Liberalization vis-à-vis non-liberalization trade policy: Exploring the impact of price volatility on producer share price and cocoa supply response in Nigeria and Ghana

Abstract

Cocoa producers respond differently to volatile price shocks, but the nature of these responses remains unknown, especially in the liberalized and non-liberalized markets in Nigeria and Ghana, respectively. Therefore, we assess the extent to which price volatility affects the supply of cocoa while also analyzing the effect of price volatility on Nigeria's cocoa producer price share vis-à-vis Ghana's cocoa producer price share. We further analyze how producers react given the asymmetric nature of price volatility in Nigeria and Ghana. Annual secondary data were obtained from the World Development Index, National Bureau of Statistics, International Cocoa Organization, Central Bank of Ghana, Nigeria, and so on, from 1970 to 2019. We used the Ordinary Least Squares method, generalized autoregressive conditional heteroskedastic (GARCH) model, extensions, and the Vector Error Correction Model (VECM) for this study's analysis. Our results show the presence of volatility in price series and that volatility is asymmetric in nature. The results of the supply response show that price volatility has no significant relationship with cocoa supply in Ghana. In contrast, price volatility has a significantly positive relationship with the supply of cocoa in Nigeria at the 1 % level. The results of the VECM show that, in the long run, the cocoa producer price in Ghana will be negatively affected by both international price volatility and inflation rates at 5 % and 1 %, respectively. We suggest that cocoa farmers should have licensing to sell commodities to the international market directly without interference from the marketing board.