The Future of Smallholder Farming in Eastern Africa - Uganda ...

higher demand for agricultural commodities than urban households. The prominent
outcome of these results is that trade liberalisation is not as beneficial to the urban
households as is to the rural households. This can be explained by the fact that before
trade liberalisation, the terms of trade are heavily in favor of urban households when
compared to the rural households. Consequently, lower tariffs remove some of the
advantages that the urban households may be having over the rural households.
Table 8: Consumer demand by household categories
Agriculture Manufacturing Services
Uhh1 -0.8 3.0 -0.1
Uhh2 -0.8 3.0 -0.1
Uhh3 0.1 3.9 0.8
Rhh1 1.0 4.8 1.7
Rhh2 0.4 4.3 1.2
Rhh3 1.2 5.1 1.9
Rhh4 0.7 4.6 1.5
Rhh5 0.9 4.8 1.7
Rhh6 1.2 5.0 1.9
Rhh7 0.3 4.1 1.0
The results regarding consumer demand by household categories are consistent with the
argument by proponents of globalisation (trade liberalisation is just a subset) that the
welfare of the consumers improves when tariffs are reduced. As mentioned above, the
higher welfare is in the form of rising real incomes as the cost of a typical basket of
goods declines in a liberalised economy, which is also accompanied by a wider, and
higher quality choices.
7. Conclusions and policy recommendations
This study uses a CGE framework to quantify economy-wide effects of trade
liberalization in Kenya’s economy, with special focus on the agricultural sector. The
main thrust of policy change was the shift from protectionism to embrace openness,
through substantial reduction of import tariffs. This did affect the performance of the
agricultural sector either directly or indirectly. The study examines how the policy
changes contributed to the performance of the agricultural sector in 1980s and 1990s
and then compare this performance with the expectations from the policy reforms. A
CGE model is appropriate given the many direct and indirect linkages that the
agricultural sector has with other economic sectors. The study also explores the
implications for agriculture’s role in poverty reduction in light of the liberalized
environment. This is done by testing two main hypotheses: first, how trade
liberalization has affected the Kenya economy in general and specifically agriculture,
and second how the performance of the agricultural sector impacts on poverty through
income, employment and foreign exchange earnings. For instance, it uses tariff rates
from the input-output tables and the social accounting matrix of 1986 to simulate the
implications of reducing the manufactured goods tariff by 40% to an effective rate of
15% from the average of 25.2%.