The first WTO Trade Policy Review (TPR) of Tonga after the country joined the WTO in 2007, published in February, finds that “remittances by Tongan expatriates have since helped to finance a growing trade deficit” since the 1970s, when a trade surplus turned into a structural deficit. Although agriculture is “the backbone of the Tongan economy” (contributing about 14% to GDP in 2011/12), Tonga is a net importer of agricultural products. The agricultural trade deficit has widened substantially over the past two decades. The TPR cites FAO statistics showing that agricultural imports more than doubled (in current US dollars) over the period 1995 to 2010, while in contrast agricultural exports fell by more than one-half.
Over half of Tongan agricultural production is for domestic consumption. But a large part of food consumption is supplied by imports, which makes the country vulnerable to international price spikes. Given that trade in services is in rough balance, the main sources of foreign exchange (apart from migrant remittances) to fund food and fuel imports (which, combined, account for over half of the total) are aid, limited agricultural exports and, since late 2011, fisheries, when “the government reopened the Tongan waters to foreign fishing vessels with the objective of reviving the tuna fishery.”
Squash has a niche market in Japan and Korea during October to December, and is stated in the TPR to be “Tonga's number one cash crop by far”, although this was no longer the case in 2010 (the latest year for which trade data are provided) when exports fell to less than one-tenth of their mid-decade level. There are exports of coconuts and also of root crops and kava, which “are driven mainly by demand from Tongans living abroad”. The main staples are root crops, such as taro, manioc, yams, and sweet potatoes. Tongan agriculture is “prone to natural disasters, particularly cyclones and occasional droughts”, but output is also limited since it “appears that some fertile land is under-utilized, in part because of the large number of expatriate Tongan landowners”.
Agriculture receives little direct or indirect government support. An Agricultural Export Marketing Fund was set up in 2012 to provide concessional short-term loans to agricultural exporters of agricultural commodities. Most loans have been made so far to exporters of squash. Press reports indicate that using Australian government assistance extended under the Pacific Horticultural and Agricultural Market Access (PHAMA) programme, the government of Tonga is now supporting packaging innovations and a branding campaign (“Kingdom of Tonga, the True South Pacific”) to promote agricultural exports. Through these innovations, Tonga is looking to move beyond the “informal market networks, such as the Tongan communities and church groups overseas” which have been used to date.
The only protection from import competition is provided by tariffs, for which the same rate is applied to all trade partners as there are neither quantitative restrictions nor tariff preferences. Tariffs of agricultural goods averaged 10.7% in 2013, with a range from 0 to 20%.
Press reports also indicate that in an effort to overcome the competitiveness constraint posed by the country’s remoteness, some producers are opting for multiple certification (e.g., HAACP, organic and Fairtrade).
Tonga illustrates the problems that arise when agricultural productivity does not keep pace with consumer demand and there are no buoyant sources of non-agricultural goods exports. Migration can ‘solve’ the foreign exchange constraint in the shorter term, but it has costs. A country’s workers are among its most valuable resource, and so the migration will slow domestic development in the medium term. Moreover, returning migrants bring back new tastes and the foreign exchange to indulge them. The TPR notes the correlation between the growing food deficit and increasing emigration.
This makes the country very vulnerable: imported food prices are at the mercy of global markets and sources of foreign exchange are not sufficiently robust to cope with price hikes. Any resolution of the problem needs to include measures to ensure that all agricultural resources are fully utilised. This may require a review of land tenure systems, which may be more of a constraint on agricultural development than the role of expatriate land owners identified in the WTO TPR.
As a remote state facing high transport costs, Tonga faces a natural barrier to exports, but domestic producers also benefit from in-built protection from imports. Greater import substitution appears a plausible first step.
The TPR cites the IMF’s view that Tonga can escape a “low development trap” by developing labour-intensive agriculture, fisheries and niche tourism. But it argues that achieving this “will require further structural reforms”.