INTRODUCTION Prior to the introduction of economic reforms in 1985, export commodities in Nigeria were traded through the marketing boards. The boards were vested with the monopoly power to export crops such as cocoa, palm oil, rubber, kola-nut, among others. However, as agricultural production strategies changed over time, so did agricultural marketing strategies. Thus, between the colonial era and now, the Nigerian agricultural system has undergone profound changes, culminating in the present liberalized marketing arrangement for major export commodities in Nigeria. Conse- quently, the prices at which cocoa and other cash crops farmers in Nigeria are able to sell their produce to a large extent now depend on how they respond to both local and global demand in the cocoa industry. With the scrapping of the Cocoa Marketing Board in 1986, the cocoa marketing channel now has more operators and links; resulting into many people becoming gainfully employed. Moreover, cocoa farmers in Nigeria are now able to monitor and sell their produce at rates close to world market prices. They are also saved the agonies of long delays in payment for purchases. These two © Kamla-Raj 2009 J Soc Sci, 21(2): 129-135 (2009) Economic Deregulation and Supply Response of Cocoa Farmers in Nigeria O. O. Olubanjo 1 , S. O. Akinleye 2 and T.T. Ayanda 1 1. Department of Agricultural Economics, Olabisi Onabanjo University, Ogun State, Nigeria 2. Department of Economics, University of Lagos, Nigeria KEYWORDS Error Correction Mechanism. Structural Adjustment. Cointegration Analysis ABSTRACT The effect of deregulation on the supply response of cocoa farmers in Nigeria was analyzed using the ECM approach. Time series data (i.e. 1970-2000) were compiled and a functional relationship was established using OLS technique. The data were tested for their time series characteristics using the DF/ADF tests. Preliminary analysis suggested that estimations based on their levels might be spurious. Results indicated that almost all the variables in the model were not stationary at their levels. Further results revealed that higher prices received by producers affected cocoa output. Moreover, statistical significance of the error correction term confirmed the existence of an equilibrium relationship among the variables. More importantly, the deregulation period’s policy instruments instituted in Nigeria, favored cocoa production. Consequently, policies encouraging domestic price alignment with world prices are recommended. favorable developments, inter alia, thus serve as incentives to local farmers to produce more for the market. Official statistics from the Central Bank of Nigeria indicate that an average of about 252,000 tonnes of cocoa beans were produced per annum between 1986 and 1995 (i.e. the first decade of economic deregulation) as against an average 160,000 tonnes of cocoa beans produced in the 1977 to 1985 period. The other fact that is obvious from Table 1 is the increase in the value of the exchange rate after 1986. Also, farmers have received higher prices for their produce in the world market. Furthermore, changes in the average annual rainfall were not enough to affect output negatively in the periods of economic deregulation in Nigeria. Finally, increased hectarages of cocoa plantations were harvested in the deregulation period, obviously in response to improved price incentives, as compared to the pre-deregulation period. Given the importance of the agricultural sector as a vital component in the economies of developing countries as Nigeria’s and the relative importance of cocoa as a major cash crop in Nigeria, there is the need to ensure its improved performance. A means of achieving this would be through the analysis of the cocoa economy, before and since the onset of economic deregulation in Nigeria. Similarly, the emphasis in Nigeria on the adoption of a realistic exchange rate policy coupled with the liberalization of external trade and payments system, and the growing reliance on market forces especially in Corresponding author: Akinleye S. Oludiran Department of Economics, University of Lagos, Akoka, Lagos, Nigeria E-mail: akinleye@gmail.com Telephone: +234 803 3483 326, 805 8871 652