Evaluating the Comparative Advantage in Producing Soybean Under the Current Socio-Economic Structure in Ghana

Abstract

Ghana, like most developing countries, has pursued a policy of food self-sufficiency as a result of its very limited foreign exchange and uncertainty in international prices of agricultural commodities. There is the assumption that producing a commodity locally will use less foreign exchange than importing it. This assumption overlooks the real cost of saving foreign exchange. If a country does not have a comparative advantage in the production of a commodity, then substantial losses are borne by the country. It is therefore necessary to evaluate the efficiency with which foreign exchange can be saved or earned from a particular production process. The economic efficiency of producing soybean in Ghana under the current socioeconomic structure has been evaluated in this study, using the domestic resource cost (DRC) approach, via the Policy Analysis Matrix (PAM) framework. The results of the analysis reveal that under existing prices, technology and government policies, soybean production in Ghana is financially viable. However, the country has a comparative disadvantage in producing the commodity. Results of sensitivity tests on major variables in the economic analysis suggest that it is possible for Ghana to gain comparative advantage in soybean production in the long run if the current fiscal and monetary reforms are stepped up. The major policy implication from the study is that, unless the f.o.b. price of soybean in Ghana or the official exchange rate (OER) rise to a very high level, the production of the crop cannot be justified on grounds of comparative advantage.