2.1. Introduction
2.2. Production policies
2.3. Marketing and stockholding policy
2.4. Consumption policy
2.5. International trade policies
2.6. Conclusions
During the period under review, policies affecting the oilseed sector were influenced by the general move toward greater liberalization, which included progressive withdrawal of the public sector from market intervention. In addition, outlays on agricultural support programmes remained well below planned levels. The use of private sector financed crop insurance schemes was promoted in several countries to protect farmers from weather induced production and income fluctuations. With regard to credit subsidization programmes, a contraction in the level of government outlays and efforts to increase private sector participation in lending operations was noted. Also, in several developing countries, governments continued to provide technical and financial assistance to the development of their oilseed-based industries, with a view to reduce import dependency and/or to raise foreign exchange earnings.
The tendency of many countries to reduce public outlays on agricultural support programmes, due in part to more stringent budget constraints and commitments under the Uruguay Round Agreement on Agriculture (URA), continued to affect production of selected oilseeds, oils and fats in a number of countries during 1995-1996. In the developed countries, Canada reformed its production support programmes in line with its URA commitment. Direct assistance to grain and oilseed farmers through the Western Grain Transportation Act (WGTA) was eliminated in 1995. As compensation, land-owners were offered one-time lump sum payments, funds were provided to improve the transport infrastructure and exports were supported with credit guarantees. At the same time, increased attention was given to various income safety net programmes3. It is expected that the termination of the WGTA would open the way for more diversified and market-oriented crop production that might improve the relative position of oilseeds.
3 These programmes have already been discussed in Chapter 1 of this Review.
In the European Community, support for the production of butter and olive oil continued. While EC producer prices for oilseeds are determined by the world market, producers receive direct income support payments (compensatory payments) on a per-hectare basis. Upward movements in world oilseed prices during 1995-1996 triggered slight downward adjustments in these compensatory payments. Government costs incurred for the various programmes are shown in Table 3. EC producers of arable crops, including oilseeds, were required to set-aside a part of their land in order to receive income support payments; after a reduction by two percentage points in 1995/96, the set-aside rate applied to oilseeds was reduced further to 5 percent for production in 1997. The oilseed-specific area threshold, introduced in 1994 under the Blair-House Agreement, which, if exceeded, triggers penalties, seems to have contributed to the slow-down in the expansion of oilseed production: after having exceeded the threshold in 1994, oilseed plantings remained within the established limits in both 1995 and 1996.
In Switzerland and Norway, support prices for oilseeds were set at levels close to or above international market prices, and price intervention was accompanied by various market oriented measures, including public storage schemes, programmes to raise consumption, export subsidization and border protection.
In the Russian Federation, where fixed guaranteed minimum prices were abolished in 1994, the government announced more flexible procurement prices at which limited amounts of oilseeds were bought to replenish public reserves. The volume of such government purchases has fallen progressively, reflecting lack of funds and/or relatively unattractive purchase prices. However, the extension of production loans (commodity credits) was resumed, which included the provision of subsidized inputs under the condition that farmers would sell their crop to state procurement agencies.
Table 3: Cost of Price Support in the EC and the US for Oilseeds, Oils and Fats *
|
|
1994 |
1995 |
1996 |
1995 |
1996 | |
|
European Union |
(Million ECU per financial year) |
(Million US dollars) | ||||
|
Oilseeds (per ha aid to producers) |
2 561 |
2 289 |
2 380 b/ |
2 994 |
3 018 | |
|
Olive oil |
1 820 |
812 |
2 008 b/ |
1 062 |
2 546 | |
|
|
- Intervention costs c/ |
1 767 |
774 |
1 949 b/ |
1 012 |
2 471 |
|
|
- Export refunds |
53 |
38 |
59 b/ |
50 |
75 |
|
Butter and related fats |
|
|
|
|
| |
|
|
- Intervention costs c/ |
724 |
577 |
689 |
755 |
874 |
|
|
- Export refunds |
251 |
477 |
237 |
624 |
301 |
|
United States |
(Million US$ per fiscal year) |
|
| |||
|
Soybeans and groundnuts |
|
|
|
|
| |
|
|
- Intervention costs c/ |
-146 a/ |
197 |
35 b/ |
|
|
|
Dairy products |
|
|
|
|
| |
|
|
- Intervention costs c/ |
158 |
4 |
-98 a/b/ |
|
|
* Please note that the country coverage of this table is limited to two countries due to lack of accessible data.However, it is known that in several other countries production support programmes involve considerable public expenditures
a/ Minus indicates a net receipt (excess of repayments or other receipts over gross outlays of funds).
b/ Refers to budget appropriations
c/ Including, depending on the commodity, deficiency payments, credit subsidies and other payments to producers; and aids for storage, domestic disposal and consumption.
In the United States, the minimum price guarantees for oilseeds and butter remained virtually unchanged during 1995-1996 (see Table 3 for public costs incurred). From mid-1996 onward, policies were determined by the introduction of new legislation for the period 1996-2002 under the FAIR Act, presented in Chapter 3 of this Review. Under this Act, support given to oilseed cultivation was curtailed. The loan rate for groundnuts was frozen below the 1995 level, and loan rates for all other oilseeds were confined to a particular range, thus preventing support prices from rising beyond certain levels. Following the introduction of the FAIR Act, the setting of a 'minimum quota' of groundnuts entitled to receive support prices was discontinued, and in the future, quotas will be determined based on projected domestic usage. The overall outcome of these measures was a general relaxation of production and area controls, with planting decisions being increasingly determined by market conditions rather than public support programmes. In fact, the expansion of oilseed plantings observed during the 1996/97 season seemed to be mainly driven by fundamental market forces rather than government policies.
As to developing countries, most of those supporting oilseeds prices, reported only moderate or no increases in the level of administered producer prices. Table 4 presents the changes in oilseeds support prices for selected countries during 1995-96. Countries operating state purchasing schemes in conjunction with producer price guarantees reported decreases in volumes procured due to shortage of funds. During the period under review, several countries, including, Morocco, Mexico, and Zimbabwe suspended or discontinued price support for oilseeds, while others, rather than raising support prices on the basis of production cost increases, linked the level of administered prices to changes in market prices. In other countries, government support prices and accompanying measures were replaced by floor prices and/or purchase agreements negotiated directly with private sector enterprises (i.e. oilseed crushers) which, in exchange, were offered preferential treatment, such as special import permits or import duty rebates.
Table 4: Oilseeds Support Prices in Selected Developing Countries (National Currencies and US$ per ton)
|
|
1995 |
1996 |
Percent change from 1995 to 1996 |
|||
|
National currency |
(US$) |
National currency |
(US$) |
|
||
|
Groundnut |
||||||
|
|
India |
9 000 |
(278) |
9 200 |
(260) |
2.2 |
|
|
Zimbabwe |
Terminated |
|
|
|
|
|
Rapeseed |
||||||
|
|
India |
8 300 |
(256) |
8 600 |
(243) |
3.6 |
|
|
Morocco |
4 100 |
(480) |
Terminated |
|
|
|
Soybeans |
||||||
|
|
Brazil |
136 |
(148) |
148 |
(147) |
8.8 |
|
|
India |
6 000 |
(185) |
6 200 |
(175) |
3.3 |
|
|
Korea, Rep. |
1 365 000 |
(1 770) |
1 433 000 |
(1 781) |
|
|
|
Morocco |
3 700 |
(433) |
Terminated |
|
|
|
|
Pakistan |
Suspended |
|
|
|
|
|
|
Zimbabwe |
Terminated |
|
|
|
|
|
Sunflowerseed |
||||||
|
|
Egypt |
1 050 |
(310) |
1 050 |
(310) |
|
|
|
India |
9 500 |
(393) |
9 600 |
(271) |
1.1 |
|
|
Morocco |
4 400 |
(515) |
Terminated |
|
|
|
|
Pakistan |
7 878 |
(249) |
9 625 |
(267) |
22.2 |
|
|
Zimbabwe |
1 600 |
(185) |
1 800 |
(181) |
12.5 |
The role of the public sector in marketing of oilseeds, oils and meals has been re-appraised in several countries. Numerous governments proceeded with reforms focusing on market liberalization and deregulation, including the privatization of state-owned production and processing units, the abolition of state controlled marketing boards or cooperatives, and/or the reduction of price controls and border protection. At the same time, the increase in market transparency and the development of commercial links amongst economic agents within the sector (e.g. direct contractual agreements between oilseed farmers and crushers) were encouraged.
In China, decentralization and deregulation efforts continued. Most of the administrative and financial responsibility for, inter alia, public procurement, price stability and local supply was delegated to the provincial authorities which, in turn, entrusted the commercial operations to parastatal enterprises. However, the central government maintained overall control over oilseed production and marketing at the national level, with a view to ensure that urban consumption needs were met. State procurement of oilseeds and oils constituted, together with control over external trade, the main tool for regulating domestic distribution of these products. Oilseed purchases were effected partly at market prices and partly at procurement prices fixed below the market level when they were combined with the distribution of subsidized inputs. Also, while the Central Government continued to provide loans and to subsidize the holding of public stocks, the new policy was to reduce state outlays while increasing the involvement of private companies.
In the Russian Federation, on-going deregulation and privatization policies, which included external trade liberalization, affected also the marketing of oilseeds. Involvement of the private sector in marketing increased, while public procurement shrank further due to unattractive government prices and/or lack of public funding. In 1996, the Government endorsed a new medium-term development programme aiming at the stabilization of agro-industrial production and increased production efficiency. This programme could lead to increased state control over the production and marketing of oilseeds and derived products and may raise public spending for market support measures.
Continued or increased intervention in oilseed markets was reported from Switzerland, where control over production, transformation and marketing was maintained, and from Turkey, where, in an effort to protect local producers, crushers were obliged to purchase certain amounts of oilseeds from domestic origins.
With regard to public stockholding, several countries continued to maintain stocks of vegetable oils for food security purposes and/or to stabilize domestic markets (in particular prices) through government purchases and sales. Where such stock policies were newly introduced, such as in Indonesia, Morocco, and Lithuania, governments tended to encourage greater private sector participation in the administration and financing of the various operations.
Several countries continued to support consumption of oilseed-based products, particularly of oils and fats destined for human consumption. In some countries, intervention in domestic markets and support of retail prices were accompanied by trade policy measures, such as reduction of import duties or export restrictions. The main objectives were to keep costs of living down in some developing countries and/or to raise consumption from domestic, often relatively high-cost, sources in some developed countries. Examples of the latter include the EC for butter and olive oil, the USA for butter, and Switzerland for oil from rapeseed and soybean as well as butter. In several developing countries, retail prices for vegetable oils were either set or controlled closely by the governments. In countries where prices were allowed to move freely, consumers were most often exposed to steep rises in vegetable oil prices during the period under review. To curtail such price escalation, in India, Indonesia and Pakistan, government controlled agencies and public retail outlets were directed to sell vegetable oils and fats, procured on the national or international markets, at prices below prevailing market levels. In the Russian Federation, the value-added tax on vegetable oils and butter was lowered. In Bulgaria, prices were liberalized for most food products, but refined sunflower oil prices remained among the nine oils still under some form of control by the Government.
In several countries, such as Senegal, Venezuela, Egypt, Morocco and Syria, the Governments adopted measures that led to a reduction in consumer protection and/or consumer price increases. Such measures included: the reduction or termination of price controls over vegetable oils and fats, the phasing out of subsidies provided to processors and traders, and/or reduced provisions for subsidized food through public distribution systems.
2.5.1. Measures affecting exports
2.5.2. Measures affecting imports
Compared to previous years, the impact of export incentive schemes on trade was less pronounced during 1995-1996. The two main reasons for this were; (a) during 1995-1996, competition between exporting countries was reduced as the global import market expanded; and (b) several governments reduced or terminated their contributions to export promotion programmes, either in response to budgetary constraints, or as a result of the URA. In general, WTO member countries committed themselves to gradually reduce the volume of subsidised exports as well as corresponding government outlays.
In the United States, the various export programmes remained virtually unused since 1995 as far as oils and fats are concerned because market conditions did not warrant the application of export subsidies. Under the new farm legislation introduced in 1996, the Export Enhancement Programme (EEP) and the Cottonseed and Sunflowerseed Oil Assistance Programmes were reauthorized. Sunflower and cottonseed oil will no longer enjoy specific funding, but will be admitted under the EEP. Funding for EEP was made subject to specific limits, which ranged well below the levels of government outlays recorded in previous years, as well as below the maximum levels permitted under the country's URA commitment regarding expenditures for export subsidies. The provision of export incentives through export credit guarantees will continue, though subject to newly introduced funding limitations. The budget for the Market Promotion Programme, which affect oilseeds, has also been cut.
In Canada, the termination of the WGTA in 1995 eliminated the transport subsidy enjoyed by grain and oilseed exporters. As compensation, the Government introduced export credit guarantee programmes. In the EC, exports continued to be subsidized at an unchanged level for butter, and at a slightly lower rate for olive oil. Poland continued to subsidise its exports of rapeseed, while, in Hungary, support to sunflower oil and butter exports was discontinued.
In the Russian Federation and Hungary, exports of certain products were liberalized, in particular with regard to export permit requirements. This stimulated export-oriented production and raised foreign exchange earnings. In a number of other countries, however, restrictions, in particular export quotas and licensing requirements, were maintained or even strengthened in an effort to raise domestic supplies of oils and fats.
Among developing countries, Malaysia continued its efforts to raise the country's market share in global palm oil trade by providing credit facilities or entering into long-term purchase agreements with major importers, and by pursuing joint ventures to develop palm oil consumption abroad. Argentina continued to apply its system of taxes and rebates to stimulate oilseeds product exports, although the level of export incentives provided has been reduced gradually. In Brazil, the taxation of exports of oilseeds and oilseed-based products, through the ICMS (Impuesto sobre Circulacao de Mercadorias e Servicos) was discontinued, which raised the competitiveness of soybean vis-à-vis soybean oil and meal. China reduced export subsidization of oilseeds and oilseed products, which led to changes in the overall pattern of shipments, as oilseeds and meals were less affected than oils.
Measures to limit exports of oilseeds and derived products continued to be used by several net importing developing countries including Indonesia, China, Myanmar, Nigeria, and Pakistan. The main objectives behind such measures were to ensure adequate domestic supplies and to control rises in domestic prices. These consumer-oriented policies included the taxation of exports and export bans. However, given the potential negative effects of such measures on local producers and crushers, some governments preferred using temporary forms of export control or variable taxes, so as to be able to respond swiftly to changes in the internal supply and demand situation.
Since 1995, a number of countries reduced or removed tariffs and related duties affecting imports of oilseed-based products, either in a permanent or temporary manner, in order to facilitate meeting local demand for oilseed products and to combat price surges resulting from supply shortages. In some countries where vegetable oil supplies fell short of demand and crushers operated below full capacity, unrestricted importation of oilseeds was permitted. However, in other countries where import policies would negatively affect local oilseed producers, imports were made conditional upon the absorption of domestic production at government-determined minimum prices.
Morocco, the Russian Federation and Indonesia contributed to opening up their import markets though the gradual reduction or lifting of quantitative import restrictions, import monopolies, licensing requirements and similar non-tariff measures. Besides complying with overall market liberalization policies, these measures were also taken to ensure that domestic consumption needs would be met. In Indonesia, oilmeal imports were liberalized with a view to stimulate livestock production.
There were, however, other countries where existing import barriers were strengthened or new ones introduced. Generally, such steps were taken to support production policy measures, which tended to push domestic prices above world market levels. To control imports, governments resorted to: increased import tariffs, levies or other surcharges; import bans; discretionary licensing; allocation of quotas and special tariff concessions to state enterprises; and quantitative import restrictions.
This brief review demonstrates that a number of changes have occurred or are underway in the field of production policies affecting the oilseed sector. Traditional price support schemes were discontinued or modified in a number of countries. The overall tendency was to reform price support schemes with a view to increase the producers' responsiveness to market signals, and to decrease governments' influence on price formation; this went hand in hand, particularly in developed countries, with a shift towards more production-neutral forms of support, such as direct income payments. These developments, together with continued efforts to reduce production incentives arising from support payments, have resulted in halting policy-induced expansion of relatively high-cost production in certain regions.
Government intervention in oilseed markets and other measures to improve domestic market stability continued to be applied in many countries where imbalances between supply and demand developed, principally to alleviate the negative effects of such situations on consumers. However, it appears that governments started using these instruments in a more targeted and focused manner, with a view not to impede reforms to open markets.
As to consumption policies, some governments continued to support or stimulate oilseed consumption by subsidizing retail prices, while others introduced measures to curtail price rises for costs of living reasons and/or to raise per caput intake of oils and fats. Some developing countries however ceased consumption support.
Regarding international trade, policies in WTO member countries started to be influenced by the URA. The agreement initiated a process which is expected to lead to increased market transparency, reduced barriers to trade and both improved export competition and import access for agricultural commodities, including oilseed-based products. Eventually, these policy reforms should bring changes in domestic prices more into line with variations in world market prices, hence strengthening the transmission of price signals between producers (or exporters) and consumers (or importers).
