Alexander Sarris

1
Agricultural Staple Food Markets and Trade
Outlook and Implications for Trade Policy in
Eastern and Southern Africa

• Alexander Sarris
• Director, Commodities and Trade Division FAO
• Presentation at the FAO-EST Workshop on Staple
  Food Trade and Market Policy Options for
  Promoting Development in Eastern and Southern
  Africa
• 1-2 March 2007, Rome, Italy

2
Plan of Presentation

• ES African economies. The changing importance
  of agriculture
• ES African prospects for production and trade in
  staple food products to 2016
• World agricultural staple price developments and
  explanations
• ES African structure of agricultural trade and
  protection
• Trade policy and agricultural development
  relevant for ES Africa

3
Southern Africa Share of Agriculture in GDP
(Percent)
4
Eastern Africa Share of Agriculture in GDP
(percent)
5
Southern Africa Share of economically active
population in agriculture in total economically
active population
6
Eastern Africa Share of economically active
population in agriculture in total economically
active population
7
Africa Commodity dependence is still large
8
OECD-FAO Agricultural Outlook 2007-20016

• Focus on Eastern and Southern Africa

9
Southern Africa

• Divided into three regions
• Republic of South Africa
• LDC Southern Africa
• Other Southern Africa
• (without RSA)

10
Rep. of South Africa Wheat and Coarse Grains
Production, Utilization, Net-Trade and Per-capita
Food Use
11
Rep. of South Africa Meat Production,
Utilization, Net-Trade and Per-capita Use
12
Rep. of South Africa Rice Production,
Utilization, Net-Trade and Per-capita Food Use
13
LDC Southern Africa
14
LDC Southern Africa Wheat and Coarse Grains
Production, Utilization, Net-Trade and Per-capita
Food Use
15
LDC Southern Africa Meat Production, Utilization,
Net-Trade and Per-capita Use
16
LDC Southern Africa Rice Production, Utilization,
Net-Trade and Per-capita Food Use
17
Other Southern Africa
18
Other Southern Africa Wheat and Coarse Grains
Production, Utilization, Net-Trade and Per-capita
Food Use
19
Other Southern Africa Meat Production,
Utilization, Net-Trade and Per-capita Use
20
Other Southern Africa Rice Production,
Utilization, Net-Trade and Per-capita Food Use
21
East Africa

• Divided into two regions
• LDC East Africa
• Other East Africa

22
LDC East Africa
23
LDC East Africa Wheat and Coarse Grains
Production, Utilization, Net-Trade and Per-capita
Food Use
24
LDC East Africa Meat Production, Utilization,
Net-Trade and Per-capita Use
25
LDC East Africa Rice Production, Utilization,
Net-Trade and Per-capita Food Use
26
Other East Africa
27
Other East Africa Wheat and Coarse Grains
Production, Utilization, Net-Trade and Per-capita
Food Use
28
Other East Africa Meat Production, Utilization,
Net-Trade and Per-capita Use
29
Other East Africa Rice Production, Utilization,
Net-Trade and Per-capita Food Use
30
Over the next ten years.

• Global demand growth will slow. Per capita
  consumption continues to increase, with more
  growth in higher valued products.
• Supply potential continues to meet demand growth,
  at prices that decline in real terms
• Excess supply growth is coming more from low cost
  suppliers.
• Trade continues to grow, with developing country
  and least developed countries balance of trade in
  basic foods deteriorating.
• South and East African economies, especially LDCs
  becoming larger net importers of food products.
• Increased potential for inter-AfricaTrade

31
Real international prices expected to decline
slightly
32
What determines long term commodity prices?

• Cost of production of marginal producer
• Marginal producers still in developing countries
  using labour intensive technology with labour
  paid subsistence wages
• Supply of agricultural commodities highly elastic
  at low wages
• Demand for agricultural commodities quite
  inelastic
• Opposite case for non-agriculture
• Implication Differential productivity gains can
  alter terms of trade between agriculture and
  non-agriculture

33
How do productivity gains affect agriculture and
non-agriculture?

• Productivity affects agriculture differently than
  non-agriculture

S
P
P
S
S
p
a
a
c
p
p
S
p
b
b
d
D
D
Q
Q
Panel A. Agricultural Commodity Sector
Panel B. Non-agricultural sector
34
Declining terms of trade for agricultural
commodities due to faster rates of total factor
productivity growth for agricultural than
non-agricultural products

• Rate of growth of TFP has been faster in
  agriculture than in non-agriculture
• The rate of growth of TFP in agriculture seems to
  be higher than that of manufacturing.
• Globalization of agricultural research, has
  contributed to faster TFP growth in agriculture,
• Incidence of productivity advances largely on
  consumers (through lower prices) and little to
  producers.

35
However, most developed countries have managed to
expand the purchasing power of their agricultural
exports
36
The purchasing power of other Developing Country
agricultural exports has grown, but only slowly
for China and India, and has declined for LDCs
37
Productivity growth has been different in
developed and developing countries Cereals
38
Yield developments in SE Africa Maize
39
Yield developments in SE Africa Millet and
Sorghum
40
Yield developments in SE Africa Rice (paddy)
41
Yield developments in SE Africa Roots and Tubers
42
Intra-African trade in eight food product groups,
2001-03 average
43
Agricultural tariffs are very high and contain a
lot of water (Agrifood tariffs 2000-2)
44
Pattern of applied tariffs in agrifood and other
products (2001)
45
Over the next ten years.

• Markets are liberalizing, but new trade concerns
  are mounting
• As developing economies and agricultural sectors
  adjust and diversify, need for policy flexibility
  will rise
• Middle income countries may need to shift from
  tariff to more direct and targeted Domestic
  Support policies. Need to preserve policy space,
  namely flexibility in this area.
• Policies to foster dynamic comparative advantage
  will become more important in order to avoid
  being locked into low productivity primary
  products

46
Policies to managing the transition to a more
developed agricultural sector

• To maintain low wages for industrialization, and
  to ensure food security, need to have cheap food.
  Implies emphasis on domestic production increases
  to maintain quantities of food, and/or open
  markets for food imports. However, unless
  productivity increases are enough to compensate
  farmers for lower prices, price incentives to
  farmers may need to be maintained by supported
  prices (directly or through tariffs).
• When domestic production suffers a negative
  shock, and imports keep prices down, farmers may
  suffer more. Need to balance cheap food needs of
  the urban poor with income needs of farmers.
  Direct compensatory support to farmers of some
  type maybe in order (allowed under article 6 of
  the UR AoA). However, limitation is fiscal cost.
• Maintaining price stability requires flexible
  domestic and trade policies

47
Dynamic comparative advantage in agriculture and
industry

• Agriculture generally characterized (at least at
  early phases) by constant internal economies of
  scale but perhaps large external scale economies
  (a large productive sector facilitates cost
  reducing infrastructure, market development and
  other investments).
• Industrial sector characterized by both internal
  and external economies.
• At early phases of agric development emphasis on
  research, infrastructure, education. Less on
  markets, but need to avoid catastrophic price
  declines
• At intermediate stages of agricultural
  development emphasis on market development.
  Policies to deal with market failures.
• As agriculture develops further policy emphasis
  shifts to value addition, risk management,
  quality, etc.

48
Trade policies to facilitate agricultural
development in the context of faster growth

• At early stages of agricultural development
  agriculture generally taxed, directly and/or
  indirectly. Trade policy relatively liberal.
• At intermediate stages of agricultural
  development trade policy may need to support
  domestic policies of developing markets and
  correcting market failures. Second best trade
  policies maybe necessary in face of domestic
  market failures.
• At later stages of agricultural development
  restructuring towards more labour and capital
  intensive products, may necessitate intermediate
  levels of protection, but need to alleviate
  concerns for food security and import surges
  (need safeguards).
• At later stages of agricultural development trade
  policy may need to be selective and target
  non-trade concerns. Special and sensitive
  products?
• Need trade policy flexibility at all stages.
• At early stages of development more emphasis on
  tariff policy because of market failures. At
  later stages of agricultural development more
  emphasis on direct domestic support policies.
  Important to keep options open at both stages.