AGRICULTURAL COMMODITIES: PROFILES and RELEVANT WTO NEGOTIATING ISSUES

Transcription

1 AGRICULTURAL COMMODITIES: PROFILES and RELEVANT WTO NEGOTIATING ISSUES

2 AGRICULTURAL COMMODITIES: PROFILES and RELEVANT WTO NEGOTIATING ISSUES Prepared by the Commodities and Trade Division as a background document for the Consultation on Agricultural Commodity Price Problems March 22, Rome

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4 TABLE OF CONTENTS INTRODUCTION 1 COMMODITY PROFILES 3 1. BASIC FOODSTUFFS 5 Grains 7 Rice 1 Beef 13 Pork 14 Poultry 14 Sheepmeat 15 Milk and milk products 17 Oilseeds, oils and fats, oilcakes and meals 2 Cassava 23 Pulses RAW MATERIALS 27 Cotton 29 Natural rubber 31 Jute 33 Hides and skins 35 Hard fibres TROPICAL PRODUCTS 39 Tropical Fruits SUGAR AND BEVERAGES 43 Sugar 45 Cocoa 48 Coffee 5 Tea HORTICULTURAL PRODUCTS 55 Citrus 57 Bananas 6 iii RELEVANCE OF SELECTED WTO NEGOTIATING ISSUES FOR MAJOR COMMODITIES 63 Grains 65 Rice 67 Meat 71 Oilcrops 73 Dairy products 76 Cotton 77 Rubber 78 Jute and hard fibres 79 Hides and skins and leather 8 Tropical fruits 81 Sugar 82 Cocoa 84 Coffee 85 Tea 86 Citrus and citrus juices 87 Bananas 89

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6 1 INTRODUCTION This report aims at providing a handy reference for those interested in basic facts concerning agricultural commodities. It draws on material presented by the Commodities and Trade Division at the Consultation on Commodity Price Problems, March 22, the proceedings of which have been issued separately. The following report is divided into two parts. The first presents brief profiles for each of the major traded agricultural commodities. They provide a convenient summary of the most important economic and market characteristics of each commodity. While the precise content of each profile differs to reflect commodity-specific key issues, all include descriptions of the general characteristics of the commodity concerned, the pattern of production and trade, market structure, institutions, trade policy measures, and major current issues and problems. Statistical information concerning production, trade and prices is presented graphically for easy reference. The second part provides brief assessments for sixteen commodities or commodity groups of the status of implementation of various policy measures disciplined under the Uruguay Round Agreement on Agriculture, and of issues arising in the new round of multi-lateral trade negotiations. The assessments are summaries of information collected from special questionnaires sent to FAO member countries, as well as from a variety of sources monitored by FAO Commodity Specialists. The categories of policies reported, where appropriate, are: Tariffs: TRQs, tariff escalation, etc. Measures treated differently, as noted in Blue, Green and Amber Boxes Various export measures, such as subsidies, taxes, prohibitions and restrictions Special topics, such as food security and safety, special agricultural safeguards, environment, state trading enterprises etc.

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8 COMMODITY PROFILES

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10 1. BASIC FOODSTUFFS

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12 COMMODITY PROFILES 7 Characteristics of the grains 1 market GRAINS The bulk of the world s wheat production (8 percent) is located in North America (United States and Canada), Argentina, Europe (EC, CEEC, Russia), China, India, Australia and North Africa. For maize, the same share of world production is concentrated in a smaller number of countries, i.e. the United States, Europe (EC, CEEC), Argentina, Brazil and China. The United States alone accounts for 4 percent of the world s maize output. Other grain production is more widespread around the world. Grains are produced for three principal reasons: direct human consumption (41 percent), animal feed (45 percent) and other uses, including industrial consumption. Cereals (including rice) contribute 55-7 percent of the total calories in the diets of developing countries, and maize and wheat alone make up close to two-thirds of the world s food energy intake. Maize, wheat, barley, sorghum and oats are the main grains used in animal feeding, with maize accounting for about 6 percent of the world total. Industrial uses include malts for brewing, alcohol for fuels, starches and sweeteners. Wheat is the most important cereal traded on international markets. The developing countries account for nearly 8 percent of all wheat imports. The United States ranks as the world s largest wheat exporter, contributing around one-third of world export volume. Among the developing countries, the only major exporter is Argentina, although Turkey and few other countries could also have export surpluses on occasions. Trade in coarse grains closely matches that of wheat, especially in recent years, and maize accounts for most of the traded coarse grains. Developing countries account for over 6 percent of all coarse grain imports. Patterns of grain production and consumption World wheat production expanded at an annual rate of 1.2 percent over the past two decades while coarse grains grew by.9 percent annually. Grain production grew the fastest in the developing countries during the previous two decades (2.5 percent per year), while in the developed countries growth was virtually flat because of supply control measures, in response to changes in domestic and international policies, and the collapse of grain production in the countries of Eastern Europe and the former USSR. Similar to the trends in production, the fastest growth in grain consumption was recorded in the developing countries during the past two decades (2.8 percent annually). Food consumption of grains in developing countries grew at 2.2 percent per year, compared to 1.7 percent for the world total, allowing for an increase in per caput food consumption of about 5 kilograms. In the developing countries, the growth rate for feed use of grains was 4.4 percent annually over the same period, compared to a.8 percent at the global level. Behind the stronger growth rates in food and feed in the developing countries were the tendencies of low-income families to spend more of their additional income on food and rural-to-urban migration resulting in changes in diets towards higher-protein grains and livestock products. Trade and price policy developments Prior to 199s, two dominant, yet unpredictable, buyers, namely the former USSR and China, triggered the sharpest year-to-year price swings. The break up of the USSR not only eliminated the world s largest grain importer but also led to the accumulation of unsold grains (hence large inventories) in major exporting countries, which continued to overhang the markets through Between 199 and 1995, major exporters accelerated their use of export discounts and subsidies in order to reduce their large stocks and excess production. This, coupled with serious production problems across the globe, resulted in 1996 in sharp reduction in inventories to levels not seen since the early 197s, which was the prime reason for the sudden surge in grain prices from 1995 through mid Grain prices remained on a declining path between 1997 and 2, mostly because of weak export demand, the emergence of nontraditional grain exporters, reformed stock policies and producer support in the face of declining prices mainly developed countries. 1 Grains include wheat, maize, barley, sorghum, millets, oats, rye and minor grains.

13 8 COMMODITY PROFILES Production-friendly policies adopted by a number of net-import, grain-producing countries, such as Pakistan and India, also contributed to maintaining the downward pressure on prices. In addition, China, once a major grain importer, also encouraged higher production so that by the late 199s the country needed to import only small amounts of grains. China s maize production also began to exceed domestic demand which gave rise to a period of rising stocks and exports. The absence of China as a major wheat importer and its continuing maize sales into the world market continue to put downward pressure on international prices. Emerging issues Driven by the high financial burden of rising inventories along with the preparation for WTO, which prohibits the continuation of export subsidies, China has started to reform its grain economy by reducing production incentives and lowering its large stocks. Brazil is emerging as a potential grain export competitor due to its low costs of production, especially for maize, and its vast, unused land resources, despite facing high transportation costs from its grain production zones to its export ports. Proposals to increase spending under the United States farm bill and the Agenda 2 reforms to expand the EC to include 1 new central and eastern European countries may have significant impacts on international grain markets, which may lead to expansion of grain production and additional downward pressure on international grain.

14 COMMODITY PROFILES 9 million tonnes 7 6 Wheat Production Trends World Developed countries Developing countries million tonnes 1 Coarse Grain Production Trends World 8 6 Developed countries US$/tonne 25 Deflated Grain Price Trends 4 Developing countries Wheat, U.S. No.2 Hard Winter 15 1 Maize, U.S. No.2 Yellow million tonnes Wheat and Coarse Grain Trade Wheat Coarse Grains Grain Trade Shares Exporters (Top five + others) Importers (Top five + others) Argentina 1% EC 12% Others 17% Canada 1% USA 41% Others 65% Japan 12% Korea Rep. 6% Mexico 7% Egypt 5% China 5% 1% Australia

15 1 COMMODITY PROFILES RICE Characteristics of the market Rice is a major food staple and a mainstay for the rural population and for household food security. It is mainly cultivated by small farmers in holdings of less than one hectare. Rice also plays an important role as a wage commodity for workers in the cash crop or non-agricultural sectors. Global rice production in the 199s has been expanding at 1.8 percent per year, marginally above population growth. Developing countries account for 95 percent of the total, with China and India alone responsible for over half of world output. Most of increase recorded in the 199s has been sustained by productivity gains rather than land expansion. Global trade in rice has expanded on average by 7 percent a year over the 199s. Despite such a dynamic growth, the international rice market remains thin, accounting for only 5-6 percent of global output. Unlike for other bulk commodities, the international rice market is segmented into a large number of varieties and qualities, which are not easily interchangeable because of relatively strong consumer preferences. Ordinary indica rices are the most commonly traded, accounting for some 8 percent of international flows by the end of the 199s, followed by aromatic (Basmati and fragrant rices), at 1 percent, and medium and glutinous rices at 9 percent and 1 percent respectively. Changing patterns of international trade in rice Developing countries are the main players in world rice trade, with a share of 83 percent of world exports and of 85 percent of world imports. The concentration is particularly high on the export side, since five countries (Thailand, Vietnam, China, the United States and India) supply about three-quarters of the trade. This contrast with the fragmentation of import markets and the wide year-to-year fluctuations in individual countries purchases, as most importers do not rely consistently on the international market to get rice supplies, but only as a last resort to fill the gap caused by a production shortfall. Because of the special characteristics of the commodity for food security and political stability, a significant share of trade is conducted by state trading enterprises, some of which are also vested with the obligation of procuring or distributing rice domestically. This applies to both importing and exporting countries. Government-to-Government transactions, which used to account for about half of world trade in the 197s, are now estimated to account for less than 1 percent. In the last few years, however, they have regained some popularity as low international prices have incited or compelled Governments to play a more active role in trade to gain bargaining power or as an indirect means to sustain producer prices. Thrust of government policies Government support to producers in the developing countries has mainly concentrated on research in improved or hybrid rice varieties, investments in irrigation, preferential credits, extension and distribution of improved seed. Intervention to influence prices is also common, through procurement purchases or releases from stocks, or through changes in trade policies. In the developed countries, much assistance to the sector is being conveyed through direct payments and through price support. In general, the involvement of the public sector in paddy processing and rice distribution to consumers has been more limited. However, management of rice stocks or trade policy measures has been used extensively to stabilize domestic market prices. Trade measures, especially tariffs, are widely used to protect domestic rice markets. Besides relatively high WTO bound tariffs, rice imports are often subject to special safeguard in countries schedules. Many commercial transactions are conducted through government-to-government deals, without much transparency. Restrictions on exports of paddy or husked rice are very common, in order to promote the processing of rice domestically. Because of the importance of rice as a staple food, many governments maintain minimum food reserves for food security. In addition, countries engaged in rice distribution schemes and producer price support usually hold large rice inventories in public stores.

16 COMMODITY PROFILES 11 Rice stands as one of the most protected traded commodities. However, because of its importance for food security, income generation and political stability, governments may be reluctant to decrease that protection and is being promoted for consideration in the forthcoming round of multilateral trade negotiations. Current issues and problems Falling international prices have been the principal cause for concern in the last few years, both for the importing and exporting countries. The slide in world quotations is a reflection of expansionary production policies in a large number of countries. Supply releases from stocks have also been instrumental in keeping the downward pressure on prices. Although genetically modified rice varieties have been developed (mainly as a way to enhance its nutritious characteristics, e.g. golden rice or to adapt the rices to extreme growing condition, e.g. varieties tolerant to salty water), the issue about their acceptability world-wide has not yet gained prominence because rices produced from such varieties are not yet widely traded. More important, concerns have arisen regarding the use of Basmati rice denomination and claims of bio-piracy on fragrant rice genes. Rice production sites are often the habitat of a wide variety of birds and plants. Water management in rice lands also ensures a soil desalination process essential to the maintenance of land fertility. As a result, environmental concerns are frequently brought up in defence of the sector, especially in the developed countries.

17 12 COMMODITY PROFILES Global Rice Production and Consumption mill.tonnes 42 Production Consumption 4 (milled basis) estim. Global Rice Trade Volume and Share in Global Production mill.tonnes, milled 3 25 Exports Share of Production % 7% 6% 5% 4% 3% 2% 1% % Major Rice Producers Major Rice Importers and Import Shares Others 26% China 33% Nigeria Iran 3.6% 3.6% Brazil 4.1% Vietnam 5% Bangladesh 6% Indonesia 8% India 22% Philippines 4.9% Bangladesh 6.3% Indonesia 15.9% thousand tonnes, milled equivalent Major Rice Exporters and Export Shares Pakistan 7.9% India 11.4% USA 11.4% China 12.9% Viet Nam 15.6% Thailand 26.2% thousand tonnes, milled equivalent FAO Export Price Index for Rice =

18 COMMODITY PROFILES 13 BEEF Characteristics of the market The extensive nature of beef production, difficulties in vertically integrating the beef production/processing chain, as well as stagnant beef demand in developed countries have constrained growth in global beef production to only one percent annual growth over the past decade. The process of technical innovation and restructuring has proceeded slowly in the beef sector, constrained by the small size of farms and the other special roles these animals play in a large numbers of countries, e.g. as capital assets, for dairy production, social status and draught power. Trade growth, while rising 2 percent annually, lags considerably that of total meats, which has registered almost double-digit annual growth over the same period, leading to beef s share of global meat trade declining to 3 percent recently from 45 percent in the early 199 s. In addition, animal disease outbreaks and food safety issues (particularly related to BSE) around the world have raised considerable health concerns among consumers and limited consumption growth in developing countries and moved consumption to other meats. Developing countries share of imports beef remained unchanged over the past decade despite the growth in trade, while its shares in exports declined from 6 percent to 4 percent. Constraints to expanded beef exports by developing countries include disease issues, particularly FMD, which is endemic to many countries, increasing number of SPS regulations, and the higher relative price of beef to alternative meats. Policy developments affecting international beef trade Global beef markets, over the late 199 s, have been characterised by a gradual dismantling of trade barriers, with countries reducing tariffs and replacing non-tariff barriers by tariff rate quotas (TRQs). However, increasing instances of animal diseases affecting beef, particularly BSE and FMD have led countries over the period to impose import bans and stricter sanitary requirements, as well as other technical barriers, such as requirements on labelling and animal traceability schemes. While progress towards the restructuring and privatisation of the beef sectors in many developing countries continued in the late 199s, this trend was disrupted as animal disease outbreaks in developing countries resulted in increasing support to livestock sector while heightened concerns regarding food safety and animal disease issues escalated the trend for countries to enact legislation to improve meat quality standards. Beef trade has been, in general, significantly influenced by WTO provisions, especially the URA limits on subsidized exports as witnessed by the declining share of the EC in world beef exports since Of the various meat products, the global market for beef was expected to feel the most direct effects from the policy development under the AoA because both export subsidies and market access barriers were more prevalent for beef than for other meats. Challenges in the future Despite a progressive dismantling of trade barriers to beef trade and country specific initiatives to reduce expenditures on government support, the support for beef industries around the world remains high. The extensive nature of beef production limits the transfer of new technology to the sector and the productivity increases which have benefited the pork and poultry industries. This combined with stagnant beef demand in many developed countries will limit overall growth in the industry. Participation of developing countries in the global beef market will continue to be constrained by difficulties in managing animal disease issues as well as the challenge of meeting increasing more stringent food safety regulations in developed countries.

19 14 COMMODITY PROFILES PORK Characteristics of the market The international pork economy, while witnessing 3 percent production gains over the past decade, continues to be a very concentrated market. China, the EC, the US, Brazil, Canada, and Poland represent a combined share of more than 8 percent of global pork production and nearly 9 percent of global pork exports. China while accounting for nearly one half of global production, accounts for only 5 percent of global exports. Japan and Russia, on the other hand, account for more than one-half of world pork imports.. Global pork markets are relatively thin, with less than 4 percent of world output traded internationally. This is partially due to cultural/religious preferences in consuming markets where, in many instances, poultry and beef are preferred to pork. In addition, pork trade has been handicapped by problems associated with heterogeneous quality. The heterogeneous quality of pork products is being addressed by structural improvements in hog industries in major exporting countries with larger, and more integrated, operations using production technologies that yield a more consistent quality of pork. The ease of transferring technologies in the area of genetics, feeding, and the growing move in investment flows from developed to developing countries is increasing the size of pigmeat operations also in developing countries. Policy developments affecting international trade Markets for pigmeat are less restricted than those for beef products. However, the Asian markets, constituting nearly 5 percent of imports, with Japan alone accounting nearly one-third, than maintain relatively high tariffs. A WTO-safeguard provision allows a snapback provision to be implemented in Japan in the case of import surges, raising tariffs and restricting imports. Other importers, such as the EC and Mexico, have in place TRQ s which limit imports, while the EU, one of the largest pigmeat exporters, periodically uses its export subsidy allocation for pigmeat of 4 tonnes. Challenges in the future Larger and more concentrated production processed have been accompanied by rising environmental concerns which, in developed countries, have driven increases in the stringency of environmental regulations facing animal feeding operations. However, industries in developing countries are also expanding operations without accompanying environmental regulations, raising questions about the longterm sustainability of livestock operations. Characteristics of the market POULTRY Growth in livestock production in both developed and developing countries has been led by the poultry sector, with poultry contributing nearly 5 percent of meat production gains over the past decade. Output growth in developing countries, increasing by 8 percent over the decade, has expanded at double the rate of that in developed countries, now constituting more than half of global production. Increasing productivity in the sector, as production units have become more integrated, concentrated, and better managed, has allowed poultry meat to be produced at a lower cost than competing meats. This has led to double digit gains in trade over the past decade, now accounting for nearly 43 percent of world meat trade, up from 25 percent in 199. Much of the growth in import demand has stemmed from developing/transitional economies, in particular China and Russia, which now account for over one-third of global poultry trade. Several important events have shaped demand for poultry imports over the past 5 years. Animal disease outbreaks, particularly BSE, shifted consumption and trade demand away from beef to pork and poultry.

20 COMMODITY PROFILES 15 Policy developments affecting international poultry trade Among the meat sectors, poultry is perhaps the least protected and is consequently characterized by the fewest new market access opportunities under the Agreement on Agriculture. Canada and Mexico contribute the main share of TRQ access opportunities. Additional marginal gains in trade may be attributed to TRQ commitments by several Central American countries, including Costa Rica and Guatemala. The use of export subsidies for poultry meat is sanctioned under the AoA with levels gradually declining from the 82 tonnes authorised in 1995 to an estimated 594 tonnes in 2. However, the actual use of these subsidies is lower, with only EC and Hungary regularly using their allocations. Challenges in the future Trading patterns in poultry meat will continue to be shaped by the increasing specialisation of operations which focus on value-added processing. This will result in low-cost labour markets importing commodity products (leg quarters), providing value-added and re-exporting. This will increasingly occur in Asian markets, a region with the highest growth opportunities. SHEEPMEAT Characteristics of the market The sheep and goat sector is of least significance in the world meat economy, accounting for less than 5 percent of world production and trade. Except for a small number of countries in Asia, in particular China, which contributed to sustained growth at the global level, there has been a tendency for the sector to contract over the last decade, which can partly attributed to low wool prices. However, because of the resistance of sheep and goats to harsh rearing conditions and their cultural role, these animals are important for food security and social cohesion, especially in Africa and the Near East. In Africa, in particular, this sector is of particular importance, constituting 26 percent of total meat output and serving as an important source of income for many vulnerable families. Global trade of sheep and goat meat is very concentrated, with New Zealand and Australia accounting for 9 percent of global shipments which are destined for three major markets: the EC, the US, and the Middle East. Increasingly, the composition of lamb exports is shifting to higher-valued chilled product. Live sheep/goat trade is of considerable importance to the sectors in Africa, particularly to countries in the Horn of Africa. Animal disease concerns related to Rift Valley Fever, however, constrain animal movements. Difficulties in resolving trade barriers in the region have been complicated by the fact that only a few of the countries involved in this trade are members of the World Trade Organisation. Policy developments affecting international trade Sheepmeat sectors in developed countries tend to be recipients of high domestic support; this is particularly true in Western European countries and the US. This protection is accompanied by the imposition of TRQs, which have been successfully challenged through the WTO. The WTO accession of China and the Chinese Province of Taiwan is likely to support the global lamb industry, as declining tariffs could increase market access and trade. Challenges in the future The sheepmeat sector is expected to continue to contract in developed countries with meat preferences shifting away from lamb, as a speciality product. Consequently, it is a market with only limited potential for developing countries interested in expanding exports. Sheep and goat production will continue to be of critical importance to some countries in Africa and Asia, both for food security and export earnings. Animal disease control and membership in WTO will shape the abilities of many of these countries to participate in and benefit from increased access to global markets.

21 16 COMMODITY PROFILES WORLD MEAT EXPORT : WORLD MEAT IMPORT : Million mt Million mt Developed Countries Developing Countries Developed Countries Developing Countries MEAT PRODUCTION BY TYPE : WORLD P/C MEAT CONSUMPTION : Million mt kg per year Beef and Buffalo Meat Sheep and Goat Meat Pigm eat Poultry Meat Developed Countries Developing Countries =1 11 WORLD MEAT PRICE INDEX :

22 COMMODITY PROFILES 17 MILK AND MILK PRODUCTS Characteristics of the market Most of the world s milk production is concentrated in the developed countries, especially Europe and North America; however, some developing countries are important producers, for example, India, Pakistan and Brazil. Milk production is growing most strongly in the developing countries, as a result of increased consumption in this group of countries. There are, however, substantial differences in the characteristics and level of development of production and processing capacity between countries. In many developed countries all milk is essentially collected from the farm and processed before being distributed to the consumer. While, in some developing countries the bulk of milk is processed and consumed on farm or at the village level, with little or no additional processing. Even between countries with similar levels of dairy development, characteristics of production activities can vary substantially. Patterns of milk production and consumption During the first part of the 199 s, overall world milk production declined, principally as a result of falling output in Eastern Europe and the former USSR. Since the mid-199 s, world milk production has been growing at the rate of 1 or 2 percent per year. Throughout the 199 s and into this decade, the relative importance of milk production in the developing countries has continued to increase. Milk output has also grown significantly in Australia and New Zealand, where low costs of production have led to increased participation in the world market. Comparing milk consumption in developing and developed countries, substantial differences exist: average consumption of milk and milk products (in milk equivalent) in the developing countries is 2 litres/person/year, compared to 45 litres/person/year in the developing countries. Milk consumption is growing in the developing countries, as personal income levels increase and diets become more diversified. Conversely, in the developed countries, consumption of milk overall is stable, with the main changes beginning switches from one type of product to another, for example from drinking milk to eating cheese, rather than in total consumption. Trade and price policy developments Developed countries account for 9 percent of exports of milk and milk products. Although small, the participation of developing countries in international exports is increasing, reflecting mainly growing sales from the southern-cone countries of South America. Developing countries account for 7 percent of imports of milk and milk products. Since the start of the 199 s, the relative importance of the type of products traded has moved away from the traditional bulk commodities of skimmed milk powder and butter/butter oil to whole milk powder and cheese. This reflects changes in import preferences and a movement on the part of exporting countries away from lower-value products. Over the same period, the participation of state trading companies in the import market has been substantially reduced and the importance of private sector importers has increased. This has been reflected in fewer large-scale, periodic purchases of bulk commodities and the development of smallerscale, but more regularly spaced, purchases of more highly specified products. As a result of domestic policies to limit milk production and URA commitments on the use of export subsidies, participation of Europe and North America as exporters of dairy products has decreased. Conversely, exports by Australia and New Zealand have grown substantially and exports by southern South American countries, especially Argentina and Uruguay, have increased. International prices for milk and milk products have been characterised by a substantial degree of volatility as supply and demand on the world market are generally finely balanced.

23 18 COMMODITY PROFILES Emerging issues The movement from a market dominated by northern hemisphere countries (and the use of export subsidies) to one dominated by non-subsidising exporters implies that supplies to the world market will be less controlled, as the use of government financed stocks and production controls decline in importance. Additionally, as supplies to the export market will come increasing from countries with pasture-based systems of production. The combination of these two factors may lead to prices for dairy commodities traded on the international market showing substantial variations in future years. In an effort to reduce dependence on the bulk commodity market, many exporting countries are placing greater emphasis on developing more highly specified products. Beyond this, the movement amongst exporting countries from surplus disposal to market development means that an increasing volume of dairy products is being exported as retail-branded products and not as bulk commodities. International dairy companies, many of which have their headquarters in Europe or North America, are making substantial investments in areas of the world where milk consumption is increasing or where supplies of low-priced milk are available. Consequently, such companies are able leap-frog over national domestic policy measures or URA commitments limiting production or trade in the products they produce.

24 COMMODITY PROFILES 19 million tonnes 7 Global Milk Production Developing Countries Developed Countries kg 25 illi t Dairy Supply/Cap/Yr Developed Countries Developing Countries million tonnes 5 WORLD DAIRY TRADE Exports (milk equivalents) Developing Countries Developed Countries million tonnes WORLD DAIRY TRADE Imports (milk equivalents) Developing Countries Developed Countries 17 Dairy Price Index =

25 2 COMMODITY PROFILES OILSEEDS, OILS AND FATS, OILCAKES AND MEALS Characteristics of the market Oilseeds and oleaginous fruits include a wide range of crop and tree plants that are grown under a variety of agro-ecological conditions across the globe, by variety of different types of producers. Except soybeans, over 9 percent of global oilcrop production occurs in tropical and subtropical countries. Only a small part of production is directly consumed as food; the bulk of production is processed into oil and cakes/meals for use as food and feedstuffs respectively. The sector is characterized by a strong integration with downstream processing industries. Oils and fats play an important role in human diets across the world (primarily as energy source), while the meals and cakes derived from oilcrops represent a primary protein source for feedstuffs in many countries. In several countries, the contribution of the oilcrop sector to overall export earnings is substantial. A number of countries - developed and developing depend on imports of oilseeds and derived products to satisfy domestic demand for these goods. As a result, oilseeds and oleaginous fruits and the products derived thereof form the second largest group of agricultural commodities traded internationally (in value terms), after cereals, averaging over US$ 51 billion annually during the period The markets for the oilcrop are particularly complex because on the supply sides crops are both annual and perennial, while on the demand side tend to be influenced by factors ranging from competition with feed grains to demand for livestock products, for oils for food as wells as industrial (paints, bio-fuels, detergents etc.) uses. Overall production pattern World oilseed production has expanded at over 3 percent per year during the last decade. Soybean is by far the most important oilseed, followed by rapeseed, cottonseed, groundnut and sunflowerseed. The share of developing and developed countries in total production is respectively 58 and 42 percent. In a number of developing countries there is considerable potential for expansion of oilcrop production through both yield improvements as well as expansion in cultivated area. Compared to developed countries, average yield levels are considerably lower in developing countries. Soybean and rapeseed yields, for example, are, respectively, 3 and 6 percent lower in developing countries. Asia (which includes the two majors players China and India) is the world s leading production region, followed closely by North America and then South America. Europe and Africa play a more limited role. The oilseeds group includes some of the crops most affected by the recent strides made in the area of genetic modification. Cultivation of GMO oilseeds has rapidly expanded in recent years and accounts for the bulk of production in certain countries. In terms of oils and fats, the developing countries share in global production exceeds 6 percent, with Asia alone accounting for over 4 percent. The share of tropical oils (derived from the fruits of the oil and coconut palm) in overall vegetable oil production is increasing steadily. In the case of oilmeals and cakes, the single most important producing regions are North and South America, which together account for over 7 percent of production. The group of developing countries accounts for about 53 percent of global output. Overall consumption pattern Global consumption of oils and fats expanded at about 3.5 percent per year during the last decade. Growth in global oil consumption has been led by palm oil in recent years (as opposed to soyoil in earlier years). About 6 percent of global consumption occurs in developing countries, prompted by steady population increases and rising incomes, particularly in Asia As to per caput consumption of oils and fats, average intake in developing countries does not exceed 16 kg, less than half of that in developed countries. With regard to oilcakes and meals, close to 6 percent of global utilization occurs in developed countries. However, annual growth in consumption in developing countries (over 7 percent annually in the 199s) by far exceeds expansion recorded in developed countries, reflecting changing consumer preferences that

26 COMMODITY PROFILES 21 accompany income growth and greater concentration in livestock production in the former group of countries. Overall trade pattern Within the oilseeds complex, seeds account for about 3 percent of the total value of trade, whereas the share of the two sub-products, oils and meals, amount to 55 and 15 percent respectively. Eight oilseeds and the respective oils and cakes/meals account for over 9 percent of global trade. Soybean and its meal dominate trade in oilseeds and meals, whereas palm oil and soyoil are the most important vegetable oils traded. The proportion of world supply entering international trade - at almost 4 percent in the case of oils and close to 5 percent for meals - exceeds those recorded for most other basic foodstuffs. During the last two decades, trade in oilseeds and products experienced considerable growth, encouraged mostly by economic expansion in many regions of the world. With average annual growth rates at 4 percent or above, expansion in trade of oilseed products (during the 199s) was strong compared to that recorded for other sectors. Most of this expansion emanated from importing developing countries, with Asia playing a central role in recent years. With regard to oils and fats specifically, imports have surged in many developing nations as domestic demand is expanding at a faster rate than production. This process has partly been aided by increased market liberalization. Also global trade in oilmeals continues to rise, again on account of sustained demand increases in developing countries, accounting for about two thirds of the expansion in global trade. By contrast, growth in oilmeal imports by developed countries is rather limited, as reduced expansion in the livestock sector slows down the demand for meals. In recent years, a number of importing countries shifted from the importation of oils or meals to purchases of oilseeds so as to promote domestic processing and value addition. With regard to exports, a main feature of the market is the high level of concentration, with three developed and eight developing countries accounting for some 9 percent of world exports of oilseeds and derived products. This applies in particular to the market for vegetable oils, where the dominance of some key players and a few major oils is felt strongly, especially under conditions of general oversupply as observed in recent years. Whether the recent expansion in genetically modified oilcrop varieties in some countries will lead to separate markets for GMO and non-gmo crops (including the respective price differentiation) remains to be seen. General trends in policies 2 In general, over the last several years, the URA-induced trend towards a gradual reduction of potentially market distorting, direct government intervention in production, marketing and international trade of oilseed-based products has continued. However, more recently, as a result decreasing prices a number of exporting countries stepped up direct support to domestic producers and to increase export promotion efforts, while major importing countries tended to raise border protection in an effort to shield domestic industries form international competition. It is important to note, however, that, in supporting the oilseeds sector, WTO member countries generally adhered to the commitments made under the URA. 2 A proper review of policies affecting production, marketing, consumption and international trade of oilseeds, oils and meals goes beyond the scope of this note. For a detailed discussion of policies implemented world-wide during the period please refer to the FAO/ESCB publication Review of Basic Food Policies - 21.

27 22 COMMODITY PROFILES Global Production of Oils/Fats and Meals 13 Thousand Tons / / / / / / / / / 2/1 21/2 f'cast Marketing Years Oils/Fats Meals (Protein Equiv.) 17 FAO Quarterly Price Indices for Oils/Fats and Meals (199-92=1) /94 92/93 91/92 98/99 97/98 96/97 95/96 94/95 Marketing Years /1 99/ Oils/Fats Oilmeals/cakes Global Trade of Oils/Fats and Meals 11 Thousand Tons / / / / / / / / / 2/1 21/2 f'cast Marketing Years Oils/Fats Meals

28 COMMODITY PROFILES 23 CASSAVA General characteristics Cassava is cultivated in most tropical countries situated in the equatorial belt, which attest to its adaptability to a wide range of ecosystems. Some of the characteristics of the crop are its efficiency in producing carbohydrate, its tolerance to drought and to impoverished soils, and its high flexibility with respect to the time of planting and harvesting, and therefore plays an essential role for food security. It is the world's fourth most important staple after rice, wheat and maize and an important component in the diet of over a billion people. Patterns of production and trade Almost 7 percent of world production is concentrated in five countries Nigeria, Brazil, Thailand and the Congo Democratic Republic. The bulk of world trade in cassava consists of pellets and chips for feed (8 percent) and the balance in starch and flour for food and industrial use. Thailand and Indonesia are the major suppliers to the world markets, contributing respectively for some 85 and 1 percent of total trade; while small farmers in Asia, Africa and Latin America provide the remainder. The European Community is the main destination for cassava traded products, particularly chips and pellets for the feed industries and volume is sensitive to developments in livestock and feed markets. In recent years, falling grain prices coupled with environmental concerns and animal diseases outbreaks have depressed demand in the EC, causing imports of chips and pellets to fall more than 4 percent. However the contraction in the EC market was more than compensated by larger purchases by countries in the Far East, in particular China, stimulated by very attractive prices. International cassava prices Since 199 the international prices of cassava pellets exported to the EC have fluctuated from a minimum of US$ 82 per tonne to a maximum of US$ 182 per tonne, though hitting historical lows during the past five years. The decline was essentially due to the downward pressure exercised by the competitive grain pricing policy in the EC and the weakness of the Euro compared to the US dollar.

29 24 COMMODITY PROFILES

30 COMMODITY PROFILES 25 PULSES General characteristics Pulses are the edible dry mature seeds of leguminous crops, excluding those harvested for fresh products which are classified as vegetables. Pulses include dry beans, dry peas, dry broad beans, chickpeas, lentils, cow peas, pigeon peas, lupins, vetches and pulses. Pulses are produced throughout the world. Pulse crops, especially in developing countries, are planted on marginal land and grown under rain-fed conditions, which explain their low yields and large year-to-year production variability. Over 6 percent of total utilisation of pulses is for human consumption. Pulses, especially dry peas, are also used as feedstuff. Some 25 percent of pulse total use goes for feeding animals, namely pigs and poultry. On the nutrition side, pulses are known for their high protein content and also as a good source of energy. They also contain significant amounts of other essential nutrients like calcium, iron and lysine. The importance of pulses in human diets varies from region to region and country to country, with a general trend of higher consumption in lower income nations. The share of food use in total utilisation of pulses in the developing countries is over 75 percent, compared to 25 percent in the developed countries. Pulses, by contributing about 1 percent in the daily protein intake and 5 percent in energy intake, are of particular importance for food security in low income countries where the major sources of proteins are non-animal products. Patterns of production and trade Production of the major pulses, except dry pea, is concentrated in developing countries; with developing countries accounting for 7 percent. Dry pea production is dominated by developed countries, accounting for over 8 percent of the global dry pea output. World pulse production posted a low growth rate over the past two decades (1.3 percent) partly due to low profitability of pulse crops relative to other crops. Global trade in pulses exhibited a positive trend since 198 with an annual growth rate of 7 percent, translating into some 5-million-ton increase in absolute terms. The proportion of pulse production that is traded increased from 6-7 percent in the early 198s to about 15 percent currently. For market composition, dry peas are the largest traded pulse with a 37 percent share of the total pulse trade, followed by dry beans (28 percent), lentils (9 percent) and chickpeas (8 percent). International market structure Global trade in pulses is not a residual market, as several countries produce for the export market, while many others rely on the world market to meet domestic demand. The largest market for food pulses is South Asia (mainly Bangladesh, India, Pakistan and Sri Lanka), while the largest market for feed pulses is the European Union (EU-15). In , over 7 percent of global pulse exports were supplied by 5 countries: Canada Australia, Myanmar, China and the United States. On the import side, 5 percent of global pulse imports in were made by 6 countries: EU, India, Egypt, Pakistan, Bangladesh and Mexico.

31 26 COMMODITY PROFILES World pulse production and utilisation Millions Production Food Use Feed Use 1 World pulse exports Volum e (MMt) Value (billion US$) Shares of major pulse exporters Shares of major pulse importers China 9% Mexico 3% USA 9% Bangladesh 3% Myanmar Aus tralia 1% 11% Pakistan Egypt India 4% 4% 7% Canada 32% EU-15 27%

32 2. RAW MATERIALS

33

34 COMMODITY PROFILES 29 COTTON General characteristics Although more than 1 countries plant cotton, both production and trade are relatively concentrated in a few countries. Production World cotton production increased by 62 percent since 197 for three major reasons: the emergence of new producers, expansion by existing producers, and increase in yields. Some major producers such as Australia emerged since 197. Others such as China, India and Brazil saw their yield nearly double. In 21/2, two major producers, the United States and China accounted for 43 percent of total output in the world. Nearly 9 percent of world production was from 9 countries. Adoption of transgenic cotton and significant extension of the area under cotton in Brazil and Turkey may have significant effect on world production in future. The adoption of biotech cotton reached 16 percent of world total production area in 21 and production costs in some of these new areas are believed to be lower than the current world market price. Trade World cotton exports currently about 6 million tonnes, 3 percent of world production. The United States, Former USSR, Australia and EC account for nearly 65 percent of world exports. EC, China, Indonesia, Mexico, Former USSR, Turkey, Thailand and Korean Republic account for 62 percent of world imports. Trade in textiles is the major force driving cotton imports and exports. Developed countries are the major cotton exporters. Countries in Asia accounted for more than one-third of world imports in 21/2. Production, exports and food security Cotton production generates cash income for millions of rural households. More than 2 million rural households in China and 1 million in India and Pakistan produce cotton. Cotton textiles contribute to employment, food imports and trade balance in many developing countries. Trade restrictions, domestic supports and world prices There are no significant restrictions in trade in raw cotton. Domestic support and export subsidies in major producing and exporting countries affect production and trade, and contributed to the lower world price over recent years. In 2, world cotton prices dropped to a record low of about US$.45 per pound ( A Index). Domestic support policies, advances in technology including bio-tech cotton, weak demand, emergence of low cost producers and competition from man-made fibres, are responsible for the low prices.

35 3 COMMODITY PROFILES US cents/kg Deflated Cotton Prices Indices ' Mt 2 Cotton Exports Quantity by Major Exporters / / / / 2/1 21/2 ' Mt Cotton Production by Major Producers United States Area of former USSR Australia EC Syria Million US$ Cotton Exports Values by Major Exporters United States Australia EC Argentina Egypt ' Mt / / 21/2 United States China India Pakistan Cotton Consumption by Major Consumers / / / / 2/1 21/2 United States China India Pakistan

36 COMMODITY PROFILES 31 NATURAL RUBBER General characteristics Developing countries are major producers and exporters while developed countries are importers. Production is highly concentrated in a very few countries. Production is labour intensive. Production Production has grown steadily from around 3 million tonnes in early 197s to 7 million tonnes in 21. Six countries account for nearly 84 percent of world output. The growth in world average yield was less than 5 percent during past 3 years but some countries saw their yield rising very substantially. Production has shifted to the low cost producing countries. Emerging new producers include Thailand, Vietnam and some African countries. Malaysia, the world s largest producing country in 197s and 198s, now produces one third of former level. Trade World trade accounts for more than 7 percent of global production. Thailand, Indonesia, Vietnam and Malaysia account for 8 percent of exports. A large proportion of natural rubber is used for tyres. Demand for vehicles induced by economic growth is major driving force for imports. Sixty-nine percent of imports go to the United States, China, Japan, Korea Republic, Germany, and France. Exports and food security Export revenue from natural rubber contributes significantly to total agricultural export revenue in producing countries. As a result, revenue from rubber exports were the important source of cash income for millions of rural household in these countries. In 1999, the share of rubber in total agricultural export revenue was 93 percent in Liberia 77 percent in Cambodia, 17 percent in Indonesia, 16 percent in Thailand, 8 percent in Malaysia, 1 percent in Vietnam and 16 percent in Nigeria. Trade restrictions, domestic supports and world prices There are no significant trade restrictions on rubber. However, tariffs on automobiles have indirect effects on rubber trade. The International Natural Rubber Organisation supported stable and higher prices to exporting countries using a buffer stock. The agreement collapsed in 2 in the face of changes in comparative advantage among producing countries, exchange rate fluctuations and sharp decline in world prices. Over the past few decades, the world price of rubber has weakened. Countries with higher production costs have reduced their production and shifted to other cash crops. To combat the low prices, several major producing countries, including Thailand, Indonesia and Malaysia, recently agreed to control both production and export.

37 32 COMMODITY PROFILES pence/kg Deflated Natural Rubber Prices London RSS1 cif ' Mt Rubber Consumption by Major Consumers ' Mt USA China Japan India Production of Natural Rubber by Major Producers Thailand Indonesia Malaysia India China Million US$ Exports Value of Natural Rubber by Major Exporters Indonesia Thailand Malaysia Sri Lanka Exports Quantity of Natural Rubber by Major Exporters ' Mt Indonesia Thailand Malaysia Vietnam

38 COMMODITY PROFILES 33 JUTE General characteristics Jute ranks next to cotton as the most important renewable natural fibre in terms of volume of production. The commonest item manufactured is the gunny bag. Jute in the form of closely woven hessian is made into deck covers, hammocks, tarpaulins, and upholstery fabric, and is used as underlay of linoleum and carpets. Uses are being diversified in making varieties of products like fashionable carrier bags, kit bags, rucksacks and hand bags. Jute laminated or mixed with plastic is being used to produce products as substitutes for wood. It can also be used to produce paper pulp. Pattern of production World raw jute production averaged 3.4 million tonnes a year during the 197 to 2 period. it is produced mainly in the Asian region with Bangladesh and India accounting for over 95 percent. In the major producing countries jute remains a major cash crop and it is grown by 1 to 12 million small and marginal, providing employment to hundreds of thousands of other people in the processing, manufacturing, trading and transportation of jute and jute products. Jute-based agriculture is highly labour intensive. Pattern of consumption and trade World consumption of jute averaged approximately 3.4 million tonnes during the period 197 to 2. Over the last 3 years, the growth in jute consumption slowed substantially because of the introduction of bulk handling of goods in transportation and storage and the development of synthetic substitutes. Trade in both fibre and products contracted sharply over the last 3 years following concentration of consumption in the major producing countries. Exports of jute in the form of fibres and products have fallen to about 1.1 million tonnes at present against about 2. million tonnes in early 197s. Only about 35 percent of the world production of jute now enters the world trade which generates some US$5 per year. Main export market for raw jute is Pakistan and that of products is the European Union followed by the Near East countries. Economic and institutional structure Use of jute has been mandatory for some uses in some producing countries. Some countries allow price support for its production. Trade issues Jute and hard fibres and products are covered under the Agreement on Textiles and Clothing, not under the AoA.

39 34 COMMODITY PROFILES 24 Production of Jute - ' tonnes 2 16 India 12 8 Bangladesh 4 China JUTE - Deflated Price US$ = Year 2 - Jute: Export Value - Million US $ 8 4 BWD Bangladesh India Jute Apparent Consumption - ' tonnes Bangladesh China India Thailand

40 COMMODITY PROFILES 35 HIDES AND SKINS General characteristics Hides and skins are produced as by-products of the meat industry. Value is secondary to meat, and the income accrues more to processors than to farmers. Considerable employment is generated in processing and manufacturing. Their output is virtually totally inelastic to changes in demand. This commodity group is characterized by its extreme heterogeneity. Further magnified by the existence of numerous intermediate processing stages. Raw and processed hides and skins enter international trade in a variety of forms from air dried pelts to finished leather. Production and trade patterns In past two decades, world output of bovine hides and skins rose by about 1 percent per annum. Output of raw hides has grown strongly in developing countries, while it contracted in most developed regions.. Developing countries account for more than 5 percent of the world production of bovine hides. The four largest producers account for more than 4 percent of the world total. The Far East now produces more than any other region. Developing countries became net importers of raw bovine hides and skins in the early seventies, having previously been net exporter, their tanning and leather manufacturing expanded. Some major producers of hides and skins, such as India, Pakistan and Thailand, also import considerable volumes of raw hides to produce leather. Developed countries in aggregate changed from net importer to net exporter of cattlehides in 197s. International prices of most types of hides and skins reached a low in 1999 as a result of weakened demand, recovered in 2 and 21 as demand for leather and leather products strengthened in major consuming countries. A major trade issue is the existence of export restrictions in many countries seeking to protect domestic tanning industries. Thus supply to potential importing/processing countries is reduced. Environment Tanning industry can be highly polluting. The cost of meeting environmental standards is one reason for shift of activity from developed to developing countries. Discussion of a proposal for an industry-wide international ecolabelling scheme has not borne fruit. Trade Issues These products and leather are covered under the general provisions of the GATT. AoA has indirect implications for the sector through its implications for meat and dairy policies. No import tariffs are applied to raw hides and skins. Tariff escalation is an issue for leather and leather products - finished leather, leather bags, leather shoes etc. carry high tariffs in some countries. Trade-weighted average tariffs in developed countries are around 5 percent for leather and around 8 percent for leather products, although in some cases tariffs on footwear have been as high as 8 percent. Direct export subsidies/refunds are little used in the sector. Export prohibitions and taxes are used in a number of developing countries. Restrictions on export of raw hides and skin, wet blue and crust, are typically imposed in order to protect domestic industries, but reduce the incentive to supply good quality raw material.

41 36 COMMODITY PROFILES Real Price Indices Hides and Skins Million US$ Hides and Skins Exports Values by Major Exporters Average Bovine EU (15) week 14=1 Index up to October 21 Bovine Hides Sheep Goats Bovine Sheep Goats USA USSR F Area Australia Sheep Australia New Zealand Iran UK Goats China, Main EU (15) South Africa ' Mt Bovine Hides and Skins Production by Major Producers ' Mt Bovine Hides and Skins Availability by Major Consumers USA EU (15) Brazil USSR F Area USA EU (15) Brazil USSR F Area ' Mt Sheepskins Production by Major Producers ' Mt Sheepskins Availability by Major Consumers China, Main New Zealand Australia Iran EU China, Main Turkey India 'Mt Goatskins Production by Major Producers ' Mt Goatskins Availability by Major Consumers India China, Main Pakistan India China, Main Pakistan

42 COMMODITY PROFILES 37 HARD FIBRES General characteristics There are three major hard fibres - sisal and henequen, abaca, coir - and a number of minor hard fibres. Sisal is used primarily for harvest twine, but other uses are becoming relatively more important. Abaca s main market is for specialty papers. Coir is used for floor coverings, rubberized pads for upholstery, car seats, etc, and mattresses. African countries account for 3 percent of the world's sisal production, essentially on single crop estates. In Brazil farmers produce sisal as part of a mixed agricultural system. Abaca is grown largely in the Philippines as a secondary crop. Coir is produced by processors as a by-product of oil, copra, desiccated coconut, etc. These fibres provide significant economic support to the population in certain impoverished and leastdeveloped areas of a number of producing countries, and exports provide income vital for food purchases by people who, in many cases, are among the poorest. Production and trade patterns Total export values of fibre and products in 2 amounted to US$31 million, of which sisal amounted to US$18 million, abaca US$96 million, and coir US$15 million; Exports, excluding re-exports, are entirely from developing countries, and largely to developed countries. Major exporters are: Sisal: Brazil, Kenya, Tanzania Abaca: Philippines, Ecuador Coir: Sri Lanka, India Hard fibres are generally traded through networks of private and some governmental traders. None is sold in a centralised market. Trade in fibres is generally unhindered by trade policy, and any tariffs on manufactured goods are low. The Intergovernmental Group on Hard Fibres is the only relevant international body. Trade issues Hard fibres and products are covered under the Agreement on Textiles and Clothing, not under the Agreement on Agriculture. Other general provisions of the GATT apply to these products. Fibres are generally traded freely, but some countries apply tariffs on processed fibre products. There are generally no export restrictions. New applications Fibre producers and processors have suffered from reduced levels of employment and incomes as a result of the weakening of the market for hard fibres in recent decades. In response industries are seeking alternative new outlets for fibres. Sisal and coir, still largely dependant on traditional applications, are moving towards use in geotextiles, in pulping applications, and in use in various composite materials used particularly in automobile manufacturing. Abaca, once used almost entirely for cordage, now has a strong market for pulping for various speciality papers.

43 38 COMMODITY PROFILES Production of Sisal/Henequen - tonnes Production of Abaca - tonnes Philippines Ecuador Tanzania Kenya Brazil Mexico Production of Coir - tonnes India Sri Lanka Year 2 - Sisal: Export Value Million US$ Brazil Kenya Mexico Tanzania Year 2 - Abaca: Export Value 7 6 Million US$ Ecuador Philippines Year 2 - Coir: Export Value 7 12 SISAL - Deflated Prices US$ = ABACA - Deflated Prices US$ = East African 3L Brazil No 3 1 Sri Lanka India Imports of Sisal - Year 2 6 th. tonnes Imports of Abaca - Year 2 16 th. tonnes 8 Imports of Coir - Year 2 th.tonnes USA EU Japan USA USA EU

44 3. TROPICAL PRODUCTS

45

46 COMMODITY PROFILES 41 TROPICAL FRUITS General characteristics Tropical fruits are an important source of carbohydrate, vitamins, minerals and fibres. They are grown in most tropical, and subtropical areas with well drained soils. Developing countries account for about 98 percent of total production, while developed countries account for 8 percent of world imports. Mango is the dominant variety produced, followed by pineapple, papaya and avocado. Other fruits, such as lychees, durian, rambutan, guavas, and passionfruit are produced and traded in smaller volumes, yet their market shares have been expanding rapidly in recent years. Most of the recent increase in production comes from expanded crop areas particularly intended for exports. Pattern of production, consumption and trade World production of tropical fruits increased by more than 5 percent annually over the last decade (1991-2) reaching more than 6 million tonnes in 2. The major producing region is Asia, accounting for more than 7 percent of tropical fruit production, followed by Latin America and the Caribbean (15 percent) and Africa (9 percent). Oceania, the United States and Europe make up the balance. Demand prospects for the next decade are expected to be favourable. The projected annual average growth for the four major fruits (pineapple, mango, avocado, papaya) would range between 3 and 4.5 percent. World trade continues to be dominated by pineapples, though significant growth in exports has been recorded for other tropical fruits. The European Community remains the world s largest import market, followed by the United States. Both account for 7 percent of import demand. Europe is expected to remain the main market, with France a major importer. Trade disputes relate essentially to product safety and quality. The bulk of consumption takes place in producing developing countries. Economic and institutional structure International demand for tropical fruits depends on: (1) domestic demand of producing countries, (2) export demand for fresh fruits, and (3) industry demand for processing. Generally, a producing country will specialize in one of the above markets. For example, India fits into category 1 as it is the largest producer of tropical fruit yet consumes almost all its production. Less than.5 percent is exported. Thailand, Costa Rica and Mexico fit into category 2 as major exporters, while Thailand and Philippines fit into category 3 being major processors of tropical fruits (market leaders in canned pineapple and juice market). Tropical fruit prices have recently been on a downward trend as supplies expanded. Prices of tropical fruits are also highly affected by seasonality. Current issues Tropical fruits are a primary source of nutrition and food security for many developing countries. Domestic trade constitutes a major contributor to employment and income generation in producing areas. Certain countries set import restrictions on tropical fruits containing a determined quantity of pesticide. There is a need to harmonize treatments for fruit exports which would enhance food safety and trade. There is an ongoing research on alternatives to methyl bromide.

47 42 COMMODITY PROFILES 25 Production of Major Tropical Fruits (' tonnes) Mangoes Pineapples Avocados Papaya U.K. wholesale prices (US$/Kg) for Avocados, Mangos, Papayas and Pineapples Avocado Mango Papaya Pineapple tonnes 16 Tropical Fruits: World Exports ' US$ Exports volume Exports value

48 4. SUGAR AND BEVERAGES

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50 COMMODITY PROFILES 45 SUGAR General characteristics Sugar is produced from both cane and beet. Sugar cane is a perennial crop found in tropical and sub-tropical areas. Sugar mills generally crush cane and convert the juice extract to raw sugar for exports and further processing by refineries. Sugar beet is an annual crop grown in temperate areas, and can be directly processed into refined sugar. Both raw sugar and refined sugar are traded internationally, each representing 5 percent of total sugar export. Pattern of production From 197 to 21, world sugar production averaged 11.2 million tonnes annually. Over the last 3 years, the main sugar producers have been the EC, Brazil and India, with an average annual production of 15.7 million tonnes, 1.1 million tonnes and 9.6 million tonnes, respectively. Unlike Brazil, the EC and India are also large consumers. Production in Brazil grew steadily between 197 and the late 198s, and since 199 has had a spectacular growth with production reaching 17.3 million tonnes in 2/1. This significant increase in production contributed to global oversupply and low prices. Production in Thailand and Australia, the other major producing countries, levelled off in the 199s after steady growth since the mid 197s. Pattern of consumption and trade Since 197 world sugar consumption averaged million tonnes per year Major consuming countries include the EC, the United States, India, the Russian Federation and China. Over the last thirty years sugar consumption has been growing on a steady basis. Brazil is the dominant player in world sugar trade. Exports increased fourfold since 197, to a total of 8.8 million tonnes in 2. The EC is a major exporter as well as importer. Other major sugar exporting countries are Australia, Thailand, Cuba and India. Major importing countries include the Russian Federation, China, the United States, Japan, the Republic of Korea and Canada. Economic and institutional structure Apart from structural breaks in the mid 197s and early 198s, world sugar prices have been relatively constant. From 199 to 2, nominal prices averaged US$227 per tonne. World sugar prices reached 14-year lows in February 2. Since then, large stocks and greater than expected harvests have damped any significant rally in the market. The volatility in sugar prices, particularly in recent years, is also due to the short-term rigidity of the supply response to price changes. Increases in sugar production due to higher prices require significant long-term capital investment. When prices fall, production continues at full capacity in order to spread the fixed costs, hence sugar supply tends to be inelastic with respect to price in the short-term. Sugar price elasticities of demand range from -.81 for Japan, -.11 for the United States and -.12 for European Community. Trade policy Developing countries rely heavily on sugar as a source of income, and tend to have fewer trade barriers than high-income countries. A significant share of the sugar traded takes place under bilateral long-term agreements and/or on preferential terms such as the EC Sugar Protocol and the United States TRQ. A number of studies have shown that under complete global trade liberalization in the sugar market, the gains would be large, especially in many of the Latin American and Caribbean countries where production and export would increase as a result of higher world prices.

51 46 COMMODITY PROFILES Current issues Under the European Union Everything but Arms (EBA) initiative, full liberalization for sugar will be phased in between 26 and 29 by gradually decreasing the full EC tariff to zero. The benefit from EBA should accrue to the Least Developed Countries. 16. SUGAR: World Production and Consumption (million tonnes) consumption production SUGAR: World Exports million tonnes million US$ exports quantity exports value

52 COMMODITY PROFILES Sugar: Deflated ISA Prices US$ = Sugar: Exports by major countries average (volume) Others 28% Brazil 22% South Africa 3% Cuba 7% Thailand 6% Australia 11% EC(15) 23% Sugar: Imports by major countries average (volume) EC (15) 12% Russian Fed. 11% Others 62% USA 6% Japan 4% Korea Rep. China 4% 1%

53 48 COMMODITY PROFILES COCOA General characteristics Cocoa is grown on about 7.2 million hectares with major concentrations in West Africa, South East Asia and Latin America. Stocks of cocoa beans have declined in recent years due mainly to reduced production, as well as the clearing of buffer stocks. The world stock-to-grinding ratio, a proxy for world cocoa availability, is currently at similar levels to those in the 197s after increasing to unprecedented levels in the late 198s/early 199s when the ratio reached a record 66 percent, due to buffer stock levels. The ratio in 2/1 was 37 percent. Pattern of production and consumption World production increased by 2.2 percent annually between 197 and 2, reaching 2.9 million tonnes in 21. Côte d Ivoire is the largest producer, accounting for more than 4 percent of cocoa bean production, followed by Ghana (14 percent), Indonesia (14 percent), Nigeria (7 percent), Brazil (5 percent) and Cameroon (4 percent). World grindings of cocoa beans, a proxy for world cocoa consumption, increased by 2.5 percent yearly during the same period, reaching 3. million tonnes in 21. The EC is the world s largest consumer and accounts for 39 percent of the world total, followed by the United States at 15 percent. Grindings at origin accounted for about 32 percent of the world grindings in 2/1, an increasing trend over the last decade Pattern of trade World exports grew yearly by 2.3 percent over the 3 years reaching 2.2 million tonnes in 2. Côte d Ivoire is the major exporter accounting for 53 percent of the global total followed by Ghana (16 percent), Indonesia (15 percent) and Nigeria (5 percent). World imports grew by 28.8 percent annually to reach 2.5 million tonnes in 2. The EC, the United States and the Russian Federation were the largest importers. Economic, market and institutional structure During , ICCO daily prices increased by 1.6 percent p.a. from 67 cents per kg to 19 cents per kg in nominal terms, however declined by 3 percent p.a. from 268 cents per kg to 14 cents per kg in constant 199 terms. The relative rigidity of short-term supply coupled with low price elasticity of demand in consuming countries (Germany:-.12 United States: -.199), and the long gestation period of the crop (between 3-4 years), cause alternating short periods of booms and long periods of oversupply with depressed market prices. As with coffee and tea, international trade in cocoa is dominated by 4 large companies accounting for nearly 8 percent of global trade. Trade policies Tariffs on cocoa beans are generally low, but those on cocoa products are high. Major cocoa exporting countries have liberalized their national marketing boards. In late 21, the Government of Côte d Ivoire decided that cocoa beans for exports are to be bagged in small bags. Current issues/problems Four West African producers (Cameroon, Côte d Ivoire, Ghana and Nigeria) agreed on an establishment of a scheme to withdraw and destroy 25 tonnes of cocoa beans to improve world market prices in 21. However, a detailed implementation schedule and the likely impact of this scheme are still uncertain.

54 COMMODITY PROFILES 49 World Cocoa Production World Cocoa Consumption Thousand Tonnes Thousand Tonnes Thousand Metric Tonnes World Cocoa Export Volume Value Million US $ Cocoa exported by Exporting Countries average Percentage of world total Others 36% Indonesia 1% Ghana 13% Cote d' Ivoire 41% Thousand Tonnes World Cocoa Import World Cocoa Prices ICCO Composite Price Nominal Constant (199=1)

55 5 COMMODITY PROFILES COFFEE General characteristics Coffee is grown on about 1 million hectares of land in countries in Africa, Asia, and Latin America. Arabica and robusta are the two main varieties of coffee produced and traded. Arabicas account for about 7 percent of total world production. Robusta prices have generally been considerably lower than Arabica prices. Pattern of production World coffee production increased at 2.1 percent annually from 197 to 2 reaching 6.6 million tonnes in 21. During the same period, world production of arabicas grew by 2 percent annually, from 2.5 million tonnes to 4.4 million tonnes, while that of robustas increased from 1. million tonnes to 2.2 million tonnes. Brazil is the largest coffee producing country, accounting for 26 percent of the world total, followed by Viet Nam (12 percent), Colombia (11 percent), Indonesia (6 percent) and Mexico (5 percent). Pattern of trade World coffee exports have grown annually by 1.8 percent over the last 3 decades reaching 5.4 million tonnes in 2. World net-imports of coffee have grown at an annual rate of 1.7 percent from 2.9 million tonnes in 197 to 4.8 million tonnes in 2. The EC is the largest importing country followed by the United States, Japan, Canada and Poland. Economic market and institutional structure Since the late 197s world coffee prices have experienced a long-term declining trend. During , ICO composite prices declined from 51 cents per kg to 46 cents per kg in nominal terms, and from 21 cents per kg to 44 cents per kg in constant 199 terms. Recent important trend of the world coffee market is growing demand for high-valued specialized coffee from selected origins. Demand for other types of value-added coffee such as flavoured coffee, organic coffee, decaffeinated coffee, has also been growing though their share is still very small. The relative inelasticity of short-term supply with low price elasticity of demand in importing countries cause alternating short periods of booms and long periods of abundant supply with low world market prices. Four transnational companies (roasters) account for more than 75 percent of world trade in coffee. Trade policies Import tariffs on coffee are generally low for developed countries. Major coffee exporting countries have deregulated their national marketing boards and farmgate prices are now determined by market forces. Current issues/problems Current price levels make it difficult for many coffee producers to generate profits as their costs exceed world market prices. The ACPC coffee retention scheme, which was tried in 2/1 did not improve price levels. Low farm revenue has caused reduced investment and this in turn could adversely affect the quality of coffee and prospects for price recovery.

56 COMMODITY PROFILES 51 Thousand Metric Tonnes World Coffee Production Thousand Metric Tonnes World Coffee Consumption World Coffee Exports World Coffee Imports 6 5 Thousand Metric Tonnes Thousand Metric Tonnes World Production by Coffee Type Coffee Exports by Country Thousand Metric Tonnes Thousand Metric Tonnes ARABICA ROBUSTA Brazil Viet Nam Coffee Price : ICO Composite Area Planted with Coffee US cents / Pound Thousand Hectares Nominal price Constant Price World Asia Africa L. America

57 52 COMMODITY PROFILES TEA General characteristics Tea is grown on about 2.5 million hectares of land in Asia (89 percent of global tea cultivated areas) and Africa (8 percent). Camellia Synensis, the tea plant, is a multi-stemmed evergreen shrub originally grown in China and India. It takes 4-6 years to mature and has an economic life of nearly 1 years. Tea manufactured from Camellia Synensis is roughly grouped into three types: black, green and oolong. Tea plays an important role in generating foreign exchange for the country and regular cash income to farmers. Tea production is labour intensive and provides substantial employment opportunities. Pattern of production and consumption World tea production increased at an annual growth rate of 2.8 percent between 197 and 2 expanding from 1.27 million tonnes to 2.97 million tonnes. Most of the growth was due to the increase in productivity rather than an expansion in area. Major producers are: India, which accounts for about 29 percent of global production; China, 23 percent; Sri Lanka, 9 percent; Kenya, 8 percent; and Indonesia, 6 percent. Black tea accounts for more than 7 percent of world tea production and green tea, 22 percent. Over the past decade, production of black tea has increased at 1 percent per annum, while that for green tea at 2.5 percent. Tea is consumed in both producing and importing countries. India is the largest producer and consumer of tea and accounts for more than 2 percent of global tea consumption, while the United Kingdom, the Russian Federation, the CIS countries, Pakistan and Japan each account for about 5 percent of the total tea consumed globally. Over the past decade, world tea consumption has increased by 1 percent annually. Pattern of trade World tea exports have grown by 2.2 percent annually between 197 and 2, from 674 tonnes to 1.29 million tonnes. Growth in export values, however, was 4.6 percent annually during this period, rising from US$573 million to US$2.3 billion in 2. Sri Lanka, the largest exporter, accounts for about 2 percent of world exports, Kenya (18 percent), China (17 percent), India (16 percent) and Indonesia (8 percent). World net-imports of tea grew at 1.9 percent between 197 and 2, to 1.2 million tonnes. Major importers continued to be the United Kingdom, the Russian Federation, Pakistan, the United States and Egypt. Economic and market institutional structure Tea prices are mainly determined at auctions in major producing countries. Major auctions included Colombo, Mombassa, Calcutta, Chittagong and Jakarta. Prices vary among auctions as well as within auctions because of the differences in origin and quality. In the decade from 1985 prices experienced a declining trend with annual fluctuations caused by supply disruptions. Since 1995 prices have shown a brief recovery. Prices averaged 157 US cents/kg in 21. The relative rigidity of short-term supply coupled with low price elasticity of demand in consuming countries, and the long gestation period of the crop (between 4-6 years), cause alternating short periods of booms and long periods of abundant supply with depressed market prices. Three multinational companies account for nearly 8 percent of tea traded globally. Trade policies Value addition is significant in international trade. Current tariff levels for value-added teas are high while those for bulk teas are very low or at zero.

58 COMMODITY PROFILES 53 Current Issues/problems Erosion of market shares in the total beverages market, coupled with stagnant consumption in some markets, has reduced prices. New strategies particularly aimed at enhancing consumption, increasing value-addition as well as further reduction in production and marketing costs are required. Maximum Residue Levels (MRLs) should be harmonized. World Tea Production World Tea Consumption Thousand tonnes Thousand tonnes Thousand Tonnes World Tea Export Million US $ Tea Exported by Major Exporting Countries Average Others 2% INDONESIA 8% KENYA 18% INDIA 16% CHINA 17% SRI LANKA 21% Volume Value World Tea Prices Tea Imported by Major Importing Countries Average US cents / Kg Nominal Constant 199=1 Others 56% United Kingdom 13% Iran 3% Japan 4% Pakistan 1% USA 8% Egypt 6%

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60 5. HORTICULTURAL PRODUCTS

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62 COMMODITY PROFILES 57 CITRUS General characteristics Citrus = 4 main commodities: oranges (7 percent of total output), tangerines, lemons/limes and grapefruits. Perennial crops that grow in tropical and Mediterranean type climates. A significant share of output is processed (4 percent for oranges and grapefruit). World s most exported fruit in terms of value. Represents a significant source of income and employment for many developing countries. Pattern of Production and trade Global production has risen steadily and was estimated at 1 million tonnes in 1998/2 up 138 percent from 42 million tonnes in 197/72 due to increased areas (+13 percent). The main producing countries are Brazil, the United States, China and the Mediterranean countries. World exports of fresh citrus have increased steadily, rising by 4 percent from 6.5 million tonnes in the 197s to 9 million tonnes in 1998/2. Fresh citrus: The main exporting regions are the Mediterranean rim (with a predominance of Spain) and the United States. Exports have increased rapidly in Spain and some Southern Hemisphere countries (South Africa, Australia, Argentina), reflecting improvements in storage and transport technology. After a period of growth, per capita consumption of fresh citrus in developed countries has declined since the mid-198s. It is still growing in developing countries. Orange juice: The bulk of world supply is produced in only two areas: Florida, United States and Sao Paolo state, Brazil. Brazil is by far the largest exporter, followed at a distance by the United States. The EC is by far the largest importer, accounting for over 8 percent of world orange juice imports. The EC and Japan import overwhelmingly from Brazil. The United States and Canada source their juice in Florida, with some imports from Brazil. Consumption has increased strongly in developed countries, while it is still very low, albeit rising, in developing countries. Economic, market and institutional structure Multitude of medium-sized firms involved in fresh citrus trade. Some trend towards vertical integration by certain producer groups. Trade in orange juice is dominated by a very small number of processing companies operating in Brazil and Florida. These companies tend to be vertically integrated. Fresh citrus prices vary greatly with crop size every year, depending on weather, diseases, tree cycle. Prices for concentrated orange juice were very low in late 199s due to large inventories in both Brazil and Florida that led to a price war between large processors in Brazil. Prices have firmed up recently due to smaller crops and reduced inventory. Price elasticity of supply low due to long time needed to reach full productivity in citrus grove. Trade policy Reduction in tariffs on imported citrus and juice as a result of Marrakech Agreement on Agriculture. Increasing number of trade disputes arising from bans on citrus imports on phytosanitary grounds. If agreed, Free Trade Area of the Americas might have significant impact on world orange juice trade. EC s system of tariff-quota, minimum entry price and processing subsidy for citrus criticized. Accession of China to WTO expected to open new market for citrus.

63 58 COMMODITY PROFILES Current issues Rise in not-from-concentrate orange juice consumption is the most significant development in orange juice market. May reduce market share of concentrated juice. Large Asian citrus-producing countries set to increase output (China, India, Pakistan). Consumption of fresh citrus expected to continue to decline in developed countries. Therefore, risk of fresh citrus surplus in the medium to long term.

64 COMMODITY PROFILES 59 million tonnes Production Oranges Citrus - Production Production (all citrus) Utilization for processing Oranges million tonnes Fresh citrus - Exports Volume Total Citrus Value Oranges Volume Oranges Value Total Citrus million US $ Orange Juices - Exports million tonnes million US $ Volume Value Fresh oranges - Exports Orange Juice - Exports avg. Volume avg. Volume U.S.A. 1% U.S.A. 6% Others 1% Others 36% Spain 29% Brazil 84% South Africa 12% Egypt 5% Morocco 8% US $ / tonne Fresh oranges - Deflated Wholesale Prices Japan Germany U.S.A

65 6 COMMODITY PROFILES BANANAS General characteristics Perennial crop that grows quickly and can be harvested all year round in all tropical regions. World s most exported fruit in terms of volumes; ranks second in terms of value. Represents a significant source of income and employment for several tropical countries. Pattern of production and trade Global production has risen steadily and was estimated at 65 million tonnes in 1999/21 up 13 percent from 32 million tonnes in 1969/71 due to increased areas (+6 percent) and yields (+33 percent). Virtually all exported bananas are of the Cavendish type. World exports have increased steadily, rising by 97 percent from 5.9 million tonnes in 1969/71 to 11.6 million tonnes in 1998/2. More than 8 out of 1 bananas exported are shipped from Latin America. The other exporting regions are Asia (mainly the Philippines), Africa (principally Cameroon and Côte d Ivoire) and the Caribbean. Exports have increased in all regions but the Caribbean. Economies of some Latin American and Caribbean countries are highly dependent on banana exports Developed countries account for over 8 percent of world banana imports. Consumption has increased steadily over the past decade following the rise in production, but wide difference between developed countries and non-producing developing countries. International trade follows a regional pattern: United States and Canada import from Latin America Japan imports mainly from the Philippines The EC imports from ACP (Africa-Caribbean-Pacific) countries and Latin America Central and eastern European countries import from Latin America. Economic, market and institutional structure World banana trade is dominated by a very small number of vertically integrated companies. The 5 largest banana firms account for some 8 percent of world exports. They own and operate large-scale plantations worldwide directly or through capital participation in local firms. Banana prices have fluctuated considerably. Due to oversupply, they reached a very low level in , forcing many small growers out of business and large companies to scale down their plantations. Prices somewhat recovered in 21. They have been generally higher in the EC than in other major markets due to restricted market access. Demand has become rather price inelastic as banana is among the cheapest fruits in developed countries. Lag in production response to price fall due to high capital investments in plantations/shipping. Trade policy Free market access in North America, central and eastern European countries and Japan. Tariff-quota system in the EC with preference given to ACP countries. Trade dispute and repeated changes in system disrupted trade throughout the 199s. Dispute seems to be over now. EC committed to establishing a tariff-only system by 26. Import restrictions in some banana-producing countries (e.g. Australia, Morocco, Turkey). Current challenges Production surplus due to optimistic expectations on future demand (EC market reform, growth in emerging markets) and lack of control over new plantings (notably in Ecuador and the Philippines). Opening of EC market from 26 might lead to further weakening of prices in Europe. Excessive use of agrochemicals has led to environmental and health problems in producing countries. NGOs have criticized banana companies for not complying with basic labour standards. As a result, new niche markets for organic, ecofriendly and fair-trade bananas have emerged. Little success in breeding pest resistant varieties; GM may be solution but market acceptance unsure. Low market prices are leading to a gradual shift of production to countries with lower labour costs.

66 WTO NEGOTIATING ISSUES 61 BANANAS: World Production million tonnes BANANAS: World Exports million tonnes million US $ Value Volume Bananas: Exports by major countries Bananas: Imports by major countries Philippines 12% average (volume) Others 5% Colombia 13% Costa Rica 17% Others 29% average (volume) EC 27% U.S.A. 31% Ecuador 34% Others L. Amer. 19% F.USSR 5% Japan 8% US $ / tonne Bananas: Deflated Import Prices 85 Germany Japan U.S.A

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68 RELEVANCE OF SELECTED WTO NEGOTIATING ISSUES FOR MAJOR COMMODITIES

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70 WTO NEGOTIATING ISSUES 65 GRAINS Main policy areas Remarks Tariff-rate-quota administration about 17 countries have TRQs for wheat, and most do import more than the inquota level, due to relatively low applied above-quota tariffs or due to preferential trade agreements; for coarse grains, most countries with TRQs have already met or exceeded their minimum access; access commitments have been increased under TRQ schemes;- for example:- Japan for maize and barley, the Republic of Korea for barley, the Republic of South Africa, India and the Philippines for maize; quota fill rates are relative high for this sector, although the method of TRQ administration varies among countries; some countries (e.g. China) have allocated specific quota amounts to private sector importers; for the grains sector, increased market access can come from a tariff only regime, non-discriminatory allocation and administration of tariff quotas; disciplines which reduce the role of STEs, or by reduction in quota tariff rates. Tariffs for grains, the applied tariff rates are in general lower than bound rates. This gives many countries the flexibility to increase them as safeguard actions depending on the market situation and/or to sustain policy goals; tariff peaks (tariffs greater then 15 percent) and tariff escalation (tariff increases as degree of processing increases) posses serious problems of market access in some countries. Amber box some developing country producers/exporters object to trade distorting domestic support in developed countries (e.g. United States, EU), where (relatively high-cost) production and exports expanded aided by support measures; support provided in most developing countries has been traditionally low and under the 1 percent de minimis level and, hence, not affected by reduction commitments. Export subsidies export subsidies can displace exports of non-subsidizing competitive exporters and they can depress market prices. In addition, they could also create disincentives to domestic production in the recipient countries if they result in import surges well above normal level of imports by these countries and are imported at prices at which domestic producers cannot compete; the use of export subsidy (both directly and indirectly) is more widely spread among the developed major exporting countries; of the 25 countries that agreed to reduce the volume and value of subsidized agricultural exports, 1 made specific commitments to reduce subsidized wheat and flour exports and 12 made commitments to reduce subsidize coarse grains exports. Export credits used by a number of grain exporting countries; can have similar distortionary effect on trade as export subsidies. State trading enterprises over one-third of world imports of wheat (and about 4 percent of exports) are conducted by STEs. With the exception of barley, the role of STEs are relatively insignificant for coarse grains, except in countries with food security concerns; because they lack transparency in their operations, the behaviour of STEs can be used to disguise trade distorting policies, and can therefore circumvent URAA commitments on market access and export subsidies; some progress have made by some countries by allowing increased private sector participation in grain trade.

71 66 WTO NEGOTIATING ISSUES Export restrictions and prohibitions used by a few countries especially during period of poor harvests (e.g. Hungary for maize, in late 2) but generally temporal in nature. Food security because of financial constraints and increased dependency on imports, most developing countries would prefer added flexibility to intervene in their domestic markets to mitigate the negative effects of export subsidies and market protection; a distinction should be made between short-term and long- term solutions to food security problems. In the short-term, food security is best served with targeted food aid and consumption smoothing policies under the provisions of the Marrakech Ministerial decision, but in the long-term the issue of raising income levels, which can be enhanced by trade liberalization is best option for the grains sector; consumption policies (in developing countries): ad hoc market intervention is continuing in a number of countries, especially those with food distribution programmes (e.g. India). Food safety of some relevance for the sector concerns have been raised notably by China, on wheat contaminated with TCK smut and Brazil for Karnal bunt; several countries have set up regulatory framework for trade in grains or other products containing GMOs grains. This and other issues related to uncertainties about phytosanitary standards are among the issues of concern during the ongoing trade negotiations for both developing and developed countries; precautionary principle adopted by some developed countries has come under strong attack. Rural development of significance for developing and transition countries in the area of non-trade concerns; direct relationship between this and food security concerns in developing countries with large numbers of small holders in rural areas; special provisions will be required to address this issue for the developing countries, most probably within a development box. Green box strengthening of the development box as part of green box is highly desired by developing countries, especially those still trying to achieve self-sufficiency in food production; most of the support provided by the developed countries fall under this category; general disagreement related to the distortionary effects of most grain support policies under the green box even when they are decoupled. Blue box not particularly relevant as only a few countries are using it. Special agricultural safeguard limited use made by developing countries as, normally, sector was already well protected by high bound tariffs.

72 WTO NEGOTIATING ISSUES 67 RICE Main policy area Remarks Tariffs Bound tariff rates are generally high, often in excess of 1 percent. Some countries (India, the Dominican Republic and Panama) recently re-negotiated those bindings because of the alleged insufficient protection they conferred to their domestic sectors; Applied tariff rates are often set equal to the bound level when international prices are low. However, their level tends to change frequently, depending on the domestic and international market situations. Such variations contribute a high level of uncertainty to the world rice economy. Moreover, variable import duties, for instance price band mechanisms, are popular among certain countries in Central America and the Caribbean and in South America; Four countries (Japan, the Rep. of Korea, the Philippines and more recently, mainland China, and the China s Province of Taiwan) have invoked deferred tariffication under the Special Treatment provisions of Annex 5. However, Japan resorted to tariffication in 1998, imposing a prohibitive level of yen 352 per kg (US$ 2943 per tonne). From the point view of the international rice exporters, deferred tariffication has been rather favourable, because it is associated with the opening of a larger tariff quota (to reach 8 percent of baseperiod consumption at the end of implementation period, instead of 5 percent, for the developed countries; 4 percent for the developing countries; Tariff escalation is of much less importance for rice than for other commodities, because of the relatively small volume of trade in paddy or unhusked rice. However, in general, tariffs on unprocessed rice are much lower than for milled rice. Tariff escalation is an important issue for rice imports into the EC when bound tariffs are analysed. However, the issue has become much less important there because of a provision that obliges the community to link the tariffs on husked and milled rice to the level of intervention prices. Such a provision has resulted in much smaller differentials in applied tariff across ricebased products. Special safeguards against imports Several countries have included rice in their schedules among the commodities subject to Special Safeguard provisions. They rarely have been invoked in the case of rice, but this needs to be checked with the WTO Secretariat. Tariff rate quotas Eleven countries have made commitments to grant minimum access through preferential-tariff rate quotas. Although they are often subject to high in-quota tariffs (e.g. 8 percent in Colombia, 9 percent in Indonesia, and 177 percent in Morocco), they often constitute the only means for accessing important markets (EC, Japan, Rep. of Korea, Taiwan Province, etc.), where out-of-quota imports are subject to prohibitive tariff rates; Problem of under-fill of TRQs are rare except in highly competitive, traditional exporting countries, such as Thailand; Administration of TRQs is often the responsibility of State Trading Enterprises or other government agencies. Various methods for allocating the quotas to external suppliers are being applied. For instance, they are allocated on the basis of tenders in Japan and in the Republic of Korea; on a first-come, first-served basis in the Philippines, or based on historical performance in the EC. The systems in place for allocating the TRQ among different exporting countries do not appear to have caused substantial problems. The erosion of preference benefits might become an issue for a small number of traditional suppliers to the EC. These schemes do not fall under the minimum access provision, since the EC imports some 4 percent of consumption. Such quotas are assigned to specific countries or country groupings (i.e. ACP countries) based on historical performance or special agreements. The value of such preference could be

73 68 WTO NEGOTIATING ISSUES Other market access barriers Export related measures jeopardised by further reductions in tariffs or by the recently launched EC Everything but Arms (EBA) programme. Administration of TRQs is often the responsibility of State Trading Enterprises or other government agencies. Various methods for allocating the quotas to external suppliers are being applied. For instance, they are allocated on the basis of tenders in Japan and in the Republic of Korea; on a first-come, first-served basis in the Philippines, or based on historical performance in the EC. The systems in place for allocating the TRQ among different exporting countries do not appear to have caused substantial problems. The erosion of preference benefits might become an issue for a small number of traditional suppliers to the EC. These schemes do not fall under the minimum access provision, since the EC imports some 4 percent of consumption. Such quotas are assigned to specific countries or country groupings (i.e. ACP countries) based on historical performance or special agreements. The value of such preference could be jeopardised by further reductions in tariffs or by the recently launched EC Everything but Arms (EBA) programme. Phytosanitary barriers are less important for rice than for other commodities. However, certain restrictions on rice imports from Vietnam and Thailand are in force in several Latin American and Caribbean countries on phytosanitary grounds, which strongly influenced the pattern of flows into that region; State trading in rice is very common, since a large number of exporting and importing countries rely on Government trade agencies to sell or purchase rice on the international market. Transactions through these agencies are usually not made in the open, and the quantities, prices and other conditions of the deals are often kept secret. Lack of transparency is therefore often associated with State Trading. However, lack of transparency also characterizes trading by producer associations such as the one responsible for rice exports in Australia, which does not even reveal the destination of exports; Negotiations over the suspension of state trading on international markets (as well as in domestic markets) would be of special importance to rice. It is noteworthy, however, that the private sector has played an increasing role in international rice trade since 1995 even in some of the countries that mainly rely on state trading enterprises to import or export rice (India, Indonesia, Malaysia, the Philippines, Vietnam, Myanmar, etc.). Export subsidy reduction commitments have been made under the URA by Colombia, Indonesia, Uruguay, the EC and the United States. Actual use of export subsidies has fallen short of the aggregate ceiling, although information is difficult to get even from WTO. Proposals for further reduction commitments are likely to meet the opposition from the EC; Other issues have arisen in relation to export competition in rice, in particular the granting of export credits by the United States. However, the use of export credits is known to be widespread, especially under Government-to- Government transactions, though little information is released in connection with such practices (provision of long term credits at low rates of interest); Restrictions on exports of paddy/unhusked rice are also applied by a large number of exporting countries as a way for protecting their milling industries. This reduces substantially the choice of importing countries that are trying to promote value-adding processing industries by importing non-milled rice.

74 WTO NEGOTIATING ISSUES 69 Amber box support Developed countries completed their Aggregate Measurement of Support (AMS) reduction commitments in 2, mainly through cuts in price support. Such cuts have been associated with a rise in compensatory payments to producers, classified either under the Blue or Green Box, which have been particularly important in the EC, Japan and the United States. The shift from price to income aids has not been associated with a major fall in production and certain developed countries are now confronted with large rice stocks. Support to the rice sector accounts for a very high proportion of the total AMS in Japan and the Republic of Korea. These countries are expected to resist proposals for a reclassification of policies (for instance from the green or blue boxes to the amber box). They are also likely to oppose further reductions in the AMS on the ground of concerns over national food security and preservation of the countryside, from the environmental, cultural and social viewpoints; Few developing countries have submitted a base AMS, thus few are subject to reduction commitments. Most developing countries still have ample scope for increasing their assistance to the sector, should they choose to do so, under the de minimis provision. Only very sizeable reductions in the de minimis ceilings could negatively affect rice producers in those countries where it account for an important share of total agricultural outlays, i.e. many Asian countries and several Latin American and Caribbean countries. The proposal to raise the de minimis under a special and differential treatment for least developed countries may have little effect since the 1 percent of base production value already granted does give ample scope for domestic support to the commodity; The impact of inflation and changes in exchange rates on current AMS may be of far greater importance for those countries that submitted a base AMS in domestic currencies and where inflation is high. Blue box support Decoupled, production-limiting payments are made to rice producers in the EC, Japan (Paddy Land Diversion Programme), the Republic of Korea, Mexico and the United States. Since 1999, they have been of critical importance to allow producer to weather the impact of low prices. They have been strongly criticised by other players in the rice market, for not being truly decoupled, and demands are made for their elimination/reduction by shifting decoupled income support and income safety nets from the blue to the amber box, subject to reduction commitments; The multi-functionality role of agriculture to cater for environmental, social and cultural concerns, was developed by the EC and Japan and is being used for defending the permanence of blue box payments in these countries. In Japan, most of the emphasis on multi-functionality and food security would be in relation to rice. In those developed countries where rice is a non-marginal crop, an elimination of blue box payments could considerably impair the sector. Green box support Considerable resources have been channelled to the sector in the United States through Production Flexibility Contracts, Retirement payments and payments for natural disasters, which have been classified in the Green box ; In general, there is a prevailing tendency to promote non-commodity specific programmes, such as producer insurance schemes, also in the developing countries; A number of developing countries support the inclusion of a Food Security box under the policies exempted from reduction commitments. This would contain, inter alia, poverty alleviation measures and product specific support to low income farmers. It would be of very high relevance to rice production in a large number of countries, especially India.

75 7 WTO NEGOTIATING ISSUES Environmental Rice production sites are often the habitat of a wide variety of birds and plants. Water management in rice lands also ensures a soil desalination process essential to the maintenance of land fertility. As a result, environmental concerns are frequently brought up in defence of the sector, especially in the developed countries. Food safety It is not very significant in the case of rice, although concerns are arising regarding GMOs. Rice varieties containing new genes (i.e. carotene-enriched rice) are being developed but are not yet internationally traded. Geographical indications One important emerging issues for WTO is related to the intellectual property rights over particular varieties of rice, in particular Basmati and fragrant rices, which have been developed in the United States. Bio-piracy of the genes is very much suspected. It is feared that the new strains developed in the United States could compete with rices from India, Pakistan and Thailand in international markets, especially in Near East countries, with serious negative implications for the traditional Basmati and fragrant rice exporters; There have also been some issues regarding the use of certain denominations such as Basmati or Jasmine rices. India and Pakistan are now fighting to get the name associated with the geographical zone of production.

76 WTO NEGOTIATING ISSUES 71 MEAT Main policy areas Remarks Amber box Domestic support to livestock industries remains relatively limited in both developed and developing countries; In some developed countries, emergency payments to grain producers in the context of low prices and to livestock producers in the wake of localised natural disasters have served to support the meat industries; Price support schemes provide significant support to the livestock sectors (beef and pork) in Japan and the Rep. of Korea; their respective PSEs for beef (OECD, 2) are 32 percent and 68 percent, respectively, while those for pork are 58 percent and 47 percent. Any reduction in the de minimis provision (1 percent of the base agricultural production value for developing countries) is unlikely to have much impact on livestock industries since developing countries provide very limited support to these industries (most support classified as green box). Green box Expenditures on research/veterinary and other livestock service industries are not production and trade distorting, hence not subject to reduction. The EU proposal to allow direct subsidies related to animal welfare costs to be included under Green box provisions could lead to higher overall subsidies to the EU. Since third-country exporters would not be required to adhere to EU standards, this proposal appears not to be directly trade-distorting Blue box Applies only to the EU and other European countries providing direct income support to beef and sheepmeat producers (decoupled, production-limiting payments). This support replaced market distorting government stockholding policies (for beef); however, the overall policy impact is to keep producers on farms, while encouraging extensive agriculture. Minimum access quotas: TRQ s TRQ s are applied by many countries, particularly for beef. The number of TRQ s for meat products is estimated at 249, second only to fruits and vegetables. Out-of quota duties tend to be prohibitively high, ranging from double the import duty (Poland) to over 1 percent (EU). Average out-of quota duties for meat are estimated by the OECD at 89 percent. Quotas assigned to specific countries or country groupings (i.e. ACP countries) tend to lock out new exporting countries. The simple average fill rate for meat products ranges around 6 percent in the period. This fill rate has increased since that time. Poultry has the highest fill rate among meat products with a four-year average (at 88 percent) that is greater than the average for all products (78 percent). The fill rate for pig meat is the lowest among the meat products (7 percent) while that of beef is the most variable. The lowest fill rates were observed for Hungary and Poland. Administration of TRQs (beef in the Rep. of Korea and pork and poultry in the Philippines) has occasionally given rise to disputes; however, none has been referred to the WTO. In some cases, such as the United States, scope for increased trade (particularly during herd rebuilding) could result from an expansion of the quota. In addition, market access for meat products in the EU remains constrained by quotas as well as preferential access. In general, any moves to expand quota levels while reducing both in- and outof-quota duties would facilitate meat trade.

77 72 WTO NEGOTIATING ISSUES Tariffs Bound tariffs remain high for meat products, particularly in developing countries where bound tariffs can exceed 1 percent. Within the meat products, the average tariff for beef is the highest while that for sheep meat is the lowest. In-quota tariffs are considerably lower than out-of-quota rates and average tariffs. But, with an average of about 2 percent, in-quota tariffs remain a constraint to trade. In addition to being very high in certain countries (EU beef/sheep meat, Japan pork, Mexico poultry), these tariffs contain substantial tariff peaks. For example, tariff rates on beef can range up to 169 percent in the EU, while Japan can import a tariff of 395 percent on pigmeat. Meanwhile over-quota tariffs in many developed countries are prohibitively high (see above). Tariff escalation appears to be a problem for meat products, particularly in meat-exporting developed countries, for example, the EU. Special (and regular) agricultural safeguards Several countries have reserved the right to impose SSG provisions for meat products. In Japan, in 21, the safeguard for pigmeat was triggered for the 4 th time. While the safeguards are trade distorting, they protect countries from import surges. In many cases, however, developing countries put in place bound tariffs (or ceilings) for meat imports in which case they don t have access to the SSG. In most cases bound tariffs are high enough to make the SSG unnecessary. Increasing recourse to countervailing duties (S. Africa), and anti-dumping (Mexico and Argentina) actions have been reported over the past few years. The extensive procedural requirements and conditions for using these measures make it difficult for developing countries to utilise these provisions. Export subsidies Direct subsidies (particularly for beef) create distortions in livestock and meat markets. In 2, the WTO quantity ceiling on subsidised meat exports totalled 2.3 million tons, or 14 percent of world trade. In the case of beef, subsidised volume limits totalled 1.2 million, or 19 percent of global beef trade. Export subsidy ceiling have been binding only for EU beef (in most years) and Hungary. Indirect subsidies (through increased domestic support for feed inputs) benefit livestock industries in developed countries through lower input costs. Export credits Intensively used by the US, particularly to move meat products to Mexico and the Rep. of Korea. State trading Not an issue for livestock trade. enterprises Export restrictions and prohibitions Not a serious issue for livestock trade, though measures have been applied recently in cases of animal disease outbreaks. Food security Not an issue for livestock trade except for the adverse impact that subsidized meat exports have on livestock industries in developing countries. Food safety SPS/TBT measures are expected to have a large impact on growth in meat exports, particularly from developing countries. Animal disease outbreaks have led countries to impose import bans and stricter sanitary requirements as well as other technical barriers, such as requirements on labelling and animal traceability schemes. Many of these food safety policy measures and regulations focused on ensuring food quality will persist and escalate in complexity. This raises the cost of exporting, particularly from developing countries. The issue of food safety, including the use of the precautionary principle, should be examined within the context of the SPS and TBT agreements, ensuring an adequate balance between food safety and open markets.

78 WTO NEGOTIATING ISSUES 73 OILCROPS Main policy areas Remarks Tariff quota administration TRQs are applied by a number of countries (including the Czech Republic, Poland, the Republic of Korea, Thailand, and the United States) where, in general, they tend to restrict trade. Furthermore, in some cases, problems in the administration of the quotas contributed to quotas not being filled fully. In China, where TRQs will be introduced for the first time in 22, the quotas are expected to create new, very important market access opportunities especially with regard to vegetable oils; Restrictive or insufficiently transparent administration methods have been reported for some countries (preferential allocation to/by state trading enterprises). Tariffs During the last few years, several developing countries tended to increase border protection (mainly by raising tariffs) in an effort to shield domestic industries from international competition - which started increasing in 1998, when international market prices commenced a marked and steady decline. Furthermore, several governments increasingly relied on import control measures as a complement to production policies since less intensive use was being made of price guarantee schemes, government procurement and other forms of direct market intervention. Tariffs were applied in conformity with individual countries WTO commitments. In some instances, countries raised tariffs, for the first time, to levels close to the (relatively high) bound rates; However, in a number of countries, particularly developed ones, import tariffs have been lowered (or import restrictions reduced) in pursuance of a number of different objectives, including (a) honouring tariff reduction commitments made under URAA or regional trade agreements; (b) ensuring adequate domestic supplies and protecting consumers from high prices; (c) improving access of crushers to imported raw materials; and (d) continuation of general trade liberalization reforms; Tariff escalation is widely used as numerous countries try to promote domestic crushing or refining industries with a view to reduce import bills and promote domestic value addition; With regard to policy options currently under discussions at WTO, the cocktail approach and reductions from applied rates are likely to have the strongest impact on the sector; Convergence to ad valorem tariffs: should have a positive impact as, currently, many complex duties are applied at the expense of transparency; Tariffs applied by developed countries generally do not overly penalise developing countries; developing countries can be expected to resist further tariff reductions unless domestic support and export subsidies provided in developed countries are also reduced; developing country import policies generally aim at enabling the sector to fully develop its production and processing potential; developing countries could benefit from improved market access (reduced tariff escalation) for processed oilseed products.

79 74 WTO NEGOTIATING ISSUES Amber box Some developing country producers/exporters strongly criticise trade distorting domestic support in developed countries where (relatively high-cost) production and exports expanded, aided by support measures; Support provided in developing countries is traditionally low (due to general liberalisation reforms, financial constraints etc.) and not affected by reduction commitments; mostly ad hoc intervention in domestic markets; Developed countries can be expected to insist on the framework of the amber, green, blue boxes as well as on the non-trade distorting character of certain measures. Export subsidies Direct export subsidies/refunds are only used in a few countries; Indirect forms of export subsidy are used in a number of countries (developed and developing; systematically and ad hoc): insurance and guarantee programmes; export credit, etc; Possible abuse of food aid (vegetable oils and meals) is an issue; Reduction or elimination of export subsidies is not expected to create particular difficulties in net food-importing developing countries. State trading enterprises Export restrictions and prohibitions Most STEs in the sector are dealing with imports; While still operating in selected countries (in particular China), STE interference in the sector has been progressively scaled back over recent years and is expected to continue diminishing. Used in a variety of developing countries and economies in transition, though mainly in a temporary manner; In the sector, the need to assist the development of processed product industries in developing countries is real and could justify the use of such measures in those countries. Food security Oilcrop-specific support and protection of subsistence farmers has weakened over past years relative to other sectors, mainly due to cuts in public spending; it has also lost its effectiveness due to increased attractiveness of imports (following the fall in world prices); Consumption policies (in developing countries): ad hoc market intervention continues to be used in several countries; but systematic subsidisation is being phased out as governments tend to redirect their attention to regulatory tasks; Developing countries: faced with rising import dependence, several countries have stepped up their efforts to shield domestic industries from international competition; most countries resorted to tariff measures; temporary export restrictions are applied by some countries. Food safety Concerns relate to contamination, toxic residues and adulteration of edible oils, as well as GMO traceability in oils and meals; these issues are much debated and of increasing concern to policy makers and legislators in both developed and developing countries; Precautionary principle adopted by some developed countries has come under attack by trading partners. Rural development Of significance for developing and transition countries in the area of non-trade concerns; Direct relationship between rural development and food security/rural poverty concerns in developing countries with large numbers of small holders in rural areas; Special provisions will be required to address this issue for the developing countries, most probably within a development box and even including some price/production intervention. Geographical indications Not applicable except for olive oil produced and marketed within the EU.

80 WTO NEGOTIATING ISSUES 75 Green box No sector relevance as, in principle, green box supports are non-crop specific. Even the recent US emergency payments have eventually been classified under the amber box; However, there is strong disagreement with regard to the distortionary effects of most arable crop support policies under the green box even when they are decoupled. Blue box Now only applies to EU direct aid payments for oilseeds; from 22, distortion effects are expected to be reduced in that oilcrop payments will be gradually lower and aligned to those offered to other arable crops. Whether the overall ceiling on area will still apply once full alignment is reached remains unclear. Special agricultural safeguard Although a number of developing and developed countries have reserved right to use SSGs in relation to oilseeds and products, since 1995 only two countries have actually taken action, with only small quantities being involved; Use of this tool by developing countries is expected to remain limited as, in principle, their industries tend to enjoy a high level of protection through relatively high bound tariffs.

81 76 WTO NEGOTIATING ISSUES DAIRY PRODUCTS Main policy areas Remarks Tariff quota administration TRQs are applied in several important markets, including the EU, United States, Canada and Japan; A major element of TRQ access for dairy products is country specific. For example, the TRQ for butter imports to the EU is allocated to New Zealand; Fill-rates for dairy TRQ s ( ) averaged 65 percent. Tariffs Tariffs in a number of developed countries in Western Europe, North America and Japan are set a very high levels, often in excess of 1 percent; Developing country tariffs are general low, or zero, exceptions are the Republic of Korea and China. Market access As there was no uniform methodology for calculating minimum access for dairy products (in terms of product definitions), access to some important markets is less than 5 percent; Some exporting countries have stressed the need to have a standardised methodology for calculating minimum excess for dairy products in any future round of negotiations. Amber box Domestic support to dairy producers in North America, Western Europe and Japan is viewed by low cost exporting countries as limiting access to these markets and, in the first two instances, producing a surplus which must rely on the use of subsidies in order to be exported; As an indication of the level of support given to dairy in many developed countries, average PSE s for the sector amongst OECD members are in the region of 55 percent; Domestic support provided in most developing countries, New Zealand, Australia and eastern Europe is either low or no-existent. Export subsidies The right to use export subsidies is mainly limited to countries in Western Europe and North America. Historically, high internal prices for milk have meant that such countries have had to reply on subsidies to export dairy products; Subsidised sales account for approximately 3 percent of world dairy trade; Canada has sought to develop a differential internal pricing system to allow domestic milk for processing into export products to be purchased by processors at world market prices (this system is the subject of a WTO dispute panel); During the Uruguay Round implementation period, both the United Sates and the European Union made use of roll-over provisions, whereby unused volumes of subsidised exports were carried over from one year to the next; Concerns that export subsidy limits might result in a substantial increase in food-aid have proved unfounded. Export credits Not important, as high-cost producing countries rely on exports subsidies (see above) State trading enterprises Since the 198 s, importing STE's have become progressively less important; In New Zealand, the export industry has been reorganised and the Marketing Board is no-longer a monopoly exporter of certain dairy products. Almost non-existent India has set some maximum limits on exports. Export restrictions and prohibitions Food security This issue is not frequently raised for dairy. Food safety At the national level, this is a very important and highly regulated issue within the WTO it has not been important, so far. Rural development Increasing farm income, including dairy development, is an important issue in many developing countries; Multi-functionality, including the role of dairy, important in some OECD countries. Green box This is not an important issue as research and other services to the dairy industry are not production or trade distorting. Blue box Not applicable to dairy, as EU support mechanisms to sector are not based on direct aid payments; rather, on a production quota system supported by subsidised storage, processing incentives and export subsidies. Geographical indications Important especially for European cheese.

82 WTO NEGOTIATING ISSUES 77 COTTON Main policy areas Remarks General Cotton is covered under the AoA, but cotton products are covered under the Agreement on Textiles and Clothing. Tariff quota administration A few countries such as China have TRQ for its imports. Tariffs Most tariffs on cotton are low but cotton textiles and clothing are highly restricted in many developed and some developing countries in order to protect domestic industries. Amber box Several major producers/exporters strongly resent the trade distorting domestic support provided in a few developed countries (e.g. United States and EU), where (relatively high-cost) production and exports are aided by support measures; Support provided in developing countries is traditionally low (due to general liberalisation reforms, financial constraints etc.) and not affected by reduction commitments; mostly ad hoc intervention in domestic markets. Export subsidies Direct and indirect export subsidies/refunds are used in the both developed and developing exporters such as EU. Export credits applied by few selected countries including US State Trading Enterprises Export restrictions and prohibitions Most STEs are importers; While still operating in selected countries in Asia (in particular China), STE interference in the sector has been progressively scaled back over recent years. To ensure the domestic inputs for the textiles industry, some countries such as Pakistan set up certain restrictions when domestic production was low. Food security Millions of small farmer rely on cash income from sales and exports of their cotton. Environmental measures Issues raised related to biotech cotton but no agreed measurements to deal with. Rural development Very important for local community development as millions of smallholders rely on cotton for their livelihoods.

83 78 WTO NEGOTIATING ISSUES RUBBER Main policy areas Remarks General Rubber is not covered under the AoA, although it is covered under the general GATT provisions governing merchandise trade. Market access Market access for natural rubber is governed primarily by ordinary tariffs. In most countries, import tariffs on rubber are quite low. Manufactured rubber products however often face higher tariffs. Quantitative import restrictions are also applied on rubber products in many countries. As automotive tyres are the major user of natural rubber, trade restrictions on automobiles can have important indirect effects on the rubber market. Domestic support A few exporting countries including Thailand was reported to have some domestic support measures. Export competition Direct export subsidies are not significant although export credits are used by a few countries. State Trading Enterprises Export restrictions and prohibitions Mainly importing STEs; While still operating in selected countries in Asia (in particular China), STE interference in the sector has been progressively scaled back over recent years. Not significant. Food security Millions of small farmers obtain cash income from sell/export rubber Environmental measures Rubber production is believed to be an environment friendly activity. Rural development Very important for local community development

84 WTO NEGOTIATING ISSUES 79 JUTE AND HARD FIBRES Main policy areas Remarks General Jute and hard fibres and products thereof are covered under the Agreement on Textiles and Clothing, not under the AoA. Other general provisions of the GATT apply to these products. Market Access Some developing countries apply tariffs on some processed fibre products; Government procurement practices in India prohibit the purchase of imported products. Domestic supports Not relevant. Export subsidies Some export subsidies are provided by India and Bangladesh for certain jute products. Export credits Not relevant. State Trading Enterprises Export restrictions and prohibitions While still operating in some countries in Asia (in particular China), STE interference in the sector has been progressively scaled back over recent years. Used only occasionally in a some developing countries. Food security Exports of these commodities provide income vital for food purchases by people who, in many cases, are among the poorest. Food safety Not relevant. Rural development Important.

85 8 WTO NEGOTIATING ISSUES HIDES AND SKINS AND LEATHER Main policy areas Remarks General Hides and skins and leather are not covered under the AoA, although the AoA has indirect implications for the sector through its implications for meat and dairy policies. These products and leather are covered under the general provisions of the GATT. Tariffs No import tariffs are applied to raw hides and skins; Tariff escalation is an issue for leather and leather products as import tariffs vary according the level of processing; i.e. finished leather, leather bags, leather shoes etc. carry high tariffs in some countries. In developed countries the weighted average is about 5 percent for leather, 8 percent for leather products and as high as 8 percent for leather footwear. Quotas are occasionally introduced. Export subsidies Direct export subsidies/refunds are hardly used in the sector. Export restrictions and prohibitions Export prohibitions, export taxes and combinations are used in a number of developing countries; Restrictions on export of raw hides and skin, wet blue and crust, are typically imposed in order to assist the development of the domestic tanning and leather manufacturing industries. By increasing domestic supply within the country local tanneries have lower cost, investment in processing and manufacturing becomes more profitable. However the lower prices reduce the incentive to supply good quality material. Food security Provides income for processors and is a source of employment in tanning and manufacturing. Environmental measures Rural development Important. Safeguard measures Limited. Tanning industry can be highly polluting; The cost of meeting environmental standards is one reason for shift of activity from developed to developing countries; Discussion of a proposal for an industry-wide international ecolabelling scheme has not borne fruit.

86 WTO NEGOTIATING ISSUES 81 TROPICAL FRUITS Main policy areas Remarks Tariff quota administration No TRQs for tropical fruits. Tariffs Applied tariffs for tropical fruits in developed countries generally range from to 2 percent.; For developing countries bound tariffs range from 35 to 1 percent, although applied tariffs are generally much lower. Most countries have actual import tariffs below committed bound rates for fresh fruit imports; Under the Uruguay Round, developed countries reduced agricultural tariffs by an average of 37 percent for tropical fruits and nuts. Tariff escalation Tariff escalation is a serious problem for processed tropical fruits. The EU and Eastern Europe have the highest tariff escalation for fruit juice, followed by North America and Southern Africa. Southern Africa has the highest escalation for fruit preparations, followed by Eastern Europe, North America and South Asia. Amber box n.a. Export subsidies n.a. Export credits The notifications of 12 WTO Members make reference to export credit financing or insurance agencies or programmes, the most notable being the State Trading Enterprises USDA s Market Access Program. Most STEs for tropical fruits are exporting operations; Several STEs are operating in the United States, Australia, India, Indonesia, Pakistan, Bangladesh, UAE, South Africa, Philippines, China, Turkey and Iran. Export restrictions and prohibitions Mostly to do with SPS measures, refer to Food Safety section. Food security For tropical fruit, contribution to food security is not only derived from income generated by the enterprise, but also the nutritional contribution to the household diet. Food safety The biggest hindrance to tropical fresh fruit trade is the lack of harmonised technical standards and treatments for fruit exports. This situation has been exacerbated with the phasing out of methyl bromide. There is ongoing research on alternatives to methyl bromide, and harmonisation is still a long way off; Codex Maximum Residue Level of pesticides restrictions include: Avocado (mg/kg): Bromide Ion 75, Carbendazim.5, Chinomethionat.1, Metalaxyl.2, Prochloraz 5; Mango (mg/kg): Carbendazim 2, Dithiocarbamates 2, Prochloraz 2, Propiconazole.5, Triademefon.5, Triadimenol.5; Papaya (mg/kg): Chinomethionat 5, Dithiocarbamates 5, Prochloraz 1; Pineapples (mg/kg): Deltamethrin.1, Diazinon.1, Disulfoton.1, Ethoprophos.2, Fenamiphos.5, Heptachlor.1, Methidathion.5, Methomyl.2, Oxamyl 1, Triadimefon 2, Triadimenol 1; Technical clearance for imports can take many years to achieve due to lengthy testing requirements and administrative backlogs. For example, it took from 1991 to 2 to obtain Australian clearance for imports of Thai durian; Issues have been raised on equivalency of levels of protection of developed and developing countries. Rural development Contribution to the development of rural economy, infrastructure and social services.

87 82 WTO NEGOTIATING ISSUES SUGAR Main policy areas Remarks Tariff escalation Tariffs are particularly high for sugar beet. The EU and Other West Europe, respectively at 349 and 144, have the highest escalation rates. Tariff rate quota administration 51 sugar TRQs notified to WTO in 1999; TRQ under-fill for some countries (both chronic and acute problems in fulfilling quota volumes); TRQs exercised in several countries (including Barbados, Colombia, Costa Rica, El Salvador, EU, Philippines, Guatemala, Hungary, Iceland, Malaysia, Mexico, Morocco, Nicaragua, Slovak Republic, South Africa, Thailand, Tunisia, United States and Venezuela); Most well known TRQs applied in EU and United States; Under the Everything but Arms (EBA) Agreement, Full liberalization will be phased out between 1 July 26 and 1 July 29 by gradually reducing the EU tariff to zero. In the meantime, LDC raw sugar can come duty free within the limits of a tariff quota; TRQs in the United States are used as policy instrument to restrict sugar imports to the extent needed meet United States sugar program objectives. In practice, the United States market access commitment made under WTO rules means that a minimum of 1256 million short tonnes (ST) of foreign sugar must be allowed to enter the domestic market each year. While the commitment sets a minimum import level, no other provision limits United States policymakers in allowing additional amounts of sugar to enter if needed to meet domestic demand. Under these rules, foreign sugar (including imports from Mexico under the NAFTA Agreement) enters under two TRQs: one for raw cane and the other for a small quantity of refined (including beet) sugar. Tariffs Overall, reductions in tariff levels for sugar were much smaller than for other agriculture products, with dairy the only other sector reviewed by WTO to show less reduction than sugar. Megatariffs on ex-quota imports are applied by EU and United States; Under the EBA trade Agreement, the full liberalisation of sugar will be phased in during a transition period. Duties on sugar will be reduced by 2 percent on 1 July 26, by 5 percent on 1 July 27, and by 8 percent on 1 July 28, and eliminated at the latest by 1 July 29; The amount of sugar entering the United States under each quota is subject to a zero or low duty. Sugar entering above each quota is subject to a tariff that declines over time according to the rate specified in the trade agreement. Amber box Market price support is applied in the US sugar program through loan price guarantees to beet processors/cane millers; Intervention price support is applied in EU sugar policy; Price support levels remain high, particularly for sensitive commodities such as sugar, despite commitments for reductions. Export subsidies There are 11 export subsidies commitments by WTO Member Countries; Nine countries plus EU committed to reductions in subsidised sugar exports (largest reduction commitments by EU, Mexico, Brazil and South Africa); EU did not make export subsidy commitments on the subsidised quantity of exports equal to its Special Preferential Sugar import quota (Sugar Protocol). Export credits There is no agreement in existence on use of export credits; Export credits for sugar are not extensively used as exports of sugar are generally limited by high taxes to ensure the internal market supply.

88 WTO NEGOTIATING ISSUES 83 State Trading Enterprises STEs still operate in several countries, mainly to regulate exports (Australia) or monitor both internal and external prices and trade (India and China); Lack of transparency in the policies applied by STEs remains an important issue in sector; A number of countries seeking accession to WTO use STEs to implement agricultural policies, including sugar. Not particularly relevant to sector. Export restrictions and prohibitions Food security Several developing countries have increased efforts to shield domestic industries from international competition; mostly through tariff measures, or price stabilization schemes utilizing a form of variable levy based on world market price (usually applied within bound rate); Also related to rural development and domestic consumption policies. Food safety Sanitary and Phytosanitary Measures (SPS measures), while important to sector, are typically not used as a technical barrier to trade as often as in other sectors; SPS Measures are not as important to sugar sector as most volume traded is for further processing, and refining process is a further purification of product (polarity). Rural development Sector is important for rural development in many developing countries, particularly the role of smallholders; For the Africa, Caribbean and Pacific (ACP) countries with preferential access to EU sugar market, sugar sector estimated to contribute 2 percent to GDP and employ 3 percent of labour force; Sugar sector contributes to development of rural infrastructure and provides social amenities (such as hospitals, schools, electricity, transportation). Green box Cost of drainage and irrigation borne by federal government in Australia; several countries challenged. Blue box Applies to EU direct aid payments. Special Agricultural Safeguard Special Safeguards invoked by many of the less efficient sugar producing countries during recent period of low world prices (notably for India, Philippines, US and EU); Under the Everything but Arms (EBA) Agreement, the EU will carefully monitor imports of sugar and apply safeguard measures if necessary to address serious difficulties to EU producers; Notifications on both import volume surge and price levels.

89 84 WTO NEGOTIATING ISSUES COCOA Main policy areas Remarks Tariff escalation Cocoa producing countries limit themselves to mainly exporting beans -rather than manufactured cocoa, or chocolate products- mostly because of tariff escalation. The EU has a bound rate of percent for cocoa beans, but a 7.7 percent, and 15 percent ad valorem duty on cocoa powder and chocolate crumb containing cocoa butter respectively; Similarly, Japan applies a bound rate of percent for un-processed cocoa beans, but charges a 1 percent tax for cocoa paste wholly or partly defatted, and a 29.8 percent duty on cocoa powder containing added sugar; The US has no ad valorem on cocoa beans, but imposes a duty of.52 cents/kg for cocoa powder with no added sugar- and tariffs could go up to 52.8 cents/kg for imported chocolate products containing cocoa butter. Tariffs Generally speaking, the average tariff on cocoa products is lower than the overall average agricultural tariff for developed countries. Developing nations, however, impose higher tariffs on cocoa products. For example, India charges a 35 percent duty on cocoa beans roasted or not. Similarly Egypt and Brazil have a tax duty of 2 percent and 12.5 percent respectively; Developing countries viewpoint: tariffs applied by developed countries generally do not overly penalise developing countries; developing countries themselves were free to increasingly restrict importation thanks to high bound rates; developing country import policies generally aim at enabling the sector to fully develop its production and processing potential; developing countries could benefit from improved market access for processed products. Amber box Cocoa exporting countries have liberalized their cocoa industry through the dismantling of national marketing boards. Prices are now determined by market forces. State trading Most state trading enterprises have made room for private exporting entities. enterprises Export restrictions and prohibitions In the sector, the need to assist the development of processed product industries in developing countries is real and could justify the use of such measures in those countries. Côte d'ivoire has lowered its fixed export tax on cocoa from 15 CFA/kg to 125 CFA/kg in Food security Cocoa prices have been declining for the last three years, affecting export for exporting countries and their ability to import food to meet their nutritional requirements. Food safety Quite significant for the sector: contamination, toxic residues, quality of exported beans, use of molecular biology to improve cocoa production, regulatory procedures at the processing level in developing countries, shipping and storage of cocoa beans. Rural development Very critical as most of rural cocoa beans producers rely on export earnings for their livelihood. Cocoa earnings also contribute to rural infrastructure development, roads, storage facilities, schools, hospitals, first-stage processing firms.

90 WTO NEGOTIATING ISSUES 85 COFFEE Main policy areas Remarks Tariff escalation Tariffs on processed coffee are generally low for the EU, the US, and Japan. The EU, for instance, applies an average duty of 9 percent for higher levels of processed coffee. Other markets such as, India, and Ghana have a duty on instant coffee of 35 percent and 2 percent respectively; Developing countries export mainly non-processed coffee. The largest amount of coffee is imported in its raw state, in the form of unroasted green coffee beans. Tariffs Generally low for developed countries, but high for developing nations. Amber box Coffee exporting countries have liberalized their coffee industry through the dismantling of national marketing boards. Prices are now determined by market forces. Export subsidies Not relevant Export credits Not relevant State Trading Enterprises Most state trading enterprises have made room for private exporting entities. The state has taken the role of a regulatory power, setting rules and regulations. For example, the government of in Côte d'ivoire established in 2 the ARCC (Coffee and Cocoa Regulatory Authority) to regulate the activities of the coffee sector. n.a. Export restrictions and prohibitions Food security During recent years, coffee prices have been the subject of severe fluctuations. In 1997, prices of Arabic coffee went up substantially then latter collapsed. More than any other cash crops from developing countries coffee prices exhibit high variability. Food safety Quite significant for the sector: contamination, toxic residues, quality of exported beans, use of molecular biology to improve coffee production, regulatory procedures at the processing level in developing countries, shipping and storage of coffee beans. Rural development Very critical as most of rural coffee beans producers rely on export earnings for their livelihood. For example, coffee is main source of income for farmers in Uganda. Three-quarters of the population earn money from coffee production export. Coffee earnings contribute to infrastructure development, roads, storage facilities, schools, hospitals, first-stage processing firms. Geographical indications Specialized coffee from Colombia (Milds), and Jamaica (Blue Mountain), do fetch premiums.

91 86 WTO NEGOTIATING ISSUES TEA Main policy areas Remarks Tariff escalation Tariffs on processed tea are generally low for Japan, the US and the EU. The US, for instance, imposes a duty tax of 6.4 percent on flavoured green tea, while the EU charges a 3.4 percent duty. For other importing countries such as Turkey and India, a duty of 145 percent and 7 percent, respectively, is charged on Black fermented and partly fermented tea in immediate packages not exceeding 3kg. (retail packs). Tariff quota administration No TRQs for tea. Tariffs The reduction of dutiable tea products was slightly below the overall average reduction of 37 percent. Developed countries reduced agricultural tariffs by an average of 35 percent; Developed countries have significant lower tariff levels, while most developing countries seem to impose higher taxes. Amber box Not relevant Export subsidies Not relevant Export credits Not relevant State Trading enterprises Still dominate producing/exporting countries. Export restrictions and prohibitions Not relevant Food security Food security for tea is very effective due to greater/wider distribution of income and other benefits due to intensive farming practices. Food safety Levels of Maximum Residue Limits in tea need to be harmonised; The IGG on tea formed a working group to look into this issue. Rural development Employment and income from tea provides important multipliers for rural development and for social amenities such as schools and hospitals, as well as electric and hydraulic infrastructures, and several channels of communication such as roads. Geographical indications Specialized teas such as Darjeeling and Assam Tea, do fetch premiums.

92 WTO NEGOTIATING ISSUES 87 CITRUS AND CITRUS JUICES Main policy areas Remarks Tariff quota administration TRQs are applied by some countries such as Rep. of Korea and by the EC; Inquota tariffs vary significantly (1 percent in the EC, 4 percent in Korea). Fill rates are generally close to 1 percent due to the small sizes of the TRQs. Outof-quota tariffs can be very high (144 percent in Rep. of Korea); Restrictive or insufficiently transparent administration methods exist in some countries; for example, the Republic of Korea gives preferential allocation to citrus growing co-operatives and uses a non transparent bidding system for quotas. Tariffs Tariffs on fresh citrus applied by developed countries vary considerably, ranging from (Canada) to 36 percent (Japan). They frequently include seasonal elements that can double tariffs when domestic product is on the market. However, tariffs tend to be low during Southern Hemisphere harvest season; Tariff escalation is a serious problem in many countries and in many cases, tariffs on processed products are prohibitive (e.g. 63 percent on Brazilian FCOJ in the United States). Producing country import policies generally aim at enabling the sector to fully develop its production and processing potential; Specific and complex duties are commonly applied that reduce comparability of tariffs over time and across countries; convergence to simple ad valorem tariffs should have positive impact on transparency; cocktail approach or reductions from applied rates likely to have the strongest impact on the sector; Developing countries could benefit from improved market access for processed products, particularly for juices, frozen concentrated or not from concentrate; Preferential access for smaller suppliers among developing countries could also help many smaller suppliers compete. Domestic support Some developing and developed country producers/exporters criticise trade distorting domestic support in developed countries where (relatively high-cost) production and exports expanded aided by support; Processing subsidies to EC citrus producers is a clear form of distortion as it allows them to keep average costs down by processing fruit that cannot be sold due to its quality, an advantage not available to developing countries; EC support to domestic producers for promotion of citrus is seen as a distortion and indirect subsidy; Support provided in developing countries is traditionally low (due to general liberalisation reforms, financial restraints etc.) and not affected by reduction commitments. Export subsidies Direct export subsidies/refunds are a basic and significant element in EC policy in the sector; Indirect forms of export subsidy used in a number of countries (developed and developing; systematically and ad hoc): insurance and guarantee programmes; export credit (especially in the United States); Difficulties in net food-importing developing countries as a result of elimination of export subsidies is not considered a problem, as most subsidies are directed at markets in transition or to other developed markets. Environmental measures Sustainable modes of production have emerged and some citrus farms are being certified under voluntary programmes run by NGOs (e.g. eco-labelling, fair trade, and organic agriculture).

93 88 WTO NEGOTIATING ISSUES Food safety Significant issues: contamination, toxic residues from post harvest treatments and traceability. Rural development Citrus sales and exports generate income for smallholders and plantation workers in rural areas of many developing countries; they provide many direct and indirect jobs. Geographical indications Trend in the EC to use them for some citrus production areas (e.g. in Spain and Italy for lemons).

94 WTO NEGOTIATING ISSUES 89 BANANAS Main policy areas Remarks Tariff quota administration TRQs are applied by some countries. The EC is the most important trade group applying TRQs, discriminating between ACP and other imports; Licenses are issued on a historical basis in the EC TRQ regime, with favourable treatment given to multinational companies based on a base period that results in the multinationals having some 8 percent of the licenses to import bananas into the Community, Tariffs In most developed countries, tariffs on bananas are quite low, generally in the range of -1 percent. Higher tariffs applied by some developed countries are hold-overs from earlier times when revenue gains were sought or domestic industries were to be protected (e.g. Japanese seasonal tariffs); Many developing countries employ an array of tariffs to protect their own banana production; Specific tariffs are commonly applied for bananas, creating problems of comparability over time and across countries. Convergence to ad valorem tariffs would improve transparency; The greatest point of contention is EC discrimination through preferential access for ACP countries, which themselves are unhappy with the fact that there is discrimination among them due to the allocation of licenses to importers, who earn the economic rents of a restricted regime; A commitment by the EC to definitively move to a "tariff only" regime for bananas in 26 would go a long way to resolving the continued friction in world banana trade. Domestic support EC support to its banana producers is designed to protect the 18 percent of their banana consumption produced within the Community s overseas territories. EC domestic support has grown almost five fold since 1992 to a point where it exceeds the prices received for fruit by producers; EC production continues to grow due to support, but developing countries have yet to make this a negotiating point; Support provided in developing countries is traditionally low, in some measure due to general liberalisation reforms based on IMF structural adjustment packages, financial restraints etc. They are not affected by reduction commitments. Food security Bananas and plantains are the fourth most important food crop; 85 percent of production is consumed domestically in producing countries as food; the problem is inadequate internal distribution, underdeveloped regional trade and inadequate supply due to yield declines for plantains in particular in some countries where plantains/bananas are a staple food. Environmental measures Excessive use of agrochemicals on banana plantations has led to serious environmental damage and health problems in many production areas. As a result, more sustainable modes of production have emerged and are being certified under voluntary programmes run by NGOs (e.g. eco-labelling, fair trade, and organic agriculture). Food safety Traceability programs requested by supermarkets are burdensome for some producers, notably smallholders; GMO traceability may eventually become a problem if and when there is a breakthrough in GM technology in bananas. Rural development Banana exports generate income for smallholders and plantation workers in rural areas of many developing countries; they provide direct and indirect jobs (e.g. packinghouses, input suppliers, transportation) to hundreds of thousands of people.