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

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expenditure on grain could be greater than its income, even if the quantity purchased is less than
the quantity sold.
Why does it matter whether a household is a net buyer or seller of maize? The effects of
a price increase are a small-scale version of the difference between net-importing and netexporting
countries explored above. If the price of maize rises, net buyers of maize will face a
welfare loss. Assuming that consumer and producer prices change by the same percentage, the
increase in the household’s food bill will be greater than the increase in its income. 15
On the
other hand, net-selling households will benefit from the price increase. The increased value of
their own maize offsets the higher price they must pay for maize in the market.
Knowing which types of households are net buyers or net sellers of grain can help predict
the distributional consequences of a price increase. We saw in the previous chapter that most
African countries can expect a small welfare loss if the prices of certain cereals were to increase;
but the effect on the poor can’t be determined from the country’s net welfare effect alone. If
most net buyers of grains are higher-income urban dwellers, and most net sellers of grains are
poor rural farmers, then the price increase would be relatively better for the country’s poor. On
the other hand, if most of the poor are net buyers of grain, then the country should be concerned
if cereals prices increase.
This section examines the distribution of net buyers and net sellers in Ethiopia. Ethiopia
is a heavily agricultural country, with the majority of the population engaged in farming.
Agricultural activities provide 46% of its GDP, 86% of its population is rural and nearly 90% of
15 In reality, it is unlikely that retail and farmgate prices change in harmony. Section 4.4 addresses the reasons and
consequences of this.