Agricultural and Mineral Commodities Year Book

Europa Publications

• Publisher: Routledge
• Year: 2003
• eBook ISBN:
  9781135356101
• Print ISBN:
  9781857431506

An in-depth survey of the major commodities of the world
* Profiles each commodity in detail
* Provides in-depth statistics on production
* Includes an invaluable directory
Contents:
* Introductory essays
* Covers all major agricultural and mineral products including aluminium, coal, cotton, nickel, petroleum, bananas, rice, rubber, tea, coffee, tobacco, wheat, natural gas, soybeans, zinc, lead and phosphates
* Each commodity is profiled in detail with information on physical appearance, history, uses, major markets, trends in demand, major importers and exporters
* Statistical details of recent levels of production at a global and individual country level
* Recent trends in prices with indexes of export prices
* A directory of organizations concerned with commodities.

PART ONE

Introduction

Agricultural Commodity Trade in International Relations

DONALD MACLAREN

Introduction

Since the mid-20th century, international agricultural trade as a proportion of total merchandise trade has been in decline. Yet this diminishing relative economic importance has not been reflected in any decline in the significance of agricultural trade as a cause of tensions in international relations, particularly among the developed countries. Energy and mineral commodities may often attract more coverage in the media, as developments in, say, the petroleum or gold markets provide evidence of stark differences of opinion between producer and consumer countries, but these disputes often mirror those based on agricultural commodities. The most recent significant reminder of this was the lack of agreement between the European Union (EU) and the USA on agricultural matters which delayed the conclusion of the Uruguay Round of trade negotiations in the General Agreement on Tariffs and Trade (GATT) by some three years, from 1990 to 1993, and which came close to causing the Round to be aborted altogether. However, not all of the tensions have arisen among the developed countries, in particular between the EU, the USA and Japan. Despite agreement at the Fourth UN Conference on Trade and Development (UNCTAD IV) in 1976 to establish an Integrated Programme for Commodities which was intended to benefit developing countries through the manipulation of international commodity market prices, very little was accomplished over three years of discussion. Not only did the history of failed international commodity agreements militate against the success of the plan, but the unwillingness of the developed countries to underwrite the associated component of the Common Fund for Commodities ensured that, regardless of history, this particular attempt was not destined to succeed.

More recently, it was evident during the prelude to the Ministerial Meeting of the World Trade Organization (WTO—the successor organization to GATT, created in 1994) in Doha (Qatar) in 2001 that many developing countries were dissatisfied with the trading arrangements for agricultural products that emerged from the Uruguay Round. To some extent this outcome was inevitable, given the lack of coalition-building and consensus amongst these countries about their own agenda. Today, they are determined to negotiate a better deal for themselves from of the so-called ‘Development Round’, which was initiated at Doha. However, it will remain unclear until much nearer to January 2005, when the Round is scheduled to conclude, whether or not the current tensions between the developed and developing countries over agricultural commodity trade will have been removed or at least significantly diminished.

The definition of agricultural commodities for the purposes of measuring international trade flows is normally to regard them as those items which comprise Standard International Trade Classification (SITC) Sections 0 (Food and live animals), 1 (Beverages and tobacco), 2 (Crude material, excluding fuels) and 4 (Animal, vegetable oils and fats) but excluding Divisions 24, 25, 27 and 28. Over time, the proportion of bulk commodities in agricultural commodity trade has fallen from around 40% in the early 1970s to around 20% in the early 2000s. Given the relative lack of importance of bulk commodities in agricultural trade, but particularly in international merchandise trade, it is remarkable that tensions over trade distortions in bulk commodities should continue to persist disproportionately.

The objective in this essay is to explain why international agricultural trade remains a source of substantial friction in international economic relations. Intuitively, it would be expected that a sector that, in the developed countries, contributes around 2% to Gross Domestic Product (GDP) and to employment (compared with 21% to each in developing countries), and approximately 9% to exports, would not be important in international economic relations. This intuition, clearly, is incorrect.

The outline is as follows. The economic case for freer trade, which under-pinned GATT from 1947 and, since 1995, has continued to guide the work of the WTO across a much broader economic front, is explained as a benchmark against which to judge what has actually happened in agricultural trade. However, since the inception of GATT, the agricultural sector and agricultural commodity trade have been treated differently from the manufacturing sector—it has never been accepted by all of the major participants that the principles of conventional economics should apply to this sector and to trade in agricultural products. The commodity-trade issues of importance to the developing countries revolve largely, but not exclusively, around access to the markets of the developed countries. However, despite the adoption of Part IV of GATT (designed to provide non-reciprocal benefits for developing countries’ primary exports) in 1964, and the introduction of the General System of Preferences (GSP—allowing preferential access for defined primary exports from developing countries to developed countries) by some developed countries in the 1970s, there remains considerable disquiet among developing countries at the efficacy of the slogan ‘trade not aid’ as it is practised by developed countries. The roots of these ongoing disputes and tensions are easy to identify, namely, the pursuit by developed-country governments of domestic agricultural policy objectives by policy instruments which, although varying amongst the major players, have been poorly selected to achieve the objectives sought and which have distorted trade to an unusual degree. In addition, new causes of tension are emerging in areas such as sanitary and phytosanitary measures, the use of growth hormones, genetically modified foods, food security and the provision of public goods, such as a pleasant rural landscape. These new causes of tension may be more difficult to reduce because market intervention by government has the potential on efficiency grounds to improve upon pure market outcomes. The current negotiations in the WTO were mandated by the Uruguay Round Agreement on Agriculture to begin in 1999 on the issues deemed in 1993 to require further discussion and resolution. However, the agenda has since been broadened beyond that which was required, to include issues referred to as non-trade concerns, for example, food safety and animal welfare. These concerns involve matters of interest to developed, developing and transition economies.

The Case for Freer International Trade

In the theory of international trade it is shown that, subject to some caveats, free trade maximizes a country's income and that what is true for a single country is also true for the world economy. There is, however, the presupposition that maximizing national income through achieving economic efficiency is the only objective of trade policy. However, trade policy has an equity as well as an efficiency dimension—freer trade redistributes income by causing relative prices to change, thus making some individuals better-off and others worse-off. In principle, the gainers could compensate the losers to leave everyone better-off; in practice, such compensation requires some form of government mechanism and it is often not forthcoming. In the absence of compensation, the losers will lobby government for income support or will lobby to prevent trade liberalization from being implemented.

The same political pressures accrue when the cause of falling prices is not the introduction of a policy of trade liberalization but the declining competitiveness of the domestic industry, relative to that of foreign suppliers. In an open economy, the use of the market mechanism, through price manipulation, to transfer income to those who lose from this decline depends upon breaking the direct link between the international and domestic markets. Once this link has been broken by instruments of trade policy, only then can domestic instruments be used effectively to achieve domestic objectives such as stability and security. Both of these objectives appear prominently in agricultural policy.

In order to understand fully why governments do what they do in trade policy, instead of following the free-trade prescription of international economic theory or of supporting the incomes of those in declining sectors by direct means, the political economy of trade policy needs to be employed. There is no single model of political economy that is generally applicable, but in one group of models it is assumed that the government's support for protection stems from a political-support motive. Policy-makers are assumed to pursue their own self-interest through balancing the political gains from supporting an industry, and the accompanying increased incomes in that industry, against the political losses which arise because there are losers, i.e. those who are paying the higher prices or the higher taxes. Since the gainers are relatively fewer in number than the losers, the gains per caput are more concentrated than are the losses for the many losers. Consequently, the positive influence on the voting intentions of the gainers exceeds the negative influence on the losers, who will have many other issues of political concern. Given this asymmetry, the decision for government to intervene is relatively straightforward. Of course, by the same logic, the decision to remove previously implemented income support is made more difficult because the political process has been captured by the lobby group. This simple idea can explain much of what has been and what continues to be observed in the agricultural policies of the developed countries. However, in some circumstances both gainers and losers may support intervention. This is apparent in the EU at the present time with respect to import bans on beef treated with growth hormone and to imports of genetically modified foods, where non-financial considerations have an impact on losers’ opinion.

The empirical evidence suggests that governments focus almost exclusively on the gains for, or losses to, producers, ignoring the losses to consumers and taxpayers from intervention. Of course, this bias contrasts with the economic model in which all gains and losses are made part of the economy-wide calculation. Moreover, in international trade negotiations, the same focus is carried over. Trade negotiations are not about the economy-wide gains from freer trade but about making and receiving concessions with respect to protection in different sectors and the associated income changes for domestic producer groups in these sectors. Basically, the philosophy is mercantilist: exporting is good while importing is bad. Thus, there is an over-emphasis on trade concessions and an indifference towards the mutual gains to each economy from lower prices and greater choice for consumers.

Agriculture in the GATT/WTO

International trade tensions can be reduced bilaterally between the countries involved, they can be reduced through the formation of regional trading arrangements, or they can be solved through an international institution. The GATT was established in 1947 in order to provide a set of rules under which international trade would take place and which would constrain the ability of governments to act unilaterally in ways which harmed their trading partners. Part of that constraint was the existence of a dispute process, the aim of which was to resolve differences between trading partners that were not able to be solved bilaterally. Prior to 1995 the GATT was the most important institution through which trade tensions were dissipated when bilateral approaches had failed. That role was then assumed by the Dispute Settlement Mechanism in the WTO. The principle of ‘most-favoured-nation treatment’ (i.e. non-discrimination in trade) was fundamental from the start, together with reciprocal tariff concessions. The underlying aim of the GATT was to enable governments, through negotiation, to move the world economy towards free trade and full employment. This aim was largely achieved in the manufacturing sector but not for agriculture. From the outset, and largely at US insistence, it was recognized that agriculture was a special case and, consequently, some important exemptions were written into specific Articles to allow governments to intervene in agriculture and agricultural trade in ways which were banned for other products. For example, import quotas (Article XI) and export subsidies (Article XVI) were allowed for agricultural products but not for other goods. For other sectors, import tariffs were the only accepted instrument of trade protection. Thus agriculture remained largely outside the mainstream of trade liberalization in the GATT because tariffs were not the principal form of protection from imports. Hence, negotiations based upon the exchange of tariff concessions did nothing for agricultural trade. In effect, there were almost no constraints placed on the activities of governments in their desire to pursue their domestic agricultural policy objectives and to do so without taking into account the adjustment costs which their policy instruments imposed on their trading partners. This lack of external constraint and the lack of concern about the international effects of agricultural policies meant, inevitably, that there were conflicts between governments. These tended to occur and to be more serious during periods of depressed market conditions, such as those of the mid-1980s.

There have been a number of well-documented conflicts in international economic relations, some of which, with hindsight, bordered on the absurd. The most important and consistent source of irritation in agricultural trade has been the Common Agricultural Policy (CAP) of the EU. The CAP was established as a replacement for the national agricultural policies of the six participants in the original European Economic Community (EEC—the precursor of the EU) and, while the original policy objectives, as set out in the Treaty of Rome (1957), may have been reasonable ones, especially in the context of the early post-war period, the instruments chosen in 1958 were deliberately designed to insulate the internal market from the international market in order to attain security of food supply and market stability. The effect of this insulation was to make international prices more volatile. At the same time, high domestic support prices increased domestic production and reduced the need for imports, even allowing surplus production which could only be exported into lower-priced international markets with the aid of export subsidies. The effect of reduced imports and higher exports lowered world market prices and reduced the market opportunities for commercial exporting countries, ceteris paribus. These subsidies were regarded by other exporters, such as Australia, Canada, New Zealand and the USA, as unfair and disruptive to their commercial interests, and food-importing developing countries found these subsidized imports disruptive to their domestic agriculture. Serious frictions began to surface in the late 1970s as the EU moved from being a net importer to being a net exporter of a number of commodities. The dispute over the use of export subsidies escalated in 1986 when the USA introduced a series of such subsidies, known as the Export Enhancement Program.

Apart from the EU, the other two major players in international agricultural markets are Japan (although it is a passive player in agricultural trade negotiations), and the USA. For both, agriculture remains a special case. Japan, like the EU, has never conceded that free trade in agricultural products should be the ultimate goal in trade negotiations. On the other hand, since the 1960s the USA has vigorously pursued the free-trade agenda for its export commodities (such as wheat) but continues to be protectionist for import-competing commodities (such as sugar), just as Japan and the EU are. A further force, which emerged at the beginning of the Uruguay Round negotiations in 1986, was the Cairns Group of agricultural exporting countries (by 2002, the Group's membership had expanded to 18 countries: Argentina, Australia, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Fiji, Guatemala, Indonesia, Malaysia, New Zealand, Paraguay, Philippines, South Africa, Thailand and Uruguay). This unlikely grouping was instrumental in ensuring that agriculture was firmly in the negotiating agenda in the Uruguay Round and for insisting at both the mid-term review in 1988 and at the scheduled conclusion in 1990, that there would be no overall agreement without an agreement on agriculture. Their aim was to reduce distortions in international markets for agricultural commodities through increased market access, a reduction in domestic support and a ban on export subsidies. The actual outcome of the Agreement was weaker than the negotiating position adopted by these supporters of change but it was a substantial move towards bringing agriculture under the same rules-based constraints as those imposed on other sectors.

It is instructive in understanding the tensions in international relations to which agricultural trade has given rise, to summarize the agricultural trade negotiations in each of the last three negotiating rounds in the GATT. This summary provides only a background. There have been a number of specific instances of acute tension but these are too many and too complex to discuss in this essay.

In 1964, at the beginning of the Kennedy Round (1964–67) of trade negotiations in the GATT, the EEC and the USA disagreed fundamentally about the treatment of agriculture. The USA wanted negotiations on agriculture and manufactures to proceed together, thereby diminishing the extent to which agriculture would be treated as a special case. The EEC took the view that the CAP was newly established and that market forces would not be allowed to jeopardize its progress towards its objectives. ...

Table of contents

• Cover Page
• Half Title Page
• Title Page
• Copyright Page
• Foreword
• Acknowledgements
• Contents
• Abbreviations
• The Contributors
• PART ONE Introduction
• Agricultural Commodity Trade in International Relations
• Developments in World Mineral and Energy Markets
• Food Security and the WTO Agreement on Agriculture
• PART TWO Commodity Surveys
• Aluminium and Bauxite
• Banana
• Barley
• Cassava
• Chromium
• Coal
• Cobalt
• Cocoa
• Coconut
• Coffee
• Copper
• Cotton
• Diamonds
• Gold
• Groundnut
• Iron Ore
• Jute
• Lead
• Maize
• Manganese
• Millet and Sorghum
• Natural Gas
• Nickel
• Oil Palm
• Petroleum
• Phosphates
• Platinum
• Rice
• Rubber
• Silver
• Sisal
• Soybeans
• Sugar
• Tea
• Tin
• Tobacco
• Uranium
• Wheat
• Wool
• Zinc
• PART THREE Major Commodity Organizations
• Major Commodity Organizations