Assessing the impact of increasing planted area on the Malaysian cocoa industry

The aim of this study is to describe the important variables shaping Malaysian cocoa industry via formulating a market model that represent cocoa production, import demand, domestic consumption, export demand and prices along with a stock equation as a closing identity. The model is estimated utilizing two-stage least squares annual using data extending over the period 1978-2012. The results suggest the important factors affecting cocoa production are real cocoa beans prices, planted area and bank lending interest rate. The key determinants of domestic consumption are cocoa bean prices, the Malaysian economic activity and lagged domestic consumption in addition of the expansion in cocoa products’ manufacturing industry. The export demand has been found to be elastic to all the variables including cocoa world price, real effective exchange rate, world income the previous year export demand and a negative trend since 1989, reflecting a shift of export pattern from cocoa bean to downstream products . The cocoa stock, cocoa world price and lagged domestic price are the main important factors influencing the domestic price of cocoa. Furthermore, a counterfactual analysis suggests that increasing the planted area will be beneficial to the industry.