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Agriculture and Economic

Reform in Syria: Impacts


on Poverty and Inequality

Benedetto Rocchi and Donato Romano


Department of Agricultural and Resource Economics
University of Florence

with the collaboration of the Rural Development Division at NAPC


FAO Project GCP/SYR/006/ITA Workshop - Damascus, 1-2 July 2008
Objectives
A SAM of the Syrian economy:
- households accounts (rural vs. urban,
income deciles)
- activities accounts (agriculture, food
processing)
 Policy simulation assessment:
- policy reform (→ social market economy)
impacts on poverty and inequality
- changing environment: e.g. soaring food
prices impacts on poverty and inequality

FAO Project GCP/SYR/006/ITA Workshop - Damascus, 1-2 July 2008


Account classification
 41 activities (from the NAPC Farming Systems Study + CBS
data)
 25 crops
 3 livestock
 13 non-agricultural activities (8 food processing + 5 other acts.)

 51 commodities (from the NAPC Farming Systems Study +


CBS data)
 23 crops
 8 animal products
 13 agricultural processed products
 7 other products

 22 institutions (from the SPC-UNDP Poverty Study + CBS


data)
 10 rural households (per income deciles)
 10 urban households (per income deciles)
 firms
 government
FAO Project GCP/SYR/006/ITA Workshop - Damascus, 1-2 July 2008
Account classification
 3 value added (from CBS + IMF data)
 hired labour
 other factors
 net fiscal revenue (taxes – subsidies)

 2 capital formation (from CBS data)


 inventory change
 investment

 3 rest of the world (from CBS data)


 goods and services (current account)
 financial flows (capital account)
 net lending (lending – borrowing)

 TOTAL: 122 accounts

FAO Project GCP/SYR/006/ITA Workshop - Damascus, 1-2 July 2008


SAM structure
51 41 3 20 1 1 2 3

FAO Project GCP/SYR/006/ITA Workshop - Damascus, 1-2 July 2008


Definition of policy reform
scenarios
 change in existing (sector) policies towards a
less distorted environment:
 dropping subsidies to agriculture and food processing
production
 reducing by 20% the price of strategic crops
 abolishing the Price Stabilization Fund (food consumption
subsidy)
 alternative use of budget saving:
 fiscal deficit reduction (= investment)
 public expenditure increase (proportional to the current
composition)
 increase transfers to households

FAO Project GCP/SYR/006/ITA Workshop - Damascus, 1-2 July 2008


Policy reform impacts
% impact on
output incomes poverty
elimination of subsidies to agriculture
deficit reduction 3.79 2.45 -0.24
publ exp increse 2.03 1.43 -0.15
tranf to hhold increase 3.06 7.13 -0.92

price reduction for strategic crops


deficit reduction 0.55 0.47 -0.05
publ exp increse 0.33 0.34 -0.04
tranf to hhold increase 0.46 1.07 -0.14

elimination of PSF
deficit reduction 0.43 -2.10 0.51
publ exp increse -0.40 -2.58 0.55
tranf to hhold increase 0.09 0.10 0.19

FAO Project GCP/SYR/006/ITA Workshop - Damascus, 1-2 July 2008


Policy reform impacts on
output % impact on output of
agriculture food other total
process. activities
A) elimination of subsidies to agriculture and food processing
1. deficit reduction 1.19 2.16 4.67 3.79
2. public expenditure increase 0.59 0.99 2.52 2.03
3. transfers to households increase 2.79 4.16 3.00 3.06
B) price reduction for strategic crops
1. deficit reduction 0.21 0.37 0.67 0.55
2. public expenditure increase 0.14 0.22 0.39 0.33
3. transfers to households increase 0.42 0.63 0.45 0.46
C) elimination of Price Stabilization Fund
1. deficit reduction -0.80 -1.02 0.92 0.43
2. public expenditure increase -1.57 -0.09 -1.87 -0.40
3. transfers to households increase -0.04 -0.07 0.14 0.09

FAO Project GCP/SYR/006/ITA Workshop - Damascus, 1-2 July 2008


Policy reform impacts on
income % impact on incomes of
urban urban 1st urban 10th rural rural rural 10th
total dec dec total 1st dec dec

A) elimination of subsidies to agriculture and food processing


1. deficit reduction 2.52 2.29 2.61 2.35 2.28 2.55
2. public expenditure increase 1.55 1.67 1.56 1.26 1.26 1.36
3. transfers to HHs increase 8.35 14.96 6.92 5.32 6.85 3.87
B) price reduction for strategic crops
1. deficit reduction 0.46 0.47 0.45 0.48 0.52 0.45
2. public expenditure increase 0.34 0.39 0.31 0.34 0.38 0.29
3. transfers to HHs increase 1.22 2.11 1.01 0.86 1.11 0.62
C) elimination of PSF
1. deficit reduction -1.41 -5.24 0.10 -3.12 -6.84 -0.39
2. public expenditure increase -1.87 -5.54 -0.40 -3.64 -7.32 -0.95
3. transfers to HHs increase 1.34 0.74 2.13 -1.72 -4.68 0.23

FAO Project GCP/SYR/006/ITA Workshop - Damascus, 1-2 July 2008


Policy reform impacts on
poverty
elimination of price reduction for
elimination of PSF
subsidies to agri-food strategic crops

public transf public transf public transf


deficit deficit deficit
xp to hhs. xp to hhs. xp to hhs.
red. red. red.
incr. incr. incr. incr. incr. incr.
Urb dec 1 -0.01 0.00 -0.04 0.00 0.00 -0.01 0.02 0.02 0.00
Urb dec 2 -0.12 -0.08 -0.52 -0.02 -0.02 -0.07 0.21 0.23 0.02
Urb dec 3 -0.28 -0.18 -1.20 -0.06 -0.04 -0.17 0.37 0.42 -0.06
Urb dec 4 -3.41 -2.20 -14.62 -0.66 -0.50 -2.11 4.14 4.71 -1.15
Rur dec 1 0.00 0.00 -0.01 0.00 0.00 0.00 0.01 0.01 0.01
Rur dec 2 -0.14 -0.08 -0.43 -0.03 -0.02 -0.07 0.34 0.37 0.20
Rur dec 3 -0.46 -0.26 -1.46 -0.10 -0.07 -0.23 1.11 1.21 0.64
Rur dec 4 -3.19 -1.78 -9.32 -0.68 -0.50 -1.48 6.90 7.56 4.01
Total -0.24 -0.15 -0.92 -0.05 -0.04 -0.14 0.51 0.55 0.19

FAO Project GCP/SYR/006/ITA Workshop - Damascus, 1-2 July 2008


Soaring cereal prices:
redistributive effects
elimination of subsidies to price reduction for
elimination of PSF
agri-food strategic crops
transf to transf to transf to
deficit public deficit public deficit public
hhs. hhs. hhs.
red. xp incr. red. xp incr. red. xp incr.
incr. incr. incr.
Urb dec 1 0.08 5.59 17.08 4.24 5.42 14.29 -6.01 -5.69 1.65
Urb dec 2 -2.93 0.45 11.41 -4.28 -3.54 6.38 -7.40 -7.26 -2.17
Urb dec 3 -4.79 -1.24 13.13 -10.12 -9.32 4.95 -5.37 -5.22 0.80
Urb dec 4 -3.75 1.12 14.92 -5.54 -4.47 8.36 -4.26 -3.99 2.70
Urb dec 5 -2.96 3.64 22.74 -5.44 -3.96 13.94 -3.26 -2.85 7.25
Urb dec 6 -1.05 1.57 6.13 -0.75 -0.18 4.13 1.08 1.26 3.97
Urb dec 7 2.79 3.40 1.69 1.77 1.95 1.80 1.79 1.87 2.43
Urb dec 8 6.26 5.89 1.44 3.16 3.19 1.95 6.92 7.01 7.34
Urb dec 9 16.63 16.68 9.61 12.80 13.05 11.47 18.45 18.76 22.22
Urb dec 10 74.24 61.66 1.76 70.05 68.14 28.01 54.27 54.48 51.65
Rur dec 1 -0.79 -0.67 -0.36 4.67 4.61 2.09 -10.37 -10.47 -10.72
Rur dec 2 -4.51 -3.55 0.02 0.90 1.00 0.90 -11.44 -11.52 -11.41
Rur dec 3 -5.09 -3.43 0.08 2.41 2.63 1.73 -12.03 -12.07 -11.94
Rur dec 4 -6.57 -6.27 -1.59 -3.54 -3.59 -2.21 -12.29 -12.44 -12.88
Rur dec 5 -7.37 -7.64 -5.72 -2.27 -2.48 -4.47 -10.02 -10.20 -12.40
Rur dec 6 -13.27 -14.09 -10.79 -6.95 -7.37 -9.80 -8.68 -8.92 -12.97
Rur dec 7 -11.83 -12.44 -10.30 -7.34 -7.67 -9.78 -5.22 -5.41 -9.31
Rur dec 8 -15.70 -18.19 -18.05 -16.02 -16.76 -19.17 -3.64 -3.97 -10.99
Rur dec 9 -10.65 -13.82 -19.02 -10.88 -11.71 -17.87 3.59 3.32 -4.35
Rur dec 10 -8.76 -18.66 -34.19 -26.87 -28.96 -36.69 13.91 13.30 -0.84

Tot abs value 985 1 103 7 172 629 637 1 293


FAO Project 7 575 Workshop
GCP/SYR/006/ITA 7 501 - Damascus,
7 406 1-2 July 2008
The impact on poverty of
soaring cereal prices
cereal price increase
no yes
elimination of subsidies to agriculture
deficit reduction -0.24 0.25
publ exp increse -0.15 0.35
tranf to hhold increase -0.92 -0.42

price reduction for strategic crops


deficit reduction -0.05 0.45
publ exp increse -0.04 0.46
tranf to hhold increase -0.14 0.36

elimination of PSF
deficit reduction 0.51 1.00
publ exp increse 0.55 1.05
tranf to hhold increase 0.19 0.68
FAO Project GCP/SYR/006/ITA Workshop - Damascus, 1-2 July 2008
Conclusions
 The estimated SAM for Syria is a suitable
tool for policy impact simulations
 Policy lessons:
 crucial role of Government budget strategies on the
outcomes of a given sector policy (reform)
 importance of output growth for poverty reduction
 existence of structural asymmetries in income
distribution (e.g. rural vs. urban)
 Limitations:
 static model: only short-run impacts
 the classification of household groups by deciles may
change as a consequence of simulated policies

FAO Project GCP/SYR/006/ITA Workshop - Damascus, 1-2 July 2008


Conclusions
 Future developments:
 analyze alternative policy mixes
- less ‘extreme’ policy mixes
- impact of debt service of production loans on HHs
- decrease in oil production → foreign exchange →
access to international food market
 alternative classification criteria for households sector
(sector of occupation of the reference person, education
level, composition of the household’s total income)
 regional disaggregation of the Syrian SAM
 CGE

FAO Project GCP/SYR/006/ITA Workshop - Damascus, 1-2 July 2008


The impact of an exogenous
shock
in d u s t r ie s fa c t o r s househo

in te r in d u str y h o u se h o
in d u s t r ie s
flo w s c o n su m p
in c o m e
fa c t o r s d istrib u tio n to
fa c to r s
in c o m e
h o u s e h o ld s d istr ib u tio n to
FAO Project GCP/SYR/006/ITA Workshop - Damascus, 1-2 July 2008