Previous Page Table of Contents Next Page


CHAPTER 4
Agricultural and Food Policies in Syria: Financial
Transfers and Fiscal Flows
by Peter Wehrheim

4.1 Introduction

One obvious difference between agriculture and other sectors of the economy in most countries around the world is the significant degree of policy interventions. In many developed countries, policy interventions in agriculture are common practice and have yielded levels of farm subsidies among the highest in the world (OECD, 2002). In contrast, trade policies and overvalued exchange rates in many developing countries have resulted in a taxation of agriculture, and agriculture -in the 1970s and 1980s- was often effectively discriminated against (e.g. Wiebelt et al., 1992). However, more recent analyses of this so-called agricultural policy bias in 15 developing countries indicate that such generalizations today are difficult; country specific circumstances affect the relative impact of trade policies on agriculture and the rural economy (Jensen et al., 2003).

In 1987 the Syrian Government started to gradually reform the country’s agricultural policy. The objective was to phase out centrally planned features and to gradually switch to indicative planning procedures, which are associated with more liberal agricultural sector policies. This approach has shown positive results in terms of output development in the 1990s, with the exception of the years 2000 and 2001 when serious droughts reduced agricultural production. At the end of the 1990s, Syria became a net exporter for many agricultural products; at the same time, significant amounts of staple products, such as sugar, rice, vegetable oil, maize, dairy products such as milk powder and butter, as well as meat have to be imported. Furthermore, it is worth pointing out that this gradual approach to reforms has prevented a sharp decline of agricultural output in Syria. In contrast, the countries of central and eastern europe and the former Soviet Union generally have chosen a rather sudden abolition of the central plan, and have experienced significant agricultural output decline in the first years after liberalization. Many of these countries have not yet recovered from this. It is also worth mentioning that the liberalization of agricultural policies is very high on the international policy agenda.

In spite of the agricultural policy reforms initiated in Syria since 1987, the country’s agricultural sector remains in a transitory stage and market distortions are abundant. Against this background it is important to systematically quantify the transfers and fiscal flows which are associated with various agricultural policies, and thereby quantify the level, structure, and evolution of taxation of agriculture in Syria. In a country where agriculture contributes between 28-30 percent to total national gross domestic product (GDP) and where households have to spend on average about 35 percent of their income on food, agricultural policies are likely to have significant effects throughout the economy as well. In addressing these issues, this paper asks ‘How has subsidization or taxation of the agricultural sector in Syria developed in the most recent past?’ and ‘Which further agricultural policy reforms could foster further integration of Syria into the world agricultural markets?’[40]

The remainder of this chapter is structured as follows: section two briefly describes the conceptual framework used to quantify the financial transfers to agriculture that are associated with agricultural and food policies; section three provides an overview and qualitative review of the most important policies that have affected Syria’s agricultural sector in the past decade; section four presents the results of the quantitative assessment of transfers associated with various policy areas; section five concludes with a summary and some policy recommendations.

4.2 Conceptual framework for assessing the degree of taxation of agriculture in Syria

a) Classification of agricultural policies affecting the taxation of agriculture

From an economic point of view, any effective policy is linked with a transfer. However, the means of transfers and the economic groups that finance the respective transfers vary widely. With respect to a particular sector such as agriculture, policies can result either in subsidization or in taxation of agriculture. In this context, a fruitful categorization of different types of agricultural policies is to make a distinction between direct, indirect, and general subsidies. The criteria for classifying policies accordingly are the means of transfers associated with specific policies: (i) direct policies are those associated with direct government transfers and which are directly linked to agricultural output; (ii) indirect policies are policies not associated with direct government transfers but instead with transfers from consumers, or other sectors in the economy, to agricultural producers. Hence, the indirect policies affecting agricultural producer prices are effectively supported by other market participants: this form of support is normally called market price support (MPS); (iii) general subsidies are those which fund general support services provided to the whole sector and not to specific producers (e.g. agricultural research, extension services etc.).

Because of the high economy-wide importance of agriculture and of the macroeconomic variables such as interest rates or exchange rates, a general equilibrium framework is most appropriate for such an analysis. However, due to data constraints, the major approach that will be used in this study is a partial equilibrium approach. That implies that the level of support granted to specific agricultural product markets will be quantified separately and then aggregated to get an estimate of the total transfers associated with the agricultural policies between 1990 till 1999 (2000).

b) Measures for estimating the extent of support to agriculture

The analysis will start out by calculating product-specific Nominal Protection Coefficients (NPC) which will be extended to calculate product-specific Producer Subsidy Estimates (PSEs) as defined by the OECD (OECD, 2000). NPC express the ratio between the domestic producer prices (Pd) to the border, or parity price (Pw) of the respective commodity (indicated with the index
i):

Calculations of PSE’s are also based on the difference between domestic and international prices, but allow the quantification of the total annual transfers, which can be attributed to a specific product by multiplying the per unit subsidy with the quantity of the respective commodity (Qi) produced in a given year. The absolute value of product-specific PSEs that comprises only the MPS component is calculated according to the following formula:

By summing the product-specific PSEs over all products (i), one gets the total transfers that are associated with the MPS in the country. Furthermore, the relative PSEs could be calculated by relating the absolute level of PSEs that is expressed in units of the domestic currency to gross agricultural output (GAO) as a proxy for total farm revenues. However, formula 2 only allows the quantification of the product-specific level of MPS, which is due to indirect policies in a given country. These transfers will be estimated for the major agricultural commodities produced in Syria. At the same time, Syria has implemented agricultural policies which can not easily be attributed to any specific product such as credit, input or general support policies. In an attempt to assess the total transfers associated with agriculture, the OECD complemented the above-mentioned concept of PSE with the calculation of General Services Support Estimate (GSSE) and Consumer Support Estimate (CSE). By summing up the transfers associated with the respective support components, one could then assess the total Agricultural Support Estimate (ASE) of a country. By estimating the transfers associated with the specific areas of agricultural and food policies relevant in a given country such as Syria, it would be possible to quantify the total extent of transfers, the composition of transfers, and their development over time.[41]

4.3 Qualitative review of agricultural policies

This section provides a qualitative review of the most important policy areas having an effect on agriculture. The discussion will show that not only sector-specific and direct policy interventions, but very often economy-wide policies such as exchange rate alterations have the biggest effect on agricultural sector development. Before addressing some specific policy areas, the official agricultural policy objectives are briefly discussed and the question asked as to how helpful these policies are in exploiting Syria’s comparative advantage.

a) Agricultural policy objectives

The Syrian Government has defined the following major agriculture and food policy objectives:

Policy objectives normally serve a variety of different purposes in order to meet the expectations of different interest groups (e.g. consumers, producers, different state organizations, and policy-makers). However, the above mentioned objectives have also some economic implications.

The first policy objective is closely linked to an attempt to better exploit the agricultural production potential of Syria and enhance the competitiveness of the agricultural sector. Given the production conditions, Syria’s agriculture competitiveness on international standards is indeed potentially substantial for some commodities, particularly Mediterranean products. Removing various policy constraints and over-regulation for such sectors should therefore increase the social benefits from agricultural production.

The second objective seems to be directly linked with the first objective. Improving the backward linkages of the agricultural sector, i.e. the efficiency of all input operations by further privatizing the respective services, will contribute to better integration. Furthermore, by increasing the efficiency in the marketing chain between the farm gate and the point of export (normally the major harbors), the prices of Syrian agricultural products can be reduced and improve competitiveness on international markets.

With respect to the third policy objective, let it be clear that it is generally difficult to increase the contribution of the agricultural sector in any country, for the following reason. In most countries of the world, technological progress in the last decades has strongly increased the productivity of land, labour, and capital employed in agriculture. While technological progress can result in significant increases of supply, demand for agricultural products normally grows less quickly. Cochrane, an American economist, labeled this phenomenon the agricultural treadmill: because farmers use ever more efficient production technologies, they themselves contribute to declining prices for the products they are producing. To remain competitive in spite of declining real prices, the major strategy of farmers around the world has been to increase the average size of farms, while at the same time an out-migration of labour from agriculture took place. Out-migration and increasing farm size is possible only if legislation on land and inheritance law favours structural change. However, the competitiveness of agriculture in relation to other sectors declined in most developed countries, with the result that the contribution of agriculture to GNP tends to decline in the course of economic development. If the share of agriculture in the economy would indeed be increased, then other sector’s share would need to decline. It is questionable which sectors it would be and how the government would intervene into the economy to actually shift resources from other sectors to agriculture. Instead of trying to artificially increase the share of agriculture in the economy, a policy objective could be to identify those sub-sectors of agriculture that deserve expansion based on comparative advantage. Therefore, this third policy objective would, at least from an economic point of view, deserve reconsideration.

b) Centrally planned features

Ever since 1987, the Syrian Government has chosen a policy of gradual reforms under which the economy is supposed to be liberalized in consecutive steps. This included a gradual move from central planning to indicative planning, which basically involves the determination of quantities and prices for the so-called strategic crops (wheat, barley, cotton, sugar beet, tobacco, lentils, chickpeas) on the basis of national priorities and of the availability of natural resources. Various features of this indicative planning procedure are still rather important for the way the agricultural sector in Syria operates.

Particularly for the seven strategic crops, the indicative planning procedure is associated with a high degree of Government intervention. However, the degree to which the Government still determines production quantities and prices for these crops differs significantly. While the Government sets the prices for all strategic crops, these prices are not always compulsory. For wheat, barley, sugar beet, cotton and tobacco the official prices are normally set above respective parity prices in world markets. For chickpeas and lentils the government has set prices recently below parity prices and allowed private traders to bid prices up to the respective parity prices. Only in the case of cotton, sugar beet and tobacco the farmers have to sell their production to the state processing plants, and at the prices that reflect production cost plus a profit margin determined by the “central planner” and not world market prices. In the case of other strategic crops, farmers can also sell to private traders. Particularly the production and price determination of chickpeas and lentils has been liberalized to a relatively high degree already[42]. Quantities are fixed in accordance with annual plans and are based on annual specifications of the area allocated by each farmer with specific strategic crops. Furthermore, the area of irrigated and non-irrigated land use per crop is specified. These production obligations are negotiated on the various levels of government and with the farmer associations. It is obvious that such production controls limit the flexibility of farmers to react to market developments and to changes in relative prices.

Furthermore, it is notable that Syria’s “central planner” not only interferes in agricultural production but also in the marketing system of agricultural and food commodities. For instance, farmers and private traders have to obtain certificates of origin from a local branch of the Peasants Union Federation, a parastatal organization, in order to transport any quantities of strategic crops to the nearest elevator. Furthermore, the Ministry of Supply and Internal Trade (MSIT) continues to monitor, and at occasions to control, food prices at the wholesale and retail level (SOFA, 2002). These and other forms of regulations at all levels of the domestic marketing system contribute to higher transaction costs and thereby reduce the efficiency of the Syrian food marketing system.

c) Exchange rate and currency policies

Syria’s exchange rate policies are likely to be the single most important macroeconomic policy affecting the development of the country’s agricultural sector. In fact, they have the potential to over-compensate for the effects of various sector-specific policies. Throughout the 1990s, Syria had implemented a system of multiple and fixed exchange rates. In the case of agriculture, different exchange rates were applied for imports of agricultural inputs, and for import and export of agricultural commodities. However, in many cases these were accounting artifices only: for instance, imports of agricultural food staples had to be made at the free market exchange rate while the total value of imports in SP was evaluated at the exchange rate for agricultural imports. Furthermore, the use of foreign currency has been restricted by controls. During the most recent period, Syria has made substantial progress in reducing the exchange rate distortions. The respective policies consisted of two major components: first, a unification of the various exchange rates, and secondly, a devaluation of all exchanges rates, thereby bringing them closer to the prevailing market exchange rate. The unification of the exchange rates which are relevant for agriculture started in the early 1990s. In 1992, the exchange rate at which pesticides had to be imported was increased from SP11.25 to 40/US$. In 1994, an adjustment of similar magnitude followed with respect to the exchange rate at which fertilizers were imported. Finally, in the year 2000 all remaining exchange rates were adjusted from the previous value of SP11.25 to 46.5/US$. Hence, it is obvious that the unification of exchange rates has also resulted in a significant (nominal) devaluation of the Syrian Pound (SP) in relation to the US$ and other western currencies.

This review indicates that the unification of exchange rates was mostly done by one major first adjustment, which was followed by gradual steps of further devaluation. In fact, this process continues and after a further devaluation in 2001 of the official exchange rate to SP48.5/US$, the official exchange rate of the SP to the US$ is now quite close to its free market equivalent (around SP50/US$). Because of relatively moderate inflation rates, the substantial nominal devaluation which has been implemented during the last years has also resulted in a devaluation of the real exchange rate.

Nevertheless, pressure to devalue the Syrian currency might continue in the future. In fact, the current exchange rate is likely to be the most important factor that discriminates against the agricultural sector of Syria. Further devaluation would offer the possibility to reduce this form of discrimination. It could, in fact, open “windows of opportunities” for Syria’s agricultural sector for various reasons. For export oriented sectors such as agriculture, past experience from many countries is that a gradual devaluation of the national currency has shown positive effects. The real devaluation of the Russian ruble, for instance, has helped to get the country’s agricultural sector on a growth path again after it has been in a stage of serious crisis for almost a whole decade. Therefore, as long as Syria’s Government determines the exchange rate, due consideration should be given to continue the gradual devaluation of the SP. Given the economic situation of Syria, a gradual devaluation seems preferable to a sudden devaluation for two major reasons: (i) it might reduce the pressure on the SP once a full liberalization of the exchange rate regime will be implemented; (ii) it would dampen the negative social consequences that can be associated with sudden devaluation, as they have been experienced by some economies of South East Asia and by Russia in the course of the last world financial crisis in 1997/1998. Syria is also importing various staple commodities (e.g. sugar, rice, vegetable oils, and dairy products) and the price for these food items would increase suddenly following a strong devaluation. If the devaluation would take place gradually, households have more time to adjust to the respective change of food prices.

Table 4.1 Development of various exchange rates (ER) of the SP to the US$, 1990-2000


1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

Official exchange rate (ER)

11.25

11.25

11.25

11.25

11.25

11.25

11.25

11.25

11.25

11.25

46.5

ER for agricultural inputs fertilizer

11.25

11.25

11.25

11.25

43

43

43

45

46.5

46.5

46.6

ER for agricultural inputs pesticides

11.25

11.25

40

40

43

43

43

45.5

46.5

46.5

46.7

ER for agricultural exports

11.25

11.25

11.25

11.25

11.25

11.25

11.25

11.25

11.25

11.25

46.8

ER for agricultural imports

11.25

11.25

11.25

11.25

11.25

11.25

11.25

11.25

11.25

11.25

46.9

Black market ER in Damascus

46.45

45.84

50.48

49.67

51.2

50

51

51

51

51

51

ER in Beirut

46.45

45.84

50.48

49.67

51.2

50

51

51

51

51

51

ER in neighbouring countries

42

43

43

43

43

43

44

45.2

46.5

46.5

46.5

Promotion ER

22

22

22

22

22

22

22

22

22

22

22

Trade weighted ER

19.2

25.1

28.1

29.9

33.3

34.4

39.2

45.1

49.4

48.9

48.1

Source: Ministry of Economics and Foreign Trade.

d) Tariff and non-tariff barriers to trade

Before 1985 all import and export operations were controlled by the state. Since 1985 private traders were allowed to import industrial inputs. After 1987 more substantial reforms were implemented in an attempt to liberalize Syria’s trade regime. One part of these reforms was to allow private traders to export agricultural commodities. Today trade for some agricultural products, such as fruits and vegetables, is dominated by private traders. Trade with strategic crops, particularly cereals, cotton, tobacco, and sugar remains widely in the hand of state organizations. Furthermore, Law No.10 (passed in 1991) gave more concessions to foreign traders, which contributed to a diversification of exports. Private traders were successful in exporting fruits, vegetable, and other food commodities to Arab Gulf countries and garments to European countries. GDP also grew in this period. However, in the second half of the 1990s, the Syrian economy experienced a depression again. Only at the end of the 1990s, were new reforms initiated to liberalize the trade system further. However, they were not yet sufficient to remove the trade restrictions, which are still in place today. Therefore, since the 1990s, major policy reforms have been pursued and are still being implemented today.

Imports of agro-food commodities are subject to two types of tariffs. First, a ‘product-specific import tariff’ that varies between 1 and 150 percent. Table 4.2 gives an overview of the various import tariffs for agricultural commodities which were applied in early 2001. They have been effective throughout most of the 1990s. The highest import tariff rates are applied for premium food items such as caviar (100 percent). This seems to be excessively high. Furthermore, tariff variation is very high! While tariff rates might differ, it would be better to keep tariff variation as low as possible. The experience from Chile, for instance, shows that the introduction of a more ‘uniform tariff schedule’ has not only significantly reduced the incentives for corruption, but it has also contributed to agricultural export growth.

Second, an additional ‘general import tariff’ was levied on imports. This tariff varies between 6-35 percent and increases under-proportionally with the level of the product-specific import tariff. This tariff is supposed to collect fees that are in turn used for various government expenditures (e.g. defense, consumption, schooling, harbor, transportation etc.). Law No.1 from 1980 specified some exemptions from the need to pay the ‘general import tariff.’ Imports of important consumer products such as flour, for instance, were exempted from these additional tariff payments. From an economic point of view the application of such a ‘general import tariff’ reduced the transparency of Syria’s trade system further. If revenue objectives were the major reason for imposing this additional customs tariff, it would have been more beneficial right from the beginning to raise product-specific import tariffs instead of imposing an additional tariff.

Table 4.2 Product specific import tariffs for selected agricultural and food commodities

Item No.

Product

Import tariff in %

17/1

Refined sugar

15

11/1/A

Flour of wheat

1

10/6/A/1

Milled paddy rice for seed

1

8/1/B

Bananas

75

9/2

Tea

7

9/1

Coffee

30

4/3/A

Shortening

15

12/1/D

Cake of Soya bean

1

4/2/A/1/a

Dry milk

7

7/1/G/1

Potato for sowing

1

7/6/B/1

Sweet potato

30

12/1/H

Sesame seed

1

8/1/A/1

Dates

30

1/4/A

Sheep

1

2/1

Fresh, frozen meet

7

15/7/I

Oil of sunflower seed

7

15/10/A/1

Fat and industrial acids

1

15/12

Hydrogenated animal oils

7

16/1

Guts

50

3/1

Fresh, frozen, and dried fish

7

9/3/A

Prepared mate

30

9/3/B

Raw mate

7

16/4/A

Conserved fish (salmon, sardine, and tuna)

1

16/4/B

Caviar

100

Source: Ministry of Economics and Foreign Trade.

Because of the obvious disadvantages inherent in the ‘general import tariff’ scheme, this was liberalized in early 2001. A first decree reduced the level of the ‘general import tariff’ for all product groups to 1 percent. A second decree, which at the time this study was written but has not been signed yet, foresees the complete abolishment of the ‘general import tariff’. These measures are significant steps towards further liberalization of Syria’s trade regime. As long as this reduction in trade protection is not compensated for by increasing the product-specific import tariff, the economic effects should be measurable in the future. The difference between domestic and world market prices should narrow. Furthermore, domestic prices for imported commodities should decrease, which in turn will be particularly beneficial for those consumers who rely on imported food commodities to a great extent.

Furthermore, non-tariff import constraints for agricultural commodities abound in Syria. For instance, a total import ban for fruits and vegetables has been in force during the 1990s, in an attempt to protect producers of fruits and vegetables - likely one sub-sector of agriculture with relatively high comparative advantages. Imports of vegetables and fruits from Lebanon and Jordan were allowed in certain periods of the year according to an agricultural production calendar. Furthermore, only “Five Star Hotels” were allowed to import tropical fruits, some of which can be found today in food retail markets of Damascus.

In fact, only food products for which no import ban exists can be imported. Most import operations need approval by the Ministry of Agriculture and Agrarian Reform. The Ministry also assures that the import operation satisfies the sanitary and phyto-sanitary standards as defined by the Syrian Government. Some agro-food imports are exempted from the obligation of being approved by the Ministry of Agriculture. The more bureaucratic such procedures will be the higher the incentives for corruption will get. Therefore, it seems to be important that the customs codes defines clearly the conditions for any such import operations leaving only few decisions at the discretion of administrators in the Ministry and at the Customs offices.

Another non-tariff trade barrier was implemented in 1987. The respective legislation allowed private traders to import agricultural inputs and agricultural raw materials and processed food stuffs subject to the condition of having earned the mandatory foreign exchange in export operations. However, the exporter was allowed to use a specific share of his export earnings only for importing commodities. This share differs according to the exported commodity. For example, in the case of wool exports (from sheep), 75 percent of export earnings may be used for importing agricultural commodities, only. Resolutions which became effective in 1999 allowed such “import-export-symmetries” also in the case of flour. Private mill and pasta factories were allowed to import flour but had to earn the foreign exchange by exporting the respective commodities again.

Another example is related to trade in sheep meat. Syria seems to have a comparative advantage in the production of Awassi sheep which enjoys high demand, particularly in Gulf countries. The export value of Awassi sheep was US$ 46 million in 1997, US$ 49 in 1998, and US$ 55 in 1999. However, exports of the Awassi sheep were substantially constrained by imposing an “import-export-symmetry” on it: for each quantity of Awassi sheep exported, the exporter had to import the double quantity of sheep meat of lower quality. Food security concerns were the rationale for this arrangement. While this regulation was given up in 2000 (Decision No.1 of the Prime Minister, April 7), it is obvious that any such constraints prevent Syria from better exploiting its comparative advantage and realizing its full export potential.

e) Agricultural and food export policies

One of the major recent objectives of Syria’s foreign trade policy is to encourage the exports of commodities and services and to diversify the structure of exports. The so-called Export Committee was established in 1986, in an attempt to support this objective. This Committee is chaired by the Deputy Prime Minister for economic affairs and its secretariat is attached to the Ministry of Economics and Foreign Trade. The Supreme Agricultural Council and various other Government institutions and Ministries engaged in export activities are represented in this committee[43]. More recently the Export Committee attempted to change the general export strategy: instead of merely disposing of surplus quantities not needed for domestic consumption on international markets, it encouraged the production of commodities specifically tuned for international markets. This seems to be particularly important because quality standards matter more today in export markets than ever before.

Ever since the 1987 initiation of the liberalization of the Syrian economy, the Export Committee, in accordance with the guidelines designed by the Government of Syria, started to ease export operations of agro-food products by the private sector. However, various restrictions are still in force and constitute serious constraints for private export operations. For most products mentioned above, the exporter needs to get an export license. Exports of fruits and vegetables are permitted without getting an export license.

According to Syria’s legislation, an agricultural production tax is levied on all agricultural commodities which are exported. Effectively, this constitutes an export tax. Generally, this tax ranges between 9.5 and 12 percent of the production value. The products can be categorized as follows: Products on which a production tax is levied of 12 percent of their average price at the time of export. This product group includes fresh and processed vegetables and fruits, olives, olive oil and other products made from olives (a total of 88 commodities). Most other commodities are subject to an export tax of 9-9.5 percent of their average price. However, there have been various exemptions from these export taxes in the recent past. In particular, dry and frozen vegetables of superior quality and in recent years, all fruits and vegetable products have been exempted from the export tax. In 1996 olive oil and in the year 2000 cotton have been exempted from the export tax. In 2001 Government Decree No.15 exempted all agricultural commodities from this export tax. Furthermore, all agricultural export operations were subject to additional general export policies, which constrained export operations (e.g. an “income tax” of 1 percent of all export revenues is levied on all earnings from exports; a tax on foreign currency earnings of 10 Piasters per dollar). These policies were valid until 2001. However, in the meantime a new reform package has been passed by the Government of Syria which foresees the discontinuation of the payment of export taxes and fees on foreign currency earnings from export operations. It is noteworthy that currently no explicit export subsidies were granted for agricultural exports.

In compliance with the Government’s objectives, the Export Committee initiated various measures to ease export operations of agricultural commodities. For instance, production taxes imposed on cotton exports were eliminated. At the same time, cotton, cotton seeds, yarns and cloth for textiles were exempted from agricultural production taxes when being processed and exported by domestic textile plants (Law No.7 of 1999). While no explicit export subsidies were used to induce further exports of vegetables and fruits, these were also exempted from agricultural production taxes. Furthermore, the income tax on export profits was reduced from 1.9 percent to 1 percent (Executive Instructions No. 9124/9/2 of 1997). Other measures of “export encouragement” included a reduction of air freight rates for vegetables and fruits, especially citrus fruits.

f) Trade agreements

A new export strategy released in 2001 by the Ministry of Economics and Foreign Trade aims at a better integration of Syria into the global trading system. To meet this objective various initiatives have been pursued. For instance, Syria aspires to improve its trade relations with important trade partners by negotiating and implementing bi- and multi-lateral trade agreements. Three examples are particularly important:

(i) the multilateral Arab Free Trade Agreement. In 1998 an Arab free trade agreement was signed between Syria and other Arab countries, specifically Saudi Arabia, United Arab Emirates and Iraq, with the objective of reducing customs tariffs for agricultural products by 10 percent annually, and completely abolish respective tariffs by the year 2007. However, the agreement permitted each country to protect some sensitive products for at least some time each year.

(ii) bilateral agreements with neighbouring countries (e.g. Lebanon and Jordan) were negotiated, but no free trade agreement had been concluded as of mid-2001. However, agreements were signed as first steps in such a direction. With Lebanon, an agreement was signed granting customs tariff exemption for most agricultural products except for some sensitive products. A full elimination of agricultural tariffs was envisaged by the year 2004. With Jordan, some tariff-free quotas were negotiated, while quantities exceeding these tariff quotas continue to be subject to normal tariffs. Furthermore, the Ministry of Economics and Foreign Trade negotiates with Lebanon and Egypt to exempt olive oil imports from Syria from customs fees.

(iii) A third area of trade agreements which might have important effects on Syria’s agricultural trade is a bilateral agreement with the European Union (EU) which should enhance Syria’s access to EU markets particularly for agro-food products and textiles[44]. Part of the regional trade agreement with the EU is the negotiation of export quotas. For instance, the Ministry of Economics and Foreign Trade has started initiatives to negotiate with the EU over the terms of export quotas for olives and olive oil. However, respective negotiations are time-consuming because of the resistance of southern EU members who are afraid of competition in agricultural markets for Mediterranean products.

Another issue worth mentioning is that some of the above mentioned regulations are not in accordance with principles of the World Trade Organization (WTO). For instance, the tariff-exemptions with Lebanon would violate the WTO’s most-favoured-nation principle according to which any customs concession granted to one trading partner also have to be granted to all WTO members. Exceptions from this rule are possible when two or more countries sign a free trade agreement of which the WTO is notified. Furthermore, according to Article XXIV of the GATT agreement such regional trade agreements must include “substantially all trade”. This implies that “sensitive products” such as agricultural commodities may not be excluded from the free trade agreement (cf. Roberts and Wehrheim, 2001). Hence, as Syria intends to become a member of the WTO in the future, these regional trade agreements will be under the scrutiny of the WTO members, which might result in the need to adapt them to WTO standards. In fact, applying for WTO membership would probably be the single most important step for Syria's full integration into the world’s agricultural markets. This would make its trade regime more transparent, rule-based and more compatible with international trade standards.

g) Agricultural input subsidies

Agricultural input subsidies have been another important area of agricultural policy at the beginning of the 1990s. In the course of the 1990s, they were consecutively phased out. Today only limited input subsidies remain. For the most part, these subsidies are of an indirect and not of a direct nature and therefore also have the potential to create substantial economy-wide distortions and misallocations. For instance, electricity and fuel are the two inputs which continue to be effectively subsidized -for the whole economy, however- and not only for agricultural producers. The generally low price level for energy does not offer any incentives to use these resources more efficiently. In the accession negotiations of Russia to the WTO, implicit subsidies of energy have caused substantial concern for international trade partners and contributed to the delay of negotiations. Furthermore, the costs for water and the operation and maintenance cost for the agricultural irrigation system that are not recovered from farmers are substantial. Given the scarcity of water, the lack of a price for water effectively constitutes a substantial subsidy to agricultural producers. In the 1990s, the major share of irrigated land was used for wheat and cotton (64 percent in 1990) and was growing (80 percent in 2000). Hence, these two bulk commodities for which nominal international commodity prices have depicted a declining trend in most of the 1990s are effectively subsidized.

h) Credit subsidies[45]

Agricultural producers generally receive credits from the Agricultural Credit Bank, the operations of which are restricted to Agriculture. This Bank refinances its lending operations at the Central Bank of Syria. In the past, the Bank has disbursed only limited amounts of long-term loans, with the result that productivity enhancing investments have been, and still are, the exception rather than the rule. The major share of loans throughout the 1990s has been disbursed as short term loans. In fact, this share increased in the course of the 1990s: the percentage of short-term loans increased from about 72 percent in the beginning of the 1990s (1990-92) to 84 percent at the end of the 1990s (1997-99). The interest rates at which the ACB lends money to various types of agricultural firms was and is fixed as is the one at which other sector Banks are allowed to lend money to firms in the sectors in which they operate. However, the interest rates which agricultural producers have to pay are preferential if compared with those of paid by firms in other sectors. For instance, in 2001 interest rates for loans to agricultural producers ranged between 4 (for public farms) to 7.5 percent (for private farmers) while firms in the industrial sector had to pay interest rates between 7.5 and 10 percent.

i) Tax policies

In 1991 the Syrian tax system was reformed. Law No.20 of 1991 introduced a system of progressive income taxes, regulated the profit tax of agricultural cooperatives and specified various tax exemptions. As in many other countries, the agricultural sector benefits from various preferential tax treatments, especially with respect to direct taxes. Most notably, farm income is exempted from income tax and agricultural cooperatives are exempted from profit taxes. Obviously this is a substantial form of subsidizing agriculture. Because an adequate reference scenario is difficult to define, not attempt is made in this paper at measuring the extent of the respective inter-sectoral redistribution associated with this preferential treatment of agricultural producers.

Furthermore, it is worth mentioning that the indirect taxes paid by agricultural producers are often compensating for the preferential treatment with respect to direct taxes. In fact, some of these taxes date back to the Ottoman system. For instance, according to Law No.794 of 1928 (amended by Law No.25 of 1958) animals are taxed annually per head at the following rates: sheep and goat, SP2.25; camels, SP4; cattle, SP7; pigs, SP11. Furthermore, sales of agricultural commodities are subject to a value added tax (Law No.384 and 437 of 1957) at rates of 9-12 percent, which is higher than in many western countries where agricultural commodities often are exempted from indirect taxes or are subject to preferential tax rates.

4.4 Quantitative analysis of taxation of agriculture in Syria between 1990 to date

After the qualitative discussion of the various policies and regulatory approaches, which are affecting agricultural and food production in Syria, this section now turns to their quantitative assessment. Specifically, it examines whether the set of policies effectively resulted in a taxation or subsidization of the agricultural sector. It also endeavors to reveal the most important structural composition and trends of agricultural policy support in the 1990s.

a) Estimates of Market Price Support

As discussed in Section 2, any indirect policy affecting domestic agricultural producer prices is effectively supported by the market participants. The discussion in the previous section has identified three policy areas in Syria which are likely to significantly affect the level of indirect policy transfers to agricultural producers: (i) the import and export policies, which create a wedge between domestic and international agricultural prices; (ii) the exchange rate policies, which directly affect the international prices in which food prices of Syria’s imports and exports have to be expressed in order to calculate import and export parity prices; (iii) the centrally planned system, which has a direct effect on domestic prices, particularly in the case of strategic crops.

The identification of the most appropriate international price for a specific commodity is difficult because of data availability, quality differences etc. One shortcut often used to circumvent these difficulties is to calculate unit values from national trade statistics. However, unit values carry the potential of being highly distorted, due to the use of the multiple exchange rate system and the evaluation of imports and exports with the official exchange rate for statistical purposes. Therefore, international agricultural commodity prices were used in most cases. These are also distorted, for instance, by agricultural policies implemented by the industrialized countries which are big agricultural exporters (e.g. the EU and the USA). Nevertheless the international prices seem to be the best alternative and are used for such calculations for all countries.

However, these international commodity prices have to be adjusted to the same point of sale in Syria. Furthermore, agricultural products at the farm level differ from those which are traded in world markets. Therefore, normally, costs for packaging, processing and quality differences ought to be taken into account when calculating import or export parity prices. Export parity prices are derived from fob (free on board) prices at the major trading point through which the commodity is exported into the respective country. Import parity prices are normally derived from cif (cost-insurance-freight) prices at the major point of entry. Furthermore, in a next step, the cif or fob prices at the border are normally adjusted to either the farm gate or a wholesale point which is assumed to be the actual point of competition. Given the weak availability of respective product-specific data of domestic marketing costs for the different products and the different years in the 1990s, a different approach was used. [46]The implicit assumption behind this approach is that the cost of processing and moving domestically produced commodities from the point of production to the point of consumption is generally equal to the cost of adjusting c.i.f or f.o.b prices to the relevant domestic point of price competition (Melyukhina, Qaim and Wehrheim, 1998: 398).

As seen in a previous Section, Syria has used a system of multiple and fixed exchange rates during the 1990s. The official exchange rate has been used mainly for statistical purposes. Agricultural imports and exports were evaluated at different rates. Table 4.1 indicates that the discrepancy between these exchange rates was not marginal but substantial throughout most of the 1990s. Therefore, the choice of exchange rates for converting the international price into local currency will have decisive effects on the results. For this reason, three different exchange rates are used below for the assessment of the MPS: the official exchange rate, a trade weighted exchange rate and the neighbouring country (Beirut) exchange rate.

b) Discussion of results

Table 4.3 provides an overview of the MPS and all other forms of support for which direct or indirect transfers could be estimated. The calculations show the effect of different exchange rates of the SP against the US$ on the estimates of total MPS. All international prices were converted in Syrian pounds in order to systematically compare international and domestic prices in the domestic currency. The lower the exchange rate, the lower the corresponding parity price, and consequently, the higher the gap between international and domestic commodity prices.

The upper part of the Table, illustrated by Figure 4.1, shows how total market support developed. Based on the official exchange rate, the absolute amount of MPS transfers approximately doubled from an average of SP65 billion (1990-92) to about SP130 billion (1997-99). However, nominal Gross Agricultural Output (GAO) doubled as well, thereby offsetting the increase of MPS in relative terms. This relative stability is somewhat surprising because world market prices have shown strong variations over the same period. The following two lines in the Table 4.(illustrated on Figure 4.1) indicate the effect of the exchange rate adjustment: the neighbouring country exchange rate (from Beirut) has fluctuated, similarly to the black-market exchange rate, around SP50/US$ throughout the 1990s. Using this exchange rate for the estimation of the transfers, it becomes obvious that domestic agricultural prices in the beginning of the 1990s have actually discriminated against agricultural producers: in other words, agriculture has been taxed in that period.

Table 4.3 Estimates of transfers associated with direct and indirect agricultural support policies in Syria in Mill. SP and as percent of Gross Agricultural Output (GAO), 1990-1999a)


Unit

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

Gross agricultural output (GAO) in current producer prices

in Mill. SP

122861

145717

174360

186683

213451

241508

290272

288384

344709

298359

Producer Support Estimates (PSE)












Market price support for Syria's major agricultural commodities calculated with different exchange rates

Sum of MPS, trade weighted ER

in Mill. SP

34318

45094

62857

73881

63894

54282

54706

40499

31773

39862

Sum of MPS, official ER

in Mill. SP

43646

62463

88926

103982

103954

119322

135562

127439

145514

119904

Sum of MPS, neighbouring country ER

in Mill. SP

-33813

-4157

-607

19151

12979

-8459

2979

14416

23052

31060

Other indirect support












Credit subsidies

in Mill. SP

344

467

533

541

575

618

602

553

504

449

Input subsidies

in Mill. SP

0

522

659

2095

1073

705

418

476

498

101

Total PSE, trade weighted ER

in Mill. SP

34662

46083

64049

76517

65542

55605

55727

41528

32775

40412

Percentage PSE

in % of GAO

28

32

37

41

31

23

19

14

10

14

General Services Support Estimates (GSSE)











Budgetary expenditures MAAR

in Mill. SP

1517

1737

1950

2043

2487

2770

3812

4061

4322

3590

Operating expenditures MAAR

in Mill. SP

884

1275

1667

1288

1367

1701

1717

1798

1835

1883

Ministry of Irrigation

in Mill. SP

4608

12747

6517

8850

8826

11761

11343

14065

13389

11346

Ministry of Supply

in Mill. SP

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

Total GSSE

in Mill. SP

7009

15759

10134

12181

12681

16232

16872

19924

19546

16819

Percentage GSSE

in % of GAO

6

11

6

7

6

7

6

7

6

6

Total Support Estimate (TSE)












Producer Support Estimates

in Mill. SP

34662

46083

64049

76517

65542

55605

55727

41528

32775

40412

General Services Support Estimates

in Mill. SP

7009

15759

10134

12181

12681

16232

16872

19924

19546

16819

Consumer Support Estimates

in Mill. SP

0

0

0

0

0

0

0

0

0

0

Budget revenues from agriculture

in Mill. SP

4013

4013

6749

7771

9068

10599

16964

22280

22717

22978

TSE

in Mill. SP

34761

50384

52242

61607

55276

48785

45698

29166

16952

22896

Percentage TSE

in % of GAO

28

35

30

33

26

20

16

10

5

8

Note: a) Data for 2000 was not available at the time of the study.

Source: Own calculations with data from MAAR, 2001, Ministry of Irrigation, 2001.

This highlights the crucial role of the exchange rate in determining not only the level of indirect support, but also the competitive position of export-oriented farmers. Furthermore, the gradual devaluation of the trade-weighted exchange rate throughout the 1990s highlights another important trend. In line with the devaluation of this exchange rate of the SP in the course of the 1990s, the corresponding estimate of MPS converges towards zero, indicating a reduction in distortions arising from exchange rate policies. From an economic point of view, this is actually good news and indicates that the policy of gradual devaluation of the SP against the US$ is in fact the single most important factor in reducing negative distortions for agricultural producers.

On top of these aggregated results, some commodity-specific observations are worth mentioning. Based on the official exchange rate, all commodities except tomatoes were subsidized throughout the 1990s (Figure 4.2). The respective estimates with the trade-weighted exchange rate indicate a much more differentiated picture. It can be seen from this chart that the major strategic crops, namely wheat, barley, and raw cotton have received the highest levels of support throughout the 1990s, and continued to receive the lion's share of indirect support by the end of the 1990s. In contrast, some of the more export-oriented strategic crops such as chickpeas and lentils were taxed in some years (e.g. 1996 and 1998) according to the calculations based on the trade-weighted exchange rate.

This result is primarily due to the wide variations in international commodity prices. However, it indicates that while sheltering domestic producers of export-oriented crops in years when world market prices are low, the same policies discriminate against potential exporters in years of high world market prices. In fact, the results indicate that taxation of agricultural producers, when it occurs, hits the export-oriented farmers producing lentils, chickpeas, olive oil, sheep and poultry, or fruits, i.e. exactly the products for which Syria is expected to have a higher comparative advantage in contrast with cereals, raw cotton, or beef. This becomes even more visible using the neighbouring country exchange rate based commodity-specific calculations of MPS. Because the exchange rate of the SP against the US$ has been widely devalued throughout the 1990s, it reveals a subsidization of producers of major strategic crops and a taxation of those farmers which produce export crops for the entire period. Hence, these results clearly call for a restructuring of agricultural policies by removing the high level of indirect subsidies for the latter, and reducing the degree of taxation of the former.

Figure 4.1 Syria’s total Market Price Support (MPS) as a percentage of GAO at constant producer prices, 1990-1999

Notes: MPS associated with indirect agricultural policies and calculated with the official exchange rate (ER), a trade-weighted ER, and the neighbouring country exchange rate (Beirut). Total MPS is based on calculations for all products for which results are reported in Wehrheim (2001) Table 4.1-2 to 4.1.4. Due to the lack of data, some product-specific calculations for 1999 are either preliminary or not available at all.

Source: own calculations based on data from MAAR and various international sources.

Figure 4.2 MPS for several of Syria’s agricultural commodities as a percentage of gross agricultural output at constant producer prices, 1990-1999

Note: MPS calculated with a trade-weighted exchange rate.

Source: own calculations based on data from MAAR and various international sources.

c) Estimates of credit subsidies

Data on the total amount of loans disbursed annually by the Agricultural Credit Bank between 1990 and 1999, indicate that the biggest share of loans disbursed to agricultural producers has been disbursed to production loans for wheat and cotton. Loan disbursements for capital investment has indeed been very low (e.g. tractors and combines), and those for irrigation projects declined substantially. Hence, subsidized credits for short term loans have been more important. Based on the respective annual loan disbursements and the estimated interest rate differential, the total amount of transfers to farmers remained limited throughout the 1990's. In terms of GAO, the share of agricultural credit subsidies (below 0.5 percent throughout the 1990's) was much lower than in many industrialized countries. However, the costs of administering this agricultural credit system are not included in these calculations. To reduce these costs, which are also a burden on the taxpayer, the rural credit sector should be liberalized in gradual steps.

A more competitive rural financial sector should also help in upgrading the kind of services provided to farmers in need of credits. In fact, in many industrialized countries, the former sector-specific agricultural banks have been privatized completely and the disbursement of subsidized agricultural credit, if any is available at all, is operated through the commercial bank sector. Accordingly, the government only carries the costs of the interest rate differential between the commercial interest rate and the subsidized rate.

d) Estimates of input subsidies

Input subsidies were also estimated by comparing the domestic prices paid by farmers with the respective international prices of the inputs[47]. The calculated price differential was then multiplied by the quantity allocated to agricultural producers. Such subsidies represent costs for the total economy, which have to be borne by either the government or the producers of the respective inputs.

Pesticides carry basically no subsidy because they were mostly imported in recent years. Hence, Syria has been a price taker throughout the 1990s. As long as importing, distribution and sales of pesticides were restricted to the Agricultural Cooperative Bank (part of the state sector), an average 15 percent premium was charged on the import price of pesticides to cover the marketing costs within Syria. At present, a substantial share of pesticides is imported by private traders at free market prices.[48]

With respect to seeds, one can make a distinction between seeds for strategic crops and other seeds. Seeds for strategic crops are provided by the General Organization for Seeds Management (GOSM). Because of the wide variety of seeds, it was impossible to calculate the indirect subsidy for seeds for the whole period. Instead, reference is made to another study by Parthasarathy (2000), who estimated the implicit subsidy to farmers associated with seed policies at an annual amount of SP2 398 million.

Currently, about 60 percent of total fertilizers used are produced in Syria and the rest is imported. While fertilizer was distributed to farmers by the Agricultural Cooperative Bank exclusively, in the course of the 1990's, the market for fertilizer has been liberalized in consecutive steps. As a result, the implicit subsidy for fertilizer (estimated for two major types of fertilizers: urea and phosphate) declined from SP1 092 million in the three years average 1991-1993 to an average of SP358 million in 1997-1999. As a ratio to GAO, the decline becomes even more distinct. Partharasathy (2000) estimated the total implicit fertilizer subsidy in 2000 at SP1 390 million for a more complete set of fertilizers, and the net subsidy implicit in the widely Government-dominated distribution system for fertilizer at SP435 million.

e) Budgetary expenditures for agriculture

Summary figures on administrative and current expenditures and the revenues which are associated with ‘running’ the government system are also shown in Table 4.2. Next to the operating costs for the MAAR, the maintenance costs for state agricultural establishments were the second largest expenditure item, followed by expenditures for reforestation and forest improvement. This has changed in the course of the 1990s, when reforestation measures became, on average, the second most important expenditure item. Given the scarcity of water and the associated problems with desertification, this increase of financial resources for reforestation seems to be justified. The data also indicate a rather low level of expenditure for direct agricultural inputs subsidy via the Government budget (e.g. pesticides).

Taking into account that economic returns to agricultural research have been evaluated very positively worldwide it is notable that the agricultural research and extension system receives only very limited financial resources in Syria. In many countries which are today major agricultural exporters, such as the United States, Germany, and France, agricultural research has been carried out in a widely dispersed system. Agricultural faculties at universities, land grant colleges, government-run agencies, etc. have ensured that the rate of technological progress has been very high in the past century. Furthermore, support for agricultural research is not subject to reduction commitments within the Uruguay-Agreement of the GATT/WTO.

Data published by the MAAR indicates that the most significant revenue item is on “Services commutations and state leasing operations”. This mainly relates to revenues from state-owned land. The comparison of total agricultural revenues with total expenditures by the Ministry of Agriculture and the Ministry of Irrigation shows that the system was covering most of its total costs in the beginning of the 1990s, and all of its costs at the end of the decade. However, it should be noted that information on some relevant expenditure items were not made available for this study (in particular, the total costs for the maintenance of some agricultural agencies under the supervision of the Ministry of Supply, and the costs for running the ACB).

f) Consumer subsidies

Official figures on government expenditures for subsidizing consumer prices for staple foods are not publicly available or released. Neither is the data that would be needed to carry out the respective calculations. Therefore, this section must rely on a qualitative discussion.

In the past decade and until now, the Syrian Government controlled the retail price of some major food commodities in order to subsidize food consumers, principally: bread and flour, rice, sugar, vegetable oil and tea. These commodities are considered to be so important for the food security of the Syrian population that they are subsidized with flat rates. Even though the explicit extent of these consumer subsidies is not known, the high quantity of these food items consumed suggests that they make up a significant amount of the total Government expenditures. In the course of the 1990's, the increasing pressure on the Government budget reduced the scope for food consumption subsidies. Subsidies on vegetable oil and tea were discontinued, those for bread (flour) were reduced, and those for sugar and rice were restricted by the distribution of food coupons. Coupons allowed for the purchase of a maximum of 1.5 kg of sugar and 0.5 kg of rice per capita and month at the subsidized price.

Presently, a major question related to food consumer subsidies seems to be how to replace the general food subsidies to consumers with a well-functioning and efficient system of targeting food aid to the poor. ‘Targeting’ is simply a means of ensuring more food, of better nutritional value, to groups in need and not to others. Hence, the success of targeting schemes depends on limiting the leakage of program benefits to non-program families. Generally, the leakages will be a function of the size of the economic benefit associated with the consumer subsidies. The basis for any targeting mechanism should be a careful assessment of food consumption and expenditure habits (Timmer, Falcon, and Pearson 1983).

There are several steps required to achieve this objective. First, the Government has to define a country-specific poverty line (e.g. based on average annual per capita income). Additionally, indicators for various social aspects of human life that assist in the assessment of the standard of living could be taken into consideration (e.g. the rate of child mortality, the level of education, access to fresh and clean drinking water, or the accessibility of doctors). Such indicators could be compiled on a regional basis in Syria, in order to assess in which governorates most poor households are to be found. Secondly, an assessment of the absolute and relative poverty level of households in Syria is necessary. Ideally, such an assessment would include primary and secondary information on the nutritional status, income and expenditures of households and various groups within households (children, pensioners etc.). Once the households in need have been identified, various forms of targeting can be relevant: geographic, seasonal, or sex- and age-specific targeting. Particularly, when malnutrition is observed among small children or lactating women, targeted subsidies can be an efficient form of subsidizing these income groups.

g) Estimates of total transfers to agriculture

Section 2 discussed the conceptual framework for assessing the total transfers to agriculture resulting from all direct and indirect (agricultural) policies under operation. Let it be recalled that total transfers would comprise the sum of Producer Support Estimates (PSE), General Services Support Estimates (GSSE), and Consumer Support Estimates (CSE). The respective estimates for Syria from 1990 to 1999 are presented in Table 4.2. However, as mentioned above, food consumption subsidies are not included in these calculations because of data unavailability.

The results indicate that throughout the 1990's, the Market Price Support component has been the major source of transfers to agriculture. This means that indirect policies in Syria have yielded significant production incentives for domestic producers, but as mentioned earlier, this result is not uniform throughout the sector and some producers were instead taxed in the 1990s. An important observation from these estimates is the downward trend of total transfers in relation to GAO; the relative level of support declined from around 30 percent in the beginning of the 1990s to less than 10 percent at the end of the decade. This can be interpreted as the effects of the agricultural policy reforms which have been gradually implemented in the last decade. The liberalization has yielded the expected results and reduced the degree of government involvement into agricultural markets. However, this decline of total transfers does not tell us much about the efficiency of agricultural policies, nor about the remaining distortions in the agricultural sector because of the many forms of government intervention in the sector.

4.5 Summary and policy conclusions

The discussion of agricultural and food policies in Syria provided in this Chapter, firstly suggests that, as in many other countries, agricultural policies had an important impact, yet were often inconsistent and not transparent. A second common feature, particularly in other developing countries, is that exchange rate misalignments due to Government interventions have been a major cause of distortion and of discrimination against the export-oriented agricultural sub-sectors.

As a matter of fact, the quantitative analysis of the transfers due to agricultural and food policies in Syria indicates that the answer to whether the agricultural sector was taxed or subsidized depends crucially on the choice of an exchange rate for conducting the calculations. Because of the relative importance of the agricultural sector in the economy and because of the economy-wide repercussions of economic policies, the partial equilibrium analysis used in this paper has its limits. A general equilibrium analysis would be needed to fully understand how the mix of policies affected the agricultural sector in Syria.

In spite of these limitations, the qualitative and quantitative assessments allow several important observations:

(i) the sum of direct and indirect financial transfers from policy interventions has decreased continuously throughout the 1990s, as a response to the gradual reform approach of the government.

(ii) Policy interventions have often favoured food commodities considered crucial for domestic food security (wheat, sugar etc.), while commodities with a high export potential were often (implicitly) taxed. On the other hand, the prices and interventions system for strategic crops has been in favour of cash crops such as cotton, while the production of certain food crops such as chickpeas and lentils was discouraged. The burden on Syria’s budget of product-specific policies is particularly significant for products which receive both production and consumption subsidies, such as wheat and sugar.

(iii) In the past decade, the Syrian government subsidized the retail price of some major food commodities such as bread and flour, rice, sugar, vegetable oil and tea. These general subsidies have been gradually reduced, with the exception of those for flour, sugar, and rice. Experience from many countries suggests that these remaining general food subsidies should also be discontinued, and instead targeted food subsidies to needy consumers would more efficiently assist them.

(iv) Syrian domestic agriculture continues to be subjected to significant and often non-transparent regulations (e.g. marketing constraints at the wholesale level prevail, and price controls at the retail level are still possible), and a wide range of tariff and non-tariff measures remain a handicap for the country's agricultural trade.

(v) It can be expected that once the exchange rate is fully flexible, the SP fully convertible, and the capital and current account fully liberalized, further pressure on the exchange rate will arise. An overvalued exchange rate being the single most important factor that discriminates against the export oriented agricultural sub-sectors, further devaluations, to be implemented in gradual steps, might be needed to reach and maintain an equilibrium exchange rate in the future.

(vi) Agricultural credit made available to farmers at a subsidized interest rate was mainly (70-80 percent) for short-term loans. To foster structural change in the agricultural sector, incentives should be provided to seek long-term capital investments, particularly, in view of the threatening water scarcity, water saving investments.

Against this background, the continued deepening of the reform process is called for, with further deregulation of the agricultural sector and of trade operations in order to foster private entrepreneurship in the sector. This would contribute significantly to the effort to integrate Syria’s agricultural sector further into the global agricultural trading system. A critical milestone in this process has been Syria's decision to apply for accession to the WTO. In this context, it is worth underlining that a country that accedes the WTO has to liberalize its agricultural policies to some extent only. There is no obligation to completely abolish all support policies, but rather to “lock in” upper bounds of import tariffs and domestic support to agricultural producers. Such commitments have been made by all[49] members of the WTO in the Uruguay Round. The reference point against which this liberalization must be implemented by new incoming members of the WTO is normally the three-year period prior to the time when the application for membership has been submitted to the WTO.

Furthermore, future WTO membership will be achieved easier if sustained consideration is given to restructuring the existing agricultural and food policy instruments. With respect to agricultural import and export operations, the degree of protection granted to specific commodities should be reduced further, the tariff system should be simplified and be made more transparent. Non-tariff measures such as quantitative import constraints should be abolished and transformed into tariffs. Generally, the objective of future reforms of the import tariff regime should be to simplify the food import trade regime and, thereby, increase its transparency and compatibility with international standards. Ideal instruments are those agricultural support measures which are classified by the WTO as “green box” measures, i.e. instruments which are distorting trade only minimally. Green box examples are direct, decoupled (i.e. not linked to current production levels) income payments for farmers, or investments in rural infrastructure and agricultural research. From an economy-wide perspective, such policies would help Syria to develop and exploit its comparative advantage in agriculture to a greater extent.


[40] The effects of all agricultural policies will be assessed whenever applicable for the following agricultural products: Syria’s strategic crops (wheat, barley, cotton, sugar-beet, cotton, chickpeas, lentils, and tobacco). Furthermore, for other agricultural commodities which are important for Syria’s agricultural sector: citrus fruits (oranges and lemons), vegetables (tomatoes), fruits (apples), potatoes, beef, sheep meat (from Awassi sheep), and poultry meat The time period covered in the study are the years between 1990 to date. In many cases, the most recent year for which data was available was 1999.
[41] The quantification of the transfers associated with the agricultural policies in Syria and the analysis of the effects of the respective policies is associated with substantial data needs. Some of the information used for this study relies on official publications from the Ministry of Agriculture and Agrarian Reform, the Ministry for Economics and Foreign Trade, the Ministry of Supply and the Syrian Customs Office. Furthermore, data on credit disbursement was received from the Agricultural Cooperative Bank. Data on international prices was compiled from various international sources: FAO-Stat and FAO-Food-Outlook, EUROSTAT (the statistical office of the European Union), OECD, USDA and others.
[42] The institutional details of the “centrally planned administration” of the strategic crops will not be discussed in detail here, as it is described in other chapters of this book (e.g. Westlake).
[43] A major institutional reform took place in late 2001 when the functions of the Supreme Agricultural Council were transferred to the Ministry of Agriculture. This Ministry now has to make a proposal concerning the sectoral production plan and the prices for strategic crops that has to be approved by the Cabinet of the Government of Syria. The consultative and participative process through which various political and social bodies have been engaged in the formulation of the former Supreme Councils policy proposals for the agricultural sector are now taking place through respective consultations at various levels within the Ministry of Agriculture.
[44] For more detailed information on the Agreement with the EU see Chapter 2 by José Alvarez?Coque in this volume.
[45] For a more detailed description of agricultural credit issues see Chapter 15 by Parthasarathy in this volume.
[46] The approach has been suggested by a group of economists in the USDA for other countries (Liefert et al, 1996: 796).
[47] Because of substantial product and quality differences, comparable price series were available for a few fertilizers only.
[48] For more details on markets for agricultural inputs, see Chapter 14 in this volume by Parthasarathy.
[49] WTO had reached 145 members as of mid 2002.

Previous Page Top of Page Next Page