THE IMPACT OF TRADE LIBERALIZATION 49


Estimates of the price changes in dairy products are larger in Langley, Somwaru, and Normile (2006) than those reported in Bouët (2008). The authors use a partial equilibrium, multiple-commodity, multiple-region model of agricultural trade to simulate the elimination of four policy instruments: (1) production quotas, tariffs, and tariff rate quotas; (2) domestic price supports and producer payments; (3) export subsidies; and (4) subsidies for consumers. According to this model, full trade liberalization in the dairy sector would result in a lower volume of dairy products but higher world prices. The price increases would range from 13 percent for nonfat dry milk to 66 percent for butter.


The Effect of Higher Agricultural Prices on the MENA Countries The description of the effects of global trade liberalization on agricultural prices in the previous sections indicates that the agricultural prices of the most distorted commodities will rise between 2 percent and 20 per- cent, with a fair amount of variation across estimates depending on the commodity, the type of model used (general equilibrium versus partial equilibrium), the type of liberalization simulated, and the assumptions built into the model. In this section we examine the potential effect of higher agricultural prices on the eight selected MENA countries and the region as a whole. More specifically, we calculate the welfare cost of a 15 percent increase in agricultural prices by multiplying the value of the net agricultural imports of each country (or the region) by 0.15. The results are expressed in terms of both absolute value and a percentage of GDP. This calculation yields the additional cost to the country to maintain its current pattern of production and consumption. These estimates should be considered an upper limit of the impact of higher agricultural prices for the following reasons: • The analysis does not take into consideration the fact that farmers and consumers would respond to the higher price by producing more and con- suming less of these products, thus reducing the negative welfare impact (or increasing the positive welfare impact) of the higher price.


• The analysis assumes a 15 percent increase in agricultural prices, but most studies show smaller increases in the prices of the main commodities, such as wheat, rice, cotton, sugar, and dairy.


• The markets for the main agricultural commodities are more heavily pro- tected that those for minor crops, so the weighted average of the change in all agricultural prices as a result of trade liberalization is likely to be even lower.


• The analysis does not take into account issues of transmission of price shocks to local producers.


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