III. OILSEEDS, OILS AND MEALS POLICY DEVELOPMENTS

During the period under review, market developments in the oilseeds, oils and meals sectors had important implications for the implementation of policies. Until the end of 2001, the international market for oilseeds and derived products were oversupplied relative to demand, which resulted in above average stocks and downward pressure on prices. In certain countries, increased support was provided to help producers. In 2002, by contrast, production growth declined, and global stocks were drawn down leading to a partial recovery in international prices and less policy support. As to global consumption of and trade in oilseed products, growth rates during the entire period 2001-02 fell below the levels recorded in previous years. Over the period, national policies continued to be driven by one or more of the following objectives: promotion of exports, import substitution, farm income support, stimulation of production, and boosting value added production. The selection of specific policy instruments and their actual design was to a large extent determined by the countries' individual Uruguay Round commitments and by on-going discussions on further trade and agricultural policy reforms within the WTO. Policy activity in the areas of genetically modified organisms and of bio-fuels has become more evident.

Production policies

Despite the trend towards liberalization in numerous countries, oilseed production continued to be influenced by production support policies. While some countries continued to rely on price support programmes to protect farmers' incomes, the number of countries that shifted to direct forms of income support for oilcrop producers has further increased. To stimulate oilcrop production and increase the sector's productivity, various indirect forms of support (such as input subsidization) were also used.

Producer Price Support and Procurement Schemes

Producer price support for oilcrops continued to be applied in some countries (see Table III-1) with a view to protecting farmers' income and to providing sufficient supplies for domestic markets. Among developing countries, guaranteed price guarantee and public procurement schemes remained in place in only a few of them, typically net importers of oilseeds. In general, in countries where support prices were applied, these were increased in nominal terms but did not keep pace with inflation. Yet, in many cases (eg. India, Brazil, Pakistan and the Republic of Korea), farmers preferred to sell their oilseeds on the open market, as state-administered prices tended to be below domestic market prices. As to public procurement of oilseeds, such schemes have been virtually abandoned, mainly due to budgetary constraints; where purchases did occur, the volumes involved were insignificant compared to total supply.

In some major producing countries, the trend in support policies described above contributed to reduced investment in oilseed crops and has led to a stagnation of yields and domestic production, resulting in a widening of the domestic supply gap in oilseed products. Concurrently, reliance on the importation of oilseeds and derived products - a relatively attractive option considering the weakness of international prices for these commodities over the last few seasons - has increased.

Table III-1 Oilseeds, oils and fats support prices in selected countries

n.a. = not available
disc. = discontinued
^a/ prices for production within marketing quota
^b/ prices for production additional to marketing quota
^c/ in 2002, quota related support prices for groundnuts have been replace by a unified loan rate
^d/ values are preliminary because at the time of writing indices available did not yet cover the entire year.

In India, price support and procurement schemes provided little or no incentive to expand oilseed production. The tendency to announce support prices at harvest time and not before sowing resulted in a reduced influence planting decisions. Furthermore, oilseed support levels have typically been below those of other crops, in particular cereals, pulses, fruits and vegetables, while state procurement operations have been very limited in the case of oilcrops. As a result, the bulk of oilseed cultivation is confined to rain-fed land and average crop yields remain below the 1 ton/ha mark. At the same time, the rice-wheat cropping pattern continued to expand under the influence of more attractive support prices and irrespective of the concomitant surge in public stocks.

The loss of comparative advantage in India's domestic oilseed production and the resulting steep rise in edible oil imports in recent years is of increasing concern to the government. Reportedly, momentum is gathering for a policy shift which would partly redirect public resources from surplus crops like wheat and rice to oilcrops. The only concrete step taken so far has been the temporary freezing of support prices for rice, coarse grains and cotton in late 2002, which, however, was accompanied by only very marginal increases for some rain-fed oilcrops and a zero increase (in nominal terms) in the support price for soybeans.

In China, government intervention in production and marketing of oilcrops remained limited when compared to the main staple food crops which continued to be at the centre of the government's food security policy. Although Jilin province has been reported to subsidize soybean purchases at guaranteed prices by a main crusher in 2002, the price support and procurement schemes backed by the central government have not been operational since 2000. This situation has contributed to the reallocation of farm resources from soybeans to maize and wheat, and large soybean imports became necessary to satisfy the rising demand for edible oils and meals. Concerned about the country's increasing dependence on imports, a multipronged programme to encourage domestic soybean production is currently under consideration by the Government. Measures contemplated include (i) the reduction in cereal support prices and procurement volumes; (ii) the introduction of forward contract prices for soybean farmers so as to guarantee a fixed minimum price at harvest; (iii) the improvement of the country's transportation and marketing infrastructure, as weaknesses in the latter are seriously hampering the development of domestic markets for oilseeds and products; (iv) support for research on high-yielding varieties and other measures to increase profitability in oilcrop production.

In Thailand, to support farmers' incomes and stabilize market prices, the government may, at times, impose minimum purchase prices at which crushers have to buy oil palm fruit branches from producers. While this form of support was provided in 2001, no such intervention occurred in 2002 as domestic prices rose. Turkey plans to phase out direct subsidization of oilcrop production, switching from its traditional system of support prices and production premia to direct income support payments and thereby ending state involvement in producer co-operatives. The objective is to end government intervention in the marketing of oilseeds. Assistance would be provided to help farmers adjust to market conditions and to facilitate restructuring of the sector.

In Japan, the deficiency payment policy for soybeans was replaced in 2000 by a programme that supports soybean producer incomes by providing a subsidy when market prices fall below a target price which reflects the country's high costs of production. There are no limits to the amount of production subsidized. Total government outlays for soybean production subsidies (including payments for programmes mentioned in section c) below) have grown regularly since 1994, and the incentive offered through these policies appear to be the major factor behind the strong growth in soybean planted area since the mid 1990s.

Among developed countries, the EU continued to the support production of butter and olive oil with specific reference support prices. Support to the olive oil sector was mainly provided in the form of production aid for growers, with public storage and export subsidization playing a limited role. Although a system of maximum guaranteed quantities remained in place, most producing countries continued to exceed their thresholds, irrespective of the resulting cuts in the level of production aid granted to their producers. While the level of support granted by tonne of olive oil will remain constant until 2003/04, recent amendments introduced to the support regime aim at tighter control over the distribution of payments and at ensuring that groves planted after 1998 do not qualify for support.

In the United States, the government purchase price for butter was increased in both 2001 and 2002 with a view to bringing support prices more in line with prevailing domestic prices. Marketing loans for oilseeds and other loan eligible arable crops, with an impact comparable to that of coupled deficiency payments, continued to be provided with a view to minimize potential loan forfeitures and subsequent government accumulation of stocks. Separate loan rates apply to soybeans, groundnuts and the so-called 'other oilseeds'. For 1996 through to 2001, loan rates were determined according to the 1996 Federal Agricultural Improvement and Reform Act. From 1997 to 2002, the soybean loan rate was maintained at the statutory maximum, and was not adjusted downward in response to falling market prices as allowed by legislation. When producer prices for soybeans fell below the respective loan rate in 1999, marketing loans became very attractive and government outlays under the programme registered a significant rise (see Table III-2). In essence, the loan programme protects producer incomes from the impact of low market prices and, as the soybean loan rate was more attractive than the rates offered for the two main competing crops, maize and wheat, a steady expansion of soybean plantings occurred. The resulting supply expansion contributed to price depression as the marketing loan programme prevented the accumulation of public stocks. On May 13, 2002, a new Farm Bill, the Farm Security and Rural Investment Act came into effect (see separate box below), but its impact on that year's plantings was limited as loan rates were not known to producers before the crops were planted.

Table III-2: USA soybeans - marketing and policy parameters

* Minus indicates a net receipt (excess of payments or other receipts over gross outlays of funds).
** Offical estimates (July 2002), including the impact of the new Farm Bill enacted in May 2002.

Source: Various USDA publications

Direct Income Support

Under the influence of the 1995 Uruguay Round Agreement on Agriculture (URAA) and of on-going negotiations within the WTO regarding further liberalization of agricultural markets, several countries, in particular developed ones, preferred to rely on measures that are exempt from reduction commitments, in particular income support payments that are not directly linked to production levels or market prices.

In the EU, farmers continued to receive the direct income support payments introduced in 1992, though the following modifications were introduced in 2000: (i) the income stabilizing mechanism adjusting payments upward when market prices for oilseeds fell was discontinued; (ii) the coverage of the scheme was extended to include also small producers; and (iii) over the 2000-2002 period, oilseed payments were to be gradually reduced and eventually aligned with those offered for cereals and other arable crops. Starting in 2002, area payments are thus harmonized across major land uses - a change that aims at reducing the influence of differences in monetary incentives on the farmers' production choices while increasing the role of market forces. This realignment of support payments has resulted in short-term shifts in the allocation of resources between crops. While the support levels established in 1992 had favoured oilcrops, contributing to an expansion of oilseed production during the 1990s, the downward adjustment in oilcrop payments has made oilseed production less profitable vis-à-vis other arable crops, in particular cereals, and is the main factor behind the recent drop in EU oilseed production. As to production limiting measures, mandatory set-aside of 10 percent of cultivated land continued to apply to all arable crop producers applying for direct income support. Furthermore, the ceiling imposed since 1994 on the EU's total oilseed area remained in place. While this threshold was surpassed and led to penalties in previous years, the total area under oilcrops has remained below the ceiling since 1999, largely as a result of the gradual reduction in compensatory payments for oilseeds after that year.

During 2002, discussion about further reform of the EU's arable crop regime has been initiated among EU members, driven by the Community's enlargement plans and related budgetary considerations and the new round of WTO negotiations. The EU Commission has submitted a proposal that aims at guaranteeing farmers - through a single, unified annual income payment per farm not requiring any production - a stable income, while the allocation of resources would be driven primarily by market forces. Besides being fully decoupled, payments would be made conditional on environmental, food safety and other standards as well as to modulation, which implies ceilings and progressive reductions on total payments per farm. Based on initial reactions by EU member countries, the final form and timing of further reforms remains however uncertain.

In the United States, in three consecutive years, 1999, 2000 and 2001, direct income payments have been granted to oilseed farmers through emergency ad hoc assistance bills. The purpose of these payments, which where largely decoupled from current production levels, was to assist producers experiencing poor market conditions. In 2002, this assistance has been incorporated in new farm legislation that covers the period until 2007. While this confirms the emphasis on decoupled income support measures, it is important to note that, in the new Act, part of the income support payments are linked directly to the development of domestic market prices when these fall below established target prices. (see above box for details). Similar to the United States, in 2001, Canada approved an emergency aid package meant to compensate farmers (irrespective of what crop they produced) for low prices and high input costs that lowered producer incomes in that year. The country's traditional, decoupled and non-crop-specific income stabilization schemes remained in place. For the medium term, the Government is planning renewed investment in agriculture and agri-food industries, with particular emphasis on drought adjustment measures, effective risk management, technical skills, food safety, environmental aspects and scientific innovation.

In Mexico, farmers with a history of soybean production continue to receive direct payments, which have been adjusted upward in 2001 and 2002. These payments are not linked to current production levels. The scheme that will last until 2007 now also offers farmers the option of obtaining all future payments in one amount - an offer meant to stimulate investment in production diversification and market-oriented ventures. At the end of 2002, the Government approved a new aid package that will offer, during 2003, additional income support, subsidised loans and discounts on agricultural inputs to producers of selected crops, including rapeseed and soybeans. Reportedly, this decision is related to the forthcoming removal of tariffs on most farm products under the North American Free Trade Agreement, which is considered by Mexico to put domestic production at a disadvantage in competing with subsidised production from trading partners in the region.

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 Croatia, Hungary, Lithuania, Poland and other countries in Central Europe, where such policy changes are related to plans for accession to the EU or other regional trade blocs. In Hungary, small farm holdings have been excluded from oilseed area payments and the upper farm size ceiling used under the scheme has been gradually raised. The shift to per-hectare based programmes also has been made in the Republic of Korea and Switzerland, but they are mainly designed to stimulate domestic oilseed production.

Other Production Support Measures

Various indirect forms of production support continued to be used, mostly to stimulate productivity and total output of certain oilcrops, thus raising a country's self-sufficiency level in oilseed products (and reducing import dependence) and/or increasing exportable surpluses. Often such schemes have been implemented in combination with measures limiting importation.

During the period under review, the use of improved seed material and other agricultural inputs as well as oilseed R&D programmes continued to receive support in numerous countries including Indonesia, India, Malaysia, Romania, Mexico, the Slovak Republic, Pakistan and Sri Lanka). Furthermore, in several countries (including Bulgaria, Brazil, Colombia, Malaysia, Nigeria, the Philippines, Poland, the Russian Federation, and Turkey) oilseed producers continued to be granted tax exemptions and/or received subsidised credit (seasonal credit as well as loans for storage and various on-farm investments). In Poland, Romania and the Slovak Republic, where expansion of oilseed production tends to be hampered by lack of storage facilities, financial support has been provided for on-farm or other forms of storage. Also in India, public support was earmarked for the storage and transportation sectors.

In Mexico, India and Canada, governments continued to support crop insurance programmes. Also in the United States, oilseed producers continued to benefit from state subsidized revenue as well as crop yield insurance; in 2001, for instance, three quarters of total US soybean area was covered by such insurance programmes. In Japan, to encourage domestic oilseed production, the subsidized income stabilization programme that was introduced in 2000 to compensate soybean and rapeseed farmers for market price drops remained in place. In addition, soybean production continues to be encouraged under a rice diversion programme that aims at shifting land from rice to crops where the country is highly import-dependant. Under this programme, farmers converting land to soybeans, wheat and feed grains qualify for the highest premia. Finally, soybeans are also eligible for a government supported yield insurance scheme. Reportedly, in 2001, also the Republic of Korea introduced measures to encourage the conversion of rice land to cash crops such as soybean, importation of which has increased markedly in recent years. In Romania, the introduction in 2002 of direct payments to sunflowerseed and soybean producers aimed at the diversification of arable crop production away from major cereals towards higher value crops.

Faced with a general deterioration of market prospects, the coconut industry continued to receive special attention in major producing countries. In Indonesia, support measures tended to emphasize intercropping, rehabilitation measures and product diversification. In the Philippines, in 2001, coconut producers have been included in the public food distribution scheme with a view to protect farmers from the impact of declining prices for coconut products. A number of accompanying rural development programmes aim at providing alternative livelihood opportunities for small coconut farmers.

Attracted by high productivity levels in oil palm production, a number of countries in Asia (the Philippines, Thailand), Latin America (Colombia, Suriname) and Africa continued to support programmes to foster the development of oil palm cultivation and marketing, either to raise availability of domestically produced vegetable oils or to supply the steadily expanding world market for palm oil. However, in a move that would reduce production in the short run, to face a period of excess stocks and depressed prices, Malaysia offered oil palm growers financial incentives for each hectare of land they replanted, thereby temporarily reducing land under production and thus output. The replanting of nearly 200 000 ha was subsidized, and the corresponding reduction in oil production has been estimated at 540 000 tons, or close to 5 percent of total domestic output.

Marketing, consumption and other related policies

Marketing Policies

During the period under review, production support policies in a number of countries have been accompanied by measures to enhance the commercialization of oilseeds and derived products. Such measures included the provision of loans for downstream commercial operations, transportation and warehouse subsidies, support for product quality control and modern processing techniques and other measures aimed at adding value to the domestic production chain and at enhancing competitiveness of the oilcrop sector.

A number of countries, comprising Hungary, India, Nigeria, Turkey and the Federal Republic of Yugoslavia have been engaged in market liberalisation and deregulation, which included the privatisation of state-owned oilseed production and processing facilities, the stimulation of private investment through tax exemptions and the termination of state monopolies or other forms of public intervention and control in oilseed markets. In India, the progressive withdrawal from direct market intervention has been accompanied by efforts to guarantee the orderly operation of markets through various regulatory services such as quality control and certification. By contrast, state trading arrangements for butter remained in place in Japan, as did the requirement that private crushers maintain emergency stocks of soybeans. And in Thailand, to support or stabilize domestic palm oil prices, the Government continues to be ready to carry out palm oil intervention buying at state-determined prices, an option that was last used in 2001, following a significant drop in farm-gate prices for oil palm fruit branches.

Net importing countries faced with declining self sufficiency levels and increasing import bills implemented the following measures. In China, the Government collaborated closely with crushers in the development of a forward contract price for soybean farmers to stimulate soybean production. Also Mexico and the Slovak Republic promoted forward contract purchases and commodity hedging programmes for oilcrops and products. The Slovak Republic also provided subsidies to crushing plants that invested into new technologies. In Romania, oilseed support payments were restricted to larger farms that delivered their produce to crushers as opposed to on-farm consumption. Furthermore, oilseed purchases by crushers have been subsidized with a view to raising capacity utilization in the processing industry. In the Russian Federation, where on-farm consumption and marketing continues to play an important role, loan policies tried to encourage vertical integration of production, crushing and further processing into higher value added products. In Malaysia a number of measures were aimed at encouraging the production of highly processed palm oil products so as to increase trade in finished, high-value consumer goods. Vegetable oil net importers in the Near East continued to pursue their efforts to expand domestic crushing and refining capacities so as to shift from final product to raw material importation - a development likely to affect international trade patterns.

In a number of countries, marketing and international trade in oilcrop products was enhanced by promoting the use of commodity exchanges. Countries that relaxed previous restrictions on such exchanges and/or supported the introduction of new futures contracts for oilcrops and products include India, China, Argentina and Indonesia.

Consumption Policies

A number of countries continued to support the use of oils and fats intended for human consumption. While the overall goal of such policies was to improve the nutritional status, specific measures were also related to domestic market and trade policy goals such as raising consumption from domestic sources and reducing dependency on imports or ensuring adequate supplies in countries where domestic production is primarily export oriented.

India's food subsidy bill includes provisions for distribution of vegetable oil below market prices. Reportedly, new schemes have been added and some changes introduced so as to ensure that the subsidy reaches the target beneficiaries. Faced with stagnating domestic oilcrop production, Romania has released vegetable oil from state reserves in order to prevent retail prices from surging.

In Argentina, where exports were strongly stimulated by a marked currency devaluation at the beginning of 2002, vegetable oil export charges were raised with a view to protect consumers from domestic shortages and consequent price surges. Similar measures have been taken by the Russian Federation, where the share of domestic sunflower production entering trade has been increasing steadily in recent years.

Consumption of oilcrop products has been promoted in China (soymilk and other soy-based food) and the EU (olive oil). To protect consumer interests, the EU also introduced legislation to improve quality control of olive oil. Health considerations also played a role in Lithuania's oilseed support policy, which, among other objectives, tried to achieve a shift away from animal fats to vegetable oils.

Other Related Policies

Several countries continued to support R&D programmes on new end-uses for oilseeds and derived products, in particular for non-food purposes. Of particular relevance at both the policy as well as the market level are the production of bio-diesel from oilcrops and the development of new oilcrop varieties and products through genetic modification.

International Trade Policies

Import Measures

In the review period, numerous countries have made active use of import control measures. One of the main factors triggering this development was the general decline in world market prices for oilseed products observed during 1999-2001, which strongly stimulated imports, and adversely affected domestic oilseed production and crushing. Although international prices started to recover towards the end of the period, many countries have continued to make use of trade measures to protect their domestic industries from international competition. However, the recovery in international prices has been rather slow and world markets continued to be distorted by support programmes implemented in some important exporting countries. Reliance on import control policies to protect domestic interests has been also related to the reduced use of price guarantee and government procurement schemes and other forms of direct market intervention.

The main import policy instrument is tariffs, as the conversion of non-tariff barriers into tariffs mandated by the URAA has now been completed in most WTO member countries. In general, individual countries' tariff policy measures have been implemented in compliance with country-specific URAA commitments, although, during the period under review, several developing countries decided to raise applied tariff rates to levels close to their URAA bound limits. Finally, during the period under review, various technical measures, focusing in particular on food safety issues, have played an important role in the import market for oilseeds and derived products.

Among those countries that continued to rely on high tariffs to protect the domestic industry was India, one of the world's major consumers and importers of vegetable oil. In general, the country's increased reliance on tariffs stems from the gradual removal of all quantitative import restrictions, a process that was completed during 2001. In recent years, the country has witnessed a surge in cooking oil imports triggered by relatively low world market prices and by the weak performance of domestic oilcrop production and low efficiency in domestic processing. In an effort to stem the flow of imports and the downward pressure on domestic producer prices, the government has maintained high tariffs on vegetable oils and some other products (coconut and copra), in some cases raising the rates to the maximum level permitted under the country's WTO commitments.

From mid-2001 onward, duties on most oil imports have been calculated using government determined base prices rather than actual trade prices - a system introduced to combat under-invoicing and other irregularities including dumping. For the importation of certain edible oils, tariff rate quotas with reduced in-quota duties continued to be applied. However, these quotas have remained underutilized. Tariff escalation favouring the importation of crude oils over refined oils and thus protecting the domestic oil refining industry remained in place. The overall tariff structure has favoured the importation of oils over that of oilseeds, which also tended to benefit domestic refiners as opposed to seed crushers. Trade also continued to be affected by several non-tariff entry barriers, including strict quarantine regulations for oilseeds, labelling requirements and privileges granted to state trading enterprises. Furthermore, for a short spell in 2001, vegetable oil imports were permitted only through specific, government designated ports, and, more recently, the introduction of special safeguard measures as well as legislation that would ban the importation of oils originating from genetically modified seeds has been considered.

In China, trade policies continued to be influenced by self-sufficiency considerations. As in the past, government efforts to control the importation of oilseed products continued to be aimed primarily at the stimulation of domestic soybean production and crushing. However, the country has undergone some important changes in the last few years. Although several import control measures remained in place, imports of oilseeds have increased sharply from 1999/2000 onward and, today, China ranges among the world's top oilseed importers. The main factors responsible for the growing gap between domestic supply and demand include the cessation of production support for oilseeds and poor marketing and transportation infrastructure in a country where key production areas are located far away from the principal consumption centres. Since a powerful, import-dependant soybean processing, feed and livestock industry has developed in the coastal provinces, government policies limiting soybean importation have become more difficult to implement.

China's import policy measures during the period under review can be summarized as follows. During 2001, control over imports continued to be achieved primarily through quantitative import restrictions, licensing requirements and various non tariff measures. Oilseed (soybean) imports continued to be particularly affected by these policies. To support the development of a domestic crushing industry, tariffs were set in a way to favour the importation of oilseeds over that of oils and meals. China's accession to WTO in December 2001 has started a process of gradual trade liberalization, with more transparent policies and less direct government intervention in markets. Regarding oilseeds and derived products, China agreed to freeze its relatively low tariff rates on oilseeds and meals. Furthermore, the import market for edible oils is to open up gradually. All quantitative restrictions applying to the main imported oils are to be phased out by the year 2006 (see Table III-3). Binding tariff rate quotas have been put in place for the key imported oils. The agreed quotas will be above (and the corresponding tariff rates below) those applied before WTO accession. Over the period 2002-2005, over-quota duties will be progressively lowered, while quota volumes will be raised gradually and phased out altogether in the year 2006, when the in-quota rates will apply to all imports. Furthermore, a proportion of each quota (increasing over time) will be allocated to private traders, eventually ending all previous monopolies of state trading enterprises (STEs). Together, these measures are expected to improve market access for vegetable oils. The ultimate impact of these changes on the country's overall import pattern, on domestic production and on the crushing industry will have to be assessed later.

Table III-3: China's import regime for vegetable oils following WTO accession

STEs = State trading enterprises
Source: International Grains Council

However, a number of non-tariff entry barriers have remained in place, constraining market access especially for oilseeds. The allocation of tariff rate quotas still requires the issuance of licenses, a process that allows state control over import and tends to create uncertainty among importers. Oilseed imports also continue to be subject to stringent phytosanitary regulations, in particular quarantine inspection procedures. Since early 2002, imports are subject to safety control measures regulating the production, importation and sale of GMOs - a sensitive area as GMO products play a dominant role in several of China's principal foreign suppliers of oilseeds. When new legislation came into effect in March 2002, the trade was given limited time to adjust to some new procedures. Eventually, to meet the needs of the industry and to allow local administration to refine the regulations, an interim agreement postponing the full application of the new legislation to September 2003 was negotiated with trading partners. Uncertainty among exporters and importers resulted in a marked slowdown in import flows during the first half of 2002. In particular imports of soybeans from the United States and Argentina have been affected, while purchases of vegetable oil declared free from GMOs (in particular palm oil) have increased.

Other Asian importers did not report major changes in their import policies. In Thailand, tariff rate quotas continued to apply to the key imported oilseeds and vegetable oils. While in-quota duties were attractive and volumes allowed ample, imports remained subject to control through a quota allocation mechanism. In addition, domestic purchase obligations for traders importing oils also remained in place. Soymeal importation has been fully derestricted, although the government remains responsible for the nomination of importers. With regard to technical measures, starting January 2003, exporters shipping soybeans and soybean meal to Thailand will be required to prove that their products are free from any form of contamination, whereas importers need to apply for import permits in advance. While overall charges on vegetable oil imports remained high in Pakistan, the tariff regime for oilseeds has been simplified and duties lowered. This policy is designed to support domestic crushing operations in order to capture the value added of local oil and meal production and to develop a viable industry capable of stimulating local oilcrop production. In Turkey, strict licensing requirements allowed the Government to maintain close control over vegetable oil importation. Import duties continued to provide significant protection to domestic production, in particular of sunflowerseed and olive oil. During the period under review, tariff rates have been subject to several up or downward adjustments as the government tried to address the needs of the farmers as well as of processors and consumers. Concerned about the recent surge in soybean imports that risks to adversely affect domestic production, the Government of Indonesia is considering means of controlling soybean importation, including the introduction of import duties up to the maximum level allowed under the country's WTO commitments. To allow better monitoring of import flows, since May 2002, traders who wish to import soybeans (and some other products) need to be officially registered.

In the import dependant Andean Community nations (Bolivia, Colombia, Ecuador, Peru and Venezuela), third country imports of soybeans, soybean oil and palm oil continued to be subject to variable duties determined through the Price Band System, which is designed to protect both producers and consumers from excessive price movements in the world market. Until mid 2002, the system, which raises tariffs when world prices are low and reduces them when international prices are high, led to upward adjustments in the basic tariff rates. The rise in world market prices in the second half of 2002 implied a return to the base tariff levels. Based on special trade agreements, Argentina, Brazil and Paraguay continued to be granted preferential tariffs, thus remaining the main suppliers of oilseeds and products to Andean pact nations. In some Andean countries, protection of domestic production interests is also provided through absorption requirements, which make the issuance of import licences conditional upon the previous purchase of the entire domestic crop. Imports between Andean partner countries are normally free of duty, but shipments of vegetable oil from Colombia and Peru to Venezuela became subject to tariffs under a safeguard action taken by Venezuela in late 2001. Price band systems and safeguard actions were also introduced by Chile and other countries in the region, in an attempt to limit vegetable oil imports from Argentina. Argentina's subsequent complaint before WTO has resulted in a ruling in its favour. Related to this ruling, Andean Pact members are currently considering reducing the sphere of application of the Price Band System so as to ensure compatibility with other trading commitments.

In Mexico, import duties for coconut and palm oil have been raised to the WTO bound rate in an effort to stimulate production of vegetable oil from domestically grown crops. Together with new support payments to producers, this measures aims at increasing the competitiveness of domestic crops at a time when soybean tariffs are been phased out under the North American Free Trade Agreement and when duties on soybean imports from Brazil have been reduced significantly due to a new bilateral agreement.

Among developed countries, Japan continued to protect its crushing industry by applying import charges on soybean and rapeseed oil at the maximum level allowed under its WTO commitments, as opposed to oilseeds, which enter the country duty free. Significantly lower rates are applied to tropical oils, which are neither produced in the country nor serve as substitutes for domestically produced oils. In the EU, the duty structure for oilseeds and products remained unchanged and the impact of tariffs on the import market continued to be small. With regard to olive oil, preferential import regimes for several Mediterranean basin countries remained in place and were expanded in some cases. Non-tariff measures - in particular sanitary and food safety control regulations - have become increasingly relevant. Stringent laws on the use of meat and bone meal as well as on fishmeal processing have negatively affected trade of these products. Furthermore, the application of strict rules on aflatoxin contamination in groundnuts has led to a temporary halt in groundnut imports from certain origins. Finally, prospects for trade in genetically modified oilseed varieties continue to be affected significantly by EU legislation governing the commercialization of GMO products. In the USA, country-of-origin labelling requirements have been made stricter for selected commodities including groundnuts - a measure that could lead to increased consumption of the domestic product at the expense of imported groundnuts.

In addition to those discussed above, the countries where duties on oilseeds and products have been increased (or maintained at the WTO bound levels) and/or where non-tariff measures have been introduced in an effort to protect domestic production and processing includes Chile, Nigeria, Poland, the Russian Federation, Sri Lanka and Ukraine.

Some countries (in particular Bulgaria, Ecuador, Romania, Slovak Republic) were reported to have lowered import tariffs and/or reduced import restrictions either permanently or on a temporary basis. Their objectives were to ensure adequate supplies during periods of domestic production shortfalls, to protect consumers from price increases, or to assist oilseed crushers and other parts of the industry through improved access to imported ingredients.

To overcome the adverse effect of technical measures on specific trade flows, a number of countries have entered bilateral agreements on the mutual recognition of sanitary or related regulations. For example, Brazil and China have reached a joint phytosanitary accord that will facilitate Brazil's export of soybeans into China. Similarly, Peru and China are negotiating an animal/plant sanitary accord that would enable continuation of large-scale fishmeal exports from Peru to China.

Export Measures

During much of the period under review, the world market for oilseed products was characterized by high export availabilities and a below average growth of import demand. As a result, competition for export markets continued to be strong, inducing countries with export-oriented production to maintain and in some cases increase their efforts to promote exportation of oilseeds and products. While use of export subsidization schemes remained limited, exports have been promoted by a variety of other incentives.

Among developed countries, the EU's export subsidization scheme for rapeseed, olive oil and butter/butteroil remained in place. However, in recent years, market conditions did not warrant refunds on rapeseed and oliveoil exports. By contrast, exports of butter and butteroil continued to rely on subsidies, although overall outlays have remained well below WTO commitment levels.

Also in the United States, butter and butteroil exports enjoyed some subsidization in fiscal year 2000/01 but not in 2001/02. With regard to oilseeds and derived products, the Export Enhancement Program (EEP) continued to remain unused. However, exportation of oilseeds and products continued to be promoted under various other programmes, in particular schemes providing export credit guarantees. Outlays for oilseeds and products under the main programme, GSM-102, which provides medium term export credits were comparable to past years, while expenditures under the short term scheme (SCGP) have doubled in fiscal year 2000/01 and again in 2001/02. Under the new 2002 Farm Bill, the latter scheme has been expanded through an increase in guarantee coverage and by increasing the number of eligible commodities and countries. During the period under review, the oilseeds complex has become the leading commodity group supported by the scheme, with soybean exports benefiting the most. The oilseeds sector also received support through a number of other programmes that aim at the promotion of US agricultural exports, notably the Emerging Markets Program, the Market Access Program, the Foreign Market Development Program and the Quality Samples Program. These programmes have been reauthorized through 2007 under the new Farm Bill, including some increase in funding. As to the EEP, current funding levels will continue to apply, though the definition of 'unfair trade practices' - which would trigger payment of subsidies - has been expanded. Finally, some new programmes have been introduced, including one that aims at reducing the impact of SPS and other regulatory measures on US exports of certain agricultural commodities - for example genetically modified oilseeds.

Export enhancing policies have remained in place also in the world's two leading exporters of palm oil, Malaysia and Indonesia. In Malaysia, where palm oil exportation is traditionally charged with various duties and fees, the 5% export tax applying to refined palm oil was removed in September 2001, whereas for the years 2001-2003, a certain amount of crude palm oil was allowed to be exported free of duty. Furthermore, to facilitate export operations, export credit guarantees continued to be provided to selected importers and government-to-government barter contracts were signed with India and China. In addition, programmes to stimulate consumption in importing countries were conducted in various nations in Asia, the Near East and North Africa, and countries interested in improving the competitiveness of their palm oil industry were provided with technical assistance and joint venture capital. In Indonesia, export promotion policies concentrated on the negotiation of barter agreements and joint venture initiatives. In addition, the country's export taxes on the various oil palm products have been lowered further from the level established in March 2001, with a view to protect the interests of domestic refiners as well as end-consumers.

In Argentina, the long-standing export tax rebate regime favouring oilseed complex exports was replaced in 2001 with a similar, though more WTO compatible scheme. Reportedly, net support provided to exporters has remained basically unaffected by this shift. Furthermore, exporters continued to be eligible for value added tax reimbursements. To stimulate exportation of higher value added products, oilseed exports continue to be charged higher taxes than oils and meals. The sharp gain in export competitiveness that resulted from strong currency depreciation at the beginning of 2002 induced the government to temporarily suspend all forms of export support and to introduce additional taxes on all agricultural exports. As a result, total tax burden on oilseed complex exports rose to 20-23 percent. Yet the sector's record performance during the 2001/02 season and the further expansion forecast for 2002/03 clearly indicate that the overall profitability of oil/meal production and exportation has remained unaffected or even improved slightly. In actual fact, Argentina's strong export performance has been one of the main factors behind the increase in global export competition recorded in 2002. No change in export policies has been reported from Brazil, where, in contrast to Argentina's policy, the export tax structure continued to favour the exportation of oilseeds over shipments of processed products.

In China, as opposed to partial tax rebates granted previously, exporters of soymeal became eligible for full reimbursement of value added tax from March 2002 onward - a measure that was aimed at promoting soymeal exportation and that complemented China's import policies in favour of the domestic oilseed crushing sector.

Direct export subsidization of oilseeds, oil and meal was discontinued in Hungary, in compliance with the country's WTO commitments. In Poland, by contrast, the export subsidy regime for rapeseed that was introduced in 2000 remained in place, though the volume of exports subsidized and corresponding outlays remain subject to strict, WTO-imposed limits. In the first two years of the programme's operation, subsidization levels have been low, because of problems in the scheme's administration and due to the requirement that exporters, in order to qualify for the refunds, purchase domestic produce at a minimum price that is set by the government in consultation with producers and traders. The programme was reported to push domestic rapeseed prices above world market levels, thus putting pressure on the domestic crushing industry. A number of Eastern European countries where oilseed exportation has expanded in recent years, resorted to export taxation or other forms of export control, mainly reflecting government efforts to increase the level of capacity utilization in domestic crushing operations. In Romania, the government imposed temporary bans on the exportation of sunflower seed, whereas for sunflowerseed oil the re-introduction of export subsidies is being considered. In the Russian Federation, export duties on oilseeds have been raised in 2001, with a view to guarantee raw material supplies for the domestic crushing industry and thus oil production for the domestic market. The increase in duties led to lower profits in sunflowerseed exportation, eventually acting as a general disincentive to domestic oilseed production. To address this problem, in early 2002 the Government decided to eliminate all licensing requirements for oilseed exports, a measure that contributed to a partial recovery in domestic production and exports. Export taxation of oilseeds was maintained in the Ukraine, also to stimulate the exportation of sunflower oil as a higher value added product. Although the export tax on sunflowerseed was lowered from 23 to 17 percent in 2001, the net impact on exports remained unchanged as certain tax exemptions were eliminated. Exportation of processed products is also encouraged by the reimbursement of value added tax to crushers who export oils and meals.

Conclusions

During the period under review (2001-02), developed countries completed the implementation of URAA related policy reforms, whereas developing nations are expected to complete this process by 2004-05. Although these reforms have curtailed the possibilities for governments to directly intervene in commodity markets, it appears that total levels of domestic support and trade protection have remained high.

With regard to production policies, the use of price support schemes has continued to decline either due to URAA reduction commitments or because such programmes proved to be costly and not particularly effective. Instead, the use of direct income payments and various indirect forms of production support (which tend to be exempt from reduction commitments) has further increased. Production support packages used by some developed countries, tended to insulate oilseed producers from the impact of low market prices, thereby contributing to the continuation and/or expansion of high-cost oilseed production even when prices were relatively low. As reported by the OECD for its member countries, the effective level of support provided to oilseed farmers is only marginally below that recorded in the URAA base period 1986-88. As to non-price based support measures, these were used for a variety of purposes, primarily as a complement to income support schemes (notably in developed countries) or (in developing countries) as the main means of raising productivity and encourage production in developing nations.

With regard to marketing, consumption and related policies, a large number of instruments and have been used with differing objectives. In general, governments tended to intervene less in domestic markets or to use more indirect forms of intervention, often emphasizing increased cooperation with the private sector. The main exception to this trend has been the introduction of GMO related policies in numerous countries. The review of national policies also shows that, in developing countries, the coordination of the various government interventions poses particular challenges in that policy-makers have to strike a balance between the diverging interests of oilseed producers, seed crushers, oil processors, and the final consumers of vegetable oils or meals. It appears that in several countries governments tend to emphasize policies that provide protection to the domestic crushing/processing industry. This approach tends to accentuate problems of overcapacity and seems to slow down necessary modernization and adjustment processes in the oil and meal industry as well as in oilseed production. As to consumption policies, traditional measures to raise poor people's vegetable oil consumption have been maintained in a few countries only. By contrast, efforts to stimulate demand for new uses - in particular non-food uses of vegetable oil - have been intensified in numerous countries.

Trade policies continue to be of particular relevance to the oilseeds economy. In general, the tendency of governments to refrain from direct intervention in domestic markets appears to have intensified the use of trade policy measures in pursuance of national production and consumption policy goals. While, in principle, URAA-induced changes in trade policies have led to increased market transparency and improvements in market access, the overall impact of these changes on trade has been rather small. In most developed countries, tariffs on oilseeds and derived products have always been low. In developing countries, bound tariffs have been high, but their applied rates have been much lower, allowing room for increases to further protect markets. Several developing countries, including some of the world's main importers of oilseeds and products, exercized firm control over import access via higher tariffs or other border measures.

A common feature in import policies has been the use of tariff rate quotas. Currently, about 25 countries apply such quotas to oilseeds and derived products often with prohibitively high tariff rates applied to above-quota imports. In the last few years, the average quota fill rate did not exceed 70%, due to the way the quotas have been administered. Another feature noted across most importing countries was the use of tariff escalation in an effort to favour the importation of lower value products.

During the period under review, technical import barriers have become increasingly relevant for international trade in oilseeds and derived products. Health and environment related consumer concerns have induced governments in both developed as well developing countries to introduce a variety of sanitary, phytosanitary and other technical requirements. In a number of cases, these measures have resulted in reduced market access and, eventually, changes in the overall pattern of trade. Exporting countries are increasingly concerned that trade partners may use such technical measures as a means of protecting domestic markets, given that on-going trade policy reforms have restricted the use of tariff measures in certain countries.

With regard to export policies, the market situation prevailing during 2001-02 has led to increased competition for export markets. While export subsidization continued to play a minor role, major exporters of oilseeds and oilseed products have further increased the use of other export promotion tools.