Alternative pricing policies for the livestock sector in Cyprus

Abstract

The study is a first attempt towards the development of a stochastic simulation model of the Cyprus meat market utilizing behavioural relationships estimated within a consistent framework to analyze the effects of alternative pricing policies. The study provides quantitative measures of the impacts of alternative feedgrain and milk price policies and meat import policies on domestic production, consumption and prices of ruminant and non-ruminant meat, ruminant animal inventories and foreign trade. It also examines the effects of a reunification of the country's moslem and christian populations on the demand for domestic and imported (frozen) ruminant meat and domestic non-ruminant meat. A block-recursive ruminant model and a simultaneous non-ruminant model were specified and estimated using annual data from 1960 to 1983. Both models have shown good statistical properties and forecasting abilities and are in conformity with economic theory. The models exhibited stability when subjected to small changes in the parameters except in the case of the population variable where the ruminant model seems to be rather sensitive. Increasing the price of feedgrain paid by livestock farmers either through a reduction or removal of the existing feedgrain subsidy results in the contraction of the ruminant and non-ruminant meat sectors with the former being affected slightly and the latter substantially. Prices of meat are expected to rise with ruminant meat prices increasing marginally compared to prices of non-ruminant meat. An interesting result of the policy experiment is the observed responsiveness of the domestic ruminant meat market to changes in the price of milk. It appears that the milk price is a more effective policy instrument in setting the direction of ruminant meat production and prices than the feedgrain subsidy or import tariff on ruminant meat. The low substitution between domestic (fresh) and imported (frozen) ruminant meat causes the imposition of an import tariff on ruminant meat to have marginal effects on domestic ruminant meat production, consumption and prices. Imports, however, contract significantly in the long-run resulting to a substantial increase in government revenue and decrease in foreign exchange requirements. The reunification of the country's christian and moslem populations is expected to cause an overall increase in total meat consumption. The increase in the demand for ruminant meat, however, is proportionately larger than that for non-ruminant meat which is consistent with the consumption behaviour of the moslem community.