The Effects of Agricultural Liberalization on Sectoral Water Use: A Cge Model for Turkey *

Transcription

1 Paper presented at EconAnadolu 2009: Anadolu Internatonal Conference n Economcs June 17-19, 2009, Eskşehr, Turkey. The Effects of Agrcultural Lberalzaton on Sectoral Water Use: A Cge Model for Turkey * Yasemn Asu Çırpıcı ** Department of Economcs, Yıldız Techncal Unversty, İstanbul/Turkey Abstract The am of ths study s to construct a water-cge model for Turkey n order to examne the effects of a possble tarff reducton n agrcultural tarff rates on Turkey s nternatonal trade as well as on agrcultural water use. The model s a fve-sector, statc CGE model where four producton factors are used n four agrcultural sectors (captal, labor, water and land); land s not appled for the non-agrcultural sectors. A nested producton structure s used for agrcultural sectors whle non-agrcultural producton s determned by a Cobb-Douglas producton functon. Results show that agrcultural tarff reducton makes Turkey a net mporter of the agrcultural products. The overall domestc agrcultural producton declnes resultng n a reducton n the water use n agrculture, mostly n cereal and lvestock producton whle t almost remans stable n frut and vegetable sectors. The same smulaton s repeated under a total agrcultural productvty ncrease. Ths tme the trade dstortons as a result of tarff reductons are compensated. Vegetable sector experences a recovery, net exports ncreases substantally. Water use n frut sector ncreases whle n other agrcultural sectors t declnes though the producton and net exports n all of the agrcultural sectors more or less ncrease. Keywords: CGE models, agrcultural tarffs, water use. JEL Codes: D58, Q17, Q25 ** Department of Economcs, Faculty of Economcs and Busness Admnstraton, Yıldız Techncal Unversty, İstanbul, Turkey 1

2 Paper presented at EconAnadolu 2009: Anadolu Internatonal Conference n Economcs 1. INTRODUCTION June 17-19, 2009, Eskşehr, Turkey. Computable general equlbrum (CGE) models are effectve n makng economy-wde polcy analyss. They cover the nterrelatonshp between producton actvtes, factors of producton, households, government and rest of the world. Therefore, t s possble to analyze both the drect and ndrect effects of a polcy change or an economc shock throughout the economy. These features make CGE modelng a sutable method for analyzng water-related ssues. The am of ths study s to construct a water-extended CGE model for Turkey. The model conssts of four agrcultural sectors and a non-agrcultural sector. Agrcultural sector dsaggregaton s made accordance wth the detal n 1998 Input-Output (I-O) Table as 1) growng cereals and other crops, 2) growng vegetables, hortcultural specaltes and nursery products, 3) growng frut, nuts, beverage and spce crops and 4) other agrculture sectors. All other sectors are added as a ffth sector under the headng non-agrcultural sector. There are four factors of producton: labor, captal, land and water, though land s not appled to the non-agrcultural sector. All factors are moble across the sectors and the total supply of factors s fxed exogenously. Whle full utlzaton of labor, captal and land are assumed, t s supposed that a certan amount of water s not consumed. A nested producton structure n agrculture s appled wth a Leontef Producton functon to combne water and land nputs, whle a Cobb-Douglas producton functon s mplemented to combne the waterland composte wth captal and labor. Armngton specfcaton on the trade structure s appled. Accordngly, domestc and traded goods are taken to be mperfect substtutes. There s an ongong debate on an nternatonal scale for lberalzng agrcultural trade. Although WTO countres seem to agree on the need for lberalzaton n agrculture, no agreement has been acheved so far on further lberalzaton of trade n agrcultural products. Turkey mplemented the necessary decreases n ts agrcultural tarff rates commtted n the Agreement on Agrculture (AoA) of WTO. However, ths dd not lead to a real overall average tarff reducton. In ths study, a trade smulaton s performed n order to analyze a stuaton n whch Turkey decreases ts agrcultural tarff rates leadng to a real decrease n ts overall average appled tarffs. The same smulaton s repeated under the assumpton of a productvty ncrease n agrculture. Ths s mportant for Turkey n order for t to ncrease ts comparatve advantage n the nternatonal arena. Ths s mostly ndcated n the studes concernng the EU-Turkey 2

3 Paper presented at EconAnadolu 2009: Anadolu Internatonal Conference n Economcs June 17-19, 2009, Eskşehr, Turkey. trade relatons. Turkey has nearly half of both ts mports and exports wth the EU. Several studes ndcate that Turkey can not beneft from the Customs Unon (CU) enlargement or from an accesson wth the EU unless t apples the necessary structural change polces. Ths s true even for the sectors that Turkey has a compettve advantage n, namely frut and vegetable sectors. In fact, Abay (2005) states that wthout enhancng the qualty and standards, Turkey can not beneft from ths advantage. He also ndcates that for the products whch Turkey s short n supply (such as cereals and ol seeds) t s mportant to ncrease the productvty. Also, Çakmak and Kasnakoğlu (2002) showed that even a small ncrease n the productvty n the lvestock sector can elmnate the negatve mpact of a possble accesson on lvestock producton. In the next part the general structure of the model s gven and the smulaton result can be found n the thrd part. 2. WATER-CGE MODEL FOR TURKEY The model constructed n ths study s a sngle-country, 5-sector, savng-drven, smallopen, statc CGE model for Turkey wth four factors of producton. Apart from the other CGE models for Turkey, t has a nested producton structure. Land and water form a composte good and ths together wth captal and labor, comprses the total agrcultural producton. Ths structure s smlar to the work of Mukherjee (1995), except she used CES producton functon n the second stage, whle n ths case the Cobb-Douglas producton functon s preferred. Agrcultural sectors are decomposed accordng to the 1998 Input-Output Table s detal. Accordngly, three agrcultural sectors are taken as growng of cereals and other crops n.e.c. (C), growng vegetables, hortcultural specaltes and nursery products (V), and growng frut, nuts, beverage and spce crops (FR) and all other agrcultural sectors n I-O Table are aggregated wthn other agrcultural sector (OA). 3

4 Paper presented at EconAnadolu 2009: Anadolu Internatonal Conference n Economcs June 17-19, 2009, Eskşehr, Turkey. AGRICULTURAL OUTPUT (Leontef) Value Added Intermedates (C-D) Land/Water Composte Labor Captal (Leontef) Land Water Fgure 1: Structure of Agrcultural Output The nested agrcultural producton structure s shown n Fgure 1. Two of the four factors of producton, land and water, comprse a composte good. Ths composte nput n turn, s lnked wth captal and labor through a constant returns to scale the Cobb-Douglas (C- D) Producton Functon gven n Equaton 1. XS ( 1 α β ) α β = A K L TW (1) Here, K s captal, L s labor and TW s the land/water composte. Sectoral output s assumed to be a Leontef functon of sectoral value-added and ntermedate nputs. Thus, no substtuton s allowed between the prmary factors and ntermedates. Intermedate nput demand n each sector,, s determned by the fxed Leontef coeffcents a j s. INT = aj XS j (2) j 4

5 Paper presented at EconAnadolu 2009: Anadolu Internatonal Conference n Economcs June 17-19, 2009, Eskşehr, Turkey. Land s not appled to non-agrcultural producton. For the non-agrcultural sector, labor, captal, and water nputs are aggregated through a C-D Producton functon: XS NA NA NA NA NA NA ( 1 α NA β NA ) NA α β = A K L H (3) Here, K NA and L NA represent non-agrcultural captal and labor respectvely and H NA represents the water nput. Value-added and ntermedate nputs are combned n a Leontef functon to form the sectoral output (See Fgure 2). NON- AGRICULTURAL OUTPUT (Leontef) Value Added Intermedates (C-D) Water Labor Captal Fgure 2: Structure of Non-Agrcultural Output Aggregate supples of factors of producton n each sector are fxed and gven exogenously. Labor and captal nputs are assumed to be fully utlzed. Snce not all water resources can be used at once, water nput s assumed to be partly consumed, the remanng s allowed to flow. There s no separate producton sector for water. Sectoral water usage s assumed to be determned n a compettve market as are the other factors of producton. There are two agents n the model: the prvate and the publc. Publc agents represent all the state owned enterprses and the prvate agent represents the households. Publc 5

6 Paper presented at EconAnadolu 2009: Anadolu Internatonal Conference n Economcs June 17-19, 2009, Eskşehr, Turkey. revenues consst of tax revenues and ncome from abroad whle prvate ncome s composed of ncome from factor ownershp less taxes, and domestc and foregn transfers. The Armngton specfcaton s used so that mported and domestcally produced goods are assumed to be mperfect substtutes. Households consume a composte good composed of domestc and foregn products. Subject to ther current ncomes, households mnmze ther costs. As a result, the households decde on the composton of domestc and mported goods n ther consumpton bundle. Accordngly, sectoral composte good, CC, s formulated as a Constant Elastcty of Substtuton (CES) aggregaton of the domestc commodty, DC, and the mported foregn good, M as gven n Equaton 4. CC γ γ / 1 γ = ac ( bc M + (1 bc ) DC ) (4) Here, γ s the elastcty of substtuton parameter and s taken to be exogenous. Subject to CC, households mnmze ther cost functon gven n Equaton 5 Pd. DC + Pm. M (5) where, Pd and Pm are sectoral domestc and mported goods prces respectvely. The frst order condton of the cost mnmzaton problem gves: M DC σ σ m m bc Pd = where 1 bc Pm 1 σ m = 1 + γ (6) On the other hand, the representatve producer n each sector s assumed to maxmze ts total revenue from domestc and foregn sales (EX ). So, ther decson s about whether to produce for the domestc or the foregn market. The producer s problem can be formulzed as: Max s.t. Pd. DC + Pe. EX (7) XS = at ( bt EX µ µ 1/ µ + (1 bt ) DC ) 6

7 Paper presented at EconAnadolu 2009: Anadolu Internatonal Conference n Economcs June 17-19, 2009, Eskşehr, Turkey. where, Pe s sectoral exported good s prce. The frst order condton can be shown to be: EX DC σ e σ e bt Pe = 1 where bt Pd 1 σ e = 1 µ (8) De Sants (2002) provdes estmated elastctes for Turkey. Accordngly, both σ e are taken to be equal to 2. In order to reflect the comparatve advantage of Turkey n foregn trade, t s further assumed that the response of the vegetable and frut sectors should be lower than ths rate. Therefore, elastctes for these sectors are taken to be 0.5. σ m and Equlbrum Condtons: Publc savng s the dfference between publc revenues and publc expendtures. Prvate savng s calculated as a fxed proporton (MPS) of the dsposable prvate ncome. Thus, the model closure s savng drven. Prvate savng calculated from the exogenous savng rate s assumed to determne the nvestment level through the savng-nvestment balance. Total prvate nvestment s dstrbuted to the sectors n fxed shares. Total publc nvestment (TOTGINV) s calculated from government prmary balance (GPRMBAL) equaton: GPRMBAL = GREV TGCON TOTGINV INTRSRAT * TRANS (9) In accordance wth the economc program of 2003, GPRMBAL s taken to be as a proporton of GDP. INTRSRAT 1 s the rato of nterest payments to domestc banks n government transfers. Total savng (publc, prvate and foregn) s equal to the total nvestment: GSAV + PRSAV + FSAV = TINV (10) 1 Is calculated to be equal to as the proporton of publc domestc nterest payments wthn publc transfers. 7

8 Paper presented at EconAnadolu 2009: Anadolu Internatonal Conference n Economcs June 17-19, 2009, Eskşehr, Turkey. Commodty balance, descrbng the supply and demand equvalence of composte commodtes, s gven below. The sum of prvate and publc consumpton demands, PRCON and GCON respectvely, nvestment demand, INV, and the ntermedate demand, INT, has to be equal to the sectoral absorpton, namely to the supply of the composte good, CC. CC = INT + PRCON + GCON + INV (11) Current account balance mples PM IM + NPFE + FIP = PEEX + FSAV + NPFI + PFTR (12) Here, NPFE s the net prvate factor payments to rest of the world (row); FIP s the foregn nterest payments; NPFI s the net prvate factor ncome from row; PFTR s the publc foregn transfers, and FSAV s the foregn savngs. 3. SIMULATION RESULTS Turkey, accordng to the AoA, has reduced ts agrcultural tarff celng value by 24 percent (each year 2.4 percent for ten years) from 1994 to However, as seen n Table 1, the appled average tarff rate ncreased from percent to percent wth fluctuatons. Yet, startng from percent n 1994, reducton of 24 percent should have lead to percent tarff rate n However, the observed value n 2004 was so, there s a dfference of percent between the expected value and the appled one. Applyng the same calculaton for 2003, from 1994 to 2003 the tarff rates should have been reduced by 2.4x9 = percent, correspondng to a (= ) percent tarff value. However, agan from Table 1 one can see that the appled value n 2003 was percent. The dfference between the realzed (54.90) and expected tarff rate (23.24) s about 32 percent. The frst smulaton appled here tres to answer a what f queston to understand the stuaton when the appled tarff value s nstead of percent. In the smulaton, effects of a reducton n tarff rate, tm, of a 32 percent for all agrcultural sectors s analyzed. All the values and percentage changes are gven n real terms. 8

9 Paper presented at EconAnadolu 2009: Anadolu Internatonal Conference n Economcs June 17-19, 2009, Eskşehr, Turkey. Table 1: Turkey s Average Agrcultural Tarff Rates Years EU and EFTA Other Countres Average Source: DTM (2004). As expected, tarff reducton n agrculture leads to a reducton n agrcultural mport prces, PM. The largest prce decrease s observed n the other agrculture sector (30 percent). The man sector wthn the other agrcultural sector s the lvestock sector. In fact, the other sectors such as fshery, forestry and some related agrcultural servces share only a small porton. Therefore, relatng the comments about ths sector to the lvestock producton wll not be msleadng. So, the analyss n ths study about ths sector should be read n ths manner. In fact, the sgnfcant declne n the mported prces appears to be a clear-cut result of ths, snce Turkey has not much chance n the nternatonal markets of the lvestock producton, beng far behnd (both n terms of prce level and productvty) especally the North European Countres. The mport prce changes n the other sectors are also substantal: 11, 25 and 28 percent for cereal, vegetable, and frut sectors, respectvely. In relaton to the change n mport prces, as agrcultural mported goods become cheaper wth the reducton of tarff rates, agrcultural mports ncrease (see Table 2). The largest ncrease s observed n the other agrculture sectors, nearly threefold, as the world prces of lvestock products are much lower than the domestc prces. Non-agrcultural mports also ncrease, resultng n an overall real ncrease of about 2.4 percent n total mports. 9

10 Paper presented at EconAnadolu 2009: Anadolu Internatonal Conference n Economcs June 17-19, 2009, Eskşehr, Turkey. Table 2: Trade-Related Changes BASE RUN (real, mllon TL) SIMULATION IM EX NET EXPORTS (NE) IM EX NET EXPORTS (NE) C 3,218 2, ,346 2,204-2,142 V FR 322 2,516 2, ,508 1,979 OA , NA 106,229 93,170-13, ,704 94,855-11,850 Exports n the vegetable sector ncrease by 0.7 percent whle n the other agrculture sectors exports declne. As observed from Table 2, although Turkey remans to be a net exporter n fresh fruts and vegetables, ts net exports declne. The ncrease n exports of nonagrcultural sectors does not meet the ncrease n mports and ths results n about 9 percent deteroraton n overall trade defct. NA OA FR SIM BASE V C Fgure 3: Percentage Shares of the Imports wthn the Total Consumpton 10

11 Paper presented at EconAnadolu 2009: Anadolu Internatonal Conference n Economcs June 17-19, 2009, Eskşehr, Turkey. The Armngton specfcaton makes t possble to decompose the overall consumpton nto domestc and mported goods consumpton. Imported agrcultural goods become cheaper wth the reducton n tarff rates and ths leads to an ncrease n consumpton of these goods. Fgure 3 shows the percentage shares of mported goods n total consumpton. It can be seen that the consumpton of agrcultural goods shfted from domestc to mported goods. In fact, the share of agrcultural mported goods wthn the total agrcultural consumpton ncreases from 5.8 percent to 8.9 percent n agrcultural sectors. Changes n the percentage shares of the mported goods are sgnfcant wth 35, 54 and 63 percent change for cereal, vegetable and frut consumptons, respectvely. The largest change s for the other agrculture sectors from 1.8 to 5 percent correspondng to a 183 percent ncrease. On the other hand, for nonagrcultural sectors the total share of the mported goods remans almost the same. On the supply sde, domestc agrcultural producton declnes, except for vegetable producton, whle non-agrcultural producton ncreases. One can see the percentage of ncreases n producton n Fgure 4. As mentoned before, the only agrcultural sector n whch exports ncrease s the vegetable sector. Ths results n an ncrease n producton n ths sector. Although households consume more mported frut products compared to the base-run, they do not change ther domestc consumpton much. Ths leads to a relatvely small decrease n frut producton. On the other hand, changes n domestc consumpton n other agrcultural sectors are much hgher. The largest declne n producton s n cereal producton, wth a 4 percent decrease, as the domestc consumpton declnes the most for ths sector C V FR OA NA Fgure 4: Percentage Increase n Domestc Producton Compared to Base Run 11

12 Paper presented at EconAnadolu 2009: Anadolu Internatonal Conference n Economcs June 17-19, 2009, Eskşehr, Turkey. Table 3 dsplays the overall results of the smulaton n comparson wth the base-run n real values. There s a real ncrease n the GDP value by 0.5 percent. Prvate and publc ncomes ncrease by around 0.4 and 1.2 percent, respectvely. The ncrease n mported good consumpton whch s far beyond the decrease n domestc agrcultural consumpton leads to about a 0.5 ncrease n the overall agrcultural consumpton. Total ncrease n the ncome level resulted n a total ncrease n the real consumpton from to 660,798. Total producton also rses n both value and quantty terms on the other hand, the share of agrculture n total producton decreases whle the non-agrcultural share ncreases. Both the total mports and exports ncrease but the overall effect s deteroraton n the trade defct. Table 3: The Overall Results of the Smulaton (real, mllon TL) BASE-RUN SIM GDP 358, ,455 Value of Producton 601, ,473 Agrculture 60,216 58,950 Non-agrculture 541, ,523 Share of Agrculture (%) Share of Non-Agrculture (%) Volume of Producton 281, ,877 Agrculture 44,375 43,315 Non-agrculture 237, ,562 Share of Agrculture (%) Share of Non-Agrculture (%) Total Consumpton 656, ,798 Agrculture 70,608 70,946 Non-agrculture 586, ,852 Incomes Prvate 308, ,697 Publc 108, ,660 Total Trade Imports 110, ,996 Exports 98, ,093 12

13 Paper presented at EconAnadolu 2009: Anadolu Internatonal Conference n Economcs June 17-19, 2009, Eskşehr, Turkey. Changes n the allocaton of factors of producton n each sector, n comparson to a base-run value of 1 can be seen n Table 4. There s a captal flow from agrculture to nonagrcultural sectors. Water and land use n agrculture declnes as producton reduces. Labor use n cereal productons and other agrculture productons decrease. The excess supply of water ncreases from 95,000 to 109,304 bllon m 3. Water use changes n accordance wth the domestc producton. The largest decrease of 4 percent s observed n cereal producton. Then comes the other agrculture sector. As domestc producton almost remans constant for frut and vegetable producton, change n water use n these sectors remans below 1 percent. Table 4: Changes n Input Use (Base = 1.00) SECTORS LABOR CAPITAL LAND WATER C V FR OA NA To sum up, the frst smulaton results show that a 32 percent decrease n tarff rates leads to a 0.5 percent ncrease n GDP, and 0.4 and 1.2 percent ncrease n prvate and publc ncome respectvely. Consumers beneft from the decreasng prces and the ncreasng ncomes. However, the model does not gve any nformaton about the possble deteroratons n ncome dstrbuton. Factors of producton mostly flow from agrcultural sectors to others, only labor for frut and vegetable producton ncreases. The vegetable sector s the only sector for whch agrcultural producton and exports ncrease. The overall foregn trade volume ncreases, but n the agrcultural sectors net export values declne. 3.1 Productvty Analyss 13

14 Paper presented at EconAnadolu 2009: Anadolu Internatonal Conference n Economcs June 17-19, 2009, Eskşehr, Turkey. Increasng productvty n agrculture s mportant for Turkey n order for t to ncrease ts comparatve advantage n the nternatonal arena. Ths s mostly ndcated n the studes concernng the EU-Turkey trade relatons. In fact, Turkey s far behnd the EU n agrcultural productvty. Studes on Turkey-EU relatons (as Abay (2005), Çakmak and Kasnakoğlu (2002)) mostly ndcate that Turkey can not beneft from CU enlargement or from an accesson to EU unless t apply the necessary structural change polces. Ths s true even for the sectors that Turkey has a compettve advantage n, namely frut and vegetable sectors. Consder constant returns to scale Cobb-Douglas producton functon n a perfectly compettve economy: α β γ Y = AK L TW wth α + β + γ = 1. Here, A represents the technology parameter whle K, L and TW are the captal, labor and land/water composte used for producton. The formulaton for productvty growth can be gven as: da A SR = dy Y s K dk K s L dl s L TW dtw TW (5.1) where (da/a) SR s the growth of value added after the contrbuton of nputs are removed; the term referred to as the Solow Resdual. The parameters s K, s L and s TW are the share of captal labor and land/water nputs n value added respectvely. Calculated percentage changes are gven n Table 5 2. The change n productvty s assumed to be the geometrc average of ten years productvty growth rates (da/a) SR gven n Table 5. Accordngly, an 18 percent cumulatve ncrease n productvty n agrculture s examned. 2 The captal stock varable s taken from the study of Saygılı et. al. (2005). Labor and land data s obtaned from TURKSTAT (2005), water values are taken from DSİ, and fnally the agrcultural value added s the World Bank, 2007 data. The s K and s L and s TW parameters are calculated wthn the model to be approxmately, 0.4, 0.3, and 0.3, respectvely. Productvty change for the perod of 1993 to 2003 s calculated. 14

15 Paper presented at EconAnadolu 2009: Anadolu Internatonal Conference n Economcs June 17-19, 2009, Eskşehr, Turkey. Table 5: Results of the Productvty Calculatons dl/l dk/k dtw/tw dy/y da/a The general results of the smulaton wth productvty ncrease are dsplayed n Table 6. As can be seen, productvty ncrease leads to a hgher ncrease n both the value and the volume of the producton when compared to the pure tarff reducton smulaton. Whle the value of agrcultural producton declnes wth tarff reducton, an ncrease n productvty n agrculture offsets ths declne and results n an even hgher value than the base run. Results show that productvty ncrease leads to a larger ncrease n GDP values compared to the base run. In fact, about 0.5 percent ncrease of GDP reach to about 2.8 percent wth productvty ncrease. Comparng the trade smulaton alone and the same smulaton wth productvty, t can be seen that, productvty ncrease leads to a further 2.4 percent and 1.3 percent ncrease n prvate and publc ncomes, respectvely. Table 6: General Results of the Smulaton wth Productvty Increase (real, mllon TL) BASE SIM PROD. INCREASE GDP 358, , ,698 Value of Producton 601, , ,906 Agrculture 60,216 58,950 70,901 15

16 Paper presented at EconAnadolu 2009: Anadolu Internatonal Conference n Economcs June 17-19, 2009, Eskşehr, Turkey. Non-agrculture 541, , ,005 Volume of Producton 281, , ,605 Agrculture 44,375 43,315 43,699 Non-agrculture 237, , ,905 Table 6: General Results of the Smulaton wth Productvty Increase (contnue) (real, mllon TL) Total Consumpton 656, , ,221 Agrculture 70,608 70,946 80,400 Non-agrculture 586, , ,820 Incomes Prvate 308, , ,096 Publc 108, , ,103 Total Trade Imports 110, , ,904 Exports 98, , ,855 As observed n the Table 7, productvty ncrease n agrculture results n a larger declne n agrcultural prces. Whle tarff reducton alone leads to a prce decrease of at most 1.3 percent for the other non-agrcultural sectors, wth productvty mprovement, prce decreases that range from 10 to 17 percent can be observed. The largest declne s observed for frut products. Whle the non-agrcultural prces declne n the frst smulaton, the productvty mprovement leads to an ncrease n the prces. Nevertheless, both the agrcultural and the non-agrcultural consumpton ncreases. Table 7: Sectoral Prce Changes wth Productvty Increase (Base=1.00) PC PM SIM PROD. SIM PROD. C V FR OA ONA

17 Paper presented at EconAnadolu 2009: Anadolu Internatonal Conference n Economcs June 17-19, 2009, Eskşehr, Turkey. The frst smulaton results showed that wth the reducton n tarff rates, Turkey becomes a net mporter for agrcultural products, although t remans to be a net exporter of fruts and vegetables. But, productvty ncrease offsets ths trade dstorton and further ncreases the net exports to a hgher value than the base run for the frst three sectors gven n Table 8. On the other hand, t can be seen that productvty ncrease s neffectve n preventng the declne n the other agrcultural net exports. Although, the declne s lower than n the case of tarff reducton alone, the comparatve advantage of the trade partners of Turkey stll remans nsuperable. Table 8: Sectoral Net Exports BASE SIM PROD C , V FR 2, , ,869.7 OA ONA -13,060-11,850-15,710 There s a challengng result of ths second smulaton ndcatng an ncrease n the comparatve advantage for frut and vegetable producton, as the domestc prces declne and the net exports mprove sgnfcantly. In fact, ths mprovement s much larger than the trade defct observed n the other agrcultural sectors. Hence, the overall agrcultural net exports more than doubled compared to the base-run (see Table 9). Table 9: Agrcultural and Non-Agrcultural Trade Exports BASE-RUN SIM PROD. Agr Non-Agr Imports BASE-RUN SIM. PROD. Agr Non-Agr

18 Paper presented at EconAnadolu 2009: Anadolu Internatonal Conference n Economcs June 17-19, 2009, Eskşehr, Turkey. Net- Exports BASE-RUN SIM. PROD. Agr Non-Agr For all agrcultural sectors trade lberalzaton wth a productvty ncrease s much more favorable than reducng the tarff rates wthout takng any precautons. Improvng the productvty s of great concern for Turkey n case there s an openng up to the foregn competton. Non-agrcultural sectors are affected negatvely from the agrcultural productvty ncrease n terms of the trade defct. Both the producton and the export levels are ncreased n non-agrcultural sectors but at the same tme mport s ncreased further. It seems that mportng some non-agrcultural products became more favorable. The model does not dstngush between agrcultural and non-agrcultural ncome levels. But, probably t wll be convenent to thnk that the agrcultural value added s used to fnance the mport ncrease n non-agrcultural sectors. Note that, as can be seen from Table 6, the total prvate and publc ncomes ncrease about 0.4 and 1.18 percent respectvely wth pure tarff reducton whle they ncrease about 2.80 and 2.52 percent respectvely n tarff reducton wth productvty ncrease. So, the overall ncome effect s notable. Table 10: Percentage Change n Agrcultural Water Use Compared to the Base-Run Domestc Producton Water Use SIM PROD SIM PROD C V FR OA ONA In general, we observe that the ncrease n producton can be obtaned by decrease n the use of factors of producton. In ths respect, whle there s a sgnfcant ncrease n producton and exports n all agrcultural sectors, factor use s lower than the frst smulaton, 18

19 Paper presented at EconAnadolu 2009: Anadolu Internatonal Conference n Economcs June 17-19, 2009, Eskşehr, Turkey. except for the frut producton. As can be seen n Table 10, the declne n the domestc producton resulted from the tarff reducton reflected n a smlar reducton n sectoral water uses. On the other hand, wth productvty ncrease, although domestc producton ncreases about 10, 13 and 9 percent for cereal, vegetable and other agrculture sectors respectvely, water uses for these sectors fall to 4, 2 and 7 percent respectvely. One must note that the productvty mprovement examned here s n purely techncal terms. Namely, t s about changng the technology parameter n the producton functon. Hence, the model does not gve any nformaton about the path leadng to ths mprovement. Results show that the ncrease n producton and exports s acheved by reducng the cultvated area for cereal, vegetable and lvestock producton wth lower factors of producton use. Namely, all the nput uses for these sectors, ncludng land, are reduced. On the other hand, frut producton s spread to a larger area. In fact, about 3.5, 2.3 and 6.5 percent of the land used for cereal, vegetable and lvestock producton, respectvely, s turned nto frut orchards. The frut sector s on a development path. Gül and Akpınar (2006) examned the fresh frut producton n the world and n Turkey between 1961 and They observed that there was a sgnfcant ncrease n the fresh frut producton n the world durng ths perod. They attrbuted ths mprovement to ncrease n both the cultvated land and the productvty for fresh frut producton whereas they concluded that for the producton ncrease n nuts, the enlargement of the cultvated land was determnatve. The producton ncrease n Turkey, n general, s observed to be above the world average. Ths ncrease was observed to be due to productvty ncrease for the fresh frut producton whle for nut producton productvty together wth ncrease n cultvated land played an mportant role. Frut producton mostly s absorbed by the domestc market through drect consumpton and as a raw materal for food ndustry, and only a small porton s subject to export. Gül and Akpınar (2006) mply that ths s due to the lack of organzed farmer cooperaton and draw attenton to the fact that the standards of the frut and vegetable products are very mportant n world trade. Hence, the msuse of fertlzers and pestcde harm our exports. Also, Koç (2005) ndcates that the fresh frut and vegetable products subject to exports are nsuffcent n meetng the quantty and qualty demanded n nternatonal markets. By analyzng the model results one can observe that the ncrease n producton s realzed both by productvty mprovement and ncrease n cultvated area. Sgnfcant ncrease n the exports most probably results from the ncrease n qualty and the varety n frut producton. The uptrend n the sector and the potental advantageous poston n the foregn markets, lead to a resource transfer to ths sector. The result s a 17.5 percent and a 19

20 Paper presented at EconAnadolu 2009: Anadolu Internatonal Conference n Economcs June 17-19, 2009, Eskşehr, Turkey percent ncrease n producton and export, respectvely, compared to the base-run wth about 11 percent ncrease n labor and captal nputs and about 12 percent ncrease n water and land use. CONCLUSION In ths study, a water-cge model for Turkey s bult n order to analyze the effects of a trade lberalzaton n agrculture on nternatonal trade and sectoral water use. Turkey s partcpatng n the debates of tarff reducton snce t s a member of WTO and a canddate country for the EU. In accordance to the WTO AoA, Turkey has made commtments for tarff reducton n agrculture and has mplemented them. Nevertheless, utlzaton of the advantages of some specfcatons of the Agreement has kept the appled average tarff rates hgh. In the smulaton performed n ths work, the consequences of a reducton of appled average tarff rates are analyzed. The smulaton results ndcate an ncrease n GDP and prvate ncome due to the agrcultural tarff reducton. Cheaper mported goods, havng access to the domestc market, lead to a prce decrease and ths n turn ncreases the total consumpton. Tarff reducton leads to an ncrease n the mports of all sectors and a decrease n exports for agrcultural sectors except for the vegetable sector. Although Turkey remans to be a net exporter of frut and vegetable products, net exports for these sectors are also n declne. The hghest trade dstorton s observed n the other agrculture sector. Ths s due to the lvestock producton whch s consdered wthn ths sector, for whch Turkey s not able to compete wth the prcng, qualty and productvty n European countres. Domestc agrcultural producton s reduced accept for the vegetable sector, as the households preferences change n favor of the mported agrcultural products. Accordngly the use of factors of producton declnes. Water use n the agrcultural sectors reduces almost n proporton wth the declne n the domestc producton. Accordngly, the largest declne n the water use s realzed n cereal producton. Much lower reductons are seen n the frut and vegetable sectors as change n the producton of these sectors s small. It s mportant for Turkey to acheve productvty ncrease n agrculture n order to ncrease ts compettveness n the nternatonal arena. Turkey s far behnd the level of, especally ts bggest trade partner, EU, n agrcultural productvty. Therefore, n order to see the mpact of a productvty mprovement, the same smulaton s repeated under a total agrcultural productvty ncrease scenaro. 20

21 Paper presented at EconAnadolu 2009: Anadolu Internatonal Conference n Economcs June 17-19, 2009, Eskşehr, Turkey. Results showed that productvty ncrease n agrculture leads to a further ncrease n both GDP level and ncomes. At the same tme, t compensates the trade dstortons n agrcultural sectors resultng from the frst smulaton and net exports ncrease above the base run value. As a result the total net exports more than doubles. Increase n both the domestc producton and exports can be realzed by the use of less factors of producton n agrcultural sectors, accept for the frut producton. Productvty mprovement enables the producers to ncrease ther producton sgnfcantly by less use of water. Also, cereal, vegetable and lvestock producton can be performed usng less captal, labor and land. On the other hand, n order to acheve a hgher producton level n frut sector the cultvated land had to be ncreased. Trade partners of Turkey are senstve to the qualty of the frut and vegetable products that they mport and n the current stuaton, as Koç (2005) ndcates, the fresh frut and vegetable products of Turkey that are subject to export are nsuffcent n meetng the quantty and qualty demanded n nternatonal markets. Therefore, a sgnfcant ncrease n exports most probably s an ndcator of an mprovement n both the qualty and varety of the frut and vegetable products. Ths progress s realzed n the vegetable sector by less use of nputs ncludng land and water. On the other hand, cultvated land n frut sector ncreases and accordngly the labor and water use also rse. REFERENCES: Abay (2005), AB de Meyve-Sebze Ortak Pyasa Düzenler ve Türkye nn Uyumu Açısından Değerlendrlmes, n Oktay, E. and Tunalıoğlu (eds.), Türk Tarım Poltkasının Avrupa Brlğ Ortak Tarım Poltkasına Uyumu, R., p. 27, Ege Unversty Agrcultural Economcs Department, No: 134, Ankara. Çakmak, E. H., and Kasnakoğlu, H., (2002), Interactons between Turkey and EU n Agrculture: Analyss of Turkey s Membershp to EU, Mnstry of Agrculture and Rural Affars, Agrcultural Economcs Research Insttute, Ankara. Çırpıcı (2008), Economy-Wde Analyss of Water Resource Management: A CGE Model for Turkey, PhD Dssertaton, METU Department of Economcs, Ankara. De Sants (2002), A Conjectural Varaton Computable General Equlbrum Model wth Free Entry, n A. Fossat and W.Wegard, Routledge (eds.), Polcy Evaluaton wth Computable General Equlbrum Models, London. DTM (2004), Turksh Agrcultural Product Average Tarff Rates, taken from T.C. DTM İthalat Genel Müdürlüğü on 26th of November

22 Paper presented at EconAnadolu 2009: Anadolu Internatonal Conference n Economcs June 17-19, 2009, Eskşehr, Turkey. Gül M., and M. G. Akpınar (2006), Dünya ve Türkye Meyve Üretmndek Gelşmelern İncelenmes, Akdenz Ünverstes Zraat Fakültes Dergs, 19(1), Mukherjee, N.I., (1995), A Watershed Computable General Equlbrum Model, PhD. Dssertaton, John Hopkns Unversty, Baltmore, Maryland. Saygılı, Ş., C. Chan and H. Yurtoğlu (2005), Türkye Ekonomsnde Sermaye Brkm, Vermllk ve Büyüme: , Ekonomk Modeller ve Stratejk Araştırmalar Genel Müdürlüğü. TURKSTAT (2005), Turkey s Statstcal Yearbook, 2004, Natonal Accounts. 22