Climate variability and agricultural policy in Morocco

Rabih Habib Karaky, Purdue University

Abstract

Interactions between climate variability, risk behavior and agricultural policies in Morocco are examined. The analysis employs a series of general equilibrium models that are linked together to account for risk. The model explicitly incorporates the main features of the economy, including regional differentiation of climatic zones based on rainfall, bimodal distribution of climatic outcomes, risk measured in terms of variability in activities' returns, agricultural rigidity in the short run, and long run adjustments driven by policy changes. Our results show that the effect of climate variability on cereal commodities has significant repercussions on agricultural GDP and overall output changes in the economy. Incorporated as technological shocks, a positive climatic outcome improves aggregate and households' welfare. The converse is observed under a drought realization. The impacts of a liberalization policy, which eliminates border barriers to trade on wheat, prove to be welfare enhancing in the aggregate, irrespective of the climatic base used. Poor households benefit from cheap food prices, while farm households suffer because of lower returns to land. The results also indicate that asset profile is key. Small farmers, who rely more on rural labor and livestock capital, and less on land, lose less and may actually gain following policy reform. This finding gains relatively more importance in the event of drought, as it suggests that the policy change would ease the negative impacts of drought by reallocating resources to less vulnerable activities. The benefits of liberalization spread into other sectors of the economy, generating additional employment and increasing total output. Results also indicate that small farmers benefit from liberalization, especially under drought, as they tend to shift from net sellers to net buyers. The study also examines the effects of eliminating the flour subsidy. We consider targeting but not slippage in the subsidy. The results suggest that unless some compensation measure is implemented such policy reform may negatively affect low income households. The net effects of wheat trade liberalization and elimination of the flour subsidy are favorable to poor households, suggesting the dominance of the tariff effect over the subsidy. Finally a combined wheat and livestock liberalization policy causes a decline in agricultural terms of trade and stimulates imports of both wheat and livestock commodities. The intersectoral linkages appear to be more important under this policy, as the benefits of liberalization expand to the urban sector increasing employment. However, the losses to farm households are aggravated as returns to both land and livestock capital decline. These results hold irrespective of the state of nature.

Degree

Ph.D.

Advisors

Arndt, Purdue University.

Subject Area

Agricultural economics

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