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AGRICULTURE, TRADE, AND POVERTY IN SYRIA 155


sumers would substitute other foods for wheat products. Other households would be affected by the reallocation of consumer spending and by the re- allocation of factors of production.


We calculated the incremental effects on sectoral production and prices and the overall cost of living caused by the proposed reform in wheat prices and the prices of wheat derivates. We did this by combining a SAM that shows the input structure for the production of all final goods and a consumer expenditure survey that shows the amount of each final good purchased by households differentiated by decile welfare groups. It is important to note that the current version of the SAM does not differentiate farmers from non- farmers; household categories are defined only by their level of per capita consumption. The income sources for each category of household are com- posed of labor income, capital income, remittances, and other transfers.5


Results


The macroeconomic effects of the reduction or elimination of the wheat subsidies would be relatively modest, as shown in Table 6.10. Aggregate con- sumption, imports, and exports would change by less than 1 percent even with the full elimination of the subsidies (Simulation 3). The positive (albeit small) effect of the subsidy removal would be due to the elimination of a policy distortion that creates an inefficiency loss in the economy. The largest macroeconomic effect would be on government savings, which would increase by 2.77 percentage points of GDP as a result of the elimination of the subsi- dies. In other words, government savings would increase from 0.78 percent of GDP to 1.99 percent of GDP. Private savings would decline by 3.65 percentage points of GDP as a result of the subsidy removal.


Table 6.11 shows the impact of subsidy reduction or removal on the prices and output in various sectors of the economy. Not surprisingly, the sectors most affected would be the wheat and food processing (including milling) sectors. The producer price of wheat would decline by 4 percent with a 20 percent reduction in subsidies and by 16.5 percent with the complete elimination of the subsidies. The lower producer prices imply a decline in the profitability of wheat production and some substitution toward other crops. Because of the relatively inelastic supply of wheat, even complete elimina- tion of the subsidy would cause a decrease in wheat production of less than 2 percent. Thus, farmers will be the direct losers from this reform, at least in the short run.


5 A more detailed analysis would involve disaggregating production factors to include land rents and agricultural wages among the income sources for each decile.


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