Market and Welfare Effects of Food Security Policies on Smallholder Rice Farmers and Consumers in Sierra Leone

This research examines the market and welfare effects of three food security policy options in Sierra Leone in response to the high rate of rice importation and rising rice prices over the last decade. These policies aimed at curbing the rate of rice importation, promoting local rice production, and enhancing welfare of smallholder rice farmers in rural communities. The policies investigated included: 1) reinstating tariffs on rice imports, 2) promoting value-chain strengthening interventions that increase production of locally produced rice and 3) instituting a quota (or some quantity restriction) on rice imports. A log-linear comparative static displacement model was used to carry out the analysis. For the first policy, 20%, 30% and 40% shocks were introduced in the equilibrium system to represent decreases in the quantity of rice imported as a result of reinstating tariffs on imported rice. Results revealed that welfare of consumers and or smallholder farmers of locally produced rice was enhanced by 9.4% at a 10% tariff increase and 17.8% at a 20% tariff increase. Consumers of imported rice had their welfare enhanced by 3.5% at a 10% tariff increase while welfare was dis-enhanced by 5.4% at a 20% tariff increase. With a 10% increase in the supply of locally produced rice, there was a corresponding welfare enhancement on smallholder rice farmers and consumers by 14.43% and by 27% for a 20% increase in supply. Marginal increases were recorded for consumers of imported rice. The results show that the optimal policy in the current post-Ebola national recovery environment is one that increases local rice production through cultivation intensification and rice value chain efficiency.


Introduction
Food insecurity continues to be a major problem in Sierra Leone. Despite reported increases in the production of the country's main staple crop (rice), national demand for locally produced rice remains very low (particularly in the populated urban areas of Sierra Leone), accounting for the negligible effects of the increased level of rice production on food security (Spencer et al., 2009). At the rural household level, local rice consumption follows a seasonal pattern (high during the rice harvesting season and low during the rice planting season). This premise may suggest that the problem of low demand for locally produced rice in urban areas is driven mainly by consumer preferences and the problems at the rural household level are as a result of seasonal shortages. However, some recent evidences have shown that the drivers of the problems affecting the rice sector are more complex.
The average rice farmer in Sierra Leone cannot compete with retailers of imported rice in the domestic market. This is mainly because of the high cost of production (relative to yields) incurred by smallholder rice farmers, limiting their ability to set prices at or below the market price for imported rice (World Bank, 2014). This has also led to a dampened effect on demand for locally produced rice, disincentivizing smallholder farmers from increasing production levels to meet both their profit-seeking objectives and their household consumption needs.
Sierra Leone is a net rice consuming country, particularly with regards to locally produced rice. Historic data (2000 to 2015) from the Ministry of Agriculture and Food Security (MAFS) on volumes of rice imports, local rice production and local rice consumption shows that total demand from 2002 to 2008 matched the total volumes imported and produced locally. However, between 2008 and 2015, the sum of total rice produced locally, and total volumes imported surpassed total rice consumption. In 2013, total rice production was higher than total consumption and remained in that average through 2015. This may further suggest that some amounts of the total rice supply (imported and locally produced) is not consumed locally. That is, the total volume of rice supplied into the local market outweighed local consumer demand. However, in 2015, a different trend was observed. Total rice import (25,165 MT) plus total rice production (597,866.96 MT) was less than rice consumption (735,866.66 MT). This may suggest that some amount of local rice demand (113,485.66MT) was unaccounted for. These anomalies have been of concern to researchers and policy makers in the country as they seek answers to problems facing the sector. Specifically, the following patterns seem slightly counterintuitive: i) increased production of locally produced rice; ii) an irresponsive local rice demand to the increased production level and iii) increased consumer demand for imported rice.
Furthermore, between 2010 and 2017, Sierra Leone spent about 800 million USD on rice importation, averaging about 100 million USD annually (World Data Atlas, 2018). Servicing these funds by the Sierra Leone Central Bank created severe shocks to the country's foreign exchange reserves. Some economists argue that these shocks have also affected some key macroeconomic indicators like foreign exchange rates, inflation rates, Gross Domestic Product (GDP) etc. As the government seeks answers to these challenges and anomalies, different policy options are being explored. It is critical to understand the ramifications of possible policy options before they are considered. This research provides some empirical evidence that can guide policy makers as they grapple with this problem.

Objectives
In trying to provide solutions to some of these problems affecting the rice sector in the country, it is important that policy makers understand all the dynamics associated with the rice sector in the country. This research specifically seeks to analyse the market and welfare effects of three talked-about polices/instruments being considered by policy makers. The results obtained by this research presents potential gains or losses to producers and consumers of rice in Sierra Leone should either policy option be enacted. We hypothesize that all three policies considered positively enhances welfare of smallholder farmers. The three policy options include: i) The effect of reinstating tariffs on rice imports on markets and welfare of rice consumers and producers.
ii) The effect of instituting a quota (or some quantity restriction) on rice imports on markets and welfare of rice consumers and producers.
iii) The effect of increase local rice production (supply) through subsidies for smallholder farmers (A value-chain, multi-intervention approach).
At the global level, rice production has risen steadily from about 131 million tonnes of paddy rice in 1960 to over 678 million tonnes in 2009. The top four producers have been China, India, Indonesia, and Pakistan. Hybrid rice varieties helped to significantly increase global rice production by about 10 million tonnes annually. Within the Mano River Union (MRU) countries, Sierra Leone is the fastest growing rice producing country after the civil war compared to Liberia and Guinea. Cereal production doubled between 2000 and 2008 in Liberia and quadrupled in Sierra Leone over the same period (FAOSTAT, 2015). However, despite this increase in cereal production, both Liberia and Sierra Leone have remained food-deficient countries, respectively importing between a third and half of their annual total cereal requirements (FAO/WFP, 2015).
Regarding consumption, annual per capita consumption in Sierra Leone averages about 131 kg (FAO, 2014). Despite being a net rice consuming country, Sierra Leone also exports significant quantities of rice to Guinea. According to Guinea's systeme d'information sur les produits Agricoles en Guineee (SIPAG, 2012;FEWSNET, 2010), some 360 tons of milled local parboiled rice entered Guinea from Sierra Leone every month during the final quarter of 2009. This cross-border effect also affects prices, consumption, and welfare generally.
Research on the effects of food security policies on smallholder farmers in Sierra Leone is limited. The few available studies (Conteh et al., 2012;Spencer et al., 2009) have focused on providing accounts of the drivers limiting production and survey accounts of the problems within the sector. Literature on agricultural policy research in Sierra Leone (FAO, 2013;Spencer et al., 1997) were focused on providing macro-level analysis of various policies on the rice sector. There are no published accounts of national food policy effects on smallholder rice) . The uality, e rice sents nt 12 r the endogenous parameters. The exogenous variables are mainly elasticities and shares while the endogenous parameters are the market effects (changes in quantity demanded, supplied and prices).

Demand Equations
Demand for locally produced rice depends on the prices of both local and imported rice 2.2.2 Supply Equations

Log-Linear Comparative Static Equations
Using log-linear comparative statics, the above equations are transformed into a system of 12 equations expressed as elasticities, shares and measures of market and welfare changes.
These are presented below: The following is a key describing the variables presented in the equations below: Equations one and two represent demands for local and imported rice respectively.
(Σ QL S /P QI ) -1 dInQ Ls + (Σ QI S /P QI ) -1 dInQ Is + (Σ W L /P QI ) -1 dInW L + (Σ W O /P QI ) -1 dInW O On the supply side, two cost functions will be used. One for local rice production, C QL Q L ,w L ,w f ,w Lb ,w O and another for imported rice production C QI Q L ,w L ,w f ,w Lb ,w O .

Output Constant Derived Demand
Using Shephard's lemma, the above output constant equations were derived. The general forms are: C wL = L; C wO = O.

Supply and Market Clearing Conditions
The above market clearing conditions were used to derive the input supply equations. Here demand is equal to supply.
Using the above equations, a matrix of elasticities and shares was developed. See Table 1 below.
In this section, we present the different methods used to populate the welfare matrix above. There are three main methods used to populate welfare matrices in the literature: 1) direct estimation of elasticities, 2) using measures from other authors' estimations and 3) using other professional experiences from other researchers/practitioners. For this research, all three of these methods were employed. Specifically, shares and elasticities in the welfare matrix were obtained partly from the literature of other studies (Cuevas et al., 2016) and from estimation from primary data using willingness-to-pay estimation techniques. Below we discuss the theoretic basis for the jas.ccsenet.org Journal of Agricultural Science Vol. 12, No. 6;2020 constraints imposed and a list of the elasticities used (with references) to populate the matrix. For those estimated by the author, full estimation details can be found in the lead author's PhD thesis.

Demand and Supply Elasticities
For supply elasticities, by assuming constant returns to scale (CRS), cost is linearly homogenous with respect to output and supply is homogenous of degree 0 with respect to prices. Therefore, inverse supply elasticities horizontally sum to zero. Also, by young's theorem, we assume reciprocity.  The share of producer costs that went towards expenses on these inputs were obtained from the survey. Note that majority of the other inputs included mainly seeds. Also, the analysis assumed that there are no costs incurred domestically for the production of imported rice, hence, the cost shares were negligible.

Input Demand Elasticities and Shares
Input derived demands are homogenous of degree zero in input prices. Therefore; the derived demand elasticities should sum to zero and reciprocity is imposed. The diagonal is negative because the cost function is assumed concave.
By constant returns to scale and given the fact that there are inputs factored in the system for imported rice, the input demand elasticities are represented to be 1 for all inputs. For the sam to be posit producers' surplus in each of the input markets are measured by a comparable trapezoid under the new price for that input.

Results
In this section, we provide summaries of the key results obtained from this study. The results are presented in two main parts. The first section presents results from the market effects while the second part presents results from the welfare effects.

Market Effects
Following the estimation of elasticities and appropriate completion of the welfare matrix, the market effects of the different policy scenarios are presented. Simulations were carried out for different levels of the shocks to determine the degrees and directions of change for multiple levels. Therefore, these market effects show mainly the magnitude and directional changes in process (input and output) and quantities for the two products (imported rice and locally produced rice). Results are presented for the respective policy scenarios.

Market Effects of Reinstating Tariffs on Imported Rice on Smallholder Rice Farmers in Sierra Leone
The government of Sierra Leone in 2010 made a strategic food security policy decision to lift a 10% tariff on all imported rice into Sierra Leone. In this section, the market effects as a result of reinstating this tariff are presented. In addition, some simulations were carried out to see the effects under four addition tariff rate scenarios (5%, 10%, 20% and 30%). Results are presented in Table 6 below:  Figure 1. Market effects on equilibrium quantities of demand and supply of imported and locally produced rice Figure 3 above shows market effects of the four tariff scenarios on equilibrium prices and quantities demanded and supplied of both locally produced rice and imported rice. As shown, equilibrium quantities demanded and supplied increased for locally produced rice while that for imported rice decreased for all four scenarios. For a 5% tariff, equilibrium quantities of locally produced rice increased by 3% while the decrease in equilibrium quantities for imported rice was about 0.92%. These rates steadily increased in magnitude (in the same directions) as tariff rates increased from 5% to 30%. For prices, locally produced rice prices decreased while significant increases were recorded for imported rice prices.    In this section we present the market effects as a result of increasing supply of locally produced rice. The shock to the system was applied to the local rice market demand and supply equation. As shown in Table 7 above, quantities of imported rice demanded and supplied decreased increasingly for the four different shocks applied.
On the same note, equilibrium prices of locally produced rice decreased. On the other hand, all other market effects increased with the increases in input prices and demand being very marginal.
The effect of a quota was also explored. In the context of the full system, the shock that would emanate from a quota to the systems would be a decrease in quantity supplied and demanded of imported rice. This would have identical effects as those presented in reinstating the tariff.

Welfare Effects
In this section, we present results of welfare effects from the three-policy scenarios analysed. These are computed from changes recorded in the market effect analysis above. Similarly, results are presented for the different policy scenarios.

Welfare Effects of Reinstating Tariffs on Rice Imports
Figure 7. Consumer surplus Figure 6 above present's changes in consumer surplus on consumers of locally produced rice and imported rice in response to 10% and 20% tariffs on imported rice. As shown, welfares of consumers of locally produced rice is enhanced by 9.4% as a result of a 10% tariff increase and 17.8% as a result of a 20% tariff increase. For consumers of imported rice, welfare is enhanced by 3.5% for a 10% tariff increase but dis-enhanced by 5.4% as a result of a 20% tariff increase.

Figure 7. Producer surplus
For producers, welfare of local rice producers was enhanced while those of imported rice suppliers (importers) were dis-enhanced. For the local rice producers, a 10% tariff enhanced welfare by 6.65% while a 20% tariff enhanced welfare by 11.27%.

Welfare Effects of Increasing Supply of Locally Produced Rice
In this section, we present welfare results as a result of increasing supply of locally produced rice. Shocks of 10% and 20% were introduced to the equilibrium system representing local rice supply increases.
As shown in Figure 8 below, welfare of consumers of both produces were enhanced. However, the enhancements were higher for consumers of locally produced rice than consumers of imported rice. For consumers of locally produced rice, 10% supply increases in local rice production enhanced welfare by 14.43% while enhancement was at 27.0% for a 20.0% increase in supply. For consumers of imported rice, a 10.0% increase in supply of locally produced rice enhanced welfare by 2.2% and by 7.5% for 20.0% increases in supply of locally produced rice.
[VALUE] % Similarly, for producers, welfare gains were recorded for producers of locally produced rice and for rice importers, although the gains were larger for local rice producers. In the system highlighted above, the shock that would be introduced is identical to that of scenario one's; decreased supply as a result of the tariff. However, to better understand the ramifications of the quota, a more detailed analysis is present in the upstream analysis that excludes the effects or contributions of inputs in the system of equations developed.

Summary of Results
Tables 8, 9 and 10 below summarize all the results obtained from the analysis, showing winners and losers as a result of the different policies.
[VALUE]%  Generally, associated with these gains accrued from consumption of locally produced rice, input prices increase, and demand and supply of these inputs also increase. This is expected as the increased demand would pull production levels, hence, increasing demand and cost of inputs.

Concluding Remarks
Rice importation in Sierra Leone continues to be a major bottleneck affecting smallholder rice farmers in the country. In addition to its direct effect rice production, it also affects the country's foreign reserves and other macroeconomic indicators of economic growth. As policy makers grapple with this problem, different options have been considered as possible solutions to this problem. However, the lack of empirical evidence showing the potential ramifications of these policy options has made it difficult for policy makers to provide meaningful solutions to the problem. For the most part, the options that have been tried are very ad-hoc in nature. This research is a step in that direction, attempting to provide some answers to these questions. Primarily, the study shows the market and welfare effects of three policy options currently being considered: 1) reinstating tariffs on rice imports, 2) increasing local rice supply (production) through direct government interventions and 3) instituting a quota on imports. In this section the key conclusions obtained from the analysis are presented. Some policy recommendations that would help improve the rice market and enhance welfare of smallholder rice farmers and consumers in the country are also highlighted.
Results showed that reinstating tariffs on imported rice increases equilibrium quantities demanded and supplied of locally produced rice. This gain was observed to be significantly higher with reinstating the tariff than the shock associated with increased supply of locally produced rice. This implies that increasing local supply of locally produced rice has a lesser impact on equilibrium quantities of locally produced rice than reinstating tariffs on imported rice.
Results also show that the effects on prices significantly favour consumers of locally produced rice. There are certainly negative ramifications on local rice producers as a result of the price decrease. However, the results on equilibrium quantities suggest that farmers are still willing and able to supply more under the different policy scenarios. Generally, associated with these gains accrued from consumption of locally produced rice, input prices increase, and demand and supply of these inputs also increase.
Regarding welfare, significant welfare gains were recorded on the local rice market (consumers and producers) when the tariff was reinstated. However, consumers and importers of imported rice did not register welfare gains. On the other hand, the effect of increased production leads to win-win solution for all consumers and smallholder rice producers/suppliers. However, the increases/welfare enhancements are greater for locally produced rice than is the case for imported rice.
The case of quotas should also be considered. This is because it leads to a win-win solution for both rice importation market and the local rice producing market.
Concluding, there are indeed negative and positive ramifications of these three welfare policies investigated. As a result of this, multiple policies should be considered to address the rice situation in Sierra Leone.
Reinstating the tariffs in a staggered manner and investing in initiatives that increase local rice production is strongly recommended.
For the tariff reinstatement, a more feasible option is having the tariff reinstated over a period of 5 years. This should be done such that minute proportions are levied annually (5% annually). Every year the effects are reviewed, and incremental percentages instituted.
However, giving the current landscape coupled with the low level of rice production and productivity over the last two year's production cycle (as a result of the Ebola Virus Disease) it is recommended that local policies that increase local supply be enacted in the next three years to allow the sector to recover completely. Tariff reinstatement should be strongly considered in the third year as recommended above. Source: Author's survey data.

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