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Final Workshop of the Final Workshop of the Final Workshop of the Final Workshop of the Cocoa Marketing Improvement Cocoa Marketing Improvement P j t P j t Project Project Akwa Palace Hotel Akwa Palace Hotel Douala Cameroon Douala Cameroon Douala, Cameroon Douala, Cameroon ICCO ICCO – CFC CFC Prof. Eric Tollens Prof. Eric Tollens Centre for Agricultural and Food Economics Centre for Agricultural and Food Economics K.U.Leuven K.U.Leuven Leuven, Belgium Leuven, Belgium 2-3 November 2006 3 November 2006
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Page 1: Tollens Kul CIRAD 2010

Final Workshop of theFinal Workshop of theFinal Workshop of theFinal Workshop of theCocoa Marketing Improvement Cocoa Marketing Improvement

P j tP j tProjectProjectAkwa Palace HotelAkwa Palace HotelDouala CameroonDouala CameroonDouala, CameroonDouala, Cameroon

ICCO ICCO –– CFCCFC

Prof. Eric TollensProf. Eric TollensCentre for Agricultural and Food EconomicsCentre for Agricultural and Food Economics

K.U.LeuvenK.U.LeuvenLeuven, BelgiumLeuven, Belgium

22--3 November 20063 November 2006

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Conditions for an Efficient Conditions for an Efficient M k t I f ti S t iM k t I f ti S t iMarket Information System inMarket Information System inCocoa Producing CountriesCocoa Producing Countries

P f E i T llP f E i T llProf. Eric TollensProf. Eric TollensK.U.LeuvenK.U.Leuven

Leuven BelgiumLeuven BelgiumLeuven, BelgiumLeuven, Belgium

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1 Introduction1 Introduction1. Introduction1. Introduction

We all agree that a performing, efficient CMIS is a keyWe all agree that a performing, efficient CMIS is a keyWe all agree that a performing, efficient CMIS is a key We all agree that a performing, efficient CMIS is a key accompanying measure to market liberalization.accompanying measure to market liberalization.

Market liberalization often results in less transparant Market liberalization often results in less transparant marketing and loss of market power to farmers.marketing and loss of market power to farmers.g pg p

Nigeria started a CMIS in 2002 in the framework of the Nigeria started a CMIS in 2002 in the framework of the ge a sta ted a C S 00 t e a e o o t ege a sta ted a C S 00 t e a e o o t eCocoa Marketing Improvement Project.Cocoa Marketing Improvement Project.

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Cameroon already had an ArabicaCameroon already had an ArabicaCameroon already had an Arabica Cameroon already had an Arabica Marketing Information System (AMIS) Marketing Information System (AMIS) operational in 1993 after the arabicaoperational in 1993 after the arabicaoperational in 1993 after the arabica operational in 1993 after the arabica coffee sector was liberalized in 1992. This coffee sector was liberalized in 1992. This was followed by SIMARCwas followed by SIMARC--CRAMIS forCRAMIS forwas followed by SIMARCwas followed by SIMARC CRAMIS for CRAMIS for cocoa, robusta and arabica coffee from cocoa, robusta and arabica coffee from 1994 on when robusta and cocoa sectors 1994 on when robusta and cocoa sectors 1994 on when robusta and cocoa sectors 1994 on when robusta and cocoa sectors were also liberalized. However when were also liberalized. However when donor financing ran out, the system nearly donor financing ran out, the system nearly do o a c g a ou , e sys e ea ydo o a c g a ou , e sys e ea ycollapsedcollapsed

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Côte d’Ivoire initiated a large Coffee and Cocoa Côte d’Ivoire initiated a large Coffee and Cocoa MIS in 1998 at the start of the coffeeMIS in 1998 at the start of the coffee cocoacocoaMIS in 1998 at the start of the coffeeMIS in 1998 at the start of the coffee--cocoa cocoa market liberalization, called PRIMAC market liberalization, called PRIMAC (Programme d‘Information sur les Marchés du(Programme d‘Information sur les Marchés du(Programme d Information sur les Marchés du (Programme d Information sur les Marchés du Café et du Cacao). The Ivorian system is by far Café et du Cacao). The Ivorian system is by far the largest and most complete CMIS in placethe largest and most complete CMIS in placethe largest and most complete CMIS in place.the largest and most complete CMIS in place.

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2 Objectives of a CMIS2 Objectives of a CMIS2. Objectives of a CMIS2. Objectives of a CMIS

The main objective is to enhance competition inThe main objective is to enhance competition inThe main objective is to enhance competition in The main objective is to enhance competition in the market by increasing market transparency the market by increasing market transparency for all market participants in particular thefor all market participants in particular thefor all market participants, in particular the for all market participants, in particular the weakest: smallholder farmers.weakest: smallholder farmers.

A MIS means empowerment of farmers, A MIS means empowerment of farmers, t th i th i b i it th i th i b i istrengthening their bargaining power strengthening their bargaining power ––

increasing their share of the export proceeds, increasing their share of the export proceeds, t ili i t b i tit ili i t b i ticountervailing monopsonist buying practices.countervailing monopsonist buying practices.

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Transparency in agricultural markets results in the Transparency in agricultural markets results in the following effects:following effects:

-- the farmers receive the proper production incentives, the farmers receive the proper production incentives, will adjust their production accordingly and will seize will adjust their production accordingly and will seize

k t t itik t t ition market opportunities;on market opportunities;

-- information can improve the bargaining position ofinformation can improve the bargaining position of-- information can improve the bargaining position of information can improve the bargaining position of the weaker participants in a marketing system who are the weaker participants in a marketing system who are usually the smallholder farmers;usually the smallholder farmers;

-- competition is enhanced in markets, resulting in fair competition is enhanced in markets, resulting in fair prices for all participants;prices for all participants;prices for all participants;prices for all participants;

-- market information signals profit opportunities and market information signals profit opportunities and th t i ti f k t ti i tth t i ti f k t ti i tthus creates incentives for market participants;thus creates incentives for market participants;

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-- seasonal and erratic price variations will be reduced seasonal and erratic price variations will be reduced and arbitrage between markets will take place, thereby and arbitrage between markets will take place, thereby reducing price differentials between markets. In reducing price differentials between markets. In completely transparent and efficient markets, price completely transparent and efficient markets, price differentials reflect only transaction costs (mainlydifferentials reflect only transaction costs (mainlydifferentials reflect only transaction costs (mainly differentials reflect only transaction costs (mainly transport costs) between markets;transport costs) between markets;

-- overall risk is reduced for all market participants, overall risk is reduced for all market participants, resulting in more stable markets improved long termresulting in more stable markets improved long termresulting in more stable markets, improved long term resulting in more stable markets, improved long term planning and investment decisions;planning and investment decisions;

-- improved government regulation of marketing: better improved government regulation of marketing: better agricultural and marketing policies and public agricultural and marketing policies and public g g p pg g p pinvestments as the government will be adequately investments as the government will be adequately informed about market conditions and performance.informed about market conditions and performance.

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3. Characteristics of a performing 3. Characteristics of a performing CMISCMIS

Th k t i f ti t bTh k t i f ti t bThe market information must be:The market information must be:

–– relevantrelevant–– meaningfulmeaningful–– reliable and impartial (accurate) (neutral)reliable and impartial (accurate) (neutral)–– promptly available (timely)promptly available (timely)p p y ( y)p p y ( y)–– easily accessibleeasily accessible–– simplesimplesimplesimple

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Market information provided by a publicMarket information provided by a publicMarket information provided by a public Market information provided by a public authority is a public good authority is a public good –– the free rider the free rider principle appliesprinciple appliesprinciple applies.principle applies.

Market information is a perishable commodity. Market information is a perishable commodity. Information is also power and is a powerful tool Information is also power and is a powerful tool in the empowerment of farmers in liberalized in the empowerment of farmers in liberalized markets.markets.

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Objectives of a MIS: Market information must be:

Market Information System (MIS)• Enhance competition

• Increase market transparency for all participants, especially small farmers

▪ Relevant ▪ Prompt▪ Meaningful ▪ Accessible▪ Reliable ▪ Simple

C t d I l t ti f P f i C d C ff MIS

Higher farm level prices, price stabilization, higher market integration, lower overall transaction costs

Concept and Implementation of a Performing Cocoa and Coffee MIS

Phase I: Daily collection and dissemination of external market information via the media

Phase II: Weekly collection and dissemination of internal market information: min-max range, per

Phase III: Fully web-based strategy, including other information besides price

fkg information

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4. Results achieved and lessons 4. Results achieved and lessons l dl dlearnedlearned

4.1. The dissemination strategy4.1. The dissemination strategy

The success or failure of a MIS hinges on a The success or failure of a MIS hinges on a f l di i ti t t Thi if l di i ti t t Thi isuccessful dissemination strategy. This is a successful dissemination strategy. This is a

major constraint.major constraint.

Thousands of cocoa farmers need to be Thousands of cocoa farmers need to be reached and this is a huge challenge.reached and this is a huge challenge.

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Experience has shown that the rural or local Experience has shown that the rural or local radio, in local language, is the most effective radio, in local language, is the most effective , g g ,, g g ,means of reaching farmers. This was notably means of reaching farmers. This was notably the case in Cameroon with AMIS and SIMARCthe case in Cameroon with AMIS and SIMARC--CRAMIS which was diffused by the radio in six CRAMIS which was diffused by the radio in six local languages in the West province and 26 in local languages in the West province and 26 in g g pg g pthe Norththe North--West province in addition to pidgin. West province in addition to pidgin. In the case of Nigeria, this means relying on In the case of Nigeria, this means relying on g y gg y gState radio (more than national radio) and State radio (more than national radio) and emerging local private radios. In Cameroon emerging local private radios. In Cameroon g g pg g pand Côte d’Ivoire, the provincial radios are most and Côte d’Ivoire, the provincial radios are most important.important.pp

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In Cameroon, the main dissemination strategy is now In Cameroon, the main dissemination strategy is now via mobile telephone (GSM) with the SMS service via mobile telephone (GSM) with the SMS service (Short Messaging Service) Everyday the London(Short Messaging Service) Everyday the London(Short Messaging Service). Everyday, the London (Short Messaging Service). Everyday, the London cocoa prices, and the derived FOB Douala prices are cocoa prices, and the derived FOB Douala prices are disseminated via a short message, either on a regular disseminated via a short message, either on a regular g gg gsubscription basis or on a call basis via a dedicated subscription basis or on a call basis via a dedicated call number. This requires that the GSM covers most call number. This requires that the GSM covers most of the rural cocoa growing areas which is the case inof the rural cocoa growing areas which is the case inof the rural cocoa growing areas, which is the case in of the rural cocoa growing areas, which is the case in Cameroon, and to some extent in western Nigeria, Cameroon, and to some extent in western Nigeria, because of the high rural population density, but not because of the high rural population density, but not yet in Côte d’Ivoire. One particular advantage of this yet in Côte d’Ivoire. One particular advantage of this system is that the proceeds from the GSM system are system is that the proceeds from the GSM system are shared between the mobile phone operators the SMSshared between the mobile phone operators the SMSshared between the mobile phone operators, the SMS shared between the mobile phone operators, the SMS intermediary service company and the content intermediary service company and the content provider, i.e. the CMIS institution. This thus provider, i.e. the CMIS institution. This thus

t ib t t th fi i l t i bilit f th CMISt ib t t th fi i l t i bilit f th CMIScontributes to the financial sustainability of the CMIS contributes to the financial sustainability of the CMIS institution.institution.

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In Côte d’Ivoire, where a web based diffusion strategy In Côte d’Ivoire, where a web based diffusion strategy is pursued, ten key cocoa cooperatives have been is pursued, ten key cocoa cooperatives have been equipped with computers and internet access and the equipped with computers and internet access and the necessary training has also been provided by the necessary training has also been provided by the Cocoa Marketing Improvement Project and theCocoa Marketing Improvement Project and theCocoa Marketing Improvement Project and the Cocoa Marketing Improvement Project and the Government. They can consult the PRIMAC (MIS) Government. They can consult the PRIMAC (MIS) website at any time and obtain the neededwebsite at any time and obtain the neededwebsite at any time and obtain the needed website at any time and obtain the needed information, which they can then further disseminate information, which they can then further disseminate to their cooperative members via leaflets and to their cooperative members via leaflets and information boards at warehouses and collection information boards at warehouses and collection centers in villages. At the same time, the collection of centers in villages. At the same time, the collection of

l t d t i th l i d b ANADERl t d t i th l i d b ANADERrelevant data in the rural areas is done by ANADER relevant data in the rural areas is done by ANADER (the National Agricultural Extension System) and the (the National Agricultural Extension System) and the transmission of the data to the central PRIMAC unit intransmission of the data to the central PRIMAC unit intransmission of the data to the central PRIMAC unit in transmission of the data to the central PRIMAC unit in Abidjan is also done via the web.Abidjan is also done via the web.

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Finally, television coverage (one minute Finally, television coverage (one minute broadcast) on a regular basis, once weekly, broadcast) on a regular basis, once weekly,

ffffmay also be a costmay also be a cost--effective instrument to effective instrument to reach large numbers of interested persons. reach large numbers of interested persons. The television is used in Nigeria CameroonThe television is used in Nigeria CameroonThe television is used in Nigeria, Cameroon The television is used in Nigeria, Cameroon and Côte d’Ivoire for this purpose.and Côte d’Ivoire for this purpose.

A budget has to be foreseen for dissemination. A budget has to be foreseen for dissemination. Almost all of the media require payment forAlmost all of the media require payment forAlmost all of the media require payment for Almost all of the media require payment for regular diffusion of messages of commercial regular diffusion of messages of commercial interest Also experience has shown thatinterest Also experience has shown thatinterest. Also, experience has shown that interest. Also, experience has shown that regular service against payment is best, regular service against payment is best, because then only can regular performance be because then only can regular performance be y g py g passured. assured.

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4 2 Financing of a CMIS4 2 Financing of a CMIS4.2. Financing of a CMIS4.2. Financing of a CMISSustainable financing is problematic as long as Sustainable financing is problematic as long as g p gg p gincome is not assured in an automatic, regular way.income is not assured in an automatic, regular way.A small levy at export is the most attractive A small levy at export is the most attractive proposition In Cameroon it was estimated that for aproposition In Cameroon it was estimated that for aproposition. In Cameroon, it was estimated that for a proposition. In Cameroon, it was estimated that for a cocoa and coffee MIS, this will require about 1 cocoa and coffee MIS, this will require about 1 F.CFA/kg exported plus a startF.CFA/kg exported plus a start--up budget for up budget for equipment ($ 130 000)equipment ($ 130 000)equipment ($ 130.000).equipment ($ 130.000).In Côte d’Ivoire, BCC operates the system on its own In Côte d’Ivoire, BCC operates the system on its own resources based on a levy at export.resources based on a levy at export.In Nigeria and Cameroon, as there is no export tax In Nigeria and Cameroon, as there is no export tax (only certain levies), financing is a recurring problem (only certain levies), financing is a recurring problem and a major constraintand a major constraintand a major constraint.and a major constraint.Minimal reliance on recurrent government budgets or Minimal reliance on recurrent government budgets or donors is best to enure sustainable financing.donors is best to enure sustainable financing.

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4 3 Autonomy of the CMIS unit4 3 Autonomy of the CMIS unit4.3. Autonomy of the CMIS unit4.3. Autonomy of the CMIS unit

Ideally the CMIS unit is an autonomous bodyIdeally the CMIS unit is an autonomous bodyIdeally, the CMIS unit is an autonomous body, Ideally, the CMIS unit is an autonomous body, with its own budget and staff, a flexible with its own budget and staff, a flexible organization shielded from politics andorganization shielded from politics andorganization, shielded from politics and organization, shielded from politics and influence, which is impartial, objective and influence, which is impartial, objective and inspires trustinspires trustinspires trust.inspires trust.This proves to be rather difficult as the This proves to be rather difficult as the institutions running the CMIS unit in the threeinstitutions running the CMIS unit in the threeinstitutions running the CMIS unit in the three institutions running the CMIS unit in the three countries are governmental or parastatal countries are governmental or parastatal organizations charged with a public role toorganizations charged with a public role toorganizations, charged with a public role to organizations, charged with a public role to defend the interests of the cocoa sector.defend the interests of the cocoa sector.

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4.4. Impact of the CMIS4.4. Impact of the CMIS

As a result of a CMIS, one expects:As a result of a CMIS, one expects:

-- a reduction in transaction costs;a reduction in transaction costs;-- improved market integration;improved market integration;-- reductions in marketing costs;reductions in marketing costs;-- reductions in marketing costs;reductions in marketing costs;-- increased prices paid to farmers;increased prices paid to farmers;

i d titi i th k ti d titi i th k t-- increased competition in the market.increased competition in the market.

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Undoubtedly, such effects have occured when a Undoubtedly, such effects have occured when a performing CMIS is in place.performing CMIS is in place.B t it i t k t h t t t d h iB t it i t k t h t t t d h iBut it is not known to what extent and how pervasive But it is not known to what extent and how pervasive these effects are or have been.these effects are or have been.No impact studies on the effects of a CMIS have beenNo impact studies on the effects of a CMIS have beenNo impact studies on the effects of a CMIS have been No impact studies on the effects of a CMIS have been done in the three countries.done in the three countries.According to Michael Wilcox and Philip Abbot (doing According to Michael Wilcox and Philip Abbot (doing g p ( gg p ( gresearch for the STCP project) in “Market Power and research for the STCP project) in “Market Power and Structural Adjustment Structural Adjustment –– The Case of West African The Case of West African Cocoa Market Liberalization” (2004) there isCocoa Market Liberalization” (2004) there isCocoa Market Liberalization (2004), there is Cocoa Market Liberalization (2004), there is evidence of market power exercised by multinational evidence of market power exercised by multinational exporters/processors in concert with the Ivorian exporters/processors in concert with the Ivorian p pp pgovernment which is collecting export taxes. Perfect government which is collecting export taxes. Perfect competition is rejected and markups/downs range competition is rejected and markups/downs range from 24 6% to 36 5% For multinational traders onlyfrom 24 6% to 36 5% For multinational traders onlyfrom 24.6% to 36.5%. For multinational traders only, from 24.6% to 36.5%. For multinational traders only, the markups/downs range from 8.9% to 20%.the markups/downs range from 8.9% to 20%.

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5 Conclusions5 Conclusions5. Conclusions5. ConclusionsAn efficient CMIS ensures perfect symmetry in market An efficient CMIS ensures perfect symmetry in market information for all market participants perfectinformation for all market participants perfectinformation for all market participants, perfect information for all market participants, perfect competition and fair prices for all.competition and fair prices for all.In a perfectly competitive market marketing marginsIn a perfectly competitive market marketing marginsIn a perfectly competitive market, marketing margins In a perfectly competitive market, marketing margins will vary across space by differences in transaction will vary across space by differences in transaction costs only.costs only.Such differences are determined by infrastructure Such differences are determined by infrastructure conditions, distances to port or buying center, conditions, distances to port or buying center, transport costs and other logistical costs risk etctransport costs and other logistical costs risk etctransport costs and other logistical costs, risk, etc.transport costs and other logistical costs, risk, etc.But markets are far from perfect. And market But markets are far from perfect. And market information is rarely perfect as it is a perishable information is rarely perfect as it is a perishable y p py p pcommodity and linked to market power. commodity and linked to market power.

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Undoubtedly, the GSMUndoubtedly, the GSM--revolution of mobile phones in revolution of mobile phones in the three countries has contributed a lot to better the three countries has contributed a lot to better access to market information.access to market information.access to market information.access to market information.As the coverage of the GSM network is being As the coverage of the GSM network is being extended, more and more farmers can be reached at extended, more and more farmers can be reached at low costlow costlow cost.low cost.Nevertheless, the local rural radio remains very Nevertheless, the local rural radio remains very important in the dissemination strategy.important in the dissemination strategy.p gyp gyA webA web--based dissemination strategy is being pursued based dissemination strategy is being pursued in Côte d’Ivoire with some success, but it requires well in Côte d’Ivoire with some success, but it requires well functioning and viable local cooperatives as relayfunctioning and viable local cooperatives as relayfunctioning and viable local cooperatives as relay functioning and viable local cooperatives as relay stations.stations.Particularly in Côte d’Ivoire where evidence suggests Particularly in Côte d’Ivoire where evidence suggests th t t / lti ti l i tth t t / lti ti l i tthat exporters/multinational companies exert some that exporters/multinational companies exert some market power, a countervailing power by market power, a countervailing power by cooperatives/producer organizations well equiped and cooperatives/producer organizations well equiped and

i CMIS i i di CMIS i i dusing a CMIS is in order.using a CMIS is in order.

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Also in Cameroon, marketing cocoa via farmer groups Also in Cameroon, marketing cocoa via farmer groups such as is happening in Central province and Mbam such as is happening in Central province and Mbam does appear to countervail buying power and yields does appear to countervail buying power and yields important premiums.important premiums.I Ni i d C th i f t i blI Ni i d C th i f t i blIn Nigeria and Cameroon, the issue of sustainable In Nigeria and Cameroon, the issue of sustainable financing of the CMIS is not yet resolved.financing of the CMIS is not yet resolved.This is partl a res lt of the f ll liberali ation of theThis is partl a res lt of the f ll liberali ation of theThis is partly a result of the full liberalization of the This is partly a result of the full liberalization of the sector, with no export taxes and thus minimal sector, with no export taxes and thus minimal government revenue from the sectorgovernment revenue from the sectorgovernment revenue from the sector.government revenue from the sector.Ways and means must be found to finance a Ways and means must be found to finance a performing and efficient CMIS in these countries.performing and efficient CMIS in these countries.performing and efficient CMIS in these countries.performing and efficient CMIS in these countries.Without it, cocoa farmers are disWithout it, cocoa farmers are dis--empowered, subject empowered, subject to excessive market power by (monopsonist) to excessive market power by (monopsonist) p y ( p )p y ( p )buyers/exporters.buyers/exporters.

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In Nigeria, no evidence of market power is In Nigeria, no evidence of market power is g , pg , pfound. For Cameroon, the same authors in found. For Cameroon, the same authors in “Can Cocoa Farmer Organizations Countervail “Can Cocoa Farmer Organizations Countervail B M k P ?” h “ kB M k P ?” h “ kBuyer Market Power?”, state that “… market Buyer Market Power?”, state that “… market information is asymmetric in favor of the buyer, information is asymmetric in favor of the buyer, resulting in significantly lower prices beingresulting in significantly lower prices beingresulting in significantly lower prices being resulting in significantly lower prices being received by farmers. Access to accurate and received by farmers. Access to accurate and timely information often comes fromtimely information often comes fromtimely information often comes from timely information often comes from membership in a farmer group. Marketing membership in a farmer group. Marketing cocoa via farmer groups does appear to cocoa via farmer groups does appear to g p ppg p ppcountervail buying power. …Premiuns are countervail buying power. …Premiuns are found for transactions involving farmer found for transactions involving farmer organizations in the Center region where coops organizations in the Center region where coops are most active and successful, …”.are most active and successful, …”.

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It does appear from the above that the CMIS inIt does appear from the above that the CMIS inIt does appear from the above that the CMIS in It does appear from the above that the CMIS in place are far from perfect and efficient. place are far from perfect and efficient. Information asymmetry in cocoa markets is stillInformation asymmetry in cocoa markets is stillInformation asymmetry in cocoa markets is still Information asymmetry in cocoa markets is still prevalent, to the disadvantage of cocoa prevalent, to the disadvantage of cocoa farmers. Some monopsony power is stillfarmers. Some monopsony power is stillfarmers. Some monopsony power is still farmers. Some monopsony power is still exerted by buyers/exporters resulting in “rents” exerted by buyers/exporters resulting in “rents” being extracted from farmers. Competition inbeing extracted from farmers. Competition inbeing extracted from farmers. Competition in being extracted from farmers. Competition in the markets is far from perfect and lack of the markets is far from perfect and lack of adequate market information by farmers is stilladequate market information by farmers is stilladequate market information by farmers is still adequate market information by farmers is still costing them a lot of money.costing them a lot of money.

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Thank you.Thank you.yy


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