By Felix Larry ESSILFIE (Dr)
Ghana’s macroeconomic landscape has long been shaped by inflationary pressures, exchange rate instability, and fiscal imbalances, all of which have been exacerbated by inefficiencies in the agricultural sector and an overreliance on food imports.
Despite agriculture’s significant contribution to GDP and employment, structural deficiencies in production, supply chain infrastructure, and value addition have constrained its capacity to drive sustainable economic growth.
The economy’s high dependence on imported staples such as rice, poultry, and wheat has not only heightened vulnerability to external shocks but has also intensified inflationary pressures and undermined currency stability.
The interplay between food security, inflation dynamics, and exchange rate fluctuations highlights the critical need for agricultural sector reforms as a pathway to macroeconomic resilience.
Food price inflation constitutes a dominant component of Ghana’s overall inflationary trends, with food items carrying substantial weight in the Consumer Price Index. The reliance on imported food items exposes the economy to imported inflation, particularly through exchange rate pass-through effects.
Given the substantial depreciation of the cedi in recent years, the cost of food imports has escalated, translating into higher domestic food prices. Empirical evidence suggests that the exchange rate pass-through coefficient in Ghana is relatively high, indicating a strong correlation between currency depreciation and domestic inflation.
This mechanism exacerbates inflationary persistence, eroding real incomes and worsening macroeconomic stability. Moreover, the surge in global food and input prices—partly induced by external shocks such as the Russia-Ukraine war—has further amplified the transmission of imported inflation to the domestic economy.
The dependence on imported agricultural inputs, particularly fertilizers and mechanized equipment, further compounds production costs, reinforcing food price volatility. Ghana imports over 70% of its fertilizer requirements, making domestic food production highly sensitive to fluctuations in global input prices.
This structural vulnerability, coupled with climate-induced disruptions such as erratic rainfall patterns and prolonged droughts, has constrained productivity and reduced the predictability of food supply.
Additionally, post-harvest losses exceeding 30% of total production have further weakened agricultural output, exacerbating supply-demand imbalances and sustaining upward pressure on food prices.
Beyond its inflationary effects, Ghana’s food import dependence exerts significant strain on foreign exchange reserves and contributes to exchange rate instability.
The continuous demand for foreign currency to finance food imports has created a persistent structural imbalance in the foreign exchange market, weakening the cedi and amplifying currency depreciation risks.
The annual food import bill, which exceeds $1.5 billion, represents a significant share of total imports, intensifying the economy’s exposure to external market fluctuations.
Declining foreign exchange reserves have further constrained the central bank’s ability to stabilize the currency, thereby perpetuating the cycle of depreciation and inflationary pressures.
This macroeconomic dynamic has contributed to a wage-price spiral, as rising food prices elevate inflation expectations, prompting higher nominal wage demands and second-round inflationary effects that further weaken the currency.
Ghana’s monetary policy responses have largely centered on contractionary measures aimed at curbing inflation and stabilizing the currency.
The Bank of Ghana has significantly raised the policy rate in response to inflationary pressures, with interest rates rising from 14.5% in 2021 to 30% in 2023. However, while monetary tightening has helped contain inflation expectations to some extent, it has also increased borrowing costs, constraining private sector investment in the agricultural sector.
High lending rates have discouraged capital formation in agro-processing and mechanization, limiting productivity-enhancing investments that could otherwise mitigate food inflation.
Foreign exchange market interventions have been another tool deployed by the central bank to stabilize the cedi, but these have offered only temporary relief, as they do not address the structural causes of currency depreciation.
The inherent limitations of monetary policy in addressing food inflation highlight the need for complementary fiscal and structural reforms.
Fiscal policy has similarly faced constraints in promoting agricultural resilience and macroeconomic stability. Ghana’s budgetary allocations to agriculture remain below 5% of total public expenditure, falling short of the Malabo Declaration’s 10% target for African economies.
This underinvestment has curtailed the expansion of agricultural infrastructure, mechanization, and irrigation systems, leaving the sector largely rain-fed and vulnerable to climate variability.
Furthermore, taxation policies on agricultural inputs, such as import duties on fertilizers and mechanized equipment, have inflated production costs, making locally produced food less competitive relative to imports.
These fiscal constraints have limited the government’s ability to drive structural transformation in the agricultural sector, perpetuating food insecurity and macroeconomic volatility.
The ineffectiveness of previous agricultural policies in addressing these structural challenges reflects broader governance and implementation failures. Flagship programs such as Planting for Food and Jobs and One District,
One Factory were designed to enhance agricultural productivity and agro-processing capacity, but their impact has been constrained by inefficiencies in value chain development and market linkages. Weak coordination among stakeholders, coupled with inadequate infrastructure for storage, transportation, and cold-chain logistics, has hindered the effective scaling-up of domestic food production.
Furthermore, limited integration between smallholder farmers and agro-industrial enterprises has restricted the sector’s potential to generate higher-value economic activities and employment.
International experiences offer valuable lessons for Ghana in leveraging agriculture for macroeconomic resilience. Malaysia’s palm oil industry, for instance, has demonstrated how strategic state-led investments in agro-processing and export diversification can transform an agricultural sector into a global value-added industry.
Ethiopia’s agricultural transformation model, centered on agro-industrial parks and productivity enhancement, has been instrumental in stabilizing food prices and strengthening food security. Brazil’s success in soybean and poultry production highlights the role of public-private partnerships in fostering competitiveness and reducing import dependence.
These case studies underscore the importance of coordinated policy frameworks, targeted public investments, and market-driven approaches in achieving food system resilience and macroeconomic stability.
A paradigm shift is required for Ghana to harness its agricultural sector as a driver of macroeconomic resilience. In the short-to-medium term, targeted forex allocation policies could prioritize domestic agro-processing firms over food importers to encourage local production.
Expanding agricultural credit facilities with lower interest rates for agribusinesses would enhance investment in food production, while the establishment of strategic food reserves could help stabilize prices and mitigate supply shocks. Strengthening regulatory frameworks to enhance competition and efficiency in food distribution networks would also improve price stability.
Long-term structural reforms must focus on increasing public investment in agriculture, aligning budgetary allocations with the Malabo Declaration’s 10% target. Developing agro-industrial processing zones and special economic zones for food production can create backward and forward linkages across the value chain, stimulating industrialization and employment.
Strengthening climate resilience through investments in irrigation, drought-resistant crops, and climate-smart technologies is essential for reducing weather-related agricultural disruptions. Addressing post-harvest losses through modern storage facilities, cold-chain logistics, and transportation networks will further enhance food security and price stability.
Regional trade integration under the African Continental Free Trade Area presents an opportunity for Ghana to diversify its agricultural exports and reduce reliance on external food markets.
Deepening intra-African trade agreements and enhancing cross-border agricultural value chains can improve competitiveness and foreign exchange earnings. Policies that facilitate regional market access, standardization, and quality compliance will be critical in expanding Ghana’s role in the African food economy.
Governance and institutional capacity will be central to the success of these reforms. Enhancing policy coherence across agriculture, trade, and macroeconomic management will ensure that interventions are aligned with broader development goals.
Strengthening monitoring and evaluation mechanisms for agricultural policies will improve accountability and effectiveness. Additionally, fostering public-private partnerships in agro-processing, research and development, and logistics infrastructure will accelerate the transition towards a resilient and competitive food system
Ghana’s continued reliance on food imports poses significant risks to macroeconomic stability, as it heightens inflationary pressures, exacerbates exchange rate volatility, and strains fiscal resources. Addressing these vulnerabilities requires a holistic approach that integrates agricultural productivity enhancement, agro-industrialization, climate resilience, and trade diversification.
A well-structured policy framework that prioritizes domestic food self-sufficiency and value addition will not only stabilize inflation and the exchange rate but will also lay the foundation for sustainable and inclusive economic growth. The imperative to reform Ghana’s food systems is both an economic necessity and a strategic imperative for long-term macroeconomic resilience.
The writer is the Executive Director, IDER
