CHAPTER 1

INTRODUCTION

1.1     BACKGROUND TO STUDY

Cocoa is a bean that is in high demand all over the world especially by developed countries. Cocoa has several uses and benefits to an economy.  Africa is the largest producer of cocoa to the international market, which are normally in Europe and America. Ivory Coast, Ghana and Nigeria share the largest contribution to the world market and with Ivory Coast by far the highest producer producing up to 39% of world output (UNCTAD, 2004). While the contribution of Nigeria and Ghana is 19% and 6% respectively (UNCTAD, 2004).  But our focus is on Nigeria.  World cocoa output was estimated to have increased by  50% in the early period of independence of the countries output (between 1958 and 1966) with practically the whole increase coming from West Africa (Ivory coast, Ghana & Nigeria mainly). Explaining the basis of this increase, the FAO (1966) had this to say.

The remarkable upsurge in west African production -in which Nigeria participated fully- can only be explained by the coming into bearing of your trees, an increasing proportion of which were of Amazon and selected high yielding Amelonado varieties, and the effects of spraying against diseases and pests.

Thus, research findings can be said to have made a significant impact on the Nigerian cocoa industry. This view was given credence and quantitative support by some empirical studies which found that cocoa research in Nigeria has generated an internal rate of return as high as 42 percent (Abidogun, 1982). Against this background of impressive payoff to investment in cocoa research, it may be pertinent to access the distributional impact of benefit generated in the process. In particular, an export oriented industry like the cocoa industry, the relative size of consumer surplus is of interest to policy makers on account of its implication for research financing, allocate efficiency and international equity. 

Nigeria is an important player in the cocoa sector and as such, the Nigeria output has effects on the international aggregate output and price level.  Cocoa production in Nigeria is done in the South West of the country especially in Ondo state and some are seen in the South -South zone especially in Akwa-Ibom state.

In the early part before and after the independence in Nigeria, Nigeria was solely dependent on agricultural output such as cocoa as means of foreign exchange and income for the government and citizenry.  The bulk of the country was run with revenues got from agricultural produce. The Southwestern part of the country was reliant on the production and sales of Cocoa. So also were the Northern part of the country that gets its output from monkey nut (also know as groundnut).  The southern parts were not left out because they had vast amount of land at the time providing them with palm kernel.  Though, this region also had additional income from coal from Enugu. But deductively, it has been shown that the South West which founded were only cocoa was richer that the Eastern part that had both palm kernel and coal.  This is an indication of the commercial viability and economic importance of cocoa in the community of other cash crop.  It is widely acknowledged that Nigeria has a wide range of natural resources which agriculture can be said to be included.  This enormous base (e.g. cocoa) if well managed, could be a support to the manufacturing sector (industrialization) by providing supplies of raw material for the raw material needs of the industrial sector as well as providing gainful employment for the teeming population. One of the major development expectations of the cocoa industry in Nigeria is the supply of raw materials for the emerging agro-industrial processing and manufacturing sector.  This expectation, which is in consonance with economic theory, which assumes that with the growth in the industrial sector, the excess labour, would be absorbed in to the modern sector.  This relationship would eventually lay the foundation for an accelerated economic growth.  The expansion of cocoa production is expected to eliminate possible trade distributions arising from externally dependent economy by ensuring availability of raw material for industries.  This process could lead to an expansion in the country’s industrial activities with a multiplier effect in employment opportunities for all the stakeholders in the economy such as the farm workers, factory processors, and product distributors among others.

Using a basket of four agricultural commodities: - cash crops (Cocoa, Coffee, Rubber, Groundnut oil). An analysis shows that as at the period of 1980’s cocoa production in Nigeria was at its peak. Over time, the output has fallen by over 50% from 1980 to 2002, while these have a been a steady but contributes rise in the product output the cost per tonnes of cocoa in amongst the highest, so there is a prospect for an increase in the total Gross Domestic Product (GDP) of there is an increase in the output per tonnes.

In Nigeria, cocoa is a very important part of the cash crop family in the agricultural sector. So, the downturn trend of the aggregate agricultural output is as a result of downward movement in the whole composing variables in the sector.  And of course, the composing variable includes all other agricultural products contributing to aggregate agricultural output.  The resultant output is a result of the declining level/pace of growth in the composing output.  Countries that have a higher or increasing rate of growth in each composing products tends to have an overall increase in the aggregate agricultural output.            

Countries like Cote d’ivoire and Ghana have their aggregate agricultural output on the increase solely or primarily because they have a growing and versatile cocoa sub sector which is probably one of the largest in the international commodity market.  As it is commonly said, Agriculture in the mainstay of a traditional society, in a country like Cote d’ivoire, it is right to further say that cocoa in their mainstay in their economy because cocoa contributes the bulk of the agricultural sector.

The importance inherent in cocoa in any economy is rather vast because it serves as food and raw material (beverages, butter) in local use, and export.  Cocoa production can be the main source of a country’s foreign exchange earnings as well as a significant part of the GDP.  At least post independent (1960- early 1970s) Nigeria belonged to this category/cadre.  At the said time, cocoa was sufficient to produce a bulk of the national need of foreign exchange while other agricultural produce complemented the efforts therein.

The decline in cocoa was also reflected in the other crops.  In the past, crop production has been classified basically into two broad categories of food and cash crop.  This classification recognizes the use of output for domestic consumption and for export.  The evaluation of the performance of the agricultural sector in industrial crop production is given in three places 1970-1985 which is regarded as the pre Structural Adjustment Programme (SAP) era, 1986 – 1993 SAP era and 1994-2001 post SAP or era of deregulation.

1.2     STATEMENT OF THE PROBLEM

Overtime, there has been dwindling level of output in the agricultural sector in general and the cocoa sub sector specifically. As we know, at a point in the Nigeria economic history, agricultural production has a major priority of the Nigerian state.  But as time went by, there has been a gradual and small fall in the output overtime.  Factually speaking, Nigeria produces a little more than half of what she used to produce in the 1970s (CBN, 2004).  Production of cocoa though can be increased but some factors will militate against attaining it most especially because productivity is not too great in the sector.  Also several factors overtime have led to the decline in productivity starting from over-regulation of the sector, international market price, marketing boards, illiteracy, etc.  Data available from both the statistical bulletin and FOS publications has shown a large decline over time.  At different times, there have been growth and other times, some slumps in the overall output.  The problem this project is set to address the cases of decline in the cocoa production overtime.

1.3     SCOPE OF THE STUDY

The scope to the study is to cover relevant areas as regards the contribution of cocoa to overall improvement in a country’s economic status.  The study basically would highlight the challenges inherent in the cocoa production which is a very valuable part of the output of agriculture production from1970 to 2004.  A further study would be done on the contribution of cocoa into the gross domestic product (GDP) of the country.  A critical and analytical study would be done to comprehend happening before, during and after SAP.  The overall impact to the contribution of cocoa to the non oil export would be analysed in the study. Available data from 1970 to 2002 would be used to cover the data.  In closing, some very relevant areas would be examined with a view to addressing some lingering issues and also for the purpose of contributing to knowledge.

 1.4    OBJECTIVES OF THE STUDY

The objective of the study is the basis for the research work.  It is the crux of the work.

1.         To know the amount that the Nigeria has got from cocoa in terms of international market value over time.             

2.         To make comparative analysis of the cocoa output in the pre SAP, during SAP, and post SAP period. 

3.         To make recommendations necessary in moving the Nigeria cocoa production to her desired output.

Further objectives of the study on the determinants of cocoa production are given. The reasons or factors for whatever decline or boom experienced can then be expatiated as relevant to the respective years.  Then, a further analysis will show the solution to the problems which leads to the output decline or stagnation in the agricultural sector especially cocoa.

1.5     SIGNIFICANCE OF THE STUDY

The study would identify the problems/challenges over time and also proffering solutions that would return to the nation but to its glory days which would be impactful on the GDP per capita as well as reduction in unemployment became may people would be employed in the sector as well as other sector has the Agricultural sector plays a supportive role for the other sectors that use Agricultural output especially cocoa for their input. . The project goes further to show that level of output of the cocoa production has been declining and recommendations are made forthwith.  The knowledge of this is relevant so that Nigeria would return back to its leading role which has been taken over by Ivory Coast.

1.6     RESEARCH QUESTION

The study seeks to answer several questions which have to do with the determinant of the production of cocoa.

1.         How has been the trend of cocoa output over time?

2.         What are the determinants of cocoa production?

3.         Can the present trend be reversed?

1.7     RESEARCH HYPOTHESES

The study is to prove the following null hypothesis and whatever decision made would made on the basis of the given hypothesis.

H0.       There is no statistical significant relationship between the value of cocoa and government expenditure on cocoa at a lagged year as a percentage of total capital expenditure in Nigeria.

H0.       There is no statistical significant relationship between the value of cocoa and infrastructural development at a lagged time.

H0.       There is no statistical significant relationship between the value of cocoa and the international price.

H0.       There is no statistical significant relationship between cocoa and rainfall in cubic millimeters at a lagged time.

METHODOLOGY OF THE STUDY

The methodology of the study has to do with the formulation of a typical linear production function. The available data would be regressed using ordinary least square (OLS) method of estimation. However, if the estimated result shows the presence of autocorrelation because the DW-statistic was less than 2, then, the Cochrane-Orcutt would be used at different reiteration. Though, more often than not, the OLS is the best linear unbiased estimates (BLUE). Furthermore, trend analysis would be used to analyse the growth and decline of value of output.

DATA SOURCE.

The data obtained are wholly secondary in nature and were gotten from the CBN statistical bulletin (2004). In some regards some data were derived from data provided by the statistical bulletin. An example is the value of output: which is derived by output as provided by CBN and the prices as provided by International Cocoa Organisation (ICCO). To this extent, the validity of our findings is dependent mainly on the accuracy of these data and on how real our various theoretical assumptions are. 

OUTLINE OF CHAPTERS

This research work is carried out to analyze the production of cocoa with the relation on the output. To do this, our paper shall be divided into five chapters / parts.

Chapter one shall entail the introduction / background to the study. Under the introduction, we shall have; background to the study, statement of the problem, objectives of the study, hypothesis to the study, justification of the study, scope of the study, limitations and structure of the study.

Chapter two shall feature the literature review. This should show or lead us to the “why” of the study.

Chapter three shall talk about the theoretical framework or methodology. This part should lead us to the “how” of the study.

Chapter four shall feature the empirical analysis. Here, we shall have data presentation and trend analysis, statistical analysis and presentation of results and interpretation or discussion of results.

Lastly, chapter five shall show the summary, recommendations and conclusion of the study.