Cocoa Production Output Response to Smallholder Price Speculation: Case Study of Cote d’Ivoire and Nigeria

ABSTRACT

The paper attempts to analyze the variation in cocoa output response to international price fluctuations in two major cocoa producing countries: Cote d’Ivoire and Nigeria. The study employs a Nerlovian price expectation technique as in Ogundari (2015), and a Panel VAR model to empirically estimate changes in cocoa output using time series and an unbalanced panel dataset covering a period from 1967 to 2009. The findings indicate and in accordance with economic theory of demand and supply, that cocoa output is an inverse function of the expected prices of competing agricultural commodities like green coffee. When there is an expected price increase of cocoa, cocoa output rises. Simultaneously, if the anticipated price of coffee rises, through a cocoa–coffee substitution mechanism, smallholder farmers shift their focus to coffee production leading to a fall in cocoa output. A Granger causality test was utilized to investigate causality between cocoa output, and cocoa and coffee prices. In the case of Cote d’Ivoire, while there is only a correlation between cocoa output and price, in the case of Nigeria there was none. In addition, the study shows no unidirectional or bidirectional causality between the intervening variables and cocoa output.

KEYWORDS:

• Cote d’Ivoire
• Nigeria
• cocoa & coffee price
• panel VAR
• expectation models

JEL CLASSIFICATIONS:

• F13
• O13
• O55
• Q17

Acknowledgement

We thank Professors, our colleagues from Hunan University, College of Economics and Trade who have contributed all along the writing of this paper. We are especially grateful to Professor Cao Erbao, for valuable comments and the International Economic Journal editor and the reviewers. I have disclosed those interests fully to Taylor & Francis, and have in place an approved plan for managing any potential conflicts arising from this arrangement.

Disclosure statement

No potential conflict of interest was reported by the authors.

ORCID

Coulibaly Kigbajah Salifou http://orcid.org/0000-0002-7444-8962

Notes

1 This is according to FAOSTAT looking at data from 1961 to 2015. However, looking at the same data from 1994-2015, the production share of cocoa beans worldwide is 66.3%.

2 Although Africa contributes only 18.8% and 5.6% to the total production of green coffee and natural rubber respectively, Cote d’Ivoire and Nigeria are among the top ten global producers of these commodities (Coffee, Cote d’Ivoire 7th; rubber, Cote d’Ivoire 9th and Nigeria 10th).

3 The analysis investigates only Cote d’Ivoire and Nigeria because: Cote d’Ivoire is the first producer and exporter of cocoa beans worldwide and Nigeria has the largest economy in Africa based on prevailing exchange rates and IMF in October 2016. The main argument is that due to the sheer size of the Nigerian economy much more economic activities are linked to cocoa production in comparison to Ghana hence the choice.

4 CAISTAB – defunct agricultural products’ price stabilization fund in Cote d’Ivoire.

8 Research

5 CAISTAB – defunct agricultural products’ price stabilization fund in Cote d’Ivoire now called Conseil du Café-Cacao which is the new price stabilization fund.

6 La ruee vers l’hevea. Jeune Afrique on July 28 2009.

7 Data on government policies regarding subsidies, credit, loans, and direct transfers to cocoa producers are still classified in Cote d’Ivoire, hence these variables could not be analyzed in this study.

Additional information

Funding

This research was supported by Hunan University through the Chinese Scholarship Council (CSC) [grant number 2015384T02].

Notes on contributors

Coulibaly Kigbajah Salifou

Salifou K. Coulibaly is a PhD candidate in Applied Economics at Hunan University – College of Economics and Trade, Changsha – China. His research is focused on entrepreneurship and innovation in the agricultural sector in developing countries (especially cocoa production). He has coauthored a research paper that was presented at the Allied Social Science Association (ASSA) Annual Meetings organized by the American Economic Association (AEA) of which he is a member. He is also a member of the African Finance and Economic Association (AFEA). Contact: [email protected]

Cao Erbao

Cao Erbao is a professor of Economics and Game Theory at Hunan University – College of Economics and Trade, Changsha – China. Contact: [email protected]

Amadou Maiga Ousseini

Amadou Mousseini, is a PhD candidate in international economic at Hunan University- college of Economics and Trade, Changsha-China. His research focused on Trade policy in Developing countries. He has coauthored so many research papers. He is also a member of the AfricanFinance and Economic Association (AFEA). Contact: [email protected]

T. Metuge Mekongcho

T. Metuge Mekongcho is a PhD candidate in Applied Economics at Hunan University – College of Economics and Trade, Changsha – China. His research is focused on technological innovation in emerging/developing countries, SMEs, and free market policies in the African healthcare industry. He has coauthored research papers that were presented at the Allied Social Science Association (ASSA) Annual Meetings organized by the American Economic Association (AEA). He is a volunteer research analyst and affiliated with AMC, San Diego – USA. He has earned fellowships from the National Association for Business Economists (NABE), the Mises Institute, and Cato Institute. He is also a member of the African Finance and Economic Association (AFEA). Contact: [email protected]