of flour (Figure 14c), differences between the statutory and actual tariff protection and the observed differential between domestic and world prices have been considerably less than for sugar and vegetable oil.<sup>24</sup> The sharp drop in retail flour prices in the last few years to levels well below those implied by protection likely reflects the implementation of binding price controls.

**_Welfare Effects_ .** The previous analysis has shown that the sugar, vegetable oil, and wheat flour sectors have been characterized by a combination of limited competition in both production and trade, high rates of import protection to value addition, and price ceilings.  In the cases of sugar and vegetable oil, the dominant incumbent firms have, at least until recently, apparently benefited from substantial monopsony power.  What are the pros and cons of these policies?

The most important justification for government intervention is to protect employment in these industries. Senegal’s manufacturing sector has been struggling since the 1980s. At the time of our previous study (Golub and Mbaye 2002) the Senegalese textile and tuna-canning factories were in severe difficulties and now they have all but disappeared.<sup>25</sup> With over 6,000 employees, CSS is Senegal’s largest employer after the government, and the vegetable oil and flour milling firms are among the few major remaining formal manufacturers left in Senegal. If protection is removed, these firms too could disappear. Is Senegal to have no manufacturing sector at all?

On the other hand, import protection can involve a very large disguised subsidy from consumers to the protected sectors, as illustrated in Figure 12. This cost to consumer is in theory measured by the change in consumer surplus but can be approximated as the difference between the domestic price and the world price, adjusted for transport costs and wholesale-retail costs and margins, multiplied by total consumption.<sup>26</sup> Table 7 shows the results of this calculation for annual averages over 2000-2010 and 2011-13. Import restrictions are estimated to have raised the domestic price of sugar by about 60 percent in 2011-13, at a cost to consumers of CFAF 247 per kg, for a total cost of CFAF 43 billion, triple the CFAF 15 billion average annual labor compensation bill of the CSS over this period.<sup>27</sup> Inclusion of the approximately 7 billion CFAF in import duties collected as an additional social benefit of protection still leaves costs to society double the benefits.<sup>28</sup> In 2000-2010, the protection of the sugar industry was even more costly relative to labor compensation, as it more than doubled the domestic price.

> 24  In Figure 14, for vegetable oil, prices are for soy oil but actual protection is measured for palm oil, given that soy oil is mostly imported in unrefined form subject to lower import duties than refined oil.  Palm oil is imported refined.

> 25 One tuna cannery was recently reopened by Korean investors.

> 26 This calculation understates the loss of consumer welfare since it does not capture the effect of protection on reduced consumption as illustrated in Figure 12.

> 27 The total payments to workers provide an upper bound on the gains from protection accruing to workers.  The figures for labor compensation cited in this section include fringe benefits (obtained from the CUCI database). 28 VAT revenues are ignored as these depend on consumption rather than imports and VAT revenue will decline as consumption falls under import protection as noted previously.

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