3 Review of agricultural and food trade

The acid test of the AoA is whether it actually impacted on trade flows. Did the market access instruments, the disciplines on export and domestic subsidies and the attempt to achieve greater certainty and transparency in the operation of SPS rules lead to improved export opportunities for developing countries? Did the commitments undertaken by developing countries on tariff bindings and domestic support lead to increased food imports by these countries? Effective trade liberalization would be expected to lead to both increased exports and increased imports, so it is also important to ask what happened to the overall agricultural trade balance in developing countries as a result of the Agreement. Has this improved or worsened? If any of these consequences were observed, what were the impacts on food security at both national and household level in these countries?

While it is possible to quantify the factual position on agricultural trade flows pre- and post-Agreement, it is much more difficult to identify the Agreement’s impact on these flows. The methodological problem has already been discussed in the Introduction. Some means of isolating the effects of the AoA from the many other developments affecting trade flows which were taking place simultaneously is needed. This would be a complex exercise beyond the scope of the case studies in this volume. Instead, this review and the case studies adopted the simple approach used in the earlier FAO study. The average value of food and agricultural trade during 1995-2000 is compared with that during 1990-1994, simply to see whether trade has grown or not. All the case studies reviewed the country experiences at a more disaggregated level, focusing separately on five or six major export and import products, and further identifying the source of the change in terms of volume and price effects. Some of the case studies also tried to relate the observed change in trade flows to particular factors, e.g. access to preferential markets, tariff changes, SPS/technical barriers to trade (TBT) measures and domestic productivity growth.

In this section, the overall experience with respect to total agricultural exports, total food imports, and the ratio of agricultural exports to food imports is examined. Individual case studies provide more details.

3.1 Agricultural exports

Table 5 shows that the value of agricultural exports in 1995-2000 was higher than in 1990-1994 for 20 of the 23 countries, the increase ranging from 4 percent to 185 percent. For seven of these countries (Uganda, Peru, Costa Rica, India, Sri Lanka, Indonesia and Côte d’Ivoire), exports rose by 50 percent or more. Of the three countries where there was no increase, exports remained flat in Bangladesh and Honduras, while Senegal was unique in experiencing a significant fall in export value (by 18 percent).

Table 5. Total agricultural exports in 1990-1994 and 1995-2000

^a The plus and minus signs indicate the slope of a linear trend fitted for 1985-1994.

^b Average of extrapolated values for 1995 to 2000, based on linear trend fitted with 1985-94 data.

Source: Computed from FAOSTAT data.

In the ten-year period prior to the AoA, exports had been increasing in 16 of the 23 sample countries and decreasing in seven of them. Exports in the post-AoA period were higher than projected on the basis of the 1985-1994 trend in 18 countries and lower in only four countries. The latter group includes Fiji Islands - 14 percent; Jamaica -5 percent; Senegal -21 percent; and Thailand -5 percent. Thus, in only one country was the negative deviation from trend relatively significant. However, no inferences can be drawn from these figures about the direct impact of the AoA for the reasons given earlier. Also, although the use of five-year averages (1990-94) and six-year averages (1995-2000) is necessary to summarize a large amount of data, it may conceal important turning points. In some countries, for example Peru, Malawi and Costa Rica, the upward trend peaked around 1997-1998 whether as a result of the Asian crisis or for other reasons.

Further light on the export performance of developing countries can be obtained by examining the change in export values in constant prices, a measure of the contribution of volume changes to the change in export values. Here, a less favourable picture emerges. In six of the 23 countries, export volumes declined in the post-AoA period. The implication is that the improvement in export values in current prices in the post-AoA period was due, to some extent, to improved terms of trade rather than increased volume flows. The world market prices of many agricultural commodities were higher in 1995-2000 than in 1990-1994. In five cases (Bangladesh, Brazil, Guyana, Malawi and Pakistan), the terms of trade movement had a negative effect, although in the cases of Brazil and Malawi, the differences are well within the margin of error in the comparison. More detailed accounts of these changes are presented in the individual case studies.^[8]

What these aggregate figures conceal, but which emerges clearly from many of the case studies, is the extraordinary diversification in the basket of agricultural export commodities which many countries have achieved in the past decade. In Egypt, the share of cotton, which accounted for 60 percent of agricultural exports in 1985-1989, had dropped to 30 percent in the post-AoA period. In Peru, the value of non-traditional exports exceeded traditional exports for the first time in 1996, and their share continues to increase. Senegal has diversified away from groundnuts towards cotton, fruits and vegetables, and hides and skins. In Zimbabwe, the pattern of exports has shifted from cereals to cash crops, particularly tobacco and horticultural products. In Uganda, diversification of new exports benefited from currency devaluation and regional trade liberalization through the Common Market for Eastern and Southern Africa (COMESA). Fruits and vegetables, floriculture and farmed fish and shellfish exports have been among the most dynamic sectors in this diversification process. In other countries, such as Costa Rica, diversification has taken a vertical form, in the attempt to move downstream along the value-added chain. Attempts at both horizontal and vertical diversification, however, still face many market access barriers in importing countries.

Despite the general growth of agricultural exports in most countries, few case studies were able to make a link to improved market access under the AoA. In some countries, the improvement in exports in the post-AoA period was due to improved domestic conditions or world market conditions unrelated to the AoA. Brazil removed its export tax on soybeans in 1996, which had a large effect on exports of soybeans without any significant negative effects on exports of meal or oil, apparently due to significant increases in productivity in the soybean sector. Ugandan exports improved because of the increase in international coffee prices (which accounts for 70 percent of that country’s agricultural exports) and recovery from the ravaging of farms by coffee wilt disease. Some countries benefited from devaluation (Brazil after 1999) while, in others, the reason was improved weather conditions. In India, unilateral reforms which reduced manufacturing protection, introduced rupee convertibility on the trade account and shaped a relatively more open export policy, had a much larger impact on export of agricultural products than the AoA.

Where market access had improved, this appeared to occur under regional trade arrangements or as a result of preferential schemes (such as the growth in Zimbabwe’s horticultural exports) rather than resulting from the UR. Some studies looked for evidence of export market diversification resulting from new market access opportunities, but little hard evidence emerged. On the contrary, the Brazilian case study noted that, while the EU is still the largest market for Brazilian exports (54 percent in 2001), exports were growing more rapidly to other parts of the world, probably reflecting high protection in its traditional markets.

A number of studies emphasized the adverse implications of MFN tariff reductions for countries receiving trade preferences under the Generalized System of Preferences (GSP) or other preferential trade schemes (Egypt, Jamaica, Fiji, Malawi). These concerns are particularly felt where countries are heavily dependent on one or a few commodities which benefit from such preferential treatment. The converse effect was noted by other developing countries which pointed to the problems that preferential allocation of TRQs raised for market access opportunities (India) or the way in which the extension of preferences to particular groups of developing countries had eroded their competitiveness and increased export competition in particular markets (Thailand).

Continuing market access restrictions and subsidized competition were documented in a number of studies. Export subsidies provided unfair competition to a number of countries (India in the case of its cereals [wheat], dairy products and, to a certain extent, sugar exports). Further encouragement is given to competing exports by the very sizeable domestic subsidies provided in developed countries. Senegal groundnut oil faces competition from other oils, some of them subsidized. The Brazilian case study emphasizes the potential damage arising from the new US farm bill which has increased domestic support particularly for commodities of interest to Brazil such as soybeans, cereals and cotton.

The importance of traditional market access barriers was emphasized in the Indian case study, among others. These include continuing problems of tariff peaks and tariff escalation, particularly in the case of non-traditional exports such as dairy products, fruits and vegetables and their preparations, meat and processed foods. It is worth noting, however, that the Indonesian case study, drawing on an earlier FAO study showed that the UR resulted in reduced tariff escalation for nearly all Indonesian agricultural products in the EU, Japanese and US markets, although the reduction was less for these export products of interest to Indonesia than for all agricultural products in general.

Problems in accessing tariff rate quotas were also highlighted in a number of the case studies. Unfortunately, very limited information is available on developing countries’ experiences with TRQs opened by others, notably the developed countries. Statistical information on this issue is not readily available as it is traders who make the deals. However, judging by the consensus in the case studies where countries are looking for more transparent and non-discriminatory access to TRQs, there is a strong implication that developing country exporters believe they have difficulty in accessing these TRQs and that other exporters have more preferential access. This belief is not surprising given that a number of developed countries converted previous preferential access quotas into TRQs, and there was no promise of additional market access.

There were relatively few documented cases of anti-dumping measures taken against agricultural exports of the sample of developing countries. Indonesia faced anti-dumping actions on exports of tomato paste in Australia, sorbitol in the EU and canned mushrooms in the United States. Further actions had been taken against its downstream products processed from leather and natural fibres.

SPS barriers

The majority of the 2002 case studies reported that SPS measures taken by importing country markets had adversely affected their exports. There was also evidence in a number of case studies that the number of such measures has steadily increased over time (in the case of Indonesia, for example, from less than ten holding orders against its processed food exports to Australia in 1993-1995 to 40 in 2001). In a number of cases, it was accepted that these measures were justified. Domestic measures were taken, and, in some cases, technical assistance was sought, to overcome the problem. In Uganda, for example, the fisheries subsector faced setbacks in 1999 as a result of fish poisoning and reports of unhygienic conditions at landing sites that led to a ban on fish exports to the EU that lasted 18 months. Veterinary experts from EU worked with Uganda officials to rectify the handling of fish right from the lakes, fish processing factories and prior to export. Assistance was also extended to the fisheries department to improve fish inspection and surveillance. Thailand had a problem of VRE in frozen chicken exported to the Czech Republic, and exports resumed once the problem had been resolved. In these instances, problems include failures in domestic supervision, lack of awareness of importing country requirements on the part of exporters and the problem of consistency of domestic SPS standards with the standards of the importing countries. The Costa Rica case study noted the synergy between a well-developed national SPS system and success in penetrating export markets. As a result of vigorous domestic enforcement, exports of Costa Rican products in foreign markets have a very low rejection rate for phytosanitary reasons.

Countries tend to have different rules regarding SPS restrictions such as inspection of imported products, specific treatment or processing of products, fixing of maximum allowable levels of pesticide residues or permitted use of certain specific additives in food. These flexibilities in the SPS agreement leave a lot of room for discretion. In addition, SPS standards are becoming increasingly complex. Sometimes, this leads to products being treated inconsistently in different markets. India faced a ban on the export of marine products to the EU in 1997 after some consignments were found contaminated with Salmonella and Vibrio cholera bacteria. Yet marine products were being exported to the United States throughout the period when there was a ban imposed by the EU. In some cases, these problems arise because of the lack of mutual recognition of inspections and standards (with several large importing countries often asking for “sameness” in the process rather than “equivalence”). Thus, Philippines bananas, which are accepted in Japan under the substantial equivalence principle, are denied access to Australia. To persuade Australia to engage in dialogue on banana and pineapple exports, the Philippines suspended the issuance of veterinary quarantine certificates in 1999 for Australia’s live cattle exports. To date, the issue has not yet been resolved, pending the verification of the risk assessment by the Australian Government regarding banana exports.

Foot-dragging on the part of the SPS authorities in the importing countries in approving processing facilities for export appears to be a further problem. The Thai case study noted that poultry exports to the Philippines and Australia had been prevented by delays by the relevant import authorities in making their reports. Fiji lost its horticultural markets when the chemical ethylene dibromide was no longer accepted as a quarantine treatment in 1990. Fiji acquired hightemperature forced air (HTFA) quarantine treatment technology to address this problem. Today, Fiji has a viable industry-operated quarantine treatment facility and a thriving industry in the export of fruit fly host commodities. Unfortunately, Fiji’s initiative in adopting the necessary technology to facilitate exports has not been matched by the regulatory authorities in the importing countries which have yet to grant import permission for Fiji fruit exports.

There were also a number of documented examples where SPS measures appeared to be arbitrary and did not appear to be justified. Brazil, for example, faces restrictions on the export of tropical fruits mainly in the United States and Japan because of the existence of the fruit fly. Costly procedures are implemented to ensure that fruits such as mangoes and papaya meet the standards of these countries. There are cases where the costs are unduly increased because of unreasonable requirements, such as that which requires a United States Department of Agriculture (USDA) employee to supervise production locally at the expense of domestic producers or traders. Thai food exports to the United States experience a greater proportion of detentions than any other supplier to the United States relative to their import share with the exception of India. The case study acknowledges that there are problems in determining whether the detentions and complaints against food imports from developing countries reflect real SPS problems or are simply non-tariff barriers (NTBs) under the guise of SPS and TBT measures.

In a number of cases, a lack of resources and technical expertise in the SPS authorities of the developing country has been a problem in meeting SPS standards in importing country markets. In the majority of developing countries, the required technology to do basic testing and certification is not available. In the case of the Fiji horticultural exports, the local industry complains that the quarantine authority has been slow in supplying data required by importing countries, and when it is finally supplied, it is not presented in the required format. However, even where measures were accepted as justified, developing countries face problems when regulations change because of the need for investment. Research reported in the Thai case study showed that the tariff equivalent of SPS barriers to Thai exports averaged 29 percent, varying from 4 to 55 percent. A major technical assistance and training programme accompanied by financial support is required to ensure that the necessary structures are put in place.

Despite the importance of continuing trade barriers, in some countries domestic constraints led to a failure to exploit market access opportunities. Among the constraints facing Egyptian exporters attempting to increase sales abroad are: low-quality domestic inputs, cumbersome duty-drawback and temporary admission regimes, excessive paperwork, fees and delays for customs and various inspections during export and import; poorly trained workers; insufficient incentives to export; and lack of access to information on foreign markets and product standards. The Malawian case study emphasized the constraints posed by the lack of market and physical infrastructure as well as investment risk and poor access to credit and extension services in explaining the poor trade performance of that country. Export performance in Indonesia has been disappointing, particularly following the huge devaluation of the rupiah after 1997. International commodity price declines and the structural collapse of Indonesia’s trade finance system were partly responsible. In Honduras, the combination of Hurricane Mitch, high real interest rates and low agricultural prices because of low world market prices and also exacerbated by an overvalued exchange rate has produced a considerable financial crisis in the agricultural sector. Investment in Philippines agriculture has been limited in recent years because of the carryover of the 1997 financial crisis and the political and economic structural adjustments taking place. These experiences from the case studies emphasize the importance of appropriate domestic policy regimes if exporters are to take advantage of new trade opportunities.

In summary, almost none of the case studies draw a link between improved export performance and the AoA. Many find explicitly that neither the composition nor volumes of trade in agricultural products have been influenced significantly by the implementation of the AoA. This does not necessarily mean that the commitments obtained by the developing countries from their trading partners in the UR were valueless. There were difficulties in estimating both the significance of the tariff reductions which were made as well as the greater certainty and transparency of market access in assisting the export growth which has been observed. As export volumes grow, the AoA provisions enhance security of access to these markets, particularly for the newer export commodities arising from diversification where competition with producers in developed countries is often greater than in the case of the traditional export commodities of developing countries.

3.2 Import performance

Expenditure on food imports (excluding fish products) increased significantly in nearly all countries in the sample comparing the pre- and post-AoA periods, with the exception of Malawi and Zimbabwe (Table 6). Food imports more than doubled in value from 1990-1994 to 1995-2000 in seven countries (Bangladesh, Costa Rica, Honduras, India, Indonesia, Philippines and Uganda); indeed, the Ugandan figure increased more than three times. As in the case of agricultural exports, it is possible to break down the contribution of increased import volumes and prices to these increases in expenditure. With the exception of four countries (Côte d’Ivoire, Fiji Islands, Malawi and Thailand), where the growth in the volume of imports was greater than the corresponding growth in food import expenditures, countries generally paid more per unit for their food imports in 1995-2000 than they did in 1990-1994. Many of the case studies provide further information by disaggregating the sources of the higher food bill by commodity, distinguishing volume and price changes.

Food import expenditures were increasing in all countries in the decade 1985-1994, with the exception of Bangladesh, Egypt and India. For the majority of countries where import growth in the post-AoA period was a continuation of previous import growth, the question is whether import expenditures in the post- AoA period were above trend or not. Imports in the post-AoA period were higher than projected on the basis of the 1985-94 trend in 16 countries and lower in seven countries. As in the case of agricultural exports, it is not possible to draw inferences about the direct impact of the AoA from these figures. As discussed in Section 2, import liberalization was under way in many countries for other reasons.

Inferences from this growth in food imports can be either positive or negative. If food imports add to domestic production and to domestic food availability, the consequences for food security may be positive. The consequences may also be positive even where food imports displace domestic production, provided that those displaced from food production are absorbed into more productive employment opportunities in the non-farm sector. Negative impacts can be anticipated where food imports displace domestic food production and where those displaced remain unemployed or underemployed. This issue is pursued in the following section where the food security impacts of the AoA are discussed in greater detail.

3.3 Food imports relative to agricultural exports

As both agricultural exports and food imports were increasing for most countries in the sample in the post-AoA period, it is important to ask what the agricultural trade experience was on balance for these countries. As in the previous FAO study, this question can be answered by reviewing the trend of total food imports to total agricultural exports. An increase in the ratio indicates that food imports are growing faster than agricultural exports, and vice versa. This ratio is used to summarize the relationship between the two variables most commonly discussed in the context of the AoA. It is not intended to indicate a country’s food import capacity, which is often described in terms of the ratio of food imports to total exports, including services.^[9]

Table 6. Value of food imports in 1990-1994 and 1995-2000

^a The plus and minus signs indicate the slope of a linear trend fitted for 1985-1994.

^b Average of extrapolated values for 1995 to 2000, based on linear trend fitted with 1985-94 data.

Source: Computed from FAOSTAT data.

Table 7. Ratio of total value of food imports to total value of agricultural exports

^a The plus and minus signs indicate the slope of a linear trend fitted for 1985-1994. The positive sign indicates that food imports grew faster than agricultural exports.

Source: Computed from FAOSTAT data.

Table 7 shows that in 1995-2000, 14 of the 23 countries had a food ratio less than one, indicating that agricultural export earnings exceeded food import expenditures; in the remaining nine countries, food import expenditures exceeded agricultural export earnings (Peru’s ratio would fall below one if exports of fish products were included). However, the ratio for 1995-2000 compared with that for 1990-1994 was higher for 16 of the 23 countries. The exceptions were Côte d’Ivoire, Guyana, Malawi, Peru, Sri Lanka, Uganda and Zimbabwe. Many countries show large percentage increases in the ratio but often from a ratio smaller than one. Bangladesh stands out as a country where food imports were four times the value of agricultural exports in the earlier period, and over eight times their value in the post-AoA period. The ratio for Senegal also increased from two to nearly four times. The rising ratios of food imports to agricultural export earnings in most countries continued their pre-AoA trend. The ratio was on a rising trend during the ten-year period 1985-1994 in all countries, with the exception of India and Jamaica.

3.4 Stability

Few case studies commented on experiences with respect to the stability of exports and imports. Many commentators expected that implementation of the AoA, and especially tariffication, would lead to a greater stability in world market prices. This might be expected to contribute to a greater stability in export revenues and food import expenditures, although changes in quantities also contribute to instability in these flows. Figures for India do show a greater stability in exports and, in particular, imports comparing the pre-AoA and post-AoA periods, but there were an insufficient number of country experiences reported in the case studies to draw any general conclusions on this issue.