Agricultural pricing in Togo

Agricultural Pricing in Togo SWP-467 World Bank Staff Working Paper No. 467 Julr 1981 SECTOlRAL LIBRARY INTERNATIONAL BANK FOR RECONSTRUCTIC.ON ANn I)EVELOPMENT NOV 5 1986 Prepared by: David Bovet and Laurian Unnevehr Country Programs Departrnent n West Africa Regional Office (i 1981 d Bank MD rt *** HD9017.T62 B68 c.2 9O 11F Dr Agricultural pricing in Togo / .TE,1 4 IlilililUlililil I BBllilililililillXlililil DHilililililill authors c.2f' di SLC029707 Dns,-or to any n cMaual aaing in tneir Denalt.   The views and interpretations in this document are those of the authors and should not be attributed to the World Bank, to its affiliated organizations or to any individual acting in their behalf. WORLD BANK Staff Working Paper No. 467 July 1981 AGRICULTURAL PRICING IN TOGO This paper analyzes the pricing policies pursued by the Government of Togo for its export crops -- cocoa, coffee, and cotton -- and proposes an analytical framework which could be used in price-setting. Because these crops are handled through a marketing board system, the conflicting pricing policy objectives of government revenue maximization and of foreign exchange maximization determine the type of analysis used. Supply elasticities and measures of private and social profitability are computed, and the effects of competing foodcrop prices and cross-border trade are analyzed. The results suggest that in the case of cocoa, the policy of pursuing revenue maximization in the short-run means that special measures must be introduced to provide an incentive for cocoa replanting. For cotton, the effect of input subsidies is shown to be more than offset by the relatively low producer prices. Prepared by: David Bovet and Laurian Unnevehr Country Programs Department II West Africa Regional Office Copyright kc 1981 The World Bank 1818 H Street, N.W. Washington, D.C. 20433, U.S.A.   PREFACE This paper analyzes the price response of Togo's major cash crops, discusses options for pricing policy, and recommends a frame- work for price analysis which could be applied by the Government. The data gathering,analytical work, report writing and discussions with Government were carried out by Mr. David Bovet and Ms. Laurian Unnevehr, both of the West Africa, Programs Department. Annex A was written in conjunction with Mr. Michael J. Hartley of the Development Economics Department. This review was carried out in consultation with the West Africa Projects Department, Agriculture Division.   AGRICULTURAL PRICING IN TOGO Table of Contents Page No. Background ........................................1............ Pricing Policy Objectives ...................................... 6 Methodology .................................................... 9 Analytical Results - Cocoa ................ .. ................... 10 - Coffee .................................... 12 - Cotton .................................... 13 Suggestions for Future Study ............... .. .................. 16 Conclusions and Recommendations ................................ 17 ANNEX A: Cocoa ........................ ........................ 23 Supply Response ...... ................... ............. 23 Replanting .. .......--. 29 Policy Objectives and Strategies ........ .. ........... 35 ANNEX B: Coffee ....................... ........................ 39 ANNEX C: Cotton ....................... ........................ 46 Supply Response ...................................... 46 Structure of Incentives ..... ......................... 51 Policy Implications ............... .. ................. 54 STATISTICAL APPENDIX ....... .............. ...................... 57 BIBLIOGRAPHY ......................... .......................... 76 MAP OF TOGO .................................................... 77   List of Text Tables and Figures Table of Contents Tables Page No. 1. Composition of Exports - % of Value ................... 1 2. Comparison of Producer Prices in CFA Zone ............. 3 3. Range of Discount Rates for which Replanting Shows a Positive Return .............. 11 Figures 1. Price Movements of Cash Crops and Foodcrops ........... 4 2. Cash Crop Marketed Production ...................... 5 3. Outcome of Alternative Pricing Policies for Export Crops ................................................. 6 4. Government Revenue - Maximizing Producer Price as a Function of Supply Elasticity ......................... 8 5. Cocoa Prices ................. 20 6. Coffee Prices ................. 21 7. Cotton Prices ................. 22   The purpose of this study is to investigate the effects of past agricultural price policies in Togo on production incentives and to evaluate alternative pricing strategies against macroeconomic objectives. In addi- tion, it is hoped that the analytical methods presented can be used by the authorities in carrying out their own analyses of agricultural prices in future years. The present study was prompted by the Government's and the Bank's desire to analyze cash crop pricing issues more closely in light of the emphasis now placed on agricultural development. This paper is speci- fically directed toward three major export crops, all of which have been the focus of Bank projects in Togo: cocoa, coffee and cotton. Incentives for growing these crops have been analyzed in relation to competing food- crop prices. Attention has been focussed on the export crops, since their prices are set annually by the Government marketing agency. Background Agriculture is an important sector in Togo in terms of both economic product (30%) and employment (75%). It is a less important component of export earnings because of Togo's mineral resources (see Table 1). TABLE I COMPOSITION OF EXPORTS - % OF VALUE 1970 1971 1972 1973 1974 1975 Phosphates 25 35 38 46 76 65 Cocoa 42 31 29 26 12 18 Coffee 18 18 21 13 4 6 Cotton 1 2 2 3 2 1 Agricultural institutions in Togo are divided between cash crops and foodcrops 1/. OPAT, a parastatal agency, serves as a marketing board in setting prices for cash crops (cocoa, coffee, cotton, groundnuts, palm kernels and others), providing domestic marketing and processing, and selling for export. TOGOGRAIN, a relatively new agency, is supposed to stabilize food grain prices by operation of a buffer stock. So far, its activities and impact have been small. There are also extension agencies: the ORPV's (ex-SORADS) are responsible for regional agricultural development but have been hampered by a lack of clearly defined goals. Agencies for individual cash crops have been more active: SRCC (cocoa and coffee), SOTOCO (cotton), and SONAPH (oil palm). Currently, farmgate prices for cash crops are fixed by OPAT while prices of foodcrops are determined by market forces. Producer prices of cash crops have been about half of world market prices (based on F.O.B. Lome): 1/ "Cash" crops and "export" crops are used interchangeably in this paper to refer to those crops marketed by OPAT. Foodcrops are the foodgrains and starchy staples which may be produced both for subsistence consump- tion as well as for cash sale. This distinction is not absolute since groundnuts and palm oil are marketed both domestically and for export.  - 2 - Nominal Protection Coefficient 1/ Cocoa (Avg. 1967-76) .47 Coffee (Avg. 1967-76) .45 Cotton (Avg. 1972-77) .51 Palm Kernels (1977) .57 Togo producer prices have tended to be lower than producer prices in other CFA zone countries (see Table 2), especially the Ivory Coast 2/. For cocoa, this is a reversal of the earlier situation (up to 1973-74) in which Togo-s prices were above those of the Ivory Coast and Cameroon. Foodcrop prices have exhibited a rising trend over the last 10 years, though with considerable cyclical fluctuations related to rainfall conditions. The drought in 1976-77 caused prices of staple food to triple, though they subsequently declined somewhat in response to heavy 1977 grain imports. A much better harvest in 1977-78 has brought foodcrop prices to very low levels. Increases in cash crop prices have not always kept up with trends in foodcrop prices (see Figure 1). Cash crop production performance has been mixed (see Figure 2). Cocoa exports (Togo