A Spatial Equilibrium Analysis of the Tanzanian Sugar Industry

Abstract

This study is a contribution to the current government efforts for revival of efficiency in Tanzanian public enterprises. Specifically, the study is centred on the two objectives of the sugar industry, namely cost minimization and increasing output. Examination of the current pricing and distribution of sugar suggest that the ex-factory pricing procedure, and the sugar distribution system, are key venues where appropriate changes can contribute to increased output and cost minimization. The appropriateness of marginal cost pricing with respect to the desired objectives is shown. Then, a net revenue spatial equilibrium model, solved by quadratic programming, is used to illustrate how ex-factory prices that encourage increased sugar production and minimization of production costs could have been determined for the 1985/86 financial year. The most cost-effective sources of sugar supplies for each of the 20 consuming regions are also indicated.