Distortion of agricultural incentives in East Africa: effects on agricultural value added

This study examines the effects of distortion of agricultural price incentives on agricultural value added in East Africa. The World Bank, IFPRI, FAO, and CSP are the sources of data. The dataset ranges from 1981 to 2018, and the error-corrected LSDV model is used to analyze the data. The results indicate that agricultural price incentives have positive and significant effects on agricultural value-added. Aggregate nominal assistance coefficient, exportable agricultural products nominal assistance coefficient, and nominal rate of protection have increased agricultural value-added significantly. Agricultural price incentives targeting different levels of value addition have larger effects than those targeting aggregate outputs. This implies that agricultural incentive policies and market conditions in support of local producers are vital to enhancing AVA in East Africa. Besides, larger areas of arable land, lower agricultural employment, a smaller population size, a larger GDP, less spending on education, and a better-performing polity contribute to a significant increase in the regional agricultural value added. The results generally imply that agricultural price incentives are vital to accelerating agricultural value addition in East Africa. Governments in this region should thus consider revising agricultural policies in a pro-agricultural way to further accelerate regional growth in agricultural value-added. Enhancing agricultural price support needs to be a crucial element of policy revisions in the region.In East Africa, agriculture is the main source of employment for a large section of the population. However, agricultural incentives have been reportedly distorted against agriculture, and sectoral income has been low. Consequently, farmers’ income from agricultural value addition has been low. This study reports the effects of the distortion of agricultural incentives on agricultural value added in East Africa. The study shows that favorable agricultural incentives enhance agricultural value-added. The findings have strong implications for the region’s smallholders, who are the subject of heavy taxation, either directly or indirectly. It will have far-reaching consequences for the poor, who rely on agriculture for a living. In particular, the findings influence regional anti-agricultural policy design, which is vital for the regional goal of achieving inclusive growth and structural transformation.