Improving livelihoods in agriculture-based economies through processing sector development: A CGE analysis on Benin

Most of the agriculture-based economies in Africa are exporting raw materials to developed economies while in return an important share of processed food is imported. In many African countries, the investment level in agriculture is low. It has been proven that increasing agricultural production without ensuring development of the value chain (processing, trade) may end-up in welfare loss for farmers as often farm-gate prices decrease more than production costs (technological treadmill). However, until now there, little research has been conducted on the economy-wide effects of value chain development. This paper aims at contributing to fill this gap in the literature by analyzing the effect of the development of the food processing sector along with agricultural productivity gains on agricultural prices and welfare in an agriculture-based economy, taking the example of Benin, West Africa. A comprehensive Social Accounting Matrix (SAM) was developed for Benin for the year 2019 and applied to a static computable general equilibrium model. Increasing food processing has positive effects for the economy as a whole as it generates additional demand for agricultural products and thereby results in increased returns to land, unskilled (agricultural) labor and capital. The additional value added through processing resulted in an increase in GDP and higher income as well as total welfare for rural and urban households. The processing boosting policies are pro-poor.