African Crop Science Conference Proceedings Vol. 8. pp.

1277-1280
Printed in El-Minia, Egypt
ISSN 1023-070X/2007$ 4.00
© 2007, African Crop Science Society

Measuring the Supply Response Function of Barley in Libya

KHALED RAMADAN ELBEYDI, ABDALHAKIM AHEMD ALJDI & ABDULHAMID A. YOUSEF
Al Fateh University - Faculty of Agriculture, Tripoli- Libya
* Corresponding author, E- Mail address: khaled712001@yahoo.com

Abstract: Barley is traditionally consumed by the Libyan people on a regular basis. It is most commonly found in the
rural areas, where wheat is less readily available for bread making but it is also used, less regularly, by the urban
population and is always a feature of meals on special occasions. In this paper, the behavior of Libyan barley market
during the period 1980-2005 is studied and important factors that determine its supply are identified. In addition, the
paper has considered the main aspects of current situation of barley plantation by studying the most crucial economical
factors that influence the production of barley in Libya. Therefore, the study employs an auto-regressive distributed lag
model (ARDL) Bounds testing approach to co integration and error correction methodology. The results of the study
indicate that barley area and its determinants; relative price, wheat price are cointegrated. The results also indicate that
barley acreage in Libya is responsive to domestic price. This implies that price can be used as instruments to maintain
favorable acreage planted.
Key words: Barley cointegration, Libya, supply response
During this time period, the crop is most sensitive to high
Introduction temperatures and low precipitation. Barley plays a major
role in Libya’s agricultural sector. It is considered as a
Climatic factors and agricultural land constraints have principal food grain in the daily life of the Libyan people.
limited production of grains in Libya to only wheat and However, the main objective of this study is to examine
barley. These crops are restricted to just a narrow, rain- the characteristics of barley supply in Libya and
brushed ribbon of land along the coast, and a few irrigated identifying the government programms and policies to
areas on isolated oases. Cultivation of autumn-sown develop and improve barley production.
wheat and barley is made possible because there are two
main water sources. First, there are large reserves of Barley Production and Yield
shallow groundwater in Tripolitania, along Libya's Cultivated areas of barley in Libya fluctuate from year to
northwest coast. This source permits significant irrigation. year so as to significantly associated precipitation rates of
Second, the scant coastal precipitation that does occur annual rainfall especially during the autumn, where 80%
fortuitously falls during the winter grain growing season of the cultivated areas is dependent on rainfall, the
(November through April). While wheat is considered the cultivated area ranging from 280 thousand hectares in
preferred food grain, however, barley is more adaptable in 1980, to 287 thousand hectares in 2000, then dropped to
the marginal climate and soil. Therefore, this crop is the 240 thousand hectares in 2002 to 200 thousand hectares in
suitable for farmers located in the drier hinterland. Fall 2005. The volume of production of barley increased from
planting typically begins in October, after the first fall 71 thousand tons in 1980 to 264 thousand tons in 2000
rains arrive, and can last into December. Harvest season and 299 tons in 2003, then declined to 260 thousand tons
begins in April for barley and May for wheat, wrapping in 2005, productivity per hectare has increased from 0.253
up in May and June, respectively. The critical flowering tons per hectare in 1980 to 1.3 tons per hectare in 2005.
period for wheat occurs in late March and early April.
Table 1: Grain Food Production in Libya for selected years (thousand tonnes)
Years Barely wheat Total Grain
Production Area yield Production Area Yield Production Area Yield
1980 71,0 280,0 0.253 140,0 272,0 0.514 214,0 555,0 0.385
1985 80,0 130,0 0.615 149,0 274,0 0.544 235,0 408,0 0.576
1990 141,0 297,0 0.475 129,0 105,0 1.229 273,0 404,0 0.676
1995 117,0 253,0 0.462 23,0 12,0 1.917 146,0 270,0 0.541
2000 264,0 287,0 0.919 74,0 65,0 1.138 388,0 359,0 1.080
2001 230,0 200,0 1.150 49,0 34,0 1.440 285,0 238,0 1.200
2002 262,9 240,0 1.100 54,3 38,9 1.395 320,0 280,0 1.142
2003 299,0 230,0 1.300 25,0 18,8 2.500 330,0 250,0 1.320
2004 258,0 215,0 1.200 63,0 18,2 3,461 326,0 235,0 1.387
2005 260,0 200,0 1.300 88.0 22,0 4.000 355,0 225,0 1.577
Source: General Planning Secretary, Economic and Indicators (1962- 2000).
Barley is most commonly used in the rural areas domestic production of barley is mainly used for human
where wheat is less readily available for bread making but consumption and for feed barley the local market depends
it is also used, less regularly, by the urban population and on the increased quantities imported from foreign
is always a feature of meals on special occasions. Most of
 KHALED RAMADAN ELBEYDI et al.,

markets. On the other hand, the low surplus of local help in estimating the long –run elasticity of supply, while
barley is used directly to feed animals on the farms. using the static model will generate the short –run
Since barley is one of the most important commodities elasticity of supply.
in Libya's agricultural sector, the estimation of its supply This assumption is consistent with the government’s
responsiveness is vitally important in formulating policy of setting the guaranteed minimum price. The area
appropriate agricultural policies. As previously planted is adjusted in each period by a fraction of the
mentioned, this study attempts to examine the discrepancy between last period’s observed value and the
responsiveness of Libya’s barley acreage to changes in desired value. This partial adjustment hypothesis is
economic characteristics during the period of 1980 to consistent with an economic theory, which says that there
2005. The paper is organized as follows. Historical are rigidities that prevent complete adjustment in each
developments in the production of barley in Libya have period. Based on the dynamic supply theory, it is
been presented in the introduction section. The hypothesized that both lagged dependent variable and the
subsequent sections discuss the methodology used and the price variable are positively related to area planted.
empirical results obtained in this study. Concluding In this study, the following specification is considered
remarks are given at the end of the paper. for the barley area planted equation:
BAt = F ( BPt ,WPt , BAt −1U t ) (1)
Materials and Methods Where at period t, BA is the barley area planted, BP is
One of the most important issues in the agricultural barley producer price, WP is wheat producer price, and U
economic development is supply response since the is error term.
responsiveness of farmers to economic incentives Many time series are non –stationary and in general if
determines agriculture's contribution to the economy. the series is nonstationary, it is not possible to use
Agricultural pricing policy plays a key role in increasing traditional econometric techniques since models with
farm production and fundamental to an understanding of nonstationary variables might lead to a problem of
this price mechanism is supply response (Nerlove and spurious regression. For this reason, it is important to
Bachman, 1960). establish the stationarity properties of the series.
Production is a major component of supply and is Cointegration implies the existence of meaningful long
determined by the amount of planted acreage and yield run equilibrium (Granger, 1988).To investigate the
per hectare. The specified barley area planted equation is existence of a long-run relationship, Pesaran et al., (2001)
hypothesized as a function of the lagged dependent proposed the bounds test based on the Wald or F-statistic.
variable and lagged barley price. The asymptotic distribution of the F statistic is non-
The planted area in the last year is considered an standard under the null hypothesis of no cointegration
important indicator to the partial adjustment process that relationship between the examined variables, irrespective
farmers face when making their production decisions. of whether the explanatory variables are purely I(0) or
Nerlove and Addison (1958) were the first to include this I(1). The cointegration relationship for the barley acreage
variable in the supply response functions where they used equation is estimated using the bounds test, which is
static and dynamic models for this purpose. Taking this based on the following unrestricted error correction model
variable into consideration in the dynamic models will (UECM):
∆ ln BA = bo + ∑ tn=0 b1 ∆ ln BPt −1 + ∑ tn=0 b2 ∆ ln WPt −1 + ∑ tn−1 b3 ∆ ln BAt −1 + b4 ln BPt −1
(2)
+ b5 ln WPt −1 + b6 ln BAt −1
Where ∆lnBA, ∆lnBP, and ∆lnWP are the first difference of the logarithms of the barley area planted, barley
producer price, and wheat producer price
The null hypothesis is tested by considering the UECM for barley acreage equation in (2) excluding the lagged
variables BA, BP WP; more formally, we perform a joint significance test, where the null and alternative hypotheses
are:
H O : b4 = b5 = b6 = 0
H A : b4 ≠ b5 ≠ b6 ≠ 0
For some significance level, if the F-statistic falls Secretariat of Agricultural, National Authorization of
outside the critical bound, a conclusive inference can be Information and Documentation, Food and Agricultural
made without considering the order of integration of the Organization (FAO) and the Secretariat of Economic and
explanatory variables. For example, if the F-statistic is Planning.
higher than the critical bound, then the null hypothesis of
no cointegration is rejected. In the case when the F- Paper Main Results
statistic falls between the upper and lower bounds, a
conclusive inference cannot be made. Here, the order of The model is estimated using the auto regressive
integration for the explanatory variables must be known distributed lag model (ARDL) as suggested by Pesaran et
before any conclusion can be drawn. al., (2001). This method is applied to solve the problem of
Data sources stationarity that occurs in time series variables. Both
The data used in this study running on annual basis from linear and double-log functional forms were estimated.
1980-2005 and collected from various sources. The data However, only the results using the double-log form are
on barley production, prices, and area were obtained from presented since they perform better in terms of the
1278
statistical significance of the estimated parameters. Before structure. Both criteria select a model that includes one
undertaking cointegration tests, let us first specify the lag.
relevant order of lags of the ARDL model. The lag To investigate the existence of a long-run relationship
selection criteria considered include Akaike’s information or cointegration among the variables in the model, the
criterion (AIC) and Schwarz’s information criterion (SC). computed F-statistic is 4.67 that found to exceed the
Most ARDL models are estimated using symmetric lags, bounds upper critical value of 4.35 at 5% significance
i.e. the same lag length is used for all variables in all level. This implies that barley area and its determinants;
equations of the model. The lag structure that generates relative price, wheat price are cointegrated.
the minimum AIC or SC is selected as the optimal lag
Table 2: (ARDL) Coefficients of the Barley Area Equation, Dependent variable is BA
Regressor Coefficient T-Ratio[Prob]
Intercept 146 2.085 [.049]

BA(-1) 0.443 2.640 [.015]

BP(-1) 0.543 2.581 [.017]

WP(-1) -0.733 -2.528 [.020]
Note: Figures in parentheses denotes the significant level
All variables expressed in logarithm form
Stability Test
Diagnostic Tests The purpose of this test is to provide evidence concerning
R2 = 0.72 R-Bar Squared = 0.68 the existence or non-existence of structural breaks in the
F-statistics. =16.792[.000] barley area equation. The plots of cumulative sum
Serial Correlation F statistics. = 0.496[0.489] (CUSUM) test as shown in Figure 1 reveal that the
Functional Form F statistics = 1.423[0.365] estimated parameters are stable over the sample period at
Normality CHSQ ( 2) = 0.106[0.948] 5 % per cent significance level.
Heteroscedasticity F statistics = 0.521[0.478]
The foregoing analysis sheds light on both the short
The estimated equation of the dynamic barley area is and long run aspects of the relationship between the
presented in Table 2. All the estimated coefficients have dependent variable and the explanatory variables for
the expected signs statistically significant. The magnitude barley area equation. The equation is reformulated in the
of the coefficient of determination, (R2), and the F- error correction model, in which the error correction term
statistics show the equation’s goodness of fit. Based on (ECT) explicitly included, allows the dynamics of this
the value of R2, the explanatory variables explained relationship to be evaluated. The estimated coefficients of
almost 70 per cent of the variation in the dependent the error correction model of the barley area equation are
variable. The diagnostic tests reveal that the equation presented in Table 3.
passed all the tests, i.e., the Breusch – Godfery's LM test The Error Correction term of the equation integrates the
rejects the presence of serial correlation, the Ramsey short run dynamics in the long run barley area
RESET test show no evidence of functional forms relationships, and it is found to be statistically significant,
misspecification. The F test does not indicate any which indicates the existence of long run causal relation
evidence of heteroscedasticity of the residual. among the variables included in our equation. The
The sign of the lagged area planted variable is coefficients have the expected sign, confirming the prior
positive, and its value is 0. 443. The coefficient of the relationship between the regressors and the dependent
barley price is 0.543 and positive. Thus, the barley area is variable. The magnitude of the error correction term
inelastic with response to barley price. Short- and long- indicates the speed of adjustment of any disequilibrium
run supply price elasticities are 0.543 and 0.974 toward a long run equilibrium state, and its value, which
respectively. Low short-and long-run elasticities of supply is -0.566 shows that the direction of correction is towards
indicate that barley growers do not make considerable equilibrium. This indicates slow adjustment towards the
area adjustments in response to expected prices. long run equilibrium level in the current period.
As anticipated, the real wheat price works well as Considering the fact that barley is an annual crop,
indicator for the shift in policy patterns. For barley area adjustments in production imply that farmers adjust their
equation, this variable picked up the effects of changes in production choices to changes in economic conditions in
policy patterns on barley production. Consequently the almost two years. Furthermore, the speed of adjustment
decision makers should offer higher prices to reach the coefficient indicates that Libya’s barley area adjust
desired level of production in the short run relatively slowly to changes to the underlying equilibrium
relationship since the parameter estimate on ECT shows
that economic agents removed only 56 per cent of the
resulting disequilibrium each period. This helps to explain
the considerable deviations from equilibrium.

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 15

10

-5

-10

-15
84 86 88 90 92 94 96 98 00 02 04

CUSUM 5% Significance

Figure 1: CUSUM Stability Tests

Table 3: Error Correction Representation for Barley Area Equation

Dependent variable is DBA
Regressor Coefficient T-Ratio[Prob]
Intercept 146.925 2.085[.049]
DBP 0.964 2.581[.017]
DWP -0.846 -2.528[.020]
ECT(-1) -0.566 -3.312[.003]

List of additional temporary variables created: DBA=BA-BA(-1), DBP=BP-BP(-1), DWP=WP-WP(-1)

ECM = BA -0.974*BP +1.315*WP - 262*C

Conclusion
In this paper we have employed cointegration and error
correction modeling method to examine the
responsiveness of Libya’s barley supply to its
components. Our results suggest that long run equilibrium
relationship exists between barley area planted and barley
price, and wheat price. The results also show that the
influence of relative price is significant in affecting barley
area planted. This means that if the price is enhanced,
production of barley might improve considerably. The
results also show that barley area is significantly
responsive to the wheat price. Policies such as price
support are significant variables in influencing barley area
planted. In spite of the noticeable increase in the
production of barley during the period of study, as a result
of the rise of level of productivity and the admission of
some categories with high productivity. However, in the
frame of increase production for opposite increased size
of demand of barley in the local market, governments can
subsidize barley farmers through some agricultural
marketing policies, for instance by purchasing their
production at higher prices.
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