Co-Integration Analysis of Cocoa Producer Prices for Ghana, Ivory Coast and Nigeria

Abstract

West African countries have noticeable effect on the world Cocoa exportation, producing approximately 73% of the world 4million tons of cocoa as at 2012. Among these countries Ghana, Nigeria and Ivory Coast are selected for this study because of different Cocoa market, trade systems and Cocoa policies they have. These countries rank among the first five leading world producers (Ivory Coast, Ghana, Indonesia, Nigeria, and Cameroun). In this study, the long term relationships between cocoa producer prices (CPP), and real exchange rates (RER), in the selected countries were explored by using co-integration analysis. Annual data from 1980 to 2012 was used for this analysis and the data sets were found to be integrated of the same order.    It was discovered that while Cocoa producer prices and real exchange rates for Ivory Coast moved together in the long run using Johansen Co-integration Test, it was not the case for Ghana and Nigeria. The Error Correction Model (ECM) applied to search any short term relations and impacts of exchange rate variations on Cocoa producer prices in Ivory Coast showed that both at the short and long run, change in cocoa producer prices influence the real exchange rate (RER) but not the other way round. On the other hand, Ghana and Nigeria Cocoa producer prices and real exchange rates were found not co-integrated. This implies that any form of exchange rate volatility does not influence these countries’ real Cocoa producer prices and vice-versa in the long run. The unrestricted Vector Auto-regression Model (VAR) applied in the case of Ghana and Nigeria showed no short term relations between CPP and RER in the two countries as well.

Keywords: Co-integration Analysis, Error Correction Model (ECM), Unrestricted Vector Auto- regression (VAR) Model, Cocoa Export Prices, Real Exchange Rate, Cocoa Producer Prices.