**Table 6. Base Scenario – Introduction of FUNPI contribution and sensitivity to international price**

|**Policy**|**(I) Base**<br>**Scenario -**<br>**no FUNPI**|**(II) = (I) +**<br>**FUNPI**|% change<br>(vs I)|**(III) = (II) +**<br>**max intn'l**<br>**price**|% change<br>(vs II)|**(IV) = (II) +**<br>**average**<br>**intn'l price**|% change<br>(vs II)|
|---|---|---|---|---|---|---|---|
|_International Price (USD/ton)_|799.88|799.88||1350.00||950.00||
|_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%|1150.12|91.7%|750.12|25.0%|
|_Intermediate Price (USD/ton)_|519.54|426.66|-17.9%|913.92|114.2%|557.97|30.8%|
|_Farm-gate Price (USD/ton)_|435.95|351.00|-19.5%|799.23|127.7%|471.18|34.2%|
|_Exporters + cashew processors profit (USD/ton)_|73.80|67.20|-8.9%|108.09|60.8%|79.21|17.9%|
|_of which, exporters (USD/ton)_|70.23|61.78|-12.0%|101.87|64.9%|73.59|19.1%|
|_of which, cashew processors (USD/ton)_|348.26|441.14|26.7%|758.25|71.9%|529.21|20.0%|
|_HHI exporters and cashew processors_|487|510||430||479||
|_Traders profit (USD/ton)_|40.94|34.66|-15.3%|66.33|91.3%|43.49|25.5%|
|_HHI traders_|256|256||256||256||
|_Quantity (tons)_|156024|140000|-10.3%|211257|50.9%|162207|15.9%|

# **4.2.2. Simulation: Change in international prices**

Next, we analyze the effect of changes in international prices on domestic prices and profitability along the supply chain. Starting from the current situation with the FUNPI tax (column II of Table 6) we select an international price of 950 USD/ton –the average price between 2008 and 2013– and 1350 USD/ton –maximum international price, in 2011 (see Figure 3). Results are shown in columns III and IV of Table 6.

The increase of international price from the current value to 950 USD/ton, keeping the base price for export taxes constant, represents a 25 percent increase in net-of-tax export price, and passes through intermediate (30.8 percent) and farm-gate prices (34.2 percent). Exporters profits increase 37 percent (18 percent per ton and 16 percent due to quantities). Given exporters’ cost structure, as the activity becomes more profitable for exporters, individual quantities increase more in medium- and small-size exporters, and therefore concentration decreases (HHI index goes down from 510 to 479).<sup>10</sup> Traders’ profits increase 45 percent (25 percent per ton and 16 percent due to quantities). Farmers take up the largest share of the price increase (absorbing 80 percent of the increase in international price, that is 120 USD/ton out of 150 USD/ton). An increase of international price to 1350 USD/ton generates the same qualitative, but stronger quantitative, results. Tax revenues increase proportionally with quantities. If the government raises the base price for export taxes with an expected increase in international price there is an additional effect on revenues.

From Table 6, we can infer the rate at which changes in international prices (net of taxes) pass through farm-gate prices. This rate is approximately 1.35-1.40 in the current context. For higher (lower) price-elasticity of supply pass-through rates are a little bit lower (higher). These rates can

> 10 This result assumes that cost structures for existing exporters do no change and no entry takes place.

18