The New Zealand Herald reported last month:
Booming cocoa prices are stirring interest in turning Nigeria into a bigger player in the sector, with hopes of challenging top producers Ivory Coast and Ghana, where crops have been ravaged by climate change and disease.
Nigeria has struggled to diversify its oil-dependent economy but investors have taken another look at cocoa beans after global prices soared to a record US$12,000 ($21,000) per tonne in December.
“The farmers have never had it so good,” Patrick Adebola, executive director at the Cocoa Research Institute of Nigeria, told AFP.
More than a dozen local firms have expressed interest in investing in or expanding their production this year, while the British Government’s development finance arm recently poured US$40.5 million into Nigerian agribusiness company Johnvents.
When the price of a good increases, sellers become willing and able to supply more of the good. In general, sellers want to increase their profits. When the price of a good increases, it becomes more profitable to sell it, and so sellers want to sell more of it. [*] This intuition is embedded in the supply curve, as shown in the diagram below. When the price of cocoa is P0, sellers want to sell Q0 tonnes of cocoa. But when the price increases to P1, sellers want to sell Q1 tonnes of cocoa.
What might have caused the increase in the global price of cocoa? The New Zealand Herald article explains that:
Ivory Coast is by far the world’s top grower, producing more than two million tonnes of cocoa beans in 2023, followed by Ghana at 650,000 tonnes.
But the two countries had poor harvests last year as crops were hit by bad weather and disease, causing a supply shortage that sent global prices to all-time highs.
I'll refrain from drawing the global market for cocoa, but suffice to say that the high global price of cocoa is attracting Nigerian farmers to produce more, illustrating that the supply curve for Nigerian cocoa is upward sloping.
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[*] There are at least two other explanations for why the supply curve is upward sloping, and both relate to opportunity costs. First, as sellers produce more of the good, the factors of production (raw materials, labour, capital, etc.) become more scarce and so become more expensive. Also, less relevant (and so more costly) inputs begin to be used to produce the good. So, the opportunity costs of production increase, and as the sellers produce more the minimum price they are willing to accept increases more because their marginal cost is increasing. Second, when the price is low the opportunity cost of not selling is low, but as the price rises the opportunity cost of not selling rises, encouraging the sellers to offer more for sale. In other words, as the price increases, the sellers do less of not selling (yes, that is a double negative, and it was intentional). As the price increases, the sellers want to sell more.
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