SIDS 99: Inf.3 - Sum.


Special Ministerial Conference on Agriculture in Small Island Developing States

Rome, 12 March 1999


(View / download full document in English)

1. This paper summarizes an FAO study of the implications of the emerging global trading environment, especially the Uruguay Round Agreement on Agriculture (AoA), for the agricultural trade of 33 small island and low-lying coastal developing states (SIDS).1 It examines the revealed comparative advantage of SIDS in international markets for agricultural, fishery and forestry products and addresses the consequences of the AoA for their trade.

2. It is frequently argued that SIDS suffer specific handicaps arising from the interplay of factors such as smallness, remoteness, geographical dispersion, vulnerability to natural disasters and a limited internal market, in addition to the general problems faced by developing countries.2 As with developing countries as a whole, SIDS are a diverse group in terms of their levels of economic development and their competitiveness in agricultural markets. In the higher income SIDS with per caput GDP above $6 000 (Antigua and Barbuda, Bahamas, Bahrain, Barbados, Cyprus, Malta, St. Kitts and Nevis and Seychelles), agriculture plays a relatively small role in the economy, supplying less than 10 percent of GDP and employing less than 20 percent of the work force. At the opposite end of the scale, the least developed countries (LDCs) in the group (Cape Verde, Comoros, Guinea Bissau, Haiti, Maldives, Samoa, Sao Tomé and Principe, Solomon Islands, and Vanuatu) have per caput incomes below $1500 and rely on agriculture for as much as 50 percent of GDP and 75 percent of employment.

3. The SIDS as a group are net agricultural exporters. The agricultural exports of SIDS cover about 103 percent of the value of agricultural imports, but within the group this ratio ranges widely, from less than 5 percent for Antigua and Barbuda to more than 200 percent for Cuba (exports twice the value of imports). Nine SIDS are net agricultural exporters (Belize, Cuba, Fiji, Guyana, Mauritius, Papua New Guinea, St Vincent and the Grenadines, Solomon Islands, and Vanuatu). The agricultural exports of SIDS tend to be highly concentrated in a small number of commodities and markets and are generally dependent on preferential market access agreements. Although most SIDS do not have a revealed comparative advantage in agricultural production overall, several have a revealed comparative advantage in particular agricultural commodities.

4. In 1994-95, the total value of agricultural exports of the SIDS countries was about US$8.2 billion compared with $7.9 billion a decade ago. Cuba alone accounted for 45 percent of all SIDS agricultural exports in 1994-95, and along with Cyprus, Dominican Republic, Fiji, Mauritius and Papua New Guinea, these top six exporters supplied almost 80 percent of the total. While there has been little growth in the value of agricultural exports from SIDS in the last decade, the value of agricultural imports has almost doubled from $4.3 billion in the early 1980s to $8.0 billion in 1994-95. Real prices of most major commodities exported by these countries declined in the 1980s and have stagnated in the 1990s. The index of real prices (1980=100) for sugar fell to 25 a decade later. During the same period, the real price index for bananas fell to 92, and for tropical beverages it fell to 37. Since the early 1990s, the downward trend for these commodities has slowed or reversed so that by 1998 the estimated real price indices were 23, 90, and 51, respectively.

5. Most SIDS receive preferential access to the major developed country markets through special arrangements such as the EU's Lomé convention for the African, Caribbean, and Pacific (ACP) and the USA's Caribbean Basin Initiative (CBI) and/or through the World Trade Organization's (WTO) Generalised System of Preferences (GSP) for developing countries. Recent studies by UNCTAD and FAO have found that the benefits accruing from the various preferential trading schemes are concentrated among a few countries and a few commodities, and in many cases the beneficiaries, including SIDS, have not been able to fully exploit the opportunities available to them.3 In addition, some of the preferential provisions of these trade agreements are being questioned at the WTO.

6. The AoA is reducing import barriers for agricultural products in many markets on an MFN basis, opening up opportunities both in primary commodities as well as in higher value processed products for low-cost competitive producers,4 including many of the SIDS. Because, however, most agricultural exports from SIDS depend on preferential access to developed-country markets, reductions in MFN tariffs may tend to shrink the margin of preference for SIDS's exports. Although the estimated loss in tariff preferences due to the AoA is not large overall, some commodities and countries are likely to be affected more than others.5 For SIDS, the trade preferences associated with two products, sugar and bananas, are of overwhelming importance, even though most of the preferences associated with these products were only negligibly affected by the AoA.6 Should these products figure in future liberalisation, however, the situation could change.

7. The AoA is also imposing disciplines on the use of domestic supports and export subsidies in many of the major producers and exporters of temperate-zone agricultural commodities. This may result in world food prices being higher than they would otherwise have been and reduce the availability of subsidised food imports for some SIDS.7 The moderately higher international food prices expected as a result of the Uruguay Round AoA have not materialised so far, and neither the sharp increase in cereal prices during 1995/96 nor the sharp decrease in 1998/99 can be much related to the AoA.8 The food import bills of SIDS appeared to be increasing until the current marketing year, with a decline of as much as 10 percent estimated for 1998/99 because of a combination of factors including lower world prices and higher food aid shipments.

8. Twenty-four SIDS are members of the World Trade Organization (WTO). Four have observer status and are seeking membership, and another, Cape Verde, has observer status but is not currently seeking membership. In the Uruguay Round of negotiations, developing countries had a choice to bind tariffs and non-tariff measures at their tariff equivalents or to offer "ceiling" tariff bindings without regard to tariff equivalents. Most SIDS chose the latter option of binding their tariff ceilings, often at very high levels. Only one (Cyprus) was required to make any commitments on domestic supports or export subsidies. Notwithstanding the generally light commitments by SIDS in the UR, a number of SIDS have undertaken significant economic reforms since the 1980s either unilaterally or through regional agreements including, inter alia, trade policy liberalisation. All SIDS, whether or not they are actively engaged in policy reforms themselves, face challenges and opportunities in the emerging global trading environment.

9. To conclude, this review did not consider specific problems of individual SIDS countries and how they may be affected by the Uruguay Round and other developments in the international trading system. In responding to the new challenge, an important step would be to conduct a more thorough assessment of the implications for agriculture and food security in individual countries and regions so as to be able to identify both the short-term adjustments and a long term strategy to deal with the expected changes.

10. For the short run, SIDS should focus on taking full advantage of the current preferential trade opportunities available to them, and also of the market openings arising from the Uruguay Round. The international community, including FAO, has a role in assisting governments and private sector actors in the SIDS to better understand their opportunities and obligations within the international trading system.

11. For the longer run, the SIDS need to focus their efforts on raising their competitive position in their traditional agricultural exports and diversifying into other commodities and higher value products. Faced with the challenge of being competitive in the global market, the SIDS would benefit from in-depth studies on their comparative advantage in the production and export of agricultural products, including diversification possibilities in fast growing commodities and markets as well as in higher value processed products. Such reviews should draw from the experiences of other countries and seek to identify factors that have hampered competitiveness.

12. In the near future many SIDS face the challenge of engaging in the upcoming negotiations within the WTO and, at the same time, in a number of preferential and regional agreements of importance to them. The international community has a role to play in helping SIDS develop the necessary institutional capacity to participate effectively in the negotiations and the analytical capacity to evaluate alternative policy options.

1 The study group comprises the FAO members of the Alliance of Small Island States (AOSIS), with the addition of Bahrain, the Dominican Republic and Haiti: Antigua and Barbuda, Bahamas, Bahrain, Barbados, Belize, Cape Verde, Cook Islands, Comoros, Cuba, Cyprus, Dominica, Dominican Republic, Fiji, Grenada, Guinea Bissau, Guyana, Jamaica, Maldives, Malta, Mauritius, Papua New Guinea, St Kitts and Nevis, St Lucia, St Vincent and the Grenadines, Samoa, Sao Tomé and Principe, Seychelles Islands, Solomon Islands, Suriname, Tonga, Trinidad and Tobago, and Vanuatu.


2 For example: Barbados Declaration, Global Conference on the Sustainable Development of Small Island Countries, April 1994; Plan of Action, World Food Summit, Rome, November 1996; Commonwealth Secretariat, A Future for Small States: Overcoming Vulnerability, 1997; and the 29th Session of the FAO Conference, November 1997, (C97/REP).


3 R. Sharma, The Impact of the Marrakesh Agreement on Trade of Agricultural Products in ACP Countries, Commodity and Trade Division, FAO, July 1997.


4 J. Linland, The Impact of the Uruguay Round on Tariff Escalation in Agricultural Products, Commodities and Trade Division, FAO, February 1997


5 Yamazaki (1996) estimated a potential loss for all developing countries of US$632 million in 1992 dollars due to the AoA (about 25 percent of the total value of preferential margins in that year), with the biggest losses being in fruits and nuts, and tropical beverages and spices.


6 Sugar accounts for more than 30 percent of the agricultural export revenues of the Dominican Republic and Jamaica, and more than 50 percent for Barbados, Fiji, Mauritius, and St Kitts and Nevis. Bananas account for more than 75 percent of the agricultural exports of Dominica and St Lucia.


7 "The Impact of the Uruguay Round," FAO, 1995.


8 The major causes of the 1995/96 price hike have been identified as reduced stocks in the EU and the US (which were related to the policy reforms that were compatible with UR agreed changes), production short-falls related to droughts in the US and Australia, expanded imports by China, and the entry of financial funds into commodity markets. The current low prices have been attributed mainly to bumper harvests and reduced import demand in Asia. See also CCP 99/12