Who Are The Real Gainers Of Trade Liberalization In Kenya’s Maize Sector?

Abstract

In Kenya, trade policy reforms in the cereals sector were initiated as a key component of the economy-wide structural adjustment programmes (SAPs) during the mid 1980s. The SAPs were later strengthened and made irreversible by Kenya’s commitments at the multilateral trade negotiations. However, the welfare effects of these trade policy reforms remain controversial. This paper to quantifies the market and welfare impacts of trade liberalization in Kenya’s maize sector using a partial equilibrium model with market interrelationships at the farm, wholesale and retail levels. The model is calibrated to simulate a 24 percent reduction in maize import tariffs and a complete abolition of tariffs. The simulations results suggest that tariff reductions yield price decreases across the three market levels. The declining prices increase maize consumption but reduce domestic production. Consequently, consumer surplus increases while producer surplus decreases. However, the gain in consumer surplus is not sufficient to compensate the loss in producer surplus. Thus, the implementation of the multilateral agricultural trade agreement is likely to leave Kenya’s maize sector worse off and cannot be considered as a viable policy based on the compensation principle.