Market Power in Nigerian Domestic Cocoa Supply Chain

An efficient and integrated cocoa market in Nigeria is important if the nation is going to successfully compete with regional cocoa producers such as Cote d'Ivoire and Ghana in the international markets. At present, Nigeria produces just about 6% of the global production, while Cote d'Ivoire produces about 43% and Ghana 14%. This study, therefore, is an attempt to examine whether cocoa market liberalization reform in Nigeria has achieved its stated objective of increasing the efficiency of the cocoa supply chain. A common indicator of efficient and functioning markets is the presence of high level of integration among them; while lack of integration could be an indication of private traders' market power tendency. The analyses are based on annual aggregate and monthly cocoa price data and done within error correction and cointegration model framework. The results indicate both vertical and horizontal integration of various markets along Nigerian cocoa supply chain. In specific terms, the results show that (i) there is no tendency towards non-competitive behaviour by major cocoa exporters in Nigeria who now interface between the world and domestic cocoa markets, and (ii) export price series closely follows world price series, while farm gate price closely follows export in the long run. In addition, the source markets are well integrated. The speed of adjustment towards long-run equilibrium, however, varies with the position of the market along the supply chain.