agriculture

BOOSTING ARMENIA’S AGRICULTURAL EXPORTS

Yerevan - 2008

2BOOSTING ARMENIA’S AGRICULTURAL EXPORTS

TABLE OF CONTENTS

LIST OF ABBREVIATIONS 4

EXECUTIVE SUMMARY 6

GENERAL OVERVIEW OF ARMENIANAGRICULTURAL EXPORT CAPACITY 8

1. Armenia’s Obligations within the World Trade Organization . . . . . . . 11

2. Benchmark Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

BEST PRACTICES FOR AGRICULTURAL EXPORT 183. Tax Incentives and Subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

3.1. Best Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183.2. Implementing Tax Incentives and Subsidies in Armenia . . . . . . . . . . . . 223.3. Strategy Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

4. Financial Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254.1. Best Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254.2. Financial Support in Armenia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264.3. Strategy Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

5. Trade Agreements and Trade Liberalization . . . . . . . . . . . . . . . . . . . . . . . . . 295.1. Best Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295.2. Trade Agreements and Trade Liberalization in Armenia . . . . . . . . . . . . 305.3. Strategy Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31


6. Trade Promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326.1. Best Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326.2. Trade Promotion Efforts in Armenia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366.3. Strategy Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

7. Self-help Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 417.1. Best Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 417.2. Self-help Groups in Armenia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 417.3. Strategy Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

8. Research and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 438.1. Best Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 438.2. Research and Development Efforts in Armenia . . . . . . . . . . . . . . . . . . . . . 448.3. Strategy Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

STRATEGY SUMMATION 47

CONCLUSION 49

REFERENCES 50


LIST OF ABBREVIATIONS

ACBA Agricultural Cooperative Bank of Armenia

ARC Agricultural Research Council

ARID Armenian Improved Dairygoat Cooperative

ARSP Agricultural Reform Support Project

ASC Agricultural Support Center

ASME USAID Armenia Agribusiness Small and Medium Enterprise Market Development Project

BIS Beureau of Indian Standards

BNDES Brazil’s main export bank

BOI Thailand’s Board of Investment

BSN Indonesia’s National Standard Agency

BSP Business Service Providers

CBIK Centre for Business Information in Kenya

COMPEX Mexico’s Joint Export Promotion Commission

DEP Thailand’s Department of Export Promotion

DTI South Africa’s Department of Trade and Industry

ECGC India’s Export Credit Guarantee Corporation of India Limited

ECI Export Credit Insurance

EMIA South Africa’s Export Marketing and Investment Assistance Scheme

EPC Kenya’s Export Promotion Council

EPP Export Promotion Programs

EU European Union

EXIM Export-Import

FAO Food and Agriculture Organization of the United Nations

FARA Founcation of Agricultual Research and Agribusiness

FPEAK Fresh Produce Exporter Association of Kenya

FTA Free Trade Agreement

GAP Good Agricultural Practices

GDP Gross Domestic Product

GMP Good Manufacturing Practices

ha Hectare

IBEF India Brand Equity Fund


IEC International Electrotechnical Commission

ISO International Organization for Standardization

ITPO India Trade Promotion Organization

KARI Kenyan Agricultural Research Institute

MAI Market Access initiative

MAP USDA Market Assistance Project

MDA Marketing Development Assistance

MECIB Malaysian Export Credit Insurance Berhard

MERCOUSUR Southern Cone Common Market

MIS Market Information Service

MMT Million Metric Tons

MTDR Indonesia’s Medium-Term Development Plan

NAFED Indonesia’s National Agency for Export Development

NAFTA North American Free Trade Agreement

NEIA National Export Insurance Account

NES Kenya’s National Export Strategy

NGO Non-Governmental Organization

NIS Armenia’s National Institute for Standards

ProChile Chilean Export Promotion Bureau

PROEX Brazil’s Export Financing Program

PSF Preshipment Financing Facility

PTA Preferential Trade Agreements

R&D Research and Development

SEFF Small Exporters Financing Facilities

SEZ Special Economic Zone

SME Small and Medium Enterprises

SPP Security and Prosperity Partnership of North America

TRIMS Trade Related Aspects of Investment Measures

USA United States of America

USAID United States Agency for International Development

USDA United States Department of Agriculture

VAT Value Added Tax

WTO World Trade Organization

EXECUTIVE SUMMARY


EXECUTIVE SUMMARY

The purpose of this study is to recommend how to best implement best practices of benchmark countries for the purpose of developing Armenia’s capacity for ag-ricultural export. The current state of the Armenian agricultural sector is compre-hensively described and its strengths and weaknesses identified. These character-istics form a baseline from which recommendations and development strategies are developed.

Having analyzed the current state of the Armenian agricultural sector, several benchmark countries were selected for their best practices. The countries cho-sen include: Argentina, Brazil, Chile, Columbia, India, Indonesia, Kenya, Malaysia, Mexico, South Africa, and Thailand. These countries were chosen for exceptional success in development of agricultural production and export, and for conditions they share with Armenia.

Best practices of the benchmark countries were chosen to address obstacles that exist in Armenia and which were successfully overcome in benchmark countries. Best practices identified covered a range of subject matters including: tax incen-tives and subsidies; financial support; trade agreements and trade liberalization; trade promotion; self-help groups; and research and development.

Implementing tax incentives is one of the most direct and effective tools at the disposal of any government to shape industrial policy and the economy of their country. Identified best practices in this group include: a duty drawback system; suspension of import taxes; price support, import of substitute goods; tax exemp-tions; tariff escalation schemes; a temporary entry regime; the implementation of special economic zones; and subsidized product promotion.

Despite the potential effectiveness of these practices, they are all dependent on successful tax collection, therefore their effects in Armenia are somewhat uncertain as the VAT tax will soon be applied and farmers currently pay quite a low tax rate. In general, however, a blanket low tax rate removes one of the Government’s most significant tools to shape agricultural production and develop targeted branches of comparative advantage for export.

Best practices in financial support aim to lower transaction costs and supply pro-ducers and processors with the necessary means to develop. Specific financial sup-port practices recommended include: provision of rural credit; export credit guar-antees; provision of insurance; export finance; priority lending requirements; and

preshipment financing facility. The primary obstacles to implementing financial support programs include macro-level governance issues, budgetary limitations, and law enforcement issues.

Regarding trade agreements and trade liberalization, Armenia’s already low tariff rates and liberal trade policy limit the benefits to be had from simple trade agree-ments. Nonetheless, such agreements can attract assistance of developed coun-tries to reduce Armenia’s significant non-official trade barriers. To accrue these benefits, any trade agreements will have to contain deep provisions and they must be accompanied by significant efforts on the part of the Armenian government to make the Armenian markets attractive to foreign participants from developed countries.

Trade promotion practices have the potential to yield significant benefits at a low price if effectively implemented. Identified practices include: market research; pro-vision of trade data; assistance in establishing trade relationships; consultation and training activities; industry branding; assistance in dealing with technical regula-tions; compensation of export related expenses; and facilitation of a dialogue be-tween the Government and the private sector.

Development of self-help groups is a very promising practice that is very well suit-ed to Armenia. Unfortunately development of such groups is hindered by a lack of trust in the Government’s willingness to provide legal support and in their fellow market agents.

Finally, research and development, while potentially very costly, has the potential to yield great benefits. For this reason research and development efforts must be incorporated into a rational strategy to develop targeted infant branches in order to be sufficiently concentrated to have significant effects.

Best practices under the heading of research and development include: identifica-tion of areas of comparative advantage; government support and incentives for private research; development of new uses for existing products; development of new genetic strains; and maintenance and coordination of research institutes.

Besides being divided into categories of development aspect, identified best prac-tices can be divided into three general types of implementation strategy. First are those best practices that can achieve significant results immediately in the

EXECUTIVE SUMMARY


current state of agricultural development. The second group includes those prac-tices that are best implemented as part of a comprehensive national strategy aimed at developing targeted infant industries of comparative advantage. The third group consists of those practices that should be preceded with feasibility studies before implementation to determine how they might be most effectively implemented in Armenia.

Based on these categorizations, a general recommendation is made as how to im-plement the best practices in the most cost effective and efficient manner. Though all the identified best practices have potential to yield significant benefits, budget-ary constraints necessitate that they be incorporated in the most efficient man-ner possible. Ultimately, this study recommends that most important strategies to implement are those of the second group.

A rational strategy focused on the development of a few target agricultural prod-ucts can achieve results rapidly. Implementation of such a strategy will also result in less waste as new funds will be directly applied to an area that will achieve re-sults in the short-term. Strategies from the first and third groups should be imple-mented in such a way as to effectively compliment this strategy.

GENERAL OVERVIEW OF ARMENIAN AGRICULTURAL EXPORT CAPACITY



Agriculture is a sector of great importance in the Armenian economy. As of 2003, Armenia had 335,000 self-sustaining private farms with an average territory of 1.3 hectares (ha), and over 40% of the total labor force was involved in agricultural pro-duction. In rural areas, the proportion of the labor force employed in agriculture may be as high as 80%, which makes the development of this sector all the more important for poverty reduction.

Nonetheless, agriculture as a percentage of GDP has been decreasing steadily since 1996. Although percentage of agriculture in GDP has declined from 25.5% in 2001 to 18.1% in 2006, the production in agriculture and food industry increased. This can be accounted for in part by development of industry, but the compara-tively slow growth of the agricultural sector reflects several deficiencies of Arme-nian agricultural.

It was estimated that in 2002, Armenia was operating at only 50-60% efficiency in the agricultural sector, so there is significant potential for expansion. As a result, recent increases in GDP have largely benefited urban areas with low poverty re-duction in rural areas. While they present challenges, these deficiencies are not without remedy.

Share of Value Added Agriculture in GDP, Armenia

0.2550.234

0.215 0.225

0.190 0.181

0.000

0.050

0.100

0.150

0.200

0.250

0.300

2001 2002 2003 2004 2005 2006

Shar

e in

GD

P

Source: NSS Armenia, AEPLAC (2007), GII Calculations

Food processing growth in Armenia

-25

-20

-15

-10

-5

0

5

10

15

20

25

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

200000

2001 2002 2003 2004 2005

Perc

ent

Mill

ion

Dra

ms

Growth rate

Real growth rate

Output of food products

Source: NSS Armenia, Global Insight Report: Armenia, GII Calculations

Armenian exports have been growing consistently since 1999. Armenia’s export is highly concentrated with the 15 top export sectors accounted for about 81% of total exports in 2006. Armenia’s total exports of agricultural goods increased from $50.195 million in 2001 to $109.745 million in 2005.

Total imports of agricultural goods increased from 208.208 million in 2000 to 299.543 million in 2005 over the same period. Food exports grew from 6.674 mil-lion in 2001 to 13.948 million in 2005, while food imports grew from 140.216 mil-lion to 198.019 million.

The main agricultural export goods of Armenia are distilled alcoholic beverages, with a share of 73% in total agricultural exports in 2005. Roasted coffee and green coffee are in second and third place with shares of 3.7% and 3.1%. Key agricultural exports include cognac, grape wine and champagne, tomato paste, canned fruits and vegetables, fruit and vegetable juices, fruits, shell eggs.

Top export destinations include the EU (particularly Germany, Belgium and Neth-erlands), CIS countries (particularly Russia), and Israel.



Armenian Foreign trade

0

5

10

15

20

25

30

2003 2004 2005 2006 2007

Belgium Georgia Germany Israel Netherlands Russia Switzerland USA Others

Source: ADA

Armenia’s merchandise trade dynamics

-1500

-500

500

1500

2500

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

USD million

Balance Export Import

Source: Key indicators of Developing Asia and Pacific Countries, 2007; IBM report, 2004.

Another striking feature of the Armenian economy is its large negative trade bal-ance equivalent to 18.6% in 2006. Remittances from Armenians living abroad have traditionally compensated for this trade deficit, but statistics indicate that this trend is changing, making the need for export stimulus all the more important.

The balance of payments, current account (US$ m)

Jan- June 2006 Jan- June 2007

Exports 455.1 487.2

Imports -833.3 -1174.5

Trade Balance -378.2 -687.2

Services balance -52.0 -79.4

Income balance 88.5 133.3

Current transfers (remittances) balance 286.3 377.6

Current account balance -55.4 -255.8Source: Economic feasibility

In 2002, in cooperation with the Food and Agriculture Organization of the United Nations (FAO), the ministry of agriculture developed a plan for realistic and sus-tainable development of the agricultural sector. Though overarching goals were primarily related to poverty reduction, these were to be met by developing export sub-sectors and import substitution. There is a ten-year timeframe for implemen-tation of the strategy with short and medium term goals set for implementation at two and five years respectively.

The strategy identified several policy objectives crucial for the development of the agricultural sector including:

◙ the development of a favorable environment enhancing domestic and foreign demand of agricultural products;

◙ a stable macro-economic framework favorable to private investment in the agriculture sector; c) fair and implementable fiscal policies and sus-tainable expenditures, including sustainable social protection schemes to enhance access to food;

◙ the improvement of the legal framework, including enforceable labor and environmental regulations;

◙ an enhanced rural finance framework to improve local savings mobiliza-tion.



The plan also recommended a shift in government support from is heavy applica-tion to infrastructure, particularly irrigation, to research, education, and extension in order to support long-term growth.

Agriculture in Armenia faces several significant limitations. There are several im-pediments to agricultural efficiency with in the county. Governmental budgetary restrictions drastically limit the amount of financial support for the agricultural sector and what support exists is inefficiently applied in many cases.

The domestic Armenian market is not large enough to sustain a sufficient degree of growth for agricultural products, so growth in the agricultural sector depends on exports. There is little prospect of expanding the land dedicated to agricultural production, as it is largely in use already. As characteristic of many CIS countries, a number of restrictive non-tariff barriers to trade exist in the form of from poor law enforcement, corruption, institutional weaknesses, and underdeveloped infra-structure.

Armenia’s landlocked geographical position and political relations with neighbor-ing Turkey and Azerbaijan pose additional burdens to trade. Armenia is burdened by a series of restrictive obligations that it adopted as a result of entering the WTO in 2003. These limit the Government’s flexibility in conducting export support pro-grams. Other obstacles include the small size and noncontiguous nature of farm plots resulting in little economies of scale, the high costs of transportation, high cost of agricultural inputs at farm and processing levels, lack of experience manag-ers in agribusiness, lack of adequate financial institutions, and lack of governmen-tal support at farm and processing levels.

Many of these obstacles are both well documented and of critical importance to the development of agriculture and the trade in general, but are beyond the scope of this analysis. These include the lack of a resolution to the Nagorno - Karabagh situation, the inconsistent application of taxes and customs practices, deficiencies in infrastructure, lack of information exchange between policy makers and busi-nesses, and weak enforcement and implementation of laws.

The situation is not entirely negative, as Armenia has several advantages. The range of climates allows for the production of a broad range of livestock and fruits. In particular, the climate is favorable to the production of early-season fruits and veg-etables. The population is well-educated. There is a steady inflow of remittances from abroad, which has helped to fuel consumption and provided a stimulus for

production and diversification. Several enterprises produce high-quality products capable of competing at the international level.

Survey of Small Landholders Following Privatization (N=451)

66.00; 15.1%

77.00; 17.6%

64.00; 14.6%

82.00; 18.7%

103.00; 23.5%

46.00; 10.5%

Over 10 ha 5 to 10 ha 3 to 5 ha Less than 1 ha 1 to 2 ha 2 to 3 ha

Source: Engels

There is some potential for the development of markets of organic food, though certification may pose some difficulties. Though previous analyses had been pes-simistic about trade advantage opportunities, claiming that Armenia has no obvi-ous comparative or competitive advantage in any agricultural export, recent stud-ies employing a revealed comparative advantage model identify a comparative advantage for Armenian cognac and crustaceans and are optimistic about the development of other areas of comparative advantage as the agricultural sector develops. Furthermore, Armenia has a reputation within the CIS as a producer of high-quality agricultural products, free of chemical fertilizers and a cheap labor market. Furthermore, the agricultural sector benefits from a variety of support pro-grams from international donors.

ARMENIA’S OBLIGATIONS WITHIN THE WORLD TRADE ORGANIZATION


Armenia has been lauded as a reform leader among CIS countries. The country pursues a liberal trade regime with no export taxes or export subsidies. Two levels of import duties exist at the 0% and 10% levels. Official non-tariff restrictions are

limited to specific goods, though significant technical barriers exist. From this per-spective the government must be commended, as much of the advancement of the agricultural sector has been a result of its efforts at trade liberalization.

Nevertheless, the biggest difficulties cited by international aid organizations im-plementing support projects in the agricultural sector have been a lack of overall agricultural development strategy, severe disorganization and lack of cooperation among government agencies, lack of a long term plan for agricultural develop-ment, and a severe lack of funding for agricultural institutions. The best practices of benchmark countries should provide a blue print for planning strategic devel-opment of the agricultural sector.

Agricultural Reform Support Project, Illustrative of the lack of organization and plan-ning was the institutional transfer of the Armenian Agricultural Academy (AAA) form the ministerial oversight of the Ministry of Agriculture (MOA) to that of the Ministry of Science and Education (MSE) in 2002. At the time of the transfer the USDA MAP project was implementing activities to improve the agricultural exten-sion department (AgreGitaSpure) of the AAA. These improvements lost much of their impact as the project suffered from considerable institutional friction as the agencies could not agree on the role of the AgroGitaSpure. Problems with person-nel selection and evaluation followed as both agencies claimed oversight and co-ordination functions for the AgroGitaSpure activities, blurring the responsibilities o f the AgroGitaSpure. See Also, USDA Armenia Agricultural Assessment, pg 39. Re-gional working groups organized by ASME to identify issues that require solutions at the national level identified three common issues: customs, licensing and access to information from the government.


Armenia has adopted a number of obligations and responsibilities pursuant to its accession to the World Trade Organization (WTO). WTO functions on several basic principles which have formed the basis of Armenia’s WTO obligations. These princi-ples are that a country’s trading policies should be without discrimination, should tend towards trade liberalization, should be consistent and predictable, should be competitive, and should be more beneficial to developing countries. Pursuit of these principles commonly takes the form of binding tariff rates a country may impose and restrictions on WTO member nations’ ability to subsidize trade and production. First, market access control measures should take the form of tariffs when at all possible. Second, domestic support and subsidies may be limited or prohibited by WTO agreements.

Export subsidies, for example, are subject to limitations. Under the Agreement on Agriculture, those measures that directly stimulate production (or directly distort export prices), also known as “amber box” support, are limited to a de minimis level of 5% for developed countries. In contrast forms of support with a minimal impact on trade (“green box” measures) and those with production limitation contingen-cies (“blue box” measures) are not limited. Third, WTO member countries are re-quired to reduce export subsidies. In addition to tariffs, WTO may restrict taxation as it is recognized that particular forms of taxation can be equivalent in effect to tariffs.

Virtually all domestic support for the Armenian agricultural sector is classified as “amber box” support. This includes not only the value added tax (VAT) exemption, but also investment and input subsidies and low interest loans, including Arme-nia’s water price subsidies and “seed loans.” Domestic support for agricultural infra-structure including repair and maintenance of the irrigation network and drainage schemes, veterinarian services, research activities, advisory services, are classified as “green box” support under the Agreement on Agriculture.

Armenia’s accession to the WTO involved extensive legislative reforms as well as the adoption of trade policies in conformance with WTO agreements and treaties. The most relevant of the legislative reforms included a simplification of the tariff system to bring Armenia in line with the Most-Favored-Nation policy of the WTO; changes to the licensing policies of importers; and a reduction of the number of imports subject to mandatory inspection for health, safety and environmental concerns.



As a result of Armenia’s failure to procure developing nation status or negotiate separate advantages with respect to domestic support, Armenia was left with the following commitments with respect to agricultural export and production sup-port:

1. almost all import restrictions have been tariffied, and tariffs are bound at a rate of 15% for import of all agricultural products, with the exception of a few lines;

2. export subsidies are bound at zero level, Armenia will not be allowed to apply any export subsidies for the export of agricultural products;

3. AMS bound at zero level, Armenia’s “amber box” subsidization may not exceed the agreed de minimis level;

4. the de minimis level of 10% until 31 December 2008 and 5% afterward; and

5. Armenia’s value added tax exemption on agricultural producers must be removed by 1 January 2009.

At 2003 production levels, the commitment of 5% de minimis would result in an allowance of US$40 million. This de minimis threshold is actually above the budget of the Ministry of Agriculture, so it may not be a limiting factor in the short or me-dium term. Likewise, this limit does not applies to “non distorting” policies, includ-ing infrastructure and services. Thus an appropriate policy to support the develop-ment of specific infant industries may consist of a mix of provision of services and temporary fiscal measures to provide economic incentives.

It is also significant to note that the WTO does not consider regional trading agree-ments, such as bilateral and plurilateral agreements, including free trade agree-ments (FTAs), to be violations of its nondiscrimination policy.

The WTO is cautious of the issue of “tariff escalation,” under which a country seeks to protect its industry by setting lower tariff rates on raw materials and higher rates on processed or finished products. This practice is not prohibited, but means of limiting or restricting its use have been considered.

The WTO is quite candid that for developing economies to benefit from WTO trad-ing agreements, their economies must be capable of responding. This requires effective policy management and macro-economic strategy, and boosting train-ing and investment in such countries. The situation will be no easier for Armenia,

whose developing nation status was denied. This serves to underscore the impor-tance of sound policy and implementation as the transition period for implemen-tation of Armenia’s obligations to the WTO comes to an end. While WTO mem-bership is unlikely to provide a significant boost to exports in the short-term, the additional transparency and consistency of WTO trading conditions and the non-discrimination policy should serve as a basis for long-term growth if paired with sound economic policy.

Important general obligations arising from WTO agreements to which Armenia is a party include the following. First, the Agreement on Trade Related Aspects of Investment Measures (TRIMs) addresses local content requirements and trade bal-ancing requirements. Second, the WTO Agreement on Subsidies and Countervail-ing Measures addresses export subsidies, export requirements, and other subsi-dies affecting trade.

BENCHMARK COUNTRIES


BENCHMARK COUNTRIES

ARGENTINAArgentina enjoys a major competitive advantage in agricultural production. In 2005, over half of Argentina’s exports consisted of agricultural and livestock prod-ucts. Since 1970 Argentina has successfully in developed a thriving soybean export sector. In 1990 total soybean exports were 11.51 million metric tons (MMT), valued at $12 billion. By 2007 exports increased to 47 MMT representing 16% of world soybean exports in 2007. This places Argentina third in world soybean production behind the United States and Brazil. This increase is widely thought to be the result of trade reforms designed to stimulate export. Additionally, greater participation in global commodity markets expanded access to technological innovations, and agricultural inputs.

Soybean production in Argentina

0

5

10

15

20

25

30

1964

1967

1970

1973

1976

1979

1982

1984

1987

1992

1993

1997

2000

2003

Mill

ion

met

ric t

ons

Source: Agriculture in Brazil and Argentina: Developments and Prospects for Major Field Crops. Randall D. Schnepf, Erik Dohlman, and Christine Bolling. Market and Trade Economics Division, Economic Research Service, U. S. Department of Agriculture, Agriculture and Trade Report. WRS-01-3

BRAZILAs of 2007, Brazil ranks second in world soybean export. Brazil’s 2007 export vol-ume of soybeans was 27.7 MMT, an increase from virtually zero soybean export volume in 1970. Brazil’s rapid development of its soybean export industry is largely attributed to two factors: (1) economic reforms; and (2) government research and development. Brazil is a robust exporter beyond the Soybean industry. In 2004 Brazil had the seventh largest trade surplus in the world. In 2005, the agro-food sector (production agriculture, processing, and distribution) accounted for nearly 27 percent of total exports and employed 37% of the labor force. This is attributed to competitive and flexible exchange rates, increased prices, growing global de-mand, and continuous integration into the world economy.

0

10

20

30

40

50

60

70

0

500

1000

1500

2000

Million Metric TonsMillion Bushels

Argentina

Brazil

Source: Soy Stats, http://www.soystats.com/2008/

BENCHMARK COUNTRIES


Canada; 2%

Paraguay; 6%

Argentina; 16%

Brazil; 37%

United States; 37%

Other; 2%

Source: Soy Stats, http://www.soystats.com/2008/

Brazil implemented economic reforms in 1991 as a result of entry into the South-ern Cone Common Market (MERCOUSUR) and again 1995 after entering into the WTO. The reforms were designed to eliminate governmental controls and reduce government interference in the market place. From 1990 to 2003, Brazil’s total soy-bean exports increased from $5 billion to $11 billion. The reforms are attributed with stabilizing the economy and creating a policy regime favorable to agricultural investment, production and export.

CHILEChile is the third largest exporter of fruit by value behind the EU and US. In 2003, the value of Chile’s fruit exports totaled US$1.3B. Chile’s global share has grown at a rate of 1.3% annually and accounts for 11% of the global market share of fruit exports. Chile exports 45% of its fruit produced. Chile runs an aggressive and suc-cessful export policy with a rather limited budget. The success of Chilean fruit ex-ports is attributed largely to the activities of ProChile, Chile’s export-promotion agency. ProChile administers a US$10M Export Promotion Fund with which it fi-nances matching grants, technical assistance, overseas representation, and market information services.

Chile’s main agricultural exports, 1996-02 (US$ million, f.o.b.)

Product 1996 1997 1998 1999 2000 2001 2002

Grapes 612 628 603 597 663 580 674Wine with appella-tion of origin 187 268 370 388 435 455 472

Apples 270 211 278 248 202 240 281

Avocados 23 32 82 101 74 80 141

Corn for seeds 39 51 85 64 68 66 65

Kiwis 87 78 101 67 68 66 90

Other wines 51 79 68 65 66 70 55

Plums 78 72 60 76 65 71 71

Wine in recipients of up to 2 liters 46 57 61 56 64 62 70

Pears 102 85 82 83 64 60 66

Tomato pulp and juice 89 72 87 99 58 61 56

Raisins 34 42 37 46 49 36 39

Apple syrup and juice 67 47 30 58 46 46 34

Pork 5 23 30 24 45 69 106Source: WTO Chile Trade Policy Review,

COLOMBIAAgricultural exports play a role of particular importance in the Colombian econo-my. From 1996 to 2004, agricultural exports accounted for an average of 27.9% of Colombia’s total exports. Coffee plays a role of particular importance, accounting for 36.7% of total agricultural exports over this period. Colombia is the second-largest producer and exporter of coffee after Brazil. Colombia’s coffee sector ac-counts for one third of rural employment. It consists mainly of small-scale farmers with an average of 1.5 ha of land. The coffee industry employs 33% of Colombia’s agricultural labor force. Coffee accounts for 20% of total agricultural GDP. Steep declines in the market price of coffee caused a steep reduction in Chilean coffee production in 1999-2000. Colombia successfully compensated by initiating a spe-cialty coffee program. In 2002, Colombia accounted for 35% of total worldwide specialty-coffee production.

BENCHMARK COUNTRIES


INDIALike Armenia, India is in a period of transition. It was traditionally one of the world’s most protected trade regimes until initiating policies of trade liberalization in 1991.The success of these policies has been impressive, as India’s GDP has averaged 7% growth every year from 2001 to 2006. Though the complicated tax regime is rather inhospitable to exporters, the Indian Government has enacted a variety of schemes to counteract the resulting anti-export biases.

The Indian agricultural sector faces a number of challenges similar to those in Armenia including poor infrastructure, lack of adequate irrigation systems, frag-mented landholdings, inadequate funding of infrastructure and research, and poor seed quality. These difficulties are compounded by a lack of attention to food processing activities and restrictions of foreign investments in the retail industry, issues that Armenia does not face.

In order to spur export value and increase competitiveness, the Government of India devised a 5-year trade plan (2002-2007).

The underlying strategy had several components:

◙ identify competitive export potential based on assessment of India’s ma-jor trading partners’ import structures;

◙ analyze major exports in the context of macro issues that affect them; and

◙ based of these findings, develop sector-specific strategies for exports. ◙ focus on reducing transaction costs and developing local-level policies for

export promotion.

INDONESIAIndonesia’s real GDP growth rate has risen steadily in recent years, from 4.7% annu-ally in 2003 to 5.5% in 2006. Agriculture in Indonesia accounts for 13% of GDP and accounts for around 44% of the country’s employment, more than any other sector of the Indonesian economy. Agriculture receives special attention from the gov-ernment who imposes protective measures on the sector. These measures include export taxes, licensing, prohibitions, and restrictions to promote down-stream in-dustries and ensure adequate domestic supply. Additionally support for produc-tion and trade is provided through financial assistance for R&D and regional tax incentives.

Efforts under the Medium-Term Development Plan (MTDR) 2004-09 focus on sev-eral main constraints to growth in the agricultural sector including relatively high poverty and low welfare of farmers; inadequate incentives to invest in production increases; the low level of technology transfer for the processing of products, re-sulting in low productivity; high dependence on rice consumption as the major food crop; and lack of basic infrastructure and poor access to markets and services. These issues are to be addressed by increasing investment in key infrastructure, in particular farm-to-market roads and irrigation; encouraging diversification into higher-value-added crops; improving agricultural research; and better ensuring that exports meet world standards.

KENYAAgriculture accounts for 25% of Kenya’s GDP, generates about 80% of export earn-ings. Approximately 80% of the population lives in rural areas and derive their livelihood from the agricultural sector. Kenya’s agriculture is predominantly small-scale farming (75% of total agricultural output and 70% of marketed agricultural produce). Small-scale farms (averaging 2-3 ha) produce over 70% of maize, 65% of coffee, 50% of tea, 80% of milk, 85% of fish, and 70% of beef and related produce.

This accounts for 60-70% of all agricultural output and 60% of the country’s hor-ticultural exports. In 1999, they earned horticultural-export revenue of approxi-mately US$46M. Kenya’s most dynamic agricultural sector is horticulture, includ-ing fruits, vegetables, flowers, and ornamental plants. Horticulture is Kenya’s third largest foreign exchange earner, after tourism and tea. According to World Bank statistics, Kenya is the second-largest horticultural exporter in Sub-Saharan Africa, and one of the world’s largest suppliers of cut flowers. From 1978 to 1998, the hor-ticultural sector increased at an annual rate of 15-20% and production rose from 0.5 MMT to 3.2 MMT.

The export value of fruits and vegetables increased from US$29M in 1991 to ap-proximately US$164M in 2002. The export value of cut flowers grew from US$39M to US$175M over the same period. Though only about 4% of horticultural produc-tion is exported, the value of exports of fresh horticultural products more than doubled between 2000 and 2004 (TABLE).

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Exports of fresh horticultural producea, 2000-04

2000 2001 2002 2003 2004b

Volume (‘000 tonnes) 99.2 98.9 121.1 133.2 166.1

Value (K Sh billion) 13.9 20.2 26.7 28.8 32.6

a - Exports by the Horticultural Crop Development Authority (HCDA).b - Provisional.Source: WTO East African Community

The Kenyan Government’s policy regarding horticulture is to limit government interference with pricing, production, and marketing decisions. The Kenyan gov-ernment supports horticultural production and processing with macroeconomic stability and a developed infrastructure. The dialog between the Government and private sector is facilitated primarily through private initiatives, which are aided by public entities. The cooperation of these groups to plays a crucial role in promoting Kenyan horticulture in local and international markets.

One key to the successful development of the horticultural sector is the marketing and research institutions supported by the Kenyan Government. Another key is the so-called, “self-help” groups and local producer associations that promote farm exports independently of the government.

MALAYSIAMalaysia is a benchmark country in horizontal and vertical export diversification. Thanks to government initiatives and policies, the share of broad primary com-modities as a percentage of total exports shrank from 97% in the period from 1966–70, to 14% over the period from 1996–2000. Furthermore, Malaysia de-creased the share in total exports of its three leading commodities from almost 30% from 1990–92 to 15.7% from 1997–99.

Vertical diversification was implemented by increasing the share of manufacturing in production and export. This was achieved by providing incentives for the pro-cessing of palm-oil and disincentives on the export of raw palm-oil.

Horizontal diversification was necessary as the heavy production of synthetic rubber in South Korea was cutting into Malaysia’s own rubber production, which was a pillar of the Malaysian economy at the time. Horizontal diversification was achieved with the development of the Malaysian palm-oil industry.

In 1970, palm-oil exports accounted for only 7.7% of total agricultural exports. By 1995 palm-oil exports had reached almost 30% of agricultural exports. By 2004, the palm-oil industry employed more than half a million workers and farmers and yielded export earnings amounting to US$8B.

MEXICOMexico is the 9th largest economy in the world. It is the fourth-largest fruit exporter by value after US, EU and Chile. Its 2003, Mexican fruit exports totaled 1.5M metric tons, with a value of US$900. Although export quantity remained stable, fluctua-tion in the currency exchange rate have resulted in an increase in the dollar value of exports since 1998. Although 21M people accounting for 20% of Mexico’s total population works in the agricultural sector; agricultural produce accounts for only 5% of Mexico’s GDP.

Mexico’s success is largely attributed to the trade networks it has developed with its trading partners and has led to substantial liberalization of Mexico’s trade re-gime. It has 12 preferential agreements with 44 countries. The Mexican Govern-ment also has several programs that promote exports, develop foreign markets, and promote foreign investment.

SOUTH AFRICASouth African fruit exports totaled US$800M in 2003. From 2000 to 2003, South Af-rica’s share in the global fruit export market increased by 2%, reaching 7% in 2003. South Africa exports 38% if is total fruit production, which is the second-largest export percentage, after Chile.

Fruit export is facilitated by the Export Marketing and Investment Assistance Scheme (EMIA). The programs offer a variety of incentives to local producers. With its annual budget of US$18M, the EMIA provides export-market research and pro-motes foreign direct investment. It also manages a special fund for small- and me-dium-sized exporters.

THAILANDThailand has seen impressive economic growth in recent years. From 2003 to 2007 Thailand averaged 5.7% GDP growth fueled largely by growth in exports and in do-mestic consumption. Trade has likewise increased. Thailand’s total trade (exports and imports) in goods and non-factor services increased from 124.6% in 2003 to 143.5% in 2006.

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Agriculture is an important part of the Thai economy. Thailand was responsible for over 2% of world agricultural exports in 2005. Thailand is also the world’s largest rice trader accounting for 34.4% of world trade in rice in 2004. After the 1997 Asian economic crises, the Royal Thai Government successfully implemented a plan for recovery and economic growth.

The strategies focused on new products or value-added product development through R&D and industry branding. The plan was executed by focusing on spe-cific strategies for industrial-sector development, with particular attention on global and regional industries. The recovery plan resulted in some fluctuation in export, but with a trend in significant growth. Thailand’s steady progress toward trade liberalization, macro-economic stabilization, and key structural reforms have promoted growth in the country in the face of unfavorable global factors.

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