The Causes of Poverty (33): Agricultural Subsidies

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After the United States and before Turkey, the world’s second largest producer of tomato concentrate is the EU. Its tomato farmers are paid a minimum price higher than the world market price, which stimulates production. The processors, in turn, are paid a subsidy to cover the difference between domestic and world prices.

Some of the effects of these subsidies on West African LDCs in the 1990s have been documented. The subsidy is reported to have reached about $300 million in 1997. The processors, then, need to find markets, and about 20 per cent of exports at that time went to West Africa. In the mid-1990s, about 80 per cent of demand in this region was covered by tomato products from the EU, which were cheaper than local supplies.

Stiff competition from EU industries led to the closure of tomato-processing plants in several West African countries. In Senegal, for instance, tomato cultivation was introduced in the 1970s, and progressively acquired an important position for farmers, for whom tomato production was synonymous with a key opportunity to diversify their farming systems and stabilize incomes. In 1990-1991, production of tomato concentrate was 73,000 tons, and Senegal exported concentrate to its neighbours. Over the past seven years, total production has fallen to less than 20,000 tons.

One of the main reasons for this dramatic fall was the liberalization of tomato concentrate imports in 1994. Despite the positive impetus provided by the devaluation of the CFA franc, the tomato-processing industry could not compete with EU exporters. Imports of concentrates jumped from 62 tons in 1994 (value: $0.1 million) to 5,130 tons in 1995 (value: $4.8 million) and 5,348 tons in 1996 (value: $3.8 million). SOCAS, the one Senegalese processing firm that has survived, buys imported triple concentrate and processes it into double concentrate.

Other West African LDCs – Burkina Faso and Mali – have had similar experience of enormous increases in imports of EU tomato concentrate. (source)

More on free trade and protectionism. More on poverty in Africa.

4 Comments

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