Agricultural policy reform : issues and implications for Africa

146 Pages·1993·12.6 MB·English

by  Rosen, Stacey L

Historic, Archive Document
4
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ited States Agricultural Policy
partment of
Agriculture
Reform
Economic
Research
Service
Issues and Implications for Africa
Foreign
Agricultural
Economic Stacey Rosen, Editor
Report
Number 250
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Agricultural Policy Reform: Issues and Implications forAfrica. Editedby Stacey
Rosen. AgricultureandTradeAnalysisDivision,EconomicResearch Service,U.S. De-
partmentofAgriculture. ForeignAgriculturalEconomicReportNo. 250.
Abstract
Thisreportexamines thepattern ofgovernmentintervention in the agricultural markets of
nineAfrican nationsduring 1982-89. Producerandconsumersubsidy equivalentsarecal-
culatedto measurethe leveloftransfers toandfromproducers and—consumers thatre-
A
sultedfrom various governmentpolicies. chapteroneachnation Egypt, Kenya,
—
Morocco, Nigeria, Senegal, South Africa,Tanzania,Zambia, andZimbabwe provides
backgroundon theeconomyandagricultural sectorofthe country; areview ofthe
macroeconomic, trade, andagriculturalpolicies; andestimatedproducerandconsumer
subsidy equivalentsfor selectedcommodities. Since thesecountries hadexperiencedlow
agricultural output,limited importcapacity duetorising foreign debt, and stagnatingeco-
nomic growth, structuraladjustmentreforms werebegun in the 1980’s. Thereporttraces
theearlyresponse to theagricultural reforms,especially in the exchangeratesand the
marketing systems.
Keywords: Africa, agriculturalpolicy, structural adjustment, marketliberalization,
subsidy equivalents,Egypt,Kenya, Morocco,Nigeria, Senegal, South Africa,Tanzania,
Zambia,Zimbabwe
Acknowledgments
Theeditoris indebted toDonnaRoberts forherwords ofencouragementand extensivere-
view ofthis document I thankChristineBolling and GeneMathia for theircarefulreview
andconstructivecomments. MargaretMissiaen’s design ofa templateforthecalculations
ofthePSE’s andCSE’s and theoutputtablesproved tobeinvaluable. ShahlaShapouri’s
review,comments, andinputon thePSE/CSE methodology wereparticularly helpful.
MaxwellEseonuresearchedsomeofthebackground data forthePSE/CSEcalculations
forKenyaandMorocco. PamelaWeaverandNoraMcCannprovided excellentwordproc-
essing support. Special thanks go toFlorenceMaupin forediting this report
Washington, DC 20005-4788 September 1993
i
Contents
Page
Summary iv
Introduction 1
Egypt 9
Economic andAgriculturalDevelopments 9
Policies in the 1980’s 9
Estimation ofPolicy Intervention in Agriculture 11
Conclusions 16
References 16
Appendix: Methodology 17
Kenya 23
Economic andAgriculturalDevelopments 23
Policies in the 1980’s .* . . . 23
Estimation ofPolicy Intervention in Agriculture 25
Conclusions 29
References 31
.
Appendix: Methodology 31
Morocco 39
EconomicandAgriculturalDevelopments 39
Policies in the 1980’s 39
Estimation ofPolicy Intervention in Agriculture 41
Conclusions 46
References 47
Appendix: Methodology 48
Nigeria 55
EconomicandAgriculturalDevelopments 55
Policies in the 1980’s 55
Estimation ofPolicy Intervention in Agriculture 57
Conclusions 62
References 62
Appendix: Methodology 63
Senegal 71
EconomicandAgriculturalDevelopments 71
Policies in the 1980’s 71
EstimationofPolicy Intervention in Agriculture 74
Conclusions 78
References 79
Appendix: Methodology 79
SouthAfrica 85
EconomicandAgriculturalDevelopments 85
Policies in the 1980’s 85
Estimation ofPolicy Intervention in Agriculture 87
Conclusions 91
References 92
Appendix: Methodology 92
ii
Page
Tanzania 97
Economic andAgriculturalDevelopments 97
Policies in the 1980’s 97
Estimation ofPolicy Intervention in Agriculture 100
Conclusions 104
References 106
Appendix: Methodology 106
Zambia Ill
Economic andAgriculturalDevelopments Ill
Policies in the 1980’s Ill
Estimation ofPolicy Intervention in Agriculture 114
Conclusions 117
References 118
Appendix: Methodology 119
Zimbabwe 123
Economic andAgricultural Developments 123
Policies in the 1980’s 124
Estimation ofPolicy Intervention in Agriculture 126
Conclusions 129
References 130
Appendix: Methodology 131
Summary
Taxes on farmersandfood subsidiesforconsumersfell as thegovernmentsofnine Afri-
can nations reformed theiragricultural policies in the 1980’s. This reporttraceseffects of
formergovernmentpolicies and subsequentreformsduring 1982-89. Countries studied
wereEgypt,Morocco, Kenya, Tanzania,Zambia, Senegal,Nigeria,Zimbabwe, andSouth
Africa.
Governments ofthese nations intervened significantly in agricultureduring the 1970’s
andearly 1980’s, with heavily taxed farmersandwidespread urban foodsubsidies. Gov-
ernmentsalso setpricesandmanipulatedexchangerates which hadthe neteffectoftrans-
ferring income from producers toconsumers. Such policies depressedfarmproduction,
leading to more foodimportsandhigherforeigndebt Reforms began in the 1980’s.
Thenewreportmeasures governmentpolicy effectsby estimatingproducerandcon-
sumersubsidy equivalents (PSE’sandCSE’s). PSE’sare theratios between the total
valueofpolicy transfers toproducers andtotal producerrevenue. AnegativePSEsigni-
fies thatgovernmentpoliciesreducedproducerrevenue. CSE’s aresimilarindicatorson
theconsumerside. This study measuresPSE’sandCSE’s forselectedcommodities for
thenineAfrican nations.
Thesenine governments intervened in all stagesofagriculturalproduction andconsump-
tion. Marketingboards,often poorly managed, setproduction quotas andprices, andat
times,imposedobligatory sales togovernmentagencies. Artificially setfoodandpro-
ducerpricesdistorteddomestic trade,andunrealistic exchangeratesdeterioratedthebal-
ance ofpayments. Atthesametime, importsofraw materialsandcapital goods,essential
foreconomic growth, werecrowdedoutby theneed to importfoodforthe growingpopu-
lations. Sinceagriculture contributes morethan 30percentofgross domestic productin
Africa, thepoorperformanceof this sectordamaged thesenations’ overall economies.
Internationalresponsebroughtpolicy reform. TheWorldBankand theInternational
Monetary Fund insisted in theearly 1980’s on reforms in theagriculturalpolicies ofthe
affectedcountries. Thegoalsofthereforms include limiting governmentborrowingand
expenditures,reducinggovernmentdeficitsrelativeto thegrossdomesticproduct,reform-
ing exchangeratepolicies, liberalizing markets, anddecontrollingprices.
IV
Reform
Agricultural Policy
Issues and Implications for Africa
Stacey Rosen, Editor
Introduction ing incentiveprices toproducers whilekeepingconsumer
prices low. In addition, theboards werecharacterizedby
overstaffing, inadequatebudgets, andpoormanagement 10
Agriculturecontributes more than 30percentofgross domes- ( ).
ticproduct(GDP), on average, in Africa. Theperformanceof
Pricingpolicies havebeen anotherwidely usedcommodity-
theagricultural sectoris consequently aprimary determinant
oftheperformanceoftheoverall economy. But, African agri- specific intervention. Governments have setprices formany
culturehasperformedpoorly formorethan two decades. In cropstoprovideincentives to farmersandassuresomede-
manycountriesin theregion, foodproduction failed tokeep greeofprice stability. In practice, however, real producer
pace with rapidpopulation growth. The decliningproductiv- prices havenotbeen maintainedandhaveoften declinedin
ity stemmedfrom weakmarketing infrastructures, limited ordertokeepretailprices low toprotecttheurbanconsumer.
useofimproved technology, inadequateresearch andexten- Ifan economy is notadequately stimulatedasaresultofre-
form,eliminating orreducing these consumer subsidies
sion, and limitedcreditavailability.
couldreduce consumers’purchasingpowerwhich, in turn,
could hurtnutrition.
Thesecountries haveencounteredfinancial imbalances stem-
ming from a series ofexternal shocks thatbegan in themid-
1970’s, includingrising oil prices, increasing andvariable Otherpolicies which affectproducers areborderpolicies (tar-
interestrates, anda heavydebtburden. As aresultofthesefi- iffs orquotas), which havebeen used to maintainprices at
nancial constraints, imports havebeen limited. Foodimports, specified levels orwithin a specifiedrangeand toconserve
foreign exchange.
however, havebecomeapriority becauseoftheprecarious
situation offood security in thesecountries. Imports ofraw
materials andcapital goods, which are essential foreconomic Sector-Specific Policies
growth, haveconsequently been crowdedout Governments can implementmanypolicies thataffecttheag-
ricultural sector, including credit, input,ortransportation
MostAfricancountries implemented structural adjustment policies. Many governments offerpreferential interestrates
programs in the 1980’s in orderto address theseissues ofde- for theagricultural sector. To stimulate theuseofimproved
clining agricultural output, limitedcommercial importcapac-
inputs and to increase yields, governments subsidizefertil-
ity,and stagnatingeconomic growth. Thereforms were izerandirrigation. Governmentsprovide transportation sub-
proposed and supportedby international financial institu- sidies to increase marketed output.
tions and foreign donors. Theprincipal policyadjustmentar-
eas in agriculture havebeen exchangerates and the Economywide Policies
marketing system 10
( ).
A
governmentcan intervenein the agricultural sectorby im-
How Governments Intervene in Agriculture plementing generaleconomicpolicies which, whilenotdi-
rectly aimedatagriculture, may have indirecteffects.
Given theimportance ofagriculture in employment, income,
andexportearnings,policy intervention in thesectorhas A
government’s monetary policywillinfluenceinflation, in-
been widespread. Governments haveintervened in all stages terestrates, andexchangerates, which, in turn, willaffectthe
ofproduction, consumption, and tradeofoutputas well as in- performanceofthe agricultural sector. Forexample,expan-
puts. Implementedpolicies havebeen aimedata singlecom- sionary monetarypolicies through the 1970’s andearly
modity, the entire sector, and theoveralleconomy. 1980’s led tohigherinflationin mostAfrican countries. Dur-
ing this time, exchangerates were notadequately adjusted,
Commodity-Specific Policies and thecurrencybecameovervalued. Asaresult, importsbe-
Thedominant form ofgovernmentintervention in African ag- camecheaprelative to exports. Becauseoffinancialcon-
riculturehas been the marketingboard. Marketingboardre- straintsand thepolicy ofprotectingdomestic industry, many
governmentsrestrictedimports through quotas,exchange
sponsibilities have includedbuying, storing, and selling
cropsatgovemment-setprices. Theseboards were expected controls, andlicensing. Foodimports, however,havetradi-
tobe moreefficientthan theprivate sector. However, many tionally been excluded from thesecontrols toprotecturban
consumers. This policy effectivelysubsidizes food imports,
marketingboards experienced financial losses by maintain-
1
thus providingapossibledisincentivetodomesticproducers. toreduce importdemandandsoreduces thecurrentaccount
Byreducing the competitiveness ofexportables, an overval- deficit.
uedcurrency discourages producers ofexportcrops.
How Is Government Intervention Measured?
Arestrictivemonetarypolicy, in which producers may have
less access to foreign exchange orcredit,can also hinder Forthepurposes ofthisreport, thevalueoftransfers from
governmentpolicies toproducers andconsumers hasbeen es-
output
timatedusingproducerandconsumer subsidy equivalents
Fiscalpolicies stemming from budgetdeficits, such as reduc- (PSE’s andCSE’s). APSEis theratiobetween thetotal
vtaiornisetiynorfeaelffgeocvtseronnmtehnetawgraigceusltourraelmspecltoory.mSeuncthceofufledcthsaivne- a nvuael.ueAoCfSpoEliicsytthrearnastfieorsbettowpereondutcoetralsvaanlduetootfalpoplriocdyucterarnrs-eve-
cludereduceddemand forpurchasedfood,reducedflow of fers toconsumersandtotal consumerexpenditureforthe
remittances torural areas, andaslowdown inrural-urban mi- commodity.PSE’scompriseboth thebudgetary effectsand
gration thatincreases theagricultural laborforce. Reduced the wedgesdrivenbetween domestic andinternationalprices
expenditures On services fortheagricultural sectorcouldim- thatensue from various governmentpolicies. CSE’s aregen-
ply increasedproduction costs. Reducedpublic investment erally derivedfrom thewedgepolicies drivenbetween do-
in theagricultural ortransportsectors couldrestrictthe mesticandinternational prices. The subsidy equivalents
growth ofruralprofits. measurethe neteffectofseveral policies,including fertilizer
subsidies andexchangerate manipulation (5, 6).
Policy Reform
PSE’s andCSE’s illustrate therelative importance ofvarious
TheWorldBankand InternationalMonetaryFund (IMF) pro- governmentpolicieson producerrevenues andconsumer
posedreform programs thatrecognized theproblems result- costs. Thesepolicies reflectthe changing level ofgovern-
ing from thepolicies listedabove. In 1980, theWorldBank mentintervention in the sector.
introduced structural adjustmentprograms thatfocused onre-
forming macroeconomic andagriculturalpricingpolicies. Fi- Subsidy equivalents canbe expressed in several different
nancingbecame contingentupon implementation ofthese ways. In this report, werefer to a total subsidy equivalent
reforms. In 1986, theIMFintroducedaStructural Adjust- measured in local currency, whichrepresents, toproducers or
mentFacility thatrequires governments, with the assistance consumers, the valueofall policies. However, to enable
ofthe IMFand theWorldBank, to design a3-yearpolicy cross-country orcross-commodity comparisons, wecalculate
frameworkpapertooutline policy objectives, policy instru- apercentagePSE(orCSE) by dividing the totalpolicy trans-
ments, targets, andfinancingrequirements. TheseIMFpro- ferbyproducerrevenue (orconsumercost). Thepercentage
grams had several goals, including (1) limiting government PSE was calculatedas follows:
borrowing andexpenditures, (2) reducing governmentdefi-
cits relative to GDP, (3) reforming exchangeratepolicies, (4) Total transfers _ Q x (Pd-Pw xX) +/
liberalizing markets, and (5) decontrollingprices. Value toproducers Q*Pd ’
Many African countriesarereformingtheirpricing, market- whereQ is quantityproduced,Pd is producerprice (in local
ing, and tradepolicies. Pricingreforms aim to stabilizeprices currency), Pw is worldprice (in U.S. dollars), Xis theex-
whilereducing thedistortion causedby fixedpricing. The ul-
changerate, andI is indirecttransfers throughpolicies like
timate objectiveofpricereform is tobring domestic prices inputsubsidies orexchangeratedistortions. TheCSE’s were
closerto thoseatworld levels. Measures taken to achieve calculatedusingthe samemethodology. ApositivePSE(or
thisgoal include abolishingorlimitingpricingregulations, CSE) indicatesapolicy transferor subsidy to theproducer
currency devaluation, andremoval ofinputsubsidies. Liber- (orconsumer). Conversely, a negativePSE (orCSE) indi-
alization ofthemarketing system involvesbreaking up state
cates atax (5,6).
marketing monopolies, encouragingprivate sectoractivity,
andrelaxingrestrictions on the internal movementofgrain
Theprincipal difficulty in measuring these subsidy equiva-
2 10
( , ). lents was thelack ofdata,particularly forprices andmarket-
ing costs. In several cases, commodities did nothave
African tradepolicy reform is centeredon exportpromotion
comparableworldreferenceprices. Forexample,becauseof
andimportliberalization. Exportpromotion includes ex-
quality differences, referenceprices forcoffeewerereplaced
changeratereforms, reduction ofexportdutiesortaxes,re- by exportunit values forKenyaandTanzania.
duction ofexportquotas orregulations, introduction of
exportsubsidies, allowance forduty-free imports forexport-
In thisreport,PSE’s andCSE’s are measured forselected
ers,and the establishmentofexport-processing zones. Im- commodities fornine African countries: Egypt,Kenya,Mo-
portliberalization includes removalofquotas orlicensing
rocco,Nigeria, Senegal, South Africa, Tanzania,Zambia,and
restrictions andchanges in thetariffstructure (i). Zimbabweforthe years 1982-89. Comparisonsofresults
among countries can be misleadingbecausepolicy coverage
Devaluation improves internationalcompetitiveness and in- may notbethe same, andproducts andcommodities differ
creases incentives toproduce goods forexport Italso works widely among countries.
2