Chapter 4 HOW EXPORT RESTRICTIVE MEASURES AFFECT TRADE IN AGRICULTURAL COMMODITIES

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1 4. HOW EXPORT RESTRICTIVE MEASURES AFFECT TRADE IN AGRICULTURAL COMMODITIES 1 Chapter 4 HOW EXPORT RESTRICTIVE MEASURES AFFECT TRADE IN AGRICULTURAL COMMODITIES Peter Liapis Introduction Information on export taxes and other export restrictions as applied to trade in agricultural commodities has until recently been scattered across various sources and has not been systematically collected. 2 The second part of the OECD Inventory of Restrictions on Trade in Raw Materials (see Chapter 1 of this volume) fills this gap for agricultural commodity trade. The first step in compiling this database was to identify those countries that used any export restriction during the time period of interest (that is, from a few years prior to the 27/8 world market price spikes until the most recent year possible). This was done by examining the literature, including the popular press. A FAO survey of 15 countries found that, between 27 and the end of March 211, 33 countries restricted exports of at least one agricultural product (Sharma, 211). Since our immediate purpose was to analyse the effect of export restrictions on world trade, the initial focus has been on major exporters whose export restrictions spill over onto international markets. Hence, some countries that imposed export restrictions are not included in the current database. However, all countries that notify an export restriction under Article 12 of the Uruguay Round Agreement on Agriculture (URAA) are included, irrespective of their relative importance in trade. Once a country was identified for selection, information was collected from its official government sources. The Harmonized System (HS) 3 was adopted for classifying traded products, in line with the first part of the Inventory dealing with industrial raw materials (Chapter 1). The information recorded matches the description given in official sources, at whatever HS-digit level that source uses. Since international comparisons are typically performed at the HS6 level, information recorded in the inventory (product codes and product descriptions) is also provided at this level of disaggregation. For those countries that classify their products at the more detailed HS8 level or higher, the HS6 codes were obtained simply by truncating at the 6-digit level. In those (less numerous) cases where the product description was provided at a more aggregated level, the information was disaggregated to HS6 level by assuming that the restrictive measure is applied uniformly to each HS6-digit product within the more aggregate category. Information on export restrictions was collected from 16 countries: Argentina, Belarus, China, Former Yugoslav Republic of Macedonia (FYROM), Egypt, India, Indonesia, Kazakhstan, Kyrgyz Republic, Moldova, Myanmar, Pakistan, the Russian Federation, Tajikistan, Ukraine and Viet Nam. The information spans 22 to 212, depending on the country. For Argentina, Belarus, China, Egypt, Indonesia, India Kazakhstan, Myanmar, Pakistan, the Russian Federation, Ukraine and Viet Nam the information is from official national government sources. For Ukraine, this is supplemented by information from its WTO notifications under URAA Article 12. Data for the Russian Federation and Viet Nam are supplemented with information from their WTO accession treaties and from the FAO. WTO notifications are the source for the other countries in the inventory. The database contains more than 3 8 lines of export restrictions used by the 16 countries during the relevant time period. The export restrictions cover the whole range of agricultural EXPORT RESTRICTIONS IN RAW MATERIALS TRADE: FACTS, FALLACIES AND BETTER PRACTICES OECD 214

2 2 4. HOW EXPORT RESTRICTIVE MEASURES AFFECT TRADE IN AGRICULTURAL COMMODITIES products as defined by the WTO, but grains, oilseeds and vegetable oils are among the most frequently targeted products. The inventory also collects information, when available, on the rationale given by each country for any export restrictions used. The most frequently offered rationales are concerns about food security, domestic price stability and curbing food inflation. Occasionally, promoting domestic value-added activities and access to input supplies by domestic producers are also mentioned. Unfortunately, not all countries provided this information for all their measures, so coverage is incomplete in this area. The next section provides a brief overview of export restrictions in the context of the multilateral trading system as well as a breakdown of the agricultural products subject to export measures and the instruments employed by the countries in the database. Section 4.3 presents a summary of the timeline of restrictions used by individual countries from 27 to 211 for selected major commodities, followed in Section 4.4 by a discussion of market developments for these products. Sections 4.5 and 4.6 analyse the available data, using various techniques at different levels of disaggregation, in order to test the predictions of the theory in Chapter 2. These effects were sought at the level of total exports, aggregate exports of the countries using restrictions, and bilateral trade flows. Section 4.7 summarises the findings and concludes Export restrictions in the multilateral trading system Overview Export duties and taxes are not prohibited under WTO rules but, unlike their counterparts on the import side (import duties and tariffs), they are not bound or otherwise disciplined, and can therefore be unilaterally adjusted. For new WTO members, however, the accession process may impose disciplines, as was the case for China, Viet Nam and the Russian Federation. For example, in its accession agreement, China made a commitment to eliminate all export duties except for 84 specific items (Kim, 21). Article XI of GATT 1994, on the other hand, explicitly prohibits quantitative export restrictions whether by quotas, import or export licenses or other measures (see Chapter 5, section 5.3). Some exceptions to the general rule are nevertheless allowed, including export prohibitions or restrictions temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting contracting party (paragraph 2(a)) and import and export prohibitions or restrictions necessary to the application of standards or regulations for the classification, grading or marketing of commodities in international trade (paragraph 2(b)). A further basis for imposing export restraints is found in Article XX, the general exceptions provision. Examples are paragraph (b) allowing an exemption from other GATT disciplines when deemed necessary to protect human, animal or plant life or health, and paragraph (i) granting an exemption to ensure essential quantities of (raw) material used in domestic processing (see Chapter 5 of this volume for more details). Countries routinely apply export restrictions or bans under the exemption clauses as there is no agreement on how long temporary is, what is critical, or what is essential in determining whether the export ban is allowable. Moreover, since export taxes are not disciplined, a prohibitive export tax can be equivalent to an export ban. Article 12 of the Uruguay Round Agreement on Agriculture (URAA) stipulates that in cases where countries institute new export prohibitions on foodstuffs in accordance with paragraph 2(a) of Article XI of GATT 1994, they must take into account the effects of such actions on importing members food security and should give notice in writing as far in advance as practicable to the WTO Committee on Agriculture indicating the nature and duration of the measure. They must also consult, upon request, with any other member having a substantial interest as an importer that may be affected by the measure in question. All relevant information must also be made available to that member if requested. EXPORT RESTRICTIONS IN RAW MATERIALS TRADE: FACTS, FALLACIES AND BETTER PRACTICES OECD 214

3 4. HOW EXPORT RESTRICTIVE MEASURES AFFECT TRADE IN AGRICULTURAL COMMODITIES 3 Paragraph 2 of Article 12 of the URAA then exempts developing countries from the notification and consultation requirements, unless the measure is taken by a developing country member that is a net food- exporter of the specific foodstuff concerned. In any case, it seems that there are no penalties for failure to notify (Mitra and Josling, 29). Overview of targeted agricultural products To provide a general overview of the agricultural products subject to export restraining measures, the products in the Inventory were divided into four broad categories: bulk, horticultural, processed and semi-processed. 5 Although data prior to 27 and for 212 are available for some countries, the most complete set of information is for the period 27 to 211. The table contains information for each year, the number of countries that imposed export restrictions within that particular product category and the total number of distinct restrictions used. In order to quantify the number of restrictions used in a given year, an export restriction in force for more than six months is counted as 1, while those in force for less than six months count as.5. These frequency counts are computed at the HS6 digit level. 6 Standardisation to the HS6 digit level, rather than counting restrictions at the HS digit level at which they are defined, is necessary in order to make the figures comparable between countries. 7 Table 4.1 summarises the results. Table 4.1. Frequency of export restrictions used for agricultural products Bulk Horticulture Semi processed Processed Year Countries Restrictions Countries Restrictions Countries Restrictions Countries Restrictions The results indicate that few countries took measures to restrain exports of horticultural products especially in the last two years. More countries restricted exports of bulk commodities such as grains and oilseeds compared to the others, and the number of countries using restrictions for bulk product exports fluctuated more from year to year. Across the broad spectrum of commodities, far more restrictions were in place during the first three years shown, with the number dropping substantially in the last two years for all groups except bulk commodities. Over the five year period as a whole, semi- processed products such as vegetable oils, live animals or hides and skins were targeted the most. 8 Overview of export restrictions on agricultural products The export restrictive instruments used by the countries in the inventory include export duties (either ad valorem or specific, including variable duties whose rates change depending on specified conditions), tax rebates on exported goods, quotas, bans, licensing requirements, and minimum export price. At times, countries use a combination of these measures, either concurrently or sequentially. In certain cases, despite an export ban, some exports were allowed of more specialised products or to select trading partners. In Table 4.2, each column shows which countries used a particular instrument at least once during the period, for at least one product. Each row shows which instruments were used by a particular country at least once during the period for at least one product. Thirteen of the 16 countries banned exports of at least one product in at least one of the five years between 27 and 211. Export taxes were used by nine countries while export quotas were used by eight. EXPORT RESTRICTIONS IN RAW MATERIALS TRADE: FACTS, FALLACIES AND BETTER PRACTICES OECD 214

4 4 4. HOW EXPORT RESTRICTIVE MEASURES AFFECT TRADE IN AGRICULTURAL COMMODITIES Export tax (including variable tax) Table 4.2. Export restrictions used on agricultural products, Export quota Export ban Export licensing requirements * Argentina Argentina Argentina Argentina Belarus Minimum export price Tax rebates on exported goods China China China China Egypt Egypt Egypt FYROM India India India Indonesia Indonesia Indonesia Indonesia Kyrgyz Republic Kazakhstan Republic of Moldova Republic of the Union of Myanmar Republic of the Union of Myanmar Pakistan Pakistan Pakistan Pakistan Russia Ukraine Ukraine Russia Tajikistan Viet Nam Viet Nam Viet Nam Viet Nam * To avoid double-counting, countries that use export licenses only to allocate export quotas (already shown in column 2) are not shown again in this column Timeline of restrictions used for selected major agricultural products This section expands the broad overview given in Table 4.2, indicating the products targeted by export restrictions, the frequency or duration of the restraint, the importance of the restraining country in world markets, and the importing countries that may have been adversely impacted. Major grains (maize, rice, wheat), oilseeds, (soybeans, sunflower seeds among others) and vegetable oils are products for which many of the measures listed in Table 4.2 have been used and to which most of the countries in the inventory applied them. These products also provide most of the calories consumed by developing country populations, either directly or indirectly via vegetable oils and livestock feed, and they were among the commodities whose shortages and high prices led to social discontent in some countries during the food price crisis of Furthermore, they are among the more traded agricultural products, in both value terms and the number of countries importing them. Additionally, rice, wheat, maize and soybeans are the products of interest to the Agricultural Market Information System (AMIS). Hence, the timeline summary below focuses on these products. 9 The reader is reminded that although generic commodity names like rice or wheat are used below, countries targeted their interventions to very specific varieties, often at the HS8 or HS1 level. The presentation below is a summary of all the restriction placed on the specific varieties of each commodity. Rice Of the 16 countries in the inventory, eight restricted rice exports at least once during The instruments they used included export taxes (at fixed or variable rates), export bans, export quotas, licensing and minimum export prices. Argentina was the only country using restrictions every year, levying a 1% export tax. India and Viet Nam ended restrictions in 211 with EXPORT RESTRICTIONS IN RAW MATERIALS TRADE: FACTS, FALLACIES AND BETTER PRACTICES OECD 214

5 4. HOW EXPORT RESTRICTIVE MEASURES AFFECT TRADE IN AGRICULTURAL COMMODITIES 5 the other countries jumping in and out at various times. The export ban was among the most frequently used instruments, with India using it every year except 211 (see Table 4.3 for more details). Using the count method described in the previous section, a total of 9 annual export restrictions actions were used in the international rice market during the five year period, with 28 registering a total of 39 actions. Wheat More countries (11) placed restrictions on their wheat exports than on exports any of the other agricultural commodity in the inventory. Restrictions included export taxes, export quotas, licensing and outright bans. Export bans were the most frequently used instrument during the time period, with four countries adopting this measure in 28, including traditionally significant traders, the Russian Federation, Pakistan and Kazakhstan. In fact, in each year from 27 to 211, wheat exports were banned by at least one country (see Table 4.3 for more details). As in the rice market, 28 was the year with the most restrictions (16) based on the method of counting described above. Table 4.3. Timeline of export measures on rice and wheat markets for selected countries Rice Wheat Argentina Export Tax (1%) Argentina Export Tax (2% increased to 28%) India Export Ban (conditional on minimum export price (USD 5/ton) and with exceptions for country specific quotas) India Export Quota (15 for organic wheat and 2 for wheat in bags not exceeding 5 kg.) Export Ban Viet Nam Export Ban Pakistan Export Ban (ban was lifted part of year allowed 8 tons to be exported Russia Ukraine Export Tax (1% but not less than EUR 22/ton increased to 4% but not less than EUR 15/ton) Export Quota (3 million mt) Argentina Export Tax (1%) Argentina Export Tax (variable switched to 28% or 23% depending on variety at HS8 level) China Export Tax (5%) Export Quota (4.4 million mt) Egypt India Export Tax (3 Egyptian pounds/t) Export Ban Export Ban (conditional on minimum export price and with exceptions for country specific quotas) China Export Tax (2%) India Kyrgyz Republic Export Ban Export Tax (15 LC/kg) Indonesia Export License Kazakhstan Export Ban Myanmar Pakistan Viet Nam Export Ban Minimum Export Price (from USD 75/ton to USD 1 5/ton based on variety) Export Quota (4.5 million tons) and Minimum Export Price (from USD 36/ton to USD 8/ton depending on variety) Export Tax (variable rate from USD 3 to USD 175/ton based on FOB price) Pakistan Russia Ukraine Export Ban Export Ban Export Quota (3 million mt) EXPORT RESTRICTIONS IN RAW MATERIALS TRADE: FACTS, FALLACIES AND BETTER PRACTICES OECD 214

6 6 4. HOW EXPORT RESTRICTIVE MEASURES AFFECT TRADE IN AGRICULTURAL COMMODITIES Table 4.3. Timeline of export measures on rice and wheat markets for selected countries (cont.) Rice Wheat Argentina Export Tax (1%) Argentina Export Tax and exports with license requirement China Egypt India Indonesia Viet Nam Export Tax (lowered to 3% then to %); Export License Export Tax (EGP 3/ton) converted to Export Ban, converted to Export Tax (EGP 2 /ton) Export Ban (with exceptions for country specific quotas which for some countries would be revoked if minimum export price exceeds USD 1 2/ton) Export License China India Minimum export price (USD 35/ton on 25% broken rice Argentina Export Tax (1%) Argentina Export Tax China Export License China Export License Egypt Export Quota (1 mt first part of year plus 128 second half) Export Ban (second half of year) Egypt India Export Tax (3% then to %); Export License Export Ban replaced by Quota (9 tons and additional 3 tons allocated to three firms) Special Export Procedure Export Ban Indonesia Export License Pakistan Export Quota (1 million mt) India Viet Nam Export Ban (with exceptions for country specific quotas) Minimum Export Price (USD 3 to USD 54/ton depending on variety) Russia Ukraine Export Ban Export Quota (5 mt) Argentina Export Tax (1%) Argentina Export Quota (1 million mt), Export Tax China Export License China Export License Egypt Export Ban Former Yugoslav Republic of Macedonia Myanmar Export Ban Republic of Moldova Maize Russia Ukraine Export Ban Export Ban Export Ban Export Quota (1 million mt), switched to Export Tax (9% but not less than EUR 17/mt) Fewer countries restricted maize exports compared to rice and wheat in most years. In all, six countries applied restrictions at least once during the period studied. Instruments used included export taxes, export quotas, licensing and bans. Unlike the rice and wheat markets, where more governments restricted exports during 27-29, relatively more countries restricted maize exports in 21 and 211, but 28 was the year with the most restrictions (6.5) as counted using the method described above. Table 4.4 summarises the timeline of the restrictions used by these countries in the period EXPORT RESTRICTIONS IN RAW MATERIALS TRADE: FACTS, FALLACIES AND BETTER PRACTICES OECD 214

7 4. HOW EXPORT RESTRICTIVE MEASURES AFFECT TRADE IN AGRICULTURAL COMMODITIES 7 Table 4.4. Timeline of export restrictions for maize and other coarse grains for selected countries, Argentina Argentina Maize Other coarse grains Export Quota, Export Tax (2% raised to 25%) Argentina Export Tax (2% on various coarse grains) Export Ban Russia Export Tax (3% on barley) Export Tax (variable rate, switched to 25%, lowered to 2%) Argentina China Export Tax (5%, then to %) China India Export Ban Russia Export Tax (2% on various coarse grains) Export Tax (2% on rye, barley buckwheat and oats); (5% on grain sorghum, millet and others Export Tax (3% but not less than EUR 7/tons, on barley) Argentina Export Tax, Export License Requirement Argentina Export Tax (2% on various coarse grains) China Export License Requirement China Export Tax (eliminated) Argentina Export Tax Argentina Export Tax (2% on various coarse grains) China Export License Kyrgyz Republic Export Tax (local currency 5/kg) Kazakhstan Export Ban (buckwheat) Russia Export Ban Russia Export Ban (barley and rye) Ukraine Export Quota (2 million tons) Ukraine Export Quota (barley 2, tons; buckwheat 1 tons; rye 1 tons) Argentina Export Tax Argentina Export Tax (2% on various coarse grains) China Export License Russia Export Ban Russia Export Ban (barley and rye) Ukraine Other coarse grains Export Quota (3 million raised to 5 million tons) Ukraine Export Quota (barley 2, tons; buckwheat 1 tons; rye 1 tons) Export Quota (eliminated on barley) converted to Export Tax (14% but not less than EUR 23/tons) This category includes barley, buckwheat, millet, oats, rye and sorghum; a number of varieties of these grains are treated differentially as export policies here tend to be defined at very detailed level. Although the category encompasses several different crops, they tend not to be widely traded and fewer countries applied export restrictions. The preferred instrument was an export tax, although quotas and bans were also used. Table 4.4 summarises the timeline for the period Soybeans Export restrictions for soybeans were less prevalent than for rice and wheat, with only four countries using them in one year or more between 27 and 211. Argentina applied restrictions in each of the five years with a second country (either China, Kazakhstan or the Russian Federation) doing so after 27. Only two measures were used: an export tax (variable or fixed rate) and an export ban, with the tax used more often. Table 4.5 summarises the timeline of the export restrictions used for soybeans. EXPORT RESTRICTIONS IN RAW MATERIALS TRADE: FACTS, FALLACIES AND BETTER PRACTICES OECD 214

8 8 4. HOW EXPORT RESTRICTIVE MEASURES AFFECT TRADE IN AGRICULTURAL COMMODITIES Other oilseeds This product group includes cottonseed, linseed, mustard seed, rapeseed and sunflower seed. Policies are specified for a large number of varieties at a very detailed level. As in the soybeans case, relatively few governments used export restrictions for these commodities. Although export quotas and bans were employed, the most frequently used instrument was an export tax. Table 4.5 summarises the timeline of these measures in the period Table 4.5. Timeline of export restrictions for soybeans and other oilseeds for selected countries, Argentina Argentina Soybeans Other Oilseeds Export Tax (24% increased to 28%, increased to 35%; converted to Export Ban converted to, Export Tax) Argentina Export Tax (linseed 24%; sunflower seed 24% raised to 32%; rapeseed and other oilseeds 1%) Export Tax (variable rate switched to 35%) China Export Tax (5%) Argentina Kyrgyz Republic Export Tax (linseed 24%; sunflower seed variable rate converted to 32%; rapeseed and other oilseeds 1%) Export Tax (sunflower seeds local currency 2/kg) Argentina Export Tax Argentina Export Tax China Export Tax (5%, then eliminated) Argentina Export Tax Argentina Export Tax Kazakhstan Export Ban Belarus Export Ban (rapeseed) Kazakhstan Export Ban (sunflower seed cottonseed and others not elsewhere specified Argentina Export Tax Argentina Export Tax Russia Export Tax (2% but not less than EUR 35/t) Belarus Russia Export Ban (linseed and rapeseed) Export Tax (rapeseed and sunflower seed, 2% but not less than EUR 35/t, mustard seed 1% but not less than EUR 25/t) Vegetable oils This product category includes cottonseed oil, linseed oil, maize oil, rapeseed oil, soybean oil, sunflower seed oil, groundnut oil, coconut oil, palm kernel oil, palm oil, sesame oil and others, but the number of varieties specifically concerned is larger as export policies tend to be defined at a very detailed level. Vegetable oils, like wheat and rice, are for human consumption unlike coarse grains or oilseeds which appears to make their domestic availability (and disruptions to their international markets) more sensitive issues. Nine countries restricted exports of at least one vegetable oil in at least one year. Two instruments, export taxes and export bans, were by far the most frequently used in these markets. According to the count methodology described above, 27 was the most restrictive year with a total of 49.5 annual restrictions on the various vegetable oils. Argentina used an export tax for most or all oils for every year during During the first two years, there were several rate changes and switches between fixed and variable rates; for a period during 27, Argentina replaced taxes by an export ban for the oils listed. From the end of 28 onwards, Argentina s taxes and rates remained unchanged. The Republic of Myanmar also maintained an export ban for groundnut and sesame oil throughout the period. EXPORT RESTRICTIONS IN RAW MATERIALS TRADE: FACTS, FALLACIES AND BETTER PRACTICES OECD 214

9 4. HOW EXPORT RESTRICTIVE MEASURES AFFECT TRADE IN AGRICULTURAL COMMODITIES 9 As the summary in Table 4.6 shows, the other seven countries using export restrictions for vegetable oils at some point during the period are not the same from year to year. There is also considerable variation between countries regarding the type of oil or oils whose exports are restricted. For example, Indonesia s export tax (29-11) targets palm oil, the ban exercised by Belarus (21-11) concerns rapeseed oil, and Pakistan s ban (28-9) is for vegetable ghee and cooking oil. At the other extreme, India s and Kazakhstan s bans, when in operation, cover most of the oils in this category. This heterogeneous pattern reveals contrasting national concerns and objectives underlying the use of these policy measures. Argentina Table 4.6. Timeline of export restrictions for vegetable oils for selected countries, Export Tax (soybean oil, 24% raised to 32%, sunflower seed oil and cottonseed oil, 2% raised to 3%, linseed oil, maize oil, and other oils not elsewhere specified 1%) Export Tax converted to Export Ban on all the above plus groundnut oil Export Ban lifted China Rebate on Export Taxes 5% Myanmar Export Ban (groundnut oil sesame oil) Pakistan Argentina India Kyrgyz Republic Myanmar Pakistan Argentina India Indonesia Myanmar Pakistan Argentina Belarus India Indonesia Kazakhstan Myanmar Argentina Belarus Indonesia Kazakhstan Myanmar Export Ban (vegetable ghee and cooking oil) 28 Export Tax (variable rate on soybean oil switched to 32%; variable rate on sunflower seed oil switched to 3%, variable export tax on maize oil switched to 15%) Export Ban (soybean oil, groundnut oil, olive oil, palm oil, sunflower seed oil, cottonseed oil, coconut oil, palm kernel oil, rapeseed oil, linseed oil, maize oil, sesame oil, and others Export Tax (sunflower seed oil and cottonseed oil, local currency 1/kg) Export Ban (groundnut oil sesame oil) Export Ban vegetable ghee and cooking oil 29 Export Tax Export Ban (soybean oil, groundnut oil, olive oil, palm oil, sunflower seed oil, cottonseed oil, coconut oil, palm kernel oil, rapeseed oil, linseed oil, maize oil Export Tax (variable rate on palm oil from % to 25% and on palm kernel oil from % to 23% depending on reference price) Export Ban (groundnut oil sesame oil) Export Ban (removed) Export Tax 21 Export Ban (rapeseed oil) Export Ban (soybean oil, groundnut oil, olive oil, palm oil, sunflower seed oil, cottonseed oil, coconut oil, palm kernel oil, rapeseed oil, linseed oil, maize oil) Export Ban (removed) Export Tax (variable rate on palm oil and on palm kernel oil from % to 25% depending on reference price) Export Ban (Soybean oil, sunflower seed oil, cottonseed oil, rapeseed oil, and linseed oil) Export Ban (groundnut oil sesame oil) Export Tax 211 Export Ban (rapeseed oil) Export Tax (variable rate on palm oil from % to 13% and on palm kernel oil from % to 1% depending on reference price) Export Ban (Soybean oil, sunflower seed oil, cottonseed oil, rapeseed oil, and linseed oil, then lifted) Export Ban (groundnut oil sesame oil) EXPORT RESTRICTIONS IN RAW MATERIALS TRADE: FACTS, FALLACIES AND BETTER PRACTICES OECD 214

10 1 4. HOW EXPORT RESTRICTIVE MEASURES AFFECT TRADE IN AGRICULTURAL COMMODITIES 4.4. Market developments Overall trade The Inventory of Export Restrictions covers the period of the financial crisis and the subsequent recession, which affected economic activity generally in most countries, with implications for global food demand. The export policies recorded in the Inventory were not the only factors affecting agricultural supplies on world markets; in addition, several key agricultural markets were negatively affected by weather-related disturbances (droughts and floods) that reduced output in major producing regions. This section looks at the resulting effects on trade. From 24 to 28, total merchandise trade increased by more than 8% from USD 6.9 trillion to USD 12.5 trillion. 1 The onset of the financial crisis and subsequent recession resulted in a drop in trade of almost USD 3 trillion (-24%) in 29. Although merchandise trade rebounded in 21, the level was still below that of 28. The general economic climate affected the agricultural sector in a similar way. The trend in total agricultural trade followed quite closely that of total merchandise trade. Between 24 and 27, total agricultural exports (WTO definition) expanded by 8%, from USD 426 billion to USD 768 billion. Agricultural trade seems, however, to have been less vulnerable to the financial crisis the magnitude of the fall in agricultural exports in 29 was smaller, with a 13% drop in trade to USD 664 billion. Furthermore, the rebound in agricultural trade in 21 was more robust, increasing by 18% and resulting in exports of USD 786 billion, USD 2 billion more than in 28. These trends are shown in Figure 4.1, where the left axis relates to total merchandise trade, and the right axis refers to agricultural commodity trade. Figure 4.1. Total merchandise and agricultural trade, USD billion Total Agriculture (right axis) USD billion Agricultural markets World market price of selected products Figure 4.1 provides a broad overview of developments in the volume of agricultural trade immediately before and during the period covered by the Inventory. Developments in world market agricultural and food prices provide another glimpse of market conditions during the period. These prices, just like those of other primary commodities, have been fluctuating considerably since the mid-2s. Food prices, as captured by the IMF s world market food price index, 11 after remaining flat during the early 2s, started rising in 24 slowly at first, but then climbing quickly from the end of 25 and reaching a peak in June 28. After a steep fall to below the level suggested by EXPORT RESTRICTIONS IN RAW MATERIALS TRADE: FACTS, FALLACIES AND BETTER PRACTICES OECD 214

11 4. HOW EXPORT RESTRICTIVE MEASURES AFFECT TRADE IN AGRICULTURAL COMMODITIES 11 the previous trend, prices began to climb again in 29 reaching a new peak in April 211 before once again retreating somewhat (Figure 4.2) Figure 4.2. Monthly world market food price index, January 2-January 213 April Source: IMF Primary Commodity Prices, monthly data. The following discussion of world market prices concentrates on the major grains, oilseeds and vegetable oils, since they are products for which many countries have applied export restraining measures and that play a crucial role in global diets. The prices come from the IMF s primary commodity price series and are benchmark prices that are representative of the respective global market. Figure 4.3 shows monthly world market prices for the first four of these commodities since The hike in prices from the beginning of 27 was dramatic. Prices for rice, wheat and soybeans more than doubled during this period, and within a few months of each other, each commodity reached record highs (in nominal terms). Wheat was the first commodity to reach its peak in March 28, followed by rice in April 28, while soybean prices reached a record high in July 28. Prices for rice and wheat fell back from these peaks to pick up the trend they were following before 26. The rise in the maize price was less extreme; it reached what was at the time a record high in June 28, but after a short respite, its price continued increasing, reaching new heights in 211 and in mid-212. The soybean price also reached a new high in July 212. The July 212 price peaks for maize and soybeans are thought to reflect the severe drought in the United States during the spring/summer. Figure 4.3 shows that prices not only exhibited an upward underlying trend during this period, but were also relatively volatile with large monthly price swings. For example, between March and April 28, the rice price jumped almost 51%, only to retreat by 17% between May and June 28. During the course of 28, the rice price surged from USD 393/t in January to USD 1 15/ton in April, but was down to USD 551/ton in December. A contributing factor in this price fall was the Japanese government s announcement that it would release rice from its stocks onto the market. In a similar way, the rapid price rises during 27-8 are thought to have been fuelled partly by the news that some developing countries were suspending their grain exports. EXPORT RESTRICTIONS IN RAW MATERIALS TRADE: FACTS, FALLACIES AND BETTER PRACTICES OECD 214

12 12 4. HOW EXPORT RESTRICTIVE MEASURES AFFECT TRADE IN AGRICULTURAL COMMODITIES Figure 4.3. International rice, wheat, maize and soybean prices: January 2 to January Rice 5 Wheat 1 April March Maize July Soybeans July July Source: IMF Primary Commodity Prices, monthly data. Vegetable oil prices 13 followed a similar pattern to that of crop prices. Prices for soybean and rapeseed oils reached new highs in June and July 28, respectively (Figure 4.4). Since then, their prices have fallen back to what looks like their pre-27 underlying trend. As for palm oil, its price reached what was a new high in March 28, but after a steep decline later in 28, its price began to climb again, reaching an even higher peak in February 211, after which it again fell to a level about twice that of the pre-27 level. Several factors have been suggested for the surge in world prices during the period (see, for example, McCalla (29) and Trostle 28), including export restrictions and other policy responses by various governments. According to some experts, export restrictions exacerbated the situation by causing severe disruptions and collapse in confidence on international markets (FAO, OECD, et al., 211; Dollive, 28; Mitra and Josling, 29). EXPORT RESTRICTIONS IN RAW MATERIALS TRADE: FACTS, FALLACIES AND BETTER PRACTICES OECD 214

13 4. HOW EXPORT RESTRICTIVE MEASURES AFFECT TRADE IN AGRICULTURAL COMMODITIES 13 Figure 4.4. International soybean oil, rapeseed oil and palm oil prices: January 2 to January Soybean oil June March 28 Palm oil February Rapeseed oil 18 July Source: IMF Primary Commodity Prices, monthly data. The first wave of rising food prices saw social unrest in several countries (Trostle, 28). Their governments responded by instituting policies to insulate domestic markets from rising prices. The OECD surveyed the policy responses by ten developing or emerging economies for two basic food staples (wheat and rice) (Jones and Kwiecinski, 21) and carried out scenario analysis to assess the impacts of three specific policy interventions export taxes, consumption subsidies and public stockholding (Thompson and Tallard, 21). The survey found that Argentina, China, India, Indonesia, the Russian Federation and Viet Nam introduced or increased export taxes or reduced export incentives, while Ukraine imposed export quotas to limit the rise in food prices. For the same set of countries, Thompson and Tallard (21), using the Aglink-Cosimo model, examined three scenarios including each country imposing an export tax to prevent a surge in domestic prices. They found that while such a policy can have a large effect in curbing the increase of domestic consumer prices, it typically has a smaller effect on quantities consumed. They also found that such a response has a beggar thy neighbour effect as the trade measures introduced by some countries to offset rising international grain prices causes those prices to rise even more in other countries. EXPORT RESTRICTIONS IN RAW MATERIALS TRADE: FACTS, FALLACIES AND BETTER PRACTICES OECD 214

14 14 4. HOW EXPORT RESTRICTIVE MEASURES AFFECT TRADE IN AGRICULTURAL COMMODITIES A variety of reasons, as already mentioned, motivate countries to impose export restrictions, including food security concerns, domestic food price stability and holding down input prices for downstream industries. But sudden export restrictions can contribute to spikes in international food prices. They thus exacerbate supply shocks for food buyers in the rest of the world. Typically, they are also not in the economic interests of the countries imposing them, as there are almost always more efficient ways to achieve the stated objectives of the restriction. Moreover, they are of concern to all trading nations because they reduce the stability and predictability of trade opportunities. World production and consumption During the period under review, underlying trends in global production and consumption of key food commodities both increased more or less in balance, with most annual fluctuations coming from the production side. During the period, rice consumption exceeded production only in 24 with production greater than consumption in each of the following years. Years in which global demand exceeded supply for other commodities were: soybeans (27, 28), wheat (26, 27, and 21), and maize (25, 26, 21 and 211). Thus, 26 and 21 were years in which international markets for both wheat and maize were under particular pressure. 14 Figure 4.5. Stocks-to-use ratio for selected commodities: Rice Wheat Maize Soybeans Soybean oil Rapeseed oil Palm oil Sunflower oil Source: USDA, FAS, PS&D. EXPORT RESTRICTIONS IN RAW MATERIALS TRADE: FACTS, FALLACIES AND BETTER PRACTICES OECD 214

15 4. HOW EXPORT RESTRICTIVE MEASURES AFFECT TRADE IN AGRICULTURAL COMMODITIES 15 Annual differences between global production and consumption are reflected in Inventory changes, with stocks increasing when production exceeds consumption and decreasing when the opposite occurs. Figure 4.5 shows the variability in the stocks-to-use ratio for the eight major commodities, which is considered a good indicator of the tightness of world supply. Some evidence suggests that an abnormally low level of this ratio for a particular commodity can unleash speculative activity in that market, which increases the pressure on price already caused by the excess of consumption over production. Global production of food crops is relatively concentrated. For example, the top ten rice or maize-producing countries provide 85-86% of world supply, while the ten largest wheat producers account for about 83% of global output. Soybean production is the most concentrated of the four crops, with the top ten producers providing almost 98% of the total. Some countries in the Inventory Argentina, China, Kazakhstan, India, Pakistan, the Russian Federation, Ukraine and Viet Nam are among the leading producers of one or more of these crops. Vegetable oil production is also heavily concentrated, with the ten leading producers providing about 93% of world supply for soybean and sunflower seed oil, and at least 96% of world supply for rapeseed and palm oil. Among the leading ten producers of one or more of these vegetable oils are Argentina, China, India, Indonesia, Pakistan, the Russian Federation and Ukraine. World exports of selected products Rice is the least traded of the four crops analysed here; rice tends to be consumed where it is produced and, on average during the eight-year period reviewed, only 7% of production (about 31 million tons) was traded annually. In volume terms, wheat is the most traded with an annual average of more than 125 million tons, or close to 2% of production. However, in terms of production share, soybeans were the most traded crop with on average 35% of global output entering the world market. Export volumes for all eight commodities followed an upward trend, except for soybean oil which remained rather flat and ended the period slightly below its 24 level. However, there were marked fluctuations around these trends. In particular, exports in 28 were below 27 levels for soybeans (2%), rice (nearly 9%) and maize (more than 14%). Wheat exports followed a somewhat different pattern, reaching a peak in 28, falling in 29 and 21, and picking up thereafter. Among the vegetable oils, palm oil is the most traded both in absolute terms and as a share of world production: about 75% of production is exported. Consumption of the other vegetable oils mainly occurs domestically but to different extents, with rapeseed oil the least traded. However, the exported share of rapeseed production increased substantially during the period, doubling from 8% in 24 to 16% in 211. The share of sunflower oil production traded also increased somewhat while that of soybean oil declined, with more output remaining in the domestic market. Movements in the value of traded supplies depend on both price and volume changes. Data on the value of trade for selected commodities from the BACI database, 15 which is bilateral trade data detailed at the HS6 digit level, and focusing on the total value of trade for the selected commodities, make it clear that the value of exports continued to rise for all four crops to reach a peak in 28, followed by a significant fall. Thus, although the exported volumes of rice, maize and soybeans peaked a year earlier in 27, their price peaks in 28 were sufficient to fuel a continued rise in their total value. Wheat exports turn out to have the highest value up to 28, but from 29 onwards they are surpassed in value by soybeans. The export values of the four vegetable oils all peak in 28, fall in 29, and then start to rise again. Palm oil is by far the most valuable exported vegetable oil; although its exported volumes are the smallest of the four oils, its total exported value dominates the three, consistently more than double that of soybean oil. Exports are even more concentrated over exporting countries than production. The leading ten rice exporting countries shipped more than 9% of the total each year. Among the countries in the Inventory that imposed restrictions on rice exports during the period, India, Pakistan and EXPORT RESTRICTIONS IN RAW MATERIALS TRADE: FACTS, FALLACIES AND BETTER PRACTICES OECD 214

16 16 4. HOW EXPORT RESTRICTIVE MEASURES AFFECT TRADE IN AGRICULTURAL COMMODITIES Viet Nam are consistently among the ten largest exporting countries. China was in that group but dropped out in 21 and 211, whereas Argentina dropped out of the top ten exporting countries during 27-9 but qualified for it again in 21. Egypt was in this category during 24-7 and again in 29, whereas Myanmar was among the ten leading exporters in 27-8 and again in The world wheat market is also dominated by relatively few exporting countries. The ten leading wheat-exporting countries supplied about 94% of total wheat exports during the period. Among the countries in the Inventory with restrictions on wheat exports in any year during the period, Argentina, Kazakhstan and the Russian Federation figure in top ten exporting countries every year, as does Ukraine in every year except 27. India was among the top ten exporters only in 24, whereas China appeared in this group during 25-7, as did Pakistan in 27 and 28. The top ten maize-exporting countries supply 95-7% of the world market, depending on the year. Argentina and Ukraine were among the top ten in every year of the period, whereas India joined the group in 25 only and the Russian Federation entered the ranks in 28 and again in 211. China was among the ten largest exporters until 26, but since 26 its maize exports have fallen sharply. As Table 44 shows, in 27 and 28, China was not restricting maize exports, but began doing so in 29. The ten largest soybean-exporting countries provide essentially 1% of exported volumes, with more than 95% supplied by the top four or five exporters. Given the very skewed distribution of exports over exporting countries for this commodity, a country can be among the leading ten exporting countries with a market share of less than one-tenth of a percent. Of the countries in the Inventory using export restrictions for soybeans, Argentina, China and Ukraine are among the ten leading soybean-exporting countries, but other than Argentina, they are not significant exporters; indeed, exports from China and Ukraine counted together often provide less than 1% of world total. Vegetable oil exports are also very concentrated over source countries. In any year, the leading ten exporters of each of the four vegetable oils exported at least 95% of world volume. Of the countries in the Inventory with an export restriction during the period, Argentina was the leading exporter of soybean oil in each year with more than half of all exports. Rapeseed oil exports are dominated by one country, Canada, which supplies more than 6% of the volume traded in any year. Among countries in the Inventory, Belarus was placed in the top ten rapeseed oil exporters each year, despite providing only about 1% of world total, and this was also true of India in 29 and 21. Ukraine and Argentina head the list of exporters of sunflower seed oil, together providing more than 6% of world s total in any given year. Other than Argentina, none of the main exporters of sunflower seed oil are in the Inventory of countries using export restrictions. Exports of palm oil are dominated by two countries Indonesia and Malaysia which together supply more than 8% of traded volume each year. Indonesia is the only country among the leading exporters that used export restrictions for palm oil (29-11). On the import side, the markets for these commodities are less concentrated, as importers are more numerous with smaller shares. Liapis (212) calculated Hirschman-Herfindahl indexes using bilateral trade data from the BACI database so as to measure market concentration of exporters and importers of various products. Unsurprisingly, the results show that export markets are more concentrated than import markets. The implication is that many more countries rely on world markets for their imports compared to the number of exporters supplying their needs. Disruptions in the export supply from any provider therefore have the potential to affect adversely a large number of importers. This is more likely when several exporters restrict exports in the same year. The data presented so far suggest that in most cases, total volumes exported did not shrink when export restrictions were in force. Most of these markets are dominated by a few major suppliers, many of whom did not restrict their exports. It may still be the case, however, that certain individual importers were adversely affected if their traditional supplier restricted its export supply. EXPORT RESTRICTIONS IN RAW MATERIALS TRADE: FACTS, FALLACIES AND BETTER PRACTICES OECD 214

17 4. HOW EXPORT RESTRICTIVE MEASURES AFFECT TRADE IN AGRICULTURAL COMMODITIES Aggregated production and export share of countries with export restrictions The picture of developments in world markets presented so far may mask relevant information about individual countries. Establishing links between the restrictions of an individual country and the world market, however, is not straightforward, since in most years, several countries applied export measures on the same commodity. Therefore, it is more useful to focus on the combined effects of these policies on their aggregated exports, while taking into account the countries domestic supply and by inference their potential export supply 16. Table 4.7 reports for the selected commodities, the number of countries restricting exports in each year, the number of restrictions used in that year, the average shares of production and exports during the three year period before most countries began restricting exports (24-26) and the average share of those same countries in the year they used restrictions. A three-year average for production and exports is chosen to reduce climatic and other particularities of any one year. For the countries and commodities represented in Table 4.7, the period 24 to 26 is assumed to be representative of a typical year before the more frequent use of export restrictions during In 24, other than Argentina s export taxes, none of the countries in the Inventory imposed export restrictions on the products listed in Table 4.7. In 25, Pakistan banned wheat exports, while in October 26 Argentina banned maize exports and in November of the same year, Ukraine imposed a 3 million-ton export quota on wheat. These two measures were adopted late enough in the year that they probably did not materially affect their 26 results. For example, for the year 28, eight countries took actions in their respective rice export market. On average, production by those eight countries in the base (24-6) accounted for 71% of total production, and the share of rice production in 28 for those 8 countries was also 71%. Table 4.7 also shows that exports from the eight countries averaged 52% of total trade in the base and it was 48% of total trade in 28. It appears, therefore, that in 28, these eight countries maintained their share of world production relative to the base but even though total rice exports were below the base, exports from the eight countries in 28 fell even more leading to a four percentage point reduction in their export share. Similarly, eight countries also intervened in their wheat market. In 28, these eight countries accounted for 48% of world s total wheat production, compared to 46% average share in the base. But, even with the interventions in their respective export market, the eight countries provided 33% of total exports in 28, a three percentage point increase relative to their share in the base. Total wheat exports were higher in 28 and yet the eight countries that imposed export measures had a higher share of the total, indicating that exports from these countries expanded disproportionately more than exports from other countries. This is not the case for 29, however. Production of the four countries 17 that restricted their rice exports averaged 54% of world total in the base. In 29, production share of these four countries fell slightly to 52% of world total. Their exports, however, were substantially lower in 29 compared to their base average, falling some 12 percentage points from 25% of world total exports in the base to 13% in 29. In contrast, total rice exports were higher (Figure 4.7). Given the small decline in relative production and the relatively large fall in export share, a casual inference is that the export restrictions may have contributed to the lower export share for these countries. The wheat market was similarly affected in 29. The three countries with export restraints in 29 had a 34% share of world wheat production four percentage points higher than in the base period and total wheat exports in 29 were actually lower than in the base period. The share of these three countries in the export market was 7 percentage points lower, falling to 5% of the export market in 29. Given their higher share of world wheat production, the smaller share of world exports could well have been due to their export restraints. EXPORT RESTRICTIONS IN RAW MATERIALS TRADE: FACTS, FALLACIES AND BETTER PRACTICES OECD 214