The Economics of Cocoa Production and Export in Nigeria

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The cocoa industry is a key contributor to the overall value of the Nigerian agricultural sector. Beyond that, cocoa’s economic impacts are evident in its contributions to Nigeria’s GDP – providing stable sources of livelihoods for farmers, distributors, and other value chain operators.

Unsurprisingly, the physical transfer of several metric tonnes of cocoa beans over great distances from farms to main distribution and processing facilities is a complex business. International Trade Center reported that an average of 3 million MT of cocoa are produced yearly, 90% of which goes into chocolate production. Producing and hauling such a large volume of commodities from the farms to processing facilities takes no small effort or resources. 

Nevertheless, the lucrativeness of the cocoa industry makes it attractive to investors and operators in the agricultural sector. However, most admirers only know about the high financial returns of the cocoa trade. Few understand the intricacies of the business and the factors that influence the cocoa market locally and internationally.

For anyone desiring to make a significant profit in the cocoa business, thorough knowledge and

understanding of the distribution chain, market trends and developments are essential

To address this necessity, this article explores the economic dynamics of cocoa production and export in Nigeria. It breaks down the recurring factors that influence prices, policies, and trends in the cocoa market.

Cocoa Price Factors

Price is one of the biggest drivers of operations and profitability in commodities trade. As such, it has a tremendous effect on the value chain. The international market price of cocoa is notoriously volatile and susceptible to influences from multiple factors, such as the following.

Global Demand and Supply Dynamics

Market prices are heavily subject to global cocoa demand and supply dynamics. Cocoa supply is determined by production levels and seasonal yields. The more output cocoa farmers produce per season, the higher the supply volume and likelihood of price depreciations. 

Conversely, lesser yield results in lower supply, and in situations where demand exceeds the supply, the excess demand will drive the prices upwards.

Similarly, consumer preference changes in demand for cocoa beans and its products impact the market equilibrium. Increased demand from emerging economies and supply constraints in major cocoa-producing regions will result in price hikes.

Production Process and Yield Volume

Black African Local Man Working In A Cocoa Farm Dr 2022 08 23 17 44 12 Utc 1.jpeg
Farmer spreading cocoa beans out in the open.

A large percentage of the cocoa supplied globally is produced on smallholder farms in Nigeria, Ghana, Cameroon, Cote d’Ivoire, and Indonesia.  

While not labour-intensive, cocoa production is ill-suited to mechanization. As such, the process is mostly manual. Farmers have to pluck cocoa pods, cut them open, extract the seeds, and then set them out to ferment and dry in the sun before packaging them in bags ready for delivery to buyers. Ultimately, the production volume is dependent on the physical efforts of farmers.

This is one of the factors that constrain many farmers to operating on smallholder farms. Large plantations require more effort and resources to maintain, including hiring and paying extra labour. 

Then again, crop yield also influences supply volume, a major determinant of market dynamics and commodities pricing. Good yields are subject to weather, disease, tree age, and the production cycle. 

Crop yield tends to be larger during main crop periods than during Mid-crop seasons. As such, cocoa prices may drop during the main crop season as a result of higher supply volume.

Supply Chain Factors

Logistics and supply chain fluctuations also exert pressure on global freight costs, causing an increase in commodity prices. In local producing communities across the major exporting countries of Côte d’Ivoire, Ghana, Nigeria, and Cameroon, poor road and port infrastructure results in higher transport costs and delays in delivery, which has a direct effect on suppliers’ overhead.

Thankfully, sophisticated systems of international commodity exchange are being created to help alleviate some of the price risks for producers, exporters and importers of cocoa beans. A common example is the futures market with hedging facilities.

Currency Exchange Rates

Cocoa prices are also sensitive to currency exchange rates, as cocoa is predominantly traded in US dollars on international markets. Naira exchange rate fluctuations, particularly against the US dollar, can affect the competitiveness of Nigerian cocoa exports and contribute to price volatility.

Trade Policies and Regulations

To a large extent, international commodities trade in a country will only perform up to the level the government policies support and enable it. As such, government regulations can make or mar the prospects of cocoa export in Nigeria. 

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Export Taxes and Duties

Government policies related to export taxes and duties often influence the profitability of cocoa exports and impact international competitiveness. Frequent changes in export tax rates, tariffs, and trade agreements will affect the cost structure of cocoa exports and alter market dynamics.

Subsidies and Incentives

Governments, through parastatals or special initiatives, may implement subsidies, grants, or incentives to support cocoa farmers and promote the growth of the cocoa industry. Subsidies for inputs such as fertilizers, pesticides, and farm equipment can reduce production costs and enhance farmers’ profitability, stimulating cocoa production and export.

Cocoa Market Trends and Opportunities

According to Market Data Forecast, the global cocoa and chocolate market size is expected to reach $60.15 Billion by 2029 at an expansion rate of 5.7%. These projections signify increased opportunities for operators in the cocoa and chocolate value chains in the following areas.

Emerging Markets

The growing demand for chocolate and cocoa-based products in emerging markets presents new opportunities for Nigerian cocoa exporters to diversify their customer base and capture untapped market segments. Strategic market expansion efforts, including market research, branding, and product innovation, can help Nigerian exporters capitalize on emerging market trends.

Sustainable and Ethical Consumption

Consumers’ increasing awareness of sustainability and ethical issues in cocoa production has fueled demand for certified sustainable cocoa products. Nigerian exporters can leverage sustainability certifications such as Rainforest Alliance and traceability documentation to differentiate their products in the global market and appeal to conscientious consumers.

The economics of cocoa production and export in Nigeria are shaped by several complex factors, including global market dynamics, trade policies, and consumer trends. Understanding these dynamics wil help Nigerian cocoa stakeholders to navigate challenges, capitalize on opportunities, and sustainably harness the economic potential of the cocoa industry for the benefit of farmers, communities, and the national economy.

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