IV. Impact by region

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Lower value of preferences
Higher income growth
Stability of prices
Tariff escalation

The implications for countries of the revised outlook for agricultural commodity markets following the implementation of the Uruguay Round by the year 2000 stem from the changes in market prices, the new market opportunities for their exports and the extent to which external market signals are transmitted back to producers and consumers.

Before turning to the impact on the developing countries, a few observations may be made about the effect of these changes in markets in the developed countries. For the developed countries as a whole, with or without the Uruguay Round, a sharp slowdown is foreseen in growth of production and consumption of the main agricultural commodities. An even sharper slowdown is envisaged for trade. The reductions in growth are right across the board. The effect of the Uruguay Round is to attenuate the decline marginally (Table 19a), where allowance is also made for products not covered, which are assumed to grow at the same rate.

The main change in western Europe is a sharp increase in its net imports of the main agricultural commodities from a net import level (imports f.o.b.) of US$4.0 billion in 1987-89 to net imports of US$13.4 billion by the year 2000, including a substantial increase due to the Uruguay Round. The Region would be a smaller exporter of cereals, oilseeds, milk and sugar, while import volumes are expected to grow for cereals, fats and oils, some meat and tropical products.

For Eastern Europe and the area of the former USSR, there is projected to be a sharp fall in the import bill for the main agricultural commodities, but exports would also be less. The resulting import deficit would shrink from US$10.5 billion to US$7.8 billion. The drop in the import deficit is mainly on account of the projected fall in consumption of cereals, milk and some meat. As regards the other net importing region "other developed" (effectively mainly Japan), the net import deficit on account of the principal agricultural commodities is projected to rise from US$12.5 billion to US$21.2 billion. Big increases in imports of meat, other basic foodstuffs and tropical products are envisaged with or without the Uruguay Round, but the Uruguay Round will significantly increase expenditures on imports of the main agricultural commodities.

The major beneficiaries among, the developed countries are North America, the net exports of which rise from US$15.0 billion to US$22.9 billion, and Oceania with net exports growing from US$11.6 trillion to US$18.1 billion. Both regions would gain from higher exports of cereals, fats and oils, meat and milk.

Turning now to the rest of the world, most African countries tend to be importers of food, particularly wheat, rice and dairy products and exporters of tropical products such as cocoa, coffee, fruit and some agricultural raw materials. Most of these countries are least developed (28 out of over 50) and low income food deficit countries (43) and have preferential access for their exports under arrangements such as GSP or the Lomé Convention. The increase in the prices of the temperate zone food commodities covered in this study point to a substantial rise in import bills. Assuming the other commodities not covered (another 5 percent) behave in the same way the agricultural import bill could rise from US$8.4 billion (f.o.b. basis) in 1987-88 to US$14.9 billion in the year 2000, with an estimated 17 percent of the rise due to the Uruguay Round. The increase is mainly an account of changes other than the Uruguay Round (particularly population growth). The effect on production is seen to be marginally positive at best, while consumption would fall slightly. The net result of generally small declines in the volume of imports would be outweighed by the rise in prices due to the Uruguay Round. In addition, the Uruguay Round will lead to lower export subsidies on imports of wheat and livestock products, which could boost import bills by perhaps something under US$100 million (Table 19b).

Table 19a - Developed countries: projected agricultural trade balances to the year 2000

Selected commodities are items listed in Table 1.

Table 19b - African developing; countries: Projected agricultural trade balances to the year 2000

a Estimated effect of loss of export subsidies on the imports of the subsidy receiving countries.
b Estimated loss of the potential value of preferences provided by the major preferences giving countries.

The per caput consumption levels of basic foodstuffs by the year 2000 would remain precarious, with increases in rice, maize, oilseeds and poultry and reductions in other coarse grains, beef, sheepmeat and milk. The Uruguay Round would hardly change this pessimistic scenario.

The possibilities for increased exports are expected to arise for maize, millet/sorghum, fat, oils and oilmeals among the food commodities and all the tropical products covered. Overall the value of agricultural exports from Africa could rise from US$7.1 billion in 1987-89 to US$10.2 billion in the year 2000. The effect of the Uruguay Round would be to add US$800 million to the value of exports, just under a quarter of the overall growth. Also to be taken into account, however, is the possible loss of the potential value deriving from reduced preferential markets a loss that may be estimated at some US$200 million.

The net result, therefore, for the African developing countries is that import bills of the main agricultural commodities could rise by the year 2000 from their level in the late eighties by US$6 billion plus US$0.1 trillion loss due to reduced export subsidies while export earnings from the main agricultural commodities (but excluding many important ones) could rise by US$3.1 billion less the loss of potential preferences of US$0.2 billion. On any interpretation this is not a very satisfactory outcome. If allowance is made for the agricultural commodities not covered, assuming their values to grow at the same rate as the commodities covered, African developing countries would move from an export surplus of US$1 billion in 1987-89 (f.o.b. basis) to a deficit of US$1.5 million in the year 2000 including inter alia the effects of the Uruguay Round.

The situation varies from sub-region to sub-region. Thus North Africa is a food importing area, its agricultural exports mainly being horticultural products and olive oil. The countries in this sub-region should, therefore, be faced with the prospect of slightly rising prices of their agricultural imports but market access for their exports may Pace some problems particularly for tomatoes and sweet orange¹¹. The changes should, however, prompt review of the appropriate balance between food and export crops.

In West and Central Africa, most countries are importers of grains and livestock products but exporters of tropical beverages, some oilseeds, some agricultural raw materials and tropical fruit. There is also a significant trade in live animals within the region. A substantial part of their exports are made under preferential arrangements with Europe. The higher food prices and possible rather limited gains and even possibly losses for some of their major export commodities should encourage these countries to look afresh al the possibilities of expanding their food crop sector. This conclusion was also reached by an FAO/ECOWAS Expert Consultation on International Policy Change and Agricultural Trade in Africa South of the Sahara.

In Eastern Africa, most countries are importers of cereals while they export coffee, lea, fibres and hides/skins, and in some cases horticultural products, while Mauritius is a large exporter of sugar and has a considerable textile and clothing industry. The rise in the import price of cereals and oilseeds should give a stimulus to their production providing the increases are passed on to the farmers. Although not covered in this study, the market for textile fibres could also expand somewhat. In the case of hides and skins much depends on tapping the potential of this sub-region by improving the quality of the product. Production of hides and skins should expand substantially if the forecast rise in meat production takes place.

Southern Africa is usually more self-sufficient in food but has suffered from civil strife and drought which have led to large-scale imports in several recent years. Under normal circumstances, however, the region should be largely self-sufficient and an exporter of a wide range of agricultural products such as tobacco, sugar and fibres but also fruit, vegetables and coffee. The landlocked nature of several of these countries limits the extent that world price changes can affect farmers' decisions even when they are passed on in full. A combination of fostering intra-regional trade and relying on high value products for export to world markets will continue to be among the policy options to be considered.

The upshot of these changes is that most African countries could well have to give a greater weight to a strategy of (a) increasing food production and (b) of promoting diversification for their export crop sector. The rise in the world prices and the decrease in export subsidies over the period to the year 2000 offers an opportunity to African countries to pass on the increase in prices to the producers of cereals, including part or all of the permissible degree of protection al least for the period of implementation of the Uruguay Round. Al the least, African developing countries could consider the feasibility of "capturing the surplus" for their farmers by raising farm prices to offset the domestic price depressing effect of the remaining export subsidies within the limits set by the tariff bindings included in their schedules. The extent of the increase should, however, be worked out on a country by country basis taking into account changes in other sectors.

As regards the other sectors it will be important for African countries to improve the quality and competitiveness of products for which new market opportunities may open up in for example some horticultural products, oilseed products and hides and skins. In order for countries to diversify their exports it is necessary for the right enabling environment to be developed and for adequate international support to be given for project development. However, it must be remembered that the bulk of Africa's agricultural exports are likely to come from traditional export crops, particularly coffee, cocoa, sugar and rubber, which together will account for well over half of total agricultural exports.

As regards Latin America and the Caribbean, only one country is among the least developed though 9 are low-income food-deficit countries. The region as a whole is a net importer of cereals, even though several countries in the region are exporters, particularly Argentina and Uruguay. The higher prices of most agricultural commodities are projected to lead to a substantial rise in import bills both of food and non-food agricultural commodities, with particularly large increases in wheat, rice, fats anti oils, bovine meat, dairy products and sugar. Most of the increase in imports to 2000 is due to factors such as growth of income and population. However, the effect of the Uruguay Round is to boost these imports by another US$0.9 billion, almost entirely on account of higher prices as import volumes are not expected to change significantly and, if anything, could be smaller than otherwise (Table 19c).

Reflecting the relative rapid growth in per caput incomes, consumption per head is expected to rise for a broad range of commodities particularly poultry, fats and oils, some other meat, and the feed use of grains. The Uruguay Round effect on consumption is small; higher incomes and higher prices appear to have offsetting effects.

The most encouraging aspect of the revised projections concerns export earnings, which are expected to grow substantially by the year 2000. For the commodities covered in this study exports could grow by 3.8 percent a year from their base level in 1987-89. Assuming the exports of other agricultural commodities to grow at the same rate, the total value of agricultural exports for the region would reach US$46 billion compared with US$31 billion in the base period. The Uruguay Round would be expected to boost such exports by US$3.0 billion, even allowing for a loss of the potential value of preferences of around US$10.3 billion. Significant gains are expected for the exports of grains, oilseeds, oilmeals and some livestock products by Argentina, Brazil and Uruguay. By contrast, the export Or bananas is projected to be lower than trend, although still higher than in 1987-89, as is poultry, reflecting the rapid growth of consumption.

Table 19c - Developing countries in Latin America and the Caribbean: Projected agricultural trade balances to the year 2000

a Estimated loss of the potential value of preferences provided by the major preference giving countries.

Table 19- Developing countries in the Near East: Projected agricultural trade balances to the year 2000

a Estimated effect of loss of export subsidies on the imports of the subsidy receiving countries.

The net result of these developments is the expectation that the positive agricultural export balance of US$20 billion that the region obtained in 1987-89 should expand to an estimated US$29 billion in 2000, with US$2.1 billion of the increment ascribed to the Uruguay Round.

At the sub-regional level, in South America most countries are significantly involved in agricultural trade. The sub-region includes both temperate zone countries that import tropical products and export cereals, livestock products, oilseeds and fruit and vegetables, and more tropical region countries which export a wide variety of products such as coffee, cocoa, fruit, oilseeds and cut flowers, and import grains and dairy products. The main feature of this sub-region is the highly diversified structure of trade often countries troth import and export related commodities. Overall, the sub-region stands to make considerable trade gains but some of the net food importers face increased food bills for which assistance may be required.

Central America is an important exporter of coffee, cocoa, cotton, fruit, sugar anti an importer of some basic foodstuffs such as cereals, dairy products and meat. The production of some cereals e.g maize, could no doubt be increased, but not wheat.

Overall there would appear to be some improved trade opportunities to be realized but no major shifts. The main impact will be higher prices for imported cereals, dairy products and meat, which will have an adverse impact on consumption and nutritional status.

The Caribbean sub-region depends extensively on food imports, the prices of which will rise, and relics on a rather limited range of agricultural exports mainly sugar, fruit, tobacco and beverages, a significant part of which are exported under preferential arrangements, which are estimated to lose part of their value. For this sub-region the importance of the Decision on the interests of the net food importing developing countries is to be underscored, as the net impact of the Agreement will be decidedly negative. Also in view of the land shortage in these countries, it will be necessary for them to seek fresh opportunities to diversify their agricultural production towards high value products for export and to supply their expanding tourist industries.

The Near East region is predominantly a net importer relying extensively on food imports and having a variety of horticultural and cotton exports. Only two countries are in the least developed group. However, only a minority of countries in the region are GATT/WTO members anti although nonmembers will be affected by changes in international markets, their own policies will not necessarily change. The rise in the prices of basic foodstuffs should give all the countries in this region the chance of passing on the higher prices to their farmers and hence giving a fillip to output, but they are likely to remain large net importers even though unit prices will be significantly higher. For horticulture there are problems of market access; although some improvements have been made by importing countries, in other cases there could be reduced possibilities and several countries are likely to lose part of the value of their preferential arrangements.

The cost of agricultural imports is projected to rise substantially from US$18 billion in 1987-89 to US$27 billion 2000 (Table 19d). The increase is particularly large in basic foods, the bill for which could rise by US$5.2 billion or 46 percent. The growth is due partly to fairly large volume increases of products for which little is produced domestically and partly to the impact of higher prices.

Consumption per head is not expected to increase greatly - in most countries it is already at relatively high levels - but there are expected to be some changes: consumption per head of cereals and milk is projected to fall but utilization of feeds is projected to rise as is that of fats and oils and to a lesser extend meal.

The region earns relatively little from agricultural exports and the bulk of this is in products not covered by these projections (fibres and horticulture) and, therefore the value of the assessment is somewhat limited. However, it is likely that agriculture will still remain a relatively minor contributor to foreign exchange earnings for most countries. Accordingly the gap between agricultural exports and imports is forecast to widen considerably from US$11 to US$19 billion by the year 2000. One of the interesting possibilities that may, however, open up is the increased scope for intra-regional trade if there is a growing move towards eliminating non-tariff berriers.

The Far East overall is a net exporter of rice, fats and oils and tropical products, and a net importer of other cereals and milk products. Particularly large increases in imports are envisaged for feed stuffs for the thriving livestock sector where output is expected to grow by over 5 percent a year. A large increase is also envisaged in imports of dairy products and sugar. Overall, agricultural imports are projected to expand by 56 percent (Table 19c) to reach US$47 billion. The effect of the Uruguay Round itself is to boost the agricultural import bill by US$4.1 billion. The generally rapid economic growth in this region that underpins the growth in imports would be boosted further by the Uruguay Round. As a result the per caput consumption of agricultural commodities is projected to grow, particularly for meat, fats and oils and feeds, and all the tropical products covered.

Table 19e - Developing countries in She Far East: Projected agricultural trade balances to the year 2000

a Estimated effect of loss of export subsidies on the imports of the subsidy receiving countries.
b Estimated loss of the potential value of preferences provided by the major preference giving countries.

The sharp growth in consumption is not expected to harm agricultural exports, the growth of which is projected at US$20 billion between 1987-89 and 2000. Notable export increases are expected in rice (+US$2 billion), bovine hides and skins (+US$3 billion), fats and oils (+US$4 billion), poultry, cocoa, sugar and rubber (+US$1 billion). Among the commodities not covered it is likely that cassava will suffer a reduction but cotton could be boosted. The effect of the Uruguay Round is estimated to boost export earnings by around US$3 billion.

Overall the surplus on the balance of agricultural trade is expected to improve from US$5 billion to US$8.0 billion. However, in this region in particular, increased absorption of agricultural raw materials, from domestic or imported sources for processing industries, is reflected in rapid growth of exports of semi/processed or processed manufactured goods.

Looking at the sub-regions, South Asia, where four countries are least developed, is largely self-sufficient in basic cereals although a net exporter of rice anti a net importer of wheat. It is also a net importer of oilseeds and dairy products but a major exporter of a number of agricultural commodities such as tea, spices, cotton, jute, tobacco and fruit. On balance the region may be a small loser in net trade in the basic foodstuffs except for possible gains in the rice sector although the concentration of gains in rice would favour Japonica rice exporters more than the Indica rice exporters of this sub-region. Bigger gains may be expected from textiles under the Multifibre Agreement liberalization, which could give a boost to the production of fibres domestically.

South East and East Asia, where two countries are least developed, shares a similar pattern to South Asia and could lose from higher world prices of wheat and coarse grain, which would more than offset possible export gains from higher rice prices. With some significant exceptions, most countries in the region will stay relatively close to food self-sufficiency anti the main result of the Uruguay Round price changes would be to reinforce this tendency. The sub-region enjoys a wide and diversified range of exports including rice, oilseeds, fibres, tropical beverages, fruit, sugar, cassava and hides anti skins. Probably few gains can be expected from the tropical beverages, the market for cassava may contract. Fibres may be boosted somewhat as a result of increased demand from the textile sector while oilseeds, fruit anti hides anti skins could benefit from market expansion.

Finally as regards the Pacific islands (four countries of which are in the least developed group), they are generally like the Caribbean countries, net importers of food and net exporters of sugar (Fiji), and palm and coconut products. The shortage of land in most of the countries will presumably limit the possibilities of a major increase in domestic food production so that a careful focusing on high valued products, exploiting the possibilities for diversification where feasible, will still be important options. Food imports will cost more.

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