Assessing Agricultural Policy for Targeted Reforms in Sub-Saharan Africa

Assessing how the policy of taxing agricultural export to boost government revenues while subsidizing food production to improve food security has affected the African agriculture is a requisite for investment and fiscal policy reforms. I estimate the substitution and endowment effects of the mix of government taxes and subsidies on the mix of agricultural commodities in selected Sub-Saharan African countries. The commodities are divided into cash commodity, importable food, and non-tradable food categories. Result show that changes in the ratio of taxes on any two commodity categories lead to commodity substitution but the cross-effects are asymmetric and counterintuitive. A higher tax on cash commodity relative to tax on importable food causes relatively more harms to the production of importable food than to the production of the cash commodity. More important, the endowment effects are found to be greater than these substitution effects, representing 60-to 70% of the policy effects on output levels. Sub-Saharan Africa s quest to reform its agriculture sector must thus consider that the relative level of assistance matters most. The priority before assisting any targeted subsector would be to increase the amount of investment resources for the whole sector; reshuffling resources without increasing them provokes unintended consequences. Acknowledgement