LIBRARY MIchIgan State UnlversIIy PLACE IN RETURN BOX to roman thb checkouI from your need. To AVOID FINES Mum on Of More data duo. DATE DUE DATE DUE DATE DUE I I #_ # I i \W .: J\ A \E a — #\\"’1— _ r— 4] MSU Is An Affirmative Action/Equal Opportunity Institution W pm CONIPARATIVE ADVANTAGE, TRADE FLOWS AND PROSPECTS FOR REGIONAL AGRICULTURAL MARKET INTEGRATION IN WEST AFRICA: THE CASE OF COTE D’IVOIRE AND MALI BY Abdoul Wahab Barry A DISSERTATION Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Agricultural Economics 1994 V". q. I ‘d If, I ABSTRACT COMPARATIVE ADVANTAGE, TRADE FLOWS AND PROSPECTS FOR REGIONAL AGRICULTURAL MARKET INTEGRATION IN WEST AFRICA: THE CASE OF COTE D’IVOIRE AND MALI BY Abdoul Wahab Barry Within the general framework of regional economic integration in West Africa, this study evaluates if actual trade flows between COte d’Ivoire and Mali, and between them and the rest of the world are consistent with these countries’ comparative advantage in producing and marketing cotton, maize, millet! sorghum, and rice. Using the domestic resource cost coefficient as a measure of comparative advantage, the study finds that COte d’Ivoire’s maize exports to Mali, and the latter country’s millet/ sorghum exports to the former, are consistent with comparative advantage. Furthermore, the results show that although Mali produces paddy efficiently, its rice generally reaches its competitive limit in southern Mali. As such, the Malian rice is not competitive in COte d’Ivoire. This may explain why trade flows of local rice between the two countries have not been recorded and that these nations rely on imported rice to satisfy their excess demand of rice. In contrast to cereals, the study indicates that COte d’Ivoire has a comparative advantage in cotton. However, this country does not export its cotton to Mali because ‘91 ~b. O! “E I i .Ff selling it on the world market is more profitable not only economically, but also financially. Trade flows of these commodities are also assessed under different scenarios, including devaluation of the CPA franc, alternative opportunity costs of labor and investments policies aimed at increasing on-farm yields, improving processing technologies for cotton and rice, and lowering transport costs between markets. The results suggest that local rice would generally be, under nearly all scenarios, noncompetitive in the coastal markets. As such, importing rice from the world market would be the most efficient way of supplying these markets. The study also assesses farmers’ incentives to generate marketable surpluses. Although most commodities generate positive financial profitability, it appears that the returns to household labor are generally lower than the daily market wage rate in both countries. To the memory of Alpha Oumar Barry, my father who taught me that hard work and patience are the key to success in life and To all the people dedicated to improving living conditions in Africa iv ACKNOWLEDGMENTS This study was made possible by a fruitful collaboration among several organizations: Michigan State University, Associates for International Resources and Development, Institut d’Applieation des Méthodes de Développment/Institut National de la Recherche Agronomique (IRAM/INRA), CILSS/ Club du Sahel, and the United States Agency for International Development. My deepest appreciation goes to Dr. John Staatz, my mentor and major professor since my arrival at Michigan State University. He has been one of the most encouraging people during my graduate studies, especially during the painful and long process of the Ph.D. program. Despite his busy schedule, he has always made time to read my dissertation and give me usefiil comments and feedback on early drafts of this study. I am very grateful to him. My gratitude also goes to Dr. Eric Crawford for his constructive suggestions and working with me during the final stage of the dissertation. I would like to thank Drs. Thomas Reardon and Steve Matusz for their insightful comments. I am also thankful to Drs. Les Manderscheid, Stan Thompson and Jack Meyer for being in my guidance committee. I I would like to take this opportunity to sincerely thank Dr. Achi Atsain, who was a key instrument in making possible my acceptance at Michigan State University. He 1150 W "aw-2. fib‘n— c 5133 Y, Q.‘ in. 1.01- .d huh n ’8'! I “My . “‘9. 3"“ o 'D‘o‘ "b also deployed major efforts to negotiate the extension of my fellowship to the Ph.D. program. My sincere appreciation goes to Dr. Dirck Stryker and Lynn Salinger, who hired me to become AIRD’s field economist and representative in Paris. I became an active part of the discussions on regional integration in West Africa and gained a lot of insight into certain issues of economic development. Despite my living in Paris, I felt as if I were in Cambridge, Massachusetts, thanks to Susie Solano and Joanne Stewart, who made sure that my administrative and financial needs were met. My appreciation also goes to my friends Katie Baird and Jeff Metzell. I would like to extend my sincere gratitude to all the IRAM employees, who made my stay in Paris a memorable experience. I owe a deep dept of gratitude to J érOme Coste for his diligence in solving my administrative problems and making my stay as comfortable as possible. I am also grateful to Johny Eg for his kindness and warm heart. My thanks go to Nadine Bytebier, Dominique Gentil, Dominique Granier, Ghislaine Fernandez, Rémi Philibert, Agnes Lambert, Beatrice Hibou and other IRAM employees for their special care. This study would not be possible without the funding provided by the Club du Sahel. I am deeply grateful to this organization and its members, especially Jean-Marc Pradelle and Henri J osserand and their families for making me feel at home whenever they had the opportunity to do so. My thanks are extended to Serge Snrech, John Lewis and Jean-H. Guilmette for their support at the Club du Sahel. vi ‘ “It. 5“" I would like to take this opportunity to thank the African-American Institute, which funded my graduate studies at Michigan State University. My sincere gratitude goes to Elizabeth Ward for her administrative support and encouragements. I would also like to extend my thanks to Elda Keaton at the MSU Office of International Students and Scholars for her administrative assistance and constant kindness. During the course of the data collection, my task was greatly facilitated by the help provided by Dr. Josue Dione at the Institut du Sahel, Bamako, and Mr. Joachim Touré at the Ivorian Ministry of Agriculture and Animal Resources. I would also like to thank the MIS employees, namely Nango Dembélé, Salifou Diana and Eleni Gabre- Madhin. My thanks are also extended to Kouakou Konan at CIDT. I would like to express my deepest appreciation to all faculty and staff in the Department of Agricultural Economics, especially Sherry Rich, Ann Robinson, Patricia Eisele, Roxie Damer and Calea Coscarelli. My gratitude is also extended to my friend Jeff Wilson for his constant help in solving all my computer problems during the past two years. The completion of my graduate studies was possible thanks to the constant moral support and encouragements from my ”brother and sister” Chuck and Danielle Chopak, and Beverley Blake, who helped me make a good balance between my studies and social life. My appreciation goes to my fellow graduate students, especially Ousseynou Ndoye, Aliou Diagne, Cheryl Danley, Kim Aldridge, Jim Stems, Cynthia Phillips and Jennifer Wohl. . Finally, my mother, siblings and numerous relatives deserve special thanks for their patience and moral support during my graduate studies. I would like to particularly vii fi'l'i p. 0 ’.q 5%ka express my gratitude to my uncles Bassirou, Salia and Thiemo Ibrahim for their encouragements and help throughout my entire education. viii W14. "ti Q 0 We. all ‘- fiofitd .‘C “V TABLE OF CONTENTS LIST OF TABLES ....................................... x LIST OF FIGURES ....................................... xii LIST OF ABBREVIATIONS ................................ xiii CHAPTER I. INTRODUCTION ..................................... 1 1.1 Problem Statement and Research Objectives ................... 2 1.2 Organization of the Dissertation .......................... 6 11. REGIONAL ECONOMIC INTEGRATION IN WEST AFRICA: PERFORMANCE AND PROSPECTS ............... 8 2.1 Theory of Economic Integration .......................... 8 2.2 Regional Economic Integration in West Africa ................. 12 2.2.1 Economic Community of West Africa ...................... 12 2.2.2 The Economic Community of West Afriean States ............... 14 2.3 Performance of the Regional Economic Groupings in Fostering Intraregional Trade in West Afi-ica ........................ 16 2.4 Why the Bias Against Agricultural Commodities in the Regional Integration Schemes of West Africa? ....................... 19 2.5 Regional Economic Integration Reconsidered ................. 20 III. CONCEPTUAL FRAMEWORK ......................... 22 3.1 Theory of and Approaches to Comparative Advantage ............ 22 3.2 Microeconomic Foundation of Comparative Advantage ............ 25 3.3 Economic Profitability and Domestic Resource Cost As Measures of Comparative Advantage ............................. 26 3.3.1 Economic Profitability As a Measure of Comparative Advantage ...... 26 3.3.2 Domestic Resource Cost As a Measure of Comparative Advantage ..... 28 3.4 Usefulness of the Domestic Resource Cost Method .............. 31 3.4.1 Domestic Resource Cost As a Revealer of Distortions ............ 31 3.4.2 Comparing Different Activities, Different Technologies and Different Regions within a Country ..................... 34 3.5 Objections to Domestic Resource Cost ...................... 34 3.6 » Determining Economic Prices ........................... 37 3.6.1 Valuing Tradable Goods ............................... 38 3.6.2 Valuing Nontradable Goods ............................ 39 3.6.2.1 Economic Price for Labor ............................. 40 3.6.2.2 Economic Price of Capital ............................. 42 ix n I Cal. A l‘ 1‘. IQ CHAPTER 3.6.2.3 Economic Price for Land ............................. 44 3.6.2.4 Valuing Nontraded Tradable Goods ....................... 44 IV. DATA COLLECTION, FARMING SYSTEMS, PRODUCTION AND MARKETING POLICIES, AND ASSUMPTIONS OF DOMESTIC RESOURCE COST ................................. 47 4.1 Institutional Link and Data Collection ...................... 47 4.2 Farming Systems and Production Policies ................... 49 4.2.1 Cotton ......................................... 49 4.2.1.1 COte d’Ivoire ..................................... 49 4.2.1.2 Mali .......................................... 53 4.2.2 Coarse Grains .................................... 55 4.2.2.1 COte d’Ivoire ..................................... 55 4.2.2.2 Mali .......................................... 57 4.2.3 Paddy ......................................... 59 4.2.3.1 COte d’Ivoire ..................................... 59 4.2.3.2 Mali .......................................... 63 4.3 Marketing Policies .................................. 67 4.3.1 Cotton ......................................... 67 4.3.1.1 COte d’Ivoire ..................................... 67 4.3.1.2 Mali .......................................... 68 4.3.2 Coarse Grains .................................... 69 4.3.2.1 COte d’Ivoire ..................................... 69 4.3.2.2 Mali .......................................... 72 4.3.3 Marketing of Local Rice .............................. 74 4.3.3.1 COte d’Ivoire ..................................... 74 4.3.3.2 Mali .......................................... 78 4.4 Assumptions of the Domestic Resource Cost Method ............. 81 4.4.1 World Price of Commodities ........................... 82 4.4.1.1 Cotton ......................................... 82 4.4.1.2 Cereals ......................................... 88 4.4.2 Shadow Price of Domestic Resources ...................... 93 V. COMPARATIVE ADVANTAGE AND TRADE FLOWS UNDER CURRENT POLICIES AND ALTERNATIVE SCENARIOS ....... 97 5.1 Results of the Domestic Resource Cost (DRC) Coefficients ......... 97 5.1.1 COte d’Ivoire ..................................... 98 5.1.2 , Mali ......................................... 102 5.2 Direction of Trade Flows under Comparative Advantage and Actual Trade Flows ............................. 105 5.2.1 Direction of Trade Flows as Suggested by the DRC Coefficients .................................. 105 at- D‘- Q‘. r‘. I‘- "v .1- Qt.- ‘7 i‘ ‘1- 0" I. ‘1 t." Ii. ‘~ IPII ‘Q III- II“.- CHAPTER 5.2.2 Are Actual Trade Flows Consistent With Comparative Advantage? . . . 112 5.2.3 Why Are Actual Trade Flows Consistent or Inconsistent With Comparative Advantage? .......................... 117 5.2.3.1 Coarse Grains ................................... 117 5.2.3.2 Rice ......................................... 118 5.2.3.3Cotton..................... ................... 121 5.3 Sensitivity Analyses ................................ 123 5.3.1 Alternative Exchange Rate Policies and Comparative Advantage ............................. 124 5.3.2 Comparative Advantage and Trade Flows Under Alternative Opportunity Costs of Resources Comparative Advantage ......... 128 5.3.2.1 Effect of Different Labor Opportunity Costs ................. 128 5.3.2.2 Alternative Economic Values of Land and Comparative Advantage ........................... 130 5.3.2.3 Output Prices and Comparative Advantage .................. 130 5.3.3 Comparative Advantage Under Alternative Investment Policies ................................ 132 5.3.3.1 Farm Level Technology and Comparative Advantage ........... 133 5 3.3.2 Effect of Improving Processing Technologies on Comparative Advantage ............................. 138 5.3.3.3 Effect of Reduced Transport Costs on Trade Flows ............ 139 5.3.4 A Dynamic Approach to Comparative Advantage ' and Trade Flows .................................. 141 5.4 Summary ...................................... 144 VI. FARM LEVEL INCENTIVES .......................... 146 6.1 Incentives to Cotton Farmers .......................... 147 6.2 Incentives to Coarse Grain Farmers ....................... 150 6.3 Incentive to Paddy Farmers ............................ 151 6. 4 Sensitivity Analysis ................................ 154 6.4.1 Effects of On-Farm Yields on Returns to Household Labor ........ 154 6.4.2 Output Price and Returns to Household Iabor ................ 158 6.5 Summary ....................................... 161 VII. SUMMARY, POLICY IMPLICATIONS, AND FURTHER RESEARCH ............................. 162 7.1 Methodology and Specific Features ....................... 163 7.2 , Summary of Major Findings and Policy Implications ............ 165 7.3 Future Research ................................... 168 APPENDIX A ......................................... 170 APPENDIX B ......................................... 173 xi BIBLIOGRAPHY ....................................... 282 xii Table 3-1. Table 4-1. Table 4-2. Table 4-3. Table 4-4. Table 4-5. Table 4-6. Table 4-7a. Table 4-7b. Table 4-8a. Table 4—8b. Table 5-la. Table 5-lb. Table 5-2a. Table 5-2b. LIST OF TABLES Domestic Resource Cost and Policy Distortions .............. 32 Characteristics of Cotton Production Techniques in COte d’Ivoire and Mali in 1990 ........................ 52 Acquisition Prices of Inputs in COte d’Ivoire and Mali .......... 52 Characteristics of Coarse Grains Production Techniques in Cbte d’Ivoire and Mali in 1990 ....................... 58 Characteristics of Paddy Production Techniques in COte d’Ivoire and Mali in 1990 ........................ 60 Wholesale Prices for Maize, Millet and Rice in Selected Markets of COte d’Ivoire in 1990 ....................... 70 Retail Prices for Maize, Millet and Rice in Selected Markets of COte d’Ivoire in 1990 ....................... 71 Export Parity Price of Ivorian Cotton and Cereals (CFAF/Ton) ................................... 86 Export Parity Price of Malian Cotton and Cereals (CFAF/Ton) ................................... 87 Import Parity Price of Ivorian Cereals (CFAF/Ton) ............ 90 Import Parity Price of Malian Cereals (CFAF/Ton) ............ 91 DRC Results for COte d’Ivoire Under a Positive Opportunity Cost of Land ............................ 99 DRC Results for COte d’Ivoire Under a Zero Opportunity Cost of Land ........................... 101 DRC Results for Mali Under a Positive Opportunity Cost of Land ........................... 103 DRC Results for Mali Under a Zero Opportunity Cost of Land ........................... 104 xiii . I 2‘: Fri: 5 "d .3. V A ufi AW 11V .5 1L .C T s Q In Q. I 'Table 5-3a. Cotton and Maize DRC Coefficients in Different Markets Under a Positive Opportunity Cost of Land .......... 107 Table 5-3b. Millet/sorghum and Rice DRC Coefficients in Different , Markets Under a Positive Opportunity Cost of Land .......... 108 Table 5-4a. Cotton and Maize DRC Coefficients in Different Markets Under a Zero Opportunity Cost of land ............ 110 Table 5-4b. Millet/ sorghum and Rice DRC Coefficients in Different Markets Under a Zero Opportunity Cost of Land ............ 111 Table 5-5. DRC Coefficients of Cereals as Export Crops Under a Zero Opportunity Cost of Land .‘ ................. 113 Table 6-la. Cotton and Maize Financial Profitability and Protection Coefficients at the Farm Level ................. 148 Table 6-lb. Returns to Household Labor for Producing Cotton and Maize ............................... 149 Table 6-2a. Millet/sorghum and Paddy Financial Profitability and Protection Coefficients at the Farm Level .............. 152 Table 6—2b. Returns to Household Iabor for Producing Millet/sorghum and Paddy .......................... 149 Table 6-3a. Effects of Yields Changes on Returns to Family Labor from Producing Cotton and Maize ................. 156 Table 6-3b. Effects of Yields Changes on Returns to Family Labor from Producing Millet/ sorghum and Paddy ............ 157 Table 6—4a. Effects of Price Changes on Returns to Family Labor from Producing Cotton and Maize ................. 159 Table 6-4b. Effects of Price Changes on Returns to Family Labor from Producing Millet/sorghum and Paddy ............ 160 xiv LIST OF FIGURES Figure 4-1. Seed Cotton Production in COte d’Ivoire and Mali (1971 - 1989) ................................... 51 Figure 4-2. Coarse Grain Production in COte d’Ivoire and Mali (1971 - 1990) ................................... 56 Figure 4-3. Paddy Production in COte d’Ivoire and Mali (1971 - 1990) ................................... 64 Figure 4—4. Evolution of Nominal World Prices of Commodities (1980 - 1990) ................................... 79 Figure 5-1. Cereals Flows between C6te d’Ivoire and Mali .............. 115 Figure 5-2. Evolution of On-Farm Yields in Mali (1980 - 1990) ........... 134 XV AIRD BCEAO CCCE CEAO CFA CFAF CFDT CIDT CIF CGPP- LIST OF ABBREVIATIONS Associates for International Resources and Development Banque Centrale des Etats de l’Afrique de l’Ouest (Central Bank of Francophone West African Countries Using the CFAF) Caisse Centrale de Cooperation Economique (French Economic Cooperation Fund) Communauté des Etats de l’Afrique de l’Ouest (West African Economic Community) Communauté Financiere Africaine (Financial Community of Francophone West African States, except Guinea and Mauritania) CFA Franc (Currency Unit of the CFA Zone) Compagnie Francaise de Développement des Textiles (French Company for the Development of Textiles) Compagnie Ivoirienne de Développement des Textiles (Ivorian Company for the Development of Textiles) Cost, Insurance and Freight Comité Inter-Etats de Lutte Contre la Sécheresse au Sahel (Organization of Sahelian States for Coping with Drought) Compagnie Malienne de Développement des Textiles (Malian Company for the Development of Textiles) Compagnie Ivorienne pour le Développement des Cultures Vivriéres (Ivorian Company for the Development of Food Crops) Cost Fret and Insurance (check) Caisse Générale de Péréquation des Prix (Ivorian Price Stabilization Boards in charge of harmonizing the price of bread, rice, and sugar throughout the country) xvi CSSPPA DRC DNAE DRSPR ECOWAS FAO FCCD FCD F OB GDP GNP BUICOMA IDESSA Caisse de Stabilization et de Soutien des Prix des Produits Agricoles (Boards of Agricultural Price Stabilization and Support, in charge of cocoa and coffee exports) Domestic Resource Cost Direction Nationale des Affaires Economiques Département de la Recherche sur les Systémes de Production Rurale (Research Department of Rural Production Systems at the Malian Institute of Rural Economy) Economic Community of West African States Food and Agriculture Organization Fund for Cooperation, Compensation and Development Fonds Communs de Développement (Community Development Fund) Free On Board Gross Domestic Product Gross National Product Huile des Compagnies Maliennes (Malian Oil Companies) Institut des Savanes Institut d’Economie Rurale (Malian Agricultural Research Institute) International Monetary Fund Institut National de la Recherche Agronomique (French Agronomic Research Institute) Institut d’Application des Méthodes de Développement (French Consulting Firm) Ministére de l’Agriculture et des Ressources Animales (Ivorian Ministry of Agriculture and Animal Resources) Market Information System xvii OER OPAM ORS OSCE IRMC SATMACI SER Net Effective Protection Coefficient Net Nominal Protection Coefficient Nominal Protection Coefficient Office de Commercialisation des Produits Vivriers (Ivorian Food Crops Marketing Agency) Organization of Economic Cooperation and Development Official Exchange Rate Office des Produits Agricoles du Mali (Malian Agricultural Marketing Agency) Operation Riz Ségou (Rice Development Agency in the Segou Region, Mali) Office Statistique des Communautés Européennes Programme de Restructuration du Marché Cérealier (Cereals Market Restructuring Program in Mali) Société d’Assistance Technique pour la Modernisation Agricole de la COte d’Ivoire (Ivorian Agency for Agricultural Modernization in the Middle Forest Zone) Shadow Exchange Rate S ODEPALM Société pour le Développement des Palmiers (Ivorian Palm Development S ODERIZ TCR LINE UNIDO USAID Agency) Société pour le Développement de la Riziculture (Ivorian Rice Development Agency) Taxe de Cooperation Regionale (Regional Cooperation Tax) Universite du Bénin (Benin University) United Nations Industrial Development Organization United States Agency for International Development xviii WAMU West African Monetary Union ‘WARDA West African Rice Development Association xix PREFACE This study was completed before the recent devaluation of the CFA franc. The CFA franc was devalued on January 12, 1994 by 100 percent vis-a-vis the French franc to which it has been pegged since its inception in 1948. XX CHAPTERI INTRODUCTION West Africa represents one of the most fragmented regions in the world. It is composed of a multitude of countries, each inhabited in general by fewer than 10 million people. Each domestic market is thus small in size. Moreover, it is small in terms of purchasing power, which may be measured by the Gross National Product (GNP) per capita, averaging about USS 350 in 1990 (World Bank, 1991a). The GNP per capita of the West African countries, one of the lowest in the world in the 70s, fell during the 80s in part because of the decline in commodity prices in the international market on which these countries have depended to earn foreign exchange needed to finance their economic and social development. As a result, the economies of the individual countries performed poorly. Owing to the sluggish economies, the West African leaders have increasingly voiced their desire to foster the exchange of factors of production and goods among their countries in order to be less dependent on the international market. Regional economic integration was believed to be, in addition to gaining stronger bargaining power during international negotiations, a means to bring about scale economies that are needed to make the West African products competitive. 2 It is within this framework that several organizations were built to foster economic integration. Important among these organizations are the Economic Community of West African States (ECOWAS) and the Economic Community of West Africa (CEAO), whose objectives and operations are discussed in the next chapter. Despite the creation of these regional economic groupings, official intra-regional trade appears to be still low and the bulk of the overall trade of the West African countries is still overwhelmingly done with the international market. 1.1 Problem Statement and Research Objectives It has often been argued that the low level of intraregional trade in developing countries in general, and specifically in Africa, is due to the high degree of similarity in the economic structure of the individual countries, owing mainly to a similar resource endowment (Chou, 1967; World Bank, 1991b). As such, there is limited complementarity among the countries and the potential for specialization in production to spur trade among them is restricted. Thus, as argued by Chou (1967, p. 354), ”they cannot be complementary without a dynamic economic transformation so that they will specialize in production and become bigger trade partners". Before this transformation takes place, these countries’ trade is bound to be with the world market. This argument put forward by Chou was downplayed by O’Connell (1987) and even challenged by a growing body of evidence. Badiane (1988), using production data a... ”in“ ya. a” WG-1!- 'O ‘0‘. s.. . I u»..- 211 3 from six West African states to yield indicesl , showed that the production patterns across these states were different and that the resource bases of these countries differed. Even if similar goods are produced in the different countries, production costs differ across countries and could be the source of intraregional trade. Another group of contenders, refuting Chou’s contention, argued that a great deal of trade takes place among West African countries, but this trade is under-counted by official statistics. Within this line of reasoning, Burfisher and Missiaen (1987) estimated that more than 40 percent of intraregional trade is unrecorded because not only governments lack the personnel and resources to capture these transactions, but they take place in an informal manner across porous borders. This is the reason why they termed these cross-border transactions ”informal intraregional trade. " Other analysts, agreeing with the argument that intraregional trade is under- counted by official statistics, contend, however, that informal intraregional trade in West Africa is not based upon complementarity among the countries. It is rather induced by price differentials stemming from the divergent and sometimes contradictory macroeconomic, trade and pricing policies enacted in each country (INRA/IRAM/UNB, 1991). The influence of these policies on intraregional trade in the context of West Africa was documented by Badiane (1992), who emphasized the importance of the real exchange rate in driving trade. 1/ The production similarity index between two countries is given by the following formula: SQ, = 100* 2: (Min(Y,,,Y,,)), where Yill and Y, are the shares of product i in total agricultural production of countries a and b. An index of 100 is equivalent to a complete similarity in the production structure, while a value of the index close to zero means completely dissimilar production patterns in the two countries. 4 In light of the arguments outlined above, each group of contenders appears to focus on the determinants of intraregional trade in West Africa. The debate over intraregional trade is between those who contend it depends upon comparative advantage and those who say that it is driven by price differentials emanating from differences in macroeconomic policies. Based on this debate, one of the challenges in this study is to assess the driving forces of intraregional trade. Once these driving forces are understood, it may be possible to identify the factors that inhibit the expansion of this trade. In order to explore fully the issue of intraregional trade, two countries are chosen: COte d’Ivoire and Mali. The rationale behind this choice is that these countries differ in terms of geographical location, followed distinct development policies and are at different levels of economic development. Despite these differences, they share some characteristics. COte d’Ivoire extends from the southern Sudanian belt to the coastal region, where rainfall levels are high. Owing to these rainfall levels, COte d’Ivoire has relied upon its agricultural sector to generate the bulk of its foreign exchange earnings, which contributed to developing an industrial base and reliable infrastructure, thus ranking this country among the middle-income countries. The development of the industrial sector was facilitated by the liberal investment policies and the export-oriented strategy adopted by the Ivorian government soon after independence. Thanks to these policies, some light industries were established and some of their manufactured products (processed coffee, soap, shoes, etc.) are exported to Mali and other neighboring countries. . , . 'l.‘ .0- ‘25.).— .. r~"- ~ . ' h in“; - 5 In contrast, Mali ranks among the poorest nations in the world and has a poor industrial sector. Mali lies in the Sudanian and Sahelian belts, where rainfall is erratic and uncertain. Agricultural production is thus volatile. As a result, Mali imports agricultural commodities from the neighboring countries and the international market during the poor rainfall years. Despite this volatile rainfall pattern, which is less volatile in the south, Mali exports cotton to the world market and is ranked among the leading cotton exporters in West Afiica. Mali also exports livestock to neighboring countries, especially COte d’Ivoire, and these exports are higher during good rainfall years. Despite the differences between COte d’Ivoire and Mali, the most important sector in both countries is agriculture, which accounted for nearly 50 percent of GDP in 1990 in both countries (World Bank, 1991a). Among other things, these countries share a similar history of colonial dependence, which has helped to establish the same currency (CFA Franc), even though Mali withdrew from the CFA Franc zone in the mid 60s and rejoined it in 1984. Sharing the same currency undoubtedly contributes to facilitating payments of transactions between these countries. Trade between the two countries is undertaken by the Dioulas, an ethnic group which, along with the Senoufos, is common to both countries. Given this background, the main objectives of this study are as follows: 1. To evaluate each country’s comparative advantage in producing and marketing agricultural products, such as cotton, maize, millet/sorghum and rice; 6 2. To determine the direction of these commodities’ trade flows as predicted by the theory of comparative advantage; 3. To compare these theoretical trade flows with the actual patterns of agricultural trade in order to explain the similarities or differences between them. This is intended to examine the interaction between macroeconomic and trade policies, and the pattern of actual flows; 4. , To assess trade flows under alternative policy measures. 5. To identify and examine the barriers and constraints that hinder the expansion of intraregional trade. This expansion of intraregional trade assumes that it can provide an impetus to economic growth through specialization, which contributes to more efficient resource allocation and an increase in income. 1.2 Organization of the Dissertation The dissertation is organized into seven chapters, including this chapter. Chapter II reviews the literature on regional economic integration and examines the objectives and mode of operation of the regional integration schemes in West Africa to shed light on the performance of these schemes. Chapter III presents the conceptual framework that underlies the analysis of comparative advantage. It focuses on a particular measure of comparative advantage, the domestic resource cost, and its underlying assumptions, with a survey of the literature on this measure. C}. fl. 13.7695 7 Chapter IV summarizes the data collection and describes not only the different farming systems for cotton, maize, millet/sorghum and rice found in Cdte d’Ivoire and Mali, but also the marketing systems of these commodities. In addition, Chapter IV lays out the assumptions of this study. Chapter V measures the comparative advantage of each country in different markets located in both countries and compares trade flows, as predicted by each country’s comparative advantage, with the actual trade flows. The aim of this comparison is to explain the reason why actual trade flows are similar or different from those predicted by theory. Then, it examines the direction of trade flows under alternative scenarios, such as increased on-farm yields and milling ratios that could result from higher investments in research and milling facilities. These scenarios also include reduced transfer costs from one market to another, alternative exchange-rate policies, and different opportunity costs of resources. Chapter VI discusses the incentive system faced by farmers and whether they make financial profits to yield surpluses that can enhance trade. Then, farmers’ incentives are analyzed under alternative scenarios. Chapter VII summarizes the major findings of this study and draws some policy implications. This chapter also explores future research relevant to enhancing intraregional trade. CHAPTER II REGIONAL ECONOMIC INTEGRATION IN WEST AFRICA: PERFORMANCE AND PROSPECTS The goal of this chapter is to lay out the theory of regional economic integration, as approached by traditional analysis and its critics. In addition, regional economic integration will be discussed within the West African context to shed some light on the main objectives and performance of the regional groupings in fostering intraregional trade. In doing so, the goal is to identify the elements that have hindered trade liberalization and expansion, which could be a dynamic contributing factor to the process of economic development in West Africa. 2.1 Theory of Economic Integration Balassa (1961) defines economic integration as a process by which distinct entities are brought together to form a whole. These entities may be either markets or regions within the boundaries of the same nation, or they may be different nations. While the first type of integration is termed market or national integration, the second is referred to as international or regional economic integration, which is the focus of the present study. 2 ‘30!) fl! LUV {- I o' "i 1‘ $1. VI 0-4 9 Though regional economic integration was attempted in several regions of the world prior to the World War Two, it was not until the early 50s that it became a major focus of economic studies, thanks to Viner’s pioneering work. Prior to the publication of W by Viner (1950), economists were more concerned about the welfare impact of free trade, assumed to be welfare increasing. As such, any deviation from free trade was seen as welfare-decreasing. Within this framework, a customs union, aimed at a free movement of goods produced within the union members, abolishing tariffs on these goods, and discriminating against products imported from union nonmembers, was believed to be a movement away from Pareto optimality. Viner, as opposed to most of his contemporaries, did not view customs unions as necessarily welfare-decreasing. He argued that the overall welfare effect of a customs union depends on the relative weight of the outcome of two countervailing forces, referred to as “trade creation” and ”trade diversion”. Trade creation is defined as the shift from higher to lower cost goods. This shift induces a production effect and a consumption effect. The production effect results from a better resource allocation through the cost reduction from the higher cost to the lower cost union members. Meanwhile, the consumption effect appears to stem from a substitution of the lower cost union good for the more expensive domestic product. Trade creation, just like free trade, is assumed to be welfare-increasing. Trade diversion denotes a situation whereby the source of a product may shift from a lower cost nonmember of the union to a higher cost union member. This shift also results in production and consumption effects, which are welfare-reducing. Thus, 1:52: A. 9“. :03“ In» bubs v ‘ ‘1'"! ban-bu»... l 1 x43; 0’: ~ :23 be; nu~ '5. K”. “a a. ”U. :.,. “a“ c: 10 a customs union may induce positive and negative welfare effects simultaneously and its net effect depends on the relative size of trade creation and trade diversion. On balance, the customs union results in a beneficial net welfare effect if the effect of trade creation is greater than that of trade diversion. Conversely, the net welfare effect of the customs unions is negative if the effect of trade diversion outweighs that of trade creation. One major criticism of the neoclassical approach is its narrow focus on static efficiency gains to justify regional integration. This approach fails to include other policy objectives in its analysis and does not seem to recognize that there may be trade- offs between policy objectives, especially in developing countries. Within this framework, a government may decide to encourage the production of a good to preserve jobs even though this activity is inefficient in a neoclassical sense. Often, policy makers justify such decisions because they believe that workers displaced may have difficulty finding other employment opportunities. Trade creation may not always be welfare-increasing and may even be welfare- decreasing. In the example given above, if the number of workers displaced is greater than the additional jobs made available by trade creation and the workers displaced do not find employment, this may lead to negative consumption effects that are greater than the positive production effects. As such, the net effect of trade creation may be welfare- decreasing. The objection to this argument is that it seems to ignore the notion of opportunity cost of labor, which is zero for workers unable to find alternative employment opportunities. Based on this objection, the industries’ true economic costs of production are lower than they would appear at first glance. Or, to - ‘01 9Q baa-I MA 1‘ I :0 M qut‘ a uni ’15.: 1 1 On the other hand, trade diversion, which may yield negative effects on social welfare in the short run, may induce long run benefits that outweigh the short term gains if the protected industry becomes more competitive and creates additional employment opportunities and income, owing to learning by doing. Some analysts, such as Cooper and Massel (1965), have criticized the traditional theory of regional economic integration on the grounds that the lack of an industrial base in developing countries may be due to a market failure. In their view, the creation of an industrial base may be seen as a public good and the existence of external economies may be seen as a rationale for the creation of regional economic integration. As a result, protective measures have been often used to justify government involvement. Within this framework, J aber (1971) argued that regional economic integration can be perceived as a means to economic development rather than a tariff issue. Although much of the debate on regional economic integration has centered around customs unions, there exist several other forms of economic integration that range from a free-trade area to an economic union. A free-trade area consists of a region in which there is only a free movement of goods produced within the region and tariffs on these goods are abolished between the member countries. In addition to these characteristics, if member countries adopt common external tariffs against products imported from outside the region and factors of production move freely within the member countries, the integration takes the form of a common market. Moreover, if the monetary and fiscal policies of the individual countries of a common market are harmonized, the economic grouping is referred to as an economic union. 12 2.2 Regional Economic Integration in West Africa This section focuses on the objectives and mode of operation of two regional economic integration schemes in West Africa, the Economic Community of West Africa and the Economic Community of West African States. Then, an attempt is made to evaluate the impact of these regional organizations on regional integration. 2.2.1 Economic Community of West Africa The Economic Community of West Africa, known under its French acronym, CEAO, was created in 1973 and is composed of six Francophone countries: Burkina Faso, COte d’Ivoire, Mali, Mauritania, Niger and Senegal. CEAO was to include two other Francophone countries, Benin and Togo, which signed the original Treaty. However, these two countries withdrew from the group at the time of creation under the heavy pressure from Nigeria, which. was one of the targets of this regional grouping. Indeed, the creation of CEAO was in part aimed at countering and offsetting the growing economic and political power of Nigeria, feared not only by the small Francophone countries of West Africa, but also the French government (Robson, 1983). At present, the overall population of CEAO is a mere 50 million people, about half that of Nigeria (World Bank, 1992). The average income per capita is less than USS 300, and the most important economic sector appears to be agriculture, which accounts for a little less than half of the Gross Domestic Product (World Bank, 1992). The main objectives of CEAO are to create a unified regional market, intended to spur trade of agricultural and industrial products, and to promote a harmonized and pasts t“ Prnzhag I Maurice-Inc I are by l3 balanced economic development among the member countries. The strategy to achieve these objectives centered around abolishing quantitative restrictions in local non-processed products and adopting by 1985 common external tariffs against industrial products emanating from nonmember states. These common tariffs are, however, yet to be realized by the Community. The centerpiece of CEAO strategy in fostering trade flows among its member states is the preferential import duty regime, referred to as the Regional Cooperation Tax (TCR). The TCR, operational since 1976, was engineered to spur trade especially between the least developed countries and the more advanced states of the Community. Fixed by the Council of Ministers, the TCR is, for a given good that can be produced within CEAO countries and imported from nonmembers, lower than taxes imposed on the product of nonmembers to make that of CEAO more affordable. It is applied to manufactured goods produced within CEAO to give incentives to member countries to import these products from the member states rather than nonmembers, where production costs are lower. The TCR is granted to an enterprise under certain guidelines, based on the nature of the good produced, the origin of the raw material that this product embodies, and the level of economic development of the country where the enterprise is located. Within this framework, a preference in establishing the TCR is given to firms that rely on local raw materials. In addition, the TCR is in general set low for firms operating in the least developed member countries to reduce their competitive disadvantage. ' u U n .a an- a - r 1:13:15 C l4 Undoubtedly, the institution of the TCR, intended for trade diversion, caused some member state governments to lose tax revenues on manufactured goods that could have been imported from nonmember countries relatively cheaply and taxed at a higher rate. To alleviate the costs to these countries and foster intraregional trade, a provision was made in the Treaty to create a system of fiscal compensation, which is operated through the Community Development Fund, known under its French acronym FCD (Fonds Communs de Developpement). FCD is funded through the contribution of member countries, based on their share in intra-CEAO exports. The payable compensation to each country is the difference between the tax revenue collected on imported products from CEAO member countries under the TCR regime and the collectable tax revenue from the same imports from nonmember countries. According to the provision made in the Treaty, the compensation paid to each country is up to two- thirds of its revenue losses. Meanwhile the rest of the fund is used to finance development projects in the least developed countries. This is the means to carry out the harmonized and balanced development objective mentioned above. Within this framework, the projects funded by the Community in Niger and Burkina Faso between 1975 and 1980 accounted for nearly 40 percent of the total expenditures (Badiane, 1988). 2.2.2 Tire Economic Community of West African States Created in 1975 under Nigeria’s leadership, the Economic Community of West African States (ECOWAS) is composed of the six CEAO countries and ten other countries. The total population of ECOWAS is nearly 200 million people, of which Prim m 0; W0“: I .Mu --u lied 3‘93 The 0' fries to 4-6.. Kramer tireljpofi iii—ah. Fc 52:11:22: ".33 I ‘m “It Tm‘ These 15 Nigeria accounts for more than half. There appears to be a great disparity in the level of economic development in this grouping, in which the GNP per capita ranges between 180 and 890 US dollars (World Bank, 1992). The objectives of ECOWAS are virtually the same as those of CEAO. These objectives consist, among other things, of eliminating customs duties, abolishing quantitative and administrative restrictions on trade, establishing a common customs tariff and a common commercial policy, harmonizing of agricultural and industrial policies and monetary policies and promoting economic development. These goals are to be achieved gradually. For instance, it was recommended by ECOWAS member countries that the establishment of the customs union be achieved within a fifteen year transitional period afler the Treaty came into force. The centerpiece of ECOWAS strategy in achieving its objectives is the Fund for Cooperation, Compensation and Development (FCCD), intended to distribute the Community costs and benefits equitably in the process of trade liberalization. Robson (1983, pp. 100) summarized the purpose of the FCCD, as follows: “To finance projects in member states; to provide compensation to member states that have suffered losses as a result of the location of Community enterprises; to provide compensation and other forms of assistance to member states that have suffered losses arising out of the application of the provisions of the Treaty on the liberalization of trade within the Community; to guarantee foreign investments made in member states in respect of enterprises established under the provisions on the harmonization of industrial policies; to provide means to facilitate the ‘ mobilization of internal and external financial resources for the member states and the Community; and to promote deve10pment projects in the less developed member states of the Community". The FCCD resources originate primarily from the annual contributions of the member countries. The contribution of each country is based upon its economic strength, l6 assessed as a coefficient of the Gross National Product and population. Other sources of the FCCD resources are not only the income of enterprises that operate within ECOWAS, but also foreign aid and the interest on previous loans made by the FCCD. 2.3 Performance of the Regional Economic Groupings in Fostering Intraregional Trade in West Africa There has been a wide consensus among analysts and policy makers that intraregional trade among CEAO member states has increased since the inception of this regional economic grouping. A major factor that has contributed to the expansion of intra-CEAO trade is the fiscal compensation scheme engineered by the member countries. Owing to this scheme, coupled with the common currency used by CEAO member countries, trade increased between CEAO’s least developed countries and its more advanced countries, namely COte d’Ivoire and Senegal. However, intra-CEAO trade could be higher if subtle non-tariff barriers, which take the form of import and export licenses and act like a.brake on the expansion of intraregional trade, were eliminated in the Community. Progress in intra-CEAO trade would probably be greater if the industrial and investment policies were harmonized and information on production capacity and potential were available to assess ex ante the comparative advantage of CEAO’s member countries. _ Notwithstanding the progress made in spurring trade among CEAO’s member states, intra-CEAO trade still accounts for a small share of CEAO’s overall trade. Indeed, the share of trade within the Community, which was nearly 10 percent in the mid ,.4 n-O'r“. . a bib-“d5 ' 'FI'II" xvii ecu JM ‘ v Q.” t I. l b in 2.2." - Bhsuz ” er I::-. h I “Tire a 17 803 (Badiane, 1988), is today about eight percent (World Bank, 1991). This is an indication that CEAO’s trade is overwhelmingly with external markets. The share of intraregional trade in overall trade appears to be even lower for ECOWAS member countries. It has varied between a mere three and five percent since ECOWAS’s creation (World Bank, 1991). There appears to be no indication that this share will increase in the near future, despite the rhetoric of policy makers, who meet several times a year to make decisions on fostering intra-ECOWAS trade. The issue is mus why intraregional trade has remained very low, especially within ECOWAS, while one of the main goals of the regional economic integration schemes is to spur trade among member countries. Several factors militate in favor of the modest progress realized or even the Saguation of intraregional trade in West Afiica. One such factor is that the deficiency in the physical infrastructure (roads and bridges) and the lack of a reliable Communication network among the member countries undermine any serious attempt to e’(‘lrpand trade among countries. In addition, roadblocks are rife in the region. They e3§ercise a brake on the free movement of goods in the region and deter traders from talking advantage of market opportunities across national borders. Intraregional trade has been low in West Africa because most governments attempted to impose a single marketing channel for outputs and inputs, usually by Creating a government agency that has a monopoly-monopsony power to satisfy the national market. Despite the dismantling of most parastatals to increase private traders’ participation in business, high export and import restrictions still stand in the way of mats in 2:15;: a lit: 7'1th 12337211. 354..., I res-M;_\ l8 progress in intraregional trade. Such restrictions appear more common between CEAO member states and the rest of ECOWAS countries. p»\ j" Intraregional trade is also impaired by the lack of information on market opportunities across borders, which contributes to making cross—border trade risky and uncertain. Cross-border trade appears even riskier between Anglophone and chophone countries, owing to language barriers and the poor knowledge of business in stitutions. It appears also that the multiplicity of nonconvertible currencies is a serious hindrance to intraregional trade on the grounds that it makes transaction payments (1 ificult between countries. Within ECOWAS, there exist nine different currencies, among which the CFA Franc, shared by a group of seven countries, appears to be the am y widely convertible currency across borders. Another hindrance to intraregional trade during the past 10 years has been the ¢°lllapse of incomes in the coastal states, especially in Cdte d’Ivoire and Nigeria, due to be substantial decline in their commodity terms of trade. As a result, the demand for i‘1'!130rted goods, which is in general positively correlated to income, and investments fell it; these countries. Expansion of intraregional trade has been further hindered by the very focus of regional economic integration, emphasizing manufactured goods, while the level of industrialization in the countries is in general low. Industries located in individual Q(runtries are, in general, of low capacity and cannot often supply the small domestic I‘narket, let alone export to neighboring countries. The low capacity of these import- Slrbstitutes industries, coupled with high production costs because of their small scale, 19 makes it difficult for them to compete in their domestic market, let alone compete in foreign markets. Despite these handicaps, regional policies have been geared toward manufactured goods to foster intraregional trade. Only minor attention has been given to the agricultural sector as a means of encouraging regional trade. Thus, the issue is why the agricultural sector has received so little attention in the regional economic integration schemes. 2 -4 Why the Bias Against Agricultural Commodities in the Regional Integration Schemes of West Africa? The root of the bias against the agriculture sector has its origin in development stI-amgies popularized in the 503 and 603 by Prebisch (1950) and Lewis (1954), who, aang others, viewed agriculture as backward. The arguments generally were that ca-pflal and labor would not be productive in agriculture because of the diminishing returns in this sector. It was argued that these factors of production should rather be ‘ used in the industrial sector, where they would be more productive to promote economic development, defined as growth in average per capita output, leading to the accumulation of capital stock. African policy makers appear to have been influenced by the import-substitution 8h'ategy proposed by the United Nations Commission for Iatin America, under the leadership of Prebisch, who argued that primary commodity prices trend downward in the long run. As such, it is in the interest of developing countries to shift away from agriculture and move toward industry in order to produce manufactured goods that are inrported. Such a strategy, reinforced by Hirschman’s (1958) arguments about backward 20 and forward linkages that give precedence to the industrial sector, shaped the drinking of development strategists in several regions, including West Africa. The idea commonly shared by these strategists was that the promotion of domestic industries was incompatible with an outward-oriented trade strategy, owing to the fact that the domestic industries were in the infant-industry stage. As such, they deserved to be protected against the external environment to bring about greater industrialization and economic growth. 2 - 5 Regional Economic Integration Reconsidered If we consider that regional integration strategies have failed to yield the results 0f spurring intraregional trade and overall economic development, one may hypothesize “‘33 a shift in emphasis from supporting import-substitution industries to favoring a more export-oriented agricultural sector in West Afiica may provide an impetus for iIi-h-aregional trade and eventually economic growth. A vast body of literature has been devoted since the mid 608 to the comparison between import-substitution strategies and export-oriented strategies. Salvatore and Hatchcr (1991), Moschos (1989), Chow (1987), Bhagwati (1986), Kreuger (1980), Balassa (1978) and Michaely (1977) showed that the effect of export-oriented policies on “re economic growth performance is overwhelmingly positive and that countries that Stuck too long to import-substitution missed opportunities provided by the export-oriented Strategies. Export-oriented strategies have a positive effect on economic growth for three reasons: 1) they lead to better resource allocation in response to competition abroad, 2) 21 they give the incentives for technological improvements in order for domestic producers to be competitive in the domestic and external markets, and 3) they create an economy better able to take advantage of economies of scale. . Import-substitution strategies usually have an inward-looking view, intended to satisfy the domestic market by protecting noncompetitive industries. Efforts to promote regional economic integration with such strategies are bound to fail given that each country is concerned with protecting its noncompetitive domestic industries and supplying i ts own market. It appears that regional economic integration in West Africa will be best achieved through strategies geared toward promoting agricultural exports instead of strategies focusing on import-substitution in the industrial sector. This requires, however, that ap‘ln'orrriate technologies be available at the farm level to yield surpluses that can be tr112-med and that resources be used efficiently at the farm level and within the marketing system. CHAPTERHI CONCEPTUAL FRAMEWORK This chapter provides the theoretical conceptual framework used in this study to analyze a country’s comparative advantage. More importantly, it focuses on the domestic resource cost method, which has been one of the most widely used techniques to measure comparative advantage. 3 .. 1 Theory of and Approaches to Comparative Advantage The notion of comparative advantage originated from Ricardo’s (1817) pioneering W0 1k, which attempted to justify the policy of laissez-faire. Basing his analysis on the labor dreary of value and using the case of two countries and two commodities, Ricardo argued that a beneficial trade between two countries should be based upon the relative labor cost rather than the absolute labor cost of production. His contention was that each cch\xntry should specialize in the commodity for which it had a lower opportunity cost of production. In other words, each country should export the commodity in which it had a comparative advantage. Despite Ricardo’s major finding about the basis of mutually beneficial trade, he ftailed to explain what determines the relative production efficiency of each country. Hockschcr (1949) and Ohlin (1933) made a major contribution to the theory of 22 23 international trade by addressing this important issue. Assuming more than one factor of production, these authors attributed comparative advantage to differences in countries’ factor endowments. According to the Heckscher-Ohlin theorem, given countries’ factor endowments, a country will tend to specialize in and export goods intensive in its relatively abundant factor, which is relatively cheap. On the basis- of . this factor; endowment, trade is mutually; beneficial to trading countries and can be a substitute for the movement of factors of production between countries; i.e. , trade tends to equalize the return to factors across borders. i Ricardo and Heckscher-Ohlin’s theory of comparative advantage was tested by seweral researchers, among whom the most famous is Leontief (1964). Using an input- on tput table for the economy of the United States, he found to everyone’s surprise that he ratio of capital to labor of the U.S. exports was smaller than that of the goods imported by the U.S. This paradox, which drew a lot of criticism because it was exPected that the U.S. exports would be more capital intensive, set the stage for the development of methods to measure a country’s comparative advantage. One objection made to most analyses of comparative advantage is that they often assumed two countries, two goods and two inputs and more importantly, they assumed an identical technology for the production of a good in the countries considered. Once One of these assumptions is relaxed, as shown by several studies that introduced the assumptions of many goods, many countries, many factors of production or different production technologies, it becomes difficult for these models to explain the pattern of 24 trade by simply comparing autarky prices (Samuelson, 1953; Jones, 1961 and Melvin, 1 968). Another objection to these models is that they Mused only on the aspect of pflgfiomand failed often to take into account other factors that have a bearing on a f ‘ country’s trade position. Key among these are transfer costs of products from the production site to the international market. Indeed, a country may be an efficient k“? g. i producer of a good, but because of high marketing costs, it may not be an efficient 1‘. {:x\ supplier of ““1309" (Samuelson, 1954). In addition to these transfer costs, policies such .\ s 9 (I ‘3 t‘ g -' . \ (C .J ‘. _" , l f '7 “a; “fin“ . as public investments in research, which are aimed at improving productivity and affect i7": \\‘ ‘3‘ b ‘ a. country’s comparative advantage, were not accounted for in the early methods of testing comparative advantage. Even when sectoral and macroeconomic policies were included in the models of comparative advantage, these models failed often to make the link between the micro bel'aavior of economic agents and the policies, which influence this behavior. These t1hrditional trade models also had difficulties in explaining the persistence of protection policies or the use of trade policies, such as taxes or subsidies in defense of national interest. This failure of traditional trade theory gave rise to the modern trade theory that can be labelled ”strategic trade theory" (Krugman, 1986). Modern trade theorists attribute the success of a country in trade to its capacity to anticipate trade opportunities and exploit them. As a result of situations characterized by ecbnomies of scale, monopolistic competition including product differentiation, increasing returns to scale and increasing technical progress, the modern trade theory is Concerned with the optimal use of trade policies, mainly taxes and subsidies, to give a 25 strategic position to a country vis-a-vis other countries. Specialization and trade patterns are based on the strategic behavior of countries. Owing to the issues raised above, determining comparative advantage will rely on the domestic resource cost (DRC) coefficient, which has its roots in microeconomic theory and will be explained in the next sections. 3 .2 Microeconomic Foundation of Comparative Advantage Conventional microeconomic theory suggests that the main objective of producers is to maximize profit, defined as the difference between the value of the output produced and that of inputs (labor, land and eapital) used in the production process. The profit identity can be written as follows: II,— =I=P,"'Q,- iPfiQi where, 135.. = Private- profit from producing output i P: = Price of output i Q; = Quantity of output i P3 = Price of inputj used to produce output i Q, =- Quantity of inputj used to produce output i In a perfectly competitive market each producer maximizes profit, termed private profit, by using each input to the point at which the marginal value product of the input is equal to its marginal cost. When inputs and output are valued at their opportunity cost in an environment characterized by no market failure (monopoly power, extemalities, or public goods), producers’ behavior results in an efficient allocation of resources. 26 In most developing countries, it is common to note that resources are not allocated efficiently because either input markets or output markets, or both, function imperfectly, owing to not only market failures, but also government interventions, through its fiscal and pricing policies. Examples of government interventions are protective tariffs, import barns, pan-territorial and pan-seasonal prices, etc. With such interventions, market prices may differ from social opportunity cost and in this ease, government-induced prices may lead to suboptimal resource allocation. In this respect, private profitability may differ from social profitability, which is the true measure of the efficiency of resource alloeation because inputs and output are valued at their opportunity costs. In a case of market imperfection, market prices may need to be adjusted to derive the true Opportunity cost, which may be qualified as economic prices or shadow prices. 3 -3 Economic Profitability and Domestic Resource Cost As Measures of Comparative Advantage One of the major challenges facing decision makers in developing countries is how to allocate limited resources best in order to promote sustainable economic growth. Comparative advantage is aimed at addressing this challenge, which requires defining workable and objective principles for measuring comparative advantage. 3.3.1 _ Economic Profitability As a Measure of Comparative Advantage Comparative advantage can be measured by economic profitability, based upon eConornic or shadow prices. By analogy to the private profit identity defined above, the economic profitability or social profit function can be written as follows: 27 1 He =Pe*Qa-£P,-."Qj where. j-l II, = Economic profitability Pi, = Economic price of output i Q, = Quantity of output i Pi. = Economic price of inputj used to produce output i Q; = Quantity of inputj used to produce output i Certain inputs may be nontraded and others may be traded. Assuming no taxes or subsidies, Gittinger (1982) defines an input as nontraded if its domestic production cost is above its FOB price but below its CIF price. Conversely, an input may be considered tradable if its domestic production cost is either lower than the FOB price or greater than the CIF price. As such, by dividing the inputs into traded and nontraded ones, the economic profitability identity may be rewritten as follows: IL=Pa*Q.-ZT:P,*Q,-fiP.*Q, where, 11a = Economic profitability-from producing output i Pa = Economic price of output i Q = Quantity of output i P... = Economic price of tradable input t used to produce output i Q; = Quantity of tradable input t used to produce output i P- = Economic price of nontradable input n used to produce output i Q. ' = Quantity of nontradable input It used to produce output i \ Assuming that a country’s objective is to maximize its economic or social profit \\ t0 make the best use of its resources, it will produce a good if its economic profitability 28 is positive (11,90). In this case, the country is said to have a relatively low cost or a comparative advantage, as it uses its resources efficiently at the shadow prices. Conversely, if the economic profitability is negative (II,- < O), the country does not produce the good efficiently; hence, the country does not have a comparative advantage. In a case where a country produces two goods, which yield a positive economic profit, the temptation is to allocate the limited resources to the good that generates the gratest positive economic profit. This criterion may, however, lead to a biased decision if attention is not paid to other factors. For instance, if one activity is small scale and another activity is large scale, the large—scale activity may be favored because it produces greater economic benefits, due to the higher quantity of output produced. Ex ante, the Small-scale activity is penalized if both activities are not converted into a comparable unit of the output, such as kilogram (kg). Another problem in using the economic Profitability criterion is that, even if competing activities (maize and cotton) are translated in the same unit (kg), it is sometime difficult to compare the same unit of output across activities. Hence, it is useful to find a measure of comparative advantage that is independent of the unit and scale of operation. 3.3.2 Domestic Resource Cost As a Measure of Comparative Advantage Domestic resource cost (DRC) is nothing more than an extension of economic Profitability to measure comparative advantage. It has, however, the advantage of being Scale-free and independent of the unit of measurement. Starting with the criterion of the 29 economic profitability function to determine comparative advantage, the DRC, defined as a ratio, is derived and made unit-free as follows: 11,,>Oif(P,'Q,-£P,'Q,-£P,*Q,)>Oor “er.- 2P. *Q.)><2";P.. ‘Q.) "d “I! This inequality rs equivalent to: (:P. *Q.) < (P..*Q.- 2P. *0.) If each side of the inequality rs divided by (P, * Q.- E P, "' Q,), the following ratio willbegenerated: (2P. *QJ/G.‘Qr 2P *Q.)<1 .II In the ratio (2 P, "' Q.) / (P, * Q,- 2 P, *Q,), the denominator represents the value of tradable-goods (output and inputs) expressed in terms of foreign currency, which needs to be converted into local currency. The economic value of the tradables is converted into local currency by means of the shadow exchange rate. As such, the , above ratio can be rewritten as follows: (2P, *Q_)/{(P,*Q, 2P, ‘QJ'SER} where, SE11! = Shadow exchange rate. The ratio (2 P, * Q,) l {(P, * Q,- E P, "‘ Q.) " SER} represents the domestic l'&80111'ce cost raid-(DRC). The numerator is the economic value of nontradables or domestic resources used in producing the output. The denominator, which is the difference between the value of the output and that of the tradable inputs, represents the Value added in terms of tradables. Intuitively, the DRC ratio can be interpreted as the Cost of domestic resources in producing one unit of value added, which is one unit of 30 foreign currency. One may state that the smaller the cost of these domestic resources to yield a unit of foreign currency, the more efficiently the country uses its limited resources. At first glance, the ratio given above seems to measure absolute advantage instead of comparative advantage because it deals with one country. But if one considers the fact all resources, which include inputs and outputs, are valued at their opportunity cost, the efficiency of the country, assumed to be small and a price taker in the international market, is measured relative to the rest of the world. Therefore, the ratio given above can be interpreted as a measure of comparative advantage. From the DRC ratio, one can state that a country has a comparative advantage if the DRC is positive and less than unity (one). Conversely, a DRC greater than unity or negative suggests that the country is an inefficient producer of that commodity, as it yields a negative economic profitability. This cut-off point can lead to some problems Of interpretation that deserve to be addressed. Given this point, one may encounter cases Where the DRC coefficients of a country are all lower or higher than unity for the range of products studied and as such, these coefficients suggest that this country has a comparative advantage or disadvantage in all the products. One source of this type of Problem may be that the exchange rate usedis not in line with the true opportunity cost of resources and needs to be adjusted to determine the country’s comparative advantage. ‘ In an ideal situation where the quality of the data is excellent, the criterion for Suiting that a country has a comparative advantage is of course to compare the DRC to unity. This ideal situation may be difficult to satisfy in the case of developing countries, 31 especially in West Africa where the data often lack or are of poor quality. As a result, it may be safer to put the cut-off point in a confidence interval to allow for measurement errors. This is for instance done in this study. The range (0.90, 1.10) is an arbitrary confidence interval chosen to make a eall on whether a country has a comparative advantage. If the computed DRC coefficient lies in this interval, we may infer that the value of the DRC is too close to unity to make a conclusive statement on comparative advantage. Conversely, if the DRC coefficient is lower than 0.90, we may state that the country has a comparative advantage. Meanwhile, the country has a comparative disadvantage if its DRC coefficient is above 1.10. 3 -4 Usefulness of the Domestic Resource Cost Method 3-4.1 Domestic Resource Cost As a Revealer of Distortions In computing the domestic resource cost coefficient, one can calculate private PrOfitability and social profitability. Doing so can be a useful means of revealing distortions introduced by government policies. Not only can one determine the overall ' inrpact of policy distortions, but one can also measure the effect of each policy distortion. while the overall policy distortion is measured by the difference between the private Profitability and the economic profitability, the individual distortions are derived from the difference between the market price and the shadow price. Table 3-1, which shows different types of policy distortions, indicates that the overall distortion is represented by 0 and that the individual distortions are given by K, L, M and N. Tradables Nontradables I Profitability Output W'X Input Labor Capital Market Price A a , , c .__., pwv E=A-B-C-D Shadow Price P G H '" ' ‘ 1 J=F-G-H-I Policy Effect K=A~F L=B-G M=C-H N=D~I 0=E-J NNPC P = A/F Q = BIG NEPC . a “W- .J Note: In this table, letter A may be seen as the value of one unit of output, expressed in market price. Meanwhile, the letters from B to D may be considered as the values of the total quantities of tradable and nontradable inputs, expressed in market prices, to produce one unit of the output. Similarly, letter F is the value of one unit of output, expressed in shadow price. The Letters G to I represent the values of the total quantities of tradable and nontradable inputs, expressed in shadow prices, to produce one unit of the output. Thus, E and J are the financial and economic profitability, respectively. The net nominal protection coefficient (NNPC) is the ratio between the local market price of a good and the shadow price of the good, expressed in local currency by means of the shadow exchange rate. The net effective protection coefficient (NEPC) is the ratio between the value added of tradable inputs, based on the local market price, and the value added of the same tradable inputs, based on the shadow prices and expressed in local currency by means of the shadow exchange rate. Source: Adapted from Monke and Pearson 33 The effects of the policy distortions on tradables (inputs and output), instead of being given in absolute terms, can also be presented in relative terms, such as a ratio. The ratios generated are termed protection coefficients. Among these coefficients, one may cite the net nominal protection coefficient and the net effective protection coefficient. The net nominal protection coefficient (NNPC) of a tradable is the ratio between its market price and its shadow price expressed in local currency, using the shadow exchange rate. For instance, the__NNiC__of the output in table 3-1 is given by r the ratio P = A/F. If the NNPC is greater than unity, it indicates that producers of the ,- good are given an incentive through protective policies. Conversely, an NNPC less than , unity suggests that consumers are the ones receiving the incentive. I While the NNPC gives an idea of the effect of an individual policy distortion, it does not show an overall picture. The broad view is given by the net effective protection coefficient (NEPC), which is the ratio between the value added of tradable inputs at market prices and the value added of the same tradable inputs in shadow prices. For example, the flirt given by, R _=. . -(A-B)/(F-G), which measures the overall policy dismrtion. If the NEPC is greater than unity it indicates than producers of the output reOeive an incentive, and an NEPC less than unity suggests that they are faced with a disincentive. 34 3. 4.2 Comparing Different Activities, Different Technologies and Different Regions 1 within a Country The DRC method, within the fiamework of an individual country, ean be a useful tool in guiding decision makers on where to invest the country’s scarce resources. For instance, decision makers may be faced with the dilemma of allocating resources between two competing activities, such as coarse grains (millet or maize) and rice. Should investments be made in increasing either the supply of domestic coarse grains or domestic rice? Within this framework, should the limited resources be invested in either animal traction or mechanized production systems? Another problem that decision makers may face is whether they should promote a particular region to foster growth in that region at the expense of another one. Such issues can be addressed by the DRC analysis. 3 -5 Obj ectiom to Domestic Resource Cost Although the DRC analysis is a useful tool in helping guide a country’s investment decisions, it has been criticized on several grounds. The first objection to the DRC method is that it uses a partial equilibrium framework, which focuses on only a Single market and does not provide a broad picture of the linkages between markets. This criticism is particularly important for developing countries on the grounds that l‘esourrces are relatively limited and a policy change in one sector or enterprise can affect the production pattern in another competing sector or enterprise. The DRC method has also been criticized on the grounds that it is based on a Static framework. Yet, the aim of much of development policy is to change a country’s 35 comparative advantage rather than keep it static. A country can alter its comparative advantage by investing in human capital and physical infrastructure, research, and by building the institutions necessary for achieving this goal. In the short run, when investments are made, the country may have a comparative disadvantage. Under these circumstances, the investments may not be made because the payoff occurs in the long run. Another problem associated with these investments is that the payoff is uncertain t because of changing economic environment. Thus, an issue is how to account for such an uncertainty in this type of analysis. Another criticism of the DRC analysis is that it is based on world prices, which have many characteristics. First, world prices can be too variable and volatile for making sound investment decisions in developing countries. This price instability poses the problem of the choice of the relevant price to help guide resource allocation. Should f one choose the present price, an average of past prices, or an unknown future price? In this range of prices, should one focus on nominal prices or real prices, and what is the base—year for determining real prices? Another objection to the use of world prices is that they are not derived from a competitive world market, but rather from an oligopolistic market. Thus, certain critiques argue that world prices do not reflect an ; efficient allocation of resources. Third, world prices may embody subsidies provided by some exporting countries to their exports. Certain critiques suggest that these subsidies V should be taken into account in deriving the true world prices if the purpose of the DRC analysis is to remove all distortions introduced by government interventions. One may argue that if the distortions in international prices are likely to remain in the future, they 36 can be accepted as the relevant opportunity cost for a small country because this country is a price taker and cannot change these prices. If the distortions are, however, not likely to continue in the future, one may want to adjust the world price. In order to address some of the objections formulated against the DRC method, 1' analysts have performed sensitivity analyses on some key parameters. The objective of if these sensitivity analyses is to evaluate the response of the DRC coefficient to a change in a parameter. For example, if the production of a commodity relies on a technique that depends heavily on uncertain rainfall patterns which affect on-farm yields, one may perform a sensitivity analysis on yields by assigning different values to the yield parameter to assess the impact of different yield levels on the DRC coefficient. Sensitivity analysis may be also used to address the issue of on-farm technology changes 1 for one crop. One may also perform a sensitivity analysis on other parameters such as world prices, exchange rate, wage rate, transport cost, etc. Not only can one perform a sensitivity analysis on each individual parameter, but also one can do it for a set of parameters, especially since the computation of the DRC is done on micro-computers, which allow varying several parameters at once. Despite this possibility to perform sensitivity analyses, the basic issue of estimating the opportunity cost of most parameters remains, and is the subject of the upcoming sections. 37 3.6 Determining Economic Prices The principle governing the determination of economic prices is the notion of ,r. Opportunity OOSt’ “well may be seen as the marginal contribution of a good to a social ii welfare function. Such a function, considered as a set of a community values, may include more than one objective. Determining the marginal contribution of the good to the social welfare function requires assigning a weight to each objective to show the relative importance of each objective in the ultimate social objective. Given that there exist different and sometimes conflicting goals, the benefits and costs of each objective need to be expressed in a consistent fashion in order to make them comparable. This calls for defining a numéraire which is the common denominator for measuring costs and benefits (Ward et a1., 1991). In the literature of cost-benefit analysis, two kinds of numeraire have been widely used by economists. The first one was developed by the Organization for Economic Cooperation and Development (OECD, 1969) and formalized by Little and Mirrlees (1974). This approach chose foreign exchange as the numéraire. In this approach, traded goods are valued in terms of their direct impact on foreign exchange, while nontraded goods are valued in terms of their indirect contribution to foreign exchange. The underlying assumption of this view of the numéraire is that tradable goods, thus border prices, represent an option for a country to enhance its welfare. According to Powers (1981), foreign trade should be treated as an alternative ”industry”. Thus, imports and exports become the basis for domestic production decisions. at 38 The second numéraire used to value benefits and costs was defined by the United Nations Industrial Development Organization (UNIDO, 1972) as the willingness to pay, known also as the aggregate consumption numéraire. This method is based upon the marginal willingness of the market to pay for a good; thus, how society values a good in reference to its consumption level. In essence, the value of a good is based upon its marginal contribution to national consumption or income. ’ ' -/."I' «’17:; / c n» j _( Ii " ~ W 1......6... f . The point of departure for determining the economic price of a traded good or tradable at a specific point is its world price. Determining the economic price requires knowing if the good is intended to be either imported or exported or used as an import-j substitute. Assuming that a good can be imported without restrictions, its economic price is obtained by adding to its FOB price all freight and insurance charges between the world market and the port of entry. This results in the CIF price, expressed in foreign currency at the point of import. Then, this foreign currency must be converted into local currency, using an exchange rate that best reflects the opportunity cost of the currency. In fact, although there exists an official exchange rate established by a central bank, the currency may be undervalued or overvalued because of distortions introduced by the structure of the economy. The importance of determining the opportunity cost of the currency cannot be overemphasized for developing countries, especially those of Francophone West Africa. 39 An overvalued currency contributes to making resource allocation more inefficient by making imports artificially chcap and exports artificially expensive. One consequence . of an overvalued currency is that it encourages imports and discourages exports and creates additional imbalances in the economy through resource rcallocations. Conversely, an undervalued currency discourages imports and encourages exports. As such, one needs to adjust the exchange rate to put it in line with the true value of the local currency. When the proper adjustment of the currency has been made to convert the foreign currency into the local currency and obtain theglfprice at the point of import, the °9°P9Ffi§P§Q 0! thestmdable at. a specific point inside the country is obtained by ignoring all taxes and subsidies and adding the marketing costs between the port and the; point of delivery. This process results in the import parity price, whichis the economic: price of the imported good at the point of delivery. Conversely, the export parity price, it which is the economic price of exports at a specific point, is obtained by deducting from; the CIF price all relevant economic costs. 3.6.2 Valuing Nontradable Goods Conventionally, nontradable goods include factors of production such as labor, land and some kinds of capital. In addition, they consist of commodities that can be potentially traded but are actually nontraded because of government regulations and trade barriers. This last category of nontradables will be discussed in length in section 3.6.2.4. 40 3.6.2.1 Economic Price for Labor Determining the economic price of labor in developing countries constitutes one of the most difficult tasks in evaluating the efficiency of resource allocation, for the labor market is segmented between skilled and unskilled labor, urban and rural labor, and the formal and informal sectors. Due to this segmentation, various theories have been put “A forward to deal with the imperfections in the labor market. One may cite among these theories the "disutility of effort” theory, which claims that if the unskilled unemployed labor fails to bid down modern sector wages, it is because it places a high value on leisure. Mazumdar (1965), Todaro (1969), and Harris and Todaro (1970) argued within the same line of reasoning that the wage differential between the urban and the rural sectors can be essentially explained by the fact that rural workers prefer the certainty of earning a lower wage to the uncertainty of carning a higher wage in the urban sector. The consequence of the risk aversion of rural workers is that the labor market is faced with an imperfect mobility which, in the long run, causes unemployment and underemployment in the rural sector. This view of unemployment and underemployment can be complemented by the notion of “unlimited supply of labor“ advanced by Lewis (1954). As such, the opportunity cost of withdrawing labor from the agricultural sector is close to zero. This view of the zero marginal product of agricultural labor was challenged by authors such as Schultz (1964) and Sen (1966), who focused on the importance of scasonal variations in the demand for agricultural labor. Their argument is that the zero \ 41 marginal product of rural labor may be valid during part of the year, but that the marginal product of agricultural labor is higher than zero during the agricultural season. The controversy surrounding the segmentation of the labor market has prompted several economists to formulate methods to value labor within the context of cost-benefit analysis. Among them are Little and Mirrlees (1974), Squire and van der Tak (1975), McDiarmid (1977) and Powers (1981). The point of departure for these authors in determining the economic value of labor is the notion of opportunity cost, which may be defined in several ways. Focusing on unskilled agricultural labor, the Opportunity cost can be seen as either the output forgone by removing a laborer to a new employment or the marginal value product of the worker on the new job. To the opportunity cost of labor, however defined, some economists add not only the net consumption effect of a new job, but also the distributional effect of hiring an additional worker. It appears difficult, however, to measure the consumption and distributional effects owing to a lack of data. As a result, we focus only on the notion of opportunity cost, which is still diffith to determine for all alternative uses of labor. As a result, the ¢ market wage rate during the agricultural peak season is accepted as a proxy for the opportunity cost of labor during the agricultural season. The underlying assumption for acceptance of this measure stems from the idea that unemployment during the peak season is almost negligible. Therefore, at that period, the market wage rate represents a worker’s marginal productivity. 42 3.6.2.2 Economic Price of Capital Broadly speaking, capital has many definitions in the economic literature. It can mean a physical stock that lasts beyond a single accounting period. As such, it represents part of the economy’s past output that was not consumed. It is hence the goods set aside to produce future output. Capital can also mean a financial resource which is not consumed, but saved to finance activities that will be undertaken during an accounting period. Central in both definitions is the idea that capital represents a present (a 1 sacrifice for future gain or consumption. This non-consumed portion, saved for future 2" . consumption, has a value which can be measured by the discount rate or current rental rate or interest rate associated to the capital stock. In a well-functioning capital market, the discount rate performs the function of balancing the 'subjective rate of time preference and the objective productivity of capital“ (Irvin, 1978, p. 131). Implicit in this balancing role of the discount rate is that it balances the supply of and demand for investment, measured by the rate of interest, which takes into account the market’s or society’s willingness to pay. In this sense, the interest rate measures the rate of fall in the present value of society’s consumption over time. Thus, it is an indication of the marginal productivity of capital, serving as a guide to the relative scarcity of capital in the economy. In a capital market that functions ’ poorly, the market rate of interest sends the wrong signals to economic agents and leads ' to an inefficient allocation of resources. As a result, the market interest rate may nwd to be adjusted to show the relative scarcity of capital, which represents in general one i of the major stumbling-blocks of development programs in developing countries. 43 Capltalnrnarkets in developing countries may fail to function properly for many reasons. First, megmayexist abdichotomy in the capital market, divided very often into formalwanadmiflnformalmsectors. On one side, large commercial farmers who belong in general to the formal sector may have access to credit at the interest rate prevailing in the formal financial markets to purchase agricultural inputs and machinery. On the other side, small farmers may not have access to credit in the formal sector, owing to their inability to provide collateral. As a result, they are required to borrow capital in the informal sector at relatively high interest rates. Such interest rates are intended not only to cover high transactions costs, such as the costs of gathering information on the borrower, but also to account for a risk premium aimed at the uncertainty surrounding the borrower’s ability to repay the loan. As, a result of the dichotomy, different interest ratesprgyailjn the economy. 9 Another source of market distortion may be that the government funds a specific project in a region to achieve specific social goals, such as enhancing growth in that particular region. In such a case, farmers who participate in the project may be provided with a subsidized interest rate, while other farmers are faced with interest rates that are higher. The differential in the interest rates does not reflect a risk premium, but rather distortions introduced by government interventions. Asa result, a shadow discount rate tawd- i In cost-benefit analysis, different approaches to estimate the shadow discount rate have been suggested. The calculation of the shadow discount rate is, in principle, dependent upon the numéraire chosen to express costs and benefits. When the aggregate 44 consumption represents the numéraire, thefisfihadow discount rate isdetermined by the. *— g-.- consumption rate of interest, which measures the'rate of fall of the average consumption MWWWMT“ EM, ,, . __ . ., , . . . - Joy’eretime. If the foreign exchange is the numéraire, the shadow discount rate is the accounting rate, of interest, measuring the rate of fall in the present value of public investments (Little and Mirrlees, 1974; Squire and van der Tak, 1975). The rationale for the second line of reasoning is that, as argued by some authors, marginal units of public income in the hands of government have greater value than if the funds were to I accrue to private consumption. As such, only public investment can maximize the social welfare function in the presence of market failure. This statism implicit in this approach was rejected by the liberalization policies under the Structural Adjustment Programs launched in the early 80s. As a result, this study uses the first method to estimate the shadow price of capital. 3.6.2.3 Economic Price for Land Determining the economic price for land can be as difficult as valuing labor and capital, especially in regions where the land market is poorly developed. Because of the underdeveloped land market, the shadow price of land is not calculated on the basis of the market price for land. It is rather generated by the residual return to land in the best alternative use. Stated otherwise, it is the difference between the social profit and the economic cost of other factors of production in their best alternative use, as suggested by Morris (1989). This requires that all alternative production activities be identified and cost out. \ l 45 3.6.2.4 Valuing Nontraded Tradable Goods In some instances, governments impose regulations such as export or import bans or quotas to achieve certain social goals. These goals may be aimed at giving incentives to producers or protecting consumers. These goods, without the regulations, would be traded across national boundaries but are actually not traded beeause of the regulations. Such goods can be termed ”nontraded tradable goods” or ”nontraded tradables”. The principle governing the economic valuation of non-traded. tradables” is” the -Wfit‘? pay, by accepting the market price of the good as a good indicator of the mgr-ice. However, one needs to assume that government regulations will be in effect in the future so that economic agents will face the same price for the regulated good. If the government policies are believed likely to change, the point of departure of the economic valuation is the FOB or CIF price, depending upon if the good would have been imported or exported. For such goods, one needs to decompose them into their tradable and non tradable components, by paying close attention to the value of the tradables and nontradables. Although the distinction between nontradable factors and tradables is essential, itgofien a difficult task, for production processes are complex. An example of the complexity of a production activity is that of a fertilizer. It may be produced in a local factory, using local land, labor and capital, imported machinery, and fuel. Fuel may be imported in a raw form and refined later in a local factory that, in turn, employs local labor, capital and other imported machinery. The issue for the analyst is whether or not he should focus on the fertilizer itself or take his analysis further by decomposing the 46 value of the fuel into tradables and nontradables for more accuracy. Answering this relevant question leads us to Gittinger’s ”doctrine of materiality" (1982) and requires that the analyst compare the marginal cost and benefit of undertaking this activity. Such a comparison is not always easy for an analyst to undertake. CHAPTER IV DATA COLLECTION, FARMING SYSTEMS, PRODUCTION AND MARKETING POLICIES, AND ASSUMPTIONS OF DOMESTIC RESOURCE COST This chapter discusses the institutional link and data sources used to carry out this study. Then, it describes the farming systems used to produce cotton and cereals (maize, millet/sorghum and rice) in the different regions of COte d’Ivoire and Mali. The choice of these commodities is based on the fact that they are important in each country’s economy and that production and marketing data are available for them. It also documents the production and marketing policies of these commodities. Finally, it lays out the assumptions used to calculate the domestic resource cost coefficients in different markets. 4.1 Institutional Link and Data Collection In 1986, a meeting was held in Mindelo to discuss the creation of a regional protected Sahelian cereals market, within which there would be free trade, to address the food security issue in the Sahel. This idea, agreed to by most participants, remained only at the discussion stage because it was proposed without thorough understanding of the determinants of intraregional cereals trade. To provide information geared toward 47 V Mr». “W. 48 fostering regional cereals trade, the Sahelian heads of state and the international donor agencies mandated CILSS‘ and the Club du Sahel2 to fund some studies. It is within this context that a research team was funded in 1987 by CILSS and the Club du Sahel to launch a study of regional trade in West Africa. This team was under the leadership of Johny Egg, an agricultural economist at the French Agronomic Research Institute in Montpellier (INRA), John Igue of the National University of Benin (UNB), and JérOme Coste of the French consulting firm IRAM (Institut d’Application des Methodes de Développement)’. The results of the work undertaken by the INRA/IRAM/UNB research team were presented at a seminar held in November 1989 in Lorne, Togo. This seminar recommended that, among other things, the products studied be broadened to include livestock and that the regional study be expanded to the southern coastal countries, as a great deal of trade takes place between the Sahelian States and these coastal countries. It was also recommended by the seminar to include other disciplines and methods to complement the regional study under way. As a result, Associates for International Resources and Development (AIRD)‘, under Dirck Stryker’s ‘l Created in 1973, CILSS (Comité Permanent Inter-Etats de Lutte contre la Sécheresse dans le Sahel) is an organization of nine Sahelian States for coping with drought in its member countries. 2/ The Club du Sahel, a coordinated program for donor countries, is located within the Organization for Economic Cooperation and Development (OECD) to assist CILSS member states and international donor agencies in natural resource management and food security in the Sahel. 3/ 49, rue de la Glaciére, 75013 Paris, France. ‘/ 55 Wheeler Street, Cambridge, MA, 02138, USA. 49 leadership, was funded by the Club du Sahel and the United Agency for International Development (U SAID) to work in collaboration with the INRA/IRAM/UNB research team in order to produce more comprehensive knowledge of the intraregional trade. Withinthiscontext,1washiredin1990byAIRDtobebasedatIRAMtocollaborate with the Afro-French research team. My duty was, among other things, to be the field economist and collect the data needed to carry out the regional study. The data for the present study were drawn from that study, and their sources are given in Appendix A. 4.2 Farming System and Production Policies This section describes the farming systems and their loeations within COte d’Ivoire and Mali, and discusses farm policies in the two countries. 4.2.1 Cotton 4.2.1.1 COte d’Ivoire V Cotton production is concentrated in the vast savannah zone, encompassing the center and the north of the country. This production has been under the leadership of the Compagnie Ivoirienne de Developpement des Textiles (CIDT) since the creation of this regional development agency in 1974. This organization is jointly owned by the Compagnie Franeaise de Développement des Textiles (CFDT), a French firm providing the teChnical assistance, and the Government of COte d’Ivoire, which owns nearly 75 percent of the equity. As a result of its larger share, the government, through the 50 supervision of the Ministry of Agriculture and Animal Resources (MARA), defines the overall objectives of the cotton subsector. Cotton production has exhibited an unprecedented increase since 1974. As shown in figure 4-1, it increased from less than 60,000 tons in 1974 to over 290,000 tons in 1988, owing to large investments in infrastructure and research to find varieties better suited to the Ivorian climatic and ecological conditions (Lele et al. , 1989). Even though the increase in cotton production was due to an increase in yields in the late 703, growth in cotton production in the 80s appears to have been associated with an expansion of the area under cultivation, as yields have stagnated (CIDT, 1991). This stagnation of yields is believed to be due in part to the heavy reliance of production on manual cultivation. Indeed, while over 80 percent of producers used manual cultivation in 1989/90, only 18 percent of producers used animal traction during the same period, owing to the fact that most of COte d’Ivoire is disease-prone for animals. Animal traction cultivation is mostly concentrated in northern COte d’Ivoire and yielded nearly 1300 kg/ha in 1989/90, while the yields of the manual cultivation were about 1100 kg/ha. Yields were 1500 kg/ha for semi-mechanized farming system, which is used only by a few farmers because it is capital intensive and farmers often lack the capital to purchase machinery. In fact, they do not resort to loans and rely on previous saving from other activities to finance equipment. Credit appears to be mostly available for small inputs, such as fertilizers (NPK‘10-18-18 and urea) and insecticide. The dose per hectare for these inputs and their unit costs are presented in table 4-1 and 4-2. 51 figure 4-1. Seed Cotton Production in COte d’Ivoire and Mali (1971 - 1989) 300 250 - 200 r 150‘ 100‘ Production (Metric Ton) (Thousands) 50* o I I I I I I I I I I I I I I I I I I I 71 7273747576 777879 8081 828384858687 8889 Year + ivorion Production —+— Malian Production Source: CIDT and OSCE 52 I TathI.WdemehCMed’IvoinandMnlhlm Source: MARA and IER Table 4-2. Acquisition Prices of Inputs in COte d’Ivoire and Mali Input Price (CFAF/U nit) Life Expectancy (Year) Cbte d’Ivoire Mali COte d’Ivoire Mali NPK (10-18-18) (kg) 130 155 1 1 Urea (kg) 115 145 1 1 Insecticide (liter) 3,300 1,000 1 l Multi-purpose Plow 52,000 55 ,000 5 5 Seeder 49,000 52,700 5 5 Sprayer 8,500 10,200 5 5 Cart 72,000 77,000 7 7 Animal 120,000 80,000 5 5 Source: MARA, CIDT and IER 53 As shown in table 4-1, the farming systems that rely on a stronger source of power have relatively higher yields, owing to several factors. First, farmers, who use these techniques generally have better land. Second, the soil ean be dug deeper thanks to the strong power and as a result, the plant has access to the most nutritive elements in the soil during the first stage of the plant growth. Third, these farmers do not generally wait for the rainy season to start the land preparation and hence they are able to plant earlier. Although the level of subsidy has declined substantially since the implementation of the Structural Adjustment Programs in the early 80s, farmers enjoy some subsidy. For instance, farmers receive ads and extension services free of charge. 4.2.1.2 Mali Parallel to COte d’Ivoire, cotton production in Mali is under the leadership of the Compagnie Malienne de Developpement des Textiles (CMDT), which has helped rank Mali among the largest cotton producers in Sub-Saharan Africa. Mali’s performance is evidenced by the increase in cotton production from nearly 70,000 tons in 1971/72 to more than 275,000 tons in 1989/90, as shown earlier in figure 4-1. Thus, production grew at over 5 percent per annum. The bulk of cotton production takes place in southern Mali, where several production systems coexist. These range from the manual cultivation to the more motorized production techniques. Despite the existence of this array of techniques, information is available for only the improved manual production technique and the 54 animal-drawn production system, which is the most widely used production system. As such, this study will focus on these systems of production, for which no direct subsidies are granted by the government. The only subsidy available is that on extension services, which amounted to approximately 15,000 CFAF/ha of seed cotton in 1989/90 (CMDT, 1990). The improved manual technique and the animal-drawn system differ in their requirements for labor. They rely heavily on family labor. It is estimated that the improved manual technique uses about 150 person-days per hectare for the different agricultural tasks, with harvesting taking up to one-third of the labor time. Meanwhile, the animal traction technique employs about 122 person-days per hectare, of which almost half is devoted to harvesting. Thus, it appears that the bulk of the labor time is assigned to harvesting cotton (Stryker et al., 1987). One of the major differences between the improved manual technique and the animal-drawn technique resides in the investment in agricultural equipment. While the improved manual system uses small tools only, the animal traction system relies on a pair of animals bought at about 160,000 CFAF and sold after 5 years of use at nearly three- fourths of their acquisition value (IER, 1989). In addition, this latter system uses equipment, such as a multi-purpose plow, seeder, sprayer, cart and barrow. 55 4.2.2 Coarse Grains 4.2.2.1 COte d’Ivoire While, maize production can be undertaken in all regions of the country, that of millet/sorghum is concentrated in the northern region. In the case of both maize and millet! sorghum, the predominant production system is manual cultivation. However, some farmers use animal power in the center and north of the country. Moreover, a very small proportion of farmers relies on the semi-mechanized system to produce maize in the savannah region. Since 1977, owing to the dismantling of most government agencies due to their financial burden on the government budget, the agricultural sector has been organized in such a way that four major regional development agencies are in charge of providing assistance and extension services to farmers, regardless of the crops produced. It is within this framework that the Middle Forest is covered by PALMIVOIRE and SATMACI, while SODEPALM monitors the southern coastal zone. In the meantime, CIDT is responsible for the vast region encompassing the center and the north of the country. Since 1988, CIDT has been strengthened in its duty by the Compagnie Ivoirienne dc Developpement des Cultures Vivrieres (CIDV) to assist a greater number of farnrers. The involvement of this organization may have explained the increase in maize production from about 250,000 tons in the mid 70s to almost 500,000 tons in 1990 (CIDV, 1990), as shown in figure 4-2. The use of modern inputs such as improved seeds and fertilizers has helped increase maize yields from 700 kg/ha to nearly 1500 kg/ha by relying on manual 56 Figure 4-2. Coarse Grain Production in COte d’Ivoire and Mali (1971 - 1990) PRODUCTION (METRIC TON) (Millions) 53 9 53 4s a: co —- .0 N O I I I I I I I I I I I I I I I I I I I I 71 72737475 76 777879 8081 82 83 848586 8788 89 90 YEAR |+woswuz£ +uruwuz: +Iv0tu/soac-a—uiuu/soac] Source: CIDV and OSCE 57 cultivation. Improving the source of power to animal traction increased on-farm yields to about 2000 kg/ha in 1990. By further intensifying inputs and relying on a semi- mechanized technique, maize yields average about 4000 kg/ha, as indicated in table 4-3. About 30 kg of improved md, distributed free to farmers, are applied to a hectare. In contrast to maize, millet! sorghum production has stayed steady since the early 703, owing to the little progress made in increasing yields. While yields for the traditional manual technique have been about 600 kg/ha, those of the animal traction have been around 800 kg/ha in the north of the country. According to some accounts (McIntire, 1986), the response of millet/sorghum production to fertilizers use has been so low that farmers do not have any incentives to use them in the short run. 4.2.2.2 Mali Because of its moisture requirements, maize production is concentrated in southern Mali, which accounts for nearly two-thirds of national production (Office Statistique des Communautes Européennes, 1989). Although maize production is intercropped and undertaken under several production systems, information is available for only the improved animal traction and the improved manual techniques, owing to the fact that the CMDT extension agents monitor farmers who use these techniques of production. ' In the CMDT zone, maize produced in an intercropping system accounts for about two-thirds of maize supply (Boughton, 1993). Yet, data lack for this type of maize production. As information is available on the pure-stand maize produced intensively, TdIIa4-3. WdCoanaGrainaProhctia-Tacflqu forCMad’Ivain-dMalh 1990 Regiodproductiorr technique Cdtad'lvoiralrnaina Wand Cauarlirrprovadrnararal WWW WW Mali/ruins Madman-action Cdta d'IvoiraIrnillat/aorghuu Withdrawal Madmaltractioa Mali/Wanda:- Southltnditioaal mural Marina! traction Source: MARA, IDESSA and IER Yields rsoo §§ soo s00 58 Labor Day/ha 131 98 33 143 49 41 61 Power Source Tractor EE EE ‘EE Water Como] Seeds um 8888 i: 30 10 10 NPK i §§§a Urea 100 150 150 59 this study focuses on this maize, which accounts for about one-third of maize production in the CMDT zone. Pure-stand maize is produced in rotation with cotton and yields roughly 1600 kg/ha under manual cultivation and 2000 kg/ha with animal traction (Stryker et al., 1987). Such yields reflect the use of modern inputs, such as NPK and urea. The use of chemical fertilizers for maize production corresponds to Boughton and de Frahan’s (1992) intensive technique. It is estimated by IER (1989) that nearly 100 kg of NPR and 150 kg of urea are applied per hectare. In contrast to maize, millet! sorghum production is in general undertaken with no fertilizers and takes place in most of Mali. Nevertheless, the focus will be on southern Mali, for which information on production is better. There exist two main production systems in this region: the traditional technique, which relies solely on manual cultivation, and the animal traction production system. For 1989/90, yields were estimated at nearly 600 kg/ha and 800 kg/ha for these systems of production. 4.2.3 Paddy 4.2.3.1 Cbte d’Ivoire In COte d’Ivoire, rice production takes place in two distinct ecological zones, namely the southern forest zone and the savannah zone. The dominant production technique in both ecological zones is the traditional manual system in the uplands, covering about 95 percent of the area devoted to rice production and contributing to approximately 85 percent of national production (Louis Berger International, 1990). As shown in table 44, farm yields for upland traditional manual cultivation are about 1300 Seeds “Illa yum. Labor rum Day/ha Power Source Mental Mensal Mental Mental Mental Animal Mental EEEEE Source: Humphreys and ER ma ta. A M n “T l“ i 61 kg/ha in the forest region and 900 kg/ha in the savannah zone. The relatively high yields in the forest zone reflect not only the higher and less variable rainfall, but also the fact that rice production comes at the beginning of crop rotations. As a result of rice coming first in the crop rotations, land clearing and preparation for rice production take more timeintheforestregionthaninthesavannah. Thismayexplainwhythelabor requirement is relatively high for forest zone rice production, estimated at about 120 person-days per hectare, compared to 85 person-days per hectare in the savannah region. When the manual cultivation is improved by making use of_ modern inputs, such as improved seeds, fertilizers and insecticide, average yields increase from 1300 to 2200 kg/ha in the forest zone and from 900 to 1500 kg/ha in the savannah region. Improving the source of power from manual to animal-drawn power in the upland production of the savannah, where animals are more resistant to disease, brings about higher yields, estimated at nearly 1800 kg/ha when modern inputs are used. Irrigation systems were introduced in the early 70s in both regions, owing to the ; government concern about achieving self-sufficiency in rice (Humphreys, 1981). The underlying policy goal in the early 70s was to reduce rice imports, which were thought to be a growing burden on foreign exchange availability and the balance of payments in the long run. Achieving the objective of self-sufficiency in rice meant improving productivity through investments in more secure water control to enhance the domestic supply. It is within this framework that public funds were used to finance lowland irrigation schemes in the forest region. Such schemes were intended to divert water from 62 small streams to nearby bottom lands. With these schemes, yields increased to nearly 3500 kglha in this region. In contrast to the forest region, the northern region benefitted from major government investments through borrowing foreign capital that helped construct dams in the early part of the 703. Thanks to these dams, the irrigation systems enjoy complete water control, assuring double-cropping during the year. It is estimated that the yields for this system of production are as high as 4000 kglha. This production system has, however, high labor requirements, evaluated at more than 240 person-days/halyear, as a result of the irrigation control, transplanting and longer harvesting time. The second device used by the government to expand paddy production was to encourage utilization of modern inputs to enhance yields. To ensure the use of these modern inputs, the government created in 1970 a major parastatal, SODERIZ, which instituted a contract device with farmers to provide them, in a timely fashion, with subsidized modern inputs paid for at harvest time either in cash or in paddy equivalent. SODERIZ was dismantled in 1977 beeause of its financial difficulties. Since then, its role of delivering inputs to farmers has shifted to other parastatals (SODEPALM, PALMIVOIRE, and CIDT). It is estimated that 150 kg of NPK, 75 kg of urea and 4 liters of herbicide are applied on a hectare of rice field (Louis Berger International, 1990). In general, farmers purchase these inputs on credit and repay them after harvest. Only farmers of the irrigation system of the North receive free inputs. These farmers, as well as other rice farmers, are granted free extension services, which run between 30,000 and 40,000 CFAF per hectare. Thanks to these extension services, the use of 63 modern inputs and the pricing policies, which will be discussed later, paddy production rose from nearly 300,000 tons in the early 70s to almost 700,000 tons in 1990 (CIDV, 1990), as shown in figure 4-3. 4.2.3.2 Mall Paddy production takes place also in two distinct ecological zones, which are the south of Mali and the zone surrounding Mopti and Ségou. While southern Mali accounts for less than 10 percent of paddy production in Mali, the regions of Mopti and Ségou supply more than three-fourths of paddy production, thanks to major investments along the Niger river. In southern Mali, there exists no traditional water control system for paddy production. Two systems of production essentially coexist in this region. The oldest production technique of this region is the rainfed traditional swamp technique that uses 2000 kg/ha. Owing to this instability in yields, the Government of Mali attempted to introduce a water control system through a simple diversion of water, under the leadership of CMDT. In its attempt to stabilize and increase yields, CMDT introduced not only animal traction for paddy production, but also the use of improved seeds and modern inputs. As a result, yields increased to nearly 1800 kg/ha (McIntire, 1981). Unfortunately, lack of information on the labor requirement and production costs for this system limits this study to the rice production systems in the regions of Mopti and Ségou. 64 [figure 4.3. Paddy Production in core d’Ivoire and Mall (1971 - 1990) 700 600 ‘ N (N b 0'! O O O O O O O O l l j 1 Production (Metric Ton) (Thousands) 100‘ 717i7372737§737§7§8383akakskabasaraaasso Year + Ivorian Paddy —|— Malian Paddy Source: CIDV and OSCE rfir"§ trib- 65 In the zone surrounding Mopti and Ségou, there exists a wide range of techniques, ranging from no water control to complete water control. The traditionally uncontrolled flooded system of production is based upon manual cultivation and uses no modern inputs. Its yields, very variable, are estimated at about 700 kg/ha in normal years. Because of this variability in yields, a limited water control system has been introduced in the Mopti and Ségou regions through projects called Operation Riz. Floodwater enters the fields through diked polders for this limited water control system, which yields nearly 1200 kg/ha. This system uses modern inputs and animal traction as a source of power. The most productive region in the Mopti/Ségou zone is that of the Office du Niger, which was first intended to produce irrigated cotton, but quickly stopped cotton , 7' production because of agronomic constraints (De Wilde, 1969). The Office du Niger/ includes the sub-regions of N iono, N’Débougou, Macina, Kourouma and Molodo, where major investments have been undertaken by the Government of Mali since 1984. The major objective of these investments was to restore areas that were productive in the past, but have witnessed a drastic decline in productivity as a result of the breakdown of the irrigation system. It is within this framework that the French government, through the Caisse Centrale de Cooperation Economique (CCCE), funded the project RETAIL in 1986 (Republique du Mali, 1989). The most productive system in the Office du Niger is that of RETAIL, which yielded over 5 tons per hectare (Cebron, 1992) in 1990/91. Yields are highest for this project because it enjoys a full water control and a regular maintenance of the irrigation network that allow double-crOpping during the year. Moreover, it requires transplanting 66 and the use of a heavy dose of chemical fertilizers, which make it an intensive production system. Water charges and threshing services paid by farmers are estimated at 42,000 CFAF/ha and nearly 8 percent of production, respectively. Farmers are, however, granted free extension services, estimated at nearly 13,000 CFAF/ha. The second most productive technique in the Office du Niger region is the system of production of the ARPON project, which does not enjoy a systematic leveling of the fields. As a result, certain areas of the fields are poorly flooded. Moreover, farmers of this project use lower doses of inputs than those of RETAIL. The production system of ARPON can thus be termed semi-intensive. Its yields are lower and averaged about 3.5 tons/ha in 1990/91 (Cebron, 1992). As a result of the lower yields, farmers are charged about 28,000 CFAF/ha for water use. They pay, however, the same rate for threshing services. The third production system found in the region of the Office du Niger is that of the non-restored areas that use gravity irrigation. The irrigation network of this production system is not maintained on a regular basis and as a result, yields are lower than those of the other systems described above. These yields, estimated at nearly 2500 kglha, reflect also the use of a relatively lower dose of inputs. Farmers are charged 28,000 CFAF/ha for the use of water and 8 percent for threshing (Cebron, 1992). 67 4.3 Marketing Policies 4.3.1 Cotton 4.3.1.1 COte d’Ivoire Before seed cotton is transformed into cotton fiber, it is collected in rural areas either by the CIDT agents or by farmers’ cooperatives, whose share of the assembly market has gradually increased since the mid 80s. It is estimated that 640 cooperatives collected over 240,000 tons of seed cotton out of a production of nearly 241,000 tons in 1989/90 (CIDT, 1991). This overwhelming share of the cooperatives appears to be mainly due to their lower collection costs than those of the CIDT. Collection costs for these cooperatives averaged 4200 CFAF/ton 1989/90, compared to 6500 CFAF/ton for CIDT’s marketing agents. In COte d’lvoire, there are 10 industrial mills that gin seed cotton into cotton fiber in several regions of the savannah zone. It is estimated by CIDT that the ginning ratio in these mills averaged nearly 45 percent in 1989/90 and that the total average ginning cost in cotton fiber equivalent amounted to approximately 54,000 CFAF/ton. Such a cost is composed of the direct cost of ginning and the finance charges that amounted to about 18,400 CFAF/ton in 1989/90. As a result, the direct costs of ginning were about 35,600 CFAF/ton. Ginning cotton provides wd, a by-product that was sold by CIDT to TRITURAF’ at nearly 23,000 CFAF/ton of seed. As the ginning ratio is about 45 percent, the value of the seed for one ton of cotton fiber is about 28,700 CFAF. Thus, 5/ TRITURAF is a firm located in Bouaké that processes cotton seed into oil. 4.3.? 68 the net ginning cost to CIDT is about 25,300 CFAF/ton of cotton fiber after the value of the seed sold is deducted from the total ginning cost. While about 15 percent of the cotton fiber obtained is sold to the local textile mills in Bouaké, the bulk of cotton fiber is sold to the international market to generate foreign currency. Before this cotton fiber is shipped to the international market, it is bulked, stored, and handled at nearly 10,000 CFAF/ton and transported from the mills to the port of Abidjan. Transport cost is about 11,000 CFAF/ton from Bouaké to Abidjan and nearly 20,000 CFAF/ton from Korhogo to Abidjan. Port charges in Abidjan averaged nearly 19,500 CFAF/ton in 1990. 4.3.1.2 Mali Seed cotton collection is a joint activity between CMDT and farmers’ cooperatives, whose role is to help assemble cotton in selected areas, where cotton is picked up and transported by CMDT to the mills. It is estimated that transport costs from the rural areas to the mills averaged 10,000 CFAF/ton in 1989/90 and that the costs of storage, handling, insurance and cotton protection were nearly 13,000 CFAF/ton (CMDT, 1990). The average ginning ratio in the 13 industrial mills, located mainly in southern Mali, was nearly 43 percent in 1989/90 and the total ginning cost averaged about 54,200 CFAF/ton. The seed obtained after ginning is sold to HUICOMA“ at 9,000 CFAF/ton; ‘/ HUICOMA has its headquarters in Bamako and its industrial unit in Koulikoro. It processes cotton md bought from CMDT and groundnut into refined oil, sold in the local market. tar. the product \ I I mace: an ion 69 thus, the net ginning cost in cotton fiber equivalent after deducting the value of the by- product was a little over 42,000 CFAF/ton. CMDT exports nearly all the cotton fiber produced, owing to the very small capacity of the textile mills in Mali and the desire to earn foreign currency. Marketing costs from the mills to the port of Abidjan, where over two-thirds of Malian cotton fiber is shipped, averaged nearly 44,100 CFAF/ton in 1989/90 (CMDT, 1990). 4.3.2 Coarse Grain 4.3.2.1 COte d’Ivoir-e As for most food commodities, the bulk of the coarse grain produced is consumed by farmers, who are in general semi-subsistence farmers. SOFRECO (1989) estimated that the share of coarse grain marketed is only 25 to 30 percent of total production. These quantities are marketed entirely by the private sector and do not involve any government interventions at the domestic level. Generally, large wholesalers fund assemblers, who are in charge of buying coarse grain from farmers. The average 1990 farmgate price for maize produced in the forest region and the center of Cate d’Ivoire, and for millet! sorghum produced in northern Cate d’Ivoire were calculated from the data provided by the Office de Commercialisation des Produits Vivriers (OCPV), a government agency in charge of collecting monthly wholesale and retail prices of food crops in the major urban centers of COte d’Ivoire. The monthly farmgate price for the two coarse grains are derived by assuming that the marketing margins between the wholesale and retail prices, given in table 4-5 and 4-6, are identical to the marketing 70 .>....u.o ”8.8m .e. 8. an. S 8 8 .883. = 8. 2.. 8. a. an. a... 8 8 2. 32.88 8. 2.. 3a 8. .u. .2 8 8 2. 833°: 8.. R. 2. .2 2. as. 8 B 8 .388 «e. 8. o... u... 8. 3. z. 3 8 .3889... .o. 8. 8a nu. .u. 8. 2. 2. .o .39... 2. 8. 8. 8 3. on. 2. .o 2. 22. 8. 8. B. 8. 8. a: 8 z. 8 82. 8. 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As such, the average 1990 farmgate price for millet/sorghum in Korhogo is about 80 CFAF/kg and that of maize is about 40 CFAF/kg in the center and forest of COte d’Ivoire’, respectively. Interviews with traders revealed that collection costs that include assembling, handling, and storing coarse grain averaged nearly 4,500 CFAF/ton in 1990 and transportcostsfromtheruralareastothenearestlargemarketsuchasBouakéor Korhogo were estimated at nearly 5000 CFAF/ton. According to the same interviews, coarse grain was shipped to the major urban centers at about 35 CFAF/ton-km and distribution costs between markets averaged approximately 6,800 CFAF/ ton in 1990 (Barry et al., 1992). 4.3.2.2 Mall Marketing of coarse grain was long dominated by government interventions in Mali. It was not until the early 803 that the government, under increasing pressure from the donor community, took steps to liberalize the cereals market. During the initial period of the liberalization, OPAM, the parastatal created in the mid 603 to market cereals, was granted the role of defending cereals prices within a band, which was defined by the government. One of the objectives of the Government of Mali was to 7/ The price spreads between wholesale and retail prices in both Abidjan and Bouaké suggest that either high barriers to entry exist in these markets or the price data for these markets are unreliable. Given that the price spreads in Korhogo are close to the price spreads obtained from the price data collected by Michigan State University between 1986 and 1987 in southern Mali, Korhogo’s average 1990 farmgate price obtained from the method explained above is used as a proxy for the average 1990 farmgate prices for central C6te d’Ivoire and the forest region. 73 provide farmers with stable prices and protect consumers’ real income, as cereals were seen as wage goods. Within this framework, OPAM was, among other things, to buy when cereals prices were under the lower limit and sell when they transcended the upper limit of the band. Such a defense mechanism assumed that OPAM had the means to influence prices. By all accounts, OPAM did not have the financial resources required to undertake this defending role (I-lumphreys, 1986). In the first place, one of the reasons why the liberalization took place was OPAM’s financial difficulties. As a result of OPAM’s financial constraints, OPAM’s role has been narrowed to managing food aid, providing market information, and holding the national food security stock. Since 1986, coarse grain prices have been determined by market forces, owing to the participation of private traders, who undertake the marketing activities. They buy coarse grain from farmers, and assemble, store and ship them to the consumption centers, among which the most important is Bamako. An interview with traders revealed that transfer costs between the farms in the southern CMDT region and Sikasso were about 8,500 CFAF/ton and that between Sikasso and Bamako were roughly 13,000 CFAF/ton in 1990. Such costs are close to what Gabre-Madhin and Maiga (1990) found. One of the objectives of the. policy reforms in the cereals subsector was to bring about a more efficient cereals marketing system, through competition and better information available to market participants. Within this framework, a Market Information System (MIS) has been set up to collect price data both at the farmer and consumer levels so that market participants have available some information to make rational decisions and efficient use of their resources. Price data have been available 74 since 1988. The MIS data indicate that the 1990 consumer prices for maize and millet/sorghum in Sikasso averaged about 60 and 80 CFAF/kg, respectively and those of Bamako were about 80 and 90 CFAF/kg, respectively. Assuming a 10 CFAF/kg price differential between the consumer prices and the wholesale prices to cover marketing costs, the average 1990 wholesale prices can be evaluated at 50 and 70 CFAF/kg for maize and millet/sorghum in Sikasso, and 70 and 80 CFAF/kg for the same cerealsinBamako. 4.3.3 Marketing of Local Rice 4.3.3.1 Cbte d’Ivoire The bulk of paddy produced is consumed and used for seed by farmers, and only 40 percent of national production appears to be marketed by the private traders and the official channel (Louis Berger International, 1990). According to Louis Berger International, over three-fourths of the quantity marketed was handled by private traders during the period prior to 1988. Since that year, the private sector has handled nearly all the marketable loeal rice, owing to previous government policies that are explained below. A pricing and marketing policy was instituted by the government in the early 703 to complement the production policies, described earlier, to expand domestic production. Both sets of policies were aimed at reducing not only the increasing burden of rice imports on the balance of payments, but also the country’s dependence on the international market, which witnessed a sharp increase in prices in the mid 703. It is with m: with r; [Hi 11' mm: . req‘ mus: 75 within this framework that the role of SODERIZ was expanded from assisting rice farmers to collecting, storing, transporting, hulling paddy, and supplying wholesalers with rice. At each stage of this official marketing channel, prices and margins were set by the government to achieve its goals, consisting of expanding domestic supply through adequate revenues to farmers and providing consumers with rice at a reasonable price. With these objectives in view, the farmgate producer price was raised from 60 to 80 CFAF/kg in 1974. In the meantime, the consumer price, which increased sharply after the sudden increase in international prices, was lowered by the government by 25 percent in 1975. Such increase in producer price and the lowering in consumer prices triggered the substantial deficit of SODERIZ, which was dismantled in 1977 and replaced by several industrial units owned by the government. The government devised a new rice policy whereby a distinction was made between production and marketing activities. With this new policy, extension services were not provided by the newly created units, but rather by development agencies (CIDT, SODEPALM, SATMACI), each in charge of a specific production zone. In the meantime, the rice production zones were divided into regions so as to make each industrial unit responsible for purchasing paddy from farmers in a particular region, without the possibility of expanding its activities beyond its designated region. Once again, paddy was purchased at an official price and sold to wholesalers at a price set by the government. It was assumed in the new pricing policy that the industrial units would make profits if the wholesale price was greater than costs. But, in the event that costs exceeded the wholesale price, the government would absorb the loss through a subsidy finded b} ctr-2g: ol 0 dour o; governs: (lewd: he paid to the in 76 funded by coffee and cocoa revenues, managed by CSSPPA, a government agency in charge of stabilizing agricultural prices. Obviously, this new marketing and pricing policy was not conducive to holding down operating costs. It rather encouraged the industrial units to ask for more government financial support, which became, throughout the years, increasingly demanding on the limited public resources. To alleviate costs, the government reduced the paddy farmgate price from 80 to 60 CFAF/kg. Even with this reduction, subsidies to the industrial processing units ranged from 85 CFAF/kg of rice for the least inefficient plant to 455 CFAF/kg of rice for the most inefficient industrial unit in 1987 (Louis Berger International, 1990). By 1988, the government owed these industrial units over 17 billion CFAF, which were cumulated over several years. This amount was unlikely to be paid by the government, especially when it decided unilaterally to withhold its major export crops from the world market, owing to the law international prices. As a result, the industrial units have virtually stopped operating and the private sector has marketed nearly all the local rice since 1988. Even during the heyday of the industrial mills, they marketed only a small share of domestic production. In fact, the price offered by the private sector to farmers was sometimes nearly 40 percent higher than that of the industrial mills (Louis Berger International, 1990). Nonetheless, the selling price of this private sector was much lower than that of the official channel, owing to its lower cost. In addition, the quality of its rice produced was better than that of the industrial mills because of its faster and shorter turnover. Its hullers, nonetheless, have yielded since the mid 703 a lower milling ratio, width is isduc to EJHOI‘ CFAF/t CFAF» am about 6 aka: Hour ‘5 COM.“ Md 77 which is on average 55 percent (Barry et al., 1992). Such a relatively low milling ratio is due to the fact that the hullers were originally intended to process coffee and, as such, are not well suited for hulling rice. During 1990, paddy collection costs for the private sector averaged about 9,000 CFAF/ton, and hulling cost in rice equivalent was estimated at approximately 10,000 CFAF/ton (Barry et al., 1992). Rice milled was shipped to the major consumption centers at nearly 35 CFAF/ton-km. The average distribution cost in rice equivalent was about 6000 CFAF/ton in 1990. The average 1990 wholesale price for loeal rice, collected by OCPV in the urban centers, was 190 CFAF/kg in Abidjan, 180 CFAF/kg in Bouaké, 170 CFAF/kg in Daloa and 160 CFAF/kg in Korhogo. The domestic price of rice is influenced by rice imported by the Caisse Générale de Péréquation des Prix (CGPP), a parastatal granted the monopoly power to import rice in order to maintain a regular supply of rice to the cities. The level of rice imports during a single year is, according to government officials, decided by the Ministry of Commerce, in conjunction with the Ministry of Agriculture and Animal Resources, which forecasts the level of national production. Imported rice accounts for nearly half of domestic consumption and is sold to wholesalers, who are registered at the Ministry of Commerce (Louis Berger International, 1990). The parastatal, through a transport subsidy, maintains pan-territorial and pan-seasonal prices, fixed by the government at 147 CFAF/kg at the wholesale level and 160 CFAF/kg at the retail level. In addition, the parastatal influences the domestic price of rice by managing a national food security stock LT 78 of nearly 90,000 metric tons, equivalent to three months of consumption (Louis Berger International, 1990). 4.3.3.2 Mali Marketing of loeal rice was subjected to substantial government interventions, which were aimed at providing producers with stable revenues and supplying rice to urban consumers at a ”reasonable" price. Achieving these objectives required the government to possess some tools to influence the rice market. The Office du Niger and OPAM were the instruments of the government to influence the loeal market. The Office du Niger was in charge, among other things, of buying paddy from farmers at administered prices, collecting and milling paddy at the industrial mills owned by the government. In the meantime, OPAM was granted the monopoly power to purchase rice produced by the Office du Niger and market it at prices fixed by the government. Even though these two parastatals were granted monopoly-monopsony power, there existed a dynamic private sector, which offered higher prices to farmers than those of the parastatals and marketed rice at relatively low per unit costs. It was not until 1986 that the private sector, thanks to the reforms programs pressed by the donors, was allowed to participate officially in the marketing of the loeal rice. These reform policies did not, however, question the existence of the Office du Niger, which was seen as a force that could counterbalance the private sector vis-a-vis farmers. The Office du Niger is compelled to buy paddy at a floor price, set by the government at 70 CFAF/kg. This price appears to be the buying price of the Office du Niger for all qualities of paddy. U133: date 1987, 00 Sty from t “It L‘ 79 The private sector, in contrast to the Office du Niger, faces prices that are determined by market forces, which have been increasingly influenced by farmers’ cooperatives. Indeed, farmers have formed associations in recent years to buy, store, and release paddy to maintain adequate prices in the paddy market. It appears that they have been increasingly moving toward hulling paddy to eapturc the value-added when they supply rice to wholesalers (Diarra, 1994). The share of the Office du Niger in paddy marketing has been variable since 1987, when the liberalization of the rice market beeame effective. Its share has depended on several factors, among which one of the most important is its ability to acquire credit from the local banks in order to purchase and mill paddy. Also influential on this share were the quantity of unsold rice in stock and the state of the mills, which stop sometimes as a result of broken parts. The Office’s share of paddy marketed has also depended upon the quality of paddy produced by farmers. In fact, farmers prefer to sell the good quality of paddy to the private sector, which offers higher prices for higher qualities, as opposed to the Office du Niger, which purchases paddy at a uniform price. As a result of these factors, the share of the parastatal in paddy marketing in the zone of the Office du Niger has generally been under 50 percent and has been falling (Allard, 1990), beeause of the increase in the number of small hullers owned either by farmers, private agents or wholesalers (Lanser, 1990). ’ The costs of collecting paddy and milling it into rice by the parastatal appear higher than those of the private sector. According to some estimates, these marketing costs for the parastatal are nearly 20 percent higher than those of the private marketing canal I the pm In“: (Wit: Lilli» at .. ull, i a price 3.50.552 smile: 1990 a scar. (199:), he Off 80 channel (Dembélé, 1990; Allard, 1990). Such high costs may be part of the reason why the parastatal is faced with difficulties in trying to sell its rice. Another reason for the difficulties of the parastatal in selling its rice is the low price of imported rice. As a result, it is sometimes compelled to sell its rice at loss to a few wholesalers who enjoy a price reduction if they decide to buy large amounts. Other times, rice is sold to wholesalers through a bidding process agreed to by the government. Private wholesalers represent the engine of the private sector. They usually fund smaller wholesalers and stallholders, who market paddy and some rice. The average 1990 collection costs of paddy were estimated at nearly 9,000 CFAF/kg for the private sector. Paddy was hulled at about 9,500 CFAF/ton in 1990. According to Diarra (1994), the milling costs of the private sector are about 25 percent lower than those of the Office du Niger. The rice produced in the zone of the Office du Niger was shipped from Niono to Bamako at roughly 6000 CFAF/ton during the same year. Other rice distribution costs such as handling, storage, the finance charge and the wholesaler’s margins from Niono to Bamako were estimated at nearly 10,000 CFAF/ton (Barry et al., 1992; Dembélé, 1990). The domestic price of rice has been substantially influenced by the unstable rice import policies. In fact, the private sector was allowed in 1981 to undertake rice imports, thanks to the cereals market liberalization and the concern of the government to ensure the food security of a country, which witnessed successive years of cereal 81 deficits. Such a concern led the government to remove nearly all rice import duties and taxes. As a result, cereals prices were lower than those of the pre-liberalization period. In 1986, the government adopted new measures to protect the domestic rice production, which had increased in response to a high rainfall level. Import duties increased from 5 percent to 32 percent of the border price, but they did not induce an increase in the domestic price of rice because of the relatively low world price of rice (Coelo, 1989). Despite these high import duties, the Office du Niger was unable to sell its stock of rice, which forced the government to ban rice imports in October 1987. Such a restricted policy led to high cereals prices until June 1988. A similar policy undertaken by the government in 1990 induced again high rice retail prices. In contrast, retail prices became normal whenever the government permitted rice imports. As such, the dgmgjcretailprice of rice is largely influenced by rice imports. The retail price of 40 percent broken rice averaged nearly 195 CFAF/kg in Bamako, and 200 CFAF/kg in Sikasso (MIS, 1991). 4.4 Assumptions of the Domestic Resource Cost Method This section discusses the assumptions used to calculate the domestic resource cost coefficients. First, the world price of the commodities, used to estimate border prices, and the shadow exchange rates are discussed. Then, the assumptions about the shadow price of domestic resources are explained. 4.4.1 ii 4.1.1.1 C D W by First, the id the 1 taxes by arms. trial-at? m: E Sis 82 4.4.1 World Prices of Commodities 4.4.1.1 Cotton Determining the border price of cotton could have started with the FOB price given by the parastatals. This price was, however, not used for two main reasons. First, the parastatals base their calculation of their FOB price on their marketing costs and the prices at which they buy cotton from farmers because they can minimize their taxes by doing so. Second, their true income originates from cotton sold in the international market, where they are price takers. As a result, this study bases the calculation of the border price on the world price of cotton, as often done in the DRC analysis. As shown in figure 44, the world price of cotton has fluctuated since 1980. It fell from USS 2050/ton in 1980 to USS 1320/ton in 1985 and reached USS 1820/ton in 1990 (World Bank, 1991). Such prices represent the value of the highest quality of cotton fiber in the world market. It appears that cotton exported by West African countries is of a slightly lower quality than that supplied by the major exporters. As a result, the price of Malian and Ivorian cotton was obtained by discounting the international average 1990 price, which was used as the baseline price for computing the DRC coefficients to match the production and marketing costs of 1990. The international average 1990 price was discounted by 1 percent for Malian cotton, as done by Stryker et a1. (1987). Meanwhile, the discount rate for Ivorian the cotton, based on CIDT’s estimate of the selling price of its cotton in the world market, was about 3 percent because the second grade in the Ivorian exports increased during the recent years. 83 figure 4-4. Evolution of Nominal World Prices of Commodities (1980 - 1990) 2000 1800 s 1600' d ‘ fl 0 N -b O O o o o o L .l 1 800 ‘ 600 ‘ 400T W 200 . W WORLD PRICE (US$/TON) 0 l i 1 l I I T I l i l 80 81 82 83 84 85 86 87 88 89 90 YEAR + COTTON -+- MAIZE + RICE ‘5- SORGHUM Source: FAO and World Bank 84 For an export crop such as cotton, the world price is the CIF price, which needs to be translated into a border price. The border price or FOB price is obtained by first subtracting from the CIF price the costs of freight and insurance from the border to the world market. These costs were valued at nearly $109! ton for COte d’Ivoire and USS 122/ton for Mali (Barry et al., 1992). This difference, expressed in foreign currency, is converted into local currency by using the shadow exchange rate instead of the official exchange rate, which was evaluated at nearly 275 CFAF/U SS for both countries (IMF, 1991). Indeed, several studies suggested that the CFA franc has been overvalued since the early 803, when most states of the West African Monetary Union (WAMU), a group of seven Francophone countries that share the same central bank, BCEAO, started to run a deficit in their balance of payments. Using data from 1981 to 1985, Stryker et a1. (1987) estimated by means of the elasticity approach that the exchange rate needed to bring about an equilibrium in the current account of Mali would be 33 percent higher than the official exchange rate'. Thus, the CFA franc for Mali was overvalued by '/ The elasticity approach consists of answering the following question: given the official exchange rate (OER), what should be the exchange rate in the foreign exchange market to induce the current account deficit (DEF) to be in equilibrium. The equilibrium exchange rate, termed shadow exchange rate (SER), is obtained by the following formula for small deviations: SER=OER +OER*(DEF/(e,"X+eD*M)) where e’ and e” are the elasticity of supply of and demand for foreign exchange respectively, and X and M are the current export and import levels, expressed in foreign currency units. Assuming e,3 and co to be 1.0 and 2.0 respectively, Stryker et a]. estimated that the Malian CFA Franc was overvalued by 33 percent for the period 1981-85. The above method of calculation underestimated, however, the degree of overvaluation on the grounds that it did not correct for the high tariff rates and import controls, which are distortions introduced by trade policies during the period of study. Formulated by Schiff (1986), the correction for the distortions is as follows: 85 nearly 33 percent during the period 1981-85. Using the corrected method described in footnote 7 and data from 1980 to 1989, Salinger and Stryker (1991) found that the CFA franc was overvalued by as much as 50 percent in both Mali and COte d’Ivoire. Other estimates of the degree of overvaluation, which are not made public because of the controversies surrounding the devaluation of the CFA franc vis-a-vis other currencies, seem, however, to suggest that this currency is overvalued by less than 40 percent for both countries. As a result of these differences, it has been assumed for the base calculation of the shadow exchange rate that the CFA franc is overvalued by 40 percent for COte d’Ivoire and 33 percent for Mali. Consequently, the shadow exchange rate is about 385 CFAF/USS for COte d’Ivoire and 365 CFAF/USS for Mali. Once the FOB price is converted into local currency using the shadow exchange rate, port charges are deducted from the FOB price to obtain the export parity price of cotton in Abidjan. For each point between Abidjan and the farm, the economic transfer costs are subtracted from the border price to generate the export parity price at that specific point. The calculation of the border price of the Ivorian and Malian cotton at different points is shown in table 4-7a and 4-7b. SER = OER + OER * {DEF+(tM*eD"M/(1+tM) - tx*ex*X/(l-tM))}/(e3*x + eD*M) where, tM and tx are the import and export tariffs, respectively. 86 Table 4-7a. Export Parity Price of Ivorian Cotton and Cereals (CFAF/Ton) Cotton Sorghum Rice 1- World price (USS) a/ 1820 104 287 2— Quality adjustment -3 5 0 5 -30 S 3- F03 price of adjusted quality (USS) (l)‘(2) 1765.4 104 200.90 4— Preight and insurance (USS) 109.09 48 48 5- POB Price in the port of Abidjan or Dakar (USS) e/ 1656.3 152 248.90 1 6- Shadow exchenge rate of lvorian CFAF (CFAF/USS) 385 385 385 7- FOB Price at the port of Abidjan or Dakar (CFAF) (5)*(6) al 637680 58520 95825 8- Port charges in Abidjan 27305 16160 16725 9-FOBpriceinAbidjen (7)-(8)el - g t “7 610375 74680 112550 lO—Marketing costs: Abidjan to Boueké 49880 12175 15160 ll-Mer'keting costs: Abidjan to Korhogo 57235 20345 19830 lZ—Marketing costs: Abidjan to farm bl 91225 26560 25715 13-Marketing costs: Abidjan to Sikasso c/ 38920 38920 14-FOB price: Bouekd (9)-(10) 560495 88805 97390 lS-POB price: Korhogo (9)-(11) 553140 96975 92720 16-FOB price: farm (9)-(12) d/ 519150 95020 86835 | 17-FOB price: Sikasso (9)-(13) 35760 73630 18-C1P Dakar 76775 114725 19-Merketing cots: Dakar to Bamako c! 29045 29045 20-POB Bamako (18H19) 47730 85680 Note: aIPoreereala,theworldpriceistheFOBpriceandthepriceinAbidjenisdIeCIPprice blTTsehrmisuarmedtobeintheKorhogoregionforcottonendcereals. el'lhevelueofmetradsblesbctweenCOtsd’lvoireandtheMalianborderesnrmesthattbelvorienCFAFis overvahedby40percen,whileellthemarkcfingcoasbetweentheborderendSikauo,uceudutradabbs,aeumedruthe MalianCFAPieovervelued by 33 perccn. leorcottontlreborderpriceisexpr'cssedincottonlin. Theequivalenofthispriceinseed cottonisebout 230,WCFAF/ten. el All the marketing costs between Dakar and Bamako are treetedastradablcs. The CFAFinSenegel isassurned tobeovervalued by40percentin Senegal. Source: Synthesis of Appendix B 87 I Table 4-7b. Export Parity Price of Malian Cotton and Cereals (CFAF/Ton) Cotton Sorghum Rice 1- World price (USS) el 1820 104 287 2- Quality adjustment -1 5 0 5 -30 % 3- CIF price of adjusted quality (USS) (l)*(2) 1801.8 104 200.90 4- Freight and insurance (USS) 122 48 48 5- FOB price in the port of Abidjan or Dakar (USS) (3H4) al 1679.8 152 248.90 6- Shadow exchange rate of Ivorian CFAF (CFAF/USS) 365.75 365.75 365 .75 7- FOB price at the port of Abidjan or Dakar (CFAF) (5)‘(6) al 614385 55595 91035 8- Port charges in Abidjan 6775 16160 16725 9- FOB price in Abidjan (7)-(8) el 607610 71755 111095 10-Marketing costs: Abidjan to Boueke bl 16760 12175 15160 ll-Merketing costs: Abidjan to Korhogo cl 27720 20345 19160 lZ-Merketing costs: Abidjan to Sikasso dl 44985 38920 38920 13-Marketing costs: Abidjan to firm cl 136885 46975 43055 14—FOB price: Boueke (9H10) 590850 59580 95935 rs-Poa price: Korhogo (9)411) 579390 51410 91935 16-FOB price: Sikasso (9)-(12) 562625 32835 72175 l7—FOB price: firm (9H13) 470725 24780 68040 18-C1F price in Dakar 76775 109935 19—Merketing costs: Dakar to Bamako fl 29045 29045 20-FOB Price in Bamako (18)-(19) 47730 80890 Net: uamummeummummmwumumwumum ’n'cs'anAfiia. UMEMmenmdmflblthFflkaywm cherMfieMahberder'ntherelsvadmk‘h‘eadeflorhngo dl'lIe-rkefirgee‘baweenAbidjanandMali'sborderantreatednhbl. Whmkvaheofthetndable mikaWhMmandSikanendhfuma-mufiaflaMCFAFbevervahsedby33peeenn. el'lhefanlh.ndbbehtheSik-omgionforennonandmbmhnhthaomeedufligufnrrice. Theborderpricu foreeOendr-ieeme'nlirnandriesequivalent. Theseprieeaareabou215.000CFAFltnaofeeedcetaannd43.800CFAFltonofpaddy. flAflhnnrkethgce‘mDakarndMali'sbesdereretremed-tredablnndmafipercaovmahntionofCFAF hm WhWWthdebMMhm-HHMWCFAFE overvahedby33perenl. Source: Syndaes'noprpendixB 88 4.4.1.2 Cereals The most widely imported cereal in most of West Africa is rice, which appears to be preferred by urban consumers. As a result of the increased urbanization in this region, the West African share in world imports increased from nearly 7 percent in the early 803 to about 15 percent in 1989 (Daviron, 1991). The increased West African share in world imports may also be attributed to increased self—sufficiency in other major importers, such as Indonesia. Most West African imports originate from Thailand, the world’s largest exporter. This country produces different qualities of rice, ranging from the highest quality of rice, known as 5 percent broken, to the lowest quality, that is, the 100 percent broken. The highest quality of rice, which serves as a benchmark for establishing the price of other qualities, enjoys a premium in the world market. The bulk of rice imported by Cbte d’Ivoire and Mali is the 35 percent broken rice. Although it is known that the 35 percent broken rice sells under the price of the 5 percent broken, its price is not quoted in the international rice market. Quoted are the prices for the 5, 10, 15 and 25 percent broken rice. It is estimated from the prices quoted by USDA that the FOB price of the 25 percent broken rice was 20 to 25 percent lower than that of the highest quality between 1987 and 1990 (USDA, 1991). By analogy to the relationship between these two qualities of rice, the FOB price of the 35 percent broken rice is assumed to be 30 percent lower than the 5 percent broken rice. This study assumes the current 1990 FOB price for the 5 percent broken rice, estimated at USS 287/ton (World Bank, 1991). Thus, the current 1990 FOB price for the 35 89 percent broken rice can be evaluated at nearly USS ZOO/ton. The current 1990 CIF price at the West African ports is obtained by adding the costs of freight and insurance, estimated at about USS 50lton, to this discounted price assumed above. Unlike rice, very little coarse grain is officially imported into COte d’Ivoire and Mali on a commercial basis, although maize and red sorghum are traded in the international market. The FOB price quoted for maize in 1990 was USS 109lton, while that of red sorghum, used as a proxy for millet/sorghum consumed in West Africa, was USS 104/ton for the same year (World Bank, 1991). The CIF price for coarse grain at the West African ports assumes freight and insurance costs of rice, as used by Boughton and de Frahan (l992)’. Tire CIF price at the port is converted into local currency, using the shadow exchange rates assumed above. Then, the import parity price at each consumption point, shown in table 4-8a and 4-8b, is simply obtained by adding to the CIF price at the port all port charges and the economic transfer costs to the point of consumption. I The bulk of cereals imported officially by COte d’Ivoire transits in Abidjan, considered as the major consumption center. Cereals are shipped from Abidjan to other consumption regions, among which some of the most important are Bouake, Daloa, and Korhogo. In Daloa, it appears that very little coarse grain is consumed. As a result, it is retained only as a rice consumption center for the purpose of the study. ’l Boughton and de Frahan assumed, however, an FOB price, based on the average world price for the period 1986-90, and the 50 percent overvaluation of the CFA Franc found by Salinger and Stryker (1991) for Cbte d’Ivoire and Mali. Moreover, they assumed the average official exchange rate for the period 1986-89, estimated at 302 CFAF/USS. 90 Table 4-8a. Import Parity Price of lvorian Cereals (CFAF/Ton) Maize Sorghum Rice 1- FOB price (USS) 109 104 287 2- Quality adjustment 0 i 0 % —30 i 3- FOB price of adjusted quality (USS) (1)‘(2) 109 104 200.90 4- Freight and insurance (USS) 48 48 48 5- CIF price in the port of Abidjan or Dakar (USS) (3)+(4) 157 152 248.90 6- Shadow exchange rate of lvorian CFAF (CFAF/USS) 385 385 385 7- CIF price at the port of Abidjan or Dakar (CFAF) (5)'(6) el 60445 58520 95825 8- Port charges in Abidjan 16185 16160 16725 9- CIF price in Abidjan (7)+(8) 76630 74680 112550 lO-Marketing costs: Abidjan to Bouake 12175 12175 15160 ll-Marketing costs: Abidjan to Korhogo 2W5 20345 19830 l2-Markaing costs: Abidjan to firm bl 18390 26560 25715 13~Marketing costs: Abidjan to Sikasso cl 38920 38920 38920 14-CIF price: Bouake (9)+(10) 88805 86855 127710 15-CIF price: Korhogo (9)+(11) 96975 95020 132380 16—CIF price: firm (9)+(12) 95020 101240 138265 17-CIF price: Sikasso (9)+(13) 115550 113600 151470 18-C1F price: Bamako (9)+(18A)+(188) dl 111245 109225 148395 A-Port charges in Dakar 18350 18255 20120 B-Marketing costs: Dakar to Bamako 32450 32450 32450 Note: elAllthe figuresareinCFAF fromthislinetotheendofthetable b/Thefirm formaizeis the Bouakeregion,whilethatofsorghumand n'ceisassumedtobeinthe Korhogo region. cl The value of the tradables between Cdtc d’lvoirc and the Malian border assumes that the lvorian CFAF is overvalued by 40 percent, while all the marketing costs between the border and Sikasso, treated as tradables, assume that the Malian CFAF is overvalued by 33 percent. d/ All the marketing costs between Dakar and Bamako are treated as tradables. The CFAF in Senegal is assumed to be overvalued by 40 percent in Senegal. Source: Synthesis of Appendix B Table 4-8b. Import Parity Price of Malian Cereals (CFAF/Ton) Maize Sorghum Rice 1- FOB price (USS) 109 104 287 2- Quality adjustment 0 i 0 5 ~30 5 3- FOB price of adjusted quality (USS) (1)5(2) 109 104 200.90 4- Freight and insurance (USS) 4s 4s 48 5— CIF price in the port of Abidjan or Dakar (USS) (3)+(4) 157 152 248.90 ' 6- Shadow exchange rate of Ivorian crap (CFAF/USS) 365.75 365.75 365.75 7- CIF price at the port of Abidjan or Dakar (CFAF) (5)‘(6) al 57425 55595 91035 8- Port charges in Abidjan 16185 16160 20060 9- Cir price in Abidjan (7)4-(3) 73610 71755 110955 lO-Marketing costs: Abidjan to Bouake bl 20600 20600 23630 ll-Merketing costs: Abidjan to Korhogo bl 34515 34515 31585 12-Marketing costs: Abidjan to Sikasso cl 41750 41750 30515 13-Marketing costs: Abidjan to firm dl 46975 46975 43055 1+ch price: Bouake (9)+(10) 94210 92355 134725 15-ch price: Korhogo (9)+(1r) 108125 106270 142680 l6-CIF price: Sikasso (9)+(12) 115360 113505 141610 17-CIF price: firm (9)+(13) 120585 118730 182035 18—CIP price: Bamako (9)+(18A)+(183) el 104820 102895 138980 A-Ptort charges in Dakar 18350 18255 18900 B-Markaing costs: Dakar to Bamako 29045 29045 29045 __ ______._ ._*“-__..J Note: alAllthenunirersareinCFAFfromthislinetotheendofthetable bl All the marketingcoasare treated as tradablesand ammethatthe IvorianCFAFisoverveluedby40pcrcent. cl The nurketing cons between Abidjan and Mali’s border are treated as in bl. Meanwhile, the economic value ofthetradebleconponensofthe marketingcosts betweenthe borderandSikessoasarmesthatthe MelianCFAFis overvalud by 33 percen. dl‘lhefirmisassurnedtobeinthcSikassoregionformaizeandsorghum,andinthe0fficeduNigerforrice. el All file marketing code between Dakar and Mali’s border are treated as tradables and assume a 40 perccn overvaluation of CFAF in Senegal. Meanwhile, the economic value of the tradable components of the marketing costs in Mali ssnrmes that the Malian CFAF is overvalued by 33 percent. Source: Synthesis of Appendix B 92 Cereals imported into Mali enter West Africa at three points: Abidjan, Dakar, and Lorne. By the accounts of the National Office of Economic Affairs (DNAE), the port of Dakar accounts for nearly 60 percent of Mali’s imports. As such, the estimation of the import parity prices for the markets of Kayes, Bamako, and the region of Mopti and Ségou is based on the cost structure from Dakar. The import parity price of cereals in southern Mali assumes that cereals are imported into Mali via Abidjan. After the comparative advantage of each country for cereals is measured within 1, t "‘ its boundaries, it is assessed in some key consumption centers of the other country. For instance, C6te d’Ivoire’s comparative advantage is measured in both Sikasso and Bamako, while that of Mali is evaluated in Korhogo, Bouaké and Abidjan. For cotton, only Mali’s comparative advantage is estimated in Bouake for reasons that will be explained subsequently. In all cases, once the commodity crosses the boundaries of the exporting country, all the transfer costs to the importing country are assumed to be tradable, although some of the resources used may belong to the exporting country. This , assumption is intended to be consistent with trade theory, which assumes that factors of i production are mobile only within one country. I In addition to considering cereals as import-substitutes in both COte d’Ivoire and 2 Mali, the competitiveness of the Ivorian and Malian cereals, assumed to be export crops, is measured at the different consumption points. Such a scenario is considered, owing to the‘large surpluses generated in both countries during the recent years. In this case, , the point of departure for deriving the border price is the CIF price in Abidjan and Dakar. Then, the border price at each consumption point, illustrated in table 4-7a and 93 4-7b, is obtained by deducting the marketing costs between the point of consumption and Abidjan or Dakar from the CIF price. 4.4.2 Shadow Price of Domestic Resources Conventionally, land has been assigned a zero economic cost in most DRC analyses undertaken for West African agriculture. This is, however, not the case in this study on the grounds that there has been a growing concern on land deterioration. There is now widespread evidence of increased soil erosion and degradation as a result of population growth, which has put tremendous pressure on land use. In COte d’Ivoire and Mali, there has not been any evidence of a competitive market for renting land. As a result, the shadow price of land is estimated as a residual, which requires estimating the economic value of capital and labor and deducting these economic values from the value added in alternative crops per unit of land. For Cbte d’Ivoire, the opportunity cost of land in producing one commodity is assumed to be a weighted average of the retums to land from growing other commodities on the same piece of land, owing to the fact that most farmers tend to diversify their commodities to minimize their risk. Likewise, the opportunity cost of land in southern Mali in growing cotton and maize is estimated by making the same assumption. In contrast to cotton and maize grown in southern Mali, the economic value of land used to produce millet/sorghum is assumed to be close to zero. The rationale for such an assumption stems from three reasons. First, millet/sorghum is the most widely consumed product in this region. As such, producers, who are in general semi-subsistence farmers 94 and concerned about the food security of their family, tend to allocate their land first to the production of this coarse grain. Second, farmers are constrained by the limited ginning capacity of the cotton mills, which induces them to allocate a greater share of the land to coarse grain. Third, the maize market appears to be quickly saturated, as its demand is generally small in Mali. Estimating the opportunity cost of land as a weighted average of the returns to land calls for lmowledge of the share of land devoted to the different agricultural commodities. The share of land for growing cotton, maize, and millet/sorghum in southern Mali is based on the data collected by ERIDRSPR (1992) in the lower portion of the CMDT region. These data seem to suggest that on average about 30 percent of the land is grown to cotton and that maize share of the land is nearly 15 percent. Thus, millet! sorghum account for more than half of the land. In northern and central COte d’Ivoirc, it estimated that nearly 20 percent of the cultivated area is grown to cotton (République de COte d’Ivoire, 1988). This study assumes that the rest of the land is devoted to cereals, although very little rice and no millet/sorghum are produced in central Ccte d’Ivoire, where root crops are widely grown. Within the area allocated to cereals in northern COte d’Ivoire, paddy, maize, and millet/sorghum accounts for 37 percent, 45 percent, and 18 percent, respectively. In central Cbte d’Ivoire, it is assumed that maize accounts for nearly 90 percent of the land allocated to cereals and that only 10 percent of the cereals land is grown to rice. The forest region of COte d’Ivoire is known for producing tree crops, such as coffee and cocoa intended to be exported to the world market, where the prices of these 95 commodities have collapsed. Even though data are unavailable on these crops and root crops, we may assume that the returns from growing them are roughly equal to what would be gained from growing the mixture of cotton, maize and paddy. The opportunity cost of land used to produce irrigated rice in the zone of the Office du Niger and northern COte d’Ivoire is estimated differently from rainfed crops, as farmers are compelled to only grow paddy in the irrigated areas, supervised by a parastatal. If farmers of irrigated rice were not bound to growing paddy only in the irrigation schemes, they would probably produce vegetables, as is the case of the non-restored areas of the Office du Niger, where some maize is also grown. Owing to the lack of data on vegetables, the economic return to land in producing maize is used as a proxy to the opportunity cost of the irrigated land in the Office du Niger and northern COte d’Ivoire. In this case, the economic value of land, computed as a residual between the border price and the total economic costs of labor and capital, is estimated by analogy to the costs figures of rice and maize in Senegal (Martin, 1988). In the Senegal study, yields for irrigated maize in the Senegal river region are about one and a half times higher than those of rainfed maize in the Casamance region, which appears to be nearly similar to southern Mali and northern COte d’Ivoire. Few government interventions have been observed in the rural capital market, except in areas where there are major projects. In the rural areas, few farmers resort in general to credit to invest in agricultural equipment, as they rely often on earnings from other activities (Dione, 1989). Farmers resort, however, to credit to buy inputs such as improved seeds and fertilizers, which represent a small share of production costs. The 96 interest rates on these inputs are about 12 percent in care d’Ivoire and 8 percent in Mali (CIDT, 1991; ER, 1989). These interest rates are accepted in this study as the shadow interest rate, though some may argue that if the rural capital market worked efficiently, a greater number of farmers would borrow capital to invest in agricultural equipment. The shadow value of agricultural labor, which accounts for the bulk of costs at .2. the farm level, is a critical element in determining comparative advantage in West Africa. 1 As for land, the shadow price of labor can be determined by either its market price if there exists a competitive labor market, or its residual value. This study assumes that . the rural labor market is relatively competitive during the period between land preparation and harvest. During this agricultural season, the daily agricultural wage rate varies from task to task and from region to region. According to the interviews conducted in the production regions, the average 1990 wage rate during the peak season was about 700 CFAF/day in both the savannah region of COte d’Ivoire and southern Mali, 1000 CFAF/day in the southern forest region of COte d’Ivoire and 650 CFAF/day in the Office du Niger (Barry, 1992). Interviews were not conducted in Mopti region. The daily wage rate in this region was based on the 450 CFAF/day used by de Frahan (1990) and by applying a five percent annual inflation rate on this wage rate over the period 1988-90. Doing so, the average daily wage rate in the Mopti region is evaluated at about 500 CFAF. CHAPTER V COMPARATIVE ADVANTAGE AND TRADE FLOWS UNDER CURRENT POLICIES AND ALTERNATIVE SCENARIOS This chapter uses the domestic resource cost (DRC) coefficients to measure the comparative advantage of Cbte d’Ivoire and Mali in producing and marketing cotton, coarse grains and rice at different points. Then, it discusses the pattern of trade suggested by each country’s comparative advantage, and compares the theoretical trade flows with actual trade flows not only between the two countries, but also between both countries and the rest of the world to explain the similarity or divergence between these trade flows. Finally, sensitivity analyses are performed to determine the direction of trade flows, under alternative scenarios and macroeconomic policies. 5.1 Results of the Domestic Resource Cost (DRC) Coefficients Before procwding with the discussion of the DRC coefficients, it will be useful to state that the two expressions ”comparative advantage” and “socially profitable" are used synonymously with the term ”competitive" in the upcoming sections, though they are defined differently by different people. Some view the concept of comparative advantage as trade patterns based on relative costs in an undistorted world (Barkema et al., 1991). Others define the notion of competitiveness as the ability of a firm or 97 98 comm maintain its market share by delivering a good in a cost-effective way (Agriculture Canada, 1991; Sharples, J. and N. Milham, 1990). Notwithstanding this difference, these two definitions are related on the grounds that they compare costs of trading partners. Comparative cost is the basis of using these terms interchangeably. 5.1.1 Cbte d’Ivoire The results of the DRC coefficients, shown in table 5-1a, appear to show that C6te d’Ivoire generally produces and markets cotton efficiently if all resources are valued at their opportunity cost, as the DRC coefficients for the improved manual and animal traction farming systems, which supply the bulk of cotton, range from 0.59 to 0.66. It appears, however, that the semi-mechanized technique is an inefficient farming system because of the high acquisition and maintenance costs of the machinery. This may explain why fewer than one percent of farmers rely on this production technique. In contrast to cotton, the semi-mechanized technique seems to be the most efficient farming system in cereals production, probably owing to the high on-farm yields that help to lower the unit costs of maize. The results appear to indicate that most cereals are inefficiently produced at the farm level when they are treated as import- substitute commodities, and as a result, cereals appear noncompetitive in all Ivorian markets. Such results differ significantly from those obtained by Barry et a1. ( 1992) and Humphreys (1981), who assigned a zero opportunity cost to land. If the opportunity cost of land were zero in this study, as is generally done in the DRC analysis, the results would be consistent with those of the studies mentioned above. 99 I, Table 5-1a. DRC Return for cote d’lvoire Under a Positive opportunity Cost or Land Region/production system - Cotton , Centerlirnproved manual North/improved animal traction North/semi-mechanized Maize Forest/semi-mechenized Center/improved animal traction Center/traditional manual Center/'nnproved manual Millet/sorghum North/traditional mantra! A North/animal traction Rice Forestllowlandsl'unproved manual Forest/uplandltraditional manual Forest/uplandlimproved manual North/'urigationl‘unproved manual North/uplandltraditional manual North/upland/animel traction Farm 0.59 0.61 1.27 0.60 0.96 1.29 1.32 0.96 0.99 1.23 1.27 1.31 1.39 >2 Daloa 1/ 0.80 1.55 1.60 1.80 Korhogo 0.63 1.26 0.85 1.20 1.51 1.59 1.23 1.28 1.93 1.79 >2 Bouake 0.61 1.18 1.51 1.60 1.54 1.61 1.76 1.76 > 2 > 2 > 2 >2 Abidjan 0.65 0.66 1.23 1.24 1.80 > 2 >2 >2 >2 >2 >2 >2 >2 >2 >2 ll For maize produced in the forest, Dimbokro is the market instead of Daloa Source: Appendix B 100 Indeed, these results assuming zero opportunity for land, presented in table 5-1b, show that maize and millet/sorghum are in general socially profitable at the farm level, as most of the DRC coefficient range from 0.35 to 0.81. The difference in millet/sorghum competitiveness at the farm level in table 5-1a and 5-1b is due to the high economic value of land, which stems from the high economic profitability from growing cotton in northern Cbte d’Ivoire. In this region as well as in the forest region, the local rice appears to be barely competitive in the production zones, as suggested by table 5- lb. In table 5-lb, the results of the DRC coefficients suggest that for all the commodities, except rice, the more capital intensive farming systems have the lowest DRC coefficients when the opportunity cost land is close to zero. This is, however, not true for cotton and millet/sorghum when land is assigned a positive economic value, owing to the fact that the return to land from producing maize under the most productive techniques is relatively high. Under the assumption of a zero opportunity cost of land, Cate d’Ivoire could efficiently supply coarse grains to most its markets, except the coastal consumption markets, owing probably to high transfer costs. Unlike coarse grain, local rice shipped to the cities of Abidjan, Bouaké and Korhogo seems to be in general socially unprofitable. Despite the differences in the assumptions used to assess Cbte d’Ivoire comparative advantage in producing and marketing local rice, the results for Abidjan in this study are consistent with those found by Humphreys (1981) and Barry et a1. ( 1992), who did not measure the competitiveness of local rice in Bouaké. 101 I Table 5-1b. DRC Results for COte d’lvoire Under a Zero Opportunity Cost of Land Region/production system Farm Daloa Korhogo Bouake Abidjan Cotton North/semi-mechanized 0.38 0.43 0.50 ' North/improved animal traction 0.42 0.45 0.50 Center/improved manual 0.54 0.57 0.61 Maize 1/ Forest/semi-mechenized 0.35 0.50 0.58 0.85 Center/improved animal traction 0.66 0.87 0.83 1.33 Center/traditional manual 0.81 1.00 0.97 1.40 || Center/improved manual 1.05 1.30 1.29 1.96 Millet/sorghum North/animal traction 0.46 0.66 0.87 > 2 E North/traditional manual 0.65 0.33 1.12 > 2 Rice Forestluplandltraditional rnanuel 0.99 1.32 1.47 1.75 North/luplandltraditional manual 0.99 1.32 1.52 > 2 Forest/lowlandslimproved manual 1.05 1.48 1.68 > 2 Foresduplandl‘unproved manual 1.15 1.70 1.96 > 2 Northlirrigationlirnproved manual 1.31 1.93 > 2 > 2 North/uplandlenimal traction ll For maize produced in the forest, Dimbokro is the market instead of Daloa Source: Appendix B 102 5.1.2 Mall The results of the DRC coefficients, shown in table 5-2a, suggest that cotton and millet/sorghum make the best use of domestic resources. In contrast, maize and rice appear to be noncompetitive in most Malian markets because they are generally produced inefficiently at the farm level when land is valued at its opportunity cost. Such results for rice differ from those of Barry et al. (1992) and Stryker et al. (1987), who did their calculations under the assumption that the economic value of land is zero. Under this assumption, the DRC coefficients of this study, presented in table 5-2b, seem to indicate that the farming systems studies are all efficient. The results for rice nwd to be, however, interpreted cautiously because the recent investment costs in the irrigation schemes to rehabilitate several areas in the Office du Niger are treated as sunk costs. Thanks in part to these investments (for which data are not available), the RETAIL project in the Office du Niger has the highest on-farm yields and as such, its rice appears competitive in Bamako and Sikasso when land is assigned a zero economic value. The results of the DRC coefficients in table 5-2a and 5-2b appear to suggest that the farming systems that generate the highest on-farming yields make the best use of domestic resources. For example, the animal traction production system, which has higher on-farm yields for cotton and coarse grains, generates lower DRC coefficients than those of manual cultivation. Region/production system Farm M0pti Niono Bamako Sikasso Border Cotton South/improved animal traction South/improved manual Note: Office refers to the Office du Niger Source: Appendix B 104 Table 5-2b. DRC coefficients for Mali Under a Zero Opportunity Cost of Land Region/production system Farm Mopti Niono Bamako Sikasso Border Cotton Southlirnproved animal ' traction South/improved manual Rice Officelirrigationlintensive Officelirrigationl Officelirrigationlnon- . I . M I'll IT 111 l' Mopti/controlled flooding Note: Office refers to the Office du Niger Source: Appendix B 105 5.2 Direction of Trade Flows under Comparative Advantage and Actual Trade Flows 5.2.1 Direction of Trade Flows as Suggested'by the DRC Coefficients The DRC coefficients were computed for different points in Ccte d’Ivoire and Mali. For any given market, if the DRC coefficient lies within the interval (0.90, l. 10), we will assume that the result is too close to one to make a conclusive statement on the competitiveness of the product. For any given market and commodity, if the DRC coefficients of the two countries are greater than 1. 10 in a specific market, we may state that the local commodity is noncompetitive in that market. In this case, neither country should ship the product to the market, which should be supplied by the world market. For a commodity and a specific market, if the DRC coefficient of one country is above 1.10 and that of the other country is lower than 0.90, the latter country will supply its good to that market. A difficulty may be encountered in using the DRC coefficients to determine the direction of trade flows based on comparative advantage when the DRC coefficients of the two countries are lower than 0.90 for a given commodity and a given market. In principle, the country that has the lowest DRC coefficient should be the only supplier of this market. However, given that comparative advantage is a matter of degree in this case, the definition of comparative advantage is relaxed in this study. In this case, we assume that the country with the lowest DRC coefficient will be the first supplier of the market because it has the strongest comparative advantage, but that the product of the other country may be supplied to this market if demand in this market is not fully met by the first supplier. This implies that at the margin, contrary to the average values used 106 in the calculation of the DRC coefficients, the first country’s DRC coefficient for the product is greater than unity. Owing to the fact that data on demand conditions in each market are unavailable and that cereals demand is met by imports and the demand for cotton can be expanded in each country, we will assume further that the product of each country can be supplied to the market, where the DRC coefficients are lower than 0.90. In light of the results of the DRC coefficients displayed in table 5-3a under the assumption that land is valued at its opportunity cost, it appears that Cbte d’lvoire and Mali produce and market cotton efficiently in general. Even though the Ivorian cotton appears to be more competitive than that of Mali in general, Mali could supply some of its product to Bouaké, where COte d’Ivoire has installed a textile factory that uses the second grade of cotton to satisfy the local demand. Mali could do so if the price offered by Cbte d’Ivoirc would cover costs. The DRC coefficients shown in table 5-3a and 5-3b seem to suggest that coarse grain produced in COtc d’Ivoire is in general barely competitive in the production zones, let alone being shipped to the major consumption markets of the two countries. It appears, however, that maize produced in cats d’Ivoire under the semi-mechanized farming system would be more competitive than maize produced in southern Mali not only in the markets located in COte d’Ivoire but also in Sikasso and Bamako. Hence, COte d’Ivoire seems to have the strongest comparative advantage in maize to supply southern Mali and a comparative advantage in Mali to supply most Ivorian markets. In turn, Mali appears to have a comparative advantage in milletl sorghum, which reaches its 107 . Tables-3a. CottenudeaDRCCoeffidmfihDiffuutMerkdsUaderePefidveOmrumtyCeuof Land Farm Bamako Sikasso Border Korhogo Bouekd Abidjan Cdte d’lvoirelcotton Cenerrtnproved annrel 0.59 0.61 0.65 ‘ Northl'lnproved animal 0.61 0.63 0.66 traction North/semi-mechanized 1.27 1.26 1.23 Melilcctton Snrdrlinproved animal 0.70 0.74 0.74 0.72 traction Snrtlrlinmroved mantel 0.81 0.84 0.84 0.82 Cdte d’lvoirelmslas Mani-mechanized 0 60 0 90 0 70 0 85 l 24 cmnnpmvcd animal 0.96 1.25 0.37 1.20 0.72 1.30 unction Cenerltraditioml nunsal 1.29 1.57 1.14 1.51 0.91 > 2 Caner/leprovedmanrel 1.32 1.66 1.14 1.59 1.13 > 2 Mali/meme Snrthl'rrrprovedanimal 0.71 1.11 0.86 1.18 1.85 > 2 traction Wed mantel 0.92 1.38 1.09 1.48 > 2 > 2 Source: Appendix B 108 rubles-3b. mmmmuaccmmmwmmumtwnom Cost 0fLend . Farm Bamako Sikasso Korhogo Bouek‘ Abidjan Cdted’lvoirelmilletlsorghum I . North/traditionalmanlal 0.96 1.32 1.10 1.23 154 > 2 North/enimaltraction 0.99 1.33 1.13 1.23 1.61 > 2 Mall/milletlsorghum ‘ Snrthlanirmltraction 0.43 0.32 0.61 0.34 1.33 > 2 Southltraditionalmanrel 0.63 0.96 0.76 0.99 1.42 > 2 Cdted’Ivoiaa/riee Foreillowlandslinprovedmanral 1.11 1.63 137 1.76 > 2 ‘ Foredluplendltnditionalmanrel 1.23 1.66 1.44 1.76 > 2 Forenluplandlinmrovedmanrel 1.27 1.94 157 > 2 > 2 North/irrigationlirwrovedmanral 1.31 1.99 1.59 1.93 > 2 > 2 North/uplandltraditionalnnnrel 1.39 1.34 1.81 1.79 > 2 > 2 North/uplandlenimaltraction >2 >2 >2 >2 >2 >2 Mali/rice Office/irrigatiodinensive 0.74 1.11 1.10 1.61 > 2 > 2 Ochel'lrrigationlsemi-inensive 0.97 1.39 1.36 > 2 > 2 > 2 Oflce/irrigationlnon—inensive 1.21 1.69 1.65 > 2 > 2 < 0 Moptilcorlrolledflooding > 2 > 2 > 2 > 2 > 2 > 2 , Mopti/traditional flooding > 2 > 2 > 2 > 2 > 2 < 0 Source: Appendix B 109 competitive limit somewhere between Korhogo and Bouake, owing probably to the high transfer costs. Mali’s comparative advantage is, however, explained by the fact land was assigned a zero economic value, while the opportunity cost of land in Cbte d’Ivoire was positive. The results seem to suggest also that both countries should import rice to satisfy nearly all their domestic markets. The results of the DRC coefficients under the alternative assumption of a zero opportunity cost of land, illustrated in table 5-4a and 5-4b, appear to suggest that the level of trade between Cbte d’lvoire and Mali would be relatively important. In this case, Cdte d’Ivoire would still hold its comparative advantage in maize and a greater quantity of maize would be exported from Cbte d’Ivoire to southern Mali, as the competitiveness of maize produced by the animal traction and traditional manual farming systems would improve in this Malian region. Under this assumption, southern Mali would also be able to export some maize produced under the animal traction technique to northern COte d’Ivoire. Likewise, millet/sorghum produced in COte d’Ivoire under the animal traction technique could also be shipped to southern Mali and Bamako. In . contrast to coarse grain, it appears that local rice would remain non-traded between the A two countries. Cereals production and trade between COte d’lvoire and Mali are contingent on rainfall levels. In poor rainfall years, Mali is generally cereals deficit and imports some i from the neighboring countries and the world market. In this case, cereals can be treated as import-substitute commodities, as done above. In years of abundant rainfall, such as those since the mid-803, Mali exports some cereals to neighboring countries. In this 110 Tablas-4a. CottaudenaDRCCeefllcinrtshDifferdMark‘sUedcaZmoOppnrdyCestef Land Farm Bamako Sikasso Border Korhogo Bcuakd Abidjan I Cdte d’lvoirelcotton North/semi-mechenized 0.38 0.43 0.50 Northlinmroved animal 0.42 0.45 0.50 . traction Cerrterlinmroved manual 0.54 0.57 0.61 Snrtlrlinproved animal 0.47 0.54 0.55 0.53 traction Snsdrlinmroved manual 0.67 0.71 0.72 0.70 Cdte d’Ivoirelmeize Fore‘lsemi-mechenized 0.35 0.62 0.48 0.58 0.85 Cemetrtmpmvcdtnimn 0.66 0.91 0.63 0.37 0.33 1.33 traction Geller/traditional nunrel 0.81 1.00 0.76 1.00 0.97 1.40 Cesar/improved menial 1.05 1.36 0.94 1.30 1.27 1.96 Melilmaiza Wrmprovedanimal 0.48 0.81 0.61 0.83 1.31 > 2 , traction : Southlinmroved mantel 0.76 1.17 0.92 1.24 1.95 > 2 Source: Appendix B 111 Mild/sorghum andRiceDRC Coefficiutsin DifleruMerkdsUndereZNoOwortmlityCed of Land Farm Bamako Sikasso Korhogo Bouekd Abidjan C0te d’Ivoire/millet/sorghum Northlanimal traction 0.46 0.73 0.60 0.66 0.87 > 2 North/traditional manual 0.65 0.95 0.79 0.88 1.12 > 2 Melilmilletlsorghum 0.48 0.82 0.61 0.84 1.33 > 2 0.63 0.96 0.76 0.99 1.42 > 2 0.99 l .39 1 .20 l .47 l .76 0.99 1.37 1.35 1.32 1.52 > 2 1.05 1.56 1.31 1.68 > 2 1.15 1.79 1.46 1.96 > 2 1.31 1.99 1.59 1.93 > 2 > 2 1.64 > 2 > 2 > 2 > 2 > 2 0.46 0.81 0.82 1.20 1.71 > 2 0.54 0.91 0.91 1.36 1.98 > 2 0.59 0.99 1.99 1.52 > 2 < 0 0.80 1.20 1.19 1.69 > 2 < 0 0.86 1.36 1.34 > 2 > 2 < 0 Source: Appendix B 112 case, the competitiveness of the Malian cereals as well as those of in COte d’Ivoire, where rainfall level is relatively stable, can be measured by treating them as export crops. The results of the DRC coefficients in table 5-5, based on export parity prices and much greater than two, seem to suggest that cereals produced in Cbte d’Ivoire and Mali j cannot be exported outside of the region and that cereals can only be produced to compete with imported cereals within the region. These results may be an indication that absorbing cereals surpluses depends largely on expanding the regional cereals market. Cereals demand may be increased by enhancing, for instance, its consumption in the poultry and livestock subsectors. The issue is whether the benefits of using cereals as animal feed will outweigh the costs. 5.2.2 Are Actual Trade Flows Consistent With Comparative Advantage? This section is intended to assess whether the actual trade flows accord with trade flows suggested by the DRC coefficients. The data on actual trade flows draw from the INRA/IRAM/UNB work during the period 1987-92, as discussed earlier. To assess the direction of trade flows, this team posted researchers, among other places, at the Mall- Cbte d’Ivoire border in 1987/88 to have an eye on cereals traded between the two countries. This is the reason why the INRA/IRAM/UNB’s results were relied upon to give the direction of trade flows. Their findings were complemented by field observations and interviews with traders, transporters and customs agents in C0te d’Ivoire and Mali and at the COte d’Ivoire-Mali border. _. 5. DR 3-111.131: I ~ ~ ~ Cdaad'lveiralelils WM wmw War-ml Warsaw Malilnn'ne Waninltnctien Wand Ch d'lWanrgh-n Source: Appendix B >2 )2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 113 >2 >2 >2 >2 >2 >2 >2 >2 >2 )2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 )2 >2 >2 >2 >2 )2 >2 >2 >2 >2 >2 )2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 )2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 >2 114 Based upon the surveys, Coste (1989) found that maize was exported from COte d’Ivoire to both Mali and Burkina Faso and that Mali exported millet and sorghum to its neighboring countries such as COte d’Ivoire, Mauritania and Senegal. Coste did not,- however, specify whether rice was shipped either from COte d’Ivoire to Mali or vice versa. Nonetheless, he hypothesized that some rice may be shipped from production zones in COte d’Ivoire to neighboring countries. I Coste’s contention of the direction of the trade flows between COte d’Ivoire and Mali, shown in figure 5-1, was continued by the interviews I conducted with traders, truck drivers and customs agents in October and November 1991. These interviews took place in the cities of Bouaké, Ferkessédougou, Korhogo and Sikasso and at the COte d’lvoire-Mali border. They revealed that the bulk of maize exported by COte d’Ivoire to Mali takes place in general during the period June-August, which corresponds to the harvest period in Cate d’Ivoire and before maize matures in Mali. According to traders, truck drivers and customs agents, millet/sorghum is usually shipped from Mali to COte d’Ivoire afler the cotton harvest in Mali. Indeed, cotton production is believed to require a lot of farmers’ time, and as the price received by farmers is a function of cotton quality, farmers reserve much of their time to get the highest cotton quality. As such, they have little time to devote to coarse grain marketing before the cotton harvest is over. Even though millet/sorghum is generally shipped from Mali to COte d’Ivoire in most cases, Cdte d’lvoire exports sometimes, according to the interviews, some millet/ sorghum to Mali. These Ivorian exports take place in general during the years when the rainfall level is low in Mali and Mali is cereal deficient. Such was the case in 115 00». 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TRADITIONAL - MANUAL CNO': MAIZE. cum - COT3 01W“ TRADITIONAL - MANUAL SENQTIVITY ANALY'3 + KEY PAIAMETEI3 03....37 134*“ ............ .RESULT SUMMARY AND SENQTIVITY ANALYfl3 .............. 10:31 AM PAIM IOUAKI A3IDJAN KONNOOO 30330 3AMAKO FINANCIAL ”OBTAIN". ed: 3‘ ...CFAFM 22.37 42.43 23.47 23.04 13.33 23.” ...CFA'M“ 13073.70 23737.20 13323.37 17323.20 3732.70 13737.70 ...C’Alm IOU 223.37 424.32 234.71 230.42 1 33.47 237.37 ...cnrm 1“ IO. 223.37 424.32 234.71 230.42 133.47 237.37 HNANCIN. FRONTAIIJW. M «In. ...CFA'~ 47.03 ~27.32 41.33 44.33 -33.03 43.20 ...CPAFMU. 42323.” 43232.” -2”70.33 41470.” 43237.” 4020.30 ECONOMIC HORTAIIUTY ...C'A'M ~23.34 41.31 -33.33 43.34 -13.33 47 .02 ...C’AFM'O 43433.33 -23233.07 43373.03 -N733.37 -11473.12 -32312.33 ...C'APM 1‘. 431.33 324.” 33.13 323.33 334.31 233.27 ...CFA'M 1“! 1.0 ~243.43 -373.40 414.33 NWlNAL HOTICTIN comm. OUTPUT3 0.42 0.32 1.13 0.73 0.33 0.33 NIT NOMNIAL mom COMB". OUTPUT3 O.” 0.33 0.33 0.34 0.42 0.33 WV! PROTECTION COWWT 3.40 0.33 1 .11 0.33 0.44 0.73 NIT 3333011“ mm COIMCIINT 0.23 0.33 O.” 0.47 0.32 0.34 00M33TIC MI 0037 1.23 1.31 2.03 1.31 1.14 1.37 013C013“ NAT! 0.120 YIELD w 700.000 MOM CW FACTON 1.000 m 303 “03 (OM 103.000 IAMOATE MCI ICFAFM ”.000 MOI-33“! PRICE IOU“! CFAF” 30.000 WW3 MC! A3IOJAN C'A'h.) 33.000 MOLESALE MCI KON'IOOO ICFAFMI 33.000 W3 “03 m ‘3“ 30.000 W3 "03 mo ”A!“ 70.000 am am NAT! 273.000 .MDOW um NAT! IN COT! D'IVOIRI 0.40 333.000 W um MT! N M 0.33 333.730 Tuna-om NATL PAVE m CFA'hcn-W 33.000 TIAN'ORT M73. DIRTY m ICFAFRWI 100.000 TIAN’ONT 003T. ROI-MALI IWEH-TO-SKASSO (CFAFRON 2000.000 TRANM CO3T. ROI-MALI tomato-ammo (CFAF/ION 3000.000 TRANSPORT COST. OAKAN-TO-MALI 303033 ICFAFRCI'II 13300.000 M90" COST. SWIM-MALI 3ORDEB-TO-3AMAKO (CFAF/ton) 3377.000 LAION WAO! 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B... on." 5.5.0 £90530 300.030.... 12.10.. a); gig 33:30 + 8:0uhoct APPENDIX C 251 TnhloCS-ln. mmaummmumumnncmm. PoliivoOpportun'tyConolend Fem Bamako Sihuo Korhogo Bounk‘ Abidjan C60 d‘lvoire/conon ll Cam/inpmvod maul 0.89 0.89 0.91 Now/mm“: mm 0.91 0.92 ' 0.93 traction Nonh/unfi-mechmized 1.89 1.86 1.73 Mai/cotton Smith/improved animal 0.99 0.99 0.99 1.01 unction Wmmodmnl 1.15 1.12 1.12 1.14 0.79 1.26 0.98 1.11 1.74 1.27 1.76 1.21 1.58 1.59 > 2 1.72 > 2 1.59 > 2 > 2 > 2 1.75 > 2 1.60 > 2 > 2 > 2 0.97 1.52 1.19 1.65 > 2 > 2 1.26 1.89 1.51 > 2 > 2 > 2 Note: 1/ The border Mali-COte d’Ivoire is the relevant market for cotton produced in Mali instead of Korhogo. Source: Computed from Appendix B 252 Table CS-lb. mudmOMWMumnmmmnncch-u. : my. Opportunity Cost or Land 1 Fun: Bamako sum-o Korhogo sou-u Abidjan C610 d'lvoirelmillot/norghum Nonh/tnditionnlmnmnl 1.26 1.86 1.54 1.64 > 2 > 2 . Noah/animal traction 1.30 1.93 1.58 1.70 > 2 > 2 Mdilmifledaorghum Somh/nm’mnl traction 0.66 1.12 0.85 1.18 1.87 > 2 Which-[mun] 0.86 1.31 1.04 1.38 1.99 > 2 C610 d’lvoirelricc 900%mede 1.49 > 2 1.92 > 2 > 2 ‘ Fonduphndlmdiuondmnnl 1.65 > 2 > 2 > 2 > 2 Fonfluphnd/improvedmnwnl 1.68 > 2 > 2 > 2 > 2 Nonh/irriguionlimpmvcdmnunl 1.72 > 2 > 2 > 2 > 2 > 2 Noflhluplnnd/unditiomlmnnl 1.39 > 2 > 2 > 2 > 2 > 2 Now/uphndlnnimnltnction >2 >2 >2 >2 >2 >2 Mali/rice Officelirl'iptionfmnlivc 1.04 1.57 1.58 > 2 > 2 > 2 Office/irrigation/nmi-imcuivc 1.37 1.97 1.96 > 2 > 2 > 2 i Office/'migtfionlnon-iflemivo 1.72 > 2 > 2 > 2 > 2 < O Mopti/controfledflooding >2 >2 >2 >2 >2 <0 ; Mopti/mm flooding > 2 > 2 > 2 > 2 > 2 < o Source: Computed from Appendix B 253 ‘ TablaCS-Za. ERactofaSOPaumtDavnlnatioaoaCottonandMaiuDRCeoafllcimUndta PoaitivaOpporumityCoatofLand Farm Bamako Sikaaao Korhogo Bouak‘ Abidjan C61: d’lvoire/conon Comer/1mm“ mamnl 0.55 0.57 0.60 1 Nonhl’inprovcd animal 0.56 0.58 0.62 traction Nonhlaemi-machanized 1.17 1.17 1.15 Mali/cotton erovad animal 0.61 0.65 0.66 0.67 traction Soulh/inprovod manual 0.71 0.74 0.75 0.76 1 C610 d’lvoirelma'ma Pond/unli-mochaniud 0.56 0.84 0.65 0.81 1.16 Canter/inmroved aninnl 0.90 1.17 0.81 1.13 1.11 1.68 traction Corner/traditional manual 1.21 1.47 1.06 1.42 1.42 1.95 Comer/inpmcd mamlal 1.24 1.56 1.07 1.50 1.50 > 2 Mali/main Wmmvedanimal 0.67 1.06 0.82 1.10 1.73 > 2 traction 1 South/improved mamal 0.87 1.32 1.04 1.38 > 2 > 2 Note: 1/ The border Mali—Cbte d’Ivoire is the relevant market for cotton produced in Mali instead of Korhogo. Source: Computed from Appendix B 254 TnbloCS-Zb. wad-MWMMo-mwmumoaccmuwa Punitive Opportlfl'y Coat of Land Farm Bamako Sikaaao Korhogo Bouakl Abidjan C010 d’lvoire/millct/aorghum North/tradition] manual 0.90 1.24 1.02 1.16 1.43 > 2 Norm/animal traction 0.93 1.29 1.06 1.21 1.50 > 2 J Mali/milletlaorgbum South/animal traction 0.45 0.78 0.58 0.78 1.24 > 2 Scum/traditional mamal 0.59 0.90 0.72 0.92 1.33 > 2 I can d‘lvoire/rica Foren/lowlanda/inprovadmamal 1.05 1.53 1.28 1.66 > 2 Foruat/upland/traditionalmamal 1.15 1.55 1.35 1.65 > 2 Fond/uplandlinpmvadmamnl 1.20 1.81 1.47 1.99 > 2 Norm/‘migationlinpmedmamal 1.74 1.86 1.49 1.82 > 2 > 2 North/uplandIu-aditionalmamial 1.31 1.72 1.71 1.68 1.91 > 2 Noah/uplandlanimaltraction > 2 > 2 > 2 > 2 > 2 > 2 Mali/rice Office/'u'rigationftmanaivc 0.70 1.07 1.06 1.57 > 2 > 2 Office/irrigationlaami-irunaivc 0.92 1.34 1.31 1.99 > 2 > 2 01'5chanan 1.16 1.64 1.60 > 2 > 2 < 0 Mopti/commllodflooding >2 >2 >2 >2 >2 <0 Mopti/traditionalflooding >2 >2 >2 >2 >2 <0 Source: Computed from Appendix B 255 TablaC5-3a. EflaadalflmwmuCMudMiaDBCWUnd-m WWWflLfid Farm Bamako Sikaaao Korhogo Bouakl Abidjan C610 d‘lvoiralcotton Camorfinproved mamal 0.40 0.42 0.45 Nonhlinmroved animal 0.41 0.43 0.46 traction Nonb/aami-macbaniud 0.85 1.17 0.86 Mali/cotton Soutbl‘inprovod animal 0.44 0.49 0.50 0.51 traction Soudilinmroved manual 0.51 0.55 0.56 0.57 C610 d'lvoinlmaiu Marni-mechanized 0.44 0.63 0.49 0.63 0.87 Cemerlinprovad animal 0.70 0.88 0.61 0.88 1.11 1.26 traction W Caner/traditional manual 0.93 1.10 0.80 1.10 1.42 1.47 Cedar/inmrovd manual 0.96 1.17 0.80 1.17 1.50 1.67 5 5 WWW“ animal 0.51 0.81 0.63 0.82 1.30 > 2 f traction Soutbl'inpmvod manual 0.66 1.01 0.79 1.04 1.62 > 2 Note: 1/ The border Mali-COte d’Ivoire is the relevant market for cotton produced in Mali instead of Korhogo. Source: Computed from Appendix B 256 TablaCS-3b. EflactolaloomwahationonManhmandRiuDRCWUndn’a Punitive Opportunity Cost of Land . Farm Bamako Sikaaao 1011111030 Bouuak‘ Abidjan l C610 d’lvoire/millet/aorghum ‘ Noah/traditional manual 0.70 0.93 0.77 0.90 1.11 > 2 Noah/animal traction 0.72 0.97 0.79 0.94 1.16 > 2 Mali/milledaorgbum South/animal traction 0.35 0.60 0.44 0.59 0.93 > 2 South/traditional manual 0.45 0.69 0.54 0.69 1.00 > 2 C610 d'lvoire/rica Founllowlanda/inmmvad manual 0.81 1.14 0.96 1.27 1.54 Pond/uplandlu'aditional manual 0.89 1.16 1.01 1.27 1.46 Paton/uplandlinprowd manual 0.93 1.36 1.10 1.54 1.95 Nonhfu'rizationfunpmed manual 0.97 1.39 1.12 1.42 1.75 > 2 Noudu/uplandIu-aditional nuanual 1.00 1.29 1.31 1.28 1.45 > 2 Norduluplandlanimaltu'action > 2 > 2 > 2 > 2 > 2 > 2 i Mali/rice Offical'ufigation/imnaiva 0.53 0.81 0.80 1.18 1.71 > 2 0ffic0/irrigationlaami-in10naiv0 0.69 1.01 0.99 1.49 > 2 > 2 Office/irrigationlnon-intanaiva 0.87 1.25 1.20 1.87 > 2 < 0 Mopti/consolhdflooding 1.58 >2 >2 >2 >2 <0 Mopti/traditional flooding 1.96 > 2 > 2 _ i T = Source: Computed from Appendix B TablaC5-4a. ERactotalawerOppormnitndatolLaboroaCounaandMaiaaDBCcadlicida Farm Bamako Sikaaao Korhogo Bonak‘ Abidjan €610 d'lvoiualcodon Cunt/improved manual 0.49 0.52 0.56 Nonlufunmrovadanimal 0.54 0.55 0.60 traction I Nonh/umi-mochaniud 1.21 1.21 1.19 Note: 1/ The border Mali-C0te d’Ivoire is the relevant market for cotton produced in Mali instead of Korhogo. 2/In this scenario, The opportunity cost of labor is assumed to be 25 percent lower than that assumed originally. Thus, it is about 500 CFAF/day in most of C6te d’Ivoire and Mali, while it is estimated at nearly 750 CFAF/day in the forest region of C6te d’Ivoire. Source: Computed from Appendix B 258 —_ I TablaC5-4b. EflactdalmOpportnnitnduofLaboronMilalnubuandRhDRCCodfld-fl Farm Bamako Sikaaao Korhogo Bouakd Abidjan C610 d‘lvoire/millet/aorghtum Noah/traditional manual 0.81 1.14 0.94 1.06 1.33 > 2 North/animal traction 0.89 1.26 1.03 1.16 1.47 > 2 Mali/milledaorgbuum South/am traction 0.38 0.68 0.50 0.68 1.08 > 2 South/traditional manual 0.48 0.76 0.59 0.77 1.12 > 2 C610 d‘Ivoiunlrico Foreat/lowlandalinpmvad manual 0.90 1.37 l. 15 1.47 1.75 Fomnluplandltraditionalmanual 0.99 1.38 1.20 1.49 1.86 Fonduplandlinmrovadmanual 1.07 1.69 1.37 1.85 > 2 Nortbl'ufigafion/inprovadmanual 1.08 1.69 1.35 1.63 > 2 > 2 North/uplandltuaditionalmanual 1.16 1.69 1.65 1.60 > 2 > 2 North/upland/animaltu'action >2 >2 )2 >2 >2 >2 Mali/rice Officalirrigation/intanaiva 0.67 1.04 1.03 1.51 > 2 > 2 Offwefurrigation/aami-inanaiva 0.90 1.31 1.31 1.90 > 2 > 2 Office/irfigation/non—intanaivo 1.15 1.62 1.62 > 2 > 2 < O Mopti/controll0dflooding >2 >2 >2 >2 >2 <0 Mopti/traditional flooding > 2 > 2 > 2 > 2 > 2 < 0 Note: In this scenario, the opportunity cost of labor is assumed to be 25 percent lower than that assumed originally. Thus, it is about 500 CFAF/day in C010 d’Ivoire and southern Mali, while it is estimated at nearly 490 CFAF/day in the Office du Niger and 375 CFAF/day in the Mopti region. Source: Computed from Appendix B 259 TabloCS-Sa. EffectofaLowa'OppomityCoatofLaboronCoannandMaiuDRCcodfld-ta Farm Bamako Sikaaao Korhogo Bouuak‘ Abidjan C610 d'lvoinelconon . Center/improved manual 0.39 0.43 0.48 I Noah/improved animal 0.47 0.49 0.54 traction Nonlulaami-macluaniud 1.16 1.16 1.14 ' Mali/cotton Scum/uptown Bnimnl 0.53 0.59 0.60 0.58 traction South/impmvod manual 0.55 0.61 0.62 0.60 C610 d'lvoin/maiu Fonau/aanui-macluaniud 0.53 0.33 0.64 0.78 1.14 Can0r/inmrovod animal 0.74 1.00 0.69 0.96 0.92 1.45 traction 5 Caner/traditional manual 0.39 1.13 0.33 1.09 1.07 1.53 Comrmpmod manual 0.91 1.20 0.83 1.15 1.13 1.74 1 Mali/mam Somlul‘unpuovodanimal 0.55 0.89 0.68 0.93 1.46 > 2 traction Somblinprovadmanual 062 099 076 104 163 >2 Note: 1/ The border Mali-C6te d’Ivoire is the relevant market for cotton produced in Mali instead of Korhogo. 2/In this scenario, The opportunity cost of labor is assumed to be 50 percent lower than that assumed originally. Thus, it is equivalent to about 350 CFAF/day in most of C0te d’Ivoire and Mali, while it is estimated at 500 CFAF/day in the forest region of C0te d’Ivoire. Source: Computed from Appendix B C610 d'lvoire/millet/aorgbum North/traditional manual North/animal traction Mali/millatlaorgbum South/animal traction South/traditioulmanual C610 d‘lvoiu'clrica I Forenllowlandalinprovad manual Bonn/uplandltraditional manual Fonn/uupland/impmad manual Nonblirrigationfinmrovad manual Norduluplandltnditional manual Nottb/uuplandlanimal traction Mali/rice Offica/irrigation/inanaiva Offlcal'un-igationlaami-inenaive Officefuruigation/non-inanaiva Mopti/conu'olled flooding Mopti/traditional flooding Farm Bamako 0.66 0.79 0.27 0.33 0.69 0.75 0.87 0.85 0.93 >2 0.61 0.83 1.08 1.95 >2 0.96 1.13 0.54 0.57 0.97 1.23 1.55 > 2 >2 Sikaaao Korhogo Bouak‘ 0.79 0.88 1.12 0.93 1.05 1.33 0.38 0.53 0.81 0.43 0.56 0.83 0.93 1.18 0.96 1.21 1.17 1.58 1.11 1.33 1.70 1.35 1.31 > 2 > 2 > 2 > 2 0.97 1.41 2.“) 1.21 1.80 > 2 1.51 > 2 > 2 > 2 > 2 > 2 > 2 > 2 > 2 Abidjan >2 >2 >2 >2 1.40 1.52 > 2 > 2 > 2 >2 >2 >2 <0 <0 <0 Note: In this scenario, the opportunity cost of labor is assumed to be 50 percent lower than that assumed originally. d’Ivoire and southern Mali, while it is estimated at nearly 300 CFAF/day in the Office du Niger and 250 CFAF/day in the Mopti region. Source: Computed from Appendix B Thus, it is about 350 CFAF/day in Cbte 261 TablaCSuGa. EffeflofflalviugtbeOppormndatofLandonCnunn-dMaiaaDBC unofficial: Farm Bamako Sikaaao Korhogo Bouak‘ Abidjan C610 d‘lvchonon Caner/impmved manual 0.57 0.59 0.63 Noahrmpmved animal 0.52 0.54 0.58 traction Nonlu/aemi-mechanized 0.84 0.85 0.87 Mali/cotton Southl‘unprovadanimal 0.58 0.64 0.65 0.63 traction Wmmvedmanual 0.74 0.77 0.78 0.16 1 C610 d’lvoinalmaiza Fond/acmi-macluanizad 0.47 0.76 0.59 0.72 1.04 C0m0r/inmrovod animal 0.31 1.08 0.75 1.04 1.01 1.56 traction Caner/traditional manual 1.05 1.30 0.95 1.25 1.24 1.75 Canar/inmrovad manual 1.05 1.36 0.94 1.30 1.29 1.96 1 mm Win-proved min! 0.60 0.96 0.74 1.00 1.58 > 2 . unction 1WWanual 0.34 1.23 1.00 1.36 _. > ,. __. __ > 2 , i Note: 1/ The border Mali-COte d’Ivoire is the relevant market for cotton produced in Mali instead of Korhogo. Source: Computed from Appendix B 262 TnblaCS-Gb. mdfldvhgfinOpmranddLandmm/mndMDRCW Farm Bamako Sikaaao Korhogo Bouuakd Abidjan C610 d'lvoiue/millodaorgbuum North/traditional manual 0.30 1.14 0.94 1.06 1.33 > 2 Noah/animal traction 0.72 1.05 0.36 0.97 1.24 > 2 Mali/millat/aorgbum Wanimalta'action 0.43 0.32 0.61 0.34 133 > 2 Souudultraditionalmanual 0.63 0.96 0.76 0.99 1.42 > 2 C610 d’lvoimlrica Fonn/lowlanda/inmrovadmanual 1.21 1.86 1.51 > 2 > 2 Foucauluplandl‘tnditionalmnual 1.11 1.52 1.32 1.62 1.92 Bonn/upunarmpmodmnu 1.21 1.86 1.51 > 2 > 2 Nonnrnnguionrmpmodmmu 1.23 1.99 1.59 1.93 > 2 > 2 Nomupnndmndinonn'mnu 1.19 1.60 1.53 1.55 1.73 > 2 Noflluluplandlanimaltraction >2 >2 >2 >2 >2 >2 Mali/rice Officel'ufigation/imnaiva 0.60 0.96 0.96 1.40 1.71 > 2 Office/irrigationlnmi-inanaiva 0.75 1.15 1.14 1.69 > 2 > 2 omoornnpuon/non-inimivo 0.90 1.34 1.32 > 2 > 2 < 0 Mopti/controlled flooding 1.52 > 2 > 2 > 2 > 2 < o Source: Computed from Appendix B 263 TableCS—‘Ia. ERaetolProjnctndWofldPn’caofOntflnnCofluandMainaDRCem Farm Bamako Sikaaao Korhogo Bouuakd Abidjan C610 d‘lvoirelcotuon Center/improved manual 0.40 0.42 0.45 North/inpmved animal 0.41 0.43 0.46 traction Nonhlaomi-mocbanized 0.80 0.80 0.82 Mali/couon Soutiulinmroved animal 0.46 0.50 0.51 0.49 traction South/inmovnd manual 0.53 0.57 0.58 0.56 C610 d’lvoinlmaiza Wand-mechanized 0.40 0.65 0.54 0.63 0.82 C0n0r/inprov0d animal 0.75 0.95 0.71 0.93 0.90 1.26 traction Center/traditional manual 1.04 1.24 0.96 1.21 1.20 1.57 C0n0r/inmmv0d manual 1.03 1.26 0.94 1.22 1.21 1.66 0.87 0.71 0.90 1.26 > 2 1.09 0.89 1.14 1.58 > 2 Note: 1/ The border Mali-Cbte d’Ivoire is the relevant market for cotton produced in Mali instead of Korhogo. 2/ The projected world price for cotton is about $2400/ton and that of maize is $164/ton. Source: Computed from Appendix B Table C5-7b. Effectofl’mjactnd WorldfiholOutpntonMifld/aolflu-andkkabkc COM Farm Bamako Sikaaao Korhogo Bouuaki Abidjan C610 d'lvoirelmilledaorgbum North/tradition] manual 0.79 1.05 0.90 1.00 1.20 > 2 Norm/animal traction 0.81 1.08 0.92 1.02 1.24 > 2 Mali/milledaotgbuum South/animal traction 0.40 0.65 0.51 0.66 0.92 > 2 Solidi/traditional manual 0.54 0.78 0.64 0.80 1.“ > 2 C610 d'lvoinlrica Whndalhpmadmanual 0.88 1.22 1.07 1.31 1.54 Pond/uplandltraditionalmanual 1.01 1.31 1.17 1.39 1.59 Fonduplandlimpmvad manual 0.97 1.38 1.19 1.49 1.80 Nonlul'ufigationlinpmvad manual 0.99 1.39 1.19 1.37 1.62 > 2 Nonbluplandltraditional manual 1.15 1.46 1.45 1.43 1.78 > 2 Nonhluplandlanimaltnction 1.96 > 2 > 2 > 2 > 2 > 2 Mali/1i“ Offical'uu'i'igation/inanaiva 0.58 0.84 0.85 1.13 1.43 > 2 Officefnrigationlaann—imnaiva 0.75 1.04 1.04 1.39 1.77 > 2 Oficalirrigationlnon—imnaiva 0.93 1.25 1.24 1.68 > 2 > 2 Mood/conuolled flooding 1.68 > 2 > 2 > 2 > 2 > 2 Mopti/traditional flooding > 2 > 2 > 2 > 2 > 2 > 2 Note: The projected world price for millet/sorghum is estimated at about SlSS/ton, while that of rice is about $389/ton. Source: Computed from Appendix B 265 ITablaCS-8a. EHactnflIigluth—FainaldannCottonandMaiaaDRCeom I I Farm Bannkn Sikaaao Korhogo Bouuak‘ Abidjan C610 d'lvoirelcoflon ' C0n10r/‘unmmv0d manual 0.46 0.48 0.53 Nonnrinpmvodiniinnu 0.47 0.49 0.54 traction Nonlulaemi-mecluanized 0.94 0.94 0.94 I Mali/cm Soudu/‘unmuovadaninnl 0.54 0.60 0.61 0.59 traction Souutlulinmrovod m 0.63 0.67 0.68 0.66 C610 d’lvoiu'almaina Pondacmi-machan'ud 0.45 0.70 0.56 0.67 0.94 I C0n03/inmrov0d an'mal 0.74 0.99 0.70 0.95 0.92 1.42 traction Canal-[traditional manual 1.03 1.30 0.93 1.25 1.23 1.85 Conatl'unmmad annual 1.01 1.28 0.91 1.23 1.22 1.71 Mali/main South/improved animal 0.55 0.89 0.69 0.92 1.42 > 2 traction South/inpmvod manual 0.72 1.10 0.86 1.16 1.77 > 2 Note: 1/ The border Mali-C6te d’Ivoire is the relevant market for cotton produced in Mali instead of Korhogo. 2/ In this scenario, on-farm yields are assumed to be 25 percent higher that those assumed originally. Source: Computed from Appendix B 266 —— TablaC5-8b. EHanalHWOa—Far-Muhflatlaorflnnandkbanflccm . Farm Bamako Sikaaao Korhogo Bouuak‘ Abidjan C610 d’Ivoirelmillot/aorgbum Noah/traditional manual 0.76 1.08 0.90 1.01 1.26 > 2 North/animal traction 0.78 1.12 0.92 1.03 1.31 > 2 Mali/milledaorgluum South/animal traction 0.38 0.67 0.49 0.67 1.04 > 2 Sounlultraditional manual 0.50 0.80 0.62 0.81 1.17 > 2 C610 d’lvoinluica Fonnnowlandalinpmvod manual 0.85 1.29 1 .09 1.39 1.71 Fondluplandltnditional manual 0.98 1.46 1.21 1.59 > 2 Panduplandlinmrovadmanual 0.93 1.37 1.19 1.46 1.73 Nonlul'uu-rigationlinprovad manual 0.95 1.45 1.19 1.40 1.72 > 2 Nonduluplandltraditional annual 1.11 1.50 1.48 1.45 1.69 > 2 Nonh/upland/animaltraction 1.84 > 2 > 2 > 2 > 2 > 2 Mali/rice Officel’unigation/inenaiva 0.58 0.91 0.92 1.32 1.83 > 2 Offloal'ufigationlaami—iflnaiva 0.75 1.12 1.11 1.61 > 2 > 2 Offlcal‘uurigationlnon-inanaiva 0.92 1.33 1.31 1.93 > 2 > 2 Mopti/coulrolladflooding 1.66 >2 >2 >2 >2 >2 Mopdlunditionalflooding 1.77 >2 >2 >2 >2 >2 T 1 Note: In this scenario, on-farm yields are assumed to be 25 percent higher than those assumed originally. Source: Computed from Appendix B 267 TablaC5-9a. MaudHigICOI-FarnYidiknnComn-deaaDRCcodfldda Farm Bamako Sikaaao Korhogo Bouakd Abidjan C610 d’lvoirelcouon Cenerlinproved manual 0.37 0.40 0.45 Nordulinmroved animal 0.38 0.41 0.46 traction Nonlulaami-mecbaniud 0.74 0.75 0.77 Note: 1/ The border Mali-C6te d’Ivoire is the relevant market for cotton produced in Mali instead of Korhogo. 2/ In this scenario, on-farm yields are assumed to be 50 percent higher that those assumed originally. Source: Computed from Appendix B 268 TablaC5-9b. EflaadHWOEFamYudbuergbn-MMDRCW Farm Bamako Sikaaao Korhogo Bouakl Abidjan C610 d‘Ivoire/millet/aorgbum Noah/traditional manual 0.63 0.93 0.77 0.85 1.09 > 2 North/animal traction 0.64 0.95 0.78 0.87 1.12 > 2 Mali/milledaorgbum South/animal traction 0.31 0.57 0.42 0.57 0.86 > 2 South/traditional manual 0.42 0.69 0.53 0.69 1.1!) > 2 C610 d’Ivoire/rice Boron/lowlanda/inprovad manual 0.69 1.08 0.92 1 . 17 1.43 Pmnluplandluraditional manual 0.82 1.18 1.02 1.29 1.62 Fonfluplandlinpmad manual 0.74 1 . 19 0.99 1.25 1.49 Nonluliu-rigationfmmrovad manual 0.74 1.16 0.96 1.12 1.37 > 2 Norduluuplandltraditional lllllllll 0.92 1.28 1.36 1.23 1.43 > 2 Nonluluplandlanimal traction 1.37 > 2 > 2 > 2 > 2 > 2 Mali/rice Office/irrigation/inanaive 0.48 0.79 0.80 1.15 1.57 > 2 L Officelinigationlaami-in0naiv0 0.61 0.95 0.95 1.37 1.90 > 2 Office/irrigation/non-inanaiva 0.75 1.11 1.11 1.61 > 2 > 2 Mopti/controlled flooding 1.34 1.85 1.80 > 2 > 2 > 2 Mopti/traditionalflooding 1.78 > 2 > 2 > 2 > 2 > 2 Note: In this scenario, on-farm yields are assumed to be 50 percent higher than those assumed originally. Source: Computed from Appendix B 269 TablaCS—mn. EflctdulmmvadmkafioonCottonudRhDRCCoafldidm Farm Bamako Sikaaao Korhogo Bouuakd Abidjan C610 d’lvoire/conon ll Caner/inmmved manual 0.59 0.61 0.65 North/improved animal traction 0.61 0.63 0.66 Nonblaami—macbaniud 1.27 1.26 1.23 Mali/milladaorgbuum Sounlulinpmod animal traction 0.66 0.71 0.71 0.69 Souutb/tnditionalnnnual 0.77 0.80 0.81 0.78 C610 d'lvoiraluica Foam/lowlandalinpaowdnnnual 0.94 1.37 1.16 1.48 1.81 I Foul/uplandlu'aditional manial 1.05 1.44 1.2.5 1.53 1.82 Fond/uplandlinqurovadmanual 1.07 1.57 1.29 1.71 > 2 ' Nonbl'ufigationlinmmadmanual 1.07 1.57 1.29 1.52 1.87 > 2 Noah/uplandltnditiomlnnnual 1.21 1.59 1.57 1.54 1.84 > 2 Noatb/uuplandlanimaltnction >2 >2 >2 >2 >2 >2 Malilric0 Offlcaliu'rigalion/inanaiva 0.74 1.11 1.10 1.61 > 2 > 2 Offlcal‘irrigation/aami-inamiva 0.97 1.39 1.36 > 2 > 2 > 2 Office/irrigation/non-inanaiva 1.21 1.69 1.65 > 2 > 2 < 0 Mopti/coulrolledflooding >2 >2 >2 >2 >2 >2 Mopti/traditional flooding > 2 > 2 > 2 > 2 > 2 < 0 Note: 1/ The relevant market for the Malian cotton is the border instead of Korhogo 2/ In this scenario, the ginning ratio of the Malian cotton improves from 0.427 to that of C0te d’Ivoire, estimated at 0.445. Meanwhile, the Ivorian rice milling ratio increases from 0.55 to that of Mali, evaluated at 0.63. Source: Computed from Appendix B 270 Tabla C5-10b. EflnctofanlmpnvadMilling RafioonCottonandR'naDRC Candid” Farm Bamako Sikaaao Korhogo Bouuakd Abidjan C610 d‘lvoirelcodon ll Cenerl'inmmved manual 0.52 0.55 0.59 ' Nonnrmmoa animal traction 0.54 0.56 0.60 Nonblaami-macbaninad 1.10 1.10 1.09 Mali/mi1101/aorgluum Soudul‘unprovad animal traction 0.57 0.62 0.63 0.61 South/traditional manual 0.67 0.71 0.71 0.69 C610 d'lvoiue/rica Fondllowlandalinmmved manual 0.87 1.27 1.08 1.37 1.68 Pornnluuplandltraditional manual 0.96 1.35 1.18 1.44 1.70 Fond/upland/inmmvvad manual 1.00 1.44 1 . 19 1.56 1.98 Nonlufmigationfmmmvad manual 0.98 1.43 1.18 1.38 1.69 > 2 NorduluplandIu-aditional manual 1.14 1.49 1.47 1.44 1.67 > 2 Noudu/uplandlanimaltraction 1.91 > 2 > 2 > 2 > 2 > 2 Mali/1100 Oficelinigationlinenaiva 0.68 1.02 1.02 1.47 > 2 > 2 Office/irrigationlaami-inenaiw 0.89 1.27 1.26 1.83 > 2 > 2 Officefurrigation/non—intmaive 1.11 1.54 1.51 > 2 > 2 > 2 Mopti/contolled flooding 2.00 > 2 > 2 > 2 > 2 < 0 Mopti/naditionalflooding >2 >2 >2 >2 >2 <0 Note: 1/ The relevant market for the Malian cotton is the border instead of Korhogo 2/ In this scenario, the ginning ratio in C6te d’Ivoire and Mali improves to 0.50 and the rice milling ratio in both countries increases to 0.67. Source: Computed from Appendix B 271 TableCS-lla. EflaetollialvingTranaportCoatnnCmnnandMaiaaDBCCoalfldm Farm Bamako Sikaaao Korhogo Bouuah‘ Abidjan C610 d'lvoiralcouon Cannrl'unmroved manual 0.58 0.60 0.63 Noah/unprinted animal 0.59 0.61 0.64 traction North/acmi—mecbanized 1 .23 1 .22 1 .20 0.88 1.26 Note: 1/ The border Mali-C0te d’Ivoire is the relevant market for cotton produced in Mali instead of Korhogo. Source: Computed from Appendix B 272 Tabla CS-llb. ManolHdv'IgTrnapouCntnnMiflulaorgb—aachDBCCodfi-Ia l Farm Bamako Sikaaao Korhogo Bouuak‘ Abidjan C610 d’lvoirelmillei/aorgbum North/traditional manual 1.08 1.44 1.29 1.35 1.54 > 2 Noah/animal unction 1.12 1.51 1.34 1.41 1.61 > 2 Mali/milledaoughum Snutlu/animfltraction 0.60 0.92 0.75 0.97 1.24 > 2 Souutlultuaditional manual 0.76 1.07 0.90 1.11 1.35 > 2 C610 d'Ivoiu/rica Fond/lowlandalinprovad manual 1.15 1.68 1.54 1.69 1.99 Boron/uplandltraditionalmanual 1.26 1.70 1.57 1.71 > 2 Pom‘huplandlinmrovadnnnual 1.31 > 2 1.79 > 2 > 2 Nordulirrigationfinpmadmanual 1.40 > 2 1.90 > 2 > 2 > 2 Nam/umhndltraditionalmanual 1.45 > 2 > 2 1.96 > 2 > 2 Nonbluuplandlan'nultraction >2 >2 >2 >2 >2 >2 Mali/0'00 Olfical'ufigationlinanaiva 0.82 1.24 1.19 1.47 1.72 > 2 Officalirrigation/aami-inanaiva 1.08 1.56 1.49 1.85 > 2 > 2 Office/irrigationlnon-inenaiva 1.37 1.93 1.82 > 2 > 2 > 2 Mopti/consumed flooding > 2 > 2 > 2 > 2 > 2 > 2 Mopti/traditional flooding > 2 > 2 _ ___ Source: Computed from Appendix B 273 TableCS-lla. BHactoflawarOpporunn'tyCoauofLandandlnbormndDavahafinaoaCm andMfiaaDRC Coeflicinuta Farm Bamako Sikaaao Korhogo Bouak6 Abidjan C610 d'lvoirelconon Center/'muproved manual 0.43 0.46 0.50 Nordulimprovad animal 0.41 0.44 0.49 traction I Nonlulaami-macbaniud 0.73 0.74 0.77 Mali/couon Saudi/improved animal 0.43 0.50 0.51 0.52 traction South/improved manual 0.53 0.58 0.59 0.60 C610 d'lvoirn/maiza Barnyard-mechanized 0.41 0.67 0.52 0.65 0.93 Genet/improved aninnl 0.66 0.89 0.62 0.86 0.82 1.30 traction Caner/traditional manual 0.80 1.01 0.74 0.98 0.96 1.37 Center/improved manual 0.93 1.20 0.82 1.16 1.14 1.73 Note: 1/ The border Mali-Cbte d’Ivoire is the relevant market for cotton produced in Mali instead of Korhogo. 2/ In scenario, the economic value of land is assumed to be 50 percent lower than that assumed originally, while the opportunity cost of labor is assumed to be 25 percent lower than that used in the base run. In addition, it is assumed that a 50 percent devaluation took place in both countries. Source: Computed from Appendix B 274 TathS-llb. EflmdlmOmrunhyCoaflofhndandlAbor,ndDflahafiuum¢/afl_-d Bite DRC Com Farm Bamako Sikaaao Korhogo Bouakd Abidjan C610 d'lvoirelmilletlaorgbum Norm/traditional manual 0.62 0.89 0.74 0.83 1.05 > 2 Noah/animal traction 0.59 0.87 0.71 0.81 1.04 > 2 Mali/nillallaocgbuum South/ammal traction 0.35 0.64 0.47 0.64 1.01 > 2 Soutbltraditional manual 0.45 0.72 0.56 0.72 1.04 > 2 C610 d’lvoin/rica Fondlowlandalinprovad manual 0.82 1.25 1.05 1.36 1.69 Bonn/uplandhraditional manual 0.82 1.16 1.01 1.25 1.47 Fomflumhndfinpmvadmanual 0.95 1.51 1.23 > 2 > 2 Nordulirrigationlinmmved manual 1.02 1.58 1.26 1.54 1.92 > 2 Noatluluplandltraditional annual 0.90 1.24 1.23 1.20 1.39 > 2 North/uplandlanimaltraction 1.86 > 2 > 2 > 2 > 2 > 2 Mali/rice Offical'urrigationfmnaiva 0.51 0.85 0.85 1.28 1.86 > 2 Offlcal'un-igaiionlaann-inanaiva 0.65 1.1!! 1.00 1.56 > 2 > 2 Officafmigation/non-inanaiva 0.80 1.23 1.23 1.90 > 2 < 0 Mopfilconrollad flooding 1.34 1.94 1.87 > 2 > 2 < 0 Mopti/traditional flooding 1.55 > 2 2.1!) > 2 > 2 < 0 Note: In this scenario, the economic value of land is assumed to be 50 percent of that assumed originally, while the opportunity cost of labor is assumed to 25 percent lower than that used in the base run. In addition, it is assumed that both countries undertook a 50 percent devaluation. Source: Computed from Appendix B 275 _— TablaCS—Ba. EflnctofLUWOppoflnm'tyCodaofLandandhbor,Dflahafion,udlm Tramp"! Coda on Cotton and Maine DRC Com Farm Bamako Sikaaao Korhogo Bouakl Abidjan C610 d‘lvoirelcodon Canerl'unproved manual 0.43 0.45 0.49 North/improved animal 0.40 0.43 0.47 traction Nmmlnmiomacbaniud 0.70 0.71 0.74 Mali/cotton Snudu/inprovad animal 0.42 0.48 0.49 0.49 traction Saudi/improved manual 0.51 0.56 0.57 0.57 C610 d’lvoimlmaiza Fondunfi-macbaniud 0.45 0.66 0.57 0.64 0.81 Caner/maimed animal 0.72 0.92 0.74 0.89 0.86 1.14 traction Conn/traditional manual 0.86 1.05 0.87 1.02 0.99 1.24 C0n0r/inprov0d manual 1.02 1.26 1.00 1.22 1.19 1.55 Mali/mama WWW“ animal 0.50 0.92 0.61 0.79 1.23 > 2 Note: 1/ The border Mali-COte d’Ivoire is the relevant market for cotton produced in Mali instead of Korhogo. 2/ In scenario, the economic value of land is assumed to be 50 percent lower than that assumed originally, while the opportunity cost of labor is assumed to be 25 percent lower than that used in the base run. In addition, it is assumed that a 50 percent devaluation took place in both countries and transport costs were halved in both countries. Source: Computed from Appendix B 276 TablaCS-le. BflaetoIWOppormnhyCoaudLandndlabor,Duahafion,nmeruapu1Cnu on Milatlaorgbnnu mud Rica DRC Coelfidauta Farm Bamako Sikaaao Korhogo Bouakd Abidjan C610 d'lvoimlmillatlaorgbum Nonlultraditibnal manual 0.69 0.96 0.36 0.90 1.04 > 2 Noah/animal traction 0.67 0.94 0.34 0.33 1.02 > 2 minim/normal South/animal unction 0.44 0.73 0.57 0.73 0.94 1.66 I Soudultraditionalmanual 0.54 0.30 0.66 0.31 0.93 1.43 0610 d’lvoirn/rica Whoa-runpmoammn 0.34 1.27 1.17 1.30 1.52 9“me 0.34 1.13 1.09 1.20 1.35 Fondlupland/inprovadmanual 0.99 1.56 1.39 1.59 1.92 Nonlulirrigationfunmmadmanual 1.09 1.72 1.51 1.59 1.33 > 2 Nonbluuplandltraditionalmanual 0.94 1.30 1.31 1.22 1.34 > 2 Noa‘lbluuplandlanimaltraction >2 >2 >2 >2 >2 >2 Min/no. Office/irrigationlinenaive 0.57 0.93 0.90 1.13 1.32 > 2 Officafnfigationlaami-inenaive 0.73 1.16 1.11 1.41 1.67 > 2 Ol'licelinigationlnon—inanaivc 0.91 1.41 1.33 1.72 > 2 > 2 Mopti/contmlledflooding 152 >2 >2 >2 >2 >2 Mopti/traditionalflooding 1.72 >2 >2 >2 >2 >2 #1 ...—E Note: In this scenario, the economic value of land is assumed to be 50 percent of that assumed originally, while the opportunity cost of labor is assumed to 25 percent lower than that used in the base run. In addition, it is assumed that both countries undertook a 50 percent devaluation and that transport costs were halved in both countries. Source: Computed from Appendix B 277 TablaCS-l4a. BRaetoflawarOpporamityCoataofLandudLabor,Davalnatina,Low TruaponCoataJndProjecudWorldPrbaolOatpnnoaCm-dmaablc Coefficient Farm Bamako Sikaaao Korhogo Bouak‘ Abidjan C610 d’lvoire/couon Center/iamroved manual 0.29 0.31 Nonlu/iayauved animal 0.27 0.29 traction Northbound—mechanized 0.45 0.46 Mali/cotton Soudulinmmvad animal 0.28 0.33 0.34 0.34 traction Soutbl'uaprovad annual 0.34 0.39 0.40 0.40 C610 d‘lvoinlmaiza Foraat/aami-mecbanizod 0.33 0.46 0.42 0.46 C0n0r/inprov0d animal 0.55 0.68 0.58 0.67 0.64 traction Caner/traditional manual 0.69 0.81 0.70 0.80 0.78 Caner/improved manual 0.78 0.93 0.78 0.91 0.89 Mali/mama South/inpuovod animal 0.41 0.69 0.49 0.61 0.85 unction Soutbl'uapruved manual 0.65 0.76 0.89 0.91 1.08 Note: 1/ The border Mali—COte d’lvoire is the relevant market for cotton produced in Mali instead of Korhogo. 2/ In scenario, the economic value of land is assumed to be 50 percent lower than that assumed originally, while the opportunity cost of labor is assumed to be 25 percent lower than that used in the base run. In addition, it is assumed that a 50 percent devaluation took place in both countries and transport costs were halved in both countries. Moreover, the projected 2000 world price of cotton and maize are assumed to be $2400/ton and $164/ton, respectively. Source: Computed from Appendix B 278 TablaCS-l4b. EflmoflmOMCmdLndudLabor,DavmmTr-patm udProjaeudWoddPricanfOItplnonmet/aorgb-andliceDRCW Farm Bamako Sikaaao Korhogo Bouakd Abidjan C610 d’lvoirelmilletlaorgbum North/traditional manual 0.56 0.75 0.69 0.71 0.80 North/animal traction 0.54 0.72 0.66 0.69 0.78 Mali/millet/aorgluuum South/animal traction 0.36 0.56 0.45 0.55 0.66 Sonar/traditional manual 0.45 0.64 0.54 0.64 0.74 C610 d’lvoirelrica Foam/lowlandaliapmvad manual 0.69 0.96 0.90 0.99 Wuphndluaditional manual 0.71 0.99 0.93 1.02 Fonduplandliamrovad manual 0.78 1 . 16 1.06 1 . 19 Nortbfurrigationlinprovad manual 0.81 1.16 1.06 1.11 1.24 Norduluplandltnditional manual 0.80 1.06 1.07 1.01 1.10 North/uplandlanimal traction 1.47 > 2 > 2 > 2 > 2 Mali/rice Officelirrigationlintenaiva 0.43 0.69 0.65 0.81 0.90 Offical'u'rigationlaami-imnaiva 0.55 0.83 0.81 0.97 1.09 Office/irrigationlnon—inanaivn 0.67 0.99 1 .15 1 .30 1 .30 Mopti/controlled flooding 1.13 1.52 1.46 1.75 1.98 Mopti/traditional flooding 1.33 1.69 1.63 1.89 > 2 Note: In this scenario, the economic value of land is assumed to be 50 percent of that assumed originally, while the opportunity cost of labor is assumed to 25 percent lower than that used in the base run. In addition, it is assumed that both countries undertook a 50 percent devaluation and that transport costs were halved in both countries. Moreover, the projected 2000 world price of sorghum and rice are assumed to be $155/ton and $389/ton, respectively. Source: Computed from Appendix B 279 PrqiectedWorldPrbaelm andlmprnvedMilling BafinaenCoflnn‘BbeDRC Com Farm Bamako Sikaaao Korhogo Born“ Abidjan C610 d'Ivoirelcotton ll Center/iammvad manual 0.25 0.28 0.32 North/improved animal traction 0.24 0.26 0.31 North/aemi-mechanined 0.53 0.41 0.44 Mali/afillet/aorghum South/improved animal traction 0.23 0.28 0.29 South/traditiornl annual 0.45 0.33 0.34 C610 d’lvoire/rice Foreatllowlanda/improved annual 0.54 0.78 0.74 Foreat/upland/traditional manual 0.58 0.79 0.74 Fonatluuplandliamroved manual 0.60 0.88 0.81 North/irrigationfuaprovad manual 0.61 0.87 0.80 0.83 Norduluuplandltraditional manual 0.71 1.05 1.06 0.99 North/uplandlaninnl traction 1 .04 1.52 1.51 1.41 Mali/rice Officel'uruigationlinenaive 0.40 0.64 0.61 0.75 Officel'a-rigationlaemi-intenaive 0.51 0.77 0.75 0.89 Offlce/irrigationlnon-inenaive 0.62 0.90 0.88 1.05 Mopti/contolled flooding 1.03 1.39 1.34 1.59 Mopti/traditional flooding 1.23 1.56 1.51 1.75 Note: 1/ For the Malian cotton, the border Mali-C610 d'lvoire ia the relevant market inatead of Korhogo 2lIntluia acenario,theopportuunitycoataoflandandlaborare aaaumedtobe50and25 percenlowerthanduoaeammed originally, and tranaport coata were half of their original valuea. In addition, it in aaauumed that a 50 percen devaluation took place, while the ginning ratioa improved to 50 percent and the milling ratioa for rice increaaed to 67 percent in both counriea. Furthermore, the projected 2000 world pricca for cotton and rice are aaauumed to be were $24W1on and $389/ton, respectively. Source: Computed from Appendix B 280 TableC5-16a. MertoILowerOppormnityCoataollnndandLabor,LowerTranaportCoata, Devalnatioa, Improved Ginning Ratios and on-Fann Viola, ad Projected World PrieeofOntpnn onCottonandMaiaeDRC Coeflicinuta Farm Bamako Sikaaao Korhogo Botuakd Abidjan C610 d'lvoire/cotton Center/iamroved manual 0.20 0.23 0.27 North/rammed animal 0.19 0.21 0.26 traction North/aemi-mechardzed 0.30 0.32 0.36 Mali/cotton South/iamrovod animal 0.18 0.24 0.25 0.25 traction Smith/rammed manual 0.22 0.27 0.28 0.28 C610 d’lvoire/ma’ma Wand-mechanized 0.25 0.37 0.33 0.36 0.44 Ccuuterl‘rnmmvod animal 0.43 0.54 0.46 0.54 0.51 0.66 traction Center/traditioml manual 0.55 0.66 0.57 0.65 0.63 0.77 Center/iamroved manual 0.60 0.73 0.62 0.72 0.69 0.87 Mali/maize Souuthlinmroved animal 0.38 0.56 0.47 0.56 0.66 0.91 traction Sandi/inmrovad manual 0.51 0.71 0.61 0.72 0.85 1.18 — — , Note: ll The border Mali—COte d’Ivoire is the relevant market for cotton produced in Mali instead of Korhogo. 2/ In scenario, the opportunity costs of land and labor are assumed to be 50 and 25 percent lower that those assumed originally, transport costs were half of their original values, and a 50 percent devaluation took place in both countries. Moreover, the ginning ratio in both countries are assumed to improve to 50 percent, and on-farm yields increased by 25 percent. Furthermore, the projected 2000 world prices of cotton and maize are assumed to be $2400/ton and $164/ton, respectively. Source: Computed from Appendix B 281 l _ TableCS-le. EfleaolLowerOppornnhyCoauoandandLabor,LoquruaponCm,Devahniu, lnuprovedMilling RatioaandOn-Farnu rm,andrrnjac1odw«idrrioanoromaa walla/domai— and Rice DRC Coefficiuuta Farm Bamako Sikaaao Korhogo nouau Abidjan C610 d'lvoiralmillet/aorgbuum North/traditional manual 0.45 0.62 0.56 0.53 0.67 > 2 North/animal traction 0.43 0.59 0.54 0.56 0.64 > 2 Mali/milledaorghum South/animal traction 0.23 0.46 0.37 0.44 0.53 0.74 South/traditional manual 0.36 0.53 0.45 0.53 0.61 0.32 C610 d’lvoire/rica mwmmad manual 0.42 0.63 0.60 0.66 0.74 Bonn/uplandltraditionalannual 0.46 0.66 0.62 0.68 0.75 Wield/improved inaniau 0.46 0.69 0.64 0.72 0.32 Nordul'n'rigationlinmroved annual 0.46 0.67 0.62 0.64 0.73 > 2 Northluplandltraditiounl manual 0.61 0.37 0.37 0.31 0.91 > 2 Norduluplandlanimaltraction 0.74 1.09 1.03 1.02 1.15 > 2 Mali/rice Office/irrigationlinenaive 0.32 0.54 0.51 0.64 0.70 0.99 Oficelirrigation/aamu-unenarve 0.40 0.63 0.62 0.74 0.32 1.13 ' Office/irrigation/non-rnemve 0.47 0.73 0.72 0.35 0.95 1.39 Mopti/condoned flooding 0.79 1.10 1.07 1.26 1.41 > 2 Mopti/traditional flooding 0.93 1.27 1.23 1.42 137 > 2 Note: In this scenario, the opportunity costs of land and labor are assumed to be 50 and 25 percent lower than those assumed originally, transport costs were half of their original values, a 50 percent devaluation took place, and the milling ratios improved to 67 percent in both countries. 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