The Effects of Structural Breaks on Cocoa Yield Response in Nigeria (1961 – 2007)

Abstract

This study examines the effect of structural break- namely the Structural Adjustment Policy (SAP) change of 1986 – on the yield response of cocoa in Nigeria between 1961 and 2007. The yield of cocoa was specified as a function of factors such as exchange rate, cocoa producer price, producer price of substitute crops such as rice, maize and cassava. Quantitative estimates, based on Augmented-Dickey Fuller unit root test, cointegration and error correction specification, indicate that the real exchange rate, cocoa producer price, cassava price and trend significantly affected cocoa yield response in the long-run while the real exchange rate, cocoa producer price, cassava price and rice price significantly affected cocoa yield response in the short- run. In addition, from the results, the error correction mechanism (ECM) indicated a feedback of about 67.4% of the previous year’s disequilibrium from long-run domestic cocoa yield. The Perron structural break test show that SAP has a positive and significant effect on cocoa yield, but a negative effect on the cocoa producer price. It is concluded that only a combination of price and other structural factors can bring about the much desired change in the Nigerian cocoa sector.