II. GRAIN POLICY DEVELOPMENTS

This chapter reviews changes in national grain policies that were implemented or announced over the 2001-02 period. Generally speaking, there was no major departure from the recent trend in policy direction, but the majority of initiatives involved adjustments within the same policy framework adopted in the past. Nevertheless, some new policy reforms were also introduced in a number of countries.

In line with further market deregulation, many countries undertook or announced new policy measures in favour of less government intervention, while in some other countries such reforms were checked by falling grain prices and losses in farm incomes. Likewise, domestic grain market conditions, such as excess supply, had influenced policy decisions in numerous countries worldwide.

Production Policies

In developing countries, the general trend of increasing incentives to grain producers continued, as governments sought to expand domestic grain production and reduce their reliance on imports. In many developed countries, by contrast, grain support prices were reduced or even abolished, with these policies, however, generally being replaced by policies of direct payments. Also, in several cases, support to producers came in the form of assistance measures in response to adverse weather conditions and depressed market prices.

Developing Countries

Among North African countries, Egypt increased its 2001/02 wheat procurement price slightly in an attempt to stimulate farmers' sales. In addition, the Government continued to provide production loans to farmers at relatively low interest rates. Morocco, in response to three years of consecutive drought, decided to implement new emergency assistance measures in 2001. Repayment of agricultural loans were extended over a period of 15-20 years, while debts of small farmers hardest hit by the drought were reduced by 40 percent. In October 2001, in an attempt to improve national grain yields, the Government introduced a subsidy for imported seeds set at 2 650 dirhams (US$ 233) per tonne for durum wheat and 2 400 dirhams (US$ 211) per tonne for barley. This was in addition to the subsidy on certified local seeds (650 dirhams or US$ 57 per tonne).

Elsewhere in Africa, in Kenya, due to financing problems, the National Cereals and Produce Board (NCPB) initiated, in early 2002, an in-kind payment scheme to support small-scale maize farmers. Instead of cash, farmers receive seed, fertilisers and fuel in exchange for their products. Owing to a balance of payments deficit, the Government of Swaziland, in 2001, decided to stop providing farmers with free maize seeds and scrapped the subsidy on fertilizers. By contrast, in Zambia, the Government announced in 2002 measures to provide free seeds and fertilizers to farmers in a move to stimulate maize cultivation and also diversify the economy away from copper production, while in Zimbabwe the maize procurement price by the Grain Marketing Board (GMB) was more than doubled in 2001/02 to Z$ 8 500 (US$ 154) per tonne, in order to encourage farmers to expand maize cultivation and also help them cope with rising production costs.

Table II-1: Grain support prices in selected countries (prices per tonne)

Source: official reports and OECD

^1/ intervention prices
^2/ loan rates
^3/ average prices in the major producing provinces
^4/ based on Anatolian Hard Red Wheat support prices

In Asia, the Government of India raised the Minimum Support Prices (MSP)^[21] for grains for the 2001/02 marketing season, with the largest increase for barley (16 percent), followed by maize (9 percent) and wheat (5 percent) (Table II-1). In April 2002, the wheat support price was raised further to 6 200 rupees (US$ 127) per tonne. The Islamic Republic of Iran increased the 2001/02 wheat purchase price by 25 percent to US$ 150 per tonne to encourage domestic production and reduce its reliance on imports. The country's medium-term plan is to become self-sufficient in wheat by expanding production to 17 million tonnes. In Jordan, the wheat intervention price in 2001/02 was raised slightly to 155 dinars (US$ 218) per tonne, while the barley price was unchanged at 95 dinars (US$ 134) per tonne. However, as part of its market deregulation effort, the Government decided to suspend the announcement of grain procurement prices before planting.

In the Republic of Korea, the 2001 barley support price was raised by about 4 percent from the previous year to 1 109 thousand won (US$ 859) per tonne, while the maize price was left unchanged at 580 thousand won (US$ 449) per tonne. Thailand, in response to falling maize prices in the domestic market, implemented, in August 2001, a six-month intervention scheme setting the maize base prices at 4 000 baht (US$ 90) per tonne. Furthermore, to protect maize and rice farmers from losses caused by natural disasters, the Government endorsed the creation of a crop insurance programme. Farmers who choose to participate must pay a premium of 151 baht (US$ 3.5) per hectare in order to receive 2000 baht (US$ 45) in compensation for crop damage. Although Turkey raised the 2001/02 support prices for wheat, barley and oats by 61 percent, and those of rye and maize by about 70 percent, inflation was about 62 percent. However, due to the lira depreciation against the US dollars, all grain support prices dropped in US$ terms. In the longer-run, the Turkish Grain Board (TMO) was expected to make grain purchases directly through commodity exchanges. In addition, a direct income support (DIS) scheme was initiated in 2001 under the Agricultural Reform Implementation Project (ARIP), providing all farmers with an area payment of 100 million lira (US$ 81) per hectare limited to 20 hectares per farmer.

Within the Latin America and Caribbean region, the Government of Brazil initiated a national programme to increase wheat production in 2002, with the goal of improving the country's self-sufficiency in wheat. As part of the plan, and in an attempt to boost wheat cultivation in non-traditional growing states, the Government raised support prices and also introduced regional prices. Accordingly, the 2002 minimum wheat price in the southern states^[22] was set at 285 real (US$ 120) per tonne, while that in the other regions was fixed at 300 real (US$ 126) per tonne, compared to a national minimum price of 225 real (US$ 95) per tonne in 2001. To expand maize production, Colombia implemented a programme in 2001 under which nearly US$ 1 million was planned for investment in yellow maize. The programme aimed at using improved seeds to develop yellow maize cultivation and also at bringing additional land under this crop. Also, as part of the incentive package, a minimum procurement price scheme was introduced. Farmers were guaranteed US$ 192 per tonne of yellow maize during the 2001/02 crop year. Support prices in subsequent years will be based on market prices during the six-month before planting. In Mexico, per hectare crop payments under PROCAMPO (Programa de Apoyos Directos al Campo) were increased by 10 percent in 2001 to 778 pesos (US$ 83) for the autumn/winter crops and 829 pesos (US$ 89) for the spring/summer crops. In addition, to support small-scale farming, producers with less than one hectare could receive payments for one full hectare before planting. The Government also initiated in 2001 a direct area payment programme in some states to convert land from wheat, maize and beans to barley and oats.

Developed Countries

In Australia, the policy of using input subsidies as the main form of support continued in 2002^[23]. Thus, the Diesel Fuel Rebate Scheme (DFRS) and the Diesel Alternative Fuels Grants Scheme (DAFGS), providing grants to reduce on-road transportation costs, were renewed to mid-2003. In farm aid, the Government decided to extend the 2000 federal flood assistance programme for a second year, benefiting severely affected wheat growers in northern New South Wales and southern Queensland. In May 2002, the Government decided to allocate up to A$ 24 million (US$ 13.1 million) in "Exceptional Circumstances" assistance to wheat growers in certain parts of Western Australia. This came in response to sharp losses in farm incomes in these regions, estimated at over 40 percent in 2000/01 and a further 60 percent in 2001/02, due to prolonged droughts.

Canada, in a measure to assist grain farmers in cases of significant crop damage, established a new grade for wheat in August 2001, allowing the sale of No. 4 Canada Western Red Spring (CWRS). The new grade has a slightly lower test weight (68 kg per hectolitre) and higher sprout damage tolerance rate (5 percent). The Government also extended for two more years the Spring Credit Advance Programme (SCAP), introduced in 2000 to assist grain growers to finance their planting activities. In addition, the maximum limit for the interest-free, government guaranteed loans was increased from CAN$ 20 000 (US$ 12 900) to CAN$ 50 000 (US$ 32 290).

The European Union (EU), as part of the Agenda 2000 reforms^[24] of the Common Agricultural Policy (CAP), reduced the 2001/02 intervention price for cereals^[25] by a further 7.5 percent from a year earlier. However, to partially compensate for the reduction, the cereals direct area payment and the set-aside rate were each increased from € 58.7 (US$ 54.1) to € 63 (US$ 56.4) per tonne. Similarly, the 2001/02 grass silage area payment, authorized only in Finland and Sweden, was raised to € 63 per tonne. In support of small-scale farming, the EU decided, on June 2001, to launch a new pilot aid programme targeting farmers who receive less than € 1 250 per year in aid payments through the CAP support system. Under the new scheme, eligible farmers are entitled to receive a payment during the 2002-05 period based on the amount of aid received in 1999-2001.

In the United States, the 2001 national loan rates for wheat, maize and sorghum were unchanged from the previous year, while the loan rate for oats was raised by 5 percent to US$ 83.4 per tonne and that of barley up 3 percent to US$ 75.8 per tonne (Table II-1). In August 2001, the Government approved the allocation of about US$ 5.5 billion in supplemental assistance payments, with the bulk to be used in the form of Market Loss Assistance (MLA) payments. Producers of grains, especially maize, were among the main beneficiaries. Also, during the same month, the USDA announced an assistance programme to compensate wheat growers, handlers and others in the industry for losses incurred due to Karnal bunt. The compensation ranged from US$ 22-66 per tonne, depending on the region.

The main development in the United States was the approval of the Farm Security and Rural Investment (FSRI) Act in May 2002, replacing the Federal Agricultural Improvement and Reform (FAIR) Act of 1996. Support for eligible crops remains to be provided through three programs: direct payments, counter-cyclical payments and marketing loans^[26]. However, several changes were made to the FAIR Act. The direct payment rates in the FSRI Act are fixed by law, while under the FAIR Act a per-unit payment rate was calculated annually for each contract commodity. In the counter-cyclical payments, the major change was the introduction of target prices to play the role of "price triggers", as opposed to the ad hoc supplementary emergency assistance payments authorised under the FAIR Act. Counter-cyclical payments, as a result, will be made whenever the effective price^[27] is less than the target price. In the marketing loan programme, under the new Act, the loan rates are fixed in legislation and the requirement that the producer must enter into an agreement for direct payments to benefit from the loan programme was eliminated. The loan rates for grains under the FSRI Act are higher than those under the FAIR Act, with the largest increases for sorghum and barley (Table II-2).

Table II-2: The United States support provisions for grains under the FAIR and FSRI Acts

Source: United States Department of Agriculture (USDA), 2002

n/a: non applicable

In Japan, the Government continued its policy of lowering the grain procurement prices in order to narrow the gap between domestic and world prices. Accordingly, the 2001/02 wheat and barley purchase prices were reduced by 1.5 percent. The Government also decided to close the Japan Food Agency (JFA) at the end of March 2003. JFA was established in 1949 as the official buyer of cereals.

Norway, in July 2001, changed its price support policy for grains from guaranteed prices at the producer level to target prices at the wholesale level. The 2001/02 grain administered prices were, however, unchanged from a year earlier. In addition to the price support, the Government provides area and deficiency payments. The levels of support prices and direct payments are revised annually after negotiations between the Government and producer representatives. Under the Area and Cultural Landscape Programme, aimed at promoting environment-friendly farming methods, the 2002 area payment for grains was raised by 50 krones (US$ 5.6) per hectare. In Switzerland, as part of the grains market liberalization process, guaranteed prices for bread wheat and rye were eliminated in July 2001. The Government also removed the producer subsidy on coarse grains in a move to stabilize production. A year earlier, the subsidy payment had been reduced by 48 percent from 770 Swiss francs (US$ 456) to 400 Swiss francs (US$ 237) per hectare.

Within Central and Eastern Europe, several changes were made in preparation for accession into the EU, while others were in response to domestic market developments. Bulgaria, in support of grain producers and to cushion the impact of low local prices, boosted its 2002 soft, short-term credit budget to 29 million leva (US$ 14.5 million). Of this total, 15 million leva (US$ 7.5 million) were allocated to cover subsidies on seeds and fertilisers. Total direct subsidies paid to the farm sector in 2002 totalled 48 million leva (US$ 24 million). Croatia, in the autumn of 2002, established new guidelines for its wheat producer subsidy policy in a plan to limit excess wheat production. The main goal of the amendments was to reduce wheat cultivation by small, inefficient farmers. Under the new measures, farmers must plant at least 3 hectares of wheat and also submit a signed selling contract in order to receive an area payment of about 1 610 kuna (US$ 216) per hectare.

In 2001/02, the Czech Republic, abandoned its policy of fixing intervention prices for wheat before harvest, in order to let market forces play a bigger role in determining prices, but, at the same time, introduced set-aside area payments. In 2001, the Government made total payments of 280 million korunas (US$ 7.4 million) to help farmers meet the costs of high quality seeds of wheat and rapeseed. In Hungary, the 2001/02 wheat guaranteed price was raised slightly to 17 000 forint (US$ 59) per tonne, while the maize price was unchanged at 14 000 forint (US$ 49) per tonne. In addition, due to falling domestic grain prices, the Government, in 2001, provided interest free loans and implemented a storage subsidy set at 15 forint per tonne per week. In Lithuania, the 2002 intervention prices of wheat and rye were fixed at 400 litas (US$ 113) and 350 litas (US$ 99) per tonne, respectively. Furthermore, in a plan to improve wheat quality standards, growers would receive a premium of 20 litas (US$ 5.6) per tonne for first grade wheat.

In Poland, minimum procurement prices for bread wheat and bread rye for the 2002 harvest were lowered to 480 zlotys (US$ 117) and 330 zlotys (US$ 80) per tonne, respectively. However, to offset the cut in procurement prices and to protect farmers' incomes from depressed market prices, the Government introduced a subsidy system. When farmers sell their grains under the intervention programme, they would receive subsidies of 120-140 zlotys (US$ 29-34) per tonne of bread wheat and 90-100 zlotys (US$ 22-24) per tonne of bread rye, depending on the date of sale. In 2001, to cope with the effects of heavy floods, the Government distributed to farmers one tonne of wheat per hectare of flooded area up to 10 hectares and 0.5 tonne per hectare for areas above that. The Government of Romania decided, in February 2002, to slash seed prices by 20-50 percent as an incentive to encourage plantings and help farmers deal with rising production costs. As a result, maize seed prices were cut by 28 percent, while seed prices of other coarse grains were reduced by 20 percent. The Government also endorsed, in January 2002, the allotment of 145 billion lei (US$ 4.5 million) to pay its outstanding debt to farmers. The debt followed a decision reached in February 2001 in which farmers were promised to receive a direct subsidy of 1 million lei (US$ 37.3) per cultivated hectare to partially offset the effects of severe droughts.

In the Slovak Republic, a policy of direct aid payments and subsidies for crop and livestock production was adopted in January 2002, with compensation payments for grains set at 500 korunas (US$ 10.4) per hectare. Also, in a move to assist domestic farmers, the Government decided to provide 1 billion korunas (US$ 20.8 million) in farm aid in 2002 to be used in the form of agricultural loans and export subsidies. Similarly, the Government of Slovenia allocated 5.5 billion tolars (US$ 22.7 million) in 2001 in urgent farm aids to compensate producers for the losses caused by severe weather conditions. In April 2002, it approved an increase in general farm subsidies to 18.7 billion tolars (US$ 73.6 million), up almost 40 percent from 2001. In the Federal Republic of Yugoslavia, to prevent domestic maize prices from falling further, the Government, in early 2002, fixed the State Reserve maize procurement price at 6 900 dinars (US$ 102) per tonne.

Among the CIS countries, Azerbaijan, in a move to assist agricultural producers, passed, in November 2001, a law offering tax waivers for a period of 3 years, staring from 1 January 2002. Under the new directive, production companies would be exempt from profit taxes, VAT, property taxes and simplified tax system payments, while individual producers would only be exempt from VAT and property taxes. The land taxes were kept in place. In Turkmenistan, in a bid to boost grain production and with a vision of developing the export sector, the Government decided, in 2002, to exempt farmers from the land tax and subsidize production by paying 50 percent of the seed, fertiliser and technical services costs. The Government of Ukraine, in January 2001, decided to extend its guaranteed price system to several agricultural commodities, including grains, as a measure to stimulate production and stabilize the domestic market. In addition, it also fixed federal support to the farm sector at a minimum of 5 percent of the total budget and assured farmers that taxes would not increase for four years.

Consumption, Marketing and Stock Policies

The majority of recent policy developments affecting grains consumption, marketing and stocks represented a continuation of previous trends towards privatisation and further market liberalization. Nonetheless, in many countries, falling grain prices during the review period prompted governments to intervene in order to stabilise the market.

Among African countries, Algeria, in early 2002, approved the construction of two cereal storage silos with capacities of 140 000 tonnes of wheat and 20 000 tonnes of soybeans in a plan to expand the country's public storage service. In Malawi, in December 2001, the Government banned the private sector from buying imported maize from the National Food Reserve Agency (NFRA), leaving the Agricultural Development and Marketing Corporation (ADMARC) the sole agency authorised to sell imported maize. This action was prompted by rising local maize prices which were regarded as the result of private traders' involvement in marketing.

In September 2000, in response to food shortages in parts of the country caused by prolonged drought, The Sudan established the Strategic Commodity Reserve Authority (SCRA) with the main functions of market stabilisation, mainly for staple cereals, through imports and local purchases, and the free and/or subsidised distribution of food to vulnerable groups. The Government of Zimbabwe, in July 2001, restored the monopoly power of the state-run Grain Marketing Board (GMB) over the purchase of maize and wheat in a move to prevent sharp increases in basic food prices.

In Asia, the Government of China waivered in 2002 the value added tax (VAT) and road construction tax on grain exports, to enhance the competitiveness of its maize in the world market.

The Government of India, as part of its new agricultural reforms, and in view of the mounting grain stocks in public warehouses, removed, in February 2002, the restrictions on the storage and inter-state movements of several farm products, including wheat and coarse grains. The main goals of the new regulation were to: (i) enable farmers receive the best prices for their products; (ii) achieve price stability in domestic markets; and (iii) ensure availability of food grains in deficit areas. The Government also manages a national grain procurement programme to ensure market stability (Fig. II.1). In early 2002, the Indian Government decreased the sale price of wheat supplied by the Public Distribution System (PDS)^[28] to the above poverty line (ABL) families to 5 100 rupees (US$ 105) per tonne in a move to reduce public stocks. The sale price for the below poverty line (BPL) households was unchanged at 4 150 rupees (US$ 85) per tonne, but the monthly allocation of food grains (wheat and rice) to this segment of the population was raised by 10 kg to 35 kg per family^[29]. India's food subsidy for fiscal year 2002 (April-March) was set at rupee 212 billion (US$ 4.4 billion), up 20 percent from the previous year.

Figure II-1: India wheat procurements for Central pool

(March/April marketing year)

In Indonesia, to improve the nutritional value of wheat, the Government introduced in 2001 a new fortification policy for wheat flour, requiring the product to be enriched with iron, zinc, vitamin B and folic acid. Later, it has decided that, from 2 February 2002, all wheat flour for food use must comply with the Indonesia National Standard nutritional regulation issued on 20 November 2001.

In Japan, while grain purchase prices were reduced, the Government left its 2001 selling prices of domestically produced wheat and barley unchanged at 36 635 yen (US$ 302) per tonne and 32 000 yen (US$ 263) per tonne, respectively. By contrast, in Jordan, as part of a national plan to reduce the fiscal burden of marketing subsidies, the 2002 selling price of wheat to millers was raised from 91 dinars (US$ 128) to 100 dinars (US$ 141) per tonne, while the selling price of wheat flour to bakers was increased from 113 dinars (US$ 159) to 124 dinars (US$ 175) per tonne.

In Pakistan, the restrictions on the movements of wheat within the provinces were lifted in May 2001, in an attempt to ensure wide product availability and also to help farmers to market their produce. Also, as part of the Government's ongoing economic reforms, the State Bank of Pakistan allowed for the first time, in 2001, banks to finance the private sector's wheat purchases.

Within the Latin America and Caribbean region, the Government of Brazil, in early 2002, decided to raise its maize stock holdings to 1.2 million tonnes, in a move to stabilize prices and support local production. Ecuador, in response to sharp increases in bread and cereal product prices in the domestic market and in order to combat general inflation, fixed, in early 2002, the ceiling sale price of wheat flour at US$ 16.50 per 50-kg bag (or US$ 330 per tonne). In Mexico, the 20-percent sales tax on soft drinks and beverages containing any sweeteners, other than from sugar cane, was temporarily lifted in early March 2002. Reports indicate that following the introduction of the tax on 1 January 2002, the country's production and importation of high fructose corn syrup (HFCS) almost stopped.

Several countries in Central and Eastern Europe implemented measures to stabilize the grain market and support farm prices. Thus, the Government of Bulgaria decided to buy 200 000 tonnes of domestic wheat in 2002 at 160 leva (US$ 80) per tonne and, also, approved a monthly storage subsidy for grains of 1.5 leva (US$ 0.75) per tonne. In the Czech Republic, a new law regarding state purchases, storage and sales of grains was announced in July 2001, allowing grain producers to stock their products in public warehouses until the start of the country's intervention programme. Furthermore, the State Agricultural Intervention Fund (SAIF) decided to purchase 1 million tonnes of food grade wheat from the 2001 crop. In Hungary, in late 2001, the Government announced an intervention plan to procure up to 500 000 tonnes of maize, under which producers could opt to sell up to 500 tonnes of maize at a fixed price of 18 000 forint (US$ 64) per tonne. In 2002, the Government decided to allocate a total of 400 billion forint (US$ 1.44 billion) for the purchase and storage of wheat. The Lithuanian Government established minimum grain procurement prices for processors; in 2001/02, with prices set at 390 litas (US$ 98) per tonne for class I wheat, 380 litas (US$ 95) per tonne for class II wheat, 670 litas (US$ 168) per tonne for buckwheat and 340 litas (US$ 85) per tonne for rye. In Poland, the Government decided to make intervention purchases of 3.5 million tonnes of wheat at 510 zlotys (US$ 125) per tonne and 0.7 million tonnes of rye at 330 zlotys (US$ 81) per tonne from the 2001/02 crops. In the Slovak Republic, the State Intervention Agency (IPA) initiated, in July 2002, a commodity loan programme to ease farmers' financial burden. The new scheme allows farmers to store their grains in public warehouses as collateral for loans, with a minimum of 100 tonnes per commodity to be eligible for the credit.

Elsewhere in Europe, in Norway, the VAT on food purchases was cut from 23 percent to 12 percent in July 2001, as a measure by the Government to reduce the differences in food prices that existed with neighbouring countries. The measure was also intended to stimulate domestic consumption.

With the intention of stabilizing the domestic grain market, the Russian Federation announced in September 2001 its plan to establish a new procurement programme for wheat, with an initial budget of 2 billion roubles (US$ 68 million). The intervention price was fixed at 2300-2700 roubles (US$ 77-90) per tonne. By the end of November 2001, the Government reportedly had purchased 250 000 tonnes of grade 3 wheat.

In Australia, the Australian Wheat Board (AWB) announced total investments of A$ 80 million (US$ 45 million) in 2002 to build new grain collection centres, in a bid to improve the efficiency and effectiveness of the country's transportation and handling system. Each facility would have the capability to receive 8 000 tonnes of grains per day and a storage capacity of 130 000 tonnes. AWB estimates that the new facilities will result in A$ 2-3 per tonne in storage and handling cost saving for grain producers.

Other Related Domestic Policies

In Hungary, the Government, in response to growing concerns about food safety and health issues, allocated 100 million forint (US$ 368 thousand) in 2002 to set up a food safety agency charged with the task of monitoring the entire food supply chain. Furthermore, to boost consumers' confidence, a new food labelling law was adopted in April 2002, calling for detailed information on product origin. Similarly, Turkey, in 2001, endorsed a new project aimed at improving the country's food inspection services.

In some countries, policies addressing environmental concerns were adopted or extended. For instance, the EU, in November 2001, announced a plan to increase biofuel utilization. The goal was to achieve a 20-percent substitution rate of biofuels for diesel and gasoline in the road transport sector by the year 2020. In all member countries, the share of biofuels in total fuel sales would have to reach 2 percent in 2005, rising to 5.75 percent in 2010. In Japan, expenditures on programmes promoting environment friendly farming methods and conservation increased by more than 11 percent in 2001 to 38.6 billion yen (US$ 358 million). The United States, in December 2000, initiated a new programme to expand ethanol and bio-diesel production from cereals, oilseeds and cellulose crops. Under the new scheme, small biofuel producers - with production below 246 million litres per year - would receive subsidies on 40 percent of the quantities of crops purchased, while for larger producers subsidies would only cover 28.6 percent of purchases. The Government allocated US$ 150 million for 2001 and a similar amount for 2002 to cover the subsidy payments of the programme.

Among other forms of support, India, in April 2002, lowered the import duty on specified farm machinery and equipment from 25 to 15 percent as an incentive for farmers to adopt new technologies and improve their productivity. However, the Government also decided to reduce the fertiliser subsidy by about 5 percent, in line with its effort to deregulate the agricultural sector. In Turkey, the subsidy on fertilisers was scrapped in December 2001, while total expenditures on seed subsidies decreased by about 40 percent. The Islamic Republic of Iran, in May 2001, endorsed an emergency assistance package estimated to cost 4 trillion rials (US$ 509 million) in response to three consecutive years of drought, while in Jordan, the Government decided to re-schedule the repayments of farm loans to ease farmers' financial stress caused by prolonged droughts.

Elsewhere, in The Sudan, the Government, in March 2001, adopted further farm policy reforms, including the removal or reduction of most direct and indirect taxes on agricultural production and marketing and a reduction in business profit taxes from 35 to 10 percent for companies engaged in agricultural production, processing and marketing. However, to make up for revenue losses, the Government, in October 2001, increased the petrol tax by 12.5 percent. In 2002, under a national irrigation development plan launched in response to drought problems, Romania allocated 1 trillion lei (US$ 30 million) to the expansion and modernization of the country's irrigation systems, aiming to cover 1 million hectares of arable land. In 2001, the Government re-introduced the tractor subsidy scheme, which provides farmers with a 55 percent price subsidy when purchasing locally manufactured tractors.

International Trade Policies

Developing countries, in general, continued to adjust their trade policies in order to comply with their commitments to WTO. Most developed countries, with the year 2000 marking the end of their implementation period of the Uruguay Round Agreement on Agriculture (URAA), maintained their border and domestic support commitments at the 2000 levels.

A very important development for agricultural trade was the decision^[30] achieved in Doha in November 2001 which calls for more comprehensive negotiations to improve market access and reduce export subsidies and trade-distorting domestic support. The Doha Declaration also confirmed the need for special and differential treatment for developing countries and recognized the importance of non-trade concerns, such as food security and rural development

Import Measures

Within Africa, Algeria, in preparation for accession into WTO, adopted in July 2001 a new tariff system, reducing the maximum tariff rate from 45 to 40 percent and the number of duty categories to three: 5 percent for raw materials, 15 percent for semi-processed products and 30 percent for high value-added products. In addition, the value added tax (VAT) was lowered. However, to protect the domestic seed industry, the Government introduced a 5 percent levy and a 7 percent VAT on barley and maize seed imports, while wheat seeds continued to be tax exempt. The Government also imposed, in March 2001, a provisional ban on grain imports from the EU following the outbreak of the foot-and-mouth disease. In Morocco, the customs duty (23 percent) and VAT (7 percent) on barley imports were suspended between July 2001 and March 2002 due to reduced domestic production and also poor pasture conditions. However, the import duties on durum wheat (21 percent), bread wheat (33.5 percent) and maize (17.5 percent) were maintained. In addition to the basic import tax, an additional levy would apply when the declared import price dropped below a threshold price set by the Government. The additional duty (93 percent for durum wheat, 103.5 percent for bread wheat and 57 percent for maize) would be charged on the difference between the two prices.

In June 2000, Nigeria announced its decision to lift the import ban on maize, which had been in place since the early 1980s. However, to protect maize producers from a surge in imports, a 70-percent customs duty was placed on maize imports. In March 2002, the Government reduced the import tax on wheat from 15 to 5 percent in order to meet a rapidly increasing domestic demand for wheat-based products. In January 2002, the Government of Zambia, in response to the continuing maize shortage in the country, decided to exempt 19 large maize importing companies from customs duties to ease local supply. The imported maize was to be distributed primarily in those areas worst affected by the floods of 2001.

In Latin America and the Caribbean, the Government of Brazil, in March 2001, removed its import ban on Hard Red Winter, Hard Red Spring and Soft Red Winter wheat from the United States. However, the ban remained in force for durum wheat as well as all wheat from the U.S. west coast due to phytosanitary concerns. In August of the same year Brazil decided to ban the importation of wheat with more than 2 percent dockage for foreign material, which was previously allowed to enter the country but marketed under the category "Fora de Tipo" (substandard). In addition, the grain maximum humidity content level was reduced from 14 percent to 13 percent. In early 2002, new regulations regarding the importation of barley, rye, maize, sorghum and triticale were announced, requiring all exporting countries, except MERCOSUR members^[31], to submit Pest Risk Assessments within 180 days from the import date. In a plan to protect local maize farmers and boost domestic production, Colombia issued new regulations on maize imports for industrial use in 2001. In order to be allowed to import maize, companies must submit proof that they have purchased locally produced maize, sorghum or dried yucca. In July 2001, Chile terminated the safeguard tariff on wheat and wheat flour imports, introduced in October 1999, as an instrument to keep the floor price of wheat imports at US$ 194 per tonne.

In Ecuador, the International Trade and Investment Council (COMEXI) reduced the import tax on wheat flour from 20 percent to 10 percent in early 2002 and also authorized the importation of 85 000 tonnes of wheat flour in an attempt to prevent further rises in domestic prices of wheat products. In July 2000, the Government replaced its tariff-rate quota for wheat with a tariff-only regime. Import duties on wheat and wheat flour were set at 10 and 20 percent, respectively. The Government of Venezuela, in late June 2002, removed its import ban on yellow maize to meet feed demand. The ban had been introduced in September 2001.

In Asia, China, as part of its WTO membership commitments, introduced a tariff-rate-quota (TRQ) system for grains^[32], with some percentages of the TRQs going to non-state enterprises (Table II-3). For barley, which was not included in the TRQ, the Government agreed to give prior notice at least three months ahead of any envisaged increase in the applied tariff, which should then stay unchanged for a minimum of one year. The tariff applied on malt would be bound to that on barley plus 7 percentage points^[33]. The Government was reported to have begun issuing grain import quotas in April 2002. In the Taiwan Province of China, as part of the accession agreement in the WTO, the Wheat Stabilization Fund was scheduled to be abolished in June 2002, or six months after the Province joined the WTO. The Fund had been established to shield domestic consumers from sharp increases in world prices. Under the stabilization programme, wheat importers were paid from the Fund whenever import prices exceeded the threshold level of US$ 245 per tonne.

Table II-3: China's tariff rate quotas for wheat and maize

Source: WTO, Schedule CLII - People's Republic of China

The Government of India, in June 2000, introduced a TRQ system for maize imports, as part of its agreement with the WTO. The maize TRQ for 2000/01 was set at 350 000 tonnes with a 15 percent in-quota duty. Over-quota imports would be charged a 50 percent duty. Indonesia, in March 2002, abolished its 5 percent import tariff on wheat to increase market supplies and protect local millers from rising production costs. In early 2002, the authorities lifted the import ban on Argentina's grains imposed in 2001 amid concerns about the foot-and-mouth (FMD) outbreaks. However, in its effort to curb smuggling activities, the Government introduced, on 6 May 2002, a new law requiring traders of eight farm products, including maize, to register their companies in order to be eligible for import permits, which are valid for five years from the date of issuance.

As part of its market liberalisation effort, Pakistan, in July 2001, lifted the ban on private wheat imports which had been introduced in June 1999. However, the 35-percent import duty on wheat and the 10-percent tax on wheat flour were kept in place. Likewise, the Philippines in May 2002 decided to cut the over-quota tariff rate for maize imports from the current 65 percent to 50 percent in 2003, while the in-quota duty was left unchanged at 35 percent. The duty on wheat imports will remain at 3 percent until 2004. Meantime, the import tariff on feed wheat was scheduled to be cut from 10 percent in 2001 to 7 percent in the following two years and to 5 percent in 2004. Sri Lanka announced in May 2001 that it would allow private firms to import wheat and flour as well as to build new milling plants. The decision came as part of the country's policy to liberalize its wheat sector. In Viet Nam, on 15 December 2001, the Government introduced a 5-percent import duty on wheat in an attempt to protect local wheat growers.

Among the Near East countries, Bahrain decided in January 2000 to abolish the import levies on main foodstuffs, including wheat, maize, barley and oats^[34]. The decision was taken to protect consumers from rising food prices and also to rebuild the country's food stocks. Oman, as of 1 January 2002, reduced its tariff rates on food products from 15 to 5 percent in a move to stimulate imports and ease the food supply situation. In Saudi Arabia, the Government reinstituted its barley import programme in June 2001 to help the local livestock industry deal with rising feed prices. As a result, the barley sale price by importers was fixed at 360 riyals (US$ 96) per tonne. However, to stimulate purchases, importers were entitled to a 5-percent rebate of the CIF price plus a lump-sum payment of 54 riyals (US$ 14.40) per tonne to cover transportation and handling costs.

In Turkey, the import tariffs on grains were cut in April 2001 as follows: the duty on milling wheat was reduced from 55 to 45 percent, that on durum wheat from 50 to 40 percent, while the maize levy was lowered from 25 to 10 percent. But, in August 2001, the Government reversed its decision on maize and raised the import duty to 40 percent to support domestic prices, as the harvesting season was approaching. In January 2002, however, the maize import duty was lowered again to 10 percent.

In Europe, the EU, on 17 April 2002, revised its import duties on grains. Tariffs were raised from € 10.32 to € 15.55 per tonne for low quality wheat; from zero to € 5.15 per tonne for medium quality common wheat; and from zero to € 23.38 per tonne for barley, rye and sorghum. On 15 March 2002, the maize import tariff was reduced slightly to € 37.51 per tonne. Earlier, in November 2001, the EU removed the € 10 extra charge imposed on grain imports from the Mediterranean, Black Sea and Baltic countries. The surcharge had existed since 1995 as a way of compensating for higher freight costs from distant shipment origins. In Switzerland, the threshold price for feed barley imports was cut by 10 percent in July 2001 to 460 Swiss francs (US$ 273) to help domestic meat and egg producers become more competitive.

Bulgaria, in an attempt to ease local grain supplies and avoid sharp price increases in the domestic market, implemented a temporary import duty-free regime for grains. As a result, import levies were abolished for barley and wheat from January to June 2001 and for maize from January to September 2001. Thereafter, imports were subject to duties of 15 percent for wheat, 20 percent for barley and 15 percent for maize. In June 2001, the Government also removed the import ban on feed grains from nine European countries^[35], which had been introduced in March 2001 amid concerns about the foot-and-mouth epidemic.

In February 2001, the Government of Hungary lifted its ban on feed maize exports, which had been introduced in early November 2000 in response to rising feed grain prices and expectations of a domestic maize shortage. In order to encourage grain imports and increase domestic availabilities affected by the drought of 2000, Poland decided, in early 2001, to permit the duty-free importation of 500 000 tonnes of coarse grains: 200 000 tonnes of maize and 300 000 tonnes of barley, oats and rye. This was in addition to prior permissions for the importation of 420 000 tonnes of wheat from the EU, 90 000 tonnes of wheat from the Czech Republic and 155 000 tonnes of maize from Hungary at a reduced tariff rate of 15 percent. The Slovak Republic suspended import tariffs on feed grains between October 2000 and May 2001 in an attempt to boost imports and prevent shortages in the country.

In July 2001, the Government of New Zealand, eliminated the customs duties on all food imports originating from Least Developed Countries as an incentive to encourage the exports of agricultural products from these countries.

Export Measures

Argentina, in order to raise government revenues following the steep fall in the peso against the US dollar, introduced exports taxes on agricultural products - not used since 1991 except on unprocessed oilseeds. The export tax on grains was initially set at 10 percent before being raised to 20 percent in April 2002.

In Australia, following a National Competition Policy (NCP)^[36] review conducted by an independent committee in 2000, the Government decided, in April 2001, to maintain the single desk export under the authority of the Australian Wheat Board Limited (AWB Ltd). However, the Government asked the Wheat Export Authority (WEA) to revise its export consent system in order to reduce the frequency of export permission requests, to increase exporters' confidence and to help establishing new export markets. For barley, Victoria completed the deregulation of its barley export market in July 2001, while single desk trading was maintained in all other states. In October 2001, AWB Ltd announced its three-year investment plan for the durum wheat industry. The goals were to create a national structure to represent the durum wheat industry and help it to expand its export market share.

In September 2001, the Government of Zambia banned the exportation of maize and maize meal. The move was prompted by serious domestic shortages of maize due to the sharply reduced local harvest in 2000/01.

In April 2002, in response to the depreciation of the rupee against the US dollar, the Government of India raised the sale price of wheat for export to 4 310 rupees (US$ 88.10) per tonne, and increased it further in October 2002 to 4 600 rupees (US$ 94.70) per tonne for the 2002 crop and 4 560 rupees (US$ 93.85) per tonne for the 2001 crop. Wheat was initially offered by the Food Corporation of India (FCI) for export in November 2000 at 4 150 rupees (US$ 88.70) per tonne, in a move by the Government to help liquidate parts of the mounting food grain stocks. In addition, the Government decided in early 2002 to allow the exportation of wheat from the new crop in a bid to improve the country's image in terms of quality standards and to promote exports. Pakistan, prompted by ample domestic supplies and also as part of its efforts to deregulate the wheat trading sector, decided to allow private traders to export wheat in May 2001.

As part of the country's policy to liberalize the trade sector, the Government of the Czech Republic suspended the use of licences for grain exports as of 1 October 2001. In June 2002, Hungary, in anticipation of a bumper crop, decided to remove export licences for maize. Further, in July 2002, the Government announced an export subsidy for wheat of 1 800 forint (US$ 7.25) per tonne, applied to a total of 400 000 tonnes, as a measure to offset the appreciation of the forint. Also, as part of the incentives to encourage wheat exports, traders would be entitled to receive an export rebate.

Bilateral and Multilateral Trade Arrangements

During 2001-02, several bilateral trade agreements involving grains were reached. The EU granted the Czech Republic an annual duty-free import quota of 200 000 tonnes of wheat, effective 1 July 2002. The EU also lowered import duties on Lithuania's processed farm products by 10 percent, effective 1 February 2002. In return, Lithuania agreed to reduce its customs duties charged on EU products by 1 percent per year until its accession to the EU. The Government of Bulgaria decided to temporarily suspend the import duties on a number of agricultural products originating from the EU, including wheat (1 January-30 June 2002) and maize (1 January-30 September 2002).

As a result of continuing bilateral trade negotiations between the EU and the Maghreb countries, the EU and Algeria concluded an Association Agreement in December 2001 calling for the elimination of tariffs for certain Algerian farm products and the use of TRQs for more sensitive products. Both parties also agreed to reduce tariffs on processed foods. Similarly, under a bilateral agreement, Tunisia agreed to grant the EU preferential import quotas for grains starting in January 2001. The annual import quotas were specified as follows: 17 000 tonnes of durum wheat at a 17 percent tariff rate; 230 000 tonnes of bread wheat at a duty to be reduced in five equal instalments from 17 percent to zero percent on 1 January 2005; and 12 000 tonnes of barley at a 17 percent duty.

In January 2002, the MERCOSUR countries lowered their common external tariff (CET) rates by one percent. As a result, the import duty on wheat from non-MERCOSUR countries was down to 11.5 percent, while the duty applied to maize and sorghum imports dropped to 9.5 percent.

Conclusions

Based on the review presented in this chapter, the broad trend towards less government intervention and a more market oriented grain sector continued. In many countries, support to grain market prices was reduced or replaced with an income support payment system. The latter was introduced partly to compensate farmers for depressed cereal prices. Similarly, adverse weather conditions prompted certain governments to adopt emergency assistance measures or continue input subsidy schemes in order to partially compensate farmers for income losses. Crop insurance programmes were also initiated or extended in some countries.

Marketing and stock policies in general continued within the same line of market liberalisation adopted previously. Similarly, with the view that privatisation improves market efficiency, some countries granted the private sector a bigger role in the marketing and trading of grains. However, in several cases, the pace of further policy reforms was disrupted by changes in domestic market conditions. In response to consumer concerns, an increasing number of countries introduced new regulations for imports and marketing of food products containing GM materials.

With regards to trade policy developments, most countries continued their efforts to reduce trade barriers in compliance with their WTO commitments, whereas others revised their policies in preparation for WTO accession. However, in many cases, government decisions were also influenced by domestic supply/demand conditions. While some countries relied on export subsidies to promote the sale of excess supplies, others restricted exports, though temporarily, to ensure domestic availabilities. Meantime, bilateral and multilateral trade agreements continued to play a role in further trade liberalisation.