3rd National Agricultural Policy Workshop

1
Comparative Advantages of selected Syrian
agricultural commodity chains implications for
policy formulation

• 3rd National Agricultural Policy Workshop
• Damascus, July 1st 2004

2
Plan of the presentation

• Policy issues.
• Capacity building and study implementation
• Policy Analysis Matrix a tool for assessing
  comparative advantage
• Results
• Policy implications.
• Conclusion

3
1. Policy issues
4
1.Policy issues 2/Syrian agricultural
challenges

• Development strategy shifting from a central
  planned economy to a market oriented economy,
  while the state has played a major role in the
  transformation of the agriculture
• Increasing competition from the rest of the world
  while the natural resource base is intensively
  exploited
• Importance of the agriculture for balancing the
  increasing social differentiation induced by
  economic growth and urbanization.

5
1.Policy issues 3/

• Main questions for the formulation of the
  agricultural policy in this new environment
• What is the impact of the gradual trade
  liberalization on the economic viability of the
  agriculture and related agro-food industries?
• Is the Syrian agriculture able to draw benefit
  from the economic globalization through the
  expansion of its exportations?
• What is the comparative advantage of the Syrian
  Agriculture?

6
2.Capacity building and study implementation
7
CAS Team

• NAPC Researchers
• Al Ashkar
• B. Atiya
• N. Ammouri
• M. Al Shareef
• R. Shwaiekh
• R. Snoubar

International Consultants F. Lancon M. Foke
National consultants Y. Kassem M. Khazma Y.
Ismail

• Started in Sep. 2003 to June 2004

8
2. Capacity building and study implementation 2/
Selection of main agricultural outputs to be
covered in the analysis
Promising commodities
Olive oil
Tomato paste
Fresh cow Milk
Fresh Tomato
Fresh beef meat
Fresh orange
Orange concentrate
Local market
Export
Wheat pasta
Wheat flour
Cotton
Strategic commodities
9
3.Data collection and analysis 5/
28 representative systems
Filtered olive oil 15 Olive oil filtered
centrifuge rainfed 16 Olive oil filtered
hydraulic rainfed Tomato 17 Tomato fresh
open field regional mrkt. 18 Tomato fresh green
house regional mrkt. 19 Tomato fresh green
house European mrkt. 20 Tomato paste open field
regional mrkt. Orange 21 Orange fresh
network irr. regional mrkt 22 Orange fresh
well irr. regional mrkt 23 Orange fresh
rainfed regional mrkt 24 Orange fresh network
irr. European mrkt 25 FOCJ network
irr. Livestock 26 Fresh meat 27 Live
animal 28 Packed milk
Cotton 1a Lint cotton all 1 Lint cotton
network irrigated 2 Lint cotton well
irrigated Wheat Flour 3a Flour all 3 Flour
soft wheat network irr. large pub. mill 4
Flour soft wheat well irr. public mill 5 Flour
soft rainfed irr. public mill 6 Flour hard
wheat network irr. large pub. mill 7 Flour hard
wheat well irr. large pub. mill 8 Flour hard
wheat rainfed large pub. mill 9 Flour soft
wheat network irr. small pub. mill 10 Flour
soft wheat network irr. large pub. mill Wheat
Pasta 11a Pasta low quality all 11 Pasta low
quality network irr. 12 Pasta low quality well
irr. 13 Pasta low quality rainfed 14 Pasta
high quality rainfed
10
3. Policy Analysis MatrixA tool for assessing
comparative advantage
11
3. Policy Analysis Matrix 6/
Profitability ratio competitiveness and Comp.
Advantages
C
( PRC A
B
G
( DRC 1 no comparative advantage)
E
F
12
3. Policy Analysis Matrix 7/
Divergences protection coefficients
A
NPC 1 (subsidized)
E
A
B
NPC 1 (subsidized)
E
F
13
3.Policy Analysis Matrix 8/
Divergences Net transfer
EPS0 no transfer EPS0 transfer from the economy
to the system
L
A
14
4. Results
15
4.Results 1/
Cost structure
1a Lint cotton export large ginery all
1 Lint cotton export large ginery network
2 Lint cotton export large ginery well
3a Flour soft import public large all
3 Flour soft import public large network
4 Flour soft import public large well
5 Flour soft import public large rainfed
6 Flour hard import public large network
7 Flour hard import public large well
8 Flour hard import public large rainfed
9 Flour soft import public small network
10 Flour soft import private network
11a Pasta low export pasta factory all
11 Pasta low export pasta factory network
12 Pasta low export pasta factory well
13 Pasta low export pasta factory rainfed
14 Pasta high export pasta factory rainfed
15 Olive oil filitered export centrifuge rainfed
16 Olive oil filitered export hydraulic rainfed
17 Tomato fresh export reg packing open field
18 Tomato fresh export reg packing green house
19 Tomato fresh export eu packing green house
20 Tomato paste export reg pasta factory open
field
21 Orange fresh export reg packing network
22 Orange fresh export reg packing well
23 Orange fresh export reg packing drip
24 Orange fresh export eu packing network
25 Orange concentrate import FOCJ network
26 Fresh meat import butcher Fattener
27 Live animal import no proc Fattener
28 Packed milk import dairy factory small prod
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
16
4.Results 2/
Financial Cost Benefit
17
4.Results 3/
Domestic Resource Cost
18
4.Results 5/
Effective protection coefficient
19
4.Results 6/
Equivalent Producer Subsidy
20
Effect of land and water valuation on systems
comparative advantage (DRC)
Ref w/o Land and water cost.
Land
Water (low value)
Water (High value)
01 Lint cotton export large ginery network
02 Lint cotton export large ginery well
03 Flour soft import public large network
04 Flour soft import public large well
05 Flour soft import public large rainfed
06 Flour hard import public large network
07 Flour hard import public large well
08 Flour hard import public large rainfed
09 Flour soft import public small network
10 Flour soft import private network
11 Pasta low export pasta factory network
12 Pasta low export pasta factory well
13 Pasta low export pasta factory rainfed
14 Pasta high export pasta factory rainfed
15 Olive oil filitered export centrifuge rainfed
16 Olive oil filitered export hydraulic rainfed
17 Tomtao fresh export reg packing open field
18 Tomtao fresh export reg packing green house
19 Tomtao fresh export eu packing green house
20 Tomtao paste law export reg pasta factory open
field
21 Orange fresh export reg packing network
22 Orange fresh export reg packing well
23 Orange fresh export reg packing drip
24 Orange fresh export eu packing network
25 Orange concentrate import FOCJ network
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
21
Simulation of yield and parity price changes on
DRC for selected systems
Probability
Lowest
Highest
N.
Systems
Scenarios
for a DRCDRC
DRC
Prevailing
conditions
from
1990
-
Lint
cotton
produced
from
network
irrigated
2002
1
39
0.5
3
system exported to Europe
Parity price 1577 USD/t
Average yield3.9 t/ha
Prevailing
conditions
from
1990
-
2002
0
1
2.8
Parity price 133 USD/t
Standard
flour
produced
from
network
Average yield3.7 t/ha
3
irrigate soft wheat
Increase in Parity price and yield
11
0.8
2.42
Parity price 147 USD/t
Average yield3.9 t/ha
Filtered
olive
oil
centrifuge
exported
to
15
100
0.25
0.7
Europe
Fresh
tomato
from
open
field
exported
to
17
100
0.51
0.6
AFTA countries
20
Tomato paste export to AFTA countries
98
0.13
2.1
Fresh
orange
from
network
irrigation
21
100
0.3
0.7
exported to AFTA countries
Fresh
Orange
Concentrated
Juice
from
25
30
0.85
4
network irrigation
22
Simulation of yield and parity price changes on
DRC for selected systems
Probability
Lowest
Highest
N.
Systems
Scenarios
for a DRCDRC
DRC
Prevailing
conditions
from
1990
-
Lint
cotton
produced
from
network
irrigated
2002
1
39
0.5
3
system exported to Europe
Parity price 1577 USD/t
Average yield3.9 t/ha
Prevailing
conditions
from
1990
-
2002
0
1
2.8
Parity price 133 USD/t
Standard
flour
produced
from
network
Average yield3.7 t/ha
3
irrigate soft wheat
Increase in Parity price and yield
11
0.8
2.42
Parity price 147 USD/t
Average yield3.9 t/ha
Filtered
olive
oil
centrifuge
exported
to
15
100
0.25
0.7
Europe
Fresh
tomato
from
open
field
exported
to
17
100
0.51
0.6
AFTA countries
20
Tomato paste export to AFTA countries
98
0.13
2.1
Fresh
orange
from
network
irrigation
21
100
0.3
0.7
exported to AFTA countries
Fresh
Orange
Concentrated
Juice
from
25
30
0.85
4
network irrigation
23
5. Policy implications
24
Macro-level issues (1/4)

• The selected systems benefit of a net transfer
  from the whole economy.
• The major share of the transfers of resources to
  the systems are due to
• Trade protection (tariff and non-tariff barrier
  that increase the price of the systems outputs
  on the domestic market compared to the price
  prevision the world market.
• Subsidy, fixed price for cotton and wheat.
• Non-accountability of the opportunity cost for
  natural resources (water).

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Macro-level issues (2/4)

• The current policy create limited distortions on
  the tradable input side as a low level of duty is
  applied on agricultural input importations.
• However it should be noted that
• The fee paid for network irrigation utilization
  represent only 1/3 of the total irrigation cost.
• The low price of energy compared to the
  prevailing parity price for diesel on the world
  market price is an implicit subsidy to systems
  that are energy intensive
• For agro-food industries, a high tariff on the
  importation of packaging device (can, bottle)
  have an impact on the profitability of agro-food
  industries

26
Macro-level issues (3/4)

• Domestic factors costs
• Current labor regulation do not have a
  significant impact on the systems efficiency
  because limited share of labor is employed on a
  permanent basis.
• Under the current level of knowledge the study
  assumed that there is no imperfection on the
  labor market, but the evolution of the wage level
  should be carefully monitored if new job
  opportunities arise on the domestic or regional
  labor market.
• The non-accountability of water is equivalent to
  a net transfer of resources to the water
  intensive systems

27
Macro-level issues (4/4)

• The impact of the exchange rate and interest rate
  variation depends upon the cost structure of the
  systems.
• Exchange rate variation has a limited impact on
  the systems efficiency given the high share of
  tradable (45) on total cost which compensate
  the effect of exchange rate on the tradable
  output.
• Interest rate variations have also a limited
  impact on the systems efficiency due to the low
  share of capital (17) in total cost.
• The current macro-economic policy is supporting
  the development of the selected systems.

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The wheat and cotton

• Under the current level of technology and within
  the current trends of world markets prices,
  irrigated wheat and cotton systems have a low
  probability to have a comparative advantage
• Limited benefit can be expected from a reverse
  trend toward higher prices on the world
  commodities markets.
• Irrigated well systems operate at a high cost for
  the rest of the economy.
• Rainfed systems have a comparative advantage, but
  there is no rainfed cotton and they roughly
  represent only 40 of the total wheat supply.

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Possible options for wheat and cotton (1/2)

• Enhance the comparative advantage through
  productivity increase or/and costs reduction
• Improving water use efficiency
• efficiency of drip irrigation (to be done)
• new varieties (Biotech technology)
• Consider sources of productivity increase at the
  post-harvest level, like for the ginning
  industries.
• Shifting to the most efficient systems
• Promoting the utilization of the less costly
  systems in social terms rainfed and network
  irrigation, but the available areas for each
  systems is limited and this rainfed environment
  also have their environmental cost (fertility)
• At least the allocation of irrigated well land
  to cotton should be limited to the maximum
  extent

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Possible options for wheat and cotton (2/2)

• Promoting crop diversification on well irrigated
  systems to substitute new sources of income for
  the farmer and the whole economy.
• Should be promoted as much as possible, but given
  the huge areas concerned it is doubtful that the
  national and/or the world market will have the
  possibility to absorb the additional production
  of alternative crops.
• Looking at new institutional mechanisms to
  internalize the cost of water use in farmers
  decisions making in order to promote any of these
  water saving options.

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The promising crops

• Syria has certainly a comparative advantage for
  olive oil, fresh tomato and oranges but having a
  comparative advantage does not mean being able to
  export. Attention should be given to
• Reinforcing the current policy for trade
  agreements to reduce barriers to entry.
• Quality issue quality and sanitary issues are
  becoming more and more determining, even for
  standard quality product to access markets.
• Appropriate marketing strategy. Syria traditional
  markets are highly competitive and might become
  saturated. It is important to explore new market
  opportunities where habits are changing with
  income increase

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Commodities responding to changes in Syrian food
habit.

• The promotion of new systems should carefully
  assess the viability of technical options within
  the Syrian economic environment.
• The low efficiency of the Fresh Orange
  Concentrated Juice system is mainly due to the
  low conversion ratio at the processing level due
  to the unavailability of appropriate oranges
  varieties.
• The efficiency of the system depends also on the
  capacity of the Syrian agriculture to supply
  enough volume of juicy oranges to allow to use
  the processing capacity at their optimal level.
• The study didnt covered the entire diversity of
  the cattle systems and the current results are
  more of a prospect than a definitive value.

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ConclusionPutting the PAM into perspectives
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Balancing efficiency objectives with
non-efficiency objectives.

• The economic efficiency should not be the only
  criteria for deciding whether or not a specific
  system should be supported or abandoned in terms
  of policy priorities.
• If there is no alternative for a system that has
  no comparative advantage, the cost of
  inefficiency should be put in perspective with
  the human costs of rural exodus and uncontrolled
  urbanization.
• When alternatives do exist, the PAM allows to
  select the option that have the least social
  cost.

35
Putting the PAM at the service of the decision
making.

• The PAM should be considered as a tool for policy
  dialogue
• to support discussion among policy makers but
  also
• with other stakeholders, especially with private
  entrepreneurs and farmers, to explore policy
  options.
• The discussion with stakeholder is also a mean to
  improve the accuracy and the coverage of the
  information collected.

36
Toward a system to monitor policy impact

• The investment done in building the human
  capacity in the NAPC and in developing this first
  set of PAMs will be fully recovered through the
  establishment of policy monitoring systems
  focusing on
• Increase the number of commodities covered to
  explore possible alternatives.
• Develop a set of PAMs for major commodities by
  agro-ecological zone or governorate to take into
  account the spatial/ecological dimension of the
  comparative advantage
• Developing a cost efficient mechanisms to update
  the technical coefficients through an
  institutionalization of the process with
  appropriate services of the MAAR and other
  technical minitries (industry, transport)
• To integrate the results on the comparative
  advantage with other analytical tools such as
  Farming Systems, Poverty mapping to better put
  into perspectives equity and efficiency.