UNCTAD Secretary-General's
High-Level Multi-Stakeholder Dialogue on Commodities
in the context of UNCTAD XII
28-29 January 2008
Agriculture Trade
By
Mr. Donald Mitchell
Lead Economist, World Bank
The views expressed are those of the author and do not necessarily reflect the views of UNCTAD
Agriculture Trade
UNCTAD Secretary-General’s
High Level Multi-Stakeholders Dialogue on
Commodities in the Context of UNCTAD XII
Donald Mitchell
Lead Economist World Bank
January 28-29, 2008 Geneva
The views expressed are those of the author and should not be
attributed to the World Bank or its Executive Directors.
1
Agricultural export led growth
„
„
„
Agr. has strong linkages to rest of economy
‹ Backward linkages when farmers purchase
farm inputs (fertilizer, chemicals, machinery)
‹ Forward linkages when farm output provides
raw materials for food and fiber processing
Growth in agriculture allows capital accumulation
and supports the transition to a more diversified
economy
Stimulates growth in overall economy
2
Growth of agricultural exports
reduces rural poverty
In Vietnam, agricultural GDP grew by 4.6%
per during 1990-1998 (partly due to a boom
in coffee exports) and rural poverty
declined from 66% to 45%
„ In Uganda, export crop production surged
following marketing liberalization in the
early 1990s, and rural poverty fell from
60% to 39%
„
3
Historical perspective on agriculture
Agriculture is very cyclical and known for
its booms and busts in commodity prices
„ We are currently in a boom, but if history is
a guide it will be followed by a bust
„ Lets begin with an historical perspective
„
Donald Mitchell
World Bank
4
Agriculture characterized by:
Real Prices 1900-2005
„
Falling real prices
and high correlation
between prices
1000
800
600
400
200
0
1900
1925
Cotton(¢/kg)
Donald Mitchell
1950
1975
Corn ($/t)
2000
Wheat ($/t)
World Bank
5
Agriculture characterized by:
„
„
Falling real prices
Surplus production
and burdensome
stocks
World Grain Stocks
(milion tons)
700
600
500
400
300
200
100
0
1960
Donald Mitchell
1970
1980
1990
2000
World Bank
6
Agriculture characterized by:
„
„
„
Falling real prices
Surplus production
Price spikes and
overshooting
Sugar Prices (Cents/kg)
40
35
30
25
20
15
05-Jan
Donald Mitchell
06-Jan
07-Jan
World Bank
7
Agriculture characterized by:
„
„
„
„
Falling real prices
Surplus production
Price spikes
Policies to support
prices & restrict trade
Donald Mitchell
„
„
OECD countries
provided $385 billion
of support in 2005
Tariffs in agriculture
are double those of
manufacturing
World Bank
8
Agriculture characterized by:
„
„
„
„
„
Falling real prices
Surplus production
Price spikes
Policies to support
prices & restrict trade
Poverty higher in rural
than urban areas
Donald Mitchell
„
„
„
In Mexico extreme
poverty is 30% in
rural areas vs. 10% in
urban
In Morocco rural
poverty is 25% and
urban poverty is 8%
In Uganda rural
poverty is 39% and
urban poverty is 12%
World Bank
9
Trends in Agriculture Trade:
„
Agricultural exports
have been rising
Agriculture Exports 1980-2005
($billion)
800
700
600
500
400
300
200
100
0
1980
Donald Mitchell
1985
1990
1995
2000
World Bank
2005
10
Trends in Agriculture Trade:
„
„
Agricultural exports
have been rising
But agriculture’s share
of total merchandise
trade is falling
Agriculture Export Shares
1980-2004
15
12
9
6
3
0
1980
Donald Mitchell
1985
1990
1995
2000
World Bank
2005
11
Trends in Agriculture Trade:
„
„
„
Agricultural exports
have been rising
But agriculture’s share
of total merchandise
trade is falling
And the share of
developing countries
is falling
Share of Agr. Exports
80
70
60
50
40
30
20
1960 1970 1980 1990 2000
Developing
Donald Mitchell
Developed
World Bank
12
… trends
„
The decline in share is
partly due to loss of
processing
as the Developing
countries’ shares of
cocoa exports shows
Cocoa Export Shares
100
80
60
40
20
0
1980 1985 1990 1995 2000
Beans
Butter, Paste, Powder and Cake
Donald Mitchell
World Bank
13
… trends
„
„
The decline in share is
partly due to loss of
processing
Expansion of FTAs
has also had an impact
Exports of Greece, Spain
& Portugal ($bil)
30
25
20
15
10
5
0
1970
1980
1990
2000
Exports
Donald Mitchell
World Bank
14
… trends
„
„
„
The decline in share is
partly due to loss of
processing
Expansion of FTAs
has also had an impact
Preference erosion
also contributed
U.S. Sugar Imports
(mil tons)
6
5
4
3
2
1
0
1970 1977 1984 1991 1998 2005
U.S. Sugar Imports
Donald Mitchell
World Bank
15
… trends
Share of World
Looking at regions
15
E&SE Asia has gained share 12
SS Africa & Latin America- 9
Carib have lost share
6
The transition economies
gained since the mid-90s 3
0
South Asia is steady
„
1980 1985 1990 1995 2000 2005
SS Africa
E&SEast Asia
Lat Amer&Carib
South Asia
Transition
Donald Mitchell
World Bank
16
Agricultural trade reforms still a
priority
„
„
„
„
Agricultural protection is complex and widespread
Ongoing reforms in most developing countries,
little change in industrial and some middle income
countries
Protection leads to reactive protection by other
countries
Supply expansion without trade reforms will lead
to further price declines and pressures for greater
protection
Donald Mitchell
World Bank
17
Developing countries’ tariffs have declined
Average MFN Applied Tariff (%)
30
Agriculture
Manufacturing
25
20
15
10
5
0
1990
1995
2000
Source: TRAINS data
18
OECD protection has not (percent)
80
60
40
20
0
1965 -74
1979 -81
1986 -88
1995-97
2000 -02
Source: OECD protection estimates (except ABARE for 1965-1974, Author’s calculation for 2000-2002).
19
Prospects for reform
WTO negotiations have stalled
„ The U.S. Farm Bill is stalled, but significant
reform seems unlikely because the U.S. is
focused on the presidential election
„ But, there are some other important
developments…
„
20
Commodity markets are undergoing
significant structural change
„
„
„
„
„
Rapid demand growth in developing countries has
raised commodity demand
Decades of underinvestment have led to capacity
constraints
The depletion of low-cost and easily accessible
reserves will make future supplies more costly
High energy and fertilizer prices increase the cost
of crop production
Biofuel production has increased food crop
demand
21
Biofuels Production
Now account for:
one-fifth of U.S. corn production
half of Brazil’s sugar cane production
40 percent of EU’s rapeseed production
„ Driven by subsidies and mandates
„
Donald Mitchell
World Bank
22
A period of high agricultural
commodity prices seems likely
Unless biofuel polices change,
„ energy prices fall sharply,
„ or technology breakthroughs occur in
cellulosic ethanol production.
„ But prices are still expected to decline from
recent highs.
„
Donald Mitchell
World Bank
23
Real commodity prices
Index 1990=100, deflated by MUV
300
250
200
150
100
50
0
1960
1970
1980
Crude Oil
1990
2000
Agriculture
24
New opportunity and challenges
Increased exports and higher prices
„ Increased opportunities for FDI
„ But also higher standards on fresh fruits,
vegetables and animal products exports
„ Higher food import costs and higher food
prices which will hurt the urban poor (50%
of incomes of poor in developing countries
goes for food).
„
25
Thank You
Donald Mitchell
World Bank
26
References:
Monthly commodity price data (pink sheet)
google search “world bank commodity price
data”
„ Global Agricultural Trade and Developing
Countries
google search title and download free
„ Development Prospects Site
www.worldbank.org/prospects
„
27