How policy changes affected cocoa sectors in sub-Saharan African countries

Structural adjustment programs in sub-Saharan African countries in the 1980s removed trade restrictions, price controls, and export taxes and abolished state-owned commodity marketing bodies. The authors studied the effects of these policy changes on the coca sector, using a global econometric model specifying major producer countries through the vintage-capital approach. They focused on Ghana and Nigeria (major cocoa producers that undertook structural adjustment programs), as well as on Cote d'Ivoire and Cameroon. The impact on world cocoa prices of structural adjustment programs in Ghana and Nigeria was relatively small. The results imply that, without structural adjustment programs in Ghana and Nigeria, world cocoa prices in the late 1980s would have been about US$1,060/ton (in 1985 constant dollars), instead of US$850/ton. So, without the structural adjustment programs, 1989-90 world prices in real terms would have been about 45 percent lower than they were in the early 1980s, compared with an actual decline of 55 percent. Much more important in depressing prices in this period was the rapid increase in production in Brazil, Cote d'Ivoire, Indonesia, and Malaysia (which together accounted for about 75 percent of the increased production in that decade). That increased production resulted largely from tree planting in response to higher world cocoa prices in the late 1970s -- and subsequent increases in productivity. The results of counterfactual simulations suggest that cocoa production in Ghana would have been at almost half its 1989-90 level if Ghana had not implemented its structural adjustment program. The producers'surplus would have been lower without the program, and the government's budget deficit would have been unsustainable. The effects of the structural adjustment program in Nigeria are mixed. The simulation results show lower cocoa production but higher government revenue without the reforms. But the program was evaluated only three years after the reforms, so the full effects on production had not been realized. The structural adjustment programs in Ghana and Nigeria had a negative effect on other cocoa-producing countries in sub-Saharan Africa and the rest of the world -- producing an estimated loss (in government revenue from cocoa exports and producer surplus) of about 15 percent in other sub-Saharan African countries. Results show that both Cote d'Ivoire and Cameroon would have been better off had they set export taxes at a higher level (closer to an estimated"optimal"level) at the same time that they depreciated the real exchange rate. Producer prices could have been sustained at their earlier higher level, or even raised, without hurting government revenues. Structural adjustment programs in Ghana and Nigeria had a negative effect on producers in other countries, but not adopting such policies would have been economically irrational, contend the authors.