PB89-22M39

co; &3WORLD BANK I

£0MPARAn SrUDES

The Political Economy of Agricultural Pricing Policy

Trade, Exchange Rate,and Agricultural Pricing P'oliciesin Morocco

Hasan TuluyB. Lvnn Salinger

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SPRI,4GfID.O VA. 22161

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The Political .Fconomy of Agcultural Pricing Policy

Trade, Exchange Rate,and Agricultural Pricing Policdes

in Morocco

AI- t Hasan Tuluv

LB. ynn Salinger

WORLD BANKCOMPAIRATW SUIE IES

The World BankWashington, D.C.

1z; - -r~~ '; - ; -

The %terrtioal Bank for Rcorbinuctc-iankd Deek etI-r1 WORLD BANYZ1818H9xetN.W.Wa1ingto1. D.C 20433

Ail ights reervedManufactured n the United States of AnviuaFb,± prntng August 1989

P rld Bank ConTarative Studies art undeudmen to inrease the Bank's capacity to offL. sounda"i mevant po~icr rnendatim to its member countries Each series of studies, of which ThePc?ic Ecc;n-y of Agriultural Prcuig Pobcy is one, compises several erppical n iuticountryr of k , r fxs and dteir effecrt on the development of the countrs in whichth.ey were .mpiemented A sv-ntheis port art eon ea&i.e w.ill compare the findings of the stuidiesof -;diidual cotintries -o identify conunm patterns m the relation between pohic andoutrxe-thus to icease understanding cf developmriu and economc policy

. n sesii ne rV .*>e, -*->*--} -. z - O -'~ P d the direction of Anne O.Krue,er, Maurice S&"ft a.xd Alberto VaklIC-, was zudertaken to exaemme he -easons underlyvigprkicg policy, to quantify the svstenatic and extensive intervention of developing ountries in thepricing of agicultu-al commodit±es during i9O85 arid to u'nde-,stand the effects of such

,zv ^ .c. E<± "f- r W''~ ~rtvt> + stiies 'ses a coTImmO rith,1dolo)v 'O

measure the effect cf sectoral and ecoonivwie price inter. ention on agricultural r.innttPes andfood prnces, as well as ther effects an output, consumpptirn, trade, intersectoral transfers.goven.ment budgets, and incomie distribution. The poGtical and econom*c forces behind priceintervention are ana'yzed, as are the efforts at refor-,, of pricing policv and -ei' cnnsequ.nces.

The fins, interpretations, and conduci. -- mn this series are entirely those of the authors andshould nor be attributed in any Tanner to tdle World Bank, to its affiliated organizations, or tomembers of its Board of Executive Directors or the countries they represent

The mnaterial in this publication is copvnghted. Requests for peraission to reproduce portions ofit should be sent to Dirctor, Publications Department. at the address shown in the copyrightnotce above. The World Bank encourages disseminatn of its work and will normally givepe;irts3on prorptiy and, w hen Lhe reproduction is for noncommercial purposes, without askirnga lee Peimnsston to photocop, portonŽ,-For za s-rcx- ' 'SKt 't:f ihth .tifcati of

such use havitng been noade will be apprecated.The cc.ete 1-cdikst of World Bank Publicatorts is shown in the annual Index of Publications,

which contalrs an alphabetical title list and indexes of subjects, authors, and countnes and regions;it is of value principalhl to libraries and ins tutional purhasers The latest edition is available freeof charge from Publications Sales Unit, Departient F, The World Bank, 1818 H Street, NW.-V..Washign, D-C 20433, US.A., or from Publications, The World Bank. 66, amenue d'lhna, 75116Paris, France.

Hasan Tuluv is an econonist in the Countrv Operatioms Division of the World banK s Occienrtai& Central Africa Deparument. B. Lvnn Sal:igeris an economist with Associates for Iternation-lResources and Developmentin Sonerville, Massachusetts, .S.A.

Libraxy of Congress Cataloging-in-Publiation Data

Tuluy. Hasan. t952-Trade. exchange rate, and agricultur;l pricing pclic)es 1n Morocco

/ hasan Tuluy. B. L>nn Sal;nger.p. co. -- (Ttr Pc;'ttcal econ, .f agricultural pricing

pclicy)Include: bib1iographical references.isSN 0-.8213-1286-3i. AqriIcultural Dr1ces--Governtent policy---orocco.

2- ;Ariculture and state--forocco. 3. Fore¶gr exchangeastanlnstra:ion--Mo,O_c- 4. Morocco--Costercial policy.J. Salinger. S. Lynn. 1955- . II. Title. III. Series World Bankcomparative studies. Political econoay ef agrI-ultu-al pricingpol cy.HD212 1T85 1989338.1 '4tdc2O - 182

CIP

PIABSTRACT

Icroccc a North African country with a population of about 23

million, has had a dualistic agricultural sector during most of the 20th

century. One subsector is comprised of many small subaistence farm

that grow chiefly wheat and barley; the other subsector is made up of

large irrigated holdings that prod-ice fruits and vegetables for expo-t.

Like many of the other developing countries exacincd ir this

cozaRrative studies project, Morocco concentrated on building its

industrial capabilities in the years following independence in 1956.

That meant, in other words, that consumters generally benefited from

government intervention in agricultural prices. and that fara producers

in general suff.red the penalty of lower prices for their products. The

subsistence subsector, however, was peralized more heavily by

intervention than the export subsector.

By 1973, at Ohe timie of the first oil sn,.ck, Morocco's coastal

cities and new indistries were continu%ng to grow, and there was an

ongoing shift cf population from rural areas to the cities. A steep

rate of inflation, accompanied by political turmoil, then made it more

nr_-Ct2er than esr fer the gv- , ert r iyr-'>rne to .etr consumer

prices as low as possible. Morocco was able o subsidize consumer food

prices relatively painlessly at that time because of rising revenues

from its exporcs of phosphates. (The country has about three-fourths of

the world's phosphate reserves).

The year 1973 aiso marked the appearance of a moce positive

attitude toward agricultural producers. ftile t'ie farm sector's output

orices conci.-uej to be penalized by an overvalued e-.change rate (a form

of indirect intervention, some effort was made to counterbalance the

ezchange raLe's ill effects through direct intervention. High world

_ _

i'J -

| - - prices for inost c:cmodities, includin& farm products, had made food

self-sufficiency a more appealing goal.

In the early 1980s, as the worid suffered recession, Morocco's

export revenues declined. Subsidization of consumer food prices then

[ - became more difficult for the governrent. Although an initial attr=pt

F in 1981 to limit consumer subsidies by raising food prices resulted in

[- -^~ S _Z il1v broueht into

line with market realities. Morocco's farns aw their prices improve

iurther during E-e iir*t ;;a,; .r' t i ' .L-y ?Z : er-l

price penalty caused by the overvalued exchange rate had fallen to 8

percett, the lowest figure for the entire 1960-84 period.

This st-;dy also reparts on the effects of government

intervention in agricultural prices on such important variables as farm

production. food consumption, and exchange rete earnings.

V

TCh e rOF CONTE1T

Ch-apter PgPage

One OVERVIW OF THE MDROCCAN ECONCOY AND ITS AGRICULTURAL SECTOR 1

E s ~~~~Int roduction IPhysical Setting 4Population 5*The Economy 7Resource ConstraiLts and Uzs 12Land EHldings and Technology i4

Productiox, by Crop 16

Two POLITrCAL ECONOMIC HISTORY OF IYTERVENTIO) IN MOROCCAN AGRICULTURE 31

Summary of Economic Objectives and Policy Tools 35?re-Indevendence History of Morocc' 36Post-Independence: Dominance of Istiq'al (1956-1962) 41Stabilization/Expansion: Ailiance with the Rural Sector (19S3-1972) 45Phosphate Boom & Fiscal Crisis (1973-1981) 53Econr,.ic DeterioraticniStabilizatior and Structural Adjustment

19b1-pre...ent) 62

rhree MEASURES OF INTERVENTIONS IN .OROCCAN AGRICULTURE 57

Direct Price Intervention Effects 69Rates of Effective Protection and Comparative Advantage 71Indirect Price Intervention Effects 77Total Price Intervention Effects '9

Fou: EFFECTS OF IN?tRVENTIONS ON MOROCCAN AGRICULTURE 87

Effects on Agricultural Output 87Effects on Consumption 94Effects on Foreign Exchange 99Effects of Interventions on Government Budget 102Transfer of Resources between Agriculture

and the Rest of the Economy 109Bias in Government Investment and Expenditures 112

II

Five IMPLICATRONS OF ITERIV IONS STABILITY A1D GROWITHIN TEM AGRIB\ULTURAL SECTOP. 116

Stability in the Agricultural Sector 116Growth in zhe Agricultural Sector 132The Emergence of Unanticipated Ef'ects 133Implications for Political Stability 136

AMiex ChaptersPage.

FOREWORr: NOTE ON ')&TA AVAILABILITY 140

I. ESTIMATION OF THE RQUI-"IRI1Ef EXCHANGE RATE 142

II. ESTIMATION OF CEREALS PRICES 153F,

Domestic Prices: Producers 153Bordtr Price Equivalents: Producers i54D-mestic Prices: Consumers 164B3rcer Price Equivalents: Consumers 166

TIT. ESTIMATION OF SUrGA. PRICES 174

Domestic Prices: Producers 174Border Price Equivalents: Producers 175Domestic Prices: Consumers 181Border Price Equivalents: Consumers 182

IV. ESTIMATION OF ;S NON-AGkICULTURAL PRICE INDEX 185

t; SSTATISTICAL APPENDIX '87

VI. BIBLIOGRAPHY 203

Iv ii

LIST OF TABLES

Page

OVERVIEW OF THE MOROCCAN ECONOMY AND ITS AGRICULTURAL SECTOR1. Population Data 62. Composition of GDP 93. Share of Agriculture in GDP and Trade Sectors 10

4. Land Distribution in Morocco 155. Cereals Productioa 196. Cereals Trade in Mcrocco 227. Sugar Dee; - 268. Sugar TxarJrts in Korocco

POLITICAL ECONOMIC EISTORY OF INTERVENTIOI; iN MOROCCAN AGRICULTUEE9. Phases or overri.. e ar-tnt4z 34

10. Government Finance Data 4711. Official and Equilibrium Exchange Rates 5312. Phosphates as Percentage of Total Exports 5513. Self-Sufficiency Rates for Cereals and Sugar 6014. Real Prevailing Domestic Producer and Consumer Prices 61

MEASURES OF INTERVENTIONS IN MOROCCAN AGRICULTURE15. Effect -f Direct Price Interventions on Relative Prices 701S. Nominal and Effective Protection and Comparative Advantage of

Peincipal Crops 7517. Indirect Price laterver.._ .. ffec:s 781B. Effect of Total Price Interventions 8C

EFFECTS OF IT1R1VEIRTIONS ON )CROCCAN AGRICLTURE19. Short-run Price Elasticities of Supply 8820. Output Effects 91U., Comeensated Price Elasticities of Demand 97?2. Con7umotion Effects 9823. Total Foreign Exchange Savings or Costs 10124. Budgetary Effects of Pricing Policies: Revenues 10425. Budgetary Effects of Pricing Policies: Producer Subsidies 10626. Budgetary Effects of Pricing Policies: Consumer Subsidies 10l27. Summary Budgetary Effects of Pricing Policies 10928. Transfers to and out of Agric-ilture 11129. Covernment Investment and Expendir,,re Bias 114

IMPLICATIONS OF INTVENTIONS STABILITY AND GROWTH IN THE AGRICULTURALSECTOR30. Price Variability Analysis 1183. Per Capita Production & Consumption wit' PrevailinS Domestic Consumer

Price Ratio 12532. Correlation Ainalysis of Per Capita Production. Consumption. and

Imports and Prevailing Domestic Consumer Prices 130

' I

LIST OF TABLES, cont.

Page

ESTfI&TION OF THE EQUILIB1IUH EXCL6NGE RATEI.! Directien cf Moroccan Trade 143

1 2 ?urchasing Power Parity Excrange Rates 145

1.3 ,stimate of the Imnlcit Izwort Tariff Equivalent 149

1.4 Zquilibrium Exchange Rate 151

1.5 Sensitivity cf the -Equii.rziut= Exchange Rate to Elasticity

Assumptiors 1511.6 Si-ary of Dirham/US Dollar Exchange Rates 152

E-TIION OF CEREALS PRICESII 1 Producer Prices: Soft, Hard Wheat, and barley 154

71.2 Border Price Eauivaleats for Cereals: Sot 'Wheat at CE?. 1587 bor -er irice Eq,uva eats for Cerea_s: Soft Wheat at EER 159

II.4 Border Price Equivalents f or Cereals: :iard lWheat at OER 16C

II.5 Border Price Equivalents for Cereals: Hard Wnheat at EER 161-1.6 Border Price Eauivaleats for Cereals: Barley at O'-R 162

11.7 Border Price Equivalents for Cereals: Barley at EER 163T1.8 Consumer 'wholesale Pricer for Flour 166

11.9 Border Price Equivalents for Flour: Soft 'Wneat a; OER 168

11.10 Border Price Equivalents for Flour: Sof- 'Wheat at ¢ER 169

iI.l1 Border Price Equivalents for Flour: F.ard Wheat at OER 170

1I.12 3order Price Equivalents for Flour: ward Aheat at EER 171IT.13 Border Price Equivalents for F'our: Barle-r at COER

T . i4 Border Price Eauivalents for Flour: Barley at EER 173

EST14ATION OF SUGAR PRICESIIT.! Sugar Producer Prices 175

II.2 Bordet Price EquIvalents for Sugar Beet Prod-ucers at CER11.3 Border Price Ecui-valents for SugEr Beet Producers at _EE. 18C

111.4 Sugar Consumer Pric*'s l81

II1.5 Border Price Eauivalents for Sugar Conu y?er es ? r :°-

I11.6 Border Price Equivalents for S-ugar Consumer Prices at EER 8i

ESPIXATION OF 71E NON-AGRICULTURAL PRICE INDEXIV.: The Non-Agricultural Price Irdex P

[ :.

LIST OF TABLS, cont.

f

Page

STATISTICAL APPENDIXV. 1 Prevailing Domestic Prices and Price Ratios 188V.2 Prevailing Domestic Prices and Pr ce Ratios :indices) 189V.3 Relative Prices in the Absence of Direct Intervention 190V. Relative Prices in the Absence of Direct interwention %indices) i9iV.5 Indirect Price Intervention Effects (due to the Exchange Rate) 192V.6 Relative Prices in the Absence of All Intervention 193V.7 Relative Prices in the Absence ot All Intervention (inQ±ces) 194V.8 Calculation of Value-Added in Sugar Beet at Domestic Prices 195V'q Calculation of Value-Added in Sugar Beet at Border Prices 196V.:0 Total Effects of Interveaticn on Value-Added in Sugar 197V.i Tctai Consumption Effects 198v.12 Shcrt-run Foreign Exchange Savings 199V.'3 Long-rurn Foreign Exchange Savings 200V.'4 implicit Transfers To and Out of Agriculture 201'.:5 Cereals Production in Irrigated vs. Rainfed Areas 202

;

x

*_S T 1F -GUR2S

!axe

,r%anria-_o:. Or L-e G.ra_ns Sec:or inr. Mcocco 24

'rCan:za ;o. i-:.he Sugaz ec -zr _ ... O-3 2J

R.ates o Nominal. Protectior. - Soft .neaz -7

- _ard 'Wheat 82

- Barle7 33

- ~ugar:.vestment and Expendit-are 3ias

ilS

?roducer and Consumer Pr-ce 2atios - Soft 'o-at _9

- Hard -aheat

- Barley'

.er Capita Production ard Zcnsrnrtior.n - Sof- Wheat :25

- Hard Jh eaat 127

- Barlev :28

- Sugar ;

t~ - s .-, ,s = _ -

ii~~~~~~~~~~~~~~~~XLIST OF .CRONYMM AKr ABBREVbTSIOWS

APS Sugar Industry Association(Association Professionelle du Sucze)

CNCA National Agricultural Credit Bank(Caisse Nationale de Cr6dit Agricole)

CPI Const r price indexDD Customs duty

(Droit de Douane)Dh DirhamDEC Domestic resource cost coefficientEEC Eurotean Economic ComztmitvEER Equilibrium excaange rateEP& Effective protection rate

FDIC Constitutional Irstitutions Defense Front

ConstitutionellXs)FF French Franc

--I 5 GDP Gross domestic productHa HectareLSI Large-scale irrigationMARA Ministry of Agriculturo and. Agrarian

Reform(MinistOre de l'Agriculture et de laLWforme Agraire)

MCI Ministry of Trade and Industry;i*stEree c=2erce et ' d.st-leD

MF Moroccan FrancnML Metric TonsA.UV Manufacturer's Unit ValueN A Non-AgriculturalNIA Not AvailableNPR ;Nominal protection rateOCIB Cherifian Wheat Industry Office

(3ifice Cibrifzerin iterprofessione! desBles)

OCIC Cherifian Cereals Industry Office(Office Chdrifien interprofe,-sionel desC6rtales)

OER Official exchange rateONICL National Cereals and Pulses industry

Office(Office National Interprofessionel desCereales et do-s Lftumineuses)

ONTS National Tea and Sugar Office(Office Natioaal du Th6 et du Sucre)

ORMVA Regional Agricultural Development Office(Office Rftional de la Mise en ValeurAgricole)

ppp Purchasing power parity exchange rateQ' (Qx) quintal (Quintaux. Fr. plural)

QR Quantitative restrictionsxsI Small- and medium-scale irrigation

4F

Fr -; -i

i~~~~~~~~~~~~~~~~~~x.

LIST OF ACRONThS AND ABBREZIATIONS, cont.

TIC Domeestic consumption tax

(Taze int6rieure de con-;ommation)

TPS Goods and services tax

(Taxe sur les produits et services)

Z- ' TSI Special imports tax

- : (Taxe sp4ciale d'importation)

ii- UNFP N3tional Peoples' Forces Union

(Union Nationale des Forces Populaires)

WPI SW'olesale price index

5

I~~~~~~~~~~~~~~~~~~~~

r It OV IEW OF I= 1'aOCW -TCOHMM

AND VrS VGlCUL7ML SECtOl

:nt-oduct ion

The roots of the Kinqdom of Morxco's agricultural policies can be

tr&ced back to the protectorate period, iw.ich lasted froo 1912 to independence

in 1956. Economic patterns established by the ?rench. who controlled most ofc. t

the country. exerted a strong influence on che evolution of contemporary Horoccan

society. By 1930, French settlers owned million hectares of the bcst

agricultural land in the country (representirg about ?' percent of cultIvated

area today). where they established large-scale, modern. mostly irrigated farms

producing largely for markets in France Policies of this period laid the

foundation for a dualistic agricultural sector and an export orientlation towards

Franqe, both of which have persisted to the present.

More recent;y, cer:ta_ er.cgenous developments. including persistent

drought. t'e rapid rise in energy prices, the tightaning of Morocco's traditional

export markets, and the softening of the phosphate aarket. coupled with the added

fiscal burden engendered by military hostilities incuried since the tgcovery of

the "Saharan provinces. have led to a drastic g:ae. izzc nhe'rn-.-'s

i While colonial sovermnent under the French protectorate ended .n 1956,the Spanish protectorate in the northern part of the country lasted until 1959.Spain occupied the northern rim of Moror':o. including much of the Rif Mountains,excepting an international zone declared aro=nd tangier at the Straits *-fGibraltar. It also controlled all land 9'.uth of the Draa rivw -nto the SparnishSahara as far as Mauritania. Today, Spain continues to c=ntrol the CanaryIs.l nds. some 350 iciloeters off the c-ast of Morocco. and cvo enclaves alongMorocco's northern coast, Ceuta ard Melilla. The bulk o.f Morocco, however.especially its ag-iculturally us'ful land, was under the colonial rule of theFrench protectora.e, whose i=act will be focused on in this paper.1c

fundameutal economic accounts. 3ince 1984. agricultural eliV 7 in .Iorocco has

-ndergone s_4giiffcant zaanges as part of the government '3 :nedium-term sectoral

adjustmnwt reform program. (The program has been supported by two 4Aricultr.a1

Sector Adjustmenr. Loans from the 'Jorld 3ank totalling S375 million) . 4st

sigpi±ficantly. th* bia: against producers is being reduiced as the country ses

to rd a trade polhcy of ad valorem. tariffs iwith output price protection accorded

to prxducers of strategic courodities. 'n addition, rainfall has been generous.

resulting in impressive increases in agricultural output. An eval-tion or tce

effect of these latest developments on Moroccan agriculture, however, is beyond

the scope of the present study.

in the face of these economic constraints. the government of Morocco

has attewFted to accomplish a set of development goals while moderating among

cc uering political interests. Yet valitical and econdmic crises over the last

fifteem years have forced the government to miAke concessions to various interest

graUps. fteanwhile, political constra'.nts have prevented th& passage of

compreh*asiv reform-s which might improve agricultural productivity. This paper

traces the evolution of agricultural policy in re3ponse to these developments

over a twenty-five year period. frov 1960 to 1984. corresponding roughly to

!,Wrocco s past-inudepeadeLce pez4od.3-4

z For an analysis of macroeconomic aDd industrial sector policymanage ent. see 3rendan gorton. Economic Policy ReforA and Analysis: A CaseStudy of Morocco, World Bank, Economic Development Institute (forthcoming).

3 This reporz Armm heavily on: (1) Kingda of Morocco. ?fiaistry ofAgriculture and Agrarian Reform and Associates for Interr.ational Re-ources asdDevelon -nt (MARAIAIRD). La Pol_tique de Prix et dlncitatious ULans l SectourARricol.. (2 vols.) January 1986. and (2) World BmnkIE(PA2. Linitdof Morocco:Agricultural Prices and Incentives Study. (Z vols.). Report No. 60SA?-'OI. Hay15. 1986.

3

Four _omsodities are _he -^Ocus ai zhis andl7sis: sort wheat, hard

wheat. Darley, and sugar beets. Cereais occuoy a major role in :he Moroccan

agricultural economy. ^overing over 70 percent of cultivated land area. 5 Imports

of soft wheat and sugar have comprised ove-; 40 percent of agricultural import

value and alsst 10 percent of total import value over the Last tn years.

Along with edible oils thesa commodIties are considered by dhe governmnt to

be the most strategic. as evidenced by the degree of pricing policy intervention

vis-4-vis consumers: aizost three-quarters oi to%e tota.. C_ill ̂ jr*b4y .

(equal to 10 percent of government expenditures and Z percent of GDP in recent

years. according to the World Bani) has been spent on soft wtaeat flour and sugar.

Sugar beet is the raw material for an agro-industzial sector supported by an

elaborate range of government financial policies. 6

4 Though independence was gained from the French in 1956, data vereavailable to the authors only ts of 1960.

5 Barley covers 40 percent. hard wheat 23 percent. and soft wheat 10percent of cultivated land. ?olizies vwich focus on one cereal have an indirecteffect on the others through prod-ction substriution effects.

6 Cane is aiso grown in Morocco. though it is of liaited importance..he reader is advised that exclusion of export coamodities. oilseeds, pulses.and livestock mav bi s the analrsis in this Daoer. For ex mple. goverrmentintervention in does:ic and internatienal marketing of citrus and other f.aits.vegetables, and pulses may well have served to decrease actual agriculttralexport earniags from levels which vould have obtained in the abeence ofintervention. Second. vegetable oilseeds have been imported into Morocco tosatisfy demand tor feed cakes for the livestock sector. with the ensuing edibleails considered more as a by-product. despite the fact that Morocco does notappear to have a comparative advantage in oilseed crushing and vegetabl* oilrefining. The tomestic production of vegetable oilseeds has not been encouraged.Ln addition, the subsidy to consumers of vegetable oils has led to stagnationin donstic olive oil production. Third. the needs of the livestock sectoriateract on tihe input side with primary outputs and by-products from the cerealsand sugar subsectors. The effect of government policy in the livestock sectoron barley and sugar beet production and vic.-versa is of undetermined directionand sagnitude. The lack of compr-ehensive tsme-series data on these commodities.howver, precludes their considecation .a .his study.

S. 4I'The next section gives a brief description of the physical and

| eccKo ic setting of Morocco. This is followed bv a chronological discussion of

the economic and socio-political developments of the couztrx in Chapter 2.

Chapter 3 presents measures of the degree and direction of government pricing,

trade, and exchaage rate interventions in Moroccan agricu:ture. Chapter 4

analyses the effects of these interventions on agricultural output. cozsumption,

foreign exchange, and the gove .nment budget. The final chapter evaluates whetber

!avement policy objeCLiLve -w:z a =7 ished b- its interventior.. Data sources

and adjustmnts are discussed in detail in the annexes, with additional data

tables presented in itie statistica; aper.z'

Physical Setting

Horocco is located at the northwestern corner of Africa. A 3,50C

kilometer coastline on the Mediterranean Sea and the Atlantic Ocean bounds the

country on the north and west. while the eastern border is shared with Algeria

and Mauritania. The country covers 725.000 km2 , almost 40 percent of which is

in the Saharan region. A well-developed system of roads and railways links the

major p.oduction and consumption centers. Eight modern ports provide access to

international trade routes and rich fishing reserves.

Four mountain, ranges divide the country between a fertile

agricultural plain in the northwest and arid regions to the south and east.

Agriculture is largely confined to the plains bounded by the Atlas range running

south-northwest and the rocky and generallv arid Rif Mountains along the

*,diterranean coast. Herding is practiced extensively in regions which lack the

rainfall to support crops, while more intensive livestock production is

concentrated around urban consumption centers. In addition to considerable and

Idiverse agricultu-ral potential, the country contains the world's largest reserves

of high-grade phosphate.

j PePpulation

The 1982 national census estimated Morocco's total population at 20.4

million people, including a foreign cosponent o' near':y 62,000 (see Table 1).

Based on an annual growth rate of 2.6 percent.7 the 1987 population is thus

estimated at about 23 million. Nearly 60 percent of the population is under the

age of 21. nTe census also indicates tmat tae uroa p .atica gw by vr 6

percent and currently constitutes nearly 45 percent of the total population.

Urban concentrations are high, with nearly 25 percen-. oi the urban popwal.Iozn

residing in Casablanca (about 2.5 million inhabitants) and 50 percent in vine

other major metropolitan areas. In cor.trast, rural population growth rates have

averaged only 1.5 percent per a-,num over the same period, indicating a

considerable demographic shift from the rural sector to the major cities along

the coast.

Estimated by interpolation from the 1971 to the 1982 census.

TABLE 1: POPULATION ()?))

TOTALYEAR POPULATION URBAN SEARE RURAL SHARE

----------------------------------------------------------

19b0 11626 3411 29.3! 8215 70.7Z1961 11947 3516 29.46 8432 70.6Z

.. 1962 12277 3622 29.51 8748 70.4Z'1963 12616 3727 29.52 8865 70.351964 14965 3832 29.67 9082 70.OZ1967 13723 3937 29.6Z 9299 69.8Z1972 13637 4043 29.6Z 9515 69.8Z

1967 13958 9148 29.78 1732 69.7Z

1968 14287 4464 317.5 9791 68.571969 14624 4779 38.72 9851 67.8Z1976 17826i9 5095 34.07 9910 66.201971 15379 5410 35.2Z 9969 64.82

1972 15704 5600 35.7Z 10104 64 3Z1973 16309 5995 36.8Z 10314 63 .Z21974 16800 8204 41.53 10501 62.581978 17305 6619 38.2Z 10686 61.8Z1976 17826 6957 39.OZ 10869 61.OZ1977 18259 7310 49.8Z 11049 60.2Z1978 18906 8670 40.6Z 11236 59.401979 19470 804Q 41 31 11421 58-7Z1980 20050 8444 42 lZ 11606 57.9Z

1981 ~~210646 8SF5 42 9: '1791 57.1Z1962 20419 8730 42.8Z 11689 57.2Z

zS83 ~~20890 8914 Z11899 57.OZ19FA 21465 9323 43.4Z 12142 56.67

Annual Growth rates:1960-71 2-55Z 4.117 1.8371972-84 2-63Z 4.35Z 1.50!1960-84 2.667 4.742 i. ;5z:

Source: Moroccan Statistical Yearbook

Notes: Censuses were taken in 1960 and 1982. with a 10Zsample survey conducted in 1971. Figures inother years represent interpolations (extrapolations).

jF**I''-'t---E

7

In 1950 the aaricultur3l sector provided employment for an estimated

1.8 million person3 or about 62 percent ef the active labor force, while industry

and services provided 12 and 22 percent zespectively of total emploTAent. By

1971 the sha t of employme-nt in agricultu-e had decli=ed to about 55 percent and

by 1934 its share was about 40 perce-.t. Other sectors' snare in total wmplo7ment

grew correspondingly more rapidly, by 3.1 percent for services to 25 percent of

total employment and by 4.4 percent for industry to 16 percent of total

g g ~~empioyment.

Unemployment is a growing problem, especially in urban areas.

Official estimates in 1935 put formal unemployment at J2O percent or tn,.e labor

force of 6 million persons. In rural areas, declining agricultrral profitability

and seasonal und' ployment have exacerbated the flow of immigrants to the

cities. Emigration to the European Economic Community (EEC) and the Middle East

has beea a traditional response to relative labor market conditions. In addition

to alleviating unemplo7ment. wage remittances from :is scarce have traditionally

provided Merocco with important foreigr. exchangei; earnings. -Emigration

stabilized, hirwever, in the late 1970s in response to the recession in Europe.8

The Economy

Mro-cc-s eccomv has underg.one rapid changes since independence-

Growth of Gross Domestic Product (GDP, has fluctuated widely. It grew at nearly

5 percent per ann-z tn 1969 constant prices through 19731, then slowed to about

2-3 percent in the following decade (see Table 2). From 1982 to 1984, real GDP

grew at only 2.3 percent per annum and per capita incomes stagnated. Although

Morocco is classified as a middle-income country, with GDP per capita of about

3

1 8 See World Bank, Morocco: Basic Economic Report (2 vols.). Report No.

3289-_ OR, December 30. 1980.

I W

8

$5|40 (in 3985 dollars), ne S.35 zercent of the population (of which 23 percent

reside i,n the rural areas: . -sti.mated in 1984 to lie below the absolute

poverty level. 1 0

An important -- e of hvrcccz's economic development has been the

role of the public sector. Pablic consumption remained around 1Z percent of GDP

during the i960s while private consumption declined slightly from about 80

percent to 75 percent over the period. Both investment and domestic savings

increased somewhat as a percenLage< 0t S-. tIs- t±s-e. 1 Thne following

decade witnessed great changes in thzese basic balances. Public consumption

increased dramatically to as muca as Z perce. Lf o'Z? _. '9?. d - 9 ven

though private consumption declined from 77 p-rcent in 1960 to as low as 67

percent in 1977 and 1979, the excess demand of public consumpticn and investment

programs in the face of limited savings spilled over into th.e trade sector.

Imports grew significantly from 22 perce-it of GDP in 1970 to over 30 percent in

the 1975-84 period. while eXoorts remained a siied proportiorn of GDP.

9 World Bank, World Devrlopment Report 198' (Ne.e- Yoz'-: CxEord University

Press, 1987).

10 Little exists in the way of income distributior. oata on Horocco.

Household expenditure survey dats is available from a survey done in 1,70-71;data from the most recent 1934-85 expenditure survey was not available for thisstudy. This estimate is provided in World Bank, Morocco: Compensttory Programsfor Reducing Food Subsidies, Report No. 6172-MOR, April 1986. This reportassumes that the pattern of expenditure distribution in rural and urban areasremained constant from 1971 to 1984. though the distribution was already becomingmore skewed during the 1960s. The report defines 'absolute poverty levels' in1984 as Z376 Dh (current 1984) income per person in urban areas and 1533 Dh

(current 1984) income per person in rural areas.

11 In the early years o' indepeadence after 1956, while savings actually

exceeded investments there was no cc-nrcmitant increase in consumption. This wasdue to a large extent to the repatriatio., of capital by the departing colonialsettlers, precluding expenditure on domesti.c consumption.

I-

; 9

7AaLE 2. CWW077Z OF M

r M.. : a eeI7u AS SHAM OF ar. ......- .. ..............w io ill hi- h "; .t P'Q6O; hwa- x*t_ I.-Ota................ 5~;W-0br Ufi s Sh 1 Oh C. Co..

(111D)2419 tl" 7 1 2 24M 1ox 1II 1a 6 1 151 1213s 1:14 6s 1 318 2 2 91Iva J >4 2 LIA t ll a I" 21S i t 4w

1V" 1347 16 1I 79 L3. 20 18 I 'S1964 14161 la 1117 701 I= : 19 191 1aw 106r19S 1400 141 li0f 7Ta 12 171 191 iOl 181

1w 2515 lISW 1112 77 2C 2M# S3 % 121. 1703 1194 77 LW 25 18 1.8 is1-9 23479 1349 2 1W 781 228 19S 18 148 1

>~~~~~~~~~~~~~q Li iem a J l - r O 225 us As i

17n 2=1 10030 132) 781 I= 2 181 Lag 1811964 14S 144 36 $ 181 2 4 18 191 105 I01971 : 1 30n La" 73s 18 22 15 1 VS l1o1174 32.20 1IM gm L's 2e 1 206 205

e~~~~~~~~~~~~~17 362 219 A " lag 33 29 in

a.A27211 1530 gm 2 371 log 208 1C619n 4mi 20634 1.57 67n Zs 375 V1's 33 181

'9" ssiu MM isa15an 215 3016 141 381

1979 $2007 300 68 218 295 i7.2. i1981 76M 31712 3 r6 715 225 3" 21 22s 75

1942 9046 337 3465 69 201 321 20S1 2:S :1

1914 104T 35441 l11 lm 181 36 2 M_

1960-4 4- 21974-3d 4.1.S9 1. an

As suggested above in the discussion of 1>i^..r _cositioz. the structure

~ of the ecoiy ;i shifted increasingly towards nanufacturing While the share

of agriculture over the last twenty years has 3o:1-.iet gs_al tren.ds fcL

middle-income countries. As shawn in Table 3, agrizu, ture's contribution t-,

value added has fallen, as have its relative shares in imports and exports.

This is due as much to a deceleration of growth in the agricultural sector as

to the expansion of other sectors.

..

I=___

TF J.E 3: S O At2CLI.M 34 A TRAC SE0TO (.i I i;- -,t oh)

ACICLAE APC. ACRIC- StICTWAL SEM aM=* C- * ,f AMC, %-. of

tA or a-_ * o fMr ZPW15 D 9 J5 o9t I OeTS OVST t-I x

196 l 10 : 415 S3 2C67 631 30.2 175 72 54.2lSlis xz 1 2S 2!.55 2 2_ 769 .1. t '32 56 1.0516 1c3 2 20:=. 2151 74 36.66 163 ffl 53.951'm 137 316 2.53 2243 714 31.6 165 1l3ZS 57.4419" 141" 61 1 23.75 2 9M a 2 SW 216 1219 Ss.6a196 140 34 20.42 2291 990 43.21 2176 1190 54.751 14f56 306 21.35 2410 "9 77.75 21" 135 56S1516? L54IS 3161 21.11 2635 722 77.65 2144 1203 56. is1966 16s W121 22.44 279 651 23.35 2275 1.33 57.25

A. live 1*99 3162 190.3 276 456 16.1 i 2456 1= So-.Sl ,1979 2 9 19.. 34 . 640 16.45 2479 1414 57.35167 200 4'11 21.95 3633 Ws0 22-1. 2526 1.3S 53.86r172 234 4462 21.73 W7 730 20.4S 2 63 55. Su.,972 255 30 2D.16 £" 1271 27.21% 3745 21M 56.7W

!z1974 3340 W 2D,.7 62 72 am 27.6O 7440 2020 27.2S17 364' X. 6S17 17.9S 1094 7015 29.0i 6236 16" 27.25I7M 4236 61 2.35 1. 226 19.4a ES" 37.351977 49761 5255 16.4S 14413 2 - 63 16.4S i i 0 1922 l 3.051o7 25u154 1*466 38.9S 1221 2365 19.1 S61 2m 35.

r 197 62043 MIS 17.1 14= 267S lS.-I 7622 21W 32.8s11W 70261 127)1 iS. 13 167m 324 19. 4S 9645 2 31.0519- 737.7 :1422 14. 22455 5:15 22 .7 120C32 377 2861S

-.- _ _ A . 4X . W '944 t4' 7'6 561,3 946 141.30 17.0% 2189 4440 I7 35 14724 406 77.e5s1964 10460 1754? 16.75 34396 69 20 2 5 9 19110 4743 24.619S 11e 21996 18.45 367s 66: 17.2D 21740 0Osq 27 95

An added element in the recent evolution of the secter has been the

Widening of the food production gap and its consequences for the agricultural

trade baiance. Food production in recent years has not kept pace with demand

which has increased due to rapid population groweth, income growth. urbanization,

and. declini.g real food prices res !.'ing fr:-s governm.ent market interventions

for the benefit of urban consumers. This has resulted in a food gap

necessitating substantial increases in food imports. As for exports, in the

1960s the agricultural sector contributed over 50 percent of total export

earnings, but ti.o shlate of agrict_.irai expo_ts. aI_ _' .._., f:e7:.

vegetables. processed produce. and canned fish. in total exports declined at a

rate of 4 percent per annum over the entire period of study. 1960 to 1984. In

contrist, manufacturing's share of exports grew at an annual rate of 6.8 percent

over the same period. As a result, the overall share of agricultural exports

in total exports daclined to 28 percent in 1984.

" Aj___ _*_-

~~~~~~~~~~~~~~~~~~~~~~~F11 1

Anotaer major sector in the economy ic industry, which accounts for

nearly 18 percent of GDP. The key subsectors in industry are food processing

(nearly 44 percent), textile production (16 percent) ana chemical industries (8

percent). Small- and medium-scale enterprises ezploying under 50 persons

dominate an important handicrafts sector which contributed about oae-tb'rd of

manufacturing value-added in the 1970s. The mining sector is critical to the

Moroccan economy as a major source of public revenue. In the early 1980s _t

accounted for almost 3 percent of GDP but 30 percent of export earp.Lngs.

Phosphate rock is the most important of a broad range of minera. resources that

include iron cre. manganese, lead ore, zinc, cobalt and copper. With about

three-quarters of the world's proven reserves. Morocco is the world's largest

exporter of phosphates. Morocco has minimal energy resources and is heavil)

dep ,dent on crude oil imports, which are refinel domestically. to meet its

energy requirements. Production of local energy is based on hydro-electric power

and coal but covers -iy 20 percent of total consumption. Energy production

accounts for four psrcent of GDP.

Although it is too early to make a definitive statement. it appears

that Morocco's economy improved as the 1980s progressed. GDP grew 4.8 peLcent

in 1983, whereas it grew by only 2.2 per-er.t in 1983 and 1984. Furchermore,

exports increased in volume, value, and diversity. Imports, however, continued

to rise, and the full price adjustments su'asequent to devaluation were not passed

on to consumers. Taxation of agricultural p-oducers eased in 1984. The

government's medium-term sectoral adjustment reform program has led to

significant changes in Moroccan government agricultural policy, reducing the bias

against agricultural producers. Moreover, good rains returned. ieading to

impressive cereals harvests in 1985, 1986, and 1988.

i

F .- Iv]B

12

Resource Constraints and Use

Vater ia the main constraint facing Horo~.can agriculture. Rainfall

varies annually by as much as 35-80 percent, leading to large fluctuations in

agricultural output. 1 2 Average annual rainfall declines and vari&bility

increases as one moves from north to south and west to east. In the absence of

irrigation, crop varieties and the length of the growing season can be severely

limited. Yet Morocco is endowed with he most extensive river system in North

F Africa, providing inter alia water resources to the country's nodern irrigation

systems which cover nearly 10 percent of the total cultivated area.

The estimated amount of water available for aericulture is 9 billicn

cubic metvrs, allowing for a potential of 1.2 - 1.4 million. hectares, or 7

percent of total arable land, to be irrigated. At present, areas under

irrigated cultivation cover about 760,000 hectares, or 60 percent of

12 For example, cereals producticn can vary by as much as 60 percentfrom the long-term average as a result of rainfall variability-

CerealsProduct".on Years in whichas a (2) of each Respective Level

-- o-------- ------- ------ ------------- ------

40 - 50 196151 - 60 1966. 198161 - 70

71 - 80 1973. 197781 - 90 1967. 198391 - 100 1964, 1965, 1975. 1984101 - 110 1962, 1963, 1969, 1970, 1979111 - 120 1974, 1978, 1980121 - 13C 1972, 1982131 - 1i0 1971141 - 150 1976

> 150 1968---------------------------------------------

potent&al. 3 38 percent of the total irrigsted land surface is cultivated in

cereals, 11 percent in sugar beet, 7 percent in sugar cane and cotton, 9 percent

in vegetables, 14 percent in forage crops and 16 percent in fruit trees. Large

scale, modern irrigation syatems (LSI), which are located in the large plains

i and valleys northwest of the Atlas Mountains, provide water to slightly more

than half of the total irrigated surface area. LSI area it nazauge-i by a number

of Regional Agricuiltural Develojmnt Offices (Offices RKgionaux de la Rise en

Valeur Agricole, ORMVA), whose mandate is to oversee technical and agronomic

manaigement of the perimeters. As such, the ORMVA determine cropping patternsIF which theoretically vast be followed by farmers ir order to receive water and

other inputs.

Moroccan soils are generally shallow, susceptible to vater and wind

erosion and poor in nutritive elements. Only aolout 10-15 percent of the total

land area o- over 70 million hectares is considered to have potential

agricultural value. There are approximately 7 5 million bectares of arable

cropland in Morocco, ot which nearly 5.5 million are cult4-ated. Ra-fed

agriculture occupies approximately 3.8 million hectares, waith an additisnal 0.9

million hectares of fallow, while irrigated agriculture accounts for nearly 0.8

million hectares. Pasture lands are estimated at 1.8 million hectares and

expansion of crop agriculture is said to be mailaly at ,he expense of pasture.

Forests (5 million hectares) and grazing lands (11 millioc hectares) accoiunt for

13 Of this total, 400-450.000 hectares are under *large-scale irrigation'(LSI). The remaining estimated 303,000 hectarL are cultivated with 'small- andmedium-scale irrigation' (SMSI). The ertent if actual SMSI and its potentialis not well known. Cultivation practices range from small (circa 100 hectaresor less), seasonal, traditional flood recession polders to medium (about 500hectares or greater) perimeters with forage-well sprinkler irrigation systems.

1*

a

anotb*r quarter of the total land area vhile two-thirds of the country is deemed

agriculturally ansuitable desert and mountainous terrain.

The cultivated land falls into several zones based on the awount and

variability of rainfall and on differences in soil fertility. The zone which

receives less than 200 millimeters (mm) of rain per rear (bour d4favorable) can

only support minimal agriculteral production without irrigation. It accounts

for about one-quarter of the agriculturally useful land area and is dominated

by migratory grazing along with olive, date palm. and oilseed produc:tion. In

the area which receives 200-300 mm of rainfall per annum, barley and broad bean

cultivation, along with pastoral practices dcaminate. Areas which receive

300-400 mm of rainfall per annu are classified as semi-arid (bour intgrmediare)

-- again accountin.g for about one-quarter of total agricultural land -- and are

doominated by barley and hard wheat production. Areas receiving 400-600 mm of

rain ver annm comprise the most favorable zones for rtinfed agricalture (bour

favorable). These zones. repr'senting about 35 percent of total agricultural

land area, are concentrated in the norttwest, where the pr:ncpaI crops are s3ft

wheat. maize. sugar beet. zitrus and vegetables.

Land Holdings and Technology

According to the data available from the most recent agricultural

cez.us ,1,3-7 '. three-quarters of the cultivated land ih norocco is privately

owned. Of this, nearly 85 Sercent is said to be owner cultivated vJhile the

remainder is cultivated through sharecropping arrangements. This figure has,

however, been disputed as being a significant underestimate of sharecropping in

the country. Furthermore. in view of the increased pressures on land, and the

traditional inheritance Laws, it is likely that sharecropping has increased in

the past decade. rCollectively owned land,* about 14 percent of total cultivated

I _.

15

land, refers to tracts owned jointly by the tribal coa unity, and used

principally as grazing grounds- Crown lands account for about 6 percent of total

cultivated land. while land deeded to religious foundations for revenue

geaoration accounts for about 5.5 percent.

The distribution of land holdings in Morocco is highly uneven. At

the time of the 1973-74 agricultural census. 2.3 percent of the farmers did not

owG any land, but vorked as tenants an plots owned by absentee lLndlords.

Another 57 percent of 4brocco's farmers had land holdings of five hectares or

less. amounting to about 25 percent of the agricultural land. In contrast, 10

percent of the land is owned by 0.1 percent of the farm population in average

holdings of 250 hectares. Furthermore, land holdings are highly fragmented.

vith 1.9 m.llion farms divided into 11.6 million parcels which average 0.54

hectares. The unevenness of the distribution of land holdings and the severe

fragmentation of the holdings has important effects on the choice of and access

to agricultural technology. Average land holdings tend to be slightly larger

and less fragmented in irrigated zones, where agrarian r2form has been heavily

promoted by the ORMv".

TA3LE 4: LAN DISTRITL3M DI MM0CCO

...... l. Al Types of Oseisbhip ...... ods ..Pri v .FARM STE Mmbpe of F-r. ......- ... A... tub. of Foum.(bectak..) ('O0) (X) ('oo ha) (3) (o000) (5)

0 4S0 23.3 0 .00 - C 1w0 56.C 1776 24.5 C27 74.7C- AG 220 1:.4 1O5 20.3 179 14.4

10 - 20 114 5.9 1i53 21.1 95 7.720 - s0 44 2.3 128 16.3 2 2.AsO -100 I .4 Si$ 7.1 6 .5

100. 3 1 70 9.7 2 .2

TOTAL 192 100.0 7250 100.0 1241 lOC.0

Soure: Ayric.ltemn Cans., 1971-74

I4~~~~~~~~_ &; _

* io

Production technologies vary along two broad spectra of water source

and farm size. In general, _mall farms in rainfed areas use animal traction and

little or no modern inputs. Small tarms in bigh-rainfed and irrigated zones make

limited use of high-yielding seed varieties and fertilizer in conjunction with

animal traction. while large farmz in the high rainfed and irrigated zones

practice mechanized cultivation and harvesting along with extensive use of

selected seeds and fertilizers. 45-S0 percent of total fertilizet consumption

is concentrated in the irrigated subseccor, 35-40 percent in the high rainfall

zones, and 15-20 percent in the low and medium rainfed zones. In fa-ms of less

than 5 hectares. only 16 percent of the surfaces are fertilized, whereas in

farms of 50-100 hectares. 64 percent of the surface area -.s fertilized.1 4

In sum, Morocco is endowed with a wealth of natural resources, access

to which .s morkedly skewed. T.S tgh agriculture contributes less than 20 percent

to GDP, it still provides employment to as much as 40 percent of the population.

Hosmver, earnings in the rural sector have presumably declined relative to those

in tile urban sec,or and atroaid. causing a demographic sh-.ft in favor of the

latter. Arresting this trend is a major concern ef the Hcro-can 'overnment

today.

Production by Crop

The basic commodities that are analyzed in this torking paper are

the three main cereals -- berley, soft and hard wheat -- and sugar beets. Barley

is the traditionai domestically grown. food crop. It covers half of' the

cultivated cereals acreage and accounts for 40-50 percent of total grains

production, acting as a stock adjustment cereal as it moves in and out of human

14 For a more detailed discussion see World I-qnk/EHPA2. Memorandum on

Fertilizer Demand and Prici_ng, Report No. 4526-MOR, June 1983.

17

food or animal feed supply, depenading upon the climatic circumstances. After

a drought iheL cereals production ir down, herd size is diminished &ad more

barley is ava*lable for humn consum;tion. In good years, howver *when there

is an abundance of all grains, humaz consumption shifts to the preferred graxn,

wheat, leaving added qumntitits of barley to the livest-ck sector. Since the

j+ X 1960s 3o barley has been exported, even in surplus years. and imports have Lben

g | sporadic. It can thus represent the 'tradable but non-traded £ood grain.'

v heset ii lncll 4d... for i*wcral reasons. Soft wheat is the product

which benefits from government intervencion in both trade and pricing policies.

t =~~t -was 7tcC-lna -Ws,' -,v -: - -v -A__O -^t**-~ -> e- t te -the

Frenca metropolis and has since independence been consumed mainly by the urban

population. D-spLe rapid increases in soft wheat production in recent years.

imports continue to pzovide two-thirds of total soft wheat requirements. Thus

it is the principal 'traded food crop.' Soft wheat competes most with hard

wheat, which is traditionally the preferred grain, both by producers for its

reputed hardiness and by consumers for its taste.

Sugar beet is the predominant sugar crop. The crop was introduced

in 1963 as an import suostitution crop and output has expanded rapidly since

then. It is included for analysis here because it is the primary beneficiary

o~f most of the government interventions in the agricultural sector: output price

support, input subsidies. services and investment resources. Sugar alone is

estimated to benefit from one-thire of the fertilizer subsidies, and about 10-

15 percent of the irrigation investments.

Cereals

Traditional agriculture in Korocco is based on cultivation of cereals

and pulses. Of the nearly 5.5 million hectares cultivated annuaily, over

., I - . ., , , ,_, * ',~-.- _._

F!three-fourths are cultivated to cereals. The principal cereials -- barley, hard

and soft wheat (and to a lesser extent mize. sorghus, and other feed grains)

-- xe grown in all agriculturally tseful regions. yet five provinces

jalone (Rabar-tiltra, Fes-Meknes, Marrakech, Settat and Safi) represent

two-thirds of national grain output. In recent years soft Wheat output has

increased sign-ificantly. rhough soft wheat is reputedly more sens4tive to

drought t'han hard wheat, the largest expansion of soft wheat over the past decade

___-s 4n 4sSt taken olace principally in irrigated areas and in the higher rainfall

regions. The cultivation of vheats predominates in the regions of Rabat-Kknitra

- r!et' cultivation is conc-ntrated near Marrakech. Cereals

are typicaily grown in rotations or associations with other crops, such as

pulses, under rainfed conditions. Average yields remain low: about 1.0

tonlhectare for the wheats and 0.6 ton/hectare for barley (see Table 5),i5

15 Irrigation is not widely practiced for cereals. About 15 percent ofsoft wheat acreage &ad less than 6 percent of hard wheat aund barley area iscultivated under irrigated conditions. Th2 area under irrigation produces about35 percent of total soft wheat output, 9 percent of total hard wheat output, and5 percent of total barley output. Yields are tvice as high under irrigatedconditions as under rainfed conditions. See annex Table V.15 for cerealsproduction data (1976 through 1984) disaggregated between irrigated and rainfedcultivation.

19

T4f 5: S PXTZ.4

........ .4 0 ...... . . ......

VW WNW W EST EAT WEAT W__AT

Ion IM@ SiC 1m .4 -.0 2 21 s199 '1 4= 12 1S 0'0 .O6 1. 1.25 12S" 407 16ion 131 92 .A .90 M125 401 a1mIs" 1 14S 410 l99 .As .As .F; iD - le0

. l, S~~463, 495, 1 a9 .5 .so -p ~ sI".1 14X 490 :3 .90 .3 .34 a 290 7Z'9a LS*" 472 -3 T .71 .72 3173 1*28MM _ 4l S 2120 1.3* 1i. 1.92 19S 900 mo197 143* 484 =3* .n6 87 1.00 LIM m 20

-~~~~~~~~~~9 IA 0 " 28 _S I.C 1 42 am 19tSi 1v1 ISS~~~~~L7 1f v 1.00 1.41 121 UZ42 5^ 2Ws

i'~~~~~~~~~~q LS 46 1WS 1.09 l.OJ 1.25 in SW slS73 1<" f$2 mu$ - .70 .Q2 L SW 22 1tS1974 Li" an 1973 .* .* 1.21 law 47Ss 23ltSoftw at is te oy gi wc .is 1a2e 1 LM u ai

r .~~~~~~~~~~q 14 4 - 2117 1.;Z4 l .2 SS .# 14W 5By 2Cereals and Pues Office (Offie Nati In rosS_ e 7lawsetlem iJess 4ON 2 1.t 1 of6 fi Fa er is puran a

ans a r 4s0 ol 1pi 2 l.CO .r7 mar eO 1aprod r at local wekl 1.m e 1(souks r blf*tIo ons pio 2pn .Th pre tg7 of 2ae ot

> ~~~~~~~~~~lowQ llO7 gmt 2047 i.27 1.3t 1.14 1406 m" ,=estima ted. gm n S .bt perct o t 732 U2 poffi l colle n pns ad s12o l a the71 oe s a

73~~~~~~~~~~~~~~~b W4" htf ;~lS-;C. S;"- ;. Sept...,o 0t t w.eues r_- t s;^_ Vr ~~~h-9%A.0t dof V-"t. Tl, *l96;' -f# %o

s ;- of 194-1.

In 'Horoccco, there are twob distinct marketing channels for cereals.

Soft wheat is the only grain which is marketed predominantly through the National

Cereals and Pulses Office (Office National Interprofessionel des C ereales et

Legumineuses, ONICL), the official cereals purchasing agency. i-re other three

grains are sold prim.&L-il .a Arnalei marke2t. Gran-s are usually scid by

producer,; at local weekly markets (souks) where they are bulked for transhipment

to consumption points. The percentage of pmarketed surplus9 ou6 of total cereals

production is not known. although H-inistry of Agriculture sources suggest that

nearly 60 percent of output is consumed on-farm, a figuze which m^y be over-

estimated. Only about 1S percent of total cereals production is brought to

official collection points aLnd sold at the official producer price (see annex

Table 11.1 for actual figures). although this masks substantial variation among

crops. About half of total. soft vhest pro¢-,ction is sold to Oh-ICL, wkF-reas a

far smaller proportion of hard wheat (11 percent. from 1960 to 1984; S perzent.

l ''

20

fr; 1974 to 1984) and barley (4 percent, 1960 to 1984) production is captured

by the official market.

These sales vary significantly from year to year as a function of

the s'ze of the harvest and the ensuing relative prices on the official and

parallel markets. In 1981. for exa=le. when total cereal production was only

46 percent of the previous year's levels, only 17 percent of total soft wheat

production and negligible amounts of hard wheat, and barley weze sold to ONICL. 1 6

Official producer prices for cereals are set annually at the

beginning of the planting season by an Intermlaisterial Pricing Coamittee,

cm-1---ed b the wtnistrv of Economic Afftirs. 1 7 Prices are set on a cost-plus

! ~~~~basi4^; and are pan-territorial. Soft vheat producer prices are guaranteed and

_obligatory (prix tax, while prices for hard wheat and barlen are m1nimum

r~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~oesupport prices (prix de so-utien). All prices are set according to grair. quality.

f 2~~~~hey are paid to producers at primary collection points. and therefore also cover

the farmer's cost of transport between the farmgate and collection center.

16 One would expect that farmers had shifted to the parallel market tocapture higher prices. Yet annex Table II.1 indicates that the average parallelmarket price of soft wheat was only 111 DhIql in 1981. compared with an officialprice of 135 vaqi. onre possib2e -tr.^no this seeminglv aberrantphenomenor. ie that in times of fiscal distress the official purchasing agencymay be leis able to defend its purchase price, resulting in fraudulent marketingpractices in the official rarket vis-k-vis farmers. In such a case, the priceactually offered i- the rzflcial market may be less favorable than the parallelmarket price, adjustmercs made for transportation.

17 Prices are set on the basis of proposals made by the technical

ministries, parastatals, and industry representatives. Consuter interests arerepresented by the Ministry of the Interior and producers by the Ministry ofAgriculture and Agrarian Reform (MARA), while the final arbitrage involves theMinistry of Finance to insure that the agreed prices do not strain theGovernment's budget. 'Where agricultural commodities are inputs into agro-industry. such as sugar beet and cane and vegetable oilseeds. the Ministry ofTrade and Industry is also involved in the deliberations of the committee.

l *, ~- - , -

I / _ , ...................................,., _--r-

. ~~~~~~~~~~~~ii

Only officially recognized traders and state cooperatives are

authorized to procure, store, and transport soft wheat on behA I of ONICL.

I Millers, for instance, may not buy soft wheat directly from farmrs or In rural

E markets. Once procured and stored, ONICL pays officiai storage margino for tie

cost of storing soft wheat. Disposal from the storage point is also administered

by ONICL, which issues purchase authorizations to specific mills according to

planned allocation levels.

MIorocco was actually a net exporter of cereals during three seasons

in the 1960s (see Table 6). Since the late 1960s. Morocco has become a large

net importer of food grains, especia'ly of soft vheat. From 1960 to 1973,

domestic production of all four cereals provided 88 percent of total grains

availability. From 1974 to 1984, only 68 percent of total a-vailability was

provided by doaestic production. The decrease was particularly due to shifts

with regard to two grains. First, there was an enormous increase in demand for

soft wheat, such that in the latte' period, production only provided 25 percent

of total soft wheat needs. Second, Morocco went from being a net exporter of

maize during the l96vs to being a net importer, as industrial pouL.ry prcductico

accelerated.

I.,

-- 1-----..~ -.--.. .---

I22

4 U.34f.*4.S IIW: 3W '(0 C0c t.)

. 504 t ...... .s. -, _t .~. 6.,..... :,,,A,, 1......; .W '.ITM

1qi90601 42sf!257.9 ' 0 40.S 67.3 22.5 53.3 325 121 31961 496. S 22.1 313.1 e09 7 22 1962 225.2 &.0 ix1 e 61.2 725 2 240 11963 87.2 113.6 4 0 lOi.t 91.2 215 4194 138. S 5 .3 is. T 5 0 506 34 5 67 11ffS 304.0 .S S0 .0 24.1 309.8 29 519i66 B4.3 40.7 26.7 17.5 2.6 939.3 2.61967 9es.s 56 6.1 18.11966 7'4 .4 2.0 1-,0 9 £ 76.8 25.7

( ~~~~~~~~~~1969 M3.2 .:. *89a 26.1 16t.2 215.81970 SM0.2 . 3.1 53.0 100 5S3.3 53.11971 S0.6 6.0 5 M0 7 592.6.OT2 472.6 44-' 20.3 S37-81973 961.1 lP. 33 2 1035,51974 132.7 66. 41.5 1162.91975 1'64 8 46.C 13.9 1*%6.6'976 924.3 74 7 099 11077 :6#7.3 40 42.6 80.7 1860.8:97T 1413 6 10 6 so 9 1S 21979 .5S7. 1G 90 3 1637 0960 is".0 SO 0 124.4 143 6 2171.0

1°81 7244.1 3 - 243: 129.3 2721.6192 1356.6 9.7 ; 14 5 1O5 0

196 2097.1 56.0 C: 8

M--IC.is: P_W1 r_1 l Of e-

Each year ONICL estimates tne suppiemental grain to be imported.

based in part on the availability of foreign exchange. Imports are executed by

local, private sector representatives of large international grain companies cn

comp--citive tid.s and import licenses issued by ONICL. Once on shore. imports

become the property of ONICL. Flour millers who require additional grain "beyond

that which is procured from domestic ONICL sources) must request an allocation

of grain frcm ONICL which in turn authorizes the mill to purchase a designated

quantity from a designated importer. Millers are required to pay the importer

tl'e domestic, grair. price. They are thus indifferer.t ceteris pariDus on price

arounds between domrestically Drocured and imoorted grain. 'when the domestic

price is above the world price. the difference between the landed cost plus

margin 3nd the domestic price is reimbursed to ONICL by the i.nporter, and vice-

versa in the case of domestic prices which are below the CIF price.

However, while the mills are indifferent between imported and

domestically procured grain. the Government is not. As prices drop on the

international market and especially as Morocco benefits from concessional grain

f ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ _______________

trade, thereby reducing even further the average unit import value of grain

(particularly soft wheat), grain purchased from abroad becomes cheaper tban

grain purchased from domestic farmers. Thus, the incentive is to increase

imports, thereby ginerating greater revenues from the variable import leqvy, at

the expense of inc.-easing the share of procurement out of tctal domestic

production. This incentive to ioport is reinforced by the overvalued Dirham,

vtich has made cereals imports cheaper at the official exchange rate than they

would be at an equilibrium rate of exchange.

ONICL is required to reimburse the mills for the difference between

the finAncial cost of flour, calculated as the official grain price plus a fixed

milling margin, and the subsidized price at which flour is sold to bakezs. This

transfer is supposed to be financed from ONICL's receipts from the variable

import levy and a minor parafiscal ir2rketing tax. In fact, in the early 1980s

the subsidy bill exceeded ONICL's revenue and large transfers from the treasury's

Stabilization Fund (Caisse de Compensation) were required. As Morocco's fiscal

crisis gre-, these payments were made with increasing delays and ONICL becam

ser ̂ usly indebted towaids various actors in the cereals sector.1 8

18 As borde prices continued to fall in the mid-1980s under pressurefrom exporting countries, soft wheat imports again began to generate revenue for

v the Government.

ii _ _

Organization of the Grains Sector in Morocco

ru -sm - T

p~ _tit ,p

Source: World Bank. Kingdom of Morocco: Agricultural Prices and Incentives

Study, Report No. 6045-MOR.

K~~~~~ -,>fi_ 1r--_-~- _ iw _ s _ i _ _ _

t ~~~~m- 25

Sugar 1

With a per capita consumption of nearly 30 kgs per annum,19 sugar

is a major source of calories in the Moroccan diet. It nas also become a

dependent on imports and suffered fully the fluctuations in world prices. 2 0 In

4 an effort to reduce such dependence and cut foreign exchange outflows, the

Government opted for an import substitution Sugar Plan, with the objective of

. K Morocco reaching full self-sufficiency in sugar over a 20-year period. Sugar

beet p-oduction was introduced into the Gharb in 1963 (see Table 7). ^ster- 1967.

sugar beet area increased by 1O percert per annum from about 12,000 hectares toI i 60,000 hectaros in the early 1980s. Expansion in area cultivated has slowed down

considerably in recent years. Frod;iction is concentrated in the irrigated

offices of the C;narb, Lc.ukkos, Moulouya, Doukkala and Tadla. Production

technologies u.se elected imported seeds and employ high doses of fertilizers

and insecticides. Most of the work, except for harvesting, is mechanized-

Yields average about 38-40 tors of sugar beet per hectare, with an average suga=

content of 16.5 percent. This average hides iarge pdaductivl differences

between regions, and between rainfed and irrigated production areas. Whereas

farmers attain 60-70 tons per hectare in Doukkala and nearly 40-45 tons in Tadla

under irrigated conditions, yields average only 30-35 tons per hectare in the

Gnarb and Houlouya under irrigation and 25-30 tons per hectare in the Gharb and

Loukkos under rainfed conditions. Largely as a result of these productivity

19 This compares with a world average of 21 kg per capita and a developingcountry average of 12 kg per capita.

20 This refers to recent Moroccan history. In the sixteenth century,Morocco was actually a net exporter of cane sugar.

Ie

F ~~~~~~~~~~~~~2fi

differences, sugar beet production under irrigated conditions, which represents

tonly two-thirds of total acreage, produces about 80 percent of total sugar beet

output.

Sugar cane was introduced only in 1974 and by 1984 nearly 15,090

hectares were under cultivation, principally in the Gharb and Houlouya. Cane

was introduced in the Loukkos in 1984. Total production has resched about

800,000 tons per annum, with an average recoverable sugar content of 10.5

percent. Sugar cane currently accounts for about 10 percent of national raw

sugar production. Yields vary by climatic conditions and by region. For

instance. while the Gharb has recorded yields of 70-90 tons per hectare, )bulouya

yields are about 50-60 tons per hectare. In addition, in particuiarly cold years

(sa in 1976 and 1981). cane is subjected to frost, further reducing yields. IT

this report only sugar beet is studied, although data for cane are presented in

the following table for the purposes of comparison.

Cultivation of bot'n beet and cane -s carefully overseen by the ORW%FA

in irrigated and rainfed areas, providing farmers with access to irrigation water

as well as advances oa inputs (seeds, fertilizer, insecticides, mecaianized

services) and services.

-rAM 7: 5U SA OEEt O CAW PROLK:aO

., ., PPAt -ee 1*C'. P0... ,i ,...

VSAN 'COX -. %/I,. 'XOO t O I. %/. 'Om 'OX t '.A r *X'W t

182 6.2 11 7 719 194 9.1 19.6 up0. 18 I * 18.1 173.1

r"a 11.4 20.S 284.5 4 4 30 1 3141987 11.7 7.: 836 9 7 S4 I 1i30 7l9t kV.9 24.9 44 10.7 3&.S 267 3'_ 2a.6 ±61 383. 12 6 3s 2 495 C

It7C 26t. a 16.5 4t. 20 6 33 3 6*3.0191 274 26. 7X3 O 23Z lt $6 8.t01972 31.3 22.5 6777 3-.7 31 9 1011 01973 21.0 20.6 4316: 2.9.4 3* 6 1 047 0 1 905 5 41974 25.7 29.1 74T a.s3 37.3 J.20- 5 4 Y J 2 S1975 28.0 17.6 831 2 32.4 209 028 2 1 1 so* 03.19t 31.4 25.9 622.4 3.3 3 13'90 19 41 1 77.51977 S. 10.1 .0 31.3 36 4 11..S3 S 30 7 177 4lt76 26.6 31.2 36.4 34.0 43.4 1474.A 4 3 i. it.97 8.8 22.7 767.3 391 41.1 17.7 4.0 .9 23.5

1S 21 4 22.5 462t. 43.- 38.2 1711.7 4.0 4.3 37S1431 22.7 13.7 31.02 4S.S 9" r7 'J04. 7 2 6. on:.4196 26.$ 2a.s 5t.C. 26.2 46.7 176i4.7 7 7 37.3 S17.41966 21. Z 2b. 80.0 43.0 43.3 207. 0 17 7 792.31434 1A.8 WI.5 011.6 39.7 43.2 1814.0 11.1 "9.0 788.0

__me _G ;0 of -. _A_W_ ___e__ _* __- ----------- _ _ ----- ____ ___ ,____

_b-:e- e, iri OwoS %It*i seede _ A_-; to,[ bttor-OU

27

An &greeuent between the Ministries of Trade nd Industry (MI) and

Agriculture (MARK) ensures that total sugar crop output vill be purchared at an

official producer price by thbe sugar refineries. Sugar prices are set annually

by the Interministerial Pricing Cooxittee on the basis of proposals from and

discussions betweer MARA, the sugar compazies, other concerned ministries

(Finance, Interior), and various other agencies. Prices are calculated according

to the production costs of average producers. Due to the large productivity

differences between various regions, producers in the more suitable production

areas have thus tended to benefit from large rents. The producer price for beetI is paid at farm gate, with the cost of transportation of the crop to the sugar

mills negotiated between the ORMVA, the mills, and the National Transport Office.

, and paid for by the mills. Damestic beet is processed either &: integrated

refineries which produce white granulated sugar directly, or at raw sugar mills

which produce raw beet sugar to be refined subsequently by domestic refineries.

.ne refinery, COS1JMAR, also processes imported raw sugar and produces the

z-aasi-totality of sugar loaf (vain de sucre) prod-iced in Morocco.

Raw sugar output is sold to refiners at a fixed 'transfer- price

(prix de pdr6quaticm) set by the Stabilization Fund to cover all costs of

production, :.ncluding the cost of the raw material which is valued at the

domestic b~eet or cane aC_ _.,_2 a - returns tC Ct' a?d1

consumption excise tax. The sugar refineries and integrated sugar mills sell

granulated sugar to wholesalers at a fixed wholesale price, and are compensated

for the difference between the transfer price and the wholesale price. The price

varies from mill to mill, with an inverse correlation observed between capacity

use rates and transfer prices. Since 1963 when the first mills were established,

transfers have always been made to the mills, rather than vice versa. n other

28

words, costs of production have been systematically higher than the fixed

transfer price. Compensatiot by the Stabilization Fund, however, is often

delayed several months (or even years) which, as in the cereals subsector, causes

finuncial st:ess in the system.

There are two major forms in which sugar is sold to cons rs in

HIorcvco. The traditional product is the sugar loaf, a commodity for which no

international trade exists. It is produced by a double refining process.

oes=ot--14. 'rcem ity oted raw suear. The other principal sugar product is

gra.2ulated sugar produced from imported and domestic raw sugar. Costs of

productic'nf z s-ar ca are 54?-75 percent higher than those of efficient

granular sugar production. Consumption has been shifted away from sugar lcaf

and toward granulated sugar in recent years as the ratio of official consumer

prices between loaf and granulated sugar has risen from 1.09 (1969) to 1.47

(1984).

Morocco has been, and over the medium term will contimue to be, a

large net importer of sugar. While sugar self-sufficiency has increased

dramatically in the past two decades, the country continues to import about 33-

45 percent of its annual requirements, almost exclusively in the form of raw

sugar. White (refined, sugar was imported for a brief period in the zid-1970s.

The National Tea and Sugar Office (ONTS) determines the level of imports. A

variable levy system controls the domestic price of imported sugar, with the

difference between the border price and the domestic transfer price paid to the

Stabilization Fund through ONTS by COSUMAR when the border price is less than

the domestic transfer price. Wher the border price is greater than the domestic

transfer price, the Stabilization Fund compensates COSUMAR for the difference.

29

TA6LU 8: SUGAR IWPOR7S Di UtOCcO ('C0 at)

TSTMLFAWIM RAW IWIORT

VW Quat Ity Qatity qui-r)

1960 .. 276-9 25.01061 .. 2S5.0 242.2197 299.7 204.9197. 2J0.0 256.0194 324.4 24.1

i ~~~~ ~~1976 .. 51s.6 23t9.

19e7 1.0 3J.O 314.01967 300.0 229.0f 19 0. 214.1 241.41910 2. 293.2 295.01971 3. 22.6 253.0

306 6. 252.0 245.0

197 . 00.6 1C2.61,773 29S_J 2 0.91974 . 2a6 7 2e6.71963 .. 246.4 2)4611976 .. 293.S 239.21S7.7 112.0 22S.0 M2.*1g7 46.0 229.0 M.3S.619?9 S0.0 29-1 Tea Ut i91900 24.0 283-2 29" 0l9e 23.0 2S2.6 263.01392 6.5 262 0 246.419 J . 249.0 2W6.6i90J .. 293 8 279.1

Xqurce: Sugar le-vustry Association and ForeignTrade St*ti"',es

k.4ts: Raw supar iapEt, ar. .xpr..e.d ;n re;fned*quivals"ts at 9M5 of toenega.

.tnot.. no Imrts.

I~~~~~~~~~~~~~~~~~~~_. ,

Organization of the Sugar Sector in Mozocco

1---~~------ 14fag-w------

ZII I

-~~~~~~~~~~~~~~~~~~~r< -X --- i!owoc -- - - t- ----ISIource: World Ban. Kingdom of Morocc, Ar t-rl P s ad In

Study. Report No. 60-5 R IIff~~~~~~~~~~~im) .WiS '|

T~~~~~~~~~~~~-V"UBI

lum.~~~~~ ~ ~ ,-;. .

Source: World Bank ingdo of Moocc AgiutSa rcsadIc ieStudy. Report No. 6045-MZR.

i ~~I

CBHPTER TWO

THE POLITICAL ECONCKIC HISTORY OF IYsUVUTsIo In

MROCCAN AGCULTU3En

* Morocco's economic interventions Iave favored industry over

r . t agriculture, irrigated agriculture over rainfed agriculture, and cons-ers over

agricultural producers. This can be seen as the legacy of several impcrtant

political factors tbat have shaped the patterns of control over the country's

resources. This chapter describes the history of Moroccan political development

that nas underlain the formation of economic policies vis-A-vis the agricultural

sector.

The central political institution of Morocco is the monarchy,

currently ruled by His Majesty Hassan II, who essumed power as King and Prime

Minister in 1961 after thc death of his father, King Mohammed V. The monarch's

active irvolvement in. political life is guaranteed by his wide powers of

appoirtntent, as expressed in the constitution. Duri;g his 27-year tenure, King

Hassan II has had to balance demands from a variety of interest groups. In so

dair.g. he has successfuiiy az-:tr-ted nolitical conflict -- ng competing urban

21 For political insights this _hapter draws heavily on a number of

sources, including Alain Claisse. 'M±khzen Traditions and AdministrativeChannels;' Rkia El-Mossadeq, 'Political Parties and Power-Sharing;- and I.William Zarz,man. 'King Hassan's New Moroczo,' all in I. W. Zartman. ed., ThePol_tical Economy of Moroccce, (New York: Praeger, 1987); George Joffe. Morocco:monarchy, legitimacy and succession,- Third World Quarterly. 1C (l) (January1988). 201-228; Rhys Payne, 'Food Deficits and Political Legitimacy: The Caseof Morocco' in Commins, Lofchie, and Payne, eds., Africa's Agrarian Crisis: TheRoots of Famine, (Boulder: Lynne Rienner Publishers Inc., 1986), pp. 153-172;Remy Leveau, Le Fellah Marocain, Defenseur du Trone, (Paris: Presses de 1lFondation Nationale des Sciences Politiques, 1985); Mark A. Tessler,'Korocco: Institutioral Pluralism and Dominance' in I. W. Zartman, ed., PoliticalElites in Arab Nirth Afzica. (New York: Longman, 1982), pp.35-87; and 'Morocco:History,' The Middie East and North Africa (Lcndon, 1987).

F-- -

and :tral interests that has. at times. threateaed the viability of his tenure

and, therefore. the stability of Morocco's political system. In addition to the

monarchy. the Governmen; ur Morocco also includes a number of political parties.

w4th popularly elected representatives who sit in Parliament. The parties span

most of the political spectrum and have participated to varying degrees in the

Government since independence.

she evolution of Moroccan political and economic developments and

the ge-t --1w -tes w h have affected the agricultural sector have

been divided in this study into four periods, as sumari-zed in Table 9. Morocco

passc ad u6 a tri_--'y-e' -r- per- after -de*^-ew 96 bc

ended with a more restrictive regime holding sway briefly during the early 1960s.

The m,id-1960s through 1973 marked the Moroccan economy's most open phase. From

1974 through 1980 Morocco was exposed to the exogenous sh.ocks of the

international commodity markets, which led the economy into one of its most

restrictive periods. By 1981 Morocco was forced to coafront its economic

dcsequilibria. The Kingdom has teen attempting to recover from the crisis since

tI-e early 1980s. a period marked by increasirg economic liberalizati.n.

These peric.ds correspond to sevsral 'phases' of government. as

defined elsewhere.2 2 From the colonial period through 1973. Morocco was in Phase

I, identified by the existence of some goverrment Aintervention designed to

increase food self-3ufficiency and promote certain crops With the onset of the

phosphate boom in 1974. Morocco passed into Phase II. with increasing complexity

of interventionrs. designed in particular to protect consumers froc. the effects

of both rising dorld prices and rising domestic producer prices. With the onset

A _ _ -1 " ' - -.

33

of stabilization negotiations with international creditors in 19&0.23 Mcrocco

entered a turning point in its history of economic interventions (Phase III),

lasting through 1984, or the end of the study period.

II~~~~~~~~~~~~~~~~~~~

- 23 Morocco entered -,ts first medium,-term stabilization program with theInternational Monetarv Fund ;-n th.e form of an Extended Fund Faci'lity, which wasscheduled to run from 1980 through 1983.

rLa B: WON W m nurism -,

h elie4I B___ _ J.mLI - ---. It "lopesis I , - *olqiuti B ILuhce a I Mileti Os pin4twlals ee

reed islo al eita,54 fillt. iUI .u I sate.. B ep"ON 114ine . I

I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-ftq~q..in'. *lfl1I I'uai4eetMof I114 Ue:ite bI hiete..op11 .t wse41tIes4et,u WIh4 WeI: kaa41lc

epiul waelie .e INWIriiii41 ptoallu.B* stae* d1. (beurteal B B t

I 1B Ieee.. I.4 mistooiw, puIlok I I I

II. tulmdsp4u.e B*4114l B Mceu. 4 elebw, "iluoll I liBeria to Uei4s.s Melanie B luioUtp.Ij "16114 15@ osesg Wlere I I. it 4..iq1 a ims..4 WONaur ImI letaqlei wit~ I del.ia Bll6ie lIpeIWsi I ceIto Weal,01 .altst *c..alLtu B IN. tolomB to 1. s w If Mt* 1 M IBCr..iuo of val e*wa f .111. Ise,s leIitl Is lutid jisIiq I Isuea.d I pow" I Iall"W ille 10141 otlit, 194 B kic&1.1 .4 cu ~lea,1 its 'it (ism. I.$ tc41. U ses aiele B cel,. weq.tio lw a 6 ilsipl.4 IIeWou t Bie s Bk.. tw o he ..I 1141 I 4l.ettiteso .4 rid BIUlb $*el- I B aopltiw.l BcB laBle be. taklleisst Iii of ice I alIBi, I .qksls a6 lNdwt.4414. B leweu plile,eeee lit ptin IBmi lliu p.,mee4. 'W4I B kpul-oiui k.e *iuultus B Hilli (sepri B kleelema .1 Obe MaeN uin44 B

B S IUI.Bl lmlucer Is reuss paill edlidi.s BIB B ~~~~~~~~~~~~(.ueacll eqae) BI

Ill. ttI4liaetIjiupsUs . ...... .....u.....l tte epiI i IP rta et . ........... ......ne r lu . 1.esi ab ..................... B................. .e h......... ....ss (1111)ISeipesutiml oftae1 alesA.., B .1.11,,1 nllt Bf44 164b16iiN I O i i. lin41.1 B " ep tic wbur, sJt'a,ie1le 4m BB rqBwieq1,141.11414r eeb I 14.qMisy hmi B etl ise Iet. 441 IMi *44 IuB,I/W dM.te.

B petla call evill .11.i te its law eus, 1*111 I 401 SdiItal Be4"mloto.i Ie eg I.B lt4~ .1 .erp.I.MB prflolegpilld.1 lowips. IB Ye. *I~4.4 ecq IIrllatst,1B il BIliwItta lithe "wtil"Ails I 41116 64 iuiUN psow ewbrl I

eel 1112 B B.ges~~~~Le644ea .4 1111W gspw0u, 1111 B 111*1)1 B kldi.1i. .1 wmdi pi. diset BB ~~~~~~~~~~~~ I Oitea is tepie $d.tWt, . irrig B

tral s C jee ihll)1,IW) I rlee, 11 1 lmiewlsIieeaie B I Wpit bmlse 41 lowo tew II a. tat* #441, er, lilt B hip Is "i pemee rnpslg4. duIs B Bewamlg OftloilthkB, pst$ae,*16 I 41.u(. .4 avimltsa)I heitaIC .meitl(A Wise. to B wull &eep&i e.u&.4 I. dlisk I how. Is Brado. bowt, haiwa .1 B p.Wattle O.list

faicip4to If kaurussi. till, loll? B Dirss ee 'bile tool hn I 1ppsw I Iqialaq A1 gewel p50mw pie. BB Ise.U84 141is llBu se.*dil we. I be,11iW Ltil4iu I eneidi. Ie. .. t "0 .am NW I

i lueeiegi deal. I-or so" Ik*te e e..ai,c 44 #mtim. gel., 1 Betwiitmi 6,11 itewle 1iblA to4 I. beet B i1ls oe pove ! eleidlee B coliwes 4sieqa"111c IB

I. mu.. 861.;rrnetial I feel :ise. It 1064tiuS to ""NNWd ! k0solit is IS1 I laclweg 450 sonticrIs B IOC*Wiueee .1 dle.i.tBe eph4INII I IS4milteiieaI eel ItiUtirl I plae lBe., 1iii I hgiuteq. Si tuijteie B il M inII lelWBe .eenlslies .1 geirisl p.11,1.al)"tes& (11,1IUIi B kiwel * 4ci elitles tweed I allateut preeeB MS.BB telitiael "WtOtiWi, Ild) B Mrs "Idbeite4hiB bieaa.e 111.4W) I I Inileesol JoIripe lad CtBeS$ to I tassel p.ka.s, a ctivlvttoi, a I kodliele .4 Blab.. 1Mu

BsmIles ,e.l egesela. #ea ae I )ANe aeBenaso aeduliai ld Iie Slrt laeiki.ue iaeu. I lsa1uieiil dhfifllhri ""Metw B B ! Iks,.. IBIs IpseaftI . $u. .Wd e Us adL4W041....... .............. I .. . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

,frt

tj- r ~~~~~~~~~~~~~35

Suinara of Economic Objectives and Policy Tools

Since independ.enz.c. Morocco has pursued a goal of rapid economic

growth through industrial import substitution. tne establishment of processing

industries, modernization in the agricultural sector, and expansion e-f its raw

material production. The most prominent feature of Morocco's global .,bjectives

has been their continnity. During the early post-independence period. t.:e

emphasis of objectives shifted towards greater self-suffic'ency through import

substitution. The initial ;oals for self-sufficiency were based on the belief

that greater value-added could be captured through local processing and thus save

foreign exchange. while after 1974 the objective was driven by concerns over the

volatility of world prices and the consequent fluctaaticns in foreign exchange

earnings resulting from dependency on world commodity w-.rkets. Export promotion

and divers.fication were always mentioned, however, as additional ways to

decrease flhctuations in foreign exchange earninzs.

In the early 1970s the Government also acknowledged the ntsd to

redistribute the fruits of economic growth equitably. ^,ocial sectors (housing.

education, health, received an increasing share or budgetary expenditures at the

seme time that attempts were made to reduce disparities in income by reforming

policy measures concerned with taxation, job creation, land redistrib.ition, and

the development of rainfed agriculture within the confines of protective trade

policy and an interventionist policy with respe,: to prices. Uage stability and

its corollary. price stability, also became increasingly important as objectives

after the mid-1970s in the belief that wage-price policy was more effective than

exchange rate policy in strengthening the competitive position of Morocco's

developing industrial sector. The emphasis on equity in comparison with goals

considered more directly productive, however was small. Employment generation

36

has also b:. .n added as an ob;ective in recent plans, but there is little concrete

evidence as to the integration of this goal into the overall po2" cy framework

To implement these objectives Morocco has resorted to a number of

policy tools. Amnag these are trade, investment, price, exchange rate, and wage

policies. Morocco's system of tariff and non-tariff protection was built to (a)

promote rapid growth of GDP by encouraging i vestment through low customs duties

on imported capital goods; (b) reduce economic dependence on other countries

through import substitution by means of trade protection on finished goods; (c)

generate revenue; and (d) avoid sharp changes in domestic prices due to

international price movements.

In the agricultural sector the greatest emphasis has bean placed on

supply shift policies. Heavy capital transfers through massive investments and

free services were seen as the most effective manner of increasing production

And genr-ating in incomes and employment without inducing price rises.

Droughts and international Fommodity price shocks further encouraged the use of

these policy tools. Little faith was placed until recently in the role of output

price policy in inducing supply increases. Rather, administered prices were seen

as one means for maintaining low food prices in order to improve the purchasing

power of the population whl'e ensuring adequate incentives to producers.

Pre-Iidependence History of Morocco

Many of the origins of Moroccan policies toward the agricultural

sector can be found . r-.independence patter-as of administration. By the

nineteenth cent'iry, prior to r;ne French and Spanish Protectorate era, Morocco

was the domain of 1) a series of Sultans, from which King Hassan II is descended.

whose primary sourm.e of power was as the spiritual and political leaders of the

region. and 2) a number of marabouts. the muslim Berber leaders who cortrolled

_~-'-.-~- w&i E '- - - - '

37

the many tribal factions in Morocco. Those parts of tee country wh:ch subeitted

directly to the Sultan's authority were known in Arabic as the bled el-makhzan.

or 'land of the government. "4 Beyond these lay the tribal lands known to the

Arabs as the bled es-siba, or 'land of dissidence,' which slipped in and out

again of the makhzan s jurisdicti'n. Critical, then, was the role of the caids

and pachas, the rural notables -who were the Sultan's link to the countryside.

Their cooperation legiti'nizee the authority oi the Sultar.'s makhzan rver the bled

es-siba and helped to extract tax revenues from the Berber tribes for the Sultan.

Ev the mid-nineteenth century, however, Morocco began to open up to

European economic interests. A r>rotege' system of partnerships between local

notaLles and foreigners, mainly in the area of lives-ock raising. exempted

Moroccans and their partners from local property laws, thus eliminating tJe

threat of royal expropriation of -ealth .25 This was a prototype for the colonial

patterns of resource management to come.

Under the French Protectorate the character of local authority in

rural areas was drastically altered. The caics and *ach-_ lost their autonomy

as they became dependeat bureaucrats of tne perva _ve colonial administration.2-

Although the presen^e of the Frerz,> undermined the rural notables' nower. the

latter were relied upor. as Intermediaries and were rewarded for their cooperation

with a mcdeLate degree of personal enrichment and education. A further objective

24 Interestingly, the word makhzan literally means treasury, though

it came to be synonymous with government. -

f 25 See Zahya Daoud. 'Agrarian Capitalism anC the Moroccan Crisis, HERIPReports, 14'9, September 1981, p. 28.

26 '.. (T)hree times as many Frenchmen were employed to govern Morocco

as Englishmen were used to rule India with forty times the population." FromDouglas Porch, The Conquest of Morocco (New York: Fromm International PublishingCorporation, 1986), p. 298.

l

I.

38

of French administrative policy was to keeo Arabs and Berbers apart, favoring

the rural Berber elite in order to counteract the rising nationa'lism of the urban

Arab elit^,

istiqlal, the Arab nationalist party. was formed in 194: in support

of a platform waich called for an independent constitutional form of government

to be installed under the control of Saltan -oiammed ibn Youssef - The Istiqlal

platform, however. did not have the support of conservative Berber tribesmen of

Morocco, most likely becaase of their favored status with the French under the

Protectorate. Clashes between the Sultan and Berbers finally led to the

temporary exile of Mohammed ibn Youssef in August 1953. in November 1955. as

negotiation- were being finalized in preparation for independence from France

the following year. he was allowed to return to Morocco, was recognized once more

as the legitimate Sultan, and led Morocco intc its post-colonial periodi.

The Protectorate era wit'iessed important structu-al c.--nges .-ith

rega-d to the position of the state vis-A-wis e-onomic resource management

While under the Sultan's rule formal taxation of the region's ec_- -.. c base had

been kept to a minimum, exploitation of Moroccar. resources for exportation of

agricultural produce and repatriation of rents to France became prinary

objectives of the colonial government.

Settlers' access to land waL facilitated by tLe instiLution and

encouragement of subdivision of conmunal holdings dnd their sale. In a"de _o-,

government-owned land. communal lands ar.d pasture were variously purchased or

appropriated and resold to European settler farmers. Much of the best lanac in

the agricul?urally 'useful' zones of Morocco -- the Chaouia. Doukka&a, Gharb.

and pockets in the Souss and Ouida -- were farmed by settlers. The area owned

by settlers rose from about 73,000 h.ectares in 1913 to over 1,000.000 hectares

39

in 1953, with an average of 110-170 hectares per farm. Whereas settlers

represented less than 2 percent of the rural population in 1953. they owned

i nearly 10 percent of the cultivated land. Moroccan zarmers, on the other hand.

I owned on average 17 hectares of essentially marginal land.

As early as the late 1920s these pressures on land were translated

intc increased dislocation of the Moroccan farming population with rapid

rural-urban migration and the establishment of 'bidonvilles around Rabat and

Casablanra. the significance of these trends was not entirelk lost on the

PzotectoLate Government, which in 1945 sought to arrest the trend by guaranteeing

a minimum nf iralienable pronertv of 8 hectares ner rarm t?. orcoc'- '^ers

In addition to outright appropriation of productive resources. a

diversity of instruments was used to implement the Europeanization of Moroccan

agriculture. Most important among these was the tertib, ar agriul_tural land

tax whose incidence fell prinarily on the Moroccan subsistence agriculturalist.

Similarly; a difersntiated credit system allowed E ropeans to invest in and

expand their share of the agricultural sector. while Moroccans were provided with

minimal financing. Finally, ar elaborate system of price supports and

preferential access to high-priced metropolitan markEts was provided principaily

to European farmers while Moroccans tended to dispose of their production on the

lower priced domestic or fluctuating world market.

The promotion of specific crops by the otlonial administration was

determined as a function of demand for agricultural imports in France. In the

early part of the Protectorate, the agricultural focus was on cer-?al production,

especially soft wheat.27 vet by the early 1930s. collapsing incernational

27 See A. Driouchi, 'Le a4fi-it des c4r6ales au Karoc,' These de IIlIlme

cycle. 'Jniversite Hassan II. Rabat, 1975.

rI 6

agricultural product prices suddenly plunged much of the colonial farming

comnmity deeply into debt. Formerly guaranteed markets overseas were closed;

settlers often could not afford to harvest their crops or pay the laborers now

dependent on them. The Moroccan Wheat . Ank was c.eated in 1933 to help

facilitate wheat harvests and stabilize wheat prices.28 The Seventh North

Af:-ican Conference in 1934, involving French colonial governments in the region.

was largely occupied with questions of wheat marketing. It was agreed to develop

a system of price insurance administered by paying a minimum price to farmers

before the harvest, and to give customs duty exemptions to farmers requiring

them. This period saw tne inauguration of a n-=mber of organizations designed

to stabilize the domestic cereal.s market in favor of sertler prodcers, namely

the Cherifien Wheat Office (DCI3). which later became the Cherifien C-eeats

Office (OCIC), both fcrerunners of the presenz day National Cereals and Puses

Offic- (ONICL).

On the eve of the Second Wor.d Wa,. Frnnce demanded zextile raterials

and 2-.e_'e cz's. and n: .e5c! rc'4uction wasI ~ .nccreaed and the culti-:ation of sLnflowers was introuuced. 't was not Until

the end of -he 194Cs. however. that the Frer._h nato,nal standari of living was

sufficiently high to require increased i-ports 2f fruits and vegetables and it

was :r+om this pe ;. 4 :-z tz.C-

and citrus vrdcits accelerned. 29 Yet :. contrast, Morucco remained a ma.cr

28 A. Barr3da. _e crec-t agr__oe aM aroc 9 -;9'-. Editions de la

facult, des sciences juridiques econoiq-._es et sociales de Rabat. 1979.

29 See W. Swearingen. Moroccan Mirages: Agraz.an 2reams and Deceptions,

1912-1986 'Prir.ceton.. NC: Prinrieton University Press. l987!. for a detailedaccount of the settlers' dr ve to oattern Moroccan horticultural' development

after Calif.rnian successes.

'tXld_-S X * a - w lS - r 4 C~~~~~~I

timporter of sugar, mostly from erance, throughout the Protectorote period as

French sugar producers argued against promoting su_far production in a nearby

colonial client despite agricultural research results -which suggested that sugar

beet yields as high as 8 tons per hectarp could be achieved in Morocco, as

compared with European yields of 4-5 tens per hectare.

Post-Independence: Dominance of Istiqlal (1956 - 1962)

Immediately after independence, national politics were dominated by

an alliance betweer the King (as Sultan Mohammed ibn Youssef was proclained in

juiy 1957) and Istiolal. The urban-based nationalists who comprised istiqlal

were determined ito modernize the counitry and utilize its full economic

potential. The state was to take a leading role in the country's economic

de,-lopment and planning was viewed as an essential deter-Lzinant of successful

modernization. Istiolal also .upported the vision of a "Great Morocco' whose

borders would be expanded to encompass historical spheres of economic influence,

extending into ,_---west Algeria, the Spanish territories of northwest Africa

an_ r a._a,'. a._: as :ar as the F-re-c 'a.. 1 Re;_z c-f Ma'i :ceayz.

A:eady ty 1959, however, istiolal was plagued bv internal

dissension, which prevented it from successfully challi'nging the monarch's

authority. Tts popular support diminished, partly becau;e it showed little

sensitivity to paiterns or rurai politics. it prociaimed sin'fioa.. agraria.

reforms. 'or exam.mle, that were to liberate the countrys de's productive

onten.a!. The tribal system. based on the relationships of local dependency

and clientelism which had flourished during both the pre-colonial and co'onial

periods, was to be replaced 'y -ommuna; organizations. Caids and pachas w.o had

constituted the rural adninistration's backbone under colonial rule were to be

replaced by nationalist party cadre. The system of land tenure was to be

_..~ ~ 7 ~im. dim az. ~ -,& 4, -.

42

recrganized so that efficient production units could form the basis of modern

techniques.

Istiqlal's plans for the rur&l sector beckfired, as their proposed

reforms directly th;eatened the privileged position of rural notables. The urban

nationalists' insensitivity to enduring agrarian structures in Morocco was met

by social unrest in many rural areas, as in the 1961 rebellIon in the kif

Mountains. King Hassan II, ascending to the throne upon his father's death in

1961, reiterated his Government's support for the rur-al elite and many Istiqlal

reform proposals were abandoned. The inrermediary roles of rurai notables were

restored and membersicf the rural elite were again assured positions ir the local

administration. The communes, irlitially installed by Istialal to form the basis

of an efficient production system, -aere de'limited so as not to affect the role

of local elites. The promotion of economic reform and modernization by an urban-

based technocracy had given way to political realities. The rural elite, in

return, became one of the Government's most important sources of support- Thus,

as during the Protectorate -eriod, the rural elite were relied upon as a

counterweight to urban-based oppositicn groups.

The transfer of political power to the Moroccans in 1956 did not

entail any major change in economic policy from those pursued 4nder the French

Prn et^r ~Te te ns r^1nAz,e-e eJ- tO }>~ . .^D

result in a loss of international confidence. Domestically, the Government had

to assure French farmers and businessmen that their irvestments and other

interests were safe. Consequently. Morocco retained a tight monetary anci trade

relationship with France through its membership in the French franc zore. The

cereals price support system put in place bv the French in the 1930s was not

changed substantially during the initial years of independence. Moroccan

I,_

F~~ -

agricultural exports coutinued to benef3t from protected French markets -- which

expanded substantially when France became a member of the Cocoon Market --

through the preservation of duty-free quotas.

Policies such as the tertib remained in place although exemption

levels were increased by one-third. An estimated 1.3 millioa hectares cultivated

by small farmers (50 percent of crop land) avoided tax liability througb these

higher levels. The 5 percent proportional tax was replaced by a progressive

schedule ranging from 2 to 10 percent and variable by crop. Of the one million

hectares farmed by Europeans in 1956. thlree-quarters were privately owned, with

the remainder known as 'official' colonized lands. It was not until 1963 that

the Government announced that it would take .er all official colonial lands,

and 1966 before control of these 250.0C0 hectares actually passed to the Moroccan

Government. No formal proclamation concerning privately-owned colonial lands.

beyond the fact that they would eventually be expropriated, was made until 1973.

Despite substantial capital outflows by departing settlers, Morocco's

balance of payments remaixed generally sta_:e as the _tf' s were =atChee hy

inflows of offi_ia' b.lateral assisa-nze from the JUnited States and France.

Furtherm.ore, the balance of trade remained positive with exoansion in the e_port

sector. The currency. tied to the French franc anrd thereby benefitting from

overdraft possibilities, revm ined convertible.

Within tais framework of favorable external balances, the Moroccan

Goverrinent initiated some institutional changes in its trade regime that wculd

lead to greater flexibility in official policy. In 1957, the uniform tariff of

1: percent on all imports was replaced by a range of tariffs and product

cifferentiation. The ob4ec ives of this change were to protect domestic

ir.dustries. to increase revenue, and to insulate domestic markets from

'44

fluctuationr in international prices. The tariffs were graduated from a maximum

of 10 percenz on raw material inputs to 20 percent for semi-finished goods and

Fto 35 percent for finished goods. Luxury items could be levied a 50 percent

tariff. The new system allowed duty rates to be changed frequently to reflect

differences between items deemed necessary for econrmic development (i.e.. raw

materials and capital equipment). luxury gcods, and goods competing with domestic

infrant industries. As a result of changes in rates and the growing volume of

impOL s, zev es 'rcm d-ties and taxes on imoorts doubled between 1957 and 1963.

In 1958. Morocco moved away from its close monetarv relLtionship

with France. ;hAtin FZan:2 dr'.te ;ts franc (FF) by 18 percent. Morocco chose

not to follow. The Moroccaz franc (HF) stayed fixed vis-a-vis the dollar (420

MFISl) while it moved to a ne., par of i MFII.175 FF. The Moroccan franc remained

fully convertible. To avoid capital flight, the Government assessed a 10 percent

tax on all capital transfers to other parts of the French franc zone. The second

step towards monetary autonomy came in 1959 when the Central Bank (Banque du

Mai-c) was established and controls were further tightened on capital flows Lo

franc and subsequently non-franc zone countries. Finally, in Occober i953, th?

Moroccar. Dirham (Dh) was established as the new unit of currency. The Dirham,

convertible but subject to controls. was fixed against the French franc.

With the establishment of the Moroccan Dirham, the system of mutual

overdraft facilities with the French franc area was discontinued. This situation

could have posed a problem for Morocco, with inadequate gold and foreign exchange

reserves at independence. However, Morocco's trade account continued to be

favorable through 1960, off,ial bilateral assistance continued, and Moroccan

reserves were built to a level corresponding to 50 perrent of annual imports by

. ~l~O

E 45S

Seeking to assert control over the main sectors of the economy with

minimal dislocation, the Government's development efforts were channelled towards

a the completion of tasic infrastructure and the diversification of the MorocLan

economy through an industrialization drive. The Zovernment established the

folilowing cbjectives in agricultural development: de-elopuent of natural

resources, particularly water resources for irrigation; modernization and

integration of agriculture with the overail eco.-omy; higher employment levels

in the rural sector in order to reduce migration to urban centers; self-

sufficienr;y, particulazly in sugar and dairy products, which accounted for a

large share of Morocco's imports; and growth in the export market to generate

foreign exchange earnings for Morocco's fledgling industr:_l sector.

Stabili=ation/Expan sion:

Alliance with the Rural Sector (1963 1972j

Under the inoetus of a new coastiti. n ii 1962 gUaraZa.tee_in : l

freedoms, a number of new parties were founded in the early 1960s. None,

however, was able to 8 control over national politics. Istiqlal split in two,

with its more radical faction reorganizing as the Unior. Na-zionale des Forces

Populaires (U-SFP?. King H3ssan !I's suppor-ers established the Front pour la

Defense des Institutions Constitutionnelles (FDIC ). Elections in 1953. however,

failed to confirm- a majority in the Chamber of Representatives for the FDIC.

Political repression of the opposition began to be felt. particul._riy after ar.

alleged coup attempt in July 1963.

,,~ ~ ~ ~ ~~~~AS

There were repeated efforts in the 1960s to attract the opposition

parties back into mainstream political participation. The FDIC itself split into

two factions, the Parti Socialiste D6mocratique and the Houvement Populaire.

By mid-1965, however, the weakness of the legislature crmbined with popular

agitation protesting unemployment and inf'lation led to strikes in .:asablanca and

the proclamation of a state of emergency, under which Hassan II assumed full

legislative and executive power. Elections were postponed until calm could be

restored.

From 1960 to 1965 current goverrnm;nt expenditures rose contlnuousiy,

largely due to development eff rts and mili-arv hostilities in 1963 between

Algeria and M(orocco over the Sahara. Current revenue, mostly derived from public

monopolies and border taxes, increased more slowly than expenditures. The

tertib, dec'ared to be incompatible with equitable agrarian and fiscal

development ar.d aboliTshed in 1961, was replaced with a 4irect tax which yielded

less than 1 percent of total government re-enue. Ry 1365, the budgetary deficit

reached ,6,- -iicnD_ hc r '5;ercect of GNP (see Tab e i5) creating a f scal

.r~s.s-s

B:-#

47

TAMLE 10: ,_ERHE FIrWPC! DATAI At

* I ~1CIT 0.f. c. I ~.c. -q .. IbI. of Co..... Dfc FA tt W CS) m m (s 2 t-Y r,;

YA t1. Oh) 64zMPDo-c F- V Cvi "I CEVt IAl-ti-

o190 WA 1.051961 N/A S4 1.61962 /A 1i 5. 0519 */A 73 5631lf4 N/A 23 4.0196 -7S7 29f f s m 73 ?3 3.3196 -4 17 3 SSE 401 5S -IS - .61967 -700 225 7 91 34 C0s 9 - 7.19" -56 17 35 an iW Cs 193 .351969 -634 211 5U 19% 25 l1 2.V91970 -c 146 446 54A 1S 3 - .1971 -664 146 35 146 "S 37m 125 4.2S1972 -Q30 12 A 4 S = 31 3 19 i 546197' l-46 es 7% t02o 00 -2 173 4.051974 -1411 LAS 46 5Un 15 293 15.931973 -2S-0 2 513 473 23 20 8. :976 -694 '29 15 5 5 3 : 8 es1977 -7531 3 1S 205 6& 23 200 122 5o1979 -5640 300 100 45 GM -AX 1ax 0 73

* .*** *~~~~~~~~~~~~~~*V~~~_j&C .d J.A .. 4 2 65 *41.91 -7018 293 100 19 55 5 -53 11 9l 46161 - L0485 346 141 39. 665 -73 1Ss 12 5S

-1065' -:0 300 123 313 625 7s 2n 10 65:963 -7527 2g as N/A N/A N/A 171 6 1S1984 N/A N/A MIA N/A N/A N/A 95 12. 73

S.. - C. A. oc4 .c. 4C ; '_A. *

Numerous events eroded Morocco's favorable balance of payments

situation by 1964. Trade deficits resulted from several factors: the pressures

of the population absorbed from the Spanish Protectorate, ambitious development

programs, tne severe 1961 drought, and the military costs of the 1963

hostilities. Furthermore, agreements concluded in 1960 requiring the removal

of French -d American millitary installations by 1963 terminated other sources

of revenue. Food i=ports grew rapidly. Soft wheat imports, for example, doubled

_n vo'ume during tnis period. Agricultural exports, which typically accounted

for about S0 oercent of export earnings, declined as a result of drought in 1961

and again in .965 The continued capital outflows after independence and the

added pressures of the drought and war led to a drop in Morocco's net reserves

to s75 million in 1964. or coverage for less than two months of imports.

The rapid decline in foreign exchange reserves led the Government

to adopt a series of measures to curb imports and restrict ;nofficial flows of

the Dirham. Tourist allw Lances were cut and income trn.:ifrs by foreign

'40

tec"iicl -ersonnel were controlled. Moi. importantly, all imports were

suspended subject to specific authorization. Later in the year a ban was placed

on a list of specific luxury items and goods competing with domestic industries.

The Dirham finally became inconvertible in 1964. Quantitative import

restrictions were introduced the following year and, in addition, the Government

intzv.Uuced selective increases in general import dutier. These drastic measures

brought temporary relief to Morocco's balance or payments.

Sugar imports also acccunted for ar. increasing share of total imports

after independence. To offset pressures on the strained balance of payments

situation and as part of its industrialization strategy, the Moroccan Government

created a 'Sugar Plan, or import substitution scheme, involving the domestic

production and processing of sugar. The first sugar refinery was constructed

in the Gharb at Sidi Slimane in 1963 to process domestic sugar beet production

frou. the same area. The National Tea and Sugar Office (ONTS). established in

2961, took charge of distributing refined suga-. fixing prices at all levels of

production by mid-1963.

At che end of the first Pian Miv'-64;, Moroccc s balan.ce cf pay}ents

deficit had grown as a result of capital outflows, rapidly rising imports, and

stagnating exports. The 1965-67 Plan applied a wide rar.ge of import substitution

and foreign exchange conservation objectives through measures a4med at

establishing self-sufficiency in the agricultural stcor, production security.

and domestic processing o0 agricultural goods. In 1965 the Government

IMplemented quantitative restrictions, increased import deposit requirementf,

and implemented other import restrictions to halt the erosion of foreign exchange

reserves. As a result, imports declined in real terms between 1965 and 1967

. .. . . . .~~~.

F49

while exports grew by nearly 20 percent. Domestic inflation was controlled, and

consumer pDrices remained stable between 1965 and 1966.

The prospect of renewed budgetary deficits in 1965 prompted the

Goverlment to adiust. the consumer price of sugar- Sugar prices had previously

been stabilized, and for a number of years the Stabilization Fund had actually

generated surpluses on this account. As world raw sugar prices increased in

1964, however, a substantial subsidy was required to Tuaintain the domestic

price. During the first few months of 1964, the subsidy charge to the treasury

was running at an annual .-ate of 120 million Dirhams, or about one-fifth of the

budget deficit. lo curb this erowine drain on the budget. the GovernmePrt rp1-,

for the elimination of the sugar subsidy. The retail price was ncreased in

several stages by a total of 85 perceat in the space of one year. Urban

consumers and students rioted and led the Government to roll back the consumer

price somewhat. The cuick official rea^tion on sugar issue reflected the

Moroccan Government's sensitivity to urban consumer pressures, especiallly a2

concerned prices of the essential foodstuffs.

With political unrest continuing w-ell into 1968, particularLy among

students and trade unions (both urban--baspd groups), limited nationalization and

land reform efforts were initiated, the latter directed to-ward redistribution

of lands ow-ed by the former colorial administration. There was a gradual return

to full political activity in 1969, and a national referendum. on a new

constitution was held in Jluly 197C.

Through 1973, the level of m-ports fluctuated, although the situaticr.

was a relative improvement frozi earlier periods. The value of foodstuffs orts

generally declined as a result of good harvests. Exports rose steadil, through

1973. Despite the strong demand for imports following from ambitious plan

50

t,tar-aets. trade liberalization, and increased expert earnings. Horocco'; balance

of psyuxn :s remained relatively stable due to several factors, incluuing the

risiag value of vorker remittances. which rose from a nLet outflo- of $13.7

million to an inflow of over ^L. 6 million in 1973.

Ls for agricultural development, the 1968-77 Development Plan sought

to reinvigorate the raral sector. Forty-three percent of the Plan's resources

was allocated to agricultvre. up from 27 percent under the previous plan period.

Primarv obiectives included tte expansion of large-scale irrigation, the

extensicn of credit tc large- and medium-scale farmers, the promotion of

U'-'--'---- 'o rr-i ral exoorrs. the redistribution of land to poor farmers, and

the rrainang or engineers and technicians. Two-thirds of the Plan's resources

>or agriculture were allocated to the construction of dam and irrigation

systems. As a result. ftrigated perimeters expanded bv nearly 18,000 hectares

per annum. until 225,000 hectares were under large-scale irrigation by 1972. The

rainfed sector, characterized by traditional modes of production, was largely

neglected under the Plan. Orly one-fifth. or 1.25 million hectares. of rai-nfed

areas received assistance under the Plan.

The Regional Agricultural Development Offices (ORMVA, were created

at this time as semi-autonomous admin-strative untsfs. Replacing the National

Irrigation Office set up by the French colonial government, the ORMVA bec.:".e

responsible for the management of the irrigation networks a .f for the Provision

of extension, input, and marketing services to farmers. The ORMVA were a'-so

responsible in the irrigated a- eas for the administration ot land reforrm.

Irrigation investments and irrigation subsidies generally benefitted industrial

crops. primarily sugar. for two principal reasons. First. these expens.ve

investments were directed to highly productive and valuable cash crons. Sugar

; ~~~~~~~~~~~~~~~51

beets were both an import substitution and an industrial crop. Secondly, the

ORHVA marketed sugar beets that had no market other zhan pubiic sugar mills, and

they could thus recover service costs and input advances by deducting them from

farmers earnings.

In the early 1970s the Government again suffered political setbacks.

For years the support of high-ranking military officers had been relied on to

counterbalance political opposition. In return, t.he m'l;tar, with rur.'. elite

heavily .-etresented therein. saw in the alliance a way to prevent the urban

elite's domunation over the rural sector. However, in 1971 and 1972. two

w-* m?md couos severely shook the alliance between the Government and the

military.

in 1971 comprehensive new legislation per-mitted the Moroccan

Governmrent to regulate prices of goods and services at all stages of production.

processing, and distribution. The legislation was ?rompted by publ!c pressure

to ensure that basic foodstuffs would be available at -affordable' prices in

order to maintain li-ving standards. combat inflatior, cortroi p.ofirt margins

vpar2icularly those sf monopolies and quasi-.monopo_`es;. an. encourage prod c:ion

or -he adoption of certain technologies.

While producer prices were adjusted annually as of 1971, consumer

prices were cnanged at longer. less regular intervals. This often had enormous

consequences for the state treasury, as the tendency was for the real gap between

-e twc prices to grow over time. in the interest of equity. strategic

coL-modities we:e subject to a poocv of nan-territorial producer and consumer

price s2tting. isnplying that some transportation costs were subsidized.

Similarly. nominal orices were held constant over the course of a year, implying

that storage costs were also largely paid by the Government.

52

Pol..cy regarding input prices. pubi.c services. and farmers'

obligations was created on an ad hoc basis throughout the 1960s. Farmers in

irr.gated areas received access to irrigation. water delivery, and other services

free of charge until 1969. In that year. the Government promulgated the

Agricultural Investment Code (Code des Investissements Aggricoles) to clarify its

role in agricultural development. The state formally took charge of

infrastructural developDmnt. agricultural research, soil management, and crop

and livestock improvements that were Deyonc tae 'iinanciaa or tecinl.La

capabilities of the private sector.' Farmers. or the other hand, were required

to contribute up t_ 40 percent of the cz.pitai cost- of t!ie irriga,ion networK anc

to pay a flat minimum water charge and a variablto _se rate per cubic meter.

Exemptions and the fact that capital ccntribourions were fixed in current Dirhams

and not as a percentage of costs resulted i.n less than a 10 percent recovery of

actual costs -n irrigat:on investments and watet services.

Fiscal balance was maintained desnite th.e growing dena.d or. resources

generated by the Plan- The budgetary deficit, which stood at about 25 percent

o' government 2xpenditures or 5 percent of GD? In 1965-67. declined to 14 percent

of gover=ment expenditures or 3 percent of GD? in 1971 (see Tabl-e 10 above)

ft:r 197'1 . .I¢vncned rrov trnanc;rne the def4c;t by

domestic borrowing to expanding i-s money supply, which increased between 13

and 18 percent annually durin.g 1971-73. ThE wholesale price index grew 45

percent between 1972 and 1974. while cons5mer prices rose only 24 percent over

the same three years due to increases in consume: subsidies. Under conditions

of expanding production. low irnflatiorn, and trade liberalization from 1967 to

197.. the nom_nal exchange rate mBint.ained a steady 17-2C percent overvaluation

relative to its equilibrium value (see Table 11). :u't prior to the boom in

1'~~ ~~~~~~~~~~~~~~~~~~~~~~ [phosphate prices and economic growth, the Dirham began to appreciate until it

was overvall ed by as mch as 39 percent in 1973.

TABE 11: OFFICIAL. AND EQUILIBRIUMfXCHANCE RATES (D%/*)

OfficialI. Fxcnharg EqutlIbrium

Rate Exch.no(Eo Rat. (E.)

YEAR (:) (i;) ii

1960 -06 S. 63 17%

1961 6.06 6.01 19%' °"? rs ) S5.97 18%1963 6.06 5.91 17%1964 6. OC 6.93 1 7S1984 5.06 5.93 i7%1968 5.06 5.97 18%1967 5.06 5.94 17%

1968 5.06 5.99 18%1969 S5.06 6.09 20%1970 5.06 6.12 21%1971 5.05 8.23 23%1972 4.60 6.01 31%1973 $.11 5.71 39%1974 4.37 5.36 23%1975 4.05 5.08 2S%1976 4.42 S.19 l '7%1977 4.50 S.44 21%1978 <.17 5.88 41%1979 3.90 5.98 63%1980 3.94 5.76 4.%1981 S.17 6.01 :6%i9S2 8.0'2 8.85 :4%1983 7.11 8.26 16%.984 8.81 9.50 8%

Source: Annex table !.6Notes: E. represonts ];-ye*r cv;qlg

a.ora9* of *Lt.i ;briuw*xc&argq rate.

Comparison column Wiji)reprasents (E. - E," /Eo

PhDsohate Boon & F s-sca: sis (1973 - 2981)

-he -4 'i arv _o_os f :971 ar:. 972 za:led in:o c,uestion the armed

forces loya'ty tc :he overn-nen. :o boae' the basis of its support, att?_.pts

were made after eac-. hreat tc aT7ease :.; ptr os. Moroccanrzat.;= and

land reform efforts were resoubed. ,-rorg measures were taken against

54

dissidents. and central control was reasserted over the Moroccan polity. A new

constitution was passed in 1972. which is still in force today. By 1974 a

reinvigoration of political parties took hold, openirg a new era in Moroccan

po- tics.

The Moroccan economy was particularly strong during the first part

of this period. i,, boom in the international phosphate market led to a 26 percent

real increase in GDP From 1973 to 1976 vsee Table 12). The budgŽt deficit

reached its nadir i4 a 8clinit; t^ --'y ° ;f;_c.._ anxd 2 percent

of GDP. King Hassar. 1I took advantage o. this confluence of economic and

- - t-tz- _ rally h-_--... . e r.ost success:ui endeavor of

his reign to dare. Striking a posture of s-rong nati=nal unity. Moroccans

ralliel around their King i_. what _as known as -7he Green March,- a p-aceful

march by some 35C.000 unar-ed civilian; coro the Spanish Sahara to reclaim the

southern provinces' for Morocco. . r-ea---o- o '.ted sa:ior.s and World Court

findings ir favor of self-determinat.or. after withdrawal of Spanish rule from

the region.

However, a co_b:nation of i-a a?._ cono; ressures created

ever more compromising - srl sit-ato..s for -te .,veramenz. The costs of

Morocco's prolonged war In the Sahara m.o.ec a an r at'e sa:.e t me the value of

phospLates crashed %see Table 12:. The q_rge in va>-ue rf phosphate exnorts.

wh-ich had averaged 24 percent cf tae t2ra: -v;ae o- Mo rocca7 exports over the

period 1960 to 1973, was short-lived. it peaked at 55 percen- i-n 1974 .d 1;75

and sank back to a:n averpge of 25 percent over :e period 1978 to 198h ,

~~~~_ .. .

55

TABLE 13: PHQSPh4ATES AS PERCENTACE OF TCV L EXPORT5

VALUE OF IDT'LIIE OF .......... ....... PHREAL GDP TOTM. PH05P4ATES AiWH/ PRICE

YEAR (197;=100) ailtions curr Dh) TOTAL (8/ten)

1960 67 I 793 424 23.6X 13.0# ~~~~~~~~~~~~~.9!S I ;6 1732 411 23.?S . ... 13-0

t1'S2 a6 1.7-33 436 24.7% 11.5.4 19i3 S6 !943 461 23.7% 11.5

k 194 67 216 57S8 26.4X 12.51f1 16 s8 2176 SS 3 26.4! 14.0* 191S 67 2168 534 24.6X 13.01957 72 2146 546 25.4! 12.0

19S8 79 2278 644 2S.9% 11.61909 8S 24ES 551 22. 4! 11.3197% 89 2470 672 23.2S 11.01971 94 2526 5g8 23.3X 11.31972 97 2963 673 22.81. 11.5

1974 1.. 7440 4075 654. 8X 52.81975 114 8238 3431 SS..0% 68.01976 126 SS79 2191 39.3X 36.81977 133 s860 2111 36.0% 30.7i9?!!? f It! 1. =t 32 ....... zS ^1979 143 7822 2214 29.0% 33 01960 148 964S 3013 31.21 48.71981 14e 12002 3827 31.91 49.51982 156 12440 3401 27.3% 42.4198^ 'Z 14724 2932 19.9 . 38.9t*e4 164 19110 4819 24.2S 38.3

Sources: GDP, Tab;* 2; Exports, Tablo 3Phosphates Exports, Int.ernational Monotary Fun;d,Intornational Financial Stat;st;cs, 198SPIosofWateX rock prices (FAS horocco), World Bank,Coodity Price Outlook, 1986

Recalling trends hig;lighted i- Table 2, public sector consumption

had risen by 1975 from an earlier aveiage cf 12 percent of GDP to as much as 22

percen., due irnter alia to r-is.g -, Itary costs as we l as increased food

subsidies. Exports. as much as 28 percent of GDP in 1974 at the height of the

phosphates boom sar.k tack tc 16-lB percec.t by the late 1970s. With export

eariings covering onl? ha f cf pcr:s. the trade deficit worsened, reach.ing

nearly 8 billion Dh in 1980 with a scewha- 'larger deficit on the current

accoun.t. The external d-±!ci: was largzey financed through external borrowing.

?'rom 1975 onwards, Horccco exnamdeH i:s medi=z- and long-tertm.external borrowing.

56

relving on comiercial lenders. By 1980 the disbursed portion of the outstanding

external debt stood at over 45 percent of GDP with a 33 percent debt service

ratio. imports, averaging 20 percent in the 1960s, shot up to 34 percent of GDP

[ from 1975 to 1984.

The resulting economic crisis provoked protectionist responses from

the Government. The 1iberalization programs of the previous period were severely

curtailed in favor of policies promoting domestic industry and import

substitution crops over export goods. Quantitative restrictions, whict had been

'n efD-~ from 1-965 throueh 1969. were reintroduced betwee. :978 and -981-R2.

In addition, import deposit requirements, which had been `s:cnt:I-.ed in '969,

-_ --'-^ _e---r--'_-e 1 i- . MOzo -c tv SuC-: that

between 1978 and .981 they represented about 5-7 percent of gross _-`aor: va*- es.

Pricing policies .ecane increasingly i-.c-a7 The 1973 Oi s-._ck

and t-he 1974-76 co9 r.oirv boom n-.creaset s^ar-: h:-e val:e of Morcco's ma-:-

imtorts -- wheat. suga-, and f 'ze. The 3cvernment s:s ently sought -_

.nsulare domesz:-c -arke-s -r-wcr-- - -r - e dut...a-n_.s A- e -ea. ,oest-:

producer prices for so-` --ea. a- -e.-- el ._-e -r less c.cs-tant _etwee-. :969

and 1975. thvey were increased s- -a _t y'9rc. Rea- sugar ieet zr;ces

were ke ft :ar'ryv constant t-r__g:-t_- rer iod. Z t"-he o-ther ha-d. rea_

domes::c ccns-uzer oer crr-es oec:.ed significant.-v a-nd ranidlv after 1975.

3v 979-8C .-e rea rtce or treas wn-ea- : a-r as rnv ty cee-:ourtns O s

1969-7' oce. Rel o-.su-.e-- p e eas for sugar were onl ;-as of their :959

'evels a decade later. '.nese ss:-_es were f in large par- by var:aj:e

lev_es on _;M:zCrts 0: tne sane cor;e'_r_es

One :- .. a. .. re_singv oce- _.s:_,-;r y the Governmen.t

v.s-a-v s pc:it;cal :ositlon was a gr_*in.&g e'1 gai or .;:;ease the r:si-.g.

I .

vocal demands of dissident factions of the population. For example, in 1980

talks held with labor represent.tives resulted in the announcement of a 20

percent increase n the minimum wage The wage increases, decreases in rents,

and the diminishing of certain income tax obligations of low-income families were

seen as necessary compensatory governrenIt actions in order tD counteract

potentially negative reactions to cor-sumer price increases which became necessary

in the same year as budgetary constraints became increasingly evident.

There were no noticeable shifts during thi's periad irn the

Goverr=ent's stated objectives vis-A-vis the agricultural sector. The 1973--77

?:an and the transitional :978-80 Plan allocated 25-30 percent of public sector

resources to agricuI_ure. The share of other productive sectors declined roughly

15 percent wh_le infrastructural pr,-ec:s received 20 percent of plar. resources.

The remaining funds were diver-ed to services '-.c:_g admin4stration.

Agricutura infrastruct-re. p'^Cipa_ly ir_ga_or procects. took the lion's

snare o: reso-urces. _. the two p_ans, t.e CRYVA absorb'et 65-7C percent of all

ouob ;rescurces a._ocate t_c agricu_ure. Lano under rrtgaticn expanded

apszcx--a:,-:y 24.222 h :-tat tUss<-,r a^ cn. .: to :^ ot, reaca::r.g a _otai cO-

.0 -CCC hectares. Under the :97-80 ?l.an. which sought to complete on-going

_rojects. 28.000 additional nectares oer vear wete brought u.nder irrigation.

The Gover.-ent -began s4ni-fcant rnterven:oon -:n service and i:nput

priccing durin.g t-his period. The In:ern:n:sceria. ?rici-g ̂ or=i:tee .cnitored

ihe activities of t-e private i.p u _irnorters an-- ^:str-bu:crs s..n-t

..-e-.^.a;_or.a: fert:lzer prices increased _50 percentr-i.. 1'7, at w:-_ch poirnt

the Government inter,vened tc protect producers from the price rise. A parastatal

fertilizer -agency. FER-lMA, was created in- ;974 and was granted a moncpooy on

--rpo-ts Furthermcre, oomest:c pr_ces were :.ntro-'ed through a subsidy program

58

which reimbursed producers For the difference between real costs and

administratively set reference prices. Ali margins for transpoL-t, hpndiing,

blending, bagging, storage, and distribution were also fixed. These measures

crowded out the private sector. Although the fertilizer price regulation was

intended as s temporary measure in response to the sharp rise in world prices,

tbe system remained in place following the decline of prices in 1976. As demand

for fertilizers and the real cost of fertilizers increased, the subsidy burden

grew. The subsidy did fall from 95.7 million current Dh in 1973-74 to 49.4

million current Dt. in ;977 as 4 result of ralling w-orld prices, but as world

orices and demand for subsidized fertilizer continued to rise the subsidy

increa,ed to 220.7 million current Dh in 1980-81.

The fertilizer subsidy covered 40-60 percent of real unit costs in

1980-84. and the use of fertilizer increased significantly. ,ertilizer

consumption grew by 3.7,000 nutrient tons per annum. Howevec. givea the dualism

of Morocco's agricultural sector, the main beneficiaries of the subsidy program

were the larger, irrigated farmers. :rrigated crops, such as sugar crops,

citrus, vegetables, and cotton, represented less than 10 percent of total acreage

yet accounted for 50 percent of total fertiLizer in.ut i_n 1978-79.30

The Government also established a nati'onal seed company (SONACOS)

in 1974 and assigned to it the task of stabilizing the orice and supply of

se'-ected seeds However, these seeds never re-resented a large percent of seeded

area or budgetary outlays. The instit%tional rigidi.tes in the agricultural

sector were exacerbated by the National Transport Office, a quasi-monopoly which

set transocrt rates and issued authorizations for long-distance transport. Other

30 See World Bank. Memorandum on Fertilizer Demand and Pricing, ReportNo. 4526-MOR, June 1983.

t

59

distortions included investment budget subsidies to the ORMVA which fiAanced the

development, operation, and maintenance of irrigation systems. These subsidies

amounted to nearly 1 billion Dh in the 1980s-

The agricultural sector stagnated during the late 1970s and early

1980g. The only quantitative achievements during this period were in the

production of sugar crops. Beet output grew 5-10 percent per annum while sugar

cane production, :ntroduced in 1973. reached 375,000 tons by 1980. Domestic

ert esrC-nrt of anrual consumption in the 1980s. while

cereals fell from near self-sufficiency at independence ro 60 percent of annual

._.s.t__, a -c. _. ,'' '' 1-.>-, 1v- -:1rr -<l; _ ;4

with regard to two grains: (a) the enormous increase in demand for soft wheat,

and (b) the change in status from being a ret exporter of maize during the 1960s

to being a net importer.

60

TA8LE 13: SELF-SUFFICIE}KY RATES FOP CEREALS AN SUGAR

Soft Hard TotlIYEAR What Wheat Sarloy Maize Cereals Sugar

1961 31% 104% 68% 100% UZ1962 1 % 1OSI 1081 114S 100%1#3 82% 100% 108% 122% 103% 4%1964 54% lOOX 10% 1:1X 93% 7%196S 58% 100% 100% 106% 931 7%198 2SX 96% 9W% 94% 89X 14%1967 27% 100% 1001 96% 79% 17%1968 80 100% 1001 102% 99X 33S1969 so 100% 110% 106% 101% 30%1970 40% 100% 1031 97% 88X 39%1W71 49% 100% iOuS 97% 90% 501972 53% 100% O 9OX 90% 80%1973 9% 100% 99X 87X 76% 42%1974 31% 100x 981 90% 80% 51975 24X 98% 99% 100% 74% 62%i;-o ,;7% wi06 1OU* 100% 85% 56X1977 13% 98s 97% 89% eos 40%1978 24% lGOX 100% 83% 75% 57%1979 24% 100x 99% 78% i1% 81%1980 21% 941 95X 70% 87% 63%

:-i: -7;: -:% 6 31% 43X 67%1982 38% 100% 100% 63S 76% 60%1983 28% 100% 9% s5% 0% 84%19e4 28X lO0% 93x 71% 81% e80

Sources: National C"reals and PuIses Office and the Ministryof Agq.culture and Agrarion Reform

Notos: Calculated as (Domestic Production)/(ProductionNot Imports). A ratio greater then 100% indicatescountry was not export.-. Sugar rates calculatod

on the basis of refined sugsr oquivalent.

A ma-or reaso.n :or .:ese trerds -was the relative orice shifts that

took place in producer prices for -Dft wheat., -ard whleat. barley, and sugar

beets, and of coisunmer or:ces far seft wheat flour, '-ard wheat flour, barley

rfour. and whi.te suar as ;^-

are cffic'ai producer prices In :'h.s tab_.e, Wr._7e zhose for the other two grains

are actual market nrices. Price are presented _½ real -irhams, reflecting ar.

adjustment for ch-anges in the dom.estic non-agrictUtura _r-ice .ndex. As can be

seen, stickiness in. t;ne official prices =.eant that producer prices declined in

real termis during th,e 1960s for a:l four co=modities. By the early 2980s, on

the other hand, cereals producer c:ices had inc.eased so-.ewhat in real terms but

61

the sugar beet price had yet to regainr its 1960s level. More important, real

consumer prices for soft wheat products decreased continuously over the entire

period, whereas those for hard wheat and barley products increased after the

'960s. Sugar prices varied, but were lower during the 1970s and 1980s than they

had been during the 1960s.

rABLE 14: PEAL PREVAILING DCJESTIC PROOUCER AND CONSU_MER PRICES(Dh/ql, 1989= 00) (a)

________r - __ =----- ==-_-===_=-====_=_=_-_-----__

PROOUCER F7Irrs OF: CONSUMER PRICES OF:

SOFT HARD - .-LEY SUGAR SOFT WHT HARD WHT 3>RLEY SUGARWHEAT WHEAT BEET FLOL.R FLOUP FLOUR

YEAR (b' ( ' '. ,

1980 47.3 55. 30.8 83.1 83.4 68.61se1 48.6 69.9 30.1 91.6 88.9 a8.71.962 48.8 67.1 47.4 78.4 98.2 84.1 134.91983 4s.9 s1.1 29.4 7.5 74.0 78.1 68.2 142.51984 48.1 60.8 28.0 7.2 71.3 78.2 53.7 198.01985 47.4 65.5 32.8 7.0 8e 8 82.4 W.8 215.719e8 47.9 57.0 37.2 7.2 89.6 86.2 88.7 218.11987 48.4 73.9 55 6 7.3 70.? 108.0 97.8 219.91988 48.2 88.8 45.9 7.2 89.9 98.4 82.4 219.01989 40.0 39.8 19.4 8.0 s8.0 60.4 39.1 1q1.91970 39.0 41.9 22.5 s.9 s8.8 83.4 43.7 '7.21971 40.9 45.0 28.3 5.7 83.7 87.7 62.9 184.31972 39-0 42.6 27.3 S 5. 81.7 64Z 1..4 13A.9..,73 4 .... 4.3. ; -3.~s I. . 69.8 8.6. 80.8 131.81974 43.3 51.5 46.8 e .5 83.2 78.0 79.8 122.01975 42.4 82.3 42.9 a 8 82.0 90.9 76.9 119.31976 40.8 88.3 44.0 8.6 59.7 99.2 78.1 113.11977 51.9 52.4 31.9 5.9 63.8 78.0 59.2 99.91978 48.4 81.5 45.1 8.8 49.9 90.4 80.1 93.7

1979 65.8 6e8.8 41..? o.1 48.6 84.2 74.1 90.119i30 80.s 55.2 38.1 6.5 47.4 82.0 89.2 97.81981 58.7 84.4 44.4 6.9 52.0 94.4 79.1 123.51982 68.7 79.3 s6.8 e.3 48.4 114.6 102.0 124.8

984 54 57.0 ' - * e.6 ' e 3s: & -

1984 57.0 87.8 48.8 6.e 49.2 100.2 87.6 128.9

Notes: (a) Nof"nal prices doflated by non-agricultural pric* index; see Anre. >i

(b) Officai p-oducer price; see annex Table 1.I'(c) Parali e market pric-; see annex Table I'.'(d, Paraz -; earket price; se- annex Table I' l(e) Officioi pro.duc-r prica; se3 annex Table 71T.1

(f) weighted everage Of off;c;al vholesale pric-o for ordinary f.o_-:(80%) and deiuxe flour (20%); zoo annex

Tablo T; e

(9) 4arket price of g,ain plus (handling charge minus loss**) at anassumed milling rat;o of 82%; see annex Tablo 11.8

(h) SLe as (f), except with milling ratio of 70%; see annox Table I'-8(i) Weighted average of official wholesale prices for sugar loaf and

granulated suga", wetghted accord;ng to shares ir total

consuBpticn; s5e ann-x Table 111.4

L

It

As of 1980, the combination of costly, capital-intensive investmentc,Imilitary hostilities, growing producer and consumer subsidies, and drought and

stagnation in the agricultural sector created a fiscal crisis for Morocco. This

had a number of significant consequences. First, the parastatals' funding and

their ability to implement policy were seriously undermined. For example, the

stated objective of driving a wedge between consumer and producer soft wheat

prices could not be managed financially. Subsidized consumer prices consequently

began to depress prices of local grain substitutes (hard wheat and barley)

relative to imports. The combined effect of the Gove-nment's inability to defend

domestic producer prices and the overvalued Dirham shifted incentives in favor

of imported over domestically Droduced foodstuffs Secondly, public and private

sector agencies developed a large net cross-indebtedness. The Government

financed these deficits through- an expansion of the money supply. The money

supply grew by 29 percent in 1974 and by an average of Z1 percent per annum

thereafter until the end of the decade. Domestic inflation rates accelerated

significantly; both consumeT anc wno esaie price indices rose at an annual rate

of 10 percent per annum, between 1973 and 183- Tse Dirn.zm was overv-a-aled by as

much as 50 percent in the late 19/Os rel:izve to its equilibrium exchange rate,

further deepening economic imbalances.

Economic Deteriorationi-Sabi'iza-cn an-d Szr-cturaL Adjustment:

'981 to the oresent

Deterioratirng economic conditions and the 1981-85 Development Plan

marked the beginning of another period. A arought in 1981 severely reduced

agricultural output and necessitated Larger imports of foodstuffs at a time when

the second oil price shock and an appreciating do'lar had already increased

outlays for imports. Subsidies an,d the Western Sahara conflict continued to

*,-4~ _S5UEQ;J3,L, -tMfi

[-

63

drain public resources. Real GDP grew at a disappointing 2.3 percert from 1982

to 1984 while real GDP per capita remained stagnant.

The 1981-85 Plan sought to re-establish domestic and external

equilibria while promoting the social and economic development of the country.

Tne principal oblcoctives were still self-sufficiency in food production, the

promotion of exports, the de-zelopment of local processing facilities, and the

reduction ot regional disparities, but the PIan did mark a shift of policy

towarcs a more Daianced suosectoral apprUoa -LL. Tcia- o'afJ pr-;ez..d

for small-scale irrigation and rainfed projects was increased from less than 15

percent in tne previous plans to nearly 27 percent in tne ±it-ob rPlan- runding

for large-scale irrigation, which was traditionai±y allotted 55 to 70 percernt

of public resources, declined to 40' percent. Construction of new irrigation

schemes was curtailed, and emphasis was placed or. the completion of existing

irr;gation projects commanded by exist.rg dams. Despite the sign-i.^ican-:

reallocaatior of resources at the planning level, however, by 1985 actual

exDenditures for large-scale irrigation exceeded plan allocations, whereas

_nvest-ment in rainfvd and small-scale irrigation agriculture was be'ow ola-n

targets.

J Official nrice oolicv remained dualistic. The Gover--nment ersisted

-wn its efforts to delink domestic prices of strategic agricultural commodit:es

from international prices and producer prices from subsidized consumer pri:es.

Over the 198C-84 period. producer pri-ces were increased annuaLly. Of:C -a'

cereal prices for all three commodities 'prix taxe and -rix de soutienr -es br v

20-22 percent. while sugar beet prices were izcreasi-d near_y iO percent. T:nese

nominal increases did not reflect real prices increases, however, for t:e

consumer price index rose almost by 50 percent over the same period.

h__ L _

64

The large current account deficits which registered 1.6 billion Dh

in 1980 worsened to 1.8 billion in 1981. The Government's initial response was

to resist devatuLation and to increase protectionism. The prevailing view was

that the majority of Morocco's traded goods were nct responsive to price

movements and that a differentiatad wage-price policy could effect movements in

real factor prices without changes in the exchange rate. Furthermore, it wis

feared that in the short-ru,. a devaluation would worsen Moro-co's balance of

payments srtuaticn. with an even larger deb:-serv;i c burden in D rhams not being

-~ediate1v coQmpensated by ani increase in exports.3- In addition. the Gover=ment

conti^n.ed -o borrow heavily, mostly on hard cormmercial terms -with short

maLurit;es- The debt se,v_ce ra:io c'm-bec to 42 oercer.t in :982.

By early 1981, t-e f:scal c-;sis became unte-.able. Exteri.al

rCrowcng CaDac4tv disazDeared as deb- s rvice ra-ics we:e p,rojected to climb.

Desz.:e sligh: adjustments :.. 198^-8'. in '982 the Dirham continued to be

overva1.wF_ed by over 35 rercent relazl\e to its equiclbrir- ... value. Furthermore,

^e c-recia ticn of the US dollar f-crease^ t:^e cost a: ._i: Y

.e.. energy, grain' wtl-ie phospr.a:e p-:_es. u w a'5 aeos.

.ars steadi-y deci;ned fro.. 49.51/to-. -. _8I tc $34. -Cton i. 1985. The

e -.ation rate acce eratec to :2.5 e- ent it 1980-8:

The Governm.ent responded to these i-scal pressures by -unceraki-ig

a ser-es _- stabilization. and struct_ral a-";stnent rs.-ram., beginning in 1980-

ni. ^he broad r-i.nes o the package were: 'a, a devaluation of the Dirham

-~ - In fact, the demarnd For several of Morocco s -a t:ona exports,part rcu3arly in the agricultural sector. is prQbabv not crice-elastic butdepends rather nr. preferen-ial -raU-e agreemer.ts with partners. Thus, forexample, a devaluation will not -.-.ctease demand ,n Europe for Koroccan citrus,.zhizh ruist observe EEC quotas and tari.ff .egu'ations.

I t §of roughly 25 percent; (b) a corresponding reduction in the average tariff level

to achieve 25 percent effective protection on average by 1990; (c) a cutback in

expenditures, especially through the reduction of subsidies and a freeze in

administration. to contain the deficit to 7 percent of GDP. Implementation of

the package hinged on the rescheduling of Morocco's external debt.

The first steps in this program included an increase in petroleum

'prices in early 1981- Rises in the price of staple food items and fertilizer

were delayed until the 1980-81 harvest was completed. The harvest was ti;e worst

one in a decade, and tht announcement inr May of steep increases in the cons=mer

prices of sugar and flour (40 percernt). cooking oil (27.5 percent), milk '14.3

percent' and butter (76.2 percent) sparked intenss civil u-nrest. Riots erupted

in Casablanca and Ouida and an estimated 600 peoole were killed. One weak later

the Government reduced the Drice increases by one-ha-.

Another atte=o to reduce the costs o: subsidies by ra4s:-ng retai:

prices was made -. 1983. After two years o-f relative:y stab>e prices, xu-y

flour prices rose 35 percen:, sugar _oa: prices perc nt. cJ ; _

30 percent. afla Dutter -Drces 66o ocruet. A . LrWflt crae_..-'-._

mtni ium wage was announcec at tne sa-e t-ne -sh appearedtr_ s=cess-: :

moderating opposition r-t the p-nce :ici-eases. Fl'r. eSbe s. and tr - e

sugar nonetheless continued to ^arry sign-_:_canr consuner ss: es. Toe

Govern-ment made furth-er ad,;us:tients -c consur-er nrrces in September :3-8 and

agreec with the i.er.e_cr.ational _cr odnn_ 7y to phase out ccnsuner an-

ferti'izer subsidies over time.

TFe D_rnan was aeva aed b; e .derce in_ _9382 an by 6 ere-- r

the next two years. -he prctecti.e tra-e :arners oesar '-a e sl.y

dismarntled. The impact or the austeri:y program ,as to reduce imports ty near:y

12 percent between 1981 and 1983 while increasing exports in value and volume.

The public debt due in 1983 and 1984 was rescheduled and new loan were secured

from international agencies.32

Alth-vugh it is too early to make a definitive statem~ez', .it appears

that M~orocco's economzy improved as the 1980s progressed. GDP grew 4.8 pe'-cent

in 1985. whereas it grew by only 2.2 percent in 1983 and 1984. Further-more,

exports increased in volume. value, and diversity. Imports, however, continued

to rise, and the fu'Ll price adjustments scbsequent to devaluation were not passed

on. to consumers. Taxati-on of agricultural producers eased in. 1984. The

government's medium-term sectoral adjustment reform program has led to

siLgnificant changes in Moroccan government agricultural policy, reducing th-e bias

against agricultural producers. Mor-eover, good rains returned, leading to

=InresSive cereals harvests in 1-985. 1986. and 1988.

32 Pro4ecte d debt service ratios for Morocco pri-or to rescheduling were

estimated at 45.8 percent In :-983 and SC.). percent in 1984.

..

1~~cCHAPTER TEMZE

MASURES OF INTEVENTIONS IN MDROCCAN AGRICULTURE

[ in order to assess the direct effects of government output price

interventions. prevailing domestic producer and consumer prices are compared to

the prices that would have reigned in the absence of government intervention.

s z- … *:z .................... 7re -S.e r'er rr"~o< 110rtion certer or

to consumption point. 3 3

soft wheat. hard wheat, barley. and sugar beets and their border price

equivalents 4t both official and eqUi1ibri:=. exchange rates are deflated by

indices of nor-agricultural prices over the '965 to 1984 period. The same

correction is made to the prevailing domestic prices paid by Moroccan consumers

of soft wheat flour. hard wheat flour, barley flo_r, and sugar. Two non-

agricultural price .ndices are used T-.e f irst is an unad;usted deflator of the

non-agricultural GDP (NA). 3 I s used t- deflate prevailing domestic prices

and border prices estimated in Dir.ams at the official exchange rate. The second

index is caic lated by disaggregating the ron-tradable and tradable components

of the non-agricultural GDP deflator and correcting t-e latter for the effects

33 Price quotations from the tolc-ing reference markets were used toderive Horoccan cereals border prices: tor soft wheat, US hard red winter wheat*Z. ordinary protein. FOB 'US Gulf for h:rd wheat. US darum wheat, FOBMinneapolis; for barlev. Canadian ba:'ey, FOB St. L'.awrence. in the case ofsugar. the borser prices used reflect actual landed unit values in Casablanca.

34 See annex 'V for details f the calculations.

of trade and exchange rate PG.iCy (NA*'. This seccad in-ex is used to defl-ate

bcrcer trices converted into Dirha.ts at the equilibrrium exchange rate.

Several indicators are developed with these prizes. These measure

re crt, indirect, and tota- ̀ toervenriocn effects on ou:tp;u- prices, anc the

c..:-.eJ effect of direct interven-t,ion on output and inpot prices. 'Drect'

r.;er:ent:Oln .s tnat which results from pricin6 pol cies which cause the utserved

doctesr`c price to differ from t-he ,order Drice. conoerted into Di'hams at _re

exchange raote whi ch would obta.n i; -.the alse_ne -r pricing ?o':

- -a: cr. Direr:~ r.c.mwrEinal r zr-tin -.a; 'be _Z s:t !n,egat e ve , _ ,

-r ;02-rs .may rece:"-e more kCss t ancjdor c..nsuers may pay less icore) :nan :

net - :nt'r.-entoc pr:~ct -I the go-v:t- -_.e- c_s:-:zes 'taxes a tart:_ 2

Scver-.-ents s-a also _.^er-:e.: . :-e r t; - r ar t-ra:_^-:s

a range c: taxa:-n. u:scc:nat :.nilnc t :- . ?'he ra or

-;e ^ -;j? e, -t er _ .. a r e bl z :2 a : _ - e_'._ ._-.n: - ^tr -- a _

: - - : ̂ :.

r- -. *.. r.-t.( v- -: r: --:-.---: -: - -r<.~ _e

- :.-r: ke:y -'n . as.:--.. asI- -- - - ace- a- :.t

s~~~,:re w sr.--b:F~^ r >v -x .sn. ~3- rC. tS-;.h

,,, ; , 5 _*, +,_ 3~~ s-n- r rt- .c_-: -x'- ::':-r-

F 69

-"'erventions. Ar. overvalued exchange rate, for instance, causes imports to

appear cheaper in domestic currency than tney would be at an equilibrium exchange

rate, the result being to subsidize conszmnption ar.d negatively affect producti.on.

The rate of total nominal Drotection .s the combined effect of direct and

incirect interventiors o-. donmestc rrodl-tce- and consumer pr-ces.

Direct Price lnter-;erntio. Effects

ne ra:~Ios i.n Table 15 are nominal rates of rrotectio" or the

agr::2§:_r-: 7-~s.35 When the rat_o is nosizive. dor.estic nreva; -n.

a&c:u … _: _ra: r r are -e:a-:ve:y z.cre re._nera:ec ?pos:veIvy pro:ecte=;

tfha. e 'ave bee" :he zase :-af boarer pr_ce eq va:e-.:s apn'ed a: mhe

-~ _:a' exchange rma Re. Ater y, _c ases w;-ere h-e ra-tc Is negative

-s-z. ce_a: -.e cr:c- -e:s --a- --c_:- e '-2c:.a-e_ -y -_er:- -r-_es cf -

sae.c_^~e _rc c_ess --- s: -ce 'ez -.eg- -:ey r--e_- -. zr -axe_ :-

e <se measc _ :z:s -nc:- ' - -5

^s:e-- :cs -_: -- -..- ._-,--z-:.. -e*s'e-;-x- re-': -z tfem _r_e-

-.- e 7.e .*

'-e-e-s-.eta-:e a~:s :-x:sa-e h -.-s .e- :;^a.'-gess -:a-. :- e-,::va:e-.

TABtLE 1: EFFECT OF DIRECT PRICE INTERVENTIONS

...... PROOUJCER PRICE RATICS ..... .. . CO'I PRICE RATIO S.Soft Hard Sugar Soft Wht Hard Wht Barley

YEAR Mh.at Wheat Barley Beet Flour Flour Flour Sugar

1960 -20% -31% -31% N/A 5% -17% -11X N/A1961 -lSX -46% -23% %/A 6% -39% -3S P/A1962 -19% -21X -13% N/A 1% -11% 6% 48%1963 -11% -29% -44S 47% 6% -18% -27X 49%1964 -1OX -S% -49% -37% 3% 8% -32% 3196S -6% 6% -41% -50% I% 20% -26X 3SX1968 -13% 3% -43% 23% -7% 18% -28X lies1967 -7% 18X 3% 77% 0% 32% 24% 149%1968 -7% 1;% 8% 129% 0% 26% 29X 169%1969 -4% -11% -49% S7% 3X 3% -29% 1S2S1970 -12% -12% -41% 66X -S% 2% -22% 136!1971 23 7% -45% 31S 18% 23% -29X 101%1972 -14% -12% -371 -23% OX 2% -19% 31%1973 -53% -62% -33% -31% -47% -S8% -15b 20X1974 -A3s -4" _?tnK -_7'¶T 7 -7197S -30% -23% -19S -81% -24% -13% -1% -62%1976 -21% 34% 16% -81S -15% 49X 40% -62%1977 27% 18% -25% -1'% -3! 34% -5% -5%1978 16% 37% 33% 80% -12% S3% 60% 16%1979 !1% 6% -8% '1'61 -3:w t *^1980 24% -20% -29% -37% -28% -9% -12X -25%1981 lRX 4% -14% -70% -24% :7% 6% -37%1962 19% 48X 17% -24% -25% 63% 39% 6%1983 -81 -8% -441 13S -351 4S -29% 18S

984 -llX -! -16% :4% -43% 1% 3% 19%

Source: 8.see. on pr*'iti g dresatc pr: ces (nnex Tabi, V:) and >rOer prices atth- off;cia! excange -rat. mnnex

Tab* V.3) aDc the xracjusted -non-

aqr:culturai prtce ndo. (ann.,,x T s V2> -Not.: A positive rato sgn_rf:ee tOat t-.e do'uest7c p-;c* s greater tha- tho border

pr'ce (producers ar. s sdzed, conzaars rta.edi, wa-reas * negative ratiosi;nFi s-he oa2Ogt'. fprodceers ar-i axed, orsu.5e-s sbsd zed'

-at.e _. :.c` ia es :-a- -.'-.? .. r - er -- -- ;e~e _axez by an.f

_-ge reI-_a ve -o bcr_er :rces :^-e- ^ g. s.- .. -s:__ sUgar oeet

-- :^es were s=s:z ra - n - - - a o promote

i _na-.__ s- - -r-e. a : _ of the

-_. .es r _ .s -era_e .- . r estr:ct

ex_crts of barIev. I . r o r- : -.- r s .af excess

S:ZY.v, r3' .er ~ C a-. gz^ .r3 a-x 3-e- ' .erve._ -n -- t--ey market

se. l'Wt1- the ex_e:_:D 2- rrE -.n.er a-.o _vc--82 w!er.

I71

world sugar prices rose without the parallel adjustment to domestic producer

prices of sugar. protecti.on to sugar producers has been very positive.

Consumer soft wheat flour Drices tracked international prices in the

1960s, while consumers of hard wheat flour were taxed after 1964 and cornsumers

of barley flour weue taxed through most of- the decade. Sugar consLiers were

taxed unt-i l973, paying more than 'OC percent over the border price from 1966

to 1971 as domestic consume: price^ remai.e- -irxed irn cne face of declininr world

.r_ices After 1973. however. the story was dra-matical'y different. The domestic

consu-ner prices of scrt wheat f.our an.d sugar have shown a consister%- decline

-..... r -;-' cf- wea'2 -cour p-ces rema-.ec constant -

romi-ra' Dir.hans over lon, stretches with t-e result that direct Price

ntervent-cn rat4cs nave Deen _o.7-s-eg t_ve since -973. Cons=er rrices

:cr sugar were broad:, s_bs:- zer_ _98: with a two-year hiatus

1978-79. Taxaic_c^ o- the -Lar ;z.nsumers rec_.-.encet in - 82 as worI 4rices

declined sharpv .F 02 -he -_d- : -ard _ea. onss-.er cr:ces rose relative

to s_bsi_dzec soft- wheat rLo. c :-e -rc -e r- ent. ef-ects 2n barley

cons-ser nri:es aopear -t rac.k t-e -%nes- _. :>:nat: variazIcns although a gain

from the min 97^s _- dones t_c revaiLig p-ices relative :t border prices is

noti'ce.d.

Rates of Effe<.t;e Pr Žt-;t i -d oe-ara::ve Avantvage

For farmers -;o en-. az aess t_ - v ... u-t -:e aococ

-,eas_re of In_en-:ves :s .ot t -at2- wnl- rere:y

ccpares domestic prices -c -r_:es t-ha: woud hiave prevaled :-n a free-tra^e

setting, but rather the rate of effective protection which als takes account

of government interventions in input pricing. 36

In Morocco, it has been argued that production irncentives could be

extended to agriculture as effectively through subsidizing major inputs as by

raising producer prices. in addition, it was held that increases in producer

prices would iDso facto lead to increases in consumer prices and wages and thus

render the coui.try's diversification program i?nto industry uncompetitive vis a

V:s imports. Thus, in order of importance. Morocco nas subsidized to vary-ng

degrees irrigation infrastructure (capital costs). water delivery (operations

and maintenance, , chemical fertilizers, agricultural credit, nechanized equip_ent

accuisition, selected seeds, research and extension, a.d certain forms of

transport for specified oroducts- Desotie th>e breadth of the innut subsid'zat_on

program, access to and use of these inoptc i's highly -uneen oy different far-

types and -.c'rps. Various case st--_ies have de..onstrated h-at isproporti.cnate

be-eefi'cs tend to be captureed by larger. genera'ly irrigated or :igh rain-fa'l zone

_-m..ers practicing o'.r.a ag

' > ~:;re.t t____.s_,_c,~ = c-_ ^ e~'zr

:rr'a-_o.n _vestets, and, tc a lesser extent, to water delivserv ne-~--ork

operat_cns an.d na-ntenance costs, and -. erhaads machnery serv-ces. Fertiizer

siksidies h^ave averaged about 51 vercent o- orocuctrc-n or r-ocrt _ sts :n -ne

The cac._ati- cr.i:s: ( ?Aj - a a' - -. - :, where 'A?is :fereva ling domestic -rodu_er ,r ce, a s he -val_e cf intermediate-c-.-._sn domestic Prices as -aid byv t:e ---d_cer nclding relevant taxes

a._,-_r su:s d2es' ns he border eq_'va_ent pr -cer cr:ce convertef-.ttZirhams at the ocfic'a' exchange rate, ad 'Fi i-s :he va:ue of :n.te-Tnediate'-.p_-s at border prices ccnverte' dnto '-.ams a- tze of-__a- exchange rate.The formula thus com=pares dsmestic val_e-aaed w;_': r-ernational va:ue-added.4s -:th the nomrna' rate o- rotec: o. a rs' e -ate "niJcates that -r-e

rrc:ucer is being positively prc:ected. -h a negative rate ind:cates that the_rz_-Uer is being taxed.

~~~~~~~L..'~ . r, 1 . -...........

I~~~~~~~~~~~~~~~~~~~~~~~~.

las decade. Although consumption has risen rapidly. 'y about 8.5 percent per

anz:m in the last decade, its use is highly uneven. While sugar crops (and

high-val-ued export crops) use the reconmzended dosage, average fertilizer use on

cereals and other rainfed crops is signif-cantly below recommended doses.

Sugar beet prcduction. in fa_;. benefits from a wide range ofI goverr.ent Incentives and services. Production technologies are fairly

homogeneous. relyi^.g on selected seeds, chemical fertilizers and pesticides, and

tractor mechanization. In addition. about two-t'irds of sugar beet area is

grr-gted. :hic' represents a major transrer or resources to the sugar beet

orod--ces.1 Irrigat-on invest-ent- costs are recovered by abo-at 25-30 percent

-. ie o-erat-ons an`. 'air.enance costs are -ecovered _y vabout 5' Dercent. 31 For

irriganed sugar beet. t-e subsidy e:e.enn o-f irrigat I-o th- s ranges fro I '3

(Tadl)a to, as hig'-. -s SB -Mouiova2 ercen-.t o he tota: oroduction cost -er

.ectare t wit- a -aweighted average c-^ abo-_ 22 ercent.

1 vereals. or.n the o3ther na-.d. are _roc._ec _s'ng very litte_

wav of i=nzroved inouts. -Te Cu v o0?. ,i_ .e , ::

ran-fez cond': o-.s, w-,--: ... S- C- '_o_a -aL e t :-e>?'

_:no :-av-e e^-ouraged t-e _se oD 'mprove_ n.p-_ts to a greater extent t.an n-ave te

rvya?-z extension age-ns. Cost of produt ion sr-veyv _ata have not vet been

-a''ected _.n Yo-o_ c. rmean-..g that es_m-naes of t:e aetua distribu:io or

:rodu_c -_ont ec u e s :rn ra -.f e areas a-e unav3'I'.

Anct:ier o-eas_re -t ze c-siderec nere :s tne cn-est;c resource --Cst

coe:ci:ent- (DRC, whic: evaluates the com -ara-:ve advantage -hi:h a cou.ntrv may

nave :-n tne r-f -^ a a rtcu.a. cc .oO2. t s:-ng a given ecF. e T

37 M.AR.AA:RD. ?_oliicue de Prix . . op.cit.

_ - K=

74

nRC ~t- tZtcZ - ;vvW.LiUf actrvi-y maces et±ricient use -- domestic

factors of production (land, labor. capital) in re'ation to the amount o5 value-

added generated by the activity. when outputs, inputs. and facto.s are valued

in economic price,-38 if economic efficiency is an overriding objective, a

country would not want to use its commerciai policy to protect a production

activity in which it does not have a com=arative advantage.

The estimates of rates fc protectlo. and comparative advartage

presented i4n Tatle 16 are taken from two different sources. 3 9 B-th st:udes

relied heavily on publicly available secon.-ary _a.a and sufter as a consequenre

from some lack of ore.i5ion. Furt-er=ore, direct corMparabii-y may a'so s-ffp

since the two studies used dif:erent n-ce ser-es. h-e oninial reasons for

the differences between the '97,-8' and d 85 resuc s derive 'rom: 'a, t:e

devaluation of the Dirnam since :982; t-he _ecl.'ne A-f sDme in:erna:iona.

co=modity prices; (C-C the abolizion of a:: d rec: taxes _n agr:ct--ra :_nczores

and border taxes on agri.ul_ra:_ 1.Pts sin;e :-82: and. -d. e _se r: cservec

market Drices i1984-85) as cppose- tc o:ff ca 1 ::xed a- dr:Oes (1971-80)

.. e: .^ _ -e __Vc. ~' ~ cUt-'v a o- a:.:;ve a--van:age ne r._^fin .ngs are

38 The DR 1. caI-c_ ate- by ---; d-ng te -c-a: eo-_n c vau:e of domest_c:actors of production tsez one ^re _--- _ c-.cd:- : by (the border-_ice of cozr.odi:V I minus t-e ec.onM>.. :a'e 'f tradable invuts used in the

-roduct''Ont of 0^e t,nt O' co=cd:-_; ',, -a . -e:na-iona_ value-addec. A

o: o ess znari lna :..ca-es t a- .. ee va:e is generate_ in val_e-acde- by

-:;e D7oductoio ofctota- - t an es ex_en..e_ -. D`estic resources for ets* troduc- on . In T7 i caS is s=ld tc have a cvnrar ative adan.:age in

ets production. nr: contrast. a DR c-f greater -h,an 1. indicates that more isexDended i-n domestic resocarces than tne vaue-added gene:ated by the activity.In the latter case, a -oun-rty is said t- have a c-miarative d_sa-vantage in theDrod-ucric on of that coLm-nodity.

The first is a World 3ank d`esk s for _ : n--e .__5197C-198C, VorldBank. EHIPA2. St_ of Ag c ul-_--a Ir ces and n.ent ves. April 1984 and t-hesecond is the more detailed st-_dy -^r ,;e-8t MPRA4_ ?olltiue de ?rix -

? -c:t .

75

sufficiently robust and accurate, however. to indicate broad trer.ds in the

incentives regime. as well as relative orders of magnitude and rankings for major

[ ~~~~crops ~in Morocco.

4&L.5 Z5 '1-~A A~& -Rc :v C8c:oJ. A~C _--.FAR:WE A0VASTAGE GP -RZKC:PAL '=~PS

t.~~~~~~ .. ...

:970 :q75 : a_ Pe14-E5

RA'f 4 E:

SOfT WCA -t'tO.t.Ona *_c?, Q,.* -:3 -:.41 6

_-6 -2.7 -23 71 72 81 3% >' 04 0% 91 7+@.-* _crr <_ao -- S 8 53 -23~~Z -:2% SS 29S *2S C6 -3S -39 q

D _-'-. _s, ,.r.4t <.'.:.:'._ -3S -i 76 -6s -51 74 23 421 99 sa -Qt 53

:Zb, oa -_c-- _.. - :51 - :5 5: - :51 - :215 4s1 50Q 2 -:81 -:5. 5:...-. * _~- - _c~> c _.* ; _ * _ s 2< S % 621 ;- -:81-201 45

271 ,81 : 6:-

rs~~~~~~~~~~~~~~~~~~~~~~~~~~~~4 5% ---. 7msc:s

:~~~~~~~~~~~~~~~~~~~~~~~~. 0% 2^= 5e<> 3 .5 7S

.. ,. ! ~~~~~~~~~~~~~::s -7t 45

*_ ,,*:ze 3: ot -CIT -::S & U:721:' 3 2 :1Th21S2 3:

-- s., 561 2 2: - 3a_c :5 - S C63 2 5A 3:1 796 2.

_ _ _. _ . . . . _A -_ _ _ __._ _. _ . .

2227' $c- -5*- -- -4- stt czvio r X t - c- aveeage

protect-o^ to agr:c_ ture :rase. s_ ghtly over the ~ ecace :970-798C as a

result of exs--a-ge rate a2._ w z0- _ arke: :ice :oveme.-:s a-d as a, resul' o'

increasi..g s-IsI_:za Li tlo zts. an--; t -t . t.he sec:er. c:.Eeren-ia.

incentives were z ve the :-r:ge. es-c aLly :t-e sugar ( o.;ort

substi2ut=or- sectcr, over -he rai.-ed cerea:s s_sector hich uses -ore

traiitionai techn:>gies Ftya _y by :98, _esr' e ss cessive devalluations

beginnruilg i.n 99-82, benefits -rom the devaluation _.- not appear to have been

ts _ .= i_z_ X~~~~~~~~~~-&t

I76

; trnimitted to producers and protection appears to have declined for most crops,

excapt sugar.

Another striki.ng feature ofI the incentives framework over the past

fifteen years i-s that prottection afforded to c:o:)s is generally inversely related

to thne countrv's comparative advir.n_ge 4ixi producing the crop. Crops in which

Morocco has a comparativ.? advan-age are -:ypically not protected and are,

furthermore, Denalized relative t-o o-uter :rons anid other sectors of the economy.

Overll,rai_n-fed c-ereaLs routonreceive~d nega-tive effective protect-ion ?s

ran-ge frow. -20 percenit tc n ti esr::ir-e t.) ~ ~ z;I. ~ ~~~~in cereals prdc On er th- trt_:re :RC ou 5 to 1.~,. Furrrer-nore,

s:-nce rainfed farmers enn..cv rfewer :trvzS izonDo-rs anc.I .~~~~~nminal and effective crr nr.ates a=re r-Icselv. :e7ated an-4 the '-ev factor

.

.~~~~~~~~~~~~~~~~~~~~~~I

t w-ic'- ~~~determines trotecti_On mev -s :s :. .z; rZereze"ve` z-v Droducers.

Yet ;u7a betan an av;e strcnz Z 4_::ec:`ve on-otection ranging

.o 77 n.ercen:. �. 7~, exe~r :n w -r d sugar prices

7n n avorp2e. Suzar- 'rorrro11dZc;~ti`~ "- as mad_e _nfi::n se Ot Zo-esri:C

reso3urces. D? C s f or suga r -eet 3nd Zane. nc=e azaa:n exceptin2 19i.- h-ave z-,en

Co~ns:-stenm.. aov

tno se cr od uc edsZn r ain fe te hrue s, .e r e v Irua v t-e zsan e I:n o s.~ y ea rs.

~ns :nr.icates stna::ne r oc: ce-reas 'ops c.: iDene":: escec:`a_v `r-c

The 1986 Wo rl Sank Inr Ice:~sa and, i;nc en :ves sstudy orNo. C45-CR~indicates. n,Owev~er, t`at ir.terregicna :r-ee and re:`_ning

evei- variati.on was extensivt~ -S&- of~ th,e natrona: average DRC thu_s M~-Ls t'ezac-: th7at some regions if: xa>e _>kkala;donfatae a corpa~ative

exczDt ~ ~ ~ ~ ~~x=- sugar.hav

advantage in sugar at r ve *dv. r giver h e: rela tie elo high Ce i-es ofProducti~vity.

wo~-oceo has a I opr-v)aTr: r y al .tpoetdadae

I77

r subsidized inputs. Yet, as indicated aDove, the production of rainfed cereals

comorises the bulk of agricultural activity in Morocco. Effective protection

policy thus appears to cortradict the objective of distributional equity in th:-e

agric'iltural sector. On the other hand, effective rates of protection for sugar

beet and cane were a good deal highe'- har. the nominal rates, which indicates

that the production of sugar commod-ities has benefitted from government input

price interventions. despite t-eir high DR's. The other important consumer

co=odity. soft wneat. _oes not receave nuct e::ect:ve protection. even under

:rrigated co-.dit: .s.s4

:_dciet .-r:ce :-.nerventzzion EfCects

Ovecvaff_:ion f --he Dichar:-am. the of-'cial exch.2ange rate. wh-ch

resu_1s -n a lower Dir`a. p-se^-_-cr-e~ goods tha- wouG' be ! he case r-e

bordec- price were Convertec a: -^e e^_-- -.: - exchan.ge rate. izlicitly rec_cces

.o^:ec_-cn to prc__ce-s an- ^.ncreases su_rs:=iZa:to.n cf cons_.ers ..- e effect

on- croucer and c-ns=- -rc es su_h- ':cec _ :ecven-_on via exc-a-ge ra:e

p*_ -y s -z--- _-.---._ __ _-.-_ ^- - -. . --. 7..- .er

->.*e a e _ *--eV - -ffic-a: ex,:^nae rate re:at:ve

to thle ezx ''-'D-" exchange rate._ Since all of t^e agcic.tucral or=od.ci es

_o^.s:cered here are -radaD es. the co=tarcis^^ _f the prevailing -_ th-e exc-ange

rate-ccccec~-* pr:.- es acears as 2 _ rc g ' i.e _anzt .

agr -t _-_:re su_. ee rs--.-. .- -;-e e^,- re ecr . d.ener s:_yv 5v, Cn

4jes ;z.e the _ai: t:-ar i gatew soft w;ea: ocec_ecs also tenefi"lnro i,pu si._- > :es, is arge' .- :e the fa-t that domnesz`c prco'D er c

prices were larg!iv be'lw `-er ir db;r ecuivalents. t ns p_ ing d ov thee--ecz:ve Drotection ca-es.

42 For estimation of the eqi-,-iri exhange rate. see annex : FCr -he

pre;a.1ing dom-es-ic p-ice t.tervrr.-. e 2'-.s. seeanr.ex Table V.S.

:S .i .:' .C.,:i.: ,-, I.v } - - - . i : ..

7 8

average, 15 percent. The handicap was at its peak in 1978 to 1980, by as much

as 30 percent. Only after 1981 when Morocco began to devalue the Dirham as part

of its structural adjustment program did the penalization of agriculture due to

an overvalued exchange rate progressively decline such that by 1984 the

divergence duc to the exchange rate was at its lowest point ever (8 percent).

TABLE 17: INDIRECT PRICE INTERVENTIONEFFECTS

Produ.e.r & Consumer PricesYEAR All Commodit;js

----------------------------------------

1960--I

1962 -11%1963 -1%1q64 -!1X196d5 - :0%19641968 -112%1967 -z81

1959 -649

1970 -14X19711972 -*7X1;73 -:9%174

19af76D -:_5X1S77 -18%

979 -29%980 -x

:'983 -: 6%-8S

Sofrco: Arn-x 'SD :s *S*f.! a nd Net.: ia;c4lt,ed as

> '(P~~~~~~~~~~~~~~~~~~A; /NA '-(A' E "EO E°/?,A-))

dC.dd Dy

PA; pre .n9 : n,r ' agr!C',!sl commodityN A ca' = Ct. J o'-9r C ' P defta4tor?A= t-rad and *zcr'ang -t- p scy-adjst*d

non-ar; c-~t..-.: i:- P d.f:ator

E * ibrc:a * xcMango ateE° : ffic a: *xchargp rate

70

Total Price inter-vention Effects

The divergence of prevailing domestic prices (annex Table V.1) from

the prices that would have prevailed in the absence of direct and indirect

interventions (annex Table V.6) _s estimated in this section. The calculato:.s

are made by comparing prevailing domestic prices with border prices. converted

Eintc Dirhairs at the equilibri=m exchange rate.43 The ratics presented i nbie

18 are thus net nom.inal rates of protection. The graphs which follow the tab`e

cozp.are the e.te c:s of d re^c arn- tal a I -nhe d fferernce between t- e

two schedules reDresentin -the effect of ind-4rect (exchange rate) intervenzi on,

which (as ex?Iained above) was fairyv ._c.stant until: 978.44

43The calculation is PA 4 ? A-PA. NA" '( A: NA A here Ai > prevai`ing domestic pro-durer or e.se; s the oer p

e^_:va_ert ^ro4uce. or cor.s-.er~o- int eret4_.o 3irhan.s at the eoui.::.;;-.

exchange rate: PNA is the unadjL stel ncn-ag-ic_:tura' price index: a-.. N s

the trade a..d exharage rate pe_ cy- a *steo d n-agricult ura: price i._nex.

For the p rpose o: graph;ic a: p rse n:a: on. the c-:nr.a .

nrotectior. due tc direct lnterver tion - as derived by netting the indi:-effect (NPR.) from the total effect :NrRTj

L-T-

9n

'.0 :8 EFEr-- OF TO-AL -ICQ >CSN *' ;

Soft 4-r Soga Soft P.t w-4 _tt Sri "*~EAR WN.at Wb.st Atm. *, .. t Fo.- o I o.

:eo68, - 2fl -38M -4ro % iA -6S -25S -: N/A:061 -24% -521 -3:S N/. -St -S1 -- 1 SN/A:-;62 -28S -30 -^72% S!A V. -2:S -SS 33S1:163 -20EA -36% 5 s -4s -^6% -3AX 39S:0" -,-Ss -:Ss -54% -- s6 -6S -25 -39S 27S:95S; -:S;S -AS -- 6% -579A -« :S -: 2SS

:055i -^72S ~-aS -Aq% -A : 6 -: C:.S76 -2-I -6 6 -37S -37 -:^ -;:_6I -:-S -2S -6 59^S lS _:S :6S :S:969 - 17'% -235 -"SSS *?S O - -38S 30:nlC -23S -23S A"8 23S : -:cs -3:S :7S

:f^: -:3S -^S -S S -4S :S SS 0 7^ ?s2 -27S -25S -46S -42S 1S -. 3% -3 S :SS:C3 6:S -sn% -44S -SI% -snS -S4S -30S 3S

:5374 -SOS -SSS -us -70-A -45S _ -^S - 8%£ A - 9~~~~~~~~~~~~~'75 - ZS -314S -30S -S;AS -35S 6 -3:S - S7S

1976 -3S S : S4 -25S -I0S SS -67%S

^ w7. ~~ ~~~~~~~~ ~~~~ ~~6s : -3n% -37n -:^S :?SS - :6%

v :;-8 -*.s ss~~~~~~~~~~~~~~~~5 3S 42 -32S % 2,I -4%:.C -. AS% -2 S S^3 QS *ss -: 2S :5% -.%: -5% -39S -AZIS A -45S -39A -2S% -ACS

::_2 3S 2n : -39% ->ssA *;s Z.s -Ss:433 -^Cs -m -;2% ~~~-2% *;EA -,.:S -3;S 3%

- - - -- I-- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

,~- i

r:~~~~~~~~~~~~~~~~~~~~~~-I

j ~~~~~~~~~~~~~~~~81

Srapr.s Tab_.e 18 - Soft Wtheat

RA ES ' OF NC:'-MI IAL PRO Th'ThQH (7't .1~~~~~~~~~e ';, cl

r !I~~~~~~~~~~~~~~~~~~~~~~~~. 4,

< * . - tt * '. -

-~~~~~ ~ .5 *

3. :

I -_, - ,-*,<4__n.,nu_, W *.5 - a > rw

_ ! _ _ a - , _

A .I ?t Z n - -c.:s. ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ' 3' , J 3~3~' ' . 33J

~~~~~~~~~.- - A"i afitA" l - - owo dam

t f 83

Graphs Table 1 - arley

IRATES OF NCMINAL PROTECTcION (%)

I - ~~~~~~~~~~~~~-4-- NOR 4EtWt

___ PR t

. S

AhA

AtA

B~ ~' r-A _s-4 C rv' f - ,. .. . .. , . f.

~~~~ 0 'P ~ ~ ~ ~ ~ ~ ~ ~ ~ RR 'w

a _- .~ t $ 3~ t_ 2 3 t ,_ 0 n * * * 3.a

DuATE3' - eI1 r l ri4AL4 >R( 'TFCON' (%o)Bijrly Flour

-f - '- - '- |~~~~~~~~~ -|4 WPR t

I~~~~~~~~~I ^

84

Graphs Table 18 - Sugar

RATE'S CIF N,c)MINAL PROTECMIC)N (.-70)Sugor BEeI

L'~I rz rF i

fw~~~: - 9' Yra -Xr }S -nv; 2 A0f t 0 S 0 e 0 Drt -t -r -rr

I _ _ _ __ ._ _ _ _ _ _ _ _ _I_ _ _C _i _ N

t~~~~~~~A wPR t: t;P

Suz:j rP(TE?r;4 (%:i R *rt

1.5 4 O' /:;' .

o: --------------------

! | .> '-+.~~~~~~~~~~~~~~~~~~~~'-

.-1 k S- ;" I

-t 2 ,, t-, ...

/

85

The predonmanet feature of the comparison of prevailing prices to prices

,which would have prevailed in the absence of direct and indirect policy

interventions is that the indirect exchange rate effects have had an additional

disincentive effect. as evidenced particularly from the large negative rates of

j protection to grains (total intervention effect). The patterns of protection

afforded to domestic sugar producers continue to show the volatility of

internationil prices. Sugar producers received negative nominal protection in most

years except those years of sharp declines ifn the world prices. This sugeests that

deliberate domestic price setting policy was not, on the whole, sufficient to

compensate for the indirect ef'e-ts.

The pattern of consumer prices broadly follows that observed with direct

intervention effects only. However, the additional effect of the overvalued Dirhan

was that the :ubsidization of soft wheat flour actually began as early as 1960.

rather than 1973 as suggested by Table 15. 'secause of irdirect consumer subsidies

due to exchange rate policy. In the case of sugar consumer prices. which shifted

from being taxed during the 1960s to being subsidized since 1974, the additional

effect of exchange rate policy was to reduce total taxation in the earlier period

and increase total subsidies in the later period.

In sum. it would appear that the effect of '.orocco's emp:lasis on

industrialitation-led growth has been a strong pena'ization of agricultural

producers. The affect of direct intervention on cereais output prices has largely

been negative. with the exception of the period 1977 to 1982 kthough this is less

cornsistent in the case of barley). The effect of indirect intervertion across the

board has been to reduce total (or net) nominal rates of protection, in some

instances (cereals) to negative rate?s when direct intervention alone seemed to imply

positive protection. Thus, though Morocco has consistently held high the objectives

t!

of food security and self-sufficiency, it has failed to translate these into

positive protection for cereals producers. Sugar beet producer: have suffered from

widely fluctuating pcaitive and negative nominal protection- This was due. however,

to international. not d stic, market price variation. Only in the case of

effective protection have sugar producers benefitted significantly from subsidies

on input prices, despite the fact that on average the two sugar commodities. beet

and cane. do not make efficient ure of domstic resources.

Consumers of agricultural comodities, on the other hand, have benefitted

strongly from price interventions by the -state. To some extent, this ties in with

the primary policy goal of industrialization by keeping Moroccan wages competitive

with those in other industrializing r-ti'ns.

~JAh?m Pon

BPmDCh or I VlOUS Q RC1ANk LT

I Effects on Agricultural Output

The effect of divergences in domestic prices frce their non-

intervention levels is to reallocate resources froc levels of use which would

L - have orevailed in the absence of intervention. The effects of price policies

on output are estimated by maltiplying actual production in year t by the short-

-- A - c-nYn own-price and cross-price elasticities of supply and the direct

and total price intervention effects (Tables 15 and 18), lagged by one year.

There are few existing estimates of supply elasticities in Morocco.

Those used here were estimated in a World Bank stidy.45 They derive fro an

econometric model of the grains subsector estimated from aggregate data. The

specification is N*Irlovian with a cobweb expectations model. Long-run elasticity

estimates are obtained using the short-run estimates divided by (1-a). wnere a

is the coefficient corresponding to the lagged output in the short run model.

log Sit K B + alogSjt_l + j. blogPjt-l + clop.t + d:ogPft + elo3It-.

vhere Sjt is the output of grain j:

Pj is the price of grains l,....m;

W is the agricultural wage rate;

4 .

4- 'fSimulation of the Moroccan Grain Markets; 4n Econometric DynamicModel'. Annexes V and VI. in World Sank, Kingdom of Morocco: Agricultural Pricesand Incentives Stue.!, Report No. 6045-MOR. Hay 1986 and Abel Mateus, *TovardsStructural Ad6rasen' in Moroccan Agriculture: Cereals' (World Bank, mi eo.).AprIl 1985 vhich is the Dackground piece to the above model.

~- .: K

88

Pf is the price index for fertilizers; and,

MM is an index of precipitation.

The results have a high R2 and t-i Durbin-Watson statistic is close

to 2.0 for each regression- F statistics are also high for omn-price elasticity

estimates and for the coefficient of the lagged output a. The results indicate

that weather .s an important factor explaining cereals' variability in Morocco.

This is a factor to be noted again when the results of the non-intervention

production levels are discussed below. While fertilizer prices appear as a

4 ¢:f!c,t factorlin the short-term in the case of soft wheat, the other input

price index (wages) is not significant. perhaps due to the wide use of family

labor vhich is not. well represented by the nmdinal daily wage. The resulting

matrix of short-run supply elasticities, on whizh symmetry conditions are

imposed. is presented below.

TABLE 19: SHORT-RUN PR'CE ELASTICITIES OF SUPPLY

....... PRICE OF: .

Soft HardQUAJTITY OF: Wheat Wheat Bailey Sugar

Soft Wneat .e9 -. 08 -. 05 N/AHard Vhest .52 -. 10 N/ABarley .76 N/ASugar .15

The signs of the elasticities are as expected, although the strength

of the barley own-price elasticity may be surprising. The signs of the

cross-price elasticities are also as expected. vith competitiona most marked

between hard heat and barley (-0.10). Competition between soft wheat and barley

89

is the weakest of the sets of cross-price effects (-0.05). since soft wheat has

_ sore stringent water requirernts than barley. which has a higher moisture stress

level. However, the absolute magnitude of cross-price effects is lover than uras

anticipated.

There are no crass-price elasticities estimates for sugar beets and

cereals. For these crops, coipetition for resources would operate principally

in irrigated areas and to a lesser extent ia the better rainfed areas. In fact,

I[ ia X -rc__ z=-Z-zl *8 s.-A.r beet are Dart of various four- and five-year cropF. rotation patterns of sugar beet, wheat, sugar cane, forage and vegetab?es

practice6 in irrigaL7 a:-as. = -. e-z '-'n-vstances. suRar beets and soft wheat

would be considered co*plements, vhile in other potential rotatious. where soft

wheat hes a lead role, the two crops vould be considered substitutes. It is most

likely that irrigated sugar beet would be replaced by citrus aud vegetables,

cotton (in the Tadla area, but not in the more huaid Gb-rb) and soft wheat. maize

__ I____~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

90

or soy beans. 4 6

Long-rtm orice elasticities of supply are derived from the short-run

sup ly specificaticn through the short run eiasticity (b) and lagged output

coefficients (a.47 The estimates indicate an adjustment coefficient of about

0.6. such that long-term own price elasticities are estimated at 1.62 for barley,

and 1.6 and 1.24 for soft and hard vheat respectively. The long-term supply

elasticity for sigar beet is estimated at 0.37.

rh - al tr nt 44sth obtstined in the absence of

government price intervention, presented in Table 20. is calculated as a function

or snort- aad long-run owa-pri.c aca z's' ' c _ f -e *0 . the

degree of government intervention between prevailing domestic prices and border

prices at the official exchange rate (in the case of the short-run direct

intervention effect) and at the equilibrium exchange rate (short-run and long-

run total intervention effects) in yea- t-l. and actual output levels in year

t. For sugar beet only, similar calculaticns were also run to estimate short-

46 That citrus and vegetables do not play a larger role is due to atleast two factors. One is the constrairt of external demand for Moroccanexports. The future of Moroccan (and indeed all Mediterranean basin)agricultural exports to the European Economic Coenunity (EEC), the largest marketfor Moroccan horticultural exportsj has been threatened by the expansion of theEEC to include Spain, Portugal, and Greece. A second factor regards domesticmarket organization. Until recently, the export of Moroccan horticulturalproducts was the manopoly of one agency, the Esport Marketing Office (Office deComnercialisation d'Exportations. OCE). The 1986 MARAIAIRD study irlicated thatt.%e sargins between CIF and FOB prices on the one hand. and FOB and producerpricvs on the other, have increased steadily over time, as OCE overhead hasmounted. As producers received an ever decreasing share of the CI? price. thismay have served to reduce output from non-intervention levels. Thus. it ismis-*ken to suppose the counterfactual that a decrease in intervention in theju for sugar beets would automatically have led to an increase in thep ion of exportables.

-47 Given the Nerlovian supply regression specification described above,the long run elasticity would be (bll-a).

t<_sE~~~~ - - - , _

91

r anm d long-ram total intervention effects based on the degree of intervention

betvetn domestic awd interuational value-added.

.: 3i _ _ ~~~~~~~~~~~~An _ _UM _rs: _" "} e~~~~.m g.no ) , ~.3r a.-1Kr# _ 1w r'r ( * ) ..... ... ....

Sot lb.d ,' _ . 5 t b swt _ ,I et M %E ;t0 sw_o_ so swr utr SW so utr 5ND MTLr so tr*W Lxr1^p

4 : S"O~~~~~~~~~~~~~~q 322 71A 1Le~~~~~~~~~~~~~~~~~lg 21 n z , 20 3M isus zz 2C S"

I"M 401 1130 6 1 7 24 6 -= 12 US42 S S f f -a -7%

M 363 1*26 196 1w SS 73 1 121 46 146 33 44 94 -7 -4 -14S

'~~~~~~~~~~~~~~~~~~l 1"5 S W 14 13 2 'a X 22s x ls Wm W 71 17S~~~~~~~~~~~~~~~~~~'S 'M SW 3S 1t * -1M -4 -I( 22 6 S 7 8 -~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ .- <v s M -n% -7 s 0 3s OM

1$ $50 100 460 on a* 46 z 11 3 4A -146 -46- -1_ -112IWO "w 1630 24 I so " 26 21_ -a4 -is : £IS 10_3 -46 31 !-

:vn 62272 W SE 12- 2 s s -9 nu1s nW 3S s2 -US -W -W 11 -Xl? z2 72 SW sa3 24" is" M A M - Ss 3S 4-XW _4M s I -i:nis W-2 11 6 12; V7 73 1ds 2% is O 1 272 46 OM s as s 1

s<A 473 WS* sW 1* 301 2am 1 245 62S 46 16 Ssa 2 1sI" -X;v :,4 = IWS 2 706 16 2s six 1vn 23 55 1 22 1115 - s 1

L91. _W5 S 10 260 2173 1. 263 5_ 46 S 1:2. .. 6 14 an S 117 22 10S _W 149 Is 2.U Sm -14 -112 -2 -14 -n2 -1S 1_ 146 46 Z197 4# 1441 23 -2811 -4 -_ S -106 -M -7: 2X 296 74 i 46 as 141 "197 490 ;c7 s 2WS -M 46 S -246 -36 -aS -23 -2 -42 -s4 -13 -a -21 .4196 4W M1 2210 2413 - 4X 2t -1 72 24 71 M 533 -115 -tS -a -46 -1414t1 611 1tI l 21.15 -10 -21 -SS VS ,4 2 7113 4 6 m 2ff 1461 777 1~7 2t 4 -14 -421 -46 - s 46 71 146 19U 473 11. ts 7_ 1t81e'2 72 14 2Z 2l -6 Os as -2 -21 -34$ -72 27 6O 41 VS 46 146 0174 61.a 12712 1S O is Vs 2 -13 46 111 3 93S -:: as -as is -222

aJ/ ;^_t;<_ 1_~~~~~~~~~~~LS , %>_. _i,t_4Tl .1, _ _ 1_is%i

of _1 (r.bI. 19) o: Gto Cal Ii_*< &.S o ejlu&# fbc-ta - AClwl _) (Act_1 wto,)

- 9_o1.--. 4; -. t _ e'tft 146 - D,wo% Offi,oteIAT - LA-*.a W.I o.tot .ff.m

a - ua, iW_r.. .t*,_.c b-% WW_t . ie

b -- ti. 0.0w, boat WAa.t .Iw.;.t. V.th -Q 9. _., "".d

vesults indicate that production of all cereals would have increased

for vach of the period under a non-interve7ation scenario, taking account only

of direct price it :;tic. Lone-run output effects parallel the short-run

changes in production, 'dth the anticipated increases (or decreases) being

accentuated in view of the larger long-rur. supply elasticities. Soft wheat in

particular would have witnessed an increase in production frcm 1960 through

1977. Production would have increased by 3-11 percent through 1973 and by 18-30

percent for the price boom p^riod fro 1974 through 1977. Since 1979, with

declining world prices, p-oduction vould have declined by as much as 19 percent.

Hard wheat output would have followed a more varied pattern: increasing by as

I*4.*

92

much as 21 pereent through 1964 but declining marginally from 1965 th=ough 1969.

After 1973. there would have been large swings in hard wheat production.

increasing during the 1974-75 boom years when production would have increased

by 19-25 percent if higher world prices had been passed oa to producers. and

falling an average of 8 percent below actual production levels from 1977 ta

1984. Barley production in this counterfactual case would bave shown a dramatic

increase. On average, production would have risen by ahout 20 to 30 percent.

It must be cautioned that in the case of all cereal crops, which are

cultivated primarily in rainfed areas, the predicted production increases would

deloend on a 'normal' rainfall pattert. Duae to the severe droughts in 1961 and

1981 for instance, the near 30 percent 4ncreases in barley production predicted

for 1961 and 1981, respectively, could not have been realized, irrespective of

,he prevailing price ratios.

Direct output effects for sugar are evaluated using the producer

price in the abseuce of interventions and not on the basis of value-added. At

the prices whuLch wouid have prevailed in the absence of direct intervention,

production would have followed the wide swings in world prices. Had producers

been exposed to international sugar prices, Morocco vould have produced sugar

at lower levels until 1973. Thereafter, a see-saw pattern emerges 'with a 12

percent increase in production during the world pride boom of 1975-1977. followed

by anott-er total decline ef production with the dron in lagged world prices in

Yz - Ovk <z]#ig l -.

'iI93

1 ~~1978_79.48

In addition to direct price interventions. the indirect effects due

F . ~~~to exchange rate interventions also affect the allocation of resources. Results

indicate that the total effect is that soft wheat production would have been

higher by nearly 10 percent through 1973 and about 25 percent higher during theI 1974-77 period (short-run total effect). Output since 1978 would not have

differed greatly from current production levels, given the relatively low total

-e:z- e ^<ro+tion on the soft wheat producer price. Barley production would

have increased by an average of 25 percent over the base case. with increases

vt ;-- Z rZ-z^:~ r-o8^cte f-r the 1960-67 oeriod. By contrast, hard wheat

output on average would have approximated current output levels, increasing by

only 4 percent for the 1960-84 period.

It is perhaps tautological to state that, given positive output-

price elasticities, an increase in producer prices -o nor-inter-vention levels

48 Actual sugar production in Morocco in fact increased despite stagnantzeal sugar beet producer or_ces (see annex Table II1.1). ISeveral explanationsare offered for this phenomenon. First, the increase in output is a functionof the rapidly increasing importance of irrigatzd sugar beet product,-on. Secondis the fact that sugar is produced exclusively within ORMVA zones and thus formspart of an obligatory crop rotation pattern. While this pattern is not alwaysrespected, It does give participant farmers access to seasonal inputs(principally fertiiizers anu waLte. anj zredlt. Th.S, dPclared olantinas maydiffer from actual plantings. Various supply elasticity estimates for sugarbeets have thus coLne up with insignificant price elacticity coefficietits. A 1984study by the ?ood Strategy study group at HAMA has estimated a svpply functionfor sugar beets for the 1965-1980 period as a function of beet prices, productioncosts, rainfall and acreage. The resulting own-price elasticity estimate forbeet is 0.50. See Groupe d'Etude de la Strat6gie Alimentaire. Etude de laStrateRie Alinentaire Marocaine: Analyse de la Situation Actuelle et Projections,Projet de Rapport de Synth&se, Rabat, January 1984. This estimate is ratherhigher than the output price elasticity figure of 0.15 used in the World Bank'sAgricultural Prices and Incentives Study, although not implausible given thatbeet is an annual crop. Sihird is the phenomenon described in the previouschapter, i.e. that producers aave benefitted from high effective protection towhich they may be more responsive than they are to output price protection alone.

z -... _.; - '-. -

94

would hav-3 resulted In hncreases in output oizer actual leve cs of production.

rhe question to be asked is why the soroccan Government maintained an overvalued

nDirhan. which resulted in negative pxice incentives rnd therefore reduced level

of agricultural output relative to what wauld have been the case had the Dirho4

been set at an equilibrium rate, in the face of its professed objectives of foo~'

~~~~~self-sufficiency.

ercen of thOne part of the anfwer may lre in f misunderstanding of the seelingw

i'cosless' strategy of Dirham overvaluation. rhe dual penalic dion of the

agricultural sector due to negative domestiz drcducer price incentives and an

icreasing'dy overvalued Direas intensified as the cn a odity boom (1e73) set tn.

iouncing fiscal pressures also became a grfoing concern to policy makers at that

time. It will be recalled that by 1976 th-e budget deficit bad leapt to 42

percent of the budget and a full 16 percent of GDi. Imports of cereals were

artificially cheapened by the overvallued Dirham so that. wh4en facled with the

choice of importing to satisfy domestic demand or procuring domestically from

producers to wham ever inCreaSing official nominai prices were Deing paid. the

structure of incentives vi-ewed at an of-ficiai exchange rate led Morocco to re'y

increasingly on the international market for supply-49

Effects on Consumption

In order to assess the effects of pricing policies on Eonsumption,

quantities consumed of cereals and sugar were derived from production and trade

49 The same logic should hold for sugar imperts as well. However, thesedid not change significantly cever the 25-year period. It is theorizea Žxtt thismay reflect differences in tk' structure of capital ownership between cero'zzsand sugar subsectors.

f~~~~- -

1 ~~~~~~~~~~~~95data. Daestic grain production data were first adjusted for seed retention a-td

losses. sttin.ted at 15 percent of gross production. get imports (corrected for

exports) were added to derive total gross availabilities. In the absence of

reliable data, no interannual stock adjustments were possible. tLese gross

availability data were subsequently converted to flour equivalents using the

milling reduction ratios, as presented in the cereals £rmex. In addition. barley

consumption was set at 50 percent of total domestic production. 5 0 Sugar

consumption va. expre -sed in zaw sugar equivalent quantLties. Domestic Deet

producticn was converted to its sugar equ:ivlent, assuming c 16.5 percent sugar

content level atd corrected for an industrial sugar loss factor of 1.5

percent. 5 1 Caua production. with a net sugar content of 9 percent. was also

included in total domestic production. Imports, principally in the form of raw

sugar, were added to dom6stic production to estimate total consumption.

The last available household consu8ption survey in Mo-rocco dates

from 1971. Few quantitative ,tudies of Moroccan consumtion patterns exist- 5 2

The Food Strategy study estimated individual demand functions for each major

consvp,tion ite. However, the results are not consistent and were rejected for

50 "-is Is e 2. r t be,t e- informed guess. Even asstming theparameter is correct for any given year, there is little reason to expect it toremain stable interamnually. In good production years. barley is consu d inthe form of meat. This switching between food and feed uses for barley is mostlikely a key stabilizing feature of traditional agriculture. Insufficientmodelling of this feature is also one of the weaknesses of the Hateus model.

51 Moroccan sugar industry norms.

52 A household budget survey of experditure patterns across 14.500

households was carried out by the Direction des Statistiques of the Ministry ofPlanning in 194-85,, but results were not available in time to be used here.Th. first non-governmental analysis of this new data to date is presented inKar!i Laraki, 'Food Consumption and Food Subsidies in Morocco: Justificationsfor Policy Reform' (Ph.D. thesis, Cornell University. 1988), which was publishedtoo late for cowsideration by this working paper.

I

I

I: ~~~~~~~~~~~~~~96

t'nis study. The demand elasticities used here were estimated with data from the

1971 survey and a pooling of a8gregate time series (1959-84) ana cross-section

data expanded from the 1961 and 1971 surveys, using Stone's Linear Expendit-re

System specification. 5 3 It is specified as a log-additive utility function with

win i m consumption lewels for each c-m odity group. set at t)O percent of

observed consumption. Nine group- of corodities are defined: soft wheat, hard

L wheat, barley, maize, s-gur fruits and vegetables, edible oils. livestock

- proauc~~~~~~~~~~ts%. ^fi && oAc- bc a A. ¢ .111<w' _ '' z -'Ct

goods in the sense that all goods are potential substitutes.

pitcxitD ' Pitcgi + bi(Ct - ijlPitcgi) for ii1

where Pit- cons Ir price of good i, time t

etD *demand for good i

gi 'ainimum subsistence, consumption level. for i. and

Ct - consumer's expenditure in time t.

Compensated own-price elasticities indicate that soft wheat and

barley are ouite elastic in dmnd. Sugar. vith few subttitutes on the other

hand, is relatively inelastic in demand. The derived cross-price elasticities

are asymmetric. Furthermore, from the hoogt-neit, of degree eero condition

imposed in derivation, all other goods not entering this study have been grouped

53 See World Bank. Ca ensatory Programs for Reducing Food Subsidies,(2 vols.), Report go. 6172-MOR. April 1986.

* 1 _ ____

97

as the residual good category.54 The matrix of price elasticities of demand are

presented In Table 21. go long-terK desand e asticities are available and only

short-tern elasticities are used in this study.

TALE 21: C,TSAKTED PRICE ELASTICITIES VF DIND

............... PRICE OF: .Soft Hard

wheat Weat Barley Sugar OtherQUANTITY OF: Flour Flour Flour Goods

Soft Wheat Flour -.700 .056 .020 .013 .612Hard lheat Floar .032 -. 575 .017 .011 .515Barley Flour .042 .062 - 796 .015 .577Sugar Oi4 I . 2C .v7 -.258 .217All other .612 .437 .752 .219 -z2020

? ~~~~~~----------------------------_-------------------------------Source: World Bank, Cpensatory rograms fnr Reducing

Food Subsidies, Report No. 6172-MOR, April 1986.

The incremental consumption wh*ch would have obtained in the absence

of government price intervention, presented in Table 22, is calculated as a

ftction of comensated own-price and cross-price elasticities from Table 21,

the degree of government intervention between prevailing domes.tic prices and

border prices at the official exchange rate in year t, and actVal consumption

levels in year t.

54 The indirect intervention effect (Table 17) was used to simulate theeffects on 'all other goods'. This assuwption introduces a bias into theargument in so far as it assumes 'all other gooes' to be tradables whereas theconsumer basket contains about 50 percent in non-tradable services and goods.An alternative hypothesis might have employed the PRIPK wedge. The bias hereon the other hr'd would suggest that *all other goods' are composed ofnon-agricultural goods whereas other consnuer items clearly contaAn edible oils,seats and fish, dairy products. fruits and vegetables, and other agriculturalcomo dities. The first ass qption was re-ained for the study where it was feltthba% the bias is less marked.

.~ ~ ~ _ _ _ ._ __ _ _ _ _

38

TAK.E Ms . m

le. -" - 177 4 s -^ - - alisa .9US Soft "U U is -' -S. _ is 12 .f 4 AM S W V T As as - M - a 5 4 5 4 6as 5

11W an An "s 05 es - -IMK -M as is is asit". ma SW 1* au a as a -V -si la USiws an 4W WY -l a M us -2S -its is 2U4 J w ac6 - 15 .M S a -1 - a 2WiIT i U7 4.4 51F -1" - no IN in id. s 2Wiz AXIS tax6 U we -45 -ts 246 izA its i 4

SUS nr US @4 6 S . - -us .so" Mr ax on an as Es a.1 is -icm -w -m atan1 797 fLs 797 4W US hiA 146 *M -225 - 246 2W1972 701 1i37* US tc is ns ns -las -2S a a1573 lUC US am an -U -24 -11 -n -75 -46 75 75Mz4 oe. U 741 GM -M -am -Zs -la -ii -s-

i;' __ M -.- ; _ .-. -= -__ _ = 3 -:21to lesg au 764 -as -Us - 20 315 146 -17s -14_1if x i 425S .S -a is a -s -as191 U t11W 9o . -I= -ts am an 3 Ms a As1Ct l 14W 911 5MO la -1s 125 116 we Ica K 751w if". as 71 so. -is -xis -a - -a -M212 mW 4 a" on -in -- s9 xs uis as 2a -s Nlow I= S an 640 -22 -its =1 _S 2S _S c is

711 2" am am U - - 46 4'6 -- s -i- An

1Ass 22 SWn 440 7112 -a -1M a1 a9 de AN a 4

1.c.s: 0.rect .wic. C_*t;a 15). 4 c._ .s.t.icit.i (T'abl 21)

;_%.: Act.I Cevwswt;e. CIg. ct.la -i ed .+0a. -_) ' 06. )left _.e Flt_ . (qiF i.p.Acu * .16. (W-X) * (g_1_,.- 6 .2lEt; ra,i

4. US 7r.a..sU t_tal t C-; t. I... *f -*$_ i<tl) .Di

I-- ,.at Fl_. - (rt;- ;0e - W) ( a1-K)) * (12 . mla ;-t .)

to be we. $iW for _k~ w * ' or- 1 I **_eie (6 i;.. * . * ). . ((Sast prt*o. - __- r ;o) * (Ca- 9t;o * e _.wa.7 i-rot) I)

- ;,a.-tn. X 0..ta. _, whot- . di; ra__*o a; 4 ffe. suD -_^t-.*aa 6.4.6 , ; wffect.

wo broad periods can be discerned. Prior to 1973. the consumption of soft

w-.ea- and hard wheat flour would not have differed greatly frox actual

cor.si-.ption levels (direct and total effects). Barley consumption in all b-it

a few of these years would have been far below actual levels, in some years by

as =ach as almost 30 percent. This suggests that Horoccan cereals trade vas not

very efficient at alleviating situations of exceso: supply vhich pushel prices

below their border price equivalents during most of the 1960s, particularly in

the case of barley. Sugar conrumers were the most penalized during this period.

A restrictive trade policy kept domestic sugar consumer prices well above their

border price equivalents. with the result here that average sugar consumption

_

99

1oeld have been as noch as 41 percent above actual consumption lew ls (short-

. total effect).

After 1973, howverer. the Goverment of Morocco began to intervene

=ecb more through consumer subsidy policies. It will be recalled that this

coincided with a period of extreme political ir.tability. At the same time. with

phosphate exports doing well on the international market, the Government could

afford to undertake interventions which would appease the populace. Most

striking is the effect an consumption of soft wheat flour, which would hare been

sharply reduced in the absence of consumer subsidies. Consumption of both hard

-h*.i end berley fl,ur, on the other hend1 -Quld h-ve been sharol' higher.

Interestingly, sugar constuption in equilibrium wvuld have been less

thAn actual consumption in only two short periods. between 1974 and 1977 and

again in 1980-81. vhen the wcrld price of sugar rose. In the other years,

consumption uould have risen above actual levels by a few percentage points.

Thus though the Government's sugar policy has received|a lot of unfavorable

attention from interuational donor agencies in recent years, the aggregate effect

on the consumer side has not been to encourage significant 'over-consumption'

compared with non-intervention levels.

Effects on Foreign Exchange

The changes in production and consumptI.cn discussed above would have

resulted in gains or losses cf foreign exchange to Morocco. The value of the

net surplus (deficit) of production over consumption valu., measured in border

price-. is calculated to assess the effect on net foreign exchange earnings of

the direct and indirect pricing policy interventions. Intervention has cost the

Moroccan Go7erment both in terms of foregone production and of higher-than-

anticipated levels of consumption.

100

Tnc resNtal consumption quantities, estimated in the prevlious

section. are converted into their traded eqaivalent forms usin the physical

conversion coefficients discussed in the cereals and sugar annexes. incremental

demnd for flour is thus expressed in grain equivalents, while sugar production

and demand are expressed In raw sugar equivalents. 1Reasons for these

transformations are twofold. First. incresental physical output and demand can

be thus be compared directly. Secondly, the net gains or losses can be valued

by their CIF or FOB prices. While Horocco is currently a net importer of all

of the co00odities studied, the non-intervention scenarios indicate that Morocco

has the cotential to become a net ex-orter of barley. 5 Changes in net barley

production are therefore valued at FOB prices. Changes in production anm

consumption of all cther comoodities are valued at CIF prices. Table 23 pcesents

the physical incrental ch]ages in demand and supply and their foreign exchange

value.

SS If any ccomodity showed consistently positive net (adjusted for basecase net Loports) productioc surpluses above and beyond domestic consumption ona 3-year ioving average, Morocco was considered to be a potential net exporterin that coodity and FOB prices were applied. If. on the other hand. net outputgains moved about parity, or shoved consistent net losses. CIF prices were used.

t,

IivTASE 21: TOTAL F4R=QIN EX(HANO SAVIS OR CROS

.IO ML...W am .....-A O HrOF UWE OF S E Of

TUgAL TOTAL TOTAL TOTALYEAR EtS I TS EPWT TS

lrow196 ox 71 1us 1411962 1I 9o us 231963 7 67 1ff 16slo" 45 a 18 19Xi36s 21 21 17% 1SX

!~~~~~~~~~~~~~~~s - 190 -IOX -4%=s198 2%- -i

i>- w 1#*~~~~~~~~~~~s -20= -lox -1.9% -lox1979 -14% -13% -14% -13S1970 15. 19 4S

,192 6 31 221 271s192 25X Ws 3%2a

1974 7e1 us so FMS e e ceS I S t O S 47I

lo"S f l 20, oet -m 2r re e e a.s se'' 19" at a s -2e -Rx1990 17% l1 19S 12%

:l'oci 22X 13S 29X 17X t19a t 6 e to 12a 7

* a finr iuiae a e l

190 5my ng/otexrse as 2ecetgeo

19f4 nX s 7X sx

Sorco: Nti n<:re_te I -it (dsort-s, I o :run) from Tablo 20 not incr_molctlton froae T;bl- : d eS; rein or beaptoi. vAntsa Totarlet

totimo r timl Yalued aa FlO(barey) or C;F (otlm) prices.

eltso A pofitheca ltio fisurg esdicat a t sn thr doe for;cit s rxchan-e Id hfoe occurrd o udr a naxt-;trvntion rconrio, wh; 1a r_et; vo f i garo i nd icrte a nt I aiof foptign oxcdhneo wobed ha l b e occurredeSbarp Tota Expirtns esAci al toe 9l Lot

sve ag/coot oxprei as pwcont"g oftoa e xpert v ffi

Sharo Total Import s =Anrl tota not

total vtr alue

Results of the calculations suggest tbhat in the lcag-run under

equilibrium conditions MorocCO would have gained foreign exchange ovrer the entire

[ ~~~period. The most important Savings would bave been realized because of a mr,jor

decliue in soft wheat consumptiou, especially after 1973. Long-run gains from

102

non-intervention are more important thAn short-term gains due to the higher

supply elasticitier.

Effect of Interventions on Government Bud&et

The structure of Morocco's revenue sources 5 6 revels the inportance

of indirect tases (turnover and consumption excise taxes) and customs duties

(duties and special import taxes) vhich together account for 6u percent of total

revenue (1985). The share of customs duties which are ad valorem ros,e over the

1970-84 Deriod with the progressive increases in the special import tax.

Keanwhile, t-he share of receipts from sales taxes and sperific consumption excise

tates:-t'na to decline. In 1984-85, direct taxes represented only

one-quarter of total revenues with the remainder ccaing from stamp taxes, levies

and contributions fror government wo3nopolies.

Agricultute contributes little :n the form of direct taxes. Until

1983. Morocco had an agricaltural inccoze tax based on assessed land produc'ivity.

The rate ranged from 8 to 20 percent, with exempticns to tncowes below 1400 Dh.

The absolute amount collected from this tax vas tainimal, however. tnd n-ver

represented more than 1 percent of total revenue. In 1977. this tax yielded 52,

million Dh from approximately 210,000 farmers with incomes in excess of 1400 Dh.

In the early 1980s under the combined effect of delays in adjustments to the

assessed land productivity and the consecutive droughts, the yield From this tax

declined to less than 0.5 percen.t of total revenue. In 1984, in a popular

gesture, the tax was suspended until the year 2000. There is also a tax on

56 For more detailed discussions of Mcrocco's tax structure see also

World Bank, Morocco: Ecorscmic and Social levelopoent Report, Washington,D.C. 1951 and World bnk. Morocco: Industrial Incentives and Export Promotion.Washington, D.C. 1984.

... a-. .. 4~~~~~~~ __ _ _ _ __ _ _ _ __ _ __ _ _ __ _ __ _ _ __ _ _ _ _ _ _ _

3|a~~jS *~ to 103

"und-.valod land" at 1.5 to 2.5 per-eat of assested ~-alue, although it bas not

been eaforced.

ertain imported agricultuzl goods a-ad inputs are subjected to

border taxes. Of these, sugar, edible ails and dairy prod-ucts are subject to

ad valores castows duties ranging from 7.2 to 22 percent in addition to the

special import tax and a 10 percect stra duty. Until 1982. agricultural

equipset was subject to tariffs of 6.5 pe:7cert on tractors and 15 percent on

all other agricultural equipnt. In 198_. all taxes on agricultural equipment

were abolished. Fertilizer, seed and cereal imports are not taxed at the

* border. Consumption excise taxes are also leried on sugar, tobacco, coffee, tea

* : end wine. These excise taxes were not included in the budget analysis Eince they

'9Jo not have an effect on production incent!ves for sugar and wine, and Morocco

does not produce the other commodities.

104

TABLE 24 .- EFFECTS OF PRICING POLICIES: REVENWES,-:>X,-costant Dh, 1969-100)

r: ? S uTA CUSTOM DITIESTOTAL REVEES

.;t:-zu1turat Agricultural FROMYEAR Thc%n tax Equipment AGRICOLTURE

1960 NIA N/A N/A1961 V/A N/A N/A1962 NIA NIA NIA1963 N/A N/A VIAi964 oiiA Vi/A NMA1965 N/A N/A NIA1966 N/A N/A I/A1967 NVA 5.1 NiA1968 N/A 11.5 NIA

1969 V;A 11.9 NIA1970 45.4 9.2 54.61971 51.1 10.6 61.71972 44.8 7.9 52.71973 35.5 9.5 4501974 46.4 13.2 59.61975 28.4 17.6 46.01976 35.4 15.6 51.0197r 30.2 22.3 52.51978 36.5 15.0 51.41979 43.0 17.7 60.71980 22.0 12.0 34.01981 2Z.7 12.2 34.91982 6.8 29.k 36.21983 1.8 .C 1.81984 .0 .0 .0

--------------------------------------------..--------------

Notes: NIA mears date -ere un1s'llble-Agricultural income tax data from World Baak sources.Customs duties are estimated from average tariffrates by concodity and Office de Changescouimodity-specific import data.

The cinmilative receipts from the sector are above shown in Table 24.

Direct tax and ctxstons duty revenue accounted for 2-5 percent of total revenue.

declining steadily from S percent in 1974-75 to 2 percent in 1983-84. It can

I) be concluded that the Government has not sought to raise revenue directly from

Current expenditures to the sector are in the form of subsidies on

production input costs. Among the most important of the producer subsidies aref those for irrigation network capital and recurrent ccsts, fertilizer, and credit

I (see Table 25). There are major subsidies on the capital costs of irrigation

network. As stated in the 1969 Investment Code, the Government takes charge of

f # 60 percent of the investment costs while farmers are expected to pay the

j 0 remainder. However, due to exemptions and non-recovery of the costs, less than

20 percent of the costs are actually recovered. Water charges are also not fully

collected. In addition, irrigation authorities provide counercial services to

farmers in their zone for which no cost recovery exists.5 7 Disaggregated data

of these subsidies by major crop are not published. These were estimated on a

per hectare basis for the crops studiea in this report. Fertilizer subsidies

were instituted in the mid-1970s. By 1984. with the increased use of fertilizer

in the country and rising world market prices, the annual fertilizer subsidy bill

increased to over 100 million (constant 1969) Dh. Agricultural credit is

provided by the CECA at preferential rates. An interest rate differential on

short and mediumllong term loans equal to 1-2 percent was considered an indirect

subsidy to the sector. With increased use of credit, the implicit credit subsidy

reached almost 20 million (constant 1969) Dh in 1984.

57 See World B-ak, W PA2, Aaricultural Sector Adiustment Loan; TecbnicalSupport Rolum. Report 1o.4032-M1, Washington. D.C. 1985.

106

TABLE 2.5 BUDGETRY EFFECTS OF PRICING POLICIES:PRODUCER SUBSIDIES (million constant Dh. 1969-100)

1..... Irrigation .... TOTALOpertMaint Capital Agric. PRODCER

YEAR Fertilizer (b) (c) Credit SUBSIDIES

1960 .0 N/A RiA N/A ViA1961 .0 N/A N/A NIA N/A1962 .0 Nla N/A N/A K/A1963 .0 NIA N/A -1.7 NIA1°64 .0 NIA lIA -1.3 VIA1965 .0 MIA N/A -3.4 N/A1966 .0 N/A NIA -3.8 N/A1967 .0 MIA -194.3 -3.2 NMA

1°^!A * -2372. -V1 VIA1969 .0 N/A -259.0 -5.0 N/A1970 .0 -62.d -300.6 -5.0 -368.41971 .0 -67.3 -325.1 -8.3 -400.71972 .0 -71.7 -32.2.8 -8.2 -402.71973 .0 -76.8 -361.9 -7.9 -446.61974 -65.3 -70.4 -345.3 -6.8 -487.71975 -89.0 -79.1 -409.7 -7.') -584.91976 -33.3 -85.5 -444.4 -13.8 -577.01977 -28.7 -88.4 -401.2 -12.4 -530.71978 -32.9 -88.0 -422.6 -11.9 -555.41979 -43.9 -84.9 -412.7 -10.9 -552.41940 -7.6 -98.4 -503.2 -10.6 -619.91981 -91.2 -103.3 -519.5 -10.2 -724.21982 -88.9 -124.1 -5 C.4 -16.2 -749.61983 -76.5 -128.2 -531.0 -19.5 -755.11984 -112.1 -134.3 -503.5 -17.5 -767.3

Notes: (a) N/A means data were unavailable.

(b) Irrigation Operations and iaintenazce (O+f) prorated on aper hectare and not per cubic meter basis. thus is biasedagainst cereals.

(c) Prorated per hectare.

F - _ _

r s 107

Consuer food subsidies are another major expenditure item in the

public budget (Table 26).53 Three commodiRies -- sugar, cereals and edible oils

-- account for the bulk of the total consumer subsidy expenditure. The subsidy

on dairy products (essentially milk and butter) was abolished in 1984. Sugar

consumer prices yielded revenues on a year-to-year basis until 1974. In 1974,

sugar, edible oil and cereal subsidization began in earnest and increased with

growing consumption subject to variations due to vorld prices. It vill be noted

that from the total cereals subsidy bill are deducted the variable levy on

imports and the parafiscal marketing tax. with only the net treasury outlays

mentioned here. Host recently, with the decline in world wheat market prices,

the Government of Morocco actu&lly is drawing revenue (i.e. net flow is positive)

from the imp.irt levy. though exact figures are not available.

58 They are presented here for the purpose of cocparison only. There isno direct evidence to suggest that agricultural producers either benefit directlyfrom or are negatively affected by them.

I.-

108

TABLE 26: PGETARY EFFECTS OF PRICIW. POLCIES:cOSU~StISI1ES (a; i oa constat oh, 1919=100)

TOTALSugar Dairy Edible C1easl CIJ6WE

YfEAR Products Gi Is (Flour) SUtSIDIES

1960 N/A .0 .0 M/A N/A1961 -2.7 .0 .0 -4.7 -9.51962 16.9 .0 .0 -6.5 11.31963 -43.1 .0 .0 -2.2 -44.01964 -49.5 .0 .0 -8.0 -77.51965 31.6 .0 .0 -17.1 14.41966 6.7 .0 .0 -51.8 -45.21967 66.4 .0 .0 -32.6 33.81968 48.3 .0 .0 -24.1 24.2198W 53.1 .0 .0 -13.S 39.61970 34.0 .* 0 " _e.:1971 -45.2 .0 .0 20.9 -24.3iVI? -37.7 .0 .0 -l1 4 -49.01973 -3.7 1.7 .0 -34U.0 -397.01974 -312.6 4.8 -179.3 -153.5 441.2197J --432.2 -9.S -13S.2 -l. -? -"-?. Z1976 -296.7 -9.9 -36.8 -135.3 -480.71977 -130.3 -17.0 -93.0 -93.0 -383.41978 -147.3 -28.7 -102.3 -3.2 -231.61979 -179.9 -29.9 -147.3 -35.0 -391.0190 -214.2 -30.8 -116.0 -;86.8 -547.71981 -366.4 -43.1 -104.S -268.6 -782.51982 -144.8 -42.9 -86. 1 -39b8.0 -19" -9#.9 -39.8 -956. -319.7 -553.91984 -98.6 .0 -272.2 -436.7 -802.8

1et.: N/A _s data wr anaval!abie.Conamet subsidies *r preAented net of variabli iuport levy

end _*ketin 3 tax.

Budgetary data indicate that over the entire period in question,

expenditures to agricuIture in the form of recurrent costs and producer subsidies

far exceeded revenues derived from the sector- In fact, agr-iculturl reve-ues

at a ratio of expenditures paid to agriculture declined dramatically over the

25-year period.5 9 Explicit net expenditures represented 10-13 percent of

agricultural GDP. 8 percent of total govarnment revenue, and a significant

proportion of the budget deficit from 1970 to 1584, as presented below.

S9 Throughout the 1981-84 period, for instance, fertilizer subsidies toproducers alone exceeded all tax receipts from agriculture.

TIME 2?: S ! QTAR EI3S Of MCDra POUIaE

(; Il i.e cceetaWt oh, 19U1100)

NE=. ~.JET REV9WES AS $KW OF....7Th. wraVt I IWAL sES Total Total

FW -tZ I ApricuItorel 0overinmea BedSmtIEM AM ICULT1 SUThS AG0C1LTUE IO W 3v gericat

tOSO U~~~/A U/A W/A C/AWA V4 %.U1 U/A $VA U/A U/A W N/A

*/A W/A U/A */A Niit U/A1St' U~~~/A Ue/A "/A U/A */A */A

136 N/A U/A N/A N/A U/A U/Al MIA U/A H/A IVA MISA U/VA2.96 N/A W/A US/A K/A U/1A U/A', 191 ' V/A W/A W/A U/A */A N/A

N/A II/A U/A MIA W/A U/AU/A W/A ANA Wa

;i7 54.6 -MO.4 -#.* -M -

:971 61.7 -400.7 -3.* -0 -61U#2 62.7 -402.7 -3-.9 -a -4251573 45.0 -446.6 -401.6 - -. -A029JV74 9. . -451.1 -426.1 -I,7 46.0 -04.9 -6.9 -265

1976 C 1.0 477.0 -4=.0 -1o -0 -12%1977 52.5 A00.7 -470.2 -15 -75 -1231973 51.4 -6.4 404.0 - -7% -17%1979 60.7 -2.4 -491.3 -W - 171960 34.0 -419.9 -. 9 -105 -7% -1i196 34.9 -724.2 -2 9.3 -155 -6 -I61262 # 6.2 -749.6 -72..4 -in -t# -16196 1.6 -755.1 -7M.3 -in -46 -27519i4 .0 -767.3 -767.3 -13 N/A N/A

Sources: Toke. fram Tablin 24 .. 25.Note: N/A mee"sda t ve wvitai a.bl.

A .etivo figure rcf?.ct* renw. pemereted by the G.veriA mt f.o, theiactor, whereas. a _t;vo fi gre reflect., .z.mditsresm.Zi avor ofthe ector.

Transfer of Resources between Agriculture and the Rest of the Economy

In eddition to ezplicit transfers in the form of investment and

current expea14tures that can be traced in the public accounts. an estimate was

made of the hidden transfers resulting from production biases of the price

intervention effects and is presented in Table 2.8.

Since 1960, Morocco has pursued a series of broad development plans

vhich give the general orientation and orders magn.-tudes of planned public

investments. As with many countries however. each plan is implemented by a

I.

110

series of annal capital investmt (budget d',*:gRnpmnt) and current expend iture

budgets (buget de fonctiomrwnnt) which revise and update the plan doci=ent.

The annul budget is voted each year by the parlient in a Loi de Finance.

Planed allocation of funds (credits ouverts) are disbursed according to

expenditure program (programe d e ploij prepared by each administrative

service. The actual disbursement of funds against the alloc-ated mts (credit

dMenagement and then 4mission effective) follows control snd approval of the

[ espev;.. e e±tt ditta thus needs to be Interpreted vith great

care as the pLanned and actual allocations can differ significantly from etch

other irca year to year-

The inve%tent budget includes the capital investment and equi ment

costs of the irrigated perimeters. in addition, tertiary rural roads waich are

used exclusively by the agricultural sector are included in investzeat

expenditures. The latter, however, do not account for important transfers to

the sector. The recurrent expenditure budget to Agriculture and its annex

services covers primarily staff salaries and operating expenses (supplies,

coamunications. fuel. etc.). Irrigation operations and maintenance subsidies

are also included in this line item. In the last 15 yzars, recurrent

expenditures to agriculture have been fairly stable, re,resenting between 5 and

7 percent of total recurrent ex-enditures. Other important expenditures to the

agricultural sector are the fertilizer and credit subsidies. The former is paid

directly to the fertilizer parastatal mTDIMA against the national phosphate

ccapany's payments to the treasury, and does not appear on the Stabilizatioc Fund

accounts.

i~~~~~ -- -E ) - - ~- I-I

1 -

U U.? U OF OFS As pwert;ea of:

26 -0. .0 6. 5 S.

LOU -3.4 .0 OLS -.21 6 16146 -M.7 .0 4410 44.9 2.2 1 MNS. .60. .0 1 e.s 1.1 66 "VWn -W.? .o 70.2 41. m 4.- Is

166? -a".2 .0 X1 I"- -74. -_ -s6

205 -7666 61~~~~~~~.4 51.94 2616.4 -51.s Cs -11-%06.2 .7 40-6 M0.4 -6I. -IS -0

i -166.1 300 00.5 s .797. 11 174 2 6

1 _ 1 -MA 3.9 4292 0m4- 4-- -as

WM * .0 I.: 940. M.o 2 ?s lox 312 0 14 a4M$.S -. 4 -Ls -7SI" -'.. 127a .- .$ --741.0 - -

ami -1011.1 ;.5 392.2 WS. -74.1 -7. -261_14 -9.92 .0 27.2 2.2 -7M.1 -0 -M

~:C)A pa;%. Cpwo i-ioo a to. ao or %.w..fe, eaof 46. seco~ ahli. aa.- -. Cq r 4.ibee.f to 466 aef

__**peed.c sae4iaF. Table

_:ap;cit* %,a.. a. ;u;i g _be __.w ofvies. calca46d 1. Tuba.is (.4v ff.et..j. sd w-.u Tabls a V.1 sd V.2 (p-... I .4 d-o66c jp.;

Tub. V.14 fo_, __ dw.v*t;.a

Table 28 irAdicates that from 1969 through 1-175 when vorld conmodity

prices were highi and dcmestic subsidies were iow. resources were ext:acted f r -'a

the agricultural se-ctor. Until 1974, these represented as inch as 4 perce-nt of

total CDP and 21 percent of agricultural GDP. The source of the bulk of this

resosice transfer cam from tosse_ in producer surplus resultirg fr115 the fact

thAt the increTses in world prices were not transmitted to domestic producers.

After 1974 when domestic input subsidizsation begavn on a large scale 5r response

to the worl price rise, this trend vas reversed with increasing transfers going

to the sector by 1916. The transfers to the sector ainunted to an average 3

percent of total GDP and about 16 percent of agricultural G1P. These trausfers

to the agricultural sector have been particularly iMportant since 1981.

e

Estimtes were also eto asess whether the share of public sector

investmets and recurrent expenditures made by the Government on behalf of the

agricultural secxor ha"e reflected the contribution of the sector to total CDP.

Agricultural CDP was corrected for all direct and indirect price Interventions

in order to derive what agricultural CDP would have been in the absence of

intervention. The share of investments made on t-ehalf of agriculture from 1970

to 1984 was con-pared with the share. of non-intervention agricu'Ltural GDP relative

to total CDP. ilbez, tbhis governout investment bias raltio (GiB) equals 1.00. no

discernable bias in investment tvattemns is indicated, whereas when the ratio is

greater than 1.00. a positive iias in favor of agriculiture i's shown and vice-

versa. The share of recurrent expenditures going to agriculture caa be evalaated

in the same way. The results of t,_sa estimates are presented in Table 19 and

the accompanying graph on the follovirig pages.

The figures indicate that there was a steady decline in the share

of Moroccan public investment programs going to agriculture thlroughout the

1470s. 'While the governme-nt investuint bias ratio vas 1.0 to 1.4 frCIL 1970 ta

1972, suggesting thit agricul-tre benefitted from a larger than expected share

ofC public investnmet resources, by 1980 the- ratio was 0.68. However. as

M4orocco's stabil-ization and sectoral. adjustment prc.-graus got underway, the

negative investment bias had lessened, with CIL ratius of .9 in 1984. TbLis as

due to reductions in total investmento however. rather thazo increases in

allocations to the agricultural sde-to-. in fact, investnents in agriculture were

held fixed from 1982 to 1984.

On the other raed, theLe is a distinct rising trend over the

fourteen-year period in tho share of recurrent expenditu-es to agriculture

L

113

relative to total expenditures (se Table 29). Between 19Th and 1984. the

.goVernnt e re bias (GU) icreased steadily. from 0.20 to 0.37 In the

early 1970. to 0.7 just ten years later. This is the direct result of increases

in irrigation operatioua mintenance, fer-IIlizer, sod credit subsidies.

I

I

l

i

114

YMS.E - o f 3OEMW *. uWIsmJ MMs GU~ Si0 i mmb

vs (1) (2 M4)4 cm) (6 7) CV) (9 (*£~ 12519 3:09 2 0 0 0

i9 5 143M M g I a n S

[~~~~~~~~g is iv4n =s2 A O

s 2 4e, tU " -amsm 2

197 14435 sow 4537 51

i 1 9729 -am 2W 8152 41359 17 a" 25 w WAi 19670 ±97 am 25 i.w AV U537 14

I, __~~~~~~~~~~~

1972 3W 44t T_5' 10 ;S 197 7 194 -7l .)197 2 1 4811 5405 157 07 s7 19 -.:VS1974 2 47= -m SW9 1 -. 1

r z.~~~~~~sv mm 2 an .win 40 mo -SIWW 27M am -JO7 don 2 614 4041 317 .;U 4

if"5 210 4M -741 am9 gm W= 31.1 .9 81979 30997 34 Aw am 40 am_ .75 AW:93 S .. _ SW .W an .:.

i~~ ~4 4112 -135. ~ 3wo 4 7999 54 . .7IU 3W-74 am so" n one * I.CT .0

lqw SW un iwo5 4Mm 4 m 47 .

t.:Cal 3 eI m~()fu TuS 25.o20

cm,.~ [- Cs. () 4.. TfI 25./I

cm E4f.dt.*5s)-(5)() (4)1(1L)l

Graph Table 29

IIr-IvEQ.m1Iir vW'ST E FPErA[ITURE BIAS

| !*5 ~~1 jt\S~~.L. -:.

E3~~~~~~~~~~~~~~~~If~~~~ r r~-rr I .I I;E

= _ - X r) -r x,- *r' 1 C's - r4 rjs

~. ~, 1. -r s, rr . L r m r u .v

I~~~~~

S c_- . -; a' -- -_g_ee

!I,CATIOM OFP l3T UTl9M lOt S?ASXLI2Y AMD GMM

in "I WGLTEA SWLTOtI ~~~~~~The newly independent W-roccan Governammt inherited a dualisticfr ~~~society -in which both urban and rural elites were well organized, eacb with

special interests to appease if the Government was to remain in power. At the

same time the Gove..nment of Morocco also inherited a dualsstic agricultural

sector in whnich diffe;:ent benefits were accorded to various interests in the

rainfed and irrigated subsectors, While the Goverrnment has been~ relatively

successful In overcoming obstacles in the political aren.a, it has not been as

skillful in overcoming the dualist structure of the Moroccan agricultural sector

and raising its productivity.

This final chapter first examiaies Morocco's record in achieving its

objectives of stability of producer prices~ and cons=rptian quantities. it then

evaluates the implications foz growth in the agricultural sector of unanticipated

policy effects. inter alis the limLited effectiveness of producer subsidies in

the face of negative totall price incentives and the ciaaaging patterns of consuir

demand as a result of consumer subsidy policies 3fl producer ineLvz

Stability in the Agricultural Sector

Price stability

Domestic and border price series were compared in order to evkluate

the degree to vLich Moroccan policy makers have or have not effectively

stabilized d tic producer and consumer prices vis-a-vis prices on the

international markets . Three series of producer and consumer prices are

compared: 1) the ratio of the prevailing domestic producer and consumer prices

| . 2bisa. -ia htrfrteaie oocw eoda cir t

I117

to tbh unadjusted co-agricultural CDP deflatcr (PpIPn and PCIP?. taken fron

imex Table V.!), 2) the ratio of the border producer and consuw- prices

coaverted into Dilsam at tho official exchange rate to the -adjusted non-

agricultural CDP deflator (P'p/PI and PPC'PX& froa annex Table V.3), and 3)

the ratio of the border producer and consumer prices converted into Dirhas at

the equilibrium exchange rate to the trade and foreign exchange policy-adjusted

non-agricultural GDP deflator (P p(E* iE)/PlP* and P-c(E/Eo)PNA*. fro- annex

Table Y.6).-

Table 30 summarizes variances and Z stacistici for eight commodities

(soft wheat, hard wheat, barley, and sugar beet for producers; soft wheat flour,

hard wheat flour. barley f our. and white sugar for consumers). Analysis of

price variability over the entire study period may produce somewhat biased

measures. given the surge in international prices during the comcdity boom

period (1973 to 1975). When the tweirty-five year period is divided into pre-

commodity boom (1960 to 1972) and post-commodity boom (1976 to 1984) periods.

a sharp distinction in patterns of constmer price variability is noted.

Two measures of stability were calculated. The variance of the priceseries is a measure of the average distance of yearly price observations fromthe mean price observed. An alternative measure is the Z statistic which is amessure of the volatility of price changes from one year to the next, over time.For any price variable P. Z is calculated as

J~~~~~~~~~~~~~~~~~

- (Pt - Pt-l

for the sun of t, from (to + -) through (to e N). where to equals the startingyear of the sample period and N equals the number of observations.

TM" 20- "m IUn Y MLW_v

- urn ... s AtAs . . .. . -S ....

t~~~~ oinsr . m .m- Wi .......... . ................................. . .......... ~~~~~~~~~~~~~~~~~~~~~~~~~~~~gm .00 -00$WiP/ GO

, : urnw _ r . . mU .es .me. .0un n m . .oMe .- in. . .i_n -S

.~ ~~~~~~~~~~~~~~~m gm -m ,D AL r . . ._~ .00, ,, *,,,,,,, .,, ~~~~~~~~~~~......... .. i i ........... ....... ,,,,__....__. _.. ____. _ii

rw WP rL 0s ADM .t_m 2m ._m .o

-L Va3 ._ .04in .Wm .in4 .01 . _"a _ ._ .4GM . - .- 6143

. j

$OFF wo a on . *=a -OuM .o .0a

b~~~~~~~~~~~~~~~~~OL .02 .06 a-fs -oo . .2ws . . ............ ... .... . ........;....... ... ... Iiiii .... - ... ...... . ................................. .

o _~~~~~~~~~~~~~~aD 1097 rD .02M _. .A # Dow _casR%% FLO .4m _Z °: -- -°2

t~~~~~~~~~~~~~~~~~A <nE, a .N Aac .4mm .*66 .0" .41-1

t~~~~~~~~~~~~~~~SF VW .08 .0" -cu ... .

mm> wq .*O .027 .012 # . 01 A G~~~~~*m OL ' Io > .o* :L% .*N .0

o r SQ3~~~~~~~~02" .- 0 G: -od

_w WNWFL .otri 000 .II AM .D -OD5

.~~~~~~~~~~~~~K .. XM .02 _-0M .rA .1 w, Io

tI-;119

Graphs Table 30 - Soft Wheat

PRODUCER PRICESSCfT WHEAT

r sj

I~~~~~~~~~~~~~~~~~~VP

-f.tNSUJMER PRIC-ES-Srf AS14ET FLXR

4 L 01.4

.. K

9N)*

~~ mm 0 00 e S 00~~~~~~~~~~

CCII SJMER RLC.E

Ii~~~~~~~~~~~~~~sGraphs Table 30 - Hsrd Iheat

e

PRODU'CER PRICESt-AD WMfEA

1.3-

M.-

i-.- IV i ".- NtR PCi F --WDxR -SIHET FLX-1P

.~ .. . . _,+ Pe .

... .... .. ' v . .1 S _E _I 9 _ _i;

-0 t-l~ P-P.

>' - X- - 3 n ~ ~ ~ ~ ~ ~ ~ ~ cr

121

Graphs Table 30 - Barley

PRODUCER PRICESBARLEr

: | I s T , T I . I

L a /~~~~~~~~~~~~~~~~~a a0- 0 .- M~

,O4'N'JJMER PRIOEoSAPLEY Fr )LM

f~~ 3.

^~~~~~~~~. is

____ .~~~

= ; -* -* f ~ ~ ~ - -

122

Graphs Table 30 - Sugar

PRODU.CER PRICESSUGAR BEE

24~~~~~~~~~~~~~~~p

.1~~~~~~~~~~~~~~~i

a _- .2 Is -9 "V b-- 12 Rb-fll . ,r

PPICES-P)

0-. ~ ~ .

,_t' SUER PRICES.t-iHTE 3UL44

3] &i g

I ,1 1at1''. .~~~~~~~~~~~~4

Q @ ,1, ,, ,, , ,

a-stsse-2s£ ~0gigi-~~~0 00 0 00w- --o-

123

* ID the pre-boom period (1960 to 1972), thr' prevailing consuor price

I series for soft wheat flour. barley flour. and white sugar are somewhat wore

i variable than their border price series (domestic price variances are greater

tlha international price variances), converted intL' DirbA,sz at both the official

and equilibritR exchange rates. Producer prices during the early period, on the

other hand, were more variable on the international market tian on the do estic

market, except in the case of barley. This is so ewhat surprining given that

export bans were not in effect until after 1970. One would expect the use of

trade policy from 1960 to 1970 te result in more stable domestic producer prices.

The observations in the pre-boom pe-iod are .n sharp contrast to

those from the post-boom period (1976 to 1984). when greater stability of both

donestic producer and consumer prices with respect to international prices was

achieved. Thus V'rocco can be said to have achieved its objective of dooestic

price stability in the face of instable international commodity markets eince

the corodity boom of the early 1970s.

Output and Censutmtion Stability

in addition to minimizing the transmission to the domestic economy

of exogenous price instability, the Government of Morocco also sought to mitigate

the effects of domLastic output variability on the quantities cr key comscdities

ava2lable to consumers. This can be achieved either indirectly through the use

of trade policy or directly th_ough do estic price policy. For e-aqple, in the

case of a domestic production shortfall. Moroccan policy makers may choose 1)

to increase imports in order to maintain domestic consumer price stability, 2)

to allow the domestic price t- rise, or 3) to introduce some form of rationing

...

- to allocate scarce spvly. 6 1 Consemrsr. of course, have other recourses then

simply to purchase .co_odity X at a higher price. If substitutes exist,

constners can switch to othbr goods. La Morocco substitutions are regularly mae

between hard and soft wheat flours and, to a lesser itent, hard wheat and barley

flours. EIwer, '.apter 4 indicates that cross-price demnd elasticities amng

cereal flours in Morocco range from otnly 0.02 to 0.06 percent. For refined

- sugar, there is no other co-ercially available substitate.

It should also be noted that an emphasis on domeQtic consu-er price

stability will not necessarily benefit producers. In fact. unless the government

can effectivelT delink do estic producer and consumr grain markets, the effect

c!e consumer price management may weil be a decrease i^ producer welfare. For

exazr-ple, in order to maintain low prices for consumers. an increase in imports

in response to a domestic production shortfall may decreape producer prices and

thus have a negative effect on total producer income.

output per capita (%DIL), consumption per capita (QS L). and the

prevaili_g dozestic consumer price ratio, F,PNA, were compared in order to

assess the degree to which consumption sta]-ility was achieved by policy

intervention in spite of output variability. Analysis of correlation

coefficients, presented in Table 32, measures the degree to which 1) output and

consumption per capita, ond 2) con umption per capita .d -.he p uailr'. d=zstic

consumer price ratio, tracked each other.

61 However, unless the parallel consumer market ccmprises a minorpercentage of total transactions (which is not the case in tte Horoccan grainmarket. except for soft wheat flour), a rationing policy vill not preventconsumer prices on the parallel market from rising even if the stated poli:y istc maintain stability in the official market price of the rationed ceodity toconsumers.

125

TAMA 31- PM CMIITA MUC 11 ik CDWNUWqIM QA%VrrIM AMID POINAZLDC Do"EFM commilm rum &an

_6"m Om ... ... fi&;T NNW-.. TGMIBW ..... ONALrIf .....F�m Cos cm PM cb4 cow mm eas mm cow Cos pow cog me

tin =-a 'CLO -0 10-4 am-* in 71.S MI-4 U-4 W-4 .67jq= U0.9 W-2 -90 39.0 U-5 .70 248.7 IM-S 2M-* -I.� .44II" 4M.0 AL2 .70 31.0 W9 .76 MA 132-1 IM.0 e2.4 -M .9 21.9 1-421464 00-2 7,%.# -74 30.7 LW-2 -71 110.9 M-1 M.2 W-2 _E4 1-9 95-7 SASto" =4-S se-7 -M &I-I ou 7 ." in.& in.$ 1=4 aR_3 -at 1-4 25.9 2.2s14" 42.7 M-* -40 21-3 00.7 .70 as.* &27.0 gm -S -S.9 .00 X.r 30.7 9-38lqG7 06.0 -,&.a I-as 24-0 05.2 .70 Ift.0 U0.9 MOA 44-4 ." 4.1 24.4 2.20IOM M-0 11i.0 Wo 46.5 "A .70 IM.S IW-l 224.7 IS.,2 .92 0-3 25.2 2.19It" ?7.2 46.7 -40 2B_2 32-1 n wo.5 47-8 in-& M-* 0-8 W-3 I-MIWO ".7 80.7 -49 25.6 SCS AW 220.2 WA 130-4 ML7 30-4 0-4 1.77ivn UM-0 qr 1 .44 35-6 d7.4 _" M.2 IWA UW.2 n_3 14-1 =-I I."IW2 W3.9 so-3 _" MT 96.4 -42 33Y.6 W.1 35F.0 40-2 M 14-0 29-9 I-=ign 72.5 61-6 -05 26.0 00.7 .00 IS.S 3M -3 77.0 =.S -61 22-3 20 S &.WIW4 42.1 80-8 .76 0.2 85-t W 10.3 10-2 $42-1 43.0 .00 :S-l 22-0 1.22im so-& 41-1 .91 21-4 M-* M ft-0 W-,ip 91-6 30.2 �79 14.9 =-I 1.19IWO 412.7 W.0 ." 20. t 77.4 -40 MA 3r,0-4 MO-4 dO.2 .74 17.x go-O 1.231477 99.4 60-1 -74 12.7 Mg. 1 -SS 7C.2 '."-2 U-4 W-3 -M 11.7 20-6 1.00IV* 76.2 "A .40 2s. 1 04.4 .90 99.3 10.2 3=.O 42-6 .40 30.2 22-? -9419" $7.1 S-7-1 -06 25-2 MA .49 92-3 up.4 46.4 41-4 -74 18.0 WS -10lvw 96-4 40-4 .42 =A U1.2 .4? 4O.S 171-9 110.2 40-0 .00 14.4 01.2 _nlfAM "-: 27-0 AM 33.7 UQ.f M 48 2 IA7_3 AD-* 27-3 ." U-5 WS I-=low as. 89.6 &_ is 29.1 10-0 -40 ho. I lw�s X14-3 40-0 1.02 M7 "_7 3-2514W 50.4 WA _" 36.2 1".O -99 M.* 170.9 Wa 26-3 .67 20. _ jm_s 1.26lqsg 54-0 46.6 I.Ce 30.3 lw�o AO as T 177 & IVL IP 70 31 i M. A

It)*-" 79-4 Wo 20.2 70�4 207.4 L46.6 13A.2 40.1 32.1 =�Slqw-72 92.5 70.4 20.1 U-2 =14 124-4 M-3 SSA 9.0 25-11076-" 93-5 SS-3 26.6 W7_4 004 im.7 IWO ".8 17�3 M.S

=_2 4ai 7 X;_r �4_2 4_21980-72 473-7 330.7 st-2 263-7 GW.4 4WJ 21".3 2M.0 29A 3.2'976-04 2".* 227.9 W.7 2".6 SOO, 6 I=-* 1206.2 204-2 6.7 1.6

Z_sr"s tooo-4m 4K2. I S10.5 LIA.4 Mg-4 &GU.? AMA 3b,-4-9 OU-3 7-6 9. 119K-72 Y10.8 M-7, W.& 439-4 2214.0 474,4 2M-Z 5.2 G.s1976-" 4M.6 SOWA t".4 ads.4 1448,0 20C9 OWS.2 4V.4 11.7 S_'%

F;�."m #w;-4 f� pro&wL;o- �; da Crbleo 5 a.4 7). cmm..wwti� �i� CToble 227. �.dpwlot;w� C.-W. 1). Aw dwr;�ti�. of jp�ifi.* do.*";c pricee. mm m-e.

Tbl.&4�le qp�t;ti� *� kg of "i- (powAc.4, co-m~d) 9� -pitm� UVW *---,L C ke

O..w

Grsphs Table 31 - Soft Wheat

PER CAPITA PRODUCTION & CONSUMPTIONSCfrT WEAT

W30 ! -_

_ c1 Vl o 0- a-aX ' I T- f T I E_ 1''\ V I I T

r i.F'U 1G1UEo;_C oMRP.

Hi''0'000.

.~~~~~m --- *

'.4 */ / -

-, .-…

_ ~ -s J. ".- ". t

Graphs Table 31 - Hrd lheat

PER CAPITA PRODUCTION CONSUMPT1ON1HWP.D WHEAT

1~~~~~~~~) ~~~~~~~-4-- PAW

-4&- Cr-s4

i~~~~~~~i '* g *kV

01 -. .......... - I- 12:900 3 F X' IrlI 11 Fe- * A

a 1- CD .1 .2 I s m rM m Is 0- In a a m

PRE'AJUlUNG CCOMEMIC: c:t1SUMER PRICEWOR~ SHEAT

1m./'\ /F 1, v

.~~~~~~~~~.

i~~~~~~~~~~~~~~~~~~~~~~~4

,~~~~~~~~~~~~~~~~~~~~ e1

i4;11Z~~

L:raphs Table 31 - Barley

PER CAPITA PRODUCTION COWA3iLIMPTOtN'BARLEf

X ca~~A q~~~~~F

2v? iR~~~~~~~~~~~~~~~~~~~~~C34

1X/~ ~~ a a / i 121

lu~~~~~~~~~~~I

Cit IY I / , T

e-3 a o s 9 o

PRE'1JIUr-jG DCDi4tSt-v-'i-, (IDPN'SUMER PRIC:EBARLEY

1.1~~~~~~~~~~~~~~~~~~ ; .#- ,-~pf

t,,' 1~~~~~~~~~~~~~~~~~~~~~~~l

>- ,t1t1i

Graphs Table 31 - Supr

PER CAPITA PRODUCTION &CONSUMPTION-

UAR

20

. ,CVi p 3Q, -*oof

tI I -iuI-

,,. 9r n .. .. .

2.4- t 4-

* I!\

0i-I N 22°tt8ig

S~~~~~~_<

- -~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

TANSE 32: CORRELATION AIALYSIS OF PUR CAPITA PIOUIMTONCOESPTIOU. AND INhtTS AND PEVAILID DO$TIC

MAR SOFT TOTALX :Y WHEAT WRAT WIKT DARLEY SWAB

QSIL : %IL .995 -. 231 .026 .982 .702

S1L s IL -. 758

%DIi P CIPX& -. 172 -7Z4 -. 086 -. 651

Notes: Q5IL - quantity supplied per capitaQjIL - quantity demanded per capita

t*§ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~ -ce -r -z-

PcI?A prevailing doetic couscr price ratio

Analysis of correlation coefficients indicates almost perfect

oositive correlation between output and consumption per capita of hard wheat and

barley. This is not surprising given the minimal ro'e which trade policy has

played with regard to demand management of these two crops. Sugar per capita

production and consumption pattarms are sodewhat less positively correlated.

resulting frcm the fact that the production,~ series virtually starts frem zero

at the beginning of the period, whLile imports (and thus total availability for

consumption) existed from the beginniL~g of the period. In the casje of sof t

wheat, however, there Is a weak negative co rrelation between the two quantity

131

series.62 In years of production decline. consumption has actually increasei.

This indicates that soft whaat trau policy has not been anaged with consumption

expausion, rather than stability. in mind. Thus, while not articulated as a

specific stratagy of Moroccan policy making, it would appear that mansger.t of

demand via consumption stability (sugar. hard wheat, barley) or even expawsion

(soft whe-at) has been achieved by the Moroccan Government.

the rise in soft wheat consumption is explained by the fact that policy

makers in F er-\oc a att=;vrtcd =-t t^ .epn per capita soft vheat consumption

per sc but rather to replace soft -heat for hard vheat consumption. As explained

earlier, soft wheat is cneaper on the iaLc.at icnal t and tf lete hbs been

available to !orocco at extremely favorable prices under concessional trade

arrangements vith France and particularly with the United States. Thus it may

be more informative to consider output and consumption of hard and soft wheat

together. Combined figures indicate a steady increase in per capita wheat

consumption over the entire study period of 1.7 perc5ent per year. while total

vheat production stagnated.63

The sIgn of the correlation coefficients between quantity consumed per

capita and the real domestic const r price is negative, as expected. Also as

62 In order to test the possibility that import policy may be implemented

witi a lag, a correlation coefficient was also estimated between production percapita in time t and consumption per capita in time t+l.l The hypothesis 's thatthe 'ntroduction of a one-year l9g in the consumption per capita series vouldcorrect the negative correlation between production and consumption. Thecoefficient thus re-estimated is -.218. or still negative and only slightly lessthan the original coefficient of -.231.

63 In 1985 and 1986 record cereals harvests were achieved at levels whichwere 36 and 98 percent, respectively for each year, above their average levelfrom 1961 to 1984. It is too early to say to vh.t extent the abundant rains andthe increasingly positive producer pricing polic. environment each contributedto these results.

_ s .y ~ _ _ _ _ _ _ _ _ _ _

IE1' - |

1332

expected. the relationship is particularly strong for soft wheat (-.724) and

sgar 1. 651), the two cromodities in whose consumer pricing the goverrment most

actively intervenes.

Growth in the Agricultural Sector

Despits the articulation of a number of pro-agricultural sector policy

obje-:tives and the fact that producer prices. particularly since the aid-1970s,

have been quite stable relative to prices on international markets. the

agricoltural sector in general and the cereals and sugar subsectors in particular

nave not performed weii.

All measures of agricultural sector prosperity in Icrocco turn a corner

during the 1973 to 1975 period. As vill be recalled from chapter 2. three

factors stand out as catalysts. First, there were the attempted coups d'etat

of 1971 and 1972. which threatened the viability of the Government. Certain

groups in Moroccan society, particularly urban workers. university students, and

the opposition political parties instituted to represent them, grew iui.ceasingly

vocal in their demands for new entitlements.64 Second. the phosphate boa

occurred almost imediately thereafter in 1973, providing a new injection of

public financial .esources. Third, external sources of financing became

increasingly available fron an international banking community flooded with

petrodollars and seesing crvdiz-worthv nations- such as the uhosohate-rich

Morocco, to whom to recycle its liquidity. The combination of rising demand for

public investment and expenditure programs and newly available sources of funding

64 See A. S. Sen, Poverty and Famines: a4 Essay on Ent,tlement and

Deprivation (Oxford: Oxford University Press, 19Fj), for his discussion of thevarious means through which an individual can cr"mand the right to food.

I~~~~~~~~~~~133

led to the inau ation of subsidies to consuwrs of strategic agricultural

cldities. ang whu.ch were soft wheat flour and granulated sugar.

The }brgence of Unanticipated Effects

Yet, as bas been seen. the unanticipated ccenomic effect of the

politicaily-motivated consumer subsidy policy has been to raise demand for

subsidized c o odities beyond domestic production levels. Increased agricultural

imports have been the result, and an increasingly overvalued official exchange

rate was maintained to bFlp 'pay' for them (Table 17).65 Also. Korocco's dett

burden escalated rapidly, both overall and in terms o; its composition in favor

65 The allocation of ever greater resources to a program of consumersubsidies can result in tbhe demand for imported food grawing increasinglyinelastic ever time, as the affected co'mDdities comprise an- increasinglyimportant share of the total household food bill. Thus, in time a reduction insubsidies, particularly for key agricultural coinodities. wil'l have a limLitedeilfect on the food import bill. For a discussion of a similar case in Egypt.

* ~sLOe Grant 5Scobie, Food Subsidies in. Egypt: rheir Impact on Foreign Exchane andTrade, Research Report No. 40 (Washington: International Food Policy RLesearch

: IInstitute. S83).

i 1

134

of foreigm creditora." In s effort to stm the tide ox rising iworts. '.

progrm of Improved producer incentives had to be 4-tsritrted to try zo induce

inreased domestic output. Yet that has not been forthcming. Why?

Resaus for the poor performance if key agricultural comodities 'soft

wheat, sugar) in spite of positive producer incentives in the post-phcspbLate boom

kre several. %bile aggregate transfers may have been In favor of the sector,

tbese input subsidies only benefitted a subset- of producers. Total ontput price

lnterventions. affecting all producers, were negative. on the other hand, for

66 Morocco's total outstanding debt iLz..eased five-fold from 1974 to1983, measured in constant Dirhams. In 1974 the debt burden vas split 60-40between fcreign tnd domestic creditorr; by 1983. those shares had become 80-20.Over that period. the composition o' debt outstanding among foreign creditorsshifted as follovs:

lnterna.ionalDevelopment Foreign Foreign Bank Supp.ier Other

Year Institutions Goverrments Loans/Advances Credits toreigrn

1974 S.91 86-41 2.3S 2.7?.1975 8.82 82.0Z 7.7Z .5: .0%19/6 6.4z 59.6Z 30.65 - 2.411977 6.9Z 55.4Z 26.52 4.3. 7.C.1978 8.82 51.6Z 30.0? 3 8? 5.8&1979 9.72 48.41 32.21 3.22 6.5Z1980 e.6z 55-3? 23.62 1.}1 6 ?1981 6.5? 59.8? 22.12 .62 Ii982 10.8? 60.3Z 27.8Z 1 0Z 121983 12.S? 54-4? 28.3? .6Z 3.62

Source: Irternational Monetary Furd. Government Firanciai Stati tics. 1985

The importance of foreign bank loans and advances rose from an insignificartproportion in 1973 to accot-ot for nearly one-third of the total foreigu± debtportfolio. The share of financing originating from international aevelopmcntinstitulticss rose as well, but by a sach smaller amount.

t:~~~~~~~~~~~~~~ i .. ___

F | aD~~mst of the post-boo period. Furthermore, clite remius a key vriable

t ~~~regmlating output lerels. despite investments in irrigation 67

There is also some idcation that producer inentives have not been

i

f ~~~designed to ak the DSxt efficiet use of govrnet resources. Certain

t

r ~~~comoities an4 production techniqes have been- :uorted whch were not in line

8 > | ~~with Worocca-i agricultural cow-parative advantage. For example, it would appear

W 9 ~~~from a co ,nar'fOon of soft vbeat and hard wheat domestic resource coxefficients

g * ̂ ~~that Morocco has no demonstrat--d camparative advantage in the production of the

V- former. Tet the official producer pricing system only guarautees za official

purchace price for soft wheat. Comparative advants-ge in sugar beet production

in Morocco is penalized by in--fficient milling and refcia-ig costs which resulss

in dccestic resource cost coefficients for sugar which are greater tLn^ 1.00.

Pe rb aps most importantly. though consumer and producer markets are usually

thought of as distinct. most governments, and Morocco is no exceptEo,n, cannot

afford the resources to adequately sever the two. In the absence of total market

separation, subsidies to consumers can have a negati-ve effect oa producer price

incentives. In Marocco, the consu er subsi.dy o- soft wheat fll--r may -4crease

emsand fof soft wheat and ot the same time reduce dmand for its more exvenrive

substitute. hard wheat, at least among urban cousi irs The reduction ii dema

for hard -heat say result in a loter parallel marked producer pricei whnch the

finsncially strappod cereals marketing office mao no lorger be able to defend.ra

67 See world B tnk n 'Siuslation of tbhe uoroccdh Grain earkets: An

Econometric Dc namic Model.r in Agricultural Prices and Incentives Study.

6t rno s has received little attention in aiaoroco. the agoregate parollelmarket price data presented i r this paper are genero-ly abovrn the offcial pide soutier. A more disaowregated analysis by productng region would be requiredto test this hypothesis.

,~ ~ ndmsi eorecs ofiinsfrsgrwihaegetrta .0

,~ ~ ~~Prxp otipraty huh osmradpoue akt r sal

This in turn would have a depressiv. effect an hard wheat production which wouldF' serve to exacerbate the problem of Inadequate cereals supply and push up further

the cereals Import bill.

Thus, while unanticipated by the Moroccan Government in the aid-1970s as

it sought to placate the demads of certain dissatisfied groups in the urban

society by subsid1zing a basket of their key consuser goods. a chain of economic

events was set in motion. As food prices eased on the international market by

1975, thus potentiall- lowering the value of Morocco's food import bill, so, too.

did Morocco's phosphate export revenues fall cff. Yet the quantities imported

(particularly cereals) continued to rise. By 1981, the need for debt

rescheduling, stand-by financing arrangements and structurai adjustments had

imposed themselves on the Moroccan eccnuy, and thus on its polity as well.

Implications for Political Stability

Since the turmoil of the early 1970s. efforts have also been made to assure

solidarity of the urbai masses. While these groups have been successfully

137

j rexcluded from effective participtioan in the elites *alliance system, efforts

f have been mde to keep them from provoking upheavals and pronoAndg demands that

a coald upset the fragile balance kept betweea the urban and the local

bourgeoisie. This has translated into a steadily increasing subsidy to cesomers

of food and other basic goods. Yet this in turn draws heavily on the state's

budget, calling into question the long-term viability of the strategy.

Investments in agriculture ha-e primarily been zade in areas where

traditionai sociA; = hz-'- - bre "d been affected by the colonial system.

This may expltin why Morocco's investment policy has mainly benefitted the

modern irrigated sector and aeglected tlie -^-n8!, rainfed sector.

Irrigation projects Lave aostly benefitted modern, large-scale fars, once almost

exclusively owned by Europeans, but increasingly Horoccanized since independence.

Investents in this sector have benefitted wealthy, influential farmers who. in

turn, could assure their loyalty to the political system.

While the Horoccan Government has been z'eluctant to interfere with

traditio-al social structures in rural areas, it has also recognize" the

political `mportance of distributing land to landless rural workers in part in

an attempt to stem the tide of rural-to-urban migration. In addition to the

t!zreccanization of industry, the distribution of land acquired from European

sett.ers was also stetrped un in the mid-1970s. Xing Hassan II. the largest

landovner in the co-:Ztry, made available some 6,000 hectares (an estimated 15

percent) of his own land for redistribution. Nevertheless, transfer of land by

gislation only accounted for a small fraction cf the formerly European-owned

properties. At least two-thirds of the estates were sold to wealthy Moroccans

outside tne official regulations. While different urban-based parties have

repeatedly argued for the redistributia of privately owned large properties,

, ,

octm=lz-tf=ss such as the Moroccan Farmers Union hae successfully prevented the

Eolernt frm proceeding vith such actions.

The consequence of Morocco's agricultural policy, faoring modern, large-

scale farmers, has been to increase the disparities between rich and poor in

rural areas. While modern production techniques and input subsidies have

benefitted the modern. large-scale producer. numerous small- scale producers

have been put out nf work. An annual population growth rate of nearl- 3 percent

puts further pretsure on the land in the traditional sector. s indicated in

the beginning of this report. this situation hes provoked an enornu.s rural

exodus. The urban population has drastically increased from roughly 29 percent

in 1960 to almost 4S percent in the early 1980s (Table 1). Rural-to-urban

migration is the main cause of Morocco's rapidly growing shanty towns and

increasing unemployment. The massive presence of pGOr or unemployed in Moroc=o-s

cities puts renewed pressure on the Government to keep consumer food prices low.

Thus it has been seen that the Morocco's agricul,ural policy has been

forced into a vicious circle. teforms which could help to increase agricultural

pro4uction in the traditional sector and thus stop the rural exodus are precluded

for political reasons. This leads to an ever increasing number of urbea poor

-bhich in turn forces the Government to bias its price policies in favor of

consumers and against prcdecers.

The future for Moroccan agricultural development will denend on the ability

of the 'overnment of Morocco to extend real economic entitlements to the rural

population. Over the last thirty-two years the political system hat evolved to

allow a much greater degree of political participation in the shapinS of the

country. One of the remaining challenges for Morocco is to develop an economic

system wherein the fruits of Morocco's agricultural potential can be realized

in as equitable a manner as possible.

's 'WE-str-b.P.K7lrqv; st wr E___

fi

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: .

: ;

.'

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F-l''''''' ''''"n''''{S'' , . ^

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140

A=PRWRD

NM ON DAT AVAILA3ILITY

As in many developing countries, the base of agricultural data in Morocco

is thin. The most recent agriculturaL census was published in 1973. The last

household expenditure survey to be analyzed in time for consideration by this

study was carried out in 1970-71. At that, patterns of household expenditures

are the only proxies available of household consumption patterns. Analysis of

income dlstritution is similarly hampered.

Other data simply do not exist. For commodities whose prices are set by

the Interministerial Pricing Committee, only official prices are readily

available. Parallel market data for cereals, for example, are extrc-ely sparse.

In the case of soft wheat. parallel market prices have only been tracked by ONICL

since 1977. although they are available for the other grains over a longer

period. Regional coverage is thin, and there is no attempt to weight parallel

market prices by quantities sold in the market. Estimates of both effec-tive

producer and cons-mer prices (w!iich should be a weighted average of official end

observed) suffer as a result. Total marketed surplus of cereals is not known,

rather what is known is the quantity marketed through the ONICL system which,

as has been liscussed -i ae-x 2, -. ers soft -weat 3.h .e .aprehersively

than the otber grains.

Input use data is also quite weak. While input availabilities may be known

with a good deal of accuracy. as most are traded and the quantities imported are

therefore recorded by the customs authorities, the rate of use of inputs by crop

is practically unknown. Regional use is tracked somewhat, at least in the

irrigated areas. The 198b-85 AIRD/HARA study therefore attempted to disaggregate

- - - ~ ~ -- - - . -, - - -_-- - - ~ ~* __ ' _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

141

fertilizer usage in irrigated perimeters by crop, only to find that ttchnical

! a°nors on usage rates per hectare are the only guides available to ORMVA and MARA

I planners. Input use in raiu'ed areas is even less well understood, as extension

efforts in these areas are organized by agen'ies more poorly funded than the

ORWAs

There are also definitional issues which confuse the analysis Frequently.

i data on cereals production confuses soft and hard wheat into one category.

Barley disposal cannot be distinguished between human and animal co,titicyn

purposes, due to the lack of information.

These are some of the oroblems ivlii-iin-g * f^rei-de;th n-a=yss s'

Moroccan agriculture in the subsectors which are treated in this study.

Production, marketIng, and consumption data are even weaker in other subsectors -

- livestock, edible oils. horticulture -- which were excl.'ied from consideration

by this study as a result.

142

AM= OIM

RT!mATIOU OF TIM EZqflIUTM KICHA=G RATE

T- order to neasure the indirect effect of exchange rate

disequilibris on agricultural prices, production, consumption, etc., an

equilibrium exchange rate is calculated. The equilibriu exchange rate differs

from the official exchange rate (EO) because of policy interventions Which

prevent the latter from adjusting for 1) differences in relative prices between

countries, 2) current account imbalances, and 3) trade restrictions.

There are several alternative rates which can be calculated to mekt-

these adjustments. The first yields a Purchasing Power Purity (PPP) rate, which

simply corrects for differences in rates of inflation between Morocco and its

-rading partners. The preferred calculation, correcting for the effects of trade

policies and external imbalances, yields the equilibrium exchange rate (EER).

it is estimated here using the elasticities approach.

Purchasing Power Parity exchange rates (PPP) were estimated for the

Dirham against the United States dollar (US $) and the French franc (FF), two

of the aiain trading partners *nd currencies of HMccco. No single currency can

safely be selected as the reference currency if the trade shares vis & vis that

country change over the period in question. For instance, in 1960 Franc.

azcounted for 45 percent of Morocco's total trade (see Table 1.1). By 1970, the

share had declined to 33.5 percent and by 1984, to 19 percent. By contrast, the

share of US trade in Morocco's total trade has been more constant between 5 and

10 percent for the entire period. While this does not make the United States

a dominant trading partner, much of Morocco's trade is denominated in US

dollars. Phospbateo for instance. which accounted for one-quarter of export

earnings in the 1l60s and 30-55 percent of total export earnings between 1974

and 1981, are denominated in US dollars. 6 9 Similarly. major imports, energy

products, and many major food co_odities (for exacple, wheat) are also

denominated in US dollars.

TABE I.1: 'DIRECTION OF MRAmCCAN TRADE

(!) of Total T.Lde with:YEAR France USA Other

1960 45.3 6.1 48-6

-6 s im^; 1l 6-9 52-0

1970 33.5 7.3 59.2

b 1975 27.0 ' 67.91980 23.4 4.4 72.2

1984 19.0 4.5 76.5

Source: International Monetary Fund.Direction of Trade Statistics

Since individual comparisons with Morocco's principal trading

partners give appreciably different results over the 1960-84 peziod as Morocco's

trading relationship shifted avay from France toward a more diversified trading

pattern, a composite PPP exchange rate is estimated. The composite is a

Dirhal/US dollar (DhI$) rate. It is calculated by multiplying the official

exchange rate (E0) by a weighted ratio of foreign to domestic inflation. where

the weight is each foreign country's respective trade share with Morocco. The

residtal of Morocco's trade with other countries besides France and the United

States is weighted by the US dollar-based index of unit value of manufactured

69 Data are froc IMF, lnternational Financial Statistics Yearbook,Washington, 1985.

i

144

goods exports (MDV) of *developed market economies .70 She trade-weighted

composite PPP is thus:

IL PPP Eo0 (R * WPIp * VF) + (WPIus * VU4) + (HUJ * (l-F-ywUS))

I CPIM

* s where E0 is the official exchange rate. expressed in Dh/$; XR is an index of the

I SIFF cross rate; S"F are tne rrench and united States -Wole&bila .A.LC.e

Indices; wF. US are the shares of France and the United States in Morocco's total

trade; CPIM is the Moroccan Consumer Price Index.

70 United Nations. Honthly Bulletin of Statistics.

71 The need to include the trading partners' cross exchange rate stems

from the fact that even though price levels might be changing rapidly as observedfrom the WPI of the individual countries, the countries' exchange rates may bealtered simultaneously to compensate for thise price level changes. Therefore,omission of an index of the actual cross exchange rates would lead to a bias inthe PPP exchange rate. Inclusion of the index, however, leads to instances incertain years (1973, 1975. 1983, 1984) when this trade-weighted PPP rate isgreater (less) than the simple weighted average of the three individual PPPrates, indicating that the dollar has significantly devalued (revalued) relativeto the French franc with respect to the base year 1960. Such shifts indeedoccared in other years as well but ware of a lesser magnitude.

S~ ~~_ I t: I 1~~~~~T4 1.2: UtWOWC P PMM It% QSCI%M TE

I I£ P99 ~~~~VM.LMT~~~~6 3ro 1Es E ¢D ;g)

ona'am imam 8139SM obam rpp AAeM 0.s V.jw uw4) Oh/*,.,~~~~~~~~~~~~~r mw, MA s ........ ...... ClOI -----j; . _-

1M 5.49 10.2 5.#6 1.4a 6.9 r CB 1 :00 140 up196 S.06 1.09 C.9 1.04 6.4 54.9 la 14 100a, a.2 8.0 1.49 *.7 .99 4a-0 4.SO so 97 97 97

5 196l " A.06 I Ca .46 .97 4." 4." 94 90 491"4 S09 1.4a 4.36 A 4.97 4.97 as 94 As to1%9 3.49 1.42 4.46 .94 4.S6 4.4 4 91 3 M

J 1966 5.06 1.49 41.4 .97 4.56 4.6 is go 4919" 5.49 1.2 4.49 .97 4* 3 4.n 96 96 2 l96 5.Of 1.42 4.Sw .Aw 4.49 4.6 to e3 91 91Iw s.06 .- 7 4.6 .97 4-.4 4.72 91 100 9 9* 1970 5.49 .91~~~~~~~~~~~Q .71 72 -9 4.492 4.46 6 106 976F S s." e .n .f 4.t2 z.r~19 6- SOS .7 9l§71 5.05 91 I.6 es 4.97 .4" 2 204 t

I2 4W .91 4 4. 4.74 96 10s 2.9 2'R. 1973 4.U .4 4.15 *.06 4.72 4.S6 101 1s 115 1l

1974 4*97 .91 *-5 1.17 5.26 5.36 10 1" 29 144~~~~~~~~~~~~~~v- - 1 *.S .15 4-24 1 <11 S.09 S.06 usl 122 124 12tS1976.424.4 .10 46 1.49 513 S.07 101 111 211 I1

IV" 4.45 .92 4.2 1.0 5.4 5.05 146 122 1U 115S~~~~~~~~~~~~~~o ' . Ve7 -22 3.00 *.0 es9 s .71 *s 11 11S

"17 3.90 112 3.7" .96 4*.Y 4.72 97 104 124 121' low1 .94 .9 3." .96 4.90 *.02 10 us 2 1

1law 5.17 .S 8.12 . S7 5. i .4 102 11 1M, 12 * Q .*2 a .i :W.-o o Y= G e ' ' 7 _16

II 7. 11 .s 6.f 1.00 6.47 4A.11 *7 10 1196 C.5 1.01 6.93 1.06 6." 6.67 79 W7 79 76

' WP ' 1 i i. . .--... a*_ ( rl/;F". E Rate) *100.

Table I.2 indicates that. as the Horoccan economy expanded during

the period 1963 through the early 1970s and both the trade deficit and Horocco's

rate of inflation declined, the Dirham actually became undervalued by as much

as 12 percent. With the beating up of the Horoccan economy in the early 1970s,

overvaluation of the Dirham began and was not corrected until the Dirham was

devalued in 1981.

The free trade equilibrium exchange rate (EER) is the nominal

exchange rate (Eo) corrected for current account imbalances and trade policy

distortions. It has been defined in this study as that rate which clears the

current account at a 'sustainable' level of deficit by correcting for trade

policy measures, changes in the terms-of-trade. and other exogenous shocks (for

example, changes in workers' remittances). The 'sustainable' deficit in the case

of Horocco has been defined as 5 percent of GNP, a figure somewhat stricter than

the IMF targets of 6-7 percent. The 'unsustainable' portion of the deficit is

Ia., - -~~~~~-..--~~~ - _____________-~~~ -

defined as the difference between the 3-year moving average of actual deficitv

Ad the --ttainable deficit. The elasticities of the supply and demand for

foreign exchange. or the supply of exports and demand for imports, are assi-d

to be 1.0 and 2.0. respectively, and are -ain-ained constant over the period.

Demand for tradables is conditioned in korocco by trade taxes.

subsidie3 on imported items. and quantitative rettrictions (QRs))7 2 Imports

fall into two principal groups: those subject to duties and taxes and those

goods which enter duty and tax free (exon6iz). Among the latter group are also

classified those items entering under temporary adrission (admission temporaire,

A.T.) regimes for eventual re-export. The exonerated coamodities represented

about 10-15 percent of total import value in the 1960s. but with the pressures

of consumer subsidies. increasingly larger values have been imported duty- and

tax-free since the mid-1970s. In 1982. for instance, vheat (27 percent),

fertilizer (5 percent), ships (9 percent) and A.T. imports (30 percent)

represented nearly three-fourths of duty- and tax-exempt imports. The remaining

imports &re subject to import duties (3roit de Douane. DD) and taxes T'axe

Speciale d Iiportation, TS) ' The -_ort duty is variable vith a dutiable range

ef 10 to 50 percent. Whereas the import duty has averaged about 10-15 percent

ever the last 25 years. the special import tax has increased progressively from

2.5 percent from 1957 to 1973, to 5 percent between i973 and 1976. 6 percent in

1977, 12 percent in 1978 and finally 15 percent in mid-1979. The TSI rate was

reduced to 10 percent in 1984 within the context of Morocco's compensated

devaluation program. These imports are also subject to cinsumption excise taxes

72 For a discussion of the tariff and non-tariff protection system in

Morocco see also World Bank, Industrial Incentives and Export Promotion,WasLington. 1984, pp.76-80.

54 ^E t ~ ~ ~ v-~ e..- -i *_ =.. -. _* . .

147

T axe Interieur de Consommation, TIC) and a turnover tax (Taxe sur les Produitr

et Services, TPS). Since excise taxes are usually specific, their average

Lncidence bhas declined over time. TPS rates on the other hand are highly

variable ranging from 6.38 percent up to a maxi-a of 60 percent, wita the bulk

of goods and services subject to the normal 17 and 11.25 percent rates. It is

estimated that two-thirds of the TPS is on goods and one-third is m non-tradable

services.

Competing the gross tax receipts from iports sxLjecL t- .

taxes to the total import bill yields a gross average tariff rate for Moroccan

imports (tm).73 This rate, when positive. has the effect of raising une p_ce

of and thus reducing the demand for imports. However, the gross border taxes

are compensated by the subsidy programs on imported commodities such as wheat

flour. sugar. edible oils. fertilizer. agricultural equipment. petroleuis and

cement. The effect of the subsidies is to reduce the price of and thus increase

the dema:n for these commodities. Tax and dutv -ates on imports thus need to

be ad.usted 2aimward accordingly. The annual cumulative subsidy payments by the

Stabilization Fund and ONICL were deducted from gross receipts to yield the net

average tariff irate for the year. Average net tariff rates were about 10-12

percent through 1972, but declized I= 1973 te only 6 nercent. and then increased

progressively until the end of the decade to as much 29 percent. These findings

reflect two phenomena -- changes in gross tariff protection and the hage

increases in subsidies, starting in the 1974-1976 period. In the early 1980s.

73 It is interesting to note that the incidence of the border taxes forvarious commodity groups -- or their effective exchange rates -- differssignificantly from the average tariff rate. For instance, as the value ofimported consodities exempted from taxes and of those imported under thetemporary admissions regime rises, the maintenance of the average tariff impliesa severe increase in the tariff rate on the 'residual- dutiable itports.

148

average net protection stabilized arcund 20 percent, and in the first 9 months

of 1984 declined to 10 percent with the reductio. of thL TPS.

Qumatitative restrictions have been used in two msajor periods in the

1960 to 1985 period: during the stabilization plan of 1965-68 and in 1978-81.

In addition, there have been import deposit requirements in Morocco. ranging from

2 to 7 percent of gross import value. Exchange rate adjustments employing the

net average import tariff tt) may therefore introduce a downward bias to the

- crue equiiiorium excLRge *a e.

Thus, the implicit import tariff equivalent (ti& is calculated to

take account of the etiect of Qis (see Taoie I.S below). A .'ff1.zt

representing the ratio of the domestic prices of a representative basket of

tradables (Pd ) to the world price of tradables (Pf T) is estimated. An index

of Iooroccan tradable sectors' GDP (agriculture. mining, manufacturing. and trade)

is used as the domestic price basket of tradables (PdT). An index of unit import

values is used as the foreign price basket of imports (Pf). The ratio PdT/PfT

is compared with the net average import tariff, tm, to determine the implicit

tariff equivalent (t'm) for each year in the period. When Pd TPfT equals 1.00.

domestic and foreign tradables prices are equal and there is no bias for or

avainst trade. When pd Jpf_ is less than 1.00. domestic prices of tradables are

less than foreign prices of tradables and there is said to be an anti-trade bias

introduced by co rcial policy. When PdTIPfT is greater than 1.00, trade is

said to be encouraged by domestic connrcial policy.

The base year in which no QRs were in effect was assumed to be 1960.

Thus indices of pdT and PfT are calculated with 1960 as their base, and it is

assumed that no adjustment to the net average import tariff rate t. estimated

at 9.8 percent, is necessary in this year. The net average import tariff rates

* ~ ~ ~ ~ ~ ~ ~ ~ -..- ".- .--.- ~--- .. I . . . I_

in subsequent years are zorrected for 0 ,/PfT in the following manner. 1ben the

explicit net average import tariff (ti) exceeds the coefficient of tradable

prices (Pd TPfT), the actual tariff rate is greater than the implicit &-ti-iiport

bias and explicit tariff rates are binding. When the coefficient of tradable

prices is greater than the explicit import tariff, it is assumed that the anti-

trade bias overrides the actual tariff rate and represents the implicit

equivalent tariff on imports (t ). Is seer- in Table I.3, the latter is true

in only four years during the period, first in 1969 just after QRs -were first

employed. and again in 1971 to 1973.

TABLE 1F3: ESATX OF TNE 19t-Y T , &T,

TRADABLE LuIT TRSL GVI MET EWLUCIT rTICITGOP IMPORT MIT IW43SORT IMPPRT 1OVRT

DEFLAR VALQES VA TARIF TARIFF EJIVi R ~~~~~ ~~~~~~(POT) (P T) T/P'T) )(t

1960 100.00 100.00 1.000 1.096 1o09s19t1 100.66 104.34 .964 1.004 1.0961962 106.36 102.56 1.037 1.096 1.0961963 112.44 104.67 1.074 1.093 1.0931964 116.63 11'.24 .994 1.0O9 1.09196 106.00 129.31 .817 1.074 1.0741966 106.f0 114.13 .924 1.098 Z.09119067 117.93 107.79 1.094 1.080 1.094.068 112.S9 106.i7 1.037 1.107 1.1071969 126.71 11:.23 1.139 1.11 1.1391970 132.20 119.13 1.110 _.117 1. 117

1 1971 141.75 121.47 1.167 1.117 1.1671972 146.03 129.S9 1.127 i.S16 1.1271973 161.46 141.1: 1.;39 1.068 1.1381974 236.86 Z.7.00 1.097 1.:12 1.1121975 236.73 22SA14 1.060 L 131 1.1311976 23.44 - 233.70 1.012 1 414 1.1741977 251.47 243.60 1.032 1.221 1.221197J 270.42 "3.2S .- 27 i.k7b 1.2761979 206.SS 284.8S 1.049 1.287 1.2871960 331.10 3S1.72 .941 1.241 1.2411981 377.35 424.47 .889 1.203 1.2031962 42S.62 458.73 .928 1.212 1.21212*3 464.46 494.33 .879 1.216 1.2161964 477.90 601.22 .795 1.106 1.106

.~~~~~~~~- - - - - - - - - - - - - - - - - - - - - -- - --- - - - - - - - - - - -

Notes: The trada6le Q) ectors ore Agriculture, Mining, Manufact4ring*nd Trade. Unit iaport vse.l froe World Bank/EP0 data eries.

1SG

xport taxes (t) Apply almost exclusively on mining products. In

1984. for instan e, of the total revenue from export duties nearly 75 percent

was fro the ineral export tax (Tame C EVortation sur les Miinerais). ZS percent

from the statistical export tax (Tw' de Statistique sur les Exportatiors) and

only about 1 percent froa other export taxes (Taxe de SoLtie des attres

Produits). Exjort taxes have been stable over the 196)-84 period and represent

only 1-2 percent of export values in t..rocco. zxplict export taxes were used

in the estimation of the ElR.

The free trade equilibrium exchange rite is presented in Table 1.4.

Fig.-?n in the sim-ary Table 1.6 indicate that the Dirham was in geua:

overvalued by as much as SO percent (during .forocco's fiscal crisis pericd) over

the 25-year period (average, 23Z). The table also reflects the effect of

devaluations since 1981. By 1984. the Dirham was less than 10 percent

overvalued. Table T.5 gives the range cf EER estimates. with parametric

varlation of the elasticity assumptions. Over the range of elasticity

assumptions the EER appedrs quite stable.

..-.- A~~~~~~~~~~~~~

$ ~~~~~~~~~~~~~151

TAMLE 1I4 S ox flVxtMo Ee.m01 E $W

F _s~~~~~~~~~~~c- *, &3 Smt;oAhlo Uwm_%i_^wbj Mi"; -- _eso- Sp,.1bitw_t~~~~~~~~~~~~C.1- bo;C e fct V_,iml of Ew_" *, i ff Ee_" Exch-o 3-7_

A -t Act,I 9 0.O C...% ACxt _.wi-. W t *4 TXt owf;cit Dwf;eii D fici(MM > (w (t. Et

lift 215 an -4 0 5.061 999 1.99 6.99 5.99i Z1 _33 140 -*7 0 S.or. 999 I.e S.U 5.9

196 -A -190 -54 0 5.01 .9-9 1. S S.C 5971=6 -an _-7 - S 0 5.061 09S 1.9 S.19 5.01low -1Z -M6 -"1 0 5.0S2 6.95 l99 S." 9 .99Ila 20 -19 -709 0 6.062 7.46 2.m S. g .9"low -2& -i _ o S061 -.. 1 46 6.01 5.97Is" -a&0 -1it -746 0 5-01 9.9s t. S.r1 S.941 -200 -2" -775 0 5.061 10. 7 1- 9 6.il 5. 01is" 4 -2S .41 0 5.061 is_w 1 -= 6.a0 6.097GO 5 m -3 -91 0 5.06i 11.-5 *. 801 6122

1i9 -_. - -1*06 0 5 C60 16 7 18 * X .m * .2192 2±4 -2* -1X 0 4 5" 12. ?S .s S.SS 6.01197 421 :Zs -z-.3 0 '.27 13 :2 S.z .0 s.711974 low7 61 -±375 0 4.370 11 .2 2 59 5.34 5.36I7' -2 -3 -1m 0 4.063 3 Is 2. 4 4.61 5.0610.3 -59 -ZQ0 -672 -51t 4".9 :7 4 I 9= S .41 SO19107 -9224 .- 477 -2' 42 -35 4. SW 22. 1 1 Y9 * 10 5.441978 -"s .412 -2456 _-457 a.167 279. 1 .4 S.14 5.C1011 -&O5 .441= -2723 - 5 2 ? 1 .29 5.70 5. el0 .55m -57za -3221 -25% S. w 24.2I 1 75 5.4S 5.76

91 960 -70S5 -34 3 51.72 20. 9 1 SS .91 6.01-:. 4v7 -7 -3650 _42 S.3 292 21 :4 *.20 6 as

.9W S.- 4196 -4w --54779 7.::2. d .. s 9.67 6 261964 .4?V -00 -Asm -3969 8.8:1 0o.9S t9 l0.64 9.SO

>.'~~~~~~~~-? _--t.------ _ ;_ .,_,_,c-?- s - ''--?-----

TA8LE 1.5: SESITTITY OF THE E.UILI8RIUM EXO4ANK: RA-ETO EASTICM ASSUWTIONS

Equ I b; U exchange rate what. Equii braiL exchange rate when.S = 1.0 and gD = D = 2.0 and eS =

YEAR 3.0 2.t 2.0 1.5 2.0 1.S 1.0 .6

1960 8.55 6.32 8. 0 5.85 6.17 6.12 6.08 e.04

1961 6.33 6.13 6.93 5.73 5.99 5.96 5.93 5.906.23 e28 e 5.89 S.,C 5.s 96 92 S.89 E.8

1963 6.29 6.09 5.90 5.71 6.96 5.93 6.90 5.871964 6.41 6.20 5.99 5.78 6.07 6.03 E."9 5.964966 6.28 6.00 E.90 6.72 5.99 S.96 6.90 .8"1966 8.44 8.22 6.01 5.79 6.07 6.04 6.01 5.971967 6.30 6.11 5.91 5.72 5.96 6.96 5.91 5.881968 6.50 6.27 6.06 5.82 6.13 6.09 6.06 6.001969 6.88 6.59 6.30 6.01 6.37 6.34 6.30 6.261970 6.46 6.24 6.01 5.79 6.07 6.04 6.01 6.991971 7.01 6.89 6.38 6.06 6.43 6.40 8.38 6.351972 6.IS 6.90 S."6 S.40 6.7S s.68 6.65 6.8?1973 6.68 5.34 5.10 4.87 5.16 6.13 6.10 5.081974 577 6.6 6.534 S.12 5.46 5.39 5.34 5.28197E 5.17 4.99 4.81 4.63 4.86 4.84 4.81 4.791976 5.P4 6.6; 5.41 6.19 6.44 5.42 5.41 5.401977 6.63 6.38 6.10 6.84 8.12 6.11 8.10 6.0o1978 6.76 6.45 6.14 6.83 6.16 6.16 6.14 6.131979 6.30 6.00 5.70 6.39 6.71 5.71 5.a0 5.891960 5.99 5.72 S.44 5.16 6.47 5.46 5.44 6.421961 7.53 7.22 6.91 6.60 e.94 6.93 6.91 6.891982 8.93 8.56 8.20 7.83 8.23 8.21 8.20 8.181963 I0.5 10.13 9.67 9.22 9.71 9.89 9.87 9.6819S4 l.-24 10.84 10.84 10.33 10.87 10.85 10.64 10.62

152

TABE I .6.: ffMIARY OF CIRMAUS OG.LAR EXcAW TES

Free Trds Free TrNominal Psicht s9 Euilibrium Equwiibrium

Exchange Pow.r Parity Ex4haNp Ex _cg.Rau lt. Ru Rate m)(Ee) (Y'PP) (E") (3 7r awg av9

YER (;) (;i) ;;/;. (i ;i) ;;; -,/; (;vw) iv/;

1900 6.06 5.06 0s 6.06 2i C-93 1711981 5.06 5.06 Os 5.93 171 8.01 19S1962 6.06 4.99 -35 5.9 161 S.97 1651963 .06 4.64 -4 5.90 171 5.91 1751964 6.06 4.67 -15 5.09 165 S.tV 17%

s196 5.06 4.46 -125 S.90 171 6-93 1711966 6.06 4.64 -4 6.01 1s9 5.97 3151967 6.06 4.60 -7W S.91 175 S4" 17%196 ;.OS 4.d A -c . ! S .99 1AIt' 1909 6.06 4.7 -?7 6.i0 24% 6.09 2011970 5.06 4.35 -41 6.(1 19S 6.12 2132971 6.06 4.84 -4S 68 265 6.23 2311972 4.-0 4 70 2X 656a 235 6.01 31S%'973 4.11 4.ii I= '.' ?14 6.71 39X1974 4.37 5.36 235 6.34 221 6.36 23S1907 4.06 5.06 2S1 4.81 19S 6.06 2611976 4.42 6.07 1SS 6.41 22S 6.19 1271977 4.60 4.96 10 6.1 S 6.44 21X1978 4.17 4.71 13S 6.14 47S 6.88 41S19V 3.90 4.72 21S 6.70 461 5.96 53%1960 3.94 4.82 23% 6.44 385 6.76 4651961 6.17 S.49 as 6.21 34S 6.01 tax1962 6.02 S.53 -81 8.20 365 6.86 14S

7.11 6.11 -141 9.67 30S 6.26 1611984 8.81 6.67 -24S 10.64 215 9.50 8S

Motew: The coparison columns are calculatod as in (E* - Eo)/Eo.Coi.I,n (tv) Us a tt-ve-year moving average of coluIn (iii). and is

th oxchntgo rate VC-tor :iich hnr been u5o for b*rdo!- pt iCeadjustnments in thi i work ing paper.

153

4 EST~~~~~~~~MUnTOlt OF CEREALS-c PRICES

Domestic prices: Producers

Several methods can be used to determine the farmgate price for

C One proach. oresented in columns (4, 8 and 12) is to use an 'average'

national price, weighted by the share of the two major alternative marketing

.. ~'~ Tc a-.;2rz-e -y 'roducers is thus weighted by

the quantities p-s%ing through the public and private marketing channels7 4

This applies more strongly to soft wheat prices. The other, which better

reflects hard wheat and barley prices. is presented in columns (3. 7 &ad 11).

It considers sales to ONICL at the official prices as the sales in surplus areas

and private marl-et sales as those in deficit zones and uses only the defic.t area

prices. Non-official price data are collected by ONICL and published as

unweighted, monthly, regional averages fc- 19 centers. The prices recorded are

an unweighted 'average' of urban wholesale market (Hglle aux grains) and rural

village market (souk) prices.

Parallel market price data are available for 1959-60 through the

present for hard wheat, barley and maize; however, such price data for soft wheat

are available only from 1977-78 through the present.75 T1he government does not

?4 Home consumption is valued at the non-official market price. Dataon on-far= consumption are not available in Morocco.

75 The price year corresponds to ONICL's marketing year which was Julythrough June until 1982-83 and June through May thereafter.

154

collect data cn soft wheat market prices on the assertion that the reigning price

is the 'unique' official producer orice. Unpublished data for eight regions.

which represent over three-fourths of national production, are analyzed for the

period from 1'477-78 through the present. Annual averages for these mnthly

regional prices are calculated. Finally, these average annual prices are

weighted by the production weight calculated as each region's contribation te

total national production for each of the cereals. These data are presented as

the unofficial, free-market prices.

TA.E ;1. 1 W t StFT. KAM AT -W S.EY

.... ........ T WHAT .......... ....... t... , F T ....... . .. ............. .............f;c;ie.l s ) 01-h.t Vot Off;c; p. ) PrE Officil < Watl

YDR 1 2 3 4 5 6 7 a 9 10 11 12

.w0 33.00 39.00 3:162 23.00 21.491961 34.s0 31 40 00 20 42 #4 42 10 23 00 02 27 67 25.021962 3a- 40 .4 40.00 24 A-95 47 33 23 00 Ii 35 06 as 73192 3a6 00 .4 40.00 19 40.6 40.53 23.00 .0 23.06 26.06196 350 so 41.50 .i6 41.22 4: 2 24 .00 .05 22 of :.1os5 40 00 40 44.00 l 4CO 46.2- 2600 .06 27 63 27.56

40.00 2a 44.000 4 47.53 47.04 2600 05 31.01 30 76157 40 00 27 44.00 D 11 14 59 25 26.00 .06 499 W 4 .79

.4 do.00 .6s 44. 00 .20 646 53.18 27.00 06 3a.09 37.201969 40 00 .5 44.00 15 39 57 40.23 27.00 06 19.44 19so1970 40 00 s3 44-00 18 43.02 43 20 2.00 .02 23.06 23.151971 43 00 46 47.00 14 47 39 47 34 26.00 .01 29.76 29 .741972 43.00 .44 47-00 10 46 10 46 .19 29.00 .01 29 64 29_ 1973 46.00 .x 6 44.0 C 04 486-7 44.46 29.00 Ll 37 27 37.191974 C0.00 4 4 300 .06 71.44 71 02 40.00 02 43.20 62.741975 .000 o 19 3.o00 .03 4 11 57.36 40.00 01 60 .61 60.401976 60.00 19 ".3 00 .4 100.3 9-02 40.00 .02 "4.71 64622I77 6.<00 .12 6 O. .06 15 73 s6.s6 63.00 .02 62.21 52 47

1078 9600 Z6 76 04 797 9 -00 06 o 19 17 106 32 45 00 .0 79 30 79871974 106 00 33 75 43 o6.4 1oo00 10 07. 26 107 06 80.00 04 n7.63 77.21G 125.00 .44 57.41 108.96 12so .12 1Z4. 11 1LS 42 o .00 .06 7.81 7T 46

196l :26.00 .17 1I0.92 115S.01 126u J .0 148.25 14. 06 96 .00 02 102.09 101.971"2 140.00 .62 11 .90 129.32 140.00 .04 195.87 193.44 100.00 .0 146 24 14.12:Q93 i4:.00 . c L :4 .Z.34 1£c. 1 X 6 iCir- 3 s-.ac l0.; .3 92, wx1944 130.00 .37 111.11 125.50 -03 00 02 178 50 177.45 110.00 02 1s2 49 121 10.00 N/A 12.56 II/A 1___000 oo /A 2-7.70 1W/A 1110.00 NA 144 02 N/A

_ _ _ _ _ -- _ _ --- _ - _ _ - _ _ _ _ _ _ - _ _ - _ - _ _ _ _ _-- - - _- - - - -_ _ _- _ _ - _-_- - _ _-_-- -_ _-_ _-_-_- -_- -_-

Border Price Eauivalents: Producers

Border price data are available from ONICL for the major traded cereals.

rne data series is complete for soft wheat which is the only grain imported in

significant quantities every year. 76 On the other hand, hard wheat and barley

76 The equivalent US quality for Moroccan bread vheat is Hard Red Winter

#2. ordinary protein.

Rt II_. I

border price series are incomplete. Morocco has imported hard wheat in small

quantities. about 40-80,000 mt. in only six years over the 1960-84 period.

Similarly, barley was imported only periodically to coumter drought induced

shortfalls through 1970-71 and consistently, though in highly var7ing quantities.

after 1970-71. For hard wheat and barley, border prices for the years wien

Morocco did not actually import these grains are estimated from world price

quotations adjusted for shipping and insurance. Eard wheat prices are yearly

average prices FOB Minneapolis as reported by the USDA. Barley prices on the

other hand are for Canadian barley FOB St. Lawrence. These prices use the

We- of -Tear' convention of renorting through 1973. and 'average year' convention

thereafter. Canadian to United States dollar exchange rates are annual average

quotes from the Bank of Nova Scotia.

Finally. landed CIF prices are adjusted to include port and financial

charges. transport and handling charges and losses up to the coliection centers

where comparisons with actual domestic producer prices can be made. Tables 1I.2-

11.7 present the border price series for all three grains, each converted into

Dirhams at the border using the official exchange rate and then using the

equilibrium exchange rate.

Comparisons of world prices at the official exchange rate ma=i lead to some

differences from the actual landed prices due to inter alia the difference

between che average official exchange rate and the import exchange rate

calculated retroactively from weighted imports. In Morocco's case, the exchange

rate is unified and no systematic bias is evident. However, differences appear

due to the timing of the import contract as compared to the exchange rate

movements. For instance, over the 1977-1982 period for which import data are

available by shipment, the average difference between the fearly average OER and

the effective exchange rate to the cereals marketing board was -2.2 percent vith

a range of -9.3 to +3.4 percent.

Port charges include losses of 2 percent, handling and transport vithin

the port zone of 25 kilometers. In addition, importers incur a number of

financial and service Costs related to importing the grain. These charges

t represent about 9 percent of the CIF value for guarantee deposits (garunti du

2paid), letter of credit costs and guarantees (coumiss'on d'accreditif et

dirrdvocabili-6). bank commissions (confirmation bancaire et caution) and the

importer firms' overhead margins. In add-tion imported grain pre-financing was

estimated at one month at conmmercial credit terms inclusive of taxes. Finally.

imported grain incurs st3rage costs for approximately 15 days. Besides these

ad valorem costs, imports carry sp-ecific costs related to weighing. unloading.

and handling. These specific costs -.ere obtained for 1984 and adiusted for prior

years with the cons-mr price index. These data, which were obtained from ONICL

and a major grain importer in Morocco, represent par values for the typical

costs. Actuai costs may however vary from ship=ent to ship=en.t dse tc por;

congestion and other Lnforseez diff'culties.

Imported grains are shipped to the flour mills upon demand by the mill and

subject to prior authorization by -ONICL. Transport costs are borne by ONICL

using the Office National des Transports (ON!) or the Office k4ationai des Chemins

de Fer (ONCF) capacity. The 'terage distance of grain transport, whether

imported or local, is about 175 kms. The base transport rate in 1984 was 0.316

Dh/tkm with upward adjustments depending on bulk, road condition or distance

transported. The 1984 transport rate was adjusted for prior years by the

consumer price index. In addition to the transport cost, 2.5 percent losses and

handling costs for loading and unloading are imputed to imported grains. The

_Li - - _ _ _ _ _ _ __A-

rn ..

157

3

total cost thus corresponds to tte pricing point of domestic grains delivered

to a local wholesale grain market (halle au grains).

:I

TI*416O61 11: 41440.4 4449.4.4 04 1 04 I4.4I 19144 M '~

U0.o,.0 iOu1...1,. 4.0, 1.66 3.44 1.04 1 44 3 04 i4 1,64. 1.904 1. 64 144 4,9 G 10 46 I .1 40 44 6 0.0 91 4 VII j.O? too1 *.Soto is 94g.. o)M, 36 46 11141, 3,0.6 MA.4 13 t3 3115,644 MoW 114,1319 I 10 U 96 334 51 19.4 It OLA hO 644 13 .96. o4.19 N4 Si 13J,l4 493,66 M19, 119 0.14 91.41 0040.53 Ml1.3)

... 44 Ill 44 440 II 1'A J 4.40 .00 .0 N .11 I.04 144 I41 4.4 Is .'A4 44 6.1 4 1$.41 1).111I .I4 13A1 II0 04 1.46 1 C I1 1.93 46.11 04.33 IS.4 ~4 la -awkstif ~~~1. If 0.41 I4 is 4I4 I41 I.414 0041 404 4.44 I 04 .1~4 ,14 ) 1S I%? it4 I.9* 314 1. If 3.14 3.1.61 3.6M9,0 4.44 346 00 4.44 94we

...6oo 1IJ5 H.4I to 390 tO I14 3.10 0.311 I 14 1.14 1.40 1.44 0.9 It .I'l 1.60 .49 4 .41S I.34 $1.9 44 4.44 0, 14 46,44 U 4 16 0.44 4I.%. A* .4466. W.14.o lao I 90 64 901 4.40 4 14 94 4 U41 41.43 I4 4 9.14b 9.44 44.14 44.49 00.41 01.6 40.91 41.00 1 i43. o60& M4if 13.00 3011111 M4.1 4.0is 4.94

*.4submse" oi. SM s1 16 n, 99) A. 1. is4 Is to34 13.3) 39.49 A9.93 3S6,4 II H16 4.61 14.1 44.44 40.4 40$.04 $13.11 0lil 14,69 634ii 4.10 411.44 U,.4 # 1044 64 044) ... 61.qoit 091 00 4.1M a 3. 4.44 1.64 HI .139 9.11 0.09 I. 49 4.10 4.64 . 4 .0 4.19t 06,06 00.40 II.9 11.44 00.44 03.96 06.96 19.44 104 11.641$4 Is, "

.14iNA044 I1III 40 4414 4.66 4M 41 41I 443 4.30; 4.40 4,31 4.36 4.03 4.10 ~.J 4.9 9. is 10.114 .0. 1.04 G."4 1.41 1.01 04.4 11# to. 1) 04.69 04.41

u 61 40i it ml4 M Is Al 44 440 01 1s94 04 WH 0961.4, 444 46 440.941 903.49 346.1 433.64 349.49 444411 M.414 '063.16 100.14i 149.60 4.4.33 411.906101.64 943.30 1044.901,94 0390.3fil-I 1140g

.1mm 1940@490 4.44 14 444S 61 o.4 II it 9it it0 44 093 0.40 4.40ll IfI 0 I, t 9.4 it,4?3 M3.1 11.44 4.4 If Il"4 161 49.4t t 3)0 W3." 0.41 34.01 040 0*0twm 41 t. Pei I 1 004 44 41 . 04 0`041 4.00 I V 4.441 440 0.14 oI.l 04126 4.491 n0,6 3.0 11.30 1.114 1.16 31,44 31.5114 3.6 .06 1.4 16 t46

maS 64 CfoOtIOob U0110A 403 44 044 It 034 II 494 04 41 If 414.11 444,43 419.44 431.93 414.44 4MAI0 410.14 091.4 949.I11 011.40 444131 943.031 .94 444,4 9.406.006.6 411.4 $14,40.1 0660 Is

w ~~~Woe, PE'fllpuideg

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*14 SiN' uIt 141 I * 14 4l II j, u l A Ul l t~& ,, 1 in '. ' aq i e1 *s Ii ci .s1' i'j ati 'il *1 I4 1-*4

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104 04.4, ~Wit 040(0 14LONAIiV1 #0 U00001 rAO NOW i .0 140 .4..

.n.........n.s......a.fl.flhh.fljA *4. Sfl..jt.fl~~~~~~~~~~~~~~~~~~~~~~~~~...... .. -.. ~ .. -~.................

to for, to0,ol I61 04 004l.94,1 l4 .4 0.04 w44oof 04 1f4.il 11.04 of0 lb V4 ol.44 61 04 114*4 Ao. 114.44 111.W Of4.4 0 014 44 1 hI

.1.0.0401 0.9 is4 .1*6 0.4 0.401 0* 0014 0.04 0.4 it 9.04 0.14 0.09 14to WM.1 000I 11,04 00.10 011.14 01.1111

'U hire hi'0.04 &.0.4 4.1.4 0.1? .4.0 1.4 10.4 01.t4 90.91 II.0 40.00 041.1 04.0 403.4 20,0 41 .0 44400 V404 26,0 21 .41 A. I 19.14 fo44.1

cod.. O uoC.oo 1 Leo. 04.0. 0.00 0.o0 II.)) 04 60 04 01.4 0.401 19.44 004 406 61.1 V WIb4 0.0 0.44 0,0 if 0 14 0 00L.V 0.00, MI I.0 0.100J '01.09 0,1 1%."0 0

(II ho., o1140o *I 00.ft 040.4 000,0 04.V1l 144.0 I 00.1 0*4 .04 100 l,44 S. 414.S00 1404.1 00 .11 00.*04.000.00 .9'.. 4 191 1 4 40 0,0 000 1.14 001.0 00.0 00.10.0000.50 .W0

.. touo9 *0 Clio 010 40.4. i i4 00 .49 i I0 6.00 0.04 0)I14.04 '.41 1 4 0 00 I 01 )1.4. J? 419 '0,0 40 00 04 00 1.0. 04l.00 11.01 n# 21.01 10. 2.."0 11.01

4,4 .24 I.24 I Si 4.04 404 0.01 4.64 00i4 I 64.0 0.1 I St? 1.01 4.00 I.90 2.41 I.1 104I .9.1 0.01 0.04 1.14 0.140.9to J.0kV

... ibil. Wil"Il I1.011 00#4 2.0is04.00 Id) 000 0.,4 0.10 1.04 C.4 1,00 9.10 0.00 01.04 0.00 4.42 0. I 0.99 91*,6 A.441 91.10 1 1. 0 JIM A.0to 00

.. ,04 mo.w.. P ii 0.4 0434 0 00f 91.00 0.1 9s it 0.11 9.01 0.04 $0,1 00 40.14 4.11 f 4.09 ,1 4144 40,0 413.00 A 14.o 64.1 20,01 IW.O IN. 5 t 490 104.4. 01.94

...Iewm.w $$ 04 10 4 00 01 04 0.4Of 000 4400II 12.00 1.4.0 10.1 44.0 0021 0.4.0 0.04 01.04 1014.9 tOOl6 00.01 00 90 4. 11 It,o 000.041 00.60 09.4 0.09 49.408

...4*ws6 000 44*04sal 10 .0 1.*4 4.0 I.1) 4.1 0.0 9l M ..41 0.010 9,40 9,0 4 0.9 .0 00 00.00 1.0 P0.00 00.00 04.90 It, It 014.44 0.04 0.10 HASo 100.4

0 9mtu61( 0.40.004 * 01, 1,14, .1 10401 00 00 041 %b 004.84 04.4 4 004.02 001,0 009.0,00. 004.04,M 4404.00 0000.01 0149.0i 401.00 *40.00 l 41.1000.40 004.09 ol.1 00 40144.9 1ulI.o *404 46

it'0. Iwo 00.00 09.11411 Is 40 it 411.40 010 14 I 1 a 4.0044 It4 44.o4 14.14 09.40 19.14 94. 4 90.04 .1.14 O,9 00.0 14-0 0009 0.04 04.9 04.41 4.4" 00.04 .4.4

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ft~ 01 &40940 (1140 1* a0 49 0*014 142b I 44, 00.:? 400.04 W&4 0144. 140.14 040,0 04.04 000.04 024A4 0040.0 M000.4 1",1 10 MM,9 435.11 M.))4.011.04 2090.01 14100b1 1111.0411 ,00. 0*41

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Domestic Prices- Consumers

Consumer prices for cereals are estimated at the wholesale level in flour

equivalents. There are cwo major soft --rheat flour cttegories: 'ordinary' flour

milled at 78 eercent reduction ratio and 'deluxe" flour with a reduction ratio

of 68 percent. The specific qua'ity mix of flour produced is subj6ct to ONICL

directives. Official estimates indicate that, currently, ordinary flour

constitutes 80 percent of tetal flour produced with deluxe floLr accounting for

the bulk of the remainder.

In fact. ather flour qualities are also produced in minor amou-rrs o-

the purposes of this study we have assumed that cnly two flour 'ualities

(ordznary and deluxe) exist. For lack of data it is assumed :har the SO-.O sp it

between ordinary -and Luxury flour production has heldA throughout thC period.

However. while ONOL seeks to assure thar mills croduc!e a nin."' of e0 perc.r.t

of ordinary f;our, there is evidence however that the O. IS are i- fact prodcir.g

only about 60 percent of ordiLary flour. Incentives to pr-duce a greater

percertage o: urf;__r are u.zerL;us. E:-e-t-s nil-' g nacgins e

inadate a-, e. a urage .i er s to -7-^:uce a hig er--val''ed -roduct. Th.e subsidy

paynient is greiter per unit on crdinary flour. hoa-ever, leading millers to

:alse_v claim a higher percentage of ordinary flour in order to recoup a larger

transfer payment. In addation. t.ere 1s a 12 perc nt tax u. iuxn ..

f4rzheT en.courag.ing false claims of ordina.y f our productior. Lelays i4n susidy

^a-mer s prtDbably induce millers to se', luxury fl Lur Lt non-controlled pr_ces.

;.;h the exception of the period 1950-65 when deluxe f.^_- prices were -.ot

regzsa,ed. prices for both flour qualities have been offizially set for the past

25 years. Price setting initially had the objective of st,b,l;zing corsuzer

prices without inccurring major budgetary outlays, a goal ma`ntained with some

-A s ~- -'to,_-_- kX~' - .* _ ~ _~ - - _ i i,S_ _ z, __ __, , =

165

success through 1972-73. Since 1973 however. stabilization gave way to

increasing subsidization such that, at present, ordinary flour represents only

60 percent of its real price level of 1973-74. Prevailing official soft wheat

flour prices are presented in Table I1.8.

Hard wheat and barley are sold almost entirely on the parallel market at

unregulated prices. Ccnstmers typically purchase grain and have the grain

cleaned and -Usto- milled at small artisanal mills. For these grains' consumer

e 51 '_- -4--s the wh.olesale price vas adjusted for handling charges and losses

to wbic: a t-ing margin net of by-products was added. The milling margin is

a_ ''i-g-a7ein rer nuintal from :960-72 (a perJod wt-en the subsector

was essentially ;neq'_lbriu) and adjusted by the C?I fron, 973 througgh 1984.77

A reduction ra- c oF 8Z percert is arv-ied to h-ard wheat flour. For barley wr.ere

technircal constrai-ts eris- O-i the =axtmm reduction ratio, a va:-ae of 70 percent

is used. The consuer pour pr :ces f:r these grains are a' so prese-ted in Tahie

A 's s e.rs sing t -e ';: -'eIded ins ignificant i fferences. The useof C?TP is argued cr g-Lun5ds t-;a ;ard -wheat an.d . ar4_ey m:lling is essentialiv

166

TABLE 11,8: CONSUHER WHOLESALE PRICES FOR FLOUR (DiT_g)

........ SOFT WHEAT ........ HARD WHEAT BARLEY

Average Average Average

Ordinary Deluxe Flour F1lir FourF

YEAR. Flour Flour Price Price Price

1960 .56 .65 .58 .58 .41

1961 .56 .65 .58 .63 .47

1962 .56 .65 .58 .73 .62

'1963 .56 .65 .58 .61 .44

1964 .56 .65 .58 .62 .441965 .56 .65 .58 .69 .51

1966 .56 .65 .58 .7i .57

1967 .D to3 .3 .S .°:1968 .55 .65 .'8 .82 .68

1969 .56 .65 .58 .6e .391970 .56 .65 .58 .65 .45

1971 .65 .75 6/

1972 .65 .75 .67 .70 .56

1973 .65 .- 5 .67 .74 .68

1974 .86 .96 .88 e.C05 .

i975 .86 .95 .88 '.29 _.'71976 .86 .95 .88 _'.46

1977 .86 .96 .88 '>.28 .97

1978 .86 .96 .88 1.59 _.411979 .86 .;6 .28 1.59 140

'980 .94 1.'3 .98 1.69 1.-3

1981 1.12 1.5' '.20 2.27 . 82

1982 1-12 1.50 2.20 2.93

1983 1.12 2.0_ . 33 2.37 : .

.984 1.12 20 .3' w0 '

Border Price Ecuil'-a:ents: Cor.s=u.ers

Morocco '-as been a s-gnificant importer of so: --:oea.- -he process.

described ir cllapter i-n greater detaI'. consi;sts essenl-cal:y c-' 3N-CL ss-Ing

:,port licenses to the .ocal representative of 2arge grain com-pa-,ies w:tn :ne

lowest bid for a competitive bid for a certairn quantity. '-npor--ed gra-in s

delivered to the mills and transformed at competitive m 'ng margins at the

prevailing mix of ordinary (reductior ratio of 78 percent, and deixe treductzio

ratio of 68 percent) flour. Costs are adjusted for transport and handling

charges. financial and documentation \harges and in-transit losses. The border

price equivalents at the wholesale level to consuzers are given in Tables II.9

(OEi) and 11.10 (EER) below.

Imports of hard wheat and barley (especially of human consumption quality)

have been sporadic, thus a consistent series has to be reconstructed from

comparable quality world market prices as described in the above sect-on on the

border price equivalent to cerea.s producers. The landed prices of these grains

art' also corrected for handling and transport costs. documentation and financial

charges and losses up to deiivery to the flour mills. Each grain. is assued to

maintain the reducticn ratios of 82 percent for hard wheat and 70 percent for

barley. Ex-mill de'ivery costs to the wholesale poin'ts are added. The border

consumer orLce equivalents at the wholesale level for hard wheat and barley are

given in Tables I1.11-11.14 belcow.

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174

AN THREE

ESTIMAYION OF SUGAR CMOP PRICES

Doestic Prices: Producers

Producer prices are set at farmgate in the sense that losses, loading

and transport costs are not borne by the farmers but by the sugar mills. The

t prices orr.v,.e' a:~ aZZ b--a rZ--^°c so- s,ees;Pd sucar coten3t and impurity

rates. For instance, beets with a sugar content of over 16.5 percent are thus

paid a premium, while lower _ are nenalized.

The formula for sugar beets is:

Producer price = Base Reference Price x (Sugar conte-.t - 3)

13.5

Unlike cereals producers, Moroccan sugar producers receive the

official price since there are no alternative disposal pcssibi>iries and since

sugar cultivation entitles farmers to inputs ar-d se.-ices at crecit.

TABLE 111.1: SaJQAR PIOCUKEtPRIC 75

-~~~~~~~~~~~~~~~~~A \4'$-. S'A CM ............... '-' 7 -. ==_

P' -b i 'o'.. ....cs'. Productiona...Pric (,CO at (100 ot Pr'c.e ('000 at ('0CC atYEM (DAftt) beat) raw ar) (Di/Mt) can.) raw suvsr)

1971 1071.2 12.4

1954 6.0 1473.8 244.0 9.191.19" 69.0 1794.4l 29.616.060661"G 60. 2174.0 3S0.4 507. .1957 60.0 2436. 380.9 133391968 000 961.237. .314.2 132.139 60.0 2193.3 361.927.23.

1971 60-0 21149.7 2346. 606248.

.072 60.0 2569.1 4278.2 0. 628.!??? "O 147862. 441.0 120.0 79.0 63.9

1977Border Price 2407 2uiv4 ('e00 oducer

IpRt areexeute bythe Ofic Naioa duhet !h ) et d S*r') NT

' ~~~ ~~~~~~1979 116.2 271.0 11.9 i32-S 31z;

196S 139.0 2193-3 3a.9 - 7. 9.1961 135-0 2114.7 348. 96062.

' ~ ~ ~ ~ Atullne C9S7 price 4ata. are avial rm16 otepeetfo S

, l9e8~~~~~~~~~~1R IES.0 2313.S 8142 20- 1746

t ~~~~~~~~~~~~1940 16.0 126".1 427.2 0. a288

IS" 17S.0 2S26-8 41S8. 156.0 799.0 83.9

Theetries Ponuceio converted ito thretircalrate (sugar beeot) eqsumivaltetsoth

basi of th nerventions prevaili 7g i thet forccand 1ugari s 8 Other

key rretiosugarcoe. mrde fhor thoreticalsges, minting, houargeosadcags facro

collection rn del-hivery ofe bee sutoacthed twill. e tlpoucin

ACua -de CIFpic dt are. ava14.7l from 19S60 tote2. prsetfrmONS

Thes prces Ponceio converted ito4 thior^s famat (sugar beeivt)n equivalnt th Ih

basis ~ o ofin theu inevetonspev ailing in the^ Morocca*n1.6 sugrindutry 78orhe

7a8 F- a more detailed description oinf the Moroccan sugar sector seeWorld Bank/EMENAI Agricultural Prices and Incentives Study. (2 vols.)p ReportNo. 6045-MORn January 21. 1986.

176

Port charges include losses of 2 percent. handling. port area transport

for 25 kilometers, miscellaneous and financial charges Inclusive of service

charges. Sugar ex-port is delivered to mills at a distance of on average 100

kilometers from the principal ports. Only the sugar mills and refinery at Tadla

are at a distance greater than 100 kilometers. Imported raw sugar was assumedIto be refined at 750 Dh/ton in 1984. adjustod by the Moroccan --PI to estimate

hte refining cost in other years.79

nF major significance to this study is the choice o0 met.od :---

raw sugar prices at the border into farmgare equivalent sugar beet prices- The

issue revol'ves around an assessment of domestic agro-industrial ez-fc1ency.

a-,:ies therefcre to a_. inalyses of crops which lndergo afro- indussrral

tr3nsfo ration, rot merely te the Moroccan case Tn many agricu-tural ana'yses

the issue does not arise because the basic aaricultural comaodity is a tradable

good. In the case of sugar. however, the agrc__tral prod-cts ,beet and -ane)

are no :a_a_:. _hLe the 73anf- r--ed i-dustrial outrr raw zr ref-ned sugat)

T-o different methods were evaluated for _se in t- :s study. A.

--ternationa' reference refining margin can be deducted from the border pr ie

ror raw sugar in order to dr _ve .. e2qi':ile- rfr-nce rrice for the raw

material. sugar beets. Alternatively. border prices can. be converted into

doo.estic beet equivalent prices by applying the a---<ge observed mil,Ing margin

i. Morocco which, beccose of the share of the more expensive transfcrmat:on rnto

79 Morocco's actual refining costs in 1984 were on, tt order of 1250Dh/ton. The additional 60 percent cost is explained by the fact that the mainproduct from the sugar refining process in Morocco is 'sugar loa: , a non-tradedcommodity, which essentially requires two rounds of refining. Refining costsin the integrated mills in Morocco which produce granulated white sugar, or. theother hand, are mucb closer to international aorms.

177

sugar loaf, is significantly above the international margin which is fo

granulated sugar only. Depending on which method one applies. Moroccan suga:

production is (international margin methoL) or is not (observed domestic margi:

method) an efficient joint agriculturallagro-industrial activity. While th,

domestic refining ma2gin mc thod is discussed below, the international referenci

reflning =ethod is applied in this study, as the issue of domestic agro

industria:' _ zcn is not under consideration here.

Domestic Refining Hargin

Deta:_.ed -7..^.- --̂nunts for the integrated sugar mills, available fror

1974 throug" .984 are analyzed and the net costs of processing, expressec i,

econominc te.-.s 'ccrrected for distortions from border prices and for domesti_

taxes or sidesX, are estimated -'or each =ill 8G addition. average cos

data for -:ae t-:ee refineries -rocessing domestIc raw beet sugar is availab ,

for the pericd from :98C to 1984. An average cost erf domestic sugar mi...ing

ca.cu'-a-ed through the raw sugar output stage anu 4 y e y -7he caoaci-y us

r-ate of e3z- ,s thus der-vec from.-f.e cQst -as For !brior year- fo: w:C.

data are -.o- availatle. th-e average cost is ad,.sted by the -ndlstria -

o-s ave-.rae -o-.estic _rocessing cost is t-'en de-aUctedi so.- t-e ,-<a'.

-wrl d nrice o-ra^-a sugar. arrived at Moroccar. borders and then delivered to th,

sugar Te:.erv. he net difference between the raw sugar bc-der 2rice at ex

mil1l and the domestic milling margi- is the economic val-ue of the non-trade

pr -. ar,3 :nt, sugar beet, at the mill gate. Collection charges includin

80 Net costs are (variable costs + fixed -osts - primary input vala-y-product value.)

h 178

loading. truking and losses of 5 percent are deducted froa the value of sugar

beet at the .nill gate to arrive at the farm gate border price equivalent of beet.

In years of lY world sugar prices, this method yields negative value-

added and therefore negative residual sugar beet value, suggesting that infinite

protection is paid to Moroccan sugar beet producers in those years.

nTternational Reference Refining Margin

Alternativel. instead of applying actual observed sugar milling margins

from Morocco the border price equivalent of raw sugar at the farm gate can be

Aer--4+e tmi'g _ !"illing marvin. representinz efficiert orocessink

costs (i.e. assumed to be non-distorted) in the international market. Such

;-formation is rather difficult to gather. In this study a miling margin o:

750 Dhlton is subtracted from the border raw sugar price adjusted to ex-mill to

estirate the i'i_ gate sugar beet equivaLent price.1 Adjustments for collection

and losses between mill gate and farm gate are then made as above. Resulting

border equivalent produce-r prices are presented in Tables I11.2 (CER) and t11.3

(EER) below.

81 Personal co-unication with the directors of the Mercccan SSar

I.^dustry Association is the source of this reference mi'lling margin for 1964.The margins in other years are derived by deflating the 1984 valee by th.eMoroccan CAPI.

I.s

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tohi.9u. tJ 4c W944 V1 Idl 91 3 I" Tl44,11-1 .1 4: 9.14 49- W44 II 9i,1 641 4.441 141.4$ 94.-0 11.11 440.99 1111 1IS M11.14 l.a 0.49 940.19 ff11ii

CIO hills 411144 VA4. 0 Hi 12 1.4 34.19 " 9.4 01.1 ,4 941I it4 4".99 1.41 l 9.9 411.94 1614: 04.9 41.9:4 $1. 9.19 9.4 , 11 M 144 'l.,) 1.14 9n.tS111 4,1 I06J 9.449

... isim in o titi a.9 1W l,a. II 9.11 114 6 .14 1.42A 1.14 9.4O i 144 1 ,4 91.99 to. 4 14.9 If 9.44 . 9 .1: 0-3 81 1.4 .14 91.44 90.44 4. I1 94.01 4. 4 4.1 1 44

*.4.. W*4c44 94.4 11.4 1.14 19.1 1:4 it .11 44.44 I4.14 1.4.1 1. if 41.9 99.44 4s Lit41 11.9 ta 11.9 94.44 ?.. 1.1.1 140 .14 114 4.4? 01.4 94..' 9.4..

... b#aw4 91444a I. l *.W . 19.44 I .1 11.1* 9.11 I'll0 9.4 9.94 I19 of .9 II 4 19.99 99.94 94.9 9-1.4 4.4 4 9,4 1.64 14.14 1.1.9 I4.4 14.14 it. 9A

-.11111W. If.i.as ILLI111 .fb t,* I.II 9to 1409 94.99 94.44 4.4 i4.4 6.1 40. vl4. 1 9.44 49.14 94.9 4 112 4I."4 44 41.99 4,9 .11 94.99 21.1 .14 221 4,941 1W.4 14 99.

.. 04OWe4 4,24i 60 . 4. 41 1.14 I4.ebi 4,946 4.4O I.4 .9 444.1414.91 4.42 :9 9,, 9. 3 .1.94 .0 i'l ,41 .49 16. la .143 4,44e la.49 94.4

964( "la KIlL 449944 (44,44 44 %1.191 91.94 $419.649 " 14 4094.41 1041.99929.42 941.99 911.4 9441 :9 1.11 MM9I'" ,0010 1199.114 9II49 4.44 4699 4940.4 it 9II: 1. 44MIA11 Wl*4 94101.9 4141.44 1444.91 114149 II91 If

... IPd4$ 4441 M4949 :44.2 W 4 IIo on.4 149.4It4 11.9 it.9 It , W 41.4 194.91 192.99 111,99 114.191 W91.4 919.9 L4.1 94.24I 44.94 444.44 999.41 440.91 944,49 141.2 W 4. W1 WM.2 194.

4404* 449 440 41 44 1149994 1

too" I.$ e o 4 4A 14 A 94~o I 1. 4446 I 4ISt94 14.41 14.44 4.941 W.ll 114.19 .91 9.42 449 4t.% 11.42 .94A 11.94 41.649 '.A 91. 14 I 1.4t 41.4 'A 4.4 U.44

* 1e~~~~~~~~~~~~I 4 ~~~~~~~,4 14? 4.496 I.4 l 9,1 146 .19 .94 1949 1. 1A I. 4 9.991 9.94 9.91 4.9t 9.44 9.9# 4.4 4.44i 44.9 4419 4.41 49,it 4 49.9 49.:44 .9de

.44.999 1~~~~~~~~~~~~~~~i.49 4.99 M.49 449-6 :M 91.49 9l.94 .1.14 2.940 91.41 11.49 1.94-4 4 9. .49 9 24.4 141.94 1.494 41.4 941%.lm, 4.M A14.44 24.4 491.99 9W19 49.

.a.........,. . .4~~~~~~~ ~~~~ ~~~~ ~~~~~~~~~~~~~~~~~~~~~.......................... ..nI.....I.....

I......4£4* -a* n....................... ... .I

494 he.. 44.9644 S~~~ 44.14 499. 294.44:~~ 406 494 rn I44 is 04444494. U Lt I 4 14 .1 .i .)84 .1 11 .i .6

Doestic Prices: Consumers

Consumer prices are reviewed annually by the Interministerial Pricing

Committee of tue Ministry of Economic Affairs, although, as is seen in TableI

I11.4 below, they are adjusted infrequently.

In 1984 the official wholesale price differential between granulated

and loaf sugar was 1.20 DhIkg. The structural cfc difference for this year,

I-bhovever. was only 0.50 Dhlkg. Thus, largely as a response to this artificial

* . price aufierential -- the gn-&. at:zda -zz: cf -^Doo1o _rice ratio

reached 1.46 in 1984 -- consumption has tended away from sugar loaf towards

granulated and cube sugar. sugar loaf cousumptiU3r 'a;azLz2 f'-_ c.-

in the 1960s to less than 60 percent iL 1984.

TA3:E III.4: SUGAR CONSUM PFICES (Dh/kg, annual ay-rge)

Cra/ Loaf AverageSUGAR LOAF GRAULATED Conwsmer Consumer

YEAR (Wholesale) ( (W ) Uholetle) ( X ) Price Ratio Price

1962 1.00 82.8 .99 17.2 .99 1.001953 i.:3 83.0 :.C8 17.0 .95 1.12L964 1.62 84.0 1.49 16.0 .92 1. 9i965 1.84 85.3! 1.69 14.7 .92 1.821;64 1.84 86.3 1 .59 13.? .92 1 821967 1.84 85.0 1.69 16.0 .92 1.821968 1.84 85.3 1.69 14.7 .92 1.821969 1.84 85.6 1.69 14.4 .92 1.821970 1.84 84.3 ;.69 1S.7 .92 1.821971 1.75 83.0 1.60 17.0 .91 1.731972 1.49 82.3 1.34 17.7 .90 1.4619U1 1.62 80. S 1.34 19.1 .88t 1.481974 1.79 78.01 1.3 22.0 .7b i.sw1975 1.79 76.8 1.',4 23.2 .76 1.891976 1.79 71.2 1.34 28.8 .7S 1.861"7 1.79 65.3 1.34 34.7 .75 1.831978 1.79 68.0 1.34 32.u .76 1.651979 1.85 67.6 1.38 32.4 .76 1. 701980 2.21 64.9 1.65 36.1 .75 2.02*931 3.07 65.8 2.40 34.2 .78 2.841982 8.31 65.6 2.84 34.4 .eo 3.061983 3.49 61.7 2.64 38.3 .76 3.161964 3.85 56.0 2.64 42.0 .89 3.34

Sour-c: Sugar Industry Association

_ _ _ _ _ _ X -- . .- ~ - .

t II

Border Prie EquivalentS: Consumers

Unlike the producer border price cowparisons which are made f o r o n e

product, raw sugar, consimer price comparisons need to be made for two

c odities: sugar loaf and granulated sugar. Howverer. sugar loaf is not a

traded comamdity and very few nations produce sugar loaves. Thus the issue of

the appropriate reference milling cost for sugar loaves arises. The assumption

that was retained for this study ensues fram a study by the Moroccan sugar

industry. It indicates that loaf production costs ere 50 to 75 percent above

the cort of an efficient granw.lated sugar-producing mill. A scalar of 1.75 was

assumed for the entire period Wi. h production costs weighted by the annual share-s

of loaf and granulated sugar consumption. The border price equivalents to

consumers are presented in Table III.5 (OER) and 11I.6 (rn). 82

82 It chould be noted that su6.r is impcrted by the state monopoly,

ONTS. Preliminary analyses of import unit costs for the last 15 years haveindicated that Morocco buys raw sugar by as much as 10-20 percent above theInternational Sugar Organization quoted prices delivered in Morocco. The borderprices presented in this study are the actual recorded landed unit values.

J 111.31 * 74948 6i1,90991 EU 199 cwtet M 4 1495.i ua i04,.i6 I ifi M tl io tt osi

IS v,te 950

LW huge 16*809 VA9.91 9,9 12. Wv to.o8 Is II4 11.9 4.40 119.9 94.9 19.45 04.48 MA.5 111.11 504.44 122.44 92 09. 9.4* 70.164 96,9 194.114 h1ill 0oi."9 139.43 I24t.1 o.1

0464,494 afi"p 04904 5.4* 1.40 5.04 sl.b 2.0 5.9 5,44 5.44 lW So.0 9,.0 5.44 colt Om 4. 1 9.40 4.49 4.50 4.99 J."4 I." 5.91 &.#I 599 0.09

(04 Jlr.# 1044 "J. 949.W 490.40 419.34 $o 193.0 4 . 411.3 $4. 16 4194.4 191.10 119.50 $10.46 124.9 144.44 044.44 126I.M 9049.44 920.44 gin. 94 020.94 15.5Is0 90*,4 404~.94 itow 9544.44 jlfl,e

""as~ 9458 e4..oII 44.2g f.1.4 uSD 11 443.11 go 101,4 11.95 41.11 59.10 49.4 41911 159.9 145.94 40.1 244.19 M54.4 994.09l 994)6. Om.2 W2.5 St9,4 114,122419.lb 9544.5 909.3

9.50 9. 53 i.10 9.1Si 1.01 9.904 9,41 9.44 9.914 9.40 L.5 9.59 9,02 i it 9.9 5.92 3.24 2.1 11 2.05 5.14 1.9 iii.1 4,44 1.4

...hu. mule 92~~~~~~~~.4 91.9I4 4.94f 5.94 91.89 90.5 94.90 94.It 90116 90.54 Lit.4 Si,5 94.I 59,11 9. it 4.1.0 3.j1.14 4 9.90 94.50 8I.40 .42.5 04.0 41,4. It 46,

.au.040094 2.1 20.44 L11 .1 S.11 .4 is5N1.94 5.55 24.34 1.14 96.94 1.44 11.54 00 .9.1591,89 u It, 1.4 42 14.10 74.44 . 11 4.4A 4,590 90,4 .II 4

...SuO.g9 Ile oeals 1.80 1.81 5.64 o.00 94.54I 97.4 )og 1.4 1.02 5.44 4,4 *94 I4ll1 999 3.14 QA.8 49.10 19.45 it. " !...a 54.04 04.91 5 1.t 21.49 32459-

.. .. . .. . .. . .. . .. . .. .. . .. . .. . .. . .. . .. . .. .. . .. . .. . .. . .. . .. .. . .. . .. . .. . .. . .. .. .. . .. . .. . .. . .. . .. .. . .. . .. . .. . .. . . w

dillllM WM 0 49980 9804.4 .9..d 9.4 94944.90 M9.9 01914.95 444.If 9I9. oil A 404.9 011 .U. 44,4 It 59 $4. 0 Sf2.5 112.29 496.45 3194.51 INM MCI4 142.4 24 M4 MA.0 II9.44 31011.4111116.192964.14 9495.24 94A95 WA

£9680 U "W0 Wiugal bws 9W 9 l.II~ % ~~~~0.95 4.10 4.45 4.99 9 41is 1.1 949 9.94 91.42 94.59 90.94 If."0 99.50 99.1 91.45 16.9 95.45 191.4 it.5h 29.29 31.5 54.51 24. 36.64 2499

... o.u9. 4 t 95.45 95.5) 99.49 95.4 519.12 35.4 94.80 93.95 964,4 99.94 9.44 ci 94. 4 75, 51.10 4.2. 4.8 4I.I$ 11.49 95U' 12.1 1.1 914 14.92l 4241 *46

9.10 9.5 9.20 4.214 9.99I 9.94 9,45 L,ot 9.44 I.d* .5 9 1.341 $ l 9.04 9.9 2.93 3.50 3.50 5.45 1,05 5.24& 9.56 4. 0 8.44 1.40

................. ............... .................. ........ ,.....,.... .....................

no860 a i kW u 994.94 folow, *W 1.9190,4.11949.04 III. 4 It W$93."4 42 1901.49 415.99 944.95 114.22 u94.54 5M0.4 IW4.O 1341.21 40 40.5141442.9W5 A.4.I 445.4 45.959404.42244.50121.94s im,49 2099.4

.,0. b 9oqs gal 944 1.a41 905.16 94.10 209.64 99.4559.4 MAI.w 29,0 1.45 390.41 521.40 M2.fl 224.59 54LA M."4 2452 99.2 1 4411 6.19 90.04 45.95 44.50 M04.9 05,3 1.2 2 405 61A10J4 r.8.... . . . . . . . . . .. . . . . . . .I . . . . . . . . . . . . . . . . . . . . .I . . . I . . . . . . . . . . . . .d 1. . . . . . . ' . 1 1 1 1 1

It0 &M 694911 .449.9 #O's,u49 044.9 805 o4.&I 41.521 995049 124.04011,6.11 131.04 19 '99411 5 1.U 14.4. 014.1 IWAO5 91252.9 311696 104d) 41,11,61 IM0.111412.41 04619.91 944.04 419.49 3541.36 U;4&29i 5500.04

... ~~~o~~ooi~~~ioq 9~~.14 L.5 I ~9 .14 9.99Ii I-.t 9.45 9.04 9.414 5.4(A 9.1 O.f 9.0l 9.41 9.4 MI9 5.5 1.56 5.05 1.01 2. 50 1.20 t 14. 4.414 -.W

lr~ o 11~~~~~~944 I.50 I9s1 .1 a.9 95 5.44 964. 5.42 1.44A 2L2 2.8 1.41 429 4.55 4.4 1.50 1.49 4.4 9,91.1 I.9 0.501 14.50 9.51 W9.2 t *4

........n....;.... ....... '................ ... . ...... ... . . ........... 4............

00504499 40 94 09594,44.1'.4 95.0944949.014.494.4'9.414.104.919152 50490509995.49419 29,990144.2.4 *0.04444 04,540.05650

ll'W l'w 1 IS 'tftt 111101 'ftU "'tttl416 t 'tUZW t41't'K il tr.tt"t 4 0 n'nM " Off tt'rittt t tl'Kftt U't'tf W M' ti"Cttittttt t'ttUlt 1;tu Oi t f"*l tv"Alst l It UrIn 'l Utt *40 I* 'ntt ttnl on t ttM Attt

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Wi4l 9t4t 919t 9's 919 9A9 We It9 III (*t 9t.'9 tt' 14* 911 *It t1 3 1 11 1 tl 911 W it 1 It (9 1 Wit % "'I t *1 ,.

03 We 19 1 91 fl I1 (1t1 1o' I "It OIt fill pill 9 9 "It n 4 9I99 WI tt s to I 99 9 I A I o9 9 It I 99 I 9n t etit

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00u%l Aji" tt'ut "'M t'wI 9996 19t49 WM491 *1990 9 41IttI *I'tt ",tit film? U'UI4 t enit tt 1414fi t U 1-III t1rtu9(4n(94949 9 9 919 tot 4 jSi li 9l tit"9

~~~~~~~~~~~..........................I.....I............... ... .... . ... I............... ... ......... I.......... . - 1 1- - - ............... . . . ... .. .... ...... . .......................................................................................... ..... .......... . ... ..

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'~~~~~~~~~~~~01" t 1t1t 't4% nnlut It,""t WW*tI 14nt1u It'It'*ltt rlttl I C, - 1 WI It Cl t tta,0 1 'U II tttln tt n tt t,tn U goit w1mo tott O wltnnnl ttt11 s n Itn tti t4m6t Is n 41,91 UIov "1* 4 .tW *9III

i~~~~~~~~~ ~ ~~~ -6' 11'@ oft Ie 11 -t" a I Itot 'til Is' Ift '3 it's loll We tl't 019 WI 11 11 I 11 I lil t tX Wt l' It 43 41 - tot Blowutle smjefIt§Srt

U'4t gI'Hl It'ltl t,itstft tl'llt ttt't4t tt It u ts t tl ' Ul 14tt tt'llt J%'tlt lI'ltl Ut'lll t' tlt U'U t6 b 11'1 i tt t4 ttI U It'ttll4 4 14% 6t'tl It E9 tl'tl font _t"l10

m9 l m l lost "$I 614% tIll 99 99 949 9* 1 9 496 .4. 1999 999 fill fi 19 199 11 44 1 1, 1 " 99I ttt t94 (91 M Ittt 1 tt9

?~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~o ""XX W lH nt |) PM of tItrwntttn nouteSttt nn:~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.

I,.. iwuw 949

4^

r |1i85

AM= FMu

ESTIMATION OF THE NON-AGRICULTURAL PRICE INDEO

The non-agricultural price index for Morocco was derived fro national

accounts data disaggregated by sector. For these data, the share of gross

domestic product contributed by the agricultural sector was deducted, and the

remaining sectors -- mining. manufacturing. constructi-on, utilities, c merce,

pLu±lic administration arnd defense, and other -- were re-weighted at constant

factor prices to estimate a 'non-agiicultural GDP deflator' (NA). It is this

deflator which serves as the non-agricultural price index for comparisons at

prevailing domestic prices and at border price equivalents estimated using the

official exchange rate. This index is given in colmmn (i) of Table IV.1 below.

For price comparisons which correct for government trade and exchange

rate trlicy interventions -indirect effects'), the non-agricultural price index

vas decorposed into its tradable and non-tradable components. The tradable

sector consists mainly of mining (essentially the phosphate and derivatives

sector) and manufacturing. Construction, utilities, commerce. housing and

administration were considered to be non-tradable sectors.

Two adjustments were made to the tradable component of -he non-agr4 cultural

price index. 7ae first corrects for trade policy distortions by dividing .he

tradable non-agricultural GDP deflator by the uniform tariff equivalent. The

second adjustment corrects for exchange rate distortions by multiplying the

adjusted tradable non-agricultural GDP deflator by the ratio of the equilibrium

exchange rate to the nominal official exchange rate. The tradable and non-

tradable non-agricultural GDP deflators are then weighted by their relative

186

shar!s in the aggregated non-agricultural GDP deflator and sumed. This adjusted

non-agricultural GDP deflator (NA*), which corrects for both trade and exchange

rate policies, is presented in coln (ii) of table Ml.. This latter index is

applied to price comparisons made using border prices calculated at the

equilibrium exchange rate.

TA.E y 1- i Q r @4-0iO.L'T~.URiL PR

.~- ~-, ~s.. .... : .. ..- Mo Mv4 , j .'1v :.1 , .... .=

* ~~~~~~~~~~~WI' 2aLS RE _1 C49 'C,Iv

l9S¢ 9. 73 1 9393 D.0 4 *7 1 10.6 S.06 5.93 726:1961 71.2 71 5 93 53 61.7 4.55 1.093 5.06 3.50 73.Iw2 74.0 4.o SI- 63.3 46. 2 1.093 5.06 5.97 77.319 73.4 - 6.0 522 ' $7.9 7 1.093 5.05 3.91 8I 2

96 *4 6*1 *33 O O e *W 19 ! < ! _,

1W5 a4.3 9.1 51.1i 73 1 46 .9 1.074 5.06 o s3 S.. 6" S.s 72.3 4.n7 ,096 5.06 5.97 7.0

1967 02.7 9.6 50.7S 71.4 4953 1.094 S.0O 594 W .11996 63.1 9 1 50 4_ 70.9 49. 5 1.107 S.0 s ee 66.41969 to0o 00 10 S4.53 1C.0 45 .A 1 139 5 06 6.09 103.0'10 12.6 4-.t 7 4.1is 1025 *-.9s 1 117 5 06 6.12 107. 119n 1 10.2 w.7 7 4.4 4f 10. 48.6 1. 167 5 06 6.2 tOo.S1972 1C*.I 1 - 1100 46 0 1 :27 4 60 6.01 117.91973 12.S 109.6 55.79 116 I 44 53 1.128 .11 3.71 12601974 .5.7 144 .1 56.7 1.31.7 45.53 I :12 4 37 5.36 147.21975 ll.3 143 0 14.3m 139.4 45.73 1 131 4.(6 53.06 149.6197 146.9 145. s2.9s 4s.2 47.1 1.-74 4.42 5 19 146.

1977 1656 676 93.9 170 2 47 2 1. 22X 4.50 5.44 162.61979 173. 171.0 523.53 I610 7.6 .23 4.17 5.6 1OS.41979 1J8.7 ? .7 so.4S 190.7 49.96 1i267 3.90 5.16 206.71sso 206.6 23.4 50.9s 209.9 4491S 1.241 3.94 3.7s 226.1961 250.1 2.9 49.49 227.3 50.63 1203 5.17 6.01 226.31996 247.1 249.7 43.05 2O.s 96. 1.212 6.02 ".1S 539.6IM 2ss.0 25.S 47.3S 252.1 S2.73 1 216 7.11 8.36 249.31964 263.2 257.1 47 35 2_ 9.5 52.73 _ 1.1 3.31 9.50 259.8

"tt 4' T. .gL *Ni-ar;M P 0fl.to-) / CU; _ T.;ff .(EEYhi.,¶ S) * (Sbh.- 741.. Wr5. W.-A9,ic MP DOT~)

.TL t- 5 tb.. P43 -,T_ F. Mt e_ -t *--,. -7... I # . #*-g *¶

187

Annex Five

STATISTICAL APPENDIX

I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

i~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

I _________~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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TIIL V.7h ELATIW P21CES IN TM NOWe If NI. 1NUM.11E fi*c IxW4I PL1 44f0~

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A|s six

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'M Haroc: rapport sur le _octeur agricole et les perspectives dedEveloppement des zones bourr.' Report No. 1395b-MDR. Washington, DC. April15. 1977. (restricted)

_ Memorandum on Morocco's Agricultural Sector: Identification of Issuesand Bank StrateRg. Report No. 2667-MOR. Vashingtc.a DC, May 2, 1S80.(r2stricted)

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_ Morocco: Agricultural Strategy Paper. Washington, DC, January 19.1984. (restricted)

Morocco: Basic EconoxLic Report. 2 vols. Report No. 3289-MOR.Washington, DC, December 30, 1980. (restricted)

. Morocco: Copeansatory Programs for Reducing Food Subsidies. 2 vols.Report No. 6172-iDR- Washington. DC, April 1986. (restricted)

. Morocco: Economic and Social DeveLopment Report. World Bank CouutryStudy. Washington, DC: The International Bank for Reconstruction andDevelopment, 1981.

_ Morocco: Government Market Intervention and Comoarative Advantage i-Wheat and Sugar Beet 2roduction. Draft Report No. 2173E. Washington. DC. no

Morocco: tadustrial Incentives aod Erport Promotion. World BankCountry Study. Washington, DC: The International Bank for Reca,nstr1;ct7t-- dDeveLopment, 1984.

______* Morocco: Me.!,randam on Fertilizer Demand and Pricing. Report No. 4526-HOR. Washington, DC. June 1983. (restricted)

Zartman, I. William. 'Xin' Tsssan's New Morocco.' In The Political Economy ofMorocco, edited by I. Will!&= Zartman. New York: Praeger, 1987.

_____ ,ea. Political Elites in Arab North Africa. New York: Longman. 1982.

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