The implementation of macro-economic policies within the framework of structural adjustment programs (SAPs) is the result of the economic and financial crisis and the distortions linked to an administered economy. It is based on a representation of the agricultural crisis that is largely at odds with the sectors or integrated development operations: interdependence through the market and prices, absence of sectoral distortions, openness to the international market (Benoit-Cattin, Griffon, Guillau-mont, 1994).
The impact of adjustment policies
Stabilization and structural adjustment policies aim to improve finances, improve the macroeconomic environment, reduce economic distortions, liberalize economic channels, open up the economy and encourage private operators. They implement a set of instruments that indirectly affect the sectors. These measures increase the cost of campaign credit, reduce the role of public companies and the State, and indirectly have restructuring effects on the sectors. We will focus on three economic policy instruments.
The currency exchange policy
The exchange rate policy is based on different components such as: – the liberalization of the foreign exchange market; – the depreciation of the real exchange rate; – the unification of exchange rates between the official and parallel markets. It can be analyzed as a means of modifying price relationships between agriculture and other sectors.
Two effects of exchange rate adjustment must be differentiated, which play out to varying degrees in the agricultural sectors: the improvement of external competitiveness through changes in the terms of trade and the response of export volumes to prices; and the increase in the internal profitability of sectors exposed to international competition through the increase in factor income (expressed in domestic currency).
Insofar as African countries are price takers for most agricultural exports, the exchange rate adjustment has an effect on the profitability and cost prices of the sectors rather than on their competitiveness expressed in terms of selling prices.
The depreciation of the real effective exchange rate (the increase in overall production costs is less than the nominal depreciation) should increase the profitability of exports by making external prices more attractive when translated into domestic currency. On the other hand, it increases the cost of imported inputs and equipment, as well as the amount of hard-currency-denominated financial costs and expatriate salaries. It acts as an import tax and can offset reductions in tariff protection.
Trade policy and harmonization of protection rates
Trade policy aims to reduce the “distortions” associated with non-tariff protection, overprotection of uncompetitive firms, and the multiplication of incentives and case-by-case protection that are encouraged by arbitrariness and administrative dysfunction.
It is a question of rationalizing and standardizing the systems of protection and incentive by several measures such as:
- The taxation of imports of the State or public bodies;
- The limitation of exemption regimes;
- The elimination of non-tariff protections;
- The standardization of nominal protection rates;
- A system of incentives based uniformly on the national value added.
The liberalization of imports, linked to the depreciation of the real exchange rate, should increase the profitability of exports. Reducing tariffs and other barriers to imports reduces the implicit taxation of exports by reducing the proportion of import substitutes in the local economy.
This involves changing the rules of protection by seeking to standardize rates of effective protection and calculating a rate of protection, either nominal indirect or true, that takes into account equilibrium exchange rates, shadow prices, and substitutability between local and imported goods.
The effective protection coefficient makes it possible to analyze protection by segment within the sector. It assumes complementarity between factors and constancy of technical coefficients. It ignores the level of the exchange rate.
The coefficients of real protection are expressed in terms of relative price movements of importable and exportable goods (tradable or tradable) compared with those of non-tradable or non-tradable products. Indirect nominal protection coefficients take into account equilibrium exchange rates and virtual prices.
Supply-side policies
Stabilization and absorption reduction measures are accompanied by supply-side adjustments. In the agricultural sector, the main measures concern
- Actions on prices, increasing real producer prices, reducing or eliminating input subsidies, increasing consumer prices, legalizing parallel markets;
- Liberalization: reduction of price controls and regulations, reduction or elimination of public marketing boards and stabilization funds;
- Privatization: downsizing of public and parapublic enterprises.
Supply-side policies have two main objectives: to increase production from existing capacity through better allocation of resources and incentives such as liberalization and a return to market prices; and to increase productive capacity through increased savings and investment. The interest rate plays a key role in balancing domestic and foreign savings and investment at a higher level.
These macroeconomic measures have indirect effects on the agricultural sectors. They are supposed to improve the terms of trade for agriculture, allow for incentive prices that stimulate supply, and reduce fiscal and parafiscal levies on producers. The disengagement of the State and the measures that are unfavorable to capital-intensive projects are supposed to favor private and low-capital-intensity alternative projects.
The success of these measures implies the following conditions: producers must have low risk aversion. The decline in urban incomes and solvent demand is assumed to be neutral with respect to agricultural prices and outlets. It is assumed that substitutions are possible between cereal imports (wheat, rice) and local cereals as soon as relative prices are modified. The volume of exports of cash crops is not assumed to create compositional effects in prices and therefore in revenues.
These expected effects of SAPs on the commodity chains can be assessed according to the typology presented in the table below, which distinguishes between supply and demand criteria, on the one hand, and internal commodity chain problems and those related to the commodity chain environment, on the other.
Source: Phillipe Hugon – L’agriculture en Afrique subsaharienne restituée dans son environnement institutionnel