**Policy, Research, and External Affairs**

# **Transport**

# WPS **774**

'T'his paper - - a product of' the Tranisport Division, linfastructure and Urban Development Dcpartment -is part of a larger eftort in PRE to analYze the macro-linkages of sector investments and pricing policies. 'T'his research was funded bv the the World Bank's Research Support Budget for research project 'Transportation and Agricultural Supplv Responses in Africa" (RPO 674-75), and by a grant from the Lynde and Harry Bradley Foundation to the Research Program in Development Studies at Princeton University. Copies are available free f'rom the World Bank, 1818 If Street NW, Washington DC 20433. Please coniact Barbara Gregory, room _SIO-053,_ extension 33744 (24 pages). October 1991.

Many African states ralise revenue by taxing export crops. A common tool for this puipose is markeiniig boairds. Mlarketing boards purcilase crops at depots establishied neair areas o1 cullivation -- at prices that yield a profit to thie board. 'rhey aiso arrange for processing and the transport of the product from depots to port. Thie cost of transport to the farmer, given the price of'lered for his crop at **tile** depot. " ill affect hiis decision on production and on the use of his ow n transport resources The best policy for **ihc** state (or marketing booard) .s to raise **tie** necded amount of revenue at the least deadweight loss. Gcrsovitz evaluates the x)nmelits available f'rom aitemative uses of **the** instruments available to the marketing board:

* The purchase price for the crop at a particular location (and, implicitly, the cost oft ransport to the farner).

* The location of' depots.

* The scheduling of the evacuation of crops by location.

> If the state taxes the crop, the bcst policy is to provide a partial subsidy of transport. The worst policy is pan-territorial pricing (paying the same price per unit at any depot, an implicit 100 percent subsid) of transport f'rom depot to port). A pure export tax (farmer transports crop to port at own cost) is **onl\** slighily betier.

The deadweight loss from pan-territorial pricinig (for a given ta.x vicld increases A ith the supply elasticilt of' the crop. And the rc!ati\ e cost of pan-territorial pricing rises as the needed .umount of tax revenue nises.

Gersovitz finds that returns (in terms of producer surplus) to transport investments dlower transport cost) are largest under panterritorial pricing, lowAer undier optimal pricing (a partial subsidy of'transport), least under a pure expont tax.

Gersovit/ also examines different patterns of depot location. He finds that unless depots are densely spaced, farmers may deliver their crops to the depot nearest to them but not - nearest to the port the heavier the transport subsidy, the greater the risk of this raising transport costs.

He also finds that evacuating crops in an irrational order - from t'we furthest depots first, and the closest depots last - tends to increase postharvest losses and to engender inefficient use of and investment in transport.

The significance of the research for operations is to demonstrate the interdependence of' agricuiturai pricing poiicy and inarceLting 4o0aid logistics with transport use and the demand for transport investments, and to present orders of magnitude of cross-effects that ought to be investigated in decisions about agricultural pricing policies and transport investments.

T''he parameters for Gersovitz's analy tical model of transport are derived f'rom data for 56 cotton-producing zones of _(C6te_ d'lvoire.

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