Rubber world price transmission to Ivorian producer prices: an analysis in the presence of structural breaks

Mélanie Ahoba,Frédéric Gaspart

doi:10.1186/s40100-019-0137-5

Mélanie Ahoba, Frédéric Gaspart

Open Access

https://doi.org/10.1186/s40100-019-0137-5

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Abstract

This article analyzes the link between world prices and producer prices of rubber in Côte d’Ivoire. Using monthly data from 2006 to 2016, we gave special attention to structural breaks in the data and asymmetry in the transmission process. Empirical results validate the presence of two breaks in the data series, both in 2008 and 2011 corresponding to a general surge in commodity prices. A multivariate threshold vector error correction model (TVECM) allows us to test the presence of asymmetry. The results strongly support the linearity hypothesis against k-regime TVECM. From there, a linear VECM reveals that changes in rubber world prices are strongly transmitted to Ivorian producer prices. In case of a world price permanent decrease, this will be devastating for small producer incomes, since financial markets are essentially missing in those rural areas and switching costs for perennial crops are huge. Some recommendations are given to prevent such a crisis.

Highlights

As many developing countries, Côte d’Ivoire experienced early in the 1990s the privatization of its export crops market
This paper aimed at examining the link between the rubber world price and the producer prices in Côte d’Ivoire
World prices are perfectly transmitted to domestic prices, and the short-run elasticity is about 0.75, which means that changes in rubber world prices are highly transmitted to producer prices in the short run

Summary

Introduction

Côte d’Ivoire experienced early in the 1990s the privatization of its export crops market. Before the 1990s, the export crop sector in Côte d’Ivoire was heavily regulated, with the involvement of the state at all levels of the production chain. The government was in charge of regulating the prices through the marketing boards. Price stabilization schemes and the marketing boards were removed. One of the advantages of liberalization has been to allow producers to benefit from the increases in world prices, contrary to the stabilized prices under the former setting. In most export crop sectors, the entry of these big private firms replaced a state monopoly by a private monopoly, leading to asymmetry in the world price transmission to producers (Subervie 2011)

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