Food, Agriculture and Natural Resources Policy Analysis Network (FANRPAN) Food, Agriculture and Natural Resources Policy Analysis Network (FANRPAN)

The state of agricultural commodity markets

Acknowledgements: FANRPAN acknowledges the FAO website as the source of this report:

About this report

The State of Agricultural Commodity Markets 2006 is the second issue of this FAO publication. It focuses on the question of why the development and food security needs of developing countries need to be better reflected in the design and implementation of new agreements on further liberalization of international agricultural markets, and on the mechanisms under discussion to achieve this. In the Doha Development Round of the World Trade Organization (WTO), the question of how to safeguard the interests of developing countries, especially the lower income countries, has proved to be highly topical but also problematic, because the issues and arguments are complex and sometimes controversial. The stalling of the Doha Round in July 2006 provided an opportunity to revisit the issues of how future reductions in import tariffs on agricultural products will affect different developing countries, whether there might be any negative repercussions of further liberalization and, if so, how these might be addressed in the formulation of new trade rules.

The first part of this report introduces the major theme by highlighting some of the potential downsides of multilateral trade liberalization for some developing countries, both as exporters and importers of agricultural products. It also describes mechanisms by which these risks might be mitigated.

Reductions in import tariffs have obvious potential benefits for developing country agricultural exporters whose access to markets is improved. However, improved market access for some countries means that agricultural producers in importing countries that are reducing their trade barriers face increased competition from imports in general and from sudden import surges in particular. For many developing countries, particularly those at earlier stages of development, the agriculture sector is the mainstay of employment, income generation, food security and development. In such countries, often characterized by traditional agricultural systems and underdeveloped markets, the agriculture sector may be unable to withstand increased import competition and, as a result, domestic agricultural production, rural incomes and food security could be vulnerable and development efforts might be compromised.

Various mechanisms have been proposed to mitigate the risks associated with further opening agricultural markets to international trade, either by excluding certain special products from the full extent of tariff reduction or by permitting the imposition of an additional tariff in the face of sudden increases in imports a special safeguard mechanism. These mechanisms are the subject of the second and third sections of this report. The issues surrounding the designation of special products and the implications of their use are illustrated by case studies of rice and dairy products, two commodities that have proved problematic in international trade policy reform.

On the other hand, some developing country exports currently face tariffs in developed country markets lower than those imposed on exports from certain other countries. Clearly, the value of these trade preferences is reduced as tariffs are lowered generally. This problem of erosion of preferences has also been highlighted in the Doha Round negotiations. The implications of this erosion and measures to help developing countries adjust to a loss of preferences are discussed in the fourth section of this report. The discussion of preferences is illustrated and extended by case studies of two commodities for which trade preferences are very significant bananas and sugar.

The final section of the main report draws some conclusions regarding development priorities in the Doha Round and the various mechanisms that have been proposed to safeguard developing country interests, both as exporters and importers of agricultural products.

The second part of the report reviews recent developments in international agricultural commodity markets and provides background and context for the discussion in the main part of the report. This is complemented by Annex tables, which draw together basic data on trends in commodity prices and trade, providing additional background.

The State of Agricultural Commodity Markets aims to bring to a wider public an accessible discussion of agricultural commodity market issues and related policy matters. Although the findings and conclusions presented rely on recent technical analysis by FAO specialists in commodity and trade issues, this is not a technical report. Rather, it seeks to provide an objective and transparent treatment of the issues for policy-makers, commodity market observers and all those interested in agricultural commodity market developments and their impact on developing countries.

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