Limits of Cash Crop Production in Liberia's Food Security Strategy



By Geepu Nah Tiepoh

The Perspective
Atlanta, Georgia
March 1, 2012

Dr. Geepu Nah Tiepoh

Amid this mounting threat of food insecurity, there are those who believe that increasing cash crop production by rural farmers is an effective way to address the crisis. Thus, in the last six years, production of cash crops (mainly oil palm, rubber, cocoa, and to a lesser degree coffee, kola nuts, and sugar cane) has dramatically grown with the percentage of households producing these crops doubling from 28 percent in 2006 to 56 percent in 2010, according to the CFSN survey. Much of this phenomenal rise in production is driven by the elevated attention accorded the sector by our government, international agencies, and private investors. For instance, just last month, it was announced that the UN International Fund for Agricultural Development (IFAD) would provide a US$24.9 million loan to Liberia to improve cocoa and coffee production “in an effort to alleviate poverty among rural communities”, especially for farming households in Lofa county where cocoa and coffee production is the strongest. A story carried recently in the New York Times revealed that between 2009 and 2010, the Liberian government awarded more than 1.6 million acres of land for palm oil production to foreign investors, including Sime Darby, a Malaysian company; and Golden Veroleum (Liberia), a subsidiary of the Singapore-listed Golden Agri Resources investing through a New York-based private equity fund. Other companies that have grabbed land in Liberia for cash crop production include Equatorial Palm Oil (EPO), a UK-based agribusiness operating palm-oil plantations in Buchanan and Greenville; and SIFCA, owned partly by Wilmar International and Olam of Singapore, which also operates palm-oil and rubber plantations in Maryland and River Gee counties. Some sources put the total amount of projected foreign investment to the palm oil sector at more than US$4 billion.

The question is whether and to what extent cash cropping is an effective food security strategy in a country, such as Liberia, which faces serious agricultural constraints, income poverty, and highly volatile global markets. A general argument often put forward in favor of cash crops is that through their production rural households can generate adequate monetary incomes to be able to buy more food from the markets than they could have obtained if the same household resources were devoted directly to food crop production. At the national level, this means that for a country with a limited manufacturing base, export cash crops are needed to earn foreign exchange with which to finance direct food imports and also purchase production inputs needed to support domestic food production.

The above argument is not fully applicable in the Liberian context where weak agricultural markets, transport infrastructure, and macroeconomic policy factors often play a destabilizing role in misaligning producer and consumer prices. The vast majority of Liberian farm households, about 66 percent, do not produce enough grain to feed themselves despite devoting the bulk of their land and labor resources to food production. Such grain-deficit households would therefore have to buy the required balances of their food intakes from the domestic market, using income earned from cash cropping and more generally from non-farm activities. Evidence indicates, however, that because of high food-marketing costs due to the country’s weak rural transport infrastructure and relatively low to moderate population density (about 42 persons per sq. km in 2010),the prices that farmers pay for food grains in the markets are often substantially higher than the farm gate or producer prices received from their cash crops. In many African countries, including Liberia, the cost of transporting and marketing food grains can be up to 70 percent of product values, which is a substantial margin that can raise the market price of food far above producer prices. Such a situation may be even worse for farming households in the South Eastern counties (e.g. Pleebo) and parts of Lofa (e.g. Foya) where, according to various publications of Liberia Market Price Monitor, food markets are the most expensive because of their poor transport connections and integration with the rest of the country.

Furthermore, the price and income that cash crop producers expect to receive is likely to be further influenced by certain changes in the macroeconomic policy environment, such as changes in the exchange rate of the domestic currency or a global agricultural price shock. Despite intensive efforts at IMF/World Bank-led structural adjustment in the last decades, aimed at promoting market privatization and liberalization, in many sub-Saharan African countries, rural farmers still sell their export crops to state-owned agricultural marketing boards, which in turn sell them in international markets at the given world price. In our country, the Liberia Produce Marketing Corporation (LPMC) is still in charge of processing cocoa and coffee from farmers, even though private franchises are now increasingly involved in exporting these crops. But LPMC still does the processing of crops and regulate the price paid by the private exporters. Under such arrangements, the maximum producer price that the marketing board could set for cash croppers, disregarding transportation and marketing costs and commissions, depends on the board’s estimate of the world market price of the crop and the exchange rate. The higher the exchange rate or the weaker world market prices for these crops, the lower would be the price in domestic currency terms received by farmers. Thus, in addition to the marketing margins imposed by high transport costs, an overvalued domestic currency and/or falling global prices could reduce rural farmers’ incomes from cash cropping. While the Liberian dollar has been much less volatile against the US dollar in recent years, trading in the narrow range of 69 LD to71 LD per 1 UD dollar, even more stable than the Guinean Franc or the Sierra Leonean Leone, this is not likely to last forever. The LD may rise in value at some point in the future, especially if and when the country discovers and begins exporting oil in substantial quantity. This will adversely impact cash croppers’ incomes. Already, farm gate prices in Liberia lag substantially behind those in many West African countries. For instance, in 2007-2008, cocoa farmers in Cameroon and Nigeria received prices that averaged 75 percent and 86 percent, respectively, of the International Cocoa Organization (ICCO) price; but Liberian farmers received less than 50 percent of the ICCO price, according to a policy brief by the International Institute of Tropical Agriculture (IITA).

Such unfavorable returns suggest that farmers may not earn enough income from cash crops to buy back the needed food grains for feeding their families, contrary to the view that cash cropping is complementary to food production through its income effect. Insofar as the marketing margins between producer and consumer food prices are large in favor of the latter, ceteris paribus, cash crop production may be an economically unviable strategy for achieving food security, since the opportunity cost of such production (which is the cost of acquiring the food grains forgone by cultivating cash crops) exceeds the producer price or income obtained from cash crops. In the context of Liberia, this opportunity cost may be substantially high, given that the farming season for rice (the country’s stable food crop) can extend over many months, and therefore farmers have less idle time during the year. And the cost is bound to be especially significant during periods of global food price hikes, since the nation remains heavily dependent on international markets for food. This was witnessed in 2007-2008 when price inflation in the country averaged about 18 percent throughout 2008, due to the global financial crisis. Before the imposition of structural adjustment policies in the early 1980s, African governments were heavily involved in providing the needed transport and input subsidies, and guaranteeing producer prices, to keep the margin between official buying and selling prices below total marketing costs. Such subsidies have now largely disappeared with the current winds of agricultural globalization, and this has turned the consumption and production terms of trade against most small-scale farmers by increasing the prices that farmers pay for inputs, basic food and other consumption needs, relative to what they receive from the sale of their products.

Another argument often made in support of cash cropping is that it can have some so-called “household-level synergies” and “regional spillover” effects. In common language, this essentially means that a rural household’s participation in a commercialized cash crop scheme may be the only means through which it can acquire the cash and other inputs needed for food crop production, and that such schemes may attract certain kinds of investments to a region (e.g. training of cash croppers by private fertilizer or pesticide marketing firms)that create spillover benefits to farmers engaged in other activities, including food production. While studies done for a number of African countries, for instance, Dione (1989) on Southern Mali and Govereh and Jayne (1999) on Zimbabwe, found scant evidence for these types of household-level synergies and regional spillover effects, it ultimately depends on the scope and quality of the investment agreements negotiated between government and investors. Whether or not the growing number of oil palm plantations and other cash crop schemes being established in Liberia can generate such synergies and regional positive externalities will depend on how seriously our government demands and enforces incorporation of these potential benefits in investment agreements. Already, the protests over the Sime Darby contracts, whereby villagers from Grand Cape Mount County are contesting lands granted to this company, suggest that the design and negotiation of these agreements may have contravened the collective interest of the affected communities. It is clear that these villagers, who have been the customary owners of these lands, were never properly consulted, as noted by the President herself when she travelled there to calm the storms. According to reports, Sime Darby promised to invest in roads, bridges, electricity and piped water, and that there will also be “spillover impacts in uplifting the livelihoods of surrounding communities of the estates". But, at present, the villagers appear not to be assured by these promises, given our people’s frustrations with broken promises from past foreign investments.

Based on the above perspectives, I do not believe that cash crop production should be a priority in our national food security strategy. Converting large tracts of our fertile lands into foreign-owned oil palm or cocoa plantations, and turning farmers and other able-bodied men and women into plantation workers, is not an effective way to achieve national food security. The number and quality of jobs to be gained from these crop schemes, and the incomes expected from them, will not be sufficient to feed our people on imported food from global markets. Such potential employment and income effects are even further undermined by the lack of value-adding production to accompany these investments. Just as we have had rubber plantations in this country for almost a century, supplying only natural rubber to world markets and not a single tire factory, these new land-grabbing investments are not likely to yield any significant forward linkages. It is therefore important that cash cropping be pursued only as an auxiliary element in the strategy mix, with the priority squarely put on direct domestic food supply. Shifting the country’s land and labor resources toward cash crops may in fact lower its food production as well as aggregate agricultural output at least in the short run. This is because it takes several years for export cash crops to respond to higher resource inputs, given the lags in production of many of these crops; but the negative impact on food production will be immediately felt across the nation.

There are some people in our country and outside, who still believe that the country does not need to produce its own food because it can be obtained “relatively cheaply” from world markets. These people behave as if our bitter experiences of dependence on these markets have taught them nothing! Few years ago, a learned Liberian who went on to become a high government official tried to convince me that rice self-sufficiency was unnecessary in the context of a “new global economy in which the easy accessibility and relatively low cost of information has made trade amongst peoples over vast expanses of geography a snap". He argued that Liberian consumers would be better off buying their rice from producers as far afield as Thailand, Vietnam and Louisiana than from a farmer in Tappita, as if such importation of rice was free. As we all know, in order to buy food from the world markets, Liberia must have the required foreign exchange to pay for it. However, our main sources of this foreign exchange (i.e. export earnings and foreign capital flows) have experienced periodic crises and volatility throughout the country’s economic history. A particular mention can be made of the period since 1968-1969 when various crises became pronounced in the external sector of the Liberian economy. Thus, the country's financial crisis, which had been occasioned by debt payments in the late 1960s (Pereira-Lunghu, 1995), was further exacerbated in the last half of the 1970s when revenues from exports of iron ore and rubber began to decline due to the eruption of the global economic crisis. Indeed, it was in the context of this financial crisis that the Tolbert government introduced the strategy of rice self-sufficiency aimed at saving foreign exchange on the importation of rice. Heavy external borrowing in the 1980s, despite weakened external demand for Liberia's export commodities, and climaxed by years of violent conflict and resource pillaging, destroyed the country’s external balances. Today, our country continues to suffer from huge trade deficits with imports (much of it food imports) far exceeding exports (for instance, a projected trade deficit of over 50 percent of GDP for each of 2011 and 2012).

This is why we cannot solely rely on world trade and financial markets to deliver our food. In much of Liberia's economic history, we have relied upon importation of our staple food, paid for through international trade exchange and sometimes through food aid and the good will of friendly nations. This has not prevented food shortages. A main reason for this is that the sources of finance that we have depended upon to pay for these imports have not been reliable. Thus I am afraid that the current path of commercialized cash cropping will not contribute significantly to resolving this longstanding national crisis, and it may even undermine the food security of our people.