Chapter 4


 Table 4.6: Impact of a devaluation on different sources of agricultural income


 Likely price and Type of production Examples
 income effect income source
 Strongest increase Cash crops for export coffee, cocoa, cotton
 Substantial increase Importables wheat, rice, maize
 Moderate increase Imperfect import substitutes maize, millet, sorghum,
 Undetermined Quasi-substitutes tubers and root crops
 Decline Non-tradables, non-substitutes vegetables, livestock
 products (eggs, dairy
 products, meat)

 adapted from Woodward 1992, Vol. II

 Most non-agricultural goods and services fall under the category of non-tradables. This
 comprises manufactured goods for the domestic market as well as the large informal
 sector which supplies mainly non-tradable services. The direct effect of a devaluation will
 be a reduction of the prices and a concomitant decline of income of producers engaged in
 these sectors.

2) Impact on factor income

 In line with a shift in production from non-tradables to tradables there will be a
 corresponding shift in demand for the production factors employed in the various sectors:
 demand for the factors employed in tradables production will increase, while demand for
 those employed in non-tradables production will decrease. It is expected that this shift in
 demand will induce respective price changes in the factor markets, depending also on the
 intensity of factor use in the various sectors, and on factor mobility.

 For assessing the impact on food security, the changes in the labour market, hence
 employment and wage levels in the various sectors, deserve special attention. As the
 impact is only indirect and depends on many circumstances, it is difficult to generalise
 about outcomes. However, the following effects usually occur:
 A devaluation is likely to increase wages and employment levels in rural areas where
 tradables and import-substitutes are produced, and to have depressing effects on wages
 and employment in urban formal and informal sectors. The services sector is likely to
 be particularly affected.
 If there is high unemployment and underemployment, wages will be only slightly
 affected. The effects on factor income are, in this case, confined to changing
 employment levels.
 Labour laws and minimum wage regulations may dampen the effects on employment
 and wages in formal sectors.


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