AGRICULTURAL DEVELOPMENT IN THE AGE OF TRADE LIBERALIZATION

1
AGRICULTURAL DEVELOPMENT IN THE AGE OF TRADE
LIBERALIZATION What Did We Really Get?A case
Study of JordanPresented atIDEAs Beijing
Workshop 3-5th June, 2007

• Fayq Al Akayleh
• Centre for Economic Studies and Planning
• School of Social Sciences
• Jawaharlal Nehru University
• New Delhi
• bsbann_at_gmail.com

2
Natural Obstacles

• Lack of arable land (Only 7.8 percent (1 million
  acres) of the total land is arable.
• The very limited resources for both the drinking
  and irrigation water (Estimated deficit of
  drinking water in 1997 was 25 percent.)
• Rain-fed agriculture occupies 80 percent of the
  total arable land

3
Table 1 Average Production Trade Share and
Export-Import ratio of Main Crops (Calculated
based on quantities) (2000-2003)
Wheat Barley Lentils Fruits Vegetables Citrus Fruits
Production () 1.6 1.6 0.01 16.4 71.5 8.9
X/M () 0.2 0.0 2.4 361.7 361.7 361.7
Trade Share () 1717 2104 767 43.8 43.8 43.8
4
Agricultural Trade Liberalization Policies,
Introduced since 1993

• 1989 Implementation of the Economic Structural
  Adjustment Program 1989-1993. This was
  interrupted by the 1990/91 Gulf Crisis and U.S.
  offensive against Iraq
• 1993 Implementation of Economic Reform Program
  that has been included in the 1993-1997 and
  1999-2003 economic and social development plans.
• 1993 Food subsidies reduced by more than 50
  (declined as a share of GDP from 3.4 in 1990 to
  1.2 in 1993)
• 1993 Governments gradual withdrawal from
  importing almost all agricultural products except
  for very few items in competition with the
  private sector

5
Continued Agricultural Trade Liberalization
Policies

• 1994 Agricultural Sector Adjustment
  Program-under World Banks Agricultural
  Structural Adjustment Loan
• In October 1994, the Government lowered all
  tariffs of more than 50 to 50 or less ,
  affecting 21 of imports (including tobacco and
  alcohol)
• In May 1995, tariffs on all agricultural products
  were reduced further to 25
• In May, 1995, the Government eliminated all
  quantitative restrictions on agricultural
  imports, except very few essential food items,
  and converted them into tariffs
• In 1996, A progressive tariff for irrigation
  water

6
Continued Agricultural Trade Liberalization
Policies

• In August 1996, the bread subsidy was eliminated
  and the prices of flour and bread were increased.
  Increasing price of bread was accompanied by cash
  transfer of the amount of JD 1.280 per person per
  month, subject to the JD 500 per household
  eligibility criterion
• 1994 The Government replaced the Consumption Tax
  on imports by the General Sales Tax Law No. 6 of
  1994, which is applied equally on domestically
  produced goods as well as imports.

7
Continued Agricultural Trade Liberalization
Policies

• 1997 Export Promotion Facility of the Central
  Bank of Jordan, which was operating to provide
  credits for exporters, through commercial banks,
  at 2 percentage points below the prevailing
  discount rate, was terminated on January 1st,
  1997.
• 1999 In January 1999, the general cash transfer
  was eliminated and the Government liberalized
  bread prices. The cost of food subsidy as a share
  of GDP was 3.1 in 1989 and declined to 0.3 of
  GDP in 1999.
• 2000 Total domestic subsidies offered by the
  government to local agricultural producers
  reduced by 13.3 over a period of seven years
  from the date of accession to WTO

8
Continued Agricultural Trade Liberalization
Policies

• 2003 As a provision of the Great Arab Free Trade
  Agreement, by January 1st, 2003, exemption of
  customs duties among the League countries reached
  70 percent, including agricultural products
• 2005 The State-owned Agricultural Marketing and
  Processing Company (AMPCO) was privatized in
  November 2005 for JD 8.9 million

9
Agricultural Real Production, Real Income and
Relative Prices
10
Figure 1

• Relative price index of agricultural products was
  slightly lower in period after 1993 compared to
  1986-93.
• Real agricultural production peaked in 1992 and
  fell thereafter, never reaching that level again.
• Average production in 2001-03 was 21 lower than
  in 1991-93 (JD 193.6 million in 2001-03 and JD
  245.5 in 1991-93).
• The same scenario happened to real income from
  agriculture with sharper decline since 1993
  onward.
• Average income in 2001-03 was 53 lower than in
  1991-93 (JD 111.1 million lower than JD
  236.3 million in 1991-93).
• Domestic agricultural prices were higher than
  world prices since 1993. This made domestic
  agricultural products less competitive adversely
  affecting exports and encouraging imports.

11
Agricultural Real Investment and Trade Share
12
Figure 2

• Since 1993, trade share increased sharply till
  2000 and agriculture sector experienced
  disinvestment (JD -7.8 million) in 1996, both
  moved together till 2002, and in opposite
  direction in 2003.
• Average trade share increased from 237.1 during
  1985-1992 to 315 during 1993-2003, whereas
  average agricultural investment decreased from JD
  42.7 million to JD 21.2 million.
• Real investment and share of trade in
  agricultural GDP have, in general, moved in
  opposite direction
• The dominance of imports over exports in trade
  reduced the ability of domestic producers to
  competing, which discouraged investment,
  resulting in declining production

13
Trade Deficit in Agriculture Sector
14
Competitive Advantage (CAX) for Agricultural
Exports and for agricultural production (CAM)

• The following formulas were used to find the CAX
  and the CAM
• CAXij (Xijt / Xjt) / (Xiwt / Xwt)
  and,
• CAMij (Mijt / Mjt) / (Miwt / Mwt)
  where,
• i, j, t, w, X, and M are agricultural ith
  product, Jordan, time period, the world, exports
  and imports, respectively, and if
• CAX is greater (smaller) than unity for an
  agricultural product, the country has competitive
  advantage (competitive disadvantage) in export of
  that product and when RCAX (the change in CAX) is
  greater (smaller) than unity, the country has
  been gaining (losing) advantage in export of that
  product.
• CAM is greater (smaller) than unity for an
  agricultural product, then the country has
  disadvantage (advantage) in the production of
  that product RCAM is greater (smaller) than
  unity implies that the country witnessed further
  loss (gain) in advantage of the production of
  that product.

15
Results for Competitive Advantage

• Over the pre-reform period, Jordan had
  competitive advantage in EXPORT of 14 out of 37
  agricultural products included in the study, yet
  the number of competitive products declined to 13
  during the reform period.
• The number of agricultural products that have
  competitive advantage in PRODUCTION had declined
  from 25 products in the pre-reform period to 23
  products in the age of trade liberalization.
• So no improvement in competitive advantage
  neither for agricultural exports nor for
  production

16
Export-Weighted Real Exchange Rate for
Agriculture
17
Export-weighted RER for Agriculture

• The very high values of the RER index refers to
  the period in which the economy experienced
  financial crisis as a result of increasing
  external debt by more than 300 between 1987 and
  1989.
• Export-weighted RER of agriculture was generally
  depreciating during 1970-1986 and also during
  1996-2003, YET the index during 1970-1986 was, in
  average, 132 lower than in 1996-2003.
• The reason behind the higher values of the
  Export-weighted RER is the increasing price level
  in Jordan in comparison with that in importing
  countries of Jordanian agricultural exports.
• Higher and upper-middle income groups contributed
  to more than 60 of Jordanian exports and the
  change in their CPIs, in average, were lower than
  that of Jordan in the reform period
• Therefore, the Government had to give
  agricultural exporters preferential exchange rate
  for their export proceeds so that they can
  compete internationally

18
Trend of Production Patterns of Main Agricultural
Products
19
Table 2 Percentage Change in Production,
Trade and Domestic Availability in the Era of
Trade Liberalization (1993-2003) in comparison
with the pre-reform (1970-1992)
Variable   Wheat Lentils Barley Vegetables Fruits
1- Production -53.9 -76.8 8.9 110.7
2- Exports -90.1 -84.7 -40.2 0.7
3- Imports 96.2 133.8 543.1 -25.4
4- Yield 103.9 11.8 90.7 69.2
5- Area harvested -76.5 -72.9 -20.4 43.4
6- Trade Share 294.9 540.0 687.6 -58.8
7- P.C. Domestic Availability -11.2 -60.6  ------ 35.7
20
Continued Table 2
Variable  Red and Poultry Meat Milk Table Eggs
1- Production 156.9 184.2 147.0
2- Exports 45.6 1374.5 -81.3
3- Imports 39.4 33.3  -
6- Trade Share -37.0 -50.0 -91.7
7- P.C. Domestic Availability 18.5 32.7 6.2
21
Production Patterns, Impact of Exposure to
International Markets and Domestic availability
of Food

• Production pattern has shifted from food grains
  to vegetable and fruit farming.
• Production of livestock products have improved in
  the reform period.
• For food grains that are included in the study,
  exposure to international markets (in terms of
  export, import, or trade share) had a negative
  impact on both the production and per capita
  domestic availability.
• Production of fruits and vegetables improved and
  associated with more exposure to international
  markets, yet real income did not improve
  adequately, as a result.
• Such a pattern of agricultural production and the
  increasing exposure to international markets have
  been associated with worsened food quality, food
  needs and the number of undernourished persons.

22
Development of food quality, food needs and the
number of undernourished persons(From FAO
database)

1. Dietary energy consumption in Jordan, in annual
   average, had declined from 2790 kcal/person/day
   in 1989-1992 to 2660 kcal/person/day in
   1993-2003.
2. Annual average of dietary protein consumption
   declined from 75 g/person/day during 1989-1992 to
   71 g/person/day in 1993-2003.
3. Minimum dietary energy requirement (food needs) ,
   in annual average, had increased from 1758
   kcal/person/day in 1989-1992 to 1796
   kcal/person/day during 1993-2003.
4. The annual average of the contribution of
   Carbohydrates in total dietary energy consumption
   (food quality) had declined from 65 during
   1989-1992 to 63 in the 1993-2003.
5. Contribution of fats in total dietary energy
   consumption (food quality) increased from 25 to
   26 .
6. Contribution of proteins in total dietary energy
   consumption (food quality) remained 11 during
   the two periods
7. The number of undernourished persons has
   increased from 0.15 million over the 1989-1992 to
   0.35 million in 1993-2003 (or from 4.2 to 7.3
   of the total number of population).

23
Contribution of Agricultural Employment to Total
Employment
24
Concluding Remarks

• Agricultural real income and real production
  deteriorated during the reform period. This
  situation was associated with increasing exposure
  to international markets.
• Competitive advantage of agricultural export and
  production declined in the reform period in
  comparison with the pre-reform period.
• Agricultural trade deficit exacerbated more in
  the reform period than in the pre-reform period.
• The increase in agricultural relative prices (in
  Jordan relative to the world prices) was a result
  of gradual withdrawal of the government from
  investment, pricing policy, credit schemes,
  direct subsidies to agricultural producers and
  exporters and, the reduction of tariff and NTBs.

25
Continued Concluding Remarks

• Per capita domestic Availability declined and the
  number of undernourished persons increased during
  1993-2003.
• In the light of the relatively decreasing world
  prices of agriculture, increasing RER for
  agricultural exports has not been met by
  preferential exchange rates for agricultural
  exporters to enable them competing in
  international markets

26
END

• THANK YOU