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2 CHAPTER 1 Economic theory and empirical studies suggest that current agricul-


tural policies suppress the world price of many agricultural commodities below what they would be under liberalized trade. This is because import restrictions reduce world demand and agricultural producer support tends to stimulate supply. The effect on domestic agricultural prices in countries that protect their agriculture is ambiguous, however, because multilateral trade liberalization would probably increase world agricultural prices, but tariff reduction within a country will reduce domestic prices relative to world prices. In addition to trade barriers, imperfect transmission of world prices resulting from transaction costs may mute the signals from changes in world prices.


The impact of trade policy reforms varies substantially across commodi- ties, countries, and households within a country. Some commodity markets, such as those for sugar and rice, are more distorted than others, so trade liberalization will likely have a larger effect on the prices of these commodi- ties. Some countries are net exporters of agricultural commodities, so they would gain from the higher agricultural prices associated with multilateral liberalization. Net importers of agricultural commodities could lose from multilateral trade liberalization, though this will depend on the degree of reform they carry out in their domestic policies.


The issues of trade liberalization and agriculture are of particular impor- tance to the non-oil-exporting countries of the Middle East and North Africa (MENA) for several reasons: • The growth of per capita gross domestic product (GDP) in the MENA region stagnated at around 2 percent between the periods 1990–99 and 2000–06 and in the more recent period lagged behind the average of most of the developing country groups (Table 1.1). The slow economic growth has led to various social problems, including high levels of unemployment.


• The countries of the region generally have levels of trade protection that are higher than in most of the developing world (see “Structure of Pro- tection” in Chapter 2). This is particularly true in agricultural protection among the non-oil-exporting MENA countries.


• High rates of agricultural protection in countries like Morocco and Tuni- sia imply that domestic trade liberalization will have significant adverse effects on farmers, and thus on the rural poor.


• Almost all the MENA countries are net food importers, so they are vulner- able to fluctuations in food prices, such as the dramatic rise in commodity prices in 2007–08. The non-oil-exporting MENA countries are more vulner- able to commodity price shocks because they do not have increased oil revenue to offset the higher cost of imported food.


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