World Food Programme Regional Market Survey for the Middle East
Marcus Marktanner
WFP
This study analyzes the food markets of Jordan, Syria, Lebanon, Palestine, Iran, Iraq, and Yemen (ME-ODC Countries). These countries cover the Middle Eastern part of the area covered by the operational activities of the ODC, which also extends to North Africa and the Caucasus. Despite some similarities, such as adverse climatic conditions for agricultural production, the countries are generally very different and confronted with different problems. Each country therefore requires a substantial amount of separate treatment. The objective of the study is to better understand the dynamics of the food markets of these countries, particularly in light of the recent food price inflation. The findings shall help the World Food Program (WFP) to identify appropriate strategies for contingency planning, emergency preparedness, and the formulation of response policies.
1.2. Particular Challenges As many other economies, the countries of this study ...
Table of contents
Introduction / 1
1.1. Definition of Project / 1
1.2. Particular Challenges / 1
1.3. Specific Questions / 2
1.4. Data and Methodology / 3
2. The Food Price Crisis – A Brief Overview of Main Arguments / 4
2.1. Rising Demand / 4
2.2. Shift in Consumption Pattern / 6
2.3. Higher Energy, Transportation, and Fertilizer Costs / 7
2.4. Biofuel / 8
2.5. Climate Change / 12
2.6. Water Scarcity / 13
2.7. Declining Food Reserves and Speculation / 14
2.8. Dollar Depreciation / 16
3. The State of Agricultural Supply in ODC Countries / 17
3.1. Preliminary Remarks / 17
3.2. Where do ME-ODC Countries Stand? / 18
4. More in Depth Analysis of ODC Countries / 24
4.1. Overview / 24
4.2. Lebanon / 24
4.2.1. General Economic Conditions / 24
4.2.2. The State of Food Security / 26
4.2.3. Market and Trade Overview / 27
4.3. Syria / 30
4.3.1. General Economic Conditions / 30
4.3.2. The State of Food Security / 30
4.3.3. Market and Trade Overview / 32
4.4. Jordan / 34
4.4.1. General Economic Conditions / 34
4.4.2. The State of Food Security / 34
4.4.3. Market and Trade Overview / 35
4.5. Iran / 37
4.5.1. General Economic Conditions / 37
4.5.2. The State of Food Security / 38
4.5.3. Market and Trade Overview / 39
4.6. Iraq / 40
4.6.1. General Economic Conditions / 40
4.6.2. The State of Food Security / 41
4.6.3. Market Overview / 43
4.7. Yemen / 44
4.7.1. General Economic Conditions / 44
4.7.2. Food Security / 46
4.7.3. Market Overview / 47
4.8. Palestine / 48
4.8.1. General Economic Conditions / 48
4.8.2. Food Security / 49
4.8.3. Market Overview / 50
4.9. Summary / 51
5. Food Crisis, Market Dynamics, and Policy Options / 54
5.1. Introduction / 54
5.2. How Efficient are Markets? / 54
5.3. How do Suppliers React to Rising Food Prices? / 56
5.3.1. Supply Adjustment in Theory / 56
5.3.2. Smuggling / 57
5.3.3. Hoarding / 58
5.3.4. Charity based Supply / 59
5.4. How do Consumers react to Rising Food Prices? / 59
5.4.1. Demand Adjustment in Theory/ 59
5.4.2. A Snapshot of the Food Price Rises in ODC Countries / 60
5.4.3. Substitution Effects / 61
5.5. Recommended Short and Long Term Policies to Fight Food Price Inflation / 62
5.5.1. What Government Should Do in Theory / 62
5.5.2. Agrarian Reforms / 62
5.5.3. Family Planning / 64
5.5.4. Income Redistribution / 65
5.5.5. Building Transportation Infrastructure / 67
5.5.6. Building Financial Infrastructure / 67
5.5.7. Short Term Response Policies / 68
5.6. Response Policies in Practice / 69
5.6.1. Tax Reductions / 70
5.6.2. Use of Buffer Stocks / 70
5.6.3. Export Bans / 70
5.6.4. Cash Transfers / 71
5.6.5. Food-for-Work Programs / 71
5.6.6. Food Stamps / 72
5.6.7. School Feeding / 72
6. Assessment of the Social Cost of the 2006-2008 Food Price Crisis / 72
6.1. Methodology / 72
6.2. Discussion of Results / 73
6.3. Application of Results to ODC Countries / 74
6.4. Final Word of Caution / 78
7. Concluding Policy Recommendations / 78
7.1. Contingency Planning / 78
7.2. Emergency Preparedness / 80
7.3. Crisis Response Policies / 81
8. References / 83
9. Appendix / 87
List of figures
Figure 1: Population Weighted Per Capita Income of China and India and IMF Food Price Index (2005 = 100) / 5
Figure 2: Estimated World Import Growth of Selected Commodities over 2005-2007 Average / 6
Figure 3: Ammonia (USD/ton) and Gas Prices (Mont Belvieu, TX Propane Spot Price FOB, Cents per Gallon), January 2000=100 / 7
Figure 4: Pros and Cons of Biofuel / 8
Figure 5: OECD Biofuel Production and Feedstock Consumption Forecasts / 9
Figure 6: Simulations of Changes of World Prices of Feed Stock Crops and Sugar in 2020 / 10
Figure 7: Calorie Availability Changes in 2020 / 10
Figure 8: World Population and World Food Production Index (1961-2004) / 11
Figure 9: Agricultural Productivity by 2080 (with carbon fertilization, less pessimistic view) / 13
Figure 10: Water Scarcity / 14
Figure 11: Stock-to Use Ratios and Prices / 15
Figure 12: Food Price Incex and USD/EUR Exchange Rate (Jan 2005=100) / 16
Figure 13: Internally Displaced in Iraq / 42
Figure 14: Land Inequality vs. Cereal Yield / 63
Figure 15: Residual Agricultural Productivity and Population Growth Rate / 65
Figure 16: Estimated Food Inflation Elasticities / 74
List of tables
Table 1: Relative Agricultural Productivity in ODC Countries / 20
Table 2: Elasticity of Cereal Yield to various Determinants / 23
Table 3: Development Potentials of Credit Markets and Transportation Infrastructure / 23
Table 4: Lebanon’s Top-Ten Agri-Food Imports in 2006 / 29
Table 5: Lebanon’s Major Import Partners of Basic Foods in 2004 / 29
Table 6: Syria’s Top-Five Agri-Food Imports (2003) / 33
Table 7: Syria’s Major Import Partners of Basic Foods (2004) / 33
Table 8: Jordan’s Major Import Partners of Basic Foods (2004) / 36
Table 9: Iran’s Major Import Partners of Basic Foods (2004) / 39
Table 10: Yemen’s Major Import Partners of Basic Foods (2004) / 48
Table 11: Agriculture and Food Security among ME-ODC Countries – Stylized Facts / 52
Table 12: Relative Food Share Expenditures as an Indicator for Market Efficiency / 55
Table 13: Marginal Increases of Total Revenues to 1% Increases of Price / 59
Table 14: Snapshot of Food Price and General Inflation as Reported in Local Newspapers / 61
Table 15: Undernourishment and Income Inequality / 66
Table 16: Short Term Response Policies / 69
Table 17: Food Price Elasticity of Undernourishment (Pooled OLS double log regression) / 73
Table 18: Estimation of Socioeconomic Impacts of Food Price Crisis on ODC Countries / 76
List of appendix items
Appendix Item 1: Data Description / 87
Appendix Item 2: Agricultural Productivity Regressions / 88
Appendix Item 3: Regression Results Food Expenditure Shares / 90
Appendix Item 4: Cereal Yield vs. Land Inequality / 90
Appendix Item 5: Cereal Yield vs. Fertility / 91
Appendix Item 6: Compilation of Socioeconomic Indicators of ODC Countries / 92
EXECUTIVE SUMMARY
Prices of basic staples have witnessed a considerable upward trend since January 2006. Until today, they have more than doubled for rice, maize, soybean and palm oil, ground nuts, and barley. Rising demand and changing consumption patterns in emerging economies, higher energy, transportation and fertilizer costs, the substitution of food for industrial crops, climate change and water scarcity, speculation, and a weakening US dollar are important factors behind this development. Like most other developing countries, the price shock hit the seven ODC countries subject of this study off-guard. Unlike other countries though, the agricultural sector of the ODC countries is generally poorly positioned to make a meaningful contribution to the amelioration of the current crisis.
On average, food requirements exceed the countries’ agricultural output, which is a situation that most likely will aggravate in the future. Fast population growth and diminishing productivity due to climate change will mostly account for this development. Nevertheless, the countries have also an agricultural productivity deficit relative to their general level of development that goes beyond geography and demography. These can be attributed to underdeveloped markets like poor transportation and financing infrastructure more than lack of access to physical input factors like use of irrigation systems and fertilizers.
A more in-depth analysis reveals that the general economic framework is affected by a host of adverse geo-politic, geographic, and market-organizational factors. Refugee problems, armed conflicts, and droughts make food security and agricultural development highly erratic. Centralized marketing and procurement practices will become increasingly challenged in the wake of recent price developments. As governments become forced to liberalize production and distribution decisions, the pockets of food-insecurity within societies will widen and the calls for social safety nets become louder.
Widespread negative food price balances in the region have let most countries to develop import trade relationships with partners from outside the Middle East. In case of a sudden deterioration of food security, food aid would also have to be organized from outside the region. The vulnerability profile of the countries make them logistically challenging, especially in the events of armed conflict and a refugee problem.
The countries of this study can be divided into relatively low and high food-insecure economies. Comparatively advanced food markets with minor institutional deficits, such as lack of competition on the retail level, suboptimal transportation and capital market infrastructure, and governmental interference into the marketing process characterize the low food-insecurity countries of Lebanon, Syria, Jordan, and Iran. The high food-insecure countries of Iraq and Palestine even lack the most fundamental prerequisites for market interaction, which are secure property rights and freedom of movement, while widespread poverty and the use of Qat strangles Yemen’s development prospects.
A substantial refugee problem is a common theme among many ODC countries. Most studies address the hardship of the refugees while the impact on the regular population seems to be under-researched. The high vulnerability to climate change resulting in periodic droughts and possibly conflicts over scarce water resources is another common challenge to ODC countries that will require more research.
Immediate supply side adjustments to the food price crisis do often aggravate the current situation. These involve overpricing by retailers, smuggling with expired products, lining pockets by governmental officials, and political charities exploiting the situation. Substitution and income effects increase demand for food items with inferior nutritional value and enforce the reduction of consumption of other essential goods and services.
On the public policy level, short and long term policies must be separated. In the short term, both price policies and social safety net programs are used. Among price policies, tax bans, depletion of buffer stocks, export restrictions, and price controls are widely applied. Regarding social safety nets, school feeding, food stamps, and cash-transfers are the most popular response strategies. Food-for-work programs, which are socially particularly efficient, are not employed.
The long run must not be lost out of sight, though. Agrarian reforms, family planning, economic liberalization, decentralization, efficiently sized public sectors, and redistributive social policy may still free substantial productivity gains. Whether they will be enough to keep up with population growth and the reduction of agricultural productivity due to climate change must be questioned, though. Ultimately, food security in the ODC countries will rest more on general economic modernization than a green revolution.
It is estimated that the food price crisis will increase the number of undernourished in the ODC countries by roughly 3.7 million people. Currently, around 20 million of the total population of 157 million is underfed. The study also quantifies the increase of poverty, malnutrition, school drop-outs, food expenditure shares, and food inequality. Poor data quality, however, lends the empirical assessment a strong initial explorative nature.
In summary, the countries of this study will require constant monitoring of geopolitical, climate change, food price, and public policy developments. The high food import dependency of the region calls for logistically challenging food aid mechanisms. Food-for-work programs should be promoted more. Moreover, since food prices are expected to remain at elevated levels, short-term policies will not be sustainable. The development of long term food security policies, as envisioned in WFP’ strategic plan for 2008-2011, should complement the traditional concentration on short-term policies and food distribution.
1. Introduction
1. 1. Definition of Project
This study analyzes the food markets of Jordan, Syria, Lebanon, Palestine, Iran, Iraq, and Yemen (ME-ODC Countries). These countries cover the Middle Eastern part of the area covered by the operational activities of the ODC, which also extends to North Africa and the Caucasus. Despite some similarities, such as adverse climatic conditions for agricultural production, the countries are generally very different and confronted with different problems. Each country therefore requires a substantial amount of separate treatment. The objective of the study is to better understand the dynamics of the food markets of these countries, particularly in light of the recent food price inflation. The findings shall help the World Food Program (WFP) to identify appropriate strategies for contingency planning, emergency preparedness, and the formulation of response policies.
1.2. Particular Challenges As many other economies, the countries of this study are adversely affected by the recent upward trend in food prices. As opposed to other cases, though, the countries of interest in this study are subject to particular challenges that aggravate the current crisis. In the case of Palestine it is the effect of Israeli occupation. In the case of Iraq, it is the aftermath of the US-led invasion. Closely related to the developments in Iraq are the situations in Syria and Jordan, where many Iraqis found refuge. Lebanon still recovers from the July 2006 war between Hezbollah and Israel, which had devastating effects on rural communities and the agricultural sector. Yemen is one of the least developed countries of the world, is confronted with an influx of Somali refugees, and ...
Marcus Marktanner
World Food Programme
Regional Market Survey
For the Middle East
WFP
World Food Programme
Regional Market Survey
For the Middle East
Food Market and Food Insecurity in
Lebanon, Syria, Jordan, Iraq,
Iran, Yemen and Palestine
Marcus Marktanner
3 October, 2009
