The substantial economic progress made by the Yemen Arab Republic (YAR) since its founding in 1962 has been largely driven by foreign grants and worker remittances. While the recent decline in these resources promises to be offset by revenues from oil production, known and anticipated reserves are expected to last only 15 years at the current rate of extraction, leaving agriculture as the country”s dominant economic base. This report examines the YAR”s potential for agricultural development, with emphasis on farm prices and incentives. Two major objectives are to explore the effects of agricultural import restrictions on the pricing structure and to investigate comparative advantage of various products. Major constraints to agricultural development are identified as limited water supplies, fragmented landholdings, inadequate supporting infrastructure, and macroeconomic and trade policies inhibiting growth. Domestic prices for all commodities are well above international prices — 7-8 times higher in some cases. While the YAR has comparative advantage in fruits, vegetables, and poultry, it is unlikely to have comparative advantage in coffee, and has a clear comparative disadvantage in cereals. The report concludes that substantial economic progress would be made by expanding outlays for infrastructure and social services while phasing out market interventions such as import duties and exchange and price controls.
