The Impact of Domestic and
Trade Policies on Sudan’s
Agricultural Export Earnings
Imad Eldin Elfadil Abdel Karim Yousif
University of Khartoum - Sudan
Contents
•
•
•
•
•
Introduction
Multi-market model
Scenarios
Some selected results
Conclusion
Introduction
• Agriculture in Sudan is important economy
sector
• Contributed about 45% of GDP
• Major source of labor force
• Food production
• Till 1998 agricultural exports represent
about 90% of total country export
• This share declined to 12% in 2005 after
oil exploitation
• Agricultural sector in Sudan was subjected
to various forms of taxation
• The direct and indirect taxation of
agricultural sector was the traditional
source of government revenues
• Sudan also relied on taxes imposed on
international trade as a source of income
• The results - Agricultural sector
experienced continuous deterioration
• In response - Sudan adopted liberalization and
privatization policies as a means of development
• Exports taxes and direct taxation on agriculture
was a polished
• However, many taxes are still imposed on
agricultural production and export in different
kind e.g. administration fees, transportation fees,
production fees and other domestic taxes (zakat,
state support fees, ports fees, profits tax and
others).
• Macroeconomic policy led to appreciation
of Sudanese currency (appreciated by
21% by the end of 2006)
• Increasing of foreign reserved due to oil
exports
• The indirect impact - many agricultural
exports are uncompetitive in the world
market
• In this paper, a trial to estimate and
quantify the effect of domestic taxation
and appreciation of Sudanese currency on
agricultural trade performance was carried
out using a multi-market approach.
Multi-Market Model
• Comparative static, multi-commodities
model
• Built in excel Microsoft program
• The model consists of a set of demand
and supply equations for each commodity
with the level of production and demand
determined by factors such as prices,
income, shift variables and various other
assumptions about policies
• The main policy instruments in the model
are producer and consumer prices
• The model allows for the simultaneous
determination of supply, demand, trade
levels and prices including their crossmarket linkages for all commodities
covered.
• The supply and demand functions in the
model are specified as follows:
q
S
i
S
 Ci  ( p )
i
ii
  ( p )ij
S
j
j i
q  K ( p ) ( p ) Y
d
i
C
i
i
C
ii
J i
i
ij
i
i
• The price relationship in the model –
assuming full transmission:
S
p
i
C
p
i


w
p
i
(1  t i )  x
P
w
p
i
(1  t i )
C
• Total welfare in the model is the sum of
producer surplus, consumer surplus and
government revenues
• The model was calibrated to the base
period data (average of 2000 and 2001)
Scenarios
• Partial liberalization scenarios
- 50% reduction of taxes under base period
foreign exchange rate (257 SD/US$).
- 50% reduction of taxes under speculated foreign
exchange rate (189 SD/US$)
• Full liberalization scenarios
- Full liberalization under base period foreign
exchange rate
- Full liberalization under speculated foreign
exchange rate
Some Selected Results
Effects on domestic prices
Percentage changes in the domestic prices under the simulated
scenarios
Full liberalization
Partial liberalization
Cotton
Sesame
Groundnut
Sorghum
Sugar
Without
appreciation of SD
With appreciation
of
SD
Without
appreciation of SD
With
appreciation of
SD
8.8
36.0
49.3
10.2
-16.3
-24.1
-5.1
4.2
-23.1
-41.6
17.6
72.1
98.7
20.5
-32.6
-17.9
20.1
38.7
-15.9
-53.0
Percentage changes in the domestic prices under partial
Percentage change
liberalization scenario
60
50
40
30
20
10
0
-10
-20
-30
-40
-50
cotton
sesame
groundnut
Partial lib. without SD apprec.
sorghum
Partial lib. with SD apprec.
sugar
Trade Effects
Absolute changes in the trade balance under the simulated scenarios
(000 metric tons)
Full liberalization
Partial liberalization
Cotton
Sesame
Groundnut
Sorghum
Sugar
Without
appreciation of
SD
With
appreciation of
SD
Without
appreciation of
SD
With appreciation
of SD
8.1
21.4
2.6
26.7
-45.4
-62.2
2.1
28.4
-138.3
-70.5
18.3
38.1
1.3
65.9
-102.5
-53.3
18.3
33.1
-276.2
-201.5
Absolute changes in the trade balance under partial
liberalization scenario
40
20
Thousand metric tons
0
-20
cotton
sesame
groundnut
sorghum
sugar
-40
-60
-80
-100
-120
-140
-160
Partial lib. without SD apprec.
Partial lib. With SD apprec.
Welfare effects
Absolute changes in producer surplus under partial
liberalization scenario
40
30
Million SD
20
10
0
-10
cotton
sesame
groundnut
sorghum
-20
-30
-40
Partial lib. without SD apprec.
Partial lib. With SD apprec.
sugar
Conclusion
• The agricultural sector has been relatively
ignored and neglected after oil exploitation
• Liberalization policies could have positive impact
on agricultural sector and its export earnings
• The appreciation of Sudanese dinar has
negative impact on the trade performance of
agricultural exports
• Liberalization policy alone is not enough to the
development of the agricultural sector unless it
has been combined with suitable
macroeconomic policies