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Agriculture Newsletter – March 2012

Commitment of Comoros islands to fighting IUU fishing

30 January 2012

An EC press release has reported on a meeting of delegates ‘within the framework of the joint committee to discuss issues linked to the implementation of the FPA between the EU and the Union of Comoros’.

On the matter of the fight against IUU fishing, ‘The EU delegation referred to ongoing cases of two fishing vessels under the Comoros flag that were fishing in Senegalese waters in 2011 with fishing authorisations delivered in breach of the provisions of the Senegalese fisheries code. Reacting to correspondence sent by the EC requesting information on these vessels, within the framework of the joint committee, the competent authorities of Comoros committed themselves to withdraw the Comoros flag from these two fishing vessels’.

The Comoros also agreed to implement measures to prevent any further registration of IUU vessels under the Comorian flag, and this was welcomed by the EC.

Editorial comment

The EU’s use of the bilateral FPA with Comoros as a platform for dialogue to combat IUU fishing is a most welcome development. Earlier this year, reports of a fleet fishing for small pelagics in Senegalese waters in 2011 with legally questionable authorisation raised alarm in the Senegalese fishing sector. These stocks are usually targeted by local fleets, particularly artisanal fleets and contribute significantly to local food security. Several ACP countries, often small island states like Comoros, have long-distance fleets fishing far away from their home ports, often in distant oceans, making it difficult for the ACP flag state to ensure appropriate monitoring and control. In a context where it is becoming increasingly important for a flag state to show that it actively combats IUU fishing, the registration of such distant-water vessels will need to be carefully assessed by the ACP states involved, to ensure that they have the capacity to monitor and control them adequately.

The IEEP identifies flaws in the IUU regulation

30 January 2012

The Institute for European Environmental Policy (IEEP) has published a study reviewing the implementation of the EU IUU regulation. ‘Based on published and new information collected through a short survey, the study found that both the Commission and member states faced some challenges in implementing specific components of the regulations…. Our analysis of the first 18 months of implementation suggests that there are a number of areas where the EU IUU regulation is deficient.’

For example the IEEP analysis concluded that ‘the catch certification scheme as it stands is not working to prevent illegally fished products from entering the EU market as the paper certificates are open to fraud. A move towards compulsory electronic certificates may help to reduce opportunities to commit fraud. However without big efforts to inspect and validate consignments and certificates the measure will continue to be ineffective’. It also highlights that ‘greater efforts should be put into understanding and investigating these lucrative illegal trade flows and closing up the loopholes that allow them to flourish’.

On trade aspects, it also highlights that ‘A simple analysis of the impact of the regulation on imports, looking at total imports of fisheries products before and after the entry into force of the regulation, was done as part of this study. However, further analysis of global trade data is required to full understand the impact of the regulation. Trade flows between countries need to be analysed in depth to establish whether there have been any changes in movements of fish products previously imported into the EU’. 

Editorial comment

Some aspects of the methodology followed in this analysis are open to question. For example, the approach of looking at total imports of fish products before and after the entry into force of the regulation, and then trying to draw conclusions about how the IUU regulation has impacted on trade flows may need to be refined, given the variety of factors that influence fish trade flows. Moreover, undertaking an assessment of such a complex regulation only 18 months after its entry into force may only provide some indications of issues encountered during the implementation phase. A detailed evaluation is expected to follow by October 2013. 

The European Parliament demands more action to tackle global illegal fishing

30 January 2012

The European Parliament has adopted a resolution on combating illegal fishing, which emphasises the need to ‘strongly insist that third countries effectively combat IUU fishing, including by promoting the signing, ratification and implementation of international instruments such as the FAO Port State Measures Agreement, the UN Fish Stocks Agreement, the FAO Compliance Agreement and the UN Law of the Sea as well as the various catch documentation schemes already adopted by RFMOs in the context of trade agreements, FPAs and the EU’s development policy’.

It has also called for ‘all external aid measures to be accompanied by a firm political resolve on the part of the beneficiary state to ban IUU fishing in its waters, and more generally to improve governance in the fisheries sector’ and ‘encourages the Commission and the member states to expand their programmes of financial, technological and technical support, including official development aid and FPAs, for monitoring, control and surveillance programmes in the waters of developing countries, giving priority to regional programmes rather than bilateral ones; further encourages greater coordination among all donors, European and others, in funding such programmes’.

The resolution also underlines the trade aspects, and stresses that ‘one of the best weapons in the fight against IUU fishing is the trade weapon’.

Editorial comment

Although the IUU regulation will not be directly affected by the reform of the CFP, the European Parliament resolution highlights how CFP reform, both in terms of the reform of the external dimension policy and the reform of the CMO, could be adapted to better support the implementation of the IUU regulation.

High beef prices are stimulating a rethink of Caribbean beef tariff policies

12 February 2012

In 2011, EU beef prices rose by 9.5%, with the EC forecasting a further increase in 2012 of 1.7%. This is being ‘driven by lower production and tighter supplies, increasing exports and lower imports’. According to analysis carried out by the website Thecattlesite in December 2011, ‘There has been a dramatic change in fortunes for the EU beef industry, as in 2007 the region was a net importer of beef, shipping in 308,000 tonnes. Now the EU has become a net exporter shipping 237,000 tonnes.’ While initially this reflected SPS restrictions on Brazilian beef exports to the EU, with export volumes falling dramatically (from 363,000 tonnes in 2007 to 80,000 tonnes in 2010), more recently it has reflected supply constraints in major producing countries, and relative price increases on non-EU markets (in part driven by exchange rate movements). According to analysts, ‘this has led to the major beef producing countries in South and North America and Australia seeing prices around the EU level of between €3.50 and €3.80 a kilo’. Argentinean government export restrictions have also impacted on beef trade flows, with exports to the EU falling from 122,000 tonnes to 42,000 tonnes. In 2012, EU beef production is forecast ‘to decline by 2.8% to 7,122 million tonnes.

At the global level, according to industry analysis, global beef production is seeing ‘fewer slaughter numbers and higher prices’. In the US prices are approaching ‘record highs’, with good prospects for the next two years. High world market prices mean that although Brazilian export volumes to traditional markets have fallen 26% in the case of Russia, 39% in the case of Iran and 35% in the case of Egypt, ‘[export] values have risen by 24%, 26% and 18% respectively’.

Sustained high global beef prices appear to be stimulating a rethink of beef sector tariff policy in the Caribbean. Press reports indicate that the Jamaica Broilers Company is arguing that efforts to revitalise the Jamaican beef sector are being held back by ‘poor economic conditions and a weak policy framework’. The company is nevertheless expanding its breeding activities, despite ‘the vulnerability of the sector to import competition’. In this context, it is argued that ‘clear policy support’ is needed.

Beef production in Jamaica is less than one-half of what it was 10 years ago. Chris Levy, CEO of Jamaica Broilers, pointed out in December 2011 that ‘poultry gets real protection with duties totalling 260 per cent while only the common external tariff of 20% – plus additional stamp duties – is applied to beef imports.’ It was further noted that the price in US dollar terms of imported beef ‘has increased by 46 per cent over the last 10 years.’

The situation is, however, complicated by the trade in ‘beef trimmings’, which consist of the fat trimmed from beef carcases. The Chair of the Jamaican Livestock Association, Henry Rainsford, maintains that ‘beef trimmings import is also creating a serious problem for local farmers.’ The Caribbean market for beef trimmings for use in patties and burgers has seen imports grow from 49.5 tonnes before 2005 to 1,500 tonnes in 2011.

In November 2011, a new commercial livestock farm dedicated to producing quality beef was formally opened in Trinidad and Tobago, indicating a wider interest in the renewal of beef production in the Caribbean region.

Editorial comment

Global market price developments alongside continued SPS restrictions on imports of Brazilian beef are likely to see EU beef prices sustained at relatively high levels. Global beef prices, however, are also likely to be sustained at high levels. Nevertheless the cyclical nature of price developments in the beef sector and the lead time required for investments to mature suggest that careful consideration will need to be given to any new investment in domestic beef production based on the current high prices. However, if approached cautiously, the longer-term trend in beef prices, based on rising global demand, could well prove attractive both for the development of ACP beef exports beyond traditional EU markets and for the development of production for domestic ACP beef markets (e.g. in the Caribbean).

Renewed interest in beef production in Jamaica follows similar trends in Trinidad and Tobago, where efforts have been under way since 2009 to relaunch the beef sector via a series of large farms targeting livestock production.

However, in the Caribbean context, given the size of national economies, careful consideration will need to be given to the selection of food sectors to be supported and how best to extend such support, in view of regional and international trade policy commitments. Key questions include:

  • Which goods have the greatest potential to use domestic inputs (maximising foreign exchange savings) and/or support rural livelihoods?
  • What forms of support are most likely to incentivise energetic, domestic firms to invest and become more competitive?
  • Which sectors will do most to enhance rural livelihoods?

These different questions will often produce different answers, so decision-makers should seek a balanced package. Nevertheless, a time of rising world prices may be the best time to make a start on these policy choices, with the aim of identifying those food sectors which are likely to be most sustainable in the longer term, while minimising the need for subsidies (either from the taxpayer or the consumer).

Calls for nuanced response to West African food crisis

12 February 2012

With lower than average harvest in a number of Sahelian states, UN agencies are predicting ‘2.5 million ton cereal deficits in the region, some of which should be met by market flows’. Countries such as Mauritania and Chad are reportedly ‘showing deficits of over 50% compared to last year’, while ‘national food reserves are dangerously low.’ In all, an estimated 7 million people could be affected in Niger, Mali, Burkina Faso, Nigeria, Chad and Mauritania.

High prices are a particular cause of concern, with prices having risen post-harvest on the back of poor yields, rather than falling, as was expected. Problems of food accessibility have been compounded by the return of migrant workers from north Africa and a termination of these remittances.

USAID analysts, on the USAID food security website, argue for a more nuanced approach to food security in the region. They argue that the ‘complexities of regional market conditions’ need to be taken into account if ‘long-term structural solutions’ are to be found. USAID analysts argue for greater efforts to ‘draw grain stocks from coastal countries into the region, which could serve to increase the availability of food in markets, and stabilize prices’. USAID also notes ‘lower-than-average cereal crops could be compensated for by food imports, which for instance in Niger in 2010-11 amounted to 900,000 tons - more than double the current estimated production gap’. It is argued that ‘the current food insecurity is less a food availability problem than an access issue’.

It is maintained that current policy interventions can have unforeseen effects on market prices. Thus, for example, highlighting potential impending shortages can lead to stock retention and price inflation, exacerbating food accessibility. These contrary effects of early warning systems could, it is argued, account for why ‘prices in some places have increased by over 80 percent over the five-year average, and have continued to rise rather than fall, which is the usual seasonal dynamic’. In this context, according to WFP representatives, ‘high food prices are a greater problem than a deficit of grains’. However, ‘opinions differ on the degree to which the markets will be able to resolve the access problem’.

In December 2011, a call was made by the Food Crisis Prevention Network to ECOWAS governments ‘to keep food trade fluid across their borders’ and to ‘avoid any action which will by nature impede the proper functioning of the markets and cross-border trade flows’. It has been highlighted how ‘protectionist measures worsened the impact of the 2005 food crisis’ and also created ‘some barriers to response in 2009-2010’, resulting in extra-regional grain purchases and delayed delivery of supplies. However, WFP has pointed out that prices are currently high in all three of the region’s major grain trading systems for staple grains such as maize and millet. Thus even where surpluses exist in the region (e.g. Ghana with its 240,000-tonne surplus), prices are 75% higher than in 2009.

Processes of climate change are thought to be increasing the incidence of droughts across the region, suggesting that longer-term solutions are urgently needed. In this context greater emphasis on meeting Comprehensive Africa Agriculture Development Programme (CAADP) targets of investing 10% of government expenditures in the agricultural sector are highlighted.

Editorial comment

As indicated in the contrasting USAID and WFP perspectives, there are two related critical trade policy issues faced in West Africa. The most fundamental relates to strengthening the functioning of grain markets, so that supplies from food surplus areas can reach food deficit areas at reasonable prices, while at the same time providing incentive prices for investment in improved grain production in areas best suited to the production of the cereals required in the region.

The other concerns market perceptions. If prices rise unexpectedly, it may be because the impending gap between supply and demand is higher than realised, but it may also be because local traders are limiting flows onto the market in the expectation that supplies might be tight. In areas of the world where there is good information on yields, harvest size and stocks, the scope for such market manipulation may be limited. In large parts of the ACP, however, knowledge on actual yields and accurate harvest predictions and stock levels is limited. Getting it wrong and attributing rising prices to market manipulation rather than an actual but unappreciated fall in supply can have tragic consequences – as Malawi found out a decade ago.

These are complex issues requiring a comprehensive approach. For example, early warning systems and improved market information systems at national level can contribute to providing the accurate information that can then be used to source required supplies regionally if possible. However, such systems need to be operated within a broader policy framework which facilitates trade flows, rather than simply increasing speculation on grain markets.

EC projections of EU cereals sector developments 2011–2020

12 February 2012

The EC’s publication of its ‘Prospects for Agricultural Markets and Income in the EU 2011-2020’ in December 2011 reviewed recent developments in EU cereal markets. It noted the considerable price volatility which has characterised cereals markets since 2007, within the general rising trend. It noted how in 2011 sowing had been affected by adverse weather conditions, but that nevertheless favourable yields were achieved which saw the 2011 harvest no worse than the depressed level of 2010 (when production was 5%, some 15 million tonnes below the 2009/10 harvest). Domestic EU cereals use is expected to remain stable, and exports are projected to decline to 21 million tonnes from an earlier high of 32 million tonnes in 2010.

In the medium term, domestic EU use of cereals is expected to increase as a result of EU biofuel policies, tripling in the next 10 years to ‘reach 30 million tonnes by 2020’. This will see EU cereals exports remain at around 20 million tonnes. Overall it is expected that the situation on EU cereals markets will be tight, with low stock levels. This is expected to leave the EU cereals sector vulnerable to any crop failure.

Prices are projected to be above the long-term average, in the range of between €150 and €170/tonne. However these favourable price projections need to be seen against the background of rising input costs, particularly energy costs.

At a disaggregated level the EC sees ‘a rather positive outlook for soft wheat and maize but limited growth for barley’. Soft wheat, which accounts for 45% of EU cereals production, is projected to reach 141 million tonnes by 2020, up 10% above the average production level over the 2009–11 period. EU durum wheat production by 2020 will be more or less equal to the average of production over the 2009–11 period, while and coarse grain production will be some 6% higher. Slightly more EU soft wheat production will go into animal feed than for direct human consumption, with the overall percentage of soft wheat consumption destined for the food industry falling from 39.2% in 2009 to 37.8% in 2020.

Editorial comment

From exporting three times more cereals than it imported in the 2009–10 period, the EU is projected to export only around 90% more than it imports over most of the period to 2020. This is largely a product of expanding EU biofuels demand.

However, in part the tight market situation in the coming period can be seen as largely a product of the sale of EU stocks in response to high global food prices. This could leave EU livestock sectors vulnerable to escalating feed costs, should adverse weather conditions impact severely on the EU harvest. The impact of large-scale sales of grains to capitalise on rising global prices on domestic livestock producers is illustrated by the recent experience of the South African poultry sector.

In November 2011, the CEO of Grain South Africa reported an imminent maize shortage in South Africa following large-scale exports of maize, with the situation reportedly ‘causing panic among local buyers’. While maize had been exported at an average price of R1,400 per tonne, by November 2011 local prices were approaching R 3,000 per tonne. This was seen as putting severe pressure on local poultry producers in the face of intensifying competition from Brazilian poultry meat exports.

In the case of South Africa, it was argued that better market information systems were needed to ensure that markets functioned in ways which did not see global price volatility undermining local agricultural competitiveness (see Agritrade article ‘ Large-scale maize exports threaten local supplies of maize in South Africa’, 27 December 2012).

Short-term global sugar market trends

12 February 2012

After reaching ‘a 30-year high of 36.08 cents a pound in New York in March’, sugar prices fell 27% by the end of 2011. White sugar prices did ‘slightly less badly’ in London, dropping only 23%, according to Agrimoney.com. In the face of stronger European, Indian and Russian output, prices remained relatively high in view of ‘disappointing Brazilian production’.

In terms of future prospects, Commerzbank is projecting a stabilisation of sugar prices, given the ‘sharp rise in production costs in Brazil over the last decade and the alternative use of sugar cane in ethanol production’. Both of these developments are seen as supporting global sugar prices at between 23–25 c/lb.

Analysts at Goldman Sachs and Morgan Stanley project prices around 22c/lb in the 2011–12 season, with Morgan Stanley suggesting prices will then fall to 19c/lb in the 2012–13 season, given the rebound in Brazilian production arising from renewal of their plantations.

Rabobank meanwhile projects prices between 22 and 23 cents/lb, given that global ending stocks are ‘expected to increase above the 10-year average for the first time since 2008-09’.

Analysts at Société Générale for their part warn of a possible ‘unexpected deficit in the coming months [... if] India delays or reduces expected forecasts or Thailand production is less than expected’. These concerns are expected to support prices.

Analysts at Standard Chartered make somewhat different price projections, with prices seen as being around 28 c/lb throughout 2012. This is seen as being driven by rising US dollar costs of sugar production in Brazil which will be close to 22 c/lb. Standard Chartered expects the sugar trade to be slower in 2012, ‘not because of falling demand, but because surpluses will have to be incentivised by higher prices before delivery’.

Forecasts of New York raw sugar price for 2012 (US cents/lb)

  2012 Q1 2012 Q2 2012 Q3 2012 Q4
Commerzbank 24 23 25 25
Rabobank 23.5 23 22 22
Standard Chartered 28 28 28 28
Goldman Sachs 22 22 - 22
  Average 2011–12 Average 2012–13
Morgan Stanley 22 19

Source: compiled by author from Agrimoney.com, 4 January 2012

This provides the global context for current policy discussions in the EU with regard to the management of the EU sugar market. The OECD has warned that ‘with sugar values set to recover from 2014’, a failure to revise the EU sugar quota system ‘risks a repeat of the shortages seen last year, when a buoyant market took prices above the region's, usually competitive, levels’.

According to a USDA analysis, ‘higher-than-average prices are forecast for [2014-15 to 2016-17]’ could produce ‘a situation like that in 2010-11 where imports are hard to attract’. USDA analysis maintains that in these circumstances, ‘the European Union would be in strong competition for sub-Saharan African exports’. Unless the euro appreciates in value, this could greatly reduce the attractiveness of the EU market for raw sugar exports. USDA maintains that ‘nimble changes in additional reduced-tariff imports may be increasingly called upon to keep available supply close to EU demand’. There are fears that if the EU does not revise the production quota regime and associated import regime, then ‘thousands of high-quality European manufacturing jobs’ could be lost.

Editorial comment

The need to provide incentive prices in order to attract supplies is likely to be an ongoing problem for European importers seeking to secure sugar suppliers from traditionally preferred ACP/LDC exporters. However the scale of these difficulties is likely to vary in each supply chain. Supply chains with close strategic partnerships between ACP producers and European distributors (e.g. Mauritius) or where the same EU corporation has an ownership interest in sugar estates and sugar milling in preferred supplying countries – as well as the sugar trading companies handling exports, sugar refining operations in the EU and sugar marketing operations – are likely to have fewer problems in securing imported supplies of sugar than European sugar companies with no such strategic or direct corporate links to supplies of sugar from traditionally preferred partners.

Since this could have important implications for the competitive position of different sugar companies on the EU market, this could give rise to increased pressures to expand the range of preferred sugar supplying countries (i.e. further reducing or even eliminating import duties on sugar from non ACP/LDC suppliers), so as to even out competition between different EU companies. This would come in addition to any moves to abolish production quotas in order to allow a further shift in European production to more competitive production zones (see Agritrade article ‘How successful has EU sugar reform been in enhancing underlying competitiveness?’, February 2012).

World Bank adds to cereals policy discussions in the EAC

12 February 2012

In the context of the drought and food crisis in the Horn of Africa, according to press reports the World Bank has called for ‘a review of the EAC grain trade policy so as to reduce Kenya’s vulnerability to spikes in food prices’. A World Bank policy note published in January 2012 argued that ‘Kenya is a food deficit country even in a bumper harvest year, yet the country levies import duty on food grains that are only suspended on an ad hoc basis in times of crisis’. While under the EAC agreement ‘Kenya imports maize from its partners - mostly Tanzania and Uganda - duty free’, a 50% duty is imposed on imports from outside the EAC. The introduction of an export ban by the government of Tanzania (see Agritrade article, ‘ Maize trade-policy decisions highlight need for closer regional policy h...’, 5 July 2011) has restricted Kenyan imports from EAC partners, while high prices in South Sudan have made this market more attractive to Ugandan grain traders. These developments have served to drive up the price of maize for Kenyan consumers.

The World Bank policy note claims that ‘agriculture policy and trade policy distortions are compounding the drought's impact in Kenya’. It maintains that currently the Kenyan government intervenes in maize markets ‘in ways that keep maize prices high and have little impact on price stability’.

According to press reports, the World Bank policy note will strengthen the position of the Kenyan Cereal Millers Association, which has called for an extension of the duty-free window for maize imports into 2012. This has been rejected by the government, which feared it could have an adverse impact on prices paid to local farmers and undermine efforts to boost local production.

Editorial comment

Given rising yet volatile cereal prices, many ACP governments are concerned about stimulating domestic production. The turnaround in Malawi’s maize supply situation, from a large maize deficit to a large maize surplus producer, highlights how policy interventions such as subsidised input supply programmes can transform the supply situation. Yet, equally, current developments show how fragile this can be, both in newly emergent maize exporters such as Malawi and established maize-producing and trading nations such as South Africa (see Agritrade article ‘ Debate on the regulation of maize exports intensifies in South Africa’, February 2012).

While the World Bank policy note leans towards a more open Kenyan cereals trade policy, it would appear not to engage with the government’s concern to foster higher levels of national cereals self-sufficiency, given their cereals deficit at the national level. In this context it should be noted that in many respects, at the heart of the tariff policy discussions in Kenya lies the problem of commercial relations between farmers, traders and millers. This suggests a need to intensify efforts to strengthen the functioning of the supply chain.

These efforts could draw on recent work in the EU on the establishment and use of framework contracts between producers and processors (e.g. in the dairy sector) and the experience of profit-sharing arrangements being established under a number of ACP–EU sugar supply arrangements. It could also benefit from intensified discussions with the EC on the policy tools that could form part of a modern regulatory framework for managing supply chains in an era of heightened market price volatility. Critically, it would need to include expanded programmes of support to strengthening producer organisations, so they can better manage and deal with contractual issues and tariff policy discussions.

If this problem is tackled, then a sounder basis may be laid for the broader discussions of the appropriate geographical framework for regional market integration which lays the basis for more competitive patterns of investment in regional cereals production (see Agritrade article ‘ Malawi maize export ban complicates Kenyan tariff policy debate’, February 2012).

Malawi maize export ban complicates Kenyan tariff policy debate

12 February 2012

On 29 December 2011, the government of Malawi took the unexpected step of suspending all export licences for maize and maize products in the face of fears over looming shortages. Estimates suggest that 10 of Malawi’s 28 districts ‘are at risk of maize shortages’. This reverses earlier successes in boosting maize production through the rolling out of a large-scale input supply programme and investments in export-oriented commercial maize production.

On 4 January 2012, the Grain Traders Association of Malawi (GTAM) announced its agreement with the export ban. Grace Mhango, Director of GTAM, argued that while ‘official figures indicate that about 250,000 metric tonnes to 300,000 metric tonnes have been exported ... there were some informal exports which were not quantified’. It had been expected that Malawi would export ‘at least 600,000 metric tonnes’, but erratic rains mean that this policy is being reconsidered.

The Farmers Union of Malawi (FUM) however has come out against the export ban. The FUM President, Felix Jumbe, said ‘many companies and commercial farmers that grow maize for exportation have been demoralized by the decision’.

Government representatives insist the export ban is a temporary measure to allow the national reserve to be rebuilt. In an effort to stimulate production, the government-run Agricultural Development and Marketing Corporation announced a 50% increase in the maize price (from $12/ 50kg bag to $18).

The export ban was unexpected since according to press reports ‘Malawi announced a bumper harvest of 3.2 million tonnes of maize against a national consumption of 2.4 million tonnes’. This allowed exports to drought-affected and food-deficit countries such as South Sudan, Kenya and Zimbabwe.

The Zambian government, however, has reiterated its continued commitment to exporting maize, despite instructions to the national food reserve agency to double its maize purchases, given the vulnerability of production to poor rains, and a ‘bad start’ to the season. Some 200,000 tonnes of maize have so far been exported, with a further 400,000 tonnes available for export, out of the total surplus of 1 million tonnes. The strong production performance of the Zambian maize sector in part stems from a successful input supply programme.

The export ban reduces Kenya’s options for securing reduced tariff maize supplies from within the COMESA region (a 25% tariff as opposed to a 50% tariff on imports from non-COMESA members such as South Africa). Malawi, Zambia and South Africa have in recent years been an important source of white maize for the manufacture of flour and animal feed in Kenya.

Following the November/December harvest in Kenya, maize farmers have still been reluctant to release stocks, despite an increase in the price paid by the National Cereals and Produce Board to KSh3,000 per bag, described by the World Bank as ‘among the highest in the world’. This has seen the consumer price of maize flour remaining high, rather than subject to the normal-post harvest price declines.

Editorial comment

The action of the government of Malawi highlights the interactions between developments in national markets across Southern and Eastern Africa. The radical turnaround in the supply situation in South Africa appears to have played a role in government decision-making (see Agritrade article, ‘ Debate on the regulation of maize exports intensifies in South Africa’, February 2012). Equally, the Malawian government action could impact on domestic policy formulation as far afield as Kenya.

Reduced access to the lower tariff maize available from COMESA suppliers (25% compared to a normal 50% duty) may compel the Kenyan government to renew the general tariff waiver for maize. This however could exert a downward pressure on maize prices, which would discourage domestic maize production.

Given the underlying food security concerns of many East and Southern African governments, the question arises as to the appropriate geographical level at which to pursue food security in an era of rising and volatile cereal prices. This is directly linked to the issue of the creation of larger economic areas within which free trade can take place. Clearly there is a preference for fostering integrated regional markets as a basis for investment in more competitive cereals production. Yet there is a lack of clarity over what constitutes ‘the region’, since even within narrowly defined ‘regions’ (e.g. the EAC), non-tariff barriers to trade – such as export bans – are still being deployed, despite a nominal commitment to their elimination.

A lack of transparency on supply and price trends on national and regional markets would appear to encourage the arbitrary use of non-tariff policy tools (e.g. export bans). Promoting greater transparency of underlying supply, demand and price trends across the Eastern and Southern Africa region may provide governments with sufficient reassurance for them to accept greater regional disciplines on the use of non-tariff trade policy tools, which in turn may foster the building of more efficient regional cereals trading networks.

However policy initiatives will also need to be set in place to strengthen the functioning of cereals supply chains at the national level (see Agritrade article ‘ World Bank adds to cereals policy discussions in the EAC’, February 2012).

Debate on the regulation of maize exports intensifies in South Africa

12 February 2012

In January 2012, warnings were reiterated that South Africa’s export drive to clear maize stocks would leave stock levels too low. Prices in Johannesburg had already reached record levels, with imports costing twice as much as the earlier maize export prices.

Millers, chicken producers and cattle feedlots have all found themselves facing escalating costs at a time when global prices are beginning to ease (according to the FAO, maize prices dropped 6% in December 2011, while figures from Indexmundi.com show a 19% decline in maize prices from the April peaks of $318.74 / tonne).

Maize (corn) prices 2011: US No. 2 Yellow, FOB Gulf of Mexico, US price (US$ per tonne)

April May June July August Sept Oct Nov Dec
318.74 308.58 310.54 300.83 310.34 296.30 274.85 274.28 258.44

Source: IMF

South African poultry industry leaders have claimed that ‘exports were done irresponsibly’. The current market situation represents a dramatic turnaround compared to two years ago, when ‘the biggest crop in almost three decades’ (12.8 million tonnes in 2009/10) led to a record maize surplus (see Agritrade article ‘ Divergent trends within South Africa’s cereals sector’, 2 May 2011).

According to the CEO of Grain South Africa, 700,000 tonnes of maize imports will be needed between January and July 2012. Imports from Zambia (58,321 tonnes) and Romania (81,885 tonnes) have already arrived in South Africa, easing the immediate market situation slightly.

Estimates of production in the season to August 2011 put South African maize production some 19% lower than the preceding season.

The National Agricultural Marketing Council is currently discussing with the grain industry mechanisms ‘to make import and export information more transparent’. This followed calls in January 2011 for farmers to consider storing the surplus, in view of long-term global price trends for maize. In the face of recent developments calls have been made for a review of the ‘the regulatory framework that governs maize exports’ to be undertaken ‘in consultation with grain producers’. Improved production and trade data collection is seen as important in any revised regulatory regime.

On 1 February 2012 it was reported that ‘the firmer rand/US dollar exchange rate’ and the forecast of ‘good rains ... which will potentially result in an above average crop yield for the 2011-12 season’ had resulted in a slight easing of maize futures prices of between 2.5 and 3.3%.

Editorial comment

The debate in South Africa on regulating the maize trade, to prevent free markets generating national shortages which adversely impact on other agro-food chains, is in stark contrast to the debate in Kenya, where the World Bank has recently called for a more free-trade based approach to food security (see Agritrade article ‘ World Bank adds to cereals policy discussions in the EAC’, February 2012). The debate in South Africa has important regional implications, given that half of the region’s maize production is grown in South Africa.

In the light of the current situation in South Africa, there is a general perception that prices will keep increasing in the region, due to perceived shortages. For the smaller economics, this will fuel food price inflation. In addition, with yellow maize accounting for 50% of the costs of poultry businesses, this will impose major new costs in a very competitive market context. This is likely to pose particular challenges for regional poultry producers. While the feedlot sector is also likely to be adversely affected, production under the extensive grazing systems which predominate in Namibia and Botswana are likely to be far less affected.

With international grain prices on a long-term rising trend, policy perspectives are beginning to change (see Agritrade article, ‘ Review of changing policy perspectives in the light of the ongoing food...’, February 2012), with a greater emphasis on:

  • national food reserve policies which reach beyond simply emergency interventions;
  • the establishment of better market information systems; and
  • the elaboration of concrete policy measures to strengthen the functioning of grain supply chains.

It remains to be seen what policy measures will be set in place to strengthen the functioning of maize markets in South Africa, in order to ensure that all concerned stakeholders have better information on underlying supply and price trends. It is clear that any new policy measures need to be based on a systematic analysis of their medium- and long-term implications, not only at the national level but also at the regional level, given South Africa’s dominant role in the regional maize supply equation.

Review of changing policy perspectives in the light of the ongoing food price crisis

12 February 2012

An analysis of the evolving policy responses to the ongoing food price crisis has been posted by the Minnesota-based Institute for Agriculture and Trade Policy (IATP). The analysis notes the consensus that the coming decade will see prices ‘significantly higher than pre-crisis levels’, with fears that ‘demand will outstrip supply by 2050 unless concerted action is taken’. It acknowledges:

  • the growing recognition of the importance of food security and the role that small-scale farmers and women need to play in addressing food security needs;
  • ‘the important role of the state in “country-led” agricultural development programs’; and
  • ‘the critical role of public investment’ in agricultural development.

These observations are seen as a shift away from the previous policy emphasis on giving markets free rein. However, the debate continues on the types of public policy measures that are now required. The analysis seeks to identify the reality of policy change behind the changing rhetoric.

The IATP analysis notes the ‘renewed attention to agricultural development’ paid by policy makers, including in terms of funding levels committed. However it notes that ‘only $6.1 billion of the G-8’s pledged $22 billion, three-year commitment represents new money’, with austerity programmes in OECD countries threatening the delivery of further aid within this commitment.

The analysis calls for a greater focus on increasing production in low-income, food-importing countries, rather than on boosting global production through an expansion of industrial agriculture and the promotion of freer trade.

It calls for policies ‘that discourage bio-fuels expansion, regulate financial speculation, limit irresponsible land investments, encourage the use of buffer stocks, move away from fossil fuel dependence and … [that] reform global agricultural trade rules to support rather than undermine food security objectives’.

Against this background the report describes recent G20 initiatives as ‘tepid if not counterproductive’, and warns that G20 initiatives are taking precedence over more inclusive forums for policy elaboration.

The report maintains that the interests of ‘powerful multinational firms’ are dominating the policy-making process, ‘[leaving] international institutions promoting market-friendly reforms but resistant to imposing the concomitant regulations required to ensure well-functioning food and agricultural markets.’

The analysis maintains that three urgent issues need to be addressed:

a)      Biofuels expansion: the report calls for a revision of biofuels mandates to reduce competition with food uses (and associated price pressures).

b)      Price volatility: the report notes that few concrete actions have been taken to reduce the scope for financial speculation in agricultural commodities and ensure ‘relatively stable prices that are remunerative to farmers and affordable to consumers’. Similarly, few precautionary regulations have been taken. ‘Reserves should be explored more actively than simply as emergency regional humanitarian policy instruments.’

c)      Land grabbing: financial speculation in land acquisition and ‘land banking by sovereign wealth funds in resource constrained nations’ are in contradiction with the focus on promoting smallholder production, and ‘international institutions ... must do more to protect small-scale producers’ access to land.’

The analysis highlights unilateral action by developing country governments to deal with underlying challenges, notably through Comprehensive Africa Agriculture Development Programme (CAADP) compacts. It maintains that developing country governments need to be allowed ‘the policy space to pursue their own solutions’. It also notes a donor reluctance to adopt ‘more fundamental reforms’, with a continued commitment to the promotion of ‘private investment and liberalized markets, relying on humanitarian aid and social safety nets to try to help those who are displaced by the policies.’

Editorial comment

While agricultural prices are inherently cyclical, there are strong reasons to believe that the underlying trend is upward (see Agritrade article ‘ High commodity prices here to stay, but at lower levels than recent peaks’, 9 August 2011). While some sources of increasing demand may be ameliorated by policy change (e.g. modifying biofuel consumption targets), others are unlikely to be reversed (such as dietary change in the rapidly growing countries of Asia and elsewhere). This presents both a challenge and an opportunity to many ACP states which face substantial import bills, but which have great agricultural potential.

The IATP report offers a warning that if prices do slip back, this should not reduce efforts to invest in extra ACP agricultural production. But through what channels should this investment be mobilised? Ready-made solutions linked to land sales to foreign investors do not seem to have generated production increases capable of offsetting the social costs.

Against this background, the issue arises as to the most appropriate basis for mobilising investment in expanding commercially viable food production in ways that directly meet the needs of vulnerable ACP consumers. There is growing international recognition of the important role that small-scale farmers can play in meeting food security needs, and this suggests that forms of investment mobilisation that feed directly into enhancing the productivity of the smallholder farming sector need to be prioritised. However, this will require new thinking on how to achieve it in the very different social, political and policy contexts which prevail across the ACP.

More dynamic marketing is key to growth in Jamaica cocoa sector

19 February 2012

According to press reports, change is underway in the Jamaican cocoa sector. The Jamaica Cocoa Farmers’ Association (JCFA) is emerging as a competitor to the state-run Cocoa Industry Board (CIB), ‘which functions both as a regulator and marketer of cocoa’. JCFA is currently offering producers J$2,500 (€22.13) per box, 25% more than the CIB, with payments being made within five working days. However only 10% of cocoa growers are members of JCFA, while the CIB claims that it is still responsible for the marketing of 98% of Jamaica’s cocoa.

Jamaican cocoa fetches premium prices, since only fine-flavoured cocoa is produced. Demand for fine-flavoured cocoa is rising, and according to JCFA President Clayton Williams, ‘a price in excess of US$4,000/tonne’ is being obtained.

JCFA is seeking to play a greater role in marketing Jamaican cocoa, both through representation on the CIB and through its own marketing efforts. According to reports, Mr Williams believes the CIB ‘is doing a poor job of marketing the Jamaican product’: the CIB is accused of adopting the practice of ‘automatically renewing contracts without due diligence being done’. This, it is argued, contributes to Jamaican cocoa farmers ‘receiving the lowest farm-gate price in the Western hemisphere’.

However, according to Steve Watson, general manager of the CIB, ‘prices paid internationally for the Jamaican bean fell consistently in 2011’, down 30% over the year to US$2,109/tonne.

At present, ‘half of Jamaica's premium cocoa is shipped to France to makers of premium chocolates, and the rest is distributed through a broker who sells the beans to Italian, Swiss and Belgian companies.’

JCFA for its part is seeking to establish direct trading relationships with producers of quality chocolate products. New direct commercial relations with Hershey in the USA are being established, with this having been given ‘a high-end price valuation’, which was described by Clayton Williams as ‘comfortably above the current market price’.

JCFA is currently exploring similar relationships with buyers in Asia, Europe and North America. According to Mr Williams, the aim is to obtain ‘the highest value for our cocoa’ by building ‘lasting commercial relationships through fair pricing of our cocoa’. Competition among buyers is seen as an important element of any marketing strategy aimed at maximising producer revenues from the marketing of fine-flavoured cocoa.

Pursuit of this strategy will however require JCFA to considerably expand the volumes of cocoa it markets. This accounts for the importance attached to US- and EU-supported programmes to boost both yields and overall cocoa production (moving from 300 to 1,500 tonnes by 2014). Cooperation with Transmar Commodity Group is also seen as important for enhancing the production of high-quality, fine-flavoured cocoa. In the longer term JCFA also has aspirations to increase production ‘to sustainable levels to make a value-added cocoa-processing facility viable’.

Editorial comment

The need to adopt innovative and dynamic marketing strategies is an increasingly important feature of the challenge facing ACP producers of quality-differentiated products. Criticism of the state marketing boards needs to be seen in the context of the increasing price volatility and the emergence of much larger price differentials between ‘necessity purchase’ and ‘luxury purchase’ products consumed in OECD and advanced developing country markets. This has created a new context which ACP producers and exporters need to respond to.

In order to improve marketing, it is critical to maintain close relations with the users of inputs into quality-differentiated products, as a consistent, high-quality supply needs to be guaranteed if premium prices are to be secured on a sustainable basis. This requires continuous dialogue on market requirements and the introduction of necessary innovations in production techniques and handling.

For farmers’ associations, this can come to constitute a major management challenge unless programmes of capacity-building support are successfully implemented. Even where capacity is developed, as the recent experience in Jamaica’s Blue Mountain coffee sector illustrates, constant innovation is still required if over time the development of ‘comfortable’ commercial relationships are not to undermine the sector’s capacity to respond to dynamically changing market conditions.

While the Jamaican Cocoa Farmers’ Association appears to have a clear vision of what it wishes to achieve, there are considerable challenges to meet if the long-term vision is to be realised. This is particularly the case for value-added processing. While examples of adding value to cocoa and exporting high-end consumer products exist in the region (e.g. in Trinidad and Grenada), these are mostly driven by private initiatives. This raises the question: what policies should governments set in place to support private sector marketing and product development initiatives capable of redefining the development path for the Caribbean cocoa sector?

West African cotton production up, despite variable national trends

19 February 2012

USDA analysis of the West African cotton sector suggests that while weather events have affected the area planted and cotton yields, this season’s cotton production ‘could be as much as a third greater than last year’s production level’. At the WAEMU level, the regional cotton strategy to improve the competitiveness of the cotton/textile sector was amended in November 2010. The new 2011/20 regional cotton agenda has five objectives:

  • ‘Improve productivity of the cotton textile industry in the WAEMU zone
  • Improve quality of cotton in the WAEMU zone
  • Support development and promotion of cotton and textiles of the WAEMU zone in regional and international markets
  • Develop local processing of cotton fiber
  • Foster development and the promotion of the cotton seed.’

At the country level, in Côte d’Ivoire production seems likely to exceed 200,000 tonnes by as much as 50,000 tonnes according to USDA estimates. This is due to high farm gate prices following a 26% increase in June 2011, combined with the October 2011 decision to ‘slash input prices for MY 2011/12 by 25%’ in order to boost farmers’ incomes. The number of farmers sowing cotton is estimated to have increased by over one-third.

In Burkina Faso, a planting boycott by farmers following a failure to secure a 174% increase in farm gate prices is likely to see production substantially below the government’s targeted level of 600,000 tonnes. Indeed, according to USDA projections poor rains are likely to see production of around 380,000 tonnes. While organic cotton production is growing in Burkina Faso (+162%) as a result of a partnership with the US retailer Victoria’s Secret, it remains less than 0.5% of total national cotton production.

In Mali, despite efforts to promote production, late rains affected seed cotton production. Nevertheless, according to the USDA analysis, ‘production could be as much as 70 percent higher (410,000 tons) than MY 2010/11 (243,588 tons), reaching record levels not seen since MY 2006/07’. Local farmers remain interested in buying the Compagnie Malienne pour le Développement des Textiles (CMDT). The handover of privatised companies in the Western and Southern regions to the Chinese company Yue Mei ‘is still expected to be finalised by December 2011’, although USDA suggests the deal still may not go ahead.

In Chad, restructuring of the cotton sector continues. While the government hopes to see production of 60,000 tonnes of seed cotton, USDA believes that production is likely to be only 40,000 tonnes.

In Senegal, abnormal rains are likely to reduce projected cotton production to 20,000 tonnes (from a target of 50,000 tonnes), despite a 24% increase in farm gate prices and the maintenance of input subsidies.

USDA estimates of West African cotton production (per thousand 480-lb bales; FCFA/kg)
Country MY 2009/10 MY2010/2011 MY 2011/12

Burkina Faso

- production

- farm gate price

700

168 ($0.38)

652

182 ($0.41)

730

245 ($0.55)

Mali

- production

- farm gate price

440

184 ($0.41)

470

185 ($0.42)

791

255 ($0.57)

Côte d’Ivoire

- production

- farm gate price

356

175 ($0.39)

337

210 ($0.47)

482

265 ($0.59)

Chad

- production

- farm gate price

67

180 ($0.40)

101

180 ($0.40)

77

215 ($0.48)

Senegal

- production

- farm gate price

35

185 ($0.42)

50

205 ($0.46)

40

255 ($0.57)

Source: data extracted by author from USDA GAIN Report (see below). Production figures: from country-specific tables, pp. 7 – 9; farm gate prices from Table 2, p. 6.

World cotton prices have more than halved since March 2011, with a surplus of cotton output of 2.5 million tonnes. However according to the International Cotton Advisory Committee, this surplus is expected to fall to zero in 2012/13 as consumption picks up and growers cut back on sowings in the face of lower prices. Morgan Stanley however forecast that US cotton sector support programmes will result in ‘lower US abandonment rates’, with this then ‘preventing a more pronounced year on year decline’ in cotton production.

Editorial comment

The analysis from Morgan Stanley suggests that US cotton sector policies may well result in a process of ‘adjustment displacement’ in response to lower global cotton prices, with this process of adjustment displacement falling particularly heavily on West African governments who are seeking to support local cotton production.

However the International Cotton Advisory Committee (ICAC) has forecast a drop in world production to 24.91 million tonnes in 2012/13 (compared to 26.788 million tonnes in 2011/12) and a rise in consumption to 24.69 million tonnes (23.886 million tonnes in 2011/12), hence a return to more positive fundamentals. At the global level, analysts have suggested that the area under cotton in the United States will fall in 2012/13, with on average 10% less sown than in 2011/12, when 14.72 million acres were planted. Production levels will depend on yield: in 2011, the drought in the south-east and south-west of the United States led to yields falling to 711 lb per acre. Whether farmers choose to grow cotton will also depend on the market price for soya and maize, which are currently more attractive in that respect than cotton.

The rainfed cultivation of cotton in Africa is a reminder that the crop is dependent on climatic factors – in 2011/12, cotton production in West Africa was substantially lower than forecast as a result of insufficient rains. However, climate is not the only variable. With the rise in markets in the first quarter of 2011, the cotton companies raised the prices they paid to farmers for the 2011/12 season – at over FCFA 245/kg, or €0.374 (except for Chad, at FCFA 215/kg or €0.328), these prices were at a historic high. These incentives have duly fulfilled their purpose in Mali, where production, even if it does not reach the targeted 500,000 tonnes, will nevertheless record a substantial increase. In Burkina Faso, on the other hand, discontent on the part of cotton farmers in some areas calling for a higher price for their produce led to some 100,000 ha of the crop being destroyed. In Senegal, despite the rise in prices paid to producers, production stagnated as a result of farmers mobilising more slowly than expected, as a result of outstanding payments not having been resolved, in contrast to Mali, for example.

Potential for exotic fruit and vegetable exports to UK emerging

19 February 2012

According to press reports, opportunities for the export of horticultural products such as mangoes, yams, sweet potatoes and peppers from Antigua and Barbuda to the UK market are opening up, stimulated by ‘considerable interest from high level retailers in the UK, such as Asda, Morrisons and Sainsburys’.

Elsewhere in the region bodies like the Windward Islands Farmers Association (WINFA), have already been actively supporting the development of such non-traditional exports as alternatives to declining banana production.

Editorial comment

The recent upsurge of interest in food crop production in Caribbean countries has also reopened old possibilities for export. Research work to improve varieties, such as that undertaken by the Caribbean Agricultural Research and Development Institute on peppers in Antigua, and work on quality issues related to a range of root crops, vegetables and fruits, have increased supplies and renewed efforts to develop export marketing. In addition, the advocacy work being undertaken by WINFA and the Caribbean Farmers Network have raised expectations in these export markets that perhaps trade could be maintained in a number of horticultural products.

While there has always been some level of interest on the part of the European and diaspora consumers for fruit and vegetables of Caribbean origin, the heightened interest of multiple retailers in the UK is largely based on their relatively successful experiences with Fairtrade bananas. WINFA has invested significantly over time to arrive at a situation where UK retailers are assured both in terms of volume and quality consistency, although capacity constraints are now faced on effectively extending this beyond bananas.

Since Antigua’s exports are mostly destined for neighbouring Caribbean markets, if EU markets are to be opened up, then a number of issues will need to be addressed relating to establishing effective logistical arrangements, the commercial orientation of small farmers and building capacity to meet market requirements.

Large-scale rice sector developments underway in East Africa

19 February 2012

Plans are underway to ensure rice self-sufficiency in Rwanda by 2017, under the World Bank-supported Muvumba Marshland Rehabilitation Project. Some 750 ha of the planned 1,750-ha programme were ready for cultivation by the beginning of 2012. Ultimately the aim is to produce 22,000 tonnes of rice per annum, equivalent to 40% of Rwanda’s annual consumption of 55,000 tonnes at the time of the initiation of the project. Eventually half of the planned 100,000 ha being developed under the Rural Sector Support Project will be devoted to rice production.

This needs to be seen against the background of a rapid expansion of consumption of rice in Rwanda, which has risen by an average of 32% per year over the last three years, compared to the preceding three years.

In neighbouring Uganda, a UK-based Bangladeshi-owned company, Farland Investments, is to commence ‘commercial production of rice’ on some 10,000 ha of farmland. The first phase, requiring investment of US$31 million (20% of it committed by the company concerned, and 24% by various development banks) is projected to produce between 80,000 and 90,000 tonnes of rice, increasing national production by over two-thirds and generating a surplus for export. The project involves the granting of a 49-year land lease (automatically renewable) and the resettling of 1,500 Bangladeshi workers and their families as permanent residents on the scheme.

The government of Ethiopia for its part has ambitious plans to expand commercial rice production through the creation of medium- and large-scale commercial rice farms. At the beginning of 2011, some 83,000 ha of government-administered land was allocated for commercial development of rice production. However, according to local analysts, as the rice sector is still in its infancy in the country, there is a lack of expertise and knowledge on the practicalities of rice farming. This is making it difficult for the government to identify appropriate investment partners with the requisite knowhow and skills.

Editorial comment

Currently a variety of approaches are being pursued to promote rice sector development in East Africa. These include:

  • government-led, donor-financed irrigation schemes, such as the Muvumba Marshland scheme in Rwanda;
  • government-led sector development initiatives which then seek to mobilise local and international corporate investment (e.g. as in Ethiopia);
  • private-sector-led expatriate settlement schemes (e.g. as in Uganda);
  • the rolling out of extension programmes involving new seed varieties and improved production techniques to existing farmers – e.g. as in Kenya (see Agritrade article ‘ Efforts underway to improve Kenyan rice production’, 9 December 2011).

Given the different approaches being pursued to develop rice production in East Africa, an evaluation of these experiences could provide valuable insights into the most effective ways of getting to grips with the various production constraints on rice sector development that are faced in the region.

The Coalition for Africa Rice Development (CARD) initiative could potentially provide a framework for such a comparative review of progress achieved using the different approaches.

This could then throw light on the wider question of the appropriate role of the state in agricultural development in East Africa. Experience to date suggests that heavy government involvement in actual crop production may not produce good results. However, where farmers play a leading role in organising themselves and engaging in first-stage processing and associated marketing activities, schemes tend to enjoy greater success. This suggests a redefinition of the role of the state as a more facilitating role. This, however, gives rise to new policy challenges, namely regulating facilitated private sector business operation so that the interests of both consumers and existing primary producers are respected.

Application of trade policy at heart of PNG rice sector controversy

19 February 2012

At the end of 2011, considerable controversy emerged in Papua New Guinea over efforts to promote greater self-sufficiency in the rice sector, in the light of far higher than average global rice prices. The application of the trade policy regime for rice lay at the heart of this controversy. An Indonesian company looking to invest in rice production in the central province was seeking to make their investment conditional upon being granted a 20-year waiver on rice import duties (normally 60 to 100%) if its production should fall short of market requirements. Any competing trading companies would however have to import rice with the full duty paid, creating an almost monopolistic position for the investing company.

This led to considerable protests from existing rice traders, who argued that if the agreement went ahead ‘it could force all current industry growers, manufacturers and distributors out of the market’, with no guarantees that domestic rice production would actually expand. According to independent analysts, while land is to be allocated for rice production to the Indonesian company, ‘there is no obligation for the company to grow rice in the short term’. The company could in fact use the land for any activities, while still enjoying the duty-free importing arrangements. This led existing rice industry stakeholders to argue that the new deal could more than double the retail price of rice.

In January 2012, the Prime Minister expressed concern about the possible emergence of a rice monopoly, while the Minister of Commerce and Industry announced that ‘the government was, in principle, against any form of monopoly’.

It is also reported that a joint analysis is to be undertaken by USAID and New Zealand Aid examining the ‘policy, legal and institutional constraints that affect the start-up and growth of agribusinesses in PNG’. The aim is to establish ‘clear actionable recommendations for reforms to improve the enabling environment for agribusiness’.

Efforts to promote greater rice self-sufficiency need to be seen against the background of rice prices in the last five months of 2011, which were 22.4% and 23.8% (long-grain and short-grain respectively) more than in the corresponding period in 2010. Although rice prices fell back a little in January 2012, the USDA rice outlook forecasts prices well above historic levels in the coming years.

Editorial comment

The policy desire to increase domestic rice production in countries where demand is rapidly expanding is common to many ACP governments. Interventionist policies can vary from subsidised agricultural inputs to product price guarantees by way of price subsidies or price stabilisation schemes. The use of tariff protection to nurture rice sector investments in an era of high price volatility is also a common feature of the policy framework used by ACP governments, notwithstanding the increased costs and inefficiency in resource allocation to the economy. Tariff-rate quotas (TRQs) are commonly used to regulate imports in ways that allow the clearing of local markets while meeting expanding consumer demand (as under the EU rice regime).

What is unusual in the PNG case is the proposal for the granting of exclusive rights for duty-free imports to a single company, without corresponding guarantees about the timeframe for development of rice production, the quality standards to be attained, the timeframe for the phasing out of infant industry protection, and without regard for the interests of existing stakeholders in the rice sector.

It appears that a rethink of the current policy proposals is underway. In this context, the EU’s use of TRQs to regulate rice sector market access and the modalities used for the management of such TRQs could prove of some relevance (see Agritrade special report ‘ The EU’s agricultural policy toolbox: A sector-by-sector review’, section 6 on the rice sector, 13 December 2011)

Short-term global sugar market trends

19 February 2012

After reaching ‘a 30-year high of 36.08 cents a pound in New York in March’, sugar prices fell 27% by the end of 2011. White sugar prices did ‘slightly less badly’ in London, dropping only 23%, according to Agrimoney.com. In the face of stronger European, Indian and Russian output, prices remained relatively high in view of ‘disappointing Brazilian production’.

In terms of future prospects, Commerzbank is projecting a stabilisation of sugar prices, given the ‘sharp rise in production costs in Brazil over the last decade and the alternative use of sugar cane in ethanol production’. Both of these developments are seen as supporting global sugar prices at between 23–25 c/lb.

Analysts at Goldman Sachs and Morgan Stanley project prices around 22c/lb in the 2011–12 season, with Morgan Stanley suggesting prices will then fall to 19c/lb in the 2012–13 season, given the rebound in Brazilian production arising from renewal of their plantations.

Rabobank meanwhile projects prices between 22 and 23 cents/lb, given that global ending stocks are ‘expected to increase above the 10-year average for the first time since 2008-09’.

Analysts at Société Générale for their part warn of a possible ‘unexpected deficit in the coming months [... if] India delays or reduces expected forecasts or Thailand production is less than expected’. These concerns are expected to support prices.

Analysts at Standard Chartered make somewhat different price projections, with prices seen as being around 28 c/lb throughout 2012. This is seen as being driven by rising US dollar costs of sugar production in Brazil which will be close to 22 c/lb. Standard Chartered expects the sugar trade to be slower in 2012, ‘not because of falling demand, but because surpluses will have to be incentivised by higher prices before delivery’.

Forecasts of New York raw sugar price for 2012 (US cents/lb)
  2012 Q1 2012 Q2 2012 Q3 2012 Q4
Commerzbank 24 23 25 25
Rabobank 23.5 23 22 22
Standard Chartered 28 28 28 28
Goldman Sachs 22 22 - 22
  Average 2011–12 Average 2012–13
Morgan Stanley 22 19

Source: compiled by author from Agrimoney.com, 4 January 2012

This provides the global context for current policy discussions in the EU with regard to the management of the EU sugar market. The OECD has warned that ‘with sugar values set to recover from 2014’, a failure to revise the EU sugar quota system ‘risks a repeat of the shortages seen last year, when a buoyant market took prices above the region's, usually competitive, levels’.

According to a USDA analysis, ‘higher-than-average prices are forecast for [2014-15 to 2016-17]’ could produce ‘a situation like that in 2010-11 where imports are hard to attract’. USDA analysis maintains that in these circumstances, ‘the European Union would be in strong competition for sub-Saharan African exports’. Unless the euro appreciates in value, this could greatly reduce the attractiveness of the EU market for raw sugar exports. USDA maintains that ‘nimble changes in additional reduced-tariff imports may be increasingly called upon to keep available supply close to EU demand’. There are fears that if the EU does not revise the production quota regime and associated import regime, then ‘thousands of high-quality European manufacturing jobs’ could be lost.

Editorial comment

The need to provide incentive prices in order to attract supplies is likely to be an ongoing problem for European importers seeking to secure sugar suppliers from traditionally preferred ACP/LDC exporters. However the scale of these difficulties is likely to vary in each supply chain. Supply chains with close strategic partnerships between ACP producers and European distributors (e.g. Mauritius) or where the same EU corporation has an ownership interest in sugar estates and sugar milling in preferred supplying countries – as well as the sugar trading companies handling exports, sugar refining operations in the EU and sugar marketing operations – are likely to have fewer problems in securing imported supplies of sugar than European sugar companies with no such strategic or direct corporate links to supplies of sugar from traditionally preferred partners.

Since this could have important implications for the competitive position of different sugar companies on the EU market, this could give rise to increased pressures to expand the range of preferred sugar supplying countries (i.e. further reducing or even eliminating import duties on sugar from non ACP/LDC suppliers), so as to even out competition between different EU companies. This would come in addition to any moves to abolish production quotas in order to allow a further shift in European production to more competitive production zones (see Agritrade article ‘ How successful has EU sugar reform been in enhancing underlying competit...’, February 2012).

How successful has EU sugar reform been in enhancing underlying competitiveness?

19 February 2012

In December 2011 the USDA posted a review of the EU experience of sugar sector reform since 2006, in the light of higher world market prices and increased price volatility. It highlighted how establishing a policy framework which can meet the challenge of global price volatility is seen as a major issue by the European Commission in developing proposals for the future of the sugar regime.

The report describes in detail the new administrative arrangements put in place as part of the 2006 reform process, notably the shift from an intervention price, at which sugar would be bought into storage, to a reference price around which through various policy measures (varying withdrawal and carry over requirements as well as the use of TRQs), the EC seeks to steer market prices. In this context it outlines the various duty free and reduced duty TRQS in place. It notes the discontinuation since 2008/09 of the use of export subsidies for both sugar and sugar containing products (although the instrument remains in place should it be needed).

It highlights the production consequences of reform, with production quotas being reduced by 24% to 13.3 million tonnes, but with out-of-quota sugar production increasing from 13% of total beet production to 20%. It notes the extension of the average processing campaign from 90 days to 125 days, with this ‘lowering overall average processing costs’.

The report describes the impact on the distribution of sugar production across the EU. It notes the reduction in the number of member states processing beat sugar from 23 to 18 member states and the significant reduction in production volumes in Italy, Spain and Belgium.

Significantly it notes while the aim of the reforms introduced was to largely eliminate ‘unprofitable production capacity’, this objective was not fully achieved. It points out that ‘quota abandonment occurred across all productivity categories’, with 2.4 million tonnes of sugar quota renunciation occurring in ‘regions considered by the European commission to be the most competitive’. Some 15.9% of production remained in high or very high cost areas.

European Union sugar-producing countries (ranking by costs of production for white sugar)
Cost category EU member states Percentage of total EU production (%)
2003–06 2008–11

Low cost:

under US$525/tonne

Netherlands, UK 12.2 13.2

Medium cost:

US$525–625/tonne

Austria, Belgium, Denmark, France, Germany, Poland 62.7 70.9

High cost:

US$625–850/tonne

Czech Republic, Hungary, Ireland, Latvia, Lithuania, Slovakia, Spain, Sweden 15.6 10.6

Very high cost:

over US$850/tonne

Bulgaria, Finland, Greece, Italy, Portugal, Romania 9.5 5.3

Source: LMC International

USDA notes that following reforms, the low- and medium-cost production areas ‘were producing 1.4 million tonnes less sugar at the end of the reform period than at the beginning’, a 10% decrease in production in the areas best suited to sugar production.

The USDA analysis also notes that with world market prices above the EU reference level in 2010/11, the EU faced sugar supply shortages as a result of low levels of imports from traditionally preferred suppliers (LDC/ACP countries). With EU prices being ‘flat and uncorrelated with world prices’, these traditional suppliers found ‘more profitable export destinations’.

As most domestic EU sugar supply arrangements are governed by ‘long term sugar pricing contracts’, this left ‘very little sugar available for spot purchases at higher prices’. This led the EC to introduce a range of temporary measures to ease the supply situation. The USDA however maintained that these short term measures are ‘probably too ad hoc to serve as a model for EU policy planning over the long term’. Considering likely world market price developments, the USDA maintains that from 2014 to 2017 a situation is likely to re-emerge on the EU market where ‘imports are hard to attract’. This is likely to be compounded by growing demand for sugar in sub-Saharan Africa, a traditionally preferred supplier of sugar to the EU.

The USDA analysis concludes that the abolition of production quotas would address one of the main shortcomings of the 2006 reforms by unequivocally encouraging a shift of production to low-cost production areas of the EU, and eliminating production in high and very high cost areas. This would contribute to the overall vision of ‘a more competitive sector’.

Editorial comment

The USDA analysis highlights the ongoing imperative for reform of the EU sugar regime, through both the abolition of production quotas and further liberalisation of the tariff import regime. It sets out the underlying realities which are informing both current short-term EC policy measures and longer-term proposals for reform. It paints a picture of an emerging sugar sector regime which is likely to see an increase in competition for ACP sugar suppliers on the EU market, both from domestic EU production and non-traditional third-country sugar suppliers.

The analysis highlights how emerging EU corporate investment patterns in the sugar sector of non-EU member states will intensify pressures for liberalisation and the differential access to raw sugar supplies across different supply chains. It implicitly highlights the growing importance that policy measures to strengthen the functioning of sugar supply chains will have on the future of sugar sector developments in the ACP.

C4 and China agree cooperation deal on fringes of the WTO Ministerial

25 February 2012

Against the background of China’s growing influence in global cotton markets, the C4 cotton-producing African countries – Benin, Mali, Chad and Burkina Faso – have concluded a technical cooperation agreement with China. Under the agreement, China is to ‘provide machinery, expertise and materials in a bid to increase and improve the quality of local production’. The Chinese commerce minister Chen Deming suggested that this was ‘a step towards outsourcing production to Africa’, declaring that ‘in [the] longer term, we may relocate some of the textile and apparel industry into Africa’. The agreement was presented as part of China’s support for the WTO ‘aid for trade’ programme.

Analysts have however expressed scepticism as to the benefits of the agreement, pointing out that ‘Chinese companies prefer buying cotton from the US because of its good quality and lower price, especially with the appreciation of the Chinese currency [the] yuan’. Compared to US and Indian supplies, ‘African cotton is more expensive … and carries no guarantee of quality.’

A number of Chinese companies have already opened textile manufacturing plants in Africa. This includes the Yuemei Group, ‘which owns cotton fields, garment plants and sales offices in African countries including Mali and Ghana.’ Yuemei also operates in Nigeria.

At the global level, while Chinese restocking in January 2012 helped to ease declines in the cotton price, by February the International Cotton Advisory Committee was reporting less positive prospects for global cotton markets as a result of stock levels equivalent to over six months’ consumption. It was expected that cotton farmers, whose output this season is expected to ‘hit a five-year high of 26.8m tonnes’, will respond to declining prices by reducing the area under cotton. Production is then expected to fall by 1.9 million tonnes in 2012/13.

This is a dramatic turnaround from the previous season, when a stocks-to-use ratio of 37% fuelled ‘a record price of 227 cents a pound on New York futures market in March [2011]’. The March 2012 benchmark price in contrast is around 93.68 cents/lb, some 59% lower than the previous year’s peak.

Editorial comment

Alongside the United States, China is a heavy subsidiser of cotton, and the signing of the technical cooperation deal in Geneva on the fringes of the WTO Ministerial meeting may well have been timed to deflect criticism away from this underlying reality.

More generally, Chinese companies are becoming more heavily involved in the West African cotton sector as privatisation processes proceed. China is also becoming a major export market for West African cotton. While this can be seen as opening up new market possibilities, the critical question remain the purchase price for this cotton and the price this generates for farmers.

Simply redirecting trade towards Asia within traditional patterns of commodity export trade will not necessarily bring any additional benefits to cotton producers in West Africa. The challenge is to use the new dynamic arising from expanding Asian demand to redefine the insertion of West African cotton production within global cotton and textile supply chains.

It is unclear what opportunities the expanding trade with China presents in this regard, compared to opportunities in traditional markets where greater differentiation in cotton usage is emerging (see Agritrade articles ‘ Analysis of developments in the organic cotton market’, 6 October 2011, and ‘ Fair-trade cotton to boost cotton production in West and Central Africa’, July 2011). These developments need to be seen in the context of an 80% decline in West African cotton exports to the EU over the last 10 years, and exports to China in 2010 over seven times larger than the volume of cotton exports to the EU.

Pacific EPA to be concluded by 2012

25 February 2012

After reviewing the progress of the EPA negotiations at their Auckland meeting in September 2011, in the context of the 2011 Pacific Plan progress report, Pacific Island Forum (PIF) leaders noted the high priority placed by the region on the successful conclusion to the EPA negotiations in 2012. This message was reiterated by both the Solomon Islands Secretary for Foreign Affairs, Robert Sisilo, at the meeting of the ACP Ministerial Trade Committee in Brussels in December 2011, and the PACP ministerial spokesperson on EPAs, ’Isileli Pulu, Tonga’s Minister for Labour, Commerce and Industries, who reiterated the PACP mandate for concluding a comprehensive EPA as a single region.

The conclusion of a comprehensive Pacific EPA as a single region, however, is seen as conditional on the EU responding with flexibility on the remaining contentious issues (e.g. export taxes, global sourcing for fresh and frozen fish, development cooperation, non-execution, infant industry, standstill clauses). Mr Sisilo noted that similar flexibility had been demonstrated by the PACP governments through their revised market access offers and legal texts on contentious issues which were submitted to the EC in July 2011.

The PACP ministerial spokesperson on EPAs acknowledged however that some PACP states still need to finalise some aspects of their work before the formal negotiations with the EU in 2012. They are attending to this over and above their ongoing commitments to the negotiations on the extension of the PICTA to include trade in services and the recently-started PACER-Plus negotiations with Australia and New Zealand. The governments of two PACP states, Samoa and Vanuatu, have been working in 2011 on WTO accession agreements. While the accession of Samoa was approved in December 2011 at the 8th WTO Ministerial, and Vanuatu prior to that, these parallel negotiating processes have been stretching PACP negotiating capacities. The region nevertheless remains committed to moving forward on the EPA negotiations.

In mid January 2012, press analysis citing an anonymous retired Pacific trade negotiator set out the range of issues which remain unresolved in the negotiations. These included:

  • the absence of ‘development measures’;
  • the absence of progress on bilateral market access offers tabled by Pacific governments;
  • the absence of progress on proposed texts related to ‘contentious issues’,
  • the Pacific request for further improvement in rules of origin for a wider range of fisheries products;
  • shifting positions and lack of agreement on the basis for agreements on fisheries access for EU vessels.

Editorial comment

While many of the unresolved issues relate primarily to non-agricultural issues, the uncertainties generated by a lack of clarity over when and how negotiations will be concluded does carry implications for at least one agricultural sector, namely Fiji’s sugar sector. Uncertainty over future market access for sugar exports to the EU is complicating efforts to secure support from a strategic partner for the restructuring and modernisation of the sugar sector (to move it in a direction similar to the Mauritian restructuring model, in order to take advantage of shifting patterns of global demand for sugar).

Beyond coffee and sustainable palm oil exports, little substantial trade in agricultural and food products takes place between PACP states and the EU (relative to trade between PACPs and their Pacific Rim neighbours). In addition, intra-regional trade in food and agricultural products is limited. 

EAC–EU EPA negotiations entering the final stage?

25 February 2012

Press articles report that negotiations on the EAC–EU EPA are set to resume at an intensified pace in the first quarter of 2012. According to Tanzanian Deputy Minister of Industry and Trade Lazaro Nyalandu, ‘progress on the EPA talks between the two blocks ... was impressive’, and both parties were ‘still packaging their issues ready for the next round of discussions’. Apparent delays were attributed to regional concerns including ‘operationalisation of the EAC customs union, monetary union and new membership of South Sudan’. Issues arising from new economic developments, such as the discovery of oil in Uganda and abundant natural gas in Tanzania, also needed to be ‘sorted out clearly by EAC partners before moving to the EPA negotiations with EU’. Overall, however, the EPA negotiations process was described as ‘now at an advanced stage’, with the last discussions having been ‘very good’. According to press reports, the Deputy Minister spoke of how the negotiations process would ‘probably be concluded within this year’.

According to other press reports, the Tanzanian Minister of Industry, Trade and Marketing, Cyril Chami, has told a visiting Swedish delegation that ‘development cooperation should be an integral part of [an] EPA’, to ensure that EAC countries are able to ‘adjust to the new challenges and maximally exploit benefits offered under the agreement’. This is seen as essential to promoting sustainable growth and eventually reducing poverty. The visiting Swedish delegation meanwhile urged EAC governments to sign the EPA.

Tanzanian NGOs are reported in the press to have called for ‘a close review of the stipulated conditions’ enshrined in the draft interim EPA (IEPA) before signing. Issues of concern include losses in revenue and the preparedness of certain sectors, particularly agriculture, to deal with intensified competition. Of particular concern to the Tanzania Ecumenical Dialogue Group (TEDG) are EPA commitments that make it more difficult to meet food security needs. These include limitations on measures which can be taken against import surges and ‘limitations on the freedom of the bloc to use tariff policy and market regulation’, such as export restrictions and taxes, ‘to avoid a critical shortage of foodstuffs’. The TEDG specifically called for development cooperation to become ‘an integral part of the agreement’ and for additional funds to be provided.

Tanzanian government officials pointed out that if the negotiations failed, Tanzania, Uganda, Rwanda and Burundi would take up access to the EU market under the Everything But Arms initiatives, while Kenya would have to trade under standard GSP.

Editorial comment

In preparing to meet the challenge of increased competition in the agri-food sector, many of the necessary actions are arguably internal to the EAC. For example, many of the challenges relating to developing more competitive patterns of agricultural production within the EAC would benefit from the removal of policy barriers to intra-regional trade (e.g. the periodic use of export bans and other non-tariff measures).

However, this would also require a growing harmonisation of agri-food policies across EAC member states, ranging from food safety and food quality standards to regional food security and common external trade policies. Better harmonisation of national policies, including in new policy areas such as enhancing the functioning of agricultural supply chains, could assist both in relation to the better delivery of farm inputs and the better marketing of farm products.

In this regard, important lessons could be gained from internal EU practice, applied pragmatically in the light of regional realities. This may require a modification of some of the contentious issues in the draft IEPA which cause concern to non-state actors in the area of food security.

In addressing transport infrastructure constraints, which constitute a huge cost to intra-regional trade, both internal action and external support would appear to be necessary. The EU has a long history of support to transportation projects in Africa. However in the current economic context in the eurozone, it should be recognised that improving effectiveness of the delivery of aid from existing EU commitments to ACP development cooperation activities could potentially deliver more benefits to the EAC region than any foreseeable expansion of total EU aid commitments.

Efforts underway to expand cocoa production in West Africa

25 February 2012

On 30 January 2012, the Hershey Company announced an expansion of its support to cocoa farmers in West Africa. The company noted that farmers are ‘eager to improve their farming methods’, with scope for a 50% expansion of production in some areas. ‘By 2017, Hershey's public and private partnerships will directly benefit 750,000 African cocoa farmers’, according to the company. This is linked to the launch of quality-differentiated chocolate products using ‘100 percent cocoa from Rainforest Alliance Certified farms’. Hershey-supported programmes range from the use of mobile phone technology to disseminate best farming practices, through the creation of farmers’ associations, to input supply programmes. These initiatives have recently been consolidated under the Hershey ‘Learn to grow’ initiative.

Meanwhile, efforts are under way to expand cocoa production in Liberia, which currently officially exports only 9,530 tonnes (although extensive smuggling is reported). Efforts are being made to strengthen farmers’ organisations and enhance the commercial position of farmers in the supply chain. Improving organisation and marketing by farmers is seen as an essential basis for getting to grips with other challenges related to improving crop quality. While these efforts are supported by IFAD, a much needed replanting programme has yet to get off the ground and quality levels remain an issue.

At the international level, lower than expected use of cocoa in Europe in the pre-Christmas period saw cocoa prices dip at the beginning of 2012. This is in part a reflection of the state of the European economy. However these were balanced by fears that West Africa would not enjoy the bumper harvest which analysts have projected. 

Editorial comment

The expansion of the Hershey Company programme needs to be seen against the background of rapidly expanding demand for cocoa (+2 to 3% per annum). A wide variety of companies have launched similar such programmes, all designed to ensure their long-term supplies of cocoa, in order to be able to meet expanding demand in China, other Asian and other advanced developing country markets (see Agritrade article, ‘ Expanded cocoa production required to meet growing demand’, 27 December 2011).

At the farmer level, care needs to be taken to ensure that public–private partnerships covering the provision of inputs and extension services are not conditional on exclusive supply arrangements which tie farmers to supplying particular companies. Such practices could undermine the bargaining position of farmers in the context of expanding demand, tight markets and volatile prices. This suggests a need for a comprehensive review of the functioning of cocoa supply chains at the national and international levels.

At the level of ACP, governments in ACP cocoa-producing countries may need to consider carefully how to ensure that expanding demand in Asian and advanced developing countries is met in ways that enhance value-added processing to secure greater returns for their own sectors.

State of play in the CAP reform debate

25 February 2012

During the EU Agricultural Council meeting in January 2012, discussions were held on the EC proposals for further reform of the CAP. According to EU reports, ‘the debate focused on the exceptional measures in case of market disturbances and on the proposed measures aiming at a more competitive and well functioning food supply chain’.

Most member states considered that the EC proposal on exceptional measures moved ‘in the right direction’. However, some member states highlighted the need for a tight definition of the exceptional circumstances that would justify the deployment of funds from the proposed emergency facility. Other member states representatives ‘questioned the financing of this crisis fund’.

Many member states backed EC proposals for reinforcing producer organisations as a means of ensuring a better balance in bargaining power along supply chains. However some member states felt this should remain ‘voluntary’ and should avoid distorting competition.

In the EU report, ‘many countries mentioned that the end of sugar quotas scheduled for 2015 should be postponed to allow the sector to better adapt.’ This echoed calls from EU farmers’ organisation Copa-Cogeca for EU sugar production quotas to be extended until at least 2020.

Addressing the Oxford Farming Conference in January 2012, the UK Agriculture Minister, Jim Paice, called for a CAP which increasingly supported investment, innovation and research, and a longer-term vision of a CAP where there was no longer a single payment scheme. While this was not foreseen within the current planning, the Minister thought this should be achieved ‘eventually’.

In February 2012, a joint Franco–Spanish statement was issued, declaring that both governments ‘will not accept’ any budget overhaul that fails to preserve the EU’s current level of farm spending. Specifically they argued that it was ‘essential to maintain the CAP budget at least at the level of commitments reached at the end of the current programming period’. This is seen as being in line with current EC proposals, while calling for careful phasing in of payment convergence. The joint statement further questioned the EC approach to ‘the greening of the CAP’ (integrating environmental considerations), including the proposal to link 30% of the farm payment to the introduction of ‘greening measures’. It favoured the deployment of more targeted payments to achieve many of the environmental objectives that the EC had outlined.

Editorial comment

There remains no consensus as yet on the overall package of reform measures tabled by the EC. Consensus only appears to be emerging in areas where policy initiatives can be taken without significant budgetary implications (e.g. on strengthening the functioning of supply chains).

Recent debates need to be seen against the background of the Spanish government’s rejection in October 2011 of EC proposals for reform of the direct aid payment system and its general expression of ‘disappointment’ with the EC proposals, and the UK-led group which favours more fundamental reforms.

Of greatest immediate concern to the ACP are the proposals for the abolition of the sugar production quotas. Here, the fears of a number of member states (mainly Bulgaria, Finland, Greece, Italy, Portugal, Romania, Czech Republic, Hungary, Ireland, Latvia, Lithuania, Slovakia, Spain and Sweden, where 15.8% of production takes place in high or very high cost production zones) over the impact of quota abolition on domestic sugar beet production run up against the commercial realities of the operation of the current sugar regime, which has been generating sugar shortages and price increases to the detriment of sugar-based, value-added food processing companies across the EU.

It is unclear how this debate will be resolved. The EC remains committed to its initial proposals, with the sugar section of the December 2011 EC report on prospects for EU agricultural markets and income being based on the assumption that the current system of production quotas would lapse by 2015 (i.e. fall away, if no consensus on its renewal emerged).

Overall, the debate on the overall level of financing to be made available will have a critical impact on the final structure of reforms agreed and the external effects of the deployment of CAP instruments.

European Commission unveils trade and development strategy

03 March 2012

The EC has published a new Communication, titled ‘Trade, growth and development’, updating its 2002 Communication on Trade and Development. In the new Communication, the EC has stressed the need to increasingly differentiate among developing countries, focusing on those most in need, and on the need for developing country partners to undertake domestic reforms. It recognises that while trade is a necessary condition for development, it is not sufficient and it considers a number of issues including:

  • the inter-linkage between trade and food security;
  • the need to ensure that rural smallholders have appropriate access to aid for trade (AfT) to facilitate their involvement in external markets;
  • the importance of private schemes such as fair, ethical or organic labelling as a way of fostering sustainable and inclusive growth.

The Communication is both forward- and backward-looking. It highlights how, excluding fuels, the EU absorbs ‘[imports] more from LDCs than the US, Canada, Japan and China put together’. As evidence of its support for effective preferences, it cites the EBA and GSP+ schemes, the 2010 reform of the rules of origin (see Agritrade article ‘ EU agrees new rules of origin’, 25 December 2010), and the European Export Helpdesk for developing country exporters. It argues that ‘the EU and its Member States have been driving global AfT efforts, accounting for more than a third of global flows.’ On the Doha trade negotiations, the Communication is unapologetic: ‘We have repeatedly made compromise proposals. But structural difficulties combined with the lack of commitment of some WTO members have meant it has not been possible to come to an agreement on key parameters.’ At the multilateral level, the Communication asserts the importance of securing progress in the WTO on the generalised application of duty-free, quota-free access for LDC exports and of resolving the cotton issue.

Looking to the coming decade, the Communication sets out a range of practical, widely accepted proposals. These emphasise the need to support small operators in developing countries (including farmers and agro-processors) since these ‘form the backbone of the economies of many developing countries’. The proposals include:

  • extending practical information on trade policies and market information;
  • helping small producers differentiate their outputs, for example through geographical indications and fair trade labelling;
  • making better use of diaspora populations in Europe as marketing agents;
  • the more proactive use of AfT to help small producers take advantage of new export opportunities created by trade agreements.

The Communication also commits the EU to ‘[promoting] the elimination of tariff and non-tariff barriers on goods and services that can deliver environmental benefits.’

More controversially, the Communication extends the argument made in its proposal for a new GSP (see Agritrade article ‘ Revisions to the EU Generalised System of Preferences’, 25 October 2011) that trade policy is a zero-sum game, in that poorer countries will gain directly if preferences for richer countries are reduced. It argues that ‘The EU must focus its efforts on the poorest and most vulnerable countries and make sure those efforts are tailored to their needs and constraints’. Good governance is emphasised as ‘vital for private sector development and any sustained trade- and -led growth’. On bilateral or regional trade agreements as a means to ‘lock in domestic reforms’, the Commission notes that ‘such agreements need to include rules that promote transparency, predictability and accountability’.

The Communication reaffirms the need to conclude the EPA negotiations before 2014, and makes it clear that ‘If ACP countries so choose, EPAs will include commitments on services, investment and trade-related areas, identified in the Cotonou Agreement as important drivers of growth.’

Editorial comment

The EC Communication sets out a strategic framework for the next 10 years. Commentary on the communication varies between an emphasis on the shifting EC focus towards poorer countries, small business and ‘good governance’ and criticisms that key elements of the communication excessively reflect EU corporate interests.

From an agricultural perspective, while reference is made to the desirability of excluding food aid shipments from export controls and a commitment is made to building on the Vulnerability Flex Mechanism to set up a new shock-absorbing scheme focusing on broader exogenous shocks with a cross-country dimension, no reference is made to other important agricultural trade issues identified in the 10-agency report prepared as part of the 2011 G20 Ministerial initiative. Among the actions identified in the report was the need to tackle food insecurity problems, including measures to deal with ‘large country trade policies’ that ‘increase world price volatility and create negative externalities for smaller countries’ (see Agritrade article ‘ G20 task force recommends wide-ranging action to reduce impact of world...’, 5 July 2011). This included reference to government support policies that have ‘largely driven’ the tenfold increase in global output of bio-diesel and fourfold increase in bio-ethanol production over the 2000–2009 period. These issues are not revisited in the EC Communication.

In addition, the Commission notes that it ‘will keep pushing for concrete results that benefit LDCs’, stating that ‘it is ... important to reach a positive outcome on cotton in the agriculture negotiation.’ The EC has an opportunity to show further leadership on cotton issues through the proposals it tables on the future of coupled support payments in the cotton sector. Abolishing or substantially reducing these coupled payments could provide a clear lead on this issue, despite the relatively small global impact of unilateral EU action (see Agritrade article ‘ USDA review of EU cotton-sector developments’, 2 May 2011). 

Debate intensifies over South African poultry tariff policy

03 March 2012

According to press reports, a report is due to be published shortly regarding the investigation of the Brazilian chicken anti-dumping case. The anti-dumping action launched by the South Africa poultry sector against imports from Brazil is causing controversy. The Association of Meat Importers and Exporters (AMIE) claims that ‘there is a huge amount of misrepresentation and manipulation of statistics’, with the misclassification of carcases as ‘whole birds’ by the South African Poultry Association artificially increasing the volume of whole birds, thus lowering the prices of the imported product.

According to AMIE, the South African poultry industry is clearly not in distress as it is ‘quite profitable … with return on investments rising by almost 800% from 2008 to 2010, gross cash flow increasing nearly fivefold and sales volumes increasing 3% for whole birds between 2008 and 2010.’

David Wolpert, CEO of AMIE, pointed out that ‘importers were already paying customs duty of 27% on the imports of whole chicken and R2,20/kg on boneless cuts’. The requested duty increase would add ‘an extra 28,96% on whole birds and 15,49% on boneless cuts. According to Mr Wolpert, imports of whole birds and boneless cuts were equivalent to between 8 and 10% of local production.

The Brazilian poultry association argued that any tariff increase would be to the detriment of consumers, since it would eliminate competition within what is a highly concentrated domestic industry. South Africa’s Business Day reported that the antitrust authorities in South Africa had ‘found contraventions’ regarding ‘market allocation and information sharing by local producers’, and that ‘talks for possible settlements have started’.

Producers in South Africa have ‘complained about rising transport, electricity and chicken feed costs’. According to press reports, following ‘the application for further tariff increases, carcasses had been classified under their own tariff subheadings’.

The ruling of the South African International Trade Administration Commission, which will impose additional duties of between 6 and 63% for the next 6 months, has incensed Brazilian exporters, who are now approaching their government to take the case to the WTO.

Brazil’s poultry association said that ‘the charge on whole chickens will be 63 percent in addition to the current 5 percent, while that for boneless cuts is an extra 47 percent on the 27 percent’ currently applied. 

Editorial comment

Problems can arise on specific poultry meat market components in developing countries, given their different demand profile and the residual nature of the trade in poultry parts. In this context the South African customs authorities are seeking to introduce a more disaggregated system of tariff classification. While any modifications introduced by the customs authorities will impact on the SACU as a whole, the neighbouring Botswana, Lesotho, Namibia and Swaziland (BLNS) poultry producers are likely to be little affected, since most competing poultry products on their markets are of South African origin. Such measures would primarily impact on BLNS consumers by driving up prices.

Currently the EU has no less than 22 subheadings for poultry meat, with 13 different bound tariffs ranging from €187/tonne to €1,024 /tonne and between 10.9% and 15.4% for turkey and salted, dried or smoked meat. Within this bound tariff the EU establishes a range of tariff-rate quotas (TRQs) to be able to respond to increasing demand for specific poultry products.

According to a 2005 EC evaluation, import tariffs are essential, with poultry producers taking the view that ‘in the absence of import tariffs … the EU market would rapidly be influenced by imported products, with EU producers increasingly restricted to supplying niche markets.’

Tariff policy is thus of considerable importance to the poultry sector in many different countries.

Policy formulation, however, has been made more difficult in recent years by both feed prices and exchange rate volatility, which can transform the relative competitive position of different poultry sectors in a matter of months. This new reality means that poultry producers will need to develop increasingly sophisticated procurement and marketing policies to hedge against such price and exchange rate volatility. The recent doubling of maize prices in South Africa as a result of excessive exports, in a context where feed prices constitute 50% of the total costs of poultry production, highlights the difficulties that can be faced in the absence of appropriate long-term procurement arrangements for feed or, in the case of the highly integrated South African poultry sector, maize.

EU launches new animal welfare strategy

03 March 2012

On 19 January 2012 the EC ‘adopted a new four-year strategy … to further improve the welfare of animals in the European Union’. The strategy recognises that ‘the market does not provide sufficient economic incentives for compliance’. It adopts a two-pronged approach: ‘a proposal for a comprehensive animal welfare law and a reinforcement of current actions’.

The strategy focuses on:

  • strengthening compliance;
  • improving consumer information on animal-friendly products and
  • optimising synergies within the CAP.

The focus will be on improving outcomes for animals, including through better training and education of those involved in handling animals. Under the new strategy, operators are given flexibility in how they attain the necessary welfare standards by different routes.

An evaluation prepared as background to the new strategy found that ‘welfare standards have imposed additional costs … estimated at around 2% of the overall value of [the livestock and experimental] sectors’. There is no evidence that this threatens the sustainability of EU livestock production. The EC argues: ‘The competitiveness of EU producers is one of the key objectives of the Commission’s policy on animal welfare. There is no point in improving EU welfare standards if it has the effect of increasing imports from third countries with lower standards.’ The Commission therefore states that ‘EU values towards animals will be promoted abroad’, recording that it ‘has invested increasing resources to develop international standards on animal welfare’.

To ensure a level playing field between EU and third country suppliers the EC will:

  • continue to include animal welfare in bilateral trade agreements, to increase opportunities for bilateral cooperation;
  • remain active in the multilateral arena, including where appropriate, organising major international events on animal welfare issues.

Copa-Cogeca has welcomed the new EC strategy, despite farmers’ concerns over the lack of ‘concrete actions on how to better distribute along the food chain the high animal welfare production costs EU producers have to meet’. Farmers also question how willing consumers are to pay more for animal-friendly products. Copa-Cogeca also call on the EC to ‘ensure when negotiating trade agreements … that the same standards which apply in the EU also apply to imports’. 

Editorial comment

The element of the new EU strategy which allows operators to attain animal welfare outcomes by different routes is potentially of significance to ACP beef exporters. The main ACP exporters use extensive grazing production systems, with different requirements for ensuring the welfare of animals during transportation. The flexibility permitted under the new strategy should allow animal welfare arrangements to be established that are appropriate to the production systems prevailing in ACP countries, provided that the desired outcomes in terms of animal welfare are attained.

While the EC points out that it has not traditionally sought to use trade arrangements to enforce compliance with its own animal welfare standards, in tuna fishery the EU is increasingly seeking to apply production standards to the granting of the right to place tuna products for sale on the EU market. This could be a trend which is eventually extended to the livestock sector, with compliance with various production related standards being a prerequisite for placing products for sale on the EU market.

Developments in this direction need to be the subject of a carefully structured dialogue.

African intra-regional trade should increase

03 March 2012

The AU has published four documents arguing that ‘trade has not served as a potent instrument for … sustainable economic growth and development’ for many members, partly due to Africa’s ‘relatively low level of intra-regional trade’. In addition to a synthesis report, the documents include an issues paper, an action plan and a framework document, with a ‘road map ... for fast-tracking the Continental Free Trade Area’.

The AU synthesis report notes the ‘high external orientation’ of trade in Africa, and observes that agriculture is a sector that could gain much from boosting intra-regional trade. At 10%, intra-African trade is much lower than the 60% achieved in Europe, 40% in North America and 30% in ASEAN. One consequence is that countries tend to export unprocessed goods rather than more processed versions that require imported inputs. According to a review of trade facilitation in the tripartite free-trade area, ‘it is often more economic’ not to export a processed product but only ‘a raw material … sugar as opposed to confectionery’. According to the World Bank, ‘poor infrastructure, especially roads and railways, is a key obstacle’ to intra-African trade, with transport costs ‘more than 60% higher than the average in developed countries’.

One result of onerous border controls and poor infrastructure is that a high proportion of trade is informal, depriving governments of trade tax revenue, often leading to corruption and acting as a constraint on investment by successful traders. It has been estimated that in 2006 Uganda’s informal, unrecorded exports to its five neighbours were equivalent to 86% of its official exports.

The AU report notes that African countries ‘have been unable to fully harness the synergies and complementarities of their economies and take full advantage of the economies of scale and other benefits (such as income and employment generation) that greater market integration would have provided’. Dealing with these problems requires a wide range of actions on a broad front, and the AU Action Plan focuses attention on seven priority cross-cutting areas: trade policy, trade facilitation, production capacity, trade-related infrastructure, trade finance, trade information and factor market integration. The ‘road map for fast tracking’ draws on ‘the trail blazing experience of the COMESA-EAC-SADC Tripartite Free Trade Area’.

Getting to grips with promoting greater intra-African trade is seen as an urgent priority by the World Bank, in view of the ‘sharp economic slowdown under way in the eurozone’, which could reduce Africa’s growth ‘by up to 1.3 percentage points’ in 2012. The World Bank report notes the ‘enormous opportunities for cross-border trade in Africa in food products’, but considers that policymakers need to move beyond agreements to ‘a more holistic process to deeper regional integration’. 

Editorial comment

As the Tralac review of experience on the Tripartite FTA demonstrates, there are major infrastructural and organisational barriers to trade within Africa. These unnecessarily increase the cost of the goods that Africans consume and produce. In a time of rising food prices these barriers are a particular concern in the agri-food sector.

Given that different parts of Africa have different agricultural potential, the agri-food sector could be one of the greatest beneficiaries of enhanced intra-regional trade. However the recent announcement of Malawi’s maize export ban (see Agritrade article, ‘ Malawi maize export ban complicates Kenyan tariff policy debate’, 12 February 2012) and Kenya’s announcement that it is to halt exports both indicate that progress towards the removal of even the most obvious policy barriers to sustainable intra-regional trade is highly uneven.

Greater trade integration will certainly make Africa richer, but it will also have distributional effects. There is a tension between these two effects which has been a contributory factor to the slow removal of policy barriers. ‘Economies of scale’ means allowing some countries to produce sufficient not only for their own citizens but also for their neighbours. But if production falls unexpectedly, some consumers may lose out. If trade remains liberal it may be the consumers in the producing state that are forced to pay prices boosted by export demand (see Agritrade article ‘ Debate on the regulation of maize exports intensifies in South Africa’, 12 February 2012). This can not only affect end consumers but other value-added agricultural supply chains (e.g. poultry and beef producers). However, if export barriers are imposed, this could harm consumers in the producers’ external markets, who are then unable to obtain what they need just when it is most needed. Equally, export bans may have unintended price consequences for domestic producers, depressing local prices as export opportunities disappear and there is less competition for supplies (see Agritrade article ‘ Debate on the use of national export bans in East Africa, 6 October 2011).

Conclusion of EPA process seen as key to African banana exports

03 March 2012

George Kporye, President of the newly formed African Pineapples and Bananas Association (APIBANA), ‘has urged [the Ghanaian] government to sign the Economic Partnership Agreement (EPA) with the European Union (EU)’, to preserve duty-free access to the EU market. He pointed out that in the face of reduced tariffs and associated increased competition from Latin American banana exporters, West and Central African banana exporters could not afford any reimposition of EU import duties.

APIBANA has brought together banana and pineapple producers from Cameroon, Côte d’Ivoire and Ghana. These countries export nearly 360,000 tonnes of bananas to the EU, fully 65% of total African banana exports. The objective of APIBANA is ‘to represent, advocate, and defend the interests of its members in the producing countries in front of regional institutions like ECOWAS, UEMOA etc, and to promote its members’ products in all markets, especially the EU’, including to develop export markets in other African countries.

In 2011 Ghana exported 62,000 tonnes of bananas, with exports of bananas growing at between 2 and 5% per annum since 2006. This has been facilitated by investment in the necessary logistical infrastructure for the export of bananas of the requisite quality. One Ghanaian company, Golden Exotics Ltd, managed by Mr Kporye, accounts for 90% of Ghana’s banana exports.

Editorial comment

The importance of continued duty-free access for banana and pineapple exports for West Africa’s trade with the EU cannot be overestimated. In the absence of EPA tariff preferences, banana exports would attract a duty of €176/tonne. Prepared and preserved pineapple exports meanwhile would attract a duty of between 14.9 and 15.7%. This would constitute a serious disadvantage to these export sectors, particularly in Ghana, where the export trade has only relatively recently emerged.

This may account why APIBANA is focusing on promoting exports to all markets, including developing other African markets as well as defending its EU market access.

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