Evaluating Impacts of Subsidy Removal in the Tunisian Bakery Sector

Abstract

Abstract The paper analyzes the economic impact of the gradual removal of the subsidy in the bakery sector in Tunisia. A partial equilibrium model under imperfect competition in the soft wheat market is developed to evaluate the impact of the gradual removal of the subsidy in the Tunisian bakery sector. Two scenarios are simulated. In the first scenario, the subsidy is eliminated over a three years, starting in 2024. Scenario 2 mirrors scenario 1, but assumes a 5 % annual increase in the world price of soft wheat from 2024 to 2026, accounting for the anticipated depreciation of the Tunisian currency. The results show that the overall welfare would increase under both scenarios 1 and 2, and range between 443.9 and 472.2 million dinars by 2026, respectively. Based on the results of the simulations, to mitigate the negative impact of subsidy removal, it is strongly recommended to extend the food subsidy reform to a five-year period, prioritizing the protection of low-income segments. In addition, abolishing the Cereal Board’s regulatory role and moving to a competitive farm-level market would enhance competition, attract investment, and improve productivity and efficiency. However, a new cereal policy should be implemented to achieve objectives of food security, improved productivity, sustainability, and resilience.