On 30 March 2012 the EC adopted a communication entitled ‘Promotion measures and information provision for agricultural products: A reinforced value-added strategy for promoting the tastes of Europe’. This is a further step in the refocusing of the EU’s promotion programme for agri-food products, with the aim of promoting a ‘more dynamic and more competitive’, ‘sustainable’ trajectory for the EU agri-food sector.
Since 2000, the EU’s promotion policy has been increasingly shifting towards ‘improving the image of European agricultural products, stimulating stagnating or declining consumption trends and winning new markets’. Horizontal promotion programmes which apply across a range of sectors are complemented by sector-specific programmes to which the largest financial allocations are made. The aim is to promote greater coherence and consistency across these programmes. A refocused policy is seen as ‘essential for European agriculture to preserve and improve its competitiveness and market shares both in its internal market and in exports’.
Promotion measures under Pillar 1 of the CAP
|Scheme||Amounts (in euro)|
|COM in wine||112 million (executed in 2011)|
|228 million (estimated expenditures in 2013)|
|COM in fruit and vegetables||34 million (executed average 2008–09)|
|Horizontal schemes||47 million (executed in 2011)|
|55.2 million (budget for 2012)|
Source: European Commission, ‘Promotion measures and information provision for agricultural products: A reinforced value-added strategy for promoting the tastes of Europe’, Table 1, p. 11.
The communication aims to find ways of:
- promoting ‘new synergies between the different promotion instruments’;
- simplifying and enhancing the effectiveness of EU support measures;
- promoting larger programmes and ensuring a real value-added to EC-financed interventions.
The communication takes up proposals for discussion in the ‘green paper’ to broaden the range of eligible sectors and products, with a focus on products falling within the EU’s quality policy and so called non-annex I processed products, which currently benefit from export refunds. Increased support for promotion of geographical indications (GIs) and other geographically defined products is also proposed.
The food chain is the biggest employer in the EU (4.2 million jobs – some 13.5%) and accounts for 6% of GDP. Currently value-added agri-food products generate more than €100 billion in exports. The remodelled support measures are intended to strengthen this trade position. While medium-term trends are seen as favourable, market volatility is generating uncertainties.
The EC wants to see a greater focus on support for value-added products, particularly in the context of improved market access opportunities secured through FTA agreements. It sees a need for a less timid approach to promotional campaigns in third countries.
It is proposed to extend support to three types of promotional measure:
- Information on the production methods used in European agricultural policy (primarily focused on internal EU markets) with the aim of differentiating EU production from imported products on ‘quality’ grounds;
- Information on the promotion of European quality symbols (e.g. GIs and organic logos);
- information on and promotion of agricultural products and agricultural product ranges on external markets (reinforcing awareness of the quality of the ‘Europe brand’).
The communication provides the basis for discussions in the EU Council and with the EP, with the aim of tabling a legislative proposal before the end of 2012.
While EU farmers’ organisation Copa-Cogeca welcomed the communication, it called for an expanded budget, with eligibility for support being limited to agricultural products and ‘products covered by European quality legislation’.
EC, ‘Promoting the tastes of Europe’, IP/12/332, 30 March 2012
EC, ‘Communication … on promotion measures and information provision for agricultural products: A reinforced value-added strategy for promoting the tastes of Europe’, COM(2012) 148 final, 30 March 2012
Copa-Cogeca, ‘Copa-Cogeca welcomes new EU Commission Communication on promotion policy of agricultural products’, press release, 30 March 2012
The development of EU programmes for the promotion of agricultural products needs to be seen in the context of moves towards the abolition of export-refund support. The EC consistently seeks to set in place alternative measures before dismantling existing support measures.
A critical area of debate will be on the coverage of the proposed programme. Farmers wish to see programmes restricted to agricultural products, while the EC wants to see the focus placed increasingly on the promotion of quality-differentiated and value-added food products (including the so-called non-annex I products falling within the scope of existing export refund support).
This debate is important for the ACP countries, since such measures enhance EU competitiveness in areas into which ACP producers are seeking to move, namely the production of value-added food products for national, regional and international markets (see Agritrade article, ‘ Building up agro-processing seen as essential to South Africa’s development’, May 2012). A case in point would be local pasta production, where in countries like Namibia infant industry protection is in place to stimulate local manufacturing. Enhanced marketing of branded Italian pasta products could serve to reduce the competitiveness of local manufacturers in the premium end of the pasta market. This needs to be seen in the context of the market opening which the EU is securing through the vehicle of the EPAs.
In late March 2012, Rob Davies, South Africa’s Minister of Trade and Industry, expressed concern ‘about the increased penetration of imported processed foods’ which is slowing down job creation in the domestic food processing sector. In 2010, the food processing sector in South Africa accounted for 177,000 jobs, making it ‘the largest manufacturing subsector by employment’. According to figures from the South African Department of Trade and Industry, ‘import penetration ratio rose from 9% in 2005 to 13% in 2010 ... accompanied by a decline in the export-output ratio from about 12% in 2000 to 9.7% in 2010’. According to Minister Davies, ‘agro-processing is of strategic importance to promote industrial development in South Africa.’
Dr Davies further highlighted how ‘exports to the traditional markets of the European Union and US have been flat in recent years’, indeed lower than ‘before the onset of the global financial crisis’. In addition, ‘changes in global standards, regulations and quasi-environmental considerations’ were seen as developments that have ‘the potential to negatively affect the growth of the food-processing sector’. The minister maintained that the South African authorities needed to ‘remain vigilant against regulations that are unfair and have the potential to constrain industrial development in the country’.
While ‘South African companies were recognised as significant producers of highly competitive agro-processed products like rooibos tea, wine, fresh and canned fruits, and spices’, new markets in faster-growing economies such as India and China were ‘relatively difficult markets to enter’. In this context, a major focus is also on ‘new export market opportunities in Africa’ and the Middle East region. Particular importance is attached to developing ‘market access to more dynamic economies’.
It was also argued that more needed to be done to develop local supply chains (e.g. soya bean to animal feed supply chains).
Overall, Dr Davies expressed optimism describing the South African food processing industry as ‘relatively resilient’.
Food sector stakeholders are however critical of a lack of government incentives ‘to encourage investors to buy into the sector’. A new incentive scheme, the Manufacturing Competitiveness Enhancement Programme (MCEP) worth some US$764 million, was launched in April 2012. This is aimed at helping companies adversely affected by the post-2007 economic downturn. It aims to assist companies to ‘upgrade their production facilities’, with the food processing sector seen as a likely major beneficiary of this programme.
Business Day, ‘Rising imports of food worry Davies’, 27 March 2012
Biz-Community, ‘Boost for food processing sector’, 2 April 2012
The EU’s focus on increasingly deploying rural development programme and food and agricultural product promotion programme support to develop value-added food product exports is very similar to recent efforts made by South Africa to promote the development of its agro-food processing sector.
At an EU conference in 2007 on agro-food product export interests in FTA negotiations, analysis was presented that highlighted the strong growth in EU exports to South Africa since 1996 in the following product categories:
- beverages: +72.1% (1996–2005)
- chocolate: +38.0% (1996–2005)
- biscuits: +38.6% (1996–2005)
- food preparations: +106.5% (1995–2005)
- olive oil: +105.9% (1995–2005)
- fruits and vegetables: +107.7% (1995–2005)
- animal feed: +159.5% (1995–2005)
Overall EU exports of food and drink increased by 20.2% over the period 1995–2005. Recent data contained in the EC statistical review of EU agriculture in 2011 showed an overall increase of 51% in EU exports of agricultural products between 2007 and 2010 (see Agritrade article ‘ EU 2011 review shows growing importance of ACP markets’, May 2012).
This suggests that governments such as that in South Africa will need to maintain a close watch on the evolution of EU policies explicitly targeted at promoting EU value-added food product exports. These range from rural development programme-financed initiatives to promote the competitiveness of EU food and agricultural sector enterprises, through support to food and agricultural product promotion on third-country markets (see Agritrade article, ‘ EU promotional measures for agri-food products to have greater external...’, 13 May 2012), to the external effects of the EU’s expanding safety-net policy.
China is set to become Africa’s ‘largest export destination’ and single biggest trading partner in 2012, according to analysis from Standard Bank, South Africa. This is a dramatic turnaround in just 4 years, since in 2008 ‘exports to China stood at half those to the US’. China has also managed to rapidly increase exports to Africa, with analysts describing China as ‘well positioned to participate in Africa’s next phase of development’. Bilateral trade volumes between Africa and China now exceed US$160 billion per annum, or almost one-fifth of Africa’s overall trade. ‘Imports [to Africa] from China stood at $73 billion in 2011’, up 23% on 2010.
According to Standard Bank, ‘the rapid growth in trade between the two regions is putting pressure on more established partners such as the EU and the US to strengthen their commercial ties with Africa’. Significantly, ‘fuels, ores and metals account for almost 90% of all Chinese imports from Africa’.
Thisisafricaonline.com, ‘China to become Africa's biggest export market in 2012’, 23 March 2012
A critical issue faced in Africa’s trade relations with China is whether this new global trade dynamic can be used to assist in the transformation of the basis of Africa’s engagement with the global trading system. In this context the observation that 90% of all Chinese imports are ‘fuels, ores and metals’ is a matter of concern. Indeed, analysis from the South African Revenue Service indicates that exports to China are even more commodity dependent than trade flows with traditional partners such as the EU and US.
In this context, the question arises in the agro-food sector of what strategies African governments need to set in place so that the new trade dynamic with China gives rise to investment in moving African production up the value chain to higher-value products. This relates not only to trade with China per se, but also to the utilisation of the new trade dynamic with China to leverage new investments from traditional partners in value addition (for example within the cocoa chain, where major Western industrial chocolate producers such as Barry Callebaut are concerned about securing future supplies of cocoa to ensure they can continue to meet growing consumer demand for cocoa products in Asia).
There are examples of African producers repositioning themselves within the value chain, ranging from the Mauritian sugar sector’s move over to refined sugar production and export (in part preparing for the shift in global sugar demand towards Asia) to Kenya’s production and marketing of consumer-ready horticultural products. However, there remains considerable scope to capitalise on expanding Asian demand to move into higher-value production in sectors such as coffee, cocoa and tea.
The challenge for policy makers is to identify the policy framework and flanking measures required to assist national private-sector producers in making this transition.
The EC has published its review of agriculture in the EU for 2011. Tables annexed to the review highlight the growing importance of the ACP as a market for EU agricultural exports. While between 2007 and 2010 total EU agricultural exports grew by 22.2%, agricultural exports to the ACP group as a whole grew by 37.5%. Within the ACP group, exports to South Africa grew faster than the overall ACP average, increasing by 51% (exports to the ACP excluding South Africa grew by 35.3%). The data also suggest stronger growth in recent years in EU agricultural exports to West Africa (Ghana +22.7%, Côte d’Ivoire +19.6% and Nigeria +15.3% in value terms between 2008 and 2010, compared to an increase in the total value of EU agricultural exports of 12.1% over the same period).
Between 2007 and 2010 EU agricultural exports to the ACP as a whole grew faster than EU agricultural exports to ASEAN countries, Russia, India, Japan, Switzerland, Norway, candidate countries, Gulf states and NAFTA. The main destinations where EU agricultural product export growth was higher than to the ACP included China, the Mediterranean area and Mercosur.
These trends saw the ACP’s share of total EU agricultural exports increase from 6.9% to 7.7%.
In contrast, between 2007 and 2010 the value of ACP agricultural exports to the EU grew by only 19.8%. However, with the value of total EU agricultural imports increasing by only 11.3%, this saw the ACP’s share of EU agricultural imports increase from 12.7 to 13.7%.
In 2011, the EU recorded an agricultural trade surplus for the second year in a row. In value terms, EU agricultural exports grew by 16% in 2011 compared to 2010. The increase in export values was most pronounced in the categories of ‘spirits and liqueurs and wine and vermouth’ (+20%) and ‘cereals preparations’ (+17%). EU imports of agricultural products at 16% increased by a similar proportion.
EC, ‘Agriculture in the European Union: Statistical and economic information 2011’, Overview, March 2012
EC, ‘Agriculture in the European Union: Statistics and economic information 2011’, Trade, March 2012
Given the growing EU focus on export of value-added food and agricultural products (64% of total EU food and agricultural products), the stronger growth in exports of agricultural products to ACP countries compared to most other export destinations may come as something of a surprise. However, one needs to take into account the strong economic growth of African economies in recent years, urbanisation trends and the emergence of a growing middle class, with changing consumer tastes (for example, increased consumption of cereals-based, value-added products such as pasta – EU exports to ACP countries of this category of products [CN 19] increased by 16% between 2008 and 2010).
Changing consumer tastes in favour of higher-quality, value-added food and agricultural products in African ACP countries in particular could potentially provide the basis for investment in value-added food processing. This potential has been recognised, as agro-processing has been prioritised in a number of African regional development strategies.
Trends in EU agricultural exports however suggest that these aspirations may in the coming years come into conflict with EU trade interests. This gives added significance to ongoing discussions around a number of the contentious issues in the ongoing EPA negotiations.
Against a background of growing concerns in West Africa over the threats to human health from pesticide usage and handling, in April 2012, UK NGO Christian Aid published a report by its partner organisation, Northern Presbyterian Agricultural Services (NPAS), on pesticide usage in northern Ghana.This report found that:
- ‘more than a quarter of the farmers interviewed had suffered from directly inhaling pesticides’;
- seven banned or restricted pesticides were in use (aldrin, dieldrin, endosulfan, lindane, DDT, methyl bromide and carbofuran);
- Other dangerous pesticides that had been cleared by government are in use, including atrazine, paraquat and chlorpyrifos;
- farmers are misusing pesticides by spraying too close to harvest, over-applying the dosage, applying cash-crop pesticides to food crops, using obsolete and expired pesticides, and mixing different pesticides;
- farmers are commonly failing to use any or all of the necessary protective equipment and clothing when applying pesticides;
- pesticides are often stored near to or within food stores, leading to seepage and causing illness and even fatalities.
Many of these problems are attributed to insufficient training and inadequate advisory services.
The report maintained that the lucrative nature of the pesticide trade meant there were as many as 50 importers involved in the trade, some of them bringing in illegal pesticides. Concerns were also expressed over the marketing strategies and claims of pesticide companies, including non-compliance with advertising standards (notably the requirement for prior approval by the Ghanaian Environmental Protection Agency of all adverts).
In view of the recognition by the Ghanaian government of the dangers of pesticide use, the NPAS report called on the government ‘to move away from reliance on pesticides in farming and invest more in more sustainable ways of farming’. This is seen as essential because of perceived inadequate implementation of the many existing initiatives to control pesticide use, due to a lack of resources at government level.
The report recommends:
- the establishment of a Ghana health service programme to routinely conduct tests on a sample of farmers in order to test for pesticide residues, with clear institutional responsibilities being identified;
- a review of the list of pesticides permitted and the suspension of use of the most dangerous ones;
- an increase in resources for pesticide surveillance activities and better training at all levels;
- a reduction of the role of agro-dealers in extension service provision, in view of obvious conflicts of interest;
- an increased focus on the promotion of organic forms of production (including through greater research and development). The report cites experience to date in northern Ghana showing that organic forms of production can be ‘more productive and cost-effective than reliance on chemical pesticides’.
While the NPAS survey covered only covered 200 farmers in 14 villages, Christian Aid argues that it is indicative of the challenges facing governments across the developing world.
Christian Aid, ‘Pesticide misuse a major threat to farmers' health and food safety’, 19 April 2012
Northern Presbyterian Agricultural Services and partners, ‘Ghana’s pesticide crisis: A need for further government action, April 2012
The NPAS study highlights the extent to which the threats to human health arising from pesticide usage in agriculture are a growing cause of concern within Africa. As the report illustrates, this is a multi-faceted challenge, related not only to food safety issues but also to labour conditions in the agricultural sector.
The report also highlights the institutional constraints on promoting a general strengthening of pesticide control regimes in Africa, given the unequal financial capacities of African governments and the pesticide industry.
Given the efforts underway in the EU to more rigorously control the application of pesticides (e.g. through the EU’s completed pesticide review), as well as moves towards developing more effective responses to the challenge of fraudulent pesticides (see Agritrade article ‘ Fraudulent pesticides of growing concern in the EU’, 30 January 2012), there would appear to be considerable scope for the intensification of EU–ACP cooperation in this important area, notably building on the important work done by COLEACP/PIP.
Given concerns in Africa over the commercial power of the pesticide industry, this could even extend to the elaboration of a joint EU–ACP code of practice for European pesticide companies marketing products in Africa.
According to the EC’s recently published reports on Agriculture in the European Union: Statistical and economic information, 2011’, EU poultry production in 2011 increased by 0.4%, while poultry meat consumption was projected to decline by 0.6%. Since 2007, EU poultry meat production has increased by 7.6%, with higher growth in production in EU15 than EU12 countries (some 8.3% in EU15 countries). Meanwhile, according to the USDA semi-annual report on the EU-27 poultry sector, forecasts for EU poultry meat production are being revised down for 2012 (although still higher than in 2011) ‘due to the difficult economic situation’ in the EU.
Imports increased by 3% in 2011 compared to 2010. While imports from Brazil only rose by 1%, imports of frozen fillets from Chile increased by 25% and poultry meat preparation imports from China rose by 46%. In April 2012, it was announced that restrictions on poultry meat imports from Thailand imposed in response to the avian influenza outbreak in 2004 would be lifted from 1 July 2012. According to USDA analysis, estimates of EU imports of poultry meat for 2012 have been raised in view of ‘the strong demand in EU-27 for low-cost broiler meat preparations’.
EU exports of poultry meat meanwhile increased by 13% in 2011, with Russia becoming a less important market (down 56% compared to 2010), while others saw a significant expansion in exports of poultry meat from the EU, including:
- China: +72%
- Hong Kong: +38%
- Saudi Arabia: +32%
- Ghana: +72%
These increases come following a 41.6% expansion in EU poultry meat exports between 2007 and 2010. According to USDA analysis, ‘EU-27 broiler meat exports are expected to grow again in 2012’.
While there continue to be concerns across Africa about poultry meat imports, the government of Ghana has ‘stated categorically that it has no immediate plans to ban the importation of poultry into Ghana’, despite the concerns of local poultry producers and strong lobbying for reform of the poultry trade regime. The Ghanaian Deputy Minister of Agriculture argued that it would first be necessary to boost local production before any increase in tariffs to reduce imports could be considered.
Across the continent, the Poultry Association of Zambia (PAZ) has reportedly ‘castigated government over plans to allow importation of chickens, saying it posed a serious threat to the growth of the local sector’. This follows strong growth in local poultry production in 2010 and 2011 (+20% and +25% respectively). The PAZ is complaining of ‘poor policy direction, high cost of feed stock and lack of legislation’ and has called for a ‘policy framework that would support local producers’.
EC, ‘Agriculture in the European Union: Statistics and economic information 2011’, Overview, March 2012
EC, ‘Agriculture in the European Union: Statistics and economic information 2011’, Poultry, March 2012
USDA, ‘EU-27 broiler meat production, consumption, and trade to expand again in 2012’, GAIN Report no. FR9092, 1 March 2012
Thepoultrysite.com, ‘EU lifts ban on fresh poultry meat from Thailand’, 4 April 2012
Thepoultrysite.com, ‘Government rules out imported poultry ban’, 11 April 2012
Times of Zambia, ‘Zambia able to meet growing local demand’, 16 March 2012
In terms of exports, the largest increases in exports, up 72% compared to 2010, were to China and Ghana. In the case of Ghana, this suggests a continuation of the EU’s major role in a poultry trade that is of major concern to Ghanaian poultry producers.
Despite concerns expressed earlier about the impact of new EU animal welfare regulations and increasing animal feed costs on the EU poultry sector, the relative price advantage of poultry meat over other meats, despite the economic downturn, means that EU poultry producers can pass on cost increases to consumers. This enables the EU to maintain the competitiveness of its poultry exports, which are projected to continue to grow.
Patterns of EU imports of poultry meat are changing, with more prepared poultry meat imports occurring in the light of the structure of the EU tariff regime and the growth of this market demand in the EU. Patterns of EU poultry imports can be directly attributed to the structure of the tariff regime applied. This, while allowing trade in poultry products in response to evolving consumer demand, successfully preserves the market for domestically produced poultry meat, despite the relatively high costs of poultry production in the EU relative to other major poultry exporters.
Press reports suggest that a significant expansion of coffee production in Papua New Guinea (PNG) could be imminent, following the allocation of US$46.3 million to the coffee sector under the World Bank-funded ‘Productive Partnerships in Agriculture’ project (PAPP). According to a press report, ‘PAPP aims to improve smallholder productivity by strengthening the links between smallholder farmers and agricultural businesses’ and by ‘increasing access to farming technologies and services’. The World Bank will provide up to 70% of total project costs for proposals accepted under the programme. PAPP has ‘a target of adding 25,000 households to the list of registered producers of certified coffees by 2016’. The coffee sector currently employs approximately 2.5 million of the country’s population of 6.6 million. According to the Asian Development Bank, this comes on top of increased government spending on the coffee sector.
PNG coffee exports rose in value by 20% in 2010, while up to the third quarter of 2011, PNG’s cash crop export prices, particularly for coffee, had returned to or even exceeded the heights attained in mid 2008.
This investment comes after recent praise for PNG coffee at the Rainforest Alliance’s ‘Cupping for Quality’ event held at the Speciality Coffee Association of America Lab in December 2011. The awards event rated some coffee from PNG’s Western Highlands among the top five speciality coffees in the world.
World Bank analysis in 2009 suggested that past government programmes had been ineffective ‘because individual households do not receive appropriate price signals for their efforts to improve their processing and post-harvest handling techniques’. With the current programme, it is feared that the natural gas boom could increase labour costs and undermine the viability of programmes supported.
An AusAID-supported programme is also seeking to help ‘smallholder farmers enter niche markets overseas’. However, some PNG farmers are critical of the focus on coffee production, arguing that World Bank funding would have been better deployed in the palm oil sector, which provides considerably better financial returns to smallholder farmers. On the basis of earlier criticisms of the adverse environmental effects of palm oil development programmes in Indonesia, however, the World Bank is averse to engagement in the palm oil sector.
In Fiji, coffee experts from New Zealand have identified export market potential for wild coffee, which is reportedly of a high quality. Advice is currently being provided to villages on ‘how and when to pick and dry the ripe coffee’. A first trial involving the collection of coffee beans, home roasting and packing is under way. Production is selling well on local markets, with the technical expert making a commitment to buy any coffee harvested.
Government agricultural ministry officials are however favouring cocoa over coffee, maintaining there is greater demand for cocoa than for coffee.
Post-Courier Online, ‘Coffee industry builds steam’, 17 February 2012
Fiji Live, ‘Fiji’s wild coffee is high class: NZ expert’, 11 April 2012
Fiji Live, ‘Fiji chooses cocoa over coffee production’, 13 April 2012
The National, ‘PNG coffee rated highly’, 17 February 2012
The World Bank PAPP project’s focus on ‘[improving] smallholder productivity by strengthening the links between smallholder farmers and agricultural businesses’ and by ‘increasing access to farming technologies and services’ reinforces the initiatives that are being championed by the AusAID-funded ‘Pacific Horticultural and Agricultural Market Access’ (PHAMA) and the EU-funded ‘Improving Agricultural Commodity for Trade’ (IACT) programmes, which built on the earlier ‘Facilitating Agricultural Commodity Trade’ (FACT) programme. The engagement of this new player in a sub-sector that is seeing consistent growth, both in terms of production and export in what is a very competitive field, reaffirms the progress being made of late in certain Pacific agricultural sectors.
The generally favourable experience under the EU-financed FACT programme and its subsequent extension suggests that new programmes such as the World Bank’s PAPP can assist in developing the prospects of more exporters in an increasing range of speciality agricultural products.
This type of assistance has served to both enhance supply and improve value chain management. It can take the form of improving supply to quality-differentiated markets, or attaining certification under certain schemes which enable producers to secure price premiums (e.g. fair-trade or organic exports).
For an increasing number of the Pacific Island countries, programmes such as the World Bank’s PAPP, the EC’s FACT/IACT and Australia’s PHAMA have brought about much-needed export diversification and promoted value addition. This is now assisting in alleviating poverty, promoting development in more remote communities, and overcoming the marginalisation of a range of producers from regional and international trading networks.
Analysis of the effects of Tanzania’s 2011 maize export ban shows that it ‘served to relieve consumers of higher prices but condemn farmers in poverty’, according to Bohela Lunogelo, Executive Director of the Economic and Social Research Foundation. The export ban, imposed in May 2011, was formally lifted in October 2011. Early in 2012, however, it was reported that ‘[East African Grain Council] border monitors confirm that the ban is still in place and government agencies in various border points still restrict maize transits from Tanzania to other countries.’
Analysts argue that the Tanzanian export ban was ‘primarily motivated by inflationary tendencies’, as well as ‘lack of food supplies in some food deficit pockets of Tanzania’, rather than national food security concerns. However, it is argued that ‘the impact on inflation has virtually been zero,’ while farmers have borne ‘the burden of policy induced low prices’. In this way, the ban can undermine domestic food security. Speaking at a workshop on food and agriculture policy analysis in February 2012, Dr Lunogelo maintained that ‘food security cannot be achieved by prohibiting farmers to get better prices ... actually allowing farmers to export their produce sends a signal of good market and encourages production’.
Such actions also clearly create additional collateral damage for regional partners by making food supply vulnerable to arbitrary government action. According to Dr Richard Sezibera, Secretary General of the EAC, non tariff barriers (NTBs), of which an export ban is an extreme example, have ‘continued to exert a negative influence on the integration and trade agenda.’ Dr Sezibera told delegates that ‘NTBs have persisted or have merely mutated’. He cited a recent survey conducted in 19 countries in EAC, COMESA and SADC which established that, on average, 20% of annual shipments faced some form of NTB, and the average direct additional cost of NTBs per shipment was US$3,500. This denied to consumers ‘welfare enhancing opportunities, which arise from access to reasonably priced regional imports’.
Such NTBs undermine the goal of the African Development Bank (AfDB), which is aligned to several continental initiatives and regional agendas to create a fully integrated and internationally competitive region with the overarching objective of poverty reduction. In a new report, the AfDB argues that ‘Africa’s numerous border and customs posts, with the associated bureaucracy and long delays, continue to hold back trade and economic growth on the continent’.
Because of its centrality to welfare, trade in food is often first to feel the effects of NTBs, as with the Tanzania maize ban, and especially when supplies are genuinely short (across a region/nation, and not just in pockets as is reported to have been the case in Tanzania). Such a situation appears to be developing in West Africa. According to Famine Early Warning Systems Network, crisis-level food insecurity is expected in a number of areas of the Sahel in 2102. FEWSNET claims that this is not primarily due to a poor harvest – which, while lower than the record crop of 2010/11, ‘was within five percent of the recent five-year average’. Rather, it is due to knock-on effects of the late start of the season, and increased wage and other costs. Regional integration in West Africa is reported to have advanced insufficiently to date to provide a regional buffer to such localised shocks. According to a World Bank policy note on removing trade barriers in West Africa, ‘both the processes, and degree of regional integration have lagged behind expectations, and many political commitments have either not been translated into policy and regulatory reforms, or reforms are not implemented.’
Tanzania Daily News, ‘ESRF lauds lifting of export ban on maize’, 29 February 2012
USAID/COMPETE, ‘Background paper on case study: Tanzania drops export ban on grains’, 2 December 2011
Ratin.net, ‘Tanzanian ban on maize export and effects in the region’, January 2012
East African Community Secretariat, ‘Dedicated Ministerial session on elimination of NTBs underway in Mombasa’, 15 March 2012
African Development Bank, ‘Easing border bottlenecks will boost intra-African trade, says new AfDB report’, 30 March 2012
Famine Early Warning Systems Network (FEWSNET), ‘West Africa: Food security outlook’, January to September 2012
World Bank, ‘Removing barriers to trade between Ghana and Nigeria: Strengthening regional integration by implementing ECOWAS commitments’, by M. Hoppe and F. Aidoo, Policy Note no. 30, March 2012
The creation in Africa of larger agricultural markets offers many attractions – but it faces numerous stumbling blocks, some of which were illustrated in 2011 by Tanzania’s maize export ban and may be again illustrated in 2012 in West Africa. Many of the stumbling blocks apply equally to agricultural and other traded items, but some that apply exclusively to agriculture are among the most problematic.
If domestic, regional or global food supply is restricted, there is pressure on governments to press the ‘stop’ button and limit exports (or seek to acquire a disproportionate share of regionally available imports). Such measures are highly controversial but need to be seen in the light of the central social and political importance of food. The analysis of the Tanzanian episode of 2011 also suggests that the stop button may be pressed too readily (when supply is not inadequate but just poorly distributed in some areas of the country), and does not support longer-term food security (because it both penalises farmers and because more appropriate alternatives are available).
One analysis of the Tanzanian experience recommends that:
- it is essential to establish (or improve) reliable regional harvest information systems that can help to reduce the danger of false alarms;
- more reliance should be placed on the use of futures options as a way of ensuring adequate supplies if a harvest is poor;
- a ‘green channel for staple foods trade’ should be created to reduce the delays, cost rises and losses that occur at border crossings.
The Tanzanian export ban on cereals did not in fact reduce exports. However, the exports shifted to ‘informal’ trade, with the result that the gains accrued not to the farmers but to intermediaries.
According to the EC review of the EU agricultural sector in 2011, published in March 2012, the reduction in size of the EU cattle herd continued into 2011. Since 2007, the EU cattle herd has fallen 1.8% to 84 million head. However, this decline overall is expected to have included a 1.8% increase in EU beef and veal production in 2011, as slaughtering of adult bovine animals and calves and young cattle increased by 0.37% and 3.8% respectively compared to 2010. This marginally reversed the recent downward trend, which had seen EU27 beef and veal production decline by 2.8% between 2007 and 2009, before recovering in 2010 and 2011 in response to higher prices. During 2011, EU producers continued to record higher prices than in 2010 – itself already a year of high prices – in all categories of cattle.
In terms of trade, the EU maintained its position as a net exporter, with ‘firm demand from Russia’ and the emergence of Turkey as an export destination ‘following the lowering of previously prohibitive tariffs at the end of 2010’. Indeed, in the face of ‘low global availability’, EU beef exports grew by 30%, with ‘increasing demand for relatively high priced EU beef on the global markets’. This came on the back of an 80% increase in extra EU beef exports between 2008 and 2010. The strongest increase in EU exports between 2008 and 2010 was for frozen beef, up by 108%, while fresh and chilled cuts increased by only 86% (prepared and preserved beef cuts down 39%). Between 2008 and 2010, the percentage of frozen beef in total exports increased from 27.2% to 31.3%.
Overall EU beef imports in 2011 were 10% lower than in 2010, a result attributed to lower production in Latin American beef-exporting countries and the closure of the EU market to beef exports from Botswana. However, ‘the creation of a new duty-free quota for high quality beef’ saw a rise in imports from the USA and Australia, and the prospect of increased imports from Canada, Uruguay and New Zealand in the coming year.
EC, ‘Agriculture in the European Union: Statistics and economic information 2011’, Overview, March 2012
EC, ‘Agriculture in the European Union: Statistics and economic information 2011’, beef statistics, March 2012
EC, ‘Agriculture in the European Union: Statistics and economic information 2011’, trade statistics, March 2012
Having fallen dramatically since the 2000–03 period (when frozen meat exports accounted for 65% of total meat exports) to 21.3% over the 2007–09 period, the proportion of frozen beef in total meat exports is increasing again (31.3% in 2010). This is significant, for it is the lower-quality frozen cuts which may find their way on to ACP markets, particularly in West and Central Africa. Figures contained in the EC report show that exports of ‘meat and edible meat offal’ (CN code 02) to ACP countries increased by 44.8% between 2008 and 2010. This suggests that a significant expansion in the EU–ACP meat export trade (beef, poultry and pork) is indeed underway. This expanded EU export trade could potentially set back efforts to develop regional livestock/meat supply chains.
The closure of the EU market to beef from Botswana – first on a voluntary basis on food safety grounds and subsequently on a compulsory basis on SPS grounds – highlights the growing importance of food safety and SPS in beef sector trade flows. According to statements from the Botswana Cattle Producers Association (BCPA) in May 2011, it was estimated that cattle farmers in Botswana would lose up to €47.76 million in income as a result of ‘the suspension of exports to the lucrative EU market’ (see Agritrade article ‘ The cost of the closure of the EU market to Botswana’s beef exports’, 10 June 2011). Serious questions were raised over whether, in view of budget constraints in Botswana, beef exports to the EU would ever be resumed.
The departure of Botswana from supplying the EU market left Namibia as the only ACP beef exporter with a presence in the EU market. While overall EU imports declined, the increase in high-quality beef imports intensified competition on the quality-differentiated component of the EU market. Nevertheless, the financial returns on quality-differentiated exports to the EU – supported by the high global beef prices – saw 2011 yielding the highest ever price per kg for Namibian beef farmers (see Agritrade article ‘ Quality differentiation pays off for Namibian beef farmers’, 23 April 2012).
The Spanish small farmers’ union (UPA) has described the situation in the Spanish dairy sector as ‘critical’, with ‘sky high production costs crippling producers’. Since 2009, diesel prices have risen by 40%, feed costs have increased by 17% (with a further 12% increase expected in April 2012), while the cost of electricity and animal medications has also increased. According to a UPA milk producer, prices have not risen to the same degree, resulting in ‘many farmers …making huge losses’.
This is despite the reported preferential access which Spanish dairy producers enjoy to low-duty feed imports from Latin America.
EU farmers’ organisation Copa-Cogeca meanwhile argues that Spanish dairy farmers are not the only ones suffering, with similar trends apparent across Europe in recent months. In the context of macro-economic difficulties, serious problems are faced in passing production cost increases on to processors and retailers.
This provides the background to appeals from the European Milk Board for MEPs to press for an abandonment of the 1% increase in milk production quotas, which it is feared will lead to milk prices ‘plummeting’. It also provides background to the pending implementation of the ‘European milk package’, and the EMB’s call for the introduction of obligatory contracts, with prices reflecting milk production costs.
However, the issue of milk contracts is far from straightforward. The French milk producers’ association (APLI) has written to the French President complaining that while contracts must run for a minimum of 5 years, such contracts ‘do not have to specify a minimum farm-gate price that would cover costs of production’. This, according to APLI, places milk producers at a disadvantage.
Despite the current difficulties, new dairy sector trade opportunities are emerging. For example, cheese exports to Russia in 2011 grew by 15%, with a further expansion of 6% per annum expected up to 2016. Given that per capita dairy consumption levels in Russia are a quarter to a third lower than EU levels, there would appear to be considerable scope for further growth in EU exports to this market.
Press analysis also suggests that the FTA agreement with Peru and Colombia will remove previously high tariffs on EU dairy exports. In the case of Colombia, the FTA agreement will allow up to 500 tonnes of duty-free dairy product exports from the EU each year. However, tariffs for butter and fresh cheese will not see any reductions, according to press reports.
Thedairysite.com, ‘Spanish dairy sector on brink of collapse’, 5 April 2012
Thebeefsite.com, ‘Could the Spanish dairy sector collapse?’, 5 April 2012
Thedairysite.com, ‘Calls to stop milk quota increase’, 2 April 2012
Thedairysite.com, ‘Five year compulsory contracts excessive’, 12 April 2012
Thedairysite.com, ‘Opportunities for cheese exports to Russia’, 10 April 2012
Thedairysite.com, ‘EU trade deal with Peru, Columbia to benefit dairy’, 10 April 2012
In some parts of the EU, the economic crisis, combined with rising input costs and the current downward pressure on global dairy prices, is giving rise to ‘price stickiness’ at the retail and consumer levels. In the longer term, however, global prospects for the EU dairy sector are held to be favourable, with enormous scope for increasing global consumption of dairy products.
This highlights the importance of both measures to strengthen the functioning of dairy supply chains (intended ultimately to reduce the financial burden to the public purse) and the EU’s evolving safety-net policy (which is intended to sustain EU dairy production during price downturns, in order to equip EU dairy processors to capitalise on longer-term rising price trends).
This latter dimension highlights the external implications of the EU’s evolving dairy sector policies. These external effects of EU policy measures are potentially of significance in ACP countries and regions where efforts are underway to expand dairy production for national, regional and international markets (e.g. in East Africa).
This suggests a need to get to grips with the external effects of EU policy measures on ACP countries where dairy sector development initiatives are in progress. This would be consistent with the EU’s treaty commitment to ensuring policy coherence for development. In view of the nature of EU safety-net measures and the structure of EU exports, this requires particular attention to be paid to trade with ACP countries in skimmed-milk powder.
The EC has posted a series of presentations setting out recent developments in the EU sugar sector, including a number of balance sheets and PowerPoint presentations on the sugar supply situation on the EU market. These highlight how during the 2010/11 EU sugar campaign (October to September) total EU sugar production (in-quota and out-of-quota production combined) reached 16,609,000 tonnes, down 10.8% on the 2009/10 season. However, for the 2011/12 season EU sugar production is projected to bounce back strongly, increasing by 15.4% (to 19,161,000 tonnes) to a level 2.9% above the 2009/10 production level.
The presentations note that EU sugar imports rose by 37.9% in 2010/11 (from 2,499,000 tonnes to 3,445,000 tonnes). Imports in 2011/12 however are forecast to decline 10% to 3,101,000 tonnes.
EU sugar exports in 2010/11 were reported to have fallen 40.7% from 3,233,000 tonnes to 1,918,000 tonnes, following a 65% contraction in out-of-quota exports. In 2011/12, however, exports are projected to increase by 69%, largely as a result of a 181% increase in out-of-quota sugar exports.
In-quota EU sugar exports consist largely of sugar in processed products (between 91 and 96% of the total). Between 2009/10 and 2011/12, EU ending stocks of sugar are projected to have increased by 65% (from 1,741,000 tonnes to 2,875,000 tonnes). This will be equivalent to 17.3% of domestic EU human consumption of sugar. A third of these ending stocks will be made up of out-of-quota sugar, up from only 6% in 2010/11.
The EC review of agriculture in the EU in 2011, posted in March 2012, noted the high price volatility which characterised the global sugar market in 2011. It noted that ‘world market prices for white sugar ranged from €400/tonne in May to €620/tonne in July 2011’, and that ‘the average EU market price for sugar, following the developments on the world markets, increased significantly in 2011 and reached €654/tonne by December (+€156 from January 2011)’.
According to an EC presentation to the March 2012 Advisory Group on Sugar, in the 2010/11 marketing years ‘19% of imports from ACP/LDCs came from Mauritius, 18% from Swaziland and 14% from Mozambique’. Imports of sugar from ACP/LDC suppliers in 2010–11 were above the average for the 2006–09 period, which was a sharp reversal on 2009/10 when imports from ACP/LDC suppliers had fallen below the average of the 2006–09 period (1.35 million tonnes compared to under 1.5 million tonnes).
In the first four months of the 2011/12 marketing year some 607,000 tonnes of sugar were imported from ACP/LDC suppliers, with some 73% coming from countries in Eastern and Southern Africa (Swaziland 22%, Mauritius 16%, Zambia 12%, Mozambique 12%, Zimbabwe 8%, Malawi 2% and Madagascar 41%), a further 10% coming from Fiji, and 8% from Guyana. Of the total amount of 607,000 tonnes, fully 18% was made up of white sugar, with 89% of this supply imported from Mauritius. Imports from ACP/LDC suppliers from October 2011 to January 2012 were above import levels during the corresponding period in 2010/11. According to the EC presentation, in March 2012 ‘the EU market price for imports from ACP/LDCs is €710/tonne for white sugar and €465/tonne for raw sugar, down on previous months’.
Data on prices prepared in April 2012 shows that since October 2008 (when the final two stages in the phased reduction in the EU reference price were introduced), average prices paid for ACP raw sugar have shown considerable volatility. This volatility has been particularly acute since May 2011, with raw sugar prices fluctuating within a range of around 18%, with five peaks and four troughs between May 2011 and January 2012. Since September 2011, the three peaks enjoyed have been at price levels higher than prices paid since July 2006, while the troughs have all been below prices prevailing in July 2006.
According to Eurostat data, the average price paid for ACP sugar in January 2012 was €567/tonne, compared to an average of €376/tonne in January 2011.
EC, ‘EU sugar balance sheets’, 22 January 2012
EC, ‘Sugar trade statistics’, 29 March 2012
EC, ‘Draft report on the Advisory Group on Sugar’, 12 March 2012
EC, ‘Sugar price report’, 12 April 2012
EC, ‘Agriculture in the European Union: Statistics and economic information 2011’, March 2012
Agra-net.com, ‘ACP sugar imports – January 2012’, 23 April 2012
World Financial Post, ‘Associated British Food report half-year profit up 3%’, 25 April 2012
The information published by the EC provides a snapshot of the ACP/LDC–EU sugar supply relationship, against the background of the EU sugar supply situation in 2011. It highlights a number of important points.
First, total EU sugar imports in 2010/11 rose faster than imports from ACP/LDC suppliers. Imports from Brazil for example more than doubled, to over 1.1 million tonnes. This implies a decline in the ACP share of total imports into the EU.
Second, imports from ACP/LDC suppliers are increasingly coming from suppliers in Eastern and Southern Africa, which are now accounting for nearly three-quarters of EU imports from ACP/LDC suppliers, as opposed to slightly less than 50% under the sugar protocol. This takes on more significance when the decline in the level of surplus sugar production in the Eastern and Southern African region is taken into account.
The third important point relates to price volatility and the extent to which ACP exporters and individual sugar producers are in a position to benefit from rising prices in an era of such price volatility. This would appear to highlight the importance of reviewing and strengthening the functioning of ACP–EU sugar supply chains.
To place this in context, in April 2012 Associated British Foods, co-owner of Illovo, following a 17% increase in revenues, reported a 59% increase in the profits of its sugar division (from £108 million to £172 million) despite the drought in South Africa and production problems in China.
According to USDA’s review of the Spanish sugar sector, Spanish ‘imports of raw sugar have been increasing for the last four marketing years’, reaching 716,000 tonnes in 2010/11. This level of imports is expected to stabilise or grow further in the coming years. According to USDA, this is the result of an increase in co-refining of raw cane sugar by sugar beet processors.
Two of Spain’s five sugar beet processing plants ‘are now off-season cane sugar refiners and three are on-season sugar cane co-refiners’. USDA maintains that ‘these companies are thought to enjoy a competitive advantage over full-time refiners in other countries as ‘their fixed costs are mostly covered by their main activity of sugarbeet processing, allowing them to bid higher for the purchase of raw sugar on the world market to supply their second activity’.
This has seen a corresponding decline in imports of refined sugar imports (down 550,000 tonnes in raw value) and a small increase in refined sugar exports, in the context of decline in Spanish sugar consumption of 1.7% in both 2010 and 2011. Consumption is now expected to stabilise.
Spanish sugar production and trade 2010/11 to 2012/13 (tonnes)
|Total sugar production||606,000||642,000||638,000|
|Refined imports (raw value)||553,000||550,000||550,000|
|Refined exports (raw value)||153,000||155,000||160,000|
Source: Extracted from USDA, Report no. SP1207, Table 1, p. 3.
At the policy level the Spanish minister of agriculture has pledged to maintain sugar production quotas until 2020. As a number of governments are supporting the Spanish position, the minister believes that sugar production quotas can be maintained until that year.
In contrast, problems have been faced in Portugal in accessing raw sugar imports ‘at competitive prices’. This has seen raw sugar imports decline in the last 2 years (down from 523,000 tonnes in 2008/09 to 463,000 tonnes in 2010/11), creating problems for Portugal’s three sugar refiners. According to the USDA, ‘if refiners cannot get political support at national and EU level to guarantee access to raw sugar at more competitive prices, they may be forced to continue decreasing their refining activity and resorting to using their packaging lines to package imported white sugar’. For these reasons, Portuguese refiners are calling on the EC to make it easier for full-time refiners to access raw sugar imports.
EU Commissioner Dacian Cioloş has indicated that there may be scope for once again authorising ‘the introduction in the EU market of extra-quota sugar’ (i.e. out-of quota sugar) and/or ‘allowing supplementary imports with reduced duties.
This needs to be seen against the background of criticisms in the UK that the operation of the current EU sugar regime is threatening jobs at Tate & Lyle’s Thames refinery.
USDA, ‘Spain sugar standing report’, GAIN Report no. SP1207, 23 March 2012
USDA, ‘Portugal sugar standing report’, GAIN Report no. PT1202, 23 March 2012
Farminguk.com, ‘EU sugar quota threatens jobs – MEP’, 28 March 2012
The contrasting prospects for full-time cane sugar refiners in Portugal and co-refiners in Spain highlights the conflicting pressures on the EC in terms of the future of the EU sugar regime. The maintenance of production quotas and higher EU domestic sugar prices helps co-refiners cover their fixed costs from beet refining and places them in a better position to compete for globally sourced raw sugar (by offering higher prices). This can be seen to undermine the position of traditional cane sugar refiners, who have to pay high import duties outside TRQs. The maintenance of import restrictions on non-traditional sugar suppliers in the context of high global sugar prices similarly undermines the position of full-time raw cane sugar refiners.
These domestic EU pressures would appear to carry implications for the twin ACP objectives of ensuring the maintenance of production quotas until 2020 and a continuation of restrictions on access to the EU market for non-traditional suppliers.
The observation that co-refiners are able to bid higher for the purchase of raw sugar raises the question as to whether ACP suppliers linked to the supply chains feeding into Spanish co-refiners have been able to gain additional price advantages as a result of this dimension of the operation of the reformed EU sugar regime.
According to the EC’s ‘Agriculture in the EU’ 2011 report and statistics published in March 2012, EU rice production in 2010/11 reached 1.79 million tonnes (milled rice equivalent). This was down 5% on the record level of production in 2009/10, although still 9% above the 5-year average level of production. Rice consumption in the EU grew by 7% in 2010/11 to 2.59 million tonnes, and EU self-sufficiency in rice fell to 69.1% from 77.5% in 2009/10. This nevertheless remains higher than for the three seasons from 2006 to 2009 (65%). Some 80% of EU rice production takes place in Italy and Spain, with a further 12% in Greece and Portugal. The remainder is in four other countries (France, Romania, Bulgaria and Hungary).
The growth in rice consumption in 2010/11 alongside reduced production saw imports increase by 70,000 tonnes to 970,000 tonnes and rice stocks in the EU decline by 9%. After peaking in 2007/08, rice imports have fallen back. Average imports in the two seasons from 2008 to 2010 were 14.3% below the average of the preceding 2 years. For long grain rice, the import price range in 2010/11 was similar to that of 2001/02 (a 40% variation over the season), but at price levels around double those prevailing in 2001/02.
While EU rice exports remained stable at 210,000 tonnes in 20010/11, this was more than double the level of EU rice exports in 2006/07, and 89% above the 3-year average from 2006 to 2009.
The 2010/11 season saw a new record level for the area placed under rice in the EU, with the area sown 11.6% higher than in 2007. EU rice productions show fluctuating annual yields.
Prices of most EU rice varieties remained stable during the 2010/11 season, except for Italian japonica varieties, where prices increased by 30% to March 2011 before returning to former levels by July 2011. Depending on the rice variety, prices were between 60 and 180% above the reference price level.
EC, ‘Agriculture in the European Union: Statistics and economic information 2011’, Overview, March 2012
EC, ‘Agriculture in the European Union: Statistics and economic information 2011’, Rice statistics, March 2012
The latest data on rice production in the EU in 2011 suggests that EU rice sector reform has been successfully implemented, with the area under rice expanding and the self-sufficiency rate increasing. Price data however provides an indication as to why traditional ACP exporters are seeking to diversify, with the shift to direct aid payments and a safety-net intervention price of €150/tonne alongside far higher global rice prices seeing the EU rice sector price premium disappearing.
While EU exports of rice have more than doubled since 2006/07, these exports tend to consist of higher-quality rice varieties that are not generally destined for ACP markets.
Jamaica is looking to introduce banana varieties that are more resistant to Black Sigatoka disease, with efforts to combat the disease in Jamaica reportedly accounting for up to 25% of total costs of banana production. In addition to being more resistant to Black Sigatoka, the new varieties, which have been developed by an agricultural research organisation in Honduras, are aimed at ‘creating a sustainable value-added market within three years’. The particular variety being trialled in Jamaica has lower production costs and is better suited to the production of value-added banana products.
The government target is for the production of 120,000 tonnes of the new variety by 2020, which will increasingly be used to supply local and export markets for banana chips, as well as meet demand for banana flour and flavouring for juice production. This will reduce the current import bill for banana chips and other banana by-products, which in 2011 accounted for US$8.4 million, more than double the $3.7 million recorded in 2010.
These efforts form part of a wider banana resuscitation programme worth J$50 million (€450,000) launched by the Jamaican government in November 2011. This includes plans for ‘tying farmers to specific processors’, so that there is a ready outlet for the expanded production.
The replication and distribution of the new variety is being managed by the Banana Board in Jamaica, using EU financing made available under banana adjustment support programmes. To date, three plant nurseries have been opened where farmers can purchase the new varieties, and farmers have responded favourably.
Caribjournal.com, ‘Jamaica’s banana sector gets a lift, with help from Honduras’, 6 April 2012
Jamaica Information Service, ‘Lifeline for local banana farmers’, 11 April 2012
Jamaica Information Service, ‘Gov't to pump $50M into banana revival’, 1 December 2011
EU Delegation to Jamaica, ‘Jamaica Project Sheet: European Banana Support Programme - Jamaica’, January 2012 (last update)
The situation in the banana sector in Jamaica is similar to that of other banana producers in the Caribbean, where the difficulties faced in controlling Black Sigatoka disease have been severely debilitating the industry. The recent resurgence of Black Sigatoka in St Lucia and the allocation of part of the EU Banana Accompanying Measures (BAM) programme funding in Belize to controlling the disease are indicative of the seriousness of the situation.
At present, Jamaica appears to be the only Caribbean banana producer to have embarked on a fundamental rebuilding of the banana industry rooted on a completely new, re-engineered variety. The other Caribbean banana producers will be closely observing the performance of the Jamaican industry with this new variety, and especially the impact it could have on the development of a value-added banana products industry.
However, this strategic shift in Jamaican policy was initiated towards the end of the EU’s extensive banana support programme (a €42-million programme initiated in 2000 and scheduled to end in 2012). In recent years the EC has taken the view that despite the European support programme, the Jamaican banana industry ‘has been experiencing a steady decline in terms of production and exports’. As a consequence, a reorientation of the EC’s banana assistance to Jamaica is under way, and the focus of EC support has shifted towards ‘economic diversification and in shielding the negative impact of the downturn of the industry’.
It remains to be seen therefore to what extent the EU will continue to contribute to the implementation of the Jamaican government’s value-added processing strategy for the banana sector, under the new BAM programme.
At an EPA implementation workshop held in Barbados in April, SPS and food safety issues were identified as a major impediment to the expansion of exports from Barbados to the EU. According to representatives from the EPA implementation unit in Barbados, ‘this is not so much on the EU side as it is on the Barbados side’. This is attributed to ‘the failure to enact modern legislation’ in areas that would make Barbados-produced products acceptable on EU markets. It was argued that once legislation and the necessary facilities were in place, then Barbados would ‘start seeing trade in [agro-processed] and agricultural goods’.
On 28 March 2012, a financing agreement worth €82.6 million was signed between CARIFORUM and the EU. The largest component of the three-pronged financing package is for EPA capacity building (€46.5 million). The EPA Capacity Building Programme includes a range of sub-components, one of which is to be implemented through the Inter-American Institute for Cooperation on Agriculture (IICA), with a focus on SPS measures.
|Caribbean Single Market and Economy (CSME) and Economic Integration Programme (€27.5m)||
- Assistance to CARICOM Secretariat for implementation of the CSME agenda
- Support for CSME implementation in Belize and Haiti
- Support to CSME implementation at national level
|Organisation of Eastern Caribbean States (OECS) Economic Integration and Trade of the OECS (€8.6 m)||
- Support to implementation of harmonised tourism and agricultural policies
- Enhancement of competitiveness and export capacity of private sector
- Establishment of regional network on excellence in tourism training
|Support to CARIFORUM with EPA implementation (€46.5m)||
- Technical support to fiscal reform
- Technical support for statistics development
- Technical support with SPS measures
- Technical support on TBTs
- Technical support on services issues implementation
- Rum sector support
- Institutional support to CARIFORUM via a Caribbean Development Bank loan facility
Source: CARICOM Secretariat, press release no. 84/2012, 28 March 2012
Barbados Advocate, ‘Trading with Europe proving difficult’, 9 April 2012
CARICOM Secretariat, ‘Remarks by the CARIFORUM Secretary General’, press release 83/2012, 28 March 2012
CARICOM Secretariat, ‘Speech of Ambassador Robert Kopecky’, press release 84/2012, 28 March 2012
As illustrated by concerns in Jamaica around the new US food safety legislation, the food safety and SPS challenges faced in the Caribbean do not simply relate to the legislative framework for food safety and SPS controls, although getting this basic component right is essential (see Agritrade articles, ‘ Contrary signs on impact of stricter US food safety regulation on Jamaic...’, 28 November, and ‘ Serious food safety challenges face Jamaican exports to US markets’, 6 October 2011).
Critical constraints are also faced with regard to:
- investments at the enterprise level, to ensure the necessary compliance with the required SPS and food safety standards;
- establishing the necessary infrastructure for testing and verifying compliance; and
- the establishment of effective systems of public sector controls to verify and certify compliance with SPS and food safety standards.
This constitutes a substantial agenda for support. Given the size of financial allocations, it is unclear whether existing projects under preparation assist potential Caribbean exporters in addressing all of these constraints on exports. Any shortcomings in food safety compliance – whether at company level, during testing in certified laboratories, or in public sector verification systems – can lead to the disruption of exports.
The government of Tanzania has heralded the success of its cotton contract farming scheme. According to the Minister for Agriculture, Professor Jumanne Maghembe, ‘contract farming has increased yields by 45 per cent due to availability of inputs’. The success of the scheme was also attributed to the ‘enabling policy environment for the cotton sector’ set in place by the government. The minister maintained that more investments are needed for contract farming to keep improving.
To stimulate increased private investment in the sector the government intends to withhold trading licences from ginneries that are not making the investments required to strengthen the Tanzanian cotton sector. This action is aimed at 18 ginning companies that have set themselves against the contract farming scheme.
According to the Tanzania Cotton Board Director-General, Marco Mtunga, the new system has ‘improved quality and increased transparency at buying posts’ and empowered growers to manage their own affairs.
Some 62% of the estimated 500,000 cotton growers in Tanzania have signed contracts with ginners through 5,565 farmer business groups, with all of the participating farmers (an estimated 311,000) having received inputs on credit.
However, textile industry press reports suggest that the matter is not clear-cut. The conflict among Tanzanian cotton sector stakeholders – between those in favour and those against contract farming – carries international implications. The International Cotton Association (ICA) has placed some local cotton traders and ginners on the default list ‘for alleged violation of sales contract with overseas buyers’. This ICA list ‘warns international buyers from doing business with those cotton traders and ginners who have defaulted in honouring their contracts in the past’. This, it is feared, could bring ‘further disrepute to the country’s cotton industry.
The Tanzanian Cotton Association Chair has warned that if contract farming is undermined, a further decline in the Tanzanian cotton sector is likely. Efforts are therefore taking place to reach a consensus on the implementation of the contract farming scheme in ways that address the concerns of those ginners ‘who are not able or willing to meet the costly demands of contract farming’. These operators tend to be smaller (some 18 ginners handling only 20% of the crop) and lack the necessary capital required to invest in contract farming. Ginners which have supported contract farming through making the necessary investment (17 ginners handing 80% of the crop) want government to uphold the rules of contract farming for all industry players so as to avoid ‘free riders’ who do not invest in the development of the sector.
According to local cotton sector analysts, contract farming has seen a record acreage placed under cotton this season, with significant improvement in input distribution promising higher yields.
Ippmedia.com, ‘Government pledges more support for cotton contract farming’, 3 May 2012
Fibre2fashion.com, ‘Contract farming issue troubles Tanzanian cotton industry’, 2 May 2012
Tanzania Daily News, ‘Indecisiveness grips cotton sector over contract farming’, 8 May 2012
Contract farming is at the heart of a four-part strategy for the development of the Tanzanian cotton and textile sector. The programme consists of measures aimed at:
- reforming the regulatory framework for the cotton sector;
- improving access to inputs;
- enhancing farmer training and organisation to improve farming practices;
- developing downstream industries linked to the cotton production.
The 2012 season is seen as being a crucial year for the overall programme, with partnerships between farmers’ groups, ginners, research institutes and local government being established to implement major programmes to improve productivity, yield and cotton quality across the bulk of the sector. If the 2012 season proves successful, a foundation will have been laid for an intensification of efforts to promote downstream value addition.
It remains to be seen whether financing initiatives can be put in place to provide the necessary loans to smaller ginners at affordable interest rates and soft repayment terms, in ways which overcome the ‘free rider’ problem and ensure healthy competition in the sector (by preventing a dramatic reduction in the number of ginneries operating). This could potentially offer a better way forward than withdrawing trading licences, and could offer a sounder foundation for moving onto local value-added processing activities at the level of textiles and clothing.
Looking to the future, strengthening the legal framework and enforcement mechanisms for contract farming would appear to be important. However this needs to be complemented by further strengthening the network of farmers’ business groups to enhance their bargaining power within the cotton supply chain, and even support for the takeover of certain ginneries by larger farmers’ groups. This could replicate the success enjoyed in the Kenyan cotton sector in the mid 1970s. However, the subsequent Kenyan experience highlights the importance of good, accountable and transparent management of farmers’ organisations and hence the importance of a step-by-step approach to building up capacity and organisational ambition.
According to recent press reports, South Africa’s apple exports are expected to increase by 4.4% in 2012, with substantial pear exports as well. The deciduous fruit industry expects to ship more than 40 million carton equivalents of apples and pears globally this season – 26,635,000 apples and 13,632,000 pears. According to Jacques Du Preez, Product Manager for Top and Stone Fruit at Hortgro Services, ‘The quality and quantity of this year’s top fruit will be very good.’ Deciduous fruit exports are focused in particular on the EU.
South African growers are coordinating a European campaign to boost recognition and sales of top fruit across the UK and Germany. This year will be the third successive year that top fruit sales in the countries have been supported by the ‘Beautiful country, beautiful fruit’ campaign. According to Mr Du Preez ‘The initiative is about highlighting the great quality fruit basket our country offers when it’s at its most delicious …from the point of view of freshness and eating ethically. After two successful years of promotion in the UK, we’re hoping to see similar results in Germany.’
Citrus producers, by contrast, are also trying to consolidate their position in the USA market. Last season South Africa shipped a total of 39,644 tonnes of citrus to the USA between May and October. The basket included clementines, grapefruit and three varieties of orange. Only growers in South Africa’s Western and Northern Cape regions (some 300) have the farming practices required to meet and exceed the very stringent USA requirements.
Meanwhile, the South African Department of Trade and Industry (DTI) has identified the food processing sector as a priority area under the Manufacturing Competitiveness Enhancement Programme (MCEP) launched in April 2012. In recent years, the food processing sector has faced numerous setbacks, partly stemming from the impact of the global financial crisis. These include declining export performance, more imports into the South African market and lower rates of product and process innovation.
The MCEP incentive scheme is designed to help manufacturers that are in distress from the effects of the financial crisis. An allocation of R5.8 billion (approx. €545,000) will provide support to stabilise and increase output and employment and improve confidence in the manufacturing sector. The food processing sector can benefit significantly from the fund, which specifically targets businesses in manufacturing that are either labour-intensive or exposed to intense international competition. According to Minister of Trade Dr Rob Davies, the food processing sector ‘is the largest manufacturing sector by employment, with 177 000 employees or 15.2% of total manufacturing employment’ and is ‘also significant in value addition terms … contributing approximately 11% of total manufacturing value-added’.
Freshplaza.com, ‘Apple exports to increase by 4.4%’, 3 April 2012
Freshplaza.com, ‘South African Summer Citrus well established in US market’, 2 April 2012
Biz-Community (Cape Town), ‘Boost for food processing sector’, 2 April 2012
The varied news in a single month from three South African food producers underlines the point that, in agriculture, more processing does not necessarily mean more value added. It also provides a contemporary example of the need for differentiation underlined by the research study on certification (see Agritrade article ‘Certification useful, but benefits less poor farmers’, forthcoming).
South African exporters of deciduous and citrus fruit (as well as of vine products) have established a strong brand. This has involved consistent efforts over many years and significant financial inputs. It allows exporters to obtain premium prices in the market and to penetrate the USA market, despite the fact that, unlike Europe, Africa has no clear geographical advantage there in comparison with strong Latin American competitors.
Producers of processed food (including fruit such as mangoes), by contrast, are struggling. Canned food does not attract the price premium of the fresh variety and consumers appear to be less concerned by the country of origin.
Creating a market niche is not a one-off activity: the niche must be maintained and developed year in, year out. Many ACP producers will lack the financial resources of the South African fruit industry, and it is for them that fair-trade schemes may be useful as a way of differentiating their produce from that of their competitors.
Across the Pacific, considerable scope is seen to exist for the development of organic agricultural exports. EC-financed market studies have seen considerable potential for example for the export of organic papaya from Fiji. In the past 15 years, Fiji’s papaya exports have grown from 30 to 1,346 tonnes. Some 84% of papaya exports are destined for the Australian market via the Nature’s Way cooperative, an Australian government aid (AusAID)-funded initiative established in 1995. The Nature’s Way cooperative undertakes ‘mandatory quarantine requirements on behalf of Fiji’s fruit export industry’.
Exports of aubergines to New Zealand have also risen in the past 5 years, reaching 538 tonnes in 2010. According to press analysis, critical factors in the success achieved in papaya and aubergine exports have been:
- the existence of a good industry management structure that is well focused and free of government interference in its day-to-day operations;
- the establishment of effective public–private sector partnership;
- an expansion of the area devoted to horticulture exports by farmers;
- the existence of a good extension service;
- donor support for infrastructural improvements.
Cyclones and flooding at the beginning of 2012, however, are likely to undermine export levels this year.
The availability of cargo space also overhangs the prospects for exports of papaya, following the reported shift to use of narrow-bodied planes. Sea freight options are currently being explored as an alternative, in order to avoid undermining export volumes.
AusAid is also supporting a Pacific Horticultural and Agricultural Market Access (PHAMA) programme worth A$ 16.4 million (some €12.6 million), aimed at developing a range of agricultural exports. In all, some 41 activities are under way in five countries, 13 of these in Fiji. These activities include:
- improving market access for taro into Australia and New Zealand through the ‘development of production and packing house standards’;
- feasibility studies into the export of aubergines, chilli, jackfruit and pineapples to Australia;
- preparation of formal market access submissions to open up the United States market to breadfruit and papaya.
Particular attention is being paid under the PHAMA programme to strengthening the capacity of farmers ‘to meet international quarantine and food safety regulations’, an issue described as ‘one of the region’s most constant agricultural and trade challenges’.
Fiji Times, ‘Potential in organic papaya’, 28 March 2012
Fiji Times, ‘Fiji breaks papaya export record’, 16 February 2012
Fiji Times, ‘Reduced flights force lower exports’, 26 March 2012
Australian Aid, ‘Creating opportunities for Pacific farmers’, undated
Greater appreciation of the constraints faced by the Pacific horticultural exporters emerges when viewed in the context of the ‘specific social, economic and environmental vulnerabilities’ of the small island developing states (SIDS), which were recognised in 1992 at the first Earth Summit in Rio de Janeiro, Brazil. Twenty years on, with the Rio+20 meeting pending, these vulnerabilities continue to constrain SIDS, despite two decades of global efforts to promote sustainable development.
The cyclonic and flood damage to horticultural exports in Fiji in early 2012 is a stark reminder that SIDS have ‘little resilience to natural disasters’, and that they have ‘fragile natural environments’. The problem of lack of aircraft cargo space which, inevitably, directs attention towards the second-best option of sea freight to Australia and New Zealand, underscores the ‘heavy dependence on a few external and remote markets; high costs of energy, infrastructure, transportation; ... long distances from export markets; ... low and irregular international traffic volumes’.
Nevertheless the efforts by PHAMA and the EU-funded ‘Improving Agricultural Commodity for Trade’ (IACT) are improving the range of agricultural exports from the region. Apart from addressing the problem of similarity of exports from each country, these much-needed ‘aid for trade’ programmes have increased the benefits of economies of scale, and improved supply and value chain management, expanding private-sector-led export opportunities.
The vulnerabilities however continue. Strengthening the capacity of farmers ‘to meet international quarantine and food safety regulations’ remains a challenge for the region. Both exporters and importers have a role to play here: exporters may do all they can to facilitate trade from their end with assistance from development agencies, however these efforts will not prove fruitful if non-tariff barriers (NTBs) in importing countries are not addressed. While NTBs may be as old as trade itself, in the context of SIDS, it may be opportune if Rio+ 20 discussions take these up as an imperative to boost global trade.
The Famine Early Warning Systems Network (FEWS NET) has issued warnings that food insecurity in the Sahel is predicted to be at its worst between April to September 2012, and has called for ‘technically appropriate and well-targeted emergency assistance’ to meet household needs. FEWS NET expects ‘the most severe food insecurity problems [to occur] in agropastoral and rainfed farming areas of central and southern Mauritania.’
While production in the region has been substantially below the record level of 2010/11 (-26%), it is ‘within five percent of the recent five-year average’. FEWS NET argues that ‘food availability is not likely to be a problem in the region this year, provided markets function sufficiently.’ According to FEWS NET, ‘markets in Niger, Nigeria, Burkina Faso and Chad are functioning well with regular flows from surplus-producing to net-consuming areas with relatively typical supply-chain lengths and price differentials.’ However, it is noted that in Chad ‘cereals flows from typical trading partners’ are below average, attributed to the deteriorating security situation and the absence of marketable surpluses in the Central African Republic.
In addition, ‘cross-border trade in Niger, Nigeria, Benin, and Burkina Faso is lower’, reflecting ‘traders’ expectations that cereal deficits in these countries are less significant than in 2009/10’. Markets in Mali and Mauritania are considered to be functioning ‘less well, with relatively longer supply chains and higher price differentials between surplus and deficit areas than usual’.
Significant cereal price rises between October and December 2011 (the harvest period) are the typical seasonal development, attributed to delays in the start of the harvest, higher production costs and higher stock holdings. It is noted that Mauritania, which largely depends on imported wheat, is facing a 50% increase in prices due to imported inflation arising from the ‘2011 price hikes on the international market’.
Despite the alert issued by FAO and WFP at the end of 2011, FEWS NET concluded towards the end of March that ‘in general, regional cereal production and global imports are sufficient to meet regional food needs throughout the 2011/12 consumption year’.
In March 2012 aid agencies warned that 13 million people could be affected by the drought, while in May FAO put the figure at 18 million, leading aid agencies such as Oxfam and Save the Children to issue appeals to combat food crisis in the region. The countries most seriously affected are Gambia, Chad, Senegal, Niger, Mauritania and Burkina Faso. While Oxfam reported food prices between 20 and 25% above the 5-year average, Inter-réseaux/SOS Faim Belgique, assessed substantially higher prices in:
- Burkina Faso, Mali, Togo, Côte d’Ivoire and Ghana (+50–60% compared to the 5-year average);
- Nigeria, Niger, Chad and Benin (+30–40%);
- Senegal, Mauritania, Gambia and Guinea (+25–33%).
Part of the price inflation was attributed to uncertainties over actual production levels, hoarding and increased border controls. In this context, the government of Gambia’s declaration in March 2012 that the 2011–12 farming season was ‘a failure’ led to a dramatic and immediate rise in food prices. Despite preliminary estimates showing a net production surplus in Mali and Burkina Faso, prices have also continued to rise.
Strong demographic growth and underlying structural vulnerability may in part account for the severity of the current food crisis. Nevertheless, as highlighted by Inter-réseaux/SOS Faim, Alliance for a Green Revolution in Africa (AGRA) and the International Livestock Research Institute (ILRI) have called for concerted action to:
- cut inefficiencies in transportation of foodstuffs;
- improve input and credit policies; and address unnecessary barriers to trade.
FAO for its part called for measures to improve ‘access of farmers and herders to local markets and the use of local surpluses to meet shortfalls in deficit areas’.
In April ECOWAS and WAEMU were advised to:
- keep financing and implementing food security emergency plans;
- support farmers in the provision of seeds and herd reconstitution for next season;
- invest in long-term interventions to develop crisis resilience and to implement national plans for food security and agricultural investment.
Famine Early Warning Systems Network (FEWS NET), ‘West Africa: Food security outlook, January to September 2012’, 28 February 2012
Oxfam International, ‘Drought could become a catastrophe for 13 million if action not taken in West and Central Africa, Oxfam warns’, 9 March 2012
FAO, ‘Agriculture issues intensify food shortages’, 13 March 2012
The Daily Observer (Banjul), ‘Cabinet to meet over imminent food crisis’, 9 March 2012
AlertNet, ‘Improving markets key to better food security’, 6 March 2012
FEWS NET, ‘Sahelian food security crisis to peak between July and September’, 27 March 2012
FAO, ‘Executive brief: The Sahel crisis, 2012’, 1 May 2012
Inter-réseaux Développement rural/SOS Faim Belgique, ‘Bulletin de synthèse : La crise alimentaire, pastorale et nutritionnelle au Sahel en 2012’, May 2012
Food Crisis Prevention Network, ‘Communiqué final : Réunion du Réseau de prévention des crises alimentaires’, 13 April 2012
If prices are moving contrary to the normal seasonal trend, this suggests that either the cereals deficit is worse than currently projected or that markets are working very imperfectly. This raises questions over the link between how markets work and wider political and policy developments in the region. It is possible that political turmoil and/or expectations of trade restrictions are fuelling contrary price trends. Clearly trade plays a vital role in meeting regional food security needs across West Africa, yet with so many obstacles to the free flow of foodstuffs across the region (from unofficial checkpoints, through infrastructure constraints, to policy constraints), the challenges facing governments are significant. Maintaining the free movement of goods across borders by avoiding export restrictions would appear to be necessary, but pressures on national governments to put their own food security needs first are enormous. Properly functioning regional food reserve facilities, consistent with evolving regional needs, have been suggested as one possibility in order to avert widespread use of trade restrictions in the longer term.
On 18 April, the EPA Implementation Unit of the CARICOM Secretariat held a consultation in St Vincent and the Grenadines aimed at generating a better appreciation of how the regional private sector can take advantage of the trade and investment possibilities arising under the EPA. This is the latest in a series of meetings to mobilise engagement with the Caribbean EPA process.
These official CARICOM-organised meetings are not the only such initiatives taking place. At the beginning of April 2012, the Barbados Private Sector Trade Team (BSTT) sponsored a workshop aimed at assisting private businesses in accessing the EU market. The focus of the meeting was about ‘how people can actually start using this agreement’.
Before the agreement can be effectively utilised, issues related to SPS, food safety, quality standards and certification were identified at the meeting as the main obstacles. According to representatives from BSTT, these obstacles were not primarily on the EU side, but rather ‘on the Barbados side and the failure to enact modern legislation’, necessary for the conduct of trading relations. It was argued that once legislation and the necessary facilities were in place, then an increase in trade in agro-processed goods could occur.
Meanwhile, according to regional Caribbean analysts, while ‘very large sums of money are being made available by Europe …to support regional integration and to meet many of the technical requirements of the EPA … it is hard to find any evidence that use is being made of the trade aspects of the agreement other than in relation to the improved access it offers in the area of commodity exports’.
In addition, it is pointed out that the value of Caribbean preferential access to the EU market is increasingly being eroded by the multiplication of EU FTA agreements with Latin American countries. It is against this background that many private sector operators in the Caribbean reportedly see the EPA process as ‘an irrelevance’, with ‘new and better opportunities for the region … emerging in locations other than Europe’.
Nevertheless, opportunities are held to exist under the EPA in a number of areas, including high-value agricultural products and value-added food products. It was pointed out this however largely relates to ‘small but vibrant new areas of Caribbean economic activity’. The work of the EU-supported Caribbean Export Project was highlighted as a good example of what could be done, with the focus on ‘visits to Europe; small catalytic events; a sectoral approach; individual meetings and contacts; and by quietly picking winners’. On this basis it was considered ‘possible to foster the establishment of business to business relationships and promote specific opportunities’. This is seen as offering a model for the way forward in taking advantage of EPA-related trade opportunities.
CARICOM Secretariat, ‘EPA Consultation in St Vincent and the Grenadines on Wednesday’, 17 April 2012
Barbados Advocate, ‘Trading with Europe proving difficult’, 9 April 2012
Dominican Today, ‘Is there hope for the EPA?’, 30 April
Trade, including exports of fresh and value-added agricultural products, is a major vehicle for transforming the basis of CARIFORUM’s integration into the global economy. A recent study on the implementation of EPA commitments in the agriculture and fisheries sectors completed in December 2011 noted that while the EPA offers the possibility of tariff- and quota-free access into the EU markets for all CARIFORUM exports, non-tariff barriers (NTBs) remain a significant hurdle to overcome in developing a sustainable export thrust, particularly SPS, food safety and quality standards and their associated certification requirements. In this context the difficulties faced in the operationalisation of the Caribbean Agricultural Health and Food Safety Agency (CAHFSA) is a matter of concern.
The SPS and associated challenges relate to the regulatory framework, which is primarily a public sector concern but which requires the active engagement of the private sector. Meeting the requisite standards, however, so that exports can take place, is ultimately a private sector responsibility, as is the development of business-to-business contacts.
An increasingly important question that arises regards what realistically can be done within the framework of the EPA to assist public and private sector bodies in getting to grips with these challenges:
1. Regarding SPS, food safety, quality standards and certification issues, there would appear to be a need to build a ‘development dimension’ into all these EU policy areas to make sure that these non-tariff measures do not become NTBs to Caribbean exports. This requires an intensification of dialogue processes and the deployment of appropriate ‘aid for trade’ support in a structured and systematic manner in response to problems as they arise. This could build on elements of the recently signed €82-million EU regional support programme (see Agritrade article ‘ SPS and food safety issues prove a major constraint on Barbadian exports...’, 28 May 2012).
2. New mechanisms are needed for delivering ‘pump-priming’ support to Caribbean private sector bodies, facilitating business-to-business contacts and developing sector-wide marketing strategies (e.g. following the model of the EU-funded Caribbean rum programme implemented through the West Indies Rum and Spirits Producers’ Association). This could for example build on the work of the Caribbean Farmers Network (CaFAN), which has been proactively engaging with potential private partners and institutional support bodies to build capacity within the farming sector to exploit EPA and other trade opportunities.
3. Better information systems on evolving market trends are required, so that Caribbean producers can place themselves ahead of the curve. For example, how can Caribbean banana exporters exploit the emergence of ‘reefer containers’ for the inter-continental transportation of bananas, with growing supermarket interest in direct imports of bananas? How can they reposition themselves within specific Caribbean–EU banana supply chains to better meet the needs of end retailers and enhance their share of the value? Across the range of diverse initiatives in the region aimed at exploiting EPA opportunities, the challenge is to identify these initiatives and create mechanisms to enhance their capacity to deliver on sectoral, national and regional agricultural development objectives.
A study on sustainability certification has been published by the International Institute for Environment and Development (IIED). Based on research from a range of institutions, interviews and case studies on fair-trade, organic and some other certification schemes, the study finds that these schemes are likely to help some producers upgrade, offer training opportunities and improve trading relationships, but are likely to benefit ‘less poor farmers’ already producing quality products. While the study focuses on certification for small-scale producers in Vietnam, China, Indonesia (tea and coffee) and India (cotton), its findings are of direct relevance to ACP producers that share many of the characteristics of the systems analysed.
The study reviews evidence on the costs and benefits of a number of certification schemes:
- Rainforest Alliance
- Utz Certified
- CAFÉ Practices.
It also explores the potential of geographic labelling strategies to deliver benefits to poor and marginalised farmers.
Two key factors underpinning these conclusions are cost, and what is known as ‘the fallacy of composition’ (where if everyone increases supply at the same time, prices can decline). The study points out that to participate in many schemes, farmers ‘must absorb the lion’s share of the costs of certification (both direct costs such as fees, and indirect ones, such as the costs of establishing the structures needed to meet traceability requirements).’ Traditionally, such costs have been seen as a way of obtaining premium prices.
Like previous studies, the IIED report distinguishes between Fairtrade and the certification offered by other schemes. Fairtrade has an explicit goal of improving the livelihoods and wellbeing of small producers with an emphasis on ‘fairness and building livelihoods’ through its minimum prices and social premium. It regards environmental sustainability as necessary to underpin sustainable livelihoods. The study concludes that ‘Fairtrade certification has played an important role at times of low prices, such as during the coffee crisis. For very poor producers, minimum prices and market access via Fairtrade networks has been critical. Fairtrade can act as an important safety net and can reduce price volatility.’
By contrast, Rainforest Alliance, Utz Certified and CAFÉ Practices ‘offer no minimum prices, no guaranteed premiums and do not address price volatility or inequity in the value chain as a primary objective.’ Also, the study argues that ‘they are not as strong on social criteria as Fairtrade, and their basic aim is not to transform inequitable trading relations.’ It recommends more research to explore their costs and benefits.
But the ability of even Fairtrade schemes to offer a price premium depends on what the consumer will pay. ‘As certified produce becomes increasingly mainstream and less of a niche product’, the study argues, ‘premiums may become less likely.’ It further notes that ‘Fairtrade premiums and minimum prices have lost value in real terms over time’ and that ‘some have argued that prices are still not high enough to be transformational.’
This finding suggests that Fairtrade needs to do more to remain cutting edge. In April the establishment was announced of the first ‘Fairtrade Access Fund’ which will ‘provide farmers’ cooperatives and associations the long-term loans they need to renew their farms or adopt new technologies and equipment’. These financial requirements are substantial. A 2010 study from Fairtrade International claimed that in Latin America alone, fair-trade farmers needed US$500 million to cover their financing needs, over half of this in the form of long-term loans.
International Institute for Environment and Development (IIED), ‘Pro-poor certification: Assessing the benefits of sustainability certification for small-scale farmers in Asia’, Natural Resource Issues 25, March 2012
CommodAfrica.com, ‘Les labels de certification, un système trop coûteux pour les pays pauvres ? Une étude de IIED pose la question’, 30 April 2012
ODI, ‘A review of ethical standards and labels: Is there a gap in the market for a new “Good for Development” label?’ Working Paper 297, November 2008
Incofin/Fairtrade Foundation/Grameen Foundation/Starbucks Coffee Co., ‘Fairtrade access fund to provide long-term loans to smallholder farmers’, 24 April 2012
Certification is, in the words of the IIED study, a process of ‘decommodification’. The word ‘commodity’ is widely used in trade analysis to contrast the relative prices of ‘commodities’ on the one hand, and ‘manufactures or services’ on the other. In this sense, a commodity is an undifferentiated bulk product sold onto a normally highly competitive and possibly volatile world market. Producers (and countries) are often urged to diversify out of commodities and into higher-value, more differentiated products where prices may tend to rise.
However, ‘commodity’ is not identical to ‘agricultural’, although commonly used as such. Fresh green beans exported from Kenya onto a highly differentiated European market are much less a ‘commodity’ than are, for example, Kenyan canned beans (which attract lower prices and may be lower quality) even though this is a processed rather than a raw product. In today’s markets, some agricultural products are ‘commodities’ but some are not.
By helping producers differentiate their output to the consumer, certification may support a diversification strategy. But it all depends upon the terms. There is a lesson in these reports, both for ACP farmers and for European consumers. Both need to be more discerning about which schemes they support. The right ones may foster development, but this is not guaranteed simply by a certificate. It is what is on the certificate, what it represents and how it impacts on the final prices and the distribution of revenues along the supply chain that counts.
The Kenyan Bureau of Standards (KBS) is actively seeking to promote a harmonisation of food safety standards within the EAC region and across Africa. KBS Managing Director Evah Oduor called for the development of ‘a broad-based, horizontal, food safety standard which defines control systems and specifications that can serve as reference standards for trade in food products’. Such standards should ‘address issues of food safety, contaminants like heavy metals, pesticides and veterinary drug residues and antibiotics’. Provisions should also deal with issues related to the ‘packaging and labelling of products’.
The KBS is also developing a new food safety guide with the aim of boosting food safety and reducing the time frame for approval of food products. It is maintained that the new guidelines will simplify legislation and increase competitiveness. Following the adoption of these new food safety guidelines at the national level, the intention is to promote the same standards across the EAC, to ‘reduce barriers to trade in foodstuffs in the region and avoid the scenarios where foodstuffs from Kenya or Tanzania are denied entry at border point due to variance in standard’.
How far national standards may go is illustrated by the recent announcement that Kenya is to introduce a mineral fortification requirement for all cereal flour (maize, wheat and millet) on health grounds. A 1-year grace period for compliance is to be permitted.
Daily Nation, ‘Alarm over differing food safety standards’, 2 May 2012
The Star, ‘New food safety guide soon’, 2 May 2012
The Star, ‘Law to enrich maize meal’, 2 May 2012
While establishing common standards is essential for the promotion of regional trade, as illustrated by the experience in the dairy sector (see Agritrade article, ‘ Initiatives to establish an EAC regional dairy development strategy’, 6 October 2011), this process needs to involve all concerned stakeholders if standards are not to emerge that structurally favour some national producers over other producers. The initiative to use Kenyan standards for the promotion of regional standards could thus prove a double-edged sword. While the initiative could accelerate the process of regional standard-setting, it could lead to political concerns over a possible structural bias of the standards established in favour of Kenyan enterprises. In this context, the process of consultation through which national food standards are regionalised becomes as important as the standards themselves. Full involvement of regional food industry stakeholders will need to be ensured in any process of decision making that leads to the regional adoption of Kenyan national standards.
Kenyan standards development will also need to be coordinated with similar processes within COMESA and the Trilateral FTA context. For example, COMESA member states have adopted the Regulations on Application of Sanitary and Phyto Sanitary Measures and have designated the Mauritius Food Technology Laboratory as the regional reference laboratory for food safety. This requires the Kenyan authorities to ‘domesticate’ COMESA-wide decisions, for example, the operationalisation of instruments such as the proposed COMESA ‘green pass’, a product certification scheme that would enhance trade in food commodities in the region.
In should be noted that as, elsewhere in the region, enforcement issues remain a problem for the KBS, as evidenced by the high level of sub-standard products in circulation. As a consequence, the issue of differences in capacity at national level within EAC and application of the principle of asymmetry as provided by the EAC Protocol need to inform the development of food safety standards.
Finally, emerging areas such as biotechnology and genetically modified organisms also need to be addressed by the KBS: these are likely to impact on regional food commodity trade in the near future, as countries in the region increasingly adopt these new technologies.
In May, the Namibian meat processing company Meatco announced the success of its efforts to sell beef cuts from the northern communal farming area (NCA), north of the veterinary control fence to the high-end South African retailer Woolworths. Not only is the NCA beef now on sale in Woolworths stores, but since it is certified free-range beef, it is also obtaining price premiums. Meatco officials maintain that ‘the development of this free-range marketing opportunity adds significant value to the product exported from the NCA’, value which will be reflected in the prices paid to NCA farmers supplying the product. Since Meatco gained access to Woolworths, Namibian beef, regardless of grade, has reportedly been fetching prices ‘in the region of 15 per cent above the South African A-grade meat price’. As a consequence of the marketing strategy, Meatco in financial year 2011–12 ‘was able to pay producers the highest average price’ in the company’s history.
This needs to be seen against the background of warnings in April 2012 that non-seasonal factors were exerting downward pressure on beef prices in Namibia. These factors included:
- reduced demand in South Africa resulting from a slowdown in economic growth;
- increased cereals costs in South Africa, reducing demand for Namibian weaner cattle;
- the availability of additional beef supplies from Botswana, following the closure of the EU market.
Press reports, meanwhile, indicate Australian beef exports to the EU were up 13% in the first 4 months of 2012 compared to 2011, 58% above the 5-year average. This reflected a 19% increase in grass-fed exports, accounting for 75% of exports in April 2012.
The Namibian, ‘Communal free-range beef on Woolies’ shelves’, 7 May 20112
New Era (Windhoek), ‘Meatco says producer prices still under pressure’, 25 April 2012
Thecattlesite.com, ‘Beef exports to EU ramp up in April’, 4 May 2012
The high prices offered to Namibian producers in the 2011–12 season and the breakthrough in marketing quality-differentiated beef products from the NCA highlight what can be achieved through focusing on quality production, product differentiation and clearly targeted marketing activities. However, recent price trends highlight the wide range of factors extraneous to the sector concerned that can serve to undermine these positive developments. This experience highlights the need for constant attention to reducing unit costs and maximising returns across a diversified range of markets (in the case of Namibia, a range of EU and non-EU markets in Europe as well as South Africa). It also demonstrates how maintaining good sanitary conditions and a sound traceability system can eventually pay off in terms of higher earnings for producers. This is a supply-side constraint which, addressed effectively, could change the export potential of any developing country when linked to carefully targeted marketing strategies embracing various aspects of product differentiation.
In a context of exchange rate volatility and increasing competition on the high-quality component of the EU beef market, e.g. from Australia, maintaining a diversified export market base is increasingly essential for Namibian beef exports.
The EC is to support an extension of initial support to cocoa sector restructuring in Jamaica under the ‘Re-engineering the Cocoa Rural Economy through Agro-processing and Eco-Tourism and Entrepreneurship’ (RECREATE) project. The first stage, implemented through the Cocoa Industry Board, successfully rehabilitated 2000 acres of neglected cocoa fields. This second-stage programme seeks to improve cocoa nursery infrastructure, in order to facilitate an expansion of the area under fine cocoa and to provide support to cocoa field management, value-added processing, farmer training and small rural business development.
According to the Jamaican Minister of Agriculture, Roger Clarke, Jamaica stands ‘on the threshold of a major turnaround towards consistent supply and value-added niche marketing’ of cocoa and cocoa products. It is hoped that success of the EU-supported scheme will stimulate private sector investment in the cocoa sector.
Elsewhere in the Caribbean, St Vincent & the Grenadines is looking to develop cocoa production in association with the commodity trader Armajaro. The trading company is to provide training to local farmers in exchange for becoming the sole buyer of the fine-flavoured, high-value premium cocoa produced. It seeks to build on the informal production and marketing of cocoa which already take place. This forms part of Armajaro’s positioning strategy to capitalise on growing demand for chocolate in emerging markets, particularly Asia.
According to the Prime Minister of St Vincent & the Grenadines, Ralph Gonsalves, the deal ‘provides a chance for some of the land that was cultivating bananas to go into cocoa’. Some 500 acres is to be placed under cocoa in mid 2012, to be expanded to 5,000 acres within 5 years if the initial trial proves successful. This would then yield production of between 2,500 and 3,000 tonnes.
According to Reuters, ‘global cocoa demand is on course to outstrip supply in the coming years as aging trees and a lack of investment in some of the world's top producers limit production.’ Other Caribbean countries are also showing a growing interest in cocoa, while the region’s largest cocoa producer, the Dominican Republic, ‘ranks among the world's 10 leading producers’.
Jamaican Gleaner, ‘EU pushes for cocoa regrowth’, 22 March 2012
Government of Ghana, ‘Cocoa industry board to launch cocoa rural re-engineering project’, 16 March 2012
Reuters, ‘Caribbean’s St. Vincent looks to cash in on cocoa’, 16 November 2011
Jamaica and St Vincent & the Grenadines represent two different approaches to developing the cocoa sector. One is based on the traditional, government-sponsored development project approach, while the other is a government-promoted arrangement with a global commodity trading company keen to position itself to meet expanding global demand for cocoa to serve growing and increasingly differentiated global chocolate markets.
Both approaches, however, are likely to face a common challenge: how to regulate and strengthen the functioning of the cocoa supply chain in order to ensure that primary producers of quality-differentiated cocoa secure the full value of the price premium associated with the quality of cocoa produced.
In meeting this challenge, Caribbean governments in the cocoa and other sectors could potentially draw lessons from the EU’s efforts to strengthen the functioning of agricultural supply chains in the context of large inequalities in power relationships that exist in many agricultural supply chains. To date, EU analysis of this issue has given rise to a number of potential areas for public policy intervention. These include:
- extending support to strengthening producer organisations, including their negotiating capacity;
- promoting sustainable and market-based relationships between stakeholders in the supply chain by identifying ‘unfair contractual practices stemming from asymmetries in bargaining power’;
- promoting increased transparency in price formation by supporting price comparison services and monitoring ‘potential abuses’;
- where necessary, drafting standard contracts for use by stakeholders within the sector, to promote transparency in key financial aspects of contractual arrangements.
These can be complemented by provision of extension services to progressively improve quality, combat diseases and reduce post-harvest losses and support to independent grading.
Press reports indicate that improved bean quality and smuggling into Ghana are boosting producer prices in Côte d’Ivoire, following an initially poor start to the Ivorian cocoa season. This reflects higher government guaranteed prices in Ghana. While major cocoa users such as Barry Callebaut have said they are unconcerned about the ongoing process of cocoa sector reform in Côte d’Ivoire, some press reports suggest a certain level of concern among cocoa traders, buyers and confectioners. Press reports indicate that while to date the major cocoa trading houses have been free to buy and sell the commodity on the London market leaving producers exposed to international cocoa market volatility, daily auctions of part of the future crop have been introduced under the newly created Ivorian regulator, the Cocoa and Coffee Council (CCC). On the basis of this daily auction system, producer prices and export prices are determined.
While the new system has operated smoothly, the parallel forward sale of two crops (the Ivorian and Ghanaian crops) is reportedly exerting downward pressure on prices. Under the new system each exporter is restricted to 110,000 tonnes of purchases at auction, while a stabilisation fund is being created.
Under the new regulatory regime the Ivorian government has launched a review of the controversial system of tax incentives for companies that establish grinding operations locally. It is also putting pressure on the system of discounting Ivorian beans based on quality concerns, since the new CCC rules ban such discounting.
This is generating industry concerns over how bean quality is to be maintained, with fears that this could undermine the functioning of the new daily auction system. There are also concerns that physical shortages could emerge towards October 2012 unless certain aspects of how the system is to operate are clarified.
The World Bank, meanwhile, takes the view that the Ivorian cocoa reform process is on the right track.
While Chinese demand for chocolate is currently in its infancy, with urbanisation and changing dietary trends, Chinese demand is expected to soar, alongside grinding capacity, providing a boost to global cocoa markets.
Reuters, ‘Ivorian cocoa prices up on quality, smuggling’, 8 May 20212
Bloomberg.com, ‘Ivorian cocoa reform won’t be a problem for Barry Callebaut’, 2 April 2012
Financial Times, ‘Ivorian uncertainty weights on cocoa industry’, 4 May 2012
Reuters, ‘Ivorian cocoa reform on right track says World Bank’, 13 February 2012
Agrimoney.com, ‘Cocoa, coffee next on list of ags craved by China’, 4 May 2012
The current reforms in Côte d’Ivoire represent a return to a regulated sector in line with the long-standing Ghanaian practice. While marketing two crops at the same time puts pressure on prices, it can be seen as a necessary step towards securing the higher revenues for growers (at least 50–60% of international prices) necessary to give an incentive to the increased use of inputs, the strengthening of good husbandry practices and the nationwide effort required to replant improved varieties providing higher yields. It is these higher yields which will potentially lay the basis for better returns to cocoa farmers.
However, the way international markets work and the distribution of the benefits of expanding Asian demand along the supply chain will also be critical in determining the longer-term returns to cocoa farmers from these efforts.
Anticipation of expanding Chinese demand is leading European and US cocoa grinders and chocolate manufacturers to position themselves vis-à-vis African supplies in order to be able to most effectively capitalise on demand growth when it occurs. However, from an ACP perspective the question arises: how can the pending expansion of Chinese and wider Asian demand for cocoa-based products assist in bringing about a repositioning of the ACP cocoa producers within evolving global supply chains, so that a higher level of the value generated along the cocoa supply chain is retained by ACP producers of cocoa? This needs to be seen in a context where despite the economic crises, Europe remains the market for high-quality, and therefore high-value, cocoa.
This provides an additional challenge for the regulatory reform process underway in Côte d’Ivoire. Will the new rules introduced allow producers in West Africa to both directly and indirectly exploit the pending expansion of Chinese demand to bring about fundamental repositioning within global cocoa supply chains?