The evolution of agricultural trade flows

M. Ataman Aksoy y Francis Ng, VOXEU, 30 de julio de 2010 (Texto en inglés)

Agricultural trade is back on the policy agenda. Economic growth and burgeoning populations have pushed prices up (see Figure 1). These trends are strengthened by new developments such as such using grains for bio-fuels, export controls, and greater demand by China and other developing countries. The global situation is further complicated by the fact that these price hikes have led some countries to restrict exports of food products, adding yet another distortion to agricultural trade. Meanwhile, the threat of climate change promises to exacerbate market pressure as rainfall becomes more erratic, especially in the fastest growing regions of the world.

These trends have not been helped by trade liberalisation. Recent decades, which have generally seen impressive trade liberalisation, have not yielded any meaningful reduction in agricultural protection in industrial countries. Protection in OECD countries increased during the 1960s and 1970s, reaching its peak in the late 1980s. There is little evidence that protection decreased significantly in the 1990s (OECD 2001). The first decade of this millennium has been somewhat better as support for agriculture in industrial countries declined, mainly due to the price increase in agricultural commodities. Protection in middle income countries also seems to be rising (Anderson et al. 2009).

Source: Ataman and Ng (2010).

As Figure 1 shows, agricultural prices fell 23% during the 1980s and 15% during the 1990s. However, after reaching a record low in 2001, prices increased steadily by more than 60% between 2002 and 2008. Such price increases are quite unusual. The only other price spike of similar proportions was during the Korean War around 1953 and during the oil price shock around 1974.

The structure of agricultural trade and growth

Against this backdrop of change, our recent research (Aksoy and Ng 2010) examines the growth and structure of agricultural trade between 1990 and 2007.

Developing country shares in manufacturing exports rose dramatically. Starting at 20% in 1990, the proportion rose to 34% in 2000 and to 42% in 2006 – with higher exports to both developing countries and industrial countries. The expansion of exports to other developing countries is even more dramatic, from 4% of world trade in 1990 to 20% in 2006.

But what about agricultural trade? The story has seen developing countries increase their market shares – but far less dramatically. The developing country share in world agricultural exports increased from 32% in 1990/91 to 42% in 2006/07. This hides a mixed performance however. Most of this gain came from expansion of exports to other developing countries (about 12 percentage points) - the share of their exports to industrial countries actually declined.

Agricultural trade among developing countries has also risen. Nearly 55% of developing country agricultural imports come from other developing countries. Despite this, only 47% of their agricultural exports are to other developing countries, showing the continuing importance of industrial country markets for their exports. But we should be in no doubt that changes are taking place. In 1990/01, these ratios were 42% and 22% respectively – this is a large swing, developing countries are trading much more among themselves than two decades ago.

For low-income countries, other developing countries accounted for 51% of their exports and 69% of imports in 2006/07; up from 27% and 57% respectively in 1990/91. Thus, other developing countries are now a bigger export market for low income countries than the industrial ones.

Disaggregated agricultural export performance

Analysis of agricultural trade for developing countries now needs to focus on the non-traditional, non-tropical commodities. Here are some reasons why:

- Vegetables and cut flowers constitute almost 20% of the exports of developing countries.

- Temperate zone products (grains, meats, dairy etc) constitute another 30%.

- Exports of beverages and other processed foods constitute another 25%;

- Exports of traditional tropical products (coffee, tea, cocoa, nuts and spices, and textile fibres) are only 16%.

While these traditional tropical products, such as coffee, have received most of the attention in the development literature, they now constitute only 16% of the exports of developing countries. Exports of fruits and vegetables alone are more than total exports of tropical products.

Attention also has to be given to the expanding trade within developing countries in temperate zone products such as milk, grains, and meats. These developments show that many developing countries can compete in the product categories historically dominated by industrial countries and that trade reforms in industrial countries could lead to a large expansion of exports from these developing countries in these temperate products.

Food Importers

Shifting to the demand side, it is worth looking at the changes in net food import status of countries between 2000 and 2007.

- Most of the large net-food-importing developing countries are either oil exporters or highly industrialised nations (see Ng and Aksoy 2008a and 2008b).

- More countries have become net food importers, but overall there is little change in the numbers of net food importers during the recent price increase.

- Five low income countries switched from being a net food exporter to a net food importer and net food surplus of low income countries have become very small. The reversal in the balances of low income countries have also come primarily from increased imports of oil exporting and civil conflict countries.

- The changes are reversed for middle income countries, where six countries switched from being a net importer to a net exporter. Middle income countries have become large net food exporters.

- The trade surpluses of industrial countries have declined. In terms of vulnerability, either in terms of trade or GDP, most vulnerable groups are either oil exporters or countries in conflict.

Conclusion

Global structural change in agricultural trade over the last 20 years has not been on the same seismic scale as that of manufacturing. Developing countries have not been able to increase their export shares in agriculture in line with their manufacture shares. What little increase there has been is largely the result of expanding exports to other developing countries.

Trade among industrial countries still dominates world agricultural trade flows. Much of this takes place within trading blocs, such as the EU and NAFTA. This has left the middle-income developing countries to become the biggest single market for the exports of low-income developing countries. Despite the belief of many to the contrary, low-income countries have increased their trade surplus in agricultural commodities over the last two decades, especially during the 1990s.

Despite this, there has been some change in the product mix of global agricultural trade. The shares of temperate food products, such as grains, meat and dairy have increased. Meanwhile, traditional tropical products such as tea, coffee, cocoa, sugar, cotton, nuts, and spices, now constitute only a small share (16%). For developing countries, the biggest structural shift has been their increasing share of processed products in international trade. Indeed, even low income countries have increased the share of processed exports. This suggests the need for global and national policies for non-traditional product groups.

References

- Aksoy, MA (2004), “The Evolution of Agricultural Trade Flows” Chapter 2 in MA Aksoy and JC Beghin (eds.), Global Agricultural Trade and Developing Countries, World Bank.

- Aksoy, M Ataman and Francis Ng (2010), “The Evolution of Agricultural Trade Flows”, Policy Research Working Paper 5308, World Bank.

- Anderson, Kym et al. (eds.) (2009), Distortions to Agricultural Incentives: A Global Perspective, 1955-2007, A copublication of Palgrave Macmillan and the World Bank.

- Ng, Francis and Ataman Aksoy (2008a), “Who are the Net Food Importing Countries”, Policy Research Working Paper 4457, World Bank.

- Ng, Francis and Ataman Aksoy (2008b), “Food Price Increase and net Food Importing Countries: Lessons from the Recent Past”, Agricultural Economics, 39, Supplement: 443-452.

- OECD (2001), “The Uruguay Round Agreement on Agriculture: An Evaluation of its Implementation in OECD countries”, OECD Publications.

- World Bank (2008), “Global Economic Prospects and the Developing Countries 2009”, World Bank, September.