P O V E R T Y & E C O N O M I C P O L I C Y R E S E A R C H N E T W O R K

P o l i c y R e s e a r c h Brief November 2008 Number 44

Agricultural Trade Liberalization and Poverty in Tunisia: Micro-simulations in a General Equilibrium Framework

by Mohamed Abdelbasset Chemingui, Chokri Thabet

This work aims to shed some light on the following questions: will the exposure of the Tunisian economy to world agricultural prices increase or reduce poverty? Which types of households will be most affected by the changes in trade policies and how? Are the effects of the multilateral liberalization of agricultural trade stronger than those of bilateral agreements?

Four scenarios are examined : i) L1 : Elimination of tariffs on industrial products imported from the EU (which corresponds approximately to the Euro-Med Agreements) ; ii) L2 : Abolition of all tariffs on imports from the EU, including agricultural products ; iii) L3 : Extension of tariff liberalization to imports from the rest of the world; iv) L4 : Combination of L3 with multilateral agricultural trade liberalization reflected by an increase in world prices for the majority of agricultural and food products imported by Tunisia.

The main results are summarized in the table below. The L1 (Euro-Med) scenario results in a simultaneous increase in exports and imports, mainly for non agricultural activities. The real GDP shows a marginal increase of 0.2%. The poverty headcount index decreases from 8.1% to 7.7% and mainly benefits rural households. The L2 scenario (which corresponds to an extension of the Euro-Med Agreements) engenders significant increases in the imports of fruits, livestock, meat, dairy products and beverages. Effects on GDP and poverty are similar to those observed under L1. The L3 scenario (complete unilateral trade liberalization) results in an increase in the imports of the majority of agricultural products, as well as an increase in exports. The reduction of poverty is greater than in the two previous scenarios, falling from 8.1% to 7.6% nationwide. Farmers and agricultural activities are the main

beneficiaries. The most spectacular reductions in poverty are observed in the L4 scenario (L3 + multilateral agricultural trade liberalization) where the poverty headcount index falls to 5.4%. However, these impacts vary between the different household groups. Rural households, which represent the majority of the poor, experience a strong reduction in poverty, whereas poverty increases for urban households as a result of the increase in the world prices of agricultural and agrifood products.

Simulations Results (percent variations) Reference Year L1 L2 L3 L4 GDP 38672.9 0.2 0.3 0.2 0.2

Total production 39910.4 3.7 4.1 5.6 5.2

Total exports 8030.3 23.2 26.1 32.0 33.7

Exports to EU 4158.1 15.7 17.7 14.9 17.7

Total imports 8325.7 15.9 18 22 22.5

Imports from EU 5482.6 32.1 36.4 23.4 24 Poverty Headcount index

National Rural

Urban

8.1 15.8 3.2

7.7 14.3 3.5

7.7 14.3 3.5

7.6 14.1 3.5

5.4 7.9 3.7

This Policy brief is based on the working paper MPIA 2008-03.