The Impact of Domestic and Trade Policies on Sudan’s Agricultural Export Earnings Imad Eldin Elfadil Abdel Karim Yousif University of Khartoum - Sudan

Contents IntroductionIntroduction Multi-market modelMulti-market model ScenariosScenarios Some selected resultsSome selected results ConclusionConclusion

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 taxationAgricultural sector in Sudan was subjected to various forms of taxation The direct and indirect taxation of agricultural sector was the traditional source of government revenuesThe 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 incomeSudan also relied on taxes imposed on international trade as a source of income The results - Agricultural sector experienced continuous deteriorationThe results - Agricultural sector experienced continuous deterioration

In response - Sudan adopted liberalization and privatization policies as a means of developmentIn response - Sudan adopted liberalization and privatization policies as a means of development Exports taxes and direct taxation on agriculture was a polishedExports 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).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)Macroeconomic policy led to appreciation of Sudanese currency (appreciated by 21% by the end of 2006) Increasing of foreign reserved due to oil exportsIncreasing of foreign reserved due to oil exports The indirect impact - many agricultural exports are uncompetitive in the world marketThe 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.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 modelComparative static, multi-commodities model Built in excel Microsoft programBuilt 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 policiesThe 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 pricesThe 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 cross- market linkages for all commodities covered.The model allows for the simultaneous determination of supply, demand, trade levels and prices including their cross- market linkages for all commodities covered.

The supply and demand functions in the model are specified as follows:The supply and demand functions in the model are specified as follows:

The price relationship in the model – assuming full transmission:The price relationship in the model – assuming full transmission:

Total welfare in the model is the sum of producer surplus, consumer surplus and government revenuesTotal 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)The model was calibrated to the base period data (average of 2000 and 2001)

Scenarios Partial liberalization scenariosPartial 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 scenariosFull 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 Partial liberalization Full liberalization Without appreciation of SD With appreciation of SD Without appreciation of SD With appreciation of SD CottonSesameGroundnutSorghumSugar

Percentage changes in the domestic prices under partial liberalization scenario

Trade Effects Absolute changes in the trade balance under the simulated scenarios (000 metric tons) (000 metric tons) Partial liberalization Full liberalization Without appreciation of SD With appreciation of SD Without appreciation of SD With appreciation of SD CottonSesameGroundnutSorghumSugar

Absolute changes in the trade balance under partial liberalization scenario

Welfare effects Absolute changes in producer surplus under partial liberalization scenario

Conclusion The agricultural sector has been relatively ignored and neglected after oil exploitationThe agricultural sector has been relatively ignored and neglected after oil exploitation Liberalization policies could have positive impact on agricultural sector and its export earningsLiberalization 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 exportsThe 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 policiesLiberalization policy alone is not enough to the development of the agricultural sector unless it has been combined with suitable macroeconomic policies