Impacts of Changes in Exchange Rate and International Prices on Agriculture and Economy of the Sudan: Computable General Equilibrium Analysis

Abstract

Changes in exchange rate and international prices greatly affect food availability, the agricultural sector, and Gross Domestic Product (GDP). This study quantifies the effects of change in exchange rate and world prices on Sudan’s agricultural production, imports, exports, and GDP. Special emphasis has been placed on sorghum and wheat, the main food grains. A Standard Computable General Equilibrium model has been developed and used for the analysis. The main objective is to contribute to policy-making process for enhancing food security and social welfare in the Sudan. Currency depreciation would reduce wheat imports and increase its domestic production, increase sorghum export, increase domestic output and export of sesame and cotton, and improves GDP; and vice versa for appreciation. Appreciation favors urban (wheat) consumers, whereas depreciation favors rural (sorghum) consumers. Increasing world price of wheat would decrease its imports, whereas that of sorghum would encourage its production and export, and increase domestic food prices. GDP decreases due to investment reduction. It is recommended that wheat import should be conditioned on hard currency availability and food gap, while maintaining stable exchange rate that strike a balance between encouraging sorghum exports and wheat imports. It is also recommended to encourage innovation of fast food from traditional grains to curb the shift to wheat consumption.