over the longer term, but at the same time, contract enforcement on repayment of loans is essential to prevent opportunistic behavior. Thus, in years where world prices rise relative to pre-agreed producer prices, farmers should be prevented from selling on the parallel market rather than delivering the crop to the parties they have contracted with; conversely when market prices fall below producer prices, purchasers must not renege on their commitments to farmers. It is beyond the scope of the present paper to ascertain institutional arrangements that best balance competition and coordination in the Senegalese peanut value chain such that producers receive both stable and relatively high prices, obtain high quality inputs and extension services, and deliver their crop and repay their debts as agreed. However, a crisis in the sector in 2014, with the risk of bankruptcy at SUNEOR, prompted a government request to the World Bank to conduct such a study.<sup>34</sup> This study emphasizes increased competition at the processing level, and direct contracting between processors and producers.

Local vegetable oil refiners apparently benefit from declining but still substantial protection and some monopsony power, going beyond the TEC tariffs, judging from the large disparity between domestic prices of vegetable oil and world prices. There is no justification for any particular import protection beyond that provided for under the TEC, particularly since imports do not compete much with domestic production of peanut oil, and value added and employment in refining of imported vegetable oils is quite low. Unfortunately, the new TEC being finalized under ECOWAS calls for an increase in the tariff on palm oil from 20 percent to 35 percent. This provides all the more reason to remove any other forms of protection. It is time to separate the interests of groundnut producers and processors, from those of vegetable oil consumers.

# **7. Conclusions**

The sugar, edible oil, and flour sectors are fraught with controversy, with the government facing difficult choices and pressures from competing interest groups. There are no easy answers. The government faces intractable tradeoffs between conflicting objectives: 1) maintaining employment in these industries, 2) keeping prices of these basic consumer items low, to help the poor and head off social unrest, 3) limiting incentives to smuggle cheaper products from neighboring countries, and 4) obtaining fiscal revenues to finance essential public goods. The only way of lowering prices to consumers by administrative fiat while supporting producer prices through high levels of protection is to provide government subsidies or tax breaks that bleed the budget. High levels of protection may support employment in these sectors, but hurt consumers and encourage smuggling. In effect, consumers are subsidizing the few jobs created, and especially the owners of these industries. For historical reasons, these tradeoffs between consumers, traders, producers and fiscal revenues are particularly acute in sugar and vegetable oils, but also manifest themselves in the wheat-flour-bread value chain. These conflicting pressures have resulted in incoherent policies, with high and non-transparent protection to producers combined with price controls to benefit consumers. These offsetting policies result in highly variable rates of protection as the balance between protecting producers and shielding consumers shifts erratically, while ratcheting government intervention in price setting that politicizes economic policy.

> 34 World Bank, « Etude diagnostique de la chaine de valeurs arachide au Sénégal : Propositions de réformes », 2015.

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