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Economic Impacts of Changes in Wheats Import Tari 2 PDF
Economic Impacts of Changes in Wheats Import Tari 2 PDF
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a
Agricultural Economics Department, College of Food and Agricultural Sciences, King Saud University, P.O. Box 2460,
Riyadh 14511, Saudi Arabia
b
The King Faisal University, College of Agriculture and Food Science, Department of Consumer Sciences and Agribusiness,
Saudi Arabia
c
The University of Khartoum, Department of Agricultural Economics, Faculty of Agriculture, P.O. Box. 32, Postal Code 13314,
Shambat, Khartoum Bahri, Sudan
KEYWORDS Abstract This study quantifies the impacts of change in wheat’s import tariffs on gross domestic
Sudan; product (GDP) and its components, wheat imports, sorghum exports, and domestic production of
Wheat; wheat and sorghum in the Sudan. The study objective is to provide a deep insight of the issue in
Import tariff; concern to stakeholders affiliated with food security. As a method of analysis, the study uses a stan-
CGE model; dard computable general equilibrium model, designed for developing countries by the International
SAM Food Policy Research Institute. Sudan’s Social Accounting Matrix for the year 2004, disaggregated
for agriculture, has been used as core database. Different scenarios have been postulated and sim-
ulated.
Changes in import tariff of wheat had broad inter-linkages among all sectors of the economy.
Reduction of wheat tariff has increased wheat imports; associated with a decrease of imports of
other agricultural, industrial and services sectors. Increasing wheat imports could lower the domes-
tic price and, hence, reduce the resources directed to its production. The overall effect is an improve-
ment of GDP, balance of trade, and investment, and decreased private consumption. Increasing
import tariff on wheat would reduce its imports and encourage its production for self-sufficiency,
with less efficiency and negative impact on GDP.
Domestic production of wheat is highly variable over time, and falls short of satisfying the
1658-077X ª 2013 Production and hosting by Elsevier B.V. on behalf of King Saud University.
http://dx.doi.org/10.1016/j.jssas.2013.08.002
Please cite this article in press as: Elsheikh, O.E. et al., Economic impacts of changes in wheat’s import tariff on the Sudanese
economy. Journal of the Saudi Society of Agricultural Sciences (2013), http://dx.doi.org/10.1016/j.jssas.2013.08.002
2 O.E. Elsheikh et al.
demand, whereas wheat consumption is increasing over time. Encouraging innovation of conve-
nient and fast food industry using domestic traditional grains is recommended to curb wheat con-
sumption. Furthermore, wheat imports should be conditioned on availability of hard currency,
domestic production capacity, and food gap, while maintaining stable exchange rate that strikes
a balance between encouraging sorghum exports and wheat imports. This should be associated with
increased investment in stabilizing and increasing wheat production, and remedy the predicaments
facing agriculture.
ª 2013 Production and hosting by Elsevier B.V. on behalf of King Saud University.
Please cite this article in press as: Elsheikh, O.E. et al., Economic impacts of changes in wheat’s import tariff on the Sudanese
economy. Journal of the Saudi Society of Agricultural Sciences (2013), http://dx.doi.org/10.1016/j.jssas.2013.08.002
Economic impacts of changes in wheat’s import tariff on the Sudanese economy 3
government, and the rest of the world accounts. Thus, the The year 2004 was chosen as a base year because it is a ‘‘nor-
model provides a detailed description of the Sudanese econ- mal year’’ for the Sudanese economy, and that it is the most
omy, with special emphasis on agriculture. recent date with comprehensive data, specifically for capital
Different scenarios have been postulated and simulated. The formation. The term ‘‘normal year’’ refers to the fact that there
model has been implemented using a general algebraic model- was no drought or any other agricultural crisis, which fre-
ing system software. The Sudan’s Social Accounting Matrix quently occurs in the Sudan, and no peak periods of economic
(SAM), described in the next section, has been developed and cycle of boom, or recession during that year.
used as core data base. The SAM has been calibrated using elas- In this SAM, the activity and commodity accounts are
ticity values from the literature for estimating the shift and disaggregated into agriculture, industry and service accounts.
share parameters of the constant elasticity of substitution The agriculture account is further disaggregated into sesame,
(CES) and constant elasticity of transformation (CET) func- sorghum, cotton, wheat, and other-agriculture (mainly live-
tions. This validates the model by reproducing the simulated stock) accounts. This disaggregation is based on their relative
benchmark data set as equilibrium solution. economic importance.
The model is written as a set of simultaneous equations, The ‘‘factors of production’’ account is disaggregated into
many of which are nonlinear, without objective function (see ‘‘labor’’ and ‘‘capital’’ accounts. The ‘‘saving-investment’’
Appendix). The equations define the behavior of different account is disaggregated into ‘‘fixed capital formation’’ and
actors and include a set of constraints that should be satisfied ‘‘change in stocks’’ accounts. Lastly, taxes and tariffs are
by the system as a whole. These constraints cover markets (for disaggregated into ‘‘income tax’’, ‘‘activity tax’’ which refers
factors and commodities) and macroeconomic aggregates to indirect taxes on production, ‘‘import tariff’’, and ‘‘value
including the balances of saving-investment, government, added tax’’ accounts. The data sources are Central Bureau of
and current account of the rest of the world. The macro con- Statistics (2008), Central Bank of Sudan (2010), Sudan Cus-
straints (model closures) are specified as follows: in the factor toms Authority (2008), Ministry of Agriculture and Forestry,
market balance, all demand variables are flexible while the 2008, and Ministry of Finance and National Economy, 2006.
supply variables are fixed, whereas the factor wage is the equil- The input–output coefficient developed by Elbushra (2007)
ibrating variable. In the government balance, the government was used in building the aggregated SAM, while those at the
savings are flexible while all tax rates are fixed. Regarding agricultural sector’s disaggregated level have been developed
the current account balance, foreign savings are fixed and and validated based on ‘‘Best Educated Guess’’ (Table 2).
the real exchange rate is the equilibrating variable. For the
saving-investment balance, investment is fixed while saving is 5. Literature review
a flexible variable (investment-driven model).
The major blocks of the model include producers, factor The use of CGE modeling as a tool for assessing trade liberaliza-
markets, commodity markets, households, the government, tion policy is well documented in the literature. For the case of
and the rest of the world. Producers are assumed to maximize the Sudan, Elbushra (2007) has used a CGE model based on
profit subject to the level of technology. A general CES pro- SAM for the year 2000 to analyze the possible impacts of
duction function, rather than its special case of a Cobb–Doug- macroeconomic policy changes (import tariffs, activity tax and
las function, has been used because it does not impose any exchange rate), world price shocks, and the use of improved
prior restriction on the value of elasticity of substitution agricultural technology on the performance of the economy.
between factors, whereas the latter imposes a unitary value. The study also specified the optimal mix of liberalization policy
Producers earn their income from domestic sales and exports that could achieve higher economic performance.
reflecting the assumption of imperfect transformability between The study revealed that indirect tax reduction (import tariff
these uses. Allocation of output between these two markets is and activity tax) had improved the GDP, but at the cost of dete-
determined by the relative prices received in domestic and for- riorated balance of trade. Increasing the direct tax was
eign markets. The received income is allocated to purchases of recommended to compensate for the declining government
intermediate inputs and payments for production factors. For income. Depreciation of exchange rate had a better impact on
the domestic product markets, the demand side consists of the economy and agricultural sector than appreciation. On the
investment, private and government consumption, and interme- other hand, the negative effect of currency appreciation on the
diate input demands. The supplies come from domestic sale and economy can be reduced if it is associated with indirect tax reduc-
imports depending on their relative prices. Flexible prices clear tion and improved agricultural efficiency. Increased world prices
the market segments for products of domestic origin. of agricultural imports had a greater negative effect on the GDP
For the model’s consistency, most of the model’s parameters and a more positive effect on the balance of trade, than the in-
are set endogenously in a manner that assures the base solution crease in world prices of the industrial imports. In addition, in-
would exactly reproduce the values of SAM (calibration pro- creased world prices result in increasing agricultural exports.
cess). For the remaining parameters, elasticity values are set Improving the agricultural efficiency could lead to further positive
exogenously. The consistency of the model was checked by effect on macroeconomic policies and offset the negative effect of
equality of total savings and total investment at equilibrium, increased international prices. However, the study did not go fur-
and the balance of SAM before and after running the model. ther by disaggregating the agricultural sector by commodities.
The Sudan’s SAM for the year 2004 disaggregated for agricul- Impacts of changes in import tariff of wheat on the Sudanese
ture, has been developed and used as a core database (Table 1). economy have been simulated. The different scenarios are
Please cite this article in press as: Elsheikh, O.E. et al., Economic impacts of changes in wheat’s import tariff on the Sudanese
economy. Journal of the Saudi Society of Agricultural Sciences (2013), http://dx.doi.org/10.1016/j.jssas.2013.08.002
4 O.E. Elsheikh et al.
Table 1 Sudan disaggregate social accounting matrix for the year 2004 (SDG million).
Prod. factor Current acc. Capital acc. Agric. activity Aind Aser
Lab Cap Hh Gov S-I Dstk Asesa Asorg Acott Awhea Aother
Prod. factor Lab 88.9 140.2 23.7 20.2 3168.3 1656.4 12683.9
Cap 503.6 794.7 134.1 114.7 17957.8 8466.9 19502.4
Current acc. Hh 17780.5 41392.4 2669.7
Gov 6081.8
Capital acc. S-I 9737.0 1222.3
Dstk 1845.0
Agric. act. Asesa
Asorg
Acott
Awhea
Aother
Aind
Aser
Agric. comm Csesa 175.7 0.6 3.5 95.4 4.6 108.4 114.0
Csorg 471.1 1.6 9.3 135.3 25.9 21.7 681.6
Ccott 14.4 0.0 0.3 0.1 0.3 0.0 4.3 21.7
Cwhea 322.1 1.1 0.0 6.4 2.7 22.7 158.0 403.2
Cother 11064.7 697.9 105.5 1676.5 1839.0 3924.2 6099.2
Cind 4450.5 119.5 3635.9 68.3 6.4 1.4 1.4 2.7 259.4 2138.9 3383.8
Cser 35554.1 4916.2 7483.2 80.8 183.9 195.0 78.4 43.0 2246.2 4059.0 7444.1
Taxes and tariff Ytax 760.7
Atax 42.0 44.6 30.6 15.0 12.8 990.1 414.7
Tar
Vtax 34.0 34.0 9.8 8.3 192.1 159.9 289.6
Row 1.1 679.3
Total 17781.5 47474.2 62550.3 10308.2 13069.6 1845.0 954.2 1352.5 278.2 226.7 25701.5 21687.9 51038.3
Please cite this article in press as: Elsheikh, O.E. et al., Economic impacts of changes in wheat’s import tariff on the Sudanese
economy. Journal of the Saudi Society of Agricultural Sciences (2013), http://dx.doi.org/10.1016/j.jssas.2013.08.002
Economic impacts of changes in wheat’s import tariff on the Sudanese economy 5
Table 2 Technical coefficients of the Sudan IOT for the year 2004.
Sesame Sorghum Cotton Wheat Other agric. Industry Service
Sesame 0.1000 0.0034 0.0000 0.0000 0.0000 0.0050 0.0022
Sorghum 0.0000 0.1000 0.0000 0.0000 0.0010 0.0010 0.0134
Cotton 0.0000 0.0000 0.0010 0.0001 0.0000 0.0002 0.0004
Wheat 0.0000 0.0020 0.0000 0.1000 0.0000 0.0073 0.0079
Other agric. 0.0000 0.0000 0.0000 0.0000 0.0716 0.1809 0.1195
Industry 0.0067 0.0010 0.0049 0.0120 0.0101 0.2163 0.4149
Service 0.1927 0.1442 0.2818 0.1898 0.0874 0.4105 0.9128
Source: Authors’ compilation.
given in Table 3. Import tariff is one of trade barriers; there- commodities (Table 4). That may be attributed to limited
fore its reduction is expected to create better opportunities availability of foreign currency for imports.
for free trade between countries, but at the cost of reduced wel- The increased wheat imports could lower domestic prices,
fare of domestic producers of the grain. At the same time, im- resulting in a disincentive to produce wheat, and deviate re-
port tariff is a main source of government income, thus its sources for the production of cotton, sesame, industrial and
reduction will negatively affect government budget. A reduction services sectors; this would be reflected in their increased ex-
in wheat import tariff by 50% (partial liberalization) and 100% ports. On the other hand, the decrease in sorghum output
(full liberalization) is assessed in scenario a and b. In the year would result in a reduction of its consumption, associated with
2004, wheat import tariff was 3%, and the Sudan’s commission increased consumption of wheat as a substitute food grain, and
for joining the WTO envisaged raising it to 40% (a 1233% in- perhaps, increased sorghum exports (Table 4).
crease). It worth mentioning here that the Sudan is still negoti- The overall effect of reducing wheat import tariff is shown
ating to join the WTO; thus, not yet obliged to its rules and in the form of improvement of the GDP, balance of trade, and
regulations. Accordingly, simulations of increasing wheat im- investment; whereas private consumption depicted a drop due,
port tariff by 50%, 100% and 1200% are assessed in simulations mainly, to the reduction in imports and domestic output of
c, d and e. Scenario f is performed to measure by how much the other agricultural commodities that overweighed the positive
direct tax should be raised to compensate for government reve- impact of increased wheat (imports and) consumption.
nue loss of full liberalization of wheat import tariff. The envisaged policy of increasing import tariff on wheat
(scenario c, d, and e) would result in a negative impact on
the economy, especially the effects of raising the tariff from
7. Results and discussion 3% to 40%.
Please cite this article in press as: Elsheikh, O.E. et al., Economic impacts of changes in wheat’s import tariff on the Sudanese
economy. Journal of the Saudi Society of Agricultural Sciences (2013), http://dx.doi.org/10.1016/j.jssas.2013.08.002
6 O.E. Elsheikh et al.
wheat would result in a negative impact on the economy. The Organization Affairs, Khartoum, for their contribution and
results of the study conform to the relevant economic theories. valuable comments and information.
Domestic production of wheat falls short of satisfying the
local demand, and has shown a high variability over time. Pro- Appendix A. Mathematical model statement
duction variability is due to the high variability of both the har-
vested area and yield. In addition, wheat consumption has
The model equations are classified into four blocks: prices,
shown an upward trend over time. The convenient and fast
production and trade block, institutions block and system
food industry relies mainly on wheat, a matter that accelerated
constraint block.
the shifts of the diet away from traditional food grains and
items. Thus, encouraging innovation and development of con-
venient and fast food industry using the traditional food, which A.1. Price block
is produced domestically, is recommended to curb wheat
consumption. It is also recommended that the government
PMc ¼ pwmc ð1 þ tmc Þ EXR
supports investment in horizontal and vertical expansion of
irrigated agriculture for a stable production of wheat and other PEc ¼ pwmc ð1 tec Þ EXR
food cereals and products. In addition, it is of vital importance PXc ¼ ðPDSc QDc þ PEc QEc Þ=QXc
X
to remedy the various predicaments facing the agricultural PINTAa ¼ PQc icaca
sector, and remove the direct and indirect taxes on its inputs, X
CPI ¼ PQc cwtsc
output, and services. This is especially relevant because the pro-
cess of openness to international markets and integration of the
Sudanese economy in the global economy requires important A.2. Production and trade block
processes to enhance compatibility of the production and
distribution systems with the international standards.
a 1=qa a a
QAa ¼ aaa ðdaa QVAq
a
a þ ð1 da Þ QINTAqa Þ
a a
The research team would like to thank the Economic and Social r ¼ 1=1 þ qWFF WFDISTfa
X qma pma 1
Research Bureau for their financial and all other kinds of ¼ PVAa ð1 tmaa Þ QVAa dma a 1 ma
fa QFfa Þ dfa QFfa a QQc
support to the study. Our thanks also extend to the Agricultural f2F
Economics Department of the College of Food and Agricul- q q
q
q
tural Sciences at King Saud University, for providing the favor- ¼ aqc ðdqc QMp
c
c
þ ð1 dqc Þ QDC c Þ1=qc QMc QDc
q
ite environment and other facilities for gathering additional ¼ ðPDDc =PMc ðdqc =1
dqc ÞÞ1=1þpc QXc
data and making further analysis. Our profound gratitude is T qt t
also due to the Central Bureau of Statistics, Central Bank of ¼ atc ðdtc QEpc c þ ð1 dtc Þ QDC c Þ1=qc QEc QDc
the Sudan, and the Ministry of Finance and National Economy ¼ ðPEc =PDSc ð1 dtc =dtc ÞÞ1=pc 1
t
Please cite this article in press as: Elsheikh, O.E. et al., Economic impacts of changes in wheat’s import tariff on the Sudanese
economy. Journal of the Saudi Society of Agricultural Sciences (2013), http://dx.doi.org/10.1016/j.jssas.2013.08.002
Economic impacts of changes in wheat’s import tariff on the Sudanese economy 7
X ¼ 1=ð1 þ qÞ References
ta(A) rate of tax on producer gross output value QXACac quantity of output of commodity c from activity a
te(C) rate of tax on exports PMc import world price (domestic currency)
tf(F) rate of direct tax on factors TABS total nominal absorption
tm(C) rate of import tariff PQc composite commodity price
tq(C) rate of sales tax trnsfhgov transfers from domestic government institution
to household institution
tva(A) rate of value-added tax trnsfhrov transfers from domestic rest of the world
to household institution
EG government expenditures PVAa value-added price
QQc Quantity of exports WFF economy-wide factor wage
EHh consumption spending for household PXc aggregate producer price for commodity
QFfa quantity demanded of factor f from activity a YIFif transfer of income to domestic institution I from factor f
EXR exchange rate (LCU per unit of FCU) PXACac producer price of commodity c for activity a
QG government consumption demand for commodity YG government revenue
QHch Quantity consumed of commodity c by household h QAa quantity (level) of activity a
GSAV government savings YI income of domestic non-government institution
QINTac Quantity of commodity c as intermediate QDc quantity sold domestically of domestic output
input to activity a
QINVc Quantity of investment demand for commodity FSAV foreign savings (FCU)
MPSi marginal propensity to save for household TINSh direct tax rate for domestic institution i or factor f
QMc Quantity of imports of commodity WFDISTfa wage distortion factor for factor f in activity a
PAa Activity price (unit gross revenue) IADJ investment adjustment factor
QQc Quantity of goods supplied to domestic market pwmc world price of import (in hard currency)
(composite supply)
PDDc Demand price for commodity produced pwec world price of export (in hard currency)
and sold domestically
PDSc supply price for commodity produced QXACac quantity of output of commodity c from
and sold domestically activity a
QXc aggregated quantity of domestic output
Please cite this article in press as: Elsheikh, O.E. et al., Economic impacts of changes in wheat’s import tariff on the Sudanese
economy. Journal of the Saudi Society of Agricultural Sciences (2013), http://dx.doi.org/10.1016/j.jssas.2013.08.002
8 O.E. Elsheikh et al.
Ministry of Finance and National Economy, 2009. The Economic Sudan Customs Authority, 2008. Annual Reports (Various Issues).
Digest (Various Issues), General Administration of Macroeco- Sudan Customs Authority, Khartoum, Sudan, Unpublished Ph.D.
nomic Policies and Programs. Ministry of Finance and National thesis.
Economy, Khartoum, Sudan.
Please cite this article in press as: Elsheikh, O.E. et al., Economic impacts of changes in wheat’s import tariff on the Sudanese
economy. Journal of the Saudi Society of Agricultural Sciences (2013), http://dx.doi.org/10.1016/j.jssas.2013.08.002
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