Structural adjustment and international commodity markets: The case of cocoa
Amuah, Alexander Kojo
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Permalink
https://hdl.handle.net/2142/21465
Description
Title
Structural adjustment and international commodity markets: The case of cocoa
Author(s)
Amuah, Alexander Kojo
Issue Date
1991
Doctoral Committee Chair(s)
Leuthold, Raymond M.
Department of Study
Agricultural and Consumer Economics
Discipline
Agricultural Economics
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Economics, General
Economics, Agricultural
Language
eng
Abstract
This study identifies the changes that have occurred in the world cocoa market, explains these changes and deduces implications for development policy. Supply of cocoa to the world market has increased and the world price of cocoa is decreasing. Cocoa is an important export commodity for Sub-Saharan African countries, contributing up to fifty percent of export earnings in some countries. This decrease in price has led to decreased export revenues that has worsened the balance of payments position for many developing countries. This concerns many policy makers.
Based on the literature review and economic theory, an econometric model was specified to analyze the dynamics of cocoa supply, current consumption demand, inventory demand and cash and futures price. From the perennial nature of cocoa production, a recursive model was found to be appropriate, consisting of three parts. Sub-model 1 is a set of cocoa export supply functions for the major producing countries; Sub-model 2 is an aggregate supply function; Sub-model 3 is the demand for cocoa (both current consumption demand and inventory demand) in major importing countries, and price determination.
Sub-model 1 was estimated separately with world prices and with producer prices in order to isolate the effect of changed domestic macroeconomic policies, such as structural adjustment policies. Structural change was identified in the model with world prices for some countries, but was not found in the model with producer prices. Sub-model 3 was estimated as a system of simultaneous equations. Demand for cocoa was found to be inelastic with respect to world price, with the size of this response differing across the major importing countries.
Policy issues facing Sub-Saharan African countries in the structural adjustment policies; supply side competition; inelastic demand; price and export revenue decline; and obsolete commodity agreements. From all indications, world cocoa supply will continue to increase.
Recommendations for Sub-Saharan African countries and policy makers are made in terms of policies that would augment the structural adjustment policies through reduction of production and marketing costs and by causing an outward shift in demand.
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