Trade, exchange rate, and agricultural policies in Morocco

Morocco, a North African country with a population of about 23 million, has had a dualistic agriculture sector during most of the 20th century. One subsector is comprised of many small subsistence farms that grow chiefly wheat and barley; the other subsector is made up of large irrigated holdings that produce fruits and vegetables for export. Like many of the other developing countries examined in this comparative studies project, Morocco concentrated on building its industrial capabilities in the years following independence in 1956. That meant that consumers generally benefitted from government intervention in agricultural prices and that farm producers in general suffered the penalty of lower prices for their products. The subsistence subsector, however, was penalized more heavily by intervention than the export subsector. By 1973, at the time of the first oil shock, Morocco's coastal cities and new industries were continuing to grow, and there was an ongoing shift of population from rural areas to the cities. A steep rate of inflation, accompanied by political turmoil, then made it more necessary than ever for the government to intervene to keep consumer prices as low as possible. Morocco was able to subsidize consumer prices relatively painlessly at that time because of rising revenues from its exports of phosphates. (The country has about three-fourths of the world's phosphate reserves.) The year 1973 also marked the appearance of a more positive attitude toward agricultural producers. While the farm sector's output prices continued to be penalized by an overvalued exchange rate, some effort was made to counterbalance the exchange rate's ill effects through direct intervention. High world prices for most commodities, including farm products, had made food self-sufficiency a more appealing goal. In the early 1980s, as the world suffered recession, Morocco's export revenues declined. Subsidization of consumer food prices then became more difficult for the government. Although an initial attempt in 1981 to limit consumer subsidies by raising food prices resulted in serious riots, the country's food prices were gradually brought into line with market realities. Morocco's farms saw their prices improve further during the first half of the 1980s, and by 1984 the overall farm price penalty caused by the overvalued exchange rate had fallen to 8 percent, the lowest figure for the entire 1960-84 period. This study also reports on the effects of government intervention in agricultural prices on such important variables as farm production, food consumption, and exchange rate earnings.