How low is the price elasticity in the global cocoa market?

Andras Tothmihaly

No 258587, GlobalFood Discussion Papers from Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development

Abstract: The high volatility of the world cocoa price makes the millions of cocoa farmers in the developing world highly vulnerable to poverty. A large volatility in the value of an agricultural commodity is linked to the inelasticity of its supply or demand. Therefore, we test the hypothesis that the price elasticities of the global cocoa supply and demand are low. We describe the global cocoa market with cointegration dynamic supply, demand and price submodels. Our OLS, 2SLS, and SUR estimates are based on annual global observations covering the years 1963 through 2013. We find that the global cocoa supply is extremely price-inelastic: the corresponding short- and long-run estimates are 0.07 and 0.57. The price elasticity of cocoa demand also falls into the extremely inelastic range: the short- and long-run estimates are −0.06 and −0.34. Based on these empirical results, we consider the prospects for cocoa price stabilization. The cocoa price volatility was treated with various unsuccessful methods in the past. A possible solution for reducing the price volatility would be the encouragement of crop diversification. This increases the price elasticity of cocoa supply by adjusting the effort and money allocation between the crops, thus decreasing price volatility.

Keywords: Demand and Price Analysis; Food Security and Poverty (search for similar items in EconPapers)
Date: 2017-07-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://ageconsearch.umn.edu/record/258587/files/GlobalFood_DP102.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ags:gagfdp:258587

DOI: 10.22004/ag.econ.258587

Access Statistics for this paper

More papers in GlobalFood Discussion Papers from Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().