Reforming Cote d'Ivoire's cocoa marketing and pricing system

Cote d'Ivoire has historically taxed cocoa producers. Market reforms over the past 10 years have somewhat succeeded in making domestic and foreign marketing more transparent and competitive. But they have not done much to raise producer prices in real terms or as a share of the FOB (free on board) price. Maintaining fixed producer prices and marketing costs and margins has encouraged rent-seeking and led to efficiency losses. New reform will fully liberalize the country's export marketing system by eliminating public management of exports. This means the end of mandatory export authorization, of public forward sales, and of fixed minimum producer prices and marketing margins. The new reform is expected to improve producers'incomes. The authors find that the benefits from the new reform (in terms of lower implicit taxes, lower marketing costs and margins, and higher producer prices) will outweigh the costs from eliminating public forward sales and fixed producer prices. Results from a general equilibrium model indicate that reducing export taxes would have a small negative effect on aggregate income but would improve income distribution for poorer rural areas. The fact that Cote d'Ivoire has market power in the world cocoa market justifies a higher optimal export tax than the current one. But raising export taxes may eventually reduce its market share and worsen income distribution, at the expense of the poorer rural sector.