Cover_Rebuilding West Africas Food Potential

270 Rebuilding West Africa’s food potential

intermediaries, and thus their tax incidence as well. Moreover, the largest cocoa exporting countries,

Côte d’Ivoire and Ghana, probably have a degree of market power in international markets which is

exercised by the government as it taxes exports. In those cases where market power exists, some of

export taxes are borne by foreigners: the whole point of applying optimal export taxes is to collect

revenue from foreigners. When those taxes are relaxed, the benefits accrue to those foreigners more

than to farmers. The literature has recognized that at least in the case of Côte d’Ivoire export taxes may

be optimal policy (Yilmaz, 1999; Consultative Board on the World Cocoa Economy, 2007). When Côte

d’Ivoire reduced export taxes in 1999, it is likely that benefits accrued not only to consumers but also to

the exporting intermediaries, whose oligopoly rents appear to have increased over that period. When

export taxes were reinstated in 2003, rents declined (Wilcox and Abbott, 2005). Intermediaries may

well be the least elastic agents in the supply chain, so such results should not be surprising. Another

observation consistent with a potential importance of market power is that processors have pursued

backward integration along the value chain towards the farmgate. Wilcox and Abbott argue that this

could not only benefit from scale economies in marketing but also confer local market power on the

processors/exporting agents that would otherwise be held by local traders.

The second factor that could limit farmers benefiting from transaction cost reductions is imperfect market

integration. Estimates of price transmission from world prices to farmgate prices are low for both cocoa and

cotton. Imperfect price transmission could arise both from stabilization efforts by the government and from

imperfect market integration. In his study of farmgate prices in Cameroon and their relationship to port and

world prices, Wilcox (2006) found considerable regional variation in price transmission and strong evidence of

imperfect integration, at least for some markets within Cameroon. Unexplained arbitrage opportunities also

appear in local price data. Cameroon liberalized in the early 1990s, and since then the government has not

exercised policies to stabilize domestic prices. Therefore, evidence of imperfect price transmission is evidence

of imperfect market integration there. Once again, this mechanism limits the extent to which any downstream

changes in transaction costs or the sharing of value added would be passed back to farmers.

Even innovations such as Fair Trade, which directly intervene to raise some farmgate prices and avoid market

responses that diminish transmission of benefits to farmers, may hurt other farmers. Abbott, Wilcox and Muir

(2005) found the niche interventions have this effect in that these institutions raised prices for some farmers

• those participating directly in the activity – but lowered prices for the remainder of the market. This effect
  is small as long as these niche strategies remain small components of the overall market. Single-country tax
  reductions can have a similar effect, raising prices in the domestic market of that country, but lowering prices
  for farmers in other countries. This mechanism is limited by the issues discussed above that limit transmission
  of cost changes upstream to farmers, regardless of the type of intervention.

Thus, there are several mechanisms – tax incidence sharing based on relative elasticities, market power,

and imperfect market integration – that severely limit transmission of value added, tax, rent and cost

changes upstream to the farmgate.

3.3 Public goods after privatization

An issue mentioned earlier, which bears repeating, is that public goods are not readily provided by the

private sector after structural adjustment reforms liberalize markets. It is clearly the case that provision of

public goods declined substantially after structural adjustment reforms in the six West African countries

examined here. Budgets for research and extension that depended on export tax revenue and on the

profits of parastatals diminished even before the parastatals were eliminated. Market information was

not necessary when official prices were announced and applied throughout the country and year, but it