PART I. GENERAL REVIEW

The global economic background
Agricultural export earnings and food import bills
Box: The Implications of the Fourth WTO Ministerial Conference for Agriculture, Fisheries and Forestry

This chapter reviews recent market developments and comments on the short-term outlook for major agricultural commodities on the basis of the information available at the time of writing. Readers are referred to the Commodities and Trade Division webpages for the most recent statistical data and analysis. Agricultural commodity markets are much-influenced by global and regional economic growth, so the chapter begins with a brief review of global economic prospects as seen by the international macroeconomics forecasts of the World Bank, the IMF and the OECD.

The global economic background

Global economic growth slowed considerably in the last quarter of 2000 and the first three quarters of 2001. There is broad consensus among the macroeconomic forecasts of the IMF, the World Bank and the OECD that 2001 will show a significant slowdown with the annual growth rate at 2-2.5 percent. This largely reflects the sharp downturn in the US economy, although the economic performance of most industrial countries has weakened. Recovery is expected in 2002 on the basis of stronger economic fundamentals world wide compared with the previous few years. The IMF predicts growth will accelerate to 3.5 percent for the year, although other forecasts are more pessimistic in the light of the potential economic repercussions of the terrorist attacks of 11 September.

The June 2001 OECD Economic Outlook projects real GDP growth of 2 percent for the OECD member countries, somewhat higher than the IMF projection of 1.3 percent growth for advanced economies and the World Bank projection of 1.2 percent for high-income countries[3]. Similarly, the OECD forecasts 2002 growth of 2.8 percent for its member countries, compared with lower projections by the IMF of 2.1 percent for advanced economies and the World Bank of 1.0-1.5 percent for high-income countries revised downwards after the attacks from 2.2 percent. However, all forecasts are in broad agreement regarding economic fundamentals.

The IMF’s forecasts made before the attacks of 11 September, predict that the 2001 economic slowdown in developing countries would be much shallower than that for industrialised countries, at 4.3 percent, recovering to 5.3 percent in 2002, or 2.9 percent and 3.9 percent respectively in per caput terms. However, the World Bank predicts that the events of 11 September will also have serious repercussions for developing countries, as the delayed recovery in high-income countries translates into slower growth for developing countries. Particularly hard hit, would be developing countries that are dependent on tourism, remittances from populations living overseas, and foreign investment. World Bank 2002 GDP growth projections for developing countries have been revised downward by 0.5-0.75 percent, to 3.5-3.8 percent.

The strongest growth amongst developing countries is expected in Asia, although aggregate forecasts for Asia mask the divergent performance of China versus the rest of the region, where many countries are more exposed to global markets in the high technology sector. For these countries, the slow-down in the United States and Japan has a direct effect on economic performance. Developing countries in the Near East and the Western Hemisphere are forecast to have per caput growth rates only slightly above zero in 2001. The weak performance of the Near Eastern countries is attributed to the global slow-down, lower petroleum prices and the deteriorating security situation in the region. Per caput growth for this group of countries is projected to accelerate to 2.8 percent in 2002 assuming that oil prices strengthen. Recovery is predicted for the Western Hemisphere developing countries in 2002 on the basis of improving economic fundamentals in some of the major countries of the region.

In contrast to other regions, the developing countries of Africa are predicted to post stronger GDP growth in 2001 than in 2000, improving further in 2002. In per caput terms, however, output growth in Africa is forecast to reach only 1.4 percent in 2001 and 1.9 percent in 2002. Sound macroeconomic and structural policies in many countries of Africa are credited with promoting a recovery in per caput growth, although in others prospects for growth and poverty alleviation continue to be hampered by economic and political uncertainties, including ongoing conflicts.

For the countries in transition, per caput GDP growth is forecast at 4-4.5 percent in 2001 and 2002, higher than the corresponding aggregate rates due to continued population declines in many countries. From 1999, growth in these countries has recovered dramatically after a decade during which real GDP shrank almost 20 percent. Keys to continued growth, according to the IMF, are accelerating structural reforms, particularly strengthening institutions and governance, restructuring public enterprises and the financial sector, and defining the role of the state.

Agricultural export earnings and food import bills

The value of exports of major agricultural products increased in 2000 by 4.2 percent, reversing the downward trend that began after 1996 (see Table 1.1). The increase in the value of exports of dairy products was the largest contributor to this (32.3 percent), followed by those of sugar (24.5 percent) and agricultural raw materials (9.3 percent). All other major commodity groups experienced declines in the value of their exports, with beverage crops leading the way with 17.9 percent. The declines for meat products, cereals and oilcrops were much smaller at 1.4, 0.3 and 0.6 percent, respectively. However, the extent of the increase in export earnings was not the same for developing and developed countries; the former experiencing a rise of only 1.0 percent as opposed to the 5.8 percent experienced by the latter, with the significant increase in the value of exports of dairy products from developed countries making the greatest contribution.

Table 1.1. Value of exports of major agricultural products in 2000 ('000 million $)

	World Total			Developing Countries			Developed countries
	1999	2000	% change	1999	2000	% change	1999	2000	% change
Beverage crops	15.7	12.9	-17.9	14.6	12.1	-17.6	1.0	0.8	-21.5
Sugar	8.2	10.2	24.5	5.5	6.5	18.5	2.7	3.7	36.8
Agricultural raw materials	13.0	14.2	9.3	5.9	6.8	15.7	7.1	7.3	3.9
Cereals	36.6	36.5	-0.3	9.1	9.1	0.5	27.5	27.4	-0.5
Meat	41.2	40.6	-1.4	6.7	7.4	10.2	34.5	33.2	-3.6
Dairy	26.0	34.4	32.3	1.3	1.8	34.6	24.7	32.7	32.2
Oilcrops	48.0	47.7	-0.6	21.8	21.9	0.5	26.2	25.8	-1.5
Total of the above	188.7	196.5	4.2	64.9	65.6	1.0	123.7	130.9	5.8
Total[4]	417.3	...		122.4	...		294.9	...

Note: Export values for 2000 are preliminary estimates, derived on the basis of estimated changes in trade volumes from 1999 and in world market prices. 1999 trade data are from FAOSTAT, except for hard fibres. The value of exports for developed countries and the world include intra-trade of EC, with the exception for hard fibres. Wheat includes flour in wheat equivalent. Beverage crops and those considered under agricultural raw materials do not include re-exports. Export values are fob.

Table 1.2. Value of imports of major food commodities in 2000 ('000 million $)

	World Total			Developing countries			Low Income Food Deficit Countries
	1999	2000	% change	1999	2000	% change	1999	2000	% change
Cereals	40.3	41.1	2.0	24.9	25.7	3.2	12.4	12.6	1.8
Meat	41.1	42.0	2.4	7.7	8.7	12.6	3.5	3.1	-12.1
Dairy	26.4	32.8	24.1	7.2	9.5	30.5	2.8	3.8	33.0
Oils and fats	30.8	32.7	6.2	15.9	17.7	11.2	9.6	9.0	-6.4
Total of the above	138.6	148.7	7.3	55.7	61.5	10.3	28.3	28.4	0.4

Note: Import values for 2000 are preliminary estimates, derived on the basis of estimated changes in trade volumes from 2000 and in world market prices. 1999 trade data are from FAOSTAT. The value of imports of food commodities for developed countries and the world include intra-trade of EC. Wheat includes flour in wheat equivalent. Import values are cif.

Box: The Implications of the Fourth WTO Ministerial Conference for Agriculture, Fisheries and Forestry

At the Fourth World Trade Organization (WTO) Ministerial Conference held in Doha, Qatar from 9-14 November 2001, the WTO Members agreed to launch a new round of multilateral trade negotiations that will have important implications for agriculture, fisheries and forestry. In addition to the talks on agriculture and services that have been underway for over a year, the new round will cover a much broader agenda, including other sectors of the global economy as well as a range of implementation issues that have arisen since the Uruguay Round Agreements came into force. The outcome of the Conference improves the prospects that progress will be made in the negotiations on agriculture because it enhances the opportunities for trade-offs with other sectors and addresses a number of concerns that have hindered the negotiations thus far. The new round offers opportunities for further market liberalisation in non-agricultural goods. The negotiations will also cover foreign investment, competition policy, government procurement, as well as trade and environment, and will revisit WTO rules regarding trade-related intellectual property rights (TRIPS), dispute settlement, subsidies and countervailing measures and anti-dumping. A substantial work programme was agreed in the area of environment and trade. The Ministers also made a commitment to provide special and differential treatment for developing countries, including the objective of duty-free, quota-free market access for products originating from least developed countries (LDCs). The technical co-operation and capacity building needs of small, vulnerable and low-income transition economies were also recognised, and the delivery of technical assistance was emphasized. Elements of the negotiations that are particularly relevant to agriculture, fisheries and forestry are summarised below. Agriculture: The WTO Members recognized the work already undertaken in the negotiations that began in March 2000 under Article 20 of the Agreement on Agriculture. They agreed to undertake “comprehensive negotiations aimed at: substantial improvements in market access; reductions of, with a view of phasing out, all forms of export subsidies; and substantial reductions in trade-distorting domestic support.” Special and differential treatment is to be provided for developing countries to enable them to take account effectively of their development needs, including food security and rural development. Non-trade concerns is to be taken into account. Modalities for the further commitments are to be established no later than 31 March 2003 and comprehensive draft Schedules of commitments based on these modalities submitted no later than the date of the Fifth Session of the WTO Ministerial Conference (which must be held before the end of 2003). The negotiations on agriculture will be concluded as part and at the date of conclusion of the negotiating agenda of the round as a whole. Market Access for non-agricultural products: Negotiations in this area will aim, by modalities to be agreed upon, to reduce or eliminate tariffs including the reduction or elimination of tariff peaks, high tariffs and tariff escalation, as well as non-tariff barriers. Product coverage shall be comprehensive and without a priori exclusions. Fishery and forestry products and agricultural products that were excluded from the Agreement on Agriculture such as rubber and hard fibres will be covered under the new round. TRIPS: It was agreed to negotiate the establishment of a multilateral system of notification and registration of geographical indications for wine and spirits. Issues related to the extension of the protection of geographical indications to products other than wine and spirits will be addressed in the Council for TRIPS. The WTO Committee for TRIPS was further instructed to examine inter alia the relationship between the TRIPS Agreement and the Convention on Biological Diversity and the protection of traditional knowledge and folklore. Subsides and Countervailing measures: Negotiations will aim at clarifying and improving disciplines under the Uruguay Round Agreement on Subsidies and Countervailing Measures. The Conference agreed specifically that the negotiations would “aim to clarify and improve WTO disciplines on fishery subsidies, taking into account the importance of this sector to developing countries.” Trade and Environment: The Ministerial Declaration, for the first time, recognized the right of each country to take measures to protect the environment “at the levels it considers appropriate” on the same basis as measures taken for the protection of human, animal and plant life or health, i.e. provided such measures are not applied in an arbitrary or discriminatory manner or as a disguised restriction on trade and that they are in compliance with other WTO provisions. It was agreed that there would be negotiations on the relationship between existing WTO rules and specific trade obligations set out in multilateral environmental agreements and on the reduction of or elimination of tariff and non-tariff barriers to environmental goods and services. The negotiations will be supervised by a Trade Negotiations Committee, which will hold its first meeting not later than 31 January 2002 to establish the appropriate negotiating mechanisms in each area as required. It was agreed that the negotiations will be concluded by 1 January 2005.