Farmgate prices and market power in liberalized West African cocoa markets
Abstract
Liberalization of West African cocoa markets, following structural adjustment reforms, resulted in the elimination of parastatal marketing boards to promote greater pass-though of world prices to farmers. Concerns about subsequent effects on farmgate prices, farmer income, and marketing channel competitiveness have been raised. This research estimates the extent of non-competitive behavior in West African cocoa markets and investigates implications of these findings on policy prescriptions. Cameroon served as a case study to examine farmgate transactions. A survey was conducted to collect data to investigate price transmission. Imperfect price transmission was found between world and farmgate prices. Regression results suggest that marketing margins are significantly influenced by institutional variables, indicating that the farmgate market is not competitive. Itinerant buyers exert market power against farmers while marketing cooperatives have significant countervailing power. A conjectural variations approach was adopted to estimate the degree of market power present in cocoa markets of Ivory Coast and Nigeria. Evidence of market power was found between buying centers and ports in Ivory Coast. Market power, exercised in part by multinational exporters, must be considered in concert with the Ivorian government, which still collects non-trivial export taxes. Ivorian civil war appears to have rent-reducing effects. No evidence of market power was found in Nigeria. Suggested policies to increase farmer income, such as export taxes, Fair Trade, and cooperatives were examined in a partial equilibrium framework. The model incorporated prevailing market conditions; variants compared outcomes under competitive, imperfectly competitive, and price transmission cases. These initiatives suffer from problems common to agricultural policies. If policies provide incentives for supply expansion, then farmgate prices are driven downward (Fair Trade). Fair Trade type premiums help farmers more if decoupled from supply and demand. Farmers benefit only partially from export tax reduction in a large country (Ivory Coast), but lose when a small country (Cameroon) introduces export taxes. Cooperatives have a positive effect on member income, but at the expense of non-members. Consumers stand to gain more than farmers if demand is indeed more inelastic than supply. While these policies may benefit targeted farmers, market interactions diminish benefits to farmers overall.
Degree
Ph.D.
Advisors
Abbott, Purdue University.
Subject Area
Agricultural economics
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