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COMMODITY MARKETREVIEW

2001-02

COMMODITIES AND TRADE DIVISIONFOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS

Rome, 2002

Inquiries should be directed to:

Commodities and Trade DivisionFAO

Viale delle Terme di Caracalla00100 Rome

Italy

The designations employed and the presentation of material in this publication do notimply the expression of any opinion whatsoever on the part of the Food andAgriculture Organization of the United Nations concerning the legal status of anycountry, territory, city or area or of its authorities, or concerning the delimitation of itsfrontiers or boundaries.

M-70ISBN XXXXXXXXXXXXXXXX

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system,or transmitted in any form or by any means, electronic, mechanical, photocopying orotherwise, without the prior permission of the copyright owner. Applications for suchpermission, with a statement of the purpose and extent of the reproduction, should be

addressed to the Director, Information Division, Food and Agriculture Organization of theUnited Nations, Viale delle Terme di Caracalla, 00100 Rome, Italy.

© FAO 2002

iii

FOREWORD

This year’s Commodity Market Review (CMR), FAO’s annual publication on food and agriculturalcommodities and trade, introduces some innovations over earlier editions. The main focus of the CMR in thepast was on a review of developments in commodity markets, describing the current situation and the short-term outlook. This new edition includes five analytical articles which look beyond the current situation andoutlook to explain in more detail and explain some of the implications of factors which shape commoditymarket developments and topical policy issues. In this edition there are articles on long term trends in basicfoodstuffs prices, the influence of oil prices on agricultural commodity prices, tariff peaks and tariff-cuttingformulae, African food deficits and surpluses, and the impact of the Uruguay Round Agreement onAgriculture.

The situation and outlook of food and agricultural commodity markets is still here in Part II of the newpublication, but in a slightly condensed form. Market reviews are presented for 19 food and agriculturalcommodities. Increasingly this material is being presented on the Commodities and Trade Divisionwebpages on the FAO website at www.fao.org (under Economics, Commodities and Trade), which providegreater scope for timely dissemination of more detailed market information and more frequent updating thanis possible with conventional printed publications. The webpages themselves are also undergoing someredesign to increase their content, but also to make them easier to access and to use.

Paola FortucciDirector

Commodities and Trade Division

iv

OFFICERS OF THE COMMODITIES AND TRADE DIVISION

Officer 1 Extension2

Director Paola Fortucci 54201

BASIC FOODSTUFFS SERVICE (ESCB)

Chief Ali Arslan Gurkan 52851

GRAINS AND PULSES GROUP(Wheat, maize, barley, sorghum, millets and other coarse grains andpulses)Senior Commodity Specialist Myles Mielke 53480Commodity Specialist Abdolrez Abbassian 53264Commodity Specialist Buobaker BenBelhassen 55385Commodity Specialist Suffyan Koroma 55810

OILSEEDS AND LIVESTOCK GROUP(Livestock, meat and dairy products, oilseeds, oils, fats and oilmeals)Commodity Specialist Michael Griffin 53837Commodity Specialist Shakib Mbabaali 55006Commodity Specialist Nancy Morgan 54528Commodity Specialist Peter Thoenes 53498

RICE, ROOTS AND TUBERS GROUP (Rice, roots and tubers)Senior Commodity Specialist Concepción Calpe 54136Commodity Specialist Anna Coccia 54340

GLOBAL INFORMATION AND EARLY WARNING SERVICE (ESCG)

Chief Paola Fortucci (Officer-in-Charge) 54201

EARLY WARNING GROUPSenior Economist Mwita Rukandema 53859Economist Shukri Ahmed 53737Economist Liliana Balbi 53813

GLOBAL FOOD INFORMATION GROUPSenior Economist Madhy Bamba 55380Economist Aziz Arya 52843Economist Paul Racionzer 52853

1 For e-mail contact, use these names as follows: first name.last name:@fao.org2 From outside Italy dial 39-06-570 followed by the extension.

v

OFFICERS OF THE COMMODITIES AND TRADE DIVISION (continued)

Officer 1 Extension2

RAW MATERIALS, TROPICAL AND HORTICULTURAL PRODUCTSSERVICE (ESCR)

Chief, and Review Editor David Hallam 56521

HORTICULTURAL PRODUCTS GROUP (Citrus, bananas, temperatefruits, wine and vine products, vegetables, nuts)Senior Commodity Specialist Paul Pilkauskas 52003Commodity Specialist Pascal Liu 55957

RAW MATERIALS GROUP (Hard fibres, tobacco, jute/kenaf andallied fibres, hides and skins, cotton, rubber)Senior Commodity Specialist Brian Moir 54339Commodity Specialist Saidur Lasker 54338Commodity Specialist Giancarlo Mattioni 54810Commodity Specialist Shangnan Shui 52858

SUGAR AND BEVERAGES GROUP (Coffee, cocoa, tea, pepperand spices, sugar, tropical fruits)Senior Commodity Specialist Kaison Chang 54346Commodity Specialist Jennifer Nyberg 55632Commodity Specialist Nanae Yabuki 54285

COMMODITY POLICY AND PROJECTIONS SERVICE (ESCP)

Chief Harmon Thomas 54560

TRADE AND COMMODITY POLICY GROUPSenior Economist Terri Raney 52401Economist Nasredin Hag Elamin 56251

GENERAL ANALYSIS AND PROJECTIONS GROUPSenior Economist Ramesh Sharma 52946Econometrician Koji Yanagishima 53119

vii

CONTENTS

ForewordOfficers of the Commodities and Trade DivisionExplanatory notes

iiiivix

PART I. GENERAL REVIEW 1

The global economic background 3

Agricultural export earnings and food import bills 5

Box: The Implications of the Fourth WTO Ministerial Conferencefor Agriculture, Fisheries and Forestry

6

PART II. REVIEW OF AGRICULTURAL COMMODITY MARKETS 7

Beverages, sugar and fruits 9

Coffee 9Cocoa 10Tea 12Sugar 13Bananas 14Tropical Fruits 15Fresh Citrus 16Citrus Juices 17

Cereals and cassava 17

Rice 17Wheat 18Coarse grains 19Cassava 20

Oilseeds, oils/fats and cakes/meals 22

Livestock products 23

Meat and meat products 23Milk and milk products 24

Agricultural raw materials 25

Cotton 26Jute, kenaf and allied fibres 26Hard fibres 27Natural rubber 28Hides and skins 29

PART III. ISSUES IN AGRICULTURAL COMMODITY MARKETS 31

Price developments for basic food commodities 31

Oil prices and agricultural commodity prices 33

Tariff peaks in agricultural markets and tariff cutting formulae 40

Recent trends in deficits and surpluses in basic food commoditiesin Africa

50

Impact of the Uruguay Round Agreements of relevance to the agricultural sector: Winners and losers

56

ANNEX. COMMODITY DATA TABLES AND GRAPHS 65

ix

EXPLANATORY NOTES

The following symbols are used:

- = none or negligible... = not available$ = US dollar"1999-01" = average for three calendar years 1999, 2000 and 2001"2000/01" = a 12-month crop, marketing or fiscal year spanning the two years shown.

The metric system is used unless otherwise specified.

Data on production, trade, etc. are given on a calendar year basis unless otherwise specified. Data onstocks refer to levels of national stocks at the end of calendar or respective marketing years as specified bycommodity.

Percentage changes and annual rates of change have been calculated from unrounded figures. Also,figures may not add up to the totals because of rounding.

Differences between total exports and total imports may be due to several factors, including thetime-lag between the dispatch of goods from the exporting country and their arrival in the importing country,and the use of a different classification of the same product by exporting and importing countries. Inaddition, total values of exports and imports differ because exports are generally valued at the point of export(fob) and imports include insurance and freight to the point of import (cif).

Aggregate exports and imports of the EC and those of country groupings comprising the EC excludeintra-EC trade, unless otherwise stated. The EC data refer to EC-12 up to 1994 and EC-15 from 1995.

Unless otherwise stated, all statistics for China include the Province of Taiwan, but not the SpecialAdministrative Region of Hong Kong.

Country groupingsIn the presentation and analysis of data, countries are grouped into two main categories: "developing

countries" and "developed countries" unless otherwise specified. The designation "developing" and"developed" is intended for statistical convenience and does not necessarily express a judgement about thestage reached by a particular country or area in the development process.

The country classification within these two broad groups is as follows:

Developing countries include: Africa (all continental Africa, excluding the Republic of SouthAfrica); Near East, comprising Afghanistan, Bahrain, Cyprus, Egypt, Islamic Republic of Iran, Iraq, Jordan,Kuwait, Lebanon, Libyan Arab Jamahiriya, Oman, Qatar, Kingdom of Saudi Arabia, Sudan, Syrian ArabRepublic, Turkey, United Arab Emirates and Yemen; Far East, comprising all other countries in continentalAsia and the Pacific region, excluding those countries of the region classified as developed countries; LatinAmerica and the Caribbean (including Mexico).

Developed countries include: North America (excluding Mexico); Europe, comprising WesternEurope (including the area of former Yugoslavia) and Eastern Europe (Albania, Bulgaria, Czech Republic,Hungary, Poland, Romania and Slovakia); the area of the former USSR; Oceania (Australia and NewZealand); other developed (Israel, Japan and the Republic of South Africa).

PART I

GENERAL REVIEW

GENERAL REVIEW 3

GENERAL REVIEW

This chapter reviews recent market developments and comments on the short-term outlook for majoragricultural commodities on the basis of the information available at the time of writing. Readers are referredto the Commodities and Trade Division webpages for the most recent statistical data and analysis.Agricultural commodity markets are much-influenced by global and regional economic growth, so thechapter begins with a brief review of global economic prospects as seen by the international macroeconomicsforecasts of the World Bank, the IMF and the OECD.

The global economic background

Global economic growth slowed considerably in the last quarter of 2000 and the first three quarters of 2001.There is broad consensus among the macroeconomic forecasts of the IMF, the World Bank and the OECDthat 2001 will show a significant slowdown with the annual growth rate at 2-2.5 percent. This largely reflectsthe sharp downturn in the US economy, although the economic performance of most industrial countries hasweakened. Recovery is expected in 2002 on the basis of stronger economic fundamentals world widecompared with the previous few years. The IMF predicts growth will accelerate to 3.5 percent for the year,although other forecasts are more pessimistic in the light of the potential economic repercussions of theterrorist attacks of 11 September.

The June 2001 OECD Economic Outlook projects real GDP growth of 2 percent for the OECD membercountries, somewhat higher than the IMF projection of 1.3 percent growth for advanced economies and theWorld Bank projection of 1.2 percent for high-income countries.1 Similarly, the OECD forecasts 2002growth of 2.8 percent for its member countries, compared with lower projections by the IMF of 2.1 percentfor advanced economies and the World Bank of 1.0-1.5 percent for high-income countries reviseddownwards after the attacks from 2.2 percent. However, all forecasts are in broad agreement regardingeconomic fundamentals.

The IMF’s forecasts made before the attacks of 11 September, predict that the 2001 economic slowdown indeveloping countries would be much shallower than that for industrialised countries, at 4.3 percent,recovering to 5.3 percent in 2002, or 2.9 percent and 3.9 percent respectively in per caput terms. However,the World Bank predicts that the events of 11 September will also have serious repercussions for developingcountries, as the delayed recovery in high-income countries translates into slower growth for developingcountries. Particularly hard hit, would be developing countries that are dependent on tourism, remittancesfrom populations living overseas, and foreign investment. World Bank 2002 GDP growth projections fordeveloping countries have been revised downward by 0.5-0.75 percent, to 3.5-3.8 percent.

The strongest growth amongst developing countries is expected in Asia, although aggregate forecasts forAsia mask the divergent performance of China versus the rest of the region, where many countries are moreexposed to global markets in the high technology sector. For these countries, the slow-down in the UnitedStates and Japan has a direct effect on economic performance. Developing countries in the Near East and theWestern Hemisphere are forecast to have per caput growth rates only slightly above zero in 2001. The weakperformance of the Near Eastern countries is attributed to the global slow-down, lower petroleum prices andthe deteriorating security situation in the region. Per caput growth for this group of countries is projected toaccelerate to 2.8 percent in 2002 assuming that oil prices strengthen. Recovery is predicted for the WesternHemisphere developing countries in 2002 on the basis of improving economic fundamentals in some of themajor countries of the region.

In contrast to other regions, the developing countries of Africa are predicted to post stronger GDP growth in2001 than in 2000, improving further in 2002. In per caput terms, however, output growth in Africa isforecast to reach only 1.4 percent in 2001 and 1.9 percent in 2002. Sound macroeconomic and structural

1 All World Bank references are from Development News – The World Bank’s Daily Webzine, 1 October 2001.

4 COMMODITY MARKET REVIEW 2001-02

policies in many countries of Africa are credited with promoting a recovery in per caput growth, although inothers prospects for growth and poverty alleviation continue to be hampered by economic and politicaluncertainties, including ongoing conflicts.

For the countries in transition, per caput GDP growth is forecast at 4-4.5 percent in 2001 and 2002, higherthan the corresponding aggregate rates due to continued population declines in many countries. From 1999,growth in these countries has recovered dramatically after a decade during which real GDP shrank almost 20percent. Keys to continued growth, according to the IMF, are accelerating structural reforms, particularlystrengthening institutions and governance, restructuring public enterprises and the financial sector, anddefining the role of the state.

Agricultural export earnings and food import bills

The value of exports of major agricultural products increased in 2000 by 4.2 percent, reversing thedownward trend that began after 1996 (see Table 1.1). The increase in the value of exports of dairy productswas the largest contributor to this (32.3 percent), followed by those of sugar (24.5 percent) and agriculturalraw materials (9.3 percent). All other major commodity groups experienced declines in the value of theirexports, with beverage crops leading the way with 17.9 percent. The declines for meat products, cereals andoilcrops were much smaller at 1.4, 0.3 and 0.6 percent, respectively. However, the extent of the increase inexport earnings was not the same for developing and developed countries; the former experiencing a rise ofonly 1.0 percent as opposed to the 5.8 percent experienced by the latter, with the significant increase in thevalue of exports of dairy products from developed countries making the greatest contribution.

Table 1.1. Value of exports of major agricultural products in 2000 ('000 million $)

World Total Developing Countries Developed countries

1999 2000 %change

1999 2000 %change

1999 2000 %change

Beverage crops 15.7 12.9 -17.9 14.6 12.1 -17.6 1.0 0.8 -21.5Sugar 8.2 10.2 24.5 5.5 6.5 18.5 2.7 3.7 36.8Agricultural rawmaterials

13.0 14.2 9.3 5.9 6.8 15.7 7.1 7.3 3.9

Cereals 36.6 36.5 -0.3 9.1 9.1 0.5 27.5 27.4 -0.5Meat 41.2 40.6 -1.4 6.7 7.4 10.2 34.5 33.2 -3.6Dairy 26.0 34.4 32.3 1.3 1.8 34.6 24.7 32.7 32.2Oilcrops 48.0 47.7 -0.6 21.8 21.9 0.5 26.2 25.8 -1.5

Total of the above 188.7 196.5 4.2 64.9 65.6 1.0 123.7 130.9 5.8

Total 1 417.3 … 122.4 … 294.9 …

Note: Export values for 2000 are preliminary estimates, derived on the basis of estimated changes in trade volumesfrom 1999 and in world market prices. 1999 trade data are from FAOSTAT, except for hard fibres. The value ofexports for developed countries and the world include intra-trade of EC, with the exception for hard fibres. Wheatincludes flour in wheat equivalent. Beverage crops and those considered under agricultural raw materials do not includere-exports. Export values are fob.

1 These include all agricultural products reported in FAOSTAT (complete trade data for 2000 are not available: for1998 the corresponding values are $438.1billion for the world, $133.5 billion for developing, and $ 304.6 billion fordeveloped countries).

GENERAL REVIEW 5

As for the value of imports of major food commodities (see Table 1.2), the developing countriesexperienced a 10.3 percent increase in their expenditures, with significant increases for dairy products (30.5percent) and meat (12.6 percent), as well as for oils and fats (11.2 percent), which were, however,accompanied by increases in the volume of flows for all commodity groups, including cereals. But theexpenditure on food commodities of Low Income Food Deficit Countries (LIFDCs) only rose by 0.4 percent,in part due to decreased volume of imports of especially meat products and oils and fats, of 13.2 and 1.4percent respectively.

Table 1.2. Value of imports of major food commodities in 2000 ('000 million $)

World Total Developing countries Low Income Food DeficitCountries

1999 2000 %change

1999 2000 %change

1999 2000 %change

Cereals 40.3 41.1 2.0 24.9 25.7 3.2 12.4 12.6 1.8Meat 41.1 42.0 2.4 7.7 8.7 12.6 3.5 3.1 -12.1Dairy 26.4 32.8 24.1 7.2 9.5 30.5 2.8 3.8 33.0Oils and fats 30.8 32.7 6.2 15.9 17.7 11.2 9.6 9.0 -6.4

Total of the above 138.6 148.7 7.3 55.7 61.5 10.3 28.3 28.4 0.4

Note: Import values for 2000 are preliminary estimates, derived on the basis of estimated changes in trade volumesfrom 2000 and in world market prices. 1999 trade data are from FAOSTAT. The value of imports of food commoditiesfor developed countries and the world include intra-trade of EC. Wheat includes flour in wheat equivalent. Importvalues are cif.


THE IMPLICATIONS OF THE FOURTH WTO MINISTERIAL CONFERENCEFOR AGRICULTURE, FISHERIES AND FORESTRY

At the Fourth World Trade Organization (WTO) Ministerial Conference held in Doha, Qatar from 9-14 November2001, the WTO Members agreed to launch a new round of multilateral trade negotiations that will have importantimplications for agriculture, fisheries and forestry. In addition to the talks on agriculture and services that have beenunderway for over a year, the new round will cover a much broader agenda, including other sectors of the globaleconomy as well as a range of implementation issues that have arisen since the Uruguay Round Agreements came intoforce. The outcome of the Conference improves the prospects that progress will be made in the negotiations onagriculture because it enhances the opportunities for trade-offs with other sectors and addresses a number of concernsthat have hindered the negotiations thus far.

The new round offers opportunities for further market liberalisation in non-agricultural goods. The negotiations willalso cover foreign investment, competition policy, government procurement, as well as trade and environment, and willrevisit WTO rules regarding trade-related intellectual property rights (TRIPS), dispute settlement, subsidies andcountervailing measures and anti-dumping. A substantial work programme was agreed in the area of environment andtrade. The Ministers also made a commitment to provide special and differential treatment for developing countries,including the objective of duty-free, quota-free market access for products originating from least developed countries(LDCs). The technical co-operation and capacity building needs of small, vulnerable and low-income transitioneconomies were also recognised, and the delivery of technical assistance was emphasized.

Elements of the negotiations that are particularly relevant to agriculture, fisheries and forestry are summarised below.

Agriculture: The WTO Members recognized the work already undertaken in the negotiations that began in March 2000under Article 20 of the Agreement on Agriculture. They agreed to undertake “comprehensive negotiations aimed at:substantial improvements in market access; reductions of, with a view of phasing out, all forms of export subsidies; andsubstantial reductions in trade-distorting domestic support.” Special and differential treatment is to be provided fordeveloping countries to enable them to take account effectively of their development needs, including food security andrural development. Non-trade concerns is to be taken into account. Modalities for the further commitments are to beestablished no later than 31 March 2003 and comprehensive draft Schedules of commitments based on these modalitiessubmitted no later than the date of the Fifth Session of the WTO Ministerial Conference (which must be held before theend of 2003). The negotiations on agriculture will be concluded as part and at the date of conclusion of the negotiatingagenda of the round as a whole.

Market Access for non-agricultural products: Negotiations in this area will aim, by modalities to be agreed upon, toreduce or eliminate tariffs including the reduction or elimination of tariff peaks, high tariffs and tariff escalation, aswell as non-tariff barriers. Product coverage shall be comprehensive and without a priori exclusions. Fishery andforestry products and agricultural products that were excluded from the Agreement on Agriculture such as rubber andhard fibres will be covered under the new round.

TRIPS: It was agreed to negotiate the establishment of a multilateral system of notification and registration ofgeographical indications for wine and spirits. Issues related to the extension of the protection of geographicalindications to products other than wine and spirits will be addressed in the Council for TRIPS. The WTO Committee forTRIPS was further instructed to examine inter alia the relationship between the TRIPS Agreement and the Conventionon Biological Diversity and the protection of traditional knowledge and folklore.

Subsides and Countervailing measures: Negotiations will aim at clarifying and improving disciplines under the UruguayRound Agreement on Subsidies and Countervailing Measures. The Conference agreed specifically that the negotiationswould “aim to clarify and improve WTO disciplines on fishery subsidies, taking into account the importance of thissector to developing countries.”

Trade and Environment: The Ministerial Declaration, for the first time, recognized the right of each country to takemeasures to protect the environment “at the levels it considers appropriate” on the same basis as measures taken for theprotection of human, animal and plant life or health, i.e. provided such measures are not applied in an arbitrary ordiscriminatory manner or as a disguised restriction on trade and that they are in compliance with other WTO provisions.It was agreed that there would be negotiations on the relationship between existing WTO rules and specific tradeobligations set out in multilateral environmental agreements and on the reduction of or elimination of tariff and non-tariff barriers to environmental goods and services.

The negotiations will be supervised by a Trade Negotiations Committee, which will hold its first meeting not later than31 January 2002 to establish the appropriate negotiating mechanisms in each area as required. It was agreed that thenegotiations will be concluded by 1 January 2005.

PART II

REVIEW OF AGRICULTURALCOMMODITY MARKETS

REVIEW OF AGRICULTURAL COMMODITY MARKETS 9

Beverages, sugar and fruits

The fall of coffee and cocoa prices to their lowest levels for several decades provides the most dramaticexample of the current depressed state of most agricultural commodity markets. Prices for tea have alsoweakened as supplies have grown ahead of demand. There appears little prospect of an early recovery inbeverage prices and attempts to coordinate international action to restrain supply growth have beenunsuccessful. International attempts to stimulate demand by shifting consumer preferences may prove moreeffective, but with a longer lead time. Sugar prices fared rather better during 2000, but have declined during2001, and again, expected production growth ahead of demand in the short term will make it difficult toachieve higher prices. In international markets for fruits, market imbalance appears currently to be more inthe opposite direction, with reduced citrus production and continuing growth in import demand for tropicalfruits, although even here any strengthening of prices is expected to be limited in the short run.

Coffee

The ICO composite prices averaged 64 US cents per pound in 2000, more than 25 percent lower than thealready depressed price level of 1999. Prices in 2001 are the lowest since 1973 in nominal terms and thelowest ever in constant terms. While prices for both Arabica and Robusta varieties have declinedsubstantially, the fall in Robusta prices has been particularly pronounced.

The Association of Coffee Producing Countries’ export retention scheme was effectively abandoned asprices continued to decline. Slow-down in the economies of many coffee importing countries and relativelyhigh stock levels implies continuing sluggish demand at least for the near term. Improving quality has beensuggested as one way to improving market prices. However, with current price levels below production costsof many coffee producers, investment is inevitably curtailed, and this could adversely affect quality and theprospects for price recovery.

World green coffee production reached 6.6 million tonnes in 2000/01 crop year (October-September), agrowth of 4 percent from the previous crop year. Production in Latin America declined, reflecting reductionsin Brazil, the world’s largest producer (by 1 percent to 1.9 million tonnes), Guatemala (down 14 percent),and Mexico (down 30 percent) as growers in the region adjusted to low world market prices. The onlynotable increase among Latin American countries occurred in Colombia, where production increased by 29percent as a result of favourable weather and the earlier renovation of coffee plants under the schemelaunched by the National Growers Federation. Output in Africa fell by 12 percent from 1999/00 to 2000/01mainly because of a significant decline in output in Côte d’Ivoire to 190 000 tonnes from the abnormallyhigh level of 354 000 tonnes in 1999/00. Most other major coffee producers in Africa increased output:production in Ethiopia, Kenya and Uganda registered a growth of 5 percent, 12 percent and 3 percent,

WORLD COFFEE PRICESUS cents \ lb

40

60

80

100

120

140

160

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

ICO Composite Price


respectively. In Asia, Vietnam’s production remained unchanged at 700 000 tonnes, but still 68 percenthigher than in 1998/99. Output in Indonesia increased by 23 percent from the previous crop year but was still21 percent lower than in 1998/99.

In terms of varieties, the share of arabicas in world coffee production in 2000/01 was around 66 percent, thesame as in 1999/00. The increase in output of Colombian milds was sufficient to offset the considerabledecline in production of other milds, particularly from Central America.

Coffee stocks decreased by 6 percent in producing countries in 2000/01 mainly due to reduced production inLatin America. However, the significant increase in stocks in major coffee consuming countries, includingthe EC, Japan and the United States, more than offset the decline in producing countries.

World exports of coffee reached 5.3 million tonnes in 2000, a growth of 4 percent from the 1999 level.Exports from Brazil fell by 22 percent to 1.1 million tonnes and accounted for 20 percent of world coffeeexports in 2000. Exports from Colombia declined by 8 percent. Exports from Guatemala and Mexicoincreased by 4 percent and 22 percent respectively, but this was not enough to offset the decline in otherLatin American countries. Most African coffee exporting countries except Uganda registered some growth,as did exports from Asian coffee exporting countries. Exports from Vietnam continued to grow rapidly, byalmost 50 percent between 1999 and 2000.

World coffee imports increased slightly to reach 4.8 million tonnes in 2000. The increase was mainlyattributable to growth in the United States and Japan. Imports into the EC (15) were down marginally in thesame year. Provisional data suggest a small decline in world coffee imports in 2001. Per caput consumptionof coffee in importing countries as a whole decreased by nearly 4 percent between 1999 and 2000. Domesticconsumption in producing countries as a whole increased by 6 percent between 1999/2000 and 2000/2001Consumption in Viet Nam increased by more than 40 percent, and this emerging market has potential forfurther expansion.

Cocoa

The ICCO daily price averaged $888 per tonne in 2000, the lowest since 1973 in nominal terms. During thefirst 10 months of 2001 prices fluctuated around an average of $1 058 per tonne. This is 16 percent higherthan the same period last year but still 12 percent and 38 percent lower than in 1999 and 1998.

WORLD COCOA PRICESUS $ \ Tonnes

800

900

1000

1100

1200

1300

1400

1500

1600

1700

1800

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

ICCO daily price


World cocoa bean production reached 2.8 million tonnes in the 2000/01 crop year (October-September), 7percent lower than in the previous season, but still slightly higher than in 1998/99. Production in majorAfrican cocoa producing countries as a whole declined in 2000/01, mainly due to a 16 percent fall in Côted’Ivoire, the world’s largest producer with more than 40 percent of world production. Côte d’Ivoire produced1.2 million tonnes of cocoa beans in 2000/01, almost the same as in 1998/99. Output fell significantly inGhana as a result of black pod disease, although production increased in Cameroon and Nigeria. Two majorAsian producers, Indonesia and Malaysia, recorded declines of 1 percent and 11 percent, respectively partlybecause of reduced yields following lower investment. Most major cocoa bean producing countries in LatinAmerica increased output: Brazil by 11 percent; Dominican Republic by 29 percent; and Ecuador by 5percent.

Global grindings of cocoa beans, a proxy for world cocoa consumption, reached 3 million tonnes in 2000/01,up 1.5 percent compared to 1999/00. Grindings in the EC, the world’s largest cocoa consumer, reached 1.2million tonnes in 2000/01, a growth of 1.6 percent. Among the major consuming countries, the area of theformer USSR registered the highest growth at 11.8 percent over the previous year. Grindings in Canada weredown by 11 percent and those in the United States remained at the previous year’s level. Grindings in Côted’Ivoire continued to increase and reached 265 thousand tonnes in 2000/01 as a result of the government’ssubsidy scheme to promote domestic processing. Grindings at origin accounted for about 32 percent of worldgrindings in 2000/01.

Cocoa bean stocks fell by 15 percent to 1.1 million tonnes in 2000/01 as production decreased while demandslightly increased. The world stock-to-grinding ratio, a proxy for world cocoa availability, fell from 45 to 38percent in 2000/01. However this decline was not large enough to change the price trend as current stocks areconsidered sufficient to meet world cocoa demand.

World exports of cocoa reached 2.5 million tonnes in 1999/00, a growth of 13 percent from the 1998/99level, reflecting increases in the world’s three largest cocoa bean exporting countries. Exports from Côted’Ivoire, the largest exporter, increased by 28 percent or nearly 300 000 tonnes echoing increased output.Exports from Ghana and Indonesia, the world’s second and third largest exporters, continued to grow withincreases over the previous year of 2 percent and 6 percent, respectively.

World cocoa imports increased by 16 percent reaching 2.5 million tonnes in 1999/00, largely as a result ofincreased imports by the EC, Former USSR and the United States. Imports into the EC and the United Statesincreased as manufacturers and processors took advantage of low world prices. The EC recorded an overallincrease of 6 percent in 1999/00, reaching 1.2 million tonnes - 50 percent of world imports. Imports into theUnited States increased by 22 percent and accounted for about 20 percent of world imports. Imports into theFormer USSR recovered to their 1997/98 level after being depressed over the intervening period byeconomic downturn and devaluation.

World cocoa bean production in 2001/02 is expected to recover to its 1999/2000 level as a result of morefavourable weather conditions in West Africa. Concern over possible disruption to Côte d’Ivoire suppliesshould be diminished if the proposed new marketing system that includes minimum guaranteed producerprices is implemented. Producer prices fell sharply after the liberalization of the subsector in 1999 whichcoincided with the collapse of world market prices. Four West African producers (Cameroon, Côte d’Ivoire,Ghana and Nigeria) agreed to establish a scheme to withdraw and destroy 250 000 tonnes of cocoa beans toimprove world market prices, but the details of implementation and the likely impact of this scheme are stilluncertain. In any case, current stock levels are sufficient to meet demand as improvements in processingtechnologies and marketing systems have enabled manufacturers and traders to secure continuous supplieswith smaller working stocks. Prices are therefore likely to remain depressed at least for the near term.


Tea

The weakening of tea prices in the final quarter of 2000 continued during the first ten months of 2001, withthe FAO composite price averaging $1.59/kg, 13 percent lower than the same period last year. Pricesaveraged $1.83/kg during the first quarter of 2000, weakening to $1.75/kg in the second quarter according toseasonal demand trends, but then reaching a high of $1.85/kg in the third quarter as orders from the RussianFederation were placed, and exports of tea to Near Eastern markets increased. By the final quarter of 2000prices had begun to weaken. However, the composite price for the year averaged $1.80/kg, 3 percent higherthan the average 1999 price of $1.75/kg, when weak demand kept prices lower.

World tea production in 2000 reached 3 million tonnes, up nearly 3 percent over 1999 . Most major teaproducing countries had larger harvests. Output increased by 5 percent in India , and by 8 percent in SriLanka. However, drought and early frosts reduced output in Kenya, by a further 5 percent in 2000 whileadverse weather also reduced output in Indonesia by 4 percent.

World tea exports reached 1.3 million tonnes in 2000, up almost 5 percent compared to 1999. Most majorexporting countries in the Far East had larger shipments, but those in Africa generally exported less. Exportsfrom Sri Lanka increased by 7 percent reflecting strong demand from the Russian Federation. Shipmentsfrom Indonesia were larger by 8 percent due to increased consignments to Iraq under the UN Oil for Foodprogramme. Exports from China, mostly of green tea, increased by nearly 14 percent and from India by 5percent. Kenya’s exports declined by 10 percent reflecting reduced export availability and weak demand inthe traditional markets of the United Kingdom and Egypt.

World net tea imports increased by more than 5 percent in 2000, reaching 1.3 million tonnes. This increasereflected the 5 percent gain in developing countries mostly due to improved economic conditions . Importsby major developed tea importing countries, except Japan where tea import volumes increased by more than18 percent, declined in 2000. Imports into the United States fell by 12 percent, while the EC recorded anoverall decline of 3 percent. In the EC, larger shipments to the Netherlands and France were insufficient tooffset smaller shipments to the United Kingdom and Germany. Imports by the Russian Federation wereabout the same as in 1999 when imports surged to compensate the shortages in the previous year, butindicative of continuing relatively strong demand.

Preliminary returns from major producing countries in the first eight months of 2000 suggest a considerableincrease in world tea output in 2001: production in Kenya is expected to recover by 14 percent; output inIndia should increase by 4 percent, Indonesia by 6 percent and Sri Lanka by 1 percent. This increase inproduction is likely to maintain weak tea prices in 2001. Import demand from countries of the Near East (themain market for exports from East Africa) are sensitive to oil revenues, and the military action in this region,may also constrain demand. However, auction prices in India and Sri Lanka could strengthen if demand for

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high quality teas picks up again in the Russian Federation as it did in the latter part of 1999. Other factorsthat may influence the world tea prices include the implementation of the bilateral free trade agreementbetween India and Sri Lanka, which was reached in March 2000. Under this agreement Sri Lanka wouldqualify for a 50 percent fixed tariff concession for tea exports to India on a preferential basis subject to anannual maximum quota.

Sugar

The rise in sugar prices seen in 2000 continued into January 2001, when prices averaged US 10.32 cents perpound. However, prices began to fall thereafter reaching a low of US 6.69 cents per pound in October 2001.This trend was largely due to the weakening import demand, particularly in the Russian Federation becauseof high stock levels and higher tariff rates, and uncertainty in the market place after the terrorist attacks onSeptember 11 2001.

In 2000, world sugar prices, particularly for raw sugar, were strengthened by a supply deficit and continuedrecovery in the economies of some major sugar importers. World sugar prices, which reached 14-year lowsin February 2000, recovered nearly 90 percent to an average US 10 cents per pound in December 2000,bringing the yearly average to US 8.18 cents per pound. However, despite the fact that global output was lessthan estimated global consumption the price recovery was constrained. This was largely due to large stockscarried by many consuming countries, including India where nearly 11.4 million tonnes, or about 20 percentof the world stocks were located, as well as a larger than expected beet sugar output by the EC, whichdampened the rise of white sugar prices in particular.

World sugar production in 2000/01 amounted to 129.4 million tonnes, down nearly 5 percent from 1999/00levels, with reductions in both developed and developing countries. Most of the decline is due to structuraladjustments in production as a result of extremely low world sugar prices prevailing in 1999 and 2000.Adverse weather conditions, diseases, and harvest delays further diminished global production.

Among developed countries, the largest declines occurred in Australia (down 1.08 million tonnes), the EC(900 000 tonnes) and the United States (510 000 tonnes). Gains in other developed countries wereinsufficient to offset these losses. In other European sugar producing countries, production in 2000/01,increased by 50 000 tonnes in the Russian Federation and by 238 000 tonnes in Poland, as better thananticipated processing campaigns resulted in higher output. Output also expanded in South Africa by some300 000 tonnes.

In developing countries, output in 2000/01 declined by 5 percent compared to 1999/00. The reduction waslargely due to smaller harvests in Brazil and China. Output in India remained unchanged at 19.5 milliontonnes. In Brazil, a combination of production adjustments and adverse weather reduced output by 2.5million tonnes, nearly 13 percent less than in 1999/00, to reach 17.3 million tonnes. In China, sugar outputwas 7.2 million tonnes in 2000/01, a decline of 12 percent or 1.0 million tonnes. The factors responsible for

International Sugar Agreement Daily Price ( fob & stowed, in bulk, US cents/lb.)

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this trend included the reduction in planted areas due to continued milling rationalisation, extremely dryweather during planting, and in some provinces relatively higher prices for grain. Adverse weather in otherdeveloping countries also accentuated reductions in sugar output. Production in Cuba and Mexico totalled3.5 million tonnes and 4.9 million tonnes respectively in 2000/01. In Thailand, output fell by 300 000 tonnesreaching 5.4 million tonnes, mainly due to disease in the northern sugarcane areas.

Exports virtually mirrored production trends. World sugar exports declined by 2.5 percent in 2000, asavailability was reduced in major exporting countries and rising prices discouraged shipments. Majordeclines occurred in Brazil where exports fell by 3.7 million tonnes (9 percent of all sugar traded in theworld market) returning to average levels following the exceptionally large shipments in 1999. Thisreduction was partly offset by increased shipments from many origins including Cuba (800 000 tonnes), theEC (100 000 tonnes) and Thailand (500 000 tonnes). Imports recovered in several Far Eastern markets in linewith GDP growth. World sugar imports (in raw equivalent) in 2000 were estimated at 38.9 million tonnes.

Early reports indicate that sugar output in the major producing countries, such as Australia, Brazil, China andThailand, is likely to recover in 2001/02, more than offsetting declines in beet sugar production, particularlyin the EC. World sugar production is expected to grow by 1.5 million tonnes to 131 million tonnes (rawvalue), potentially weakening prices.

Bananas

Banana prices in major markets, while fluctuating within a relatively narrow price range, remained atypicallyfirm through the first half of 2001. This firmness was partly due the conjunction of lower production inseveral Latin American countries affected by adverse weather conditions and of constant demand in mostmarkets. While in national currency terms European prices were higher than in the corresponding period of2000, in dollar terms prices in the EC were somewhat weaker during much of the first half of 2001 due toweakness of the EURO compared to the dollar. In the United States prices reached nearly 70 cents/kg inJuly, compared to an average of 42 cents/kg in 2000.

Based on preliminary estimates, total banana imports were slightly higher in 2000 at 12.1 million tonnes ascompared to 11.9 million tonnes in 1999. Imports increased markedly in Japan to just over a million tonnes,fuelled by the appreciation of the yen against most currencies during 2000, which made imported bananascheaper when compared to domestic fruit. Banana imports rose 2.8 percent to 3.3 million tonnes in the EC,and over the first eight months of 2000 were up substantially in China.

Based on preliminary data global banana export volumes decreased slightly in 2000 to 11.1 million tonnescompared to 11.7 million tonnes in 1999. In Latin America, exports contracted in many countries (with amarked fall of 12.6 percent in Costa Rica), mainly due to adverse weather and reduced purchases by

Banana - Import Prices( U.S. /tonne )

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marketing companies in the face of weaker international prices. Two notable exceptions were Ecuador,where exports rose slightly due to an increase in the cultivated area, and Honduras, where productioncontinued its recovery from the damage inflicted by Hurricane Mitch in late 1998. In the Philippines,shipments expanded significantly under the combined effects of a larger crop, higher demand in East Asiaand the devaluation of the national currency against the yen and the dollar. Exports also increased in theWindward Islands during 2000. During the first six months of 2001 Ecuador has experienced climatic andeconomic difficulties which have resulted in a considerable decline in exports. Similarly, Costa Rica andPanama have seen some decline in their exports in the first half of 2001.

The conjunction of lower exports in Latin America and weak dollar prices in the EC, traditionally the mostprofitable of the major banana markets, led to a significant drop in export earnings for many developingcountries in 2000. The profitability of the banana industry was further curtailed by higher input and transportcosts in the wake of rising oil prices. However, excess capacity in the reefer trade has constrained freightrates somewhat during 2001.

The orientation of prices for the remainder of 2001 is difficult to predict, as it will depend on a series offactors which play in different directions. On the one hand, there are indications that supply could continueto contract while demand growth is expected to continue. Supporting the idea of a contraction in supply arethe assumptions that marketing companies will continue to reduce the size of their banana plantings in LatinAmerica, and that output in Ecuador will continue to be curtailed, both by climatic and economic conditions.This contraction, however, could be partially offset by output increases elsewhere, notably in the Philippines,Guatemala and Honduras. On the demand side, banana imports are expected to remain relatively robust asharvests of some competing fruits in Europe, particularly pears and apples, are expected to be lower.

The revised banana import regime being implemented by the EC as of 1 July 2001 is likely to entail someshifts in the pattern of supply as the multinational firms are to receive some 83 percent of import licensesbased on the 1994-96 base period. There may therefore be reduced competition in the EC markets as thenumber of sellers is reduced. How prices react will depend on a number of variables, some of which could beexogenous to the banana supply and demand balance itself. These could include economic growth or the lackof such growth, in all major markets, supplies of competing fruits, and shifts in supply chain relationships inthe EC as the new regime takes effect.

Tropical fruits

World tropical fruit production increased by nearly 2 percent in 2000 to reach 61.4 million tonnes, of whichdeveloping countries accounted for some 98 percent. Mango is the dominant variety produced, followed bythe other major tropical fruits pineapples, papaya and avocado. Other tropical fruits referred to as minor,such as lychees, durian, rambuttan, guavas and passionfruit are traded in smaller volumes.

Mangoes account for about 36 percent of global tropical fruit production. In 2000 mango output wasestimated at 22.4 million tonnes, an increase of 2 percent compared to 1999. Pineapple production in 2000was 13.4 million tonnes, 22 percent of the world tropical fruit production, papaya production reached 8.4million tonnes, and avocado output was estimated at 2.3 million tonnes. The production of minor tropicalfruits reached 15 million tonnes.

International trade in tropical fruits continues to be dominated by pineapples. Significant growth in both thevolume and value of international trade in other tropical fruits has developed in recent years, particularlymango and, to a lesser extent, avocados, carambola, guava, lychee, mangosteen, passionfruit and rambuttan.Most of the recent growth in tropical fruit trade is based on expanded crop areas specifically intended forexport.

Provisional data for 2000 indicate greater exports of several fruits, significantly for avocado and papaya, andmarginally for pineapples: pineapple exports are estimated at 870 000 tonnes; avocado exports at 228 000tonnes; and papaya exports at 151 000 tonnes. Early reports indicate a slight decline in export volumes formangoes between 1999 and 2000. For avocado and papaya, nearly 70 percent of export trade is concentrated


in the top 3 exporting nations, while slightly less than 50 percent of fresh mango exports originate in the top3 exporting countries.

Preliminary data indicate increased import volumes for all four major tropical fruits (pineapple, mango,avocados, papaya), with the largest percent increase over 1999 for avocados. Developed countries importedalmost 80 percent of fresh tropical fruits in 2000. Individually, the United States, the European Community,Japan, Canada and China (Hong Kong SAR) remain the largest import markets for fresh tropical fruit.Pineapple imports, at 904 000 tonnes, accounted for 50 percent of total world import volumes in 2000, withthe EC and the United States accounting for 70 percent of import demand. Mango imports, at 514 000 tonnesfor 2000, increased slightly over 1999, with the United States and the EC being the leading importingmarkets.

Fresh Citrus

Prices for fresh citrus recovered in 2000/01 from the very low levels of the previous season. World citrusproduction declined some 1.5 million tonnes in 2000/01, as output fell in almost all-major producingcountries.

Orange production in Mexico, China and most Mediterranean countries was lower in 2000/01. United Statesproduction also declined due to adverse weather early in 2001. In the Southern Hemisphere, the 2000/01orange crop was some 6 percent lower in Brazil due to insufficient rainfall, disease problems and reducedgrove care; however, orange supply was expected to rise 11 percent in South Africa and 5 percent inArgentina.

Tangerine output decreased in the leading producing countries in the 2000/01 season, notably in China,Spain, the United States and Morocco. Global production of lemons and limes was only slightly lower asreduced output in Greece, Israel, Italy, Argentina and Turkey was almost fully compensated for byproduction gains in Argentina, Spain, South Africa and the United States. Total grapefruit output declined byabout 260 thousand tonnes due to decreases in the United States and Israel, attributed to reduced bearingtrees in the former and to water and labour shortages in the latter, not fully compensated by productiongrowth in South Africa and Cyprus.

In spite of lower production, global exports of fresh citrus rose in 2000/01, notably from South Africa, theUnited States and Greece. South Africa, benefiting from a depreciation in the Rand, and the United Statescontinued to increase export volumes, particularly for oranges. Exports from Spain, Morocco, Italy andEgypt declined. Orange exports from Cuba and Mexico also rose. In the Southern Hemisphere, shipmentsrose in Argentina and South Africa, but fell significantly in Brazil, reflecting reduced production, and inAustralia. Outside the ten major exporters orange volumes rose by some 250 000 tonnes as many smallersuppliers took advantage of shortfalls in exports of the major exporters.

Germany - Citrus Wholesale Prices(DM / kg )

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Global tangerine exports decreased by more than 20 percent, mainly due to sharp declines from Spain andMorocco, again following production trends. Total exports of lemons and limes were down, especially fromTurkey. Grapefruit exports increased in the United States, South Africa and Cyprus, but went down in Israel.

Citrus juices

During the first half of 2001 prices for frozen concentrated orange juice (FCOJ) were relatively stable,ranging between $850 and $950 per tonne (CIF, Rotterdam). However, prices gradually strengthened bymid-year to between $1 000 and $1 075, and are expected to rise further, perhaps to a range of $1 200 to $1300 by the final quarter of 2001. On the New York futures market, FCOJ closing prices rose from $0.71 perpound on 2 January 2001 to $0.74 on 2 April and to $0.79 by 31 July. Future prices for January 2002 stand at$0.81, and at $0.98 for May 2002, possibly reflecting market perceptions of FCOJ stocks. Prices forconcentrated grapefruit juice in mid 2001 were high due to lower supplies. Grapefruit juice stocks are loweras the 2001/02 marketing year begins, and with hurricane damage to the Cuban crop reducing availability,prices could strengthen further. Lemon juice prices weakened based on good crops in Argentina, Spain andthe United States. Ample availability of juicing lemons should hold prices down in 2001/02.

World production of orange juice contracted again in 2000/01, as orange crops available for processing inboth the Northern and Southern Hemispheres were lower. In addition, Brazilian orange juice production,may have been constrained by electricity shortages which affected both processing and storage as electricityin Sao Paulo state is dependent on hydroelectric generation and the area has experienced a severe drought.United States OJ production was down by some seven percent and Australia was down by 43 percent. Outputin Spain, Turkey and Mexico has also fallen. Although the availability of oranges for juicing in Brazil isexpected to be 6 percent lower in 2001/02, the Florida crop is just below record levels.

Cereals and Cassava

After reaching record low levels, the fall in cereals prices is showing some signs of having ‘bottomed out’ asproduction has adjusted to lower profitability, and stocks have been run down. However, international pricesfor cassava, which reflect feed more than food demand, continue to be weakened by slow growth in meatproduction.

Rice

International rice prices were under pressure during most of 2000, as reflected in the FAO Rice Export PriceIndex (1982-84=100), which fell from 106 in January to 98 in December. The downward trend in priceslingered well into 2001, with the index averaging 90 in January-September 2001, the lowest level since 1987.

The slide in price in 2000 took place against the background of falling global production, estimated at 596million tonnes, which is 16 million tonnes less than in 1999. The contraction was mainly concentrated

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among exporting countries, especially China, following the abatement of Government expansionaryproduction policies, and in India, as a result of poor distribution of the monsoon rains. Output also droppedin Vietnam, Pakistan, Argentina, Australia and the United States, which, like India and China, are majorsuppliers to the rice market. By contrast, most traditional importers gathered abundant crops in 2000,including Bangladesh, Indonesia, the Philippines and Sri Lanka.

Reduced import requirements in those countries weighed heavily on the international market in 2000 andglobal rice trade shrank by 9 percent to 22.6 million tonnes. Indeed, the fall in production in major riceexporting countries did not act as a constraint to trade, since export availabilities remained ample in 2000because of the bumper crops harvested in the preceding years, which had beefed up rice inventories. Most ofthe brunt of the trade contraction was born by India and Vietnam and to a lesser extent, Argentina andAustralia which recorded sizeable reductions in exports. On the other hand, competitive pricing policieshelped China boost sales and gain a wider share of the market. Most of the other exporters managed to keeptheir shipments close to the previous year level, although this often required renewed support from theirgovernments. The decline in world rice imports was mostly the result of lower shipments to Bangladesh,Indonesia and Sri Lanka, but also to Latin American and the Caribbean countries, especially Brazil. Theextent of the contraction was limited by a rise in shipments to Africa and to Near East countries.

Despite expectations of a further drop in global paddy production, international rice prices have continued ona downward path for the first three quarters of 2001. The reasons underlying such a weakness arefundamentally the same as in the previous year, as import demand continued to shrivel.

As of September, world paddy production in 2001 was forecast at 587 million tonnes, down 9 million tonnesfrom the previous season. Once again, China is anticipated to be responsible for much of the contraction.However, output is also expected to fall in Brazil, Egypt, Indonesia, Japan, Pakistan and Sri Lanka. Bycontrast, a recovery is expected in India, which this year benefited from abundant and well distributedmonsoon rains, as well as in Australia and the United States.

As of September, prospects for global rice trade in 2001 point to a small decline to 22.4 million tonnes.Unlike in 2000, China’s exports are likely to fall, reflecting the strengthening in domestic prices witnessedover the current year. Sales from Argentina, Pakistan, Uruguay and the United States are also anticipated tobe reduced. By contrast, Australia, India, Myanmar, Thailand and Vietnam are expected to make larger sales,following intensified efforts to sharpen their competitive edge.

As utilization is likely to outpace production in the light of the low domestic prices prevailing in mostcountries, end-of-season stocks are anticipated to be drawn down for the second consecutive year. This couldmark a turning point for world prices, which could witness a recovery in 2002. However, much woulddepend of the final production outcome in those Northern Hemisphere countries currently engaged inharvesting.

Wheat

International wheat prices increased slightly in 2000/01, reflecting a reduction in world output and smallerexportable supplies.


World wheat production in 2000 decreased for the second consecutive year. This was mostly because ofunfavourable weather, particularly the severe drought in parts of Europe and North Africa as well as inseveral countries in Asia, including China, where reduced plantings also played an important role in curbingoutput. Global wheat utilization during the 2000/01 marketing season was expected to increase slightly fromthe previous season. Higher food consumption, mostly driven by population growth, was seen to account forthe bulk of this rise while feed use was forecast to decrease, especially in Asia and North America. In theEC, the combined effect of a bumper crop and large supplies of low quality wheat resulted in a record feeduse.

Global wheat trade contracted in 2000/01 (July/June) after a peak in 1999/2000. However, most of thedecrease occurred in the developed countries, especially in the Russian Federation because of a largerharvest. The decline in wheat imports by the developing countries as a group, was less pronounced, and wasmostly due to record crops in Pakistan and India, normally large wheat importing countries. From the majorexporters' perspective, the 2000/01 trade season provided less market opportunities as world demandcontracted and larger exports entered the market from a number of non-traditional exporters.

Total world stocks for crop years ending in 2001 were expected to decline for the second consecutive year. Asharp decrease occurred in China, following the drop in 2000 production and the country’s deliberate attemptto reduce its stockpile for domestic use (rather than resort to large imports). This was in contrast to thesituation in India, where a record wheat crop for the second consecutive year pushed storage capacity to itslimits.

Looking ahead into the 2001/02 marketing season, wheat output in 2001 is forecast to decline, falling to itslowest level since 1995. At the regional level, output is expected to decrease most in North America andAsia. The expected decline in global production combined with a modest gain in consumption should resultin a further decline in stocks. Most of the decline is expected in China and India but smaller inventories arealso anticipated among major wheat exporting countries because of lower output. World trade is forecast toincrease slightly in 2001/02. Imports by the developing countries are expected to expand most, mainly inresponse to stronger demand in Asia. Overall, the declines in global wheat production coupled with smallerinventories in major exporting countries are likely to lead to higher prices in 2001/02.

Coarse grains

World coarse grain prices weakened further in 2000/01 compared to the previous season. The annual averageUS maize export price fell $5 to $86 per tonne, while a similar Argentine quotation declined by $10 to $78.

The latest estimate for world coarse grain production in 2000 indicates a fall for the second consecutive yearto slightly below the average volume of the past five years. The decline was mostly as a result of weather-damaged crops in parts of Asia and Europe. A drought-plagued season sharply reduced China’s maizeoutput, the second largest maize producer after the United States. Persistent drought throughout most ofeastern Europe was particularly hard on maize, though barley crops were also affected in some of thesecountries. By contrast, bumper coarse grain crops were registered in Argentina, Brazil and South Africa, themajor Southern Hemisphere maize producers, and the United States, which produced its third largest maizecrop.

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Global coarse grains utilization in 2000/01 is estimated to be up slightly from 1999/00, with increases in feeduse and food consumption. Higher feed use is expected in Asia, primarily in China (mainland), where, inspite of a smaller crop in 2000 and large exports during the first half of the season, domestic maize suppliesare considered sufficient to allow the continued growth in China's feed grain sector. Reductions in coarsegrains utilization would be most pronounced in countries worst affected by drought in 2000, especially incentral and eastern Europe and in the Near East.

A drawdown in global stocks in 2000/01 is estimated at some 27 million tonnes. The bulk of the decline isaccounted for by China, where the sharp drop in maize stocks was precipitated by a large reduction inproduction in 2000 and continued large maize exports in 2001. Most of the rest of the expected global stockreduction is in central and east Europe following sharp production shortfalls in 2000. However, endingcoarse grain stocks in the five main exporters, which provide the bulk of the world’s available supplies tointernational markets, are within the range of the previous three years.

The estimate for global imports of coarse grains in 2000/01 (July/June) is now put at about 107 milliontonnes, some 4 million tonnes above the previous season. The main regions where imports increased were inNorth Africa and eastern Europe, in both cases in response to smaller crops.

Global coarse grain supplies are expected to further tighten in 2001/02 in spite of an expected increase inworld production, primarily in maize and barley. A better than recent average maize crop is anticipated inChina and a record output was harvested in Brazil in 2001, two countries which are among the largestproducers in the world. However, after rising for three consecutive years, supplies are expected to declinesharply in the United States, the major coarse grain exporting country. Global utilization is forecast to againexceed production, for the third consecutive year, and total carryovers could fall, primarily for maize andbarley. Against this background of shrinking.

Cassava

International prices of cassava pellets have been falling, on annual basis, since 1996. In 2000, they averaged$84 per tonne or 18 percent less than in 1999. This fall mainly reflected the downward pressure exercised bycompetitive grain policy in the EC, the major import market and the weakness of the Euro compared to theUS dollar. Prices of soybean meal, which is combined with cassava pellets in compound feeds as substituteof feedgrains, rose by 25 percent in the year 2000 compared to 1999, contributing to depress further cassavapellets quotations. Prices of cassava starch and flour also dropped by 8 percent to $158 per tonne.

International trade in dry cassava products was slightly lower in 2000 as compared to 1999 (6.9 milliontonnes in cassava pellets equivalent) reflecting reduced demand for feed ingredients for pig-raising in theEC, but also the loss of competitiveness of cassava feed products vis-à-vis domestically produced feedgrains.Although purchases of cassava products by countries in the Far East increased markedly, stimulated by an 8percent dip in world prices, this was not sufficient to compensate the fall in the EC. For instance, imports byIndonesia rose more than five fold to half a million tonnes. Increased purchases were also made by Japan, the

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Republic of Korea, Malaysia and Singapore, while China maintained its imports at around one milliontonnes. Thailand continued to dominate the market with a share of over 90 percent of world exports. In 2000,this country raised its exports by 100 000 tonnes compared to 1999, sustained by larger shipments of cassavastarch and flour to Asian countries. By contrast, sales from Indonesia fell markedly, while shipments fromVietnam and other exporters in Africa, Latin America and the Caribbean, remained unchanged from 1999.

World cassava production in 2000 rose by about 3 million tonnes to 176 million tonnes or two percent above1999, reflecting increases in Africa, Latin America and the Caribbean which more than offset a reduction inAsia. In this region, the decline reflected low domestic and export prices in major exporting countries,particularly Thailand and Indonesia, which encouraged a shift out of cassava cultivation.

International prices for chips and pellets in dollar terms, continued to fall during most of 2001, a reflection offaltering import demand in the EC and the weakness of the Euro compared to the dollar. By contrast, Thaiexport prices of cassava starch and flours recovered from the relatively low levels of the previous season.Based on preliminary estimates, trade in cassava products is tentatively forecast at 7.3 million tonnes (inproduct weight of chips and pellets), 6 percent above the year 2000. About 65 percent of total trade isestimated to be traded in the form of chips and pellets and the remainder in the form of starch and flours.Imports by the Community are forecast to fall by one million tonnes compared to the previous seasondepressed by a drop in import demand by the Netherlands and Spain, where animal disease concerns havecontributed to a fall in meat production. The contraction in the EC market should be more than compensatedby larger purchases by countries in the Far East, in particular China, boosted by attractive world prices forchips and pellets.

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Oilseeds, oils and fats, cakes and meals

Global production of the seven major oilseeds in 2000/01 (October/September) rose by about 5 milliontonnes from 1999/00, reaching approximately 310 million tonnes. The increase was largely due to gains insoybeans, as production of some of the other major oilscrops, especially the high oil-yielding oilseeds, eitherstagnated at the previous season’s level or declined.

Based on the above scenario, prices for most oils and fats were pressured during much of the season asreflected by the FAO price index for oils and fats (1990-92=100), which fell by 11 points from the previousseason to 82 points. Particularly during the first half of the season, prices were depressed due to excess ofsupply resulting from a combination of large carry-in stocks and record soybean crops in the United Statesand South America. However, during the last quarter of the season, prices of most of the major oils and fatsbegan to recover, finally reversing the downward trend that started during the 1998/99 season. The turn-around in prices was largely due to (i) crop-yield concerns for the 2001/02 season in some of the majorproducing countries in the Northern Hemisphere, (ii) declining stocks, and (iii) growth slow-down in palmoil production in Malaysia and Indonesia, the two leading producers of that commodity.

With regard to oil cakes and meals, the situation was different in that demand outweighed supply,notwithstanding large soybean availability. This resulted in firming of prices as indicated by the FAO priceindex for oil cakes and meals, which gained 7 points from the previous season’s average, reaching 96 points.The demand side was particularly boosted during the season by the introduction of a ban on the use of Meatand Bone Meal in animal compound feed rations in the EC, which, traditionally, accounts for over 40 percentof global imports of oilcakes and meals. In addition, sustained income and population growth in differentregions of the world contributed to the increase in demand. The biggest beneficiary of the higher demandwas soybean meal, the abundant availability of which more than compensated for the reduced supplies of theother meals, particularly rapeseed and sunflower seed meals.

Although global production of oilseeds is expected to expand further in 2001/02, output of the high oil-yielding rape and sunflower seed is forecast to decline for the second consecutive season. Based on thatoilseeds production scenario, total oils and fats output in 2001/02 could fall short of demand, which isexpected to follow a trend increase. In addition to the anticipated reduction in rape and sunflower seeds,palm oil output expansion is expected to slow down. Moreover, carry-in stocks for 2001/02 are much lesscompared to recent seasons. The resulting tightness in global supplies of oils and fats is expected to lead to asustainable recovery in prices. This would be in contrast to most of the previous three seasons whenconditions of over-supply dominated the market fundamentals, leading to depressed prices.

Regarding oilmeals and cakes, in 2001/02, demand growth is expected to be outstripped by the expansion insupply as the forecast increase in crush of soybeans, also for oil extraction, is anticipated to lead to ampleavailabilities of meals relative to consumption. The resulting imbalance in global demand and supply is

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expected to keep a lid on prices in the sector. Consequently, and unlike the previous two seasons, oilmealsand cakes are expected to lose their price leadership role in the oilseeds complex to oils and fats.

Livestock products

Developments in world meat markets are in stark contrast to those in world markets for dairy products. Meatmarkets have continued to be affected by adverse consumer reactions to animal disease outbreaks. Recentincreases in meat prices are due mainly to improved poultrymeat prices as consumer demand shifts awayfrom beef in favour of ‘white meats’. Dairy prices on the other hand, have increased significantly and areexpected to remain strong as import demand, especially in developing countries, continues to grow.

Meat and meat products

Since the start of 2001, the FAO meat price index has moved up by nearly 5 percent, mostly driven by animpressive 11 percent jump in the poultry index. This is a pattern that should persist in the near term, asanimal disease concerns contribute to a global move away from beef consumption towards other meats,particularly poultry. In addition, any deterioration in global economic conditions could also trigger a furtherslowdown in meat consumption and result in a shift in consumer preferences to lower-priced meat cuts andpoultry, a phenomena already evident in some importing countries.

The global meat economy in 2000 was characterised by slowing output growth and an increased incidence ofmarket disruptions and trade diversion due to animal disease outbreaks in major exporting countries. Thiswas especially so in Europe, with increased occurrence of bovine spongiform encephalopathy (BSE) cases inEC member countries previously considered free from the disease. Exporter competitiveness was alsoinfluenced by wide fluctuations of currency exchange rates and reductions in food aid and export subsidies.

Global meat production rose 2 percent to 233.4 million tonnes, with developing countries further expandingtheir share of the total to 55 percent. The strongest gains were in Asia and South America, prompted in partby continued low feed prices and stronger economic growth which stimulated demand for livestock products.As a result, per caput meat consumption in the two regions rose 3 percent to 27.0 kg and 66.5 kgrespectively. In aggregate, per caput meat consumption in developing countries moved up 2 percent to nearly28.0 kg, while that in developed regions dropped by nearly 2 percent to 77.3 kg.

The 9 percent jump in global meat trade witnessed in 1999, induced by strong economic recovery in Asia,the use of export programmes, such as meat food aid shipments to Russia, and high EC export subsidies, wasnot replicated in 2000. Meat trade, however, increased more than 2 percent to 16.9 million tonnes, withpoultry meat accounting for most of that increase. Animal disease and food safety issues were minimal in thefirst half of 2000, with the exception of the outbreaks of food and mouth disease (FMD) in Japan and the

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Republic of Korea. However, the surfacing and spread of FMD, combined with increasing detection of BSE,led to market disruptions, increasing demand for meats other than beef and relative price shifts favouringpoultry meat.

While the international meat market is witnessing a gradual recovery in beef demand in 2001, animal diseaseconcerns continue to cast uncertainty about meat trade and price prospects. Global meat trade is expected torise by less than one percent above the previous year’s estimated volume. However, even this marginalincrease, along with the meat price gains thus far in 2001, could be put in jeopardy by the first reportedAsian case of bovine spongiform encephalopathy (BSE) announced in early September 2001 by Japan, theworld’s largest meat import market. This announcement might prompt a strong consumer reaction away frombeef in the region, with negative implications for global import demand and world prices.

Meat production in 2001 is expected to increase by less than 2 percent with an estimated one percent drop inbeef production offset by expected growth of 3 and 2.2 percent growth in the poultry and pigmeat sectors,respectively. Characterised by the slowest gains in 15 years, international meat trade is also witnessing anacceleration of the changing composition of meat trade in favour of poultry and a shift in the composition ofmeat suppliers as developing countries move to expand meat exports by nearly 8 percent in 2001 as thosefrom developed countries decline more than 2 percent.

Milk and milk products

International prices rose substantially during 2000, with the FAO price index for dairy products increasingby 25 percent during the year. Since then, prices have dropped back somewhat, although the index is stillsubstantially above the average level for the past three years. The rise in world prices resulted from strongimport demand in Southeast Asia, China, Central America, North Africa and the Middle East, especially formilk powder. In terms of supply, lower output in some exporting countries and policy measures in otherslimited quantities available for external trade.

Global milk output rose by one percent in 2000. In Oceania, production grew strongly in New Zealand andalso increased in Australia. In the United States, milk production rose by 3 percent, as farmers responded tofavourable farm-gate prices. Conversely, in Eastern Europe dry conditions during the summer reduced outputin a number of countries. Milk production in the Russian Federation and the Ukraine was also lower, as thedairy industry in these countries strove to achieve profitability. Production in a number of countries (the EU,Canada, Japan, Switzerland) is subject to policies which restrict output and, consequently, changes little fromyear to year.

In developing countries, growth in milk output continued in Asia and Latin America. Milk production rose ina number of countries, including Brazil, India, Pakistan and China.

For 2001, in Oceania, milk production for the 2001/02 season in New Zealand is forecast to be 3 percentabove the previous one, as a result of good pasture conditions and strong international prices. In the case of

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Australia, hot and dry weather in the previous production year may adversely affect pastures for the 2001/02season and hence restrain growth in milk output. In the United States, indications are that milk output willnot increase during 2001. In eastern Europe, milk production is expected to be greater than in 2000 andoutput may also increase in the Russian Federation and the Ukraine.

India’s milk production during the 2001/2002 marketing year could rise to an estimated 82 million tonnes.Growth is also anticipated for China and Pakistan. In southern Latin America, countries experiencedmarkedly diverse climatic conditions during the first part of 2001. In Argentina, milk production was 5percent lower than in the same period in 2000, as a result of high temperatures and regionalized flooding. Incontrast, Chile had excellent weather for pasture development and silage production. Likewise, Uruguayenjoyed favourable conditions. Elsewhere in Latin America, a dry summer in Venezuela and some parts ofBrazil inhibited pasture growth and consequently milk output.Imports of dairy products by countries in South East Asia increased during 2000, as economic growth in thisregion sustained import demand. Additionally, for the oil producing countries in the Middle East and NorthAfrica, imports of dairy products grew. Elsewhere, purchases by Central American countries also increased.Import demand is expected to be maintained during 2001

Agricultural raw materials

International prices of all natural fibres have continued their downward trend as import demand remainssluggish and there has been no cutback in production in response to falling prices. Rubber prices have heldup, but any scope for price increases is limited by the ease with which supply can be expanded and isdependent on global economic growth. Economic growth in the major consuming countries is also critical tothe fortunes of the hides and skins market. Prices are unlikely to strengthen until the current uncertaintyconcerning the timing of a recovery in global economic activity is resolved.

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Cotton

International cotton prices, measured by the Cotlook A Index, have declined steadily to just below 100 centsper kg by July 2001, the lowest since 1993 and about a 30 percent drop from late last year. The anticipatedexcess of supply over demand and the slowdown of growth in global economy were largely responsible forthe lower price in 2001/02.

World cotton production is expected to reach 20.3 million tonnes in 2001/02, a 6 percent increase from 19.7million tonnes last season. While bumper crops are expected from several major producing countriesincluding Australia, Brazil, China, Egypt, Turkmenistan and Uzbekistan, the additional production ispredominantly from the United States where production is expected to record a net increase of about 460 000tonnes, due to an expansion in planting area from 5.3 million to 5.7 million hectares. Favourable weatherconditions and the rapid adoption of biotech cotton have contributed to the increase in production for manyother cotton producing countries in 2001/02.

World trade in cotton in 2001/02 is projected to reach 6.1 million tonnes, about 8 percent higher than theprevious season. The record low world price has stimulated the increase in imports so far this season, whichrecorded higher export commitments compared with last two seasons, 1999/00 and 2000/01. The UnitedStates is expected to export 1.85 million tonnes in 2001/02, about 400 000 tonnes more than previous season.Countries in Asia continue to be the major cotton importers. The imports from Asia are estimated at 2.1million tonnes which account for more than one-third of world imports. Turkey is expect to remain a majorimporter in the world market in 2001/02. Its total imports are expected to be 360 000 tonnes. China,traditionally an importer, is expected to be a net exporter in 2001/02.

World demand is expected to reach 19.9 million tonnes in 2001/02, slightly higher than the previous year.After a sharp rise in consumption in 1999/00, consumption has been relatively stable in 2000/01 and thecurrent year. Since the world output is expected to be more than 20.3 million tonnes, the anticipated excessof supply over demand will result in higher stocks, which are estimated to reach 8.7 million tonnes, a 5percent increase from the previous season.

Although the world price recovered slightly in October 2001 it seems that any substantial price appreciationin the short run is unlikely. China continues to export cotton and the United States is expected to increaseexports this year. Moreover, the slowdown of the global economy prevents any sharp increase in demand. Inthe longer-term, price movements will depend largely on two emerging factors: the rapid adoption of thetransgenic cotton and the rapid expansion of the area under cotton in Brazil and Turkey. The adoption ofbiotech cotton reached 16 percent of world total production area in 2001, and has an important role inreducing production costs. Production costs in some of these new areas are believed to be lower than thecurrent world market price. These two developments may have important impacts on the future pricedirection in the next few years.

Jute, kenaf and allied fibres

A good harvest in the 2001/02 season (July-June) led to a fall in export prices of raw jute following arecovery in the latter part of the previous season. The prices of BWD grade from Bangladesh ports fell to$310 per tonne in September 2001 from a high of $385 in June. At this level, however, it remained wellbelow the $420 floor of the indicative price range agreed at the last Meeting of the Intergovernmental Groupon Jute, Kenaf and Allied Fibres in December 2000.

The combined world production of jute, kenaf and allied fibres is estimated to have recovered by about 12percent to over 2.8 million tonnes in 2001/02 reflecting a sharp recovery in production in Bangladesh andIndia, the two major producing countries. Production in India, the largest producer recovered by 11 percentto about 1.8 million tonnes and in Bangladesh by 18 percent to about 800 000 tonnes. Other major producerswere estimated to have maintained their year earlier levels.


World exports of raw jute, kenaf and allied fibres continued to decline from a peak of 460 000 tonnes in1997/98, falling to about 300 000 tonnes in 2000/01. This resulted from a decline in imports by China toabout 5 000 tonnes in 2000 from a record of 166 000 tonnes in 1997. India, which overtook Pakistan as thelargest importer in 1999 with 160 000 tonnes, maintained its position also in 2000 despite a smaller intake of130 000 tonnes. Pakistan took about 70 000 tonnes, almost the same amount as in the previous year.Thailand however increased imports to about 20 000 tonnes from only 1 000 tonnes in the previous year.Imports by the EC, Africa, Latin America and Near East regions fell considerably during the year.

Global export values of jute fibres and products are estimated to have fallen to about $425million in 2000from a high of $663 million in 1996.

Carry-over stocks of raw jute in the major producing countries has fallen in the past three seasons but stillremained above 450 000 tonnes at the end of the 2000/2001 season. At this level they represented about 20percent of the annual requirements of the manufacturing mills of the major producing countries comparedwith 43 percent in 1997/98, the year of last high level of stocks.

World production of jute, kenaf and allied fibres is likely to fall in 2002/2003 if the current low prices of rawjute are maintained to planting time in March-April 2002. Carry-over stocks of the major producingcountries are likely to remain high at the end of the current season, thus limiting any price increases.

Prices of polypropylene, the raw material for synthetic products competing against jute, remained stable atabout $775 per tonne in the first two quarters of 2001 after rising sharply to this level in 2000, and thisimproved the price competitiveness of jute.

Hard fibres

Prices of African sisal, which increased earlier in the year, weakened in the third quarter of 2001 as demandcontracted. Export prices of 3L grade which rose to $880 per tonne, c.i.f. European ports in July 2001 fell to$800 in October and those of UG grade from $700 to $650 during this period. Prices of Brazilian No. 3 gradeweakened slightly from $360 in July to $340 per tonne in October 2001.

The combined world production of sisal and henequen is estimated to have increased by about 6 percent tosome 322 000 tonnes in 2001. A sharp recovery in production in Kenya and a further rise in Brazil were themain causes of this increase. The recovery in production in Kenya would help the country to return to itsnormal level in 2001 from the drought-affected output in the previous year.

Global exports of sisal and henequen fibres increased by around 6 percent to 75 000 tonnes in 2001following a slight recovery in 2000. Shipments from Kenya, Tanzania and Brazil expanded, but Madagascarwas unable to maintain supplies to the world market. Exports of sisal and henequen manufactures alsocontinued to expand.

A decline in export prices of abaca fibre apparent since December 1999 continued to the third quarter of2001 reflecting weak demand in the face of expanding production. Prices of JK grade, f.o.b. Manila Port, fellto $102 per bale of 125 kg. in August 2001 from an average of $112 in 2000 and those of S2 grade to $118from $160 during the same period.

Production of abaca, which has continued to expand since 1997, is estimated to have increased by about8 000 tonnes to some 90 000 tonnes in 2001, with expansion by each of the two main producers, thePhilippines and Ecuador.

World exports of abaca fibre are estimated to have increased for the third year in a row in 2001 to exceed35 000 tonnes, largely due to an increase in exports from the Philippines. Total exports of abaca productsincluding cordage and pulp increased slightly to 43 800 tonnes (fibre equivalent basis) in 2001, almostentirely from the Philippines. The European Union countries continued to be the main destination for fibreexports, followed by the United States and Japan. The United States dominated the market for pulp.


Prices of coir fibre fell sharply in 2001. The domestic price of mattress fibre in Sri Lanka at Rs 2 900 inOctober 2001 declined to about a half of its level in the same month of the previous year.

An upward trend in production over the last decade is expected to continue through 2001 with outputreaching a record of over 320 000 tonnes, due mainly to increased production of brown fibre in India.Production of white fibre in India remained at around 120 000 tonnes in 2001. A recovery in the productionof brown fibre in Sri Lanka in 2000 is likely to continue through 2001. World production of coir yarn isexpected to continue to rise further in 2001 to reach a record of over 250 000 tonnes.

Exports of coir fibre and yarn recovered in 2000 and this recovery, fuelled by stronger demand in theEuropean Union countries, is expected to continue through 2001. Exports of coir products particularly ofmats and mattings have expanded since 1998 and are likely to reach about 45 000 tonnes in 2001.

Natural rubber

Rubber prices in the world’s major rubber exchange markets have been relatively stable in 2001. The priceof RSS1 rubber fluctuated around the range of 47 to 50 pence/kg in the London market in first 8 months of2001 in the range of 2.2 to 2.4 Ringgit/kg in the Malaysian market in the same period. Both prices wereslightly lower than the average prices last year.

Global production is expected to increase from 6.81 million tonnes in 2000 to 7.15 million tonnes in 2001.Production in Thailand, the world’s largest producer, continues to increase and it is estimated that totaloutput will reach 2.42 million tonnes, about 3 percent higher than last year. Production in Vietnam hascontinued its upward trend and is expected to reach 280 000 tonnes, a 4 percent increase beyond the recordlevel achieved in 2000. Production in Indonesia is estimated to increase to 1.61 million tonnes from 1.56million tonnes in the previous year. However, Malaysian production is estimated to decline by 9 percent in2001 as farmers continue to shift away from rubber to other crops, in particular palm oil. Production in othermajor producing countries such as China and India, will be little changed, while the decline in production inCôte d’Ivoire will be offset by higher production from Liberia.

Consumption of natural rubber is expected to be around 7.25 million tonnes in 2001, slightly lower than the7.34 million tonnes in 2000. Nearly half the natural rubber used globally is for tyre production. Demand formotor vehicles, and hence for tyres is largely affected by economic growth. With the slowdown in economicgrowth, demand for natural rubber in the United States, Canada, Japan and Western Europe is expected todecline, although demand in several eastern European countries was strong up to September 2001. China isexpected to continue to experience strong growth, with total consumption estimated to reach 1.17 milliontonnes, making it the world largest consumer of natural rubber in 2001.

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In 2000 world gross exports were 4.97 million tonnes, reflecting an increase of more than 6 percent from theprevious year, and this trend continued in the first half of 2001. From January to April 2001, total worldexports were 1.70 million tonnes, about 4 percent higher than the same period in 2000. Indonesia, Vietnamand Thailand accounted for most of the increase. Exports from Thailand for the first 4 months of 2001 weremore than 8 percent higher than in the same period in 2000. However, exports from Malaysia continued todecline, and Malaysia fell from being the world’s largest exporter in the early 1990s to only fourth largest in2000. After importing over one million tonnes annually for six consecutive years, the United States, thelargest importer of natural rubber, saw its imports drop significantly from January to May 2001 comparedwith the same period in the previous year, largely due to a slowdown in economic growth. China’s importsreached 328 000 tonnes between January and May, 16 percent above the same period in 2000. However,given the weak demand in other major importers such as Japan and the EC in the recent months, global tradein 2001 is expected to be lower than 2000.

World rubber prices are expected to fluctuate around the current level or drift lower in the near future. Thedeterioration of global prospects of economic growth may lead to lower demand for natural rubber. Also,lower oil prices may make synthetic rubber more competitive, further inducing lower use of natural rubber.In the near term, therefore, prices are likely to weaken. Although the global economy is forecast to resume itsgrowth in 2002, further substantial price improvements are unlikely because of the great potential forincreased supply from more intensive tapping and from the increased production capacities in new producingcountries.

Hides and skins

International prices of most types of hides and skins strengthened in the first part of 2001. From July 2001demand levelled off and consequently prices of raw hides and skins started declining, but remained onaverage at a higher level than in the previous year. The short term price outlook appears uncertain as demandfor leather and leather products could be affected by the weaker economic growth in major consumingcountries.

Global output of bovine hides and skins which reached a peak in 2000 of 5.8 million tonnes, declined in2001 as production in the main developed producing countries fell as result of lower slaughtering. Higheroutput in developing countries was not sufficient to offset this reduction.

Production levelled off in the United States in 2000 and preliminary information indicates that lower levelsof slaughter resulting from reduced herds will be responsible for a decline in output in 2001and 2002.

In the EC, output of bovine hides is expected to decline considerably in 2001and to a lesser extent in 2002 asfood safety concerns reduce beef demand, particularly in Germany and Italy. The supply of hides and skins is

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likely to be reduced also in the United Kingdom, Ireland and, to a lesser extent, other EC countries wherebovine herds have been affected by BSE and more seriously by the foot-and-mouth disease outbreak.

Global exports of bovine hides increased in 2000, continuing the upward trend seen in the previous year.This increase of about 2 percent reflected larger exports from the European countries, sustained by strongerdemand for good quality hides. However, the increase was not sufficient to match the growth of importdemand as evidenced by the rise in prices of late 1999 and 2000. Exports from the United States, the largestsupplier to world markets, continued to decline in 2001 and this downward tendency is likely to bemaintained in 2002 as result of lower output. Developing countries’ exports rose in 2000 and 2001 sustainedmainly by increased exports from some Far Eastern countries. This growth is likely to continue in 2002albeit more slowly than in previous years.

In 2000 world imports of bovine hides and skins rose by about 2.5 percent boosted by increases in China, theRepublic of Korea and Italy. Italy is now the world’s largest importer of bovine hides, and its purchasesincreased in 2000 sustained by renewed export demand for high quality leather and leather products. Chinaand the Republic of Korea accounted for more than 30 percent of global imports of bovine hides and skins in2000. China, the second largest importer of bovine hides, increased its imports in 2001 and a further increaseis expected in 2002 as the demand for high quality hides far exceeds domestic supply.

Global production of sheep and goats skins increased slightly in 2000 due mainly to a 5 percent increase inslaughtering from expanded flocks in China more than offsetting reductions in Eastern Europe and theRussian Federation. The increase in production was largely taken up by processing in the producingcountries and the volume of trade remained largely unchanged.

PART III

ISSUES IN AGRICULTURAL

COMMODITY MARKETS

ISSUES IN AGRICULTURAL COMMODITY MARKETS 33

ISSUES IN AGRICULTURAL COMMODITY MARKETS

Price developments for basic food commodities

Introduction

The most striking feature of the developments observed in the international markets of basic foodcommodities during the last decade is the prominent price spikes that occurred for most of them in the mid-1990s (see Figure 3.1)1. Although, the downward trend since then has been reversed for dairy products from1999, the prices of cereals, meat and oilcrop products continue to be depressed at levels that have not beenseen for nearly two decades. Indeed, as measured by the relevant FAO indices, the average annual changes inthe international prices since 1995 were –8.8 percent for major grains, -6.6 percent for rice, -6.6 percent foroilseeds, -3.4 percent for meat products and –3.5 percent for dairy products.2

Figure 3.1: Annual FAO price indices of major food and feed commodity groups

Such strong convergence of price developments during the 1990s3 is an indication of the commonality of theunderlying fundamentals influencing the markets of various basic food commodities, as well as of the strong

1 The brief overview of the price trends over the past decade contained in this section uses FAO indices ofrepresentative international prices for groups of basic food commodities. The method of calculation of the indices andtheir exact commodity composition may be found on the FAO web site at the following URL: http://www.fao.org2 The growth rates were estimated using regression analysis and all the estimated growth rates except that for dairyproducts were statistically significant, reflecting the recent reversal in that market.3 An analysis was also conducted to determine whether there were any consistent changes in the intra-seasonalinstability of prices of basic food commodities (as measured by the relevant FAO price indices) over the same period.The instability was measured by calculating coefficients (CV) of variability for each season using monthly data for eachcommodity group separately for the 1990-2001 period. Subsequently, these estimates (12 for each commodity group)were used in regression analysis to assess whether there was a significant trend in the values of the CVs through the


linkages existing between these markets. Although there were developments unique to each commoditymarket, these were either exerting pressure that tended to influence the markets in the same direction or notstrong enough to overcome the effects of those that were working to influence the markets in the samedirection.

Grain markets

Over the past decade, world wheat and coarse grain sectors have witnessed several important developments,some with major implications for international prices. As indicated below, changes in the pattern of trade(i.e. the changing composition of the main importing and exporting countries) and developments in thedomestic cereal market of the United States and China have had the most direct impact on the global cerealeconomy, in general, and on the prevailing depressed state of grain prices, in particular.

Prior to the 1990s, the sharpest year-to-year (as well as intra-year) price swings were triggered by thepresence or absence of two dominant, and yet unpredictable, buyers on world markets, namely the formerUSSR and China. The breakdown of the USSR not only eliminated the world’s largest grain importer fromthe international scene but also resulted in a significant expansion in unsold grains (hence large inventories)in major exporting countries, which continued to overhang the market through 1995 as other buyers did notfill the void. Between 1990 and 1995, major exporters made greater recourse to export discounts andsubsidies in order to reduce their large stocks.

By 1995, however, they had also began reforming their domestic policies in order to deal with chronicproblems of over-production. After the sudden price surge in 1995/96, caused by a significant fall in globalcereal production, mainly due to weather problems in major exporting countries, export subsidies were nolonger necessary and a sharp draw-down of stocks in major exporting countries raised expectations ofcontinued strong prices, a factor which encouraged farmers to produce more grains in the following year. Atthe same time, a number of net-import producing countries such as Pakistan and India also adopted policiesthat were successful in encouraging production. In 2000 both India and Pakistan harvested record crops. As aresult, both countries shifted from being net importers to net exporters often at relatively low prices whichdampened quotations on the world market.

Against the background of strong prices and in compliance with Uruguay Round commitments, the 1995Farm Bill in the United States, known as the Federal Agricultural Improvement and Reform (FAIR) Act,came into force in April 1996. While the FAIR Act aimed at removing (or decoupling) the link betweensupport payments and farm prices by replacing deficiency payments by direct compensatory payments, thecontinuing support to the United States farmers in the form of emergency aid, on the top of the compensatorypayments, provided enough incentive to farmers to continue growing grains even though the market signals,i.e. prices, were not encouraging.

In the meantime, China, a major wheat importer, continued on its policy to increase domestic production andreduce its dependence on imports. China’s grain policy since the mid-1990s encouraged higher productionyear after year so that by the late 1990s the country needed to import only small amount of grains. Followinga short-lived interval in the mid-1990s, China’s maize production began to exceed domestic demand and thisgave rise to a period of export boom. However, driven by the high financial burden of rising inventoriesalong with the country’s bid to join WTO, China started to reform its grain economy, reducing productionincentives and lowering its large stocks1. These changes resulted in a decline in plantings already in 2000.Beside lower plantings, weather problems also affected production in 2001, which fell well belowconsumption requirements. However, the shortfall was largely met through the release of stocks rather thanby imports. In addition, China continued to export maize, although the decline in maize production was evenmore substantial. The absence of China as a major wheat importer and its continuing maize sales into theworld market have also contributed significantly to the to put downward pressure on international prices.

period. A statistically significant increase in intra-seasonal instability was discovered only for oilseeds and meat,implying no statistically significant change in price instability of others.1 More detailed information about developments in China, especially with regard to the size of its stocks is available inthe February 2001 issue of Food Outlook .


Rice market

The sharp increases in prices between 1994 and 1996 reflected a sudden rise in import demand by countriesthat had experienced serious crop shortfalls in that period, including Bangladesh, China, Indonesia andespecially Japan, which emerged as the top rice importer in 1994. As a result, the global volume of trade rosesubstantially and in 1995 surpassed the 20 million tonnes benchmark for the first time. The tightening of theinternational rice market revived food security concerns among large rice producing/consuming countries,and encouraged Governments to adopt more expansionary production policies. This new policy stance,together with favourable growing conditions, was responsible for the subsequent increases in global paddyproduction, which reached a new record in 1999.

For many of those countries that had embarked in supportive production policies, gains in output in thesecond half of the decade largely exceeded growth in domestic requirements, leading to the formation oflarge surpluses that had to be carried over the next years. As a result, global rice stocks rose substantially,especially at the close of the 1998 and 1999 seasons. Moreover, several of the countries that had been majorimporters in 1993-96 either cut imports or achieved self-sufficiency and some reverted back to a netexporting position. Purchases by China, for instance, which had soared in 1995 following a very poor1994/95 harvest, were curbed substantially in 1997, as the country returned to the market as an exporter. In1998, its exports climbed to 3.8 million tonnes and, have since then remained close to 3 million tonnes, evenin 2000 under conditions of falling production, as the country could draw from its very large rice inventories.

While the faltering global import demand and the pressure from large export availabilities had a strongdepressing effect on prices in the late part of the 1990s, the high level of protection that characterizes the ricesector did not allow the fall in prices to be fully transmitted onto domestic markets in major producingcountries. Instead, Governments continued to shield their country’s rice sectors from falling internationalprices, by reducing import competition or by promoting exports, either through government-to-governmentdeals, barter arrangements, or credit programmes, all of which tended to exacerbate the drop in prices in2000. To some extent, commitments taken under the Uruguay Round Agreement on Agriculture hindered theability of countries like India, the Republic of Korea, Japan or the EC to dispose of their excess supply on theworld market other than in the form of commercial sales or food aid. Such constraints did not apply to othermajor rice market players, such as China, Myanmar or Vietnam, which were not WTO members. However,there is no formal evidence to suggest that these countries subsidized their exports.

Figure 3.2. Monthly FAO index of international rice prices

There are signs, however, that may point to a price recovery soon. Since 2000, global rice production hasfallen short of global rice consumption, requiring stocks to be released in a number of countries, especially


China. Moreover, a number of countries more exposed to international competition (Argentina, Uruguay)have reacted to the low prices by cutting plantings. In others, Governments are embracing less supportiveproduction policies, especially China, but also Egypt, Japan, the Republic of Korea, Pakistan and Vietnam.Finally, drought conditions currently prevailing in various countries might also support a firming of prices.

Markets for oilcrop products

During the nineties, price developments in the oilseeds complex manifested the usual complex and diversepattern (see Figure 3.3). Overall, periods of more stable prices alternated with periods of strong pricemovements. Until the end of 1992 and again between 1996 and mid 1999, prices for oils and meals - linkedto one another through the crushing of oilseeds - moved more or less in parallel. By contrast, there have beentwo exceptional spells, 1993-1995 and 1999-2000, where the oil and meal price indices moved in oppositedirections. The market fundamentals underlying price developments during these two periods are outlinedbelow.

In the second half of 1993, international oil prices started rising due to shortfalls in global oil supplies, anddecreasing inventories. International oilmeal prices, by contrast, weakened, primarily because of depressedimport demand. This situation persisted throughout the following year, when a further tightening of oilsupplies and markedly reduced stock levels led to further sharp increases in oil prices, while meal pricesremained low due to continued weak import demand particularly in the EC, where agricultural policychanges favoured the use of grains over oilmeals in feed rations, and in Eastern Europe and the CIS, wheredomestic demand for and imports of oilmeals dropped as a result of low economic growth and of foreignexchange shortages. Eventually, oil prices decreased again in 1995 as, due to improved harvests of high oil-yielding crops, the tightness in global supplies eased and stocks in importing countries were replenished. Atthe same time, however, meal prices started to climb due to a combination of factors, including a fall inglobal soybean output, sustained global demand for livestock products and an increase in demand generatedby a more favourable meal/grain price ratio following the marked increase in feed grain prices in 1995.

Figure 3.3. Monthly FAO indices of international prices of oils and meals

Toward the beginning of 1998, meal prices, and later also oil prices, came under intense downward pressure.This was mainly the result of a strong recovery in global production of soybeans and other oilcrops (partlyrelated to agricultural support policies applied in certain countries), combined with a slow-down in theexpansion of global oil and meal consumption. In the case of oils, prices continued to fall sharply during1999 and 2000, mainly for two reasons: further good harvests of high oil-yielding crops, and the fullrecovery of tropical oil production from the adverse effects of El Niño in 1997-98 - both leading to a marked


increase in inventories in major exporting countries. Initially, also meal prices continued falling as worldsoybean production and global oilmeal stocks expanded, and because competition from feed grains increasedagain following a conspicuous drop in their prices. However, as opposed to oil prices, from mid 1999onward, international prices for cakes and meals recovered, mainly because the expansion of global oilmealproduction came to a halt, with soymeal supplies actually falling short of demand, thereby reversing thesituation observed since the end of 1997.

Markets for livestock products

Meat

International meat prices have exhibited a sharp decline during 1997-98 (see Figure 3.4). There were manyfactors influencing this. They ranged from: the effects of animal productions cycles, particularly for beef;and changing composition of meat trade, caused by changes on the demand side; to high degrees ofconcentration of international meat imports, making international markets susceptible to shocks occurring inany one of the major importing countries.

Figure 3.4. Monthly FAO index of international meat prices

The analysis of prices in the meat sector, when compared to those of the crops sector, is further complicatedby the heterogeneous nature of meat products that currently enter international markets. This makes itdifficult to identify representative international prices, which, with the rapidly changing structure ofinternational trade, makes a general meat index quickly lose its relevance for tracking market developments.Keeping these caveats in mind, Figure 3.4 indicates that meat prices have often not followed the same pathas those of basic food crops.

An important component of the FAO meat index is the price of beef products, and, hence, the decline in beefprices since the mid-1990s has been an important contributor to the decline in the overall index. Herdliquidation in the United States, the world’s largest importer of beef, beginning in 1996 because of the sharpincreases in the prices of feed grains and subsequently oil meals, resulted in reduced import demand and thuscontributed to weaker international beef prices. Meanwhile, a stagnant economy in Japan, the second largestimport market, led to consumer preferences shifting to lower-value imported beef cuts, such as short plate,brisket, and chuck, adding further downward pressure on average beef prices. This declining trend tentativelyreversed itself in 1999 in response to recovery in Asian markets and indications of herd rebuilding in theUnited States, both of which turned out to be short-lived, maintaining the international prices at their newlows, aided by the re-emergence of the BSE crises in Europe later on.


Additional downward pressure on international meat prices after 1997 was generated by the financial crisisin Russia, in 1997 the world’s largest meat importer and the recipient of more than a quarter of world trade inpoultry meat. International poultry prices dropped sharply as a result. Moreover, currency devaluations inThailand and Brazil, two major poultry meat exporters, contributed to the downward pressure on poultryprices. However, the gradual stabilisation of the Russian economy and animal disease outbreaks in late 2000and 2001, affecting the availability of beef and pigmeat, could lead to a significant recovery in poultryprices. Similarly, lamb prices, after jumping precipitously in 1996 and 1997 in response to BSE concerns byconsumers in Europe, the largest import market for ovine products, are witnessing significant price strengthin 2001.

The structure of the global pigmeat market is relatively thin, with trade constituting approximately 3 percentof global production. In addition, it is highly concentrated—two-thirds of world trade determined by onlythree different import and exports markets-- thus making the overall market more vulnerable to individualcountry market shocks. This was evidenced in 1998 when escalating production in exporting countries at thetime of the financial crisis in Russia—the largest meat import market led to a precipitous drop in demand forpigmeat imports, resulting in pig prices in the United States and the EC dropping to 30 year lows. Pigmeatprices have remained low since, probably as a result of restructuring in pigmeat industries in the UnitedStates and the EC, with record low prices forcing smaller producers out of business. Lower marginal costs ofproduction as companies increased their size and scale of operations may be allowing product to be sold atlower prices. Some shifting of product preference to lower-value cuts in Japan, may be also maintainingsome downward pressure on prices.

Dairy Products

Over the past decade, international prices for dairy products have shown considerable variation (see Figure3.5). During this period, import demand grew by approximately a third and rose from 5.5 percent to 7.0percent of world milk production. However, despite the increase in world demand, the amount of milktraded, in relation to total production, remained relatively small. On the export side, the international marketfor dairy products is characterised by a limited number of exporting countries. While the number ofimporting countries is greater, a limited group of countries account for a substantial proportion of imports.

Figure 3.5: Monthly FAO index international dairy prices


As a result of the above, relatively small changes in supply or demand in the main exporting and importingcountries have been sufficient to produce substantial changes in international prices. Thus, during the latterpart of the 1990's, economic adjustments in Asia and the devaluation of the Russian ruble and the Brazilianreal were important factors in the lower prices seen during this period. The more recent rise in dairy pricesreflects: improved economic conditions in some of the major importing countries; for petroleum-producingcountries, increased revenue to fund imports; domestic market conditions in the EC, which led to the reducedavailability of surplus dairy products for export; and commitments to reduce the volume and value ofsubsidised exports arising out of the Uruguay Round Agreement on Agriculture.

Concluding remarks

The prominent spikes in the international prices of most basic food commodities observed in the mid-1990swere essentially due to unfavourable weather conditions that curtailed production in large parts of the globeand led to substantial declines in carryover stocks of the commodities concerned. Subsequent “spill-over”changes were triggered by these spikes, in part due to the strong linkages among the various commoditymarkets, with, for example, the increase in the prices of feed grains affecting both the meals and livestocksectors. Such widespread climatic influences on production though infrequent, are not exceptional. Withdeclining global inventories of some major food commodities, especially in major exporting countries,moreover, their impact on food security of vulnerable countries may give rise to serious concerns as financialinstruments to cope with such sharp shortfalls may not be the best way of coping with physical unavailabilityof food supplies.

Changes in economic performance in countries in different parts of the world and policy responses at thenational level have been superimposed on these to complicate the assessment of the developments over thelatter half of the decade. Output increasing effects of price increases combined with relatively slow economicgrowth in many parts of the world have weakened international prices of food commodities since the mid-1990s, a phenomenon that has been facilitated by increasing integration into the global markets of even theremotest countries. With increasing pressure to reduce accumulated domestic inventories in some countriesand policy responses in others to counter the effects of lower returns, the downward pressure on internationalprices have continued well into the beginning of the new millennium.

It should also be noted that this period has also seen the beginning of the implementation of the UruguayRound of Agreement on Agriculture. Although the members party to the Agreement have generally kept totheir commitments, which however did not lead to substantial changes in policies, the developmentsdescribed above in the market fundamentals have made it difficult to isolate the contribution that theAgreement has made to those developments.


Oil prices and agricultural commodity prices

Introduction

The issue of whether oil price movements have a significant influence on the markets and prices ofinternationally-traded agricultural commodities has been discussed in a number of international fora, mostrecently in the sessions of the FAO intergovernmental groups dealing with natural fibres. However, no clearconclusions have emerged concerning whether oil price changes do have an impact on the prices of othercommodities and if so, what form - positive or negative - they might take. It seems likely that if there arelinkages, these will vary from commodity to commodity and from country to country. The dynamics of suchrelationships are also of interest: given the secular downward trend in the prices of many commodities, itmay be that any oil price effects are confined to the short-run. These are essentially empirical questions, butthere has been little economic analysis of possible linkages to provide empirical evidence either way. Thisarticle discusses the nature of possible relationships between oil prices and agricultural commodity prices,and presents the results of some preliminary econometric analysis which tries to test for the existence andsignificance of any such effects in relation to fibres.

Oil prices are currently (October 2001) averaging just over $20/barrel, some 30 percent lower than one yearago. The 2000 oil price shock appears to have been only temporary: after reaching a peak of more than$30/barrel in September and November of that year, prices have fallen steadily, averaging $28 in 2000 and$25 so far in 2001. While the current international situation makes forecasting particularly problematic,prices had been expected to average $18-19/barrel in the longer term. It should be remembered, however,that the final price of oil is not simply dependent on oil supply and demand, but also includes national taxesand subsidies. For example, in the EC taxes account for two thirds of the retail petrol price. Compensatorychanges in national taxes might reinforce international oil price movements by maintaining demand in theface of rising prices.

The macroeconomic consequences of oil price shocks have been widely discussed. While price hikes may bebeneficial to the oil-exporting countries, it is generally believed that the effect on overall world output andaggregate demand is adverse. Industrialised countries have succeeded in raising the efficiency of their energyuse, partly in response to higher oil prices, but also as a result of environmental concerns, such that oil priceshocks are less severe than in the past. The consequences for oil-importing developing countries are moresevere, since developing countries tend to use more energy per unit of output – up to twice as much - and thishas increased further with industrialisation. The oil import bill therefore generally accounts for a greatershare of the current account balance. Meanwhile earnings from exports of many agricultural commoditieshave trended downwards as prices have fallen, exacerbating the negative impact of increases in oil importbills. However, if there are linkages between the price of oil and the prices of these agricultural commodities,the impact of oil price changes on the balance of payments of oil-importing developing countries may bereinforced or cushioned by the resulting relative price changes. The nature of any such linkages between oilprices and the prices of selected agricultural commodities is explored in this article.

Economic links between oil prices and agricultural commodity prices

This section considers the economic mechanisms through which variations in oil prices might be expected toimpact upon agricultural commodity prices. These are multiple and complex, and as noted above, are likelyto differ from commodity to commodity and from country to country. It is difficult therefore, a priori, togeneralise concerning the nature of these linkages and impacts.

As with any other products, the costs of production and hence profitability of agricultural commodities areinfluenced by the prices to be paid for oil. The strength of these effects would depend on the oil intensity ofproduction of the particular commodity concerned, but other things being equal, it might be expected thatincreases in oil prices would eventually be reflected in higher agricultural commodity prices.


Perhaps the most discussed impact of oil price changes is on the economic growth performance of the oil-importing countries, especially the industrialised countries which also provide major markets for tradedagricultural commodities. An increase in oil prices is expected to lead to a slowdown in the rate of economicgrowth and hence in the demand for all commodities. As a result, commodity stocks rise and prices fall. Theimpact on economic growth is likely to be more severe for oil-importing developing countries, for thereasons given above, but any knock-on effect on commodity prices would be less pronounced since thesecountries are generally less significant as commodity importers. It is however possible that the reduction indomestic demand for tradeable commodities might lead to an increase in exportable surpluses, reinforcingdownward pressure on prices.

For the oil-exporting countries, the effect of an oil price rise on demand is obviously the reverse of that foroil-importers. Increasing oil revenues stimulate an expansion of import demand for agricultural commodities,which for certain products could conceivably lead to an increase in their price. Oil price variations may atleast have an impact on the pattern of trade. Whether a commodity price effect would actually materialisewould depend on the importance of the oil-exporter as an importer of a particular commodity, and themagnitude of the income elasticity of import demand. Changes in the volume of imports by certain oil-exporting countries, notably in the Near East and the Area of the former USSR, can be a major source ofprice variations for certain commodities. In the case of tea, for example, the Russian Federation is theworld’s largest importer and Near Eastern markets are also significant. The volume of imports into thesemarkets appears to be highly income elastic, and to have a significant influence on international tea prices inthe short-run.

A potential direct link between oil prices and agricultural commodity prices arises where oil-based syntheticproducts compete with natural products. Agricultural raw materials markets are the most obvious example,where natural fibres and rubber face generalized competition from synthetic alternatives. Of course,substitution is based on the overall competitiveness of the alternative products in a given use, and thisinvolves not only simple price comparisons but also consideration of product characteristics relevant to theintended use. A rather more complex substitution-based linkage with oil prices arises in the case of sugar inBrazil through use of sugar in ethanol production. As oil prices have risen, increasing amounts of sugar havebeen diverted for ethanol, and so there might be upward pressure on domestic sugar prices. However,whether this would spill over into an impact on world sugar prices would depend on the supply response ofBrazilian sugar. It is possible that this might be asymmetric, with rising oil and sugar prices leading to anexpansion of productive capacity which would not be completely reversed at least in the short-run whenprices fall.

The overall impact, if any, of an oil price change on agricultural commodity prices would depend on thebalance between these various channels of influence. Effects arising through possibilities of technicalsubstitution of natural for synthetic products, or through the costs of commodity production would beexpected to be positive. The influence on commodity demand via income changes is less clear. In generalterms, changes in the level of economic activity as a result of oil price changes would lead to agriculturalcommodity prices moving in the opposite direction to oil prices. However, in specific markets, namely theoil-exporting countries, certain agricultural commodity prices might move in the same direction. Whetherthis latter effect would outweigh the former in influencing international prices would depend upon theimportance of the oil-exporting countries in the world market for the commodity concerned.

Quantifying the impact of oil prices: some preliminary empirical evidence

The previous section outlined possible channels through which changes in oil prices might impact uponagricultural commodity prices. However, it is an empirical question whether these linkages exist in practice,and if they do how significant they might be. Given the diversity of the possible linkages it is likely to bedifficult to obtain unequivocal results in most cases. This section discusses some results from a preliminaryeconometric analysis. Further technical detail and a full set of results are available on request from the RawMaterials, Tropical and Horticultural Products Service in the Commodities and Trade Division of FAO. The


analysis focuses on fibres where oil price changes might be expected a priori to have the most direct effectthrough changing the relative prices of the natural and synthetic products.

The analysis seeks to establish whether there are statistically significant relationships between oil prices andfibre prices1. Two econometric approaches are used: the first is an application of cointegration analysis totest for the existence of any stable long-run equilibrium relationships between oil and fibre prices; the secondis a test of whether oil prices add explanatory power to structural econometric models of the determination ofinternational fibre prices.

Cointegration analysis focuses on possible long-run relationships between the price series for oil and thevarious fibres. Specifically, it tests whether there is some stable long-run or equilibrium relationship betweenthe prices which will tend to be restored following any deviations from it, and analyses the adjustmentprocess towards restoration of the long-run relationship. In statistical terms, the existence of such arelationship would be revealed by the satisfaction of two conditions. The first is that the price seriesconcerned should have similar properties, such as similar trend behaviour. The second is that the price seriesshould move together through time with no tendency to depart in any systematic way from their long-runrelationship. Various statistical testing procedures are available in relation to each of these conditions.However, in many instances these tests have low power and can give inconclusive or even conflictingresults.

The results of the cointegration analysis are mixed. All the individual price series appear to share the samebasic statistical properties in terms of trend behaviour so the first condition appears to be satisfied. However,results of tests for the existence of long-run relationships between prices are conflicting, depending upon thetests applied and whether quarterly or monthly data are used. The Johansen test procedure, which focuses onestimates of the long-run relationships between oil and fibre prices, indicates no such long-run relationships,and hence no price transmission existing between oil prices and each of the fibre prices, includingpolypropylene. However, an alternative test procedure which focuses on analysing how fibre prices adjust tooil price changes so as to restore a long-run relationship between them indicates that fibre prices do adjust tooil prices in this way. Using quarterly data, this result holds for each of the fibres considered. The adjustmentcoefficient, which measures how fibre prices adjust to restore the long-run relationship with oil prices, arehighly statistically significant, although they are small in magnitude indicating that adjustment is relativelyslow, and that oil price changes are not fully propagated to fibre prices. However, repeating this analysisusing monthly data, the results indicate that only cotton prices adjust to oil prices in this way. Again, while along-run relationship appears to hold, there appears to be only partial transmission from oil to cotton pricesand the adjustment of cotton prices to oil price changes is slow.

The alternative approach to analysing whether oil prices have a significant impact on fibre prices uses simpledynamic econometric models of the determination of fibre prices. Such models are widely-used incommodity market analysis. They relate each fibre price to its recent history, and the levels of demand andstocks. These models were estimated for cotton, jute and sisal, since quantity data for polypropylene couldnot be obtained. The explanatory power of these models is acceptable and the estimated coefficients arestatistically significant. A test of whether oil prices also have a role in determining fibre prices can be madeby adding oil prices to the models, and then testing whether the estimated oil price coefficient is statisticallysignificantly different from zero. If so, this implies that oil prices do make a significant net contribution toexplaining movements in fibre prices. In the case of cotton and jute, it appears that oil prices do not provideany significant improvement in the explanatory power of the models. However, according to these results,they do appear to make a significant contribution to the determination of sisal prices.

1 Quarterly and monthly price data analysed are as follows: crude oil ($/barrel, f.o.b., Dubai); polypropylene ($/tonne,raffia grade, Western Europe); cotton ($/100lbs, 12 markets, US); jute ($/tonne, Chittagong-Chalna, Bangladesh); sisal($/tonne, East African, London). The data used in the quarterly analysis run from 1977(Q1) to 2000(Q4) giving a totalof 96 data points, while the monthly series runs from January 1980 to December 1999 giving a total of 240 data points.Sources of price data are as follows: crude oil and cotton from Financial Times; jute from Public Ledger; Sisal fromWigglesworth; polypropylene from Economic and Chemical News. All quantity data are from FAO. The price data aredeflated when appropriate by the United States consumer price index, and the crude oil price is seasonally adjusted. Theanalysis uses the natural logarithms of the data.


Do oil prices affect agricultural commodity prices?

While in theory there are a number of economic relationships through which oil price changes might impactupon agricultural commodity prices, the empirical analysis gives only limited support to the view that anysuch impacts might be significant. The econometric analysis undertaken is, of course, preliminary, andconfined to a small number and range of commodities. Nevertheless, it is in relation to natural fibres thatsome of the most direct and perhaps consequently some of the strongest effects might be expected. Somesignificant effects are indicated, but the evidence is not consistent. Overall, the results do not support theview that oil prices are a regular and major influence on fibre prices. A number of reasons might be putforward to account for this.

Key to the hypothesised link between oil prices and fibre prices is the assumption that oil price changes leadto changes in synthetic fibre prices, and hence in their relative prices vis-à-vis natural fibres. However, theredoes not appear to be a strong stable relationship between oil prices and polypropylene prices, for example.This may reflect competitive conditions in the industry which mean that oil price changes are not fullyreflected in polypropylene prices. While substitution in use provides a channel through which changes in oilprices may impact on agricultural commodity prices, the significance of any such impacts which change therelative prices of the natural and synthetic products is not clear a priori, since the wider aspects ofcompetitiveness need to be taken into consideration. The latter may have more of an impact on the longer-term trends in substitution. In the case of jute, for example, the introduction of polypropylene sacks and bagsmade substantial inroads into the market share of jute sacks and bags not only because the polypropyleneproduct was cheaper, but also because in many uses it was seen as offering superior product performance.Polypropylene is also challenging jute for market share in carpet backing, although it is not necessarily acheaper alternative. Furthermore, the extent of any substitution, whether in response to relative price changesor a re-evaluation of relative technical performance may be limited by the technical and economicpossibilities for switching between alternatives, and the associated adjustment costs.

It may also be that the various possible effects of oil price changes may be offsetting so that any positiveeffects arising from substitution may be offset by negative effects arising from the influence of oil prices onoverall commodity demand. However, as noted above, downturns in economic activity in the industrialisedcountries as a consequence of oil price hikes are nowadays less severe than in the past. Such generalizeddemand-side effects might therefore be limited, especially against the background of longer-term commodityprice trends resulting from growth in commodity production and stocks, substitution by syntheticalternatives, and simple consumer preference shifts. The more generalized potential impacts of oil prices onagricultural commodity prices operating through the demand for those commodities would presumably bemore diffuse. For certain commodities where oil-exporting countries are significant importers in terms ofmarket share the impact on demand and prices of changes in oil revenues might well be significant, andcertainly this would be worth quantitative investigation. However, the preliminary analysis of fibre marketspresented here suggests that a statistically significant link between oil prices and fibre prices cannot beunequivocably established, and that if such links do exist they are weak.


Tariff peaks in agricultural markets and tariff cutting formulae

Introduction

Under the market access provisions of the Agreement on Agriculture (AoA), WTO members agreed toconvert their non-tariff import barriers into equivalent tariffs. This was done through a process known as“tariffication”1. In addition, developing countries were given the option of adopting ceiling bindings fortariffs that were not previously bound. The Uruguay Round (UR) reduction commitments established thatdeveloped countries would reduce their tariffs, including those resulting from tariffication, on a simpleaverage basis of 36 percent (24 percent for developing countries) with minimum cuts of 15 percent (10percent for developing countries) per tariff line implemented in equal annual instalments up to year 2001(year 2006 for developing countries). No reduction requirements were established for the least developedcountries.

This paper analyses the current market access situation in agricultural markets. Specifically, it identifiesthose commodity groups in the food and agricultural sector for which tariff peaks prevail, and examines howthe implementation of alternative tariff cutting formulae could further affect those tariffs. The study uses dataavailable from the Agricultural Market Access Database (AMAD)2, and covers the 1995-98 period. For somecountries, where available, 1999 data are also taken into account. The countries included in the AMADdatabase are the developed and developing members of the World Trade Organization (WTO) that scheduledtariff rate quotas (TRQs) and those additional developing members that listed tariff reduction commitmentson a tariff line basis in their Uruguay Round schedules.

The incidence of tariff peaks

Tariff peaks are defined here as rates above 20 percent ad valorem3. Table 3.1 shows that high bound andapplied tariffs are still common in global agricultural markets, even after the implementation of the UR AoAcommitments. Moreover, the frequency of heavily protected tariff lines, bound and applied, is still significantfor many commodity groupings. In the developed economies the highest tariff peaks are in the oilseeds,dairy, meat and wheat sectors. In the case of developing countries, the most prominent peak levels are in themeat, oilseeds and coarse grains sectors. It should be recalled, however, that this analysis on the basis ofmost favoured nation (MFN) tariffs does not take account of preferential market access that is frequentlyextended to developing or least developed countries.

1 The tariffication formula was based on the gap between domestic and world reference prices during the 1986-88 baseperiod: T=(Pw-Pd)/Pw * 100; where T is the ad valorem tariff equivalent and Pw and Pd are the world reference priceand domestic price, respectively. It should be noted that a double tariff system was established for products subject totariffication, whereby lower tariffs are applied to the specified in-quota volumes.2 AMAD is an inter-agency cooperative effort among Agriculture and Agri-Food Canada; EU Commission, DGAgriculture; OECD Directorate for Food, Agriculture and Fisheries; UNCTAD, TRAINS Database unit; USDA,Economic Research Service; and FAO, Commodities and Trade Division. The AMAD database is publicly accessiblethrough the Internet at http://www.amad.net, and currently includes information on tariff protection and market accessconditions for agricultural products in 16 developed countries (the 15 countries of the EU in one) and 30 developingcountries.3 There is no standard definition of tariff peaks. Given the large price variations in agricultural products, 20 percentcould be regarded as a low threshold; however, an earlier WTO/UNCTAD study used 12 percent as a threshold level.No account is taken of the possibility that a low bound tariff plus an associated special safeguard duty could also resultin a higher tariff than the peak as defined here. See UNCTAD (2000).


Table 3.1. Tariff Peaks in selected Developed and Developing Countries, 1995-98 (percentages)

Commodity Group Average Peak Tariff Average Number ofTariff Lines above the

20% Peak

Percentage ofCountries with

Tariff Peaks

Bound Rate Applied Rate

DevelopedCountries

DevelopingCountries

DevelopedCountries

DevelopingCountries

DevelopedCountries

DevelopingCountries

DevelopedCountries

DevelopingCountries

Bovine 192 83 123 49 18 13 65 60Ovine 134 81 111 69 20 13 45 40Pork 168 73 100 44 31 21 60 50Poultry 140 73 129 50 34 30 65 55Other meat 90 53 49 37 9 8 45 45Dairy 153 79 119 35 69 35 75 70Coarse Grains 124 81 93 44 18 22 60 55Rice 123 61 71 35 16 7 50 60Wheat 139 75 127 41 11 11 60 60Oilmeals 31 68 23 41 4 5 15 25Oilseeds 208 77 179 52 19 9 50 30Vegetable Oils 107 57 90 39 15 32 70 50Sugar 83 70 75 36 14 11 70 70Fruits & Vegetables 120 51 110 33 161 176 70 55Cocoa 117 43 86 26 15 7 60 60Coffee 70 54 20 32 1 5 15 40Tea 95 77 23 50 2 3 15 40Tobacco 70 84 61 56 8 10 50 55Cotton 30 62 29 45 3 2 10 5Hard Fibres 55 100 53 32 3 3 10 5Hides & Skins 48 58 32 36 15 7 10 15

Source: AMAD and FAO. Includes only countries in the AMAD database

In general, applied peak tariffs are significantly lower than bound peak tariffs for both developed anddeveloping countries. For some commodities, the bulk of trade takes place under relatively low applied tarifflevels. A detailed examination of trade conditions for each commodity grouping is beyond the scope of thispaper, however, since the objective of the study is to highlight tariff peak levels in the different commoditygroupings that could be subject to reductions in further trade negotiations.

The tariffication process under the UR, which disciplined the use of non-tariff measures, often resulted inhigher bound tariffs than those prevailing before the Round. This fact has allowed for the persistence andeven the increase of peak applied tariffs. In the developed economies, the application of the specialagricultural safeguard clause has also led to additional duties in the beef, sugar, poultry and dairy sectors(UNCTAD, 2000).

Tariff cutting formulae and tariff profiles

A variety of tariff-cutting formulae have been proposed over successive rounds of multilateral tradenegotiations. This section examines the potential effects of applying alternative tariff-cutting formulae to theidentified bound peak levels. The objective is to assess how application of alternative formulae would affectthe tariff profile for agricultural products, including the prevalence of peak tariffs. The tariff-cuttingformulae utilized in this analysis were selected on the basis of tariff reduction proposals that were presentedin the previous rounds of GATT negotiations, and that have already been compiled and analysed in a


systematic way (Wainio et al, 2000; Laird, 19991). Although not all of these formulae have been put intopractice, some of them, such as the Swiss formula, have been subject to intensive debate in academic andprofessional circles during the post UR period.

The various alternative tariff-cutting formulae which have been discussed or applied in the context ofprevious trade rounds are defined in Table 3.2. These include: average linear tariff cuts as agreed in the AoA(36 percent for developed countries and 24 percent for developing countries) 2; 50 percent linear cuts asapplied to industrial goods in the Kennedy Round; four formulae proposed during the Tokyo Round,including 40 percent linear cuts; and the compromise Swiss formula finally adopted in that Round.Harmonising formulae, such as the Swiss formula, impose proportionately higher cuts on higher tariffs.However, their effect depends critically on the value of the formula coefficient – the maximum tariff whichis to be permitted, and this would obviously be subject to negotiation in any actual trade round. In the TokyoRound this was set at 16 percent, but only for industrial goods.

Table 3.2. Tariff Cutting Formulae (t0 is the original tariff and t1 the revised)

Cutting Formulae GATT Round Mathematical Expression

UR linear cut Uruguay t1 = t0 * (1 - 0.36) or t1 = t0 * (1 - 0.24)

50% linear cut Kennedy t1 = t0 * (0.5)

40% linear cut Tokyo t1 = t0 * (1- 0.4)

Linear cuts plus selective one stepreduction

Tokyo If t0 > 40%, t1 = 20%; otherwise, t1 = t0 * ( 0.5)

Iterative cuts Tokyo If t0 > 50%, t1 = 0.5 (1 - 0.5); applied three times Otherwise, t1 = t0 (1 - t0 ); applied three times

Linear cuts with harmonization Tokyo t1 = t0 * ( 0.3) + 3.5%

Swiss formula Tokyo t1 = (a* t0)/(a + t0); a is a parameter = 0.16

Source: USDA and S. Laird.

Figure 3.6 shows how linear and Swiss methods compare in terms of tariff reductions. For initial tariffsbelow 25 percent, the Swiss formula with a coefficient of 0.5 gives about the same result as the linear 36percent cut of the AoA. For higher initial tariffs, however, the Swiss formula produces substantially largercuts, so it would be more effective in reducing tariff peaks and escalation, without sharply reducing already-low tariffs.

1 The differences between the results of the above mentioned studies and the results reported here can be explained bydifferences in the country groupings used, in the commodity grouping criteria employed and by the fact that the presentanalysis focuses only on tariff lines above the 20 percent level.2 Although the AoA gives some discretion to member countries to distribute the tariff cuts among different tariff lines(provided that a 15 percent (developed countries)/10 percent (developing countries) minimum cut is applied for eachline), the analysis assumes that a 36 percent or a 24 percent linear cut would take place for each tariff line.


Figure 3.6. Examples of tariff reductions resulting from two tariff cutting formulae

Although in the on-going negotiation process no formal proposals have been adopted so far, currentnegotiating proposals are similar to the ones simulated in this study. Current tariff cutting proposals eveninclude requests-and-offer tariff cuts on product by product and case-by-case basis (e.g. Switzerland, Japan,Norway) and zero-for-zero sectoral negotiations for selected products (e.g. Canada, US). However, mostreduction proposals rely on formulae that are applied over a broad range of products. These tariff cuttingformulae vary from a replication of the UR tariff cut modalities (e.g. EC, Poland) to the application ofharmonising formulae to eliminate tariff peaks and escalation (e.g. Cairns Group, CARICOM, AfricanGroup).

Figures are given in Table 3.3 for the tariff rates that would result after the application of each of theformulae listed in Table 3.2. The first three columns show the effects of linear tariff cuts of 36 percent or 24percent (Uruguay Round), 50 percent (Kennedy Round), and 40 percent (Tokyo Round). The final column ofTable 3.3 shows the effects of application of the Swiss formula with a coefficient (maximum permitted tariff)of 16 percent as agreed in the Tokyo Round.

Perhaps the most notable finding of this analysis is that a repetition of the cuts implemented under the URwould leave significant tariff peaks remaining in all commodity groups, both for the developed and for thedeveloping countries. The application of more aggressive linear cuts, such as those proposed for industrialgoods in the Kennedy (50 percent) and the Tokyo (40 percent) Rounds, would lead to lower protectionlevels, although significant bound tariff peaks could still persist in most agricultural sectors. This suggeststhat linear cuts, even at higher levels than those implemented in the UR, would not eliminate tariff peaks.Only the application of harmonizing formulae, such as the iterative cuts formula or the Swiss formula, wouldeffectively reduce tariff peaks, both for the developed and the developing countries.

However, it should be noted that the results of the application of the Swiss formula depend on the formulacoefficient, which would need to be defined. As noted above, the results in Table 3.3 are based on the TokyoRound application of the Swiss formula, with the coefficient set at 0.16, so all tariffs above 16 percent aredriven below this level. This is perhaps an extreme example in the case of agricultural products. However,this example illustrates that such a formula is well suited for eliminating tariff peaks, as they are defined inhere, and that it compresses tariffs within a narrow range without necessarily imposing deep cuts in tariffsbelow the formula coefficient. Therefore the results presented here reinforce those proposals that aim toreduce tariff peaks, showing that the application of harmonising formulae is the most effective way toachieve that objective.

0

10

20

30

40

50

60

70

80

0 20 40 60 80 100Original tariff (%)

Linear : Tn=(1 - r*t)*To; wi th r=0.06, t=6

Swiss : Tn= amax x T0/( amax + T0) ; with amax= 50


Table 3.3. Resulting tariffs after the Application of Tariff Cutting Formulae to Selected CommodityGroups with Peak Tariffs in the Developed and Developing Countries (average percentage)

Tariff Cutting Formulae

CommodityGroup

UR formula KennedyRound

formula

40% linearcuts

Linear cutsplus one

stepreduction

Iterativecuts

Linear cutswith

harmoniza-tion

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ries

Dev

elop

ing

Cou

ntri

es

Bovine 123 63 96 42 103 50 19 18 15 15 61 29 13 12

Pork 107 55 84 36 86 44 19 18 15 15 54 25 13 12

Poultry 89 55 70 36 73 44 18 18 15 15 45 25 13 12

Dairy 100 60 78 40 86 48 20 19 15 15 50 27 14 13

Ovine 86 61 67 40 80 49 18 16 15 14 44 28 13 12

Other meat 58 41 45 27 54 32 18 17 14 14 30 20 12 12

Coarse Grains 79 61 62 40 74 48 19 19 15 15 41 28 13 13

Rice 79 47 61 31 74 37 19 18 15 15 40 22 13 12

Wheat 89 57 69 37 83 45 19 18 15 15 45 26 14 12

Oilmeals 20 52 15 34 18 41 15 19 14 15 13 24 10 13

Oilseeds 133 59 104 39 125 46 20 19 15 15 66 27 14 12

Vegetable Oils 69 43 54 28 64 34 18 17 15 14 36 20 12 12

Sugar 53 53 41 35 50 42 19 18 15 15 28 24 13 12Fruits &Vegetables

77 39 60 25 72 30 19 18 15 14 39 19 13 12

Cocoa 75 33 58 22 70 26 18 16 15 14 39 16 13 11

Coffee 44 41 35 27 42 32 15 16 13 14 24 20 11 11

Tea 61 58 48 38 57 46 15 17 13 14 32 27 12 12

Tobacco 45 61 35 40 42 48 18 16 15 14 25 28 12 12

Cotton 19 47 15 31 17 37 15 16 14 14 12 22 10 12

Hard Fibres 35 76 27 50 32 60 20 20 15 15 20 34 12 14

Hides & Skins 31 44 24 29 29 35 20 18 15 14 28 21 12 12

Includes only countries in the AMAD database of which 30 are developing and 16 are developed.All tariffs in ad-valorem equivalent

Source: AMAD and FAO.


References

Laird, S. (1999). "Multilateral Approaches to Market Access Negotiations", in Rodriguez, M., P. Low and B.Kotschwar, eds. Trade Rules in the Making Challenges in Regional and Multilateral Negotiation,Organization of American States, Brookings Institution Press, Washington DC, 1999.

UNCTAD (2000). The Post-Uruguay Round Tariff Environment for Developing Country Exports: TariffPeaks and Tariff Escalation, (TD/B/COM.1/14/Rev.1), January 2000, UNCTAD, Geneva.

Wainio, J., P. Gibson, and D. Whitley (2000). Evaluating Alternative Formulas for Reducing AgriculturalTariffs, Economic Research Service, USDA, Washington DC, 2000.


Recent trends in deficits and surpluses in basic food commodities inAfrica

Trade can be an important contributor to economic growth and food security in developing countries. InAfrica, most countries rely on exports of primary commodities such as coffee, cocoa, cotton, tobacco, tea,copper, etc, to earn foreign exchange with which to finance development programmes, as well as to importfoods they do not produce or to cover shortfalls in domestic food production. However, experience hasshown that relying on one or two primary commodities for export, as most do, is highly risky because worldcommodity markets are prone to sharp price swings. One way of minimizing the impact of price instability isto diversify the range of exports and also to find new markets. Intra-African trade is relatively very smallcompared to the region’s trade with the rest of the world. In 2000, intra-African trade grossed $11 billioncompared to $145 billion from trade with the rest of the world, or a share of only 7.6 percent. Intra-regionaltrade can reinforce the economic complementarities among neighbouring countries and stimulate additionalgrowth both in agriculture and related sectors. One potential area where intra-African trade could bepromoted is trade in food commodities such as cereals, edible oils, livestock and livestock products.

The purpose of this note is to examine recent trends in surpluses and deficits in major, readily tradable foodcommodities in Africa, sub-region by sub-region, in order to explore potentials for intra-African trade.Trends in imports of rice and wheat, for which Africa is a net importer are examined. Trends in imports ofother food commodities such as vegetable oils, animal products and sugar are also briefly summarized aswell.

Deficits/surpluses in coarse grains1 in 1999/2000 and 2000/2001

Maize and to a lesser extent sorghum and millet are the most important food crops traded in Africa. Root andtuber crops and plantains/bananas, though important staples in some countries, are hardly tradedinternationally (including within Africa) due to their high transport cost relative to their unit value. Table 3.4presents estimates of cereal surpluses and deficits in 1999/00 and 2000/01, the latest two marketing years forwhich full data are available. In 1999/00, all the sub-regions were in deficit, whilst in 2000/01 southernAfrica showed a surplus of 651 000 tonnes, accounted for by only three countries, namely South Africa,Malawi and Zambia. However, in marketing year 2001/022, this sub-region is likely to be in deficit, as grainproduction has declined significantly in most countries, including the sub-region’s leading grain producerand exporter, South Africa. North Africa (a non-producer) has the largest deficit, while Central Africa (aminor producer, dependent mainly on roots and tubers) has the smallest. Whereas a number of countriesposted a surplus in 1999/00 (Ethiopia, Sudan, Uganda in eastern Africa; Benin, Chad, Côte d’Ivoire, Ghana,Mali, Mauritania, Nigeria, Togo in western Africa; Madagascar, Malawi, Mozambique in southern Africa),only three countries in the whole African Region, namely Malawi, South Africa and Zambia, had a surplus in2000/01.

In eastern Africa, the deficit increased by 70 percent from around 1.4 million tonnes in 1999/00 to 2.4million tonnes in 2000/01, reflecting mainly the impact of a severe drought. Kenya, among the hardest hit,accounts for the largest share, 56 percent, of the total deficit in 2000/01.

1 Maize, millet and sorghum are internationally called coarse grains.2 Southern Africa has already entered the new marketing year, starting on 1 April 2001 and ending on 31 March 2002.


Table 3.4. Africa: Coarse grains1 surpluses/deficits in 1999/00-2000/01 (‘000 tonnes)

1999/00 2000/01 1999/00 2000/01

Northern Africa -7 661 -9 689 Western Africa -275 -593Algeria -1 501 -1 806 Coastal countries -5 -166Egypt -3 310 -4 220 Benin 25 -3Libya -650 -710 Ghana 15 -45Morocco -1 600 -2 100 Nigeria 10 -70Tunisia -600 -853 Togo 10 -

Côte d’IvoireEastern Africa -1 425 -2 425 Guinea 5 -8

Ethiopia 153 -70 Liberia 0 -Sudan 93 -90 Sierra Leone -10 -10Uganda 80 -50 Sahelian countries -60 -30Burundi -40 -81 Mali -135 -427Comoros 0 - Chad 50 -Djibouti 0 -3 Mauritania 18 -15Eritrea -140 -90 Gambia 2 -15Kenya -800 -1 364 Guinea-Bissau 0 -Rwanda -185 -150 Burkina Faso -5 -15Somalia -60 -71 Cape Verde -15 -80Seychelles -6 -6 Niger -30 -35Tanzania -520 -450 Senegal -70 -230

Southern Africa -1 003 651 Central Africa -85 -37Malawi 400 300 Cameroon -78 -82Mozambique 150 -50 Equatorial Guinea 0 -10Madagascar 5 -30 Gabon 0 -Angola -215 -394 Sao Tome -2 -2Botswana -185 -185 Central Afr. Rep. -2 -2Lesotho -155 -190 Congo, Rep. of -4 -3Namibia -84 -60 Congo, Dem. Rep. -10 -5South Africa -77 1 250 -60 -60Swaziland -22 -40Zambia -370 50Zimbabwe -450 -

1 Maize, sorghum and millet.

Trends in imports and exports of maize

In most of Africa, trade in coarse grains is almost synonymous with trade in maize. Although some trade insorghum and millet takes place among the Sahelian countries, it is insignificant on Africa-wide scale. Ineastern Africa, Sudan is the only major producer of sorghum and exports significant amounts in good years,mainly to the Near East. Thus, only trade in maize is reviewed in detail. The graphs below show trends inmaize imports and exports during the period 1994/95-2000/01.


Imports and exports 1994/95-2000/01

Fig.3 - East Africa Maize Imports & Exports,1994/95-2000/01

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Fig.5 - Western Africa Maize Imports & Exports, 1994/95-2000/01

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Fig.1 - North Africa Maize Imports & Exports,1994/95-2000/01

01 0002 0003 0004 0005 0006 0007 0008 000

1994-1995

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Fig.2 - North Africa Wheat & Rice Imports,1994/95-2000/01

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Fig.4 - East Africa Wheat & Rice Imports,1994/95-2000/01

0 500

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Fig.6 - Western Africa Wheat & Rice Imports,1994/95-2000/01

0 500

1 0001 5002 0002 5003 0003 5004 000

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Fig.7 - Central Africa Maize Imports & Exports,1994/95-2000/01

0 10 20 30 40 50 60 70 80 90

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Fig.9 - Southern Africa Maize Imports & Exports, 1994/95-2000/01

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Fig.8 - Central Africa Wheat & Rice Imports,1994/95-2000/01

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Fig.10 - Southern Africa Wheat & Rice Imports,1994/95-2000/01

0

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Rice


Maize Imports

North Africa is the largest importer of maize and consignments show a strong upward trend (Fig.1). Importsaveraged over 5 million tonnes annually over the 7-year period (1994/95-2000/01). It would seem that NorthAfrica could be a major market for sub-Saharan African maize, if large exportable surpluses were availableand were competitive on the world market.

In eastern Africa, a rising trend in maize imports is evident (Fig. 3). These imports are largely driven byKenya, which has imported an average of 745 000 tonnes per year during the 7-year period, out of a sub-regional average of 1.33 million tonnes. The dip in imports in 1998/99 reflected Kenya’s bumper harvest thatyear. Tanzania is a distant second (average 224 000 tonnes), followed by Rwanda (average: 169 000 tonnes).In western Africa, maize imports appear to have stabilized at around 300 000 tonnes annually since 1998/99(Fig. 5). Sahelian countries account for then bulk of the imports (7-year average: 240 000 tonnes comparedto 150 000 tonnes for coastal countries). This is rather surprising as sorghum and millet production in theSahel has been at record to above-average levels since 1996. In Central Africa (Fig. 7), maize imports are onthe increase, but the quantities involved are relatively small. In southern Africa (Fig. 9), the pattern is lessclear, but largely reflects seasonal rainfall behaviour. For example, the high maize imports in 1995/96reflected the impact of the severe drought in 1994/95. As already indicated, the sharp falls in maizeproduction in various countries in 2000/01 are likely to result in a significant increase in the sub-region’smaize imports in the 2001/02 marketing year.

Maize Exports

In eastern Africa, the trend is downward (Fig. 3), exports having fallen from a peak of nearly 1 milliontonnes in 1995/96 to an annual average of around 280 000 tonnes since 1997/98. Only Uganda hasconsistently exported maize over the period, although the quantities have been declining. Maize exports aremainly within the sub-region, but marketing problems arise for surplus producers when their neighboursbecome self-sufficient in good years, as the tendency is to ban imports. In western Africa, a downward trendis also apparent (Fig. 5), although over the last three years the average has hovered around 125 000 tonnes.The main exporters (albeit with relatively small quantities) are Nigeria, Benin and Mali. In central Africa,only Cameroon exports small quantities of maize, which have averaged about 10 000 tonnes per annum overthe 7-year period. In southern Africa, the high level of maize exports (nearly 5 million tonnes) in 1994/95was followed by a sharp drop (to about 400 000 tonnes) in 1995/96 due to drought. A modest recovery wasposted in 1996/97, after which a downward trend was evident up to 1999/00. This downward trend is set toresume in 2001/02 after a relatively small increase in 2000/01, mainly due to mid-season dry spells thataffected crops in several countries. The main exporters have been South Africa and Zimbabwe (the latter upto 1999/00).

Trends in wheat and rice imports

Figs. 2, 4, 6, 8 and 10 show trends in wheat and rice imports. All African countries are net importers ofwheat and, with the exception of Egypt, also of rice. Wheat imports appear to be growing fastest in easternAfrica, having almost tripled between 1995/96 and 1999/00. In western Africa, rice imports have overtakenwheat imports since 1998/99 (Fig. 6).


Trends in deficits/surpluses in other traded food commodities

The other major food commodities traded extensively in Africa include edible oils, livestock products (meatand dairy) and sugar.

Edible Oils

Africa as a whole is a net importer of edible oils. The deficits have increased continuously over the 1990s,nearly doubling from 2.2 million tonnes in 1991 to about 3.8 million tonnes in 2000. The main deficitcountries are located in northern Africa which, as a region, accounts for nearly 60 percent of the total deficit.However, Ethiopia, Kenya, Tanzania, South Africa, Nigeria and Senegal from the sub-Saharan region arealso important importers, despite the fact that some of them are significant producers. The deficits varyconsiderably from year to year depending on domestic production and other factors. The main oils importedby Africa are (in order of importance) palm oil, soybean oil and sunflower oil.

The only potential net exporting sub-regions are western and central Africa, although west Africa seems tohave turned into a net importing region since the mid-1990s, while central Africa's net exporting positiondepends on a single exporter, Cameroon (in palm oil).

Western Africa's main net exporters are Côte d'Ivoire (coconut oil, palm oil, palm kernel oil) and Ghana(palm oil). Côte d'Ivoire's surplus fell steadily during the mid-1990s but has stabilised in recent years. Minornet exporters include Mali (groundnut oil) and Benin (palm oil, palm kernel oil). Senegal used to be a netexporter, but became a net importer in the early 1990s.

Dairy Products

Africa as a whole, its sub-regions as well as individual countries, has been consistently in deficit in dairyproducts over the past decade (averaging around 5.0 million tonnes per annum in recent years). The deficit isequivalent to 20 percent of regional milk production. North Africa accounts for approximately 50 percent ofthe deficit, with Algeria alone leading the way with nearly 40 percent of the total for Africa. In sub-SaharanAfrica, the principal importing country is Nigeria, accounting for 20 percent of the deficit for Africa as awhole. Elsewhere in the region, Egypt, Libya, Morocco, Tunisia, Senegal, Côte d’Ivoire, Mauritius andBotswana have all registered annual deficits of over 100 000 tonnes in the past few years.

Meat Products

There is a persistent and growing meat deficit in Africa, which increased from 370 000 tonnes in the early1990s to an estimated 655 000 tonnes in 2000, with the contribution of imports in meeting overallconsumption increasing from 5 percent over the period to 7 percent. Meanwhile, despite annual average meatoutput gains of 2 percent over the decade and 4 percent growth in meat imports, per caput meat consumptioncontinues to deteriorate, inching downward over the decade from 14.6 kg/caput at the beginning to anestimated 14 kg/caput in 2000. While some countries in the region are important exporters of live animals,the prevalence of animal diseases has impeded such trade, with the region as a whole turning into a net cattleimporter over the course of the decade. Live sheep trade continues to provide net foreign exchange earnings;however, growth in shipments from the region’s largest exporters in the Horn of Africa has been constrainedby disease outbreaks of Rift Valley Fever.

While meat exports expanded only slightly over the decade, imports grew much more, mainly in response togrowing demand in South Africa and Egypt, two of the region’s largest importers. In fact, meat deficits inthese two countries account for nearly two-thirds of the growing regional deficit. There are few examples ofcountries, apart from the traditional meat exporting countries of Zimbabwe and the Sudan, experiencingemerging surpluses recently. Other important meat exporting countries, such as Botwana and Namibiawitnessed an erosion in their surplus position as drought reduced livestock production and exports. Althoughthere appears to be some scope for promoting intra-trade in the continent, the special nature and


infrastructure requirements of meat products, stemming from their perishability, create constraints thathamper rapid development of trade in these products. Potential exists for expanding live animal trade,especially from the Horn of Africa into the Middle East; however, recurring disease outbreaks at presentlimit such an expansion.

Sugar

Africa is net importer of sugar, with deficits averaging almost 2 million tonnes per year during the 1990s andrising since 1997 to over 2 million tonnes. Only eight of the 53 African countries were net surplus producers(South Africa, Mauritius, Swaziland, Zimbabwe, Sudan, Zambia, Malawi and the Republic of Congo), withmuch of this surplus exported as raw sugar under preferential trade agreements. The five largest deficitimporting countries were Nigeria, Egypt, Morocco, Algeria and Tunisia, all of which are major importers ofwhite refined sugar. Trade statistics indicate that while 22 African countries have exported sugar, only sevenof these were in a net surplus position. Currently, there is a fair level of trade among African countries,primarily between neighbouring countries where sugar trade flows from surplus to deficit regions.

An issue concerning African sugar trade in the context of intra-trade is trade diversion created by preferentialaccess opportunities to African exports. Preferential access to the EC and United States markets mean thatexports to those markets receive much higher prices than to free markets, including to Africa. It seems to bea common practice for many to export sugar to the EC and United States markets under preferential termsand to import sugar at relatively lower world market prices, including from Africa. In fact, many of thelargest net deficit African countries import white refined sugar from the EC, taking advantage of exportrestitution, at the cost of both African and non-African sugar.

Conclusion

With the exception of edible oils, meat and sugar, of which a handful of countries are net exporters, Africa islargely a food-deficit region, particularly in foodgrains, and is increasingly relying on food imports. Therewould be considerable potential for intra-African trade, but exportable surpluses are scarce. For coarsegrains, which are the major cereals produced in Africa, North Africa is potentially a major market for sub-Saharan Africa, if large enough surpluses were available and competitive on world markets. The mainconstraints to increased intra-African trade include low farm productivity, poor transport infrastructure, lowpurchasing power and trade barriers such as bans on food imports when countries have bumper harvests.While trade issues are being addressed within the framework of regional economic groupings such asCOMESA, SADC and ECOWAS, increased investment in infrastructure and agricultural research remainsthe main challenge for national governments.


Impact of the Uruguay Round Agreements of relevance to theagricultural sector: Winners and losers

Introduction

The Uruguay Round was a turning point in the evolution of agricultural policy. For the first time, a largemajority of countries agreed a set of principles and disciplines to reduce the trade distortions caused byagricultural policies. This note summarises the main accomplishments of the Agreement on Agriculture(AoA) and the other Uruguay Round Agreements of relevance to agriculture and food security issues,including the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS), the Agreementon Technical Barriers to Trade (TBT) and the Agreement on Trade Related Aspects of Intellectual PropertyRights (TRIPS) and the Decision Concerning the Possible Negative Effects of the Reform Programme onLeast-Developed and Net Food-Importing Developing Countries. It identifies areas where further reforms areneeded and, after six years of implementation, explores the evidence regarding winners and losers in thereform process.

Agreement on Agriculture

The Agreement on Agriculture (AoA) brought national agricultural policies under multilateral rules anddisciplines, with the long-term objective of establishing “a fair and market-oriented agricultural tradingsystem ... through substantial progressive reductions in agricultural support and protection.” The AoAincludes specific binding commitments by WTO members to improve market access and to reduceproduction- and trade-distorting domestic support and export subsidies.

A basic motivation for the AoA was the need to reduce surplus production caused by rising levels of supportand protection in a number of developed countries during the 1980s and early 1990s. This was known as aperiod of “disarray” in global commodity markets as some of the largest agricultural exporters competed onthe basis their governments’ ability to subsidise production and exports while limiting access to their marketsfor products from lower-cost suppliers. By agreeing to cap and reduce these subsidy levels and importbarriers, the developed countries hoped to bring an end to the “subsidy wars” that were draining theirnational budgets and driving down world commodity prices.

The vast majority of developing countries, on the other hand, entered the Uruguay Round with under-developed agricultural sectors and insufficient resources to raise productivity and output in line with theirfood needs and production potential. Their farmers were forced to compete with the treasuries of the world’srichest countries in export markets and in their home markets. While consumers in developing countriescould be said to “benefit” from the availability of subsidised supplies, the situation was unstable andunsustainable.

Prior to implementation of the AoA most studies of the impact on world markets and trade predicted tradegains for developing country exporters and slightly higher and more stable real world commodity prices.Subsequent analyses based on actual trade developments, however, could not distinguish between theimpacts of specific policy changes resulting from the AoA and other factors having an impact on trade, suchas macroeconomic shocks, weather-induced supply-side variations, civil strife etc. In this regard, it isimportant to keep in mind the counter-factual problem: What would have happened to agricultural policiesand global markets in the absence of the Agreement?

Policy Impact

• Domestic Support to Agriculture

- Commitments for the reduction of domestic supports: The Agreement categorised domestic supportpolicies according to their potential to distort production and trade, and capped and reduced measuresthat were considered to cause distortions. These are known as the “Amber Box” policies.


- Reformulation of agricultural supports: Many developed countries changed their agricultural policies insignificant ways in anticipation of and following the implementation of the AoA. For example, the EU,the United States and Canada have all moved away — in varying degrees — from market price supportsthat tend to encourage excess production towards direct income payments and other measures that areless distorting, although not necessarily completely production- and trade-neutral. Figure 3.7 illustratesthe shift to less-distorting “Green Box” supports.

- Imbalances in support limits: The upper limits agreed on domestic support were based on the actual levelof “distorting” support provided by each country during the 1986-88 base period. For countries thatreported little or no distorting supports, a de minimis level of support was set as the cap (5 percent of thevalue of production for developed countries; 10 percent for developing countries). Because developingcountries provided little in the way of distorting domestic support prior to the Agreement, they are nowprohibited from exceeding the de minimis level. Since the caps on most developed countries are higherthan the de minimis level, it has created an imbalance in the rules regarding domestic support.

- Domestic support in developed countries remains high despite the disciplines agreed in the AoA. Thelatest figures from the WTO show that the total of Green and Amber box supports in the OECDcountries was higher in 1996 in nominal terms than during the base period. More recent data from theOECD, shows that total transfers to agriculture in these countries amounted to $327 billion in 2000,compared with $298 billion in 1986-88, and exceeded the value of world trade in agricultural products.1

Figure 3.7. Composition of green and amber box outlays in OECD countries

1986-88 (US$221 billion)

76%

24%

1996 (US$259 billion)

54%

46%Green box

Amber boxAmber box

Green box

• Export Subsidies

- Commitments on export subsidies: Subsidy levels were capped and reduced both in terms of value andvolume. Countries that did not subsidise exports during the base period were prohibited from doing so,except for certain exceptions agreed for developing countries.

- Export subsidies have been reduced somewhat on several products, but they remain high, particularly formeat and dairy products as well as cereals. Export subsidies not only distort competition on globalmarkets but also destabilise world prices. Countries tend to use subsidies more when world prices arelow, thus further depressing prices, but subsidises tend to fall when world prices are high, just at the timewhen importing countries might be said to “benefit” from subsidised supplies.

• Market access

- Commitments on tariffs: Countries agreed to replace their non-tariff import barriers with bound tariffsand, in many cases, to reduce these tariffs. This was an important achievement, because tariffs are moretransparent and predictable than non-tariff barriers, and they allow producers and consumers to receiveand react to world price signals.

1 The OECD Total Support Estimate is a broader concept than support to agriculture as measured by the WTO. TheOECD concept includes distorting and non-distorting government transfers to agriculture (which correspond roughly tothe Amber Box and Green Box supports as defined by the WTO) as well as the effects of border protection.


- Agricultural tariffs remain high and complex despite these improvements, especially for temperate-zoneproducts (horticulture, sugar, cereals, dairy products and meat). There is a high degree of variance inagricultural tariffs both within and between individual countries, and tariff escalation (higher tariffs onmore processed products, which gives greater protection to the processing industry of the importingcountry) still prevails in several important product chains (e.g. coffee, cocoa, oilseeds, vegetables, fruitand nuts and hides and skins).

- Tariff rate quotas were created to ease the process of converting non-tariff measures to tariffs. Countriesthat chose to use this mechanism agreed to provide market access at low or zero tariffs for a fixedquantity of product, while additional quantities could be charged a higher tariff. While tariff rate quotashave created some new trading opportunities, a number of implementation issues have arisen. Moreover,only about 60-65 percent of the potential trade under tariff rate quotas has actually occurred.

- Special safeguard (SSG) provisions were made available for countries that converted their non-tariffbarriers to tariff-only regimes according to the procedure known as “tariffication”. The SSG allows animporter to increase tariffs above their bound rate in response to a surge in imports or a sharp decline inimport prices. Most developing countries did not use the tariffication procedure, choosing instead tofollow a simpler procedure for which the SSG was not made available. Most developed countries, incontrast, used the tariffication procedure and reserved the right to use the SSG, typically for temperatezone products such as meat, cereals, fruit and vegetables, oilseeds and oil products and dairy products.

- Actual protection rates in agriculture are still high and market access terms have not improved much.Recent statistics show that nominal protection rates in the OECD countries have declined somewhat butremain high on the whole. Bound tariffs are also high in many developing countries, although theirapplied rates are generally lower. A number of developing countries have raised their applied tariffs inrecent years - within their bound rates - in an effort to protect domestic producers from the disruptiveeffects of very low world market prices.

• Special and differential treatment

- Two basic types of special and differential treatment in favour of developing countries are embodied inthe AoA. The first are transitional measures that provide longer implementation periods and lowerreduction commitments, for example on tariff cuts. The second provide exemptions for measures that aredisciplined, such as export subsidies to cover the costs of internal freight or input subsidies for low-income resource-poor farmers.

- Developing countries consider the transitional forms of special and differential treatment to beinadequate, and have called for more substantive measures to help them overcome the under-developednature of their agricultural sectors.

Trade Impact

As noted above, the AoA was expected to generate slightly higher and more stable world prices foragricultural products and to improve the trade prospects of non-subsidising exporters, including manydeveloping countries. Given the relatively small policy changes that have occurred, however, these impactshave been correspondingly small. Furthermore, other market factors have overwhelmed these modest policychanges, making it difficult to see the impacts clearly.

- World market prices: Figure 3.8 illustrates that prices for basic food commodities spiked in the mid-1990s. Although the downward trend for dairy products has been reversed since 1999, the prices ofcereals, meat and oilseed products continue to be depressed at levels that have not been seen for nearlytwo decades. These developments are contrary to the ex ante expectations regarding the impact of AoA,and largely reflect underlying market conditions that have masked the effects of the implementation of


AoA. However, as noted above, support and protection to agriculture continue at high levels, shieldingproducers from world price signals and adding further downward pressure to prices.

Figure 3.8. FAO price indices for major food and feed commodity groups

Agricultural export earnings (excluding fishery and forestry products) increased significantly between 1993and 1997, for both the developing and developed countries (Figure 3.9). Higher world market prices were amajor factor in this growth, particularly in 1995 and 1996, although volumes also increased. The decline inexports after 1997 was largely due to the economic crisis that disrupted demand in a number of developingand transition countries that had been amongst the fastest growing markets for agricultural products in themid-1990s. It is difficult to draw clear conclusions about the impact of the AoA on aggregate commoditymarkets, but the export market shares of “non-subsidising” exporters have increased for cereals, milk andbeef, for example, suggesting some rebalancing of the world market has occurred.

Figure 3.9. Total agricultural export earnings

- The value of total food imports also rose sharply between 1993 and 1997, but declined thereafter (Figure3.10). Comparing the period immediately before the implementation of the AoA with the period since1995, food imports increased 44 percent for developing countries (27 percent for the LDCs among them)and 21 percent for developed countries. Import bills have declined since the price spike of the mid-1990s, but appear to have remained on a higher plateau.

50

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1985

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Figure 3.10. Total food imports

Marrakesh Decision

The Decision on Measures Concerning the Negative Effects of the Reform Programme on Least-Developedand Net Food-Importing Developing Countries which is an integral part of the results of the Uruguay Roundwas adopted to address the following concern:

“Ministers recognize that during the reform programme leading to greater liberalization oftrade in agriculture, least-developed countries and the net-food importing developingcountries may experience negative effects in terms of adequate supplies of basic foodstuffsfrom external sources on reasonable terms and conditions, including short-term difficultiesin financing normal levels of commercial imports of basic foodstuffs”1.

To deal with this eventuality, the Decision provided for four response mechanisms, i.e., food aid, short-termfinancing of normal levels of commercial imports, favourable terms on agricultural export credits, andtechnical and financial assistance to improve agricultural productivity.

To date, the Decision has not been made operationally effective. Implementation has so far been hamperedby several factors which include the requirement of undisputed proof of the need for assistance (and whetherthe need resulted from the reform process under the Uruguay Round) and the variety of instruments calledunder the Decision to respond to such needs, without precise specification of the respective responsibilitiesof all concerned. Thus, LDCs and NFIDCs have so far not obtained any benefit from this Decision, evenduring the pronounced spike in food prices of 1995/1996.

Winners and losers

As noted above, it is difficult to identify winners and losers because of the relatively small policy changesthat have occurred and the variety of market and policy impacts that have affected global commodity pricesand trade since the AoA began. The central difficulty lies in understanding what would have happened topolicies and trade in the absence of the AoA. Some conclusions can be drawn by looking at the changesimplied by the AoA, in isolation from the other factors that have influenced markets.

- There have been only small reductions thus far in the levels of production- and trade-distorting supportand protection provided by the OECD countries, and in many cases underlying market factors haveobscured the effects of these small policy changes. Nevertheless, the AoA has established a framework

1 Paragraph 2 of the Marrakesh Decision.

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for the further reduction in distorting supports and protection to agriculture which would be expected tobenefit non-subsidised farmers in developing countries and elsewhere.

- Although the food import bills for LIFDCs rose sharply in the first few years of implementation, alongwith the spike in commodity prices, they have since declined. The Marrakesh Decision recognized thatsome countries might be adversely affected by the reform process due to higher food prices and importcosts.

- Exporters of temperate-zone products have seen some improvement in market access (particularlythrough TRQ allocations) and some disciplines on domestic support policies and on export subsidies(particularly, dairy products and beef). However, the gains have been limited.

- Exporters under preferential arrangement have experienced erosion of the value of these arrangements asgeneral tariffs have come down. This erosion has been small thus far, but this is an issue of concern forthe future as further cuts in general tariffs are implemented. On the other hand those countries that didnot enjoy preferential access to major markets have seen a modest benefit.

- Some developing countries have experienced import surges (in some cases due to subsidised exports) invarious products, which have reportedly damaged their import-competing sectors. Many developingcountries have raised tariffs to protect their producers (within their bound rates) in response to the sharpdeclines in many commodity prices since the peaks of 1995-96. In the absence of alternative appropriatesafeguard measures, some countries have found it difficult to live with a tariff-only regime and many arereluctant to accept further cuts in bound tariff rates.

SPS and TBT Agreements

The SPS and TBT Agreements confirm the right of WTO members to apply measures necessary to protecthuman, animal and plant life and health. These include the setting of technical regulations and standardsgoverning quality requirements for food, packaging, marking and labelling, and national zoo andphytosanitary measures to protect animal and plant life and health. These Agreements define rules for settingnational measures so that they do not unduly restrict traffic and trade. SPS measures must be based onscientific principles and not maintained without sufficient evidence. The SPS and TBT agreementsencourage international harmonization through the establishment of international sanitary and phytosanitarystandards by, respectively, the Codex Alimentarius, the OIE and the International Plant ProtectionConvention.

Major challenges faced by many countries, particularly the developing countries and countries witheconomies in transition, are (1) to meet the sanitary, phytosanitary and technical requirements of importingcountries, (2) to provide scientific justification for their own sanitary, phytosanitary and technical measures,and (3) to participate in a meaningful manner in the development and adoption of international standards.The gap in the technical and financial ability of countries to meet such standards is wide.

These countries face an additional challenge when new standards are introduced on risk assessment groundsthat are stricter than those currently in place, as the time and resources required to ensure conformity withthese standards may be considerable. On the other hand, the risk assessment paradigm applied in the SPSAgreement in particular has had the effect of eliminating out-of-date, ineffective or arbitrary standards thatmay have provided a false sense of security. The transition to risk-based standard setting has required majorchanges in legislative, regulatory and administrative practices in most countries, all of which have impliedsignificant cost.

Harmonization of phytosanitary measures, through the establishment of International Standards forPhytosanitary Measures (ISPMs), by the IPPC started only recently. A substantial number of concept ISPMshave been adopted but much work remains to be done, in particular on standards specific to individual pests,plants or plant products. FAO and other international and bilateral agencies have provided for phytosanitary


capacity building, but much needs to be done to enable countries to participate fully in international tradeand traffic.

With some exceptions, disputes under the SPS and TBT Agreements involving food and agriculturalproducts have not involved developing countries as few of them have standards that are stricter than thoseestablished by the international standards-setting bodies and therefore have not been challenged by otherWTO Members (the main exceptions have been challenges by the US, Canada and Australia againstpractices in the Republic of Korea over various measures). Few developing countries (or none at all) haveused the formal dispute settlement mechanism and the SPS/TBT Agreements to challenge measures appliedby importing countries that are believed to be arbitrary or unjustified.1 On the other hand, developingcountries have been active in the SPS and TBT Committees in raising issues of importance to them with theintention of resolving such issues in the informal or consultative processes of the WTO.2

The SPS and TBT agreements contain promises of financial and technical assistance for the developingcountries. However, translating these promises into concrete action has not yet been achieved. Finally, thelevel of participation of these countries, in both number and effectiveness, in international standard-settingbodies remains an issue.

TRIPS Agreement

The main aspect of the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS)relevant to agriculture is the requirement to provide protection by intellectual property rights to plantvarieties, either by patent or by effective sui generis legislation or a combination of both.

Other related issues, such as the rights of local communities and indigenous peoples over their traditionalknowledge and practises, sovereign rights over natural genetic resources, biosafety and food security, whichare dealt with by the Convention on Biological Diversity, are, however, not considered in the provisions ofthe TRIPS Agreement.

Many countries, particularly, the developing countries have been facing two sets of difficulties in this area.On the one hand, many countries lack the scientific capability to innovate as well as the expertise andnecessary institutional development to use the IPR system as a tool for development. Although the TRIPSAgreement requires the adoption of legislation incorporating minimum standards, and many countries are inthe process of doing so, there are still some, particularly LDCs, which do not yet have appropriate legislationin this area. On the other hand, there is a growing concentration of transnational corporations, particularly inthe seed and in biotechnology areas. Access to most protected technologies and products is subject to theterms of licensing agreements dictated by a very small number of enterprises. National expertise is alsorequired to make use of the provisions in TRIPS on compulsory licensing to avoid emergency situationsleading to food insecurity, provisions that have been recently successfully used in the medicinal sector, bothby South Africa and Canada.

The International Treaty on Plant Genetic Resources for Food and Agriculture was adopted formally in theFAO Conference on 3 November 2001. This is a legally binding instrument which provides for theconservation and sustainable use of PGRFA as well as for the fair and equitable sharing of the benefitsarising from their use, in harmony with the Convention on Biological Diversity. It includes a number ofissues where cooperation, complementarity and synergy with the WTO in general and TRIPS in particularwould be essential. In this regard, the relationship between Article 27.3.b of TRIPS which deals with sui

1 The dispute successfully brought by India, Malaysia, Pakistan, Thailand and The Philippines against the United Stateson the import prohibition of certain shrimp and shrimp products was argued under the General Agreement, not the SPSor TBT Agreements.2 Examples: Australia's restriction on the import of durian (Thailand); Japan's restrictions on the import of sugarcane topand corncob (Indonesia); Mexico's prohibition of Thai milled rice (Thailand); - Australian restrictions on saucescontaining benzoic acid (Philippines).


generis intellectual property rights systems for plant varieties and Article 8 of the new International Treatyon Farmers’ Rights is important.

Some concluding comments

• Commodity price spikes

Despite the currently depressed levels of most commodity prices, a sudden surge in commodity pricesremains a real concern for many net food importing countries due to the cyclical nature of manycommodity markets, the likely further draw-down of global stocks and the experience with surgingimport bills during the cereals price spike of 1995-96. Anticipating that trade liberalisation would createtransitional problems for some food-importing developing countries in the form of higher food importbills, compensatory measures were envisaged under the Marrakesh Decision on Measures Concerningthe Possible Negative Effects of the Reform Process on the Least-Developed and Net Food-ImportingDeveloping Countries. The lack of response under the Decision during the 1995-96 price spike (in factfood aid declined during that period) has led many developing countries to call for more operationallyeffective, binding commitments in this area. FAO has recently contributed to the debate regardingoptions for making the Decision more effective, including modalities for a proposed revolving fund thatwould assist eligible countries during periods of surging food import bills.

• Depressed commodity prices

With the exception of the temporary price spike in 1995-96, most commodity prices have been athistorically low levels in recent years, due primarily to market developments unrelated to the AoA.Depressed world prices — which are partly the result of the support and subsidy policies of OECDcountries — create serious problems for farmers of developing countries who must compete in globalmarkets and at home with these low-priced commodities. Since most developing countries now haveonly simple bound tariffs available to protect their farmers from import surges and/or a sudden fall inimport prices, some form of easy-to-apply agricultural safeguard may be necessary for them. In thelonger term, depressed commodity prices contribute to the under-investment in the agricultural sectors ofdeveloping countries. While consumers have benefited from these low prices, the long run sustainabilityof production under such conditions is jeopardised. Greater investment is needed to overcome supply-side constraints and to enhance the competitiveness and participation of developing countries in worldmarkets.

• SPS and TBT measures

As traditional market access barriers are lowered, developing countries have expressed concernregarding the potential of SPS and TBT measures to restrict their exports. Their concern is two-fold: firstthat they lack the technical and financial capacity to fully participate in activities of internationalstandard-setting bodies such as the Codex Alimentarius Commission (CAC) and the International PlantProtection Convention (IPPC), and second that they lack the supply-side capacity to meet theincreasingly strict standards being adopted by the industrial countries. In response to both concerns, FAOhas undertaken various initiatives to assist developing countries to build capacity and participate moreactively in the work of both CAC and IPPC. More specifically, it has proposed the creation of a facilityto help the world’s least developed countries improve the safety and quality of their food products. Theproposal was made at the third UN Conference on the LDCs. Similar proposals are being considered toassist all developing countries.

• Intellectual property rights

Technical and financial assistance to developing countries is required in the field of IPRs, particularly asthey relate to new varieties of plants and to promote access and transfer of technology, includingbiotechnology, in order to benefit from the obligations imposed by the TRIPS Agreement.

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