The Impact of a New WTO Agricultural Agreement ... - Tufts University

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Instead of building from the GTAP model, Soledad Bos (2003) uses a partial equilibrium
approach, but also concludes that OECD subsidy reduction would lead to welfare losses in
African countries. Soledad Bos calculates changes in consumer and producer surplus that would
occur in the maize markets of five African countries if OECD countries were to reduce domestic
support to agriculture by 100% or 50%. She finds negative net welfare changes in each of the
countries she studies: Uganda, Kenya, Zimbabwe, Botswana and Mozambique. Although this is
an interesting result, the scope of Soledad Bos’ study is rather narrow, limited to five countries
and one food crop. Section 3 of this paper builds upon Soledad Bos’ study. To add to her
results, I applied Soledad Bos’ method to all African countries for which data is available, and
looked at the results through both maize and wheat markets. Also, I make an adjustment to her
method, as her method does not accurately calculate the net welfare effect. This is due to the fact
that Soledad Bos acknowledged only two groups of actors, farmers and consumers. In
measuring producer surplus, she used the farmgate price of maize, while to measure consumer
surplus she used the retail price of maize. This is a flaw in her methodology, for by using
separate prices, she doesn’t account for the benefit that accrues to traders and processors when
the price increases. Thus, her study does not measure the net welfare effect in the country.
Studies of net welfare changes, such as those of Soledad Bos and the others discussed in
this section, share an analysis of the distributional effects of the removal of developed countries’
domestic support. Much of the debate on domestic support has taken for granted the idea that
because most developing countries are largely agricultural, and poor households tend to be
farmers, increased agricultural prices will benefit the poor. This attitude is also common among
NGOs such as Oxfam, and exemplified by Diao, Somwaru, and Roe (2001) who write that
higher cereals prices are beneficial because “a majority of the poor in low-income countries