Environmental Economics & Policies; Economic Theory & Research; Crops and Crop Management Systems; Markets and Market Access; Access to Markets
Summary: Many countries in sub-Saharan Africa remain dependent on a few primary commodities -- coffee, cocoa, cotton, sugar, tea, and tobacco -- for a large share of export earnings. Because demand for these commodities is price-inelastic, production and export expansion can depress world prices and hence reduce net export revenue. The authors discuss the effects of this phenomenon -- the adding-up problem -- on policy and development strategies for major agricultural export commodities in sub-Saharan Africa. They conclude that, as a practical matter, it is not feasible to design a regional commodity production and trade policy for sub-Saharan Africa as a whole because of the difficulty of equitably distributing the benefits of such a policy. Moreover, if an export tax is imposed on sub-Saharan Africa as a whole, the greatest benefits may go to producers in other regions such as Asia and Latin America. Individually, few countries in sub-Saharan Africa have sufficient market power to influence commodity prices in the long run. Possible expectations include Cote d'Ivoire (in cocoa) and to a lesser extent Ghana (in cocoa), Kenya (in tea), and Malawi (in burley tobacco). Export taxes may prove beneficial for these countries but, at certain levels, the primary effect of "optimal" taxes is to transfer resources from smallholders to governments with limited marginal welfare gains.
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