1. Final Workshop of the
Cocoa Marketing Improvement
Project
P j t
Akwa Palace Hotel
Douala, Cameroon
Douala
ICCO – CFC
Prof. Eric Tollens
Centre for Agricultural and Food Economics
K.U.Leuven
Leuven, Belgium
2-3 November 2006

2. Conditions for an Efficient
Market Information System in
M k tI f ti S t i
Cocoa Producing Countries
Prof. E i Tollens
P f Eric T ll
K.U.Leuven
Leuven,
Leuven Belgium

4. 1 Introduction
1.
We all agree that a performing, efficient CMIS is a key
accompanying measure to market liberalization.
Market liberalization often results in less transparant
marketing and loss of market p
g power to farmers.
Nigeria sta ted a C S in 2002 in t e framework o t e
ge a started CMIS 00 the a e o of the
Cocoa Marketing Improvement Project.

5. Cameroon already had an Arabica
Marketing Information System (AMIS)
operational in 1993 after the arabica
coffee sector was liberalized in 1992. This
was followed by SIMARC-CRAMIS for
SIMARC-
cocoa, robusta and arabica coffee from
1994 on when robusta and cocoa sectors
were also liberalized. However when
do o
donor financing ran ou , the sys e nearly
a c g a out, e system ea y
collapsed

6. Côte d’Ivoire initiated a large Coffee and Cocoa
MIS in 1998 at the start of the coffee-cocoa
coffee-
market liberalization, called PRIMAC
(Programme d‘Information sur les Marchés du
d Information
Café et du Cacao). The Ivorian system is by far
the largest and most complete CMIS in place
place.

7. 2 Objectives of a CMIS
2.
The main objective is to enhance competition in
the market by increasing market transparency
for all market participants in particular the
participants,
weakest: smallholder farmers.
A MIS means empowerment of farmers,
strengthening th i b
t th i their bargaining power –
i i
increasing their share of the export proceeds,
countervailing monopsonist buying practices.
t ili i tb i ti

8. Transparency in agricultural markets results in the
following effects:
- the farmers receive the proper production incentives,
will adjust their production accordingly and will seize
on market opportunities;
k t t iti
- information can improve the bargaining position of
the weaker participants in a marketing system who are
usually the smallholder farmers;
- competition is enhanced in markets, resulting in fair
prices for all participants;
- market information signals profit opportunities and
thus
th creates incentives f market participants;
t i ti for k t ti i t

9. - seasonal and erratic price variations will be reduced
and arbitrage between markets will take place, thereby
reducing price differentials between markets. In
completely transparent and efficient markets, price
differentials reflect only transaction costs (mainly
transport costs) between markets;
- overall risk is reduced for all market participants,
resulting in more stable markets improved long term
markets,
planning and investment decisions;
- improved government regulation of marketing: better
agricultural and marketing p
g g policies and p
public
investments as the government will be adequately
informed about market conditions and performance.

10. 3. Characteristics of a performing
CMIS
The
Th market i f
k t information must be:
ti tb
– relevant
– meaningful
– reliable and impartial (accurate) (neutral)
– promptly available (
p p y (timely)
y)
– easily accessible
– simple

11. Market information provided by a public
authority is a public good – the free rider
principle applies
applies.
Market information is a perishable commodity.
Information is also power and is a powerful tool
in the empowerment of farmers in liberalized
markets.

12. Objectives of a MIS: Market information must be:
• Enhance competition Market Information System ▪ Relevant ▪ Prompt
(MIS)
• Increase market transparency for all ▪ Meaningful ▪ Accessible
participants, especially small farmers ▪ Reliable ▪ Simple
Higher farm level prices, price stabilization, higher market integration, lower overall transaction costs
Concept and I
C t d Implementation of a Performing Cocoa and Coffee MIS
l t ti f P f i C d C ff
Phase I: Daily collection and Phase II: Weekly collection and Phase III: Fully web-based
dissemination of external market dissemination of internal market strategy, including other
information via the media information: min-max range, per information besides price
kg information
f

13. 4. Results achieved and lessons
learned
l d
4.1. The dissemination strategy
The success or failure of a MIS hinges on a
successful dissemination strategy. Thi i a
f l di i ti t t This is
major constraint.
Thousands of cocoa farmers need to be
reached and this is a huge challenge.

14. Experience has shown that the rural or local
radio, in local language, is the most effective
, g g ,
means of reaching farmers. This was notably
the case in Cameroon with AMIS and SIMARC-
SIMARC-
CRAMIS which was diffused by the radio in six
local languages in the West p
g g province and 26 in
the North-West province in addition to pidgin.
North-
In the case of Nigeria, this means relying on
g y g
State radio (more than national radio) and
emerging local p
g g private radios. In Cameroon
and Côte d’Ivoire, the provincial radios are most
important.
p

15. In Cameroon, the main dissemination strategy is now
via mobile telephone (GSM) with the SMS service
(Short Messaging Service) Everyday the London
Service). Everyday,
cocoa prices, and the derived FOB Douala prices are
disseminated via a short message, either on a regular
g g
subscription basis or on a call basis via a dedicated
call number. This requires that the GSM covers most
of the rural cocoa growing areas which is the case in
areas,
Cameroon, and to some extent in western Nigeria,
because of the high rural population density, but not
yet in Côte d’Ivoire. One particular advantage of this
system is that the proceeds from the GSM system are
shared between the mobile phone operators the SMS
operators,
intermediary service company and the content
provider, i.e. the CMIS institution. This thus
contributes t the financial sustainability of th CMIS
t ib t to th fi i l t i bilit f the
institution.

19. In Côte d’Ivoire, where a web based diffusion strategy
is pursued, ten key cocoa cooperatives have been
equipped with computers and internet access and the
necessary training has also been provided by the
Cocoa Marketing Improvement Project and the
Government. They can consult the PRIMAC (MIS)
website at any time and obtain the needed
information, which they can then further disseminate
to their cooperative members via leaflets and
information boards at warehouses and collection
centers in villages. At the same time, the collection of
relevant d t i th rural areas i d
l t data in the l is done b ANADER
by
(the National Agricultural Extension System) and the
transmission of the data to the central PRIMAC unit in
Abidjan is also done via the web.

21. Finally, television coverage (one minute
broadcast) on a regular basis, once weekly,
cost- ff
may also be a cost-effective instrument to
reach large numbers of interested persons.
The television is used in Nigeria Cameroon
Nigeria,
and Côte d’Ivoire for this purpose.
A budget has to be foreseen for dissemination.
Almost all of the media require payment for
regular diffusion of messages of commercial
interest. Also
interest Also, experience has shown that
regular service against payment is best,
because then only can regular p
y g performance be
assured.

22. 4 2 Financing of a CMIS
4.2.
Sustainable financing is p
g problematic as long asg
income is not assured in an automatic, regular way.
A small levy at export is the most attractive
proposition.
proposition In Cameroon it was estimated that for a
Cameroon,
cocoa and coffee MIS, this will require about 1
F.CFA/kg exported plus a start-up budget for
start-
equipment ($ 130.000).
130 000)
In Côte d’Ivoire, BCC operates the system on its own
resources based on a levy at export.
In Nigeria and Cameroon, as there is no export tax
(only certain levies), financing is a recurring problem
and a major constraint
constraint.
Minimal reliance on recurrent government budgets or
donors is best to enure sustainable financing.

23. 4 3 Autonomy of the CMIS unit
4.3.
Ideally,
Ideally the CMIS unit is an autonomous bodybody,
with its own budget and staff, a flexible
organization,
organization shielded from politics and
influence, which is impartial, objective and
inspires trust
trust.
This proves to be rather difficult as the
institutions running the CMIS unit in the three
countries are governmental or parastatal
organizations,
organizations charged with a public role to
defend the interests of the cocoa sector.

24. 4.4. Impact of the CMIS
As a result of a CMIS, one expects:
- a reduction in transaction costs;
- improved market integration;
- reductions in marketing costs;
- increased prices paid to farmers;
-iincreased competition i th market.
d titi in the k t

25. Undoubtedly, such effects have occured when a
performing CMIS is in place.
B t it is not known to what extent and how pervasive
But i tk t h t t t dh i
these effects are or have been.
No impact studies on the effects of a CMIS have been
done in the three countries.
According to Michael Wilcox and Philip Abbot (
g p (doingg
research for the STCP project) in “Market Power and
Structural Adjustment – The Case of West African
Cocoa Market Liberalization” (2004) there is
Liberalization (2004),
evidence of market power exercised by multinational
exporters/processors in concert with the Ivorian
p p
government which is collecting export taxes. Perfect
competition is rejected and markups/downs range
from 24.6% to 36.5%. For multinational traders only,
24 6% 36 5% only
the markups/downs range from 8.9% to 20%.

26. 5 Conclusions
5.
An efficient CMIS ensures perfect symmetry in market
information for all market participants, perfect
participants
competition and fair prices for all.
In a perfectly competitive market marketing margins
market,
will vary across space by differences in transaction
costs only.
Such differences are determined by infrastructure
conditions, distances to port or buying center,
transport costs and other logistical costs risk etc
costs, risk, etc.
But markets are far from perfect. And market
information is rarely p
y perfect as it is a p
perishable
commodity and linked to market power.

27. Undoubtedly, the GSM-revolution of mobile phones in
GSM-
the three countries has contributed a lot to better
access to market information.
As the coverage of the GSM network is being
extended, more and more farmers can be reached at
low cost
cost.
Nevertheless, the local rural radio remains very
important in the dissemination strategy.
p gy
A web-based dissemination strategy is being pursued
web-
in Côte d’Ivoire with some success, but it requires well
functioning and viable local cooperatives as relay
stations.
Particularly in Côte d’Ivoire where evidence suggests
that
th t exporters/multinational companies exert some
t / lti ti l i t
market power, a countervailing power by
cooperatives/producer organizations well equiped and
using a CMIS i i order.
i is in d

28. Also in Cameroon, marketing cocoa via farmer groups
such as is happening in Central province and Mbam
does appear to countervail buying power and yields
important premiums.
In Ni i
I Nigeria and C
d Cameroon, th ithe issue of sustainable
f t i bl
financing of the CMIS is not yet resolved.
This is partly a res lt of the f ll liberali ation of the
partl result full liberalization
sector, with no export taxes and thus minimal
government revenue from the sector sector.
Ways and means must be found to finance a
performing and efficient CMIS in these countries.
Without it, cocoa farmers are dis-empowered, subject
dis-
to excessive market power by (
p y (monopsonist)
p )
buyers/exporters.

29. In Nigeria, no evidence of market power is
g , p
found. For Cameroon, the same authors in
“Can Cocoa Farmer Organizations Countervail
Buyer M k P
B Market Power?”, state that “ market
?” h “… k
information is asymmetric in favor of the buyer,
resulting in significantly lower prices being
received by farmers. Access to accurate and
timely information often comes from
membership in a farmer group. Marketing
cocoa via farmer groups does appear to
g p pp
countervail buying power. …Premiuns are
found for transactions involving farmer
organizations in the Center region where coops
are most active and successful, …”.

30. It does appear from the above that the CMIS in
place are far from perfect and efficient.
Information asymmetry in cocoa markets is still
prevalent, to the disadvantage of cocoa
farmers. Some monopsony power is still
exerted by buyers/exporters resulting in “rents”
being extracted from farmers. Competition in
the markets is far from perfect and lack of
adequate market information by farmers is still
costing them a lot of money.

32. Thank you.
y