Market Analysis Tools for Trade Flow Analysis and Modeling Trade Negotiation Outcomes

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Market Analysis Tools for Trade Flow Analysis and
Modeling Trade Negotiation Outcomes

• Presented
• By
• Dr. Lovemore Rugube
• Presented at IDEP s Training Facility, Dakar
  Senegal, 26 to 30 April, 2010

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The challenges facing agricultural export
development in Africa

• External constraints are mainly market access
  while the internal constraints can be categorized
  as supply-side constraints.
• Market access has in particular contributed to
  concentration of African exports into specific
  markets (EU and USA) and concentration of exports
  into a few products.
• High tariffs, tariff peaks and tariff
  escalations discouraged value addition.
• Supply side constraints are perhaps the most
  important constraints to export diversification.

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The challenges facing agricultural export
development in Africa

• These constraints have led to inability of many
  African countries to take full advantage of
  preferential market access provisions, EBA,
  EU-ACP, AGOA.
• Preferential market access provisions need to be
  accompanied with supply-side enhancing capacity
  to enable trade expansion and diversification of
  Africa countries exports.
• The supply-side constraints
• Inadequate infrastructure, both physical and
  soft.
• Freight charges far more restrictive barriers to
  African exports than tariffs. For example freight
  cost as a percentage of total import value in
  2001 was 13 and 8.8 for Africa and developing
  countries respectively.

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The challenges facing agricultural export
development in Africa

• Lack of coherent and supplementary policies. Such
  as the failure of governments to develop the
  energy sector.
• Poor trade facilitation particularly inefficient
  customs services increase costs on exporters
  reducing competitiveness
• Inability to conform to standards and other
  requirements in the international markets
• Weak and inadequate institutions
• Lack of appropriate institutional frameworks and
  systems for managing trade policy

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The challenges facing agricultural export
development in Africa

• Weak private-public dialogue
• Lack of information
• Lack of credit institutions
• Production structures. smallholder face
  challenges related to economies of scale
  investments and lack access to credit facilities
• Drought or other adverse climatic conditions

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Patterns of Agricultural Protection/Distortions

• More than two-thirds of the Africas poor depend
  directly or indirectly on agriculture for their
  livelihood
• Government policies, in the past at least, have
  depressed farm incomes in Developing Countries
  -D Cs
• Anti-agric policies in D Cs themselves
• Pro-agric policies in H I Cs, which lower intl
  food prices and thereby some farm-gate prices in
  D Cs
• The policy instruments chosen are not the most
  efficient for achieving governments stated
  objectives, in either
• D Cs or H I Cs

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What are the patterns of government distortions
to agricultural trade?

• H I Cs protect agric relative to manufacturing, D
  Cs tend to do the opposite
• Degree of agric protection is correlated with
  degree of agric comparative disadvantage
• Countries tend to move towards protecting agric
  (and textiles and clothing) as they grow and
  industrialize

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Types of instruments that distort trade

• Market access These include import tariffs and
  quotas that protect local producers from
  competing imports. Protection induces local
  production to be higher than would be the case at
  market prices, at the expense of international
  producers and exporters.
• Export subsidies These include government
  payments that cover some of the costs of
  exporters such as marketing expenses, special
  domestic transport charges, and payments to
  domestic exporters to make sourcing products from
  domestic producers competitive.
• Domestic support These include direct support to
  farmers linked to the type, price, and volume of
  production. Depending on the level of support,
  local production is usually higher and competing
  imports lower than in the absence of subsidies.

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Traditional exports for selected African
countries
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High-value commodity markets
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Export Strategies for SSA Countries

• Rational
• High dependency on very few commodities
• (traditional tropical export commodities)
• Risk due to price volatility for these
  commodities
• Long term downward trend in the prices of these
  commodities
• High-value commodities higher income elasticity
  of demand
• High-value commodities lower price variability

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Agricultural Exports

• Coffee/tea/cocoa/spices 30 percent of Africas
  ag exports
• strongly dominated by five major players--Cote
  dIvoire, Ghana, Kenya, Cameroon, and Madagascar
• SSA relatively minor global player (10 percent of
  the global market)
• Share fluctuates (and declined) due to global
  price volatility
• Share of fruits and vegetables increased from 4
  percent in 1990 to more than 16 percent in 2004.
• Dominated by South Africa (60 percent), Kenya (12
  percent) and Cote dIvoire (9 percent)
• Fish and shellfish and other seafood increased
  from 2 percent to 11 percent
• Main players South Africa (20 percent), Namibia
  (17 percent), Senegal (15 percent), and
  Seychelles (11 percent)

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• Intra SSA import
• Not much (18 percent)
• Intra-African food and agricultural imports are
  less important
• More for landlocked economies

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Intra-regional trade

• Relatively little (17 percent) intra African food
  and ag Exports
• Landlocked African countries tend to undertake
  more intra-regional trade

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Intra-regional trade
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How have African agri-food export products
performed?

• Revealed Comparative Advantage (RCA) Index
• RCAij market share of country i s export of
  good j/market share of country i s total export
• Country i has revealed comparative advantage in
  good j if RCAij gt 1
• This is more an indicator of export performance
  than a predictive number

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Top 15 performers in terms of RCA
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Bottom 10 performers in terms of RCA
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RCA

• Competitive performances of Africas major export
  commodities like tea, coffee, sugar, and tobacco
  has decreased significantly between 1990 and 2004
• However, RCA improvement for cocoa, cotton and
  wood chips
• Plus, non-traditional high-value exports such as
  fresh fruits and vegetables and fish and shell
  fish products performed well ? an indication of
  an increased degree of diversification of
  Africas food and agricultural exports?

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Protection is Still High and Mostly at the
Border(rate of protection, percent )
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OECD Protection is still High(percent)

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Border Protection is non-Transparent(Tariff
lines that are not Ad-Valorem,percent of total
tariff lines)
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Tariffs Escalate in Final Products
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Examples of Tariff Escalation
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Downward trend in applied tariffs (simple
average, )
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Effects of full global libn on SSA agric
change in Real value of agric and food exports Real net farm income
South Africa 56 10
Other Southern Africa 50 9
Rest of Sub-Saharan Africa 45 5
All S S Africa 50 7
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Key elements of the Doha Agenda

• 3 agricultural pillars (including cotton)
• Non-agricultural market access
• Services
• Lesser tariff and subsidy cuts for developing
  countries (DCs) and zero cuts for least-developed
  countries (LDCs)

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Whats on the table? Market access

• Elimination or sharp reduction of use of the
  Special Safeguard (SSG-- currently permits many
  developed countries to impose duties above their
  Uruguay Round bindings)
• New Special Safeguard Mechanism (SSM) with both
  price and quantity triggers for developing
  countries.
• Import duties of up to 25 percentage points could
  be imposed when imports exceeded 110 percent of a
  three year moving average
• A price-based measure could be invoked if the
  price of imports falls below 85 percent of a
  three-year moving average of import prices, with
  a duty up to 85 percent of the gap between
  current import prices and the three year moving
  average.

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Whats on the table? Export Subsidies

• Draft agreement involves abolition of all export
  subsidies.
• Very little impact in the short runbecause
  current export subsidy levels are negligible
• Rules out a return to the disruptive situation of
  the 1980s, when world prices were severely
  depressed by high levels of export subsidies that
  displaced efficient producers.
• Will reduce the uncertainty faced by producers in
  developing countries, and should help promote
  needed investment.

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Whats on the table? Domestic Support

• Traditional Aggregate Measure of Support (AMS) to
  be reduced using a tiered formula
• 70 percent cuts in the EU 60 percent in members
  with intermediate amounts of support (including
  the USA) and 45 percent in other members.
• Additional constraint applied on Overall Trade
  Distorting Support (OTDS)-- the total of AMS, de
  Minimis, and Blue Box support.
• cut by between 75 and 85 percent in the EU 66 to
  73 percent in the USA and 50 to 60 percent in
  smaller industrial economies.
• Blue box support limited to 2.5 percent (5
  percent) of the value of production for developed
  (developing) members.
• Product-specific limits introduced on AMS and on
  the blue box, with the cap on support to cotton
  being lowered very sharply and under an
  accelerated timetable.

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Implications for Sub-Saharan Africa

• Doha would give SSA only a small fraction of
  their potential gains from a move to global free
  trade
• If DCs (including LDCs) were to fully
  participate, their gain more than doubles
• To gain more, SSA DCs have to reduce bound
  tariffs further, so that applied tariffs fall
  more
• Isnt it better to do that under Doha, so as to
  get reciprocity and/or more aid, rather than
  unilaterally especially as that would lead to
  less trade diversion when EPAs are signed with
  the EU?

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Why Exclude Certain Products from Tariff
Reduction Negotiations

• Significance of local production
• Food Security
• Fiscal revenue
• Protection of infant industry
• Balance of payments
• Health reasons

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A List of offers by Product for Market Access
Negotiations
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Agricultural trade in RTAs (N-N)

• Agricultural trade within developed countries,
• - exports account for some 80, imports 70 of
  total developed countries agricultural trade
• 70  EU agricultural exports, 60 of imports are
  within EU.
• Agricultural trade among the EU countries
  represents 30  of total world agricultural
  trade.
• Agricultural trade in S-S RTAs?
• - SSA 9

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1. Intra regional agricultural and food exports
and imports- low2. Intra- regional market access
issues
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Agriculture is relatively protected

• COMESA countries have protected their
  agricultural sectors as compared to their
  industrial sectors.
• Kenya and Uganda, (EAC), have tariffs higher than
  CET level of 25 for some agricultural
  commodities, which are the regions sensitive
  products.
• Within the framework of the ongoing EPA
  negotiations, countries have developed a
  sensitive list of their agricultural products

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Why low regional agricultural trade

• Similar products
• Limited transformation and value addition
• Most of traded agricultural commodities are in
  their raw form- while imports are in their
  processed form.
• Underdeveloped value chain and linkages
• -There are limited industries inter-linkages in
  the region as well as limited or poor
  dissemination of market information

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Why low regional agricultural trade (contd)

• Inadequate trade facilitation
• -Customs documentation requirements and
  procedures continue to be a hindrance to smooth
  regional trade despite the FTA status and various
  initiatives to facilitate regional trade.
• Limited demand in some commodities
• -The region in some cases is producing some
  commodities whose demand in the region is (such
  as cut flowers).
• TBTS Need for harmonized food safety standards.
  
• Unpredictable Trade Environment
• -Adhoc measures always taken to restrict trade,
  measures are not communicated to traders in
  advance

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Potential for intra-regional COMESA trade

• For COMESA and SADC,
• -product complementarities and levels of
  intra-regional trade are low
• -Complementarily index measures similarities
  between the export basket
• -Low complementarity between products of
  different countries means that products from the
  two countries are relatively similar and
  therefore there is a likely to be polarisation in
  the regional market
• -Complementarity is high between products of
  relatively higher developed member countries and
  those that of less developed (Egypt)

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Overlapping African Regional Agreements

• Too much Regional Trade Agreements
• Logistical Constraints
• Loss of Identity