1. Henry Kankwamba Brent Edelman Noora-Lisa Aberman
Institutional reform, transaction costs and agricultural price policy: A single market partial equilibrium model for soya bean exports in Malawi
Henry Kankwamba
Brent Edelman
Noora-Lisa Aberman

2. Presentation outline Background The model Data sources
Results & Discussion
Conclusions & Policy implications

3. Background
Malawi’s reliance on tobacco leaves it vulnerable to exogenous shocks.
The Malawi economy is generally a net importer and requires a lot of foreign currency to meet its import budget.
Government came up with a national export strategy (NES) to develop Malawi’s competitive capacity.
Oilseed crops e.g. soya beans and groundnuts were prioritized to diversify the export base.

4. Background
There are systemic challenges that hinder export potential e.g. transaction costs and NTMs.
To complete export processes across the country, about five documents, which are found in different locations, are required.
Sometimes, there are exorbitant charges that have to be paid in order to simply complete a piece of paperwork.

5. Background
Non-Tariff Measures (NTMs) are a disincentive to exporters and undermine the country’s competitiveness.
Arguments for putting these non-tariff measures include improved quality standards and revenue extraction.

6. Background
Factors affecting trade and agricultural protection policies can’t be explained by economic theory alone but also political economy theories.
Trade policy and agricultural protection in general depends highly on geographic location (Bates & Block, 2008),
Development history (Acemoglu, Johnson, & Robinson, 2000),
Governance style or political ideology (Dutt & Mittra, 2008), rule of law (Olper & Raimondi, 2009), and endowment structure (Norton, 2004; Lin, 2012).

7. Objective
High transaction costs and NTM charges are an implicit form of taxation on exporters.
This study assesses the impact of removing the transaction costs associated with NTMs on
government revenue,
foreign exchange,
consumers’ and producers’ surplus
The study uses a single market partial equilibrium model.

8. Impacts of removing distortions in the soya beans subsector may not be large enough to have economy wide effects.
The model not only makes the impacts visible but also uses less amount of data and logistical costs.
Simulations will be conducted to show the impact of reforming the distortions stepwise and all of them at once.

9. Impact of Non-Tariff measures: Theory
Price
Domestic supply B
𝑃 𝑏
International demand
𝑃 𝑏 (1+𝑡)
Foreign demand after NTM tax
𝑃 ∗ C
∆𝐵 𝑃 ∗ 𝐶=consumer surplus
∆𝐴 𝑃 ∗ C=producer surplus
Domestic demand A
Quantity
𝑄 4
𝑄 3
𝑄 ∗
𝑄 2
𝑄 1

10. Impact of Non-Tariff measures: Theory
Price
Domestic supply B H K I M
𝑃 𝑏
International demand
𝑃 𝑏 (1+𝑡)
Foreign demand after NTM tax
𝑃 ∗ C
∆𝐵 𝑃 ∗ 𝐶=consumer surplus
∆𝐴 𝑃 ∗ C=producer surplus
Domestic demand A
Quantity
𝑄 4
𝑄 3
𝑄 ∗
𝑄 2
𝑄 1
Reduction in exports from 𝑄 4 𝑄 1 to 𝑄 3 𝑄 2

11. Impact of Non-Tariff measures: Theory
Price
Domestic supply B H K I M
𝑃 𝑏
International demand
𝑃 𝑏 (1+𝑡) L
Foreign demand after NTM tax G J
𝑃 ∗ C
∆𝐵 𝑃 ∗ 𝐶=consumer surplus
∆𝐴 𝑃 ∗ C=producer surplus
Domestic demand A
Quantity
𝑄 4
𝑄 3
𝑄 ∗
𝑄 2
𝑄 1
Increase in consumer surplus = PdPbHJ
Loss in producer surplus=PdPbML

12. Data sources and descriptive statistics
Agricultural Production Estimates
FAOSTAT time series data on national production, consumption and export levels soya beans in Malawi.
Agricultural Marketing Information Survey (AMIS).
Exchange rate data from NSO and Reserve Bank of Malawi (RBM)
Gaps within the time series datasets were filled by interpolation techniques

13. Descriptive statistics of key variables
Mean
Std. Dev.
Domestic price (USD per ton)
430.00
10.00
International price (USD per ton)
534.00
5.00
Domestic Supply ('000 metric ton)
75.00
Domestic demand ('000 metric ton)
65.00
Exports ('000 metric ton)
Price elasticity of demand
0.83
0.10
Income elasticity of demand
-0.80
0.01
Price elasticity of supply
0.80
0.20
Tax rate on producers (%) 23
Tax rate for export processes (%)
0.02

14. Model A single market non-structural partial equilibrium model
The model has 15 blocks of equations and 15 sets of endogenous equations.
Was coded in GAMS and solved using Mixed Complementarity Programming (MCP).
Details of the model equations are on page 17 of the paper.
The modeling approach follows Tsakok (1990) and more recently Minot et al. (2006).

15. Simulation design
Six simulations are conducted illustrating impacts of removing each of the NTMs.
The 6th simulation is a combined scenario of removing all NTMs and considering the joint effect of a totally transaction free soya bean market.
We assume the international price and the exchange rate as exogenous.

16. Non-Tariff measures and associated direct and time costs in USD per metric ton
Step
Direct Cost/MT
Days
Cost of Time/MT
Total Cost/MT 1
Buying License
0.0116
0.4
0.3013
0.3129 2
Export License
0.0000
2.6
2.0085 3
Currency Declaration Form
1.0
0.7810 4
SADC Certificate of Origin
0.2099
0.9909 5
Phyto-sanitary Certificate
0.4198
1.2008 6
Customs Clearing Agent Fee
0.2707
0.0 7
Customs Declaration
2.0
1.5620
1.9818

17. Results of the soybean spatial partial equilibrium model using direct costs
Buying
license
SADC certificate
of origin
Phyto
certificate
Customs
clearing agent
Customs declaration form
Free
trade
Change in government revenue
(109.94)
(1,997.59)
(4,012.63)
(2,579.47)
(12,969.45)
Change in foreign exchange
1,333.54
24,121.17
48,223.34
31,104.60
152,725.50
Net economic loss in consumption (NELC)
1.51
25.28
46.21
31.79
86.90
Net Economic loss in production (NELP)
(1.81)
(30.26)
(55.32)
(38.06)
(104.03)
Change in consumer surplus (CSUP)
(748.74)
(13,555.53)
(27,126.13)
(17,484.86)
(86,264.20)
Change in producer surplus (PSUP)
868.19
15,712.24
31,429.68
20,264.44
99,780.97
Net effect of an export tax removal
0.30
4.98
9.11
6.27
17.12
Revenue generated from increased exports
400.06
7,236.35
14,467.00
9,331.38
45,817.65

18. Results of the soybean spatial partial equilibrium model using direct & time costs
Buying license
SADC certificate of origin
Phyto
certificate
Customs clearing agent
Customs declaration form
Free trade
Change in government revenue
(2,184.46)
(16,381.57)
(10,634.73)
(7,507.39)
(10,264.37)
(63,995.12)
Change in foreign exchange
36,804.26
259,994.51
172,702.49
123,530.92
166,943.69
875,618.39
Net economic loss in consumption (NELC)
235.08
1,444.48
1,015.67
749.12
985.38
2,856.46
Net Economic loss in production (NELP)
(281.41)
(1,729.13)
(1,215.82)
(896.74)
(1,179.56)
(3,419.36)
Change in consumer surplus (CSUP)
(19,540.49)
(139,274.99)
(92,192.02)
(65,813.87)
(89,097.36)
(480,733.96)
Change in producer surplus (PSUP)
23,186.09
164,650.87
109,146.68
77,980.76
105,492.94
562,568.14
Net effect of an export tax removal
46.33
284.65
200.15
147.62
194.18
562.90
Revenue generated from increased exports
17,997.11
127,393.62
84,554.75
60,453.50
81,730.99
431,455.96

19. Conclusions
The study reveals that the subsector has a number of non-tariff barriers in place which discourage producers from exporting.
The study finds that removing transaction costs associated with the export process would result more exports hence
more foreign exchange,
more government revenue,
reduced dead weight losses,
more producer surplus,
reduced consumer surplus and positive welfare for society.
Policy reforms such as removal of NTMs have positive impacts on welfare