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Poverty effects of expansion and policies in cotton economies in rural Mozambique:
An economy-wide approach


Rui Benfica1, Channing Arndt2, David Tschirley3 and Duncan Boughton3

September 2006

SARPN acknowledges the African Economic Research Consortium (AERC) as the source of this document: www.aercafrica.org
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Abstract

This paper uses a Regional Computable General Equilibrium (CGE) model calibrated with a Social Accounting Matrix (SAM) for the Mozambique Zambezi Valley cotton concession sub-region to examine the economy-wide impacts and relative changes in the levels of income poverty of grower and non-grower household groups, following exogenous shocks, such as contract faming specific capital expansion, technology improvements, changes in world prices, and Government policies. Simulation results indicate that productivity gains have a broad-based income growth and poverty reduction potential, even greater than increased cotton world prices; because sustained increases in world prices are unlikely, this result is encouraging. While employment linkages are relatively weak in these economies when compared to tobacco growing areas, income diversification strategies by non-grower households, particularly through non-farm self-employment and food crop marketing, ensure that they are not left behind when interventions are focused on cotton growers. Even when impacts are limited among growers, any expansion in cotton production results in some positive effects to non-growers. The implied potential of interventions focused on increasing cotton productivity present a great opportunity for concession firms and policy makers to design strategies that are beneficial to both grower farmers, firms and the population at large. This will require public-private coordination efforts stressing better research and extension, the use of high yielding seed varieties, and emphasis on quality. Although results indicate limited negative effects of high import prices for inputs, measures aimed at reducing the costs of importation and transportation are highly encouraged as they can help minimize or counterbalance any negative effects from factors outside the control of domestic agents. While current poverty impacts of cotton cropping are relatively small, there is high potential for significant broad based gains under a more productive system.

Introduction

Cotton is historically the most important cash crop for smallholder farmers in Mozambique. Though the sector has been widely perceived as a poor performer in southern Africa (Poulton et al, 2004; Tschirley et al, 2006), the crop provides crucial access to relatively secure cash income for nearly 250,000 smallholder farm families in the most densely populated areas of the country; performance of the cotton sector matters a great deal to rural poverty in Mozambique.

In this paper, we use an economy-wide framework to analyze changes in the levels of income poverty of different household groups following certain exogenous shocks to the cotton sector; these shocks include expansion of contract farming through capital injections, technology improvements, changes in world market prices, and changes in Government trade policies. These issues are addressed using a regional agricultural CGE model in the tradition of Lofgren and Robinson (1999) and Taylor et al. (1999) which we developed and calibrated with a regional Social Accounting Matrix (SAM). The model focuses on the Zambezi Valley area, which has received much of the new investment in the sector over the past decade.

An economy-wide approach is especially useful in this case, because previous econometric analysis in cotton concession areas of the Zambezi Valley indicates that growth in the sector can affect growers and non-growers in different ways (Benfica et al., 2006). The relative magnitude of the income effects depends to a great extent on the nature of second round effects that result from employment, production and consumption linkages following shocks in the sector; our economy-wide approach is specifically designed to capture these effects.

The paper is organized as follows. Section 2 uses survey data to illustrate a base year comparative poverty and inequality profile of cash crop and non cash crop growers in cotton and tobacco concession areas of the Zambezi Valley. Section 3 presents the data and analytical methods that include the Regional SAM, the Regional CGE model, and a conceptual framework for the Representative Household Approach to Poverty Analysis used in this study. Section 4 focuses on the definition and set up of the various policy simulations that form the basis for the analysis, and uses stochastic dominance techniques to present and discuss the results. Section 5 closes with policy implications.

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Footnotes:
  1. The World Bank, Poverty Reduction and Economic Management, Maputo, Mozambique
  2. Purdue University/Ministry of Planning and Development, Maputo, Mozambique
  3. Michigan State University, Department of Agricultural Economics, East Lansing, MI, USA


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