• TABLE OF CONTENTS
HIDE
 Front Cover
 Title Page
 Table of Contents
 List of Tables
 List of Illustrations
 Foreword
 Acknowledgement
 Summary
 Introduction
 Trends in world and African groundnut...
 Trends in world and African groundnut...
 External demand constraint, domestic...
 The groundnut demand outlook and...
 Conclusion
 Appendix
 Reference
 Back Matter
 Back Cover






Group Title: IFPRI research report ; 97
Title: Trade pessimism and regionalism in African countries : the case of groundnut exporters
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 Material Information
Title: Trade pessimism and regionalism in African countries : the case of groundnut exporters
Series Title: IFPRI research report ; 97
Physical Description: Book
Language: English
Creator: Badiane, Ousmane.
Kinteh, Sambouth
Publisher: International Food Policy Research Institute
Place of Publication: Washington, D. C.
Publication Date: 1994
Copyright Date: 1994
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Table of Contents
    Front Cover
        Front Cover 1
        Front Cover 2
    Title Page
        Page i
        Page ii
    Table of Contents
        Page iii
    List of Tables
        Page iv
        Page v
    List of Illustrations
        Page vi
    Foreword
        Page vii
    Acknowledgement
        Page viii
    Summary
        Page 1
        Page 2
    Introduction
        Page 3
        Page 4
        Page 5
        Page 6
        Page 7
        Page 8
    Trends in world and African groundnut council production of groundnuts and other oilseeds
        Page 9
        Page 10
        Page 11
        Page 12
        Page 13
    Trends in world and African groundnut council oilseed trade
        Page 14
        Page 15
        Page 16
        Page 17
        Page 18
        Page 19
        Page 20
    External demand constraint, domestic policies, and export performance
        Page 21
        Page 22
        Page 23
        Page 24
        Page 25
        Page 26
        Page 27
        Page 28
        Page 29
        Page 30
        Page 31
        Page 32
        Page 33
        Page 34
        Page 35
        Page 36
        Page 37
        Page 38
        Page 39
        Page 40
        Page 41
        Page 42
        Page 43
        Page 44
        Page 45
        Page 46
        Page 47
        Page 48
        Page 49
        Page 50
    The groundnut demand outlook and the potential role of regional markets
        Page 51
        Page 52
        Page 53
        Page 54
        Page 55
        Page 56
        Page 57
        Page 58
        Page 59
        Page 60
        Page 61
        Page 62
        Page 63
        Page 64
        Page 65
        Page 66
        Page 67
        Page 68
    Conclusion
        Page 69
        Page 70
        Page 71
    Appendix
        Page 72
        Page 73
        Page 74
        Page 75
        Page 76
        Page 77
    Reference
        Page 78
        Page 79
        Page 80
        Page 81
    Back Matter
        Page 82
    Back Cover
        Page 83
        Page 84
Full Text

RESEARCH REPORT


TRADE PESSIMISM
AND REGIONALISM
IN AFRICAN COUNTRIES:
THE CASE OF GROUNDNUT
EXPORTERS

Ousmane Badiane
Sambouh Kinteh


*INENTOA
FOO
POIC








IFPRI Research Reports
Publications Review Committee and Procedures

Christopher Delgado, Chairman
Ousmane Badiane Nurul Islam
Romeo Bautista Keijiro Otsuka
Lawrence Haddad Mark Rosegrant
Barbara Rose (ex officio)

All manuscripts submitted for publication as IFPRI Research Reports undergo extensive
review. Prior to submission to the Publications Review Committee, each manuscript is
circulated informally among the author's colleagues, presented in a formal seminar, and
reviewed by two IFPRI reviewers. Following submission of the manuscript to the Com-
mittee, three additional reviewers-at least two external to IFPRI and one from the
Committee-are selected to review the manuscript. Reviewers are chosen for their
expertise in the manuscript's subject matter and methodology and, when applicable, their
familiarity with the country setting. The Committee provides the author its reaction to the
reviewers' comments. After revising as necessary, the author resubmits the manuscript to
the Committee with a written response to the reviewers' and Committee's comments. The
Committee then makes its recommendation on publication of the manuscript to the
Director General of IFPRI. With the Director General's approval, the manuscript becomes
part of the IFPRI Research Report series.


IFPRI Board of Trustees


Gerry Helleiner
Chairman, Canada
Sjarifuddin Baharsjah
Indonesia


David E. Bell
U.S.A.
Henri Carsalade
France
Godfrey Gunatilleke
Sri Lanka
Ibrahim Saad Ahmed Hagrass
Egypt
Yujiro Hayami
Japan
Uwe Holtz
Federal Republic of Germany


James Charles Ingram
Australia

Nora Lustig
Mexico

Harris Mutio Mule
Kenya

I. G. Patel
India

Martin Pifieiro
Argentina

Abdoulaye Sawadogo
C6te d'Ivoire

Per Pinstrup-Andersen
Director General
Ex Officio, Denmark













TRADE PESSIMISM
AND REGIONALISM
IN AFRICAN COUNTRIES:
THE CASE OF GROUNDNUT
EXPORTERS


Ousmane Badiane
Sambouh Kinteh














Research Report 97
International Food Policy Research Institute
Washington, D.C.





















Copyright 1994 International Food Policy
Research Institute.
All rights reserved. Sections of this report may
be reproduced without the express permission of
but with acknowledgment to the International
Food Policy Research Institute.

Library of Congress Cataloging-
in-Publication Data
Badiane, Ousmane.
Trade pessimism and regionalism in African
countries : the case of groundnut exporters / by
Ousmane Badiane and Sambouh Kinteh.
p. cm. (Research report ; 97)
Includes bibliographical references and index.
ISBN 0-89629-100-6
1. Peanut industry-Africa. 2. Oil industries-
Africa. I. Kinteh, Sambouh. II. Title. III. Series:
Research report (International Food Policy Research
Institute); 97.
HD9235.P32A353 1994 94-7801
338.1'756596'096-dc20 CIP














CONTENTS



Foreword vii
1. Summary 1
2. Introduction 3
3. Trends in World and African Groundnut Council Production
of Groundnuts and Other Oilseeds 9
4. Trends in World and African Groundnut Council Oilseed
Trade 14
5. External Demand Constraint, Domestic Policies, and Export
Performance of African Groundnut Council Countries 21
6. The Groundnut Demand Outlook and the Potential Role of
Regional Markets 51
7. Conclusions 69
Appendix 1: Findings and Recommendations of a Joint Study by
the United Nations Economic Commission for Af-
rica and the Food and Agriculture Organization of
the United Nations 72
Appendix 2: Estimation of the Equilibrium Exchange Rate 74
Appendix 3: The Constant Market Share Model 76
References 78














TABLES



1. World and African production of 11 major oilseeds and
oleaginous fruits, 1961-88 9
2. Production, area, and yield of groundnuts in shell, by se-
lected regions and countries, 1961-88 11
3. Production of major oilseeds and oleaginous fruits other than
groundnuts in AGC countries, 1961-88 12
4. Production, area harvested, and yield, in shell, of African
groundnut production, selected countries, 1961-88 13
5. World exports of 10 major oilseeds and oleaginous fruit
products, 1961-87 14
6. World exports of groundnut products by regions and selected
countries, 1961-87 16
7. World imports of groundnut products by region and selected
countries, 1961-87 17
8. African and AGC exports of groundnuts and oil palm prod-
ucts, 1961-87 18
9. Imports of major oilseeds and oleaginous fruit products by
selected African countries 20
10. Groundnut oil trade and production performance, AGC
countries compared with selected regions and the world,
1961-65 and 1986-88 21
11. Decomposition of annual changes in the real value of
groundnut exports, 1961-87 26
12. Decomposition of the changes in real groundnut producer
prices, 1968-88 31
13. Direct effects of sector policies on real country groundnut
prices, The Gambia, Senegal, and Sudan, 1966-88 39
14. Ratios of producer prices and transfer costs to groundnut
export prices, The Gambia, Senegal, and Sudan, 1966-88 40
15. Exchange rate disequilibrium in The Gambia, Senegal, and
Sudan, 1966-88 42
16. Direct and aggregate effects of country policies on ground-
nut prices in The Gambia, Senegal, and Sudan, 1966-88 44


















17. Estimated average annual change in groundnut output as a
result of policies in AGC countries, 1967-88 48
18. Effects of domestic policies on groundnut exports, 1967-88 49
19. Estimated average annual change in aggregate groundnut
exports as a result of AGC country policies, 1967-88 50
20. World imports of major oilseeds and oleaginous fruit prod-
ucts, by region, 1961-87 52
21. Share of vegetable oils and fats in daily calorie intake, se-
lected countries, 1979-81 54
22. Trends in per capital consumption of major fats and oils,
selected countries, 1960-87 55
23. Projected groundnut imports by economic regions 56
24. Market share results for oilseed and oilfruit products, AGC
countries, 1962-87 58
25. Groundnut and palm oil imports and groundnut oil exports
by West African and other African countries, 1963-87 59
26. Estimates of demand parameters for regional oilseed imports 66
27. Estimates of demand parameters for groundnut imports from
AGC and non-AGC sources 66














ILLUSTRATIONS



1. Income terms of trade for groundnuts, The Gambia, 1961-87 4
2. Income terms of trade for groundnuts, Mali, 1961-87 4
3. Income terms of trade for groundnuts, Senegal, 1961-87 5
4. Income terms of trade for groundnuts, Sudan, 1961-87 5
5. World prices of groundnuts compared with soybeans and
palm, 1962-87 24
6. World prices of groundnuts compared with sunflower seed
and rapeseed, 1962-87 24
7. World exports of oilseeds, 1961-87 25
8. Non-AGC and AGC exports of groundnuts, 1961-87 25
9. Direct nominal protection of groundnuts in selected AGC
countries, 1966-88 38
10. Degree of divergence from the equilibrium exchange rate 42
11. Total nominal protection of groundnuts in The Gambia,
Senegal, and Sudan, 1966-88 43
12. Short-term divergence between actual and equilibrium levels
of groundnut output, 1967-88 46
13. Long-term divergence between actual and equilibrium levels
of groundnut output, 1967-88 47
14. Short-term divergence between actual and equilibrium levels
of groundnut export revenue, 1967-88 47
15. Long-term divergence between actual and equilibrium levels
of groundnut export revenues, 1967-88 48
16. Share of Africa in world imports of palm oil and groundnut
oil, 1963-87 60
17. Export share of selected AGC countries in groundnut oil,
1961-87 60
18. Changes in groundnut oil imports between 1963 and 1987 61
19. Changes in palm oil imports between 1963 and 1987 62













FOREWORD



Because of the importance of agricultural trade for sustained growth in the
agricultural sector and for poverty alleviation among African countries, research in
this area has been a key component of IFPRI's research program in that continent.
The present report by Ousmane Badiane of IFPRI and Sambouh Kinteh of the African
Groundnut Council, based in Lagos, Nigeria, is the outgrowth of a research network
on regional agricultural trade in West Africa initiated by IFPRI in 1989. It uses the
example of the groundnut sector to examine the relationship between the domestic
policy environment surrounding the agricultural sector and the performance of ex-
ports on traditional and regional export markets.
After long periods of strong performance in global markets, primary exports from
many African countries have declined rapidly since the 1970s. African policymakers
and analysts have reacted to this weakening performance with increasing pessimism
regarding the long-term contribution of traditional export markets. They are stressing,
instead, the importance of expanding trade in intra-African markets as an alternative
to traditional export markets.
In examining the pitfalls of export pessimism and the limits of regionalism in
trade by African countries, the report finds that African exporters have been more
vulnerable to changes in international markets than competing exporters largely
because domestic sectoral and macroeconomic policies have reduced their competi-
tiveness. Regional markets could indeed play a significant role in African oilseed
trade and market shares could be maintained or expanded, the report concludes, if
exporters were able to cut unit costs in production, processing, and trading.
This places domestic factors that shape the conditions for production and export
in African countries at the core of the problem. If African countries succeed in
eliminating the internal obstacles and disincentives facing their exporters, then there
will be less ground for pessimism. Alternatively, if African countries fail to ade-
quately address the role of domestic factors in the performance of their trading
sectors, they will be unlikely to take any real advantage of the proximity of regional
markets. This is an important lesson likely to be relevant not only for groundnuts in
West Africa but for efforts to expand regional agricultural trade more generally.

Per Pinstrup-Andersen
Director General












ACKNOWLEDGMENTS


The authors thank the Swiss Development Corporation for financial support. We
are also grateful to Jayashree Sil for her excellent research assistance.









1



SUMMARY

The contribution of groundnut production, processing, and trade to the develop-
ment of the African Groundnut Council (AGC) member economies during the first
decades after their independence has been vital. Until the mid-1970s, the groundnut
sector accounted for a large share of gross domestic product (GDP) and was the main
source of export revenue and rural employment in AGC countries (The Gambia, Mali,
Niger, Nigeria, Senegal, and Sudan). Between 1961 and 1965, 25 percent of the
world's groundnut production took place in AGC countries. During the same period,
AGC countries had a 62 percent share of world exports of groundnut oil. Although
the countries are still major exporters, when taken collectively, and groundnuts are
still a major sector in most of the member economies, their role in international
markets, and that of groundnuts in their economies, has changed dramatically since
the end of the 1970s. The changes in the groundnut sector are reflected in a rapid
decline of AGC-wide production and exports.
Adverse developments on international markets, such as falling global demand and
declining world market prices, are the most commonly cited reasons for the problems
plaguing the groundnut sector in AGC countries. The growing pessimism about the
long-term development of overseas export markets induced officials in member coun-
tries to adopt the Banjul Plan of Action for Groundnuts. The plan strongly emphasizes
the promotion of intra-African trade and the recapturing of regional import markets as
a component of the rehabilitation strategy for the groundnut sector.
This report investigates the concerns related to developments on international
markets, on the one hand, and the potential of regional markets to contribute to the
rehabilitation of the groundnut industry in AGC countries, on the other hand. The
sources of the decline of groundnut trade in AGC countries are analyzed using data
from The Gambia, Senegal, and Sudan-the member countries that have consistently
exported throughout the study period. Contrary to the argument of an external
demand constraint, the data reveal a much stronger contribution by domestic policies
than by changes on global markets to the export performance of individual member
countries.
Despite stable world demand for groundnut oil, AGC exports have fallen by more
than two-thirds since the late 1960s, while other developing Asian and South Ameri-
can exporters have nearly quadrupled their market shares. Furthermore, the results of
the decomposition of the changes in real export values indicate that changes on the
supply side have played the predominant role in the decline of AGC groundnut trade.
Domestic sector and macroeconomic policies in AGC countries have played a
particularly critical role in the decline of production and exports by AGC countries.
Their combined effect on national groundnut sectors has resulted in average annual
changes in AGC-wide groundnut production of -4 to -15 percent from the late 1960s
to the end of the 1980s. The induced average annual decline in total AGC groundnut
exports ranges from 17 to 40 percent, with the strongest decline during the 1970s.








The report also examines the potential of regional markets to contribute to AGC
groundnut exports by investigating, first, the extent to which member countries have
been able to take advantage of the geographic proximity of these markets and, second,
the main determinants of import demand for various vegetable oils at the regional
level. The results show that regional markets have hardly played a role in AGC
exports. The region's share in the exports of the AGC's largest exporting country,
Senegal, has been as low as 3 percent, although demand in these markets has
expanded at a rate two-and-a-half times higher than demand in world markets. AGC
exporters do not seem to have gained any real advantage from their proximity to
regional markets.
However, the analysis of the determinants of regional oilseed import demand
suggests that, even with stagnant demand, AGC exporters could increase both the
quantity and value of their exports to regional markets and raise their market share by
cutting the costs of production and distribution in order to contain competition from
non-AGC exporters. The hope expressed at the Banjul meeting that intensifying
regional trade in groundnut products would help solve the problem faced by AGC
exporters cannot be realized unless appropriate changes in domestic policies that
affect groundnut production and trade take place. AGC exports to the region and
elsewhere have suffered much more from domestic policies than from external
demand constraints.









2



INTRODUCTION

Background

From independence to the beginning of a major Sahelian drought in 1969, a central
feature of the overall development experience in the African Groundnut Council (AGC)
countries has been the overriding role played by the export-oriented groundnut sector in
these economies. The countries that are members of the AGC are The Gambia, Mali,
Niger, Nigeria, Senegal, and Sudan. Well before the countries became independent,
groundnut production, marketing, and trade served as major sources of employment,
income, and foreign exchange. The groundnut sector not only provided the basis for
agro-industrial development, but it contributed significantly to the commercialization,
monetization, and integration of the national rural sectors.
Although the contributions of groundnuts varied markedly among countries and
within any one country over time, the types of growth linkages they generated
between agriculture and nonagriculture and between the domestic economy and
external markets were extensive. Hence, the groundnut industry was the dominant
force affecting the pace, stability, and robustness of growth. The following examples
illustrate the importance of the groundnut sector to the economies of AGC countries.
Until the mid-1970s, the groundnut sector contributed 30-40 percent of the gross
domestic product (GDP) of The Gambia (UNECA/FAO 1985). Before the inception
of the Sahelian drought in the late 1960s, about 12 percent of the GDP in Niger
originated from the groundnut sector (Abdoulaye 1988). Similarly, 14 percent of
GDP in Senegal was produced in that sector during the period between the droughts
of 1970 and 1977 (UNECA/FAO 1985).
Before the mid-1970s, exports of groundnut products were a major source of
foreign exchange for AGC countries, accounting for 40-90 percent of export revenues
in all AGC member countries except Nigeria and Sudan, where the share of ground-
nuts in total export revenues in the late 1960s and early 1970s was close to 25 percent
(Agbola and Opadokun 1984; Drave and Dembele 1984; El Bashir and Idris 1983;
UNECA/FAO 1985; Issaka 1984).
The contribution to employment of the groundnut industry in these countries,
with its ramifications for social and political stability, was even more substantial.
Groundnut production is the main activity in The Gambia's agricultural sector. Until
recently, it provided employment for as much as 80 percent of the Gambian popula-
tion. In the late 1960s groundnut production employed about 30 percent of the rural
population of Niger. Before the early 1980s, groundnut production, processing, and
marketing provided employment for 70 percent of the active rural population in
Senegal and occupied about 50 percent of the total cultivated land annually
(UNECA/FAO 1985; Issaka 1984; Agbola and Opadokun 1984).
The contribution of the groundnut sector, particularly groundnut trade, to national
economies changed dramatically after the mid-1970s. Figures 1-4 show the evolution










Figure 1-Income terms of trade for groundnuts, The Gambia, 1961-87

Index
(1961=100)
250


200



150


100


50


0 I-i -- Ji1 11i i i -i i-
1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987


Source: Export revenue is from Food and Agriculture Organization of the United Nations, FAO Trade Yearbook
(Rome: FAO, various years).
Note: Groundnut export revenue is deflated by the world manufacturing unit value.



Figure 2-Income terms of trade for groundnuts, Mali, 1961-87

Index
(1961=100)
150


120 -



90



60-



30


0 I1 1 I I I I I I I
1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987

Source: Export revenue is from Food and Agriculture Organization of the United Nations, FAO Trade Yearbook
(Rome: FAO, various years).
Note: Groundnut export revenue is deflated by the world manufacturing unit value.










Figure 3-Income terms of trade for groundnuts, Senegal, 1961-87

Index
(1961=100)
150



120



90



60 -



30



0 1 .1 1.1.I .1.1.
1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987


Source: Export revenue is from Food and Agriculture Organization of the United Nations, FAO Trade Yearbook
(Rome: FAO, various years).
Note: Groundnut export revenue is deflated by the world manufacturing unit value.




Figure 4-Income terms of trade for groundnuts, Sudan, 1961-87

Index
(1961=100)
400



300




200 -



100



0
1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987

Source: Export revenue is from Food and Agriculture Organization of the United Nations, FAO Trade Yearbook
(Rome: FAO, various years).
Note: Groundnut export revenue is deflated by the world manufacturing unit value.









of groundnut export income terms of trade for several AGC countries, calculated as
groundnut export revenues deflated by the world manufacturing unit value (MUV).
After a period of relative stability during the 1960s, the income terms of trade fell
continuously over the next one-and-a-half decades. Toward the end of the 1980s the
real value of groundnut export revenues was about 50-80 percent lower than in the
1960s. The trends depicted in Figure 1 are similar across AGC countries; that is,
pessimism is strong about the long-term contribution of the external sector to growth
in the groundnut economy. The reasons are still the subject of a great deal of
speculation, however, not withstanding the tendency for national policymakers to
look to external factors for explanation.
The following excerpts from the introductory note to the Banjul meeting by the
AGC's executive secretary illustrate the prevailing pessimism.
The initiative of the Council of Ministers [to organize the Banjul meeting] was based on the
conviction that our European market for groundnut and its products was steadily shrinking, as
a result of the competition from other edible oils of various origins, including colza, soya, and
sunflower (AGC 1984, 1).
This symposium is being held at a critical period, when economic recession in major industrial
countries is adversely affecting the primary commodity exports of nonpetroleum developing
countries, just as it did in 1975. For this reason, some critical observers fear that the impact of
two opposing economic forces might bring about a fresh crisis on the world market and
consequently undermine at the international level the already fragile position of heavily
indebted developing countries (AGC 1984, 2).
Meanwhile, we should bear in mind the need to be self-reliant. Therefore, consideration should
be given to ways and means of intensifying intra-African trade in groundnut and groundnut
products, in spite of all obstacles that may stand in the way (AGC 1984, 3).

The recommendations arrived at in Banjul also reflect the concern about interna-
tional markets and the role of regional markets:

In addition, the possibility of expanding intra-African trade could be enhanced and, to this end,
the following steps should be taken:
i. The State Trading Organization of interested African countries should initiate regular
contacts to examine the possibility of increasing trade among them.
ii. The elimination and/or reduction of tariff and nontariff barriers in African countries should
be sought, and the existing sub-regional groupings such as ECOWAS [Economic Commu-
nity of West African States], CEAO [Communaut6 Economique de l'Afrique de l'Ouest],
and UDEAC [Union Douaniere et Economique de l'Afrique Centrale] are possible for
initiating discussion on these aspects.
iii. A comprehensive study should be undertaken to identify and survey potential import as
well as supply markets in Africa. In this context, specific points that should be examined
include methods of settlement of payment through bodies like the West African Clearing
House, transportation links, the possibility of expanding these markets through promotion
campaign.
The implementation of the recommendations concerning groundnut production and marketing
should be pursued vigorously, bearing in mind that the attainment of self-sufficiency in food
production and the expansion of intra-African trade are among the main priority objectives
from the economic development of Africa as embodied in the Lagos Plan of Action (AGC
1984, 442).'


'A less enthusiastic view of the potential role of intraregional trade can be found in UNECA/FAO 1985, 86.








Following the Banjul meeting, the Council requested that a first study be carried
out "on groundnut production, marketing, processing and trade situation in AGC-
member countries" by the United Nations Economic Commission for Africa
(UNECA). (See Appendix 1 for the terms of reference and recommendations.) That
study, completed in 1985, focused primarily on nonprice factors such as seed produc-
tion and accessibility (subsidy), fertilizer delivery, and processing (UNECA/FAO
1985). The report blames the decline of the groundnut sector in individual countries
on drought, disease, and extension policies.
Although the report offers a good overview of the problems, it does not carry the
analysis of price factors far enough, nor does it analyze the demand for groundnuts
and other oilseeds on regional markets. Moreover, low producer prices are seen as a
problem primarily in Niger and Mali. On the marketing side, the analysis centers
around the difficulties faced by state marketing boards in carrying out their procure-
ment and stabilization activities.
Regarding the issue of raising AGC groundnut exports to regional markets, the
report concludes with the following recommendation:

Intra-African trade in groundnut products has not been significant due, partly, to the existence
of tariff and nontariff barriers to groundnut trade in Africa. It is, therefore, recommended that
these barriers should be removed forthwith in order to promote intra-African trade in groundnut
products as well as in other oilseeds (UNECA/FAO 1985, 102).

In this report by the International Food Policy Research Institute, which was
carried out in collaboration with AGC's Executive Secretariat, stronger emphasis is
placed on the impact of price factors on the performance of member countries in the
production of and trade in groundnut products. Particular attention is given to the role
of groundnut pricing and marketing policies as well as to the overall economic
policies of individual countries that discourage groundnut production and trade,
including exports to regional markets. The determinants of regional demand for
groundnut and other oilseed imports are analyzed to identify the factors that deter-
mine the ability of AGC countries to raise exports to these markets and profit from
the expansion of demand in intra-African markets.


Objectives

Against this background, the study pursues two main objectives. First, to test the
validity of the frequently made argument that external demand stagnation is respon-
sible for the declining contribution of the groundnut sector to AGC member coun-
tries' economies. This is done by evaluating the role played by changes in foreign
demand and by internal factors, particularly those in the domestic groundnut sector
and macroeconomic policy environments.
Given the general emphasis of policy debates and of the Banjul conference on
intra-African trade, the second major objective of the study is to look into the
possibility of AGC countries taking advantage of import demand on regional markets
in their strategies to revitalize their groundnut export sectors.
Chapters 3 and 4 analyze the trends in production and trade of groundnuts and
other oilseeds in AGC countries and the world. The focus is on the changes in global
flows of groundnut products relative to other oilseeds and on the relative performance








of individual AGC exporters, compared with other groundnut exporting countries.
The world oilseeds economy has gone through tremendous changes since the 1960s.
One main feature of these changes is the surge of soybean and palm oil production in
Asia and South America and of rapeseed and sunflower seed production in the
European Community (EC). The other major change is the shift in the product forms
in which the various oilseeds are traded. Related to these two types of changes is the
emergence of new suppliers and the shift in the position of traditional exporters in
international markets. Disentangling the various influences emanating from these
changes is a necessary step toward understanding the development of the AGC
countries' trade performance.
In Chapter 5 an attempt is made to isolate the contributions of domestic and
external factors to the changes in each member country's export performance. The
main concern in this part of the study is to shed some light on the controversy
surrounding the external demand constraint argument. The critical importance of
country sectoral and macroeconomic policies in coping with developments on inter-
national markets and exploiting the potential for regional markets is also shown, an
element that does not always receive the attention it deserves. The emphasis on
domestic policies is necessary to show their role in the decline of the groundnut sector
and to tie the strategic debates on groundnuts back to the economic environment in
member countries.
The analysis in Chapter 6 turns to the long-term prospects of groundnut demand
on global and regional markets. First, the dynamics of the world demand for vegeta-
ble oils are debated in order to identify eventual future markets for AGC exporters.
The past history of regional markets and their potential as future outlets are investi-
gated, starting with a study of the extent to which AGC countries have taken
advantage of the geographic proximity of regional markets. The main determinants
driving vegetable oil import demand at the regional level are investigated. Finally,
conclusions drawn from the report are reported in Chapter 7.










3




TRENDS IN WORLD AND AFRICAN
GROUNDNUT COUNCIL PRODUCTION
OF GROUNDNUTS AND OTHER OILSEEDS


During the three decades from the 1960s through the 1980s, world production of
oilseed products was characterized by rapid technological change, which produced
dramatic shifts in the location of production and in the relative importance of
individual vegetable oils and fats (Table 1). During the period 1982-87 soybean
production was dominant, with an annual average output of 93 million metric tons,2
followed by coconut, cottonseed, groundnuts, sunflower seed, and palm oil, which
had production levels ranging from 7 to 38 million tons. The remaining oilseeds are
much less important, with production volumes of less than 5 million tons.
Looking at production growth rates, however, a different ranking emerges. Palm
oil, with an annual production growth rate of 8 percent during 1961-88, leads the
group, followed by soybean, sunflower seed, and palm kernel oil, with growth rates
between 4.0 and 5.5 percent.3 The most dramatic changes occurred in palm oil,


Table 1-World and African production of 11
fruits, 1961-88


major oilseeds and oleaginous


World Africa
1961-88 1961-88
1982-87 Annual 1982-87 Annual
Commodity Average Growth Rate Average Growth Rate
(million metric tons) (percent) (1,000 metric tons) (percent)
Groundnuts 20.08 1.31 4,151.71 -1.10
Soybeans 92.93 5.51 371.81 8.29
Coconuts 37.52 1.98 657.02 -0.89
Palm oil 7.35 7.82 208.59 1.79
Palm kernels 2.42 3.99 2,191.94 0.76
Castor beans 1.01 1.34 37.59 -2.57
Sunflower seed 18.17 4.04 452.84 7.61
Sesame seed 2.15 1.40 475.65 1.15
Cottonseed 30.30 1.93 1,812.35 1.40
Linseed 2.63 -1.33 63.37 -0.91
Copra 4.67 1.45 1,456.37 1.26

Source: Food and Agriculture Organization of the United Nations, FAO Production Yearbook (Rome: FAO, various
years).

2For the purpose of this report, all tons are metric tons.
3Palm oil, which comes from the pericarp of the palm tree, is a different product from palm kernel oil,
which comes from the kernel.








soybean, palm kernel, sunflower, and linseed production and, to a lesser extent, in
groundnut production. In the absence of information on acreage, and given the rapid
rate of technological change in palm oil and mounting population pressure on the land
during the 1970s and 1980s, it would be plausible to assume that the bulk of the
growth in palm oil production is more yield-driven than due to land expansion. Such
an assumption is supported by the difference in the relative growth rate of its joint
product, palm kernel. In fact, oil palm research has been primarily directed toward
higher oil content in the pericarp and smaller kernels.
The expansion of soybean production, on the other hand, derived from both area
expansion and productivity improvement, with area expansion accounting for 67
percent of the growth (Kinteh and Badiane 1990). The major dynamism driving area
expansion and yield increases in soybean production was the development of high-
yielding and early-flowering varieties, which made extension of growing area into
northern regions possible. Sunflower seed production was also propelled by rapid
biotechnological advances. The crop also experienced significant increases in area of
cultivation (Kinteh and Badiane 1990). In addition to the advances in technology,
sunflower production was greatly encouraged by strong price, production, and export
support systems, particularly in the European Community, as reflected by the escala-
tion of European Agricultural Guidance and Guarantee Fund expenditures for oil-
seeds during the 1980s.4
As one would expect, the change in oilseed production differs significantly across
the major producing regions. Virtually all of the expansion in global groundnut
production during the 1961-88 period originated from productivity improvements in
only three countries-China, India, and the United States (Table 2). Oceania also
shows an appreciable increase in area and productivity, but from a relatively low level
of production.
The share of Africa in world production fell from 25 percent in the 1960s to 21
percent during the 1982-87 period. Of the overall decline of production in Africa,
shrinking cultivated area accounted for about 51 percent, and decline in yields ac-
counted for 49 percent. The performance of African producers is in sharp contrast with
the performance in other major producing regions. China's production, for instance,
grew by an annual rate of 5.4 percent during 1961-88 and reached 26.5 percent of world
production in 1982-87. Both area and yield have expanded strongly in China. India
raised its production by 1.2 percent a year during 1961-88, reaching a 29.6 percent share
of global groundnut production in 1982-87, but virtually the entire increase in produc-
tion derived from yield improvement. Even though the United States' average share of
8.5 percent seems low compared with the shares of the other two major producing
countries, next to China, it has experienced the highest yield growth rate. Productivity
in the United States, however, is one-and-a-half to three-and-a-half times as high as in
China and India and nearly four times as high as in Africa.
Despite the deteriorating performance of groundnut production over the period,
groundnuts remain the most important source of vegetable oils and fats in Africa, as
shown in Table 1. The participation of African oilseed growers in the rapid structural
change that has characterized the global vegetable oils and fats sector has been low,

4European Community expenditures on oilseed programs increased from ECU 0.2 billion in 1976 to
nearly ECU 4 billion in 1987 (Andies 1987).









Table 2-Production, area, and yield of groundnuts in shell, by selected regions
and countries, 1961-88

Production Area Yield
1982-87 1961-88 1961-88
1982-87 Average 1982-87 Annual 1982-87 Annual
Region Average Share Average Growth Rate Average Growth Rate
(million metric (percent) (million (percent) (metric tons/ (percent)
tons) hectares) hectare)
World 20.08 100.00 18.64 0.13 1.08 1.18
Africa 4.15 20.68 5.79 -0.56 0.72 -0.54
North and Central
America 1.90 9.45 0.77 0.41 2.47 2.17
United States 1.71 8.50 0.59 0.27 2.90 2.59
South America 0.70 3.46 0.42 -3.26 1.65 1.41
Brazil 0.27 1.33 0.18 -5.56 1.47 0.75
Asia 13.26 66.05 11.61 0.71 1.14 1.84
India 5.94 29.60 7.15 0.06 0.83 1.10
China 5.32 26.49 2.87 2.47 1.87 2.91
Europe 0.02 0.11 0.01 -0.84 2.11 0.50
Oceania 0.04 0.22 0.03 2.37 1.36 3.47

Source: Food and Agriculture Organization of the United Nations, FAO Production Yearbook (Rome: FAO, various years).
Note: Numbers may not add to totals due to rounding.


despite some successes in the development of other competing crops. Soybeans and
sunflower seeds, with production levels around 409,000 tons in Africa, are far less
important than groundnuts and cottonseed, but their production growth rates are
well-above global averages. For cotton, the prospects in the fiber market, the compre-
hensive (in some cases French-supported) institutional arrangements, and the rela-
tively drought-tolerant character of the crop are likely to give cotton a competitive
edge over groundnuts in many African countries. Palm oil production has also
performed better than groundnuts. Given the expected rapid rate of adoption of
existing technologies in oil palm production, competition from both palm and kernel
oils is also likely to intensify, at least in the medium term.
Tables 3 and 4 summarize the evolution of production of groundnuts and other
oilseeds in individual AGC countries since 1961. Cottonseed production grew rapidly
in Mali and Senegal with average outputs in 1982-87 of 122,000 and 20,500 metric
tons, respectively, and impressive annual growth rates of 11 and 18 percent (Table 3).
Sesame seed production has taken off in Niger, Nigeria, and Sudan. And, even though
levels are still insignificant, palm oil production has grown relatively fast in Senegal.
In terms of AGC shares in total African production, sesame seed, palm oil, and palm
kernels are the most important crops, with shares of approximately 50 percent.
Groundnut production in Africa averaged about 4 million tons in 1982-87 (Table
4). Since 1961, production has declined steadily at an annual rate of 1.1 percent.
Except for Sudan, the relative growth rate of groundnut production in all AGC
countries is negative, as it is for Africa as a whole, reflecting a steep decline in
cultivated area and to a lesser extent in yields.
The situation in the West Africa subregion is generally worse than the overall
African picture. Production in exporting West African countries and Sudan averaged
about 2.4 million tons per year during 1982-87, slightly below 60 percent of total









Table 3-Production of major oilseeds and oleaginous fruits other than ground-
nuts in AGC countries, 1961-88

Production
1982-87 1961-88
Average 1982-87 Annual
Country Commodity Share of Africa Average Growth Rate
(percent) (1,000 metric tons) (percent)
The Gambia Palm kernels 0.30 2.00 0.14
Cottonseeda 0.05 1.12 1.79
Mali Cottonseed 5.57 122.00 11.16
Niger Sesame seedb 0.04 0.20 7.15
Cottonseed 0.09 2.03 -3.07
Nigeria Soybeans 15.38 57.17 -0.14
Sesame seed 15.77 75.00 1.36
Coconuts 5.45 98.83 0.73
Copra 5.64 11.77 1.13
Palm kernels 50.46 331.50 -0.58
Palm oil 50.58 736.67 0.70
Cottonseed 2.64 49.63 -3.16
Senegal Soybeansc 0.05 0.17
Coconuts 0.25 4.53 -0.82
Palm kernels 0.86 5.63 -0.03
Palm oil 0.41 6.00 2.02
Cottonseed 0.94 20.50 17.59
Sudan Castor bean 13.88 5.22 -3.05
Sunflower seeded 2.25 10.17
Sesame seed 37.81 179.83 0.23
Cottonseed 15.37 337.00 -0.15

Source: Food and Agriculture Organization of the United Nations, FAO Production Yearbook (Rome: FAO, various years).
Note: AGC is African Groundnut Council.
a1977-87
b1971-87
c1983, 1984
1986, 1987


African production for the period. However, since 1961, the production of West
African exporters including Sudan, has been declining at an annual rate of 2 percent.5
Production of the six non-AGC West African exporters grew by 2.1 percent annually
during 1961-88, contrasting sharply with a growth rate of -2.6 percent per year in
AGC countries. With the exception of Guinea-Bissau, production expanded in all
non-AGC countries, led by C6te d'Ivoire.
In summary, major trends in global and AGC oilseed production include (1)
significant shifts in the geographical distribution and commodity-mix of oilseed
production; (2) strong productivity gains in groundnut production in North and
Central American and Asian countries; (3) a decline in the share of groundnuts in
global oilseed production and a fall in the AGC countries' share in African and world
groundnut production; and (4) a faster increase in the production of nongroundnut
oilseeds than in groundnuts in AGC member countries.


5Although Sudan is not a West African country, it is a member of AGC, and data for Sudan are often
included with the West African countries.











Table 4-Production, area harvested, and yield, in shell, of African groundnut
production, selected countries, 1961-88

Production Area Yield
1982-87 1961-88 1961-88
Average Annual Annual
1982-87 Share of 1982-87 Growth 1982-87 Growth
Country Average Africa Average Rate Average Rate

(1,000 (percent) (1,000 (percent) (metric tons/ (percent)
metric tons) hectares) hectare)


Total Africa 4,151.71 100.00 5,788.56 -0.56
AGC countries
The Gambia 112.73 2.72 86.25 -0.51
Mali 86.01 2.07 109.27 -1.70
Niger 57.71 1.39 144.31 -4.40
Nigeria 608.00 14.64 698.00 -5.05
Senegal 743.95 17.92 897.72 -0.82
Sudan 394.33 9.50 652.71 3.93
Total AGC countries 2,002.73 48.24 2,588.26 -1.92
West African exporters
Benin 51.45 1.24 79.12 0.31
Guinea 74.45 1.79 129.20 0.83
Guinea-Bissau 28.83 0.69 68.32 -1.86
Burkina Faso 109.52 2.64 177.34 1.98
C6te d'Ivoire 101.33 2.44 107.67 3.48
Togo 25.76 0.62 51.11 1.63
Total non-AGC West
African exporters 391.35 9.43 612.76 1.13
Total AGC and non-AGC
West African exporters 2,394.08 57.67 3,201.02 -1.47


0.718 -0.54


1.308
0.805
0.409
0.865
0.854
0.614
0.779

0.640
0.575
0.448
0.611
0.940
0.496

0.636

0.751


-0.28
0.86
-2.37
-0.48
-0.41
-1.85
-0.64

2.58
-0.47
-0.59
0.66
2.70
0.44

0.97

-0.59


Source: Food and Agriculture Organization of tie United Nations, FAO Production Yearbook (Rome: FAO, various years).
Note: AGC is African Groundnut Council.









4




TRENDS IN WORLD AND AFRICAN
GROUNDNUT COUNCIL OILSEED TRADE


Three major events have shaped the evolution of international trade in oilseeds
products since the mid-1970s. These include the emergence of the European Commu-
nity as a significant oilseed producer, increased productive capacity for palm oil in
Indonesia and Malaysia, and expanded soybean plantings in South America. All of
these events have increased competition on international markets and changed the
commodity mix of traded oilseeds. The structure and evolution of world exports of
major oilseed products in Table 5 indicate important shifts in the composition of
exports. Soybeans, sunflower seeds, and palm oil have achieved tremendous in-
creases in export volumes in all product categories. In contrast, trade volumes of
groundnut seeds and cake fell sharply and nearly stagnated for oil.
At the individual commodity level, there has been a general tendency to export
less seed and fruit and more oil and cake. These emerging changes in the product mix
of exports have strong implications for the long-term competitiveness of individual
exporters. The burden of competition is progressively shifting from production at the
farm level to the processing industries. This evolution will inevitably affect the
weight of different oilseeds and, of individual exporters on world markets.
The range of groundnut products-in shell or shelled or as oil and cake-broadly
reflects different stages of processing. Groundnut oil and its by-product, cake, are the

Table 5-World exports of 10 major oilseeds and oleaginous fruit products,
1961-87
1982-87 Average 1961-87 Annual Average Growth Rate
Commodity Seed Oil Cake Seed Oil Cake
(1,000 metric tons) (percent)
Groundnuts 80.37a 389.00 631.84 -1.45 -0.05 -3.94
Soybeans 27,206.79 3,594.44 22,012.87 7.92 9.53 12.04
Coconuts 100.16b 1,324.46 1,059.06 4.96 5.74 4.51
Palm oil n.a. 4,889.33 n.a. n.a. 10.65 n.a.
Palm kernels 118.81 579.32 843.32 -7.80 8.85 6.30
Castor beans 118.21 166.91 n.a. -1.29 1.18 n.a.
Sunflower seed 1,979.04 1,750.42 1,493.86 10.28 7.09 3.65
Sesame seed 318.73 8.37 59.23 2.53 8.23 0.90
Cottonseed 228.03 361.76 784.43 -3.70 2.26 -1.49
Linseed 676.33 262.93 632.49 0.33 0.24 0.39

Source: Food and Agriculture Organization of the United Nations, FAO Trade Yearbook (Rome: FAO, various years).
Note: n.a. indicates that data were not available.
aApplies to groundnuts in shell. Shelled groundnuts averaged 762,000 tons and fell at a rate of 2.85 percent annually.
bApplies to exports of nuts only. Exports of desiccated nuts and copra amounted to 157,000 and 352,000 tons,
respectively, with annual growth rates of 1.25 and 6.67 percent.








main groundnut products that are traded; they had a combined export volume of more
than 1 million metric tons in 1982-87 (Table 6). Exports of the other two product
categories amounted to 761,000 tons for shelled groundnuts and 80,000 tons for
groundnuts in shell. The four last columns of Table 6 show that exports of groundnuts
in shell and groundnut cake declined for many exporters between 1961 and 1987,
probably reflecting the expansion of processing activities and of the livestock sectors
in these countries.
The regional export shares vary enormously among regions and products, reflect-
ing, in part, the degree of consumption within the region itself, the extent to which
some exporters are dependent on groundnut processing, the type of export market
being catered to, and the desire on the part of exporters to increase the value-added of
their exports. The evolution of product-specific shares is also affected by domestic
agricultural and trade policies in both exporting and importing countries.
North and Central America account for two-fifths of world exports of in-shell
groundnuts, and Asia accounts for two-fifths of shelled groundnuts. Despite the
decline in production and exports, Africa still represents the largest groundnut oil-ex-
porting region, with a combined share well above one-third of global exports.
Groundnut cake exports originate mainly from Asian and African exporters, the
former accounting for nearly half of world exports.
Export growth performance during the study period varied significantly across
regions. Whereas African exports in all product categories declined by rates ranging
from 3 percent for oil to nearly 12 percent for shelled groundnuts, South American
exporters achieved significant increases in all their exports except groundnut cake.
Shelled groundnut exports from North and Central America and Asia rose about 10
percent a year, in contrast with sharp decreases in Asian exports of groundnuts in
shell and cake.
On the import side, Europe was the largest importer in all categories, even though
European demand for cake and shelled groundnuts has fallen (Table 7). European
imports of groundnuts in shell have risen moderately, while demand for oil has almost
stagnated. Although still relatively low, demand for groundnuts in shell has expanded
most rapidly in South American markets. Demand for groundnut oil is quite strong in
Asia, with the bulk of incremental demand stemming from Japan. Import demand
growth rates have, however, been fairly low in almost all regions, except for a few
countries such as Italy and to a lesser extent Japan. The slowing of demand in the
traditional importing countries of Europe suggests that AGC exports will probably
face much tighter competition in the future.


Evolution of the Oilseed Trade in African Countries

Groundnuts and oil palm are by far the most important oilseeds grown and
exported by African countries. Soy and sunflower products also play a large role in
oilseed imports, and their demand expanded rapidly during the period. This section
focuses on these four products.
Although the position of African exporters on international markets is still strong
for groundnut oil and palm kernels, it is declining (Table 8). During 1982-87, 36
percent of the nearly half a million tons of world groundnut oil exports originated in
Africa, as did virtually all palm kernel exports (Table 6). The trend is falling in all








Table 6- World exports of groundnut products by regions and selected countries, 1961-87

Average Exports, 1982-87
In Shell Shelled Oil Cake Annual Growth Rate, 1961-87
Region/Country Quantity Share Quantity Share Quantity Share Quantity Share In Shell Shelled Oil Cake
(1,000 tons) (percent) (1,000 tons) (percent) (1,000 tons) (percent) (1,000 tons) (percent) (percent)
World 80.37 100.00 761.73 100.00 389.00 100.00 631.84 100.00 -1.45 -2.85 -0.05 -3.94
Africa 5.48 6.82 102.30 13.43 141.71 36.43 221.32 35.03 -11.14 -11.74 -3.14 -3.18
North and Central
America 33.06 41.13 227.79 29.90 12.28 3.16 18.10 2.87 8.28 10.34 4.85 15.31a
United States 31.51 39.20 22.75 29.87 12.28 3.16 18.10 2.87 23.05 11.32 4.86 2.21b
South America 16.21 20.17 97.89 12.85 88.87 22.85 59.31 9.39 23.40C 12.73 5.60 -5.91
Brazil 12.00 14.93 1.67 0.22 48.14 12.37 26.99 4.27 -2.73d -6.50 3.69e -6.54
Asia 21.96 27.33 304.37 39.36 78.66 20.22 311.05 49.23 -2.84 8.38 2.02 -4.02
India 0.94' 1.17 26.60 3.49 ... 254.34 40.25 -2.179 -14.16h -4.03
China 0.001' 0.001 184.43 24.21 64.82 16.66 44.01 6.97 1.21l 13.99 7.54 85.25'
Europe 3.36 4.19 25.50 3.35 67.11 17.25 22.06 3.49 1.46 3.51 2.88 -6.29
Oceania 0.29 0.37 3.87 0.51 ... ... 0.38 0.10 -43.99' 26.75 ... 11.00"

Source: Food and Agriculture Organization of the United Nations, FAO Trade Yearbook (Rome: FAO, various years).
a1975-87; 1976-87; c1969-87; d1974-87; e1969-87; f1982-84; 1961-77; h1961-79; i1986; 1963-74; k1980-87; 11981-87 and growth rate of -28.80 for 1961-79; m1979-87.









Table 7- World imports of groundnut products by region and selected countries,
1961-87

Average Imports, 1982-87 Annual Growth Rate, 1961-87
Region/Country In Shell Shelled Oil Cake In Shell Shelled Oil Cake
(1,000 metric tons) (percent)
Africa 0.60 26.77 21.80 4.40 -10.35 1.98 1.35 -3.65
North and Central America 7.05 71.64 6.40 ... 9.56 2.02 -1.74 8.62a
South America 9.30 2.37 0.27 ... 10.64 7.75 -12.57
Asia 20.87 188.13 48.56 67.00 0.85 4.74 1.97 1.29
Japan ... 55.75 0.22 ... ... 7.51 2.16b -13.85c
Europe 67.23 391.35 308.37 544.57 0.89 -5.31 0.06 -4.46
France 5.99 54.84 153.03 50.02 -0.99 -10.09 0.79 -4.86
Germany 13.20 56.21 22.06 70.89 3.99 -0.97 -2.80 -4.91
Italy 19.50 15.86 35.72 22.10 5.27 -10.02 21.94 12.15
United Kingdom 5.02 90.33 12.17 1.71 0.77 -1.77 -8.39 -24.51
U.S.S.R. ... 56.86 ... 8.67d ... 3.69 ... 2.55e
Oceania 0.11 9.66 1.95 ... -4.54 2.83 -8.41

Source: Food and Agriculture Organization of the United Nations, FAO Trade Yearbook (Rome: FAO, various years).
a1961-73; b1969-87; c1961-79; 1982, 1983, 1985; e1961-75.




product categories except palm kernel cake. AGC shares in African exports of
groundnut and oil palm products have been substantial, ranging from 45 to more than
90 percent for groundnut products and from 17 to 70 percent for palm kernel
products. The largest AGC exporters are Nigeria (for all palm kernel products),
Senegal (for groundnut oil and cake), and Sudan (for nonprocessed groundnuts).
AGC and African exports of nonprocessed oilseeds and fruits have also declined
for all products, except during the 1960s and early 1970s for shelled groundnuts in
Niger and unshelled groundnuts and palm kernel cake in Senegal. The decline in
groundnut oil exports was particularly sharp in Nigeria. The only country with a
strong positive export growth rate for that product category was Mali, which started
from very low levels. The rapid expansion of palm kernel cake and oil exports by the
AGC countries is notable, compared with the 3-4 percent decline for groundnut oil
and cake exports.
Except for soybeans, African imports of oilseed products consist mainly of oil
(Table 9). In 1982-87, the main vegetable oil imported by African countries was
soybean oil, followed by sunflower seed oil and palm oil. At slightly more than 1
percent annually, groundnut oil imports were relatively small and primarily directed
to West African countries. Oil imports to African countries, excluding groundnut oil,
expanded rapidly throughout the study period, with growth rates ranging from 9 to 18
percent. For the three main West African importers, however, the growth rate for
groundnut oil imports exceeded 10 percent.
Nigeria is by far the largest importer of vegetable oils among the three main West
African importers, accounting for well over 90 percent of groundnut, soybean, and
palm oil imports to the subregion. Moreover, about 40 percent of total African
imports of groundnut and palm oil go to that country. While Nigeria still shows a
strong preference for groundnut oil, demand has shifted to soybean and palm oil.










Table 8- African and AGC exports of groundnuts and oil palm products, 1961-87

Average Exports Annual Growth Rate
Share of of Exports
African Data Data
Country/Commodity Quantity Exports Period Percent Period

(1,000 metric tons) (percent)


Africa
Groundnuts
In shell
Shelled
Oil
Cake
Palm
Kernels
Kernel oil
Kernel cake
Palm oil
The Gambia
Groundnuts
Shelled
Oil
Cake
Palm
Kernels

Mali
Groundnuts
Shelled
Oil
Cake
Niger
Groundnuts
In shell
Shelled
Oil
Cake
Nigeria
Groundnuts
Shelled

Oila
Cake
Palm
Kernels
Kernel oil
Kemel cake
Palm oil
Senegal
Groundnuts
In shell
Shelled
Oil
Cake
Palm
Kernels
Kernel oil
Kernel cake
Palm oil


5.48
102.30
141.71
221.32

86.53
56.20
92.67
103.33


25.94
7.79
10.68

0.10



1.78
1.63
6.11


0.06
0.14
0.02
0.83


1.05

n.a.
0.40

56.47
17.45
38.23
2.01


0.06
7.60
111.16
134.98

1.10
0.006
1.61
0.004


100.00
100.00
100.00
100.00

100.00
100.00
100.00
100.00


25.35
5.50
4.83

0.12



1.74
1.15
2.76


0.36
0.14
0.02
0.38


1982-87
1982-87
1982-87
1982-87

1982-87
1982-87
1982-87
1982-87


1982-87
1982-87
1982-87

1982,
1984,1985


1982-87
1982-87
1982-87


1983,1984
1982-84
1983
1982-87


1.03 1982,
1983,1986
n.a. n.a.
0.18 1983


65.26
31.05
41.26
1.95


1.21
7.42
78.44
60.99

2.27
0.01
1.74
0.004


1982-87
1982-87
1982-87
1982,1986


1982,1984
1982-87
1982-87
1982-87

1985
1983,1984
1982-86
1982-84


-11.14
-11.74
-3.14
-3.18

-8.67
-0.11
2.50
-4.94


-2.80
0.42
2.30

-6.73



-15.00
11.85
7.23


n.a.
0.65
-4.50
-9.93


-15.42

-14.76
-13.02

-8.45
7.06
11.86
-34.90


15.01
-20.30
-2.10
-2.41

0.40
n.a.
16.84
-29.29


1961-87
1961-87
1961-87
1961-87

1961-87
1961-87
1961-87
1961-87


1961-87
1961-87
1961-87

1961-82



1961-87
1966-87
1961-87


n.a.
1961-73
1961-79
1961-87


1961-74

1961-75
1961-77

1961-87
1962-87
1961-87
1961-76


1966-78
1961-87
1961-87
1961-87

1961-71
n.a.
1963-73
1982-84
containedd)









Table 8-Continued

Average Exports Annual Growth Rate
Share of of Exports
Share of
African Data Data
Country/Commodity Quantity Exports Period Percent Period
(1,000 metric tons) (percent)
Sudan
Groundnuts
In shell 7.14 n.a. 1983 -0.42 1961-81
Shelled 24.13 23.59 1982-87 -8.93 1961-87
Oil 7.40 5.22 1982-87 -0.17 1973-87
Cake 56.78 25.65 1982-87 3.40 1961-87
AGC countries
Groundnuts
In shell 2.46 44.95 1982-84 -9.33 1961-84
Shelled 60.04 58.69 1982-87 -14.34 1961-87
Oil 127.98 90.31 1982-87 -3.60 1961-87
Cake 209.44 94.63 1982-87 -2.89 1961-87
Palm
Kernels 56.71 65.53 1982-87 -8.51 1961-87
Kernel oil 17.46 16.89 1982-87 7.06 1962-87
Kernel cake 39.58 70.42 1982-87 11.72 1961-87
Palm oil 1.01 1.09 1982-84 -34.86 1961-76

Source: Food and Agriculture Organization of the United Nations, FAO Trade Yearbook (Rome: FAO, various years).
Notse: n.a. indicates that data were not available. AGC is African Groundnut Council.
aNigeria did not export during the second half of the 1980s, the period for which export shares are computed.


In summary, the following major changes have occurred in global and AGC
oilseed trade:

(1) increased competition on world groundnut markets by South American and
Asian exporters;

(2) rapid expansion of soybean, sunflower, and palm oil production in the EC and
Asian countries, mainly Indonesia and Malaysia, which has put international
oil and cake markets under increased pressure;

(3) shift of demand for oilseeds in the traditionally largest groundnut-importing
European countries toward competing products;

(4) strong expansion of vegetable oil demand in African countries, associated
with a rapid increase in demand for groundnut oil in West Africa;

(5) an emerging shift of regional demand in West Africa toward palm and
soybean oil;

(6) decline in exports of unprocessed groundnuts in all AGC countries; increases
in groundnut oil exports from a low level in Mali and to a lesser extent in The
Gambia; and

(7) increases in palm kernel products in the exports of AGC member countries.










Table 9-Imports of major oilseeds and oleaginous fruit products by selected
African countries

Average Imports Annual Growth Rate
Share of of Imports
African Data Data
Country/Commodity Quantity Imports Period Percent Period

(1,000 metric tons) (percent)


Africa
Soybeans
Beans
Oil
Cake
Groundnuts
In shell
Shelled
Oil
Cake
Palm
Kernels

Kernel oil
Palm oil
Sunflower
Seeds
Oil
Cake

Ghana
Soybean oil
Groundnut oil
Palm oil
C6te d'lvoire
Soybean oil
Groundnuts
Oil
Cake
Nigeria
Soybeans
Oil
Cake
Groundnut oil
Palm oil
Total of three countries
Soybeans
Oil
Cake
Groundnuts
Oil
Cake

Palm oil


55.30
388.86
692.50

0.60
26.77
21.80
4.40

0.02

42.58
351.62

22.45
355.42
4.50


3.27
0.10
4.30

0.58

0.12
0.42


23.03
17.50
9.10
136.83


26.89
17.50

9.25
0.42

141.13


100.00
100.00
100.00

100.00
100.00
100.00
100.00

100.00

100.00
100.00

100.00
100.00
100.00


0.84
0.47
1.22

0.15

0.55
9.59


5.92
2.53
41.72
38.92


6.92
2.52

42.42
9.59

40.14


1982-87
1982-87
1982-87

1982-87
1982-87
1982-87
1982-87

1982,1983,
1986,1987
1982-87
1982-87

1982-87
1982-87
1982,
1985-87

1982-87
1982, 1983
1982-87

1982-87

1982-87
1974-83


1982-87
1982-87
1982-87
1982-87


1982-87
1982-87

1982-87
1982, 1983
1985
1982-87


13.56
8.64
37.22

-10.35
1.98
1.35
-3.65

-18.48

12.56
18.15

21.35
12.17
10.24
-6.82

10.68
-3.13
13.61

-4.10

-13.97
-19.74


-2.05
-0.32
35.49
50.89


18.84
0.32

10.21
13.88
-19.74
35.32


1961-87
1961-87
1961-87

1961-87
1961-87
1961-87
1961-87

1961-75

1961-87
1961-87

1961-87
1961-87
1978-82
1968-72

1961-87
1961-83
1961-87

1971-87

1964-87
1974-83


1975-87
1978-87
1963-87
1977-87


1961-87
1978-87

1961-87
1966-72
1974-83
1961-87


Source: Food and Agriculture Organization of the United Nations, FAO Trade Yearbook (Rome: FAO, various years).









5




EXTERNAL DEMAND CONSTRAINT, DOMESTIC
POLICIES, AND EXPORT PERFORMANCE OF
AFRICAN GROUNDNUT COUNCIL COUNTRIES

Production and Trade Performance

African countries, mainly AGC members, produce as much as 20 percent of the
world groundnut supply and are still major players in international markets, despite
the significant changes that occurred in the world oilseed economy between the 1960s
and the late 1980s (Table 10). The picture is much less impressive, however, if one
looks at the long-term changes in the groundnut economy of the AGC countries.
As shown earlier in Table 8, groundnut oil exports from member countries fell on
average by nearly 4 percent annually between the early 1960s and the late 1980s. The
growth rates of the two largest exporters, Nigeria and Senegal, were -15 and -2
percent, respectively. Nigeria turned from being the largest exporter among the AGC
countries, with a share of 26 percent in world exports, to a net importer in the 1980s.
At the same time, competitors from Asia and South America were able to boost their
exports by nearly 400 percent, raising their combined share from slightly over 10
percent in 1961-65 to 50 percent of world exports of groundnut products in 1986-88.
As a result, the AGC's export share fell from 62 percent to 20 percent.

Table 10- Groundnut oil trade and production performance, AGC countries
compared with selected regions and the world, 1961-65 and 1986-88
Share of World
Production Yield Production Exportsa
Growth Growth
Country Rate Rate 1961-65 1986-88 1961-65 1986-88
(percent) (percent)
AGC countries -2.61 -0.32 23 10 62 20
The Gambia -0.71 -0.19 1 1 2 2
Mali -2.21 0.05 1 0 2 1
Niger -7.03 -2.56 1 0 4 0
Nigeria -5.47 0.36 12 3 26 0
Senegal -1.14 -0.20 6 4 23 14
Sudan 2.02 -1.71 2 2 5 3
South America -1.85 1.43 7 3 5 18
Asia 2.46 1.78 51 67 8 32
World 1.24 1.19 100 100 100 100

Source: Food and Agriculture Organization of the United Nations, FAO Production Yearbook (Rome: FAO, various
years); Food and Agriculture Organization of the United Nations, FAO Trade Yearbook (Rome: FAO,
various years).
Note: AGC is African Groundnut Council.
aGroundnut exports are in oil equivalents.








The fall in groundnut exports is paralleled by a marked decrease in groundnut
production in all AGC countries, except Sudan, as can be seen in the first two columns
of Table 10. The decline was substantial in Niger (-7 percent) and Nigeria (-5 percent).
Aggregate production in the AGC countries as a whole decreased at an annual rate of
2.6 percent, compared with a growth rate of 1.2 percent for the world and 2.5 percent
for Asia. The poor performance of the AGC countries is also reflected in groundnut
yields, which increased in both Asia and South America, but fell in AGC countries by
0.3 percent a year compared with a world average growth rate of 1.2 percent. With the
exception of Sudan, AGC countries have also experienced a rapid decrease in cultivated
area, indicating a deterioration of incentives to farmers to keep investment in the
groundnut sector. Consequently, the share of AGC countries in world groundnut
production fell from 24 percent in 1961-65 to only 10 percent in 1982-87. The sharpest
decrease in production occurred in Nigeria, whose share fell from 12 to 3 percent.
These dramatic changes in AGC exports and production took place despite the
relative stability of world demand for groundnut products during the period. The
overall decline in world demand for groundnut oil from 1961 to 1987 only averaged
0.05 percent a year (see Table 6). This, together with the impressive expansion of
Asian and South American trade shares, sharply contradicts the argument of external
demand constraint.
Therefore, an attempt is made next to isolate the contributions to AGC's trade
decline by comparing the effects of changes in export market conditions with the
effects of internal factors, such as macroeconomic policies and trade strategies in
member countries. First, a simple model decomposing the changes in the real value
of groundnut exports, the income terms of trade shown in Figures 1-4, is calculated.
The decomposition highlights the relative contribution of changes in the external
terms of trade and of changes in domestic supply for export markets. Then a model
estimating the impact of policies on prices and incentives within and outside the
groundnut sector is used to show the role of domestic policies in the decline of
groundnut production and trade in AGC countries.
For each member country and the group of AGC countries, the index of the real
value of groundnut exports in the base period tO and any subsequent year tn can be
expressed as6
Gx,tO = Pr, Qx,tO, (1)

Gx,,,= eargto ePtQx,,o (2)

where Gx,o is the index of the value of groundnut exports deflated by the prices of
country imports; Prto stands for the terms of trade, defined as the ratio in tO between
the unit values of groundnut exports and those of country imports; Qx,to, is the
volume index of country groundnut exports in the base year.; and a and p are the
constant exponential growth rates of the terms of trade and export volume indices.
Defining the rate at which the value of country groundnut exports grew as y, then
equation (2) can be rewritten as

Gxt= ey Qx,o. (3)

6See Svedberg 1991.








This gives the identity y = a + p. The ratios a/y and p/y can be used to measure the
contributions of changes in country terms of trade and the supply of exports.
The same approach can be used in analyzing AGC countries' trade performance
relative to other groundnut exporters and other oilseed exporters to find out whether
AGC countries or groundnut markets have specific characteristics that led to the
observed loss of performance. Using equations (1) and (2), one can write the real value
of AGC countries' exports relative to that of other groundnut or oilseed exporters:

Gxao, /Gxo = Prao/Pr, o Qat /Qx t0 (4)

where Gato is the value of AGC groundnut exports and Gxco is the value of ground-
nut or oilseed exports by the comparator countries-the other exporters; Pto/P,io is
the ratio of AGC terms of trade to that of the other exporters; and Qao /Q,.to is the ratio
of supplied export quantities between the two groups of countries. Following equa-
tion (3) and defining f h, and g as the growth rates of the ratios between the P, Q,
and G variables in equation (4), the latter can be written for any period n as

GxI, /Gx, = ef (Pto/P,) eh" t0x /Q0 ). (5)

Here again g = f + h is an identity, and the ratios f/g and h/g can be used to
measure the relative contributions of changes in the terms of trade that are exogenous
to AGC and non-AGC countries alike and of changes on the export supply side that
are more domestically driven.
Before discussing the results of these computations, it may be useful to briefly
review some relevant changes on international groundnut and oilseed markets, as
presented in Figures 5-8. Figures 5 and 6 compare the trends in world groundnut prices
to those of other oilseeds. First, after the early 1970s prices on world groundnut and
other oilseed markets increased to approximately twice their level of the 1960s. Second,
prices were higher for groundnuts than for other oilseeds. Third, the differences be-
tween groundnut and other oilseed prices increased over time. Turning to export
volumes, aggregate demand for oilseeds increased significantly during the study period
(Figure 7). While world exports of groundnuts expanded less dramatically, quantities
supplied by AGC countries fell sharply after the first half of the 1970s (Figure 8).
The observed trends in world prices and in global demand for groundnuts and
other oilseeds do not seem to have constituted a serious constraint to export expan-
sion in AGC countries. On the other hand, the results of the decomposition of the real
value of exports (Table 11) indicate that changes in the export volumes of AGC
countries were a significant factor. The first column of the table shows growth rates
for the real value of exports of the AGC countries as a whole and for selected
countries. Ratios of competing exporters of groundnuts and other oilseeds range from
-2 to -13 percent. For individual countries as well as for the AGC as a whole, changes
in export quantities contributed 80 percent and more to the decline (column 2). The
contribution is higher than 100 percent in cases where negative changes in supplied
quantities have overcompensated for positive changes in the terms of trade, causing
a fall in real and relative export values. These correspond to the 7 cases out of the 11
in the last column that have negative coefficients. In all of these cases, the value and
volume of AGC countries' exports fell both absolutely and relatively, despite in-
creases in the absolute and relative terms of trade.









Figure 5-World prices of groundnuts compared with soybeans and palm, 1962-87

US$/
Metric Ton
1,200




















Source: Food and Agriculture Organization of the United Nations, FAO Trade Yearbook (Rome: FAO, various
years); World Bank, Commodity Trade and Price Trends (Washington, D.C.: World Bank, various years).




Figure 6-World prices of groundnuts compared with sunflower seed and
rapeseed, 1962-87

Us$/
Metric Ton

1,200
Groundnuts

900 S- Soybeans































900
600



300





















1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986

Source: Food and Agriculture Organization of the United Nations, FAO Trade Yearbook (Rome: FAO, various
years); World Bank, Commodity Trade and Price Trends (Washington, D.C.: World Bank, various years).
Figure 6-World prices of groundnuts compared with sunflower seed and
rapeseed, 1962-87

USS/
MetricTon

1,200

Groundnuts
Sunflowerseed
Rapeseed


600



300




1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986

Source: Food and Agriculture Organization of the United Nations, FAO Trade Yearbook (Rome: FAO, various
years); World Bank, Commodity Trade and Price Trends (Washington, D.C.: World Bank, various years).











Figure 7-World exports of oilseeds, 1961-87


Million
Metric Tons


1961-63 1965-68 1971-73 1975-78 1981-85 1985-87


Source: Food and Agriculture Organization of the United Nations, FAO Trade Yearbook (Rome: FAO, various years).


Figure 8-Non-AGC and AGC exports of groundnuts, 1961-87


1,000
Metric Tons

1,000


200


0 I. I. I. .. I...... i .. i ..
1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987


Source: Food and Agriculture Organization of the United Nations, FAO Trade Yearbook (Rome: FAO, various years).
Note: AGC is African Grounndut Council.


..*. ....... AGC
*** -- Non-AGC
. ... ...........




... %-,.,,1 1




'.. %

,


I


^I









Table 11-Decomposition of
exports, 1961-87


annual changes in the real value of groundnut


Contribution
Change Contribution of Country
in Export of Volume Terms of Trade
Change Value Changesa Changess
(percent)
Change in the real value of exports
AGC countries -8.12 83.31 16.69
The Gambia -1.81 116.46 -16.46
Senegal -5.59 78.56 21.44
Sudan -4.12 112.68 -12.68
Change in the value of exports
Relative to other groundnut exporters
AGC countries -10.40 77.76 22.24
The Gambia n.s. n.s. n.s.
Senegal -4.58 79.18 20.82
Sudan -2.25 148.19 -48.19
Relative to other oilseed exporters
AGC countries -13.29 103.38 -3.38
The Gambia -6.50 133.72 -33.72
Senegal -10.28 106.75 -6.75
Sudan -8.92 127.00 -27.00

Source: Food and Agriculture Organization of the United Nations, FAO Trade Yearbook (Rome: FAO, various years).
Notes: n.s. is "not significant." All trend coefficients are significant, except for The Gambia. AGC is African
Groundnut Council.
aCalculated as annual changes in export volume and terms of trade divided by corresponding annual changes in real
value of exports in the first column.


An increase in the relative terms of trade and therefore a negative contribution to
the decline of export values was observed mainly in the comparison with other
oilseeds, due to the faster increase in world groundnut prices shown in Figures 5 and
6. And, even though the real value of Senegal's exports fell faster than those of The
Gambia and Sudan, the quantity contribution was more pronounced in the latter two
countries. The results obtained so far indicate that supply-side factors must have
played a predominant role in the decline of the AGC countries' export performance.
Given the relationships that exist between domestic economic policies and the
performance of export sectors such as the groundnut sector, the possible role of these
domestic policies in the observed decline in the AGC's trade is investigated next.


The Role of Domestic Policies
in the Decline of the Groundnut Industry

This report focuses exclusively on the role of price factors in the decline of the
groundnut economy in AGC countries. An earlier study mandated by the AGC, which
focused. on nonprice factors (UNECA/FAO 1985), found that factors related to the
production of and access to improved seeds and to the availability and distribution of
fertilizer have played significant roles in the decline of groundnut production and
trade in AGC countries (see Appendix 1). By focusing only on price factors and their








relationship to domestic policies, the present study seeks to complement the previous
study by highlighting the critical role of the incentive environment.
The agricultural sector, and particularly its tradable component, is known to be
highly sensitive to the bias that characterizes sector and economy-wide policies in
many developing countries.7 Policies that are expected to affect the AGC countries'
performance in groundnut production and trade are groundnut marketing and pricing
policies, protection of import-competing sectors, and foreign exchange control and
other restrictions to trade that cause the real exchange rate to appreciate. In the
following sections, the extent to which policies in AGC countries have played a role
in the decline of the groundnut industry is investigated.
First, the impact of country policies on incentives in the groundnut sector is
estimated by comparing the actual levels of real groundnut prices to the ones that
would prevail in the absence of these policies. Then, estimates of the effects on
groundnut production and exports of individual countries and the AGC as a whole are
derived.8 The analysis of the impact on incentives in the groundnut sector distin-
guishes between direct and indirect effects of domestic policies. The direct effects
correspond to effects emanating directly from measures in the groundnut sector, such
as pricing and marketing. The indirect effects result from the deviation of country
exchange rates from their equilibrium caused by overall trade and foreign exchange
policies. The sum of the two determines the ultimate effect of domestic policies on
groundnut producer incentives.
In Senegal, the years following the country's independence in 1960 were marked
by a rapid expansion of public involvement in pricing and marketing of groundnuts.
By 1968, public intervention in groundnut marketing had reached a level where
private trader participation was proscribed to guarantee complete state monopoly. In
1961, private traders handled about 80 percent of the marketed surplus, with the
remaining 20 percent handled by about 700 farmer cooperatives, which were state-
sponsored and linked to the parastatals. By 1967/68, 70 percent of the marketed
groundnut output was handled through farmer cooperatives, the number of which had
nearly doubled to reach 1,300 (Jammeh 1987). For the next 20 years, groundnut
procurement and export as well as domestic sales of groundnut products remained
under the control of marketing parastatals and the national oil milling company,
Soci6et Nationale de Commercialisation des Oleagineux du Senegal (SONACOS).
By 1992, SONACOS had a market share of 90 percent. As a result of the liberaliza-
tion programs of the second half of the 1980s, public involvement has decreased, but
SONACOS, through regional oil millers, still organizes the procurement of groundnuts
through a network of private contract traders. Through arrangements linking it to licensed
private traders, SONACOS still operates a form of price fixing (Gaye 1991).
The increased involvement of public institutions in groundnut marketing was
accompanied by a severe depression of producer prices. Until 1985/86, a main feature
of groundnut pricing policies in Senegal was the withholding of a certain percentage
of the officially fixed groundnut prices for input loans and quality insurance. Besides
payments for cooperatives' credit risk insurance, the withholding usually covered


7See the comprehensive comparative study by Krueger, Schiff, and Vald6s (1992).
8The analysis is based on the approach taken by Krueger, Schiff, and Vald6s (1988).








marketing board losses (above a determined limit) and grain quality losses. Contrary
to officially stated policy, the withholding were not repaid to farmers in years when
marketing board losses were within permissible limits and the quality of grains
satisfactory, but disappeared into an investment fund owned by the national coopera-
tive association (Jammeh 1987). Moreover, calculations by Jammeh (1987) and
SOFRECO (1988a) indicate that marketing board margins during this period aver-
aged 45-50 percent of producer prices.
Similarly, groundnut marketing in The Gambia was characterized by heavy
involvement on the part of the state. During the period covered by the study, The
Gambia Produce and Marketing Board (GPMB) had exclusive rights to purchase and
export groundnuts. As in Senegal, procurement is organized through the Gambian
Cooperative Union (GCU) and a network of licensed private traders, on the basis of
arrangements that ensure control by the marketing board. Consequently, GPMB's
share in marketed groundnuts rose from 40 percent in the mid-1970s to 80 percent of
the crop a decade later (Jones 1986). In both Senegal and The Gambia, marketing
boards strongly influenced the determination of official prices. In order to enforce
official prices and facilitate procurement at these prices, trading in both cases was not
allowed outside of an officially specified marketing season (Jammeh 1987; Kristjan-
sen et al. 1990). Recent attempts at liberalization have increased private participation
in the marketing of groundnuts. GCU's share is still in the 50 percent range (Kristjan-
sen et al. 1990). In both countries, marketing and pricing policies have had strong
negative effects on producer incentives, as will be shown later.
Groundnut pricing and marketing policies in Sudan are very different from those
observed in The Gambia and Senegal. Despite its restriction to a small group of
exporters during most of the 1970s, groundnut marketing in Sudan is carried out
exclusively by private traders and organized through a system of rural and urban
auction markets. Also, pricing policies in Sudan have been more favorable to ground-
nut producers. They include a combination of producer price support, exchange rate
subsidies, preferential export taxes, and local government and marketing taxes (El
Bashir and Idris 1983). The net effect of these policies on producer prices was
positive over most of the study period.
However, it is possible for indirect effects emanating from policies outside of the
groundnut sector to overcompensate for the positive effect. As explained earlier, the
groundnut sector is also affected indirectly by restrictive trade policies that raise
prices in other domestic sectors relative to groundnut prices. Protection and foreign
exchange controls also hurt the exporting groundnut sector through their effect on the
real exchange rate. As in many other developing countries, protection-based import
substitution has received marked attention in the development strategies of AGC
countries. The nature of trade regimes in the study countries during most of the period
covered by this report is treated elsewhere (see Oyejide 1993; Gulhati, Bose, and
Atukorala 1985; Elbadawi 1988; and World Bank 1987). This report focuses instead
on analyzing the impact of the removal of country trade restrictions on incentives in
the groundnut sector.
As stated earlier, the groundnut sector is vulnerable to general imbalances in
economy-wide policies that cause country exchange rates to appreciate. Such imbal-
ances are typically reflected in a sustained deterioration of country trade balances.
With the exception of a few years for Sudan, data for The Gambia, Senegal, and
Sudan show rapid and sustained increases of the deficit in their current accounts.








(Much of the data on which this report is based is contained in a supplement available
on request from the International Food Policy Research Institute.) The resulting
effects of both trade restrictions and overall economic policies on the groundnut
sector can be estimated by calculating the real exchange rates that would prevail if the
underlying policy imbalances were corrected to bring country current accounts to
sustainable levels.
The next step of the analysis is to show how these direct and indirect effects have
affected the groundnut production and export of individual AGC countries. The
analysis of the output and export effects is carried out based on estimates of the
response of output and exports to changes in relative prices of groundnuts and the size
of the price changes that an elimination of the price disincentives discussed earlier
would bring about.
The Evolution of Incentives in the Groundnut Sector
Before estimating the effects of policies on groundnut incentives, changes in real
groundnut prices for each country are analyzed. Following Quiroz and Vald6s (1993),
the changes in real groundnut prices are decomposed into (1) changes in the interna-
tional prices, (2) changes in the nominal rate of protection, (3) changes in domestic
transfer costs, and (4) changes in the real exchange rate. The first component shows
the contribution of trends in export prices and the second and third components the
contribution of policies on domestic marketing and groundnut exports (subsidy/tax)
to changes in domestic groundnut prices. The fourth component represents the
contribution of changes in the real exchange rates of the countries.
Omitting the subscript t for the time trend, actual real groundnut prices, pN in
each year can be expressed as

PGN = GN /NA (6)

For each time period, PGN denotes the nominal groundnut producer price and PNA the
general price level in the nonagricultural sector. PGN can be defined as a function of
the export price PGN and the nominal exchange rate Ea:


PGN = MGN TGN EaPN (7)
where
MN = (1+ tGN), (8)
and
TGN= (1+ tN). (9)

t1N stands for the ratio of transfer costs to the border equivalent of groundnut
producer prices and tN represents the percentage difference between the border-
equivalent producer price and the actual export price, PGN, that is, the nominal
protection rate.
Expressing the general level of nonagricultural foreign prices by PW, expanding
equation (6), and using equation (7), one can rewrite the actual real groundnut price as

PGN = M TYN ErPN, (10)








Er represents the real exchange rate and is defined as


E'= Ea(pw/P ). (11)

p4N is defined similarly to equation (6) as

p& = PPN /PNA (12)

Given a base period tO, the real price of groundnuts in any subsequent period tn
can be expressed as

PGN,, = (ek'. MaN,) (et TN,) (e"' Er ) (evt. p Nto). (13)

The growth rates in equation (13), k, 1, u, and v, can be used as indicators of the
role of the individual variables on the left-hand side of the equation in the evolution
of incentives in the groundnut sector.
Because government intervention in the pricing and distribution of groundnuts
has been quite extensive during most of the study period, particularly in The Gambia
and Senegal, and because policy-related factors have been a major determinant of the
cost of transferring groundnuts to the ports of export, the coefficients k and I are used
to reflect the influence of domestic marketing and protection policies on changes in
real groundnut prices.'Given the definition of MGN and Ta in equations (8) and (9), k
and I will take on negative values with absolute increases in the (negative) transfer
cost, tN, and protection rates, tN. Similarly, u and v show the influence of changes
in the real exchange rates and the level of groundnut export prices, respectively.
The results of the decomposition of real producer prices for The Gambia,
Senegal, and Sudan are presented in Table 12. After a period of rising real producer
prices in the 1960s in The Gambia and Senegal, groundnut prices fell rapidly in all
three countries during most of the 1970s. The trend reversed in the 1980s, with stable
prices in Senegal, strong increases in The Gambia, and moderate increases in Sudan.
During the first two periods, rapid increases in transfer costs had a strong
negative impact on real producer prices in The Gambia. Transfer costs, combined
with a continuous increase in the rate of taxation of groundnut exports, as portrayed
by the decline in the rate of nominal protection in the third column, would have
almost entirely eliminated the gains by Gambian producers from the average annual
4 percent rise in export prices in the 1960s. However, Gambian producer prices
increased in the 1980s, if only at half the rate of export prices, mainly due to the
gradual depreciation of the real exchange rate (column 4). Further increases in the
costs of transfer and a rapid decline in export prices translated into a rapid decline of
real producer prices during the 1970s, despite the downward trend in the rate of
export taxation and the continued depreciation of the Gambian currency, the dalasi
(D).9 In contrast, the accelerated depreciation of the real exchange rate during the
following decade more than compensated for the strong increase in the rate of export
taxation and the continuous decline in export prices to boost real groundnut prices.


91n June 1987, US$1.00=D7.50.









Table 12-Decomposition of the changes in real
1968-88


groundnut producer prices,


Changes in
Real Real Export Output
Producer Transfer Exort Exchange Export Quantity Quantity
Price, Costs, Taxes, Rate, Price, Growth Growth
Country PjN IGN TWGN Er P Rate Rate
(percent)
The Gambia
1966-72 2.18 -2.79 -0.73 1.62 4.06 -4.08 -2.31
1973-80 -2.48 -0.99 0.97 0.65 -3.12 -9.34 -10.27
1981-88 5.24 1.21 -3.27 11.13 -3.84 1.39 -2.74
Senegal
1966-72 3.16 -3.24 7.78 2.78 -4.15 -10.36 -5.32
1973-80 -3.53 -1.47 1.23 0.49 -3.78 -3.88 -6.23
1981-88 0.43 3.30 11.06 -3.23 -10.70 11.00 -0.22
Sudan
1966-72 -0.94 -2.87 3.47 -2.13 0.58 2.10 7.92
1973-80 -1.52 -2.23 2.99 6.70 -8.97 -11.97 1.95
1981-88 1.39 3.01 15.22 -2.65 -14.19 -20.81 -5.46

Sources: Growth rates for PG were computed from column (3) of Tables 1-3 in the data supplement to this report,
available on request from the International Food Policy Research Institute. Computations for AfGN are based
on columns (1) and (4) and T N are based on columns (5) and (7) of those tables. Growth rates for E' and
P'N are computed from columns (6) and (7). The latter is obtained by deflating country groundnut export
unit values by the world manufacturing unit value index from IMF (International Monetary Fund), Finan-
cial Statistics (Washington, D.C.: IMF, various years). 0AGN and 7YN are defined as in equations (8) and
(9), where PGN and t" are negatively signed. Therefore, negative numbers in the corresponding columns
reflect increases in transfer costs or the rate of taxation.


In Senegal, export prices fell sharply during the 1960s, following the elimination
of the French export price support system (Jammeh 1987, 157). The drop in export
prices, coupled with a significant increase in the costs of transfer, would have led to
a severe depression of groundnut prices had their effects not been entirely absorbed
through a substantial reduction in the level of export taxation, which, along with the
depreciation of the real exchange rate, helped real producer prices in Senegal achieve
the fastest growth rate of the three countries. With much smaller changes in the
transfer costs, export taxation, and the real exchange rate, most of the decline in
export prices during the 1970s was transmitted directly to domestic groundnut pro-
ducers. In the 1980s, strong cuts in transfer costs and the rate of export taxation
helped absorb the combined effects of a rapid appreciation of the real exchange rate
and a free fall in export prices to stabilize real producer prices.
In Sudan, rising transfer costs and appreciation of the real exchange rate sur-
passed the reduction in export taxation, resulting in falling real groundnut prices
during the 1960s, despite a continuous increase in the export price. Groundnut prices
continued their decline through the 1970s, aided by the sharp decrease in export
prices and further increases in transfer costs. However, the rapid depreciation of the
real exchange rate and continued reduction of the level of taxation strongly contrib-
uted to keeping the level of decline of domestic prices far below that of export prices.
For the first time during the study period, real groundnut prices started to rise in the
1980s, despite the significant drop in export prices and the appreciating exchange








rate, mainly as a result of a rapid decrease in the taxation of exports and, to a lesser
extent, of transfer costs.
Comparing the experiences in the three countries, it can be seen that Senegal and
Sudan adjusted to changes in export prices primarily through reductions in the rate of
nominal protection or taxation. In The Gambia, on the other hand, continuous depre-
ciation of the exchange rate, especially in the last period, protected domestic produc-
ers from negative changes in export prices, while the level of taxation rose during
most of the period. In all three countries, rising transfer costs had a strong negative
impact on incentives in the groundnut sector throughout the first two decades.
The evolution of the volume of groundnut exports and output by the three
countries over the three periods is recorded in the sixth and seventh columns of Table
12. In Sudan, output and exports expanded rapidly with stagnating export and
producer prices during the first period. After a modest increase during the 1970s,
output decreased sharply in the 1980s. Exports, however, decreased rapidly during
both the 1970s and 1980s. Two facts may help explain the differences in the evolution
of price incentives and output quantities in Sudan. A significant share of output is
grown in the irrigated areas of Gezira. However, production decisions in the irrigated
areas are determined primarily by tenancy size and government regulations on crop
mix rather than by relative prices (El Bashir and Idris 1983).
Whereas Sudan's decline in exports in the 1980s can be tied to the decline in output
in the same period, the fall in exports during the preceding period is partly explained by
the second fact. According to El Bashir and Idris (1983), domestic use of groundnuts
increased considerably during the 1970s at the expense of exports, due to a sharp drop
in cottonseed production and a consequent increase in demand for groundnuts by
domestic vegetable oil processors. These occurrences mask the relationships between
changes in prices and groundnut output and export quantities-relationships that be-
come more visible in the other two countries, especially in the last two periods.
During the first period, the decline in output and exported quantities in Senegal and
The Gambia contrasted sharply with the increases in real groundnut prices. This is a
reflection of the severe drought that struck large areas of the region and depressed
output for most of the years during that period. The impact of the drop in output was
large enough to lead to falling export quantities in The Gambia, despite increasing
producer and export prices. Besides the fall in output, exports in Senegal were probably
affected by changes on the export front. As mentioned earlier, the fall in Senegalese
export prices recorded during that period mainly reflect the elimination of the export
price support arrangement with France. With the elimination of the support system, the
French companies that were handling the totality of Senegal's groundnut exports began
to shift to other sources of supply and away from groundnuts (Jammeh 1987).
During the 1970s, falling export prices were met in both The Gambia and Senegal
with modest changes in exchange rates, but continued export taxation and even
increases in domestic transfer costs resulted in rapidly decreasing producer prices.
The continuation of adverse domestic policies during the period of falling interna-
tional prices must have significantly contributed to the rapid deterioration of ground-
nut production and trade performance in the two countries. The implications of the
failure to adjust domestic policies to changes in the international trading environment
can be seen by contrasting the developments in the 1970s with those of the 1980s.
During the latter period, the fall in export prices was faster than in the 1970s,
particularly in Senegal. However, by adjusting domestic policies, both countries








succeeded in reversing the fall in producer prices. In Senegal, these developments
must have played a significant role in slowing down the decline in output and even
stopping it.
Export quantities also increased, especially in Senegal. The rapid growth of
exports in Senegal probably reflects in part the smuggling of Gambian groundnuts
into that country. According to Puetz and von Braun (1990a; 1990b), more than 50
percent of marketed Gambian groundnuts in border areas were smuggled into
Senegal. The sale of Gambian groundnuts to Senegal was prompted by the pricing
reforms undertaken in the two countries and the strong devaluation of the Gambian
currency. During most of the 1980s, Gambian prices were 20-30 percent below prices
prevailing in Senegal. Furthermore, due to budgetary difficulties, the Gambian mar-
keting board decided not to purchase large portions of the domestic output, which
also contributed to the unrecorded export of groundnuts to Senegal.
It is interesting to note the difference in adjustment strategies. Senegal, being a
member of the West African Monetary Union, was unable to use the exchange rate to
adjust. In fact, the real exchange rate in that country appreciated rapidly during the
considered period. Thus, whereas Senegal adjusted mainly through the budget by
cutting export taxes and to a lesser extent reducing distribution costs, The Gambia
worked through the exchange rate, expanding its tax revenues from groundnut ex-
ports at the same time.
In order to show the impact of these changes on the groundnut sector, it is
necessary to examine their impact on the absolute level of relative prices. The impact
of domestic policies on absolute prices of groundnuts reveals how AGC exporters
fared in comparison with competing foreign exporters, assuming these competitors
were not discriminated against and therefore received their asking price. In the next
section, the effects on the output and export levels by countries are estimated.

Effects of Domestic Policies on Incentives in the Groundnut Sector
Unlike sectoral policies that affect only prices in the groundnut sector, trade
restrictions and other economic policies affect the remaining sectors of the economy
as well. Accordingly, the impact of policies on groundnut incentives is measured by
the differences between actual relative prices of groundnuts and the relative prices
that would obtain in a situation without direct and implicit taxation arising from
domestic policies. For this purpose, equivalent border prices are used as reference
prices where there is no intervention. The impact of the changes in relative prices on
groundnut output and exports is estimated using estimates of supply elasticities for
groundnuts.
To begin, groundnut supplies in individual countries are expressed as functions
of relative prices:10

QN = ,iaiX + PGN (14)



'OBecause of the unavailability of data on input use, only output prices are used in supply equations. The
effect on the estimates is likely to be negligible, since the expected low levels of intermediate input use
render the impact of policy changes at this level relatively insignificant, compared with the effects on
output prices.








As in equation (6), the index t for the time period is dropped, and the superscript
a refers to actual values of the corresponding variables. QgN is the actual level of
groundnut output in each country; ai represents the elasticities of supply with respect
to Xq the exogenous variables; and PGN is the estimation residual. In addition to the
variable for the constant, X' and the one for the lagged value of output, X' = QGN-1,
the equation is estimated using two relative price variables. The first is the producer
price of groundnuts relative to the aggregate price level in the nonagricultural sector,
written as
Xa= PN/Pa (15)

with PGN representing, as before, the nominal producer prices of groundnuts and
Pa the price in the nonagricultural sector.
The second relative price variable is that for producers in other agricultural
sectors that are competing with groundnuts for production resources, P A. It is
defined as
X3= P NA/P A. (16)
The relative price of food is used in the computations as a proxy for the incentives
in competing agricultural activities. The general price level in the nonagricultural
sector, Pa, has nontradable and tradable components. The tradable component is
affected by changes in trade regimes and other domestic policies, as is the price of
groundnuts.
In the approach adopted here, the estimates of a, and the values for Xi in the
absence of policies affecting the groundnut sector are used to compute the levels of
groundnut output that would obtain for the individual countries. The adjusted levels
of output and the corresponding changes compared with actual levels can then be
estimated:"
QGN = iaiX, + P'GN (17)

qGN = (QGN QN)/QGN (18)

The superscripts a and e refer to actual and adjusted or equilibrium values, respec-
tively, of the corresponding variables qGN denotes the change in output levels.
Equation (17) gives the equilibrium level of groundnut output, QGN and equation
(18) yields the changes in output due to changes in relative prices. The changes in
exports by country can be computed by deducting from QGN the changes in domestic
consumption of groundnuts resulting from the changes in relative prices. Due to data
limitations and the resulting difficulties in obtaining satisfactory consumption pa-
rameter estimates, a simpler approach is used to approximate the changes in country
groundnut exports: the actual annual shares of exports in groundnut output are
assumed to remain unaffected by the changes in relative prices. This assumption is
less restrictive in The Gambia and Senegal than it is in Sudan, since, in these two
cases, exports have accounted for the largest part of the marketed share of the crop


1 See Stryker (1990, 168) on the use of the entire original equation, including the residuals, instead of just
the elasticity estimates in computing the effect of changes in relative prices.








during most of the period covered by the study. Accordingly, the following formula
is used to approximate the changes in exports for each year:

x= k(QN QN)/Q. (19)
The change in country export quantities is given by qx, while Q,' denotes the actual
level of exports where domestic policy distortions exist. The coefficient k is the
share of exports in country groundnut output.
The changes in export revenues can be calculated by multiplying the absolute
changes in exported groundnut quantities by the prevailing world market price. That is,

gs= kP N(Q QN )/Q (20)
The formulation assumes that the world market price, PYN is not affected by changes
in country exports resulting from the adjustment in domestic policies. Qv and gv are
the actual levels of and changes in country groundnut export revenues.
In order to compute equations (18), (19), and (20) to obtain the changes in
country groundnut output and exports, X2 in equation (17)-that is, the adjusted
relative groundnut producer prices-must be estimated first. This is done following
the approach developed in Krueger, Schiff, and Valdes 1988. Following equation
(15), the adjusted relative prices for groundnuts can be written as

X= PN /PNA (21)

PN stands for the adjusted groundnut producer prices and PA is adjusted non-
agricultural prices. In the situation where there are no policy imbalances, direct or
indirect, absolute producer prices can be expressed as

PGN = EePGN TeN (22)
where Ee represents the adjusted exchange rate that would prevail in the absence of
policy imbalances, as derived in the next section, and TeN designates the cost of trans-
ferring groundnuts from the producing areas to the ports for export.12
Similar to groundnut prices, prices for the tradable component in the nonagricul-
tural price index will also change in response to the elimination of policy distortions.
Based on Krueger, Schiff, and Valdes 1988, the resulting changes in the nonagricul-
tural price level can be computed using the following expression:

PNA = h(Ee/Ea)PNA/(+ tNAT) + (1- h)PNAH, (23)
where E' represents the actual official exchange rate before the adjustment in domes-
tic policies and h is the share of tradables in the nonagricultural sector. tNAT denotes
the tariff equivalent of trade restrictions in the nonagricultural sector, and PNAT and


12The transfer costs will normally change as a result of the adjustment in domestic policies. In com-
puting the model for individual AGC countries, the costs are assumed to change with the price level in
the nonagricultural sector. The adjusted transfer costs are therefore calculated as follows:
TGN TaN (PA /P~A), where the superscripts a and e refer to actual and equilibrium values.








PNAH are the price levels for the tradable and nontradable components of the non-
agricultural price index, respectively.
The last step in estimating equilibrium groundnut prices by country in equation
(21) and the output and export effects in equations (18), (19), and (20) is to calculate
the equilibrium exchange rate Ee that would prevail when domestic policies are
adjusted. The model used for this purpose is presented in Appendix 2. It yields the
following formula for the estimation of the equilibrium exchange rate:13


EeEa Ba + rld [tm/(l+tnm)l]d + E[tx/(1-tx)]Xs a
E = E + Ea. (24)
EsXs + rldMd

Equation (24) gives the nominal equilibrium exchange rate, which is used in equa-
tions (22) and (23) to adjust price levels for each country. The variables are defined
in Appendix 2.
Since the change in the country exchange rate affects domestic prices, the rate
calculated in equation (24) must be adjusted by this effect to yield the real change in
the exchange rate. For that purpose, the actual real exchange rate is defined as

E = Ea/P. (25)
The adjusted real exchange rate that incorporates both the change in the nominal
rate and in the overall price level is then

Ee = EePA. (26)

The effects of domestic policies on the production and export of groundnuts by
individual AGC countries can now be estimated. First, the equilibrium exchange rates
for each country are calculated using equation (24). Second, the results are inserted
into equations (22) and (23) to obtain the adjusted real groundnut prices for each
country. Third, these adjusted prices are used with equation (17) to obtain the
adjusted groundnut output and with equations (18) and (19) to derive the changes in
country outputs and exports. The results of the estimations for The Gambia, Senegal,
and Sudan and the variables used therein are discussed in the following sections.

Evidence of Retarded Growth in the Groundnut Sector
Changes in external factors, as reflected in the evolution of each country's terms
of trade for groundnuts, have not been as influential in the decline of trade in that
sector as it is often argued. In fact, the results of the decomposition of real groundnut
export revenues for individual member countries and for the AGC as a whole have
indicated that the effects of falling export volumes were far larger than the effects of
changes in the terms of trade. Furthermore, the figures in Table 10 reveal that AGC

"The model is based on Krueger, Scliff, and Vald6s 1988. For other applications see Stryker 1990; Intal
and Power 1990; Jansen 1988; Jenkins and Lai 1989; Moon and Kang 1989; and Garcia and Llamas 1989.








countries have continuously lost market shares, while competing exporters from Asia
and Latin American have increased their shares of world groundnut exports.
It seems, therefore, that the causes of the decline in groundnut trade in AGC
countries are more domestic than external. The factors undermining growth in the
groundnut sector are manyfold: sectoral and overall economic policies of the coun-
tries are among the most important. One group of policies that may have contributed
to the decline of the groundnut industry is marketing and pricing policies.
Direct Effects of Sectoral Policies on Real Groundnut Prices. The direct effect is
reflected in the wedges between actual relative groundnut producer prices PN /PNA
and relative export prices, calculated at the actual official exchange rate and in the
presence of protection in favor of other sectors of the economy and adjusted for
transfer costs Pa /P~ .14 That is,

(GN /PA )/(PGN /P ) -1= PGN /PGN -1. (27)

The first quotient on the left-hand side of equation (27) corresponds to the actual
relative producer price as given in equation (15). The numerator in the second
quotient is calculated as in equation (22), but with actual instead of equilibrium
values of the exchange rate and transfer costs.
In the case of Senegal, where parastatals and state-owned mills have been given
monopoly over groundnut exports, the transfer costs used in the computations are
based on cost figures reported by these sources. Given the tendency of parastatals to
inflate marketing costs and extract subsidies from the government, the official figures
had to be corrected in order to obtain adequate estimates for the costs of transferring
groundnuts to the ports of export. There is evidence that marketing parastatals have
consistently inflated transfer costs by reporting two types of costs, "declared losses"
and "miscellaneous fixed costs," which, according to the arrangement between the
marketing institutions and the government, are entirely subsidized (Jammeh 1987;
SOFRECO 1988a). Prior to the early 1980s when groundnut marketing became the
responsibility of the exporting parastatal SONACOS, which was also overlooking
the milling companies, the declared losses were negligible. After SONACOS took
over, they climbed to an average as high as 17 percent of the reported costs. The
miscellaneous fixed costs, on the other hand, amounted to 26 percent of total costs
(SOFRECO 1988a, 97).
Transfer costs for the entire period were not available for The Gambia. Given the
similarity between the two countries, the real costs of transferring groundnuts are
assumed to be similar to those in Senegal.15 In Sudan, the estimate for 1980 by El
Bashir and Idris (1983) has been extrapolated by assuming that the change in transfer
costs follows that of the price level in the service sector.
The proportional differences between the transfer-cost-adjusted border prices and
actual country producer prices are used as indicators for the direct effect of sector


14Transfer costs refer to the costs of assembly, storage, transport, and other elements of marketing costs.
15Studies carried out recently in both countries have found cost levels in the two countries comparable
(Kristjansen et al. 1990; Jones 1986).









policies on incentives in the groundnut sector.16 The proportional differences corre-
spond to the levels of direct nominal protection in the respective countries (Figure 9).
Three phases can be distinguished in the evolution of the level of direct nominal
protection (Table 13). In the 1960s, when AGC countries were making a strong
showing on world groundnut markets, domestic prices were very close to border price
levels. The slightly positive protection observed during this period may reflect the
subsidization of the state-run marketing systems, particularly in The Gambia and
Senegal, as will be shown later in discussing the breakdown of country export
revenues. During the period of the dramatic decline in groundnut production and
exports in the 1970s, direct taxation increased in both countries, while the rate of
positive protection climbed steeply in Sudan. Finally, during the 1980s, the level of
taxation increased further in The Gambia, and Senegal joined Sudan in raising
domestic prices significantly above export levels and subsidizing exports.
Despite the attempt to correct official transfer costs for operational inefficiencies
and reporting inadequacies, the exclusive monopoly of parastatals over procurement,

Figure 9-Direct nominal protection of groundnuts in selected AGC countries,
1966-88
Percent
160

10 The Gambia
120
Senegal
Sudan
80 -

40

0

-40 -

-80
1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988

Source: Calculated from various sources used to compile Tables 1-3 of the data supplement to this report, available
on request from the International Food Policy Research Institute.
Notes: Based on the proportional difference between the relative border-equivalent producer price and the actual
relative export price. AGC is African Groundnut Council.



16Due to the lack of data, the impact of input subsidies or taxes is not included in computing the level of
protection. This is not likely to affect the results greatly. The level of use of intermediate inputs is
relatively low and the effect on policies probably negligible, compared with the effects on output prices.
According to Jammeh (1987), for instance, input subsidies in Senegal averaged CFA 1.5 billion annually
during the 16 years of the Agricultural Program that ended in 1980. The annual volume of production
during this period was about 1 million tons on average.








Table 13- Direct effects of sector policies on real country groundnut prices, The Gambia, Senegal, and Sudan, 1966-88

The Gambia Senegal Sudan
Actual Actual Actual
Border Actual Border Actual Border Actual
Equivalent Real Direct Equivalent Real Direct Equivalent Real Direct
of Producer Export Price of Producer Export Price of Producer Export Price
Period Pricea Priceb Effectc Pricea Priceb Effect Pricea Priceb Effectc
(D/metric ton) (F/metric ton) (ES/metric ton)

1966-72 207.54 199.05 0.05 24,874.13 24,827.06 0.02 37.54 36.68 0.04
1973-80 237.34 257.00 -0.03 28,639.21 32,918.11 -0.08 47.38 36.47 0.33
1981-88 249.93 295.04 -0.13 24,330.04 23,654.31 0.25 52.59 41.97 0.37

Sources: Calculated from Tables 1-3 in the data supplement to this report, available on request from the International Food Policy Research Institute.
aThe actual relative producer price is adjusted for transfer costs and export taxes.
bThe nominal exchange rate x Groundnut export unit value / Actual nonagricultural price level.
c(Actual border equivalent of relative producer price Actual relative export price) / Actual relative export price.









processing, and exports, especially during the 1960s, raises the question of hidden
taxation associated with these activities. For example, the breakdown of export prices
in Table 14 shows relatively high levels of transfer cost shares for Senegal and The
Gambia during the 1960s, followed by a continuous decline in the subsequent years.
This, coupled with relatively stable producer shares of about 70 percent in the export
price, indicates that some of the protection observed in that period went to subsidize
parastatals rather than to benefit domestic groundnut producers.
It is also interesting to compare the differences in the proportions of the export
price going to producers in the three countries and their changes over time. Initially
at a much higher level than in the other two countries, the ratio of the producer price
to the export price of groundnuts in Sudan increased continuously, reflecting a faster
increase in Sudanese producer prices than in actual export prices and, consequently,
a rising level of price support in that country. Sudan could sustain this high level of
protection because more than 90 percent of production was consumed domestically
(see Tables 4 and 8). At the same time, the small share of production that was
exported was subsidized through various measures, one of which was the administra-
tion of preferential exchange rates for groundnut exports (El Bashir and Idris 1983;
Louis Berger International 1983).
In The Gambia and Senegal, nominal producer prices kept up with world market
prices throughout the 1970s, whereas the share of transfer costs fell by almost a third.
These developments indicate that the hidden subsidization of marketing institutions
during the 1960s had reverted to open taxation, as reflected in the sums of the two
ratios, which in both cases are less than unity. Open taxation continued into the 1980s
in The Gambia, whereas producer prices in Senegal were allowed to rise slightly
above their export price levels.
With the exception of The Gambia, and except for the 1970s, sectoral policies do
not seem to have suppressed producer prices in the groundnut sector very much.
However, sectoral policies are not the only, and in many instances not the most
important, type of policy measures that affect sectoral incentives. As stated earlier,
imbalances in economy-wide policies can be more detrimental to the performance of
tradable sectors such as groundnuts. In the end, it is the combination of both direct and
indirect policy effects that determines the incentive environment of the groundnut sector.


Table 14- Ratios of producer prices and transfer costs to groundnut export
prices, The Gambia, Senegal, and Sudan, 1966-88
The Gambia Senegal Sudan
Transfer Producer Transfer Producer Transfer Producer
Costs/ Price/ Costs/ Price/ Costs/ Price/
Export Export Export Export Export Export
Period Pricea Priceb Price" Priceb Price" Priceb

1966-72 0.32 0.73 0.34 0.67 0.26 0.77
1973-80 0.23 0.74 0.24 0.68 0.40 0.87
1981-88 0.17 0.71 0.23 1.03 0.24 1.12

Sources: Calculated from Tables 4-6 in the data supplement to this report, available on request from the International
Food Policy Research Institute.
aActual transfer costs / (Groundnut export unit value x Nominal exchange rate).
bActual nominal producer price / (Groundnut export unit value x Nominal exchange rate).








Aggregate Effects of Domestic Policies on Real Groundnut Prices.In this section,
the indirect effect of domestic policies outside of the groundnut sector is combined
with the direct effect of the sectoral policies to show the aggregate impact of country
policies on prices and incentives in the groundnut sector. The indirect effect captures
the impact of macroeconomic and trade policies on country real exchange rates and
that of protection to importing nonagricultural sectors. It can be seen from the
derivation of the real exchange rate model that the indirect effect is made up of three
different components. The first is the adjustment in country real exchange rates that
would be necessary to eliminate the unsustainable imbalances in country current
accounts. The second component is the adjustment in real exchange rates that would
result from the removal of trade restrictions. The final component is the reduction in
the protection of nonagricultural prices relative to country groundnut prices that
would follow from the elimination of trade restrictions.
Accordingly, the first step in calculating the aggregate effect of domestic policies
on the groundnut sector is to estimate the adjustment in real exchange rates that would
follow from eliminating the imbalances in country current accounts and removing trade
restrictions. This is done by computing equations (24) and (26). Besides the levels of
import and export taxes and the current account deficit, which are readily available from
national statistics, the data needed for the computations include the elasticities of
demand for and supply of foreign exchange with respect to the real exchange rate.
Given that AGC countries are price takers, both demand for their exports and the
supply of their imports are infinitely elastic. Therefore, the elasticities of supply and
demand for foreign exchange converge toward the elasticities of export supply and
import demand respectively (see Intal and Power 1990, 313). In computing equation
(24) the estimate by Khan (1974) of 1.1 for the elasticity of import demand for Ghana
is used for all three countries. For the elasticity of export supply, a value of 0.6 is
used, which corresponds to about one-half of the estimate by Bond (1983) for the
aggregate export of agricultural raw material by African countries. The inability to
obtain empirical estimates for the elasticities should not compromise the results of the
model, since the indirect effects are not expected to be very sensitive to changes in
their values (Krueger, Schiff, and Vald6s 1988, 260).
The level of disequilibrium in the real exchange rates caused by macroeconomic
policy imbalances and trade restrictions in AGC countries can be seen in Figure 10.
The figure shows that country exchange rates have been held consistently over their
equilibrium levels during the entire period covered by the study. The changes that
have occurred in each subperiod are shown in Table 15. For each country, columns 1
and 2 correspond to Ee and Ee in equations (24) and (26), respectively. The numbers
indicate that, in real terms, actual exchange rates in The Gambia, Senegal, and Sudan
have diverged from their equilibrium levels by 20-45 percent over the study period,
and that the level of disequilibrium has continuously increased through all three
decades. The real exchange rate overvaluation was the highest in Senegal-at 30
percent or more--during the first two periods, and it stayed at that level in the last
period. In contrast, the real exchange rate appreciated much more rapidly in the other
two countries. By the 1980s, the rate of appreciation in The Gambia had reached that
of Senegal. However, the increase was much more dramatic in Sudan, where the rate
of appreciation soared to 45 percent.
The total effect of domestic policies on incentives to production and trade in the
groundnut sector can now be estimated by comparing actual relative groundnut prices










Figure 10-Degree of divergence from the equilibrium exchange rate


Real Equilibrium
Exchange Rate/
Real Official
Exchange Rate

1.8

1.7 -- The Gambia

1.6 -- Senegal

1.5 Sudan

1.4

1.3

1.2

1.1

1.0

0.9

0.8
1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988


Source: Calculated from various sources used to compile Tables 7-12 of the data supplement to this report, available
on request from the International Food Policy Research Institute.
Note: The equilibrium exchange rate is the level that would have kept the country's current account balance at a
sustainable level.






Table 15- Exchange rate disequilibrium in The Gambia, Senegal, and Sudan,
1966-88

The Gambia Senegal Sudan
Period Nominala Realb Nominala Realb Nominal" Realb


1966-72 1.16 1.17 1.29 1.30 1.15 1.21
1973-80 1.28 1.25 1.37 1.33 1.25 1.28
1981-88 1.33 1.31 1.37 1.33 1.49 1.45

Sources: Calculated from Tables 7-9 in the data supplement to this report, available on request from the International
Food Policy Research Institute.
a Nominal divergence = Nominal equilibrium exchange rate/Nominal actual exchange rate (Ee/E).
b Real divergence = Real equilibrium exchange rate/Real actual exchange rate


Ee / Ea


where superscripts a and e refer to actual and equilibrium values. P' is the adjusted nonagricultural price level, as
expressed in equation (23). Ee is the equilibrium exchange rate, defined in equation (24).









to the relative prices that would prevail at the equilibrium exchange rate. This is done
by computing expression (28) below, which calculates the proportional difference
between the adjusted border-equivalent producer price (equation 7) and the export
price evaluated at the equilibrium exchange rate (equation 13):

(PfN /P(A)/(PN /PA) 1 (28)

The adjusted groundnut producer and nonagricultural prices, PN and PA are as
defined in equations (22) and (23). The results of the computations are plotted in
Figure 11. Changes in the level of total protection contrast starkly with the direct
effects shown in Figure 9. Except for The Gambia, the direct effects appear to have
been detrimental mainly during the 1970s. In Sudan, groundnuts even enjoyed strong
direct protection. In contrast, total protection to domestic groundnut sectors resulting
from country sectoral as well as overall macroeconomic policies and trade regimes
was extremely negative for most of the period covered by the analysis. Hence, the
indirect effects emanating from policies outside of the groundnut sector have in all
three countries exacerbated or overcompensated for the impact of policies targeted
directly to that sector.
The roles played by country trading regimes and macroeconomic policies
through their impact on the real exchange rate in reducing incentives in the groundnut
sector were overwhelming (Table 16). The implicit taxation induced at that level
exceeded the positive protection granted to the sector through direct policy measures
during the 1960s. This resulted in net taxation levels of 10-22 percent in the three


Figure 11--Total nominal protection of groundnuts in The Gambia, Senegal,
and Sudan, 1966-88
Percent
90

The Gambia
60 Senegal
Sudan
30 -


0


-30


-60
1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988

Source: Calculated from various sources used to compile Tables 13-18 of the data supplement to this report, available
on request from the International Food Policy Research Institute.
Note: Indicates the proportional difference between the actual relative producer price and the relative export price
at the equilibrium rate and without trade restrictions.









Table 16-Direct and aggregate effects of country policies on groundnut prices
in The Gambia, Senegal, and Sudan, 1966-88

The Gambia Senegal Sudan
Direct Total Direct Total Direct Total
Price Price Price Price Price Price
Period Effecta Effectb Effecta Effectb Effecta Effectb
(percent)
1966-72 0.05 -0.10 0.02 -0.22 0.04 -0.14
1973-80 -0.03 -0.23 -0.08 -0.31 0.33 0.07
1981-88 -0.13 -0.33 0.25 -0.06 0.37 -0.08

Sources: Calculated from Tables 13-15 in the data supplement to this report, available on request from the Interna-
tional Food Policy Research Institute.
a(Actual border equivalent of relative producer price Actual relative export price)/Actual relative export price.
b(Actual border equivalent of relative producer price Relative equilibrium export price)/Relative equilibrium
export price.

countries. In the following decade, the situation in Sudan was reversed through a
rapid increase in the level of direct protection. But, in The Gambia and Senegal, the
level of direct and indirect disincentives facing groundnut production and trade
increased tremendously during the 1970s, a period when the world groundnut econ-
omy was booming (see Figures 5 and 6). It is interesting to note that this "boom"
period was the time when the AGC countries suffered steep losses in market shares
(see Figure 8). Finally in the 1980s, the level of taxation in Senegal fell sharply as the
result of a substantial increase in the level of direct protection, while the situation in
the other two countries worsened due to the deterioration of the direct policy environ-
ments in The Gambia and the indirect one in Sudan.
Effects of Country Policies on Groundnut Production and Exports. In order to
calculate the impact of domestic policies on country production and export of ground-
nuts, equation (14) first has to be estimated to yield the elasticity parameters, the ai's,
for the three countries. In carrying out the estimation, it is assumed that food crops, such
as millet and sorghum, are the main potential competitors for groundnuts. In Sudan,
groundnuts may also compete with wheat in the irrigated area of Gezira. However, only
about one-third of groundnuts are produced in that area, and the allocation of land to the
different crops is determined more by tenancy size and government measures than by
prices.17 Thus, the estimation of the output equation for Sudan is based on data from the
rainfed areas of Kordofan and Darfur, which account for two-thirds of groundnut
production, and where groundnuts compete mainly with millet and sorghum.
In all three cases, the producer price of millet/sorghum relative to nonagricultural
prices is therefore chosen to represent the price level in competing agricultural
subsectors, as expressed in equation (16). The estimated functions for the three
countries, which are based on the data contained in the supplement to this report, are
as follows:18


17Various attempts to estimate supply equations including data from this area did not yield significant
parameters for the price variables.
18The specification of the output functions does not take into consideration the role of inputs, due to lack
of data on inputs (see footnote 16).








For The Gambia,
InQGN = -4.18 + 0.411nPN/PNA + 0.471nPo/PA + 0.991nQGN-l; (29)
(2.03) (2.51) (2.64) (5.86)
2 = 0.60; H = 0.67.

For Senegal,
InQ,, = -3.65 + 0.621n PGN/PNA + 0.661nQGN-1; (30)
(1.11) (2.25) (3.81)
R2 = 0.40; H = 1.07.

For Sudan,
InQGN = 2.70 + 0.421nPN/PA 0.201nPoA/PNA + 0.401nQGN-1; (31)
(2.0) (1.43) (1.05) (2.53)
2 = 0.27; H = 1.59.

The numbers in parentheses are t-values.

The estimated own-price elasticity coefficients have the correct sign and are
significant at the 0.05 level for The Gambia and Senegal, and at a weaker 0.20 level
for Sudan. The coefficients for the lagged output variable are strongly significant and
have the correct sign as well. The estimates for the coefficient of food sector price are
significant only in The Gambia. They are positively signed, indicating a complemen-
tary relationship in production between groundnuts and the two food crops, millet and
sorghum.
Following equation (17), the level of output that would prevail in the absence of
the disincentives created by domestic policies and evidenced in the foregoing section
can be calculated by (1) inserting the equilibrium values of the independent variables,
the Xf into the original equations (29 to 31) to obtain the predicted values, and
(2) adding the residuals rGN assuming the stochastic variation is not altered by
changes in policies.19 The independent variable of main interest is the adjusted
relative producer price for groundnuts in individual countries. Apart from adjusting
to the change in policy-induced taxation, relative producer prices will also change to
reflect changes in transfer costs, to the extent that the latter are affected by policy
changes. Accordingly, equilibrium producer prices are calculated as explained in
equations (21) and (22).
Following the approach taken by Stryker (1990), the equilibrium output levels are
computed for the short and long run. In the short run, the equilibrium relative prices
and the lagged values of actual output are inserted into equations (29) to (31) and the
residuals added to yield the adjusted groundnut output levels. The equilibrium output

19On the merits of using the entire original equations rather than the estimated elasticities, see Stryker
1990, 168.









levels in the long run are computed to capture the secondary effects of policy
adjustment on current output resulting from changes in previous output levels. For
this purpose, the actual lagged values of output in the short-run equations are replaced
by the expected values computed from the estimated supply equations. The calculated
divergences between actual and equilibrium groundnut output levels in the short and
long run are plotted in Figures 12 and 13.
Furthermore, assuming that the effect of the changes in real prices on the shares
of exports in groundnut output is negligible, the changes in groundnut export reve-
nues can be estimated as shown in equations (19) and (20). The obtained changes in
export revenues for the short and long terms are shown in Figures 14 and 15.
According to the results obtained, domestic policies have had a substantially
negative impact on country groundnut production and exports. Except for Sudan for
a few years and for the last two to three years of the period, domestic policies kept
country production and exports well below the levels that would have prevailed in the
absence of the disincentives caused by sector and economy-wide policies and trade
regimes. The effects have been particularly strong in Senegal and The Gambia.
The magnitudes of the effects for the different time periods are shown in Tables
17 and 18. During the 1960s, actual country production was as low as 6-35 percent
on average below equilibrium levels, due to the combined effect of domestic policies
within and outside the groundnut sector. Senegal's output was depressed the most; its
actual output levels were as much as 20-35 percent below the equilibrium levels over
all three time periods.


Figure 12- Short-term divergence between actual and equilibrium levels of
groundnut output, 1967-88
Percent
60
The Gambia
40 Senegal
Sudan
20 ........ AGC





-20

-40

-60
1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987

Source: Calculated from various sources used to compile Tables 22-24 of the data supplement to this report, available
on request from the International Food Policy Research Institute.
Note: Indicates the proportional difference between the actual levels of output and the level of output adjusted for
the effect of domestic policies. The values for African Groundnut Council (AGC) countries are weighted
sums of country changes based on individual shares in total AGC output.










Figure 13-Long-term divergence between actual and equilibrium levels of
groundnut output, 1967-88

Percent


-80 '-
-s -
1967

Source:

Note:


1969 1971 1973 1975 1977 1979 1981 1983 1985 1987

Calculated from various sources used to compile Tables 22-24 of the data supplement to this report, available
on request from the International Food Policy Research Institute.
Indicates the proportional difference between the actual levels of output and the level of output adjusted for
the effect of domestic policies. The values for African Groundnut Council (AGC) countries are weighted
sums of country changes based on individual shares in total AGC output.


Figure 14-Short-term divergence between actual and
groundnut export revenue, 1967-88

Percent

60


30





-30 The Gambia

-60 The Gambia
Senegal
-90 -- Sudan
........ AGC

-120 i ii I-- I I i--
1967 1969 1971 1973 1975 1977 1979 1981


equilibrium levels of


1983 1985 1987


Source: Calculated from various sources used to compile Tables 22-24 of the data supplement to this report, available
on request from the International Food Policy Research Institute.
Notes: Indicates the proportional difference between the actual level of export revenue and the level of revenue
adjusted for the impact of domestic policies. The values for African Groundnut Council (AGC) countries are
weighted sums of country changes based on individual country shares in total AGC exports.










Figure 15- Long-term divergence between actual and equilibrium levels of
groundnut export revenues, 1967-88
Percent
40


0


-40 -


-80


-120 The Gambia Sudan
Senegal ........ AGC

-160
1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987

Source: Calculated from various sources used to compile Tables 25-27 of the data supplement to this report, available
on request from the International Food Policy Research Institute.
Note: Indicates the proportional difference between the actual levels of export revenue and the level of revenue
adjusted for the impact of domestic policies. The values for African Groundnut Council (AGC) countries are
weighted sums of country changes based on individual shares in total AGC output.


Reflecting the worsening policy environment of the 1970s, the discrepancy
between actual and equilibrium groundnut output expanded significantly throughout
that decade both in Senegal and The Gambia. In contrast, the strong increase in direct
policy support discussed earlier in Sudan helped keep its output close to its long-term
equilibrium level, despite major imbalances in macroeconomic policies and trade
regimes. However, by the end of the 1980s, the situation had worsened in The



Table 17- Estimated average annual change in groundnut output as a result of
policies in AGC countries, 1967-88

Short-Term Output Effect Long-Term Output Effect
The The
Period Gambia Senegal Sudan AGCO Gambia Senegal Sudan AGCa
(percent)
1967-72 -6.33 -19.33 -6.17 -6.05 -20.83 -35.33 -11.67 -11.02
1973-80 -12.50 -25.25 5.38 -6.49 -29.75 -43.13 -1.00 -14.71
1981-88 -17.88 -6.75 -5.38 -4.17 -35.13 -18.25 -11.75 -11.46

Source: Calculated from Tables 22-24 in the data supplement to this report, available on request from the International
Food Policy Research Institute.
Notes: Indicates the proportional difference between the actual levels of output and the level of output adjusted for
the effect of domestic policies. The values for African Groundnut Council (AGC) countries are weighted
sums of country changes based on individual shares in total AGC output.
aWeighted averages based on country shares in AGC output.







Table 18- Effects of domestic policies on groundnut exports, 1967-88

Short-Term Long-Term
Actual Divergence Divergence Short-Term Long-Term
Groundnut Groundnut from from Export Export
Export Export Equilibrium Equilibrium Revenue Revenue
Revenue Unit Value Export Exporta Effect Effectb
Country/Period (1) (2) (3) (4) (5) (6)
(US$ million) (US$/metric ton) (1,000 metric tons) (percent)

The Gambia
1967-72 5.23 112.17 -4.07 -15.24 -8.8 -34.0
1973-80 10.85 276.75 -7.13 -20.23 -18.3 -53.5
1981-88 6.79 309.13 -6.43 -15.04 -27.6 -66.6
Senegal
1967-72 50.20 103.68 -107.37 -250.12 -25.5 -57.7
1973-80 117.99 263.70 -141.49 -320.41 -34.8 -77.8
1981-88 65.91 229.58 -35.89 -108.33 -20.0 -51.1
Sudan
1967-72 16.18 150.07 -6.68 -14.14 -7.5 -14.7
1973-80 58.14 289.40 1.32 -14.63 -6.9 -17.6
1981-88 21.39 352.23 -5.81 -11.34 -9.0 -16.3

Sources and notes: Groundnut oil exports (column 1) and export unit values (column 2) are from Food and Agriculture Organization of the United Nations, FAO Trade Yearbook
(Rome: FAO, various years); columns (3) and (4) are deducted from estimated short- and long- term output effects by assuming the same shares of export in
groundnut output as in the pre-equilibrium situation; columns (5) and (6) are calculated using e uation (20) and, respectively, columns (3) and (4) for the value
of (QaN Q eGN), where QaGNis the actual level of groundnut output in each country and Q GN, the equilibrium level.
aln-shell groundnut equivalent.
bAverage annual changes.









Table 19- Estimated average annual change in aggregate groundnut exports as
a result of AGC country policies, 1967-88

Short-Term Long-Term Short-Term Long-Term
Quantity Quantity Revenue Revenue
Period Effect Effect Effect Effect
(percent)
1967-72 -5.50 -13.17 -13.47 -31.32
1973-80 -12.63 -31.00 -22.28 -53.66
1981-88 -9.50 -27.50 -16.39 -43.05

Sources: Based on results in Table 18 and country shares of African Groundnut Council (AGC) exports.
Note: The figures indicate the proportional difference between actual levels of export quantity and revenues and
the level of exports adjusted for the effects of domestic policies. The AGC values are weighted sums of
country changes (Table 18), based on individual country shares in AGC exports.


Gambia and Sudan. At the aggregate AGC level, the decline of output in all three
countries contributed to a fall in total groundnut production of 5-15 percent.
The reduction in country output translated into considerable losses in groundnut
exports. The decline in the volume of exports attributable to domestic policies was
particularly strong in Senegal, the main exporting AGC member (Table 18). The
actual quantity of groundnuts exported by Senegal at times fell more than 300,000
metric tons unshelledd equivalent) below their equilibrium levels, due to the disincen-
tives created by domestic policies. Smaller absolute changes took place in Sudan and
The Gambia, which exported much less than Senegal.
At the prevailing export prices, the reduction in export quantities meant export
revenue losses of 20-70 percent for Senegal and The Gambia. For Sudan, the com-
puted revenue losses vary from 10 to 20 percent. Translated into changes in aggregate
AGC exports, these losses correspond to a decline of up to 30 percent in quantity and
54 percent in export revenues (Table 19).
These results clearly indicate that domestic policies contributed significantly to
the decline of the groundnut sector of AGC countries and to a significantly larger
extent than factors related to international groundnut and oilseed markets. They had
strong, detrimental effects, both directly and indirectly, on prices and incentives in
that sector. They suppressed producer prices directly and caused country real ex-
change rates to appreciate significantly. The ultimate consequence has been a sub-
stantial reduction in output, export volumes, and export revenues in individual
member countries and the AGC as a whole.








6



THE GROUNDNUT DEMAND OUTLOOK
AND THE POTENTIAL ROLE OF
REGIONAL MARKETS

There was some indication in the discussion of trends in world trade in oilseeds
in Chapter 4 that future global groundnut demand is more likely to see a shift in the
location of import markets than a change in quantities. This chapter, therefore, starts
with a review of the main import markets for groundnut products and turns to the
consumption patterns of vegetable oils in selected regions and countries and ground-
nut import projections for the rest of the decade. In the second part of the chapter, the
determinants of oilseed import demand in regional markets are analyzed and implica-
tions for future AGC exports to these markets are drawn.

Demand Outlook for Oilseed Products

European markets have traditionally been the most important import markets for
oilseed products (Table 20). Their average share of demand in almost every oilseed
product category between 1982 and 1987 was considerably higher than the combined
share of all other importers. During the period, European markets accounted for
50-60 percent of world imports of unprocessed groundnuts, 80 percent of groundnut
oil imports, and nearly 90 percent of groundnut cake imports. Despite the still-high
levels of demand for groundnut products in European markets, demand is tilting
rapidly toward other oilseeds. With the exception of sunflower and soybean oils,
import growth rates for other oilseed products rank between 5 and 11 percent,
compared with -5 to 0 percent for groundnut products.
The erosion of groundnut demand in Europe contrasts sharply with the strong
import growth rates in the historically less important markets of Africa and Asia for
groundnut oil and of North and Central America and South America for unprocessed
groundnuts.
The percentage share of vegetable oils and fats in average daily per capital calorie
intake in various countries at different levels of income is presented in Table 21.
Since most vegetable oils are considered luxury goods, the demand for them is highly
income elastic. However, where incomes are high and per capital calorie intake levels
are in excess of 3,000 calories per day, the demand for vegetable fats and oils tends
to taper off, but the absolute demand may well depend on taste and cultural prefer-
ences, as evidenced by the relatively high levels of consumption in Italy and the
United States, compared with the moderate intake in France and Switzerland.
The direction that growth of demand is likely to take is shown in Table 22.
Growth in per capital consumption of major fats and oils over the last 30 years has
been more rapid in the subset of developing countries in the sample than in the group










Table 20- World imports of major oilseeds and oleaginous fruit products, by
region, 1961-87

Average Annual
Average Imports, 1982-87 Growth Rate,
Region/Crop Quantity Share 1961-87

World (1,000 metric tons) (percent) (percent)
World
Soybeans
Beans 27,294.64 100.00 7.99
Oil 3,665.91 100.00 9.42
Cake 22,770.44 100.00 11.98
Groundnuts
In shell 105.16 100.00 1.15
Shelled 746.77 100.00 -2.99
Oil 387.35 100.00 0.10
Cake 620.31 100.00 -4.20
Palm
Kernels 115.85 100.00 -7.89
Kernel oil 587.37 100.00 9.26
Kernel cake 833.51 100.00 6.66
Palm oil 4,712.47 100.00 10.52
Sunflowers
Seeds 2,065.95 100.00 10.48
Oil 1,636.18 100.00 6.92
Cake 1,494.11 100.00 5.47
Africa
Soybeans
Beans 55.30 0.20 13.59
Oil 388.87 10.61 8.64
Cake 692.50 3.04 37.22
Groundnuts
In shell 0.59 ... -10.35
Shelled 26.77 3.58 1.98
Oil 21.80 5.63 1.35
Cake 4.40 0.71 -3.65
Palm
Kernels 0.02 ... -27.87
Kernel oil 42.58 7.25 12.56
Kernel cake n.a. n.a. n.a.
Palm oil 703.23 14.92 18.84
Sunflowers
Seeds 22.45 1.09 21.35
Oil 355.42 21.72 12.17
Cake 3.00 0.20 12.85
Asia
Soybeans
Beans 8,405.99 30.80 7.03
Oil 1,663.47 45.38 11.96
Cake 2,078.24 9.13 23.73
Groundnuts
In shell 20.87 19.84 0.85
Shelled 188.13 25.19 4.74
Oil 48.56 12.54 1.96
Cake 67.00 10.80 1.29
Palm
Kernels 16.40 14.16 -5.22
Kernel oil 64.60 11.00 23.12
Kernel cake 16.90 2.03 -51.02a
Palm oil 2,942.66 62.44 16.48
continuedd)










Table 20-Continued

Average Annual
Average Imports, 1982-87 Growth Rate,
Region/Crop Quantity Share 1961-87

(1,000 metric tons) (percent) (percent)
Sunflowers
Seeds 18.01 0.90 -1.55
Oil 144.69 8.84 6.85
Cake 33.50 2.24 116.80b
Europe
Soybeans
Beans 15,204.46 55.70 11.28
Oil 762.86 20.81 -8.15
Cake 16,999.36 74.65 3.88
Groundnuts
In shell 67.23 63.94 0.89
Shelled 391.35 52.41 -5.31
Oil 308.37 79.61 0.06
Cake 544.58 87.79 -4.46
Palm
Kernels 98.37 84.91 10.62
Kernel oil 328.52 55.93 9.35
Kernel cake 816.47 97.75 3.84
Palm oil 913.86 19.39 6.47
Sunflowers
Seeds 1,448.02 70.09 5.11
Oil 617.25 37.22 0.69
Cake 1,385.72 92.74 -0.68
South America
Soybeans
Beans 639.28 2.30 17.82
Oil 420.39 11.47 11.96
Cake 648.18 2.85 39.19
Groundnuts
In shell 9.30 8.84 10.64
Shelled 2.37 0.32 7.75
Oil 0.27 0.07 -12.57
Cake ...
Palm
Kernels 0.004 ... n.a.
Kernel oil 3.46 0.60 2.56
Kernel cake 0.12 ... n.a.
Palm oil 0.63 ... -16.51
Sunflowers
Seeds 0.84 ... 14.88
Oil 89.28 5.46 18.37
Cake 0.12 ... n.a.
North and Central America
Soybeans
Beans 1,659.56 6.08 6.86
Oil 208.16 5.68 9.97
Cake 1,004.26 4.41 7.16
Groundnuts
In shell 7.05 6.70 9.55
Shelled 71.64 9.59 2.02
Oil 6.40 1.65 -1.74
Cake ......

(continued)










Table 20 -Continued

Average Annual
Average Imports, 1982-87 Growth Rate,
Region/Crop Quantity Share 1961-87
(1,000 metric tons) (percent) (percent)
Palm
Kernels 0.98 0.80 27.65
Kernel oil 140.74 23.96 5.52
Kernel cake 0.004 ... n.a.
Palm oil 205.48 4.36 9.98
Sunflowers
Seeds 572.92 28.84 27.25
Oil 177.03 10.82 6.22
Cake 63.00 4.22 18.28c

Sources: Food and Agriculture Organization of the United Nations, FAO Trade Yearbook (Rome: FAO, various years).
Notes: Shares may sum to less than 100 because Eastern European and Oceanic regions are not included. The
ellipsis (. .) indicate a nil or negligible amount, n.a. means data were not available.
a1976-87 only.
b1979-87 only.
C1977-87 only.


Table 21- Share of vegetable oils and fats in daily calorie intake, selected
countries, 1979-81

Calories in
Total Calories Vegetable Share of
per Capita Oils and Fats Total Caloric
Country per Day per Day Consumption
(percent)

Argentina 3,164 320 10.1
Bangladesh 1,837 40 2.2
Brazil 2,533 152 6.0
China 2,402 65 2.7
C6te d'Ivoire 2,567 231 9.0
France 3,260 350 10.7
Ghana 1,746 117 6.7
India 2,056 130 6.3
Indonesia 2,367 143 6.0
Italy 3,434 499 14.5
Malaysia 2,422 220 9.1
Nigeria 2,327 269 11.6
Pakistan 2,180 168 7.7
Philippines 2,377 85 3.6
Senegal 2,339 293 12.5
Switzerland 3,259 331 10.2
United States 3,455 491 14.2
U.S.S.R. 3,207 202 6.3
Zaire 2,097 159 7.6

Source: World Bank, Food Products, Fertilizers, and Agricultural Raw Materials, vol. 2 of Price Prospects for
Major Primary Commodities (Washington, D.C.: World Bank, 1988).









Table 22- Trends in per capital consumption of major fats and oils, selected
countries, 1960-87
Average
Annual
Country 1960 1970 1980 1987 Change
(kilograms/capita/year) (percent)
Brazil 5.45 8.04 16.95 18.70 9.0
China 2.46 2.65 4.65 7.50 7.6
C6te d'Ivoire 3.88a 6.22 9.64 9.34b 9.4
European Community 26.75 31.57 35.22 38.50 1.6
Ghana 4.86a 5.66 5.30 6.62b 2.4
India 5.75 5.48 6.54 7.20 0.9
Indonesia 2.58 3.08 6.02 8.70 8.9
Japan 6.95 13.13 15.81 19.30 6.6
Nigeria 9.19a 9.54 10.84 9.42b 0.2
United States 28.55 32.60 34.79 39.40 1.4
U.S.S.R. 13.64 17.71 20.52 22.80 2.4
World 9.53 10.70 12.73 13.10 1.4

Source: World Bank, Food Products, Fertilizers, and Agricultural Raw Materials, vol. 2 of Price Prospectsfor
Major Primary Commodities (Washington, D.C.: World Bank, 1988).
a1961
b1986


of industrialized countries. India, where consumption has grown very slowly, and
Japan, where it has grown rapidly, are the exceptions. During the period 1972-85, per
capital consumption of oils and fats in developing countries grew by 28 percent, rising
from an annual average of 5.0 kilograms in 1972-74 to 6.4 kilograms in 1985.
Developed countries as a whole had a 5 percent annual growth rate and consumption
levels rising from 19.9 kilograms in 1972-74 to 21 kilograms in 1985. Both income
and population growth were faster in developing countries, which generally acceler-
ated the demand for food. This was particularly true for vegetable oils and fats
because they constitute relatively cheap and concentrated sources of both energy and
protein (Watt and Merrill 1963).
Moreover, growing health concerns in industrial countries over the consumption
of animal fats and oils are likely to encourage demand for mono-unsaturated vegeta-
ble fats such as groundnut oil. And, as the democratization process in Eastern
European countries proceeds and their economies move to reflect market forces,
demand there is also likely to shift from animal fats and oils to the relatively cheaper
vegetable fats and oils. These developments, coupled with rapid population growth
and rising incomes in developing countries, indicate that global demand for oilseeds
will continue to grow for the next decade.
Turning to projections of the regional distribution of growth in import demand for
groundnut products (Table 23), import demand in the European Community and other
Western European countries is projected to grow by approximately 2 percent annually,
despite the decline in the 1970s and early 1980s. The strongest growth in demand is
expected to take place in former nonmarket economies and in developing African and
South American countries. Total world imports and those of developed countries,
however, are expected to grow only half a percentage point a year until the end of the
decade. The stagnating trends in world groundnut demand are, therefore, not likely to








Table 23- Projected groundnut imports by economic regions
Imports Growth Ratea
Economic Region 1990 1995 2000 1961-86 1970-86 1987-2000
(1,000 metric tons) (percent)
Developed countries 439 510 544 0.1 -1.4 0.6
European Community (10 countries) 403 470 499 0.3 -1.3 1.6
Other Western European countries 36 40 45 0.4 -0.7 2.4
Nonmarket countries 5 6 8 -0.4 -0.8 5.9
Developing countries 152 173 197 0.6 -1.5 3.4
Asia 113 124 130 2.2 4.3 1.9
Africa 31 40 55 0.8 -1.0 8.1
Latin America and the Caribbean 8 9 12 -5.6 -20.1 5.5
World 596 689 749 0.2 -1.5 0.5

Sources: World Bank, Food Products, Fertilizers, and Agricultural Raw Materials, vol. 2 of Price Prospectsfor
Major Primary Commodities (Washington, D.C.: World Bank, 1988).
aLeast squares trend for the historical period, 1961-86; end point for the projected period 1987-2000.


change. This is an indication that future growth in international demand will not have
any significantly stimulating effect on groundnut oil exports and that competition will
increase considerably on international markets. However, given the strong expansion of
demand in African countries depicted in this report and the projections presented here,
regional markets may provide future outlets for AGC exports.

Regional Import Demand
and AGC Groundnut Exports
Analyzing the role that regional markets have played in the past as a destination
for AGC groundnut exports and the factors that drive regional import demand for
oilseed products is necessary to understand the challenge AGC countries will face in
expanding exports to these markets. Thus, a constant market share (CMS) model is
applied to AGC groundnut exports to regional markets, followed by an econometric
analysis of regional import demand for different vegetable oils and for groundnut oils
from AGC countries.
The CMS model used to analyze the role of regional markets in AGC countries'
trade in oilseed products isolates the contribution of three different factors to the change
in export performance by individual AGC countries: (1) the competitiveness of individ-
ual AGC countries in different oilseeds markets; (2) the relative expansion of demand
for individual oilseeds; and (3) the geographic orientation of country exports. (The
model is described in Appendix 3). It decomposes the changes in country export shares
into the three components. The first is the competitive effect (CE):

(1+ g'")
CE (32)
(1+ gV)I

where g stands for the growth rate of exports of oilseed i's exports by AGC country
m and by the world w. This effect expresses the contribution of changes in the
competitiveness of country m in a given oilseed market to the change in its overall








trade performance. The effect is positive or negative depending on whether the ratio
is greater or less than 1.0 for the country being considered.
The second component is the product effect (PE):

(1+ g') X"'o
PE (33)
(1+ gW) X;"

where X and Xi represent, respectively, the aggregate and individual oilseed exports
by country m in period to. The product effect reflects the contribution of changes in
single-product markets to the change in the aggregated market share of country m.
The higher the share of products in the exports of a country that experiences faster
growth than the world average, the greater will the product effect be.
The third component is the market effect (ME):

(1+ gw") X"'
ME=- jto (34)
(1 + g) X,"' '

where the index j denotes the regional markets, and the remaining variables and
indices are as defined. This last component reflects the impact of the geographic
orientation of country m's exports on the growth of its trade share. The effect is
positive if the country directs a large share of its exports to markets that grow more
rapidly than the world average.
In addition to singling out the past and potential role of regional markets, the
model can also be used to test the external demand constraint hypothesis. For
example, the external demand constraint would imply that g! (the rate of growth
of world demand) does not exceed g'" (the country export growth rate) or, equiva-
lently, a competitive effect not below unity. Similarly, the product effect is helpful in
highlighting the consequences of the change in composition taking place in world
demand for vegetable oils, as discussed in Chapter 4 and earlier in this chapter. A low
product effect, for instance, would reflect the effect of a slower growth of world
demand for groundnut products compared with all oilseed products.
The model was calculated for individual AGC countries, focusing only on
groundnuts for the competitive and product effects and on the African region for the
market effect (Table 24). The competitive effect is negative (less than 1.0) for all
AGC countries, which implies that AGC members have not been able to maintain
their initial shares in world groundnut markets over the last three decades. The loss in
competitiveness was substantial for both Niger and Nigeria, the latter with an initial
trade share that exceeded 25 percent of total world groundnut exports (see Table 10).
The negative effect means that AGC exports have been falling faster than global
exports. This clearly contradicts the argument of an external demand constraint.
The product effect columns in Table 24 refer to the specific contribution of
groundnuts to the change in the position of AGC countries in international oilseed and
oilfruit product markets. With the exception of Nigeria and Sudan, groundnut prod-
ucts make up to 90 percent or more of AGC countries' exports of oilseed products.
The growth rate of world groundnut exports, however, has been less than 50 percent
of that for the aggregate of oilseed commodities. The stronger growth of nonground-
nut oilseed products explains why a groundnut exporter could lose shares in the total








Table 24-Market share results for oilseed and oilfruit products, AGC
countries, 1962-87

Product Effect Market Effect
Average Relative Relative
Share Competitive Growth Growth
Country 1962-67 Effecta Rate" Sharec Rated Sharee
(percent)
The Gambia 0.4 0.845 0.406 0.839 2.523 n.a.
Mali 0.2 0.387 0.406 0.894 2.523 0.230
Niger 0.5 0.000 0.406 0.962 2.523 0.230
Nigeria 7.4 0.001 0.406 0.541 2.523 n.a.
Senegal 3.3 0.408 0.406 0.890 2.523 0.031
Sudan 1.9 0.510 0.406 0.367 2.523 n.a.

Sources: Food and Agriculture Organization of the United Nations, FAO Trade Yearbook (Rome: FAO, various years).
aThe competitive effect is the growth rate of a country's exports of groundnut products relative to exports of other
pilseed and oleaginous fruit products.
"Refers to the growth rate of a country's groundnut product exports relative to exports of other oilseed and oleaginous
fruit products.
cRefers to the share of groundnut products in total exports of oilseed and oleaginous fruit products.
Refers to the growth rate of African imports of oilseed and oleaginous fruit products compared with the growth rate
of world imports.
eRefers to the share of Africa in each country's exports of oilseed and oleaginous fruit products.


vegetable oils markets, but not necessarily in groundnut markets. It is also important
to note that the relative fall in demand for world groundnut products largely reflects
the fall in exports from AGC countries, which still account for nearly 20 percent of
world exports (Table 10). For example, the decline of AGC exports between the
1960s and the 1980s was three times larger than the reduction in world demand for
groundnut oil of about 45,000 metric tons (Table 25).
The market effect (the last two columns in Table 24) indicates the contribution of
African markets, as a destination for AGC countries' exports, to the change in their
overall trade share. It shows that AGC countries seldom export to African markets:
the African share in the exports of the largest exporter in the AGC, Senegal, is only 3
percent. Demand in African markets for all oilseed products, however, grew more
than two-and-a-half times faster during the study period than demand in world
markets. Furthermore, as shown in the previous chapter, the African market is one of
the regions with a strong expansion of demand for groundnut products. It would
seem, therefore, that a stronger orientation of AGC exports to regional (African)
markets would stimulate export growth more than stagnating overseas markets. The
question to ask now is if regional oilseed markets continue to expand as rapidly as in
the past, to what extent and under which conditions could AGC exporters benefit
from such an expansion?
The outlook section in the last chapter predicted that demand for groundnut
products in African markets would increase by nearly 10 percent a year in the 1990s.
These projections do not, however, take into consideration the demand for other
oilseeds, which are also expected to expand considerably. Therefore, whether the
fast-growing regional markets can help boost future AGC groundnut exports will
depend primarily on the changes in the level and composition of regional vegetable
oil demand and on the competitiveness of AGC exporters on these markets.








Table 25- Groundnut and palm oil imports and groundnut oil exports by West
African and other African countries, 1961-87

Region/Commodity 1961-67 1973-77 1983-87
(1,000 metric tons)

World Vegetable Oil Imports
Groundnut oil 438.20 513.08 393.42
Palm oil 626.56 1,930.34 4,888.49
Other African countries
Groundnut oil 10.95 23.08 22.42
Palm oil 23.18 110.02 718.60
West African countries
Groundnut oil 1.16 6.72 8.60
Palm oil 3.65 9.56 138.64

Groundnut Oil Exports
West African countries 240.06 227.86 112.44
AGC countries 240.50 236.15 117.67
Senegal 136.83 172.41 102.93

aWest African countries include The Gambia, Mali, Niger, Nigeria, and Senegal.
The African Groundnut Council (AGC) members include the five countries above plus Sudan.



During the period of this report, African markets continually increased their share
in world imports of two major vegetable oils, palm and groundnut oils (Figure 16). At
the same time, the share of AGC exporters in world exports of groundnut oil fell by
two-thirds (Figure 17). As in overseas markets, most of the increase in import demand
on African markets has been captured by competing vegetable oils such as palm oil.
However, the shift in the relative share of individual oil products shows noticeable
differences among subregional markets. As can be seen from Figures 18 and 19,
import demand for groundnut oil has grown much faster in the West African submar-
ket, whereas the bulk of the increase in palm oil import demand went to other parts of
the continent. As a result, the ratio of palm oil to groundnut oil imports for the West
African submarket is about 16 (close to the world average of 12), compared with 32
for Africa as a whole (Table 25). These geographic differences in the evolution of
vegetable oil demand are very important, since five out of the six AGC members, as
well as the main exporting country, Senegal, are all located in West Africa.
Moreover, Figures 18 and 19 show that the surge in palm oil demand is a recent
phenomenon, especially in West Africa, which may have a lot to do with the poor
performance of the groundnut sector in that region. Groundnut production in AGC
countries declined nearly 3 percent a year between 1962 and 1987, while world
production of palm oil increased at an annual rate of 8 percent during the same period
(Kinteh and Badiane 1990). More importantly, the dramatic fall of groundnut exports
in Nigeria, now the largest importer of vegetable oils in the region, has been a major
boost to palm oil imports into the region (Figure 17).
Analyzing the factors that determine regional import demand for oilseed products
as a whole and for groundnuts from AGC and non-AGC countries provides insight
into the possible role of regional markets as future destinations for groundnut exports










Figure 16- Share of Africa in world imports of palm oil and groundnut oil,
1963-87

Percent
0.15



0.12 Palmoil
Groundnut oil

0.09



0.06



0.03




1963-67 1973-77 1983-87


Source: Food and Agriculture Organization of the United Nations, FAO Trade Yearbook, (Rome: FAO, various
years).





Figure 17-Export share of selected AGC countries in groundnut oil, 1961-87

Percent

0.8

0.7 ..... ..........-.............. .....^. ........ AGC
0.7.... oAGC
0.6 Senegal

0.5 ... -- Nigeria

0.4 -

0.3

0.2 '..

0.1

0.0

-0.1
1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987


Source: Food and Agriculture Organization of the United Nations, FAO Trade Yearbook, (Rome: FAO, various
years).
Note: AGC is African Groundnut Council.








Figure 18- Changes in groundnut oil imports between 1963 and 1987


1,000
Metric Tons
25 -


20 Africa
SWestAfrica

15 -


10-





0
1963-67 1973-77 1983-87


Source: Food and Agriculture Organization of the United Nations, FAO Trade Yearbook, (Rome: FAO, various
years).
Note: West Africa includes the main importers only: C6te d'Ivoire, Ghana, and Nigeria. Africa includes West
Africa.


by AGC countries.20 Hence the analysis in this section focuses primarily on the
importance of price competitiveness for recapturing regional markets, as indicated by the
effect of relative import prices on the level of demand for individual oilseed imports, and
the potential for future growth in regional markets for oilseeds, as the economies of the
region recover from the economic stagnation of the last decade. This recovery is based
on the income responsiveness of demand for individual oilseed imports.
The analysis of regional import demand is based on an econometric model that
follows a two-stage budgeting approach, which distinguishes, first, between demand for
groundnut imports and that for other oilseeds, and, second, between groundnut imports
from AGC and non-AGC sources. The distinction based on import sources implies that
product differention is assumed, meaning that regional traders and consumers do not
treat groundnut products from the two sources as perfect substitutes. Despite physical
similarities, there are a number of factors that support the assumption of product
differentiation between groundnut imports from AGC and non-AGC sources. Most
important is the historical bias in the infrastructure for import and distribution in favor


20Ideally, forecasting future demand levels would be part of the analysis of the importance of regional
markets for future AGC exports. The analysis presented here is restricted to investigating the reaction of
regional demand for oilseed products to key determining variables in order to obtain some idea, first, of
the possible evolution in groundnut import demand and, second, factors AGC countries will have to pay
attention to if they want to take advantage of any expansion in regional demand.









Figure 19-Changes in palm oil imports between 1963 and 1987


1,000
MetricTons
800 r


Africa
SWestAfrica


600 -


200 F


1963-67


1973-77


Source: Food and Agriculture Organization of the United Nations, FAO Trade Yearbook,
(Rome: FAO, various years).
Note: West Africa includes the main importers only: C6te d'Ivoire, Ghana, and Nigeria. Africa includes West Africa.


of extraregional imports. The control of groundnut and extraregional oilseed trade
channels by a limited number of foreign-based corporations and state-trading organiza-
tions also reinforces the bias and provides the opportunity to discriminate between trade
flows. Similarly, factors related to packaging, reliability, and timeliness of delivery may
lead to different behavior on the part of traders and consumers regarding imports from
the two sources.
Furthermore, the physical similarity of raw material ceases in many cases once
they are processed. AGC groundnuts are mainly exported in the form of oil. As for
many other processed products, the place of origin is an important parameter that
influences the decision of local consumers. Many local manufacturers react to this
behavior by leaving out information relating to the origin of their products or by
deliberately putting a wrong but more acceptable label on them. A good illustration
is the decision by Senegal's main mineral water bottling company to adopt a label


1983-87








showing snowy mountains and a European family in order to increase the acceptance
of its product on domestic and regional markets.
In accordance with the assumption of product differentiation and following Badiane
(1988) and Honma (1991), a model based on two-stage maximization behavior is used
to analyze regional demand for oilseed imports.21 Applying product differentiation to
oilseed imports means that two product categories can be distinguished for each
individual type of oilseed. The first category corresponds to each variety of oilseed
differentiated by its source of origin, and the second corresponds to aggregates of
similar oilseeds from different sources. Using groundnuts as an example, the first
category designates whether groundnuts are from AGC or non-AGC sources, while the
second category refers to groundnuts in general, without any source distinction.
Given functional separability, consumers' overall utility can, therefore, be viewed
as a function of subutilities, following the staged structure of maximization.22 At the
first stage, consumers seek to maximize top-level utility (equation 35) in demanding
optimum quantities of the composite goods (equation 37), based on available income
(equation 36) and the price index of each commodity aggregate. That is,

U= U(Q"'), (35)

where U is utility and Q"' is the quantity of imports.

E = EC lP ", (36)

where E is expenditure and Q7" and Pi"' are defined below.


Ql;" = Q"l(P",, E), and (37)
ill = P"l(P') (38)
1 I is

In these equations as well as the following ones, subscript i denotes commodities,
such as groundnuts, and subscript s is the source of regional imports, that is AGC and
non-AGC sources. Q" is the quantity index of oilseed imports at the top level, that is
not differentiated by source. P"' is the vector of price indices for individual oilseed
imports at the same level. Its elements, Pi", are functions of the prices of imports from
AGC and non-AGC countries, Pil', as indicated in equation (38).
Given the utility maximizing quantities (equation 37) of individual commodity
categories, which represent aggregates of imports from AGC and non-AGC countries
(equation 40), consumers then choose the levels of imports from the two sources
(equation 41) that minimize expenditure in each category, as given in equation (39).


21For a discussion of the model and other examples of its application, see Badiane 1988, Chapter 5, and
Honma 1991, Chapter 3.
22For discussion of functional separability and its implications for staged optimization, see Varian 1984
and Shiells, Stem, and Deardorff 1986.








(39)


Q" = Q;"(Q'), and (40)

Qi = Q '< (P",Q;), (41)

where Qi' denotes individual oilseed imports from AGC and non-AGC sources, Pi"' is
the vector of corresponding prices, and EI' is the combined expenditure on imports of
single oilseeds from the two sources.
Equations (37) and (40) can now be used for the econometric analysis of regional
oilseed imports. For that purpose the two equations are expressed in double-logarithmic
form and the error terms are added to yield estimating equations for regional import
demand for groundnuts and competing oilseeds (equation 42) and for groundnut
products from AGC and non-AGC countries (equation 43).
Thus,
InQ, = P, + Pi' InP!" + P. lnE + ui, (42)

where Qj" denotes the quantity indices of imports of individual oilseeds, and PV. and
Pie are, respectively, the own and cross-price elasticities and the income elasticity of
import demand for oilseed i. The import prices for individual oilseed varieties, P"' as
well as total income, E, are deflated using the consumer price index in the importing
country.
lnQ"' = + E, lnPf"+ XselnE"'+ v,, (43)

where Q.' stands for regional demand for oilseed imports from AGC and non-AGC
countries, and P" and E"' are, respectively, the unit value of imports of individual
oilseeds from the two sources and the combined expenditure on the same imports.
They are all deflated using the price index for total imports of the corresponding
oilseed, given in equation (38). The coefficient of the expenditure variable,
Xse, expresses the responsiveness of import demand for oilseed i from AGC and
non-AGC sources with respect to total expenditure on imports of the same oilseed.
The coefficients of the price variables, .,f, are the conditional import price elasticities,
which indicate the responsiveness of import flows from the two sources with respect
to their own prices, given the level of overall import demand for the same oilseed.
Using the two sets of parameters and the coefficients in equations (42), the own price
(6,) and income (0r.) elasticities, which give the overall reaction of AGC and non-AGC
import flows to changes in income and import prices, can be calculated as in
expressions (44) and (45), respectively (Honma 1991, 40-41):

"ss = ss CMs (Ef sf se Pii ), (44)


2As already indicated in equation (38), prices of composite imports are based on prices for imports from
the different sources. For the estimations, P,"' is calculated as a weighted index of the unit value of imports
from the different sources, P," using the share of individual sources in the imports of each oilseed as
weights.


El' = ~s ',








where CM, denotes the share of imports from source s in total imports of commodity i,
and
s= e Pie (45)

The first-stage demand equation (equation 42) is estimated separately for the
three main oilseeds imported by West African countries-groundnuts, oil palm, and
soybeans.24 As indicated in Table 9, regional imports of these oilseeds consist mainly
of oils. The estimations are, therefore, based on data for oil imports only. Data from
the two main importers of vegetable oils in the region, C6te d'Ivoire (for groundnut
oil) and Nigeria (for palm and soybean oils) are used in the estimations.25
The second-stage equation, (equation 43), which represents demand for imports
from AGC and non-AGC countries, is estimated only for groundnut oil, given the
focus of the study on groundnut exports by the AGC countries to regional markets.
Data on regional groundnut oil imports from Senegal, the main exporting AGC-mem-
ber country, are used in the estimation. Given the unavailability of data on Nigerian
imports of groundnut oil from AGC countries, for example, Senegal, only import
flows to C6te d'Ivoire are used.
Unlike equation (42), the error terms in equation (43) are expected to be corre-
lated contemporaneously, because of disturbances that are not captured by variables
included in the model but that affect overall demand for groundnut imports and,
therefore, affect imports from AGC and non-AGC countries alike. Hence, equation
(43) is estimated based on a modification of Zellner's seemingly unrelated regres-
sions (SUR) technique to account for unequal numbers of observations across equa-
tions due to shorter time series for non-AGC import flows (see Schmidt 1977; Judge
et al. 1985).
Furthermore, in estimating overall regional demand for individual oilseed imports,
dummy variables are introduced to capture changes in the structure of demand for these
products. The oil boom of the 1970s in Nigeria, the dramatic fall in oilseed production
in that country, and the severe drought at the end of the 1960s and early 1970s in
Senegal are expected to have affected the structure of regional demand for vegetable
oils. The cusum-squared test is used to identify periods of structural change in regional
demand and dummies included for the corresponding years to capture its effect.
The estimations with the best fit are presented in equations (46) to (51).26 The
estimates for the regional import demand parameters and the derived own-price and
income elasticities for AGC and non-AGC groundnut imports are summarized in
Tables 26 and 27. The very high estimates of own-price and income elasticities in
Table 26 indicate that regional imports of the three oilseeds in the table are very
sensitive to changes in import prices and incomes. The income elasticities are

24The error terms of the individual oilseed demand equations could be expected to be contemporaneously
correlated. However, the chi-square test for the palm and soybean import equations, which are based on
Nigerian import data, failed to reject the hypothesis of a diagonal covariance matrix. The groundnut
import equation is based on C6te d'Ivoire data alone and is, therefore, not included in the test.
25The estimates do not include data from Ghana because regional imports of palm and soybean oils are
heavily dominated by Nigeria, and estimations for groundnuts based on Ghanaian data yield insignificant
coefficients.
26The data used for the estimations are presented in a supplement to this report, available on request from
the International Food Policy Research Institute.









Table 26- Estimates of demand parameters for regional oilseed imports

Own Price Income Elasticity
Imported Oilseed (aii) (Pie)

Groundnutsa -1.77 2.76
Palm oilb -4.07 2.33
Soybeansb -2.29 2.85

Sources: Import quantities and price data are from Food and Agriculture Organization of the United Nations, FAO
Trade Yearbook (Rome: FAO, various years). Income data are from World Bank, World Tables, 1989-90,
Baltimore, Md., U.S.A.: Johns Hopkins University Press, 1990.
Notes: Estimates are based on data for vegetable oils, which are the main oilseed products imported by West
African countries. All estimates are significant at the 0.05 level.
aBased on C6te d'lvoire import data for die period 1966-85.
bBased on Nigerian import data for the period 1976-87.


comparably high for all three, suggesting a rapid increase in regional demand, as the
economies of the region expand.
In contrast, the price elasticities show strong differences across oilseeds. Palm oil
and, to a lesser extent, soybeans display a much higher degree of responsiveness to
import price changes than do groundnuts. This means that equal advances in cutting
unit costs of production and distribution translate into much higher gains in regional
demand for these two products than for groundnuts. Consequently, it appears that
groundnut exporters, in general, would face increased competition on regional mar-
kets, if palm oil- and soybean-producing countries keep or expand their technological
advantages of the past.27



Table 27- Estimates of demand parameters for groundnut imports from AGC
and non-AGC sources

Coefficients of Import Equation Import Demand Elasticities
Own-Price Expenditure Own-Price Income
Coefficient Coefficient Elasticity Elasticity
Origin of Imports (ss) (se) () (is)

AGCa -3.37 0.84b -2.17 2.32
Non-AGCa -1.17 1.21b -2.70 3.34

Notes: All coefficients are significant at the 0.005 level. Import demand elasticities are computed using equations (44)
and (45) and import shares of 0.64 for African Groundnut Council (AGC) and 0.36 for non-AGC countries.
Shares do not add up to 1.00 because estimates for the two sources are carried out for different time periods.
aBased on groundnut exports from Senegal (AGC) and the rest of the world (non-AGC) to C6te d'Ivoire, the only
groundnut-importing country in the region for which data on import flows by sources are available.
Tests of the homotheticity hypothesis confirm the divergency of each expenditure coefficient from unity.




27The significantly higher and primarily yield-driven production growth rates for oil palm and soybeans
in Table 1 (column 2) are a good illustration of the technological edge enjoyed by countries producing
these two commodities, compared with African (mainly AGC) producers.








Together with the figures in Table 26, the estimates for the second-stage import
equations in Table 27 show that groundnut imports are sensitive to prices in terms of
both aggregate imports and imports from the two different sources. However, demand
for groundnut imports by sources (third column of Table 27) seems to be more
responsive to price changes than overall groundnut import demand (first column of
Table 26). The higher price responsiveness of import demand at the second stage
reflects the process of substitution between AGC and non-AGC exports that accom-
panies the adjustment in regional demand for groundnut imports. Moreover, the
significantly higher value of the own-price coefficient for AGC groundnuts in Table
27 (-3.38) suggests that, by cutting their costs of production and distribution, AGC
exporters could increase both the quantity and value of their exports to regional
markets and raise their market share.
Demand for individual oilseeds is expressed in equations (46) to (48).
Groundnuts:
InQ' = -24.15 1.771nPk + 1.021nP + 2.761nE; (46)
(3.33) (2.22) (3.02) (3.04)
MAl: Box-Pierce statistic = 9.24; degrees of freedom = 3.

This equation is based on equation (42) applied to groundnut oil imports by C6te
d'Ivoire for the period 1969-87.
Palm oil:
InQ'; = 0.73 4.071nP"' + 7.36D x InP"' 3.701nE; (47)
(0.26) (2.81) (2.37) (2.33)
ARl: R2 = 0.80; DW = 1.82.
This equation is based on equation (42) applied to palm oil imports by Nigeria for the
period 1976-87.
Soybeans:
InQO = -11.66 2.291nPs, + 2.851nE; (48)
(6.20) (2.81) (2.45)
OLS: .2= 0.49; DW = 1.90.
This equation is based on equation (42) applied to soybean oil imports by Nigeria for
the period 1976-87.
Demand for AGC and non-AGC groundnuts is expressed in equations (49) to
(51). The three groundnut equations are based on equation (43) applied to groundnut
oil imports by C6te d'Ivoire for the period 1966-85. For AGC groundnuts, both SUR
and OLS estimates are presented.
AGC groundnuts:
InQ'c = -0.81 3.381nP 0.811nP w + 0.841nE"'; (49)
(65.22)(16.06) (13.05) (679.60)
SUR: R2= 0.94; F = 83.56.








InQ Gc = -0.80 3.361nP'GC 0.811nPROW + 0.841nE"'; (50)
(4.50) (4.65) (2.06) (15.06)
OLS: R2= 0.92; DW = 2.13.
Rest-of-world groundnuts:
InQRw = -0.80 + 2.631nPA' 1.171nP'o + 1.211nE"'; (51)
(15.97) (3.34) (3.96) (136.61)
SUR: R2= 0.83; F = 13.02.
Furthermore, the estimates yield an expenditure elasticity value that is almost
50 percent higher for non-AGC than for AGC groundnut imports (Table 27, column
2). Testing the individual values of the expenditure elasticity against unity (the
homotheticity test) indicates the extent to which AGC and non-AGC exporters may
benefit from expanding regional markets for groundnut products. For that purpose,
chi-square tests are carried out against the hypothesis Ho: Xse 1 for AGC exports
and against the hypothesis Ho : e 1 for non-AGC exports. In both cases, the Ho
hypothesis is rejected, meaning that AGC exports would expand less rapidly and
non-AGC exports more rapidly than aggregate regional demand for groundnut im-
ports. Similarly, the higher income elasticity coefficient for non-AGC groundnut
imports (Table 27, column 4) indicates that non-AGC suppliers would profit more
from increases in regional incomes than would AGC suppliers, suggesting that the
structure of regional import demand favors the former over the latter.
Based on these results and the ones from the constant market share model, AGC
exporters do not seem to enjoy any real advantage from their proximity to regional
markets. The findings put to question the success of strategies to revitalize national
groundnut sectors by encouraging regional outlets as alternatives to traditional export
markets. The expected fast-growing future demand on regional markets (Table 23),
the high price and income elasticities of groundnut import demand, and an expendi-
ture elasticity for groundnut import demand from AGC countries that is not much
below unity all indicate that regional markets could play an important role in future
AGC exports.









7



CONCLUSIONS

Although it is still significant in some cases, the contribution of the groundnut
sector to the economies of AGC countries has diminished consistently since the
1960s. Both production and exports fell sharply during the 1970s and 1980s. These
dramatic changes in the groundnut economies have often been portrayed by country
policymakers as a result of shrinking demand on international markets.
The data presented in this report show that the decline in AGC exports between
the 1960s and the 1980s was about three times larger than the fall in global groundnut
oil exports, which was about 45,000 metric tons. Consequently, the decline in AGC
export performance can hardly be explained by reduced external demand. What the
data also show is that global demand for vegetable oils tilted away from groundnuts
toward competing oils, the exports of which grew two times faster. Although this
tendency may raise some doubts about long-term prospects for groundnut oil relative
to other vegetable oils, it should not have much impact on the performance of
individual exporters on world groundnut markets.
Moreover, the share of AGC countries in world groundnut exports has fallen by
more than 50 percent during the period 1961-65 to 1986-88, while exporters from
South American and Asian countries have more than quadrupled their combined
share. AGC's loss of market share was also accompanied by a continuous decrease in
yield and acreage in its member countries, contrasted with strong yield increases in
competing Asian and South American countries. It would seem, therefore, that AGC
exports have suffered more from domestic than external demand factors.
In fact, the role of country policies in reducing incentives to groundnut produc-
tion and trade appear overwhelming. The net level of policy-induced implicit taxation
of the groundnut sector ranged between 10 and 30 percent in The Gambia, Senegal,
and Sudan. In The Gambia and Senegal, the level of direct and indirect disincentives
facing groundnut production and trade was particularly high during the 1970s, a
period when the world groundnut economy was booming, but also the period when
AGC countries suffered the greatest losses in market shares.
Due to the strong suppression of prices and incentives in the groundnut sector,
domestic policies had a detrimental impact on groundnut production and exports.
Except for Sudan for a few years and for the last few years of the study, domestic
policies kept country production and exports well below the levels that would have
prevailed. At the prevailing export prices, the reduction in output and export quanti-
ties caused yearly export revenue losses of 20-70 percent for Senegal and The
Gambia. For Sudan, the computed revenue losses varied from 10 to 20 percent.
Translated into changes in aggregate AGC groundnut exports, these losses corre-
spond to a decline of up to 31 percent in quantity and 54 percent in annual export
revenue.
These results clearly indicate that domestic policies contributed significantly to
the decline of the groundnut sector in AGC countries and to a significantly larger








extent than factors related to international groundnut and oilseed markets. These
policies had strong detrimental effects, both directly and indirectly, on prices and
incentives. They suppressed producer prices directly and caused country real ex-
change rates to appreciate significantly. The ultimate consequence was a substantial
reduction in output, export volumes, and export revenues in individual member
countries and for the AGC as a whole.
The primary role of domestic factors in the decline of the groundnut sector in
AGC countries is also supported by the findings of another AGC-mandated study,
which found that deficiencies in the production of and access to improved seeds and
in the availability and distribution of fertilizer have had a significant and negative
impact on the performance of the AGC's groundnut sector (UNECA/FAO 1985).
In the debates among AGC officials and country policymakers, the idea of
recapturing regional vegetable oil markets to compensate for dwindling international
outlets has received increased attention. Based on the results obtained from the
constant market share model, however, AGC countries have not taken advantage of
the proximity of regional markets in the past. Although demand in regional markets-
other African countries-grew two-and-a-half times faster than world markets, the
AGC countries seldom exported to regional markets.
Moreover, estimates of own-price and income elasticities reveal a high degree
of sensitivity of demand for individual oilseed imports with respect to changes in
import prices and incomes. The high income elasticities for groundnuts and soy-
beans especially suggest a rapid increase in regional demand for them, as the
economies of the region expand. In contrast, the estimated income elasticity for
palm oil is negative, indicating that it is viewed as an inferior good and that it will
become less of a competitor to groundnuts as the economies of the region grow and
incomes increase.
The estimates for price elasticities indicate a much higher degree of price-respon-
siveness for palm oil and, to a lesser extent, soybean imports than groundnuts. This
means that equal advances in cutting unit costs of production and distribution trans-
late into much higher gains in regional demand for these two products than for
groundnuts. It appears that groundnut exporters will face increased competition on
regional markets if palm oil- and soybean-producing countries keep or expand their
past technological advantages.
Furthermore, the analysis of demand for groundnut imports by sources suggests
regional importers and consumers adjust to price changes by substituting between
imports from AGC and non-AGC sources. The estimates obtained for the own-price
elasticity for AGC and non-AGC groundnut imports suggest that, even with stagnant
demand, AGC exporters could increase both the quantity and value of their exports to
regional markets and raise their market share by cutting their costs of production and
distribution.
In contrast, the estimates of the expenditure elasticities yield a value that is
one-and-a-half times higher for non-AGC than for AGC groundnut imports, an
indication that AGC exports would expand less and non-AGC exports more rapidly
than aggregate regional demand for groundnut imports. Similarly, the higher income
elasticity coefficient obtained for non-AGC groundnut imports means that non-AGC
suppliers would profit more from increases in regional incomes than would AGC
suppliers, suggesting that the structure of regional import demand favors the former
over the latter.








The finding that AGC exporters do not take much advantage of their proximity to
regional markets raises the question of whether strategies to revitalize national
groundnut sectors through increased exports to regional outlets is realistic. However,
demand on regional markets is likely to grow rapidly, as indicated by high price and
income elasticities of groundnut import demand and a relatively high import expen-
diture elasticity for AGC groundnuts. All of these indicators mean that regional
markets could play an important role in the future of AGC exports, but only if
member countries cut costs in production, marketing, and other export-related activi-
ties in order to contain the competition from non-AGC exporters.
This stresses the vital need to adjust the domestic policy environment in AGC
countries in order to eliminate the detrimental effects of sector and macroeconomic
policies on prices and incentives in their groundnut sectors. The liberalization of
domestic markets and the other reforms pertaining to marketing that have been
initiated in most AGC member countries are an important step toward eliminating the
disprotection of country groundnut sectors evidenced in this study and toward restor-
ing their competitiveness.
The same applies to reforms of macroeconomic policies and overall trading
regimes. In light of the significant impact they have on incentives in the groundnut
sectors, it is doubtful that AGC countries could even take advantage of favorable
demand conditions on international or regional export markets without effective
changes in the domestic policy environment.
The hope expressed at the Banjul meeting that intensifying regional trade in
groundnut products will help solve the problems faced by AGC exporters will not be
realized unless appropriate changes in domestic policies that affect production and
trade in the groundnut sector take place. AGC exports to the region and elsewhere
have suffered much more from these domestic policies than from external demand
constraints. However, the debates on increased regional trade and integration can
help groundnut exports to regional markets if they contribute to lowering the cost of
moving products through local and transborder markets.








APPENDIX 1: FINDINGS AND RECOMMENDATIONS
OF A JOINT STUDY BY THE UNITED NATIONS
ECONOMIC COMMISSION FOR AFRICA
AND THE FOOD AND AGRICULTURE
ORGANIZATION OF THE UNITED NATIONS


National Seed Production Programme

One major reason for the decline in groundnut production in the AGC-member
countries is the fact that most farmers lack improved high quality seeds which can
give them relatively high yield. The shortage of improved seeds is widespread
throughout the AGC-member States and this shortage has contributed immensely to
the prevailing low yield obtained for groundnut in each of the member States.
Given the fact that the most important input for rehabilitation of groundnut is the
production and supply of improved seeds, the need for seed production programme
cannot be over emphasized. Although considerable research has been done on the
development of improved seeds, most farmers in the AGC-member countries have
not benefitted significantly from this research due to lack of seed farms to supply
farmers with high quality seeds.
As a major step towards groundnut rehabilitation, each country should set up seed
production farms to be located in various ecological zones in their groundnut produc-
ing areas. Since Senegal is already advanced in seed development, the help of AGC
in obtaining some information on high quality seeds from Senegal can be sought.
Also, since the establishment of seed farms would involve some financing, each
country can seek the help of FAO and UNDP in financing part of the seed farm
project. The FAO technical cooperation programme can assist each country not only
with the partial financing of the project but also with the technical guidance and
management of the seed farms. The AGC through their Technical and Scientific
Department can also participate in the seed programme by providing technical
information and expertise to backup the seed programme.
In summary each country should embark on [a] seed farm project to be financed
jointly by their government and possibly by FAO/UNDP. The AGC should partici-
pate in the project by providing some technical support and assistance.

Subsidy on Improved Seeds
The improved seeds produced under the seed project should be subsidized by
each State government as a means of encouraging farmers to purchase and use them
for their plantings. Given the fact that most of the groundnut farmers are smallholders
having very low income, most of the farmers may be unable to purchase and use the
improved seeds if the prices are not subsidized. The recommended level of subsidy


This appendix is excerpted from a report on a study carried out by the United Nations Economic
Commission for Africa and FAO's Agriculture Division, Addis Ababa (see UNECA/FAO 1985, 2).








should not be lower than 50 percent. This is the only way of ensuring that the
improved seeds produced are widely adopted for plantings by the groundnut farmers.


Fertilizer Programme

Lack of fertilizer used by the groundnut farmers has been one of the factors
responsible for the present low level of yield obtained in AGC-member States. To
ameliorate this situation it is recommended that each member country should estab-
lish a National Fertilizer Programme whereby the required quantities of fertilizer
would be imported into the country and made available at the right time and at a
subsidized rate to the groundnut farmers.
Since shortage of foreign exchange has been a major constraint in the importation
of fertilizers each country can seek the assistance of FAO and the World Bank with
respect to financing the fertilizer programme. Also, bilateral loans and grants could
be sought between each member country in connection with the proposed fertilizer
programme. The Gambian government already has a grant from Italy for its fertilizer
project although the grant is still inadequate to meet her total requirements. Where
grants are not available direct loans can be obtained from the World Bank to finance
the proposed fertilizer programme.


Village Industrial Process in Programme

Given the present groundnut processing constraints at the village levels in most
of the AGC-member States, one way of rehabilitating the declining groundnut indus-
try is to establish small-scale groundnut processing units at the village level. Such
village processing units can follow the Indian pattern and each member country can
seek the assistance of UNDP/UNIDO in setting-up the proposed project. Also the
consultancy advice of UNECA/UNIDO Division can be sought by AGC in setting up
the individual units in the various member countries.
UNIDO and each member country would be expected to collaborate in financing
and managing the project.








APPENDIX 2: ESTIMATION OF THE
EQUILIBRIUM EXCHANGE RATE

Restrictive trade regimes and imbalances in overall economic policies are typi-
cally reflected in a sustained appreciation of the real exchange rate and a deterioration
of country trade balances. Accordingly, a model linking the exchange rate to trade
restrictions and the current account deficit is used to estimate the equilibrium ex-
change rate(Ee).28 It is assumed that individual country supply X, and demand (Md)
for foreign exchange react to changes in the real exchange rate (E) with elasticities
e, and id respectively defined as

= (dX,/X,)/(dE/E), and (52)

d = (dMd/Md)/dE/E). (53)

First, defining Ea as the actual official exchange rate and Xa and Ma as the actual
levels of aggregate country exports and imports; second, defining Q' as the equilib-
rium level of exports and imports in the absence of trade restrictions; and third,
defining E' as the value of the balanced-account exchange rate, e and 1d can be
rewritten as
s = [(Q'-Xa)/Xa]/[(Et-Ea)/Ea], and (54)

d = [(M Q')/Ma ]/(E'-Ea1)/Ea]. (55)

Furthermore, if the unsustainable part of the balance of trade (Ba) is defined as
Ba = Ma Xa equations (54) and (55) can be solved to yield29

Ba = [(Et-Ea)/Ea](EX,+ qdMd), and (56)

(E'-Ea)/Ea= Ba/(E,X,+ qIdMd). (57)

Equation (57) gives the change in the exchange rate that is required to eliminate
the unsustainable part of country current account deficits.
Since country exchange rates are equally affected by the imposition of trade
restrictions, equation (57) needs to be modified to include the change in the exchange
rate that would arise from the removal of trade restrictions. In the presence of


28The model is based on Krueger, Schiff, and Vald6s 1988. For other applications, see Stryker 1990; Intal
and Power 1990; Jansen 1988; Jenkins and Lai 1989; Moon and Kang 1989; Garcia and Llamas 1989.
2Specification of the sustainable level of country current account balance rests on assumptions about the
normal level of financial flows. Given the difficulty this presents in identifying the sustainable share of
actual country current account imbalance, the calculations carried out in the study are based on sustainable
levels of zero current account balance.







restrictions, the true exchange rates received by exporters (E') or paid by importers
(E') in each of three countries-The Gambia, Senegal, and Sudan-differ from E',
the corresponding country's equilibrium exchange rate. The former are determined
by the actual equivalent rates of taxation of exports (tx) and imports (t,,) in each
country, as presented in expressions (58) and (59):

E'= (1- t,)E', and (58)

Ed = (l+ t,,) E'. (59)

The effect of trade restrictions on the current account can thus be calculated as

B, = ld[(Ed-E')/E'] Md s[(E.-E')/Et] X, (60)

with the effect of removing trade restrictions on country import and export prices
given by
(Ed-E')/E'= t,,,/(1+t,,,), and (61)

(E,'-E')/E'= t,/(l- t). (62)

Inserting equations (61) and (62) into equation (60) yields a new expression for
the impact of trade restrictions on the balance of trade:

B,= d [t/(l + t,,)] Md s,[tx/(1- tx)] Xs. (63)

Adding B, as defined in equation (63) to Ba in equation (57) yields the change in
exchange rates that would prevail in a situation without trade restrictions and with
balanced country current accounts. The new expression is

(Ee-Ea)/Ea = (B + B)/(EsXs+ dMd). (64)

Equation (64) can now be solved for the equilibrium exchange rate Ee, which
would prevail in the absence of trade restrictions and other domestic policies that
cause country exchange rates to appreciate. The expression for Ee, is

Ee= [(B+ B,)/(esXs+ dMd) + 1]Ea. (65)

Or, using the expression for B, in equation (63),

SE B + rd [t /(l +tA)]Md + [t1- t)]X a(66)
Ee=E + E+. (66)M
eX, + I dMd








APPENDIX 3: THE CONSTANT MARKET
SHARE MODEL


The model adopted for this report is similar to the one developed in Magee 1975.
It starts with the following identity:
Sj = R Sto, (67)

where So denotes the shares of a given member country in total world exports of
oilseeds in the beginning period (1962-67) and St, in the end period (1982-87). R
represents a relative growth factor defined as follows:
(1 + gl")
R =-( (68)
(1+ g')
where g"' and gW stand for the percentage growth rates of total exports of oilseed
and oilfruit products of country m and the world w between the beginning and the
end period. Equation (68) expresses the growth of country m's exports (Xm)
relative to world exports and can be rewritten as

(1 + g') (X) (69)
R = 1 (69)
i (1 + gW) (X a)

with X"' = Xo By expressing X for the different products i and different
export destinations in equation (69), multiplying by [(1 + g)/(1 +gt)] and by
[(1 + gw)Xto/(l + gw)X^ ], summing over i and j, and rearranging the terms, the
following result is obtained.

(1 + g) (1 + g) (1 + g) X
R I ",o, (70)
i (l+g') (1+gw) X, j (l+g') Xt;'

where Xl0 = X^o = Xo, and i and j represent individual oilseed and oilfruit
i j
products and export destinations, respectively. By substituting equation (70) for R in
equation (67), the result is a new expression for the change in country export shares
between 1962-67 and 1982-87:

(1 + g") (1 + gW) Xt"' (1 + g) X' (7
Sa (1+gY) (l+gb) Xo (l+gc ) X"o
a b c








It is clear from equation (67) that the direction of a country's export share during
a given time period depends on whether the relative growth factor R is greater than,
less than, or equal to unity. Furthermore, the new expression for R in equation (71)
shows that a country may increase its global trade share for several reasons: (1) it has
been able to raise its exports in single-product markets faster than the world average
(term a of equation [71]); (2) its exports are concentrated on the commodities that
experience faster growth rates than the aggregate of oilseed and oilfruit products (the
last two terms of the first sum); and (3) its exports are directed more toward markets
that grow faster than the world average (term c of equation [71]).








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Ousmane Badiane is a research fellow at the International Food Policy Research
Institute. Sambouh Kinteh is director of the Economic and Commercial Department
of the African Groundnut Council, Lagos, Nigeria.




RECENT IFPRI RESEARCH REPORTS (continued)


80 HORTICULTURAL EXPORTS OF DEVELOPING COUNTRIES: PAST PERFORMANCES, FU-
TURE PROSPECTS, AND POLICY ISSUES, by Nurul Islam, 1990
79 EFFECTS OF AGRICULTURAL COMMERCIALIZATION ON LAND TENURE, HOUSEHOLD
RESOURCE ALLOCATION, AND NUTRITION IN THE PHILIPPINES, by Howarth E. Bouis
and Lawrence J. Haddad, 1990
78 THE EFFECTS OF SUGARCANE PRODUCTION ON FOOD SECURITY, HEALTH, AND
NUTRITION IN KENYA: A LONGITUDINAL ANALYSIS, by Eileen Kennedy, 1989
77 THE DEMAND FOR PUBLIC STORAGE OF WHEAT IN PAKISTAN, by Thomas C. Pinckney,
1989
76 AGRICULTURAL AND ECONOMIC GROWTH IN ARGENTINA, 1913-84, by Yair Mundlak,
Domingo Cavallo, and Roberto Domenech, 1989
75 IRRIGATION TECHNOLOGY AND COMMERCIALIZATION OF RICE IN THE GAMBIA:
EFFECTS ON INCOME AND NUTRITION, by Joachim von Braun, Detlev Puetz, and Patrick
Webb, 1989
74 FOOD PRODUCTION IN A LAND-SURPLUS, LABOR-SCARCE ECONOMY: THE ZAIRIAN
BASIN, by Tshikala B. Tshibaka, 1989
73 NONTRADITIONAL EXPORT CROPS IN GUATEMALA: EFFECTS ON PRODUCTION, IN-
COME, AND NUTRITION, by Joachim von Braun, David Hotchkiss, and Maarten Immink, 1989
72 RICE PRICE FLUCTUATION AND AN APPROACH TO PRICE STABILIZATION IN BANGLA-
DESH, by Raisuddin Ahmed and Andrew Bernard, 1989
71 STORAGE, TRADE, AND PRICE POLICY UNDER PRODUCTION INSTABILITY: MAIZE IN
KENYA, by Thomas C. Pinckney, 1988
70 AGRICULTURE IN THE GATT: AN ANALYSIS OF ALTERNATIVE APPROACHES TO RE-
FORM, by Joachim Zietz and Alberto Vald6s, 1988





The International Food Policy Research Institute was established in 1975 to
identify and analyze alternative national and international strategies and policies for
meeting food needs of the developing world on a sustainable basis, with particular
emphasis on low-income countries and on the poorer groups in those countries. While
the research effort is geared to the precise objective of contributing to the reduction
of hunger and malnutrition, the factors involved are many and wide-ranging, requiring
analysis of underlying processes and extending beyond a narrowly defined food
sector. The Institute's research program reflects worldwide collaboration with gov-
ernments and private and public institutions interested in increasing food production
and improving the equity of its distribution. Research results are disseminated to
policymakers, opinion former, administrators, policy analysts, researchers, and others
concerned with national and international food and agricultural policy.
IFPRI is a member of the Consultative Group on International Agricultural
Research and receives support from Australia, Belgium, Brazil, Canada, China,
Denmark, the Food and Agriculture Organization of the United Nations, the Ford
Foundation, France, the German Agency for Technical Cooperation (GTZ), the
German Federal Ministry for Economic Cooperation (BMZ), India, the Inter-American
Development Bank, the International Development Research Centre (Canada), the
International Fund for Agricultural Development, Japan, the National Science Foun-
dation, the Netherlands, Norway, the Philippines, the Rockefeller Foundation, Spain,
Sweden, Switzerland, the United Kingdom, the United Nations Administrative Com-
mittee on Coordination/Sub-Committee on Nutrition, the United Nations Development
Programme, the United Nations International Children's Emergency Fund, the
United States, the World Bank, and the World Food Programme.





RECENT IFPRI RESEARCH REPORTS

96 POVERTY, HOUSEHOLD FOOD SECURITY, AND NUTRITION IN RURAL PAKISTAN,
Harold Alderman and Marito Garcia, 1993
95 SECTORAL GROWTH IN CHILE: 1962-82, by Juan Eduardo Coeymans and Yair Mundlak,
1993
94 FERTILIZER USE ON SMALLHOLDER FARMS IN EASTERN PROVINCE, ZAMBIA, by
Dayanatha Jha and Behjat Hojjati, 1993
93 ECONOMIC INCENTIVES AND COMPARATIVE ADVANTAGE IN INDONESIAN FOOD
CROP PRODUCTION, by Leonardo A. Gonzales, Faisal Kasryno, Nicostrato D. Perez, and
Mark W. Rosegrant, 1993
92 FAMINE IN ETHIOPIA: POLICY IMPLICATIONS OF COPING FAILURE AT NATIONAL AND
HOUSEHOLD LEVELS, Patrick Webb, Joachim von Braun, and Yisehac Yohannes, 1992
91 RURAL INFRASTRUCTURE, THE SETTLEMENT SYSTEM, AND DEVELOPMENT OF THE
REGIONAL ECONOMY IN SOUTHERN INDIA, by Sudhir Wanmali, 1992
90 LABOR IN THE RURAL HOUSEHOLD ECONOMY OF THE ZAIRIAN BASIN, by Tshikala B.
Tshibaka, 1992
89 GROWTH IN JAPAN'S HORTICULTURAL TRADE WITH DEVELOPING COUNTRIES: AN
ECONOMIC ANALYSIS OF THE MARKET, by Masayoshi Honma, 1991
88 DROUGHT AND FAMINE RELATIONSHIPS IN SUDAN: POLICY IMPLICATIONS, by Tesfaye
Teklu, Joachim von Braun, and Elsayed Zaki, 1991
87 INCENTIVES AND CONSTRAINTS IN THE TRANSFORMATION OF PUNJAB AGRICUL-
TURE, by Anya McGuirk and Yair Mundlak, 1991
86 THE EFFECTS OF INTERNATIONAL REMITTANCES ON POVERTY, INEQUALITY, AND
DEVELOPMENT IN RURAL EGYPT, by Richard Adams, Jr., 1991
85 COMMERCIALIZATION OF AGRICULTURE UNDER POPULATION PRESSURE: EFFECTS
ON PRODUCTION, CONSUMPTION, AND NUTRITION IN RWANDA, by Joachim von Braun,
Hartwig de Haen, and Juergen Blanken, 1991
84 EFFECTS OF EXCHANGE RATE AND TRADE POLICIES ONAGRICULTURE IN PAKISTAN,
by Paul Dorosh and Alberto Valdes, 1990
83 DEVELOPMENTAL IMPACT OF RURAL INFRASTRUCTURE IN BANGLADESH, by Raisuddin
Ahmed and Mahabub Hossain, 1990
82 AGRICULTURAL GROWTH AND STRUCTURAL CHANGES IN THE PUNJAB ECONOMY:
AN INPUT-OUTPUT ANALYSIS, by G. S. Bhalla, B. K. Chadha, S. P. Kashyap, and R. K.
Sharma, 1990
81 PRODUCTION AND CONSUMPTION OF FOODGRAINS IN INDIA: IMPLICATIONS OF
ACCELERATED ECONOMIC GROWTH AND POVERTY ALLEVIATION, by J. S. Sarma and
Vasant P. Gandhi, 1990

(continued on inside back cover)


Inentoa Food Polic ReerhInttt

1200 Seetet IStret IS.W




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