effective special safeguard mechanisms · effective special safeguard mechanisms ramesh sharma...

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6

Effectivespecialsafeguardmechanisms

Ramesh Sharma

Introduction

Thefocusof thischapter isontraderemedymeasures inresponse tosuchexternal shocks as import surges and depressed import prices. The WTOAgreementsincludesomegeneraltraderemedymeasuressuchassafeguards,anti-dumping and countervailing against subsidies. For agriculture, theUruguayRoundagreementalsoprovidedasimplertraderemedyinstrumentin the form of a special agricultural safeguard (SSG) that can be used torespondtosuchshocks.IntheDohaRound,anagreementwasreachedthattherewillbeasimilarsafeguardintheformofaspecialsafeguardmechanism(SSM)forusebydevelopingcountries.

6.� External shocks

Agriculturalmarketsarebynaturecyclicalandsubjecttowidefluctuationsdue in part to weather variability. Other sources of instability includesubsidies on production and exports in the world markets and anti-competitivebehaviourbytradingfirms(bothstate-ownedandprivate).Alltheseaffectorderlydevelopmentandtheflowoftrade.Ascountriesreducetariffs and bind them at lower levels, they become increasingly vulnerableto external agricultural market instability and to import surges that couldwipeoutviable agriculturalproduction activities,whetherwell-establishedor nascent.69 Vulnerability to such external shocks is of particular concern

69 Theterm“importsurge”isoftenusedinageneralsensetoindicatetwodifferenttypesofexternalshocks.One is thephenomenonofvolumesurgeswhere importsrisesuddenlyandsharplyoverandaboveabase levelor trend.Theother isdepressed importprices,mostlydue tomovementsinworldmarketprices,whichundermine,orthreatentoundermine,anotherwiseviabledomesticproduction.

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Agricultural trade policy and food security in the Caribbean

todevelopingcountries thatareendeavouring todevelop theiragriculturalpotential and diversify production in order to enhance their food securityandalleviatepoverty.

This review draws on various FAO studies and studies by national andinternationalcivilsocietyorganisationsthatdocumentincreasingnumbersofimportsurgesofvariousfoodproductsindevelopingcountries(particularlylow-incomefood-deficitcountries (LIFDCs))since themid-1990s.70Oftenthese reports associate the surge with negative effects on local productionandeconomies.ExamplesincludeimportsurgesofchickeninJamaica,dairyproductsinKenya,tomatopasteinSenegalandriceinHaiti.

There is widespread concern that these problems will intensify in thecomingyearsastariffsarefurtherloweredwhileeconomieslackalternativesafeguards. In severalof these cases, imports increasedby asmuchas ten-to twenty-fold within a short period of four to five years, with markednegative impact on domestic production, industry and employment. Thephenomenon isrelatively frequent forsomeproductgroups,notablydairyproducts,poultry and someothermeats, rice, sugar andvegetableoils.Asanillustrationofthephenomenonofimportsurges,Table 6.�showsrecentstatisticsontheimportoffourproductsforfourMembersofCARICOM.

The other source of external shocks – depressed import prices – isalso prevalent. It is common knowledge that the world market prices ofagriculturalcommoditiesfluctuatemarkedly.Moreimportantlyinthecontextofsafeguards,theproblemiswhenpricesremaindepressedforaprolongedperiodbefore there is anupturn.Somestudieshave found that the typicallengthofpriceslumpsforallprimarycommoditiesanalysed(includingnon-agriculturalproducts)was39monthsduringthepastthreetofourdecades,with a range of between 25 months (coconut oil) to 70 months (bananas)(Cashin,McDermottandScott,1999;Cashin,LiangandMcDermott,1999).A special safeguard is meant to be an instrument for responding to suchsituations, and not to address longer-term declining trends in commodityprices.Figure 6.� illustratestheabovephenomenonfortwofoodproducts.

70 Sharma(2005)documents30suchreports,allforthelate1990sandearly2000.

TABLE6.1Recent trends in some food product imports in four CARICOM member countries (in metric tons)

Importer Product �998 �999 �000 �00� �00� �003 �004

Barbados Tomatoes 55 429 155 181 165 107 236

Jamaica Skimmilkpowder 3370 2057 4469 6242 5067 3991 4874

Haiti Chickenmeat 17300 33440 15640 16850 24142 28492 17178

TrinidadandTobago Rice 37327 39215 25031 38424 43215 31873 67971

Source:FAOSTAT

Effective special safeguard mechanisms

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Such problems seem to have plagued developed and higher-incomedevelopingcountriesaswell,ascanbeseenthroughtherapidgrowthafter1995ofanti-dumpingandsafeguardsnotificationsanddisputes.

6.� Experience with the special safeguard of the Agreement on Agriculture

Theproblemof import surgeswas recognizedduring theUruguayRound(UR) negotiations and an agreement was reached to create a special traderemedyinstrument:thespecialagriculturalsafeguardorSSG.Article5oftheURAgreementonAgricultureprovidestheprovisionsoftheSSG,notablyhowthesafeguardistriggeredinthefaceoftheimportsurgeorwhenimportpricesaredepressed,aswellastheleveloftheremedy(additionalduties)insuchevents.ItwasalsoagreedthattherecoursetotheSSGwouldbelimitedto those countries that undertook tariffication of non-tariff barriers. As aresult,onlyatotalof39WTOMembersreservedtherighttousetheSSGforatotalof6156tarifflines.Ofthe39Members,22weredevelopingcountries,withtherightto2125tarifflines.TheSSG,however,wasnotusedmuchbythesecountries.Ofthese22,only6usedSSGduring1995to2004,withatotalnumberoftriggersof163.

Barbados isoneof the sixcountries, and theonlyCARICOMMember,thatreservedtherighttousetheSSG.Box 6.�summarizestheexperienceofBarbadoswiththeapplicationoftheSSG.

The163triggersusedsofarbythesixdevelopingcountriesisafairlysmallnumberrelativetothepotentialuseoftheSSGs.Aroughcalculationshowsthat the overall SSG utilisation rate – the ratio of actual use to potentialuse–wasabout1percentwhenthepotentialusebyall22countriesistakenintoaccount, andabout5percentwhen thedata for the sixusersonlyareconsidered. The utilization rate varied for individual countries: 0.8percent

FIGURE6.1Two examples of persistently depressed world market prices

(beef and rice)

Beef (US$/tonne)

1500

2000

2500

3000

1986 88 90 92 94 96 98 2000 02 04

Rice (US$/tonne)

150

200

250

300

350

1986 88 90 92 94 96 98 2000 02 04

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forPhilippines,1percentforCostaRica,2.4percentforNicaragua,7percentforRepublicofKoreaand45percentforChineseTaipei.71

Eighty-nine of the total 163 triggers (55percent) were volume SSGs andthe rest were price SSGs. Chinese Taipei alone accounted for 84percent ofthevolumeSSGs;when it is excluded,over80percentof the triggerswerepriceSSGs.Fourgroupsofproductsstandout:primaryandprocessedfruitsandvegetables(HS07andHS08),amountingto21percentofthetotalSSGs;various meat products but dominated by poultry (HS02 and HS16), also

71 ThefullofficialnameinWTOofChineseTaipeiis“SeparateCustomsTerritoryofTaiwan,Penghu,KinmenandMatsu”.

BOX 6.�Experience of Barbados with the application of the SSG

BarbadosistheonlyCARICOMMember(oneofsixdevelopingcountries)thatreservedtherighttousetheSSG.Therightwasreservedfor37productsatvariouslevelsofthetarifflinedetails.TheSSGwasappliedduringdifferentperiodsin2002toatotalof22productsorproductgroups:12vegetables,2fruitsand8meatproducts.ThedecisiontoresorttotheSSGwastakenonlyaroundApril2000whenBarbadosstartedtofeelthepressureofimportsurgesfollowingtheinstitutionofatariff-onlyregime,afterremovingarestrictiveimport-licensingregime.Butittookalmosttwoyearstoputinplacethenecessarylegislationaswellasparametersliketriggerprices.

Unlikethecaseinmanyotherdevelopingcountries,atthetimeBarbadosresortedtoSSG,itwasalreadyapplyingthefullextentofits(relativelyhigh)boundtariffstothepotentialSSGproducts,andthustherewasnoroomlefttoraiseappliedtariffs.Thisexperiencebeliedtheoften-heldassertionthataspecialsafeguardisnotneededwhenboundtariffsarehigh.TheBarbadoscasealsoshowedthatthetriggerpricesfortheSSGdeterminedonthebasisof1986–1988averageimportprices(aspertherule)turnedouttobeonthelowside,andthustheextentoftheremedy(additionaltariffs)providedbytheSSGwasnotadequatetocheckthesurgeinimports.Inviewofthis,Barbados,aswellasotherCARICOMMembers,hascalledformoreeffectivetriggersfornegotiatingtheSSM,includinghigherlevelsofremediesprovidedbytheSSG.ItwasduetoinadequateremedythatBarbadosdecidedtousethepricesafeguardoftheSSG,andnotthevolumesafeguard,inthefirstplace.

Source:Marcus-Burnett(n.d.)


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amountingto21percentofallSSGstriggered;andriceandbeansandpeanuts(HS 10 and HS12). The rice figures are dominated by the 24 triggers byChineseTaipei,whichincludebothriceingrainandvariousriceproductslikeflourandpasta.TherewerealsosomecaseswherebothpriceandvolumeSSGsweretriggeredforthesameproduct,e.g.buckwheat,wheatstarchandbeansbytheRepublicofKorea,andpreservedpoultrymeatsbythePhilippines.

It is not fully clear how a Member decides whether to apply the pricetriggerorthevolumetrigger,orindeednottoapplyeithertriggerevenwhentherelevantconditionsfortheSSGaremet.Forexample,calculationsbasedonimportandconsumptiondatafor1995–2002showthatbothCostaRicaandNicaraguacouldhavetriggeredvolumeSSGstwice(i.e. theconditionsweremet),andyetwhileCostaRicaappliedpriceSSGforricein1999and2002,Nicaraguadidsoonlyonce,in2002.

The SSG experience indicates that in the future (in the context of theSSM),itisunlikelythatgovernmentswillapplySSGseverytimethetriggerconditions aremet,because applying them isnotwithout costs (especiallyadministrative costs). Authorities might determine that the economy cansustaintheshockofafallinimportpricesand/orasurgeinimports.Ifthelevelsoftheboundtariffsarehighenough,countriescanraiseappliedratestoanextentthatoffsetstheeffectsofanexternalshock.Thereissomeevidencethatmanycountriesfollowedthisapproach,inparticularduring1998–2000,whenworldmarketpricesofseveralbasicfoodsdeclinedsharply.

However,thereisnodoubtthatthedevelopingcountriesrequireasimpleand effective trade remedy instrument for responding to import surges,whetherornot the instrument isused frequently.During theDohaRoundnegotiations there was consensus early on that such a special safeguardinstrumentwillbeaccessible toalldevelopingcountries, in the formof theSSM.Oncethatwasagreed,theinstrumentneededtobedesignedsothatitwaseffectivefromthestandpointofthedevelopingcountries.

6.3 Designing an effective special safeguard mechanism (SSM)

The key elements for designing a SSM are country eligibility, producteligibility,triggersandremedy.Ofthese,anagreementhasbeenreachedonthe first: theSSMwillbe accessible to alldevelopingcountries.Therefore,whatfollowswilldiscusstheotherthreeelementsbutmostlyontriggersandremedyasthesearecriticalforaneffectiveSSM.

PracticallyallCARICOMMembers(twelveofthethirteenWTOMembers),andsomeadditionalcountriesintheCaribbeanregion,areMembersofG33.Duringearlyyearsofthenegotiations,theCARICOMMemberssubmittedsome proposals on the SSM as a separate country group, but now theynegotiateasprominentandactiveG33partners.InviewoftheimportanceoftheG33alliancefortheSSM,itskeypositionsareoutlinedinBox 6.�.

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Product eligibilityThe2004AugustFrameworkAgreementdidnotspecifywhethertheSSMwouldbe limited to someproductsonlyorwouldapply toall tariff lines.During the negotiations, positions ranged from limited product eligibilitybased on certain criteria to no restriction whatsoever. The G33 supportednorestrictions.Theproposalby theUnitedStatesanda jointproposalby

BOX 6.�Key proposals on SSM by the G33 group

TheG33wasinitiallyformedontheeveoftheFifthWTOMinisterialmeetinginCancún(September2004)by23developingcountriesthatconstitutedanAllianceforStrategicProductsandSpecialSafeguardMechanisms.By2006,theGrouphad42Membersfromallregions.IntheWTOnegotiations,G33championedthecauseoftheSSMandmadesubstantivetechnicalproposals,whichservedasastartingpointindiscussionsonSSM.

TheG33hasalwaysheldthatthenewSSMshouldbesimple,effectiveandeasytoimplement.TheproposalforanewSSMhasasitsbasicpremises:thatthegeneralWTOtraderemedymeasures(suchasemergencysafeguard)aredifficulttoapplyformostdevelopingcountries;thattheSSGisnotavailabletoamajorityofthem;thatthecountrieshavebeenveryvulnerabletoshockssuchasimportsurgesanddepressedprices;andthattheireconomiesaretoovulnerabletoliberalizewithoutsomesafetynet.

TheG33positionhascalledfor:1) theSSMtobeaccessibletoalldevelopingcountrieswithoutexception

(accepted);2) similaraccessforallagriculturalproductswithoutexception(under

negotiation);3) bothpriceandvolumetriggers(accepted);4) asimplertriggerformula(comparedwiththeUruguayRoundSSG),based

ononly three-yearmovingaveragesofactualimports;forapricesafeguard,theproposalisathree-yearmovingaverageofpricesasthetrigger;

5) theleveloftheremedyforpricesurges(i.e.additionalduty)tofullyoffsetdepressedprice;ascheduleofremediesforvolumesafeguardsbasedontheextentoftheimportsurge;and

6) adaptationoftheprovisionsofArticle5.6oftheURAoAforperishable

andseasonalproducts(adapted).

Source:BasedontheG33proposalsonSSM


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Argentina,ParaguayandUruguayproposedsomerestrictions.Theeligibilitycriteriaproposedincludedonlythoseproductsthathavetakenthefulltariffcutsasperthestandardtariff-cuttingformula;thoseforwhichnew,reducedbound tariffs fall below recent applied rates; and those that are produceddomestically or are close substitutes of products produced domestically.Preliminaryanalysisoftheseproposalshowsthattheywillseverelylimitthescopeof theSSM for amajorityof thedeveloping countries, and thus theeffectivenessof the instrument itself.Earlierduring thenegotiations,othercriteriawerealsosuggestedsuchasthecontributionoftheproducttofoodsecurity,nutritionandruralgrossdomesticproduct(GDP)(e.g.CARICOM2002).However,theseideaswerenotpursued.

Appropriate references for triggering price and volume safeguards a) Appropriate reference for triggering price safeguardA price trigger mechanism involves three elements or parameters: currentimport price, reference price, and the trigger decision itself (i.e. the de minimis levelfortriggeringthesafeguard).Referencepriceplaysthecriticalrolebecausethefrequencyofthetriggersandtheirremedydependsonit,inrelation tocurrent importprices. Inorder toencompassvariousproposalsand ideas, the analysis of the effectiveness of a SSM price trigger below isbasedonanassessmentoffourtypesofreferences:

Fixed reference prices Moving reference prices1992–1994averageprice 3-yearaveragemovingprices(MA-3)1995–2004averageprice 5-yearaveragemovingprices(MA-5)

Fixed, historical three-year averages are perhaps the most commonbase periods used in various pillars of the AoA, including the SSG. Sucha reference has also been discussed for the SSM. The second reference,the 1995–2004 average, is meant to illustrate the pros and cons of a fixed,historicalreferencebutisbasedonalongerperiod.Suchabaseismuchlessinfluencedbyshort-termfluctuationsincommoditypricesandisalsobeingconsideredforsomeotherpillarsoftheAoA,e.g.blueboxandde minimisdomesticsupport.Thethirdreference,calledOlympicaverage,isalsoafixedbaseforthe implementationperiod.It isanaverageof thehistoricalpricesafter excluding too-high and too-low prices from the series. We base theOlympicaveragesonthesecond-lowestfive-yearpricesobservedduringthe1986–2004period.72TheMA-3andMA-5referencesareaveragepricesforthe threeandfiveyears (respectively)precedingtheyearwhenasafeguard

72 Foreachproduct,thereare19yearsofpricedata(1986to2004).Thepricedatawerefirstsortedfrom the lowest to highest. The Olympic average prices were computed based on sixth to tenthlowestprices,i.e.excludingthelowestfivepricedataaswellasthetopnine.

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istriggered.Thus,theMA-3referencepriceforanalysingatrigger in2003would be the average of 2000–2002 prices. 73 All analyses commence in1986.74

Thetenproductsforwhichworldmarketpricesareanalysedarechicken,beef, skimmilkpowder,wholemilkpowder, rawsugar,white sugar,palmoil,soyoil,riceandwheat.Thesearetheproductsforwhichimportsurgesare reported to be widespread in recent years. The import prices used arewell-known world market prices for the two sugars, two oils, rice andwheat, while unit export values (export value divided by export volumes)ofadominantworldexporterareusedasaproxyfortheworldpriceinthecaseof chicken, beef and the twomilkpowders.Although it is anybody’sguesshowcommoditypriceswillfluctuateinthefuture,theanalysiscoversasufficientlylongperiodof19yearstocapturetypicalcyclesofhighandlowpricesinworldmarketsandthus,wehope,shouldbevalidforthecomingyears.Lastly,thepricesusedintheanalysisareworldmarketpriceswhilethepricesthattheSSMwillusewillbec.i.f. importprices.Thiscouldbiastheresultsbutmostprobablytoaninsignificantextent.

Asanillustrationforwhitesugar,Figure 6.�showsactualcurrentworldmarketpricesandfourreferenceprices.Ineachcase,asafeguardistriggeredintheyearwhenthecurrentimportpricefallsbelowthereferenceprice(subject

73 TheMA-3referencehasbeenproposedbybothG33andtheUnitedStates.74 Notethatfortheyear1986,theMA-3requiresstatisticsfrom1983,theMA-5from1981.

FIGURE6.2Actual world market price of refined sugar along with four

references prices

Source:Author.Note:Althoughnotpinpointedinthefigure,aSSMistriggeredwhenactualcurrentpricesarebelowthereferenceprices(possiblywithade minimisprovision,e.g.morethan5percentbelow).Forexample,Table2showsthatforrefinedsugar,theMA-3referencetriggeredeighttimes.Thesewouldbeduring1991–1994,1997–2000,andpossiblyin2003also.

Refined sugar - actual and reference prices (US$/tonne)

100

200

300

400

1986 88 90 92 94 96 98 2000 02 04

Actu

MA-5 1995-04 avg1992-94 avg

MA-3


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toa5percentde minimislevel).Table 6.� showsthenumberoftriggersfortenagriculturalproducts,computedinthesamewayfor1986–2004.

Inevaluatingthereferences,somenotionoftheeffectivenessofthetriggersis needed. One criterion is the total number of triggers during the periodcovered(1986–2004).Theother,andmoreimportant,criterionisthenumberoftriggerswhenpricesarereallydepressed,e.g.during2000–2004formostproducts covered in the analysis here. A third criterion could be that asafeguardnottriggertoofrequently.

Withthesecriteriainmind,itisstraightforwardtoseethatafixedreferencepriceworkswellonlywhenthebaseperiodchosenhappenedtobetherightonerelativetothecurrentpricetrends.Takethecaseofbeef.The1992–1994referencetriggerssafeguardsin15ofthe19years,whichareobviouslytoomanytriggers.Thisoccurredbecause1992–1994happenedtobethethree-yearperiodwhenbeefpriceswereamongthehighest.Thecaseofthetwosugarpricesandsoyoilissimilar.Areferencelike1995–2004basedonseveralyearsofpricedataislessvulnerabletoshort-termfluctuationsinthedataandsoshouldgivemorebalancedresults.Theoverallnumberoftriggerswiththe1995–2004reference is fewer thanwiththe1992–1994reference.However,evenhere,asthecaseofthewholemilkpowdershows,thereferencegivestoomany(14)triggersbecausethereferencepricehappenedtolieratherhighrelativetocurrentprices.Theoutcomeissimilarforskimmilkpowder,soyoilandpalmoil.

TABLE6.2Number of triggers during �986–�004 for various reference prices

Fixed reference prices Moving reference prices

�99�–94 �995–04 MA-3 MA-5

Chickenmeat 9 5 9 11

Beef 15 7 7 8

Dairy,SMP 9 11 6 6

Dairy,WMP 7 14 7 8

Sugar,raw 11 7 9 10

Sugar, refined �� 8 8 �0

Palm oil �0 �3 7 9

Soya oil �� 6 7

Rice 9 7 8 7

Wheat 8 9 7 7

All total �0� 93 74 83

% triggers 54 49 39 44

Note:Thelastrow,percenttriggers,istheratio(%)ofthenumberoftriggersto190(10commoditiestimes19yearscovered,1986–2004).Inallcases,a5percentdeminimislevelisassumed,i.e.asafeguardistriggeredwhencurrentpricesarebelow95percentofthereferenceprice.Source:Author

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In contrast, the MA references incorporate information on the recentmovement of commodity prices and thus do not wander off too far fromcurrentprices.The longer thememory(e.g.MA-5) the lesssensitive is thetrendtosharpbutshortdeviationsinprices.ThebasicideaofusingaMAforthepurposeofasafeguardisthussound.Whencurrentimportpricesaretrendingdown,theMApricesalsotrenddownbutremainabovetheactualpricesmostofthetime,thustriggeringsafeguards.75Table 6.�showedthattheMA-3triggers39percentofthetimeandMA-544percentofthetime,whichcanbetakenasfairlyreasonableoutcomes.

Becauseof the longerperiodaveraged, theMA-5liesaboveMA-3whenpricesarefalling.Asaresult,theMA-5triggersmorefrequentlythanMA-3.TwooutcomesinparticularmaketheMA-5referencemoreattractive.First,italsotriggerssafeguardstowardstheendofapersistentlydepressedpricephasewhen theMA-3 fails to trigger.For thesamereason, theMA-5alsotriggers a safeguardwhen thepricebegins to trendup,while still at a lowlevel, whereas the MA-3 does not. Second, during the phase when pricesdecline,theMA-5referenceremainsaboveMA-3;thisnotonlyincreasestheprobability of a trigger, it also allows higher-level remedy because the gapbetweenthecurrentandMA-5pricesishigher.(Seediscussionbelow).ThefactthatMA-5triggersmorefrequentlyisconsideredadisadvantagebysomecountries;andcalculatingitdoesrequiremorestatistics.

Inordertostressthislastpoint,Figure 6.3comparestheeffectivenessoftheMA-3andMA-5referencesduringaperiodwhenworldpricesforcertainproductswerepersistentlydepressed(2001–2004).76ItisclearfromthefigurethattheMA-3triggersmuchlessfrequentlythantheMA-5.Thedifferenceissignificant.Indeed,MA-3doesnottriggerasingletimein2003and2004for poultry, beef and rice, despite the fact that prices were still depressed.Moreover, forpoultrymeat andwhite sugar,MA-3 triggeredonlyonce infouryears.

b) Appropriate reference for triggering volume safeguardIn the Uruguay Round SSG, the reference for price trigger was based onfixed 1986–1988 prices while that for the volume trigger was based onmoving averages. This made sense because unlike world market prices,which are typically cyclical, import levels often trend up over time andthereforeareferencebasedonafixed,historical importlevelwouldnotbeappropriateforatrigger.TheviewthatthereferenceshouldbevariablehasalsodominatedthethinkingfortheSSMintheDohaRound.Accordingto

75 Whencurrentpricesarerising,theMApricesalsorisebutremainbelowtherisingactualprices.However,asafeguardisnotneededforthisphase.

76 Thisanalysiscoversonlyfiveproducts(poultrymeat,beef,rawsugar,whitesugarandrice)becausetheirpricesfitthispatternverywell.


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theG33proposal,asafeguardistriggeredwhencurrentimportlevelsexceedtheaveragelevelofimportsintheprecedingthreeyears.

Thefollowinganalysisevaluatestheeffectivenessoffourimportreferencesencompassingthemainproposalscurrentlyonthetable,basedon10casesofimports(seeTable 3).77

Fixed reference import levels Moving reference import levels1992–1994average 3-yearaveragemovingprices(MA-3)1995–2004average 5-yearaveragemovingprices(MA-5)

Of the two fixed references, the 1992–1994 average could be taken as abaseperiodjustpriortothe implementationofatraderound(inthiscase,the UR). For the Doha Round, such a period could be 2002–2004. The1995–2004referencerepresentsabroaderbaseperiodthanjustthreeyears.Suchabase,coveringtheentireimplementationperiodoftheAoA,hasbeenproposedforsomeotherelementsoftheAoAbeingnegotiated.

Asanillustration,Figure 6.4showsriceimportsinCameroonusingactualcurrent imports and four reference import levels. Ineachcase, a safeguardistriggeredintheyearwhenthecurrentimportlevelexceedsthereferencelevel(subjecttoa5percentde minimislevel).Table 6.3showsthenumberoftriggersfortencasesthuscomputedfortheperiod1990–2004.

77 The countries andproducts coveredhere include the cases in anongoingFAOstudyon importsurge,basedoncountrycasestudies.

FIGURE6.3Percentage triggers and additional duties for �00% offset

during �00�–�004

Note:Theanalysisinthesefiguresisbasedonfiveproducts(poultrymeat,beef,rawsugar,whitesugarandrice)forwhichtheworldpriceswereclearlyinoneoftheirmostdepressedphases(2001–2004).Thepercentagetriggersshownintheleftpanelarethenumberoftriggersduringthatperiodforallfiveproductstakentogetherdividedbythe20totalpotentialtriggers(5productsover4years).Therightpanelshowsaverageadditionaldutiesforperiodswhensafeguardsweretriggered,againaveragedforthefiveproductscovered.Source: Author.

% triggers

45

70

0

20

40

60

80

MA-3 reference MA-5 reference

% t

rig

gers

Additional tariff (%)

17

22

0

10

20

30

MA-3 reference MA-5 reference

% e

xtra

tar

iffs

(%

)

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The effectiveness of various references depends on the behaviour overtime of actual imports. For most developing countries, the general trendfor the imports to fluctuate aroundstrong rising trends.This explainswhythe numbers of triggers are so different between the two fixed references(aboutone-thirdof the time for the1995–2004 referenceversus two-thirdsofthetimeforthe1992–1994reference).Withverylowimportsinitially,the1992–1994referencevalueissmallincomparisonwithrapidlyrisingimportsinsubsequentyears,leadingtofrequenttriggers.Thedebateonthechoiceofareferenceamongalternativefixedreferencesiseasytoresolve:thereferenceperiod cannot be the beginning of the series when imports are expected totrendupstrongly.Thisisincontrasttothecaseofpricetriggersbecauseworldmarketpricestendtofluctuateratherthanriseorfallsteadilyallthetime.

Table 6.3alsoshowsthatwiththemovingaveragessafeguardsaretriggeredabout 60percent of the time. The key issue here is the level of the safetydesired, i.e. whether a safeguard should cover the risk of a volume surge60percent of the time, or whether the level should be lower, for example33percentofthetime.Thereisnoeasyandobjectivebasisfordeterminingtheoptimallevelofsafetythatisappropriateforallcountriesandproductsbecause the injury inflictedbya surgedependson thevulnerabilityof theimport-competingsector.

ThispointispursuedfurtherinSharma(2006),whichshowsthatthelevelofsafetycanbeadjustedbyassumingalternativevaluesofthede minimislevel

FIGURE6.4Current import levels and various reference imports: the case

of rice imports for Cameroon

Note:Althoughnotpinpointedinthefigure,aSSMistriggeredwhencurrentimportlevelisabovethereferenceimportlevel(possiblywithademinimisprovision,e.g.bymorethan5percent).Forexample,Table 3showsthatforriceinCameroon,theMA-3referencetriggered12times.Thesewouldmostprobablybeduring1990,1993–1995,1997–1999and2001–2004.Source: Author,basedonFAOSTATtradedata.

0

100

200

300

1990 1992 1994 1996 1998 2000 2002 2004

000

ton

nes

ActualMA-3

MA-5

1995-04

1992-94


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applied.Theaboveresultswerebasedona5percentde minimisthreshold.78Highervaluesreducethesafetyrate.Forexample,ade minimisthresholdof15percentprovidesasafeguard51percentofthetime,onaverage.

6.4 The level of remedy for price and volume safeguards

The word remedy refers to the type of measure taken – and to its scale,duration and other characteristics – once a safeguard has been triggered.Examples of measures that might be taken include additional tariffs andquantitativerestriction.Theimportantquestionisthescaleoftheremedy(forexample,howmuchadditionaltariff).ThethreeWTOgeneraltraderemedymeasuresapplytoavolumesurgeonlyandnottoimportpricedepressions.Thelevelofremedyinthecaseofanti-dumpingandcountervailingmeasuresisgroundedonanobjectivebasis:theremedyshouldnotexceedthemarginof dumping and the level of subsidy, respectively. In contrast, in the caseoftheSafeguardsAgreementtheremedyisprescribedinageneralmanner.Article5.1specifiesthatasafeguardmeasurewillbeappliedonly to the extent necessary to prevent or remedy serious injury and to facilitate adjustment[emphasisadded]. In thecaseof theSSG, the levelof the remedy involvesvariableadditionaldutieslinkedtothedegreeofpricedepression(inthecaseofthepricetrigger);andadditionaldutiesup toamaximumofone-thirdofcurrentduty(inthecaseofthevolumetrigger).

78 Thatis,asafeguardistriggeredwhencurrentimportsexceedtheMA-3orMA-5importsby5percent.

TABLE6.3Total number of triggers during �990–�004 for various import references

Importer Product Moving references Fixed references

MA-3 MA-5 �99�-94 �995-04

Cameroon Chickenmeat 8 8 10 3

Ghana Chickenmeat 11 11 13 3

Jamaica Chickenmeat 6 7 7 5

Senegal Milkpowder 6 5 4 6

SriLanka Milkpowder 8 10 13 5

Cameroon Rice 12 13 10 4

Honduras Rice 12 13 12 5

Nicaragua Rice 8 7 9 5

Cameroon Sugarrefined 12 11 10 5

Tanzania Sugarrefined 9 8 13 4

Total 9� 93 �0� 45

% triggers 61 62 6� 30

Note:MA-3andMA-5are3-yearand5-yearmovingaverages.Thelastrow,%triggers,istheratiooftotaltriggersduring1990–2004overpotentialnumberoftriggers(150:10productsand15years).Source:Author.

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In the context of the SSM, the key question is the same: What level ofremedy is appropriate to correct the problem of market disruption due todepressedimportpricesandimportsurges?

6.4.� Remedy for price safeguardAllnegotiatorshaveagreedtotheproposalthattheleveloftheremedyshoulddependontheextentofthepricedepression.Thus,thefirststepindeterminingtheremedyistocomputethepricedepression.Table 6.4showstheestimatesfortworeferences(MA-3andMA-5)forthetenworld-priceseriescoveredearlier.Thefirsttwocolumnsshowthelevelofmaximumpricedepressionsobservedinanyyearduring1986–2004forMA-3andMA-5references.(Notethatthesearemaximumdepressionsintheentireperiod;forindividualyears,price depressions would be lower. The last two columns show computedadditionaltariffsforoffsettingthepricedeclinefully(100percent).Mostofthemaximumdepressionsare inthe30–50percentrangeandinnocasearetheyover60percent,althoughthatisallowed(forsomeproductsnotcoveredhere).Theoverallaveragesforthetenproductsaresimilar,around35percent.Both references provide fairly high levels of remedy (additional duties) inmostcases,onaverageabout60percentforthetenproducts.Thevariationsfordifferentproductsandreferencesfollowfromthetrendsandfluctuationsinthepriceseries.Thehighestadditionaltariff(forpalmoil)reachesasmuchas124percentforMA-3and114percentforMA-5.

It is very difficult – indeed impossible – to determine in an objectiveway themostdesirableoffset ratewithout taking intoaccount thecontext

TABLE6.4Maximum percentage of price depression during �986–�004 and additional tariff required to offset the price depressions fully (�00 percent)

Commodities Maximum price depression (%) Additional tariff (%) for �00% offset

MA-3 MA-5 MA-3 MA-5

Chickenmeat 28 30 39 43

Beef 24 30 32 43

Dairy,SMP 29 26 41 35

Dairy,WMP 31 26 45 35

Sugar,raw 42 45 71 83

Sugar,refined 36 40 56 68

Palmoil 55 53 124 114

Soyaoil 44 39 77 65

Rice 31 39 46 63

Wheat 31 31 46 45

Simpleaverage 35 36 58 59

Note:Thefirsttwocolumnsaremaximumpercentpricedepressionsandthelasttwocolumnsareadditionaldutiesrequiredforoffsettingthesedepressionsfully(100percent).Source:Author


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(i.e.thevulnerabilityoftheimport-competingsector)ineachcountry.Theimport-competing sectors in LDCs may be more vulnerable than in non-LDCsandsomayrequireahigherleveloftheremedy.Giventhis,themostthatcouldbedonefortheSSMwouldbetoagreetoahigh-enoughoffsetrate thatapplies toallproductsandcountries.TheG33proposal is forupto100percentoffset.Therearenoproposalsonthetableforanoffsetrateexceeding100percent,even if theboundtariffsarevery low.It ispossiblethat alternativeproposalswillbe tabled in thenegotiations, e.g.75percentinstead of 100percent. Additional tariffs for a 75percent offset would beequal to the 75percent of the maximum tariffs for a 100percent offset asshowninthelasttwocolumnsofTable 6.4.

Asafinalpoint,notethattheSSGremedyprovidesmuchlowerlevelsofremedyforthelowerrangeofthepricedepression(e.g.upto40–50percent),after which the duties escalate.79 For example, additional tariff is only4percentoftheboundtariffforapricedepressionof20percent,28percentadditional duty for a depression of 50percent and 170percent additionaldutyforadepressionof80percent.Innocasedoestheextradutycompletelyoffsetthefallintheimportprice.Foraspecialsafeguardmechanism,theSSGremedyisverymuchonthelowside.

6.4.� Remedy for volume safeguardIn the case of the SSG volume trigger, the maximum remedy was fixed atthelevelofone-thirdoftheordinarycustomsdutyineffectatthetimethesafeguardistriggered.80(ThisisdifferentfromtheremedyintheSSGpricetrigger,whereawell-definedschedulewasagreedfortheremedysuchthatthe additionaldutyvarieswith thedepthof thepricedepression.)For theSSM,theG33proposedanapproachsimilartotheSSGpricetrigger.Inthiscasetheadditionaldutywouldvarywiththe intensityof the importsurge(seeTable 6.5).

79 TheSSGremedyisanalysedindepthinSharmaandMorrison(2004).80 Thelanguageinthetextisnotspecific,butpresumablythisreferstotheboundrateineffectatthat

time,andnottheappliedrate.

TABLE6.5G33 proposal on additional duty for varying intensities of import surges

Band Surge of:* Maximum additional duty

1

2

3

4

<=5%

>5%to=<10%

>10%to=<30%

>30%

Noduty(de minimis)

Higherof{50%oftheboundrateor40percentagepoints}tariff}

Higherof{75%oftheboundrateor50percentagepointstariff}

Higherof{100%oftheboundrateor60percentagepointstariff}

*TheextenttowhichthecurrentimportlevelexceedstheMA-3importlevel.Source:BasedontheG33proposal.

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The rationale for the SSG one-third maximum is not clear. While theremediesproposedbytheG33alsohaveamaximumofonethird,theleveloftheremedyvarieswiththedepthoftheproblem.Indeed,thereisnosimplebasis for determining how much additional duty is required for a givenlevelofanimportsurge.Thisisalsoaproblemcommonlyfacedbypanelsin the WTO disputes involving the Safeguards Agreement. The guidancetheAgreementprovides is rather subjective: the remedy shouldbeonly to the extent necessary to takecareof theproblem.This ishardlyhelpful fordetermining,objectively,theremedylevels.

In trade theory and analysis, however, there is a way of establishing arelationshipbetweenchangesindomesticprice(andtariff)andimportlevels.Therelationshipisdeterminedbyabehaviouralparameter:theelasticityofimportdemand.ThemethodisexplainedindetailandillustratedinSharma(2006).Inbrief, itwasnotedthattheoveralldiscrepancybetweentheG33remedy proposal and that derived from the theory-consistent approach issmallforimportsurgesofamagnitudelargerthan30percent,butthegapsare markedly wider for lower levels of the surge, unless import demandelasticitiesareassumedtobeverylow.Thefactthattherearenouniversally-agreedestimatesof importdemandelasticities,means thatsuchparametersare very unlikely to be entertained in trade negotiations. Nevertheless,theoryprovidessomeguidanceandithelpstoconsidertheseindeterminingadditionalduties,albeitapproximately.

6.4.3 A final note on small economies One consideration for an effective SSM for small economies in particular.Current SSG rules, as well as those being proposed for the SSM, exemptfrom a remedy response import shipments that are already planned or enroute. This makes sense for traders who would be penalized for no faultof their own. However, one characteristic of small economies is that evenrelativelysmallshipmentscandestabilizedomesticmarketsconsiderably.Forthematraderemedywouldbeeffectiveonlywhensuchshipmentsarealsotakenintoaccountintheresponsedecision.Onewaytodothiscouldbetoinstitutearegimeofautomaticlicensing,atleastforsensitiveproducts.Sucha regime, while not impending normal trade in any way, helps authoritiesprevent imports that arepotentiallydisruptive.For example,when importlicenses issued to traders reachedapre-determined level, e.g.90percentofthetriggervolume,traderswouldbewarnedthatfurtherimportscouldfaceSSMduties.

6.5 Conclusions

As countries reduce tariffs and bind them at lower levels, they becomeincreasingly vulnerable to external agricultural market instability and to


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importsurgesthatcouldwipeoutviable(whetherwell-establishedornascent)agriculturalproductionactivities.Vulnerabilitytosuchexternalshocksisofparticularconcerntodevelopingcountriesthatareendeavouringtodeveloptheir agricultural potential and diversify production in order to enhancetheirfoodsecurityandalleviatepoverty.ThatthedevelopingcountrieswillneedasimpleandeffectivetraderemedyinstrumentforrespondingtosuchphenomenahasbeenacceptedintheDohaRoundnegotiations.TheresponsehasbeentheSpecialSafeguardMechanism,orSSM.

Thischapterhasanalysedalternativeproposalsonthe table,withaviewto identifying a simple and effective SSM. The main findings, summarizedbelow,shouldservetheneedsofthedevelopingcountriesingeneralandtheconcernsoftheG33–includingtheCARICOMMembers–inparticular.

With regard to product eligibility, some of the recent proposals on thenegotiatingtablethatseektorestrictproducteligibilitycouldseverelylimittheeffectivenessoftheSSMformanydevelopingcountries.Manyofthesecountrieshaveanarrowrangeofproductionbase,i.e.therangeofproductsproduced domestically is small. Many of these products are likely to bedesignated as special or sensitive, in which case they will not be eligibleforSSM(according to someproposals stillon the table).However,notallspecialproductswillhavehighboundtariffsandcouldthereforestillrequireaneffectivetraderemedyinstrument.SVEswillbeaffectedevenmorethanothersbecauseoftheirnarrowerrangeofproduction.

Regarding trigger and remedy for price safeguards, fixed referencepriceswillnotbeappropriateforasafeguardliketheSSM–unlessthebaseperiod chosen happens by chance to be the right one relative to currentpricetrends.(Thiswasfoundtoberarelythecase.)BothMA-3andMA-5were shown to be basically reasonable references, but the MA-5 referencehassomeadditionaladvantages.IttriggerssafeguardseventowardstheendofapersistentlydepressedpricephasewhentheMA-3missesout inmostcases.MA-5alsoprovideshigherremedy(additionalduties)becausethegapbetween the current and MA-5 prices is higher than for the MA-3 prices.Given that commodity prices tend to remain depressed persistently whenworldpricesareonthedownside–andthatistheperiodwhenasafeguardismostneeded–theMA-5referenceismoreeffective.

Regardingvolume safeguards,theanalysisshowedveryclearlythatfixedreferenceimportlevelsarenotappropriateastriggersforasafeguard,exceptbychance.Thisisbecauseimportsfollowstrongtrendsinmostcases,unlikepricesthattendtofluctuate.WhenusingtheMA-3andMA-5references,theresultsshowedthatbothreferencestriggeredsafeguardsforthetenproductsanalysedabout60percentofthetimeduring1990–2004.Althoughviewsaresuretodifferonwhetherthislevelofsafetyisonthehighorlowside,thereferencesneverthelesspassthe“effective”criterion.Thereisonepotentialproblem with both the MA-3 or MA-5 references: safeguards were often

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foundtobetriggeredcontinuouslyforseveral(e.g.6–8)yearswhenimportstrendupwardsteadily,whichisacommonpattern.Thisflawcanberectifiedbyusingahigherde minimislevelinthetriggerformula,forexamplewhencurrentimportsexceedtheMA-3orMA-5importsby15or20(ratherthanby0or5)percent.

It is very difficult to determine remedy levels (additional duties) in anobjective way. Although trade theory provides guidance on appropriatelevels of additional duties to remedy given levels of surges, the methodrequires a parameter such as import demand elasticity for the product inquestion.Thisisabehaviouralparameterwithnouniversally-agreedvaluesforvariousproducts–whichrendersitsomewhatimpracticalinanegotiatingcontext.Nevertheless,theinsightsthemodelprovidesareusefulandshouldbetakenintoaccounttotheextentfeasible.

Finally,becausesmalleconomiesaremorevulnerabletoshocksfromevensmall individual shipments, the SSM rule should permit them to take intoaccountplannedanden routeshipmentswhenmakingdecisionsonresponses–possiblythroughalicensingregimeforsensitiveproducts.

References

Action Aid. 2002. Farmgate: The developmental impact of agricultural subsidies(availableatwww.actionaid.org.).

APRODEV. 2004.The effects of massive dumping of frozen poultry imports from the EU into Cameroon and West Africa.Copenhagen,APRODEV.

CARICOM.2002.WTO negotiations on agriculture - a special agricultural safeguard mechanism for developing countries and small developing economies.Negotiatingproposal on behalf of Members of the Caribbean Community (CARICOM),SpecialSessionoftheCommitteeonAgriculture,informalmeeting,4–6February(availableathttp://www.moa.gov.jm/policies/).

Cashin, P, Liang, H. & McDermott, C.J. 1999.How persistent are shocks to world commodity prices?IMFWorkingPaperNo.WP/99/80.Washington,DC,IMF.

Cashin, P., McDermott, C.J & Scott, A. 1999.Booms and slumps in world commodity markets.IMFWorkingPaperNo.WP/99/155.Washington,DC,IMF.

Ceesay, M., Njie, M. & Jagne, M. 2005.The effects of importation of poultry, meat and eggs on small-scale poultry producers in the Gambia.StudycommissionedbyActionAid(TheGambia)andOxfamInternational(TheGambia).

Christian Aid. 2005. For richer or poorer. Transforming economic partnership agreements between Europe and Africa.April(availableatwww.christianaid.org.uk).

FAO. 2000. Agriculture, trade and food security. Issues and options in the WTO negotiations from the perspective of developing countries.VolumeII,Countrycasestudies.Rome(alsoavailableatwww.fao.org/trade).


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FAO.2003a.WTO Agreement on Agriculture implementation experience: developing country studies. Rome(alsoavailableatwww.fao.org/trade).

FAO. 2003b.Some trade policy issues relating to trends in agricultural imports in the context of food security.CommitteeonCommodityProblems,CCP03/10.Rome(alsoavailableathttp://www.fao.org/unfao/bodies/ccp/ccp64/ccp64-e.htm).

Kirton, C. & Witter, M.2006.Liberalization of the Jamaican economy and the impact of import surges on dairy, poultry and onion production.DraftconsultancyreportsubmittedtoFAO.

Marcus-Burnett, E. n.d. Experience with the current WTO SSG. The case of Barbados.(mimeo)

Oxfam.2002.Milking the CAP. How Europe’s dairy regime is devastating livelihoods in the developing world. OxfamBriefingPapernumber34.December(availableatwww.oxfam.org.uk/what_we_do/issues/trade/bp34_cap.htm).

Oxfam. 2003.Dumping without borders. How US agricultural policies are destroying the livelihoods of Mexican maize farmers.OxfamBriefingPaperNo.50.August(availableatwww.oxfam.org/en/files/bp59_unctad_rural_poverty_trap.pdf).

Oxfam. 2004.A raw deal for rice under DR-CAFTA. How the Free Trade Agreement threatens the livelihoods of Central American farmers. Oxfam Briefing Papernumber 68. November (available at www.oxfam.org.uk/what_we_do/issues/trade/bp68_rice.htm).

Sharma, R. 2005.Overview of reported cases of import surges from the standpoint of the analytical content.FAOImportSurgeProjectWorkingPaperNo.1.May.

Sharma, R.2006.Triggers and remedy for Special Safeguard Mechanism.CommoditiesandTradeDivision.Rome,FAO.

Sharma, R. & Morrison, J. 2004.Considerations for the design of a Special Safeguard Mechanism. Paper presented at the International Agricultural Trade ResearchConsortiumsummersymposium.19–21June,Seville,Spain.

Sharma, R., Nyange, D., Duteutre, G. & Morgan, N. 2005.The impact of import surge. Country case study results for Senegal and Tanzania.FAOCommodityandTradeResearchWorkingPaperNo.11.CommoditiesandTradeDivision.Rome,FAO(alsoavailableathttp://www.fao.org/es/ESC/en/41470/index.html).

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7

SugartradeintheCaribbean

Piero Conforti and J. R. Deep Ford

Introduction

Preferential trade isvery important intheworldsugarmarket.TheAfrica,Caribbean and Pacific Group of States (ACP) – especially the Caribbeangroup – have been the most important foreign suppliers of the EuropeanUnion(EU).Atthesametime,thesugarindustryisacoreeconomicactivityfor a number of economies in the Caribbean, including Guyana, Jamaica,Belize,BarbadosandTrinidadandTobago.

The industry in the Caribbean and its linkages with Europe have deephistorical roots. The perishability of the raw product, coupled with theuncertainty of the means of transport, called for strong regulation of themarket. At the beginning of the nineteenth century France was alreadyoperatinganimportdutysystem,whichregulatedimportflowsinordertoensuretimelysuppliesofrawcanetothelocalprocessors.Processedsugarinexcessofdomesticconsumptionwasexportedwithasubsidycorrespondingtothedutypaidontheimportoftherawcane.Aroundthemid-nineteenthcentury, when technology permitted sugar production from beets, a quotasystemwithguaranteedpriceswasalreadyactiveinGermany,andanumberof European nations – including France, Belgium, Netherlands and theUnitedKingdom–hadalreadystarteddiscussionsabouttheneedtoachieveacoordinatedreductionofimportduties.

About one century later, the Common Agricultural Policy (CAP) ofthe EU inherited this same approach. The Common Market Organizationthat had been active up to 2005 was based on quotas, guaranteed prices,a highly administered import flow and subsidized exports, with foreigntradesupplementinglocalbeetproductiontosecureatimelysupplyofrawproducts for domestic processors. In the late 1970s, the attempt to launchaninternationalcommodityagreementonsugarresultedinfailure.Thiswasdue to, among other reasons, the unwillingness of the European countries– heavily influenced by the local industry – to constrain the EU domestic

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supportregime,whosecorollaryareadministeredtradeflows.LargelyasareactiontothecollapseoftheagreementtheUnitedStatesintroducedatariffratequotasystemforsugar.

Thus,accessintothetwomajorsugarmarketsbecametightlyadministered.Imports into the European market could take place virtually throughpreferentialarrangementsonly,whileexportsweresubsidized.Thissituationpersisted until very recently; reform of the EU domestic regime and theprospectiveimplementationoftheEverythingButArms(EBA)initiativeinthesugarsectorarenowforcingachangeintradeflows.Sugarmarketreformwaspromotedin2005,andtheimplementationoftheprovisionsoftheEBAinitiativeforsugarisduetobecompletedin2009,whichwillextendfullaccesstotheleast-developedcountries(LDCs)intheEU.ThesechangeswilldeeplyaffectthepositionofthecurrentexporterstotheEuropeanmarket.

ThischapterreviewstheperspectivesofthesugarsectorintheCaribbeanin relation to these two policy changes, the implementation of the EBAinitiativeand thereformof theCommonMarketOrganization in theEU.Section7.1willbrieflyreviewthepresentorganizationofsugartradebetweenthe Caribbean countries and the EU. Section 7.2 will discuss the expectedoutcomesofthesepolicychanges,withreferencestotheactivitiesunderwayinanumberofmajorsugarproducersintheregion.Concludingremarksandanoverallperspectivearepresentedinthefinalsectionofthechapter.

7.� Sugar production and exports to the EU from the Caribbean

Overthelast30years,worldsugarproductionhasbeendominatedbytheEU,BrazilandIndia,whileonthesugarconsumptionsidethemajorplayersincludetheEU,theUnitedStates,India,theRussianFederationandChina.Thetotalsizeofthemarketisaround100milliontonnesperyear.Brazil isbyfarthedominantplayerinworldsugartrade;itsexportshaveincreasedfourfoldfromthe1970s,anditscurrentcostsofproductionareamongthelowestworldwide.Australia,Thailand,CubaandIndiaareothermajorandcompetitiveexporters,while the EU is both an important exporter and importer. The RussianFederation,China,theUnitedStates,Japan,theRepublicofKoreaandCanadaareamongtheothermajorimporters(FAO,2003).

Sugar isan important incomesource fordevelopingcountries, and tradetakesplaceforasignificantshareonthebasisofagreementsand/orpreferentialschemes. Tariffs on sugar are generally high in developed countries, andparticularlyintheEU,whiletheyareusuallylowerindevelopingcountries.

IntheCaribbean,themainsugarproducersareBarbados,Belize,Guyana,Jamaica,TrinidadandTobagoandSaintKittsandNevis.Outputamountstoabout8millionmetrictons(tonnes)ofcane(Table 7.�),andshowsadecreaseoverthelastdecadeinthethreesmallerproducers,whileitappearsaltogetherstableinBelize,increasinginGuyanaanddecreasinginJamaica.

Sugar trade in the Caribbean

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Exportsamounttoabout600000tonnes(Table 7.�),thevastmajorityofwhichcomesfromBelize,GuyanaandJamaica(88percentinthelastperiod).ItshouldbenotedthatwhileGuyanaisincreasingitssalesabroadandBelizeand Jamaica look fairly stable, the smaller producers show a significantdeclineoftheirtradeinthelastperiod.

ForallCaribbeanproducerstheEUisthemostsignificantexportmarket.ThisisstillparticularlythecaseofBarbadosandJamaica,andwasevenmorethecaseforallCaribbeancountriesinthepast.WithintheEU,theUnitedKingdom is by far the main destination, so that the processing industryof that country is today rather dependent upon raw sugar sourced in theCaribbean.

BelizeandGuyanaaredeemedtobethetwomostpotentiallycompetitivesugarproducers intheregion,andcouldsurvive inanopenworldmarket.Currently,theaveragelevelofproductioncostinthetwocountriesisslightlybelowtheprotectedpricepaidintheEU.TrinidadandTobagoandJamaicacould also improve their level of competitiveness through diversificationandconsiderablecapitalinvestment,whiletheprobabilityofsuccessappearslower in the case of Saint Kitts and Nevis, where production was in factceasedasof2004705.

TABLE7.1Sugar cane output in the main Caribbean producers (000 tonnes)

�990-9� �996-98 �00�-04

Barbados 574 518 381

Belize 1114 1194 1124

Guyana 2905 2965 3000

Jamaica 2583 2432 1947

SaintKittsandNevis 217 254 193

TrinidadandTobago 1357 1293 931

Source:FAOSTAT

TABLE7.2Export of sugar (000 tonnes raw equivalent)

Average shares by destination (�00�-04) ACP sugar protocol quotas

�990-9� �996-98 �00�-04 EU N. America Regional Others

Barbados 50.7 51.5 35.4 0.9 0.1 0.0 0.0 31.5

Belize 92.9 104.3 93.5 0.6 0.3 0.1 0.0 40.6

Guyana 169.7 246.7 321.1 0.6 0.0 0.4 0.0 160.0

Jamaica 146.6 173.4 138.6 0.7 0.3 0.0 0.0 119.3

SaintKittsandNevis 20.4 23.9 9.9 0.7 0.1 0.3 0.0 15.7

TrinidadandTobago 59.4 70.1 34.9 0.6 0.1 0.3 0.0 47.2

Source:FAOSTAT

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Asmentioned, themainoriginal aimofpreferential imports into theEUfrom the ACPs was that of supplementing local beet production to securesupplies fordomesticprocessors,whilepartof thesurplusesresulting fromdomestic consumption were re-exported with a subsidy. Most-favourednation (MFN) importers face a high duty of €419/tonne for white sugar,plusanadditionaldutythatisvariabledependingonaworld-pricereferencelevel.After1994, theadditionaldutywasof€115/tonne,sothattheoveralltarifffacedbyMNFimporterswasaround€513/tonne.TheUruguayRoundAgreementonAgriculturesucceededinpreventingthislevelbeingexceeded.

Asforpreferentialschemes,theACPSugarProtocolconstitutestodatetheprimarychannelthroughwhichsugarenterstheEU.Signatoriesare19ACPcountriesplusIndia;eachof themisentitled toa fixedquotawithinwhichitcanexportduty-freeataguaranteedminimumpricecorrespondingtotheEUdomesticpriceminustheaidgrantedtoEuropeanprocessors.Amongthesignatories,thelargestshareisthatofMauritius,followedatalowerlevelbyFiji,GuyanaandJamaica(Table 7.3).Somecountrieshavenotexportedundertheprotocol recently,despitebeing signatories; this is thecaseofSurinameandUganda.

The Sugar Protocol was first signed in 1975withtheLoméConvention,andwasincreasedprogressivelywiththeenlargementsoftheEU.Recently, the protocol has been renewed withthe Cotonou Agreement, signed in 2000 andappliedfrom2003.Itsfutureprospectsarelinkedto negotiations on the Economic PartnershipAgreements,andarenotyetknown.

AmongtheCaribbeancountries,in2002–2004totalexportsfromBarbadoscameveryclosetotheupperlimitsetbytheSugarProtocol.BothSaintKitts andTrinidad,however,didnot filltheir quota (Table 7.�).in the last few years,eventhoughthehighpre-reformEUpricewasstillapplied.

The second most important scheme forimporting sugar into the EU was the SpecialPreferential Sugar, which covers a quota ofabout200000tonnesandwasintroducedwiththe accession of Portugal into the EU in the1980s.Importsunderthisquotaareduty-free,andareactivatedwhentheEUdomesticsupplyplus theACPSugarProtocol imports arenotsufficient to cover the maximum supply needdefinedbytheEuropeandomesticprocessors.

TABLE7.3The ACP Sugar Protocol

Quota %

Barbados 2.4

Belize 3.1

Congo 0.8

Côted’Ivoire 0.8

Fiji 12.6

Guyana 12.2

India 0.8

Jamaica 9.1

Kenya 0.4

Madagascar 1.0

Malawi 1.6

Mauritius 37.4

Mozambique 0.5

StKitts/Nevis 1.2

Suriname 0.0

Swaziland 9.0

Tanzania 0.8

Trinidad/Tobago 3.6

Uganda 0.0

Zambia 0.6

Zimbabwe 2.3

TOTAL(tonnes) 1311231


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During recent years, Caribbean country access to this channel has beenreducedduetotheincreaseusethatAfricanexportershavemadeofit.

Smaller tariff ratequotas (TRQs)havebeengrantedby theEUtoothercountries.BrazilandCubaholdaduty-freeimportquotaof80000tonnesper year, while under the Balkans initiative Albania, Bosnia, Croatia, theFormer Yugoslav Republic of Macedonia, Serbia and Montenegro have aquotaofabout300000tonnes.

TheEBAinvolvesduty-freeaccessonallproductsexportedbytheLDCsintotheEU,withtheexceptionofarms.TheinitiativeispartofanumberofextensionsoftheGeneralizedSystemofPreferences(GSP)regimeundertakenbytheEU,togetherwiththe“GSPPlus”.81Forsugar,duty-freeandquota-free access is granted from 2009; the implementation schedule up to thatyear implies: (i) aprogressive increaseof theduty-freequotabetween2001and 2006, with the quota going from 75000 to 200000 tonnes; and (ii) aprogressive reduction of the out-of-quota tariff between 2006 and 2009, sothatinfactthequotabecomesredundantattheendoftheperiod.

A number of factors led to the widely held conclusion that the existingCommonMarketOrganizationwasnolongersustainable,eitherdomesticallyorinternationally.Domestically,aftertheAgenda2000ReformoftheCAPandthe2003Fishlerreformwhichde-coupledmostsupportsfromproduction,the sugar sector had remained one of the few that was still organizedaccordingtothepre-reformlogic,implyingahighdegreeofpriceguaranteescoupled with border protection. Internationally, the WTO negotiations(beforecollapsinginJuly2006)raisedexpectationsofasubstantialcutintheMFNtariffmaintainedbytheEU.TogetherwiththeimplementationoftheEBA,thiscouldpotentiallydisplaceasignificantcomponentofthedomesticsupply.Moreover,aWTOpanelrequestedbyAustralia,BrazilandThailandestablished in 2005 that export of the EU sugar produced domestically inexcessofthequotas–theso-calledC-sugar–wasimplicitlycross-subsidizedbytheexplicitsubsidiesgrantedontheexportsofsugarproducedwithinthequotas.ComplyingwiththisprovisionimpliesinfactasubstantialcutintheamountofsugarthattheEUcanexportwithsubsidies.

Thesepressures ledtheEUCouncilofMinisterstoadopt, inNovember2005,a reformof theEUCommonMarketOrganization for sugar,whichimpliesthefollowingchanges:

• Interventionisabolishedandsubstitutedwithaprivatestorageschemethat triggers at a level36percent lower than theprevious interventionprice.

• There is a switch to a single quota, and an increase of the quota inthe countries that used to produce in excess of the quotas; additional

81 TheGSPPlusprovidesduty-freeaccessforallproductsfrom“countrieswithspecialdevelopmentneeds” that implement international conventions on the environment, as well as on human andlabourrights.

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quotascanbepurchases, and theproceedingsareemployed to financea restructuring scheme for thoseprocessors that leave the industry. (Asignificant number of processing plants ceased production after theapprovalofthereform.)

• National-levelfunds(envelopes)wereestablishedtograntdirectpaymentstofarmers.

ThisreformofthedomesticregimepavesthewayforareductionintheappliedMNFduties,sinceitisnecessarytodefendonlya(lower)excessofthedomesticpriceabovetheworldprice.Moreover,thereformpromotesareductioninthedomesticsupply,togetherwithaselectionofthemorecost-efficientproducersinEurope,throughtheadditionalproductionquotasthatcanbepurchased.ThiseasesboththeapplicationoftheEBAinitiative,whichisexpectedtoincreaseimportsintotheEU,andthelimitationofsubsidizedexportsrequiredbytheWTOpanel.

However,thereformalsoaffectsthepositionofthepresentexportersintotheEUmarket,andparticularlyoftheCaribbeancountries,whicharegoingto be affected in two ways. First, even if the present ACP sugar protocolquotas are maintained, so that each ACP country maintains the right toexportanunchangedphysicalamount,thepossibilitywillincreaseforotherexporterstocompeteintheEUmarketforthatamount,duetotheincreasedpresenceofother (potentiallymorecompetitive)producers fromtheLDCgroup.Inotherwords,anyquotaassumesthecharacterofanopportunity,ratherthanofaquasi-guaranteedexport,aswasthecaseinthepast.

Second,thechangeinthepriceconditionsbroughtaboutbyEUdomesticreform makes the EU market less attractive in terms of the rent that canbeextractedfromthepreferentialexports,whilethedegreeofcompetitionfromrelativelylow-costproducersinthegroupincreases.ForaCaribbeanACPitmaybecomemoredifficulttoutilizeeventheSugarProtocolquota– assuming these are maintained – because part of the EU market may besuppliedbylower-costACPand/orLDCcompetitors.

Therefore,thecombinedeffectoftheimplementationoftheEBAandEUdomesticreformtendstoerodetheexistingACPpreferences,bothbecausecompetitionamongtheACPcountriesislikelytoincreaseduetothereducedpricesintheEU,andbecausethankstotheEBAmoreexporterswillaccesstheEUmarketduty-freeforpotentiallyunlimitedamounts.

7.� Quantifying the effects of the prospective policy changes

Thissection isaimedat shedding lighton the likely impactof thechangesto be expected from such preference erosion, and at understanding whichcountries are going to be more affected. A relatively larger number ofexerciseshavefocussedontheeffectoftheEBAinitiative,whilefewstudieshavefocussedonthecombinedeffectoftheEBAandEUdomesticreform.


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Everything But Arms (EBA)Concerning the potential impact of EBA, UNCTAD (2005) indicates thatpotential increases in sugar exports to the EU are likely to be limited dueto theconstraintsarising fromnatural resourceendowmentsandtransportinfrastructure, which are analysed in detail through country case studies.Among the sugar producers, Ethiopia, Tanzania, Nepal and Burkina Faso(forwhomtheEBAquotaalreadyaccountsforalargeshareofsugarexports)maybenefitsignificantlyfromtheinitiative.Asimilarconclusionisreachedby Stevens and Kennan (2001), who suggest that total LDC sugar exportsmay reach some 30000 to 500000 tonnes on top of the EBA quota, onceunlimitedduty-freeaccessisgranted.TheresultsofvanBerkum,RozaandvanTongeren(2005)arecomparabletotheabovestudies,astheysuggestthatLDCexportstotheEUundertheEBAinitiativemayreach450000tonnes.However, a less conservative perspective is offered by Witzke and Kuhn(2003),whocalculatethatLDCsugarexportstotheEUmarketmayreach2milliontonnes in2011.Manystudiesdonotadequatelycover importantissuesrelatingtointernationaltradeingeneral,andspecificallythetradecostscountriesface,someofwhichmaybeprohibitiveforLDCs.

EU domestic reformAmong the few studies focusing on the impact of EU domestic policyreform,WitzkeandKuhn (2003) simulate apolicy scenario includinga38percent reduction in EU domestic support price, against a baseline thatincorporates the effect of the EBA initiative and its impact on the ACPcountries.82 The baseline shows an increase in the world reference pricefollowing the application of the EBA initiative, together with a reductioninEUdomesticproductionandahugeincreaseinimportsfromtheLDCs,which would reach 2 million tonnes by the end of the baseline horizon.Againstthisbackground,thereductionoftheEUdomesticpriceleadstoafurthercontractionof theover-quotadomesticproduction,coupledwithasmalladditionalworldpriceeffect.ThesimulationsuggeststhatmajorlosseswouldarisefortheEUsugarprocessingindustry,especiallyinthecountriesproducingwithintheAandBquotas.

Another study (Conforti and Rapsomanikis, 2006) analyses a scenariothatincludesboththereformoftheEUdomesticsugarpolicyandtheEBAinitiative, taking intoconsideration the typesof tradecosts thatarise from

82 Thatexercisewasbasedonthecombineduseofasetofmodelsincludingapartialequilibriumglobalmodel–theWATSIMmodel–generatingimpactsontradeflows,whosedetailedwelfareeffectintheEUwasanalysedwithamodel includingindividualmembercountries’models, theCAPSIMmodel.FurtherdetailsonlandallocationinindividualareaswerecapturedbytheCAPRImodel,while detailed responses of individual farmers were studied through farm management models(WitzkeandKuhn,2003).

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both tariff andnatural tradebarriers.The relationshipbetween tradecostsand trade flows is represented by the notion of gravity, which postulatesthataftercontrollingforsize, tradebetweentwocountriesdependsonthemagnitudeoftradecosts.

The results indicate the likely effect on trade flows between the ACPs,theLDCsandtheEUandtherestoftheworld(Table 7.4).ACPcountriesthat today export under the Sugar Protocol and the Special PreferentialSugarprotocol are expected tobe affectedprimarily in termsof the latter,sincemostofitislikelytobeutilizedbythemorecompetitiveLDCs.Thishas already happened in the recent past. In the coming years, the duty-free Special Preferential Sugar exports will be supplemented by the EBAprovision.This imply thatexports fromtheLDCs to theEUwillbecomeduty-free-quota-free from 2009. Increasing competition for the SpecialPreferentialSugarquotas– latertofallundertheEBA–isevidentfromtheprojecteddisappearance (in 2011–2013) of exports under this title from theACPsthatarenotalsoLDCs.Therewillbeacorrespondingincreaseintheexports, particularly from those LDCs in which production costs are lowenoughtobecomparabletothoseofthemajorworldproducers.

Concerning the Sugar Protocol, the study assumes that it is likelyto be maintained in the future, which would allow the relatively morecost-competitive ACPs to keep exporting this quota into the EU afterimplementation of the reform. However, in some countries this sharewould be reduced by competition both within and outside the ACPs.AmongtheCaribbeancountries,Barbadosisprojectedtoexperienceasteepdecline within this quota. Among the other countries, the LDCs that arenot currently exporting under the Sugar Protocol and Special PreferentialSugarprotocolare likely togain significantmarket shares.This is thecasefor Ethiopia, Mozambique and Sudan, and the group of “other LDCs”comprisingMauritania,Chad,SierraLeoneandSomalia.

Altogether, net additional exports into the EU market followingimplementationoftheEBAisprojectedtoreachabout500000tonnes.

ReductionsintheEUdomesticpricearelikelybringaboutareductionofthevalueoftheexportsintotheEuropeanmarket(Table 7.5).Thisisalossthatwillaccruetothoseagentsthataretodaycapturingtherentgeneratedbythepreferentialregime.ThemajoreffectinthesetermsisexertedbythereformoftheEUdomesticmarket,ratherthantheimplementationofEBA.Exports from Barbados will suffer the most losses among the Caribbeancountries, but the value of trade flows will drop significantly for all themajor producers. Depending on how such a decrease is reflected in unitproductioncosts, thiswill generate changes in the internal compositionofproduction.Smallerfarmers,whoarelikelytohavehigherproductioncosts,willprobablybethefirsttobeforcedoutofthemarketafterthechangeinpriceconditions.


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The importance of the specific organization of production and trade indetermining the outcome of the policy changes suggest the necessity toconsider inmoredetails the individualCaribbeancountries, goingbeyondtheaggregatedresultsoftheprojections.AccordingtoGarsideet al.(2006),mostofthebenefitfromthetradepreferencesintheCaribbeanhasaccrued,to date, to the local producers. Moreover, mills in the region are largelylocallyowned.Thisimpliesthattheburdenoftheerosionofpreferenceswillfallonlocalproducers.

Garsideet al. (2006)alsoconsiderthecountries’positionintermsoftheirdependencyuponthesugarquotaandtheircompetitiveness.IntheCaribbeanthereare threecountries inwhich theshareof sugar in thegrossdomesticproduct(GDP)isrelativelyhigh:Belize,GuyanaandJamaica.Theformertwohavedevisedplanstoreduceproductioncostsandtodiversifyproduction,in

TABLE7.4Raw sugar exports of ACP and ACP-LDC countries (000 tonnes)

Destination EU under Sugar Protocol EU under SPS protocol, then EBA

Rest of the world

�995-97 �00�-03 �0��-�3 �995-97 �00�-03 �0��-�3 �995-97 �00�-03 �0��-�3

Barbados 52.5 41.3 5.4 2.4 - - 0.1 - -Belize 40.3 40.3 40.3 9.6 5.2 - 57.4 57.0 33.7Coted’Ivoire 10.6 10.6 10.6 12.0 9.1 - 26.5 42.0 30.7DominincanRep. - - - - - - 314.8 173.5 121.8Fiji 172.5 172.5 172.5 35.1 19.3 - 153.1 83.0 76.4Guyana 166.3 166.3 166.3 37.3 17.8 - 39.8 114.9 63.7Kenya - - - - 10.3 12.2 0.0 6.2 7.3Jamaica 123.9 123.9 123.9 28.5 17.4 - 21.0 - 12.6Trinidad/Tobago 45.7 45.7 45.7 10.4 5.5 - 3.4 0.6 -Swaziland 123.0 123.0 123.0 56.8 32.4 - 215.4 364.6 434.7Mauritius 512.4 512.4 499.7 39.2 27.0 - 76.0 22.2 -Zimbabwe 31.5 31.5 31.5 32.4 23.4 - 48.5 48.6 56.4BurkinaFaso* - - - - 10.9 17.0 - 5.3 -Ethiopia* - - - - 15.0 113.6 43.7 74.2 -Madagascar* 11.2 11.2 11.2 12.2 12.0 27.0 0.0 1.0 0.9Malawi* 21.7 21.7 21.7 13.9 9.3 83.0 23.4 58.8 -Mozambique* - - - - 8.3 54.7 133.0 212.0Tanzania* 10.6 10.6 10.6 14.9 11.6 39.6 - - -Sudan* - - - - 18.4 93.6 81.5 223.3 154.4Zambia* - - - 12.0 9.8 38.3 11.6 130.2 142.8Total ACPs �

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335.0 Bangladesh - - - - 8.9 12.3 - 6.1 2.7OtherLDCs - - - - 20.0 49.8 - - -Total LDCs 43.6 43.6 43.6 5�.9 ��4.� 490.6 �60.� 6�8.9 500.8

*ACPsugarexportersclassifiedalsoasLDCsSource:Conforti&Rapsomanikis,2006

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ordertobeabletocompeteinamoreopenenvironment.InJamaica,planshavebeenmaderecently todiversify towardethanolproduction,butuntilnowtheindustryhassufferedfromhighinefficiencies.

On the contrary, quota dependency is lower in Barbados, Jamaica andTrinidad.Theseare thecountries inwhichproduction ismore likely tobereduced; Saint Kitts, whose level of dependency upon the sugar quota isintermediate,hasalreadyceasedexportsasofmarketingyear2004/05,duetothesignificantlyhighleveloftheproductioncosts.

There isneedformoreresearchinthisfield.TheACPSugarGrouphasestimated that the population that would be affected by the sugar policychangeintheCaribbean,basedonemploymentfiguresinthesector,ismorethan60000people.

7.3 Conclusions

Substantive changes are taking place in the world sugar market that willaffect the Caribbean countries. The most likely outcome appears to beincreasing competition in the EU market after the implementation of theEBAinitiative,amongtheACPasawholeandbetweenCaribbeancountries,and from LDCs. This will inevitably displace production from countrieswhereproductioncostsarehigher.AssessmentsoftheconsequencesoftheimplementationoftheEBAinthecontextoftheEUdomesticmarketreformshow variable figures on how dramatic the displacement will be, rangingfromabouthalfamilliontoabouttwomilliontonnesofadditionalexportsintotheEuropeanmarket.

TABLE7.5Changes in the value of exports (�00 = �00�-03)

�0��-�3b# �0��-�3s# �0��-�3b# �0��-�3s#

Belize 92 59 Ethiopia* 787 504

TrinidadandTobago 92 60 BurkinaFaso* 245 157

Swaziland 82 53 Tanzania* 409 262

Mauritius 95 62 Sudan* 553 339

Jamaica 91 58 Malawi* 370 225

Guyana 94 60 Zambia* 343 242

Fiji 94 60 Madagascar* 102 85

Côted’Ivoire 56 36 TotalACPs 115 74

Barbados 15 9 Bangladesh* 100 64

Zimbabwe 60 38 OtherLDCs 265 170

Mozambique* 6959 4542 TotalLDCs 452 290

*ACPsugarexportersclassifiedalsoasLDCs#=2011-13b=baseline;2011-13s=EUdomesticreformSource:Conforti&Rapsomanikis,2006


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The prospective policy changes can be framed as movement towards amoremarket-orientedregime,originatingfromtheEUreform.Foranumberofreasons,policycontrolovertheEuropeansugarmarketisbeinggraduallyreduced,andthisinevitablyleadstochangesinthechannelsthroughwhichraw and semi-raw materials are sourced in Europe. The consequence forthe Caribbean is that sugar production should no longer be considered aprotected domain operating on the basis of a number of pre-determinedpreferentialmarkets,butratherasanindustrythatmustsurviveinawiderand more competitive environment. Caribbean sugar is called upon toperformasanindependentactor,andtodeviseitsownstrategiestosurviveintheglobalmarket.

Atthesametime,itisfairtoarguethatsincetheindustryintheCaribbeanhasbeensostronglytiedtotheEUsugarsectorthroughdeeppoliciessuchaspreferentialtradequotasandaguaranteedprice,theswitchtowardbeingmoreindependentshouldbefacilitatedthroughtheprovisionofresources,onatemporarybasis,aimedatpromotingchangesthatmakeitsustainable.The Economic Partnership Agreements are one forum in which suchresources shouldbenegotiated. It is clear,however, that theeffortand thecommitment of the local institutions in the individual countries are by farthe most important ingredient of any successful strategy. In this respect,thedistinctionmadebyGarsideet al (2006)betweenhigh-and low-quotadependentcountriesisinteresting.Onthebasisofqualitativeanalysis,theyindicatethatthelattershowahigherlevelofinterestandcommitmentthantheformertowardsmakingtherequiredadjustments.

ThefuturefortheCaribbeanofthesugarmarketappearsbleakforatleastthreereasons.1) Sugarexports into the EU willmostprobablybedisplacedasaconsequence

ofEUdomesticmarketreform.2) Growth inthedemand for sugar isstagnant indevelopedcountriesand

coulddecreaseassugaristargetedasacauseofobesity.Thetrendarisesfromsaturationandtherearenoforeseeablereasonsforittoreverse.Inmiddle-incomecountries,moreover,thegrowthofsugarconsumptionislikelytoslowprogressivelyincomingyearsforthesamereasons.

3) Product differentiation–intheoryanoptiontobetakenintoconsideration–isnotstraightforwardforsugar.Sugarisinessenceabulkproduct,andtherearerelativelylimitedpossibilitiesfordifferentiation.Thereissome(albeitonlypatchy) evidence available to suggest that specialtymarkets–includingfairtrade,organic,environmental-friendlyandotherpeculiartypeofproducts,areapossibility–althoughcompetition is significant.It appears unlikely that any of these markets can greatly expand in thefuture.Alternativeendusesforsugar,mainlyintheareaofbio-fuel,haverecently gained momentum, and many of these appear promising fromboth the environmental and the energy-efficiency perspectives, because

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self-sufficientproductionplantsareavailable.Jamaicahasalreadyplannedthe development of this industry. However, technology in this area isevolvingrapidlyandsoanyprojectwouldrequireaseriousassessmentoftheeconomicviabilityofthespecificprocessingplantthatisinstalled,inrelationtothescaleofprimaryproduction;andoftheextenttowhichtheswitchtothistechnologyimpliesadditionalconversioncostsinordertoutilizethebio-energyproduced.

Given this environment, opportunities should be pursued to minimizesocialconsequenceswhilebuildingalong-termstrategyforthesugarindustryintheCaribbean.Thestrategyshouldlookatthefollowingfourareas:1) The regional market.Thecommonexternaltariffshouldbemaintained,

even if it cannot continue to provide full protection for the regionalmarket. This can be achieved only through a political decision thatrecognizesthesocialcostofadjustmentinthesector.CARICOMcouldalsoselectsugarasasensitiveproduct.

2) TheEU–ACP relations and the Economic Partnership Agreements.Withinthis framework, an adequate compensation should be negotiated fordamagesarisingfromthereductioninthepricepaidfortheACPquotauptonow.

3) The GSP framework.This stilloffersgrounds formaintaininga certaindegree of preference compared to some of the major sugar producers,despite reducedbenefits arising from lower tariffs.GSPshouldprovideadditional room for manoeuvre in terms of time and resources tobe invested in improving the production performance and reducingproductioncosts.

4) Other forms of assistance aimed at supporting investment in product differentiation.Withinthelimitshighlightedabove,newproductsshouldbedeveloped,andeffortsshouldbemadetomakeproductiveconversiontowardotheragriculturalactivities.

References

Conforti, P. & Rapsomanikis, G. 2006.Preferences erosion and trade costs in thesugar market: the impact of the Everything But Arms Initiative and reform oftheEUpolicy.Forthcoming inJournal of International Agricultural Trade and Development.

FAO.2003.Agricultural commodities: profiles and relevant WTO negotiating issues.CommoditiesandTradeDivision.Rome.

Garside, B., Hills, T., Marques, J.C., Seeger, C. & Thiel, V.2005.Who gains from sugar quotas?ODI-LSEDestinDV406Researchproject (availableatwww.odi.org.uk/iedg/projects/EU_banana_sugar_markets/ODI_LSE_SugarProject_2005.pdf).


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Stevens, C. & Kennan, J. 2001. The impact of the EU’s “Everything But Arms” proposal: a report to Oxfam.London,InstituteofDevelopmentStudies.

United Nations Conference on Trade and Development (UNCTAD). 2005.Effects of the Everything But Arms initiative on the sugar industries of the least-developed countries.UNCTAD/DITC/COM/2004/6.Geneva.

Van Berkum, S., Roza, P. & van Tongeren, F. 2005. Impacts of the EU sugar policy reforms on developing countries.Report6.05.09.TheHague,AgriculturalEconomicsResearchInstitute(LEI).

Witzke, H.P. & Kuhn, A. 2003.Assessing reform options for the Sugar Common Market Organization – quantitative analyses with interlinked models.Paperpresentedatthe43JahrestagungderGesellschaftfürWirtschafts-undSozialwissenschaftendesLandbauese.V.(29September–1October2003).Stuttgart-Hohenheim(availableathttp://www.uni-hohenheim.de/i410b/download/gewisola/papers/kuhn.pdf).

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8

BananatradeintheCaribbean

Claudius Preville

Introduction

Thebananasectorhaslongbeenasourceofincomeandlivelihoodsecurityfor communities in several Caribbean countries. Ever since the demise ofsugar as a major export crop from the Windward Islands to the UnitedKingdominthe1950s,bananashaveassumedprominenceasoneofthefewviableexportalternatives.Thecommoditywasresponsibleforgeneratingasignificantpartoftheregion’sforeignexchangeandprovidedmuch-neededincome to ordinary farmers as a means of addressing their food securityneeds.Yet,thebananaproductionandexportingsystemshavenotgenerallybeengloballycompetitiveandremaindependentonthepreferentialmarketaccess that theyenjoy, that is, tariff-andquota-freemarketaccess into theEuropeanCommunity(EC)market.Thispreferentialmarketaccesshasbeensteadilyerodedover timeand theregionnowfinds itself in theprecariouspositionofnotbeingabletomeettheemploymentandfoodsecurityneedsofitsruralpopulation.

This chapter reviews the role of the banana sector and particularly itscontribution to rural development and food security. It addresses bananatrade policy issues from a Caribbean regional perspective and drawsmainly on production and trade experience within the Organisation ofEasternCaribbeanStates(OECS)countrieswherethebananaindustryhaspredominated in the economies. The chapter draws on a range of existinganalyticalstudiesonthe impactofcurrentbananasectorpoliciesonworldmarket conditions and specifically how these have and might impactCaribbean banana-dependent economies. As a way forward, it highlightsseveral interventions and measures that need to be implemented to ensurea meaningful interface between imminent changes in the current policyframeworkandfoodsecurityobjectivesofthebanana-producingcountries.

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8.� Background to banana trade policy issues

In this section we provide an integration and assessment of the past andcurrentproduction,processing,marketstructure,institutionsandtradeandcompetitivenessdimensions of thebanana sector in the important banana-producingcountriesoftheregion.

AtthesigningoftheTreatyofRomein1957,ECMemberStatesagreedthatatariff,andoptionallyaquota,wouldapplywithrespecttobananaimportsfromnon-ACPcountries.Inpractice,thesesourcesofotherbananaimportswerelargelyafewcountriesinCentralandSouthAmerica,whereanumberof United States-based transnational corporations (TNCs) operated – the“dollarzone”countries.AnotableexceptiontothegenerallyagreedschemeofgrantingpreferentialmarketaccesswasfoundinGermany,where,underaspecialprotocolannexedtotheTreatyofRome,Germanyhadsecuredtherighttoimportnearlyallitsbananasfromdollarzonesourcesfreeofdutyandtaxes.GermanyhadwontherighttothisspecialprotocolgiventhatitwasthelargestsingleconsumerofbananasinEuropeatthetime,andthatithadtraditionallysourcedallitsimportsfromthedollarzone.

ECMembersfoundthemselvesimplementingtwobananaimportpoliciesthatwereinfactdiametricallyopposedtoeachother,andthiswouldbecomeamajorpointofcontentionwhen theSingleEuropeanMarket (SEM)wasimplemented in 1993. The basis for granting preferential market access toACPcountrieswasthreefold.First,theywereallcoloniesorex-coloniesofanECMemberatthetime,anditwasviewedasamechanismthroughwhichtheECcountriescouldfacilitatetheireconomicdevelopment.Second,thereexisted little diversity in their exports, making them extremely vulnerableas economies depending on single commodities. Third, the traditionalproduction,marketinganddistributionprocessestheyutilizeddidnotallowthemtoenjoyeconomiesofscale,causingtheircoststoberelativelyhigh.

However, in the dollar zone countries the converse obtained. All ofthesecountrieshadattainedindependenceseveralcenturiesprior,andtheirproductionsystemswerecharacterizedbymainlyforeign-owned,large-scale,capital-intensive plantation technology. Coupled with vertically integratedsystemsofshipping,marketinganddistribution,bananas fromdollarzonecountriesarerelativelycheaptoproduce,marketanddistributeintheEC.

The EU banana regime that was introduced in 1993 was challenged onseveral fronts. First, it was challenged in the European Court of Justice(ECJ)byGermany,DenmarkandtheBeneluxcountriesonthegroundsthatit would not fulfil the objectives of the single market. Second, some LatinAmerican countries initiated a General Agreement on Tariffs and Trade(GATT) panel to investigate the legality of the banana import policies ofseveralEUMembersbeforetheSEM,andanothertoinvestigatethelegalityofthenewbananaimportpolicyundertheSEM.BoththeseGATTpanelsruled

Banana trade in the Caribbean

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that thebanana importpoliciesdidnotconformtoGATTlaw,particularlyArticleIthatrequiresmost-favourednation(MFN)treatmentforallGATTMembers. Third, under the influence of the world’s largest banana TNC,theUnitedStates initiatedan investigationof theEUbanana importpolicyunderSection301ofits1974TradeAct.Fourth,theUnitedStates,alongwithseveralcountriesinLatinAmerica,initiatedaWTOpaneltoinvestigatetheEUbananaimportpolicy,whichultimatelyledtoitsdefeat.InthissectionweshallexamineonlytheWTOpanelinvestigationandrulingindetail.83

Joint and individual requests for consultations with the EuropeanCommunitiesonitsbananaimportregimeweremadebytheUnitedStates,Ecuador, Guatemala, Honduras and Mexico (Complaining Parties) on 5February 1996. In addition to the import regime established under EECRegulation 404/93, consultations were also meant to address subsequentlegislation, regulations and administrative processes related to it. Theseconsultations did not result in a mutually satisfactory outcome, hence on11April1996theComplainingPartiesmadearequestforestablishmentofaPanel.ThePanel’stermsofreferenceincludedexaminingviolationsundertheGATT,theAgreementonImportLicensingProcedures,theAgreementonAgriculture,theGeneralAgreementonTradeinServices(GATS)andtheAgreementonTrade-relatedInvestmentMeasures(WTO,1997a:1).

In itsdefence, theEUdeploredthemanner inwhichthepanelhadbeenestablished,questioningtheadequacyofconsultationsaswellastheclarityof the issue under dispute. However, the Complaining Parties counteredthat their action was consistent with Article 4.7 of the Dispute SettlementUnderstanding(DSU),whichprovidesforestablishmentofaPanel60daysafter the start of consultations (WTO, 1997a: 3–7). Additionally, the EUquestioned the legitimacy of United States interests in the claim that wasbeingpursued,sincetherewasnobananatradebetweenthosecountries.TheUnitedStatesarguedinturnthatithadasignificantcommercialinterestsincetwoofitsfirms,ChiquitaandDole,hadplayedamajorroleindevelopingthe EU’s banana market in the past. Moreover, the United States arguedthatunderArticleXXIIIof theGATT,dispute settlementactioncouldbeinitiatedbyanyMemberif,initsview,oneMember’sactionwasinconsistentwithanother’sinterests(WTO,1997a:8–9).

Notsurprisingly,thePanelruledagainsttheEU,concludingthatcertainaspectsofitsregimewereinconsistentwithitsobligations.84Additionally,itrecommendedthattheDisputeSettlementBodyrequesttheEUtomodifyitsbananaregime,tomakeitconformwithitsobligationsundertheGATT,theLicensingAgreementandtheGATS(WTO,1997a:para.9.1–9.2).TheEU

83 SeePreville,2002(pp.137–42)forathoroughdiscussionofthefirstthreeofthese.84 UnderArticlesI:1,III:4,X:3andXIII:1oftheGATT,Article1.2oftheLicensingAgreementand

ArticlesIIandXVIIoftheGATS.

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appealedthePanel’srulingbothoncertainissuesoflawaswellassomeofthelegalinterpretationsdevelopedbythePanel.Specifically,theEUagaintookissuewiththerightoftheUnitedStatestoadvanceclaimsundertheGATTand the manner in which the Panel had been established (WTO, 1997b:paras.15–18).Additionally,wherethelegalinterpretationsofthePanelwereconcerned,theEUbroughtmanyissuesintoquestion,takingtheminturnunderthecategoriesofmeasuresaffectingtradeingoodsandservices.

TheAppellateBodylargelyupheldthefindingsofthePanel.Inparticular,itupheldthePanel’sconclusionthattheUnitedStateshadarighttobringaclaiminthedisputeandthat theestablishmentof thePanelwasconsistentwithrequirementsunderArticle6.2oftheDSU(WTO,1997b:para.255a–b).Additionally, itupheld the conclusionof thePanel that theAgreementonAgriculturedidnotpermittheEUtoact inamanner inconsistentwithitsobligationsunderArticleXIIIoftheGATT1994;andthattheallocationofsharesofthetariffquotawasnotconsistentwithArticleXIII:1oftheGATT1994(WTO,1997b:para.255d–e).

In its ruling against the EU banana regime, the second GATT Panelinstigated by the Latin Americans (mentioned above) had found boththe import regime and the procedure through which the EU extendedpreferentialmarketaccesstotheACPcountries(theLoméConvention)tobeincontraventionofGATTlaw(GATT,1994:para.169–70),andmandatedtheEUtobringitsimportpolicyintocompliance.WiththesupportofACPcountries,theEUwasabletopreventtheGATTCouncilfromadoptingthepanelreport.Yet,realizingthatiftheseLatinAmericancountriesinitiatedaWTOPaneltoinvestigatetheEUbananaimportpolicyitwouldmostlikelybedefeated,theEUproposedtocreateitsfirstFrameworkAgreementwiththeLatinAmericans.

UndertheproposedFrameworkAgreement,thecomplainingpartieswouldbeallocatedcertainsharesof the importquotabasedonpastperformance,and thequotawouldbe increasedannuallybyanautonomousamount. Inadditiontoguaranteeingmarketsharesforthesecountries,theEUagreedtoexpandthetariffquotaannuallyandreducethein-quotatarifftoECU75/tonne(EuropeanCouncil,1998:Article18).ButtheLatinAmericancountriesweredividedonthematter,bothintermsofthesizeofthequotaandtheirindividual shares, rendering the agreement unstable. Notably, Ecuador,Guatemala,HondurasandPanamaobjected to theagreement,whileCostaRica,Colombia,NicaraguaandVenezuela(BolivarianRepublicof)acceptedit(EuropeanCommission,1994:11–12).Nevertheless,theEUhadensuredthattheFrameworkAgreementwasagreedtobytheUnitedStatesaspartofthecompletionofnegotiationsundertheUruguayRound.Additionally,theGATTCouncilagreedtogranttheEUawaiverofArticleI.1,thusallowingtheEUtogivepreferentialtreatmenttothegoodsoriginatingfromtheACPcountries(EuropeanCommission,1995:16).


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Since 1999, the EU has modified its banana regime several times andthe evidence suggests that most of these modifications have taken intoconsiderationtheneedforWTOcompatibility.Thisisreflectedinthesheernumber of Commission Regulations that have been passed to modify theoriginal regulation404/93. In introducingCommissionRegulation2374 inthe year 2000, while the EU stated that the regulation was being adoptedwith a view to ensure uninterrupted supplies and trade with the partnercountries, itcarefullystatedthatsubsequentmeasuresmightbeintroducedwithaviewto“complyingwiththeinternationalcommitmentsenteredintoby the Community within the World Trade Organization”. Moreover, theregulations introduced in 2001 gave even greater recognition to the WTOrulings. Council Regulation 216 of 2001 clearly states that it takes dueaccount “of the conclusions of the special group set up under the disputesettlementsystemoftheWorldTradeOrganization(WTO)”.Itfurthersetsoutthesizeofthetariffquotas,whichisbasedonaprojectionofeffectivedemandforbananasintheEUasof2001,structuredasfollows:

(a) atariffquotaof2200000tonnesnetweight,called“quotaA”;(b) anadditionaltariffquotaof353000tonnesnetweight,“quotaB”;(c) anautonomoustariffquotaof850000tonnesnetweight,“quotaC”.In this revised regime imports under tariff quotas “A” and “B” are

subjectedtoacustomsdutyof€75/tonne,whilethoseunderquota“C”aresubjectedtoacustomsdutyof€300/tonne.Additionally,theEUgrantsACPcountriesatariffpreferenceof€300/tonne,consistentwithitsobligationstotheACPcountries.

ThelastsignificantchangesthathavebeenmadetothetariffquotassincethenwereintroducedinDecember2001,underCommissionRegulation2587,andaccordingtotheEU,thechangesintroduced“shallapplytoimportsoffreshproducts falling within CN [combined nomenclature] code 08030019 untiltheentryintoforce,nolaterthan1January2006,oftherateofthecommoncustoms tariff for thoseproducts establishedunder theprocedureprovidedfor inArticleXXVIIIof theGeneralAgreementonTariffsandTrade”. Inotherwords,theserulesapplieduntil31December,2005.Thenotablechangetothetariffquotasare:quota“B”hasincreasedto453000tonnes;whilequota“C”hasreducedto750000tonnes.ACPcountriescontinuetoenjoyatariffpreferenceof€300/tonneandzerodutyonimports.

Additionally,‘traditionalimporters’havebeenredefinedtoreferspecificallytoprimary importers,and theshareof licencesawardedtonon-traditionalimportershasincreasedfrom3.5percentto11percent.SubsequentregulationspassedbytheCommissionwithrespecttobananashavenotalteredthesizesof the quotas, nor the applicable tariffs, but have modified rules for theirallocation to specific countries within the set categories. Section 4 of thispaper further develops and updates the trade policy challenges related tobananasfacingCaribbeancountries.

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8.� Role of bananas and food security

In this section we undertake an integration and assessment of analysiscompletedontheroleofthebananasectorintheeconomiesoftheCaribbeancountriesanditsmultipliereffects,particularlyastheserelatetofoodsecurityand ruraldevelopment.Food security in theCaribbeancanbe affectedbyvariousandinterrelatedinternationalanddomesticfactorssuchas:highcostofproduction, lowproductivity, lossofarable lands, limitedavailabilityoflabour,changesintheinternationaleconomicenvironment,particularlywithrespecttotrade,andsusceptibilitytonaturaldisasters.

The banana sector has played a major role in the economies of Belize,JamaicaandSurinameandanevenmoreimportantroleinSaintLucia,SaintVincentand theGrenadines,DominicaandGrenada.Sucha rolehasbeencaptured directly in terms of production, employment and income, withsignificant indirect effects through multipliers in these countries. In thissection we begin with an overview of the banana industry in the regiondrawingupondatafromtheregionalbananamarketingentity,theWindwardIslands Banana Growers Association (WIBDECO) that focuses on the

FIGURE8.1Windward Islands banana export volumes (�985–�005)

Source: Author’sconstructionbasedondatafromWIBDECO,2006(inAppendix).

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OECSbananaproducingcountries.WethendrawuponsomeoftheworkdonebyAllport(2005),Rawlins(2005),Laurent(2003),Thomas(2003)andPreville(2003)toprovideanassessmentoftheroleofthebananasectorinthemajorCaribbeanexportingcountries.

8.�.� Brief overview of the banana industry in the Windward IslandsThe banana industry in the Windward Islands has gone through variouscycles of growth and depression over the last several decades. Figure 8.�shows the trends inbananaexportvolumes for thesecountries since1985.Itrevealsthatforallofthecountries,whiletherehavebeenfluctuationsinvolumes,therehasbeenamarkeddeclinesince1993.

All of these countries enjoyed their best-ever market performance priorto 199385. Throughout that period Saint Lucia has been the largest singlesupplier followed by Saint Vincent and the Grenadines, while Grenada’sexportvolumeshavestagnatedatlessthan1000tonnessince1997.

In value terms the banana industry has contributed significantly tothe economies of the Windward Islands over the period 1985–2005 (seeFigure 8.�). For these countries as a group, it is seen that their best-everperformance was in 1990 when together their gross export earnings wasEC$387.3 million86, coinciding with the best ever export performances ofSaintLuciaandSaintVincentandtheGrenadines.However,fortheseislandsgross export revenue fell below EC$200 million in 1996 and has declinedpersistentlyeversince.

8.�.� Direct contribution to commercial activity and economic growthAn important role of the banana industry in the Caribbean has been itsdirect contribution to commercial activity and economic growth. In anattempttoexplainhowtheregionalbananatradecontributedtoanincreaseincommercialactivity,itisimportantthatdataareexaminedattheindustryormacrolevelaswellasatthefarmenterpriseormicrolevel.Attheindustrylevel,werevieweddatarelatedtoaggregateproductionandexports,asthesearethebestindicatorsofcommercialactivityatthatlevel.Particularemphasiswasplacedonreviewingtrendsinproductionandexports,numberofactivefarmers,personsemployedandrevenuesgeneratedbytheindustry.

Atthefarmenterpriselevel,theobjectivewastoobtaintheperspectiveofthefarmerandthecompanydirectlyengagedinproductionand/ormarketingof bananas on how the preference impacted on his/her farm enterprise orbusinessanditsperformance,growth/expansionanddevelopment.

85 BothSaintLuciaandSaintVincentandtheGrenadinesenjoyedtheirbest-evermarketperformancein1990whentheyexported133777and79561tonnes,respectively.Dominica’sbest-everperformancewasin1992,correspondingtoanexportvolumeof58024tonnes;Grenada’sbest-everperformancewasin1988,correspondingtoanexportvolumeof9129tonnes.

86 EC$(EasternCaribbeandollars).US$1=EC$2.6882.

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ThebananasectorhasbeenthemajorforeignexchangeearnerforDominicaand Saint Vincent and the Grenadines and also commands an importantforeign exchange position in the economy of Saint Lucia. In the case ofDominica,Allport(2005)hashintedatevidenceofacorrelationbetweenthegrowthrateofthegrossdomesticproduct(GDP)andtheperformanceofthebananasector.DominicaachieveditshighestGDPgrowthrateoverthelast18yearsin1988,whichcoincidedwiththepeakyearofbananaproductionfor that country. When production subsequently declined the followingyear the country experienced economic contraction (see Figure 8.3).87 Anestimation of the correlation coefficient between the growth of GDP andagricultureGDPwasundertakenusingdataovertheperiod1986to2003.Weconfirmevidencethatthesegrowthratesaresignificantlycorrelatedat0.69.

Despite the continued decline in Dominica’s banana exports ever since,Figure 8.4 showsthatbananasstillaccountformorethan50percentofall

87 GDPgrewby7.4percentin1988correspondingtoDominica’speakbananaproductionof74184tonnes, then declined by -1.1 percent in 1989 following the passage of Hurricane Hugo, whenproductionfelltonearly60000tonnes.

FIGURE8.2Windward Islands banana export values (�985–�005)

Source: Author’sconstructionbasedondatafromWIBDECO,2006.

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Dominica’s agriculture exports by value. In addition, bananas contribute30percentofDominica’snationalemployment.

Figure 8.5showstherelationshipbetweenthegrowthofGDP,agricultureGDPandbananaGDPinSaintLuciaovertheperiod1990to2004.Itisclearthat the agriculture sector, and primarily bananas, significantly influencesthedirectionofoveralleconomicgrowth.Anestimationof thecorrelationcoefficientbetweenthegrowthofGDPandagricultureGDPovertheperiodrevealsacoefficientof0.65.Inaddition,thecorrelationcoefficientbetweenthegrowthrateofGDPandbananaGDPwasfoundtobe0.49.Therefore,itcanbeconcludedthatdevelopmentsintheagriculturesector,particularlythebananaindustry,impactdirectlyupontheoveralleconomicperformanceofSaintLucia.

Although he does not estimate any correlation coefficient betweenagriculture export production and economic growth, Rawlins (2005)neverthelessmakesanimportantpointaboutthelinkagesbetweenthem.Heargues that when Hurricane Alan devastated the banana industry in SaintLuciain1980thecontributionofthebananaindustrytorealGDPatfactorcostcontractedby32percent,whileoveralleconomicgrowthcontractedby

FIGURE8.3Growth of GDP and agriculture GDP in Dominica

Source: Author’sconstructionbasedondatafromAllport(2005:p.7)inAppendix.

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1.8percent. Similarly,whenproduction increased significantly in1986, thebananaindustryrecordedrealgrowthinthemagnitudeof50.5percentwhiletotalGDPgrewby15.3percent,thehighestlevelofgrowthintotalrealGDPforSaintLuciaduringtheperiod1978–2003.

The major decline in Saint Lucia’s banana industry (which started inearnest around 1994 when Tropical Storm Debbie struck the island) wasaccompaniedbyaperiodofrelativelypooreconomicperformance.Between1994 and 2003, Saint Lucia’s highest level of real economic growth was3.8percentin1999,whilethecountryexperiencednegativegrowthin2000and2001.

Rawlins (2005) also asserts the importance of the banana industry inSaint Lucia since the early 1950s. He analyses the significant growth incommercial activity over time in the context of the trade preferences thatSaint Lucia and the other Caribbean countries enjoyed in the EU marketsince 1954. Following the rapid expansion experienced between 1954 and1963,productionandexports followedagenerally increasing trendduringthe balance of the 1960s, with exports reaching a decade high of 86118tonnesvaluedatEC$13.87millionin1969.Subsequently,exportsincreasedfrom 54334 tonnes in 1983 to reach an all-time high of 133777 tonnes

FIGURE8.4Dominica banana export index and percentage of

agricultural exports

Source: Author’sconstructionbasedondatafromAllport(2005)inAppendix.

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valuedatEC$186.9millionin1990.TheprecedinganalysisbyRawlinsisinaccordancewiththeworksofseveralothersonthesubject,includingNurseandSandiford(1995)andClegg(2002).

Sinceothersectorsoftheeconomywouldhaveautonomouslycontractedduring the 1990s, one cannot attribute the declining performance of theeconomytothedeclineinthebananaindustryalone.Nevertheless,itisclearthatthepoorperformanceofthebananaindustrycontributedbothdirectlyandindirectlytothedeclineinperformanceoftheeconomy.

8.�.3 Direct impacts at the level of the farm enterpriseIn Saint Lucia, Rawlins (2005) concludes that preferential access to theUnitedKingdommarketprovidedastimulusfor increasedproductionandexportofbananas.The increase inproductionwasdue in largemeasuretotheactive involvementofa largenumberofsmall farmers,manyofwhomweresubsistencefarmersand/oremployeesinthesugarindustry.Therewasasaconsequencetheemergenceofanewclassofproducer–thecommercialbanana farmer–ofwhich therewere10000registeredby1963.Given thehighly skewed distribution of land in Saint Lucia, as confirmed by Saint

FIGURE8.5Growth rates of GDP, agriculture GDP and banana

GDP in Saint Lucia

Source: Author’sconstructionbasedondatafromSaintLuciaStatisticalOffice(2006)inAppendix.

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Lucia’s Agricultural Census Report (1996), most of these growers wouldhavebeensmallfarmers.

Duringtheperiod1988–1992,thenetearningsoftheSaintLuciabananaindustryforbananagrowersweresignificant.TheyaveragedEC$87.4millionper annum and resulted in an improved standard of living in all banana-producingruralcommunities.Bananagrowersreceivedmorethan51centsofeverydollarearnedfromtheexportofbananas,withthebalancebeingusedtocoverthecostofprovidingarangeofservicesofferedbytheSaintLuciaBanana Growers Association (SLBGA) and the sourcing of inputs. Thislevelofreturntothefarmerwasslightlymorethan32centsperpoundfromwhichfarmerswouldhavetopayonlylabour,asinputswerealreadynettedout.In1992,theaveragenetearningsperfarmerwouldhavebeenEC$10357based on net earnings of EC$98.4 million and the participation of 9500activefarmers.Therevenuesearnedbygrowerscontributedsignificantlytoimproving their standard of living and that of their families in many ruralcommunities. Many of the growers were able to purchase farm vehicles,acquireequipmentandmachineryneededonthefarmsandundertakefarmimprovementsusingincomeearnedfrombananas.

Undoubtedly, the preferential arrangements for the export of bananasset the stage for the transformation of the small farming subsector inSaintLucia.ThefinancialandtechnicalassistanceprovidedbytheUnitedKingdom Government in the 1950s was followed by significant technicalandfinancialassistancefromtheGovernmentofSaintLucia,allgearedtoensuringthatgrowerswereprovidedwiththebestpossibletechnicaladviceandothersupportservicesnecessaryforcommercialbananaproduction.

InDominicatheimpactofthebananaindustryatthelevelofindividualfarmers has also been significant. Dominica’s banana industry comprisedapproximately5063farmscultivatingover12000acresofthecroponfarmsthataveraged twoacres in1986.The industrycontinued togrowthrough1988whenitreachedamaximumof6922farmers.Allport(2005)estimatesthattheDominicanbananaindustryemployedapproximately46percentofthecountry’slabourforceovertheperiod1986–1993giventhateachfarmeremployedanaverageoffourfarmworkers.

Additionally, approximately 59percent of gross banana revenue earnedbytheDominicaBananaMarketingCorporation(DBMC)wasremittedtofarmers from which farmers were expected to pay WINCROP insurancepremiumsandfarmers’InputCessAccounts.88However,DBMCcontinuedtocoverothercostsdirectlyassociatedwithbananaproductiononthefarm.Netpaymentstofarmersaveraged43.2percentofthegrossearningsoftheDBMC, resulting in a net payment to farmers of approximately EC$280millionduringthatperiod.

88 In earlier years, farmers were also expected to pay for shrinkages and shut-outs from this grossrevenue.


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8.�.4 Implications for food securityThedeterioratingperformanceoftheregion’sbananaindustry,duelargelytochangesintheexternaleconomicenvironment(primarilyintheEU),posesserious implicationsforthesecountrieswithregardstotheir foodsecurity.MostCaribbeancountriesaresmall- islandstateswith limitedarable landsand inmany instances such landsaremarginal andhencecharacterizedbylowproductivity.Consequently,formanyofthesecountries(suchasthoseof theEasternCaribbean) thepreviously securemarket forbananas in theEUresultedintheirover-specializationinproductionofthecommodityforexport.Itwasthebananatradethatfinancedtheirfoodimportsandonthebasisofwhichruralhouseholdsearnedincomethatenabledthemtoaccesstheir food needs. The decline in production and exports observed abovehas led to a severe reduction in registered banana farmers (Table 8.�) andassociatedruralemploymentopportunities.

Preference erosion in the EU has resulted in precipitous declines in theexport revenues from bananas. As farmers gradually exit the industry,productionhasdeclinedconsiderably,withsignificantimpactsoneconomicgrowth.InordertoappreciatethefoodsecuritydimensionoftheproblemletusbrieflyanalysethetradepatternsforSaintLuciaandDominica.

Figure 8.6showsanindexoffoodimportsintoSaintLuciaovertheperiod1994to2004,89alongwiththeshareoffood90intotalimportsoverthatsameperiod.Whiletheshareoffoodintotalimportshasremainedfairlystagnant,averaging21.1percentoverthatperiod,thetendencyhasbeenforanincreaseinthevolumeoffoodimportsovertime,withthefoodimportindexhavingincreased by more than 28percent by 2004, relative to its value in 1994.Therefore,therehasbeenagrowingrelianceonforeignsourcesoffoodfordomesticconsumptioninSaintLuciasince1994.

Perhapsmore importantly, the tendencyhasbeen foradecrease inSaintLucia’s food security over the period 1994–2004 (see Figure 8.7). OneassessmentoffoodsecurityinthischapterisintermsoftheabilityofSaintLuciatopayforitsfoodimportsfromitsexportrevenues,anditisreferredtohereasthe“light”measureoffoodsecurity.Itdetermineswhetherfoodimports can be comfortably paid for by the country’s domestic exports,while leaving a significant surplus for financing payments of imports ofmanufactures. We refer to the “heavy” measure of food security as thatwhich determines whether food imports can be comfortably paid for bythe country’s total exports (bothdomestic and re-exports),while leavingasignificantsurplusforfinancingitspaymentsofotherimports.

Figure 8.7 reveals that while Saint Lucia was capable of financing all ofits food importsbyexportrevenuebetween1994and1996,since1997the

89 Theindexwascomputedusing1994asthebaseyear,i.e.1994=100.90 Food is defined here as all items classified under Section 0 of the Standard International Trade

ClassificationSystem(SITC).

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revenuethatthecountryearnsfromitsexportsisnotsufficienttopayforitsfoodimports,letaloneimportsofotheritems.Usingthe“light”measureoffoodsecurity,in199476.9percentofSaintLucia’sexportrevenuewasusedtopayfor its foodimportsandthis figurehad increasedto89.6percent in1996.However,since1997evenwhenthecountryusedupallofitsexportrevenuetopayforfoodimportsitstillneededtofindadditionalfinancingtopayforfoodimports–andthefoodsecuritysituationkeepsworseningovertime. While the country needed approximately 28percent more financingoveritsexportstopayforitsfoodimportsin1997,thisfigurehadgrownto

TABLE8.1Number of registered banana farmers (000)

Countries/Years �994 �996 �998 �000 �00� �00� �003

SaintLucia 8.0 6.7 4.5 4.8 3.8 2.0 2.0

SaintVincentandtheGrenadines 7.4 5.7 4.2 3.8 2.2 2.5 2.3

Grenada 0.9 0.2 0.1 0.1 0.1 ... ...

Dominica 6.8 5.5 2.9 2.4 1.3 1.0 1.0

Total �3.� �8.� ��.7 ��.� 7.3 5.5 5.3

FIGURE8.6Index of food imports and share of food in total imports

Source: Author’sconstructionbasedondatafromSaintLuciaStatisticsDepartment(2006)inAppendix.

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93percentmorefinancingoveritsexportstopayforfoodimportsin2003.Using the “heavy” measure of food security does not result in significantenhancement of the results up to the year 2000. However, that measureshowssignificantdifferencesfrom2002,evenifSaintLuciaremainshighlyfood-insecureas itsexport revenuesremain insufficient topay for its foodimports.

Obviously,theburdentofinancethefoodsecuritygapfallsonthetourismsector,whichhasbecomethemajorforeignexchangeearnerforSaintLuciasincethemid-1990s.Yet,whattheaboveanalysisshowsisthatthisapproachto development is simply not sustainable. Saint Lucia cannot continue tomakeitseconomygrowbyrelyingexclusivelyonthetourismsector,attheexpenseoftheagriculturesector,whichisallowedtowitheraway.Insucha model of economic growth the export revenue derived from tourism isused to finance imports of food for both domestic consumption and forconsumptionoftouristsinhotels(theforeignsector).Therefore,thetourismsector constitutes a major leakage of foreign exchange through unrealizedbenefitsofeconomicgrowthinthedomesticagriculturesector.

Figure 8.8showsanindexoffoodimportsintoDominicaovertheperiod1990 to2004alongwith the shareof food in total importsover that same

FIGURE8.7Saint Lucia’s food security situation (�994–�004)

Source: Author’sconstructionbasedondatafromSaintLucia’sStatisticalOffice(2006)inAppendix.

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period.Whiletheshareoffoodintotalimportshasremainedfairlystagnant,averaging17.3percentoverthatperiod,thetendencyhasbeenforanincreaseinthevolumeoffoodimportsovertime,withthefoodimportindexhavingincreased by more than 17percent by 2004 relative to its value in 1990.Therefore, as in Saint Lucia, there has been a growing reliance on foreignsourcesoffoodfordomesticconsumptioninDominica.However,theextentofrelianceonfoodimportsinDominicaissignificantlylowerthaninSaintLuciaover theobservedperiod.Additionally,while the tendencyhasbeenfor a decrease in Dominica’s food security over the period 1990–2004 (seeFigure 8.9),againtheextentofsuchdeclineisfarlesspronouncedthanforSaintLucia.

Figure 8.9 reveals that, unlike Saint Lucia, Dominica was capable offinancingallofitsfoodimportsbyexportrevenuebetween1990and2004.Although the food security position has deteriorated somewhat over timeDominicacanpayforallofitsfoodimportswithapproximately60percentofallitsexportrevenueasat2004.Inaddition,theseresultsareessentiallythesamewhethera“light”or“heavy”measureoffoodsecurityisadopted.

FIGURE8.8Dominica’s index of food imports and share of food

in total imports

Source: Author’sconstructionbasedondatafromDominica’sStatisticalOffice(2006)inAppendix.

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8.3 Recent changes in the banana trade policy environment

Thissectionreviewsthechangestakingplace(orlikelytotakeplace)intheinternalandinternationaltradingenvironments,bothintermsofpoliciesandtradingrulesandtheirlikelyimpactonthebananasector.

PreferentialmarketaccessinEuropehasbeenthebasisfortheviabilityofthebananatradefortheCaribbeancountries.However,sincetheformationof the Single European Market (SEM) the EC has sought to reform itscommonagriculturalpolicyinamannerthatisconsistentwiththeobjectivesof any single market: ensuring that available factors of production aredeployed in themostefficientmanner, thusmaximizingconsumerwelfare.HencetherehavebeencallstoliberalizetheEUmarketforbananaimportsboth by interest groups within its Member States and by Latin Americancountries that have a substantial supplying interest but whose bananas aresubjecttotheEC’sMFNtariff.TheEUhashadtoreformitsbananaimportpolicy several times since 1992 and the process continues. Such reformshavehadanadverseimpactonthemajorbanana-exportingcountriesoftheCaribbeanwhohaverespondedbyundertakingsomereformstotheirowninternalorganizationofproductionandtrade.

FIGURE8.9Dominica’s food security situation (�990–�004)

Source: Author’sconstructionbasedondatafromDominica’sStatisticalOffice(2006)inAppendix.

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8.3.� Context of the Caribbean in world banana export tradeHere we provide some background information to situate the Caribbeanbananaexportingcountriesinthecontextofworldbananatradeandhencethepolicydebateontheneedforregimechange.

Attheturnofthecentury,Caribbeancountriesaccountedforthesmallestsharesofworldbananatrade,althoughsuchsharesinvariablyaccountedforthemajorityofalltheirbananaproduction(seeTable 8.�).

No single Caribbean country accounted for 1percent of world bananaexports in2000,with theirmarket shares ranging from0.01 inGrenada to0.68intheDominicanRepublic.BycontrastmostcountriesinLatinAmericaaccountforasignificantproportionofworldtrade:Ecuadoraccountedfor33.7percent, Costa Rica for 16.1percent and Colombia for 13.03percentin 2000. Even the smaller producers in Latin America typically accountforalargershareoftheworldmarketthantheaverageCaribbeancountry.Therefore, while both country groups exhibit significant dependence onbananaexports,theLatinAmericancountriesclearlycommandadominantpositionintheworldmarket.

Intuitively, any tradepolicymeasure that results in reduction inbananasupplyfromcountriesineitherLatinAmericaortheCaribbeanwilladverselyimpacttheirdomesticeconomiesbecausethemajorityofproductioninmostcases is for the export market. However, while Caribbean countries arealreadyoperatingatcapacitylimitwithrelativelysmallmarketshares,LatinAmericancountriespossesscapacityreservesandalreadydominateexportmarkets. When the food security considerations of Caribbean countriesaretakenintoaccountitwouldseemthatanypolicychangethatadverselyimpacts their market access will result in further deterioration of theiralreadyvolatilefoodsecuritypositions.

8.3.� Challenges to the EU banana import policySincetheformationoftheSingleEuropeanMarket(SEM)in1993,EUimportsof bananas have been governed by the Common Market Organisation forBananas (CMOB)91. The CMOB regulates banana importation through asystemoftariffratequotas(TRQ).Inthissystem,bananasmaybeimportedfrom third countries under three different tariff quotas. Bananas from alloriginsmaybeimportedunderquotasAandBbananasfromACPcountriesenterthesequotasdutyfree,whilebananasfromotheroriginspayatariffof€75/tonne. Bananas imported beyond quotas A and B have to pay a muchhigher out-of-quota tariff of €680/tonne (with a preferential tariff of €380/tonneforACPbananas).Inpractice,quotasAandBaremanagedasiftheyformedasinglequotaandareoftenreferredtoas“quotaA/B”.MostofthebananasimportedunderquotaA/BoriginatefromLatinAmericancountries.

91 AsdefinedbyCouncilRegulation(EEC)Nr.404/93of13February1993


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Thesebananasareoftenreferredtoas“dollarbananas”becausetheyaretradedinUSdollars.92

A third quota (quota C) is reserved for bananas imported from ACPcountries.Bananas importedunder thisquotaenterduty free. Inaddition,aftertheenlargementofMay2004theEUcreatedanAdditionalQuantity(AQ),opentoallexportingcountries,toallowfortheimportationofbananasintothenewMemberStates.93

The quotas are administered by a complex system of import licences.BananaimportlicencesforspecificquantitieswithinquotasA,BandCareallocated by the European Commission to market operators established intheEU.Theseoperatorsincludespecializedimporters,multinationalbananacompaniesorsubsidiariesofbanana-producingand/orexportingcompaniesofsupplyingcountries.Mostofthelicencesarereservedforcompaniesthatareinvolvedintheproductionorshippingofbananasintheproducingcountries(so-called“traditionaloperators”),withvolumesbasedontheirsharesofpastimports (systemofhistorical reference). Smallerquantitiesof thequota arealsoopentonewcomers,namelyotherbananaimportersthatdonotqualifyastraditionaloperators(“non-traditionaloperators”,seeEC2004).94

There are virtually no imports of bananas outside the quotas due to theveryhighleveloftheout-of-quotatariff.Inpractice,theCMOBhaslimitedtotalbananasupply intotheEUbyputtingacaponthe importsofdollarbananas,whichtendtobemorecompetitivethanmostACPbananas,evenwith the €75/tonne tariff. By limiting supply to a level lower than what

92 SeeFAOTechnicalNote,pp.4–5.93 Ibid.94 Ibid.

TABLE8.2Percent of world exports and export production in �000

Caribbean Latin America

Country Percent of world exports

in �000

Percent of production

exported in �000

Country Percent of world exports

in �000

Percent of production

exported in �000

Jamaica 0.36 32.3 Ecuador 33.70 60.9SaintLucia 0.43 67.4 Colombia 13.03 92.3SaintVincent/Grenadines

0.37 99.1 CostaRica 16.10 83.7

Dominica 0.24 89.4 Guatemala 6.85 95.3Grenada 0.01 15.1 Panama 4.60 66.6DominicanRepublic

0.68 44.3 Honduras 1.29 32.1

Suriname 0.34 82.1 Nicaragua 0.39 80.1Belize 0.59 81.6

Source:UNCTAD(2003:p.62).

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wouldexistunderfreemarketaccess,theCMOBhascreatedaquotarent.As a result, banana prices in the EU have been much higher than in mostothermarketsof theworld, since they reflect thequota rentand the tariff(fordollarbananas).95

LatinAmericansupplyingcountrieschallengedtheCMOBseveraltimesintheGATTandattheWTObecauseitlimitstheirexportsofbananastotheEU.InmanycasestheyweresupportedbytheUnitedStates,whosetransnationalbananamarketingcompaniessawtheiraccesstotheEUmarketcurtailedbytheCMOB in1993. In1997, theWorldTradeOrganization (WTO) ruledthat the CMOB was incompatible with several articles of GATT and theGATS.TheEUimplementedanewversioninJanuary1999.However,thesecondversionofCMOBwaschallengedandagainfoundincompatiblewithWTOrules.FollowingtheWTOruling,theEUundertooknegotiationswiththemainpartiesinthetradedisputetofindanagreementonareformoftheCMOB(FAO,2001).InApril2001,theEUreachedtwoseparateagreementswith the United States and Ecuador, which led to the third version of theCommon Market Organisation for Bananas. Finally, in 2004 the EU hadto furtheramend theCMOBto reflect its enlargement to include tennewMemberStatesofCentralandEasternEurope.96

Afundamentalaspectofthe2001agreementwiththeUnitedStatesisthattheEuropeanCommissionhascommittedtochangingitsimportregimefromthecurrent tariffratequotatoa tariff-onlysystemno later than1January2006.From2006bananaimportswillnolongerbeboundbyquotaswhatevertheir origin; a single tariff will apply to all banana imports. However, inordertomaintainitscommitmenttoACPcountries,theEUintendstogivethema tariffpreferencesuchthatACPbananaswouldpaya lower,orno,tariff.Currently,awaiverobtainedattheWTOMinisterialConferenceof14November2001inDohaallowsACPbananastobeimportedintotheEUdutyfreeuntil31December2007(WTO2001).97

Tariffication, i.e., the transformation of a TRQ system into a tariff-onlysystem, is governed by Article XXVIII of GATT and stipulates that thecountry that undertakes tariffication should consult with the supplyingcountries. Ifnoagreementcanbe found, the lattermayseekarbitrationattheWTO.ThetextofthewaiveradoptedattheDohaConferencestatesthatshouldthenegotiationgotoarbitration:

“If the arbitrator determines that the rebinding would not result in at least maintaining total market access for MFN suppliers, the EC shall rectify the matter. If the EC has failed to rectify the matter, this waiver shall cease to apply to bananas upon entry into force of the new EC tariff regime.” (WTO,2001).98

95 Ibid.96 Ibid.,pp.5–6.97 Ibid.,p.6.98 Ibid.,p.6.


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As such, on 13July 2004, the European Council adopted a decisionauthorizing the Commission to open negotiations on modifications to thebounddutiesforbananas.On15July2004,theCommissioncirculatednoticetoWTOMembersofitsintentiontomodifyconcessionsonbananasanditsdesire to enter consultations and negotiations with Members under Art.XXVIIIofGATT1994.Inparticular,theEUproposedtoopennegotiationsunder GATT 1994,99 where only trade under MFN tariffs matters,100when WTO Members are to identify which Members have a “principalsupplyinginterest”ora“substantialinterest”.On27October2004,theEUCommissioner forTrade stated that theproposed initial tariff toapply forbananasfromtheMFNsupplierswas€230/tonne.HestressedthatitwastheleveloftariffprotectionfortheexpandedEUof25MemberStatesandthatthefigurewasacontributiontothenegotiations.

The MFN countries were united in their response to the EU’s requestfor Art. XXVIII consultations and negotiations and its initial tariff offer.They argued for a tariff no higher than €75/tonne, citing a study whichfoundthatifthe€75/tonneACPtariffpreferencewereincreased,andACPquotarestraintslifted,Africanexportswouldexpandenormously,displacingLatin American banana exports and inflicting severe damage to the fragileeconomiesoftheregion.101

Art.XXVIIInegotiationswerecompletedwithoutamutuallysatisfactorysolutionforallPartiesandon31January2005theECproceededtoofficiallynotify the WTO that the new tariff to be applied in respect of bananasoriginating from MFN supplying countries was €230/tonne. Under theDoha Ministerial Decision the MFN countries had 60 days to signal theiracceptanceorrejectionoftheproposedtariffandinfacttheydidrejectthetariffandcalledforWTOarbitrationinthematterinacommunicationdated30March2005.102

99 “Before1January1958andbeforetheendofanyperiodenvisagedinparagraph1acontractingpartymayelectbynotifyingtheCONTRACTINGPARTIEStoreservetheright,forthedurationofthenextperiod,tomodifytheappropriateScheduleinaccordancewiththeproceduresofparagraph1to3.Ifacontractingpartysoelects,othercontractingpartiesshallhavetheright,duringthesameperiod,tomodifyorwithdraw,inaccordancewiththesameprocedures,concessionsinitiallynegotiatedwiththatcontractingparty.”(Para.5.Art.XXVIII,GATT1994).

100“Insuchnegotiationsandagreement,whichmayincludeprovisionforcompensatoryadjustmentwithrespecttootherproducts,thecontractingpartiesconcernedshallendeavourtomaintainagenerallevelofreciprocalandmutuallyadvantageousconcessionsnotlessfavourabletotradethanthatprovidedforinthisAgreementpriortosuchnegotiations.”(Para.2.Art.XXVIII,GATT1994)

101Theyfurtherarguedthatforevery€10/tonneincreaseinthetariff,LatinAmericanmarketaccessislikelytodeclineby70000tonnes.Consequently,shouldtheEUimplementatariffof€300/tonne,LatinAmericanmarketaccesswilllikelydeclinebyatleast1.5milliontonnesperyear,andpossiblyupto2.6milliontonnesperyear,attheexpenseofincreasedmarketaccessforAfricanbananaexports(See Preville (2005a:3) Status of The Article XXVIII Negotiations for Implementing a Tariff-only Banana Regime in the European Union,BriefingNoteforCaribbeanHeadsofGovernment,April.

102SeeWTOdocumentWT/L/607/Add.1-9.

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In its first decision the Arbitrator determined that “the EuropeanCommunities’ envisaged rebinding on bananas would not result in at leastmaintainingtotalmarketaccessforMFNbananasuppliers,takingintoaccountallECWTOmarket-accesscommitmentsrelatingtobananas”.103ThismeansthattheproposedtarifflevelishigherthanitoughttobeiftheMFNcountriesaretocontinuetoenjoymarketaccessnodifferentthantheypresentlydounderthe existing tariff ratequota (TRQ) system. In arrivingat thisdeterminationtheArbitrator took twomajorpoints intoconsideration,bothofwhichdealwiththeunderlyingdata.First, that thepricedataseriesusedbytheECdidnotcoverthemostrecentlyavailablethree-yearperiod,asiscustomaryWTOpractice.Secondly,thatthedatathemselveswerenotaccurate,sincetheywerenotactualpricespaidbytraders,butproxies for thesedataasannouncedbytradersinanygivenperiod.

Withrespecttothemethodologythatwasapplied(theprice-gapmethod),the Arbitrator upheld it as representative and relevant for this type ofanalysis. In the process, the Arbitrator also questioned whether othermethods, including economic modelling methods as suggested by someMFNcountries,wouldyieldanybetterresults thantheprice-gapmethod.On 12September2005 the EU responded to the Arbitrator’s decision bytablinganewtariffproposalof€187/tonneforreplacingtheexistingTRQsystemthatappliedwithrespect toMFNbanana imports. Inaddition, theEU proposed that the ACP countries continue to enjoy duty-free marketaccess for a quota of 775000 tonnes. The EC then proceeded to consultwith the MFN countries on whether they found this solution acceptable.Talksbrokedown, leaving theEUnoalternativebut to invoke thesecondarbitrationprocedure.104

ThemandateoftheSecondArbitrationwastodetermine“whethertheEChasrectifiedthematter”,theunderstandingofrectificationtobelinkedtothefindingoftheArbitratorintheFirstArbitration.TheArbitratordeterminedthat the European Communities’ proposed rectification would not result“in at least maintaining total market access for MFN banana suppliers”,taking into account “all EC WTO market-access commitments relating tobananas”.105

However,theoutcomeoftheSecondArbitrationwasnottheendoftheECbanana tariff-onlyprocess.Honduras formally tabled thebanana issue

103See European Communities – The ACP-EC Partnership Agreement – Recourse to Arbitration Pursuant to The Decision of 14 November 2001: Award of the Arbitrator,para.94.

104ThiswascommunicatedtotheArbitratorbytheECon26September2005,inwhichtheECstated,“Thereiscurrentlynobasisforevenseekingamutuallysatisfactorysolution”.SeePreville(2005b),Briefing note on the outcome of the Arbitration process, Briefing Notes for Caribbean Heads ofGovernment,November.

105European Communities – The ACP-EC Partnership Agreement – Second Recourse to Arbitration Pursuant to the Decision of 14 November 2001: Award of The Arbitrator,para.127.


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fordiscussionattheSixthWTOministerialconferenceinitscommunicationWT/MIN(05)/2,dated8November2005.InthatcommunicationHondurasstated,“IfanewECbananaregimeistobe installedasof1January2006,theECmustclarifytotheMFNsupplyinginterestshowitwillfullycomplywiththe14November2001MinisterialDecision,theArbitrationAwardsof1Augustand27October2005,GATTArticleXIII,GATTArticleXXVIII,andallotherWTOobligations”.106

AttheHongKongMinisterialConferencetheECbananaimportpolicywasdiscussedatlengthinaplenarysession,whichwentwellintothenight.TheplenaryfirstheardHonduras’argument,whichembodiedarequestfortheECtocomplywiththevariousrulingsbyWTOpanelsandtherecentArbitrationBody.ArgumentswerethenheardfromthevariousMFNbanana-exportingcountriesandtheACPcountries.ThegistoftheMFNcountries’argumentswasthattheproposedECtariffof€176/tonnewouldadverselyimpacttheirmarket access and therefore should be revised downwards. ACP countriesarguedthecontrary,thattheproposedtarifflevelwasnotsufficientlyhightoguaranteetheirmarketaccesswouldremainunchanged.

WiththeassistanceoftheNorwegianTradeMinisterasFacilitator,itwasagreed that theECwas toproceedwith implementationof its single tarifffrom 1January2006, subject to a monitoring mechanism. The monitoringmechanism would periodically review the performance of the EU bananamarkettodeterminewhetherthesingletariffwasadverselyaffectingMFNmarketaccess.

The EC has proceeded to implement its single tariff of €176/tonne aswas agreedat theHongKongMinisterial inDecember2005andhasbeenmonitoring the market performance ever since. At this stage the signalsemanating from the monitoring mechanism process are mixed. Based ontradedataprovidedbytheECformarketperformance in the firstquarterof2006, itappearsthatexportsfromLatinAmericahavegrownrelativetothesameperiodin2005.Additionally,italsoappearsthatexportsfromtheACPhavegrownoverthesameperiod.Therefore,itwouldappearthatthetariffhasnotadverselyimpactedmarketaccessforLatinAmericanbananas,theimportanttestthatmustbefulfilledifitisreasonablyequivalenttotheprevioustariff-quotaregime.

Yet, therehasbeennogrowth inmarketshare forCaribbeanbananas intheEU.AllofthegrowthfromtheACPoriginatesfromAfrica,primarilyCameroonand theCôteD’Ivoire.Thishasbeen facilitatedby the775000tonnequotathatwasopenedforbananasuppliesfromtheACP.

106SeeWTOdocumentECComplianceWithallMFNRightsandInterestsonBananasundertheDohaMinisterialDecisionof14November2001(WT/MIN(05)/15),TheAwardoftheArbitratorof1August2005(WT/L/616),TheAwardofTheArbitratorof27October2005(WT/L/625),GATTArticle XIII, GATT Article XXVIII and All Other WTO Obligations, Ministerial Conference,SixthSessionHongKong,13–18December2005.

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LatinAmericabanana-exportingcountrieshaveneverthelesscontinuedtocomplainthatthetarifflevelistoohighandhaveissuedcallsfortheECtofurtherreducethetariffevenaheadofthecompletionoftheoneyearperiodofmonitoringagreedtoatHongKong.WhiletheEChasnotyetagreedtoreducethetariff, itseemstobeconsideringbindingthetariffat itscurrentlevelandsubjectingthattarifftofurtherreductionwithinthecontextoftheDohaRound.

While there has been no agreement on modalities for tariff reduction inagriculture,alloftheproposalsunderconsiderationintheWTOwouldplacesuchatariffwithinabandthatwouldsubjectittocutsofuptofiftypercent.Therefore,shouldtheECproceedtobinditstariffatthecurrentlevelandnot designate bananas as a “sensitive product”, then by the completion ofthe Doha Round of negotiations, the tariff on bananas could decline toapproximately€88/tonne.

8.3.3 Changes in banana industry structure and trade policy emphasisThe significant changes that have taken place in the EC’s regime forbanana imports since 1993 have had an impact on domestic bananaproductionandmarketingpoliciesintheCaribbean.Suchchangesmanifestthemselves in two important ways. Firstly, the state-owned enterprises inDominica and Saint Lucia were privatized in the late 1990s in the hopeof increasing productivity and competitiveness as the levels of protectiondeclined.Secondly,attheregionallevelemphasisshiftedfromresearchanddevelopment(whichhadbeentheprimaryobjectiveoftheWindwardIslandsBanana Growers Association (WINBAN)) to commercial marketing anddistributioninEurope,whichbecamethefocusofthenewregionalcompanyWIBDECO.107

Privatization of the industry in the Windward Islands began in SaintLuciain1998whentheSaintLuciaBananaGrowersAssociation(SLBGA)Act of 1967 was repealed and a private company, the Saint Lucia BananaCorporation (SLBC) was created. SLBGA had started out as a privatecompanywiththegrowersasshareholders.AfterpassingoftheActof1967it functioned as a statutory organization until 1998. Despite subsequentamendments to the Act to allow first WINBAN and then WIBDECO tobecomethesoleexportersofbananas,throughoutitsexistencetheSLBGAhadbeenthesubjectofmanychangesandtensionscentredprimarilyonitsrelationshipwiththegovernment.

During its existence SLBGA provided a number of inputs and essentialservices to banana growers. These included providing packaging materials,

107FromRawlins(2005):“WINBANwasengagedinresearchanddevelopmentworkaimedatensuringthatthebestpossibleagronomic,qualitycontrolandmanagementpracticeswereemployedonfarms.Thesesmall farmswereeffectivelytransformedfrombasicsubsistenceunits tocommercial farmenterpriseswhichemployedlabourandadoptedrecommendedhusbandryandbestmanagementpractices.”


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researchanddevelopment,fieldagronomicservices,pestanddiseasecontroland a banana transportation allowance. The SLBGA was also responsibleformanagingsignificantlevelsoffinancialresourcesonbehalfofthebananaindustry.

However,oppositiontotheSLBCstructureresultedintheestablishmentofTropicalQualityFruitCompanyin1998,whilefurtherdisenchantmentwiththeSLBCledtotheformationoftheBananaSalvationMarketingLtdandthe Agricultural Commodities Trading Company Ltd. Under operation asprivateentities,significantlylargersharesofgrossreturnsfrombananasaleswere remitted to the farmers and this was seen as a positive development.However,alltheimportantservicespreviouslyprovidedbySLBGAweretobeprovidedbythefarmersthemselves.Giventhegenerallysmallsizeoftheiroperationsitbecameuntenableforthesefarmerstosurviveintheindustryandthustheprivatizationprocessclaimedmanycasualties.

InDominicabananasweretraditionallymarketedbytheDominicaBananaMarketingCorporation(DBMC),astatutorycorporationcreatedbyanActofParliament in1984.Itsspecificpurposewasto“promotethewell-beingof the banana growers and to ensure the financial viability of the BananaIndustry”.108 Essentially, like its counterpart in Saint Lucia (the SLBGA),it provided all the supporting services to make the banana industry viablein Dominica: purchase of bananas from producers, leafspot control, depotoperationsandprovisionofinputs,amongotherthings.

Commercializationof theDominicabanana industry tookplace inmid-2002 following ten years of significant declines in the profitability of theDBMC,due to its attempt to stabilize incomespaid to farmers.109DBMCis reported to have made payments to its farmers that were well in excessofitsgrossincomeforseveralyears,inanattempttokeepasmanyfarmersin the industry as possible. However, such a policy was not sustainableand resulted in the rapiddeteriorationofDBMC’s financialposition,withtremendousdebtequivalentto150percentofthecompany’sexportearningsand7percentofthecountry’sGDP.110

As was the case in Saint Lucia, privatization of the Dominican BananaIndustry resulted in the creation of a major private firm, the DominicaBanana Producers Limited (DBPL). Farmers received a larger share ofthe gross returns to the industry but they had to bear the added costs ofmanagementofallessentialservicestoensureboththeirindividualandgroupviability. The commercialization of Dominica’s banana industry heraldedthe era of Fair Trade production and marketing, an approach introducedto Dominica by the Windward Islands Farmers’ Association (WINFA).

108Allport(2005:23).109Most of the decline in gross earnings of the Dominican Banana Industry has been attributed to

decreaseinbothproductionandexportsasopposedtoadeclineinpricespaidtofarmers.110Allport,opcit.

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UnderFairTradeproductionandmarketing, farmersarepaidapriceoverandbeyond thatpaid for standardcommercialbananasprovided that theyfulfilstringentrequirementsintheproductionprocess.Farmersarealsopaida“socialpremium”thatisusedforimplementationofapprovedprojectsintheircommunities.111

8.4 Policy interventions and strategies

Against the background of the current international trading environment,here we propose policy interventions and strategies that would lead toestablishment of economic and rural structures that are dynamic andsustainable and result in increased welfare and livelihoods in banana-producingruralareasoftheCaribbean.Threefundamentalpointsaremade:theimportanceofbothpublicandprivatesectorinvestmentnationally;theneedtotargetnicheandspecialtymarketsegmentsglobally;andnegotiatingwithin the WTO development measures (such as special products andinternationalfinancialassistance)throughschemeslikeAidforTrade.

8.4.� Private/public sector rolesMostof theCaribbeanbanana-exportingcountrieshavesufferedsetbackssince the implementationof theEU’sbananaregime in July1993and theresulting changes. In response they have implemented policies ostensiblygearedatenhancingtheircompetitivepositionandmaintainingtheiraccessto the EU market. Most of this policy shift has been in the direction ofprivatization:scaling-backthelevelofstateinterventionintheproduction,marketing and distribution processes and placing these activities in theprivatedomain.While therehavebeensome increases in theefficiencyofexecution of these activities, from the perspective of farmers the reformshave not been wholly successful. The views of farmers in Saint Lucia,DominicaandGrenadaareelaboratedbelow.

Farmers perceive that the increase in the number of private firms (notlinkedtoacooperativeorsomeothercollectiveproductionandmarketingsystem)thatproduceandpreparebananasformarketinghasresultedinhighercostsofoperationasthesefirmscannotenjoyscaleeconomiesindividually.Moreover, themanagement skills thatwerepreviously enjoyedby farmersthrough the former state-owned companies are no longer available at thelevelofindividualfirms,eventhoughtheseprivatefirmsarenowrequiredtoprovideallsuchservicestotheirfarmers.Noneofthefirmsislargeenoughtoprovidethesemanagementandtechnicalservicesinaneconomicallyviable

111Dominicaisnowestimatedtohaveatotalof16FairTradefarmerassociationswithamembershipofmorethan730farmers.EachoftheseassociationsnominatesarepresentativeatthenationalleveltoformtheNationalFairTradeOrganisation.


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manner. These developments have put in serious doubt the future of theregion’sbananaindustry.

Connectedtotheissueofenhancingproductivityistheapproachutilizedbythevariousstakeholdersinaddressingtheproblemsoftheindustry.Thefarmers are concerned that there tends tobe a conflictof interestbetweenwhatisbestfortheindustryandwhatwouldbebestforindividualcompanies.They see that the provision of research, education and extension servicesremainsacriticalelementofthemodernizationprocessandaresponsibilityofthegovernment.

Farmers also expressed much concern over the costs of inputs and theroleoftransportcostsasamajorbottlenecktostreamliningefficiencyintheinternalsector.Ifinputsaresourcedinbulk,farmersbelievethattheywouldreduce costs. But adequate infrastructure, particularly roads, is needed inordertoavoiddamagetovehiclesandtherelatedriseincostsofproductiontofreeonboard(FOB)priceattheportofexportation.

Farmers continue to emphasize the important roleofgovernment in theareasofeducation,research,incentivesforattractingyouthtotheagriculturalsectorandlandusemanagement,especiallyrelatedtotheimpactoftourismonruralareas.112

8.4.� Niche marketsCaribbeanbanana-exportingcountriesfaceconsiderablechallengesiftheyaretosurviveintheEUmarket.Thesechallengesarelinkedtotheirproduction,marketinganddistributionstructuresandtochangesintheglobalenvironmentinwhichtheywillberequiredtotrade.Increasingly,itseemsthatthemarketfor conventional bananas will become too competitive for these countries.However,thereisagrowingmarketforFairTradeandorganicallyproducedbananas, and a significant proportion of bananas being exported from theWindwardIslandsaremarketedunderthese labels.Thesecountriesshouldinvestmoreresourcesinthosenichemarkets,giventhepossibilityofsecuringlargerreturns thanwithconventionalexports.However,while theopinionof many industry leaders is that bananas exported under Fair Trade andOrganiclabelswillbecomepermanentnichemarkets,giventhepositionsofmajormultiplesandsupermarketslikeWal-Mart,itisnotonlytheWindwardIslands thatproducesuchbananas.Competition for thesenichemarkets isfierce and growing, with significant supplies from major MFN exporterslikeEcuador.Yet,thisisthemarketsegmentthattheCaribbeanregioncancompeteinandpromotionalcampaignsthatincreasinglytargetitshouldbeemphasized.

112SeealsoSpringer(2004)..

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8.4.3 Negotiations in the WTOCaribbean countries are clear in their position that the issues related tothe erosion of long-standing preferences must be addressed in the WTOnegotiations. The region supports the need for the multilateral tradingsystemtoincludedisciplinesfacilitatingfoodsecurity,ruraldevelopmentandlivelihoodsecurity–suchasspecialproducts,sensitiveproductsandaspecialsafeguardmechanism.Inrelationtoitslongstandingpreferencesinbananas,the region would like the EU to designate bananas as a sensitive productin its market, thereby excluding that product (or minimizing the level ofreduction)fromtariffreductionduringtheDohaRound.TheEUhassofarbeenhesitantindesignatingbananasasasensitiveproductarguingthatithasotherproductswhichitwouldprefertodesignateaheadofbananas;anditwouldnotliketobeseenasrenegingontheagreementthathadbeenreachedwiththeUnitedStatesandEcuadorin2001tofullyliberalizeitsbananatradein2006.Ifbananasarenotdesignatedasensitiveproduct,thenitislikelythattheywillbesubjectedtotariffcutsoftheorderof50percentdependingonthetariffreductionformulafinallyagreedtobytheWTOmembership.

However,onethingseemsclearwithregardstothesurvivalofCaribbeanbananas in the EU market. There have to be major reforms in that sectoraimed at improving efficiency of the entire supply chain from productionto marketing and final distribution. Such major reforms will necessitatenot only significant improvements in labour productivity but will also becapital-intensiveandtechnology-intensive.Assuch,thereistheneedforanAidforTraderegimewithinthecontextoftheDohanegotiations,asameansof improving the efficiency of the banana industry in these countries. ItmustbestatedclearlythatsuchanAidforTraderegimeshouldnotenvisagesubstituting the banana trade of these countries for aid, but providingfinancial and technical assistance that will transform the sector to higherlevelsofefficiency.

Caribbeancountriesembracethisinitiativecautiouslybecauseitisnotnew.A looming fear within the region is that the major developed countries intheWTOwhowillbethedonorsofthisaidmoneymaycoercecountriestoacceptnewaidfortradeonlyiftheyacceptmodalitiesfortariffreductionthatwillsignificantlyopentheirmarkets,possiblytotheirowndetriment.

TheAidforTradeTaskForcehassofaridentifiedareasforimplementationof the initiative through which the region may benefit in modernizing itsbananasector.Theseinclude:

• trade-related infrastructure including physical infrastructure and tradesupportinstitutions;

• buildingproductivecapacity,includingprivatesectordevelopment;and• trade-related adjustment, including forward-looking support for

adjustmentassociatedwithchangesininternationaltraderegimes.Policycoherenceisofcoursethenextmajorconsiderationinimplementing


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an Aid for Trade package and Caribbean banana-producing countriesneed to work with their partners to ensure that both their own and thepartners’policiessupport thechangesneededforpromotingbananasectortransformation,agricultureandruraldevelopment.

References

Allport, R.2005.Case study of the impact of trade preferences on the banana industry of the Commonwealth of Dominica.ReportpreparedforFAO(May).Rome.

Barbados National Strategy for Trade Capacity Building. 2003. HemisphericCooperationProgram,FTAA.sme/inf/168(October).

Clegg, P. 2002.The Caribbean banana trade: from colonialism to globalization.NewYork,PalgraveMacmillan.

European Commission.1994.Report on the EC banana regime.VI/5671/94(July).Brussels.

European Commission. 1995. Report on the operation of the banana regime.SEC(95)1565Final(October).Brussels.

European Commission. 2000. Commission Regulation (EC) No 2374/2000 onimports of bananas under the tariff quotas and of traditional ACP bananasfor 2001. Official Journal of the European Communities, L 275 (26 October).Brussels.

European Communities. The ACP–EC Partnership Agreement – Recourse to Arbitration Pursuant to the Decision of 14 November 2001: Award of the Arbitrator.Brussels.

European Communities. The ACP–EC Partnership Agreement – Second Recourse to Arbitration Pursuant to the Decision of 14 November 2001: Award of the Arbitrator.Brussels.

European Council. 1998. Council Regulation (EC) No 1637/98 of 20 July 1998amending Regulation (EEC) No 404/93 on the Common Organization of theMarketinBananas.Official Journal of the European Communities,L210.

FAO.2001.Bananas: what is the tariff-only equivalent to a tariff rate quota regime?TechnicalNoteV101.Rome.

GATT. 1994.EEC – Import regime for bananas: report of the panel.DS38/R(18January)(availableathttp://www.wto.org/gatt_docs/english/sulpdf/91760043.pdf).

Laurent, E.2003.Small states in the banana dispute and the lessons to be learnt from their experience.PaperpreparedfortheCommonwealthSecretariat.

Matthews, A. 2005. Policy coherence for development. Issues in agriculture: an overview paper. Institute for International IntegrationStudies (IIIS)DiscussionPaperNo.63(March).Dublin,IIIS.

Ministry of Agriculture, Forestry and Fisheries. 2000. St Lucia’s agricultural diversification strategy, January 1, 2001 to December 31, 2005(October).StLucia.

Ministry of Agriculture, Lands, Fisheries and Forestry. 1996.St Lucia’s Census of Agriculture final report.PlanningandStatisticalUnit.StLucia.

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Nurse, K. & Sandiford, W. 1995.Windward Islands bananas: challenges and options under the single European market.Kingston,Jamaica,FriedrichEbertStiftung.

Preville, C.2002.Trade liberalization under imperfect competition. An analysis of the European Union’s market for banana imports.Maastricht,ShakerPublishingBV.

Preville, C. 2003. Impact of changes in the European Union’s policy for banana imports on the Eastern Caribbean Region (1992–2002). Study prepared for theCommonwealthSecretariat,London.

Preville, C. 2005a.Status of the Article XXVIII negotiations for implementing a tariff-only banana regime in the European Union.BriefingNoteforCaribbeanHeadsofGovernment(April).

Preville, C. 2005b.BriefingnoteontheoutcomeoftheArbitrationprocess.Briefing notes for Caribbean Heads of Government(November).

Rawlins, G. 2004.Analysis of the economic value of agriculture trade preferences. A case study of the banana industry in St Lucia.PaperpreparedfortheFAO,Rome.

Springer, C. 2004. A case study of Saint Lucia’s attempts at overcoming economic vulnerability and building economic resilience.PaperpreparedfortheUniversityofMalta.

Thomas, M. 2003. Jamaica and the case in the WTO against the European Communities regime for the importation, sale and distribution of bananas (1992–2001).PaperpreparedfortheCommonwealthSecretariat.

UNCTAD. 2003. Major developments and recent trends in international banana marketing structures.Geneva.

WTO. 1997a. Report of the panel in European Communities – Regime for the importations, sale and distribution of bananas.WT/DS27/ECU(May).

WTO.1997b.Reportoftheappellatebody inEuropean Communities – Regime for the importation, sale and distribution of bananas – AB-199�-3.WT/DS27/AB/R(September).

WTO. 2005.EC Compliance with all MFN rights and interests on bananas under the Doha Ministerial Decision of 14 November 2001(WT/MIN (05)/15), The Award of the Arbitrator of 1 August 2005 (WT/L/616), The Award of The Arbitrator of 2� October 2005 (WT/L/625), GATT Article XIII, GATT Article XXVIII and All Other WTO Obligations.MinisterialConference,SixthSession.13–18December.HongKong,WTO.


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Appendix8.1

WindwardIslandsbananaexports

Windward Islands banana export volume (tonnes)

Year Grenada Dominica Saint Lucia Saint Vincent and the Grenadines

1985 8043 33829 81929 40720

1986 7940 51284 112004 38246

1987 8130 61618 85993 35306

1988 9129 71474 128091 61836

1989 8620 50313 125588 65663

1990 7486 56617 133777 79561

1991 6926 55254 100600 62878

1992 6300 58024 132854 77361

1993 4688 55486 120127 58371

1994 4544 42781 90119 30925

1995 4514 32324 103668 49900

1996 1850 39533 104805 43986

1997 102 34902 71397 31021

1998 94 28135 73039 39887

1999 583 27264 65196 37376

2000 722 27157 70280 42336

2001 566 17575 34044 30498

2002 507 16983 48160 33243

2003 393 10379 33972 22558

2004 338 12721 42326 22631

2005 0 4610 12223 7327

Source:WIBDECO(2006).

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Windward Islands banana export value (ECD millions*)

Year Grenada Dominica Saint Lucia Saint Vincent and the Grenadines

Windward Islands

1985 8.7 36.0 89.5 45.6 179.8

1986 10.1 67.8 150.6 53.3 281.8

1987 10.8 82.8 113.7 47.6 255.0

1988 12.7 99.4 177.4 83.5 373.0

1989 10.9 64.9 158.0 82.2 316.0

1990 10.3 79.6 186.9 110.5 387.3

1991 9.9 80.9 146.4 89.5 326.7

1992 7.8 82.2 184.8 101.4 376.2

1993 4.8 65.1 137.9 62.0 269.8

1994 5.6 55.4 115.7 39.8 216.5

1995 5.2 45.2 128.1 61.3 239.8

1996 1.5 44.5 125.8 52.4 224.2

1997 0.0 41.5 85.9 37.1 164.5

1998 0.1 37.0 91.5 55.5 184.2

1999 0.3 38.4 87.0 51.1 176.8

2000 0.6 28.8 29.9 47.3 106.6

2001 0.5 19.6 41.2 34.1 95.3

2002 0.5 19.7 58.7 38.8 117.7

2003 0.5 12.8 43.6 28.5 85.4

2004 0.4 16.3 53.8 28.8 99.3

2005 0.0 6.2 16.5 9.8 32.4

Source:WIBDECO(2006)*EC$2.7=US$1

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9

RicetradeintheCaribbean*

Valentina Raimondi, Arthur Zalmijn and Alessandro Olper

Introduction

Rice has long been the main source of food, and in some countriesof the region, income and livelihood security. For two countries inparticular,GuyanaandSuriname,ricetradehasbeenanimportantsourceforgovernmentfundsthatarechanneledintonationaldevelopmentobjectives,andtheyarebeneficiariesofAfrica,CaribbeanandPacificGroupofStates(ACP) associated rice trade preferences. However, changes taking place atthebilateral level (EuropeanUnion (EU)reformofCommonAgriculturalPolicy (CAP))and themultilateral level (DohaRoundof theWorldTradeOrganization(WTO)negotiations)haveastrong impactonthesignificantsocio-economicroleplayedbythericetradeandcouldaffectregionalfoodsecurity.Thispaperfocusesonthelinkbetweenriceproduction,tradepolicyand the impactofmarketchangesonruraldevelopmentand foodsecurityin the Caribbean Community (CARICOM) region. It begins with a briefdescriptionoftheworldricesituationandgoesontodescribetheCaribbeanricemarketfromatradeandfoodsecuritystandpoint.Subsequentsectionsaddress the European rice regime and especially its interface with ACPproducingcountries.ThefinalsectionpresentsconclusionsonhowtoassistriceindustrydevelopmentintheCaribbeaninatradepolicycontext.

9.� World rice situation and Caribbean rice exports

The global rice industry covers the production of paddy rice, processing,marketing and distribution of rice and rice products in local, regionaland world markets. The total area planted globally is approximately

* TheintroductionandfirsttwosectionsofthispaperwerepreparedbyMrArthurZalmijn,FAOconsultantandricesectorspecialist.ThethirdandfourthsectionswerepreparedbyMsValentinaRaimondiandMrAlessandroOlperoftheUniversitàdegliStudidiMilano.

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155millionhectares;in2005,628millionmetrictons(tonnes)ofpaddywasgenerated from theplantedarea anda recordvolumeof29million tonnesofrice(4to5percentofthetotal)enteredtheworldmarket.Anestimated50percentoftheworld’spopulationconsumesrice,andmostproductionisconsumedwhereitisproduced.Riceisofcriticalimportancetodevelopingcountries. The world’s top consumer is China with a 34percent share,followed by India (21percent), Indonesia (9percent) and Bangladesh(6percent). The EU ranks nineteenth, with a consumption of 2.1milliontonnes. Although there has been an increase in use of rice for animal feedin recent years, rice remains essentially a staple for human consumption.Global demand for the next decade is expected to expand at slightly lessthan1percentperyear,downfrom1.7percentinthe1990s.By2010Asiancountriesareexpectedtosupply75percentoftheinternationalricemarket,withThailandandVietNamaccountingforhalfoftheworld’sexports.FarEast countries, along with Argentina and Uruguay, will probably have toventure beyond their traditional markets in South America and competewiththeUnitedStatestogainalargerportionoftheCentralAmericanandCaribbeanmarkets.By2010worldrealricepricesareprojectedtobeveryclosetothe1997–1999averages,whichweresubstantiallyhigherthanthoseofthe2000–2002period.

Rice trade in the Caribbean reflects the economic and political relationsthatACPnationshavehad through their colonial tieswithEurope.ManyACPcountriesenjoyedaspecialrelationshipwiththeEuropeanCommunity(EC)(nowEuropeanUnion)sincelongbeforetheofficialformationoftheACP Group in 1975. This special relationship was extended through theAssociation of the Overseas Countries and Territories (OCT), institutedundertheTreatyofRomein1957,andthetwoYaoundéConventions(1963and1969)linkingtheECwiththeAfricanstates,MadagascarandMauritius.In signing theGeorgetownAgreementon6 June1975, the46ACPStatesfurther affirmed their common identity based on solidarity, and gave theACPproperlegalstatus.TherecenteraofEU–ACPeconomicarrangementsrelatedtoricearesummarizedinTable 9.�.

GuyanaandSurinamehadbenefitedfromthesearrangementsintermsofrice trade. However, Suriname’s rice exports declined from 88000 in 1996to 36000 tonnes in 2005. Guyana’s exports increased in the mid-1990s to280000tonnesbutdeclinedtoabout180000tonnesby2005.ThenextsectionprovidesamorecompletepictureofthericemarketintheCaribbean.

9.� Rice production and trade in the Caribbean

Themost important rice-producingcountriesof the forumof theCaribbeanACPStates(CARIFORUM)areSuriname,Guyana,DominicanRepublic,HaitiandBelize,witha2005paddyproductionof1621593tonnes.Majorexporters

Rice trade in the Caribbean

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are Guyana and Suriname, while major importers are Dominican Republic,Haiti,CubaandJamaica.Table 9.�showsriceimportsfor1996–2000.

As shown in Table 9.3 the demand for rice in the Caribbean exceedsproduction. Regional milled production is approximately 568000 tonnes.

TABLE9.1Arrangements between the EU and the ACP on rice

Year Agreements ACP countries

European countries

Quota Rice regulations

1975 LoméI 46 9 Noquotasystemmaintained

Thevolumetradedwasbasedonthetotalquantityshippedduringtheprevious3yearsplus5percent.ForthesequantitiestheECappliedareducedlevy.

1980 LoméII 58 9 Noquotasystemmaintained

Thevolumetradedwasstillbasedonthequantityshippedduringtheprevious3yearsplus5percent.ForthesequantitiestheECappliedareducedlevy.

1985 LoméIII 65 10 122000tonnesofbrownriceand17000tonnesofbrokenrice

IntroductionofquotasystemwithfluctuatinglevyforthedirectACProute;duty-freeaccessofNetherlandsAntilleschanneledACPriceintoEurope.

1990 LoméIV 68 12 125000tonnesofbrownrice,plus20000tonnesofbrokenrice

Fluctuatinglevysystemforthedirectroute;duty-freeaccessofNetherlandsAntilleschanneledACPriceintoEurope.

1992–1994

LoméIV 70 12 125000tonnesofbrownrice,plus20000tonnesofbrokenrice

FluctuatinglevysystemforthedirectACProute.PenetrationofhugequantitiesofACPriceintoEuropeandchanneledviatheNetherlandsAntilles.

1995 LoméIV,revisedinMauritius

70 15 160000tonnesofbrownrice,plus20000tonnesofbrokenrice

FluctuatinglevysystemforthedirectACProute;penetrationofhugequantitiesofACPriceintoEuropechanneledviatheNetherlandsAntilles.

1997 Mid-termreview


Ceilingdutypaidprice;licensedimportsofACPriceintoEurope;introductionoftranchesystem.¹

2000 ACP–EUPartnershipAgreement(Cotonou)


Ceilingdutypaidprice;licensedimportsofACPriceintoEurope;introductionoftranchesystem.

2000–2007

Preparatoryperiod

77 25 160000tonnesbrownriceplus20000tonnesofbrokenrice

Ceilingdutypaidprice;licensedimportsofACPriceintoEurope;introductionoftranchesystem.

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With2005totalimportsof856762tonnesandexportsof224193tonnes,thenetavailablequantityfordomesticusethatyearwasabout1200000tonnes.TheDominicanRepublicisthelargestproducer,whileCuba,HaitiandtheDominicanRepublichavethelargestimportsduemostlytopopulationsize.GuyanaandSurinamehavethehighestconsumptionlevelspercapita,morethantwicetheregion’saverage.

According to the Caribbean Rice Association, the main sources of riceimports forCARICOMMemberStatesareregional (52percent), followedbytheUnitedStates(40percent),andFarEastandSouthAmericancountries(8percent).

9.�.� Rice-exporting Caribbean countriesSuriname The rice industry is the most important agricultural activity overall inSuriname,coveringapproximatelyahalfofthetotalareaunderagriculture.Rice acreage grew considerably after 1970: almost doubling in the periodbetween1975and1986,withareaplantedandpaddyproductiongeneratedreaching 74900 hectares/325900 tonnes in 1985. However as a resultof worsening macroeconomic conditions, the area decreased more than25percentbetween1987and1994.Croppingintensity(numberoftimesperyearareaisplanted)droppedfrom1.5in1986to1.1in1994,indicatingtheproblemsfarmersfaceinmaintainingatwice-yearlycrop.

TABLE9.2Rice imports to the Caribbean region, �996–�000, in tonnes

Country �996 �997 �998 �999 �000

AntiguaandBarbuda 650 680 650 650 650Bahamas 5600 7410 7260 12926 8620Barbados 10284 7738 5605 5058 8080Cuba 338021 290564 310060 448787 392549Dominica 1019 1260 1003 1003 1003DominicanRepublic 3400 68500 66000 82100 53600Grenada 3715 1581 1910 1776 2056Guyana – – – – –Haiti 210600 248000 216100 249000 252600Jamaica 78705 100900 68100 69800 47200Montserrat 100 100 25 30 30NetherlandsAntilles 64500 34700 3000 2500 5400SaintKittsandNevis 921 1140 4100 1000 1000SaintLucia 2759 2812 3203 3624 3624SaintVincentandtheGrenadines 8861 13866 15312 14658 6400Suriname – – – – –TrinidadandTobago 59963 29473 37327 39215 25031CaribbeanRegion 791828 811074 743194 935586 811301

Source:CARICOMSecretariat


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In1994thericesector’sshareoftotalagriculturaloutputwas51percent,orUS$36million.Highexportpricesbetween1994and1997ledentrepreneurstoundertake investmentprogrammesinbothSurinameandGuyana.After1997 volumes traded and export prices dropped considerably, resulting inerosion of the profitability of farming and processing operations. In 2005riceaccountedforjust16percentofthetotalvalueofagriculturaloutputofalmostUS$55.4million.Atthemacrolevelthecountrysufferedadecreasein foreign exchange earnings, resulting in loss of jobs and a reduced basisfor incomegeneration through the rice industry. Industryorganizations inSurinamewereweakandunabletomobilizethesupportnecessarytoassistthesectoras it faced thecrisis.Table 9.4presentsplantedarea,productionandexportsintheperiod1985to2005.

GuyanaInGuyanathericeindustrymeetslocaldemand,isamajorsourceofincomeand employment in rural areas and an important foreign exchange earner.Thereare10000rice-farminghouseholdswithproductionprocessedin125rice mills. Guyana rice producers are highly organized; the Guyana Rice

TABLE9.3Caribbean rice: production, imports, exports and net quantities (tonnes) for domestic use (�005)

Country Calculated milled rice production

Imports Total Exports Quantities for domestic

use

AntiguaBarbuda – 650 650 – 650

Bahamas – 8620 8620 – 8620

Barbados – 6253 6253 – 6253

Belize 3500 502 4002 – 4002

Cuba 105000 392549 497549 – 497548

Dominica – 604 604 – 604

DominicanRepublic 210000 53600 263600 – 263600

Grenada – 2056 2056 – 2056

Guyana 147110 10778 157888 182175 2428721

Haiti 35000 252600 287600 – 287600

Jamaica – 46358 46358 – 46358

SaintLucia – 9740 9740 – 9740

SaintKittsandNevis – 498 498 – 498

SaintVincentandtheGrenadines – 35508 35508 4547 30961

Suriname 64845 116 64961 35877 29084

TrinidadandTobago 2100 36330 38430 1594 36836

Total Cariforum + Cuba 567 555 856 76� � 4�4 3�7 ��4 �93 � �00 ��4

Source:CARICOMSecretariatandconsultantcalculations1ThedataonproductionofpaddyandmilledriceinGuyanadoesnotjustifythequantityavailablefordomesticuse.Usewasprobablymadeofstocksoriginatingfromthepreviousyear(2004).

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TABLE9.4Suriname rice: planted area, paddy production and exports, �985–�005

Year Area planted (000 ha)

Paddy production (000 tonne)

Quantity exported

(000 tonne)

Export value (million US$)

Average price (US$/tonne)

1985 74.9 325.9 131.1 37.8 2881994 60.0 218.0 80.3 30.5 3791995 61.4 216.0 87.2 35.8 4101996 61.8 229.0 86.7 35.2 4051997 53.5 213.0 87.1 28.9 3311998 50.1 188.0 65.5 19.6 2991999 48.5 180.0 53.7 14.2 2642000 42.0 164.0 47.3 13.7 2892001 50.8 191.0 53.1 11.1 2082002 40.5 157.1 71.8 14.2 1972003 52.4 193.7 41.9 9.1 2172004 50.9 197.2 51.8 11.9 2292005 47.2 185.3 35.9 8.9 248

Source:MinistryofAgriculture,Suriname

Producers’Association(RPA),establishedin1946,has6000membersandisactiveatthenationallevel.TwomembersrepresenttheRPAontheGuyanaRiceDevelopmentBoard (GRDB),which is theumbrellaorganization fortherice industry inGuyana.Itsmainobjective is to facilitaterice industrydevelopmentthroughresearch,extensionworkandtechnicalandmarketingassistance.

TheEuropean market accounts for approximately 60percentof Guyanariceexports,whileCaribbeanregionmarketsabsorbmostoftheremainder.Thedomesticmarketingchain isaveryshortone.Producersare forcedtogetridoftheirpaddyimmediatelyafterharvestduetolackofpost-harvestfacilities and paddy’s high perishability. Farmers deliver their paddy, wetor dry, to millers who process it and either export the products or sellthemonthedomesticmarket,sometimesthroughbrokers.Productionandexportspeakedin1997,andinvestmentinthericeindustryexpanded.Pricescollapsed,however,fromUS$381in1995toUS$226/tonnein2003.Table 9.5summarizestheGuyanaricemarketfrom1985to2005.

9.�.� Importance of the rice industry for rural development and food securityThericeindustryplaysacrucialroleinthesocio-economicdevelopmentofGuyana and Suriname, and any contraction of the industry would have anegativeimpactontheireconomiesandsocieties.InGuyana,riceaccountsfor 12.9percent of total agricultural gross domestic product (GDP), 4.2percentoftotalGDPand13.7percentofexportearnings(NationalBureauofStatistics,2000).InSurinamericeaccountedfor10percentoftotalGDP,


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12percentof employment and27percentof export earnings in1996.Riceis also crucial for social development. Small, family-operated farms withbetween 10 and 20 acres of land dominate rice farming in both countries;withapproximately70percentofGuyana’sand60percentofSuriname’sriceproduction being exported they are extremely vulnerable to internationalmarketforces.

Thericepolicygoalsfortheregionpursuethedevelopmentofanintegratedandsustainable rice industry.Overallobjectives formulated in the regionalriceplaninclude:

• ensuringbetternutritionforvulnerablegroups;• generatingincomefor85000farmfamiliesandafurther80000persons

insupportservices;and• increasingforeignexchangeearningsfromriceexportsbyUS$250–300.Given the declines in price it is not surprising that both the number of

farmers and overall production have diminished considerably. In bothSurinameandGuyana rice farminghas alsobecomeconcentrated in fewerhands;thenumberofsmallfarminSurinamedecreasedfrom4300before1990to3440in2005.Continuederosionoftheprofitabilityofsmallandmediumfarmswillundoubtedlyfurtherincreasefoodinsecurityandvulnerability.

The decline in the rice industry affects not only the welfare of riceproducersbutalsobusinessesthatsupplymachines,sparepartsandfloatinginputs (such as fertilizers and other chemicals), contractors and labourerswho prepare land, sow, treat crops, harvest and process. All of theselinkagesmakethericeindustrycriticaltolivelihoodandfoodsecurity.Small

TABLE9.5:Guyana rice: paddy production, export quantities and earnings, �985–�005

Year Area harvested (000 ha)

Paddy production (000 tonnes)

Quantity exported

(000 tonnes)

Value (million US$)

Average price (US$/tonne)

1985 76.8 260.2 29.3 5.7 1931994 96.5 378.4 182.6 55.5 3031995 130.8 525.5 200.3 76.4 3811996 213.8 543.4 262.2 93.7 3571997 141.1 568.2 285.0 84.2 2951998 127.9 522.9 249.7 73.3 2931999 145.3 562.3 251.5 71.0 2822000 114.7 448.9 207.6 51.8 2492001 123.0 495.9 209.0 50.0 2392002 106.7 443.7 193.4 45.5 2352003 129.2 546.2 200.4 45.3 2262004 115.7 500.9 243.0 55.0 2272005 106.6 420.4 182.2 46.2 253

Source:GuyanaRiceDevelopmentBoardAnnualReports

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landholderslivingnearsubsistencelevelhavefewreliablealternativesourcesofincomeandareinthemostvulnerableposition;theyaremostdependentonsupportivepublicpoliciesandinterventions.

Thefutureofrice tradefortheCaribbean ishighlydependentonglobalpoliciesaffectingricemarkets.Thenextsectionof thispaperaddresses theEU import regime,undoubtedly themost importantpolicyregime for theCaribbeanricemarket.

9.3 European Union trade policy for rice

TheEUtradepolicyforricehaschangedconsiderablyoverthepastdecadeand this has affected ACP rice exporters in important ways. This sectionoutlines EU rice duties, quotas and licences and goes on to discuss theirimplicationsforACPcountries.

9.3.� Duties on rice importsDuringthe1995–2000implementationperiodoftheWTOUruguayRound,allvariablelevieswereconvertedintofixedtariffsandreducedby36percent.TheEUriceboundrateforpaddy,huskedandmilledricewassetat€211,€264and€416/tonne,respectively.However,underWTOHeadNote7,theduty-paidimportpricecouldnotexceedaceilingprice,fixedat180percent(188percent) of the intervention price for husked Indica (Japonica) riceandat263percent (267percent)of the interventionprice formilledIndica(Japonica).ThisimportregimeissummarizedinBox 9.�.

Thesedutiesweresubjecttorevisionfollowingthe2003reformoftheEUriceregime.InAugust2004,Regulation(EC)No1549/2004113introducednewimportdutiesof€65/tonneforhusked/brownrice,€175/tonneformilledriceandzerodutyonIndiaandPakistanbasmatirice(andotherhybridvarietiesofbasmati).Basmatiisaformofricethathascertainphysicalcharacteristicsin terms of the length and width of the grains and a characteristic aromathat is evidentwhen the ricehasbeenmilled.The agreement introducedacontrolsystembasedonDNAtestinganddefinedthevarietiesofPakistanandIndian riceconsidered tobebasmati forpurposesof thezero tariff114.Theagreementalsodefinedthatcertainbasmativarietieshadtobegrowninspecifiedgeographicalareas.

InJune2005,ECregulations115fixedtheintroduction(from1March2005)ofvariabledutiesforhuskedricedependingonthelevelofriceimportsinto

113DerogatingtheCouncilRegulation(EC)No1785/2003114Pakistanricevarietiesare:Kernel(Basmati),Basmati370,PusaBasmati,SuperBasmati.Indianrice

varietiesare:Basmati370,Basmati386,Type-3(Dehradun),TarariBasmati(HBC-19),Basmati217,RanbirBasmati,SuperBasmati.

115CommissionRegulation(EC)No1006/2005;CommissionRegulation(EC)No1007/2005


�3�

importsofhuskedrice(excludingbasmati)forthethreemarketingyearsbeginning1999/2000plus10percent,i.e.431678tonnes.Totakeinto

BOX 9.�The old rice import regime

Duringthe1995–2000implementationperiodoftheUruguayRoundnegotiations,allvariablelevieswereconvertedintofixedtariffsandreducedbyatotalof36percent.TheEUriceboundrate(maximumtariff)wassetat€211,€264and€416/tonneforpaddy,brownandmilledrice,respectively.WTOHeadNote7establishedthattheduty-paidimportpriceshouldnotexceedaceiling price,fixedat180percent(188percent)oftheintervention priceforhuskedindica(japonica),188percentforhuskedjaponicaand263percent(267percent)formilledindica(japonica).Inpractice,theimportpriceplusthetariffpaidshouldnotexceedtheceiling.TheresultswerethatimportedhuskedricewasnormallycompetitivewithEUrice,whereasmilledricewasnot(EC,2002).ThesystemcreatedacommunitypreferencebecauseitguaranteedthatEUsupplierswouldalwayshaveapriceadvantageoverimports(unlessmarketpriceswereabovethoseforeseenundertheCAP).

Thegraphsabovesummarizethecombinedeffectsoftheboundrateandapplicationoftheceiling.Forhuskedrice[graphatleft],at“normal”worldpricelevels(PW1),theceilingwasgenerallyapplied.Thiswasbecausetheimportpriceplustheboundrate(PW1+€264/tonnes)wouldhavebeenhigherthantheceiling.However,withrecentlowerworldprices(PW2)theconventionaltariffof€264/tonnes(blackarrow)wastheeffectiverateappliedbecausetheimportprice(inclusiveofthistariff)waslowerthantheceiling.

Inthecaseofmilledrice[graphatright],duetothehigherleveloftheceilingprice,theconventionaltariff[blackarrow]hasalwaysbeenapplied.

Intervention P. 298.35

Euro/t

Ceiling P. (1.8*I.P.) 537.00

PW 1

Effective Tariff

PW 2

P W 1 + 264

PW 2 + Duty (264)

EffectiveTariff

Intervention P. 298.35

Euro/t Ceiling Price (2.67*I.P.) 796.59

PW

PW + Duty (416)

Effective Tariff

Protection of Indica husked rice Protection of Indica milled rice

�3�


TABLE9.6Import licence volumes of husked rice and consequent tariffs

Import tariff Tariffs applied Previous import licences

€30 €4�.5 €65 Ref.volume

(tonnes)if import licence volume has been

Period less than between more than Period

fromMar2005 183463 >< 248215 1 Sept 2004 to 28 Feb 2005 215 839fromSept2005 366926 >< 496430 1 Sept 2004 to 31 Aug 2005 431 6�8fromMar2006 186013 >< 251665 1 Sept 2005 to 28 Feb 2006 218 839fromSept2006 372026 >< 503330 1 Sept 2005 to 31 Aug 2006 43� 6�8fromMar2007 188563 >< 255115 1 Sept 2006 to 28 Feb 200� 221 839fromSept2007 377126 >< 510230 1 Sept 2006 to 31 Aug 200� 443 6�8fromMar2008 191113 >< 258565 1 Sept 200� to 28 Feb 2008 224 839

theEU-25MemberStates116.Thedutiesare set twiceayear, inSeptemberbased on the previous year’s import volume, and in March based on theprecedingsixmonthsofimports.TheEUtariffappliedpertonneisthen:

• €30iftheimportlicencevolumeis15percentlessthanthebase;• €42.50ifthevolumeisthesameasduringthebaseperiod(plusorminus

15percent);• €65iftheimportvolumeis15percentmorethanthebase.The reference level for the first marketing year of the agreement

(1September2004to31August2005)wastheaveragevolumeofEUimportsofhuskedrice(excludingbasmati) forthethreemarketingyearsbeginning1999/2000 plus 10percent, i.e. 431678 tonnes. To take into account thegrowth in the EU rice market, that base volume is increased by 6000tonnesperyearforthethreemarketingyears2005–2008(seeTable 9.6).Thereferencelevelforeachsix-monthperiodwouldbe50percentofthisfigure.Beforetheendofthe2007/08marketyear,thepartiesweretodeterminenewannualincreases.

The Agreement with the United States influenced the subsequent“Agreement in the form of an exchange of letters” between the EuropeanCommunityandThailand(December2005),whichfixedthe importdutiesapplicable to semi-milled or wholly milled rice from Thailand beginning1September2005117. That Agreement provides for a EU bound tariff of€175/tonneonmilledandsemi-milledriceand€128/tonneforbrokenrice,but it allows a six-monthly adjustment of the tariff based on the previousperiod’s importvolumes.Theannualreference import level iscalculatedas

116Rice import licencesareusedasaproxyforrice importsbecausethedata isavailablesooner.Bymeasuringimportlicencesinsteadofactual imports,EUimportsofriceunderinwardprocessingschemesareexcludedfromthetariffcalculation.

117CommissionRegulation(EC)No2152/2005.


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theaveragevolumeoftotalsemi-milledandmilledriceimportsenteringtheEC-25 from all origin in the marketing years 2001–2004, plus 10percent(i.e. 337168 tonnes). The six-month reference import level is calculated as47percentoftheannuallevel.Theappliedtariffpertonnethenbecame:

• €145ifthevolumeislessthanreferenceimportlevelplus15percent;• €175ifthevolumeismorethanreferenceimportlevelplus15percent.Inaddition,theEUwouldopenanewannualsemi-milledandmilledrice

import quota of 13500 tonnes at zero duty, of which 4313 tonnes wouldbeallocatedtoThailand.Inthesameperiod,forbrokenricetheEUwouldapplyarateof€65/tonneandwouldincreasethecurrentbrokenricequotato100000tonnesatarateof€65/tonneless30.77percent(i.e.€45/tonnes).

OnescenarioisthatiftheDohaRoundiscompletedandtheEC’sproposalaccepted,118andifrice isnottreatedasasensitiveproduct, therewouldbeafurtherreductionof thetariffonhuskedricefrom€65/tonnetoarangebetween €52 to €35.75/tonne119, remaining in the range envisaged in therecent agreement with the United States. The €175/tonne tariff on semi-milled rice would be cut to €96.25/tonne120, reducing the tariff below the€145/tonnelevelenvisagedintheagreementwithThailand.

9.3.� Quotas on rice importsOneofthemainaccomplishmentsofthe1994UruguayRoundAgreementon Agriculture (URAA) was so-called tariffication, the replacement ofquantitative restrictions and other non-tariff barriers (NTBs) with tariffs.To prevent the conversion of NTBs to extremely high tariffs (“dirty”tariffication), tariff rate quotas (TRQs) were introduced (Carter and Li,2005).UnderthenegotiationsconductedpursuanttoGATTArticleXXIV(6)inthewakeoftheaccessionofAustria,FinlandandSwedentotheEuropeanCommunity, itwasagreed121 toopen(from1January1996)annual importquotas for 63000 tonnes of semi-milled and wholly milled rice at zerodutyandfor20000tonnesofhuskedriceatafixeddutyofECU88/tonne.Thesequotaswere included in theEuropeanCommunity listprovidedforin Article II(1)(a) of GATT 1994. Moreover, under the consultations with

118During the sixth WTO Ministerial Conference in Hong Kong in December 2005, the EuropeanCommissionsuggestedfourtiersfortariffreduction,dependingonad valoremequivalentlevel:

1)ifwithin0–30percent,thetariffcutappliedwouldbeaminimumof20percentandamaximumof45percent;

2)ifwithin30–60percent,thetariffcutswouldbe45percent; 3)ifwithin60–90percent,thetariffcutswouldbe50percent; 4)ifover90percent,thetariffcutswouldbe60percentorgreaterifneededtobringthetariffdown

tothehighestpermissibletariffof100percent.119Becausethehuskedricetariffad valoremequivalent(AVE)islowerthan20percent,theconsequent

tariffcutisbetween20percentand45percent.120Thesemi-milledricetariffAVEiswithintherange40–50percent;thetariffcutswouldbe45percent.121CommissionRegulation(EC)No327/98

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ThailandpursuanttoGATTArticleXXIII,itwasagreedtoopenanannualquotafor80000tonnesofbrokenriceatanimportdutyreducedbyECU28/tonne. The volume, distribution and tariff reduction of the import quotasdefinedin1998variedlittleinthefollowingyears,withtheexceptionoftheopeningofanewimportquotaof13500tonnesofsemi-milledandwholly-milledriceatzerodutyandtheincreaseintheimportquotaforthebrokenriceto100000tonnes122.

However, thequotaswere revisedat the endof June2006123,due to theaccession of ten new member countries to the European Union124 (seeTable 9.7).Therevisionprovidesforafurtherincreaseof26716tonnes(ofwhich 1200 tonnes for Thailand) in the annual global tariff quota at zerodutyforwhollymilledandsemi-milledrice,whileitopensanewzero-dutytariff quota for broken rice of any origin. [The quota of 20000 tonnes ofhuskedriceatadutyof€88becameobsoleteduetothelowerdutyapplicablefrom2004.]

ThesequotasareallocatedtoproducercountriesasreportedinTable 9.8.Thequotasaredividedintotwoorthreetranchesduringtheyearandimportlicencesareissuedforthequotaquantitiesallowedunderthetranche.WhenimportlicenceapplicationsaresubmittedforriceoriginatinginThailandorAustralia,“exportcertificates”arealsorequested.Thequotasareadministeredbyapplyingoneofthreepossiblemethods,generallyconsiderednotexplicitlydiscriminatingamongexportingcountries(OECD,1999):1) first come, first served principle (the chronological order of the

applications);2) simultaneous examination method (distribution in proportion of the

quantitiesrequested);or3) traditional/new arrival method (taking traditional trade patterns into

account).Tariff quotas have undesirable features, such as generating quota rents,

legitimizingaroleforstatetradingagenciesordiscriminatingamongexporting

122CommissionRegulation(EC)No2152/2005123(EC)No965/2006124TheaccessionisbeenapprovedbyCouncilDecision2006/324/EC.

TABLE9.7EU rice quotas as of June �006 (EC Regulation No 965/�006)

Type of rice Quota (tonnes) Duty

Whollymilledorsemi-milled 103216 zero

Broken 100000 30.77%reduction(from€65to€45/tonne)

Broken 31788 zero

Husked 1634 ad valoremfixedat15%


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countries.Theseaspectsmake itunclear if the introductionofTRQstrulyimproves economic welfare (Carter and Li, 2005). The administration ofquotas may involve costs such as rent-seeking (i.e. lobbying governmentofficials, bribery, etc.), carrying out complex administrative applicationprocessesandnegotiatingthepoliticsbehindthechoiceofforeignproducers(which might not be competitive under normal commercial conditions125).However,intheEUincreasingquotavolumeswouldlikelyresultingreaterwelfaregainsthanwouldtariffreductions(BureauandTangermann,2000).

9.3.3 EU–ACP AgreementThe AgreementThe EU established preferential trade agreements for imports of rice fromACPcountriesthroughDeclarationXXIIoftheCotonouAgreement(June2000). While legally it applies to rice originating in any ACP country, inpracticeonlyGuyanaandSurinamemakeuseofit.Itestablishedaquotaof125000 tonnes forhuskedrice126exports to theEUandaquotaof20000tonnesforbrokenrice.Onthesequotasa65percentreductioninthedutychargedwasgranted,plusafurtherreductionof€4.34/tonneforpaddyandhuskedriceand€3.62/tonneforbrokenrice.Milledricedutyisfirstreducedby€16.78/tonne,thenby65percentandthenby€6.52/tonne.Thesequotasandtheirdutyreductionsaresummarizedin Table 9.9.

Thequotasareadministeredthroughanimportlicensingsystem,withtheEuropeanCommissionissuinglicencestoEuropeanriceimporters.Licences

125Forexample,Japan’sriceTRQsareallocatedinanon-commercialway(CarterandLi,2005).126Thiscoveredpaddy,huskedandmilledrice.

TABLE9.8Country quotas on rice imports, in tonnes

Rice Milled (�) Milled (�) Husked Broken Broken

zero duty zero duty 15% ad valorem €45/tonne zero duty

UnitedStatesofAmerica 38721 2388 9000

Thailand 21455 5513 52000

Australia 1019 16000

Guyana 11000

India 1769

Pakistan 1595

Otherorigins 1805 3435 12000

Allcountries 25516 1634 31788

Total 63 000 40 ��6 � 634 �00 000 3� 788

Source:EuropeanCommission(1)ThequotasaredividedinthreetranchesandallocatedtoproducercountriesfollowingECRegulationNo327/98(2)ThequotasaredividedinoneortwotranchesandallocatedtoproducercountriesfollowingECRegulationsNo

2152/05andNo965/06.

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for the husked rice quota are issued in January, May and September eachyear,whilethebrokenricequota isallocated intwotranches(JanuaryandMay). Inorder to receive an import licenceEuropean rice importersmustapply at the beginning of each tranche. Import licences are issued by thecompetentauthoritiesoftherelevantMemberStateafterasecurityhasbeenlodged;thesecurityisreturnedtoimportersonlyaftertheirobligationshavebeenfulfilled.TheEUriceimportmarketisdominatedbyafewverylargecompanies–forexample,thevastmajorityofGuyana’sriceisimportedbyjust two importers– and there are rules governing how large a quota anysingleimportercanreceive.

Insomecases,fillratesarebelow100percent.Apossibleexplanationisthecomplicatedandcostlyadministrativeprocedureforaccessingimportsunderquotas; as a consequence, importers could prefer simpler administrativeprocedurestoalowertariff(BureauandTangermann,2000).

IntheEUsystemofquotaadministration,thethreetranchessystemdoesnotcoincidewiththetwocroppingseasonsofSurinameandGuyana,whereharvesting takes place in March/April and September/October. Under thecurrentsystem,theJanuary–Apriltrancheisthemostdifficulttosupplyandthisquotaisoftennotmet.Becauseanimporterwhodoesnotfillalicencewithinthetrancheperiodinwhichitwasissuedhastopayasecondsecuritydeposit inorder toutilize the licence in thenext tranche,ACPmillers areoften subject to apenalty fromEuropean importers for the January–Aprilquota. Moreover, millers often offer higher prices for paddy in the periodtowardstheendofApril,butwhenthenewtranchebeginsinMaythepricesofferedforpaddydecline,leadingtoinstabilityinthedomesticpaddyprice.Thus, the three tranches system does not adequately serve the interests ofACPriceproducers.

ItisnotclearhowtherentgeneratedbytheACPagreementisallocated.Ithasbeensuggested127thatriceimportersearnonlyaportionofthequotarent,relevanttothedutyreductionof65percent,whiletheexporters,sellingthe rice at ACP prices (which are higher than other international prices),

127PersonalcommunicationwithanItalianricesectoroperator

TABLE9.9Cotonou Agreement preferential trade agreements for rice imports from ACP to EU

Type of rice Quota (tonnes)

First reduction in duty charged Further reduction

Paddy,husked,milled 125000 paddy,husked:65%milled:€16.78/tonne,then65%

€4.34(paddy,husked)€6.52(milled)

Broken 20000 65% €3.62


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earntheotherpartoftherent.Animporterwhoobtainsalicencetoimportunderquotaaimstogetaduty-paidpricethatislowerthanthecostofafull-dutyimport.TheexporterinturnhopestobetheonetogetthedifferencebetweenEUdomesticpricesandthepreferentialtariffprice.Thefinalrentallocationisdeterminedbytherelativebargainingpoweroftheimporterandexporter.

Implication of EU policy reform for ACP countries Table 9.�0showsestimatedACPpreferencesgrantedwithinquota,comparingtheoldandthenewEUricetariffs.Huskedricerepresents95percentofriceexportedfromACP.Before2004dutyonhuskedricewas€264/tonnes;theACP tariff within quota was equal €88.06/tonne128, the ACP preferenceratewas€175.94/tonne(264–88.06).TheACPpreferenceisgrantedwithina quota and €175.94/tonne represents, in effect, an estimate of the quotarent.Thecurrentappliedtariff forhuskedrice is€42.50/tonne;thecurrentlevelofACPtariffonhuskedriceis€10.54/tonne129.ThenewlevelofACPpreferencebeing€31.96.Onthisbasis,theACPexportercountrieshavelostaquotarentonhuskedriceequalto€143.98/tonne(175.94–31.96).AssumingthatthewholeACPquotaisexportedintheformofhuskedrice,thetotallossdueto theEUtariff reductionwouldbe€18million130.Moreover, theACPexportersofbrokenrice,with thenewreduced tariff, loseanoverallquotarentof€819000131.WithonlytwoACPexportingcountries (GuyanaandSuriname)andfewexportingcompanies,itisunlikelythatanimporterwouldbeabletoobtainallof theACPquota rent.Before the tariff reduction,both importers and

128264times0.35–4.3412942.50times0.35–4.34=10.54;42.50–10.54=31.96.130€143.98times125000tonnes131€40.95times20000tonnes

TABLE9.10Implications of the changed tariff rate for ACP preference margins, in €/tonne

Husked rice Milled rice Broken rice

URAA bound

Current applied

URAA bound

Current applied

URAA bound

Current applied

MFNtariff €264.00 €42.50 €416.00 €145.00 €128.00 €65.00

ACPtariff €88.06 €10.54 €133.21 €38.36 €41.18 €19.13

LevelofACPpreference €175.94 €31.96 €282.79 €106.64 €86.82 €45.87

Lossinpreferences €143.98 €176.15 €40.95

Source:Authorestimates

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exportersprobablyobtainedsomeofthequotarent.However,withhuskedrice rent now down to €31.96/tonne in the EU, non-traditional marketssuchasBrazilappearmorerewardingtoACPexporters,asreportedbytheGuyanaRiceDevelopmentBoard.AlthoughACPexporterscouldobtainabiggershareoftherentsfromheavily-reducedquotas,thereductionoftherentmakestheEUlessattractive.

9.3.4 Association of the Overseas Countries and Territories The EU allows duty-free imports from the Association of OverseasCountriesandTerritories (OCTs),agroupofmicrostatesscatteredaroundtheglobeandlinkedinaspecialwaytooneofseveralEuropeancountries.132TheagreementusedtoincludeimportsofproductsprocessedintheOCTsusing imported raw materials (“cumulation of origin”). This opportunityencouraged Caribbean exporters to pass their rice exports through OCTcountries and thereby avoid any duties. As a consequence, increasingquantities of rice grown in the ACP countries and then processed in theOCTswereimportedintotheEUmarket,therebyavoidingtheEUtariffondirectexportintoEU.By1996,totalriceexportsfromGuyanatotheEUhadreached260000tonnes,90percentofwhichwasarrivingviatheOCTs.

In 1997,133 as a result of a safeguard request from EC rice producerinterests,theACP’sindirectaccesstotheEUmarketbecamesubjecttothelimitof35000tonnesexpressedashuskedriceequivalent.In2001,whenthe1997CouncilDecisionexpired,theEUadoptedanewagreementonrelationswith the OCTs that, applied until 2011, provides an updated cooperationframeworkforrelationsbetweenEUandOCTs.134Thislimitstheamountofricethatcanbeimportedunderthecumulationprovisionto35000tonnes,10000tonnesofwhichisreservedfortheleast-developedOCTs.Thefigureof35000tonnescanbeexceedediftotalimportsfromtheACP(includingimportsunderthecumulationprovisionsfromtheOCT)fallbelowatotalof160000tonnes(i.e.125000tonnesundertheACParrangementsand35000tonnesundertheOCTagreement).

9.3.5 Generalized System of Preferences and Everything But ArmsThe1996WTOMinisterialConferenceinSingaporeresultedinacommitmentto improveaccess forproductsoriginating inthe least-developedcountries(LDCs). In 1998 EU Regulation 602/98 granted preferences equivalent to

132UsuallylistedastheUnitedKingdom,France,NetherlandsandDenmark,butsometimesincludingBelgiumandItaly.

13397/803/EC: Council Decision of 24 November 1997 amending at mid-term, Decision 91/482/EEC on the association of the overseas countries and territories with the European Economic Community

134The current legal basis is contained in Decision 2001/822 and implementing provisions are inCommissionregulation638/2003.


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ACPpreferencestotheninenon-ACPLDCcountriesand,inthemediumterm,duty-free access for essentially allproducts from theLDCs. In2000theCommissionproposedduty-freeaccessforallLDCproductsotherthanarmsandammunition;itwasgrantedimmediately,withashorttransitionalperiod(threeyears) forhighlysensitiveproducts (sugar,riceandbananas).The Everything But Arms (EBA) proposal was controversial and theCommission had to make amendments to these transitional provisions. In2001theGeneralAffairsCounciladoptedtheEverythingButArms(EBA)135amendmenttotheEU’sGeneralizedSystemofPreferences(GSP)136,wherezerotariffratequotasweredefinedforsugar,riceandbananas.137

Forrice,138fullliberalizationisphasedwithtariffsreducedon1Septembereachyear,by20percentin2006,by50percentin2007,by80percentin2008andentirelysuspendedasof2009.Inordertoprovideeffectivemarketaccessuntil full liberalization, from 2001 LDC rice could enter duty free withinthe limits of a tariff quota. The initial global tariff quotas for LDCs werebasedon theirbestexport levels toEUin therecentpast,plus15percent;thequotagrowsby15percenteveryyear.Itstartedat2517tonnes(huskedrice equivalent) in 2001/2002, growing to 6696 tonnes in 2008/2009 (seeTable 9.��).ThelevelofimportsfromtheLDCspriortothegrantingofthisconcessionwasjust2517tonnes.

ThelargepotentialavailabilityofricefromtheLDCs,andtheEUpricessignificantlyaboveworldprices,meanttheagreementwasincompatiblewiththericeschemeofthefirstCAPreform,andmotivatedCAPchangesinthecontextofthemid-termreview.

Indeed, an impact analysis published by the Agriculture Directorate ofthe Commission in 2002 reported that, by the end of the decade, gradualimplementation of the tariff reduction for LDC imports would have ledto dramatic deterioration in the rice market. From 2006/07 onwards, thesignificant reduction in tariff forLDC imports couldcause imports to theEUtosurgeto1.7milliontonnesin2009/10,replacingaverylargepartofEU rice production. Moreover, medium-term perspectives for the EU rice

135CouncilRegulation416/2001of28February2001.136CouncilRegulation2820/98of21December1998.137For a detailed discussion on the impact of EU preferences for LDCs under EBA see Brenton(2003)138Allproductsoftariffheading1006:paddy,husked,milledandbrokenrice.

TABLE9.11EBA tariff quotas for rice imports from LDCs

2001/02 2002/03 2003/04 2004/05 2005/06 2006/0� 200�/08 2008/09

Rice(tonnes) 2517 2895 3329 3829 4403 5064 5823 6697

Source:EuropeanCommission

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marketindicatethat,by2009/10,totalricestocksintheEUwouldstandattheunsustainablelevelof2.8milliontonnes,ofwhich50percentwouldbeIndicarice.

TheEBAagreementconsiderablyweakenstheACPcompetitivepositioninthericemarket:whileallbutnineLDCsareACPcountries,only52percentofACPsare included in theEBAagreement (seeFigure 9.�).GuyanaandSurinamearenotwithintheACP/LDCcountriesandtheexpectedimportgrowthfromLDCs(althoughlimitedbysubsequentEUpolicyreformandinterventionpricereduction)willprobablyhurtthemconsiderably.

9.4Conclusions on future rice trade policy for the Caribbean

The regional objectives for the Caribbean rice industry are to develop anintegratedandsustainablericeindustryintheCARIFORUMstatesinordertomaximizefoodsecurityandregionalself-sufficiency,improvenutritionofvulnerablegroups,increaseforeignexchangeearningsfromriceexportsandestablishacompetitiveandsustainablericeindustry.Amongthefirstmarketstargetedshouldbe the intra-CaricomandCaribbeanmarkets,asHaitiandCubaseparatelyimportsmorericethanGuyanaandSurinametogetherhastoexport.

There is a lot of work to be done within the Caribbean to increase riceproductivity all along the supply chain and it is essential that at both anationalandregional level therebe increasedefforts toaddressconstraints

FIGURE9.1LDC and ACP countries involved in EU trade policy

LDC COUNTRIES ACP COUNTRIES Kiribati Lesotho Antigua and Barbuda

Angola Liberia Bahamas, The Benin Madagascar Barbados Namibia Burkina Faso Malawi Belize Nauru Burundi Mali Botswana Nigeria Cape Verde Mauritania Cameroon Niue

Afghanistan Cent. African Rep. Mozambique Congo Palau Bangladesh Chad Niger Cook Islands Papua Bhutan Comoros Rwanda Cote d'Ivoire Saint Kitts and Nevis Cambodia Congo, Dem. Rep. Samoa Cuba Saint Lucia

Lao People’s Dem.Rep. Djibouti São Tomé and Principe Dominica Saint Vincent and the GrenadinesMaldives Timor-Lesté Senegal Dominican Republic Seychelles Myanmar Equatorial Guinea Sierra Leone Fiji South Africa Nepal Eritrea Solomon Islands Gabon Suriname Yemen Ethiopia Somalia Ghana Swaziland

Gambia Sudan Grenada Tonga Guinea Tanzania Guyana Trinidad and Tobago Guinea-Bissau Togo Jamaica Zimbabwe Haiti Tuvalu Kenya

Uganda Marshall IslandsVanuatu Mauritius Zambia Micronesia, Federated States of


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onthesupplyside.Domesticpolicyactionsaffecttradeoutcomes.ThelinkcanbeseenintheneedforCaribbeannegotiatorsinmultilateraltradetalkstostayvigilantofhowdomesticricepolicyarrangementsinothercountriesmightresultinunfaircompetitioninricemarkets–sothattheycanproposelegitimatecountervailingmeasures toavoidunfaircompetition.Indicationsare that if producing and exporting countries agree to reduce domesticsupportandeliminateexportsubsidies,Caribbeanproducerscouldbenefit.EuropeandtheUnitedStatescouldfacedecreasesinproduction,importingcountriescouldverywellincreasetheirdemand,eventhoughchangesintheworldpriceareexpectedtobesmall.

TherecouldbemoreattentionpaidtoaccessingandmanagingCARICOMmarketsforregionalriceinterests.ItiscriticalthattherebemoreconsistentimplementationoftheagreedCommonExternalTariff.Arrangementsshouldbemadetobetterfacilitatedevelopmentofintra-regionaltrade.

The situation with the EU will continue to be challenging. The recentevolutionofEUricesupportpolicy–reductioninthemost-favourednationduty, favourable tariff treatment tobasmati rice,duty-freeaccess forLDCcountries by 2009 and changes in support to its own producers – have allaffected the ACP competitive position. Yet the EU remains committed toassistingthedevelopmentofACPstates,andanumberofpolicyinterventionscouldbemadetohelpCaribbeancountries.OnewouldbetheremovaloftheACPduty,whichwouldgenerateextrarevenueforriceexportersinGuyanaand Suriname and redress to some degree the imbalance on rice exportsmarketfacedbyACPcountries(whichdonotsubsidizericeproduction)inrelationtohighlysubsidizedfarmingsystems.

Another measure would address the mismatch between the current EUimport licensing tranche system and the cropping seasons of Guyana andSuriname, which increases costs for ACP exporters and leads to greaterinstability in domestic paddy prices. Converting the system to a two-tranchesystem(March–AugustandSeptember–February)wouldalsoreducetransactioncosts,especiallythoserelatedtoadministrationofthemarketingsystem.GiventheotherformsofsupportexistingintheEUitisstillunlikelythatacutintheACPdutywillmakeanimportantdifference.

The above measures are unlikely to adequately compensate for the EUpricereduction,andtheremovalofremainingquantitativerestrictionswouldhelptoalleviatethesevereimpactontheACPsthatthefreeentryofLDCscould impose from2009.Unlimitedduty-freeaccess for theLDCswillbea more important challenge to ACP exporters of rice than the erosion ofpreferencesderivingfromrecenttariffreductionandfuturefurthercutsthatmightarisefromtheDohaRound.

�4�


References

Carter, C.A. & Li, X.2005.Agricultural tariff rate quotas: impact on market access.Paper presentedat theAEAAnnualMeeting.Providence,RhodeIsland,24–27July.

Brenton, P. 2003. Integrating the least-developed countries into the world trading system. The current impact of EU preferences under Everything But Arms.WorldBankPolicyResearchWorkingPaperWPS3018.Washington,DC,WorldBank.

Bureau, J.C. & Tangermann, S. 2000. Tariff rate quotas in the EU. Agri. and Resources Econ. Rev.,29(1):70–80.

Ente Nazionale Risi. 2005.Riso.Evoluzione di mercato e sue prospettive.November.Rome.

European Commission. 2002. Rice. Markets, CMO and medium-term forecast.CommissionStaffWorkingPaperSEC(2002)788,10.7.2002.Brussels,EC.

OECD. 1999. Preliminary report on market access aspects of Uruguay Round implementation. Document COM/AGR/APM/TD/WP (99) 50. (June). Paris,OrganisationforEconomicCo-operationandDevelopment.

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�0

Competitiveness,investmentandCaribbeanagriculture

J.R. Deep Ford and Andrew Jaque

Introduction

In an era of globalization and in the post-Uruguay Round internationaleconomic order that is committed to increased trade liberalization, theability of small countries generally– and island states in particular– tocompete economically in the world market has become critical to thesurvivaloftheiragriculturalsectorsandruralcommunities.Itisthuscrucialto understand the peculiar characteristics of small countries in relation toconcepts of and approaches to achieving increased competitiveness so thattheiragriculturalsectorscancontinuetocontributetothefoodsecurityoftheirpopulations.Increasedmarketaccessprovidesanopportunity,butitisinvestmenttodevelopsupply-sidecapacity,enterprisesandentrepreneurshipthatwillenabletheachievementofcompetitivenessandsustainability.ThischapterfocusesoncompetitivenessissuesinthecountriesthatcomprisetheCaribbeanCommunity(CARICOM139).

In addressing the current challenges it is important to understandCARICOM economies within the context of the particular characteristicsofspecificcountriesandaseachcountryfitsintotheregionalcontext.TheregionalcontextisimportantbecauseCARICOMandeachofitsindividualMemberStates areparty to an intra-CARICOMfree trade agreement anda CARICOM Single Market and Economy (CSME) commitment. Theindividual country context is important because the countries are verydifferentfromoneanother,withsomebeingtourismcentres(e.g.BarbadosandtheBahamas),otherssourcesofagriculturalrawmaterials(e.g.Suriname,

139TheCaribbeanCommunity(CARICOM)iscomprisedof15memberstates:AntiguaandBarbuda,theBahamas,Barbados,Belize,Dominica,Grenada,Guyana,Haiti,Jamaica,Montserrat,SaintKittsandNevis,SaintLucia,SaintVincentandtheGrenadines,SurinameandTrinidadandTobago.TheBahamasisnotamemberoftheCARICOMCommonMarket.

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BelizeandGuyana)andstillotherspotentialagro-industrialprocessingpoints(e.g.TrinidadandTobago,JamaicaandBarbados).Theareaandpopulationofeachcountryvaries:7ofthe15countrieshavelandareasofbetween100and610km2;8havearablelandareasoflessthan9000ha;5havepopulationsoffewerthan85000people.Allbuttwoofthecountries(GuyanaandBelize)arenet food importersandmostare facedwith lossofmarkets foroneormoretraditionalexportcropsduetoerosionofpreferencemargins.

Given the importance of increasing the competitiveness of CARICOMagriculture there have been efforts to understand the determinants ofcompetitiveness and address these in order to facilitate the transition ofagriculturalsectorsfromdependenceonafewcropstogreaterdiversificationand to becoming dynamic growth centres. This chapter provides anintroduction to conceptual aspects and determinants of competitiveness.It then assesses the competitiveness of several commodities using both aqualitativeassessmentapproachandacommonly-usedquantitativemeasure.Thelastsectionmakesrecommendationsforincreasingcompetitiveness.

�0.� Concepts and measurement of competitiveness

Achievingcompetitivenessisacomplexprocessasitresultsfromaninterfaceof many factors at several levels. The search for greater competitivenesshas focused attention on: evaluating the competitiveness and investment environment; understanding factors directly related to the competitivenessofafirmorenterprise;andmeasuringthecompetitivenessofcommodities.Thesethreeaspectsareaddressedbelow.

Competitiveness and investment environmentThe competitiveness and investment environment is closely related to thecharacteroftheeconomy.Thecompetitivenessenvironmenthasconsiderableoverlapwithconsiderationsrelatedtotheinvestmentclimateandthereforethesedimensionsareaddressedtogetherhere.Awidevarietyofconsiderationscomeintoplay,especiallythoserelatingtomanagementbythepublicsector,suchas:

• a stable policy and economic environment (good governance, efficientregulatorysystemsandinstitutions,stablemonetaryandfiscalpolicy);

• adequatephysicalinfrastructure(communication,energy);and• effectivehealthandeducationalsystems(forhealthy, skilledworkersand

toallowfortechnologydevelopment).Theessentialdimensionhereistheentrepreneur’sperceptionoftheenabling

environmentfromapolitical,administrativeandinfrastructuralstandpoint.Itdependsontheeffectiveprovisionofpublicgoods.Intermsofgovernance,thekeyaspectsaretheexistenceoflawandorderandhencepeaceandstabilityinthecountry.Efficientregulatorysystemsprovidetransparent,predictable

Competitiveness, investment and Caribbean agriculture

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andenforceablelawsaffectingsuchareasasenterpriseestablishment,businesscontractsandpropertyrights.Astablemonetaryandfiscalpolicyenvironmentisgenerallyexpected topromote low inflation, lead toa realisticandstableexchangerateandataxsystemthatpromotesinvestment.

Thequalityandavailabilityofphysicalinfrastructureservicesisoneofthemost basic and visible dimensions for encouraging investment and enablingcompetitiveness.Transportinfrastructure,especiallyportsandroads,arecriticalfactorsthatdeterminetradingopportunities.Thecostoftelecommunications,powerandwaterareoftendeterminedbythelevelofgovernmentinvestmentandcommitmenttomakingtheseserviceswidelyavailableandaccessible.

The quality of the work force is another significant dimension of theinvestmentandcompetitivenessenvironmentthatisrelativelymoreinfluencedby the public sector. It requires the existence of an effective health andeducationsystemthatmakesavailableahealthyandskilledworkforce.Theexistenceofbothformalandinformaleducationandtrainingopportunitiesat all levels, readily available to a large cross-section of the population,evidencesitselfthroughtheachievementofhighliteracylevels.Policiesthatpromotecontinuedlearningandprovisionofopportunitiesthroughboththepublicandprivatesectorsallowstheworkforcetoupgrade.

Theinvestmentclimateisverymuchrelatedtothedegreeofriskthatexistsand the extent to which these risks have been mitigated by public sectorinterventions. It is a question of the character of the economy, of how theprivateandpublicsectorsinterfaceandtradeoff–intermsofactivitiescarriedoutbyoneortheother,theamountofsecurityandservicestheprivatesectorrequiresbeforeitinvests,andtheextenttowhichitinvestsinparticularsectors.Thegreatertherisksthemorelimitedwillbetherangeofservicesandproductsprovidedbytheprivatesector.Theadverseimpactofrisksoninvestmentandenterprisedevelopmentisduetothefactthatrisksincreasefirms’transactioncosts,therebyunderminingtheirpotentialcompetitiveness.

IndependentrankingscanbeusedtocompareeconomiesintheCaribbeanintermsofboththeircompetitiveness(GlobalCompetitivenessIndex,GCI)and food security (State of food insecurity in the world). Six Caribbeancountries were included in the GCI 2006 rankings of 125 countries’economies.Amongthesixcountries,thetwoextremesareBarbados,rankedat31st,andGuyana,at111th.ThefourcountriesinbetweenareJamaica(60th),TrinidadandTobago(67th),DominicanRepublic(83rd),andSuriname(100th).Theninefactorsintheindexaregroupedintothethreecategoriesofbasicrequirements,efficiencyandinnovationfactors.Thebasicrequirementsdataisusedheretoemphasizewhatwedescribeasthecharacteroftheeconomy.ThespecificrankingforeachfactorbycountryisshowninTable �0.�.

Generally,theoverallGCIrankingholdsfortheindividualindicators,inthatBarbadosisrankedhighestineachcategoryandGuyanaisrankedlowestinallbutone.ThehealthandprimaryeducationrankingoftheDominican

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Republic compared to Guyana is reinforced by the Food and AgricultureOrganizationoftheUnitedNations(FAO)findingthattheundernourishedpopulationintheformeristhreetimesthatinthelatter.Therankingsusuallycorrespondtoscoresontheindividualindicators;inSurinameandGuyanathehealth andprimaryeducation rankingshelp theiroverall scores and inthecaseofSurinamepreventsitfromrankingwiththebottom25countries.While Jamaica and Trinidad and Tobago have similar overall rankings andfoodsecurityperformances,theirratingsareverydifferentforinfrastructure(Jamaicaissuperior)andmacroeconomicmanagement(TrinidadandTobagois superior). The differences between infrastructure and macroeconomicmanagementcanalsobecontrastedforBarbadosandTrinidadandTobago:Barbadosissuperiorintermsofinfrastructure,whileTrinidadandTobagoisrelativelysuperiorintermsofmacroeconomicoutcomes.

Enterprise competitivenessEnterprisecompetitivenessismoreaquestionofthecharacterofthefirm.Intermsofindividualfirmsandenterprisestwocategoriesoffactorshavecometodominateconsiderationsofcompetitiveness:thosefactorsconsideredtobeassociatedwiththesupplysideandtoaffectefficiency,specificallythecostof production; and those determined more by the demand and marketingside,whichhavemoretodowiththesophisticationofthefirm,itsmarketingefficiency, innovation and differentiation of the outputs of the enterprises.Clearly, as the literature on competitiveness reveals, both the environmentandthebehaviourofthefirmsdeterminethecompetitivenessoutcomes.

Theliteraturecontinuestoexpandonwhatitmeanstohaveacomparativeadvantageortobecompetitiveandhavetheabilitytoconsistentlymarketaproductprofitably.Ithighlightstheimportanceofthepublicsectorservicesmentioned above, and supply-side cost and differentiation. The latter twoaspects,morerelatedtotechnicalproductionandmarketingefficiencies,areelaboratedhere.

TABLE10.1Global Competitiveness Index (GCI): basic requirements

GCI rank

Basic require-ments rank

Institu-tions rank

Infra-structure

rank

Macro-economy,

rank

Health/ primary

education rank

Under-nourished, population

%

Barbados 31 32 23 28 61 28 2Jamaica 60 79 76 53 118 65 10TrinidadandTobago 67 63 85 70 38 64 11DominicanRepublic 83 89 93 80 85 89 27Suriname 100 91 89 100 94 51 10Guyana 111 108 115 104 121 75 9

Source:WorldEconomicForum(2006);FAO(2006).


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We draw on the work of one of the most respected contributors to theliteratureoncompetitiveadvantage,competitivestrategyandthecompetitiveadvantageofnations.MichaelEPorter(Porter,1990)emphasizestwobasictypes of competitive advantage: lower cost and differentiation. Lower costis the ability of a firm to design, produce and market a comparable buyervalue (products) more efficiently (at a lower cost) than its competitors.Differentiation is the ability to provide unique and superior buyer value(products)tothebuyerintermsofproductquality,specialfeaturesorafter-saleserviceandasaresultcommandsapremiumprice.

InthecontextoftheCaribbeantwotraditionalexportscanbeidentifiedtobringoutthisdistinction:bananasandcoffee.CentralAmericanbananasareproducedatalowercostthanCaribbeanbananas.Severalfactorsrelatedtoscale,labourcostsandtechnologicalpracticesaccountfortheabilitytomarket a comparable product at a much lower cost. On the other hand,Caribbean coffee producers, particularly in the case of Blue Mountaincoffee from Jamaica, are able to differentiate their product and are morecompetitivebecausetheyproduceandmarketwhatisconsideredasuperiorproduct and thus can command a higher price (which offsets higherproductioncosts).

Higher operational productivity than the competition is fundamental toboth types of competitive advantage. It is unusual for a firm to have thecompetitive advantage in both respects for a single product. The firm thatseekstodifferentiateitsproduct(asopposedtoofferingaproductcomparabletothatofitscompetitors)willverylikelyincurincreasedcosts.However,itisimportantthatfirmspursuebothtypesofcompetitiveadvantagewhilebeingrelativelymorecommittedtoone.Itisnotenoughtoconsideronlythecostofproductionofacommoditybutalsodistributionstrategiesandtargetedmarket characteristics before concluding an assessment of competitiveadvantage.Inthelongrunfirmsproducingandmarketingproductssucceediftheypossesssustainablecompetitiveadvantage.

Very importantly,Porteralsohelpsus tounderstandhowtopursue thiscompetitiveadvantageinthecontextofglobalizationanditsimplicationsforthe changing role of the state. Five factors influencing competitiveness areidentified:1. Industry structure factors:thecompetitivestructureoftheindustry,firm

sizeandconcentrationandownershipstructure.2. Product market demand factors:marketaccess,marketing infrastructure

andproductcharacteristics.3. Input market factors: sources of raw materials and intermediate inputs,

humanresources,technologyandcredit.4. Infrastructure and support industries factors:transportationandmarketing

linkages, information systems, education and entrepreneurial trainingsystems.Thesearegenerallysharedacrossindustries.

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5. Government factors: the general policy and regulatory environment,government support agencies and organizations, agricultural sectoralpoliciesandprogrammes.

There is also always the factor of uncertainty (chance events) that fallsoutsidethecontroloffirmsand,often,governments.

Inthissectionweemphasizeaspectsofefficiency,specificallymarketandtechnological efficiency. Key factors include transaction costs (reflected intheproceduresandtimeittakestocompletebusinesspractices);thequalityofmanagementschoolsandavailabilityofspecializedresearchandtrainingservices; firm-level technology absorption; and the extent and nature ofmarketing strategies. In terms of innovation the areas measured includecompany spending on research, the extent of university/industry researchcollaboration, and producer sense of value-chains. Table �0.� uses datafromtheWorldEconomicForum’sGlobalCompetitivenessIndex(GCI)topresentdifferencesintheseareasacrossCaribbeancountries.

Thecolumn“efficiencyfactorsrank”isanintegratedrankingofthethreecolumnsthatfollowit,whilethecolumnfortheinnovationfactorsrankisanintegratedrankingofthetwocolumnsthatfollowit.AstrikingresultistheextenttowhichtheefficiencyfactorsofBarbadosarerelativelysuperiortothe innovationfactorsacrossthecountries.This impliesthatthequalityof the work force is better, transaction costs are lower and technologyavailability and use is more common in Barbados relative to the othercountries. In termsof innovation thedifferencebetween these countries ismuch less pronounced, implying that networks and supporting industriesandsophisticationofafirm’soperationsandstrategiesarerelativelysimilar,especiallyacrossBarbados, JamaicaandTrinidadandTobago.GuyanaandSurinameareparticularlyweakinthisregard.

Table �0.3presentsPorter’sbusinesscompetitiveness index(BCI)resultsforthesamecountries.Thisindexemphasizesmicroeconomicunderpinnings

TABLE10.2Global Competitiveness Index (GCI): efficiency and innovation factors

GCI rank

Efficiency factors,

rank

Higher educa-

tion and training

rank

Market efficiency

rank

Techno-logical

readiness rank

Innova-tion

factors rank

Business sophisti-

cation rank

Innova-tion rank

Under-nourished population

%

Barbados 31 29 24 49 34 54 58 49 2Jamaica 60 53 67 61 40 56 56 54 10TrinidadandTobago

67 64 65 69 60 63 64 67 11

DominicanRepublic

83 76 91 82 58 91 79 99 27

Suriname 100 107 99 117 107 114 111 113 10Guyana 111 114 114 106 101 106 97 116 9



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ofcompetitivenessrelatedtoimprovingeconomicefficiencyandproductivity.ItisinterestingthatJamaicaandTrinidadandTobagoimprovetheirrankingcompared to the GCI, while Barbados moves down considerably. Therelativelymoreestablishedbreadthandvibrancyoftheprivatesectorintheformertwocountriesmaybeonereasonforthis.

It is important to recognize the dynamic aspects of all of the abovefactors and the fact that changes in conditions that characterize themand innovations can very quickly shift a country’s competitive advantageranking.Amongtypicalinnovationsthatshiftcompetitiveadvantagearenewtechnologies,neworshiftingbuyerneeds,theemergenceofanewindustrysegment, shifting input costs or availability and changes in governmentregulations.Iffirmswithinnationsandregionsaretoestablishandmaintainacompetitiveadvantageitiscriticalthattheimportantroleofthegovernmentberecognized.InthewordsofPorter(1990):

“Competitive advantage is created and sustained through a highly localized process. Differences in national economic structures, values, cultures, institutions, and histories contribute profoundly to competitive success. The role of the home nation seems to be as strong as or stronger than ever. While globalization of competition might appear to make the home nation less important, instead it seems to make it more so. With fewer impediments to trade to shelter uncompetitive domestic firms and industries, the home nation takes on growing significance because it is the source of the skills and the technology that underpin competitive advantage.”

�0.� Measuring competitiveness of commodities

TheneedforCaribbeancountriestopayattentiontoimprovingproductivityand competitiveness increased sharply from 1995, when the agriculturesector formallyentered intomultilateral tradenegotiations.Essentially, thecommitmenttotradeliberalizationintheagriculturalsector,thetarifficationofbarrierstotradeandtheloweringofthosetariffshasmeanttheerosionoftariffmarginsformerlyenjoyedbythesecountries.Thus, theiragriculturalsectorsmustbemorecompetitiveinordertosurvive.

TABLE10.3Business competitiveness index (BCI)

GCI rank BCI rank Busines environment quality rank

Company operations and strategy rank

Under-nourished

population %

Barbados 31 42 41 60 2Jamaica 60 54 55 52 10TrinidadandTobago 67 63 64 65 11DominicanRepublic 83 84 86 79 27Suriname 100 109 108 115 10Guyana 111 114 115 111 9


�50


Arguablythemostcomprehensiveapproachtomeasuringcompetitivenessof commodities, and the one used in this chapter, is through the policyanalysis matrix (PAM) (Monke and Pearson, 1989), which is based on thecomputation of a number of price distortions, cost and profit indicatorsof competitiveness such as the nominal protection coefficient (NPC), theeffective protection coefficient (EPC), the domestic resource cost (DRC)coefficient, producer subsidy equivalent (PSE), private profitability andsocialprofitability.ThesectionreportstheapplicationofthismethodologytotheCaribbeancountries.

As the importance of enterprise management and value chains in globaltrade gains recognition, productivity performance indicators comparableacross firms and countries are becoming increasingly popular as measuresof competitiveness. Obviously, as trade becomes more liberalized and atthe same time creates regional and world trade groups, the need arises forcomparative indicators. In this context it isuseful to havebenchmarks forcomparingdataonsupplychainsinanindustrycontext.

Itiscrucialthattheconceptandmeasurementofproductivityadoptedbethe one reflected in the broader approach pioneered by Porter; it extendsbeyond physical output per unit of input to represent consumer value perunit of output. Factor productivity is important but is only a part of thecompetitiveness picture; becoming and remaining competitive requiresseveral setsofconditionsessential tocreatingconsumervalue.To improveandmaintaincompetitivenessitisnecessarytoidentifybenchmarkindicatorsofcurrentlevelsofperformance,impedimentstogrowthandopportunitiestobepursued indifferent industries. In the third sectionof thispaper thePorter framework isused toevaluate subsectors indifferent countries as astrategytowardincreasedcompetitiveness.

Thereareothermeasuresofcompetitivenessrelatedmorecloselytomarketparticipation. Examples of these are the revealed comparative advantage(RCA) measure, which compares a commodity’s share in a country’sexports to the commodity’s share in world exports; the rate of exposureto competition, which compares exports plus imports to production; andrelativetradebalance,whichmeasuresexportslessimportsofacommodity,dividedbyexportsplus imports.Thesemeasuresarenotconsideredusefulin a framework where the effort is on increasing competitiveness, makingdecisionsoncontinuationand/orexpansionofanindustry,becausetheycanbeaffectedbyfactorsthatarenotnecessarilydeterminantsofcompetitivenesssuchassuppliescurrentlyavailableandmarketingprocedures.

Theintentionhereistocombineindicatorsthatmeasurethecompetitivenessclimatewith indicatorsmoredirectly related toaparticularcommodityorindustry.Bothdimensionsarecritical. In theCaribbean therearevariablesin both areas. For example in Jamaica lagging competitiveness is duemore to macroeconomic reasons (high interest rates, depreciation of the


�5�

foreign exchange rate and praedial larceny), while in Guyana increasingcompetitivenesswouldrequireupgradingagriculturaltechnologyanddoingbetterinternationalmarketing.

Competitiveness of Caribbean non-traditional commodities: the PAM approach This section of the paper presents the results of an assessment of thecompetitivenessandcomparativeadvantageofanumberofnon-traditionalagricultural products in several CARICOM Member States, based on thecomputation of a policy analysis matrix (PAM). The PAM is an analyticalframeworkaimedatexaminingtheimpactofpoliciesbasedontwoenterprisebudgets: one valued at market prices, and the other valued at economicor social prices. The divergence between the market and economic valuesindicatesthestaticimpactofthepolicysetting,andconstitutesaconvenientwaytoshedlightonthecompetitivenessoftheeconomicsector(s),andtheircomparativeadvantage.

The PAM methodology is presented and discussed extensively in Chapter 12.140ThefollowingsectionreportsonthespecificityofthepresentapplicationtotheCaribbeancountries,particularlyforwhatconcernsthecalculationoftheeconomicpriceswhicharecomparedwiththemarketprices.

Procedure for economic/social pricing of imports and exportsOur work on Caribbean commodities required amending the standardprocedures of economic pricing for determining farm-level values for thetradedinputsandoutputsbecauseoflackofdata.

The procedure of constructing the PAM involves reassessing the initialbudgetconstructedinmarketpricesintoabudgetvaluedineconomic/socialprices. Economic pricing techniques vary depending on if the item is atradableitemornon-tradableitem.Fortradableitems(exports,importsandimportsubstitutes)farm-levelexportorimportparitypricesarecalculated.The standard procedure for calculating import parity prices begins withthecost insurance freight (CIF)price for the itemandthenadjusts for themarketchargesinvolvedinmovingtheitemfromtheholdoftheshiptothelevelofthefarmgate.TheCIFpriceisusuallyquotedinaforeigncurrency(US dollars) and this must be converted to domestic dollars using a real(undistorted) as opposed to the nominal exchange rate. In the case of theexportparitypricethestandardsocialpricingprocedurestartswiththefreeonboard(FOB)pricewhichisconvertedtoanFOBpriceindomesticdollarsusingtherealexchangeratebeforeitisadjustedbacktothefarm-gatelevelbydeductingallmarketingandtransportcharges.Importantlyincalculating

140ThosereadersunfamiliarwiththePolicyAnalysisMatrix(PAM)methodologymaywanttoreadSection12.2ofChapter12atthispoint.

�5�


import/exportparityprices, taxesandsubsidiesareomitted.Taxesmaybelevied in theformofcustomscharges,environmental levy,customsservicecharge,VAT,salestax,consumptiontax.

With exception of commodities in Trinidad and Tobago, the social/economicpricingproceduresutilizedinthisstudyforcalculatingtheimportandexportparitypriceswereamendedtotakeaccountofmissingdata. Inparticular,threepiecesofdataweremissing:therealeffectiveexchangerate(REER);CIFprices;andthemark-upchargedbyintermediaries.Inallcasesinformationwasavailableon(i)final(market)pricepaid/receivedbyfarmers,and(ii)thecustomschargesandothertaxesandsubsidiesineffect.

The amended procedure aimed to obtain an estimate of the value ofdistortionary taxes and subsidies contained in the market price of theimported/exported item. The social/economic price was then obtained byadjusting the market price to remove the value of the distortions. It alsousedthenominalexchangerateinsteadoftheREER.However,TrinidadandTobagoandJamaicahavefloatingexchangeratesystemsandthusthenominalexchange rate can be considered equal to the REER. In the case of SaintVincentandtheGrenadines,SaintKittsandNevisandDominica,countriesthat belong to the East Caribbean Currency Union, the InternationalMonetary Fund (IMF) data indicate very little change in the real effectiveexchangerate(REERbasedonchangesinrelativeconsumerpriceswith2000baseyear)between1995and2004–Dominica:88.1vs89.3;SaintKittsandNevis: 85.0 vs 88.8; Saint Vincent: 87.8 vs 86.2. In all countries the REERappreciatedfrom1995andthendepreciated(stimulatedbymovementsintheUSdollarexchangerate) in the last3-4years.The immediatepointhere isthatconclusionsfromcomparingREERvaluesarehighlyinfluencedbythebeginningandendpointsofthetimeseriesused.AsecondpointisthatforthecountriesotherthanTrinidadandTobagoandJamaicatheresultsshouldbeinterpretedwithsomecautionthatthesocial/economicpricinghavenotfullyisolatedtheeffectsofmacro-economicdistortions.

IncaseswhereonlytheCIFdataweremissing(asinthecaseofcarrotsinJamaica)a spreadsheetwasused tosetupa schematicof thesocialpricingprocess. For carrots it was determined that the value of the tariff was 52percentofthevalueofthefinal(market)price.IncaseswheretheCIFandoneotherpieceofdataweremissing (thiswas thecase inmost situations)a simplerulewasapplied tocomeupwith thevalueofdistortingcustomscharges.ItwasassumedthattheCIFpricewas50percentofthefinalprice.TheimplicationofthisruleisthatapercentagetaxonCIFpricescouldbemodelledasataxofhalfthatrateonthemarketprice.

ResultsTable �0.4 provides results of 28 PAMs for non-traditional commoditiesin six Caribbean countries, with the country in the first column and the


�53

commoditiesassessedinthesecondcolumn.ForBelizesixcommoditieswereassessed(whitepotato,hotpeppers,papaya,cabbage,onion,tomatoes);forTrinidadandTobagothreecommoditieswereassessed(butitpresentsfourfarmingsystemsforriceandthreeforcocoa).Thefinalcolumnofthetableshowswhetherthecommodityisexportedorimported.

Allcommoditieswerecompetitive(usingtheindicatorofprivateprofits),withtheexceptionofdairyandtwoofthericefarmingsystemsinTrinidadandTobago.All commoditieshadcomparativeadvantage (using indicatorsof the DRC and social profits), with the exception of dairy and the fourrice farming systems in Trinidad and Tobago. In many cases exportedcommodities had higher levels of comparative advantage (exceptions wereBelize and Saint Vincent and the Grenadines). Generally, levels of returnon investment (profit/total cost) were strongly correlated with values forcomparative advantage (DRC); specifically, return on investment (ROI)washigherthegreaterthelevelofcomparativeadvantage.However,amongcommoditieswithincountriestherelationshipbetweenROIandcompetitiveadvantage(privateprofitability)wasobscure.

Wefoundthatimporteditemsreceivedmorepolicysupportandprotectionthanexporteditems.WithincountriesthePSE(whichmeasuresthepercentagecontributionofpoliciestogrossrevenue)forimporteditemsweregenerallyhigherthanthoseforexporteditems.TheNPCs(whichmeasuresthelevelofpolicy-inducedprotectionprovidedtotheoutput)onexportedcommoditiestend to be 1.00 (or close), while that for imported items showed a greaterrangeofvariation,withvaluesoftenhigherthan1.00.TheNPCsofvalue1.00indicate zero policy-induced protection. NPCs of values greater than 1.00ontheimportsindicatethatmuchhigherlevelsofprotectionareprovidedtocommodityimportsratherthantoexports,aswouldbeexpected.

The results indicate good opportunities for improving food security inCARICOM countries. The strong results for root crops (white potatoes inBelize; sweet potatoes and yams in Jamaica peanuts and sweet potatoes inSaintKittsandNevis)providereasonsforfurtherinvestmentintheseareastoimprovefoodavailabilityofstaplefooditems.Alltherootcropshavestronglevelsofcompetitivenessandcomparativeadvantageandreceiveverylowlevelsofsupportfromgovernments.Themajorconstrainttoimprovingtheoutputofthesecommoditiesandtheirsignificanceinfoodsecurityisifthereisaswinginconsumptionpatternsawayfromthem.ThestrongresultsintermsofROIandprofitasapercentageofrevenueindicatethatrootcropsandvegetables(suchaspumpkin,cabbage,tomatoes,carrots,hotpeppers,sweetpeppers)canmakeacontributiontoincreasingfarmhousehold-levelfoodaccessibilitybyprovidingthecashincomerequiredtosecureothercommodities.

The potential impact of these commodities on farm household incomemust take account of farm sizes. While per hectare returns may be quiteattractive, thecommoditymaynotbeattractivetofarmers(andcontribute

�54

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sufficientlytoincome)ifproductionmethodsand/ormarketsizemeansthatfarmersplantsmallparcelsofland.

�0.3 Increasing Caribbean commodity competitiveness

ItisurgenttoimprovethecompetitivenessoftheagriculturalsectorintheCaribbean,bothtoalleviatepovertyandfoodinsecurityindepressedareasofCaribbeancountriesandtoseizeincome-earningopportunitiesthatpromoteoveralldevelopment.Giventheresultsofseveralstudies141ofthetraditionalsectors(sugar,bananas,citrus,rice)itisclearthatsomeproducerswillhavetogiveupproducingsomecropsorincreaseproductivitysignificantlyverysoon.Someproducerswhohaveincreasedtheirefficiencyarewell-positionedtocompeteinbothregionalandglobalmarkets.Forexample,DRCsforricein Belize, Guyana and Suriname are between .66 and .75 (FAO, 1998), incontrastwiththeDRCsforriceinTrinidadandTobago.

Table �0.5 provides a summary of factors affecting competitiveness ofriceinBelize,GuyanaandSurinameandareaswhereimprovementscanbemade. The ability to supply quality (rice) products on a reliable basis canmakethedifferenceinwhetherproducersinCARICOMareabletosupplytheregionandbeyondit.Atthefield level irrigationfacilitiesmaintenanceand improvement will increase yields and contribute greatly to enhancingcompetitiveness.

The challenges to making the two main traditional products competitiveareimmensebecausecompetitionisbasedmainlyonprice.Forcountriesthatremainsugarproducersoneofthemostimportantwaystoincreaseproductivityisbyincreasingtheefficiencyofthetransportsystem.Morebananaproducersin the region will go out of business, as has already happened with sugarproducers.Inthecaseofbananas,lower-costproducers(e.g.Ecuador)areabletodrivethepricedownandstillproduceveryprofitably.Tosustainbananatradesomedegreeofproductdifferentiation,especiallypromotedataregionallevel,andhigher-incomemarketsegmentsglobally,couldmakeadifferencetothesurvivalofCARICOMbananaproducers.

There is increased recognition that topromotegrowthanddevelopmentintheagriculturalsectorit isnecessarytohaveastrategyofdiversificationand expanded value-added, paying more attention to efficiency andcompetitivenessallalongthevaluechain.Twosubsectorswithpotentialarenon-traditionalagriculturalproducts(seeDRCsinTable10.4)andlivestockproducts (especiallyBelize,GuyanaandSuriname,whereestimatedDRCsareconsistentlylessthan1).Tables �0.6 and �0.7presentfactorsinfluencingcompetitiveness in these subsectors that need to be addressed. Livestock

141 FAO. 1998. Assessment of the impact and implications for policy of trade liberalization on the agricultural sector of CARICOM countries. Rome.


�57

TABLE10.5Summary of factors influencing the competitiveness of rice in selected CARICOM countries

Belize Guyana Suriname

Product market factorsMarketaccess Producedprimarilyfor

domesticmarketPreferentialaccesstoEUbutattractivenessofmarketreducedsubstantiallyandpotentiallyunstable

PreferentialaccesstoEUbutattractivenessofmarketreducedsubstantiallyandpotentiallyunstable

Marketinginfrastructure

Inefficientinthesmallfarmsector;BelizeMarketingBoardmanagementneedsimproving

GuyanaRiceExportersandMarketersDevelopmentAssociationstrong

Weakproducerandmarketingassociation,governmentregulationsincreasetransactioncosts

Productcharacteristics

Variablequalityofexportedrice

High-qualityricecouldprovidesomescopefordifferentiation

Input market factorsIntermediateinputaccess

Highinputcosts,especiallyenergyandtransportation

Adequate Adequate

Labour/humanresources

Generallyverylowproductivityonsmallfarms

Quantityandqualityhasdeclinedwithpoliticalinstability

Minimallyadequate;difficultyattractingreliablelabour

Technologyandproductivity

Milpasystem;lowtechnology;lowinputonsmallsouthernareafarms

Overcapitalizedprocessingcapacity,technicalviability

Moderateproductivityandtechnologyonsmallfarms

Irrigationinfrastructure

Poortonon-existentonsmallfarms

Lackofsufficientinvestmentinmaintenanceofirrigationanddrainagefacilities

Inneedofmajorrehabilitation.andinvestment

Accesstocredit Limited Needstobeimproved NeedstobeimprovedIndustry structure

Sizedistribution Mixofmilpasystemsandlargemechanizedcommercialfarms

Largesmall-farmingsector;somelargeproducers

Bimodal(fewlargefarms;manysmallfarms)

Ownershipstructure Private,butsmall-farmproductmarketingdependentonBMB*

Privatefarms Predominantlyprivatefarms

InfrastructureTransportation Improvedgreatlyrecently Shippingchargeshigh

relativetocompetitorsNeedstobeimproved

Informationsystems Needsimproving Needsimproving Needscoordinationandimproving

GovernmentRegulatoryenvironment

Governmentinterventions

GuyanaRiceDev.Boardoverseessector

Burdensomeexportprocedures

Supportagencies Assistancefromregionalsupportinstitutions

ResearchmovedunderGRDB**;farmerorganizationsstrengthened

Inadequatesupportcapacityofpublicsector

Tradeandsupportpolicies

Importdutiescontributetohighinputcosts;tariffsprotectdomesticsector

Licensingrequirementsremoved;domesticandexportmarketliberalized

Someaspectsliberalized

*BelizeMarketingBoard**GuyanaRiceDevelopmentBoard

�58

Agricultural trade policy and food security in the CaribbeanTa

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Sum

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products are receiving consumer attention from health food and animalwelfarestandpoints.Marketingthehumanenessofthelivestockproductionsystem and improved health to the consumer, and the direct linkages toincreasedincomeandwelfaredomestically,maybeonewaytohelpmaintainalivestocksectorinsomepartsoftheregion.

Identifying specialized markets and promoting particular characteristicsof the CARICOM agricultural product is an important part of convertingsystemswithhighercostsofproductionintocompetitivesystems.Thismaybetheonlyviableoptionforsustainingcompetitivenessofmanyofthenon-traditionalexportsfromtheregionoverthelongerrun.Moreattentionshouldbepaidtotheneedsofthemarketateverypointinthecommoditysystem.Theagriculturalsectorshouldbemademoreknowledge-based,withcomprehensiveintegrated policy support that provides incentives for upgrading technologysystems and implementing innovative management systems linked to suchproductivitymeasuringtoolsasscorecardingandbenchmarking.

ThecompetitivenessofagriculturalproductsintheCARICOMregionwilldependasmuchonproductdifferentiationasonproductioncosts.Itwillnotbeindividualcommoditiesorfirmsthatdeterminecompetitivenessbutratherapartnershipbetweenthepublicandtheprivatesectorthatensuresthatfactorsinfluencing competitiveness are addressed adequately. The analysis in thischapter has shown that there is certainly the potential for many agriculturalproductsfromtheCaribbeantohaveacompetitiveadvantageintheregionalmarket and beyond. However, competitiveness factors at both the macro-economicandmicroeconomic levelsneed tobe improved to enable firms tobetterseizeopportunitiesthatariseinthechanginginternationalenvironment.

References

Caribbean Community (CARICOM) Secretariat. 2000. Caribbean Trade and Investment Report 2000.Kingston,Jamaica,IanRandlePublishers.

CARICOM Secretariat. 2006. Caribbean Trade and Investment Report 2005.Kingston,Jamaica,IanRandlePublishers.

FAO. 1998.Assessment of the impact and implications for policy of trade liberalization on the agricultural sector of CARICOM countries.Rome.

FAO. 2006.The state of food insecurity in the world 2006.Rome.International Monetary Fund (IMF). International financialstatistics.Availableat

http://www.imf.org/external/data.htm.Monke, E. & Pearson, S. 1989.The policy analysis matrix for agricultural development.

Ithaca,NY,CornellUniversityPress.Porter, M.E. 1990.The competitive advantage of nations.NewYork,FreePress.World Economic Forum. 2006. The global competitiveness report 2006–200�.

Availableathttp://www.weforum.org/en/initiatives/gcp/Global%20Competitiveness%20Report/index.htm.

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