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 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 …

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?

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

)( 1210 tttt yybpbby

)( 1210 tttt xxapaax

Prices: demand considerations

Monthly prices, therefore, go up, the more1. Long-run demand improves; or previous deviations large

2. Long-run supply deteriorates; or previous deviations small

3. 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.

11

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Prices: demand considerations

If embargo ends● + effect of cumulative demand deviation

● ─ effect of cumulative supply deviation

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xxayybabp tttttt

Prices: supply considerations

Ivorian traders offer a price that leaves a margin relative to the current price to cover

1. Transport

2. Storage until selling time

3. 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

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

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

Empirics: world market pricesUnit import Worldvalue NL €/t market $/t

Coef St. Dev. Coef St. Dev.

p(t-1) 0.69 0.09 1.24 0.09

p(t-2) 0.31 0.10 -0.40 0.14

p(t-3) -0.04 0.09 0.10 0.09

Trend 4.20 3.12 9.91 6.12

Jan 104.67 39.66 -82.08 50.60

Feb 82.97 40.34 -20.50 51.08

Mar 77.48 40.08 -130.37 50.02

Apr 84.46 38.79 -109.98 48.80

May 34.90 39.02 -110.25 47.87

Jun 68.31 38.55 -49.98 47.82

Jul 57.43 38.94 -51.26 48.16

Aug 59.43 38.69 -132.57 48.65

Sep 23.90 38.74 -84.30 48.58

Oct 57.31 38.49 -134.44 47.88

Nov 10.58 38.86 -109.88 47.94

intercept -48.77 43.40 54.94 58.91

R2 0.96 N=153 0.98 N=153

Estimated effects NL import prices

NL import prices, predicted

2000

2100

2200

2300

2400

2500

2600

2700

Jan.

201

0

Mar

. 201

0

May

. 201

0

Jul.

2010

Sep.

201

0

Nov

. 201

0

Jan.

201

1

Mar

. 201

1

May

. 201

1

Jul.

2011

Sep.

201

1

€/to

n

observed predicted-1 predicted-dyn

c

Effect on NL import prices

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

Jan.

2011

Feb.

2011

Mar

.20

11

Apr.

2011

May

.20

11

Jun.

2011

Jul.

2011

Aug.

2011

Sep.

2011

% deviation

Estimated effects World Market pricesWorld market prices, predicted

26002700280029003000310032003300340035003600

Jan.

201

0

Mar

. 201

0

May

. 201

0

Jul.

2010

Sep.

201

0

Nov

. 201

0

Jan.

201

1

Mar

. 201

1

May

. 201

1

Jul.

2011

Sep.

201

1

US$

/ton

observed predicted-1 predicted-dyn

Effect on world market prices

-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%

10.0%12.0%

Jan.

2011

Feb.

2011

Mar

.20

11

Apr.

2011

May

.20

11

Jun.

2011

Jul.

2011

Aug.

2011

Sep.

2011

% deviation

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

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%

Côte d’Ivoire prices

Field work in Ouragahio, close to Gagnoa CI producer share WM price

0.200.250.300.350.400.450.500.550.600.65

Jan-

10

Mar

-10

May

-10

Jul-1

0

Sep-

10

Nov

-10

Jan-

11

Mar

-11

May

-11

Jul-1

1

Sep-

11

rel. to original WM price rel. to simulated WM price

Indonesian prices

Field work in Noling, Sulawesi, Indonesia

-

0.50

1.00

1.50

2.00

2.50

3.00

Jan-

10

Feb-

10

Mar

-10

Apr-

10

May

-10

Jun-

10

Jul-1

0

Aug-

10

Sep-

10

Oct

-10

Nov-

10

Dec-

10

Jan-

11

Feb-

11

Mar

-11

Apr-

11

May

-11

Jun-

11

Jul-1

1

Aug-

11

Sep-

11

US

$ /

kg

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

Sulawesi (Noling) Côte d'Ivoire (Ouragahio)WMprice (right axis)

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

Who compensates her?

Thank you