Impact Of Agricultural Market Reforms On Smallholder Farmers In ...

Under pressure from the World Bank and France, the government agreed to phase out the subsidies
on agricultural inputs. Between 1983-84 and 1988-89, the subsidies on fertilizer and pesticides
were reduced from around 50 percent to zero. Although this policy eliminated the fiscal burden of
the state, it did not address the fundamental problems associated with central management of the
agricultural sector.
The Caisse Nationale de Crédit Agricole (CNCA) was a traditional bank with branches in the rural
areas, but it was unable to serve the financial needs of small farmers. As part of the widespread
cooperative movement inititated in the 1970s, the government established a decentralized network
of Caisses de Crédits Agricole Mutuels (CCAM). The CCAMs were successful in mobilizing
savings and a large portion of these funds were deposited in the CNCA. The CNCA was, however,
abused by politicians and military officers who borrowed money without repaying, resulting in
heavy losses and eventual closure of the CNCA in 1988. The collapse of the CNCA caused severe
liquidity problems for the CCAM and the freezing of most of the saving accounts.
Economic growth in the 1970s was stimulated by international borrowing, the oil boom in
neighboring Nigeria, and the benefits of a stable convertible currency. In 1973, Benin joined five
other West African nations in a monetary union. As part of this union, the member nations agreed
to share a central bank, the Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO) and a
common currency, the franc of the Communauté Financière Africaine (CFA). The CFA franc
(FCFA) was pegged to the French franc (FF) at a rate of 50 FCFA/FF. The Banque of France
guarantees the money issued by the BCEAO, which ensures convertability both within the CFA
franc zone and with respect to hard currencies. This arrangement has the advantage of facilitating
international trade and maintaining a relatively stable currency with low inflation. On the other
hand, it is difficult to correct exchange rate misalignment.
A number of events occurred in the 1980s to threaten the economic stability of the country:
The oil boom ended in Nigeria, causing a regional slump.
The burden of repaying debts incurred in the 1970s began to drain foreign reserves.
In the 1980s, the CFA franc became increasingly overvalued, reducing the incentives for
export production and slowing the economy.
In the mid-1980s, the world price of cotton declined sharply, depressing both farm income
and government revenues.
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