Are investments in agricultural infrastructure really boosting farmers’ market access in Sub Saharan Africa: A CGE Analysis

Most countries in the world adopt trade and domestic market policies that affect production incentives. Recent results produced by FAO’s Monitoring and Analyzing Food and Agricultural Policies (MAFAP) programme show that other factors than explicit policies contributed to the pattern of production disincentives across commodities in Sub-Saharan Africa (SSA). Severe market failures in the form of high marketing margins lowered farmer prices. Governments in SSA are increasingly recognizing that smallholder farmers’ participation in markets and agribusiness development also depend on investments and not only on short term policies. Yet, the specific issue of excessive market access costs for farmers and other agents in key value chains has been insufficiently analyzed. In this paper, we perform several real-world policy simulations to further explore the issue of production resulting from high marketing costs. We propose to answer the questions like of how much would the marketing margins in a given value chain be reduced as result of a 10% increase in the budget for roads. As budgetary allocations are usually a zero sum game in SSA, we account for the trade-offs in public expenditure allocation decisions. Exploiting the MAFAP dataset, we extend the standard GTAP 9 Data Base to include not only domestic support and border protection but also detailed data on market access costs in a few commodity-specific value chains and the agricultural sector as a whole for a dozen of SSA countries. Taking into account transaction costs as well as missing markets, we examine the welfare effects for both net food buyers and net sellers of an improved connection of farmers to domestic and international markets compared to a scenario where major policy distortions have been discontinued. Furthermore, we investigate the impact and fiscal implication of an increase in agricultural spending to 10 percent of the national budget with an exclusive focus on physical infrastructure.