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Cote D’ Ivoire
This case looks at cocoa trade in Cote d'Ivoire, on the one hand, because the Cote
D'Ivoire is the world largest producer of cocoa and the third for coffee after Brazil and
Columbia. On the other hand, the Cote D'Ivoire is a typical example of an outwardoriented economy that relies for its foreign earnings on the proceeds of primary
products. This reliance on primary commodities affects the country's environment.
Millions of hectares of tropical rainforest have been devastated for the creation of
cocoa and other primary commodity plantations for economic motives. The impact of such
devastation has changed the eco-system and affected flora and fauna as well as living
conditions in rural areas during the last thirty years.
Description
The Cote D'Ivoire, as virtually all developing countries, is a typical example of a
developing economy depending on export proceeds from primary products mainly cocoa. The
cultivation of cocoa was introduced in Cote d'Ivoire in 1912 by colonial authorities from
Gold Coast actual Ghana (Robert Handloff, 1983). France's colonial division of labor
designated some colonies, among them the Cote d'Ivoire, to supply French markets with
cash crop. That was the beginning of the cocoa story in the Cote D'Ivoire. Apart from
its ivory from which the country was named, the Cote d'Ivoire at that time had less to
offer for trading compared to its eastern neighboring country Ghana, more endowed with
gold. So, when the French arrived in the area in the 1880s they found it simple to use
the vast fertile land of dense tropical forest for agricultural commerce.
Late in the 1900s, France's trading organization in West Africa, with firms like
the Compagnie Fran‡aise d'Afrique Occidentale - CFAO - (the first French trading company
in Cote d'Ivoire), laid the foundations for a capitalist farming development, including
research stations in the south for the improvement of varieties of seeds and plant
diseases treatment. Linked to France's trading organization, independent landowners not
enrolled in the colonial farm working started their own plantations. Furthermore,
Ivorian farm owners organized themselves in unions which controlled the gathering, the
conveyance from remote areas of the country to the harbor to sell their crop to the
colonial authorities who had the privilege of the export to France. Since then, the Cote
D'Ivoire has had the infrastructure to export and has developed skills in operating
plantations (Bastian A. denTuinder, 1984).
By 1960, at independence, Cote D'Ivoire producers had greatly increased their
knowledge in export commodities, mainly coffee and cocoa. Moreover, the productivity and
the resistance to disease of cocoa and coffee trees gradually improved through a
replanting program financed by the government. An attempt to breed a more diseaseresistant variety of cocoa trees, which produce cocoa used in the production of
chocolate, has been undertaken by the government. That venture was a success because
research laboratory has ameliorated the treatment of some of the most devastating
diseases such the witches'broom that affect the trees.
The land-intensive techniques used for the exploitation of agricultural products,
which utilize a great amount of chemicals that affect the environment, has also increased
their quantity as well as their quality, and since 1970, the Cote D'Ivoire has been the
world's first cocoa producer with a 27 percent share of the world total output (KouyateEthui, Mamou, 1989).
Agricultural products such as cocoa account for a significant proportion of the
country's Gross Domestic Product (GDP) (Franco,1981). In the late 1970s, for example,
two-thirds of the Cote D'Ivoire total export earnings derive from the country's
traditional primary commodities with a large part from cocoa (Priovolos, 1981).
The composition of the Cote D'Ivoire exports as displayed: cocoa 29%, coffee 14%,
timber 6%, petroleum products 5% and other 46% show the importance of cocoa in the
country's international trade.
The economic concentration of Cote D'Ivoire on primary products is essentially
related to the need to generate revenues, in order to industrialize the country and to
finance public expenditures, especially public services and other components of economic
and social infrastructure (Peterson, 1979). However, as most of primary products, Ivorian
cocoa is subjected to vacillating demand in developed countries. Because of that demand
fluctuation, the country's export earnings are quite erratic.
Furthermore, there is a great deal of controversy in economic development literature
regarding the nature and the impact of the commodity problem in developing countries. In
an empirical analysis, Priovolos points the commodity problem to the declining secular
terms of trade. He argues that downward fluctuations trends have a detrimental impact on
developing countries. In her theoretical analysis of an optimal pricing model for primary
commodities, Kouyate-Ethui, Mamou states that commodity price problem does not allow
sufficient returns for farmers in order to optimize government revenues. She argues, "
that in the face of the continued decline in prices of internationally traded
commodities, many developing countries nations face a challenge..." that of setting
producer prices so as to maximize government revenues."
According to Kouyate-Ethui the way to do so, is to impose tax on agricultural
products. However, inappropriate imposition of taxes will have disastrous effects on
economic welfare. In another critical analysis of commodity trading, Belinda Coote
contends that the international commodity market traps developing countries in a
permanent poverty. To exit the snare those countries have to produce more by using more
land as well as more chemicals which alter the environment (Belinda Coote, 1992).
In fact, since the 1980s, after having experienced a rise of 344 percent in cocoa
income in the 1970s (Priovolos, 1981), the Ivorian cocoa price has deteriorated
significantly. Abraham Usman and Andrea Savvides view part of that deterioration in the
membership of several West and Central African countries (13 countries exactly among them
the Cote D'Ivoire) in the " Communaut‚ FinanciŠre Africaine ( CFA ) zone. They argue that
the pegging of these countries' currency to the French franc has hindered their
performance in the coffee and cocoa market. For the fluctuation of the French franc
(with) other currencies is automatically transmitted to the CFA and influences external
competitiveness through the relative price.
The impact of the exchange rate risk on trade flows is surely a serious concern in
the economy of a country like Cote D'Ivoire because it leads to an increase of the
production in order to compensate for the loss of hard currencies that could result from,
and that damages the environment.
In a recent study, Panagariya and Schiff (1990) addressed the issue of export
pessimism for the cocoa exports of Africa. In their inquiry, they simulated to assess the
impact of a 100,000 tons increase in production in Ghana. The expansion led to a world
price decline of 3.7%, and income losses of 8%, 12.3% and 5.7% for Cote D'Ivoire,
Cameroon and Nigeria respectively. When prices fall the tendency is to sell more meaning
creating more plantations which reduce the forests. This well illustrates what Belinda
calls the trade trap (Belinda Coote, 1992).
Although the cocoa as well as coffee export business in Cote d'Ivoire is regulated
by a marketing board, prices are internationally determined by considering the volume of
the world export. Moreover, the volume on the international market is controlled by an
international cocoa agreement or "Cocoa Agreement". A three-year agreement whose
objective is to prevent excessive cocoa price fluctuations through a buffer stock by
helping stabilize and increase the export earnings of cocoa producers while protecting
consumers interests as well (The World Cocoa Market, p.1035). According to this article,
participants in the first 1976 agreement ended in 1979 included nineteen exporting
countries, representing more than 90 percent of world production and exports and twentynine importing countries accounting for 70 percent or world imports. But the United
States, the largest importing country was not a signatory to this
agreement.
The United States consume about a fifth of the world's cocoa production but the
reason of her resentment to the agreement has two fold aspects. First, the cocoa
agreement is mainly a trading pact between Europeans and their African producers, based
on political ties ; Britain and the members of the commonwealth, and France with the CFA
zone countries. Unlike those two Europeans countries, the USA has no special ties with
the African cocoa producers. Rather, the US has close relationship with the Latin
Americans where she can easily import cocoa because Brazil one the world's largest cocoa
producer is just next-door. Second, although in the Kennedy and Johnson's era the US was
interested in considering membership of commodity agreements, that became less important
to the US when President Nixon came to power. The reason lies in part in the US growing
isolation after the Vietnam War which developed a kind of hostility to the developing
world. The other part of the reason stems from the fact that the country worried about
the economy as inflation was a big issue at that time. So, American politicians wanted to
conduct a clear policy that would not increase prices particularly food prices.
Furthermore, the American attitude reflected the free-market philosophy which implies
that prices should not be controlled until their level threaten producer countries.
The " Cocoa Agreement" itself has not worked efficiently since then. Because
unprecedented high prices came into force with the first agreement, and the mechanisms
for defending the price range had not been put to the test. Therefore, it is likely that
only export quotas and buffer stock transactions have operated which means reduction of
quantities in the world market.
For a country like the Cote D'Ivoire whose previous success in cocoa trade boosted
the country's economic development, the damage to the environment is now a national
concern. From 12 million hectares in 1960, the Ivorian rainforest decreases to 9 million
hectares in 1966 then to 2.6 million nowadays. As to the number of plantations, from
200,000 cocoa plantations covering 500,000 hectares and involving around 650,000 people
in the production in 1975 (Priovolos, P. 7), one can assume that plantations, under the
government agricultural diversification program, now cover four times the 1975 hectare
used. The impact on the environment is the huge deforestation of one of the remaining
rainforest in Africa (see TED CASE Ghana Forest Loss), since deforestation is not only
for cultivation but also for logging industries as the country does also export timber .
Timber production has been an important part of the Ivorian prosperity if not the first
as trade product at independence in 1960. The production reached its peak in 1975,
contributing to 23% of foreign earnings. By the 1980s, timber production declined because
of overexploitation. In 1984, log and sawed wood exports declined to 2.1 million cubic
meters representing 12% of total exports (see Robert Handloff, P 113).
Another aspect of the diversification process has been the development of rubber
trees, the planting is preceded by the cutting of the natural vegetation before the
planting itself. That process entails the loss of rare species due to the loss of their
habit. The typical example of species loss is the case of the Ivorian elephant that can
now be referred to as a " prehistoric animal" because there are very few left. They can
be seen only at the zoo or in national reserve parks.
In addition, agricultural development goes along with infrastructure building up
which destroys kilometers of forest. The construction also displaces villages and their
inhabitants. Moreover, chemical use for cocoa quality improvement has led to soil and
water pollution. Different plants; for example cocoa tree that is dissimilar to coco tree
or rubber distinct from coffee tree, introduce different chemicals in the planting
process. Those chemicals affect the biological composition of the soil and have a
negative impact on the bio-diversity. An example of this fatalistic impact is on rivers
and streams that carry less fish because of the natural environment change.
Chemicals in the soil are drained by rains into rivers and that modify the aquatic
life. Above all is the visible desertification in the northern part of the country that
has altered the climate as well as the raining season.
As Richard P. Tucker, points out in "Five hundred years of tropical forest
exploitation", a normal rainforest tree takes 150 to 200 years to grow. Since cocoa and
other raw material production have depleted two thirds of the Ivorian environment, one
can easily understand the government when few years ago, it launched its program : "One
Ivorian, one tree" to stop the desert like area in the north of the country.
However, although world trading rules permit countries to protect their environment
with the support of the World Bank, if commodity business is not protected from
competitors who are not members of commodity agreements and so can sell their products
without quotas constraints, only countries with the strongest economies will be able to
pursue environmental protection, and those like the Cote D'Ivoire will be a victim of
their own success.
Even though the domain of cocoa production in this case is in West Africa, the SubSaharan Africa site, the geographic impact is totally in contrast with that of the site.
Countries that consume the Ivorian cocoa are European, Asian (mainly Japan) Canada, and
the USA. In Europe, Switzerland is the major importing country importing Cote D'Ivoire
cocoa because Nestle one the world famous chocolate manufacturer has a subsidiary in the
country. Other countries like France, Austria and now countries of eastern Europe import
from Cote D'Ivoire. Lately Russia and China have the join the group of importers of the
Ivorian cocoa. Brazil is considering importing cocoa rather than increasing its
production . As Brazil and the Cote D'Ivoire have a good diplomatic relationship, that
country could be an interesting prospect for the Ivorian cocoa.
"COCOA Case Issue." American University. Web. 20 Mar. 2011.
<http://www1.american.edu/TED/cocoa.htm>.
UPDATE
Côte d'Ivoire has the highest level of biodiversity in West Africa, with over 1,200 animal species (232 mammals, 702 birds,
125 reptiles, 38 amphibians, 111 fish) and 4,700 plant species. Most of this diversity occurs in the rugged interior region
and not in the coastal regions as is the case in other parts of West Africa.
However, much like the rest of West Africa, Côte d'Ivoire has suffered severe deforestation. As of 2005, less than 2
percent of the country's land area was covered with primary forest, while less than a third of Côte d'Ivoire was forested at
all. Agriculture, uncontrolled fires, and logging for tropical woods —once Ivory Coast's largest export by volume—were the
primary causes of forest loss. Since winning independence from France in 1960, Cote d'Ivoire's forested area has fallen
from around 16 million hectares to 10 million hectares.
Once the darling of West Africa with its economic miracle of the 1980s, the country by the 1990s had collapsed because
of resource depletion and declining agricultural productivity. The situation has only worsened since then and civil war has
plagued the country since the end of 1999.
Prior to the outbreak of war, the Ivorian government worked to make conservation a priority, setting 17 percent of the
country aside in protected areas and taking measures against illegal logging, poaching, and settler encroachment in
parks. The government banned raw-log exports and encouraged the development of forest plantations, while
deforestation rates plunged. Between 1990 and 2005, Côte d'Ivoire lost only 1.8 percent of its forest cover.
Today the status of conservation efforts in Côte d'Ivoire is unclear. If neighboring Liberia is any indication, it is likely that
Côte d'Ivoire's ecosystems will further decline.
http://rainforests.mongabay.com/20cotedivoire.htm