Impact of government policies on the small ruminant sector of Peru

The impact of policies on the small ruminant sector of Peru, sheep-meat production and consumption, wool production and utilization, and the wool textile industry, was analyzed. Joint production of wool and sheep meat, means that government policies directed to one final market (textiles) have an impact in other final markets. Thus sheep producers are affected by both, the food policy and the industrial policy. The cheap food policy that prevailed during the eighties encouraged sheep meat imports through a subsidized exchange rate. The export tax credits and subsidies benefitted the textile industry. These policies have also affected sheep production.;A model of this small ruminant sector allowed simulation of past and alternate policies, to determine their effects on small ruminant producers. The exchange rate policy has an important impact on the sector. Its overvaluation has encouraged imports and has necessitated tax credits or subsidies to stimulate textile exports. Demand elasticities in both final markets are elastic, while the substitution elasticities of the industry production functions are inelastic. Thus, policies that increase the producer prices were found to be more effective when the industry demanding the product had low substitution possibilities. Policies that affected retail meat prices were more effective in terms of increasing sheep revenue than policies on the textile sector. Policies that increase one sheep product price (meat) result in a fall of the other product price (raw wool). The elasticity of substitution in the other industry (textile) determines the proportion of this price decrease (raw wool). A devaluation of the exchange rate is most effective in increasing sheep producers revenue and decreasing foreign exchange expenditure.