Measuring policy distortions along agricultural value chains: Lessons from Africa and Asia

1. Scope of the Synthesizing Work 4 countries, 9 agricultural value chains • Ethiopia: Goats and Sheep Value Chains • India: Rapeseed, Groundnut, and Sugar-Molasses-Ethanol Value Chains • Nigeria: Palm Oil and Cocoa Value Chains • Tanzania: Maize and Groundnut Value Chains

2. Motivation • To support development and protect local markets, governments often intervene with trade policies or price supports for particular agricultural commodities. • These policies impact all economic agents along the value chain of that commodity, including farmers. • It is necessary to understand and measure how trade and agricultural policies affect producer incentives and price transmission along the complete value chain of a commodity.

3. Methodology • One way is using Nominal Rates of Protection (NRP) methodology applied to different nodes along the value chain (Kruger, Schiff, Valdes (1988)). Border Price •Official Exchange Rate •Quantity Adjustment •Quality Adjustment Reference Price at Border •Quantity Adjustment •Quality Adjustment •Processing Margins •Transportation Margins •Other Costs Reference Price at Point of Competition •Processing Margins •Transportation Margins •Other Costs •Quantity Adjustment •Quality Adjustment Reference Price at Farm gate

4. Methodology for Africa We compute NRPs at the farm gate, retail, and at the border: 𝑁𝑅𝑃𝑏𝑜𝑟𝑑𝑒𝑟 = 𝐷𝑃𝑏𝑜𝑟𝑑𝑒𝑟 − 𝑅𝑃𝑏𝑜𝑟𝑑𝑒𝑟 𝑅𝑃𝑏𝑜𝑟𝑑𝑒𝑟 𝑁𝑅𝑃𝑟𝑒𝑡𝑎𝑖𝑙 = 𝐷𝑃𝑟𝑒𝑡𝑎𝑖𝑙 − 𝑅𝑃𝑟𝑒𝑡𝑎𝑖𝑙 𝑅𝑃𝑟𝑒𝑡𝑎𝑖𝑙 𝑁𝑅𝑃𝑓𝑎𝑟𝑚𝑔𝑎𝑡𝑒 = 𝐷𝑃𝑓𝑎𝑟𝑚𝑔𝑎𝑡𝑒 − 𝑅𝑃𝑓𝑎𝑟𝑚𝑔𝑎𝑡𝑒 𝑅𝑃𝑓𝑎𝑟𝑚𝑔𝑎𝑡𝑒 𝐷𝑃 is domestic price, 𝑅𝑃 is reference price (“free market” price that would exist without government intervention).

5. How do Policy Distortions Impact Value Chains? Positive NRPs: Producers receive higher prices than what is prevailing in international markets, i.e. policies have subsidized the producers. Negative NRPs: Producers receive lower prices than what is prevailing in international markets, i.e. policies have taxed the producers.

6. Tanzania Maize and Groundnut Value Chains Team: Fahd Majeed, Summer Allen, Simla Tokgoz, Bas Paris IFPRI Discussion Paper 1748. Washington, DC: International Food Policy Research Institute (IFPRI). http://ebrary.ifpri.org/cdm/ref/collection/p15738coll2/id/132786

7. Consumed at farm (~60%) Primarily smallholder farmers/ few large-scale farms Primary Markets (Farm gate) Smallholder farmers Traders Secondary Markets (~40%) Millers, consumers Consumers (grain or flour) Urban Market Foreign buyers (few)Exports Processors to poultryFeed Stockholding NFRA, WFP Maize Value Chain

8. NRPs at the Border for Maize and Maize Flour -100% -50% 0% 50% 100% 150% 200% 250% 300% 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 Maize Flour Maize

9. Maize NRPs at the Farm Gate for Long Rainy Season Regions -70% -60% -50% -40% -30% -20% -10% 0% 10% 20% 2008-09 2010-11 2012-13 Dar es Salaam Dodoma Iringa Kaskazini Pemba Kigoma Kilimanjaro Lindi Manyara Mara Mbeya Mtwara Pwani Rukwa Ruvuma Singida Tabora Tanga

10. Maize NRPs at the Farm Gate for Short Rainy Season Regions -70% -60% -50% -40% -30% -20% -10% 0% 2008-09 2010-11 2012-13 Arusha Kagera Morogoro Mwanza Shinyanga

11. Smallholder farmers Middlemen, neighboring farmers Primary Markets (Farm gate) Smallholder farmers Traders Secondary Markets (Local Markets) Middlemen Processors, exporters, consumers Urban Market Few large buyers and processors Local supermarkets, consumers, exporters Processing Facilities (groundnut oil, cake, butter, paste) Minimal crushing Minimal shelling Groundnut Value Chain

12. NRPs at the Border for Groundnuts and Groundnut Oil -100% -90% -80% -70% -60% -50% -40% -30% -20% -10% 0% 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 Groundnut Oil Groundnuts

13. Groundnut NRPs at the Farm Gate for LRS Regions -90% -80% -70% -60% -50% -40% -30% -20% -10% 0% 2008-09 2010-11 2012-13 LRS Average Dar es Salaam Dodoma Iringa Kaskazini Pemba Kaskazini Unguja Kigoma Lindi Mbeya Mtwara Rukwa Ruvuma Singida Tabora

14. Conclusions for Tanzania • The anti-trade bias in policy decisions hurts the farmers, especially in maize, leading to lower profit margins for farmers. • Disincentives in export markets reverberate through the value chain and hurt farmers by reducing the prices they receive relative to international market prices.

15. Nigeria Palm Oil and Cocoa Value Chains Team: Simla Tokgoz, Summer Allen, Fahd Majeed, Bas Paris, Adeola Olajide, Evans Osabuohien

16. Harvesting of wild groves, many smallholder farmers Process by traditional methods Farm gate (Traditional TPO, PKO) Medium-scale farmers, large-scale farmers Small processors Farm gate (Medium TPO, PKO) Small and medium plantations Medium-sized processors Farm gate (Medium TPO, Medium SPO, PKO) Consumed within rural markets, sold on to palm oil dealers Sold on to palm oil dealers HH food consumption, HH cosmetic uses Sold on to palm oil dealers, or secondary refiners Farm gate (Integrated SPO, PKO) Non-food industrial uses, food industrial uses, HH food consumption HH food consumption, HH cosmetic uses Non-food industrial uses, food industrial uses, HH food consumption Large plantations Large processors Farm gate (Integrated SPO, PKO) Secondary refiners Palm Oil Value Chain

17. NRPs at the Border for Palm Oil 0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

18. Palm Oil NRPs at the Farm Gate 0% 50% 100% 150% 200% 250% 300% 350% 400% 2010/11 2012/13 LSMS Average North Central North East South East South South South West

19. Many Producers (smallholders, cooperatives) Few buyers (small traders/brokers) Primary Markets (Farm gate) Many Suppliers (small traders/brokers) Few traders (LBAs, cooperatives) Secondary Markets Few sellers Many consumers (wholesalers/cocoa merchants) Wholesale Market Few exporters (3 big companies) Many buyers (Many international buyers Export Market Cocoa Value Chain

20. NRPs at the Border for Cocoa Products -80% -70% -60% -50% -40% -30% -20% -10% 0% 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 Cocoa Paste Cacao Beans Cocoa Butter Cocoa Powder

21. NRPs at the Farm Gate for Cacao Beans -80% -70% -60% -50% -40% -30% -20% -10% 0% 2010-11 2012-13 LSMS Average South South South West

22. Conclusions for Nigeria • Negative NRPs at the farmgate for all cacao-producing regions suggest that the disincentives in the cacao bean export market reverberate through the domestic market and the farmgate, despite the Nigerian government’s cacao support policies. • Due to a protective trade policy and other domestic initiatives, the NRPs at the farmgate for palm oil producers are positive and high, showing that the Nigerian government has protected the farmers. This also increased the prices paid by consumers.

23. Ethiopia Small Ruminants Value Chains Team: Girma Kassie, Rahel Wube, Simla Tokgoz, Fahd Majeed, Aden Aw Hassan, Barbara Rischkowsky, Mulugeta Yitayih Forthcoming in Journal of Agribusiness in Developing and Emerging Economies

24. Addis Ababa Few sellers Many consumers Secondary Markets Many suppliers Few traders Primary markets Many producers Few buyers Export Market Few exporters Many buyers Sheep and Goats Value Chains

25. NRPs at Retail and Farm Gate for Sheep -80% -70% -60% -50% -40% -30% -20% -10% 0% 2010 2011 2012 2013 2014 2015 Percent NRP at Retail NRP at Farm Gate

26. NRPs at Retail and Farm Gate for Goats -70% -60% -50% -40% -30% -20% -10% 0% 2010 2011 2012 2013 2014 2015 Percent NRP at Retail NRP at Farm Gate

27. Conclusions for Ethiopia • Policies of the government are taxing value chain participants rather than protecting them. • Policy induced distortions were separated from market inefficiencies through use of data on access costs throughout the value chain. These access costs are positive and high, showing high market inefficiencies.

28. India Oilseeds and Sugar- Molasses-Ethanol Value Chains Team: Simla Tokgoz and Fahd Majeed Journal of Agricultural Economics (2018): http://dx.doi.org/10.1111/1477- 9552.12305

29. Methodology for India • We extend the nominal rate of protection (NRP) methodology to a value chain framework for three types of value chains: 1. a new value chain created by policy, 2. a value chain in which a by-product is created in the processing of a commodity, and 3. a value chain in which processing of a commodity generates new product(s). • We consider two cases of value chains: when the commodity is tradable and when it is non-tradable.

30. Methodology for India 𝑉𝐶𝑁𝑅𝑃𝑚𝑒𝑎𝑙+𝑜𝑖𝑙 𝑓𝑎𝑟𝑚𝑔𝑎𝑡𝑒 = 𝑠ℎ𝑎𝑟𝑒∙(𝐷𝑃𝑠𝑒𝑒𝑑 𝑒𝑞𝑣 𝑜𝑖𝑙,𝑓𝑎𝑟𝑚𝑔𝑎𝑡𝑒 +𝐷𝑃𝑠𝑒𝑒𝑑 𝑒𝑞𝑣 𝑚𝑒𝑎𝑙,𝑓𝑎𝑟𝑚𝑔𝑎𝑡𝑒 )−𝑠ℎ𝑎𝑟𝑒∙(𝐼𝑃𝑠𝑒𝑒𝑑 𝑒𝑞𝑣 𝑜𝑖𝑙,𝑓𝑎𝑟𝑚𝑔𝑎𝑡𝑒 +𝐼𝑃𝑠𝑒𝑒𝑑 𝑒𝑞𝑣 𝑚𝑒𝑎𝑙,𝑓𝑎𝑟𝑚𝑔𝑎𝑡𝑒 ) 𝑅𝑃𝑠𝑒𝑒𝑑 𝐹𝐺 𝑉𝐶𝑁𝑅𝑃 𝑓𝑎𝑟𝑚𝑔𝑎𝑡𝑒 = 𝑉𝐶𝑁𝑅𝑃 𝑚𝑒𝑎𝑙+𝑜𝑖𝑙 𝑓𝑎𝑟𝑚𝑔𝑎𝑡𝑒 + 𝑁𝑅𝑃𝑠𝑒𝑒𝑑 𝑓𝑎𝑟𝑚𝑔𝑎𝑡𝑒 VCNRP is value chain NRP, integrating the NRP of the raw commodity with the NRP of the downstream products.

31. Value Chain NRPs for ethanol-molasses- sugar-sugarcane value chain -50% 0% 50% 100% 150% 200% 250% 300% Sugarcane NRP Molasses Value Chain NRP Ethanol + Molasses Value Chain NRP Molasses + Commodity Value Chain NRP Ethanol + Molasses + Commodity Value Chain NRP Sugarcane equivalent NRPs are calculated across marketing years, and averages of 2008-2009, 2009-2010, 2010-2011, and 2011- 2012 values. -50% 0% 50% 100% 150% 200% 250% 300% Sugar NRP Molasses Value Chain NRP Ethanol + Molasses Value Chain NRP Molasses + Commodity Value Chain NRP Ethanol + Molasses + Commodity Value Chain NRP Sugar equivalent

32. Value Chain NRPs for Oilseeds Value Chain 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Groundnut NRP Meal and Oil Value Chain NRP Meal + Oil + Seed Value Chain NRP Groundnut equivalent NRPs are calculated across marketing years, and averages of 2008-2009, 2009-2010, 2010- 2011, and 2011-2012 values. 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Rapeseed NRP Meal and Oil Value Chain NRP Meal + Oil + Seed Value Chain NRP Rapeseed equivalent

33. Conclusions on India • Farmers are being protected. • Producers of ethanol and molasses are being taxed, whereas consumers of these two commodities are being subsidized. • Producers of meal and oil are being subsidized to aid the development of the domestic crushing industry. • When we analyze producers along the value chain, we find that producers experience different impacts from the GOI’s policies - some positive and some negative.

34. Conclusions from 4 Studies • Policies may have overlapping or opposed outcomes along the value chain, with important implications for smallholder farmers. • Encouraging development of value chains can benefit both smallholder producers and consumers at the same time. • By reducing transportations costs that helps farmers bring their goods to the urban markets more directly • By reducing margins received by middlemen/traders which would increase the prices received by farmers and reduce the prices paid by consumers • By aiding development of processing facilities that produce downstream products domestically rather than importing maize flour, palm oil, groundnut oil, etc. • Analysis of policy distortions along the value chain can aid policymakers in deciding where to focus interventions.

35. Next Step: Connecting Food System Flows

36. Thank you! Questions? For more information, please contact: Simla Tokgoz (s.tokgoz@cgiar.org), Markets, Trade and Institutions Division, International Food Policy Research Institution (IFPRI)

37. APPENDIX

38. Tanzanian Agricultural Sector Tanzania’s National Development Mission 2025, which guides economic policy in the country, aims to transform Tanzania from an agricultural economy to a semi- industrialized economy supported by a productive agricultural sector. Tanzania’s agricultural policies, e.g., Agriculture Sector Development Strategy and the National Agriculture Policy (2013), focus on developing agricultural value chains and supporting the transition from subsistence to commercial agriculture. This study analyzes two agricultural value chains in Tanzania (maize and groundnut) that have the potential to add to agricultural development, create value for the Tanzanian economy, and increase rural incomes.

39. Data Sources for Tanzania Our analysis measures the impact of sector-specific, regional, and national policies in Tanzania for maize and groundnut value chains. National- and regional-level price data at different points in the value chain are used to measure distortions to agricultural incentives at the national and regional level. Data used in the study includes World Bank LSMS survey data for farm gate prices, trade margins for value chains from BMGF technical reports, international prices from UNComtrade and World Bank, and trade status from FAOSTAT and UNComtrade.

40. Nigerian Agricultural Sector Nigeria has placed renewed focus on supporting agricultural development through a variety of programs, including the Agricultural Transformation Agenda and its successor, the Agriculture Promotion Policy (Federal Ministry of Agriculture and Rural Development 2016). We analyze two important agricultural value chains in Nigeria: the import- oriented palm oil value chain and the exported-oriented cocoa value chain. These value chains comprise an important share of Nigeria’s agricultural sector and affect many smallholder farmers.

41. Data Sources for Nigeria Our analysis measures the impact of sector-specific, regional, and national policies in Nigeria for palm oil and cocoa value chains. National- and regional-level price data at different points in the value chain are used to measure distortions to agricultural incentives at the national and regional level. Data used in the study includes World Bank LSMS survey data for farm gate prices, trade margins for value chains from PIND and ICCO reports, international prices from World Bank and EUROSTAT, and trade status from USDA and FAOSTAT.

42. Ethiopia Small Ruminant Sector Ethiopia has the largest livestock sector in East Africa. Small ruminants account for the largest share of total livestock population, second only to cattle. Live animal exports are high, although the vast majority of these pass through informal channels. Small ruminants serve for smallholder farmers essentially as a store of value and as a readily available liquid asset.

43. Data Sources for Ethiopia National and Wereda level NRPs are computed for a five-year period (2010-2015). We are presenting one out of 4 scenarios. Farm gate prices at Wereda level are from a household survey, with geographic targeting done using GIS and agricultural livelihood systems over nine districts covered (Kassie et al., 2016).

44. NRPs at Farm Gate for Sheep for Weredas -90% -80% -70% -60% -50% -40% -30% -20% -10% 0% 2010 2011 2012 2013 2014 2015 Atbi Wemberta Menz Gera Menz Mama Ziquala Abergele Horro Shinile Angecha

45. NRPs at Farm Gate for Goats for Weredas -90% -80% -70% -60% -50% -40% -30% -20% -10% 0% 2010 2011 2012 2013 2014 2015 Atbi Wemberta Menz Gera Menz Mama Ziquala Abergele Horro Shinile Angecha