AGRICULTURAL DEVELOPMENT IN THE AGE OF TRADE
LIBERALIZATION – What Did We Really Get?
A case Study of Jordan
Presented at
IDEAs 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@gmail.com
1
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
2
Table 1: Average Production Trade Share and Export-Import ratio of
Main Crops (Calculated based on quantities)
(2000-2003)
3
Wheat
Barley
Lentils
Fruits Vegetables
Citrus
Fruits
Production
(%)
1.6
1.6
0.01
16.4
8.9
X/M
(%)
0.2
0.0
2.4
361.7
2104
767
43.8
Trade Share 1717
(%)
71.5
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
4
…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 tariffs
o In 1996, A progressive tariff for irrigation water
5
…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.
6
…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
7
…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
8
Agricultural Real Production, Real Income and
Relative Prices
350
120.0
300
100.0
250
80.0
200
60.0
150
40.0
100
20.0
50
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
0.0
19
78
19
76
0
Real Agri P roduction
Real Income from Agriculture
Relative P rice of Agri=(P d/P w)*100, 1994=100
9
Agricultural Relative
Price Index (%)
Production Value (million
JDs)
Figure 1: Real Agricultural Production, Real Income from
Agriculture and Relative Price Index of Agricultural Products ,
1994=100
Figure 1






10
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.
Agricultural Real Investment and Trade
Share
11
500.0
50.0
400.0
300.0
25.0
200.0
0.0
100.0
0.0
-25.0
Real Agricultural Investment
Real Agricultural T rade Share
Agricultural Real Trade
Share
75.0
1 98 5
1 98 6
1 98 7
1 98 8
1 98 9
1 99 0
1 99 1
1 99 2
1 99 3
1 99 4
1 99 5
1 99 6
1 99 7
1 99 8
1 99 9
2 00 0
2 00 1
2 00 2
2 00 3
Real Agricultural
Investment (in million
JDs)
Figure 2: Real Trade S hare and Real Agricultural Investment, at
1994 prices
Figure 2
12
 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 19851992 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
19
7
19 6
7
19 7
7
19 8
7
19 9
8
19 0
8
19 1
8
19 2
8
19 3
8
19 4
8
19 5
8
19 6
8
19 7
8
19 8
8
19 9
9
19 0
9
19 1
9
19 2
9
19 3
9
19 4
9
19 5
9
19 6
9
19 7
9
19 8
9
20 9
0
20 0
0
20 1
0
20 2
03
Export and Import Value
(million JDs)
13
700.0
600.0
500.0
400.0
300.0
200.0
100.0
59.4 1 73 .8
67.8 1 62 .4
58.8 1 97 .3
68.8 2 33 .9
76.6 2 26 .9
92.9 2 55 .1
109.7 2 81 .6
107.2 3 04 .8
120.7 2 93 .8
126.6 3 11 .3
124.0 3 19 .4
3 32 .3
103.1
3 25 .1
82.5
124.22 47 .0
3 66 .8
112.4
3 59 .8
100.8
3 70 .2
141.1
4 17 .5
145.1
4 09 .7
91.2
3 79 .4
91.9
4 90 .3
118.7
4 36 .9
125.0
4 97 .4
123.4
4 85 .1
105.6
5 28 .8
99.2
5 01 .7
94.8
5 09 .8
107.5
6 19 .8
113.3
Trade Deficit in Agriculture Sector
Figure 3: Real Exports (RX) and Real Imports (RM) of Agriculture, at 1994
prices
Agricultural RM
Agricultural RX
0.0
Source: Imports and exports at current prices are from YSS, CBJ, Amman.
Competitive Advantage (CAX) for Agricultural Exports
and for agricultural production (CAM)
 The following formulas were used to find the CAX and the CAM:
14
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.
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
15
Export-Weighted Real Exchange Rate for
Agriculture
Figure 4: Export-weighted RER for Agriculture, 1994=100
180.0
Export-weighted RER Index
Excluding Iraq, 1994=100
160.0
Export-weighted RER Index
250.0
Export-weighted RER Index,
1994=100
200.0
140.0
120.0
150.0
100.0
80.0
100.0
60.0
40.0
50.0
20.0
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1971
16
0.0
1970
0.0
Export-weighted RER Index, excluding Iraq
200.0
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
17
Trend of Production Patterns of Main
Agricultural Products
Fi gu re 5.2: Produ cti on of
Ve ge tabl e s, Fru i ts & Nu ts, i n ton s
300000
250000
200000
150000
100000
50000
0
Wheat
Barley
Quantity
800000
200000
1 97
1 97 0
1 97 2
1 97 4
1 97 6
1 98 8
1 98 0
1 98 2
1 98 4
1 98 6
1 99 8
1 99 0
1 99 2
1 99 4
1 99 6
2 00 8
2 00 0
2
260000
240000
220000
200000
180000
160000
140000
120000
100000
80000
60000
40000
20000
0
1 97 0
1 97 2
1 97 4
1 97 6
1 97 8
1 98 0
1 98 2
1 98 4
1 98 6
1 98 8
1 99 0
1 99 2
1 99 4
1 99 6
1 99 8
2 00 0
2 00 2
2 00 3
1 99 7
2 00 0
1 99 4
1 99 1
1 98 5
1 98 8
1 98 2
1 97 9
1 97 3
1 97 6
400000
Figure 5.4: Production of Milk (in tons)
Quantity
22500
20000
17500
15000
12500
10000
7500
5000
2500
0
1 97 0
Quantity
Figure 5.3: Production of Me at (Re d
& Poultry), in tons
18
600000
0
1 97 0
1 97 2
1 97 4
1 97 6
1 97 8
1 98 0
1 98 2
1 98 4
1 98 6
1 98 8
1 99 0
1 99 2
1 99 4
1 99 6
1 99 8
2 00 0
2 00 2
Quantity
Fi gu re 5.1: Produ cti on of
wh e at an d Barl e y (i n ton s)
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)
19
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
… Continued: Table 2
20
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
Production Patterns, Impact of Exposure to
International Markets and Domestic availability of
Food
21
 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.
Development of food quality, food needs and the
number of undernourished persons
(From FAO database)
1)
2)
3)
4)
5)
6)
7)
22
Dietary energy consumption in Jordan, in annual average, had declined
from 2790 kcal/person/day in 1989-1992 to 2660 kcal/person/day in 19932003.
Annual average of dietary protein consumption declined from 75
g/person/day during 1989-1992 to 71 g/person/day in 1993-2003.
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.
The annual average of the contribution of Carbohydrates in total dietary
energy consumption (food quality) had declined from 65 % during 19891992 to 63 % in the 1993-2003.
Contribution of fats in total dietary energy consumption (food quality)
increased from 25 % to 26 %.
Contribution of proteins in total dietary energy consumption (food quality)
remained 11 % during the two periods
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
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
20
01
20
03
5
3 .6
3 .4
9 .3
8 .3
7 .4
7 .6
7 .8
7 .6
7 .4
7 .6
7 .2
7 .3
7 .4
7 .4
6 .4
10
19
81
19
80
19
79
19
78
19
77
19
76
19
75
19
74
19
73
15
19
72
20
1 9.4
1 8.3
1 7.3
1 6.3
1 5.4
1 4.5
1 3.7
1 2.9
1 2.2
1 1.5
1 0.2
25
19
71
19
70
Agricultural Labour (%)
Contribution of Agricultural Employment to
Total Employment
Figure 6: Ratio of Agricultural Labour Force to Total Labour Force
0
Source : Central Bank of Jordan and Talafha, Abhath Al-Yarmouk,
vol.9, No.4, 1993
Concluding Remarks




24
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.
…Continued: Concluding Remarks


25
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
END
THANK
YOU
26