extent), the Senegalese reference price was very high relative to world market prices when it was established and, as discussed in the following section, this reference price remained very high until about 2010, when the gap narrowed considerably. WAEMU is now considering a revision of the reference price according to the alternative formula, which is a weighted average of the world price (30 percent weight) and the CSS average cost (70 percent weight).<sup>6</sup> Clearly such a formula could be highly favorable to the CSS to the extent that the US and EU have scaled back their protection. Moreover, it will be difficult for the Senegalese government to independently measure CSS’s costs and it will likely have to rely on CSS’s own estimates. Such a system also provides little incentive for CSS to control costs and raise efficiency. If this new pricing mechanism is implemented, sugar protection could again rise sharply.

The government has vacillated in the face of conflicting pressures in the sugar sector. On the consumption side, in late 2012 the new government of Macky Sall imposed a price ceiling of 590 CFAF per kilo, considerably bringing down the price of sugar to consumers. In May 2013, CSS revealed that it had accumulated 46,000 tons of unsold sugar—equivalent to about a third of annual consumption—and threatened to shut down its production and lay off workers. The government responded with a ban on further UNACOIS imports until CSS’s inventories were sold off, including blocking a 15,000 ton shipment of sugar at the port.<sup>7</sup> Complaints from UNACOIS led the government to back off, releasing that shipment, with the CSS renewing its threats to shut down production. In the midst of this standoff, the government opted to lower the value added tax on sugar, officially by adjusting the base on which the tax is levied rather than the reference price or the tax rate itself so as to remain consistent _de jure_ with WAEMU stipulations on the VAT rate. The new effective VAT rate on sugar is about 6 percent.

**_Prices_ .** Figure 2 compares Senegal’s domestic prices to world prices for sugar, adjusted for trade costs and VAT.<sup>8</sup> Figure 2 shows that Senegalese retail prices for sugar were far above world prices throughout 2000-2013, although with considerable variations and a declining trend since 2007.  Between 2000 and 2011 domestic prices were between 3-5 times world prices, a huge implicit subsidy from consumers to producers.  In 2012 the ratio of domestic prices to world prices dropped to a little above 2, due to a further increase in world prices, which have been on an upward trend since 2007 in CFAF terms, and a decline in domestic prices, perhaps due to liberalization of imports and, in 2013, a new price ceiling. World prices were also far below the reference price until recently. The increase in world prices since 2009 narrowed the differential, but they have since fallen back to 2009 levels. The relationship between domestic and international price differentials and Senegal’s policies is discussed further in section 5.

> 6 See previous footnote.

> 7  «Etat du Sénégal et UNACOIS/ Jappo : la guerre est ouverte autour du sucre» <u>http://www.pressafrik.com/Etat-du-Senegal-et-UNACOIS-Jappo-la-guerre-est-ouverte-autour-dusucre_a105505.html, June 13, 2013.</u>

> 8 Domestic retail prices are obtained from the Senegalese statistical agency ANSD.  World prices are from Index Mundi and adjusted by trade costs, wholesale-retail margin and domestic value added taxes.  See Appendix 2 for a discussion of the adjustments made to world prices to make them comparable to domestic retail prices.

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