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CHAPTER 3. BRAZIL 1

I. INTRODUCTION

Agricultural products account for around 30 percent of Brazil's total export revenue. The country is the world's largest producer of coffee and sugar (from sugar cane) and one of the largest producers of soybean products, orange juice, cocoa, beef, tobacco and cotton. Accordingly, and as a member of the Cairns Group, it played an active role in the UR negotiations on agriculture.

Prior to the establishment of WTO, Brazil had already unilaterally implemented a series of economic reforms, which were further pursued in a regional context, with the establishment in 1995 of the Southern Common Market (MERCOSUR). Previously, agricultural prices and production had been subject to heavy government intervention. Various studies have shown that this earlier attitude toward agriculture, and general economic policy, resulted in a net implicit taxation of the sector. The situation has changed markedly in recent years, with a structure of incentives that is believed to be generally neutral sectorally.

Despite the rapid pace of industrialization, agriculture remains important, accounting for about 11 percent of GDP and 25 percent of total employment. If both upstream and downstream activities are included, the sector accounts for as much as 35 percent GDP. The growth of the sector has been impressive: in the 1990s, total agricultural output (measured in constant prices) increased by nearly 40 percent. Yet, the process of transformation has not been smooth. Major transformations are still taking place, involving high social costs in several cases. High rural indebtedness, growing income disparity between small and large farmers, and the persistence of poverty and food insecurity are some of the transitional costs of the reform measures and economic transformations. Land reform has emerged as a key issue. There is a broad political consensus on the net social benefits of liberalization, despite the social costs which must be addressed by the Government through targeted assistance programmes in order to make the transition process easier for the affected groups.

II. EXPERIENCE WITH IMPLEMENTING THE AGREEMENT ON AGRICULTURE

2.1 Market Access

Prior to the UR, Brazil had bound only 5 percent of all agricultural tariff lines (6 percent for all products). In the UR, all agricultural tariffs were bound, in the range of 0-55 percent, with maximum rates of either 35 percent or 55 percent for a majority of products. The simple average of bound rates for the 24 major agricultural product groups of the harmonized system exceeded 40 percent in five of the groups: dairy products (HS 04), cereals (HS 10), products of the milling industry (HS 11), meat preparations (HS 16) and beverages, spirits and vinegar (HS 22). The simple average of bound rates for all agricultural products was 36 percent.2

Applied rates since 1995 have been considerably lower than the bound rates. In 1996, the simple average for all agricultural products was 11 percent, compared to 36 percent for bound rates. Some of the product groups that faced relatively higher applied duties were dairy products (average applied rate of 16 percent), meat preparations (16 percent), sugar (17 percent), cocoa and cocoa preparations (16 percent) and cereal preparations (17 percent). Typically, applied rates are one third to one fifth lower than bound rates (see Table 1).

Two major developments explain the current situation. First, agricultural trade liberalization was part of the broader economic reforms adopted even before the WTO was established.3 For example, a new tariff reform programme implemented in 1990 reduced the average tariff from 32 percent to 14 percent over a three-year period. The entry into force of MERCOSUR placed further limits on Brazil's tariff structure. In addition, maintaining low rates of inflation, especially for food products, was a policy goal deliberately pursued in order to hold down industrial wages as industrialization peaked.

Table 1: WTO bound tariffs and applied duties for selected agricultural products, 1996 (percent ad valorem)

Product

Bound rate

Applied rate

Wheat (durum)

55

10

Other wheat

55

10

Wheat flour

55

10

Soy beans

55

8

Soy beans oil

35

10

Maize

55

8

Rice

55

10

Cotton

55

0

Barley

55

8

Live sheep and goats

20

10

Beef

55

10

Meat of sheep and goat

35

10

Meat of swine

55

10

Poultry meat

35

10

Cheese

55

16

Butter

55

16

Sugar

35

16

Milk

55

16

Source: Mauro de Rezende Lopes, Agricultural trade reform in Brazil: tensions in the process of adjustment, The Getulio Vargas Foundation, Sao Paulo, Brazil, September 1996.

The adoption by Brazil of the Common External Tariff (CET) of MERCOSUR in January 1995 moved the process of tariff reform and reduction further. Under the CET, all tariffs, which range from zero to 20 percent, are ad valorem and applied on the c.i.f. value of the product. Like its MERCOSUR partners, Brazil also took advantage of the system of exemptions from the CET, including those granted for many agricultural products, especially foodstuffs.

As regards other market access commitments, Brazil opened TRQs in the UR for apples, pears and wheat. For apples and pears, the quota amount was 10 000 tonnes at the in-quota tariff rate of 15 percent. Brazil has notified the WTO Committee on Agriculture that the TRQs were not announced for pears and apples during 1995-98 because the applied MFN tariff of MERCOSUR was itself below the 15 percent in-quota rate. For wheat, the quota amount was 750 000 tonnes at a duty-free in-quota rate, but for administrative reasons (the deregulation of wheat trade being in progress), the TRQ was not applied. In any case, the wheat quota was said to be small compared to the country's imports of some 4 million tonnes annually. In September 1977 Brazil gave notice of its intention to withdraw the TRQ for wheat and has been negotiating with two WTO Members pursuant to GATT Article XXVIII.

Since it did not adopt the tariffication process in the UR, Brazil cannot resort to the SSG provisions of the AoA. It has had recourse to anti-dumping and countervailing measures on a number of occasions, but resort to the agricultural safeguards would have been much easier, had it been possible.

On the whole, therefore, Brazil has had no major difficulty in complying with the AoA rules and honouring its own tariff commitments. One difficulty which did arise, however, was that the CET rate of MERCOSUR for some products was higher than Brazil's WTO bound rate, which was a breach of the AoA commitment. This issue was raised in the WTO Committee on Regional Trade Agreements in 1996, where Brazil undertook to renegotiate these tariffs with interested WTO members, indicating that the higher CET would not be applied where it exceeded Brazil's WTO bound rate. Some of the problems related to the CET have also to do with the fact that the MERCOSUR members have yet to agree to some form of common agricultural policy, a normal prerequisite for a customs union. Finally, tariffs have sometimes had to be raised to address specific problems facing a particular sector, due either to domestic reasons or to changes in world market prices, which is an indication of intense import competition.

2.2 Domestic Support

Table 2 shows outlays on domestic support measures, as notified to WTO, for the base period (1986-88). It may be seen that some 73 percent of the total outlay was on green box measures, followed by product-specific AMS (14 percent), SDT (9 percent) and non-product-specific AMS (4 percent).

Table 2: Domestic support outlays for the base period (1986-88)

Support measure

Outlay (US$ million)

% of total

Green box

Product-specific AMS

Non-product-specific AMS

SDT measures

Total

7 685

1 430

461

901

10 477

73.4

13.6

4.4

9.6

100

Source: Brazil's UR Schedule of Commitments.

In the green box category, 75 percent of the total was spent on general services (e.g. research), 9 percent on administration and planning, 6 percent on agrarian organization, 4 percent on agricultural insurance and 4 percent on resource and environment protection. There have since been two major changes in agricultural support programmes. First, the total outlay has declined markedly; in 1995/96 it was 53 percent of the 1986-88 level, and in 1996/97 only 45 percent (Table 3). Second, there was a distinct change in the distribution of outlays. While a number of miscellaneous support measures accounted for 21 percent of the total outlay in 1986-88, they have been completely eliminated. As a result, there were only three broad types of support measures in 1995/96 and four in 1996/97. Two of these are new measures: public stockholding for food security and domestic food aid. It is interesting to note that while domestic food aid accounted for almost 40 percent of the total in 1995/96, the sum involved in the following year was both absolutely and proportionately much smaller.

Table 3: Green box outlays (in US$ million)

Type of measure

Base period

(1986-88)

1995/96

1996/97

General services

Public stockholding for food

security purposes

Domestic food aid

Agricultural insurance program

Miscellaneous measures 1

Total

5 777

0

0

326

1 582

7 685

1 954

495

1 592

0

0

4 041

2 704

338

326

90

0

3 458

1 Regional development programmes, preservation of renewable natural resources and environmental protection, agrarian organization (agrarian reform settlement), social welfare of rural workers, administration and planning.

Source: Annual notifications to WTO (series G/AG/N/BRA/*).

Brazil's original notification on product-specific AMS showed support outlays for 22 crops. In the last two years for which information is available, the level of support was much lower than in the base period; in 1995/96 it was only 20 percent of that level and in 1996/97 only 16 percent. Current AMS levels are less than 30 percent of committed maximum levels (Table 4). In other words, Brazil barely made use of the considerable flexibility it had under the AoA rules to provide domestic support to farmers. The drastic cuts in support outlays are consistent with sweeping economic policy changes that were initiated in the late 1980s.For example, substantial quantities of agricultural products were previously procured by the Government under a Guaranteed Minimum Price Policy programme. Similarly, the stock release price mechanism (PLE) establishing both ceiling and floor prices, started in 1988, was abandoned in 1993 for lack of resources, while marketing boards for sugar, coffee, cocoa and wheat4 were abolished in 1990. This explains the sharp drop in the AMS for coffee, soybeans, rice and wheat.

Table 4: Product-specific Aggregate Measurement of Support (AMS)
(in million US$)

Crop

Base period

(1986-88)

1995/96

1996/97

Wheat

Coffee

Rice

Soybeans

Maize

Sugarcane

Other crops 1

Total

Committed maximum level

Actual as % of committed

437

377

239

130

94

77

75

1 429

-

-

41

11

47

59

73

19

33

283

1 039

27

26

10

22

45

88

16

30

237

1 025

23

1 Barley, brazil wax, cashew nuts, cassava, castor oil, plant, cotton, edible beans, garlic, grape, jute, oats, groundnuts, rye, sisal and sorghum.

Source: See Table 3.

Table 5 shows the situation with regard to non-product-specific AMS. In the base period, income tax forgone alone accounted for 77 percent of the total, followed by production credits (20 percent). The most notable change was the sharp reduction in the value of the former, as a result of which the total non-product-specific AMS fell by 70 percent from 1986-88 to 1996/97, to well below the 10 percent de minimis level for developing countries.

Table 5: Non-product-specific Aggregate Measurement of Support (in million US$)

Type of measure

Base period

(1986-88)

1995/96

1996/97

Production credit1

Marketing credit (seeds and

packaging)

Income tax forgone

Total

Status

91.5

13.8

355.8

461.1

-

78.3

1.6

79.9

159.8

below de minimis level

60.7

9.4

70.1

140.2

below de minimis level

1 Including credit for animal breeding.

Source: See Table 3.

Finally, Table 6 shows outlays under the SDT category. Credits for agricultural investments, for which Brazil has a large programme, accounted for 76 percent of the total in the base period. As with other measures, total SDT outlay subsequently declined considerably, to 30 percent of the 1986-88 level in 1995/96 and only slightly more in 1996/97. This mainly reflects changes in Brazilian agricultural policies in recent years; SDT expenditures are exempt from reduction commitments.

Table 6: Outlays in the Special and Differential Treatment category (in million US$)

Type of measure

Base period

(1986-88)

1995/96

1996/97

Production credit: fund for

variable input acquisitions

Investment credit: funds for

agricultural investments

Total outlay

211.4

689.1

900.5

84.0

185.0

269.0

98.6

182.0

280.6

Source: See Table 3.

Despite the full compliance with the AoA, certain questions were put to Brazil at the CoA. Some members inquired how some of the green box measures notified were deemed to qualify under this category, citing measures such as vegetal and animal production, productivity and quality programmes, improved seed production and marketing, social assistance to farm labour, mechanization services to low-income farmers, storage and silage system for distributing agricultural products and social welfare of rural workers.

Similarly, questions were raised in connection with outlays related to public stockholding for food security purposes and to domestic food aid. For example, it was asked whether or not the price support component of the programme was counted in the reported AMS and whether the two measures, which were not in force during the base reporting period, would be notified as new or modified policies?

Brazil was also asked how "eligible production" was defined in the AMS calculation, to which the response was that it consisted of production subject to price support policy and hence did not cover total production. Some members inquired whether there were any incentives for industry to produce alcohol for fuel and if so how it was ensured that these incentives did not benefit sugar producers as well. The response was that there were no such incentives and hence no possibility of cross-subsidization. Brazil's PEP (Premio de Escoamento da Producao) programme also attracted considerable attention, the main concern being the transparency of the flow of subsidies to producers.

In sum, Brazil's experience in this area shows that there have so far been no particular AoA-related issues. The total outlay on the two measures that are disciplined (the two AMS levels) have been well below the committed maxima. However, the nature and the range of the questions raised at the CoA point to areas where the country might be confronted by difficulties in the coming years and which accordingly would be key areas of concern in the context of the new WTO negotiations on agriculture.

2.3 Export Subsidies

In the Uruguay Round Brazil notified export subsidies for 16 products or product groups amounting in the base period (1986-90) to an annual average of US$96 million, which would be reduced by 24 percent to a level of US$73 by 2004. Some 60 percent of the total outlay was accounted for by sugar, followed by processed fruit and vegetables (21 percent), the remainder being spread over the other 14 products (Table 7). The quantities of subsidized output broadly reflect this distribution.

Table 7: Export subsidies by product and quantities in the base period (1986-1990)

     

Amount

Quantity involved

Product/product group

000 US$

%

000 tonnes

Coarse grains

 

64

0.1

18

Vegetable oils

 

5 808

6.0

552

Oil cakes

   

288

0.3

73

Sugar

   

55 469

57.7

1 741

Other milk products

 

167

0.2

11

Bovine meat

 

5 722

5.9

107

Poultry meat

 

4 923

5.1

98

Beverages, spirits and vinegar

84

0.1

8

Wine

   

267

0.3

20

Fruit and vegetables, fresh

2 565

2.7

143

Fruit and vegetables, processed

19 934

20.7

566

Tobacco

   

276

0.3

3

Cotton

   

214

0.2

4

Cocoa

   

281

0.3

9

Cereal preparations

 

94

0.1

5

Flowers

   

52

0.1

1

Total

   

96 209

100

3 357

Source: Brazil's Schedule of Commitments, 1994.

Despite its option to continue subsidies (at a reduced level), Brazil has not granted any subsidies to agricultural exports in the implementation period. Some of the measures notified in the original Schedule, e.g. tax exemption for selected processed products and sales from government stocks, have also been eliminated. Export controls that used to be applied occasionally in the past, e.g. on soybeans and soy products, maize and cotton, were abolished in 1989. Thus Brazil has more than complied with its commitments in this area.

In these circumstances, Brazil has faced few questions in the CoA. Some members asked why export subsidies were not granted despite the scope to do so. The response was that there had been no change of policy, but that subsidies were not needed for the time being; they could be provided in the future if necessary. Some members also sought clarification on whether some of the export incentives notified to the WTO Committee on Subsidies and Countervailing Measures, e.g. waiving or reducing import duties, involved export subsidies to agricultural products. They were informed that the programme of export incentives was being phased out, and that in any event it did not cover agricultural exports.

By contrast, and reflecting its position as a Cairns Group member, Brazil played an active role in the CoA during discussions on export subsidies, stating clearly that it would like to see them ended and expressing serious concern over the practice of rolling over unused export subsidies to the following years. It has also strongly urged the disciplining of the use of export credits.

III. EXPERIENCE WITH FOOD AND AGRICULTURAL TRADE

3.1 Agricultural Trade

During 1985-94, total agricultural exports increased at the linear rate of US$235 million per year, and have risen even faster since 1995 (Figure 1). Their average value in 1995-98 (US$14.7 billion) was 53 percent higher than in 1990-94 and 34 percent higher than their extrapolated trend value (Table 8). During 1985-94, agricultural imports also rose sharply and remained at high levels thereafter. Their average value in 1995-98 was 105 percent higher than in 1990-94, and 48 percent higher than the extrapolated trend value. Brazil has a large export surplus in agriculture, averaging some US$8.5 billion in 1995-98 (imports are only 35 percent of exports).

Table 8: Agricultural trade in 1990-94 and 1995-98 (annual average value, in billion US$, and percentage change)

Period

Exports

Imports

Net exports

1990-94 actual (a)

1995-98 actual (b)

1995-98 extrapolated (c) 1

(b) - (a) 2

(b) - (c) 2

9.6

14.7

11.0

5.1 (53%)

3.8 (34%)

3.0

6.2

4.2

3.2 (105%)

2.0 (48%)

6.6

8.5

6.7

1.9 (29%)

1.8 (26%)

1 Extrapolated value based on 1985-94 trend.

2 Numbers in parentheses are percentage changes over (a) and (c) respectively.

Source: Computed from FAOSTAT data. Agriculture excludes fishery and forestry products.

Reflecting these developments, net agricultural exports fluctuated markedly during most of the 1985-94 period (Figure 1). The overall trend during 1985-94 was negative, but modestly so. In 1995-98 net exports were 29 percent higher than in 1990-94 and 26 percent higher than the extrapolated trend level.

Figure 1: Agricultural trade, 1985-98 (in billion US$; thick lines are actual values, thin lines are trends for 1985-94 extrapolated to 1998)

Source: FAOSTAT

The rest of this sub-section summarizes the trade experience for individual major agricultural exports.

The rapid growth in the 1970s of soybean area continued throughout most of the 1980s and 1990s, accompanied by strongly rising yields, making Brazilian exports competitive in world markets. Exports were also boosted by policy changes, notably the abolition of export controls in the late 1980s and the elimination of export taxes in 1996. During 1985-94, the trend of export growth for soy meal and soybeans was strong, while for soy oil it was much less so. The average value of exports in 1995-98 of the three soy products together was 59 percent higher than in 1990-94 and 25 percent higher than the extrapolated trend value, despite the strong positive trend (Table 9). Export earnings rose because of both export volume and prices. Interestingly, export performance was most impressive for soy oils despite the fact that they face tariffs in all major importing markets (the WTO-bound rate for the year 2000 is 13 percent in the United States, 14 percent in Japan and 6 percent in the EU), whereas soybeans and soy meal enter these markets duty-free.

Brazil has long been one of the world's largest producers of sugar, accounting in recent years for about 9 percent of world production and ranking first among cane producers. As with soybeans, the rise in yields, averaging 3 percent per annum in the 1990s, was a major factor in the export growth. Sugar exports averaged some US$1 000 million in the early 1980s, falling to less than half that level in the mid-1980s, but rising rapidly thereafter. In 1995-98 exports were 171 percent higher than in 1990-94, and, despite the strong positive trend, still 92 percent higher than extrapolated trend values (Table 9). Since there was little change in export prices, most of the rise in export earnings was due to the increase in volumes exported.

Table 9: Exports and export unit values of major agricultural products, 1990-94 and 1995-98 (annual average)

     

Actual value

Trend value1

Percentage change

     

1990-94

1995-98

1995-98

(b/a)

(b/c)

Product

 

Unit

(a)

(b)

(c)

(d)

(e)

               

Soy meal

 

million US$

1 675

2 290

2 043

36.7

12.1

   

000 tonnes

8 968

10 831

10 161

20.8

6.6

   

US$/tonne

187

213

203

13.9

4.6

               

Soybeans

 

million US$

886

1 604

1 213

81.1

32.2

   

000 tonnes

3 881

6 188

5 100

59.5

21.3

   

US$/tonne

226

257

241

13.6

6.6

             

Soybean oil

million US$

398

798

496

100.4

60.8

   

000 tonnes

861

1 395

1 064

62.1

31.2

   

US$/tonne

442

568

440

28.6

29.1

Total, soy

             

Products

million US$

2 959

4 693

3 752

58.6

25.1

   

000 tonnes

13 710

18 414

16 325

34.3

12.8

   

US$/tonne

214

255

231

19.3

10.6

Sugar (raw

             

equiv.)

million US$

669

1 811

945

170.7

91.6

   

000 tonnes

2 476

6 781

2 812

173.8

141.2

   

US$/tonne

273

272

345

-0.5

-21.1

Orange juice,

           

Concentrated

million US$

1 047

1 191

1 134

13.8

5.0

   

000 tonnes

1 030

1 138

1 305

10.4

-12.8

   

US$/tonne

1 035

1 052

786

1.6

33.9

Coffee, green

           

& roast

million US$

1 350

2 194

1 024

62.5

114.2

   

000 tonnes

961

841

1 025

-12.4

-17.9

   

US$/tonne

1 434

2 613

779

82.2

235.5

               

Poultry meat

million US$

492

712

705

44.8

1.0

   

000 tonnes

408

514

545

26.1

-5.6

   

US$/tonne

1 204

1 387

1375

15.2

0.9

               

Bovine meat

 

million US$

499

490

566

-1.8

-13.4

   

000 tonnes

241

196

230

-18.4

-14.5

   

US$/tonne

2 041

2 506

2336

22.8

7.3

1 See note 1 to Table 8.

Source: Computed from FAOSTAT data.

Brazil is the world's largest producer and exporter of frozen concentrated orange juice, with an impressive record of export growth. During 1985-94, exports increased at the linear rate of 64 000 tonnes per annum in volume terms and US$24 million in value terms. Productivity has been increasing steadily; yields have risen by as much as 2 percent per annum since 1989. The average annual value of exports in 1995-98 (US$1.2 billion), was 14 percent higher than in 1990-94, but only 5 percent above the extrapolated trend value (since the trend was upward). With little change in the export price between the two periods, the performance is fully explained by the rise in export volume.

These past trends, however, are unlikely to be maintained for a number of reasons. For one thing, Brazilian concentrated orange juice faces high tariffs in most major importing markets; frost in Florida is no longer a major impediment to production in the United States: indeed, several companies now in Brazil are moving to Florida and already account for 30 percent of the concentrated juice production in the state; an outbreak of disease (cancro cítrico) is having a devastating effect in the most important producing areas of Brazil; consumers' preferences are changing, away from concentrated juice and towards fresh juice; and high domestic taxes and high costs of transportation affect export competitiveness.

There was very little change in the volume of exports of green coffee between 1985-87 and 1996-98. Exports often fluctuate markedly on account of the weather. During 1985-94, the trend of export earnings from coffee was downward, mainly because of falling prices. Export performance subsequently improved; average annual earnings in 1995-98 were 63 percent higher than in 1990-94 and 114 percent higher than the extrapolated trend value. In contrast to the previous situation, the increase was mainly due to higher prices, rather than an increase in quantities exported.

Beef and poultry are two major meat products exported by Brazil. The relative importance of beef has declined over time, in favour of poultry, exports of which more than doubled in volume from 1985-87 to 1996-98. The average tonnage of beef exported in 1995-98 was 18 percent lower than in 1990-94 and 15 percent lower than the extrapolated trend value, but because of the rise in export prices, the value of beef exports underwent little change.

Poultry exports performed much more favourably. The trend rate of increase up to 1994 was 31 000 tonnes per annum in volume terms and US$48 million per annum in value terms. Export prices also rose, with the result that average annual export earnings in 1995-98 (US$712 million) were 45 percent higher than in 1990-94. The increase in tonnage exported (26 percent) was even greater than in export prices (15 percent). Compared to the extrapolated trend, however, there was virtually no increase in the value of exports, while the average volume was 6 percent lower. In other words, there was a slowdown in the growth of exports when viewed from the standpoint of the trend during 1985-94.

This performance, in the teeth of generally high tariffs in all major importing markets, is evidence of the rapid growth in productivity and thus of a sustained improvement in competitive advantage. Obviously, export performance would have been better if the UR had led to reductions in tariffs on poultry products.

Cotton is a major non-food import that influences the evolution of total agricultural imports in recent years. Brazil was a large cotton exporter in the 1970s, but has become a larger importer since the mid-1980s. During 1989-98, cotton production declined at an annual rate of 7 percent, due entirely to the 11 percent annual fall in the area cultivated, which did not offset an impressive increase in yields, of 5 percent per annum. In 1985-87, the average annual value of cotton imports was only US$44 million, but by 1995-98 it had shot up to US$680 million, which was almost double the level in 1990-94 (US$350 million).

3.2 Food Trade 5

Food products accounts for roughly half of all agricultural exports. Total food exports increased at the linear rate of US$186 million per annum during 1985-94, much the same as total agricultural exports (Figure 2). In 1995-98 their average value was 56 percent higher than in 1990-94 and 32 percent higher than the extrapolated value derived from the strongly rising trend (Table 10).

Table 10: Food trade in 1990-94 and 1995-98 (annual average value, in billion US$, and percentage change)

Period

Exports

Imports

Net exports

1990-94 actual (a)

1995-98 actual (b)

1995-98 extrapolated (c) 1

(b) - (a) 2

(b) - (c) 2

5.0

7.8

5.9

2.8 (56%)

1.9 (32%)

2.3

4.8

3.1

2.5 (107%)

1.7 (56%)

2.7

3.0

2.8

0.3 (12%)

0.2 (6%)

1 See note 1 to Table 8.

2 Numbers in parentheses are percentage changes over (a) and (c) respectively.

Source: Computed from FAOSTAT data. Food excludes fishery products.

In contrast to exports, food accounts for the bulk (some 80 percent) of all agricultural imports. The major products imported are wheat and wheat flour (23 percent of all food imports), dairy products (11 percent), rice (8 percent) and maize (3 percent). The remaining half of the total includes a variety of products, in both primary and processed forms, for which imports are rising rapidly on account of both rising incomes and the relatively open trade regime.

During 1985-94, total food imports increased at the linear rate of US$175 million per annum, or at much the same rate as total food exports. Imports have risen sharply since 1994: in 1995-98 their average annual value was more than double (107 percent above) the level in 1990-94 and 56 percent higher than the value derived from extrapolation of the strongly rising trend (Table 10). Thus, Brazil's experience with food imports during 1985-98 was not positive. The rest of this sub-section summarizes the trade experience for four major imported food products.

Figure 2: Food trade, 1985-98 (in billion US$; thick lines are actual values, thin lines are trends for 1985-94 extrapolated to 1998)

Source: FAOSTAT

Imports of wheat declined sharply during the 1980s but have increased sharply since 1989. During the ten years from 1985 to 1994, wheat imports (including wheat flour) rose at the linear rate of 392 000 tonnes (US$55 million) per annum. Their average value in 1995-98 was 69 percent higher than in 1990-94 and 27 percent higher than the value derived from the extrapolated trend, which itself was strong (Table 11). Wheat yields are traditionally low, as well as volatile, since the climate is not suitable. Production was formerly maintained through large farm subsidies and border measures, but the situation changed drastically in the 1990s, one reason, among others, being the entry into force of MERCOSUR.

The main dairy products imported are powder milk, cheese and butter. Over the ten years 1985-94, imports of dairy products declined at the linear rate of 30 000 tonnes, but increased in value by US$10 million per annum, as a result of the sharp rise in import prices. There has been a remarkable turnaround since 1995; in 1995-98, annual imports averaged US$540 million, and so were triple their 1990-94 level and were 131 percent higher than the extrapolated trend value. Since import prices were relatively stable, the import surge was largely due to volume.

Brazil's dairy sector has undergone significant changes in the structure of production, and continues to do so. Import competition has forced changes in the mode of production aimed at reducing costs to international levels. While the impact on overall productivity and production has been positive, this process is also causing high social costs of adjustment through its impact on the large number of small farmers.

Table 11: Imports and import unit values of major food products, 1990-94 and 1995-98 (annual average)

     

Actual value

Trend value1

Percentage change

     

1990-94

1995-98

1995-98

(b/a)

(b/c)

Product

 

Unit

(a)

(b)

(c)

(d)

(e)

Wheat and

           

wheat flour

million US$

648

1097

867

69.3

26.5

   

000 tonnes

4 613

6 610

6 179

43.3

7.0

   

US$/tonne

143

168

146

17.0

14.6

Dairy

             

products

million US$

180

541

234

201.0

131.4

   

000 tonnes

674

1986

557

194.6

256.9

   

US$/tonne

268

280

367

4.6

-23.6

               

Rice

 

million US$

242

366

306

51.4

19.8

   

000 tonnes

729

946

838

29.7

12.9

   

US$/tonne

327

383

365

17.2

5.0

               

Maize

 

million US$

130

136

153

4.2

-11.4

   

000 tonnes

955

974

1014

2.0

-3.9

   

US$/tonne

136

164

146

20.4

12.6

               

1 See note 1 to Table 8.

Source: Computed from FAOSTAT data.

Rice is important in the Brazilian diet and the Government has in the past implemented policies to avoid the rise in the cost of living on account of rice. Currently, prices are market-determined and trade is liberal. Partly for these reasons, rice imports have been rising. During 1985-94, they increased at the linear rate of 37 000 tonnes per year. Their average annual value in 1995-98 was 51 percent higher than in 1990-94 and 20 percent higher than the extrapolated trend value (Table 11). The rise was largely due to volume, though were was also a 5 percent increase in import prices. Rice area has declined sharply but yields have increased impressively. Total production has not risen, but transformations are taking place; in particular, production is shifting to regions that are more favourable for this crop.

Deep changes are under way in the maize sector as well, as a result of the simultaneous development of the feed and poultry industries, leading to the expansion and modernization of maize production. Maize imports have been volatile during most of the 1980s and 1990s. As regards post-UR experience, imports in 1995-98 were much the same in value as in 1990-94, but 11 percent lower than the extrapolated trend value, indicating a slowdown in imports. The modernization of the sector and the increasing importance of specialized farms have led to strong competition among producers. The trend of future imports will depend much on the pace of growth of the poultry and feed industries.

Figure 3 shows how food imports have varied annually in relation to total agricultural exports. The ratio has fluctuated sharply over the years, with a positive trend during 1985-94. In 1995-98, the ratio was 0.32, which was 36 percent higher than in 1990-94 and 15 percent higher than the extrapolated trend value, indicating that the ratio declined also relative to the trend.

Figure 3: Ratio of the value of total food imports to that of total agricultural exports, 1985-98

Source: FAOSTAT

IV. ISSUES OF CONCERN IN FURTHER NEGOTIATIONS ON AGRICULTURE

Brazil enters the new round of negotiations on agriculture in a very different situation than at the beginning of the UR. The review in Section II above showed that Brazil has fully eliminated all quantitative restrictions on trade and that applied tariffs are low, also relative to the WTO bound rate. It was consequently concluded that there was a good deal of flexibility for varying applied tariffs in response to unexpected domestic and external shocks. There were no issues either relating to tariff quotas. On domestic support measures, little needed to be done in order to comply with the AoA rules, and there remained a wide scope for raising support outlays if necessary. Finally, Brazil has reserved considerable flexibility to grant export subsidies, though it is unlikely to resort to such measures inasmuch as, as a Cairns Group member, it is totally opposed to them.

For Brazil, then, the concern in the new negotiations is not with what needs to be done at home but with conditions in world markets. Its domestic trade policy is in sharp contrast with what it faces in world markets. In other words, concerns with trade practices in partner or potential partner countries are now at the top of the agenda. Its concerns and negotiating positions in this regard are well known, as it is a Cairns Group member. Briefly they are as follows:

Market access

Brazil's major agricultural exports are food products, notably soy products, poultry, beef, sugar and fruit, which are also exported by major industrialized countries. The MFN tariffs on these products that resulted from the UR negotiations are very high, with the exception of soy products. Moreover, access terms are not simple, as tariffs are both complex (e.g. combinations of ad valorem and specific tariffs) for some products and even variable for others.

Sizeable imports of most of these products by major industrialized countries are regulated through TRQs. Although an enlargement of the quotas would help, that would not be the preferred option for Brazil, given its considerable export potential and competitive advantage even at current world market prices, considered to be somewhat depressed. Its exports appear to remain competitive, as crop yields are high and sustained. Consequently, it stands to gain much more from reduced MFN tariffs than from quota enlargement.

The high level of domestic support to agriculture in major industrialized countries and export subsidization in some of them is also a matter of concern to Brazil.

Domestic support

As a result of the sweeping domestic economic reforms, Brazil is in a good position to negotiate for substantive disciplining of domestic support measures. Reduction of such support in developed countries from their current high levels, well documented in a number of OECD studies, is of particular concern to Brazil, since the bulk of the support is for products that it can or could export. It is thus in Brazil's interest that the level of support be reduced not only overall, as at present, but also for specific products. As stressed in the Thailand case study, Brazil, too, needs to seek the disciplining of direct income payments, which often tend to be exempted from reduction commitments on the grounds that they are trade-neutral, which is not necessarily the case always. 6

Export subsidies

In recent years, a number of farm organizations as well as the Government have expressed serious concerns over the adverse impact on domestic producers of subsidized agricultural exports, often alleging unfair trade practices in beef, milk powder, wheat, cotton and rice. The removal of export subsidies is also essential for minimizing the social adjustment costs of the ongoing transformation of the agricultural sector.

Anti-dumping measures

Brazilian agricultural exports have been vulnerable to anti-dumping measures in several developed country markets. Such measures are considered to be unjustified, because the main factor behind the surge in Brazilian exports is productivity growth, which continues to remain high and sustained. Brazil supports the tightening of rules on anti-dumping measures.

SPS/TBT Agreements

On the whole, Brazil has not been adversely affected by these Agreements. Nevertheless, it has an interest in ensuring that current rules are tightened in all "grey" areas and made more transparent, in order to avoid misinterpretation of the rules by major importing countries. One area in which Brazil has had some unhappy experiences was that of tropical fruit, where it has immense export potential.

In conclusion, Brazil warmly welcomes the new round of agricultural trade negotiations as an opportunity for realizing its export potential and promoting its agricultural development. Given the many loopholes and exemptions contained in the UR Agreements, the Government needs to approach the negotiations carefully and work together with the private sector, research workers and like-minded countries in assessing the implications of new negotiating proposals.


1 Based on a background study prepared for the FAO Commodities and Trade Division by Antonio S.P. Brandao, Rio de Janeiro.

2 Trade Policy Review - Brazil, Report by the Secretariat, WTO, 1996.

3 Brandão, Antônio Salazar P., Mauro de Rezende Lopes and Lia Valls Pereira, 1997, "Trade Liberalisation in Brazilian Agriculture: Qualitative and Quantitative Analysis", FAO/World Bank Workshop, Implementing the Uruguay Round Agreement in Latin America: The Case of Agriculture, Santiago, Chile, November 28-30, 1995.

4 Up to that point, the Government, through the Banco do Brazil, was the sole purchaser and seller of wheat.

5 It should be recalled that FAOSTAT data on trade in food exclude fishery products.

6 A growing number of studies have analysed this issue. See, for example, "How decoupled is U.S. agricultural support for major crops?" American Journal of Agricultural Economies, 82 (3), August 2000.

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