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The Groundnut Market in Senegal: Examination of Price and Policy Changes

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The Groundnut Market in Senegal: Examination of Price and Policy Changes The Groundnut Market in Senegal: Examination of Price and Policy Changes James K. Gray Dissertation submitted to the Faculty of the Virginia Polytechnic Institute and State University in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Agricultural and Applied Economics George W. Norton, Chair Jeffrey R. Alwang Michael K. Bertelsen Anya M. McGuirk Bradford F. Mills June 10, 2002 Blacksburg, Virginia Tech Keywords: Senegal, groundnuts, peanuts, economic surplus, agricultural supply response The Groundnut Market in Senegal: Examination of Price and Policy Changes by James K. Gray (ABSTRACT) The Government of Senegal is attempting to liberalize the groundnut market. In the past, this market was highly regulated with government-set producer prices, groundnut oil processing mills owned by parastatals, and requirements that all groundnuts be sold to these quasi-governmental organizations. In recent years, these rules are being relaxed, and farmers are allowed to sell groundnuts on the open market. However, farmers continue to sell most of their groundnuts, as before, to the mills. This study attempts to shed light on the effects of this market liberalization. First, an attempt is made to provide estimates of the farmers' short-run output supply and input demand responses to price changes. A quadratic profit function model is estimated using data collected for the current study and a similar dataset collected by Akobundu [1997]. Second, a quadratic programming model is used to examine the effects of eliminating pan-territorial prices. Results indicate that the elimination of the pan-territorial price system will have an overall benefit to Senegalese society. However, as expected, groundnut producers in areas remote from the groundnut oil processing mills would face lower prices. The effects on producers and consumers in the major producing regions, however, were found to be minimal. Finally, the dissertation provides an extensive description of the economic activities of small-scale farm households in Senegal’s Groundnut Basin. Differences between males and females and between household heads and other males in the household are also examined. Although females are not as involved in groundnut production, they do not seem to face discrimination in either the official or the open market. The description of the situation facing small-scale farmers provided in this dissertation is not encouraging. The quantity and timing of the rains in the Groundnut Basin add an unwelcome uncertainty to farming. Increases in population are adding pressure to the environment and are placing heavy demands on wood and grazing lands. Only eight percent of the farmers had groundnut seed multiplication ratios less than one, and sixty- seven percent had ratios less than five. The dissertation also indicates that farmers are not producing enough to feed their families. Fewer than twelve percent of the households produce a caloric surplus. Sixty percent produced less than fifty percent of their caloric needs. The study indicates that farmers are not earning enough from agricultural production to take care of normal expenses throughout the year. Thus, when combined with uncertain rains and a worsening environment, the farmers have little margin of safety. Therefore, any government policies affecting groundnut production in particular or agricultural production in general should take into account the situation already facing the farmers. i DEDICATION This dissertation is dedicated to my wife, Lyn, our son, Rafael, and to my parents, Ruth Simpson Hart Gray and the late Reverend Corbelle Katon Gray. ACKNOWLEDGEMENTS This dissertation and all my achievements have been reached with the help of many, many people. I would like to express my deep appreciation to my committee for their guidance, advice, patience, and encouragement. Doctors George Norton, Jeff Alwang, and Brad Mills were especially helpful when I encountered difficulties or was frustrated. Doctors Anya McGuirk and Mike Bertelsen were available whenever I needed assistance. Outside my formal committee, Doctors Dan Taylor and Charlene Brewster provided invaluable help without which I would not have been able to finish. I’d also like to thank the entire faculty of the Department of Agricultural and Applied Economics. The friendship I have formed not only with my committee but also with both faculty and staff of the department will stay will me forever. In Senegal, I’d like to thank Matar Gaye, who not only shared his vast expertise of Senegal and the groundnut sector, but also opened his home and made me feel welcome. I’d also like to thank Thierno Ly, Ousmane Ndao, and Amadou Ndiaye, who administered the survey. Without their dedication to their work, their professionalism, their unfailing good humor, their careful attention to the correctness of responses to my questionnaire, and their friendship, I would not have been able to complete my work. Finally, I’d like to acknowledge the support of the entire staff of the Institut Sénégalais de Recherches Agricoles/Kaolack. On a personal level, I want to thank my wife, Lyn, and my son, Rafael who supported me on every level and gave up many things they might have wanted to do to allow me to complete this degree. I also want to acknowledge the support I received from my Mom, whose love and support never wavered. This publication was made possible through support provided by the U.S. Agency for International Development, under the term of Grant No. LAG-G-00-96-00013-00. The opinions expressed herein are those of the author and do not necessarily reflect the views of the USAID. ii Table of Contents Abstract ...................................................................................................................................... i Dedication .................................................................................................................................ii Acknowledgements ...................................................................................................................ii Table of Contents .....................................................................................................................iii List of Tables and Graphs ........................................................................................................ vi Acronyms and Abbreviations................................................................................................... ix Chapter 1: Introduction 1.0 Introduction ................................................................................................................... 1 1.1 Typical Setting for Groundnut Production.................................................................... 3 1.2 Historical Price Setting.................................................................................................. 6 1.3 Objectives and Testable Hypotheses............................................................................. 7 1.4 Methods......................................................................................................................... 8 Chapter 2: Historical Background 2.0 Introduction ................................................................................................................. 11 2.1 General Historical Background................................................................................... 11 2.2 Groundnut-Specific Background: Pre-Independence.................................................. 16 2.3 Groundnut-Specific Background: After Independence (1960-1967).......................... 22 2.4 Groundnut-Specific Background: End of the Senghor Years (1967-1980) ................ 24 2.5 Groundnut-Specific Background: Structural Adjustment........................................... 28 2.6 Groundnut-Specific Background: Senegal's New Agricultural Policy ....................... 31 Chapter 3: Data Description and Survey Results 3.0 Introduction ................................................................................................................. 38 3.1 Survey Design ............................................................................................................. 40 3.2 Location of the Survey ................................................................................................ 41 3.3 Household Demographics ........................................................................................... 42 3.4 Rainfall........................................................................................................................ 45 3.4.0 Introduction ..................................................................................................... 45 3.4.1 Actual Rainfall in Survey Area ....................................................................... 46 3.4.2 Farmers’ Perceptions of Season’s Rainfall ..................................................... 50 3.5 Agricultural Activity: Fields Planted .......................................................................... 52 3.5.0 Introduction ..................................................................................................... 52 3.5.1 Groundnut Fields............................................................................................. 54 3.5.2 Cereal Fields.................................................................................................... 55 3.5.3 “Other Crop” Fields ........................................................................................ 56
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