Welfare effects of food-processing development in agriculture-based economies: a CGE analysis for Benin

Most agriculture-based economies in Africa are working on increasing their agricultural productivity and production following the African Union (AU) recommendations.However, it has been shown that increasing agricultural production without ensuring value-chain development may end up in welfare losses for farmers due to falling farm-gate prices.Little research has been conducted so far on the economy-wide effects of food value-chain development.This article contributes to filling this gap by analysing the effects of food-processing sector development on welfare in an agriculture-based economy, taking the example of Benin.We calibrate a Computable General Equilibrium (CGE) model to a comprehensive 2019 Social Accounting Matrix (SAM) for Benin.We introduce a novel welfare measure, accounting for changes in savings.Results show that enhancing the food-processing sector increases demand for agricultural raw materials and hence agricultural production and prices.Accordingly, the price of low-skilled labour increases.This primarily benefits low-income households, who derive most of their income from this factor.The overall income and welfare effects are pro-poor.Accordingly, income disparity as well as poverty incidence and gap decrease.We conclude, that the development of food-processing has the potential to make agricultural development in agriculture-based economies more pro-poor.