African Development Review

From Food Inflation to Cash Transfers and Food Subsidies:

Assessing Impacts on households’ Consumption and
Welfare in Togo

Journal: African Development Review

Manuscript ID ADREV-02-2023-6242.R1
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Wiley - Manuscript type: Original Article

Specialty Area: Economic Development, Public Economics, Poverty

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This paper examines the impacts of increase in food prices on
households’ consumption and welfare in Togo. It also evaluates the
efficacy of specific measures taken by the Togolese Government, such as
cash transfers and food subsidies to dampen these impacts. The study
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uses the Computable General Equilibrium (CGE) model given its

appropriateness in handling economy-wide and the welfare effect of
specific policies. Simulation results suggest that the increase in food
prices negatively have affected consumption and welfare of all categories
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of households. The most affected households are self-employed in the

Abstract:
agriculture and other sectors, seasonal workers, and trainees and
housekeepers. However, the study reveals that these adverse effects are
mitigated by the Government's policy responses, notably through cash
transfers and food subsidies. Moreover, it appears that cash transfers
dampened more these negative impacts compared to food subsidies
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policies. These findings offer valuable insights for policymakers in

optimizing public interventions, striking a balance between various policy
options to address hunger and malnutrition within targeted households
in Togo.
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Page 1 of 20 African Development Review

From Food Inflation to Cash Transfers and Food Subsidies: Assessing Impacts on
households’ Consumption and Welfare in Togo

Abstract
This paper examines the impacts of increase in food prices on households’ consumption and
welfare in Togo. It also evaluates the efficacy of specific measures taken by the Togolese
Government, such as cash transfers and food subsidies to dampen these impacts. The study uses
the Computable General Equilibrium (CGE) model given its appropriateness in handling
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economy-wide and the welfare effect of specific policies. Simulation results suggest that the
increase in food prices negatively have affected consumption and welfare of all categories of
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households. The most affected households are self-employed in the agriculture and other
sectors, seasonal workers, and trainees and housekeepers. However, the study reveals that these
adverse effects are mitigated by the Government's policy responses, notably through cash
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transfers and food subsidies. Moreover, it appears that cash transfers dampened more these
negative impacts compared to food subsidies policies. These findings offer valuable insights
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for policymakers in optimizing public interventions, striking a balance between various policy
options to address hunger and malnutrition within targeted households in Togo.
Keywords: Food prices shocks; cash transfers; food subsidies; CGE Model; Togo
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JEL codes : C68; H5; Q02; R2.

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 African Development Review Page 2 of 20

1. Introduction

Elimination of hunger and extreme food insecurity is the second goal of the United Nations
Sustainable Development Goals (SDGs) adopted in 2015 (Mbow et al., 2019). Globally, the
number of people experiencing hunger and malnutrition has been declining for at least two
decades but began to increase in recent years (Kofinti et al. 2022; World Food Programme,
WFP, 2021). Experts believe that weather-related climate change (drought, irregular rainfall,
flooding, etc.), negative impacts of COVID-19, and Russia-Ukraine war are the main reasons
for this increase (Kemmerling et al., 2022; Food and Agriculture Organization, FAO, 2021).
Specifically, the COVID-19 pandemic and the war in Ukraine have negative impacts on global
food security across several channels of transmission, including disrupting of food supply
chains, trade and rising costs of key inputs such as fertilizers1 (Reardon et al., 2020; Barman
et al., 2022; Ben Hassen and El Bilali, 2022).
According to the World Bank commodity prices dataset, the food price index increased from
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87,4 in 2019 to 121,2 and 140,5, respectively in 2021 and 2022 on the global market. These
figures indicate that, from 2019 to 2022, food price index increased by 60,7% (Word Bank,
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2023). Knowing that high commodity international prices may spur the retail food prices in
developing economies, the increase in world food price observed during past years may be a
factor that can raise local food prices and decline in the purchasing power of households
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(Meyimdjui and Combes, 2021).

In Togo, the International Monetary Fund (IMF) and Central Bank of West African States
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(BCEAO) datasets, the Harmonized Index of Consumer Prices (HICP) increased from 0.7% in
2019 to 4.5% and 7.6% in 2021 and 2022, respectively (BCEAO, 2023). This increase in
consumer prices is mainly attributable to the rise in foodstuff prices, in line with the increase in
cereals and other food prices. Indeed, the contribution of food prices to the total inflation
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jumped from 0.1 percentage point in 2019 to 3.9 and 4.8 percentage point in 2021 and 2022,
respectively (see Figure 1). This situation increased the vulnerability of households and called
for appropriate mitigating tools to be deployed to protect consumption in times of adverse
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shocks.
The Government of Togo instituted several extraordinary measures to help cushion residents
from the economic shocks that occurred the past three years and the increase in food prices. For
instance, for the first three months of the COVID-19 crisis, the Government covered the costs
of electricity and water charges for the population and established a National Solidarity and
Economic Recovery fund of US$ 665.0 million to support households. In April 2020, the
Government established Novissi cash transfer program, a new monthly unconditional cash
transfer to support informal workers and their households. As of March 2021, Novissi has
reached 819, 972 beneficiaries and disbursed approximately US$ 23.9 million. In May 2021
several measures, including food subsidies were taken by the national authorities, through the
National Food Security Agency to increase the supply of cereals and face the rise in product
prices on the markets (Ministry of Economy and Finance of Togo, 2022).

1Fertilizers are still a crucial part of agricultural productivity (Ben Hassen and El Bilali, 2022). Their price index increased from 81.8 in
2019 to 2017.2 in 2022, while energy price index rose from 78.7 to 149.2 within the same period (World Bank, 2023).

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Furthermore, in September 2022 another package of measures was taken by the Government of
Togo. These include increasing the index value of salaries, the national minimum wage and
retirement pensions, the subsidy for fertilizers, petroleum products and gas, and the
establishment of cash transfers for the benefit of parents for the purchase of school supplies for
their children, etc. The objective of these measures is to help households to stabilize the negative
impacts of inflation (increase in food prices especially) on their consumption and well-being
(Ministry of Economy and Finance of Togo, 2022).
Figure 1: Harmonized Index of Consumer Prices and its components in Togo, 2019-2022
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Source: Authors, based on BCEAO monetary report, March 2023.

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In the light of these context and stylized facts, this paper examines the impacts of increase in
food prices on households’ consumption and welfare, and analyzes whether Government's
extraordinary measures (social transfers and food subsidies) reduce these impacts on
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households’ consumption and welfare in Togo.

Specifically, the study (i) examines the impacts of increase in food prices on households’
consumption and welfare in Togo, (ii) analyzes whether cash transfers moderate the impacts of
increase in food prices on households’ consumption and welfare in Togo, and (iii) examines
whether food subsidies reduce the impacts of increase in food prices on households’
consumption and welfare in Togo.
The evidence-based policy making processes are useful, particularly those aimed at mitigating
the negative impacts of increase in food prices on households’ food consumption and welfare
such as food subsidies and cash transfers. However, the coordination of implemented policies
in order to have higher payoff in consumption of nutritious foods is also very important. This
needs a deep assessment on how Government's extraordinary measures reduce the negative
impact of increase in food prices on households’ consumption and welfare using a sound
methodological approach for reliable results that would better inform decision makers. This
study uses a computable general equilibrium (CGE) model calibrated on recent social

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accounting matrix data of Togo and develops new policy implications that may serve as a
benchmark in decision making for the policymakers.
The rest of the paper is structured as follows: Section 2 focuses on literature review, Section 3
discusses the methodology, Section 4 presents simulation and discussions of results and Section
5 concludes and proffers policy recommendations.
2. Literature review
Theoretically, the role of Government policies in reducing the negative impact of increase in
food prices on households’ consumption and welfare is at the heart of the debate (Deaton, 1989,
2003; Minot, 2009; Watson, 2013). For instance, Minot (2009) pointed out that food price
instability is problematic for households if it negatively affects their consumption, while Deaton
(1989) and Watson (2013) supported the fact that consumption smoothing implies Government
stabilizing mechanisms, especially during food crises. These views follow the theory of food
price stabilization that refers to the economic and policy-oriented strategies aimed at
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minimizing fluctuations in the prices of food commodities over time (Gardner, 1979; Newbery
and Stiglitz, 1981; Newbery, 1989). The goal is to ensure that food prices remain relatively
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steady, avoiding extreme spikes or drops that can have detrimental effects on both producers
and consumers. Policies that are associated with the food price stabilization include buffer
stocks, price floors and ceilings, market interventions, and risk management and insurance
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(Gardner, 1979; Newbery and Stiglitz, 1981; Newbery, 1989; Gouel, 2013). The buffer stocks
involve the creation of buffer stocks of key food commodities. Governments or international
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organizations may purchase surplus production during periods of abundance and store it for
release during times of scarcity. This helps to balance supply and demand and stabilizes prices.
Regarding the price floors and ceilings, Governments may set price floors (minimum prices) or
ceilings (maximum prices) for certain essential food items. This is done to protect the income
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of farmers by ensuring they receive a reasonable return for their products, while also preventing
prices from rising too high and becoming unaffordable for consumers. Governments can also
intervene in the market by directly buying or selling food commodities to influence prices. This
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intervention can help mitigate the impact of supply and demand shocks on food prices.
Finally, Governments can provide farmers with access to risk management tools, such as crop
insurance, can be part of a strategy to stabilize their income. This helps farmers cope with losses
due to factors like weather events or market fluctuations.
Empirically, several studies have analyzed the impacts on food prices shocks on households’
consumption using econometric approach or partial equilibrium methods (Arezki and Bruckner,
2011; Alem and Söderbom, 2012; Green et al. 2013). For example, Arezki and Bruckner (2011)
a panel data analysis on 120 countries over the period 1970-2007. Findings indicate that food
price shocks negatively affect private consumption when increasing income and consumption
inequality. According to the World Bank, these negative impacts are a serious threat to food
security, especially for low-income households who spend larger proportions of their budgets
on food needs.

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In Ethiopia, Alem and Söderbom (2012) used survey data covering 2004-2008 and analyzed
the effects of price shocks on households’ consumption. Authors found that food price volatility
decreased households’ consumption and the most affected households are those involved in the
informal sector.
For Green et al. (2013) whose analyses were based on several empirical studies involving more
than 160 countries, an increase in food price leads to a decrease in households’ consumption.
Their results indicated that 1% increase in cereals price lowers food consumption by about
0.6%, with the poorest households being the most affected. These findings raise the question of
how public policies can mitigate the effects of adverse shocks on households’ consumption.
To address this issue, Combes et al. (2014) based their analysis on a sample of both developed
and developing countries and indicated that migrant’s remittances and official development
assistance have significantly reduced the adverse impact of import food price shocks on
households’ consumption.
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Meyimdjui and Combes (2021) also studied whether fiscal policy reduces the adverse effect of
import food price shocks on households’ consumption, using a panel of 70 low and middle-
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income countries over the period 1980-2012. Authors found that import price shocks negatively
and significantly affect households’ consumption, but this effect appears to be mitigated by
discretionary government consumption, notably through Government subsidies and transfers.
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Some authors have used microeconomic data to assess the role of cash transfers in coping with
adverse shocks in developing countries (Bhalla et al. 2018; Lawlord et al., 2019). Due to data
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unavailability, those studies are generally based on a small number of countries and years,
making it impossible to have an idea of the impact of Government policy measures on
households’ consumption and welfare in times of food crises. Bhalla et al. (2018) for instance,
analyzed the impact of Kenya’s Hunger Safety Net Programme during the 2011 drought in the
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Horn of Africa, considering the impacts on food consumption and the availability of macro-
and micro-nutrients at the household level. Findings indicate that the program does not have
significant impacts on nutrient availability on average. However, authors observed significant
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positive impacts for drought affected households in less isolated communities.

To improve social well-being, Governments use some stabilization tools such as food
distribution or cash transfers, etc. in times of crises. These policies may not only enable
households to continue accessing basic needs but would also boost their demand and in that,
boost economic growth in the near term. For instance, since early 2020, the spread in COVID-
19 has resulted in various Government support mechanisms aiming to improve access to food.
Many Governments (Ethiopia, Liberia, Senegal, Togo, etc.) have instituted extraordinary
measures such as cash transfers and subsidies on food prices to smooth the impact of the
pandemic and attenuate the negative impact of the increase in prices of imported food products
on households’ consumption (IMF, 2020). In 2022, Other Governments (Benin, Côte d’Ivoire,
Ghana, etc.) have increased the index value of salaries and retirement pensions, the subsidy for
fertilizers, petroleum products and gas, the national minimum wage to help vulnerable
households in mitigating war in Ukraine impacts on their income and consumption (IMF, 2022).

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The analytical approaches used in aforementioned studies presented above are partial
equilibrium methods that do not capture the feedback effects induced by other goods and
services prices in the economy. However, the CGE model method makes it possible. It takes
into account the direct and indirect effects of other commodities prices on food prices from one
sector to another. This seems to be important in assessing the impact of food prices shocks on
households’ consumption and welfare, and how Government policies can help to reduce these
impacts. It implies interdependence between agents of the economy. The use of the CGE model
can help to capture these direct and indirect impacts (de Melo and Tarr, 1992; Anderson et al.,
2006; Decaluwé et al., 2013).
It can be seen that several studies have dealt with how public policies can dampen the adverse
effect of import food price shocks on households’ consumption. However, to the best of our
knowledge, no studies in Togo have used a CGE model to assess the impact of food price shocks
on households’ consumption and welfare, and least how Governments extraordinary measures
can be helpful in dampening these negative impacts. In this sense, this study is therefore an
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innovation in terms of policy analysis based on sound methodology in the context of Togo.

3. Methodology
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3.1. Theoretical framework

The basic theoretical framework of computable general equilibrium model (CGEM) was
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offered by Walras (1874). This author has contributed enormously to the conceptualization of
the competitive general equilibrium model. Modern formulations of the model use advanced
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mathematical language thanks to the works of Arrow and Debreu (1954) and McKenzie (1954,
1981). However, the core of the model is still Walrasian in the sense that it determines only
relative prices and other variables of the real sphere of the economy. As a result, the computable
general equilibrium model is mostly based on the assumptions and properties of the competitive
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general equilibrium model (Decaluwé et al., 2001). Indeed, the applications of the classical
form of this model go back to the works of Dervis et al. (1982) and de Melo and Tarr (1992)
who evaluated the effects of economic policies on income distribution. Nowadays, it is accepted
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that among tools used in analyzing the effects of different economic policies, CGEM appears
to be the most adapted one. It allows for quantitative simulations of the effects of economic
policies (Décaluwé et al., 2001). Its relevance is reflected in its flexibility to identify and explain
the existence of interactions between the sectors of activities, economic agents and the
retroactive effects (Decaluwé et al., 2013).

3.2. Empirical model

3.2.1. Overview
The computable general equilibrium (CGE) is suggested as one of the suitable tools to evaluate
the impacts of food price shocks on households’ consumption and welfare and how Togo
Government's extraordinary measures can dampen these impacts (Dervis et al., 1982; de Melo
and Tarr, 1992). The CGE model that we use consists of a system of one hundred and twelve
(112) linear and non-linear equations organized into six blocks of equations: production,
income and savings, demand, trade, prices and equations steady. The interactions between all
actors of the economy in a consistent framework characterize this model. Our specification is

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based on that of Decaluwé et al. (2013) in which we have introduced some modifications on
the price system, investment and labor market equations as well as the calibration and closure
of the model.
The specification distinguishes two factors of production (composite labor and capital). The
composite labor factor is disaggregated into unskilled and skilled labor. The composite capital
factor is also disaggregated into private and public capital. The output of a sector is expressed
as a Leontief type function combining fixed shares of value-added and intermediate
consumption. The value added is a Constant Elasticity of Substitution (CES) function that
combines composite labor and capital. Except for the non-market sector where the capital
consists only of public capital, the composite capital is specified using a CES function that
combines private and public capital. The composite labor is modeled using a CES function
combining the two labor categories (Bayale et al., 2019) (see Chart 1 below).
The initial factor endowments of households play an important role in the transmission of the
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shock effects to households. Each household receives a share of the incomes of the factors of
unskilled labor, skilled labor, and private capital. A fixed proportion of transfers is paid by the
Government, the rest of the world, and other households as well as dividends paid by firms.
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The consumption structure is also critical in the transmission of the shock effects to households.
The consumption of each product is valued at the price of the composite goods. It is an LES-
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type utility function known as the Stone Geary linear expense system. It distinguishes the
incompressible consumption from the discretionary one (Decaluwé et al., 2013). This demand
function includes a minimum basket of consumption. It is the volume of the product that the
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consumer must have if he wants to maintain a minimum living standard. This volume is fixed
in the short term but changes according to the rate of increase in the population. Concerning
discretionary consumption, it is endogenously determined by changes in consumer prices and
consumer disposable income.
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Chart 1: Structure of the production in the CGE model

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Output

Leontief
Value-added Intermediate consumption

CES
Composite Labor Composite capital

CES CES

Unskilled labor Skilled labor Public capital Private capital

Source: Authors’ construction based on Ali and Bayale (2023)

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The households’ welfare induced by increase in food prices is analyzed using the Hicksian
equivalent variations which is an indirect utility function on a money basis metric (Iorember
and Jelilov, 2018). The model applies to a small open economy (Bayale et al., 2019; Madai
Boukar et al., 2021; Ali and Bayale, 2023). World prices of imports and exports are given.
Additionally, a finite elastic export demand function is introduced to consider the constraints
faced by Togolese producers in the global market.

3.2.2. Price system in the model

Chart 2 shows the interrelationships between the prices for commodities and activities as
depicted by the CGE model. The supply prices of the composite commodities (PQSc) are
defined as the weighted averages of the domestically produced commodities that are consumed
domestically (PDDc) and the domestic prices of imported commodities (PMc). The domestic
prices of imported commodities are defined as the product of the world prices of commodities
(PWMc) multiplied by the exchange rate (ER) plus ad valorem import duties (TMc). Weights
of the domestic and the imported prices in the determination of the average prices are
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determined by a CES function. The average prices exclude sales taxes, and hence must be
uplifted by (ad valorem) sales taxes and excise taxes to reflect the composite consumer price
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(PQDc). The producer prices of commodities (PXCc) are similarly defined as the weighted
averages of the prices received for domestically produced commodities sold on domestic
(PDDc) and export (PEc) markets. Weights adjust endogenously based on a CET function. The
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prices received on the export market are defined as the product of world price of exports
(PWEc) and the exchange rate (ER) less any export duties due, which are defined by ad valorem
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export duty rates (TEc). Sigma and Omega are trade CES/CET and production CES elasticities,
respectively (Siddig and Grethe, 2014).
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Chart 2: Price relationships in the CGE model

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Source: Authors’ construction based on Siddig and Grethe (2014)

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This research project focuses on domestic prices of imported commodities (PMc) to investigate
their impact on households’ consumption and welfare. The price paid for the imported product
is modelled as the world price, translated into the local currency, plus taxes and duties on
imports, margins, and domestic indirect taxes (equation 1).

(
𝑃𝑀𝐶 = (1 + 𝑡𝑡𝑖𝑐𝑖,𝑡) (1 + 𝑡𝑡𝑖𝑚𝑖,𝑡) ∗ 𝐸𝑅 ∗ 𝑃𝑊𝑀𝐶 + ∑𝑃𝐶
𝑖𝑗
𝑖𝑗,𝑡𝑡𝑚𝑟𝑔𝑖𝑗,𝑖 ) (1)

where PWM𝐶 is world price of imported product (expressed in foreign currency), 𝐸𝑅 represents
the exchange rate, 𝑡𝑡𝑖𝑐𝑖, 𝑡 tax rate on commodity 𝑖; ttimi, t the rate of taxes and duties on imports
of commodity 𝑖 and 𝑡𝑚𝑟𝑔𝑖,𝑖𝑗 rate of margin 𝑖 applied to commodity 𝑖𝑗.

With regard to the domestic prices, it is price paid for the local food commodities. It is modelled
as the sum of the price received by the producer, margins, and indirect taxes (equation 2).

( )
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𝑃𝐷𝐶 = (1 + 𝑡𝑡𝑖𝑐𝑖,𝑡) 𝑃𝐿𝑖,𝑡 + ∑𝑃𝐶 𝑖𝑗

𝑖𝑗,𝑡𝑡𝑚𝑟𝑔𝑖𝑗,𝑖 (2)
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where 𝑃𝐿𝑖,𝑡 and 𝑃𝐶𝑖𝑗,𝑡 represents price of local product 𝑖 and purchaser price of composite
commodity, excluding taxes and margins and 𝑡𝑡𝑖𝑐𝑖, 𝑡 Tax rate on commodity 𝑖.
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3.2.3. Households and Government in the CGE model2

In this model, households’ incomes come from three sources: labor income, capital income, and
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transfers received from other agents as mentioned in equation (3).

𝑌𝐻ℎ,𝑡 = 𝑌𝐻𝐿ℎ,𝑡 + 𝑌𝐻𝐾ℎ,𝑡 + 𝑌𝐻𝑇𝑅ℎ,𝑡 (3)

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where, 𝑌𝐻 ℎ, 𝑡 is a total income of type h households; 𝑌𝐻𝐾 ℎ, 𝑡 refers to the capital income of
type h households; 𝑌𝐻𝐿 ℎ, 𝑡captures the labor income of type h households and 𝑌𝐻𝑇𝑅 ℎ, 𝑡 the
transfer income of type h households, as developed in equation 4.
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𝑌𝐻ℎ,𝑡 = ∑𝜆𝑙
𝑊𝐿
ℎ,𝑙[ ∑𝐿𝐷
𝑊𝑙,𝑡
𝑗
𝑙,𝑗,𝑡 ] + ∑ 𝜆 [∑ 𝑅
𝑘
𝑅𝐾
ℎ,𝑘
𝑗
𝑘, 𝑗, 𝑡 𝐾𝐷𝑘,𝑗,𝑡 +] ∑𝑇𝑅
𝑎𝑔
ℎ,𝑎𝑔,𝑡 (4)

Where 𝑅𝑘, 𝑗, 𝑡 is the Rental rate of type 𝑘 capital in industry or activity branch 𝑗, 𝑇𝑅ℎ,𝑎𝑔,𝑡 are
transfers from agent 𝑎𝑔𝑗 to household ℎ; 𝑊𝑙,𝑡 the wage rate of type 𝑙 labor; 𝜆𝑅𝐾 ℎ,𝑘 is the share of
type 𝑘 capital income received by agent 𝑎𝑔 and 𝜆𝑊𝐿 ℎ,𝑙 is the share of type 𝑙 labor income received
by type ℎ households. 𝐾𝐷𝑘,𝑗,𝑡 and 𝐿𝐷𝑙,𝑗,𝑡 are demands for types 𝑘 capital and 𝑙 labor,
respectively by industry 𝑗. This households’ income is divided between consumption, direct
taxes and savings specified as follow:
𝐶𝑇𝐻ℎ,𝑡 = 𝑌𝐷𝐻ℎ,𝑡 ― 𝑆𝐻ℎ,𝑡 ― ∑ 𝑇𝑅
𝑎𝑔𝑛𝑔
𝑎𝑔𝑛𝑔,ℎ,𝑡 (5)

2 - These are selective equations. Households and Government blocs contain at least 23 equations in our model.

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with 𝐶𝑇𝐻ℎ,𝑡 is the consumption budget of type ℎ households; 𝑌𝐷𝐻ℎ,𝑡 the income taxes of type
ℎ households; 𝑆𝐻ℎ,𝑡 is savings of type ℎ households and 𝑇𝑅𝑎𝑔𝑛𝑔,ℎ,𝑡 transfers of household ℎ to
non-Government agents.

The variation of consumer prices and households’ nominal incomes is put together to assess the
household welfare. Indeed, in CGE models, the welfare is measured by the equivalent variation
(EV) define by the equation (6) using a Linear Expenditure System (LES) function (Robichaud,
2001).

𝐸𝑉 = 𝑚(𝑃0𝑖 , 𝑣(𝑃1𝑖 , 𝑌1)) ― 𝑚(𝑃0𝑖 , 𝑣(𝑃0𝑖 , 𝑌0)) = 𝑚(𝑃0𝑖 , 𝑣(𝑃1𝑖 , 𝑌1) ― 𝑌0 (6)

where 𝑃 is a vector of prices and 𝑌 household income. 𝑚(𝑃, 𝑣) is the money metric indirect
utility function. In the model the EV is calibrated as follow:

𝐼 𝛽𝑖

(
𝐼

)(
𝐼

∏(𝑃 )
𝑃0𝑖
)
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𝐸𝑉 =
𝑖=1
1
𝑖
𝑌1 ― ∑𝛾 𝑃
𝑖=1
1
𝑖 𝑖 ― 𝑌0 ― ∑𝛾 𝑃
𝑖=1
0
𝑖 𝑖 (7)
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On the Government side, hypotheses are that the Government draws its income from
households and businesses income taxes, taxes on products and on imports (TPRCTS), and
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other taxes on production (TPRODN). In addition to these various forms of fiscal revenue, the
Government receives part of the remuneration of capital and transfers from other agents.
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𝑌𝐺𝑡 = 𝑌𝐺𝐾𝑡 + 𝑇𝐷𝐻𝑇𝑡 + 𝑇𝐷𝐹𝑇𝑡 + 𝑇𝑃𝑅𝑂𝐷𝑁𝑡 + 𝑇𝑃𝑅𝐶𝑇𝑆𝑡 + 𝑌𝐺𝑇𝑅𝑡 (8)

Where 𝑌𝐺𝑡 is total Government income, 𝑌𝐺𝐾𝑡 the Government capital income, 𝑇𝐷𝐻𝑇𝑡 the total
Government revenue from households’ income taxes, 𝑇𝐷𝐹𝑇𝑡 the total Government revenue
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from business income taxes, 𝑇𝑃𝑅𝑂𝐷𝑁𝑡 the total Government revenue from other taxes on
production, 𝑇𝑃𝑅𝐶𝑇𝑆𝑡 the total Government revenue from taxes on products and imports and
𝑌𝐺𝑇𝑅𝑡 is the Government transfer income. Hence, the current Government budget surplus or
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deficit (positive or negative savings) is the difference between its revenues and expenditures.
The latter consist of transfers to agents and current expenditures on goods and services as
follow:

𝑆𝐺𝑡 = 𝑌𝐺𝑡 ― ∑ 𝑇𝑅
𝑎𝑔𝑛𝑔
𝑎𝑔𝑛𝑔,𝑔𝑣𝑡,𝑡 ― 𝐺𝑡 (9)

where 𝑆𝐺𝑡 represents the Government savings and 𝐺𝑡 the current Government expenditures
on goods and services.

The rest of the world receives payments for the value of imports, part of the income of capital,
and transfers from domestic agents. The difference between foreign receipts and spending is
the amount of rest-of-the-world savings, which are equal in absolute value to the current
account balance, but of opposite sign as indicated in equation 10.

𝑆𝑅𝑂𝑊𝑡 = ― 𝐶𝐴𝐵𝑡 (10)

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Page 11 of 20 African Development Review

where 𝑆𝑅𝑂𝑊𝑡 is Rest-of-the-world savings and 𝐶𝐴𝐵𝑡 the current account balance.

With regards to closure rules, the dynamics of the economy is driven by the accumulation of
productive capital and population growth. Increasing productive capital through investment is
the main source of growth for the economy. The investment covers the depreciation of capital
and contributes to its accumulation from one period to another (equation 11).

𝐾𝐷𝑘,𝑗,𝑡 + 1 = 𝐾𝐷𝑘,𝑗,𝑡(1 ― 𝛿𝑘,𝑗) + 𝐼𝑁𝐷𝑘,𝑗𝑡 (11)

Where 𝐼𝑁𝐷𝑘,𝑗𝑡 is a volume of new type k capital investment to sector j (whether public or
private) and 𝛿𝑘,𝑗 the depreciation rate of capital k used in industry j.

Also, we assume that population growth affects economic growth indirectly, mainly through
final demand and private and Government savings. In the closing procedure of the model, the
savings-investment equilibrium is achieved through the introduction of an endogenous indirect
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tax. This allows the Government to collect additional resources needed for investment. The
savings rate of the other institutions is fixed.
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3.3. Data and descriptive statistics

3.3.1. Data
In this study, we used the 2015 Social Accounting Matrix (SAM) for Togo (Ali and Bayale,
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2023). This SAM was designed and updated in 2019 by the Ministry of Development Planning
and cooperation of Togo in collaboration with the European Development Fund (EDF). That
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SAM takes into account eight (8) categories of households (employees of the public and private
sectors, self-employed in agricultural sector, other self-employed persons, seasonal workers,
trainees and housekeepers, the unemployed and inactive persons), covering twenty-one (21)
economic branches, including agriculture, breeding and hunting, foodstuffs, manufacturing
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activities, production of electricity, gas and water. These sectors are currently part of economic
branches that are considered as priorities targeted in the execution of the Togo 2025
Government roadmap (2022-2025) which sets out a vision for the development across
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economic, social and environmental dimensions in Togo.

3.3.2. Descriptive statistics

The stylized facts of the social accounting matrix are provided below. Indeed, the Table 1
indicate that employees of the public and private sectors, self-employed in agricultural sector,
other self-employed, seasonal workers, and trainees and housekeepers earned more than 60%
of income from labor force, whereas unemployed and inactive persons depend on transfers from
other economic agents, including Government, at more than 97% (Table 1).

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 African Development Review Page 12 of 20

Table 1: Sources of households’ income (% of total revenue)

Labor Capital Transfers
Household categories
income income income
Employees of the public sector 86.0 12.4 1.6
Employees of the private sector 81.6 7.7 10.7
Self-employed in agricultural sector 65.8 22.4 11.9
Other self-employed persons 67.1 20.2 12.6
Seasonal workers 63.3 19.1 17.6
Trainees and housekeepers 80.3 8.2 11.5
The unemployed 0.4 2.0 97.7
The inactive 0.0 1.7 98.3
Source: Authors’ computation using data from updated SAM 2019, Togo

Table 2 indicates that households allocate a significant part of their income to the purchase of
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foodstuffs (on average of 46.7%). Self-employed in the agricultural sector, the unemployed and
the inactive households use their income more to buy food. They devote 54.6%, 54.7% and
60.6%, respectively to paying for food. These categories of households are followed by
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employees of the private sector (45.9%), other self-employed persons (44.4%), trainees and
housekeepers (41.1%) and seasonal workers (40.4%). Only employees of the public sector
spend 31.7% of their revenue on foodstuffs.
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Table 2: Share of households’ expenditure by goods and services (% of total expenditure)

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Transport and Other goods

Household categories Foodstuffs Lodging
communication and services
Employees of the public sector 31.7 9.1 14.9 18.0
Employees of the private sector 45.9 10.9 7.3 8.5
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Self-employed in agricultural sector 54.6 5.6 5.1 6.9

Other self-employed persons 44.4 8.0 6.8 10.5
Seasonal workers 40.4 7.7 11.8 13.0
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Trainees and housekeepers 41.1 8.7 11.8 13.8

The unemployed 54.7 14.8 11.7 9.7
The inactive 60.6 12.0 4.8 9.5
Households Average 46.7 9.6 9.3 11.2
Source: Authors’ computation using data from updated SAM 2019, Togo

3.4. Simulation designs and baseline results

The simulations attempt to assess the impacts of an increase in food prices on households’
consumption and welfare and analyze whether Government's measures such as social transfers
and food subsidies, reduce these impacts in Togo, by considering hypotheses on food prices
and Government transfers and subsidies. Thus, these simulations considered two groups of
assumptions. First, on food prices and, secondly, on the shocks on Government transfers and
subsidies.

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Page 13 of 20 African Development Review

For assumptions on food prices shocks, three scenarios are built:

 an optimistic scenario of 6.7 per cent increase in food3 prices in line with the first
estimates of Togo’s National Institute of Statistics and Economic and Demographic
Studies (INSEED) data and analysis (INSEED, 2022);
 a less pessimistic scenario of 10 per cent increase in food prices in line with the World
Food Organization (WFO) and the Food and Agriculture Organization (FAO) price data
and analysis (WFO-FAO, 2022). Moreover, according to the Central Bank of West
African States (BCEAO) quarterly survey data, food prices increased by 11.2% between
2021 and 2022.
 a pessimistic scenario corresponds to an ad‐hoc rate 15 per cent increase in food prices.
To examine whether Government's measures such as social transfers and food subsidies, reduce
the negative impacts of an increase in food prices on households’ consumption and welfare in
Togo, two scenarios are considered:
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 3% of increase in total Government cash transfers in line data collected on the website
of the Ministry of Economy and Finance of Togo (Ministry of Economy and Finance,
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2022).
Based on the measures announced by the Government of Togo on September 16, 2022, transfers
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expenditures to vulnerable households in 2022, are evaluated at around 2.7% of the total
Government transfers of Togo's 2022 finance law.
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 2% of increase in total budget expenditures as subsidies in food agriculture, breeding,

hunting and fishing sectors, based on the measures announced by the Government of
Togo on September 16, 2022 (Ministry of Economy and Finance, 2022).
These measures include, among others, the subsidy for fertilizers with the objective of
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increasing food supply. The cost of the measures represented approximately 2.1% of the total
expenditure of Togo's 2022 finance law. The table 3 exhibits the baseline results.
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Table 3: Baseline results4

Household categories Revenues Consumption Saving Welfare
Employees of the public sector 458.1 316.4 141.7 301.8
Employees of the private sector 362.6 304.9 57.7 289.2
Self-employed in agricultural sector 379.8 270.6 109.2 251.7
Other self-employed persons 434.5 369.1 65.4 314.9
Seasonal workers 62.2 48.4 13.8 42.3
Trainees and housekeepers 56.9 53.3 3.6 49.8
The unemployed 20.2 16.9 3.3 14.5
The inactive 109.1 104.4 4.7 86.8
Source: Authors’ computation using GAMS

3 Foodstuffs include breads and cereals, meat, fish, oils and fats, vegetables, tubers and plantains, salt, spices,
sauces and beverages, etc.
4 In the Table 3, amounts are in thousands of CFA franc.

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 African Development Review Page 14 of 20

4. Simulation and discussions of results

4.1. Impacts of increase in food prices on households’ consumption and welfare
Table 4 shows that increasing food prices by 10% negatively affects households’ consumption
by 16.2% and welfare by 9.4%, compared to the baseline results (Table 3). This negative impact
is higher when the magnitude of the shock is strong. For instance, considering an increase in
food prices by 15% could reduce households’ consumption and welfare by 19.4% and 11.9%,
respectively. Detailed analysis reveals that the most affected households are self-employed in
the agriculture and other sectors, seasonal workers, and trainees and housekeepers (Table 4).
Indeed, in the less pessimistic scenario for example, the consumption of these households
decreases by 12.8%; 15.1%; 16.3% and 15.9%, respectively. This is a common characteristic
of developing countries like Togo where the certain categories of households like those
aforementioned remain more vulnerable to food price shocks.
These results on the impacts of food prices on households’ consumption are consistent with the
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economic literature. For example, Meyimdjui and Combes (2021) found that food price shocks
significantly reduced households’ consumption in 70 low and middle-income, over the period
1980-2012.
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To cushion vulnerable households from the food inflation shocks, the Government of Togo has
instituted several extraordinary measures which include, among others, cash transfers and food
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subsidies. The rest of the results analyzed whether these measures have contributed in reducing
the aforementioned negative impact.
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Table 4: Impacts of increase in food prices on households’ consumption and welfare (in %)
Consumption Welfare
Households' types
6.7% 10% 15% 6.7% 10% 15%
Employees from the public sector -9.9 -13.3 -17.4 -6.0 -8.6 -11.1
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Employees from the private sector -11.0 -14.5 -17.7 -5.6 -8.2 -10.7
Self-employed in the agriculture sector -12.8 -16.2 -19.3 -7.1 -9.7 -12.2
Other self-employed -15.1 -18.5 -21.6 -7.7 -10.3 -12.8
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Seasonal workers -16.3 -19.6 -22.7 -9.0 -11.6 -14.1

Trainees and housekeepers -15.9 -19.3 -22.4 -8.0 -10.6 -13.1
Unemployed -10.4 -13.7 -16.8 -6.1 -8.6 -11.2
Inactive persons -11.2 -14.6 -17.7 -5.3 -7.9 -10.4
Average impact (percentage) -12.8 -16.2 -19.4 -6.9 -9.4 -11.9
Source: Authors’ computation using GAMS.
Note: Figures indicated in tables are the average impact of the shock over 5 years, covering the period 2019-2024.

4.2. Cumulative impacts of increase in food prices and Government transfers on

households’ consumption and welfare
Table 5 examines whether cash transfer programs put in place by the Togolese Government
have smoothed households’ consumption and welfare after food prices increase.
It can be observed that, in a less pessimistic scenario, households’ consumption and welfare
reduced from 16.2% and 9.4%, respectively (Table 4) to 10.7% and 5.6%, respectively (Table

14
Page 15 of 20 African Development Review

5). This implies that Government transfers have dampened the adverse impacts of increase in
food prices, but this does not completely clear the negative effect of the price increase as given
in the table 5. These findings corroborate studies of Bhalla et al. (2018) and Lawlord et al.
(2019) who have shown the effectiveness of transfer programs in Zambia and Kenya, especially
when these programs are well targeted.
Table 5: Cumulative impacts of increase in food prices and Government transfers on
households’ consumption and welfare (in %)
Consumption Welfare
Households' types
6.7% 10% 15% 6.7% 10% 15%
Employees from the public sector -8.6 -9.8 -13.3 -3.1 -6.0 -8.5
Employees from the private sector -9.5 -10.8 -14.3 -3.2 -5.6 -7.9
Self-employed in the agriculture sector -10.1 -11.4 -14.9 -3.8 -6.4 -8.6
Other self-employed -9.3 -11.7 -15.2 -3.0 -5.5 -7.8
Seasonal workers -10.3 -12.6 -16.1 -4.4 -6.9 -9.1
Trainees and housekeepers -9.1 -12.5 -16.0 -3.3 -5.9 -8.1
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Unemployed -6.7 -8.3 -11.8 -2.1 -4.6 -6.9

Inactive persons -6.9 -8.6 -12.1 -1.7 -4.2 -6.4
Average impact (percentage) -8.8 -10.7 -14.2 -3.1 -5.6 -7.9
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Source: Authors’ computation using GAMS.

Note: Figures indicated in tables are the average impact of the shock over 5 years, covering the period 2019-2024.
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4.3. Cumulative impacts of increase in food prices and Government food subsidies on
households’ consumption and welfare
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Food subsidies expenditure is one transmission channel of fiscal policy towards the benefit of
workers or households. Table 6 presents the impacts of an increase in food price on households’
consumption and welfare once fiscal Government subsidies are involved. From optimistic to
pessimistic scenarios, it can be seen that Government food subsidies mitigate the negative
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impacts of food prices increase on households’ consumption and welfare.

Indeed, findings exhibited in Table 5 show that, in the less pessimistic scenario, households’
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consumption and welfare reduced for 16.2% and 5.9%, respectively (Table 4) to 12.9% and
6.2%, respectively (Table 6).
Thus, both Government transfers and food subsidies seem to smooth the adverse impacts of an
increase in food prices on households’ consumption and welfare. However, when comparing
results from Table 4 to Table 5 and from Table 4 to Table 6, it appears that cash transfers policy
has slightly higher payoff on households’ consumption and welfare face to the increase in food
prices in Togo than food subsidies policy.
For example, in less pessimistic scenario, the adverse impacts of an increase in food price on
households’ consumption and welfare were reduced from 3.4 and 3.2 point of percentage,
respectively when Government have instituted food subsidies policy (Table 4 and Table 6),
whereas the mitigation is about 5.5 and 3.8 point of percentage with the implementation of
Government cash transfers policy (Table 4 and Table 5). Though Government food subsidies
stabilize the negative impact of food prices shocks on households’ consumption, but targeted
cash transfers programs seem to be more efficient.

15
 African Development Review Page 16 of 20

Table 6: Cumulative impacts of increase in food prices and Government food subsidies on
households’ consumption and welfare
Consumption Welfare
Households' types
6.7% 10% 15% 6.7% 10% 15%
Employees from the public sector -6.5 -10.2 -14.4 -2.8 -5.3 -7.5
Employees from the private sector -7.7 -11.4 -15.7 -2.5 -5.2 -7.3
Self-employed in the agriculture sector -8.8 -12.7 -16.8 -4.0 -6.6 -8.7
Other self-employed -11.2 -15.1 -19.3 -4.3 -6.7 -8.9
Seasonal workers -12.3 -16.2 -20.4 -6.0 -8.5 -10.7
Trainees and housekeepers -12.1 -15.9 -20.0 -4.5 -7.1 -9.3
Unemployed -6.7 -10.3 -14.5 -2.7 -5.3 -7.4
Inactive persons -7.6 -11.5 -16.0 -2.3 -4.8 -7.0
Average impact (percentage) -9.1 -12.9 -17.1 -3.6 -6.2 -8.3
Source: Authors’ computation using GAMS.
Note: Figures indicated in tables are the average impact of the shock over 5 years, covering the period 2019-2024.
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Finally, Table 7 indicates that the combination of the two sets of Government’s measures
(transfers and food subsidies) has mitigated the decline in households’ consumption and
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welfare. Indeed, households’ consumption and welfare have changed form -16.2% and -9.4%
(Table 4), respectively to -7.4% and -2.4%, respectively (Table 7). Governments stabilization
tools such as cash transfers and food subsidies in times of crisis, help to attenuate the negative
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impact of the increased food products prices on households’ welfare.

Table 7: Cumulative impact of increase in food prices and Government's measures (transfers
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and food subsidies) on households’ consumption and welfare

Consumption Welfare
Households' types
6.7% 10% 15% 6.7% 10% 15%
Employees from the public sector -5.1 -6.7 -10.3 -0.2 -2.7 -4.9
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Employees from the private sector -6.2 -7.7 -12.3 -0.1 -2.6 -4.4
Self-employed in the agriculture sector -6.0 -7.9 -12.2 -0.8 -3.3 -5.2
Other self-employed -5.4 -8.3 -12.9 -0.5 -2.0 -3.8
Seasonal workers -6.3 -9.2 -13.8 -1.3 -3.8 -5.7
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Trainees and housekeepers -5.3 -9.1 -13.6 -0.4 -2.4 -4.3

Unemployed -3.1 -4.8 -9.5 -1.3 -1.3 -3.1
Inactive persons -3.3 -5.5 -10.4 -1.4 -1.1 -3.0
Average impact (percentage) -5.1 -7.4 -11.9 -0.7 -2.4 -4.3
Source: Authors’ computation using GAMS.
Note: Figures indicated in tables are the average impact of the shock over 5 years, covering the period 2019-2024.

5. Conclusion and policy recommendations

This study investigates the impacts of increase in food prices on households’ consumption and
welfare. Additionally, it assesses the effectiveness of Government’s interventions, such as
social transfers and food subsidies, in mitigating these impacts on households in Togo. To
achieve these objectives, the research employs a Computable General Equilibrium (CGE)
model using Togo's Social Accounting Matrix (SAM) and is grounded in the observed food
inflation patterns of the last two years.

16
Page 17 of 20 African Development Review

The decline in both household consumption and overall economic welfare was observed to be
most pronounced in pessimistic scenarios, characterized by a 15 percent increase in food prices.
This was followed by a less pessimistic simulation involving a 10 percent increase in food
prices, and finally, the optimistic scenario, which entailed a 6.7 percent rise in food prices.
Results also show that self-employed individuals in agriculture and other sectors, seasonal
workers, trainees, and housekeepers are the most adversely affected households, in contrast to
employees in the public sector, for example. Nevertheless, Government policy responses,
particularly through measures like cash transfers and food subsidies, seem to alleviate these
impacts. Moreover, upon assessing the effectiveness of government interventions in mitigating
the adverse consequences of rising food prices, it is noted that the impact of government transfer
policies appears to be generally higher on these negative effects compared to the impact of food
subsidy policies. This is particularly evident for vulnerable households, including those who
are self-employed in agriculture and other sectors, seasonal workers, trainees, housekeepers, as
well as unemployed and inactive individuals. This suggests that Government’s transfer policies
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aimed at vulnerable populations yield greater benefits in terms of reducing disparities in access
to food.
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However, to enhance the efficiency of these cash transfer programs, Governments could
consider several policy recommendations. These measures include developing and refining
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robust targeting mechanisms to accurately identify and reach the most vulnerable populations.
This may involve utilizing data from social registries, conducting regular assessments, and
employing technology for accurate beneficiary identification. Policymakers should also
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coordinate transfer policies with other social services like healthcare, education, and vocational
training to create a holistic approach to poverty alleviation. This integration can maximize the
impact of cash transfers by addressing multiple aspects of well-being.
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Conflict of interest
The authors received no specific funding for this work. Also, Authors wish to confirm that
there are no known conflicts of interest associated with this publication.

17
 African Development Review Page 18 of 20

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