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Cocoa: Origin Differentials and the Living Income Differential

Author

Listed:
  • Christopher L. Gilbert

    (SAIS Europe, Johns Hopkins University)

Abstract

Commercial transactions in the cocoa market are at prices based on the futures marker plus an origin differential. In July 2019, the governments of Côte d’Ivoire and Ghana announced a Living Income Differential (LID) of $400/ton to be paid as an additional component of the price. Analysis of realized prices for cocoa beans imported into the EU shows that, on average, the two producers obtained higher prices in the 2 years following the announcement, and that these increases exceeded both the increase in cocoa futures prices and the increase attributable to the tight physical market. The increases were shared by other origins and were passed through to higher producer prices. Origin differentials, which are determined in the broker market, subsequently declined to offset the LID. Although Côte d’Ivoire and Ghana are jointly responsible for 75% of world exports, they lack the means to limit production and are therefore unable to affect commercial transactions prices for more than a short period.

Suggested Citation

  • Christopher L. Gilbert, 2024. "Cocoa: Origin Differentials and the Living Income Differential," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 36(4), pages 777-802, August.
    • Handle: RePEc:pal:eurjdr:v:36:y:2024:i:4:d:10.1057_s41287-023-00612-x
    DOI: 10.1057/s41287-023-00612-x
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