Peasant Supply Response and Macroeconomic policies: Cotton in Tanzania

This article provides empirical evidence on the importance of both price and non-price related government policy towards cotton production in Tanzania since the 1950s. First, the effects of export taxation, marketing board inefficiencies and overvaluation on the level of prices paid to the producer are separated. Second, econometric analysis shows that no aggregate supply response exists for cotton: increases in cotton production are at the cost of food production. Third, from the end of the 1970s until the mid-1980s a standard specification with prices as the main explanatory variable is dominated by a specification including macroeconomic variables including inflation taxation and rationing. Also, a negative aggregate supply response can be observed. This evidence supports the conclusions reached by Bevan et al. (1989) on the effects of rationing on peasant production, but this time through time-series analysis on one crop. Finally, comparing the econometric evidence with survey results, it is shown that a stagnation of yield has set in since the 1970s, compared with large yield growth until the end of the 1960s. The results suggest that the bias against export crops after the Arusha Declaration in 1967 did not only affect production through prices but also affected technological progress.