ECONOMIC EVALUATION OF AGRICULTURAL POLICY IN BURKINA FASO: A SECTORAL MODELLING APPROACH

MICHAEL JOHN ROTH, Purdue University

Abstract

Agricultural productivity in Africa has declined for two decades. Food aid imports and government policies emphasizing "cheap" food for urban consumers have lowered production incentives. Input subsidies, to compensate producers, have created government budgetary deficits. In 1980, the government of Burkina Faso was asked by the IMF and the World Bank to eliminate food aid, raise commodity prices and reduce fertilizer subsidies. This study provides an economic analysis of those policies. A model of Burkina Faso's agricultural sector is constructed to simulate the effects of alternative policies on prices, quantities and trade. The model contains the nine commodities, five supply regions, seven demand regions, domestic and foreign trade. Coexistence of private and official markets is explicit. In official markets, input supply and commodity marketings are based on government rations at fixed prices. Rations reflect government budgetary and market constraints. In private markets, prices and quantities are relatively unrestricted, but conditional on the institutional behavior of official markets. Production and input use are estimated via linear programming, based on profit maximization given producers' expectations of private and official market prices. Demand is estimated via Linear Expenditure Systems and the Frisch method. Linearized demand, foreign trade and price linkage equations are nested in a Linear Complementarity Problem to solve for private market prices, quantities demanded and trade. The model is solved recursively, permitting short and long term analyses of market dynamics and policy impacts. Solution results show that eliminating food aid raises commodity prices, but increases commercial imports. Removing fertilizer subsidies causes minimal changes due to low current fertilizer rations. Removing fertilizer rations sharply increases fertilizer utilization and output. But, fertilizer imports outpace commodity exports, creating balance of payments problems. With the addition of higher official commodity prices, cereal production decreases as incentives shift to cotton. Cereal production and consumption are still superior to base levels. Improved profitability of agricultural technologies increases fertilizer use. Balance of payments improve with higher cotton exports. The policy reform improves agricultural performance, but relies heavily on cotton for foreign exchange earnings to cover fertilizer imports--contrary to government food self-sufficiency objectives.

Degree

Ph.D.

Subject Area

Agricultural economics

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