Economic Effects Of Cocoa Price Changes And Production Uncertainty In Cote D' Ivoire

Agricultural policymakers supported government intervention to maximize tax revenues.All over the emerging economies,for many decades,producer price is set for agricultural products.Cash crops are subject to this policy until now in many African nations.Since the post-independence,the cocoa market is regulated to secure government export earning in Cote d'Ivoire.Smallholder farmers of cocoa have contributed to the GDP through export tax collected on producer prices.These farmers positioned Cote d'Ivoire's production to be the top one in the world.In response to producer's welfare,this policy remains debatable and may affect national production in Cote d'Ivoire.It is based on these facts;this study conducted an economic analysis of producer welfare and cocoa production in Cote d'Ivoire.The case study of Cote d'Ivoire attempts to analyse the pricing framework and production factors that may change the cocoa production trajectory.Precisely,this study is divided into two parts,firstly the pricing model's impact on producer welfare and secondly factors that may cause a significant decline in cocoa production.An independent study conducted on the correlation between the international price of cocoa and macroeconomics aggregates is carried out.Two methods are employed to estimate different hypotheses,theoretical,and empirical analysis chose over a significant period of time.In the attempts to find out the relationship between the Ivorian GDP per capita and the international price of cocoa,an empirical investigation is conducted.The correlation technique used to check if GDP per capita in Cote d'Ivoire and the international price of cocoa are correlated.Then a VAR model conducted to verify if there is causation between these two variables during the period 1960-2017.The study found that for every additional dollar of GDP per capita in Cote d'Ivoire international price of cocoa increase by 0.71 U.S.dollars.An additional dollar of GDP per capita in Europe and the U.S.are 0.31,and 0.34 U.S.dollars increase in the international price of cocoa,respectively.The overall result is significant at a 95% confidence interval.Therefore the analysis may indicate that for the period 1960 to 2017 that there is a correlation between the International price of cocoa beans and GDP per capita from Cote d'Ivoire,Europe,and the U.S.Also,the finding pointed out that there is one direction causality between international price and GDP per capita in Cote d'Ivoire.Therefore GDP per capita in Cote d'Ivoire influences and is influenced by the international price of cocoa.Taking into account that 3/4 of the active labour population is involved in the cocoa industry;we can deduce that the national income of cocoa can be related to the international price of cocoa.Firstly the VAR model used in this empirical descriptive analysis found that there is a short-run causality among the variables employed.The result also found that there is no causality between Europe and the U.S.and the international price of cocoa.However,the study found unidirectional causality from GDP per capita of Europe,the U.S.to GDP per capita of Cote d'Ivoire.There is a unidirectional causality between the GDP per capita of the U.S.and Europe.This finding shows that there is a close relationship between GDP per capita and the international cocoa price between Cote d'Ivoire,Europe,and the U.S.and how GPD per capita is a function of the international price of cocoa.Therefore smallholder farmers' income somehow depends on the international price.As a result,these smallholder farmers contribute to increase the national income of Cote d'Ivoire.Also,the result shows that the model is not suffering from any serial autocorrelation;however,the model is not normally distributed.The most taxed commodity in Cote d'Ivoire is cocoa;this attempt at cocoa export tax analysis in Cote d'Ivoire provides a theoretical understanding of government intervention within the sector as a departure from traditional empirical analyses in the cocoa export literature.The study conducted observes that there is government intervention in fixing cocoa farm gate prices via the national cocoa marketing board and the selection of exporters that receive export patents for the case of the cocoa sector.Under this hypothesis,producers make a profit but which is significantly inferior to the consumer surplus while government welfare is enormous compared to farmers' gains.This study found that agricultural policy adopted in Cote d'Ivoire for the case of cocoa is a consumption subsidy.The deadweight loss caused by the cocoa board is considerable in cocoa export,and it has not been calculated.However,the graph shows a significant loss.The study shows that in the case producer price is lower than the international market equilibrium,it reduces cocoa production,and this significantly shifts international supply.This theoretical study strongly recommends reviewing price control policies in the cocoa sector in order to increase farmer's revenues for the reduction of poverty in the rural area.Cocoa export is heavily taxed to increase export revenues in order to support the government budget.However,from the perspective of smallholder farmers,this taxation policy negatively impacts their welfare and income through government price-fixing and the exchange rate.From the government perspective,cocoa is a pivotal contributor to the GDP and accounts for more than 50% of total export revenues.Due to the important contribution of cocoa to Cote d'Ivoire's GDP,every Ivorian government from 1960 to 2017 has used this fact to justify the implementation of a discriminatory taxation cocoa policy.Using a nominal protection coefficient approach to measure the level of government intervention,the study found that smallholder farmers in Cote d'Ivoire has been consistently taxed at about 67%,which is exceptionally high and negatively impact producer welfare.Four different governments were instituted from 1966 to 2017.Of the four,three implemented the producer's tax policy.This tax policy was implemented from 1966 to 2010 and the study found that the nominal protection coefficient indicates that there was government intervention in the cocoa market.But from 2011 to 2017,the study found that the nominal protection coefficient indicates that there was a non-government intervention in the cocoa market.Also,the study shows that there is little evidence that cocoa producers are subsidized in Cote d'Ivoire.Moreover the study shows that in 1989 and 2012 farmers benefited from market protection policy.After the post-election crisis the CCC was created and farmers enjoyed high producer price.The unbalanced number of years of governance of every administration may explain how producers have been taxed by the first administration for over 33 years,while under the other administration policy towards cocoa pricing models last for six years and was being interrupted by a coup d' état in 1999.Then the following administration governed the cocoa sector for a decade and hit by military destabilization in 2003,and the policy set by the current on-going administration is only explained by seven years.So the period of governance and structural reform of the entire economy may explain every pricing policy.The following section of the findings in this study concentrated on challenging future production of cocoa.First of all,in recent decades,African cocoa farmers have witnessed a systematic decline in cocoa prices and disposable income.This study investigates the effect of recent price variations on cocoa production in major cocoa-producing African countries from 1991-2016.A two-sector demand/supply open-economy model is used to estimate a Nerlovean price-expectation function through Dynamic ordinary least squares,Fully modified ordinary least squares and Canonical cointegration regression.Results indicate cocoa production increases between 0.05% and 0.09% when prices fall by 1% and when coffee price increases by 1%,cocoa production increases from 0.08% to 0.29%,causing farmers to switch from cocoa production to coffee and rubber.In order to tackle farmers' income loss and uncertainty,policymakers may encourage trade liberalization and harmonize cocoa prices through a regional price.Secondly,we analyses the effect of precipitation on cocoa export in Cote d'Ivoire.The change in precipitation may affect crop production;an in-depth investigation in the cocoa industry is relevant;therefore,the long-run effect of the climate change on the export revenues of cocoa is meaningful.An autoregressive distributed lag is applied to investigate the long-run relationship between the variables for Cote d'Ivoire's cocoa industry.Export revenues of cocoa,precipitation,official development assistance,production,and exchange rate are taken as variables that cover a period from 1966-2011.The stationarity test confirms that all the variables are non-stationarity after their first differences.Thus it is appropriate to apply the ARDL model,and the bounds test shows a long-run relationship among the variables.We find that the precipitation may affect the export revenue of cocoa in the Ivorian economy.ODA and precipitation negatively affect export revenues in the short-run at 5%.Precipitation will reduce export revenues at the coefficients of 0.023.The finding matches with the Jones and Olken,(2010)study who support the adverse effects of precipitation on the exports in the least developed countries.