The impact of price and exchange rate policies on agriculture in sub-saharan Africa

Abstract

The purposes of this paper are two. Firstly, a review is undertaken of the available literature on the impact of price and exchange rate policies on agriculture in Sub-Saharan Africa. Secondly, an empirical analysis is undertaken using data for 31 Sub-Saharan African countries to test several of the common hypotheses concerning this policy Impact. The findings tend to confirm the predominate view that in Sub- Saharan Africa, price and exchange rate policy has an impact on agricultural production. With the exception of a few countries, the impact has been negative. However, the analysis suggests that these policies are not the most important factors affecting agricultural growth. Indeed these policies have a relatively small impact compared to other factors such as Government development in farm input supply, population growth, and Government's ability to operate and maintain its agricultural investments. Much of the variation in agricultural growth between African countries still cannot be explained. "Appropriate" price and exchange rate policy would have a relatively small impact on agricultural growth. The literature on this subject tends to suggest a general thrust of policy reform appropriate to all African countries. In this article it is argued that there is no stereotype price policy package suitable for all African countries. The reason is that the depth of the policy problem differs considerably between countries, as do policy objectives and other constraints (land, water, markets, social, political, etc). The policy package to remedy problems caused by poor price and exchange rate policy must therefore be adapted to each country. It should in particular adapt itself to the political situations of various countries. It must emphasize policies in addition to price and exchange rate reform. Donors should help by pushing reform in the right direction, but not expecting rapid achievement of optimal policy. Helping to establish an effective policy making process may be more important than achieving specific price and exchange rate targets.