1.1. Introduction
1.2. Production policy
1.3. Marketing and stocking policy
1.4. Consumption policy
1.5. International trade policy
1.6. Other agricultural policy initiatives
This chapter brings together trends in national cereal policies that were implemented or announced over the period covering August 1995 to July 1997, based on information available to FAO. In general, the policies are broadly categorised by their primary focus, i.e. production; consumption; marketing and stocking; international trade and other agricultural policy programmes.
In both the developed and developing countries, price and non-price market reforms were continued, although the surge in international grain prices during 1995/96 as well as poor crops coupled with tight financial budgets slowed the pace of reform in many countries in that year. At the same time, some countries have introduced measures to target existing or new benefits more effectively. Policy reform has been mostly active in the removal of subsidies on input prices and the privatization of activities previously undertaken by parastatal organizations.
1.2.1. Policies affecting producer prices and incentives in developing countries
1.2.2. Policy initiatives in developed countries
In many developing countries, guaranteed producer prices were raised in order to reflect high international grain prices coupled with the effects of drought in some instances, and in order to offset rising input costs, with particular incentives for the use of high yielding seeds. Also, significant changes in land reform policies aimed at preventing the abandonment of land and the elimination of subsidies were important in ensuring greater production efficiency.
In North Africa, producer support prices were strengthened to keep farmers' income in line with inflation. In Algeria, the system of guaranteed producer prices was continued for both durum and common wheat, while retail prices were subjected to a fixed ceiling in 1996. The Government also took measures to raise the official support prices for high-performance seed producers. Registered seed producers received a subsidy of up to half the cost of essential equipment for irrigation. For the purchase of machinery, such as fertilizer-spreaders and sprayers, grants of up to 40 percent and 60 percent were available to individual farmers and co-operatives, respectively. In Egypt, the Government announced its intentions in February 1997 to plant all of upper Egypt's wheat area of 210 000 hectares with super high-yielding varieties within the next two-to-three years. The Government's goal is to raise production to meet 55 percent of domestic wheat requirements. The support price for the 1997 crop was announced at LE 633 (US$130) per ton, unchanged from 1996.
In May 1996, the Government of Morocco partially liberalised its cereal sector. As an exceptional measure, the Government announced guaranteed minimum producer prices a few weeks after the liberalisation date, which was set high enough to avoid any sharp drop in market prices of grains that would have hurt farmers, already badly hit the year before by the worst drought this century. The new minimum guaranteed price for soft wheat was set at US$289 per ton, and for barley at US$139 per ton. Under its new policy, the Government also fixed the prices for wheat and barley seeds that are mostly produced from irrigated land. Previously, the Government provided a subsidy of 50 dirhams (US$5.8) per ton on planting seeds to help farmers hard hit by drought, but in 1997 no subsidy on cereal seed had been envisaged. Instead, the Government increased wheat seed prices from US$446 per ton (US$452 for durum) in 1996 to US$452 per ton (US$471 for durum) in 1997, but reduced the barley seed price from US$347 per ton in 1996 to US$330 per ton in 1997.
In Tunisia, as a result of two successive years of drought, the guaranteed producer prices for the 1995 wheat crop was increased by 15 dinars per ton to 275 dinars (US$192) per ton for durum, and for common wheat from 225 dinars (US$157) to 240 dinars per ton (US$167).
In 1996, the Government of Zimbabwe lifted the producer price of wheat by 44.8 percent. This unusually high increase was to ensure adequate supplies of wheat in the next season following a drought which had severely damaged most of the 1996 wheat crop, reflecting the higher cost of imports and stabilizing farmers' income. In addition, the government embarked on a loan scheme of Z$132 million ($US13.2 million) during the 1995/96 season, whereby farmers were provided with seeds and fertilizers to be repaid in kind from their grain harvest. For the 1996/97 season, government assistance was reduced to Z$75 million ($US7.5 million).
In South America, the Government of Brazil increased its allocation of farm credits from US$3.7 billion in 1995/96 to US$5.7 billion in 1996/97. The Government also plans to invest US$54 billion over two years (1996-97) to improve road, storage and port facilities. Ten billion dollars of the planned investment would be provided by the Government and the rest by the private sector.
In Asia, the Government of China decided in 1996 to implement a system requiring enterprises to deposit a sum of money for land purchases in order to make abandonment of land more difficult. Of the abandoned area, 60 to 70 percent was for agricultural purposes, and much was high yielding. The State Land Administration set a target of about 80 percent of the abandoned land to be reclaimed, which would generate an additional 28 million tons of grain each year. In early 1997, several provincial governments introduced a grain procurement price scheme to ensure that farmers receive fair prices when market prices are lower than the guaranteed prices set by the central authority. In India, rising input costs led the Government to fix the minimum support price for the 1996 summer wheat crop of average quality at 3 800 Rupees (US$110) per ton, up 20 rupees over the previous year. For the 1997 crop, the price was initially increased to 4 150 Rupees (US$116) per ton. As an incentive for producers to sell their crop to the Food Cooperation of India, an addition 600 Rupees (US$17) was earmarked, thus raising the total official price to 4 750 Rupees (US$133) per ton. This new price was effective until early June 1997, after which it reverted to its previous level. In Indonesia, anticipating higher demand for rice in 1995/96, the Government announced a plan to reclaim up to 1 million hectares of marshland for rice cultivation. To further encourage production, the Government raised the purchase price for rice by 12.5 percent to 450 Rupiah (US$0.19) per kilogram in February 1996. In Pakistan, the Government lifted the minimum purchase price for wheat in 1996 as an incentive measure to expand deliveries of wheat by producers affected by a decline in planted area. The minimum support price for wheat, initially set 5 Rupees (US$0.09) higher at 165 Rupees per 40 kilograms (US$72 per ton) in 1995, was further increased in 1996 to 175 Rupees per 40 kilograms (US$76 per ton). Also, the price of wheat sold from the Government reserves to millers was raised from 180 Rupees in 1995 to 190 Rupees per 40 kilograms (US$78 to US$82 per ton).
In Saudi Arabia, for the first time since 1984, the Government decided in June 1995 to reduce the guaranteed procurement price of wheat by 25 percent largely as a result of budgetary constraints. At the same time, procurement quotas were announced to limit wheat production to the self-sufficiency level of around 1.8 million tons by 1996/97. These measures led to lower production and, as a result, wheat exports from Saudi Arabia dropped sharply in 1995/96. Furthermore, in November 1996, the Saudi Government announced that it would continue its reimbursement of outstanding payments to producers of wheat and barley delivered during 1995, totaling 9 billion Riyal (US$2.3 billion).
The Government of Turkey, in a move aimed at encouraging the replenishment of its depleted stocks of cereals, set support prices for 1995/96 above those of the previous year, but still below those currently prevailing in the market. The base support prices for common wheat ranged from TL 5 950 (US$0.073) to TL 7 350 (US$0.09) per kilogram, depending on quality, and those for durum at TL 10 150 (US$0.12) to TL 11 200 (US$0.14) per kilogram. The higher quality barley support price was set at TL 5 250 (US$0.06) per kilogram. To help avoiding higher support prices being passed on to retail prices and hence to the consumers, the rate of the value added tax (VAT) on both wheat flour and bread products was reduced from 8 percent to 1 percent. The Government also decided to raise support prices for white milling wheat in the marketing year 1996/97 by over 157 percent as a production incentive.
A number of new policy initiatives came into force during the 1995-97 period covered in this section. Reforms were made as part of commitments under the Uruguay Round Agreement (URA) continued with several new measures enacted. Cereal support prices were continued in many countries and area set-aside policies revised. In countries where state trading predominated, several parastals were privatised along with revisions in the functions of state trading boards. Incentives were also provided by some countries in the form of higher premiums for the improvements in cereal quality.
In Australia, farmers, especially wheat growers, received record payments from the Australian Wheat Board (AWB) in 1995/96. In February 1995, the AWB's first estimate of the pool prices for Australian Standard White (ASW) wheat delivered in 1995/96 was A$124 (US$99) per ton. By June 1995 this was raised to A$130 (US$104) and by February 1996 to A$180 (US$143) per ton, some 45 percent higher than the first estimate a year earlier. Also, reflecting a continuing increase in international wheat prices, the first estimate of harvest payments for ASW wheat to be delivered to the 1996/97 pools was A$152 (US$121), the highest ever made at the beginning of the season. Table 1 summarises pool harvest payments between the 1994/95 and 1996/97 crop seasons.
Furthermore, the Government revised its Wheat Marketing Act, which in the past left wheat-pricing pools open for several years after harvest. Under the new programme, which started in 1996/97, the AWB can make advance payments on wheat delivered to the pools and decide the size and timing of those payments, although all wheat pools are to be closed approximately 18 months after harvest. Also, farmers may opt to deliver their grains to a pool offering 40 percent of the expected pool return within 21 days after delivery and a further 50 percent during the month of August. This option would enable the AWB to save on interest payments, which would then be passed on to growers who have chosen this option. This revision would last for three years so that the programme can be assessed in terms of its compatibility with the Uruguay Round Agreement. The AWB also adopted a policy of segregating weather-damaged grains and to reduce their premiums. Under this policy, Australian Prime Hard 5 will carry a discount of A$35 (US$28) below Prime Hard, and for Hard 6, a discount of A$10 (US$8) below Australian Hard.
Also, the AWB introduced a new wheat class, know as Australian Premium White (APW), that consists of varieties of the Australian Standard White (ASW) but with superior milling and end-product characteristics. In 1995/96, the premium for this new wheat variety was at least A$5.00 (US$4) per ton above that for ASW 10 percent protein. Furthermore, as a result of internal market deregulation in 1996, the Australian Government cut payments under the Tasmanian Wheat Freight Subsidy Scheme by about 50 percent to A$1.2 million (US$940 000) a year.
Table 1: Australia's Wheat Pool Payments (A$/ton)
|
Wheat Class |
Harvest Payments 1995/96 |
Change from 1994/95 (percent) |
Estimated Harvest Payments 1996/97 |
|
Prime Hard |
224.00 |
7.1 |
176.00 |
|
Australian Hard |
192.00 |
20.0 |
164.00 |
|
Standard White (ASW) |
180.00 |
26.4 |
152.00 |
|
General Purpose 1 |
172.00 |
28.0 |
144.00 |
|
Feed |
144.00 |
13.9 |
116.00 |
Source: Australian Wheat Board
As reported in the previous issue of this Review1 the Government of Canada eliminated the annual railway subsidy under the Western Grain Transportation Act (WGTA) in August 1995. To help Canadian producers compete in the export market, credit guarantees of up to C$1 000 million (US$730 million) were granted for the exports of grains and other food products to offshore and private sector buyers. Also, the Feed Freight Assistance (FFA) transportation subsidy was eliminated in 1995 with compensation payments of C$72 million (US$53 million) disbursed over five years to eligible producers to help offset their losses. The fund is to be divided among the affected provinces and territories in proportion to their use of the FFA between 1990 and 1995. The Gross Revenue Insurance Plan (GRIP), which was in operation until 1994/95, was terminated in the 1995/96 crop year and only the province of Ontario is operating a similar programme for the 1996-97 crop year. As a result of the termination of this programme, only about 6 percent of the total Canadian cereal area is now covered by the GRIP. More recently, new legislation, the Agricultural Marketing Programs Act (AMPA), came into force on April 25, 1997. This Act combined the provisions of four separate pieces of legislation: the Advance Payments for Crops Act (APCA), the Prairie Grain Advance Payments Act (PGAPA), the Agricultural Products Cooperative Marketing Act and the Agricultural Products Board Act. The AMPA also includes provisions for interest free loans to producers on the first C$50 000 (US$37 000) of advances issued to them under the APCA and PGAPA, which were previously provided through the Cash Flow Enhancement Program.
1 Cereal Policies Review, 1994-95.
The Canadian Wheat Board (CWB) introduced in August 1995 new protein categories for wheat. This was in response to quality requirements from buyers of Canadian wheat, and to provide the CWB a better way to determine accurately its price policy and payments to producers. For Nos. 1 and 2 Canadian Red Spring (CWRS) wheat, additional payments were made for each 0.5 percent increase in protein content above 12 percent, to a maximum of 15 percent. For Nos. 1 and 2 Canadian Western Amber Durum (CWAD), the extra payments will apply to each 0.5 percent increase in protein content above 12 percent, to a maximum of 14 percent.
The European Community announced in October 1995 its new set-aside for the 1996/97 season at 10 percent, following a surge in domestic prices and a sharp decline in public grain stocks, which had plummeted to six million tons in 1995 from an average of 33 million tons over the previous three years. This single rate replaced the previous 10 percent rotational and the 17 percent non-rotational set-aside rates that were in effect in 1995/96 (except in Denmark and the UK, where the old single rate was 15 percent). For the 1997/98 season, the Commission decided to reduce the mandatory set-aside to 5 percent, but keeping arable aid and set-aside payments the same as in the 1996/97 season.
On 30 July 1996, the EC Commission submitted to the Council of Ministers a new proposal to reform the regime for durum wheat. This new package would set production quotas for each of the traditional durum producing countries and enforce the use of certified seed so as to improve the overall durum quality. The proposal targets three million hectares of land in the traditional producing countries, distributed as follows (in thousands of hectares); Italy 1 610, Greece 597, Spain 570, France 190 and Portugal 35. The proposal provides for each producer to receive a premium in accordance with the total durum area allotted rather than the subsidy per hectare of 359 ECUs (US$353) under the previous scheme.
Furthermore, in 1997, the Commission presented a new Common Agricultural Policy (CAP) reform proposal as part of a broader reform package in its Agenda 2000. For cereals, the proposal calls for a 20 percent reduction in the intervention prices in the year 2000. The main highlights of the proposals relating to cereals, which are currently being debated, are presented in Box 1.
In Japan, the Government reduced the prices paid by millers for domestic and imported wheat in February 1996 by 2.1 percent to an average price of US$485 per ton in order to lessen the impact of higher international prices on consumers. The Government also announced a revision to its rice diversion programme in April 1996 to reduce carryover stocks to 1.5 million tons from the previous level of 2.2 million tons. This programme will continue until 1999 with a targeted diversion of 870 000 hectares, which, according to official sources, could result in a projected harvest of 9.6 million tons of paddy by 1998 compared to 12.9 million tons in 1996.
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BOX 1: Agenda 2000: The European Commission's New CAP Reform Proposals for Cereals 1. Intervention Price The cereal intervention price would be reduced by 20 percent (24 ECUs) in the year 2000, from the present level of 119.19 ECUs to 95.35 ECUs per ton. 2. Decoupling of Payments Area payments would not be crop specific, except for durum, with the intention of further delinking payments from production decisions. The cereal aid payments would be raised by 12 ECUs to 66 ECUs per ton (but would fall by about 118 ECUs for oilseeds), partially off-setting the 24 ECUs fall in the intervention support price for cereals. Furthermore, there would be a mechanism to avoid overcompensation in the event of high market prices. By contrast, oilseeds and protein payments would be reduced (see table below). 3. Set-Aside The reference rate of set-aside would be reduced to zero. The revised provisions would allow the option of voluntary set-aside, but payments would be less than their current levels. 4. Protein Crop Payments An additional payment is proposed for protein crops, at 6.5 ECUs per ton, in order to preserve their competitiveness with cereals. This would effectively make the protein aid payments crop-specific. 5. Exclusion of Silage Cereal The Commission has also proposed to exclude silage cereals (notably maize silage) from the cereal support arrangements. |
The European Commission's Proposals on Cereal Support
|
|
1996/97 |
1997/98 |
2000/01 |
Percent Change from 1996/97 to 2000/01 |
|
Intervention Price ECUs/ton |
119.19 |
119.19 |
95.35 |
-20.0 |
|
Cereal Payments ECUs/ton |
320.06 |
320.06 |
389.00 |
+21.5 |
|
Oilseed Payments ECUs/ton |
537.47 |
565.75 |
389.00 |
-27.6 |
|
Protein Payments ECUs/ton |
462.31 |
462.31 |
427.00 |
-7.6 |
|
Set-Aside Payments ECUs/ton |
405.41 |
405.41 |
389.00 |
-4.0 |
In Central and Eastern Europe, producer support prices were increased in several countries to offset the rise in input costs and to reflect high international prices for grain. In 1996, the Government of Bulgaria, in a move to avoid a sharp increase in the retail price of bread, set a new range of minimum official purchase prices for wheat in 1996 at 6 200 Lev (US$85) to 7 400 Lev (US$101) per ton, depending on crop quality. This represents an increase of between 42-48 percent from the prices in 1995. In addition, the Agricultural Support Fund made payments to private wheat purchasing companies totaling 933 million Lev (US$12 million) to help them defray expenditures on rents, diesel fuel and interest payments. To raise funds for the 1997 autumn sowing, the Government, in late 1996, authorized the sale of 150 000 tons of grain in the futures market. The proceeds from the sale were used as an advance payment to farmers of 5 000 Lev (US$68) per ton. The Agricultural Support Fund also provided credit to farmers of 35 000 Lev (US$479) per ton. Under this scheme, farmers had to plant grain on at least 3.5 hectares of land and they had to sell their grain to the State.
In the Czech Republic, as a result of the equalization of the international and domestic grain prices, the Government, in late 1996, decided to discontinue its advanced payment scheme for bread grains which amounted to 686 million Koruna (US$25 million) in 1996. However, the Support and Guarantee Fund, which offered lower interest rates on loans than those charged by commercial banks, provided some funding to grain farmers during the first half of 1997.
In early 1996, the Agricultural Marketing Agency of Poland, responding to sharp increases in world and domestic market prices for grain, set the minimum purchase price for the 1996/97 wheat crop at 400 Zlotys (US$158) per ton. This reflected a rise of about 27 percent from the previous season's 315 Zlotys (US$119) per ton, while the rye price was raised from 200 Zlotys (US$79) to 280 Zlotys (US$111) per ton, an increase of about 40 percent.
In Romania, the Government raised the minimum wheat purchase price by around 9 percent in local currency in 1996, a small increase compared to inflation. Due to a rise in the cost of inputs, the number of producers under contract with the government fell rapidly, despite the previously announced 41 percent increase in the 1996/97 minimum purchase prices. Also, grain producing enterprises in which the State has a majority interest were obliged to deliver their entire output to the state trading agency at the minimum purchase price which was increased further by 78 percent from 240 Leu (US$0.09) to 450 Leu (US$0.16) per kilogram. In February 1997, the Government announced plans to lift controls on agricultural producer support prices during the period from March to the end of August 1997. To carry out this and other agricultural reform schemes, the Government received credits valued at US$200 million from the World Bank. In addition, the Ministry of Finance in early 1997 proposed a new law to defer agricultural taxes for a period of three years, commencing in 1997, in order to relieve farmers of their financial burden.
In early 1996, the Government of Slovenia outlined its purchasing procedure for wheat and rye for the 1995/96 crop year so as to enable timely adjustments for inflation. The purchase price for wheat of average quality was set at 28.93 Tolars (US$0.21) per kilogram and for rye at 27 Tolars (US$0.20) per kilogram. During the harvesting period, the prices were adjusted to 80 percent of the established inflation rate for the period from April to June 1996, with producers receiving payments within 30 days after the results of a quality analysis had been submitted to the Government.
In the Russian Federation, the Government increased guaranteed prices for federal purchases of grains for the 1996/97 harvest. The new prices, which came into effect on 1 July 1996, were indexed to keep abreast of inflation. For durum wheat (Class III), the price was set at 1 000 000 Roubles (US$213) per ton, while that for soft wheat of the same class was set at 850 000 Roubles (US$181) per ton, more than doubling the prices (in local currency) of the previous season.
In the Republic of South Africa, the Wheat Board, in its bid to ensure adequate supplies of wheat, increased the producer delivery price for utility and feed grades of wheat in 1995/96 from 360.33 Rand (US$54) to 500 Rand (US$74) per ton, which reflected a sharp rise in domestic market prices since the guaranteed level was fixed at the beginning of the season.
In Switzerland, long-term policy reforms, which were under consideration in 1996, were expected to come into force in 1997, subject to parliamentary approval. The reforms are aimed at liberalizing producer prices, which are currently fixed by the Government. Producer income losses as a result of this shift in policy would be compensated by direct payments on the basis of cultivated area. Under this long-term reform, by the year 2002, farmers would be able to sell their crops directly to mills or cereal traders rather than to the State, which currently purchases all domestically produced wheat and rye at guaranteed prices. Mills would also be free to buy either on the local market or abroad at ruling prices and according to their quality requirements. Guidelines for domestic prices of bread and feedgrains would be negotiated to reflect market conditions. In addition, custom duties would be set so as to maintain the negotiated prices on the local market. The Government estimated that this reform would result in a 40 percent decline in the producer price of bread grain by the year 2002.
On 4 April 1996, the FAIR Act was signed into law in the United States covering agriculture for the seven-year period 1996-2002. With regard to cereals, the main changes under this new legislation include the elimination of area set-aside programmes and the replacement of support and deficiency payments with diminishing levels of income transfer payments. A detailed account of the new law is presented in Chapter 2 of this Review.
Reform toward market liberalization continued in most countries. The governments of some major wheat exporting countries announced proposals that are still under consideration to revise the roles of their parastatal grain boards, while state control of the domestic market was liberalized in a number of countries.
In Brazil, as a result of the doubling of its wheat output from 1.5 million tons in 1995 to 3 million tons in 1996, the Government enacted a new pricing system to encourage the consumption of domestically produced wheat and to relieve the Government of storage costs. Under this new system, which was originally limited to 640 000 tons, millers would receive a bonus of up to 37 Real (US$36) per ton when they bought domestic wheat at the minimum guaranteed price of 157 Real (US$151) per ton.
As a result of a drop in maize prices below the support price of 6.70 Real (US$6.45) per 60-kilogram sack for the 1996/97 crop year, the Government intervened in the market in February 1996 with two financial programmes to support prices. These included: (i) an initial release of 19 million Real (US$18.3 million) to purchase maize from the Centre-South region; and (ii) an additional release of 21 million Real (US$20.2 million) for a purchase programme, under which the Government takes physical possession of the grain. These two programmes enabled the Government to buy up to 350 000 tons of maize. In March 1997, the Government decided to further intervene in the maize market by purchasing 200 000 tons from small farmers, costing some 120 million Real (US$115 million). Producers were also provided with debt relief by allowing them to repay old loans in kind, and maize processors were given credit to reduce the cost of holding stocks and to stimulate exports.
In 1996, the Government of Honduras introduced a programme to purchase privately held stocks of grains in order to release them through local governments at subsidized prices.
In November 1996, the Indian Government released 800 000 tons of wheat from its official reserves in a move to stabilize domestic wheat prices and to ensure supplies to low income households. Eligible persons were able to purchase up to 10 kilograms of food grains monthly at subsidized prices.
In Morocco, under the market reform policy announced in May 1996, farmers may sell their wheat in the free market but have the option to sell to Government licensed collectors and get the minimum guaranteed prices. In order to encourage licensed collectors to purchase local grains, the Government provided 40 dirhams per ton per month (US$4.63 per ton) bonus for storage for the period running from June through November 1996, for grain purchased prior to 31 August 1996. However, most grain collectors had purchased local wheat at higher prices than the minimum guaranteed prices offered by the Government prior to the announced change in policy.
In early 1997, the Rice Policy Committee of Thailand approved measures to stabilize paddy rice prices of the 1996/97 crop, although the export subsidy of US$10 per ton, which was introduced in 1994/95, had been removed in view of rising world market prices. Under the new measures, the Department of Agricultural Co-operatives was authorized to purchase one billion Baht (US$40 million) worth of paddy rice to be milled by co-operative mills and sold within the country. Additional funds were also made available to purchase up to one million tons of milled rice to act as a buffer against a sharp decline in prices. The Government, in addition, granted credit to exporters and millers, worth 20 billion Baht (US$790 million) for the packaging of rice.
In April 1997, the Australian Government announced revisions to the role and structure of the AWB. A new grower-owned and controlled holding company will replace the statutory AWB and will be responsible for all commercial aspects of the marketing of wheat. The Wheat Industry Fund (WIF), which is currently financed by a 2 percent levy on wheat sales, will be converted into shares to provide the capital for the new holding company's operation commencing in 1999. Wheat farmers with equity in the WIF will be given "A" class shares and these will carry voting rights to elect the majority of directors of the new company. Equity investors in the new company will be given "B" class shares, on which they will receive a commercial rate of return, and will be entitled to elect a minority of the company's directors. Export sales will be conducted by a wheat pooling/export subsidiary, which will maintain the monopoly status of the current AWB. A subsidiary of the new company will be responsible for all other commercial aspects of domestic wheat marketing.
In 1996, the Government of Canada proposed several amendments to the Canadian Wheat Board Act (which have not yet been legislated on) as part of a reform package that had been debated for some time. The main highlights of the proposed changes are presented in Box 2.
In the Czech Republic, in spite of the good wheat harvest in 1996/97 amounting to 3.7 million tons, the Czech Fund for Market Regulation had difficulties in procuring the 600 000 tons of wheat it had contracted with farmers earlier in the season. The Fund needed to procure wheat to replenish its working stocks as well as the state emergency reserves from which it borrowed earlier in the year. Recent reports indicate that by early 1997 the Fund had bought only a small percentage of the contracted amount. The main reason for the shortfall were the reluctance of farmers to sell wheat to the State when they could get better prices on the open market and the difficulty in meeting quality standards set by the Fund, due to poor summer weather conditions. In the hope of generating additional wheat purchases, the Fund increased its procurement price in mid 1997 by almost 18 percent from 3 400 Koruna (US$124) to 4 000 Koruna (US$146) per ton. It also lowered its quality standards, which relate mainly to gluten content, but the other contract conditions set during the previous season remained the same. Finally, it stipulated that farmers not fulfilling contracts with the Fund could forfeit state subsidies and loan guarantees in the future.
For the 1997/98 season, the Government also announced that it would raise the guaranteed price for milling wheat in phases from 3 900 Koruna (US$143) per ton, set in October 1997, to 4 140 Koruna (US$152) per ton by June 1998. The Fund will purchase wheat at the relevant monthly price, although producers would retain the option to sell to private buyers if prices in the open market were higher. The operation of the system of minimum guaranteed prices is designed to gradually align domestic prices with those of the European Community.
The Government of Georgia privatized its state-owned grain trading company in December 1996, in a bid to create a private market for grains as food aid supplies were declining. Cereal food aid had been providing almost 85 percent of the country's needs during the previous five years.
Since January 1996, the Government of Poland has made available a new credit line for farmers willing to improve their storage facilities with the installation of metal silos. Loans are available at preferential interest rates from the Agency for Restructuring and Modernization of Agriculture.
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BOX 2: Proposed Changes in the Canadian Wheat Board Activities The Canadian Wheat Board (CWB) was established under the Canadian Wheat Board Act of 1935 to market Western Canadian grain. It handles over 90 percent of all wheat milled in Canada, issue licenses for the remainder and exports all Canadian barley. The Government of Canada in October 1996 proposed several amendments to the Canadian Wheat Board Act with a view to give the CWB the flexibility necessary to provide farmers with more options and better service. The main features of this new proposal are as follows: Pool account termination and prompt payments to farmers The previous CWB Act prevented the CWB from making "final" payments to farmers prior to 1 January, roughly five months after the end of the crop year in July. Under the proposed amendments, it will be allowed to make payments prior to January. The proposed amendments also give the CWB the ability to close pools on short notice during the crop year and to establish a second pool for the balance of the crop year so that farmers could receive payments promptly. Payments for carrying costs and superior delivery performance The CWB will be able to offer storage and interest payments on farm-stored grain to encourage producers to sign delivery contracts early in the crop year. The CWB will also be authorized to pay bonuses for good delivery performance by farmers. Payment for carrying costs would also reflect staggered delivery opportunities for individual growers, result in fairer prices to farmers and help in logistical planning. Greater logistical efficiency could result in higher net returns for farmers. Elimination of Governor-in-Council approval of adjustments to initial prices The Federal Government currently guarantees CWB initial payments, adjustments to initial payments made during the crop year and interim payments made following the end of the crop year. The current requirement that the Governor-in-Council approve all such payments hinders the speed with which the CWB can adjust prices during the crop year. In the future, the CWB will be authorized to make all subsequent adjustments and issue related payments to farmers at its discretion. The CWB will be authorized to establish the appropriate contingency funds to guarantee adjustment payments to farmers. Cash purchases of wheat and barley The CWB's current power is limited to purchasing grain from farmers at the initial payment, and subsequently to issuing adjusted, interim and final payments. Under the new regulation, the CWB will be allowed to buy grain on a cash basis from farmers and grain traders. This authority will provide the CWB with more flexibility in acquiring grain by allowing it to buy at prices that represent a one-time settlement. With this authority, the CWB will be able to bid varying prices for grain, thereby securing supplies more effectively and improving the efficiency of its sales programme and returns to farmers. Negotiable producer certificates Producer certificates, which entitle the holder to receive adjusted interim, or final payments on grain delivered to the CWB, are currently not negotiable or transferable. Subsequently, under the proposed changes, the CWB will be allowed to establish a programme that would provide farmers with a mechanism to trade their producer certificates at mutually agreeable terms. Deliveries to farmer-owned storage The Act currently requires that all grain delivered to an elevator facility must not exceed the quotas for that grain established by the CWB. This new amendment represents a minor change in the technical requirements for buying grain from farmers and would treat wheat and barley in the same way as other grains and oilseeds, which are currently be bought on farms using mobile elevators, i.e. trucks with scales. |
In Romania, effective 15 January 1996, the state grain board (ROMCEREAL) was partially privatised. The new agency, the National Agency for Agricultural Products (NAAP) has taken over the role of the former board and acquired the 44 joint-stock companies created from ROMCEREAL. The NAAP will retain 25 percent of ROMCEREAL's grain storage facilities and the rest are to be sold under privatization schemes. In addition, the new agency will strike agreements with farmers to purchase and store grain and other agricultural products. To achieve this, the storage capacity for 3.5 million tons inherited from ROMCEREAL has been made available to the agency.
In The Republic of South Africa, the Marketing Products Act provides for the elimination of all single-channel agricultural marketing schemes by the end of 1997. While the maize industry had already begun the process of deregulation in May 1995, the Wheat Board continued to operate a fixed price scheme. The way has finally been cleared to open up the wheat market, beginning with the start of the marketing season on November 1, 1997.
The state-owned Maize Board ceased its statutory intervention activities in the maize market on 30 April 1997, with the abolition of the floor price and other stabilization measures under its control. The net assets of the Board are kept in a special trust, to fund specific activities authorized by the Government. A new working group has been set up to determine how various services previously provided by the Maize Board, such as market information, grading regulation and sanitary and phytosanitary measures, can be provided to producers.
1.4.1. Consumer price de-control and subsidy reduction
1.4.2. Increasing subsidies and price control
While governments continued the trend of removing price controls and reducing consumer subsidies, poor harvests and rising international grain prices, especially in 1995/96, led some countries to sustain or raise subsidies and slow down the pace of price decontrol measures, particularly with regard to support to consumers.
In China, effective 1 July 1996, the municipal authority of Beijing raised the official retail price of rice by 10 percent to 3.10 Yuan (US$0.37) per kilogram, and for wheat flour by 28 percent to 2.74 Yuan (US$0.30) per kilogram. Prices of wheat products, such as noodles and steamed bread, were also increased. The higher prices were expected to help offset the cost of subsidies on official purchases of grain, which amounted to about 700 million Yuan (US$84 million) in 1995. The Province of Taiwan in 1996 extended the end date from December 1995 to June 1997 for its Rice Diversion Programme, after which it will be replaced by the Paddy and Upland Utilization Adjustment Programme. The latter programme is expected to last for four years from July 1997 to June 2001 and is targeted to reduce the province's Aggregate Measurement of Support (AMS) by 20 percent when it ends in 2001. As a result of the programme, total agricultural subsidies would be cut from the current NT$ 16 billion (US$600 million) to NT$ 13 billion (US$470 million).
In 1996, the Government of Egypt made an important change in policy affecting wheat flour as it continued its efforts to reduce subsidies and liberalize the agricultural and food sector. The Government removed the subsidy on the 76 percent-extraction wheat flour used to make shami bread, while the 82 percent-extraction wheat used for baladi bread was still eligible for a direct government subsidy. On the other hand, while the importation of wheat and wheat flour has been opened up to the private sector since 1993, the government still sets a maximum sales price for flour which private millers cannot exceed when they sell flour on the domestic market.
In late 1995, the Government of Iraq raised the monthly ration of wheat flour from 6 to 7 kilograms per person. However, this ration, which had been cut in 1993 from 9 to 6 kilograms was increased to 9 kilograms per person in 1997. For rice, the monthly ration was raised from 1.25 kilograms in 1995 to 2.5 kilograms per person in 1997. The rest of the food is bought on the open market, where prices are normally much higher. Also, the prices the State pays farmers for rice and maize were increased in 1995 by more than 150 percent to compensate for inflation, which for foodstuffs averaged about 14 percent a month between June 1993 and August 1995.
In 1996, the Government of Sri Lanka raised flour and bread prices because of soaring international wheat prices and pressure from rice farmers unable to sell a bumper crop. The Government's flour and bread subsidies, which originally cost an annual 3 billion Rupees (US$57.7 million), had risen to 7 billion Rupees (US$134.6 million) in 1995.
In Turkey, a sharp fall in production in 1995/96 combined with high inflation eroded the value of Government support prices considerably and resulted in smaller deliveries to strategic reserves held by the State Grain Board (TMO). This, which in tandem with a continuing depreciation of the local currency, triggered a sharp increase in domestic wheat and bread prices during the 1995/96 season. In response, the Government lowered the value-added tax on wheat flour and bread from 8 percent to 1 percent and abolished a customs duty of US$ 20 per ton on wheat imported by the private trade in order to reduce domestic prices.
In Albania, the Government spent US$6 million dollars in 1996 to import wheat in order to avert a potential bread crisis in the country. Initial fears were for a bread price hike in the face of the increase in the international wheat price. To maintain bread prices at the previous year's level, the Government removed import duties on wheat flour, waived taxes on small loaves of bread and reduced the price charged for electricity and fuel to bakers. The State also provided subsidies to cover the difference between the domestic price of wheat and the world market price so that the mills would not sell flour to the bakers at the higher international market prices ruling in 1995/96.
On 15 June 1996, the Government of Georgia lifted the control on bread prices, prompting a rise of 20 percent in the price of bread, in response to higher international prices for grain. However, to cushion the effect of a general price hike and to ensure that retail prices would not rise above the foreseen 20 percent, the Government had set aside a two month grain reserve.
In early 1997, the Government of India announced that it would increase its total food subsidy bill from 59 billion Rupees (US$1.6 billion) to 83 billion Rupees (US$2.3 billion) in order to provide fair prices to those below the poverty line under a new Targeted Public Distribution System (TPDS), which is in addition to the previous non-targeted PDS. Under the TPDS, which came into effect on 1 June 1997, eligible consumers are guaranteed prices for cereals at least 40 percent below the prices under the more generally subsidized PDS prices. However, there have been calls for the Government to increase the monthly ration for poor families from the stipulated 10 kilograms per family to 20 kilograms, or more.
In Indonesia, in view of rising budgetary outlays on consumer subsidies as a result of the increased cost of imports, the grain parastatal, BULOG, raised slightly the price of wheat flour to US$301 per ton, effective 1 July 1996, which is still much lower than the cost.
The Government of Jordan, faced with a large food subsidy bill, mainly as a result of the increase in the cost of imported wheat, raised bread prices in August 1996 from 12-21 US cents per kilogram to 31-35 US cents per kilogram, depending on the type. However, the Government continued to provide subsidized wheat for targeted population groups eligible to receive ration cards.
In Malaysia, the Government permitted millers to raise the price of wheat flour by 37.5 percent in June 1996 in order to encourage them to import sufficient amounts of wheat.
In Mexico, the Government decontrolled the domestic price of wheat flour in June 1995, at a point when import prices had already started to rise. As a result, the price of wheat flour trebled compared to the previous year, to nearly US$390 per ton by March 1996. The Government also tripled the limit to which the price of the bolillo (wheat bread) could rise. While the Government continued to subsidize the prices of tortillas, it raised the price by 27 percent to US$0.18 per kilogram in 1996 and the price of maize flour was increased by 23 percent.
In 1996, the Government of Pakistan banned the inter-provincial movement of wheat and flour by private operators in order to prevent the export of subsidized wheat across the borders of neighbouring countries. The Government also continued to provide subsidies on imported wheat, the total bill for which was estimated to be over US$200 million in 1995/96.
In Syria, where both the purchase price and sales prices of wheat and maize are controlled, the Government in 1995 raised the price paid by millers for wheat by 6.5 percent. This increase was significantly less than the rise in the world market price, while maize prices continued to be fixed at the 1994 level.
In Yemen, the Government subsidized the import of cereals by granting traders a favorable exchange rate of 12 Yemeni Riyal/US dollar for imports of wheat and flour compared to the parallel rate of 120 Riyal. As a result, the subsidy cost on imported wheat and flour in 1995 was estimated at US$357 million.
In Zimbabwe, as a result of the drought in 1995, the retail price of maize meal, the country's staple food, went up by 22 percent, which resulted in a similar increase in the official wholesale price of maize meal. This followed a previous 28 percent hike in the retail price for maize announced in December 1995 by the government-owned grain trading agency. In an effort to make up for the production shortfall which saw maize production fall from 2.3 million tons in the 1994 to 800 000 ton in 1995 and to stabilize domestic prices, the Maize Board imported 410 000 tons of maize at a cost of Z$450 million (US$45 million) in early 1996.
In December 1995, the Government of Albania imposed a ceiling of 40 Leks (US$0.37) per kg on the retail prices of bread to protect consumers as a result of high international grain prices.
1.5.1. Trade regulation affecting imports and market access
1.5.2. Trade measures influencing exports
In compliance with their commitments under the Uruguay Round Agreement (URA), most countries continued the process of trade liberalization, although quantity restrictions are still in place in some countries.
The Government of Bolivia suspended the 10 percent import tariff on wheat, flour and maize for six months in November 1995, resulting in revenue loses of between US$4-7 million. The tariff suspension was carried out to contain the upward price pressure on essential foodstuffs, due in part to the increase in international grain prices but also to a persistent drought.
In China, the Government adopted in 1996 a tariff quota for imports of cereals and vegetable oils and eliminated non-tariff measures, such as import permits and quotas on certain agricultural products, including cereals and vegetables oils. Also, in the Province of Taiwan, quantitative controls on wheat flour were eliminated in 1996 to maintain sufficient food supplies and to stabilize food prices. The Province still retains a 30 percent tariff on flour imports.
In Côte d'Ivoire, the Government liberalized domestic prices of wheat flour and eliminated the prevailing subsidy of CFA 26 000 (US$49) per ton on imported wheat on 1 January 1996. However, import duties on wheat and wheat flour were doubled to 10 percent and 30 percent, respectively, the latter to protect the domestic flour industry. In addition, a 2.5 percent data collection tax was also in place for wheat and flour imports. In March 1995, the Government privatized the state rice importing monopoly and revised import duties on rice. The main features of this new policy are presented in Box 3.
In El Salvador, the Government announced in March 1996 a reduction in the import tariff on yellow maize from 10 percent to 1 percent as a temporary measure to offset rising international prices.
In Guatemala, the Government lowered the import tariff on wheat flour in May 1996, at the same time permitted millers and bakers to raise wholesale prices for both wheat flour and bread by 12 percent to reflect the higher import prices. On 22 January 1997, a tariff-rate-quota (TRQ) for wheat and maize imports was announced. The quotas were set at 341 054 tons for wheat and 15 674 tons for wheat flour. The in-quota and above-quota tariffs for wheat were set at 1.2 percent and 6 percent, on the CIF value, respectively, while for wheat flour the tariffs were set at 8.3 percent and 15 percent. For maize, the TRQ for 1997 was set at 336 320 tons with a 5 percent within-quota tariff and a 35 percent above-quota tariff.
The Government of Honduras reduced import tariffs on all products, including grains, subject to a price band mechanism,2 in 1996. The minimum (floor) price for effective duties on grains under the mechanism was lowered from 15 percent to 5 percent, while the ceiling for effective duties was raised from 40 percent to 45 percent. The Government also imposed a 14 percent tariff on yellow maize imports from outside Central America in a bid to guarantee regional sales of the grain.
2 A detailed description of the price band mechanism in Latin America was presented in Cereal Policies Review 1993-94, pages 26-31.
In India, the Government, fearing a price rise in local markets, announced on 29 May 1997 that it would permit the free importation of common and coarse varieties of rice. Fine and superfine varieties will also be imported, provided the share of broken rice contained in these varieties did not exceed 50 percent. Imports of premium rice, however, will continue to be restricted. This decision is aimed at discouraging farmers and traders from holding on to stocks for speculative purposes.
|
BOX 3: Liberalizing the Cereal Sector in Cote d'Ivoire Wheat and Wheat Flour The Government of Cote d'Ivoire, in April 1995, initiated the first phase of its liberalization policy by abolishing the state monopoly franchise on wheat and flour imports which would then be undertaken by two local mills. To protect consumers from a sharp rise in flour prices, the Government instituted a subsidy of 26 000 CFA (US$52) per ton on locally produced flour and lowered duties on wheat imports from 10 percent to 2.5 percent. However, on 1 January 1996, the subsidy on flour was abolished. In addition,
new import tariffs and fiscal taxes were imposed as the table below shows.
All imports continued to be subjected to a statistical tax of 2.5 percent
ad valorem, a 0.6 percent port tax and a 0.75 percent fee on the
FOB value for pre-clearance inspection. |
|||||||
|
|
New Rate |
Old Rate |
|||||
|
Custom |
Fiscal |
Custom |
Fiscal |
||||
|
Duty |
Tax |
Duty |
Tax |
||||
|
Wheat |
5% |
5% |
2.5% |
0 |
|||
|
Flour |
15% |
15% |
15% |
5% |
|||
|
The Government liberalised de-luxe and brown rice imports on August 1994 and, in March 1995, dissolved the Caisse General de Perequation et Prix, the state rice importing parastatal and turned imports of "ordinary" rice over to the private sector under a global quota. In 1995, the import quota for "ordinary" rice was set at 330 000 tons. In 1996, it was reduced to 300 000 tons due to large stocks. There are no quota on brown and deluxe rice. In August 1996, the Government revised the rice tariff regime (see table
below). The new tariffs are intended to better protect domestic rice production
after the completion of the planned liberalization of rice imports in
January 1997. In addition, a variable levy to be managed by the National
Rice Committee was established to serve as an additional mechanism, enforced
when world market prices so warranted. |
|||||||
|
|
New Rate |
Old Rate |
|||||
|
Custom |
Fiscal |
Custom |
Fiscal |
||||
|
Duty |
Tax |
Duty |
Tax |
||||
|
% |
% |
% |
% |
||||
|
Paddy |
5 |
5 |
5 |
5 |
|||
|
Brown Rice |
5 |
10 |
5 |
10 |
|||
|
Milled Rice (>15% Brkn) |
5 |
10 |
0 |
2 |
|||
|
Milled Rice (<15% Brkn) |
5 |
20 |
5 |
20 |
|||
|
|
|||||||
In Indonesia, as a result of a higher than expected maize output in 1997 and in order to support its low domestic price, the Government in June of that year announced plans to impose an import duty on maize. Before, the imported maize was only subject to a 2.5 percent government tax and a 10 percent VAT.
In 1996, Mexico raised the tariff rate quota for maize from 2.6 million tons to 7.3 million tons. Tariffs on selected grains were also reduced: thus import tariffs on wheat from non-NAFTA sources were lowered from 67 percent to 10.5 percent, which is also the rate for NAFTA members, while they were abolished on maize grits from all sources. Furthermore, the Government set in early 1997 duty free imports of barley at 34 729 tons from Canada and at 138 915 tons from the United States under NAFTA, an increase of about 5 percent from 1996. Imports above this quota were subject to a tariff of 107.92 percent.
Since May 1996, new import duties under Morocco's reform policy were set below the maximum bound rates agreed to under the URA. Individual grains were subject to different import duties on the portion of the CIF price that is equal to the threshold price, plus an additional 15 percent on that portion. An additional import tax of 15 percent is applied to the portion of the CIF price above the threshold price for all goods imported into the country, plus a fixed one percent tax on that portion. The current duties and threshold prices may be revised by the Government whenever there are significant changes in world market prices in order to allow a certain level of protection for local grain growers. For soft wheat and durum, the duty is now 35 percent and 59 percent, respectively, with a threshold price of 1 300 dirhams (US$150) per ton. Box 5 provides an example of how the new import system would operate.
|
BOX 4: An Example of Morocco's New Cereal Import Tariff System Using the duty of 35 percent on wheat, the new policy operates as follows: If the CIF Casablanca price for wheat were 2 000 dirhams per metric ton, that is, 700 dirhams above the 1 300 dh/ton threshold price set by the Government, then the customs duty and import tax would amount to 50% (i.e. 35% + 15%) for the part of the CIF price equal to the threshold price. Thus, in dirhams the taxes and duties are: 0.50 x 1 300 = 650 dirhams. The portion of the price above the threshold price, which is 700 dirhams (2 000-1 300), is subject to a duty and import tax of 16% (duty = 1% plus the 15% import tax). In dirhams, this equals 0.16 x 700 = 112,54 dirhams. In total, duties and taxes paid for one metric ton of wheat imported at 2 000 dh/ton is 650 + 112.54 = 762.54 dh/ton ($US86.97/ton). Therefore, with taxes and duties, the domestic value of one metric ton of wheat imported at CIF 2 000 dh/ton would be 2 762.54 dirhams ($315.68). |
In the Philippines, faced with a poor maize harvest in 1995, the Government expanded the maize import quota by an additional 100 000 tons, and subsequently by a further 50 000 tons. In addition, in April 1996, the Government completed the tariffication of its food imports, replacing volume controls with tariffs. The tariff on wheat was initially set at 50 percent, but due to pressure from domestic millers, the tariff on wheat for food use was revised down to 10 percent until the year 2000. For wheat imported for feed use, the tariff remained at 50 percent, to be reduced to 40 percent in 1998 and to 35 percent by the year 2000.
The Government of the Republic of Korea raised the import quota on maize from 6.1 million tons to 10.5 million tons in May 1996, with a 2.7 percent in-quota tariff rate on feed quality maize and 3 percent on maize used for industrial purposes, as committed under the URA. Subsequently, upon the request of the milling industry, the tariff rate for maize used for feed was reduced to zero percent for the first half of 1997 and at 1 percent for maize for other uses, until the end of 1997. At the same time, the Government delayed further increases in the price at which importers could sell maize, after allowing a 9 percent rise in the domestic price earlier in 1996.
In Thailand, the Government granted a wheat import tax rebate of US$ 12 per ton for exports of wheat by-products, effective September 1995 to February 1996. Also feed compounders had been demanding more access to maize imports as domestic production fell and the country shifted from a large exporter to a net importer of maize. The Government responded in 1995 by putting into place a maize import quota of 400 000 tons. In January 1996, when maize was in short supply and its price rose sharply, the Government raised the import quota to 550 000 tons, which was equivalent to almost ten times its Uruguay Round TRQ of 52 096 tons for 1995. In both years, imports had to be completed early in the year in order to minimize the possible adverse impact on local producer prices.
On 1 January 1997, the Government further liberalized maize imports by eliminating the import quota and reducing import duties to zero. However, maize imports were still restricted between February 20 through June 30, 1997. The zero duty applied only as long as Bangkok wholesale prices for maize remained above the specified level of 4.50 Baht per kilogram (about US$180 per ton). If the Bangkok wholesale prices drop below that threshold, the Government would raise tariffs, as per its URA commitments. In addition, if the Bangkok wholesale prices fall below 3.80 baht per kilogram (US$152 per ton), the Government would intervene to stabilize maize prices through the Policy and Measures for Aid to Farmers Committee.
In Turkey, effective September 1996, the import tariff for non-seed wheat and maize was increased form 3 percent to 15 percent in order to limit imports following a bumper harvest. However, the import volume was not expected to be significantly affected, as wheat imports consist mainly of durum used for pasta, which is not grown locally.
In 1996, the Government of Zimbabwe announced new import tariffs in an effort to rationalize the tariff structure before the removal of the permit system, which was in operation at the time. For durum wheat, the tariff was reduced from 30 percent to 5 percent, and for sorghum, rice, millet and oats the tariff was reduced from 30 percent to 15 percent. The tariff on buckwheat was also reduced from 55 percent to 15 percent, while for maize the tariff remained unchanged at 30 percent.
On 6 February 1997, the Government of Canada re-imposed a duty of US$0.21 cents per kilogram on imports of pasta from Italy, in connection with an anti-dumping action. An earlier investigation, which resulted in a temporary removal of the duty, was considered to have underestimated the effects of these imports on the domestic market. Canada also signed two bilateral trade agreements with Chile and Israel which came into force in 1997. Provisions of these agreements with regard to grains are presented in Box 5.
|
BOX 5: Canada's Bilateral Trade Agreements Canada-Chile Free Trade Agreement The Canada-Chile Free Trade Agreement (CCFTA), which came into force on 5 July 1997, provides immediate duty-free access into Chile for some important Canadian agri-food commodities. It improves market access for most agri-food products, which, with the primary exceptions of milling wheat, sugar and beef, will be duty-free either immediately, or within 5 to 10 years. All Canadian exports currently face import duties of 11 percent or more in Chile. In 1996, total agri-food trade between Chile and Canada was $280 million. Chile exported $194 million of agri-food products to Canada while Canada's exports to Chile were US$87 million. Canada's principal agricultural exports to Chile in 1996 were milling and durum wheat ($70 million) and lentils, dried peas and other pulses ($7.2 million), while Chile's main exports to Canada were fruit and fruit products (US$146 million) and wine (US$39 million). Under this agreement, Chile would benefit from improved market access into Canada, with the phasing out of duties within six years for horticultural products, similar to the concessions granted to Mexico under NAFTA. Under the agreement, Canada succeeded in obtaining seasonal duty-free access for durum wheat and a guarantee that any market access improvement granted on milling wheat to Canada's main competitors will also be given to Canada. Durum wheat will receive duty-free treatment upon implementation of the agreement between 15 April to 15 November, with a 5-year phase-out of tariffs during the remainder of the year. The duty-free period corresponds to Canada's shipping period for durum wheat to Chile, which means effective duty-free treatment. Canada has been Chile's sole supplier of durum wheat for the past 5 years. Barley and barley products will receive duty-free treatments immediately, while lower tariffs on maize will be phased out over a 10-year period. Canada-Israel Free Trade Agreement The Canada-Israel Free Trade Agreement came into force on 1 January 1997, improving market access for agri-food products of export interest to both Canada and Israel, and eliminating tariffs on virtually all industrial goods. It is expected that Canada's competitive position in the Israeli market will be restored where the United States and the European Union had gained preferential access through negotiated bilateral arrangements. The agreement covers about 80 percent of the two-way trade in agri-food products, which was US$17.1 million in 1995. Canada's principal agricultural exports to Israel have been lentils and other pulses (US$2.3 million), while Israel's main exports to Canada were vegetables and fruits (US$6.9 million), for which duty-free access were granted by Canada. For Canada, the greatest short-term benefits will be increased opportunities for wheat, pulse crops, coarse grains and canola oil. Israel's demand for imported grains has steadily increased over the last decade. In the past the United States has been the predominant supplier, Israel will establish annual duty-free tariff rate quotas for Canada of 150 000 tons wheat and 200 000 tons coarse grains (rye, barley, oats and corn), levels set above Canada's historic export volumes which have been subject to domestic purchase requirements in Israel. Canadian wheat flour and barley exports will also benefit from duty-free tariff rate quotas of 10 000 tons for wheat flour and 9 000 tons for barley. |
On 13 October 1995, the European Community cut the import duty on distant-origin maize from 73.5 ECUs (US$75) to 63.93 ECUs (US$65) per ton. In addition, later in December of the same year, the Commission adopted several measures to compensate trading partners for changes in their terms of access to the Community following its enlargement from twelve to fifteen members. One of the main changes included in the package was favourable to Canada, for which the duty on imports of high quality wheat was reduced by 50 percent through the 1995/96 marketing year, including a zero-duty import quota for 50 000 tons of durum and 10 000 tons of processed oats. For Australia and other suppliers, an import quota of 21 000 tons of oats was established at a duty of 89 ECUs per ton. Also as a consequence of Austria, Finland and Sweden becoming EC members in 1996, additional import quotas were applied from 1 January 1996 (see Table 2). These quotas are open to all origins, but specific quality requirements would limit their access to a few countries.
Table 2: EC's Revised Import Quota and Tariff Reduction following Enlargement to 15 Countries
|
|
Quota (tons) |
Tariff Reduction from 1995 |
|
Semi-or fully milled rice |
63000 |
Zero tariff |
|
Husked rice |
20000 |
Reduced by 88 ECUs per ton |
|
Durum wheat |
50000 |
Zero tariff |
|
Processed oats |
10000 |
Zero tariff |
|
Oats |
21000 |
Reduced to 89 ECUs per ton |
In Hungary, all grain imports were partially liberalized in 1995; the licensing system, however, remained in force for the exports of wheat and wheat flour, commodities which experienced internal price increases mainly due to large wheat exports and increases in world market prices during the later part of 1995.
In 1995, the Government of Norway abolished the state monopoly on domestic grain marketing, in force since 1928. The monopoly was replaced by an import regime which allows the import of grains and milled by-products of feedstuffs into Norway, subject only to tariffs. At the same time, subsidies on exports were completely eliminated.
In Poland, the Government signed in 1995, a decree establishing duty-free import quotas of 400 000 tons for barley, 500 000 tons for wheat and of 600 000 tons for maize. These duty-free imports were designed to help stabilize the Polish grain market and to prevent price rises caused by low supplies as a result of drought, which significantly reduced the grain harvest in 1994. In response to yet another reduced harvest in 1996, the Government announced in June the extension of duty-free imports of common wheat, rye, oats, barley and maize until the end of 1996. This policy was continued until January 1997 when the duty-free status for durum wheat and maize was removed and a 20 percent tax imposed. The Government also announced, in late 1996, its 1997 import tariff rates for agricultural products, including a series of tariff quotas and trade agreements with the EC, EFTA, CEFTA and Lithuania. The average duty for agricultural products for 1997 was set at 14.1 percent, reduced by 1.7 percent from 1996.
In Slovakia, the Government lowered its import tariffs on 1 January 1997 to zero in order to boost imports of cereals and provide relief to the domestic market. Previously, the tariff was initially lowered from 10 percent to 7.5 percent in July 1996. Thus, the Government has been varying import duties to suit its domestic market stabilization objectives.
In the Republic of South Africa, the Government on 1 March 1996 replaced its quantitative import controls on wheat and wheat products with tariffs. Under the new tariff structure, a specific duty is applicable on wheat imports, which has been set at zero since the tariff system was introduced. A 50 percent ad valorem duty is also applicable on wheat flour and meal imports in addition to the specific duty. The bound rates under the URA are 72 percent and 99 percent for wheat and wheat flour and meal, respectively.
In 1995, Switzerland converted its cereal import regime to full tariffication. At the same time, import tariffs were reduced by 15 percent for grains for human consumption and by 36 percent for feed grains and feeding stuffs.
In 1996, the United States introduced additional duties on pasta products from several countries under a countervailing duty action. The ruling imposes countervailing duties, ranging from 2.8 percent to 46.6 percent, for some products from Italy and 56.87 percent to 63.29 percent on others from Turkey.
In India, the Government imposed a ceiling of 150 000 tons on exports of wheat products (mostly wheat flour) from October 1996 through March 1997. Previously, wheat flour exports had been open under general licensing without any limitations on volume. After the outstanding wheat export licenses carried over from the 1995/96 season expired on 30 September 1996, the Government announced that it would not issue additional licenses beyond the one million tons that had been issued at the start of the 1996/97 fiscal year.
In Mexico, the sharp rise in world market prices coincided with a second consecutive drought in 1995, which magnified the upsurge in domestic prices, particularly for maize. In response, the Government introduced a duty of 200 percent on the export of maize flour in order to prevent the unauthorized sale of subsidized maize flour into neighbouring countries.
In Bulgaria, the Government lifted a two-year ban on wheat exports in July 1995 and replaced it with a US$35 per ton export tax (US$10 on wheat flour), following a relatively good harvest. In August 1995, the export tax was raised to US$55 per ton in order to lift domestic producer prices, which ranged then between US$63-US$78 per ton. Despite these tax increases, wheat exports exceeded earlier expectations and shipments were suspended again in October 1995. The ban on maize exports, which was also due to expire by the end of October 1995, was extended until 1 July 1997.
In the European Community, the rise in international grain prices well above the domestic prices led to the introduction of export taxes during the 1995/96 season. The taxes, which averaged around 14 ECUs (US$17) per ton, were applied to durum, soft wheat, barley and products such as flour and semolina. Following a sharp reduction in international grain prices in 1996/97 and the converging of world prices with domestic prices in the EC, export subsidies were gradually replaced by export restitutions as had been the case prior to the 1995/96 price spikes.
In Hungary, wheat and maize export policies changed drastically during the course of the 1995/96 season mainly due to developments in the domestic market. Domestic wheat prices almost doubled during 1995/96 and the rise in bread prices led to the release of flour reserves. Rising meat prices and the increase in the poultry and pig population also boosted domestic demand for maize, the primary feed grain. Consequently, by November 1995, exports of maize were restricted as the Government decided to cease issuing any further export licenses due to the tight domestic supply situation.
In Kyrgyzstan, the Government introduced a temporary duty of 30 percent on exports of food grains for three months starting in August 1996, in order to reduce exports and replenish grain reserves.
On 12 May 1997, the Government of Romania liberalized its grain exports and reduced subsidies to the agricultural sector. Exports of wheat flour, maize and barley were deregulated. Previously, traders had to apply for export licenses to export these commodities, which, until recently, were subsidized by the State. A decision on the exports of milling wheat was postponed until August 1997, to be revised based on the size of the wheat crop.
In 1996, the Agricultural Bank of China increased its loans for agricultural projects by about 14 percent over the previous year's amount to 45 billion Yuan (US$5.4 billion). The loans were mainly for large-scale farming and to companies producing fertilizers, pesticides and plastic sheeting for agricultural purposes. Also, the Agricultural Development Bank, which was formerly part of the Agricultural Bank, doubled its loans to the agricultural sector from 8.2 billion Yuan (US$988 million) in 1995 to 16.4 billion Yuan (US$1.98 billion) in 1996. The Central Government, along with provincial authorities and producers, also established a "Grain Self-Sufficiency Project Fund" with an initial investment of 2 billion Yuan (US$241 million) to increase grain output by about 10 million tons by the year 2000. The project mainly provides incentives for grain farmers in the coastal provinces, with the aim of limiting the diversion of arable land to manufacturing and construction industries.
In 1995, the Government of Cuba eliminated subsidies on loss making state farms, with some exceptions. Under the new system, some state farms have been converted into autonomous cooperatives with farmers allowed to set their own prices for any surplus to be sold at government agricultural markets which were established in 1994. As a result of this shift in policy, losses to the Government were reduced by about 600 million pesos (US$600 million) to 400 million pesos (US$400 million) in 1995.
In an effort to reduce imports, the Government of Egypt is experimenting with composite flour for baladi bread based on 80 percent wheat flour and 20 percent maize flour from domestically produced white maize. The results of the experiment have not been very promising, in particular as regards the quality of the bread (shelf life, taste and texture). The Ministry of Supply and Trade also recently introduced a new type of unsubsidized, improved baladi bread made from 82 percent wheat flour from domestically produced grains.
On 17 November 1995, the Australian Wheat Board (AWB) entered the Egyptian flour industry as an investor, with a 30 percent stake in a $30 million mill venture. The Five Stars Flour Milling Company also signed a long-term supply contract with the AWB for flour shipments and the setting up of storage facilities for 75 000 tons of wheat. The Australian Barley Board also holds a five-percent interest, while individual investors from Egypt, Saudi Arabia and Oman share the remaining 65 percent.
In May 1996, the Government of Honduras passed a decree establishing a National Complementary Credit Guarantee Fund, worth 500 million Lempiras (US$42 million). This fund is be utilized to guarantee the financing of agricultural production and marketing activities; a maximum of 50 percent of the credit being provided by commercial banks to finance production activities and a maximum of 20 percent for marketing activities. Up to 70 percent of the guarantees are used for basic grains and the remaining 30 percent for other crops. The decree limits the retail prices of fertilizer and other agricultural inputs to reflect the international market price plus the cost of handling and domestic transportation.
The deteriorating food situation in Iraq led the UN Security Council in 1995 to adopt Resolution 986, the oil-for-food deal, which permits Iraq to export limited quantities of oil to finance imports of food and other essential humanitarian needs. Under the agreement, in the first six-months period starting 10 December 1996, the Government was permitted to sell up to US$2 billion of oil, out of which US$805 million could be used for food imports and US$44 million for urgently needed agricultural inputs. The Security Council approved on 8 June 1997, a further six-month extension to cover the period until 8 December 1997.
In Saudi Arabia, the Saudi Agricultural Bank extended 27 Riyal billion (US$7.2 billion) in loans to farmers in 1996 to assist the agricultural sector. Furthermore, the Government provided additional funding for the setting up of 39 crop and livestock projects costing 87 billion Riyal (US$23 billion) in different parts of the Kingdom.
The Government of Zambia outlined in early 1997 its new marketing arrangements for maize and agricultural inputs. Among the main highlights of this new policy are the elimination of producer support prices, credit facilities and import/export restrictions. A summary of these changes is presented in Box 6.
In 1996, the Government of Armenia secured a loan of US$15 million from the European Bank for Reconstruction and Development to improve its agri-market infrastructure. The loan would be used to build a 7.5 hectare wholesale market in 1999 and about US$3.5 million to enable private farmers to buy equipments. The loan would be repaid in 12 years at 6.5 percent interest rate after a three-year grace period.
The Government of Belarus announced a special credit to farmers of 500 million Roubles (US$ 147 000) in early 1997 to cover purchases of fuel following a severe shortage of fuel. Also, an additional 3 300 billion Roubles (US$ 9.7 million) was allocated by the Government to buy half of the country's 1997 grain harvest.
In 1996, the Government of the Czech Republic approved two programmes aimed at boosting agricultural exports and at the revival of family-run farms. The Government planned to channel 500 million Koruna (US$18.3 million) in 1997 to subsidize interest rates on export-related loans to enable the country to reduce its negative agricultural trade balance. The family farm programme will seek to help farmers who were previously expelled from their farms by providing a 5 percent subsidy on interest rates. In addition, the Czech Land Trust Fund decided in 1996 to postpone installment payments on loans, given for the purchase of privatized land, until the end of 1997 to help farmers cope with the effects of the severe weather in 1996. The Land authority also permitted a one year postponement on the repayment of loans granted to new farmers to enable them to start farming operations, while rents paid by all farmers in the second half of 1996 and the first half of 1997 were reduced by 10 percent. These measures cost the Land Fund some 195 million Koruna (US$7.1 million) in 1996 and 45 million Koruna (US$1.6 million) in 1997.
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BOX 6: Zambia's Maize and Agricultural Input Marketing Arrangements for 1997/98 Elimination of Production and Input Support During the 1997/98 season there will be no guaranteed producer or mill prices for maize. Similar to the previous seasons, regional and seasonal prices for maize, or any other crop, will be determined by market supply and demand conditions. The Government will no longer be involved in the direct provision of fertilizer and/or the price setting of fertilizer. Farmers should meet their seed and fertilizer requirements directly on a cash or barter basis, either individually or in groups. The Government will not continue with the provision of fertilizer on credit terms under the Agricultural Credit Management Programme or any other programme or credit facility. Private fertilizer and seed importers/traders are particularly encouraged to expand their distribution and sales efforts into the rural areas at the start of and throughout the period preceding the 1997/98 crop planting season. Credit and other Financial Incentives As was me case during 1996/97, the Government will not make any marketing credit or trade finance available this season. The commercial trade and finance sectors are encouraged to make their own financing and credit arrangements without support from Government. The Government is committed to recover the payments on fertiliser loans disbursed to farmers under the Agricultural Credit Management Programme during the previous seasons as well as loans disbursed through the Participating Commercial Banks to traders under the Marketing Credit Revolving Fund during 1994/95 and 1995/96. Removal of Import/Export Restrictions There will be no restrictions on the import/export trade for maize, maize products and agricultural inputs during 1997/98. All potential importers/exporters will be required to register with the Ministry of Agriculture, Food and Fisheries and comply with all documentary and administrative procedures required. The registration is only for purposes of statistical information. Marketing and Storage As during previous seasons, there will be no government appointed agents for the 1997/98 season. Anybody may participate in the buying and selling of maize and agricultural inputs on their own account. Farmer groups/associations and traders may buy or sell commodities through the Agricultural Commodity Exchange in Lusaka. Similar to the previous seasons, storage facilities owned by the Food Reserve Agency will be leased to traders, millers and others at competitive lease rates. Interested traders or companies can apply for the use of these facilities; tendering procedures are continuously being advertised in the press. The Food Reserve Agency continues to operate and manage fee National Food Security Reserve on behalf of the Government. The Agency will continue to buy, store and sell reserve stocks on the basis of open tender procedures as was the ease during 1996/97. This will allow any interested party to sell or buy from the Agency under the prevailing market conditions. |
In 1996, the Government of Kazakhstan allocated the first US$25 million of a US$100 million loan received from the Asian Development Bank to improve research into food processing and crop protection. The World Bank also advanced Kazakhstan US$140 million for the installation of irrigation facilities and an additional US$40 million for land surveying, with the United States providing credit of up to US$114 million for the purchase of harvesting equipments.
In Poland, the Government set aside 35 million Zloty (US$11.2 million) in subsidized credits during 1995 for farmers wishing to increase the size of their land holdings. The interest rate was set at 7.75 percent and could be extended for periods of up to fifteen years. In January 1996, the government modified its preferential loan programme to agricultural producers by granting low interest rates to producers who purchase seeding and breeding materials, mineral fertilizers and other inputs. At the same time, the interest rate charged by banks on loans granted for agricultural purposes has been lowered from 10 to 9.2 percent annually, which compares with a 27.6 percent commercial rate. Further modifications were made to this programme on 30 April 1996 enabling more loans at a lower interest rate of 8.8 percent.
Similarly, the Romanian Government provided loans in 1996 totaling 1 500 billion Leu (US$217 million) at favourable interest rates to grain producers and processing industries, both in the public and private sectors. The annual interest rate of 50 percent was reduced to 20 percent. To qualify for these loans, private farmers had to sign a contract to sell some of their grains to the official grain-purchasing agency ROMCEREAL. In February 1997, the Government re-allocated 600 billion Leu (US$87 million) of the previous loan, in response to concerns that money allocated to the agricultural sector would bypass private farms and be absorbed by state-owned enterprises. The re-allocated funds are linked to a World Bank loan of US$510 million, of which half will be used to finance private farming projects and the other half to cover interest on commercial bank loans to private farmers.
The Government of the Russian Federation, adopted a resolution. On Measures to Stabilize the Economic State and Develop Reforms in the Agro-industrial Complex, in June 1996. The resolution will provide assistance for the payment of all debts of agricultural producers for commodity credits received since 1995. A total repayment obligation by farmers of 5 100 billion roubles (US$1 billion) will be postponed until 1998. Also, agricultural producers were exempted from payments of compound interest resulting from non-payment of their former debts to the central lending authority. The Government also plans to renew loans to agriculture requiring some of its lending agencies to establish a special fund to provide centralized credits to agricultural producers in 1997.
In October 1996, the Government of the Ukraine received approval from the World Bank for a loan totaling US$300 million for agricultural sector development. The funds are meant to support efforts to encourage privatization and to promote a market-based system of food production and processing. The loan would carry a variable rate of interest and a maturity of seventeen years, including a five-year grace period.
