University of Tennessee, Knoxville TRACE: Tennessee Research and Creative Exchange Masters Theses Graduate School 8-2008 Determinants of Liberian Farmgate Cocoa Prices Alicia English University of Tennessee - Knoxville Follow this and additional works at: https://trace.tennessee.edu/utk_gradthes Part of the Agricultural Economics Commons Recommended Citation English, Alicia, "Determinants of Liberian Farmgate Cocoa Prices. " Master's Thesis, University of Tennessee, 2008. https://trace.tennessee.edu/utk_gradthes/3642 This Thesis is brought to you for free and open access by the Graduate School at TRACE: Tennessee Research and Creative Exchange. It has been accepted for inclusion in Masters Theses by an authorized administrator of TRACE: Tennessee Research and Creative Exchange. For more information, please contact [email protected]. To the Graduate Council: I am submitting herewith a thesis written by Alicia English entitled "Determinants of Liberian Farmgate Cocoa Prices." I have examined the final electronic copy of this thesis for form and content and recommend that it be accepted in partial fulfillment of the equirr ements for the degree of Master of Science, with a major in Agricultural Economics. Michael D. Wilcox - Roland K. Roberts, Major Professor We have read this thesis and recommend its acceptance: Dayton M. Lambert, Daniel de la Torre Ugarte Accepted for the Council: Carolyn R. Hodges Vice Provost and Dean of the Graduate School (Original signatures are on file with official studentecor r ds.) To the Graduate Council: I am submitting herewith a thesis written by Alicia English entitled “Determinants of Liberian Farmgate Cocoa Prices.” I have examined the final electronic copy of this thesis for form and content and recommend that it be accepted in partial fulfillment of the requirements for the degree of Master of Science, with a major in Agricultural Economics. ___________________________ Michael D. Wilcox, Co-Major Professor ___________________________ Roland K. Roberts, Co-Major Professor We have read this thesis and recommend its acceptance: ___________________________ Dayton M. Lambert ___________________________ Daniel de la Torre Ugarte Accepted for the Council: ___________________________ Carolyn R. Hodges, Vice Provost and Dean of the Graduate School (Original signatures are on file with official student records.) DETERMINANTS OF LIBERIAN FARMGATE COCOA PRICES A Masters Thesis Presented to the Department of Agricultural Economics University of Tennessee, Knoxville Alicia English August 2008 ABSTRACT In an effort to increase growth, employment and diversify farmer portfolios and exports in Liberia, the government is currently focused on opportunities in smallholder tree crops. Smallholder cocoa has the potential to benefit a wide population of farmers by increasing income opportunities and adding to overall household food security. However, the government must contend with a chaotic buyer driven marketplace with limited access to financial and physical capital and relatively little incentive to enhance production capacity and ensure quality. This research describes the characteristics of Liberian cocoa producing and marketing households in order to give context to smallholder marketing decisions during the 2006/07 cocoa season. The research further identifies factors that affect the price formation of farmgate cocoa prices. Liberian cocoa farmers are receiving limited price signals due to the institutional, market-level and infrastructure-oriented transactions costs that constitute a sizeable gap between farmgate and world prices. ii TABLE OF CONTENTS CHAPTER 1. INTRODUCTION....................................................................1 1.1. Objectives ................................................................................................................ 8 1.2. Organization............................................................................................................. 8 CHAPTER 2. COCOA PRODUCTION AND TRADE...............................10 2.1. Background............................................................................................................ 10 2.1.1. Agronomy ....................................................................................................... 12 2.1.2. Quality............................................................................................................. 14 2.2. Global Demand ...................................................................................................... 17 2.3. Global Supply ........................................................................................................ 20 2.3.1. Cocoa Marketing............................................................................................. 21 2.3.2. Liberalization .................................................................................................. 24 2.4. Liberian Cocoa Market .......................................................................................... 27 2.4.1. Marketing Chain ............................................................................................. 29 CHAPTER 3. METHODS AND PROCEDURES........................................34 3.1. Methods for the Liberian Baseline Survey ............................................................ 34 3.1.1. Selection of Counties, Buying Centers, and Villages..................................... 35 3.1.2. Selection of Survey Participants and Interviews ............................................ 37 3.2. Household Description........................................................................................... 38 3.3. Modeling Liberian Cocoa Price Determinants ...................................................... 39 3.3.1. Data................................................................................................................. 39 3.3.1. Regression Model ........................................................................................... 39 3.3.2. Variable Selection and Expected Signs .......................................................... 41 CHAPTER 4. SURVEY RESULTS AND DESCRIPTIVE STATISTICS..47 4.1. Household Demographics...................................................................................... 47 4.2. Income Sources and Crop Diversification ............................................................. 49 4.3. Agricultural Inputs................................................................................................. 51 4.4. Labor...................................................................................................................... 52 4.5. Land Tenure........................................................................................................... 54 4.6. Market and Price Descriptors................................................................................. 55 4.6.1. Price ................................................................................................................ 55 4.6.2. Discounts......................................................................................................... 57 4.6.3. Transportation................................................................................................. 58 4.6.4. Credit............................................................................................................... 59 4.6.5. Farmer Organizations...................................................................................... 59 4.6.6. Market Information......................................................................................... 60 4.6.7. County Factors................................................................................................ 60 CHAPTER 5. PRICE DETERMINATION RESULTS................................62 5.1. Overall Model Results ........................................................................................... 62 5.2. World Price and Discount...................................................................................... 63 5.3. Transportation........................................................................................................ 64 5.4. Market Information and Resources........................................................................ 66 5.5. Farmer Characteristics ........................................................................................... 67 iii 5.6. Season and Location .............................................................................................. 68 CHAPTER 6. CONCLUSIONS AND POLICY IMPLICATIONS .............70 6.1. The Market............................................................................................................. 71 6.2. The Cocoa Household............................................................................................ 74 6.3. Farmer Organizations............................................................................................. 76 6.4. Buyers and Intermediaries ..................................................................................... 76 6.5. Exporters................................................................................................................ 77 6.6. The Government .................................................................................................... 78 Appendix A. Supporting Tables and Figures.................................................................... 92 Appendix B. Baseline Survey........................................................................................