What determines the price received by cocoa farmers in Cameroon? An empirical analysis based on bargaining theory

Studies have shown that small-scale agricultural producers from developing countries do not generally obtain the potential gains of trade. To investigate what can be done to help them get better prices, we examine ways to increase their bargaining power. Using data from 1,854 cocoa transactions between traders and producers in Cameroon during the 2005/2006 season, we show that when the bargaining situation is least favorable to the producers (because prices are non-negotiable due to interlinked credit and there is information asymmetry) the traders seize the entire surplus generated by the trade. Farmers who can avoid accepting credit from the cocoa buyers and can delay sales until after the start of the school year, when the buyers will not be able to take advantage of the farmers’ financial need, are able to negotiate higher prices. To improve their bargaining situation, Cameroonian cocoa producers need an efficient market information system, better access to credit and the development of collective marketing.