Agriculture In World Trade Rajdeep

National Institute of Agricultural Extension Management (MANAGE) Rajendranadar, Hyderabad-500030

Agricultural Sector in World Trade

Rajdeep Saikia PGPABM-2008-10

Agriculture Sector in World Trade WTO and Agriculture Sector The original GATT did apply to agricultural trade, but it contained loopholes. For example, it allowed countries to use some non-tariff measures such as import quotas, and to subsidize. Agricultural trade became highly distorted, especially with the use of export subsidies which would not normally have been allowed for industrial products. The Uruguay Round produced the first multilateral agreement dedicated to the sector. It was a significant first step towards order, fair competition and a less distorted sector. It was implemented over a six year period (and is still being implemented by developing countries under their 10-year period), that began in 1995. The Uruguay Round agreement included a commitment to continue the reform through new negotiations. These were launched in 2000, as required by the Agriculture Agreement. The Agriculture Agreement: new rules and commitments The objective of the Agriculture Agreement is to reform trade in the sector and to make policies more market-oriented. This would improve predictability and security for importing and exporting countries alike. The new rules and commitments apply to:
Market access — various trade restrictions confronting imports
Domestic support — subsidies and other programmes, including those that raise or guarantee farmgate prices and farmers’ incomes
Export subsidies and other methods used to make exports artificially competitive. umerical targets for agriculture The reductions in agricultural subsidies and protection agreed in the Uruguay Round. Only the figures for cutting export subsidies appear in the agreement.

Developed Developing countries countries 6 years: 1995-2000 10 years: 1995-2004 Tariffs average cut for all agricultural products -36% minimum cut per product -15% Domestic support total AMS cuts for sector (base period: 1986-88) -20% Exports value of subsidies -36% subsidized quantities (base period: 1986-90) -21%

-24% -10% -13% -24% -14%

Least developed countries do not have to make commitments to reduce tariffs or subsidies.

The base level for tariff cuts was the bound rate before 1 January 1995; or, for unbound tariffs, the actual rate charged in September 1986 when the Uruguay Round began. The other figures were targets used to calculate countries’ legally-binding “schedules” of commitments.

Share of agricultural products in trade in total merchandise and in primary products by region, 2007

(Percentage)

Exports

Imports

8.3 9.6 25.1 9.0 7.6 8.1 2.5 5.6

8.3 6.0 8.7 9.2 10.9 14.0 10.2 7.4

29.8 40.8 37.9 46.2 10.3 10.4 3.3 35.1

29.8 23.9 31.3 35.2 49.6 47.5 47.8 21.8

Share in total merchandise World North America South and Central America Europe Commonwealth of Independent States (CIS) Africa Middle East Asia Share in primary products World North America South and Central America Europe Commonwealth of Independent States (CIS) Africa Middle East Asia


ote: Import shares are derived from the Secretariat's network of world merchandise trade by product and region. From the above table it can be easily inferred that the Agricultural Trade is dominated by the American countries and Europe. Their dominance has been the result of huge land resources and biased trade regulations which include tariff and non tariff barriers.

Demand and Supply Dynamics of Food Grains and Trade Volumes

Maize

2006/07 2007/08

2008/09 2009/10 (est.) (f'cast)

All Wheat

2006/07 2007/08

2008/09 2009/10 (est.) (f'cast)

Production

709

795

790

785

Production

598

609

687

666

Trade b)

87

101

83

85

Trade b)

111

110

136

113

Consumption

725

775

778

797

Consumption 611

614

641

643

Closing Stocks

116

136

147

134

Closing Stocks

118

163

185

28

45

47

123

of which: 5 major 39 exporters*

Barley

2006/07 2007/08

2008/09 2009/10 (est.) (f'cast)

Total grains a) 2006/07 2007/08

2008/09 2009/10 (est.) (f'cast)

Production

138

133

154

145

Production

1,588

1,697

1,792

1,753

Trade b)

16

15

20

17

Trade b)

222

239

248

224

Consumption 145

137

146

145

Consumption

1,629

1,687

1,727

1,743

Closing Stocks 26

23

30

30

Closing Stocks 279

289

354

363

of which: major exporters*

93

118

115

a) Wheat & coarse grains b) IGC grains trade year July/June. * Argentina, Australia, Canada, EU, United States

5 101

Source: International Grain Council

The Demand and Supply of Agricultural Produce determine the direction of Agricultural Trade. The above table gives some idea about the Demand and Supply situation of some major agricultural produce. It is this delicate balance of Demand supply trade and closing balance which determines the commodity prices of the coming year.

Rise in Prices of Food Price in the International Market in 2007-08 In June 2008 the prices of basic food in International markets reached their highest level in last 30 years. This pushed 115 million people into chronic hunger and resulted in a threat to food security for poor worldwide. The FAO food price index rose by 7% in 2006, 27 % in 2007and in 2008 it averaged around 24% above 2007 & 37 % above 2006 level. The End of “Cheap Food” Up till 2006 the real cost of global food basket has fallen almost one half in the previous 30 years, falling on an average by 2-3% per year in real time. The extreme volatility in prices led to market instability and fundamental high price rise. What difference do Exchange Rates make? Since price of a commodity are expressed in US Dollars, depreciation in the value of USD reduced the cost of commodities for countries whose currencies are stronger than USD, resulting in cushion of food price increase while the countries with currencies weaker currencies suffered as they had to pay more for the same amount of food they imported. Moreover the international price of basic foods increased far more dramatically than price of tropical products. Why did food price increase so much? The reasons for the tremendous increase in food prices in the International market can be attributed to the following reasons. 1. Bio Fuel Production (Maize and Palm oil for Bio-fuel). Or Food-Fuel Competition. 2. Production shortfall and low stock. 3. The Food-Feed Competition Bio-Fuel Production: As soon as the Crude prices goes up beyond 70 $ it becomes economically viable to produce bio-fuel from food grains like maize and edible oil like palm oil. During the 2007-08 period the prices of crude was hovering way beyond the 70 $ mark. This resulted in large scale diversion of land in America to production of maize for ethanol and diversion of Crude palm oil for production of Bio Diesel in Malaysia. Production Shortfall and Low Stocks: The year 2004 & 2005 saw production decline by 4 %and 7 % respectively. Moreover if we observe closely, since mid 1990s level of stocks mainly cereals has been falling averaging 3.4 % per year. In 2007-08 the stock to use ratio for world cereal stood at 19.6 % below the five year average of 24 %. The Spill over effect: Stock situation for oil/fats and meat/cakes began to deteriorate in mid 2007. Stock to use ratio of oil/fats fell from 19 % to 11 % where as for meat/cakes it fell from 17 to 11 %.

The Food – Feed competition: On an average 4 Kg of grains is required to produce 1 kg of meat. The rising consumption of meat has its impact on the food grain prices as more food grains are now diverted for production of feed.

The Indian Perspective of Agricultural Foreign Trade Export of Agricultural Commodities from India in Rs Crores 65,769.38

70,000.00 60,000.00

54,510.53

50,000.00 40,000.00 30,000.00 20,000.00 10,000.00

3,906.44

4,943.39

0.00 PLANTATION Apr-Mar 2008

%Growth

PLATATIO

26.54

%Share in Total Exports 0.59

AGRI ALLIED PRDTS

20.65

7.83

&

AGRI & ALLIED PRDTS Apr-Mar 2009(P)

Share of Plantations in Total Exports of India PLANTATION

Total

Share of Agri & Allied Products inExports AGRI & ALLIED PRDTS

Total

1% 8%

99%

92%

Data Source: DGCIS, Kolkata

Agricultural Produces and Plantation products contribution to the total Indian exports in terms of value is about 8.5 % of total Export value. The percentage growth in exports of Plantation products

and Agricultural and Allied Commodities in 2008-09 has been 26.54 and 20.65 % respectively. This is a major growth but the recent curbs imposed by the Government of India on Exports of Food Grains and Pulses shall definitely have an adverse impact in the current financial year.

References: www.fao.org www.worldbank.org http://commerce.nic.in www.worldbank.org www.igc.org www.wto.org

The State of the Agricultural Commodity Market 2009 – FAO Publication World Trade Report 2009- WTO Publication