The estimated unit cost to consumers of protection of vegetable oil processors was considerably lower as a share world prices than for sugar over 2000-2010 but the total cost is higher at 49 billion CFAF given the larger share of vegetable oils in consumer expenditure compared to sugar. The annual cost to consumers of vegetable oil protection in 2000-2010 was about CFAF 50 billion, 9 times the industry’s wage bill of CFAF 5.7 billion or 5 times if customs duties of nearly CFAF 4 billion are included as a benefit of protection. In 20112013, the domestic price of vegetable oil was also about 60 percent higher than the world price and the annual cost to consumers of vegetable oil protection rose to over CFAF 60 billion, and more than 10 times labor compensation. In the case of flour, the subsidy was considerably smaller than for the other two sectors in 2000-10, but still substantial in absolute terms at CFAF 14 billion, amounting to about 4 times the wage bill of CFAF 3.6 billion. In 2011-13, however, the gap between domestic and world prices nearly vanished for flour.

In the case of sugar and vegetable oils, it appears that incumbent firms have in the past received large quota rents accruing to their monopsony status. It is very hard to see any social rationale for such a situation, except perhaps that domestic production is so uncompetitive that it has to be cross-subsidized by granting quota rents to producers.

Sugar, vegetable oil and bread are important elements in the consumption of the poor. The 2011 poverty survey, ESPS 2, found that they accounted for 14 percent of total consumption among the poorest quintile of the population, and only a little less for the next quintile. In an earlier analysis of 2006 data, it was estimated that sugar prices in Senegal were roughly 90 percent higher than those in The Gambia, 58 percent higher for vegetable oil, and 33 percent higher for wheat flour (Golub and Mbaye 2009). Reducing sugar prices to Gambian levels would have raised 150,000 people above the poverty line. Lowering vegetable oil and flour prices to Gambian levels would have allowed another 220,000 people to escape poverty.

A similar calculation was made for the period 2011-13, taking into account the evolution of prices. While domestic flour prices approximated world prices during this period, sugar and vegetable oil prices in Senegal remained about 60 percent above world prices. Eliminating this difference would have raised consumption levels of the poor by 3 percent and enabled about 227,000 people to move above the poverty line.<sup>29</sup> The national rate of poverty would have declined by 1.9 percentage points, which is more than what was actually achieved between 2006 and 2011.<sup>30</sup> Protection and subsidies can be justified for infant industries, but the sugar, vegetable oil, and flour sectors hardly fulfill the criteria for infant industries. More generally, protection eliminates the necessity to be competitive. Even worse, protection based on political clout rather than economic logic undermines the legitimacy of the government.

> 29 Sugar and vegetable oil, other than peanut oil, account for 7.4% of the consumption basket of the third quintile, which includes those households around the poverty line of 46.7%.  Peanut oil was excluded as it is assumed that it is produced at the household or community level and therefore not affected by the market price. These households would have spent only 4.6% of their income if they had paid world prices, as saving of 2.8%.

> 30 The national poverty rate declined from 48.3% in 2006 to 46.7% in 2011, or 1.6 percentage points.

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