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

33rdrd National Agricultural Policy Workshop National Agricultural Policy Workshop Damascus, July 1Damascus, July 1stst 2004 2004

Comparative Advantages of selected Syrian agricultural

commodity chains: implications for policy formulation

Plan of the presentationPlan of the presentation1. Policy issues.2. Capacity building and study

implementation3. Policy Analysis Matrix: a tool for

assessing comparative advantage4. Results5. Policy implications.6. Conclusion

1. Policy issues1. Policy issues

– 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.

1.Policy issues 2/1.Policy issues 2/

Syrian agricultural challenges:Syrian agricultural challenges:

1.Policy issues 3/1.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?

2.Capacity building and 2.Capacity building and study implementationstudy implementation

NAPC Researchers

H. Al AshkarB. AtiyaN. AmmouriM. Al ShareefR. ShwaiekhR. Snoubar

InternationalConsultants

F. LanconM. Foke

National consultants

Y. KassemM. KhazmaY. Ismail

CAS TeamCAS TeamCAS TeamCAS Team

Started in Sep. 2003 to June 2004

Started in Sep. 2003 to June 2004

2. Capacity building and study implementation 2/2. Capacity building and study implementation 2/

Selection of main agricultural outputs to be covered in the analysis

Local market Export

Promising commodities

Strategic commodities

Wheat flour Cotton

Fresh Tomato

Tomato paste

Fresh orange

Fresh cow Milk

Fresh beef meat

Orange concentrate

Wheat pasta

Olive oil

3.Data collection and analysis 5/3.Data collection and analysis 5/

Filtered olive oil15 Olive oil filtered centrifuge rainfed16 Olive oil filtered hydraulic rainfed

Tomato17 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.

Orange21 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.

Livestock26 Fresh meat27 Live animal28 Packed milk

Cotton1a Lint cotton all1 Lint cotton network irrigated2 Lint cotton well irrigated

Wheat Flour3a Flour all3 Flour soft wheat network irr. large pub. mill4 Flour soft wheat well irr. public mill5 Flour soft rainfed irr. public mill6 Flour hard wheat network irr. large pub. mill7 Flour hard wheat well irr. large pub. mill8 Flour hard wheat rainfed large pub. mill9 Flour soft wheat network irr. small pub. mill10 Flour soft wheat network irr. large pub. mill

Wheat Pasta11a Pasta low quality all11 Pasta low quality network irr.12 Pasta low quality well irr.13 Pasta low quality rainfed14 Pasta high quality rainfed

28 representative systems

33. Policy Analysis . Policy Analysis Matrix:Matrix:

A tool for assessing A tool for assessing comparative advantagecomparative advantage

Revenues

Private prices

Social prices

Divergence

Trad. Inp. Domestic Fac Profit

A DCB

E F G

I J L

H

K

C

Private Cost Ratio =A — B

G

Domestic Resource Cost = E — F

( PRC < 1 the system is competitive)

( DRC > 1 no comparative advantage)

3. Policy Analysis Matrix 6/3. Policy Analysis Matrix 6/

Profitability ratio: competitiveness and Comp. Advantages

Revenue

Private price

Social price

Divergences

Trad. Inp. Domes Fac Profit

A DCB

E F G

I J L

H

K

Nominal Protection Coef. =

Effective Protection Coef =

A

E

A — B

E — F

33.. Policy Analysis Matrix 7/Policy Analysis Matrix 7/

Divergences: protection coefficients

NPC > 1 (subsidized)

NPC > 1 (subsidized)

Revenue

Private price

Social price

Divergences

Trad. Inp. Dom. Fac Profit

A DCB

E F G

I J L

H

K

Equ. Prod. Sub. =

L

A

33.Policy Analysis Matrix 8/.Policy Analysis Matrix 8/

Divergences: Net transfer

EPS=0 no transfer

EPS>0 transfer from the economy to the system

4. 4. ResultsResults

4.Results 1/4.Results 1/

Cost structure

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00%

28 Packed milk import dairy factory small prod27 Live animal import no proc Fattener26 Fresh meat import butcher Fattener

25 Orange concentrate import FOCJ network24 Orange fresh export eu packing network

23 Orange fresh export reg packing drip 22 Orange fresh export reg packing well

21 Orange fresh export reg packing network20 Tomato paste export reg pasta factory open field

19 Tomato fresh export eu packing green house18 Tomato fresh export reg packing green house

17 Tomato fresh export reg packing open field16 Olive oil filitered export hydraulic rainfed

15 Olive oil filitered export centrifuge rainfed14 Pasta high export pasta factory rainfed13 Pasta low export pasta factory rainfed

12 Pasta low export pasta factory well11 Pasta low export pasta factory network

11a Pasta low export pasta factory all10 Flour soft import private network

9 Flour soft import public small network8 Flour hard import public large rainfed

7 Flour hard import public large well6 Flour hard import public large network

5 Flour soft import public large rainfed4 Flour soft import public large well

3 Flour soft import public large network3a Flour soft import public large all

2 Lint cotton export large ginery well1 Lint cotton export large ginery network

1a Lint cotton export large ginery all

Tradable input Labour Capital

0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90

28 Packed milk

27 Live animal

26 Fresh meat

25 FOCJ network irr.

24 Orange fresh network irr. European mrkt

23 Orange fresh rainfe regional mrkt

22 Orange fresh well irr. regional mrkt

21 Orange fresh network irr. regional mrkt

20 Tomtao paste open field regional mrkt.

19 Tomtao fresh green house European mrkt.

18 Tomtao fresh green house regional mrkt.

17 Tomtao fresh open field regional mrkt.

16 Olive oil filitered hydraulic rainfed

15 Olive oil filitered centrifuge rainfed

14 Pasta high quality rainfed

13 Pasta low quality rainfed

12 Pasta low quality well irr.

11 Pasta low quality network irr.

11a Pasta low quality all

10 Flour soft wheat network irr. large pub. mill

9 Flour soft wheat network irr. small pub. mill

8 Flour hard wheat rainfed large pub. mill

7 Flour hard wheat well irr. large pub. mill

6 Flour hard wheat network irr. large pub. mill

5 Flour soft rainfed irr. public mill

4 Flour soft wheat well irr. public mill


3a Flour all

2 Lint cotton well irrigated

1 Lint cotton network irrigated

1a Lint cotton all


Financial Cost Benefit

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80

28 Packed milk

27 Live animal

26 Fresh meat

25 FOCJ network irr.

24 Orange fresh network irr. European mrkt

23 Orange fresh rainfe regional mrkt

22 Orange fresh well irr. regional mrkt

21 Orange fresh network irr. regional mrkt

20 Tomtao paste open field regional mrkt.

19 Tomtao fresh green house European mrkt.

18 Tomtao fresh green house regional mrkt.

17 Tomtao fresh open field regional mrkt.

16 Olive oil filitered hydraulic rainfed

15 Olive oil filitered centrifuge rainfed

14 Pasta high quality rainfed

13 Pasta low quality rainfed

12 Pasta low quality well irr.

11 Pasta low quality network irr.

11a Pasta low quality all


9 Flour soft wheat network irr. small pub. mill

8 Flour hard wheat rainfed large pub. mill

7 Flour hard wheat well irr. large pub. mill

6 Flour hard wheat network irr. large pub. mill

5 Flour soft rainfed irr. public mill

4 Flour soft wheat well irr. public mill


3a Flour all

2 Lint cotton well irrigated

1 Lint cotton network irrigated

1a Lint cotton all


Domestic Resource Cost


Effective protection coefficient

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50

28 Packed milk27 Live animal26 Fresh meat

25 FOCJ netw ork irr.24 Orange fresh netw ork irr. European mrkt

23 Orange fresh rainfe regional mrkt 22 Orange fresh w ell irr. regional mrkt

21 Orange fresh netw ork irr. regional mrkt 20 Tomtao paste open field regional mrkt.

19 Tomtao fresh green house European mrkt.18 Tomtao fresh green house regional mrkt.

17 Tomtao fresh open field regional mrkt.16 Olive oil f ilitered hydraulic rainfed

15 Olive oil f ilitered centrifuge rainfed14 Pasta high quality rainfed13 Pasta low quality rainfed12 Pasta low quality w ell irr.

11 Pasta low quality netw ork irr.11a Pasta low quality all

10 Flour soft w heat netw ork irr. large pub. mill9 Flour soft w heat netw ork irr. small pub. mill

8 Flour hard w heat rainfed large pub. mill7 Flour hard w heat w ell irr. large pub. mill

6 Flour hard w heat netw ork irr. large pub. mill5 Flour soft rainfed irr. public mill

4 Flour soft w heat w ell irr. public mill3 Flour soft w heat netw ork irr. large pub. mill

3a Flour all2 Lint cotton w ell irrigated

1 Lint cotton netw ork irrigated1a Lint cotton all


Equivalent Producer Subsidy

-0.80 -0.60 -0.40 -0.20 0.00 0.20 0.40 0.60

28 Packed milk27 Live animal26 Fresh meat

25 FOCJ netw ork irr.24 Orange fresh netw ork irr. European mrkt

23 Orange fresh rainfe regional mrkt 22 Orange fresh w ell irr. regional mrkt

21 Orange fresh netw ork irr. regional mrkt 20 Tomtao paste open field regional mrkt.

19 Tomtao fresh green house European mrkt.18 Tomtao fresh green house regional mrkt.

17 Tomtao fresh open field regional mrkt.16 Olive oil f ilitered hydraulic rainfed

15 Olive oil f ilitered centrifuge rainfed14 Pasta high quality rainfed13 Pasta low quality rainfed12 Pasta low quality w ell irr.

11 Pasta low quality netw ork irr.11a Pasta low quality all

10 Flour soft w heat netw ork irr. large pub. mill9 Flour soft w heat netw ork irr. small pub. mill

8 Flour hard w heat rainfed large pub. mill7 Flour hard w heat w ell irr. large pub. mill

6 Flour hard w heat netw ork irr. large pub. mill5 Flour soft rainfed irr. public mill

4 Flour soft w heat w ell irr. public mill3 Flour soft w heat netw ork irr. large pub. mill

3a Flour all2 Lint cotton w ell irrigated

1 Lint cotton netw ork irrigated1a Lint cotton all

Effect of land and water valuation on Effect of land and water valuation on systems’ comparative advantage (DRC)systems’ comparative advantage (DRC)

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50

25 Orange concentrate import FOCJ network

24 Orange fresh export eu packing network

23 Orange fresh export reg packing drip

22 Orange fresh export reg packing well

21 Orange fresh export reg packing network

20 Tomtao paste law export reg pasta factory open field

19 Tomtao fresh export eu packing green house

18 Tomtao fresh export reg packing green house

17 Tomtao fresh export reg packing open field

16 Olive oil filitered export hydraulic rainfed

15 Olive oil filitered export centrifuge rainfed

14 Pasta high export pasta factory rainfed

13 Pasta low export pasta factory rainfed

12 Pasta low export pasta factory well

11 Pasta low export pasta factory network

10 Flour soft import private network

09 Flour soft import public small network

08 Flour hard import public large rainfed

07 Flour hard import public large well

06 Flour hard import public large network

05 Flour soft import public large rainfed

04 Flour soft import public large well

03 Flour soft import public large network

02 Lint cotton export large ginery well

01 Lint cotton export large ginery network

Ref w/o Land and water cost. Land Water (low value) Water (High value)

Simulation of yield and parity price changes Simulation of yield and parity price changes on DRC for selected systemson DRC for selected systems

N. Systems ScenariosProbability

for a DRC<1Lowest

DRCHighest

DRC

1Lintcottonproducedfromnetworkirrigated

system exported to Europe

Prevailingconditions from 1990 -2002

Parity price = 1577 USD/t Average yield=3.9 t/ha

39% 0.5 3



11% 0.8 2.42Increase in Parity price and yieldParity price = 147 USD/t Average yield=3.9 t/ha

0% 1 2.8

15Filtered olive oil centrifuge exported toEurope

100% 0.25 0.7

17Freshtomato from open fieldexportedtoAFTA countries

100% 0.51 0.6

20Tomato paste export to AFTA countries 98% 0.13 2.1

21Fresh orange from network irrigation

exported to AFTA countries100% 0.3 0.7

25Fresh Orange Concentrated Juice from

network irrigation30% 0.85 4

3Standard flour produced from network

irrigate soft wheat

Simulation of yield and parity price changes Simulation of yield and parity price changes on DRC for selected systemson DRC for selected systems

N. Systems ScenariosProbability

for a DRC<1Lowest

DRCHighest

DRC

1Lintcottonproducedfromnetworkirrigated

system exported to Europe



39% 0.5 3



11% 0.8 2.42Increase in Parity price and yieldParity price = 147 USD/t Average yield=3.9 t/ha

0% 1 2.8

15Filtered olive oil centrifuge exported toEurope

100% 0.25 0.7

17Freshtomato from open fieldexportedtoAFTA countries

100% 0.51 0.6

20Tomato paste export to AFTA countries 98% 0.13 2.1

21Fresh orange from network irrigation

exported to AFTA countries100% 0.3 0.7

25Fresh Orange Concentrated Juice from

network irrigation30% 0.85 4

3Standard flour produced from network

irrigate soft wheat

5. Policy implications5. Policy implications

Macro-level issues (1/4) 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).

Macro-level issues (2/4)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

Macro-level issues (3/4)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

Macro-level issues (4/4)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.

The wheat and cottonThe 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.

Possible options for wheat Possible options for wheat and cotton (1/2)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

Possible options for wheat Possible options for wheat and cotton (2/2)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.

The promising cropsThe 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

Commodities responding to Commodities responding to changes in Syrian food habit.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 didn’t covered the entire diversity of the cattle systems and the current results are more of a prospect than a definitive value.

ConclusionConclusion

Putting the PAM into Putting the PAM into perspectivesperspectives

Balancing efficiency objectives Balancing efficiency objectives with non-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.

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

Toward a system to monitor Toward a system to monitor policy impactpolicy 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.

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

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