Analysis of Doha Agriculture Negotiation Issues Relevant to

Developing and Least Developed Countries

Alexander Sarris

February 2014

Plan of Presentation

• World agricultural trade trends and prospects• Differential performance of developed and

developing countries in international agricultural trade

• Current patterns of protection of agricultural products in developing countries

• Policies to manage the transition to a a more developed agricultural sector

• WTO rules on agriculture of particular relevance to developing countries

Global food demand: growth is slowing and shifting composition

• Population growth slowing

• Income growth helps offset slower population growth

• Products more sensitive to income growth growing more rapidly

• Consumer preferences also shifting

• Greatest demand growth in developing countries, particularly Asia.

Slow down population growth

0.0

0.5

1.0

1.5

2.0

2.5

Afr

ica

As

ia a

nd

Pa

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ic

Eu

rop

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La

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Am

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dC

ara

bb

ea

n

No

rth

Am

eri

ca

Oc

ea

nia

De

ve

lop

ed

Wo

rld

1998 - 2007

2008 - 2017

Lower GDP Growthexpected to grow fast in Asia

0

2

4

6

8

10

12In

do

ne

sia

Ma

lay

sia

Ph

ilip

pin

es

Th

aila

nd

Vie

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Ind

ia

Ch

ina

Bra

zil

Au

str

alia

Ko

rea

Ja

pa

n

US

A

EU

15

Ru

ss

ia

2005-2007

2008-2011

2008-2017

World demand growth slows: income sensitive products grow most

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

Rice

Whea

t

Coars

e Gra

ins

Bovin

e mea

t

Pigmea

t

Poultr

y

Ovin

e mea

t

Veget

able

oils

Ave

rage

ann

ual g

row

th

1998-20072008-2017

Growth in food demand in 2008-17 much higher in developing countries

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

Whea

tRice

Coarse Grains

Bovine meat

Ovine meat

Pigmeat

Poultry

CheeseButte

r

Whole

milk powder

Skim M

ilk Powder

Oilseeds

Vegetable oils

Oilmeal

Vegetable oils

Ann

ual a

vera

ge g

row

th

DevelopedDeveloping

Supply: Moderate rate of growth

• Real prices firmness continue over medium term – Moderate level of technical progress (crop yield growth

continues, livestock revolution)– Further trade liberalization unlikely to reverse the price

trend

• Competition in export-supply is increasing– Low cost, low policy support countries increase supply

most– South America, especially Brazil has great potential

• Uncertain: energy prices, demand for biofuel

In the next ten years trade will continue to grow faster than

production…

0.0%

1.0%

2.0%

3.0%

Wheat Rice CoarseGrains

Meat, Total Oilseeds

Ann

ual a

vera

ge g

row

th %

ProductionTrade

Nominal commodity prices have risen to record highs and will likely stay high

0

200

400

600

800

1000

1200

Wheat

Rice

Maize

Oilseed

Veg Oil

Oilmeal

Real international prices:expected to decline (2005-07 average=1)

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.61995

1998

2001

2004

2007

2010

2013

2016

Wheat

Rice

Sugar

Beef

Veg. Oil

Dairy

Net grain imports other than rice have increased in Asia and Pacific

-20

-10

0

10

20

30

40

5019

86

1989

1992

1995

1998

2001

2004

2007

2010

2013

2016

mil

lio

n M

T

Wheat

Rice

Coarse Grains

Developing countries increase their

dependence on food imports

-100

-50

0

50

100

150

200

250

300

1995 2000 2005 2010 2015

$US billion (at 2004 prices)

Coarse Grains

Rice

Wheat

Vegetable oils

Oilseeds

Meat

Dairy Products

Total Net Imports

Net imports by commodity

Net imports of basic foods to grow over 3.6 % annually in LDCs

-20

0

20

40

60

80

100

120

1995 1998 2001 2004 2007 2010 2013 2016$US billion (at 2005 prices)

Dairy products

Meat

Oilseeds

vegetable Oil

Coarse Grains

Rice

Wheat

Total Net Imports

Net imports by commodity

In summary, over the next ten years….

• Global demand growth will slow. Per capita consumption continues to increase, with more growth in higher valued products.

• Supply potential continues to meet demand growth, at prices that decline in real terms

• Excess supply growth is coming more from low cost suppliers.

• Trade continues to grow, with developing country and least developed countries balance of trade in basic foods deteriorating.

Real agricultural commodity prices have declined in past 40 years.

Almost all basic food commodities have seen their international prices rise significantly over the past two

years(Commodity price indices: 1998-2000=100)

0

50

100

150

200

250

300

350

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

MEAT DAIRY CEREALS OILS SUGAR

Recent basic food price developments in perspective: Nominal and real food price index

1980-2007

FAO Food Price Index 2000=100

0.00

50.00

100.00

150.00

200.00

250.00

300.00

Real: deflated by US PPI

Nominal

However, the income terms of trade for agriculture (purchasing power of agricultural exports) have evolved differently for developed, developing and least developed

countries. Why?

Income terms of trade for agriculture

0

1

2

3

4

5

6

7

8

9

1961 1966 1971 1976 1981 1986 1991 1996 2001

$US

Bil

- LD

Cs

0

20

40

60

80

100

120

140

160

180

200

$US

Bil

Oth

er d

evel

opin

g an

d In

dust

rializ

ed

LDCs

Other developing countries

Industrialized countries

Productivity growth has been smaller in LDCs, compared to developed and other developing

countries: Cereals

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1985 1990 1995 2000 2005

Dev'ed

LDCs

ODCs

Cereals - weighted average yields: 1985 - 2004

Productivity growth has been smaller in LDCs compared to developed and other developing countries:

Oilcrops

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

1985 1990 1995 2000 2005

Dev'ed

LDCs

ODCs

Oilcrops - weighted average yields: 1985 - 2004

Productivity growth has been smaller in LDCs compared to developed and other developing countries: Fiber

crops

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1985 1990 1995 2000 2005

Dev'ed

LDCs

ODCs

Fiber crops - weighted average yields: 1985 - 2004

Productivity growth has been smaller in LDCs compared to developed and other developing

countries: Fruits

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

14.0

1985 1990 1995 2000 2005

Dev'ed

LDCs

ODCs

Fruits - weighted average yields: 1985 - 2004

Productivity growth has been smaller in LDCs comapred to developed and other developing

countries: Vegetables

5.0

10.0

15.0

20.0

25.0

1985 1990 1995 2000 2005

Dev'ed

LDCs

ODCs

Vegetables - weighted average yields: 1985 -2004 2004

What determines long term commodity prices?

• Cost of production of marginal producer• Marginal producers still in developing countries using

labour intensive technology with labour paid subsistence wages

• Supply of agricultural commodities highly elastic at low wages

• Demand for agricultural commodities quite inelastic• Opposite case for non-agriculture• Implication: Differential productivity gains can alter terms

of trade between agriculture and non-agriculture

How do productivity gains affect agriculture and non-agriculture?

• Productivity affects agriculture differently than non-agriculture

P

Q

p

c

p’

d

Q

P

S

S’

a

b

Panel A. Agricultural Commodity Sector Panel B. Non-agricultural sector

p

p’

a

S S’

b

D

D

Declining terms of trade for agricultural commodities due to faster rates of total factor productivity growth for agricultural than non-

agricultural products

• Rate of growth of TFP has been faster in agriculture than in non-agriculture in both developed and developing countries

• “Globalization” of agricultural research, has contributed to faster TFP growth in agriculture,

• Incidence of productivity advances largely on consumers (through lower prices) and little to producers.