An analytical study for the Economic Evaluation of
Production Policy of some dates varieties in Saudi Arabia
Dr. Mahdi M. Al-Sultan Dr. Ahmed Helmi S. Hassan
This study aims to evaluate the governmental Agricultural policies of cultivating palm trees and date production of some date varieties (Sukkary, Berhi, and Khelas) in Kingdom of Saudi Arabia. Thus, concluding the results and indicators to assist decision makers in their set up forthcoming strategies according to the international variables and to meet the local needs.
The study depended on primary data that was collected through a random sample of 35 farms in Alhasa Region, in addition to feasibility studies for some projects of cultivating palm-trees and date production in Saudi Arabia. The Policy Analysis Matrix was used to analyze the impact of governmental agricultural policies on date production.
The results show that Nominal Protection Coefficient of production (NPCO) approaches to one for the three date varieties. The NPCO is 1.02 for Sukkary and Khelas varieties, and is 1.04 for Berhi variety, which means that market prices of local dates reach to Social Prices. On the other hand, the Nominal Protection Coefficient on Tradable Inputs (NPCI) reached to 1.10 for the three varieties, which implies that producers purchase tradable inputs with prices higher than the international markets by 10%. The Effective Protection Coefficient (EPC) is about 1.02 for Sukkary, and 1.04 for Berhi, and 1.01 for Khelas. This means that the Effective Protection shows that the market is near to be full competition. Upon evaluating the Economic Efficiency for the three date varieties using the Domestic Resource Cost Coefficient (DRC), it was found that DRC varied between 0.11 – 0.13 in the three date varieties. It means that the use of alternative domestic resources (Land, Capital, and Labor) according to social prices is lower than the added value of date production according to social prices.
In this context, the study concluded that date production of the three varieties (Sukkary, Berhi,and Khelas) having a production comparative advantage. Therefore it is preferable to expand the cultivating area of the three varieties of dates, taking into consideration the other limitations which may effect to this expansion such as water resources.
Estimation of Targeted Production and Consumption of Fish in Saudi Arabia
Mahdi M. Al-Sultan and Adel M. Khalifa
Department of Agricultural Economics, College of Agriculture
King Saud University, Riyadh
The objective of this study is to estimate the target level of local production and consumption of fish in Saudi Arabia and compare it by the actual level during 1980-2000 using partial adjusted model. The results of the study could be summarized in:
- Traditional boats are the main source of fish production with production elasticity equal to 0.24 in the long run. Moreover, the actual production is in close proximity to the target level where it fulfils about 96.23% from targeted production during 1985-2000.
- The average retail price of fish, red meat and rice are the most important factors determining the individual consumption of fish. Moreover, fish still luxury good especially in the regions far from beaches. Also, there is a difference between targeted and actual consumption level due to the actual level attain about 89.92% of targeted level during 1980-2000.
- Targeted production level is expected to increase from 60.75 thousand metric ton in 2004 to 66.52 thousand metric ton in 2010 while consumption is expected to increase from 148.84 thousand metric ton in 2004 to 157.36 thousand metric ton in 2010. Therefore, the gap between production and consumption of fish is expected to sustain around 89.85 thousand metric ton during 2004-2010. This implies that the self-sufficiency ratio of fish will sustain around 41.44% at the same period.
In view of that, the study recommended that the fish production and consumption policies should be drawn depending on the targeted levels without increasing fish imports which heart the government budget.
An Econometric analysis for Saudi Arabia imports demand:Rotterdam differential approach
Mahdi M. Alsultan
The research goal is estimating Saudi Arabia imports demand during the period 1994-2000 on the basis of quarterly data for all imports by broad economic category which contain seven groups , food and beverages, materials and supplies, fuels and lubricants, machinery and capital equipment, transportation equipment and accessories, consumer goods not elsewhere specified and goods not elsewhere specified . Rotterdam demand differential approach has been estimated using iterative seemingly unrelated regression technique to estimate the model parameters. Estimated coefficients were used to calculate the compensated and uncompensated price elasticities and expenditure elasticity.
The study achieves some results as follows:
- The price variable has significant effect on demanding all groups whit negative sign which consist with economic theory.
- The expenditure variable has significant effect on demanding all groups' whit positive sign which consist with economic theory.
- the demand of food and beverages is effected by changes in the own price and the prices of materials and supplies, machinery and capital equipment, and goods not elsewhere specifies, while the demand of materials and supplies sensitive for all groups prices except goods not specified. On other hand, demand for fuels and lubricants affected by the price of consumer goods not specified whereas demand of machinery and capital equipments is effected by the prices of food and beverages and materials and supplies. Further, demand for transportation equipment and accessories sensitive to change in materials and supplies prices where the demand for goods not specified is sensitive for changes in materials and supplies prices and fuels and lubricants prices.
- The expenditure elasticities of all groups included in the study are positive and significant. Expenditure elasticities for fuels and lubricants, transportation equipment and accessories, goods not specified are grater than one meaning they are luxury goods. Also, expenditure elasticities for food and beverages, materials and supplies, machinery and capital equipment and good not specified are less than one meaning they are necessity goods.
- The uncompensated own price elasticities have negative sign for all groups included in this study and significant. The absolute values of elasticities are range between zero and one for all groups except machinery and equipment which means inelastic demand for these groups. For machinery and equipment groups the elasticity absolute value is grater than one which means an elastic demand for this group.
- the demand for goods and beverages group, fuels and lubricants groups, machinery and equipment group, transportation equipment group and goods not specified group are more sensitive for change in expenditure than change in prices while demand for materials and supplies group and consumer goods not specified are more sensitive for changes in prices than changes in expenditure.
Estimating per capita consumption function for Local Sheep Meat in Riyadh City
Mahdi Al-Sultan and S. M. Ismaiel
Department of agricultural economics, college of food and agricultural e sinces, king saud university Riyadh, Saudi Arabia
the main objective of this study is to analyze the local sheep meet consumption pattern in Riyadh City, Saudi Arabia to obtain economic indicators that will help policy makers in production and imports policy decisions. The study relied on cross section data, which was collected using questionnaire form. The sample size was 117 local sheep meat consumers in Riyadh city.
Engel curve model was estimated for households and per capita consumption function. The marginal propensity to consume and expenditure elasticity were estimated. The results showed the significant effects household monthly income on the level of monthly expenditure on local sheep meat. The moderate level of estimated R2 implied that there are other factors affecting expenditure pattern. These factors are mainly social customs, such as parties and luxury banquets.
Estimated income expenditure elasticity and marginal propensity to expenditure vary with consumer monthly income. Therefore Local sheep meat behaves as luxury good in low-income groups (less than SR 835), semi-luxury good when income less than SR2000 and necessary good for consumers within the income category more than SR2000 where it necessity increase with income increasing. Decreasing of marginal propensity to expenditure with income increase indicates that the low-income groups will increase their expenditure on sheep meat at a higher rate than medium and higher income groups.
Demand Estimation of Visiting Natural Reserves as Ecotourism Activity Using Negative Binomial Model: A Case of Ibex Reserve at Riyadh Province.
Mahdi M. Al-sultan , A. Alhendi, S. Algahtani
Kingdom of Saudi Arabia has advantages of establishing an ecotourism industry, becouse it covers 40-60% of Saudi tourism activities inside Saudi Arabia, based on location. For such purpose, a plane of establishing 103 natural reserves accepted officially, but after 10 years, only 10 natural reserves established. The study object is to introduce an economic study for managing a natural reserve in ecotourism activity by estimating visitor demand function and its economic indicators. Ibex Reserve, at south of Riyadh, was chosen to apply this study, and data collected through personal meeting to fill out questioners. Negative Binomial Model used in estimating visitor demand. The truncation of demand function, which show the upper and lower limits of visit number, distinguished between two visitor categories , one has 1-5 visits/ person/year and the second has 6- 48 visits /person/year. Each category had its own demand with different elasticity. Optimal entry fees were 3.5 SR and 6.5 SR for first and second categories respectively. No visits would be achieved at 6.5 SR and 12 SR fees for first and second categories respectively. The optimal number of visits per person a year was 5 and 8 for them. Price discrimination policy is suggested to manage Ibex reserve, based on differences in location sensitivities and time of visits. The study suggests establishing a club of Ibex reserve friends, which can help in developing ecotourism knowledge among visitors and local community, and help in financing reserve activities. Based on sustainable development concept, the study results are used for a 5 year plan to manage Ibex Reserve. Such plane will decrease the government support, from 2 million SR to 0.75 million SR. a year, because of entry fee revenue. The study recommendations stress on applying such study for other reserves to develop them in ecotourism activity, and finance there program of development.
The Impacts of WTO and Water Policy Changes on Saudi Arabian Agriculture:
Results from an Equilibrium Displacement Model
Mahdi M. Al - Sultan Stephen Davies Professor
Summary and conclusion
In order to link domestic and international effects across a wide variety of alternatives, a policy analysis framework was developed. A simulation model, adapting and extending a structure given in an article by Piggott, Piggott and Wright (1995), was constructed. Three different issues in the Saudi Arabian agricultural economy were then considered in this analysis. First, changes are expected to occur in world prices because of WTO trade liberalization, which will affect the pattern of imports, local demand and local supply in the economy. Also, input prices, especially the possibility of rising water prices due to increasing scarcity, should affect domestic production and imports of different products. Finally, the traditional shifter examined with import demand models has been expenditure change, which is the third simulation examined in this analysis.
The first simulation shows the effect of changing world prices due to WTO impacts. A study done by Diao, Somwaru, and Roe projected that removing trade barriers, subsidies and other trade-distorting forms of support would increase world prices, but that relative prices would also change for certain products. It appears that there is an increased incentive for production of grains and livestock because of higher prices, but these same higher prices will reduce local demand. Thus, there are some incentives that will create greater pressures on water use in Saudi Arabia, such as better world prices for grain products, but there may be greater incentives to move towards livestock production and away from water-using grain production. The other products imported into Saudi Arabia, such as oils and sugar, are expected to have smaller price increases; indeed, they may see increased imports, partly from these relatively smaller price increases and partly from the existence of significant substitution elasticities with products having larger price gains.
The last point above shows that are even though all prices are expected to go up, it is possible that some commodities will see greater imports because of cross price effects and lower relative prices after the WTO alters world prices. For example, quantities imported of feed grains, wheat and maize, oils, and sugar increase by 2.8, 2.7, 11.5 and 7 percent, respectively in the first simulation. Also, without imposing theoretical restrictions, several incorrect signs appear, and very large and, perhaps, incorrect cross price effects, represent surprising results. The imposition of the restrictions creates results that are more consistent. For example, milk and dairy, and vegetables and fruit, show increasing quantities imported without imposing restrictions, while their responses are negative with restrictions imposed. Moreover, local production naturally grows with these price increases, and the relative percentage responses depend on the proportion of domestic supply in local demand. For example, if this share is low, as in feed grains (10 percent) the production response will be proportionally high (46 percent).
The second set of simulations was done to look at impacts on domestic supply. To realize the expected total effect of the WTO on the Saudi agricultural sector, assuming Saudi Arabia joins the organization, a reduction of local support and reduced import subsidies are analyzed. Additionally, the increasing domestic concern about water resources suggests that some changes in the agricultural incentives could occur. The two issues examined in these areas were a change in water price and the reduction of an input subsidy paid for imported live animals. These simulations are quite different from those done before, in that they initially affect domestic supply, which then causes effects on import demand.
Multiple simulations were made using varying combinations of changes in water and live animal prices. With a reduction in subsidies on live animal imports, only live animals, and milk and dairy are affected, as the subsidy is directed at these two groups, while all products produced locally are affected by water price changes. Combining the two policy changes in one simulation just gives a sum of the two effects, implying that the effects are additive. This arises mainly because of the assumption that world prices are exogenous, so shifts in supply only change quantities and not prices. Without price changes, there are no spillover effects to other products. With endogenous prices, either of these policies would have impacts on all other products through cross prices effects. This alternative assumption will be used in later research.
Several policy implications are implicit in the second set of simulations. There may in fact be some positive aspects to the subsidy for live animals. Importing animals and feeding them locally may add value to local producers, especially as the availability of these inputs permits expansion of the livestock feeding and processing industries. It is also critical that water be conserved, and agricultural policy should promote a conversion to animal production, as its water consumption is probably lower than for crops. Moreover, there may be some enduring transportation advantages to importing feed grains and feeding livestock locally. However, this is only a suggestion for future research, and suggests need for a comprehensive study. Also, increasing water prices could reduce water consumption. However, given the modest decline in output seen with a ten percent increase in water price, it may require such a large price effect to control water use in agriculture that outright water quotas might be better.
Thirdly, to understand the possible effect of increased expenditures on imported goods from factors affecting demand, such as changes in tastes and preferences or increased advertising for foreign goods, six scenarios were analyzed. The effects differ between groups depending on expenditure elasticities and a group’s import share in local demand. Groups with low expenditure elasticities and low import shares in local demand, such as milk and dairy, experience a greater percentage response than those that have higher expenditure elasticities and higher import shares, like feed grains. For those groups that are completely imported, the import response depends directly on the expenditure elasticities. Again, these impacts could be much wider with endogenous prices, as changes in expenditures in any of the products raises prices, which would then affect all other commodities depending on their elasticities.
Comparing the three simulations, some additional perspectives can be seen. In the first simulation, relative price changes from the WTO may in fact save water due to a greater growth in animal agriculture. However, the anticipated reduction in live animal import subsidies (also related to the WTO) may offset some of the incentives for greater production of livestock products. So the movement to livestock activities may be slowed down some due to input price effects from WTO, and some of the water conservation indicated in the first result may not occur. However, the separate analysis of increased water prices might make livestock products more attractive relative to crop production. he second simulation shows some evidence in this direction, as the reduction in feed grains was 46 percent compared with 8 percent for animal products. These trends may be even clearer with endogenous prices.
The WTO simulation is also related to the expenditure simulation in that they show two effects that would influence the cost of imports. It turns out that the products likely to have the greatest increase in world prices from WTO effects, shown in the first simulation, are the same products that will have the greatest expenditure responses from added purchases of food imports. Thus, the cost of agricultural imports could be rising more than expected from the convergence of these two effects. However, higher world prices may well reduce some of the expenditure response in the third simulation, so those products with the highest expenditure elasticities may not be the ones with the greatest import response.