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Title:Stabilizing the Cocoa Market: A Quarterly Econometric Application Using Optimal Control Theory (Development, Policy, Modelling)
Author(s):Bamba, Mamadou
Department / Program:Agricultural Economics
Discipline:Agricultural Economics
Degree Granting Institution:University of Illinois at Urbana-Champaign
Subject(s):Economics, Agricultural
Abstract:The increased commodity price instability of the 1970s has led to successive international negotiations on commodity agreements, the cornerstone of which are buffer stocks programs.
This study uses cocoa, a "core" UNCTAD commodity, as a benchmark to assess the potential for commodity buffer stocking. Cocoa agreements, past and present, have met with limited success, primarily due to the lack of participation of the major actors. It is attempted to explain this situation and evaluate the trade offs associated with various policy arrangements and price levels.
A quarterly econometric model of the world cocoa market is constructed and estimated for the sample period 1960-82. A buffer stock rule is developed by applying optimal control theory and target prices identified. Optimal cocoa buffer stock levels are derived along with corresponding welfare impacts on producers and consumers.
The findings of the study are: (1) A quarterly econometric model provides results that are consistent with theoretical expectations, and gives greater insights into short-run market relationships that do annual models. (2) Futures prices and inventory allocation are important factors in the estimation and dynamic simulation of the cocoa market, factors overlooked in most studies. (3) Price elasticities are low for both supply and demand, and habit formation is found to be important in determining consumption. (4) For the historical period considered, equilibrium prices were lower than the 1981 ICCO cocoa target prices but higher than earlier targets. (5) Buffer stock stabilization for cocoa can be achieved, but reducing the resulting large optimal stocks would necessitate a compromise on price targets by both producers and consumers. (6) Producers tend to lose from stabilization because of the high market prices that prevailed during the period under consideration. Some of these losses are offset by producers' gains as processors and consumers of cocoa.
The overall policy recommendation from this study is that producers and consumers should cooperate to establish a broad-based commodity agreement with equilibrium prices used as targets, with provision for producer compensation. Compensation should be directed toward developing processing facilities in producing countries, and complementing other stabilization policies.
Issue Date:1985
Description:252 p.
Thesis (Ph.D.)--University of Illinois at Urbana-Champaign, 1985.
Other Identifier(s):(UMI)AAI8600121
Date Available in IDEALS:2014-12-15
Date Deposited:1985

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