Agriculture and Food in
International Trade
G. Cornelis van Kooten
Professor and Canada Research Chair
Department of Economics
University of Victoria
and
Senior Research Fellow
Agricultural Economics Institute (LEI)
The Hague, The Netherlands
Agriculture and World Trade Organization
(WTO) Negotiations
• Agricultural programs are an obstacle to concluding
trade deals (e.g., completion of WTO’s Doha Round)
• In 2012, state support for agriculture accounted for:
–
–
–
–
–
5.7% of farm income in Brazil
12% of farm income in America
26% of farm income across the OECD
29% of farm income in the European Union
15% of farm income in Canada (2010-2012 average)
Why liberalize? Estimates of global welfare gains
of removing global agricultural trade distortions
($US billions)
Study
IMF and World Bank, 2002
World Bank, 2002, static scenario
World Bank, 2002, dynamic scenario
USDA/ERS, 2000, static scenario
USDA/ERS, 2000, dynamic scenario
Anderson, 1999
Francois en LEI, 2002
as % of
Total world GDP
128
0.4
248
0.8
587
1.9
31
0.1
56
0.2
165
0.5
109
0.4
Source: Kuyvenhoven, A. & H. Stolwijk, 2011. Developing Countries and EU Agricultural and Food Policy. Chap 5 in EU Policy for
Agriculture, Food and Rural Areas (pp. 121-138) edited by A. Oskam, G. Meester & H. Silvis. Wageningnen, NL: Wageningen
Academic Publishers. p.129
WTO Agricultural Boxes
• In WTO terminology, subsidies in general are identified by
‘boxes’ that are given the colours of traffic lights:
– green (permitted)
– amber (slow down — i.e. reduce)
– red (forbidden).
• In agriculture, things are more complicated. In the
Agriculture Agreement:
– There is NO red box
– Amber box: domestic supports that exceed reduction commitment
levels; any measures that distort production and trade
– Blue box: subsidies that are tied to programs that limit production
(e.g., supply-restricting marketing boards)
– Green box: acceptable (supposedly non-trade distorting) policy
– S&D box: exemptions for developing countries.
Amber Box
• All domestic support measures considered to distort production
and trade (with some exceptions) fall into the amber box, which
is defined (Article 6 of the Agriculture Agreement) as all
domestic supports except those in the blue and green boxes.
These include measures to support prices or subsidies directly
related to production quantities.
• These supports are subject to limits: ‘de minimis’ (minimal)
supports are allowed (5% of agricultural production for
developed countries, 10% for developing countries); the
30 WTO members that had larger subsidies than the de minimis
levels at the beginning of the post-Uruguay Round reform
period are committed to reduce these subsidies.
Blue Box
• Created in 1995
• This is the ‘amber box with conditions’ – conditions designed
to reduce distortions. Any support that would normally be in
the amber box is placed in the blue box if the support also
requires farmers to limit production (see Paragraph 5 of
Article 6 of the Agriculture Agreement).
– Set aside programs/cross compliance
– Supply management (?)
• At present there are no limits on spending on blue box
subsidies. In the current negotiations, some countries want to
keep the blue box as it is because they see it as a crucial means
of moving away from distorting amber box subsidies without
causing too much hardship.
Green Box
• Defined in Annex 2 of the Agriculture Agreement
• To qualify, green box subsidies must not distort trade, or at
most cause minimal distortion (paragraph 1). They have to be
government-funded (not by charging consumers higher
prices) and must not involve price support.
• Tend to be programs not targeted at particular products, and
include direct income supports for farmers not related to (i.e.,
decoupled from) current production levels or prices.
• Include environmental protection and regional development
programs. “Green box” subsidies are therefore allowed
without limits, but comply with other criteria in Annex 2.
Green Box: Summary
To be eligible to be categorized as “green box”, a support
measure must meet two basic criteria:
1. The support must be government funded
2. The support must not have the effect of
providing price support to producers as price
support is viewed as distorting production
and trade
• Example: Safety Nets such as Single Farm Payment,
Whole Farm Insurance
Green Box Criteria: Safety Nets
Specific criteria apply for safety nets:
i. Eligibility for such payments shall be determined by an
income loss that exceeds 30% of some reference level
(moving 5-year Olympic average or moving 3-year
average).
ii. Payments shall compensate for ≤70% of the producer’s
loss. (If threshold of 85% is used, as in Canada’s Growing
Forward program, difference would be assigned to blue box)
iii. Payments shall relate solely to income; it shall not relate to
the type or volume of production
This is the main reason why countries have turned to crop
insurance, particularly whole farm insurance.
Question: Does whole farm insurance distort production?
Canada – European Union Comprehensive
Economic and Trade Agreement (CETA)
• Elimination of tariff and non-tariff barriers could
increase Canadian agri-food exports from $2.7 billion to
$3.2 billion in the long run
• Average Canadian duty on agricultural products: 21.9%
– Average duty on non-agricultural commodities: 3.5%
– Average duty on imports of supply-managed products (milk,
chicken, eggs, turkeys): 159.1% but over 200% at margin
• EU imposes high duties on beef (142%), pork (32% –
70%), fruits &vegetables (31.8%), fish & seafood
(12.5%), and wheat & oats.
– EU favors durum production in its CAP subsidies
– Average duties on non-agricultural commodities: 2.2%.
Canada’s Agri-food Trade Balance with the European Union,
2001–2010
Source: http://www.parl.gc.ca/content/lop/researchpublications/cei-25-e.htm?Param=ce5
CETA: European issues of sensitivity
• Genetically modified organisms (GMOs)
• Fish & seafood: imports from Canada could threaten European
industry
• Sectors with high duties:
– beef & pork products
– Grains
– processed foods
These are export markets that Canada hopes to develop.
• EU wants Canada to recognize ‘geographical indications’:
– A ‘geographical indication’ refers to named region and is used to describe a
local agricultural or food product or manufacturing process from that region.
– Recognition of ‘geographical indications’ could result in loss of market
share by Canadian food industry exporters.
CETA: Canada’s Sensitive Issues
• Canada wants to protect its supply managed industries,
using prohibitive tariffs for amounts exceeding the tariffrate quota (TRQ).
– Under CETA slightly more quota is allocated to the EU (e.g.,
TRQ on cheese raised by 16,000 tons)
– Negotiations to reduce the tariff applied on quota
• Canada wants clarity on ‘rules of origin’ for agri-food,
especially livestock because:
– North American market is highly integrated
– EU rules would require modification of the traceability system
now in place.
CETA: Non-tariff Barriers
• European issues:
– length of Canada’s process for approving new veterinary drugs
– delays in processing applications for authorization of food
additives
– Canadian standards on the composition of cheeses
• Canadian issues:
– European regulations on beef, including ban on growth
hormones
– delays in approval process for genetically modified organisms
(GMOs)
– GMO traceability and labelling requirements
Agricultural Programs and Subsidies
• Agricultural subsidies and farm programs are an
obstacle to free trade, both with regards to CETA and
WTO
• Slow convergence of programs through the WTO
process mentioned earlier
European Policy
• After WWII, it was easy to establish an agricultural
policy regime that provided farmers with large subsidies
– Experience with shortages during and shortly after WWII
– Large rural population with political clout
• Program continued despite large costs to consumers
and/or taxpayers and declining farm population
– Rent seeking: fewer farmers with more to gain have greater
incentive to lobby politicians
– Consumers/taxpayers are less concerned with costs of farm
programs as proportion of income spent on food declines
– Consumers increasingly concerned with food safety (e.g., BSE
crisis, pig flu, hoof & mouth disease, etc.): Rationale for
continued government support of food and agriculture
European Policy: Issues with CAP
1. From beginning of CAP: High and increasing costs
–
–
–
–
Growing stocks of wine, butter, etc.
Growing international resentment of export subsidies
Need to reform CAP to facilitate trade negotiations
Desire to have budget to pursue objectives other than
agriculture
European Policy: Issues with CAP (cont)
2. Beginning 2004, integrating new Central and
Eastern European members into the EU
– Very expensive proposition: 10-year program to get to
full benefits
– June, 2013 CAP reforms and convergence of payments:
• between EU-15 (average payment: €295/ha) and new
members (€187/ha)
• between countries (e.g., average Dutch payment : €440/ha)
Dutch De-coupled Payment based on
Historic 2000-2002 Yields
Crop
wheat
barley
seed potato
edible potato
starch potato
sugar beet
onions
Source: Boere and van Kooten (2014)
Payment
(€/ha)
377.5
377.5
0
0
1,043.1
687
0
European Union Budget, 2014
Security &
citizenship
Environment &
1.5%
Climate
0.3%
Maritime &
Fisheries Fund
(EMFF)
0.7%
Agricultural Fund
for Rural
Development
(EAFRD)
9.8%
Agricultural
Guarantee Fund
(EAGF)
30.7%
Global Europe
5.8%
Administration &
Misc.
6.3%
Smart & inclusive
growth
44.9%
TOTAL = € 142,649.5 million
European Policy: Issues with CAP
3. Environmental concerns
– Shift of lands out of forestry into agriculture unless prohibited
by other laws
– Soil depletion
– Chemical pollution from agriculture
AC-10: Slovenia, Slovakia, Poland, Hungary, Malta, Czech Rep, Cyprus, Lithuania, Latvia, Estonia
AC-Next: Romania, Bulgaria
Chemical Use, kg per cultivated ha, 2000
200
180
160
140
120
100
80
60
40
20
0
A C - 10
EU - 15
EU - 25
A C - N ext
Turkey
N . A merica
U.S. 103 kg/ha; Canada 54 kg/ha
Is Canada Falling Behind? Who Needs CETA
Most? A Tale of Two Countries
• Canada thinks of itself as a large exporter of
agricultural commodities but we are outdone by the
Netherlands.
– Many years the Netherlands is the largest exporter of
agricultural products by value after the United States
• Let’s look at some statistics and see what Canada
might aspire to:
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Commodity
Mt
Flag $ billions $/tonne
Wheat
148.27
1
46.85
316
Food Prep Nes 12.29 16
46.72
3,800
Soybeans
91.02
3
45.03
495
Palm oil
37.05
5
40.57
1,095
Rubber
7.50 26
33.89
4,520
Maize
109.65
2
33.73
308
Wine
10.39 19
32.11
3,090
Bever. Dist.Alc
4.22 56
27.34
6,485
Coffee, green
6.72 33
27.15
4,037
Beef&Veal
4.98 49
26.72
5,368
Cheese
5.22 46
26.46
5,068
Soybean cake
64.91
4
25.40
391
Chocolate
4.85 50
22.98
4,739
Pastry
7.15 29
22.73
3,177
Chicken meat
12.47 15
22.07
1,770
Cotton lint
8.20 25
20.85
2,543
Cigarettes
1.12 133
20.70 18,468
Sugar Raw
31.97
6
18.50
579
Sugar Refined
23.11
8
17.36
751
Pork
5.23 45
16.63
3,181
Top Twenty
Agricultural
Commodity
Exports,
Global, 2011
(Ranked by
value)
Source:
FAO
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Country
USA
Malaysia
Indonesia
Brazil
USA
Indonesia
Brazil
USA
Thailand
France
Argentina
USA
UK
Brazil
Brazil
France
Italy
Canada
Australia
Brazil
Commodity
Soybeans
Palm oil
Palm oil
Soybeans
Maize
Rubber
Sugar Raw
Wheat
Rubber Nat Dry
Wine
Soybean cake
Cotton lint
Bever. Dist.Alc
Coffee, green
Chicken meat
Wheat
Wine
Wheat
Wheat
Cake of Soybeans
Value ($’000s)
$17,563,868
$17,452,177
$17,261,248
$16,327,287
$13,982,404
$11,735,105
$11,548,786
$11,134,659
$10,634,724
$9,941,495
$9,906,725
$8,425,179
$8,330,057
$8,000,416
$7,063,214
$6,738,299
$6,075,404
$5,742,111
$5,709,036
$5,697,860
Major
Commodity
Exporters,
2011
Source:
FAO
Ranking of Exports of Food Prep Nes by Country, 2011
Rank Country
1
2
3
4
5
6
7
8
9
10
Germany
Netherlands
China
Italy
France
Thailand
UK
Belgium
Denmark
Canada
9
mil tonnes $ ×10
1,024.25
917.85
1,317.13
777.50
526.55
770.45
322.14
462.09
295.43
448.95
4.060
3.528
2.580
2.470
2.261
1.632
1.572
1.506
1.444
1.397
$/tonne
3,963
3,843
1,959
3,177
4,293
2,118
4,881
3,260
4,889
3,112
Food prep nes: Includes both crop and livestock products: homogenized composite food
preparations; soups and broths; ketchup and other sauces; mixed condiments and seasonings;
vinegar; yeast and baking powder; stuffed pasta; couscous; and protein concentrates.
Comparison of Cereal Grain Production, 2011
Rank Country
Barley
7
Canada
17 Netherlands
Maize
11 Canada
Oats
1
Canada
12 Netherlands
Rapeseed/Canola
1
Canada
14 Netherlands
Rye
2
Canada
13 Netherlands
Soybeans
5
Canada
8
Netherlands
Wheat
3
Canada
mil tonnes
$ millions $/tonne
1.055
0.274
313.6
77.9
297
284
1.070
359.6
336
1.658
0.029
429.8
10.2
259
351
7.891
0.180
4645.0
123.7
589
688
0.200
0.018
57.8
3.6
289
204
2.651
0.738
1445.8
405.9
545
550
16.335
5742.1
352
Comparison of Other Crop Production, 2011
Rank Country
Potatoes
1 Netherlands
5 Canada
Lettuce and Chicory
4 Netherlands
11 Canada
Spinach
4 Netherlands
11 Canada
Sugar Beets
2 Canada
4 Netherlands
millions
tonnes
$ millions $/tonne
1,942.4
614.1
1,007.5
229.5
519
374
118.5
24.0
165.8
24.4
1399
1017
20.2
1.2
12.7
2.7
631
2352
194.3
265.0
22.0
13.0
113
49
Comparison of Meat and Dairy Production, 2011
Rank Country
'000s
tonnes
Beef & Veal
3
Netherlands
15 Canada
Pork
3
Canada
6
Netherlands
Cheese
2
Netherlands
Whole Milk Condenced
1
Netherlands
Whole Milk Evaporated
1
Netherlands
Whole Milk Dried
3
Netherlands
$ mil
$/tonne
164.16
32.53
1,017.3
167.7
6,197
5,155
729.44
333.69
2,285.6
1,003.9
3,133
3,008
678.41
3,733.2
5,503
64.02
139.4
2,177
210.12
409.8
1,950
145.10
747.6
5,152