I. INTRODUCTION

1. In response to the recommendation of the CCP at its 61^st Session that an analysis be undertaken of the "impact of Uruguay Round provisions as they are being implemented in practice", including inter alia "an assessment of the food security implications for developing countries", the Secretariat presented to the CCP at its 62^nd Session a study entitled Assessment of the Impact of the Uruguay Round on Agricultural Markets (CCP 99/12). This study was updated in November 1999 and distributed at the Conference. The present document provides further analysis taking into account the recommendations made by the CCP at its 62^nd Session regarding the methodology and substance of future assessments.

2. In view of the many technical difficulties involved in undertaking an ex post assessment of the impact on global commodity markets of the implementation of the Uruguay Round Agreement on Agriculture (URAA), in particular separating the effects of the reduction commitments from the influence of other developments such as weather and macroeconomic-related events, the Committee at its last Session recommended that the Secretariat supplement the analysis with qualitative information, such as the extent to which country commitments were implemented. Accordingly, Section II focuses on the extent to which commitments have been implemented, reviewing in particular the experiences with the implementation of the URAA by OECD countries as well as implementation by developing countries (the latter being based on a number of country case studies undertaken by the Secretariat). Section III reviews the evolution of food and agricultural trade during 1995-98; Section IV reports on the evolution of global food security indicators; and Section V contains concluding remarks.

II. IMPLEMENTATION OF REDUCTION COMMITMENTS

3. The URAA has provided a framework for the reform of agricultural policies aimed at reducing trade barriers, support and protection. There is now clear evidence that this development has contributed, directly or indirectly, to the re-instrumentation of policy measures towards less trade-distorting ones in both the developed and developing countries.

4. The quantitative impact of these developments on global agricultural markets depends largely upon the extent to which the implementation of the various reduction commitments established in the URAA have so far been constraining. In what follows, the experience with reduction commitments is reviewed briefly, focussing on the experience of the OECD countries for two main reasons: the OECD countries account for the bulk of the reduction commitments (about 90 percent of both trade-distorting domestic support outlays and export subsidies), and the availability of such an analysis for these countries undertaken by the OECD Secretariat¹. The developing country experiences with the implementation of the URAA-related measures are also summarized in this section based on a recent FAO study covering 14 countries.

A. Implementation of the reduction commitments by OECD countries

Domestic support measures

5. Green box payments and other exempt policies are assuming greater importance. In the 1986-88 base period, outlays on trade-distorting policies (as measured by the Aggregate Measurement of Support or AMS) accounted for 76 percent of total notified domestic support outlays of OECD countries; by 1996 the AMS share dropped to 54 percent (Figure 1) as support was increasingly provided in those categories of measures designated as being non-trade distorting.

6. Very few countries provide blue box support, which includes exempt direct payments provided under production-limiting programmes. Only four OECD countries used this measure in 1995. Both Iceland and United States have not notified these payments after 1995. As for others, during 1995-98, these payments amounted to 23 percent and 33 percent of all notified support outlays for the EU and Norway, respectively.

7. While the URAA thus made a significant contribution to policy re-instrumentation, reduction commitments were generally not constraining during the implementation period. Analysts had predicted this already in 1995, when information on reduction commitments (and the AMS levels) became available.² In the case of the OECD countries, it was seen that for virtually all countries, the AMS commitments over the implementation period (1995 to 2000) were already fully met by 1995 or were expected to be met following only minor policy adjustments. The experience of the past five years confirmed that generally. On average, for OECD countries, current total AMS as a percentage of the commitment level was 58 percent in both 1995 and 1996, the latest year for which complete data were available. In fact, in all OECD countries, except for one, the 1995 total AMS was already lower than the 2000 bound level.

8. Despite reduced AMS levels, total support to agriculture has not declined. Analyses have shown that not all policies exempt from reduction commitments are indeed production and trade neutral, as often assumed.³ To the extent these exempt policies distort production and trade, the overall positive impact of lower AMS support is undermined. There is evidence that at least in the case of the OECD countries, total support to agriculture as measured by the Producer Support Estimate has not declined in recent years⁴.

Market access

9. The URAA banned non-tariff barriers to trade and bound virtually all agricultural tariffs, and thus provided greater security and predictability for agricultural trade. These are significant accomplishments for world agricultural trade. Although the overall level of bound protection of agricultural products in most countries remains well above that for industrial products, the degree of security for trade, in terms of tariff bindings, is greater in agricultural products (virtually 100 percent of agricultural tariffs are bound versus 83 percent for industrial products).

10. Notwithstanding tariffication, actual protection rates in agriculture are still high and may not have declined in recent years. For some countries and some commodities, the bound rates agreed in the URAA were much higher than the rates that were applied in the base period (1986-88). As a result, if those bound rates were to be applied, no market access improvements could be expected⁵. An OECD study that the overall level of tariff protection for agricultural products, measured with production-weighted averages of applied m.f.n. tariffs, was higher in 1996 than in 1993 for 8 of the 10 OECD countries covered (counting EU as one)⁶. Protection rates were particularly high in the food processing sectors. In addition, the structure of tariffs remains complex in many cases, limiting transparency.

11. Tariff-quotas have opened up markets in some cases, but overall they are under-filled by a significant margin. Tariff-quotas have allowed some improvements in access to markets that were previously closed and some additional access to markets where imports were restricted. During 1995-98, the simple average Tariff Rate Quota (TRQ) fill rate has been about 65 percent. Moreover, TRQ fill rates have not increased over time - in fact they fell slightly in the OECD countries as a whole, for example, from 65 percent in 1995 to 63 percent in 1998.⁷ A number of possible reasons for the under-fill are under discussion at the WTO Committee on Agriculture.

Export competition

12. The volume of subsidised exports has remained below the permitted levels. During 1995-98, subsidy utilization rates (i.e. the use of export subsidies relative to committed ceiling) have ranged between 14 and 42 percent for various cereals, less than 4 percent for oilseeds and products, 58 to 70 percent for dairy products, 54 to 71 percent for livestock products and 20 to 38 percent for other products. As world market prices trended downwards in most recent years, utilization rates have increased.

B. Developing Country Experience with Policy Adjustments

13. Systematic analysis of implementation experience is not available for all developing countries, as is the case for OECD countries. However, the Secretariat has recently completed case studies of 14 developing countries, with the assistance of national experts. These studies reviewed national experiences with the implementation of the URAA, changes in trade flows and other effects. Although not fully representative of the over 100 developing WTO Members, the countries selected for the case studies cover all main geographic regions.⁸ This sub-section summarizes the policy adjustment experience based on the case studies ⁹.

14. On market access, the main findings were as follows. One, applied tariff rates were much lower (simple average of 22 percent for 12 of the 14 countries) than WTO bound rates (90 percent). Two, while applied tariffs were low on average, there were several cases where countries applied higher rates or surcharges (albeit within WTO bound rates), indicating particular difficulties for their domestic producing sectors during low world price periods, particularly for basic food products. Three, tariffs were often the primary, if not the only, trade instrument open to these countries for stabilizing domestic markets in the face of external shocks, i.e. they did not have the financial capability to resort to other measures such as relief payments, subsidized emergency loans and risk management instruments. Four, almost all studies stressed the need for a simpler-to-implement contingency measure (safeguard), as capacity to resort to general WTO safeguards was weak.

15. On domestic support measures, the following conclusions were noted. One, very few of the countries had submitted detailed information on domestic support measures in the UR. Thus, most of them may not know their exact situation vis-�-vis the WTO rules, adding to the difficulties they might face in negotiating new rules on domestic support policies. Two, the studies identified a number of definitional problems with the current URAA rules as well as practical difficulties with measurement of support levels, e.g. problems of inflation and currency depreciation, definition of "eligible" production and so on. Three, in view of the impending negotiations on agriculture, some case studies stressed the urgency of national debates on appropriate levels of support to agriculture, keeping also in view prospective food security considerations and somewhat changed world markets for basic foods (e.g. lower food aid and export subsidies).

16. On export competition: Only one of the 14 sample countries had reserved the right to subsidize agricultural exports. Indeed, for most of them, the right of export subsidization was not an issue. Rather, most case studies argued strongly against that practice.

17. Other experiences: Nine of the 14 countries covered were net food-importing developing countries (NFIDCs) and had considerable interest in the Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries. Many studies presented the view that the Decision was part of an overall contract (the Uruguay Round Agreements) that recognized that some countries could suffer during the reform process, for which assistance provisions had been made. None of the studies reported any "positive" experience with the Decision; rather, the experience was said to be negative in that there was no "response" even in 1995 and 1996 when food import bills rose sharply.

III. THE EVOLUTION OF AGRICULTURAL EXPORTS AND FOOD IMPORTS IN RECENT YEARS¹⁰

18. It is fully recognized that changes in trade flows in the post-1994 period were caused by many factors and cannot be attributed to the URAA alone. Yet, it is considered useful to review the experience during this period compared with a previous benchmark.¹¹

Agricultural export earnings¹²

19. Both developing and developed countries experienced significant rises in agricultural export earnings in 1995-98 compared with 1990-94. The average increase was 40 percent for developing countries as a group and 35 percent for developed countries (Table 1). While the least-developed countries (LDCs) as a group experienced a 27 percent rise in earnings, those of the 19 NFIDCs grew by only 16 percent. A majority of developing countries experienced positive export growth - about 80 percent of the 125 countries covered.

Table 1. Agricultural exports in 1990-94 and 1995-98 (annual average and percentage change in f.o.b. basis)

20. Higher world market prices were a major factor in the growth of the value of agricultural exports. Growth rates in constant prices (reflecting volume change) were only half as large (shown in the last column of Table 1, in relation to the third column). The experience was negative for NFIDCs.

21. The higher average value of agricultural exports in 1995-98 was mainly a result of a sharp increase in only one year, 1995; the growth rate of exports decelerated and in some cases was negative in subsequent years. In the post-1994 period, the value of world agricultural exports increased by 16 percent in 1995, with comparable growth rates for both the developed and developing countries (Annex Table 1). Export growth rates decelerated markedly in 1996 to 6 percent, virtually stagnated in 1997 and declined by 6 percent in 1998.

22. At the time of writing, comprehensive FAOSTAT trade data were not yet available for 1999. FAO's estimate of the value of exports for major primary agricultural commodities (covering roughly 54 percent of all agricultural trade in the FAOSTAT) showed contractions in 1999, largely reflecting declining commodity prices in world markets.¹³

Food imports

23. Between 1990-94 and 1995-98, the value of total food imports rose sharply for all major country groups, by 46 percent for developing countries and 22 percent for developed countries (Table 2). Among developing countries, import bills rose particularly markedly (44 percent) for the NFIDCs (with 18 of the 19 NFIDCs experiencing higher import bills).

Table 2. Food import bills in 1990-94 and 1995-98 (annual average and percentage change)

The ratio of total food imports to total agricultural exports

24. This indicator combines the two key variables that are of particular interest in assessing the impacts of the URAA. The indicator is revealing particularly when there is an increase in the ratio, indicating that the value of food imports is increasing faster than total agricultural export earnings.¹⁴

25. For developing countries, there was only a 5 percent deterioration in the ratio which rose from 0.69 to 0.72 (a ratio of 0.72 means that the value of food imports was on average 72 percent of that of agricultural exports), with the situation worsened for 69 of the 125 countries covered (Table 3). Among the developing countries, there was virtually no change in the ratio for the LDCs (1.27 versus 1.26), with half of them having positive experiences and the other half negative. By contrast, the experience was markedly negative for NFIDCs in that the ratio increased by 24 percent. Finally, the experience was positive for developed countries, with a 10 percent decline in the ratio.

Table 3. Change in the ratio of total food import bills to total agricultural export earnings, 1990-94 and 1995-98

IV. Global Food Security Indicators

26. A specific suggestion was made at the last session of CCP to include in this document an assessment of the effects of the reform process on the global food security situation, on the basis of indicators traditionally used by the Committee on Food Security (CFS). As the indicators are largely self-explanatory and the situation was reviewed recently by CFS, only a brief summary is provided here.¹⁵

27. The ratio of world cereal stocks to world cereal consumption (Indicator 1 in Table 4) fell sharply in 1995/96 to 13.9 percent, reflecting the unusually tight global market conditions in that year. After recovering steadily through 1998/99, the stocks-to-consumption ratio fell slightly in 1999/00 to 17.9 percent and remains below the average of 19.5 percent for the first half of the decade. The other food security indicators have followed a similar pattern: For example, the ratio of the five major grain exporters' supplies to requirements (Indicator 2) fell significantly from 1.18 during the first part of the 1990s to 1.10 in 1995/96. It recovered steadily through 1998/99 when it reached the previous average, but dropped slightly in 1999/00 to 1.17. Closing stocks as a percentage of total disappearance of the major cereal exporters (third set of indicators) fell from 17.8 in the early 1990s to 10.2 in 1995/96. Like the previous indicators, this ratio recovered by 1998/99 to near its previous average before dropping slightly in 1999/00 to 16.6.

28. Although these changes reflect some deterioration in the physical availability of cereal supplies to meet global production shortfalls, particularly during the middle years of the decade, it must be mentioned that average international prices of cereals as measured by FAO's index of international cereal prices fell by 13 points from 101 for the period 1990/91-1994/95 to 88 for the period 1997/98-1999/00 and since early 1999 remains at the lowest level of the past decade. This indicates that deficit countries were able to purchase cereals from the world market at lower nominal US dollar prices during the latter period, improving their conditions of access to food. Also, cereal production increased in the latter period in the low-income food-deficit countries (Indicators 4-6). Overall, therefore, these indicators point to a solid recovery from the tight markets of 1995/96 and to a generally positive situation for the cereal importing countries in aggregate terms. The slight drop in the food security indicators for 1999/00 and the outlook for 2000/01 suggests, however, a somewhat tighter cereal market situation which will require continued close monitoring.

Table 4 Global Food Security Indicators during 1990/91-1999/00

V. CONCLUDING REMARKS

29. The previous Secretariat paper presented to the 62^nd Session of this Committee (CCP 99/12), updated in late 1999, reviewed developments in world markets of major agricultural commodities in the period 1995-99 by comparing them with trends based on historical data. The objective was to determine whether any deviations from trend could be attributable to the implementation of the URAA. The paper concluded that the sharp rise in prices of many products during 1995 and 1996 was due mainly to supply "shocks" and to the ensuing draw-down of stocks. The gradual reduction of government intervention in agricultural commodity markets following the URAA - especially for cereals, meat and dairy products where protection and support levels were high - may have played a role in the reduction of stocks. Indeed, the occurrence of lower global cereal prices together with lower cereal inventories noted in Section IV tends to support to the notion that structural changes are taking place in global cereal markets (e.g. less government intervention and higher costs of holding inventories) and that these changes may influence the food security of vulnerable countries.

30. The present document has attempted to enrich the previous analysis by reviewing the experience of developed and developing countries with their reduction commitments under the URAA, these being the key factors that could have had an impact on world markets and trade. The conclusion of this analysis and that of the OECD and other analysts, is that although the reduction commitments on domestic supports were not generally constraining over the implementation period, the URAA had a disciplining effect on the types of agricultural policies used by most WTO Members. The extent to which the reinstrumentation of support policies could have impacted on commodity markets, other things remaining the same, is simply very difficult to quantify, resting crucially on the degree to which the exempt policy instruments are neutral with respect to production and trade. This analysis has also raised some doubts about the extent to which protection rates have actually fallen under the URAA, although tariffication has clearly provided greater security and predictability of market access conditions.

31. As regards the experiences of developing countries, while the applied tariffs of most developing countries are within their URAA bound rates, some countries have experienced difficulties in living with a "tariff-only" regime, particularly in periods of very low world prices. The actual situation of developing countries in the area of domestic supports is not well documented, suggesting that they may face difficulties in negotiating new commitments. The trade experiences of developing countries in the post-URAA period, indicate that their food import bills have risen faster than their agricultural export earnings. This is particularly true for the LDC and NFDIC categories, suggesting that more work is needed to improve the export prospects of these countries.

32. The Committee may wish to indicate its views with regard to these conclusions and consider whether it wishes the Secretariat to continue monitoring the implementation of the URAA, with special reference to its implications for the food security of vulnerable groups of countries.

1 Market Access, Domestic Support and Export Subsidy Aspects of Uruguay Round Agreement on Agriculture Implementation in OECD Countries, Document COM/AGR/TD/WP (2000) 89, September 2000, OECD, Paris.

2 See, for example, OECD, The Uruguay Round: A Preliminary Evaluation of the Impacts of the Agreement on Agriculture in the OECD Countries, 1994, Committee for Agriculture, OECD, Paris, and S. Tangermann, Implementation of the Uruguay Round Agreement on Agriculture by Major Developed Countries, UNCTAD/ITD/16, 1995, UNCTAD, Geneva.

3 See for example the results reported in Policy Evaluation Matrix, document AGR/CA/APM (2000) September 2000, OECD, Paris; C. E. Young and P. C. Westcott, How decoupled is U.S. agricultural support for major crops, and Tim Josling New farm programs in north America and their treatment in the WTO: discussion, both in American Journal of Agricultural Economics, 82(3), August 2000.

4 See footnote 1.

5 Although bound tariffs are relatively high, in many countries applied tariffs and/or computed nominal protection rates are generally lower.

6 See Table 2.1 in the reference cited in footnote 1.

7 See footnote 1.

8 The 14 countries covered are: Bangladesh, Botswana, Brazil, Egypt, Guyana, India, Jamaica, Kenya, Morocco, Pakistan, Peru, Senegal, Sri Lanka and Thailand.

9 Agriculture, Trade and Food Security Issues and options in the WTO negotiations from the perspective of developing countries, Vol. II: Country Case Studies, Commodities and Trade Division, FAO, 2000.

10 Whereas the previous section reviewed the policy experience of selected developing countries since 1995, this section provides a broad overview of the evolution of agriculture for all country groups in recent years (up to 1998).

11 For example, the WTO Committee on Agriculture routinely reviews agricultural trade performance based on statistics for pre- and post-1994. See The Effects of the Reduction Commitments on World Trade in Agriculture, WTO, background paper by the WTO Secretariat, July 2000.

12 The trade data used in this section are given in Annex Table 1.

13 See Commodity Market Review 1999-2000, FAO.

14 Note, however, that this is not an appropriate indicator of a country's food import capacity, which would require relating food imports to total export earnings, both total merchandise and services trade.

15 See Assessment of the World Food Security Situation, CFS: 2000/2, September 2000, FAO for details.

Annex Table 1:
Statistics on Agricultural Exports and Food Imports, 1990-1998
(developed and world totals exclude intra-EC trade)