The Implications For Burkina Faso Of The July 2008 Draft Agricultural Modalities

November 2008

l International Centre for Trade and Sustainable Development (ICTSD)

The implications for Burkina Faso of the July 2008 Draft Agricultural Modalities

By Abdoulaye Zonon Centre d’Analyse des Politiques Economiques et Sociales (CAPES)

November 2008

l International Centre for Trade and Sustainable Development (ICTSD)

The implications for Burkina Faso of the July 2008 Draft Agricultural Modalities

By Abdoulaye Zonon Centre d’Analyse des Politiques Economiques et Sociales (CAPES)

ICTSD

ii

Published by International Centre for Trade and Sustainable Development (ICTSD) International Environment House 2 7 chemin de Balexert, 1219 Geneva, Switzerland Tel: +41 22 917 8492 E-mail: [email protected]

Fax: +41 22 917 8093 Internet: www.ictsd.org

Chief Executive: Programmes Director: Programme Team:

Ricardo Meléndez-Ortiz Christophe Bellmann Jonathan Hepburn, Marie Chamay and Ammad Bahalim

Acknowledgements: This paper has been produced by the International Centre for Trade and Sustainable Development (ICTSD). ICTSD wishes to gratefully acknowledge the author of the paper, Abdoulaye Zonon. This paper has been translated from the French original, which is also available from ICTSD at www.ictsd.org. For more information about ICTSD’s programme on agricultural trade and sustainable development, visit our website at www.ictsd.org ICTSD welcomes feedback and comments on this document. These can be forwarded to: jhepburn @ ictsd.ch Citation: Zonon, A (2008). Implications for Burkina Faso of the July 2008 Draft Agricultural Modalities. International Centre for Trade and Sustainable Development, Geneva, Switzerland. Copyright ICTSD 2008. Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. This work is licensed under the Creative Commons Attribution-Noncommercial-No-Derivative Works 3.0 License. To view a copy of this license, visit http://creativecommons.org/licenses/by-nc-nd/3.0/us/ or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA. The views expressed in this publication are those of the author(s) and do not necessarily reflect the views of ICTSD or the funding institutions. ISSN 1887-3551

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Abdoulaye Zonon — The implications for Burkina Faso of the July 2008 Draft Agricultural Modalities

Table of Contents List of acronyms

iv

List of tables

v

List of figures

v

Executive summary INTRODUCTION

1. Domestic support

1.1. The situation of agricultural subsidies in Burkina 1.2. The status of cotton

2. Market access

2.1. Market access for cotton

2.2. The impact on preference erosion of different options for the liberalization of tropical products

2.3. The situation of Côte d’Ivoire (non-LDC) and its impact on Burkina

vi viii

1

1 3

8 8

8 9

2.4. Implications of special products, sensitive products and tropical products and preference erosion 11

2.5. The impact of the draft text on Burkina’s major exports

2.6. Impact of the special agricultural safeguard (SSG), special safeguard mechanism (SSM), sensitive products and special products on Burkina’s exports

12

14

2.7. Implications of options for the Special Safeguard Mechanism

14



16



2.7.1. Milk

2.7.2. Meat

2.8. Impact of quota restrictions on Burkina’s exports

14

16

3. Export competition

17

3.2. Export companies

17

3.4. Food aid

18

3.1. Export subsidies and the structure of Burkina’s imports

3.3. Export competition and cotton

17

17

CONCLUSIONS

20

ENDNOTES

21

BIBLIOGRAPHY

22

ICTSD Programme on Agricultural Trade and Sustainable Development

List of acronyms ACP:

African, Caribbean and Pacific group

AFC:

African Financial Community

AGOA:

African Growth and Opportunity Act

AMS:

Aggregate Measure of Support (the ‘amber box’)

CET:

Common External Tariff

DAGRIS:

Développement des Agro-Industries du Sud (now Geocoton)

DSB:

Dispute Settlement Body

ECOWAS:

Economic Community Of West African States

EPA:

Economic Partnership Agreements

EWG:

Environmental Working Group

FCFA:

West African CFA franc (monetary unit)

FOB:

Free on Board

FSF:

Food Support Funds

GAO:

Government Accountability Office

GATT:

General Agreement on Tariffs and Trade

GDP:

Gross Domestic Product

IFPRI:

International Food Policy Research Institute

INSD:

National Institute for Statistics and Demographics (Institut National de la Statistique et de la Démographie)

LDC:

Least Developed Countries

MDG:

Millennium Development Goals

NCFS:

National Council on Food Security (Conseil National de Sécurité Alimentaire)

NOET:

National Office of External Trade (Office Nationale du Commerce Extérieur)

OECD:

Organization for Economic Co-operation and Development

RMA:

Risk Management Agency

SAP:

Structural Adjustment Program

SFFS:

Support Fund for Food Security (Fonds d’Appui à le Sécurité Alimentaire)

SONAGESS: National Society for the Management of Food Security Stocks (Société Nationale de Gestion des Stocks de Sécurité) SSG:

Special agricultural safeguard

SSM:

Special safeguard mechanism

US:

United States

USDA:

United States Department of Agriculture

WAEMU:

West African Economic and Monetary Union

WTO:

World Trade Organization

iv

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Abdoulaye Zonon — The implications for Burkina Faso of the July 2008 Draft Agricultural Modalities

List of tables Table 1:  Development of public expenditures in agriculture in Burkina (in millions $US).................................................................................................................... 1 Table 2:  Rate of growth compared to MDGs (in millions $US)................................................ 2 Table 3:  Summary of principal results of simulation models of the impact of cotton subsidies................................................................................................................... 3 Table 4:  Growth of subsidies for cotton in EU from 1995 to 2004........................................ 4 Table 5:  Historic data on cotton and prices FOB.................................................................. 6 Table 6:  Domestic subsidies in US for cotton and cotton exports from 1995 to 2004........... 7 Table 7:  Domestic EU subsidies for cotton and cotton exports from 1997 to 2004 (in Euros).............................................................................................................................. 7 Table 8:  US production, consumption and imports (millions of tonnes)................................. 8 Table 9:  Formula to assuage tariff reductions for developing countries................................ 9 Table 10:  Côte d’Ivoire tariffs after the application of the new modality................................ 9 Table 11:  List of possible special products of Côte d’Ivoire................................................. 10 Table 12:  Main exports from Burkina.................................................................................. 12 Table 13:  Production of meat and poultry in Côte d’Ivoire and imports from 2000 to 2003..................................................................................................................... 13 Table 14:  Evolution of prices in FCFA per unit.................................................................... 15 Table 15:  Development of meat imports ($US).................................................................... 16 Table 17:  Food aid received by Burkina (in million $US)...................................................... 18

List of figures Figure 1:  Exports of meat and poultry from Burkina (in equivalent tonnes of meat)............ 13 Figure 2:  Development of Burkina’s dairy imports (in $US).................................................. 15

ICTSD Programme on Agricultural Trade and Sustainable Development

Executive summary In July 2008, the chair of the agricultural negotiations, Crawford Falconer, presented a new draft text with revised modalities for the agricultural negotiations.

After cotton, the principal exports of Burkina are livestock, shea, fruits and vegetables, cereals and sesame. The new text will probably impact on a large number of these products.

The draft text proposed by Falconer contains changes which will have repercussions on the Agreement on Agriculture. It also includes revised modalities for the various key sections of the Agreement on Agriculture. It affects domestic support, market access and export competition.

Livestock exports, which are mainly to Côte d’Ivoire and Ghana, will probably be competing with animal products from Latin America and the European Union. Tariff reductions by these countries encourage meat imports, as these will be relatively cheaper compared with beforehand. This erosion of trade preferences will also affect meat products.

Falconer’s draft agriculture text is a step forward in the agricultural negotiations. In the area of domestic support, Burkina has not notified any support to the WTO. The current level of Burkina’s commitment is only 3.7 percent of the value of agricultural production. With riots over the cost of living, the government is under growing pressure to increase its support to agriculture so as to reach the Millennium Development Goals (MDGs) (reduce by half the proportion of people who suffer from hunger) or to respect the Maputo Declaration, (commit 10 percent of the budget to agriculture). Burkina, which has been the primary exporter of cotton in Africa, will eventually gain from this text insofar as cotton is given special treatment in accordance with the position Burkina holds in the C4 negotiating group (which includes Benin, Burkina Faso, Mali and Chad). The rise in prices expected from the reduction in American subsidies as presented in the draft text will probably be very limited, since the reduction only involves a small part of American support. The support that the US has notified in fact represents only a small share of their total subsidies. The good management of the cotton production system by Burkina’s cotton producers will result in significant production increases if prices are profitable. The C4 may want to review its position on the definition of US subsidies and their proposals for reducing these.

Leathers and skins are primarily sold in the European Union and already benefit from import duties exemptions. Their situation will not change greatly with the new text. However, tariff reductions in other importing countries may allow a diversification of Burkina’s export markets. Shea is sold primarily to Europe, and Burkina, as well as its main competitors, will gain by preferential access to this market. In principle, the new text will not make a major change to Burkina’s situation. Sesame is exported from Burkina to the European Union, and also to Asia (Near East, Japan and India), where tariff reductions will increase the competitiveness of sesame from Burkina. Cereals exported from Burkina go the subregion (Mali and Niger): these are mostly sorghum, millet and corn. Nothing in the new text will affect this trade. The same applies for peanuts, which are also sold in the subregion. For fruits and vegetables - mostly green beans and mangos - the main export market is the European Union. There is a risk of preference erosion since the major competitors of Burkina (India and China) do not benefit from preferential access to the European market. Burkina also exports fruits and vegetables to European countries where it benefits from

vi

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Abdoulaye Zonon — The implications for Burkina Faso of the July 2008 Draft Agricultural Modalities

import duty exemptions. The global reduction of import duties in developed countries will attract more products that will be relatively more competitive. There is therefore a risk of preference erosion for products from Burkina. However, this situation will not affect Burkina because its exports of these products are marginal to date. Côte d’Ivoire, which is the only non-LDC in the WAEMU and is the major economic partner of Burkina in the sub-region, will be required by the new text to reduce its import tariffs. This situation creates a problem for the WAEMU which has a Common External Tariff (CET), and will also create problems for Burkina’s exports to Côte d’Ivoire. Concerning the first problem, a reform of the CET must be considered so as to maintain the unity of the sub-region. People are not prepared for this eventuality, all the more so because in the ECOWAS group a proposed fifth tariff band is under consideration so as to protect local products more effectively. In the second case, it is feared there will be a loss of preferences for Burkina’s exports to Côte d’Ivoire. Livestock (cattle, sheep, goats and poultry) compete with imports from the European Union and Latin America which are considerably cheaper even though the products from Burkina are of higher quality. For the moment, Burkina has not made use of the existing safeguard mechanism. A special safeguard mechanism would represent an opportunity in this case. Given the development of certain sectors, it is probable that Burkina

will try to protect itself from imports of certain products, in particular subsidised milk and meat from the European Union. In 2003, a kilogram of imported poultry cost 350 FCFA compared to 1150 FCFA for local poultry, and in 2008, a kilo of local meat cost 1670 FCFA. In 2006, the cost of production of reconstituted milk from Europe was 200 FCFA per litre while milk delivered to the dairy cost 300–350 FCFA. This may result in increases in production, generating instability in the industries concerned. With the Structural Adjustment Programme, all marketing boards were dismantled. Companies exporting raw products (shea nuts, peanuts) and importing food products were dissolved. As a result, Burkina has practically no marketing boards involved in selling products. The new text will not change the situation in Burkina even if it provides some relief to the government in its efforts to support the cotton sector, which is experiencing a major crisis. To rescue the system, which is almost bankrupt, the government injected 198 million dollars in 2007. Faced with climatic changes and poor living conditions, Burkina has frequently needed food aid. An organized system is in place to manage this food aid. So far, the greatest amount of food aid has been sold in affected areas at reduced prices. The new text does not allow the monetization of food aid except in very specific conditions. However, monetisation allows a better distribution of aid by avoiding partisan bias when the aid is shared out.

ICTSD Programme on Agricultural Trade and Sustainable Development

Introduction In July 2008, the chair of the agricultural negotiations, Crawford Falconer, presented a new draft text with revised modalities for the agricultural negotiations. In April 2007, he had circulated a document in which he proposed a working hypothesis which, after discussion with Members, would serve as a base for revising the text of the agreement. The purpose of the document was to encourage Members to respond in order to resume the negotiations since they seemed to be slowing down again. In his text, Falconer discussed in order the state of negotiations in each of three areas within the agricultural committee’s brief, that is, domestic support, market access and export competition. Negotiations had resulted in February 2008 in a first revision of the draft agriculture modalities. The draft we are considering in this study is the third revision. The proposed draft calls for changes which may have repercussions on the Agreement on Agriculture. It will certainly have an impact on Burkina as a least-developed country (LDC). Burkina is basically a farming country with more than 80 percent of its population working in the agricultural sector. The Gross Domestic Product for agriculture is about 40 percent of the total. Farming is mainly cereal production (millet, sorghum, corn, rice and fonio) which represents about two thirds (63 percent) of the value added in the sector. These are produced in a rural subsistence farming system. About 15 percent of the production is traded. And a tiny share of this production (1.5 percent) is exported to neighbouring countries, or about 10 percent of the total amount traded. Cereal production has increased slightly, except for corn which has doubled in ten years, partly because corn is rotated with cotton in annual planting.

also important in generating revenue. Cotton represents more than 60 percent of export revenues. These resources are the only source of income for more than 250,000 small family holdings, which thus obtain 35 percent of total farming household revenues. Almost all farmers are involved in raising livestock to varying degrees, in an extensive production system. The size of the herds is significant (7.3 million cattle; 6.7 million sheep and 10 million goats). To this can be added around 37 million poultry. Livestock production is estimated at 11 percent of GDP. Livestock (live animal only) are exported to neighbouring countries, representing an estimated 36 billion FCFA ($72 million US) in 2005. Sales of livestock are the primary source of income in rural households. It creates 27 percent of their total cash flow, compared to 16 percent for farming. The draft proposal sets out modalities for key sections of the Agreement on Agriculture, affecting domestic support, market access and export competition. This study examines the impact these measures will eventually have on the agricultural sector in Burkina as well as on agricultural policies. Specifically, it will focus on the follow- ing issues: i.

Domestic support

●

Will the draft involve changes in domestic support in Burkina and what are the probable restrictions on domestic support?

●

What are the implications for Burkina of changes in overall support levels in the US and Europe for specific products such as cotton?

●

Will Burkina gain from new flexibilities for developing countries in Green Box support? Will it affect Burkina’s policies in the future?

●

Will export subsidies change the structure of Burkina’s exports?

Cotton is the main source of revenue. It occupies an area only 17 percent of that covered by cereals, but its contribution in agricultural value added is more significant (21 percent). The economic influence of cotton is

●

Will this have a greater impact on cotton than other crops? In what way?

ii. Market access ●

What would be the implications for trade flows of the various options for tropical product liberalisation and

viii

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Abdoulaye Zonon — The implications for Burkina Faso of the July 2008 Draft Agricultural Modalities

preference erosion? Which products will be affected, ●

restrictions imply? ●

to what degree and in which markets?

safeguard mechanism? How will WTO commitments

not LDCs and have to reduce their tariffs at the WTO,

interact with EPA commitments and flexibilities for sensitive products?

will Burkina have to reduce its tariffs to meet the conditions of the CET? Which products will be most

●

How will the commitment to duty-free, quota-free

●

How would tariff escalation provisions, tariff rate

market access affect Burkina’s exports?

affected? How will Burkina be affected by certain flexibilities for these countries, such as those for

quota (TRQ) administration and tariff simplification

special products and sensitive products? ● ●

How will the overlap of sensitive and tropical products

language affect Burkina Faso’s exports?

be affected by preference erosion?

Export competition

How will the different elements proposed in the draft

How will Burkina be affected by the proposal for new restrictions on export competition? Specifically, what are the consequences for food aid, export financing, export subsidies and export marketing boards?

text affect Burkina’s main exports? ●

What are the implications of the options for the special

Given that other members of WAEMU and ECOWAS are

What might be the consequences of the special agricultural safeguard (SSG), the special safeguard mechanism

(SSM)

and

sensitive

products

for

Burkina? Concretely, what will these flexibilities and



ICTSD Programme on Agricultural Trade and Sustainable Development

1. Domestic support 1.1 The situation of agricultural subsidies in Burkina Burkina has not notified any domestic support to the WTO. The country has no scheduled domestic support within the WTO’s categories. In fact, with structural adjustment programs (SAPs) in place since 1991, the State has withdrawn from the agricultural sector and has liberalized it. Subsidies, notably for fertilizer, have been almost entirely eliminated, even if the government has in recent years occasionally provided them. It is worth noting that these subsidies were often just provided at specific moments in time and were therefore not included in the government budget. With Burkina’s agriculture being underdeveloped, the support of the State and of donors has always been necessary for the achievement of development goals related to

food security. This support is handled mainly by the ministries of agriculture and livestock. Projects and programs are regularly initiated to promote certain industries, for food as well as cash crops. Some of these initiatives include machinery that is provided at a subsidised price. No precise estimate of the amounts exists, but the scope of these projects is minor. In general, only a small share of the budget is allocated to agriculture. Before the ministry of agriculture included some environmental issues in its portfolio, the budgetary contributions to agriculture did not exceed 7 percent. This was primarily used for civil servant salaries and to cover administrative expenses for agriculture.

Table 1: Development of public expenditures in agriculture in Burkina (in millions $US) 2000 Ministry of Agriculture

28026

2001 27872

2002

2003

2004

2005

2006

145620

169336

188405

222813

Average

50148

Ministry of Agriculture +  part of environment Ministry of Livestock

5235

5087

8337

13096

10690

10939

11968

Total

33261

32959

58485

158716

180027

199344

234781

128225

Share

5,1%

5,0%

7,1%

15,0%

14,5%

13,3%

14,5%

11,9%

State Budget

647259

661746

827324

1060060

1245101

1494303

1621995

1079684

Public support for agricultural development

51600

50012

90549

79711

67968

Share

88,2%

31,5%

50,3%

40,0%

45,6%

Source : Statistics Annual of INSD (2006), Ministry of Economy and Finance (2005)

Apparently the public resources earmarked for financing agriculture are insufficient given the scale of need, at least according to certain experts and farmers’ organizations. Nevertheless, the country has undertaken a number of international commitments requiring a more substantial contribution to agriculture.

The Millennium Development Goals (MDGs) commit Burkina to reduce by half the proportion of people who suffer from hunger by 2015. Burkina was a signatory to the Maputo Declaration at the June 2004 Maputo summit, where the heads of state and governments of ACP countries committed themselves to allocate within 5



Abdoulaye Zonon — The implications for Burkina Faso of the July 2008 Draft Agricultural Modalities

years, 10 percent of their national budgets to agriculture. In 2006, during the Abjua summit on fertilizers, African countries including Burkina committed to increasing the use of fertilizers from 8 to 50kg/ha by 2015.

is presently 5.4 percent while a rate of 6.8

So far these different commitments have yet to be implemented; according to a study by IFPRI, the growth rate of agriculture in Burkina

objectives, annual disbursements of $282 million

percent would be needed in order to reach the MDG that relates to the reduction of hunger. To do this, $2,524 million would have been needed for agriculture. To achieve the Maputo are needed. It is obvious that Burkina is far from reaching these figures.

Table 2: Rate of growth compared to the MDGs (in millions $US) Current rate of growth in agriculture (1990–2004)

5,2%

Annual rate of growth required to meet the MDGs

6,8%

Annual amount of expenses required in agriculture to meet the MDGs

2524

Annual expenditures required under Maputo Declaration (10% of national budget)

282

Source : IFPRI (See Tidiane Ngaido, 2006)

The riots this year over the high cost of living woke the government from its inaction on agricultural issues. This year, subsidies were announced of more than 16 billion to aid cereal producers to purchase improved seed, fertilizer and pesticides as well as support services. Also, another 6.5 billion will be granted to the cotton sector, making a total of 22.5 billion in support of agriculture in the 2008–2009 campaign. This support, taken together, represents only 3.7 percent of the value of agricultural production. In the case of cotton, the State committed a total sum of 89,284 million FCFA, or around $198 billion, in 2006–2007 to keep the cotton industry from bankruptcy. The total value of cotton production in 2005 before the crisis was $292 million. The government will remain under pressure to increase its contribution to agriculture so as to reach the millennium goals or respect the Maputo Declaration. The government has already promised to be more involved in helping producers who use mechanized farming by helping them to acquire tractors, powered pumps, ploughs and sprayers. The new modalities for the Green Box give new opportunities to developing countries to support

their agriculture. Burkina certainly does not have the means to profit from these arrangements in the short term despite pressure on the Government to give more help to producers in special circumstances. For example, in disaster situations producers have not benefited from any support other than food aid. Yet in the mid term this might be possible, for example through crop insurance which is being studied by the national government. The obvious risks in agricultural production are such that the private sector is not interested in this kind of market. The government needs to take the initiative and later transfer it to the private sector. The government has been involved in several timely interventions in investment support, but wishes to expand this kind of activity in order to modernize agriculture. The new text makes it more interesting, from a legal perspective, for the government to make these types of intervention. However, for the moment the government has not announced any support programs in the short term or medium term. There is no regulatory mechanism or an obvious support program which might make it possible to trace back State interventions under

ICTSD Programme on Agricultural Trade and Sustainable Development

specific categories of domestic support. The subsidies which have been provided were done so

on an ad hoc basis to address certain needs or respond to particular pressures.

1.2 The status of cotton American subsidies lower world market prices wherever they represent an important share in exports (Sumner and Buck, 2007). This is the case for cotton, as shown by a number of studies (see Table 3). American

subsidies artificially inflate the supply on international markets and depress export prices. Consequently this reduces the export revenues of countries heavily dependent on cotton.

Table 3 : Summary of the main findings of simulation models of the impact of cotton subsidies Authors Goreux (2003)

Simulation Elimination of subsidies in the US, China and EU

Change in world price (%) + 12

ODI (2004)

Elimination of subsidies in the US, China and EU

+ 22 to 28

Reeves et al. (2002)

Multilateral removal of support for cotton and restrictions on textile imports

+ 2.3

Tokarick (2003)

Elimination of American support

+ 2.8

Poonyth et al. (2004)

Multilateral removal of support for cotton and tariffs

+ 3.1

FAPRI (2002)

Multilateral liberalization of all products

+ 11.4

Summer (2003)

Elimination of American support for cotton

+ 12.6

Pan et al. (2004)

Elimination of American support for cotton

+ 2.43

Bonjean et al. (2006)

Elimination of subsidies in the US and EU

+ 2.68 to 10.7

Source : based on Bonjean et al. (2006)

The new draft text proposes modalities which seem at first sight to accommodate Burkina’s interests. This is an initiative of the C4 of which Burkina is a member. The new modality proposes a reduction in American subsidies of about 82.2 percent over a period of 20 months. In the base period of 1995–2000, the US notified an average of $623 million. The application of the new reduction formula would result in a drop in American subsidies of about $510 million, bringing them down to $113 million. Most of the studies which conclude that a rise in world prices would follow a reduction in subsidies consider American support to be more substantial than the AMS notified by the US. According to the methods and scenarios used by these studies, world prices will rise by 2 to

28 percent. According to a number of sources (see Table 4) the American AMS will reach $5.102 billion in 2005. This amount includes production flexibility contracts and fixed direct payments which the WTO’s Dispute Settlement Panel on cotton of 3 March 2005 placed in the Amber Box, supplemented by certain supports notified but not included in this database (support for stockpiling and interest on commercial loans) and by several subsidies that were improperly notified as non product-specific AMS. As Table 4 shows, average trade-distorting subsidies for cotton should have been $1,737 billion for the period 1995–2000 (instead of the notified $623 million), $2,471 billion for the period 1995–2004 (instead of the notified $1,151 billion) and $2,710 billion for 1995–2005 (instead of the notified $1,194 billion).





Abdoulaye Zonon — The implications for Burkina Faso of the July 2008 Draft Agricultural Modalities

Table 4 : Evolution of US cotton subsidies from 1995 to 2004 $ Millions

1995 1996

1997

1998

1999

2000

2001

2002

2003

2004 2005

Cotton subsidies according to EWG

30

647

595

1163

1721

1850

3033

2389

2697

1654 3331

Cotton subsidies/insurance

365

160

213

271

409

425

444

386

378

320

268

STEP 2

88

34

6

416

280

446

237

182

455

363

582

180

113

185

91

106

198

158

253

11

111

216

63

87

270

552

500

782

5980

4120

3810

4260

3120

3780

5520

4850 5700

Subsidies for farming insurance for cotton

STEP 2 for exporters Warehousing and marketing subsidies

9

Value of cotton production

6570 6410

12

Value of farming production 190 (VFP) (109of $)*

206

204

191

185

190

199

195

216

236

236

Cotton as % of VFP

3,5

3,1

2,9

2,2

2,1

2,3

1,6

1,9

2,6

2,1

2,4

Total of farm loan subsidies

719

713

610

610

610

610

610

610

610

610

610

Total of farm loan subsidies for cotton

25

22

18

13

13

14

10

12

16

13

15

Total subsidies for farm fuel 2385 2385

2385

2385

2385

2385

2385

2385

2385

2385 2385

Total subsidies for farm fuel 83 for cotton

74

70

52

49

54

37

46

61

49

58

Subsidies for cotton irrigation

66

66

66

66

66

66

66

66

66

66

66

Total subsidies for cotton

666

1015

979

2092

2754

2918

3914

3181

4225

2965 5102

Total subsidies for cotton for exporters

180

113

185

91

106

198

158

253

Export subsidies /cotton subsidies (%)

8,6

4,1

6,3

2,3

3,3

4,7

5,3

5,0

935

2353

1050

2810

1187

435

2238 1621

AMS notified for cotton

32

3

466

Sources : Environmental Working Group’s Farm Subsidy Database1); USDA, RMA, Summary of Business Reports and Data2; US Notifications to the WTO; National Cotton Council3; Government Accountability Office (GAO)’s report of 7 June 20074 ; (OECD, Producer and Consumer Support Estimates, OECD Database 1986–20055; USDA, Farm and ranch irrigation survey (2003), November 2004; USDA, Table 35-Net outlays per commodity and function6

Given this situation, there are reasons to fear

fight to change the definition of export subsidies,

that the reduction proposal, as applied, will

the difficult situation of producers in the C4 will

not change global prices much even though it

continue since the world price for cotton will not

originates with the C4. Some predict that if the

change significantly if the US only has to reduce

C4 and developing countries in general do not

the limited percentage of subsidies just at the

ICTSD Programme on Agricultural Trade and Sustainable Development

export level - which was only 7.1 percent in 2005 (Berthelot7, 2008). In fact this is not a new idea; since GATT we knew that certain definitions (decoupled subsidies, dumping8 etc.) were not exempt from criticism and would give rise to disputes. It was for this reason that within the WTO framework the peace clause9 was adopted, so that certain Members would not trigger hostilities which would certainly direct energies towards undesirable goals that could lead to the negotiations. The expiry of the peace clause in 2003 opened the way to numerous subsidies being challenged, even those these had not previously been considered as creating price distortions. In the US, even Congress ended up convinced of the distorting nature of various kinds of support granted to farmers. Several reports presented to the American Congress indicated support levels far above those notified (Schnepf, 2008; Schnepf Randy and Jasper Womach, 200810). Congress thus became more aware of the well-founded basis of challenges against the US, particularly in the case of cotton. The Dispute Settlement Body (DSB) of the WTO supported Brazil’s claim by declaring numerous supports as having been illegally classified as green box, whereas in reality these should either have been considered as export subsidies or as Amber Box payments (the most distorting type of subsidies, which are subject to a maximum ceiling commitment at the WTO). This decision opens the door to other challenges related to other types of support such as those mentioned in Table 4 [no table ref]. It should also be noted that farm prices in general have been rising. Cotton is not profiting from this upturn: the reference price for cotton (Index A of Cotlook) has only risen 24.1 percent in July 2007 compared to 49.6 percent for palm

oil, 49.8 percent for cocoa and 97.3 percent for corn. However, production of cotton in Burkina is sensitive to world prices. The supply elasticity compared to price is estimated at between 0.4 and 0.8 (Bonjean et al, 2006). With the drop in world prices, the Burkina cotton sector has had problems during the last two cotton seasons (2006–2007 and 2007–2008). Cotton production fell by almost half in two years, to 360,000 tonnes in 2007–2008 compared to 750,000 tonnes in 2005. With production at these levels, Burkina Faso - which had been the major cotton producer in Africa since 2005 - has now been supplanted by Egypt. This was primarily because farmers lost interest in this sector because of the drop in prices paid to producers. In 2004– 2005, they received 210 FCFA/kg (40 cents/kg). In 2005–2006 and 2006–2007 they only received 175 and 165 FCFA respectively. In 2007–2008, the farm price was only 145 FCFA. The situation is worsened by the reduction in price of cotton fibre per kilo FOB. Between 2004 and 2006, despite the rise in cost of farm inputs, the FOB price for cotton fibre has dropped from 768 FCFA per kilo to 631 FCFA, a decline of about 18 percent. One of the major problems for the cotton sector is the drop in the dollar. The average in the Cotlook Index A for the 2007–2008 season is currently as high as 72.9 cents a pound, 13 cents more than the previous season, an increase of 23 percent, and 16 cents more than the 2005-2006 season, or an increase of 27 percent. This rise in the international price of cotton in dollars over the last three seasons does not benefit Burkina’s farmers, who are penalized by the drop in the





Abdoulaye Zonon — The implications for Burkina Faso of the July 2008 Draft Agricultural Modalities

dollar compared to the Euro. Over this period,

The proposal to reduce cotton subsidies in

the improvement in price returns in FCFA is only

Falconer’s new text should not allow for a

6 percent.

substantial rise in prices because it involves

For the 2008–2009 season, cotton companies have

increased

their

purchase

price

to

only a small part of the total subsidies that are in fact allocated. With the weak dollar, in order

cotton farmers. They are set at 180 and 155

for Burkina to profit from the price increases

FCFA respectively for first and second grade.

there must be a much greater drop in American

However this is a long way from 210 FCFA for the

subsidies than that notified by the US to

2005–2006 season.

the WTO.

Table 5: Historic data on cotton and FOB prices Years

Index A Cent/pound

Rate FCFA/$

Index A FCFA/kg

FOB price FCFA/kg

94/95

86.3

541

1027

979

95/96

94.4

495

1028

980

96/97

79.3

522

913

865

97/98

76.6

596

1005

957

98/99

62.0

586

802

754

99/00

52.3

636

733

685

00/01

61.0

724

974

926

01/02

43.8

742

717

669

02/03

50.2

661

727

679

03/04

66.4

559

816

768

04/05

56.6

522

654

606

05/06

57.0

540

679

631

06/07

59.1

454

592

647a

07/08

72.9

415

667

692a

Source : Cotlook (a) Automatic forecast process (Ministry of Economy and Finance (June 2007); Interprofessional association of Burkina cotton producers (2006)

Another problem affecting the situation of countries like Burkina with regard to price increases is the domestic support of the US and EU for exported cotton. The inability of the US and EU to face up to competition from Chinese textiles will reduce considerably their domestic consumption. This will logically increase their exports, a pattern which is already apparent. Table 6 shows that American exports are growing, not reducing and in 2007 represented 85 percent of all production. In the EU in 2007 they reached 86.3 percent. The two tables show that domestic support on exported cotton has gone up and continues to rise.

Although

Falconer’s

draft

proposes

a

50

percent drop in export subsidies upon signing the agreement, and the elimination of these subsidies by 2013, this will not solve this broader problem - which is one of the causes of the drop in prices. Countries like Burkina will continue to suffer negative effects from these subsidies which prevent prices from rising beyond their current levels. Furthermore, the Burkina government does not have the means to grant subsidies to its own cotton farmers.



ICTSD Programme on Agricultural Trade and Sustainable Development

Table 6 : US domestic support for cotton and exported cotton from 1995 to 2004 $ Millions

1995

1996

1997

1998 936,96

1999

2000

2001

2002

2003

2004

1471,5 1469,3

2398

2594,2

2999,2

3147

2005

Exports

1673,2 1496,6

1635

Exports/ production

0,429

0,362

0,399 0,309

0,398

0,392

0,542

0,692

0,754

0,621 0,735

Total cotton subsidies

666

1015

979

2092

2754

2918

3914

3181

4225

2965

5102

Step 211

88

34

6

416

280

446

237

182

455

363

582

Step 2 export subsidies

38

15

3

180

113

185

91

106

198

158

253

Step 2 domestic consumption

50

19

3

236

167

261

146

76

257

205

329

Domestic support

628

1000

976

1912

2641

2733

3823

3075

4027

2807

4849

Domestic farm support

578

981

973

1676

2474

2472

3677

2999

3770

2602

4520

Domestic subsidies for exported cotton

248

355

388

518

985

969

1993

2075

2843

1616

3322

Total subsidies for exported cotton

286

367

391

698

1098

1154

2084

2181

3041

1774

3575

Step 2 export

0,133

0,041

0,008 0,258

0,103

0,16

0,044

0,049

0,065

0,089 0,071

2006

2007

3825,7 2836,2 3531,6 0,603

0,859

Source : Table 4

Table 7 : EU domestic support for cotton and exported cotton from 1997 to 2004 (in Euros) 1997

1998

1999

2000

2001

2002

2003

2004

Production  (1000 tonnes)

478

501

572

521

514

445

463

460

Imports  (1000 tonnes)

932

857

691

761

675

685

532

439

Exports  (1000 tonnes)

178

130

251

234

245

203

255

284

Exports en % production

37,20%

25,90%

43,90%

44,90%

47,70%

45,60%

55,10%

61,70%

Consumption

1 232

1 228

1 012

1 048

944

927

740

615

Cotton subsidies (106)

800

761

903

855

733

804

873

835

Subsidies for export cotton (106)

298

197

396

384

350

367

481

515

Source : European Commission, Directorate-General for Agriculture and Rural Development



Abdoulaye Zonon — The implications for Burkina Faso of the July 2008 Draft Agricultural Modalities

2. Market access 2.1 Market access for cotton Article 145 of the draft text says that “Developed country Members and developing country Members declaring themselves to be in a position to do so shall give duty- and quota-free access for cotton exports from leastdeveloped country Members from the first day of the implementation period.” The US has a tariff quota of 5 percent of domestic consumption. Customs duties in the in-quota tariff vary from 0 to 4.4 cents/kg, while duties outside the quota are levied at a rate of 31.4 cents/kg. The Americans accept the import of African cotton with zero duties but problems arise in the application of this principle. Since the import quota is a function of domestic consumption, it is unlikely that this kind of commitment by the US will produce meaningful benefits for African cotton exporters. US domestic

consumption is dropping steadily. Between 2000 and 2007, it fell by about 48 percent because of more competitive Chinese textiles. Table 8 shows that US cotton imports have remained far below the quota of 5 percent of domestic consumption. For example, between 2000 and 2007, they averaged 0.5 percent of domestic consumption. In this situation, the Americans will be obliged to increase their cotton exports. A reduction in subsidies will lower American production, but the fact that domestic demand continues to drop means that there is no reason to expect an increase in imports. This new situation will not lead to gains in the American market for countries like Burkina. The same applies to the EU market, where, between 2000 and 2007, imports fell by 62 percent.

Table 8 : US production, consumption and imports (millions of tonnes) 1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Production

3902

4129

4097

3034

3699

3747

4426

3752

3980

5069

5208

4706

4112

Imports

88,94 87,85 2,834 73,9

21,15

3,488 4,578

14,61 9,81

6,322 6,104

4,142

4,36

Consumption

2321

2425

2474

2267

2222

1932

1678

1586

1366

1459

1280

1078

1003

Imports/ consumption

3,8%

3,6%

0,1%

3,3%

1,0%

0,2%

0,3%

0,9%

0,7%

0,4%

0,5%

0,4%

0,4%

Source : USDA, 200712

2.2  T  he impact on preference erosion of different options for the liberalization of tropical products Burkina exports green beans and certain fruits and vegetables such as mangos to the European Union and certain Middle Eastern countries. So far the volume of these exports has been modest. The major target market is Europe, where tropical products from Burkina already benefit from duty-free access. In this market, Burkina is competing with a number of exporting countries such as India, China and Latin American countries

which do not benefit from preferences in the European market. The new arrangements in the draft will increase slightly the competitiveness of these countries, with consequent risk of preference erosion for Burkina’s products. It is worth noting however that Burkina’s exports of tropical products remain modest. This should not have serious consequences on the economy in the short term.

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2.3  The situation of Côte d’Ivoire (non-LDC) and its impact on Burkina. Burkina is part of the WAEMU, along with Côte d’Ivoire, which is the only country in the Union that is not an LDC. Within the EPA framework, because Côte d’Ivoire does not benefit from concessions granted to LDCs, it had to sign an interim agreement while waiting for the subregion to be prepared to sign a collective EPA. Côte d’Ivoire is Burkina’s second-largest trading partner, after France. Burkina exports live animals (sheep, cattle and poultry) and fruit and vegetables. It imports agricultural and agri-

food products from Côte d’Ivoire, as well as mineral products. WAEMU has put in place a Common External Tariff (CET) and grants a community preference for products coming from within the Union. Despite these arrangements, trade within WAEMU remains limited (14 percent of total trade). The modalities for developing country tariff reductions proposed in the draft text are given in table 9:

Table 9 : Formula to assuage tariff reductions for developing countries Tariff level

Tariff in %

% of reduction

I

0-30

32-34.6

II

30-80

36.6-40

II

80-130

41.3-43.3

IV

>130

44-48.6

Average

Max

36

The WAEMU CET, to which Côte d’Ivoire is also subject, will have to be reduced in accordance with the figures in the following table: Table 10: Côte d’Ivoire tariffs after the application of the new modalities Current rates in %

New rates in %

1

5

3,35

2

10

6,70

3

20

13,40

This situation will create problems for the customs union. Normally WAEMU has observer status with the WTO but does not meet the conditions of article 24 of the GATT. In principle, WTO decisions override those of the union - a situation which was not foreseen by the WAEMU. The union treaty stipulates that member countries cannot have a trade agreement which runs counter to its own accords. Several conceivable solutions could manage this situation within the WAEMU: ●

●

the conditions of article 24 of GATT and thus move from observer status to becoming the representative of a regional group To these two possibilities must be added that the CET might be altered to take account of the new situation of Côte d’Ivoire. The reduction in tariffs in Côte d’Ivoire, in principle, will not affect imports to Burkina originating in Côte d’Ivoire. However, the same cannot be said for exports. Products from Burkina will now be in competition with products from

Côte d’Ivoire might use the special products mechanisms for those products for which trade distortion might be an issue;

outside the WAEMU. For example this will be

WAEMU might redouble its efforts to satisfy

erosion will accentuate this situation.

the case for meat, which could come from Latin America and the European Union. Preference



10

Abdoulaye Zonon — The implications for Burkina Faso of the July 2008 Draft Agricultural Modalities

Côte d’Ivoire is part of the G33, also known as the ‘friends of special products’, a coalition of developing countries that would like developing countries to be granted some flexibility by being allowed to open their agricultural markets only to a more limited degree. As such, it is among the countries which have proposed an SSM to which all developing countries would be able to have recourse. Meanwhile, since non-LDCs do not benefit from the “Everything But Arms” initiative of the EU that was established after the end of the ACP/EU accords, Côte d’Ivoire has had to sign an interim EPA with the EU. A list of “sensitive products”13 was attached to the Accord: Table 11 lists the main elements of this. The special products which Côte d’Ivoire will choose will have to include at least the items in this list, to which must be added certain products traded with the rest of the world. With these conditions, the erosion of preferences will be less marked for Burkina’s exports to Côte d’Ivoire, which are

made up primarily of livestock, poultry and fruits and vegetables. It is important to nuance this analysis to some extent, however, as the options set out in the new text present some important restrictions on the use of the SSM in developing countries. The additional safeguard duty which these countries can apply is only an additional duty of 15 percent above the bound rate established in the Doha Round, or 15 points ad valorem above the bound rate established in the Uruguay Round, and only for 2 to 6 products for a given period. Since the bound rates14 of Côte d’Ivoire are not high, even if this additional safeguard duty is taken into consideration, the rate will not be high enough to protect the country from the import of certain products. Until now, it is the additional tax on imported meats which has limited imports. What will happen if a member country challenges these taxes at the WTO? They will probably have little chance of surviving.

Table 11 : List of possible special products of Côte d’Ivoire Current tariff

Reduced tariff

Rice 100610

5

3,5

100620, 100630, 100640,

10

6,7

20

13,4

20

13,4

5

3,5

Bananas 080300 Manioc 071410, 071490 Corn 100510, 100590 170111

10

6,7

110220, 170112, 170191, 170199

20

13,4

Oils and Fats 150300, 150500, 150510, 150590

5

3,5

150100, 150200, 150410, 150420, 150430, 150600, 150710, 150810, 150910, 151000, 151110, 151190, 151211, 151221, 151311, 51321, 151410, 151411, 151419, 151511, 151521, 151530, 151540, 151550, 151560, 151590, 151620

10

6,7

150790

20

13,4

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150890,150990, 151219, 151229, 151319, 151329, 151490, 151491,151499, 151519, 151529, 151610, 151710, 151790, 151800

20

13,4

170111

10

6,7

170112, 170191, 170199

20

13,4

070110

5

3,5

070190, 070200, 070310, 070320, 070390, 070610, 070700, 070990

20

13,4

020110, 020120, 020130, 020210, 020220, 020230, 020311, 020312,020319, 020321, 20 020322, 020329, 020410, 020421, 020422, 020423, 020430, 020441, 020442, 020443, 020450, 020500, 020610, 020621, 020622, 020629, 020630, 020641, 020649, 020680, 020690, 020711, 020712, 020713, 020714, 020724, 020725, 020726, 020727, 020732, 020733, 020734, 020735, 020736, 020810, 020820, 020830, 020840,020850, 020890

13,4

Sugar

Vegetables

Meat

Milk 040210, 040221, 040229, 040390,

5

3,5

040110, 040120, 040130, 040291, 040299, 040310

20

13,4

Cocoa 180100

5

3,5

180200, 180310, 180320, 180400,

10

6,7

180500, 180610, 180620, 180631, 180632, 180690

20

13,4

20

13,4

5

3,5

Coffee 090111, 090112, 090121, 090122, 090190 Peanuts 120210,120220 Juice 200911, 200912, 200919, 200920, 200921, 200929, 200930, 200931, 200939, 200940, 20 200941, 200949, 200950

13,4

beverages 220110, 220190, 220210, 220290, 220300

20

13,4

2.4  Implications of special products, sensitive products and tropical products and preference erosion Exports from Burkina being concentrated on one single product, cotton, Burkina will not be really affected by the reduction of preferences for this product. But exports of green beans and mangos may be affected by preference erosion. The major export market for these products is the European Union, and Burkina’s competitors do not benefit from free entry on the European market. The new modalities of the text will increase the competitiveness of these countries. It affects India which alone has nearly 46 percent of world production of mangos, China (12.8 percent), Mexico (6 percent) and Thailand (5.4 percent). For green beans, China, Indonesia and India are affected.

Burkina is in the process of making major investments in irrigation which should improve the production of fruits and vegetables which are largely intended for the European markets. Preference erosion from the country on the European market might affect this initiative. In 2005, Burkina was selected to join the African Growth and Opportunities Act (AGOA) by the US. This offer allows Burkina’s exports duty-free access to the American market. So far, Burkina has not exported any agricultural products to this market. However, by signing the accord, Burkina hopes to export to the US products such as fresh or frozen beans, fresh or dried mahogany beans, sesame, cotton seed, cotton seed oil, sheep and

11

12

Abdoulaye Zonon — The implications for Burkina Faso of the July 2008 Draft Agricultural Modalities

lamb skins, goat and kid skins, wooden carvings, cotton, shea and shea butter. It is hard to speak of preference erosion on exports from Burkina to the US insofar as there is

practically no export from Burkina to this market. This is mostly due to the weak marketing of these export products. So far, other than cotton, the country does not have an effective strategy to promote exports.

2.5  The impact of the draft text on Burkina’s major exports The major products exported from Burkina are listed in Table 12. Table 12: Main exports from Burkina Products

Portion of exports

Impact of new text

Cotton

63,64%

Will gain from price increase due to reduction in American subsidies

Live animals

6.66%

Exported mainly to Côte d’Ivoire and neighboring coastal countries, risk of losing competitiveness to its main buyer (Côte d’Ivoire) due to preference erosion

Leathers and skins

5.68%

Possibility of diversifying export markets

Shea

4.45%

Neutral impact

Cereals

4.07%

Mainly traded in sub-region; neutral effect

Sesame

2.03%

Increase in competitiveness in Asian markets due to lower tariffs

Peanuts

1.50%

Neutral impact

Meats and [giblets]

0.75%

Preference erosion in Côte d’Ivoire market

Fruits and vegetables (beans, mangos)

0.66%

Preference erosion in European markets

Source : Burkina Ministry of Economy

The new text will probably have impacts on a large number of these products. Cotton, which is the main export crop of Burkina, will eventually gain from a slight rise in price which will follow the accelerated reduction of American and European subsidies. The efficient management of cotton production by the Burkina cotton producers will generate significant increases in production if the prices are remunerative. Besides, the elasticity in cotton production compared to price is high (between 0.4 and 0.8). Livestock exports, which are mainly to Côte d’Ivoire and Ghana, will probably have to compete with animal products from Latin America. The tariff reductions by these countries will encourage the import of meat which will be relatively less expensive than to date. This preference reduction will also affect meat. In 2003, three years after the application of the Common External Tariff, imports of poultry to

Côte d’Ivoire from the European Union grew 442 percent, from 2 838 tonnes to 15 391 tonnes (Table 12). Such imports are detrimental to local production, but also to imports from Burkina. However, in comparison to frozen products, meats from Sahel are considered better tasting and benefit from a price for prime quality. In 2003, a kilo of imported meat in Abidjan sold for 1200 FCFA (1.83€) while local meat from the Sahel was 1600 to 1800 FCFA (2.44 to 2.74€). In 2005, Côte d’Ivoire officials responded to this loss in competition from massive imports in low cost meat and poultry. To help the national poultry industry, they instituted an import tax on meat and poultry. This tax of 700 FCFA per kilo of imported meat was imposed on all meat imported by non-members of the Economic Community of West African States (ECOWAS). The current customs duty for these products is 20 percent and, with the new Falconer modality, will move to 13.4 percent.

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Table 13: Production of meat and poultry in Côte d’Ivoire and imports from 2000 to 2003 Years

2000

2001

2002

2003

Production (in tonnes)

12 360

13 240

10 000

7 500

Imports in tonnes

2838

2152

5676

15 391

Source : Annual report of the activities of the Ministry of Agriculture and Animal Resources 2004

examination of trade in Côte d’Ivoire (the last

Such a decision, even if it does not conform to the WTO (equal treatment) prevents the loss of preferences for meat from Burkina which will continue to benefit from competitive prices.

report dates from 1995) will eventually put the tax on non-ECOWAS meats in debate and lead to its elimination. If this happens, meat exports from countries such as Burkina will be in

Furthermore meat exports from Burkina to countries on the coast have been increasing steadily since 2003 (Figure 1). However, an

difficulty, unless Côte d’Ivoire includes meats in its special products, which is likely.

Figure 1 : Exports of meat and poultry from Burkina (in equivalent tonnes of meat) 70000 60000 50000 40000 30000 20000 10000 0 1998

1999

2000

Poultry

2001

2002

Beef

2003

2004

2005

S h e e p /G o a t s

2006

2007

Total

Source : Automatic forecast process (Ministry of Economy and Finance)

Leather and skins are mainly sold into the EU and are already duty-free. Their situation will not change much with the new text. However, the reduction in tariffs in other importing countries may allow a diversification of export markets. Shea is exported mostly to Europe, and with the AGOA it is likely that it will also be exported to the US. Burkina and its main competitor countries benefit from preferential access in these different markets. A priori, the new text will not imply great changes for Burkina.

Sesame from Burkina is exported to the European Union and Asia (Middle East, Japan and India). Tariff reductions for the latter will increase the competitiveness of Burkina’s sesame. Cereals (sorghum, millet and corn) are exported by Burkina to the sub-region (Mali and Niger). Nothing in the new text affects this trade. Peanuts, which are also sold in the sub-region, will similarly remain unaffected. Fruits and vegetables, mainly green beans and mangos, are exported largely to the European

13

14

Abdoulaye Zonon — The implications for Burkina Faso of the July 2008 Draft Agricultural Modalities

Union. There is a risk of preference erosion since the primary competitors for Burkina (India, China) do not have preferential access to the

European market. They will now have lower customs duties although their products are already more competitive.

2.6  Impact  of the special agricultural safeguard (SSG), special safeguard mechanism (SSM), sensitive products and special products on Burkina’s exports. The requirements which limit recourse to sensitive products as well as to the safeguard mechanism might give some assurance to Burkina, which for the moment is working to target the tropical product markets of developed countries and some developing countries. However, for the moment, Burkina does not export much except cotton. Moreover, the

country’s exports are only 8 percent of GDP compared to 25 percent for the countries of the subregion. The Government is aware of this situation and is putting in place measures which will encourage the production of exportable products by an improved organization of the industry and the creation of new industries, especially ones for tropical fruits.

2.7 Implications of options for the Special Safeguard Mechanism For now, Burkina has not decided to have recourse to a safeguard mechanism, although in a number of cases it would have had the right to do so. Burkina is amongst those countries which have access to the special safeguard under the Agreement on Agriculture (SSG)15 . According to a study by the FAO, Burkina could have invoked the right almost 50 times between 1984 and 2000; these cases correspond to a sudden influx16 of imported food products. The special safeguard mechanism now supports Burkina in its claims. Given development in some sectors, it is probable that Burkina will try to

protect itself against certain imports. Already, within the framework of the EPA - where an almost total liberalisation of trade between Burkina and the European Union is anticipated, with the exception of “sensitive products” - pressure is building for the government to eventually use these mechanisms for certain products which were not selected to be included in the list of sensitive products. Two

product

groups

could

be

immediate

candidates for the special safeguard mechanism: dairy products, and meat (especially poultry).

2.7.1  Milk Burkina has a large dairy herd estimated in 2002 at 1.6 million head with a total production of 167 000 tonnes of milk. For a long time this local milk was not exploited commercially and was consumed locally (85 percent). Milk consumption in the cities was mostly from imports, which reached 14 000 tonnes in 2002. In recent years, there has been an important development in local milk marketing groups with

the creation of mini dairies throughout the country. These dairies offer a product which replaces the dairy products imported mainly from the EU, so that there was a significant drop in dairy imports between 1999 and 2002 (Figure 2). These dairies have an important potential because currently it is estimated that only 15 percent of the milk from this huge dairy herd is marketed. Local milk has to face strong competition from imported milk: the cost price of this reconstituted milk is 200 FCFA

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per litre while milk delivered to the dairy cost 300 to 325 FCFA. It is estimated that imported milk products to Burkina were subsidized to a minimum amount of 470 FCFA per kilo in 2002– 2003, a subsidy equivalent to 30 percent of the value of a kilo of the product imported in 25 kilo bags. Between 2000 and 2007, before the price explosion in 2008, the price of dairy products was dropping. This situation threatens the milk sector, which has a significant potential. The tariff protection of the CET is only 5 percent for most dairy products and is considered insufficient

by the industry players. They propose classifying milk in the top band, which would mean a 20 percent tariff. Concentrated milk is already in this level; the imposition of an excise tax on this milk should resolve the question of competition for local milk. With the support of the government, a major program of milk production is under way, in addition to existing initiatives. Burkina has therefore an overriding interest in protecting this sector.

Table 14 : Evolution of prices in FCFA per unit 2003

2007

2008

Variation 2003-2007 (%)

Variation 2007-2008 (%)

Powdered milk (25 kg bag)

8074

8203

10111

1,60

23,30

Local live chickens

1037

1263

1504

21,80

19,10

Sweetened yogurt (jar)

175

175

200

-2,80

14,30

Fresh beef (kg)

777

1011

1110

30,10

9,80

Fresh mutton (kg)

996

1401

1439

40,70

2,70

Sweetened concentrated milk (1kg can)

1233

1100

1233

-10,80

12,10

17

Source : Institut national de la statistique et de la démographie (INSD)

Figure 2 : Development of dairy imports to Burkina (in $US) Dairy Products 25 000 000 20 000 000 15 000 000 10 000 000 5 000 000 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Source : FAO stat

15

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Abdoulaye Zonon — The implications for Burkina Faso of the July 2008 Draft Agricultural Modalities

2.7.2  Meat Burkina has a significant livestock sector: cattle are estimated in 2007 at about 8 million head, goats and sheep at 19 million. Poultry for the same period is about 35 million birds. The productivity of this sector is poor, while demand is constantly rising. Production is not following the same trend, leading to rising prices. For poultry, the situation is worsened by the systematic slaughter organised in the wake of the avian flu epidemic. Between 2003 and 2007, the price of poultry, beef and veal, and mutton and lamb rose respectively by 21.8 percent, 30.1 percent and 40.7 percent (Table 14). These various increases were continued in 2008, and for poultry an increase of 19.1 percent was recorded between February 2007 and February 2008, making a total increase of 45 percent.

2003 following meat seizures. Table 15 indicates that between 2002 and 2003 meat imports fell 89 percent. The reaction of the government was motivated by the need to protect farmers for whom raising poultry constituted their main source of income. If these imports had continued the entire industry would have been in danger, because low income households tended to buy this meat at 350 FCFA per kilo versus 1150 FCFA per kilo of local poultry meat. In the long term, if the imports had continued the poultry industry would have been destabilised, since middle class households were beginning to prefer frozen birds. The continuing rise in price does not protect the industry from competition with frozen European meats.

Faced with this situation, importers tried to bring in frozen poultry from Europe but the government vigorously opposed this move. Also, the import of cheap cuts stopped officially in

It is highly likely that in these conditions meat in general will become a protected area through the safeguard mechanism.

Table 15 : Development of meat imports ($US) 1996

1997

1998

1999

2000

2001

2002

2003

2004

Duck

0

3000

0

0

2000

1000

0

0

0

Turkey

2000

1000

13440

1000

0

4000

17000

0

0

Other fowl

3000

1000

13440

24000

0

1000

2000

2000

12000

Total

5000

5000

26880

25000

2000

6000

19000

2000

12000

Source: FAO stat

2.8  Impact of quota restrictions on Burkina’s exports The only major market for Burkina which applies tariffs is China, for which Burkina has become the third largest supplier after the US and Uzbekistan. Quota reductions

and their implications will not have much impact on Burkina because Burkina’s cotton is sold there under the lowest tariff, 1 percent.

ICTSD Programme on Agricultural Trade and Sustainable Development

3. Export competition 3.1  Export subsidies and the structure of Burkina’s imports Burkina’s export structure is highly concentrated, with cotton representing 63.64 percent of total farm exports. This is far ahead of the second most significant agricultural export, animal products, which represent 6.64 percent. As noted above, existing subsidies have been almost completely abolished with Structural Adjustment Programmes (SAPs). Loans available for agriculture are also low. The same situation applies for support structures for exporters. The National Office of External Trade (NOET), which

before the SAPs was partially financed by the volume of external trade, does not have a large enough budget to finance activity to promote export trade. With these considerations, it may be said that in the short term, and even in the medium term, it will be difficult to change this structure, no matter what changes are made in export subsidies. Cotton will continue to be the country’s largest export by far.

3.2 Export companies With the Structural Adjustment Programmes, all state marketing boards were dismantled. Export boards for raw products (shea nuts, peanuts) and import boards for food products were eliminated. The result is that today Burkina has practically no state marketing boards. The cotton export boards were also gradually privatised. This process has left three cotton companies with a minority government share in ownership. In 2007, all three of these companies reported large losses and were on the edge of bankruptcy because their cumulative losses exceeded their capital resources. Due to the importance of the cotton industry to the country, the government had to rescue the ailing firms. Faced with the challenges associated with a drop in global cotton prices and a rise in input costs, the government, with the aid of donors, took measures to protect producers and avoid a collapse of the industry. These actions included:

●

State underwriting to increase the capital of the cotton companies by US$26.75 million;

●

State underwriting to divide parts of DAGRIS (majority shareholder now retired) of US$26 million;

●

Financial aid by the State to producers to allow them to participate in the recapitalisation to the amount of US$27.8 million;

●

Guarantee of US$111 million given by the state to banks for the discharge of credit arrears for the season;

●

Special subsidy of US$6.6 million to assist with the cost of fertilizer transportation.

In sum the Government injected $198 million into the cotton sector in 2007. It must be noted that this State intervention is intermittent, and over a number of years farmers waited in vain for State input subsidies.

3.3 Export competition and cotton Annex J of the draft text shows which forms of export subsidies are unacceptable: “These export credits, export credit guarantees and insurance programs (hereinafter referred to as “export financing support”) shall comprise:

a. direct financing support, comprising direct credits/financing, refinancing, and interest rate support; b. risk cover, comprising export credit insurance or reinsurance and export credit guarantees;

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18

Abdoulaye Zonon — The implications for Burkina Faso of the July 2008 Draft Agricultural Modalities

c.

government-to-government credit agreements covering the imports of agricultural products from the creditor country under which some or all of the risk is undertaken by the government of the exporting country; and

d. any other form of governmental export credit support, direct or indirect, including deferred invoicing and foreign exchange risk hedging.” This way of considering export subsidies does not take account of domestic subsidies for products which will be exported. Once these subsidies benefit exports, it seems logical to consider any

domestic support to an exported product as an export subsidy. However, the new draft text does not go this far. It is noteworthy in this respect that one of the arguments which the US used before the Dispute Settlement Body in the case brought by Brazil was that American exports was falling as a share of total world exports, and therefore it was not fair to say that US exports caused a drop in world prices. Tables 6 and 7, which analyze this question, show that for cotton, these types of subsidies are important not only for the US but also for the EU. It will certainly have a negative impact on prices.

3.4 Food aid As a country in the Sahel with irregular rainfall and low water supply, Burkina faces recurrent food problems. In almost one year out of every five, harvests are poor and the Government has

to ask for food aid. The following table gives the value of food aid in $US from 2000 to 2005. Over this period the average value of food aid given was $2.3 million.

Table 16: Food aid received by Burkina (in million $US) Food aid

2000

2001

2002

2003

2004

2005

6235

4324

2238

1953

1946

3327

Source : Burkina Ministry of Economy and Finance 2003 et 2005

To manage the food aid efficiently, the Government established a National Council of Food Security (NCFS) to supervise setting up a strategy for food security. A Support Fund for Food Security (FASA) was also established. This allows Burkina to establish a food supply of 35 000 tonnes of local cereals, from a financial fund representing an exchange value of 25 000 tonnes of cereals and an emergency supply entirely financed by the government. Annually, the volume of food aid is an average of about 49 000 tonnes and emergency aid is estimated at 4000 tonnes per year. About 80 percent of food aid received by the country is as cereal products, primarily imports. However Burkina’s authorities have often wanted to procure food products on the domestic market or in the sub-region, but only 17 percent of the products are local. This situation often creates

perverse effects. For example, in 2003, 1000 tonnes of dates delivered as aid from Saudi Arabia to people returning from Côte d’Ivoire were traded in the south and southwest regions for millet, sorghum or corn. This aid would have been more useful if the Saudis had bought cereals directly on the local market for redistribution. When there is a food problem, the National Society for the Management of Food Security Stocks (SONAGESS) - which is responsible for national security supplies and food aid as well as the management of information on agricultural markets - releases cereal supplies at supported prices for the zones affected. For example, in 2008, 11000 tonnes of cereals were supplied to affected zones at a supported price of $21 US (9 000 FCFA) per 100kg bag compared to a market price which is often $47 US (20 000 FCFA).

ICTSD Programme on Agricultural Trade and Sustainable Development

According to the new Falconer text, “the monetization of food aid in kind will be prohibited except when it is necessary to finance internal transportation and delivery of the food aid...”18. To date, in practice food aid has been mostly sold at lower than market prices. There has been very little direct distribution of food aid. This is explained by the fact that there is no

effective policy to identify the individuals who are in need of food. The risk of fraud is also high in distribution directly to communities. Also, in recent years many local officials have been charged in proven food aid corruption cases. It would not be realistic to exclude the monetisation of food aid, since this allows equality of access to food aid.

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Abdoulaye Zonon — The implications for Burkina Faso of the July 2008 Draft Agricultural Modalities

Conclusion The Falconer draft text on agriculture is a step forward in agricultural negotiations. Burkina, as the largest exporter of cotton in Africa, will gain from this text insofar as cotton is treated in a specific manner in accordance with the positions which Burkina has taken as a member of the C4. Cotton is a national issue in Burkina, unleashing energy and also strong emotions. The rise in prices that can be expected from the reduction of American subsidies as presented in the draft text will probably be slight, especially as the reduction concerns only a small part of American subsidies. Burkina also exports fruits and vegetables to European countries where they benefit from duty-free status. The general reduction in developed country tariffs will result in more products becoming more competitive. It is likely that there will be some erosion of preferences for Burkina’s products. However, this situation will not affect Burkina significantly since to date the export of these products is marginal. Burkina has not notified support to the WTO for the good reason that, since the implementation of structural adjustment programmes, all subsidies have been dismantled. Nevertheless, subsidies have been offered on an ad hoc basis to farmers and the cotton industry that are bankrupt because of the fall in prices in CFA francs. The new text provides a basis for assisting producers in a more predictable manner. Côte d’Ivoire, which is the only non-LDC in the WAEMU and Burkina’s main trading partner in the sub-region, will be required to reduce its customs duties by the new text. This creates, on the one hand, a problem for WAEMU which has a common external tariff (CET) and on the other, will cause problems for Burkina’s exports to Côte d’Ivoire. Firstly, a reform of the CET must be considered to safeguard the unity of the sub-region. People are prepared for this eventuality, especially because

within the ECOWAS group a proposed fifth band is under consideration so as to protect local products more effectively. Secondly, it is feared there will be a loss of preferences for Burkina’s exports to Côte d’Ivoire. This is especially an issue for livestock (cattle, sheep, goats and poultry), which must compete with products imported from the EU and Latin America which are significantly cheaper even though Burkina’s products are of higher quality. For the moment, Burkina does not have recourse to any safeguard mechanism. The special safeguard mechanism currently offers this possibility. It is now likely that, given the development of certain sectors, Burkina will try to protect itself from imports of certain products, particularly subsidised milk and meat from the European Union. With the Structural Adjustment Programmes, all state marketing boards have been dismantled. Export boards for raw products (shea nuts, peanuts) and import boards for food products have been dismantled. As a result, Burkina has practically no state boards involved in marketing products. The new draft text will not change the situation in Burkina even if it does provide some relief to the government in its efforts to support the cotton sector, which is experiencing a major crisis. Faced with climatic difficulties and low food production, Burkina has often needed food aid. An organised system is in place to manage this food aid. To date, most food aid has been sold in affected areas at reduced prices. The new draft text only allows food aid to be monetised in exceptional circumstances. However, monetisation of aid allows a better distribution of aid by avoiding partisan bias when the aid is shared out.

ICTSD Programme on Agricultural Trade and Sustainable Development

ENDNOTES 1.

http://farm.ewg.org/farm/region.php?fips=00000

2.

http://www.rma.usda.gov/data/sob.html;

3.

http://www.cotton.org/econ/world/detail.cfm?year=1999

4.

http://www.gao.gov/new.items/d07944t.pdf;

5.

http://www.oecd.org/document/55/0,2340,fr_2649_33775_36956855_1_1_1_1,00.html

6.

http://www.ers.usda.gov/Publications/AgOutlook/AOTables/;  http://www.nationalaglawcenter.org/assets/crs/RL33697.pdf.

7.

Berthelot had previously defended these ideas in “L’Agriculture, talon d’Achille de la mondialisation”, L’Harmattan, Paris, 2001.

8. Dumping is defined in the General Agreement on Tariffs and Trade (GATT) of the WTO as the export of a product at a price which is less than domestic market price, not production cost. 9. Option under Article 13 of the WTO Agreement on Agriculture which provides that agricultural subsidies applied under the agreement may not be contested under another WTO agreement, in particular, agreements on subsidies and the General Agreement on Tariffs and Trade. 10 This book is based on the report to Congress by the authors in 2006 (Randy Schnepf and Jasper Womach, Potential Challenges to U.S. Farm Subsidies in the WTO, CRS Report for Congress, October 25, 2006, http://www.nationalaglawcenter.org/assets/crs/RL33697.pdf) 11. 

US subsidies to Upland cotton exporters

12.

See: http://cottonusa.files.cms-plus.com/economicData/CWS-yearbook-12-10-2007.pdf

13.

“Sensitive products” here are products excluded from liberalisation. This definition does not correspond to the definition for sensitive products within the WTO framework.

14. For most agricultural products, the maximum bound rate of Côte d’Ivoire is around 15 percent. 15. The right to apply the SSM is reserved to the 38 WTO Members (22 are developing countries) who have applied tarification (the process of converting non-tariff barriers into customs duties during the Uruguay Round) for a limited number of products. 16.

 sudden increase is defined as an increase of 20 percent in imports (by volume) compared A to the five-year rolling average.

17. A local chicken carcase weighs 0.9 kg 18.

TN/AG/W/4/Rev.3 (ANNEX L , paragraph 12)

19.

TN/AG/W/4/Rev.3 (ANNEX L , paragraph 12)

21

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Abdoulaye Zonon — The implications for Burkina Faso of the July 2008 Draft Agricultural Modalities

Bibliography Berthelot Jacques (2008) Le coton dans le Projet Révisé de modalités agricoles du 10 juillet 2008, Solidarité, disponible à < http://www.solidarite.asso.fr/home/textes2008fras.htm > Berthelot Jacques (2001) L’Agriculture, talon d’Achille de la mondialisation, L’Harmattan, Paris. Catherine Araujo Bonjean, Stéphane Calipel et Fousseini Traoré (2006) L’impact des aides américaines et européennes sur le marché du coton CERDI. Comité Catholique contre la Faim et pour le Développement/Syfia International (2004) Enquête : Impact des importations de volailles en Afrique de l’Ouest David Blandford, David Laborde et Will Martin (2008) Implications of the February 2008 WTO Draft Agricultural Modalities for the United States, ICDST FAO (2005) Un mécanisme de sauvegarde spéciale pour les pays en développement, Document technique de la FAO sur les politiques commerciales relatives aux négociations de l’OMC sur l’agriculture No. 9. disponible à FAPRI (2002), The Doha Round of the World Trade Organization: appraising further liberalization of agricultural markets, Working Paper 02-WP 317, Food and Agricultural Policy Research Institute, Iowa State University and University of Missouri-Colombia, Iowa and Missouri, USA Goreux Louis (2003) Prejudice caused by industrialised countries subsidies to cotton sectors in Western and Central Africa. Genève : OMC, Goreux Louis (2006), Prix Plancher et Fonds de Lissage, Réussite, inquiétudes et objectifs Association Interprofessionnelle du Coton du Burkina Groupe AGECO/l’Agence canadienne de développement international (ACDI) (2006) Analyse de la problématique de l’importation de la poudre de lait au Burkina Faso et de son effet sur le développement de la filière lait Institut National de la Statistique et de la Démographie (2006). Annuaire statistique, INSD Sumner Daniel A., Buck Frank H., Jr. (2007).US Farm Bill Subsidies and World Commodity Markets. International Food & Agricultural Trade Policy Council Farm Bill Series N° 2, Jean-Pierre Chiaradia-Bousquet et Laurence Morel-Chevillet (1996). Cadre Juridique de la Sécurité Alimentaire. Étude FAO Législative - 59 Jussara Braz (2004). Panorama du marché international de la mangue : cas de la filière d’exportation du Brésil, Série Master of Science n°68, l’Institut Agronomique Méditerranéen de Montpellier. Ministère de l’économie et des finances (2005). Rapport sur la coopération au développement 2005, MEF. ODI (2004), Understanding the impact of cotton subsidies on developing countries and poor people in those countries, London, England, ODI. Organisation Mondiale du Commerce (2004) Examen Des Politiques Commerciales Error! Unknown document property name. Rapport du Secrétariat Error! Unknown document property name.2 Poonyth et al. (2004), The impacts of domestic and trade policies on the world cotton market, Commodity and Trade Policy Research Working Paper, N° 8, Rome, FAO. Premier Ministère (2007) Discours sur la situation de la Nation de Son Excellence Monsieur Tertius Zongo, Premier Ministre, Chef Du Gouvernement, Reeves G., Vincent D., Quirke D. and Wyatt S. (2001), Trade distortions and cotton markets: implications for global cotton producers, Cotton Research and Development Corporation, Centre for International Economics, Camberra, Australia.

ICTSD Programme on Agricultural Trade and Sustainable Development

Réunion des Ministres du Commerce des PMA (2008) Déclaration de Maseru, Maseru, Lesotho 27-29 février 2008 Pan Suwen, Samarendu Mohanty, Don Ethridge, and Mohamadou Fadiga (2004) The Impacts of U.S. Cotton Programs on the World Market: An Analysis of Brazilian WTO Petition Working Paper, Texas Tech University, USA Schnepf Randy, Jasper Womach (2008) Potential Challenges to U. S. Farm Subsidies in the WTO Publisher: Nova Science Publishers, Incorporated Schnepf Randy (2008) Brazil’s and Canada’s WTO Cases Against U.S. Agricultural Support, Congressional Research Service Report for Congress, Order Code RL34351 Tidiane Ngaido (2006) Quelles politiques pour le développement agricole? Dialogue avec les parlementaires: Mettre l’accent sur l’agriculture et la science pour le développement, International Food Policy Research Institute (IFPRI) Tokarick, S. (2003), ‘‘Measuring the impact of distortions in agricultural trade in partial and general equilibrium’’, IMF WP/03/110, Washington, DC, USA. Zonon Abdoulaye, Pousga Kaboré, Ismaël Konate, Didier Zoungrana, Rapport détermination des produits sensibles du Burkina, Communauté Economique Des Etats de l’Afrique de l’Ouest (CEDEAO).

23

ICTSD’s Programme on Agricultural Trade and Sustainable Development aims to promote food security, equity and environmental sustainability in agricultural trade. Publications include: •

Implications for Brazil of the July 2008 Draft Agricultural Modalities, by Andre Nassar, Cinthia Cabral da Costa, Luciane Chiodi, September 2008

•

Implications for Japan of the July 2008 Draft Agricultural Modalities, by Kazuhito Yamashita, September 2008

•

Implications for Mauritius of the July 2008 Draft Agricultural Modalities, by Gowreeshankursing Rajpati, September 2008

•

Implications of the Agriculture Chair’s Draft Modalities for the Treatment of Special Products, Maria Dolores Bernabe, June 2008

•

An Overview Assessment of the Revised Draft WTO Modalities for Agriculture. By Mike Gifford and Raul Montemayor, June 2008.

•

Implications for the European Union of the May 2008 Draft Agricultural Modalities. By Sébastien Jean, Tim Josling and David Laborde, June 2008

•

Implications for the United States of the May 2008 Draft Agricultural Modalities By David Blandford, David Laborde and Will Martin, June 2008

•

Implications for India of the May 2008 Draft Agricultural Modalities, Munisamy Gopinath and David Laborde, June 2008

•

Tropical and Diversification Products Strategic Options for Developing Countries.



Issue Paper No. 11 by Santiago Perry, 2008.

•

Trade Effects of SPS and TBT Measures on Tropical and Diversification Products.



Issue Paper No. 12 by Anne-Célia Disdier, Belay Fekadu, Carlos Murillo and Sara A. Wong

•

How Will the May 2008 “Modalities” Text Affect Access to the Special Safeguard Mechanism, and the Effectiveness of Additional Safeguard Duties, by Raul Montemayor, June 2008. Issue Paper No.15

•

Implications of the July 2008 Draft Agricultural Modalities for Sensitive Products. By Ariel Ibañez, María Marta Rebizo and Agustín Tejeda, ICTSD Issue Paper No 16

For further information, visit www.ictsd.org. ABOUT ICTSD Founded in 1996, the International Centre for Trade and Sustainable Development (ICTSD) is an independent non-profit and non-governmental organization based in Geneva. By empowering stakeholders in trade policy through information, networking, dialogue, well-targeted research and capacity building, the centre aims to influence the international trade system such that it advances the goal of sustainable development.