This chapter reviews government policies affecting the oilseeds, oils and fats and oil cakes and meals sector. The focus is on measures adopted and policy changes introduced during the period 1998-2000 in the fields of production, consumption, marketing and international trade. In general, during the period under review, the past trend towards the gradual reduction of potentially market distorting, direct government intervention in production, marketing and international trade of oilseed-based products continued. However, during the last two years, specific developments in the global market for oil-based products induced a few important producing as well as trading countries to reappraise their policies. A number of exporting countries decided to step up direct support to domestic producers and to increase export promotion efforts, while major importing countries tended to raise border protection in an effort to shield domestic industries form international competition. In supporting the oilseeds sector, WTO member countries adhered to the commitments made under the Uruguay Round Agreement on Agriculture (URAA).
While some countries continued to rely on price support programmes to protect farmers' incomes, usually in conjunction with procurement schemes to assure domestic supplies, others shifted to more direct income support for oilcrop producers. Other policies were also applied, including restrictions on land use to control oilcrop production, usually in tandem with price support schemes, and input subsidies to support oilcrop production.
These policies for oilcrops continued to be applied in some countries (see Table III-1) in order to protect farmers' income and to provide sufficient supplies for domestic markets. Among developing countries, guaranteed prices and state procurement schemes remained in place only in a few of them, in particular India, Pakistan, and the Republic of Korea - all net importers of oilseeds. In general, in developing countries where support prices were applied, these were increased in nominal terms but did not keep pace with inflation. In most cases, farmers preferred to sell their oilseeds on the open market, as state-administered prices tended to remain below domestic market prices. Regarding state procurement of oilseeds, the volumes involved were limited, mainly because of general cuts in public spending. In India, purchases of oilseeds by state agencies occurred during 2000, but the amount procured remained small compared to overall crop supplies. As a result, price support and procurement schemes provided little or no incentives to expand oilseed production. In China, government intervention in production and marketing of oilseeds remained limited when compared to other food and feedcrops. Price support continued to be offered for soybeans, but at an unattractive level compared to the major competing food and feed grains - a situation which contributed to the reallocation of farm resources from soybeans to maize, wheat and rice, i.e. commodities considered of relatively greater strategic importance. Mandatory procurement of soybeans at fixed quota prices remained in place but affected only a small part of total production. Overall, the policies applied in India and China contributed to the widening of the domestic supply gap in oilseed products in recent years. As a result, reliance on the importation of oilseeds and derived products - a relative attractive option, considering the fall in international prices for these commodities over the last few seasons - tended to increase. In Thailand, to promote palm oil cultivation, the Government continued imposing minimum purchase prices at which crushers had to buy oil palm fruit branches from producers.
Table III-1: Oilseeds, oils and fats support prices in selected countries (price per tonne)
Prices in national currencies |
Prices in US dollars | |||||||||
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in nominal terms |
in real terms |
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1998 |
1999 |
2000 |
1998 |
1999 |
2000 |
1998 |
1999 |
2000 | ||
Copra |
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Groundnuts |
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Olive Oil |
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Rapeseed |
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Soybeans |
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Sunflowerseed |
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Butter |
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n.a. not available
a/ Prices for production within marketing quota
b/Prices for production additional to marketing quota
Among developed countries, the EC continued to support production of butter and olive oil on the basis of specific reference support prices. Support was actually provided in the form of production aid, public storage and export subsidisation. Following a reform of the EC olive oil regime in 1998, production aid was lowered, support to small producers was discontinued and public intervention at guaranteed prices was replaced by private storage aid. In the United States, public marketing loans for oilseeds, with loan rates having an impact comparable to that of support prices, continued to be applied. The loan rates for soybeans, groundnuts and the so-called `minor oilseeds' were set within the ranges established under the 1996 Federal Agricultural Improvement and Reform (FAIR) Act, which regulates support to the agricultural sector until 2002. Changes introduced under the FAIR Act regarding the application of the loan schemes, contributed to a significant rise in payments in 1999 and 2000 when producer prices for soybeans fell below the respective loan rates. While these payments partly insulated producer income from the impact of low market prices, the high soybean loan rate relative to that for competing crops also contributed to the steady expansion of soybean plantings from 1999 onward.
Under the influence of the URAA, as well as on-going discussions within the WTO regarding agricultural support policies, several countries, in particular developed ones, tended to increasingly rely on direct income support payments that were not directly linked to production levels or market prices. In the United States, non-crop specific income payments (known as Production Flexibility Payments) introduced in 1996 remained in place, though the gradual reductions in total payments envisaged for the 1996-2002 period were applied. In the EC, farmers continued to receive the oilseed specific direct income support payments introduced in 1992. However, during 2000-2002, oilseed payments are being reduced in order to gradually align them with those offered for other arable crops. Initially, the alignment of support payments is likely to make oilseed production less profitable vis-à-vis other arable crops, in particular cereals. In Canada, with the termination (in 1997) of various transitional programmes that were to cushion the impact of the phasing out of the Western Grain Transportation Act in 1995, support to producers of grains, including some oilcrops, was drastically reduced.
Several other countries have undergone or are considering undertaking a shift from production-related support to direct income payment on a per-hectare basis. These countries include the Czech Republic, Hungary and Lithuania, where such policy changes are related to EC accession plans, as well as Japan, Mexico, Switzerland and Turkey, where such schemes are mainly designed to stimulate oilseeds production.
In addition to the forms of support described above, during the period under review, some developed countries intensified the use of income safety net programmes for farmers. As payments under these programmes are generally of a non-crop specific nature, these measures are discussed in more detail in chapter V of this document.
Principally designed to reduce the unwanted effects of price support schemes or other crop specific programmes, area limits remained in place in the EC for oilseeds and olive oil. In 1998, the respective thresholds were surpassed, which triggered penalties in the form of reduced support payments to both oilseeds and olive oil farmers. The threat of further penalties contributed to containing oilseed plantings in 1999 and 2000. Furthermore, in order to receive income support payments, oilseed producers continue to be obliged to set aside part of their land. From 1999 onward, the set aside rate was 10 percent. Subsidised land set-aside was recently introduced in the Czech Republic, in the context of policy adjustments leading up to EC accession. In Malaysia, measures to slow down the expansion of domestic oil palm cultivation were introduced, in an attempt to control production during a period when the country was increasingly faced with excess stocks. For the same reason, the government has offered incentives to power plants and industries for using diesel fuel derived from palm oil.
Various indirect forms of production support continued to be used in developing countries to stimulate arable crop production, including that of oilseeds, thus raising self-sufficiency levels in agricultural commodities (or reducing import dependence), and/or to produce exportable surpluses, often in combination with measures limiting importation. In some cases, support measures were specifically aimed at increasing productivity in oilcrop production. Use of high performance seed material, other technology transfer and research and development programmes received support in numerous countries including India, Pakistan, the Philippines and Thailand. In other countries (including Colombia, India, Indonesia, Kenya, Malaysia, Slovak Republic and Venezuela), producers were granted tax exemptions and/or received subsidised credit (seasonal credit as well as loans for storage and various on-farm investments), though, in general, outlays for such schemes appear to have decreased in recent years. Furthermore, during the review period, several governments, including those of India, Indonesia and Mexico, supported land privatisation schemes, creation of producer organizations, foreign investment projects and the establishment of commodity exchanges. In Mexico and India, government supports for crop insurance programmes continued.
Attracted by high productivity levels in oil palm production, several countries in Asia, Africa and Latin America launched support programmes to foster the development of oil palm cultivation and marketing, both to improve domestic availability of vegetable oils as well as to supply the steadily expanding world market for palm oil.
Following past trends, during the period under review, public sector intervention in markets for oilseeds products has been re-appraised in a number of countries, particularly among developing nations in Asia and Africa. Numerous governments introduced or continued implementing general market liberalisation and deregulation reforms. These comprised the privatisation of state-owned oilseed production and processing facilities and the termination of state monopolies in the marketing of oilseeds and derived products. While progressively withdrawing from direct market intervention, several governments shifted efforts towards measures that contribute to an orderly and efficient operation of markets, such as setting up information systems, supporting the establishment of commodity exchanges and offering quality control/certification and other regulatory services. In general, also direct intervention in consumer prices for oilseed-based products was reduced compared to previous years. In addition to widespread market reforms, also the steady fall in world market prices for oils and fats registered during 1999-2000 contributed to more limited market intervention in favour of consumers.
In India, most restrictions on domestic trade, storage and export of major oilseeds and derived products were removed by 1998, except that ghee manufacturers were instructed to cover part of their raw material requirements through the domestic market rather than through imports. With regard to commodity exchanges, the Indian Government's decision to permit futures trading resulted in futures contracts being launched for all major oilseeds, oils and meals, and possibilities of on-line trading are also under consideration.
In a number of CIS Republics, state- controlled marketing enterprises remained in place but started operating alongside private traders; i.e. they were not allowed to retain their monopoly in oilseed product markets. In the Ukraine, the termination of strict state control over the market for oilseeds led to the reorientation of the domestic sunflowerseed sector towards the export market. In Indonesia, all barriers to investment in palm oil were removed, international trade in oilcrop products started to be deregulated and restrictions on the wholesale and retail sectors were gradually lifted. However, following the country's recent economic crises, the pace of some of these reforms was reduced, in particular to protect consumers from potential price increases.
On the other hand, some countries continued or augmented state intervention in oilseed markets. In Thailand, for instance, while phasing out import restrictions, the government continued to set the prices for certain oilcrop products on the domestic market. Local prices were set at levels that would stimulate domestic production and/or maintain domestic products competitive vis-à-vis imported goods. In the Republic of Korea, state-trading enterprises retained their monopoly over the marketing of imported as well as domestically produced soybeans. And in Malaysia and the Philippines, for the first time in many years, state agencies resorted to intervention buying of respectively palm oil and copra, in an effort to stem the unprecedented fall in world prices, which hit their export-oriented industries during 2000. In Malaysia, government enterprises also continued to handle most of the country's palm oil export operations.
In 1998, as Indonesia embarked on an IMF-backed reform programme introducing wide-ranging market liberalisation, the state-controlled agency BULOG was deprived of its monopoly on the importation and domestic distribution of foodstuffs including oilseeds and derived products. The sale of imported soybeans and cooking oils at highly subsidised prices (geared towards stabilising consumer markets) was gradually phased out. In India, the Government re-directed its attention towards regulatory tasks such as the introduction of packaging requirements and setting up quality control mechanisms. In the EC, along with the reform of the olive oil regime introduced in 1998, payments in support of olive oil consumption were discontinued.
On the other hand, a number of countries continued to support consumption of oilseed-based products, particularly of oils and fats intended for human consumption. Main objectives were to raise consumption from domestic sources and/or reduce dependency on imports. In a few countries, retail prices for vegetable oils continued to be either set or controlled closely by government bodies (e.g. India, Thailand and the Russian Federation). In other cases, government controlled agencies and public retail outlets were directed to sell vegetable oils and fats (procured on the national or international market) at prices below market levels. Countries where governments continued to be involved in the sale of cooking oil at subsidised prices include the Islamic Republic of Iran, Malaysia, Morocco and Peru. However, in an attempt to limit market distorting effects, most of the above mentioned operations were applied on a temporary basis only. Furthermore, it appears that efforts were made to tune consumer support measures to actual price movements on the domestic and international market and to better co-ordinate such operations with trade policy measures.
A number of countries continued to support research and development programmes to find new end-uses for specific oilseeds and derived products, both for food and non-food uses. Examples include the Philippines (coconut oil), India (oilcakes and meals), the United States (soybeans and soybean products), Malaysia (palm oil) and the EC (rapeseed oil). In particular, countries encouraged the production of bio-diesel from oilcrops as an environmentally friendly alternative to fuels produced from non-renewable resources. However, the regular provision of subsidies and/or tax breaks to refiners continued to be necessary to guarantee the economic viability of bio-diesel production from oilcrops. The overall objectives pursued by governments in developing bio-diesel applications included: (a) developing further the domestic oilseed production potential, (b) addressing problems of oversupply in oilcrop markets, and (c) meeting specific environmental targets. Such targets were applied in the EC and the United States, while the Czech Republic, Hungary and Poland, as candidates for EC membership, increased their efforts to obtain a specific percentage of their energy requirements from renewable resources, especially oilcrops.
In general, the tendency of governments to withdraw from direct intervention in domestic markets seems to have intensified the use of trade policy measures in pursuance of domestic production and consumption policy goals. On one hand, under the influence of the URAA, changes in trade policies for oilseed-based products led to increased market transparency, progressive reduction of non-tariff barriers and more open export competition, which, in general, helped bring domestic prices for oilseeds and derived products more into line with variations in world market prices. On the other hand, control over import access remained in place in several countries and, during the period under review, international trade in oilseeds and derived products was affected by intensive use of tariff measures.
As opposed to previous years, when a tendency towards a reduction in tariffs and other import barriers affecting trade in oilseed products was observed, during 1999-2000 numerous countries, in particular developing nations, resorted to import control measures. One of the main reasons for this shift was the general decline in world market prices for oilseed products, which strongly stimulated imports of developing countries, thus affecting adversely oilseed producers and crushers. Faced with foreign exchange constraints and rising import dependence, several countries stepped up their efforts to shield domestic industries from greater international competition. Some governments increasingly relied on import control measures as a complement to production policy measures because - under the influence of the URAA as well as other factors - the use of price guarantee schemes, government procurement and other forms of direct market intervention was reduced.
During the period under review, the main policy instrument affecting imports were tariff measures, as numerous countries had converted non-tariff barriers into tariff duties. Where applicable, individual countries' tariff policy measures were implemented in compliance with country-specific URAA commitments. During the period under review, some developing countries raised actual tariff rates to levels close to the URAA bound limits.
Among countries that resorted to increased tariffs and related duties was India, one of the world's major importers and consumers of vegetable oil. Before mid-1999, import policies in India were determined by general trade liberalisation reforms, which included the progressive elimination of long-standing quantitative import restrictions as well as licensing requirements for oilseeds, oils and meals. Through these measures, and through reductions of import duties for oils and meals, the Government was able to enhance capacity utilisation in the domestic oilseed processing industry and managed to stabilise domestic prices that had surged as a result of poorly performing local oilseed production. During 1999, however, a situation of oversupply developed, because of better harvests and, more importantly, the unprecedented surge in cooking oil imports triggered by a sharp decline in world prices. Tumbling domestic producer prices and under-utilised oil processing capacities induced the Government to introduce a number of measures to restrict imports, in particular higher import duties on refined vegetable oils. To stem the flow of imports and, thus, restore domestic price levels, tariff rates for vegetable oils were raised several times during 1999-2000, as the persistent decline in world prices tended to neutralise the impact of the various tariff increases. In this process, the government tariff escalation also occurred, so as to encourage the importation of crude oils over refined oils, thus supporting the domestic refining industry. With regard to India's imports of oilseeds, relatively high duties and special import requirements remained in place, continuing to restrict trade.
Other countries where tariffs on oilseeds and products were increased with a view to protecting domestic production and processing interests include Chile, Colombia, Lithuania, Nigeria, Pakistan, Sri Lanka and Turkmenistan. In general, it appeared that increased emphasis was put on aligning tariff rates with changes in the level of world market prices. Furthermore, several importing countries used tariff differentiation in an effort to favour importation of low value products for domestic processing (e.g. refined edible oils were taxed at higher rates than oilseeds and crude vegetable oils) and, thus, contribute to value-addition within the country.
In some countries, protection from imports was achieved primarily through quantitative import restrictions, licensing requirements and other non-tariff measures. In China, the Government maintained firm control over the importation of most oilseeds and products through quota and licensing systems as well as tariff measures. Quotas continued to be determined on an annual basis by the Government based on domestic market conditions and various policy considerations. During 1999-2000, import restrictions on vegetable oils were applied to support domestic prices for oils as well as to encourage domestic oilseed production. Regarding oilmeals, in 1999, the overall import charge on imported soybean meal was raised by the reintroduction of a value-added tax. This served the purpose of supporting prices for domestically produced oilmeals and, thus, domestic crushers. As opposed to oil and meal imports, importation of oilseeds was subject to fewer restrictions, again reflecting an effort to assist local crushers and to stimulate expansion in the domestic crushing industry. As a result of these policies, in the last few years, the bulk of the country's import requirements were covered by the purchase of oilseeds as opposed to oils and meals.
Among developed countries, in the United States, limitations on the importation of groundnuts and derived products continued to accompany measures in support of domestic groundnut production. However, in line with its URAA obligations, the Government is committed to gradually increase the import quota for groundnuts. Furthermore, import quotas for butter and butter substitutes remained in place. Other countries that strengthened non-tariff barriers on oilseed products during 1999-2000 - in some cases after having relaxed import controls in previous years - include the Czech Republic, Nigeria, and Thailand. Measures applied include quotas and specific requirements with regard to licensing, shipping documentation and country of origin inspection.
As opposed to the trend described above, some countries moved in the opposite direction, lowering import tariffs and/or reducing import restrictions. In such cases, the objectives pursued included: (i) to ensure adequate supplies during periods of domestic supply shortages and to protect consumers from high prices (Bulgaria, the Russian Federation, Ukraine, Uzbekistan); (ii) to assist oilseed crushers and other parts of the industry by improving their access to imported raw materials (India, the Philippines, Romania, China Province of Taiwan); (iii) to continue pursuing trade liberalisation reforms (Indonesia, Japan, the Republic of Korea); (iv) to honour URAA tariff reduction commitments (Philippines); and (v) to respect commitments made under regional trade liberalisation agreements (Thailand, Argentina, and Andean Pact member countries).
Tariff rate quotas for oilseeds and derived products, normally introduced during the process of converting non-tariff barriers into tariff measures, were adopted or remained in place in a number of countries including the Czech Republic, the Republic of Korea, Poland and Thailand. While, in principle, such instruments contributed to increased transparency and market access, problems in the administration and allocation of the quotas sometimes prevented quotas from being fully used.
Compared to previous years, some countries made intensive use of export incentive measures. The main reason for this was that, during 1999-2000, competition between exporting countries increased in certain markets for oilseed-based products due to a steady expansion in global export supply combined with relatively sluggish growth of import demand.
An unprecedented increase in export supplies of palm oil (after two years of relatively tight supply) combined with a slowdown in import demand, induced the two main exporters of palm oil, Malaysia and Indonesia, to implement wide-ranging export enhancing policies. Prior to the year 2000, the Government of Malaysia taxed the export sector, with a view to stimulating domestic refining of palm oil. During 2000, however, the palm oil export tax was lowered and temporary tax waivers were introduced, in an effort to stimulate exports and combat the glut in the domestic palm oil market. Furthermore, the Government offered favourable credit and payment conditions to selected importers and increased efforts to penetrate new markets and promote palm oil consumption abroad through joint ventures. These measures were accompanied by moves to reduce the country's output and raise domestic consumption of palm oil. In Indonesia, the direction of policies was very much the same. Prior to 1999, following the surge in palm oil exports caused by the depreciation of the country's currency, measures to limit palm oil exports had been introduced (quantitative restrictions, export taxation and temporary export bans) in an effort to secure domestic supplies and control the rise in local prices. From early 1999 onward, excess supplies and increased competition on export markets led to successive, substantial reductions in Indonesia's export tax on palm oil products. To support exports, Indonesia, as well as Malaysia, also signed barter trade agreements with governments of importing countries, including China, Cuba and the Republic of Korea.
Other countries that decided to temporarily lift or suspend export taxation and licensing requirements in order to stimulate the exportation of oilseed products included Bulgaria, the Czech Republic and Tunisia, while export tax rebate systems remained in force without modification in Argentina and Colombia.
In the United States, several export incentive measures remained in place, although direct government intervention in the export market remained limited. While the Export Enhancement Programme remained unused as far as oilseeds and products are concerned, the provision of export incentives through export credit guarantees continued and actually increased compared to previous years. While outlays for oilseeds, oils and meals under the short term export credit scheme (GSM 102) amounted to about 740 and 895 million US$ in fiscal years 1996 and 1997 respectively, annual outlays averaged 1095 million US$ during the period 1998-2000. This programme was used to secure market share for US exports of oilseeds, meals and oils to countries facing financial difficulties, in particular in Asia. Also, outlays on other programmes to promote the development and expansion of export markets for oilseeds and products were increased (Market Access Program and Foreign Market Development Co-operator Program). Similarly, Canadian oilseeds and products continued to benefit from export credit guarantee programmes. In the EC, export subsidisation programmes, which are confined to butter and olive oil, continued to be used. In Poland, in 2000 the Government introduced export subsidies for rapeseed.
Measures to limit exports of oilseeds and products were used by a number of countries, mainly to ensure adequate domestic supplies. In 1999, the Russian Federation introduced export licenses and taxation for oilseeds and derived products. Though successful in curbing exports, these measures also depressed production, as exporting companies were reluctant to provide seasonal credit to oilseed growers. In order to minimise negative effects on production, export surcharges and licensing requirements imposed in Thailand (palm oil), the Slovak Republic (oilseeds), and the Czech Republic (rapeseed) were only of a temporary nature. In the Ukraine, following the steady expansion of exports, levies on foreign sales of sunflowerseed were re-imposed in 1999. This measure was aimed at encouraging the exportation of the higher value oil products rather than seed, thus providing support to the domestic crushing industry. In Indonesia, differential export taxation for vegetable oils was introduced with a view to discourage sales of crude vegetable oils in favour of exports of refined and other higher value oils.
Although the past trend towards the gradual reduction of direct government intervention in production, marketing and international trade of oilseed-based products continued, during the period under review a number of important players in the global oilseed market reappraised their production and trade policies under the influence of specific market developments. In 1998, the world markets for oilseeds and derived products moved from a supply and demand balance to a situation of excess supply. Consequently, during most of 1999-2000, world prices for oilseed products were under considerable downward pressure. As a result of the changed market conditions, several countries introduced policy adjustments. In general, exporting countries decided to step up direct support to domestic producers and to increase export promotion efforts, while importing countries tended to raise border protection in an effort to shield domestic industries from international competition and low prices. In pursuing these policies, governments put increased emphasis on direct income support for agricultural producers, on the one hand, and tariff measures on the other. In general, support provided by WTO member countries in pursuing the various policies remained within the boundaries established under the URAA.
With regard to oilseed production policies, several countries shifted towards direct income support payments that were not directly related to production, thus allowing producers more flexibility in responding to global market signals. However, in some developed countries, production of oilseeds continued to expand, partly aided by special support measures. As to developing countries, policy measures introduced in support of oilseed production seem to have achieved their objectives only to a limited extent.
Regarding domestic marketing policies, the general trend was to reduce direct intervention in the domestic production and marketing of oilseeds and derived products. It emerged that, while reducing direct intervention in markets, governments in developing countries took measures aimed at enhancing market transparency and efficiency, so as to enable domestic oilseed industries to develop fully their production and processing potential as well as to protect producers, processors and consumers from excessive price fluctuations.
As to consumption policies, several developing countries reduced public intervention in consumer markets. However, as per caput intake of oils and fats remained low in many developing countries, measures to encourage consumption of these products continue to require particular attention.
Under the influence of the URAA, changes in trade policies for oilseed-based products led to increased market transparency, progressive reduction of non-tariff barriers and improved export competition. However, during the period under review, trade in oilseeds and derived products was affected by the extensive use of tariff measures in various countries, though these measures fully respected the commitments made by individual nations under the URAA. It would appear that the above mentioned tendency of governments to withdraw from direct intervention in domestic markets has contributed to a more intensive use of trade policy measures in pursuance of domestic production and consumption policy goals.
