Market Power and Structural Adjustment: The Case of West African Cocoa Market Liberalization

Liberalization of the cocoa market in West Africa, due to structural adjustment reforms, has resulted in the elimination of para-statal marketing boards and initiated the creation of new institutions to replace the marketing services of those agencies. Concerns have been raised as to the effects of these reforms on prices of cocoa received by farmers, welfare measures and competitiveness of marketing channels. Of particular importance is backward integration of multinational processing firms, who take over exporting activities and may collect rents previously captured as export taxes. This paper uses a conjectural variations approach to estimate the degree of market power present in the post-liberalized cocoa bean markets of Ivory Coast and Nigeria. Evidence of market power is found in the Ivory Coast markets between the farmgate and U.S./EU15 imports. The market power, exercised by multinational exporter/processors, must be considered in concert with the Ivorian government who is still collecting export taxes. In contrast, no evidence of market power is found in the Nigerian markets or domestic (farmer to trader) markets of Ivory Coast.