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Who paid for the embargo? The ban on cocoa imports from Côte d’Ivoire 2011

Who paid for the embargo? The ban on cocoa imports from Côte d’Ivoire 2011. Kees Burger, François Ruf (CIRAD). Leuven, 18 September 2012. The setting. Dec 2010: M. Ouattara elected, incumbent president Gbagbo does not accept the outcome Jan 2011: embargo on imports from Côte d’Ivoire

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Who paid for the embargo? The ban on cocoa imports from Côte d’Ivoire 2011

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  1. Who paid for the embargo? The ban on cocoa imports from Côte d’Ivoire 2011 Kees Burger, François Ruf (CIRAD) Leuven, 18 September 2012

  2. The setting • Dec 2010: M. Ouattara elected, incumbent president Gbagbo does not accept the outcome • Jan 2011: embargo on imports from Côte d’Ivoire • 22 Feb 2011: embargo extended • Mid March end of the embargo • Record high prices for cocoa on New York market • Cocoa stocks within Côte d’Ivoire grow • Very low prices in Côte d’Ivoire …

  3. The question What changes can be attributed to the embargo? How much higher was the world market price? … and elsewhere? How much lower the Ivorian price? Does the change in prices make sense?

  4. The theory At the world market: Monthly demand may vary, but longer term targets should be reached suggesting error-correction dynamics Monthly supply comes from stocks, replenished to a varying degree from the crop of (unknown, but determined) ongoing seasonal total

  5. Prices: demand considerations • Monthly prices, therefore, go up, the more • Long-run demand improves; or previous deviations large • Long-run supply deteriorates; or previous deviations small • Sudden shocks in demand (+) or supply (-) • The embargo was likely seen as temporary: • 3. applies: sudden drop in a0; price up; demand down; • Next period • Larger demand deviation: higher prices • If drop in a0 continues, further pressure up.

  6. Prices: demand considerations • If embargo ends • + effect of cumulative demand deviation • ─ effect of cumulative supply deviation

  7. Prices: supply considerations • Ivorian traders offer a price that leaves a margin relative to the current price to cover • Transport • Storage until selling time • Expected price decrease until then • The onset of the embargo increases 2. and 3. • The longer the embargo, the stronger these negative effects • Producers may reduce supply, but the season was already coming to its close

  8. Prices: all considerations • Higher, then lower costs to processors • Higher, then lower revenues to international stockholders • Higher, then lower revenues for producers outside Côte d'Ivoire • Higher costs to traders within Côte d'Ivoire • partly compensated by lower buying prices • lower revenues of producers in Côte d'Ivoire • due to higher storage costs • bleaker price-outlook • without compensation

  9. Empirics: world market prices • February supply to EU is 50 thousand tons (10% of total Ivorian supply) • EU stocks in certified warehouses >200 thousand tons • Yet, uncertainty may increase demand for hedging • Approach: • Time series of futures prices • Predict Feb March April etc. with ‘compounded’ forecasts • See the difference with actual prices as evidence • Applied to ICCO $-prices; NL €-prices

  10. Empirics: world market prices

  11. Estimated effects NL import prices

  12. Estimated effects World Market prices

  13. world market prices • Estimated disturbances may overestimate the effects, as other disturbances may coincide with embargo • Import prices lag world market prices by about 1 month • Dutch import prices up in February-March by 4 and 6% • Dutch import prices down in June-July by 4 and 6% • World market prices up in February-March by 9%, no fall in June-July

  14. Côte d’Ivoire prices • Estimated cost of storage (BNETD, 2003) 8% per 45 days • We take this – in view of cumulation – as monthly costs • Add the expected decline in export prices of 5% • 3 month embargo  -30% of export price  producer price -50%

  15. Côte d’Ivoire prices • Field work in Ouragahio, close to Gagnoa

  16. Indonesian prices • Field work in Noling, Sulawesi, Indonesia

  17. Overview of gainers and losers • Gainers • Stockholders outside Côte d’Ivoire who sold some 100 thousand tons at slightly higher prices • Producers elsewhere, but not in Ghana, who had 5% higher prices in a few months • Losers • Cocoa processors, who bought dearer beans (but cheaper beans later) • Stockholders in Côte d’Ivoire, who stored much cocoa longer and made losses on selling these • Producers in Côte d’Ivoire, who sold some 30% of the annual crop at prices that were up to 50% lower

  18. Who compensates her? Thank you

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