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AGRICULTURAL DEVELOPMENT IN THE AGE OF TRADE LIBERALIZATION – What Did We Really Get?

A case Study of JordanPresented at

IDEAs Beijing Workshop: 3-5th June, 2007

Fayq Al AkaylehCentre for Economic Studies and

PlanningSchool of Social Sciences

Jawaharlal Nehru UniversityNew Delhi

bsbann@gmail.com

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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

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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

Trade Share

(%)1717 2104 767 43.8

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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: Government’s gradual withdrawal from importing almost all agricultural products except for very few items in competition with the private sector

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…Continued: Agricultural Trade Liberalization Policies

1994: Agricultural Sector Adjustment Program-under World Bank’s “Agricultural Structural Adjustment Loan:

o In October 1994, the Government lowered all tariffs of more than 50 % to 50 % or less , affecting 21 % of imports

(including tobacco and alcohol)o In May 1995, tariffs on all agricultural products were

reduced further to 25 %o In May, 1995, the Government eliminated all quantitative

restrictions on agricultural imports, except very few essential food items, and converted them into tariffso In 1996, A progressive tariff for irrigation water

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…Continued: Agricultural Trade Liberalization Policies

o 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.

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…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

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…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

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Agricultural Real Production, Real Income and Relative Prices

Figure 1: Real Agricultural Production, Real Income from Agriculture and Relative Price Index of Agricultural Products,

1994=100

0

50

100

150

200

250

300

350

Pro

du

cti

on

Va

lue (

mil

lio

n

JD

s)

0.0

20.0

40.0

60.0

80.0

100.0

120.0

Ag

ric

ult

ura

l R

ela

tiv

e

Pric

e I

nd

ex

(%

)

Real Agri Production

Real Income from AgricultureRelative Price of Agri=(Pd/Pw)*100, 1994=100

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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.

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Agricultural Real Investment and Trade Share

Figure 2: Real Trade Share and Real Agricultural Investment, at 1994 prices

-25.0

0.0

25.0

50.0

75.0

Rea

l Agr

icul

tura

l In

vest

men

t (i

n m

illio

n JD

s)

0.0

100.0

200.0

300.0

400.0

500.0

Agr

icul

tura

l Rea

l Tra

de

Shar

e

Real Agricultural Investment

Real Agricultural T rade Share

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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

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Trade Deficit in Agriculture Sector

Figure 3: Real Exports (RX) and Real Imports (RM) of Agriculture, at 1994 prices

59.4

67.8

58.8

68.8

76.6

92.9

109.

710

7.2

120.

712

6.6

124.

010

3.1

82.5 12

4.2

112.

410

0.8

141.

114

5.1

91.2

91.9

118.

712

5.0

123.

410

5.6

99.2

94.8

107.

511

3.3

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

Source: Imports and exports at current prices are from YSS, CBJ, Amman.

Exp

ort

and

Impo

rt V

alue

(m

illio

n JD

s)

Agricultural RM

Agricultural RX

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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.

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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

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Export-Weighted Real Exchange Rate for Agriculture

Figure 4: Export-weighted RER for Agriculture, 1994=100

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

200.0

Exp

ort-

wei

ghte

d R

ER

Ind

ex

0.0

50.0

100.0

150.0

200.0

250.0

Ex

po

rt-w

eig

hte

d R

ER

In

dex

, ex

clu

din

g I

raq

Export-weighted RER Index,

1994=100

Export-weighted RER Index

Excluding Iraq, 1994=100

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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

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Trend of Production Patterns of Main Agricultural Products

Figure 5.1: Production of wheat and Barley (in tons)

050000

100000150000200000250000300000

Qu

an

tity

Wheat

Barley

Figure 5.2: Production of Vegetables, Fruits & Nuts, in tons

0

200000

400000

600000

800000

Qu

an

tity

Figure 5.3: Production of Meat (Red & Poultry), in tons

0250050007500

100001250015000175002000022500

Qu

an

tity

Figure 5.4: Production of Milk (in tons)

020000400006000080000

100000120000140000160000180000200000220000240000260000

Qu

an

tity

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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

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… 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

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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.

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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).

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Contribution of Agricultural Employment to Total Employment

Figure 6: Ratio of Agricultural Labour Force to Total Labour Force

0

5

10

15

20

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Source: Central Bank of Jordan and Talafha, Abhath Al-Yarmouk, vol.9, No.4, 1993

Agr

icul

tura

l Lab

our

(%)

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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.

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…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

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END

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