An Economic Analysts of Malaysian Cocoa Prices: A Structural Approach

Cocoa industry is vulnerable to price fluctuations arising from fundamental changes in supply and demand and other technical and social factors. Consequently, price variability can affect the producers' returns and the foreign exchange earnings. This study is undertaken to investigate the...

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Main Author:	Rosdi, Mat Lani
Format:	Thesis
Language:	English English
Published:	1991
Subjects:	Cocoa trade - Case studies - Malaysia Econometrics
Online Access:	http://psasir.upm.edu.my/id/eprint/8029/1/FEP_1991_1_A.pdf
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id	my-upm-ir.8029
record_format	uketd_dc
spelling	my-upm-ir.80292023-12-05T02:30:44Z An Economic Analysts of Malaysian Cocoa Prices: A Structural Approach 1991-06 Rosdi, Mat Lani Cocoa industry is vulnerable to price fluctuations arising from fundamental changes in supply and demand and other technical and social factors. Consequently, price variability can affect the producers' returns and the foreign exchange earnings. This study is undertaken to investigate the main factors that determine cocoa prices. Econometric cocoa models for the world and Malaysian markets were developed and estimated using annual time series data. Each model consists of supply, demand and price equations, with stock as the identity. The analyses and standard tests show that the models are satisfactory. The R2 obtained for all the equations are above 0.75 and most coefficients have the correct signs. The RMS%E's are all below 5 percent except for the world price equation and Theil's inequality coefficients are all below 0.005. Our result s show that domestic cocoa prices are determined by prices prevailing in the world market. Domestic stock change is not significant. In the world market itself, stock and consumption are the main factors that influence the behaviour of cocoa prices. World consumption and export demand are significantly influenced by the production index of the industrial nations and price of cocoa. On the supply side, cocoa production is determined by cocoa price lagged by the gestation period. This implies that investment decision on cocoa three to five years earlier is an important factor that determines cocoa supply. The effects of market fundamentals on cocoa prices are further enhanced by the low price elasticities of supply and demand. The effects are therefore substantial. Owing to the importance of cocoa to the economies of producing countries, it is therefore important to ensure cocoa price stability, which may be achieved by efficient price stabilization programmes. Such a programme can be established through improvements of the existing' buffer stock programme of the International Cocoa Agreement, such as, for example, through proper stock management. Promotion and down stream activities are alternative instruments that can be exploited to encourage demand, hence bolster cocoa price. Malaysia should therefore support any programme that aims at stabilizing the world cocoa price. Cocoa trade - Case studies - Malaysia Econometrics 1991-06 Thesis http://psasir.upm.edu.my/id/eprint/8029/ http://psasir.upm.edu.my/id/eprint/8029/1/FEP_1991_1_A.pdf application/pdf en public masters Universiti Pertanian Malaysia Cocoa trade - Case studies - Malaysia Econometrics Faculty of Economics and Management Chew, Tek Ann English
institution	Universiti Putra Malaysia
collection	PSAS Institutional Repository
language	English English
advisor	Chew, Tek Ann
topic	Cocoa trade - Case studies - Malaysia Econometrics
spellingShingle	Cocoa trade - Case studies - Malaysia Econometrics Rosdi, Mat Lani An Economic Analysts of Malaysian Cocoa Prices: A Structural Approach
description	Cocoa industry is vulnerable to price fluctuations arising from fundamental changes in supply and demand and other technical and social factors. Consequently, price variability can affect the producers' returns and the foreign exchange earnings. This study is undertaken to investigate the main factors that determine cocoa prices. Econometric cocoa models for the world and Malaysian markets were developed and estimated using annual time series data. Each model consists of supply, demand and price equations, with stock as the identity. The analyses and standard tests show that the models are satisfactory. The R2 obtained for all the equations are above 0.75 and most coefficients have the correct signs. The RMS%E's are all below 5 percent except for the world price equation and Theil's inequality coefficients are all below 0.005. Our result s show that domestic cocoa prices are determined by prices prevailing in the world market. Domestic stock change is not significant. In the world market itself, stock and consumption are the main factors that influence the behaviour of cocoa prices. World consumption and export demand are significantly influenced by the production index of the industrial nations and price of cocoa. On the supply side, cocoa production is determined by cocoa price lagged by the gestation period. This implies that investment decision on cocoa three to five years earlier is an important factor that determines cocoa supply. The effects of market fundamentals on cocoa prices are further enhanced by the low price elasticities of supply and demand. The effects are therefore substantial. Owing to the importance of cocoa to the economies of producing countries, it is therefore important to ensure cocoa price stability, which may be achieved by efficient price stabilization programmes. Such a programme can be established through improvements of the existing' buffer stock programme of the International Cocoa Agreement, such as, for example, through proper stock management. Promotion and down stream activities are alternative instruments that can be exploited to encourage demand, hence bolster cocoa price. Malaysia should therefore support any programme that aims at stabilizing the world cocoa price.
format	Thesis
qualification_level	Master's degree
author	Rosdi, Mat Lani
author_facet	Rosdi, Mat Lani
author_sort	Rosdi, Mat Lani
title	An Economic Analysts of Malaysian Cocoa Prices: A Structural Approach
title_short	An Economic Analysts of Malaysian Cocoa Prices: A Structural Approach
title_full	An Economic Analysts of Malaysian Cocoa Prices: A Structural Approach
title_fullStr	An Economic Analysts of Malaysian Cocoa Prices: A Structural Approach
title_full_unstemmed	An Economic Analysts of Malaysian Cocoa Prices: A Structural Approach
title_sort	economic analysts of malaysian cocoa prices: a structural approach
granting_institution	Universiti Pertanian Malaysia
granting_department	Faculty of Economics and Management
publishDate	1991
url	http://psasir.upm.edu.my/id/eprint/8029/1/FEP_1991_1_A.pdf
_version_	1794018716655026176

An Economic Analysts of Malaysian Cocoa Prices: A Structural Approach

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