Technical Change, Market Incentives And Rural Incomes: A Cge Analysis Of Uganda'S Agriculture

In Uganda, as in much of sub-Saharan Africa, poverty is concentrated in rural areas. Because agriculture accounts for a large share of incomes for these households, policies and external shocks that affect agriculture, including shifts in world prices, changes in agricultural productivity, and reductions in marketing costs, may have significant effects on rural poverty. In this paper, we use a Computable General Equilibrium (CGE) model of the Ugandan economy, explicitly designed to capture regional variations in agricultural production and household incomes, to examine the implications of these policy changes and shocks. Simulation results suggest that a doubling of area planted to coffee (the government's target) would increase rural consumption by less than 2.0 percent, because of an estimated 10 percent decline in the world price of robusta coffee and an 11.3 percent real exchange rate appreciation of the Ugandan shilling. Smaller productivity increases in food crops may have greater potential to raise rural incomes, provided that markets perform well and producer incentives are maintained. A five percent increase in agricultural productivity raises consumption by 1.3 to 2.1 percent among rural households and lowers food prices by 3.4 to 3.8 percent relative to the CPI, thus benefiting households with high food consumption shares. Reducing agricultural marketing margins by 30 percent leads to increases of 2.3 to 4.1 percent in consumption of farm households, with the largest gains in regions where consumption out of own production is lower.