CCP: ME 02/6

Table of Contents

I. INTRODUCTION

II. POLICY DEVELOPMENTS AFFECTING PRODUCTION, MARKETING, CONSUMPTION AND TRADE OF LIVESTOCK AND MEAT

A. PRODUCTION AND INCOME SUPPORT POLICIES

B. DOMESTIC MARKETING AND CONSUMPTION POLICIES

C. POLICIES AFFECTING TRADE IN LIVESTOCK AND MEAT

D. POLICIES IN OTHER SECTORS WITH A BEARING ON MEAT

III. BILATERAL OR MULTILATERAL TRADING ARRANGEMENTS

IV. INTERNATIONAL ASSISTANCE TO LIVESTOCK DEVELOPMENT

V. MAIN CONCLUSIONS AND AREAS FOR CONCERN

Table 1: European Agricultural Guidance and Guarantee Fund (EAGGF), Expenditure On Livestock and Meat

Table 2: International Assistance to Agriculture and to the Livestock and Meat Sector

I. INTRODUCTION

1. Follow-up action to the Guidelines for International Cooperation in the Livestock and Meat Sector has been regularly reviewed since their adoption at the Sixth Session in 1976. The Meat Guidelines were most recently revised at the 17^th Session of the Group in South Africa in 1998. The present paper is based on replies to the Secretariat's request for information and on other sources of information. It is presented to the Group to assist it in undertaking its review of the progress made since 2001 in achieving the objectives of the Guidelines and in making recommendations, if deemed necessary.

2. The world meat economy in 2001 and 2002 bears little resemblance to the market situation prevailing in the late 1990s during which relatively strong production gains in a period of constrained trade growth increased the tendency of developed countries to provide market support to meat sectors. The rapid proliferation of animal disease outbreaks have increasingly dominated policy responses around the globe in the 2000-2001 period. The main thrusts of these policy responses have been to impose import bans and tighten sanitary border control measures in order to safeguard animal health, as well as food supplies, and subsequently to strengthen domestic regulations aimed at enhancing animal health and food safety, including through expenditures on increased animal testing, surveillance and eradication measures.

II. POLICY DEVELOPMENTS AFFECTING PRODUCTION, MARKETING, CONSUMPTION AND TRADE OF LIVESTOCK AND MEAT

A. PRODUCTION AND INCOME SUPPORT POLICIES

3. Widespread outbreaks of animal diseases in 2000 and 2001 represented major challenges for countries around the globe, and public expenditure in the livestock sectors expanded in many meat exporting countries to meet the cost of disease containment and eradication. Japan and the EU implemented compulsory testing of all slaughtered livestock and provided compensation packages for producers of disease-affected animals which included outright or partial payment for withdrawal/purchasing of animals at risk, and expenditures for the disposal of meat and bone meal. Many other countries, in Eastern Europe introduced full disease screening for Bovine Spongiform Encephalopathy (BSE) and traceability schemes, while in South America, vaccination and surveillance programmes were set up for Foot and Mouth Disease (FMD). Most governments in developing countries are intensifying mechanisms aimed at the control and eradication of livestock diseases, with the promotion of livestock extension systems complemented by efforts to improve the safety of feeding. This has been accompanied in many countries by the implementation of institutional reforms focusing on increasing privatisation of the livestock sector.

4. In some European countries, animal disease outbreaks prompted policies to encourage a transition to more extensive agricultural production systems. In the EC, this was implemented through policies reducing stocking densities and compulsory headage limits while in the Slovak Republic support for extensively raised beef cows was increased in 2001. Quality bonuses for animals of certain specifications was also provided while the government, citing the low price of imported hogs in 2002, introduced a measure to grant meat processing companies bonuses for the purchase of domestic pigmeat.

5. Meanwhile, restructuring of the animal sector in eastern Europe continued, prompted and accelerated by prospects for EC integration. Adherence to EC hygiene standards is necessitating reconstruction of many slaughterhouses throughout the region. Registration of farm animals is being implemented in numerous countries while the movement toward production-decoupled forms of support to harmonize policies with the CAP is accelerating. The Czech Republic introduced headage payments for sheep and beef cattle in 2000, and support doubled in 2001. In Romania, the government is introducing support to the livestock sector in 2002, providing direct payments to cattle, hog and poultry producers, as well as slaughterhouses. While price supports continue to be used in Hungary, beef payment remained stable in 2001and are scheduled to be reduced in 2002. However, the elimination of export subsidies for Hungarian pigmeat depressed domestic prices in 2002, leading to increased support to the sector through higher guaranteed prices for pigmeat in 2002.

6. Market support to the livestock sector in other countries also increased in 2000 and 2001 with the Ukraine, through a bonus scheme, encouraging cattle producers to slaughter cattle and hogs at higher weights. Israel, which supports the extensive raising of beef cattle through headage payments, will shift to direct area payments as of 2003. To stabilise calf prices, the Republic of Korea in 2001 developed a calf breeding stabilisation scheme which provides producers with 20-percent higher market prices. The United States, in compensation for the 2001 elimination of tariff-rate quotas (TRQs) for lamb imports, extended the Lamb Meat Adjustment Program through August 2003, adding US$ 40 million in subsidies to the $100 million already available.

7. Investments in livestock productivity expanded over the period, facilitated by improvements in livestock genetics, management practices and infrastructure. The Republic of Korea announced in April 2001 a new multi-year US$ 1.8 billion programme which focuses on the improved quality of Hanwoo beef, accompanied by a US$ 322 million project aimed at increasing self-sufficiency in poultry products. Romania has received grant money to enhance meat quality while, at the same time, providing subsidies to the breeding sector. In Africa, limited financial resources have constrained government investments in the livestock sector; however, governments are taking initiatives to obtain funding for breeding facilities and disease eradication programmes. Benin, Burkina Faso, Cameroon, Cote d'Ivoire and Togo are among many of the African countries privatising veterinary services while assisting in the provision of veterinary medicines.

B. DOMESTIC MARKETING AND CONSUMPTION POLICIES

8. Accompanying disease outbreaks, many countries around the world, including developing countries, have instituted measures related to both meat quality and traceability with the aim of ensuring food safety/quality of meat products. New laws and standards were established with Poland implementing a law to safeguard against the recurrence of Classical Swine Fever, while China issued National Standards for poultry products and the Republic of South Africa introduced a Meat Safety Act. The United States, in January 2002, allocated an additional US$ 15 million for increased meat inspection activities. Indonesia and Hong Kong SAR set new standards for veterinary drug usage and maximum residue limits. Major advances were made by Australia, New Zealand, Namibia, and the Czech Republic in the establishment of system of identification and certification of cattle. The Australian government also announced a substantial upgrading of quarantine protection against animal disease risks, with US$ 593 million provided over the next 5 years.

9. There have been some changes in the statutory boards regulating meat policies. In Australia, effective July 2001, the Australian Pork Corporation, the Pig Research and Development Corporation and the Pork Council of Australia were abolished and replaced with a new producer-owned corporation, Australian Pork Limited. The Canadian government announced in late 2001 the creation of the Canadian Beef Cattle Research, Market Development and Promotion Agency which will be funded through the proceeds of a national check-off on beef cattle, including beef and cattle imports.

C. POLICIES AFFECTING TRADE IN LIVESTOCK AND MEAT

10. Unlike the 1998-2000 period when countries revealed their tendency to impose market restriction as a means of protecting producers in the context of low prices, the 2000-2001 period was characterised by a proliferation of import bans and stricter border sanitary requirements in response to the recurring incidence of animal diseases. Additionally, non-disease related food safety issues, such as microbiological contamination of meat or use of antibiotics in feed, led to numerous import bans. The consequential price shocks and trade diversion led to some countries to re-evaluate the means to protect their markets against low-priced imported products, ranging from import licenses to packaging requirements.

11. Meat markets in 2000 and 2001 witnessed some cases of increased market access. An expansion of tariff concessions and quota levels was reported in the EC through the granting of a Hilton (high-quality beef) quota to Paraguay as well as duty-free access to Eastern European pigmeat and poultry under the Double-Zero Agreement. The Double-Zero Agreement allows for increased bilateral trade flows between the EC and eastern European countries, especially for pork products, through higher quotas and zero in-quota tariffs, and eliminates the use of export subsidies between participating countries. Romania reduced duties on pigmeat and beef, as did Israel for imported cattle for slaughter. The United States, in November 2001, complied with a WTO ruling and removed the tariff-rate quotas (TRQs) restricting lamb imports. The beef market in the Republic of Korea was liberalised in early 2001, quotas replaced with tariffs, and the government eliminated a decade-old requirement for separate storage and sale of imported beef. Meanwhile, the government also reversed its "rule of origin" definition that discriminated against imported cattle. Upon WTO accession, in addition to wide-ranging tariff reduction and further relaxation of import controls, the Chinese Province of Taiwan transformed the pre-accession global quotas for pork bellies and pork offal into TRQ's. Imports of beef variety meats were fully liberalized and tariffs for all qualities of beef were lowered with the intent of equalising tariffs for different types of beef by 2004.

12. China's accession to the WTO in January 1, 2002 was accompanied by declining tariffs for all meats. Particularly significant is the drop in the tariff for beef muscle products, from 39 percent to 25.2 percent in 2002. At the same time, pork, pork offal and beef offal tariffs all fell from 20 to 15.2 percent in 2002 and sheep and goat meat tariffs dropped from a range of 22-23 percent to 16.4-18.2 percent, depending on the cut. In addition, the government lowered 2002 VAT rates for pork, beef, and sheepmeat from 17 percent to 13 percent. The tariff rate on frozen chicken was scheduled to drop from 20 to 10 percent. However, while China reduced tariffs for chicken products, they are not ad valorem as indicated in the WTO agreement. Rather, the tariff is assessed on a per kilogram basis with tariffs dropping from 1.2-2.7 rmb/kg (US cents 15-33/kg) to 1.0-1.5 rmb/kg (US cents 12-18/kg), depending on the product. While the tariff rate on some products, such as broiler cuts dropped by 44 percent, that on frozen whole broiler was kept the same.

13. Over the period, some countries did resort to increased protection of domestic markets through higher tariffs, the imposition of safeguard measures, and counterveiling duties. In 2001, Argentina raised import tariffs on ham products originating from countries outside the Mercosur trading area. In addition, in 2000, anti-dumping duties were imposed on Brazilian chicken imports. In response, Brazil requested consultations with Argentina under the auspices of the WTO in November 2001; lack of a mutually agreed upon solution led Brazil to request, in April 2002, that a WTO Dispute Panel review the legality of the measures. In Japan, safeguard duties, which raise the minimum import prices, were triggered for pigmeat in the April-June 2001 period and implemented on 1 August. Special safeguard measures were finalized in the Philippines for livestock and poultry imports, while Jamaica increased poultry tariffs by 60 percent to 100 percent.

14. In the Republic of South Africa, the government made permanent in late 2001 anti-dumping duties on chicken parts from the United States while Nigeria increased tariff rates for certain livestock products, such as turkey parts and dressed chicken, from 25 percent to 75 percent. While the Double-Zero Agreement between Eastern Europe and the EC has led to lower tariffs and increased market access, Poland in early 2002 suspended imports of EC pigmeat.

15. Countries have increasingly restricted import access for food safety or other consumer concerns. Indonesia, mirroring a policy in place for Egyptian poultry cut imports, implemented a ban on chicken part imports in September 2000, citing Halal slaughter concerns; meanwhile a 10 percent value-added tax was placed on all imported products. Citing violations of a 1996 poultry protocol, the Russian Federation banned imports of chicken from the United States in March 2002, putting pressure on international poultry prices and heightening concerns amongst smaller importing countries related to potential domestic market disruptions due to diverted supplies of low-priced chicken cuts. Other CIS countries also imposed bans on imported poultry, citing concerns about the use of antibiotics in feed.

16. Rising meat prices over the period have led to general reduction in the use of export subsidies while regional agreements, such as the Double-Zero Agreement between the EC and candidate countries for accession, fostered a reduction in inter-regional use of export subsidies for pig and poultry meat. In the 2000/2001 WTO year (July-June), EC subsidies on meat dropped nearly 50 percent from the previous year, (Table 1) with aggregate shipments of subsidised products reaching only 60 percent of WTO export subsidy commitment levels. Relatively high pigmeat prices in the EC led to a reduction in pigmeat export refunds on all processed pork products by 5 percent in late 2001 and a further reduction of 10 percent in early 2002. However, in an attempt to provide more market balance to the disease-disrupted EC beef industry, export refunds for beef from other than male bovine animals were raised by more than 40 percent.

17. Shipments of subsidized poultry meat from the United States in the 2000/2001 year (October-September) under the Export Enhancement Programme (EEP) reached 11 524 tonnes, only one half of the total allocation but up 50 percent from the previous year. The EEP was not announced in 2001/02, thus precluding any subsidized exports. Meanwhile, expenditures on meat under the US Export Credit Guarantee Programme (GSM 102/103) and the Supply Credit Guarantee Programme (SCGP) declined 10 percent in 2000/2001 from the previous year. While expenditures to promote meat exports under GSM-102/103 programmes declined by nearly one-third to US$ 124 million, support for meat exports under the SCGP nearly doubled to US$ 53 million, covering 13 countries, and accounting for nearly 25 percent of total expenditures under this programme.

18. The Hungarian government, after suspending export subsidies in July 2000, temporarily reinstated them in March 2001 for countries other than the EC, with the intention that those for pigmeat would be eliminated in 2002. However, the Hungarian Meat Council, in the context of low domestic prices, is providing additional support to the hog industry from its own funds to support exports of live pigs. In the Czech Republic, expenditures on export subsidies for pork products/live hogs were eliminated in 2001; however, those for slaughter cattle jumped dramatically in both 2001 and 2002. In the Slovak Republic both export subsidies and direct payments to beef processors increased in 2001. Vietnam, as of June 2001, issued a decree authorising export subsidies for pork, amounting to US$ .026 and $ .059 for every $ 1 value of export earnings from frozen suckling piglets and pork, respectively. Transport subsidies for poultry products destined for export are being proposed by India in the Five Year Export/Import Policy announced in late March 2002.

19. Colombia, in a move to rebuild its cattle herd and control domestic prices, prohibited the export of live bovine animals for a six-month period starting July 2001. In an attempt to facilitate a more orderly process of beef shipments, the Australian government is working on the establishment of a quota management scheme which would work towards avoiding the activation of the US beef quota. Meanwhile, in a move which will facilitate meat product movement to Hong Kong SAR, the Chinese government, in January 2002, phased out export quotas on all meats to Hong Kong SAR while eliminating the requirement that exporters negotiate product movement through one specific export agent.

20. Export promotion programmes are being expanded and countries are looking for regional strategic alliances to harmonise regional policies. In Brazil, in addition to allocations of US$ 2.1 million for the market promotion programme for Brazilian beef in 2001, a promotion programme for pork exports, valued at US$ 3 million, was initiated. Pork producers, traders and associations in Mexico are jointly participating in a programme to promote pork and swine exports. In Central America, under the auspices of the Central American Farm Council, initiatives are being taken to harmonise regional meat trade policies.

D. POLICIES IN OTHER SECTORS WITH A BEARING ON MEAT

21. Numerous countries have moved to take action to enhance feed quality. To prevent cattle exposure to contaminated feed, Canada's principle feed trade organization, the Animal Nutrition Association of Canada, developed a voluntary Hazard Analysis at Critical Control Points (HACCP)-based Feed Safety Program and began in early 2000 to provide HACCP Certification to individual feed manufacturers. The Kenyan government is formulating a feed bill to regulate this sector, while reducing the VAT on inputs into the feed industry, such as oilmeals and maize germ, from 15 percent to 5 percent. A decline in tariffs on imported feed inputs was reported by Nigeria. Tunisia, moving to help cattle breeders in the context of drought, introduced in 2002 an emergency plan, including feed barley subsidies and duty-free feedstuffs.

III. BILATERAL OR MULTILATERAL TRADING ARRANGEMENTS

22. New Zealand and the Islamic Republic of Iran signed a memorandum of understanding in October 2001 which simplifies access for NZ imports of meat, dairy products, fish, wools, and hides and skins. In West Africa, the harmonisation of tariffs and value-added taxes under the West African Economic and Monetary Union (Unione Economique et Monetaire d'Afrique de L'Ouest - UEMOA) is changing the relative competitiveness of individual country's livestock industries. Within this context, in Cote d'Ivoire, the imposition of a 20-percent VAT on previously exempt feed ingredients led to market disruptions, necessitating suspension of the change. Thailand, in early 2002, agreed to allow unlimited imports of soymeal from ASEAN countries at a tariff rate of 5 percent, compared to the 6 percent, plus a special surcharge of 2,519 baht/ton, paid by other suppliers. Meanwhile, negotiations on veterinary agreements between the EU and accession countries are on-going. These agreements, which only three countries - Slovenia, Hungary and Estonia - have finalised, focus on the adoption, by all accession countries, of EU legislation of food safety and animal health.

IV. INTERNATIONAL ASSISTANCE TO LIVESTOCK DEVELOPMENT

23. According to information collected by FAO, external assistance to livestock development in developing countries in 1999 declined by half from the levels reported in 1997 and 1998, and by two-thirds from the peak of US$ 231 spent on livestock development in 1995. Totalling US$ 75 million, spending on livestock development assistance in 1999 dropped to 1 percent of multilateral assistance to agriculture, down from 3 percent in 1995 (Table 2).

24. Bilateral and multilateral support to livestock development has, since 1990, dropped faster than that of total support for agriculture, declining in real terms by almost 65 percent. This compares to a 31 percent reduction in total external assistance to agricultural sectors in developing countries. Of particular concern to the livestock sector is the significant decline in multilateral support for livestock services (including nutrition, feed resources and veterinary services) which dropped from US$ 52 million in 1995 to US$ 13 million in 1999.

V. MAIN CONCLUSIONS AND AREAS FOR CONCERN

25. The general trend towards reduced market intervention in livestock and meat markets which characterised the 1995-1998 period has been increasingly disrupted, first by low meat prices over the 1998-2000 period and most recently by animal disease outbreaks and food safety concerns. Market intervention, in the context of recent market shocks, has increased, despite the general tendency to replace price supports with less production distorting income payments.

26. Repeated occurrence of animal diseases and meat-related health scares which dominated the meat economies around the world in the 2000-2002 period resulted in escalating support to disease-afflicted industries in major meat exporting countries. Policy responses by importing countries focused on restricting market access to products from these countries with the goals of protecting human and animal health. Certain areas of concerns which have arisen are:

• expenditures on eradication and control of animal disease outbreaks are escalating with affected developing country meat exporters less able to provide resources to contain diseases needed to adhere to tighter technical restrictions by developed countries;
• the increased spread of animal diseases in recent years and the high costs of disease surveillance and control¹ raise concerns regarding the increased trend of privatisation of veterinary service in developing countries. The recognition of the economic/social costs of animal disease necessitate a broad view of veterinary services as a public good. Of additional concern is the continuing decline of multilateral assistance to livestock sectors in developing countries, especially in the provision of support for livestock services which includes veterinary services;
• although the Uruguay Round Agreement on Agriculture (URA) and regional trading arrangements have led, over the past few years, to increases in preferential access quotas for meat products and a noticeable reduction in the volume of subsidized exports, countries have heightened their reliance on trade policy measures to restrict general market access. With the goal of stabilising domestic markets, in addition to tariff hikes, there has been increasing resort to counterveiling duties/antidumping and special safeguard provisions;
• disruptions in large import markets, such as Russia, which accounts for almost one-fifth of global poultrymeat imports, hold the potential to dramatically affect meat prices and lead to trade distortions and market diversion. In this context, small developing countries concerned about increasing supplies of low-priced diverted product, have increasingly moved to protect their domestic markets;
• in addition, while countries are allowed to protect human or animal health from specific risks, and may thus restrict imports of meat products from markets afflicted with certain animal diseases, some countries are reluctant to reopen borders in a timely fashion, thus further disrupting meat markets;
• increasing non-transparency or disproportionate responses in placing trade restrictions on meat products relate to presence of residues of veterinary drugs (including those resulting from the use of antibiotics), as well as concerns related to compliance with animal health and meat hygiene regulations.

27. Thus, while there have been numerous instances of progress since 2000, both with regard to reduced domestic support for livestock and increased market access, certain areas of concern continue to be associated with several of the revised Guidelines (adopted in 1998):

1. with regard to the general objectives, the decline in multilateral assistance to the livestock sector is of concern to the developing countries, particularly in the context of increased privatisation of veterinary services and a general decline in resources available for investment in agricultural in most of these countries.
2. with regard to trade policies, while there has been some progress in expanding market access and further reducing export subsidies, several countries have increasingly resorted to trade policy measures, particularly countervailing duties/antidumping and special safeguard provisions,to curtail imports. In addition, the recent proliferation of animal disease epidemics and concern about food safety issues, including presence of residues of veterinary drugs, have led to increased border restrictions, with some countries delaying a resumption of trade, leading to disruptions in international livestock markets.

28. In light of the above, the Group may wish to consider the following recommendations.

1. that all countries should to the maximum extent possible:

• impose trade restrictions to safeguard human and animal health only in proportion to the risk and remove these restriction promptly when no longer needed as stipulated in the URA; and,
• follow the Office International des Epizooties (OIE) guidelines on the imposition and lifting of import bans or stricter sanitary requirements imposed on imported animals and meat products as a results of animal disease outbreaks;
• ensure that regulations related to animal health, meat hygiene and safe use of veterinary drugs (including theirs residues) are applied consistently and uniformly over time, with trade regulations no more prohibitive than those governing domestic producers. These regulations should be consistent with relevant FAO/OIE/WHO documents on good veterinary practices (including prudent use of antibiotics) and with relevant Codex texts (standards, codes of practice and guidelines) on meat hygiene and veterinary drugs and their residues.

2. that countries, in adjusting their livestock policies, give special attention to minimizing the adverse effects of trade distortions on world markets; and in particular,

• importing countries should endeavour, to the best of their ability, to avoid imposing import bans which result in large amounts of products diverted to other markets where local industries have only a limited ability to compete against low-prices imports; and,
• developing countries should, through technical assistance provided by FAO, the WTO and other institutions, strengthen their institutional capacity to identify WTO compatible market protection measures;
• that developed countries, bilaterally or through multilateral donors, provide additional assistance to the developing countries to support their efforts to promote their livestock and meat sectors.

TABLE 1: EUROPEAN AGRICULTURAL GUIDANCE AND GUARANTEE FUND (EAGGF), EXPENDITURE ON LIVESTOCK AND MEAT

1/ All expenditure other than export refunds

2/ Budget 2002

SOURCE: European Commission

TABLE 2: INTERNATIONAL ASSISTANCE1/ TO AGRICULTURE AND TO THE LIVESTOCK AND MEAT SECTOR

1/ Based on commitments

2/ Table has been adjusted to include only concessional assistance.

¹ For more detail, see IGG document CCP: ME 0/3 "Impact of Animal Diseases on Meat Trade".