Sarah Hassan Mohammed Serag The impact of the fluctuations in global markets for agricultural crops on the future of food security in Arab countries (An econometric study) Submitted by Sarah Hassan Mohammed Serag Under supervision of Prof. Ali Lotfy Professor of Economics Faculty of commerce at Ain Shams University Former prime minister Dr. Eman Hashem Lecturer of Economics

Research problem Arab countries are characterized by having a problem of food security, this is mainly due to the fact that they rely heavily on the imports of food. As a result, they are considered vulnerable to any international food crisis. On the other hand, global agricultural markets are characterized recently by severe and continuous price fluctuations due to different factors. Hence, any fluctuations in the international prices of agricultural food crops may affect the state of food security in Arab countries. Therefore, this research concentrates on measuring the impact of the fluctuations in the international prices of food on food security in Arab countries through two econometric models.

Research objectives Identifying different factors that contribute to fluctuations in the international prices of agricultural food commodities. Studying the main characteristics of the agricultural sector in Arab countries and its main challenges. Estimating the impact of the international prices of agricultural food commodities on food security in Arab countries. Identifying different policies and procedures that could be applied to face the fluctuations in the international prices of agricultural food commodities.

Research Hypotheses Arab countries are vulnerable to volatility in the international prices of agricultural food commodities. Volatility in the international prices of agricultural food commodities can negatively affect the state of food security in Arab countries. Arab countries are capable of facing volatility of the international prices of agricultural food commodities.

Agriculture and food security in Arab countries Research plan Part One An overview of the fluctuations in global markets of agricultural food crops Part Three The impact of international food price transmission on food security in Arab countries and suggested policies to face their fluctuations Part Two Agriculture and food security in Arab countries

An overview of global markets of main agricultural food crops Part One An overview of the fluctuations in global markets of agricultural food crops Chapter Two Main reasons behind the fluctuations in the international prices of major agricultural food crops Chapter One An overview of global markets of main agricultural food crops

Chapter One An overview of global markets for agricultural crops Chapter one of this part concentrates on main agricultural food crops. In 2011, about 82% of world’s per capita intake of calories is from vegetal products, and 45% of world’s per capita intake of calories is from cereals, and as a result of the inability to study all types of cereals, the researcher focused on the three mega crops of cereals; wheat, rice, and maize. In addition, the chapter focused on studying the market of these three crops, which include major producers, consumers, exporters, and importers. From the analysis of these markets, we can deduce that most of the producers and exporters of these three mega crops are the developed and the emerging countries, while the share of the developing countries is very small. Finally, the chapter provided an overview of the way prices of the agricultural crops are determined.

Chapter Two Main reasons behind the fluctuations in the international prices of major agricultural food crops Chapter two of part one is concentrating on the main reasons behind the fluctuations in the international prices of food crops; focusing on wheat, maize, and rice. Reasons mentioned in this chapter are the unconventional effects that affect prices, such as; the effect of climate change, the effect of biofuels, the concentration of world’s exports of major food crops, Export restrictions on world’s food crops, world’s aggressive food imports, the decline in world’s food reserves, the impact of futures trading, the role of emerging countries, and the lack of information on world’s food market. At the end of the chapter, the researcher gave an overview of the role of crude oil and fertilizers in affecting the international prices of food.

Agriculture and food security in Arab countries Part Two Agriculture and food security in Arab countries Chapter One Main agricultural characteristics of the Arab region Chapter two The problem of food security in Arab countries

Chapter One Main agricultural characteristics of the Arab region In order to clearly understand the problem of food security in Arab countries, chapter one concentrated on major agricultural characteristics of the Arab region, and the main problems that face the sector; such as, the scarcity of water resources, and the high dependency on external water resources. Agricultural labour force in Arab countries also faces many problems that lead to high migration rates. Furthermore, investment in the sector and the problems that are related to R and D are also a major concern. On the other hand, climate change has some negative effects on the agricultural sector in Arab countries; such as, the repetition of drought periods and the lack of rainfall.

Chapter two The problem of food security in Arab countries After presenting the problems of the agricultural sector in the Arab region, chapter two provides some indicators of food security in Arab countries. The evaluation of the problem of food security showed that the main problem is in the high dependency of Arab countries on the imports of food, which makes the region exposed to the fluctuations in the international prices of food. On the other hand, there are some factors that contribute to the problem of food security in the region; such as, the effect of the problems that face the agricultural sector, and the continuous growth in the number of population.

Part three The impact of international food price transmission on food security in Arab countries and suggested policies to face their fluctuations Chapter one Measuring the impact of the transmission of international prices of agricultural food crops on food security in Arab countries Chapter Two Suggested policies to face the fluctuations in the international prices of agricultural crops

Chapter one Measuring the impact of the transmission of international prices of agricultural food crops on food security in Arab countries In chapter one, the researcher applied two types of models; model one which measures the impact of the transmission of international food prices to the domestic prices. And model two which measures the impact of the domestic prices of cereals on consumers’ consumption of cereals. The researcher chose wheat, rice, and maize as the main types of cereals. The model was applied on 16 Arab countries and excluded Comoros, Libya, Bahrain, Qatar, the UAE, and North Sudan, due to the lack of data on domestic prices in these countries. As for model two, the researcher applied the model on only ten Arab countries due to the lack of data of other countries. The model was applied on Egypt, Jordan, Lebanon, Morocco, Palestine, Somalia, Syria, Yemen, Tunisia, and Algeria.

Chapter Two Suggested policies to face the fluctuations in the international prices of agricultural food crops In chapter two, the researcher suggested some policies to face the impact of international food price transmission on food security in Arab countries. Suggested policies were divided into types: Short run policies: These policies concentrate on procedures taken by countries to face the problem of high international food prices. In the light of other countries’ experiences, the researcher suggested applying some restrictions on the exports of cereals, reducing tariffs on the imports of cereals, launching national reserves of cereals, in addition to applying some social protection programs. However, these procedures can’t be applied for a long time as countries are in need of policies that help in reducing dependency on the imports of cereals.

Cont. Long run policies: These policies help in reducing dependency on the imports of cereals through enhancing the role of the agricultural sector in Arab countries. Policies such as management of natural resources, enhancing the role of agricultural labour force, building strategic national reserves, adapting to climate change phenomenon, policies of agricultural marketing, developing rural areas, developing the role of R and D, supporting farmers, in addition to enhancing agricultural investment are all policies that can help in reducing the dependency on the imports of cereals.

Results 1. According to our study, the first hypothesis is true. Arab countries are vulnerable to volatility in the international prices of agricultural food commodities. However, not all Arab countries have the same degree of vulnerability to volatility in the international prices of cereals. We can put these countries in groups according to the highest food price transmission as follows: Wheat: In the case of wheat, Egypt, Jordan, Palestine, Yemen, and Algeria are countries that have food price transmission that is higher than 0.50%. Rice: In this group we can find Djibouti, Egypt, Somalia and Tunisia. These countries have food price transmission that is higher than 0.50%. Maize: In the case of maize, Kuwait, Egypt, Jordan, Lebanon, Palestine, Somalia, and Yemen are countries that have food price transmission that is higher than 0.50%.

Results Despite the fact that most Arab countries are vulnerable to volatility in the international prices of cereals, some of them have high fiscal ability to face the fluctuations in the international prices of cereals: Countries with high price and quantity risk: This group includes countries that highly depend on the imports of cereals and have low fiscal ability to face the fluctuations in the international prices of food. Jordan, Lebanon, Djibouti, Yemen, Tunisia, and Morocco are in this group. Countries with high quantity risk and low price risk: This group includes oil exporter countries. These countries have the fiscal ability to face the fluctuations in the international prices of cereals, despite the fact that they are highly dependent on the imports of cereals. Bahrain, Qatar, Oman, Libya, UAE, Kuwait, Saudi Arabia, Iraq, and Algeria are in this group. Countries with low quantity risk and high price risk: In this group we can find Syria, Sudan, and Egypt. These countries are not highly dependent on cereals, but they don’t have the fiscal ability to face the fluctuations in the international prices of cereals.

Results 2. It turns out from our study that the second hypothesis is true. Volatility in the international prices of cereals may have a negative effect on the state of food security in some Arab countries. We can estimate the impact of food price transmission on the future of food security by building a scenario that is based on a change in the international prices of wheat, rice, and maize by 1%. It turns out from this scenario that the impact of food price transmission on food security may result in a decrease in the per capita intake of calories by 0.25% in some Arab countries such as Egypt and 1.19% in the case of Palestine. While in other countries the impact may be ineffective such as Yemen (0.005%). However this scenario is based on a change in the international prices of cereals by 1% only, while the increase in the international prices may sometimes reach more than 100%

Results 3. According to our study, the third hypothesis is true. Arab countries are capable of facing changes in the international prices of cereals as long as they follow some policies and procedures as follows: Short run policies: These policies are procedures that Arab countries can implement to face the fluctuations in the international prices of cereals on the short run. These procedures may include some export restrictions, elimination of tariffs on imports, and launching national reserves of cereals. Long run policies: These policies help in reducing dependency on the imports of cereals through enhancing the role of the agricultural sector in Arab countries. Policies such as management of natural resources, enhancing the role of agricultural labour force, building strategic national reserves, adapting to climate change phenomenon, are all policies that can help in reducing the dependency on the imports of cereals.

Recommendations The recommendations of our study will not differ from the necessary policies mentioned in the third result. Since Arab countries must follow some policies in the short run and the long run to face the fluctuations in the international prices of cereals. These policies are as follows: Short run policies: Policies in the short run are procedures that Arab countries can implement to protect themselves from the fluctuations in the international prices of cereals. In the light of other countries’ experiences, the researcher suggested applying some restrictions on the exports of cereals, reducing tariffs on the imports of cereals, launching national reserves of cereals, in addition to applying some social protection programs. However, these procedures can’t be applied for a long time as countries are in need of policies that help in reducing dependency on the imports of cereals.

Recommendations 2. Long run policies: These policies aim at reducing dependency on the imports of cereals through enhancing the role of the agricultural sector in Arab countries. Such policies may include management of natural resources, enhancing the role of agricultural labour force, building strategic national reserves, adapting to climate change phenomenon, policies of agricultural marketing, developing rural areas, developing the role of R and D, supporting farmers, in addition to enhancing agricultural investment are all policies that can help in reducing the dependency on the imports of cereals.

Recommendations 3. Cooperation of Arab countries in adopting a common agricultural strategy to enhance the role of the agricultural sector is crucial to face the problem of food security in the future. Without this cooperation, it will be difficult for Arab countries to face the fluctuations in the international prices of cereals and enhance the state of food security of the region.

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