be retrieved using results from Tables B1 and B4 in Appendix B.

# **4.2.3. Simulation: FUNPI contribution and competitive policies**

As stated in the introduction, the current FUNPI contribution negatively affects farmers through lower farm-gate prices, and this is quantified in the exercise shown in Table 6. This negative effect could, in principle, be overcome by using public funds to improve competition in cashew trading. As a general idea, complementary policies should aim for reductions in transport and transaction costs. Some examples are improvements in roads and communications, measures that reduce banking and credit costs for traders, or measures that reduce border costs for exporters (ports, customs, procedures, paperwork, and so on). We show several simulations in Table 7 to Table 10.

**Table 7. Base Scenario – FUNPI contribution and complementary policies on costs (1)**

|**Policy**|**(I) Base**<br>**Scenario -**<br>**no FUNPI**|**(II) = (I) +**<br>**FUNPI**|% change<br>(vs I)|**(V) = (I) + FUNPI**<br>**+ 10% reduction**<br>**in exporters**|% change<br>(vs I)|**(VI) = (I) + FUNPI**<br>**+ 10% reduction**<br>**in traders costs**|% change<br>(vs I)|
|---|---|---|---|---|---|---|---|
|||||**costs**||||
|_International Price (USD/ton)_|799.88|799.88||799.88||799.88||
|_Trade taxes (USD/ton)_|93.50|199.88||199.88||199.88||
|_International Price net of taxes (USD/ton)_|706.38|600.00|-15.1%|600.00|-15.1%|600.00|-15.1%|
|_Intermediate Price (USD/ton)_|519.54|426.66|-17.9%|440.04|-15.3%|426.16|-18.0%|
|_Farm-gate Price (USD/ton)_|435.95|351.00|-19.5%|363.22|-16.7%|355.76|-18.4%|
|_Exporters + cashew processors profit (USD/ton)_|73.80|67.20|-8.9%|63.60|-13.8%|67.44|-8.6%|
|_of which, exporters (USD/ton)_|70.23|61.78|-12.0%|58.42|-16.8%|62.05|-11.7%|
|_of which, cashew processors (USD/ton)_|348.26|441.14|26.7%|427.76|22.8%|441.64|26.8%|
|_HHI exporters and cashew processors_|487|510||488||511||
|_Traders profit (USD/ton)_|40.94|34.66|-15.3%|35.58|-13.1%|33.41|-18.4%|
|_HHI traders_|256|256||256||256||
|_Quantity (tons)_|156024|140000|-10.3%|142416|-8.7%|140946|-9.7%|

Columns V and VI in Table 7 simulate the joint effect of introducing the FUNPI contribution and a complementary policy that reduces by 10 percent the marginal costs of exporters and traders, respectively. The joint effect of the government action –FUNPI contribution plus complementary policy– is a reduction on farm-gate prices between 17.7 percent (reduction in exporters costs) and 18.4 percent (reduction in traders costs), compensating partially the initial reduction of 19.5 percent caused by the surcharge.

When the complementary policy aims at the export segment of the value chain, exporters’ per-ton profits decline by 5 percent (in addition to the 9 percent reduction caused by the FUNPI contribution), because the change in equilibrium trader price _pT_ overcomes the cost reduction.<sup>11</sup> Traders, on the other hand, benefit from such complementary policy (through improved margins – 11 We show in Appendix A (section A.1.2) that a reduction in exporters costs increases intermediate price as a result of trade between traders and exporters. Intuitively, for a given final price, exporters with lower costs have more capacity to absorb increases in intermediate prices than exporters with higher costs. To understand the negative effect on exporters’ profits one should recall from Table 4 that exporters’ average cost is 120 and intermediate price is 420. A 10 percent reduction of exporters’ costs ends up in lower exporter’s profits if _pT_ increases by more than 3 percent. The bottom line is that _pT_ must increase as a consequence of the policies we simulate here in order to give room for _pF_ to increase.

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