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

Abstract

ABSTRACTThe 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.