Factsheet 9: Who Benefits from the Agreement on Agriculture?

Developing countries are generally presented as a single group of countries who lose out under the Agreement on Agriculture (AoA). In reality, they are not all equal before the effects of this Agreement. Brazil, Uganda, Thailand, Benin, Vietnam, Mali… They are all developing countries but they are far from being all losers.

FEW EXPORT OPPORTUNITIES FOR AFRICAN COUNTRIES

Difficult Access to the Markets of Developed Countries

The Agreement on Agriculture (AoA), which aims to regulate the levels of support given to producers and levels of protection in developed countries, is supposed to provide numerous developing countries with export opportunities. In reality, international market conditions have barely changed for African countries as domestic support and tariff protections for agriculture diminished in developed countries.

Domestic Support Still High in Developed Countries

Overall levels of producer support in developed countries have even risen through increased use of the support measures allowed under the Agreement that offset the reduction of support deemed harmful to free trade (see factsheet 3). Whereas developing countries already have practically no agriculture support measures in place, developed countries, for their part, only reduce those deemed harmful in the Agreement while maintaining other forms of support. Moreover, this reduction is done at the overall level, and developed countries may increase their levels of support for certain sensitive products, which very frequently are the products whose export is of interest for developing countries.

Customs Duties Still High in Developed Countries

Even after they have been reduced in compliance with the Agreement, average customs tariffs on agricultural products remain very high in developed countries compared to those in place in developing countries. The conversion of non-tariff barriers into tariff barriers can, ultimately, lead to the establishment of higher levels of protection than previously. Furthermore, even with an average cut of 36% as desired by the Agreement, developed countries’ customs tariffs remain high because their initial levels were high, notably on certain products potentially of interest for developing countries (meat, sugar, etc.).

Tariff peaks (in other words, much higher than average customs tariffs) are still applied to numerous staple foods, fruits and vegetables. In 1999, despite the reduction of customs tariffs, Japan taxed rice imports at a rate of 550% and milk products at 370%; the EU taxed frozen beef and grape juice at 215%.

Tariff Escalation, an Obstacle to Trade for Processed Products

Tariff escalationTariff escalation is the increase in tariffs with the degree of processing a product undergoes (for example, low duties on tomatoes and high duties on tomato paste). is one of the obstacles to the diversification of developing countries‘ exports towards processed products.

This escalation is frequent in numerous commodity chains of particular interest for developing countries: coffee, cocoa, oilseeds, and animal products such as hides and skins. For instance, Japan does not tax cocoa beans, but imposes a 5% customs duty on defatted cocoa paste, and a 29.8% customs duty on sweetened cocoa powder. Today, most developing countries’ exports are still concentrated in primary commodities. However, it should be emphasised that ACP countries’ exports to the European market are not concerned by this because of the tariff preferences negotiated with the EU in the framework of the Lomé and Cotonou Agreements (see factsheet 8).

Tariff Rate Quotas

In order to improve market access for developing countries’ exports of products still subject to customs duties, the AoA provides for tariff rate quotas (TRQs) (see factsheet 3). For instance, in 1999, the EU established a tariff rate quota of 2 million tons of maize at a price of 24.45 euros per ton for developing countries, whereas the most favoured nation (MFN) rate for WTO member countries was 48.45 euros per ton. In reality, the TRQ practice has not necessarily improved market access for various reasons. The system is complex and re- quires bilateral negotiations. Its administration is so cumbersome that barely two thirds of the quotas have been fulfilled. Within the quotas, products are not exempt from duties. Finally, the quotas are country-specific.

The Standards Obstacle

The issue of quality and safety standards, which is closely linked to agricultural market access, was not sufficiently taken into account in the AoA. Developing countries are rarely represented in the decision-making bodies that set quality and safety standards, and they find it difficult to meet the standards issued, which are sometimes disguised protectionism on the part of developed countries (see factsheet 5).

The Persistent Practice of Dumping

Customs tariffs remain high in developed countries, whereas they are relatively low in developing countries. This situation, combined with large subsidies in developed countries, leads to the dumping of products on developing countries’ markets, with disastrous consequences for economies and local populations’ livelihoods.

The Special Safeguard Mechanism (see factsheet 3) that allows local production to be protected by authorising countries to levy additional taxes on products is only accessible to countries that have converted non-tariff barriers into customs duties. Yet, numerous developing countries are not in a position to use this procedure because they have nothing to convert since they have already eliminated their non-tariff barriers in the framework of the structural adjustment programmes imposed by the IMF and the World Bank. Among other things, these measures can only be applied temporarily and within a precisely limited customs tariff increase.

Because of this, dumping persists on the markets of developing countries, who lose:

The Effect of Dumping on Tomatoes in Ghana

In Ghana, tomatoes illustrate the negative impacts on local production of importing European products that receive production and export subsidies.

When the production of fresh tomatoes (in volume) is less than a defined amount, the EU provides direct aid to producers of 34.50 euros per ton to producers’ organisations that deliver their tomatoes for the production of paste. In addition, an export subsidy can be raised to “allow the export of economically significant quantities.”

Until the start of the 1980s, Ghana had dynamic tomato production and processing plants. In particular because of competition from inexpensive Italian tomato paste, these plants are closing their doors, eliminating hundreds of jobs. Tomato farmers, for their part, must sell their products on the roadside, at the price clients are willing to pay. Ghanaian tomatoes cannot withstand the omnipresence on local markets of Italian cans. Ghana, with imports exceeding 10,000 tons per year, has become the principal African importer of processed tomatoes.

This competition from Italian imports is not only linked to the liberalisation process within the WTO. As part of the structural adjustment programme in the 1980s and 1990s, local processing plants were sold with the aim of making the Ghanaian economy more efficient. Customs duties on imported products were also lowered under these programmes.

By acceding to the WTO in 1995, Ghana has continued to implement a particularly liberal foreign trade policy by further reducing customs duties and agreeing to not increase them again. Thus, the legal maximum rate of 25% was reduced to 20% in 2000. Compliance with AoA disciplines therefore continues to facilitate the penetration of Italian cans on Ghanaian markets. Inversely, the EU’s compliance with the rules has allowed it to reduce, but not eliminate, its production and export subsidies, enabling the development of sharp competition between Italian imports and Ghanaian tomato crops.

The Continued Drop in Commodities Prices

The AoA does not directly address the issue of falling commodities prices. Yet, 80% of African countries’ agricultural product exports are primary agricultural products. Implementation of the AoA was expected to raise commodities prices on international markets, but prices have yet to recover. The prices of numerous basic agricultural products have followed a downward trend that has led them to historically low levels, and this has been true since the end of the 1990s. Between 1997 and 2001, the price of coffee dropped by nearly 70%, falling below production cost in many countries. Cocoa prices followed an analogous trend, despite a short recovery in 2000 that lasted until prices began to fall again in 2003 when the supply was once again abundant. This reveals the limitations of trade liberalisation when it comes to maintaining prices, and undoubtedly the need to design and implement other mechanisms.

Developing Countries Are Not Equal on the World Market

Falling Protection Levels Benefit Agro-Exporters

Tariff reductions (even limited) mostly favour large agro-exporting developing countries, the majority of which are not in Africa. Customs duties on traditional African agricultural exports (cocoa, coffee, pineapple, etc.) were already relatively low in 1995. Tariff reductions on highly protected products--sugar, beef, cereals--clearly benefit Brazil. Moreover, tariff reductions at the multilateral level have led to an erosion of trade preference for African countries. This means that they are no longer the only countries to benefit from low customs duties on their exports. Customs duties have fallen for all countries on the EU’s and the United States’ markets, and African countries have “lost (in this way) their privileges” on these markets.

In all the African countries where the competitive advantage was based on preferential market access rather than on competitive production costs, the AoA brought about a reduction in market shares. Mauritius is one example of a country whose economy has been weakened by a sugar commodity chain that functioned on the basis of preferential access to the EU market.

Sugar in Mauritius: Competitiveness Based on Preferential Access to the European Market

Sugar cane is vital for the Mauritian economy: in 2004, it accounted for 19% of the country’s exports and 5% of its GDP. It also provides 60,000 direct jobs to salaried employees and small farmers.

As an ACP country, Mauritius has privileged access to the EU market in accordance with the Sugar Protocol in place for more than forty years. This protocol allows a certain number of sugar-exporting ACP countries to benefit from quotas on their exports to the EU. Each country has a quota and the quota volumes are revised annually. Within the limits of these quotas, sugar exports from ACP countries enter the European market free of customs duties. Furthermore, ACP exporting countries can sell at the domestic European price--a guaranteed price approximately three times higher than the world price. Therefore, in reality, sugar from ACP countries benefits from the same conditions as those granted to European sugar.

Out of twenty countries, Mauritius is the largest beneficiary of the Sugar Protocol, as it has the largest sugar export quota. In 2002-2003, Mauritius’ quota accounted for nearly 40% of the total quota (which is more than 1,300,000 tons).

The widespread reduction of customs duties in the framework of the WTO lessens the advantage Mauritius has with its access to the European market free of customs duties. Mauritius’ customs duty “privilege”--in other words, its trade preferences--is dwindling. In addition to this erosion of preferences, the reform of Europe’s Common Agricultural Policy (CAP) in the sugar sector plans to lower the domestic price of sugar in Europe by 36% over four years. A reform such as this has considerable consequences for economies that are heavily dependent on the Sugar Protocol, such as Mauritius. Under the Protocol, its export earnings are currently nearly 280 million euros, but they could drop to 178 million euros in 2009-2010.
Public Policies Make a Difference

The structural constraints internal to African countries prevent them from taking full advantage of new market access opportunities. Africa’s powerlessness to defend its position on the world market comes, in this way, from its inability to overcome these constraints and modernise its agricultural sector, combined with the fact that developed countries maintain a certain degree of protectionism via their subsidies, trade barriers, and non-trade barriers. In addition, African countries do most of their trade with non-African countries, notably imports from developed or emerging countries, and have insufficiently developed their regional African trade.

However, in other developing countries, primarily in Latin America and Asia, trade performances--especially in terms of world market share--have improved significantly in the framework of trade liberalisation. This is the case for Brazil, for example, which seems to be one of the major winners under the AoA even though, within this large agro-exporting country, the Agreement’s impact has been very different for the various actors involved in the agrifood industry and family farming.

Brazil, the Big Winner of free trade agreements


Brazil, the Big Winner

Some developing countries have benefited from the establishment of WTO and free trade agreements. While China has greatly benefited from the liberalisation of the textile trade, Brazil emerges as the big winner in the field of agriculture. Of course, in 2005, it was only ranked fourth place among world agricultural exporters, behind the EU, the United States and Canada. But these countries are losing market shares, while Brazilian exports are growing rapidly.
Share (in %) of world agricultural exports for the four largest world exporters:

Country

2000

2005

EU

10,1

9,9

United States

12,9

9,7

Canada

6,3

4,8

Brazil

2,8

4,1
Source WTO

This success--like, to a lesser extent, that of China (from 3.0% of world exports in 2000 to 3.4% in 2005) or Indonesia (1.4% to 1.7%), respectively ranked 5th and 10th worldwide--is due to a combination of factors.

First, Brazil’s size and its agricultural area are favourable factors. Next, and above all, this country has the potential to respond to the opening of developed countries’ markets by greatly increasing its production. Without paying out direct aid to Brazilian farmers, the government intervenes in favour of agriculture by providing inexpensive credit, considerable research and training, and modern infrastructures. In Brazil, high-performance agriculture focused on the conquest of foreign markets coexists with family farming (of medium size) and subsistence farming (on small farms). Supplier to developed countries, Brazil is also becoming one of the largest suppliers in Africa, for instance in poultry meat.

Other developing countries have increased their exports, but not as much. This is the case for Southeast Asian countries--Indonesia, Malaysia, Vietnam and Thailand, the largest exporters of rice and palm oil, notably on African markets.

Thailand, which unlike Brazil does not have the comparative advantage of being a large country, also emerges as a winner in regard to its position in international trade. The policies set up in this country explain its economic vitality.

Thailand, a Small Country but a Giant in World Trade

Despite its relatively small size, Thailand’s economy is one of the most dynamic in the world. Today, the country is ranked 8th among the world’s principal exporters of agricultural products, right behind China, Australia and Argentina. Its share of world agricultural exports grew from 1.2% in 1980 to 1.9% in 1990 and then 2.2% in 2000, before levelling off at 2.1% in 2005.

This position in world trade is based on public policies that are resolutely turned towards the outside. After first having focused on import substitutions, the country began to focus on exports starting in the 1970s. The policies set up sought to bring the level of incentives offered to exporting firms up to the level of the incentives offered to firms whose goods were destined for the domestic market. The country also received an inflow of foreign capital that, added to the high rate of domestic savings, allowed very high levels of investment. Thailand then also focused on regional development.

Finally, it must be emphasised that Thailand knows how to make good use of the room for manoeuvre that exists in the AoA to maintain its agricultural policies. It is one of the ten main countries that grant the most domestic support. Seven of these countries are members of the Organisation for Economic Co-operation and Development (OECD). The three largest are the EU, the United States and Japan, followed by Brazil and Cuba alongside Thailand. More than 60% of the support Thailand gives to its farmers consists of green box measures, that is to say measures considered by the WTO not to have a negative effect on trade and that can therefore be increased without restrictions. Thailand also subsidises its exports, by relying on the provisions in the AoA that authorise developing countries to grant subsidies to lower the marketing cost of exports and the cost of international transport and freight. It also uses export credits to sell its rice more easily. These credits provide importers of Thai rice with preferential credit conditions for their purchases.

It seems that the primary difference between the winners and losers, when it comes to exports on the world market, is countries’ ability to exploit the flexibilities in and provisions of the AoA. In the African context characterised by weak infrastructures, liberalisation alone cannot have satisfactory results. High transport costs, inefficient logistical services for international trade, and weak export support services eat away at numerous African economies’ export capacities.



Tanzania, a Losing Country

With the exception of a few products, all of Tanzania’s exports enter Europe free of customs duties and quotas, in compliance with the “Everything But Arms” initiative established by the EU in February 2001. Despite this, Tanzania has not taken full advantage of this favourable trade regime. The reasons behind Tanzania’s inability to do so are based, in particular, on the existence of several major non-tariff barriers related to the SPS Agreement (compliance with standards). Internal structural constraints also heavily affect the country’s production and export capacities, preventing it from taking advantage of new commercial outlets.

Real agricultural growth rates have only marginally increased, from 2.8% between 1976 and 1980 to 3% since the mid-1980s.

African countries’ poor position in world trade seems, therefore, due to the weakness of its productive sector and agricultural policies. Instead of supporting the productive sector, the banking system and investments go in preference to the import sector. In the 1980s, the structural adjustment programmes (SAPs) set up by the IMF and the World Bank considerably lessened the ambitions of agricultural and productive sector policies. A few years later, the AoA ratified this situation and the margins for manoeuvre allowed to developing countries were cancelled out by the constraints in the SAPs.

Beyond multilateral frameworks and those imposed by donors, one must emphasise that productive sector support also requires political determination. This political determination seems to be strong in the winning countries of Latin America and Asia, but often seems to be lacking in African countries, even when it comes to lifting the constraints imposed by SAPs.

THE OPENING OF DEVELOPING COUNTRY MARKETS TO FOOD IMPORTS

An On-Going Process of Opening

The impact of the AoA on import conditions in developing countries, and African countries in particular, essentially takes the form of intensifying the more general movement towards market liberalisation in these countries. This liberalisation, begun with the SAPs and intensified with the implementation of the WTO Agreements, is pushing African countries to progressively open their borders to food imports. From this standpoint, the AoA’s rules are not very innovative in most African WTO member countries because the structural adjustment programmes already imposed analogous rules, such as the reduction of customs duties and domestic support. The AoA’s rules often only confirm an existing situation, and have limited effects on African agricultural policies. But their effect is not harmless, as applying them consolidates, in a certain way, major constraints on the use of agricultural policy instruments.

What is more, the process is continuing with the sub-regional integration policies in place since 2001. The WAEMU agricultural policy (WAP) established a low level of protection for West African agriculture. The customs duties at borders--the common external tariff (CET)--are so low that West Africa is rapidly becoming a sort of “customs-free area” for numerous imported food products.

WAEMU’s current CET sets four categories of products and has a maximum rate of 20% taxation on imported goods.

WAEMU’s Common External Tariff

 

TYPE OF GOODS

CUSTOMS DUTY

Category 0

staple goods: crude and semi-refined oil, medications and medical products, books, newspapers, newsprint

0 %

Category 1

basic commodities, raw materials, equipment, specific inputs

5 %

Category 2

inputs and intermediate products

10 %

Category 3

final consumer goods and other goods

20 %

Basic commodities such as wheat and milk are placed in category 1. The tax levied on wheat flour at the WAEMU border amounts to less than €50 per ton, whereas Europe levies a tax of €163 at its borders.

Category 2 includes rice. The levying of a 10% tax on rice imports also has serious consequences on local rice. For instance, rice producers in Burkina Faso, Niger, Mali and Benin are supplanted on their own markets by Asian or American rice. The situation is even more surprising in Mali, as the country imports rice even though it has considerable production capacity. Only 25 kilometres from the production zone, all retail stores sell imported rice.

The customs duty of 20% is also very low for category 3, which concerns final consumer goods, including meat, fish, milk, refined oils, and processed products. This low level of taxation may have the consequence of blocking the potential to develop manufactured product commodity chains in WAEMU countries. It should be noted that, in January 2006, the WAEMU CET was extended to all ECOWAS countries as part of the ECOWAS’ regional agricultural policy.

The liberalisation process is continuing in the framework of the Economic Partnership Agreement (EPA) negotiations with the EU. Indeed, the adoption of a CET is planned for the four regions of the negotiations, which, in most cases, will lower customs tariffs on agricultural products (see factsheet 8).

Strong Impact on Eating Habits

Imports have a direct impact on eating habits, modifying them. Local products are being replaced by imported products. This phenomenon is very visible in urban areas, but it is increasingly being seen in rural areas. Staple crops, which should have benefited from the increased need for them due to the strong demographic growth in sub-Saharan Africa, are hindered in particular by market liberalisation that allows imported products to establish themselves at low prices on local markets.

Yet, behind modes of consumption, there are specific modes of production that rely on family farms, traditions, values, etc. A product that has been replaced is also a product that no longer finds buyers on the market, no longer has commercial prospects, and is condemned to disappear along with its production scheme.

West African Wheat Flour and Cereals

WAEMU countries import large quantities of wheat. Bread and food pastes are part of daily menus. Bakeries are everywhere, even in rural areas. Simultaneously, farmers who grow maize, millet and sorghum are not able to sell their cereals at a profitable price. In Senegal, attempts to substitute some of the wheat flour by millet, maize or cowpea flour are accepted by individuals but run up against the lack of interest among millers and bakers, who invoke supply difficulties, the cost of local commodities, procedures, and consumers’ attachment to wheat bread. For its part, the state is divided between its desires to protect commodity chains, preserve its revenue from import taxes, bring the country into liberalisation, and maintain the purchasing power of urban consumers.

Sahalien Milk and Imported Milk Powder
In the countries of the Sahel, where traditional cattle farmers account for 10% of the population, a large share of the milk products consumed in cities comes from foreign countries, primarily Europe. For example, nearly all the yoghurt produced in Ouagadougou (Burkina Faso) is made from imported milk powder. Indeed, one litre of milk made from imported milk powder cost 200 CFA francs in 2006, whereas a dairy would pay approximately 300 CFA francs per litre for milk produced locally in Burkina Faso. Milk powder imported from the EU is subsidised, which lowers the export price by 30% to 40%. In addition, the low customs duties also encourage the use of milk powder imported from emerging countries, which is not subsidised but has low production costs. Inversely, local milk production runs up against problems of quality, conservation and market preparation, low productivity of local breeds, and access difficulties for water and feed, which explains the difference in competitiveness compared to imported milk.

Burkina Faso Rice and Asian Rice
Burkina Faso, like many other African countries, imports large quantities of rice at very low prices. Rice importers benefit notably from the fall of the dollar (down nearly 40% in two years), while the import tax, defined in 2000 by the CET, has not changed and is set at a low level: 10% in Burkina Faso. Rice producers are getting poorer and many are abandoning paddies, while others are turning to market garden crops.

Local Chicken and Frozen Chicken
Sub-Saharan Africa absorbs approximately 20% of the EU’s poultry exports. They are mostly poultry cuts that have little value and are exported at low prices. More than 60% of poultry exports are de-boned and frozen turkey and chicken cuts (thighs, drumsticks, wings, feet, etc.), little-eaten by European households who prefer other cuts. Brazil, for its part, exports very inexpensive whole chickens thanks to its economies of scale. Imports eat away at a growth sector in African (sub)urban centres.

In Cameroon, between 1996 and 2003, imports of chicken and frozen chicken cuts grew by more than 2000%. In addition, corruption and false declarations contribute to allowing the entry of two, or even three, times more chicken than the authorised amount, spurred on by the high demand among consumers with little purchasing power in search of the least expensive products. Finally, households seek products that are easy to prepare, and imported chicken have been feathered and cut, and are ready to cook.

In both Congos, enormous quantities of “reformed” poultry (laying chickens turned into meat chickens at the end of the cycle) are imported, especially from Holland. Embebé ya Ndoula (which means ‘cadavers of Ndoula’, named after Mobutu’s former minister who was in favour of these imports) are sold frozen for 2,000 CFA francs per kilo, compared to 2,500 to 3,000 CFA francs for a better quality, grain-fed bateké chicken (local chicken). Low income households prefer to buy poor quality frozen chicken rather than local chicken.

In addition to their economic impacts, frozen chicken imports carry health risks in countries that do not have suitable storage and distribution infrastructures. Preventing these risks is the responsibility of the state, African importers, and exporters, although no body seems to take responsibility for the task.

African Palm Oil and Asian Oil
In the 1990s, the arrival of Asian palm oil on the market upset the oil-seed economy in Africa. The continent, an oil exporter thirty years ago, now imports it massively to satisfy rising demand caused by population growth, especially in urban areas. Today, Asian countries are the ones that supply the European market. In 2004, the two largest suppliers--Indonesia and Malaysia--accounted for nearly 90% of the total. These countries even manage to sell large quantities of palm oil on the African market. Most African palm oil producers no longer export their oil and trade liberalisation tends to accentuate this trend. The WTO negotiations have brought about a drop in customs duties that applies to countries such as Indonesia and Malaysia. Thus, the price of their exports is falling while that of African countries remains stable, as customs duties were already inexistent under the Lomé Conventions with the EU.


Selling bread in Monrovia (Liberia)

Selling bread in Monrovia (Liberia)
© Bénédicte Hermelin (Gret)

In the end, the AoA has not brought about any major changes in international trade conditions. It does, however, tend to solidify an already well-advanced process of liberalisation in African countries, while developed countries are able to maintain strong domestic support and protection policies. In this situation, it is the especially competitive agro-exporting countries of Latin America and Asia that benefit from the Agreement. They increase their penetration in developed county markets, and remain competitive in their own domestic markets. For their part, African countries are finding it difficult to adapt to these international trade conditions, which are particularly disadvantageous for them. To reverse this trend, it is consequently vital for them to participate effectively in the negotiation of WTO Agreements.

Key Points
  • African countries’ access to developed countries’ markets has not noticeably improved with the implementation of the Agreement on Agriculture because of the persistence of agriculture supports and protection by the latter. The tariff escalation that limits the export of processed products and the inefficiency of quotas are also limiting factors.
  • Dumping by developed countries persists. Developing countries, which cannot be sufficiently competitive in these conditions, lose export opportunities in the North and South, as well as market shares in their own countries.
  • 80% of African agricultural exports (commodities) suffer from the continual fall in commodities prices.
  • The tariff reductions in developed countries mostly favour large agro-exporting developing countries, the majority of which are not in Africa. Thus, Brazil’s and Thailand’s (for example) shares of the world market are significantly improving, notably because of their large agricultural potential but also because of the existence of structured and effective agricultural policies.
  • Africa’s difficulties in defending its position on the world market comes from its inability to overcome the constraints of the AoA, modernise its agricultural sector, and strengthen its agricultural policies.
  • From the standpoint of imports, the implementation of the WTO Agreements is pushing African countries to open their borders to food imports, continuing the trend begun under structural adjustment programmes.
  • These imports have a direct impact on eating habits, which they modify, and local products are replaced by imported products. Because of this, staple crops do not benefit from the increased needs generated by Africa’s strong demographic growth.
Sources