Summary
This paper examines the potential effectiveness of the Living Income Differential (LID) policy, which involves charging higher prices for beans, introduced jointly by Côte d’Ivoire and Ghana. The policy might help mitigate both poverty and the serious child labour and deforestation issues associated with cocoa farming. However, the design of the policy and the current lack of complementary measures raise doubts about the success and longevity of the policy and concerns about the implications for farmers in other countries. This study quantifies the magnitude of the policy’s effects in the LID countries and elsewhere under several alternative configurations of policies and market reactions with the support of model simulations. The paper finds increases in farmer income ranging from zero to sizeable. It also identifies a number of issues threatening the policy's sustainability and underlines the strong dependence of the policy’s success on chocolate manufacturers’ support, unless complemented by supply management measures.