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Type Journal Article - UNCTAD Virtual Institute project on trade and poverty
Title Heterogeneous welfare effects of cotton pricing on households in Benin
URL http://vi.unctad.org/tap/docs/other/benin.pdf
After a long period as the major driver of Benin’s agriculture and economy, the cotton sector has been
experiencing problems that have caused a decline in production and in producers’ welfare since early
2000. To help the sector recover, the government has intensified its intervention in the form of support
of producer prices over the past four years. This study investigates the effectiveness of cotton pricing
in Benin, with a focus on the increases in producer prices during 2009–2012. More specifically, it examines
whether higher cotton prices encourage farmers to increase production, and estimates potential
related welfare gains for these farmers. For this purpose, we analyse the supply response of cotton
using a partial adjustment model estimated with a panel of 42 communes during 1995–2011, and estimate
cotton supply elasticity, using an instrument based on a yield shock measure. The results suggest
that cotton production responds to price incentives. Applying non-parametric regressions, the study
finds that an increase in cotton prices is likely to benefit all households across the income distribution,
although to different degrees. Gains are larger for cotton farmers in the northern regions where
cotton production is predominant. The simulations of welfare improvements under different price increase
scenarios show that household welfare increased, taking into account the production response.
For example, an increase in cotton price from FCFA 190 per kg in 2009 to FCFA 250 per kg in 2011–
2012 led to a 9.8 per cent increase in household welfare. Increased cotton prices do not result in any
crowding-out effect on the production of other crops (maize, rice, tubers, etc.). The sensitivity analysis
shows that in addition to cotton pricing, complementary policies aimed at increasing productivity
and yields in the cotton sector (such as access to improved cotton varieties and inputs, extension services,
etc.) would be an effective strategy to improve the welfare of producers.

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