Cover_Rebuilding West Africas Food Potential

276 Rebuilding West Africa’s food potential

do not receive higher prices for fair-traded cocoa, but proceeds from fair-trade finance-development

funds can improve the environment where those farmers live. These proceeds are used to build roads,

schools, health clinics and infrastructure. Abbott, Wilcox, and Muir (2005) argued that maintaining

artificially high prices for cocoa would cause the same problems that are characteristic of agricultural

policy elsewhere in the world, such as oversupply in the long run, especially in places that do not have

a comparative advantage. Decoupled payments are preferred for these commodities, and these are

currently what are being achieved through the development funds.

In summary, pricing interventions are unlikely to benefit farmers greatly, but they may well introduce

inefficiencies. Better options include policy regimes that foster market institutional development.

4.3 Institutional development

The two most important components of market institutional development are provision of public goods

and creation of a legal framework for private trade of commodities. As noted earlier, privatization causes

the state to withdraw provision of a number of public goods, so alternative institutional mechanisms

are required after reform. These include market information, research, extension, disease control, and

other activities. Moreover, some private markets have not functioned well after reform, and require

institutional innovations, notably the credit and input markets. In addition, if commodities are to be

traded in private markets, new legal institutions are required that were unnecessary when the public

sector physically conducted trade. Phasing of privatization has been preferred recently in West Africa,

allowing some institutional development to occur before privatization.

The best example of necessary legal reform is the system of warehouse receipts. This institution allows

trading of commodities based on paper receipts rather than by requiring individuals to physically hand

over the goods being sold. Legal frameworks ensuring contract provisions, quality certification, and

requirements for warehouse operations need to be established. These frameworks were not needed when

the public sector owned the commodity after it left the farmgate. This system has been established only

slowly in reforming cocoa markets.

Other legal reforms include establishment of quality standards and regulatory regimes for genetically modified

organisms (GMOs) and biotechnology adoption. New legislation is required in each of these cases. Parastatals

maintained quality standards for purchasing of commodities, but they did not create a legal framework for

private-sector trade under quality standards enforceable by contracts. Private sector solutions often evolve to

meet the need for quality standards, as well. In the case of cocoa exporting, firms enforce relatively simple

quality standards in their purchasing activities at the port. Those standards are well known, but often do not

result in premiums paid to farmers who meet the standards. In the absence of national quality standards,

institutions such as producer organizations have had difficulty enforcing quality standards in their purchasing

activity. Adoption of biotechnology is a new endeavor, requiring entirely new legislation.

Because cocoa exporting has been taken over by multinational corporations, some countries (Cameroon

and Côte d’Ivoire) have implemented what amount to antitrust regulations to combat exporter market

power. In Côte d’Ivoire market shares of exporters are limited by regulation. Overlapping ownership

has permitted some evasion of this restriction, and firms have established processing plants in-country

to export greater market share. Abbott and Wilcox (2004) found greater market power for these

firms during the period when the state had reduced export taxes than would have been expected

given the extent of the exporting firm concentration observed. Cameroon has prohibited exporting by

multinational firms in order to accomplish similar objectives. To circumvent this regulation multinational