VOLITILE COMMODITY PRICES AND POLICY RESPONSES IN ARMENIA

1
VOLITILE COMMODITY PRICES AND POLICY RESPONSES
IN ARMENIA

• By Gagik Gabrielyan
• for
• FAO-UNDP Europe and Central Asia regional
  Consultation on Food Price Fluctuations
• Policies and Rural Development in Europe and
  Central Asia
• 5-6 December, 2008
• Budapest

2
Armenia is a net food importer, million USD
3
Self-sufficiency ratios,
4
Wheat, wheat products, rice, potatoes, USD/kg
5
Meat, diary products and eggs, USD/kg
6
Animal and vegetable oil, sugar, USD/kg
7
International prices and prices in Armenia
8
International prices and prices in Armenia
9
International prices and prices in Armenia
10
International prices and prices in Armenia
11
Factors affecting price

• Direct influence of international prices
• Especially on products that are imported (wheat,
  sun. oil)
• Local competition environment
• Power and dominant groups
• Unfair practices and inadequately higher and
  longer increase
• Structure of agricultural production
• Small size farming
• Government policies
• Agricultural policies and international donor
  assistance
• CBA and CPEC
• Exchange rate fluctuations (appreciation of AMD

12
Effects of exchange rate (Sep 2008/Dec 2006)
13
Losers

• Consumers and households
• Incomes have increased, but food expenditures are
  still very high (over 40 of household budget),
• Poor families suffer more.
• Small farmers
• Increased input prices (seeds, fertilizers)
• Low bargaining power and low marketing abilities
• No significant change in sawn areas
• Urban and rural households

14
Winners

• Importers
• Power groups dominant in the market
• Shadow economy
• Inadequately high and long increase of price,
  despite the appreciation of Armenian Dram
• Processors
• Taking advantage of low power of small farmers
  (long queues)
• Intermediary traders
• Taking advantage of low marketing abilities of
  farmers

15
No notable effects on crop production reason?
Sawn areas, 000 hectare
Productivity, 00kg/hectare
16
No notable effects on livestock production
reason?
17
Government
Food security has always been important, but now
it has become critically important. This may
lead to policies that may, in practice, decrease
efficiency of agricultural production.
18
Policy Responses at Four Dimensions
Effects are not yet significant

• General services and extension
• Input support
• Direct payments and tax privileges
• Promotion of commercial farming and business
  env.
• Promotion of productivity and technology

Agricultural policy
Monetary and fiscal policy

• Tight monetary and fiscal policies
• Priority of keeping inflation low
• High exchange rate fluctuations

Competition policy

• Existence of dominant power groups in lucrative
  markets
• Anti-competitive practices (wheat, rice, veg.
  oil)

• Inter-agency Working Group for Suppressing
  Prices
• Donor assistance (FAO)

Ad hoc
19
Policy recommendations concerted action needed

• More focus on productivity and technological
  development
• More focus on rural development
• Increase the level of sophistication of state
  support measures
• Development of market linkages

Agricultural policy ?
Monetary and fiscal policy

• It is good to keep the inflation low
• But the economy may not stand exchange rate
  pressures, especially, if there are unfair
  competition practicies

Competition policy

• Institutional development and capacity building
• Improvement of enforcement and follow-up
  mechanizms

• Donor assistance (FAO)
• More sophisticated and better targeted social
  programs

Ad hoc