Agricultural commodity supply response in Ghana

Abstract

Purpose The paper seeks to estimate agricultural commodity supply response at three levels of aggregation namely, all commodities, food commodities and exports commodities. Design/methodology/approach The study used cointegration and error correction modelling techniques with the aid of annual data. The aggregate price and quantity indices were constructed using the Tornqvist formula, which has been found more superior to the traditional Laspeyres approach of index construction. Findings The producers were responsive to price incentives in the long‐run for all three commodity aggregates but in the short‐run only producers of export commodities were responsive to price incentives. Practical implications Producers respond to price signals as predicted but structural features of the agricultural commodity sector that results in high transaction cost may account for the absence of price response in the short‐run. Interventions in lowering transaction cost in agricultural commodity production has the potential of stimulating a faster and considerable response to price incentives. Originality/value Despite the policy relevance of agricultural commodity supply response, the extent of the response in Ghana is largely unknown, and it is this gap that the present paper helps to bridge.