Distortions to Agricultural Incentives in Africa: Results from 17 Country Studies

1
Distortions to Agricultural Incentives in
Africa Results from 17 Country Studies

• Will Masters
• Purdue University
• www.agecon.purdue.edu/staff/masters

CSAE Conference on Economic Development in Africa
March 20, 2007 Views expressed are the authors
alone and not necessarily those of the World
Bank, its Executive Directors, or its Trust
Funders (esp. UK and Dutch)
2
Distortions to Agricultural Incentives in Africa

• A project led by Kym Anderson at the World Bank
• to estimate incidence on farmers, processors
  consumers
• for gt70 countries, all major farm products,
  1955-2005
• with country specialists using a common
  methodology
• of all policies potentially subject to stroke of
  the pen reform
• taxes/subsidies and other trade restrictions
• parastatal firms and protected monopolies
• not infrastructure, technology or institutions
• Project staff
• Kym Anderson (WB Project Director)
• Ernesto Valenzuela, Marianne Kurzweil (WB staff)
• Jo Swinnen (coordinator/editor for Eur.
  Transition Econs)
• Alberto Valdes (coordinator/editor for Latin
  America)
• Will Masters (coordinator/editor for Africa)

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Authors of the African country studies
Mozambique C. Arndt, X. Cicera A.
Alfieri Nigeria P. Walkenhorst Senegal W.A.
Masters South Africa L. Edwards, J. Kirsten
N. Vink Sudan H. Faki A. Taha Ahmed Tanzania
O. Morrissey V. Leyaro Uganda A. Matthews
J. Opolot Zambia D. Ndlela P.
Robinson Zimbabwe P. Robinson D. Ndlela

• Cameroon
• E. Bamou W.A. Masters
• Cote dIvoire
• P. Abbott
• Egypt
• J.H. Cassing, S. Nassar G. Siam
• Ethiopia
• S. Rashid M. Assefa G. Ayele
• Ghana
• J. Brooks and A. Croppenstedt
• Kenya
• A. Winter-Nelson G. Argwings-Kodhek
• Madagascar
• F.M. Rakotondrazaka
• Morocco
• T. Roe M.R. Doukkali

4
Motivation Trade policies have changed but
still costly
Import-weighted average applied tariffs by level
of processing and national income
Ag./Other
0.38
0.68
0.75
1.89
2.86
8.59
Reproduced from K. Anderson et al., Methodology
for Measuring Distortions to Agricultural
Incentives, revised 13 September 2006, available
online at www.worldbank.edu/agdistortions.
5
Motivation Exchange reforms have had a large
effect
Black market exchange rate premia, weighted
average across 59 developing and transition
countries, by region, 1960 to 1993 (percent)
6
Motivation Opportunity costs have changed
Index of real international food prices, 1900 to
2005 (1977-79 100)
Source K. Anderson (2006), Reducing
Distortions to Agricultural Incentives Progress,
Pitfalls and Prospects. ltwww.worldbank.org/agdis
tortionsgt. Data shown are an index of export
prices in US dollars for all major traded
agricultural products, deflated by the MUV index
which is the unit value of manufactures exported
from France, Germany, Japan, UK and US, with
weights based on those countries exports to
developing countries.
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Methodology Calculating tariff-equivalent
distortions

• trade distortions
• infer the value of NTBs from price comparisons,
  between
• domestic prices (farmgate, retail or wholesale),
  and
• border prices (unit values or price
  observations), minus
• competitive margins (after stroke of the pen
  reforms)
• or, use observed value of tariffs, taxes and
  subsidies
• other subsidies/taxes (default is zero)
• taxes/subsidies on production, marketing or
  consumption
• taxes/subsidies on inputs, weighted by cost share
  at undistorted prices
• exchange rate effects
• official exchange rate
• parallel exchange rate plus share of transactions
  in parallel market
• or product-specific exchange rate if a multiple
  rate system is used

8
Methodology Aggregation for policy analysis

• Within countries, all aggregates are
  value-weighted
• Across countries, will see
• simple averages (for political economy analyses)
• value-weighted averages (for economic analyses)
• Key measures are
• NRAA Nominal Rate of Assistance for primary
  agric (farming)
• NRAP Nominal Rate of Assistance for agric
  processing
• CTE Consumer Tax Equivalent for purchasers
• NRAM Nominal Rate of Assistance on all
  importables
• NRAX Nominal Rate of Assistance on all
  exportables
• For this summary, will focus on
• anti-farm bias as measured by aggregate NRAA
• anti-trade bias as measured by NRAM relative to
  NRAX

9
Methodology Price transmission along marketing
chain

• To what degree would policy reform change farm
  prices?
• previous studies usually assume full transmission
  to farm prices
• ( marketing services are elastically supplied
  at a fixed margin)
• at the other extreme, there could be no price
  transmission to farms
• ( farm production is elastically supplied at a
  fixed reservation price)
• We allow country authors to specify their own
  estimates, for
• transmission from wholesale to farmgate (?), and
  also
• tax incidence between sellers (?) and buyers (1
  ?)
• Default value is equi-proportional transmission
• some authors use their own judgment or
  econometric estimates

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Methodology Examples of price transmission
Influence of price transmission on the incidence
of a 33 import tariff for a processed good whose
primary product is nontradable
Full (all margins are fixed)
None (farm price is fixed)
Equi-proportional
Price transmission
(distribution cost is fixed)
(all sectors)
Tax/subsidy measures NRAA farmer, NRAP
processor, CTE consumer
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Preliminary ResultsAnti-farm and anti-trade
bias in Africa
Ad-valorem tariff equivalent
Anti-farm bias is measured by the All Products
line Anti-trade bias is the gap between
Importables and Exportables
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
12
Africas anti-farm bias varies, but clearly
worsens then improves over time
Ad-valorem tariff equivalent
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
13
Africas export taxes account for mostof the
level and trend in its anti-farm bias
Ad-valorem tariff equivalent
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
14
Africas import policies vary widely
Ad-valorem tariff equivalent
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
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Summary of the evidence

• Agricultural trade policy has taxed farmers
• increasingly from 1961 to 1977 period, from 15 up
  to 40
• then at a reduced rate after 1987, back down to
  15-20
• Taxation increased sharply over 1960s and 1970s
• a doubling of export taxation, from 25 to 50
• elimination of import protection, from 20 to lt0
• Taxation has since been reduced just as much
• much lower export taxes, to well below 25
• a period of high import protection in the 1980s

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Summary of the evidence (continued)

• Import policy varies more than export taxes
• across countries
• suggesting political-economy differences
• over time within countries
• possibly stabilizing domestic prices
• across crops within countries
• so welfare cost of distortion may have fallen by
  less than the decrease in average protection

17
Behind these data, stories from the country case
studies

• Real policies and the reform process
• Reforms had large effect, but slowly and with
  reversals
• Export taxes
• often set a fixed local price taxes vary with
  world price
• taxation may be needed for revenue and
  redistribution
• have been reduced but not eliminated over time
• Import restrictions
• sometimes stabilize some prices, but
• rarely stabilize prices for remote rural
  producers
• have sometimes been significant revenue sources

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Implications for policy

• Successful reforms typically switch instruments
• away from state trading, QRs and specific tariffs
  
• towards more transparent taxes (ad-valorem and
  VAT)
• Border reforms leave weak domestic markets
• High transport costs and lack of spatial
  integration
• High credit costs and lack of temporal
  integration
• Thin input markets and limited flow of new
  technology
• Demographic and health constraints on human
  capital
• After policy reform, a big agenda for project aid
• to raise agricultural productivity, education and
  health

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Further information

• www.worldbank.org/agdistortions
• wmasters_at_purdue.edu

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Annex of country datafor 16 African Countries

• Chapter drafts will be available soon
• www.worldbank.org/agdistortions
• Results shown here are
• for primary products (not processed)
• by country, in alphabetical order
• Cameroon, Cote dIvoire, Egypt, Ethiopia, Ghana,
  Kenya, Madagascar, Mozambique, Nigeria, Senegal,
  South Africa, Sudan, Tanzania, Uganda, Zambia,
  Zimbabwe

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Cameroon an early reformer?
Importables none Exportables cocoa, coffee,
wood, bananas
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
22
Cote dIvoire consistent export taxes
Importables rice Exportables cocoa, coffee,
cotton
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
23
Egypt episodes of import protection
Importables maize, wheat, sugar Exportables
cotton, rice
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
24
Ethiopia steady reformer?
Importables none Exportables coffee, hides and
skins, chat, oilseeds and pulses
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
25
Ghana an extreme case
Importables rice, maize Exportables cocoa,
groundnuts
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
26
Kenya episodic reformer?
Importables rice, maize Exportables cocoa,
groundnuts
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
27
Madagascar now pro-ag. but still anti-trade
Importables rice, sugar Exportables vanilla,
coffee, cocoa, cloves, pepper, sugar
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
28
Mozambique from anti-agriculture to anti-trade?
Importables maize (in South), beans, groundnuts,
rice, sugar (to 1982) Exportables maize (in
North), tobacco, cotton, cashew, sugar (after
1982)
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
29
Nigeria now neutral?
Importables maize, rice, sorghum, cassava
millet, yams Exportables cocoa, groundnuts, palm
oil
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
30
South Africa from anti-trade to neutral?
Importables poultry, mutton, beef Exportables
maize, wheat, grapes, apples, oranges, sugar
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
31
Senegal successful reforms?
Importable rice Exportable groundnuts
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
32
Sudan a recent reformer
Importables wheat, sugar Exportables cotton,
sorghum, millet, groundnut, gum arabic, livestock

Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
33
Tanzania consistently anti-agriculture?
Importables maize, rice, wheat,
sugar Exportables coffee, tea, cotton, tobacco,
beans, cashews, sisal, pyrethrum
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
34
Uganda still protecting importables?
Importables rice plus maize (some
years) Exportables coffee, cotton maize (some
years)
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
35
Zambia episodic reformer?
Importables wheat, rice plus maize, sorghum and
soybeans (in some years) Exportables tobacco,
cotton, groundnuts plus maize, sorghum and
soybeans (some years)
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
36
Zimbabwe increasingly anti-agriculture?
Importables wheat plus maize, soyabeans, and
sorghum (some years) Exportables tobacco,
cotton, groundnuts plus maize, soyabeans and
sorghum (some years)
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
37
Cameroon, crop by crop
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
38
Cote dIvoire, crop by crop
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
39
Egypt, crop by crop
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
40
Ethiopia, crop by crop
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
41
Ghana, crop by crop
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
42
Kenya, crop by crop
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
43
Madagascar, crop by crop
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
44
Mozambique, crop by crop
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
45
Nigeria, crop by crop
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
46
South Africa, crop by crop
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
47
Sudan, crop by crop
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
48
Tanzania, crop by crop
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
49
Uganda, crop by crop
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
50
Zambia, crop by crop
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)
51
Zimbabwe, crop by crop
Source Preliminary results from K. Anderson and
W.A. Masters (2007), Distortions to Agricultural
Incentives in Africa. Washington, DC The World
Bank. (Online at www.worldbank.org/agdistortions.)