An Empirical Analysis of Supply Response for Selected Export Crops in Sub-Saharan Africa
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As a part of the preliminary data exploration, supply response regressions over a panel of all of the cotton-producing countries in Anderson and Valenzuela (2008) were run. These regressions showed that maize is the main substitute for cotton production. Also, the case studies in this volume have shown that groundnuts are substitutes for cashew marketing in Mozambique, and maize is the substitute for tobacco production in Tanzania. World fertilizer and energy prices, converted to real domestic currency units, were used as proxies for input prices. The correlation between the two price series is high, 0.96. Therefore, only fertilizer prices were included to the regressions.
Alternative NRA Specifications The NRA is computed as a function of prices received by the producers plus (minus) the subsidies (taxes) provided to agricultural production. Indeed, when a new series was constructed from world prices (converted to real domestic currency units) by multiplying them with 1+NRA, this new series and the real producer prices were found to move together. Table 3A.6 shows the correlation statistics. Using world prices converted to real domestic currency units and the NRA instead of the real producer prices, positive effects of the NRA on the sample crop production were observed for cashew, cotton, and tobacco. The increase in the sample cashew and tobacco supplies resulting from the 1 percent increase in the NRA was almost 1 percent.10 In production decisions, the key variable may not only be the absolute price and/or support received for the commodity in question but also, or more so, the price and/or support received relative to other production possibilities. The substitute product information contained in this dataset, quite possibly, may not reflect all of these alternative production opportunities. Therefore, in an attempt to overcome this potential shortcoming, the RRA was used instead of the NRA. Anderson and Valenzuela (2008) included the RRA estimates for the aggregate agricultural production in each of their sample countries. These estimates reflected the nominal rate of assistance received by agricultural production relative to nonagricultural production in the same country. Using the same approach, a measure of the RRA was constructed for each country/commodity pair in the sample. This RRA reflects the NRA received by the commodity in question, relative to the NRA for all agricultural products covered in Anderson and Valenzuela (2008) for the same country. Even though this measure of the RRA showed relatively low