Market Concentration and Price Formation in the Global Cocoa Value Chain
Publication number: 2016-79
Authors: N. Oomes, B. Tieben, A. Laven, T. Ammerlaan, R. Appelman, C. Biesenbeek & E. Buunk
Commissioned by: Dutch Ministry of Foreign Affairs
Publisher: SEO Amsterdam Economics
Is market concentration among large cocoa firms responsible for the widespread poverty among cocoa farmers? Probably not. While market concentration has increased, particularly among cocoa processors, the report does not find evidence that this concentration is excessive or that market power is being abused to keep prices artificially low. Instead, there are two other key reasons why most cocoa farmers live in extreme poverty. The first is the fact that the productivity of cocoa farmers is very low, particularly in West Africa. The second is that there are many cocoa farmers without realistic alternative income options. As a result, these farmers continue to supply cocoa even at very low prices. Training programs aimed at raising productivity can help individual cocoa farmers produce more cocoa and thereby earn a better income. However, this cannot be a sustainable solution for all farmers, because the resulting increase in supply could outpace demand and thereby further lower cocoa prices. The best way to get farmers out of poverty is through a ‘dual transition’ whereby some farmers invest in sustainably raising their cocoa productivity, while many other cocoa farmers will develop additional or alternative sources of income. Such a transition requires significant improvements in farmers’ access to information, education, infrastructure, and finance. This will make them less dependent on cocoa and will improve their bargaining position.