CTA is financed by the EU. Le CTA est financé par l'UE. © CTA 2013 Caribbean West Africa Central Africa Southern and Eastern Africa (SADC and ESA) Pacific CAP reform Food safety Market access Product differentiation WTO Agreement on Agriculture Banana sector Beef sector Cereals sector Cocoa sector Coffee sector Cotton sector Dairy sector Fruit and vegetable sector Oil crops sector Poultry sector Rice sector Sugar sector Tea sector EU Common Fisheries Policy and Fisheries Partnership Agreements: Challenges for ACP countries Tuna sector: Issues and challenges ACP-EU fisheries: Market access and trade WTO aspects of ACP-EU fisheries relations http://agritrade.cta.int/ Banana sector I 1 There are over 1,000 varieties of bananas being produced, which fall into three main categories: cooking bananas, brewing bananas and dessert bananas. Mostly cooking and brewing bananas are con- sumed and traded in ACP countries, while the dessert banana, Cavendish, is the predominant variety for international trade. Globally around 21% of recorded banana production is traded internation- ally, although this is almost certainly an overestimate given the lack of data on non-commercialised banana production. Although three ACP countries (Uganda, Rwanda and Burundi) are among the top 10 global banana producers, the trade in dessert bananas is dominated by five main exporting countries (accounting for 83% of the recorded global trade) of which none are ACP states. Four mul- tinational companies have dominated the banana trade but this is beginning to change with the rise of refrigerated container ships and direct purchasing by multiple retailers. This opens up new marketing opportunities and increases the importance of strengthening the way ACP banana supply chains function. In some ACP countries, rapid urbani- sation is increasing the demand for cooking bananas, although regionally and internationally new markets for pro- cessed banana products (banana flour and banana chips) are emerging. This is extending new trading opportunities beyond the EU. However, the trade will involve different varieties of bananas and, in the short term, different ACP countries. Combating plant diseases and sanitary and phytosanitary standards (SPS) con- trol regimes are, however, likely to play an important role in the development of regional trade in bananas and the scope for investment in value-added processing. In recent years, the ACP has been hold- ing its own on the EU market, with a update September 2013 Banana sector 1. Background and key issues 1. Background and key issues 2. Latest developments Global market developments EU banana sector developments Product differentiation in the banana markets: Fair-trade and organic Developments in Eastern and Southern Africa Developments in Central and West Africa Developments in the Caribbean and the Pacific 3. Implications for the ACP Scope for increased competition on the EU market from new FTAs Securing equivalency agreements for organic products Controlling banana diseases: The foundation for value-added processing and regional trade Clearly identifying market opportunities for value-added processing © CIAT Executive brief: Update 2013 I 2http://agritrade.cta.int/ Banana sector higher share of imports from 2009 to 2012 than in the preceding 5 years. The Geneva Banana Trade Agreement (GBTA), the implementation of agreed free trade agreements (FTAs) and new FTAs (e.g. with India) may reverse the trend. This prospect increases the importance of promoting national and regional markets for bananas and developing direct trading links to expanding markets in advanced devel- oping countries. Yet competition in advanced developing countries’ mar- kets from better placed third country suppliers is likely to be intense, and may require the development of care- fully targeted marketing strategies. The geographical origin of ACP banana exports continues to evolve, while the outcome of ongoing economic part- nership agreement (EPA) negotiations hangs heavily over West and Central African banana exporters. This provides the context for the deployment of EU banana accom- panying measures (BAM) support, under which a range of new commit- ments were made in 2012–13. Wider EU budget debates, however, cast a shadow over prospects for an exten- sion of the BAM programme. 2. Latest developments Global market developments Global production and price trends In September 2012, heavy rains affected banana exports from Ecua- dor – the leading global exporter at 30% – which was compounded by an attack of the fungal disease, Black Sigatoka. A production decline of 25% was projected, with tightening sup- plies expected to halt the 17% decline in banana prices since March 2012. However, from October to Febru- ary 2013, banana prices fell a further 3.5%. Despite these declines, prices remained approximately 85% higher than the 10-year average. The evolving functioning of global banana supply chains The functioning of banana supply chains is potentially being transformed by the shift from conventional reefer shipping to refrigerated containers. An analysis from the Maersk shipping line maintains that refrigerated containers allow bananas to be kept fresh for up to 50 days. This reportedly supported “smallholder growers in getting their bananas to foreign markets at a higher value than they can achieve domesti- cally and at much lower waste levels” (see Agritrade article ‘Increased use of refrigerated containers opens alter- nate supply opportunities for banana exporters’, 2 July 2012). In 2009 about a third of all bananas were transported internationally in refrigerated contain- ers – a proportion still on the increase. Despite the questioning of the com- mercial viability of strategies adopted to promote refrigerated container use, the specialised reefer fleet continues to decline, while the refrigerated container fleet continues to grow. The new routes to market that are opening up create opportunities for ACP banana suppliers to get closer to their final customers and reposi- tion themselves within banana supply chains. Such is the case particularly for specialist suppliers – e.g. Windward Island fair-trade producers or Domini- can Republic (DR) organic banana exporters – who could potentially iden- tify and deal directly with key market outlets. However, these opportunities are equally open to non-ACP banana exporters. Symptomatic of this was the report in November 2011 of exports of bananas from Panama direct to the biggest Spanish retailer, Mercadona. EU banana sector developments Trends in the EU market An EC assessment from February 2013 states that the average price for EU bananas marketed outside their area of production in 2013 is projected to remain at the 2012 level of €0.65/kg. According to World Bank Commod- ity Price Data, in US dollar terms, EU banana prices were lower in 2012 than in 2011, but until July followed the same variable trend in average monthly banana prices as for 2011 (see Table 1). However, from August to October 2012, average EU banana prices rose, contrary to the continued downward trend experienced in 2011. From September until December 2012, EU banana prices were 10–19.5% higher than during the same period in 2011. Average EU banana prices in January/February 2013 were com- parable to price levels in January/ February 2012, despite press reports indicating reduced supplies would lead to higher prices. “In 11 months of 2012, EU banana prices were higher than US banana prices” In all but one month of 2012, EU banana prices in US dollar terms, were higher than US banana prices (between 3.6 and 26.6%), making the EU market relatively more commercially attractive than the US market. However, average EU price data masks wide discrepan- cies in the banana prices offered on national markets. Banana Link main- tained that in Germany “prices in the major [supermarkets chains] have been Executive brief: Update 2013 I 3http://agritrade.cta.int/ Banana sector consistently 25–30% higher than in the UK in 2012” and in France “40–50% higher on average”. “Average EU price data masks wide discrepancies in the banana prices offered on national markets” The low banana prices in the UK are attributed to the influence of major supermarkets (see Agritrade arti- cle ‘Trends in the UK and European banana markets’, 11 February 2013), which provides little scope for price negotiations. Indeed, according to Banana Link, UK supermarket banana price wars have been “stripping value out of the banana value chain” over the past 10 years. For ACP producers, the situation on the UK market is compounded by stricter retailer social and environ- mental standards, the costs of which are carried by the producer. Escalat- ing input costs and stagnant prices mean that ACP producers are facing increasing difficulties in meeting qual- ity standards. “Escalating input costs and stagnant prices mean ACP producers are facing increas- ing difficulties in meeting quality standards” In December 2012, a group of major Fairtrade-certified growers announced that “If there was no price increase in line with rising costs of production and the cost of meeting high Fairtrade standards, they would be forced to cease selling as Fairtrade.” This pessimistic view was reinforced by a decline in Windward Island banana exports to less than 60% of those attained in 2010. It was stated that unless UK retailers played a greater role in assisting producers to meet stricter quality standards through more remunerative prices, the future of Windward Island exports to the UK would be bleak. Prominent leaders from the Carib- bean banana farming community therefore joined lobby efforts in June 2012 to encourage the EC to extend the proposed code of practice for food retailers to cover overseas suppliers, including ACP banana exporters (see Agritrade article ‘Sustainability con- cerns go mainstream in Dutch fruit and vegetable sector’, 29 July 2012). Meanwhile in Eastern Europe, super- market own-label banana sales are increasing, raising fears that trends in the UK market could spread to other EU markets. However, annual price negotiations at the end of 2012 sug- gested that some UK retailers were offering prices closer to those of Ger- man supermarkets, raising the ques- tion: is the UK banana market “poised to take a quantum leap from value- stripping to value enhancement?” The impact of the new banana trade agreements The ACP countries are concerned over the impact on the banana sec- tor of the EU FTA agreements with Andean Pact and Central American countries. In June 2012, the EU and Central American governments signed the Comprehensive Association Agree- ment, with the trade pillar entering into force at the end of 2012. Meanwhile in November 2012, the WTO process of Table 1: EU and US banana prices, January 2012 to February 2013 (US$/tonne) Year EU US Percentage difference 2012 January 961.92 849.23 +13.3 February 1,244.55 1,067.86 +16.5 March 1,221.07 1,143.65 +6.8 April 1,257.23 1,029.97 +22.1 May 1,207.12 953.50 +26.6 June 1,049.31 954.19 +10.0 July 850.25 964.52 −11.8 August 984.87 950.74 +3.6 September 1,111.88 964.52 +15.3 October 1,117.33 956.25 +16.8 November 1,067.79 933.52 +14.4 December 1,123.40 943.85 +19.0 Average 2012 1,099.73 943.85 +19.0 2013 January 1,095.57 928.70 +18.0 February 1,112.42 923.18 +20.4 Source: World Bank Commodity Price Data, March 2013, http://knoema.com/WBCPD2013Mar Executive brief: Update 2013 I 4http://agritrade.cta.int/ Banana sector enshrining the GBTA in legally binding commitments was completed. Comparison of the tariffs to be charged on quotas under the new EU FTA agree- ments and GBTA shows an accelerated rate of tariff reductions under the FTAs, beginning at €5/tonne less than the GBTA tariffs in 2011, increasing to €18 less by 2017 and reaching €39/tonne less by 2020. Given the trigger import volumes established, the tariff reduc- tion savings on bananas resulting from these association agreements, above and beyond those gained under the GBTA, rise from €14,642,500 in 2012 to €71,234,100 in 2017 and €133,250,000 by 2019. Questions arise over what market effects these additional tariff reductions will have, and over the con- sequences for individual ACP banana exporters (see Agritrade article ‘Central American and Andean Pact association agreements signed’, 12 August 2012). Concerns about the potential market impact were reflected in the special safeguards for European banana pro- ducers inserted into these agreements by the European Parliament during 2012. The special safeguards stipu- late the automatic suspension of tariff reductions whenever banana imports rise above a given threshold, and require the EU to report annually on the market effects of these agreements. It also empowers EU members to initiate “pre-emptive surveillance measures” if import surges occur. Meanwhile in October 2012, the Span- ish government began preparing sup- port programmes to compensate EU banana producers “for the damages being caused by multilateral and bilat- eral agreements”. The efforts include the registering of protected geographi- cal designations of origin for a range of European-produced banana varieties. The overall trend in ACP banana exports EC statistics posted in June 2012 highlighted the growth in ACP banana exports to the EU since 2005 (increas- ing by 34% from 763,974 to 1,023,717 tonnes by 2010), and the growth in the ACP share of total EU banana imports (from 19.45 to 22.63%). However, ACP exports fell to 978,541 tonnes in 2011 (21.22%). In contrast, EU imports of dollar bananas (i.e. from Latin American suppliers) rose only 14.6% between 2005 and 2011 (see Agritrade article ‘EU reviews banana trade amid ACP concerns over preference ero- sion’, 9 July 2012). Provisional figures for 2012 indicated a slight increase in EU banana imports from the ACP (+0.4%) and a 3.3% fall in dollar banana imports. However, analysis from CIRAD, a French agricultural research centre, suggests that EU banana prices in 2011 were consistent with average price levels over the 2007 –10 period. In real terms banana prices fell 0.7% per annum. This needs to be seen against the background of increasing produc- tion costs, with the index of banana production costs rising from 100 in 2006 to 126 in 2011. Despite the overall relatively strong per- formance since 2005 of ACP banana exports as a whole, two factors are worthy of note: the very divergent trends within the ACP group with (taking the DR out of the equation) a decline in ACP banana exports occurring; the fact that tariff prefer- ences already agreed for dollar bananas have not yet been fully implemented. This is a source of concern since coun- tries benefiting from new tariff conces- sions are seen as having ideal condi- tions to increase their exports. “The ACP share of world exports fell from 60.15% in 2004 to 46.88% in 2011” Looking beyond the EU, the ACP share of world exports fell from 60.15% in 2004 to 47.6% in 2010 and 46.88% in 2011, suggesting growing competition for ACP suppliers on all international markets. Product dif ferentiation in the banana markets: Fair-trade and organic Trends in the fair-trade banana sector A report in 2012 highlighted the resil- ience of overall fair-trade sales despite the economic recession, with sales vol- umes increasing 12% in 2011. Across most OECD markets bananas are the most commonly sold fair-trade prod- uct, although only accounting for 2% of total bananas traded internation- ally. The purchasing decisions of mul- tiple retailers are central to the OECD growth of fair-trade sales. For example, Sainsbury’s decision in 2007 to convert to 100% fair-trade bananas provided a major boost to sales volumes (see Agritrade article ‘Fair trade shows resil- ience in face of economic downturn’, 22 September 2012). Previous detailed analysis has argued that Fairtrade certification has played an important role in supporting farm- ers in the Windward Islands, Ghana and the DR in building strong collec- tive enterprises and securing decent returns. However, the use of bananas as a loss leader in UK supermarket pricing wars has exerted downward price pressure on Fairtrade suppliers, Executive brief: Update 2013 I 5http://agritrade.cta.int/ Banana sector by depressing general banana price levels. Complaints emerged in 2012 stating that the costs of complying with stricter standards were not being covered by prices paid to producers, with costs exceeding benefits in some instances (see Agritrade article ‘Trends in the UK and European banana mar- kets’, 11 February 2013). The 2012 report ‘Monitoring the scope and benefits of Fairtrade’, reported a 7% decline in the volume of reported Fairtrade banana sales in 2010–11. This was attributed to hurricane affected exports from the Windward Islands and the absence of data from important Fairtrade suppliers. Significantly by 2011 a larger area of Fairtrade-certified land was under banana production in non-ACP coun- tries than in ACP countries (2.66% greater area under cultivation). “By 2011 a larger area of Fairtrade-certified land was under banana production in non-ACP countries than in ACP countries” Nevertheless in 2011 the DR remained the leading source of Fairtrade bananas (113,800 tonnes), followed by Colombia (88,900 tonnes), Peru (54,200 tonnes) and Ecuador (47,500 tonnes), with the Windward Islands selling only 8,400 tonnes. Trends in the organic banana sector “The forecast for European demand for organic bananas is a continuing increase” The forecast for European demand for organic bananas is a continuing increase, with a projected increase of 20% per annum over the coming 5 years according to some press reports. The DR, the leading exporter of organic bananas to the EU, is facing a growing challenge from Peru. Organic produc- tion dominates the Peruvian banana sector, accounting for 53% of total Peruvian banana exports to the Dutch market in the first 10 months of 2012. Peruvian organic banana exports to the Netherlands in 2012 reportedly increased 29%, benefiting from the €14/ tonne reduction in tariffs since 2010 (a 10% tariff saving). Peruvian exporters of new varieties of organic bananas were reporting prices between double and triple the average price. In November 2012, the Ireland-based banana trading company Fyf fes announced it was looking to signifi- cantly expand its purchase of organic bananas from Peru. The rise of dual certification To consolidate their position, a num- ber of traditional ACP banana suppli- ers are promoting dual certification of Fairtrade/organic bananas. Between 2009/10 and 2010/11 the volume of dual certified bananas grew 35%, with the percentage of Fairtrade bananas certified organic increasing from 25 to 39% of total Fairtrade banana sales. However, Peru is also pursuing a strat- egy of dual certification. Against this background, CIRAD has sounded a cautious note for ACP strat- egies aimed at targeting fair-trade and organic market components, noting that the rapid increase in supplies of fair-trade/organic bananas could well weigh down the selling price of these products. The emergence of private labels and private certification schemes is further compounding the challenges faced in fair-trade market components, since many of these new schemes offer no price guarantees to banana producers. “Price convergence between organic and conventional bananas is under way” In addition, a tendency towards price convergence between organic and conventional bananas is seen as being under way. Developments in Eastern and Southern Africa Situating the banana sector in East Africa Three of the world’s top 10 banana pro- ducers are in Eastern Africa (Uganda, Rwanda and Burundi), which has the highest per capita consumption of bananas. The region is characterised by a thriving if small-scale intra-regional trade, mainly for cooking bananas. Rwanda imports bananas mainly from Uganda, while Burundi imports from both Tanzania and Rwanda, and the eastern Democratic Republic of Congo (DRC) exports to Rwanda, Burundi and Uganda. The growing threat from banana plant diseases Rwandan imports have been growing on the back of increased demand and productivity losses from banana wilt outbreaks. In November 2012, with out- breaks in 23 of the 30 districts, banana wilt was “declared a national threat by the Rwandan Agricultural Board” (RAB). In January 2013, a banana wilt eradication campaign was launched by the RAB in 24 districts countrywide. Similar campaigns were launched in 2012 across the region. Banana wilt has spread across the region since 2001. In the face of ris- ing demand, disease outbreaks have driven an expansion of intra-regional trade, but this has complicated eradi- cation efforts. There is a need for both Executive brief: Update 2013 I 6http://agritrade.cta.int/ Banana sector a regional approach to disease control and the building of technical capaci- ties to combat the spread of disease across the region. “There is a need for a regional approach to banana disease control and the building of technical capacities to combat disease across the region” Despite initial successful efforts in Uganda, by August 2012 researchers were calling for an intensification of efforts to combat banana wilt, if serious supply shortages were not to emerge. Eradication efforts are inhibited by a reluctance of smallholder farmers to report the disease given the economic losses that are a consequence of eradication efforts. Consideration may need to be given to crop compensa- tion schemes linked to early reporting and targeted training programmes for farmers in disease control measures. This would supplement efforts to map the spread of the disease and provide a solid basis for rolling out the distribu- tion of bacterial wilt resistant banana varieties, which has not yet got under way. Developments in the processing of bananas In 2012 progress was reported on initiatives to develop and market pro- cessed banana flour products, both government supported and private sector based. In Uganda the Presi- dential Initiative for Banana Indus- trial Development (PIBID) has been supporting the development of pro- cessed banana flour production, using matooke – a type of green banana – under the brand ‘Tooke Flour’. Given the nutritional value of this high fibre and starch content flour, there are regional market opportunities. Studies have shown that “children fed porridge made with the flour in schools gained more weight than those given maize porridge”. A large-scale processing unit is scheduled to come on stream in 2013. However, there is a need to increase production levels so as to ensure regularity of supply and avoid competition on local markets for this important food security crop. Given the gluten-free properties of banana flour, substantial overseas export opportunities are seen to exist. Manufacturers of gluten-free products have shown particular interest, with international buyers in Europe, Japan, the United Arab Emirates (UAE) and USA having been identified. Commer- cial agreements, however, are awaiting completion of the pilot phase of the PIBID supported programmes. A similar private sector scheme to pro- duce matooke flour in Kenya was also reported in 2012. Banana flour is being produced and distributed through supermarket chains such as Nakumat, Uchumi and Chandarana. “The market development strategy for banana flour is likely to become an important policy issue” The market development strategy to be pursued for banana flour is likely to become an important policy issue in East Africa. Should the target mar- ket be the food insecure across East Africa or growing overseas markets for specialised food ingredients? Or will it be possible to develop both markets by expanding the commercial use of available production? The expansion of export oriented production EC statistics also reveal the emergence of a small volume of banana imports from East African countries (135 tonnes in 2010). This is being supplemented by increased exports from Mozambique, both from existing exporters in Cabo Delgado Province (from 1,260 tonnes in 2012 to 3,150 tonnes in 2013) and from new investments in Manica Province. At the end of 2012, press reports announced plans in Somalia to estab- lish an umbrella body for small-scale banana growers, as a prelude to relaunching banana exports, primarily to the UAE and Saudi Arabia. Consid- erable potential exists for expanding production in the arid and semi-arid lands of both Somalia and Kenya through the use of irrigation. Developments in Central and West Africa Trends in ACP exports from West and Central Africa As in many countries, one of the major problems limiting the expansion of commercial banana production in West and Central Africa is the high post-har- vest losses. In Nigeria, for example, up to 40% of the harvested crop can be lost during distribution. Mechanisms for reducing the losses would appear to be a key to developing local and regional markets. Ghana has been expanding banana exports to the EU market since 2004, rising from 1,788 tonnes in 2004 to 47,065 tonnes in 2011. This increase is likely to continue as investments made following the granting of duty-free, quota-free access under the interim EPAs in 2008 come on stream. Exports of bananas from Cameroon and Côte d’Ivoire meanwhile have been more or less stable, although on a slightly downward trend. Although the government of Cameroon has set a tar- get of 500,000 tonnes by 2013, in 2011 only 247,210 tonnes were exported, mainly to Europe. Executive brief: Update 2013 I 7http://agritrade.cta.int/ Banana sector CIRAD analysis notes that the decrease in the real value of banana prices com- pared to production costs has fallen particularly heavily on West and Central African banana producers. “The decrease in the real value of banana prices has fallen particularly heavily on West and Central African producers” Currency movements further compli- cate the situation, with the decrease in the real value of banana prices in the EU falling particularly heavily on coun- tries whose currencies are linked to the euro and for whom the EU is the sole export destination. Targeting the regional markets Banana producers in Côte d’Ivoire are now looking to regional markets such as Burkina Faso, Mali, Senegal and Niger, with regional market develop- ment being accorded a high priority given the high net returns that can be obtained on regionally traded bananas. In the face of increased competition on EU markets, this regional focus is likely to increase. The competitive threat from reduced tariffs access for non-ACP exporters CIRAD analysis suggests that pending EU banana tariff reductions for non- ACP suppliers are likely to significantly undermine the competitive position of Central and West African banana sup- pliers. It maintains that “with the cus- toms tariff applied in 2012 (€136 per tonne) and with an exchange rate of US$1.3 to 1.4 to €1, the competitive- ness levels are equivalent in the two zones.” Thereafter tariff reductions significantly undermine the competi- tive position of African suppliers, as does any increase in the value of the euro against the US dollar. Conversely any weakening of the euro against the US dollar eases competitive pressures. Therefore considerable uncertainty continues regarding the future com- petitive position of Central and West African banana exporters. Uncertainty on regional EPA but stark realities likely to prevail Uncertainties are heightened by ongo- ing discussions on a regional economic partnership agreement. While the Ghanaian government has repeatedly reiterated its commitment to conclud- ing an EPA collectively as West Africa, Ghanaian ministers have equally made it clear they will go ahead with sign- ing, ratifying and implementing their bilateral interim EPA, if no regional agreement is concluded before the lapsing of tariff preferences under MAR 1528/2007. “Any reimposition of import duties would undermine the recent growth in Ghanaian banana exports” The stark reality faced is that with tariff reductions under way for dollar banana exporters any reimposition of import duties would undermine the recent growth in Ghanaian banana exports (see Agritrade article ‘Decision time approaching for Ghana on the initialled bilateral interim EPA’, 27 December 2011). Developments in the Caribbean and the Pacific Trends in banana exports from the Caribbean In recent years, EU imports of Carib- bean bananas have increased, result- ing from the strong growth in imports from the DR (101,337 to 326,820 tonnes between 2004 and 2011) and Suriname (19,447 to 62,912 tonnes between 2004 and 2011). Imports from Belize have shown a slight downward trend since 2008, while imports from the Wind- ward Islands fell 89% between 2004 and 2011. The Bahamas and Jamaica meanwhile have halted banana exports to the EU. The growing importance of organic banana exports A full 53% of DR banana exports to the EU are certified organic, with a substantial proportion (53,600 tonnes) being dual certified organic/Fairtrade. Dual certification is seen as consolidat- ing the DR’s market base. However, in June 2012 two German supermarkets withdrew DR organic bananas from sale, having found a mol- ecule (DDAC) in banana skins which was not permitted in organic bananas. Immediate action was taken in the DR to suspend the use of the post-harvest treatment product Biolife, and exports were continued. Consistently ensuring compliance with EU organic standards and minimising compliance certification costs are two important challenges facing the DR. This suggests the need for a formal ongoing dialogue with the EU authori- ties on organic standards and compli- ance requirements. Two significant threats to the export of organic banana from the DR are apparent: growing competition from Peru, and banana plant disease control challenges. “DR organic banana exporters are facing growing competition from Peru” Exports from the main organic banana growing areas of Peru are projected to increase 35% in the next 5 years. The ongoing progressive reduction in Executive brief: Update 2013 I 8http://agritrade.cta.int/ Banana sector import duties on Peruvian bananas resulting from the EU–Andean Pact FTA and GBTA will, by 2020, see a 48% reduction in duties applied com- pared to 2010, with a saving of €70/ tonne on exports of 101,250 tonnes (a 56% expansion on volumes exported in 2011). Competition will therefore intensify for DR organic banana exporters, possi- bly resulting in the need for DR gov- ernment and stakeholders to look at cheaper ways to access the EU organic markets. Tackling plant diseases and restructuring challenges Efforts continue to control and eradi- cate banana plant diseases, particu- larly Black Sigatoka, which poses a serious threat to national banana pro- duction. This includes replanting pro- grammes involving new varieties that are more disease resistant. In October 2012, St Lucia announced an extension of existing control efforts with support from the government of Taiwan, while the government of the DR announced the launch of a major 12,124 ha programme to rehabilitate formerly infected land. Controlling Black Sigatoka is a particular challenge for organic producers given the limited range of anti-fungal treat- ment products open to organic produc- ers. There is an important commercial dimension to this, since the price paid for organic bananas affects the ability of smallholder producers to purchase the required anti-fungal agents. In April 2012, extending earlier efforts, the Jamaica government announced plans to introduce new varieties of banana, developed in Honduras, that are more resistant to Black Sigatoka and which are better suited to value- added banana products. The aim is to produce 120,000 tonnes of the new variety by 2020, with production increasingly centred on banana chips, banana flour and banana beverage flavouring for the local, regional and international markets. This forms part of wider efforts to reorient Jamaican banana produc- tion away from the EU towards the development of a value-added prod- ucts industry. However, the recur- rent hurricane-induced disruption of banana production in Jamaica could undermine the basis for investment in value-added banana processing facili- ties (see Agritrade article ‘Reorientation of Jamaican banana sector underway’, 28 May 2012). BAM implementation gets under way with tight deadlines The replication and distribution of new banana varieties in Jamaica is being managed by the Banana Board, using EU BAM financing. Approval of the pro- gramme formed part of a wider rolling out of the BAM programme across the ACP, which included multiannual sup- port strategies and annual action pro- grammes in the final quarter of 2012, mobilising €104.3 million in support for banana sector adjustment meas- ures in the Caribbean. There is now a tight timetable for the implementa- tion of these agreed programmes, with activities needing to be completed by the end of 2014. The 8 February 2013 EU Council agreement on the 2014–20 budget framework, included a 16% reduc- tion in the proposed allocation to the Development Cooperation Instrument – the financing mechanism for the BAM programme. This would appear to seriously limit prospects for additional BAM funding beyond 2014. Conse- quently Caribbean governments may need to consider focusing on extending the implementation time frame under existing allocations to avoid any for- feiture of funds from 1 January 2015. Moves towards new varieties for value-added processing in the Pacific In the Pacific under the EU-supported Facilitating Agricultural Commodity Trade project (FACT – now replaced by a second phase of the Increasing Agricultural Commodity Trade [IACT] programme) an initiative has been launched to evaluate the potential of the Blue Java banana variety for pro- duction of fruit pulp, for both local and export markets. Blue Java is consid- ered better suited for use in processed products. Export opportunities do exist in Europe, if technical and economic challenges can be overcome. 3. Implications for the ACP Scope for increased competition on the EU market from new FTAs If supply chain management issues can be addressed in India, the scope for export growth is considerable. Determining how this could affect ACP banana exporters requires a detailed assessment of: the relative attractiveness of EU and alternative non-EU markets to Indian banana exporters; ongoing and planned Indian initia- tives to overcome constraints on banana exports to the EU; the tariff and non-tariff measures on bananas to be included in the final EU–India FTA deal. Executive brief: Update 2013 I 9http://agritrade.cta.int/ Banana sector Main sources 1. CIRAD, ‘The international banana market: From one world to the other’, Second meeting of the World Banana Forum, Ecuador, by D. Loeillet, 28–29 February 2012 http://www.fao.org/fileadmin/templates/banana/documents/IIWBF/contributions/wbf_wg02_ market-freight.pdf 2. EC, ‘Banana supply in the EU’, Table 4, AGRIC C.2, 29 May 2012 http://ec.europa.eu/agriculture/fruit-and-vegetables/product-reports/bananas/statistics/sup- ply_en.pdf 3. EC, ‘Bananas market report 2010’, document ref. FR/ks – (2011), undated http://ec.europa.eu/agriculture/fruit-and-vegetables/product-reports/bananas/reports/mar- ket-2010_en.pdf Only through such an assessment can concerned ACP governments accu- rately determine the extent of the com- petitive threat posed. Securing equivalency agreements for organic products Given the active policy being pursued by the Peruvian government to secure an organic equivalency agreement with the EU (and the existing equivalency agreement with India), the DR may need to seek a similar such arrange- ment. However since it is likely that the EC prioritises negotiations with coun- tries where EU organic exporters have a significant interest, it may require a political initiative on the part of the DR authorities. Controlling banana dis- eases: The foundation for value-added processing and regional trade Containing the spread of banana dis- eases is a prerequisite for developing the full potential of commercial value- added processing, since any threats to supplies undermines investment mobi- lisation. Current efforts to control the spread of banana diseases commonly result in intra-regional trade restric- tions, which prevent the development of intra-regional supply chains. As the basis for expanded intra-regional trade, the development of processed value- added products would overcome these disease-related constraints on intra- regional supply chains. Clearly identifying market opportunities for value- added processing It remains unclear in East Africa which markets will be the primary focus for the development of value-added banana products. If investment in value-added processing is to be pro- moted with a view to maximising pro- ducer returns, careful market analysis will be required, focusing initially on regional market opportunities in view of the freight costs associated with serving overseas markets. Initially this could focus on the local procurement initiatives of major food relief agencies such as the World Food Programme. In addition, in expanding urban centres, high-income consumers are emerging who could well provide a market for matooke flour-based products, should sound product development and mar- keting strategies be put in place. With countries across the ACP pursu- ing technical innovations to develop commercially viable ways of adding value to bananas, there would appear to be scope for combined applied research initiatives and the sharing of experiences across the ACP. This could constitute an area for aid for trade support. Executive brief: Update 2013 I 10http://agritrade.cta.int/ Banana sector About this update This brief was updated in September 2013 to reflect developments since August 2012. Other publications in this series and additional resources on ACP–EU agriculture and fisheries trade issues can be found online at http://agritrade.cta.int/. Technical Centre for Agricultural and Rural Cooperation (ACP—EU) PO Box 380 6700 AJ Wageningen The Netherlands Tel: +31 (0) 317 467 100 E-mail: cta@cta.int - www.cta.int The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint ACP—EU institution active in agricultural and rural development in African, Caribbean and Pacific (ACP) countries. Its mission is to advance food and nutritional security, increase prosperity and encourage sound natural resource management. It does this by providing access to information and knowledge, facilitating policy dialogue and strengthening the capacity of agricultural and rural development institutions and communities in ACP countries. 4. EC, ‘EU banana sector’, Management Committee, market report, 26 February 2013 http://ec.europa.eu/agriculture/fruit-and-vegetables/product-reports/bananas/index_en.htm 5. Institute of Development Studies (IDS), ‘Fairtrade bananas: A global assessment of impact’ by S. Smith, April 2010 http://www.ids.ac.uk/publication/fairtrade-bananas-a-global-assessment-of-impact 6. Fairtrade International, ‘Monitoring the scope and benefits of Fairtrade fourth Edition 2012’, 2012 http://www.fairtrade.net/fileadmin/user_upload/content/2009/resources/2012-Monitoring_re- port_web.pdf 7. CIALCA, ‘Banana marketing in Rwanda, Burundi and South Kivu: CIALCA project survey report’, by J. Jagwe et al., 2012 http://www.cialca.org/files/files/Banana_market_report.pdf 8. EC, ‘Comitology register’, dossier on the Banana accompanying measures committee mee- ting held on 19 September 2012 http://ec.europa.eu/transparency/regcomitology/index.cfm?do=search.dossierdetail&zDVc4lb ylKZNZZY+SzHrutYZkaR2Xs+fvM6i251OlYdsgRhLJX/HPj4gwIuGyS1X http://agritrade.cta.int/ Beef sector I 1 Despite the importance of the beef pro- tocol under the Lomé Convention, only one ACP country – Namibia – consist- ently exports to the EU, with exports from Botswana being regularly disrupted on sanitary and phytosanitary standards (SPS) grounds, arising from shortcom- ings in the traceability systems used. Namibia, meanwhile, is in the process of diversifying its beef exports beyond EU markets, given the uncertainties in the ongoing international economic partner- ship agreement negotiations. “For most ACP countries, nation- al and regional beef markets are the key to future growth” A number of ACP countries are seeking to develop beef production for national, regional and international markets. The rapid growth in demand for beef in China and other emerging economies, sup- ply constraints and rising prices have all renewed interest in beef production across the ACP. However, for most ACP countries, national and regional beef mar- kets are the key to future growth. Meeting SPS and food safety standards remains critical to export development, while ACP exporters face intense com- petition from some markets. There is growing interest in West African markets from US exporters of high-quality beef cuts and UK exporters of low-quality cuts. The increased competition is likely to complicate efforts to develop intra- regional beef supply chains. Efforts are also under way in East Africa to increase what is seen as disturbingly low levels of intra-regional trade and to develop exports for overseas markets, particularly from Kenya. In Southern Africa the closure of the EU market to beef imports from Botswana on SPS grounds carried knock-on effects update September 2013 Beef sector 1. Background and key issues 1. Background and key issues 2. Latest developments Global beef sector developments EU beef sector production and trade developments EU beef sector-related policy developments Trade developments in the Southern and Eastern African beef sector Trade developments in the West and Central African beef sector Trade developments in the Caribbean and Pacific beef sectors 3. Implications for the ACP Lessons from the Namibian experience of moving from trading beef to marketing beef cuts Monitoring moves toward production process-related trade arrangements Basing livestock development programmes on targeted marketing Working together to exploit emerging global beef market opportunities Identifying and addressing potential challenges from imports in developing intra-regional supply chains The use of traditional policy tools in the EU beef sector Executive brief: Update 2013 I 2http://agritrade.cta.int/ Beef sector for the regional beef markets as alter- native markets were sought for Bot- swanan beef. It was considered that this depressed local beef prices in the affected market components of neigh- bouring countries. With analysts suggesting that the era of cheap Brazilian beef is now over, in regions such as the Caribbean it is apparent that there is renewed policy interest in reversing the long-term decline in local beef production. High feed costs provide a far from ideal con- text for the launching of such initiatives. 2. Latest developments Global beef sector developments According to OECD–FAO analysis, demand for beef is rapidly growing in developing economies, driving up nominal beef prices. Despite rising global demand, beef production has remained “fairly stagnant”, in the face of rising input costs (from feed costs to fuel costs), creating a tight market situation. In the short term, given the cost chal- lenges already faced, drought-related feed cost increases are not expected to fundamentally affect international beef markets. However, analysts at Rabobank argued that high maize prices could constrain the ability of countries seeking to become more self-sufficient in beef production from attaining this objective. In the coming 10 years, OECD–FAO analysis foresees an increase in beef production of an average of 1.8% per annum, with developing countries accounting for an increasing share of global beef production (58% by 2021). This reflects the shifting pattern of global demand, which will create new trading opportunities. For example, demand growth in China is likely to outstrip production growth, with sig- nificant consequences for the global beef trade. “Global beef prices are project- ed to remain high throughout the next decade” Global beef prices are “projected to remain high throughout the next dec- ade” – in real terms about 11% higher than the average for 2009–11. Beef prices will then be “at their highest levels of the past 15 to 20 years”. EU beef sector production and trade developments Throughout 2012 EU beef prices “remained at exceptionally high lev- els”, reaching €3,900/tonne in Octo- ber, some “21% higher than the 2007– 2011 average”. However, net producer incomes were reduced by “higher feed costs” and drought affected grazing. In November 2012 Copa-Cogeca called for more targeted support for EU live- stock farmers, including via the suckler cow premium (for details see the dairy section of the Agritrade special report ‘The EU’s agricultural policy toolbox: A sector-by-sector review’, 13 December 2011), and an updating of the “inter- vention price … to take account of the higher input prices”. It was argued that not only were “EU beef produc- ers being squeezed by high production cost and low margins”, but that “many slaughterhouses in member states are being forced to shut down”, despite the favourable global prospects for the beef sector. It was, nevertheless, maintained that if short-term prob- lems could be managed, global trends promise a profitable future. In terms of imports, the first 8 months of 2012 confirmed “the declining trend of EU beef imports” (−5.1% compared to the same period in 2011). Between 2009 and 2011 EU beef and veal imports had fallen 20%. However, despite the economic downturn, there have been increasing EU imports of high-quality beef following the expan- sion of duty-free access for non-ACP exports of high-quality beef (most nota- bly from the USA). “Despite the declining trend of EU beef imports, there have been increasing EU imports of high-quality beef” This trend could intensify competi- tion for the ACP’s only remaining beef exporter to the EU market – Namibia – which is increasingly seeking to target these same high-quality markets for its beef exports to the EU. In terms of EU beef exports, while major growth occurred in 2010 (+180%), with further growth in 2011 (+30%), exports are projected to have fallen by 43% in 2012. This is a dramatic reversal of the trend between 2009 and 2011 when EU27 beef exports more than tripled, turning the EU into a net beef and veal exporter in 2011. Regarding future trends, although EU beef production levels are projected to fluctuate, average production is projected to be 3.3% below the levels attained during the 2009–11 period, a high point in EU beef and veal produc- tion and consumption. Up to 2022 “EU beef meat imports are expected to grow… to reach 357,000 tonnes by 2022”, which compares to imports of 287,000 tonnes in 2011 (+24.7%). With the exception of 2015– 16, this is a period of steady growth in EU beef imports. Executive brief: Update 2013 I 3http://agritrade.cta.int/ Beef sector Exports, meanwhile, are projected to decline until 2015, before showing a steady increase through to 2022, recovering to 174,000 tonnes by 2022 (+72.3% between 2012 and 2022, but still 47.4% below the peak level of 2011) (see Agritrade article ‘Trends and pros- pects in the EU beef sector’, 6 April 2013). A number of contrary trends are appar- ent within this projected decline in EU beef exports. Most notable is the growing interest of UK exporters in the scope for exports of ‘fifth quarter’ cuts to African markets, mostly in West and Central Africa. Fifth quarter cuts consist of residual products (such as heart, liver, kidneys, tongue, stomach, intestines, etc.), which can represent up to 47% of the tissue mass of an animal, with so-called red offal being the edible component of these residual parts. Analysis from the English Beef and Lamb Export Board (EBLEX) suggests that developing a market- ing strategy for fifth quarter products “could change a £100 charge per bovine animal into a £40 benefit per bovine animal” (including non-edible by-products). Since 2010, activities under EBLEX programmes have “led to… opening up more than 50 new non-EU markets”. While the importance of opening up the Chinese market was acknowledged, it was stressed that “there are currently huge opportuni- ties for exporting to markets in Africa” (see Agritrade article ‘Declining EU beef exports but growing interest in fifth quarter markets confirmed’, 18 November 2012). An additional short-term complicating factor regarding EU beef trade flows to the ACP countries arises from the introduction of Schmallenberg virus- related trade restrictions on EU live cattle and beef product imports by the governments of some leading EU export destinations. Although the EC maintains there is no scientific basis for such restrictions, these nevertheless have left traders holding stocks and looking for alternative markets. With limited global supplies and high global prices, EU beef prices are expected to stay firm in 2012 and 2013 despite the projected 3.3% decline in EU27 beef consumption. In the longer term, EU prices are likely to be sup- ported by higher average global prices. EU beef sector-related policy developments In September 2012 in response to rising raw material costs, the Euro- pean Feed Manufacturers’ Federa- tion (FEFAC) urged the EC to “activate the available crisis management tools and to take rapid market management measures” to reduce price pressures on feed manufacturers, and called for “the development and improvement of price risk management tools for livestock farmers and processors”. FEFAC has further stressed the need to increase consumer prices to reflect the rising input costs of livestock producers. Policy initiatives have been launched at the national level within the EU to address the profitability squeeze facing EU livestock producers. In mid Sep- tember 2012, the French government announced the establishment of a €100 million “Solidarity Fund” to assist livestock producers to improve their competitiveness through increased on-farm investments. Plans were also announced to: “increase silo storage capacity”; stop first generation biofuel development; review “agricultural taxes to improve incomes for farmers”; establish “a roundtable discussion group… to improve contractual and commercial relationships in the live- stock sector”. These French government initiatives highlight the scope for national sup- port measures within the commonly agreed Common Agricultural Policy framework. The French government has traditionally made extensive use of permitted national policy tools. Such measures can be of considerable eco- nomic benefit in the face of globally induced cost or price challenges. They can contribute to shifting the burden of adjustment to global price volatility to non-EU producers, including those in the ACP countries (see Agritrade article ‘French government announces sup- port package in face of rising feedstock costs’, 4 January 2013). In the longer term, United States Department of Agriculture (USDA) analysts argue that “increasing input costs and phasing out of government support is causing a further contraction of the EU cattle herd”. However, some EU member state governments are pro- moting national livestock development strategies that are designed to capital- ise on the EU policy changes that are in progress (e.g. the abolition of milk pro- duction quotas), and reposition them- selves on both EU and global markets for livestock products (both dairy and beef). Product differentiation based on quality labelling schemes is an impor- tant part of such strategies in countries such as Ireland where a new Bord Bia ‘Origin Green’ initiative is being rolled out (see Agritrade article ‘Irish Food Board introduces new quality labelling scheme’, 16 December 2012). One dimension of quality-based prod- uct differentiation in the beef sector is linked to animal welfare concerns. In January 2012 the EU adopted a new 4-year strategy to improve the welfare Executive brief: Update 2013 I 4http://agritrade.cta.int/ Beef sector of animals in the EU. Competitiveness concerns formed an integral part of this EU strategy, with the EC arguing, “There is no point in improving EU wel- fare standards if it has the effect of increasing imports from third countries with lower standards.” Against this background, the EC com- mitted itself to promoting “EU values towards animals” abroad and in inter- national forums, including ensuring that animal welfare issues are included in bilateral trade agreements. Currently production process-related trade restrictions are already under discussion in the fisheries sector (see Agritrade fisheries article ‘EP votes for trade measures against countries allowing non-sustainable fishing’, 8 October 2012). This includes calls for import restrictions to be imposed on fisheries products from countries whose governments allow non-sus- tainable fishing activities that endanger stock levels. The EC Fisheries Commissioner has stressed the importance of creating “a level playing field” between EU and third country operators. The EC is currently undertaking the legal work required to allow the application of this type of trade instrument. Once the legal basis for the application of the produc- tion process-related trade instruments is in place, the scope of the application of such tools could be broadened con- siderably, including to the application of transport and other animal welfare requirements. “EU livestock producers have long argued for policy meas- ures that level the playing field” EU livestock producers have long argued that third country suppliers enjoy a competitive advantage, since they do not have to meet the same production process requirements as EU producers. Against this background they have consistently argued for policy measures that “level the playing field”. Bearing this in mind, in October 2012, the European Parliament called on EU member states to: more rigorously enforce welfare rules linked to the transportation of animals; consider limiting transport times to 8 hours; support the creation of “short and transparent food supply chains”, including through supporting small local abattoirs. There was also a recognised need for flexibility in the application of an 8-hour rule based on “geographical and sci- ence-based exceptions for certain spe- cies” (see Agritrade article ‘Calls for EU animal transport rules to be strictly applied’, 9 December 2012). Any moves toward a more strict enforcement of animal transport wel- fare rules within the EU are likely to lead to calls for the application of similar animal welfare requirements to cattle slaughtered for meat exports to the EU. This could carry serious implications for exports from ACP countries where cattle are extensively raised and dis- tances to abattoirs are large. Trade developments in the Southern and Eastern African beef sector Targeting marketing: The Namibian experience Sustained efforts are under way in Namibia to develop an integrated strat- egy for minimising operational costs and maximising revenues. A central component is the marketing of indi- vidual meat cuts to specific markets in line with the final retailer requirements. This involves developing both much closer direct relationships with the final retailer and the logistical capacity to ship containers directly to customers both overseas and in South Africa. The strategy focuses on the targeted marketing of premium branded high- quality beef cuts, which continue to provide the best financial returns. The Norwegian market, for example, consumed only 5.05% of the volume of beef sales from Namibia’s leading beef exporter Meatco in 2011/12, but accounted for 15.13% of revenues. Similarly, the EU market accounted for approximately 27% of the volume of Meatco’s beef sales but around 42% of sales revenues (see Agritrade article ‘Meatco’s strategy for moving up the value chain’, 2 December 2012). “The sophisticated marketing strategy adopted by Meatco has allowed an increase in producer prices” The sophisticated marketing strategy adopted by Meatco has allowed an increase in producer prices despite a decline in the volume of cattle slaugh- tered (−10.4% south of the veterinary control fence, the main export produc- tion zone). In 2011/12, 57.65% of the revenues generated from sales were returned to Namibian beef producers. The relevance of the Namibian expe- rience was implicitly recognised in neighbouring Botswana in Septem- ber 2012, when a beef sector techni- cal advisor called for intensified efforts to sell Botswanan beef on “differen- tiated high-value niche markets”. It was argued that Botswanan export- ers have to identify more clearly “the most promising market in order to get into the highest value niche market”. Executive brief: Update 2013 I 5http://agritrade.cta.int/ Beef sector The strategy adopted in Namibia requires constant innovation to stay on top of market trends and policy devel- opments. Against this background in 2013, an in-depth study was launched by the Meat Board of Namibia on mar- keting opportunities in non-traditional export markets. The aim is to identify five markets where targeted “supply chain strategies” can be developed to maximise the returns from the wide variety of meat cuts produced in Namibia (for details of the approach to marketing individual meat cuts see Agritrade article ‘Quality differentiation pays off for Namibian beef farmers’, 23 April 2012). While SPS approval for exports of Namibian beef to the US and Middle Eastern markets was secured in 2012, and the final stages of SPS approval for export to China were initiated (see Agritrade article ‘Prospects for Namib- ian beef exports to China’, 4 January 2013), current market diversification efforts focus on securing an expansion of quota restricted access to the Nor- wegian market where a beef shortage has emerged and where the highest level of returns on exports is obtained. In the case of China, it is unclear whether there is a match between favoured Namibian overseas beef export products and structure of Chi- nese demand. Potentially the rising middle class demand for beef could open up new export opportunities for Namibian exports of high-quality beef cuts (as opposed to the lower-quality beef required other segments of the Chinese market). However, this will require the development of a detailed supply chain strategy by the company involved. SPS control systems and export development Overhanging the positive marketing picture in Namibia is the long-term decline in the number of cattle offered for slaughter at export-approved abat- toirs. The number has fallen 27.25% since the 200/01 season (from 141,133 head to 102,680 head). Therefore, a financing scheme has been launched to help smallholder farmers make the transition from ‘weaner’ production to ox production. This scheme, the Ekwatho Financing Scheme, is begin- ning to yield results. However, a debate has also begun on the scope for extending the export production zone north of the veterinary control fence. This needs to be seen in the context of Southern African Devel- opment Community level discussions in November 2012 over the scope for new approaches to animal disease control and food safety, aimed at rec- onciling the interests of commercial livestock producers and wildlife con- servation objectives. However, it also needs to be consid- ered against the strict SPS market access requirements applied by the EU (including cattle identification and traceability requirements), which are often used as a benchmark for imports by third country governments. In Feb- ruary 2013 in response to stricter EU requirements, the Namibian Directorate of Veterinary Services issued a new circular setting out in detail: approved marketing arrangements; transport requirements; quarantine requirements vis-à-vis non-EU-compliant livestock; reporting requirements for move- ment and residency of both EU and non-EU-compliant cattle; cattle residency requirements. Since infringement of any of these requirements can lead to market clo- sure, any moves toward new systems of animal disease control will need to ensure full compliance with these SPS market access requirements. The EU cattle residency requirements, which appear to be systematically nega- tively impacting on communal area beef producers, is a particular source of concern given the need to boost export abattoir throughput. Declining throughput is increasing the unit cost of SPS and food safety control systems and could in time begin to impact on the commercial viability of maintaining access to the EU market. These SPS-related matters may thus lead to a growing focus on expand- ing regional markets for processed and prepared meat products, within the strategy for targeted marketing of individual meat cuts. The on–off nature of Botswanan beef exports highlights the growing difficul- ties faced in serving the EU market, with announcements in May 2012 of a resumption of exports to the EU being followed by reconfirmation of contin- ued market closure. While efforts to address traceability and foot and mouth disease concerns intensified throughout 2012, by March 2013 there were no Botswanan beef exports to the EU, although a resumption of beef exports was presumed imminent. Kenya’s interest in expanding meat product exports According to reports on data provided by the Kenyan Ministry of Agriculture, Kenya produces annually 430,000 tonnes of red meat and consumes 300,000 tonnes, leaving around 20% available for export. However, the Feb- ruary 2013 livestock strategy for semi- Executive brief: Update 2013 I 6http://agritrade.cta.int/ Beef sector arid areas maintained Kenya is, in fact, a beef-deficit country with a shortfall of about 4,500 tonnes projected for 2014. Currently, according to the Kenya Meat Commission, some 500 tonnes of fresh and frozen meat and meat products are exported every week to destinations in the Middle East (United Arab Emirates, Kuwait, Qatar and Saudi Arabia) and Africa (Egypt, Tanzania, Uganda, Dem- ocratic Republic of Congo and Sudan). “Kenyan meat exporters are looking to develop exports to China” Kenyan meat exporters are looking to develop exports to China. In August 2012 the Kenyan Ministry of Livestock announced an agreement with two private companies (Mercbima Inter- national of Kenya and Loyalty Interna- tional Trading Company of China) to export meat products to China, includ- ing beef purchased from the Kenya Meat Commission. The possible commencement of exports to China could prove timely, since press reports indicate that Ken- yan meat risks being locked out of Dubai, following the discovery of fraud- ulent documentation and licences for products that fail to meet food health standards and Islamic dietary guide- lines (see Agritrade article ‘Opening of Chinese market to Kenyan meat exports could prove timely’, 8 Octo- ber 2012). Pricing issues also arise, with some potential importers in targeted mar- kets claiming that Kenyan meat prices are higher than those of competitors. The issue of commercial prospects for Kenyan meat exports also needs to be understood in the light of the stiff competition faced on regional and Mid- dle Eastern markets from suppliers in Ethiopia, Sudan and Djibouti. In Feb- ruary 2013, the Kenyan government launched its policy on Development of Northern Kenya and Other Arid Lands; however, effective implementation is pending. Lack of infrastructure, feed, water and holding grounds currently lead to high costs of production; which together with the prevalence of live- stock diseases (control of which is complicated by the interface of wild- life, tourism and livestock sector pri- orities) represent major constraints on expanded livestock production and trade. Ensuring the sustainabil- ity of supplies is also complicated by the increasing frequency of droughts, which often decimate livestock herds. “Efforts to develop Kenya’s meat exports are complicated by the informal cross-border trade with Ethiopia, Tanzania and Somalia” Efforts to develop Kenya’s meat exports are further complicated by approximately 25–30% of red meat consumed in Kenya being sourced from the informal cross-border trade with Ethiopia, Tanzania and Somalia, and the uneven application of livestock inspection and veterinary controls across Kenya. Increased intra-regional trade and competition in the pro- cessed meat product sector In terms of intra-East African develop- ments in the meat processing sector, press reports indicate a joint venture has been launched by the Mauritian company Ireland Blyth Ltd and the Ugandan company Fresh Cuts Ltd (FCL) to: improve the quality of FCL’s pro- cessed meat products; strengthen local meat procurement; enhance the efficiency of processing operations. This needs to be seen in the context of intensifying competition on processed meat product markets. Since its estab- lishment in 2005, FCL has reportedly “played second fiddle to imported meat products mainly from Kenya’s Farmer’s Choice”, the preferred processed meat supplier in Uganda despite the higher price of such imported products. Farmer’s Choice currently exports “an average of 2,000 metric tonnes of Farmer’s Choice processed prod- ucts annually to about 15 countries across Africa, the GCC (Gulf Coop- eration Countries) and the Indian Subcontinent”. Meat products from South African suppliers are likely to pose a growing competitive challenge for Ugandan and other East African meat process- ing companies, particularly in light of planned trade liberalisation through the tripartite FTA and the expansion of South African based retailers across the region. Trade developments in the West and Central African beef sector Growing exporter interest in West and Central African markets In West and Central Africa in 2012, UK and US exporters intensified efforts to penetrate regional beef markets. The UK’s EBLEX programmes are sup- porting small and medium sized pro- cessors in developing exports of fifth quarter cuts to both Central and West African markets. At a seminar in July 2012, EBLEX’s expor t manager highl ighted the “short-term opportunities for fif th Executive brief: Update 2013 I 7http://agritrade.cta.int/ Beef sector quarter products to Angola”, which it was maintained “lead to the export of high-end cuts in the long term”. In this context it was highlighted how “exports of frozen beef products from the UK to Ghana from 2010 to 2011 more than tripled”. The UK is considered being “well placed to supply fifth quarter products to Africa due to historical links and logistics”. The US Meat Export Federation is also “focusing increased attention on the West Africa region”, which is “experiencing growth in key metro- politan areas fuelled by the booming oil and natural resource industries”. West Africa is seen as having “strong potential for new business”, for US meat exporters. Not only is demand for beef increasing in West Africa but higher-income urban consumers are increasingly demanding high-quality, safely processed and stored meat products. West African meat products are most likely to be impacted by mar- ket access issues, and by the risk of increased competition between local products and those from the EU – par- ticularly frozen. However, it has been recognised that across the region transport and “cold chain management issues” remain a challenge. Developing a regional framework for meeting the challenge from imports Efforts continue in West Africa to facili- tate intra-regional trade in cattle and beef from inland production areas to coastal markets. However, the preva- lence of livestock diseases, limited investment in modern abattoirs, poor handling of meat products, shortcom- ings in transport infrastructure and cold chain management, weak national standards bodies and the absence of agreed enforceable regional SPS measures, all place serious constraints on the competitiveness of intra-regional beef suppliers relative to US and EU suppliers serving coastal markets. The challenges faced by intra-regional beef suppliers are further compounded by the many non-tariff barriers (NTBs) to trade that hinder the movement of goods across the West African region. While agreements have been reached at regional level to remove these NTBs, national implementation is slow. Nevertheless, livestock products remain by far the most important products for agricultural intra-regional trade within the Economic Community of West African States (ECOWAS), with Niger and Burkina Faso mainly serv- ing markets in Nigeria and Mali mainly serving markets in Côte d’Ivoire and Senegal (see Agritrade article ʻUS tar- geting higher-quality West African beef markets’, 9 December 2012). “In the coming years, exports of low-value cuts could poten- tially compete with local West African livestock producers” In the coming years, exports of low- value cuts could potentially compete with local West African livestock pro- ducers given the market components served. Although this could serve to undermine local producer prices, at a time of high global food prices such an expanded trade could also serve to reduce the costs of beef imports. This throws up policy challenges in reconciling consumer and producer interests; a particularly difficult issue to address when the main consum- ers lie in one regional state, while the main producers are located in another. Currently, plans are afoot to invest in the basic backbone infrastructure (e.g. slaughterhouses, refrigerated ware- houses and transportation) required to facilitate the development of intra- regional beef value chains, which, if successful, will improve the region’s competitiveness in livestock products. Trade developments in the Caribbean and Pacific beef sectors Renewed interest in reversing the decline in local production “In the Caribbean there is renewed interest in local beef production, in the face of high global beef prices” Renewed interest in local beef pro- duction in the face of high global beef prices has taken a number of forms in the Caribbean. In July 2012 the Jamai- can government appealed to beef sec- tor stakeholders to join the government in seeking a “tangible solution” for the promotion of the local beef sector, which has shrunk by 2/3 since the 1990s (see Agritrade article ‘Calls for stakeholder dialogue to revive Jamai- can beef sector’, 1 October 2012). Developing reliable and stable feed supplies is likely to be a major chal- lenge to any efforts to revive Jamaican beef production. Challenges are also faced as a result of the semi-commer- cial and subsistence basis of much of the national livestock production in Jamaica. Nevertheless, there is seen to be scope for the development of value- added exports such as Jamaican beef patties to the Caribbean and beyond. However, in recent years, allegations of use of non-originating beef from Argentina and extra regional sources have threatened the price premiums previously obtained. This suggests that strong branding and enhanced market- ing, backed by full traceability, could offer a high earnings outlet for local beef production. Executive brief: Update 2013 I 8http://agritrade.cta.int/ Beef sector There has been a similar renewed inter- est in promoting beef production in the Pacific since 2005, in recognition of the relative past policy neglect of the live- stock sector. With active stakeholder engagement, this new focus is being sustained. VAL Pacific (Vanuatu Abattoirs Ltd), a joint venture between the Vanuatu Government and the private sector, for example, has been upgrading its operations annually and already exports to Australia, New Zealand, Japan and eight Pacific Island coun- tries and territories. The model for beef sector develop- ment used at the Sarami Plantation scheme in Vanuatu, which purchases cattle at preferential prices from small- holders and arranges slaughter and marketing, is potentially replicable across the region. The development of this scheme has been assisted by a AU$1.3 million grant from Australia’s Enterprise Challenge Fund, a scheme aimed at strengthening the private sec- tor, employment creation and poverty alleviation. Moves towards strengthening food safety and SPS compliance In January 2013 it was announced that the government of the Dominican Republic was launching a food safety initiative designed to secure access for meat products to regional and US mar- kets. This includes strengthening the inspection service to ensure full com- pliance with international production standards and market requirements. Similar efforts are under way in Belize, with the announcement in February 2013 of a cooperation programme with Mexico to strengthen health and trace- ability systems for livestock products in Belize. In the Pacific, VAL already complies with New Zealand standards, while regionally the Animal Health and Pro- duction section of the Land Resources Division of the Secretariat of the Pacific Community (SPC) is seeking to strengthen food safety capacity across the region. The scale of the challenge faced Overall, securing affordable supplies of animal feed, improving herd quality, developing carefully targeted market- ing strategies for specific beef prod- ucts in specific markets – backed by improved SPS and food safety con- trol systems and strict traceability and labelling regimes – are likely to be essential in one form or another for Caribbean efforts to expand com- mercially sustainable beef production. However, given the size of individual Caribbean beef sectors, serious ques- tions related to the economic sustain- ability of enhanced SPS, food safety and traceability systems would appear to arise. In the Pacific similar challenges are faced, but with strengthening ani- mal disease control systems being accorded particular importance. Pro- moting organic forms of beef produc- tion, in order to enable Pacific produc- ers to target premium-priced organic markets, is also given priority. Finally adapting the livestock sector to climate change challenges is an issue of grow- ing importance in the Pacific. 3. Implications for the ACP Lessons from the Namibian experience of moving from trading beef to marketing beef cuts The Namibian experience in shifting to marketing individual beef cuts in par- ticular markets potentially offers les- sons to other ACP livestock producers. “The Namibian experience in shifting to marketing individual beef cuts in particular markets potentially offers lessons to other ACP livestock producers” Namibian supply chain strategies focused on: the careful identification of specific market components to be served; the development of a strong brand- ing and marketing strategy in asso- ciation with local partners capable of overcoming consumer scepticism over the quality of African originating beef; the building up of a close working relationship with end users. This provides a useful template for other potential ACP beef exporters. Monitoring moves toward production process-related trade arrangements ACP companies exporting beef prod- ucts to the EU will need to closely monitor and proactively engage with the EU regulatory processes involving Executive brief: Update 2013 I 9http://agritrade.cta.int/ Beef sector transportation of animals (particularly “geographical and science-based exceptions”) and the establishment of production process specific trade arrangements, to ensure that the production realities prevailing in ACP countries are fully accommodated. This is a necessary complement to exist- ing initiatives to stay ahead of evolving retailer requirements, by incorporating planned changes into routine reinvest- ment plans. Basing livestock develop- ment programmes on targeted marketing In an era of increased demand and ris- ing prices, beef sector development strategies in smaller ACP economies will need to be based on careful mar- keting strategies. “Beef sector development strategies in smaller ACP econ- omies will need to be based on careful marketing strategies” This must be complemented by a more nuanced trade regime and the development of traceability and label- ling systems in support of targeted marketing. Scope exists for pan-ACP cooperation in these areas to draw on current best practice. Working together to exploit emerging global beef market opportunities Growing Chinese demand is generat- ing increased ACP interest in export- ing a range of meat products to China. However, given the complexity of the Chinese market ‘aid for trade’ support has a role to play in enabling ACP pro- ducers to effectively exploit emerging market opportunities. This offers scope for a combined ACP programme, focusing on: the conduct of detailed market sur- veys and assessments; the establishment of a template for meeting Chinese SPS requirements; the establishment of a common fund to support exposure visits to develop business contacts; the compilation of best business practice guides to developing busi- ness partnerships in China. Identifying and addres- sing potential challenges from imports in developing intra-regional supply chains Coastal urban centres are often better integrated with global supply chains than their own agricultural hinterlands. In view of the problems that have pre- viously arisen from exports of residual poultry parts, a refocusing of attention on UK fifth quarter beef exports to West and Central Africa is potentially a source of concern, since it could hinder current efforts to develop intra-regional beef supply chains. In West and Central Africa, unless physical infrastructure, animal dis- ease control, cold store chain issues and the many NTBs to the livestock trade can be addressed along supply routes from the interior to the coast, the scope for beef producing areas in the region to benefit from the oil and natural resource-fuelled boom in urban demand for meat will remain unrealised. This potentially raises important trade policy challenges in an era of both increased liberalisation of agricultural trade and rising global food prices, requiring governments to balance the interest of poor urban consumers with those of poor rural producers. The use of traditional policy tools in the EU beef sector EU beef farmers are increasingly push- ing for greater use of traditional EU policy tools, such as coupled support and intervention buying, so as to assist beef farmers during times of high input costs or low market prices. In the short term, individual EU govern- ments have been responding to calls for increased support through national initiatives. Given that these measures are aimed at ironing out problems associated with price volatility for EU producers to capitalise on longer-term growth in the global demand for meat, these national policy measures carry external consequences, which could impact on ACP beef sectors. Against this background, systems may well be needed to monitor the exter- nal effects of these national EU policy measures on particular markets of interest to ACP producers as part of the EU’s commitment to policy coher- ence for development (see Agritrade article ‘Impact of CAP reform on devel- oping countries’, 15 April 2013). Executive brief: Update 2013 I 10http://agritrade.cta.int/ Beef sector Main sources Global 1. OECD/FAO, ‘OECD-FAO agricultural outlook 2012–2022: Meat’, July 2012 http://www.oecd.org/fr/sites/perspectivesagricolesdelocdeetdelafao/ EU 2. European Commission/DG Agriculture and Rural Development, ‘Prospects for agricultural markets and income in the EU 2012–2020’, full report, December 2012 http://ec.europa.eu/agriculture/publi/caprep/prospects2012/fullrep_en.pdf 3. USDA, ‘EU¬–27 livestock and product annual: Restructuring leads to efficiency’, GAIN Report No. NL2026, 28 August 2012 http://www.thefarmsite.com/reports/contents/eulpaa.pdf 4. EBLEX, ‘EBLEX highlights huge opportunities for beef and lamb exports to Africa’, undated http://www.eblex.org.uk/news/export-conf12-update.aspx 5. European Commission, ‘Agriculture in the European Union: Statistics and economic informa- tion 2011’, beef statistics, March 2012 http://ec.europa.eu/agriculture/statistics/agricultural/2011/pdf/d15-0-415_en.pdf Southern and Eastern Africa 6. European Commission, ‘Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee: On the European Union strat- egy for the protection and welfare of animals 2012–2015’, COM(2012) 6 final/2, 15 February 2012 http://ec.europa.eu/food/animal/welfare/actionplan/docs/aw_strategy_19012012_en.pdf Pacific 7. SPC Land Resources Division, Animal Health and Production, web page http://www.spc.int/lrd/index.php?option=com_content&view=section&layout=blog&id=1&Ite mid=22 8. SPC Land Resources Division, ‘Livestock production in the Pacific’, 21 January 2010 http://www.spc.int/lrd/index.php?option=com_content&view=article&id=156:region al-animal-health-and-production-workshop-28th-november-2nd-december-nadi-fiji-is- lands&catid=7:training-and-workshops&Itemid=22 About this update This brief was updated in September 2013 to reflect developments since June 2012. Other publications in this series and additional resources on ACP–EU agriculture and fisheries trade issues can be found online at http://agritrade.cta.int/. Technical Centre for Agricultural and Rural Cooperation (ACP—EU) PO Box 380 6700 AJ Wageningen The Netherlands Tel: +31 (0) 317 467 100 E-mail: cta@cta.int - www.cta.int The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint ACP—EU institution active in agricultural and rural development in African, Caribbean and Pacific (ACP) countries. Its mission is to advance food and nutritional security, increase prosperity and encourage sound natural resource management. It does this by providing access to information and knowledge, facilitating policy dialogue and strengthening the capacity of agricultural and rural development institutions and communities in ACP countries. http://agritrade.cta.int/ CAP reform and its implications for developing countries I 1 The process of EU Common Agricul- tural Policy (CAP) reform, which has been under way since 1992, has radi- cally altered the level and structure of EU support. Market support interventions have been largely replaced by various forms of direct aid to farmers. There has been a major reduction in the most trade-distorting form of support (export refunds), and intervention measures have been converted into instruments that provide financial safety nets for farmers. The process of reform has been greatly helped by rising global food prices, linked to evolving patterns of global demand. CAP reform, along with the rise in global food prices, has contributed to the attain- ment of a major EU policy objective – the development of a globally oriented and competitive value-added food and drinks industry. Since 2010, the EU has emerged as a major net exporter of food and agricultural products as a result of this successful transition. By 2012 to 2013, the effects of previ- ous CAP reforms were still working their way through the EU agro-food economy, with EU corporate responses to policy changes acting as an important trans- mission belt for the external effects of CAP reform. Specific aspects of this corporate dimension have led the EU to develop new policy tools, including regulatory mechanisms for strengthen- ing the functioning of agricultural supply chains, including those parts within the retail sector. A major focus of the 2012–13 CAP reform discussions was on refining the struc- ture and distribution of direct aid pay- ments and linking them to the adoption of more sustainable farming practices, strengthening safety net measures and further elaborating new policy tools. The process of CAP reform, although now well advanced, remains ongoing: its production and trade effects need to be carefully monitored and evaluated in order to reconcile underlying EU policy objectives for the promotion of its globally oriented EU food and drink industry with ACP aspirations to move further up food and drink value chains. update October 2013 CAP reform and its implications for developing countries 1. Background and key issues 1. Background and key issues 2. Latest developments The evolving context of CAP reform and CAP implementation Changing policy tools and their use The CAP reform process and outcomes 3. Implications for the ACP The impact of the abolition of EU sugar production quotas The impact of changes to direct aid payments Extending exemptions to full cost recovery on food and feed control measures Monitoring the external effects on ACP countries of expanded EU safety net policies The possible extension of the use of new EU policy tools in the ACP context Recognising and managing evolving trends in the interest of ACP structural development Allowing ACP governments to use the agricultural trade policy tools available to the EU Executive brief: Update 2013 I 2http://agritrade.cta.int/ CAP reform and its implications for developing countries The trade success enjoyed as a result of CAP reform and rising global prices has not fed into trade liberalisation at the most favoured nation (MFN) level. The EU maintains in place a sophisti- cated system of protective measures through bilateral and multilateral con- cessional trade arrangements, under which most food and agricultural imports into the EU take place. This enables the EU to manage trade in sensitive sectors in ways that protect the interests of EU producers while at the same time responding to evolving patterns of EU demand. Potentially important lessons can be drawn by ACP policy makers from the EU’s CAP experience, in particular: the use of traditional agricultural trade policy tools in support of agro- food sector development; the design and utilisation of new policy tools to strengthen the func- tioning of agro-food supply chains, in order to consolidate and expand the agricultural basis of production; the design and implementation of measures to insulate domestic pro- ducers from the adverse effects of price instability in an era of rising input costs. 2. Latest developments The evolving context of CAP reform and CAP implementation Anticipating changing global demand The process of CAP reform has been designed in large part to reposition the EU agro-food sector in the light of changing global patterns of demand for food products. While some develop- ments have taken EU policy makers by surprise (particularly the level of price volatility within the overall trend of ris- ing prices), the rise in food demand in Asia and Africa was anticipated and built into the reform process. “The process of CAP reform has been designed to reposi- tion the EU agro-food sector in the light of changing global patterns of demand” A range of basic reforms introduced were intended to improve the competi- tive position of EU exporters of quality- differentiated and value-added food and drink products. The degree of success of this policy was highlighted in the European Com- mission’s (EC’s) May 2012 review of the EU’s evolving agricultural trade pro- file. Since 2012, the EU has reversed its traditional agricultural trade deficit, becoming a growing net exporter of food and agricultural products. “Since 2012, the EU has reversed its traditional agricul- tural trade deficit to become a growing net exporter” In 2012, the value of EU agro-food exports reached a record high of €114 billion, having grown by 12% compared to 2011 (following a 17% increase in 2011). This reflected “strong growth in demand for EU food and agricultural exports (particularly in developing countries), with export markets per- forming far better than depressed EU national markets”. Significantly, the bulk of the EU’s agro-trade exports are final consumer-ready products. This growing trade surplus has emerged despite the EU remaining by far the world’s biggest importer of agricultural goods (EU imports reached €102 billion in 2012, compared to €85 billion for the US), and by far the larg- est importer of products from devel- oping countries, with 72% of EU agro- food imports coming from developing countries between 2009 and 2011. This compares to a 43% share for the other five major OECD importers (see Agritrade article ‘The EU’s evolving food and agricultural trade profile’, 24 June 2013). This reflects an important underlying element of the CAP reform process, namely the growing focus on exports of value-added food and drink prod- ucts produced from either domestic or internationally sourced agricultural raw materials. This is potentially in contra- diction with ACP aspirations to move up agro-food sector value chains. While EU exports have largely focused on non-ACP markets (e.g. the US, Rus- sia, China and the Middle East), for some products such as poultry meat and prepared cereal products, ACP markets are of growing significance (see Agritrade articles ‘South African poultry sector problems compounded by rising EU exports’, 15 April 2013 and ‘Poultry exports to Africa on the rise’, 9 December 2012). In addition, given the volume of EU exports and the scale of individual ACP markets (e.g. in the dairy sector), even relatively small volumes of EU exports can have important market effects in ACP countries. EU corporate response to CAP reform “EU agro-food sector compa- nies have become increasingly globally oriented” As the focus of the CAP has shifted, so EU agro-food sector companies have become increasingly globally oriented. Since the launch of sugar sector reforms, EU beet sugar compa- Executive brief: Update 2013 I 3http://agritrade.cta.int/ CAP reform and its implications for developing countries nies have expanded their operations internationally (including in the ACP) to secure raw sugar supplies for their newly installed co-refining sugar opera- tions (an additional 1.85 million tonnes of new raw cane sugar refining capac- ity – see Agritrade article ‘The future of EU sugar production quotas’, 23 September 2012). This has been most pronounced in southern and eastern Africa, where British Sugar, through its investments in Illovo, now has a major stake in cane sugar production in South Africa, Swaziland, Zambia, Malawi and Mozambique. These countries supplied fully 45% of ACP sugar exports to the EU from October 2011 to September 2012. The French company Tereos also has interests in Mozambique, while the German sugar company Südzucker has a long-term supply agreement with Mauritius for the marketing of Mauri- tian refined sugar products (18.4% of ACP exports to the EU in 2011/12 – for details of EU corporate restructuring, see Agritrade special report ‘Corporate restructuring in the EU sugar sector: Implications for the ACP’, 30 April 2010). With the pending abolition of EU dairy production quotas, a number of EU dairy companies (notably Arla and Frie- sland Campina) are showing a grow- ing interest in trade and investment opportunities in the dairy sectors in both West and Eastern Africa (see Agri- trade article ‘End of dairy quotas leads to greater external focus of EU dairy companies’, 4 March 2013, ‘Expanding Dutch corporate involvement in local milk procurement in Nigeria’, 15 April 2013 and Agritrade interview, ‘A Danish perspective on investment in African dairy sector development’, 24 Febru- ary 2013). The EU’s evolving agricultural trade policy As the 2013 WTO EU trade policy review pointed out, changes in EU agricultural policy have not yet led to any significant reductions in MFN agri- cultural tariffs. “The EU continues to maintain a sophisticated agricultural trade regime” The EU continues to maintain a sophis- ticated agricultural trade regime, designed to hold the line against dis- ruptive imports while a fundamental reorientation of the EU agro-food sector takes place (see Agritrade article ‘TPR provides useful summary of situation of EU farm policy’, 26 August 2013). Thus, in the cereals sector, where reforms were first introduced back in 1992, the EU retains considerable flex- ibility in the duties applied, enabling it to respond effectively to volatile world market prices by varying the import duty. Import duties may even be set at zero when global cereal prices are very high. The WTO has identified 117 sepa- rate tariff quotas notified by the EU. This enables the EU to use tariff rate quotas (TRQs) to manage market access in sensitive sectors (e.g. poul- try meat), protecting EU producers while responding effectively to evolv- ing consumer demand (see Agritrade ‘Executive Brief 2012 Poultry sec- tor’, 1 August 2012). The EU has also “reserved the right to use special agri- cultural safeguards (SSGs) on 539 tariff lines”. While safeguard measures are actively used on far fewer products, in sensitive sectors they are extensively used – the WTO notes that price-based special agricultural safeguards have “been made operational for chicken, turkey and sugar products almost continuously”. While average MFN duties are higher for agricultural products than non-agri- cultural products (8.6% compared to 6.5%), this masks considerable varia- tion between products, some of which are subject to high non-ad-valorem duties or seasonal duties. However, relatively few of the EU’s agricultural trade partners export under MFN con- ditions. Changes in market access arrangements have primarily occurred through bilateral agreements and GSP reforms (notably the ‘Everything But Arms’ initiative). The fiscal constraints on CAP reform An important contextual factor in the 2012–13 CAP reform discussions was the ongoing fiscal crisis facing a number of EU member states. While this featured prominently in the dis- cussions, it is unclear to what extent it actually influenced the outcome of the 2012–13 CAP reform negotiations. The European Parliament (EP) Sec- retariat analysis of the 2014–2020 financial perspectives in the agricul- tural sector maintained that “commit- ted expenditure to direct payments and market measures in 2020 is 13% less than in 2013, while committed expenditure to rural development measures is 18% less” (based on 2011 real prices). However, some analysts have suggested that if an alternative baseline for measuring the changes in the financial allocation is used – for example the 2013 agricultural budget allocations, multiplied by the 7 years of the next financial framework – then “Pillar 1 expenditure falls by 6.4% and Pillar 2 expenditure by 7.5%”, a much smaller decline, and one which takes into account the reductions in expen- ditures already under way over the 2007–13 period (i.e. the planning period set out prior to the onset of the finan- cial crisis). In this context, the financial perspectives for the 2014–2020 period demonstrate a remarkable consistency with the 2007–13 trend towards reduce agricultural expenditures. It is against Executive brief: Update 2013 I 4http://agritrade.cta.int/ CAP reform and its implications for developing countries this background that the June 2013 political agreement on CAP reforms has been described as “a triumph for the Cioloş strategy of legitimising Pillar 1 payments” at a time of severe finan- cial pressure on some member state governments. Changing policy tools and their use The changing overall level of EU agricultural support A number of reviews have been pub- lished on the changing structure of EU agricultural support (see Agritrade articles ‘OECD agricultural subsidies are falling’, 5 October 2012 and ‘Price volatility financial constraints and declining levels of support set context for CAP debate’, 15 October 2012). According to the July 2013 WTO EU Trade Policy Review, “[as] a result of past reforms and higher international prices for agricultural commodities, the total level of support to the agriculture sector has declined over the past few years”: the EU’s producer support esti- mates (PSE) – calculated by the OECD –declined from a peak of €105 billion in 1999 (38% of gross farm receipts) to €74 billion in 2011 (17.5% of gross farm receipts). The EC maintains this is “close to the OECD average (19%)”, while the EU’s Total Support Estimate (TSE), at 0.7% of GDP, is below the OECD average of 1%. “Most EU domestic support is now decoupled from produc- tion of specific commodities but EU support for individual commodities varies widely” It is also acknowledged that most EU domestic support is now decoupled from production of specific commodi- ties, while the use of export subsidies – the most trade-distorting form of support – fell by 87.6% between 2007 and 2011. The EU maintains that this makes its remaining agricultural sup- port less trade-distorting. However, as noted in the WTO Trade Policy Review, EU support for individual commodities varies widely – considerable support is extended to beef and poultry pro- ducers, and levels of support to sugar and dairy producers remain significant, despite recent declines. The impact of radically altered agricultural support measures in the cereals sector During the course of 2012–13, the EC published a number of evaluations that highlighted the impact of the changes in the structure and use of CAP tools. The most revealing of these was the review of EU cereals sector reforms published in March 2012. The review highlighted the “radically altered” pat- terns of EU cereals support since 1992 and the “clear cost reduction” to the EU budget. However, it also noted that “the nominal value of coupled plus decou- pled aids per hectare barely changed from pre- to post- reform years.” The level of total producer incomes derived from market prices has also changed, as a result of the elevated levels of global cereals prices. Nev- ertheless, despite high global cereals prices, “there are still member states in which… producers, on average, would have earned very low incomes if cou- pled and decoupled aids had not been provided.” This strongly implies that, in the absence of the combination of cou- pled and decoupled aids, a number of EU cereals producers would have left the sector (see Agritrade article ‘Impact of reforms on the EU cereals sector’, 12 May 2013). The analysis in the March 2012 review also noted that “the decision not to offer export refunds helped to overcome the constraints on subsidised exports under the WTO, and this generated a rise in the share of EU net exports in total world cereals exports between 2000–03 and 2007–10.” Significantly, “the EU maintained or raised its share of imports in most traditional regional export markets that are relatively close to the EU..., mainly in North and sub- Saharan Africa and the Near East.” This suggests that, despite the nominally less trade-distorting effects of reformed CAP instruments, these instruments nevertheless have important conse- quences for the EU’s external trade competitiveness and patterns of trade. “Despite the nominally less trade-distorting effects of re- formed CAP instruments, these instruments nevertheless have important consequences for the EU’s external trade” Shortcomings in the price transmission effects of sugar sector reforms In October 2012, the EC published a review of price transmission in the sugar sector since the 2006 reforms. The price transmission effects were not as anticipated. Prices remained above the reference price from October 2009, while retail prices “did not seem to be influenced by policy events”, with the pricing behaviour of retailers tending to be “independent… from the dynam- ics of ex-works sugar price”. In addi- tion, the expected “convergence of price transmission proper between EU domestic sugar markets and the international sugar market has not yet occurred”. What was clearly identified was the “acceleration of the ongo- ing process of concentration of the sugar industry” – it was suggested that “EU sugar producers might again be exerting remarkable market power” (for details see Agritrade article ‘EC review of the impact of 2006 reforms on price transmission in the sugar sec- Executive brief: Update 2013 I 5http://agritrade.cta.int/ CAP reform and its implications for developing countries tor’, 7 July 2013). This appears to have informed both the decision to abolish EU sugar production quotas from 1 October 2017, and also the accompa- nying measures being set in place to strengthen the functioning of internal EU sugar supply chains. The impact of quality-based product differentiation and current trends “A central element of the pro- cess of CAP reform has been the emphasis on the quality and safety of EU food produc- tion” A central element of the process of CAP reform has been the emphasis on the ‘quality’ and safety of EU food production. The EU’s Agricultural Product Quality Policy, a key element of the CAP reform process, is explic- itly designed to both differentiate EU food and agricultural products from third-country products and yield sig- nificant price premiums for EU produc- ers. This takes a wide variety of forms, from corporate branding strategies, through quality differentiation related to production processes (e.g. organic, fair-trade or sustainability certification) to geographical indications (GI) desig- nations (for more details see Agritrade Executive Brief ‘Product differentiation’, forthcoming 2013). The economic significance of sup- port to product differentiation strate- gies was highlighted by the October 2012 EC report on the benefits of GI labelling. It estimated that the “average value premium rate” for GI-designated “agricultural products and foodstuffs” in the EU27 was 1.55. This means that GI-protected “agricultural products and foodstuffs” on average attract over one and a half times the price of the same volume of comparable but non-GI- protected products. The total value premium of EU27 GIs for “agricultural products and foodstuffs” was esti- mated at €5.6 billion in 2010, with the sales value for GI-protected agricultural products and foodstuffs having grown by 19% between 2005 and 2010. On 15 January 2013, the EC launched a public consultation on the future of its organic products regime. These con- sultations will feed into EC “proposals for a renewed political and legal frame- work for organic agriculture in Europe”, scheduled for the end of 2013 (see Agritrade article ‘EU launches public consultation on organic production’, 24 February 2013). As part of the CAP reform process in June 2013, it was agreed that organic producers should be automatically eligible for the 30% of direct aid payments that are linked to “greening” requirements. The growing influence of non- tariff measures on trade flows The issue of the quality and safety of imported products is increasingly coming to the fore, with the EU looking to strengthen food and feed controls through a new Feed and Food Con- trol regulation. This is of concern to ACP producers for two reasons: first, because ACP producers do not enjoy the public sector support extended to EU producers in financing investments in compliance with EU requirements. Second, because the EU is increasing the number of mandatory controls and moving towards recovery of full costs for inspections carried out. This could potentially increase the costs of access to the EU market for a wide range of ACP exporters, with the burden fall- ing particularly heavily on small-scale producers. While within the EU provi- sion is made for exemptions for micro- businesses from the recovery of the full costs of inspection fees, there are currently no plans to extend this to ACP suppliers (see Agritrade article ‘New EU food and feed controls to include full cost recovery’, 7 July 2013). This is despite the profound consequences that changes in the application of EU food safety and SPS measures can have for ACP exporters (see Agritrade articles ‘New EU maximum residue levels hit Kenyan vegetable exports’, 28 April 2013, ‘SPS approval open US market to Kenyan French bean exports’, 19 August 2013 and ‘Tighten- ing of Citrus Black Spot controls could pose challenges’, 28 April 2013). With financial constraints being felt in terms of the levels of EU agricultural support, EU farmers have been par- ticularly vocal in calling for the stricter application of SPS and food safety controls to “level the playing field” between EU and third-country pro- ducers. This can be seen as a logical extension of the CAP policy focus on agricultural product quality. The CAP reform process and outcomes The 2012–13 CAP reform discussions were the first to take place under the new institutional arrangements set up under the Lisbon Treaty. This gave a greater role to the EP in policy formu- lation. In the first quarter of 2013, it became apparent that there was a lack of consensus on the details of the EC proposals. This gave rise to a difficult process of trilateral dialogues (so called ‘trilogues’) – between the EC, the EP and and the EU Council. These negotiations on the detail of CAP reform proposals were complicated by the absence of an agreement on the multi-annual financial framework (MFF) for the overall EU budget for the 2014–2020 period (see Agritrade arti- cle ‘The current state of CAP reform negotiations’, 17 June 2013). On 26 June 2013, a political agreement on the 2013 round of CAP reforms Executive brief: Update 2013 I 6http://agritrade.cta.int/ CAP reform and its implications for developing countries emerged from this trilogue process. In broad terms this included agree- ment on: a fairer distribution of direct aid pay- ments between member states and among farmers; the limiting of direct aid payments to active farmers; the linking of 30% of direct aid pay- ments to agreed greening measures, and recognition of the equivalence of certain national schemes with the required greening measures (e.g., the 30% payment will automati- cally be made available to certified organic farmers) and punitive fines for non-compliance with greening requirements; a moderate expansion of the scope for “coupled” support; a revision of the existing system of public intervention and private stor- age to make it more responsive and efficient; the establishment of new safeguard provisions backed up by an annual “crisis reserve” of €400 million, for use in response to market distur- bances (financed from deductions from direct aid payments, with these being reimbursed the following year if unutilised in any given year); increased support to producer organisations, broadened out beyond the fruit and vegetable sector; additional measures to strengthen the position of producer organisations in the supply chain (particularly in the dairy sector), with certain specific exceptions to EU competition rules; abolition of sugar production quo- tas from 1 October 2017 and intro- duction of measures to strengthen the functioning of the sugar supply chains; a broadening out of the range of tools available to regions and mem- ber states under the rural develop- ment budget (including some new risk management tools). The political agreement “reserved” a number of issues for future discus- sion, largely linked to the allocation and deployment of funding. In addition, the EC still needs to prepare detailed legislative texts operationalising the agreement (see Agritrade article ‘Politi- cal agreement on CAP reform reached’, 11 August 2013). Analysts have suggested that the June 2013 political agreement “represents no more than some minor fine-tuning of the status quo CAP regulations, in return for greater flexibility of imple- mentation by member states and a considerable increase in administra- tive complexity”. While the 2013 reform package did not lead to a “decisive paradigm shift”, it did successfully resist pressure to reintroduce greater market regulation. “The 2013 reform package did not lead to a decisive paradigm shift but resisted pressure to reintroduce greater market regulation” A number of the changes introduced potentially carry implications for ACP agricultural producers and agro-food processors. 3. Implications for the ACP The impact of the abolition of EU sugar production quotas According to the EC, the abolition of EU sugar production quotas “will ensure improved competitiveness for EU producers on the domestic and world market alike”. A EC report in Decem- ber 2012 maintained: “the expiry of the sugar quota will lead to a reduction of the domestic sugar price in the EU, and make imports less attractive”. Indeed, with the EU projected to “move even closer to self-sufficiency and indeed from time to time be a net exporter”, overall EU sugar imports are projected to decline markedly from an average of 3.63 million tonnes per annum from 2009 to 2011, to 1.55 million tonnes p.a. by 2020–22 (for details see Agri- trade article ‘EU sugar sector develop- ments and projections’, 7 April 2013). The 2-year deferment of quota abolition to October 2017 will only slightly delay the onset of these projected changes in EU sugar import levels. “Reduced EU import demand will carry profound implications for ACP sugar exporters” This will carry profound implications for ACP sugar exporters, particularly given the expansion of EU sugar TRQs currently under way as part of new EU FTA agreements. This reinforces the long-term trend in the declining signifi- cance of EU sugar sector preferences for ACP sugar exporters. Given the move to market-determined prices in the ACP–EU sugar trade and the inequalities in power relationships along many ACP–EU sugar supply chains, ACP countries that continue Executive brief: Update 2013 I 7http://agritrade.cta.int/ CAP reform and its implications for developing countries to export sugar to the EU will find that the benefits derived will increasingly be determined by the specific nature of contractual relationships estab- lished between ACP exporters and EU importers. The EC’s growing emphasis on developing the regulatory frame- work for strengthening the functioning of sugar supply chains could therefore potentially take on considerable sig- nificance for ACP governments. This relates both to the regulation of the functioning of sugar supply chains within ACP countries and the function- ing of ACP–EU sugar supply chains. As part of the June 2013 reforms, the EC announced that “the organisation of the sugar sector will be strengthened on the basis of contracts and man- datory inter-professional agreements” (for details of the importance of inter- professional agreements in the sugar sector, see Agritrade article ‘Impor- tance of inter-professional agreements in managing unequal power relation- ships highlighted’, 28 October 2012). This is to include the stipulation of “standard provisions for agreements between sugar factories and growers” (see Agritrade article ‘Impact of CAP reform agreement on the sugar sector’, 6 August 2013). Similar regulatory provisions could prove of value in ACP sugar produc- ing countries, given the very differ- ent experience in ACP countries of the pooling and sharing of revenues between growers and millers derived from non-traditional products of sugar cane production (co-generated electric- ity, ethanol, commercial alcohol sales, etc.). Regulatory provisions could also prove of value in promoting greater transparency in international sugar trade arrangements, in a context of increased corporate linkages between ACP sugar estates/millers and sugar refining companies in export markets. In terms of the EU sugar export trade, an important consequence of the removal of EU production quotas is the lapsing of WTO constraints on EU sugar exports. Corporate representa- tives have spoken of major new oppor- tunities for the export of EU refined and value-added sugar products (although this is not yet reflected in EC projections of likely EU sugar exports up to 2020). The impact of changes to direct aid payments A second area of concern relates to the impact of changing patterns of EU direct aid payments. With greater flexibility being introduced into how member states can deploy CAP fund- ing, concerns have been raised about “the potential for distortion” in the functioning of the EU single market. It is argued, for example, that if some member states increase product spe- cific payments (‘coupled payments’) while other member states do not, this could potentially give recipients of cou- pled payments a competitive edge on the EU market. This implicitly raises the issue of the impact of EU direct aid payments on the relative competitive position of EU farmers and farmers in countries that do not receive direct aid payments (e.g., in ACP countries). “EU direct aid payments sus- tain EU agricultural production at higher levels than would be the case in the absence of such direct aid payments” The least that can be said at this gen- eral level is that, at any given market price level, EU direct aid payments sustain EU agricultural production at higher levels than would be the case in the absence of such direct aid pay- ments. The EU system of direct aid payments is fully WTO compatible. There are, however, other effects of the changes introduced. The increase in the scope for EU member states to make ‘coupled’ payments, if used extensively in the cotton sector, would be likely to further set back the efforts in the WTO of the African cot- ton producing countries to secure the elimination of cotton sector support payments. In addition, the automatic nature of the 30% direct aid payment to organic farmers, which would provide a major financial boost to EU organic producers, needs to be seen against the background of EC efforts to both increase mandatory controls on food and feed imports and move towards full cost recovery for all public sector food and feed control inspections. The twin effects of these two policy meas- ures could serve to distort competition between EU and non-EU organic pro- ducers, to the detriment of ACP efforts to develop export production to serve this growing market component. Extending exemptions to full cost recovery on food and feed control measures Given the need to develop policy responses to the challenge of prefer- ence erosion that is facing the ACP– EU agricultural trade relationship, there would appear to be a case for extend- ing to ACP suppliers the planned exemptions for EU micro-enterprises from the application of full cost recov- ery for food and feed inspections. This could occur either collectively or on the basis of clearly defined criteria linked to the country’s development status (e.g., least developed country, island or small economy) or as part of cooperation on sector restructuring initiatives. Executive brief: Update 2013 I 8http://agritrade.cta.int/ CAP reform and its implications for developing countries Monitoring the external effects on ACP countries of expanded EU safety net policies The revision of the use of public inter- vention and private storage support to provide safety nets at times of market crisis, along with the creation of the new annual €400 million crisis reserve, is in part intended to cushion EU pro- ducers from the worst effects of global market price volatility. While this facil- ity is 20% lower than initially proposed and draws on existing direct aid pay- ment allocations, its use could never- theless pose problems for particular third countries at particular times of market disturbance in particular sec- tors, by shifting the burden of adjust- ment to lower world market prices to the non-EU producers, including those in the ACP. “The external effects of deploy- ing EU safety net measures in ACP countries need to be carefully monitored” In this context, a key policy challenge faced in the EU is how to establish effective safety net measures for EU agricultural producers that avoid dis- placing the burden of adjustment to ACP producers. This suggests a need for careful monitoring of the external effects of deploying EU safety net measures in ACP countries seeking to develop industries in the sectors where measures are being introduced (e.g. in the dairy sector). Indeed, given that processes of agricul- tural reform in OECD countries interact with many other factors and develop- ments in terms of how they impact on ACP countries, there would appear to be a need for an ongoing process of monitoring the specific effects of the application of policy tools on specific sub-sets of producers, if negative external effects on ACP agricultural producers are to be minimised. The challenge is to establish independ- ent institutional mechanisms appro- priate to this task. To date, it can be argued that insufficient attention has been paid to this dimension of the agricultural reform process in OECD countries. The possible extension of the use of new EU policy tools in the ACP context A potential area of interest to ACP governments in the CAP reform pro- cess relates to the possible applica- tion in an ACP context of some of the new EU policy tools being developed to strengthen the functioning of mar- kets at a time of market liberalisation. In the EU it has been recognised that in a context of market liberalisation, inequalities in power relationships along supply chains can lead to unfair trading practices, which over time can undermine the production base in some agricultural sectors. In a con- text of rising input costs and rising but volatile agricultural commodity prices, ending unfair and abusive practices in food supply chains is seen by EU farmers’ organisations as a critical part of the CAP reform process. This has led the EC to develop policy measures designed to strengthen the function- ing of specific supply chains, to better insulate stakeholders from the adverse effects of market price volatility. EU policy responses range from moves to expand support for producer organisations and relax competition rules (see Agritrade article ‘Report on improving functioning of food supply chain released’, 11 March 2013) – through the establishments of regula- tory frameworks for relationships along the supply chain and the drawing up of framework contracts for relations between producers and processors (see Agritrade article ‘Emerging con- sensus on new EU rules to regulate dairy sector relations’, 16 January 2012 and ‘Stress on EU dairy markets reveals shortcomings in functioning of supply chains’, 18 June 2012) – to the adoption on 31 January 2013 of a European Retail Action Plan and a Green Paper on unfair trading practices (see Agritrade article ‘EC policy devel- opments on addressing unfair trading practices’, 4 March 2013). In an era of agricultural market liber- alisation, this constitutes an increas- ingly rich body of regulatory experience which ACP governments could draw on to strengthen the functioning of spe- cific agricultural supply chains, where inequalities in power relationships potentially undermine the development and consolidation of domestic agricul- tural production and agro-food sector development. It potentially constitutes an important new area for ACP–EU cooperation. This applies both in terms of the policy measures required to strengthen the internal functioning of agricultural supply chains in ACP countries and in terms of strengthening the functioning of ACP–EU agricultural supply chains. Recognising and managing evolving trends in the interest of ACP structural development In the context of trade negotiations and the formulation of domestic and regional agricultural trade policies, special attention will need to be paid to monitoring trends in EU food and agricultural exports and the process of global expansion of EU agro-food sector firms, and to evaluating the impli- cations of these trends for ACP govern- ments’ aspirations to structurally trans- form the basis of engagement of their agro-food sectors with global supply Executive brief: Update 2013 I 9http://agritrade.cta.int/ CAP reform and its implications for developing countries chains. Carefully defined, sector-spe- cific policies will be required, if growing EU corporate interest in specific ACP agro-food sectors is to be translated into the structural development of indi- vidual ACP agro-food sectors. The formulation of regional strategies for sector development is likely to prove particularly challenging, where govern- ments and corporate players in neigh- bouring ACP countries have divergent interests in terms of the import patterns they develop and the engagement they seek with EU agro-food sector com- panies. (For example, in recent years, dairy sector companies in South Africa have used imports of EU skimmed-milk powder to increase their regional trade in value-added dairy products, to the detriment of neighbouring countries’ dairy sectors.) Establishing a structure for dialogue in order to get to grips with these issues could then help other ACP regions to develop their own regional agricultural policy frameworks. Allowing ACP governments to use the agricultural trade policy tools available to the EU The EU retains the right to use a wide range of agricultural trade policy tools to manage markets and insulate sen- sitive EU agricultural sectors from the adverse effects of global price volatil- ity. Many ACP governments potentially have an interest in retaining similar rights to flexibly deploy available agri- cultural trade policy tools (special agri- cultural safeguards, import licensing arrangements, TRQs, etc.) “The EU retains the right to use a wide range of agricultural trade policy tools” Several ACP governments have called for the right to use the types of agri- cultural trade policy tools that the EU retains the right to deploy: this con- stitutes an important test case for the EU’s commitment to policy coherence for development. Main sources 1. European Parliament, Directorate General for Internal Policies, ‘European Council Conclu- sions on the Multiannual Financial Framework 2014-2020 and the CAP’, 2013 http://www.europarl.europa.eu/committees/en/studiesdownload.html?languageDocument=E N&file=94213 2. World Trade Organization, ‘Trade Policy Review: European Union’, 28 May 2013 http://www.wto.org/english/tratop_e/tpr_e/s284_e.pdf 3. Capreform.eu, Reform the CAP home page http://capreform.eu/ 4. European Commission (EC), ‘Political agreement on new direction for common agricultural policy’, IP/13/613, 26 June 2013 http://europa.eu/rapid/press-release_IP-13-613_en.htm 5. EC, ‘CAP reform – an explanation of the main elements’, MEMO/13/621, 26 June 2013 http://europa.eu/rapid/press-release_MEMO-13-621_en.htm 6. LMC International (for EC DG Agriculture), ‘Evaluation of measures applied under the Com- mon Agricultural Policy to the cereals sector, Final Report, December 2012’, 12 March 2013 http://ec.europa.eu/agriculture/evaluation/market-and-income-reports/cereals-2012_en.htm 7. Areté (commissioned by EC), Study on price transmission in the sugar sector: Final report, October 2012 http://ec.europa.eu/agriculture/external-studies/2012/sugar-price-transmission/fulltext_en.pdf About this update This brief was updated in October 2013 to reflect developments since June 2012. Other publi- cations in this series and additional resources on ACP–EU agriculture and fisheries trade issues can be found online at http://agritrade.cta.int/. Technical Centre for Agricultural and Rural Cooperation (ACP—EU) PO Box 380 6700 AJ Wageningen The Netherlands Tel: +31 (0) 317 467 100 E-mail: cta@cta.int - www.cta.int The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint ACP—EU institution active in agricultural and rural development in African, Caribbean and Pacific (ACP) countries. Its mission is to advance food and nutritional security, increase prosperity and encourage sound natural resource management. It does this by providing access to information and knowledge, facilitating policy dialogue and strengthening the capacity of agricultural and rural development institutions and communities in ACP countries. http://agritrade.cta.int/ Caribbean: Agricultural trade policy debates and developments I 1 Despite an increased policy focus on get- ting to grips with rising food import bills and the promotion of local agricultural development, the overall performance of the agriculture sector in the Caribbean remains a cause for concern. Most coun- tries in the region face growing agricul- tural trade deficits (the exceptions are Belize and Guyana). Preference erosion and stricter standards in export markets both serve to sharpen the focus on pro- duction for local and regional markets. Caribbean countries in the ACP face a number of specific challenges: redefining the role of agriculture in the light of rising global prices, increased price volatility, and aspirations to value addition; determining the role of imported raw materials in value-added food products; repositioning agricultural exports within evolving global and regional markets; more clearly articulating the role of trade policy measures in support of agricultural development strategies; more clearly defining the role of the public sector in supporting processes led by the private sector in reposition- ing the agro-food industry, including regulatory reforms; establishing commonly agreed rules on agri-food sector support measures, as part of the creation of the single regional economic space and common market; successfully moving towards harmo- nised agricultural policies (including the use of modern market regulatory tools in the traditionally state-led sectors) and effective functional cooperation. update October 2013 Caribbean: Agricultural trade policy debates and developments 1. Background and key issues 1. Background and key issues 2. Latest developments Policy developments in the Caribbean Developments in EPA implementation in 2012–13 Developments in Caribbean third- country trade negotiations and relations in 2012–13 3. Current policy debates and issues Integrating the use of trade policy tools into strategies for strengthening local supply chains ACP cooperation in promoting innovative use of local cereals in value-added products Intensifying dialogue on the application of EU food safety and SPS standard Wider lessons of addressing challenges in the poultry sector The implications of non- implementation of market access commitments Executive brief: Update 2013 I 2http://agritrade.cta.int/ Caribbean: Agricultural trade policy debates and developments To address these challenges a number of initiatives have been taken, including: the approval in October 2010 of a Caribbean Regional Food and Nutri- tion Security Policy (RFNSP), with the aim of achieving “the optimum degree of self-reliance … [using] indigenous raw materials, human and natural resources”; the adoption in October 2011 of a Caribbean Community (CARICOM) Agricultural Policy document, aimed at creating “one regional space for production, processing, trade and investments” in the agri-food sec- tor (see Agritrade Special Report ‘The Caribbean Community Agri- cultural Policy: Challenges ahead’, 16 December 2012); the revision of the Organisation of Eastern Caribbean States (OECS) action plan on agriculture, com- pleted in 2012. Central to these various initiatives is the adoption of a value chain approach, with an emphasis on private-sector- led strategies in the context of public– private-sector partnerships. There is a growing focus on developing agri-tour- ism value chains and integrating social issues, including poverty and gender considerations, into the operation of commercial supply chains. Importance is also attached to upgrading the insti- tutional and regulatory framework for sanitary and phyto-sanitary (SPS) con- trols and food safety. While Caribbean ACP countries are part of the global trend towards trade liberalisation, food and agricultural products enjoy higher than average lev- els of tariff and ‘para-tariff’ protection, mainly in the form of WTO-compliant ‘other duties and charges’. Efforts are under way to harmonise these meas- ures in the context of the CARICOM common external tarif f (CET) and moves towards the creation of the Car- ibbean Single Market and Economy. “There are widespread excep- tions to the application of the common external tariff – par- ticularly for agricultural prod- ucts” Currently there are widespread excep- tions to the application of the CET, particularly for agricultural products, where a range of surcharges and levies are also applied. In addition, the appli- cation of a differentiated approach to intra-regional trade liberalisation, which allows Haiti, the OECS and Belize to maintain restrictions on imports of sen- sitive products from the more devel- oped CARICOM countries, points to the differences in trade policy regimes which affect the agricultural sector within CARICOM. Against this background there have been reports of some CARICOM mem- ber states making use of quantitative restrictions to control the volume of both extra-regional and regional agri- culture and food imports. While a comprehensive Economic Partnership Agreement (EPA) between CARIFORUM and the European Com- munity has been in place since 2008, several Caribbean states face chal- lenges in its implementation in the light of progressive erosion of the value of traditional relationships with the EU, in both the trade and development assis- tance fields. Trade negotiations with non-EU partners, most notably Canada, are approaching a critical stage. 2. Latest developments Policy developments in the Caribbean Rising prices and the renewed focus on production for domestic markets In the face of rising global food prices, Caribbean governments have been seeking to promote local food production. “With rising global food prices, Caribbean governments have been seeking to promote local food production” This has manifested itself in many forms. In 2012 the producer of Jamai- can Red Stripe beer began contracting farmers directly to produce cassava and sorghum to replace imported bar- ley in beer production. The aim is to replace 15–20% of barley use by 2014 and 70% by 2020. In January 2013 the Barbados Agricultural Development and Marketing Corporation (BADMC) launched a market assessment of the scope for blending cassava flour into local bakery products. In 2012 the Jamaican government and Jamaican Broilers relaunched their joint initiative to develop local maize production for poultry feed and to extend regional arrangements for the procurement of poultry feed. Belize delivered 5,227 tonnes of maize-based feed to Guy- ana by March 2013, and this stimulated new investment in maize production in Belize (see Agritrade Executive Brief Update ‘Cereals sector’, forthcoming 2013). In July 2012 consultations were launched in Jamaica on the scope for redeveloping the beef industry, while early in 2013 the governments of both the Dominican Republic and Belize Executive brief: Update 2013 I 3http://agritrade.cta.int/ Caribbean: Agricultural trade policy debates and developments intensified efforts to enhance controls over animal disease and food safety in the beef sector (see Agritrade Execu- tive brief: Update ‘Beef sector’, forth- coming 2013). Furthermore, efforts continue to boost rice production, with the USDA report- ing in August 2012 the Jamaican gov- ernment’s plans to develop rice pro- duction to meet up to 15% of national needs (earlier plans announced in 2008 had set a target of 25%). This forms part of wider efforts in the Car- ibbean to develop rice production for local and regional markets, including Latin American markets. Between 2010 and 2013 some 60% of Guyana’s rice exports went to Venezuela. Efforts also continue to develop rice exports to Jamaica and to Trinidad and Tobago. Following EU rice sector reforms, the disappearance of price premiums has caused exports to the EU to fall. The EU market is now primarily of interest for speciality rice varieties, which are now gradually being introduced and can attract high prices (see Agritrade Executive Brief Update ‘Rice sector’, forthcoming 2013). Beyond the cereals and livestock sectors, the Jamaican government’s ‘agro parks’ initiative appears to place greater emphasis on promoting horti- cultural production for local markets. Following the success achieved in the Dominican Republic in expanding veg- etable production (from £3 million in 2004 to £64 million in 2011) (see Agri- trade Executive Brief Update ‘Fruit and vegetable sector’, forthcoming 2013), there is growing interest across the region in protected agricultural produc- tion systems (low-cost greenhouses). In some countries, even traditional export sectors such as sugar and bananas are focusing more on serving local and regional value-added pro- cessing industries. In this, there are both ‘pull factors’, linked to increasing import bills, and ‘push factors’, linked to ongoing processes of preference erosion (which are in turn linked to EU common agricultural policy reforms and the conclusion of new EU FTA agree- ments). Thus, the Jamaican banana sector is focusing on the introduction of more disease-resistant varieties bet- ter suited to domestic market needs, particularly the production of value- added banana products (see Agritrade Executive Brief Update ‘Banana sec- tor’, forthcoming 2013). Similarly in the sugar sector: accord- ing to the Chair of the Sugar Industry Authority, from 2012/13 “all the raw sugar for local consumption will be supplied from locally produced sugar”, eliminating the need for some 60,000 tonnes of imports (see Agritrade article ‘Recent developments in Caribbean sugar exports’, 4 May 2013). While imports of refined sugar products will continue (some 65,000 tonnes), there are aspirations to eliminate part of these imports as investment in local refining takes place. This, however, will depend on private-sector investment. In the case of sugar, investment in value-added processing has been implicitly linked to dismantling state- run single-channel marketing arrange- ments. In the banana sector, invest- ments in banana-chip production in 2012 were linked to a 15% increase in stamp duty on banana chips. This use of trade policy tools also saw additional stamp duties imposed on imported meats, fish, ham and bacon. “Trade policy measures are being reviewed to give the agri- culture sector an opportunity to grow and develop” This forms part of a broader review of existing tariff waivers in those areas where local production potential is held to exist. According to the Jamaican Minister of Agriculture, the aim of this review is to “give the agriculture sector an opportunity to grow and develop” (see Agritrade article ‘Revised tax pack- age to curb food imports announced in Jamaica’, 3 September 2012). This use of trade policy measures is not restricted to Jamaica. As part of ongo- ing protection in the poultry sector (the largest agricultural sector in the Carib- bean), the government of Trinidad and Tobago introduced a 15% surcharge on extra-regional imports of poultry meat, while the government of Barba- dos increased tariffs on marinated raw poultry from 20 to 184%, in line with the treatment of other poultry products. Despite these measures, extra-regional imports of poultry meat continued to rise across CARICOM as a whole (for more details see Agritrade Executive Brief Update ‘Poultry sector’, forthcom- ing 2013). The use of trade-restrictive measures led the Jamaican country representa- tive of the Inter-American Develop- ment Bank to call for increased finan- cial support both for infrastructure in farming areas and processing facilities and for more attention to be paid to strengthening supply chains. While such a broadening of approach is increasingly a feature of government policy commitments, problems are faced in operationalising these com- mitments (see, for example, Agritrade article ‘Trade policy tools to be part of Jamaican policy response to boost production and reduce food imports’, 28 October 2012). The private sector in some instances continues to urge governments to make greater use of trade policy tools in areas where domestic production is to be promoted, since these are rela- tively simple, low-cost steps to take (see Agritrade article ‘Jamaica’s “agro- Executive brief: Update 2013 I 4http://agritrade.cta.int/ Caribbean: Agricultural trade policy debates and developments parks” food initiative’, 21 January 2013). The use of trade policy tools within the overall policy mix is thus likely to feature considerably in discussion and debate in the national, regional and inter- regional context in the coming years. Value-added food product imports and intra-regional trade There is considerable focus on devel- oping value-added food product indus- tries in the Caribbean. “There is considerable focus on developing value-added food-product industries in the Caribbean” However, this needs to be seen against the background of the serious con- straint on competitive local agricul- tural production arising from limited land availability. In some countries, land constraints are compounded by the declining attractiveness of agricul- tural employment. This raises important questions about the role of imported raw materials in the production of value- added food products. It has long been recognised in CARICOM that, given supply capacity constraints, rules of ori- gin permitting the use of extra-regionally sourced raw materials are necessary. However, some regional governments/ private sectors have proved more adept at exploiting these provisions than oth- ers (see Agritrade article ‘Agricultural exports continue to decline in Trinidad and Tobago’, 8 April 2012). In April 2013 Jamaican manufacturers complained of Trinidadian exporters “violating trade rules by misrepresent- ing products as being of CARICOM ori- gin” so as to benefit from lower tariffs. Trinidadian manufacturers rejected these allegations, arguing that suffi- cient processing occurred to comply with the change of tariff heading provi- sions under CARICOM rules of origin (see Agritrade article ‘Charges of unfair export practices raises policy issue of balance between agricultural produc- tion and value-added processing’, 13 June 2013). Repeated rules-of-origin disputes have reportedly “strained commercial relations between the two countries in recent years”. This raises issues beyond the question of rules of origin, related to national strategies for the promotion of agro- food sector development, in a con- text where value-added processing can often generate more employment and greater additional value than more basic agricultural activities. This can pose policy dilemmas for governments over whether to promote local agricul- tural production or value-added pro- cessing based on imported raw materi- als. This issue is further complicated in the Caribbean by the periodic dis- ruption of agricultural production by hurricanes, necessitating imports of locally produced raw materials to sus- tain domestic value-added processing after the loss of the national crop. Broader questions raised by the domi- nant role of Trinidadian agri-processing companies on regional markets relate to the impact on competition of national policies and support programmes that favour agri-food processing of imported inputs. Jamaican manufac- turers have long maintained that Trini- dadian energy and transport subsidies constitute a huge [unfair] competitive advantage when processing imported raw materials. The use of imported raw materials is nowhere more acute than in the dairy sector, given that milk production in the Caribbean continues to fall short of ris- ing consumption of dairy products. The role of milk production in local Carib- bean dairy sector development requires careful definition. This is a tricky issue, since it is widely recognised that self- sufficiency is an unattainable objective, but many governments continue to pri- oritise expansion of domestic fresh pas- teurised milk production, while build- ing capacity to produce a mix of other dairy products. This puts trade policy in the Caribbean dairy sector at cen- tre stage. The situation is complicated by the dominant role of multinational dairy companies in the region: the way in which international dairy companies partner with local milk producers and engage with government objectives is critical to dairy sector development. The period 2012–13 has seen a range of developments in this regard. In September 2012, Nestlé invested US$8 million in a new production line at its factory in Jamaica, and on 7 March 2013 signed a Memorandum of Understanding with the Trinidadian government to improve herd quality. Similar efforts to improve the quality of the national dairy herd are reportedly under way in Guyana, with the aim of reducing the import of dairy products by 10% by 2015. Guyana currently depends heavily on importing bulk milk powder for repackaging and reconstituting to meet local demand. This reconstitu- tion of imported milk powder for use in a range of dairy products can severely compound the challenges faced by other regional producers in maintaining industry profits and optimising returns on investment focused on the utilisation of locally produced milk. At the end of 2012, Pine Hill Dairies in Barbados reported a serious financial situation due to rising input costs and competition from imported yoghurts and evaporated milk. A milk production quota system was reinstated from 1 July 2012, and at the end of Decem- ber 2012 the company’s yoghurt plant closed. Similar challenges from imports are faced in Belize, where trade policies Executive brief: Update 2013 I 5http://agritrade.cta.int/ Caribbean: Agricultural trade policy debates and developments that encourage imports and the lack of a national dairy policy are seen as disadvantaging the local dairy industry (see Agritrade, Executive Brief Update, ‘Dairy sector’, forthcoming 2013). The focus on the development of value-added processing in the Carib- bean context can be seen to raise two important and related policy issues. The first is the precise role of imported raw materials in the production of value-added products manufactured for domestic markets and traded into regional markets under preferential tar- iff conditions. The second is the need for common rules on state support to agriculture and agri-processing so as to avoid unfair competition in regional agri-food product markets. “There is a need for common rules on state support to agri- culture and agri-processing in order to avoid unfair com- petition in regional agri-food product markets” This is an important issue, given the links to investment patterns. It is not, however, an issue which has yet been addressed within the Caribbean Com- munity Agricultural Policy. Without such commonly agreed rules on national support, the types of tensions which arose in April 2013 between Jamaica and Trinidad and Tobago are likely to continue. This could exacerbate tensions arising from the application of different prod- uct standards, which periodically give rise to trade restrictions. Food safety and product stand- ards: An intra-regional and extra- regional trade issue In mid 2012 the imports of dairy and milled-flour products from Barbados were halted by the Trinidadian authori- ties on food safety grounds (see Agritrade article ‘Food trade dispute between Barbados and Trinidad and Tobago rumbles on’, 3 September 2012). While an agreement was even- tually worked out without the dispute escalating, the incident served to high- light the need to harmonise product standards across the CARICOM region. “Product standards need to be harmonised across the CARICOM region” The CARICOM Regional Organisation for Standards and Quality (CROSQ), launched in July 2012, could potentially assist in this process, particularly if close liaison with national standards bodies was initiated, linked to a programme of legislative reforms to carry standards harmonisation into national law. This can be seen as a critically impor- tant area. The decline in intra-regional trade in food and agricultural products has in large part been attributed to divergent product standards. This has inhibited investment in larger facilities serving regional markets. The need to get to grips with food safety, product standards and SPS harmonisation is highlighted by the growing challenges faced in traditional export markets. The performance of Caribbean ACP countries in meeting these challenges varies considerably. In the Dominican Republic (DR), while initial concerns had been expressed over food safety compliance capaci- ties, inspection levels of DR exports were actually reduced in the course of 2012–13 (see Agritrade article ‘Inspec- tion levels reduced on imports from the Dominican Republic’, 16 July 2012). In mid 2013, however, new problems emerged of pesticide residue levels on certain horticulture products. Suri- name, by contrast, has faced grow- ing challenges, with the imposition of increased inspections by the Dutch food safety authority in May 2012 fol- lowing increased rates of detection of higher than permitted pesticide residue levels in imported fruit and vegetables (see Agritrade, Executive Brief Update, ‘Food safety’, forthcoming 2013). Major concerns have also arisen over the ability of regional exporters to comply with the 2011 US Food Safety Modernisation Act. These concerns were heightened by the announcement in January 2013 of further revision of US food safety legislation pertaining primarily to fresh fruit and vegetables (see Agritrade article ‘Further new US food safety rules could set new chal- lenges for Caribbean exporters’, 11 March 2013). The country- and product-specific nature of SPS and food safety chal- lenges raises the issue of the balance to be struck between regionally coor- dinating food safety initiatives and strengthening national food safety sys- tems. Close attention will need to be paid to the role of the regional institu- tion, the Caribbean Agricultural Health and Food Safety Agency (CAHFSA), in developing and coordinating opera- tional programmes of national food safety institutions. CAHFSA, when it becomes operational, should supple- ment national efforts rather than dis- place them. In the interim, the role of the newly established Caribbean Pub- lic Health Agency (CARPHA) should be examined and clarified with regard to this issue. The strengthening of national capaci- ties within a common, regionally agreed framework will play an important role in strengthening mutual respect for national food safety controls. This is an essential precondition for remov- ing standards-related barriers to intra- regional trade. Progress is being made on this issue at the sector level: Carib- Executive brief: Update 2013 I 6http://agritrade.cta.int/ Caribbean: Agricultural trade policy debates and developments bean governments agreed in Decem- ber 2012 on regional standards for poultry products. This took on board many of the earlier requests from the Caribbean Poultry Association (CPA) related to the repackaging and labelling of frozen poultry parts. This is designed both to prevent some common abuses that occur with imported poultry parts and to facilitate intra-regional trade. The debate on the focus of agri- food sector export policy In reviewing prospects for ACP Carib- bean agricultural exports, a distinction needs to be made between the Domin- ican Republic and CARICOM countries. Prospects for competitive agricultural exports from the DR, with its far greater agricultural capacity, are qualitatively different from those of most CARICOM island economies. This is vividly illus- trated by the divergent experiences in the banana sector. Banana exports from the Windward Islands to the EU fell 89% between 2004 and 2011, while exports from the Dominican Republic more than tripled. Across the Caribbean ACP, however, there are growing calls from the pri- vate sector to focus on ‘quality’-dif- ferentiated and value-added product markets. “There are growing calls to focus on quality-differentiated and value-added product markets” In this context, banana exports from the Dominican Republic are domi- nated by organic and fairtrade-certi- fied exports. A regional programme for the promotion of quality-differentiated bottled rums has been successfully implemented over the last 10 years, while in the cocoa sector efforts are under way to both develop improved marketing of fine/flavoured cocoa and promote local production of value- added chocolate products. Barbados has developed its high-end Plantation Reserve sugar range, while Guyana is introducing new varieties of aromatic rice to target premium-priced market components, and Jamaica has long- standing exports of premium-priced Blue Mountain Coffee, and exports a range of speciality Jamaica sauces and condiments. There is a growing recognition that focusing on niche markets around the world requires developing an intimate understanding of customer needs and appropriately targeted marketing strat- egies. The major challenge appears to be consolidating and generalising this strategy beyond the limited numbers of sectors that have enjoyed success to date, and ensuring dynamic follow-up in the light of changing market con- ditions. The experience of Jamaican Blue Mountain Coffee highlights the limitations of passively pursuing these types of strategies, while the evolv- ing competitive threat from Peruvian organic banana exports to the EU market highlights the importance of DR banana exporters staying ahead of market trends (for details see Agritrade article ‘Central American and Andean Pact association agreements signed’, 12 August 2012). This increased com- petitive challenge will require dynamic adjustments that take advantage of dramatic changes in the functioning of banana supply chains (e.g., increased direct purchasing by supermarket chains, using container-based trans- portation of bananas). This raises important questions related to: a. the role of public policy in supporting the private sector in implementing product-specific, quality-differenti- ated and value-added processing strategies; b. the most appropriate policy tools to support these product-specific strategies; c. the future role of parastatals, and the redefinition of the regulatory frame- work for private-sector-led agri-food sector strategies, including the role of new policy tools. Public policy, private-sector-led growth, parastatal reform and new regulatory policy tools The growing focus on private-sector- led agri-food sector development is leading to a review of the role of tradi- tional commodity boards and modifica- tions to external trading arrangements. More generally, a debate is emerging on strengthening the functioning of local agricultural supply chains. “A debate is emerging on strengthening the functioning of local agricultural supply chains” The most dramatic illustration of these changes is in the Jamaican sugar sec- tor which, in May 2012, saw an agree- ment reached with the Pan Caribbean Sugar Company (PCSC), allowing it to export sugar on its own account. This ended the Sugar Industry Authority’s monopoly exporter role. The change was intimately linked to the company’s investment commitments. Following the agreement, PCSC announced a contract with Sucden to supply 40,000 tonnes of sugar in 2012/13, greatly reducing traditional trade links with Tate & Lyle Sugars (see Agritrade arti- cle ‘Recent developments in Caribbean sugar exports’, 4 May 2013). The purchase of Belize Sugar Industries (BSI) by American Sugar Refiners (the owners of Tate & Lyle Sugars – TLS), by contrast, formed part of a strategy to lock in future supplies of fairtrade- Executive brief: Update 2013 I 7http://agritrade.cta.int/ Caribbean: Agricultural trade policy debates and developments certified sugar, in line with the fairtrade- focused sugar strategy of TLS (for more details, see Agritrade Special Report ‘Regional developments in ACP sugar sectors 2012/13’, 13 September 2013). In Jamaica the process of reform includes consolidation of the regulatory functions of commodity boards and a gradual disengagement on the part of these entities from direct market- ing responsibilities. In the cocoa sec- tor the Cocoa Industry Board and the Jamaican Cocoa Farmers Association have cooperated on both marketing and productivity improvements. The monopolisation of marketing arrange- ments has also been eliminated. Throughout the region increasing attention is being paid to strengthen- ing the functioning of existing cocoa supply chains, to the benefit of primary producers. This is considered to be a critically important issue since, in the region’s major cocoa producer, the DR, price volatility and payment arrange- ments are threatening the long-term future of the sector (see Agritrade arti- cle ‘Strengthening internal supply chain essential if future of DR cocoa sector to be secured’, 1 July 2013). However, this focus on strengthening existing sup- ply chains sits uneasily with regional aspirations to move up the cocoa value chain. At the third annual Caribbean Fine Cocoa Conference, in June 2012, Jamaica’s Minister of Agriculture called for the initiation of “value-added activ- ity in order to take advantage of the premium price paid for the commodity on the world market”. He argued that the development of the cocoa sector in the Caribbean will need to be driven by “strategic alliances with those from the North to whom we sell our cocoa”, to undertake value-added processing locally in the Caribbean (see Agritrade article ‘Structural reorganisation and new strategy required for Caribbean cocoa sector’, 20 August 2012). The growing focus on the scope for using public policy tools to strengthen the functioning of supply chains can be seen in the Jamaican government’s sponsorship of forward contracting arrangements between banana grow- ers and banana processors, alongside the increase in the stamp duty on banana chips. New approaches are also being explored. In March 2013 the CEO of the Barbados Agricultural Soci- ety called for new entrant restaurant franchise operators to provide more advanced notice to local poultry pro- ducers of their investment plans and product requirements. It was argued that advance notice would enable local producers to invest in technological upgrades to meet the product require- ments of fast-food chains, rather than simply increasing imports (see Agri- trade article ‘Better information on retailer plans sought to boost sector development’, 18 May 2013). This kind of initiative has a much wider potential applicability related to strengthening dialogues between pro- ducers, retailers, traders, processors and food service industry enterprises on production standards and produc- tion requirements. The establishment of information systems in this area, if backed up by improved organisation of producers’ associations and a sup- portive trade policy framework, could potentially open up a range of new opportunities for local producers in local markets. There is already evidence in the Car- ibbean that such dialogue has been effective, with foreign fast-food fran- chises in Trinidad consistently taking supplies of poultry, cassava and fruit juice from local suppliers. Significantly, such dialogues could potentially over- come some of the financial constraints related to on-farm investments, as supply contracts provide the basis for securing cheaper loans from local financial institutions. In this context, governments may wish to consider linking investment authorisation to the adoption of policies and practices designed to strengthen the functioning of local food supply chains. Issues related to the functioning of sup- ply chains in traditional export sectors will need to be addressed in pending regulatory reforms. While the nature of these issues varies from country to country and sector to sector, the core issue relates to avoiding abuse of power relationships within supply chains. Ensuring that primary produc- ers receive a share of revenues, which ensures the financial viability of future production, can be seen as a critical objective of public policies designed to support private-sector-led value-added agri-food sector strategies. Developments in EPA implementation in 2012–13 CARIFORUM countries appear to be facing challenges in implementing EPA commitments. “CARIFORUM countries appear to be facing challenges in im- plementing EPA commitments” According to the South Centre, by March 2013 only eight countries had implemented initial tariff cuts sched- uled for January 2011. These delays had seen a European Commission (EC) official declaring in June 2012 a certain level of frustration over the non- implementation of agreed tariff cuts. Against this background, the EC tabled proposals on 18 December 2012 for strengthening the EU’s ability to ensure that trading partners respect agreed trade rules. The proposal would allow the EC more scope for taking steps to Executive brief: Update 2013 I 8http://agritrade.cta.int/ Caribbean: Agricultural trade policy debates and developments “encourage the offending country to remove the illegal measures”, including “suspension of tariff concessions … [and] imposition of new or increased customs duties”, or the use of quan- titative restrictions (see Agritrade arti- cle ‘EC to strengthen enforcement of third-country compliance with trade commitments’, 21 January 2013). Throughout 2012, Caribbean leaders stressed the difficulties of implementing EPA commitments (see Agritrade arti- cle ‘Madagascar and St Kitts & Nevis seeking deferment of EPA implementa- tion schedule’, 15 October 2012). Calls were made for the EU to “engage in a constructive dialogue that would waive the tariff reductions at this time”. The option of renegotiating EPA commit- ments as part of the scheduled 2013 review process was also raised (see Agritrade article ‘Implementation of Caribbean tariff cuts in the spotlight’, 27 August 2012). These views need to be seen against the background of: the declining value of traditional CARICOM agr icu l tura l t rade preferences; new and ongoing threats to the value of preferences (see Agritrade article ‘Caribbean rum sector facing serious challenges in US and EU markets’, 16 December 2012); growing concerns over the EU’s emerging differentiated aid allocation policy, which could undermine future aid flows to the Caribbean region. In October 2012, at the joint CARIFO- RUM–EU Council, both parties “reaf- firmed their commitment to implement- ing the agreement”, and exchanged views on a range of contentious issues linked to tariff elimination commit- ments. Discussions focused on “the establishment of a joint monitoring system to continuously monitor the operation of the agreement in order to assess its impact on CARIFORUM states”. Against this background, no concrete steps had been taken by June 2013 to sanction any CARIFORUM country for non-compliance with EPA implementation commitments. Throughout 2012–13 a programme of workshops was rolled out to familiarise Caribbean operators with the require- ments and opportunities under the EPA agreement. Similarly, efforts continued to roll out the major €46.5-million EPA capacity-building programme, the programme of assistance to the Car- ibbean Single Market and Economy programme (€27.5 million) and the programme of economic integration support to the OECS (€8.6 million), launched under the financing agree- ment initialled in March 2012. By March 2013 personnel for the implementation of the main components of these pro- grammes were being recruited. Developments in Caribbean third-country trade negotiations and relations in 2012–13 The CARIFORUM–US rum dispute Beyond the introduction of further food safety regulations, the main fly in the ointment in CARIFORUM–US relations is the dispute over the use of US tax rebates to support expanded rum production in Puerto Rico and the US Virgin Islands. The production expan- sion is equivalent to 80% of current US annual consumption, while sub- sidies substantially lower molasses procurement costs. This is seen as posing a serious threat to the future of Caribbean ACP rum production. By November 2012, reports were emerg- ing of contracts with Caribbean suppli- ers being cancelled in the face of much lower prices offered by producers in US territories (see Agritrade article ‘Caribbean rum sector facing serious challenges in US and EU markets’, 16 December 2012). “US tax rebates are seen as posing a serious threat to the future of Caribbean ACP rum production” The issue is further complicated by the involvement of international rum pro- ducers in ACP Caribbean countries, who have reportedly warned that any legal challenge to US subsidies could lead to a re-evaluation of investments in Caribbean ACP countries. Despite the launch of bilateral consulta- tion, the situation was compounded in January 2013 when the US Congress extended the controversial tax conces- sions for a further two years. CARICOM ministers formally agreed in May 2013 to take the issue to WTO dispute settle- ment (see Agritrade article ‘CARICOM to take US rum subsidies to WTO dis- pute settlement’, 1 July 2013). Finalising the Caribbean–Canada deals According to press reports from Febru- ary 2013, Jamaican exporters fear that current preferential access to the Cana- dian market will lapse if a new CARI- COM–Canada reciprocal trade agree- ment is not concluded. This would not only adversely affect existing exporters of rum, sauces and condiments, but would also undermine opportunities for new exports in areas where high tariffs are still applied. According to the CARICOM Secretariat, four rounds of negotiations had been held by Febru- ary 2013. However, press reports indi- cated that the Canadian government was “seeking a significant amount of reciprocity” and a strengthening of food Executive brief: Update 2013 I 9http://agritrade.cta.int/ Caribbean: Agricultural trade policy debates and developments safety compliance requirements. The food safety dimension of the negotia- tions is seen as requiring an increased level of private-sector involvement and guidance, to ensure that the agree- ments reached are practical for local operators (see Agritrade article ‘Jamai- can companies concerned over pos- sible loss of preferences on Canadian market’, 26 May 2013). Meanwhile, FTA talks were resumed between the DR and Canada in August 2012. While retailers in the DR welcomed the move, industrialists warned the government of the need to “boost competitiveness” if the benefits of such trade agreements were to be secured. 3. Current policy debates and issues Integrating the use of trade policy tools into strategies for strengthen- ing local supply chains The use of agricultural trade policy tools in support of national aspirations for enhanced food security should be seen against the background of the need to strengthen the functioning of local food and agricultural supply chains. With moves towards increased trade liberalisation and the dismantling of commodity boards, Caribbean gov- ernments will need to adopt a more sophisticated approach to market regulation. This may need to focus on defining the broad regulatory frame- work and establishing forums for pro- ducers, retailers and traders to dis- cuss their respective needs and reach agreement on how best to contribute to enhanced national and regional food security. This suggests the need for a policy framework that focuses on: establishing a supportive trade framework which incentivises local procurement; supporting better organisation of producers and facilitating access to inputs and credit; supporting the establishment of commercially relevant production and demand information systems; strengthening the legal frame- work for contract negotiations and enforcement. ACP cooperation in promoting innovative use of local cereals in value- added products The decision by Diageo to develop local cereal supplies for its brewing opera- tions and the efforts of the BADMC to explore the technical possibilities for blending cassava flour into local bakery products parallel similar initia- tives across the ACP. They highlight the potential scope for pan-ACP coopera- tion on the technical, commercial and policy dimensions of promoting greater use of locally available cereals in the production of value-added food and drink products. Intensifying dialogue on the application of EU food safety and SPS standard The ongoing evolution of food safety and SPS regulations and their applica- tion highlights the need for collective mechanisms for dialogue and arbitra- tion over the application of SPS and food safety standards. The pending negotiations between the EU and US on standards to be applied under the Transatlantic Trade and Investment Partnership could take on particular significance in this regard if standing structures for dialogue and dispute resolution are established. The EU–US negotiations should be closely monitored by Caribbean exporters’ associations, with a view to extending beneficial provisions beyond the core EU–US relationship, includ- ing extending mutual recognition of approvals granted to third countries by the EU and US. This could serve to reduce the certification costs of Caribbean exporters seeking to serve both EU and US markets, and provide greater flexibility in responding to often divergent price trends. Wider lessons of addressing challenges in the poultry sector Given growing competition from neigh- bouring, globally competitive, poultry producers (Brazil and the USA), Car- ibbean governments face a cluster of particular challenges in the poultry sector. First, how to reconcile grow- ing consumer demand for low-cost protein with local poultry producers’ interests in maintaining high levels of tariff protection. Second, how to rec- oncile demand for cheap frozen poultry parts with food safety concerns aris- ing from shortcomings in the integrity of the cold-store chain. Third, how to reconcile the promotion of modern integrated poultry production facilities with the interests of established small and medium-sized poultry producers. Potentially, some lessons could be learnt from the EU experience of poul- try sector management and current EU initiatives to strengthen the function- ing of supply chains. Any experience gained in practically applying these les- sons in the poultry sector could then be extended to other sectors where similar challenges are faced (e.g., in the dairy sector). Executive brief: Update 2013 I 10http://agritrade.cta.int/ Caribbean: Agricultural trade policy debates and developments The implications of non- implementation of market access commitments The growing use of para-tariffs poten- tially throws up serious challenges, given the implications of commitments made to eliminate their use over the 2015–17 period. This comes on top of the current non-implementation of scheduled tariff reductions. How the EC responds to non-implementation of tariff commitments and the wider issue of the use of para-tariffs raises a number of questions: Will the EC seek arbitration on every national decision that appears to violate EPA commitments on para- tariffs, or only when some minimum level of trade is affected? Will the EC seek to impose equiva- lent sanctions in response, and if so, at what geographical level: nationally or regionally? Other ACP governments will need to monitor carefully the EC’s response to non-implementation of EPA commit- ments in the Caribbean. Main sources Caribbean trade policy 1. WTO, ‘Trade Policy Review: Trinidad and Tobago’, 7 and 9 March 2012 http://www.wto.org/english/tratop_e/tpr_e/tp360_e.htm 2. WTO, ‘Trade Policy Review: Suriname’, 10 and 12 June 2013 http://www.wto.org/english/tratop_e/tpr_e/tp382_e.htm 3. Jamaica Information Service (JIS), ‘Agriculture Ministry to pursue initiatives to reduce food import bill’, 16 April 2013 http://www.jis.gov.jm/news/list/33582 Food safety issues 4. US FDA, ‘Overview of the FSMA proposed rules on product safety standards and preventive controls for human food’, 2013 http://www.fda.gov/Food/guidanceregulation/FSMA/ucm334120.htm 5. PIP-COLEACP, ‘EU relaxes border controls on products imported from the Dominican Republic’, 15 June 2012 http://pip.coleacp.org/en/pip/23092-eu-relaxes-border-controls-products-imported- dominican-republic Trade relations 6. South Centre, ‘EU–ACP Economic Partnership Agreements: Current state of play’, Analytical Note, SC/TDP/AN/EPA/31, March 2013 http://www.southcentre.org/index.php?option=com_content&view=article&id=1947%3A eu-acp-economic-partnership-agreements-current-state-of-play&catid=101%3Aeconomic- partnership-agreements-epas&Itemid=67&lang=en 7. Commonwealth Secretariat/ODI, ‘The impact of EU bilateral trade agreements with third countries on the Caribbean rum sector’, by N. Cantore, J. Kennan and D.W. te Velde, final draft, October 2012 http://www.odi.org.uk/sites/odi.org.uk/files/odi-assets/publications-opinion-files/7883.pdf Executive brief: Update 2013 I 11http://agritrade.cta.int/ Caribbean: Agricultural trade policy debates and developments Technical Centre for Agricultural and Rural Cooperation (ACP—EU) PO Box 380 6700 AJ Wageningen The Netherlands Tel: +31 (0) 317 467 100 E-mail: cta@cta.int - www.cta.int The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint ACP—EU institution active in agricultural and rural development in African, Caribbean and Pacific (ACP) countries. Its mission is to advance food and nutritional security, increase prosperity and encourage sound natural resource management. It does this by providing access to information and knowledge, facilitating policy dialogue and strengthening the capacity of agricultural and rural development institutions and communities in ACP countries. About this update This brief was updated in October 2013 to reflect developments since October 2012. Other publications in this series and additional resources on ACP–EU agriculture and fisheries trade issues can be found online at http://agritrade.cta.int/. 8. CARICOM, ‘Statement at the conclusion of the 36th meeting of the Council for Trade and Economic Development’, 2–3 May 2013 http://www.caricom.org/jsp/pressreleases/press_releases_2013/36th_coted_statement.jsp Cocoa sector 9. University of Manchester, ‘Cocoa production in the Dominican Republic: Sustainability, chal- lenges and opportunities’, by A. Berlan and A. Bergés, March 2013 http://www.bwpi.manchester.ac.uk/research/ResearchProgrammes/businessfordevelopment/ DR-cocoa-production-exec-summary.pdf Sugar sector 10. JIS, ‘Agreement signed to sustain viability of sugar industry’, 8 May 2012 http://www.jis.gov.jm/news/leads/30508 http://agritrade.cta.int/ Central Africa: Agricultural trade policy debates and developments I 1 The countries of Central Africa – Came- roon, the Central African Republic (CAR), Chad, the Republic of Congo, Equato- rial Guinea and Gabon, all of which are members of the Economic and Monetary Community of Central Africa/CEMAC, plus the Democratic Republic of Congo (DRC) and São Tomé and Príncipe (STP) – have differentiated interests in the agri- cultural sector according to their levels of urbanisation, availability of agricultural land and level of oil wealth. In some countries, such as the CAR, Chad, the DRC and Equatorial Guinea, the popu- lation is mainly rural and employed in agriculture. In countries such as Gabon and São Tomé and Príncipe, agriculture provides jobs for only a small percent- age of the population. In between these lie countries such as Cameroon and the Republic of Congo, where agriculture remains of considerable importance, despite a trade focus on oil and other natural resources. A common feature in all of these countries is the insufficient level of local produc- tion to meet consumer needs. Although Cameroon is partly self-sufficient in basic foodstuffs, other countries depend heav- ily on imports. In recent years improve- ments in cereals production have been limited, with imports increasing and con- tinued food insecurity problems in CAR, DRC, Congo and in Chad especially. “The Central African region is poorly integrated economically, with very low regional trade flows – around 1.2% in 2010” While regional trade integration could help to improve the availability of food products and reduce dependence on extra-regional imports, the Central African region is poorly integrated economically, with very low regional trade flows (around 1.2% in 2010). Countries mainly trade with the EU (which accounts for 32% of the region’s trade), the USA (23%) and increasingly update October 2013 Central Africa: Agricultural trade policy debates and developments 1. Background and key issues 1. Background and key issues 2. Latest developments Agricultural trade: Developments in main extra-regional imports Agricultural trade: Development of main extra-regional exports Developments in CAADP and national policy implementation Developments in EPA and other FTA negotiations 3. Current policy debates and issues Getting to grips with underlying constraints Balancing the interests of local producers and foreign commercial interests Developing niche market opportunities Decision time on EPAs and implementation challenges Executive brief: Update 2013 I 2http://agritrade.cta.int/ Central Africa: Agricultural trade policy debates and developments with emerging economies (the larg- est of which is China, with 16%). This is despite the existence of two major regional integration processes. The CEMAC free trade area (FTA) has nominally been in force since 1998, and has more recently been moving towards a customs union, with the establishment of a four-band com- mon external tariff (CET) ranging from 5 to 30%. The Economic Community of Central African States (ECCAS) was estab- lished in 1983 and is composed of 10 states: the six CEMAC member states, plus DRC, STP, Angola and Burundi. However, both Angola and Burundi are involved in other regional integration processes – Angola nominally in the Southern African Development Com- munity (SADC) Trade Protocol and Burundi in the East African Commu- nity (EAC) Customs Union. Rwanda was originally also part of ECCAS, but withdrew in 2007 to concentrate on the EAC integration process. The ECCAS member countries have adopted a tariff reduction scheme for intra community trade which should in principle have come into effect between 2004 and 2007. However, the proposed tariff reductions, as well as other aspects of the ECCAS integration process, have not been implemented. No significant policy developments have taken place in this context in the course of 2012–13. In 2009 to 2011, some strategic pro- grammes were started with the aim of increasing regional trade. These included the CEMAC Regional Eco- nomic Programme for 2009–20, an ECCAS strategic plan called ‘Vision 2025’ and an African Union Regional Integration Strategy Paper for 2011–15. These programmes all identified the development of infrastructure and institutional capacity building as pri- ority areas for intervention. Given the ongoing Economic Partner- ship Agreement (EPA) negotiation pro- cess, which involves CEMAC countries as well as DRC and STP, there would appear to be a need to harmonise the CEMAC CET and even move towards an ECCAS CET. However, it would not be possible to include all nomi- nal ECCAS members, given the other regional engagements of some mem- bers (notably Burundi and Angola). Efforts are under way to harmonise national policies, including at the levels of CEMAC and ECCAS, with the adop- tion of regional programmes for food security (PRSAs – Programmes régio- naux de sécurité alimentaire). However, while some projects have been set up, full implementation has been delayed due to a lack of funding. ECCAS has also established a fund for agriculture, the FSRDA (Fonds spécial régional de développement agricole), to promote regional food security. Central African governments as well as regional institutions are engaged in the implementation of the Com- prehensive Africa Agricultural Devel- opment Programme (CAADP). None of the countries in the Central Africa region have yet reached the 10% target for budget allocations to the agricul- tural sector. However, in 2011/12, two countries set out their agricultural poli- cies in more detail. In December 2011, the government of the DRC adopted its first agricultural sector law, while the government of Gabon adopted a food security strategy, an agricul- tural growth policy and an agricultural investment programme. The regional EPA negotiation process has progressed slowly since 2003. The regional negotiations continue to be held back by differences of opin- ion on Central Africa’s market access offer to the EU and EPA-related adjust- ment support issues. It is feared that the liberalisation of trade with the EU could have major consequences for the already weak agricultural and agro-food sector in the region. This is a particular source of concern, given the increased policy focus on getting to grips with the region-wide challenge of food insecurity. Progress in improv- ing regional food security remains slow to date. “Progress in improving region- al food security remains slow to date” A bilateral interim EPA (IEPA) was con- cluded between the EU and Cameroon in December 2007, and signed and ratified. However, the government of Cameroon has not yet taken steps to implement commitments set out in the bilateral IEPA, given that such actions would carry regional implications. The establishment of 1 October 2014 as the firm deadline for completion of the EPA process, after which the cur- rent transitional duty-free, quota-free access to the EU market will lapse, is likely to require the government of Cameroon to review this position if no regional EPA can be concluded. The least developed countries (LDCs) of Central Africa continue to enjoy duty-free, quota-free access to the EU market on a non-reciprocal basis via the ‘Everything But Arms’ initiative, while the two non-LDCs, Gabon and Congo, currently trade under the EU’s standard Generalised System of Pref- erences (GSP) regime. Executive brief: Update 2013 I 3http://agritrade.cta.int/ Central Africa: Agricultural trade policy debates and developments Table 2: Cereals imports of Central African LIFDCs1 (’000 tonnes) 2010 2011 2012 20132 Cameroon 633 889 924 932 DRC 706 715 730 750 Congo 328 348 327 347 Chad 209 209 184 178 CAR 55 63 63 63 STP 18 18 17 17 Central African LIFDCs – total imports 1,949 2,242 2,245 2,287 Notes: 1. Gabon and Equatorial Guinea are not included, as they are not classified as LIFDCs; 2. Forecast. Sources: see Table 1 above. Table 1: Cereals production for selected countries in Central Africa 2008–2013 (’000 tonnes) 2008 2009 2010 2011 2012 Chad 1,800 1,600 3,200 1,700 3,700 Cameroon 1,600 1,600 1,900 1,800 1,800 CAR 0,200 0,200 0,200 0,200 0,200 Central Africa – total 5,200 4,900 7,000 5,500 7,400 Sources: figures drawn from FAO, ‘FAO GIEWS Crop Prospects and Food Situation’, vari- ous dates: February 2011: http://www.fao.org/docrep/013/al977e/al977e00.pdf; October 2012: http://www.fao.org/docrep/016/al992e/al992e00.pdf; December 2012: http://www.fao.org/docrep/017/al995e/al995e00.pdf; March 2013: http://www.fao.org/docrep/017/al998e/al998e.pdf 2. Latest developments Agricultural trade: Developments in main extra-regional imports Cereals production and trade trends Cereals production in Central Africa was boosted in 2012 by Chad more than doubling its production. As a result, Chad accounted for half of the region’s cereals production of 7.4 mil- lion tonnes. Production elsewhere in central Africa largely stagnated, with an overall decline of 2.6% in cereals production beyond Chad in 2012 com- pared to 2011 (see Table 1). 1.87% to 2.287 million tonnes is fore- cast for 2013. In Gabon, imports now account for almost 80% of consump- tion, while in Congo, this figure is 94%. Civil strife is an important contributing factor to food insecurity, including in Congo (refugees from the DRC), the CAR (refugees from Sudan) and the DRC (internally displaced persons). According to FAO assessments from May 2012, “the entire population of the CAR is food insecure”. The northern region of Cameroon also suffers from food insecurity resulting from floods and crop failure. As regards prices, the situation in 2012 was mixed: in Cameroon the food infla- tion rate remained stable and in Equa- torial Guinea even decreased, while in the CAR food prices increased signifi- cantly. In addition, given its high food import dependence, prices in Congo for staple foods rose sharply in 2012, a situation compounded by high levels of corruption (see Agritrade article ‘Rising food prices strengthen focus on pro- moting major investments in agriculture in Central Africa’, 24 February 2013). “Cereals imports from the EU to the region grew by 57% between 2008 and 2013” As regards cereals imports, the EU plays a major and growing role: between 2008 and 2013, regional cere- als imports from the EU grew by 57%, reaching almost 700,000 tonnes in 2012. In addition, EU-processed cereal products are increasingly in demand – imports from the EU of ‘preparations of cereals’ increased by 27% and of milling industry products by 88% over the same period. Central Africa now represents a major outlet for Euro- pean exports of products of the milling industry, accounting for 7.8% of total EU exports of this type. This production performance, coupled with a growing population (+2.5% per annum), is leading to increased imports of cereals (see Table 2). Imports into the Central African low-income food-deficit countries (LIFDCs) grew by 5.57% in 2012 to reach more than 2.245 mil- lion tonnes, while a further increase of Executive brief: Update 2013 I 4http://agritrade.cta.int/ Central Africa: Agricultural trade policy debates and developments Poultry production and trade trends Cameroon took a decision in 2006 to restrict poultry imports – those from the EU to Cameroon subsequently fell from 20,000 tonnes in 2004 to 246 tonnes in 2012. However, other coun- tries of the region have been targeted by major poultry exporters. The DRC’s poultry imports grew from 15,000 tonnes in 2000 to a forecast 75,000 tonnes in 2012 (+525%) (see Agritrade article ‘Poultry exports to Africa on the rise’, 9 December 2012). About half of these imports into the DRC come from the EU, which increased its volume exported to the DRC by 25% in 5 years. Other major outlets for EU exports in the region include Congo and Gabon, which have seen their imports from the EU grow by 39 and 106% respectively in the past 5 years. With Cameroon restricting imports and South Africa looking to raise tariffs towards WTO bound rates and intro- duce special agricultural safeguard measures against poultry imports from the EU, other Central African countries could well become a growing focus of interest to poultry meat exporters from the EU and Brazil. “Central African countries could well become a grow- ing focus of interest to poultry meat exporters” This could then undermine efforts to promote local poultry production in the region (see Agritrade articles ‘Strong growth in Brazilian poultry exports to Africa’, 29 July 2012, ‘EU poultry exports increasingly focused on Africa’, 4 November 2012. These developments highlight the rele- vance of coordinating and harmonising trade and agricultural policies in Central Africa, if safeguarding domestic pro- duction in one country is not to be at the expense of neighbouring countries. It should be noted, however, that the impact of Cameroon’s restrictive trade policy on domestic poultry production remains unclear. In 2012, the country’s production, at 48,000 tonnes, was still 32,000 tonnes short of domestic consumption requirements, and the country introduced ad hoc import waivers and quotas. This production shortfall has been attributed to ris- ing feed costs, linked to rising global maize prices. This situation highlights the importance of linking import con- trols to sustained programmes that will develop local feed supplies and also improve animal health in order to boost productivity. Rice and sugar production devel- opments in Cameroon In the 1970s, Cameroon’s domestic rice production covered about 80% of domestic consumption, however, by 2011 it met only 20%. In the last 8 years, rice imports have averaged around 450,000 tonnes, with a peak in 2007 of 727,266 tonnes. In 2011, rice imports counted for about 25% of the food import bill. A number of factors impede efficient domestic rice produc- tion. These include: access to inputs; finance a low degree of mechanisation; a lack of producer organisation. The efficient linking up of production areas in the north of the country with markets in the south is also a chal- lenge. These factors result in a major part of northern rice production being exported and processed in Nigeria, where prices are higher and where the road infrastructure facilitates marketing. A rice trade into the CAR and Chad also exists. There is also a marked consumer preference for imported rice based on both price and quality. “There is a marked consumer preference in Cameroon for imported rice – based on both price and quality” In 2009, Cameroon launched its National Strategy for the Development of Rice Production, with the aim of con- taining the growth in rice imports. The aim was to increase rice production from 72,000 tonnes to 627,250 tonnes by 2018. In April 2013, an interim objec- tive of 256,000 tonnes was set for 2015. The strategy includes: providing some support for inputs; settling farmers in new and existing production areas; strengthening the organisation of farmers; promoting professionalisation of growers; providing support for processing and marketing. More recent initiatives include: the acquisition by the government of two rice millers in the north of the country at the end of 2012; the launch at the beginning of 2013 of a programme to develop 970 hec- tares of irrigated rice production in the west of the country. Similar challenges are faced in Cam- eroon’s sugar sector, where production falls short of domestic demand. How- ever, a major investment initiative aimed at increasing production by 50% and Executive brief: Update 2013 I 5http://agritrade.cta.int/ Central Africa: Agricultural trade policy debates and developments reducing imports has been announced (see Agritrade article ‘Cameroon looking to expand sugar production’, 1 October 2012). This initiative needs to be seen against the background of growing domestic demand as well as increased demand for sugar from neighbouring countries, such as Chad, Gabon and the DRC. The growing demand serves to exacerbate the challenge of reducing overall levels of sugar imports. Agricultural trade: Development of main extra-regional exports Developments in the cocoa industry in Cameroon: Focus on quality and value addition During the 2011/12 season, Cameroon exported 180,000 tonnes of cocoa, down from 200,083 tonnes in the previous season, due to a prolonged dry season and attacks by pests and diseases. Following a decision by the Netherlands – which imports 70% of Cameroon’s cocoa output – to import only certified cocoa from 2020, widespread efforts are in progress in the country to ensure that its cocoa beans comply with inter- national sustainability standards. “Widespread efforts are in pro- gress in Cameroon to ensure that its cocoa beans comply with international sustainability standards” In the Lekié Department, 400 produc- ers have been trained in food safety and good agricultural practices, and were awarded UTZ certification in Feb- ruary 2013. The chocolate company Barry Callebaut is also supporting five cooperatives in the Central region, some 1,000 producers, to enable these producers to secure Rainforest Alliance certification. Efforts are also under way to encourage the formation of stronger producer organisations and reduce abusive practices by traders (see Agritrade article ‘Cocoa moving ahead but challenges remain high’, 24 February 2013). In the cocoa and coffee sectors, pro- ducers are working to add value to production in country. Currently, only one factory – with a capacity of 30,000 tonnes – processes cocoa beans. However, in February 2013 the Italian company Imsofer announced plans to build a factory with the capacity to pro- cess Cameroon’s entire cocoa harvest, as well as parts of the coffee and tea harvests. There have also been reports that the Moroccan company La Com- pagnie Chérifienne de Chocolaterie is planning to set up a facility with capac- ity to process 40,000 tonnes. In a further attempt to boost local cocoa processing, in June 2012 the government of Cameroon announced plans for legislation to introduce an export tax on raw cocoa beans. How- ever, progress in this direction has not yet been confirmed. Export opportunities on niche markets Some products from the region have attributes suitable for the development of niche marketing strategies. This is the case for high-quality coffee from Kivu in the DRC, the production and export of which is being supported by the UK Food Retail Industry Challenge Fund (see Agritrade article ‘High-qual- ity coffee potential of eastern Congo being explored’, 18 February 2013). It is also the case for pepper and honey in Cameroon, where support has been received from the French Development Agency to register some products under a Protected Geographic Indica- tion scheme. This recognises special features of the products in question and protects the use of the registered name. Such processes potentially facilitate niche marketing, opening up opportu- nities to secure premium prices. How- ever, simple registration is not enough, and concerted and sustained market- ing strategies need to be developed in order to deliver shelf-ready products to niche market retailers. Recovery in regional cotton production In the CAR, after the dramatic decline in cotton production from 1997, pro- duction levels recovered slightly in 2008 and have stabilised since 2010, at a level of 20,000 (480-lb) bales. A partnership agreement signed with China in August 2012 could, however, give a boost to cotton production, as the setting up of cotton ginning infra- structure – machinery to separate the fibres from the seeds – is planned within the framework of the agreement. In Chad, after record production lows in 2009, cotton output is recovering, and reached 200,000 bales in 2012. A recovery is also under way in Cam- eroon, with production levels reaching 460,000 bales in the same year. As a result, the cotton company Sodecoton is recording good results, with good prospects forecast for 2013. Declining Cameroonian banana exports “Cameroon’s banana exports to the EU have declined by 23% since 2008” Apart from the traditional Carib- bean banana exporters, many ACP banana exporters have not yet been adversely affected by the improved access to the EU market granted to Latin America banana exporters (see Agritrade article EU reviews banana trade amid ACP concerns over prefer- ence erosion, 9 July 2012). However, Executive brief: Update 2013 I 6http://agritrade.cta.int/ Central Africa: Agricultural trade policy debates and developments Cameroon’s banana exports to the EU have declined by 23% since 2008, and the country’s share of the EU banana market has fallen from 5.6 to 4.7%. In May 2012, the EU approved support to Cameroon worth €48 million (FCFA 31 billion) under the EU banana sector accompanying measures programme. In April 2013, the EU launched a call for projects from Cameroonian des- sert banana producers to the value of €6 million. Figure 1: Cameroon’s banana exports to the EU and share of the EU market 2008 2009 2010 2011 2012 200,000 220,000 240,000 260,000 280,000 300,000 0% 2% 1% 3% 4% 5% 6% Exports to the EU in tonnes (left axis) Market share on the EU market (right axis) Source: Eurostat Major investments in palm oil plantations In Cameroon and Gabon, major invest- ments are being made in palm oil plan- tations. In Cameroon, the US company Herakles Farms is developing produc- tion on 70,000 hectares of land at a cost of $US350 million. In Gabon, the Singaporean company Olam is plan- ning to grow palm oil over an area of 50,000–100,000 ha, within the framework of a joint venture with the government. The plan in Gabon is for production to be certified as sustain- able under Round Table on Sustainable Palm Oil (RSPO) criteria, while in Cam- eroon Herakles Farms has withdrawn from the RSPO certification scheme, following criticism from environmental NGOs of the social and environmental impacts of its planned investments. In addition, investments have been made in Cameroon to improve oil pro- cessing activities in the country: an oil mill has been installed in Cameroon’s Centre region, aimed at reducing the current domestic shortfall of 150,000 tonnes of palm oil compared to con- sumption. This project is being sup- ported under the APROCOM-PH pro- gramme to improve productivity and competitiveness in the palm oil industry in West and Central Africa, funded by the Common Fund for Commodities, the government of Cameroon, the UN Industrial Development Organization and the National Syndicate of Oil Palm Producers of Cameroon and Nigeria. Developments in CAADP and national policy implementation CAADP implementation moving at regional level At the regional level, ECCAS launched its CAADP process in May 2012 and is now working to complete the process. On 16–18 April 2013, an ECCAS regional workshop was held with PROPAC, a regional platform of farmers’ organisations, to review the region’s draft common agricultural policy and ‘roadmap’ for the develop- ment of national agricultural invest- ments plans (NAIPs). The objective of the workshop was to ratify the text of the region’s common agricultural pol- icy, as well as other regional priority programmes, and to establish guide- lines for the implementation, monitoring and evaluation of regional agricultural policy commitments. ECCAS aims to conclude national CAADP compacts and NAIPs in 2013, and the Regional Agricultural Investment Plan (RAIP) in the same year. According to a presentation at the workshop, all countries are engaged in national CAADP processes, but are not at the same stage. The DRC and the CAR have formulated their invest- ment programmes, while others are still in their launch/pre-compact phases. Efforts are being made to enhance the participation of producer organi- sations in the CAADP process: in April 2012, ECCAS and PROPAC signed a partnership agreement with the aim of more extensively involving farmers and processors in the CAADP process in Central Africa. In this respect, the New Partnership for Africa’s Develop- ment (NEPAD), the European Centre for Development Policy Management (ECDPM) and other partners have advocated the greater involvement of Executive brief: Update 2013 I 7http://agritrade.cta.int/ Central Africa: Agricultural trade policy debates and developments producer organisations in decision- making bodies and meetings, includ- ing in the preparatory phase of CAADP programmes. Developments toward a common sanitary and phytosanitary/food safety policy At CEMAC level, an Interstate Com- mittee of Pesticides in Central Africa (CPAC) was established in 2012 to facil- itate approval of plant protection prod- ucts for use across CEMAC member states. This is to facilitate the develop- ment of regional agricultural production in line with international standards. The initiative needs to be seen in the light of increasingly strict controls related to pesticide residues and the grow- ing problem of fraudulent pesticides, which could increasingly undermine the development of regional exports to markets such as the EU (see Agritrade article ‘Regional pesticide registration scheme launched in Central Africa’, 9 September 2012). Developments in national agricultural policies While agriculture has not always been a priority for Central African governments, a number of programmes and projects are emerging that focus on develop- ing agricultural production, including in Cameroon, Congo, the DRC and Gabon. The DRC adopted its first agricultural law at the end of 2011. It then devel- oped a NAIP under the CAADP frame- work, with ratification of the NAIP in March 2013. The NAIP defines the priority areas in line with the required budget. However, only 11.5% of the tar- get budget amount is available (accord- ing to Lavoixdupaysancongolais.com in April 2013), and the remaining 88.5%, some US$4.8 billion, still needs to be secured. Significantly, in a memoran- dum addressed to the government, the DRC’s national association of agri- cultural producers (Conapac) noted that only 1.75% of the 2013 budget is allocated to agriculture – in spite of the agreed NAIP – representing only a slight increase compared to the 2011 alloca- tion of 1.37% of the national budget. In parallel, a grant of US$68.4 million has been provided by the International Fund for Agricultural Development for a 10-year programme of support to the supply of staple food and horticultural products in the Kinshasa region (PAPA- KIN – total project cost US$114.9 mil- lion). This programme aims to enable producer organisations to provide their members with “improved access to technical and economical services for activities related to production, pro- cessing and marketing of horticultural products”. “The Republic of Congo is renewing its policy emphasis on revitalising local agricultural production” Following high food price inflation in 2012, the Republic of Congo is renew- ing its policy emphasis on revitalising local agricultural production with the aim of reducing food imports (see Agritrade article ‘Rising food prices strengthen focus on promoting major investments in agriculture in Central Africa’, 24 February 2013). In the same vein, in April 2013 Cam- eroon launched a 3-year plan to boost economic growth, with a particular focus on staple agricultural products (rice, plantains, cassava, meat and poultry). The aim is to increase pro- duction in order to: improve food security and increase incomes; win new local regional and interna- tional markets; reduce food imports. In early 2012, the Cameroon govern- ment launched a programme, ‘Agro- poles’, aimed at promoting medium and large enterprises in rural areas through “support to the elaboration, funding and sustainable management” of projects. In Gabon, in December 2012, the gov- ernment announced its intention to increase the share of the agricultural sector as a proportion of GDP from its current 1% to 15% by 2020. The focus is on cash crops (palm oil, soya, sugar, maize, rubber, coffee and cocoa), with ambitious plans to attract foreign investment through large-scale land leases. For palm oil alone, the objec- tive is to reach production of 250,000 tonnes by 2020. Developments in EPA and other FTA negotiations Regional EPA negotiations developments According to the South Centre’s review of the state of play in EPA negotiations, published in March 2013, the last meet- ing of European and Central African negotiators took place from 26 to 30 September 2011 in the Central Afri- can Republic. At this meeting, “mar- ket access, rules of origin, services and investment, cultural cooperation, accompanying measures such as development cooperation, and fiscal impact” were discussed. The outstand- ing contentious issues related to the Central Africa market access offer and support for EPA-related development assistance. At the time of the meeting, efforts were under way to develop a regional programme of EPA accom- panying measures (PRADA). After the meeting, it was expected that the Cen- tral Africa EPA group would propose a new market access offer on the basis Executive brief: Update 2013 I 8http://agritrade.cta.int/ Central Africa: Agricultural trade policy debates and developments of the EC’s proposal that several addi- tional tariff lines be added, liberalising trade in those areas. Analysis from the South Centre assess- ing the impact of the existing Cen- tral African tariff elimination offer on domestic production found that there is local production that falls under 913 tariff lines in the areas to be liberalised, and that the EU is more competitive in 772 of these lines – some 84.6% of the areas where Central Africa has a current production interest. “Local production could be at risk if liberalisation takes place in line with current proposals” The South Centre concluded that local production “could be at risk” if liberali- sation took place on this basis. These products include a range of processed agricultural products. At the regional level, a meeting of the Permanent Secretariat of the Regional EPA Committee (composed of ECCAS and CEMAC technical officials) was held from 13 to 17 February 2012, with the aim of getting an agreement on a draft negotiating programme. At the ACP level, in December 2012, the ACP Sipopo Declaration recalled some basic principles to be applied to the remaining EPA negotiations, and the need for the EU to adopt a more flexible approach to negotiations and take into account the development needs of ACP states (see Agritrade article ‘Position of ACP heads of state and governments on the EPA negotia- tions’, 27 January 2013). Cameroon to implement EPA by October 2014 or lose preferential market access After considerable discussion and a trilateral dialogue between the EC, European Council and European Parlia- ment to resolve divergent positions, 1 October 2014 has been established as the final deadline for completion of EPA negotiation processes with ACP coun- tries (see Agritrade article ‘EU Council reaffirms its commitment to January 2014 deadline for completion of EPAs’, 13 January 2013 and ‘European Parlia- ment set to endorse “trilogue” 1 Octo- ber 2014 deadline for completion of EPA process’, 6 April 2013). After 1 October 2014, the current tran- sitional duty-free, quota-free access to the EU market will lapse. Therefore, unless the EPA process is concluded at the Central African regional level or bilaterally by Cameroon, through the implementation of its agreed IEPA commitments, Cameroon’s current duty-free, quota-free access to the EU market will lapse. This would result in the reimposition of tariffs on imports from Cameroon, with Cameroonian exporters needing to pay an estimated €49.86 million in import tariffs for their goods to enter the EU market. It would primarily affect banana exporters, pro- foundly exacerbating an already dif- ficult market situation. Other FTA negotiations According to a government press release, Equatorial Guinea has been in discussions with Turkey for a number of years regarding a free trade agree- ment, with the latest meeting held at the end of April 2013. According to Turkey, similar FTA agreements are being sought with Cameroon and the DRC in Central Africa, and with a range of other ACP countries (e.g. Ghana, Seychelles and South Africa). Turkey has already concluded an FTA agree- ment with Mauritius, which entered into effect on 1 June 2013. 3. Current policy debates and issues Getting to grips with un- derlying constraints A critical issue in intra-regional trade in agro-food products in Central Africa relates to the need to boost national agricultural and agro-food sector production. A critical issue is the need to boost national agricultural and agro-food sector production” Without increased national produc- tion, the scope for intra-regional trade in originating agro-food products will remain limited. The ongoing CAADP process, if it takes root nationally and is reflected in national budgetary alloca- tions, could contribute to this objective. The second key area for action relates to closing the gap between nominal policy commitments and day-to-day trade practice across borders. Here again, the regional CAADP process could contribute to closing the gap. As elsewhere, getting to grips with unof- ficial barriers to trade and constraints on the efficient operation of transport services could potentially reduce the losses within agricultural supply chains resulting from these shortcomings, and enhance the net value of agricultural production retained by farmers. Balancing the interests of local producers and foreign commercial interests In Central Africa, a number of the coun- tries have ambitious plans to develop Executive brief: Update 2013 I 9http://agritrade.cta.int/ Central Africa: Agricultural trade policy debates and developments agricultural production via the mobilisa- tion of foreign investment, in exchange for large-scale land leases. This raises issues in relation to local land rights and to market acceptability of certain products. The issues include the grow- ing demand for sustainability certifi- cation for cocoa and palm oil used in food products in developed country markets, and concerns regarding these types of large-scale investment (e.g. the withdrawal of the US company Her- akles Farms from the RSPO scheme). While at present this market com- ponent is small, the scale of various corporate commitments make clear that it is likely to grow significantly in coming years. Developing niche market opportunities For producers to secure the price premiums potentially available under geographical indications (GI) schemes, efforts to secure GI protection for spe- ciality products from Central Africa will need to be backed up by: the establishment and enforcement of quality standards established under GI schemes; the development and implementa- tion of targeted marketing strategies; investments in improved packaging. These constitute an area for further ‘aid for trade’ support, building on existing initiatives. Decision time on EPAs and implementation challenges Given the impasse in regional EPA negotiations, with a firm date set when transitional market access arrange- ments will lapse (1 October 2014), the government of Cameroon will need to take a clear decision on whether to implement its signed and ratified IEPA, despite its reservations over the implications for the integrity of the CEMAC CET. Given the limited level of intra-regional trade, the bilateral application of the Cameroon–EU EPA may pose little threat of intra-regional trade disruption. “The bilateral application of the Cameroon–EU EPA may pose little threat of intra-regional trade disruption” It could, however, disrupt specific agro- food sectors. These areas will need to be carefully identified and reviewed in order to find pragmatic solutions to minimise the undermining of the CEMAC CET around non-Cameroonian markets. In this context, it should be borne in mind that the EU plays a major and growing role in Central African imports of cereals, cereal products and poultry meat (although restrictions on poul- try meat imports into Cameroon are currently in place). This suggests a particular need to coordinate trade and agricultural policies in Central Africa in these sectors, in order to avoid any disruption of national sector development plans as a result of IEPA implementation. An additional area of concern relates to proposals advanced in June 2012 to apply an export tax to exports of raw cocoa beans as a means of promot- ing greater local processing prior to export. This could potentially fall foul of Article 15 of the EU–Central Africa IEPA covering ‘elimination of customs duties on exports’. The Article stipu- lates that “No new customs duties on exports shall be introduced in trade between the Parties, nor shall those already applied be increased, as of the date of this Agreement’s entry into force”, except in “cases of seri- ous public finance problem or the need for greater environmental protection”. This provision would require any such export tax measures to be set in place before the date of entry into force of the agreement. Main sources 1. FAO, ‘Crop prospects and food situation’, Global Information and Early Warning System on Food and Agriculture, March 2013 http://www.fao.org/docrep/017/al998e/al998e.pdf 2. US Department of Agriculture, ‘2013: Exporting to Cameroon’, GAIN Report, 14 March 2013 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/2013%20Exporting%20to%20 Cameroon%20_Lagos_Cameroon_3-13-2013.pdf Executive brief: Update 2013 I 10http://agritrade.cta.int/ Central Africa: Agricultural trade policy debates and developments 3. Hub Rural, ‘Atelier Régional CEEAC/PROPAC pour l’examen du projet de Politique Agricole Commune et des priorités d’investissements du PRIASAN dans le cadre du processus PDDAA en Afrique Centrale, 16-18 avril 2013 à Douala (Cameroun)’, 18 April 2013 http://www.hubrural.org/Atelier-Regional-CEEAC-PROPAC-pour.html?lang=fr 4. European Centre for Development Policy Management (ECDPM), ‘Central African farmers gear up to influence future agricultural policy in their region’, Talking Points blog, 9 August 2013 http://www.ecdpm-talkingpoints.org/central-african-farmers-influence-future-agricultural- policy/ 5. This is Africa, ‘Gabon agriculture – 15% of GDP By 2020’, interview with Gabon’s Minister of Agriculture, 19 December 2012 http://allafrica.com/stories/201212201135.html?viewall=1 6. South Centre, ‘EU-ACP Economic partnership agreements: Current state of play’, Analytical Note, March 2013 http://www.southcentre.org/index.php?option=com_content&view=article&id=1947%3A eu-acp-economic-partnership-agreements-current-state-of-play&catid=101%3Aeconomic- partnership-agreements-epas&Itemid=67&lang=en 7. South Centre, ‘The EPAs and risks for Africa: Local production and regional trade’, Analytical Note, June 2012 http://www.southcentre.org/index.php?option=com_content&view=article&id=1748%3At he-epas-and-risks-for-africa-local-production-and-regional-trade&catid=101%3Aeconomic- partnership-agreements-epas&Itemid=67&lang=en 8. Official Journal of the European Union, ‘Interim agreement with a view to an Economic Part- nership Agreement between the European Community and its Member States, of the one part, and the Central Africa Party, of the other part’, L57/2, 28 February 2009 http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:057:0002:0360:EN:PDF 9. ACP Group of States, ‘Proposal for a regulation of the European Parliament and of the Council amending Annex I to Council Regulation (EC) No 1528/2007 as regards the exclusion of a number of countries from the list of regions or states which have concluded negotiations’, COM(2011) 598 final, 30 September 2011 http://www.ipex.eu/IPEXL-WEB/dossier/dossier.do?code=COD&year=2011&number=0260 About this update This brief was updated in October 2013 to reflect developments since October 2012. Other publications in this series and additional resources on ACP–EU agriculture and fisheries trade issues can be found online at http://agritrade.cta.int/. Technical Centre for Agricultural and Rural Cooperation (ACP—EU) PO Box 380 6700 AJ Wageningen The Netherlands Tel: +31 (0) 317 467 100 E-mail: cta@cta.int - www.cta.int The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint ACP—EU institution active in agricultural and rural development in African, Caribbean and Pacific (ACP) countries. Its mission is to advance food and nutritional security, increase prosperity and encourage sound natural resource management. It does this by providing access to information and knowledge, facilitating policy dialogue and strengthening the capacity of agricultural and rural development institutions and communities in ACP countries. http://agritrade.cta.int/ Cereals sector I 1 High and volatile cereal prices remain a major concern to ACP governments, even in regions where the correlation between global and local prices is weak. This is generating a growing focus on improving national food self-sufficiency: producing more of what the nation consumes and consuming more of what the nation pro- duces. High prices affect both access to basic staples and the competitiveness of commercial livestock (largely poultry) production. Measures to enhance national food pro- duction can run counter to both intra- regional and inter-regional trade policy commitments. National policy meas- ures can compound existing infrastruc- ture constraints on efficient production, storage, distribution and processing of cereals products for regional markets. Divergent national standards, concerns over standards enforcement, a lack of transparency in regional cereals trade arrangements and non-transparent appli- cation of regional trade agreements (e.g. corruption at border posts) can all further impede the development of intra-regional trade in cereals. Taken together, these factors can con- tribute to an extra-regional orientation to cereals procurement and marketing, and undermine the building of intra-regional cereals supply chains. Although efforts continue to overcome these constraints, a major challenge is faced in reconciling diverse national pol- icy initiatives with regional cereals market integration efforts. At the EU level, a managed trade regime is maintained in the cereals sector, designed to protect internal EU markets from lower-priced world market compe- tition. While the structure of EU support payments has been transformed since 1992, the nominal value of support per hectare for EU cereal farmers remains update September 2013 Cereals sector 1. Background and key issues 1. Background and key issues 2. Latest developments Global cereals sector developments Developments in the EU cereals sector Biofuels and the cereals sector Developments in West and Central Africa Developments in Southern and Eastern Africa Developments in the Caribbean and the Pacific 3. Implications for the ACP The role of tariff policy in cereals sector development Strengthening cereals supply chains Improving national and regional market information systems Getting to grips with standards harmonisation Assessing policy measures in support of backward linkages in the cereals sector Closing the gap between informal and formal trade flows © CIAT Executive brief: Update 2013 I 2http://agritrade.cta.int/ Cereals sector largely unchanged. Policy reforms have generated a greater market orientation and equipped EU producers to take advantage of rising global demand. EU biofuel policies have had an impact on the relative commercial attractive- ness of cereals and oil crops to EU farmers. In this context any changes to EU biofuel policies could influence farmers’ sowing decisions. EU biofuel policies, however, are of far less global significance in the cereals sector than those of the US. Overall the EU continues to operate a policy framework that sustains EU cereals production at higher levels than would otherwise be the case. This, in an era of rising global prices, may help reduce global price pressures. 2. Latest developments Global cereals sector developments Maize prices rose sharply in the middle of 2012, increasing by 24.6% between June and July on the back of a severe drought in the USA. From August 2012 prices began to fall, and by March 2013 were on a par with those of March 2012. Subsequently price falls have been followed by a price recovery, but on an overall downward trend. From June to November 2012 aver- age monthly wheat prices rose by 39%, before falling some 14% in the period to February 2013. This, nevertheless, left prices in February 2013 some 26% above February 2012 price lev- els. Since February 2013, wheat prices have continued to fall, and this trend is projected to continue throughout 2013 following a 2% increase in sowings. Wheat prices will, however, remain at historically high levels, as wheat inventories fall “to their lowest levels since 2007–08” (see Agritrade article ‘Prospects for wheat prices in 2013’, 24 February 2013). For major cereals, price volatility will therefore continue to occur around elevated price levels. While coordination through the G20 Agricultural Market Information Sys- tem (AMIS) appears to have reduced panic responses to weather-induced shortfalls, curbing price increases (see Agritrade article ‘Early success claimed for G20 AMIS initiative and interna- tional coordination’, 18 February 2013), average price levels from July 2012 to February 2013 still exceeded the peak prices recorded in June 2008. High price levels in 2012 were reported to have contributed to a process of “demand destruction” in some market components, with an 11.8% decline of cereals use in the US biofuel sector in 2012. Nevertheless, Rabobank main- tains that 2013–14 will still witness the “largest ever year-on-year increase in world corn demand”, which will leave the global stocks-to-use ratio “sub- stantially below the 10-year average of 17.2%, with little prospect of recovery” (see Agritrade article ‘Prospects for maize prices in 2013’, 18 March 2013). This carries important implications for ACP countries that remain vulner- able to global price shocks. Accord- ing to the UN’s Food and Agriculture Organization (FAO), since 2002, 12 further ACP countries have shifted from being net food exporters to net food importers. High wheat prices are likely to heav- ily affect major wheat importing ACP countries, such as Nigeria, giving added importance to cassava flour blending policies. Initiatives to promote the use of cassava flour appear to be gaining momentum in smaller ACP states as well, with trials to test pos- sible uses of cassava flour in bakery products scheduled in Barbados. Overall, Rabobank has warned that food prices could reach “new record highs in 2013”, with the global economy entering a period of agriculture-related price inflation, which accounts for why “food security remains a highly sensi- tive issue in many regions” (see Agri- trade article ‘Rabobank warns higher food prices likely in 2013’, 28 October 2012). Because of this type of prog- nosis, the heads of the FAO and the World Trade Organization (WTO) called on governments to “refrain from panic buying or export restrictions”. Developments in the EU cereals sector An EC-financed evaluation of cereals sector reforms since 2003 highlighted the changes and continuity in the EU policy framework. Since 2003, farm payments have been largely decou- pled from production, and intervention buying no longer supports EU market prices. “The EU retained a range of border measures in its cereals trade regime to protect the in- ternal market from lower priced world market imports, while meeting consumer needs” But the EU continues to use interven- tion buying as a ‘safety net’ measure and retains the right to use export refunds (although they have not been used in the cereals sector since 2008). The main point of policy continuity is the cereals trade regime, where the EU retained a range of border meas- ures, including variable import tariffs and product specific tariff-rate quotas, in order to “protect the internal mar- ket from lower priced world market imports”, while meeting consumer Executive brief: Update 2013 I 3http://agritrade.cta.int/ Cereals sector needs (see Agritrade article ‘Impact of reforms on the EU cereals sector’, 12 May 2013). However, according to an EC evalua- tion of cereals sector measures applied under the CAP, while the structure of support payments to cereal farmers has been “radically altered”, “the nomi- nal value of coupled plus decoupled aids per hectare [has] barely changed”. Given higher world market prices, sup- port payments now make a lower con- tribution to cereals farmers’ incomes. Despite relatively high global com- modity prices, “there are still mem- ber states in which… producers, on average, would have earned very low incomes if coupled and decoupled aids had not been provided.” This suggests that EU cereals sector policies con- tinue to maintain EU cereals produc- tion at higher levels than would be the case in the absence of such support measures. The decisions concerning post- reform EU farmers’ production have responded more to “international price signals” than patterns of common agri- cultural policy (CAP) support. Some- what unexpectedly, policy reforms have led to greater price volatility on the EU than world cereals markets, resulting in processors, traders and producers all making greater use of price risk management tools. Also consequent to the reforms, there has been a con- siderable reduction in EU imports of cereal substitutes for the animal feed sector (−70%). In terms of the external effects of reform, the evaluation notes that “the decision not to offer export refunds helped to overcome the constraints on subsidised exports under the WTO and this generated a rise in the share of EU net exports in total world cereals exports.” “The EU’s share of total world exports of wheat and flour rose from 5.2% to 7.7% from pre to post reform” Indeed, “the EU’s share of total world exports of wheat and flour rose from 5.2% to 7.7% from pre to post reform”, with the EU increasing its share of imports into sub-Saharan Africa. Biofuels and the cereals sector Growing pressure to review the EU bio- fuel mandate could carry implications for the cereals sector. “Pressure to review the EU biofuel mandate could carry implications for the cereals sector” EU biofuel mandates, for example, have seen a 26% increase in the area under oil crops, as well as the expan- sion of German silage maize output for biogas (using 11% of the entire German usable agricultural area). In September 2012, the heads of FAO, the International Fund for Agricultural Development (IFAD) and the World Food Programme (WFP) called for adjustments to the use of food crops in biofuels production. Private sector business leaders have supported this call. Also in September, the French government urged for “a pause in the development of biofuels competing with food”, and the establishment of a 7% cap on the use of crop-based biofuels. This would be consistent with moves in the EC to “impose a limit on the use of crop-based biofuels”. In October 2012, EC proposals called for an end to “all public subsidies for crop-based biofuels after 2020”. This would see the use of rapeseed and wheat limited to 5% of total energy consumption in the EU transport sec- tor, with greater emphasis on increas- ing “the share of advanced non-land- using biofuels”. The EU biofuel industry has criticised EC proposals, maintaining that EU bio- fuel policies have little effect on global cereals prices (in contrast to US poli- cies), since relatively little is used in the biofuel industry. Illustrating this point, the 2012/13 high cereals prices resulted in a contraction in the use of US coarse grains for biofuel production by a quantity in excess of total annual EU cereals used in bioenergy produc- tion. Nevertheless, any review of the EU biofuel mandate could hinder the projected expansion of EU cereals use in biofuel production. Developments in West and Central Africa The regional cereals situation In March 2013, FAO projected aver- age to above average production in the Central African region’s two main cereals producers – Cameroon and the Central African Republic (CAR) – but with overall regional production in line with production in 2011. Thus, “the bulk of the national cereal utilization require- ment” was imported into Gabon and the Republic of the Congo. “In West Africa, food security has improved significantly – cereals production rose by 12.9% in 2012” In West Africa, “the overall food secu- rity situation has improved signifi- cantly”, with a 12.9% increase in cere- als production in 2012. Developments in individual countries, however, varied. Although, prices remained high in some areas, overall coarse grain prices were falling, given “inter-regional restrictions on commodity movements”. Executive brief: Update 2013 I 4http://agritrade.cta.int/ Cereals sector Gross cereals production for the 2012/13 season in the Sahel and West Africa was estimated at 54.6 million tonnes, a 16% annual increase and 1% above the 5-year average. Table 1: Coarse grain production in Western and Central Africa (’000 tonnes) 2010 2011 2012 (est.) Western Africa 47,600 42,000 47,400 Central Africa 3,300 3,200 3,200 Source: FAO, Crop Prospects and Food Situation, No. 1, March 2013 Table 2: Cereal import position of low-income, food-deficit countries in Central and Western Africa (’000 tonnes) 2011/12 or 2012 (Actual imports) Total import requirements 2012/13 or 2013 Western Africa 14,718 14,145 Central Africa 2,061 2,109 Source: FAO, Crop Prospects and Food Situation, No. 1, March 2013 Getting to grips with constraints on regional cereals trade “Intra-regional cereals trade in ECOWAS is significantly below the region’s potential” Analysis published by the World Bank suggests that the intra-regional cereals trade in the Economic Community of West African States (ECOWAS) is sig- nificantly below the region’s potential, with most imports of national cereals being sourced from outside the region (97% of maize, 79% of sorghum and 62% of millet). Maize production is increasingly considered commercially viable, with a 30% increase last season compared to the 5-year average. Similar intra-regional trade problems exist in crop inputs, where national reg- ulations continue to take precedence over regional agreements. It is thought that constraints on regional input pro- curement and trade are increasing the cost of inputs and hence restricting yield improvements. This is despite ECOWAS Trade Liberalisation Scheme (ETLS) commitments on both trade in cereals and production inputs. It is maintained that potential large-scale buyers and traders face major prob- lems in securing the necessary permits and certificates to source regionally. This raises the costs of intra-regional cereals trade, making regional sourcing uncompetitive. The World Bank-published policy note identified a number of potential areas for remedial action. These included: strengthening trade liberalisation at the operational level by a) abandoning or establishing greater transparency in the use of seasonal export bans; b) promoting greater transparency in export and import licence regimes; c) dismantling transit charges; d) removing illicit roadblocks and combatting corruption by border officials; promoting greater harmonisation of core sanitary and phytosanitary standards (SPS) and food safety standards, and dispensing with additional core standards for trade in cereals; clarifying and publicising the relevant origin requirements under the ETLS. Given the fundamental nature of many of these challenges, in the short term the focus may need to be on help- ing traders to cope better with these constraints (similar recommendations came out from the ECOWAS/USAID cross-border trade conference held in Accra in January 2013). USAID and the World Bank supported the ‘Border- less Initiative’, an important project in this regard (see Agritrade article ‘Con- straints on regional cereals trade in West Africa reviewed’, 12 May 2013). Differing approaches to national cereals sector development Developments in 2012–13 highlighted the differing national approaches to promoting cereals sector development in West Africa. “Developments in 2012–13 highlighted the differing na- tional approaches to promoting cereals sector development in West Africa” Analysis of Benin’s cereals sector pub- lished by the US Department of Agri- culture (USDA) in January 2013 high- lighted Benin’s policy commitment to promoting an expansion of agricultural production, following the 2008 food price crisis. Extensive government sup- Executive brief: Update 2013 I 5http://agritrade.cta.int/ Cereals sector port is provided to the production and marketing of cereals, through free seed distribution, the provision of subsidised fertilisers, and the buying and storing of maize through government agencies. Nevertheless, it is estimated that some 30% of coarse grain production is lost post-harvest. In line with Comprehen- sive Africa Agriculture Development Programme (CAADP) objectives, some 11.8% of the national budget is devoted to agriculture but with cotton continu- ing to play a dominant role. These poli- cies, implemented with donor support, have resulted in increased cereals pro- duction (maize +12.2%, and sorghum +45.8% since the 2010/11 season). Government policy seeks to establish Benin as a major exporter of grain by 2025. In the north of Benin, it is esti- mated that half of domestic maize pro- duction is exported to Niger and Mali, while in the south, Nigerian traders push up local maize prices. Therefore, in certain regions of the country, pri- vate-sector-based intra-regional trade already takes place, raising questions over the distribution of the costs and benefits of Benin’s cereals production support programmes. In neighbouring Nigeria in 2012–13, significant policy developments took place in support of efforts to reduce the national wheat import bill. Along- side traditional input subsidy pro- grammes, tariff measures were being implemented to promote the blending of cassava flour with wheat flour in the bakery sector. In July 2012 the Nigerian government announced: a reduction in the duty on cassava- enhancing enzymes from 10% to zero; the imposition of an additional 15% duty on imported wheat, increasing the duty to 20%; the imposition of a 65% levy on wheat flour, taking the effective duty to 100%; the granting of duty-free access for machinery and equipment required for cassava processing and blending. In addition, the government is importing large-scale cassava processing facto- ries from China to boost local process- ing. The aim is to achieve 10% blending of cassava flour with wheat flour by July 2013, increasing to 40% by 2015. How- ever, the immediate effect has been a 20% increase in wheat flour prices. The use of large tariff increases to promote local production is a growing feature of Nigerian agricultural policy. Yet USDA maintains that stakeholders are reluctant to engage with the gov- ernment blending initiative, in view of “past negative experiences” with simi- lar policy initiatives (see Agritrade arti- cle ‘Debate on cassava flour in bread intensifies in Nigeria’, 6 August 2012). In the same vein, press reports high- light the serious challenges of retool- ing, retraining and adoption of new processing techniques faced across the bakery sector. While Nigeria is the world’s largest cas- sava producer, aspirations to expand domestic use of cassava in the bakery sector could potentially run into conflict with the launching of export initiatives for cassava and cassava products. In August 2012, exports were announced of 1.1 million tonnes of cassava chips to China, as well as contracts for the supply of 500,000 tonnes of cassava annually to Australia. This raises the issue of the appropriate market focus for Nigerian efforts to develop its cassava sector (see Agritrade article ‘Questions raised over Nigeria’s cas- sava blending and wheat tariff policy’, 18 November 2012), as well as broach- ing questions related to the role of tariff policy in promoting and sustaining an expanded national cereals production. In September 2012, IFAD reported on a third approach to promoting cere- als sector development adopted in West Africa, namely efforts in Sen- egal to promote the use of forward sales contracts between millet pro- ducers and processors and traders, to strengthen the functioning of cere- als supply chains. The aim of forward contracts like these is to reduce price uncertainties and to increase on-farm investment, through improving access to credit (see Agritrade article ‘Sales contract signing organised to help cereal producers to secure outlets in Senegal’, 28 October 2012). This approach of sales contracts for purchase of future crops, however, may require a strengthening of the legal and institutional framework for contract enforcement. If successful, forward contracting arrangements will be extended to a range of other cere- als, taking into account the specificities of individual supply chains. While many governments recognise the importance of strengthening the functioning of cereals supply chains, the infrastruc- ture required for efficient functioning of national and regional supply chains is not always present. Developments in Southern and Eastern Africa The regional cereals situation According to FAO, in Southern Africa, the prospects for the 2013 cereal harvest are “generally satisfactory”, although an outbreak of army worm is threatening production in some regions. Overall, yields are expected to increase, except in drought or flood affected areas, where acute price pres- sures are emerging. Executive brief: Update 2013 I 6http://agritrade.cta.int/ Cereals sector “In Southern and Eastern Africa, prospects for the 2013 cereal harvest are generally satisfactory” In response to high maize prices, South Africa is set to expand its planting by 3%, with a forecast total maize pro- duction of 13 million tonnes. Following poorly distributed rains, a lower harvest is expected in Namibia, after a bumper harvest in the previous season. In Eastern Africa a similar picture pre- vails, with average to above average production, but with considerable vari- ation between countries. Harvest pros- pects are particularly critical in Kenya (where a maize lethal necrosis outbreak is causing concern) and parts of Ethio- pia. However, the overall food security situation in Eastern Africa is seen to be improving, with cereals production at near record levels – around 12.4% above the 5-year average. The longer-term trend across the East African Community (EAC) is for cere- als production to increase faster than population growth. “The longer-term trend across the EAC is for cereals produc- tion to increase faster than population growth” However, the EAC policy environ- ment is not considered conducive to expanding maize production beyond regional maize consumption needs, given the very limited export opportuni- ties in the context of competition from lower-cost producers such as South Africa (see Agritrade article ‘Maize pro- duction and trade issues in the EAC’, 16 September 2012). Table 3: Aggregated national cereals production in Southern and Eastern Africa (’000 tonnes) Wheat Coarse grains 2010 2011 2012 2010 2011 2012 Southern Africa 1,700 2,300 2,300 26,400 25,000 24,300 Eastern Africa 4,100 4,000 4,300 34,800 32,200 34,900 Source: FAO, Crop Prospects and Food Situation, No. 1, March 2013 In Zambia, while maize stocks are high after consecutive bumper harvests, the “on–off” export ban (introduced in September 2012 and lifted in March 2013) and high-level of government purchases have been disruptive of the development of private-sector-based regional maize supply chains. Following the lifting of the export ban, the gov- ernment-to-government negotiations to sell maize to Zimbabwe did little to foster the development of private sector supply chains. The difficulties faced in importing Zambian maize at the begin- ning of 2013 did, however, lead to a questioning of the Zimbabwean govern- ment’s import restrictions on genetically modified (GM) maize (see Agritrade arti- cle ‘Temporary export bans and GMO policies complicate Zimbabwe maize procurement’, 26 May 2013). Genetically modified organism and standards obstacles to regional trade Although South Africa produces a large maize surplus, exports are increasingly oriented to serving overseas markets (see Agritrade article ‘South Africa’s export profile complicates regional food security situation in Eastern and Southern Africa’, 2 December 2012). This reflects four factors: recent high global prices; shortages in major export markets (Mexico); regional tariff policies; divergent national policies on GM maize. “The treatment of GM maize remains a key policy issue in Southern and Eastern Africa” The issue of the treatment of GM maize, which often requires cost- inflating special import arrangements, remains a key policy issue in Southern and Eastern Africa, given the growing role that GM seed is playing in South African production (some 72% of pro- duction in the 2011/12 season). Closely linked to the genetically modi- fied organism (GMO) debate is the wider issue of products standards Table 4: Aggregated cereal import position of low-income food- deficit countries in Southern and Eastern Africa (’000 tonnes) Actual imports 2011/12 or 2012 Total import requirements 2012/13 or 2013 Southern Africa 2,508 2,346 East Africa 8,183 7,987 Source: FAO, Crop Prospects and Food Situation, No. 1, March 2013 Executive brief: Update 2013 I 7http://agritrade.cta.int/ Cereals sector harmonisation in the cereals sector. Divergent product standards represent an important non-tariff barrier to trade. According to the findings of a survey of cross-border trade carried out by the Eastern Africa Grain Council (EAGC), “the high quality thresholds, tedious documentation and open corruption at official border crossing points” routinely block the movement of “cheap foodstuff from surplus areas to deficit regions”. Even where all requirements are ful- filled, traders complain delays still occur, despite the EAC being a cus- toms union. The establishment and enforcement of common food safety and food quality standards remain problematical and continue to consti- tute major barriers to trade (see Agri- trade article ‘Balancing food safety and regional trade in the Eastern and Southern Africa’, 31 March 2012). Against this background, efforts con- tinue to establish and implement com- mon standards at the level of the EAC and the Common Market for Eastern and Southern Africa (COMESA), with the challenge looming of harmonising standards at the level of the impending wider tripartite free-trade area (T-FTA) of the EAC, COMESA and the South- ern African Development Community (SADC). Efforts are under way at the COMESA level to: establish an early warning system for contaminated grain to enhance food safety and facilitate regional trade in grain; promote the establishment of mutu- ally recognised national quality assurance certification schemes. Harmonised sampling and laboratory procedures in food safety analysis are required to underpin mutual recogni- tion. However, since implementation remains the responsibility of the mem- ber state, progress is uneven and it is unclear how quickly harmonised analy- sis can be achieved. This is not simply a technical question. It has important commercial dimen- sions. Divergent standards protect and promote different national inter- ests. Against this background, analy- sis from the World Bank has cau- tioned against mandatory standards that reach beyond essential SPS and human health issues, since these might result in high costs and systematically discriminate against smallholder farm- ers. The analysis favoured the estab- lishment of reference standards that provide a basis for commercial trans- actions between buyers and sellers (with SPS and public health issues being dealt with on a mandatory basis through general regulations). If mecha- nisms to ensure the transparent appli- cation of regional reference standards can be established, this is a more cost- effective means of increasing trade. Export bans, market information systems and investment Questions arise regarding the sustaina- bility of Zambia’s and Malawi’s growing role in the regional grain trade, given the role played by government-financed input subsidy and subsidised public purchase programmes. “The periodic use of export bans undermines the develop- ment of regional supply chains and investment in commercial maize production” The periodic use of export bans also undermines the development of regional supply chains and investment in com- mercial maize production, without deliv- ering any benefits in terms of reduced consumer prices (see Agritrade article ‘Agricultural export bans hit farmers’, 20 May 2012). National government practices and use of export bans also raise the issue of the potential for using more market-based tools to manage national and regional maize markets. Since the end of 2011, increased attention has been paid in South Africa to improve the transpar- ency of maize markets (see Agritrade interview with Jannie de Villiers, ‘The South African cereals sector: Recent developments and future challenges’, 9 July 2012). Similar systems to provide transparent data on the wider regional market situation are considered neces- sary, with the EAGC launching a num- ber of related initiatives (see Agritrade interview with Gerald Masila, Executive Director of the EAGC, ‘The East African cereals sector: Recent developments and future challenges’, 12 August 2012). However, according to Mr Masila, “a key building block of a structured trad- ing system includes a proper legislative environment and clear policies for the whole value chain.” If accurate and transparent regional cereals market information systems could be established with region-wide coverage (for example, building on the existing Regional Agricultural Trade Information Network in East Africa), this could reduce the pressures for on–off export bans. These systems would enhance the development of efficient intra-regional supply chains, helping to reduce price differences across the region and potentially strengthening the negotiating position of primary produc- ers within supply chains. Improving the functioning of supply chains The scope for strengthening the func- tioning of supply chains is illustrated by recent developments in Ethiopia in Executive brief: Update 2013 I 8http://agritrade.cta.int/ Cereals sector the durum wheat sector. A project has been launched to facilitate direct nego- tiations between durum wheat farming cooperatives and wheat processors, against a backdrop of efforts to boost production and storage capacity. Sig- nificantly, as part of this programme, efforts are being made to establish local contract farming of improved seed varieties to facilitate the expan- sion of the initiative. Given a growing consumer preference for wheat-based products, enormous potential exists for expanding local wheat production. With contracts being negotiated in order to establish refer- ence prices and quality premiums, this should lead to a solid commercial base for the expansion of local wheat pro- duction (see Agritrade article ‘Strength- ening supply chains could boost cereals production in Ethiopia’, 26 May 2013). Defining limits to the use of trade policy tools At the end of June 2012, a debate emerged on the role of tariff protec- tion in facilitating the re-establishment of wheat production in Zimbabwe. The chairperson of the Grain Millers Asso- ciation of Zimbabwe (GMAZ) called for wheat import tariffs to be reviewed to promote the re-establishment of wheat production in Zimbabwe. In 2011, how- ever, Zimbabwe produced less than 10% of national wheat consumption needs. In neighbouring Namibia, where local wheat production also constitutes a relatively small part of national con- sumption (18%), seasonal trade meas- ures are in place that allow local mar- kets to be cleared before imports are resumed. These measures are consist- ent with the provisions of the Southern African Customs Union (SACU) agree- ment and the national “controlled prod- ucts” policy framework, which is trans- parently applied. The right to continue to apply such measures has been one of the contentious issues in the ongo- ing SADC–EU economic partnership agreement (EPA) negotiations. In Zimbabwe, however, it is unclear whether the bilateral safeguard provi- sions (Article 21) of the EU–Eastern and Southern Africa (ESA) EPA agreement could be applied to support the re- establishment of industries that have largely disappeared. Issues also arise with regard to regional trade policy commitments in the COMESA and SADC contexts. Reaching agreement on the permitted use of trade policy tools in the cereals sector is likely to prove as controversial as the ongoing negotiations on rules of origin: at the SADC/COMESA level, a 35% value-addition rule is applied in a context where wheat grain consti- tutes about 90% of the value of wheat flour (see Agritrade article ‘Zimbabwe wheat flour tariff being questioned’, 12 August 2012). Developing backward linkages Efforts are in place across Africa and elsewhere in the ACP to develop back- ward linkages from the livestock and value-added food products sectors to local cereals production. SABMiller, the world’s second largest brewer, has initiatives under way to use locally produced cereals in the beer sector in Zambia, Uganda, Mozambique and most recently Ghana. While this forms part of SABMiller’s market development strategy aimed at bringing consumers of informal beer into the commercial market, it is also reducing imports and encouraging potentially important back- ward linkages and technological innova- tions (e.g. the development of mobile cassava processing units to undertake field level processing). These techno- logical developments could potentially have far wider applicability (see Agri- trade article ‘Developing local cereals supplies for value-added products’, 9 December 2012). With similar ini- tiatives across the ACP, considerable scope exists for pan-ACP coopera- tion at both the technological level and the policy level in ensuring the cost- effective implementation of strategies to develop backwards linkages to the cereals sector. Developments in the Caribbean and the Pacific Cereals production and recent developments in the Caribbean Maize is grown in most territories for domestic consumption across the Caribbean community (CARICOM), the main producers being Haiti (USDA esti- mated production of 250,000 tonnes), Belize (around 45,000 tonnes), the Dominican Republic (around 40,000 tonnes), Guyana (around 5,000 tonnes) and Jamaica (around 2,000 tonnes). Maize has been identified as an impor- tant crop for enhanced food security in the Caribbean region. “Maize has been identified as an important crop for enhanced food security in the Caribbean region” Efforts are under way to boost maize production in Belize for regional poultry feed markets: press reports suggest a 25% expansion of the area under maize in 2011. In addition to the existing trade with Jamaica, in 2012 an active trade was initiated between Belize and Guyana, which has encouraged fur- ther investments in maize production in Belize. Meanwhile, the company Jamai- can Broilers, in association with the Jamaican government, has reportedly launched an initiative to expand its own Executive brief: Update 2013 I 9http://agritrade.cta.int/ Cereals sector maize production. However, earlier similar initiatives proved unsuccessful. A commercial agreement was launched in Jamaica in 2012–13 between Red Stripe and farmers to grow cassava and sorghum to replace barley in local beer production. This builds on similar initiatives in Africa by Diageo, the own- ers of Red Stripe. Red Stripe expects to replace between 15 and 20% of its barley use with cassava and sorghum by 2014, with the aim of reaching 70% by 2020. In neighbouring Barbados, the Barba- dos Agricultural Development and Mar- keting Corporation is exploring a range of market opportunities for expanding cassava flour production and use in local bakery products. Export opportu- nities for cassava products in Canada are also being explored. Cereals production and recent developments in the Pacific Pacific island countries (PICs) remain between 90 and 100% dependent on cereals imports, with only limited pro- duction of cassava and similar crops. “The long-term trend is to- wards increased dependence on cereals imports for most Pacific island countries” The long-term trend is towards increased dependence on cereals imports for most PICs, as population increases and consumption patterns change. This leaves PICs particularly vulnerable to rising global cereals prices, with “increasing numbers of vul- nerable families… resorting to subsist- ence agriculture, gardening and fishing when possible to supplement food and income”. Government policy responses in most PICs are reportedly “limited to price control and tariff exemption”. UNICEF has called for a more “pro- duction oriented policy intervention” targeting the rural poor. However, such initiatives in most PICs are likely to have only a marginal focus on the cereals sector, given the predominance of root and tuber production. 3. Implications for the ACP The role of tarif f policy in cereals sector develop- ment Current experiences and debates in Africa suggest a need for a more nuanced approach to the use of tariffs in support of cereals sector develop- ment, in many ways similar to that of the EU. Tariffs need to be consist- ent with current production realities and commercially viable produc- tion potential. The use of tariffs and non-tariff measures (such as import restrictions or export bans) needs to be predictable and transparent if on- farm investment is to be encouraged, while minimising price increases and disruptions to regional cereal supply chains. But this requires the retention of the policy space so that the EU’s example – of the nuanced and flex- ible deployment of trade policy tools in support of cereals sector develop- ment – can be followed. Strengthening cereals supply chains Initiatives are being launched across Africa to strengthen the functioning of cereal supply chains. This involves establishing more direct contacts between producers and end users, to ensure pre-determined minimum pay- ment levels and improve cereal quality. The aim is to reduce price uncertainty for producers and encourage greater on-farm investment. Policy initiatives to strengthen the func- tioning of supply chains would appear to be an essential complement to exist- ing input subsidy schemes, which have boosted cereals production across Africa. Potentially a review of the compara- tive experience of different schemes could help strengthen national cereals policy formulation across the ACP. It is particularly important in the area of contract law and mechanisms for the effective enforcement of contractual commitments, a particular problem for forward contracting with smallholder producers for staple foods. Improving national and regional market informa- tion systems Improving national and regional mar- ket information systems dealing with supply, demand and price trends – if coupled with policy and institutional reforms to facilitate trade and targeted programmes of investment in transport and storage infrastructure – could pro- mote the development of more efficient regional supply chains and enhance regional cereals self-sufficiency. However, coordinating and harmo- nising existing initiatives could pose challenges. This suggests a need for a review of existing initiatives (not only in the cereals sector but also other rel- evant experiences) to establish best practices under private and public schemes, and the underlying basis for harmonisation. Getting to grips with standards harmonisation According to analysis from the World Bank, the establishment of reference standards to facilitate private-sector- based trade in cereals may offer the most cost-effective way forward in Executive brief: Update 2013 I 10http://agritrade.cta.int/ Cereals sector Main sources Global 1. Food and Agriculture Organization of the United Nations (FAO), Crop Prospects and Food Situation, No. 1, March 2013 http://www.fao.org/docrep/017/al998e/al998e.pdf 2. Indexmundi.com, ‘Maize (corn), US no. 2 yellow, FOB Gulf of Mexico, US price, US dollars per metric ton’ http://www.indexmundi.com/commodities/?commodity=corn&months=60 3. Indexmundi.com, ‘Wheat (US), no. 2, soft red winter, export price delivered at the US Gulf port for prompt or 30 days shipment – US dollars per metric ton’ http://www.indexmundi.com/commodities/?commodity=soft-red-winter-wheat&months=60 4. International Centre for Trade and Sustanable Development (ICTSD), ‘Net food-importing developing countries: Who they are, and policy options for global price volatility’, by A. Valdés and W. Foster, 23 August 2012 http://ictsd.org/i/trade-and-sustainable-development-agenda/142563/ EU 5. European Commission (EC) Directorate-General (DG) for Agriculture and Rural Development, ‘Evaluation of measures applied under the common agricultural policy to the cereals sector, final report, December 2012’, by LMC International, December 2012 http://ec.europa.eu/agriculture/evaluation/market-and-income-reports/2012/cereals-2012/ fulltext_en.pdf cereals sector standards harmonisa- tion. It would, however, need to be based on harmonised mandatory SPS and food safety regulations, and a strengthening of national verification and enforcement capacities, since – in the absence of mutual confidence – national governments are likely to con- tinue to insist on a national verification of standards compliance. In this context, serious challenges are faced in building up and sustaining the technical capacities for standards verification and enforcement agencies, with shortcomings in this area under- mining the national implementation of regional policy commitments. Assessing policy measures in support of backward linkages in the cereals sector From Nigeria to Mozambique, govern- ment policy measures have been set in place to promote backward linkages, which range from the use of increased tariffs to compel cassava blending to excise duty rebates to subsidise pro- cessors while local supply chains are being developed. There would appear to be a need to monitor and evalu- ate the relative effectiveness of such schemes in achieving stated policy objectives, and to foster a process of sharing of experiences and innovations, in order to reduce external dependence on increasingly high-priced and volatile global markets. There would also appear to be scope for a pan-ACP dialogue on cassava blending policies to reduce national wheat import bills. Closing the gap between informal and formal trade flows As the Benin experience illustrates, informal trade is often ahead of for- mal trade aspirations. The challenge faced is how to build on existing infor- mal cross-border trade to meet national aspirations for enhanced intra-regional cereals trade. Critical to this is getting to grips with the many cost-increas- ing barriers to cross-border trade that exist in various ACP regions. Initia- tives such as the Borderless Initiative in West Africa, the COMESA “simpli- fied trade regime” programme (which now includes a text messaging service for reporting barriers to cross-border trade) and the ongoing efforts of the Eastern Africa Grain Council all repre- sent important progress in this area. The progress needs to be subject to periodic review of best practices, so that gains can be consolidated and replicated across other regions. Executive brief: Update 2013 I 11http://agritrade.cta.int/ Cereals sector Technical Centre for Agricultural and Rural Cooperation (ACP—EU) PO Box 380 6700 AJ Wageningen The Netherlands Tel: +31 (0) 317 467 100 E-mail: cta@cta.int - www.cta.int The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint ACP—EU institution active in agricultural and rural development in African, Caribbean and Pacific (ACP) countries. Its mission is to advance food and nutritional security, increase prosperity and encourage sound natural resource management. It does this by providing access to information and knowledge, facilitating policy dialogue and strengthening the capacity of agricultural and rural development institutions and communities in ACP countries. 6. EC DG Agriculture and Rural Development, ‘Prospects for agricultural markets and income in the EU 2012–¬¬¬2020’, full report, December 2012 http://ec.europa.eu/agriculture/evaluation/market-and-income-reports/2012/cereals-2012/ fulltext_en.pdf 7. EC, ‘Proposal … amending Directive 98/70/EC relating to the quality of petrol and diesel fu- els and amending Directive 2009/28/EC on the promotion of the use of energy from renewable sources’, COM(2012) 595 final, 17 October 2012 http://ec.europa.eu/clima/policies/transport/fuel/docs/com_2012_595_en.pdf West and Central Africa 8. US Department of Agriculture (USDA), ‘Nigeria introduces levy on wheat grain imports’, GAIN Report, 31 August 2012 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Nigeria%20Introduces%20 Levy%20on%20Wheat%20Grain%20_Lagos_Nigeria_8-31-2012.pdf 9. International Fund for Agricultural Development (IFAD), ‘Projet d’appui aux filières agricoles’, agricultural value chains support project, web page http://www.fidafrique.net/rubrique1066.html 10. USDA, ‘Benin coarse grains and rice report’, GAIN Report, 29 January 2013 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Benin%20Coarse%20Grains%20 and%20Rice%20Report%20_Lagos_Benin_1-29-2013.pdf Southern and Eastern Africa 11. USDA, ‘South Africa grain and feed annual’, GAIN Report, 25 March 2013 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Grain%20and%20Feed%20An- nual_Pretoria_South%20Africa%20-%20Republic%20of_3-25-2013.pdf 12. USDA, ‘East African region corn report’, GAIN Report, 21 June 2012 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/East%20African%20Region%20 Corn%20Report_Nairobi_Kenya_6-21-2012.pdf About this update This brief was updated in September 2013 to reflect developments since August 2012. Other publications in this series and additional resources on ACP–EU agriculture and fisheries trade issues can be found online at http://agritrade.cta.int/. http://agritrade.cta.int/ Cocoa sector I 1 ACP producers are global leaders in cocoa production, which is concentrated in West and Central Africa, with fine/fla- voured cocoa also being produced in the Caribbean and Pacific. While there are ambitious plans to develop cocoa production in non-ACP countries, these are unlikely to challenge the dominant role played by ACP producers in the short term. Average cocoa prices showed a recovery in the first 9 months of 2012, before fall- ing back by February 2013 to price levels slightly below those prevailing in Decem- ber 2011, some 36.7% below the Febru- ary 2011 peaks. While political conflict in Côte d’Ivoire and subsequent uncertain- ties linked to domestic reform policies might have helped support prices, the stabilisation of international cocoa prices, which was expected following the imple- mentation of Ivorian cocoa reforms, has not yet occurred. Although corporate actors are concerned over long-term cocoa supplies, this has not been reflected by higher, more sta- ble prices. Since 2007, price volatility has been pronounced, albeit around higher average price levels. Serious challenges are faced in stimulat- ing investment in new cocoa plantations, improving tree management strategies and attracting young farmers into the cocoa sector. A growing range of public– private partnerships are being launched to try to meet these challenges. Issues of environmental and social sus- tainability – particularly the elimination of child labour – are still high on the agenda. It is unclear whether these issues will be backed by regulatory requirements. In the fisheries sector, the EU is formulating regulatory reforms which will link access to the EU market for fisheries products with certified compliance to environmen- tal and social standards. These regulatory update October 2013 Cocoa sector 1. Background and key issues 1. Background and key issues 2. Latest developments Global demand, production and price developments in 2012/13 EU policy developments and the cocoa sector Emerging trends and issues in the cocoa sector Developments in the West and Central African cocoa sectors in 2012/13 Developments in the Caribbean and Pacific cocoa sectors 3. Implications for the ACP Getting to grips with ensuring markets provide sustainable net incomes to cocoa farmers Getting to grips with stricter food safety and sanitary and phytosanitary standards Strengthening the functioning of internal cocoa supply chains in Africa Building on growing Asian demand Developing pan-ACP cooperation in marketing strategies for fine cocoa Executive brief: Update 2013 I 2http://agritrade.cta.int/ Cocoa sector developments warrant close scrutiny, given their potential wider application to the agricultural sector (e.g. moves towards certification of production methods as being free of child labour as a prerequisite for market access). Demand for sustainably produced cocoa is rising. However, the distribu- tion of costs and benefits of sustain- ability certification along supply chains has not yet been addressed. This is complicated by the multiplication of certification schemes and a question- ing of the rigour of traceability pro- cesses applied (e.g. whether fair-trade produced cocoa actually ends up in chocolate bars certified as fair-trade). ACP producers will need to stay on top of these trends by developing opera- tional strategies to address underlying concerns. Efforts continue to expand cocoa grindings in West and Central Africa, with a range of corporate investments taking place in support of these efforts. However, an additional area of con- cern relates to EU regulations on cad- mium levels in cocoa and chocolate products. One key policy challenge relates to future strategies to support the reposi- tioning of ACP producers within global cocoa value chains in response to shifting patterns of global demand for cocoa products. For fine/flavoured cocoa producers in the Caribbean and the Pacific, efforts are under way to develop closer rela- tionships between producers and end users. This raises issues regarding the future role of commodity boards, with pragmatic solutions apparently emerg- ing in some countries, while regulatory reforms are in motion. In the Caribbean, there is a need to reconcile the push towards strengthen- ing commercial relations with existing end users, and with wider efforts to promote greater local value-added pro- cessing of cocoa into final consumer products. In the Pacific, however, the focus is on targeting expanding pre- mium-priced cocoa market compo- nents that are more resilient to eco- nomic downturns. 2. Latest developments Global demand, produc- tion and price develop- ments in 2012/13 Demand The slow and negative growth in demand in the main global markets for cocoa (US and EU) has only partly been compensated by the emerging markets’ rising demand for cocoa products, which continued to grow throughout 2012 (see Table 1). The demand in Europe for high-value, high- cocoa-content chocolate has been particularly hard hit by the economic downturn. Table 1: Cocoa world market situation (’000 tonnes) 2011/12 2012/13* Percentage change (%) Previous est. Revised est. World production 4,052 4,075 4,003 −1.80 World grindings 3,921 3,948 4,008 1.50 Surplus/deficit 90 86 −45 End of season stocks 1,864 1,838 1,793 −2.40 Stocks/grinding ratio (%) 47.5 46.6 44.7 Note: * Forecast Source: ICCO, ‘Quarterly bulletin of statistics’, 28 February 2013 In 2012, European (EU and Switzerland) cocoa grindings fell by 10.3% as pro- cessors drew on stocks, in response to weakening consumer demand. Accord- ing to the European Cocoa Association, cocoa grindings in the first quarter of 2013 declined by 3.9% compared to 2012, representing the fifth consecu- tive decline in quarterly grindings. In the US meanwhile, grindings in 2012 were stagnant compared to 2011. Because grinders have stocks in 2011/12, the International Cocoa Organization (ICCO) expects grindings in 2012/13 to grow globally by 1.5% to 4,008,000 tonnes, compared to 3,948,000 tonnes in 2011/12 (a Reuters poll suggests a 2 to 2.5% increase). Executive brief: Update 2013 I 3http://agritrade.cta.int/ Cocoa sector Figures from the US National Con- fectioners’ Association (NCA) – which includes figures from the US, Canada and Mexico – showed a surprising 6% increase in grindings in the first quar- ter of 2013, well above initial trade esti- mates of a 1% increase. (4) This sug- gests that the corner may have been turned in terms of demand. However, while ICCO projects a 2.3% increase of Asian grindings in 2012/13, grind- ings according to the Cocoa Associa- tion of Asia dropped by some 10.8% to 140,062 tonnes, the lowest level since records began in 2011. Production According to ICCO, after a very large surplus in 2010/11 (333,000 tonnes) and a much smaller surplus in 2011/12 (86,000 tonnes), there is likely to be a supply deficit of 45,000 tonnes in 2012/13, with global production slightly down from last year, at 4,003,000 tonnes. However, weather conditions are improving in West Africa, and some traders (Cargill) expect a balanced crop year, while others (such as Olam) pro- ject a small surplus. “A global supply deficit of 45,000 tonnes has been fore- cast for 2012/13” The 2012/13 cocoa crop year started off in September with the world cocoa markets fearing the impact of cocoa sector reforms in Côte d’Ivoire. Accu- sations of failures in input supply arrangements established by the new regulatory body, Caisse Café Cacao (CCC), coupled with a dry spell, led to suggestions of a possible 15% decline in Ivoirian cocoa production. However, the main crop reportedly gained momentum in December–Janu- ary and favourable weather led to an upward revision of estimates to levels above the average of the past 5 years. Forecasts for 2012/13 production are, therefore, just 1% below estimated pro- duction levels in 2011/12 and only 2.7% below those of 2010/11. Exports of raw cocoa beans from Côte d’Ivoire totalled 756,052 tonnes for the main crop (October 2012 to March 2013), very similar to the previous sea- son’s export volume. In Ghana, the world’s second largest producer, output is expected to dip to 820,000 tonnes in 2012/13 as a result of poor weather-related factors (down 6.7% on 2011/12 and down 18.4% on the high level of production in 2010/11). However, the Ghana Cocoa Board – Table 2: Production of cocoa beans 2011/12 2011/12 est. 2012/13 f. ’000 t % ’000 t % ’000 t % Africa 3,226 74.8 2,905 71.4 2,796 69.7 Cameroon 229 5.3 207 5.1 210 5.2 Côte d’Ivoire 1,511 35.0 1 486 36.5 1 470 36.7 Ghana 1,025 23.8 879 21.6 820 20.5 Nigeria 240 5.6 230 5.6 210 5.2 Other 221 5.1 104 2.6 86 2.1 Americas 562 13.0 639 15.7 644 16.0 Brazil 200 4.6 220 5.4 230 5.7 Ecuador 161 3.7 190 4.7 190 4.7 Others 201 4.7 229 5.6 224 5.6 Asia and Oceania 527 12.2 531 13.0 563 14.0 Indonesia 440 10.2 450 11.0 475 11.9 Papua New Guinea 48 1.1 45 1.1 45 1.1 Others 39 0.9 36 0.9 43 1.0 World total 4,314 100 4,075 100 4,003 100 Note: Totals and percentages reflect rounding in the source document. Source: ICCO, ‘Quarterly bulletin of statistics’, 28 February 2013 Executive brief: Update 2013 I 4http://agritrade.cta.int/ Cocoa sector known as Cocobod – forecasts a pro- duction of 850,000 tonnes for 2013/14. “There is increasing interest in developing cocoa production in non-ACP countries” Looking beyond West Africa, amid con- cerns over future supplies of cocoa in the face of growing and shifting pat- terns of demand, there is increasing interest in developing cocoa production in non-ACP countries, particularly Indo- nesia, where production is forecast to increase by 10% in 2012/13 to 500,000 tonnes. However, Indonesian exports of cocoa beans are projected to drop from 130,000 to 100,000 tonnes as a result of the increased domestic cocoa grindings. In March 2013, the 22 members of the Cocoa Sustainability Partnership launched an ambitious programme for Indonesia: to triple cocoa output to 1,500,000 tonnes by 2020, a pro- duction expansion equivalent to 25% of current global demand. However, despite a government-backed invest- ment programme worth US$350 mil- lion, disease outbreaks and adverse weather have hampered these efforts. Nevertheless, Indonesia has been able to attract investment from companies such as Barry Callebaut, including the establishment of a joint-venture cocoa processing facility in Makassar, which is expected to come on stream in 2013, and the purchase in December 2012 of a cocoa business of the Singaporean group, Petra Foods. This forms part of a broader cocoa supply diversification and market repositioning strategy in light of growing Asian demand. Similarly, in October 2012, Cargill extended its sustainable cocoa pro- gramme to Indonesia’s South Sulawesi Province in response to increas- ing demand for cocoa across Asia. This followed the July 2011 launch of Nestlé’s Cocoa Plan in Indonesia, aimed at boosting production. Time will tell how successful these efforts will be in supplementing and even replacing cocoa production in West Africa. “China’s imports of cocoa/ cocoa products increased by 350% and India’s by 570% be- tween 2002/03 and 2010/11” Between 2002/03 and 2010/11, imports of cocoa and cocoa products in China and India increased by 350 and 570% respectively. However, this occurred on the basis of extremely low levels of per capita consumption (0.038 and 0.027kg/head in China and India respectively), suggesting that enor- mous growth potential remains. While consumption of cocoa products in China is growing in the coastal areas, the challenge is to extend this inland. Companies such as Mars are actively trying to promote this development. More broadly, Ecuador and Peru have experienced strong growth in produc- tion in the past few years. ICCO esti- mates that production in 2011/12 in Ecuador and Peru grew by 61 and 79% to 190,000 tonnes and 58,200 tonnes respectively, although bad weather conditions are affecting production in the 2012/13 season. Significantly, Ecuador exports approximately 65% of the global supply of fine/flavoured cocoa, and is a major competitor for Caribbean and Pacific cocoa produc- ers seeking to target fine/flavoured cocoa markets. Prices Despite the forecast supply deficit in 2012/13, prices of cocoa beans have not risen. Indeed, the yearly average fell from US$3,132.98/tonne in 2010 to US$2,980.04 in 2011 and US$2,391.86 in 2012, declining still further to an aver- age of US$2,208.83/tonne in the first 3 months of 2013. This price level is, however, still above the average enjoyed in the 1990s and most of the 2000s. “Despite the supply deficit forecast for 2012/13, prices of cocoa bean have not risen” Grinders now need to replenish their bean stocks, so cocoa bean prices should get a boost during the remain- der of 2013. But analysts have been quite conservative in their estimates of likely price rises, projecting increases of only 2–4% by year end (see Agritrade article ‘Prospects for cocoa prices in 2013’,18 March 2013). Despite concerns over long-term sup- plies of cocoa and associated efforts to promote production in traditional growing areas, declines in global cocoa prices could well undermine reforms in what still remains the world’s largest cocoa producer – Côte d’Ivoire. If farm gate prices offered on the back of cur- rent world market prices continue at present low levels, this could encourage producers to move out of cocoa and would undermine current efforts to con- solidate the cocoa sector in West Africa. EU policy developments and the cocoa sector EU Regulation (EU) 853/2011 of 19 August 2011 on maximum levels for polycyclic aromatic hydrocarbons (PAH) in food came into force on 1 September 2012. It called for more extensive testing of cocoa beans and derived products for the presence of carcinogenic PAHs, resulting in the rejection in December 2012 of a 2,000- tonne consignment of cocoa beans from Cameroon, after sanitary inspec- tors found high PAH concentrations. In April 2013, the EU also strengthened its regulation on cadmium in cocoa Executive brief: Update 2013 I 5http://agritrade.cta.int/ Cocoa sector beans (and rice), following a Janu- ary 2012 report by a European Food Safety Authority scientific panel, which recommended that cocoa imports containing more than 0.2mg/kg of cad- mium be rejected. While this mostly affects cocoa of Latin American ori- gin, Cameroon and to a lesser extent Ghana are also affected (see Agritrade article ‘Brussels trains its sights on cadmium in cocoa and chocolate’, 9 September 2012). One outcome is that the government of Cameroon is taking measures to conduct more rigorous analysis of beans prior to export, and taking action against sub-standard drying practices, which can increase cadmium levels. Cocoa producing countries had previ- ously called for a 5-year delay in the implementation of these regulations to allow time for producers to adjust to their requirements. Emerging trends and issues in the cocoa sector The multi-dimensional nature of sustainability issues in the cocoa sector The issue of sustainable cocoa pro- duction was high on the agenda of the November 2012 World Cocoa Confer- ence, held in Côte d’Ivoire. The Abid- jan Cocoa Declaration that emerged from the meeting set out more detailed proposals under the Global Cocoa Agenda, aimed at creating a sustain- able future for the cocoa sector. Sustainability is an issue of commer- cial concern to cocoa processors and users, since lack of investment in new trees, crop diseases, poor yields, poor farming practices, an aging cocoa farm- ing population and growing competition from other crops are all threatening to undermine the availability of cocoa in the face of growing global demand. On the demand side, environmental concerns linked to deforestation and social concerns linked to the use of child labour are creating a growing market for cocoa certified as sustain- ably produced. While the demand for sustainably produced cocoa is grow- ing, a 2012 review undertaken by KPMG for ICCO found that only 6% of world cocoa supplies were produced under conditions that secured sustain- ability certification. Indicative of this trend is the com- mitment from Dutch cocoa users to achieve by 2025 100% use of cocoa guaranteed as sustainably produced, and the launch in Germany in 2012 of the Sustainable Cocoa Forum. Fur- thermore, a growing number of com- panies (Mars, Barry Callebaut, Fer- rero and, from 2012, Hershey) have committed themselves to using 100% sustainably sourced cocoa by 2020. This is being backed up by substan- tial financial commitments from these companies. “A growing number of compa- nies have committed themsel- ves to using 100% sustainably sourced cocoa by 2020” Supply concerns and demand pres- sures pre-empted the launch in 2012– 13 of a growing number of sustain- ability initiatives supported by cocoa users (see Box: Sustainability initiatives 2012–13). Sustainability initiatives 2012–13 Developing sustainable supply chains • In November 2012, Mondelez International announced plans to invest US$400 million in its supply chain over the next 10 years to ensure sustainable cocoa sourcing. • In 2011/12 Barry Callebaut invested CHF5 million of a pledged CHF40 million initiative under its Cocoa Horizons initiative to promote sustainable cocoa sourcing. • Following the World Cocoa Conference in April 2013, chocolate makers and merchants (Barry Callebaut, Cargill and Mars) financed an initiative to distribute free of charge 20,000 tonnes of a special cocoa fertiliser designed with soil and climate conditions in Côte d’Ivoire in mind (total potential demand 450,000 tonnes). • In Cameroon in February 2013, a further 400 cocoa farmers were certified by UTZ, as part of a broader programme to meet sustainability requirements on the Dutch market, which takes 70% of Cameroon’s cocoa exports. Barry Callebaut is also supporting local farmers in the centre of Cameroon to secure Rainforest Alliance certification. • The cocoa sector in Ghana, meanwhile, is on course to achieve in 2015 cocoa production certification standards stipulated by the World Cocoa Foundation. • In Côte d’Ivoire in 2012, the Conseil Interprofessionnel du Cacao et du Café (CICC) launched its New Generation programme to provide training and investment support to young cocoa farmers. • At the regional level, as part of the Africa Cocoa Initiative, the World Cocoa Foundation, the United States Agency for International Development (USAID) and the Dutch Sustainable Trade Initiative (IDH) Executive brief: Update 2013 I 6http://agritrade.cta.int/ Cocoa sector Expansion of cocoa grindings in ACP countries: Trends in 2012/13 Traditionally a country’s cocoa grindings were taken as indicative of the state of national demand for cocoa-based products; however, this is no longer the case, given the expansion of grinding capacities in developing countries that do not consume much chocolate. The Netherlands remains the largest cocoa grinder in the world (500,000 tonnes), but as a result of investments in cocoa processing facilities in Côte d’Ivoire since 2008 it now has an installed cocoa grinding capacity of 532,000 tonnes – although only 75% of this capacity (400,000 tonnes) is actually utilised. The ongoing sweeping reform of the cocoa sector in Côte d’Ivoire is aimed at processing 50% of the country’s production domestically (currently 35%), with present investments sug- gesting that this strategy is on track. Olam is expected to initiate operations at a 70,000 tonnes per year processing plant by the end of 2013 (cost: US$60 million). The French chocolate company Cémoi announced in July 2012 that it was boosting its grinding capacity from 70,000 tonnes to 100,000 tonnes (at a cost of FCFA2 billion). The Algerian food processing company Cevital, meanwhile, announced its plans in June 2012 to invest in cocoa process- ing in Côte d’Ivoire as a first step to expanding overseas, and in June 2011 Morocco’s Compagnie Chérifienne de Chocolaterie had started construction of a chocolate producing factory in Cameroon, through its local subsidi- ary Cameroon Investment Company. “There is growing competi- tion from non-ACP production zones located closer to regions of expanding demand” A key challenge will be in successfully consolidating these investment plans and ensuring full capacity utilisation in the face of growing competition from non-ACP production zones located closer to regions of expanding demand for cocoa-based products. Developments in the West and Central African cocoa sectors in 2012/13 Cocoa sector reform in Côte d’Ivoire The major ongoing development in West Africa in 2012–13 was the rolling out of cocoa sector reforms in Côte d’Ivoire. Since the end of January 2012, the CCC forward-sold 70–80% of its anticipated 2012/13 harvest in order to calculate the minimum guaranteed price for growers in the next season. A cocoa farm gate price was established at FCFA725/kg (US$1.45/kg) at the start of the 2012/13 October–March main crop year. While this was lower than the 2011/12 indicative price (FCFA1,000), reflecting lower world market prices, it was higher than the real price then paid to farmers (FCFA500–700). The extent to which minimum guaran- teed prices are respected is unclear. While the CCC has successfully pros- ecuted 14 buyers for paying below the minimum price, cocoa farmers main- tain that there are not enough CCC agents on the ground to effectively enforce it. made commitments to a US$14 million programme of assistance to complement locally grown cocoa support mechanisms in Ghana, Cameroon, Nigeria and Côte d’Ivoire, with the aim of improving cocoa yields. Protecting the rainforest • A multi-party initiative involving government bodies, official donors, NGOs and private companies has been launched to protect the Taï National Park in south-west Côte d’Ivoire. Cocoa farmers are being offered training in sustainable cocoa production, while Barry Callebaut (in cooperation with the Rainforest Alliance) is establishing nurseries for indigenous shade trees and cocoa seedlings, launching a tree planting programme, and promoting good agricultural practices. Eliminating child labour • Nestlé voluntarily submitted its cocoa procurement system to inspection by the Washington-based Fair Labor Association. However, in June 2012 it was announced that child labour continued to be a feature of Nestlé’s supply chain. The company immediately committed itself to implementing the recommendations of the review. • In July 2012, under the auspices of the World Cocoa Conference, a multi-agency programme to provide education and training was launched as part of an initiative to eliminate child labour. • In November 2012 the Louisiana Municipal Police Employees’ Retirement System, a shareholder in Hershey, filed a lawsuit against the company for violation of federal child trafficking laws linked to its cocoa procurement arrangements in West Africa. Executive brief: Update 2013 I 7http://agritrade.cta.int/ Cocoa sector Continued world market price declines resulted in a reduction of the mid crop price to FCFA680, that is, below the floor price level. The government therefore had to draw on the Reserve Fund (financed by an FCFA50/kg levy), which was established as part of the reform process to maintain a minimum grower price. At the beginning of April 2013 the Reserve Fund contained over FCFA50 billion. There followed reports of merchants offering between FCFA500 and 600/kg. A dispute over the level of cost deduc- tions to be allowed for transporting cocoa further complicated the situation (costs which are inflated by bribes and illegal taxes levied at roadblocks – see Agritrade article ‘Success of Border- less Alliance raises hopes for long-term agricultural gains’, 1 July 2013). As part of the reform process, at the opening of the 2012/13 season the CCC raised the quality stand- ards applied to cocoa in order to try to strengthen Côte d’Ivoire’s market position. The maximum allowable mould level was set at 4% and the maximum moisture level at 8% (pre- viously 8 and 12% respectively in the 2011/12 season). Beans with moisture levels exceeding 9% were rejected at the port of embarkation. In October 2012, the Côte d’Ivoire government scrapped the 20-year- old tax break (droit unique de sortie, or DUS) that had been provided for local cocoa grinding by Cargill, Barry Callebaut, Cémoi and ADM (the Archer Daniels Midland Company). This tax break, which had been introduced as a temporary measure to boost invest- ment and employment, had become permanent and was considered by rival exporters as providing an unfair advantage to the beneficiary firms. In 2010 it had cost FCFA34 billion – some 68% of the current financing in the Reserve Fund – to support producer prices. October 2012 also saw the introduc- tion of a new tax structure on exports of semi-processed cocoa products. Cocoa production in Ghana At the start of the crop year 2012/13, farm gate prices in Ghana were set higher than in Côte d’Ivoire, at 3,392 cedis per tonne (FCFA870 as against FCFA725 in Côte d’Ivoire). In addition, smuggling between Côte d’Ivoire and Ghana seemed to have been con- tained. This can be attributed to: delays in paying cocoa growers; higher taxation rates in Ghana; depreciation of the Ghanaian cur- rency, the cedi. Reports even emerged of cocoa bean smuggling from Ghana to Côte d’Ivoire. “In 2012/13, reports emerged of cocoa bean smuggling from Ghana to Côte d’Ivoire” Cocoa production in Nigeria According to the Cocoa Association of Nigeria, good rains and hot weather across most of Nigeria’s cocoa grow- ing regions could boost cocoa out- put by at least 30% in the 2012/13 season, to 260,000 tonnes, up from 200,000 tonnes in 2011/12 (follow- ing the fall from 250,000 tonnes in 2010/11). The Nigerian government aims to boost cocoa production to 500,000 tonnes by 2015, although farmers have expressed scepticism as to how realistic this objective is. Following Nigeria’s refusal to initial an interim Economic Partnership Agree- ment (EPA) in December 2007, in 2013 the Cocoa Processors Association of Nigeria (COPAN) drew the attention of the federal government to the 6% tariff that the EU was imposing on imports of Nigerian-processed cocoa products. “The Nigerian government aims to boost cocoa production to 500,000 tonnes by 2015” Since no tarif f is imposed on raw cocoa, COPAN says that Nigerians are now more attracted to exporting raw cocoa to the EU, which they say is “killing companies that have invested billions to set up cocoa processing factories”. Cocoa production in Cameroon Cameroon has a strong cocoa policy but, in terms of volume, progress is rather slow. In 2011/12, production reached 200,000 tonnes and accord- ing to national estimates is projected to increase to between 220,000 and 250,000 tonnes in 2012/13. ICCO esti- mates are somewhat lower. By the end of March 2013, Cameroon cocoa exports of 183,300 tonnes were running 12% higher than at the cor- responding point in 2012. In 2011/12, Cameroon exported 180,000 tonnes down from 200,083 tonnes in the 2010/11 season, due to a prolonged dry season and attacks by pests and diseases. According to the National Cocoa and Coffee Board, between August 2012 and February 2013 Cameroonian cocoa grinders purchased 27,212 tonnes, compared with 25,667 tonnes during the same period in 2011/12. Cameroon has two local grinding com- panies: Sic-Cacaos, a subsidiary of Barry Callebaut, and Cameroun Invest- ment Company (CIC), a subsidiary of Moroccan Compagnie Chérifienne de Chocolaterie, which started production Executive brief: Update 2013 I 8http://agritrade.cta.int/ Cocoa sector late last year. Chococam, an affiliate of South Africa’s Tiger Brands, is involved in actual chocolate production. “There is growing interest in Cameroon in organic cocoa production” There is growing interest in Cameroon in organic cocoa production as well as origin-related quality cocoa. Further- more, tax reforms are under discus- sion to encourage investment in local processing. Regional pest and disease con- trol initiatives “In West Africa, pests and diseases are the main chal- lenges to a sustainable cocoa economy” In West Africa, pests and diseases are the main challenges to a sustainable cocoa economy, accounting for more than 40% of global crop losses, result- ing in reduced income for cocoa farm- ers. The recent emergence of parasitic plants such as mistletoe and epiphytes is of particular concern. In April 2013, ICCO, the Common Fund for Commodities, the European Cocoa Association, Mars and Mondelez Inter- national launched the Integrated Man- agement of Cocoa Pests and Patho- gens in Africa project (at an estimated cost of US$3.2 million) with Cameroon, Côte d’Ivoire, Ghana, Nigeria and Togo. The Cocoa Research Institute of Ghana is to coordinate the strengthening of in-country and regional capacity for pest surveillance, early detection, eradication and continued manage- ment of existing and invasive pests and pathogens. Developments in the Caribbean and Pacific cocoa sectors Caribbean According to ICCO estimates, cocoa production in the Caribbean totalled 66,900 tonnes in 2011/12. Over the past 5 years, Caribbean production has increased by 28%, but with the rise of production in Ecuador and Peru, its share of the Americas’ cocoa pro- duction has decreased from 11.1% in 2007/08 to 10.6% in 2011/12. However, its estimated share of world produc- tion went from 1.3 to 1.6% between 2007/08 and 2011/12. The Dominican Republic (DR) is by far the largest Caribbean cocoa pro- ducer at 60,000 tonnes. In 2011/12, some 5,000 tonnes were ground in the country, against a high of 6,200 tonnes in 2009/10. “The Dominican Republic is ideally placed to consolidate its standing in the global choco- late market, securing premium prices” The DR is a leading exporter of organic and fair-trade cocoa. While the ton- nages are modest (15,000 tonnes of a total of 62,385 tonnes in 2009), “they considerably increase the visibility of the DR in particular markets.” Indeed, “in the UK and other countries, an increasing number of chocolate bars are explicitly marketed as using beans sourced from the DR.” The DR has effectively branded certain types of its cocoa in ways that secure premium prices. Analysis suggests that the DR is “ideally placed to further consolidate its standing in the global chocolate market, which is seeing an increased demand for ethically produced, high- quality cocoa” (see Agritrade article ‘Strengthening internal supply chain essential if future of DR cocoa sector to be secured’, 1 July 2013). Between 2009 and 2012, a project coordinated by the National Confed- eration of Dominican Cocoa Growers (CONACADO) among 1,200 small pro- ducers (3% of producers) was able to boost productivity by 46% per hectare. In addition, the operations of CON- ACADO have been restructured into three separate units dealing with tech- nical, financial and marketing activities. This can be viewed as part of a wider process of parastatal restructuring tak- ing place in the region. Jamaican reforms are in process to consolidate the regulatory functions of various parastatal bodies under one body, while removing parastatals from any commercial role. This process of reform is ongoing, with a pragmatic division of labour emerging between the Jamaica Cocoa Farmers’ Asso- ciation (JCFA) and Jamaica’s Cocoa Industry Board during this transition. JCFA envisages readily available opportunities for marketing Jamaican fine/flavoured cocoa in Belgium, Ger- many, Japan and Saudi Arabia, with considerable scope for securing price premiums (see Agritrade article ‘Cocoa farmers incomes boosted by pragmatic solutions while legislation pending’, 3 June 2013). “A number of Caribbean gov- ernments are looking to build value-added cocoa processing industries” While a number of Caribbean govern- ments are looking to build value-added cocoa processing industries, govern- ment-constituted boards in Guyana and Trinidad and Tobago continue to face challenges in proving strate- gic leadership for the development of a largely smallholder-based sector. It is hoped that the November 2012 Executive brief: Update 2013 I 9http://agritrade.cta.int/ Cocoa sector relaunch of the Cocoa Research Cen- tre (CRC) in Trinidad will begin to lead the way in developing new products, new processes and improved com- mercialisation of high-quality, value- added cocoa products. If the CRC is able to successfully launch its own pre- mium chocolate bar, and if it is able to effectively support the spread of small- scale, independent chocolatiers across the region, then the basis could indeed be laid for the development of a high- quality, value-added chocolate prod- ucts industry across the Caribbean. Pacific According to ICCO estimates, the Pacific ACP countries of Fiji, Papua New Guinea (PNG), Solomon Islands and Vanuatu collectively produced 50,700 tonnes of cocoa in 2011/12, represent- ing 1.2% of world production. This is down from the 59,400 tonnes produced in 2008/09 but above the low of 39,400 tonnes in 2009/10. No grindings take place in ACP Pacific countries. PNG accounts for 88% of ACP Pacific cocoa production (45,000 tonnes). “There is growing interest in the Pacific in converting to organic cocoa production” There is reportedly growing interest in the Pacific in converting to organic cocoa production (see Agritrade article ‘Going organic seen as way forward in Vanuatu’, 18 May 2013). Although glob- ally the production of organic cocoa is estimated to have doubled since 2003, in 2012 it still only accounted for 1% of global cocoa production, some 30,000 tonnes. However, organic cocoa reportedly receives price premiums of US$200–400 per tonne. This needs to be balanced against the increased costs of cultivating organic cocoa. 3. Implications for the ACP Getting to grips with ensuring markets provide sustainable net incomes to cocoa farmers Growing demand for sustainability certification raises the issue of the distribution of the costs and benefits of sustainability certification along the supply chain. The reality is that as sus- tainability certification becomes the industry norm in major mature markets, any price premium that may currently be enjoyed will disappear. This will require some form of struc- tured initiative to promote dialogue along supply chains on the distribution of the costs of sustainability compli- ance and certification, with the aim of establishing market-based initiatives to ensure sustainable, remunerative prices and net incomes to cocoa producers. Without the attainment of remunerative net incomes that provide a decent living wage to cocoa farmers, the economic imperatives that drive unsustainable patterns of cocoa pro- duction will undermine current efforts to promote more sustainable forms of cocoa production. Getting to grips with stricter food safety and sanitary and phytosanitary standards There would appear to be a need for aid-for-trade support to assist ACP cocoa producers in: improving drying techniques to reduce cadmium levels; strengthening control systems related to drying techniques used; strengthening the technical basis for pre-export controls; mobilising the required scientific and technical expertise to allow West African cocoa producers to engage in an effective dialogue with the EU on permitted cad- mium levels in different chocolate products. Strengthening the functioning of internal cocoa supply chains in Africa Despite the overall success of cocoa sector reforms in Côte d’Ivoire, there remains considerable tension along internal supply chains. These could be eased if effective measures were taken to reduce the costs associated with illegal roadblocks and checks, which serve to strip value out of the cocoa supply chain. This forms part of a much wider agenda for policy change, where some progress is being made within the framework of the Borderless Alli- ance’s road governance programme. These efforts need to be extended and consolidated in Côte d’Ivoire and Ghana, with a particular focus on cocoa supply corridors and cross- border traffic. Building on growing Asian demand Rising demand in Asia offers opportu- nities for repositioning ACP cocoa pro- ducers within evolving global cocoa/ chocolate/confectionery supply chains. A critical question is how to use evolv- ing global demand to leverage invest- ment in greater value-added process- ing to more directly serve emerging markets in Asia (and potentially, in the longer term, in Africa). While progress is being made in expanding local grind- ings in the main African cocoa produc- ing countries, it needs to be borne in Executive brief: Update 2013 I 10http://agritrade.cta.int/ Cocoa sector mind that the main cocoa/chocolate processing companies are themselves investing in such strategic reposition- ing in the light of their own corporate needs (recent investments in Indonesia are illustrative in this regard). This suggests that considerable care will need to be taken in design- ing strategies to foster greater local value-added processing, with these being closely linked to consolidating and expanding the basis of cocoa production. Developing pan-ACP cooperation in marketing strategies for fine cocoa In the Caribbean and Pacific, efforts are under way to develop new marketing arrangements for fine/flavoured and organic cocoa. There already exists a body of experience in differentiated marketing of cocoa among ACP coun- tries, suggesting scope for experience sharing across ACP fine/organic cocoa producing countries. This could cover areas such as: ensuring required quality stand- ards are attained on a sustained basis; developing producer organisa- tions; strengthening the branding and marketing capacities of producer organisations and negotiating strategies when dealing with con- fectionery companies. However, these initiatives need to be balanced against competing efforts to move into local production of high-value, cocoa-based consumer products. Main sources 1. Ghanaian German Economic Association, ‘Cocoa farmers in trouble‘, 19 April 2013 http://www.ggea.net/news-events/news/african-cocoa-farmers-in-trouble.html 2. Agence Ecofin, ‘Omer Maledy : « Le cacao camerounais peut être classé comme cacao de niche »’, 1 April 2013 http://www.agenceecofin.com/cacao/0104-9928-omer-maledy-le-cacao-camerounais-peut- etre-classe-comme-cacao-de-niche 3. Africa Report, ‘Cadmium contamination menaces cocoa exports’ by N.D. Ramzi, 9 April 2013 http://www.theafricareport.com/East-Horn-Africa/cadmium-contamination-menaces-cocoa- exports.html 4. National Confectioners’ Association, letter confirming the fourth quarter statistics given to the ICE futures US, by J. Elleck, 17 January 2013 http://www.candyusa.com/files/4th%20qtr%202012%20report.pdf 5. Mintel, ‘India’s craving for chocolate unwraps business opportunities for manufacturers’, 7 November 2012 http://www.mintel.com/press-centre/press-releases/968/indias-craving-for-chocolate-un- wraps-business-opportunities-for-manufacturers 6. Barry Callebaut, ‘New cocoa partnership between two leading companies: Barry Callebaut and P.T. Comextra Majora enter into joint venture in Indonesia’, 18 November 2011 http://www.barry-callebaut.com/news?group=corporate,year=2011,lang=en,keyword=,page =1,release=7621,read=en 7. Cargill, ‘Cargill extends its world leading sustainable cocoa program to Indonesia’, 18 Octo- ber 2012 http://www.cargill.co.id/en/news/NA3067977.jsp Executive brief: Update 2013 I 11http://agritrade.cta.int/ Cocoa sector About this update This brief was updated in October 2013 to reflect developments since October 2012. Other publications in this series and additional resources on ACP–EU agriculture and fisheries trade issues can be found online at http://agritrade.cta.int/. Technical Centre for Agricultural and Rural Cooperation (ACP—EU) PO Box 380 6700 AJ Wageningen The Netherlands Tel: +31 (0) 317 467 100 E-mail: cta@cta.int - www.cta.int The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint ACP—EU institution active in agricultural and rural development in African, Caribbean and Pacific (ACP) countries. Its mission is to advance food and nutritional security, increase prosperity and encourage sound natural resource management. It does this by providing access to information and knowledge, facilitating policy dialogue and strengthening the capacity of agricultural and rural development institutions and communities in ACP countries. 8. Nestlé Cocoa Plan, ‘Indonesia’, undated http://www.nestlecocoaplan.com/cocoa-origins/indonesia/ 9. Euromonitor International, ‘Chocolate confectionery in China’, November 2012 http://www.euromonitor.com/chocolate-confectionery-in-china/report 10. ICCO, ‘African cocoa coalition signs Abidjan Declaration’, 22 July 2013 http://www.icco.org/home/latest-news.html 11. Commodafrica.com, ‘Festicacao 2012: Le Cameroun à l’aube d’une nouvelle ère cacao- yère, 12 November 2012 http://commodafrica.com/fr/actualites/matieres_premieres/festicacaocameroun 12. ICCO/KPMG, ‘Study on the costs, advantages and disadvantages of cocoa certification’, October 2012 http://www.icco.org/about-us/international-cocoa-agreements/cat_view/30-related- documents/37-fair-trade-organic-cocoa.html 13. Confectionerynews.com, ‘Mondelez pumps $400m in sustainable cocoa supply chain’, by O. Nieburg, 19 November 2012 http://www.confectionerynews.com/Commodities/Mondelez-pumps-400m-in-sustainable- cocoa-supply-chain http://agritrade.cta.int/ Coffee sector I 1 Since the 2006/07 season, ACP coffee producers have been playing an increas- ing role in global coffee production, with strong growth in East Africa but a contin- ued decline in West Africa. Some 55% of ACP production is of arabica coffee, with producers in 10 ACP countries growing only arabica beans. “Since the 2006/07 season, ACP coffee producers have been playing an increasing role in global coffee production” The sharp decline in arabica prices in 2012 has therefore fallen particularly heavily on these ACP producers. Only a relatively small price recovery is pro- jected for arabica coffee in 2013; after an initial rally, prices declined marginally through to May 2013. Meanwhile, robusta coffee prices have proved more stable, with a smaller price fall in 2012 and a recovery in the first months of 2013, tak- ing prices to within 1.4% of their February 2012 level. However, the price gains in early 2013 had been largely lost by the end of May 2013. African robusta coffee producers have launched initiatives to improve quality and promote greater use of robusta beans, which is considered necessary given the predominance of arabica production in Africa and the rapid growth in robusta consumption in recent years. Although demand growth is strongest in emerging markets, product differentiation is a grow- ing feature of established coffee markets (e.g. single-origin coffees, coffee certi- fied as sustainably produced, fair-trade coffee and organic coffee). The growth in sales of single-serve coffee pods is also a major feature of established cof- fee markets. The challenge of serving differentiated coffee markets is increasingly being taken up in Eastern Africa. However, the bulk of sustainably certified coffee contin- ues to be sourced from Latin America. This raises the policy challenge of pro- moting sustainability certification and guiding producers through the numer- ous schemes available, many of which involve different costs and benefits. The distribution of the costs and benefits of certification schemes along the supply chain is likely to gain significance in the coming years. Because of the strong demand growth in emerging markets, East African produc- ers are continuing to seek new partners not only for marketing coffee but also for investment in value-added processing. The Jamaican experience in market- ing Blue Mountain Coffee highlights the update October 2013 Coffee sector 1. Background and key issues 1. Background and key issues 2. Latest developments Developments in international coffee markets Developments in the ACP 3. Implications for the ACP Scope for joint action in developing new markets in emerging economies Moving up the value chain in traditional markets Getting to grips with evolving market trends Promoting investment in value-added processing for local markets Executive brief: Update 2013 I 2http://agritrade.cta.int/ Coffee sector Figure 1: Evolution of ICO indicator prices 2011–13 Source: International Coffee Organization/CommodAfrica challenges faced in identifying new partners in non-traditional markets, which has led to a quest for entirely new partners. In Ethiopia, Africa’s largest coffee pro- ducer, export levels were adversely af fected in 2011/12 by disputes between the government and private exporting companies, in part linked to strategies for managing disease trans- mission challenges. Although there was strong export growth in 2012/13, price declines held back the growth in earn- ings. The dispute between the gov- ernment and private sector in 2011/12 exemplifies the importance of harmo- nious relationships if volatile markets are to be effectively managed. There is also the issue of the role of govern- ment regulation and parastatals in the context of a need to serve increasingly differentiated coffee markets. This is a challenge across a number of ACP regions, and is linked to the need for innovative strategies in the production and marketing of coffee, to deal more effectively with price volatility and rising input costs. The related problems of pest infes- tations and climate change are also affecting coffee production in some ACP regions, with ‘aid for trade’ sup- port potentially having a role to play in facilitating necessary adjustments. Coffee production in the Caribbean’s main producer, the Dominican Repub- lic, continues to rise, while Jamaican production still falls below expecta- tions, despite efforts to diversify mar- kets and improve marketing. In the Pacific, however, there continues to be scope to expand quality-differentiated coffee production, which serves par- ticular niche markets. 2. Latest developments Developments in international coffee markets Declining prices since 2012 In May 2011, arabica and robusta cof- fee prices hit record highs of US$304.9 cents/lb and US$2,588 per tonne, but prices have consistently fallen since: by June 2013 there had been a 60% drop in arabica and 30% drop in robusta prices. Despite these price declines, world coffee prices remain high in historical terms. However, high world prices have not necessarily translated into higher net producer incomes. Indeed, in June 2013, the International Coffee Organization (ICO) warned that the weak coffee market was generating “prices below the cost of production” (see Agritrade article ‘Ethiopian coffee sector caught by falling global prices’, 22 July 2013). “World coffee prices remain high in historical terms – but have not necessarily trans- lated into higher net producer incomes” Higher prices of alternative crops have led to some producers abandoning coffee production, raising concerns over long-term supplies. The evolution of the price differential between arabica and robusta coffee has had a major effect on demand in recent years. In 2011, the arabica price premium was US$1.90/lb, up from between US$0.35 and 0.85/lb in 2009/10, leading some coffee roasters to increase use of robusta coffee in blends. However, by March 2013 the price differential was back down to US$0.35/lb, reversing this trend. Production and demand trends According to the ICO, in 2012/13 world coffee production reached 135.9 mil- lion (60-kg) bags and an estimated 144.6 million bags in 2012/13 (US Department for Agriculture – USDA – estimated 150.7 million bags), following a second year of massive production in Brazil and Vietnam in response to the high prices of 2011 and favourable weather conditions. But even larger production increases were held back by heavy rains in Indonesia, and cof- 0 50 100 150 200 250 300 Oc to be r 2 01 1 De ce mb er 20 11 Fe br ua ry 20 12 Ap ril 20 12 Ju ne 20 12 Au gu st 20 12 De ce mb er 20 12 Oc to be r 2 01 2 Fe br ua ry 20 13 Ap ril 20 13 Robusta Colombian Mild Arabica ICO Composite price US c en ts /lb Executive brief: Update 2013 I 3http://agritrade.cta.int/ Coffee sector fee rust disease affected production in 50% of the Central American coffee growing areas. Consumption also grew rapidly, reach- ing 139 million bags in 2011 and 142 million bags in 2012, which reflects a strong demand growth in emerging markets of 6.6% per annum, com- pared to the global average of 2.4%. Consequently, stocks have fallen by some 17.1% (from 18.2 to 15.1 million bags in 2012/13). The strong growth in demand in emerging markets may have prevented even more dramatic price declines; however, production is expected to fall back in both Brazil and Vietnam in 2013/14. It is now apparent that the longer- term impact of Brazil’s “off-and-on year cycle” is reducing in intensity, as new coffee areas have been opened up with higher yields and less risk of frost damage. “A major feature of the cof- fee market in 2012/13 was the continued growth in demand for robusta beans” A major feature of the coffee market in 2012/13 was the continued growth in demand for robusta coffee beans. Although markets such as the US have denigrated robusta for many years, things are changing. In 2011, US imports of robusta coffee increased threefold (although they are still only equivalent to 14% of the volume of ara- bica imports), with this trend continuing into 2012 (+80%). In contrast, arabica imports fell by a third in 2012, resulting in growing exchange-certified stocks of arabica coffee (+72%) and a decline in exchange-certified stocks of robusta coffee (−55%). In the long term, the ICO forecasts that the demand for robusta will grow by 6% per year in 2014 and 2015, com- pared to +1% for arabica. Despite this growing trend toward robusta coffee, some major retailers, such as Star- bucks or KFC’s fast-food chain Yum Brands, still remain hostile to robusta because of a persistent image of lower standard coffee. Rising coffee consumption in emerg- ing countries (+21% between 2009 and 2012) was the second major feature of the coffee market that was confirmed in 2012/13. This is closely linked to increasing consumption in coffee pro- ducing countries, in some instances with a growing demand for quality cof- fee. Thus Brazilian consumers are now increasingly in direct competition with the average European and American coffee consumers; in 2012, Brazilian robusta coffee exports fell by 57% because of rising local demand. Local coffee consumption is also increas- ing in Indonesia, which is increasing demand pressure and hence support- ing prices. There is considerable effort to promote coffee consumption in a number of ACP coffee producing countries. For example, with government support, Cameroon’s private sector Conseil interprofessionnel café cacao (CICC) has launched ‘Festicoffee’, an annual event with the dual aim of rejuvenat- ing coffee production and stimulating domestic consumption. In East Africa, the Coffee Board of Kenya has been encouraging domes- tic coffee consumption through coffee awareness campaigns. Indeed, over the last 3 years, many coffee shops have opened in major urban centres across the East African Community (EAC), catering for a growing middle class. Coffee consumption is taking off most strongly in Kenya, with estimated growth rates of 15–20%. In Tanzania, where a distinct preference for tea exists, growth rates are one-tenth of those in Kenya. Elsewhere, little effort is being put into promoting domestic coffee consumption. Nevertheless, it is anticipated that coffee consumption within the EAC will continue to grow steadily. Trade developments in 2012/13 According to the ICO, world coffee exports grew by some 10% between production years May 2011/April 2012 and May 2012/April 2013, from 103.4 to 113.8 million bags (USDA estimates put 2011/12 exports at 114.5 million bags and 2012/13 exports at 115.6 million bags, with a drop to 114 million bags in 2013/14). However, perspectives for 2013/14 vary. Rabobank envisages a positive outlook for the arabica price, owing to a potential deficit on world markets, with anticipated purchases by roasters and Brazilian producers hold- ing off the market. A similar strategy might be followed by Vietnamese pro- ducers in the coming months to shore up world robusta prices. On the other hand, USDA forecasts that world prices will drift in the coming months as world coffee inventories rise to a 5-year high. Trends in differentiated coffee, direct marketing and processed coffee products In spite of the economic crisis, there has been a continued development of the gourmet coffee culture during 2012 and 2013, similar to the gourmet wine culture. Top Parisian hotels such as George V and the Hotel Vendôme have therefore developed special “coffee times”, with coffee “grand cru” being offered, all of which highlight the avail- ability of niche markets for top-quality coffee. According to Euromonitor, a second major trend is the increased sales of coffee pods – easy-to-use “single- serve” capsules and bags popularised Executive brief: Update 2013 I 4http://agritrade.cta.int/ Coffee sector by brands such as Nespresso, Senseo and Lavazza. This market component was worth US$8 billion in 2012 ($5.1 billion alone in western Europe). “A major trend is the increased sales of coffee pods” It is estimated that sales of coffee pods have been increasing at 20% per annum in recent years, with the poten- tial to constitute a third of the coffee market by 2016. Reports in The New York Times in June 2013 found that the retail price of single-serve coffee pods was equivalent to US$50/lb, suggest- ing that considerable additional value is being generated along the supply chain for coffee pods, little of which currently finds its way into the pockets of ACP coffee producers and coffee sector enterprises. “There are increasing numbers of initiatives to directly link pro- ducers to consumers” A third trend in 2012 was the increas- ing number of initiatives to directly link producers to consumers. Most, but not all, are linked to sustainability, organic and fair-trade certification schemes. Sales of “UTZ Certified” coffee, for example, increased by 38% in 2012 to 188,096 tonnes, with new partners such as the Dutch airline KLM support- ing the product. US imports of certified Fairtrade and Rainforest Alliance coffee reached a record of 74,000 tonnes in 2012, valued at US$32 million, with 60 new import- ers and roasters becoming involved in fair-trade coffee and 50 new products being launched. According to Rainfor- est Alliance, this growth was boosted, among other initiatives, by McDonald’s, whose espressos are now 100% Rain- forest Alliance certified. Other North American companies, such as Caribou Coffee, Second Cup, Green Mountain Coffee Roasters and Nespresso, have also contributed to the trend. For its part, the UK Department for International Development’s (DFID’s) Food Retail Industry Challenge Fund (FRICH) has financed fair-trade coffee projects and facilitated direct marketing links with major UK retailers such as Sainsbury’s. This has created oppor- tunities for exports of gourmet coffee from a Fairtrade-certified producers’ cooperative in the Democratic Republic of Congo (DRC). Also, since December 2012, Sainsbury’s has been display- ing Malawian Mzuzu Fairtrade Ground Coffee. While the UK remains the leading fair- trade market in the world, China is also a growing market. According to a 2012 survey, Chinese consumers are willing to pay a 22% price premium for fair- trade coffee, or even more in the case of female consumers. Consumers who make their own coffee are reported to be likely to increase the trend the fol- lowing year. “There is soaring demand for instant coffee in emerging markets” Developments on the Chinese market also highlight the soaring demand for instant coffee in emerging markets. The demand growth for robusta has, therefore, outpaced demand growth for arabica, which has traditionally domi- nated the gourmet market. World soluble imports have gone from 9 million bags in 2008/09 to 12.1 million bags in 2011/12, decreasing only slightly in 2012/13 to 11.8 million bags (USDA). Chinese imports have gone from 115,000 bags in 2008/09 to 400,000 in 2011/12 and 700,000 bags in 2012/13 – a sixfold increase in 4 years. Japan’s imports are also rising, from 630,000 bags in 2008/09 to 800,000 in 2012/13 (although shifts in demand have created considerable problems for Jamaican Blue Mountain Coffee exporters); and in Thailand from 270,000 to 650,000 bags in 2012/13. Russia, however, remains the leading importer of soluble coffee, importing 2.3 million bags in 2012/13, with the second largest importer, the Philip- pines, showing considerable import volatility, but still accounting for 1.5 million bags in 2012/13 (USDA). Significantly, with the price differential between robusta and arabica coffee having declined dramatically, some instant coffee makers have started using low-grade arabica in their instant coffee blends. For example, Uganda Drugar beans, an unwashed and low-quality arabica, stored in US warehouses, fetched roughly US$1.15/ lb in early June 2013, while Uganda standard robusta was being sold to US importers at the same time for around US$1.18/lb. Some roasters are also returning to arabica after hav- ing switched a couple of years ago to lower-priced robusta. So far, the switch in beans is limited in scale because it is easier for instant coffee makers or small roasters to change blends than for large roasters. Developments in the ACP Overall trends According to ICO estimates, between 2011/12 and 2012/13, ACP countries increased their production by 13.6%. Increases were registered in all ACP coffee producing countries except Ghana, Liberia, Malawi, Papua New Guinea (PNG), Sierra Leone and Togo. It is estimated that ACP producers will represent 14.1% of global coffee pro- duction in 2012/13, compared to 13.2% in 2011/12, in the context of a 6.4% increase in global production. Executive brief: Update 2013 I 5http://agritrade.cta.int/ Coffee sector Table 1: ACP coffee production in selected African countries (’000 60-kg bags) Crop year 2010/11 2011/12 2012/13 World 133,498 135,934 144,646 Africa Angola Apr/March 35 29 50 Burundi Apr/March 353 204 483 Cameroon Oct/Sept 608 555 850 Central African Rep. Oct/Sept 95 86 100 Congo, DR Oct/Sept 305 352 450 Côte d'Ivoire Oct/Sept 982 1,907 2,000 Ethiopia Oct/Sept 7,500 6,798 8,100 Gabon Oct/Sept 1 0 1 Ghana Oct/Sept 112 146 85 Guinea Oct/Sept 386 351 415 Kenya Oct/Sept 658 680 767 Liberia Oct/Sept 10 11 10 Madagascar Apr/March 530 604 575 Malawi Apr/March 17 27 20 Rwanda Apr/March 323 247 400 Sierra Leone Oct/Sept 33 76 50 Tanzania July/June 846 534 918 Togo Oct/Sept 160 162 150 Uganda Oct/Sept 3,203 2,817 3,000 Zambia July/June 13 10 10 Zimbabwe Apr/March 10 9 10 Source: ICO/CommodAfrica ACP exports have increased strongly with a 19.3% increase in compari- son to global growth of 7%, resulting in the ACP region’s share rise from 9 to 10% of global exports between October 2012 and April 2013. Several ACP countries have registered strong increases in the volume of export: Burundi (+77%), Dominican Repub- lic (+54%), Ethiopia (+51%), Tanzania (+92%) and Uganda (+27%). But there have been disappointing financial returns, given the lower global prices. Indeed, the fall in world market prices in 2012 and 2013 has strongly affected the 26 ACP coffee producing countries. Countries with a high coffee export dependence were particularly affected (e.g. Burundi, with 59% of total export earnings between 2000 and 2010, Ethiopia 33%, and Rwanda 27%). In Kenya, for example, prices per tonne fell from KShs 513,590 in 2011 to KShs 429,327 in June 2012, while in Cam- eroon producer prices at the beginning 2013 were FCFA 850/kg compared to FCFA 1,400 3 years earlier. Against this background, it is a major challenge to keep coffee farmers interested in cof- fee production, rather than switching to other crops. Developments in West and Central Africa Developments in Côte d’Ivoire (Africa’s second largest robusta producer) were dominated in 2012 by increased state engagement in the coffee sector, with the first full year of application of the 2011 coffee reform programme. Auc- tion sales are held under the reformed system to determine the guaranteed producer price, which was set at FCFA 620/kg – a level higher than the aver- age FCFA 406 paid over the previous 8 years. Coffee production in Côte d’Ivoire is increasing: the ICO esti- mated production of 2 million bags in 2012/13 (according to USDA 1.7 million bags), compared to less than 1 million bags 2 years ago. However, coffee bean exports totalled 32,564 tonnes from October 2012 to April 2013, down nearly 8% on the same period last season. In March 2013, the government of Côte d’Ivoire approved a 4-year pro- gramme to relaunch the coffee sec- tor, totally f inanced from its own resources. The programme’s aim is to achieve coffee production of around 200,000–300,000 tonnes in the next 5 years (from a current level of 120,000 tonnes). The programme involves training and management support to farmers, improving access to credit, and encouraging the formation of cooperative associations to reduce the role of intermediaries. Emphasis is also placed on developing value- added coffees, including developing geographical designations of origin for quality washed coffee from the moun- tainous regions of Côte d’Ivoire (which Executive brief: Update 2013 I 6http://agritrade.cta.int/ Coffee sector currently accounts for 40% of produc- tion). There is an ongoing campaign to promote the local consumption of coffee with financing and training being provided to young people to open “cof- fee kiosks”. Local coffee consumption in Côte d’Ivoire is currently estimated at 108,000 bags, down from an ear- lier average of 300,000 bags (this is attributed by USDA representatives to a higher portion of production being exported, which leaves less available for domestic consumption). Cameroon is pursuing a strong cof- fee policy, with the aim of produc- ing 160,000 tonnes of arabica and robusta by 2020 as against 51,000 tonnes forecast in 2012/13 (ICO). The country hopes to attract young farm- ers into coffee production (the current average age is 55.8 years) through the “new generation” programme. This is accompanied by efforts to boost local consumption through the annual “Fes- ticoffee”. Currently, coffee consumption in Cameroon amounts to 75,000 bags per annum. In May 2013, Nestlé announced a deci- sion to invest FCFA 20 billion in a cof- fee processing factory in Cameroon. Works are scheduled to start in August 2013 with output to be sold largely on the domestic and regional markets. This investment represents a major expansion; in 2012, locally processed coffee amounted to only around 200 tonnes, under half of 1% of domestic coffee production. Efforts are under way to redevelop cof- fee production in Angola, which cur- rently produces approximately 15,000 tonnes (compared to 235,000 tonnes in 1967). A contract was signed with Thai Hoa Vietnam Group in July 2012 to rehabilitate 100,000 ha of former coffee producing lands over a 10-year period, using Brazilian financing (US$250 mil- lion). A US$8.5 million project to reha- bilitate 13 cooperatives and more than 100 associations on 4,000 ha in Porto Amboim, in Kwanza Sul Province, has also been agreed. Developments in East and Southern Africa Ethiopia is Africa’s top coffee producer and the fifth largest producer in the world. However, almost half of Ethio- pia’s coffee production is consumed domestically. In 2012/13, Ethiopia was caught out by falling coffee prices because disputes with the private sec- tor in the previous season had left large carry-over stocks. “Ethiopia was caught out by falling coffee prices because of disputes with the private sector” This saw an increase in exports at a time of rapidly falling arabica coffee prices. As a consequence, elevated export levels “failed to generate a proportionate increase in foreign exchange” (see Agritrade article ‘Ethi- opian coffee sector caught by falling global prices’, 22 July 2013). Indeed, export volumes rose by 31.7% but receipts fell by 1.3% to US$199.3 mil- lion. According to the Coffee Board, Ethiopian farmers are not producing enough, and there are plans to intro- duce coffee into new production areas. Low levels of productivity in existing production zones would appear to be linked to the traditional production and farm management systems used and to limited government extension ser- vice support (compared to neighbour- ing EAC countries). There was a slight (2%) decline during the marketing year 2012/13 in Kenyan production to 48,000 tonnes – sub- stantially below the record production level of 130,000 tonnes achieved in 1987/88. According to the Kenya Cof- fee Traders Association, between Octo- ber 2012 and March 2013, earnings at the Nairobi Coffee Exchange fell by 33.7% (to US$67.34 million) compared to the same period the previous sea- son. The average auction price fell to US$180.73 per 50kg from US$286.89 (−37%). The website Agrimoney.com, however, has argued that the desir- ability of high-quality Kenyan beans for blending purposes has enabled Kenyan beans to fetch prices of up to US$290 cent/lb, far more than New York arabica futures prices (US$1.39/ lb in mid June 2013). This suggests considerable scope for improved mar- keting of Kenyan coffee beans. “There is considerable scope for improved marketing of East African coffee” According to USDA, similar scope for the development of Tanzanian speci- ality coffee exports is also thought to exist “if production and processing are improved”. Because of this, the Tanza- nian Coffee Industry Strategy 2011– 2021 places considerable emphasis on improving the efficiency of the coffee chain, enhancing the marketing of pre- mium coffee, and diversifying export markets (see Agritrade article ‘Good performance in the EAC’s coffee sec- tor, despite depressed global prices’, 29 July 2013). Meanwhile, Ugandan robusta coffee production continues to grow although arabica production remains depressed, leaving Uganda less affected by falling prices, given the lower price declines of robusta relative to arabica. Never- theless, earnings only increased 1.2% despite a 29% increase in the volume of sales. The spread of coffee wilt remains a major source of concern in Uganda, while the black twig borer beetle is causing increasing concerns in robusta coffee growing areas. Executive brief: Update 2013 I 7http://agritrade.cta.int/ Coffee sector In Burundi, while production almost doubled and there was a 75% increase in sales, falling prices resulted in earn- ings rising by only 8.3%. Production is therefore likely to fall back consider- ably as farmers switch to other crops. In Rwanda, fluctuating world prices have led exporters to withhold coffee, creating large stockpiles. The Rwanda Development Bank is concerned over possible defaults on loans to coffee farmers and now requires farmers to demonstrate that they have strategies in place for dealing with world market price volatility. In terms of direct sales in East Africa, the successful launch of the Oromo Coffee Company in the UK (market- ing coffee produced in Ethiopia) has opened up new routes to market, with certified organic and fair-trade coffees now in stores, restaurants and hotels. The move toward increased private sector initiative in the Ethiopian cof- fee sector is likely to be given added impetus with the planned privatisation of six government-owned enterprises, including the 600 ha Arbagugu Coffee Plantation in the Oromia Region, which grows the Harar coffee variety. In terms of linking up to Asian consum- ers, the Ugandan joint venture Beijing Chenao Coffee Company exhibited and operated a coffee bazaar at the Guangzhou Food Expo and Coffee Boutique in May 2013, where Ugandan arabica coffee was presented. Across the East African region, cof- fee producers are looking at market diversification and value addition as tools for dealing with international coffee price volatility. The Coffee Board of Kenya announced in July 2012 that it was looking for partners to help expand “local processing and packaging capacity to improve export of processed coffee to the emerging foreign coffee markets”. It was considered that this would help insulate Kenyan producers from the price volatility being experienced on global coffee bean markets. Consid- erable scope was seen for mobilising Chinese investment in this process of moving up the coffee value chain (see Agritrade article ‘Developing new partnerships for movement up the cof- fee value chain’, 9 September 2012). In October 2012, the Tanzania Coffee Board announced plans to promote local coffee consumption and target “strategic markets” (see Agritrade arti- cle ‘Tanzania coffee board looking for market diversification’, 2 December 2012). Rwanda, for its part, is report- edly looking to expand sales of special- ity coffees to Japan, with plans being developed for shipping coffee directly to the Japanese market. While efforts to identify potential Asian joint venture partners potentially offer an important vehicle for redefining East Africa’s engagement with the evolv- ing global coffee economy, the current policy emphasis on market diversifica- tion has not yet changed the region’s dependence on traditional European markets. In the case of Tanzania in 2012/13, the importance of the EU market increased to 50.69% of total exports, up from 32.63% in 2011/12, while 70% of Kenyan and between 75 and 79% of Ugandan coffee continues to be sold on the EU market. In both Kenya and Tanzania, increased emphasis is being placed on devel- oping local coffee consumption, as it is considered that this will facili- tate opportunities for increased local value-added processing of coffee. The emergence of Kenyan roasters, blend- ers and processors could offer a new outlet for Tanzanian and other regional coffee production, as well as offering scope for the development of joint mar- keting strategies for single origin and other premium label coffees. Developments in the Caribbean The two main coffee producers in the Caribbean are the Dominican Republic and Haiti. Reported coffee production in the Dominican Republic grew strongly in 2011/12, before fall- ing back in 2012/13, while Haiti’s pro- duction remained fairly stable. Most Haitian coffee is exported via the Dominican Republic. However, there are private sector projects in place to sell organic Haitian coffee throughout the United States, alongside several projects aimed at developing Haiti’s high-quality coffee production. In 2012, this included a €2-million value chain project launched by the French Devel- opment Agency and the Inter-Amer- ican Development Bank to reinforce cooperatives involving some 10,000 producers. Table 2: Caribbean coffee production (crop year July/June, ’000 60- kg bags) 2010/11 2011/12 2012/13 Dominican Republic 378 682 550 Haiti 350 349 325 Source: ICO/CommodAfrica In 2012/13, the Jamaican coffee sector reported continuing declines in pro- duction – down to 6,600 tonnes from 15,177 tonnes in 2006 – resulting in lower export sales. The premium Blue Mountain Coffee brand is also fac- ing financial difficulties, with demand falling and prices well below the pre- Executive brief: Update 2013 I 8http://agritrade.cta.int/ Coffee sector recession level. This largely reflects the weakness of Japanese demand and the fundamental transformation of previous marketing arrangements (see Agritrade article ‘Jamaican coffee sector falls short of expectations’, 28 October 2012). Although there has been some suc- cessful marketing for Blue Mountain Coffee in the US and the UK, the volumes involved are relatively small. Efforts to develop markets in China have faced serious challenges. In December 2012, the Jamaican gov- ernment announced that it was look- ing for new partners for coffee mar- keting in China, following violations of trademark protection, which the Coffee Industry Board was unable to address with the existing partners (see Agritrade article ‘Jamaica seeking new partners for coffee marketing in China’, 2 February 2013). Developments in the Pacific In PNG, which is developing the pro- duction of award-winning gourmet coffees, overall production shot up in 2011/12 to a record of 1.4 million bags of arabica as a result of favourable weather and high international prices. However, this is projected to fall back to 1.2 million bags in 2012/13. Exports fell from 767,712 in October 2011/April 2012 to 329,659 in October 2012/April 2013. This can partially be attributed to the off-year biennial production cycle, and in part to fears of election-related violence disrupting coffee activities. While coffee rehabilitation, nursery, coffee freight schemes and grower mobilisation projects are under way, there are fears that job opportuni- ties in other sectors of the economy will draw labour away from the coffee sector, with consequent declines in production. Table 3: Pacific coffee production (crop year, thousands of 60-kg bags) 2010/11 2011/12 2012/13 Papua New Guinea 870 1,414 1,200 Source: ICO/CommodAfrica PNG is facing problems with third-party certification (TPC), where the “costs of compliance often lead to the exclusion of smallholders”. This situation is com- pounded by road infrastructure con- straints and weaknesses in the supply chains, which mean that 50 to 85% of possible third-party certified coffee is “sold to alternate ‘predatory’ buy- ers at a much lower rate”. Overall it is held that while “in most cases the ben- efits of TPC for farmers outweigh the costs… only a few thousand farmers supply the market.” It is considered that more needs to be done to strengthen producer organisations and improve infrastructure, which could reduce the cost of TPC (see Agritrade article ‘Constraints on product differentiation in the Pacific’, 13 June 2013). There would appear to be scope for this type of support through the US$46.3-million World Bank-funded project, ‘Produc- tive Partnership on Agriculture’. In 2012, an agreement was reached with fair-trade organisations in Australia and New Zealand to develop sustain- able coffee farming in PNG. So far, only the Neknasi Coffee Cooperative (Morobe Province) has received Fair- trade certification and eight others are in the process. Meanwhile, PNG coffee companies have been invited to the 10th China Agriculture Trade Fair. Apart from PNG, initiatives were launched in June 2012 to boost the coffee sector in Samoa, including a programme to distribute seedlings of improved arabica varieties and NGO initiatives to support direct sales to the New Zealand Coffee House chain. 3. Implications for the ACP Scope for joint action in developing new markets in emerging economies The continued dependence in East Africa on a limited number of export markets remains a concern, despite strong consumption growth in emerg- ing economies and policy commit- ments to diversification. “There is scope for joint ACP action in developing new mar- kets in emerging economies” Given the limited success to date of national market diversification efforts, a concerted region-wide strategy for repositioning the EAC coffee sector may yield greater benefits. A regional approach could potentially: mobilise more resources; achieve economies of scale in devel- oping new marketing strategies (par- ticularly for quality-differentiated and value-added coffee products); allow more cost-effective instru- ments of support to be established. These would assist with necessary investment in improved competitive- ness and value-added processing in order to exploit the evolving global market trends. Executive brief: Update 2013 I 9http://agritrade.cta.int/ Coffee sector Indeed, when it comes to getting to grips with new markets such as China (the size of which makes intra-ACP competition a non-issue), a case can be made for joint ACP coffee sector programmes, given the commonality of the challenges faced and the diverse experience to date of individual ACP coffee sectors. This is particularly the case when it comes to developing investment and trade strategies and developing commercial relationships for marketing coffee in China. The key challenge is to engage with these new markets in ways that structurally trans- form the basis of engagement of indi- vidual ACP coffee sectors with global coffee supply chains. Moving up the value chain in traditional markets The growing trend in traditional Euro- pean and US markets toward single- serve coffee pod consumption poten- tially creates new opportunities for value addition. Kenya already has com- panies involved in roasting and vacuum packing coffee for direct retail sale. In the horticulture sector, the success of shelf-ready vegetable packs targeting newly emerging market components suggests that there could be consid- erable scope in the growing market for single-serve coffee pods. Based on retail prices of single-serve coffee pods in the US and the weight of coffee contained in each pod, The New York Times estimated the retail-equivalent price for the coffee contained in the pods at around US$50/lb. Getting to grips with evolving market trends New opportunities for marketing cof- fee arise: from the gourmet coffee culture, through organic and fair-trade certified coffees, to the growing rise of single-serve coffee pod consump- tion in traditional markets, and the rise of instant coffee markets in emerging economies. While a variety of national initiatives have been launched to try to tap into these evolving trends, there would appear to be real cost benefits from a collective undertaking of basic analytical work on market trends. This could be carried out at the regional level (e.g. through the African Fine Cof- fees Association) or collectively at the ACP level, given the commonality of interest across the ACP. More detailed market research could then be left to industry associations to define the specific marketing strategies required in the specific national and regional contexts to most effectively capitalise on evolving trends. Promoting investment in value-added processing for local markets In the face of rising urban incomes and changing patterns of consumption as economic growth takes off across the region, Nestlé’s decision to invest in the Cameroonian coffee sector can be viewed as indicative of the growing local and regional demand for value- added coffee products in Central and West Africa. Questions arise, however, over the relative roles that local com- panies and major multinationals should play in developing production for spe- cific market components. Clear gov- ernment strategies will be needed to ensure that local companies can also benefit from these emerging market components. Main sources 1. International Coffee Organization (ICO), ‘ICO monthly coffee market report’, May 2013 http://www.ico.org/documents/cy2012-13/cmr-0513-e.pdf 2. ICO, ‘Report on the outbreak of coffee leaf rust in Central America and action plan to combat the pest’, 13 May 2013 http://dev.ico.org/documents/cy2012-13/ed-2157e-report-clr.pdf 3. Oxford Business Group, ‘Papua New Guinea: Coffee industry builds steam’, 7 February 2013 http://www.oxfordbusinessgroup.com/economic_updates/papua-new-guinea-coffee-industry- builds-steam 4. ICO, ‘World coffee trade’, web page http://www.ico.org/trade_e.asp?section=About_Coffee Executive brief: Update 2013 I 10http://agritrade.cta.int/ Coffee sector Technical Centre for Agricultural and Rural Cooperation (ACP—EU) PO Box 380 6700 AJ Wageningen The Netherlands Tel: +31 (0) 317 467 100 E-mail: cta@cta.int - www.cta.int The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint ACP—EU institution active in agricultural and rural development in African, Caribbean and Pacific (ACP) countries. Its mission is to advance food and nutritional security, increase prosperity and encourage sound natural resource management. It does this by providing access to information and knowledge, facilitating policy dialogue and strengthening the capacity of agricultural and rural development institutions and communities in ACP countries. About this update This brief was updated in October 2013 to reflect developments since August 2012. Other publications in this series and additional resources on ACP–EU agriculture and fisheries trade issues can be found online at http://agritrade.cta.int/. 5. UTZ, ‘Over 13.3 billion cups of UTZ Certified coffee sold in first half of 2012’, 26 July 2012 https://www.utzcertified.org/attachments/article/26582665/Full%20press%20release.pdf 6. Ugandan Coffee Development Authority, ‘UCDA monthly report’, May 2013 http://www.ugandacoffee.org/resources/reports/08%20May%202013%20report.pdf 7. Coffeecorp.org, ‘Production and export statistics’, Papua New Guinea http://www.coffeecorp.org.pg/pestats.html 8. New York Times ‘$51 per pound: The deceptive costs of single-serve coffee’, 2 August 2012 http://www.thekitchn.com/51-per-pound-the-deceptive-cost-of-single-serve-coffee-the-new- york-times-165712 http://agritrade.cta.int/ Cotton sector I 1 While the USA remains the world’s larg- est cotton exporter, in 2012–13 Chinese cotton sector policies have come increas- ingly to overhang global cotton markets, with Chinese reserves accounting for 63% of global stocks. Chinese sup- port policies, by making duty-paid cot- ton imports attractive to Chinese textile manufacturers, have supported the global cotton price in 2012–13. While the ACP accounts for only 5% of global cotton production, cotton remains of considerable social and economic importance in the main ACP cotton producers – Benin, Burkina Faso, Chad and Mali, known as the C4 group. Cotton production in West Africa is projected to show strong growth in marketing year 2012/13 (+41%), and these gains should continue in 2013–14, but at a slower rate. In Eastern and Southern Africa, a 21% decline in cotton production in 2012/13 is forecast, and this decline is due to continue into 2013/14, following reduced production across the region. While China now provides the highest overall level of cotton sector support, the EU continues to provide the highest level of support per tonne of production. The expansion of scope for the provi- sion of coupled support, as part of the June 2013 political agreement on CAP reform, could see coupled payments in the cotton sector increased in the next 7 years. This does not bode well for early progress on cotton issues in the WTO, which remained stalled over 2012–13. The US, however, remains central to any substantive movement on cotton issues in the WTO. Given the influence of Chinese policies on the functioning of global cotton mar- kets, drawing China more substantially into cotton reform discussions in the WTO can be seen potentially as an important priority for the ACP Group’s efforts to move cotton issues forward in the WTO. 2. Latest developments Developments in global cotton markets 2012–13 In a continuation of the trend evident since 2010/11, global cotton production will again exceed consumption in 2012/13, ending “Cotton production has exceeded consumption for the last 3 years” update October 2013 Cotton sector 1. Background and key issues 1. Background and key issues 2. Latest developments Developments in global cotton markets 2012–13 The cotton issue at the WTO: 2012–13 developments Developments in the European cotton sector, 2012–13 Developments in the ACP cotton sector, 2012–13 3. Implications for the ACP ACP countries must continue to lobby against cotton sector subsidies ACP countries must keep up with Chinese policy developments ACP countries must secure preferential third-country access for their textiles Tackling the problem of sustainability criteria Executive brief: Update 2013 I 2http://agritrade.cta.int/ Cotton sector Figure 1: Cotton price trends on the New York futures market, 2009-13 (US$/lb) 180 160 140 120 110 80 60 12 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Source: Reuters slightly below 2011/12 levels at 26.39 million tonnes. After 2 years of decline, consumption recovered sharply in 2012/13, increasing by 7% to 27.78 million tonnes, with growth in India, Bangladesh, Turkey and Pakistan partially compensating for a fall in the world’s leading consumer, China. Global cotton stocks grew for the third year in a row, with almost 60% held by China, and the same trend is already apparent for 2013/14, with China’s share projected to rise to 64%. According to the International Cotton Advisory Committee’s (ICAC’s) estimates, global production will fall by just over 5% to 24.95 million tonnes. It will decline in the United States (a year-on-year reduction of 17% in the planted area), China, Brazil and Australia, while remaining steady in India, Pakistan and Uzbekistan. Consumption is expected to grow by just over 2% to 24.33 million tonnes. Cotton prices were extremely volatile during 2010 and 2011, jumping in the space of 6 months from 85 US cents/lb to a record high of 243 cents/lb before falling back sharply. In contrast, prices since early 2012/13 have been relatively stable. The Cotlook A index opened in August at 81.65 cents/lb and fluctuated between 80 and 85 cents until February. It then began to rise, reaching a high of 99 cents/lb in March 2013, before dropping to 90 US cent/lb in April–May and recovering in mid June to 96 cents/ lb. Prices overall have ranged from 80 to 99 cents/lb during 2012/13, at an estimated average of 88 cents/lb (ICAC), 12 cents/lb below their 2011/12 level. “Less market volatility has led to fewer breaches of contract” Less volatility has led to fewer breaches of contract: only 52 contracts were subject to International Cotton Association (ICA) arbitration, compared with 135 in the first quarter of 2013 (and 247 for the full year, breaking the previous record of 242 set in 2011). Prices are relatively high given the current market fundamentals of substantial stocks and supply exceeding demand. This is largely as a result of Chinese policy, which will continue to determine trends in 2013 and 2014. With over 60% of cotton stocks held in China (USDA), stock-to-use ratios elsewhere are relatively tight. “China holds 63% of world stocks” China maintained its policy of producer support in 2012/13, by guaranteeing a minimum purchase price above global levels and rebuilding its national reserve stocks. China’s opening stocks had almost tripled to over 6 million tonnes and have since experienced further growth, with higher than anticipated levels of imports pushing stocks to 10 million tonnes by the beginning of 2013/14 (USDA June 2013 estimates). The actual level of imports is projected to fall from 5.2 million tonnes in 2011/12 to 4.3 million tonnes in 2012/13, and China has also been selling off part of its reserve stocks since January 2013, with sales expected to close at the end of July. Over recent weeks China’s Middle Kingdom has made no secret of the fact that it is contemplating policy changes (see Agritrade article ‘Changes in Chinese cotton policy imminent?’, 15 July 2013). The priority for China’s policy makers until now has been to support its producers and stabilise the market. But the price has perhaps been too high, particularly for China’s textile industries. The cotton issue at the WTO: 2012–13 develop- ments The most recent consultations at the WTO over development assistance to the cotton sector are not subject to appeal: “The ‘Cotton-4’ and other sub-Saharan producers stated on 21 June 2013 that they regret the lack of movement in the negotiations to cut cotton subsidies and to open markets.” The next opportunity will occur at the forthcoming WTO Ministerial Confer- ence in Bali in December, where the C4 countries are expected to table a new proposal. “The cotton dossier in the WTO negotiations is at a standstill” The stalemate over cotton is one aspect of the deadlocked negotiations over the wider Doha Round. Cotton sector subsidies in western countries are also under scrutiny, with Executive brief: Update 2013 I 3http://agritrade.cta.int/ Cotton sector Outlook for cotton in 2022 What will the cotton market look like in 10 years’ time? In their ‘Agricul- tural Outlook 2013-2022’, the FAO and the OECD have for the first time included projections for cotton. While China and the United States are expected to maintain their status as leading consumer and producer respectively, the decade is likely to see significant changes. Consump- tion is projected to increase at an annual rate of 1.7%, below the long- term average, with a rate of 7% expected in India. It is not expected to reach the 2004 record of 26.7 million tonnes until 2022. Production is forecast to grow more slowly than demand, with a significant fall in China and growth in India and Pakistan. Trade is expected to fall. However the LDCs of sub-Saharan Africa are projected to increase their share of the global export market, overtaking India to become the world’s second largest exporter behind the United States. Meanwhile China’s share of the global import market will fall by half, with countries like Bangladesh and Vietnam taking up the slack. Finally, prices are projected to increase by 47% relative to the period 2000/09, reaching an average of some US$1395/t. However, they will not be as attractive as those offered by wheat and maize. discussions currently in progress over CAP reform and the new US Farm Bill (see section ‘Developments in the European cotton sector, 2012–13’ below). In the United States, the two houses of Congress failed to agree a new Farm Bill for 2013/18. In response, the 2008/12 Farm Bill, with a budget in excess of US$288 billion, was extended until 30 September 2013, the deadline for the approval of its succes- sor. Some elements of the new Farm Bill appear to be settled: the budget, at around US$939 billion over 10 years, substantial cuts to subsidies and an increase in crop insurance. However, as of early July, the Senate and the House were still divided, especially over the issue of food stamps. The Republicans in the House of Repre- sentatives suggested splitting the Farm Bill as a way forward, and on 11 July the House passed the Bill, shorn of its food stamp clauses. Will this be suf- ficient to gain a yes vote in the Senate and ultimately White House approval? As far as cotton is concerned, the reform marks a change from direct payments to crop insurance pro- grammes. Crop insurance will be complemented by the Stacked Income Protection Plan for Producers of Upland Cotton (STAX), proposed by the National Cotton Council (NCC) to cover smaller losses, and uncontested on 11 July. The NCC argues that STAX will benefit cotton growers while also providing a basis “for a definitive reso- lution of the dispute with Brazil and the WTO”. In an interim agreement until the new Farm Bill comes into force, the US is making annual com- pensation payments of US$147.3 mil- lion to Brazil, which is still contemplat- ing retaliatory measures if the new bill fails to meet its expectations. Studies conducted by the International Centre for Trade and Sustainable Develop- ment (ICTSD) show that in certain cir- cumstances a crop insurance system combined with STAX could increase American spending on cotton when prices are low. While the steady increase in Chinese support for the domestic cotton sector has worked to keep the market stable and prices relatively high, especially during 2012/13, the past decade has also seen a negative correlation between levels of subsidy and the Cot- look A Index, particularly for the US and Europe. “By including cotton in its duty-free, quota-free access for LDCs, China could increase the competitiveness of African cotton” However, an ICAC/ICTSD Information Note suggests that by including cotton in its duty-free, quota-free access to markets programme for LDCs, China could increase the competitiveness of African cotton relative to other regions by making it duty free. Apart from the annual quota of 894,000 tonnes set as part of its WTO obligations, China’s duties on imported cotton currently range from 5 to 40%. Despite the continuing stalemate at the WTO over the cotton issue, there has been an increase in the amount of aid received by African countries. In May 2013 the total disbursements directly linked to the cotton sector reached US$453 million – US$321.3 million to completed projects and US$131.7 million to current projects – a rise of US$64 million over December 2012. Despite the increase in disburse- ments, the Africans still consider the figure too low (a 36% disbursement- to-commitment ratio for the US$365.6 million committed). In terms of devel- opment aid to agriculture and associ- ated infrastructure, the total value of commitments has risen to US$6.9 bil- lion, an increase of US$1.9 billion over December 2012. The Africans have highlighted the importance of South–South coopera- Executive brief: Update 2013 I 4http://agritrade.cta.int/ Cotton sector tion, giving particular thanks to China (Chinese assistance is not included in the figures above). Brazil signed a US$20 million partnership agree- ment with the WTO in 2012 to transfer knowledge and expertise in cotton cultivation and trading to producers in developing countries by providing technical assistance and best practice training. Similarly, India has allocated a budget of US$5 million for the period 2012–14 to the Cotton Technical Assis- tance Programme for Africa, based in Ouagadougou. Developments in the European cotton sector, 2012–13 Cotton production in Europe has fallen sharply since the 2006 reforms and now lies close to mid 1980s levels at 300,000 tonnes, or 1% of global output. In 2011/12, however, production grew by over 40% to 347,500 tonnes. In Greece, responsible for around 80% of Europe’s cotton crop, it rose by 42% over the previous year to 290,000 tonnes, due to an increase in the planted area (+20%) and improved pest control. The planted area remains unchanged for 2012/13, but a fall in production is forecast, with yields cut by bad weather and lower use of ferti- liser. For Greece and Spain as a whole, production is expected to fall by nearly 7% to 325,000 tonnes. “Producers in Greece and Spain are abandoning cotton production” Early estimates for 2013/14 suggest both countries will experience a sub- stantial fall in the planted area and thus in production, expected to drop below 300,000 tonnes to 255,000 tonnes, an annual decrease in excess of 20%. In Greece, and especially Thessaly, growers preferred hard wheat and maize, which are cheaper to produce than cotton and whose price jumped from €0.22/kg in July 2012 to €0.26/kg in February 2013. In Spain too, growers have opted for the higher returns offered by maize. The price of cotton, which fluctu- ates year on year, has already fallen from €56.35/100kg in 2012/13 to €42/100kg. In addition, the so-called Article 69 payments, which supple- mented coupled payments, were dis- continued for 2013/14. The average level of subsidy received by European countries is the highest in the world. According to ICAC esti- mates, direct subsidies to Greek cotton producers reached US$266 million in 2011/12, down from US$280 million in 2010/11, or 43 US cents/lb of fibre, down from 70 cents/lb in 2009/10. The comparative figures for Spain are around US$89 million in 2011/12, down from US$93 million in 2010/11, or 67 cents/lb of fibre, down from 98 cents/ lb in 2009/10. “With the reform of the EU CAP, there are concerns over the flexibility of coupled sup- port in the cotton sector” Inter-institutional debate within the EU over CAP reform is likely to result in greater flexibility for individual mem- ber states in their use of CAP policy measures. This is a particular con- cern in the area of coupled support: for example, in the cotton sector, it would potentially undermine the efforts made at the WTO on behalf of the ACP nations by the C4 group of African producers to obtain more rigorous discipline in the use of subsi- dies (see Agritrade article ‘The current state of CAP reform negotiations’, 17 June 2013). Developments in the ACP cotton sector, 2012–13 Central Africa and West Africa “Central Africa and West Africa are experiencing a cotton revival” Central Africa and West Africa are experiencing a cotton revival, with 2012/13 production figures confirm- ing the upturn first seen in 2011/12. The planted area grew by 33%, production by 41% and exports by 42%, increases underpinned by generally favourable climatic conditions, proactive policy choices with high farm-gate prices, the continuing subsidisation of inputs, and better growing practices. Burkina regained its position as the region’s leading producer with 630,000 tonnes in 2012/13, a 51% increase over 2011/12. Sofitex reduced the area planted to GM crops by 60% after problems with silk length, and a sowing plan was implemented, developed by Burkina’s Agricultural Research Insti- tute in conjunction with the growers themselves and Monsanto. An aware- ness campaign was also launched encouraging growers to supplement mineral fertilisers with organics, since GM cotton requires extra fertiliser. Bur- kina Faso has agreed a 730,000-tonne production target for 2013/14. The upturn also gathered pace in Côte d’Ivoire, with production of 340,000 tonnes in 2012/13, a 30% rise over 2011/12, and a target of 400,000 tonnes in 2013/14, close to levels obtaining before the political crisis. The agricultural sector is a priority for the government – including cotton, which is grown in the north of the country. A Cotton and Cashew Industry Man- agement Council has been set up to reform the sector. Following the model adopted for the cocoa sector in Janu- Executive brief: Update 2013 I 5http://agritrade.cta.int/ Cotton sector ary 2012, it will focus its attention on growers. It aims to offer them higher returns on the sale of their crop and growers will thus receive 60% of the international price. The project will be accompanied by a special develop- ment fund designed to increase pro- duction to 600,000 tonnes in 2016, and a buffer fund, on the Burkina Faso model, is also envisaged. Table 1: Cotton fibre production trends in sub-Saharan Africa (’000 tonnes) 2011/12 2012/13* 2013/14* Francophone Africa 717 1011 912 - Benin 75 158 151 - Burkina Faso 174 260 92 - Cameroon 78 100 151 - Côte d’Ivoire 113 140 133 - Mali 187 229 211 Anglophone Africa 633 503 461 - Mozambique 61 37 27 - Nigeria 63 57 56 - Tanzania 120 97 80 - Zambia 110 74 65 - Zimbabwe 142 119 107 Note: *estimate Source: International Cotton Advisory Committee (ICAC), March 2013 Benin experienced considerable uncertainty in 2012/13, with the gov- ernment eventually resuming control of the industry and sidelining Patrice Talon, a key figure in cotton, involved at every stage of the supply chain and particularly in the import of inputs. The government was unable to turn things round at such short notice and pro- duction was limited to 250,000 tonnes instead of the anticipated 600,000 tonnes. However, this still represented an increase over the 2011/12 figure of 175,000 tonnes. Togo, too, was unable to reach its target of 100,000 tonnes, production remaining steady at 80,000 tonnes. In Mali, the CMDT consolidated its gains despite the conflict, with pro- duction of 453,000 tonnes, almost identical to the previous year. The target for 2013/14 is 522,000 tonnes. For the six countries of West Africa (Benin, Burkina Faso, Côte d’Ivoire, Mali, Senegal and Togo) as a whole, production figures of approximately 1.8 million tonnes in 2012/13 are forecast to grow by +20% to 2.1 million tonnes in 2013/14. In Central Africa, Chad enjoyed marked growth in cotton production, driven by its cotton sector improvement pro- gramme for 2012–2016. Chad’s cot- ton processing company, CotonTchad, took a number of measures at the beginning of 2012/13, collecting and paying for the previous year’s seed cotton, ordering inputs, etc., and the result was a 50% increase in produc- tion to 120,000 tonnes. In Cameroon, production was affected by floods in 2012/13. However, it still grew by 19% to 220,000 tonnes and Sodecoton’s target for 2013/14 is 260,000 tonnes. The company conducted its first tri- als of GM cotton in 2012 and a joint trade association for cotton is being planned. The association is in theory to start work in 2013, bringing together Sodecoton and the National Confed- eration of Cotton Producers of Cam- eroon (CNPCC). East Africa and Southern Africa In contrast to West Africa and Cen- tral Africa, cotton production in East Africa and Southern Africa fell sharply in 2012/13, with no sign of an upturn for 2013/14. Between 2011/12 and 2012/13, production dropped by 22% and the planted area by 17% – the consequence of a 2011/12 season marked in several countries by tensions between growers and millers, as well as falling prices that turned growers away from cotton. In Tanzania, the system of contract farming central to its cotton sector reform seems mired in disputes. Prob- lems were already apparent in 2012 (see Agritrade article ‘Contract farming strengthens functioning of Tanzanian cotton supply chain’, 4 June 2012), but during 2013 these became political. The Tanzania Cotton Association (TCA) accused some politicians and cotton buyers of conducting an anti-contract farming campaign that, by encouraging farmers not to sell their cotton below a certain price, has contributed to a potential 40% drop in this year’s cot- ton harvest. With lower yields and a 26% reduction in the planted area from 2012, production is unlikely to exceed 240,000 tonnes in 2013, down from 354,000 tonnes in 2012. Unfavourable weather and a move to alternative crops, soybeans in particu- lar, mean that Zambia is also expect- ing a fall in production – by some 30% to approx. 175,000 tonnes (275,000 tonnes in 2011/12) – as well a 27% Executive brief: Update 2013 I 6http://agritrade.cta.int/ Cotton sector reduction in the planted area. However, in 2012/13, the government for the first time included cotton in its Farmer Input Support Programme (FISP), a scheme which has already helped to increase maize production. “There has been a fall in pro- duction in Eastern and South- ern Africa” The same trend is evident in Zim- babwe, with a fall of 25% to approx. 260,000 tonnes. Mozambique has experienced a sharper reduction, with a fal l of approx. 46% to 110,000 tonnes, down from the 184,000 tonnes achieved in 2011/12, a year when annual produc- tion almost tripled, according to the Cotton Institute. However, the indus- try is continuing to attract investment. China Africa Cotton Mozambique Ltd (CACM) began construction work on a 30,000-tonne capacity ginning mill in Subue in the province of Sofala in May 2013. Meanwhile Singapore’s Olam, having concluded production agreements with 70,000 growers and recently joined the Better Cotton Ini- tiative, is looking to extend its invest- ments in Mozambique’s agricultural sector, and in May 2013 began work on a third ginning mill. According to the Mozambican Cotton Institute, the Japanese firm Nitura also has plans to build a textile complex and supply it with raw cotton by opening up 4,000 hectares in the Malem district. In Angola, the government launched a programme to renovate, modernise and expand its textile sector. Three businesses are involved: the renova- tion of Textang II is currently under way, with completion anticipated at the end of 2013, and Africa Textil and Satec will follow. The Japanese Bank of International Cooperation (JBIC) is providing the finance, with a US$1 billion line of credit. Meanwhile, the government also wants to ensure the domestic supply of raw materials by encouraging cotton growing, par- ticularly in Malanje and Kwanza Sul provinces, with targets of a planted area of 100,000 hectares and annual production of 40,000 tonnes of cot- ton fibre. 3. Implications for the ACP ACP countries must continue to lobby against cotton sector subsidies Against a background of falling cotton prices in 2011/12, subsidies increased overall to US$4.5 billion (ICAC esti- mate), or 17 US cents/lb, up from US$1.4 in 2010/11. Ten countries paid subsidies, with China (US$3.1 billion) far ahead of the United States (US$819 million), Turkey ($428 million) and the EU (US$355 million). “Subsidies are continuing to hamper trade and damage ACP countries” Subsidies are continuing to ham- per trade and damage ACP coun- tries. Chinese policy over the past 2 years has to some extent mitigated the impact of the subsidies paid by OECD members. However, the United States is the leading global exporter and a direct competitor of the ACP countries. As ICTSD makes plain, developing countries dominate the cotton sector in areas such as utili- sation (96%), imports (97%) and pro- duction (81%), but are nevertheless responsible for only 52% of global exports. African countries, although price takers, still have to compete directly in export markets with devel- oped nations. Subsidies reduce the competitiveness of African cotton, especially as Africa is now losing out to countries like India and Australia in terms of cost and delivery time with the shift in its main export market from Europe to Asia. However, the ACP countries must also work to increase their competitiveness. ACP countries must keep up with Chinese policy developments Any change in China’s current policy of supporting domestic cotton produc- ers and building up its national reserve stocks could have a damaging effect on the ACP countries. “Any change in Chinese policy will have an impact on the markets” Chinese policy has undeniably worked to support international prices at an artificially high level and any rethink could provoke price falls. The first signs of such a change are now appearing, with the experimental payment in April of targeted subsidies direct to cotton growers in Xinjiang in an effort to halt falling production. This would have an immediate impact on the ACP countries, which are unpro- tected and export the majority of their production as raw cotton. However, China has maintained its policy of buying domestic cotton at a price of 20,400 yuan/tonne (€2,504/t), and although farm-gate prices in franc-zone Africa have fallen slightly, they are still relatively high. Chinese production, and global production in general, is projected to fall in 2013/14. With con- sumption rising, supply and demand are expected to be in equilibrium. How- ever, stocks remain high and will grow further still. Executive brief: Update 2013 I 7http://agritrade.cta.int/ Cotton sector ACP countries must secure preferential third- country access for their textiles Renewal of the third-country fab- ric provisions of the Africa Growth and Opportunity Act (AGOA), which expired on 30 September 2012, was only secured after a fierce struggle. “AGOA’s third-country fabric provisions are vital to Africa’s textile industry” The Act was eventually passed in August 2012 for a period of 3 years, although only after an intense lobby- ing campaign and more than a year of delays. The AGOA will remain in force until 2015, but any renegotiation of its terms would badly affect the African textile industry, especially in Kenya, Malawi, Lesotho and Tanzania. LDCs which benefit from the AGOA can buy thread and fabric on the global market and export finished garments manu- factured from these raw materials to the American market duty free: 86% of African garment exports to the United States depend on these provisions, and the problematic renewal process has already had a negative impact on the Africa–US garment trade. The struggle will begin again when negotiations resume over the renewal of the AGOA and its third-country fabric provisions in 2015. President Obama confirmed his support for the AGOA when he visited Africa in June 2013 and indicated that he is interested in finding ways of ensuring that it is renewed and improved. Tackling the problem of sustainability criteria Organic cotton first took off in the 1990s. However, the mid 2000s brought new initiatives, such as Fair- trade International (FLO), Cotton Made in Africa (CMIA) and Better Cotton Ini- tiative (BCI), which seemed to reso- nate with consumers and the big textile manufacturers, although certified cot- ton still represents only a fraction of the market (2.2% of global production in 2011/12). These certification initia- tives vary by approach and geographi- cal area, but all of them aim to make cotton more sustainable and socially responsible, and to increase the return to growers. The past 2 years have seen a fall in the global production of organic cot- ton, although India still dominates, with 75% of the market. Several countries are expressing their reservations about organic cotton, particularly Tanzania, the leading African producer (c.75% of Africa’s organic crop), which expe- rienced a fall in production (includ- ing conventional cotton) in 2012/13. Organic yields are smaller, and the price premium when paid (and this is not always the case) is not enough to compensate. “Organic cotton is in turmoil” Some growers are also finding it diffi- cult to secure a market for their cotton. African countries, unlike India and Tur- key, do not benefit from an integrated textile industry. They are price takers for organic cotton and conventional cotton alike. Without medium-term contracts to guarantee sales, growers will not stay in the market. Only Fair- trade cotton offers a minimum price and a price premium to the grower, but the brand seems to be marking time, since most of its cotton is also organic. Both certifications impose costs not applicable to the alternative CMIA and BCI marks, which conse- quently enjoyed considerable growth in 2010/11 and 2011/12. However, none of these initiatives guarantee a market to the producer. All imply additional costs, and they remain subject to supply and demand. Compliance with these sustainability criteria can offer African producers price premiums and attractive oppor- tunities, but it seems these are by no means guaranteed. Any ACP producer wishing to go down this route must ensure that the price premiums offered for organic cotton provide effective compensation for lower yields and the costs of certification. The development of textile industries in cotton growing countries would also leave growers less vulnerable to external market trends. Executive brief: Update 2013 I 8http://agritrade.cta.int/ Cotton sector Main sources Markets 1. OECD, ‘OECD-FAO agricultural outlook 2013-2022’, 2013 http://www.oecd.org/site/oecd-faoagriculturaloutlook/ 2. International Centre for Trade and Sustainable Development (ICTSD)/International Cotton Advisory Committee (ICAC), ‘Cotton: Trends in global production, trade and policy’, Informa- tion Note, May 2013 http://ictsd.org/downloads/2013/06/cotton-trends-in-global-production-trade-and-policy. pdf WTO 3. WTO, ‘Agriculture: The cotton sub-committee’, Web page http://www.wto.org/english/tratop_e/agric_e/cotton_subcommittee_e.htm 4. ICAC, ‘Production and trade policies affecting the cotton industry’, October 2012 https://www.icac.org/wp-content/uploads/2012/09/e_goverment-measures.pdf 5. ICTSD, ‘US farm bill discussions reignite: Cotton programme changed’, Bridges Africa Review, Volume 2, No. 3, 17 June 2013 http://ictsd.org/i/news/bridges-africa-review/169390/ EU 6. EC Directorate-General for Agriculture and Rural Development, ‘Cotton’, web page http://ec.europa.eu/agriculture/cotton/index_en.htm 7. United States Department of Agriculture (USDA), ‘Greece: Cotton and products annual 2013’, GAIN Report No. IT1310, 27 March 2013 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Cotton%20and%20Prod- ucts%20Annual_Rome_Greece_3-29-2013.pdf 8. USDA, ‘Spain: Cotton and products annual, Rains delay cotton plantings in Spain’, GAIN Report No. SP1302, 1 April 2013 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Cotton%20and%20Prod- ucts%20Annual_Madrid_Spain_4-1-2013.pdf Africa 9. USDA, ‘Senegal: Cotton and products annual, 2013 West Africa cotton and products’, GAIN Report, 26 April 2013 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Cotton%20and%20Prod- ucts%20Annual_Dakar_Senegal_4-26-2013.pdf Executive brief: Update 2013 I 9http://agritrade.cta.int/ Cotton sector Technical Centre for Agricultural and Rural Cooperation (ACP—EU) PO Box 380 6700 AJ Wageningen The Netherlands Tel: +31 (0) 317 467 100 E-mail: cta@cta.int - www.cta.int The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint ACP—EU institution active in agricultural and rural development in African, Caribbean and Pacific (ACP) countries. Its mission is to advance food and nutritional security, increase prosperity and encourage sound natural resource management. It does this by providing access to information and knowledge, facilitating policy dialogue and strengthening the capacity of agricultural and rural development institutions and communities in ACP countries. About this update This brief was updated in October 2013 to reflect developments since September 2012. Other publications in this series and additional resources on ACP–EU agriculture and fisheries trade issues can be found online at http://agritrade.cta.int/ Cotton labelling 10. ICTSD, ‘Fairtrade: From aid, to trade… to aid-for-trade? The Malian example’, article by G. Balineau, Bridges Africa Review, Vol. 2, No. 3, 17 June 2013 http://ictsd.org/i/news/bridges-africa-review/169397/ 11. Textile Exchange, ‘2012 Organic Cotton Farm & Fiber Report’, web page http://textileexchange.org/2012-farm-fiber-report 12. Fairtrade International, ‘Cotton’, web page http://www.fairtrade.net/cotton.html 13. Better Cotton Initiative website http://bettercotton.org/ 14. Cotton Made in Africa website http://www.cotton-made-in-africa.com/fr/ http://agritrade.cta.int/ Dairy sector I 1 In many ACP countries, the dairy sec- tor has the potential to make a major contribution to rural development and poverty alleviation. Income growth, rapid urbanisation and technological innovation are transforming the structure of demand for dairy products. In some ACP regions the supply of dairy products is increasing as a result of policy changes that have encouraged new entrants and supported improvements in dairy husbandry. This is creating new opportunities for both local dairy sector development and EU dairy sector companies. Since dairy sector development does not necessarily require local milk sup- plies, expanding local milk production to meet growing demand is just one policy option: another policy option is to use imported milk. Particular problems arise where major producers play a dominant role at the regional level (e.g. South Africa in the Southern Africa region and Kenya in East Africa). These policy challenges are heightened by: the increasing globalisation of dairy company operations, linked to evolv- ing patterns of global demand and milk production; the expansion of global trade in dairy products, particularly skimmed-milk powder (SMP); technological innovations, which are opening up untapped consumer demand in emerging markets.; Developments in the EU dairy sector are an integral part of these trends, with the EU’s dairy sector reforms further com- plicating the situation. The dismantling of EU production quotas – in a context of stagnant EU demand growth – will see milk production expand. The EU’s evolving ‘safety net’ policy, alongside update September 2013 Dairy sector 1. Background and key issues 1. Background and key issues 2. Latest developments Global dairy sector developments EU dairy sector developments Dairy sector developments in Eastern and Southern Africa Dairy sector developments in West and Central Africa Dairy sector developments in the Caribbean and Pacific 3. Implications for the ACP The key policy challenge faced Making use of trade policy tools and nuanced approach to investment Reconciling producer and processor interests Promoting managed and transparent regional dairy markets Balancing imports and local milk production development © Alfred Payne Executive brief: Update 2013 I 2http://agritrade.cta.int/ Dairy sector policy measures to strengthen the functioning of milk supply chains, is designed to insulate EU milk producers from the production consequences of global price volatility, while equipping EU dairy companies to capitalise on expanding global demand. This serves to strengthen the position of EU dairy companies within the globalisation process, despite cost competitiveness challenges. During the 2008/09 EU dairy market crisis, EU safety net measures resulted in intervention buying of SMP in quan- tities double the level of the nominal ceiling (the upper limit for European Commission [EC] intervention buying), fuelling a major subsequent growth in EU SMP exports (64% growth in 2010, followed by 37% in 2011). By 2012, SMP exports were more than double the level of exports in 2009. This has caused concerns among milk producers in regions that are seek- ing to develop intra-regional trade in dairy products, most notably in West and Central Africa. Illustrative of this is the rise in EU SMP exports to Nigeria and Ghana, which increased by 69% and 72% respectively in 2010. This occurred in a context where imports accounted for 50% of the market for dairy products in Nigeria, and virtually all commercially marketed milk prod- ucts in Ghana. EU policy appears to be supporting both innovation in the development of higher-value dairy products, while sus- taining expanded levels of SMP pro- duction and exports. EU dairy sector reform, in line with similar experience in the sugar sector, is encouraging the globalisation of EU dairy sector com- panies, many of which are increasingly adopting externally oriented develop- ment strategies. Some of these are targeting well-developed markets for dairy products in Africa. Given the EU’s commitments to policy coherence, the question arises: how can EU dairy sector policy instruments be effectively managed to support pov- erty-focused dairy sector development in ACP countries that have the poten- tial for commercially viable dairy sector development? 2. Latest developments Global dairy sector developments In 2011, global milk production rose by 2.5% as a result of higher milk prices. This reflected the rapid growth of dairy production in emerging markets – milk production in emerging mar- kets is expected to exceed produc- tion in developed economies by the end of 2013. However, 2012 proved a more difficult year, with milk produc- ers’ margins squeezed by rising feed costs and volatile prices. Global dairy prices declined to their lowest level in 2 years by May 2012, but recovered to within 2% of their 2012 starting point by year end, and made a firm start in 2013. Overall, as noted by Rabobank in December 2012, it was considered that with “limited supply-side stocks in storage, any increase in import require- ments in the first half of 2013 [would] substantially tighten the market”, fur- ther supporting prices. “By 2022, the EU is expected to account for 31% of global SMP exports” Growing globalisation of the dairy sec- tor saw world trade in dairy products increase by 10% to 58.2 million tonnes in 2011, substantially above the aver- age annual growth of 4% experienced in the preceding 10 years. The largest increase was in trade in SMP (+19%). Since 2010, the EU has played a major role in the expansion of the SMP trade. This is projected to continue until 2022, at which point the EU is expected to account for 31% of global SMP exports. In the coming years, the strongest growth in demand for dairy products will be in developing countries. “In the coming years the strongest growth in demand for dairy products will be in developing countries” OECD/FAO analysis in their report ‘Agricultural outlook 2012–2021’ of 2012 suggests that consumption of all dairy products in developing coun- tries by 2021 will have grown by 30%, compared to a base period of 2009–11. In recent years, strong growth in con- sumer demand has occurred in sub- Saharan Africa, with a 22% increase in the 6 years to 2012. With rising incomes, rapid urbanisation and low average per capita consumption, fur- ther potential for growth in demand exists in this region. Technological innovation, particularly low-cost pack- aging of liquid milk products (UHT milk) is critical to releasing untapped market opportunities. There is also potential for developing urban markets for pro- cessed dairy products. According to the OECD/FAO report, up to 2021 “the majority (70%) of global milk production gains… is anticipated to come from developing countries, particularly India and China.” How- ever, sub-Saharan Africa is an excep- tion to the global production trend: the OECD/FAO analysis suggests that in sub-Saharan Africa “productivity lev- els are very low and unchanging.”. Milk production expansion in line with population growth is projected for the region as a whole, but with exceptions: in some sub-Saharan countries, higher prices have “encouraged greater par- Executive brief: Update 2013 I 3http://agritrade.cta.int/ Dairy sector ticipation in the formal milk sector, thereby increasing milk pooling and milk quality needed for commercial sector growth”. Overall, widely differing demand and production growth trends will increase the importance of African markets. These markets are particularly impor- tant for SMP exports, given the con- straints faced in developing commer- cial milk production in Africa – such as poor herd quality, animal diseases, hostile climate, high cost of feed and poor animal husbandry practices. The OECD/FAO analysis maintains that the international dairy trade is increasingly being driven by “strategic decisions of large international dairy companies”. Emerging corporate strat- egies in the EU dairy sector are wholly consistent with this trend (see Agritrade article ‘End of dairy quotas leads to greater external focus of EU dairy com- panies’, 4 March 2013). EU dairy sector developments The abolition of EU milk production quotas remains on schedule for 2015, and the EC maintains that quotas no longer limit milk production in most EU countries. Quota abolition is projected to lead to an annual 9 billion litres of additional milk production, mainly in Denmark, France, the UK, Ireland, Netherlands and Germany. “EU quota abolition is pro- jected to lead to an additional 9 billion litres of milk a year – 67% of this will need to find markets outside the EU” Fully 67% of this expanded production will need to find markets outside the EU (see Agritrade article ‘Dairy quota abolition on track but EU farmers con- cerned’, 28 January 2013). Prospects for the EU dairy sector are seen by the EC as favourable, given “population growth and interest for western diet in emerging economies”. However, price volatility remains an ongoing concern. In the first half of 2012, falling dairy prices placed a strain on the functioning of EU dairy supply chains. Sudden milk price cuts led the European Milk Board (EMB) to warn of a 2008–09 style milk crisis, with pro- ducers in Italy, France, Netherlands and Belgium facing price reductions of between 10 and 20%. This situation was compounded by rising input costs (20–22%). In May 2012, EU farmers’ organisations called for a “robust code of practice for the dairy sector” to address ongo- ing imbalances in power relationships and promote a more sustainable dairy sector. The EMB argued at this time that “the only way to shift the increased volume of milk” overhanging the EU market was “to dispose of it on the world market in the form of butter and milk powder” (see Agritrade article ‘Stress on EU dairy markets reveals shortcomings in functioning of supply chains’, 18 June 2012). According to the EC, overall price vola- tility in 2011–12 was less pronounced than in 2007–09, with higher average prices. A policy framework for manag- ing price volatility is seen as being in place via the proposed expansion of the EU’s safety net policy (see Agritrade article ‘EC proposals for the reform of the CAP leaked’, 6 October 2011) and the entry into force of the EU regula- tory framework for strengthening the functioning of supply chains. No further reforms are seen as necessary. However, the EU regulatory framework has been criticised. In some countries, formal regulatory requirements have been established (e.g. in France), in others a voluntary code of conduct applies (e.g. in the UK), while in some other countries little progress has been made (e.g. in Spain). Where stronger regulatory measures or voluntary codes have been established, prices paid to producers for milk have been supported: in the UK, for example, price cuts were withdrawn or reversed (see Agritrade article ‘National moves to strengthen functioning of UK dairy supply chains’, 28 October 2012). The EU farmers’ and agri-cooperatives’ organisation Copa-Cogeca maintains that the current dairy package is “not sufficient” to meet the challenges faced by the sector, and has called for support to farmers’ organisations “to strengthen their position in the food chain against the buying power of a few retailers”, and for the maintenance of intervention and private storage meas- ures (see Agritrade article ‘Dairy quota abolition on track but EU farmers con- cerned’, 28 January 2013). No EU intervention buying has taken place since 2009, and by the end of 2012, publicly held intervention stocks of SMP and butter had been eliminated. According to the EC, this has been achieved “without disturbing the market”. However, EU exports of SMP since 2009 have increased nearly threefold (from 231,000 tonnes in 2009 to 618,000 tonnes in 2012). “SMP exports are projected to increase steadily, reaching 678,000 tonnes in 2022” A steady increase in SMP exports is foreseen, reaching a projected 678,000 tonnes in 2022, resulting from expanded EU production and stagnant EU consumption (see Agritrade arti- cle ‘EU dairy sector developments and prospects’, 15 April 2013). The expansion of EU SMP exports from 2009 was initially based on stocks Executive brief: Update 2013 I 4http://agritrade.cta.int/ Dairy sector bought into emergency intervention. These exports may well have disrupted specific milk supply relationships in third countries targeted by EU SMP exporters, including in West Africa. The elevated levels of EU SMP available for export up to 2022 are informing EU corporate dairy sector strategies. In January 2013, the Danish dairy com- pany Arla acknowledged that quota abolition was “the main driver behind [its] decision to revise and extend [the company’s] global strategy”. The Arla group commented that its milk farmers alone would produce at least 1 billion litres more of milk each year after quota abolition. With stagnating markets in the EU, this will require increased sales to new consumers in emerging mar- kets. According to the Chair of the Arla Board of Directors, penetrating these new markets “will help to maintain a viable dairy business in northern Europe”. In October 2012, a dairy sector work- shop convened by the Danish Con- federation of Industry identified export potential and investment opportuni- ties in East Africa, given “increasing consumption of milk” and the mod- ernisation of milk marketing channels. Opportunities for turnkey projects in West Africa have also been identified, particularly in markets where high- quality dairy products are seen as synonymous with EU dairy products (including the use of EU intermediate inputs such as SMP). While this can offer scope at the national level for expansion of dairy processing, it can pose challenges for the development of regional dairy trade policies and trade flows. Arla’s increasingly outward-looking strategy mirrors that of rivals such as French-based Danone and Dutch- based FrieslandCampina, the latter of which has been extending its opera- tions in Nigeria (see Agritrade articles ‘End of dairy quotas to lead to greater external focus of EU dairy companies’, 4 March 2013 and ‘Expanding Dutch corporate involvement in local milk procurement in Nigeria’, 15 April 2013). “EU dairy sector reform is prov- ing successful in positioning EU dairy companies to take advantage of expanding global market opportunities” Various press reports observe that EU dairy sector reform is proving success- ful in positioning EU dairy companies to take advantage of expanding global market opportunities (see Agritrade article ‘EU dairy sector corporate restructuring under way, with shifting global demand’, 9 September 2012). However, EU companies face serious constraints in exporting. These include: the price gap between EU and world prices; the dominant role played by a limited number of companies in the global export trade (many of these with easier access to rapidly expanding Asian markets); growing milk production in develop- ing countries. While in the longer term a greater inter- est lies in developing high-value dairy exports, in the short term SMP is in the forefront of EU export growth. Techni- cal know-how and the ready supply of milk powder for use in reconstituted dairy products could well facilitate the process of global expansion of Euro- pean dairy companies (see Agritrade article ‘Globalisation of EU dairy com- panies under way’, 16 December 2012). Dairy sector developments in Eastern and Southern Africa According to the South African Milk Producers’ Organisation (MPO), 2012 was a “tough year” for the South Afri- can dairy sector, with rising input costs and consumer demand expanding faster than production. Milk production in the country continued to become more capital intensive, while milk pro- ducers’ share of the final retail price continued to decline (from 45% in 1998 to 30% in 2011). South Africa applies a differentiated import tariff regime, with low tariffs for liquid milk (including UHT) and higher tariffs for milk powders and butter and cheese (although with some tariff pref- erences for imports from the EU). The implementation of this differentiated tariff regime is facilitated by close col- laboration between the South African authorities, the MPO and its affiliated company Agri Inspec, which under- takes forensic investigations of dairy sector trade flows. Between 1997 and 2008 the trade regime applied in South Africa saw dairy imports decrease from 12 to 4% of total milk-equivalent supplies. Since 2009, imports have been rising, with UHT milk from South American sup- pliers landed at below South African prices in 2012. “The South African dairy industry has been effectively integrating milk powder imports into its Africa-focused export strategy – with exports growing faster than imports” However, the South African dairy indus- try has been effectively integrating milk powder imports into its Africa-focused export strategy, with exports growing faster than imports (see Agritrade article Executive brief: Update 2013 I 5http://agritrade.cta.int/ Dairy sector ‘Trends in South Africa dairy trade high- lighted’, 18 March 2013). This expansion of South African exports has given rise to complaints from Namibian milk producers of ‘dumping’ (largely based on non-inclu- sion of real distribution costs in retail prices), following the ending of infant industry protection arrangements in 2010 (see Agritrade article ‘Addressing dairy product predatory pricing prac- tices within customs unions’, 9 Sep- tember 2012). This has led to calls for milk to be declared “a protected prod- uct”, whereby licences would be used to manage imports in ways consistent with local dairy sector development (a similar regime is applied in the horticul- ture sector). However, to date no deci- sion has been taken on this request. Differences in the standards applied to milk products also undermine Namib- ian price competitiveness, as the feed supplements and antibiotics used in South Africa are banned in Namibia, due to requirements on beef export markets. These concerns exemplify some of the difficulties faced in building regional markets, when the producers of one country overshadow other regional producers. Such a situation often gives rise to considerable protection- ist pressures on national food security grounds, and is further complicated by divergent production standards. “SPS and food safety concerns in the region have provided the basis for import restrictions” Elsewhere in the region, notably Zam- bia, SPS and food safety concerns have provided the basis for import restrictions. Zambia is looking to develop its dairy sector, with only 15% of the country’s dairy potential currently being exploited. However, serious pro- ductivity and competitiveness chal- lenges are faced. There is significant competition from South African and Kenyan exporters, which has gener- ated pressure for import restrictions. Such restrictions, however, can only ever be a temporary solution. Across the region, major investments in the reduction of dairy sector production costs are required, including through the development of backward linkages to feed producers. “In Kenya, dairy farming is the fastest growing agricultural sub-sector” In Kenya, dairy farming is reported to be “the fastest growing agricultural sub-sector”. A significant expansion of commercial milk production has been under way since 2002 (+150% by 2011). The entry of private players and the formation of smallholder cooperatives have seen significant advances in both production and value addition in the dairy sector. Currently there are many successful dairy cooperatives that are increasingly processing their own milk and selling products in urban areas. However, there is a need for greater investment in “simple technologies that can boost milk conservation at farm level”, and in processing capacity to convert seasonal surpluses into milk powder. In July 2012 a proposal was tabled for the creation in Kenya of “a strategic reserve to cushion against fluctuations in production” (see Agri- trade article ‘Strengthening the Ken- yan dairy sector and seeking regional markets’, 6 August 2012). The need for investment in milk pow- der facilities was illustrated by the role played by the release of stocks of milk powder by New Kenya Co-operative Creameries (NKCC) in March 2012 in dampening down rising milk prices (see Agritrade article ‘Dairy processing and the East African regional market’, 7 May 2012). In the course of 2013, Brookside Dairies will have a milk powder plant in operation alongside the long established NKCC milk pow- der production facility. However, milk powder production capacity will still be below requirements, with milk going to waste during peak periods and sub- stantial imports taking place during low production periods. The East African Community (EAC) is seen as having major potential for growth in production and markets. Regional production is almost 15% lower than consumer demand, which is growing strongly (at +3.5% per annum). Tetra Pak sees this growth as being driven by low-income consumers. Product development and low-cost packaging innovations are seen as essential. Kenyan dairy sector companies are not only expanding domestic produc- tion for export, but are also investing regionally. Brookside Dairies, for exam- ple, has set up operational branches in Uganda and Tanzania and is planning to establish operations in South Sudan. Establishing processing plants locally is seen as a more viable strategy than simply exporting Kenyan products. Alongside international imports, rising imports of milk products from neigh- bouring African countries are a source of concern in some countries. Accord- ing to the Tanzania Dairy Board (TDB), “between 25 and 27 million litres of milk are imported yearly”, equivalent to national commercial milk produc- tion. A significant downsizing of the Tanzanian dairy sector has occurred over the past 15 years, with Tanzania’s remaining dairies operating at less than 27% of installed capacity. The TDB has announced ambitious plans to “increase milk production and process- ing, marketing and promotion of con- sumption of milk and dairy products in the country”, including the establish- Executive brief: Update 2013 I 6http://agritrade.cta.int/ Dairy sector ment of a UHT facility. However, the Tanzania Milk Processing Association (TAMPA) maintains that major policy and regulatory reforms to end multi- ple testing, inspection and licensing requirements will be required if these ambitious plans are to be realised. Efforts are taking place, as part of Ken- ya’s dairy export strategy, to harmonise sanitary and phytosanitary (SPS) and quality standards, in order to remove non-tariff barriers to trade across East- ern and Southern Africa. However, this is by no means a straightforward process. Which production standards should be used? How will small-scale producers be affected by these new standards? And what can be done to support compliance with the new standards? These are highly charged issues. In addition, any process of harmonisa- tion of standards will require substan- tial investment in quality improvements and ensuring the regularity of supply of safe dairy products. Currently Mauritian importers, for example, favour EU and US sources of supply on the basis of considerations of SPS, quality and reli- ability of supply. Trade restrictions such as poor infra- structure, import licences and low levels of harmonisation of standards continue to seriously inhibit trade in dairy products across Southern and Eastern Africa. The aspirations of gov- ernments across the region to expand both domestic milk production and dairy processing in response to grow- ing demand suggest that dairy sector trade policy is likely to remain an area of contention within regional integration initiatives. Dairy sector developments in West and Central Africa Dairy product imports remain a mat- ter of concern in West and Central Africa. However, analysis published by the US Department of Agriculture (USDA) has put these concerns in con- text, highlighting Ghana’s “near total dependence on bulk milk imports” and the dependence of the Nigerian dairy sector on imported inputs – 75% of dairy products and dairy-related pro- cessed food products in Nigeria “rely almost entirely on imported powdered milk”, while over half of demand is met through direct imports (see Agritrade article ‘Nigerian and Ghanaian mar- kets offer further growth potential for EU dairy exports’, 2 February 2013). In both instances, imports from the EU (Netherlands and Denmark) domi- nate the market for both intermediate and final products, partly linked to the high level of consumer confidence in the safety of European dairy products. “Imports from the EU domi- nate the market in Nigeria and Ghana for both intermediate and final products” While demand for value-added dairy products is rising rapidly, USDA main- tains that outdated technologies, rising input costs and underlying competi- tiveness challenges mean that the local dairy sector is poorly placed to meet rising consumer demand. However, in the course of 2012 FrieslandCampina WAMCO, a subsidiary of the largest dairy cooperative in the world, con- tinued to roll out its Nigerian milk pro- curement programme. The short-term aim is to procure 10% of milk locally, with a 10-year vision of 50% local pro- curement. This could prove ambitious, since even in livestock-based econo- mies such as Mauritania, 65% of dairy demand is met from imports. Ghana is seen by USDA as “a key access point for entry into the West African region market”. According to Indexmundi.com, around 12.5% of total Ghanaian milk powder imports are re-exported. In 2010, some 12.3% of Nigerian milk powder imports were re-exported. While the percentage is similar, the volumes from Nigeria are ten times higher than those from Ghana. The EU milk powder exports are increasingly finding their way onto inland markets, where they directly compete with local milk products. This raises questions regarding the tariff treatment of these re-exports under the ECOWAS trade liberalisation scheme, since they are not eligible for duty-free treatment. Efforts continue to develop commer- cial dairy production across West and Central Africa, with the regional farmers’ organisation ROPPA calling for increased tariff protection for milk products. The majority of governments in the region are seeking to implement policies to promote local milk produc- tion in order to strengthen local food availability, create employment oppor- tunities, reduce their trade deficits and promote structural development. “The regional farmers’ organi- sation ROPPA has called for increased tariff protection for milk products” As the majority of dairy farmers are smallholders, there are deliberate efforts to invest in smallholder dairy value chains as a long-term solution. In Senegal, for example, a dairy genetics project has been launched to improve herd quality and milk yields. Across the region, smallholder-based dairy systems continue to face effi- ciency and quality challenges. This suggests that the development of com- mercial dairies linked to global supply Executive brief: Update 2013 I 7http://agritrade.cta.int/ Dairy sector chains may offer the most immediate prospects for meeting growing con- sumer demand for safe, high-quality dairy products. Given the success enjoyed in East Africa in promoting the commercial production of milk by smallholder farm- ers, it appears premature to discount the potential for small-scale produc- ers in West and Central Africa to meet growing consumer demand. However, dairy sector development based on local milk production will continue to be seriously disadvantaged if wider eco- nomic challenges are not addressed. Such challenges include poor trans- port and energy infrastructure, informal barriers to the development of reliable supply chains, and policy constraints on promoting investment in the sector. Dairy sector develop- ments in the Caribbean and Pacific “Across the Caribbean local production of dairy products falls short of domestic demand” Across the Caribbean, with the pos- sible exception of Barbados, local pro- duction of dairy products falls short of domestic demand. However, a primary policy objective remains to secure and expand markets for domestically pro- duced fresh pasteurised milk, in addi- tion to building capacity for a mix of other dairy products, including milk- based drinks, cheese and yoghurt. The major commercial regional producers continued to be Barbados, Belize, Dominican Republic, Guyana, Jamaica and Trinidad & Tobago. In the Dominican Republic, Jamaica and Trinidad & Tobago, Nestlé Inter- national continues to be an essential pillar for industry development, part- nering with the government and dairy farmers’ associations to invest in farm productivity improvements and product development. In September 2012, Nestlé invested US$8 million in a new production line at its factory in Jamaica. On 7 March 2013, in Trinidad & Tobago, the com- pany signed a Memorandum of Under- standing to improve the quality and quantity of the country’s dairy stock, based on imports of the Jamaica Hope breed, for which there is grow- ing demand across the region. Guyana is currently focusing its efforts on improving its genetic stock, with a genetic laboratory commissioned in October 2012. These efforts are com- plemented by plans to develop pasteur- isation capacity in order to reduce the importation of dairy products by 10% by 2015. While some countries such as Guyana still depend on imports of bulk milk powder for repackaging and reconstituting to meet local consump- tion, such imports severely compound the challenges faced by other produc- ers in maintaining industry profits and optimising returns to investment. In Barbados and Belize, the dairy industry is dominated by lone national companies Pine Hill Dairy (PHD) and Western Dairies respectively. With increasing inputs costs and competi- tion from imported yoghurts and evap- orated milk, at the end of 2012 PHD reported a very challenging financial situation, which saw the closure of its yoghurt plant on 31 December 2012. This followed the reinstatement of a milk production quota system from 1 July 2012, after a 1-year suspension. PHD has, however, agreed to absorb increases in the cost of processing and not institute any further quota reductions before 31 December 2013. Producers for their part agreed to a temporary reduction in the farm gate milk price until 30 April 2013, as part of efforts to bring local milk to market at more affordable prices. PHD has resolved its market access issues with Trinidad and has resumed exports of its products, as well as initiating exports for the first time to Jamaica in 2012. The company has also set September 2013 as its target date for complying with four interna- tional ISO and OSHAS standards. This is expected to significantly boost PHD’s capacity for international trade. In Belize, Western Dairies is facing intense competition from imports from Mexico: the Belize market is dominated by imported dairy products (which are valued at Bz$5.18 million - €1.97m – compared to local production valued at Bz$2.42 million - €0.92m). The lack of a national dairy policy and trade poli- cies that encourage imports continues to disadvantage the local dairy indus- try. Rising input costs compound the problems faced, with little active gov- ernment support in easing input costs. Nevertheless, Western Dairies is invest- ing in expanding its processing facility and upgrading its equipment in line with food safety requirements. The company is in the final stages of HACCP certifica- tion, an important pillar of its marketing strategy. Despite the challenges at the level of farm production (in terms of low vol- umes, high costs, and trade challenges arising from increased imports and intra-regional trade barriers), continu- ing efforts are being made to develop the Caribbean dairy sector. However, more integrated government policies are considered to be necessary to support the local industry, from farm to market. Barbadian stakeholders are currently engaged in a process to develop a strategy paper for the sus- tainability of the local dairy industry, Trinidad and Tobago is also in the pro- Executive brief: Update 2013 I 8http://agritrade.cta.int/ Dairy sector cess of articulating a national livestock policy, including development support to the local dairy industry, while in Guy- ana a consultancy study is under way to develop a national livestock policy and a strategic plan, aimed at con- solidating and expanding current and planned dairy industry development initiatives. For the countries in which it operates, Nestlé, the major buyer of local farm fresh milk, will continue to figure prominently in these national dairy development initiatives. “Increasingly the future in the Caribbean dairy sector lies in vertically integrated and effi- cient milk/dairy enterprises, targeting clearly identified market components” Increasingly the future in the Caribbean dairy sector is seen to lie in vertically integrated and efficient milk/dairy enterprises, targeting clearly identified market components. This requires the right mix of: domestic policies to reduce rising input costs and improve the effi- ciency of dairy supply chains; trade policies to manage SMP imports; technological innovation in process- ing and packaging, within the frame- work of clear marketing and sector development strategies. In the Pacific region, the major dairy sector development in 2012 was the sale in August of government-held stock (80%) in Fiji’s sole dairy com- pany, Fiji Dairy Ltd, to Southern Cross Foods, a subsidiary of a multi-sector company with food procurement and distribution operations across the Pacific and parts of Asia. A number of conditions of sale were included in the privatisation agreement, linked to a government commitment to estab- lish “concessionary duty rates… to ensure growth in local production” (see Agritrade article ‘Privatisation raises hopes for Fijian dairy sector but issues remain’, 25 March 2013). The privatisation process builds on the restructuring that has been in train since 2010, which led to the separa- tion of the milk production and milk processing arms of the majority gov- ernment-owned company. The govern- ment hopes that the privatisation pro- cess will provide a basis for overcom- ing past problems that have plagued the sector, including “mismanagement, corruption, inefficiency and outdated infrastructure and technology”. A variety of dairy sector support meas- ures were announced in Fiji in 2012, including a 20-year tax holiday for new dairy farms and direct support to boost production. Currently domestic pro- duction accounts for less than 13% of consumption in Fiji. In November 2012, Fijian milk producers complained about the milk pricing policy of the newly pri- vatised company, which were seen as yielding farm gate prices below the average in the pre-privatisation period. This suggests that a voluntary code of conduct approach such as that adopted in the UK could be relevant in Fiji (see Agritrade article ‘More details of UK dairy code of practice emerge’, 4 January 2013). 3. Implications for the ACP The key policy challenge faced “African dairy markets are of growing interest for EU trade and investment” African dairy markets are of growing interest for EU trade and investment. Corporate interest could take the form of takeovers of existing companies, joint ventures or entirely new invest- ments. A critical question for African governments and regional dairy sector strategies will be how to use the evolv- ing global dairy sector trade dynamic to boost both local milk production (especially by small-scale farmers, with important poverty alleviation implica- tions) and local value-added process- ing of dairy products. Making use of trade policy tools and nuanced approach to investment European dairy companies can play a role in expanding production and improving the quality of milk and dairy products across East Africa. However, important lessons can be drawn from experiences elsewhere in Africa. In the 1990s two distinct patterns of investment emerged in the South Afri- can dairy sector in the face of the huge new market potential. In KwaZulu- Natal, a joint venture was initially estab- lished, focusing on developing markets for new value-added dairy products. This saw demand for locally produced milk increase and sustained higher average milk prices than elsewhere in South Africa. In the Cape region, a pro- cess of acquisition of local dairy com- panies by a European dairy company Executive brief: Update 2013 I 9http://agritrade.cta.int/ Dairy sector took place. This focused on securing access to distribution channels and integrating local dairy processing into global sourcing chains for dairy ingredi- ents controlled by the European parent company. This saw the closure of the Cape region’s largest milk drying plant, which introduced greater milk price vol- atility to the Cape market and subse- quently saw a significant decline in the number of dairy farmers in the Cape. These takeovers occurred following a large-scale expansion of illicit ‘imports’ of milk powder into South Africa, which undermined the financial position of many locally established dairies. This experience highlights the need for a nuanced approach to foreign direct investment in the dairy sector, if the policy aim is to commercialise milk production to alleviate rural poverty. It suggests that careful management of imports of milk powders and other dairy sector ingredients are required, within government efforts to promote local commercial milk production. Reconciling producer and processor interests In West and Central Africa, difficult choices are faced in the short term over whether to prioritise the strength- ening of local milk procurement and value-added processing or to push for a more rapid expansion of local value-added dairy processing based on imported raw materials. “How can the existing depend- ence on dairy imports be bet- ter managed to create space for local dairy sector develop- ment?” The question arises: how can the exist- ing dependence on dairy imports be better managed to create space for local dairy sector development, where this is technically and commercially viable? Experience elsewhere in the ACP suggests that the future of ACP dairy sectors lies not only in technological improvements to enhance productivity, and better organisation and manage- ment of dairy supply chains, but also in careful targeting of clearly identified dairy market components. Coherent policies on dairy product imports, including the role of milk powder imports in supporting the strengthen- ing of local milk supply chains, will be a critical component of any such regional dairy development strategies. Promoting managed and transparent regional dairy markets Across the ACP, if regional markets are to be created that are capable of attracting investment in local milk supply chains and value-added pro- cessing, ways will need to be found to manage protectionist pressures and ensure the transparent and account- able use of dairy sector trade policy tools. These may need to include the development of regional policies for strengthening the functioning of dairy supply chains, within managed moves towards regional trade integra- tion. The process is also likely to give rise to considerable debate over both the product standards to be applied to regional trade and the rules of ori- gin to be applied to processed dairy products. Balancing imports and local milk production development Recent developments in the Fijian dairy sector need to be seen against the background of Fiji’s dominant role in commercial milk production (90%) among Pacific Island Countries (PICs) and the past practices in the Fijian dairy sector of import-based product distribution. “If the aim is to increase local milk production, a more coher- ent policy on the role of milk powder imports within the overall milk procurement profile is needed” If the aim is to promote increased local milk production, then a more coher- ent policy on the role of milk powder imports within the overall milk procure- ment profile will need to be established. In addition, a clearer and transparent system on milk pricing appears neces- sary in order to ensure that tariff con- cessions provide incentive prices for expanding local milk production. The extensive procurement and dis- tribution network of the parent com- pany of the newly privatised Fijian dairy company potentially raises important regional dairy sector trade policy issues (particularly related to rules of origin) for other Pacific countries that may be seeking to promote increased local milk production and dairy sector development. Executive brief: Update 2013 I 10http://agritrade.cta.int/ Dairy sector Main sources 1. International Dairy Foods Association, ‘IDF “World Dairy Situation 2012” report notes increa- sing globalization’, 7 November 2012 http://www.idfa.org/news--views/details/7783/ 2. OECD-FAO, ‘Agricultural outlook 2012–2021’, 2012 http://www.keepeek.com/Digital-Asset-Management/oecd/agriculture-and-food/oecd-fao- agricultural-outlook-2012_agr_outlook-2012-en 3. European Commission (EC), ‘Evolution of the market situation and the consequent conditions for smoothly phasing out the milk quota system – second “soft landing” report’, COM(2012) 741 final, 10 December 2012 http://ec.europa.eu/agriculture/milk/quota-report/com-2012-741_en.pdf 4. US Department of Agriculture (USDA), ‘Exporter guide (2012): Nigeria’, GAIN Report, 20 November 2012 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Exporter%20Guide_Lagos_Nige- ria_11-20-2012.pdf 5. USDA, ‘Ghana exporter guide 2012’, GAIN Report, 2 November 2012 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Ghana%20Exporter%20 Guide%202012_Accra_Ghana_11-2-2012.pdf 6. USDA, ‘EU-27: Dairy and Products Annual 2012’, GAIN Report PL1218, 15 October 2012 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Dairy%20and%20Products%20 Annual_Warsaw_EU-27_10-11-2012.pdf 7. EC, ‘Agriculture in the European Union: Statistics and economic information 2011, March 2012 http://ec.europa.eu/agriculture/statistics/agricultural/2011/pdf/full-report_en.pdf 8. The Dairy Site, website with international news and analysis from the dairy sector http://www.thedairysite.com/ 9. EC, DG Agriculture and Rural Development, ‘Milk and milk products’, web page http://ec.europa.eu/agriculture/milk/index_en.htm 10. EC, DG Agriculture and Rural Development, ‘Prospects for agricultural markets and income in the EU 2012-2022’, December 2012 http://ec.europa.eu/agriculture/markets-and-prices/medium-term-outlook/2012/fullrep_ en.pdf About this update This brief was updated in September 2013 to reflect developments since August 2012. Other publications in this series and additional resources on ACP–EU agriculture and fisheries trade issues can be found online at http://agritrade.cta.int/. Technical Centre for Agricultural and Rural Cooperation (ACP—EU) PO Box 380 6700 AJ Wageningen The Netherlands Tel: +31 (0) 317 467 100 E-mail: cta@cta.int - www.cta.int The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint ACP—EU institution active in agricultural and rural development in African, Caribbean and Pacific (ACP) countries. Its mission is to advance food and nutritional security, increase prosperity and encourage sound natural resource management. It does this by providing access to information and knowledge, facilitating policy dialogue and strengthening the capacity of agricultural and rural development institutions and communities in ACP countries. Executive brief: Update 2013 I 1http://agritrade.cta.int/ The Common Fisheries Policy (CFP) gov- erns the activities of EU fishing fleets, including their distant-water operations. The CFP is reviewed every 10 years, with the latest reform having been finalised in mid 2013. “The CFP is reviewed every 10 years – the latest reform was finalised in mid 2013” The new CFP will be financed through the European Maritime and Fisheries Fund (EMFF), details of which are still under discussion. The EMFF will cover expen- ditures related to EU’s external fisheries policy, including financial contributions to Fisheries Partnership Agreements (FPAs); participation in tuna regional fisheries management organisations; and, in all probability, funding for temporary ces- sation of activities when fisheries agree- ment protocols are not renewed on time. Expenditures under FPAs can be com- plemented by European Development Funding, particularly for regional moni- toring, control and surveillance (MCS) programmes. update October 2013 EU Common Fisheries Policy and Fisheries Partnership Agree- ments: Challenges for ACP countries 1. Background and key issues 1. Background and key issues 2. Latest developments The future CFP basic regulation European Parliament debate on the future external dimension of the CFP Fisheries Partnership Agreements Negotiating the future European Maritime and Fisheries Fund (EMFF) IUU ACP country initiatives 3. Implications for the ACP Creating a transparent and level playing field for all foreign fleets to increase long-term benefits Transparency and stakeholders’ participation: Key ingredients for long-term benefits Determining access conditions for distant-water fleets Monitoring CFP reform implementation © J-F Chénier Executive brief: Update 2013 I 2http://agritrade.cta.int/ EU Common Fisheries Policy and Fisheries Partnership Agreements: Challenges for ACP countries Within the CFP, FPAs and EU initia- tives in regional fisheries management organisations provide the main frame- work for ACP–EU fisheries relations. Currently the EU has in force eight FPAs – all tuna related – with ACP countries, and nine other FPAs in place but with no protocol agreed. However, in some cases, notably Mauritania, the negotiated protocol is being provisionally implemented, pending the consent of the European Parliament (EP). Fewer than half of the EU’s 700-ves- sel external fleet are involved in FPAs, while around 400 vessels operate under joint ventures established in third countries, including many ACP coun- tries. In some cases, an ACP coun- try has both EU vessels fishing under an FPA and vessels of EU origin, but flagged to a non-EU country, fishing under a joint venture. Reformed bilateral fisheries agree- ments are in future to be referred to as Sustainable Fisheries Partnership Agreements (SFPAs), to emphasise the new focus placed on the sustainability and good governance of EU fishing activities in third countries’ waters. 2. Latest developments The future CFP basic regulation The 2013 CFP reform included an increased role for the EP under the co-decision provisions of the Lisbon Treaty. This necessitated the conven- ing of a trilateral dialogue process (or ‘trilogue’) between the three main EU institutions to get a general agreement on the reformed CFP. In response to European Commission (EC) proposals at the end of 2012, the EP called for provisions that required EU vessels fishing outside EU waters to comply with the same requirements as vessels fishing inside EU waters, including, for example, with regard to the ban on discards (see Agritrade article ‘European Parliament Fisheries Committee takes a strong position on the future external policy’, 24 Febru- ary 2013). “The Parliament called for EU vessels fishing outside EU wa- ters to comply with the same requirements as vessels fishing inside EU waters” The EP rejected EC proposals for the establishment of ‘transferable fishing concessions’ (TFCs) (a form of indi- vidual transferable quotas), including in the operation of tuna regional fisher- ies management organisations. Despite this lack of support for TFCs, the European Commission reacted positively to the vote, highlighting that it supported the key elements of the Commission’s proposal for a new CFP (see Agritrade article ‘Fisheries Com- mittee calls for end to overfishing and discards’, 31 January 2013). Subsequently, in February 2013, the EP plenary voted by a large majority in favour of an in-depth reform of the CFP, including a requirement that future quo- tas be set “according to sustainability goals, instead of through yearly hag- gling between ministers”. This would require EU member states to respect the maximum sustainable yield (MSY) from 2015 onwards, by allowing fisher- men to catch no more than the annual replenishment of stocks. The EP also adopted a complete dis- card ban – rejecting an amendment that would have weakened the discard ban – by removing a provision to ena- ble a 5% discard of the catches. The Parliament further called for the alloca- tion of fishing rights on a preferential basis to favour those who fish in an environmentally and socially respon- sible manner. Part of the CFP reforms endorsed by the EP related to the external fisher- ies policy, including a new chapter on fishing operations taking place outside the scope of fishing agreements and regional fisheries management organi- sations (see Agritrade article ‘European Parliament approves reform of the Common Fisheries Policy’, 25 March 2013 and the section below). “For the CFP reform, the EP included a new chapter on fishing operations taking place outside fisheries agreements and RFMOs” For its part, the EU Fisheries Council adopted its final negotiating position on the CFP in February 2013. This posi- tion was at variance with the position adopted by the EP – including on the treatment of discards – with the EU Council favouring to allow a certain percentage of discards under speci- fied circumstances (see Agritrade arti- cle ‘EU anti-discards policy’, 3 June 2013). A timeline was also proposed for the implementation of the discard ban. Tuna and small pelagic fisheries will be the first to have a discard ban implemented from January 2014, and a discard ban for fisheries in third-coun- try waters will be fully in place by the beginning of 2017. Spain and France declared their satisfaction with the results. The EU Council’s conclusions on the external dimension of the CFP from earlier in 2012 were also endorsed at this time (see Agritrade article ‘Fish- eries Council adopts conclusions on the external dimension of the CFP’, 23 April 2012). Executive brief: Update 2013 I 3http://agritrade.cta.int/ EU Common Fisheries Policy and Fisheries Partnership Agreements: Challenges for ACP countries In response to the Council’s posi- tion, the EC Fisheries Commissioner emphasised the need to fish more selectively, maintaining that “this is the most important element of the whole policy.” The Commissioner asserted that there would be enough money to finance accompanying measures designed to facilitate the implementa- tion of the proposed changes, in par- ticular technological changes such as the introduction of improved net design to filter out fish that would otherwise be discarded as too small or above quota (see Agritrade article ‘Discard ban adopted by the Fisheries Council of Ministers’, 25 March 2013). Up to mid 2013, seven ‘trilogue’ nego- tiating sessions took place, giving rise to an agreement on a final text of the basic regulation, which will enter into force on 1 January 2014. European Parliament debate on the future external dimension of the CFP A whole chapter in the CFP basic regu- lation is devoted to the EU’s external policy. Guidance on how this chapter was to be dealt with in the basic regu- lation was provided by a stand-alone parliamentary report on the future “EU external dimension”. The EP called for future EU involvement in tuna regional fisheries management organisations to be based on “trans- parent and equitable” resource alloca- tion, using “incentives based on envi- ronmental and social criteria, as well as historical catches”, and not “trans- ferable fishing concessions systems”. On bilateral agreements, the EP insisted that fishing access should be limited to “resources that are scientifi- cally demonstrated to be surplus for the coastal State in line with the pro- visions of UNCLOS”. The exclusivity clause – which allows vessels to fish under FPAs only if they are flagged in the EU – should be strengthened so that, in the absence of an agreement protocol, EU vessels would not be able to fish by taking private licences not covered by the FPA conditions. The EP also called for the decoupling of financial compensation for access to fisheries resources from the part of the FPA financial compensation allo- cated for sectoral support – mainly for reinforcing the coastal state fish- eries policy, by supporting fisheries research, MCS, compliance with illegal, unreported and unregulated (IUU) and sanitary and phytosanitary (SPS) regu- lations – and insisted that operators pay a “fair and market-based portion of the costs” when using fishing pos- sibilities in the framework of a bilateral fisheries agreement, etc. “The EP insisted that operators should pay a fair and market- based portion of the costs when fishing under a fisheries agreement” To avoid abusive reflagging – where vessels change flag to get more fishing possibilities in the waters of an ACP state once the possibilities negoti- ated by the EU under an FPA with that state are exhausted – the EP called for vessels engaging in reflagging to be banned from returning to the EU regis- ter for 24 months, and to be prohibited from benefiting from EU opportunities once they have reflagged to a non-EU country. The EP proposed that European pri- vate investments in the fisheries sector should be included as a third compo- nent in the external dimension of the CFP, something that was not dealt with in the EC proposals. The CFP would then serve to encourage sustainable external fisheries investment. In this context, the EP Fisheries Committee requested that information on private agreements between EU ship owners and third countries, as well as on joint ventures in third countries, should be made publicly available. This would include the number and type of vessel operating under such schemes, as well as the catches made (see Agritrade article ‘EP Fisheries Committee votes on the future CFP external dimension report’, 4 November 2012). In November 2012, the EP voted by an overwhelming majority (94%) to endorse the proposals contained in the guidance report. The EC Fisher- ies Commissioner described the EP’s proposals as “a major and timely con- tribution”, paving the way for a more detailed description of the external policy dimension of the future CFP basic regulation (see Agritrade article ‘European Parliament wants fishing investments in third countries to be covered by the future CFP’, 30 Decem- ber 2012). When the CFP basic regulation was voted on by the EP beginning of 2013, these various elements on the “exter- nal fisheries policy” were included. In response to pressure from EU fish- ing fleet representatives, however, the EP voted for additional provisions dealing with non-discrimination “to ensure that the different fleets fishing in third-country waters abide by the same rules”, and weakened propos- als dealing with reflagging, limiting the sanctions to those vessels that cannot prove that they have been fishing sus- tainably in third-country waters when they were flagging a non-EU flag (see Agritrade article ‘European Parliament Fisheries Committee to vote on the CFP basic regulation’, 30 December 2012). Executive brief: Update 2013 I 4http://agritrade.cta.int/ EU Common Fisheries Policy and Fisheries Partnership Agreements: Challenges for ACP countries Fisheries Partnership Agreements Over the course of 2012–11, three various FPA protocols were renewed. Although the reformed CFP is not yet being implemented, many of the prin- ciples of the reform, proposed by the EC and endorsed by the co-legislators, have already been introduced. Developments in West Africa The most discussed FPA in the last 12 months has been the EU–Mauritania FPA, which is the biggest and most complex. “The most discussed FPA in the last 12 months has been the EU–Mauritania FPA, which is the biggest and most complex” The main changes in the protocol include: access to cephalopod fisheries exclusively granted to the Maurita- nian national fleets, as no surplus is available; changes regarding the fishing zones accessible to EU trawlers, with the aim of protecting overexploited stocks of sardinella; a substantial increase in contribu- tions by boat owners to access costs; a requirement for payments to be made according to quantities of fish caught; the introduction of a ‘non-discrimina- tion’ clause in the proposed proto- col, so that other distant-water fleets, such as those of Russia, Ukraine and China, operate under the same technical and financial conditions as the EU fleets. As soon as the text was published, the European fishing sector operating in Mauritania expressed its strong oppo- sition to the new protocol, asking for it to be renegotiated (see Agritrade article ‘EU Fisheries Commissioner promises the sector to evaluate the possibilities to redirect the FPA with Mauritania’, 11 November 2012) In October 2012, a Mauritanian civil society roundtable on the agreement protocol was held in Nouakchott. The participants welcomed the new pro- tocol, asking for it to be implemented without delay. The welcome provisions included: limiting access to octopus to the national fleet; and requiring manda- tory landing of all products resulting from EU fishing operations in the Mau- ritanian excusive economic zone (EEZ). On 3 December 2012, the European Council voted positively for the provi- sional application of the new EU–Mau- ritania FPA protocol, which covers a 2-year period, thereby allowing some 40 EU vessels to commence fishing operations in Mauritania’s EEZ (see Agritrade article ‘Council gives green light for the EU–Mauritania FPA’, 30 December 2012). The debate on the new protocol marked a distinct shift in the basis for criticism of the agreement. Previ- ously, northern European states had criticised EU FPAs with West African states for being unsustainable. Under the new protocol, southern European nations criticised the protocol because it restricted European fishing (see Agri- trade article ‘€12.5 million is to be allo- cated for idle fishing fleets affected by fishing agreements’, 4 November 2012). In January 2013, the EP organised a hearing to discuss issues arising from the new EU–Mauritanian protocol, against the background of calls from the Spanish rapporteur to reject the protocol and start new negotiations. While European fleet representatives made a similar call, scientific submis- sions emphasised the contribution of technical conditions contained in the protocol to the better protection of eco- systems and the avoidance of conflicts with local fleets. “Spanish interests are calling for the agreement to be rejec- ted – but others claim that the new protocol protects eco- systems and local fleets better” The president of the Mauritanian small- scale fishers, for his part, supported the protocol requiring EU trawler operations to be based further away from the coast, as a positive develop- ment. This view was echoed by the EP Development Committee, which also supported the protocol (see Agritrade article ‘European Parliament rappor- teur rejects EU–Mauritania FPA, while Mauritanian fishers and Development Committee support it’, 24 February 2013). Different parts of the sector affected by the EU–Mauritanian FPA protocol continued to express their concerns, mainly in Spain. The Galician and Canary Islands’ octopus fleets – no longer permitted to fish in Mauritania – wanted the protocol to be rejected, describing their struggle as “the final battle” for their fleet (see Agritrade arti- cle ‘Various European fisheries sectors express their views about the EU–Mau- ritania FPA’, 24 February 2013). In light of these discussions, the EP rapporteur decided to postpone the vote on his report. Meanwhile, the Spanish Minister of Foreign Affairs met the Mauritanian president to assess the FPA protocol. The president of Mauri- Executive brief: Update 2013 I 5http://agritrade.cta.int/ EU Common Fisheries Policy and Fisheries Partnership Agreements: Challenges for ACP countries tania offered to help Spanish fishing companies to relocate to Mauritania, to create jobs and participate from a local base in the fisheries export trade. Spanish operators rejected the pro- posal, citing a lack of legal protection for their investments (see Agritrade arti- cle ‘Mauritania proposes EU compa- nies to relocate their business in Mau- ritania’, 29 April 2013). The government of Mauritania, however, is committed to developing its national trawler fleet (see Agritrade article ‘Mauritania to renew its national trawler fleet: Will EU vessels move back in?’, 1 July 2013). In February 2013, the EU and Côte d’Ivoire agreed on a new 5-year proto- col to implement the EU–Côte d’Ivoire FPA. The protocol provides fishing opportunities for EU tuna fleets from Spain and France. The sectoral sup- port has been increased to take into account the situation of the fisheries administration in Côte d’Ivoire after the civil war, and to assist it in taking on its international obligations in terms of port state control. The published FPA evaluation high- lighted the importance of provisions in the agreement, which allows purse seine fishing to take place while en route to Abidjan, the chief landing port in the region for EU tuna vessels. EU vessels are the main suppliers for the three Abidjan tuna canneries, pro- viding them with around 70% of their raw material. They also account for half of the transhipped catches, and provide about 11,000 tonnes of fish to the national market. The presence of EU vessels in the port of Abidjan gen- erates significant economic benefits (see Agritrade article ‘New protocol to EU–Côte d’Ivoire Fisheries Partnership Agreement’, 24 February 2013). Formal negotiations for a new fisher- ies protocol with Morocco restarted mid 2012. Negotiations had stalled in December 2011 following the rejection by the EP of a proposed protocol over the controversial issue of the agree- ment’s coverage of Western Sahara waters (see Agritrade article ‘Nego- tiations restart for new EU–Morocco agreement’, 4 January 2013). After several months of negotiations, the Spanish fisheries minister stressed that all technical issues had been resolved and that both parties were close to an agreement. However, two aspects are still pending: the so-called political clauses (human rights and international law) and the financial contribution from the EU side. Morocco is also said to be reluctant to accept the European Commission’s demand for detailed reporting on the use of the funds ear- marked for sectoral support under the FPA, as well as the inclusion of a clause regarding the respect of human rights. Meanwhile, in a joint letter, over 60 MEPs from all political groups expressed concerns over the inclusion of the Western Sahara waters under the agreement, stressing that the mere inclusion of a human rights clause in a fisheries protocol does not make the agreement compliant with international law (see Agritrade article ‘Western Sahara slows down EU–Morocco fish talks’, 29 April 2013). An FPA proto- col was finally agreed between the EU and Morocco in July 2013. However, the government of Morocco refused to allow the provisional application of the provisions prior to the consent of the EP being received. Developments in the Indian Ocean and East Africa Under the EU–Mozambique FPA a new protocol was signed in June 2012. The new protocol provides fishing opportu- nities to 75 EU tuna vessels from Spain, France, Portugal, Italy and the UK. Monies for access and for supporting national fisheries policy development are clearly decoupled, as proposed in the CFP reform, and an electronic logbook system will be introduced for transmitting catch data (see Agritrade article ‘MEPs back EU–Mozambique FPA’, 16 July 2012). Funding for a new tuna fishing quay has been provided for under the EU– Seychelles FPA, with the intention of making a logistics base available for the industrial tuna purse seiner fleet to land their catches, as well as for loading and unloading fishing nets and salt. In the future, the quay will also be used for transhipments. The minister stressed that, at a time when countries of the region are promoting their ports, it was important to undertake such an initiative so that Seychelles “maintains its position as the main tuna land- ing/trans-shipment port in the Indian Ocean” (see Agritrade article ‘FPA funds used for new port infrastructure for the tuna fleet in the Seychelles’, 9 September 2012). Under the EU–Madagascar FPA, a sci- entific paper reviewing the evolution of EU fishing agreements with Mada- gascar since 1986 has highlighted the existence of non-transparent private agreements. There is no publicly avail- able information on licences issued or fees paid to individuals or the state under these private agreements. The EU has expressed its disapproval of such “side agreements”, but lacks the powers to prevent them from being concluded. Nevertheless, the EU Ambassador to Madagascar has underlined the overall transparency of EU FPAs in contrast to “certain foreign fleets operating in the waters of the Indian Ocean, including the Malagasy EEZ”, which operate “in full opacity and most perfect impunity” (see Agritrade article ‘Does the EU underpay Mada- gascar for access to fish?’ 9 Septem- ber 2012). Executive brief: Update 2013 I 6http://agritrade.cta.int/ EU Common Fisheries Policy and Fisheries Partnership Agreements: Challenges for ACP countries “The transparency of EU FPAs has been highlighted, in con- trast to certain foreign fleets operating opaquely in Indian Ocean” During September 2012, the EU– Madagascar Joint Committee for the implementation of the FPA met to adopt specific management meas- ures governing the fishing activities of the EU longline fleet targeting tuna and tuna-like species. To effectively implement the relevant Indian Ocean Tuna Commission (IOTC) recommen- dations, the Joint Committee focused particularly on shark by-catches. The new measures therefore include the regular embarking of observers on- board EU longliners; the prohibition of fishing for the most vulnerable species of sharks; and a 200-tonne maximum quota for other sharks caught as asso- ciated species – this is lower than the previous 5-year recorded average. The new measures were criticised by EU longliner fleets (see Agritrade article ‘Madagascar and the EU address the issue of sharks caught as associated species through their ‘tuna-FPA”’, 11 November 2012). Under the EU–Mauritius FPA, criticisms have arisen over the lack of transpar- ency and consultation in the negotia- tion of the new protocol. This issue was taken up by the EP rapporteur for the EU–Mauritius FPA, who called for more transparency and broader consulta- tions, in order not to undermine the EU’s image and credibility (see Agri- trade article ‘http://agritrade.cta.int/ Fisheries/Topics/ACP-EU-relations- FPAs/EU-Mauritius-Concerns-about- transparency-and-stakeholders-are- discussed’, 4 January 2013). Calls have been made in Mauritius for the minutes of the Joint Committee meetings and the annual FPA evalua- tions to be published. This resulted in the Mauritian authorities organising a number of meetings with representa- tives of the fishers’ unions and civil society interests. A proposal was put forward to establish a Mauritian “con- sultative committee on fisheries and maritime issues”. This reflects civil soci- ety concerns over the need to ensure that the activities of all foreign fishing vessels are undertaken on a sustain- able basis (see Agritrade interview, ‘A transparent, sustainable and equitable agreement with the EU will have reper- cussions for Asian fishing fleets active in Mauritian waters’, 10 March 2013). In April 2013, the EP gave its consent to the FPA with Mauritius, calling on the EC to facilitate the participation of MEPs as observers in the Joint Com- mittee meetings, and to provide them “within the last year of application of the new Protocol and before the opening of negotiations for its renewal, a full evalu- ation report on its implementation, with- out unnecessary restrictions on access to this document”. The EP also insists that EU vessels will be allowed to fish only beyond 15 nautical miles from the coast to avoid adverse effects on small- scale artisanal fisheries in Mauritius (see Agritrade article ‘European Parliament fisheries committee approves EU–Mau- ritius FPA’, 29 April 2013). Developments in the Pacific Under the EU–Kiribati FPA, a pro- posal for a new protocol was finalised between the EC and Kiribati in mid 2012. The reference tonnage agreed in the protocol is 15,000 tonnes (four purse seiners and six longliners from Spain, France and Portugal). According to data released earlier by the Spanish ‘Cluster of Fishing Enterprises in Third Countries’ another 11,500 tonnes of tuna is caught by vessels under joint ventures in Kiribati (see Agritrade article ‘New protocol for the Kiribati–EU FPA’, 16 July 2012). The FPA evaluation showed that for every euro invested each year by the EU and fleet owners, €4 of additional value was generated, 75% accruing to the EU and 25% to Kiribati. The cost of access for vessel owners represents about 4% of the average sales prices received for catches made under the protocol. A key issue highlighted by the evaluation is that the protocol is a tonnage-based protocol, while the national Kiribati policy, in line with regional initiatives, is now to negotiate and provide access based on vessel days (according to the Vessel Days Scheme – VDS). “The EU–Kiribati protocol is based on tonnage, not on the Vessel Days Scheme, as set up by the region” It further recommends that the EU should continue to engage actively with the regional fleet management organisation, the Western Central Pacific Fisheries Committee, in order to ensure responsible fisheries. It is proposed that as “part of this pro- cess, given some of the weaknesses identified in the evolving VDS system, the EU should support the establish- ing of target and limit reference points for tuna stocks, so as to ensure the integrity of the scheme by linking stock status to the management system” (see Agritrade article ‘Evaluation of the EU– Kiribati FPA highlights issues for the future protocol’, 9 September 2012). Increasing difficulties in negoti- ating highlighted FPAs A study published by the EP pro- vided information on China’s fleet and catches, the activities of the distant- water Chinese fishing fleets and Chi- na’s role in the global fish trade. China’s fisheries agreements vary from state- to-state bilateral agreements to non- governmental arrangements between Executive brief: Update 2013 I 7http://agritrade.cta.int/ EU Common Fisheries Policy and Fisheries Partnership Agreements: Challenges for ACP countries parastatal/public–private partnerships and third countries. China’s fisheries agreements are char- acterised by a lack of transparency. EU stakeholders have expressed con- cerns over China’s approach to secur- ing fisheries access agreements. It is maintained that this approach is essen- tially based on offering the third party whatever it requests to secure access. However, this is impeding the EU in its negotiation of fisheries agreements in countries that have the alternative of concluding an agreement with China, without any of the difficult EU condi- tions (see Agritrade article ‘Increas- ing presence of China in distant-water fishing may affect FPAs’, 9 September 2012). Negotiating the future European Maritime and Fisheries Fund (EMFF) In parallel with the negotiation of the CFP basic regulation, EU co-legislators were negotiating the financing of the EMFF. The discussion on EMFF started in mid 2012, when eight countries, led by Spain and France, stressed the need to maintain subsidies for scrap- ping and modernisation from 2014 to 2020. It is argued that the funding could focus on measures that do not increase fishing capacity, for example, reducing the environmental impact of fisheries; improving a vessel’s energy efficiency, and on-board conserva- tion facilities; and improving safety on board. “Future funding should focus on measures that do not increase fishing capacity” Calls were also made by Spain and France to continue with aid for scrap- ping vessels, as well as aid for tempo- rary cessation of activities, “in order to adjust the fishing effort” (see Agritrade article ‘Eight EU member states call for scrapping aid to be maintained’, 27 August 2012). NGO representatives, however, main- tained the condition that “fleet moderni- sation shouldn’t lead to fishing capacity increase” was purely rhetorical, given the practical difficulties in making this assessment. Indeed, a 2006 EC paper showed that real engine power, a key element in determining capacity, is up to five times the power declared by fishermen. In its replies to the Coun- cil, the EC emphasised that member states cannot have both modernisation and scrapping subsidies (see Agritrade article ‘The EU Fisheries Council meets on future European Maritime and Fish- eries Fund’, 22 October 2012). At their October 2012 meeting, the Council of Fisheries Ministers reached an agreement on a “partial general approach” for the EMFF, including on support to modernisation, scrapping and temporary cessation of fishing activities. The latter measures have mostly been used in cases where FPA protocols were not renewed on time, with some 15% of the EMFF (i.e. €975 million) being allocated for such pur- poses during 2014–2020. However, ministers insisted on the inclusion of new conditions for the deployment of scrapping funds, includ- ing an obligation on member state governments to make assessments of fleet capacity, whereby scrapping subsidies can only be granted if over- capacity is demonstrated. In addition, operators who benefit from scrapping funds will lose their fishing licences and will not receive any funding if they have broken CFP rules. The Spanish fisheries minister said that “everything the Spanish fishing sector wanted has been accepted”, mainly thanks to the strong alliance built with France, Por- tugal and Poland. European Fisheries Commissioner Maria Damanaki said that she hoped that the EP might turn the tables, stressing that the EC’s original pro- posal – which proposed to eliminate these subsidies – was still on the table (see Agritrade article ‘EU ministers sup- port controversial subsidies’, 2 Decem- ber 2012). Meanwhile, the recently created Euro- pean Fisheries Technology Platform, a body comprising both fishing industry operators and researchers, has argued that reducing energy costs should be accorded a high priority under the EMFF. “The European Fisheries Tech- nology Platform argues that reducing energy costs should be a high priority for the EMFF” Currently, fuel costs represent, on aver- age, 55% of the total running costs of EU fishing vessels. In response, the EC has indicated that support will be avail- able under the EMFF, as a “resource- efficient Europe” is one of the pillars of the Europe 2020 strategy. Such support will be available provided that the fishing capacity of the vessel is not increased. Engine replacement will be excluded: although this increases the ability to catch fish, it is not the most effective way in terms of improving energy efficiency, and is certainly the most expensive change on a vessel (see Agritrade article ‘European Fish- eries Technology Platform focuses on fishing vessels’ energy efficiency’, 11 February 2013). IUU ACP country initiatives In April 2013, West African countries that are members of the Sub Regional Fisheries Committee – Cape Verde, Gambia, Guinea, Guinea-Bissau, Mauritania, Senegal and Sierra Leone – took an initiative aimed at clarify- Executive brief: Update 2013 I 8http://agritrade.cta.int/ EU Common Fisheries Policy and Fisheries Partnership Agreements: Challenges for ACP countries ing the role of flag states in the fight against IUU fishing, by requesting that the International Tribunal for the Law of the Sea (ITLOS) address several ques- tions, including: To what extent shall the flag state be held liable for IUU fishing activities conducted by vessels sailing under its flag, including vessels operating in the framework of international agreements? What are the rights and obligations of the coastal state in ensuring the sustainable management of shared stocks and stocks of common inter- est, especially the small pelagic spe- cies and tuna? The request was triggered by new issues being raised in the FPA nego- tiations with the EU. It was felt that obligations entered into under EU FPAs could serve as a legal basis for articulating the responsibility of the flag state, including with regard to the management of shared stocks such as small pelagics, and stocks of common interest such as tuna. This needs to be seen against the back- ground of “the collective failure of the coastal states to sustainably regulate fisheries” “The responsibility of the flag state for the management of shared stocks should be seen against the background of the failure of coastal states to regulate such fisheries” (see Agritrade article ITLOS opinion on IUU fishing requested by West African sub-regional fisheries committee, 1 July 2013). 3. Implications for the ACP Creating a transparent and level playing field for all foreign fleets to increase long-term benefits While ACP governments now have the option of negotiating with third-coun- try fishing nations, such as China and Russia – which apply less strict condi- tions under their fisheries agreements than the EU, it needs to be recognised that the negotiation of dif ferential access conditions undermines efforts to create “a culture of compliance” of foreign vessel operators. This results in losses for the coastal country in terms of degradation of ecosystems, illegal operations, underreporting of catches, competition with local fleets, etc. It needs to be recognised that in the long term, ACP countries will only benefit from foreign fleets’ access if the operations of these fleets do not contribute to depreciating the ACP natural resources capital, through over-exploitation and ecosystems’ destruction, and do not constitute an obstacle to coastal f isheries development. “ACP countries will benefit from foreign fleets access – but only if they don’t over-exploit re- sources, destroy eco-systems, or constitute an obstacle to coastal fisheries development” The governments of ACP countries therefore need to consider estab- lishing transparent and fair access rules that apply to all foreign fleets, thereby creating a virtuous cycle of competition between third-country fishing nations. Progress is already being made in this regard in some ACP countries (e.g. Mauritania), but it needs to become the norm across the ACP region. This approach also needs to provide the basis for regional management arrangements for shared stocks (small pelagics) and highly migratory spe- cies (tuna). Transparency and stakeholders’ participation: Key ingredients for long- term benefits The current opacity of most fishing operations in ACP countries – reflag- ging, joint ventures, chartering and most fishing agreements – makes it difficult for an ACP coastal country to appreciate the long-term costs and benefits of these various operations, and to design and implement appro- priate policies applicable to all fleets of foreign origin. Increased attention should be paid to the gathering and dissemination of basic information on the operation of all long-distance fleets operating in ACP waters, in line with the best practices in some ACP countries. The adoption of a “no data–no fish” position across the ACP could lead to immediate benefits in this area. EU–ACP cooperation in identifying the real beneficial owners of distant-water vessels under reflagging arrange- ments could also usefully be intensi- fied. Recent progress under EU–ACP FPAs on data disclosure and public consultations should be consolidated into permanent public consultations and become generalised across both EU FPAs and beyond EU agreements, with financial assistance being made available under fisheries cooperation arrangements for this purpose. Executive brief: Update 2013 I 9http://agritrade.cta.int/ EU Common Fisheries Policy and Fisheries Partnership Agreements: Challenges for ACP countries Determining access conditions for distant-water fleets Traditional systems of basing access on recorded historical catches are hampering the development of new ACP fishing capacity. Promoting the allocation of access systems that both recognise historical catches and apply environmental and social criteria (including consideration of the impact of fishing gear used, job creation and the right to food), and linking these to ACP fisheries sector development aspirations, could help to promote the sustainable development of local fish- ing capacities. The translation of the long-standing obligations under international law (UNCLOS) to limit third-country access to surplus resources into EU fisheries law in 2013 could assist in this regard. However, this still leaves the problem of the basis for determining the sur- plus. If local fisheries sector develop- ment is to be promoted, then there is a need to move away from approaches that assert that if stocks are not fully exploited according to scientific data available, there is de facto a surplus, since the local fishing sector can only be developed if a “reserve of resources” is retained. Monitoring CFP reform implementation With new EU regulations being set in place, the focus will now shift to moni- toring their implementation. The first issue that arises for ACP governments is to ensure that their sovereign rights over fisheries management decisions are not undermined by the application of new EU regulations. “ACP governments should en- sure their sovereign rights over fisheries management decision are not undermined by new EU fisheries regulations” Close monitoring of the application of EU non-discrimination clauses will be required. Clarity will also be needed on how the ban on discards by EU distant-water fleets is to be enforced. It will be impor- tant to ensure that the application of this ban does not lead to local landings of by-catches that then disrupt local ACP fish markets. There will also be a need to monitor the impact of the future EMFF on the conditions of competition between EU fleets and local ACP fleets. This could in part be addressed by shar- ing EU-financed research and techno- logical innovations with ACP authorities through some kind of extension of the work of the newly created European Fisheries Technology Platform. Careful monitoring of the application of EU assistance to scrapping of fishing vessels will also be required, so that it genuinely results in a reduction of the fishing efforts deployed. Main sources 1. European Commission (EC), ‘The common fisheries policy (CFP)’, home page http://ec.europa.eu/fisheries/cfp/index_en.htm 2. EC, ‘Fisheries partnership agreements’, home page http://ec.europa.eu/fisheries/cfp/international/agreements/index_en.htm 3. EU Long-Distance Fishing Regional Advisory Committee (LDRAC), home page http://www.ldrac.eu/en/ 4. CFP Reform Watch, home page http://cfp-reformwatch.eu/ 5. EC, ‘Illegal fishing (IUU): the EU rules to combat illegal, unreported and unregulated fish- ing’, home page http://ec.europa.eu/fisheries/cfp/illegal_fishing/index_en.htm Executive brief: Update 2013 I 10http://agritrade.cta.int/ EU Common Fisheries Policy and Fisheries Partnership Agreements: Challenges for ACP countries Technical Centre for Agricultural and Rural Cooperation (ACP—EU) PO Box 380 6700 AJ Wageningen The Netherlands Tel: +31 (0) 317 467 100 E-mail: cta@cta.int - www.cta.int The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint ACP—EU institution active in agricultural and rural development in African, Caribbean and Pacific (ACP) countries. Its mission is to advance food and nutritional security, increase prosperity and encourage sound natural resource management. It does this by providing access to information and knowledge, facilitating policy dialogue and strengthening the capacity of agricultural and rural development institutions and communities in ACP countries. 6. Stop Illegal Fishing, home page http://www.stopillegalfishing.com/ 7. Organisation of European Fishing Enterprises – Europêche, home page http://europeche.org/ 8. Coalition for Fair Fisheries Arrangements, home page http://www.cape-cffa.org 9. TransparentSea, portal on distant-water fishing nations http://transparentsea.co/index.php?title=Category:Distant_water_fishing_nations 10. REJOPRAO, media platform for responsible fishing in Africa http://www.rejoprao.com About this update This brief was updated in October 2013 to reflect developments since September 2012. Other publications in this series and additional resources on ACP–EU agriculture and fisheries trade issues can be found online at http://.cta.int/ http://agritrade.cta.int/ ACP–EU fisheries: Market access and trade I 1 There is a growing focus in the ACP on enhancing the contribution of the fish- eries sector to national development. In some countries, the focus is on the development of small-scale fishing activ- ities; in others, it is on the development of local value-added processing linked to industrial or semi-industrial fishing activities; while elsewhere the focus is on securing improved access for all fish caught in the national exclusive eco- nomic zones (EEZs). Rules of origin are still highly conten- tious in the fisheries sector. Although some agreements with ACP countries have granted concessions to allow ‘global sourcing’ for certain products, they are not generalised across the ACP, nor have the concessions been applied to a wider range of fisheries products. In addition, given the EU’s stricter appli- cation of sanitary and phytosanitary (SPS) standards and food safety requirements, these play a major factor in securing effective market access, particularly for the small-scale fisheries in ACP countries. “China is playing an increasing role in global fish trade both as an importer – after further pro- cessing – and as an exporter” Nevertheless, the EU remains the major market for ACP fisheries exports, although it supplies only around 11% of EU fish imports (excluding fish caught in ACP waters and directly exported). However, China is playing an increasingly update October 2013 ACP–EU fisheries: Market access and trade 1. Background and key issues 1. Background and key issues 2. Latest developments Developments in the ACP policy focus in 2012–13 Developments in the ACP–EU fish trade in 2012 Developments in EU legislation Economic Partnership Agreement- related developments Developments in fish trade relations between the EU and third countries Developments in the application of private eco-labels and other standards 3. Implications for ACP countries Ensuring EU sustainability standards are internationally compliant Getting to grips with the challenge of sustainability standards compliance Taking advantage of the rules of origin or supporting alternatives, such as reflagging Capitalising on growing Chinese demand to increase ACP processing Developing regional fish trade in the ACP © WorldFish Executive brief: Update 2013 I 2http://agritrade.cta.int/ ACP–EU fisheries: Market access and trade important role in the global fish trade, both as an importer and, after further processing, as an exporter. This poten- tial creates new market opportunities for the structural development of ACP fisheries sectors. Throughout 2012–13, the debate con- tinued on the future regulation for the common organisation of the market for fisheries products. There is a growing focus on sustainability within the EU’s fisheries policy, with efforts in prog- ress to link sustainability requirements to access to the EU market, in terms of both environmental and social sus- tainability. The rise of sustainability concerns, however, can leave policy making subject to divergent pressures from competing interests in the EU fish- ing sector. At a time of budgetary constraints and increasing competitive pressure on the EU fisheries sector, there would appear to be a need for international harmoni- sation of approaches to the promotion of sustainable fishing practices through the use of market access requirements, if these pressures are not to lead to protectionist measures or to political manipulation to secure fishing access for EU fleets in ACP waters. “There is a need for interna- tional harmonisation of the use of market access requirements, in order to avoid protectionist measures and political manip- ulation” Concerns exist over the proliferation of private standards and eco-labelling schemes and their potential to become new barriers to access to particular market components. In addition, issues arise as to the consistency of private labelling requirements and their rela- tionship to emerging official standards and requirements (e.g. private labelling of certain fisheries as sustainable, while the same fishery is placed on the offi- cial lists denoting unsustainable fishing practices). New EU free-trade agreements (FTAs) potentially increase both the trade and investment competition facing ACP fisheries sectors (e.g. the issue of the future treatment of tuna under an EU– Ecuador FTA and its effects on invest- ment in Papua New Guinea/PNG), thus eroding the value of traditional fisheries sector preferences. While aquaculture is playing a growing role in the international fish trade (about half of the global fish trade), the sec- tor is relatively underdeveloped in the ACP regions. There is, however, grow- ing investment interest in aquaculture development within the ACP nations from both EU and Chinese investors. There remain, therefore, many mar- ket access-related issues of concern to ACP governments, with numerous potential areas for action to strengthen the contribution of the fisheries sector to national economic development. 2. Latest developments Developments in the ACP policy focus in 2012–13 In response to global developments, there is a growing ACP policy focus on maximising the contribution of the ACP fisheries sector to job creation (in both the catching and fish processing sectors) and food security, including through the reduction of discards and of use of inappropriate handling and conservation methods. There is also a focus on improving the efficiency of fishing operations, for example, by reducing fuel use to help maximise the net economic benefits. “A key requirement to increase small-scale fish producers’ participation in global fish trade is access to trade and market information” One avenue being explored in this con- text is the increased participation of small-scale fish producers (e.g., fishers, fish processors and traders, and fish farmers) in the international fish trade. However, this brings new challenges in meeting specific requirements on international markets and improving the efficiency of small-scale fishing opera- tions. One of the key requirements for tackling these challenges is to ensure that producers have access to the relevant trade and market information (see Agritrade article ‘Role of gender in global fishery value chains’, 28 Jan- uary 2013). Developments in the ACP– EU fish trade in 2012 A study published in 2012 shows that in 2011 the EU27 (the European Union of 27 member states) formed the world’s largest market for fish and seafood products; fish consumption reached 13 million tonnes, reflecting both population growth and increased per capita consumption, particularly in East European countries. “In 2011 the EU27 was still the world’s largest fish market, re- flecting population growth and increased per capita consump- tion” The major part of the European mar- ket is still supplied by imports. In total, imports have grown by around half a million tonnes since 2006, reaching a new peak of 9.548 million tonnes in 2011. Overall reliance on imports has risen to 65%, the highest figure since the EU was formed. Executive brief: Update 2013 I 3http://agritrade.cta.int/ ACP–EU fisheries: Market access and trade A few species have established themselves as essential to European markets: whitefish (wild-caught, e.g. hake); freshwater species (e.g. farmed pangasius); tuna (wild-caught); salmon (mainly farmed); shrimps (mainly farmed). There are also certain preparations of fish that provide key raw material for further processing, where EU manufac- turing capacity is limited, as in indus- trial blocks or as a base ingredient for surimi. Imports of those products have become essential. The growing role of farmed products in EU imports is linked to the greater reliability of supply for the importers and retailers, both in terms of the quan- tity and quality. This is an important incentive for investment in both capital equipment and market development for such products. While some ACP countries like Namibia and South Africa remain among the top 10 suppliers (of hake) to the EU market, overall China has become the largest supplier of fish products to the EU market. Imports from China are often derived from raw material sent by the EU fisheries sector to China, where they undergo primary pro- cessing before re-export to the EU (see Agritrade article ‘The EU remains the largest world market for fish’, 19 November 2012). China is also becoming an important fisheries trading partner for ACP coun- tries, contributing to a diversification in the markets served by ACP fish export- ers. Indeed, in 2012, analysts sug- gested that China could soon replace the EU as Africa’s biggest trading part- ner, with fisheries becoming a key area for developing investment and business links between China and Africa. Chi- nese investment in African fisheries cur- rently provides 500,000 tonnes of fish products. Half of this is processed and sold on the EU market, and one-third of it sold in China, mainly as raw material for further processing (see Agritrade article ‘Chinese investors call for African governments to remove “restrictions on fisheries”’, 29 January 2013). The aquaculture sector is a growing focus of both EU and Chinese invest- ment in ACP countries. In 2012, a new EU-funded project managed by the FAO was initiated in Uganda, Kenya and Zambia to promote aquaculture as an instrument to combat hunger. This forms part of a broader policy aimed at assisting low-income food-deficit countries in developing sustainable aquaculture policies (see Agritrade article ‘New EU funded project to help develop aquaculture against hunger’, 22 October 2012). Developments in EU legislation The reform of the EU Common Market Organisation for fisheries products As part of the reform of the Common Fisheries Policy (CFP), the European Parliament voted in 2012 on the future EU Common Market Organisation (CMO). Given divergent positions in the European Commission (EC), Council and Parliament, a trilateral dialogue (‘trilogue’) has been launched to reach a consensus on the new fisheries CMO regulation. The text approved by the European Parliament emphasises the importance of labelling that provides consumers with information on all fisheries prod- ucts as regards the stocks and area where they were fished or farmed, as well as the date of landing for fresh fish products. Fish products previously frozen, but sold as fresh, will also have to carry the words ‘defrosted product’ on their labels. The European Parliament also called on the EC to table a legislative proposal by 1 January 2015 to introduce a new EU eco-labelling system for fisheries prod- ucts (see Agritrade article ‘EP Fisheries Committee votes on Common Market Organisation’, 13 August 2012). New sustainable fishing legislation In 2012, the EU adopted new legislation imposing trade and non-trade-related sanctions on third countries “that do not abide by international rules on sus- tainable fishing methods”. “The EU has new legislation imposing trade and non-trade sanctions on third countries that don’t abide by internation- al rules on sustainable fishing methods” The regulation concerns any fish stocks where the geographical distribution makes them available to the fleets of both EU member states and non-EU states. The legislation defines a country allow- ing unsustainable fishing as one fail- ing to cooperate in the management of resources covered by the UN Fish Stocks Agreement, and either fails to adopt the management measures needed, or adopts management mea- sures without due regard to the rights, interests and duties of other countries and the EU. The measures proposed are wide ranging – many of them similar to or Executive brief: Update 2013 I 4http://agritrade.cta.int/ ACP–EU fisheries: Market access and trade building on measures contained in the EU’s illegal, unreported and unregu- lated (IUU) regulation. Measures are included that, if applied to an ACP country, would affect its capacity to trade fish products into the EU mar- ket, either directly (by the imposition of quantitative restrictions on imports) or indirectly (by limiting the possibili- ties for increasing the volume of fish products that can be considered ‘originating’, e.g. by prohibiting “the conclusion of private trade arrange- ments between nationals of a member state and those of countries allowing non-sustainable fishing in order for a fishing vessel flying the flag of that member state”, preventing that country from using “the fishing possibilities of such countries”) (see Agritrade article ‘EP Fisheries Committee backs mar- ket-related measures against coun- tries allowing unsustainable fishing’, 24 June 2012). The EU Fisheries Commissioner high- lighted the intention of this new leg- islation to help create “a level playing field” between the EU and third-country fishers. However, considerable legal elaboration will be required before the proposed new trade instruments can be deployed (see Agritrade article ‘EP votes for trade measures against coun- tries allowing non-sustainable fishing’, 8 October 2012). Implementation of the IUU regulation In 2012, the implementation of the EU regulation to combat IUU fishing con- tinued to spark concerns as a poten- tial non-tariff barrier to trade. Particular concerns were expressed by Pacific ACP (PACP) governments. Most Pacific islands have no competent authority to deliver catch certificates proving the legality of the fish catches – de facto, they cannot comply with the IUU regulation requirements, and cannot supply Pacific island processors with proven legally caught fish for export to EU markets. In some cases, the costs of setting up a competent authority would exceed some Pacific islands states’ national gross domestic prod- uct (GDP) (see Agritrade article ‘PNA director questions PACP approach of EPA negotiations on fisheries’, 28 Jan- uary 2013). In mid November 2012, 10 countries – including five ACP countries (Belize, Fiji, Guinea, Tanzania and Togo) – were notified that they could face EU trade sanctions for lack of cooperation in fighting IUU fishing. In particular, short- comings were identified regarding the monitoring, control and surveillance of fishing activities. According to the EC, these are linked to the lack of proper legal instruments, particularly specific provisions in the national legal frame- work referring to measures to combat, deter and eliminate IUU fishing activi- ties (see Agritrade article ‘Several ACP states are warned over lack of cooper- ation against IUU fishing’, 16 December 2012). Subsequent to the publication of the EU list, the US administration in charge of fisheries (NOAA) submitted a report that identified 10 countries engaged in IUU fishing, including a number of ACP and EU countries (Ghana and Tanzania, Italy and Spain). Interestingly, the EU and the US lists identify different countries, with very little overlap. Given that there is an FAO international plan of action, providing a common framework for countries such as the US or the EU to define countries not combating IUU, this raised questions about why some countries are on one list and not on the other (see Agritrade article ‘NOAA identifies 10 countries, including in EU and ACP, that conducted IUU fishing’, 11 February 2013). Meanwhile, the Fiji Albacore Tuna Longline Fishery received sustainability certification from the Marine Steward- ship Council (MSC). This offers oppor- tunities to develop new markets in regions such as the EU where demand for certified sustainable seafood is high. For some observers this raised questions about how an MSC-certified fishery – which supposes a high degree of traceability and sustainability – could at the same time be barred from the EU market for not complying with the IUU fishing regulation (see Agritrade article ‘Fiji Albacore tuna to get MSC certification, but will it be allowed on the EU market?’, 28 January 2013). These questions strongly suggest that there is a need to harmonise interna- tional approaches to combat IUU fish- ing. In the context of the CFP reform to promote an international catch cer- tification scheme proving that a fish product has been caught legally, the EC proposal may assist in the develop- ment of such a harmonised approach. “An international catch certifi- cation scheme – such as that promoted by the EU – may as- sist in the development of the international approach against IUU fishing” Some progress was made on this issue during 2012, when a joint statement was signed between the EU and Japan to cooperate in combating IUU fish- ing. The EU and Japan rank first and second as the world’s top seafood importers, both importing fish products from ACP countries. The joint state- ment commits the EU and Japan to systematically exchange information on IUU activities and to promote measures that strengthen monitoring, control and surveillance (see Agritrade article ‘EU and Japan sign an agreement to fight IUU fishing’, 9 September 2012). Executive brief: Update 2013 I 5http://agritrade.cta.int/ ACP–EU fisheries: Market access and trade Economic Partnership Agreement-related developments The Eastern and Southern Africa (ESA) region The Interim Economic Partnership Agreement (IEPA) concluded by the EU with four ESA countries in 2012 included three tuna processing and exporting countries: Madagascar, Mauritius and Seychelles. Beyond pro- viding duty-free, quota-free access to the EU market for tuna exports, the agreement includes provisions on rules of origin, development cooperation and the promotion of sustainable fisheries. Support to sustainable fisheries is also emphasised in the latest bilateral Fish- eries Partnership Agreements signed between these three ESA countries and the EU, in which a new article focuses on encouraging the establishment of an environment favourable to the devel- opment of business and investment, and promoting “the setting-up of joint enterprises… which should systemati- cally comply with both parties’ legisla- tions” (see Agritrade article ‘IEPA taking effect in East African tuna-exporting countries’, 24 June 2012). The Caribbean region The Caribbean was the first region to sign an Economic Partnership Agree- ment (EPA) with the EU in 2008. One positive development since then has been the deployment of European Development Fund financing in sup- port of improved SPS control systems in the Caribbean, given that meeting SPS requirements is a prerequisite for exporting fisheries products to the EU. However, the rules of origin applied to fisheries products remain a matter of concern to Caribbean governments, with this issue having been flagged at the time of the signing of the CARI- FORUM–EU EPA through a unilateral declaration attached to the signed EPA (see Agritrade interview ‘Caribbean Common Fisheries Policy: Strength- ening ecosystems resilience and sup- porting livelihoods’, 17 September 2012). This issue may well re-emerge as part of the formal 2013 review of the CARIFORUM–EU EPA. “Rules of origin issues remain a concern for Caribbean gov- ernments, and may re-emerge when the EPA is reviewed” The Pacific region Issues around rules of origin remain a key concern in the EPA negotiations between the PACP group and the EU. Currently Fiji and PNG are the only countries in the Pacific to have signed an IEPA, providing them with a dero- gation in the area of fisheries for ‘global sourcing’ for their tuna raw material, thereby expanding the scope for duty- free exports to the EU market. In 2012, other PACP members reiter- ated their desire to see such global sourcing provisions extended to fresh and chilled tuna products, thereby allowing them to source their fresh and chilled tuna products from sources other than local or EU fleets (princi- pally Taiwanese, Japanese, Korean and Chinese longline tuna fleets present in the region). It was considered that this would mainly benefit small island states that do not have canneries or processing facilities (see Agritrade article ‘Pacific wants to extend global sourcing to facilitate longline opera- tions’, 22 October 2012). However, concerns were raised by the director of the Parties of the Nauru Agreement (PNA) (which includes PACP countries) that while the IEPA did not include any fishing access rights, “in the haste to get global sourcing for fresh and chilled tuna products” some PACP states were proposing to grant EU fleets 5% of total access rights to the region’s tuna resources. The direc- tor also argued that if the longline fleets currently operating in Pacific waters were reflagged to the Pacific islands, the region would get enough origi- nating fish without needing a global sourcing derogation (see Agritrade article ‘PNA director questions PACP approach of EPA negotiations on fish- eries’, 28 January 2013). “Proposals to tie further trade concessions to fishing rights in the EU–Pacific EPA negotia- tions are raising concerns” Proposals to tie EPA negotiations to the granting of fishing rights for the EU tuna purse-seine fleet within part- ner countries’ EEZs are strongly sup- ported by the Spanish tuna sector. In their view, investment in local process- ing capacity in countries such as PNG, Seychelles and Mauritius will increase local demand for raw material, leading to increased procurement difficulties for the Spanish canning sector. Spain therefore considers it essential that steps be taken to guarantee access for EU fleets to raw material supplies for Spanish canneries (see Agritrade article ‘Pacific leaders urge the EU to show flexibility in EPA’, 23 September 2012). The issue of global sourcing for PACP fish products and its impact on eco- nomic development in terms of foreign investment in local tuna processing capacity was the subject of a European Parliament study published in October 2012. The study highlighted the mea- surable economic development benefit, in terms of the rapid development in PNG–EU trade in cooked tuna loins. The loins are mainly exported to Spain and Italy, where processors are moving away from labour-intensive processing of whole frozen tuna into using cooked Executive brief: Update 2013 I 6http://agritrade.cta.int/ ACP–EU fisheries: Market access and trade loins (see Agritrade article ‘Extending global sourcing for Pacific ACP fish products’, 19 November 2012). The Southern African Development Community (SADC) region Establishing 1 October 2014 as the date for the lapsing of market access regulation (MAR) 1528(2007) – which has provided transitional duty-free, quota-free access for ACP countries whose governments have initialled an IEPA – raises particular concerns in the Namibian fisheries sector. Currently, Namibia mainly exports raw hake to Spain. The Namibian government’s aspirations to a development-friendly EPA would require arrangements that promote increased fish processing that adds value locally. The development of such a processing industry is not favoured by the current conditions offered by the EU under the IEPA. Cur- rent rules of origin limit originating sta- tus to fish caught in Namibia’s 12-mile limited territorial waters, or fish caught by either local or EU vessels. This is an important issue for Namibia, as no fishing is allowed within the 12-mile zone for conservation reasons, while the major fish stocks – such as horse mackerel and hake – swim outside the 12-mile zone. Namibia has therefore requested that all fish caught in its EEZ and landed in Namibian ports for processing should be given originating status, thereby qualifying for duty-free access to the EU market. Currently the EU accepts this only in cases of ves- sels leased or chartered by Namibian operators, where EU operators have been given the right of first refusal. This applies even in cases when non-EU operators are cheaper or operate under more favourable commercial conditions. Another key concern for Namibia is the way its hake is marketed in Europe by Spanish importing companies, and whether it is done in a way that maximises benefits and strengthens the position of Namibian hake on EU markets (see Agritrade interview ‘Lack of Namibian control over its resource value chain affects its benefits from fisheries’, 11 January 2013). Developments in fish trade relations between the EU and third countries Fisheries in third-country FTA negotiations The European Parliament study of October 2012 highlighted the role of Ecuador, with its lower production costs, as one of the main competitors with PNG’s tuna products. The trade treatment accorded to Ecuadorian tuna products is thus of considerable importance in terms of the relative competitiveness of PNG and Ecua- dorian products. With PNG produc- tion costs for canned tuna and tuna loins far more expensive than for similar Ecuadorian products, Spanish firms have shown little interest in investing in PNG’s onshore processing facili- ties. Lower productivity rates, higher costs for freight and utilities in PNG, and the cultural proximity between the Ecuadorian and European tuna indus- tries have all been cited as reasons for the lack of investment interest in PNG (see Agritrade article ‘Extending global sourcing for Pacific ACP fish products’, 19 November 2012). The EU tuna canning sector has sup- ported the rapid signing of a trade agreement between the EU and Ecua- dor, the leading supplier of tuna loins to the EU and the second largest sup- plier of canned tuna to EU markets. Delays in concluding an FTA led to Ecuador being granted an extra year to benefit from the EU’s enhanced Generalised System of Preferences scheme (GSP+), thus allowing Ecua- dor to export its products to the EU with no duty imposed until the end of 2013. While negotiations continued through 2012 and into 2013, no FTA has yet been concluded. The lack of an agreement is seen as a blow to Spanish investors in the Ecuadorian fisheries sector, since this means that the 24% most favoured nation (MFN) duty applied to pre-cooked tuna loins and the canned tuna supplying Span- ish canneries hangs over the current trade (see Agritrade article ‘The tuna sector pushes for a trade agreement between Ecuador and the EU’, 16 December 2012). EU industry pressures to estab- lish a level playing field Given the launch of bilateral FTA nego- tiations with ASEAN members, the EU fisheries sector has been continuing to draw attention to the “unfair” pro- duction conditions in some ASEAN countries. There have been criticisms of the Thai tuna sector for its failure to fully com- ply with EU health standards (22 vio- lations in 2012), resulting in ANFACO, a group that represents Spanish tuna canners, calling on the EC to withdraw its approval of Thai health authorities as competent to issue EU-recognised health certificates. Such a move would effectively close the EU market to Thai tuna exports unless EU-based certifi- cation agencies were used, a process which would greatly increase costs (see Agritrade article ‘Spanish processing sector wants EU doors to be closed to Thai canned tuna’, 11 February 2013). In the Philippines, allegations of forced labour throughout the production chain for tuna (on boats and in processing facilities) have been highlighted by ANFACO. However, ANFACO has been cautious in its handling of this issue, maintaining that while it will exercise Executive brief: Update 2013 I 7http://agritrade.cta.int/ ACP–EU fisheries: Market access and trade “extreme controls of the raw material from Philippine companies that do not respect labour standards” set by the International Labour Organization, its members will not stop importing tuna from the Philippines (see Agritrade arti- cle ‘Spanish processors are to examine labour conditions of tuna imports’, 16 December 2012). Instead, emphasis is being placed on government ratifica- tion of international agreements for the protection of workers’ rights and elimi- nation of child labour that are required under the EU’s GSP+ regulation. “The Spanish canning sector requested that tuna be consid- ered a sensitive product in all trade negotiations” At a more general level in terms of trade negotiations, ANFACO has requested that tuna should be considered a ‘sen- sitive product’, rather than a bargaining chip in all trade negotiations (see Agri- trade article ‘International trade negoti- ations should contribute to establishing a level playing field, says EU canning industry’, 8 October 2012). Developments in the application of private eco- labels and other standards A feasibility study was undertaken in 2012 to examine how the 2010 EU reg- ulation that governs the EU eco-label scheme could be extended to fish products. It underlined the fact that most existing labels (e.g. the MSC) concentrate on the environmental impacts of primary production and not on the whole life cycle of the product. However, for fisheries, this primary production stage is responsible for between 70 and 95% of the total envi- ronmental impacts over the products’ life cycles. The study suggested that an extension of the EU eco-label scheme to fish products might only be advan- tageous for products that have a sig- nificant environmental impact during the processing, transportation or consumption stages of their life cycle. Otherwise, the environmental impacts of primary production could be dealt with by cooperating with existing fish- ery eco-labelling schemes (see Agri- trade article ‘Potential for extending EU eco-label to fish products is assessed’, 28 May 2012). In 2012, the Word Wide Fund for Nature (WWF) commissioned an analysis of four eco-labelling schemes for marine fish products – Alaska Seafood Market- ing Institute, Friend of the Sea, Iceland Responsible Fisheries and the MSC. The study found that none of the four schemes are complying with all of the WWF sustainability criteria. The MSC is compliant on 93% of criteria, while other schemes have scores ranging between 46 and 54%, with low scores particularly on implementation proce- dure and transparency (see Agritrade article ‘MSC remains the best eco-label scheme for fish products, according to WWF’, 8 October 2012). The option of using existing private eco-labels as a benchmark for devel- oping an EU eco-label scheme were highlighted during the European Par- liament debate on the CMO reform, where it was stated that the introduc- tion of an EU eco-label could possi- bly take place “in association with the Marine Stewardship Council and Aquaculture Stewardship Council” (see Agritrade article ‘EP Fisheries Commit- tee votes on Common Market Organ- isation’, 13 August 2012). However, for ACP fisheries, obtain- ing MSC certification is complex for a number of reasons, including data deficiency and inadequate support from existing institutions. Against this background, in 2012, the MSC devel- oped a risk-based approach for use in the assessment of data-poor fisheries, including ACP small-scale fisheries. “Eco-labels do not provide price premiums but rather help solidify existing markets and open up new markets” However, carrying this eco-label does not provide a price premium to the producer; rather, it helps solidify the presence in existing markets and may facilitate the opening up of new mar- kets as more and more processors and retailers insist on MSC certifica- tion from their suppliers (see Agritrade interview ‘The MSC assessment pro- cess: Providing benchmarks for chart- ing progress towards sustainability’, 16 May 2012). Some private initiatives, such as Natur- land (Germany), have developed stan- dards for not only environmentally but also socially sustainable capture fish- eries. Yet even these combined stan- dards do not attract price premiums to primary producers, leading to a ques- tioning of the long-term socio-eco- nomic impacts on fishing and fish farming communities of such eco-la- belling schemes (see Agritrade article ‘Certified Nile perch has increased its popularity in Europe’, 28 May 2012). 3. Implications for ACP countries Ensuring EU sustainability standards are internationally compliant One of the main stated objectives of regulations adopted in 2012 is to create “a level playing field” between EU and imported fisheries products. However, any new EU legislation needs to be in line with internationally agreed stan- dards, otherwise third countries may be able to challenge these new regu- Executive brief: Update 2013 I 8http://agritrade.cta.int/ ACP–EU fisheries: Market access and trade lations as trade distorting. This in part explains why the EU is promoting an international catch certification scheme as a tool to fight IUU. In 2012, the EU made progress in bringing Japan and the US (both important markets for ACP products) into this international initiative. “ACP governments need to monitor whether EU standards applied to fisheries imports comply with internationally agreed standards” In this context, ACP governments will need to establish mechanisms to monitor both the elaboration of these international standards and whether new EU regulatory standards applied to fisheries imports are compliant with internationally agreed standards and conventions. Getting to grips with the challenge of sustainability standards compliance The difficulties ACP products will face in finding alternative international mar- kets if they are not in line with emerging EU standards gives added importance to enhancing the capacities of ACP coastal states to effectively manage their fisheries resources in line with the increasingly strict international environ- mental and social standards. Potentially, getting ahead of policy developments in this area could pro- vide opportunities to promote the envi- ronmental and social production qual- ities of ACP products in ways that give ACP suppliers a competitive advantage over some other suppliers. Appropriate support – financial, techni- cal, information, etc. – also needs to be provided to ACP small-scale fish pro- ducers, men and women, to maximise the contribution of fisheries to local and regional food security, and increase their capacity to access international markets with high-quality products. Taking advantage of the rules of origin or supporting alternatives, such as reflagging For many years, ACP countries have been asking for a relaxation of fisheries rules of origin to allow the use of any fish caught in their EEZs. Some years ago, PACP countries were granted the ‘global sourcing’ derogation for canned tuna under the Pacific–EU IEPA. It now appears increasingly clear that such global sourcing is of little interest when other EU standards are not complied with, such as IUU, etc. Moreover, any future potential relax- ation of EU fisheries rules of origin may be linked to new EU demands for access to fisheries resources. In 2012, the request by PACP countries to extend global sourcing to other prod- ucts was met with a demand to pro- vide guaranteed access for EU fleets to Pacific tuna. “An alternative to relaxing the rules of origin – as is being pursued in the Pacific – is the reflagging of foreign vessels” An alternative means of approaching rules of origin challenges is through the reflagging of foreign vessels to ACP jurisdictions. This is being pursued in the Pacific. Some ACP countries are also looking for more flexibility in terms of definitions of origin of fish coming from chartering operations. However, this alternative path requires substan- tial investment from ACP countries into fisheries management, to ensure that these reflagged/chartered vessels comply with national and international legislation, including environmental and social standards, as these standards become a prerequisite for accessing key international markets. Capitalising on growing Chinese demand to increase ACP processing In 2012, China became the main fisher- ies trade partner for many ACP coun- tries, particularly in Africa, involving the export of fisheries raw material to China for processing and re-export. Although there is a need for ACP coun- tries to take advantage of possibilities to diversify their markets for fisheries products, the main issue remains: how to increase local value addition to ACP fish products prior to export. A detailed market analysis is required to identify how further-processed ACP products can find their own niche on traditional EU, US and even emerging export markets such as China. On the basis of detailed market analysis, the investment required to facilitate value addition to certain fish products (where fresh fish exports are not the most prof- itable form of export) prior to export can then be identified. Developing regional fish trade in the ACP Regional markets for ACP fish prod- ucts are also growing, including for processed products. This is an alter- native which is increasingly important for ACP producers, particularly small- scale producers, as regional marketing channels are often well known to them and more easily accessible. “Existing barriers to regional trade should be dismantled to promote ACP intra-regional trade in fisheries products” The promotion of such regional mar- kets needs to be supported through political action to dismantle existing Executive brief: Update 2013 I 9http://agritrade.cta.int/ ACP–EU fisheries: Market access and trade barriers to regional trade in fish prod- ucts and promote investment in the necessary logistical infrastructure to facilitate regional trade in fisheries products. Main sources FAO 1. FAO, ‘The state of world fisheries and aquaculture’, 2012 http://www.fao.org/docrep/016/i2727e/i2727e00.htm 2. FAO, ‘FAO capture and aquaculture production databases’, point of access http://www.fao.org/fishery/statistics/software/fishstatj/en 3. FAO Committee on Fisheries Sub-Committee on Fish Trade, ‘Decisions and recommenda- tions of the 13th session, 20–24 February 2012’, 2012 http://www.fao.org/cofi/24005-01e276260099b4967ed0ff22d8b4e6e4c.pdf 4. FAO Globefish website http://www.globefish.org/ Other sources 5.Pacific Island Forum Fisheries Assotiation (FFA), fisheries trade briefings http://www.ffa.int/trade_industry 6. International Centre for Trade and Sustainable Development (ICTSD), Trade Negotiations Insights http://www.ictsd.org/tni/tni_english 7. EU, summaries of EU external trade legislation http://europa.eu/legislation_summaries/external_trade/index_en.htm 8. EU, Export Helpdesk for developing countries website http://exporthelp.europa.eu/ 9. AIPCE–CEP (EU Fish Processors and Traders Association), FinFish Study 2012, September 2012 http://www.fiskbranschen.se/FinfishStudy2012.pdf 10. EU, ‘Report on the implementation of the derogation to the standard rules of origin granted to the Pacific ACP states in the framework of the interim economic partnership agreement’, December 2011, published 27 February 2012 http://trade.ec.europa.eu/doclib/docs/2012/february/tradoc_149137.pdf 11. European Parliament DG for Internal Policies, Policy Department B: Structural and cohesion policies, Fisheries, ‘The impact of WTO and other trade negotiations on fisheries’, 2009 http://www.europarl.europa.eu/committees/en/studiesdownload.html?languageDocument=E N&file=29031 Executive brief: Update 2013 I 10http://agritrade.cta.int/ ACP–EU fisheries: Market access and trade About this update This brief was updated in October 2013 to reflect developments since September 2012. Other publications in this series and additional resources on ACP–EU agriculture and fisheries trade issues can be found online at http://agritrade.cta.int/. Technical Centre for Agricultural and Rural Cooperation (ACP—EU) PO Box 380 6700 AJ Wageningen The Netherlands Tel: +31 (0) 317 467 100 E-mail: cta@cta.int - www.cta.int The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint ACP—EU institution active in agricultural and rural development in African, Caribbean and Pacific (ACP) countries. Its mission is to advance food and nutritional security, increase prosperity and encourage sound natural resource management. It does this by providing access to information and knowledge, facilitating policy dialogue and strengthening the capacity of agricultural and rural development institutions and communities in ACP countries. 12. Overseas Development Institute (ODI), ‘The poverty impact of the proposed graduation threshold in the Generalised System of Preferences (GSP) trade scheme’, by C. Stevens et al., October 2011 http://www.odi.org.uk/resources/details.asp?id=6015&title=poverty-impact-graduation- threshold-generalised-system-preferences-gps-trade-scheme 13. Official Journal of the European Union, ‘Regulation (EU) No 1026/2012 of the European Parliament and of the Council of 25 October 2012: On certain measures for the purpose of the conservation of fish stocks in relation to countries allowing non-sustainable fishing, L 316/34, 14 November 2012 http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:316:0034:0037:EN:PDF http://agritrade.cta.int/ WTO and other international aspects of ACP–EU fisheries relations I 1 WTO rules applying to international fish trade and treaties, as well as conven- tions governing fisheries management and conservation, are of importance for ACP fish-producing countries. Trade in fisheries and fishery products are dealt with in the WTO non-agricul- tural market access negotiations. Many observers consider that until there is an improvement in the broader WTO trade negotiations, there will be little progress in the fisheries negotiations. Consequently, in 2011/12, development has been slow in the various aspects of the WTO negotia- tions that impact on the fisheries sector. Erosion of tariff preferences enjoyed by ACP fish products on the EU market is likely to take place with any further WTO- led trade liberalisation. “In 2011/12, development has been slow in the various aspects of the WTO negotiations that impact on the fisheries sector” Currently, however, the main source of preference erosion is the increasing number of bilateral trade agreements that the EU is concluding with non-ACP fish-producing countries, particularly in Asia and Latin America. Further trade liberalisation will also affect some seg- update October 2013 WTO and other international aspects of ACP–EU fisheries relations 1. Background and key issues 1. Background and key issues 2. Latest developments Ongoing discussions on whether payments for fishing agreements are subsidies Influence of WTO subsidies discussion on EU fisheries policy reform Other international developments Strengthening the international regulatory framework for fisheries sector investments 3. Implications for ACP countries Monitoring EU policies affecting WTO negotiationsMaking use of trade policy tools and nuanced approach to investment The ACP, the EU and transparency in international fisheries relations The need to develop a framework for foreign investments Monitoring international progress to combat IUU fishing through trade- related measures © OCEANA Executive brief: Update 2013 I 2http://agritrade.cta.int/ WTO and other international aspects of ACP–EU fisheries relations ments of the EU industry, especially tuna producers, importers and proces- sors. These operators would like WTO rules to take into account various inter- national standards – such as labour standards that are currently applied to EU producers but not all third coun- try producers – to create a more level playing field. “The main source of preference erosion is the increasing num- ber of bilateral trade agree- ments that the EU is conclud- ing with non-ACP fish-produc- ing countries” Given the lack of progress in the WTO negotiations, such issues have not been taken up in a WTO context, but they are increasingly being addressed within EU fisheries trade policy discus- sions (see Agritrade ‘ACP–EU fisheries market access and trade’ Executive Brief, forthcoming 2013). “The ‘Rio +20’ document reaf- firmed commitment to eliminate subsidies that contribute to IUU fishing, and to conclude multi- lateral disciplines on fisheries subsidies” International treaties and conventions also influence the ACP–EU fish trade. The outcome document of the 2012 United Nations Conference on Sustain- able Development (Rio+20) devoted a whole chapter to oceans and seas. The document reaffirmed commitment to eliminate subsidies that contribute to illegal, unreported and unregulated (IUU) fishing, and to conclude multilat- eral disciplines on fisheries subsidies. Governments also commit themselves to ensure access to both fish resources and markets for the small-scale sector and their communities, particularly in developing countries and especially in small-island developing states. A similar emphasis on the small-scale sector’s contribution to fish trade and food security was included in the UN report on Fisheries and the Right to Food, presented at the 2012 UN Gen- eral Assembly. The international fish trade is increas- ingly being shaped by the emergence of China as a global partner in ACP fish negotiations. The demise of the EU-based seafood multinational Pes- canova, which has various subsidiar- ies in ACP countries, is also likely to carry implications for ACP–EU fisheries relations. 2. Latest developments Ongoing discussions on whether payments for fishing agreements are subsidies A 2012 International Centre for Trade and Sustainable Development (ICTSD) review on negotiations of fisheries sub- sidies in the WTO highlighted the exclu- sion of access fees paid by distant- fishing nations to host countries (so- called government-to-government pay- ments) from the disciplines on fisheries subsidies. It noted that, in the event of access fees being considered as subsidies, ACP nations may find them- selves negatively affected. “In the event of access fees being considered as subsidies, ACP nations may find them- selves negatively affected” This could include reduced sourcing from foreign vessels of fish destined for processing and export, which would in turn lead to reductions in employment and revenues arising from the opera- tions of these foreign fleets. However, the review also highlighted that a reduced foreign presence may provide an opportunity for reducing the fishing effort and contribute to less competi- tion for capture and export between foreign vessels and the local fishing industry (see Agritrade article ‘Nego- tiations on fisheries subsidies: Issue still at stake within the WTO and the EU’s CFP reform’, 23 September 2012) This issue of fishing agreement pay- ments was raised by Russia following its WTO accession, when it announced plans to file a complaint at the WTO over the “subsidies” that are provided by the EU under the Fisheries Partner- ship Agreement (FPA) with Mauritania. The Russian government’s planned complaint is in the context of the Rus- sian effort to negotiate a 10-year fish- eries access arrangement with Mauri- tania, involving a payment of US$100 million, which is to be invested in stor- age and processing infrastructure. In response, the EC Fisheries Com- missioner pointed out that EU FPAs are based on transparency, sustain- ability and good governance, and that any WTO cases filed against EU FPAs would serve as a catalyst for launching a broader initiative to promote more transparency over all fisheries access agreements – involving all countries (see Agritrade article ‘Russia threatens to call on WTO after Mauritania says it should respect same conditions as ‘subsidised EU fleets’, 1 July 2013). Influence of WTO subsidies discussion on EU fisheries policy reform The future of EU fisheries subsidies has also been hotly debated in the context of the reform of the EU Com- mon Fisheries Policy (CFP), in view of a general policy commitment to reduce the level of subsidies (see Agritrade ‘EU Common Fisheries Policy and fisheries Executive brief: Update 2013 I 3http://agritrade.cta.int/ WTO and other international aspects of ACP–EU fisheries relations partnership agreements: Challenges for ACP countries’, Executive Brief, forthcoming 2013). Addressing European parliamentar- ians and EU member state repre- sentatives, a leading negotiator on international fisheries subsidies from New Zealand claimed that the future EU fisheries subsidies policy – under the European Maritime and Fisheries Fund – will affect the approach on fisheries fleet subsidies in the WTO negotiations, given the critical role of EU policy in this area (see Agritrade article ‘EU decision on fish subsidies may pose risk to global negotiations’, 18 May 2013). In October 2012, the Council of EU Fisheries Ministers decided on the reintroduction of modernisation sub- sidies, while in the European Parlia- ment, subsidies for vessel construction and for upgrading engines were being proposed. These types of subsidies, however, have often been criticised for enhancing the fishing efforts deployed (see Agritrade article ‘EU ministers sup- port controversial subsidies’, 2 Decem- ber 2012). Meanwhile, the European fishing sector is also developing a new approach to fisheries subsidies. During 2012, the recently created European Fisheries Technology Platform (EFTP), compris- ing representatives from the industry and researchers, held a series of workshops to review various aspects of innovation in fishing activities that are designed to improve the efficiency of operations. This provided inputs for the EFTP Strategic Research and Innovation Agenda for 2020. It is main- tained that research and innovation are necessary to reduce the costs and increase the profitability of the Euro- pean fisheries sector, and also to pro- mote more sustainable and responsible fishing activities. “The EFTP maintains that research and innovation are necessary to reduce costs, increase profitability and pro- mote more sustainable and responsible fishing activities” The EFTP particularly discussed energy efficiency, in a context where fuel accounts for 55% of a vessel’s running costs. Considerable savings can be made from optimising vessel design, navigation and strategically reducing speed (for instance, reducing speed by 7% leads to a 16% reduc- tion of fuel consumption). New fish- ing gear technologies (adaptations of doors and trawl nets) can also reduce fuel consumption by up to 40%. How- ever, research showed that changing the engine – something the European Parliament is proposing to subsidise in the future European Fisheries Fund – is an expensive possibility, and leads to only a 10% saving in energy costs. The EFTP hopes that the priorities for research and innovation it identified will be considered for EU funding (see Agritrade article ‘European Fisheries Technology Platform focuses on fishing vessels’ energy efficiency’, 11 Febru- ary 2013). Other international developments Taking IUU fishing regulations to the international stage In 2012, after 5 years of negotiations, international voluntary guidelines for flag state performance were finalised and aimed at tackling IUU fishing. These voluntary guidelines will be pre- sented to the FAO Committee on Fish- eries in June 2014 for endorsement. The guidelines make recommenda- tions for encouraging and helping flag states comply with their international duties and obligations regarding the flagging and control of fishing vessels. They also present possible actions in response to non-compliance. The proposed guidelines are also looking at ways to cooperate with and assist developing states in their capacity as flag states (see Agritrade article ‘New international guidelines will help com- bat IUU fishing’, 25 March 2013). IUU has also been the focus of a new Interpol initiative to detect, combat and suppress fisheries crime. Its main objec- tive is the exchange of fisheries control information and intelligence between countries. A permanent Interpol Fisher- ies Crime Working Group will provide recommendations to ensure interna- tional cooperation between Interpol and national fisheries control authorities, and to put in place assistance to countries where fisheries law enforcement is lack- ing. Fisheries ministers of Liberia, Sierra Leone, Spain and Togo participated in the conference that launched this initia- tive. Some environmental groups, such as Pew and Greenpeace, welcomed the involvement of Interpol in the fight against IUU fishing (see Agritrade article ‘Interpol to get involved in fighting IUU fishing’, 24 February 2013). Some global fisheries players, such as the EU and US, are also develop- ing their own initiatives to combat IUU fishing. In 2012, the EU published a list of pre-notified countries that were seen as not cooperating against IUU (see Agritrade ‘ACP–EU fisheries mar- ket access and trade’ Executive Brief, forthcoming 2013); while for its part, the US administration submitted a report that identified 10 countries engaged in IUU fishing in 2011 or 2012. The US report included ACP countries, such as Ghana and Tanzania, and EU countries, such as Italy and Spain. The identified countries had vessels that did not com- ply with conservation and management measures adopted by a regional fishery management organisation to which the US is party. If an identified country fails Executive brief: Update 2013 I 4http://agritrade.cta.int/ WTO and other international aspects of ACP–EU fisheries relations to take appropriate action, its fishing vessels may be denied entry into US ports, and US imports of fish products may be prohibited – such measures are similar to those existing in the EU’s IUU regulation. The US administration read- ily admitted that the main aim of this report was to level the playing field for fishers around the world (see Agritrade article ‘NOAA identifies 10 countries, including in EU and ACP, that con- ducted IUU fishing’, 11 February 2013). The growing importance of China China has now become a major dis- tant-water fishing nation, including in ACP nations’ waters. In recent years, China has developed a fleet of specialised distant-water fishing vessels (e.g. bottom trawlers, purse seiners and longliners) which are linked to mother ships that deliver their catch to freezing and processing facilities. These ships supply China’s domestic and local as well as international mar- kets, including some markets in ACP countries. Globally, China’s distant- water fleet now comprises 3,400 ves- sels fishing in 37 countries. Chinese investments (refrigeration plants, pro- cessing units, etc.) have been made in ACP countries to facilitate the activities of these Chinese fleets. A study by D. Pauly and others, pub- lished in the journal Fish and Fisher- ies in 2012, highlighted the “tendency towards secrecy in fisheries data and the disregard for public accountability of the use of public resources”. Although access agreements between China or Chinese companies and third countries are not publicly available and catches of the Chinese distant-water fleets go largely unreported, the activities of these fleets are increasingly being documented. The authors of the 2012 study reconstructed the catch data and found that the Chinese distant-water fleets extract their largest catches from African waters (approximately 3.1 million tonnes per year, caught by about 400 trawlers).This suggests that Chinese fleets catch roughly 10 times what is reported by China to the FAO (see Agri- trade article ‘China reporting only 10% of its distant-water catches, says new study’, 18 May 2013). “According to a study, China’s distant-water fleets extract their largest catches from African waters – they catch roughly 10 times what is reported to the FAO” Fisheries are now a key area for developing business links between China and Africa, with growing Chi- nese investments in African fisher- ies. Currently, these investments are worth around US$6 billion per year, and generate approximately 500,000 tonnes of fish products, half of which is processed and sold on the EU mar- ket, and one-third of which is sold in China. China is now the biggest foreign presence in the African fishing industry, followed by the United States, the EU and Japan. According to the Secretary- General of the China Center for Inter- national Economic Exchanges, Africa will probably replace the EU as China’s biggest trade partner in the next few years, with fisheries playing an impor- tant role in this partnership. However, the China Overseas Fisheries Asso- ciation, composed of Chinese distant- water fishing companies, takes a dif- ferent view as it is considered unlikely that China–Africa fishery cooperation will take off unless African countries change their policies restricting foreign businesses. These include current limi- tations on the purchase of fishing rights and licences, and on the remittance of foreign earnings to China (see Agritrade article ‘Chinese investors call for Afri- can governments to remove ‘restric- tions on fisheries’, 29 January 2013). The demise of Pescanova One of the world’s biggest seafood companies, Pescanova, announced in 2012 that it had filed for insolvency, having failed to sell part of its Chile salmon farming business to Norwegian companies. “Pescanova – one of the world’s biggest seafood com- panies – announced in 2012 that it had filed for insolvency” The Spanish-based company entered a preliminary phase, seeking protec- tion from creditors. In recent months, Pescanova has reported debts of €1.5 billion and several of its boats and fac- tories are mortgaged to an overall value of €100 million. However, the actual state of the debt remains unclear, as auditors have found several discrepan- cies in information provided. Pescanova’s market valuation fell by 60% in 2012. Furthermore, Pescanova has about 10,500 employees with a presence in more than 20 countries – including Namibia, South Africa, Mozambique and Angola. While Span- ish banks and the government may come to Pescanova’s rescue, the sale of fishing quotas received from coun- tries such as Chile and Namibia under systems of individual transferable quo- tas (ITQs) is likely to be seen as a rev- enue earner by the company’s creditors (see Agritrade article ‘Pescanova, one of biggest world fishing companies, files for insolvency’, 7 April 2013). Strengthening the international regulatory framework for fisheries sector investments There are numerous international instruments that could provide the basis for strengthening the interna- tional regulatory framework for foreign Executive brief: Update 2013 I 5http://agritrade.cta.int/ WTO and other international aspects of ACP–EU fisheries relations investment in ACP fisheries sectors. The underlying principles contained in these various FAO, ILO and OECD conventions and guidelines fall into five areas. Conformity of investments with the policy objectives of the third country “The regulatory framework for investments should ensure that investments contribute to economic, social and environ- mental progress with a view to achieving sustainable fishing” Investments should take into account the policies introduced in the countries in which they operate. In this respect, the regulatory framework should ensure that investments: contribute to economic, social and environmental progress with a view to achieving sustainable fishing; respect the human rights of those affected by these investments, in accordance with the international obligations and commitments of the government of the third country; boost local capacity by working closely with local communities while expanding in the domestic and foreign markets in a way that is compatible with sound business practices; encourage training, particularly by creating job opportunities and facili- tating the training of women and young people in the sector; are given no exemptions from envi- ronment, health, safety, labour, taxa- tion, standards and requirements. Transparency Investors must ensure that reliable and pertinent information about their activities, structure, financial situa- tion and results is communicated to the public regularly and on time. Investors must apply high stand- ards of quality in their disclosures, accounts and audits, and with regard to any information of a non- financial, environmental and social nature. Investors must improve the transpar- ency of their efforts to clamp down on corruption and extortion. Environmental protection Investments should take into account the need to protect the environment and maintain public health and safety. In particular, investors must: set up and implement an environ- mental management system suited to the enterprise, involving: • the timely collection and evalua- tion of sufficient information on the potential impact of their activities on the environment and on health and safety; • setting measurable and, if neces- sary, specific targets to improve their environmental performance, with a periodic audit of these targets; • monitoring and reviewing on a regu- lar basis the progress achieved in the pursuit of general and specific targets in terms of environmental and health and safety requirements; refrain from using the absence of absolute scientific proof as a reason for delaying the adoption of effec- tive measures destined to prevent or reduce environmental damage, or that jeopardises health and safety requirements. Optimisation of taxation Enterprises should comply with the tax laws and regulations in every country in which they operate and make every effort to act in accordance within the spirit and letter of such laws and regu- lations. Enterprises should send the relevant authorities all the information necessary for calculating their tax liability and should observe the ‘arm’s length’ principle in their transfer pricing practices. Participation of local communi- ties in the host country According to the FAO Investment Centre, any investment project in the fisheries sector must be based on a complete evaluation of local conditions, not only at a technical or environmental level, but also at economic, political and social levels. Beneficiary commu- nities should be involved in the early stages of planning any investment so that their existing rights can be fully respected. 3. Implications for ACP countries Monitoring EU policies affecting WTO negotia- tions EU policies – such as the reform of its fisheries subsidies through the Euro- pean Maritime and Fisheries Fund, the reform of bilateral sustainable fisher- ies partnerships agreements and the fisheries elements of trade agreements with non-ACP countries – affect EU– ACP fisheries relations, and will also Executive brief: Update 2013 I 6http://agritrade.cta.int/ WTO and other international aspects of ACP–EU fisheries relations have an impact on EU positions in inter- national negotiations (WTO, FAO, etc.). In the case of European fisheries sub- sidies, some of the envisaged subsi- dies have been criticised in interna- tional forums for being too focused on enhancing capacity. European Parlia- ment proposals to reintroduce vessel modernisation subsidies, would focus on “small-scale and coastal fishing”, which is defined in the European con- text as “vessels of an overall length of less than 12 metres which do not use towed gear or which spend less than 24 hours at sea”. “Moves by the EU to reintro- duce vessel modernisation subsidies for small-scale fisher- ies may be indicative of the eventual EU position in WTO discussions on special and dif- ferentiated treatment” Moves in this direction may be seen as indicative of what the EU position could be in WTO discussions on special and differentiated treatment, and hence could have implications for WTO rules affecting ACP countries. It is therefore important that ACP countries moni- tor internal EU debates and decisions taken in these areas. The ACP, the EU and transparency in intern- ational fisheries relations Under the EU’s approach to sustain- able FPAs, there is a growing insist- ence to make all access agreements between distant-water fishing countries – or companies – and coastal countries publicly available, and on better docu- menting the activities and catches of distant-water fleets. This is something that would benefit ACP countries where these fleets operate, as it would help them analyse the costs and benefits of these operations, and provide the necessary information to move towards the harmonisation of access conditions for the distant-water fleets. “Transparency in fisheries agreements would benefit ACP countries by helping to analyse costs and benefits, and provid- ing information to move to- wards harmonisation of access conditions for distant-water fleets” At the last FAO Committee on Fisher- ies, a proposal was made to the FAO by the EU to undertake a global study on fisheries agreements. ACP govern- ments may wish to extend their sup- port to this proposal given the potential fisheries management benefits it could stimulate. The need to develop a framework for foreign investments Private and public investments in Afri- can fisheries are needed to develop fishing activities and add value locally to fisheries resources, particularly in communities that depend on fisheries for their livelihoods. That there are new partners interested in investing in ACP countries’ fisheries sectors and some traditional investors are in financial difficulties suggests that an in-depth analysis is required to ascertain: how these affect ACP fisheries sec- tor development; which strategies are most likely to contribute to the structural devel- opment of ACP economies in the global fisheries trade on a sustain- able basis. One critical current issue from a sus- tainability perspective is the trend towards linking investment to the granting of fishing rights. ACP coun- tries must analyse who bears the costs and who gets the benefits of such conditional investments. As demon- strated by the Pescanova case, the value of the fishing rights allocated to ACP countries under ITQs can be capi- talised to secure bank loans or cover bad debt. This raises questions of what happens to these ITQ rights, and what are the implications for ACP fisheries management regimes. The policy chal- lenge is to guarantee the transfers of fishing rights, and to ensure that the overall level of fishing access granted does not undermine the fisheries resource. It also raises the matter of how transfers of ITQ rights could have an impact on market access, given increasing pressures to link market access for fisheries products to sus- tainability and social criteria. This highlights the need to introduce clear regulatory frameworks for foreign fisheries investment in ACP countries, and to ensure that investments are economically, environmentally and socially sustainable. It also highlights the importance of investors them- selves taking on board their corporate responsibilities. Because of the importance of these issues to ACP fisheries sector develop- ment aspirations, and the challenges ACP governments face in dealing with the less-than-transparent world of international fisheries investment, ACP governments may wish to consider the development of an international regu- latory framework for investment that promotes: transparency; environmental protection; optimisation of taxation; Executive brief: Update 2013 I 7http://agritrade.cta.int/ WTO and other international aspects of ACP–EU fisheries relations participation of local communities conformity of investments with national policy objectives. Monitoring international progress to combat IUU fishing through trade- related measures Given that there is an FAO International Plan of Action on combating IUU, and yet there is little overlap between EU and US lists of third countries engaged in IUU fishing, the question arises of how any individual country finds itself placed on any particular list of coun- tries engaged in IUU fishing, and why some countries are on one list and not on another. This suggests that there is a need to strengthen efforts to harmonise international approaches to combat IUU fishing. ACP countries should support such harmonisation in a way that takes into account their specificities. This is particularly rele- vant in the case of the EU-sponsored proposal to promote an international catch certification scheme for proving that a fish product has been caught legally – especially when considering the serious capacity constraints faced by some island ACP states to provide such catch certification. Potentially, FAO guidelines on flag states’ respon- sibilities are of considerable value to ACP countries, where many national authorities lack the capacity to monitor and control fishing vessels flying under their flags. As such, ACP governments should welcome these guidelines since they provide both recommendations and possible support to all ACP coun- tries in addressing this issue. Similarly, the fact that Interpol is devel- oping an IUU initiative may be of inter- est to ACP countries to help them fight criminal organisations active in their fisheries. However, there needs to be a multifaceted approach to fighting IUU difficulties, which includes promoting more transparency and accountabil- ity for the allocation of access to fish resources, increasing human and tech- nical capacities to police their waters, and promoting international tools to combat IUU fish trade, in line with the FAO International Plan of Action to deter and eliminate IUU fishing. Main sources 1. International Centre for Trade and Sustainable Development (ICTSD), Fisheries page http://ictsd.org/programmes/environment/fisheries/ 2. World Trade Organization (WTO), web page on environment and development http://www.globefish.org/wto-environment-and-development.html 3. WTO, WTO web page on dispute-settlement rules and procedures http://www.wto.org/english/tratop_e/dispu_e/dsu_e.htm 4. WTO, ‘The WTO agreement on the application of sanitary and phytosanitary measures’, web page http://www.wto.org/english/tratop_e/sps_e/spsagr_e.htm 5. WTO, ‘Understanding the WTO: Developing countries’, web page http://www.wto.org/english/thewto_e/whatis_e/tif_e/dev1_e.htm 6. WTO, ‘Understanding the WTO: The Doha agenda, web page http://www.wto.org/english/thewto_e/whatis_e/tif_e/doha1_e.htm 7. Food and Agriculture Organization of the United Nations (FAO), ‘International guidelines take aim at illegal fishing’, 28 February 2013 http://www.fao.org/news/story/en/item/170570/icode/ Executive brief: Update 2013 I 8http://agritrade.cta.int/ WTO and other international aspects of ACP–EU fisheries relations 8. FAO, documents for the FAO technical consultation on flag state performance, February 2013 ftp://ftp.fao.org/FI/DOCUMENT/tc-fsp/2013/default.htm 9. ICTSD, ‘Taking stock: Perverse subsidies in the fisheries sector’, Bridges Trade Biores Review, Volume 6, Number 3, August 2012 http://ictsd.org/i/news/bioresreview/142042/ 10. Food and Agriculture Organization of the United Nations (FAO), ‘The state of world fisheries and aquaculture’, 2012 ftp://ftp.fao.org/FI/brochure/SOFIA/2012/english_flyer.pdf About this update This brief was updated in October 2013 to reflect developments since September 2012. Other publications in this series and additional resources on ACP–EU agriculture and fisheries trade issues can be found online at http://agritrade.cta.int/. Technical Centre for Agricultural and Rural Cooperation (ACP—EU) PO Box 380 6700 AJ Wageningen The Netherlands Tel: +31 (0) 317 467 100 E-mail: cta@cta.int - www.cta.int The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint ACP—EU institution active in agricultural and rural development in African, Caribbean and Pacific (ACP) countries. Its mission is to advance food and nutritional security, increase prosperity and encourage sound natural resource management. It does this by providing access to information and knowledge, facilitating policy dialogue and strengthening the capacity of agricultural and rural development institutions and communities in ACP countries. http://agritrade.cta.int/ Food safety I 1 While food safety and sanitary and phy- tosanitary standards (SPS) issues are an increasingly important barrier to ACP countries’ exports of food and agricul- tural products to the EU, they are also an important constraint on the geographical diversification of exports, including the development of intra-regional trade in food and agricultural products. In terms of their trade consequences, concerns about SPS and food safety at national, regional and international levels interact in many different ways. Matters regarding the integrity of national SPS and food safety protocols, which allow exports to take place overseas, can lead to barriers to intra-regional trade. SPS and food safety market access restric- tions on overseas markets can intensify competition on regional markets, while efforts to harmonise regional standards to facilitate access to international markets, might discriminate against certain national producers and effectively exclude them from official markets. Against this background, growing impor- tance is attached to establishing cost- effective SPS and food safety control systems, which facilitate regional and international trade within harmonised regional frameworks. However, there are considerable practical challenges to attaining this policy objective. Substan- tive dialogue structures at the national, regional and international levels often need to be established, to ensure that, in meeting universal SPS and food safety objectives, local production realities are taken into account. Establishing cost- effective food safety control systems requires substantial investment at both the regulatory and operational level, often along the whole supply chain – from farm to fork. However, these additional invest- ment costs can be kept to a minimum if advanced knowledge of pending regu- latory or private sector requirements is available, allowing changes to be built into routine reinvestment plans. update September 2013 Food safety 1. Background and key issues 1. Background and key issues 2. Latest developments Developments in the EU Progress in strengthening SPS and food safety control systems across the ACP Meeting new challenges Regional based approaches to strengthening food safety and SPS control regimes Emergence of SPS-based intra- regional trade disputes SPS and food safety issues key to the geographical diversification of ACP exports Commercial and protectionist dimensions of food safety and SPS standards Harmonisation of standards beyond the ACP 3. Implications for the ACP Applying the minor uses and specialty crops approach to the ACP ‘Aid for trade’ support on the scientific basis for cadmium controls Staying ahead of regulatory changes and their operational application The current role of an AU-wide food safety authority Supporting a regional SPS and food safety arbitration mechanism Monitoring the implications of the process of EU–US standards harmonisation Executive brief: Update 2013 I 2http://agritrade.cta.int/ Food safety Critical to getting to grips with the chal- lenge of meeting evolving food safety and SPS standards are: regular access to updated informa- tion (through databases, news alerts, etc.); mobilisation of the requisite technical and financial resources; establishment of improved dialogues concerning food safety and SPS standard setting and implementation. Key issues identified in the 2012 Agri- trade Executive brief on food safety included: establishing a better dialogue on private sector food safety standards; ex tending the EU’s evo lv ing approach to minor uses of pesticides to the ACP level; ensuring that austerity measures do not disproportionately increase the costs of SPS and food safety inspec- tions carried out on imports into the EU; intensifying cooperation against the supply of fraudulent pesticides; ensuring that the development of harmonised regional SPS and food safety standards are consistent with production realities across the ACP regions concerned; deepening information sharing on evolving official standards; ensuring that ‘aid for trade’ support for SPS and food safety measures is deployed within a holistic approach, and addresses the whole supply chain; enhancing technical capacities for testing and compliance verification within ACP regions; establishing clearly defined time frames for SPS approval processes to which importing countries can be held. 2. Latest developments Developments in the EU “The EU’s SPS and food safety policy framework is now largely in place and operational” The EU’s SPS and food safety policy framework is now largely in place and operational. However, two notable issues emerged in 2012–13: the failure to develop operational programmes on plant protection products for minor uses and spe- cialty crops; the development of new EU regu- lations on cadmium contamination levels, which affect cocoa and choc- olate products and rice. In December 2012, following a year- long delay, several EU agricultural bod- ies appealed for the immediate estab- lishment of “an ambitious plan aimed at setting up a permanent EU programme for minor uses and specialty crops, accompanied by a coherent funding programme”. Arising from the EU pes- ticide review, it was maintained that the programme should address the lack of affordable alternative plant pro- tection products for a range of crops produced in the EU. This envisaged a discontinuation of approval for a range of products, the demand for which was considered insufficient for warranting pesticide companies to prepare sub- missions under the revised EU approval procedures. In terms of the development of new EU regulations on cadmium contamination levels in cocoa and chocolate prod- ucts, the WTO committee convened in July 2012 to hear the concerns of cocoa-producing countries with regard to proposed new EU limits on cadmium levels. The EC has been monitoring cadmium levels more closely since January 2009, when the European Food Safety Authority concluded that certain groups of consumers were at risk of possible overexposure. This led the EC’s Expert Committee on Environ- mental Contaminants to propose that the limits on cadmium in food products be revised. ACP and Latin American cocoa pro- ducers are arguing that the EC’s new regulatory response “threatens their exports and the livelihoods of their small cocoa farmers”. The EU has been asked to “clarify the contribution made by different types of chocolate to weekly or monthly cadmium intakes” and “to work with scientific experts to agree a method of calculating maxi- mum permitted levels”. Cocoa pro- ducers have also called for a 5-year transition to the new standards. The EC has, therefore, declared its will- ingness to hold discussions – which are now under way – with a wide variety of experts, within the framework of the WTO. A pragmatic approach is being adopted: for example, differentiating between dark chocolate, which has a higher cocoa content and is gener- ally eaten by adults in small quantities, and milk chocolate, which has a lower cocoa content and is typically eaten in larger quantities by children. This suggests a need for ACP cocoa producers to mobilise scientific and Executive brief: Update 2013 I 3http://agritrade.cta.int/ Food safety technical expertise to make their case in a manner similar to that of the EU cereal industry. The European wheat industry has already successfully lob- bied for the creation of a specific cat- egory for hard wheat, which sets a maximum of 0.175mg/kg, deferred for 1 year, falling to 0.15mg/kg (of cadmium traces) after a further 3 years. These levels were achieved through the effec- tive mobilisation of sound scientific and technical analysis (see Agritrade article ‘Brussels trains its sights on cadmium in cocoa and chocolate’, 9 September 2012). Progress in strengthening SPS and food safety control systems across the ACP Across the ACP countries, consider- able effort is being made to strengthen food safety and SPS control and com- pliance verification systems. “Across the ACP countries, considerable effort is being made to strengthen food safety and SPS control and compli- ance verification systems” However, progress varies from country to country. For example, in the case of Dominican Republic, in April 2011 concerns had been expressed about the dangers of horticultural exporters losing their access to the EU market on SPS and food safety grounds. How- ever, by June 2012, it was announced that the EC was reducing the frequency of inspections of specified Asian-type vegetable imports from the Dominican Republic (from 50 to 25% of all consign- ments) in response to the successful implementation of measures proposed in the 2008 and 2010 EU Food and Vet- erinary Office inspection reports. The implementation of these measures at a multiplicity of levels benefited from assistance under the EC-financed Europe-Africa-Caribbean-Pacific Liai- son Committee (COLEACP) PIP pro- gramme (see Agritrade article ‘Inspec- tion levels reduced on imports from the Dominican republic’, 16 July 2012). Progress was confirmed by the subse- quent announcement in January 2013 of a 50% reduction in physical checks on aubergine and bitter melon imports from the Dominican Republic. Accord- ing to the government, this reflected greater confidence in the health and food safety policies being pursued in the Dominican Republic. The extent of progress being made in SPS and food safety issues was illustrated by the launch of efforts to re-establish exports of Dominican meat products to the US and Caribbean markets. Yet progress is by no means uniform in the Caribbean. In 2010–11, there were increased rates of detection of higher than permitted pesticide residue levels in fruit and vegetables from Suriname imported into the Netherlands, result- ing in the imposition of stricter controls by the Dutch food safety authority in May 2012. According to press reports, private sector bodies had long been warning of a possible disruption of exports on food safety grounds, a situ- ation not helped by the destruction of Suriname’s main food safety labora- tory in a fire in 2010. This potentially had regional implications, given that Suriname was the chosen location for the Caribbean Agricultural Health and Food Safety Agency. In Suriname poor product quality, a lack of certification to GLOBALGAP standards and a lack of an effective cold store chain all con- tinue to inhibit the development of the fruit and vegetable export trade. Meeting new challenges Across the Caribbean, the need to comply with the 2011 US Food Safety Modernisation Act has led to a flurry of activity to upgrade agro-food products’ standards, including establishing basic food safety and SPS control and verifi- cation systems. The Jamaican govern- ment has “initiated a comprehensive range of activities spanning many min- istries in an effort to ensure that our food safety systems are on par with international standards and best prac- tices”. This action was taken against the background of a September 2012 estimate that up to 80% of Jamaican food exporters to the US were non- compliant with the 2011 US Act (see Agritrade article ‘Serious food safety challenges face Jamaican exports to US markets’, 6 October 2011). Efforts under way to strengthen the Jamaican Bureau of Standards, which is the focal point for achiev- ing compliance with the 2011 Food Safety Modernisation Act, include a €2.25-million first-phase EU support programme aimed at improving labora- tory capacities. This is to be followed by a second €5 million phase, which will be extended to include support to small and medium enterprises (SMEs) in achieving compliance with interna- tional standards. However, these efforts are likely to be complicated across the Caribbean by the announcement in January 2013 that, only 2 years after the Food Safety Modernisation Act, further US food safety legislation is to be introduced to reduce the incidence of food-borne diseases. The new rules “are tailored to apply only to certain fruits and vegeta- bles that pose the greatest risk”, with processed fruit and vegetable products not being affected. The new rules will apply equally to both domestic and foreign farms and firms. Certain exemptions to the new rules are provided, including for foreign sup- pliers. Nevertheless, foreign producers will still be required to meet basic food Executive brief: Update 2013 I 4http://agritrade.cta.int/ Food safety safety requirements. The new rules are likely to be elaborated and introduced in the coming 3 years, with smaller businesses given a longer period to comply with new statutory require- ments, starting from the date of publi- cation of the final rules (see Agritrade article ‘Further new US food safety rules could set new challenges for Caribbean exporters’, 11 March 2013). “Evolving standards and tech- nological improvements in their application pose challenges across all ACP countries” Evolving standards and technological improvements in their application pose challenges across all ACP countries and have given rise to a several initia- tives. For example, the Kenyan Bureau of Standards is developing a new food safety guide, with the aim of boost- ing food safety and reducing the time frame for approval of food products. It is maintained that the new guidelines will simplify legislation and increase the competitiveness of Kenyan food products. The hope is that once the new food safety guidelines are in place nationally, they could become the basis for broader East African Community (EAC) standards. The “moving goalposts” phenomenon not only arises from changes in the basic regulatory framework, but also the application of the framework, often in response to technological improve- ments. For example, in February 2013 it was reported by the Fresh Produce Exporters Association of Kenya that “more than a fifth of Kenya’s vegetable exports to the European market were rejected in January after they were found to contain traces of a banned chemical” dimethoate. This, however, followed a 90% reduction in the per- mitted level of residues to 0.02 parts per million. Although the Kenyan Ministry of Agri- culture had sought to take immediate regulatory measures to limit the use of plant protection products containing dimethoate, legal challenges from the distributors of the affected products succeeded in overturning the ban (see Agritrade article ‘New EU maximum reside levels hit Kenyan vegetable exports’, 28 April 2013). This raises the twin issues of the need to consoli- date and update national food safety legislation, and the need for flexibility in the application of new standards, par- ticularly where these new requirements arise solely from improved monitoring technologies. Regional based approa- ches to strengthening food safety and SPS control regimes “Regional approaches to food safety are increasingly favoured” Regional approaches to food safety are increasingly favoured. Therefore, in July 2012 the Economic and Monetary Community of Central Africa (CEMAC) established an Interstate Committee of Pesticides in Africa (CPAC). This committee is to “evaluate applications for registration and sales of plant pro- tection products”, with applications submitted between 20 July and 30 September 2012 being subject to a “fast-tracked” approval process that was to be completed by the end of 2012. The culmination of an initiative launched in 2005 with the support of the EU-financed COLEACP PIP pro- gramme, it promotes a more cost- effective regional approach to pesticide registration and control. Establishing a uniform system of registration of plant protection products is considered nec- essary within CEMAC to facilitate the development of regional agricultural production to international standards. It is also seen as facilitating the devel- opment of local pesticide production for the CEMAC regional market (see Agritrade article ‘Regional pesticide registration scheme launched in Cen- tral Africa’, 9 September 2012). Similarly, to enhance food safety and facilitate regional trade in grains, the Common Market for Eastern and Southern Africa (COMESA) is propos- ing to establish an early warning sys- tem for contaminated grain. This is to be accompanied by the establishment of mutually recognised national qual- ity assurance certification schemes, underpinned by harmonised sampling and laboratory procedures in food safety analysis across the region. According to a COMESA food science and trade expert, “individual member states are expected to come up with an action plan towards achieving a com- mon standard in food safety testing.” However, this process is not without its problems: Kenyan government officials maintain that while “every effort has been made to ease flow of grains from neighbouring countries”, the govern- ment authorities “can never compro- mise quality standards”. According to the Eastern Africa Grain Council, Ken- yan quality standards are a contributing factor to Kenyan consumers experienc- ing one the highest maize prices in the EAC region (see Agritrade article ‘Bal- ancing food safety and regional trade in the Eastern and Southern Africa’, 31 March 2012). The process of har- monisation of standards is thus com- plicated by commercial considerations. Even more ambitious, in October 2012 the African Union (AU) announced plans to establish an AU-wide food safety authority as well as a rapid alert system for food and feed to prevent the spread of food-borne diseases and facilitate trade in foodstuffs. It was maintained that getting to grips with food safety issues “will not only Executive brief: Update 2013 I 5http://agritrade.cta.int/ Food safety reduce food losses and increase food availability in the continent, but also promote exports”. The proposed AU- wide food safety authority would be modelled on similar EU structures, but tailored to African realities. However, a review of the EU experience highlights the scale of the challenge faced. The concerned European bod- ies – the European Food Safety Author- ity (EFSA) and European Rapid Alert System for Food and Feed (RASFF) – both operate in support of national policy-making processes and policy implementation and are “primarily a tool to exchange information between competent authorities”. The primary responsibility for food safety remains with national-based institutions and bodies. “The primary responsibility for food safety remains with national-based institutions and bodies” The major challenge, therefore, is to develop the institutions’ capacity across the whole of Africa, to enable them to operate effectively within a coordinated African food safety framework (see Agr- itrade article ‘African Union moves to establish a region-wide food safety network’, 6 January 2013). The importance to regional trade of SPS and food safety standards har- monisation cannot be underestimated. Analysis from the World Bank main- tains that across Southern and Eastern Africa, the multiple different national standards is a “significant impediment to regional free trade”. While this real- ity lies behind repeated calls for the harmonisation of SPS and food safety standards, World Bank analysts have pointed out the process of harmoni- sation of standards itself can carry costs, with careful consideration being required to identify the most efficient and cost-effective means of aligning national standards to reduce the costs of trading for all types of producers. The World Bank analysis identifies three basic types of approach to har- monising standards at the regional level: regional harmonisation: arising from the replacement of national stand- ards by common mandatory regional standards; equivalency agreements: where countries recognise their respective standards as a basis for trade; mutual recognition agreements, involving acceptance of certain aspects of each country’s SPS measures. The analysis, implicitly, warned against the verbatim adoption of western standards noting that western produc- tion conditions, challenges and reali- ties are quite different to those faced in African countries, as are the respective capacities for conformity assessment. “World Bank analysis implicitly warned against verbatim adop- tion of western standards” It also cautioned against mandatory standards that reach beyond essential SPS and human health-related issues, since these can impose high costs and systematically discriminate against smallholder farmers. “Analysis has cautioned against mandatory standards that reach beyond essential SPS and human health-related issues” The analysis suggests that the Zambian approach – which establishes stand- ards that become a reference point for commercial transactions between buyers and sellers, with SPS and pub- lic health-related issues being dealt with on a mandatory basis through SPS regulations – can be much more cost-effective in opening up trade and improving producer incomes, while protecting both consumers and buyers. The World Bank analysis advocates a voluntary harmonisation approach, in view of capacity constraints across the region and the cost-increasing effects of a mandatory approach. However, it recognises that the absence of manda- tory standards can allow governments to use SPS and other quality concerns to close borders. This suggests a complementary need to ensure the transparent application of regional standards to prevent the use of standards as barriers to regional trade. Yet some analysts see the lack of transparent enforcement arrange- ments as posing particular challenges for reference standards arrangements, while other believe that leaving it to the market to ensure compliance on the basis of commercial transactions offers more effective scope for overcoming capacity constraints. Overall, given the diverse production systems operating in the Southern and Eastern African region, realism and pragmatism, combined with trans- parency and accountability, would appear to be the cornerstones of efforts to establish regional standards that effectively facilitate intra-regional trade. This lesson would appear to have a far wider applicability than sim- ply Southern and Eastern Africa (see Agritrade article ‘Regional standards, production development and trade’, 1 October 2012). Executive brief: Update 2013 I 6http://agritrade.cta.int/ Food safety Emergence of SPS-based intra-regional trade disputes “Divergent SPS and food safety standards can also give rise to significant intra-regional trade conflicts” Not only are divergent SPS and food safety standards an obstacle to regional trade, but they can also give rise to significant intra-regional trade conflicts On 10 May 2011, “Kenya banned Tanzania’s cut flowers from being exported overseas through Jomo Kenyatta airport”, citing phytosanitary concerns and “demanding an official Pest Risk Analysis of one of the flower farms”. Given that Kenyan cut flower exports are over 12 times the volume of Tanzanian exports, maintaining the integrity of national SPS and food safety controls was considered of critical importance. Taking into account the developing marketing cooperation between Kenyan and Tanzanian cut flower exporters, it was not anticipated that the ban would remain in place for any great length of time. However, despite the submission of the required pest risk analysis and the forwarding of a signed Bilateral Quar- antine Agreement by the Tanzanian authorities to their Kenyan counter- parts, it took 22 months for the Tan- zanian authorities to address all the issues raised in the risk assessment to the satisfaction Kenya Plant Health Inspectorate Services. The ban on Tanzanian cut flower exports via Kenya was lifted on 25 March 2013. For a time this SPS-based dispute threatened “to worsen the already antagonistic trade relations between the two neighbours”. Tanzanian com- panies had complained about the imposition of illegal levies on exports of fresh fruit and vegetables to Kenya, despite an acknowledgement by the Kenyan authorities that these should be removed. Meanwhile, Kenyan com- panies had complained about harsh new non-tariff barriers (NTBs) imposed by the Tanzanian authorities, including packaging standards for edible oils, and strict rules of origin requirements for tobacco products (see Agritrade article ‘Intra-regional SPS concerns threaten Tanzanian cut flower exports and sours broader trade’, 11 March 2013). A similar situation emerged in the Car- ibbean in mid 2012 when food safety and SPS grounds were advanced by the authorities in Trinidad and Tobago to prevent the importation of Barba- dian milk products. This dispute was resolved through bilateral discussions, with practical steps and time frames being identified for bringing Barbadian products into line with new Trinidad- ian labelling requirements. It was also accompanied by the tabling of propos- als for a food safety and SPS protocol to avert similar future disputes. This pragmatic approach may well have been facilitated by the launch in July 2012 of a US$9.25 million EU- funded programme to strengthen the CARICOM Regional Organisation for Standards and Quality. Efforts in this area could be of considerable signifi- cance, for the dairy dispute is the latest in a range of trade disputes that have plagued regional trade, largely based on food safety, SPS and technical bar- riers to trade issues. Indeed, analysts have suggested that much of the poor intra-regional agro-food trade perfor- mance is related to food safety (espe- cially for fresh foods) and divergent standards (especially for processed foods (see Agritrade article ‘Food trade dispute between Barbados and Trini- dad and Tobago rumbles on’, 3 Sep- tember 2012). SPS and food safety issues key to the geo- graphical diversification of ACP exports Given the new global trade dynamic, with far higher rates of growth across the developing world than in tradi- tional markets for ACP exports, get- ting to grips with food safety and SPS issues is critical to the geographical diversification of ACP agro-food sec- tor exports. “Food safety and SPS issues are critical to the geographical diversification of ACP agro- food sector exports” This is recognised in ACP countries such as Namibia, where in August 2012 a delegation from the Chinese Administration of Quality Supervision, Inspection and Quarantine was hosted as part of the process of opening up the Chinese market to Namibian fish and meat exports (see Agritrade article ‘Prospects for Namibian beef exports to China’, 4 January 2013). Across the ACP, however, these discus- sions are not always so far advanced. For instance, the enormous potential of the Chinese market for Pacific food and agricultural exports was emphasised at the Trade Pasifika exhibition in Fiji June 2012, although the Pacific region’s trade and investment representative to China, Samu Savou, highlighted the complete absence of agricultural export protocols between Pacific island countries and China. Without such pro- tocols no food and agricultural exports can take place (see Agritrade article ‘Market opportunities identified but action required’, 3 September 2012). Similarly, in December 2012, while a series of four agreements was signed between the Zambian and Chinese governments, thus nominally expand- Executive brief: Update 2013 I 7http://agritrade.cta.int/ Food safety ing duty-free access for Zambian exports to China, it did not include the conclusion of dedicated agricultural export protocols covering SPS require- ments and associated administrative arrangements. This highlights the centrality of con- certed private sector and government action to develop agricultural export protocols with China, in order to tap into the enormous market potential for food and agricultural exports, and also applies across advanced developing countries, where growth in consumer demand far outpaces that of OECD economies. Commercial and protectionist dimensions of food safety and SPS standards SPS and food safety controls need to be based on sound science, but policy makers are often subject to other pres- sures, equally applicable between ACP and non-ACP countries, and among ACP countries. Debates about Fijian exports of ginger to Australia are illus- trative of how SPS issues can be sub- ject to commercial pressures. In August 2012, it was announced that following the release of the final SPS risk analysis by the Australian Department of Agri- culture, Fisheries and Forestry, Austral- ian import restrictions on imports of Fijian ginger were to be lifted, provided the necessary quarantine criteria were applied. It was acknowledged that the opening of trade would be dependent on the establishment of effective pest controls for “yam scale and burrowing nematode”. The establishment of effec- tive pest controls to meet Australian import requirements is currently being supported under the AusAID Pacific Horticultural and Agricultural Market Access (PHAMA) programme. However, the Australian Ginger Industry Association is “unhappy about quaran- tine measures outlined in Biosecurity Australia’s final risk analysis” and is actively lobbying against approval of imports of Fijian ginger (see Agritrade article ‘Australian ginger market to be opened to Fijian exports?’, 11 Novem- ber 2012). It has mobilised state level politicians to pressure the federal gov- ernment to review the SPS approval decision, which is effectively politicising the issue. This is just the latest in a range of simi- lar SPS-related disputes that have held back the development of Pacific horti- cultural exports to Australia. According to the CEO of the Nature’s Way Coop- erative in Fiji “unrealistic policies and political interference” have played a “huge part in restricting access for local producers” to the Australian market (see Agritrade article ‘Fijian horticulture exports expanding, but facing mar- ket access barriers’, 9 August 2011). The latest ginger case would appear to highlight the difficulties faced in secur- ing real substantive market access in areas where domestic agricultural pro- ducers have a market presence. The situation in the East African Com- munity is a good illustration of how commercial pressures affect intra- regional trade. While efforts move ahead to establish common regional standards for trade in grains, diver- gent standards continue to block the movement of cheap foodstuffs from surplus areas to deficit regions across the EAC. Traders exporting to Kenya maintain that even where these require- ments are fulfilled (e.g. a moisture con- tent of 13.5%, appropriate grain size and the relevant certificate of origin), delays still occur linked to the issuing of certificates. In the wider COMESA region, SPS measures are routinely being used in Zambia to block dairy imports, although vitamin fortification policies can provide national producers with effective protection against compet- ing imports. Harmonisation of standards beyond the ACP In 2013 processes began in the EU and US for the launch of negotiations on a transatlantic trade and investment partnership. A major focus of these negotiations will be on harmonising and ensuring the compatibility of EU and US rules and regulations on standards, since these are seen as a bigger barrier to trade than tariffs in many sectors. “Any process of EU–US stand- ards harmonisation would carry implications for the global sys- tem of rule-making on product standards” Significantly the final report of the joint EU–US High Level Working Group on Jobs and Growth concluded that any process of EU–US standards harmo- nisation would carry implications for the global system of rule-making on product standards. 3. Implications for the ACP Applying the minor uses and specialty crops approach to the ACP Within any elaboration of operational programmes to address the lack of affordable alternative plant protec- tion products following the EU pesti- cides review, consideration should be given to including an ACP component to address some of the affordability problems which are faced by ACP producers. Executive brief: Update 2013 I 8http://agritrade.cta.int/ Food safety ‘Aid for trade’ support on the scientific basis for cadmium controls There would appear to be a need for ‘aid for trade’ support to assist ACP cocoa producers in mobilising the required scientific and technical exper- tise to engage in an effective dialogue with the EU on permitted cadmium levels in different chocolate products. Staying ahead of regulatory changes and their operational application The announcement of a further review of US food safety rules and techno- logical improvements, which can lead to the application of stricter measure- ment standards, highlights the com- mon challenge of staying ahead of evolving SPS and food safety require- ments. This suggests a need for more effective dialogue structures, not only on the basic regulatory standard but also their operational application. As with the evolving EU approach to minor uses and specialty crops, it could give rise to special dispensations or defer- ment of application of new measure- ment thresholds, where there is no new direct threat to health underlying the changes. The current role of an AU-wide food safety authority Very particular aspects of the EU expe- rience, which is based on the coordina- tion of national food safety authorities and institutions, would appear relevant in developing the mandate, institu- tional structure and immediate work programme of the proposed AU-wide food safety authority. At this stage the greatest added value of coordinated AU-wide activity would appear to lie in providing assistance in developing the operational programmes of national food safety institutions. Ultimately, how- ever, the success of efforts to promote internal and external trade in verifiably safe food will hinge upon the success of nationally based institutions. Supporting a regional SPS and food safety arbitration mechanism While some intra-ACP SPS and food safety-based trade disputes were resolved in 2012–13, others esca- lated, demonstrating a need for the creation of regional mechanisms for independent arbitration of SPS and food safety disputes. This potentially constitutes an area for ‘aid for trade’ support, providing the political will exists to pool sovereignty on science- based decision making on SPS and food safety threats. It would also help guard against protectionist pressures exerted over the application of SPS and food safety standards in intra-regional trade. Monitoring the implications of the process of EU–US standards harmonisation The EU–US process of standards harmonisation, which is to be initiated as part of bilateral FTA negotiations, could, in some areas, lead to changes to EU import regulations that ease market access for ACP exports (see Agritrade article ‘Tightening of Cit- rus Black Spot controls could pose challenges’, 28 April 2013), although in other areas it could complicate matters for ACP exporters. It is more impor- tant for concerned ACP exporters’ associations to monitor the process of EU–US harmonisation of standards to ensure that any changes that could potentially benefit ACP exporters are automatically extended to ACP suppli- ers (see Agritrade article ‘Discussions on standards in EU–USA carry global implications’, 4 May 2013). Main sources 1. EC, “Health and consumers: Food”, web page http://ec.europa.eu/food/index_en.htm 2. COLEACP, ‘An inter-professional network promoting sustainable horticultural trade’, website http://www.coleacp.org/en 3. EFSA, ‘What we do’, web page http://www.efsa.europa.eu/en/aboutefsa/efsawhat.htm Executive brief: Update 2013 I 9http://agritrade.cta.int/ Food safety Technical Centre for Agricultural and Rural Cooperation (ACP—EU) PO Box 380 6700 AJ Wageningen The Netherlands Tel: +31 (0) 317 467 100 E-mail: cta@cta.int - www.cta.int The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint ACP—EU institution active in agricultural and rural development in African, Caribbean and Pacific (ACP) countries. Its mission is to advance food and nutritional security, increase prosperity and encourage sound natural resource management. It does this by providing access to information and knowledge, facilitating policy dialogue and strengthening the capacity of agricultural and rural development institutions and communities in ACP countries. 4. European Commission, ‘FAQ: Rapid alert system for food and feed (RASFF) – role and achievements’, memorandum, 20 July 2012 http://europa.eu/rapid/press-release_MEMO-12-583_en.htm?locale=en 5. US Food and Drug Administration (FDA), ‘Fact sheet on the FSMA proposed rule for produce: Standards for the growing, harvesting, packing, and holding of produce for human consumption’, updated 9 May 2013 http://www.fda.gov/Food/GuidanceRegulation/FSMA/ucm334114.htm 6. US FDA, ‘Fact sheet on the FSMA proposed rule for preventive controls for human food: Current good manufacturing practice and hazard analysis and risk-based preventive controls for human food’, updated 9 May 2013 http://www.fda.gov/Food/guidanceregulation/FSMA/ucm334115.htm 7. US FDA, ‘Overview of the FSMA proposed rules on produce safety standards and preventive controls for human food’, updated 8 January 2013 http://www.fda.gov/Food/GuidanceRegulation/FSMA/ucm334120.htm 8. EC/DG for Trade, ‘Final report: High level working group on jobs and growth’, 11 February 2013 http://trade.ec.europa.eu/doclib/docs/2013/february/tradoc_150519.pdf 9. World Bank, ‘Counting the costs of compliance with trade requirements from a value chain perspective: Evidence from Southern Africa’, by J. Keyser, Africa Trade Policy Note no. 32, July 2012 http://siteresources.worldbank.org/INTAFRREGTOPTRADE/Resources/PN32_Valu... 10. World Bank, ‘Regional quality standards for food staples in Africa: Harmonization not always appropriate’, by J. Keyser, Africa Trade Policy Note no. 33, July 2012 http://siteresources.worldbank.org/INTAFRREGTOPTRADE/Resources/PN33_Regional_ Standards_FINAL.pdf About this update This brief was updated in September 2013 to reflect developments since July 2012. Other publications in this series and additional resources on ACP–EU agriculture and fisheries trade issues can be found online at http://agritrade.cta.int/. Executive brief: Update 2013 I 1http://agritrade.cta.int/ Around 37 ACP countries are involved in exporting fruit and vegetables to the EU, accounting for some 13% of EU imports. While competition from non-ACP suppli- ers is increasing as new EU trade agree- ments are implemented, the impact of this competition varies considerably from product to product. A detailed analysis is therefore required, to determine the likely impact on ACP suppliers, of each new trade agreement, the existing mar- kets served and investment trends. The restructuring challenges can then be assessed. The stricter application of EU sanitary and phyto-sanitary (SPS) standards and moves towards full recovery of inspec- tion costs are reducing the attractiveness of the EU market. This is encouraging a policy emphasis on market diversifica- tion, although this remains challenging at the company level. Transport and logisti- cal developments play an important role in the scope for market diversification, although securing SPS approvals remains a prerequisite for exports to begin. This can be a long and expensive process. In the Caribbean particular challenges are posed in 2013 by US proposals to strengthen rules on imports of fresh fruit and vegetables; in the Pacific continued problems of SPS approvals are faced on the Australian market. There is scope for pan-ACP cooperation across a range of issues of growing sig- nificance in the fruit and vegetable sector, including: establishing structures for dialogue about the design and implementation of SPS and food safety controls, and update October 2013 Fruit and vegetable sector 1. Background and key issues 1. Background and key issues 2. Latest developments Developments in the EU fruit and vegetable sector Developments in the ACP 3. Implications for the ACP Impact of Common Agricultural Policy (CAP) reforms on ACP fruit and vegetable exporters The new EU food and feed control regulation Responding to new competition under EU free trade agreements (FTAs) Intensifying dialogue on the application of EU food safety and SPS standards Building sustainability standards into new investments Integrating the use of trade policy tools into strategies for strengthening local supply chains Developing local markets for organic products © Greg McMullin Executive brief: Update 2013 I 2http://agritrade.cta.int/ Fruit and vegetable sector the extent to which full-cost recov- ery should be applied to inspections of fruit and vegetables from ACP countries; cooperation and mutual assistance in establishing SPS import protocols with third countries (e.g., China); establishing information systems to monitor evolving market trends; developing regional programmes of assistance in strengthening SPS and food safety compliance; technical cooperation on improving packaging and product innovation in the fruit and vegetable sector. 2. Latest developments Developments in the EU fruit and vegetable sector Trends in EU fruit and vegetable production and trade According to the EC’s 2012 report ‘Agriculture in the European Union: Statistical and economic information’, “2012 was in global terms a positive year for the fruit and vegetable sector. No major crisis [shook] EU produc- tion, and prices maintained a balanced level.” “The general trend is for increasing volumes of EU fruit and vegetable exports and de- creasing volumes of imports” The general trend is thus for increas- ing volumes of EU fruit and vegetable exports and decreasing volumes of fruit and vegetable imports. Between 2008 and 2011, EU export volumes of vegetables, deciduous fruit and citrus fruit increased by 6.5%, 38.6% and 34.1%, respectively, while import vol- umes fell by 2.7%, 11.9%, and 18%, respectively. This trend continued into 2012, with particularly large increases in EU exports of onions and tomatoes (+12% and +40%, respectively, in the first 10 months of 2012). The EU’s net deficit in the fruit and vegetable trade has declined. A major development in the EU fruit and vegetable sector is the move towards increased sustainable sourcing. “A major development in the EU fruit and vegetable sector is the move towards increased sustainable sourcing” In June 2012 a covenant was signed by “all major supermarkets, trading com- panies and NGOs in the Netherlands”, committing themselves to ensuring that “all fresh fruits and vegetables in Dutch supermarkets are sustainably produced” by 2020 (30% by 2014 and 50% by 2015). This covenant covers virtually the entire fruit and vegetable sector (90% of retail volume) (see Agri- trade article ‘Sustainability concerns go mainstream in Dutch fruit and veg- etable sector’, 29 July 2012). While considerably expanding demand for fruit and vegetable products that are certified sustainable, this programme coordinated by the Sustainable Trade Initiative could prove to be a double- edged sword for some ACP produc- ers, who may find themselves poorly placed to expand the supply of certi- fied sustainable fruit and vegetables in the face of increased competition from third-country suppliers now gearing up to supply EU markets under new free trade agreements (FTAs). The response to consumer concerns over the “field to fork” environmental impact of agricultural production has been the launch in EU member states of national sustainability certification schemes. In June 2012 the Irish Food Board launched the ‘Origin Green’ labelling scheme, explicitly designed to differentiate Irish food and drink prod- ucts from other third-country products on ‘sustainability’ grounds (see Agri- trade article ‘Irish Food Board intro- duces new quality labelling scheme’, 16 December 2012). The question arises: what are likely to be the net revenue consequences for ACP fruit and vegetable exporters of sustainability certification becom- ing the industry norm? ACP exporters could face higher certification costs and downward pressure on prices as more and more traders and retailers compete in supplying certified sustain- able fruit and vegetable products. Any disappearance of price premiums for sustainably produced fruit and vegeta- bles would increase the importance of getting to grips with the issue of the distribution of the costs of sustainability certification along the supply chain. Closely linked to growing concern over environmental sustainability is the growing demand for organic products in the EU. “There continues to be a sig- nificant shortfall in EU organic production” There continues to be a significant shortfall in EU organic production, particularly in Germany, which has been less affected by the economic downturn. This potentially creates mar- ket opportunities for ACP exporters of organic products. But domestic pro- duction of EU organic fruit and vegeta- bles might well be stimulated by pend- ing reforms to EU direct aid payments, which would make additional payments for a range of environmentally friendly farming practices automatic for certi- Executive brief: Update 2013 I 3http://agritrade.cta.int/ Fruit and vegetable sector fied organic EU producers. This, along- side the emergence of ‘local organic food’ movements, may require ACP fruit and vegetable exporters to move over to similar forms of dual certifica- tion (e.g., organic/fair-trade), in order to compete more effectively for con- sumer spending. This could throw up new challenges, however, given the increasing difficulties faced by small- holder producers in verifiably comply- ing, cost-effectively, with EU SPS and food safety standards (see Agritrade article ‘New EU maximum residue lev- els hit Kenyan vegetable exports’, 28 April 2013). The announcement in May 2013 of a new approach to EU food and feed controls, which introduces official controls on organic products based on product analysis rather than pro- duction process controls, could give rise to problems with imports from ACP countries with shortcomings in the operation of official control agen- cies (see Agritrade article ‘Concerns expressed over impact of revision of EU food and feed controls on organic sector’, 11 August 2013). More broadly, the new approach for fruit and vegetable products involves an increase in mandatory controls and the introduction of full cost recovery for inspections. “The new approach for fruit and vegetable products involves an increase in mandatory controls and the introduction of full cost recovery for inspections” While micro-enterprises in the EU are exempt from full cost recovery, because of the implications for their competitiveness, there are no current plans to extend this exemption to ACP suppliers (see Agritrade article ‘New EU food and feed controls to include full cost recovery’, 7 July 2013). CAP reforms and the fruit and vegetable sector From 4 June to 9 September 2012 the EC held a public consultation on the future of the fruit and vegetable regime, with inputs feeding into a report on the regime’s performance and future (see Agritrade article ‘EC launches consul- tation on future of fruit and vegetable regime’, 2 July 2012). The EC believes that no major changes to the fruit and vegetable regime are required. The 2007 reform process set in place management and crisis pre- vention tools, decoupled processing aids, eliminated export refunds and strengthened the framework for sup- port to producer organisations (POs). The EC acknowledges, however, that a certain “tweaking” of these poli- cies may be necessary, in the face of increasing third-country competition on EU fruit and vegetable markets. The challenge of increased competi- tion is seen as being compounded by the widening gap between trends in input costs (rising) and producer prices (stable). In December 2012 the European farmers’ organisation Copa-Cogeca called on the EC “to take clear steps towards introducing legislation at EU level to help tackle unfair and abusive practices in the EU food chain”, with “voluntary codes backed by legislation that defines unfair and abusive prac- tices” (see Agritrade article ‘Report on improving functioning of food supply chain released’, 11 March 2013). In January 2013 the EC adopted a Euro- pean Retail Action Plan and a Green Paper on unfair trading practices (UTPs) in the business-to-business food and non-food supply chains. Development NGOs called for the EU to extend initiatives on UTPs to the international level, and for the EC to adopt “swift and tough action” to end UTPs along food supply chains, build- ing on the UK’s proposed Groceries Code Adjudicator (see Agritrade article ‘EC policy developments on address- ing unfair trading practices’, 4 March 2013). This was consistent with the June 2012 petition to the EC from a coalition of NGOs and consumer organisations for any code of practice to be extended to overseas suppliers. The need for such a code of practice is highlighted by the debate around the distribution of costs and benefits of sustainability certification along fruit and vegetable supply chains. In January 2013 the EC launched a public consultation on the future of its organic products regime, where fruit and vegetable production plays a major role. This included a review of how to ensure that internationally traded organic products are effectively moni- tored and verified (see Agritrade article ‘EU launches public consultation on organic production’, 24 February 2013). This should be seen in the context of the conclusion of a growing number of organic standards mutual recognition agreements. Potentially two groups of overseas organic exports could be created: ‘insiders’, who face reduced costs of certification at the corporate level through the conclusion of mutual recognition agreements; and ‘outsid- ers’, who face higher certification costs at the corporate level, in a context of intensifying competition. EC “proposals for a renewed political and legal frame- work for organic agriculture in Europe” are scheduled for the end of 2013. EU fruit and vegetable markets and third-country agreements In terms of trade agreements and negotiations with non-ACP countries, the EU has: 28 trade agreements already in force; Executive brief: Update 2013 I 4http://agritrade.cta.int/ Fruit and vegetable sector 8 further agreements where negotia- tions are complete but which are yet to enter into force; 10 further trade negotiations under way; 4 existing association agreements that the EU is planning to upgrade. The impact of these agreements on ACP fruit and vegetable export inter- ests needs to be assessed on a case- by-case basis. “The impact of new agree- ments needs to be assessed on a case-by-case basis” In some cases the concerns of EU fruit and vegetable producers find little echo in the ACP, where no export interest exists (see Agritrade article ‘Tomato exports cause heated debate around the approval of the EU–Morocco agri- cultural trade accord’, 11 March 2012). Nevertheless, the methodology used by EU farmers’ organisations in assess- ing and monitoring the market impact of new EU third-country agreements could be of interest to ACP fruit and vegetable exporters; in some instances opportunities for cooperation may arise. Some new EU agreements are, how- ever, of greater concern to ACP suppli- ers. The EU Andean Pact agreements, for example, will eliminate ad valorem tariffs on all citrus imports from Peru and Colombia. The prospects for the conclusion of an EU–India FTA by the beginning of 2014 is a particular source of concern, given Indian government plans “to develop clusters of growers who will be trained in producing high-quality, export- standard vegetables”. This is likely to include the use of information technol- ogy to ensure greater food traceability and the establishment of “a minimum export price… to encourage the best producers to join the export clusters”. Given the scale of Indian production and the expatriate network that can be used in supporting market penetration, this could potentially pose a consider- able challenge to ACP exporters. While in February 2012 the EU and the US signed an agreement on mutual recognition of each other’s organic certification processes, a far more comprehensive process of harmonising EU–US standards is envisaged under the proposed Transatlantic Trade and Investment Partnership. The Joint High Level Working Group recognised both the critical importance of standards harmonisation to any EU–US FTA and the implications that standardisation would carry for the global system of rule-making. For example, depend- ing on which standards prevail (EU or US), this could simplify or complicate the marketing of South African cit- rus fruit given the divergent EU and US standards on controls for citrus black spot (CBS) (see Agritrade article ‘Tightening of Citrus Black Spot con- trols could pose challenges’, 28 April 2013). This is an entirely new dimen- sion to the impact of EU third-country agreements on ACP fruit and vegetable export sectors. Increasingly strict application of EU SPS and food safety controls in the fruit and vegetable sector In 2012–13 ACP exporters of fruit and vegetable products showed a vari- able performance in terms of com- pliance with EU SPS and food safety standards. Support from the Europe– Africa–Caribbean–Pacif ic Liaison Committee (COLEACP) to horticultural exporters in the Dominican Republic contributed to a reduced incidence of inspections of fruit and vegetable exports (see Agritrade article ‘Inspec- tion levels reduced on imports from the Dominican Republic’, 16 July 2012). By contrast, the Netherlands introduced stricter controls on imports following increased rates of detection of higher than permitted pesticide residue levels in imports of fruit and vegetables from Suriname (see Agritrade article ‘Trends and constraints in the Suriname fruit and vegetable sector’, 2 February 2013). This reflects the varying perfor- mance of national control authorities in ensuring compliance with existing and evolving EU standards. Indeed, perfor- mance can vary over time, with Spain announcing in April 2013 a ban on imports of Dominican peppers follow- ing detection of residues of Endosulfan, a banned pesticide. This highlights the ongoing nature of the SPS challenges faced in ACP countries, particularly in the light of the EU’s pesticide review. EU SPS controls on citrus exports were also tightened in 2013. The EU will in future allow “a maximum of five citrus black spot disease interceptions in a season”. This could pose serious challenges for South African exporters, since occurrences in previous seasons have not been less than 12 intercep- tions per season. The South African government and the Citrus Growers’ Association (CGA) of Southern Africa both maintain that the new EU standards are “more stringent than can be scientifically justified”, with latest scientific findings suggesting that “fruit is not a pathway for the introduc- tion of CBS”. Recent US import deci- sions in this regard would appear to bring into question “the appropriate- ness of EU measures”. In the light of lack of progress in bilateral discussions with the EC, the South African authori- ties are considering initiating “other parallel dispute resolution processes”. In a similar development, internal EU implementation rules have been modi- Executive brief: Update 2013 I 5http://agritrade.cta.int/ Fruit and vegetable sector fied unilaterally for Kenyan vegetable exports. According to the Fresh Pro- duce Exporters’ Association of Kenya (FPEAK), “more than a fifth of Kenya’s vegetable exports to the European market were rejected in January after they were found to contain traces of a banned chemical”, dimethoate. According to FPEAK, however, this increased incidence of interceptions followed a 90% reduction in the per- mitted level of residues. According to press reports, some smallholder groups reduced supplies for export to the EU by 92%, with 80% of grow- ers disengaging from EU export sup- ply chains (see Agritrade article ‘SPS approval opens US market to Kenyan French bean exports’, 19 August 2013). FPEAK had earlier objected to intensi- fied EU controls of Kenyan exports of beans and mangetout, which, it was held, were leading to delays in delivery (up to 72 hours), significantly shorten- ing the shelf-life of products delivered to retailers. By mid February 2013, only 1.6% of samples tested had higher than permitted residue levels. According to FPEAK, the scale of the problem did not warrant the level of delays occur- ring as a result of intensified inspec- tions. As a consequence, these EU controls are now seen as becoming a barrier to trade that “disrupts or destroys business” (see Agritrade arti- cle ‘New EU maximum residue levels hit Kenyan vegetable exports’, 28 April 2013). In May 2013 new software applications were launched in the Kenyan horticul- tural sector, designed to make it easier for farmers to comply with EU SPS requirements; this innovation should now be distributed more widely. How the EU chooses to apply its SPS and food safety standards is a mat- ter of growing concern. This cannot be divorced from growing farmer pressures to create a level playing field between EU and third-country fruit and vegetable suppliers when it comes to SPS controls and compli- ance procedures. These pressures compound mounting ACP concerns over the rise of environmentally based ‘eco-protectionism’. Developments in the ACP Export challenges and opportunities South Africa, while not one of the top citrus fruit producers (account- ing for 3.4% of world production), is the largest exporter (1 million tonnes in 2012 – some 29% of global trade), with oranges dominating (69% of its citrus exports). Given the importance of EU markets to South African citrus exports, the scheduled application of stricter CBS controls is a major source of concern. While exports to the Mid- dle East, US, Russia and South East Asia are growing, these supplement the EU market and cannot replace it. Thus while export volumes to the US have grown in recent years, to 41,000 tonnes in 2011, this is equivalent to less than 10% of its exports to the EU. An additional problem is the volatility of some markets, notably those in the Middle East, which collectively take around 20% of South Africa’s exported oranges. This volatility requires con- stant marketing adjustments. In the longer term, South Africa’s minister of agriculture sees traditional markets in the EU and US becoming less signifi- cant, given faster demand growth in Asia (see Agritrade article ‘Trade agree- ments and South Africa’s shifting agri- cultural trade flows’, 8 October 2012). Market diversification is by no means straightforward, however. While a new SPS agreement on citrus fruit exports has been concluded with Thailand, a Thai import ban remains in place on South African deciduous fruit. Against this background, South African decidu- ous fruit exporters continue to run tar- geted promotion campaigns in UK and Germany to boost product recognition and sales. “Market diversification is by no means straightforward” The need for constant marketing adjustments is particularly challenging for smaller exporters such as Swazi- land and Zimbabwe, who tend to oper- ate on South Africa’s coat-tails. According to the Kenya Horticulture Competitiveness Project (KHCP), smallholder fruit and vegetable farm- ers in Kenya faced a difficult time in 2012 “due to a rapid rise in production costs, depressed prices in the major European markets and lack of procure- ment discipline by farmers and export- ers”. Droughts, floods, pests and dis- eases have compounded these market problems. The dollar value of Kenyan vegetable exports fell by 2.6% in 2012 (to US$369 million, from US$379 mil- lion in 2011). The EC’s decision in December 2012 to increase to 10% the frequency of pesticide controls compounded an already difficult position (sales of beans from Kenya dropped by 25% in Janu- ary 2013 compared to January 2012). However, the introduction of protected agriculture systems involving the use of tunnel greenhouses is expected to boost marketable yields, with interna- tional assistance supporting the roll- ing out of greenhouse technology to smallholder farmers. Despite the multiplicity of SPS and food safety challenges in both EU and non-EU markets, and the increased competition from third-country export- ers, Kenya’s neighbour Ethiopia held a fruit and vegetable sector investment Executive brief: Update 2013 I 6http://agritrade.cta.int/ Fruit and vegetable sector summit in July 2012, with the aim of developing a strategy to replicate the growth in the floriculture sector. The government is “preparing suitable land for investors, creating a better business operating environment, [and] facilitat- ing adequate cold chain and logistics investments to ensure [that] produce reaches regional and global markets in an efficient manner”; the government is also paying particular attention to international food safety issues (see Agritrade article ‘Ethiopian government to promote fruit and vegetable sector’, 16 September 2012). In addition, the development of a network of freight services to 24 destinations in Africa, Europe, the Middle East and Asia by Ethiopian Airways opens up consid- erable scope for diversified market development. More broadly, smaller exporters such as Uganda, Rwanda and Tanzania are all seeking to consolidate and expand their fruit and vegetable exports, with varying degrees of success. Press reports suggest that the development of new shipping routes could poten- tially open up considerable new market opportunities in parts of China. “The development of new ship- ping routes could potentially open up considerable new market opportunities in parts of China” This market, however, will also require the development of SPS agreements and protocols before exports can begin. Turning to the Pacific, two points were highlighted at the Trade Pasifika exhibi- tion in June 2012: the enormous poten- tial of the Chinese market for Pacific food and agricultural exports, and the complete absence of agricultural export protocols between Pacific island countries and China (see Agritrade arti- cle ‘Market opportunities identified but action required’, 3 September 2012). Even where protocols are in place, implementation arrangements under pressure from domestic producers can result in SPS concerns being used to limit market access or undermine the competitiveness of exports, as Fiji’s experience of ginger exports to Aus- tralia highlights (see Agritrade article ‘Australian ginger market to be opened to Fijian exports?’, 11 November 2012). The way in which SPS standards are applied carries important commercial implications. “The way in which SPS stand- ards are applied carries impor- tant commercial implications” Some now call for the establishment of SPS/food safety arbitration channels independent of the parties concerned (see Agritrade article ‘South Africa looking for “parallel dispute resolution processes” in EU citrus dispute’, 18 May 2013). There is consternation in the Car- ibbean, meanwhile, following the announcement in January 2013 that further US food safety legislation is to be introduced only 2 years after the Food Safety Modernisation Act. The new US rules will apply only to certain fresh “fruits and vegetables that pose the greatest risk” (see Agritrade arti- cle ‘Further new US food safety rules could set new challenges for Carib- bean exporters’, 11 March 2013). While provision is being made for the flexible application of these new rules, difficul- ties are already faced across the Carib- bean in meeting current standards (see Agritrade article ‘Serious food safety challenges face Jamaican exports to US markets’, 6 October 2011). In response to growing retai ler demands for sustainable sourcing, October 2012 saw the launch of the Sustainability Initiative of South Africa (SIZA). This aims to replace multiple standards and audits with a single audit process, thereby reducing certi- fication costs and improving net returns to producers. This independent verifi- cation scheme is being piloted in the fruit industry and is based on mutual recognition of audits among interna- tional and local retailers (see Agritrade article ‘South Africa establishes sin- gle ethical trade standard’, 4 January 2013). In Kenya, similar efforts are under way to promote increased environmental certification of crops such as fruit and vegetables, in response to evolving market trends (see Agritrade article ‘Green farming seen as a way for- ward for Kenyan agriculture’, 23 Sep- tember 2012). The importance for ACP producers to get and stay ahead of market trends cannot be overempha- sised, given the prospects of increased competition in EU fruit and vegetable markets. Developing domestic markets for fruit and vegetables The use of agricultural trade policy tools in support of the development of fruit and vegetable production for local markets is coming to the fore in many ACP regions. “The use of agricultural trade policy tools in support of the development of fruit and vege- table production for local markets is increasing” The Senegalese government is mov- ing to refine its system of controls on imported onions in the face of rising EU onion exports. Having initially intro- duced seasonal import restrictions, it stockpiled onions prior to the introduc- tion of the closed import season (from Executive brief: Update 2013 I 7http://agritrade.cta.int/ Fruit and vegetable sector 1 April to 31 August), but imports in 2012 declined by only 8.4%. This left local onion producers facing difficult market conditions. As a consequence it was decided in 2013 to: bring the closed season forward to February; introduce stricter controls in the ports; make import licences company specific; “facilitate” the granting of import authorisation to “importers who com- mit to promote the marketing of local production”. In addition to these import measures, the government of Senegal is support- ing investment in post-harvest infra- structure, to preserve locally produced onions in a better state for a longer period (see Agritrade article ‘Senegal refines its onion import regime’, 3 June 2013). These recent Senegalese initiatives appear to draw on the experience of Namibia, where import licensing arrangements are closely integrated with initiatives to strengthen the func- tioning of local vegetable supply chains. A closed market information system links producers’ projected volumes and schedules to retailers’ and traders’ projections for market demand. These measures to strengthen the functioning of local supply chains have facilitated access to loans to expand production. The proportion of local fruit and vegeta- ble demand met from local production has risen to 37% in 2012 (from an initial 5%), with a focus on those products that can be competitively produced in a managed market context. Current efforts in Senegal to build on elements of this approach could have implications across a range of fruit and vegetables, not only onions. However, given the large increases in EU onion exports to neighbouring West African countries (see Agritrade article ‘Dutch onion exports to West Africa show continued growth’, 2 February 2013), and the scope for cross-border smuggling, there would appear to be a need to develop a regional policy on fruit and vegetable sector development. This is particularly so since Niger’s onion producers depend on coastal regional markets for 70% of their sales. Rising EU onion exports to non-Senegalese West African markets could disrupt this trade. The Namibian experience might also be relevant to Jamaica’s ‘agro parks’ initiative. This approach seeks to cluster related agricultural production and pro- cessing infrastructure in one location, while mobilising private investment in value-added processing. While diverse vegetable products are potentially involved, the initial focus has been on onions, with the aim of ultimately replac- ing 70% of imports. Negotiating the for- ward selling of onions is seen as central. According to the CEO of Agro-Invest, however, this requires “trade protection from central government so that local onions will be able to compete with imports”, and would involve seasonal restrictions (see Agritrade article ‘Jamai- ca’s “agro parks” food initiative’, 21 January 2013). In this context, lessons can potentially be learnt from both the Senegalese and Namibian experiences. A significant development under way in 2012–13 is the rise of local demand for organic products, stemming from rapid urbanisation, changing consumption patterns and increased awareness of the importance of healthy eating. Case studies posted by the International Fed- eration of Organic Agricultural Move- ments (IFOAM) have highlighted the development of organic horticultural production for local markets in Kenya, Uganda, Tanzania and Burundi, with several routes to market being devel- oped, including working with local res- taurants and local supermarket chains. Some organic farmers in Kenya, Uganda and Tanzania operate under Participa- tory Guarantee Systems (PGS). IFOAM has defined PGS systems as “locally focused quality assurance systems that certify producers based on active participation of stakeholders”, with the system being “built on a foundation of trust, social networks and knowledge exchange”. It is based on the East Afri- can Organic Standard, and in Kenya draws key customers into farm inspec- tions to verify compliance. Certifica- tion and verification costs for organic producers serving local markets are reduced (see Agritrade article ‘Report highlights expansion of organic produc- tion for local markets in the EAC’, 13 June 2013). 3. Implications for the ACP Impact of Common Agricultural Policy (CAP) reforms on ACP fruit and vegetable exporters The extension of direct aid payments to all EU fruit and vegetable producers could change the relative competitive position of EU and ACP producers, with EU producers being willing to supply higher volumes at lower prices than would be the case in the absence of direct aid payments. “The extension of direct aid payments to all EU fruit and vegetable producers could change the relative competitive position of EU and ACP pro- ducers” Any automatic granting of additional direct aid payments to organic pro- Executive brief: Update 2013 I 8http://agritrade.cta.int/ Fruit and vegetable sector ducers for compliance with ‘greening’ measures would compound this. The increased EU policy emphasis on ‘greening’ the CAP could also acceler- ate the trend towards carbon footprint- ing of fruit and vegetable production, increasing costs for ACP suppliers. ACP fruit and vegetable exporters will need to monitor the situation and, where necessary, engage with the carbon footprinting debate to ensure that ACP suppliers are not systemati- cally discriminated against and that the cost-increasing effects of new retailer demands are minimised. Concerted ACP government action may also be required to ensure that national EU schemes do not systemati- cally discriminate against third-country suppliers whose production processes meet the underlying criteria. Lessons to be drawn from current EU policy initiatives to strengthen the func- tioning of fruit and vegetable supply chains could be applied to improving the position of ACP suppliers in interna- tional fruit and vegetable supply chains, and that of smallholder farmers within domestic fruit and vegetable supply chains. This would be in line with initia- tives already under way in a number of ACP countries. The new EU food and feed control regulation ACP governments and fruit and veg- etable sector stakeholders may wish to consider initiating dialogue with the EU on the scope of application of the new regulation to ACP exporters, with a view to securing an extension to ACP suppliers of the exemptions granted to EU micro-enterprises. This could pro- vide a vehicle for continued ACP pref- erences in an era of trade liberalisation. Responding to new com- petition under EU free trade agreements (FTAs) A detailed analysis is required of new tariff concessions under new FTAs to establish where increased competition for ACP suppliers is likely, and the scale of adjustments required. On this basis, production and market adjustment strategies can then be developed for specific fruit and vegetable products. Kenyan exporters, for example, rou- tinely monitor market developments to identify necessary adjustments in pro- duction. This should now become more systematic and generalised throughout the ACP. As far as organic fruit and vegetable exports are concerned, increased com- petition may necessitate specific ACP government initiatives to strengthen the local regulatory framework for organic production, and to secure mutual rec- ognition from the EU, in order to reduce certification costs, and level the playing field vis-à-vis third-country suppliers. Intensifying dialogue on the application of EU food safety and SPS standards Recent developments in the fruit and vegetable sector have sharpened concerns over the application of food safety and SPS controls. The ACP may need to explore collective mech- anisms for dialogue and arbitration over the EU’s application of SPS and food safety standards. The pending dialogue between the EU and US on standards applied in the fruit and veg- etable sector could take on particular significance in this regard and should be closely monitored by ACP fruit and vegetable exporters’ associations. In addition, the scope for regional initia- tives to strengthen standards compli- ance capacities in major ACP fruit and vegetable exporting regions may need to be considered. Building sustainabil- ity standards into new investments Where new fruit and vegetable sector investments are under way, there is a need to build sustainability standards into the design both of new schemes and of government monitoring and control systems. “There is a need to build sus- tainability standards into the design both of new schemes and of government monitoring and control systems” This requires improved information flows on standards debates and trends in major markets. Integrating the use of trade policy tools into strategies for strengthening local supply chains The use of agricultural trade policy tools in the fruit and vegetable sector should be more closely and extensively linked to measures to strengthen the functioning of local fruit and vegetable supply chains. This requires the crea- tion of forums for producers, retailers and traders to link up and develop appropriate local product standards and forward contract arrangements. This requires a policy focus on: establishing a supportive trade framework that incentivises local procurement; supporting the establishment of com- mercially relevant production and demand information systems; Executive brief: Update 2013 I 9http://agritrade.cta.int/ Fruit and vegetable sector strengthening the legal frame- work for contract negotiations and enforcement. Developing local markets for organic products The experience in the East African Community suggests that there is con- siderable scope for the development of organic fruit and vegetable produc- tion serving local markets using PGS systems linked to local product stand- ards (e.g., in East Africa, East African Organic Products Standard require- ments). This has already been taken up in the Pacific, where a handbook on PGS systems has been produced, and the Pacific Organic Standard has been taken into the IFOAM ‘Family of Standards’, which facilitates trade in organic products across borders. There would appear to be considerable scope for the sharing of experience across the ACP on developing local markets for locally produced organic fruit and vegetables through the IFOAM network. This could help local fruit and vegetable producers, particularly in island economies, to gain access to the growing tourist markets and locally established supermarket chains. Main sources 1. European Commission (EC), ‘A review of the EU regime for the fruit and vegetables sec- tor: Public consultation on policy options and their impact assessment’, undated http://ec.europa.eu/agriculture/fruit-and-vegetables/policy/consultation 2. EC, ‘European Union and United States agree to historic new partnership on organic trade’, press release no. IP/12/138, 15 February 2012 http://europa.eu/rapid/pressReleasesAction.do?reference=IP/12/138&fo 3. EC/DG for Trade, ‘Final report: High Level Working Group on Jobs and Growth’, 11 February 2013 http://trade.ec.europa.eu/doclib/docs/2013/february/tradoc_150519.pdf 4. Commonwealth Secretariat, ‘Eco-labelling: Challenges and opportunities for small states and LDCs’, by M. Haynes, Trade Hot Topics Issue 95, 2012 http://www.secretariat.thecommonwealth.org/files/251358/FileName/TradeHotTopics- 95FINAL.pdf 5. EC, ‘High Level Forum for a Better Functioning Food Supply Chain: Report 2012’, 5 December 2012 http://ec.europa.eu/enterprise/sectors/food/competitiveness/forum_food/index_ en.htm#h2-2 6. EC, ‘European Retail Action Plan and Green Paper on unfair trading practices in the business-to-business food and non-food supply chain – frequently asked questions’, MEMO/13/47, 31 January 2013 http://europa.eu/rapid/press-release_MEMO-13-47_en.htm?locale=en 7. EU Food and Veterinary Office (FVO), ‘Final report on an audit carried out in South Africa from 07 to 17 June 2011 in order to evaluate the system of official controls and certification of citrus fruit for export to the European Union’, DG(SANCO) 2011-6070 - MR Final http://ec.europa.eu/food/fvo/rep_details_en.cfm?rep_id=2775 Executive brief: Update 2013 I 10http://agritrade.cta.int/ Fruit and vegetable sector Technical Centre for Agricultural and Rural Cooperation (ACP—EU) PO Box 380 6700 AJ Wageningen The Netherlands Tel: +31 (0) 317 467 100 E-mail: cta@cta.int - www.cta.int The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint ACP—EU institution active in agricultural and rural development in African, Caribbean and Pacific (ACP) countries. Its mission is to advance food and nutritional security, increase prosperity and encourage sound natural resource management. It does this by providing access to information and knowledge, facilitating policy dialogue and strengthening the capacity of agricultural and rural development institutions and communities in ACP countries. 8. US FDA, ‘FSMA propose rule for preventive controls for human food’, 2013 http://www.fda.gov/Food/guidanceregulation/FSMA/ucm334115.htm 9. EC, ‘Prospects for agricultural markets and income in the EU 2012-2022’, December 2012 http://ec.europa.eu/agriculture/markets-and-prices/medium-term-outlook/2012/full- rep_en.pdf 10. EC, ‘Agriculture in the European Union: Statistical and economic information report 2012’ December 2012 http://ec.europa.eu/agriculture/statistics/agricultural/2012/pdf/full-report_en.pdf About this update This brief was updated in October 2013 to reflect developments since September 2012. Other publications in this series and additional resources on ACP–EU agriculture and fisheries trade issues can be found online at http:// .cta.int/ http://agritrade.cta.int/ Market access I 1 The basis for the ACP countries’ access to the EU market is fragmenting. “The basis for the ACP countries’ access to the EU market is frag- menting” Access criteria have included Economic Partnership Agreements (EPAs)/Interim EPAs, the Everything But Arms (EBA) Agreement and standard Generalised Systems of Preferences (GSP). Given the proposed revision of market access regu- lation (MAR) 1528/2007 and of the EU’s GSP, some ACP countries may in future be trading on most favoured nation (MFN) terms or under the EU’s GSP+, depending on the outcome of the EPA negotiations. The process of erosion of the value of ACP trade preferences continues. While existing EU free-trade area (FTA) agree- ments are implemented, further FTA negotiations approach completion, and others are being launched or prepared with major trading partners. Determin- ing the impact of these agreements on individual ACP countries requires detailed analysis. In addition, as highlighted in an Overseas Development Institute (ODI) study of the impact of EU FTAs with Latin American countries on the Caribbean rum sector, EU policy changes cannot be seen in isolation from wider developments. Any analysis has to take into account wider trade, agricultural and even fiscal policy developments that impact on markets for ACP products across the globe. New challenges will also arise as ACP governments move towards the imple- mentation of EPA policy commitments. A range of EPA provisions have impli- cations for the use of agricultural trade policy tools by ACP governments. As part of the national food security efforts, these tools are increasingly being used in response to rising prices, which height- ens price volatility. In this context, the efforts of CARIFORUM governments to resolve the inconsistencies between the current use of agricultural trade policy tools and EPA policy commitments take on particular significance. Equally close attention will need to be paid to ongoing European Commission (EC) efforts to strengthen its hand in enforcing third country compliance with internationally and bilaterally agreed trade policy commitments. A further area of EU policy development requiring close attention relates to EC efforts to link production process require- ments to market access. Although this initially emerged in the agricultural sec- tor, referring to special tariff-rate quotas update September 2013 Market access 1. Background and key issues 1. Background and key issues 2. Latest developments Developments in EPA negotiations and implementation The EU’s GSP revision Developments around production process standards and market access Developments in EU third country trade agreements ACP third country trade relations 3. Implications for the ACP The implications of non- implementation of market access commitments Assessing the impact of particular agreements on particular market components Getting to grips with SPS, food safety and standards-related market access requirements and developments Finding your way around non- traditional markets Executive brief: Update 2013 I 2http://agritrade.cta.int/ Market access (TRQs) for grass-fed beef produc- tion, the linking of production process requirements to market access in 2012 has been far more comprehensively carried out. Efforts are now being made in the fisheries sector to con- nect respect for sustainable fishing practices to EU fish product market access. Once the legal foundations for this have been established, scope exists for this policy approach to be extended to other sectors. While it remains a distant area of policy development, the foundations of such an approach are currently being laid. More immediate is the issue of retailer standards. Evolving retailer stand- ards do not impact on general market access but do impact on access to particular market components, many of which are now becoming mainstream. It is against this background that we should analyse the evolution of ACP agro-food sector trade relations with non-EU countries. New market oppor- tunities are emerging worldwide; how- ever, the issue of how to exploit these opportunities in ways that structurally transform ACP agro-food sectors and the basis of ACP engagement with the global economy is critical. 2. Latest developments Developments in EPA negotiations and implementation Application of the EU’s trade and development strategy Over the course of 2013–14, the imp- lementation of key aspects of the EU’s evolving trade and development strategy will come to a head. This could encompass: the entry into force of the new EU GSP regulation from 1 January 2014; the entry into force of the new redu- ced financial framework for the 11th European Development Fund (EDF); the entry into force of a policy of ‘dif- ferentiation’, or graduation of some developing countries from EU grant- financed development assistance programmes; the lapsing of transitional duty-free, quota-free access for a range of ACP counties under MAR 1528/2007, from 1 October 2014. The emergence of a range of differenti- ated market access arrangements is of particular concern to those non-least developed ACP countries that have not yet concluded an EPA. Differentiated aid treatment is of particular concern in the Caribbean, which fears being largely excluded from future EU grant- financed assistance programmes. In addition, it is unclear what contri- bution the EU’s Trade and Develop- ment strategy will make on a range of issues identified in the 10-agency report prepared as part of the 2011 G20 Ministerial initiatives. Particular concerns arise relating to proposals for tackling food insecurity problems, including measures to deal with “large country trade policies” that “increase world price volatility and create nega- tive externalities for smaller countries” and getting to grips with the food price effects of biofuel policies (see Agritrade article ‘G20 task force recommends wide-ranging action to reduce impact of world price volatility’, 5 July 2011). It is equally unclear whether the EU’s new strategy will provide leadership on international concerns to the ACP, such as the elimination of cotton subsidies, with the current round of Common Agricultural Policy (CAP) reforms likely to maintain coupled payments in sensi- tive sectors like cotton (see Agritrade article ‘USDA review of EU cotton-sec- tor developments’, 2 May 2011). Overall at the ACP level, the evolution of the EU Trade and Development pol- icy looks likely to create a new context for ACP–EU trade and development cooperation, involving a further frag- mentation of the underlying basis for ACP solidarity and common action. The evolving context of the ongoing EPA negotiations At the general ACP level, analysis posted in the August 2012 edition of European Centre for Development Policy Management’s (ECDPM’s) GREAT Insights has highlighted the gap between EU aspirations and ACP expectations throughout the EPA negotiations. It maintains that ACP governments have consistently been looking for “a flexible fix for the WTO compatibility issue” and a focus on strengthening their productive capacities and regional integration efforts. For its part, the EC has been promoting an ambitious agenda for comprehensive FTAs, covering trade in goods, investment liberalisation and “disciplines for competition, government procurement, trade facilitation, intel- lectual property rights and data pro- tection”. “For ACP governments, the EU’s EPA concept required a huge economic reform pro- gramme” While the EC’s ambitious FTAs required no policy changes on the part of the EU, for ACP governments the EU’s EPA concept required “huge reforms: administrative, legal and constitutional”, amounting to “a huge economic reform programme” (see Agritrade article ‘Gap highlighted between aspirations and Executive brief: Update 2013 I 3http://agritrade.cta.int/ Market access expectations in EPA negotiations’, 28 October 2012). In terms of the implications in the food and agricultural sector of the gap between EU aspirations and ACP expectations, the granting of full duty-free, quota-free access for ACP exports to the EU market has been overshadowed by: the effects of CAP reforms (most notably through the price reductions in the sugar and rice sectors); global market developments (e.g. in the sugar sector, where, for 18 months, average world market prices were higher than EU market prices); stricter application of sanitary and phytosanitary standards (SPS) and food safety standards (most notably in the horticulture and beef sectors). In early 2013, stricter application of SPS controls led to more than a fifth of Kenya’s vegetable exports to the European market being rejected (see Agritrade article ‘New EU maximum residue levels hit Kenyan vegetable exports’, 28 April 2013), and there are calls for import restrictions on imports of South African citrus fruit (see Agritrade article ‘Tightening of Citrus Black Spot controls could pose challenges’, 28 April 2013). These developments highlight the critical importance of SPS and food safety issues to market access for ACP agro-food exporters. In addition, ongoing ACP concerns over the external effects of the deployment of reformed CAP instruments (e.g. in the dairy sector see Agritrade article ‘Nigerian and Ghanaian markets offer further growth potential for EU dairy exports’, 2 February 2013) and the process of preference erosion, arising from broader EU trade policy initiatives, has yet to be addressed within EPA negotiation processes (see Agritrade article ‘Central American and Andean Pact association agreements signed’, 12 August 2012). On the part of the EU, the aspirations of food product exporters relating to the systematic elimination of non- tariff barriers to trade, through the implementation of interim EPA provisions on the removal of import licences and similar measures, have largely remained unfulfilled, as these provisions remain a major issue of contention in a number of EPA negotiation processes (see Agritrade article ‘Challenges facing the EU flour milling sector’, 11 November 2012). Such developments and debates need to be viewed against the background of the growing importance of the ACP as a market for EU agricultural exports. Between 2007 and 2010, total EU food and agricultural exports to the ACP group (excluding South Africa) grew by 35.3% compared to a 22.2% growth in extra-EU exports. Agricultural exports to South Africa meanwhile grew by 51%. This meant that the ACP’s share of total EU agricultural exports increased from 6.9 to 7.7%. This can be attributed to the strong economic growth of African economies in recent years, urbanisation trends and the emergence of a growing middle class, with changing consumer tastes. The trends in EU agricultural exports, however, might be considered in conflict with ACP aspirations to develop their own value-added food processing industries, an area which has been accorded a high policy priority in many ACP countries. This gives added significance to discussions concerning a number of the contentious issues in the ongoing EPA negotiations (see Agritrade article ‘EU 2011 review shows growing importance of ACP markets’, 13 May 2012). Developments concerning MAR 1528/2007 The tabling in September 2011 of an EC proposal for MAR 1528/2007 to lapse on 1 January 2014 provides the background to developments in ACP–EU EPA negotiations in 2012–13. During this period, ACP governments have been lobbying for the abandonment of any arbitrary deadline for completion of the EPA negotiations. In June 2012, the ACP Council of Ministers called on the EC “to lower its ambitions and consider seriously the level of economic development of its ACP negotiating partners with a view to concluding an inclusive EPA that will attract joining by all States within a given region” (see Agritrade article ‘EP calls for more time in EPA negotiations’, 22 July 2012). In December 2012, ACP heads of state and government convened a troika of ACP ministers to make representations to EU member states’ governments to try to break the impasse on contentious issues holding back the conclusion of the EPA negotiations. These lobbying efforts yielded some results in 2012, with the EU Council, the EC and the European Parliament, adopting different positions on the deadline for completion of the EPA negotiations. Therefore, a trilateral dialogue was launched between the three EU institutions to reconcile the divergent positions. On 6 March 2013, this ‘trilogue’ process agreed that 1 October 2014 should be the deadline for completion of EPA negotiations, after which the transitional market access arrangements under MAR 1528/2007 would lapse. The International Trade Committee and the plenary of the European Parliament endorsed the date, which now constitutes a firm deadline. This is likely to give added impetus to the ongoing EPA negotiations. Executive brief: Update 2013 I 4http://agritrade.cta.int/ Market access Progress at the regional level in interim EPA negotiations While throughout 2012 EPA negotiations in West Africa stalled around the issue of the region’s market access offer to the EU (70% liberalisation offered by West African governments and 80% sought by the EU), in March 2013 it was reported that a meeting of experts from the Economic Community of West African States (ECOWAS) proposed an offer which would result in a 75% liberalisation within an accelerated 15-year implementation period. Initial ECOWAS ministerial discussions on this revised offer in March 2013 proved inconclusive. A decision by West African ministers is nevertheless expected in June 2013. “Throughout 2012 EPA nego- tiations in West Africa stalled around the issue of the region’s market access offer” According to the intergovernmental organisation South Centre, this revised offer followed a review of updated statistics on West African imports from the EU, which found “West Africa’s overall level of liberalisation would be around 76%, based on EU export data for the years 2008–2010”. In West Africa, however, there remains the problem of finalising and effectively implementing the ECOWAS common external tariff (CET), which provides the basis for any regional process of tariff reductions. Agreement was reached at the technical level in December 2012, with ECOWAS ministers endorsing the CET on 20 March 2013. The regional agricultural producers’ organisation ROPPA has denounced the proposed CET for agro-food products because they give too low a level of tariff protection for strategic products, such as rice, dairy, poultry, fish and locally processed products (see Agritrade article ‘ECOWAS CET finally adopted while producer organisations raise concerns’, 22 April 2013). There is also the problem of the consistency of the proposed ECOWAS CET with the current evolution of Nigeria’s agricultural trade policy, linked to the domestic agricultural transformation agenda (see Agritrade articles ‘Nigeria intensifies efforts to promote a fully integrated sugar sector’, 28 April 2013 and ‘Rice imports surge as higher tariffs imminent’, 15 April 2013). It is against the background of these continued uncertainties that the Ghanaian government, while asserting its commitment to a regional approach to EPA negotiations, has reserved the right to fall back on its interim EPA, should no regional agreement be concluded by the deadline for completion of the EPA process. A similar position appears to be adopted in Côte d’Ivoire. “In Central Africa, Cameroon has been the country most actively engaged with EPAs” In Central Africa, according to the South Centre, “out of the 8 countries that make up the Central Africa EPA region, Cameroon has been the country most actively engaged with EPAs.” However, Cameroon has yet to ratify its signed interim EPA. In 2012–13 no new round of regional negotiations took place; market access and development assistance continued to be the main points of contention. “In the ESA region, four coun- tries have signed their interim EPAs and commenced full implementation” In the Eastern and Southern African region, four countries have signed their interim EPAs and commenced full implementation from 1 January 2013 (Mauritius, Seychelles, Zimbabwe and Madagascar). This was despite press reports that the government of Madagascar was seeking a 5-year deferment of its implementation schedule in light of the economic crisis and the need to “enable the country to prepare itself for the negative impacts of tariff reductions” (see Agritrade article ‘Deferment of Algerian FTA implementation commitments’, 22 October 2012). It was reported in October 2012 that the government of Malawi was reviewing its position and was now actively considering signing an interim EPA (See Agritrade article ‘Malawian government looking to sign interim EPA’, 16 December 2012). At the East African Cooperation (EAC) level, joint meetings took place in September and December 2012 and February 2013, which reportedly saw progress on the development cooperation and agriculture chapters. On the agricultural side the EAC reportedly “dropped its demand to address domestic subsidies in the negotiations”, and “agreed to remove the term ‘trade distorting’ from the body of the text”, while the EC agreed to “increase transparency of domestic agricultural support and to refrain from subsidizing goods liberalized in the agreement”. However, agreement could not be reached on modifying the existing text on export taxes, which currently limits the scope for introducing new export taxes; nor on the “question of full cumulation with South Africa and ACP countries”. These issues have been deferred for resolution as part of a possible “ministerial package” that would also include other contentious issues such as the MFN clause. Executive brief: Update 2013 I 5http://agritrade.cta.int/ Market access In terms of an all-embracing Eastern and Southern African-wide comprehensive EPA, progress was described by the South Centre as “sluggish”, with many unresolved issues, including export taxes, rules of origin and special agricultural safeguards, the MFN clause and Mode 4 service provisions, as well as development assistance provisions. At the Southern African Development Community (SADC) level, the long- standing impasse on agricultural market access continued into 2012–13. “In the SADC region the long- standing impasse on agricul- tural market access continued into 2012–13” The impasse particularly concerns improved access for South African agro-food exports including sugar, and a range of contentious issues that impinge on the use of agricultural trade policy tools linked to agro-food sector development in the context of the Southern African Customs Union,. Some progress was, however, reported regarding rules of origin issues, with tentative agreement on some temporary cumulation arrangements in the can- ned fruit sector. There are ongoing negotiations for possible global sourcing rules of origin in the fisheries sector. Meanwhile, the impact of a stricter application of EU SPS requirements in the beef sector has emerged as an issue for Namibian domestic concern, because communal cattle farmers are finding that the prices they are offered for non-EU compliant cattle are discounted by 25% (see Agritrade article ‘Commercial implications of EU SPS requirements hinder development of smallholder beef supplies in Namibia’, 4 May 2013). This is a politically hot issue, and is leading to a questioning of the long-term value of an EPA agreement, given the growing importance of non- tariff issues to trade flows. “Fiji and PNG have signed interim EPAs to consolidate access for their sugar and fisheries exports” Both Fiji and Papua New Guinea (PNG) in the Pacific have signed interim EPAs to consolidate access for their sugar and fisheries exports to the EU, but continue to negotiate a comprehensive EPA alongside other Pacific ACP governments. Fiji and PNG have secured favourable global sourcing rules for tuna, although Pacific negotiators have called “for the EU to give assurances that the benefits already gained by PNG and Fiji in the IEPA will be extended to all other Pacific countries”. This, however, has not yet been agreed. Challenges in EPA implementation: The case of the Caribbean CARIFORUM countries faced some serious challenges in implementing EPA commitments in 2012. Accord-ing to the South Centre, while “14 Caribbean states were due to make initial tariff cuts in January 2011, only 8 states have done so”. Because of these delays, EC officials announced that the EU was “running out of patience” over the non-implementation of agreed tariff cuts, with the possibility being raised of taking non-implementation to arbitration. “In the Caribbean, 14 states were due to make initial tariff cuts in January 2011 – but so far only 8 have done so” In September 2012, the Prime Minister of St Kitts and Nevis spoke of the need for an extension of the time frame for implementation of certain EPA commitments in the face of concerns over possible revenue losses (see Agritrade article ‘Madagascar and St Kitts & Nevis seeking deferment of EPA implementation schedule’, 15 October 2012). Calls were subsequently made for the EC to “acknowledge the difficulties that the region is facing” and for the EU to “engage in a constructive dialogue that would waive the tariff reductions at this time”. The option of renegotiating EPA commitments as part of the scheduled 2013 review process was also raised (see Agritrade article ‘Implementation of Caribbean tariff cuts in the spotlight’, 27 August 2012). While fiscal concerns were at the forefront of debates concerning non- implementation of EPA commitments, the use of ‘para-tariff’ measures as part of policies to increase food production may prove increasingly controversial. For example, in June 2012 the Jamaican government increased stamp duties on a range of imported food products. This can be seen as sitting uneasily with CARIFORUM–EU EPA commitments on the elimination of para-tariffs, scheduled to come into effect between 2014 and 2017 (see Agritrade article ‘Revised tax package to curb food imports announ- ced in Jamaica’, 3 September 2012). Against this background, on 18 Dec- ember 2012, the EC tabled proposals for strengthening the EU’s ability to ensure that trading partners respect agreed trade rules. The proposal would “allow the EU to implement trade responses in a more streamlined, efficient manner in order to encourage the offending country to remove the illegal measures”. Trade responses could include the “suspension of tariff concessions… imposition of new or increased customs duties” or the use of quantitative restrictions. These proposals form part of wider EU efforts to “enforce its rights under bilateral and multilateral agreements to open markets that are illegally closed” (see Agritrade article ‘EC to strengthen enforcement of third country compliance with trade commitments’, 21 January 2013). Executive brief: Update 2013 I 6http://agritrade.cta.int/ Market access The EU’s GSP revision The EC’s new GSP regulation was tabled in October 2012, in line with the Commission’s 2011 proposals (see Agritrade article ‘Commission unveils proposal for new GSP’, 10 June 2011). From 1 January 2014 this will substantially alter the EU’s GSP market access system, reducing the number of beneficiary countries, altering the details of “product graduation”, and extending modestly the breadth and depth of the GSP preferences offered. Countries will be excluded from the GSP system on three grounds: a tidying up exercise which excludes EU overseas countries or territories that have preferential access to the EU market under other policies; a tidying up exercise which excludes countries that have equivalent or superior access to the European market under an alternative trade agreement; the removal from the GSP of coun- tries that have been classified as upper middle income by the World Bank for 3 years, which could affect ACP members such as Namibia and Gabon. This means that from 2014, the EU’s GSP scheme will cover only lower middle income, low income and least developed countries (LDCs). “From 2014, the EU’s GSP scheme will cover only lower middle income, low income and least developed countries” The EC argues that these reforms will help poorer states compete better on the European market, since competitors would face higher tariffs. However, an ODI analysis suggests that few ACP states export any of the agricultural or fisheries products that will be affected by the new graduation regime. Significantly, EC proposals include safeguard provisions that allow the EC to withdraw benefits temporarily for a range of reasons. These provisions apply to all GSP beneficiaries, including LDCs covered by the EBA scheme (see Agritrade article ‘EU introduces new Generalised System of Preferences’, 2 February 2013). Developments around production process standards and market access EC efforts to link production process requirements to access to the EU mar- ket have intensified in the fisheries sec- tor during 2012, and it is now the sub- ject of a trilateral dialogue between EU institutions to establish a new common market organisation regulation for fish- eries products (see Agritrade fisheries articles ‘EP votes for trade measures against countries allowing non-sustain- able fishing’, 8 October 2012 and ‘EU institutions prepare their trilogue on fish products market access conditions’, 7 April 2013). Once the legal basis for the appli- cation of such production process- related trade instruments is in place, their application could be broadened. For example, they might include com- pliance with transport-related animal welfare requirements for all imports of meat products; or compliance with sustainable farming practices for all imports of palm oil; or even the appli- cation of child-labour-free certification requirements to cocoa imports. Careful attention will need to be paid to the possible evolution of EU policies in this direction. Developments in EU third country trade agreements In terms of EU trade negotiations with non-ACP countries the EU has: 28 trade agreements already in force; completed negotiation of a further eight agreements, which have not yet entered into force; 10 further processes of trade negotia- tions under way; four existing association agreements that it is looking to upgrade. The impact of these agreements on areas of export interest to ACP coun- tries needs to be assessed on a case- by-case basis. For example, in 2013 the Central Amer- ican and Andean FTAs will result in a 48% reduction in tariffs charged on banana imports compared to 2010. These tariff savings are likely to have market effects that could carry impor- tant consequences for individual ACP banana exporters. Given Peru’s grow- ing focus on organic banana exports, a TRQ, which will see a projected 56% expansion in exports combined with a 48% reduction in applied tariffs, is likely to intensify competition for Dominican Republic organic banana exporters. This will require the adoption of adap- tation strategies by Dominican banana exporters to maintain their market position (see Agritrade article ‘Central American and Andean Pact association agreements signed’, 12 August 2012). Furthermore, in February 2013, the EC initiated preparatory work for the launch of negotiations with the USA on a Transatlantic Trade and Invest- ment Partnership. It has been rec- ognised that standards harmonisa- tion will be critical in any EU–US FTA. Executive brief: Update 2013 I 7http://agritrade.cta.int/ Market access It has equally been recognised that any process of EU–US standards harmo- nisation would carry implications for the global system of rule-making on product standards. “Any process of EU–US stand- ards harmonisation would carry implications for the global sys- tem of rule-making on product standards” This could impact on ACP trade with both the EU and the US, and can be seen as representing a new area of impact on the ACP of EU third country trade negotiations (see Agritrade article ‘Discussions on standards in EU–USA trade negotiations carry global implica- tions’, 4 May 2013). ACP third country trade relations In October 2012 the International Cen- tre for Trade and Sustainable Devel- opment (ICTSD) published a review of trade preference schemes for poor countries. The trade schemes of Can- ada and Japan in favour of LDCs were considered “quite comprehensive”; however, the US scheme was seen as “less extensive”. “Across the ACP the EU is facing growing competition from advanced developing countries” The preferential trade schemes of countries such as China, India and South Korea were thought to be coming increasingly comprehensive with, in some instances, increasingly favourable rules of origin – a critical issue in determining the actual benefit of market access arrangements (see Agritrade article ‘The trade preferences of emerging markets are improving’, 9 December 2012). Of note from the ICTSD analysis is that the EU is facing growing competition from advanced developing countries that offer similar trade preferences to those traditionally extended by the EU to many ACP countries. However, there are obstacles to ACP trade diversification. For example, the Trade Pasifika exhibition in June 2012 highlighted a wide variety of potential market opportunities open to Pacific producers across Australasia. But it also pointed out that, in the agricul- tural sector, the absence of agricultural export protocols (dealing with SPS and food safety concerns) covering access to major export markets such as China constituted a significant barrier to exploiting potential market opportu- nities. Addressing this issue requires close collaboration between ACP gov- ernments and private sectors to ensure such protocols are put in place. Meanwhile the problems relating to the export of Jamaican Blue Mountain Cof- fee to China highlight the scale of the challenges faced in diversifying trade relations in the light of radically altered patterns of global economic growth. In December 2012, it was announced that Jamaica would be moving beyond exclusive marketing arrangements for exporting coffee to China, given the difficulties in protecting the Jamaica Blue Mountain and Jamaica High Mountain Supreme trademarks. While this in part reflects the cultural com- plexity and dynamic nature of evolving Chinese markets, it also reflects the problems encountered in sustaining quality-based product differentiation in a market where regulatory enforce- ment of standards and respect for quality labels is underdeveloped. This is likely to be a challenge not only for quality-differentiated Jamaican coffee exporters, but also other ACP pro- ducers, such as Namibian exporters of quality-differentiated beef products. 3. Implications for the ACP The implications of non- implementation of market access commitments How the EC responds to non-imple- mentation of tariff commitments and the wider issue of the use of ‘para- tariffs’ in the Caribbean is of consider- able interest across the ACP. The questions arise: Will the EC seek arbitration on every national decision that appears to vio- late EPA commitments on para-tariffs, or only when some minimum level of trade is affected? Will the EC seek to impose equivalent sanctions in response, and if so, at what geographical level (nationally or regionally)? Other ACP governments will need to carefully monitor the EC’s response to non-implementation of EPA commit- ments in the Caribbean. Assessing the impact of particular agreements on particular market components If ACP producers are to effectively adjust to the increased competition resulting from the EU’s growing net- work of FTAs, sector-specific assess- ments of the impact of individual EU third country FTA agreements on particular market components served by individual ACP countries will be required. Such assessments might include, for example, the specific effects of new tariff concessions for Peru on competition in EU organic banana markets currently served by Executive brief: Update 2013 I 8http://agritrade.cta.int/ Market access banana exporters from the Dominican Republic, and the possible impact of similar provisions under the pending EU–India FTA. Getting to grips with SPS, food safety and standards-related market access requirements and developments SPS and food safety standards com- pliance is increasingly a prerequisite for market access in both traditional markets (e.g. the EU and the US) and non-traditional markets (e.g. China, India and Brazil). However, the issues involved are different. For the EU and US, the issue relate to: establishing intensified dialogue structures; providing advanced notice of regula- tory changes; providing a forum for dialogue on implementation modalities consist- ent with the ACP production realities that underlie EU SPS and food safety requirements. For non-traditional markets, the issue is to negotiate SPS and food safety protocols, which is an area where a pan-ACP assistance programme could meet common needs, in terms of both the negotiation of such protocols and establishing the operational modali- ties for their implementation. This is potentially in line for ‘aid for trade’ sup- port, which reaches beyond the ACP’s traditional relationship with the EU to non-traditional cooperating partners (e.g. the governments of China, India and Brazil). EU policy developments in linking pro- duction process requirements to mar- ket access arrangements (i.e. requir- ing products to meet specific produc- tion process requirements – such as respect for animal welfare standards – as a prerequisite for market access) will need to be closely monitored by ACP governments, to ensure that these do not become new barriers to trade. It would appear important for con- cerned ACP exporters’ associations to monitor the process of EU–US standards harmonisation, to ensure that any changes that could potentially benefit ACP exporters are automati- cally extended to ACP suppliers, and any changes that potentially harm ACP exporters are averted. Finding your way around non-traditional markets The phenomenal growth of Chinese demand is one of the major features of global economic development in the past 10 years. However ACP exporters face serious challenges in exploiting this huge market potential in ways that structurally transform the basis of their engagement with the global economy. While these challenges in part reflect the cultural specificity of China and the underdeveloped nature of the regula- tory regime, they also reflect the more general difficulties faced by ACP food and agricultural exporters to diversify beyond traditional markets. Bearing in mind the relatively small size of ACP companies, mobilising the neces- sary human resources to search out and develop new markets is often a challenge. Given the commonality of this chal- lenge across the ACP countries, there would appear to be scope for a joint ACP programme to assist key agro- food sectors in finding their way around non-traditional markets. Here again, this could reach beyond the ACP coun- tries’ traditional ‘aid for trade’ relation- ship with the EU to embrace relations with non-traditional partners. Main sources EPAs 1. South Centre, ‘EU–ACP Economic Partnership Agreements: Current state of play’, Analyti- cal Note, SC/TDP/AN/EPA/31, March 2013 http://www.southcentre.org/index.php?option=com_content&view=article&id=1947%3A eu-acp-economic-partnership-agreements-current-state-of-play&catid=101%3Aeconomic- partnership-agreements-epas&Itemid=67&lang=en 2. ECDPM, ‘27 September 2012: 10 years of EPA negotiations. From misconception and mismanagement to failure’, by M. Maes, GREAT Insights, Volume 1, Issue 6, August 2012 http://www.ecdpm.org/Web_ECDPM/Web/Content/Navigation.nsf/index2?readfor 3. ACP, Resolution on Economic Partnership Agreements, page 30 of PDF, ‘Decisions and resolutions of the 95th session of the ACP Council of Ministers held in Port Vila (Vanuatu) from 10 to 15 June 2012’, ACP/25/006/12/mgf, final version http://www.acp.int/sites/acpsec.waw.be/files/ACP25006%2012%20ENG.pdf 4. African Union, ‘EPA negotiations coordination meeting, 17–18 May 2012, Arusha, Tanza- nia’, TI/TD/EPA/01, May 2012 http://www.tralac.org/files/2012/05/Final-EPA-Report-Eng-May2012.pdf Executive brief: Update 2013 I 9http://agritrade.cta.int/ Market access 5. CECDPM, ‘Trade liberalisation and fiscal adjustments: The case of EPAs in Africa’, by S. Bilal, M. Dalleau and D. Lui, Discussion Paper No. 137, November 2012 http://www.ecdpm.org/Web_ECDPM/Web/Content/Navigation.nsf/index2?readform&http:// www.ecdpm.org/Web_ECDPM/Web/Content/Content.nsf/0/C85A6A9556A8038FC1257A9 C0031ECA6?OpenDocument GSP 6. EU, ‘ Regulation (EU) no 978/2012 of the European Parliament and of the Council of 25 October 2012 applying a scheme of generalised tariff preferences and repealing Council Reg- ulation (EC) No 732/2008’ Official Journal of the European Union, L 303, 31 October 2012 http://trade.ec.europa.eu/doclib/docs/2012/october/tradoc_150025.pdf 7. Overseas Development Institute, The poverty impact of the proposed graduation threshold in the Generalised System of Preferences (GSP) trade scheme’, October 2011 http://www.odi.org.uk/publications/6015-poverty-impact-graduation-threshold-generalised- system-preferences-gps-trade-scheme EU third country FTAs 8. EC, ‘The EU’s free trade agreements – where are we?’, Memo, 30 November 2012 http://europa.eu/rapid/press-release_MEMO-12-932_en.htm 9. EC/DG for Trade, ‘Final Report, High Level Working Group on Jobs and Growth’, 11 February 2013 http://trade.ec.europa.eu/doclib/docs/2013/february/tradoc_150519.pdf 10. Commonwealth Secretariat/ODI, ‘The impact of EU bilateral trade agreements with third countries on the Caribbean rum sector’, by N. Cantore, J. Kennan and D.W. te Velde, final draft, October 2012 http://www.odi.org.uk/sites/odi.org.uk/files/odi-assets/publications-opinion-files/7883.pdf ACP third country relations 11. ICTSD, ‘A review of trade preference schemes for the world’s poorest countries’, by S. Laird, Issue Paper No. 25, 23 October 2012 http://ictsd.org/i/trade-and-sustainable-development-agenda/148018/ 12. WTO, ‘WTO launches new “International Trade and Market Access” interactive tool’, 19 November 2012 http://www.wto.org/english/news_e/news12_e/stat_19nov12_e.htm Technical Centre for Agricultural and Rural Cooperation (ACP—EU) PO Box 380 6700 AJ Wageningen The Netherlands Tel: +31 (0) 317 467 100 E-mail: cta@cta.int - www.cta.int The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint ACP—EU institution active in agricultural and rural development in African, Caribbean and Pacific (ACP) countries. Its mission is to advance food and nutritional security, increase prosperity and encourage sound natural resource management. It does this by providing access to information and knowledge, facilitating policy dialogue and strengthening the capacity of agricultural and rural development institutions and communities in ACP countries. About this update This brief was updated in September 2013 to reflect developments since July 2012. Other publications in this series and additional resources on ACP–EU agriculture and fisheries trade issues can be found online at http://agritrade.cta.int/ http://agritrade.cta.int/ Cotton sector I 1 Traditionally oil crops have been grown either primarily for human consumption (e.g. palm oil) or for animal feed (e.g. rape seed and sunflowers), although some, such as soybeans, straddle these two categories. More recently, however, oil crop use in biofuels has grown in importance, blurring this divide. Devel- opments in EU and US biofuel policies in the coming years could thus potentially impact on the use of oil crops as a bio- fuel feedstock. ACP countries, although they are pro- ducers of four of the world’s seven major oil crops, now play a marginal role in world trade in oil crops. Even in the traditional European market, increased competition is faced from low-cost palm oil producers in south-east Asia. How- ever, new investments in West and Cen- tral Africa, which were formerly leading suppliers of palm oil, could lead to this picture changing. Growing concerns over the sustain- ability of palm oil production in particu- lar, if addressed through new patterns of investment, could provide a major boost to West and Central African palm oil exports. Sustainability certification is already central to palm oil production in Papua New Guinea (PNG). The basis of sustainability certification, however, is now the subject of intensifying dis- cussion, with a trend towards ‘chain of custody’ rather than ‘mass balance’ cer- tification systems. This trend potentially carries important implications for ACP exporters by raising the costs of sustain- ability certification. The EU is a net importer of vegetable oils, producing only around 25% of its total consumption. ACP suppliers retain a 12.8% tariff preference over MFN suppliers. Since the 2003 round of CAP reforms, oil crops have been incorporated into the CAP single farm payment regime, which provides non- update October 2013 Oil crops sector 1. Background and key issues 1. Background and key issues 2. Latest developments Developments in the international oil crop sector, 2012/13 Developments in the European oil crop sector in 2012/13 Investment trends in oil crop production in ACP countries 3. Implications for the ACP The importance of dealing with the issue of trade preference erosion A game-changer for biodiesel feedstock producers Demands for sustainability Responding to changing retailer standards and requirements from manufacturers The need to stay on top on EU regulatory developments regarding biofuel Executive brief: Update 2013 I 2http://agritrade.cta.int/ Cotton sector Table 1: World production and consumption of the major vegetable oils (mill ions of tonnes) 2010/11 2011/12 2012/13 Production 147.64 155.67 157.76 Palm oil 47.92 50.70 53.83 Soybean oil 41.29 42.40 43.18 Sunflower oil 12.29 15.08 13.75 Rapeseed oil 23.51 24.29 23.80 Consumption 144.46 150.16 155.95 Palm oil 46.77 49.06 52.38 Soybean oil 40.76 41.76 43.35 Sunflower oil 11.55 12.94 13.42 Rapeseed oil 23.49 23.78 23.80 Source: USDA, Oilseeds: World market and trade (March 2013) crop-specific payments. Oil crops do not benefit from intervention buying, export refunds or any other form of product-specific support. The key pending EU policy develop- ments in the oil crops sector relate to the October 2012 EC proposals to amend the sustainability criteria under the Renewable Energy Direc- tive (RED). These proposals commit the EU to meeting 10% of transport energy needs from renewable fuels by 2020. The proposals need to be seen in the context of a projected 50% increase in the share of vegetable oil consumption going into biofuel produc- tion in the EU by 2020, and a grow- ing demand for the use of oil crops in animal feed production in response to the expanding global demand for meat. These developments form part of a wider trend towards reviewing biofuel policy targets, in the light of concerns expressed during 2012 over the impact of biofuel policies on food prices, and they provide some background to the renewed investor interest in oil crop production across Africa. Three policy issues were identified in the 2012 Agritrade Executive Brief on the oil crops sector (see Agritrade Executive Brief ‘Oil crops sector’, 28 November 2012: the issue of erosion of the value of ACP tariff preferences in the oil crops sector; the rise of demand for sustainably certified palm oil production;. the scope for regional trade in oil crops across the ACP. 2. Latest developments Developments in the international oil crop sector, 2012/13 Trends in demand, production, trade and prices, 2012/13 In a reverse of the 2011/12 situation, the world oil crop market is expected to slacken in 2012/13. Increased production will slightly exceed consumption, largely due to a single crop, soybeans, and a single region, Latin America. However, production of soybean oil and rapeseed oil is expected to finish slightly below consumption, while palm oil continues its upward curve in terms of both supply and demand. “The world oil crop market is expected to slacken in 2012/13” Production After a dip in 2011/12, world oilseed production (soybean, cottonseed, groundnut, sunflower, rapeseed, palm kernel and copra) has resumed its upward trend (+6%) and is forecast to reach 466.8 million tonnes. Accounting for over half of total oilseed production, soybeans set the overall trend for the sector. The 2012/13 market year opened with stocks at a very low level, and with disappointing early harvests, particularly in the ISA, the leading world producer, where production was affected by severe drought. However, the increases expected from Brazil (currently ranked second in the world and likely soon to edge ahead of the USA) and Argentina will more than compensate for this fall in US output. Among other oilseeds, only sunflower seeds have registered a fall in production, dropping by 10% after a record year in 2011/12, with the major producers (Ukraine, Russia and Argentina) all reporting a decrease. Production of other oil crops either remains steady (rapeseed and coconut) or is increasing (palm kernel +6.3% and groundnut +5.2%). Executive brief: Update 2013 I 3http://agritrade.cta.int/ Cotton sector Figure I : Price of selected vegetable oils, 2008–2013 (US cents/lb) 0 500 1000 1500 2000 2500 Ap r 0 8 Au g 08 De c 0 8 Ap r 0 9 Au g 09 De c 0 9 Ap r 1 0 Au g 10 De c 1 0 Ap r 1 1 Au g 11 De c 1 1 Ap r 1 2 Au g 12 De c 1 2 Ap r 1 3 Soybean oil, in bulk, The Netherlands, FOB ex-mil Coconut oil, in bulk, Philippines, CIF Rotterdam Palm oil, in bulk, Malaysia/Indonesia, 5 % ffa, CIF N.W. European ports Source: UNCTADstat Consumption “Oil crop consumption has been hardly affected by the global economic crisis” World population growth has effectively shielded oil crop consumption from the effects of the global economic crisis. Oilseed consumption grew by 5.2% in 2011/12 to 443.61 million tonnes, with a near 4% increase forecast for 2012/13. Global demand remains strong for the major vegetable oils (palm, soybean, sunflower, rapeseed, groundnut, coconut, palm kernel and cottonseed), up by 3.9% over the previous year. Overall, supply and demand across the eight major oils in 2012/13 is in equilibrium. China is building its position as leading consumer, with 30.8 million tonnes in 2012/13 (+5%), ahead of the EU27, India, the United States and Indonesia. Palm oil consumption is forecast to grow by 6.7% in 2012/13. Accounting for 34% of total world oil consumption, it remains the market leader. Trade Oil crops and vegetable oils rank among the world’s most widely traded commodities, with over 40% of global production sold on international markets. Among oil crops, soybeans are by far the most extensively traded, eight times the volume of second-placed rapeseed. Brazil, the US and Argentina together account for 85.6% of soybean exports. China, with over 50% of the market, remains the leading importer, followed at some distance by the EU. The FAO forecasts that exports will reach almost 99 million tonnes in 2012/13, up by 5% over the previous year. Among vegetable oils, palm oil is the most widely traded, with exports reaching 41.9 million tonnes in 2012/13, far ahead of second-placed soybean oil with only 8.4 million tonnes. The leading importer is India, followed by China and the EU. “Competition is scaling up between the principal world players in the sector” Countries keep a close watch on trade regulations and policies affecting this core product, and competition is scaling up between the two major producer/ exporters, Indonesia and Malaya, and with the main importer, India. Price Soybean prices displayed marked volatility in 2012, with a total rise of 20% over the year, but they are forecast to fall in 2013. Palm oil prices have been in a downturn since June 2012, falling by 23% over the year, with increasing supply and sluggish demand combining to produce high levels of stock. Prices have been rising since May, but analysts are still not optimistic for 2013 (see Agritrade article ‘Prospects for soybean and soybean oil prices for 2013’, 25 March 2013). Af ter peaking at an average of US$2,358.17/tonne in 2011/12 (up from US$1,792/t in 2010/11), prices have been falling since August 2012 to around US$1,381/t in March 2013, mainly due to a sharp fall in the Senegal groundnut harvest in 2011/12. Sustainability certification and the palm oil sector Palm oil faces increasing criticism, with campaigns that originally targeted deforestation and loss of biodiversity now progressing to the product’s impact on health, and more recently to the practical relevance of sustain- ability criteria. Executive brief: Update 2013 I 4http://agritrade.cta.int/ Cotton sector Table 2: Vegetable oil in Europe (mill ions of tonnes) 2010/11 2011/12 2012/13 Production Rapeseed, soybean, sunflower 14.2 14.1 13.6 Consumption Rapeseed, soybean, sunflower 15.6 15.1 15.1 Palm 4.9 5.0 5.4 Imports Rapeseed, soybean, sunflower 2.3 2.0 2.4 Palm 5.1 5.3 5.6 Exports Rapeseed, soybean, sunflower 0.8 1.0 0.8 Palm 0.2 0.2 0.2 Source: European Commission In 2004, the World Wide Fund for Nature (WWF) and members of the palm oil supply chain set up the Round- table for Sustainable Palm Oil (RSPO), which promotes sustainable palm oil and combats deforestation through an eco-label launched in 2007. This label was originally based on 39 criteria, grouped under eight broader princi- ples, and in April 2013 three new crite- ria were added, demanding a reduction in greenhouse gas emissions from new plantations, anti-corruption measures, and the implementation of a human rights policy. “Sustainable palm oil – according to Greenpeace, a greenwash for firms who want a veneer of environmental sustainability” Although the RSPO now has almost 1,000 members (growers, retailers, distributors, processors, brokers and NGOs), it continues to draw criticism. NGOs form only 5% of the member- ship, and the RSPO’s detractors claim its criteria and control mechanisms are inadequate. For Greenpeace, it simply provides a «greenwashing» mechanism for firms wishing to acquire a veneer of environmental responsibility. Some crit- ics highlight violations of the plantation certification regulations, particularly illegal deforestation, planting in the pro- tected area, and the use of paraquat, a pesticide which damages the nerv- ous system and is banned in Europe (see Agritrade article ‘RSPO members questioned over sustainability of palm oil production’, 28 April 2013). “GreenPalm is currently the most commercially viable op- tion and simplest means of supporting sustainable palm oil production” To date, the RSPO has certified over 8 million tonnes of palm oil, or 15% of world production, in a number of categories: chain of custody (certified sustain- able palm oil/CSPO): the palm oil is tracked from planting to end user and is handled separately from other oil. This model is approved by UTZ Certified and provides complete traceability across the supply chain: 100% of the oil comes from certified plantations and mills. This highest level of certification is not always commercially viable and only small amounts of sustainable oil are pro- duced in this way. mass balance’: the majority of the palm oil is sustainably produced but, with no strict segregation along the supply chain, a variable percentage of non-certified oil may be included. This system, audited by UTZ Certi- fied, promotes the introduction of traceability measures. certificates: manufacturers who use palm oil purchase GreenPalm certifi- cates online and make incentive pay- ments via the RSPO to producers of sustainable palm oil. GreenPalm is currently the most commercially viable option and also provides the simplest means of supporting sustainable palm oil production. GreenPalm has delivered 6.5 million palm oil certificates since 2008 (one certificate represents one tonne of RSPO palm oil) and around one mil- lion palm kernel oil certificates, real- ising payments of more than US$40 million for RSPO-certified producers. Developments in the European oil crop sector in 2012/13 Trends in production, consump- tion and trade A prominent feature of Europe’s oil crop market is a considerable short- fall in soybeans, a crop seldom grown in the region. The EU27 therefore depends on oil crop imports in the form of seeds, meal and oil. Around 70% of soybean meal and over 40% of sunflower meal is imported. Only rapeseed is widely produced and con- sumed locally. Executive brief: Update 2013 I 5http://agritrade.cta.int/ Cotton sector Production The USDA forecasts oil crop produc- tion in the EU27 to remain steady at around 29 million tonnes, with the planted area across the EU falling by 1.8% to 11.4 million hectares. Consumption A slight fall (–0.3%) in total oilcake consumption is forecast for 2012/13. Increased use of sunflower seeds and rapeseeds in cake form as animal feed will be at the expense of soybeans. A 0.7% increase in vegetable oil con- sumption is forecast in response to growing demand from the food pro- cessing sector. The USDA forecasts that biodiesel production, the princi- pal market for rapeseed oil, will remain steady in 2012/13. It also predicts an increased use of sunflower oil, palm oil, animal fats and recycled oils as biofuel feedstock, and a consequent fall in the use of soybean oil. Trade The EU exports just a small amount of vegetable oil (1 million tonnes in 2012/13), while importing over a third of its total requirements. Palm oil pre- dominates, representing some 70% of vegetable oil imports. The EU imported 5.6 million tonnes of palm oil in 2012, up by 14% over 2011, mainly from Indonesia (43% in 2012) and Malaysia (34%). Papua New Guinea has main- tained its market share with 10%. Biofuels developments The biofuels debate and its impli- cations for the European Renew- able Energy Directive On 17 October 2012, the European Commission signalled a clear change of direction in its biofuels policy, tar- geting in particular its negative impact on food prices. Five proposals were tabled, including one to cap the pro- portion of so-called first generation bio- fuels derived from food crops such as wheat, maize, beetroot and rapeseed, while encouraging the development of second and third generation alter- natives produced respectively from waste and vegetable residues, and microalgae and yeasts. According to the FAO’s 2012 Report on the World Food Situation, 80% of all vegetable oil produced in the EU was used as biofuel feedstock, while only 37% of the US cereal harvest went to produce ethanol. First generation biofuels cur- rently account for 4.5% of the trans- port sector’s energy needs. The EC proposes that this share should rise to no more than 5% by 2020, leaving unchanged its overall objective (fixed in 2009) that renewables account for 10% of the transport sector’s energy needs by 2020. This proposal would have implications for oil crops by freez- ing their use as a biofuel feedstock at current levels and “would not neces- sarily pose any technical challenge”. Similarly, a study published by the French Environment and Energy Man- agement Agency (Ademe) in April 2010 claims that some supposedly “green” fuels have a worse environmental record than their fossil equivalents when indirect land-use change (ILUC) is factored into the equation; as, for example, when biofuel plantations entail the destruction of forests, pasture and peatlands in the Amazon Basin and Indonesia, and hence a loss of CO2-capturing ecosystems. Soybean biofuel, offering a reduction of 77% in greenhouse gas emissions if indirect land-use change is ignored, produces four or five times the emissions of pet- rol when each hectare of tropical forest transferred to biofuel culture is taken into account. Consequently, one of the EC’s proposals would introduce a number of supplementary sustainability requirements for certain categories of biofuel and make biofuels responsible for a share of greenhouse gas emis- sions relative to their estimated ILUC- linked impact. This proposal, described as the “most effective way of reducing ILUC-related emissions”, would also have the greatest impact on the oil crop sector. However, it looks likely to pose considerable practical difficulties for individual countries and projects, and if “implemented in isolation would require major adjustments from the sector”. The proposal would prohibit all cur- rent biodiesels and require the rapid development of alternatives, consid- ered impractical before 2020. An EC impact evaluation published in October 2012 suggests that these proposals would offer “the best means of minimising ILUC-related emissions”, by providing very strong incentives to increase production of second and third generation biofuels. On 17 April 2013, MEPs presented a proposal to modify the wording of the European Renewable Energy Direc- tive, replacing the term biofuels with the phrase “truly sustainable advanced biofuels”, i.e. second and third gen- eration, as the means of achieving the target of meeting 10% of the transport sector’s energy needs through renewa- bles by 2020. The proposal stresses the need to limit use of the heaviest polluters by factoring direct and indi- rect land-use change into the equa- tion. A standstill clause would protect existing investments and employment in the sector until 2017, exempting some biofuels from ILUC legislation as long as their market share remains at or below 2010 levels of production. Member states remain divided on this issue. At a meeting on 11 July 2013, the Environment Committee supported measures designed to limit the use of first generation biofuels and voted in favour of next generation alternatives. Executive brief: Update 2013 I 6http://agritrade.cta.int/ Cotton sector The European Parliament will vote on this legislative report in plenary session in September. ACP palm oil producers are advised to track this debate as it develops and stay on top of the potential market implications of any policy change. Biofuel-related trade tensions Af ter anti-dumping duties were imposed on biodiesel imports of US origin in 2008, European biofuel pro- ducers filed an action against Argentina and Indonesia, accusing them of unfair competition in selling biodiesel on the European market. The EC opened anti- dumping proceedings in August 2012 and subsequently began an anti-sub- sidy enquiry into imports from these two countries. “The price of biodiesel imported into Europe from Indonesia and Argentina is less than that fetched by soybeans, the basic raw material,” claimed Raf- faello Garofalo, secretary-general of the European Biodiesel Board (EBB). According to Eurostat and EBB esti- mates, imports from these two coun- tries have grown from a very low base in 2008 to reach 2.5 million tonnes in 2011, or more than 90% of all EU bio- fuel imports. Some European produc- ers have been driven into bankruptcy and others forced to sell below cost price or reduce their output. “Trade tensions are expected to encourage some of the big palm oil producers to target domestic consumption” These trade tensions are expected to encourage some of the big palm oil producers to target domestic consumption. The Indonesian gov- ernment has already implemented a policy aimed towards an energy mix including 2% biofuels by 2010, 3% by 2015 and 5% by 2025. Malaysia is also promoting a palm-oil-based biodiesel for domestic consumption. After the January 2013 launch of B5, a biodiesel incorporating a minimum 5% palm oil, the government now plans to move to 10% (B10) by mid 2014. Possible effects of CAP reform on the oil crops sector “The oilseeds sector is little affected by the current CAP reform process” Since the EU “no longer has any spe- cific support measures for oilseeds”, the oilseeds sector is little affected by the current CAP reform process. The changes to the Renewable Energy Directive that are linked to the develop- ment and application of sustainability criteria are the principal EU policy influ- ence on oil crop markets. ACP exporters face preference erosion On 31 October 2012, the EU published its revised Generalised Scheme of Pref- erences (GSP), due to take effect from 1 January 2014. The revised scheme will concentrate on a smaller number of recipients, 89 in all, offering greater support to countries which respect human rights, labour rights and agree- ments concerning the environment and good governance. The revised scheme will see Malay- sia lose its preferential access to the European market from 2014 onwards, and its palm oil exports will attract duties ranging from 3.8% to 6.5% (according to degree of refining). However, like Indonesia, Malaysia has been negotiating with the EU since 2010 to conclude a free-trade agree- ment (FTA) that would maintain the duty-free status of its palm oil exports to the EU. If agreement is reached before January 2014, Malaysia will be allowed to benefit from the GSP until the end of 2015. Papua New Guinea has secured tem- porary duty-free access to the Euro- pean market by signing an interim EPA (IEPA), but the potential future erosion of its palm oil preferences remains at issue (see Agritrade article ‘Sustainable palm oil still ahead of canned tuna in Papua New Guinea trade with EU’, 31 March 2012). A decision whether to pursue an EPA on a regional Pacific ACP level or to expand the existing interim EPAs is still on the agenda. Meanwhile, the EU has confirmed that any preference erosion will be imple- mented progressively to give the coun- try’s industries time to adapt. EU policy initiatives to incor- porate sustainability into trade agreements While the trade impact of sustainability concerns in the oil crops sector are primarily being felt through private- sector-based sustainability schemes, in the longer term this may become a formal regulatory issue. In the fisher- ies sector, the EU is formulating regu- latory reforms that will link access to the EU market for fisheries products to certified compliance with sustain- able fishing practices. These regulatory developments warrant close scrutiny, in view of their potential wider application to the agricultural sector (e.g. moves towards sustainability certification of palm oil as a prerequisite for market access). The growth of protectionism Criticism of palm oil has increased considerably, with ever more prod- ucts labelled “palm oil-free”, sometimes as a deliberate selling point. Trading on palm oil’s supposed harmfulness Executive brief: Update 2013 I 7http://agritrade.cta.int/ Cotton sector Table 3: Major ACP oil crop producers by country and crop (tonnes) Palm oil Groundnut oil Groundnuts, unshelled Coconut oil Sesame seeds* West Africa and Central Africa Burkina Faso 84,759 Cameroon 254,000 41,400 537,000 Congo Côte d'Ivoire 400,000 32,488 Ghana 120,000 62,467 465,103 Guinea 66,717 290,000 Mali 29,300 316,000 27,000 Niger 41,200 395,000 88,517 Nigeria 1,350,000 660,000 2,963,000 229,167 Central African 51,000 Republic 187,000 22,860 467,223 DR Congo 210,600 527,528 Senegal 31,124 390,000 37,000 Chad East Africa and Southern Africa Ethiopia 327,741 Malawi 305,000 Mozambique 35,827 26,000 Uganda 38,672 173,000 Tanzania 651,397 16,796 110,000 Caribbean Jamaica 2,643 10,560 Dominican Republic 44,000 1,137 4,252 7,300 Pacific Papua New Guinea 520,000 54,700 Vanuatu 16,892 World 48,550,751 5,341,886 38,614,053 4,319,895 4,092,236 Although Sudan and South Sudan rank among Africa’s major producers of sesame seeds, data is unavailable for these two countries. Source: FAO to health, the French retail group Sys- tème U launched an advertising cam- paign early in 2012 extolling the merits of its palm oil-free products, and in the same year a French senator launched the notorious “Nutella amendment”, demanding the imposition of an additional duty of €300/t on palm oil imports for food use, ostensibly on public health grounds. In 2011, 72 products labelled “palm oil-free” entered the European market, com- pared to 10 in 2010, and by July 2012 another 66 new products had been added (see Agritrade article ‘Sustain- Executive brief: Update 2013 I 8http://agritrade.cta.int/ Cotton sector able palm oil set for expansion if chal- lenges can be overcome’, 9 December 2012). Investment trends in oil crop production in ACP countries ACP countries occupy only a mar- ginal place among world producers and exporters of the seven major oil crops. Overall, they are dependent upon imports to meet their needs in products derived from oil crops. Africa produces only 5.5% of the world’s palm oil, or approximately 2 million tonnes a year, almost 55% of it from Nigeria. The continent currently imports 4.5 million tonnes annually to meet its needs. West Africa and Central Africa Palm oil projects are ongoing in a number of countries (Gabon, Liberia, Sierra Leone, Ghana, Nigeria, etc.). However, some have provoked vigor- ous opposition, among them Golden Agri-Resources in Liberia, Herakles in Cameroon and Bolloré in Sierra Leone. Ranking second among Africa’s pro- ducers and first among its export- ers, Côte d’Ivoire aims to double its output by 2020 via its third palm oil programme. Cargill is planning to invest US$300 million to develop a 50,000-hectare plantation, while Dekel Oil, a subsidiary of the Israeli Rina Group, also has ambitions in this sector for Côte d’Ivoire. “Over a 10-year period, Côte d’Ivoire has tripled its vegetable oil exports to ECOWAS coun- tries” Over a 10-year period, Côte d’Ivoire has tripled its vegetable oil exports to ECOWAS countries to reach US$151 million in 2012. It has also increased its exports to the EU over this period: from a base 10 times lower, they grew by a factor of 19 to reach US$76.5 mil- lion in 2012. However the trend has been less linear and, compared with exports to ECOWAS countries, growth has been irregular. Overall, the West African market accounts for 56 to 89% of Côte d’Ivoire’s exports, the bulk of the remainder going to Europe. While intra-regional palm oil trade is increasing, it continues to be disrupted by rules of origin issues (see Agritrade Executive Brief Update West Africa, forthcoming 2013). For example, rules of origin are impossible to apply to oleine, produced by the secondary processing of raw palm oil imported from Asia. Indeed, the whole regula- tory system (common external tariff and rules of origin) seems incompat- ible with the palm oil supply chain, as the region is deficient in oil crops and is forced to rely completely on imports from Asia. Côte d’Ivoire is a staunch defender and promoter of African palm oil. In 2012, it brought an action at the Paris Tribu- nal de Commerce against the French retail chain Système U (see Agritrade article ‘The fast-growing palm oil sec- tor defends itself against an attack by large-scale distributors’, 9 Septem- ber 2012) and obtained a judgment in favour of its palm oil producers. The tribunal decided that Système U’s advertising campaign constituted “a blatant smear detrimental to the repu- tation of palm oil”. Nigeria also sup- ported this move via the Initiative for Public Policy Analysis (IPPA), writing to several distributors (Casino, Système U, Jaquet and Lays). A victory in the opening round. “African producers have been keen to highlight the lobbying and false accusations sur- rounding palm oil” The first African Palm Oil Congress (APOC), held in Abidjan in June 2013, was keen to highlight the lobbying and false accusations surrounding palm oil, and to establish a platform for its future promotion. At the close of the congress, an “Abidjan Declaration” was adopted in defence of oil palm cultivation. Moreover, the World Bank and the Sustainable Forestry Initiative (SFI) have entered into new commit- ments to finance this sector. In Nigeria, processors are battling a 35% import duty on raw palm oil, arguing its potential damage to sev- eral agrifood industries. These palm oil duties could also hit the consumer through a rise in retail prices. The pro- cessors highlight with regret the gap between Nigeria’s annual production of raw palm oil (700–800,000 tonnes) and its consumption of 1.9 to 2.1 mil- lion tonnes, leaving imports to fill the void. In Central Africa, the Singaporean Olam Group is developing a plantation and a processing plant in Gabon. It is also holding talks “with investors active in Liberia, Cameroon, Congo, Zambia, DR Congo and several other countries where palm oil is essential to nutrition”, states Ranveer Chauhan, Olam’s Man- aging Director, Africa. The Chinese are also advancing their pawns. ZTE Agri- business, a subsidiary of telephone operator ZTE, is negotiating with the government of DR Congo to develop a one-million-hectare oil palm plantation with an annual production target of 500,000 tonnes, 90% of it designated as biofuel feedstock. In Senegal, groundnut oil is facing a difficult future. Although a major world exporter, the country is now confronted by the uncertainties of a groundnut trade liberalised in 2010. In 2012, despite what was considered Executive brief: Update 2013 I 9http://agritrade.cta.int/ Cotton sector Figure II : Value of imports of f ixed vegetable fats and oils (crude, refined, fract.) to the Caribbean, 2002-2012 (‘000 US$) 350 000,00 300 000,00 250 000,00 200 000,00 150 000,00 100 000,00 50 000,00 0,00 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: UNCTADstat an exceptional harvest (over 700,000 tonnes), the three main processors were short of oilseeds, producers preferring to sell at a higher price (270 FCFA/kg versus 190 FCFA/kg) to foreign buyers, so much so that the issue of a new groundnut export ban has re-emerged. Sectoral developments in East Africa and Southern Africa Soybean production in South Africa has enjoyed continuous growth since 2006, passing from 206,000 tonnes to 850,000 tonnes in 2012. Sunflower pro- duction also rose in 2012 to 625,000 tonnes, but is still below the 860,000 tonnes harvested in 2010. “Industrialists in East Africa are on the lookout for opportuni- ties” Oil palm investments in East Africa are more recent in date, with industrial- ists in the sector on the lookout for opportunities. For example, Singa- pore’s Olam has extended its activi- ties through its October 2012 acqui- sition of 50% of Acacia Investments (Al). Olam can build upon the work of Al, already a strong brand in the local East African edible oil refining industry, and is positioning itself as a supplier of raw palm oil to the new co-enterprise. Malaysia is showing interest in investing in Uganda and is already heavily involved in a large- scale project on the island of Bugala, the Kalangala Vegetable Oil Devel- opment Project (VODP). In Rwanda, the Tanzanian company Mount Meru Soyco is working in partnership with the Clinton Foundation on an oil-pro- cessing project, aiming to develop local soybean production and sign up “30,000 local farmers to grow the crop” (see Agritrade article ‘Regional investment in oil crop processing in Rwanda’, 1 October 2012). Developments in the Pacific islands Poor weather in the form of heavy rain affected palm oil production in PNG in 2012 and the first quarter of 2013. Results from New Britain Palm Oil Limited (NBPOL), PNG’s main palm oil producer, were also hit by the revalua- tion of the kila against the dollar, which automatically increased production costs and reduced competitiveness. Nevertheless palm oil production grew overall by 3.9% in 2012 to 530,000 tonnes. Production of coconut oil has remained steady at 63,000 tonnes since 2008. With its market share stable at around 10%, PNG is maintaining its palm oil exports to the EU, its major outlet. Exports by volume reached 565,503 tonnes in 2012 (+4.5% over 2011 and +11.5% over 2010). Developments in the Caribbean The Caribbean produces only a small amount of vegetable oil, with oil crop production limited mainly to coconuts, at around 24,000 tonnes per year. The Dominican Republic is the region’s only palm oil producer, with 44,000 tonnes in 2011. Caribbean countries are thus highly dependent on imports, and the rising price of a number of oil crops has greatly increased food bills, particularly in Haiti, the Dominican Republic and Trinidad and Tobago, which together account for 85% of the fixed fats and vegetable oils (crude, refined, fract.) imported into the Caribbean (52%, 22% and 11% respectively). 3. Implications for the ACP The importance of dealing with the issue of trade preference erosion The revision of the GSP and its recipi- ent countries, plus the various FTA negotiations conducted by the EU with Malaysia and Indonesia among others, are game-changers for ACP oil crop exporters, particularly PNG’s palm oil exporters. Executive brief: Update 2013 I 10http://agritrade.cta.int/ Cotton sector “ACP countries are facing the erosion of their preferential access in favour of countries signed up to FTAs with the EU” Whatever the outcome of the EPA negotiations, ACP countries wil l face the erosion of their preferential access in favour of countries signed up to FTAs with the EU. ACP coun- tries interested in exporting into the EU market should make preparations for these changes and consider other outlets for their production, either local or export. They should also think about signing an EPA, which would simply put them on the same footing as emerging, and highly competitive, nations like Malaysia and Indonesia, if these two countries conclude an FTA with the EU. A game-changer for biodiesel feedstock producers Although trade preference erosion may be detrimental to ACP exporters, another trend might favour them. The trade tensions evident between Indo- nesia, Argentina and the EU, which are already driving Indonesia to concen- trate on the domestic rather than the export market, plus Malaysia’s support for domestic biodiesel, could provide an additional export margin for ACP oil crop producers. Demands for sustainability At 8.2 million tonnes, RSPO-certified oil represented 15% of the total palm oil market in 2012, up from 12% the previous year, with further growth forecast. As home to New Britain Palm Oil Ltd (NBPOL), the leading producer of RSPO-certified palm oil, PNG is well placed in this niche market. NBPOL is also active in the Solomon Islands. However, Africa’s only current certified producer is Agrivar in Côte d’Ivoire. Any new African oil palm plantation project would be well advised to ensure it meets sustainability criteria: to avoid criticism, position itself in this sector, and respond to the demands of the European market. However, potential changes to the certification regime could undermine investments made to guarantee sustainable pro- duction, palm oil certification itself, and the strategy of enterprises opt- ing for this model. Tougher regulatory requirements, particularly for label- ling, seem necessary if the new ACP producers are to take full advantage of investment in sustainable palm oil production. In terms of the ACP’s trading relation- ship with the EU, two important issues are emerging: the potential use of cus- toms duties to favour RSPO-certified palm oil, and the development of qual- ity standards which encourage its use in foodstuffs. Responding to changing retailer standards and requirements from manufacturers There is a need for ACP producers to effectively engage with debates in Europe and beyond on the environ- mental and health impacts of palm oil production, in order to ensure that ACP interests and realities are taken on board in the development of retailer standards. “Are retailer standards new barriers to trade?” This would suggest a need for the launching of a broader dialogue with the EU on how to ensure that retailer standards do not become new barri- ers to trade or result in ACP producers carrying a disproportionate burden of the costs of meeting the new retailer standards. This issue can be seen to fall within the EU’s Agricultural Prod- uct Quality policy. It could, for exam- ple, give rise to a code of conduct for accommodating development con- cerns within retailer standards. The need to stay on top on EU regulatory deve- lopments regarding biofuel There would appear to be a need for ACP oil crop exporters to closely moni- tor developments in EU biofuel poli- cies, given the knock-on effects that they could have on market prices for oil crops, and the EC’s efforts in the fish- eries sector to establish the legal basis for linking access to the EU market with sustainable production practices. Once the legal basis is established, the approach could be extended to a range of agricultural sectors. ACP oil crop exporters may wish to make common cause with other potentially affected sectors across the ACP (e.g. cocoa and beef) in monitoring the evo- lution of EU policy and ensuring that environmental and social standards do not become new barriers to mar- ket access. Executive brief: Update 2013 I 11http://agritrade.cta.int/ Cotton sector Main sources Markets 1. United States Department of Agriculture (USDA), ‘World agricultural supply and demand estimates report (WASDE)’, web page http://www.usda.gov/oce/commodity/wasde/ 2. FAO, ‘Perspectives alimentaires, les marchés en bref’, June 2013 http://www.fao.org/docrep/018/al999f/al999f.pdf 3. Food and Agricultural Policy Research Institute (FAPRI), ‘FAPRI-ISU 2012 World Agricultural Outlook: Oilseed’, 2012 http://www.fapri.org/outlook/2012/tables/3-Oil.pdf European market 4. EC DG for Agriculture and Rural Development, ‘Market situation: Oilseeds, AGRI C 5, Man- agement Committee for the Common Organisation of Agricultural Markets’, 29 August 2013 http://ec.europa.eu/agriculture/cereals/presentations/cereals-oilseeds/market-situation- oilseeds_en.pdf 5. USDA, ‘EU27: Oilseeds and products annual – Ample soybean world supplies to boost EU-27 soybean meal consumption’, GAIN Report No. AU 13002, 4 May 2013 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Oilseeds%20and%20Prod- ucts%20Annual_Vienna_EU-27_4-5-2013.pdf ACP countries 6. Greenpeace, ‘La dernière frontière de l’huile de palme, Comment l’expansion des planta- tions industrielles menace les forêts tropicales en Afrique’, September 2012 http://www.greenpeace.org/france/PageFiles/300718/La%20derni%C3%A8re%20 fronti%C3%A8re%20de%20l%E2%80%99huile%20de%20palme%20Afrique%20-%20 Briefing.pdf 7. Bloomberg, ‘Asian palm-oil planters head to West Africa’, 3 April 2013 http://www.bloomberg.com/news/2013-04-03/asian-palm-oil-planters-head-to-west-africa. html Sustainable oils 8. Greenpeace, ‘La face cachée de Sinar Mas’, undated http://www.greenpeace.org/france/PageFiles/266591/la-face-cachee-de-sinar-mas.pdf 9. World Wide Fund for Nature (WWF), ‘Roundtable on sustainable palm oil’, undated http://wwf.panda.org/what_we_do/footprint/agriculture/palm_oil/solutions/roundtable_on_ sustainable_palm_oil/ Executive brief: Update 2013 I 12http://agritrade.cta.int/ Cotton sector Technical Centre for Agricultural and Rural Cooperation (ACP—EU) PO Box 380 6700 AJ Wageningen The Netherlands Tel: +31 (0) 317 467 100 E-mail: cta@cta.int - www.cta.int The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint ACP—EU institution active in agricultural and rural development in African, Caribbean and Pacific (ACP) countries. Its mission is to advance food and nutritional security, increase prosperity and encourage sound natural resource management. It does this by providing access to information and knowledge, facilitating policy dialogue and strengthening the capacity of agricultural and rural development institutions and communities in ACP countries. About this update This brief was updated in October 2013 to reflect developments since October 2012. Other publications in this series and additional resources on ACP–EU agriculture and fisheries trade issues can be found online at http://agritrade.cta.int/ 10. Le Monde, ‘La production d’huile de palme « durable » est mise en cause’, 25 April 2013 http://www.lemonde.fr/planete/article/2013/04/25/la-production-d-huile-de-palme-durable- mise-en-cause_3166159_3244.html Biofuels/biodiesel 11. USDA, ‘EU-27 : Biofuels annual’, GAIN Report No. NL2020, 25 June 2012 http://www.usda-france.fr/media/Biofuels%20Annual_The%20Hague_EU-27_6-25-2012.pdf 12. Novethic, ‘Agrocarburant : la filière défend son bilan économique’, 30 April 2013 http://www.novethic.fr/novethic/ecologie,environnement,agriculture,agrocarburants_filiere_ defend_son_bilan_economique,139667.jsp 13. European Parliament, ‘La Commission de l’environnement soutient la promotion des bio- carburants avancés’, communiqué de presse, 11 July 2013 http://www.europarl.europa.eu/news/fr/pressroom/content/20130708IPR16825/html/La- commission-de-l’environnement-soutient-la-promotion-des-biocarburants-avancés http://agritrade.cta.int/ Pacific: Agricultural trade policy debates and developments I 1 Rising food prices are a major cause for concern in Pacific ACP (PACP) countries, given these countries’ high dependency on imports. This concern is sharpening their policy focus on expanding domestic food production for local markets. Many initiatives have been launched to sup- port local food production, while some countries have called for increased tariff protection for specific food prod- ucts. A growing incidence of lifestyle- related diseases is also giving rise to calls for increased controls on imported foodstuffs. The issue of climate change hangs over PACP food security concerns. Saline con- tamination of agricultural lands is increas- ing, and threatens even the very existence of some PACP island nations. While agriculture remains the economic foundation of most PACP economies, they face serious physical and logistical constraints on competitive production and trade. Growth in other sectors of some countries’ economies threatens to draw labour away from established export sectors (e.g., the coffee sector in Papua New Guinea [PNG]). In response to these competitive challenges, a growing emphasis is being placed on niche mar- keting and value addition for agricultural products destined for export. Strength- ening producer organisations, promoting direct sales links, easing logistical con- straints, addressing sanitary and phyto- sanitary (SPS) challenges and identifying ways of reducing the costs of organic certification are all areas of increasing attention and ‘aid for trade’ support. There is also a growing emphasis on developing intra-regional trade among the Pacific Island Countries (PICs), par- ticularly among the four member states of the Melanesian Spearhead Group (MSG), which account for 98.8% of the PACP region’s total land mass, 87% of the population and 30.3% of its exclusive economic zones (EEZs). Moves towards sub-regional trade integration within the MSG are attracting more foreign invest- ment in some agricultural sectors, to exploit regional trade preferences. update October 2013 Pacific: Agricultural trade policy debates and developments 1. Background and key issues 1. Background and key issues 2. Latest developments Developments in the PACP agricultural sector Developments in intra-regional trade Developments in PACP third-country relations 3. Current policy debates and issues Balancing smallholder and commercial agri-food sector priorities Promoting agri-food sector investment and trade regulation Enhancing the credibility of palm oil sustainability certification Ensuring a comprehensive approach to product differentiation Reconciling organic production strategies with conventional agriculture Centrality of SPS issues to the PACER-Plus negotiations Ensuring that differentiated product certification yields net benefits Executive brief: Update 2013 I 2http://agritrade.cta.int/ Pacific: Agricultural trade policy debates and developments 2. Latest developments Developments in the PACP agricultural sector The policy context PACP states constitute the smallest grouping in the ACP, with a total popu- lation of 8 million. They range in size from 6.5 million people (PNG) to a mere 10,000 (Nauru). While spanning a huge area, most PACP countries are land- constrained and, with the exception of PNG and Fiji, have limited agricultural potential. Transport infrastructure con- straints further compound the underly- ing remoteness of PACP states, making competitive production for international markets commercially challenging. Even the larger economies face infra- structure constraints, with poor roads causing the loss of up to 40% of cof- fee production in PNG (see Agritrade article ‘Constraints on product differ- entiation in the Pacific’, 13 June 2013). Most agricultural production is small- holder-based for self-consumption and local markets, with limited intra-regional trade. There are, however, pockets of estate-based production and medium- sized commercial farms, producing for both export and local markets. “Food import dependency has risen sharply in the region since the 1980s” Food import dependency has risen sharply since the 1980s, linked to changing consumption patterns in an era of cheap food imports and more recently to changes in the retail sec- tor. Rice and bread are replacing local traditional food staples, and consump- tion of cheap fatty meat cuts and pro- cessed foods with high sugar content is increasing. This raises major public health concerns, with calls being made for government policies to give prior- ity to local production of healthy food- stuffs for local markets. Food import dependency rates in PACP countries range from 36% in Kiribati to 84% in Palau, leaving them particularly vulner- able to rising food prices. In the face of rising food prices, cus- tomary ownership of land is seen, by analysts at Monash University in Mel- bourne, Australia, as “the one thing that stands between people of the Pacific Islands and hunger”. Customary land tenure systems dominate through- out the PACP, and there are fears that service provisions of comprehensive trade agreements might lay the basis for substantial land alienation. Under Vanuatu’s WTO accession services schedule, for example, the govern- ment will no longer be able to “limit the amount of land foreigners can lease for agriculture, hunting or forestry”, except in very few cases. This raises important issues related to the implications of international trade agreements for customary land-own- ership structures. Indeed, concerns are growing about the impact that trade agreements might have on govern- ments’ scope to adopt measures to promote both local agricultural produc- tion and healthier food consumption. Policy measures to restrict imports of fatty meats may be particularly affected. This, then, is the context within which PACP leaders have called on their international partners to recognise the unique challenges that PACP countries face, and to consider non-traditional forms of trade agreements, which place the development of production and trade capacity at centre stage. Balancing smallholder and commercial agri-food sector developments Given the focus of agr icul tura l production in many PACP countries on home consumption and local markets, many initiatives have been launched to encourage smallholder farmers to create associations around diverse forms of agricultural production and livestock-raising. But the expansion of smallholder production for local use raises policy issues to do with the balance between small-scale production and the promotion of investment in larger-scale commercial production. “Balancing smallholder and commercial agri-food sector development is a challenge in the Pacific” This is closely related to questions of land tenure and policies on privatisation and foreign investment. This is perhaps particularly acute in two sectors: first, the poultry sector, where major regional companies are investing in the expansion of production for national and regional markets (e.g., the Australian Goodman Fielder International’s investments in poultry production in Fiji – see Agritrade article ‘Fiji poultry sector to expand amid regional tensions’, 18 June 2012). Secondly, the dairy sector, where the government of PNG is seeking to encourage investment by foreign dairy companies in local dairy sector development, and where the newly privatised Fijian Dairy Company is actively seeking to expand production for regional markets, based on imported skimmed milk powder. As these larger commercial enterprises develop, will PACP governments simply let smallholder production in these areas disappear, or will government policy aim to promote out-sourcing links between Executive brief: Update 2013 I 3http://agritrade.cta.int/ Pacific: Agricultural trade policy debates and developments commercial enterprises and smallholder producers? Concerns about this kind of issue are giving rise to calls for the greater involvement of farmers in the formulation of agricultural policy, and for governments to develop coherent policies to treat farms as small business enterprises. Commercial agri-food sector development and imports With PACP governments seeking to promote national commercial agri- food sector enterprises, pressures are increasing in some sectors, in some countries, to use import controls to make room for national agri-food sector development. This can perhaps be most vividly illustrated by recent developments in PNG, which has a strong policy commitment to trade liberalisation. In 2012–13, representatives of the PNG poultry sector claimed that retailers were sourcing more poultry meat from Australia, giving rise to increased imports and a decline in local production of poultry meat of 10–20% (see Agritrade article ‘Poultry imports hit Papua New Guinea producers’, 9 September 2012). In November 2012 the Poultry Industry Association of PNG called for a ban on imports, conflating protectionist concerns with an alleged SPS threat from Australian poultry (a claim rejected by the PNG National Agricultural Quarantine and Inspection Authority – see Agritrade article ‘Growing concerns over poultry imports in PNG’, 2 February 2013). Despite this rejection of the SPS grounds for trade restrictions, a “full review of fresh and frozen poultry imports” into PNG has been under way, nominally on biosecurity grounds. In 2012/13, tariff issues in the sugar sector also came to the fore in PNG, with Ramu Sugar, PNG’s only sugar producer, having reportedly “lost 31.5% of its sales since the government slashed [tariffs] on imported sugar”. This led Ramu Sugar to call for a 50% import duty to be levied for the next 5 years to ensure a viable sugar industry in PNG (see Agritrade article ‘Concerns growing over the future of Papua New Guinea’s sugar industry’, 21 January 2013). While the government of PNG has not introduced bans or increased tariffs, the calls made by larger-scale agri-food companies are indicative of the policy pressures exerted in an era of rising food prices and a renewed focus on national food security. A growing focus on differenti- ated product exports and niche marketing Across a range of sectors in the Pacific there is recognition that product differentiation strategies and niche marketing offer a means of side- stepping competitiveness and logistical constraints facing PACP agri-food producers. “In the Pacific there is a grow- ing focus on differentiated product exports and niche marketing” It is increasingly recognised that, wherever possible, this should involve movement up the value chain to the export of low-volume, high-value products. This process of product differentiation and niche marketing applies across a range of commodities, from major exports such as palm oil and sugar, through fine or flavoured cocoa and organic or fair-trade horticultural products, to value-added coconut- based cosmetics. In the palm oil sector, more than three- quarters of production by PNG-based New Britain Palm Oil Ltd (NBPOL) now takes place on land certified sustain- able. While this does not generate significant price premiums, it enables NBPOL to position itself success- fully in European markets to supply leading food manufacturers. The strong performance of NBPOL in promoting sustainably produced palm oil has brought investment in production expansion, co-generation of electricity, and an expansion of its UK refining operations (see Agritrade article ‘Sustainable palm oil still ahead of canned tuna in Papua New Guinea trade with EU’, 31 March 2012). Against this background, concerns arise over the recent questioning of the integrity of the Roundtable on Sustainable Palm Oil (RSPO) sustainability certification scheme. In February 2013 an assess- ment by the Worldwide Fund for Nature (WWF) of the RSPO certification process found significant shortcomings in reporting by RSPO members (see Agritrade article ‘RSPO members questioned over sustainability of palm oil production’, 28 April 2013). “Efforts are under way across the Pacific ACP region to develop fair-trade-certified production” Efforts are under way across the PACP to develop fair-trade-certified production. In August 2012 some US$4.56 million in new funding for Fairtrade Australia and New Zealand (ANZ) was announced “to help unlock the export potential of smallholder farms in Pacific agriculture”. Real potential is seen for quality-differentiated products such as cocoa, coffee and vanilla in the Pacific, with fair-trade certification, for example, helping to improve the position of Pacific producers within the value chain. Concretely, a new initiative has also been taken by Fairtrade ANZ to develop exports of fair-trade coffee from PNG (see Agritrade article ‘New funding for promotion of fair-trade production in the Pacific’, 8 October 2012). Executive brief: Update 2013 I 4http://agritrade.cta.int/ Pacific: Agricultural trade policy debates and developments However, in the fair-trade sector, as with other instances of product differentiation, the issue of the volume of production involved is critical. An assessment of the Fijian fair-trade certification experience in the sugar sector found that “fair-trade certification works for sugar because of the large volumes and sufficiently large premiums”, which helped to carry the fixed costs of running a small producers’ organisation and staying certified (see Agritrade article ‘The costs and benefits of fair-trade certification in Fiji’, 23 June 2013). The importance of the volume of production involved to the net benefits gained from any form of third-party certification (TPC) was highlighted in a review of the experience of the PNG coffee sector. The costs of compliance with TPC schemes were found to lead often to the exclusion of individual smallholders from such schemes. Indeed, it was maintained that “the most important factor in determining whether a farmer benefits from cer- tification” was the volume supplied, with larger volumes and better producer organisation strengthening the position of primary producers in the supply chain (see Agritrade article ‘Constraints on product differentiation in the Pacific’, 13 June 2013). Thus, where production volumes are limited, the costs of TPC can offset the net benefits to producers of the price premiums available, particularly as price premiums fall as competition among retailers of certified products increases. While these challenges vary for different products under different certification schemes, careful evaluation of the costs and benefits of specific product differentiation strategies would appear to be required, with certification on its own being insufficient to ensure net benefits. What are participatory guarantee systems (PGS)? The International Federation of Organic Agricultural Movements (IFOAM) defines PGS systems as “locally focused quality assurance systems that certify producers based on active participation of stakeholders”, with the system being “built on a foundation of trust, social networks and know- ledge exchange”. This system reduces certification and verification costs and can improve the net benefits to primary producers serving organic market components which accept such schemes. Such schemes are currently limited to local markets, where key custom- ers can be actively involved in the inspection of farming processes pract- ised by suppliers. Such schemes could prove useful in serving organic markets in the expanding tourism sector in the Pacific. Recent initiatives around organic agricultural production and marketing Despite the challenges faced by a number of PICs, developing organic- certified agricultural production is seen as an important way forward. In the Cook Islands, for example, public– private partnerships are being launched to promote ‘green growth’ based on organic production methods, with opportunities identified particularly in horticulture. In Vanuatu, meanwhile, efforts are under way to convert its largest coconut plantations to organic production. This forms part of a wider Vanuatu Sustainable Agri-Business Initiative (VASABI), a logical move to enhance the value of current production, which already often takes place without the application of mineral fertilisers. Only certification, then, is lacking. For small island nations such as the Cook Islands and Vanuatu, converting the entire agricultural sector to organic production could offer major economic gains in terms of minimising the cost of inputs, reducing certification costs and developing a unique brand identity. If islands can become synonymous with natural (organic), high-quality production, the capacity of agricultural producers to gain price premiums on overseas markets could be considerably enhanced (although such a strategy is not without its challenges: see Agritrade article ‘Going organic seen as way forward in Vanuatu’, 18 May 2013). It should be borne in mind that markets for organic products lie not only overseas. Expanding tourism sectors and mounting lifestyle-related health concerns are creating market opportunities much closer at hand in a number of PACP countries. These market components can be more cost- effectively served through PGS systems of organic certification. Organic producers’ associations across the Pacific (including French overseas territories) came together in May 2012 in the first meeting of the Pacific Organic and Ethical Trade Community (POETCom). A handbook on the PGS system of organic certification was launched at this meeting, and reviewed by a specially constituted POETCom review committee to ensure compliance with the Pacific organic standard. The handbook was then distributed throughout the region. Executive brief: Update 2013 I 5http://agritrade.cta.int/ Pacific: Agricultural trade policy debates and developments The main ‘aid for trade’ programmes being implemented in 2012–13 The Increasing Agricultural Commodities Trade (IACT) project, financed by the EU to the tune of €9 million, was rolled out in 2012. Launched in 2011 and scheduled to run until May 2015, the IACT seeks to build on the earlier Facilitating Agricultural Commodity Trade (FACT) pilot project, which ran from 2008 to 2012. The project aims to increase the agricul- tural and fisheries export capacity of PACP states by strengthening the national institutional framework, developing trade capacity, and in- creasing private sector competitiveness and access to international markets. The major focus of the programme to date has been on tech- nical assistance and training in product development and marketing, support to participation in trade fairs, and support to the POETCom project. The IACT programme can be seen as complementing the more focused AusAid-financed Pacific Horticulture and Agriculture Market Access (PHAMA) programme, launched in 2011, with a second phase planned to start in 2013. The PHAMA programme focuses on addressing regulatory aspects of market access for agricultural products. Initiatives to date have focused on improving the quality of taro production, addressing quarantine issues so as to reduce losses from destroyed consignments, and addressing SPS issues linked to the export of Fijian pineapples to New Zealand. Sources: IACT programme http://www.spc.int/lrd/index.php?option=com_content&view=article&id=923&Itemid=580 PHAMA programme http://www.ausaid.gov.au/countries/pacific/rp/Pages/initiative-pacific-horticultural- agricultural-market-access.aspx PGS organic certification is cheaper than third-party certification and will potentially expand the supply and market for organic products across the region, and feed into growing tourism markets. In a re lated deve lopment, the International Federation of Organic Agricultural Movements (IFOAM) accepted in April 2012 the Pacific organic standard into its family of standards. This IFOAM scheme of mutual recognition aims to facilitate access for organic products to different markets and is achieving growing credibility as the basis for assessing equivalence of foreign standards. It is unclear how the EC’s proposed revision of food and feed controls will affect the organic sector. Fears have been expressed that the move to a uniform legal framework for official controls will entail the introduction of controls that will “virtually eliminate” the system of organic certification and controls established by the European organic farming industry (see Agritrade article ‘Concerns expressed over impact of revision of EU food and feed controls on the organic sector’, 11 August 2013). Controls on the production process might be replaced by systems based on product analysis. This is significant, since current Pacific organic cooperation initiatives span PACP countries and French Pacific territories. Overall, organic production for both local and overseas markets is seen as presenting “a new and exciting market opportunity” for farmers across the PACP. This emphasis on organic production is attracting growing levels of ‘aid for trade’, from capacity building for producers’ associations, through certification support, to marketing studies. Developments in intra- regional trade Developments in the Melanesian Spearhead Group (MSG) The period 2012–13 saw significant developments in the framework of the MSG. Trade between member states reportedly grew by 300% between 2005 and 2009, although Australia and New Zealand still accounted for 43% of MSG members’ exports. In 2012 PNG agreed to remove all but three items from its list of products excluded from tar i f f e l imination commitments under the MSG free trade agreement (MSGTA). Fiji had earlier removed all products from its negative list. Vanuatu followed PNG. Solomon Islands agreed to phase out tariffs on imports from MSG members by the end of 2017. The inaugural ministerial meeting of MSG trade ministers took place in May 2013. At this meeting, PNG’s trade minister expressed disappointment at the slow PACER-Plus negotiations, suggesting that PNG might refocus its efforts on developing increased trade and economic cooperation within the MSG. Fiji’s minister of trade meanwhile highlighted the commitment of MSG leaders to consolidate trade among MSG Executive brief: Update 2013 I 6http://agritrade.cta.int/ Pacific: Agricultural trade policy debates and developments members by “putting in place a duty- free regime, working towards a tariff- free common market”. Vanuatu’s trade minister said that his government would need to examine how to “maximise the use of the MSG Trade Agreements in terms of labour mobility, and so forth”. The meeting as a whole committed member governments to revise the MSG trade agreement so that it might become more of an economic integration arrangement for MSG states. “Intensified cooperation and trade among MSG members could strengthen the whole Pacific ACP region” It was argued that intensified cooperation and trade among MSG members could strengthen the whole PACP region in its dealings with its traditional trade partners, Australia and New Zealand. In this context a bilateral PNG–Fiji Business Council was revamped in the run-up to the meeting. The Chief Trade Adviser to Pacific Island Countries has maintained, however, that the benefits to be gained from a PACER-Plus agreement will far outweigh the benefits to be gained from the MSGTA, and has called for greater policy attention to be paid to the PACER-Plus process. Intra-PIC trade integration and evolving patterns of corporate investment Patterns of investment in agri-food enterprises are emerging in the Pacific, aimed at exploiting intra-regional market opportunities arising as a result of moves towards intra-PIC trade liberalisation. Thus in June 2012 it was reported that Fijian poultry production had increased 36% between 2008 and 2012 (from 11 million to 15 million chickens per annum), following investments by Australian- owned Goodman Fielder International aimed at exploiting emerging export opportunities under the MSGTA (see Agritrade article ‘Fiji poultry sector to expand amid regional tensions’, 18 June 2012). “Patterns of investment in agri- food enterprises are emerging in order to exploit intra-regional market opportunities arising from moves towards intra-PIC trade liberalisation” Similar issues potentially arise in the dairy sector, where a pan-regional food procurement and distribution company (CJ Patel) in August 2012 purchased government stocks in Fiji’s sole dairy company (see Agritrade article ‘Privatisation raises hopes for Fijian dairy sector but issues remain’, 25 March 2013). Both of these cases potentia l ly raise import rules-of-origin issues under the MSGTA, given the high import dependency of production of poultry and dairy products under the corporate strategies currently being pursued. Depending on how they are handled, these issues could foster the development of backward linkages within the dairy and poultry sectors concerned. In addition, they are likely to give rise eventually to concerns over the intra-regional trade consequences of different levels of government support and fiscal incentives. This suggests that any review of the legislative framework for the management of trade in the affected products will need to get to grips with emerging intra-regional trade flows arising from corporate investments that are designed to take advantage of sub-regional trade agreements, such as the MSGTA. It also suggests a need to strengthen competition rules and their effective application, if private investment in necessary modernisation processes is to be mobilised. Developments in PACP third-country relations Developments in the (I)EPA negotiations In the Pacific, the implementation of the PNG Interim Economic Partnership Agreement (IEPA) is under way. Major development benefits are reported in the fisheries sector as a result of the global sourcing provisions of the rules of origin. The Fiji IEPA has not been ratified and is not yet being imple- mented. According to EC representa- tives, three other PACP countries have indicated a desire to accede to similar IEPA arrangements. In the course of 2012–13, the Pacific– EU negotiations gathered pace, in line with the instructions issued by PACP leaders to conclude the negotiations in 2013. A formal negotiating session with the EC took place in October 2012, with all 14 Pacific countries having submitted their market access offers to the EC. Further technical meetings took place in December 2012 and in March 2013. It was maintained that decent progress had been made on technical aspects of the negotiations through these meet- ings. Nevertheless it is felt in the Pacific that more flexibility is now required to narrow the gap on outstanding conten- tious issues, particularly to do with fish- eries, where securing improved rules of origin for chilled and frozen fish is accorded a high priority. The technical complexity of the out- standing fisheries issues, particularly linked to effective fisheries manage- ment and conservation systems, is recognised. So too is the growing political sensitivity in the EU to global sourcing and other issues related to rules of origin. Executive brief: Update 2013 I 7http://agritrade.cta.int/ Pacific: Agricultural trade policy debates and developments The secretary-general of the Pacific Islands Forum Secretariat concluded at the May 2013 PACP trade ministers’ meeting that “unfortunately… the Euro- pean Union has not been responsive to the situation that is unique to the Pacific and to countries of this region, and thus has not lived up to Pacific expectations,” adding that it was “largely for these reasons that negotia- tions have taken this long to conclude”. “Trade ministers have ex- pressed a sense of urgency over concluding the EPA process” In May 2013 PACP trade ministers expressed a sense of urgency over concluding the EPA process, given the establishment of 1 October 2014 as the deadline for the lapsing of the market access regulation MAR 1528/2007, which extended transitional duty-free, quota-free access to Fiji and PNG. Fiji’s trade minister argued that “continuing extension of the negotiations could no longer be tolerated,” with Fiji seeking to conclude negotiations by the end of 2013, thereby providing sufficient time for ratification by all the parties concerned before the 1 October 2014 deadline. The EC Pacific delegate, however, maintained that concluding the nego- tiations by the end of 2013 was “unre- alistic”, since “there were just too many gaps… to believe such talks would be finalised before the end of the year” (see Agritrade article ‘Fiji urges 2013 com- pletion while EC delegate expresses doubts over end of year deadline’, 1 July 2013). But the EC delegate also provided a slightly more nuanced per- spective on the deadline issue, pointing out that “the market access regulations only concern the interim EPA” and “do not establish a deadline for negotia- tions of a comprehensive EPA” where “no deadline exists”. In June 2013 the PACP ministerial spokesperson, in a letter to Trade Com- missioner Karel De Gucht, set out PACP concerns over the lack of progress in negotiations, stressing the importance of fisheries issues to PICs and reiterat- ing the view of PACP governments that “if crafted properly, a comprehensive EPA has the potential to create the right conditions for trade and development.” But it was maintained that this would require the EC to offer PACP countries “improved market access, including global sourcing, and adequate and timely aid for trade resources… to improve their trade-related infrastruc- ture and build their productive capacity, as well as the capacity to comply with EU export requirements”. From a Pacific perspective, consider- able importance is attached to keeping the region’s options open. In this con- text, Fijian officials have highlighted the options of continued EPA access for less developed countries, ratification of the IEPA by Fiji, and even accession to the IEPA by other PACP countries if they so desire. Progress in the PACER-Plus negotiations “The PACP governments consider that the PACER-Plus negotiations should not result in a conventional free trade agreement” From 29 to 30 November 2012, the fifth meeting of officials of the PACER-Plus trade negotiations took place. The PICs reiterated their position of May 2012, that “PACER-Plus should not result in a conventional free trade agreement,” and stressed the importance of includ- ing provisions that would “ensure sus- tainable growth and development of the Forum Island Countries” (see Agri- trade article ‘Pacific PACER-Plus trade talks continue’, 27 January 2013). “Good progress” is reportedly being made in the PACER-Plus negotiations, with ongoing efforts to “narrow differ- ences between the parties”. The prin- cipal outstanding issues for the agri- culture sector are those related to SPS measures, technical barriers to trade (TBTs), rules of origin, and develop- ment assistance support targeted at building up trade-related infrastruc- ture (see Agritrade article ‘Progress reported in PACER Plus negotiations’, 15 July 2013). The long-running saga of access to the Australian market for Fijian ginger exports is illustrative in this regard. In May 2013 it was reported that “after over 12 years of negotiations, it appears the path may soon be clear for Fiji to commence exports of ginger to Australia”, following recommenda- tions from the Australian Department of Agriculture, Fisheries and Food (DAFF) on how to minimise SPS threats from yam scale and burrowing nematode. However, “the Australian ginger indus- try believes that a thorough research project into pests and diseases in Fiji should be carried out so that all major pests and diseases can be screened for strain and virulence”, before access is granted for imports of ginger from Fiji. In terms of rules-of-origin issues, a May 2013 press review of roadblocks in the PACER-Plus talks noted that, while the current non-reciprocal South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA) allows “duty-free entry of islands’ goods to Australia and New Zealand”, the arrangement is deemed ineffective, since “rules of origin were too stringent and island countries had great difficul- ties complying with the agreement’s measures” on SPS and TBT. This provides the broader context against which current progress at the Executive brief: Update 2013 I 8http://agritrade.cta.int/ Pacific: Agricultural trade policy debates and developments technical level in the PACER-Plus nego- tiations should be seen. PNGs trade minister expressed concerns in May 2013 that any PACER-Plus agreement would be “one sided”, given the SPS- related difficulties of exporting taro and horticulture products to Australia and New Zealand. Getting to grips with this issue, in the face of growing domestic protectionist pressures in the Australian horticulture sector, is likely to be critical to the actual benefits gained under any eventual agreement. 3. Current policy debates and issues Balancing smallholder and commercial agri-food sector priorities The focus of agricultural production in many PACP countries is on home consumption and local markets. Some PACP governments are now trying, in the context of growing urbanisation, to promote both local and foreign corporate investment in the agri-food sector. This raises important issues related to how to balance support for smallholder production with efforts to attract increased corporate investment, and throws up a range of challenges that PACP governments will need to get to grips with, both nationally and, increasingly, regionally, as intra-PACP trade liberalisation gains momentum (for example, the consequences for regional trade of domestic market protection). Promoting agri-food sector investment and trade regulation Efforts to promote commercial invest- ment in the agri-food sector has prompted calls for increased tariff pro- tection and even import restrictions, so as to create market space for new investment. Apart from the issue of consumer interest in lower-priced food and the impact of tariffs on food prices, differential rates of domestic tariff pro- tection can give rise to distortions of competition, as tariffs on intra-regional trade are dismantled. These issues will need the attention of the MSG Secre- tariat at the technical level, and MSG trade ministers at the political level, if regional trade integration processes are not to be undermined by periodic food and agricultural trade disputes. Enhancing the credibility of palm oil sustainability certification If questioning the credibility of palm oil sustainability certification gains trac- tion, then this could strengthen the trend towards “palm-oil free” labelling of processed food products in markets targeted by the Pacific region’s largest palm oil exporter. This suggests a need for initiatives to secure greater recognition of the strong performance of companies such as NBPOL in promoting palm oil produc- tion on land certified sustainable within the RSPO scheme, and to strengthen the scheme’s underlying compliance requirements. Ensuring a comprehensive approach to product dif ferentiation Product dif ferentiation on its own is no guarantee of improved returns for producers. Government support for the provision of infrastructure is often required, alongside measures to strengthen the position of produc- ers in the value chain through more effective organisation. This represents a complementary agenda for govern- ment action as part of private–pub- lic partnerships to develop and sup- port effective product differentiation strategies. Reconciling organic production strategies with conventional agriculture Efforts to move towards island-wide organic farming should be balanced against the needs of existing conven- tional agri-food industries. This requires a nuanced approach to reducing costs of certified organic production while not undermining the operations of conventional agri-food enterprises. PACP-wide consultations on how best to address this issue could well prove useful. Centrality of SPS issues to the PACER-Plus negotiations SPS issues are a major source of concern in the PACER-Plus negotia- tions, since they critically determine the value of the duty-free access granted to developed country markets. Pro- cedural constraints on securing SPS approvals can fundamentally under- mine the value of ‘aid for trade’ support at the enterprise level, and for infra- structural and institutional investment, as well as the nominal market access granted. Against this background the ques- tion arises as to how substantive the reported progress in the PACER-Plus negotiations is on the underlying SPS, TBT and rules-of-origin issues of con- cern to PACP governments, such as addressing current problems faced in developing Pacific exports as a result of ongoing SPS disputes and cumber- some SPS approval procedures. How this question is addressed is likely to be critical to the eventual net benefits arising in the agri-food sector from any PACER-Plus agreement. Executive brief: Update 2013 I 9http://agritrade.cta.int/ Pacific: Agricultural trade policy debates and developments Ensuring that dif ferentia- ted product certification yields net benefits Given that production volumes in PACP countries are often small, questions can arise about the financial sustain- ability of TPC. This is increasing the attractiveness of PGS systems of cer- tification. Against this background, PACP governments may wish to join wider ACP efforts in ensuring that EC proposals to modify the regulatory regime for food and feed controls do not undermine current efforts to pro- mote PGS-certified trade in organic products. Main sources 1. Monash University/PANG ‘The implications of free trade agreements for food sovereignty in the Pacific island Nations’, November 2012 http://pacific.scoop.co.nz/2012/11/food-sovereignty-must-not-be-undermined-by-free- trade-talks/ 2. Pacific Island News Association, home page http://www.pina.com.fj/ 3. Islandsbusiness.com, home page http://www.islandsbusiness.com/ 4. EC Delegation to the Pacific, home page http://www.delfji.ec.europa.eu/ 5. Pacific Islands Forum Secretariat, home page http://www.forumsec.org.fj/ 6. Secretariat of the Pacific Community (SPC), home page http://www.spc.int 7. EC, ‘Second meeting of the trade committee between Papua New Guinea and the Euro- pean Commission under the Interim Partnership Agreement between the Pacific States of Papua New Guinea and Fiji and the European Union: Agreed minutes’, 24 February 2012 http://trade.ec.europa.eu/doclib/docs/2012/february/tradoc_149145.pdf 8. Pacific Islands Forum Secretariat, ‘Forum Trade Ministers’ Meeting: Outcomes document’, PIFS (12) FTMM, 11 May 2012 http://www.forumsec.org/resources/uploads/attachments/documents/FINAL%20Out- comes%20Document%20Forum%20Trade%20Ministers%20Meeting%202012.pdf 9. Secretariat of the Pacific Community, ‘Workshop focuses on strengthening Pacific product marketing’, 10 May 2013 http://www.spc.int/en/our-work/strategic-engagement-policy-and-planning-facility/ activities/1236-workshop-focuses-on-strengthening-pacific-product-marketing-.html Executive brief: Update 2013 I 10http://agritrade.cta.int/ Pacific: Agricultural trade policy debates and developments Technical Centre for Agricultural and Rural Cooperation (ACP—EU) PO Box 380 6700 AJ Wageningen The Netherlands Tel: +31 (0) 317 467 100 E-mail: cta@cta.int - www.cta.int The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint ACP—EU institution active in agricultural and rural development in African, Caribbean and Pacific (ACP) countries. Its mission is to advance food and nutritional security, increase prosperity and encourage sound natural resource management. It does this by providing access to information and knowledge, facilitating policy dialogue and strengthening the capacity of agricultural and rural development institutions and communities in ACP countries. 10. GreenPalm, ‘WWF Assessment of RSPO member palm oil producers 2013’, 19 February 2013 http://www.greenpalm.org/en/blog-press/blog/wwf-assessment-of-rspo-member-palm-oil- producers-2013 11. Australian Aid, ‘Creating opportunities for Pacific farmers’, 7 April 2012 http://www.ausaid.gov.au/HotTopics/Pages/Display.aspx?QID=22 About this update This brief was updated in October 2013 to reflect developments since September 2012. Other publications in this series and additional resources on ACP–EU agriculture and fisheries trade issues can be found online at http://agritrade.cta.int/ http://agritrade.cta.int/ Poultry sector I 1 The structure and importance of the poul- try sector vary considerably across the ACP, from small-scale production sys- tems to large and complex commercial poultry production units. There is also considerable variety within individual ACP regions, particularly in Southern and Eastern Africa. In the Caribbean, poultry is the largest agro-processing industry, with production taking place behind a common external tariff and a variety of national surcharges and levies. In the Pacific, the poultry sector is less significant, but investment is under way in poultry production to exploit new intra- regional trading opportunities (e.g. in Fiji for exports under the Melanesian Spear- head Group [MSG] free trade area [FTA]). Rising global feed costs are a particular challenge for ACP producers, who do not generally benefit from the kind of public sector support programmes available in OECD member countries. “Rising global feed costs are a particular challenge for ACP producers” This challenge is particularly acute in small island nations, but also across many regions of Africa, affecting as it does both small-scale production systems and indus- trial-scale poultry production. A variety of initiatives are taking place to try to address this challenge, including the development of regional feed supply chains. Across the ACP, animal diseases, infra- structure and marketing issues all – to varying degrees – need to be addressed. Trade policy plays a critical role in poultry sector developments. While the overall poultry regime in the EU is described as “light”, the EU nevertheless operates a highly disaggregated tariff regime, with few imports taking place outside tariff-rate quota (TRQ) arrangements. This effectively protects EU poultry producers. update September 2013 Poultry sector 1. Background and key issues 1. Background and key issues 2. Latest developments Global poultry sector developments EU poultry sector developments Poultry sector developments in Southern Africa Poultry sector developments in Eastern Africa Poultry sector developments in West and Central Africa Poultry sector developments in the Caribbean Poultry sector developments in the Pacific 3. Implications for the ACP Reconciling smallholder interests with modernisation plans Reconciling producer and consumer interests EPAs and poultry meat trade policy Regional trade in poultry products Maintaining the distinction between SPS issues and protectionist concerns Executive brief: Update 2013 I 2http://agritrade.cta.int/ Poultry sector Poultry sector trade policies vary considerably between ACP coun- tries, posing challenges for regional trade integration. This is particularly the case in West Africa, where some governments favour trade restrictions as the principal plank of government support measures (e.g. Nigeria), while others focus on addressing supply-side issues of competitiveness (e.g. Ghana). The diverse import regimes for poul- try products in West Africa generate considerable levels of smuggling (e.g. from Benin to Nigeria), which poses a major challenge to national poultry sector policy implementation. In Southern and Eastern Africa, the use of trade policy tools in the poultry sector is a growing focus of discus- sion, given rising imports (based on increased exports from Brazil and the EU) and heightened national concerns over food security. An important dimen- sion of the use of national trade policy tools is their impact on export competi- tiveness, given the trend towards ever larger poultry production units. This is an issue both in the EU export trade and within ACP regional groupings. 2. Latest developments Global poultry sector developments The global poultry industry faced rising input costs in 2012, with increased feed prices reportedly adding 10 US cents per pound (cents/lb) to production costs in the first 9 months of 2012. In September 2012, the financial services provider Rabobank argued that use of externally sourced feed “will need to be reduced by at least [3 to 5%] to off- set higher costs”. This suggests that high feed costs could constrain further expansion of global poultry production. Against this background, poultry indus- tries in several countries called in the past year for government support in the face of rising feed costs. Some EU governments responded to these calls with packages of support (see Agritrade article ‘French government announces support package in face of rising feed- stock costs’, 4 January 2013). As many ACP poultry sectors depend on imported feed, rising global feed prices meant that either poultry prices had to rise or producer margins had to fall. Price increases, however, left ACP producers vulnerable to inten- sified competition from imports of residual poultry parts and poultry products from countries benefiting from publicly financed producer sup- port programmes. According to analysis on the Poultry Site, figures published in 2012 show that “Brazil has been able to maintain its global market share of broiler meat exports at around 34%”. “Three of Brazil’s top 25 poul- try export destinations are in Africa” Three of Brazil’s top 25 export destina- tions are in Africa (South Africa, Angola and Ghana). By 2011, these three des- tinations accounted for a higher volume of Brazilian poultry meat exports than the EU27 market. In addition, the lifting of EU sanitary and phytosanitary (SPS)- related import restrictions on raw poul- try meat from Thailand is expected to intensify price competition for Brazilian exporters on the EU market, potentially reinforcing the focus of Brazilian poultry exporters on African markets (see Agri- trade article ‘Strong growth in Brazilian poultry exports to Africa’, 29 July 2012). Indeed, in the first quarter of 2012 Bra- zil’s chicken meat exports to African countries rose by 41%, compared to an overall increase of only 4.5% (see Agritrade article ‘Controversy emerges over chicken meat imports to Uganda’, 13 January 2013). Similarly, US poultry exporters have had a traditional focus on African markets. According to the US Department of Agriculture (USDA), sub-Saharan Africa is “the fourth most important market for US broiler and turkey exports”. “The most dramatic trend since 2009 has been the 163% ex- pansion in EU poultry exports to its four main African mar- kets” However, the most dramatic trend since 2009 has been the 163% expan- sion in EU poultry exports to its four main African markets (Benin, South Africa, Ghana and the Democratic Republic of Congo [DRC]). In 2009, these markets accounted for only 14% of total EU poultry meat exports, whereas by 2012 the proportion had risen to 26.2% of total exports, in a context where total EU poultry exports had increased by 41%. The Poultry Site’s ‘Global poultry trends’ report, published in October 2012, highlighted Africa’s growing role as a poultry meat importer, with African imports increasing from 260,000 tonnes in 2000 to over 1 million tonnes in 2011. South Africa and Angola are the most important sub-Saharan African markets for imported poultry meat, account- ing in 2012 for an estimated 60% of sub-Saharan Africa’s imports. The five markets of South Africa, Angola, Ghana, Benin and the DRC account for 90% of chicken meat imports to sub- Saharan African. And while the volumes imported by the rest of the continent may be smaller, “purchases by virtu- ally every other African country have expanded significantly since 2000” (see Agritrade article ‘Poultry exports to Africa on the rise’, 9 December 2012). Executive brief: Update 2013 I 3http://agritrade.cta.int/ Poultry sector Table 1: EU poultry meat exports to selected African destinations 2009–2012 (tonnes) 2009 2010 2011 2012 % change 2009/12 Benin 84,912 115,066 126,212 139,559 +64.4 South Africa 7,938 22,006 94,076 131,970 +1,562.5 Ghana 28,694 41,066 68,979 69,025 +140.6 DRC 20,903 27,749 29,972 34,226 +63.7 Sub-total 142,447 205,887 319,239 374,780 +163.1 Total EU exports 1,015,784 1,354,610 1,412,110 1,430,658 +40.8 Source: EC, Advisory Group on Eggs & Poultry, ‘EU market situation for eggs and poultry’ 26 March 2013, ‘Export of poultrymeat to selected destinations’, p. 22 In 2012, USDA estimated that African poultry meat imports were equivalent to 24% of domestic demand, up from 18% in 2009. At the same time, USDA projected an increase of 1.4% in Afri- can countries’ own poultry production between 2011 and 2012. “In 2012, African poultry meat imports were estimated equivalent to 24% of domestic demand, up from 18% in 2009” The growing importance of imports within national consumption across Africa is likely to receive increased attention in the coming years, in view of national policy concerns to enhance domestic food production, and the emergence of what Rabobank described as a “structural scarcity” of animal protein at the global level. This “structural scarcity” is projected to see poultry meat production growing faster than any other meat sector. Analysis by the OECD and FAO puts this growth at 2.2% per annum up to 2021, in line with projected growth in consumption in developing countries. The OECD and FAO have said that in the coming years, “real prices for poultry are projected to remain close to current levels”, with strong prices encouraging “large meat-exporting countries to invest in international meat markets despite the high prevailing incidence of food-safety and sanitary import bans” (see Agritrade article ‘EU poultry exports continue to grow within shifting global patterns of demand and production’, 9 September 2012). Within this global trend it is expected that poultry production will take place in increasingly larger units to gain economies of scale, with this trend being apparent “not only in developed but increasingly in emerging countries”. The trend towards larger production units will increase the poultry sector’s dependence on feed grain inputs. It is also likely to put increased pressure on smallholder-based poultry production systems. EU poultry sector developments Between 2010 and 2013, EU poul- try meat production is projected to increase by 5.4% (some 659,000 tonnes), despite rising feed costs. EU consumption, meanwhile, is pro- jected to increase by 3.9% (+464,000 tonnes), as hard-pressed consumers switch from more expensive to cheaper meats (including within poultry meat cuts) (see Agritrade article ‘EU poultry sector developments and prospects’, 22 April 2013). According to the EC, the relative price advantage of poul- try meat over other meats on the EU market has meant that EU producers can pass on cost increases to consum- ers, thereby enabling EU exporters to maintain their competitiveness on over- seas markets (see Agritrade article ‘EU poultry exports increasingly focused on Africa’, 4 November 2012). In December 2012, the EC’s ‘Prospects for agricultural markets’ projected an 18.8% (218,000 tonnes) increase in EU poultry meat exports for the period 2010 to 2013, from already elevated levels. Actual EU poultry exports in 2012 exceeded these projections by 5.2% (some 70,658 tonnes). EU poultry meat exports are increasingly focused on sub-Saharan African markets, with a particular focus on Western and Southern African markets for low- priced cuts and mechanically deboned meat. As the EC has acknowledged, “these poultry parts do not find an outlet on the domestic [EU] market” (see Agritrade article ‘Regional expan- sion of poultry companies intensifies trade policy debates in Namibia’, 12 May 2013). EU poultry meat exports to the EU’s top four African markets are shown in Table 1. Improved access for EU poultry exports to the Russian market follow- ing Russia’s accession to the WTO (see Agritrade article ‘EU poultry sector resilient’, 15 April 2012) could serve to ease pressure on West African markets from increased EU exports of whole chickens. However, this is by no means certain, given the expansion of invest- ment in Russian poultry production currently taking place. Over time, this could limit EU market opportunities in Executive brief: Update 2013 I 4http://agritrade.cta.int/ Poultry sector Russia and could even give rise to Rus- sian poultry meat exports. In the medium term, the EC proposal to end EU export refunds for poultry exports to sub-Saharan African des- tinations could also provide some relief in certain market components, although this would largely affect exports of whole birds to non-ACP markets and would leave exports of poultry parts unaffected, since these receive no export refund support. “In the longer term, the EU’s expansion of poultry meat production is projected to continue” In the longer term, the EU’s expansion of poultry meat production is projected to continue, with annual fluctuations. By 2022, production levels are pro- jected to be 2.4% above 2012 levels, while exports are projected to be sustained at historically high levels, although below current export peaks (see Agritrade article ‘Poultry exports to Africa on the rise’, 9 December 2012). This is despite earlier concerns expressed over the impact of new EU animal welfare regulations on the rela- tive price competitiveness of EU poultry production. The ability of EU producers to pass on cost increases to EU consumers is closely linked to the EU poultry trade regime. Patterns of EU poultry imports are determined by the structure of the tariff regime applied: at present, the EU has no fewer than 22 tariff subhead- ings for poultry meat, with 13 different bound tariffs, ranging from €187/tonne to €1,024/tonne and between 10.9 and 15.4% for turkey and salted, dried or smoked meat. Within the bound tariff, the EU establishes a range of tariff-rate quotas (TRQs) in order to be able to respond to evolving consumer demand for specific poultry products without disrupting the market for domestically produced EU poultry meat. This has in recent years seen an increase in imports of prepared poultry meat. Only small volumes of poultry meat imports take place outside EU TRQ arrangements, with these imports being used by the importer to build up a track record of imports in order to become eligible for future quota allocations. EU poultry pro- ducers believe that “in the absence of import tariffs… the EU market would rapidly be influenced by imported prod- ucts, with EU producers increasingly restricted to supplying niche markets” (see Agritrade ‘Executive Brief 2012: Poultry sector’, August 2012). In terms of policy responses to escalat- ing feed costs, in mid September 2012 the French government announced the establishment of a €100-million ‘Solidarity Fund’ to assist livestock producers in improving their competi- tiveness through increased on-farm investments. The government also announced plans to: “increase silo storage capacity” stop first-generation biofuel development; review “agricultural taxes to improve incomes for farmers”; establish “a roundtable discussion group… to improve contractual and commercial relationships in the live- stock sector”. These French government initiatives highlight how the pan-European appli- cation of EU common agricultural policy (CAP) measures is only one of the vehicles through which member states can assist national agricultural producers in dealing with global price volatility. Traditionally, the French gov- ernment has been to the fore in the use of permitted national policy tools, the use of which can be of considerable economic benefit in the face of glob- ally induced cost or price challenges. The implications of such measures is that they actually shift the burden of adjustment to global price volatility to non-EU producers, including those in the ACP (see Agritrade article ‘French government announces support pack- age in face of rising feedstock costs’, 4 January 2013). Poultry sector develop- ments in Southern Africa Three major developments in the poul- try sector in Southern Africa occurred in 2012–13. The first was the continued growth in imports. Since 2009, Ango- lan imports of poultry meat increased by an estimated 86%, from 161,000 tonnes to 300,000 tonnes, mak- ing Angola the joint top importer in sub-Saharan Africa alongside South Africa. Meanwhile, South Africa poultry imports, primarily of “frozen mechani- cally deboned meat” and “frozen bone- in portions”, rose by 58.3% between 2009 and 2011. Brazil accounted for 60% of South Africa’s imports of poultry meat in 2011 (15% of South African consump- tion), with concerns emerging in 2011 that competition from imported poultry meat was threatening jobs (see Agri- trade article ‘South African poultry sec- tor problems compounded by rising EU exports’, 15 April 2013). While South African imports of poultry meat from Brazil declined in 2012 in the face of the anti-dumping duties on “whole chicken” and “boneless cuts” announced in February 2012, imports from the EU surged. Imports from the EU, having increased by 327.5% between 2010 and 2011, increased by a further 40% in 2012, accounting for 9.2% of total EU poultry meat exports in 2012, up from 0.8% in 2009. Executive brief: Update 2013 I 5http://agritrade.cta.int/ Poultry sector “By the end of 2012, EU poultry meat exports to South Africa were almost six times the level of exports in 2010” By the end of 2012, EU poultry meat exports to South Africa were almost six times the level of exports in 2010 (see Agritrade article ‘Regional expan- sion of poultry companies intensifies trade policy debates in Namibia’, 12 May 2013). USDA estimates in Janu- ary 2013 put total South African poul- try meat imports at 368,000 tonnes, suggesting that imports from the EU accounted for 36% of total South African imports, up from a mere 3.9% in 2009 (see Agritrade article ‘Poultry exports to Africa on the rise’, 9 December 2012). This is leading to calls for increased protection for domestic producers. The second major area of policy development relates to the increased use of the “water” in South Africa’s bound tariff schedule (i.e. the differ- ence between applied tariffs and the bound tariff ceiling) to support the development of local industries. Having initially imposed anti-dumping duties on Brazilian poultry products (see Agritrade article ‘US urged to join Brazilian WTO challenge to South Afri- can poultry tariffs’, 12 August 2012), by the end of 2012 the South African government had lifted these measures and indicated a preference for rais- ing applied tariffs on poultry product imports from all sources, in order to more comprehensively address the import surge. However, according to the Chief Executive Officer of the South African Poultry Association, such a policy could not apply to imports from the EU because of the provisions of the Trade, Development and Coopera- tion Agreement between the EU and South Africa. It was argued that “other measures” would be needed to deal with the rapid increase in imports of poultry meat from the EU. The resulting poultry tarif f policy debate in South Africa is further com- plicated by allegations that higher tar- iffs would simply deprive poor con- sumers of a cheap source of protein. It is maintained that some 30–35% of poultry imports are inputs to the pro- duction of low-cost, protein-rich foods, such as polonies and other sausages, a market component not served by domestic South Africa poultry com- panies. Any tariff increases are thus seen as unnecessary and harmful to the poor (see Agritrade article ‘FTA with EU complicates use of “water” within bound tarif fs’, forthcoming 2013). The high operating profits of the major South African poultry com- panies provide an important context for this debate. The third major development in 2012 was moves towards the entry into force of infant industry protection duties under the Southern African Customs Union (SACU) agreement, follow- ing the opening of Namibian Poultry Industries’ (NPI’s) large-scale facility. In the first quarter of 2012, South Afri- can exports to Namibia reportedly fell sharply, in a context where fully 74% of South Africa’s poultry sales beyond the South African market had been accounted for by Namibia. Namibia’s invocation of infant industry protec- tion for its poultry sector was criticised by South African poultry companies, which suggested that the Southern African Development Community (SADC) should consider banning prod- ucts from outside the region, “instead of putting up restrictions within the regional trade block”. By March 2013, however, it was reported that NPI was facing losses of an estimated N$6 mil- lion (€462,700) per month, as local multiple retailers reportedly told NPI to match the price of imported chicken or take their products elsewhere. The implementation of infant industry pro- tection for poultry meat is now seen as an urgent priority. Namibia is not the first case of infant industry protection being used in the SACU. Botswana has had the equiva- lent of infant industry protection in place for its poultry sector for the last 32 years, involving the use of import controls and even outright import bans. In the case of Botswana, import licences for poultry meat are only issued “where local scarcities exist”, while imports of day-old chicks and feed grain for the poultry industry are also regulated. However, these policies can come at a cost. Analysis from the Botswana Institute for Development Policy Analysis (BIDPA) suggests that these trade arrangements have given rise to poultry prices that are “con- siderably higher than in South Africa”, even when South African prices are themselves inflated by the maintenance of “a 27% import duty on chicken from highly competitive countries like Brazil and the USA”. While this analysis is dis- puted by the Botswana poultry indus- try, the issue of the need to ensure that infant industry protection is temporary and transitional in nature is highlighted by the Botswana experience (see Agri- trade article ‘Balancing consumer and producer interests in the poultry sec- tor’, 25 March 2012). In October 2012, the President of Namibia called for a further expan- sion of NPI’s production for export to other African countries. This, coupled with moves towards increases in the bound tariffs for poultry products in South Africa, raises the issue of the implications of infant industry protec- tion and broader tariff protection for the competitiveness of exports of poultry meat. The trend towards increasingly large poultry production units aimed at gaining economies of scale means that Executive brief: Update 2013 I 6http://agritrade.cta.int/ Poultry sector behind tariff protection, production can be built up with a surplus for export, with higher domestic prices, enabling competitive export pricing. This, how- ever, can be seen as distorting trade in the context of both intra-regional trade integration initiatives and inter-regional FTA agreements. Poultry sector develop- ments in Eastern Africa With the exception of the trading nation of Djibouti, the island nation of Comoros and Zimbabwe, Eastern Africa has been a small importer of poultry meat. “In 2012, concerns began to emerge in East Africa over the impact of poultry imports” In the course of 2012, however, con- cerns began to emerge over the impact of poultry imports on local producers. In March 2012, the Poultry Association of Zambia (PAZ) reportedly “castigated government over plans to allow importation of chickens, saying it posed a serious threat to the growth of the local sector”. This appears in part to be linked to developments in the growth in sales volumes of South Africa-based supermarket chains in Zambia, which, as part of investment agreements, have negotiated tax breaks for mixed consignments des- tined for newly opened stores. The complaints from PAZ followed strong growth in local Zambian poultry production in 2010 and 2011 (+20 and +25% respectively), after a dramatic downturn in production in response to the 2008 global economic and financial crisis. PAZ called for a “policy frame- work that would support local produc- ers” and complained of “poor policy direction, high cost of feed stock and lack of legislation”. In July 2012, similar concerns over imports were expressed by poultry producers in Uganda, where it was claimed that local chicken producers were “losing ground on sales due to the continued entry of cheap imports from Brazil, South Africa and Europe”. A report presented to President Museveni claimed that “about 45 per cent of dressed chicken sold on the Uganda market is imported.” Ugan- dan meat processing companies have rejected these allegations, with com- pany representatives maintaining that only mechanically deboned chicken meat was being imported (from Europe and Brazil) for use in the production of chicken sausages, chicken ham and chicken roast processed meat prod- ucts. This is seen as providing a highly affordable source of protein (US$1/kg) and as supplementing shortfalls in local poultry supplies. In terms of actual imports into Uganda, it should be noted that the 2009 annual report of the Brazilian poultry export- ers’ association showed higher poultry exports to Kenya than were officially recorded by Kenya as imports, sug- gesting that much of this cargo was poultry meat in transit or unofficial re- exports to countries such as Uganda. While exports of mechanically deboned meat and other low-value meat cuts are a growing problem across the ACP, in Uganda issues also arise around the need to strengthen the functioning of local supply chains in order to better link poultry producers to poultry pro- cessors. This would appear to be the most important issue to be addressed, given the huge poverty alleviation potential of the poultry sector. How- ever, issues linked to both feed avail- ability and feed prices will also need to be addressed, as well as a range of animal health issues in the poultry sec- tor (see Agritrade article ‘Controversy emerges over chicken meat imports to Uganda’, 13 January 2013). Uganda itself has a strong regional trade in poultry meat exports to South Sudan, Burundi, Rwanda and the DRC. In view of the feed challenge faced in Eastern Africa, plans were announced in July 2012 for the expansion of feed crop production in Rwanda and else- where in the region, aimed at support- ing more efficient commercial livestock production. This can be seen as a start in addressing a key constraint on com- mercially sustainable forms of poultry production across Eastern Africa (see Agritrade article ‘Regional investment in oil crop processing in Rwanda’, 1 October 2012). Poultry sector develop- ments in West and Central Africa A key feature in the poultry trade in West Africa is the phenomenal rise of imports into countries such as Ghana and Benin, with similar trends apparent in Central Africa in the DRC, Gabon and Equatorial Guinea. What is also apparent is the important role of trade policy in determining the specific flows in poultry imports. In Cameroon, tariff protection has been used to relaunch poultry sector development in the face of a surge in poultry meat imports. By contrast, in Ghana the government has consistently rejected calls for safeguard tariffs to be introduced, despite grow- ing imports of poultry meat. It should be noted, however, that the use of trade policy tools to restrict imports – as in the case of Nigeria – can simply divert the initial trade and give rise to large-scale smuggling (e.g. across the border to Benin and Niger). The non-regulated trade can then undermine national poultry devel- opment policies and pose threats to public health, with poor handling and storage of frozen poultry products. Executive brief: Update 2013 I 7http://agritrade.cta.int/ Poultry sector The Poultry Association of Nigeria has argued in favour of unrestricted trans- border trade in poultry products across West Africa, maintaining that this would stimulate investment and production in the sector. This position can in part be attributed to the active lobbying by the United States’ Poultry and Egg Export Council, which, in association with local stakeholders, is advocating for a more liberal poultry trade regime in the region. In the coming years, the debate on poultry sector trade policy in West and Central Africa looks set to intensify. “In the coming years, the debate on poultry sector trade policy in West and Central Africa looks set to intensify” In fact, efforts are under way across the whole region to develop poultry produc- tion. This varies from the construction of a modern poultry complex in Chad to a smallholder scheme in Mauritania and to the distribution of new varieties of broilers that can thrive on low-qual- ity feed. While the Mauritanian small- holder scheme is currently dependent on imports of day-old chicks, feed and poultry processing equipment, an ini- tiative has been launched to develop a modern poultry complex in Nouakchott to produce day-old chicks and poultry feed. However, transport constraints continue to restrict regional trade in day-old chicks and eggs to hatch. For example, high transport costs, quality concerns (linked to transport stress) and unreliability of supply all serve to reduce the competitiveness of Ghana- ian chicks vis-à-vis European imports, which utilise direct air freight links to their markets. Poultry sector develop- ments in the Caribbean In the Caribbean, efforts have been in progress for some time to develop intra-regional trade in poultry feed, focused on Belize. In 2012, an active trade was initiated between Belize and Guyana involving 10 containers of Grade 1 yellow maize per week (50,000 lbs per container). By March 2013, a total of 5,227 tonnes had reportedly been delivered. With both buyers and sellers reportedly satisfied with the development of this regional trade in poultry feed and other Caribbean Poultry Association (CPA) members also interested in developing supply relationships, new investments in maize production in Belize are planned. In the meantime, tariff policy is being actively used to maintain and increase levels of protection for Caribbean poul- try producers in the face of rising input costs: indeed, the poultry sector was excluded from CARICOM tariff liber- alisation commitments under the Eco- nomic Partnership Agreement (EPA). “In the Caribbean, tariff policy is being actively used to main- tain and increase levels of pro- tection for the region’s poultry producers” Most recently, the government of Trini- dad and Tobago introduced a 15% surcharge on extra-regional imports of poultry meat, while Barbados increased tariffs on marinated raw poultry from 20 to 184%, in line with duties applied on other raw poultry meats. Following this trend, Jamaica’s proposal in 2011 to reduce its tariff on poultry meat imports to 20% was abandoned. However, extra-regional imports of poultry meat continue to increase, with, for example, imports from the US growing by 1% in 2012. In 2011–12, Caribbean poultry produc- ers pushed for a modernisation of the regulatory framework for poultry prod- ucts, including in relation to labelling. In December 2012, the CARICOM Council for Trade and Economic Development (COTED) approved the new Caribbean Regional Standard for Poultry & Poultry Products, which includes a labelling requirement and addresses a number of other concerns raised by the CPA, notably with regard to repackaging and the prohibition of defrosting of frozen chicken for sale as chilled. It is hoped that the new harmonised regional standard will make an important con- tribution to removing non-tariff barri- ers to intra-regional trade. These new standards are now being implemented. With continuing strong demand, poul- try plants across the Caribbean are investing in the upgrading of existing chicken units to environmentally con- trolled facilities and are adding new equipment to develop more processed chicken products. The CPA, mean- while, continues to work with govern- ments across the region to refine tariff and regulatory treatment of imports in order to close loopholes. In 2012, negotiations were initiated between the Antigua and Barbuda Investment Authority and the Ciboney Poultry Company (CPC) for the estab- lishment of “a first-world poultry farm in Antigua and Barbuda”, targeting export markets. Under the agreement, once the investment was made, CPC would be designated the sole importer of live birds and eggs. This, it was argued, was essential “to ensure bio-safety” and safeguard the integrity of the investment, by avoiding “someone with a 50–100-bird flock infecting a million- bird flock”. However, the Antigua & Bar- buda Poultry Farmers Association has since “distanced itself” from the new mega project. These developments illustrate the ten- sion that exists in the Caribbean, and elsewhere, between efforts to promote modern competitive poultry production facilities and the interests of existing Executive brief: Update 2013 I 8http://agritrade.cta.int/ Poultry sector poultry sector producers, who could be driven out of business by large-scale projects. Poultry sector develop- ments in the Pacific According to the Poultry Site’s ‘Global poultry trends’ of 2012, imports of chicken meat into Oceania have increased over the past decade or so, although the volumes involved have been relatively small. Up till 2009, Samoa, Tonga and Papua New Guinea (PNG) were the main importers among the Pacific ACP countries. Since then, PNG’s imports have risen faster than those of the other main importers. According to press reports, exports of poultry meat from Australia to PNG are threatening the country’s two major chicken producers. Representatives of PNG poultry processors have claimed that domestic production has been reduced by between 10 and 20% as retailers increasingly source poultry from Australia. Distribution of day-old chicks to poultry farmers by one com- pany has been reduced by one-third. It is maintained that “the importation of uncooked chicken at cheaper prices started five to seven years ago and is continuing, despite concerns raised by the industry and the PNG Poul- try Industry Association (PIA) about diseases and the threats to the local industry.” This trade is largely in whole frozen uncooked chickens rather than residual parts, suggesting that underly- ing challenges of competitiveness are faced, despite the application of high tariffs and import licensing restrictions for poultry products (see Agritrade article ‘Poultry imports hit Papua New Guinea producers’, 9 September 2012). In November 2012, PIA called for a ban on imports of poultry meat to protect and nurture local poultry production. “In November 2012, the PNG Poultry Industry Association called for a ban on imports of poultry meat to protect and nurture local poultry produc- tion” The call conflated protectionists’ con- cerns with SPS concerns, maintain- ing that current patterns of imports directly threatened the animal disease status of the PNG industry. The claims were rejected by PNG’s National Agri- cultural Quarantine and Inspection Authority, which described the SPS threat as “negligible” (see Agritrade article ‘Growing concerns over poultry imports into PNG’, 2 February 2013). The frequency with which allegations of ‘dumping’ have emerged in the poultry sector in the Pacific suggests a need to review the legislative framework for the management of the trade liber- alisation process, including through a strengthening of competition rules and their effective application, if private investment in necessary modernisation processes is to be mobilised. In June 2012, it was reported that Fiji’s poultry production had increased by 36% between 2008 and 2012 (from 11 to 15 million chickens per annum), following investments by Australian- owned Goodman Fielder International aimed at capitalising on emerging export opportunities under the MSG FTA. Given the import intensity of poul- try production in many island states, this raises important rules of origin issues in intra-regional trade in poultry meat, linked to the development of backward linkages within the poultry chain. At the political level, commitments have been made to full, free trade between PNG and Fiji, but, a “full review of fresh and frozen poultry imports” into PNG is to be undertaken at the sector level, nominally on bio-security grounds. 3. Implications for the ACP Reconciling smallholder interests with modernisa- tion plans Increasingly, as ACP governments seek to promote a modernisation of domes- tic poultry production, tensions emerge between the interests of large-scale commercial poultry producers and small-scale producers. Careful atten- tion will need to be paid to this issue if the rural poverty alleviation potential of poultry sector development is to be maximised. Reconciling producer and consumer interests With poultry meat becoming the pro- tein source of choice for low-income consumers, ACP governments have to reconcile the interests of poultry producers with those of low-income consumers in the formulation of poul- try sector trade policies. This often requires ensuring effective domestic competition (a particular challenge in smaller ACP economies), or manag- ing poultry trade arrangements in ways that avoid the emergence of abusive monopoly practices. A review of the policy experience across the ACP in meeting these challenges could poten- tially hold useful positive and negative lessons for ACP governments in this important area. EPAs and poultry meat trade policy Current debates in South Africa sug- gest that EPA provisions could com- plicate the formulation of trade policy measures in the poultry sector. Given the largely residual nature of the EU export trade in low-quality poultry Executive brief: Update 2013 I 9http://agritrade.cta.int/ Poultry sector parts, this raises particular challenges for ACP governments. ACP govern- ments will need to carefully review the trade policy tools available to manage conflicting policy demands. The EU’s use of a sophisticated TRQ system could hold lessons in this regard, if the policy space for the use of such tools can be retained under EPA arrangements. Regional trade in poultry products With governments across the ACP responding to rising food prices by more actively promoting domestic production, questions arise as to how national poultry sector development programmes can be reconciled with regional trade policy commitments. As highlighted by the discussions in Namibia, this is a complex issue, with protection of national producers poten- tially supporting lower-priced exports, to the detriment of producers in neigh- bouring countries. At heart, this requires sustained efforts to lower feed costs, improve productiv- ity of poultry flocks and strengthen the functioning of supply chains to allow producers to access available markets at lower cost. There would appear to be scope for regional cooperation in getting to grips with these challenges. On this basis, if issues of unfair and abusive practices in intra-regional trade can be addressed, time limits on the use of trade-restricting measures could eventually be agreed as part of regional trade liberalisation arrangements. Maintaining the distinction between SPS issues and protectionist concerns In many countries, SPS and protection- ist concerns in the poultry sector can become conflated. Yet it is important to maintain a clear distinction between the application of the universally accepted precautionary principle in SPS matters and narrow protectionist interests. This requires the strengthen- ing of SPS capacities at the national level, and there could be benefit from the establishment of independent, pro- fessionally managed, SPS arbitration mechanisms at the regional level. This potentially constitutes an area for ‘aid for trade’ support, given the impor- tance of disease control systems in the poultry sector in an era of expanding global trade in poultry products. Main sources Global 1. Thepoultrysite.com, ‘Global poultry trends 2012: Chicken meat trade rises in Africa, steady in Oceania’, October 2012 http://www.thepoultrysite.com/articles/2639/global-poultry-trends-2012-chicken-meat-trade- rises-in-africa-steady-in-oceania 2. Rabobank, ‘Re-entering agflation: World food prices to hit record high’, September 2012 http://www.thepoultrysite.com/poultrynews/contents/rabobank.pdf 3. US Department of Agriculture (USDA), International egg and poultry review: Brazil, Vol. 15, No. 19, 8 May 2012 http://www.thefarmsite.com/reports/contents/IntlPoultryandEgg8May2012.pdf 4. FAO, ‘OECD-FAO agricultural outlook 2012–2021’, Chapter 7: Meat, July 2012 http://www.keepeek.com/Digital-Asset-Management/oecd/agriculture-and-food/oecd-fao- agricultural-outlook-2012_agr_outlook-2012-en 5. USDA, ‘Brazil: Poultry and poultry products annual’, GAIN Report No. BR 0816, 20 August 2012 http://www.eurocarne.com/informes/pdf/USDA_Poultry.pdf Executive brief: Update 2013 I 10http://agritrade.cta.int/ Poultry sector Technical Centre for Agricultural and Rural Cooperation (ACP—EU) PO Box 380 6700 AJ Wageningen The Netherlands Tel: +31 (0) 317 467 100 E-mail: cta@cta.int - www.cta.int The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint ACP—EU institution active in agricultural and rural development in African, Caribbean and Pacific (ACP) countries. Its mission is to advance food and nutritional security, increase prosperity and encourage sound natural resource management. It does this by providing access to information and knowledge, facilitating policy dialogue and strengthening the capacity of agricultural and rural development institutions and communities in ACP countries. 6. Thepoultrysite.com, ‘Global poultry trends 2012 – Americas Account for 70 per cent of world chicken exports’, 8 August 2012 http://www.thepoultrysite.com/articles/2570/global-poultry-trends-2012-americas-account- for-70-per-cent-of-world-chicken-exports EU 7. USDA, ‘EU-27 poultry and poultry products annual: EU-27 broiler and turkey sectors to grow in 2012 and 2013’, GAIN Report No. FR9106, 1 September 2012 http://www.thefarmsite.com/reports/contents/eupandpannual.pdf 8. European Commission (EC)/DG Agriculture and Rural Development, ‘Prospects for agricul- tural markets and income in the EU 2012–2020’, full report, December 2012 http://ec.europa.eu/agriculture/publi/caprep/prospects2012/fullrep_en.pdf 9. EC/DG Agriculture and Rural Development, Advisory Group on Eggs & Poultry, Documents and presentations for 26/03/13, PowerPoint presentation ‘BE Brussels Advisory Group 26 March’, ‘EU market situation for eggs and poultry’, 26 March 2013 http://ec.europa.eu/agriculture/consultations/advisory-groups/poultry-eggs/ South Africa 10. USDA, ‘South Africa poultry update: The supply and demand for broiler meat in South Africa’, GAIN Report, 29 January 2013 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/This%20report%20focuses%20 on%20the%20supply%20and%20demand%20of%20broiler%20meat%20_Pretoria_ South%20Africa%20-%20Republic%20of_1-29-2013.pdf About this update This brief was updated in September 2013 to reflect developments since August 2012. Other publications in this series and additional resources on ACP–EU agriculture and fisheries trade issues can be found online at http://agritrade.cta.int/. Executive brief: Update 2013 I 1http://agritrade.cta.int/ The main aim of product differentiation strategies is to secure price premiums for specific categories of product. “The main aim of product differ- entiation strategies is to secure price premiums for specific categories of product” The main form of product differentiation is product branding, commonly supported by extensive advertising. However, over the past 20 years more generic categories of product differentiation have emerged, based on perceived attributes of particu- lar types of products. In the EU context this needs to be seen against the background of CAP reform and the establishment of a basis that can sustain and enhance the value of EU agro-food sector production in the face of moves towards agricultural trade liberalisation. It also needs to be seen against the background of rising dispos- able incomes and increasingly segmented food product markets. Beyond a certain income level, as consumers become more affluent they no longer eat more, but rather eat differently, as they become willing to pay more for products with par- ticular attributes or characteristics. These ‘quality’ attributes may relate to aspects of the production process, attributes of the functioning of the supply chain, or may be linked to geographical origins or some other specific quality attribute. In some sectors, demand for such quality- based differentiated products is moving from niche markets to mainstream mar- kets. This, however, can cause problems for producers if the new quality standards become the industry norm, since this can update September 2013 Product differentiation 1. Background and key issues 1. Background and key issues 2. Latest developments EU policy debates and trends impacting on differentiated product markets Developments in the main differentiation product market components 3. Implications for the ACP Taking account of increased competition under EU FTAs Staying on top of administrative requirements for organic certification Engaging with the EU review of the regulatory framework for organic products Strengthening domestic policy frameworks for product differentiation Strengthening the functioning of ACP–EU fair-trade supply chains Preparing for the generalised application of sustainability standards Ensuring an “openness” in national sustainability certification schemes Strengthening the EU regulatory framework for ethical and sustainability claims © coleacp, Christopher Sanders Executive brief: Update 2013 I 2http://agritrade.cta.int/ Product differentiation erode or remove the price premiums which represent the main aim of prod- uct differentiation strategies. In an ACP context, product differentia- tion needs to be seen in the context of the processes of preference erosion being faced on the traditional EU mar- ket, where price premiums enjoyed by ACP exporters have been undermined. It also needs to be seen in the con- text of rising disposable incomes on domestic ACP markets in regions of Africa and elsewhere in the developing world, which are creating new sources of demand for differentiated products. Quality-based product differentiation (e.g. Namibia’s Nature’s Reserve beef products and Authentic Caribbean Rum) can offer an important means of market repositioning for ACP produc- ers, in response to preference erosion. In a global context, product differen- tiation needs to be seen against the background of the emergence of global sourcing and the growing strength of the own-brand products of multiple retailers. This can be seen as under- mining the benefits of traditional prod- uct branding, since consumers are increasingly aware that branded prod- ucts and own-brand products may well be produced in the same factory to the same standards. Within the EU, quality-based product differentiation is an important com- ponent of the reformed CAP and is becoming more multifaceted. For example, in 2012–13 initiatives were launched at national level to differen- tiate domestic production on quality grounds. These initiatives are in addi- tion to the range of EU policy meas- ures and support programmes set in place to differentiate EU products from imported products on quality grounds. Many of these initiatives have impli- cations for ACP producers’ efforts to reposition their food and agricultural product on export markets. The continued development of private standards further complicates the market for quality-differentiated prod- ucts. In certain differentiated prod- uct market components such as fair trade, the growing role of multinational corporations in mainstreaming sales raises important questions in relation to the integrity of labelling schemes and the distribution of revenues along the supply chain in line with the expecta- tions of consumers who buy fair-trade products. 2. Latest developments EU policy debates and trends impacting on differentiated product markets The growing value of geographi- cal indications in the EU As an integral part of the CAP reform process, the EU has developed a system of geographical indications of origin (GIs), as a vehicle for product differentiation, aimed at securing price premiums for EU producers. “The EU has developed a system of geographical indica- tions of origin as a vehicle for product differentiation” While this is well established in the wine sector through region-specific desig- nations of origin (e.g. Champagne), more systematic legal protection is now being given to these product desig- nations, including at the international level. In addition, the system is being applied to an increasing range of “agri- cultural products and foodstuffs”. In March 2013, the EU published an evaluation of the value of production of agricultural products and foodstuffs, wines and spirits in the EU that are protected by a GI (worth €54.3 billion in 2010), and more importantly the total value premium associated with the use of GIs. The evaluation estimated the “average value premium rate” for “agricultural products and foodstuffs” at 1.55. This means that GI-protected “agricultural products and foodstuffs” on average attracted a price one and a half times that for the same volume of non-GI protected products falling in the same category (e.g. hams). For wines and spirits these values were higher (2.75 and 2.57 respectively) (see Agri- trade article ‘French company seeks trademark rights for rooibos tea, as EU use of GIs expands’, 12 May 2013). This highlights the potential price pre- miums that can be gained from secur- ing GI designation and actively promot- ing and marketing GI-designated prod- ucts in premium market components. The sales value for GI-protected “agri- cultural products and foodstuffs” is growing faster than for wines and spir- its, with over €1 billion of such products being exported in 2010. By 1 Janu- ary 2010, some 867 EU “agricultural products and foodstuffs” enjoyed GI protection, with a further 285 applica- tions pending by the end of February 2013. Yet “agricultural products and foodstuffs” still accounted for less than 30% of the total value of GI-protected product sales by EU producers. While GIs are potentially of interest to ACP exporters in securing price premi- ums, this requires the establishment of national legal frameworks for GI protec- tion. This can be costly if only a limited number of products are affected (rather than the thousands in the case of the EU) and may not be warranted if other similar but cheaper systems of pro- Executive brief: Update 2013 I 3http://agritrade.cta.int/ Product differentiation tection for quality-differentiated prod- ucts are available. However, securing effective protection under alternative mechanisms (e.g. trademark protec- tion) can also be expensive, with this needing to be assessed on a case-by- case basis. Difficult choices therefore face ACP governments in deciding how best to defend ACP trade and intel- lectual property interests. Efforts by a French company in 2012– 13 to register rooibos as a trademark highlighted the legal and regulatory constraints in ACP countries in secur- ing trade and intellectual property inter- ests. Since its foundation in 2005, the Rooibos Council of South Africa has been exploring possible GI protection, but found that “South African law did not cater for geographical indica- tions”, while “EU rules demand that a geographical indication be protected domestically before the EU accepts it.” As a consequence, the Rooibos Coun- cil of South Africa is registering rooibos as a collective trademark, in the hope that this will be sufficient to secure GI protection on the EU market (see Agritrade article ‘Legal and regulatory constraints on GI protection illustrated’, 3 June 2013). Conversely, Jamaican Blue Mountain coffee producers have traditionally used trademark protection regimes but have more recently “taken steps to register Jamaica Blue Mountain Cof- fee as a GI with the Jamaica Intellectual Property Office”. Developments in the EU’s regu- latory and trade framework for organic products Since 1 July 2012, imports of listed products – that are certified by named certification agencies and imported from specific listed countries where equivalency of certification is recog- nised by the EU – no longer require import authorisation. Equivalency agreements can potentially both reduce the costs of certification for organic exports to the EU and simplify the process of importing into the EU, thereby giving a competitive edge to countries attaining equivalency status (see Agritrade article ‘New EU organic labelling requirements and equivalency regulations enter into effect’, 6 August 2012). A growing number of third-country gov- ernments have concluded or are seek- ing equivalency agreements with the EU for organic products. In June 2012, China, a potentially a major exporter of organic products, signed an agree- ment with the EU to “open negotiations on a mutual recognition agreement in the field of organic food products” (see Agritrade article ‘Discussions initiated with China on mutual organic stand- ards and cooperation’, 9 July 2012). In certain sectors (e.g. bananas, where Peru is seeking an organic equiva- lency agreement), this could carry implications for ACP exporters seek- ing to target the same organic market components. July 2012 saw the entry into force of a new EU-wide organic logo regulation, which aims to create more transpar- ency on packaged certified organic products. The new EU-wide standard provides the background to moves to tighten national controls on organic certification bodies, in order to elimi- nate fraudulent labelling of organic products (notably in Germany). How- ever, these moves also need to be seen against the background of emerging concerns that imported organic prod- ucts are undermining the wider envi- ronmental benefits of localised organic production. On 15 January 2013, the EC launched a public consultation on the future of its organic products regime looking at: simplification; the impact of the EU organic logo; and how to ensure that internationally traded organic products are effec- tively monitored and verified. These consultations will feed into EC “proposals for a renewed politi- cal and legal framework for organic agriculture in Europe”, scheduled for the end of 2013 (see Agritrade article ‘EU launches public consultation on organic production’, 24 February 2013). EU regulatory developments for fair-trade products In May 2012, the European Court of Justice confirmed that “considerations of an environmental or social nature” may form part of public procurement tenders. “Considerations of an environ- mental or social nature may form part of public procure- ment tenders” Tenders must specify the underlying criteria to be met and not simply spec- ify a label that meets those criteria. The ruling is seen as opening up major new markets for fair-trade producers, since accessing public procurement markets can be an important means of rais- ing consumer awareness of fair-trade products (see Agritrade article ‘New opportunities for fair-trade producers’, 2 July 2012). Developments in New Zealand – where the Commerce Commission has argued that self-certification schemes such as Dole’s ‘ethical choice’ label risk Executive brief: Update 2013 I 4http://agritrade.cta.int/ Product differentiation misleading consumers and is there- fore in breach of the New Zealand Fair Trade Act – highlight regulatory chal- lenges not yet addressed by the EU in the fair-trade sector. Developments in the main dif ferentiation product market components Organic product markets There continues to be a significant shortfall in the domestic production of organic products in the EU, with demand expanding far more rapidly than domestic supply. “There is a significant short- fall in domestic production of organic products in the EU” This is particularly the case in Ger- many, which has been less affected by the economic downturn. This creates potential market opportunities for ACP exporters of organic products. However, growing competition on EU organic markets is faced from advanced developing countries under new free-trade area (FTA) agreements. This raises questions as to the long- term benefits for ACP exporters of organic certification targeted at the EU market, since increased imports from non-ACP sources could erode the price premiums currently enjoyed, while the costs of compliance and cer- tification will remain. Any large-scale moves by ACP pro- ducers into organic production for EU markets therefore needs to be subject to careful market assessment and the adoption of measures to reduce, wher- ever possible, the costs of accessing EU organic markets. Looking beyond the EU, the market for organic products worldwide is grow- ing strongly. While 90% of demand for certified organic products comes from the US and EU, there is strong growth in the Brazilian market, while Chinese demand has increased fourfold in 5 years, and a 20% growth is expected elsewhere in Asia in the next 3 years. “The market for organic prod- ucts worldwide is growing strongly” At an international conference in Zam- bia in May 2012, it was argued that major benefits could be gained from an expansion of certified organic pro- duction in Africa, and calls were made for an African Organic Action Plan (see Agritrade article ‘Organic requirements becoming stricter’, 18 June 2012). However, as incomes rise and con- sumption patterns change, there is a growing demand for organic products within Africa. Serving these local mar- kets often involves lower costs, since systems of self-certification are being established. In the East African Com- munity (EAC), for example, organic farmers in Kenya, Uganda and Tan- zania commonly operate under Par- ticipatory Guarantee Systems (PGS), based on East African Organic Prod- ucts Standard requirements and using an internal peer group review process to ensure compliance (see Agritrade article ‘Report highlights expansion of organic production for local markets in the EAC’, 13 June 2013). Moves towards increased organic production are not only under way in Africa, but also in the Pacific and the Caribbean, with certified organic production being seen as a means of accessing premium-priced mar- ket components (see Agritrade article ‘Going organic seen as way forward in Vanuatu’, 18 May 2013). However, securing price premiums that will bring net benefits to producers through organic certification (or other forms of product differentiation) is by no means automatic. “Securing price premiums that bring net benefits to producers through organic certification is not automatic” As in other areas of product differen- tiation, securing price premiums and net benefits requires a multiplicity of complementary actions, not just the securing of certification. A noticeable trend in recent years has been towards ‘dual certification’ of organic/fair-trade products. For exam- ple, between 2009/10 and 2010/11 the volume of dual-certified bananas grew by 35% and the percentage of fair-trade bananas also certified as organic increased from 25 to 39% of total fair-trade banana sales. This is seen as a means of reconsolidating price premiums and net benefits for producers. Fair-trade product markets Despite the current economic difficul- ties faced in major OECD markets, retail sales of fair-trade-certified prod- ucts showed remarkable resilience, increasing 2% in 2011, to total sales of US$6.6 billion. A growing range of fair- trade products are now on offer (see Agritrade article ‘Continued expansion in fair-trade sales despite economic downturn’, 28 April 2013). Plans have been launched to further increase retail sales in the largest mar- ket for fair-trade products, the UK, based largely on the expansion of the use of fair-trade raw materials in value- added products (see Agritrade article ‘Fairtrade launches strategy to expand sales to £2 billion’, 26 May 2013). How- Executive brief: Update 2013 I 5http://agritrade.cta.int/ Product differentiation ever, close attention will need to be paid to the distribution of the costs and benefits of fair-trade certification along the supply chain resulting from this strategy. “Close attention needs to be paid to the distribution of the costs and benefits of fair-trade certification along the supply chain” In an era of rising input costs it is perfectly possible to see an expan- sion in the value of retail sales of fair- trade products, while the net benefits received by producers decline. Getting to grips with this issue is important if the integrity of fair-trade labelled prod- ucts in the consumer consciousness is to be maintained. This is particularly important in view of the decision of a major UK retailer to shift to selling bananas from the Canary Islands as part of its efforts to reduce its carbon footprint, which suggests growing competition among different types of quality-differentiated products for consumer spending. As in the organic sector, sales of fair- trade products in emerging markets (including South Africa and Kenya) are growing strongly. However, as acknowledged at the Africa Fairtrade Convention in Novem- ber 2012, “despite agro-food systems like Fairtrade, most African producers still receive the lowest earnings in the whole chain due to lack of access to decent public infrastructure, finan- cial resources and up-to-date mar- ket prices.” According to the general manager of the Oromia Coffee Farmers Cooperative Union, “it is not a lack of natural resources but the formulation of trading mechanisms that makes us poorer and poorer” (see Agritrade arti- cle ‘African fair-trade producers high- light need to strengthen their position in supply chains’, 4 January 2013). It was argued that the fair-trade move- ment will need increasingly to focus on identifying solutions to the unequal functioning of mainstream trading mechanisms. This would appear to be particularly the case in view of the growing role of multinational compa- nies in fair-trade supply chains Large multinational companies are increasingly involved in the process- ing and handling of fair-trade products for their own commercial reasons. The purchase of a majority shareholding in Belize Sugar Industries (BSI) by Ameri- can Sugar Refiners (ASR) is illustrative in this regard. Securing direct access to 6,000 Fairtrade-certified independ- ent growers is providing a secure sup- ply of Fairtrade-certified sugar to the ASR subsidiary Tate & Lyle Sugars (TLS) (see Agritrade article ‘Fair-trade component key factor in BSI acquisi- tion by ASR’, 2 December 2012). In the face of growing competition on the UK market in 2008, TLS decided to convert its entire direct consumption sugar range to fair-trade sugar, while in October 2012 TLS announced a new partnership with the food ingre- dients buyer and distributor IMCD Ben- elux, aimed at supplying the growing demand of European manufacturers for fair-trade-certified sugar. Increas- ing fair-trade sugar sales thus forms an integral part of a corporate market repositioning strategy. This kind of development can pose challenges for the fair-trade move- ment, particularly in a context of intra- corporate trading relationships which reduce the transparency of basic price formation. Similar issues arise along the fair- trade supply chains from Malawi and Zambia, given the indirect corporate involvement of Associated British Foods at all stages of the supply chain, from the estate and millers, through the trading company, to European refiners/ marketers. Issues related to the internal process of price formation and basic returns to sugar cane farmers per tonne of sugar cane delivered to millers, are likely to take on greater economic significance than the simple question of the fair- trade premium. The entry of discount retailers such as Lidl and Aldi into fair-trade retail sales also raises challenges, since this can serve to greatly intensify price com- petition on fair-trade markets, to the detriment of producers. The impact of supermarket policies on overall price levels is already apparent in the UK market for bananas, where supermarket ‘price wars’ have led to a depressing of the general price level for bananas, which has in turn acted as a drag on fair-trade banana prices (see Agritrade article ‘Divergent trends in US and EU banana markets amid evolving supply chains’, 24 June 2012). This issue was taken up in June 2012 in a petition to the EC from a coali- tion of consumer organisations which called for the proposed EU code of practice governing retailer relations with suppliers to be extended to over- seas suppliers (see Agritrade article ‘Sustainability concerns go main- stream in Dutch fruit and vegetable sector’, 29 July 2012). In October 2012, calls emerged for greater traceability in the use of fair- trade inputs in value-added food products. Media reports maintained that fair-trade-labelled chocolate bars “[might] contain no sustainable cocoa, as beans become mixed” during ship- Executive brief: Update 2013 I 6http://agritrade.cta.int/ Product differentiation ment and processing. Currently there is no requirement on manufacturers to maintain fair-trade produced cocoa separately from conventional cocoa, with companies simply buying the right to use the fair-trade labels for a specific volume of product, while the certifying agency guarantees that an equivalent volume is sourced from farms that comply with its standards. The use of actual fairly traded raw materials in individual chocolate bars labelled as such is not required. This issue of traceability arises not only for fair-trade labelling but also for inputs labelled as sustainably produced, and is likely to take on growing significance in the coming years. Demands for stricter traceability may come to carry cost implications that impact negatively on the net revenue position of primary producers. The emergence of private labels and certification schemes that are not independently verified is further com- pounding the challenges faced in fair- trade market components, since many of these new schemes offer no price guarantees to producers. Meanwhile, many efforts have been launched to promote fair-trade pro- duction and marketing. These range from the launch of the Fairtrade Access Fund in March 2012 and the launch of the €85-million Africa Agriculture Trade Investment Fund by the German devel- opment bank KfW, to the announce- ment in August 2012 of an additional allocation of NZ$4.56 million (some €2.73m) to Fairtrade ANZ (Australia and New Zealand) “to help unlock the export potential of smallholder farms in Pacific agriculture” (see Agritrade article ‘New funding for promotion of fair-trade production in the Pacific’, 8 October 2012). This expansion of funding may help assist not only in expanding fair-trade production in ACP countries but also in repositioning ACP fair-trade producers in the face of evolving market trends, which in some markets is seeing an erosion of the price differential between fair-trade-certified and non-fair-trade- certified products (e.g. the UK fair-trade banana market). Sustainability product markets A number of major developments in sustainability certification took place in 2012–13. “A number of major develop- ments in sustainability certifica- tion took place in 2012–13” In June 2012, “all major supermarkets, trading companies and NGOs in the Netherlands” signed a covenant that committed themselves to ensuring that “all fresh fruits and vegetables in Dutch supermarkets are sustainably produced” by 2020 (30% by 2014 and 50% by 2015). The covenant covers vir- tually the entire fruit and vegetable sec- tor (90% of retail volume). The definition of sustainability under the programme is based on existing standards (such as Rainforest Alliance and Fairtrade) (see Agritrade article ‘Sustainability con- cerns go mainstream in Dutch fruit and vegetable sector’, 29 July 2012). While considerably expanding demand for sustainably certified fruit and veg- etable products, this Sustainable Trade Initiative-coordinated programme could prove to be a double-edged sword for some ACP producers, posing a range of new challenges. The first challenge relates to the abil- ity of ACP suppliers to meet expand- ing market demand for sustainably produced fruit and vegetables. With non-ACP governments supporting an expansion of fruit and vegetable exports to the EU under newly con- cluded or pending FTA agreements, ACP suppliers may find themselves facing increasingly tough competition. The second challenge arises where sustainability certification becomes the industry norm, without the costs of such certification being equitably distributed across the supply chain. This could lead first to ACP suppli- ers facing increased costs in order to supply the EU market, and second to a downward pressure on prices as a result of increased competition among retailers applying the same sustain- ability standards. June 2012 also saw the launch of the Irish Food Board Bord Bia’s ‘Origin Green’ labelling scheme of sustain- able business practices. The aim of the scheme is to increase consumer demand for sustainably produced food through clear labelling that allows consumers to make informed choices. According to press reports, “an inter- national targeted communication pro- gramme is already under way to build awareness of Origin Green and Ireland as a source of sustainably produced foods” (see Agritrade article ‘Irish Food Board introduces new quality labelling scheme’, 16 December 2012). The emergence of national sustaina- bility labelling schemes, such as Bord Bia’s ‘Origin Green’, seeks to tap into growing consumer concerns over the environmental impact of the produc- tion processes through which food and drink is delivered to their tables. The scheme is explicitly designed to dif- ferentiate Irish food and drink products from other, third-country products. This has led to warnings of a rise of eco-protectionism. Speaking at the Third African Accreditation Coopera- tion General Assembly in September Executive brief: Update 2013 I 7http://agritrade.cta.int/ Product differentiation 2012, South Africa’s Trade and Indus- try Minister warned against emerging “eco-protectionism” which operates “under the guise of addressing climate change concerns”. While particular concerns were expressed over the possible “imposition of border adjust- ment taxes on imports produced with greater carbon emissions than simi- lar products produced domestically”, developments in 2012 suggest that this could be more immediately felt through labelling claims under various schemes, or corporate initiatives designed to dif- ferentiate their own specific products from generic versions of the same products on environmental grounds (see Agritrade article ‘Sustainable palm oil set for expansion if challenges can be overcome’, 9 December 2012). This raises labelling and regulatory issues. In the face of the many different sus- tainability standards in existence, the Sustainability Initiative of South Africa (SIZA) launched an initiative in Octo- ber 2012 to replace multiple standards and audits with a single audit process aimed at reducing costs of certifica- tion and improving the net benefits to primary producers gained from pro- ducing sustainably certified products. This independent verification scheme is being piloted in the fruit industry and is based on mutual recognition of audits among international and local retailers (see Agritrade article ‘South Africa establishes single ethical trade standard’, 4 January 2013). Meanwhile, efforts are under way in Kenya to promote increased environ- mental certification of crops such as fruit and vegetables, cut flowers, cot- ton, tea, cocoa and coffee, in response to emerging market trends. Many of these Kenyan initiatives are taking place at the sector level: for example, the Kenya Tea Development Authority has achieved Rainforest Alliance certi- fication for 42 out of its 65 tea factories (see Agritrade article ‘Green farming seen as a way forward for Kenyan agri- culture’, 23 September 2012). These African initiatives need to be seen against the background of sector- wide initiatives such as those of the Netherlands Sustainable Trade Initiative on fruit and vegetable sourcing, and major multinational companies setting targets for the procurement and use of sustainably certified raw materials. A particularly noticeable trend in 2012–13 was corporate commitments to increase their sourcing of sustain- ably certified cocoa and palm oil. In terms of cocoa, major companies such as Hershey, Ferrero and Mars (but not yet Nestlé, which remains a key target for campaigners) have made a commitment to source 100% of their cocoa from sustainably certi- fied sources by 2020, while companies like Barry Callebaut are committed to extending their sourcing of sustainably produced cocoa. These initiatives are implemented both unilaterally, and collectively under the auspices of the World Cocoa Foundation. Similar cor- porate commitments are being made as regards sourcing of sustainably cer- tified palm oil. However, as pointed out in a study published in March 2012 by the Inter- national Institute for Environment and Development, to participate in these sustainability certification schemes, farmers “must absorb the lion’s share of the costs of certification (both direct costs such as fees, and indirect ones, such as the costs of establishing the structures needed to meet traceabil- ity requirements)”. While such costs have traditionally been seen as a way of obtaining premium prices, the ques- tion arises: what happens to the price premium when sustainability certifica- tion becomes the industry norm? (See Agritrade article ‘Certification useful, but benefits “less poor farmers”’, 10 June 2012) This is an increasingly criti- cal challenge under sustainability cer- tification schemes. Differentiation initiatives based on product quality While GIs, fair-trade, organic and sus- tainability labelling schemes are the largest components of the differenti- ated product market, they are not the only vehicles for product differentiation open to ACP producers. In the Caribbean rum sector, a regional quality label (‘Authentic Caribbean Rum’) has been developed to support the transition from bulk rum exports to branded, quality-differentiated, bot- tled rum exports. This EU-supported programme has seen substantial progress in the development of high- value bottled rum exports that target particular premium-priced rum market components. In 2012, however, it became apparent that US tax concessions were financing a major expansion of rum production in Puerto Rico and the US Virgin Islands (equivalent to 80% of annual US rum consumption), which posed a direct threat to Caribbean ACP sales of bulk rum, a market component that is highly price sensitive and which remains cen- tral to overall revenues of the Carib- bean rum sector. A very real danger is seen to exist of subsidised rum pro- duction from the US Caribbean territo- ries undermining the broader produc- tion base on which the development of premium-brand, quality-differentiated bottled rums has been developed in Caribbean ACP countries. This highlights how sector-specific product differentiation strategies in ACP countries can only go so far in enhancing the competitive position of ACP producers, compared to the Executive brief: Update 2013 I 8http://agritrade.cta.int/ Product differentiation financial implications of public subsidy programmes in OECD countries. “Sector-specific product dif- ferentiation strategies in ACP countries can only go so far in enhancing the competitive position of ACP producers” In Namibia, in the face of the erosion of the value of EU beef sector trade preferences, the main Namibian beef exporter has been pursuing a strategy of quality-based product differentiation that enables substantial movement up the value chain. This strategy involves marketing individual high-quality meat cuts under the ‘Natures Reserve’ label to specific markets, in line with the requirements of the final retailer. This has enabled the company to increase average producer prices, despite a decline in the volume of cat- tle being slaughtered from commer- cial beef farmers. Internally supported efforts have been launched to increase the off-take of cattle from herds grazed on communally held land, in order to sustain the volume of throughput of meat processing plans at commer- cially viable levels (see Agritrade article ‘Meatco’s strategy for moving up the value chain’, 2 December 2012). At the beginning of 2013, however, it became apparent that developments in the application of EU sanitary and phytosanitary (SPS) requirements were likely to substantially reduce the pool of cattle from which carcasses for pro- cessing for export to the EU could be drawn. The provisions of a new internal Namibian directive, drawn up to give effect to EU rules that were modified in 2011, now require cattle to have been south of Namibia’s veterinary control fence for 90 days prior to slaughter, and to have been kept separate from non-EU-compliant cattle for 40 days prior to slaughter. These new requirements are seen as “simply impossible” for communal area cattle farmers to meet, since commu- nal farmers cannot afford to rear, mar- ket and transport EU-compliant cattle separately from non-EU-compliant cat- tle (see Agritrade article ‘Commercial implications of EU SPS requirements hinder development of smallholder beef supplies in Namibia’, 4 May 2013). The effect of the new EU rules is to reduce the pool of cattle from which quality-differentiated beef cuts for export to the EU can be drawn. While the Namibian government is report- edly planning to approach the EC “to exempt parts of the country from the 40-day residency requirement”, devel- opments at the beginning of 2013 high- light how changes in the application of SPS requirements can undermine the production base on which the develop- ment of quality-differentiated products has been founded. Jamaican exporters of premium- branded coffee are also facing prob- lems. Following a sustained economic recession in Japan, Jamaican Blue Mountain coffee producers found themselves seeking out new markets in order to sustain the price premiums that Blue Mountain coffee had tradi- tionally enjoyed. This included target- ing new markets in the United States, the UK and China. While successes were enjoyed in the US (see Agritrade article ‘Corporate support for sustain- able high-quality coffee production in Jamaica’, 30 April 2012) and the UK markets (see Agritrade article ‘Jamai- can Blue Mountain coffee breaks into UK market with Harvey Nichols con- tract’, 24 June 2012), in December 2012 it was announced the agreement concluded with the Chinese importing company would be terminated, with new marketing partners being sought. According to press reports, problems had been faced in relation to trademark protection, with practices being intro- duced that undermined the quality of products marketed under the Jamai- can Blue Mountain and High Mountain Supreme labels. This experience high- lights the difficulties faced in sustaining quality-based product differentiation in markets where regulatory enforcement of standards and respect for quality labels are underdeveloped. 3. Implications for the ACP Taking account of increased competition under EU FTAs New EU FTAs potentially increase com- petition on specific differentiated prod- uct markets of export interest to ACP countries (e.g. organic banana exports from the Dominican Republic). Identify- ing in which country/product combina- tions competition will increase requires an analysis of current exports, planned investments and the tariff provisions of the new agreements. Where increased competition is likely to impact on prices received, it may be necessary to modify product differentiation strategies. This may require prioritising the negotiation of an equivalency agreement (taking into account the cost associated with upgrading certification and control systems to EU-equivalent standards), shifting to dual certification or even market diversification. Executive brief: Update 2013 I 9http://agritrade.cta.int/ Product differentiation Staying on top of admin- istrative requirements for organic certification Stricter regulation of organic certifica- tion agencies highlights the importance of ACP suppliers of staying on top of all aspects of regulatory develop- ments, since not meeting administra- tive requirements can have as great an impact on trade as not meeting the underlying organic production stand- ards. There would appear to be a need for strengthening information flows to ACP producers to ensure that no ACP organic producer is caught out by evolving requirements. A growing emphasis on local organic products also suggests a need for ACP organic producers to pursue dual organic–fair-trade certification, in order to remain attractive to EU consumers and hence continue to enjoy the pos- sibility of securing price premiums. If Africa’s organic potential is to be fully exploited, emerging consumer trends in major markets such as those in the EU will need to be closely monitored. Engaging with the EU review of the regulatory framework for organic products From an ACP perspective, the pending EC proposals for a renewed political and legal framework for organic agri- culture could usefully take up issues such as: addressing problems under the EU’s import regime for organic products, including the market effects of the introduction of a new, obligatory EU organic logo; the difficulties faced by individual ACP governments in negotiating equiva- lency agreements with the EU on organic standards; and the scope for a pan-ACP programme of support to the negotiations of equivalency agreement, designed to reduce the administrative costs incurred by ACP exporters seeking to serve EU organic markets. Strengthening domestic policy frameworks for product dif ferentiation Clearer and more consistent ACP gov- ernment policies on the promotion of organic forms of agricultural produc- tion, fair-trade and sustainability certi- fication, and GI registration and trade- mark protection would appear to be necessary. “Clearer and more consistent ACP government policies on the promotion of organic forms of agricultural production, fair-trade and sustainability certification, and GI registration appear to be necessary” In some instances (under fair-trade and sustainability certification schemes) this may need to extend to public sector support for the establishment of trace- ability schemes. However, the relative importance to be accorded to policy development in these various areas will need to be carefully assessed in the light of the relative costs and benefits at the individual country level. Benefits could be gained from a shar- ing of policy and operational experi- ence in these various areas across the ACP, particularly as this relates to strengthening the functioning of supply chains, so that price premiums paid by consumers actually benefit primary producers. Strengthening the functioning of ACP–EU fair-trade supply chains Problems with the operation of con- ventional trading mechanisms, along- side the erosion of price differentials between fair-trade and conven- tional products, suggests a need for increased efforts to strengthen the position of primary producers within fair-trade supply chains, particularly in terms of price negotiations. This issue is beginning to receive increased atten- tion within the fair-trade movement. In addition, complaints from European farmers’ organisations over alleged abuses of market power by multiple retailers sit uneasily with the growing role of supermarkets in developing fair- trade sales. Extending the proposed EC code of practice governing relationships between multiple retailers and their suppliers to overseas suppliers – with specific provisions dealing with revenue sharing commitments to primary pro- ducers of fair-trade products – could well play a role in maintaining producer revenues and the integrity of the fair- trade labels. Preparing for the gene- ralised application of sustainability standards Moves towards the conversion of entire supply chains to sustainability “The conversion of entire supply chains to sustainability certification would require a concerted response from ACP policy makers” certification would appear to require a concerted response from ACP policy makers at two main levels. The first is supporting ACP producer organi- Executive brief: Update 2013 I 10http://agritrade.cta.int/ Product differentiation sations in engaging with sustainable trade initiatives to ensure that issues of economic sustainability are adequately addressed, while the second is the extension of government support to ACP producers enabling them to bet- ter serve sustainability-certified market components in the EU. Ensuring an “openness” in national sustainability certification schemes If the use of national sustainability label- ling schemes becomes widespread in the EU (such as the Bord Bia ‘Origin Green’ scheme), then ACP govern- ments will need to pay close attention to ensuring that such labelling schemes are open to all producers that meet the requisite standards, regardless of their country of origin. Any restrictions of access to only national producers could serve to relegate imported prod- ucts to lower quality (and lower priced) market components. Strengthening the EU regulatory framework for ethical and sustainability claims The recent discussions in New Zea- land over Dole’s self-certification of its ‘ethical choice’ bananas highlights the importance of having a clear regula- tory framework for the ethical, envi- ronmental and sustainability labelling claims made by food manufacturers, in order to ensure consumers can make informed choices. Greater EU regulation would appear to be needed to ensure that consumers can properly judge the labelling claims made, whether these relate to ethical standards (fair trade), specific environ- mental concerns, sustainability claims or even implicit health related claims. Main sources Organics 1. International Federation of Organic Agriculture Movements (IFOAM), website http://www.ifoam.org/en/node 2. EC, DG Agriculture and Rural Development, ‘Commission launches public consultation on the future of organic production’, 15 January 2013 http://ec.europa.eu/agriculture/newsroom/101_en.htm 3. IFOAM, ‘OSEA II project: Regional cooperation for organic standards and certification capacity in East Africa’, web page http://classic.ifoam.org/partners/projects/osea.html 4. Official Journal of the European Union, ‘Commission implementing regulation EU 508/2012, amending Regulation (EC) No 1235/2008 laying down detailed rules for imple- mentation of Council Regulation (EC) No 834/2007 as regards the arrangements for imports of organic products from third countries’, 21 June 2012 http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:162:0001:0045:EN:PDF 5. EUSDA, ‘The EU-US organic equivalence cooperation’, GAIN Report No. NL2006, 15 February 2012 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/The%20EU-U.S.%20Organ- ic%20Equivalence%20Cooperation_The%20Hague_Netherlands%20EU-27_2-15-2012. pdf Sustainability Executive brief: Update 2013 I 11http://agritrade.cta.int/ Product differentiation Technical Centre for Agricultural and Rural Cooperation (ACP—EU) PO Box 380 6700 AJ Wageningen The Netherlands Tel: +31 (0) 317 467 100 E-mail: cta@cta.int - www.cta.int The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint ACP—EU institution active in agricultural and rural development in African, Caribbean and Pacific (ACP) countries. Its mission is to advance food and nutritional security, increase prosperity and encourage sound natural resource management. It does this by providing access to information and knowledge, facilitating policy dialogue and strengthening the capacity of agricultural and rural development institutions and communities in ACP countries. 6. Green Palm Sustainability, ‘WWF assessment of RSPO member palm oil producers 2013’, 19 February 2013 http://www.greenpalm.org/en/blog-press/blog/wwf-assessment-of-rspo-member-palm- oil-producers-2013 7. Commonwealth Secretariat, ‘Eco-labelling: Challenges and opportunities for small states and LDCs’, by M. Haynes, Trade Hot Topics Issue no. 95, 2012 http://www.thecommonwealth.org/document/181889/34293/227379/251358/trade_hot_ topics_issue_95.htm 8. KPMG (commissioned by ICCO), ‘Study on the costs, advantages and disadvantages of cocoa certification’, October 2012 http://www.icco.org/about-us/international-cocoa-agreements/cat_view/30-related- documents/37-fair-trade-organic-cocoa.html 9. ICTSD, ‘Private voluntary standards: The instruments for a lasting trade policy in Africa?’, Bridges Africa Review, Volume 1, No. 3, 4 July 2012 http://ictsd.org/i/news/bridges-africa-review/137484/ Fair trade 10. Fairtrade International, ‘Monitoring the scope and benefits of Fairtrade: Fourth edition, 2012’, 2012 http://www.fairtrade.net/fileadmin/user_upload/content/2009/resources/2012-Monitoring_ report_web.pdf Geographical indications 11. EC, DG Agriculture and Rural Development, ‘External study: Value of production of agricultural products and foodstuffs, wines, aromatised wines and spirits protected by a geographical indication (GI)’, web page with links to all aspects of the evaluation, October 2012 http://ec.europa.eu/agriculture/external-studies/value-gi_en.htm About this update This brief was updated in September 2013 to reflect developments since July 2012. Other publications in this series and additional resources on ACP–EU agriculture and fisheries trade issues can be found online at http:// .cta.int/ http://agritrade.cta.int/ Rice sector I 1 High global prices and rising consumer demand for rice in ACP countries have stimulated intensified government efforts to promote rice production. In some instances highly ambitious targets have been set, with a certain amount of suc- cess achieved in expanding produc- tion. However, given rapidly expanding demand in some countries, self-suffi- ciency rates have fallen. This is particularly the case in West Africa, where consump- tion growth exceeds production growth in many countries, leading to increased imports. Divergent trade policies and national objectives for the expansion of domestic production greatly complicate regional rice trade policy formulation in West Africa. During 2012/13, global rice prices were “unusually stable” compared to the vola- tility in other cereals markets. In the EU a managed rice trade regime has been retained, allowing: duty-free imports of nine varieties of husked basmati rice from India and Pakistan with no quantitative limits; variable duties to be maintained on country-specific tarif f-rate quotas (TRQs) for other varieties, with import licences that enable careful manage- ment of import volumes and prices. EU production is further supported by a system of direct aid payments to rice farmers equivalent to €177/tonne (for details see Agritrade special report ‘The EU’s agricultural policy toolbox: A sector- by-sector review’, Section 6, 13 Decem- ber 2011).The use of this sophisticated TRQ system to manage EU rice markets allows imports to grow to meet expand- ing EU demand, while at the same time sustaining and promoting domestic EU production. Nevertheless, continued growth in con- sumption will pave the way for increased update September 2013 Rice sector 1. Background and key issues 1. Background and key issues 2. Latest developments Global rice sector EU rice sector developments in 2012/13 Future prospects and emerging issues in the EU rice sector Rice sector developments in West and Central Africa Rice sector developments in Southern and Eastern Africa Rice sector developments in the Caribbean and the Pacific 3. Implications for the ACP Reducing global rice price volatility by improving information flows A managed trade regime to sustain and promote rice production Reviewing best practice Getting to grips with intra-regional rice trade flows © Agra, Jeff Haskins Executive brief: Update 2013 I 2http://agritrade.cta.int/ Rice sector EU rice imports to 2022. ACP export- ers, however, are poorly placed to capi- talise on this trend, unless by target- ing quality-differentiated rice market components. New EU maximum intake levels for cadmium, which is found in rice, could potentially further reduce the commercial attractiveness of the EU market, which has already been sub- stantially eroded by the shift away from price support to direct aid payments in the EU rice sector. Caribbean rice exports to the EU have fallen substantially following EU rice sector reforms, with Venezuela and regional markets rising in importance. Across the Caribbean, efforts continue to boost rice production, with some success, but often pose challenges in the efficient management of govern- ment rice sector support measures. In the Pacific, efforts continue to boost rice sector investment and production, but with a more cautious approach to linking trade concessions to investment commitments now apparent. 2. Latest developments Global rice sector developments Although the global maize and wheat markets in 2012 were strongly affected by drought in the USA, Eastern Europe and Central Asia, global rice produc- tion increased for the eighth consecu- tive year, marginally surpassing 2011 volumes. Once again, production exceeded consumption, increasing the stocks-to-use ratio. Large government purchases to replenish stocks in Asia, combined with lively purchases of rice by Afri- can countries and the price effects of drought on other cereals markets, col- lectively served to support rice prices during 2012, despite growing global rice stocks. This resulted in a growth of world trade in 2012. Price trends in 2012 fluctuated across varieties, with prices falling in five categories and rising in nine categories monitored by FAO, with this trend continuing into 2013. Overall the EC described global rice markets as being “unusually stable in 2012”. Nevertheless, rice prices over the last year have remained vulnerable to pub- lic policy measures in major produc- ing countries (e.g. India, Thailand and China). “Rice prices last year remained vulnerable to public policy measures in major producing countries” For example, a farmer-support pro- gramme involving stockpiling in Thai- land affected rice export levels, while in August 2012 the Indian government began exploring “additional market control measures… to keep domes- tic prices in check”, given fears over production levels (see Agritrade article ‘Rice prices stable despite possible Indian policy measures’, 8 October 2012). Global rice prices began to rise from October 2012, despite the declines in maize prices at this time. According to FAO, “the preliminary out- look for production in 2013 is positive”, with global trade expected to stabilise, following growth of 15% in 2012 com- pared to the average for 2009–11. While efforts to boost rice production in Africa enabled a 4.8% increase in 2012, consumption growth continued at a high rate (+3.9%). Per capita con- sumption in 2012/13 is projected to be 8.6% above the average for the period 2008/09–2010/11, while in major West African markets this expansion of per capita rice consumption has been even more pronounced, with an 18.2% and 15.9% expansion in Côte d’Ivoire and Nigeria since 2008–11. These trends saw Africa emerge as “an important driver of 2012 trade in rice, taking 13 million tonnes of rice” – 10% more than in 2011, and over one-third of all rice imported globally in 2012 (see Table 1). This was driven by shortfalls in domestic production, pending policy changes and governments efforts to take advantage of relatively favourable prices. Table 1: World rice imports and for selected African countries (’000 tonnes, milled equivalent) 2008–10 average 2011 2012 estimate 2013 forecast Africa 9,700 11,800 13,000 12,500 Côte d’Ivoire 900 1,100 1,200 1,300 Nigeria 2,000 2,400 2,800 2,500 Senegal 800 800 900 800 South Africa 800 900 1,200 1,200 World imports 30,300 36,300 37,800 37,000 Source: FAO, Rice Market Monitor, Table 2: World rice imports (milled basis), January 2013, http://www.fao.org/docrep/017/aq144e/aq144e.pdf Executive brief: Update 2013 I 3http://agritrade.cta.int/ Rice sector EU rice sector develop- ments in 2012/13 In terms of overall EU rice production, despite initial estimates of a 4% decline in EU rice production in 2011/12, revised figures showed a 2% increase in usable production, with this being consoli- dated in 2112/13. This occurred follow- ing a 1% increase in the area under rice, which “reached a new record”. While in recent years per capita consumption of rice in the EU27 had been showing steady growth, in 2011/12 overall EU rice consumption fell by 3.6%, with a projected 1.6% recovery in 2012/13. Table 2: EU rice sector overview (’000 tonnes, milled equivalent) 2009/10 2010/11 2011/12 2012/13 estimate 2013/14 estimate Usable production 1,937 1,847 1,885 1,891 1,711 Total domestic EU use 2,532 2,643 2,556 2,595 2,561 Imports 905 980 864 860 900 Exports 209 217 170 150 100 Source: EC, ‘EU market rice supply and demand – 2009/10 to 2013/14 (in thousands tonnes, milled equivalent)’, EC, 31 May 2013 The EU’s rice trade regime has allowed EU rice imports to increase, while at the same time sustaining EU rice production. “The EU’s rice trade regime has allowed imports to increase, while sustaining EU rice production” The regime accommodated the decline in rice consumption in 2011/12, seeing imports fall by 11.8%. This lower level of imports is projected to be sustained into 2012/13. However, the overall picture masks divergent trends between production and trade in japonica and indica rice varieties. Since the 2008/09 season, between 61 and 69% of EU rice pro- duction has been of the japonica vari- ety, with imports equivalent to between 6 and 7.6% of EU japonica production. EU rice imports are primarily of the indica variety (between 91 and 93%), with imports equivalent to between 114 and 138% of domestic EU production of indica rice. Since 2009/10, EU pro- duction of japonica rice has exceeded domestic EU demand, giving rise to increased volumes of EU exports of japonica rice, peaking at 183,000 tonnes in 2010/11 (see Agritrade arti- cle ‘EU rice market developments and prospects’, 22 April 2013). The EU’s position as a rice exporter has changed since 2010/11, with exports falling by a projected 54% by 2013/14. This suggests a widening EU rice trade deficit in the coming years. The EU’s rice sector reforms have been successful in expanding the area under rice, while allowing imports to increase in response to growing consumer demand. Future prospects and emerging issues in the EU rice sector Continued growth in EU rice consump- tion is projected, reaching 3.2 million tonnes in 2022, 23% higher than in 2011. EU rice production is projected to increase only gradually to 1.8 million tonnes, with rice imports increasing by over 50% to 1.5 million tonnes by 2022. While this would appear to open up opportunities for ACP rice exporters, the policy shift in the EU to decoupled direct aid payments and elimination of the market prices support func- tion of intervention buying means that the commercial attractiveness of EU markets for traditional Caribbean rice exporters has been greatly reduced. Imports of ACP rice fell from 95,000 tonnes in 2010 to 42,000 tonnes in 2011, despite the granting of full duty- free, quota-free access. “The EU’s rice trade regime has allowed imports to increase, while sustaining EU rice production” Meanwhile, EU rice producers have been expressing growing concerns over trends in EU trade arrangements for rice, including: new rice import quotas agreed under both the EU’s Andean Pact and Cen- tral American free trade area (FTA) agreements (34,000 tonnes and 20,000 tonnes respectively, but with built-in annual increases in the TRQs); the potential rice provisions of an EU– India FTA (India accounts for nearly one-third of EU rice imports) and the scope for similar arrangements under the EU–Vietnam FTA; the moves initiated in September 2012 to reinstate Myanmar as a beneficiary of the ‘Everything But Arms’ (EBA) arrangement. In the first years of the application of full duty-free, quota-free access under the EBA, rice imports from the least developed countries (LDCs) grew rapidly, before stabilis- ing at 99,000 tonnes in 2011/12. The application of duty-free, quota-free Executive brief: Update 2013 I 4http://agritrade.cta.int/ Rice sector access to Myanmar could initiate an upsurge in rice imports under the EBA. Despite these developments there are likely to be increased market opportunities in the EU for exports of quality-differentiated rice varieties. Traditional ACP rice exporters (mainly Guyana and Suriname) are seeking to exploit this trend. Regardless of the recent dramatic decline in exports, after 2016 – with the surplus in EU japonica rice production – EU rice exports are projected to return to the 200,000 tonne level. In 2012 greater attention was paid to the development of plans regarding new maximum intake levels for cadmium, which is often found in rice. EU rice sector stakeholders have expressed concerns that the European Food Safety Authority maximum tolerable weekly intake level was “half that calculated by the FAO/WHO”, with the Codex Alimentarius scientific committee having “rejected a further revision of cadmium levels”. It was estimated that the new levels could lead to between 6 and 10% of EU rice production being found non-compliant with the new proposed maximum levels, and was maintained that the new levels would impose “significant additional costs for food business operators”. However, there were calls for the EC to lower “the existing maximum cadmium level in rice” and for steps to be taken to “reduce cadmium levels in foodstuffs”. ACP rice exporters may need to pay increased attention to this issue if they are to continue to have an export interest on EU markets. The 2013 round of EU Common Agricultural Policy (CAP) reforms is not expected to bring about any significant change in the EU rice regime. Rice sector developments in West and Central Africa Consumer demand for rice in West and Central Africa is growing strongly, reflecting long-terms shifts in dietary patterns. “Consumer demand for rice in West and Central Africa is growing strongly” In major markets such as Nigeria and Côte d’Ivoire, per capita rice con- sumption in 2012/13 was projected respectively at 18.2 and 15.9% higher than the average for 2008–2011. This growing consumer demand potentially increases opportunities for domestic rice production. However, in Ghana urban consumers show a marked preference for imported rice, with per- fumed rice growing in popularity and now accounting for 81% of imports. Across the region governments are encouraging the development of rice production. Impressive production gains have been made in a number of large rice producing economies (Guinea +60% and Mali +82%), while output has doubled and tripled in recent years in countries with smaller levels of rice production. However, low productivity and high processing and marketing costs hamper the competi- tiveness of local rice on the regional market. As a basis for improving pro- duction practices and ensuring com- prehensive and coherent rice sector policies (particularly on research and development linked to evolving con- sumer tastes), stronger organisation of rice producers would appear to be essential across the region. To date, with the exception of Burkina Faso, consistent underattainment of produc- tion targets has been apparent. Table 3: Paddy rice production in West and Central Africa (’000 tonnes) 2007/09 average 2010 2011 estimate 2012 forecast Western Africa 9,600 12,900 12,200 13,100 Côte d’Ivoire 700 700 700 700 Guinea 1,500 1,600 1,800 1,900 Mali 1,600 2,300 1,700 2,400 Nigeria 3,400 4,500 4,600 4,200 Sierra Leone 700 1,000 1,000 1,100 Central Africa 500 500 500 500 Source: FAO, Rice Market Monitor, November 2012 In September 2012 the Economic Community of West African States (ECOWAS) announced the launch of its “regional offensive for sustainable rice production in West Africa” (see Agritrade article ‘Rice sector trends in West Africa’, 23 June 2013). In the con- text of the final agreement on the ECO- WAS/West African Economic Monetary Union (WAEMU) common external tariff (CET), the regional farmers’ organisa- tion ROPPA has expressed concern over the low level of tariff protection proposed for rice (10%). The ECOWAS Trade Commissioner, however, states that agreed tariff levels were reason- able and that “agricultural products should not be too protected”, with Executive brief: Update 2013 I 5http://agritrade.cta.int/ Rice sector the focus needing to be on improving competitiveness (see Agritrade article ‘ECOWAS CET finally adopted while producer organisations raise con- cerns’, 22 April 2013). Although overall rice production in 2012 bounced back strongly from poor 2011 production levels, the situation varied from country to country, with a broadly stable level of production in Central Africa and divergent trends in West Africa. According to FAO, Burkina Faso, Côte d’Ivoire, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Mauri- tania, Senegal and Sierra Leone all harvested larger crops (although in the case of Côte d’Ivoire this has fallen well below targets set in 2008). Particularly strong production growth occurred in Mali (+36%) and Senegal (+61%). In contrast, falls in production occurred in Benin, Chad and Nigeria, where flood- ing has set back government plans to expand rice production. Despite these production gains, the West and Central African regions remain dependent on rice imports (mainly from Thailand, but increasingly Vietnam) for almost half of their con- sumption. FAO suggest that by 2012/13 imports of rice in Nigeria, Côte d’Ivoire and Senegal will have increased by 29% compared to the average for the period 2008–11. In 2012 Burkina Faso, Chad, Gam- bia, Liberia, Mali, Madagascar, Niger and Senegal all expanded their rice imports, either in response to produc- tion shortfalls or in an effort to take advantage of favourable prices. In the case of Nigeria, however, scheduled increases in import tariffs also drove a large-scale increase in rice imports in 2012. Summary of the main rice sector policy measures adopted in 2012 In the course of 2012, governments in West Africa adopted the following rice sector policy measures: Nigeria: • May: a benchmark price of US$699/tonne was set for customs valuation for the second and third quarters of 2012; • October: the government announced the application of a 10% duty and 100% levy on imports of husked and milled/semi-milled rice from 1 January 2013; and the establishment of a seed distribution programme to help with post-flood recovery. Mali: • June: the suspension of VAT and import duties on rice was extended until August, with ceiling prices for rice at wholesale and retail level being established at US$621 and 670 respectively. Ghana: • October: the guaranteed price for the 2012/13 season was raised by 25% to Ghanaian cedi 50/85kg bag (US$307/tonne). Côte d’Ivoire: • April: ceiling prices were instituted for rice imports, ranging from US$585 to 881/tonne depending on varieties; • August: import duties and taxes on rice were suspended for 3 months; • September: the government announced a US$3.9 billion programme to distribute inputs, improve yields and rehabilitate infrastructure for rice and cocoa growers. While FAO expects Nigerian rice imports to decline in 2013, the US Department of Agriculture (USDA) expects a substantial increase. There remains considerable uncertainty as to the actual rice sector trade position in Nigeria, with policy measures expected to lead to an expansion of smuggling (see Agritrade article ‘Rice imports surge as higher tariffs imminent’, 15 April 2013). The Rice Millers, Proces- sors and Dealers Association of Nigeria (RiMIDAN) claims that the activities of rice smugglers are “undermining gov- ernment’s policies and programmes directed at boosting local food produc- tion”. The Nigerian Federal Parliament has called for more effective action to curb rice smuggling (see Agritrade arti- cle ‘Benin rice sector aspirations and regional trade realities’, 6 April 2013). The Nigerian Minister of Agriculture maintains that government policies have encouraged investment in rice production, with new locally produced high-quality varieties now appearing on the Nigerian market. Government plans include a progressive increase in rice import duties, culminating in a complete ban on rice imports by 2015. The policy aim is to establish “the full industrial capacity to mill internation- ally competitive quality rice”. Nigerian farmers’ representatives maintain that it is possible to achieve national self- Executive brief: Update 2013 I 6http://agritrade.cta.int/ Rice sector sufficiency if the current “poor access to inputs such as fertiliser and credit facilities” can be addressed. Plans are in hand to extend technical assistance to farmers’ cooperative groups to pro- vide a vehicle for the management of working capital loans to address the current situation. The problem of smuggling is likely to become increasingly complicated in the ECOWAS context, with Benin aiming for rice self-sufficiency by 2015 and to export to the regional market thereafter. According to USDA, already “an estimated 75% of the [rice] pro- duction in northern Benin leaves the country as traders from Niger and Nigeria offer higher prices and faster cash payments.” Other sources sug- gest that “approximately two-thirds of locally grown rice paddy is sold to Nigerian traders”, with this in part reflecting the preference of Beninese consumers for imported fragrant rice over local varieties. In addition, it is reported that “Nigerian traders buy much of the imported rice”, nearly half of which is informally traded into Nige- ria (approximately 100,000 tonnes out of the 200,000 tonnes imported into Benin), although only 50,000 tonnes of rice exports are officially recorded. Looking beyond Nigeria, Benin, Bur- kina Faso, Cameroon and Niger are all forecast to import more rice in 2013. Furthermore, the introduction of duty exemption in Liberia in January 2013 is projected to increase the country’s rice imports, while Ghana’s rice imports are expected to stabilise. “Rice tariffs vary considerably across West and Central Africa, posing challenges for regional market integration” Given that rice tariffs vary considerably across West and Central Africa, this poses challenges for regional market integration, particular in the context of efforts to pursue self-sufficiency in rice. The current Nigerian ban on rice imports over land borders is in part a response to the lack of harmonised rice sector trade policies. Rice sector developments in Southern and Eastern Africa In Southern and Eastern Africa, Mada- gascar is by far the largest consumer and producer of rice, with rice being the single most important agricultural sector. While production increased sig- nificantly between 2003 and 2010, in the past two seasons poor rains have resulted in a 17% decline in produc- tion since 2010. A number of efforts to develop the country’s rice sector have been implemented since 2009, but these have been undermined by the political crisis and the resultant suspension of international coopera- tion and funding. Elsewhere significant efforts are being devoted to expanding production, par- ticularly in the regions of the Horn and the East African Community (EAC). Rice production more than doubled in Ethiopia between 1997 and 2010, with significant gains in productivity and area under cultivation since 2006. In 2009 a national rice development strategy was launched with the aim of increasing rice production eightfold by 2019. “Significant efforts are being devoted to expanding produc- tion, particularly in the Horn and EAC” Similar efforts to boost rice produc- tion are under way in the EAC. Tanza- nia is the largest EAC rice producer, with around 80% of production. A 64% increase in land under rice took place between 1997 and 2010, with production doubling, and a self-suffi- ciency ratio of 84.5% being reported in 2010. Tanzanian rice yields, how- ever, remain low by regional standards and vulnerable to poor rains. This has meant that despite the launching of a national rice sector development strategy in 2010, production for 2012 reportedly fell some 23% below the already poor production levels attained in 2011 – the smallest harvest since 2004, driving a dramatic increase in Tanzanian rice imports in recent years. At the policy level, USDA has raised concerns over “inefficiencies along the rice value chain”, which it is held may Table 4: Paddy rice production for Southern and Eastern Africa and for selected countries (’000 tonnes) 2007–09 average 2010 2011 estimate 2012 forecast Eastern Africa 1,800 2,200 2,000 1,700 Tanzania 1,300 1,700 1,500 1,100 Southern Africa 4,400 5,200 4,800 4,500 Madagascar 4,000 4,800 4,300 4,000 Mozambique 200 300 300 300 Source: FAO, Rice Market Monitor, Table 1: World rice imports (milled basis), January 2013, p. 33, http://www.fao.org/docrep/017/aq144e/aq144e.pdf Executive brief: Update 2013 I 7http://agritrade.cta.int/ Rice sector rice value chain”, which it is held may limit production expansion in Tanzania to slightly below national consumption levels, despite Tanzania’s potential to supply wider regional rice markets (based on the Tanzanian area devoted to rice and the attainment of Rwandan level yields). This is partly attributed to the disincentive to the development of regional rice supply chains arising from the government’s periodic introduction of rice export bans on national food security grounds. Particular opportunities for trade with Kenya are seen to exist, since in Kenya only 20% of national needs are met from domestic production, while con- sumption has been increasing at 12% per annum in recent years. Neverthe- less, the Kenyan national rice devel- opment strategy has aspirations to increase rice production by 138% by 2018, with the bulk of this expansion based on expansion and rehabilitation of existing irrigated rice projects. In Rwanda, expanding rice production is accorded a high priority, with sub- stantial progress having been made. Between 1997 and 2009 the area under rice increased by a reported 346%, with yield increases of 60%, resulting in a tenfold expansion of production. The policy aim is to attain rice self-sufficiency by 2015–17. How- ever, intensive mono-cropping of rice is increasing pests and diseases to “alarming levels”, according to some reports. In Uganda between 1997 and 2010, rice production grew by 162%, with rice production by 2010 covering 70% of the national requirement of 200,000 tonnes. This expansion was based on the release of improved rice varieties since 2002. Yet, demand is growing rapidly at 3.2% per annum. Some common challenges faced in rice production across Eastern Africa Common problems identified across many areas of Eastern Africa which need to be addressed include: • poor access to improved seed varieties; • lack of awareness of enhanced rice farming practices, particularly in preventing the emergence of increased pest and disease risks and in post-harvest handling to reduce losses; • lack of sustainable strategies for farmer organisation and service delivery; • lack of investment in increased irrigation to reduce vulnerability to droughts; • lack of access to credit and investment capital; • current inadequacies in marketing and business linkages along rice supply chains; • lack of harmonised quality standards to facilitate regional trade; • trade policy uncertainties linked to periodic use of export and import restrictions There would appear to be considerable scope for the development of regional trade, with USDA analysis highlight- ing the wide variety of rice types pro- duced in East Africa for different mar- ket components. “There appears to be consid- erable scope for the devel- opment of regional trade in Eastern Africa” For example, Kenyan growers are reportedly producing “a high-yield- ing and non-aromatic variety for the Ugandan market, as well as for the ‘mixed’ rice (lower quality) market in Kenya”. Kenya is thus involved in the regional rice export trade, although it also requires a national import quota of 300,000 tonnes at a reduced duty (35%), which is below the agreed EAC CET. The granting of national reduced duty quotas can be seen as complicat- ing free trade in rice within the EAC (given fears that can arise over the ori- gin of traded rice) and the development of regional rice supply chains. The reduced duty quota forms part of the EAC trade regime for rice, which has had a CET of 75% in place since 2005. This high tariff is maintained because locally milled rice is at present uncompetitive with imports, and faces quality challenges. Given the reduced production in 2012 and a consequent increase in rice import requirements in 2012/13 (150,000 tonnes), Tanzania is seeking a similar duty exemption. These special national exemptions to the EAC CET undermine efforts to promote the free flow of rice across the EAC region and can be seen as undermining the development of intra- regional supply chains. Beyond the EAC, in Mozambique at least 64% of expanding rice consump- tion is met from imports, although sus- tained efforts are under way to expand domestic production. Most rice produc- tion in the country is for household con- sumption, with only around 10% being marketed. Expanding and integrating smallholder production into commercial Executive brief: Update 2013 I 8http://agritrade.cta.int/ Rice sector networks is accorded a high priority. In 2012 Mozambique enjoyed a record rice harvest, although poor weather conditions in 2013 are forecast to hold back continued growth in production. A major development in the region in 2012 was the reported surge in South African rice imports (up by one-third). While this reflects rising South African consumption of rice, with high prices for rice substitutes such as corn and wheat, it could also reflect a growing transit trade to neighbouring South- ern African Customs Union (SACU) and Southern African Development Com- munity (SADC) countries. It was also reported in 2012 that exper- imental production of rice in Namibia had been successfully initiated. Further investment in the production, process- ing, storage and marketing of rice is now expected. Rice sector developments in the Caribbean and the Pacific In the Dominican Republic – the Car- ibbean region’s largest rice producer – output growth of 2% to 850,000 tonnes (561,000 tonnes, milled basis) is foreseen, “reflecting continued expan- sions in [the] area planted to paddy”. At the policy level the government of the Dominican Republic is reported to be planning to “overhaul the national ware- house receipts programme (Programa Nacional de Pignoración), amid con- cerns over its financial sustainability”. The Dominican government allocated US$21 million of the 2013 budget to the scheme, with the aim of providing “price stability at harvest time”. Neighbouring Haiti is estimated to have harvested “115,000 tonnes (77,000 tonnes, milled basis) in 2012, 4% less than in 2011”. Haitian imports are expected to be “around 370,000 tonnes, largely stable if compared to 2012”. Although traditionally Haiti has sourced its rice from the USA, a new government-to-government agreement with Vietnam is expected to provide up to 300,000 tonnes of rice annu- ally on preferential terms. This could compound the disruptions to the intra- regional rice trade in the Caribbean that occurred after the earthquake in Haiti in 2010. “Since the initiation of EU rice sector reforms, Venezuela has become the major export market for Guyanese rice” This would primarily affect Guyana where, according to press reports, rice production in 2012 will increase by 4.5% compared to 2011 produc- tion levels, which were themselves 11% above levels in 2010. This will enable an expansion of Guyanese rice exports in 2012 to 334,000 tonnes. However, these exports will not go to traditional EU markets, where exports have been on a downward trend since the initiation of EU rice sector reforms. Venezuela is now the major export market for Guya- nese rice, accounting for approximately 60% of total rice exports. Efforts con- tinue to maintain exports to traditional markets in the EU and to neighbouring CARICOM countries such as Jamaica and Trinidad. Guyana’s government has aspirations to increase rice production to 500,000 tonnes by 2015, and is introducing an aromatic rice variety as part of a strat- egy to target niche markets, since aro- matic varieties can attract prices three to five times higher than standard rice prices. According to the WTO Secretariat, Suriname’s rice production increased by 43.5% between 2005 and 2011 on a fairly steady basis. Rice is the most important agricultural crop in Suri- name, with a Rice Commission having been established in 2010 to boost pro- duction and exports. However, yields have recently been affected by fertiliser shortages attributed to shortcomings in government-run fertiliser distribution programmes. According to USDA, the government of Jamaica intends to continue with its efforts to develop rice production, with the aim of supplying 15% of national needs (some 100,000 tonnes). This involves placing an initial 500 acres under rice, with a further 1,500 to be developed. It should be noted that in 2008 similar plans were launched, to produce up to 25% of national require- ments. Currently an agreement exists to purchase 60,000 tonnes of rice per annum from Guyana. In the Pacific the principal development in the rice sector in 2012/13 was the announcement in Papua New Guinea (PNG) of the abandonment of plans to create a de facto rice import monop- oly, as part of a major rice investment scheme. “The PNG government has abandoned plans to create a de facto rice import monopoly as part of a major rice invest- ment scheme” In November 2012 the Minister of Agri- culture rejected proposals to create a monopoly import arrangement linked to the planned major investment. This followed “growing opposition from par- liament and the business community” – particularly from the main rice sector company, Trukai Industries. In April 2013, press reports in the Philip- pines indicated that efforts were under way to negotiate a PNG–Philippines Executive brief: Update 2013 I 9http://agritrade.cta.int/ Rice sector cooperation agreement that would provide support to rice sector devel- opment in exchange for access by the Philippines to PNG’s fishing grounds. According to Filipino officials, a techni- cal cooperation agreement would open up “opportunities for Filipino rice mill- ers, farm machinery makers, hybrid rice seed breeders and manufacturers of other agriculture technology”. Elsewhere in the Pacific, the Fijian Min- istry of Agriculture announced in Sep- tember 2012 that it was seeking tech- nical assistance from China to boost rice production from the current low level of 7,600 tonnes. Local analysts have expressed scepticism over the initiative, pointing out that before the regime launched its last rehabilitation effort Fiji “consistently produced over 14,000 tonnes of rice a year”. 3. Implications for the ACP Reducing global rice price volatility by improving information flows Given the vulnerability of international rice markets to public policy measures in major rice producing nations, ACP governments need to keep a close eye on policy development. The Agricultural Market Information System (AMIS) ini- tiative, launched in the context of the G20, could potentially play a useful role in calming markets, particularly if major rice producers such as India and Thailand actively participate in the information sharing exercise. A managed trade regime to sustain and promote rice production The EU experience highlights the role that trade policy can play in sustaining and promoting rice production while maintaining openness to imports to meet expanding consumer demand. ACP governments seeking to promote rice production can potentially learn from this experience, in terms of rec- onciling the promotion of increased national production with the need to meet rising consumer demand. However, this will first require the crea- tion of efficiently functioning regional markets that are transparently and accountably managed. This is essen- tial if investment in the development of rice production and intra-regional rice supply chains is to take place. Progress in this regard currently varies greatly across ACP regions. It will of course also require the adop- tion of harmonised approaches to addressing production constraints that undermine regional price competitive- ness and processing and marketing constraints that undermine the accept- ability of regionally produced rice for regional consumers. This could build on existing programmes such as the Coalition for Africa Rice Development (CARD) initiative. Reviewing best practice Taking into account the dif ferent approaches to rice sector development being adopted in Africa, a comparative evaluation of these experiences could provide valuable insight into the most effective ways of promoting competitive rice production. The CARD initiative could potentially provide a framework for such a comparative review. In regions such as East Africa, expe- rience to date suggests that heavy government involvement in actual crop production may not produce good results. However, where farm- ers play a leading role in organising themselves and engaging in first-stage processing and associated market- ing activities, schemes tend to enjoy greater success. This suggests that the state could play more of a facilitating role, with a focus on regulating private sector business operation so that the interests of both consumers and exist- ing primary producers are respected. Getting to grips with intra- regional rice trade flows To the extent that growing South Afri- can imports of rice reflect an expan- sion of the transit trade to neighbouring countries, this could potentially give rise to intra-regional trade conflicts, as governments in neighbouring coun- tries seek to develop local production to meet growing local demand. This will need to be closely monitored, particu- larly when governments are negotiat- ing tariff concessions in the context of retail sector investment by South African-based companies. Main sources 1. FAO, Food outlook: Global market analysis, November 2012 http://www.fao.org/docrep/016/al993e/al993e00.pdf Executive brief: Update 2013 I 10http://agritrade.cta.int/ Rice sector About this update This brief was updated in September 2013 to reflect developments since June 2012. Other publications in this series and additional resources on ACP–EU agriculture and fisheries trade issues can be found online at http://agritrade.cta.int/. Technical Centre for Agricultural and Rural Cooperation (ACP—EU) PO Box 380 6700 AJ Wageningen The Netherlands Tel: +31 (0) 317 467 100 E-mail: cta@cta.int - www.cta.int The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint ACP—EU institution active in agricultural and rural development in African, Caribbean and Pacific (ACP) countries. Its mission is to advance food and nutritional security, increase prosperity and encourage sound natural resource management. It does this by providing access to information and knowledge, facilitating policy dialogue and strengthening the capacity of agricultural and rural development institutions and communities in ACP countries. 2. FAO, Rice Market Monitor, April 2013 http://www.fao.org/economic/est/publications/rice-publications/rice-market-monitor-rmm/ en/ 3. European Commission (EC), ‘EU market rice supply and demand – 2009/10 to 2013/14’, 31 May 2013 http://ec.europa.eu/agriculture/cereals/balance-sheets/rice/overview_en.pdf 4. EC, ‘The 2012 agricultural year’, undated http://ec.europa.eu/agriculture/statistics/agricultural/2012/pdf/overview_en.pdf 5. EC/DG Agriculture and Rural Development, ‘Prospects for agricultural markets and income in the EU 2012–2020’, full report, December 2012 http://ec.europa.eu/agriculture/publi/caprep/prospects2012/fullrep_en.pdf 6. EC/DG Agriculture and Rural Development, ‘Draft resolution from the advisory group on rice’, documents and presentations, 9 March 2012 http://ec.europa.eu/agriculture/consultations/advisory-groups/rice/index_en.htm 7. US Department of Agriculture (USDA), ‘Exporter guide (2012): Nigeria’, GAIN Report, 20 November 2012 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Exporter%20Guide_Lagos_Ni- geria_11-20-2012.pdf 8. USDA, ‘Benin coarse grains and rice report’, GAIN Report, 29 January 2013 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Benin%20Coarse%20 Grains%20and%20Rice%20Report%20_Lagos_Benin_1-29-2013.pdf 9. USDA, ‘EAC rice import tariffs and food security update’, GAIN Report, 26 April 2012 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/EAC%20Rice%20Import%20 Tariffs%20and%20Food%20Security%20Update_Nairobi_Kenya_4-26-2012.pdf 10. Government of Guyana, ‘Agriculture ministry seeking new rice markets this year’, 29 January 2013 http://agriculture.gov.gy/agriculture-ministry-seeking-new-rice-markets-this-year/ 11. WTO, ‘Trade policy review: Suriname’, full report, June 2013 http://www.wto.org/english/tratop_e/tpr_e/tp382_e.htm 12. WTO, ‘Trade policy review: Suriname’, full report, June 2013 http://www.wto.org/english/tratop_e/tpr_e/tp382_e.htm http://agritrade.cta.int/ Southern and Eastern Africa: Agricultural trade policy debates and developments I 1 Food and agricultural sector policy is a politically charged issue throughout Southern and Eastern Africa. Policy development carries major macro-eco- nomic and political consequences, from economic collapse in Zimbabwe and fam- ine in the Horn of Africa to periodic food riots in the face of rising food prices. The history of land dispossession and famine in some countries has a strong bearing on the policy-making process. “Food and agricultural sector policy is a politically charged issue throughout Southern and Eastern Africa” In this regard, historical factors influenc- ing agricultural policy formulation bear a striking resemblance to the EU’s cold war agricultural policy, focused on food security, which was pursued from 1957 to the early 1990s. In the EU, it has taken 20 years of reform to bring about incre- mental changes, which are still strongly politically contested (witness the 2012–13 EU common agricultural policy (CAP) discussions). In recent years, global food price trends have led to a renewed policy focus on agricultural development, while the ongo- ing crisis in jobs and livelihoods across the region has seen increased emphasis placed on local value-added process- ing and associated job creation. Food security concerns, the growing focus on expanding national food production, and aspirations to develop value-added food processing industries pose important policy challenges in terms of balancing the interests of consumers, agricultural producers and food processors. This serves to complicate regional trade integration, with the agro-food sector being one of the most sensitive areas in the design and implementation of regional trade integration initiatives. Vast differ- ences in the size of national economies and economic concentration in some agro-food sectors, which undermine update October 2013 Southern and Eastern Africa: Agricultural trade policy debates and developments 1. Background and key issues 1. Background and key issues 2. Latest developments Evolution of use of agricultural trade policy tools Progress in regional integration in the agricultural sector Agriculture and third-country trade relations 3. Current policy debates and issues Building transparency and accountability into the use of agricultural trade policy tools Establishing a regulatory framework to promote structural investments Getting to grips with strengthening the functioning of sugar supply chains Establishing dialogue on the application of standards and cost recovery measures Monitoring the implications of standards harmonisation for current exporters Developing common sector-based regional strategies to target Asian markets Ensuring effective consultations on new trade agreements with emerging economies Executive brief: Update 2013 I 2http://agritrade.cta.int/ Southern and Eastern Africa: Agricultural trade policy debates and developments the free functioning of markets, further complicate the matter. In Southern and Eastern Africa, five main regional integration initiatives are being implemented or negotiated: two customs unions – the Southern African Customs Union (SACU) and the East African Community (EAC); two free trade areas – the Southern Afri- can Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA); and a grand free trade area under nego- tiation, which is aimed at reconciling inconsistencies arising from different overlapping regional trade integration initiatives – the tripartite free trade area (T-FTA). Overlapping membership of different trade initiatives poses par- ticular problems for Tanzania, which is a member of both the EAC customs union and the SADC FTA, and Swa- ziland, which is a member of SACU, COMESA and SADC. Within these intra-regional trade agree- ments, trade in some food and agri- cultural products is particularly sensi- tive. This gives rise to exceptions to the principle of the free movement of goods (even within customs unions), and in some instances multiple excep- tions to the customs unions’ common external tariff (CET). Within FTAs the negotiation of market access for food and agricultural products is particularly sensitive, being subject to exclusions from tariff elimination commitments, tariff-rate quotas and special import licensing arrangements. The active use of agricultural trade pol- icy tools is an important feature within all trade integration initiatives in South- ern and Eastern Africa. The elabora- tion of rules of origin for value-added food under trade integration arrange- ments also poses problems both in their design (wheaten products under the SADC FTA and COMESA FTA) and implementation (edible oil products under the COMESA FTA). Divergent policies on food safety requirements, sanitary and phytosanitary (SPS) meas- ures, and divergent product standards further hinder the development of intra- regional trade in food and agricultural products. Analysts have suggested that there is a marked reluctance to get to grips with these ‘behind border’ issues, given the variation in implementation capacities and the serious implications that this could carry for the market competitive- ness of national producers. There are many non-policy-based non-tariff barriers to trade (poor roads, administrative procedures, logistical constraints, corruption, etc.) that fur- ther complicate the development of intra-regional trade in food and agri- cultural products, with transportation delays (especially at border posts) undermining the value of traded goods in many instances. This constitutes one of the most important areas for action in the implementation of trade and development agendas in South- ern and Eastern Africa. The ‘one-stop border post’ initiative, which is increas- ingly being taken up across the region, constitutes one of the most important areas of action in this regard. Across regional integration initiatives in Southern and Eastern Africa, the absence of agreed arbitration arrange- ments and binding dispute settlement mechanisms (as in SADC) or the rela- tive ineffectiveness of established arrangements in the trade sphere (as in EAC and COMESA courts of justice), compounds problems faced in imple- menting FTA arrangements in the food and agricultural sector. In terms of Southern and Eastern African external trade relations, food and agricultural products are gener- ally subject to higher tariffs than non- agricultural products, while diverse agricultural trade policy tools tend to be used in sensitive product areas. The difficulties in intra-regional trade negotiations are also faced at the inter- regional level. In the case of south– south trade arrangements, this has given rise to agreements with limited product coverage, while in north–south arrangements it has greatly compli- cated the negotiation of FTAs compat- ible with the rules of the World Trade Organization (WTO). Indeed, food and agricultural policy-related issues have been prominent among the outstand- ing contentious matters in the ongo- ing Economic Partnership Agreement (EPA) negotiations. 2. Latest developments Evolution of use of agricultural trade policy tools Making greater use of bound tariffs While tariffs on food and agricultural imports have tended to be higher than on non-food products across Southern and Eastern Africa, high food prices in some countries have prompted tariff reductions and tariff waivers to ease inflationary pressures. But this is not a uniform trend across all countries and all sectors. In the course of 2012–13, the South African authorities have been showing growing concern over “the increased penetration of imported processed foods”, which is seen as slowing down job creation in the domestic food processing sector. According to government figures, the “import penetration ratio rose from 9% in 2005 Executive brief: Update 2013 I 3http://agritrade.cta.int/ Southern and Eastern Africa: Agricultural trade policy debates and developments to 13% in 2010.” Increased importance is being attached to promoting agro- processing. “In some countries increased importance is being attached to promoting agro-processing” According to the South African Trade Minister Rob Davies, “agro-processing is of strategic importance to promote industr ial development in South Africa.” In April 2013, the South African authorities launched the Manufacturing Competi t iveness Enhancement Programme (MCEP), worth some US$764 million (see Agritrade article ‘Building up agro-processing seen as essential to South Africa’s development’, 13 May 2012). Increased attention is also being paid to strengthening local animal feed supply chains, through the development of soya bean production. In terms of trade policy, given the surge in imports of poultry parts into South Africa (see Agritrade articles, ‘Poultry exports to Africa on the rise’, 9 December 2012, and ‘South African poultry sector problems compounded by rising EU exports’, 15 April 2013), the government first introduced safeguard duties against imports from Brazil, and subsequently withdrew this measure in favour of a more comprehensive approach, involving a review of the general tariff within bound tariff ceilings (see Agritrade article, ‘South Africa defuses WTO poultry dispute with Brazil’, 18 February 2013). This forms part of a broader shift in South African government policy towards the use of a more sophisticated and transparent tariff policy in pursuit of industrial development objectives. Closely linked to this is an increased emphasis on agro-processing in SACU’s regional industrialisation strategy. Export restrictions In terms of the evolution of agricultural trade policy tools, 2012–13 saw the continued use of export restrictions in the cereals sector, against the background of ongoing concerns over elevated global price levels. “2012–13 saw the continued use of export restrictions in the cereals sector, against the background of ongoing con- cerns over elevated global price levels” According to the US Department of Agriculture (USDA), “exports of grain are officially prohibited” in Ethiopia, with the exception of occasional exports to “neighbouring countries when there is sufficient local production” (see Agritrade article ‘International trade plays limited role in Ethiopian cereals sector’, 22 July 2013). It was reported, however, that the Ethiopian government was moving away from the use of export bans and restrictions, with commitments being made, in the context of New Alliance for Food Security and Nutrition, to lift restrictions on exports of maize, sorghum and raw cotton. It remains to be seen how the G8 initiative to promote private sector investment in African agriculture will dovetail with Ethiopian government policies on land allocations to foreign investors and privatisation of state wheat farms. Success in mobilising foreign private investment in the development of local agricultural supply chains may prove sufficient to overcome the domestic pressures which bring about periodic reversals of policy commitments on export restrictions in Ethiopia (see Agritrade article ‘Agricultural trade policy changes pending in Ethiopia’, 9 December 2012). In Zambia, meanwhile, concerns over rising cereals prices and possible food shortages led to a centralisation of import licensing arrangements in September 2012 (see Agritrade article ‘South Africa’s export profile complicates regional food security situation in Eastern and Southern Africa’, 2 December 2012). This disrupted contracted private sector maize exports to Zimbabwe, something that the state-to-state maize supply arrangements of March 2013 did little to rectify. This does not encourage the development of private-sector-based intra-regional cereals supply chains (see Agritrade article ‘Temporary export bans and GMO policies complicate Zimbabwe maize procurement’, 26 May 2013). Similarly, concerns in Malawi over maize shortages in the southern province brought the introduction of an export ban. This made it unclear how much of the projected Malawian maize surplus would be available for export. Significantly, the US Agency for International Development (USAID)- supported Famine Early Warning System Network reported in May 2013 that “despite a national maize export ban…, maize exports between April 2012 and March 2013 were 18% higher than the five-year average”, with these exports via Tanzania “reportedly destined for the Greater Horn of Africa”. This raises serious questions about the effectiveness of maize export bans, suggesting that the negative effects of such measures are borne without any corresponding benefits, since they are largely ineffective in halting trade flows, and simply increase the costs of such transactions. This would appear to be borne out by analysis from the Economic and Social Research Foundation of the impact of Tanzania’s 2011 export ban. This analysis found that the ban encouraged smuggling, undermined investment, and condemned farmers to pover ty (see Agritrade ar ticle ‘Agricultural export bans hit farmers’, 20 May 2012). Building on this, in May 2013, Executive brief: Update 2013 I 4http://agritrade.cta.int/ Southern and Eastern Africa: Agricultural trade policy debates and developments the Tanzanian minister of agriculture announced significant income gains for farmers following the lifting of the export ban, with traders buying for export paying almost twice as much as traders serving the domestic market. The periodic use of export bans also raises questions as to whether Zambia and Malawi can be seen as reliable alternative suppliers of maize to food- deficit countries in Southern and Eastern Africa. This raises the policy issue of the use of more market-based tools to manage national and regional maize markets. Promoting increased transparency in the functioning of maize markets and cereals availability at national and regional levels is an important issue to both Grains South Africa and the Eastern Africa Grain Council, with a number of initiatives being taken in this regard. However, establishing improved and reliable national and regional grain information systems requires “a proper legislative environment and clear policies for the whole value chain” (see Agritrade interviews with Jannie De Villiers, ‘The South African cereals sector: Recent developments and future challenges’, 9 July 2012, and with Gerald Masila, ‘The East African cereals sector: Recent developments and future challenges’, 12 August 2012). Import licences “Across Southern and Eastern Africa, import licences continue to be used to regulate imports of food and agricultural prod- ucts” Across Southern and Eastern Africa, import licences continue to be used to regulate imports of food and agricultural products. This is particularly the case in the SACU, where agro-food sectors in the smaller states live in the shadow of South Africa. Botswana and Swaziland, for example, both use import licences to regulate poultry imports, while Namibia is considering import licences in the poultry sector as part of broader infant industry protection arrangements. Import licensing in Namibia is central to the ‘controlled products’ regime used to support cereal and horticulture sector development. In the horticulture sector, import licences have been managed as part of a wider initiative to strengthen the functioning of local horticultural supply chains, with this increasing local supplies from 5% of the market before the scheme to 37.5% in 2011, without any significant price inflation and minimal trade disruption. In March 2013 Namibian dairy producers were reported to be seeking the inclusion of a range of dairy products under the ‘controlled products’ legislation, following the lapsing of broader infant industry protection. Import licences would be used to regulate imports, within a market split 80:20 between local producers and South African dairy exporters (see Agritrade article ‘Technological changes and regulatory differences undermine Namibian dairy sector’, 22 April 2013). Elsewhere in Southern and Eastern Africa, import licences are used to manage import quotas, such as those applied in the Kenyan sugar sector under the extended COMESA safeguard arrangements, and the special dispensation for Uganda to allow it to meet national sugar consumption needs. In the context of customs unions, however, national import quotas can disrupt intra-regional trade, as neighbouring states restrict trade for fear of trade diversion. This occurred in the EAC when the Kenyan authorities blocked the transit of sugar to Uganda (pending payment of substantial cash bonds), fearing that these sugar imports would find their way back on to the Kenyan market. This gave rise to sugar shortages and raised sugar prices in Uganda (see Agritrade article ‘Variable picture in EAC sugar sector with ongoing disputes escalating’, 15 April 2013). “Non-transparent, arbitrary application of import licences and other restrictive measures is a source of concern” The non-transparent, arb i trar y application of import licences and other restrictive measures is a source of concern throughout Southern and Eastern Africa, with these measures being seen to undermine both the proper functioning of customs unions and progress towards the creation of a free trade area. Arbitrary, non-transparent import licensing arrangements are seen to increase the costs of trade and expand the scope for corrupt practices. Calls are growing for clearer and more transparent rules on the use of import licences and for the establishment of regional appeals and enforcement mechanisms in cases where such tools are inappropriately applied. SPS, food safety and product standards “Divergent requirements in SPS, food safety and product standards can add consider- ably to the costs of intra- regional trade” While SPS, food safety and products standards play a legitimate role in protecting plant, animal and human health, they can also provide a ready tool for protectionism. Divergent requirements in SPS, food safety and product standards can distort competition and add considerably to the costs of conducting intra-regional trade. The period 2012–13 saw the emergence and resolution of a range Executive brief: Update 2013 I 5http://agritrade.cta.int/ Southern and Eastern Africa: Agricultural trade policy debates and developments of SPS- and standards-related disputes, ranging from Kenyan restrictions on exports of Tanzanian cut flowers through Nairobi airport (see Agritrade articles ‘Intra-regional SPS concerns threaten Tanzanian cut flower exports and sours broader trade’, 11 March 2013, and ‘Kenya–Tanzania SPS dispute on flowers in transit resolved’, 10 June 2013), through the introduction of new packaging standards for edible oil in Tanzania, to the presidential announcement of a Kenyan ban on imports of genetically modified (GM) maize. These disputes may be linked to genuine SPS/food safety concerns, a lack of confidence in the integrity of neighbouring country control systems, genuinely divergent technical standards, or an engineered divergence of standards linked to new patterns of national investment. Making a distinction between these dif ferent types of measure is important, since it affects the way forward in eliminating SPS-, food-safety- and standards-based barriers to trade. While initiatives are under way in many fora to address these issues, progress is uneven. A major shortcoming in this regard is the absence of effective regional institutional arrangements for appeals and binding dispute settlement, despite nominal commitments under various regional trade agreements Progress in regional integration in the agricultural sector Developments in the SACU Intra-SACU trade largely revolves around South Africa, with only lim- ited volumes of trade in specific sec- tors taking place between Botswana, Lesotho, Namibia and Swaziland (BLNS). The scale of the South Afri- can economy means that South Afri- can enterprises tend to dominate BLNS producers in the agro-food sector. This is compounded by the spread of South African multiple retailers, with their cen- tralised procurement practices, leading to repeated complaints about South African companies adopting abusive trading practices. Particular criticisms are levelled against the use of uniform SACU-wide pricing policies by the companies concerned, which provide a de facto transportation and distribu- tion subsidy to operations in Namibia and Botswana. In Namibia, these criticisms focused in mid 2012 on the dairy sector, with Namibia Dairies claiming that it had been driven out of cheese production and was facing increasing pressures in the long-life milk component of the market (see Agritrade article ‘Address- ing dairy product predatory pricing practices within customs unions’, 9 September 2012). By June 2013 the focus had shifted to the poultry sector, with the Namibian Chamber of Com- merce and Industry (NCCI) calling for “greater protection of the country’s fledgling industries that are at the mercy of the big South African com- panies” and for the Namibian govern- ment to make full use of SACU infant industry protection in the poultry sector to counter these practices. The perceived urgency of infant indus- try protection in the Namibian poultry sector cannot be divorced from the major rise in SACU imports of low- cost poultry parts, and the market- ing responses of South African poul- try sector enterprises, which focus increasingly on regional markets (see Agritrade article ‘Regional expansion of poultry companies intensifies trade pol- icy debates in Namibia’, 12 May 2013). This corporate response to rising vol- umes of poultry-meat imports from the EU (a sixfold increase between 2010 and 2012) provides an important trans- mission belt for the consequences of expanded EU poultry exports across the Southern African region. A number of potential problems arise around the use of SACU infant indus- try protection provisions in the poultry sector. The first of these relates to how this is reconciled with the provisions of the EU–South Africa Trade Devel- opment and Cooperation Agreement (TDCA) and the SADC–EU interim EPA (IEPA) commitments. The South African Poultry Association (SAPA) has sug- gested that the commitments made under the South Africa–EU TDCA mean that measures other than tariff increases will be needed to deal with the increased volumes of poultry-meat imports (see Agritrade article ‘South African poultry sector problems com- pounded by rising EU exports’, 15 April 2013), while the current provisions of the SADC–EU IEPA explicitly commit the SADC EPA parties to the abolition of the use of import licences and other forms of quantitative restrictions. How this will work out in practice will depend on the outcome of the ongoing SADC– EU EPA negotiations on agricultural safeguards. The push by South African poultry companies for higher levels of tariff pro- tection raises the issues of cross-sub- sidisation, given their growing regional focus. The elevated prices which tariff protection can bring on domestic mar- kets can be used to cross-subsidise export prices. This applies whether it is EU exports to South Africa, South African exports to Namibia or potential Namibian exports to regional markets (see Agritrade article ‘Use of policy tools to protect SACU poultry sectors raises trade policy issues’, 13 January 2013). A third issue relates to the dangers of extended infant industry protection. In Botswana’s poultry sector, infant Executive brief: Update 2013 I 6http://agritrade.cta.int/ Southern and Eastern Africa: Agricultural trade policy debates and developments industry protection has now been in place for 30 years. Local analysis in Botswana has suggested that, given the functioning of the global poultry economy, even South African poultry factories are “simply too small and its maize too expensive for the country to be able [to] compete against the true global giants”. In this context the ques- tion was raised: if South Africa with its relatively “giant poultry factories and a huge maize producing sector cannot compete, how can all the countries of SACU and even the SADC countries possibly ever be globally competitive?” This underlying analysis suggested that any new use of poultry sector infant industry protection by Namibia could well become similarly durable, locking consumers in to high-priced poultry meat. The dismantling of SACU infant indus- try protection for the dairy sector in Namibia has led Namibia Dairies to push for the inclusion of dairy prod- ucts in the list of ‘controlled products’ subject to import permit requirements. This would be consistent with practices elsewhere in the SACU (see Agritrade article ‘Addressing dairy product pred- atory pricing practices within customs unions’, 9 September 2012). No final decision has been taken, however. “Leaving agro-food sector developments to the vagaries of the free market is not seen as a viable policy under some regional integration initiatives” Because of concerns over rising global food prices, leaving agro-food sector developments to the vagaries of the free market is not seen as a viable policy under regional integration ini- tiatives in BLNS. This has important implications for the agro-food sector components of wider regional integra- tion initiatives, particularly the T-FTA. Developments in the EAC According to the 2012 State of East Africa report, intra-EAC trade has “doubled over the past five years” (see Agritrade article ‘EAC to get tough on NTBs’, 9 July 2012). Contrary to expec- tations, Kenya has not dominated this trade expansion. According to a report commissioned by Kenya’s Min- istry of the East African Community, the growth rate in Kenyan exports to the EAC “has been declining over the past eight years”, and has been slower than for other EAC members for the past 5 years. “Kenya’s contribution to total intra-EAC exports declined from 78.3 per cent in 2005 to 57.2 per cent in 2010”. In contrast “Tanzania and Uganda’s contributions to total intra- EAC trade increased sharply from 6.6 and 4.2 per cent in 2005 to 20.67 and 19.2 per cent respectively in 2010.” Kenyan businessmen have reportedly blamed “non-tariff barriers imposed by the other EAC countries” for the decline in Kenya’s relative export performance, with product standards being seen as a particular problem where local production is being developed: (e.g., for Kenyan exports of edible oils to Tanzania – see Agritrade article ‘More balanced trade emerging within the EAC?’, 6 April 2013). According to the WTO Secretariat, while there are no longer any tariffs on intra-EAC trade in originating goods, incomplete implementation of EAC trade policy commitments poses “a major collective risk for the economies of [the] EAC”, with non-tariff barriers (NTBs) seen as “major impediments to trade and business development in the EAC”. The uneven progress in eliminat- ing NTBs is compounded by “non-har- monized technical regulations, sanitary and phytosanitary requirements, cus- toms procedures and documentation, rules of origin”, as well as informal bar- riers to trade (e.g., police roadblocks). Efforts continue to get to grips with the wide range of NTBs to trade. Accord- ing to the EAC Secretariat, while NTBs should have been removed by Decem- ber 2012, only some 36 of the identified NTBs had been removed, a further 35 remained unresolved, while, “about 10” new NTBs had emerged. There is a common frustration in EAC countries over the continuation of these NTBs where they affect exports. Agriculture is the sector most severely affected. “The EAC Secretariat has identified a need for a legally binding framework for the elimination of NTBs” The EAC Secretariat has identified a need for “a legally binding framework”, for the elimination of NTBs, with a draft law prescribing penalties for countries failing to eliminate prescribed trade barriers having been “submitted to the regional parliaments in November 2012”. Currently, regionally agreed policy commitments are not always fol- lowed up by”domestication” of these measures into national legislation. This explains the continued existence of certain NTBs that have hindered the development of regional trade in basic foodstuffs (see Agritrade article ‘Regional agricultural aspects of the East African Community WTO trade policy review’, 21 January 2013). Overall, the Kenya Private Sector Alli- ance (KEPSA) has expressed con- cerns at the way in which the EAC has handled the re-emergence of NTBs. KEPSA has sought to develop an action plan for fast implementa- tion of a fully fledged customs union, including the removal of NTBs to trade. Such an approach is not universally endorsed within the EAC, however: the Speaker of the Tanzanian Parliament argued in May 2012 that Tanzania was Executive brief: Update 2013 I 7http://agritrade.cta.int/ Southern and Eastern Africa: Agricultural trade policy debates and developments “just not ready” in many areas for any accelerated implementation of EAC commitments. While the emergence of new NTBs is a matter of concern, it is important to disaggregate the non-tariff measures that are simply barriers to trade and those which have a legitimate purpose, for example maintaining food safety and ensuring the integrity of necessary SPS controls. With regard to SPS con- trols, the WTO Secretariat has noted that, despite EAC treaty commitments on harmonisation, “in practice there is no formal structure for the applica- tion of SPS measures at the regional level” (see Agritrade article ‘Regional agricultural aspects of the East Afri- can Community WTO trade policy review’, 21 January 2013). This in part reflects underlying capacity constraints (laboratory, technical, and operational funding) across the region in the design and implementation of SPS control systems. In 2012/13 Kenya blocked Tanzanian cut flower exports via Nai- robi airport, having taken 23 months to accept assurances over recommended actions to address SPS shortcomings and lift restrictions (see Agritrade article ‘Kenya–Tanzania SPS dispute on flow- ers in transit resolved’, 10 June 2013). Concerns regarding trans-boundary transmission of plant and animal dis- eases are only too real, so this is an issue that is quite distinct from the use of NTBs to restrict imports in the face of an underlying lack of competitive- ness, and NTBs arising from infra- structure, logistical and administrative constraints (see Agritrade article ‘Agri- culture should be target for support in East Africa’, 18 February 2013). Trade within the EAC in food and agri- cultural products is further complicated by anomalies in the EAC CET. As the WTO Secretariat has pointed out, while a CET is nominally in force, member states are still allowed to extend prefer- ences bilaterally, and the EAC Council can grant country-specific import duty waivers. This has led business repre- sentatives to claim that the list of dero- gations has become so long that “the current CET exists only in book form as each country is now operating its own external tariff albeit with substantial similarity”. This situation is further com- pounded by the application of many solely national “para-tariff measures” (e.g., import fees and levies). This system of national exceptions and discretionary measures is particularly problematical in the food and agricul- tural sector, with a wide range of prod- ucts simply not covered by the CET. This then greatly complicates the free movement of goods within the region, most notably in the sensitive sugar sector, where a number of related disputes emerging in 2012/13 began to escalate, with tit-for-tat measures being introduced (see Agritrade article ‘Intra-regional SPS concerns threaten Tanzanian cut flower exports and sours broader trade’, 11 March 2013). “Calls have been made for a comprehensive review of the EAC CET to eliminate excep- tions and discretionary measures” This has led to calls for a comprehen- sive review of the EAC CET to eliminate country specific exceptions and duty remission arrangements, and reduce the scope for the application of discre- tionary measures and the accommoda- tion of bilateral third-party agreements. While agricultural policies such as the EAC agriculture and rural development policy and food security action plan have been developed at the regional level, the absence of regional financial resources for programme implemen- tation (i.e., a sort of EAC “mini-CAP budget”) ensures that agricultural policy implementation remains firmly rooted in national agricultural policy- making processes. Developments in SADC Analysts maintain that considerable progress has been made among the core membership of SADC in eliminat- ing tariffs on intra-regional trade. A June 2013 analysis from the South Africa- based trade law centre TRALAC noted that imports from SADC Trade Protocol signatories into the SACU are “largely tariff free”, while, with the exemption of Angola, DRC and Seychelles, which have remained outside the SADC Trade Protocol, SADC members have largely honoured their commitments on tariff elimination. There are, however, several notable exceptions. While by January 2012 the phasing down of tariffs on sensitive products had largely been completed, this pro- cess has been deferred until 2015 for Mozambique, where in 2012 “there seemed to be tariffs on all agricultural imports… from South Africa”. Malawi, Zimbabwe and Tanzania all have dero- gations from tariff-elimination commit- ments. Indeed, according to TRALAC’s analysis, Tanzania is “far from offering duty-free access to South Africa, with extreme tariffs reported for rice, sugar, milk products and cereals in particu- lar”. Madagascar, for its part, charges a 20% duty on live animals, meat, fish, and fruit and vegetable products from South Africa. At the sector level, particular problems of market integration arise for sugar. Quota restrictions limit access for SADC sugar to the SACU market, while no concessions on sugar imports are offered by SADC members to SACU sugar under the SADC Trade Protocol (see Agritrade article, ‘TRALAC reports uneven progress in SADC trade inte- gration’, 5 August 2013). Executive brief: Update 2013 I 8http://agritrade.cta.int/ Southern and Eastern Africa: Agricultural trade policy debates and developments “SADC Trade Protocol com- mitments to eliminate existing NTBs and introduce no new NTBs remained largely unfulfilled” Analysis published by TRALAC in Sep- tember 2012 noted that SADC Trade Protocol commitments to eliminate existing NTBs and introduce no new NTBs remained largely unfulfilled (see Agritrade article ‘SADC: Progress on tariff liberalisation but less on NTBs’, 2 December 2012). Indeed, TRALAC analysts have suggested that, beyond the shallow integration represented by tariff elimination commitments, there appeared to be little appetite among all SADC member states for greater integration on ‘behind border’ issues (regulatory harmonisation, customs coordination, trade facilitation, and so on). In addition, analysts at TRALAC have suggested that the phrasing of the provisions of the SADC Trade Protocol left considerable room for manoeuvre to defer the elimination of both tariff and non-tariff measures. Article 3 (1) (c), and the interpretation placed on Articles 9 and 10 of the SADC Trade Protocol, are seen as providing scope for reversing tariff liberalisation com- mitments already made, with national food security objectives providing the most common justification for not implementing agreed regional policy commitments (see Agritrade article ‘SADC: Progress on tariff liberalisation but less on NTBs’, 2 December 2012). “Problems continue to arise under SADC rules of origin, particularly in the agro-food sector” Problems also continue to arise under SADC rules of origin, particularly in the agro-food sector, with this being seen as an important factor in the low use of SADC preferential tariff arrangements. The reality is that the SADC rules of origin were the result of “a trade-off between substantial tariff liberalisation and restrictive rules of origin”. Illustra- tive of this is the treatment of wheat flour, which “continues to be traded on [a] non-preferential basis … as no rule could be agreed upon”. Rules-of- origin requirements on processed food products also continue to restrict intra- regional trade development. The June 2013 TRALAC review of trade data concluded: “intra-SADC trade is low” and “not necessarily increasing”. Following the suspension of the SADC Tribunal in 2010, the absence of mech- anisms whereby governments or pri- vate sector bodies “can bring an appli- cation for the enforcement of rights provided for in any of the SADC legal instruments” is seen as a particular problem. According to TRALAC, the Southern Africa Trade Hub 2012 audit of the SADC FTA found that “certain member states are not complying with basic obligations in the SADC Trade Protocol”. Some are charging “sur- taxes” and levies on goods imported from other state parties in violation of the applicable tariff schedules. In other instances, “goods from selected mem- ber states are targeted, amounting to discriminatory treatment”. Complaints have also been made over the use of health standards to block imports, with little objective justification being provided. This led TRALAC analysts to conclude that trade under the SADC FTA now “takes place on the basis of discretions and ad hoc policy responses”. The problem of non-implementation of agreed commitments is not a new one, but has been repeatedly highlighted. To date, however, SADC structures have been unable to agree on how to tackle problems of non-implementation of regional trade policy commitments. The TRALAC analysis highlighted the need for independent adjudication pro- cesses, specifically for trade disputes. It was maintained that the absence of such mechanisms alongside imple- mentation problems is leading to “growing cynicism” in the private sec- tor over regional trade integration pro- cesses. This is felt to carry important implications for the T-FTA negotiations. Developments in COMESA Problems similar to those under the SADC FTA are faced under the COMESA FTA. There, too, special treatment is allowed, with Kenya hav- ing secured repeated extension to the special safeguard provisions granted for trade in sugar (see Agritrade arti- cle ‘Kenya secures sugar safeguard extension against background of for- eign investment’, 20 November 2011). In certain sectors, such as cereals (and even quota-restricted access for sugar to the Kenyan market), COMESA tar- iff concessions play an important role in maize procurement decisions, with Malawi and Zambia having become important suppliers of maize to Kenya. Overall, when faced with a choice traders have shown a preference for exporting under the COMESA FTA rather than the SADC FTA. Simpler rules of origin are seen as playing a role in this regard, although the COMESA 35% value-addition requirement is seen as hindering the development of intra-regional trade in certain prod- ucts (e.g., wheat flour, given that wheat grain constitutes 90% of the value of wheat flour). In Zambia, for exam- ple, complaints have emerged over the non-originating status of Kenyan palm-oil-based edible oil products, with COMESA tariff concessions not being applied. This may have been a factor behind recent moves by a Ken- yan company to set up an edible-oil Executive brief: Update 2013 I 9http://agritrade.cta.int/ Southern and Eastern Africa: Agricultural trade policy debates and developments processing facility in Zambia (see Agri- trade article ‘Regional investment in oil crop processing in Rwanda’, 1 Octo- ber 2012). This interaction between the interpretation and application of trade policy commitments and inward investment constitutes an important dimension to intra-regional trade. This applies not only in the COMESA con- text but also in the EAC context, with Kenya’s declining share in intra-EAC trade in part being linked to regional investment decisions taken by Ken- yan companies which, in the agro-food sector, see the establishment of local facilities as providing a sounder basis for market development than simple exports. The use of tariffs to stimulate food sector investment came to the fore in Zimbabwe in 2012–13, with the Zim- babwean government reviewing tariffs applicable to wheat flour with a view to stimulating a revival of its cereals processing sector (see Agritrade arti- cle ‘Zimbabwe wheat flour tariff being questioned’, 6 August 2012). In terms of SPS and food safety con- straints on trade, while COMESA mem- ber states have adopted the Regulation on Application of Sanitary and Phy- tosanitary Measures and have desig- nated the Mauritius Food Technology Laboratory as the regional reference laboratory for food safety, challenges are still faced in getting member states to ‘domesticate’ COMESA-wide deci- sions and establish effective institu- tional mechanisms for their routine and effective application. The need for effective national measures to opera- tionalise the proposed COMESA ‘green pass’, a product certification scheme that would enhance trade in food commodities in the region, is illustra- tive in this regard (see Agritrade article ‘Efforts to modernise and harmonise food safety standards under way’, 10 June 2012). Problems of credible domestication of regional SPS/food safety commitments cannot be divorced from institutional and technical capacity constraints faced at national level. Until a uniform system of standards for verification of control of SPS/food safety compliance is set in place, national authorities are likely to give priority to nationally deter- mined SPS/food safety measures, with this providing scope for protectionism where the system of decision-making in not transparent or accountable. It was in part to address this kind of issue that in September 2012 South Africa’s minister of trade and industry set out a vision for “regional develop- ment integration” under the proposed T-FTA. Developments in the T-FTA The regional development integration approach set out by South Africa’s trade minister “combines market inte- gration, cross-border infrastructure development through the Spatial Devel- opment Initiatives, and policy coordi- nation to advance regional industrial value-chains”. In the T-FTA context, particular importance is attached to trade facilitation at the level of rule- making (e.g., on rules of origin, and customs administration and coopera- tion) and implementation, particularly the elimination of delays in cross-bor- der movements of goods. It should be recognised, however, that this often involves nations striking a balance between regional commit- ments and national priorities in terms of how to reposition individual mem- ber states’ own industries. This greatly complicates what is often seen as a technical process. This is a particularly sensitive issue in the food and agricul- tural sector, given food security con- cerns (see Agritrade article ‘Develop- ment integration concept to be applied as a priority to regional agricultural sector development’, 4 January 2013). At a private sector workshop held in Rwanda in July 2012, considerable importance was attached to consoli- dating regional integration processes before delving deeper into the T- FTA. The chief executive officer (CEO) of the Rwanda Private Sector Federation expressed scepticism as to whether the EAC is “ready to fully open up to competition from COMESA and SADC” (notably South Africa). This being noted, Rwandan companies are already seeking to exploit regional trade facilitation instruments (e.g., the COMESA Regional Customs Tran- sit Guarantee system), to penetrate regional markets. Similarly, Tanzanian private sector rep- resentatives stressed the importance of “proper preparation” of trade negotia- tions if smaller economies are not to be “swallowed by the bigger econo- mies”. In this context strengthening the EAC was seen as the first priority, with this being addressed by progressively eliminating NTBs to trade, getting to grips with negative policies of partner states and addressing the challenge of poor infrastructure. This East African private sector per- spective is broadly in line with the emerging South African approach, within which, according to analysts, “the preference is to first channel scarce resources to existing com- mitments..., trying to make them as beneficial as possible.” This implies consolidating the SACU by addressing problems and subsequently negotiating the conclusion of the T-FTA (see Agri- trade article ‘Putting the EAC house in order before pursuing the T-FTA’, 8 October 2012). This type of approach was also reflected in the Zambian Institute for Executive brief: Update 2013 I 10http://agritrade.cta.int/ Southern and Eastern Africa: Agricultural trade policy debates and developments Policy Analysis and Research (ZIPAR) review of the T-FTA process. This anal- ysis urged the Zambian government to “continue its path of tariff reform and regional integration”, while clearly identifying its “offensive and defensive interests” within the T-FTA negotia- tions through intensified dialogue with Zambian stakeholders (see Agritrade article ‘Putting the EAC house in order before pursuing the T-FTA’, 8 October 2012). Beyond South Africa, the focus on addressing underlying competitive- ness issues prior to engaging in broader trade integration initiatives is a common theme across the Southern and Eastern African region. Getting to grips with underlying competitive- ness issues is seen as the only effec- tive means of preventing regional integration at the level of the T-FTA from being undermined by extensive product exclusions (particularly in the agro-food sector). “Any agricultural trade integra- tion should be accompanied by instruments to improve infra- structure and help with neces- sary production adjustments” It is widely felt that, ideally, any agri- cultural trade integration should be accompanied by the establishment of instruments to improve infrastruc- ture and assist countries adversely affected to undertake necessary pro- duction adjustments. A variety of ini- tiatives are under way in this regard, with their effective operationalisation being critical. This provides important background to the ongoing process of technical discussions within the T-FTA nego- tiations, which are progressing more slowly than originally scheduled. Agriculture and third- country trade relations Agricultural trade relations with the EU Countries in the Southern and Eastern African region continue to be important markets for EU food and agricultural products. Indeed, the importance of the South Africa market to EU food and agricultural exports has grown significantly since 2002, with growth four times that of growth in exports to the ACP, and two-and-a-half times the growth in overall EU food and agricultural product exports. Of total EU exports to South Africa, the value of food and agricultural products increased from 3.2 to 5.5%. “South Africa’s food and agri- cultural trade surplus with the EU fell from €1,378 million in 2002 to €567 million in 2011 – while 95% of EU food and agri- cultural exports enjoy duty-free access to the SACU market” South Africa’s food and agricultural trade surplus with the EU fell from €1,378 million in 2002 to €567 million in 2011. By 1 January 2012 South Africa and with fellow SACU members were the only ACP countries with a WTO- compatible free trade agreement fully in place. According to South Africa’s minister of agriculture, some 95% of EU food and agricultural exports enjoy duty-free access to the SACU market. The value of EU exports of food and agricultural products to Kenya has grown threefold, but from a much lower base, while the value of Kenyan food and agricultural exports increased by 47.6%. Kenya’s food and agricultural product trade surplus with the EU increased from €689 million in 2002 to €939 million in 2011. The trends in EU food and agricultural product exports to South Africa and Kenya can be taken as indicative of broader trends in trade in food and agricultural products between the EU and Southern and Eastern Africa. Particular problems emerged in 2012– 13 as a result of expanded EU exports of poultry meat to South Africa, fol- lowing the imposition of safeguard duties against certain Brazilian poultry- meat exports. By the end of 2012, EU poultry-meat exports to South Africa were almost six times those of 2010, with EU exports accounting for fully 36% of South African poultry-meat imports, up from a mere 4% in 2009. Calls grew from the South Africa Poul- try Association (SAPA) for increased tariff protection, and an application was submitted to the International Trade Administration Commission (ITAC) for specific tariff increases (see Agritrade article ‘Poultry policy debate in SACU intensifies’, 1 July 2013). According to SAPA, however, this will not address the problem of the rapid increase in poultry meat imports from the EU, given the provisions of the TDCA, and as a consequence “other measures” will be required. Added importance therefore attaches to the outcome of the SADC–EU EPA negotiations around agricultural safe- guard provisions. This issue has a wider relevance across Southern and Eastern Africa, with concerns hav- ing been expressed as far north as Uganda about the impact of poultry meat imports on domestic produc- ers (see Agritrade article ‘Controversy emerges over chicken meat imports to Uganda’, 13 January 2013). In 2012–13, with EU milk production quotas scheduled for abolition, the Danish dairy sector has expressed interest in dairy markets in East Africa, given the need to find an outlet beyond Executive brief: Update 2013 I 11http://agritrade.cta.int/ Southern and Eastern Africa: Agricultural trade policy debates and developments the EU for expanded milk production (see Agritrade interview with Peter Helk, manager of the Confederation of Danish Industry, ‘A Danish perspective on investment in African dairy sector development’, 24 February 2013, and Agritrade article ‘End of dairy quotas leads to greater external focus of EU dairy companies’, 4 March 2013). It has yet to be determined whether this will involve local investment in association with existing companies, direct foreign investment in dairy processing linked to SMP exports (through turn key pro- jects), or simply increased exports of dairy products. EU-based sugar companies continued to play a role in the expansion of sugar production in Southern and Eastern Africa in 2012–13. Illovo, the major EU-owned regional sugar company, reported a 14% increase in sugar pro- duction, a 41% increase in operating profit, and a 44% dividend increase in May 2013. Illovo shares gained 28% in value in the year to May 2013. This occurred despite rising input costs and falling global sugar prices (see Agritrade article ‘Fears over future of ACP sugar exports as Southern African sugar companies announce excellent results’, 7 July 2013). A critical issue in 2013–14 and beyond will be the extent to which lower global sugar prices translate into lower returns to sugar cane farmers in Southern and Eastern Africa. An additional issue arising with specific reference to Illovo’s subsidiary, Zambia Sugar, relates to establishing an equi- table level of local tax payments in a context of reports of total estimated tax payments to the Zambian state of an average of only US$90,000 per annum since 2007. “The EU tightened its applica- tion of SPS and food safety regulations in 2012–13” The EU tightened its application of SPS and food safety regulations in 2012–13. This is a growing source of concern, since these measures affect major food and agricultural product export sectors in Southern and East- ern Africa. In January 2013 “more than a fifth of Kenya’s vegetable exports to the European market were rejected… after they were found to contain traces of a banned chemical”, dimethoate. This followed a 90% reduction in the permitted level of residues to 0.02 parts per million (see Agritrade article ‘New EU maximum residue levels hit Kenyan vegetable exports’, 28 April 2013). Smallholder growers are par- ticularly severely affected. According to press reports, some grower groups’ sales for export to the EU were down 92% following the introduction of the stricter controls (see Agritrade arti- cle ‘SPS approval opens US market to Kenyan French bean exports’, 19 August 2013). In the case of South Africa, the EU has tightened controls on intercep- tions of Citrus Black Spot (CBS), with a maximum of five interceptions of CBS per season being allowed. This is a source of concern since, accord- ing to the Citrus Growers’ Associa- tion of Southern Africa, there has not been a season when there have been fewer than 12 interceptions. The fifth interception occurred at the end of August 2013. After subsequent con- sultations, restrictions were placed on citrus imports from zones where CBS interceptions have occurred. See Agritrade articles ‘Tightening of Citrus Black Spot controls could pose chal- lenges’, 28 April 2013, and ‘Fifth inci- dence of Citrus Black Spot intercepted in South African citrus exports to EU’, 7 October 2013). Similar problems have arisen in the livestock sector, with the EC modifying the basis for traceability of segregation of EU-compliant and non-compliant cattle, despite there having been no change in the underlying production conditions and disease status of beef production in Namibia since exports were initiated in 1992. (This contrasts with the situation in neighbouring Bot- swana, where periodic outbreaks of foot and mouth disease have led to EU import bans being frequently imposed.) In Namibia this is threatening to drive emergent communal area beef farmers out of EU market supply chains (see Agritrade article ‘Commercial implica- tions of EU SPS requirements hinder development of smallholder beef sup- plies in Namibia’, 4 May 2013). Closely linked to the difficulties and ris- ing costs faced in serving EU markets for food and agricultural products is the EC’s announcement in May 2013 of proposals to revise food and feed control regulations. This would include increased mandatory controls, and moves in all member states towards full cost recovery for inspections car- ried out. Current EC proposals “include detailed measures for the calculation of fees”, with an exemption for micro- businesses from the new fees, but not from controls. This exemption was included in recognition of the impact that such fees could have on the com- petitiveness of micro-enterprises (see Agritrade article ‘New EU food and feed controls to include full cost recov- ery’, 7 July 2013). “Stricter EU SPS/food safety controls are prompting a more active exploration of alternative markets” The emergence of stricter EU SPS/ food safety controls, when combined with stagnant demand in Europe, is prompting a more active exploration Executive brief: Update 2013 I 12http://agritrade.cta.int/ Southern and Eastern Africa: Agricultural trade policy debates and developments of alternative markets in faster-growing areas of the world, including markets in Africa for some products (e.g., South African apple exports – see Agritrade article ‘South Africa deciduous industry commences market diversification’, 29 July 2013). It is against the background of these issues that the ongoing EPA negotia- tions process in Southern and eastern Africa should be seen. In terms of trade relations with the EU, Southern and Eastern African gov- ernments operate under a number of distinct trade arrangements. Four countries (Mauritius, Seychelles, Zim- babwe and Madagascar) have signed their IEPAs and commenced full imple- mentation from 1 January 2013. Five countries (South Africa, Botswana, Lesotho, Namibia and Swaziland) have now virtually fully implemented the tariff elimination commitments enshrined in the South Africa–EU TDCA. A WTO- compatible FTA arrangement is now fully in place, which de facto applies to the whole territory of the SACU (see Agritrade interview with Xavier Carim, Deputy Director-General of the Inter- national Trade and Economic Division of South Africa’s Department of Trade and Industry, ‘Agricultural dimensions of the EPA negotiations between the SADC EPA Group and the EU’, 30 June 2013). While negotiations continue for a com- prehensive SADC–EU EPA, substantial progress has been made. The num- ber of unresolved legal provisions is reported to be down from 30 to only a handful of issues. These unresolved issues, however, relate mainly to agri- culture. They include: the extent of further EU marketing opening to South Africa (with the treatment of 4 of 21 products still outstanding); the extent of further reciprocal access to the SACU market for EU food and agricultural exports; the specific provisions to be included in an agricultural safeguard clause; rules-of-origin issues, particularly cumulation provisions; the treatment of export taxes. At the EAC level, negotiations contin- ued in 2012–13 for the finalisation of the EPA process, with progress being reported in the development cooper- ation and agricultural provisions. No agreement has yet been reached on the provisions related to export taxes and full cumulation under the rules of origin. In April 2013 Kenya’s permanent secretary of trade spoke positively of how the range of unresolved issues in the EAC–EU EPA negotiations is nar- rowing. He maintained that “on eco- nomic cooperation and development, it is almost complete at 80 per cent of the issues agreed. Agriculture is at 90 per cent, rules of origin at 90 per cent and outstanding market access issues at over 90 per cent agreed.” Following the Kenyan elections, the deputy president announced that he expected a deal to be concluded that would secure Kenya’s long-term access to the EU market within 2 months. Con- cerns have been raised in fellow EAC member states about possible unilat- eral action, since “under the East Afri- can Customs Management Act, trade negotiations usually require coordi- nated action of five member states.” Of the least developed countries (LDCs) in Southern and Eastern Africa which enjoy duty-free, quota-free access to the EU market under the ‘Everything But Arms’ agreement (EBA), Malawi announced in October 2012 that it was considering concluding the EPA process. Representatives of the Malawi Confederation of Chambers of Com- merce and Industry (MCCCI), however, expressed concern that “the capac- ity of business in ACP countries is not strong enough to face the reality of opening the markets” (see Agritrade article ‘Malawian government looking to sign interim EPA’, 16 December 2012). In terms of an all-embracing, com- prehensive EPA for the whole of East- ern and Southern Africa, progress was described by the South Centre as “sluggish”, with many unresolved issues, including those related to the use of export taxes, rules of origin, special agricultural safeguards, the most favoured nation (MFN) clause, Mode 4 service provisions (related to the free movement of labour linked to the provision of services), and develop- ment assistance provisions. The most significant development in 2012–13 related to the ongoing EPA negotiations was the conclusion of the EU ‘trilogue’ process, which set 1 October 2014 as the date for the laps- ing of market access regulation (MAR) 1528/2007, which on a transitional basis has been providing duty-free, quota-free access to the EU market for ACP countries which had initialled an IEPA (see Agritrade article ‘European Parliament set to endorse “trilogue” 1 October 2014 deadline for completion of EPA process’, 6 April 2013). The lapsing of MAR 1528/2007 will see non-LDCs that have not concluded an EPA process by 1 October 2014 losing their duty-free access to the EU market. Agricultural trade relations with the USA “The agricultural sector ben- efits little from AGOA” In terms of agricultural trade with the USA, a review of the US African Growth Executive brief: Update 2013 I 13http://agritrade.cta.int/ Southern and Eastern Africa: Agricultural trade policy debates and developments and Opportunity Act (AGOA) regime carried out by the Brookings Institu- tion found that the agricultural sector benefits little from AGOA (less than 1% of AGOA exports are agricultural products), given quota limits, the range of product exclusions and US SPS requirements. The report called on the US government to do more to address these limitations to the benefits of AGOA in the agricultural sector, and also called for greater harmonisation of AGOA with the ‘Increasing American Jobs through Greater Exports to Africa Act’ (see Agri- trade article ‘US African Growth and Opportunity Act needs to do more for agriculture’, 27 August 2012). In 2012–13 a number of developments occurred in agricultural trade with the US. South Africa continued to expand and consolidate its citrus (oranges) exports to the US (since 2009, export volumes have increased 34.5% on a steady upward trend), as more and more production zones have been classified as CBS-free. Given the differ- ent EU and US approaches to control of CBS, the launch of EU–US negotia- tions on harmonisation of SPS stand- ards design and implementation in the context of the proposed Transatlan- tic Trade and Investment Partnership potentially carries important implica- tions not only for citrus exports but also for a range of other agricultural exports. In May 2013 Kenya secured SPS approval for the export of French beans to the US, opening new market opportunities for Kenyan exporters. According to press reports, however, the US may seek to limit access for Kenyan French beans, given the poten- tial effects of Kenyan exports on US producers (see Agritrade article ‘SPS approval opens US market to Kenyan French bean exports’, 19 August 2013). This can be taken as indicative of why the agricultural coverage of AGOA is currently limited. In terms of trade negotiations, EAC ministers and US trade representative Ron Kirk jointly resolved in June 2012 “to pursue a new trade and invest- ment partnership between the United States and the East African Commu- nity”, building on existing trade and investment relations. This was followed by the signing of a trade and invest- ment framework agreement between the US and South Africa in mid June 2012. Areas of cooperation highlighted included anti-dumping measures, SPS issues, energy, infrastructure and investment. Neither of these initiatives involves the launching of comprehen- sive FTA negotiations. Agricultural trade relations with Asia The trade potential of Asian markets is sparking interest across Southern and Eastern Africa. According to South Africa’s minister of agriculture, exports of agricultural products are increasingly shifting away from Europe to Asia, with exports to Asia growing from R10 bil- lion in 1996 to R48 billion in 2011. This trend was seen as likely to continue into the future (see Agritrade article ‘Trade agreements and South Africa’s shifting agricultural trade flows’, 8 October 2012). While non-traditional export markets are growing in importance for certain South African agro-food exporters, however, these markets remain rela- tively small compared to the traditional EU market. Indeed, while exporters are favouring market diversification, this does not mean that traditional EU markets are being ignored. Targeted marketing initiatives are being taken in some major sectors to consolidate market share. This is a common reality across South- ern and Eastern Africa. While East African coffee exporters have placed considerable emphasis on market diversification in the 2012/13 season, for Tanzania the traditional EU market share of total exports increased to 50.7%, up from 32.63% in 2011/12, while the main EU markets continued to account for 70.1% of Kenyan coffee exports (see Agritrade article ‘Good performance in the EAC’s coffee sec- tor, despite depressed global prices’, 29 July 2013). This suggests that even for bulk commodities such as coffee, market diversification is a complex task, even in a context of falling global prices and weak European demand. There are several problems in develop- ing exports to Asian markets, the most significant of which in the agro-food sector is securing SPS approvals. “The most significant challenge for market diversification in the agro-food sector is securing SPS approvals” The granting of tariff preferences and identification of business partners (see Agritrade article ‘Opening of Chi- nese market to Kenyan meat exports could prove timely’, 8 October 2012) will come to nothing if SPS approvals are not secured. While improved tariff treatment for Zambian exports to China was announced in December 2012 (see Agritrade article ‘Increase in Zambian duty-free access to the Chinese market announced’, 18 February 2013), this will have no impact in the agro-food sector unless dedicated agricultural export protocols are also agreed and operationalised. In August 2012, Namibia appeared to be making progress in this area, host- ing a delegation from the Chinese Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) as part of the final SPS approval pro- cess (see Agritrade article ‘Prospects for Namibian beef exports to China’, Executive brief: Update 2013 I 14http://agritrade.cta.int/ Southern and Eastern Africa: Agricultural trade policy debates and developments 4 January 2013). Even where SPS protocols are in place, however, it has to be borne in mind that the structure of demand in Asia and the profitable routes to markets are often very dif- ferent from those familiar to regional exporters through their experience in Europe. Against this background, a critical determining factor for exports to start up will be identifying higher-value commercial opportunities relative to those available on other markets, and building up the marketing and distribu- tion network. It should also be borne in mind that finding one’s way around Asian mar- kets is by no means a simple task, particularly when the critical develop- ment policy issue is how to capital- ise on growing consumer demand in Asia in order to transform the structural engagement of ACP agro-food sec- tors with the global economy. This is not straightforward, with South Africa’s rapid expansion of exports to China having replicated, in exaggerated form, the primary commodity-dependent export profile which characterised its earlier trade relationships with the EU and US (see Agritrade article ‘China’s growing role in African trade’, 13 May 2012). In terms of trade negotiations, while in 2012 the South Africa–India trade negotiations gathered momentum, by mid 2013 negotiations were still going on, with the target date for conclu- sion having been shifted to the end of 2013. This occurred despite the limited scope of the product coverage of the negotiations. Analysts at the South African Institute for International Affairs (SAIIA) maintain that any agreement is unlikely to have a significant impact on South African exports, given the highly regulated nature of the Indian market. Imports into SACU, however, are a different matter. TRALAC’s May 2012 analysis of India’s market opening request revealed that some 8.8% of the 1,022 tariff lines on which reduc- tions are being sought related to food and agricultural products, with average tariffs in these areas being among the highest, ranging from 10 to 24.7% (see Agritrade article ‘Trade agreements and South Africa’s shifting agricultural trade flows’, 8 October 2012). In the course of 2012–13, India established a joint study group with COMESA “to examine the possibility of a free trade pact”, with the Indian government also seeking to negotiate a comprehensive EPA with Mauritius. Agricultural trade relations with Brazil The major role played by Brazil in international agricultural commodities of production interest to Eastern and Southern African economies greatly complicates the elaboration of trade arrangements and the development of agricultural trade flows. This is par- ticularly the case in the sensitive sugar sector, where MFN tariffs around the SACU market have still allowed entry to Brazilian sugar. In 2012/13, however, the underlying competitive challenges from Brazil- ian exporters in the agro-food sector were most vividly illustrated in poultry sector trade with South Africa. Safe- guard duties were introduced against Brazilian exports of poultry parts, in the face of a major surge in imports (from 206,000 tonnes in 2009 to an estimated 368,000 tonnes in 2012, and a projected 395,000 tonnes in 2013) and their subsequent removal after Brazilian protests and threats of WTO action (see Agritrade article ‘South Africa defuses WTO poultry dispute with Brazil’, 18 February 2013), in the context of moves to raise the general tariff towards the bound ceiling. The importance of Brazil’s role in agri- cultural commodity trade thus greatly complicated the bilateral process of negotiation, despite calls for an intensi- fication of cooperation between Brazil, Russia, India, China and South Africa (BRICS), including proposals for the creation of a free trade agreement to give these economies a greater voice in global economic issues (see Agritrade article ‘Chinese calls for closer trade cooperation amongst the BRICS,̓ 22 July 2013). Brazil is also developing strong links to the Southern and Eastern African region via Angola, a major destination for Brazilian exports of poultry meat and sugar. 3. Current policy debates and issues Building transparency and accountability into the use of agricultural trade policy tools Given the extensive use of agricultural trade policy tools in Southern and Eastern Africa, a first essential step is establishing clear and transparent rules for their use. This is essential if the use of agreed trade policy measures is not simply to degenerate into open-ended protectionism, supporting inefficient practices. This will require, in some instances, the establishment of new structures, and, in other institutional contexts, the strengthening of existing structures, to which appeals can be made over the non-transparent and arbitrary use of permitted trade policy tools, with find- ings of arbitration bodies binding the parties concerned. This may offer a Executive brief: Update 2013 I 15http://agritrade.cta.int/ Southern and Eastern Africa: Agricultural trade policy debates and developments more pragmatic approach to ending the arbitrary and excessively trade- distorting use of a range of agricultural trade policy tools. Some advantage may be gained from establishing such bodies on the widest possible geographical basis, so as to escape the confines of ‘big brother’ concerns that arise in smaller eco- nomic groupings where one state is particularly dominant Establishing a regulatory framework to promote structural investments Public policy measures can potentially play an important role, in determining the extent to which growing EU corpo- rate interest in the East African dairy sector translates into structural invest- ment in the development of the sector, linked to expanded local milk produc- tion. This constitutes an important area for policy attention in the coming years. Getting to grips with strengthening the func- tioning of sugar supply chains Public policy measures can potentially play an important role in determining the extent to which lower global sugar prices translate into lower returns to sugar cane farmers in Southern and Eastern Africa. Issues that might arise where government regulation to strengthen the functioning of sugar supply chains could play a role include: the determination of which income streams should be included in the common revenue pool to be divided between growers and millers; the determination of the basis for cal- culating deductions to be made (e.g., costs of shipping raw sugar to market) from the common revenue pool, prior to division of the proceeds between millers and growers; the basis for determining the division of the proceeds between millers and growers; the establishment of transparent mechanisms for price formation in transactions between millers, traders and refiners, particularly where trad- ing within a “single corporate family” is involved. Collectively these issues can be seen as requiring a common government response to the policy challenges of strengthening the functioning of sugar sector supply chains. Establishing dialogue on the application of stan- dards and cost recovery measures Given the importance of the basis for application of SPS and food safety measures to actual trade flows, there appears to be a need for the estab- lishment of more effective dialogue structures on the operational basis for the application of the basic regu- latory standards and requirements. This should include dialogue about the basis for charging inspection fees. A differential approach to charging inspection fees, building on the EU’s own exceptions for micro-enterprises, could potentially offer a means of extending ACP countries’ preferences in an era of tariff dismantling. Complementary to this, there would appear to be a need to develop com- mon regional approaches to building and strengthening institutional capaci- ties across the region to comply with evolving SPS and food safety stand- ards (from training, through coordinated development of laboratory capacities, to dealing with trans-border pests and diseases). This would then facilitate the establishment of regional marketing initiatives in those sectors where this is commercially advantageous. Monitoring the implica- tions of standards har- monisation for current exporters Given the recognition that any process of EU–US standards harmonisation would carry implications for the global system of rule-making on product standards, it would appear important for concerned ACP exporters’ asso- ciations to monitor any such process. Standards harmonisation could either help or hinder Southern and Eastern African exporters, depending on the types of changes introduced by the EU or US authorities. Ensuring that the concerns of regional exporters are taken on board within EU–US standards harmonisation would appear to be an important priority in the coming two years, as EU–US nego- tiations get under way and intensify. Ignoring this process is not an option, since in some sectors the process of standards harmonisation could result in market closure or, at a minimum, greatly increase the costs of serving established markets. Developing common sector-based regional strategies to target Asian markets Given the scale of Asian market demand (particularly in China) there is little danger of African suppliers com- peting with each other in this market, which suggests considerable scope for developing joint sector-based marketing strategies to penetrate and find one’s way around the Asian mar- kets. Indeed this suggests a need to develop, wherever possible, sector- Executive brief: Update 2013 I 16http://agritrade.cta.int/ Southern and Eastern Africa: Agricultural trade policy debates and developments specific regional marketing strategies for promoting exports to non-traditional markets. It also suggests a need for greater region-wide collaboration on marketing products in traditional mar- kets, if returns are to be maintained during periods of economic recession. Ensuring effective con- sultations on new trade agreements with emerg- ing economies Detailed analysis and consultations over the likely impact of tariff conces- sion to be granted to emerging econo- mies under new trade agreements will be required throughout Southern and Eastern African if efforts to promote broader free trade in food and agricul- tural products in the context of the pro- posed T-FTA are not to be undermined. Main sources 1. USAID Southern Africa Trade Hub, ‘2011 audit of the implementation of the SADC Protocol on Trade’, August 2011 http://tis.sadc.int/files/2513/3095/9663/CMT-23-7.4_2011_SADC_Trade_Audit_Final_-_ Nov_2011.pdf 2. Tanzania Daily News, ‘Lifting of food imports ban good for farmers’, 22 May 2013 http://allafrica.com/stories/201305220380.html 3. Famine Early Warning System Network (FEWS NET), ‘Minimal acute food insecurity out- comes to prevail across the region’, Southern Africa Food Security Outlook, April to Septem- ber 2012 http://www.fews.net/docs/Publications/South_FSO_2013_05_final.pdf 4. Ministry of Agriculture, Water and Forestry, ‘Food security situation in Namibia’, 22 August 2012 http://www.reeei.org.na/admin/data/uploads/Food%20Security%20Situation%20in%20 Namibia.pdf 5. The Herald (Harare), ‘Obsolete technology hampers food tests’, 12 June 2013 http://allafrica.com/stories/201306120948.html 6. Namibia Economist, ‘SACU arrangement not fair – NCCI’, 11 June 2013 http://www.tralac.org/2013/06/11/sacu-arrangement-not-fair-ncci/ 7. Mmegi, ‘SA’s Trans–Atlantic chicken war”, 17 June 2013 http://www.trademarksa.org/news/sas-trans-atlantic-chicken-war 8. Actionaid, ‘Sweet nothings’, February 2013 http://www.actionaid.org.uk/sites/default/files/publications/sweet_nothings.pdf 9. South Centre, ‘EU-ACP Economic Partnership Agreements: Current state of play’, Analyti- cal Note, SC/TDP/AN/EPA/31, March 2013 http://www.southcentre.org/index.php?option=com_content&view=article&id=1947%3A eu-acp-economic-partnership-agreements-current-state-of-play&catid=101%3Aeconomic- partnership-agreements-epas&Itemid=67&lang=en Executive brief: Update 2013 I 17http://agritrade.cta.int/ Southern and Eastern Africa: Agricultural trade policy debates and developments 10. The Standard (Nairobi), ‘State clear the air on EPA controversy’ 29 April 2013 http://www.standardmedia.co.ke/?articleID=2000082616&story_title=state-clears-the-air- on-epa-controversy 11. New Vision (Kampala), ‘Kenya’s move to sign EPA worries EAC states’, 1 June 2013 http://www.pesatimes.com/news/middle-east-africa-economy/kenyas-move-to-sign-epas- worries-eac-states#.UdA5WZ1CSUk Technical Centre for Agricultural and Rural Cooperation (ACP—EU) PO Box 380 6700 AJ Wageningen The Netherlands Tel: +31 (0) 317 467 100 E-mail: cta@cta.int - www.cta.int The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint ACP—EU institution active in agricultural and rural development in African, Caribbean and Pacific (ACP) countries. Its mission is to advance food and nutritional security, increase prosperity and encourage sound natural resource management. It does this by providing access to information and knowledge, facilitating policy dialogue and strengthening the capacity of agricultural and rural development institutions and communities in ACP countries. About this update This brief was updated in October 2013 to reflect developments since September 2012. Other publications in this series and additional resources on ACP–EU agriculture and fisheries trade issues can be found online at http://agritrade.cta.int/ http://agritrade.cta.int/ Sugar sector I 1 With world market sugar prices higher than levels since 2009, the EU sugar mar- ket has not operated as expected in the post-reform period. “The EU sugar market has not operated as expected in the post-reform period” At times world market prices have been higher than EU prices. This, coupled with internal EU sugar market regulation, has led to sugar shortages emerging on the EU market since 2010–11. These ‘short- ages’ have fallen particularly heavily on traditional raw cane sugar refiners. In the post-reform period, EU beet sugar com- panies have invested in some 1.85 million tonnes of new raw cane sugar refining capacity. These ‘co-refiners’ currently enjoy significant competitive advantages over traditional cane sugar refiners. The European Commission (EC) has come under intense criticism from indus- trial sugar users and traditional refiners for its management of the current sugar regime, increasing pressure for further reforms. While quota abolition would une- quivocally shift EU beet production to the lowest cost production zones, improving overall price competitiveness, some EU governments have been reluctant to abol- ish quotas earlier than 2020. On the assumption of production quota abolition in 2015, a Commission staff working document estimated that this would lead to: sugar beet and white sugar prices falling “below the current support prices”; an increase of 6.9% in EU sugar exports; a reduction of 4.7% in EU sugar imports. The alternative would be an accumula- tion of sugar stocks in the EU. Such a situation of stock accumulation could be update September 2013 Sugar sector 1. Background and key issues 1. Background and key issues 2. Latest developments Global sugar market developments The functioning of the EU sugar market Perspectives on further EU sugar sector reforms EU sugar sector prospects and areas of policy uncertainty Evolution of corporate engagement in ACP–EU sugar sector 3. Implications for the ACP Getting to grips with transitional challenges Impact of deferring EU production quota abolition Strengthening the functioning of internal sugar supply chains Strengthening the functioning of international sugar supply chains © Bertalan Voros Executive brief: Update 2013 I 2http://agritrade.cta.int/ Sugar sector further complicated by any revision of EU biofuel targets which, depending on the specific modifications made to the sustainability criteria under the Renewable Energy Directive (RED), could result in increased imports of bioethanol or increased use of sugar beet for ethanol production. This could either complicate or simplify EC efforts to establish a “framework of modernised market management instruments” in the sugar sector. Nev- ertheless, any modernised market management framework is likely to include more effective safety nets for EU sugar beet farmers and an exten- sion of policy measures to strengthen the functioning of supply chains to the sugar sector. On 1 October 2012, all minimum price guarantees for imports of sugar from the ACP were discontinued. However, these minimum price guarantees had become increasingly irrelevant, given the closer links between global and EU sugar market price trends. With the wide variety of diverse factors influenc- ing global sugar prices, the way that specific ACP–EU sugar supply chains function is likely to take on growing sig- nificance. In this context, the chang- ing patterns of corporate ownership across the global sugar sector are likely to require close scrutiny. Price volatility on global sugar markets is increasing the importance of diver- sifying the revenue streams generated from sugar cane production. Price volatility on global sugar markets is increasing the importance of diversifying the revenue streams generated from sugar cane production. From an ACP sugar cane farming per- spective, the extent to which farmers are able to benefit from this process of revenue diversification is likely to be of growing importance. The ACP continues to be concerned about the direct and indirect price effects of quota abolition, including the impact of uncertainties on investment mobilisation for sugar sector restruc- turing. Throughout 2012, the ACP/ LDC sugar group continued to call for the continuation of EU sugar produc- tion quotas until 2020 and an exten- sion of sugar protocol accompanying measures programmes beyond 2014. The ACP/LDC group also continued to oppose any further liberalisation of EU sugar import arrangements. At the EU Agriculture Council of 18–19 March 2013, political agreement was reached to extend the sugar quota regime until the 2016/17 marketing year (MY). This provides the background for sugar sector developments in ACP regions, which are covered in the Agritrade companion special report, ‘Regional developments in ACP sugar sectors 2012/13’, 13 September 2013. 2. Latest developments Global sugar market developments In August 2012, the International Sugar Organization (ISO) reported a return to global sugar surpluses, with the stocks-to-use ratio rising to 40%. “A return to global sugar sur- pluses is expected to exert a downward pressure on prices” This signalled an end to the period of low stocks that prevailed from 2008–09 to 2011–12. This situation is expected to exert a downward pres- sure on prices.However, market prices remain vulnerable to production dis- ruptions. For example, there are con- cerns over the impact that the perilous financial state of a number of Brazil- ian sugar companies could have on ‘ratoon’ renewal (sugar cane cultivation practices). The expansion of biofuel production in recent years has strengthened the link between global oil price trends and global sugar price trends. Production decisions in Brazil provide the key interface in this regard. However, this is a multifaceted process. For example, in response to reduced US maize-based ethanol production, a larger volume of Brazilian sugar cane has been diverted to ethanol production (52% of cane supplies for ethanol, 48% for sugar). This shift in sugar cane usage was further supported by rumours of an increase in Brazilian blending require- ments (from 20 to 25%), which at a stroke would absorb an additional 20 million tonnes of cane (equivalent to 2.6 million tonnes of sugar). Stagnant demand in developed coun- tries, rising demand in developing country markets (including the ACP) and production responses to previ- ously high prices all further complicate global sugar market price formation. This raises challenges for ACP produc- ers seeking to maximise their finan- cial returns. Just how substantial this challenge can be was highlighted by a Rabobank report in September 2012. The Rabobank report noted a 20% increase in global sugar prices between mid June 2012 and the end of July 2012, with a corresponding decline in the subsequent weeks, following higher production forecasts. Despite sugar prices edging lower in 2012, average sugar prices over the next 10 years are projected to be above levels prevailing over the past decade, Executive brief: Update 2013 I 3http://agritrade.cta.int/ Sugar sector according to the OECD–FAO Agricul- tural Outlook of July 2012. (Raw and white sugar prices were projected at US$0.22/lb and US$0.26/lb respec- tively for MY 2021/22). However, it was acknowledged that “bouts of price surges and volatility remain a clear possibility”. Future global sugar price prospects are likely to impact on the nature of the future EU sugar regime, with the US Department of Agriculture (USDA) sug- gesting that higher prices could facili- tate the abolition of EU production quo- tas (see Agritrade article ‘Global price trends could facilitate “soft landing” for EU sugar production quota abolition’, 11 March 2012). However, shorter-term political considerations are currently dominating EU discussions. The functioning of the EU sugar market In 2011, high beet and sugar content yields led to high levels of EU out-of- quota sugar production (about 5 million tonnes white sugar equivalent), but in 2012 these levels fell by around 9%. In terms of market development, how- ever, the issue is not the overall level of EU sugar beet production as such, but the market management arrange- ments established by the EC alongside the continuation of EU sugar produc- tion quotas. Two stakeholder groups within the EU sugar sector, industrial sugar users and traditional raw cane sugar refin- ers, have faced particular problems as a result of the way the EU market has been managed since October 2010. While pre-reform sugar prices faced by EU industrial sugar users were high relative to world market prices, prices were stable and supplies guaranteed under annual supply contracts. In addi- tion, industrial users benefited from both tariff protection on products con- taining sugar and non-Annex I export refunds. With partial reform and higher, more volatile, world market prices, the con- text for securing sugar supplies has been transformed. This has led to either a move away from annual sup- ply contracts negotiated at the begin- ning of the season or much tougher contract negotiation, greatly complicat- ing the procurement challenges facing industrial sugar users. According to the Committee of Euro- pean Users of Sugar (CIUS), “EU sugar users have seen an increase of 40% in sugar prices within the last year [to June 2012], leading to significant finan- cial instability for many food manufac- turers across Europe.” “The present quota system has resulted in major supply short- ages and uncompetitive prices” In January 2013, it was argued that “the present quota system has resulted in major supply shortages and uncom- petitive prices”, while in February 2013 major sugar-using companies com- plained of “significant supply con- straints leading to sky-high prices” (see Agritrade article ‘Continued con- troversy over EC management of EU sugar regime’, 7 April 2013). Under current arrangements, while industrial users can procure as much sugar as required on the world mar- ket (i.e. from non-preferred supplies), high import duties are levied, raising the costs to industrial users with no access to preferential supplies. This has thrown up awkward competition issues, as some refiners and value- added processors have been able to secure better access to preferential sugar imports than other refiners and industrial users. The concerns of industrial sugar users also need to be seen against a back- ground of uncertainties over sugar market fundamentals and the recog- nition that “bouts of price surges and volatility remain a clear possibility” (see Agritrade article ‘Industrial users set out their views on sugar reform against backdrop of global price volatility’, 9 September 2012). For traditional raw cane sugar refin- ers, more immediate challenges have been faced, with Tate & Lyle Sugars (TLS) going so far as to argue that tra- ditional cane sugar refiners are being systematically discriminated against under the current management of the EU sugar regime (see Agritrade arti- cle ‘The future of EU sugar produc- tion quotas’, 23 September 2012). The reform of import licensing arrange- ments, which expanded the right to import raw sugar beyond traditional raw cane sugar refiners, coupled with the investments made by beet refiners, has led to an intensification of competi- tion for raw cane sugar supplies. This has occurred in a context where the ‘co-refiners’ are in a financial position to offer better prices for raw cane sugar (since their capital costs are covered by their beet processing operations). This, it is argued, has contributed to the widely divergent financial perfor- mances of traditional cane sugar refin- ers and co-refining beet processing companies (see Agritrade article ‘Tate and Lyle Sugars initiate a further legal case against EC management of EU sugar regime’, 9 D EU co-refiners enjoy cost advantages’ ecember 2012). In October 2012, analysis published by USDA noted that under the tariff-rate quota (TRQ) tendering system estab- lished by the EC during MY 2011/12, raw sugar was in such short supply that full-time refiners paid import duties of between €290 and €312.6 per tonne, a discount of only 14.5–7.8% on the full Executive brief: Update 2013 I 4http://agritrade.cta.int/ Sugar sector EU import duty. This gave rise to the production of refined white sugar at significantly higher cost than the aver- age EU price of domestically produced sugar. In the case of Tate & Lyle Sugars (TLS), these sugar supply problems have seen a major underutilisation of capac- ity (600,000 tonnes of refined sugar was produced in 2012, compared to 1.1 million tonnes in the pre-reform period). Portuguese cane sugar refiners have called on the EC to make it easier for full-time refiners to access raw sugar imports (see Agritrade article ‘EU co- refiners enjoy cost advantages’, 28 May 2012). It has been claimed that the EC’s man- agement of the EU sugar regime is “putting the entire cane refining sector at risk”. TLS has launched three legal claims against the EC for damages (totalling €198 million), for alleged mis- management of the EU sugar market in both 2010/11 and 2011/12. In response, the EC maintained that “the regulations contested by Tate and Lyle represent a balanced policy towards the sugar market.” Despite these complaints and legal challenges, the EC continues to make use of the market management meas- ures that have been at the centre of the criticism. On 8 November 2012, the EC announced its intentions “to allow 1.2 million tonnes of additional sugar on the internal market”, drawn from out- of-quota production and imports (see Agritrade article ‘EC announces tem- porary measures to boost sugar sup- plies’, 16 December 2012). In February 2013, CIUS criticised the implementa- tion of these measures and called on the EC and member states “to release the total volume of out-of-quota sugar in the next tranche due at the end of February to ease supply tensions” and eliminate all levies on out-of-quota sugar. The EC’s management of cur- rent policy tools thus continues to be controversial. “There has been considerable volatility in individual contract prices offered for ACP sugar since October 2010” There has been considerable volatil- ity in individual contract prices offered for ACP sugar since October 2010. According to USDA, the lowest aver- age monthly raw sugar contract price was 44.9% lower than the highest price paid during the period from November 2010 to November 2011, with a varia- tion of 32.7% for white sugar prices. Volatility continued to be a feature of raw sugar prices through to June 2012, but with far less volatility on white sugar prices. This volatility means that while some ACP suppliers have secured very good prices, others have obtained much lower prices, depending on the contracts negotiated and the market- ing arrangements set in place. This is in distinct contrast to the pre-reform period, when prices paid for ACP sugar were fixed and common to all contracts. This current price volatility highlights the importance of strength- ening the marketing of ACP sugar through mechanisms that maximise the returns to ACP exporters. Despite this volatility, from Novem- ber 2011 to June 2012 prices paid for ACP raw and refined sugars overall were respectively 43 and 53% higher on average than for the period from November 2009 to June 2010 (see Agr- itrade article ‘USDA highlights impact of sugar price volatility on ACP export- ers and traditional EU cane sugar refin- ers’, 9 December 2012). Perspectives on further EU sugar sector reforms In October 2011, the EC proposed two options for the abolition of EU sugar production quotas: the immediate abolition of production quotas in the 2015/16 season; or the abolition of production quotas slightly later in the 2017/18 season. The EU Agricultural Commissioner Dacian Cioloş stressed that this would not involve the abandonment of market management instruments, but rather the introduction of “modernised market management instruments”. The pro- posals provoked considerable debate. In January 2012, a number of EU member states governments echoed farmers’ calls to postpone production quota abolition until 2020, while other member states called for early abo- lition of production quotas (see Agri- trade article ‘State of play in the CAP reform debate’, 25 February 2012). This was an issue of considerable debate through 2012–13. In July 2012, the vice-chairman of the Sugar Board of the UK National Farm- ers Union speculated that divergent positions would give rise to a ‘euro- fudge’ (an unsatisfactory political compromise). “The EU Agricultural Council of March 2013 reached agree- ment on extending the sugar quota regime until the 2016/17 marketing year” This has indeed proved to be the case, with the EU Agriculture Council of 18–19 March 2013 reaching politi- cal agreement on extending the sugar quota regime until the 2016/17 market- ing year. Executive brief: Update 2013 I 5http://agritrade.cta.int/ Sugar sector The ACP group has argued that “the absence of EU sugar quotas would cost ACP/LDC sugar suppliers up to €850 million in lost revenue up to 2020” and would “lead to the death of the sugar sector” in certain ACP coun- tries. Indeed, it is widely believed the ACP will “lose more than anybody” under a liberalised EU market with a sugar “surplus”, which would lead to sugar prices falling “below the current support prices”. This has led to ACP Ministerial calls for the EU to initiate formal consultations with the ACP on the impact of the CAP reforms and to implement sugar protocol accompany- ing measures programmes in a more flexible manner. In contrast, in oral submissions made to hearings in the UK House of Lords, the UK Industrial Sugar Users Group (UKISUG) endorsed the CIUS posi- tion and supported EC proposals not to extend production quotas beyond 2015. UKISUG went further, calling for “complete deregulation of the EU sugar market”, with beet production quotas to be abolished at the earliest moment and “a guarantee of adequate imports of duty-free cane sugar after 2015”. Current arrangements were seen as driving up procurement costs for sugar “much higher than the €404 a tonne reference price”, with this posing par- ticular problems for smaller manufac- turers (see Agritrade article ‘ACP joins EU farmers in appeal to maintain sugar production quotas’, 6 August 2012). As an indication of the progress of the EU Council debate during 2012, the UK Agriculture Minister acknowledged that there was a majority of EU Ministers in favour of extending sugar production quotas until 2020. This now appears the most likely outcome from the final round of consultations in June 2013. If EU sugar production quotas are extended beyond 2015, then traditional cane refiners are seeking either dedi- cated import quotas or an automatic correction system to allow imports at zero duty up to the envisaged total of 3.5 million tonnes. This raises the important issue of the market manage- ment arrangements to be set in place during the transition to quota abolition. Calls have been made for the adop- tion of “timely and transparent” policy measures that are non-discriminatory vis-à-vis the different sugar sector stakeholders. In the longer term, traditional cane refiners favour unrestricted access to raw cane sugar imports if EU produc- tion quotas are abolished. EU sugar sector prospects and areas of policy uncertainty Since 2005, the EU has turned from a net exporter to a net importer of sugar. However, this position is pro- jected to change from 2018 onwards, with the EU projected to “move even closer to self-sufficiency and indeed from time to time be a net exporter”. In 2013 and 2014, EU sugar produc- tion is projected below 2012 levels, but from 2014 is expected to increase by 600,000 tonnes, before falling by 100,000 tonnes to 16.8 million tonnes from 2020. With total EU sugar con- sumption (excluding biofuel use) pro- jected to fall from current levels by 1 million tonnes, EU sugar production and consumption are projected to be in balance by 2020. “A steady decline in EU sugar imports is projected – falling from 3.8m tonnes in 2011 to 1.5m tonnes in 2022” This is projected to result in a halv- ing of EU sugar exports between 2011 and 2022 and a steady decline in EU sugar imports, from 3.8 million tonnes in 2011 to 1.5 million tonnes from 2022 (see Agritrade article ‘EU sugar sec- tor developments and projections’, 7 April 2013). These projections, however, assume: the abolition of sugar production quo- tas in 2015, a prospect that is looking less likely; and no modification to the RED sustain- ability criteria. On 17 October 2012, the EC tabled proposals to: limit the amount of food-crop-based biofuels to be used in the transport sector by 2020 to the current level of 5%; “increase the minimum greenhouse gas saving threshold for new instal- lations to 60%”; and introduce indirect land use factors in calculating greenhouse gas savings (see Agritrade article ‘EU farmers and biofuel industry mobilise against the EC biofuel U-turn’, 16 December 2012). This proposal is still under discussion. However, on 12 September 2012, the French government called for “a pause in the development of biofuels competing with food”, and unilaterally announced a cap on the production of “crop based biofuels” at the cur- rent level of 7% (see Agritrade article ‘Growing calls for review of EU bio- fuels policy’, 18 November 2012). An EC impact assessment accompanying its proposals of 17 October concluded that capping production of crop-based biofuels has the advantage over other options of being simple in its design and implementation. Executive brief: Update 2013 I 6http://agritrade.cta.int/ Sugar sector Depending on the options chosen by EU Ministers for revision of the sustain- ability criteria, the use of sugar beet in bioethanol production could be unaf- fected, or it could double. Alternatively, imports of sugar-cane-based ethanol from sustainably certified production systems would increase. This would be likely to benefit Brazil rather than ACP sugar producers. However, it would be strongly influenced by the basis used for indirect land-use emission calculations, which could themselves lead to the establishment of produc- tion-system-based import tariffs, with lower tariffs only for those bioethanol imports that have less effect on indi- rect land use. The future of EU biofuel policy gives rise to uncertainties over the future prospects for the EU sugar sector. Farmers’ organisations and the bio- fuel industry have rejected allegations that biofuel policies were responsible for the prevailing high food prices, and are opposed to any changes in EU biofuel policies. Meanwhile, if EU sugar production quo- tas were extended to 2020, this would defer the date at which the EU moves towards greater self-sufficiency and the date at which a dramatic decline in EU sugar imports takes place. However, overall EC projections sug- gest that marketing opportunities for ACP sugar are likely to lie increasingly beyond the EU. Evolution of corporate engagement in ACP–EU sugar sector The complex reality facing ACP sugar producers in exporting to the EU market is further complicated by the changing pattern of EU–ACP corporate linkages. The two biggest corporate level developments, Associated British Food’s (ABF’s) purchase of a 51% stake in Illovo Sugar, and American Sugar Refiners’ (ASR’s) purchase of TLS, continue to work their way through the system of ACP–EU trade. ABF’s 51% share ownership in Illovo provides Illovo’s sugar operation in Malawi, Mozambique, Swaziland, Tanzania and Zambia with a direct link into the EU sugar market. Accord- ing to Illovo’s 2012 annual report, just under 28% of total Illovo sugar sales in 2011/12 went to preferential markets in the EU and US, mainly to the EU. Given that, prior to reform, ACP raw sugar exports went to traditional cane sugar refiners, including ABF’s main UK rival TLS, this changing pattern of owner- ship is likely to have had an impact on commercial relationships. In the course of 2012, it was announced that ASR had taken a majority share- holding in Belize Sugar Industries (BSI) (see Agritrade article ‘ASR to take shares in Belize Sugar Industries’, 9 July 2012). The access that this pro- vided ASR to fair-trade-certified pro- ducers in Belize was seen as a key factor in the investment decision (see Agritrade article ‘Fair-trade component key factor in BSI acquisition by ASR’, 2 December 2012). This move was complementary to TLS’s decision in 2008 to progressively convert its entire direct-consumption sugar range to fair- trade and to TLS’s growing interest in supplying fair-trade-certified sugar to European manufacturers. The purchase of BSI by ASR needs to be seen against the background of the difficulties faced by TLS in sourcing raw sugar under the reformed EU sugar regime; of ABFs’ takeover of Illovo; and also of the sale of the largest compo- nent of the Jamaican sugar sector to the Chinese-owned Pan Caribbean Sugar Company (PCSC), a subsidiary set up by the Chinese Complant group. In May 2012, PCSC secured the right to directly export its own sugar (see Agri- trade article ‘New marketing agency agreement signed with PCSC’, 18 June 2012). Despite support from TLS for fair-trade certification in Jamaica and efforts to secure long-term contracts, press reports indicated that for 2012/13 PCSC had signed a contract with the French company Sucden for the supply of 40,000 tonnes of raw sugar. Sucden, which controls some 15% of the world market in internationally traded sugars, is described as one of TLS’s main com- petitors (see Agritrade article ‘Barba- dos seeks Japanese support for sugar restructuring while efforts continue elsewhere’, 18 March 2013). However 2013 could well see a renewal of sugar exports to the EU from ASR- owned Central Romano Corporation in the Dominican Republic, given the reduced size of the US quota allocated to the Dominican Republic and the relative evolution of EU and US sugar prices (see Agritrade article ‘Develop- ments in the sugar sector in the Domin- ican Republic‘, 11 February 2013). “The ACP sugar trade into Europe is increasingly involved in a changing network of cor- porate alliances” The ACP sugar trade into Europe is increasingly involved in this changing network of corporate alliances. With considerable variation in prices paid under individual contracts for ACP sugar, how intra-corporate trading arrangements operate is likely to be increasingly critical to the actual prices obtained for individual sugar shipments from ACP suppliers to the EU (see Agritrade article ‘Short-term earnings windfall projected in Jamaican sugar sector’, 6 September 2011). Looking beyond these major corporate changes, in Eastern Africa, Mauritian Executive brief: Update 2013 I 7http://agritrade.cta.int/ Sugar sector companies are increasingly invest- ing in neighbouring Eastern African states. In September 2011, Omni- cane, the largest Mauritian sugar company, announced its investment of US$194 million in sugar production in Kenya in association with Kwale International Sugar Company. This move is expected to shake up the Kenyan sugar sector. Meanwhile, the second largest Mauritian miller, Alteo (the result of the merger between Deep River Beau Champ and Flacq United Estates), is “seeking strategic partners in East Africa to increase its sugar output” beyond the existing level of participation in the Tanzanian and Mozambican sugar sectors (see Agri- trade article ‘Second Mauritian sugar company looking to expand in Eastern Africa’ 18 February 2013). These moves highlight the scope for the growth of ACP-based sugar com- panies, with the expansion of sugar production under way in Eastern and Southern Africa. However, they also highlight the complex network of corporate relationships that exists. There is a particularly complex situ- ation evolving in the case of Mauri- tius, given the July 2008 agreement between the Mauritian Sugar Syndi- cate and Südzucker for the export of 400,000 tonnes of direct-consumption sugar per annum to the EU market and Alteo’s partnership with the French sugar company Tereos in Mozambique. The process of EU corporate restruc- turing thus reaches into ACP sugar sectors and gives rise to increasingly complex networks of temporary supply arrangements and longer-term corpo- rate alliances. 3. Implications for the ACP Getting to grips with transitional challenges Calls from traditional refiners for either the re-establishment of dedicated import quotas or unrestricted duty-free access for raw sugar up to a ceiling of 3.5 million tonnes, if implemented, would be likely to impact on the com- mercial position of ACP sugar export- ers in contract negotiations with EU importers. This would arise either from a reduction in the number of buyers competing for ACP sugar supplies, or from an increase in the number of potential sellers of duty-free sugar to EU importers. In the coming years, therefore, ACP governments will have to grapple with two related challenges: the effects on ACP producers of the use of current market management tools and the effects of final abolition of EU sugar production quotas. Impact of deferring EU production quota abolition Even if the abolition of EU produc- tion quotas is deferred until 2020, the longer-term trend resulting from post- reform EU sugar sector adjustments is towards greater EU sugar self-suf- ficiency and a significant reduction in total EU sugar imports (–59% by 2020 compared to average imports over the 2009–11 period). This will carry profound implications for ACP sugar exporters, given the expansion of EU sugar TRQs that are in progress with competitive sugar exporters, as a result of the EU’s growing network of free- trade area agreements. This reinforces the long-term trend in the declining sig- nificance of EU sugar sector prefer- ences for ACP sugar exporters. Strengthening the function- ing of internal sugar supply chains While developments in Jamaica raise the issue of the future regulatory role of industry boards in determining the divi- sion of the proceeds, corporate devel- opments in Belize highlight the need for a modernised framework for the management of private-sector-based relationships along specific supply chains, in a context of vast inequali- ties in power relationships within sup- ply chains and heightened global price volatility. In this context, EU policy initiatives aimed at strengthening the function- ing of sugar sector supply chains could hold some important lessons. “EU policy initiatives aimed at strengthening the functioning of sugar sector supply chains could hold some important lessons” In particular, the future of the current inter-professional agreements (IPAs) in EU sugar sectors would appear to be of some considerable significance. Currently, in the UK, the IPA allows beet growers to negotiate collectively with monopoly processors, allowing a single selling voice to balance a single buying voice, thus allowing “an obvious imbal- ance of power in the supply chain” to be managed. In ACP countries, similar arrangements would appear to be needed, structured in ways that address the more com- plex issue of the division of proceeds from multiple revenue streams between farmers and millers. This is a complex issue. Different revenue sharing formu- las are in place across ACP countries, in a context where the contribution of independent producers to total sugar production varies greatly. Identifying Executive brief: Update 2013 I 8http://agritrade.cta.int/ Sugar sector best practices from a sugar farming perspective would appear to be an important priority for ACP sugar farm- ers’ organisations Strengthening the functioning of international sugar supply chains “The specific nature of con- tractual relationships will be the critical determinant of the wider development benefits of the ACP–EU sugar sector trade” Increasingly, the specific nature of contractual relationships established between raw sugar milling companies and refined sugar exporters in ACP countries and importers in the EU will be the critical determinant of the wider development benefits of the ACP–EU sugar sector trade. Issues related to transparency in price formation – given the increased volatil- ity in individual contract prices nego- tiated with ACP suppliers – are likely to take on growing significance. This is particularly the case in situations where sister companies from within a single corporate family control different stages of the trading process from mill to market. In this context, EC policy work on avoiding unfair trading practices could potentially be of interest to ACP gov- ernments. EU farmers have called on the EC “to take clear steps towards introducing legislation at EU level to help tackle unfair and abusive practices in the EU food chain” (see Agritrade article ‘EC policy developments on addressing unfair trading practices’, 4 March 2013). Equally, development NGOs have called for “swift and tough action” by the EC to end unfair trad- ing practices along international food supply chains, along the lines of the UK’s proposed Grocery Code Adjudi- cator (see Agritrade article ‘Report on improving functioning of food supply chain released’, 11 March 2013). ACP governments could usefully monitor developments in this area and seek their extension to the ACP–EU sugar trade where appropriate. Main sources Sugar sector 1. European Union Committee of the UK House of Lords, ‘Leaving a bitter taste? The EU Sugar Regime’, 4th report of session 2012–13, 4 September 2012 http://www.publications.parliament.uk/pa/ld201213/ldselect/ldeucom/44/44.pdf 2. UK House of Lords EU Agriculture, Fisheries, Environment and Energy Sub-Committee, ‘EU Sugar Regime: Oral evidence’, 23 July 2012 http://www.parliament.uk/documents/lords-committees/eu-sub-com-d/sugar/sugarevidence- volume1.pdf 3. Directorate General for Internal Policies, European Parliament, ‘Policy scenarios for EU sugar market reform’, IP/B/AGRI/IC/2012-60, 10 September 2012 http://www.europarl.europa.eu/committees/fr/studiesdownload.html?languageDocument=E N&file=78191 4. EC, ‘Proposal for a directive of the European Parliament and the Council amending Directive 80/70/EC relating to the quality of petrol and diesel fuels and amending Directive 2009 28/ EC on the promotion of the use of energy from renewable sources, COM (2012) 595 final, 17 October 2012 http://ec.europa.eu/energy/renewables/biofuels/doc/biofuels/com_2012_0595_en.pdf 5. EC DG Agriculture and Rural Development, ‘Prospects for agricultural markets and income in the EU 2012–2022’, full report, December 2012 http://ec.europa.eu/agriculture/publi/caprep/prospects2012/fullrep_en.pdf Executive brief: Update 2013 I 9http://agritrade.cta.int/ Sugar sector 6. USDA, ‘Post-reform European Union sugar: prospects for the future’, GAIN Report No. E60078, 21 December 2011 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Post-Reform%20European%20 Union%20Sugar%20-%20Prospects%20for%20the%20Future_Brussels%20USEU_EU- 27_12-21-2011.pdf 7. USDA, ‘EU27 Sugar: Semi-annual report’, GAIN Report No. E70035, 2 October 2012 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Sugar%20Semi-annual_Brus- sels%20USEU_EU-27_10-2-2012.pdf 8. ACP, ‘Resolution of the 95th session of the ACP Council of Ministers held in Port Vila (Va- nuatu) from 10th to 15th June 2012: Sugar’, p. 13 of PDF, 13 June 2012 http://www.acp.int/sites/acpsec.waw.be/files/ACP25006%2012%20ENG.pdf 9. FAO, ‘OECD-FAO Agricultural Outlook 2012-2022: Sugar’, July 2012 http://www.agri-outlook.org/document/11/0,3746, en_36774715_36775671_50613387_1_1_1_1,00.html 10. Confectionerynews.com, ‘“Enough is enough” says Nestlé procurement head on EU sugar regime’, 2 July 2012 http://www.confectionerynews.com/Regulation-Safety/Enough-is-enough-says-Nestle- procurement-head-on-EU-sugar-regime About this update This brief was updated in September 2013. The original executive brief was published in September 2013 and is available on request from agritrade-mail@cta.int Other publications in this series and additional resources on ACP—EU agriculture and fisheries trade issues can be found online at http://agritrade.cta.int/ Technical Centre for Agricultural and Rural Cooperation (ACP—EU) PO Box 380 6700 AJ Wageningen The Netherlands Tel: +31 (0) 317 467 100 E-mail: cta@cta.int - www.cta.int The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint ACP—EU institution active in agricultural and rural development in African, Caribbean and Pacific (ACP) countries. Its mission is to advance food and nutritional security, increase prosperity and encourage sound natural resource management. It does this by providing access to information and knowledge, facilitating policy dialogue and strengthening the capacity of agricultural and rural development institutions and communities in ACP countries. http://agritrade.cta.int/ Tea sector I 1 Although China and India are the lead- ing global tea producers, Kenya is the third largest tea producer and the largest producer of black tea. Kenya also plays a leading role in auctioning East African tea, although it is facing a growing chal- lenge from the Dubai Tea Trading Centre (DTTC). With growth in tea production slowing more quickly than the (also slowing) rate of growth in consumption, tea prices are projected to remain relatively high. Tea prices remained strong in 2012 until November, but then fell by 12.8% to Feb- ruary 2013. This downward trend has continued. In 2012, Kenyan smallholder tea produc- ers enjoyed good returns for the third year in succession. However, concerns are now being expressed over prospects for short-term earnings, which need to be considered in the context of rising production costs. In the longer term, it is thought that processes of climate change will pose a threat to tea produc- tion. Drought conditions have already affected rehabilitation efforts in countries such as Tanzania, and a major geographi- cal shift in production areas is likely to be required in Kenya. It is likely that ‘aid for trade’ support could play an important role in assisting with climate-change- related adjustments. While duty-free access to the EU mar- ket is enjoyed, there is growing concern related to non-tariff measures, including moves toward environmental (sustain- ability certification), social and ethical standards. This is particularly the case where meeting these standards increases producer costs without a commensurate improvement in producer returns. A key challenge remains: to identify ways in which ACP producers can move up the value chain, through improved packag- ing, branding, and product differentiation. update October 2013 Tea sector 1. Background and key issues 1. Background and key issues 2. Latest developments Global tea market developments Developments in ACP tea sectors Developments in tea production elsewhere in the Eastern and Southern African region Trends in product differentiation in the tea sector in 2012–13 Climate change and the tea sector Rising competition from Dubai Tea Trading Centre 3. Implications for the ACP Scope for regional initiatives in supporting movement up the value chain Getting ahead of standards certification requirements Getting to grips with the multifaceted impact of climate change Strengthening the legal framework for GI and trademark protection Executive brief: Update 2013 I 2http://agritrade.cta.int/ Tea sector Defining the role that the traditional corporate players who dominate the tea trade should play in local value- added processing and market diversi- fication initiatives is a critical challenge for ACP producers, processors and policy makers. ACP producers will need to stay on top of the changing culture of tea con- sumption by developing value-added processing and market diversifica- tion strategies. They will also need to respond to moves toward sustainability certification and the strong growth in demand for fair-trade and organic tea. Progress continued to be made in 2012 regarding ACP market diversification for tea exports and product differentia- tion, through the development of the Kenya Tea Mark of Origin initiative. Market diversification initiatives include promotional activities on national and regional markets. Past market experience suggests that, within the ACP region, a focus on increasing the quality of production, rather than simply expanding produc- tion, is likely to offer the best return to ACP producers, in view of evolving market trends. This involves focusing on meeting and staying ahead of evolv- ing standards in order to maximise access to price premiums. This could form part of wider efforts to deal with rising input costs. Four major policy issues were identified in the Agritrade 2012 Executive brief on tea (see Agritrade Executive brief ‘Tea sector’, 11 November 2012): getting to grips with production- related challenges; staying on top of evolving consump- tion trends, including meeting the growing demand for organic teas; mobilising resources to meet the challenge of climate change in the tea sector; dealing with rising input costs. 2. Latest developments Global tea market developments Tea production and export trends in 2012–13 World tea production rose by 3.1% between 2010 and 2011, after having increased by 5.7% between 2009 and 2010, according to the East African Tea Trade Association (EATTA). (1) While final data is not yet available for 2012, lower production is expected across major tea-growing countries such as Kenya, Sri Lanka and Malawi because of unfavourable weather conditions. (2) In China, tea production reached 1.8 million tonnes in 2012, up by 11.2% (3), but in India it dropped to 514.99 million kg in 2012, compared to 542.16 million kg the previous year. (4) Low rainfall in the main tea-producing area of India could further affect produc- tion in 2013, (5) the market effects of which might be compounded by limited carry-over stocks in India. Production in Sri Lanka, meanwhile, is largely sta- ble, having fallen marginally from peak levels in 2010. (6) Kenya, the world’s biggest exporter of black tea, produced 369 million kg of tea in 2012, a drop from 377 million kg in 2011 and 399 million kg in 2010. This led to high prices which, together with good weather, stimulated production. The Tea Board foresees a sharp rise in 2013 production, to 410–415 million kg of tea. Together with weaker demand, it is considered that this has contributed to price falls at auctions during the first half of 2013 (see Agritrade article ‘Tea market price falls raises supply chain issues in Kenya’, 19 August 2013). There was a continued decline in Sri Lankan tea exports in 2012 (−2.5% since 2010), (8) while Indian exports remained stable. Despite the scale of its production, China plays a rela- tively marginal role in exports. On the demand side, political upheavals in the Middle East and North Africa have served to reduce exports to countries in these regions, but with increasing exports to Iran, Russia and the countries of the Commonwealth of Independent States (CIS). India in particular has benefited from recent increased tea exports to Iran, as Iran seeks to rebuild stocks after previous trade disruptions linked to US-imposed financial sanctions. This has provided Indian exporters with some relief, despite the much more competitive position of Kenyan tea exporters on world markets. Developments in trade with Iran have played an important role in tea trade developments in 2012–13. Tea imports into Russia fell by 5% in 2012 (from 186,000 tonnes in 2011 to 177,000 tonnes), reflecting a high level of market saturation. Black tea accounts for 92% of Russian imports, making Russia potentially an important market for Kenya. Currently, 33% of Russian tea is sourced from Sri Lanka, 26% from India and 12% from China. (11) Tea price developments “Tea prices have risen over the last 5 years, driven by higher demand in emerging markets” Tea prices – which are set on the major national auctions of Mombasa in Kenya, Colombo in Sri Lanka and Executive brief: Update 2013 I 3http://agritrade.cta.int/ Tea sector Table 1: Mombasa auction average prices per tea exporting country (US$/kg) 2010 2011 2012 Kenya 2.76 2.98 3.18 Burundi 2.48 2.77 2.99 Rwanda 2.61 2.73 2.87 DRC 1.82 1.88 1.89 Uganda 1.77 1.76 1.87 Madagascar 1.95 1.99 1.82 Tanzania 1.52 1.38 1.46 Malawi 1.25 1.25 1.15 Mozambique 1.25 1.16 1.09 Total average price 2.54 2.72 2.88 Source: East African Tea Trade Association Calcutta in India – have risen over the last 5 years following the commodi- ties boom, driven by higher demand in emerging markets such as China and India. They continued to hold up well in 2012 on the various auctions around the world but dropped in the first half of 2013. In 2012 in Mombasa, the average price of tea rose to US$3.18/kg from US$2.98/kg in 2011 and US$2.76 in 2010 (a 6.7% increase in 2011 and a 15.2% increase compared to 2010 prices). However, according to the EATTA, during the first 6 months of 2013 compared to the same period in 2012, Kenyan prices have declined by 7%, as production increased by about 20%. This has had an impact on other Eastern African tea producers as well as major world players like Sri Lanka and India. In May 2013, the price of Burundian tea had fallen to US$2.32/kg from US$2.87 in May 2012 (−19%). However, according to the Tea Board of Kenya (TBK) prices are expected to rise in the second half of 2013. Overall Kenyan tea earnings for 2013 are expected to reach to KSh120 billion (US$1.40 bil- lion), up from KSh112 billion in 2012. This is higher than the TBK’s January 2013 estimate of earnings at KSh116 billion. Developments in ACP tea sectors Developments in tea production in Kenya Higher prices in 2012 boosted farmer income in Kenya and Eastern Africa as a whole. In September 2012, the Kenya Tea Development Agency (KTDA) announced “record earnings by smallholder farmers of KSh61.4 bil- lion, a 12.5% rise from the last financial year”. “Higher prices in 2012 boosted farmer income in Kenya and Eastern Africa as a whole” This resulted in a payout to smallholder tea farmers of KSh45.3 billion, 12% higher than in the 2010/11 season and 19% higher than in 2009/10. Prices for green leaf tea rose to KSh50.1/kg in 2011/12 (+3.3%). According to KTDA, this ensured that Kenya’s small-scale tea farmers continued to be “the high- est paid in the world” (see Agritrade article ‘Kenyan smallholder tea farm- ers enjoy higher prices’, 18 November 2012). “Growth in Kenya’s tea planta- tion sector has outperformed growth in the smallholder sector” Furthermore, growth in Kenya’s tea plantation sector has outperformed growth in the smallholder sector, with a 12% production rise by June 2012 compared to June 2011. Stronger earnings in 2012 stimulated invest- ment in production and, according to the TBK, “quite a number of middle and large estates… [replaced] old tea bushes with new high yielding clones”, with these now driving up production. However, challenges continue to be faced as a result of unpredictable exchange rates, decreasing farm sizes, high production costs and weather-related factors. Production costs have risen by 15% over the last year. Initiatives are in place to reduce energy costs, although pro- grammes started in 2007 have not yet achieved their target of a 10% reduc- tion in energy costs. While produc- tion costs account for 60% of the tea prices reached at the Mombasa tea auctions, at least 30% of this goes toward energy costs. It was estimated that reverting to hydro-energy would reduce energy costs to 12%, thereby substantially improving the produc- ers’ profit margin. (14) Current energy costs, which are denominated in US dollars, are highly dependent on vola- tile exchange rates. Executive brief: Update 2013 I 4http://agritrade.cta.int/ Tea sector Table 2: Kenyan tea exports January–May 2013 January–May 2012 Kg KSh Kg KSh Egypt 42,949,828 10,480,877,911 38,323,421 9,684,275,562 Pakistan 41,202,657 11,086,253,161 36,157,396 9,202,290,748 UK 26,449,655 6,203,393,696 23,466,906 5,395,781,522 Afghanistan 24,733,474 7,001,160,998 18,908,276 5,332,805,034 Sudan 12,009,478 2,557,263,490 11,694,335 1,880,251,509 United Arab Emirates 11,440,271 2,936,153,177 9,701,522 2,383,689,666 Russia 8,079,622 2,071,738,952 6,226,066 1,586,913,034 Yemen 6,128,185 1,699,472,955 5,787,563 1,621,220,173 Kazakhstan 6,004,061 2,009,044,085 4,891,002 1,366,125,334 Iran 3,856,621 1,138,497,753 2,144,430 577,186,548 Poland 2,412,215 600,008,010 2,021,130 486,995,242 Nigeria 2,306,026 578,375,443 1,523,567 365,623,898 Somalia 1,948,966 209,279,998 2,225,354 207,383,257 Ireland 1,800,847 580,761,278 2,048,554 559,793,442 India 1,704,799 365,222,980 1,298,639 295,038,160 Saudi Arabia 1,594,848 426,691,893 755,016 203,374,527 USA 1,588,600 656,793,518 959,032 294,650,302 Djibouti 1,071,218 117,793,998 951,173 87,769,903 Sub-total 197,281,371 50,718,783,305 169,083,382 41,531,167,868 All exports 204,437,477 52,572,853,065 177,605,316 43,754,184,119 Source: Source: East African Tea Trade Association Developments in tea trade in Kenya Although auction prices have gone down 7% over the first 6 months of 2013, the overall tea export prices from Kenya have gone up by 4.9%, from an average price of US$2.45/lb in January–June 2012 to US$2.57/lb in January–June 2013. Approximately 30% of the total volume exported by Kenya does not go through the Mom- basa auction. According to the EATTA, this tea is sold directly through negoti- ated long-term contracts (6 months to a year) and prices are set in advance. One of the main preoccupations of Kenya and other East African tea- producing countries is the reliance on a handful of markets, four of which are unstable states (Egypt, Pakistan, Afghanistan and Sudan). Another is the UK which, facing an economic down- turn, is searching for cheaper teas in response to consumer price concerns. Together with increased competition, this caused a decline in Kenyan tea exports to the UK of 14% between 2008 and 2012. However, a more posi- tive factor in this decline is the success of efforts to directly access markets that were previously served via the UK (see Agritrade interview ‘Kenya finding its market share in a demanding world tea market’, Mrs Sicily Kariuki, Manag- ing Director of the TBK, 28 April 2013). “East African tea exporters are concerned about their overde- pendence on a limited number of markets” Kenya and other East African tea exporters, concerned about their over- dependence on a limited number of markets, are placing a strong emphasis on market diversification, and looking at Kazakhstan, Ukraine, Poland and the Caucasian countries. Some success is being achieved in these markets, Executive brief: Update 2013 I 5http://agritrade.cta.int/ Tea sector Table 3: Five-year Kenyan tea export registrations (kg) 2008 2009 2010 2011 2012 Traditional Pakistan 61,299,327 54,638,689 76,210,654 80,810,694 90,394,302 Egypt 99,637,532 75,391,513 93,218,452 79,955,481 88,829,583 UK 69,210,250 64,179,439 73,035,089 68,315,829 59,312,290 Afghanistan 25,800,996 33,443,074 49,335,916 44,446,959 41,808,398 Sudan 22,985,238 25,476,533 31,238,302 26,119,755 24,883,737 Total 278,933,343 253,129,248 323,038,413 299,648,718 305,228,310 New Russia 15,903,585 13,518,878 15,694,042 17,458,854 20,554,978 United Arab Emirates 17,154,735 12,782,620 22,157,877 22,604,275 23,844,201 Yemen 13,185,712 13,330,704 16,345,851 14,803,961 13,797,897 Kazakhstan 10,345,181 9,122,806 10,082,803 11,932,985 12,006,396 Grand total 383,443,886 342,481,547 441,021,493 421,272,373 430,204,569 Source: East African Tea Trade Association which have a traditional tea drinking culture. For example, since exports were initiated in 2003, Kenya has enjoyed double-digit growth in sales to the Ukraine. Developing and increasing exports to other African markets (Nigeria, Niger, Ghana, Mali, etc.) is accorded high priority in East Africa. “Developing and increasing exports to other African mar- kets is accorded high priority in East Africa” Although these are not traditional tea drinking markets, Kenyan market research shows that there is consider- able market potential, and delegations are being sent to these potential new markets to identify customers. Indeed, African consumers might be considered a market with considerable potential for expanded tea consumption. There are, therefore, various programmes to develop domestic consumption of tea in Eastern Africa. This has included adver- tising campaigns, promotional events, and lobbying of the Kenyan government to reduce taxes on tea to make it more affordable to consumers. The option of diversifying into production of other teas, such as purple and green teas for export, is also being explored. In April 2013, the TBK in partnership with Trademark East Africa launched a new online trading portal aimed at reducing bureaucratic delays in tea trading. The system provides for online services such as licensing, registration and enquiries. (26) In January 2013, India, Indonesia, Kenya, Malawi, Rwanda and Sri Lanka – which together account for more than 80% of black tea output – formed the International Tea Producers’ Forum. All of these tea producers face similar challenges such as labour shortages, climate change and a need to improve agricultural practices. The aim of the initiative is to promote and develop the commodity and ensure that its pro- duction is sustainable. Developments in tea production elsewhere in the Eastern and Southern African region In April 2013, Rwanda’s Ministry of Agriculture unveiled the second phase of its National Agriculture Export Development Board programme, ‘New tea plantations and factory construction approach 2012–2017’. The objective of the programme is to increase the area of tea plantations by 18,000 ha by 2017, building on the first phase of the programme in which 20,665 ha of tea were planted. (20) Also in April, the French aid agency (AFD) signed a €1.2-million programme to reinforce the trading capacity of the Burundian state tea agency, OTB. The aim of this programme is to improve quality standards along the whole supply chain, as well as to improve the marketing capacities of OTB, par- ticularly its direct sales operations. In early 2013, with falling prices on the Mombasa auction affecting revenues, Executive brief: Update 2013 I 6http://agritrade.cta.int/ Tea sector the OTB reduced the volume of tea it placed for sale through the Mombasa tea auction, in the expectation of a price recovery. (21) This needs to be viewed against the background of a 3.6% increase in Burundian tea pro- duction between 2011 and 2012 (from 8,816 tonnes to 9,134 tonnes. (22) A delegation of ministers from Mozam- bique went on a fact-finding mission to India in September 2012 to gauge the interest of Indian entrepreneurs in investing in the Mozambican tea sector. Key challenges identified in Mozambique were low productiv- ity, quality issues and the need to increase local demand. (19) In Zimbabwe, the full potential of Makoni tea – which has alleged health benefits (similar to South Africa’s rooi- bos tea) linked to its high zinc content and caffeine-free attributes – has yet to be fully exploited through securing trademark or geographical indication (GI) protection. While there are held to be huge potential benefits associated with GI protection for speciality teas, the recent rooibos experience in South Africa (following a French company’s attempts in February 2013 to regis- ter trademarks containing the words ‘rooibos’ and ‘South African rooibos’) is illustrative of the challenges faced in this area. In the South African case, it is unclear whether trademark pro- tection or GI designation offers the most cost-effective form of product differentiation and intellectual prop- erty rights protection. Critically, the state of development of the national legal framework for trademark and GI protection is a major determinant of the relative costs and benefits of seeking trademark or GI protection (see Agritrade article ‘Legal and reg- ulatory constraints on GI protection illustrated’, 3 June 2013). In Malawi, meanwhile, ef forts are being made to create a tea auction floor, with the aim of maximising for- eign exchange earnings. However, in 2012, less than 1% of teas sold at the Mombasa tea auction originated in Malawi, suggesting that issues related to the volume of trade handled could hold back the development of this initiative. Trends in product dif ferentiation in the tea sector in 2012–13 Most of the tea exported from Eastern Africa is in bulk form, and only 12% of Kenyan tea produced by the crush- tear-curl manufacturing method is in a value-added form. “Moving into value-added pro- ducts in the long term requires a careful assessment of market dynamics” According to EATTA representatives, moving into value-added products in the long term requires a careful assessment of market dynamics, since it is not possible to compete head-to-head with companies such as Lipton, which buys Kenyan tea, pack- ages it and distributes it across the globe under internationally recognised brands. Realistically, options for value- added teas “will probably be in the newer markets”, with there being “a need to develop a long-term strategy with support from the government” to exploit opportunities in this area. In 2012, Tanzania’s production of value-added teas increased, follow- ing the opening of a new factory with a processing capacity of 1.5 million kg per annum. However, at present, this new investment is still only processing 4.2% of Tanzania’s national production (36 million kg per annum). “In May 2012 Fairtrade Eastern Africa was launched to develop and promote Fairtrade sales in the region” In terms of local market develop- ments, in May 2012 Fairtrade East- ern Africa was formally launched, explicitly to develop and promote Fairtrade-labelled sales in Eastern Africa. According to preliminary mar- ket research, out of a sample of con- sumers questioned, 86% of Kenyan consumers would look out for the Fairtrade mark when shopping, while 73% would be prepared to pay extra for a product with the Fairtrade label. In Kenya, four new Fairtrade-labelled teas were launched: Iriani tea and three Kericho Gold speciality teas: green tea, English Breakfast and Earl Grey. This initiative is backed by the UK Department for International Development, which provides sup- port to Fairtrade International through a £12m programme par tnership arrangement. Furthermore, Kenya’s leading cof- fee roaster and packer, Dormans, announced its plans to enter the tea market, with the launch of four brands, including one fair-trade brand. How- ever, the chairman of the EATTA has expressed reservations about Fair- trade labelling of tea, stating that the “expensive fee imposed by Fairtrade” was “prohibitive for local brands that sought the mark”. He maintained that improved terms of access to Fairtrade labelling were required if more than a handful of companies were to ben- efit (see Agritrade article ‘Tea market price falls raises supply chain issues in Kenya’, 19 August 2013). Executive brief: Update 2013 I 7http://agritrade.cta.int/ Tea sector Climate change and the tea sector In Kenya, the most serious long-term challenge facing the tea sector is cli- mate change. “The most serious long-term challenge facing the tea sector is climate change” A workshop took place in Kenya in 2013 to assess the impact of climate change on tea production. Currently tea is grown in Eastern Africa under rain-fed conditions, but rainfall patterns have proved increasingly erratic over the past decade. Current tea-growing areas go through a regular 3-month drought period between December and March, and this can cause losses of between 14 and 30% in yields. Frost threats follow for another 3 months and hail can also cause green leaf loss. (17) In addition, there are growing con- sumer concerns over ‘climate-friendly’ production processes. In order to tackle these challenges, the International Trade Centre (ITC) has facilitated the creation of a pub- lic–private partnership involving KTDA, the Ethical Tea Partnership (ETP), Rain- forest Alliance and FLO-CERT (the inspection and certification body for Fairtrade-labelled products), to train farmers and tea factory managers in both compliance with carbon emission standards and adaptation to climate change. (18) Furthermore, as the current major areas of production in Kenya become less suitable for tea production by 2020, with many areas unlikely to be tea-growing zones by 2050, it is criti- cally important for Kenya to develop a new tea zone map. This accompanies initiatives to develop weather risk insur- ance products for the agricultural sec- tor and to support farmers in engaging with climate-related restructuring pro- cesses (see Agritrade article ‘Kenyan smallholder tea farmers enjoy higher prices’, 18 November 2012). Rising competition from Dubai Tea Trading Centre In the short term, rising competition from DTTC is of concern, with the vol- umes sold at the Mombasa auction declining steadily, from 348 million kg in 2010 to 320 million kg in 2012 (−8%). Conversely, between 2007 and 2011, United Arab Emirates (UAE) tea imports have risen by around 50% in value, from US$324 million in 2007 to US$485 million in 2011; the country’s share of total global tea imports has also grown from 8.3% in 2007 to 9.4% in 2011. Indeed, the UAE has now become the world’s number one re- exporter of tea, with 60% of the world market (16). At present, Sri Lanka is the top sup- plier of tea to the UAE, providing around 20% of its 2010–11 imports, followed by India, with 8%. (15) How- ever, in April 2013 the Kenyan Export Promotion Council announced plans to open a tea warehouse in Dubai in 2014. This will ensure that Kenyan tea is always available at the Dubai auction centre and will potentially strengthen East African efforts to expand into non-traditional Asian and Eastern European countries. 3. Implications for the ACP Scope for regional initiatives in supporting movement up the value chain A critical challenge in the tea sector is how to use the emergence of new markets for tea to facilitate the transi- tion to the production and marketing of value-added tea from East Africa. “A critical challenge is how to use the emergence of new markets to facilitate transition to production and marketing of value-added tea” In terms of government support, the East African tea sector could potentially draw on the experience of the Carib- bean rum programme that ran from 2002 to 2010. Under the rum programme, the regional association of private sector rum producers, in close collaboration with national producers, elaborated a clear integrated strategy for the mar- keting and production of value-added quality branded and bottled rums. Other significant features included: close integration of marketing sup- port with investment support; leadership by the private sector with support by the government; mobilisation of ‘aid for trade’ to pro- vide core financing for the initiative. A similar approach to market reposi- tioning and product development could prove of considerable value in the East African tea sector. However, this will require: Executive brief: Update 2013 I 8http://agritrade.cta.int/ Tea sector a strong regional association, with the network of relationships required to design a marketing and produc- tion adjustment strategy that meets the needs and aspirations of its member associations and produc- tion enterprises; the administrative capacity and accountable management structures to manage the subsequent regional programme and financing facility; government assistance to bring the parties together to design such a programme, and to mobilise the necessary ‘aid for trade’ support for its implementation. Getting ahead of standards certification requirements In addition to efforts to move up the value chain, there need to be joint regional initiatives to identify and stay ahead of evolving market trends. These include growing demand for organic tea and sustainability certification of tea production. “There is a need for joint re- gional initiatives to identify and stay ahead of evolving market trends” Getting to grips with the costs involved in effectively meeting these certification requirements represents an ongoing challenge, with regional cooperation on the identification and dissemination of best practices potentially offering opportunities for cost savings. The continued growth of fair-trade market components in both estab- lished and emerging fair-trade markets (including in Africa) possibly offers price advantages if the costs of certification can be kept to a minimum. The launch of Fairtrade Eastern Africa could offer significant costs savings in this regard, if internationally acceptable local certi- fication capacities can be established. Getting to grips with the multifaceted impact of climate change Although there are already initiatives to get to grips with production challenges related to climate change, the effects of climate change are likely to be mul- tifaceted. For example, given the cur- rent altitude at which tea is produced in Kenya, there are minimal incidences of disease and pest that need to be addressed, meaning that pesticide residues are not currently a problem. But with climate change, tea produc- tion may need to relocate to new areas where pesticide use may be required, which would then give rise to pesticide residue management issues. Consid- eration of the likelier knock-on effects of climate change should form an inte- gral part of the proactive responses to climate change. Strengthening the legal framework for GI and trademark protection Given the scope for the marketing of quality-differentiated speciality teas, there would appear also to be scope for regional cooperation in both iden- tifying the most cost-effective means of securing intellectual property right protection for speciality tea products, and in establishing appropriate legal frameworks for GI and trademark protection. Main sources Markets 1. Tea Research Foundation of Kenya, ‘Analysis of links between climate variables and tea production in the recent past and GIS analysis of tea sustainability under future climate change scenarios’, presentation by B.C. Chesere, 29–30 April 2013 http://www.fao.org/fileadmin/templates/est/Climate_change/kenya/Navaisha_wkp_1/FAO_ TRFK_CHESEREK_climate_scenarios_and_tea.pdf 2. Rebecca Nemec, ‘All the tea in China: Modeling crop protection in a changing climate’, 5th Annual Friedman Fellows Symposium, 17 November 2012 http://www.friedmandiabetesinstitute.com/fellows/2012_symposium 3. Delmas, Com-Watch, various issues http://www.delmas.fr/actualite/delmas-com-watch Executive brief: Update 2013 I 9http://agritrade.cta.int/ Tea sector Technical Centre for Agricultural and Rural Cooperation (ACP—EU) PO Box 380 6700 AJ Wageningen The Netherlands Tel: +31 (0) 317 467 100 E-mail: cta@cta.int - www.cta.int The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint ACP—EU institution active in agricultural and rural development in African, Caribbean and Pacific (ACP) countries. Its mission is to advance food and nutritional security, increase prosperity and encourage sound natural resource management. It does this by providing access to information and knowledge, facilitating policy dialogue and strengthening the capacity of agricultural and rural development institutions and communities in ACP countries. About this update This brief was updated in October 2013 to reflect developments since October 2012. Other publications in this series and additional resources on ACP–EU agriculture and fisheries trade issues can be found online at http://agritrade.cta.int/ 4. Commodafrica, various articles www.commodafrica.com 5. New Times, ‘Rwanda: Govt to double tea production’, 21 April 2013 http://allafrica.com/stories/201304220030.html 6. New Times, ‘Rwanda: Maximise Africa’s tea potential, Kagame tells producers, dealers’, 30 August 2013 http://allafrica.com/stories/201308300558.html 7. New Times, ‘Kitabi scoops EATTA best quality tea accolade’, 2 September 2013 http://allafrica.com/stories/201309030184.html 8. East African Tea Trade Association (EATTA), tea statistics http://www.eatta.com/public_site/webroot/index.php/news-events 9. FAO, Intergovernmental Group on Tea, document prepared for the meeting in Colombo (30 Jan–1 Feb 2012), December 2011 http://www.fao.org/fileadmin/templates/est/COMM_MARKETS_MONITORING/Tea/Docu- ments/IGG_20/12-2-demand.pdf 10. International Tea Committee http://www.inttea.com/ Executive brief: Update 2013 I 1http://agritrade.cta.int/ The EU is the largest world market for tuna products, which are sold mainly in canned form – only around 4% of EU tuna imports being sold fresh as a premium product – often coming from countries where EU companies have invested in processing facilities and where the EU has bilateral fishing agreements (see Agri- trade article ‘The EU remains the larg- est world market for fish’, 19 November 2012). The EU has a large tropical tuna fish- ing fleet comprising approximately 50 tropical tuna purse seiners, 260 sur- face longliners, and a dozen pole-and- liners. Altogether, the EU tropical tuna fleets represent more than 40% of EU external fleets’ fishing capacity. These vessels are fishing in the Atlantic, Indian and Pacific Oceans, where they operate both under international regulatory frame- works – regional fisheries management organisations (RFMOs) – and in the exclu- sive economic zones (EEZs) of coastal nations, including ACP countries, under bilateral fisheries agreements and private licensing. The EU tuna fishing fleets are seeking access to new fishing grounds, including through new EU fisheries agree- ments (e.g. with Cook Islands and Tuvalu) or under private agreements (with Liberia, Sierra Leone, etc.). “The EU tropical tuna fishing fleets are seeking access to new fishing grounds, through new EU agreements or under private agreements” Most of the EU tuna catch is destined for the EU markets, and is processed in the EU (mainly in southern European member states), ACP and Generalised update October 2013 Tuna sector: Issues and challenges 1. Background and key issues 1. Background and key issues 2. Latest developments Main developments in global tuna markets Increasing ACP capacity to address the challenges of current EU SPS and IUU regulations EU sector lobbies to increase standards for tuna production The value of relaxing the rules of origin discussed in the Pacific Main developments in tuna fisheries management Development of EU regional tuna fisheries strategies 3. Implications for the ACP Monitoring the development of EU comprehensive regional fisheries strategies Increasing benefits/returns from sustainable exploitation of ACP tuna resources Taking advantage of EU markets demand for sustainability © Roro Fernández Executive brief: Update 2013 I 2http://agritrade.cta.int/ Tuna sector: Issues and challenges System of Preference (GSP) benefi- ciary countries. This makes the rules of origin discussions in the Economic Partnership Agreement (EPA) negotia- tions particularly sensitive. The EU tuna sector is vertically inte- grated, with international capital increasingly involved in the sector, par- ticularly from Asia, which is an impor- tant element for ACP governments to consider in their efforts to promote local value-added processing. Management measures in the five tropical tuna RFMOs are increasingly being harmonised through what is known as “the Kobe process”. This includes discussions on the measur- ing, management and allocation of the fishing capacity – an important element to consider for ACP governments wish- ing to promote the development of their own tuna fishing capacity. “As part of the implementation of its reformed policy, the EU is developing regional fisheries strategies” As part of the implementation of its reformed Common Fisheries Policy (CFP), the EU is taking steps to imple- ment regional tuna fisheries strategies in the fishing areas where its fleets are active. 2. Latest developments Main developments in global tuna markets Main developments in global tuna markets In 2012, the volume of world tuna catches was stable. This led to a sharp rise in tuna raw material prices. Despite these increasing prices – the value of imported tuna increased by 20% – imports of canned tuna into the eurozone still rose 5% in volume terms, despite the financial crisis. Ecuador has now become one of the main suppliers to the key EU tuna mar- kets in Germany and the UK. Pacific ACP and African countries supplied lower amounts of canned tuna to these markets. In France, the main supplier has become Spain, thanks to the suc- cessful promotion of Spanish high-end canned tuna products. High prices for tuna catches have ben- efited fishing fleets, which have been hard hit in recent years by the high cost of fuel. In contrast, tuna processors are increasingly concerned about the high cost of tuna raw material, given con- sumer reluctance to pay much more for their canned tuna. According to Forum Fisheries Agency (FFA) Fisheries Trade News in the Pacific ACP, the mismatch between processing capacity and resource availability remains a concern. With new plants being built, processing capacity in emerging economies is increasing. “For Pacific ACP states, the mismatch between low pro- cessing capacity and high availability of tuna resources is a concern” At times this means that tuna from the Western and Central Pacific Ocean is being transported to the Eastern Pacific to stave off supply shortages in the Latin American processing facilities. This is undermining efforts to develop tuna processing in Pacific ACP (PACP) countries (see Agritrade article ‘Tuna demand grows in crisis-stricken euro- zone despite higher prices’, 27 August 2012). In 2012 in the Pacific, the first Pacific tuna fishery received the Marine Stew- ardship Council (MSC) eco-label. While interest in sustainably sourced tuna is growing in Europe, it remains to be seen whether consumers are ready to pay more for eco-labelled products, given current economic difficulties, or whether retailers will simply make eco- labelling a prerequisite for procurement (see Agritrade article ‘Canned tuna: Eco-labelled products are increas- ingly popular in Europe’, 2 July 2012). Some experts highlighted that despite the price of skipjack on the global mar- ket more than doubling in the last year, there could still be scope for securing price premiums for MSC-certified skip- jack from sustainably managed fisher- ies in the Pacific (up to a 20% price premium) (see Agritrade article ‘Pacific: Tuna fishing industry is not supplying MSC tuna’, 19 November 2012). Increasing ACP capacity to address the challenges of current EU SPS and IUU regulations During 2012–13 it has become appar- ent that despite the challenges faced in meeting EU regulatory requirements on sanitary and phytosanitary (SPS) standards and illegal, unreported and unregulated (IUU) fishing, ACP tuna producing countries are increasingly complying with these requirements. “ACP tuna producing countries are increasingly complying with existing EU SPS and IUU requirements” This was the case for the Fiji Albacore Tuna Longline Fishery, the first Fiji fish- eries to be certified by the MSC. How- ever, in November 2012, Fiji was noti- fied that it could face trade sanctions by the EU for non-cooperation in the fight against IUU fishing. In particular, shortcomings regarding the monitor- Executive brief: Update 2013 I 3http://agritrade.cta.int/ Tuna sector: Issues and challenges ing, control and surveillance of fishing activities were identified. According to the European Commission, these are linked with a lack of proper legal instru- ments, particularly specific provisions in the national legal framework refer- ring to measures to combat, deter and eliminate IUU fishing activities (see Agr- itrade article ‘Fiji Albacore tuna to get MSC certification, but will it be allowed on the EU market’, 28 January 2013). In addition, from 2007, Fiji tuna prod- ucts had already been banned from EU markets for lack of compliance with the EU SPS standards. Authorities and the private sector from Fiji reacted to this situation and, in June 2013, the first consignment of MSC- labelled tuna left Fiji for Spain. In addi- tion to gaining access to new markets, local tuna producers have also been able to add value to their tuna products to enhance their competitiveness and increase export earnings. The MSC- certified albacore loins are sold directly to Europe – either fresh or frozen to be served as steaks – rather than exported frozen whole for canning as before. This creates more jobs locally for loin processing, and the net return is higher (see Agritrade article ‘First MSC-certified tuna from the Pacific enters EU market’, 22 July 2013). Another example of the increasing capacity of ACP countries to address EU regulations applying to tuna imports is the regional cooperation initiated in 2013 in the context of the fight against IUU fishing. The EC informed import- ers in early 2013 about the risk of tuna imported from West Africa coming from IUU sources. This caused ACP coastal states to increase their level of cooperation in deterring IUU fish- ing. In December 2012, as informa- tion was received by Liberian authori- ties that an IUU fishing vessel was about to enter port in Mauritius, the West African country sent an official request to the Mauritian government for assistance and inspection of the vessel. The inspection confirmed the suspicions that illegal fishing had been taking place in Liberian waters. During the inspection, authorities also found a forged Liberian fishing licence. Sev- eral countries in the Western Indian Ocean have since denied granting a fishing licence to this vessel or denied permission to offload its catches (see Agritrade article ‘Concerns about IUU tuna from West Africa entering UK’, 7 April 2013) EU sector lobbies to increase standards for tuna production Concerning discussions on the reform of the EU Common Market Organisa- tion for Fish and Aquaculture prod- ucts (see Agritrade Executive brief: Update ‘ACP–EU Fisheries: Market access and trade’, forthcoming 2013), during 2012–13, the EU tuna industry has been lobbying for the application of stricter standards to imports, par- ticularly relating to negotiations of free trade agreements (FTAs). “The EU tuna industry has been lobbying for the applica- tion of stricter environmen- tal and social standards on imports” In 2012, ANFACO, the Spanish-based National Association of Sea and Fish Canned Food Producers, commis- sioned a report on forced labour in the production chain of tuna in the Philippines. The findings highlight serious abuses in both the fishing and processing sector. Spanish import- ers, as well as purse seiners’ organi- sations, strongly oppose products resulting from such operations hav- ing free access to the EU market. This is happening at a time when EU and ASEAN (including the Philippines) are continuing to negotiate an FTA. ANFACO clarified that although they will not stop importing tuna from the Philippines, they will exercise “extreme controls of the raw material from Phil- ippine companies that do not respect labour standards” set by the Interna- tional Labour Organization (see Agri- trade article ‘Spanish processors are to examine labour conditions of tuna imports’, 16 December 2012). In mid 2013, the EU started nego- tiations for a comprehensive FTA with Thailand, the latest in a series with ASEAN countries. Even in the absence of an FTA, Thailand has become a pri- mary source of canned tuna. EURO- THON has therefore requested that the European tuna sector platform treat tuna products sensitively in the FTA negotiations with Thailand: that is, tuna products should either be excluded from the scope of tariff elimination commitments; or market access should be linked to “a high level of compliance with sound governance, human rights and global environmental protection”. At a minimum this would be consist- ent with the standards applied under the EU’s GSP+ trade arrangement. It is maintained that this would ensure a ‘level playing field’ between EU and third country tuna sector enterprises (see Agritrade article ‘FTA negotiations with Thailand to promote fish exports to the EU’, 3 June 2013). The value of relaxing the rules of origin discussed in the Pacific Through the negotiation of a compre- hensive EPA, ACP Pacific island mem- bers are seeking access to European markets for their fresh and chilled tuna products, on the basis of the applica- tion of global sourcing rules of origin. According to some observers, it would give a boost to fresh/frozen longline tuna operations, creating a significant Executive brief: Update 2013 I 4http://agritrade.cta.int/ Tuna sector: Issues and challenges number of jobs – mainly benefiting small island states that do not have canneries or processing facilities. Reports have suggested that the EU would positively consider this request, in the context of the comprehensive EPA, if it were linked to access for EU tuna fleets to PACP tuna resources. However, the Director of the Parties of the Nauru agreement (PNA) has ques- tioned the benefits of such a deal, as the region may end up with an EPA that provides global sourcing for fresh/ chilled fish products, but, on the other hand, will have to bear disproportionate costs of compliance with a variety of requirements, such as SPS standards, to access the EU market (see Agritrade article ‘PNA director questions Pacific ACP approach of EPA negotiations on fisheries’, 28 January 2013). In this context it should be noted that most Pacific island nations, while resource-rich, cannot support can- neries, so they must look to smaller- scale processing of fresh and frozen fish – typically from longliners. How- ever, such a development is strongly opposed by other fleets – such as purse seiners, including EU operators – who have already invested in joint ventures elsewhere (e.g. in Ecuador) and therefore want to continue sourc- ing their raw materials cheaply from the Pacific region (see Agritrade interview, ‘If we achieve increased domestica- tion of foreign longline fleets, we won’t need global sourcing derogation’, 6 July 2013). In this interview, the Commercial Advi- sor of the PNA further argued that if some of the fleets currently operat- ing in Pacific island waters were fully domesticated in the Pacific islands, there would be enough originating tuna available to eradicate the need for a global sourcing derogation under the rules of origin. Currently, almost 85% of PACP tuna is caught by fleets from USA, Japan, Taiwan, Korea, Philippines, China and Spain. Only a small amount of that tuna remains in the region for processing – Asian and Latin American canneries are heavily reliant upon tuna caught in PACP EEZs. “Pacific ACP states need more foreign partners for onshore job creation, and more fishing joint venture operations, inclu- ding with EU companies The Commercial Advisor stressed that the region needs more foreign part- ners’ participation in onshore job crea- tion and manufacturing, and more joint venture fishing operations between local and foreign fishing companies, including from the EU. Main developments in tuna fisheries management Within the tuna RFMOs The Indian Ocean Tuna Commission (IOTC) members – including several ACP countries and the EU – have agreed to the principle of introducing fishing limits based on the precaution- ary approach. However, Greenpeace believes that the IOTC lacks the data needed to properly manage its fishing capacity and effort, since this requires all fishing vessels active in the IOTC fisheries to be identified, together with their fishing capacity characteristics. According to Greenpeace, as a con- sequence of this lack of data, sev- eral Indian Ocean coastal countries – including ACP countries – planning to expand their tuna fleets, are doing so without a clear understanding of how much fishing capacity is currently deployed in the region. Such a situation jeopardises the long-term sustainabil- ity and profitability of fisheries in the IOTC area as well as the aspirations of developing coastal states to ben- efit more from the exploitation of tuna resources. Non-governmental organi- sations (NGOs) have also highlighted the increasing use of fish aggregating devices (FADs), which act as a capac- ity multiplier and ensure that the fish- ing effort deployed remains high even where the number of purse seiners has decreased (see Agritrade article ‘Meas- uring fishing capacity in the Indian Ocean: “An essential step for sound management”, says Greenpeace’, 1 July 2013). Fishing with FADs has come under par- ticular criticism over the last 12 months, not because it increases fishing capac- ity, but because it leads to large by- catches of sensitive species such as sharks or marine turtles. “Fishing with FADs has come under particular criticism, as it increases fishing capacity and leads to large by-catches” Some NGOs have campaigned and put pressure on EU retailers to shift their supply of tuna from purse seining using FADs to pole-and-line and FAD-free fishing operations. During 2012–13 considerable effort has gone into increasing tuna supplies from pole-and-line fishing, which is consid- ered the most sustainable catching method, although concerns have been expressed about the sustainability of associated bait fisheries. In 2012, the International Pole and Line Foundation (IPNLF) was launched with the objec- tive of helping develop sustainable and equitable pole-and-line fisheries and of increasing the market share of sustainably and equitably caught pole- and-line tuna. IPNLF is active in the Maldives and Indonesia, but is seeking to expand its work to other countries including ACP tuna producing coun- tries like Ghana, Mozambique, Sen- egal and the small island states in the Executive brief: Update 2013 I 5http://agritrade.cta.int/ Tuna sector: Issues and challenges Pacific region. This expansion should help address a growing demand for pole-and-line tuna in Europe, par- ticularly in the UK, the Netherlands, Germany, France, Austria and Nordic countries (see Agritrade article ‘New foundation to support the global sup- ply of pole-and-line caught tuna’, 28 May 2012). However, a study highlighted that a total ban on FAD fishing might result in the purse seine fleet leaving the Indian Ocean altogether. This would carry major consequences for the econo- mies of those coastal countries. Sub- stituting pole-and-line production for purse seiners would actually result in a sixfold increase in the catch of non-tar- get species, double the fuel used in the fishery, and would raise issues regard- ing the sustainable exploitation of bait fisheries. The study emphasised that landings by pole-and-line would never be able to supply the volume of raw material that purse seiners produce for the canning industry, and concluded that there was little chance of pole- and-line fishing developing in the region unless there were a huge differential in landed price for pole-and-line-caught tuna and purse seine-caught tuna (see Agritrade article ‘Study examines EU and other tuna fleets’ by-catch and dis- cards in Indian Ocean’, 29 April 2013). Main developments in Fisheries Partnerships Agreements After 3 years without an agreement, Mauritius signed a new tuna Fisheries Partnership Agreement (FPA) and pro- tocol in 2012. This led to local opposi- tion by fishers and civil society, who demanded greater transparency in the negotiation process to guarantee that the full range of interests – fishers, processors, consumers, civil society – was properly taken into account. It was particularly considered that rules gov- erning the by-catches of sharks by EU tuna fleets should have been included in the agreement, as was the case in the Madagascar–EU FPA. This led to the Mauritian authorities recognising the need to improve stakeholder par- ticipation in the fisheries sector, with a proposal put forward to establish a Mauritian consultative committee on fisheries and maritime issues (see Agri- trade interview ‘A transparent, sustain- able and equitable agreement with the EU will have repercussions for Asian fishing fleets active in Mauritian waters’, 10 March 2013). “In the context of the FPA ne- gotiations, Mauritius proposed the setting up of a Mauritian stakeholders’ consultative committee on fisheries” In 2013, the EU and Côte d’Ivoire agreed on a new 5-year tuna FPA pro- tocol. Fisheries sector assistance has been increased to take into account the situation of the fishing administra- tion in Côte d’Ivoire after the civil war and to help it to accept its international obligations in terms of port state con- trol. The Côte d’Ivoire FPA evaluation highlights that the agreement with Côte d’Ivoire is of particular strategic importance, as it allows purse seine fishing to take place while en route to Abidjan, the chief landing port in the region for EU tuna vessels. EU ves- sels are the main suppliers for the three Abidjan tuna canneries, providing them with around 70% of their raw mate- rial. They also account for half of the transhipped quantities, providing about 11,000 tonnes of fish to the national market. The presence of EU vessels in the port of Abidjan generates sig- nificant economic benefits, with about 21,000 people depending on the EU fleet’s presence (see Agritrade article ‘New protocol to EU – Côte d’Ivoire Fisheries Partnership Agreement’, 24 February 2013). At the same time, however, a deadline was finalised for the lapsing of market access regulation (MAR) 1528/2007, which provides transitional duty-free, quota-free access to the EU market for those ACP countries whose gov- ernments have initialled interim EPAs, pending the conclusion of the full EPA process and the entry into force of the full EPA agreement. This means that if by 1 October 2014 the full EPA process is not concluded (either nationally or regionally) and the agreement has not yet entered into force, then the duty- free access to the EU market will lapse and the appropriate GSP duties will be imposed on imports into the EU. This exclusively affects the non-least devel- oped ACP countries that are not eligible for duty-free, quota-free access under the EU’s ’Everything But Arms’ (EBA) arrangement, including Côte d’Ivoire. Any withdrawal of Côte d’Ivoire’s tariff preferences for the EU market would affect the whole equilibrium of the EU– Côte d’Ivoire FPA (see Agritrade article ‘Deadline for ending free EU market access for Côte d’Ivoire, Ghana, Kenya and Namibia’, 13 June 2013). “Any withdrawal of Côte d’Ivoire’s tariff preferences for the EU market would affect the whole equilibrium of the EU–Côte d’Ivoire FPA” In 2012, the EC initialled an access agreement with Kiribati that ignores the regional access allocation system – the Vessel Day Scheme (VDS). The European Parliament Development Committee pointed out that the agree- ment was causing significant tensions, both between the EU and some Pacific island countries, and between Kiribati and the other Pacific island countries, with the latter voicing concerns about the EU acting in bad faith and breaking regional solidarity. The Development Committee proposed the rejection of the FPA and called on the EC to Executive brief: Update 2013 I 6http://agritrade.cta.int/ Tuna sector: Issues and challenges renegotiate the Protocol to incorporate the provisions of any regional and sub- regional agreement or arrangement binding on Kiribati, including the VDS scheme (see Agritrade article ‘“Global sourcing derogation in EPA should not be linked to access to resources con- siderations”, say Pacific ACP ministers’, 13 June 2013). Development of EU regional tuna fisheries strategies In its communication on the future external dimension of the CFP, pub- lished in 2011, the EC highlighted its intention to develop regional fisheries strategies in the context of its relations with third countries. In an interview, a representative of the EU tuna sector highlighted that such regional strategies are crucial for tuna fishing. It was maintained that such regional strategies should support efforts by the countries of a given region to harmonise their poli- cies, particularly regarding conditions of access for distant-water fishing fleets, scientific cooperation and the fight against illegal fishing. Another proposal put forward by the tuna sec- tor was that consideration should be given by partner countries (in particular those that have tuna FPAs with the EU) to developing “specialisation” within a region: processing units, regional training centres, etc. This would also need to involve a dialogue between the coastal states to determine how the various benefits of operations by distant-water fishing fleets should be shared. If the setting up of processing plants is indeed a key matter to exam- ine within this framework, the payment of harmonised access costs, repre- senting a fair share of the value of the catches, is another important element to be discussed at the regional level (see Agritrade interview ‘EU regional fisheries strategies should focus on supporting harmonisation and spe- cialisation’, 11 November 2012). In mid 2013, the European Parliament Fisheries Committee took a step fur- ther, by tabling a first proposal for a comprehensive EU fishery strategy for the Pacific region. This could be a model for further proposals of EU strategies in other regions where EU tropical tuna fleets are active. “A first proposal has been tabled to develop a compre- hensive fisheries strategy for the Pacific region – this could be a model for other regions” The EP Fisheries Committee proposal urges the Commission to ensure the coordination of EU policies affecting the Pacific region, such as fisheries, trade and development, with a view to maximising the benefits both for the Pacific states and the EU. The proposal reiterates the point that no further derogation on rules of origin should be given in the EPA negotiations with the PACP countries without the granting of reciprocal benefits to the EU fishing industry, such as access to fisheries resources in those countries’ EEZs. It calls on the Commission to provide for the establishment of a longer-term strategy on access for the EU fleet to the EEZs of the countries of the region, based on a regional framework agree- ment between the EU and the coun- tries of the Western and Central Pacific, negotiated with the FFA, which would then be given concrete form in bilateral fisheries cooperation agreements with the countries concerned. The proposal goes further and sug- gests this regional agreement should be based on the VDS scheme already in place, although this would represent a U-turn compared to earlier EU posi- tions. It would, however, require that measures were adopted to ensure the transparency of the VDS, its implemen- tation by all the parties concerned and its compliance with the best available scientific advice. Finally, the proposal suggests that the negotiation of this regional agreement should explore ways of channelling European Development Fund (EDF) assistance for the region through the FFA, since the PACP countries do not have the human and technical resources to adequately utilise avail- able EDF funding (see Agritrade arti- cle ‘European Parliament to propose a comprehensive fishery strategy in the Pacific region’, 5 August 2013). 3. Implications for the ACP Monitoring the develop- ment of EU comprehen- sive regional fisheries strategies The development by the EU of propos- als to develop comprehensive regional fisheries strategies could be a posi- tive step if this were implemented in a manner consistent with the EU’s ‘Policy Coherence for Development’ commit- ments, since this would place ACP fish- eries sector development aspirations at the heart of such strategies. It is, therefore, crucial that ACP countries monitor these developments and find appropriate ways to make their con- cerns heard by the EU institutions. Current proposals to formally link fish- eries access to EDF aid deployment are seen by several ACP countries as a particular cause for concern. They consider it to be contradictory to the Executive brief: Update 2013 I 7http://agritrade.cta.int/ Tuna sector: Issues and challenges FAO Code of Conduct for Responsible Fisheries, which declares that states should not condition market access to the allocation of rights of access to fisheries resources (Art. 11.2.7). “Current proposals to formally link fisheries access to the granting of trade concessions are seen by several ACP coun- tries as a particular cause for concern, as they contradict the FAO Code of Conduct for Responsible Fisheries” A central concern for ACP govern- ments must be to ensure the long- term availability of fish resources and that fishing capacity is in line with the resources available. For highly migra- tory species like tuna, this requires a regional approach. The FAO International Plan of Action for the Management of Fishing Capacity highlights that developing states must be assisted to ensure that their rights are respected and that they are in a position to fulfil their obligations. This includes flag states documenting and sharing data on their vessels’ opera- tions and implies strong coordination among interested states to ensure sustainability. Therefore, close consideration should be given on how ACP regional coor- dination and cooperation – including fisheries governance, research, moni- toring control and surveillance (MCS), the fight against IUU, and management arrangements like the VDS scheme in the Pacific – will promote sustainable fishing, and how this could be sup- ported by the EU. Up to now, the EU has supported several regional pro- grammes focusing on these issues, such as the Indian Ocean regional programme against IUU fishing (involv- ing automatic exchange of information, improved MCS, joint control opera- tions, etc.). Similar programmes could be developed in other regions. Increasing benefits/ returns from sustainable exploitation of ACP tuna resources As tuna raw material becomes scarcer, either as a consequence of stricter management measures or, in some cases, due to over-exploitation of the resources, costs for tuna producers and processors, including from ACP countries, are likely to continue to increase. “Ecological sustainability is likely to become a standard for all fish products sold on EU markets, independently of whether EU consumers are ready to pay more for such products” On the other hand, ecological sustain- ability is likely to become a standard for all fish products sold on EU mar- kets, independently of whether EU consumers are ready to pay more for such products. In this context it will be important to support fishers, canner- ies and loining plants located in ACP countries in developing their tuna pro- duction according to these standards in order to maintain or increase their shares of EU markets. ACP governments will, therefore, have to invest more in fisheries manage- ment (e.g., research and MCS). Even if donors are supporting part of these efforts, ACP countries will have to find ways to ensure that such efforts are sustained and do not depend on spe- cific aid projects. Looking at the OECD levels of fisheries management costs suggests a possibility for ACP coun- tries to revise the price of access for foreign fleets. ACP job creation concerns, however, also need to be addressed. This can be achieved either by developing an ACP fishing fleet employing local crew, and/ or by developing onshore tuna pro- cessing. Clearly relevant choices will need to be made by ACP governments. Although securing reforms to EU rules of origin to allow all fish caught in ACP EEZs to be granted originating sta- tus has been a long-standing ACP demand, it should be noted that this may not be conducive to the develop- ment or the protection of locally based fleets. ACP governments will therefore need to consider setting in place com- plementary measures to promote the development of existing local fishing fleets while ensuring that only sus- tainable levels of fishing effort are deployed, within any moves towards global sourcing. Taking advantage of EU markets demand for sustainability The increasing demand in EU coun- tries for tuna coming from sustainable sources may provide ACP countries with more diversified markets to cater for both eco-labelled, pole-and-line- caught tuna, as well as for (FAD-free) purse seine-caught tuna. It should be noted, however, that challenges to be met by ACP producers, including small-scale producers of pole-and- line-caught tuna who want to access potentially lucrative EU markets, go beyond sustainability issues. Currently, the most significant challenges to be met remain SPS and IUU legislation requirements. A scheme to promote the trade of “sustainable tuna” that overlooks these aspects will run the risk that some products – otherwise caught in a sustainable manner – will be barred from EU markets. Executive brief: Update 2013 I 8http://agritrade.cta.int/ Tuna sector: Issues and challenges Technical Centre for Agricultural and Rural Cooperation (ACP—EU) PO Box 380 6700 AJ Wageningen The Netherlands Tel: +31 (0) 317 467 100 E-mail: cta@cta.int - www.cta.int The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint ACP—EU institution active in agricultural and rural development in African, Caribbean and Pacific (ACP) countries. Its mission is to advance food and nutritional security, increase prosperity and encourage sound natural resource management. It does this by providing access to information and knowledge, facilitating policy dialogue and strengthening the capacity of agricultural and rural development institutions and communities in ACP countries. Main sources 1. Atuna.com http://www.atuna.com/ 2. Fisheries Trade News, Pacific Islands Forum Fisheries Agency http://www.ffa.int/trade_industry 3. Parties to the Nauru Agreement website http://www.pnatuna.com/ 4. Tuna.org, RFMOs – Kobe process website http://tuna-org.org/ 5. International Seafood Sustainability Foundation website http://iss-foundation.org/ 6. Pacifical website http://www.pacifical.com/ 7. European Tropical Tuna Fishing, Processing and Trade Committee http://www.eurothon.eu/ 8. Smart Fish, ‘A review of bycatch and discards issues in the Indian Ocean’, March 2013 http://media.wix.com/ugd/19606a_d4b11a3671a991d91fbf10cf5dd06a0a.pdf 9. DG Mare website – International section – list and contents of ACP-EU tuna FPAs http://ec.europa.eu/fisheries/cfp/international/index_en.htm 10. EP draft report for a comprehensive EU fishery strategy in the Pacific http://www.europarl.europa.eu/meetdocs/2009_2014/documents/pech/ pr/924/924362/924362en.pdf 11. FAO Code of Conduct for Responsible Fisheries http://www.fao.org/fishery/code/en About this update This brief was updated in October 2013 to reflect developments since September 2012. Other publications in this series and additional resources on ACP–EU agriculture and fisheries trade issues can be found online at http:// .cta.int/ http://agritrade.cta.int/ West Africa agricultural trade policy debates and developments I 1 After 6 years of discussions, agreement was reached in 2013 by the Economic Community of West African States (ECO- WAS) and West African Economic and Monetary Union (WAEMU – also known as UEMOA after its French name) on a joint common external tariff (CET) sched- ule. The challenge ahead is to reconcile the agreed CET with national agricultural trade policies. In the face of rising global prices, national agricultural transforma- tion strategies in many West African countries have a strong focus on national food self-sufficiency. This poses chal- lenges for the development of regional agricultural policy and intra-regional trade arrangements for agro-food products. Key strategies adopted since 2011 include: the Agricultural Transformation Action Plan in Nigeria to revive the production of rice, cassava, sorghum, cocoa, cot- ton and to revive the dairy sector; the Plan Stratégique de Relance du Sec- teur Agricole, in Benin which focuses efforts on 14 priority sectors; the 3N initiative (‘Nigerien people feed Nigerien people’) in Niger with the aim of enhancing national food production and resilience to food crises; the reform of the cocoa sector in Côte d’Ivoire. These are complemented by the elabo- ration of national Comprehensive Africa Agriculture Development Programme (CAADP) frameworks, which have given rise to National Agricultural Investment Programmes (NAIPs), and a Regional Agricultural Investment Programme (RAIP) that aims to promote a coordi- nated regional framework. However, since 2010, implementation of NAIP pro- grammes has been plagued by funding shortfalls. update October 2013 West Africa agricultural trade policy debates and developments 1. Background and key issues 1. Background and key issues 2. Latest developments Recent trends in agricultural production and trade: Developments in the main regional import products Developments in the regional integration process Developments in EPA negotiations 3. Current policy debates and issues Reducing the costs of trading foodstuffs in West Africa Balancing consumer, producer and processor interests Moving toward harmonised regional policy frameworks Capitalising on shifting global demand by supporting value-added processing Engaging with evolving standards Getting to grips with OECD policy distortions Rules of origin: Balancing local production and imports EPAs and the application of the CET Executive brief: Update 2013 I 2http://agritrade.cta.int/ West Africa agricultural trade policy debates and developments Since 2000, the customs union WAEMU has existed among eight French-speaking countries (Benin, Burkina Faso, Côte d’Ivoire, Guinea, Mali, Niger, Senegal and Togo), with a nominal free trade area spanning the wider ECOWAS grouping. But there are still serious problems regarding the implementation of the ECOWAS Trade Liberalisation Scheme. Many official (e.g. import and export bans and restrictions) and unofficial bar- riers to trade continue to undermine trade liberalisation objectives. However, initiatives such as the Borderless Alli- ance have been launched to identify and progressively secure the removal of barriers to intra-regional trade. Negotiations for a regional economic partnership agreement (EPA) continue. The extent of West African market opening and the financing of EPA- related adjustment programmes both remain areas of contention. The current transitional duty-free, quota-free market access regulation will lapse on 1 Octo- ber 2014, setting an effective deadline for completion of EPA negotiations. 2. Latest developments Recent trends in agricul- tural production and trade: Developments in the main regional import products Cereals After a poor 2011 harvest, cereals pro- duction recovered in 2012 to 14.2% above the 5-year average. As a conse- quence “the overall food security situ- ation has improved significantly in the Sahel”, although some areas remain severely food insecure. “The EU is a major exporter of wheat and cereals to West Africa” Overall, prices in 2012 remained sta- ble for import crops, and declined for coarse grains. The population growth of 2.6% per annum and rapid urbanisa- tion, however, continued to exert Figure 1: West African countries’ cereals production and imports 2008–2013 (mill ion tonnes) 2008 2009 2010 2011 2012 70 60 50 40 30 20 10 0 Cereals production * Cereals imports ** Notes: * West African countries (incl. Chad); ** West African countries (including Chad and exclud- ing Cape Verde); cereals include wheat, coarse grains and rice (paddy). Source: FAO GIEWS, ‘Crop prospects and food situation 2008–2013’, http://www.fao.org/do- crep/017/al995e/al995e00.pdf and http://www.fao.org/docrep/016/al992e/al992e00.pdf pressure on food supplies. Conse- quently, food imports (mainly of rice and wheaincreased by 40% between 2008 and 2012. The EU is a major exporter of wheat and cereals to the region, fluctuating annually between 1.1 and 2 million tonnes, and reaching almost 1.7 mil- lion tonnes in 2012. Imports from the EU of milled products have increased by more than 5%, and of preparations of cereals (customs classification: tariff heading CN19) by almost 60% over the period 2008–2012. Nigeria is the main regional importer, with imports increasing by 25% in 2012 to around €5 billion (mainly wheat, sugar and rice, as well as fruit and dairy products) In parallel, Ghana is becom- ing “a key access point for entry into the West Africa region market” with food and agricultural imports increas- ing by 20% in 2012. The US Depart- ment of Agriculture (USDA) attributes this to the Ghanaian government’s trade policy (see Agritrade article ‘Ghana seen as providing gateway for agro-food exports to West Africa’, 11 February 2013). Dairy and poultry In Ghana the gap between domestic production and consumption of poultry and dairy products is huge and growing, with almost complete import dependence either for finished products or intermediate inputs in some sectors (e.g. dairy). This makes Ghana of particular interest to exporters in the EU (dairy and poultry), US and Brazil (poultry) (see Agritrade article ‘Nigerian and Ghanaian markets offer further growth potential for EU dairy exports’, 2 February 2013). EU milk product exports are increasing not only to Ghana but also to other West African countries, and the trend is likely to continue with the abolition of EU milk production quotas. Executive brief: Update 2013 I 3http://agritrade.cta.int/ West Africa agricultural trade policy debates and developments In the poultry sector, Benin and Ghana are the main importers, with the EU and Brazil being the main suppliers. During the period 2008–12, poultry imports of Benin and Ghana surged by 70 and 67% respectively (see Agritrade article ‘Poultry exports to Africa on the rise’, 9 December 2012). This trend is likely to continue, given projected export levels in the EU and Brazil and the tariff measures pending against poultry imports in South Africa – the main African market. A substantial volume of poultry imports into Benin are re- exported (smuggled) into neighbouring Nigeria. Overall, between 2008 and 2012, EU poultry exports to West African countries increased by almost 90% Figure 2: Imports to the region from the EU (’000 tonnes) 2008 2009 2010 2011 2012 450 400 350 300 250 200 150 100 50 0 Products of the milling industry Preparations of cereals Wheat (right axis) Source: Eurostat Figure 3: Poultry imports for selected countries (’000 tonnes) 160 140 120 100 80 60 40 20 10 0 2005 2006 2007 2008 2009 2010 20122011 Benin Ghana Note: 2011 = estimate; 2012 = forecast Source: Thepoultrysite.com, ‘Global poultry trends 2012’, October 2012 “Between 2008 and 2012, EU poultry exports to West African countries increased by almost 90%” (see Agritrade articles ‘Strong growth in Brazilian poultry exports to Africa’, 29 July 2012; ‘EU poultry exports increasingly focused on Africa’, 4 November 2012; ‘South Africa defuses WTO poultry dispute with Brazil’, 18 February 2013). Beef Competition from low-quality poultry cuts is now being complemented by growing exports of ‘fifth quarter’ beef cuts, for which there is no market in the EU. UK exports of frozen beef products to Ghana “more than tripled” from 2010 to 2011 (see Agritrade article ‘Beef sector trends in the EU and globally’, 9 September 2012). “UK exports of frozen beef products to Ghana more than tripled from 2010 to 2011” The US Meat Export Federation mean- while is looking at opportunities in Senegal for higher-quality beef cuts (see Agritrade article ‘US targeting higher- quality West African beef markets’, 9 December 2012). Given that cattle are the main traded products at the regional level, with growing demand in coastal urban areas, these new trade flows, if fully developed, could disrupt efforts to develop intra-regional cattle/ beef supply chains. This is particularly the case when taking into account the challenges facing the infrastructure, animal disease control, cold store chain and general intra-regional trade. Onions Onion imports into Senegal continue to be of concern. Having increased by 58% between 2007 and 2011, imports Executive brief: Update 2013 I 4http://agritrade.cta.int/ West Africa agricultural trade policy debates and developments fell by 8% in 2012, partly in response to seasonal import restrictions. In 2012 Senegal still accounted for 17% of total extra-EU onion exports. Nevertheless, the introduction of seasonal import restrictions and other measures has encouraged an expansion of com- mercially marketed onion production in Senegal (from 40,000 tonnes in 2003 to 240,000 tonnes in 2012). “The introduction of seasonal import restrictions has encour- aged an expansion of commer- cially marketed onion produc- tion in Senegal” Consequently, the EU has diversified its markets in West Africa (e.g. to Guinea, Sierra Leone and Mauritania) (see Agritrade article ‘Dutch onion exports to West Africa show continued growth’, 2 February 2013). Because 70% of Niger’s onion production is sold in Côte d’Ivoire, Ghana, Benin and Togo, this ongoing process of EU market diversification is a matter of concern (see Agritrade article ‘Debate on onion tariffs in Senegal intensifies amid onion glut on West African markets’, 6 August 2012). Senegal’s continued high level of onion imports from the EU, which created stockpiling before the entry into force of seasonal restrictions, led to calls from Senegalese onion producers for a 3-year import ban. The government responded in 2013 to these calls by: bringing forward the introduction of seasonal restrictions from April to February; tightening up on port inspections; making import licences non-trans- ferable; facilitating the granting of import permits to “those importers who commit to promote the marketing of local production”(see Agritrade arti- cle ‘Senegal refines its onion import regime’, 3 June 2013). This linking of import licences to local procurement mirrors similar successful policies in the Namibian horticultural sector (see Agritrade article ‘Debate on onion tariffs in Senegal intensifies amid onion glut on West African markets’, 6 August 2012). Developments in the main extra- regional exports Cocoa Ghana and Côte d’Ivoire still dominate the world cocoa market, with 60% of global production. In 2012–13 the Côte d’Ivoire government continued to roll out the cocoa sector reforms agreed in 2011. These reforms have generally proved successful (see Agritrade ‘Special report: Côte d’Ivoire’s cocoa sector reforms 2011–2012’, 16 December 2012). In neighbouring Ghana, a “very sharp fall of 34.2%” in cocoa deliveries was observed during the first 3 weeks of the 2012/13 cocoa season. This was attributed to cocoa smuggling to Côte d’Ivoire, linked to payment problems in Ghana and the devaluation of the Ghanaian cedi, highlighting the importance of a regional coordination of cocoa sector policies. “Global demand for cocoa is changing” Global demand for cocoa is changing. In 2012, Chinese imports from Ghana and Côte d’Ivoire increased by 90% and 533% respectively (albeit from relatively low levels), while EU cocoa imports decreased by almost 7%. According to Agrimoney.com, reflecting ICCO reports, local cocoa grindings in Côte d’Ivoire are expected to have increased to 440,000 tonnes in 2011/12, some 30% of the country’s production. In developed markets, concerns over sustainability and child labour are increasing, leading to stricter social and environmental standards being applied to cocoa suppliers (see Agritrade article ‘Trends in global cocoa production’, 2 February 2013). In March 2012, the European Parliament adopted a resolution implicitly calling for greater use of trade policy measures to eliminate child labour in the cocoa sector. This could pose serious challenges for Côte d’Ivoire, given current practices. Evolving EU standards on cadmium levels in food products represent a further challenge. There now appears to be an urgent need for coordinated action by the governments of West African cocoa-producing countries (with appropriate technical support) to engage in a dialogue with the EU on appropriate maximum levels for different chocolate products (see Agritrade article ‘Brussels trains its sights on cadmium in cocoa and chocolate’, 9 September 2012). Cotton The cotton production in francophone Africa is forecast to rise sharply (41%) in 2012–13. This is based on the provision of input subsidies and higher producer prices (in Mali and Côte d’Ivoire, 38% and 26% respectively for the 2011–12 marketing season). With the fall in world cotton prices, this reflects the strong government commitment to the recovery of the cotton sector (see Agritrade article ‘USDA review of cotton sector developments in West Africa’, 12 August 2012). “There has been little progress on cotton issues at the WTO” There has been little progress on cotton issues at the WTO (see Agritrade article ‘WTO cotton discussions: Little progress, growing concerns’, 12 August 2012), with the growing influence of Executive brief: Update 2013 I 5http://agritrade.cta.int/ West Africa agricultural trade policy debates and developments Figure 4: Côte d’Ivoire palm oil export destinations in 2011 Senegal 24% Nigeria 21% Mali 14% Togo 15% EU 9% Burkina Faso 7% Ghana 6% Benin 4% Niger 2% Source: Trademap Chinese government policies on world cotton market developments greatly complicating the negotiations (see Agritrade article ‘Chinese stock levels place limits on cotton price recovery in 2013’, 25 March 2013). African governments nevertheless continue to push for “a quick, ambitious and specific solution on cotton as agreed in the 2005 Hong Kong Ministerial Declaration”, particularly given concerns that “new legislation in the US might increase the distorting subsidies” in the sector. Concerns were reinforced following the publication of studies by the Overseas Development Institute (ODI) and the International Centre for Trade and Sustainable Development (ICTSD) on the impact of agricultural reform in OECD countries on developing countries, which showed that “the new programs will have the largest impact on cotton acreage” (see Agritrade article ‘Developing country impact ignored in major OECD agricultural reforms’, 21 January 2013). Bananas Although there are fears that recently agreed tariff reductions on bananas for non-ACP/least developed countries would reduce the ACP’s share of the EU banana market, to date West African banana exporters have been able broadly to maintain their market share, even increasing it over the 2010–12 period compared to 2005–07. “To date West African banana exporters have been able broadly to maintain their mar- ket share” However, processes of tariff reductions within expanding tariff-rated quotas are set to accelerate. Tariff savings will rise from €14,642,500 in 2012 to €133,250,000 by 2019. This level of tariff savings is likely to have an effect on market prices, to the detriment of West African banana exporters. Palm oil In West Africa, particularly Côte d’Ivoire, palm oil production is expanding dramatically, with exports also increasing (from 50,000 tonnes in 2003 to 264,000 tonnes in 2011). While Côte d’Ivoire produces only 37% of the volume of Nigeria (500,000 tonnes compared to about 1,350,000 tonnes), Nigeria produces only half of what it consumes. Côte d’Ivoire is thus the region’s main palm oil exporter. 81% of these exports go to neighbouring countries, with 9% destined for the EU market. Guinea also produces for regional markets (50,000 tonnes – to Senegal, Gambia and Mali). While intra-regional trade of palm oil is growing, it is complicated by Côte d’Ivoire’s import of South East Asian palm oil for refining. This raises rules of origin issues, which have hindered the movement of palm oil across regional borders. To prevent these sorts of development from disrupting regional trade, an appropriate and reliable labelling and control system is needed. Sustainability concerns are coming to the fore in the palm oil sector. Unless evolving sustainability standards are built into new investments this could impact on palm oil sector developments in West Africa. In this context, the recent criticisms of the Roundtable on Sustainable Palm Oil (RSPO) labelling scheme might need to be taken on board (see Agritrade article ‘Sustainable palm oil set for expansion if challenges can be overcome’, 9 December 2012). The rise of ‘palm oil free’ labelling also constitutes an emerging trend in Europe which the global palm oil industry will need to respond to (see Agritrade article ‘The fast-growing palm oil sector defends itself against an attack by large- scale distributors’, 9 September 2012). However, while West African palm oil production is growing, the region still has a production deficit – in the context of growing demand, providing considerable scope for intra-regional trade, in line with Côte d’Ivoire’s current patterns of export. Executive brief: Update 2013 I 6http://agritrade.cta.int/ West Africa agricultural trade policy debates and developments Developments in the regional integration process The harmonisation of agricultural policies: ECOWAS agricultural policy (ECOWAP) and CAADP developments “After the production of the regional and national agricul- tural investment plans in 2010–11, the CAADP process has stalled” After the production of the RAIP and NAIPs in 2010–11, the CAADP process has stalled. According to European Centre for Development Policy Management (ECDPM) common challenges faced include: institutional capacity constraints, although the Regional Agency for Food and Agriculture (RAFA) had been established to implement the RAIP; coordination constraints, with the regional dimension not really included in West African NAIPs; the absence of an effective alignment of local and donor priorities. However, “a number of multi-stakeholder task forces on specific themes… to identify gaps and develop investment programmes” have been set in place. Progress has also been achieved on the regional food reserve, although not without considerable controversy with donors over its design. ECOWAS, in collaboration with the Coalition for African Rice Development, has also launched the regional offensive for the promotion of rice production (L’offensive régionale pour la relance soutenue et durable de la riziculture), designed to overcome obstacles faced in the consolidation of progress made in developing regional rice production. Adoption of a common ECOWAS/ WAEMU CET After 6 years of discussions, a joint technical committee of WAEMU– ECOWAS adopted a detailed schedule for a CET in December 2012, which was endorsed at ministerial level in March 2013. In addition to a zero tariff band for essential imports, tariff lines are distributed across four further tariff bands (see Table 1). Additionally, a 1.5% Community Integration Levy was created to replace the ECOWAS Community Levy and the counterpart Community Solidarity Levy Table 1: WAEMU–ECOWAS common external tarif f schedule (endorsed at ministerial level in March 2013) Band % Type of product Number of tariff lines 5 Basic raw materials and capital goods 2,146 10 Intermediate products 1,373 20 Final consumer products 2,165 35 Specific goods that contribute to the promotion of the region’s economic development 130 for the WAEMU. However, this needs to be subject to further discussions. Before the full details of the agreed CET were available, concerns were expressed by the West African network of agricultural producer organisations (ROPPA), over the low levels of tariff protection for strategic products such as rice, dairy, poultry and locally pro- cessed food products. Tariffs for rice and dairy products of 10% and 5% respectively are seen as affording little protection for the development of local production (see Agritrade article ‘ECO- WAS CET finally adopted while pro- ducer organisations raise concerns’, 22 April 2013). However, a number of trade defence instruments have been agreed within the framework of the ECOWAS CET. These include: a safeguard regulation; antidumping measures; infant industry protection measures; a compensatory mechanism. Recommendations have also been made to establish a monitoring and assessment mechanism for strength- ening the capacity of stakeholder bod- ies to make use of these trade policy tools. According to the ECOWAP, defining a sound and harmonised tariff policy for foreign trade beneficial to regional agri- cultural development requires an insti- tutional mechanism within ECOWAS that is responsible for applying the CET, monitoring its impacts and revis- ing it, as well as harmonising member states positions in trade negotiations. In addition, there are concerns that some countries have bound their tariffs at a lower level than the agreed CET, with this potentially generating demand Executive brief: Update 2013 I 7http://agritrade.cta.int/ West Africa agricultural trade policy debates and developments Table 2: Tarif f measures adopted under Nigeria’s Agricultural Transformation Policy 2012–13 Sector Measures applied or planned Cereals From July 2012: • total duty on imported wheat grain increased from 5 to 20% • total duty on imported wheat flour increased from 35 to 100% • blending mandates requiring the inclusion of cassava flour in wheat flour; this percentage to start at 10%, increasing to 40% by 2015 Sugar From 2013: • total duty of refined sugar increased from 35 to 80% • total duty of raw sugar increased from 5 to 60% • introduction of a import ban on packaged sugar, granulated and in cubes From January 2015: • the introduction of an import ban on sugar in any form, raw or refined Rice From 2013: • levies on brown rice and polished/milled rice increased from 30% and 50% respectively to 100% on both From 2015: • the introduction of an import ban on rice Source: Agritrade article ‘Questions raised over Nigeria’s cassava blending and wheat tariff policy’ and GAIN Reports cited below in main sources for compensatory tariff cuts from indi- vidual WTO members. The ECOWAS Trade Commissioner has proposed that the region should “negotiate with WTO member states and request their indulgence”. The challenge of regional harmo- nisation of tariff policies “Despite the newly adopted common external tariff, some ECOWAS member states’ tariff policies are moving in opposite directions” Despite the newly adopted CET, some ECOWAS member states’ tariff policies are moving in opposite directions. In Nigeria, for example 2012–13 saw the adoption of a range of new tariff meas- ures as part of the government’s Agri- cultural Transformation Policy agenda (see Table 2). There are concerns in the cereals sec- tor that policy may be moving ahead of the ability of the sector to produce and mix quality cassava flour into a baking product, without a significant deterio- ration in final quality. The immediate impact of tariff increases has been to raise bread prices by 20%, with this leading to allegations of a lack of pri- vate sector commitment to government policy objectives (see Agritrade article ‘Questions raised over Nigeria’s cas- sava blending and wheat tariff policy’, 18 November 2012). Ambitious objectives would appear also to be a feature of the Nigerian government’s sugar policy. Cur- rently 65,000 tonnes of raw sugar is produced locally, compared to con- sumption of 1.4 million tonnes, and an installed raw sugar refining capacity of 2.3 million tonnes. While past policy has favoured raw sugar imports for local refining, the aim is to eliminate the need for imports by 2015. To this end the government is linking licences for raw sugar imports to investment in local cane sugar production (see Agritrade article ‘Private sector plans to expand Nigerian sugar cane produc- tion’, 11 November 2012). However, the 2015 deadline provides an extremely tight schedule for the design and implementation of a major expansion of sugar cane production capacity and tackling the logistical challenge of linking likely production zones with existing refining capacity. Pending import levies in the rice sector saw a surge in imports to Nigeria, and subsequently increased rice smuggling from neighbouring countries (Benin and Cameroon). This is in a context where half of Nigerian rice consump- tion needs are met from imports. The Nigerian government considers overall tariff and non-tariff restrictions to be a central component of the policy framework aimed at stimulat- ing investment in the transformation of the domestic agricultural sector. While provisions exist for special taxes and temporary protection measures in the ECOWAS Treaty, the overall thrust of Nigerian tariff policy would appear to raise questions of consistency with its ECOWAS CET commitments and regional trade integration ambitions. Nigerian agricultural policy ambitions find partial reflection elsewhere in the region, with both Benin and Senegal having announced their intention to reach self-sufficiency in rice by 2015 and 2018 respectively. However, both governments envisage using other policy tools. Executive brief: Update 2013 I 8http://agritrade.cta.int/ West Africa agricultural trade policy debates and developments In Benin, government policy measures subsidise seeds and inputs (see Agri- trade article ‘Benin’s rice sector aspi- rations and regional trade realities’, 6 April 2013), while Senegal focuses on improvements in quality and packag- ing, as well as strengthening marketing and promoting collaboration between producers, rice millers and importers. This policy seems to be delivering good results, although challenges are still faced in attaining the requisite qual- ity standards and ensuring efficient marketing. In distinct contrast to Nigerian rice tarif f policy, in August 2012 Côte d’Ivoire suspended rice import duties for 3 months to ease domestic price pressures. Progress in increasing and facili- tating regional trade Trade in staple foods in West Africa remains largely informal, with a variety of barriers to trade. There is consid- erable scope for expansion of intra- regional trade in staple foods if the constraints on formal trade can be eased (see Agritrade article ‘First edi- tion published of new annual report on West African trade’, 2 February 2013). “Trade in staple foods in West Africa remains largely informal, with a variety of barriers to trade” The most important barriers to trade were highlighted in 2012–13 by both a desk study by the French NGO, Groupe de Recherche et d’Échanges Tech- nologiques (GRET) and an ECOWAS/ USAID conference in January 2013. A number of initiatives are under way to identify and get to grips with these obstacles, including through the USAID Trade Hub-sponsored Borderless Alli- ance. However, progress is highly une- ven, with the situation in some coun- tries deteriorating. Even with regard to relatively straightforward measures, such as government-imposed quan- titative restrictions, some countries continue to use such measures even if these are not declared publicly. This serves to fuel informal trade in staple crops, which is estimated at three times larger than officially recorded trade flows (see Agritrade article ‘Bar- riers to intra-regional agricultural trade in West Africa reviewed’, 3 June 2013). Against this background, a range of practical steps were proposed at the January 2013 ECOWAS/USAID confer- ence, including: “the establishment of a network of effective and responsive hotlines to report on anomalies”; better training for custom officials and monitoring of their functioning; use of digitised cashless systems at borders; dissemination of a community guide on trade regulations and establish- ment of information centres for the private sector, as is currently being initiated by the Borderless Alliance; empowerment of ECOWAS/WAEMU “to impress sanctions on member states for non-application of regional commitments”. Developments in EPA negotiations “With recent progress in finalis- ing the ECOWAS/WAEMU CET, substantive negotiations are expected to resume shortly” The EU–West Africa regional EPA negotiations have been largely on hold since April 2012. However, given the recent progress on finalising the ECO- WAS/WAEMU CET, substantive nego- tiations are expected to resume shortly, following further internal discussions of the regional tariff offer. Although a meeting of experts in February 2013 recommended “a comprehensive review of the market access offer... in order to break the deadlock between the two parties”, to date West African ministers have not substantially modi- fied their 70% tariff opening offer. Nevertheless, over the course of 2013, the final West African market access offer is expected to be presented to the Ministerial Monitoring Committee and subsequently to the EC, with the aim of bringing the negotiations to a close. In terms of EPA-related restructuring support – which remains an area of contention, given the scale of the eco- nomic and financial difficulties faced in the EU – substantial movement on the basis for funding the EPA Development Programme (PAPED) looks unlikely. After considerable discussions and the initiation of a trilateral dialogue between the EC, European Council and Euro- pean Parliament to resolve divergent positions, 1 October 2014 has been established as the date when the cur- rent transitional duty-free, quota-free access to the EU market under market access regulation MAR1528/2007 will lapse (see Agritrade article ‘EU Council reaffirms its commitment to January 2014 deadline for completion of EPAs’, 13 January 2013 and European Parlia- ment set to endorse ‘trilogue’ 1 Octo- ber 2014 deadline for completion of EPA process, 6 April 2013). Therefore, unless the EPA process is concluded at either the regional or bilateral level before this date, non- LDC West African exporters such as Ghana and Côte d’Ivoire will face a reimposition of import tariffs, notably on bananas, pineapples, processed Executive brief: Update 2013 I 9http://agritrade.cta.int/ West Africa agricultural trade policy debates and developments cocoa and fisheries products (Nige- rian exporters already face these tar- iffs), eliminating current tariff savings of €38.65 million and €105.66 million respectively in duties foregone by the EU. 3. Current policy debates and issues Reducing the costs of trading foodstuffs in West Africa The costs associated with and obsta- cles faced in transporting staple food within West Africa is generating a strong external orientation to staple food procurement policies (see Agri- trade article ‘Constraints on regional cereals trade in West Africa reviewed’, 12 May 2013). If effective policies are not set in place to reduce these costs, then growing urban coastal demand, driven by rising incomes and popula- tion growth, will increasingly be met from imports at a constantly rising cost. In addition, if coherent national and regional strategies are not set in place with transparent policy application and realistic time frames, the market cre- ated for value-added food products by rising incomes will continue to suck in imports, rather than driving the devel- opment of local value-added food pro- cessing industries. Balancing consumer, producer and processor interests While rising food prices have placed the focus in some countries on increas- ing tariffs to boost domestic produc- tion, in others they have prompted the suspension or removal of import tariffs to reduce consumer price pressures. This highlights the need to balance the interests of rural producers against those of consumers (in both rural, but increasingly, urban areas) and food processors. There is growing recognition that the cost-increasing effects of infrastruc- tural and unofficial barriers to trade strip value out of the agricultural sector (see Agritrade article ‘Success of Bor- derless Alliance raises hopes for long- term agricultural gains’, 1 July 2013) and that by removing these barriers, prices to agricultural producers can be raised while prices to consumers can be simultaneously reduced. Removing infrastructural and unofficial barriers to trade is thus central to resolving the core policy dilemma of balancing pro- ducer and consumer interests. Moving toward harmo- nised regional policy frameworks In addition to the unofficial and official barriers to trade that undermine agri- cultural production, divergent sector policies serve to fuel smuggling. The situation in the poultry and rice sec- tors is illustrative in this respect. This suggests a need for moves toward regional harmonisation of agriculture and agricultural trade policies at the sector level. This is likely to pose a major challenge for national policy formulation, given the different use of trade policy tools in different countries. Moves toward engaging with private sector compa- nies on striking a balance between imports and local procurement (e.g. in the Senegalese onion sector and Nige- rian sugar sector) could offer a firmer basis for regional policy harmonisa- tion, rather than the current blunt use of tariff protection favoured in some countries. However, the challenge remains to establish some form of regional con- sensus on permitted policy tools – and to ensure respect for the limits placed “The challenge remains to establish some form of regional consensus on permitted policy tools” on the use of these tools – for products that are freely traded within the region. Capitalising on shifting global demand by supporting value-added processing As in many other agro-food sec- tors, geographical patterns of global demand are changing in the cocoa sector. The challenge that arises is how to exploit these changing patterns of global demand to ensure a transforma- tion within the structure of West Africa’s engagement in agro-food chains, with greater value being added locally prior to export. For example, how can the growing demand in Asia for cocoa- based products be exploited to lever- age investment in local value-added processing? There is a need to share experience on the most effective gov- ernment and private sector strategies for bringing this about. Engaging with evolving standards Moves toward the conversion of entire supply chains to sustainability certi- fication would appear to require a concerted response from ACP policy makers at two main levels: supporting ACP producer organisa- tions in engaging with sustainable trade initiatives to ensure that issues of economic sustainability are ade- quately addressed; Executive brief: Update 2013 I 10http://agritrade.cta.int/ West Africa agricultural trade policy debates and developments extending government support to ACP producers to facilitate serving sustainability-certified market com- ponents in the EU (for more details see Agritrade Executive brief: Update ‘Product differentiation’, forthcoming 2013). There would also appear to be a need for aid-for-trade support to assist West African cocoa producers in mobilis- ing the required scientific and techni- cal expertise to engage in an effective dialogue with the EU on permitted cadmium levels in different chocolate products (for more details see Agri- trade Executive brief: Update ‘Food safety’, forthcoming 2013). Getting to grips with OECD policy distortions The expansion in cotton production under way in West Africa was stimu- lated by high global prices in the first half of 2011 and supported by input subsidies, the financial sustainability of which, during periods of lower global cotton prices, can be questioned. This highlights the importance of get- ting to grips with cotton subsidy issues through the WTO (see Agritrade Execu- tive brief: Update ‘WTO Agreement on Agriculture’, forthcoming 2013). This might require a West African-led ACP political initiative to draw China, India and Brazil more substantively into dis- cussions on disciplining all forms of cotton support programmes, which could contribute to breaking the current impasse in the WTO on cotton issues. Rules of origin: Balancing local production and imports In West Africa, as elsewhere, the rela- tive policy importance attached to local agricultural production and local value-added processing based on imported raw materials is a matter of critical policy concern. There is a need to make clear regional policy choices on the relative weight to be given to the desired local content of value-added food products traded regionally. This is a complex issue, which varies greatly from sector to sector. It is not simply a question of regional rules of origin, but strikes at the heart of national agricultural and agro-food sector development policies. As efforts proceed to overcome intra-regional barriers to trade and implement the CET, this issue will come increasingly to the fore. EPAs and the application of the CET If no common West African regional EPA is agreed and some West African governments conclude EPA agree- ments bilaterally, it could complicate both the implementation of the agreed CET and efforts to remove official bar- riers to intra-regional trade, since for certain products, tariffs on imports from the EU will be lower than the regional CET. Therefore, South Africa’s current efforts to utilise safeguard pro- visions in the poultry sector in the face of rising poultry imports from the EU could potentially offer important les- sons on how to manage this problem (see Agritrade article ‘South African guidelines on use of agricultural safe- guard provisions under the EU trade agreement’, 5 August 2013). Main sources 1. FAO GIEWS ‘Crop prospects and food situation’, 2008–2013 http://www.fao.org/docrep/017/al995e/al995e00.pdf http://www.fao.org/docrep/016/al992e/al992e00.pdf 2. USDA, ‘Senegal: Oil seed’, GAIN Report, 20 July 2012 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Oilseeds%20and%20Prod- ucts%20Annual%202012_Dakar_Senegal_7-20-2012.pdf 3. ICTSD, ‘West Africa’s new common external tariff and the individual WTO commitments of ECOWAS member states: No insurmountable incompatibilities’, by El Hadji Abdourahmane Diouf, Bridges Africa Review, Vol. 1, Number 5, 24 October 2012 http://ictsd.org/i/competitiveness/148171/#sthash.kXaCV88U.dpuf Executive brief: Update 2013 I 11http://agritrade.cta.int/ West Africa agricultural trade policy debates and developments Technical Centre for Agricultural and Rural Cooperation (ACP—EU) PO Box 380 6700 AJ Wageningen The Netherlands Tel: +31 (0) 317 467 100 E-mail: cta@cta.int - www.cta.int The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint ACP—EU institution active in agricultural and rural development in African, Caribbean and Pacific (ACP) countries. Its mission is to advance food and nutritional security, increase prosperity and encourage sound natural resource management. It does this by providing access to information and knowledge, facilitating policy dialogue and strengthening the capacity of agricultural and rural development institutions and communities in ACP countries. 4. ICTSD, ‘Nous sommes parmi les régions les plus avancées en matière d’intégration en Af- rique’, interview with Hamid Ahmed, ECOWAS Trade Commissioner, Passerelles, Vol. 14, Issue 1, January–March 2013 http://ictsd.org/downloads/passerelles/passerelles14-1.pdf 5. USDA, ‘Nigeria begins new rice levy increase; announces ban’, GAIN Report, 28 January 2013 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Nigeria%20Begins%20Implemen- tation%20of%20Rice%20Levy%20Increase%20_Lagos_Nigeria_1-25-2013.pdf 6. USDA, ‘Nigeria Intensifies protection to grow its sugar sector’, GAIN Report, 31 January 2013 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Nigeria%20Intensifies%20Protec- tion%20to%20Grow%20its%20Sugar%20Sector_Lagos_Nigeria_1-31-2013.pdf 7. USAID, ‘Estimation des volumes et de la valeur du commerce régional des denrées de base’, prepared for workshop of 29–31 January 2013 http://www.inter-reseaux.org/IMG/pdf/Josserand_-_Estimation_des_volumes_et_de_la_ valeur.pdf 8. Borderless Alliance, website http://www.borderlesswa.com/ 9. ECOWAS, website http://www.ecowas.int/ 10. WAEMU (UEMOA), websit http://www.uemoa.int/Pages/Home.aspx About this update This brief was updated in October 2013 to reflect developments since September 2012. Other publications in this series and additional resources on ACP–EU agriculture and fisheries trade issues can be found online at http://agritrade.cta.int/ http://agritrade.cta.int/ WTO Agreement on Agriculture I 1 During 2012-13, while the overall process of the World Trade Organization (WTO) trade negotiations remained stalled, a range of agricultural proposals were nonetheless tabled, aimed at providing momentum to break the deadlock prior to the December 2013 WTO Ministerial Meeting in Bali. “During 2012-13, the overall process of the WTO trade negotiations remained stalled” Once again, debate emerged on the scope for agreement on a limited range of measures, short of a comprehensive sin- gle undertaking agreement (a so-called mini-package). In addition, a number of developments took place in 2012–13 which link to areas of ACP concern in the WTO context. These relate primarily to: the impact of domestic support meas- ures on trade outcomes; the continued use of various forms of export support; ongoing concerns over development in market access, including processes of preference erosion; heightened global food price volatility and rising food prices; and cotton issues. The area of most significant develop- ments in 2012 related to the trade conse- quences of all forms of public assistance to the agro-food sector. The main devel- opments in 2012 in this regard included: update September 2013 WTO Agreement on Agriculture 1. Background and key issues 1. Background and key issues 2. Latest developments Stalled agricultural negotiations but new proposals tabled Progress on priority issues of concern to the ACP Some wider developments affecting WTO agreement on agriculture discussions WTO Trade Policy Reviews of ACP countries in 2012–13 Institutional developments in the WTO impacting on ACP countries The debate around price volatility and food security 3. Implications for the ACP New proposals and issues arising for the ACP Wider constraints on the use of WTO mechanisms Export subsidies: Yesterday’s issue? Growing complexity of cotton sector issues WTO rules and ACP regional integration New rules for LDCs Executive brief: Update 2013 I 2http://agritrade.cta.int/ WTO Agreement on Agriculture the growing influence of Chinese policies on global cotton markets; the trade impact of fiscal measures in the United States on support to rum producers in US overseas territories; moves by the South African authori- ties towards the full exploitation of bound tariff ceilings in support of agro-food sector development. Developments in South Africa can be seen as indicative of a wider ACP country trend towards the gradual increase in average applied tariffs in the food and agricultural sector, as part of efforts to stimulate agro-food sec- tor development in ACP countries in response to rising food prices. Developments in 2012–13 also dem- onstrated the decline in the signifi- cance of what have been seen as the most trade-distorting forms of agricultural support, namely export subsidies. However, in the case of the EU this is intimately linked to the shift to increased direct aid payment sup- port, which allows the gap between EU and world market prices to be nar- rowed, without undermining total farm incomes. This process has been greatly assisted by rising global food prices. This has allowed a new equilibrium to be established for EU agro-food sector engagement with the global economy, on the basis of WTO-compatible sys- tems of decoupled direct aid payments. Despite the rolling out of the EU banana accompanying measures programme agreed in 2009 as part of the Geneva Agreement on Trade in Bananas (see Agritrade article ‘Banana deal struck’, 31 December 2009), the growing budg- etary constraints in the EU are likely to constrain the further extension of this kind of EU support in response to WTO-related processes of preference erosion. As in previous years, the WTO under- took various trade policy reviews, some of which covered ACP countries. These identified a number of trends in the regions covered. While the debate continued on the need for WTO initiatives to address price volatility and food security con- cerns, a marked preference for deal- ing with these issues outside the WTO context was apparent: the G20 meeting in 2011 was seen as having set a range of policy initiatives in train to try to get to grips with these issues. 2. Latest developments Stalled agricultural negotiations but new proposals tabled During the second half of 2012, a num- ber of new proposals were tabled and discussed. Proposals tabled by the G20 sought “early agreement on tighter disciplines for administering tariff-rate quotas”, since current procedures were seen as too cumbersome and as inhibiting effective market access. These proposals focused on improv- ing information sharing and monitoring quota fulfilment. “G20 proposals sought early agreement on tighter disciplines for administering TRQs” The WTO secretariat was asked to “compile information on the use of tar- iff quotas and on export competition”, including not only formal export sup- port measures but also all forms of cot- ton sector subsidies. It was considered that these proposals could potentially attract consensus support. “G33 proposals called for special treatment for domestic support disciplines in order to enhance food security” Proposals tabled by the G33 called for consideration to be given to spe- cial treatment for “domestic support disciplines in order to enhance food security by supporting poor farmers”. This sought to move certain types of support from the ‘amber box’ to the ‘green box’, thereby allowing develop- ing country governments greater scope to purchase commodities from small farmers at favourable prices for sub- sequent stockpiling. Concerns were expressed that these G33 propos- als ran counter to “reforms aimed at moving towards less trade-distorting forms of farm support”. It was consid- ered that the proposal could “open up the way to market price support in the green box”. As such, in some quarters it was felt that the G33 proposal could potentially “derail the whole build-up” to the Bali WTO Ministerial Meeting. The G10 for its part requested a WTO secretariat paper on export restrictions. “The G10 requested a WTO secretariat paper on export restrictions” Against the background of these pro- posals, it was agreed that the WTO secretariat should “compile factual information on tariff quotas, export competition and export prohibitions and restrictions”. The work on tariff- rate quotas (TRQs) was completed in December 2012 and released to WTO members, and the report on export competition has been completed. However, concerns were expressed that early agreement in some areas “could upset the balance built up in the current overall drafts in agriculture and the Doha Round as a whole”, thereby Executive brief: Update 2013 I 3http://agritrade.cta.int/ WTO Agreement on Agriculture reducing prospects for a mini-deal at the Bali Ministerial meeting. The debate around the G33 propos- als cannot be entirely divorced from the ongoing processes of agricultural policy reform in the EU and the US (see Agritrade article ‘Developing country impact ignored in major OECD agri- cultural reforms’, 21 January 2013). If during the current domestic agricultural policy discussions the US and EU are seen as unresponsive to developing country concerns over the underly- ing trade-distorting nature of com- prehensive systems of farm support, this could well see large developing countries insisting on similar rights and privileges designed with their admin- istrative capacity constraints in mind. Progress on priority issues of concern to the ACP On 24 October 2012, the WTO Direc- tor-General addressed ACP ministers, setting out issues of practical impor- tance to the ACP where early delivery of results was possible. Issues identi- fied in this regard included: trade facilitation; strengthening engagement with global value chains; ‘aid for trade’; regional integration; non-tariff measures. However, critical questions have been raised as to the balance of benefits for developing countries from the WTO’s current approach to these issues. For example, it has been argued that the trade facilitation measures being advanced primarily benefit developed rather than developing country export- ers, while it is maintained that the focus on value chains is simply a further avenue for pressurising developing countries to liberalise. “Critical questions have been raised as to the balance of benefits for developing coun- tries from the WTO’s current approach” On ‘aid for trade’ issues, analysis from SciencesPo – the Institut d’Études Poli- tiques de Paris – has highlighted how the WTO secretariat has little scope for influencing ‘aid for trade’ outcomes, with no policy initiatives so far hav- ing been taken to increase coherence between trade policy, aid policy and development policy. It was also argued that the ‘aid for trade’ initiative has “grown increasingly delinked from the Doha Round”, with ‘aid for trade’ sup- port “slipping off donors’ priorities list”. In terms of regional integration, analy- sis from the International Centre for Trade and Sustainable Development (ICTSD) has pointed out that no ini- tiatives have been forthcoming in the WTO to reconcile the application of the Economic Community of West African States’ (ECOWAS’s) common external tariff commitments with inconsisten- cies in some member states’ bound tariff commitments. This could leave the affected countries vulnerable to compensatory market access claims from WTO members. More fundamentally, questions have been raised as to whether the current trajectory for WTO negotiations actually assists ACP governments in enhancing their production and export capaci- ties in ways that enlarge the retained share of global wealth of ACP countries and nationals. This is seen as a criti- cal issue for the ACP, and one of the principal motivations behind engag- ing with global and inter-regional trade negotiations. In addition, it is unclear whether sub- stantive progress is likely in areas identified as being of critical symbolic importance to the ACP, namely cot- ton issues. On 6 December 2012, the Chair of the ‘Framework mechanism for cotton’ said there was little to report on cotton-related negotiations since his previous report of little progress subsequent to the April 2011 Easter package of proposals. There also emerged in the course of 2012 growing unease over wider devel- opments impinging on issues of con- cern to ACP governments in the WTO. Some wider developments affecting WTO agreement on agriculture discussions In the course of 2012, concerns grew over the impact on Caribbean rum exporters of the use of US tax breaks to support rum sector investment in the US Virgin Islands (USVI) and Puerto Rico. It was that feared these revenues were being used “to subsidise rum production and marketing”, including through subsidies for the construc- tion of new facilities and molasses procurement (reducing average costs to US$20/tonne, compared to the US$200/tonne paid by CARICOM rum producers). It was feared that these support measures would squeeze Caribbean rum producers out of US bulk rum markets, which remain the bedrock of the Caribbean rum indus- try, despite the expansion of quality- differentiated own-brand bottled rum production under the ‘Authentic Carib- bean Rum’ quality label. (See Agritrade article ‘Caribbean rum sector facing serious challenges in US and EU mar- kets’, 16 December 2012). According to the Geneva-based Advi- sory Centre on WTO Law (ACWL), “CARIFORUM countries have a solid case for the US government to answer” Executive brief: Update 2013 I 4http://agritrade.cta.int/ WTO Agreement on Agriculture under the terms of the Subsidies and Countervailing Measures Agreement, since current rum incentives “cause adverse effects in the form of ‘serious prejudice’ to the interests of other WTO members”. Two other legal opinions have supported this view. In May 2013, CARICOM ministers for- mally agreed to take the issue of the use of US subsidies to rum producers in the US Caribbean territories to WTO dispute settlement. “In May 2013 CARICOM min- isters formally agreed to take US subsidies to rum producers in US Caribbean territories to WTO dispute settlement” This followed the January 2013 US Congressional agreement to avert the ‘fiscal cliff’, which included provi- sions for a further 2-year extension of these controversial excise tax meas- ures. Despite this step the CARICOM Council for Trade and Economic Devel- opment (COTED) stressed “the need for an amicable solution to the dispute with the United States”. On 2 December 2008, the WTO Direc- tor-General described cotton issues as the “litmus test” for the develop- ment commitment in the Doha Round. According to the International Cotton Advisory Committee, “cotton prices peaked in the 2010/11 season at over $2 per pound”, but then fell back below the US$1/lb mark in the 2011/12 sea- son to end in June 2012 “not far above the 60 c/lb average for 2000–2009”. There are profound concerns in the ACP that, with cotton prices having fallen so dramatically, cotton subsidies will once again rise. Against this background, in June 2012, with the support of the ACP, the C4 group of African cotton-producing countries – Benin, Burkina Faso, Chad and Mali – intensified their lobbying efforts to secure substantive progress on reduction and abolition of cotton subsidies. In June 2012, an ACP Coun- cil of Ministers resolution called for: WTO members “to ensure that cotton is treated as a priority and included in any intermediate WTO agreement on modalities”; The US authorities to “seize the opportunity of the Farm Bill reform to bring the cotton support granted to their farmers into complete con- formity with WTO rules and to refrain from adopting any measures which could cause even further distortion on the international cotton market”; the EU to “ensure ambitious treat- ment for cotton by applying 100% decoupling of support for European cotton producers”. The timing of these initiatives was seen as critical, in view of the intensifica- tion of discussions on the US Farm Bill and CAP reform at a time of intense budgetary pressures on policy makers. However, by early 2013 it was apparent that little substantive movement was likely on existing structures of cotton support in either the US or the EU. Indeed the issue of cotton subsides was seen as becoming more com- plex, as analysts highlighted the grow- ing impact of domestic price support schemes and government purchas- ing in China and India on global cot- ton market price trends. According to a study published in September 2011 by the US consultancy bureau DTB Associates, price support for cotton in 2010/11 was higher in India, China and Brazil than in the US) (see Agri- trade article ‘WTO cotton discussions: Little progress, growing concerns’, 12 August 2012). The policies being pur- sued by China and India were seen as contributing to “a lack of a production response to huge supplies” and declin- ing prices. The Chinese government stockpiling policy in particular was seen as having both important direct effects (moderating price declines in a context of “the largest ever period of oversupply”) and indirect effects (over- hanging future price developments and distorting sourcing decisions of Chi- nese cotton users). Chinese cotton pol- icy is seen as increasingly critical to the world cotton market price dynamic (see Agritrade article ‘Chinese stocks levels place limits on cotton price recovery in 2013’, 25 March 2013). These trends reinforce the US conten- tion that the issue of US cotton sector support cannot be addressed in iso- lation from the cotton sector support measures pursued in China, India and Brazil. The impasse on disciplining domestic support to cotton production saw the WTO in June 2012 highlighting the lev- els of development assistance provided to cotton producers in Africa. Accord- ing to WTO Deputy Director-General Harsha Singh, “South–South coopera- tion has emerged as a key aspect of the implementation of the mandate on the development assistance aspects of cotton.” Brazil, China, India and Paki- stan have all made significant contribu- tions in this regard. Recipients of this assistance, however, highlighted “the gap between the assistance that has been committed and the aid actually delivered”. “There is an emerging trend towards greater use of tariffs within bound ceilings in support of agro-food sector development” In the course of 2012, a series of devel- opments took place in the South Afri- can poultry trade regime which may Executive brief: Update 2013 I 5http://agritrade.cta.int/ WTO Agreement on Agriculture highlight an important emerging trend towards greater use of tariffs within bound ceilings in support of specific agro-food sector development initia- tives. In February 2012, the South Afri- can authorities imposed interim anti- dumping duties of 62.93% and 46.59% respectively on imports of whole chick- ens and boneless cuts from Brazil. In response, the Brazilian government launched a dispute settlement case in the WTO. The US poultry industry, which has faced long-standing South African anti-dumping duties, urged the US government to join the Brazilian case (see Agritrade article ‘US urged to join Brazilian WTO challenge to South African poultry tariffs’, 12 August 2012). In December 2012, however, the South African government rejected a recom- mendation from its International Trade Administration Commission (ITAC) to maintain the anti-dumping duties. The South African Minister of Trade and Industry maintained that a more com- prehensive strategy was required for the poultry sector, including increasing tariffs within the bound ceiling. This is in line with the broader South African government policy thrust towards using tariff increases within bound limits on a case-by-case basis to support industrial development. Tariff increases within bound limits had already been recommended for processed tomatoes and uncooked pasta, alongside similar measures for a range of non-agro-food products. This can be taken as indicative of a trend within the ACP of governments making far greater use of the ‘water’ within their bound tariff commitments (the ‘water’ here refers to the difference between applied tariffs and the bound tariff ceiling). For example, the Jamai- can government is selectively increas- ing tariffs in support of its new ‘agro- parks’ initiative (see Agritrade article ‘Jamaica’s “agro-parks” food initiative’, 21 January 2013). Such moves, while in line with both WTO rules and the prac- tices of other major WTO players such as the EU (which varies applied tariffs for cereals within its bound ceilings in the light of global cereals prices), could meet with resistance from some WTO members and further complicate efforts to conclude the Doha Round negotiations. A further major trend in 2012–13 was the decline in the use by the EU of tra- ditional trade-distorting forms of sup- port such as export subsidies. While in 2011 just under €170.5 million was deployed in the form of export subsi- dies, by 2012 the appropriation had fallen to €141 million, while the budget allocation for 2013 was only €87 mil- lion. This represents a planned decline in the use of export refunds of 49%. If poultry meat export refunds are excluded, the decline is even more dramatic – a decline of fully 88.6% in the use of export refunds outside the poultry meat sector. This suggests that the EU’s deploy- ment of export refunds, outside the poultry sector, is very much an issue of the past. However, it should be noted that the EU retains the right to make use of such tools should market devel- opments so require, using allocations from the proposed expanded emer- gency reserve. This decline in the use of export refunds is closely linked to the expan- sion of EU direct aid programmes. “The decline in the use of export refunds is closely linked to the expansion of EU direct aid programmes” This is seeing a new equilibrium established for EU agro-food sector engagement with the global economy on the basis of the new comprehen- sive system of direct aid payments and the evolving ‘safety net’ policy of the EU. (For more details see the Agritrade Special Reports: ‘The EU’s agricultural policy toolbox: A sector-by- sector review’, 13 December 2011 and ‘Future CAP financing for 2014–2020: Implications for the ACP’, 13 Decem- ber 2011.) From an ACP perspective, issues of distortions of competition between EU and ACP suppliers thus arise not from the use of direct export subsidies, but as a result of the production and trade effects of systems of direct aid pay- ments that are compatible with existing WTO rules on ‘green box’ payments. WTO Trade Policy Reviews of ACP countries in 2012– 13 During 2012–13, the WTO undertook trade policy reviews of the East African Community (EAC) – Kenya, Uganda, Tanzania, Rwanda and Burundi, and the West African Economic and Mon- etary Union (WAEMU, also known as UEMOA) member states of Guinea Bis- sau, Togo and Côte d’Ivoire. In the case of the EAC, at the policy level the review noted incomplete implementation of EAC trade policy commitments on the free movement of goods, observing that non-tariff bar- riers (NTBs) were “major impediments to trade and business development”. This is consistent with the overall global trend towards the enhanced signifi- cance of NTBs to patterns of trade, and can be seen as the reverse side of the coin of successful tariff elimination processes. In terms of external trade, the WTO secretariat noted that agricultural prod- ucts are heavily represented in the countries’ sensitive products lists to which higher tariffs are applied. In this Executive brief: Update 2013 I 6http://agritrade.cta.int/ WTO Agreement on Agriculture context it also noted a gradual increase in average agricultural tariffs as govern- ments make more use of the ‘water’ within their bound tariff ceilings to sup- port local agro-food sector develop- ment. Linked to these observations, the extent of exceptions and waivers to the EAC common external tariff was also noted (see Agritrade article ‘Regional agricultural aspects of the East African Community WTO trade policy review’, 21 January 2013). In the West African countries reviewed, the WTO secretariat noted how, in response to rising global food prices, governments have been suspending import duties and VAT on basic food products. However, the WTO secre- tariat maintained that the exclusion of agricultural products from VAT and/or general sales tax “causes distortions in the trade in competing imported prod- ucts and problems of national treat- ment” (see Agritrade article ‘Agricultural dimensions of the WTO trade policy review for Guinea Bissau, Togo and Côte d’Ivoire’, 27 August 2012). The report observed in the case of Côte d’Ivoire that a more proactive government engagement in the cocoa sector was under way, with a new pol- icy framework being set in place that includes the use of measures such as export taxes. The use of export taxes and export pricing policies in other West African countries reviewed was also noted. In this context it should be noted that a number of WTO members have been pressing for the establish- ment of new disciplines on the use of export taxes and other forms of export restraints. In terms of external trade, the WTO secretariat noted how, after the estab- lishment of a WAEMU common exter- nal tariff, the tariff rates applied by some members exceeded the nation- ally agreed bound tariff rates. The WTO secretariat also noted the application of a highly varied range of additional taxes and levies by WAEMU members. Similar problems are faced in ECO- WAS, where “the application of the ECOWAS common external tariff… would be a problem with regard to respecting the individual commitments undertaken by the group’s members at the multilateral level.” In the absence of such a waiver, newly established regional trade groups could face claims for compensatory market access con- cessions from exporting countries adversely affected by the required tariff increases. Institutional developments in the WTO impacting on ACP countries In July 2012, WTO members endorsed new rules on the accession of LDCs. “In July 2012, WTO members endorsed new rules on the accession of LDCs” Under the new rules, “the WTO’s 155 existing members promise to show restraint in the demands they make on the poorest candidate countries and to allow them flexibility in applying the WTO’s rules.” In the past, in order to accede to the WTO, governments not only had to bring their trade-related rules into line with WTO rules but also had to meet the demands of every existing member. Reports suggest that “under the new rules, LDCs hoping to join will not be asked to cut the average ‘bound tar- iff’… for agricultural goods… below 50%”. These new rules are seen as responding to long-standing com- plaints from LDC governments that “trading partners routinely ask them to take on commitments beyond what they are capable of during their bid- ding process to join the WTO.” The new rules set out operational benchmarks for applying a decision on LDC acces- sion taken in 2002. However, the new rules leave unresolved the issue of the treatment of LDCs that have recently acceded under far stricter conditions, such as Samoa and Vanuatu (see Agr- itrade article ‘New WTO rules could ease LDC accession’, 16 September 2012). In November 2012, the WTO launched a new web portal on trade in goods and services. This can be seen as complementary to existing databases coordinated by the International Trade Centre (ITC), which are free to users based in developing countries. Taken together, these sources could help assist ACP officials in analysing agri- cultural trade flows and agricultural trade barriers and identifying oppor- tunities within the rapidly changing global agricultural trading system. However, the issue of institutional and human resource capacity constraints on the use of such tools in smaller ACP economies will continue to exist (see Agritrade article ‘New WTO trade and market access tool launched’, 27 Janu- ary 2013). The debate around price volatility and food security In the context of rising food prices, issues of price volatility and food secu- rity have become a matter of growing concern to many ACP governments. “Price volatility and food secu- rity have become a matter of growing concern to many ACP governments” This includes promoting in the WTO an appropriate policy framework for dealing with these issues. This is seen as important, since rising prices and volatility are seen as being linked to Executive brief: Update 2013 I 7http://agritrade.cta.int/ WTO Agreement on Agriculture Uruguay Round reforms. According to analysis posted by ICTSD, the Uruguay Round reforms both reduced structural surpluses in rich countries and subsi- dised exports and food aid from rich countries (see Agritrade article ‘WTO rules and food insecurity in perspec- tive’, 29 July 2012). However, according to this analysis current WTO rules do not inhibit the policy response of affected countries or concerted international action in response to rising and volatile food prices. While a range of possible policy responses are identified, the conven- tional use of trade policy tools such as tariff measures and export restric- tions is largely dismissed. Empha- sis instead is placed on building up domestic stocks, and reducing the high transaction costs for intra-regional trade, with complementary actions by the international community involving focusing food aid on emergency situ- ations, addressing liquidity constraints on importing developing countries and rationalising biofuel policies. While the ICTSD paper in no way reflected official positions in the WTO, it did highlight the clear limitations on developing an effective WTO response to ACP concerns over rising and vola- tile food prices. Many WTO mem- bers frown on the active use of tariffs and import and export restrictions in response to price volatility. Indeed, in February 2012 the WTO Director Gen- eral explicitly condemned “starve-thy- neighbour food export restrictions”, maintaining that such restrictions had exacerbated the 2008 food price crisis (see Agritrade article ‘Director-General of WTO criticises export restrictions’, 31 March 2012). Against this background, the policy response to rising and volatile prices is shifting to initiatives such as those launched in the context of the G20 Agricultural Ministers’ initiative (see Agritrade article ‘G20 agriculture min- isters agreed on action plan on high food prices’, 27 July 2011) including: commitments in support of food reserves; the creation of instruments to hedge against price volatility, notably the Agricultural Price Risk Management Tool; and the establishment of an early warn- ing system, the Agricultural Market Information Systems (AMIS – see Agritrade article ‘G20 commitments on food security to be put to the test?’, 23 September 2012). In November 2012, in the face of the prospect of another food price spike and following a drought-affected US harvest, it was claimed that the AMIS mechanism had worked to calm mar- kets, primarily through not convening the Rapid Response Forum established by the G20. This, it was maintained, avoided sending “the wrong signals concerning the gravity of the situation”, helped avert panic and prevented “the worst drought in decades” from “turn- ing into a food price crisis” (see Agri- trade article ‘Early success claimed for G20 AMIS initiative and international coordination’, 18 February 2013). The case seems to be that by bringing greater transparency to the actual supply and demand situation, AMIS moderates speculative pressures and hence reduces price spikes. The main forums for international action on food price volatility therefore appear to lie outside the WTO context. 3. Implications for the ACP New proposals and issues arising for the ACP From the perspective of ACP coun- tries, given their duty-free, quota-free access to the EU market, the debate on improving management of TRQs may serve to intensify competition in some specific market components. Some ACP governments may, however, gain from improvements in TRQ manage- ment for non-EU markets. Tighter disciplines on export restric- tions could also serve to constrain the policy space of some ACP gov- ernments that use export restrictions on primary products to promote local value-added processing (e.g. the Ken- yan and Tanzanian governments’ use of export taxes in the hides and skins and cashew nut sectors). ACP governments are likely to face financial constraints on increasing sup- port to food security measures under the proposed new rules. As such, any new rules that may be adopted in this area are likely to primarily benefit larger non-ACP developing countries. In some instances this could carry implications for the functioning of global markets in the affected sectors. Wider constraints on the use of WTO mechanisms The earlier reluctance of Caribbean governments to take the US rum sub- sidies case to a WTO dispute panel is indicative of the influence of eco- nomic power imbalances on the ability of small and vulnerable economies to fully utilise available WTO mechanisms. Considerations linked to wider trade and economic relations with the US Executive brief: Update 2013 I 8http://agritrade.cta.int/ WTO Agreement on Agriculture (including the pending application of new US food safety standards and the challenges faced across the region in attaining full compliance), alongside statements from Diageo that any such Caribbean government action could lead to a re-evaluation of its investment strategy in the Caribbean (see Agri- trade article, ‘Caribbean rum sector facing serious challenges in US and EU markets’, 16 December 2012), appear to have been weighing on the minds of CARICOM policy makers. How the WTO secretariat and wider WTO system assist governments of small and vulnerable economies in fully utilising available trade mechanisms to resolve disputes related to the provi- sion of potentially illegal subsidies can be taken as a litmus test of the practi- cal value of a rules-based trading sys- tem for ACP economies and the need for its further strengthening. Export subsidies: Yester- day’s issue? While export subsidies and interven- tion buying are no longer central to EU market management arrangements, the EC’s proposed expanded safety net policy could see these measures used in a highly targeted and effective man- ner in response to particular market cri- sis situations. This more targeted use of such measures would occur well within WTO ceilings, but could have important implications in affected sectors. This suggests a need for a targeted dialogue on managing the external effects of any expanded EU safety net policy (for more details on the EU’s evolving safety net policy see Agri- trade ‘Executive Brief Update: CAP reform’, June 2012). However, given the impasse in the WTO, this may require the establishment of new mechanisms outside the WTO framework. Growing complexity of cotton sector issues Developments on cotton markets in 2012–13, including the growing influ- ence of Chinese and Indian cotton poli- cies on global markets, have compli- cated efforts to freeze trade-distorting support in the cotton sector in the US and EU at the historically low levels of support existing when cotton prices peaked at $2/lb in the 2010/11 season. The critical litmus test of the develop- ment dimension of the Doha Round thus looks no nearer resolution than it did at the 2005 Hong Kong WTO Ministerial meeting. An ACP political initiative to draw China, India and Brazil more substan- tively into discussions on disciplining all forms of cotton support programmes could help break the impasse on cot- ton issues and reduce the growing dis- illusionment with the Doha process in a number of ACP countries. WTO rules and ACP regional integration A case can be made for the granting to ACP countries involved in regional inte- gration initiatives of a special regional integration waiver, which would permit the raising of tariffs above bound lev- els within the context of regional trade integration initiatives, without requir- ing compensatory market access to be granted. This could help facilitate regional tariff harmonisation processes in some ACP regions. New rules for LDCs Given the broader impasse in the WTO negotiations, the significance of the new WTO accession rules may prove to be primarily symbolic. Critical details related to individual accession processes will still need to be ham- mered out in membership negotiations, where LDC applicants have been sub- ject to demands just as rigorous and inflexible as those imposed on more developed states. At the substantive level, therefore, new LDC applicants will still need to satisfy the demands of any existing WTO member that wishes to make a demand. The actual benefits will depend on the self-restraint exer- cised by existing WTO members. This highlights how difficult it is to make pro- gress on relatively simple procedural issues potentially of benefit to LDCs. Main sources 1. WTO, ‘Chair reports no “no” but also no “yes” for farm talks proposal’, 16 November 2012 http://www.wto.org/english/news_e/news12_e/agng_16nov12_e.htm http://www.wto.org/french/news_f/pres12_f/pr682_f.htm 2. International Centre for Trade and Sustainable Development (ICTSD), ‘Developing coun- tries table food security proposal at WTO’, Bridges Weekly Trade News Digest, Volume 16, Executive brief: Update 2013 I 9http://agritrade.cta.int/ WTO Agreement on Agriculture Technical Centre for Agricultural and Rural Cooperation (ACP—EU) PO Box 380 6700 AJ Wageningen The Netherlands Tel: +31 (0) 317 467 100 E-mail: cta@cta.int - www.cta.int The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint ACP—EU institution active in agricultural and rural development in African, Caribbean and Pacific (ACP) countries. Its mission is to advance food and nutritional security, increase prosperity and encourage sound natural resource management. It does this by providing access to information and knowledge, facilitating policy dialogue and strengthening the capacity of agricultural and rural development institutions and communities in ACP countries. Number 39, 14 November 2012 http://ictsd.org/i/news/bridgesweekly/149960/ 3. ICTSD, ‘Cautious welcome for farm trade proposals at WTO’, Bridges Weekly Trade News Digest, Volume 16, Number 40, 21 November 2012 http://ictsd.org/i/news/bridgesweekly/150304/ 4. WTO News, ‘Lamy cites ACP’s “instrumental role” in moving the trade debate forward’, 24 October 2012 http://www.wto.org/english/news_e/sppl_e/sppl256_e.htm http://www.wto.org/french/news_f/sppl_f/sppl256_f.htm 5. EC, ‘Proposals for a regulation of the European Parliament and of the Council concerning the exercise of the Union’s rights for the application and enforcement of international trade rules’, (COM) 2012 773 final, 18 December 2012 http://trade.ec.europa.eu/doclib/docs/2012/december/tradoc_150170.pdf 6. ICTSD, ‘West Africa’s common external tariff and individual WTO commitments of ECO- WAS members’, 24 October 2012 http://ictsd.org/i/competitiveness/148171/ 7. WTO, ‘Members work on improving quantity and quality of aid for cotton’, 6 December 2012 http://www.wto.org/english/news_e/news12_e/cdac_06dec12_e.htm http://www.wto.org/french/news_f/news12_f/cdac_06dec12_f.htm 8. ACP, ‘Decisions and resolutions of the 95th session of the ACP Council of Minis- ters held in Port Vila (Vanuatu) from 10th to 15th June 2012’, Cotton (page 16 of PDF), ACP/25/006/12 final version, 13 June 2012 http://www.acp.int/sites/acpsec.waw.be/files/ACP25006%2012%20ENG.pdf 9. ICTSD, ‘Trade policy responses to food price volatility in poor net food-importing coun- tries’, by P. Konandreas, Issue Paper No. 42, June 2012 http://ictsd.org/i/publications/134356/ 10. South Centre, ‘The WTO impasse and the possible roads ahead – a development perspective’, undated http://www.other-news.info/2012/11/the-wto-impasse-and-the-possible-roads-ahead-a- development-perspective/ About this update This brief was updated in September 2013 to reflect developments since June 2012. Other publications in this series and additional resources on ACP–EU agriculture and fisheries trade issues can be found online at http://agritrade.cta.int/