Discuss the problems for the Ivory Coast of dependency on cocoa for a large proportion of their exports

Edexcel A-Level Economics Paper 2 June 2020 Insert

Discuss the problems for the Ivory Coast of dependency on cocoa for a large proportion of their exports. Refer to Figure 2 in your answer. (12 marks)

Primary products are raw materials and natural resources that often come from agriculture.

One issue with primary product dependency is that their prices are likely to be volatile. Firstly, the demand for primary products is likely to be price inelastic since they are often necessities or might cost a small proportion of income; figure 2 shows that 54% of Ivory Coast's exports are cocoa products. Meanwhile, supply can fluctuate quite a lot due to changes in the weather. Sudden changes in supply can therefore lead to proportionately large changes in price. High prices can make food unaffordable for consumers, meanwhile low prices can reduce farmers' incomes, which can affect their living standards too.

The second issue with over-dependence on primary products is that their prices decline over time, as explained by the Prebisch-Singer hypothesis. As incomes increase, the demand for primary products remains low whilst the demand for services and manufactured goods increase. This means that the relative prices of primary products fall over time. Extract A mentions that cocoa prices fell by more than a third in 2017. This would make it hard for Ivory Coast to increase their GDP and grow their economy compared to other countries who are producing and exporting manufactured goods.

However Ivory Coast's government can reduce some of these issues by introducing buffer stocks schemes, which is where they use where introduce a price ceiling and a price floor to maintain some degree of price stability. They can then buy up or release stock according to market conditions.

Secondly, primary product dependence can be good in some situations especially if a country like ivory coast has a comparative advantage. This is when the country can produce these primary products at the lowest opportunity cost. This would mean that Ivory Coast can maintain international competitiveness more consistently and achieve export-led economic growth.

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