MODULE 3. Price Incentives and Disincentives SESSION 4. Analysis and interpretation of indicators

1. MODULE 3. Price Incentives and DisincentivesSESSION 4. Analysis and interpretation of indicators

2. Module objectives: • Understand what the indicators mean • Provide a coherent understanding of how to review the indicators through the policy lens

3. The perfect world: law of one price

4. Overview of potential situations

5. Case I (OPW>0 & PW>0) [imported] Data available for shadow access costs both from border to point of competition and from point of competition to farm gate

6. Case I (OPW>0 & PW>0) [imported]

7. The Policy analysis • The nominal rate of protection at wholesale and farm gate are both positives indicating the overall policy effect is supportive for the commodity. Support at wholesale means a premium of 7% and at farm gate 2.4% • As Incentives are higher at the wholesale level, it seems that policies do not benefit farmers as much as wholesalers • From a farmer point of view • Inefficiencies in access from border to wholesale provide an incentive of 25 FCFA per ton • Inefficiencies in access cost from wholesale to farm gate provide a disincentive of 50 FCFA per ton • Overall policy environment (i.e. tariffs, quotas, etc.) support farmers by 50 FCFA per ton.

8. Case II (OPW>0 & PW<0) [imported] Exchange rate in the country is overvalued

9. Case II (OPW>0 & PW<0) [imported]

10. The Policy analysis • The nominal rate of protection is negative, meaning that farmers are not supported by the overall policy environment. • In this case there are no differences along the value chain thus there is no specific market power. • This negative support due to an overvalued exchange rate shows that existing trade policies do not compensate the impact of the exchange rate.

11. Case III (OPW<0 & PW>0) [imported] Exchange rate is overvalued Access costs are very high in the country (i.e. bad infrastructure, bribes, market power by wholesalers...)

12. Case III (OPW<0 & PW>0) [imported]

13. The Policy analysis • The nominal rate of protection is positive meaning that the overall policy environment is supportive of farmers • The overvalued exchange rate is providing a disincentive for farmers (implicit tax) of 50 • Inefficiencies in access from border to wholesale provide an incentive of 150 FCFA per ton • Inefficiencies in access cost from wholesale to farm gate provide a disincentive of 45 FCFA per ton • There is some kind of import subsidy that is also dis-incentivising production for a value of 50.

14. Case IV (OPW<0 & PW<0) [imported] Exchange rate in the country is overvalued Access costs are ineffcient

15. Case IV (OPW<0 & PW<0) [imported]

16. The Policy analysis • The nominal rate of protection is negative and thus farmers are dis-incentivsed. • Most of the disincentive comes from an overvalued exchange rate (100). • However there seems to be also some kind of import subsidy that is further depressing prices that could be obtained by farmers.

17. Aggregation • Using the production figures and the wedges and aggregated indicator for the whole agricultural sector can be obtained (total market price support) • The final figure can cancel out incentives in one commodity and disincentives in another • Aggregation by incentivized and dis-incentivized commodities (mentioning share of total output) can avoid this • Commodity specific analysis to complement the aggregated indicator

18. Thank you!