Heterogeneous Welfare Effect of Cotton Pricing on Households in Benin

Abstract

AbstractSince 2004–2005 the cotton sector in Benin has been experiencing major problems that have caused a decline in production. To help the sector recover, the government intensified its intervention in the form of prices support. This study assesses the impacts of sharp increases in producer prices during the years 2009–2012 on cotton production and the distributional impacts on welfare. Using a partial adjustment model of supply response, we estimate that cotton supply elasticity ranges between 1.3 and 2.6, suggesting that cotton production responds strongly to price incentives. Next, we use concepts of compensating variation and net benefit ratio measures to analyse the welfare implications. We find that an increase in price from 190 FCFA per kg in 2009 to 250 FCFA per kg in 2012 led to a 9.8 percent increase in producers’ welfare. Non‐parametric regressions showed that the increase in cotton prices likely benefited all households across the entire income distribution. However, the gains are larger for rich farmers in the northern regions where cotton is predominant.