AGRICULTURAL ECONOMICS Agricultural Economics 00 (2016) 1–10 Cocoa pricing options and their implications for poverty and industrialization in Ghana Francis M. Mulangu a,∗ , Mario J. Miranda b , Eugenie W.H. Ma¨ ıga c a African Center for Economic Transformation, Department of Research, Castle Road, Ridge PMB CT4, Cantonments Accra, Ghana b The Ohio State University, Agricultural, Environmental, and Development Economic Department, 2120 Fyffe Rd, Columbus OH, 43210, USA c Universit´ e de Koudougou, Facult´ e des Sciences Economiques et Gestions, Koudougou, Burkina Faso Received 15 July 2015; received in revised form 12 August 2016; accepted 14 October 2016 Abstract This study establishes the cocoa pricing subsidization options that will stabilize processors’ throughput while meeting the multiple, but possibly conflicting, public policy objectives of maximizing government revenue and reducing poverty among Ghanaian cocoa beans producers. To evaluate these options, we construct and numerically simulate a structural dynamic stochastic model of a representative cocoa processor who maximizes the present value of current and expected future profits, given prevailing market conditions and cocoa pricing policies. Our results indicate that, given current processing capacity, the Ghana Cocoa Board would have to offer a 92% discount to processors on main-crop beans in order to achieve the industrial goal of locally processing 40% of annual production. This would cause light-crop beans used in processing to be completely displaced by main-crop beans carried over as inventory. It would also increase mean processor revenues by 167%, but cause the Ghana Cocoa Board to operate at a significant deficit, implying that the stated goal could only be achieved through massive government subsidies. JEL classifications: I31, L66, O13, O25, Q12 Keywords: Agroprocessing; Industrial policy; Cocoa; Poverty 1. Background Cocoa production in Ghana occurs in the forested areas of the country, namely the Ashanti, Brong-Ahafo, Central, Eastern, Western, and Volta regions, which receive between 1,000 and 1,500 mm of rainfall per year. The marketing year begins in October, when harvest of the “main crop” begins, followed by the harvest of a smaller “light crop” in July. Light-crop beans are smaller than the main-crop variety, but are identical in quality and are grown on the same trees. The main crop typically accounts for 90% of total annual cocoa bean production in Ghana, and the light crop accounts for the remaining 10%. 1 Ghana was the world’s largest cocoa producer in the early 1960s. However, by the early 1980s, Ghana’s share of world production had dwindled almost to the point of insignificance, in large part due to the catastrophic bushfires of 1983 that destroyed most of Ghana’s cocoa-producing forests. Cocoa ∗ Corresponding author. Tel.: +233 (0) 302 210 240. E-mail address: mu- langu@gmail.com, fmmulangu@acetforafrica.org (Francis M. Mulangu). 1 It is important to note this distinction, as it forms the basis of Ghana’s industrial policy on cocoa. bean production in Ghana began to recover in the early 1990s, exhibiting an average annual rate of growth of 6% between 1990 and 1999, and 8% between 2000 and 2012. Many ac- tors involved in the cocoa sector have attributed this production boom to an increase in fertilizer use and government-sponsored mass spraying beginning in 2001 (Kolavalli et al., 2012). Today, Ghana produces slightly less than 733,000 metric tons of cocoa beans per year on average, making it the world’s second largest cocoa bean producer after neighboring C ˆ ote d’Ivoire. The cocoa bean sector in Ghana is heavily regulated. The Ghana Cocoa Board (Cocobod), which is regulated by the min- istry of finance, serves as the exclusive marketing intermediary between primary producers, processors and exporters of cocoa beans in Ghana. Cocobod buys cocoa beans from producers through Licensed Buying Companies (LBCs) and sells them to processors, in both cases at prescribed discounts from the prevailing world cocoa bean price, and liquidates any surplus on the international cocoa bean market at the prevailing world price through its wholly owned subsidiary, the Cocoa Market- ing Company. Cocobod provides input subsidies and guaranteed prices to farmers, and as a result, Ghanaian cocoa farmers enjoy C  2016 International Association of Agricultural Economists DOI: 10.1111/agec.12349