State support for the agricultural sector in the EAC

Project Active from to Firms and Farms

As the members of the East African Community (EAC) negotiate the harmonisation of their domestic and border tax policies, agriculture and food security remain among the prioritised key areas of cooperation. Given the vital role of the agricultural sector and the importance of improving food security in EAC countries, policymakers face strong political incentives to consider both consumer and farmer welfare in their policy decisions that affect market conditions for agricultural commodities directly or indirectly. To accommodate some country- and product-specific flexibility in terms of policies, a Sensitive Items List was established when agreeing on the Common External Tariff (CET) that was implemented in Kenya, Uganda and Tanzania in 2005, and in Rwanda and Burundi in 2009. This Sensitive Items List allows countries to adjust their tariffs for certain products outside the agreed levels and apply peak rates, which are often observed in EAC countries (Shepherd et al., 2017). Such non-uniform implementation of policy instruments - specifically agricultural CETs - has undermined liberalisation and will be discussed in the upcoming negotiations between EAC member countries.

At the country level, Rwanda’s fourth National Strategy for Transformation of Agriculture (PSTA IV) has prioritised measures to stabilise the supply of key staples to boost food security and reduce hunger. Regional economic integration is key to achieving this objective. However, rice millers have expressed their concerns about unfavourable domestic tax policies and perceived unfair competition from EAC imports that are undermining the competitiveness of their local produce. This study analyses the constraints faced by Rwandan producers of rice, maize and wheat in Rwanda over the period 2005-2014, following cross-country studies in Anderson & Masters, 2008, and analyses by the International Food Policy Research Institute (IFPRI) and FAO-MAFAP on agricultural production incentives. This study will offer insight into price distortions due to policy interventions in the EAC and their effects not only on the own country but also other countries in the region, thereby guiding policymakers during the EAC member countries´ negotiations in terms of domestic and border policies concerning key foods.

For the analysis, indicators of distortions compare domestic producer prices and reference border prices for selected agricultural commodities, adjusted for transport costs, trade margins and quality differences. The key assumption is that, according to the law of one price, without policy intervention and trade costs, these two prices should be equal. The gap in prices, expressed as Nominal Rates of Protection (NRP) and Nominal Rates of Assistance (NRA), reflects deviations between the two prices due to policies and structural changes. Positive price gaps act as an incentive for producers (a disincentive for consumers), stimulating production, whereas negative price gaps act as a disincentive for producers (incentives for consumers). These indicators are analysed for the commodities rice, wheat and maize in the EAC countries over the period 2005-14, helping to point out the effects of such policy distortions in the region. This study will be supplemented by interviews with key stakeholders in the sectors under study.