate resources in order to attain an increase in social welFare. Consistency requires that projects with the same time streams OF social costs and beneFits should be treated in the same way whether they are proposed in the public or in the private sectors.. The other approach based on the concept OF social time preFerence recognizes society’s preFerences between consumption in diFFerent time periods. Under this approach the social marginal time preFerence rate is used as the discount rate For discounting the costs and beneFits OF public projects. However, this approach would lead to diFFerent outcomes From those implied by the consistency approach unless the social marginal time preFerence rate was equal to the private sector's implicit social discount rate. It is however idealistic to suggest that the private sector's implicit social discount rate would equal the social marginal time preFerence rate. There are problems with the concept OF social marginal time preFerence rate since it involves choice between periods and between generations. In using this we very oFten will be using the time preFerence OF present generations over those OF the unborn and in inFlation prone Ghana we can expect the social marginal time preFerence rate tO be very high and thus very little investment and too much consumption based on the Fear OF expected increases in prices and erosion OF purchasing power. 111 Probably the best discount rate to use is the opportunity cost OF capital. This is the rate that will result in utilization OF all capital in the economy iF all possible investments are undertaken that yield that much or more return (Gittinger. 1982. p. 314-315). Accordingly. the rate would reFlect the choice made by the society as a whole between present and Future returns and hence the amount OF total income the society is willing to save iF this rate is set perFectly. But does anybody really know what the Opportunity cost OF capital is? Conventionally any rate between 8 and 15 percent in real terms has been used with 12 percent being the most Frequently used in developing countries. IF the country decides to use the borrowing rate it pays to Finance the project as the discount rate. the result will be inFluenced by the Financial terms available and will not be based solely on the relative contribution OF projects to national income. The social time preFerence rate which is sometimes proposed creates problems OF allocation both in theory and in application since it diFFers From the opportunity cost OF capital in that the Opportunity cost OF capital derives From both public .and private investment activities and gives the same weight to Future returns From both kinds OF activities. From the Foregoing discussion it is evident that choosing the discount rate For project analysis especially in developing countries is not a Foregone conclusion. Ultimately. it may simply be a matter OF convention rather 112 than theory. How are interest rates determined? In many developing countries most interest rates are not market rates. Instead these rates are either set by the government or reFlect such statutory ceilings or Floors. thus any movement in interest rates is principally the mOvement OF government administered interest rates (Hanson and Neal. 1986. p. 18-21). May I point out. however. that government intervention is not exclusive to developing countries. In developed countries government intervention is also signiFicantly pervasive. Reserve requirements as well as taxes aFFect rates OF interest in all countries. and controls are oFten placed on interest rates. Even the United States Financial system. which is .among the most market oriented. had been subjected to Regulation Q establishing ceilings on interest rates paid on many important classes OF deposits until 1983. The relevant point. however. is the impact OF the intervention and not its existence. Competitive Financial markets would establish nominal interest rates on deposits that are positive in real terms because savers must be induced tO hold Financial rather than real assets. and. on average real assets grow in nominal terms at the rate OF inFlation. Thus the nominal deposit interest rate must equal the expected inFlation rate plus a small underlying real rate (rate that provides an incentive to hold Financial assets). Lending rates will also be positive in real terms to cover cost OF deposits (rate paid to depositors) and a margin For risk. 113 taxes. overhead. reserve requirements and administrative costs. The above is Fisher's theorem. but in using this theorem real interest rates in Ghana will be negative since nominal interest rates during the period 1970-1980 were below 12 percent while the rate OF inFlation was approximately 34.8 percent. This theorem is thus not appropriate. Recent theory predicts that nominal interest rates on domestic assets will equal world interest rates adjusted For expected rates OF devaluation and risks based upon the Fluidity OF international capital Flows. Suppose expectations OF a larger devaluation develop~ because OF expansionary monetary and Fiscal policy or a decline in export prices. ensuing capital outFlows would raise interest rates until marginal asset holders became indiFFerent between Foreign and local currency assets (Hanson and Neal. p. 19). Once again this presumes the existence OF a capital market or a developed Financial system. Without a strong economy there can be no conFidence in Ghana’s economy so the Fluidity in international capital Flows does not apply. Since independence the government OF Ghana like those OF other developing countries adopted policies OF low and controlled interest rates and credit rationing. Some OF the reasons FOr these policies were: (a) a desire to keep down the costs OF servicing public sector debts. (b) the suspicion that Free markets charge usurious rates that are harmFul For smaller borrowers. (c) the belieF that without lower interest rates. investment would not be adequate 114 enough to accelerate growth. (d) the concern that higher interest rates are inFlationary through their eFFects on costs. and (e) the "second best" argument For oFFsetting other distortions in the economy. For example. low agricultural prices. As inFlation accelerated From under 10% in the 19603 to above 30 percent in the 19705 in Ghana the policy OF low and relatively stable nominal interest rates became increasingly untenable. Since this situation indicated negative interest rates savers suFFered losses in real income and were thus encouraged to hold assets in real estate. consumer durables. currency. and when possible in Foreign currency deposits. With local savings reduced and Foreign exchange unavailable credit had to be rationed. The above situation also meant a reduction in the real cost OF capital thereby permitting unproFitable investments and excessive capital intensity which in turn lowered the average eFFiciency OF investment. Even in equity terms it led to a transFer OF income From low income savers to borrowers who were mostly OF the high income group. In Table 4.2 various interest rates are shown to highlight what has been discussed about their eFFect on savings and investment. From Table 4.2 the highest lending rate in 1977 was 10 percent. Given an average rate oF inFlation over 30 percent the real interest rate is thus negative. But this situation does not apply to only Ghana. A lot OF developing countries with similar characteristics 115 Table 4.2. Interest Rates (percent) 1970 1973 1974 1975 1976 1977 Central bank: Rate on government stocks from 4.00 3.50 3.50 5.00 5.00 5.00 to 6.50 8.00 8.00 8.00 8.00 8.00 Treasury bill rate 4.00 5.25 5.25 7.75 7.75 7.75 Bank rate 5.50 6.00 6.00 8.00 8.00 8.00 Commercial bank rates: Borrowing rates 3 months 7.50 5.125 7.750 7.625 7.625 7.625 6 months 2.75 5.750 5.375 7.875 7.875 7.875 12 months 3.50 5.500 5.500 8.000 8.000 8.000 Saving deposits 2.50 6.500 5.000 7.500 7.500 7.500 First Ghana Building Society Savings rate from 8.500 5.000 5.000 5.000 5.000 5.000 to 8.500 6.500 6.500 5.500 5.500 5.000 Lending rate 9.000 10.000 10.000 10.000 10.000 10.000 Source: Bank of Ghana. Reproduced in.World Bank Country Study - Ghana, p. 152. 116 also encounter the same problems. Thirty one developing countries were studied For the eFFect OF price distortions on growth and the results indicated negative real interest rates For all OF the countries except Ethiopia. In Table 4.3 a sample OF these countries are listed For illustration. Table 4.3 shows the degree OF distortion in the cost OF credit in the 19705 as indicated by the negative real interest rates. In most OF the countries savers lost at least 10 percent a year in real terms on the average For the decade. These real interest rates were particularly lower For the countries OF Latin America. These negative rates were not deliberate policy decisions. but rather the consequences OF high inFlation rates which could not be reFlected in interest rates (Agarwala. p. 22). The Financial sector in Ghana is not well developed and to a large extent market Forces play no role at all in the Financial system. There is extreme government intervention in the economy with the government owning commercial banks as well as having joint ownership in others: the same situation applies to pension Funds and an insurance company which provides the government with extensive direct control over credit allocation. These control mechanisms include speciFied lending rates For agricultural credit and speciFic instructions to honor agricultural borrowers. As already discussed. there are minimum interest rates on deposits and maximum lending rates which are all Fixed by the government. 117 Movements in Real Interest Rates, 1970-80 (2 per annum) Table 4.3. Real interest Interest Infla- 1980 rate tion 1975 1976 1977 1978 1979 1974 1972 1973 1971 rate -11.7 -1.0 -10.9 -4.3 -31.2 9 a 3 8 7 20.3 13.5 130.8 .-:.u and m udhouoo-H genocide: >H03Q C3P42=UD A. .8 58 79.4 20.3 16.7 13.0 19.6 19.3 Argentina -800 -3806 25.8 36.7 99 224.1 1 22.0 28.0 30.0 33.0 35.0 38.0 18.0 18.0 20.0 20.0 18.0 Brazil Chile -200 .0 .6 20.0 20.0 22.0 30.0 30.0 136.0 268.0 197.0 94.5 63.8 45.1 16.0 16.0 18.0 21.0 48.0 14.0 14.0 14.0 Columbia Adapted from Table 7 (p. 23) in Price Distortions and Growth in Developing Countries by RangOpal Agarwala. Source: 118 The government borrows a lot to Finance the relatively large budget deFicits and also to subsidize the parastatal enterprises. Other methods not exclusive to Ghana but which were also used are the traditional measures like reserve requirements and liquidity requirements. The government also regulates the portFOliO composition OF the Financial institutions by regulating the share OF deposits committed to agricultural lending and the share held as low yielding government securities. The government apart From subsidizing the parastatals also goes Further and guarantees credit extended to) these parastatals. and places restrictions on Foreign owned enterprises access to domestic credit. The eFFects OF these interventions are two Fold: (1) They prevent intermediaries From charging a premium to cover the additional costs and risks OF term Finance and OF lending to smaller borrowers and those with little collateral. (2) They limit the interest rates payable on deposits. thereby suppressing the mobilization OF Financial savings and thus limit loanable Funds. The extensive borrowing by the government to Finance the budget deFicit has also placed a strain on the growth potential OF the country by reallocating resources towards the public sector mainly For the payment OF salaries and allowances. Since the government itselF owes a lot it is unlikely that interest rates will be reFormed upwards since 119 that would raise government debt service and place more pressure on the deFicit. Introduction OF reForms could compel the government to resort to inFlationary Finance. increased Forced holding OF government securities Or a reduction in public expenditures to reduce_ the deFicit. Given the above distortions in the interest rates and a negative real interest rate OF -19 percent. what rate can be applied For discounting purposes? Conventionally. 12 percent to 15 percent has been used as the discount rate For developing countries in similar situations. but using a rate OF 12 percent For Ghana. as was done. underestimates the lack OF. Financial resources. Using 15 percent would in my Opinion highlight the severity OF the dearth in Financial resources and perhaps put pressure on the government. to allow direct interplay OF market Forces. Thus 15 percent (the highest OF the conventional rates) would be the discount rate to be used in the analysis. 4.5. PRICE OF FOREIGN EXCHANGE Using a high shadow price OF Foreign exchange will penalize prOjects intensive in imported inputs and Favor import substituting and export oriented investments (Lance Taylor. p. 198). In a world OF Freely Floating exchange rates. speculation could drive down the value OF domestic currency relative to Foreign currencies to the exchange rate that speculators expect to attain. .This exchange rate then sets the true social price OF Foreign currency and as long as all imports are valued at this exchange rate their true 120 social cost may be reFlected (Gramlich. p. 67-68). However. in Ghana where the exchange rates are Fixed and the government continuously intervenes in the currency markets. problems do emerge and it becomes more diFFicult to Figure out the relevant shadow price. By not allowing the market system to set exchange rates the government is Forced to set quotas to ration the available Foreign currency thus thwarting the use OF market prices as opportunity costs (Schmid. p. 154-155). The government consistently sets oFFicial exchange rates. despite their adverse eFFects. to protect consumption by the poor and also to allow the importation OF certain goods that are deemed necessary For development but which could not be imported at a Floating rate. The Upper Region Agricultural Development Project requires that Foreign exchange be used to purchase vehicles. plants and other equipment. According to Sugden and Williams (1978. p. 100-102). it will be convenient to regard this Foreign currency as an input to the project. This Foreign currency has a price expressed in terms OF the exchange rate which subjects the Foreign currency system in the Free market place to the laws OF supply and demand. That is. in a Free market system the price. or in this case the exchange rate. gives an idea OF the marginal valuation OF Foreign currency. But in Ghana the price OF Foreign currency is not determined by Free market Forces. thus inhibiting the derivation OF the marginal social value. 121 Given such a situation a shadow or accounting price should be used. According to Sugden and Williams governments sometimes impose taxes on the use OF Foreign currency such that the gross cost equals the Optimal shadow price. On the other hand. imports can be taxed to achieve the same goal. Sugden and Williams however did not elaborate on what rate OF taxes and the reasoning underlying the choice OF any particular rate. Agarwala (1985. p. 18-21) describes the exchange rate as the key variable aFFecting the relation between domestic and Foreign prices and. iF properly set. could be the most eFFective instrument For simultaneously promoting exports and saving imports in an eFFicient manner without burdening the administrative system. However. exchange rates have not been properly set in a number OF developing countries. Their rigidity have created problems For countries like Ghana. Nigeria. Bolivia and Argentina to mention only a Few. Distortions in the exchange rate system became eminent Following the Oil crises in the early and late 1970s. Agarwala in his statistical analysis shows a strong correlation between exchange rate distortions and growth perFormances. The distortion in the exchange rate system in Ghana is so high that a study conducted by Ernesto May (World Bank) on "Exchange Controls and Paralleled Market Economics in Sub-Saharan AFrica" Focussed on Ghana. As pointed out by May (1985. p. 11) the government OF Ghana oFten resorts to 122 import restrictions rather than devaluation or restrictive monetary and ‘Fiscal policies to conserve Foreign exchange as a way OF dealing witri Foreign exchange scarcity, Table 4.4 shows the real eFFective exchange rate indices For Ghana and some selected Sub-Saharan AFrican countries. As can be seen Ghana had the highest increase in real ’eFFective exchange rate. when compared with the increases For Ivory Coast and Togo. Nigeria’s eFFective exchange rate in 1973 and 1974 responded to the increase in Oil prices during this period. Liberia’s exchange rate index on the other hand stayed relatively stable because the currency was tied to the United States dollar. The table For the nominal eFFective exchange rate indices (Table 4.5) also show that Ghana had the highest decline Followed by Zaire. with Ghana's neighbors Ivory Coast and Togo enjoying relatively stable and similar indices as a result OF their currency’s relationship with the French Franc. .The appreciation in the real eFFective rate was inFluenced by the government's need to oFFset relatively high domestic inFlation rates by imposing exchange controls. This only accentuated ' the over valuation in the exchange rate. The over valuation in the exchange rate led to extensive smuggling OF various kinds OF products to Ghana's neighbors. particularly Ivory Coast and Togo. Cocoa. the nation’s most important Foreign exchange earner. was the crop that was most oFten smuggled because OF the relatively high prices that it Fetched. mwwaocoom umxwmz HmHHowmm pas maowucoo .xm «Hausa enquua emueeemlnsm ea emcecoxm Eoww ooumooc “mowpom mm.oHH hm.oHH an.moH om.mm mm.mm mm.moH Hm.Hm VH.NOH o.ooH muHO> Human m¢.NoH mm.moH o.¢oH mb.HHH mm.moH hm.moH hm.¢m H~.mm o.ooH . come mh.NvH oo.ovH Hm.omH mm.¢- om.moa Hm.moH Hc.moH hm.moH o.oo~ ammoo >HO>H m~.ooH no.mo vm.mm mm.vo~ m~.moH om.moH mm.moH mm.~oH o.oo~ mwuman mm.mn~ mo.mmm «H.0mm mm.mm~ mm.mqa hh.mNH mm.o- mh.wm o.OoH chads Om.HNH hm.Hma on.v~H om.m~H mv.~NH mm.NNH vm.maa vm.moH o.oo~ cuppm mo.hmH m¢.mea H5.mva m>.vva Hm.mma mm.vHH wv.mm no.Hm o.ooH mawmmwz No.5m oo.om ma.hm mm.vm mo.om om.oa ma.om hH.mm o.oo~ w3mam2 mm.¢mv mw.hvm mv.hme mm.m~v hm.NHN mh.mma HH.¢NH vm.mHH o.OoH dcdnu ommH mhma mhma hhma puma mhma vhmfi mnma thH Aooa u tha .mmowquv Aommalmnmav mOOaOOH mumm mmqonoxm O>wuommmm Hmmm «v.v manna mma cam QHQMBV MOUNHH‘ :MHmnflmlnsm CH mmaeocoom pmxwmz HOHHmwmm ppm mHprqOU mmcmnoxm Scum omummoa "moupom oe.mkq ne.meq so.mma eH.mHH ek.mqq me.¢HH me.HoH ha.voH o.ooH muqo> “mama mm.am Ha.ooH em.mm Ae.am om.aoa mm.eoH em.ma H~.moq o.ooH omea as.mm mm.mm mm.mm me.mm me.ooH eo.moq mo.am ma.~oH o.ooH ammoo swo>H mo.em oe.em me.km e~.em mH.em mo.~a ee.mm ee.mm o.ooH «queens mm.ea ee.m~ we.om om.em em.me ek.mm on.mm oe.om o.ooa muwmu mm.me «H.mm me.mm me.ma~ me.~HH Hm.mow eo.aoq em.mm o.ooH eeeam om.mo~ om.em m~.em ee.eoa m~.HHH mm.~oH mm.ooH ~m.mm o.ooq maummaz om.mm oe.mm A~.ooH me.mm em.em ~m.om em.om as.~m o.ooq Assam: ee.oe He.~e om.mk mk.mHH ea.mqp me.eoq mq.moa -.eoH o.ooq memes omen mean mama sump mama mesa camp mama mama loop a meme .mooaecwa loemqimkmqv mmoaeep meme mmeeeoxm m>wuomuum Hueweoz .m.e wanes vNH 125 From Table 4.6 it is evident that cocoa smuggling increased Over the time as production. Fell. Smuggling increased From a low 10.000 metric tons (2.33 percent OF production) in 1960 to a high OF 50.000 metric tons (18.87 percent OF production) in 1978 and continues to increase. During the same period cocoa production Fell From 430.000 metric tons in 1960 to 265.000 metric tons in 1978. The Fall in Output can be attributed to low oFFicially Fixed prices and unFavorable local terms OF trade. At the same time the oFFicially Fixed exchange rate makes it lucrative For Farmers and middlemen to smuggle cocoa output to the neighboring countries as illustrated by the trend. A lot has been said about oFFicially Fixed exchange rates and how they do not reFlect the opportunity cost OF Foreign currency. but so Far we have not decided how to determine appropriate shadow exchange rates which will represent economic prices in the beneFit cost analysis. TO come up with shadow exchange rates. the Financial accounts have to be adjusted. A well accepted method OF doing this advanced by Gittinger (1982. p. 247-249) is the addition OF a Foreign exchange premium to the oFFicial exchange rate. But how do we determine the Foreign— exchange premium ? Should we ask the central planning agency or should the analyst make his own estimate OF this premium 2 According to Gittinger. the planner usually does not knOw the premium. However. in Ghana. as in most developing countries. a special tax is usually levied on 126 Table 4.6: Cocoa Smuggling and Production Ghana, 1960-1978 (thousand metric tons) Year Production Quantity Percent of Smuggled Production 1960 430 10 2.33 1961 409 8 1.96 1962 413 14 3.39 1963 428 11 2.57 1964 538 14 2.60 1865 401 17 4.23 1966 368 17 4.62 1967 415 21 5.06 1968 323 17 5.26 1969 403 25 6.20 1970 413 31 7.50 1971 454 37 8.15 1972 407 42 10.32 1973 340 34 10.00 1974 376 30 7.98 1975 396 38 9.60 1976 320 40 12.50 1977 271 45 16.60 1978 265 50 18.87 Source: Reproduced from Exchange Controls and Parallel Market Economies in Sub-Saharan Africa (Table 5, p. 69). 127 Foreign exchange allocations and this tax could serve as the Foreign exchange premium. At the time OF the project’s inception and even beFore that. the oFFicial exchange rate was cl.15 to $1 but there was a tax OF 75% on Foreign exchange allocations. Between February 1973 and June 1978 the exchange rate was U.S. sl: cl.15. In August 1978 it was changed to U.S. sl: c2.75 and in October 1983 it was U.S. sl: c30. Currently the rates stands at U.S. sl: c90. It is worth noting that these changes are not a result OF Vthe interplay OF market Forces. but the results OF government action in reacting to world market Forces. This has been described by the government asa graduar adjustment designed to bring some realism to the exchange rate and .it is expected that these adjustments will continue until all distortions are removed.’ Going back to the project’s inception. the shadow exchange rate can be computed thus SER = OER (I + FX premium) where SER is shadow exchange rate OER is oFFicial rate FX is Foreign exchange premium . and SER = 1.15 x (1 + .75) where 1.15 is the oFFicial exchange rate and .75 is the premium representing the 75 percent tax on Foreign exchange allocations. 128 The shadow exchange rate is 2.0125. This number has been used to compute the cost OF the various inputs that have Foreign exchange components. It is important to note that this rate is merely an approximation OF the shadow exchange rate it does not necessarily establish an equilibrium between the demand For and supply OF Foreign currency. 4 . 6 OTHER PRICES Apart From labor. discount rate and Foreign exchange there are other inputs that have to be listed. It was assumed that hoe. sickle and sack each has a liFe span OF 2 years. The government also charged c265/acre on government' Operated irrigated schemes. as well as a lump- sum Fee OF c265 For each OF the Following mechanization activities: landclearing. ploughing. land preparation. harrowing. bunding. sowing and_ Fertilizing. and harvesting. In Table 4.7 the cost OF other inputs are listed. The prices For the seeds are the same as listed in Table 4.1. SulFate OF ammonia costs FiFty nine pesewas per kilo while 15:15:15 the other type OF Fertilizer costs Forty-six pesewas per kilo. Seed dressing and storage chemical costs sixteen and twenty-Four pesewas. respectively. A hoe costs eight cedis each while a sickle costs Five cedis each. One sack also costs six cedis and FiFty pesewas each. Table 4.7: 129 Cost Of Other Inputs Input Unit Price (¢s) Seed: Rice kg .46 Millet .26 Groundnut .41 Cotton .26 Fertilizer 15:15:15 kg .59 S. ammonia kg .46 Seed dressing gm .16 Storage chemical gm .24 Hoe 1 8.00 Sickle 1 5.00 Sack 1 6.50 Source: Ministry of Agriculture, World Bank (Ghana Agric. Review) 130 4.7 LAND Valuation OF land is a problem For thhs particular project because the land that was brought into cultivation was previously not being utilized and thereFore had an Opportunity cost OF zero. It is worth mentioning. however. that the project contributed to an inFlux OF educated Farmers From the south. These Farmers migrated up north to take advantage OF the irrigation Facilities and other services available. OF course. one can argue that the latter is an ex-post eFFect and should rather be counted as external beneFits and not as costs. These external'beneFits do not enter into the accounting OF the participant Farmers so in deriving the Farm budgets it is appropriate to assume that the Opportunity cost is zero and treat land as such. CHAPTER 5 ANALYSIS AND RESULTS 5.1 ANALYSIS The data have been presented in chapters three and Four so the analysis OF data becomes the logical next step. The net present worth method has been decided upon and the concepts underlying this method have been discussed. Each Farm model will be analyzed in terms OF costs and beneFits to arrive at Farm proFitability. This will be done in a tabulated Form to allow For easy reading. The project's proFitability will be arrived at by adding all costs (on Farm and OFF Farm) and subtracting Frem total beneFits. taking into consideration the administrative aspect and the appropriate discount rate which has been decided (15 percent). One important issue will become evident here as the analysis continues and that will be the distinction between "with" and "without" project costs and beneFits. A careFul Observation OF the data presented under Farm models will show that the traditional models are actually the "without" project eFFects while the other models represent the "with" project costs and beneFits. At least this will be an aspect OF the analysis which the 131 132 oFFicials did not take into consideration and which I have contributed. Table 5.1 is the Farm budget For the traditional method OF rice cultivation. The total revenue is seven hundred and three cedis and thirty-three pesewas (c703.33) per hectare per year. This was derived From two sources: the revenue From sale OF the output which accounted For Four hundred and sixty cedis (c460) and the net return to Family labor which accounted For two hundred and Forty three cedis and thirty- three pesewas (c243.33). The net return to Family labor is the same For all the enterprises since it was stated earlier that Family labor works the same number OF hours irrespective OF the enterprise. Also the return From output sales remains constant over the years based on the assumption OF constancy OF prices For inputs and output. On the outlay side For this enterprise total labor costs amounted to six hundred and twenty six cedis and eighty pesewas (c626.80) For the First year. Out OF this amount one hundred cedis (c100.00) was spent on landclearing while ten cedis was spent on seed broadcasting. Two hundred cedis was spent on weeding and another two hundred and thirty six cedis and eighty pesewas was spent on child labor For the scaring away OF birds that would otherwise destroy the crop. Eighty cedis was spent on harvesting. Seed costs amounted to thirty—two cedis and twenty pesewas (c32.20) while costs For a hoe. a sickle and sacks totalled Forty-Five cedis and FiFty pesewas. Total outlays For the First year thus 133 Farm Budget for Traditional Method of Rice Cultivation (1.0 hectare) Table 5.1: Project Year Unit 1 2 3 4-20 TOtal Revenues cedis 703.33 703.33 703.33 11956.61 Crop 460 460 460 7820.00 Net return to family labor 243.33 243.33 243.33 4136.61 Outlays Labor: 626.8 526.8 526.8 8955.60 Landclearing 100.00 - - - Seedbroadcasting 10.00 10 10 170.0 Fertilizer application - - - - weeding 200.0 200.0 200.0 3400.0 Birdscaring 236.80 236.8 236.8 4025.6 Harvesting 80.00 80.00 80.00 1360.0 Seed 32.20 32.20 32.20 547.4 Fertilizer - - - 15:15:15 Sulphate of ammonia - - - Seed dressing - - - Storage chemical - - - T6013 and others 45.50 - 45.50 364.0 Hoe 8.00 - 8.00 Seek 32O 50 - 32 O 50 Tbtal Outlays 704.5 559.0 604.5 9867.0 Net Revenues (1.17) 144.33 98.83 2089.61 134 amounted to seven hundred and Four cedis and FiFty pesewas (c704.50). Based on total revenues and total costs the net undiscounted beneFit in the First year was a loss OF one cedi and seventeen pesewas. All negative Figures in the tables are in parenthesis. There was a net loss only in the First year For this enterprise. In the second year no expenditures were incurred For landclearing. an activity that was undertaken only in the First year OF the project. Also because OF the assumption that hoes. sickles and sacks had a liFespan OF two years each. no expenditures were incurred For these items in the second year and every other year. Total costs in the second year thus reduced to Five hundred and FiFty nine cedis thus resulting in a positive net undiscounted beneFit OF one hundred and Forty Four cedis and thirty-three pesewas. Because OF the expenditures on hoes. sickles and sacks in alternate years the total outlays in the third year increased to six hundred and Four cedis and FiFty pesewas thus reducing the positive undiscounted net beneFit to ninety-eight cedis and eighty-three pesewas. The years Four to twenty all show positive undiscounted net beneFits but the size OF the beneFit decreases or increases according as the year in question does not require or does require expenditures on hoes. sickles and sacks. The years Four to twenty have been aggregated For space considerations and this practice will be extended to all the other enterprises. 135 Table 5.2 is the enterprise budget For the improved method OF rice cultivation. The total revenue is eight hundred and eighty seven cedis and thirty-three pesewas. When we account For the amount For net return to Family labor. the revenue attributable to output becomes six hundred and Forty- Four cedis. On the outlay side. total labor costs amounted to six hundred and Forty cedis and eighty pesewas. Just as was the case For the traditional method this enterprise spent one hundred cedis For land clearing and ten cedis For seed broadcasting per hectare in the First year. It costs Four cedis to apply Fertilizer and two hundred cedis was spent For weeding. Two hundred and thirty six cedis and eighty pesewas was spent on child labor For scaring birds away From the crop. Since more mandays OF labor was required For harvesting the expenditure also increased From eighty cedis to ninety cedis per hectare per year. Expenditure on seed was thirty two cedis and twenty pesewas per hectare per year. Total costs For the two kinds OF Fertilizer used were one hundred and thirty one cedis and twenty-Five pesewas. Seed dressing that was used to treat the seeds beFore planting cost thirty-three cedis and sixty pesewas. The costs incurred For hoes. sickles and sacks amounted to FiFty-eight cedis and FiFty pesewas. Total costs For the enterprise For the First year amounted to eight hundred and ninety-six cedis and thirty-Five pesewas leading tO negative net undiscounted beneFits OF nine cedis and two pesewas. In the second year no expenditure was 136 Farm Budget for Improved Method of Rice Cultivation (1.0 hectare) Table 5.2: Project Year Unit 1 2 3 4-20 Total Revenues cedis 887.33 887.33 887.33 15084.61 CrOp 644 644 644 10948.00 Net return to family labor 243.33 243.33 243.33 4136.61 Outlays Labor: cedis 640.8 540.8 540.8 9193.6 Landclearing 100.0 - - - Seedbroadcasting 10.00 10 10 170 Fertilizer application 4.00 4.0 4.0 68 Weeding 200.0 200 200 3400 Birdscaring 236.8 236.8 236.8 4025.6 Harvesting 90.00 90.0 90.0 1530.0 Seed 32.20 32.20 32.20 547.4 Fertilizer 131.25 131.25 131.25 2231.25 15:15:15 73.75 73.75 73.75 1253.75 Sulphate of ammonia 57.50 57.50 57.50 977.50 Seed dressing 33.60 33.60 33.60 571.2 'Storage chemical - - - - TOols and others 58.50 - 58.50 468.0 Hoe 8000 - 8000 64 Sickle 5.00 - 5.00 40 Sack 45.50 - 45.50 364 Total Outlays 896.35 737.85 796.35 13011.45 Net Revenues (9.02) 149.48 90.98 2073.16 137 incurred For either land clearing or hoes. sickles and sacks. Total costs thus decreased to seven hundred and thirty-seven cedis and eighty Five cents resulting in positive net undiscounted beneFits OF one hundred and Forty- nine cedis and Forty-eight pesewas. In the third year there was no expenditure For landclearing but costs were incurred For the purchasing OF hoes. sickles and sacks. Costs thus increased slightly over those For the second year. Net undiscounted beneFits were positive but lower than those For the second year at ninety cedis and ninety-eight pesewas. Net beneFits were positive For the years Four to twenty but were higher or lower depending on whether or not expenses were incurred on hoes. sickles and sacks. Table 5.3 is the Farm budget For the advanced method OF rice cultivation. The total revenue stood at one thousand one hundred and sixty-three cedis and thirty-three pesewas with nine hundred and twenty cedis being revenues From sale or output and the rest attributed to net return to Family labor. On the cost side labor expenditures decreased to Five hundred cedis and eighty pesewas largely because expenditures on land clearing were separated as a lump sum Fee paid to government provided mechanization services which costs two hundred and sixty-Five cedis per hectare in the First year. Ten cedis was spent on seed broadcasting while Fertilizer application cost Four cedis. Weeding costs one hundred and FiFty cedis while expenditure on child labor For scaring birds away amounted to two hundred and thirty-six 138 Table 5.3: Farm Budget for Advanced Method of Rice Cultivation (1.0 hectare) Project Year Unit 1 2 3 4-20 Total Revenues cedis 1163.33 1163.33 1163.33 19776.61 Crop 920 920 920 15640.0 E Net return to family labor 243.33 243.33 243.33 4136.61 1 Outlays cedis ‘ Labor: 500.8 500.8 500.8 8513.6 Landclearing - - - - Seedbroadcasting 10.00 10 10 170 Fertilizer application 4.00 4.0 4.0 68 Weeding 150.0 150 150 2550.0 Birdscaring 236.8 236.8 236.8 4025.6 Harvesting 100.0 100 100 1700.0 Seed 36.8 36.8 36.8 625.6 Fertilizer 188.75 188.75 188.75 3208.75 15:15:15 73.75 73.75 73.75 1253.75 Sulphate of ammonia 115.00 115 115 1955.00 Seed dressing 38.4 38.4 38.4 652.8 Storage chemical 192.0 192.0 192.0 3264.0 Tools and others 78 - 78 624 Sickle 5.00 - 5.00 40 Landclearing (mechanization) 265.00 - - - Total Outlays 1299.75 956.75 1034.75 16888.75 Net Revenues (136.42) 206.58 128.58 2887.86 139 cedis and eighty pesewas. The increase in output led to an increase in harvesting costs From ninety (For improved method) to one hundred cedis. Seed and Fertilizer expenditures were thirty six cedis and eighty pesewas and one hundred and eighty-eight cedis and seventy-Five pesewas respectively. Seed dressing cost thirty-eight cedis and Forty pesewas while storage chemicals cost one hundred and ninety two cedis per hectare per year. Hoes. sickles and sacks costs seventy-eight cedis in the First year and every other year. Total costs in the First year were one thousand two hundred and ninety-nine cedis and seventy-Five pesewas resulting in negative undiscounted net beneFits OF one hundred and thirty—six cedis and Forty-two pesewas. In the second year no expenses were incurred For land clearing. hoes. sickles and sacks resulting in decreased total costs to nine hundred and FiFty—six cedis and seventy-Five pesewas. Net undiscounted beneFits were positive at two hundred and six cedis and FiFty-eight pesewas. 1n the third year costs were incurred For hoes. sickles and sacks. Total costs increased to one thousand and thirty-Four cedis and seventy Five pesewas. Net undiscounted beneFits were still positive but lower than what was attainable in the second year. Net beneFits For the years Four through twenty were positive but higher or lower depending on whether or not expenses were incurred For hoes. sickles and sacks. Table 5.4 is the Farm budget For the irrigated method OF rice cultivation. Total revenues For this enterprise 140 were one thousand eight hundred and FiFty-three cedis and thirty-three pesewas out OF which one thousand six hundred and ten cedis were sales OF output and the rest was net return tO Family labor. Total labor costs are eight hundred and ninety-Five cedis. This could have been higher except that costs For Fertilizer application and sowing have been lumped together. as a service charge For government provided services. with the cost For Fertilizer which amounted to Five hundred and twenty-seven cedis and FiFty pesewas. Land clearing cost two hundred and sixty Five cedis. so did irrigation. and harvesting all OF which were government provided services that attracted a lump sum service charge OF two hundred and sixty-Five cedis For each activity. Weeding cost ninety cedis per hectare per year. while seeds cost Forty-one cedis and Forty pesewas. Seed dressing cost Forty-three cedis and twenty pesewas while storage chemical cost three hundred and thirty-six cedis per hectare per year. Hoes. sickles and sacks cost one hundred and thirty cedis per hectare per year. Total costs in the First year were one thousand nine hundred and seventy-three cedis and ten pesewas. This was higher than total revenue thus resulting in negative net undiscounted beneFits OF one hundred and nineteen cedis and seventy-seven pesewas in the First year. Second year total costs were lower because OF the absence OF costs For landclearing. irrigation. hoes. 141 Table 5.4: Farm Budget for Irrigated Method of Rice Cultivation (1.0 hectare) Project Year Unit 1 2 3 4-20 Total Revenues cedis 1853.33 1853.33 1853.33 31506.61 Crop 1610 1610 1610 27370.00 Net return to family labor 243.33 243.33 243.33 4136.61 Outlays cedis Labor: 895 630 630 10710.0 Landclearing 265 - - - Seedbroadcasting 10 10 10 170 Irrigation (lump sum charge) 265 265 265 4505.0 Weeding 90 90 90 1530.0 Harvesting (lump sum charge) 265 265 265 4505.0 Seed 41.4 41.4 41.4 703.8 Fertilizer (includes (lump sum charge for application) 527.5 527.5 527.5 8967.5 15:15:15 147.5 147.5 147.5 2507.5 Sulphate of ammonia 115.0 115.0 115.0 1955.0 Seed dressing 43.2 43.2 43.2 734.4 Storage chemical 336.0 336.0 336.0 5712.0 Tools and others 130 - 130 1040.0 Hoe 8.00 - 8.00 64 Sack 117.0 - 117.0 936 Total Outlays 1973.1 1536.7 1666.7 27163.9 Net Revenues (119.77) 316.63 186.63 4342.71 142 sickles and sacks. This resulted in positive net undiscounted beneFits OF three hundred and sixteen cedis and sixty-three pesewas. Third year costs were slightly higher because OF alternate year expenses incurred For hoes. sickles and cutlasses. Net undiscounted beneFits were positive but lower than those For the second year at an amount OF one hundred and eighty-six cedis and sixty-three pesewas. Net beneFits For the next seventeen years were positive but the amount was higher or lower according as expenses were or were not incurred For hoes. sickles and sacks. Table 5.5 is the Farm budget For the mechanized method OF rice cultivation. Total revenues are lower at seven hundred and three cedis and thirty-three pesewas. Only Four hundred and sixty cedis were realized From output sales while the rest was attributable to net return to Family labor. Lump sum Fees OF. two hundred and sixty Five cedis was charged per each OF the Following services perFormed by the government Operated machinery: land clearing. seed broadcasting. Fertilizer application. and harvesting. Someone in the ministry should have known that this enterprise was deFinitely unproFitable but as will be explained later on in Chapter six it was easy tO include this enterprise in the project design. Thirty-two cedis and twenty pesewas was spent on seeds while Fertilizer cost two hundred and Five cedis. Seed dressing cost thirty-three cedis and sixty pesewas per hectare per year. Storage 143 Table 5.5: Farm Budget fOr Mechanized Method of Rice Cultivation (1.0 hectare) Project Year Unit 1 2 3 4-20 Total Revenues cedis 703.33 703.33 703.33 11956.61 Crop 460 460 460 7820.0 Net return to family labor 243.33 243.33 243.33 4136.61 Outlays cedis _ Labor: 1120 855 855 14535 Landclearing (lump sum) 265 - - - Seedbroadcasting 265 265 265 4505 Fertilizer application 265 265 265 4505 Weeding , 60 60 60 1020 Harvesting (lump sum) 265 265 265 4505 Seed ’ 32.20 32.20 32.20 547.1. Fertilizer 205.0 205 205 3485.0 15:15:15 147.5 147.5 147.5 2507.5 Sulphate of ammonia 57.50 57.50 57.50 977.50 Seed dressing 33.60 33.60 33.60 571.2 Storage chemical 96.0 96 96 1632.0 Tools and others 45.5 - 45.5 364.0 Hoe 8.00 - 8.00 64 Sickle 5.00 - 5.00 40 Sack 32.5 - 32.5 260 TOtal Outlays 1532.3 1221.8 , 1267.3 21134.6 Net Revenues (828.97) (518.47) (563.97) (9177.99) 144 chemical cost ninety-six cedis. while hoes. sickles and sacks cost Forty-Five cedis and FiFty pesewas in the First year and every other year. Total costs were one thousand Five hundred and thirty-two cedis and thirty pesewas. Costs were more than twice the revenue For the First year. Negative net undiscounted beneFits were eight hundred and twenty-eight cedis and ninety-seven pesewas in the First year. Second year total costs also exceeded total revenues but not by as much as in the First year. NO expenses were incurred For landclearing. neither were there any expenses For hoes. sickles and sacks. There were negative net undiscounted beneFits OF Five hundred and eighteen cedis and Forty-seven pesewas. In the third year costs were incurred For hoes. sickles and sacks thus the negative net undiscounted beneFits increased to Five hundred and sixty- three cedis and ninety-seven pesewas. BeneFits For the years Four through twenty were all negative but the absolute amount was lower or higher depending on whether or not there was expenditure on hoes. sickles and sacks. Table 5.6 is the Farm budget For the traditional method OF millet cultivation. Total revenues were three hundred and Forty-seven cedis and thirty-three pesewas out OF which only one hundred and Four cedis was revenue From sale OF~ output with the rest being the net return to Family labor. On the cost side expenditure on labor alone was seven hundred and seventy cedis in the First year. Far in excess 145 Table 5.6: Farm Budget for Traditional Method of Millet Cultivation (1.0 hectare) Project Year Unit 1 2 3 4-20 Total Revenues cedis 347.33 347.33 347.33 5904.61 Crop 104 104 104 1768.00 Net return to family labor 243.33 243.33 243.33 4136.61 Outlays cedis Labor: 770 180 290 3940 Clearing 480 - - - Land preparation 80 - 80 640 Planting 30 - 30 240 Weeding 80.0 80 80 1360 Harvesting 60 60 60 1020 Dehusking & shelling 40 40 40 680 Fertilizer application - - - - Seed dressing - - - Storage chemical - - - Fertilizer - - - 15:15:15 - - - Sulphate of ammonia - - - Tools and Others 26.00 - 26.00 208 Hoe 8.00 - 8.00 64 Sickle 5.00 - 5.00 40 Sack 13.00 - 13.00 104 TOtal Outlays 799.64 180 319.64 4177.12 Net Revenues (452.31) 167.33 27.69 1727.49 146 OF total revenue. Land clearing cost Four hundred and eighty cedis. while land preparation and planting cost eighty cedis and thirty cedis respectively. Weeding cost eighty cedis per hectare in the First year and every year over the projects duratiOn. Harvesting cost sixty cedis per hectare every year while dehusking and shelling cost Forty cedis every year. Seeds cost just three cedis and sixty- Four pesewas in the First year and every other year. Hoes. sickles and sacks cost twenty-six cedis in the First year and every other year. Total costs in the First year were seven hundred and ninety-nine cedis and sixty—Four pesewas resulting in negative net undiscounted beneFits OF Four hundred and FiFty-two cedis and thirty-one pesewas. Second year costs were Far lower than those OF the First year largely because there were nO landclearing charges. In the second year and every other year there was no need For land preparation or planting because the yield From the crop in the second year was just as much as the yield in the First year. thus costs For those activities are avoided in alternate years. Weeding. harvesting. dehusking and shelling costs are. however. incurred every year. Just as was the case For the other enterprise. hoes. sickles and sacks each had a liFe span OF two years sO there were no associated expenditures in the second year and alternate years. Total costs in the second year were consequently low amounting tO only one hundred and eighty cedis resulting in positive net undiscounted beneFits OF one hundred and sixty- 147 seven cedis and thirty-three pesewas. Total costs in the third year included expenditures on land preparation. planting. weeding, harvesting. dehusking and shelling. They also included expenditures on seeds. hoes. sickles and sacks. Third year costs amounted to three hundred and nineteen cedis and-sixty-Four pesewas resulting in positive net undiscounted beneFits OF twenty-seven cedis and sixty- nine pesewas. Net beneFits For the remaining seventeen years were positive. but higher or lower depending on whether or not the year in question required expenditures on land preparation. planting. seeds and tools. Table 5.7 is the Farm budget For improved method OF millet cultivation. Total revenues increased to Four hundred and FiFty-one cedis and thirty-three pesewas per hectare per year with two hundred and eight cedis attributed to output sales and the rest being net return to Family labor. Labor costs amounted to eight hundred and thirty cedis in the First year. Four hundred and eighty cedis were attributed to land clearing while land preparation and planting cost eighty and thirty cedis respectively. Weeding costs amounted to eighty cedis while harvesting cost ninety cedis. Dehusking and shelling cost sixty cedis while Fertilizer application cost ten cedis. Seed and seed dressing expenses were three cedis and sixty-Four pesewas and six cedis and seventy two pesewas respectively. Fertilizer expenditures were one hundred and Five cedis while tOOls and sacks cost thirty-nine cedis. TOtal costs 148 Table 5.7: Farm Budget for Improved Method of Millet Cultivation (1.0 hectare) Project Year Unit 1 2 3 4-20 Tetal Revenues cedis 451.33 451.33 451.33 7672.61 Crop 208 208 208 3536.0 Net return to family labor 243.33 243.33 243.33 4136.61 Outlays cedis Labor: 830 230 350 4870 Clearing 480 - - - Land preparation 80 - 80 640 Planting 30 - 30 240 Weeding 80 80 80 1360 Harvesting 90 90 90 1530 Dehusking & shelling 60 60 60 1020 Fertilizer application 10 - 10 80 Seed dressing 6.72 - 6.72 53.76 Storage chemical - - - - Fertilizer 105.00 105.00 840 15:15:15 59 - 59.00 472 Sulphate of ammonia 46.0 - 46.0 368 Tools and others 39.00 - 39.00 312 Hoe 8.00 - 8.00 64 Sickle 5.00 - 5.00 40 TOtal Outlays 984.36 230 504.36 6104.88 Net Revenues (533.03) 221.33 (53.03) 1567.73 149 in the First year were nine hundred and eighty-Four cedis and thirty-six pesewas resulting in negative. net undiscounted beneFits OF Five hundred and thirty-three cedis and three pesewas. Second year costs were lower because there were neither land clearing and land preparation nor planting and thus no charges. Expenses were incurred only For weeding. harvesting. dehusking and shelling. Second year costs were thus only two hundred and thirty cedis resulting in positive net undiscounted beneFits OF two hundred and twenty-one cedis and thirty-three pesewas. Third year costs included all itemized expenditure incurred in the First year except land clearing. Total third year costs were thus Five hundred and Four'cedis and thirty-six pesewas resulting in expected negative net undiscounted beneFits OF FiFty-three cedis and three pesewas. Net beneFits For the years Four through twenty were positive or negative depending on whether the year in question did not or did require expenses on items listed in the cost column For the First year with the exception OF landclearing. Table 5.8 is the Farm budget For the traditional method OF cotton cultivation. Total revenues per hectare per year are expected to be three hundred and seventy-three cedis and thirty-three pesewas out OF which conly one hundred and thirty cedis are revenues From output sales with the remaining amount being net return to Family labor. Total labor costs in the First year were Four hundred and eighty cedis out OF which land clearing and land preparation each 150 Table 5.8: Farm Budget for Traditional Method of Cotton Cultivation (1.0 hectare) Project Year Unit 1 2 3 4-20 Total Revenues cedis 373.33 373.33 373.33 6346.61 Crop 130.00 130.00 130.00 2210.0 Net return to family labor 243.33 243.33 243.33 4136.61 Outlays cedis Labor: 480 380 380 6460 Clearing 100 - - - Land preparation 100 100 100 1700 Fertilizer application - - - - Planting 40 40 40 680 Weeding 80 80 80 1360 Harvesting 160 160 160 2720 Seed 18.2 18.2 18.2 309.4 Seed dressing - - - Fertilizer - - - 15:15:15 - - - Sulphate of ammonia - - - Tools and others 32.5 - 32.5 260 302 8.00 - 8000 64 TOtal Outlays 530.7 398.2 430.7 7029.4 Net Revenues (157.37) (24.87) (57.37) (682.79) 151 incurred costs OF one hundred cedis. Planting and weeding cost Forty and eighty cedis respectively. Harvesting OF cotton which. was described to be a tedious process cost one hundred and sixty cedis per hectare per year. Seed cost eighteen cedis and twenty pesewas per hectare per year while tools and sacks coSt thirty-two cedis and FiFty pesewas in the First year and in alternate years. Total costs in the First year were Five hundred and thirty cedis and seventy pesewas resulting in negative net undiscounted beneFits OF one hundred and FiFty-seven cedis and thirty-seven pesewas. Second year labor costs were less than First year labor costs because no expenses were incurred For land clearing. There were also no expenses For tools and sacks. thus total costs were only three hundred and ninety-eight cedis and twenty pesewas but these still exceeded total revenues. thus resulting in negative net undiscounted beneFits OF twenty- Four cedis and eighty-seven pesewas. Total costs were slightly higher in the third year than they were in the second year because OF alternate year's expenditures on tools and sacks. Total costs were Four hundred and thirty cedis and seventy pesewas resulting in negative net undiscounted beneFits OF FiFty-seven cedis. and thirty-seven pesewas per hectare. Net beneFits For each OF the remaining seventeen years were negative but the absolute Figure was low or high based on whether or not there were costs incurred For tools and sacks. 152 Table 5.9 is the Farm budget For the improved method OF cotton cultivation. Total revenues per hectare per year were estimated to be Five hundred and three cedis and thirty-three pesewas out OF which two hundred and sixty cedis were revenues From sale OF output with the remaining amount being net return tO Family labor. Labor costs were Five hundred and twenty-Four cedis in the First year out OF which one hundred cedis was spent For each OF landclearing and land preparation. Four cedis was spent For Fertilizer application. Forty cedis For planting. eighty cedis For weeding and two hundred cedis For harvesting. Eighteen cedis and twenty pesewas was spent For seeds while seed dressing cost thirty—three cedis and sixty pesewas. Fertilizer cost one hundred and thirty one cedis and twenty- Five pesewas. Forty-Five cedis and FiFty pesewas was spent For tools and sacks per hectare in the First year and in alternate years. Total costs in the First year amounted to seven hundred and FiFty—two cedis and FiFty-Five pesewas resulting in negative net undiscounted beneFits OF two hundred and Forty-nine cedis and twenty-two pesewas. Labor costs were lower in the second year because there was no expenditure on landclearing. Total cost was also lower in the second year because there was no expenses For hoes. sickles and sacks. On the whole net beneFits were negative but the absolute amount was lower than it was in the First year. Third year total cost was slightly higher than that OF the second year because OF the cost incurred For tools 153 Farm Budget for Improved Method of Cotton Cultivation (1.0 hectare) Table 5.9: Project Year Unit 1 2 3 4-20 Total Revenues cedis 503.33 503.33 503.33 8556.61 Crop 260 260 260 4420.0 Net return to family labor 243.33 243.33 243.33 4136.61 Outlays cedis Labor: 524.00 424.00 424.00 7208.0 Landclearing 100 '- - - Land preparation 100 100 100 1700.0 Fertilizer application 4 4 4 68.0 Planting 40 40 40 680.0 Weeding 80.0 80 80 1360 Harvesting 200 200 200 3400.0 Seed 18.2 18.2 18.2 309.4 Seed dressing 33.6 33.6 33.6 571.2 Fertilizer 131.25 131.25 131.25 2231.25 15:15:15 73.75 73.75 73.75 1253.75 Sulphate of ammonia 57.5 57.5 57.5 977.50 Tools and others 45.50 - 45.50 364.0 Hoe 8.00 - 8.00 64 Sickle 5.00 - 5.00 40 Sack 32.5 - 32.5 260 TOtal Outlays 752.55 607.05 652.55 10683.85 Net Revenues (249.22) (103.72) (149.22) (2127.24) 154 and sacks. Net undiscounted beneFits were negative but the absolute amount was higher than that For the second year. In the years Four through twenty net undiscounted beneFits were expected to be negative. but the loss was higher or smaller depending on whether or not there were expenses For tools and sacks. Table 5.10 reFers to the Farm budget For the irrigated method OF cotton cultivation. This is the most unproFitable OF all the enterprises. Total revenue was estimated at six hundred and thirty-three cedis and thirty—three pesewas per hectare per year with three hundred and ninety cedis coming From crop sales and the rest being net return to Family labor. Costs in the First year alone included one thousand three hundred and eighty-Five cedis with lump sum Fees OF two hundred and sixty-Five cedis being charged For each OF the Following government Operated activities: landclearing. land preparation. Fertilizer application. irrigation and harvesting. All these activities had labor costs under contract with the government. The other direct labor cost amounted to sixty cedis per hectare per year For weeding. Twenty-three cedis and Forty pesewas was spent on seeds while seed dressing cost Forty—three cedis and twenty pesewas. Fertilizer cost two hundred and sixty-two cedis and FiFty pesewas. while tools and sacks cost sixty—Five cedis in the First year and in alternate years. Total cost per hectare in the First year was one thousand seven hundred 155 Table 5.10: Farm Budget for Irrigated Method of Cotton Cultivation (1.0 hectare) Project Year Unit 1 2 3 4-20 Total Revenues cedis 633.33 633.33 633.33 10766.61 CrOp 390.0 390.0 390.0 6630.0 Net return to family labor 243.33 243.33 243.33 4136.61 Outlays cedis Labor: 1385 1120 1120 19040 Landclearing 265 - - - Land preparation 265 265 265 4505 Fertilizer application 265 265 265 4505 Irrigation 265 265 265 4505 Weeding 60 60 60 1020 Harvesting 265 265 265 4505 Seed 23.4 23.4 23.4 397.8 Seed dressing 43.2 43.2 43.2 734.4 Fertilizer 262.5 262.5» 262.5 4462.5 15:15:15 147.5 147.5 147.5 2507.5 Sulphate of ammonia 115.0 115.0 115.0 1955.0 T6018 and others 65 - 65 520 Hoe 8.00 - 8.00 64 Sictle SOOO - SOOO 40 Sack 52.00 - 52.00 416 Total Outlays 1779.1 1449.1 1514.1 25154.7 Net Revenues (1145.77) (815.77) (880.77) (14388.09) 156 and seventy-nine cedis and ten pesewas. which was more than double the total revenue resulting in negative net undiscounted beneFits OF one thousand one hundred and Forty- Five cedis and seventy-seven pesewas. Second year total cost was also higher than total revenue. Total cost was. however, lower than that OF the First year because no expenses were incurred For landclearing and tools and sacks. Net undiscounted beneFits were negative amounting to eight hundred and FiFteen cedis and seventy-seven pesewas. in the third year net undiscounted beneFits were also expected to be negative at eight hundred and eighty cedis and seventy- seven pesewas because OF the expense incurred FOr tools and sacks. The years Four through twenty were also expected to have negative net beneFits with the absolute Figure being dependent on whether or not the year in question involved expenses For tools and others. Table 5.11 is the Farm budget For the traditional method OF groundnut cultivation. Total revenue per hectare per year was expected to be Five hundred and seventy-one cedis and thirty-three pesewas. Labor costs were low amounting to three hundred and twenty cedis in the First year with one hundred cedis being spent on landclearing while planting cost Forty cedis. Weeding and harvesting cost eighty and FiFty cedis respectively. while dehusking and shelling cost FiFty cedis per hectare per year. Thirty- twO cedis and eighty pesewas was spent on seeds. while tools Table 5.11: 157 (1.0 hectare) Farm Budget for Traditional Method of Groundnut Cultivation Project Year Unit 1 2 3 4-20 Total Revenues cedis 571.33 571.33 571.33 9712.61 Crop 328.00 328.00 328.00 5576.0 Net return to family labor 243.33 243.33 243.33 4136.61 Outlays cedis Labor: 320.00 220 220 3740 Landclearing 100 - - - Planting 40 40 40 680 Fertilizer application - - - - Weeding 80.0 80 80 1360 Harvesting 50 50 50 850 Dehusking and shelling 50 50 50 850 Seed 32.8 32.8 32.8 557.6 Seed dressing - - - - Fertilizer 15:15:15 - - - - Sulphate of ammonia - - - - T6013 and Others 39.00 - 39.00 312.0 Sickle 5.00 - 5.00 40 TOtal Outlays 391.8 252.8 291.8 4609.6 Net Revenues 179.53 318.53 279.53 5103.01 158 and sacks cost thirty-nine cedis in the First year and in alternate years. Total costs were three hundred and ninety- One dollars and eighty pesewas resulting in expected positive net undiscounted beneFits OF one hundred and seventy-nine cedis and FiFty-three pesewas. Total costs in the second year were lower because there was no expenditures For landclearing, tools and sacks. amounting to only two hundred and FiFty-two cedis and eighty pesewas. There were positive net undiscounted beneFits OF three hundred and eighteen cedis and FiFty-three pesewas in the second year. Net undiscounted beneFits in the third year were positive but lower than they were in the second year because OF expenses incurred on tools and sacks. Net beneFits For the remaining years were all positive but the amount per year varied depending on whether or not expenses were incurred For tools and sacks. Table 5.12 reFers to the Farm budget For the improved method OF groundnut cultivation. Total revenues were expected to be eight hundred and FiFty-eight cedis and thirty-three pesewas per hectare per year. Six hundred and FiFteen cedis out OF these revenues were expected to come From crop sales with the rest being net return to Family labor. Total cost was six hundred and eighty-nine cedis and ninety pesewas in the First year. Out OF this cost Four hundred and thirty cedis is attributed tO labor activities. Seed and seed dressing cost thirty-six cedis and ninety 159 Table 5.12: Farm Budget for Improved Method of Groundnut cultivation (1.0 hectare) Project Year Unit 1 2 3 4-20 Total Revenues cedis 858.33 858.33 858.33 14591.61 Crop 615 615 615 10455.0 Net return to family labor 243.33 243.33 243.33 4136.61 Outlays cedis Labor: 430 330 330 5610 Landclearing 100 - - - Planting 40 40 40 680.0 Fertilizer application 30 30 30 510 Weeding 80.0 80 80 1360 Harvesting 90 90 90 1530 Dehusking and shelling 90 90 90 1530 Seed 36.9 36.9 36.9 627.3 Seed dressing 32.0 32.0 32.0 544 Fertilizer 126.0 126.0 126.0 2142 15:15:15 70.8 70.8 70.8 1203.6 Sulphate of ammonia 55.2 55.2 55.2 938.4 Tools and Others 65.0 - 65.0 520 Sickle 5.00 - 5.00 40 Total Outlays 689.9 524.9 589.9 9443.3 Net Revenues 168.43 333.43 268.43 5148.31 160 pesewas and thirty-two cedis respectively. Fertilizer cost one hundred and twenty-six cedis while tools and sacks cost sixty-Five cedis in the First year and in every other year. Net undiscounted beneFits were positive at one hundred and sixty-eight cedis and Forty-three pesewas in the First year. Second year costs were lower because there were nO expenditures For land clearing. tools and sacks. Net undiscounted beneFits were thus expected to increase to three hundred and thirty-three cedis and Forty-three pesewas. Third year net undiscounted beneFits were also expected to be positive but by less than the amount needed to be expended on tools and sacks. The years Four through twenty were also expected to have positive net beneFits but the yearly amount was expected to vary according as expenses were or were not incurred on tools and sacks. 161 5.1.1 RESULTS Table 5.13 is the discounted cash Flow per hectare For all the enterprises over the project's duration. On a yearly basis the First year OF the project resulted in negative net discounted beneFit. the second year's beneFits were positive while the third year’s beneFits were negative. In short. the beneFits were negative or positive in alternate years. The most important aspect OF the table. however. is the total discounted cash Flow per enterprise column. At the end OF the twenty years Four out OF the twelve enterprises would have been unproFitable. that is one-third OF the enterprises. What is even more important is the Fact that the combined losses OF these Four enterprises outweighed the positive beneFits From the other eight enterprises resulting in negative net total discounted cash Flow. The unproFitable enterprises would be (i) the mechanized method OF rice cultivation. (ii) the traditional method OF cotton cultivation. (iii) the improved method OF cotton cultivation. (iv) the irrigated method OF cotton cultivation. Table 5.13: 162 Discounted Cash Flow (cedis): (1.0 hectare per crop) Enterprise Tab1e Project Year 1 2 3 4-20 Total Rice (traditional method) -1.02 109.11 65.03 490.82 663.94 Rice (improved method) -7.84 113.01 59.86 487.80 652.83 Rice (advanced method) -118.68 156.17 84.61 679.3 801.40 Rice (irrigated method) -104.20 239.37 122.80 1022.16 1280.13 Rice Millet (traditional method) -393.51 126.50 18.22 411.01 162.22 Millet Cotton (traditional method) -136.91 -18.80 -37.75 -158.06 -351.52 Cotton Cotton (irrigated method) -996.82 -616.72 -579.55 -3361.86 -5554.95 Groundnut (traditional) 156.19 240.81 183.93 1195.46 1776.39 Ground (improved) 146.53 252.07 176.63 1207.34 1782.57 Total Discount Cash Flow -2858.02 298.47 -410.39 -285.03 -3860.46 (yearly) 163 Table 5.14b represents the discounted cash Flow per enterprise based on the estimated number OF hectares per enterprise. It will be recalled that the oFFicials at the Ministry had no practical idea about the phasing in OF the acreage. They assumed thereFore that such phasing in would directly correspond with the percentage OF cost incurred in the particular year except For the years Four through twenty during which costs per year were low. Based on that assumption it was estimated that twenty-Five percent OF the acreage will be brought under cultivation in the First year. For each OF the second and third years twenty-two percent OF the acreage will brought under cultivation. The remaining thirty-one percent OF the land area will be brought under cultivation on an equal instalment basis per year over the next seventeen years. Based on the above assumptions Table 5.148 is created. Four thousand eight hundred hectares would be brought under rice cultivation in the First year with each enterprise covering nine hundred and sixty hectares. In the second year Four thousand two hundred and twenty-Four hectares would be brought into cultivation with each OF the rice enterprises having eight hundred and Forty-Four and eight— tenth hectares under its umbrella. The same number OF hectares in the second year would also be cultivated in the third year per each rice enterprise. Over the remaining seventeen years seventy hectares per year would be brought 164 Table 5.14a: Estimated Number of Hectares per Enterprise/Year (cumulative) Project Year l 2 3 4-20 Rice (traditional method) 960 1804.8 2649.6 3839.6 Rice (improved method) 960 1804.8 2649.6 3839.6 Rice (advanced method) 960 1804.8 2649.6 3839.6 Rice (irrigated method) 960 1804.8 2649.6 3839.6 Rice (mechanized method) 960 1804.8 2649.6 3839.6 Millet (traditional method) 3250 6110 8970 13000.02 Millet (improved method) 3250 6110 8970 13000.02 Cotton (traditional method) 1667 3133.67 4600 6667 Cotton (improved method) 1667 3133.67 4600 6667 Cotton (irrigated method) 1667 3133.67 4600 6667 Groundnut (traditional) 3150 5922 8694 12600 Ground (improved) 3150 5922 8694 12600 165 under cultivation For each enterprise. As regards millet cultivation the First year OF the project would see three thousand two hundred and FiFty hectares being cultivated For each enterprise. In the second year two thousand eight hundred and sixty hectares would be cultivated For each millet enterprise.~ The third year would also see two thousand eight hundred and sixty hectares being cultivated For each enterprise. For the remaining seventeen years each millet enterprise would have an additional two hundred and thirty-seven (237.06) hectares brought under cultivation per year. Each OF the three cotton enterprises would have approximately one thousand six hundred and sixty-seven hectares under cultivation in the First year. In the second and third years respectively each enterprise would have additional one thousand Four hundred and sixty-seven (1466.67) hectares under cultivation. Over the remaining seventeen years each enterprise would have one hundred and twenty-one (121.57) hectares brought under cultivation each year. Each OF the two groundnut enterprises would have three thousand one hundred and FiFty (3150) hectares under cultivation in the First year. In the second and third years respectively additional two thousand and seven hundred and seventy-two (2772) hectares would be cultivated For each OF the two enterprises. Each enterprise would then have an (additional two hundred and twenty-nine (229.76) hectares brought under cultivation every year over the remaining seventeen years. 166 From these hectares cultivated the discounted cash Flow per enterprise numbered Table 5.14b was derived. One can observe that Four enterprises would be unproFitable even on a Farm basis. These enterprises are mechanized method OF rice cultivation. and all the three cotton enterprises. The most proFitable enterprises are the traditional and improved method OF groundnut cultivation. each netting over six million cedis aFter twenty years. The other six enterprises also would have positive beneFits aFter twenty years. Table 5.14b however. does not present the actual state OF the enterprises because it is based only on the hectares cultivated in a particular year and does not consider the cultivated area in previous years which still remain under cultivation. The Cumulative Discounted Cash Flow table numbered table 5.15 is based on the total acreage under cultivation per enterprise per year (Table 5.148) and is thereFore more representative OF the enterprises. Based on these cumulative totals we still Find mechanized rice cultivation and the three cotton enterprises to be the unproFitable ones. The other eight enterprises would be proFitable at the end OF twenty years with the two groundnut enterprises being the most proFitable. Table 5.16 and table 5.17 are the discounted costs For the Foreign exchange and local component costs respectively. TO arrive at the total project costs and beneFits we sum up tables 5.15. 5.16 and 5.17 to get table 5.18. The reader should be reminded that 167 ~.sao.em~.s n.mnn.sam.s an.aen.ons- ~.oe~.onn.~ s.on~.ema.ei sown ammo unsoomwp Hobos m.nae.nen.e o.oke.nqk.e em.e~e.eee ee.am~.moe n.aen.aee xeo>onnaav . unpoqsouu e.sse.anm.e e.ees.mee.s em.nne.mon ~n.n~n.kee n.aam.aae xaeeowsqeenuv updoppowo ank.nem.osi ~.mne.ksm.ei e.eoo.onei mk.enn.eomi o.okn.qee.~u Avenues venomwunwv pouuoo n.ane.mse.ai eke.n~o.si nn.~qo.eeai e.qoo.nsai an.ken.semi xeoeuua eo>oneawv dOquU «n.aek.knei em.kne.e~ni mk.een.nnu «.mkn.k~i ek.nea.o-i xeoeuoa Heaoquweonnv nouuoo o.eoe.eoe o.~qo.mmn.a e.nek.aai ~.nmn.eke nna.ken.al xeoeuua eu>onaaav suede: Nem.amk m.o~m.ene.q ~.m0a.~n oak.qem n.kem.ek~.ai xeoeuua Haeownweonsv suede: e.amn.mee.mi e.~en.~nn.~i me.eme.msmi He.k~s.~nmi o.~nn.~mei xeoenua eouweueouau seam n.aok.-s.s m.mkk.eqw.~ ee.ssk.mos ek.ma~.~o~ o.~ne.oosi xeoeuoa euuomqunqv «use we.eas.eae ~k.eme.eee mn.eke.qk ~4.~na.amH e.~na.masi xeoeuua eooeo>euv sows m.sms.ask ~s.kke.oen nk.aem.on ne.oke.na e.e~n.ki xeoeuoa e6>oneawv «use s.eoe.emk ma.~k~.een em.kma.en ms.eka.~a «.akmi Access: dancesweansv oowu 4666a owls n N a was» pounowm AuOo>\OmauauouaO use monsoon: no woman: usueawuuo no canopy manna Omwwauounm ”AaHOOOV seam ammo OOOnOOOOHO “ne~.n manna 168 nwn.o~o.oq oma.men.~q ne.oee.eeel n.ane.eee.~ H.em~.amm.ei Hence use» kkm.o~e.na e~s.oma.~s «.awe.nmn.s n.ank.~as.q n.aen.aes xe6>onaawv uppoqsowb eko.Nmn.ns mam.eao.~s e.kee.mon.q e.eko.e~e.s n.aam.~ae Aweaownweunuv umdoapowu ekq.ana.s~u o.aee.qme.ksi e.nme.nee.~- s.nan.~mm.qi e.o~n.qee.ai xeoeuua eosumwnnwv pouuoo n.sks.kme.ni k.mes.eme.~i em.ske.amei ma.noe.ns~i an.ken.aeni Avenues eo>onaawv pouuoo ~.nas.eon.ai m~.~ee.meei em.one.nkai ok.eom.eni mk.ne~.e-s xeoenoa Haaownweanuv pouuou e.moe.moH.n m.emn.mom.n m.meo.-m- ~.n~m.-o.s ans.kon.qi xeoenua e6>oneaqv “6444: a.~ee.ome.m se~.~e~.e s.nne.nea nae.«kk n.aoe.ek~.su Avenues Heeownweunsv 36444: n.me~.enm.ei m.ee~.men.ei eo.oe~.neai He.mos.koxi o.~nn.~aei xeoesua consensuauw on k.eke.mmk.n m.eam.e~a.m ee.o~n.n~m em.eae.~ne o.~no.ooai Avenues eunemwnnqv scum e.eo~.oke.~ n.aao.eko.~ ee.~mq.e- Ne.nnm.ae~ e.~nm.naai xeoesoa eouee>eav sown e.ea~.kse.q k.nns.~ms.a eo.noe.ena ne.oea.mo~ e.e~n.ki Avenues eo>ounaqv scam ~.kam.eke.s ~.qko.~on.a as.mom.~k~ nk.q~m.em~ «.mkmi Aeoeuoa Hueowuqeunsv mead 4666a owns m a a was» beenowm Anewue>wuaso have: «weapon Heuou no aOOOAV ”Amweouv scam ammo aouaaooawp O>Huoasaso “ma.n oases 169 omo.m~m.mw m.~w~.~mn m.m mm.-w.m s.~mn.nam.u ~.nn~.¢~n.o~ aumoo qumnowm omwouom oouapoomwp Heuoa ~.sno.oke.s n.aem.nn ne.mok.ek~ ~.k~n.~ke o.-o.keo nowoeouewseoo Assamese ~.noo.ese.m e.ee~.enn n.k~n.nen.a e.kn~.mae.a n.an~.-e aeowuanoao «posses can uaeam con.ee~.o~ ~.nmo.~e~ aun.me~ m.noo.umn.~ n.amo.~on.m uaoamwsam moaowasp .mupmam ao~.nnn.- o n.amm.nom.~ «.msm.wna.e n.aon.~ne.o Omnweawsm deuce onus n N a use» poofiowm Ana.m manna now nosao> nouasooawpv neweouv numoo unannouqu ”Onoaonaoo omenauwm unwouom «ea.n «Hana 170 ~.sa~.ene.n m.ene.eea e.eeo.nks.q e.qee.qeo.a sea.kmn.~ ounce swoonowm pwwowom oounsooqu HOOOH emo.eo~ e.qna.~ e.een.ka e.~nm.m~ eem.en wowuaumewueoo Hauwesnn eon.moH o . one.eq eon.~m enn.en nowuenneweqaec Hauopoo e.meo.ee~ ~.eae.- mee.ke e.~oa.ea ~oe.en enoqsouoeo nauseo> new pecan n.-o.n~a.m n.ank.~aa omk.oa~.a one.kon.a ome.no~.a noouosoaa< .mowuoaom e.oma.~me e.knm.e ~mn.n~ ekk.naa nee.nen semanwaem nowoweo> .aueewn e.ekn.emk o ame.s~a e.nek.~e~ oom.aee manganese Hence owls m a a was» poofioum xeq.n cease new mosses eoueeooowav AmwOOOV aumOO counsoamwp uaoqomaoo honouwso HOOOA ”ma.n 171 nke.~ne.e~i ann.nee.sa me.eek.enk.na e.oek.~ne.ei «he.oaa.n~i anemones n62 nan.o~o.oq oma.msn.- ne.oem.eosi n.ane.eea.~ H.en~.ama.ei «none announce coo.mke.em k.mme.kke e.eoe.nem.n m.n-.~mn.m en~.~aa.ea eueoo Haney eoe.nsa.e~ e.ses.~nn a.mme.~ka.m k.snn.nae.k ~.nn~.ean.ea neoconaoo «seasons engages s.3¢s.one.n m.ens.esa e.eeo.mks.l e.~me.~em.a Sea.kan.~ nemeonaoo kuaonuee Huang ”OOOOO Hence owls m a a woo» OOOnOHm muwmsnom can uumoo uuofioum ”OH.n 172 tables 5.16 and 5.17 are the OFF-Farm costs and that the on- Farm costs have already been accounted For under crops beneFits. From table 5.18 we observe that the First three years would register losses that are very substantial. Over the remaining seventeen years total net beneFits would be positive but the amount would not be enough to oFFset the huge losses OF the First three years thus resulting in negative total net beneFits For the project at the end OF the twenty years. Based on this outcome the project should not have been undertaken in the way it was originally designed. 5.2 ALTERNATIVE DESIGN In the preceding section we observed and concluded that the project in its original design (tables 5.148. b and table 5.15) should not have been undertaken. This is due to the Fact that by the inclusion OF the Four enterprises the losses that were incurred were tOO much and thus outweighed the positive gains From the remaining eight enterprises. By alternative design I am suggesting that those Four enterprises should have been deleted From the design. The mechanized method OF rice cultivation should have been deleted and the land area divided among the Four remaining rice enterprises. In the case OF the three unproFitable cotton enterprises I am suggesting that they should have been deleted. I am not in a position to say whether or not the land area For these enterprises should then have been I73 alloted to any OF the remaining enterprises because the agronomic conditions may or may not be compatible with the cultivation OF the other crops. Leaving the land unutilized would not have subtracted From the project. Based on the above suggestions an alternative design would have increased the First year acreage cultivated For each OF the Four remaining rice enterprises to twelve hundred hectares. In the second and third years each enterprise would have additional one thousand and FiFty-six hectares brought under cultivation each year. Over the remaining seventeen years each enterprise would have approximately eighty-seven hectares brought under cultivation per 'year. The millet enterprises and the groundnut enterprises would not experience any changes From their original designs.’ The other major change would be the elimination OF the three cotton enterprises and their associated losses. From the above changes table 5.19 representing the discounted Cash Flow would be derived. this table would show that at the end OF the twenty years each enterprise would have positive beneFits. It is only in the First year OF the project that losses would occur. The alternative design would also result in table 5.20 which is the cumulative discounted cash Flow. This table would also show that all eight enterprises would be proFitable aFter twenty years and that it is only in the First year OF the project that on-Farm beneFits would be negative. Table 5-21 174 ana.aaa.oq a.eok.~on.a n.aao.ooa.a n.aon.oaa.al sown acne unsooqu demos o.oka.n~k.e on.aao.oae ao.ank.aao n.aon.aoe xeoauou eo>owanwa use undone e.oas.aoa.e oa.nno.aon an.n~n.koo n.aoa.aae xeoauoa aaeownwanwuv use onsowo a.aa~.koa.a e.nak.aal n.aeo.oan nn_.kon.al xooaooa eosowa-wo sodas: n.0kn.one.s ~.aoq.an oak.aea n.~oa.ok~.al xeoaooa aaaownwawuuv uoaawx al.3wa.oan.w a.oke.aaa ak.ewk.ana oeo.naal xeoeuoa oonuawwwwo sued oe.aak.oao.a oq.asn.aa ~n.n~a.eoa one.~eal xeoeooa concussed «Odd oa.eea.n~k as.-a.no on.aan.oaa aaa.al xaoeooa aosowa-wv sown as.osa.onk oo.swo.ao oa.oaa.n~a saa.a- xaoeuoa aqaownwaewuo sown owns a a a was» uoonowm Admwaop O>HuapuOuH< do oomonv «moan Ammo vmquoumun umH.n manna 175 ann.-o.on aao.aan.~s a.onk.nao.e n.6an.koa.o n.aan.oaa.~i sown amoo unsoomwp demon kwa.oao.ns aae.ona.~a «.aao.nan.a n.ank.~ae.a n.aen.aoe xao>owaawo use undone oko.~nn.ns asa.aao.aa e.kao.aan.a e.oko.oaa.s n.aaa.aae xaaaowsweownv ups onsowu a.aoa.noq.n n.aan.aoa.n a.noo.~anl a.naa.a~o.q ana.kon.al Avenues e6>onaawv nowaw: n.aae.aaa.n Haa.~s~.e e.nae.aoa naa.~kk n.aoa.aka.ql xeoaooa aaaownwoswuv B6444: a.nok.aaw.s n.nao.aoa.a o.aak.ooe ak.aao.osn oeo.naal xooaooa oonoawwwwv «owe s.nkk.kao.n o.neo.kan.~ a.a-.oa~ ~n.aan.ana one.~aal xooeooa eooaoseou sown a.koo.aon.~ a.aoa.nea.s a.ona.eaq on.ona.en~ aoe.ai xooauoa oosowaawv «use a.osa.kan.a s.moo.wka.a s.aaa.naa oa.~ns.oea a-.Hl Avenues aaaowowoanuv sued Hausa owls a a was» adenowm Adudep O>wuedwOuH¢V 30am ammo amuaaoomwp O>wumasaso ”ca.n edema 6 7 1 ann.asa.n~ a.aoo.~aa._a a.ae~.ooa.~i a.ook.a~o.ml n.oaa.-o.~al sequence so: ann.-a.on aso.aan.ae a.onk.nao.e n.o~n.wo~.o n.aan.oaa.al «acne «muwuooom ooo.ako.sa “.aao.kko a.soa.nsa.n n.aaa.knk.a ea~.~aa.a~ anuoo Hanan o.eoa.aaa.a~ a.saa.smn a.ana.~ka.a k.~an.naa.k n.an~.aan.oa aeoaoaaoo Oupmnowu mmwOuom ~.ea~.ana.n a.one.oea o.aoo.nko.a o.aao.aeo.~ amo.kon.~ naoaoaaoo sonowwso wagon .OuOou Hosea owls a a a woo» uOOfioum onwuoaom a ouooO noohowm duwuop o>wueduouaa .-.n can-a 177 is the alternative design project costs and beneFits. The First three years OF the project would result in losses even under this alternative design. The remaining seventeen years would. however. result in positive net beneFits that exceed the losses For the First three years combined resulting in positive net beneFits For the project at the end OF twenty years. This alternative design thereFore should have been considered. 5.3 "WITH" AND "WITHOUT" DISCUSSION The costs and beneFits that were identiFied and valued under this project analysis For the Upper Region Agricultural Development Project reFer to those costs and beneFits that arose with the project as compared to what would be the situation without the project. This is the reason why we reFer to the changes in output as incremental net beneFit. This "with" and "without" situation presumably accounts For changes in production that would occur without the project. Even though oFFicials admitted to using the with and without situation I consider that to be redundant because the assumption OF constancy in prices For outputs and inputs and even the assumption OF constancy in output removes the eFFects OF any changes that would have occurred in the project’s absence. The constancy assumption eliminated a lot OF variables that would have contributed to changes. such as improved seed varieties. improved 178 techniques OF production and storage. and changes in tastes and preFerences. CHAPTER SIX PERFORMANCE FACTORS In chapter 2 section 2. I mentioned that the bureaucratic structure OF the Ministry OF Finance and Economic Planning does aFFect the perFormance OF the budget. Under this structure I discussed that the organizational structure that relies on centralized planning (top-down) ignores some social and environmental Factors and also makes the process OF budget Formulation less participatory. We also saw that the existence OF Four principal secretaries leads tO power struggles because none OF them is prepared to let his or her division play a subordinate role to the others in situations where the roles overlap. The structure OF the ministry is. however. not the only Factor that aFFects perFormance. Other Factors like consistency OF problems. resource scarcity. environmental. and power over eFFiciency dO aFFect perFormance. as discussed below. 6.1. CONSISTENCY OF PROBEEMS IF any interested observer reads the budget statements released over the years she or he will Find that some OF the problems alluded to in earlier chapters are pervasive. It was recognized in 1977 that budget deFicits persist and the 179 180 deFicit would have to be Financed by borrowing From the banking system. a method that everyone knew would worsen the inFlationary situation in the country. In 1978 the same government recognized that problems do exist with the implementation OF the budget and came out with a number OF expenditure control measures. The First OF these measures was the establishment OF budget and planning units in all the key ministries. departments and agencies responsible For the preparation and implementation OF government projects. Secondly. the ministry OF Finance was authorized not to release Funds For projects which had not been approved and had thereFore not been provided For in the annual estimates. Thirdly. the ministry OF Finance was directed to arrange periodic visits to project sites to ascertain progress OF work. Fourthly. contractors undertaking government projects were advised to keep proper accounts on their Operations with such accounts eligible For periodic inspection by the Auditor-General's department. Failure to comply would lead ‘to»ineligibility For Further government contracts. Also. it was stated that contractor's bidding For government contracts must show evidence OF the possession OF (appropriate machinery and equipment For the work and also indicate prior arrangement For the maintenance OF the equipment. These measures did not seem to have had any eFFect because in 1979 the new government also decided to introduce Firm measures aimed at reducing to a minimum much 15F the waste that exists in the expenditure pattern OF 181 government agencies. They reaFFirmed the policy OF establishing budget and planning units in each ministry. It was also recognized that most OF the capital projects had remained uncompleted in the budget over many years. thus locking up scarce Financial resources while actual and eFFective utilizatiOn OF encumbered Funds remains unknown. To remedy this situation the monitoring unit was singled out For strengthening to provide more eFFective data collection system that will make it possible For the ministry to justiFy such proposals and stress their impact on the economic and social development OF the country. The new government also reaFFirmed the policy OF eliminating the deviations From planned targets which results From extra- budgetary commitments authorized by Functional ministries but more particularly by regional organizations. Similar measures were laid down in the budgets For subsequent years meaning that the previous measures described above were unsuccessFul. 6.2. RESOURCE SCARCITY In the introductory chapter I discussed the problem OF low investment and its eFFect on the productive capacity OF the economy. The low productive capacity aFFects the abdlity to import which also aFFects input availability. The low investment over the years has not been suFFicient to inaintain and rehabilitate existing productive capacity. nor toiprovide For new capacity. The low investment stems From 182 a decline in the supply OF both domestic and Foreign savings. The above situation was reFlected in the) budget statement OF 1980 by the government's determination to pursue realistic policies with respect to maintenance and development OF the inFrastructural base OF the country. The statement also revealed the governments' intention to solicit world bank help to maintain deteriorating roads. and to provide water. energy. rail. aviation. housing and health Facilities. Resource scarcity was not limited to inFrastructural Facilities alone. The Upper Region Agricultural Development suFFered From limited availability OF seeds that were required For various yearly targets to be met. In Table 6.1 data are provided on percentage requirement OF seed needs that would be met. NO account was given OF how the remaining percentages were to be FulFilled. My guess is that these shortages would present problems For the Operation OF the project. For the years For which data were available (1976-1980) the table shows that not more than thirty-three percent OF the seed requirements For rice would be met. In 1976 the percentage that would be met For millet seed requirement was not signiFicant (NS) and this percentage would increase to only seven percent in 1980. Groundnut cultivation would also suFFer From seed deFiciency because according to the data only about one and one-third (1.3) percent OF the total requirement would be met in 1976 183 Table 6.1: Seed Production Targets (1976-1980) (Percentage OF requirement that would be met) 1976 1977 1978 1979 1980 Rice 33.8 33.3 33.3 33.3 33.3 Millet - 2 5 7 7 Groundnut 1.3 3.7 5.7 8.1 10.1 Source: Ministry OF Agriculture Five Year Development Plan (1975/76 - 1979/80) Part II. 184 with the percentage met rising to ten and one-tenth (10.1) in 1980. NO data were available For cotton but there is no reason to expect a more Favorable situation. Part OF the reason For resource scarcity may also be traced to the military regime which seized power in 1972. This regime paid le55 attention to matters OF inFrastructure and maintenance. let alone development. According to Naomi Chazan (1983) with the advent OF this regime road servicing and highway repairs ceased and import restrictions limited the availability OF critical spare parts For transportation and other Facilities. 6.3. ENVIRONMENTAL Paglggg Shortly aFter the Upper Region Agricultural Development was launched Ghana as did most OF Sub-Sahara AFrica experienced one OF the worst Famines in recent history. This was due to the lack OF rainFall in the late 19705 and early 19805. As a result OF this drought. Farms were destroyed or abandoned because crops that were planted did not grow and those Farmers that experienced crop growth had the agony OF seeing their Farms destroyed by bush Fires. OF course. experts suggest that rapid population growth. deForestation and lack OF agricultural research all contributed to the drought and Famine. One can be certain that this aFFected the project and it is no wonder that Ghana was listed as one OF the countries that were to beneFit From the USA For AFrica project. World Bank reports 185 argue that drought is part OF a deeper problem that has its roots in high and accelerating population growth and in low and declining eFFiciency in the use OF resources. Drought is no longer a problem in Ghana. but it is Feared that iF adequate provisions are not made For alternatives like irrigation and drought resistant crops. we may have tO live with the consequences OF drought in the Future. 6.4. POWER vs. EFFICIENCY In the analysis it was Found that Four enterprises would be unproFitable aFter twenty years and that an alternative design that deleted these Four enterprises would increase the proFitability OF the project. However. these enterprises remained as part OF the project simply because those Farmers taking part in the project under these Four enterprises were mostly absentee Farmers working in the capital as senior civil servants or had connections with the policy makers. Most OF them did not pay For those services which drew lump sum charges. Due to their connections or by virtue OF their positions they used these services Freely and thus did not account For them in their private accounting. but the analyst concerned with economic prices accounted For those charges. Thus. to the powerFul Farmer those enterprises were proFitable. while to an analyst they were unproFitable. In terms OF eFFiciency. thereFore. those Four enterprises should not have been included in the 186 project. or the Farmers involved should have paid all costs iF they wished to proceed with these crops. CHAPTER SEVEN SUMMARY. CONCLUSIONS. AND RECOMMENDATIONS 7.1 SUMMARY OF FINDINGS The objective OF the study was tO examine projects included in the development budget and determine whether or not these projects contribute to development. TO make this study manageable I Focussed on the agricultural sector because OF its importance to the economy and selected the Upper Region Agricultural Development Project. In order to determine the contribution OF this project to development I analyzed the proFitability or net wOrth and ended up with the Following Findings. The study revealed that OF the twelve models or enterprises only eight would be proFitable aFter twenty years. The Four unproFitable models would be: (i) mechanized method OF rice cultivation (ii) traditional method OF cotton cultivation (iii) improved method OF cotton cultivation -(iv) irrigated method OF cotton cultivation The combined losses From these Four models would outweigh the beneFits From the remaining eight models thus rendering the entire project unworthy. However. the Four models were included in the project because most OF the people involved 187 188 were powerFul but absentee Farmers who were either directly involved in policy making and/or had enormous inFluence on the policy makers. What this situation amounted to was the subsidization OF 8 Few participants by the rest and with public Funds. Thus. the subsidy led to only a Few Farmers beneFitting From inputs like Fertilizer and government provided and Operated machinery. We know that such subsidization imposed huge Financial burdens on the government and generated allocative ineFFiciencies in a poor country like Ghana (Stiglitz. 1987). Such input subsidy not only distorted input choice. but also may have required higher taxes elsewhere in the economy to generate those Funds used For the subsidy. The subsidy For the use OF government provided and Operated machinery and perhaps Fertilizer could also have skewed Farm income distribution. since it reduced agricultural employment and concentrated Farm income in the hands OF the rich (Gilbert Brown. 1983). Observation OF the other models. showed that those Farmers not relying on mechanization and other related activities did use more mandays OF labor per hectare and may have contributed more toward a Fairer income distribution. IF we consider the use OF subsidies in the context OF Ghana's inability to beneFit From her investments then we realize how important it is For capital to be wisely accumulated and utilized (Anderson. 1987). 189 7.2 ALTERNATIVE DESIGN For the purpose OF comparison and as a suggestion For Future consideration an alternative analysis OF the project was proposed as presented below in a tabular Form. Original Analysis Alternative analysis Factors Prices administered shadow prices , prices (economic prices) Discount rate conventional rate 15 percent to highlight (12 percent) dearth of financial resources Exchange rate official rate Shadow rate (51:11.15) (51:12.0125) (Official rate plus a premium) Enterprise 12 8 (excluding mechanized rice, and the three cotton enterprises) Basically what I am suggesting is that shadow prices should be used to reFlect scarcity OF physical and Financial resources. Also the number OF enterprises included in the project should be eight. not twelve. The inclusion OF eight enterprises and the usage OF shadow prices would have eliminated the need For subsidization. which occurred under the original analysis. 7.3 LIMITATIONS OF THE STUDY Usage OF cost-beneFit analysis as a method OF evaluation OF projects For their inclusion in the budget 190 presents problems connected with shadow prices - shadow exchange rates. shadow wage rates. and apprOpriate discount rates. The usage OF a Foreign exchange premium to approximate the shadow exchange rate does not in any way suggest that there is equilibrium in the supply OF and demand For Foreign exchange. In a similar vein the choice OF a discount rate does not imply "the price OF capital" because the Flow OF investment Funds is variable. In a general sense shadow prices dO correct only current problems as they relate to the analysis. but as the time horizon expands so do distortions increase thus rendering original shadow prices inappropriate. These shadow prices are also speciFic to particular projects because 1F we apply them to the economy in general. private enterprises that use such prices in their accounting will experience losses and thus increase the need For more subsidies. Under data presentation and analysis I made reFerences to Farm models which in practice should have reFlected what each group OF Farmers was likely to do. but these models actually reFlected what the analyst wanted the Farmers to do. Assumptions about the rates OF phasing in OF areas to be brought under cultivation and the projection OF increases in productivity cannot be said to be realistic.) The assumption that yields will remain constant is Fallacious since it presumed that yields have already reached maximum levels and cannot be increased by introducing new technologies or other improvements (M. Brown. 1982). The 191 analysts assumed that conditions could not deteriorate in the absence OF the project. thus underestimating the value OF the project. They also assumed that conditions could not improve without the project. thus overestimating beneFits OF the project. Assumptions about constancy OF the prices OF inputs and output could also introduce problems. The nature OF the project requires that some inputs be imported. thus such inputs' prices could be aFFected by imported as well as domestic inFlation while output prices will be aFFected basically by domestic inFlation. The contribution OF investment to growth can be better assessed by using the social eFFiciency OF investment in the analysis and that is why the concept OF shadow pricing was discussed in relative detail and the (implications For the cost-beneFit analysis enumerated. OF course. this kind OF investment. that neglected the provision OF inFrastructure and other economic incentives For the private sector. could not be expected to have positive returns. Over the years the various governments in Ghana have exhibited consistent interest in public sector investments OF which the Upper Region Agricultural Development Project was one. despite the generally accepted view that the majority OF such public sector enterprises oFten perFormed ineFFiciently. Such investments have become a drain on Ghana's meager resources in terms OF Foregone economic development (Marsden and Belot). f' 192 7.4 BUREAUCRATIC BOTTLENECKS Coming back to the problem OF ineFFiciencies. one must not lose account OF the Fact that all these governments contain alliances which reFlect both broad political- economlc Forces and narrower internal bureaucratic interests. both OF which cut across the Formal diFFerences between oFFicials and politicians (Lamb. 1987). One cannot blame the analyst For whatever ineFFiciencies may arise in the derivation OF public investment policy. since the impacts oF those alliances are usually interventionist. These alliances also have political interests which can diFFer in important respects From their Formal responsibilities For governance. Most bureaucrats do represent political Forces made up OF economic interests. regional and ethnic coalitions as well as unions or military Factions. Some bureaucrats whose word oFten override those OF the analyst also have political connections and bureaucratic interests to protect. especially the legitimate or oFten illicit rents Flowing From the implementation OF particular policies.. The administration OF the budget is essentially a bureaucratically implemented development strategy. As a reminder. the Upper Region Agricultural Development Project was one OF a number OF projects intended For each OF the nine regions OF the country as part OF the Objective OF balanced regional development. This Objective was determined at the center and with it came the proliFeration 193 OF bureaucratic structures with high overhead costs OF which the project under discussion is a typical example. By requiring relatively tOO much Foreign exchange For the inFrastructure and machinery. the Upper Region Agricultural Development Project and many like it have leFt the system to pay For externalities. including balance OF payment problems. displacement OF labor and skewed income distribution. Since these bureaucratic units are linked upwards and not downwards. they reduced accountability within local communities. and neglected local knowledge and expertise in Favor OF outside advice. and also encouraged the peasant Farmers to accept an increased dependency on outside sources OF inputs and expertise as necessary costs OF development. With the planners and most experts residing in Accra. and ignorant OF the rural sector in general and OF subsistence Farming in particular. they Failed to account For realities at the local level. Why For instance was millet included in the project and not maize. It is true that millet is a staple For the people OF the Upper region but its cultivation is mostly For subsistence and does not command a signiFicant market. Maize. on the other hand. is a local as well as national staple that has a wide market nationally and across the borders. Inclusion OF maize would have contributed to an increase in the participants' incomes and enabled them to take advantage OF the services provided by the project to improve the well-being OF their Families. Most governments in Ghana since independence shunned 194 governmental reinForcement OF local selF-reliance eFForts and have made little attempt tO connect or utilize the structure OF traditional society and liFe tO promote economic development. ReFerences to villages are negative. oFten blaming rural exodus to urban areas as a hindrance to government Objectives. instead OF Focussing on the causes OF the exodus in order to devise FruitFul policy measures. Even iF these analytical problems are ,Overcome the analyst cannot be conFident about the outcome OF the job she or he has done because the overall budget. OF which the project is but a small part. also has deFiciencies in structure. content and implementation. which reduce its eFFiciency and slows down attainment OF the development Objectives. There are prOblems OF dichotomization between recurrent and development budgets overseen by diFFerent divisions OF the ministry which may or may not relate to each other. Problems do arise when recurrent budget estimates are made For projects that are deleted in the development budget and vice versa. There are also problems OF duplication OF Functions and Objectives that oFten lead to conFlicts and power struggles. as well as problems relating to implementation and monitoring. There is also the top-down bureaucratic approach that relies extensively on processed data and the expertise OF city-oriented analyst and planners who tend Frequently tO ignore rural knowledge. 195 7.5 RECOMMENDATIONS FOR FURTHER RESEARCH In analyzing this project and many like it. one has to deal with data problems resulting From insuFFicient inFormation and processed data. The assumption that yields will remain unchanged during the liFe OF the project is Fallacious. 1t presumes that either maximum attainable levels OF production have been reached or that conditions J that can cause yields to decline are unlikely. The drought OF the early 19805 certainly is a reminder that the assumption OF constancy in yields can be very wrong in reality. Data based on yields beFore the project are not reliable. and data based on experimental Farms are misleading because such Farms are Operated under conditions that approximate the ideal and Farmers rarely achieve the same results. Agricultural projects. in particular. present problems because the Farmers have no control over their environment. Uncertainty in production and prices aFFect the reliability oF the data. Assumption OF constancy in prices ignores real relative changes that could occur in the relationship between input and output prices. It is important to know the Factors that can seriously aFFect the project and tO test the eFFect OF changes in the values OF these Factors on the original results (M. L. Brown. 1982. p. 131-132). Project costs and beneFits can be adjusted to reFlect what 196 would happen under a diFFerent set OF circumstances and recalculate the net present worth under each alternative set OF circumstances. The technique For carrying out the above is called sensitivity analysis. It can be applied to the diFFerent Factors one at a time or to a combination OF changes in the value OF several Factors. Further research should introduce sensitivity analysis covering the discount rate and shadow price OF Foreign exchange. This should also be done to account For the unrealistic assumption OF constancy in prices OF inputs and outputs. and the assumption that yields will remain constant over the years. By undertaking such sensitivity analysis the researcher will be accounting For data unavailability and also be able to deal with expected changes in the Future. This will introduce some semblance OF reality aimed at eliminating problems connected with the unknown. This will OF course. require a lot OF Financial and other resources. 7.6. CONCLUDING REMARKS Having said all OF the Foregoing. it is important tO note that hindsight is perFect vision. It is easier For me to criticize the eFForts OF the analysts. bureaucrats and politicians who in their diverse Functions are all trying their best to help in Ghana's development struggle. 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