An Impact Analysis of the Groundnut Sector Liberalization: An Application of a Multi-Household CGE Model

Abstract

The poverty reduction strategy in Senegal has identified as one of the priorities, support to the agricultural sector. This strategy will be implemented in the context of a major reform of the groundnut sector of which liberalization is at the front and centre. As groundnut production in Senegal is the main livelihood of over one millions farmers and of which more then 80% are poor, it is of great importance to have a clear understanding of impacts of these reforms on poverty and income distribution. In this paper, we use a micro-simulation CGE model to analyse one policy reform and one potential induced effect of a second policy. The first simulation is a 50% reduction of import duties in edible oils which compete against locally produce groundnut oil. The second is a reduction of price paid to groundnut producer following the liberalization of the groundnut purchasing organizations. The CGE model was adapted to take into account specificities of the groundnut sector such as fixed prices for groundnut producers, non profit maximizing behaviour by the SONACOS (public monopoly that is responsible for the production of edible oil) with excess capacity and fixed labour and finally dual market opportunities of groundnut producers. This approach allows us to link the policies to microeconomic data at the household level as all households from the household survey are included in the CGE model. We apply FGT and Gini indices and results show that the first policy simulation has very small positive effects in terms of poverty, mainly through a drop in prices of goods and small negative impact on SONACOS. The second policy produced expected results of increasing poverty but surprisingly non-farm households were affected by this policy. This is related to the fact that laid off farmers moved to others sectors and pushing wages down significantly.