Bioeconomic modelling of the production and export of cocoa for price policy analysis in Papua New Guinea

The purpose of this paper is to describe the bioeconomic modelling procedures established to assess the worth of different price policy options in the cocoa industry in Papua New Guinea. Separate models are developed for smallholders and estates using the Stella simulation software package. The need for bioeconomic modelling is dictated by the nature of cocoa as a perennial crop that is produced by two groups of farmers using different production technologies-estates and smallholders-and sold in an uncertain export market. A detailed description is given of the structure of each model, using the smallholder cocoa industry as an example. Each model comprises eight modules for estimation: economic surplus; area of trees or palms; land suitability; input-output relations; break-even values; export volumes and values; export price formation; and domestic price formation. Details are provided on the elements in each of these modules. A set of pricing policies are selected, and their impacts on smallholders and estates assessed, for the smallholder and estate sectors of the cocoa industry in Papua New Guinea using both deterministic and stochastic analyses. The assessments are made by running simulation models for each policy option based on specified scenarios. Most simulation runs were made for future scenarios, but one run was made for the period from 1984 to 1998, to assess the impact of past price support on the profitability of smallholder cocoa production. Results are presented and discussed for all policy options. As might be expected, they reveal a wide range of impacts, many of them positive. Devaluation and policies leading to a reduction in the opportunity cost of labour to producers offer most scope for expanding economic surplus in the cocoa industry. A planting subsidy also offers prospects of a small increase in economic surplus. On the other hand, there is little to commend input subsidies, price stabilization and short-term price support when world cocoa prices are low. The information gleaned from the results should be useful in assisting policy makers to prioritize policies that encourage future development in the tree crop industries in Papua New Guinea.