The Welfare Impact of Government Guaranteed Minimum Prices in the Maize Sub-Sector in Ghana

Abstract

Price support in the form of guaranteed minimum price (GMP) and price ceilings have been used in Ghana to increase the production and consumption of maize. With the increasing budgetary burden of the policy combined with the government's adoption of the World Bank/IMF's economic recovery program, the policy was abolished in 1991. The objective of this research was to investigate whether the major participants in the maize industry, namely, farmers, consumers and the government are to benefit or lose under the policy change. Based on the concept of economic surplus and using a partial equilibrium framework developed by Ahmed (1979), the policy was evaluated. It was found that the policy led to the transfer of income from maize consumers and the government to maize producers. The results emphasise the negative impacts of intervention on production efficiency, employment and possibly income distribution. More importantly, it was noted that the policy resulted in some efficiency losses not only in the maize industry, but also in the entire economy. The results increase the transparency of the costs associated with the policy.