While there have been substantial reforms in manufactures While there have been substantial reforms in manufactures trade, there is still high protection in agriculture. Reforms are trade, there is still high protection in agriculture. Reforms are ongoing in agriculture in most developing countries, but there ongoing in agriculture in most developing countries, but there is little reform in industrial and some developing countries is little reform in industrial and some developing countries

Reforms in agricultural marketing and production in Reforms in agricultural marketing and production in developing countries will increase output, but without trade developing countries will increase output, but without trade reforms this will lead to price declines and pressures for reforms this will lead to price declines and pressures for greater protectiongreater protection

Global agricultural reforms would generate large welfare Global agricultural reforms would generate large welfare gains and even larger changes in output, exports and importsgains and even larger changes in output, exports and imports

Multilateral and multi-commodity solutions are the keyMultilateral and multi-commodity solutions are the key

Key Messages

Protection is Still High and Mostly at the Border

0

20

40

60

80

100

120

140

160

US OECD OECDdeveloping

EU Japan QUADManufacturing

Tariffs

Prot

ecti

on R

ate

(%)

Subsidies

Border Protection

Source: OECD

4

OECD Protection has not decreased significantly

Estimated nominal rates of agricultural protection in OECD Countries (%) 

Source: OECD protection estimates (except ABARE for 1965-1974, Author’s calculation for 2000-2002).

0%

10%

20%

30%

40%

50%

60%

70%

80%

1965 -74 1979 -81 1986 -88 1995-97 2000 -02

Prot

ecti

on R

ate

(%)

5

Developing Countries’ Tariffs Have Decreased

0

5

10

15

20

25

30

Ave

rage

MF

N A

pp

lied

Tar

iff

(%)

Agricultural Products Manufacturing Products

199019952000

Source: TRAINS

Complicated ProtectionDue to Specific Duties

Source: WTO IDB (MFN Applied Duties)

31.3

9.3

5.7

0.2

2.63.10.50.1

0

5

10

15

20

25

30

35

Q UAD Large MiddleIncome

O ther MiddleIncome

Lower Income

Per

cen

tag

e o

f T

arif

f L

ines Agriculture Manufacturing

Percentage of Tariff Lines Non Ad-Valorem

Tariff Peaks Are Very HighU

gan

da

To

go

Mal

awi

Bra

zil

Co

sta

Ric

a

Ind

on

esia

US

Can

ada

Mo

rocc

o

EU

Ko

rea 0

100

200

300

400

500

600

700

800

900

1000

Du

ty (

%)

MaximumTariff (% )

Source: WTO IDB (MFN Applied Duties)

Tariffs Escalate in Final Products

0

5

10

15

20

25

30

35

40

45

50

tari

ffs

(%)

QUAD Canada Japan US EU LargeMiddleIncome

OtherMiddleIncome

LowerIncome

Average MFN Applied Out-of-quota Duties (%)

RawIntermediateFinal

Source: WTO IDB (MFN Applied Duties)

9

Protection

DairyDairy

Highest OECD support ($42.1 billion), with tariffs of 30% and higher worldwide

Myriad of instruments used (tariff, TRQ, export subsidy, price discrimination)

Dynamic market fueled by fast-growing trade in components and foreign direct investment

10

Protection

RiceRice

Mature but important market

World average tariffs of 43% (217% for short/medium grain rice). Total OECD support of $24.3 billion

Prohibitive tariffs in Japan, Korea, Taiwan, EU

Tariff escalation by stage of milling in EU and LAC

High tariffs in Indonesia, India, and many net importing countries outside Middle East

11

ProtectionProtectionCottonCotton

Low tariffs, significant US and EU production subsidies of Low tariffs, significant US and EU production subsidies of $4.4 billion out of $20 billion$4.4 billion out of $20 billion of production

SugarSugar

World average tariff: 26.6 percent (sugar and World average tariff: 26.6 percent (sugar and confectionery); OECD support $5.2 billion confectionery); OECD support $5.2 billion

High domestic support and trade policies in EU, US, High domestic support and trade policies in EU, US, Japan, including TRQs, and export subsidiesJapan, including TRQs, and export subsidies

80% of production & 60% of trade at prices higher than 80% of production & 60% of trade at prices higher than the world pricethe world price

Stagnating Trade Share of Developing Countries in Agriculture

(percent)

Developing Countries Industrialized countries 1980/81 90/91 00/01 80/81 90/91 00/01

Agriculture Total 37.8 33.0 36.1 62.2 67.0 63.9 To Developing 13.4 10.5 13.7 18.9 14.5 15.6 To Industrialized 24.3 22.4 22.4 43.4 52.5 48.3

Manufacturing Total 19.3 22.7 33.4 80.7 77.3 66.6 To Developing 6.6 7.5 12.3 21.7 15.2 19.0 To Industrialized 12.7 15.2 21.1 59.0 62.1 47.6

Source: COMTRADE

13

Developing Country Exports have Surged in Non-Traditional Products with Low Protection

(shares, %)

0%

10%

20%

30%

40%

50%

1980-81 1990-91 2000-01

Tropical Temparate Non-Traditional Other

•Tropical Products: Coffee, cocoa,,tea, nuts, spices, textile fibers, sugar and confectionery;•Temperate Products: Meats, milk, dairy, grains, animal feed, edible oil and oil seeds•Other Processed Products: Tobacco and cigarettes, alcoholic and non-alcoholic beverages and other processed food

14

Reforms would deliver large welfare gains Reforms would deliver large welfare gains and structural changesand structural changes

Most global gains are due to agriculture and food processingMost global gains are due to agriculture and food processing

Without reforms trade surpluses will increase for industrial Without reforms trade surpluses will increase for industrial countriescountries

Predicted changes in output, imports and exports are many Predicted changes in output, imports and exports are many times the welfare gainstimes the welfare gains

Results are robust to changes in key assumptionsResults are robust to changes in key assumptions

15

Reform Effects

CottonCotton Removing US and EU production subsidies is key for Removing US and EU production subsidies is key for

growthgrowth

Eliminating distortions would increase world prices by Eliminating distortions would increase world prices by 10-20%10-20%

Expansion expected in West Africa, Central Asia, and Expansion expected in West Africa, Central Asia, and Australia, contraction in EU, USAustralia, contraction in EU, US

DairyDairy

Removing distortions would increase world prices by 20-Removing distortions would increase world prices by 20-40% and welfare by $3.5 billion40% and welfare by $3.5 billion

Reform Effects

SugarSugar Removing all support would increase world prices by 20 to 40 Removing all support would increase world prices by 20 to 40

percent, with aggregate welfare gains of up to $4.7 billionpercent, with aggregate welfare gains of up to $4.7 billion

Gainers: Producers in Brazil, Thailand, Latin America, Gainers: Producers in Brazil, Thailand, Latin America, Africa and Australia; consumers in US, Japan, and EUAfrica and Australia; consumers in US, Japan, and EU

Adjusters: Producers in US, EU, Japan, and all northern Adjusters: Producers in US, EU, Japan, and all northern developing countries, and import quota license holdersdeveloping countries, and import quota license holders

17

Decoupling Support

Move to reduce tariffs and replace production linked Move to reduce tariffs and replace production linked subsidies with decoupled support paymentssubsidies with decoupled support payments

Little effect on output so farLittle effect on output so far Not all support replacedNot all support replaced No time limit and reversalsNo time limit and reversals Require land to be in agricultural useRequire land to be in agricultural use

18

Preferences for Low Income CountriesPreferences for Low Income Countries

Small number of products have large benefits (sugar, Small number of products have large benefits (sugar, bananas) bananas)

Products and rules by major industrial countries are very Products and rules by major industrial countries are very differentdifferent

No major diversification has taken place as a result of No major diversification has taken place as a result of preferencespreferences

In Caribbean the preferences have held back In Caribbean the preferences have held back diversificationdiversification

19

Agro-Food Standards

Proliferation and tightening of standards, both official and private sector

New demands are manageable for middle-income countries and organized industries in poorer ones

20 low and 28 lower middle countries export fish to EU with reduced inspections

20

Implications

Difficult to initiate reforms in developing countries without Difficult to initiate reforms in developing countries without global reformglobal reform

The Uruguay Round, NAFTA, and EBA, are bringing some The Uruguay Round, NAFTA, and EBA, are bringing some discipline, but much deeper multilateral reform neededdiscipline, but much deeper multilateral reform needed

Significant reduction of border protection is a crucial first Significant reduction of border protection is a crucial first stepstep

Border reforms alone are not sufficient. Real reductions of Border reforms alone are not sufficient. Real reductions of domestic support neededdomestic support needed——not just the not just the ““color boxcolor box”” game game

www.worldbank.org/prospects/globalagwww.worldbank.org/prospects/globalag

22

Cotton Mature market, slow demand growth intense competition from Mature market, slow demand growth intense competition from

synthetic fiber (60 % share) synthetic fiber (60 % share)

Low tariffs, significant US and EU production subsidies of $4.4 Low tariffs, significant US and EU production subsidies of $4.4 billion—trade distortions. “Reactive” support in many billion—trade distortions. “Reactive” support in many developing countriesdeveloping countries

Removing US and EU production subsidies is key for growth, Removing US and EU production subsidies is key for growth, although reforms unlikely soonalthough reforms unlikely soon

Eliminating distortions would increase world prices by 10-20%Eliminating distortions would increase world prices by 10-20%

Expansion expected in West Africa, Central Asia, and Expansion expected in West Africa, Central Asia, and Australia, contraction in EU, USAustralia, contraction in EU, US

Strong poverty links in low income countriesStrong poverty links in low income countries

23

Dairy Highest OECD support ($42.1 billion), with high tariffs of 30% plus Highest OECD support ($42.1 billion), with high tariffs of 30% plus

worldwideworldwide

Myriad of instruments used (tariff, TRQ, export subsidy, price Myriad of instruments used (tariff, TRQ, export subsidy, price discrimination)discrimination)

Dynamic market globally fueled by fast-growing trade in components and Dynamic market globally fueled by fast-growing trade in components and FDIFDI

New trade in casein, whey, and milk components with new technology, New trade in casein, whey, and milk components with new technology, bypassing trade barriersbypassing trade barriers

Removing distortions would increase world prices by 20-40% and welfare Removing distortions would increase world prices by 20-40% and welfare by $3.5 billion by $3.5 billion

Relocation of production would take place away from QUAD, and High-Relocation of production would take place away from QUAD, and High-income Asia to CAIRNS (minus Canada), and India income Asia to CAIRNS (minus Canada), and India

Groundnuts

Mature markets, cheaper vegetable oils have reduced peanut Mature markets, cheaper vegetable oils have reduced peanut oil demand; expanding demand for confectionary nuts; oil demand; expanding demand for confectionary nuts;

Global tariffs around 13 % for groundnuts, 11 % for Global tariffs around 13 % for groundnuts, 11 % for groundnut oil, and 5.8 % for cakegroundnut oil, and 5.8 % for cake

In India tariffs of 45% on nuts and cakes, 70% on oilIn India tariffs of 45% on nuts and cakes, 70% on oil

Tariff escalation in China: 9.7% in-quota for oil, 75% out-of Tariff escalation in China: 9.7% in-quota for oil, 75% out-of quota oil tariff, but redundant tariffs for nuts; VAT not quota oil tariff, but redundant tariffs for nuts; VAT not applied to domestic outputapplied to domestic output

Groundnuts

Reduced US distortion with the 2002 Farm Bill, but redundant high tariff remaining. High tariffs in smaller Asian markets (Thailand, Korea)

Removal of distortions would increase world prices by 15 to 20 percent for groundnuts, oil and cake

Who would gain? Producers in West Africa (if quality issues are resolved), Argentina, South America, and the US

Who would have to adjust? Chinese and Indian producers; EU and US consumers

26

Rice Mature but important market—staple food in Asia, small-

holder production, potential trade growth

World average tariffs of 43% (217% for short/medium grain rice). Total OECD support of $24.3 billion

Prohibitive tariffs in Japan, Korea, Taiwan, EU

Tariff escalation by stage of milling in EU and LAC

High tariffs in Indonesia, India, and many net importing countries outside Middle East

Rice (con’t)

Gainers will be millers in Thailand, Vietnam, and the US; Gainers will be millers in Thailand, Vietnam, and the US; competitive producers (Vietnam, China, Thailand); competitive producers (Vietnam, China, Thailand); consumers in Indonesia, Bangladesh, Philippines, most of consumers in Indonesia, Bangladesh, Philippines, most of AfricaAfrica……..

Losers will be producers in Japan and Korea; net importers Losers will be producers in Japan and Korea; net importers of short/medium grain rice and their consumers, especially in of short/medium grain rice and their consumers, especially in unprotected Asia and Middle East unprotected Asia and Middle East

28

Rice consumer prices in net importing countries after global liberalization

0

50

100

150

200

250

300

350

pri

ce U

S$/

mt

Indonesia Nigeria Phillippines

current post liberalization

Sugar

World average tariff: 26.6 percent (sugar and confectionery); World average tariff: 26.6 percent (sugar and confectionery); OECD support $5.2 billion OECD support $5.2 billion

High domestic support and trade policies in EU, US, Japan, High domestic support and trade policies in EU, US, Japan, including TRQs, and export subsidiesincluding TRQs, and export subsidies

““ReactiveReactive”” support caused by low prices support caused by low prices

80% of production & 60% of trade at prices higher than the 80% of production & 60% of trade at prices higher than the world price. Preferential regimes affect trade patternsworld price. Preferential regimes affect trade patterns

Sugar (con’t)

Removing all distortions would increase world prices by 20 to Removing all distortions would increase world prices by 20 to 40 percent, with aggregate welfare gains of $4.7 billion and up40 percent, with aggregate welfare gains of $4.7 billion and up

Who would gain? Producers in Brazil, Thailand, Latin Who would gain? Producers in Brazil, Thailand, Latin America, Africa and Australia; consumers/users in US, America, Africa and Australia; consumers/users in US, Japan, EU, and other beet producing northern countriesJapan, EU, and other beet producing northern countries

Who would have to adjust? Producers in US, EU, Japan, and Who would have to adjust? Producers in US, EU, Japan, and all northern developing countries. Import quota license all northern developing countries. Import quota license holders, but partial compensation of lost quota rent by world holders, but partial compensation of lost quota rent by world price increase.price increase.

31

High Protection Reduces Net Imports

Sugar production and net imports (EU, Japan and US)

-5

0

5

10

15

20

25

30

3519

65

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

mn

to

ns

P roduction

Net Imports

32

Fruits and Vegetables

Second largest export after seafood, 19% of developing country exports

Very dynamic market, decelerated in 1990 mostly due to stagnant EU demand

Almost no subsidies but complex (specific, mixed, seasonal ect.) and sometimes high tariffs

60% of EU tariff lines on fresh vegetables are between 21%-50%; 53% in processed fruits are above 50%.

Each product export is dominated by a few developing countries

Few successful developing countries, Mexico, Chile, Turkey, China

33

Fruits and Vegetables (con’t)

Threat of preference erosion for ACP countries; AGOA provides limited benefits due to sanitary requirements in US.

Further tariff reform is necessary, especially in EU, but supply capacity is the key in low income countries

34

Seafood

Most traded food item with global exports of US$ 57 Most traded food item with global exports of US$ 57 billion in 2001billion in 2001

Now constitute 20% of Food&Agriculture exports of Now constitute 20% of Food&Agriculture exports of developing countries; more than all traditional exports developing countries; more than all traditional exports put togetherput together

Biggest item is shrimp with global exports of US$ 10 Biggest item is shrimp with global exports of US$ 10 billion in 2001billion in 2001

Now, 30% of seafood production is in aquacultureNow, 30% of seafood production is in aquaculture Low tariffs in most countries but subsidies to fleets of Low tariffs in most countries but subsidies to fleets of

industrial countriesindustrial countries Little management capacity in developing countries both Little management capacity in developing countries both

for sustainability and higher value addedfor sustainability and higher value added

35

Coffee Liberal trade policiesLiberal trade policies

Supply controls have not workedSupply controls have not worked

Slow demand growth, competition from soft drinksSlow demand growth, competition from soft drinks

Demand expansion in the top (Organic, Fair Trade, Demand expansion in the top (Organic, Fair Trade, gourmet) and bottom endgourmet) and bottom end

New entrants, (Brazil, Vietnam) and limited exitNew entrants, (Brazil, Vietnam) and limited exit

Strong poverty links in low income countriesStrong poverty links in low income countries

36

Wheat Slow trade and demand growth in wheat, greater

growth in flour, pasta, and bakery and much value added created in retailing

Reforms in many developing countries, but still high subsidies in US, EU and Japan ($17 billion of producer support for the OECD) and some developing countries

Significant tariff escalation in flour, pasta, bakery products, so trade is only within trading blocks such as EU, and NAFTA

37

Wheat (con’t)

Global reforms will increase prices by only 10-15%Global reforms will increase prices by only 10-15%

Big gainers will be Argentina and CIS, some Big gainers will be Argentina and CIS, some reduction by US and EUreduction by US and EU

Low stocks, and export restrictions, in time of Low stocks, and export restrictions, in time of shortages push countries towards self sufficiencyshortages push countries towards self sufficiency