ICTSD » Tropical and diversification products

How a Trade Deal on Bananas Could Affect Exporting and Importing Countries

Ammad Bahalim — Fri, 17 Jul 2009 16:03:51 +0000

Prof. Giovanni Anania from the University of Calabria in Italy presented the findings of research he has conducted on the implications for importing and exporting countries of various scenarios for trade in bananas. Using an economic model and empirical data, Prof. Anania presented an assessment of what he considers to be the likely impact on various countries of different negotiating outcomes, looking in particular at the Economic Partnership Agreements between the EU and ACP countries, the current Doha Round agriculture modalities, and the tentative agreement on bananas that was reached in July 2008. ICTSD hopes that the findings of his research will help to provide policy-makers, negotiators and other stakeholders with a clear and accurate assessment of the likely implications of various trade policy options.

Reconciling the commodity issue: Solutions for developing country producers

Andrew Aziz — Mon, 07 Jul 2008 06:03:42 +0000

The commodities sector is the principle source of economic stimulus for developing countries. Yet in the last decade, the “commodity issue” has re-emerged as a key problem for developing country producers and it now represents a significant topic of debate within governments and multilateral institutions. A solution to the commodity crisis is seen as central to development initiatives and poverty alleviation strategies. In response, ICTSD commissioned the following paper by Charles Mather, to provide input into these debates and to address the opportunities and challenges of the full liberalisation of trade in tropical and diversification products.

The commodities sector is the principle source of revenue and economic stimulus for developing countries. Among developing nations, 38 are estimated to be dependent upon a single commodity for more than 50 percent of their economy and 48 developing countries depend on only 2 commodities. And these products represent not just capital, but livelihoods, employment, foreign exchange and public services.

For developing countries, tropical products are undeniably the most important of these commodities. The 20 main products classified as tropical account for 36 percent of developing countries’ incoming foreign current from agricultural goods. For low income developing nations, tropical products account for 46 of their main foreign currency from agriculture. And the majority of these products are not grown by massive manufacturers but rather small farmers. These farmers are responsible for growing goods such as coffee, cocoa, tobacco and cotton. When it comes to commodities like sugar and rice, these products are the most important rural employers. Clearly, along with economic implications, there are social ones as well.

The built-in agenda of the World Trade Organization’s (WTO) Agreement on Agriculture reflects the longstanding priority attached to tropical and diversification products: “having agreed that in implementing their commitments on market access, developed country Members would take fully into account the particular needs and conditions of developing country Members by providing for a greater improvement of opportunities and terms of access for agricultural products of particular interest to these Members, including the fullest liberalisation of trade in tropical agricultural products […].” The 2004 Framework Agreement reached during the Doha Round notes that the full implementation of the liberalisation of trade in tropical agricultural products is “overdue and will be addressed effectively in the market access negotiations.” However, the way in which the commitment is to be implemented and even the identification of such products remains ambiguous.

Over the past several years, the commodity issue has become central to development initiatives and poverty alleviation strategies. But it has also become a significant topic of debate within governments and multilateral institutions and it is a key problem for developing country producers. The restructuring of production and commodity changes is occurring in the context of new developments in trade regulations, which has provoked heated debates and potentially devastating consequences for developing country producers.

In response, ICTSD commissioned Charles Mather from the University of Witwatersrand in South Africa to compose a paper that addresses the issue of commodity trade and its impact on developing country produces. In his work, entitled “Value Chains and Tropical Products in a Changing Global Trade Regime,” Mather provides insights on the different ways that the significantly changing global environment affects the structure and governance of commodity chains, which ultimately impacts producers’ income and production sustainability. The author then provides recommendations to improve the income and production sustainability variables.

Through the report, Mather analyzes the value chains of the four main tropical products: bananas, sugar, cut flowers and palm oil. The studies of each commodity focus on four themes including changes in the geography of production; changes in governance; any new developments in trade agreements that may impact primary producers in developing countries; and initiatives towards sustainable production, ethical trade and worker welfare. In several of the products concerned, an important development has been the rise of new low cost producers who will play a role in shaping the global market for these commodities.

Mather conducts his study using the global value chain (GVC) approach: that is, an examination of production, processing, distributing, and market of specific globally-trade commodities. At each stage, the key stakeholders are defined.

The GVC approach allows the author to look at governance patterns (how different stages of policy making and negotiation are coordinated); the role of leading firms in determining market access; and products and values across the chain. Because the GVC enables an examination of more than just broad patterns of global exchange, it is increasingly used by trade analysts and researchers. It goes further than a simple assessment of consequences for producers and consumers exclusively through market mechanisms and equilibrium price changes, thereby revealing changes in structure, geography and governance.

The application of this holistic approach is part of what renders Mather’s paper so unique and valuable. So too are the recommendations and conclusions that emerge from this in-depth analysis. In the final chapter, Mather brings together some of the key themes that have materialised from the four-commodity study, which include new patterns of investment linked to trade reform, the role of multi-stakeholder groups, support for producers affected trade preference erosion, and chain governance.

ICTSD commissioned this paper under a dialogue and research project that seeks to address the opportunities and challenges of the full liberalisation of trade in tropical and diversification products and explore possible areas of convergence between different groupings and interests in WTO. The project—and this work by Mather—aims to generate solutions-oriented analyses and possible policy responses from a sustainable development perspective. It is hoped that readers will gain not only from this work, but from the vast research that the Centre has commissioned and produced in line with these objectives.

Value Chains and Tropical Products in a Changing Global Trade Regime

Andrew Aziz — Thu, 01 May 2008 11:41:45 +0000

qThe importance of agricultural commodities for developing countries, including tropical products, is undeniable. Their significance has been recognised in an array of studies, fora and organisations. As indicated in the Global Initiative on Commodities Report (UNCTAD et al, 2007), as many as 38 developing countries are estimated to be dependent on a single commodity for more than 50 percent of their export income, with an additional 48 countries depending on only two. These countries depend on commodities as a source of livelihood, employment, foreign exchange and public revenue; the commodity sector is their principal stimulus for economic growth.

There are no studies estimating the importance of tropical and other commodities using economic, social and foreign trade indicators. Nonetheless, the participation of such products in exports from developing countries is significant: the twenty main tropical products account for 36 percent of developing countries’ incoming foreign currency from agricultural exports. This proportion reaches 46 percent for low income developing countries (Perry, 2008). Many of these products are grown primarily by small farmers in developing countries – as in the case of coffee, cocoa, tobacco and cotton. Others (i.e. sugar, rubber and rice) are vital in the generation of rural employment. Therefore, besides their considerable contribution to foreign currency generation, they also play an important role from a social point of view.

The built-in agenda of the World Trade Organization’s (WTO) Agreement on Agriculture reflects the longstanding priority attached to tropical and diversification products, that “having agreed that in implementing their commitments on market access, developed country Members would take fully into account the particular needs and conditions of developing country Members by providing for a greater improvement of opportunities and terms of access for agricultural products of particular interest to these Members, including the fullest liberalisation of trade in tropical agricultural products […].” The 2004 Framework Agreement reached during the Doha Round notes that the full implementation of the liberalisation of trade in tropical agricultural products is “overdue and will be addressed effectively in the market access negotiations.” However, the way in which the commitment is to be implemented and even the identification of such products remain far from clear.

In the last decade, the commodity issues have re-emerged as central to development initiatives and poverty alleviation strategies. The objective of this Issue Paper by Charles Mather is to contribute to this debate by providing an analysis of the value chains of four tropical commodities (bananas, sugar, cut flowers and palm oil) in a rapidly changing global trade environment. The author seeks to provide insights on the different ways the significant changes occurring in the structure and governance of commodity chains ultimately affect producers’ income and production sustainability. He also suggests recommendations to improve these two variables.

The value chain approach has become an increasingly important framework for examining changes in the global trade of commodities and their implications for primary producers. Rather than describing the broad patterns of global exchange and assessing their consequences for producers and consumers exclusively through market mechanisms and equilibrium price changes, the global value chain (GVC) framework encompasses the production, processing, distribution and marketing of specific globally-traded commodities, and identifies the main stakeholders involved at each stage. It also highlights governance patterns (how these different stages are coordinated) and specifies the role of lead firms in determining market access, defining products and value across the chain (Schmitz, 2005).

The commodity studies in this paper focus on four themes: changes in the geography of production, changes in chain governance, new developments in trade agreements and their impacts on primary producers in different developing countries, and initiatives towards sustainable production, ethical trade and worker welfare. With regard to changes in production, the paper provides insights into new developments in the production of bananas, sugar, palm oil and cut flowers, which have been driven by changes in trade agreements and new investment patterns. In several of the commodities concerned, an important development has been the rise of new low cost producers who will play a role in shaping the global market for these commodities.

This paper was produced under an ICTSD dialogue and research project which seeks to address the opportunities and challenges of the full liberalisation of trade in tropical and diversification products, and explores possible areas of convergence between different groupings and interests in WTO negotiations. The project seeks to generate solutions-oriented analyses and possible policy responses from a sustainable development perspective.

Tropical Products, Trade, Natural Resources Management and Poverty

Andrew Aziz — Mon, 03 Dec 2007 09:06:47 +0000

Although agricultural production has increased significantly over the decades, the number of hungry people around the world has grown in recent years, indicating that the problem is not related to food quantity, but to ensuring adequate income to the poor who rely on agriculture. Further, the agricultural production expansion witnessed around the world came with a heavy cost to the environment, meaning that the sustainable use of natural resources needs to taken into account.

The reform of the global agriculture trading system currently being negotiated in the context of the Doha Round - with the objective of establishing a “fair and market-oriented trading system” - will play a major role in this process. Over the last fifteen years, world agriculture trade has grown almost twice as fast as production. However, highly subsidised agricultural production and exports from Organisation for Economic Cooperation and Development (OECD) countries as well as the anti-competitive behaviour of trading firms are depressing world prices, thereby affecting development prospects in the South. Exports from developing countries, of tropical products in particular, continue to face a variety of specific challenges, ranging from non-tariff barriers, and technical barriers to trade (such as sanitary and phytosanitary requirements), tariff escalation, preference erosion, and price volatility.

The importance of tropical products for developing countries is undeniable. Their significance has been recognised in an array of studies, fora and organisations. As indicated in a document by the Common Fund for Commodities (2004): “The livelihoods of hundreds of millions of the world’s poorest people in developing countries, and in particularly in the least developed countries, are heavily dependent on commodities. Commodities form the backbone of the economies and account for the bulk of the export earnings of these countries. The development of commodities is thus vitally important in the global struggle to alleviate poverty.” However, there are no studies estimating the importance of tropical and other commodities using economic, social and foreign trade indicators. Nonetheless, the participation of such products in exports from developing countries is significant: the fifteen main tropical products account for 37 percent of developing countries’ incoming foreign currency from agricultural exports. This proportion reaches 62 percent for low income developing countries.

Many of these products are grown primarily by small farmers in developing countries - as in the case of coffee, cocoa, tobacco and cotton. Others are vital in the generation of rural employment (i.e. sugar, rubber and rice). Therefore, besides their considerable contribution to foreign currency generation, they also play an important role from a social point of view.

There is still no agreed definition as to which agricultural commodities should be considered as tropical and diversification products in the agricultural negotiations at the World Trade Organization (WTO). In addition, WTO Members still have to agree on the way in which the long-standing commitment to achieve the fullest liberalisation of trade in tropical agricultural products contained in the July 31, 2004 Framework Agreement will be worked out.

There have been persistent differences between WTO Members, more specifically a group of Latin American (LA) countries and the African, Caribbean and Pacific (ACP) countries, on how to liberalise trade in tropical products while also addressing the effects of trade preference erosion. The two mandates have neatly placed them in opposing camps: while some want developed countries to remove all tariffs and quotas on ‘tropical products’ such as sugar and bananas, others have long benefited from trade preferences for these very commodities, and thus stand to lose from across-the-board liberalisation. While the preference beneficiaries would like rich countries to be able to separate these products for lower tariff cuts, thus preserving more of their margin of preference, the others would like to prohibit the same products from being designated as ’sensitive.’

In this context, the objective of the dialogue was to determine a better sense of how the WTO agricultural negotiations on tropical products can increase benefits for developing country exporters of these products and identify elements of a pro-poor, pro-sustainable development agenda for tropical commodities. It addressed issues of interest to all developing country exporters of tropical products, in Latin America, Asia and Africa.

More particularly, the dialogue addressed challenges ranging from tariffs, tariff escalation, preference erosion and possible trade adjustments, non-tariff barriers, sanitary and phytosanitary requirements, sensitive products and domestic support. The dialogue will also address other imperatives of a global strategy for sustainable development in agricultural trade. This included supply chain, value chain, bio-fuels and the environment.

Building Developing Countries’ Convergence on Tropical and Diversification Products

Andrew Aziz — Thu, 01 Mar 2007 13:27:45 +0000

The objective of the meeting was to continue exploring the potential for common ground between those developing countries that are active proponents of the fullest liberalisation of trade in tropical and diversification products and others which have long benefited from trade preferences for these same commodities.

In this context, discussions was initiated with the presentations of two ICTSD’s papers.

The ACP Experience of Preference Erosion in the Banana and Sugar Sectors and Possible Policy Responses to Assist in Adjusting to Trade Changes, by Paul Goodison of the European Research Office. The report seeks to review in broad terms the experience of preference erosion in the ACP banana and sugar sectors. It develops a typology of stages of preference erosion, reviews the experience of the policy response and seeks to outline the types of response measures which could be supported as part of a comprehensive response to the challenge of preference erosion emerging in ACP-EU trade.

A Comparison of the Barriers Faced by Latin American and ACP Countries’ Exports of Tropical Products, by Jean-Christophe Bureau of the Institute for International Integration Studies, Trinity College Dublin, Anne-Celia Disdier, INRA-AgroParisTech, Grignon, France, and Priscila Ramos, ADEPRINA and CEPII, Paris. The report seeks to shed light on the actual market access granted to both group of countries so as to identify the sectors where both groups would have a major interest in requesting fuller liberalisation in the WTO.

Building Developing Countries’ Convergence on Tropical and Diversification Products: Picking the Low Hanging Fruits

Andrew Aziz — Tue, 30 May 2006 13:57:03 +0000

The objective of the meeting was to explore the potential for possible convergence between those developing countries that are active proponents of the fullest liberalisation of trade in tropical and diversification products and others which have long benefited from trade preferences for these same commodities. The discussion would focus on those products on which agreement might be most easily reached, and would exclude controversial products such as sugar and bananas.

The July 2004 Framework commits Members to pursue the “full implementation of the long-standing commitment to achieve the fullest liberalisation of trade” in tropical farm products as well as crops that farmers could grow instead of narcotics - so called ‘diversification products.’ Members still need to identify which products will qualify, and agree on their treatment. WTO Agriculture Chair Ambassador Crawford Falconer proposed that Members establish a “core set” of products that individual countries could build on when scheduling specific liberalisation commitments. Since some products are controversial, Amb. Falconer has suggested that Members could begin by developing a list of products for which agreement exists, before deciding on any others.

In this context, discussions was initiated with a brief presentation of ICTSD’s draft paper “Tropical & Diversification Products: Strategic Options for Developing Countries”, by its author, economist and formal Colombian trade negotiator, Mr Santiago Perry. Mr Patrick Low, Director of Economic Research and Statistics at the WTO acted as a discussant.

Participants

Ambassador Samuel Amehou
Permanent Mission of Benin

Ambassador Arsene M. Balihuta
Permanent Mission of Uganda

Yolinda Chan
Permanent Mission of Fiji to the EU

Ambassador Chitsaka Chipaziwa
Permanent Mission of Zimbabwe

Ambassador Hassan Doualeh
Permanent Mission of Djibouti

Stephen Fevrier
Organisation of Eastern Caribbean States (OECS) Technical Mission

Ambassador Norman M. Harris
Permanent Mission of Panama

Anne Kamau
Permanent Mission of Kenya

Patrick Low
WTO

Ambassador Alicia Martin Gallegos
Permanent Mission of Nicaragua

Milagros Miranda
Permanent Mission of Peru

Cesar Montano
Permanent Mission of Ecuador

Santiago Perry
Corporacion PBA

Umpika Poonnachit
Permanent Mission of Thailand

Abdoulaye Sanoko
Permanent Mission of Mali

Ambassador Claudia Uribe
Permanent Mission of Colombia

Frank Valderrama
Permanent Mission of Venezuela

Hairil Yahri Yaacob
Permanent Mission of Malaysia

Edi Yusuf
Permanent Mission of Indonesia

Christophe Bellmann
ICTSD

Marie Chamay
ICTSD

Ricardo Melendez-Ortiz
ICTSD

Building Developing Countries’ Convergence on Tropical and Diversification Products: Picking the Low Hanging Fruits (2)

Andrew Aziz — Sun, 14 May 2006 14:05:20 +0000

On the initiative of Ambassador Claudia Uribe (Colombia) and Ambassador Samual Amehou (Benin), the objective of the meeting was to continue exploring the potential for common ground between those developing countries that are active proponents of the fullest liberalisation of trade in tropical and diversification products and others which have long benefited from trade preferences for these same commodities. The meeting gave the opportunity to a core group of countries to discuss an eventual common approach.