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DWC-8205

Return to BhC, i -203Agricultural Protectionism and ImportPenetration by Developing Countries inIndustrial Country Markets

R.C. Duncan and E. Lutz

Division Working Paper No. 1982-5

May 1982

Commodities and Export Projections DivisionEconomic Analysis and Projections DepartmentEconomics Research StaffThe World Bank

Division Working Papers report on work in progress and arecirculated for Bank staff use to stimulate discussion andcomment. The views and interpretations in a Working Paper arethose of the author(s) and may not be attributed to the WorldBank or its affiliated organizations.

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Agricultural Protectionism and Import Penetration

by Developing Countries in Industrial Country Markets

by R.C. Duncan and E. Lutz

May 1982 SECIORAL LIBRARY

INrERNATIONAi BANKrOR

RECONSTRUCTiON ANI) DFVEI OPMEN1

APR 2 8 1989

TABLE OF CONTENTS

Page No.

I. INTRODUCTION .............................................. 1

II. MARKET PENETRATION OF AGRICULTURAL EXPORTS OF DEVELOPINGCOUNTRIES IN INDUSTRIAL COUNTRY MARKETS. 7

A. Processed Agricultural Commodities; .......................... 7B. Basic Agricultural Exports .................................. 13

i. Sugar ..................................... 14ii. Beef and Veal ..................................... 15iii. Tobacco ..................................... 18iv. Fresh Vegetables ..................................... 18

III. CONCLUSION ......... 20

LIST OF TABLES

Table No.

1 Shares of World Imports of Basic Agricultural CommoditiesHeld by World Regions, 1978. 2

2. Export Growth of Major World Regions: Agricultural TradeCompared with Manufactures Trade. 3

3. Shares of Agricultural and Manufactured Goods Exports in TotalMerchandise Exports. 4

4. Shares of World Exports of Basic Agricultural CommoditiesHeld by the Three Major World Regions, 1978. 6

5. Market Penetration of Processed Agricultural Products in 11Major Industrial Countries. 9

6. Market Penetration of Processed Agricultural Products in theEuropean Community ...... 10

7. Market Penetration of Processed Agricultural Products in theUnited States .11

8. Market Penetration of Processed Agricultural Products inJapan .12

9. Import Penetration of Basic Agricultural Exports of DevelopingCountries in Industrial Countries and the European Community.....16

10. Import Penetration of Basic Agricultural Exports of DevelopingCountries in the United States and Japan . .17

I. INTRODUCTION

-1. The industrial countries have been the most important market for mostbasic agricultural commodity exports. Of the commodities listed in Table 1below, this statement is true for all except rice, wheat and jute. Trade inrice has always been largely between the developing countries of South andEast Asia. However, the importance of developing.and centrally planned econo-mies in wheat and jute is of recent origin., The newly industrializing ormiddle-income developing countries have become dominant in imports of wheatonly in the mid-1970s as they have experienced quickly growing incomes, whichincrease the demand for meat and hence for livestock feeds (of which importedwheat is an important component). The shift of jute milling from Europe to thedeveloping countries is also a phenomenon of the 1970s. These observationshighlight the fact that the dominance of western industrial countries in theimport demand for basic agricultural commodities may well be eroded further inthe future. Be that as it may, they are presently very important importers andthe questions arise as to the degree of import penetration that has occurredduring the 1970s, and whether agricultural protectionism may affect the futuregrowth of exports of agricultural products, both basic as well as processed,from the developing countries.

2. Trade in agricultural products is no longer as important for developingcountries as it once was. Manufactured exports have been growing much fasterthan agricultural exports for some years now (see Table 2) and the relativeimportance of agricultural trade has correspondingly declined. For alldeveloping countries the share of agricultural commodity trade in totalexports was 50% in 1965 and declined to 26% in 1978 (see Table 3). For thelow-income, oil-importing developing countries the share has declined from 61%in 1965 to 49% in 1978.

3. Nevertheless, for some developing countries--particularly those in thelow-income category--agricultural exports are still an extremely importantpart of total trade. In many of these cases, moreover, the countries arehighly dependent on one export commodity as, for example, Colombia (coffee 63%of total exports), Burundi (coffee 89%), Ghana (cocoa 69%), and Mauritius(sugar 66%). Agricultural export growth cannot emulate the fast growth rate ofmanufactured exports. Nevertheless, while agricultural exports remain animportant part of total export trade, it is desirable that these countriesshould be able to exploit their comparative advantage and export opportunitiesto the fullest. They view with concern, therefore, the possibility that pro-tection against agricultural imports into industrial countries has beenincreasing.

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TABLE 1: SHARES OF WORLD IMPORTS OF BASIC AGRICULTURAL COMMODITIESHELD BY WORLD REGIONS, 1978

COUNTRY GROUPINGS /A

COMMODITY INDUSTRIAL DEVELOPING CENTRALLY PLANNED

COFFEE 85 10 5COCOA BEANS 72 8 20TEA 47 43 10SUGAR 40 34 25BEEF AND VEAL 68 26 5

BANANAS 85 11 4FRESH CITRUS FRUIT 69 15 16RICE 12 76 12COARSE GRAINS 47 28 25WHEAT 22 49 30

OILSEEDS, FATS & OILS 62 30 8COTTON 38 32 30JUTE 33 47 20RUBBER 61 20 20TOBACCO 64 24 12----------------------------------------------------------------------- __----_

/A ACCORDING TO THE UN COUNTRY CLASSIFICATION.

SOURCE: FAO, TRADE YEARBOOK, 1979.

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TABLE 2: EXPORT GROWTH OF MAJOR WORLD REGIONS:AGRICULTURAL TRADE COMPARED WITH MANUFACTURES TRADE

(AVERAGE ANNUAL GROWTH RATES 1965-78 AT CONSTANT 1978 PRICES)

AGRICULTURALFOOD NON-FOOD MANUFACTURED

COMMODITIES GOODS----------------------------------------------------------- __----------------_

LOW-INCOME OIL-IMPORTINGDEVELOPING COUNTRIES 3.9 -2.3 6.4

MIDDLE-INCOME OIL-IMPORTINGDEVELOPING COUNTRIES 5.2 3.0 16.1

ALL OIL-IMPORTINGDEVELOPING COUNTRIES 5.0 2.0 14.9

OIL-EXPORTINGDEVELOPING COUNTRIES -6.9 1.1 6.2

ALL DEVELOPING COUNTRIES 1.9 1.6 14.0

CAPITAL SURPLUS OIL-EXPORTINGDEVELOPING COUNTRIES 3.8 -15.3 24.6

INDUSTRIAL COUNTRIES 8.1 3.4 8.7

CENTRALLY PLANNED ECONOMIES 4.1 2.5 7.0

WORLD 5.2 2.7 8.9

SOURCE: EPD DATA BASE.

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TABLE 3: SHARES OF AGRICULTURAL AND MANUFACTURED GOODS EXPORTSIN TOTAL MERCHANDISE EXPORTS

(AT CURRENT PRICES)

SHARES IN TOTAL MERCHANDISE EXPORTS

FOOD AND NON-FOOD MANUFACTUREDAGRICULTURAL COMMODITIES GOODS1965 1978 1965 1978

LOW-INCOME OIL-IMPORTINGDEVELOPING COUNTRIES 61.4 49.1 26.4 38.2

MIDDLE-INCOME OIL-IMPORTINGDEVELOPING COUNTRIES 52.4 31.8 25.0 50.9

ALL OIL-IMPORTINGDEVELOPING COUNTRIES 54.0 33.4 25.2 49.7

OIL-EXPORTINGDEVELOPING COUNTRIES 43.5 14.1 5.5 5.9

ALL DEVELOPING COUNTRIES 50.1 26.5 17.9 34.2

CAPITAL SURPLUS OIL-EXPORTINGDEVELOPING COUNTRIES 1.4 .4 .5 1.9

INDUSTRIAL COUNTRIES 20.9 14.9 69.8 76.5

CENTRALLY PLANNED ECONOMIES 24.9 16.4 58.8 59.Z

WORLD 26.5 16.4 56.9 61.8SOURCE:----------------------EPD-----------DATA--------------BASE-----__-----_

SOURCE: EPD DATA BASE.

- 5 -

4. A study reported by Hughes and Waelbroeck 1/ showed that, while therehave been some increases in protection against manufactured imports by indus-trial countries, particularly since the 1974 recession, the developingcountries as a whole were able to increase their level of penetration ofindustrial country markets at an average of 8% per annum between 1970 and1979. In part this has been done by diversification of manufacturing activity.But unlike manufacturing, which offers the possibility of an infinite range ofqualities of a particular good and an infinite variety of goods, agriculturalcommodities are essentially homogeneous products in their primary state aswell as after the initial stages of processing. Therefore, it is less diffi-cult to organize protection against primary and processed agricultural commo-dities than against manufactured exports, whose characteristics can be manipu-lated to avoid trade barriers thrown up in the form of tariffs or quotas.

5. Because they are mostly raw materials and, in many cases, products ofa tropical environment, primary agricultural products from developing coun-tries are often free of restraint when imported into the industrial countries,which are geographically located mainly in the temperate regions. However,this principle does not generally hold as, for example, when the raw materialis in close competition with a manufactured synthetic raw material. Further,to protect their domestic processing industries, protection in industrialcountries is normally higher the higher the degree of processing involved.

6. As is the case with manufactured goods, protection in the industrialcountries against agricultural imports has been primarily against the threatof imports from other industrial countries. It is only in respect of appareland footwear, as presently manifested for instance in the multi-fibre agree-ment, that protection is directed against manufactured exports from developingcountries. For the rest, protection is basically against manufactured importsfrom the other major industrial countries. Likewise with respect to agricul-tural imports, protection in the industrial countries has been directedagainst imports from other industrial countries. As stated above, many of thedeveloping country agricultural exports (such as the beverages coffee, cocoaand tea), being of tropical origin, do not compete with domestic production inthe industrial countries and therefore do not face trade barriers. The excep-tions have been sugar, which is a tropical product in competition with thetemperate sugarbeet (and more recently High Fructose Corn Syrup, HFCS, derivedfrom maize), and fruits and vegetables which come from developing countriesclose to the European or North American markets. Beef, oilseeds, fibres,rubber and tobacco are commodities widely grown in developing countries whichface competition in industrial countries either with similar or close substi-tute agricultural products or with synthetic substitutes. However, for thesecommodities the protection in the industrial countries has been, at least atfirst, directed against imports from other industrial countries. Table 4 showsthe shares of total exports of various agricultural, commodities by countrygroupings.

1/ H. Hughes and J. Waelbroeck, "Can Developing Country ERports KeepGrowing in the 1980s? The World Economy, Vol. 4, No. 2, June 1981.

TABLE 4: SHARES OF WORLD EXPORTS OF BASIC AGRICULTURALCOMMODITIES HELD BY THE THREE MAJOR WORLD REGIONS, 1978

COUNTRY GROUPINGS /A

INDUSTRIAL DEVELOPING CENTRALLY PLANNEDCOMMODITY COUNTRIES COUNTRIES ECONOMIES

COFFEE 5 95 0COCOA 0 100 0TEA 7 83 10SUGAR 24 43 33BEEF 69 25 6

BANANAS 3 95 1FRESH CITRUS FRUITS 20 77 3RICE 30 56 13COARSE GRAINS 80 17 3WHEAT 93 3 4

OILSEEDS, FATS & OILS 56 35 9(FAT OR OIL EQUIVALENT BASIS)

- SOYBEANS 87 12 1- SOYBEAN OIL 67 33 0- GROUNDNUTS 54 44 3- GROUNDNUT OIL 21 76 3- COPRA 1 99 0- COCONUT OIL 10 90 0-PALM OIL 5 95 0- PALM KERNELS 1 99 0

COTTON 31 49 20RUBBER 0 100 0TOBACCO 32 56 13

/A ACCORDING TO THE UN COUNTRY CLASSIFICATION.

SOURCE: FAO, TRADE YEARBOOK, 1979.

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II. MARKET PENETRATION OF AGRICULTURAL EXPORTS OF DEVELOPING COUNTRIESIN INDUSTRIAL COUNTRY MARKETS

7. It would be an almost impossible task to assess whether the extent ofprotection against agricultural commodities by the industrial countrieschanged throughout the 1970s. The main reason is that there has been a largenumber of decisions affecting the degree of protectionism and the impact ofthose decisions cannot easily be quantified. Moreover, many of the tradebarriers faced by agricultural products are non-tariff barriers. However, itis possible to determine the changes in market penetration of these productsby exporting countries during the 1970s and thereby gain some idea of whetherthe export prospects for developing countries have been getting better orworse. We have assembled two sets of data to examine recent changes in importpenetration of the industrial countries by agricultural exports from thedeveloping countries. From the World Bank's study of market penetration ofmanufactured exports in industrial countries 1/ we have extracted theinformation about processed food products. These data are summarized in Tables5, 6, 7 and 8. Here, market penetration is measured as a percentage ofapparent consumption in 11 major industrial countries as a whole (Table 5), inthe EC-9 (Table 6), in the United States (Table 7) and in Japan (Table 8). Thesource of the imports are shown by very broad country groupings as well as forthe regional developing country groupings of Southern Europe and LatinAmerica.

8. A set of data has also been assembled in Tables 9 and 10 which showimport penetration for basic agricultural commodities from developing coun-tries. These tables show for all industrial countries and for the EuropeanCommunity (EC), United States and Japan separately, the share of developingcountry imports in apparent consumption for 1970 and 1980. Here the emphasisis on those commodities against which there is substantial protection and inwhich the developing countries are significant exporters--sugar, tobacco, beefand veal and vegetables.

A. Processed Agricultural Commodities

9. Further processing of raw materials produced within developingcountries has become an area of considerable interest among people concernedabout economic development. There is, of course, no good reason why a countrywhich produces a raw material should necessarily have a comparative advantagein the manufacturing process involved in its processing. However, given thatdeveloping countries do move into processing of raw materials (whether oftheir own or of imported primary commodities), it is maintained that importantobstacles to their benefiting fully from such activity are the trade barrierserected by the industrial countries to protect their processing industries.

1/ World Bank Research Project NO. 671-67 directed by Helen Hughes.

-8-

10. Here we have looked only at market penetration of manufactures offood, beverages and tobacco; these items are easily identifiable forms ofprocessed agricultural commodities. For some of these, such as fruits andvegetables, sugar, cocoa and tobacco, the developing countries are importantraw material producers and exporters (see Table 4). Tables 5 to 8 show marketpenetration data for 16 four-digit ISIC (International Standard IndustrialClassification) items and for the total of ISIC Code 31 (Manufacture of Food,Beverage and Tobacco).

11. Table 5 shows that the developing countries were able to increasetheir penetration ratio for total manufactures of food, beverages and tobaccointo the 11 selected industrial countries from 3.4% to 3.9% in the periodbetween 1970 and 1979. This change in the penetration ratio amounts to agrowth rate in their share of total apparent consumption of 1.5% per annum. Atthe same time the industrial countries have increased their mutual penetrationratio from 4.9% to 6.7%--a growth rate of 3.5%. However, this latter tradeincludes the intra-trade of the EC. Therefore, a more useful comparison is ofindustrial country penetration of the United States and Japanese markets. Thegrowth rate of the industrial country share of apparent consumption in theUnited States was 0.4%, while in Japan it was 4.0%. The developing countriesshare of the EC and United States markets grew at 1.0% and 2.2% respectively,while their share of the Japanese market fell by 0.6%

12. The developing countries achieved their highest levels of penetrationin the following product groups: grain mill products, sugar refining, manufac-turing of vegetable and animal oils and fats, canning and preserving of fruitsand vegetables, wine industries, manufacturing of cocoa, chocolate and sugarconfectionary and canning, preserving and processing of fish. Of these productgroups the share of only two of them experienced significant increases duringthe 1970s: manufacturing of cocoa, chocolate and sugar confectionary, andcanning and preserving of fruits and vegetables. There has, however, been noserious deterioration in the penetration ratio of any of these developingcountry exports, apart perhaps from refined sugar. The share of refined sugarexports from developing countries to the US market have halved during thisperiod. This loss was offset to some extent by gains in the Japanese market.

13. The developing country gains in the US market benefited almostentirely the Latin American countries, with the largest gains being made bycocoa, chocolate and sugar confectionary and grain mill products. In the ECthe developing countries of the Lome Convention (which has been in existencesince 1975) have likely been beneficiaries of the expansion of the penetrationratio. The larger penetration ratio for cocoa products has likely benefitedWest African cocoa producers. North African countries which are producers offruits and vegetables and fish products also seem to have increased theirshare of the EC market (these countries, such as Algeria, Morocco and Tunisiaare not members of the Lome Convention).

TABLE 5: MARKET PENETRATION OF PROCESSED AGRICULTURAL PRODUCTS IN 11 MAJOR INDUSTRIAL COUNTRIES

SOUTHERN LATIN DEVELOPING INDUSTRIAL CENTRALLY PLANNEDisiC WORLD EUROPE AMERICA COUNTRIES COUNTRIES --ECONOMIES

CODE 1970 197 90 99 190 7 1970 1979 1970 1979 1970 1979 M

------------------------- -(IMPORTS AS A PERCENTAGE OF APPARENT CONSUMPTION) ---------------------------

MANUFACTURE OF FOOD, BEVERAGES AND TOBACCO 31 8.596 10.771 0.316 0.314 1.709 1.897 3.430 3.859 4.921 6.703 0.244 0.209

SLAUGHTERING, PREPARING AND PRESERVING MEAT 3111 11.750 15.011 0.251 0.206 1.540 1.115 2.405 2.089 8.693 12.226 0.652 0.696

MANUFACTURE OF DAIRY PRODUCTS 3112 5.182 7.699 0.024 0.020 0.026 0.022 0.055 0.050 5.033 7.572 0.094 0.077

CANNING AND PRESERVING OF FRUITS AND VEGETABLES 3113 10.496 13.683 1.826 2.030 0.558 1.552 4.422 6.447 5.597 6.820 0.477 0.415

CANNING, PRESERVING AND PROCESSING OF FISH 3114 11.318 10.032 1.164 0.452 0.411 0.298 2.914 3.449 7.871 6.309 0.533 0.274

HANUFACTURING OF VEGETABLE AND ANIMAL OILS AND FATS 3115 20.091 20.234 1.144 0.520 4.067 3.799 10.642 10.875 8.864 9.209 0.584 0.151

GRAIN HILL PRODUCTS 3116 21.540 23.360 0.019 0.038 12.768 13.403 19.853 20.925 1.685 2.433 0.001 0.002

MANUFACTURE OF BAKERY PRODUCTS 3117 1.075 1.811 0.007 0.019 0.002 0.016 0.029 0.108 1.044 1.698 0.002 0.005

SUGAR FACTORIES AND REFINERIES 3118 23.336 N.A. 0.098 N.A. 8.781 N.A. 17.294 N.A. 5.744 N.A. 0.298 N.A.

MANUFACTURE OF COCOA, CHOCOLATE AND SUGAR CONFECTIONERY 3119 6.953 12.821 0.096 0.290 0.447 2.164 1.815 4.503 5.077 8.256 0.061 0.061

MANUFACTURE OF FOOD PRODUCTS, N.E.S. 3121 4.132 6.098 0.122 0.137 0.729 1.303 1.305 1.955 2.772 4.124 0.055 0.018

MANUFACTURE OF PREPARED ANIMAL FEEDS 3122 1.375 1.814 0.003 0.007 0.056 0.025 0.090 0.062 1.281 1.739 0.004 0.013

DISTILLING, RECTIFYING AND BLENDING SPIRITS 3131 11.579 13.556 0.195 0.312 0.513 0.827 0.948 1.244 10.582 12.170 0.049 0.143

WINE INDUSTRIES 3132 17.546 32.944 2.929 5.656 0.020 0.116 6.563 6.200 10.799 26.094 0.184 0.650

MALT LIQUORS AND HALT 3133 1.846 3.828 0.006 0.008 0.015 0.073 0.031 0.105 1.706 3.597 0.108 0.127

SOFT DRINKS AND CARBONATED WATERS INDUSTRIES 3134 0.323 1.068 0.003 0.009 0.001 0.011 0.005 0.034 0 317 1.033 0.001 0.001

TOBACCO MANUFACTURES 3140 1.029 3.195 0.014 0.024 0.020 0.063 0.087 0.164 0.942 3.031 0.000 0.000

SOURCE: MARKET PENETRATION PROJECT.

TABLE 6: MARKET PENETRATION OF PROCESSED AGRICULTURAL PRODUCTS IN THE EUROPEAN COKMUNITY

SOUTHERN LATIN DEVELOPING INDUSTRIAL CENTRALLY PLANNEDISIC ---- WORLD EUROPE AMERICA COUNTRIES COUNTRIES ECONOMIES

CODE 1970 1919 1970 1919 1970 1919 1970 1979 1970 1979 1970 1979

------------------------ M(IMPORTS AS A PERCENTAGE OF APPARENT CONSUMPTION) …------------------ -----

MANUFACTURE OF FOOD, BEVERAGES AND TOBACCO 31 14.808 18.830 0.646 0.627 2.212 2.279 5.027 5.489 9.225 12.942 0.555 0.399

SLAUGHTERING, PREPARING AND PRESERVING HEAT 3111 25.592 28.574 0.693 0.379 3.068 1.576 5.161 3.202 18.813 24.051 1.618 1.321




MANUFACTURING OF VEGETABLE AND ANIMAL OILS AND FATS 3115 41.299 43.358 2.457 1.150 8.902 9.416 21.770 22.190 18.064 20.836 1.464 0.333

GRAIN HILL PRODUCTS 3116 24.190 29.434 0,044 0.089 12.739 13.147 21.302 24.894 2.885 4.537 0.003 0.003

HANUFACTURE OF BAKERY PRODUCTS 3117 2.071 4.139 0.009 0.027 0.001 0.000 0.034 0.057 2.035 4.073 0.002 0.009

SUGAR FACTORIES AND REFINERIES 3118 19.994 19.230 0.251 0.125 4.722 3.987 10.623 11.257 8.809 7.808 0.563 0.164



MANUFACTURE OF PREPARED ANIMAL FEEDS 3122 2.625 3.295 0.007 0.014 0.104 0.034 0.124 0.062 2.493 3.206 0.008 0.027


WINE INDUSTRIES 3132 16.325 33.242 2.475 6.251 0.009 0.085 7.215 6.930 8.901 25.475 0.210 0.837

HALT LIQUORS AND HALT 3133 2.753 3.572 0.013 0.012 0.006 0.007 0.028 0.025 2.596 3.462 0.130 0.086

SOFT DRINKS AND CARBONATED WATERS INDUSTRIES 3134 1.008 2.319 0.006 0.015 0.000 0.004 0.010 0.034 0.997 2.283 0.001 0.002

TOBACCO MANUFACTURES 3140 1.402 6.913 0.001 0.010 0.005 0.019 0.064 0.180 1.337 6.733 0.000 0.000


TABLE 7: MARKET PENETRATION OF PROCESSED AGRICULTURAL PRODUCTS IN THE UNITED STATES

SOUTHERN LATIN DEVELOPING INDUSTRIAL CENTRALLY PLANNEDISIC WORLD EUROPE AMERICA COUNTRIES COUNTRIES ECONOMIESCODE 1970 1979 1970 1919 1970 1979 1970 1979 1970 1979 1970 1979

--------- - …---- -( IMPORTS AS A PERCENTAGE OF APPARENT CON§UMPTION) ------- …-- - …--------

MANUFACTURE OF FOOD, BEVERAGES AND TOBACCO 31 4.808 5.491 0.150 0.152 L.654 2.155 2.655 3.218 2.094 2.173 0.059 0.100

SLAUGHTERING, PREPARING AND PRESERVING fMAT 3111 4.441 4.721 0.056 0.099 0.885 0.876 1.069 1.141 3.166 3.237 0.207 0.343





GRAIN MILL PRODUCTS 3116 20.249 21.219 0.002 0.006 13.332 16.070 20.006 21.019 0.244 0.199 0.000 0.000


SUGAR FACTORIES AND REFINERIES 3118 24.737 13.364 0.014 0.000 15.645 10.010 23.107 11.990 1.630 1.374 0 0



HANUFACTURE OF PREPARED ANIMAL FEEDS 3122 0.168 0.270 0 0 0.018 0.015 0.019 0.017 0.149 0.253 0.000 0.000


WINE INDUSTRIES 3132 21.126 33.212 4.600 4.502 0.058 0.132 4.661 4.650 16.405 28.459 0.061 0.103

MALT LIQUORS AND MALT 3133 0.875 4.526 0.001 0.005 0.030 0.211 0.046 0.250 0.826 4.268 0.003 0.008

SOFT DRINKS AND CARBONATED WATERS INDUSTRIES 3134 0.029 0.655 0.002 0.006 0.001 0.020 0.002 0.028 0.026 0.626 0 0

TOBACCO MANUFACTURES 3140 0.361 0.585 0.042 0.071 0.053 0.190 0.100 0.265 0.261 0.319 0 0.001


TABLE 8: MARKET PENETRATION OF PROCESSED AGRICULTUIRAL PRODUCTS IN JAPAN

SOUTHERN LATIN DEVELOPING INDUSTRIAL CENTRALLY PLANNEDISIC WORLD EUROPE AMERICA COUNTRIES COUNTRIES ECONOMIESCODE 1970 --- 9 1970 97 90 19 19 1979 1970 1979 191970 1979

----------------------------- (IMPORTS AS A PERCENTACE OF APPARENT CONSUMPTION) -------------------------

MANUFACTURE OF FOOD. BEVERAGES AND TOBACCO 31 4.972 5.991 0.034 0.047 0.541 0.530 2.205 2.084 2.687 3.830 0.080 0.078

SLAUGHTERING. PREPARING AND PRESERVING MEAT 3111 25.750 27.699 0.050 0.207 2.111 1.380 5.196 4.679 20.075 22.589 0.479 0.432

HANUFACTURE OF DAIRY PRODUCTS 3112 3.593 3.879 0.000 0.001 0.045 0.011 0.062 0.032 3.512 3.761 0.018 0.087


CANNING, PRESERVING AND PROCESSING OF FISH 3114 1.565 4.181 0.003 0.011 0.029 0.020 o.442 1.558 1.009 2.560 0.115 0.063


GRAIN KILL PRODUCTS 3116 8.932 9.236 0 0.000 4.404 4.613 7.342 8.592 1.590 0.644 0.000 0


SUGAR FACTORIES AND REFINERIES 3118 26.185 51.419 0 0.114 2.159 0.181 18.611 24.947 7.573 26.467 0.001 0.004

HANUFACTURE OF COCOA, CHOCOLATE AND SUGAR CONFECTIONERY 3119 3.258 4.069 0.001 0.032 0.087 0.654 0.960 1.386 2.279 2.676 0.019 0.006

MANUFACTURE OF FOOD PRODUCTS. N.E.S. 3121 2.494 2.779 0.186 0.038 0.220 0.293 0.840 0.906 1.631 1.869 0.023 0.004

MANUFACTURE OF PREPARED ANIMAL FEEDS 3122 1.059 0.485 0. 0.003 0.041 0.030 0.246 0.043 0.805 0.437 0.008 0.005


WINE INDUSTRIES 3132 13.773 28.800 0.900 5.294 0.142 0.734 1.682 7.342 11.974 20.066 0.117 1.391

MALT LIQUORS AND MALT 3133 1.652 4.076 0.000 0.007 0.006 0.007 0.011 0.053 1.312 3.539 0.329 0.483

SOFT DRINKS AND CARBONATED WATERS INDUSTRIES 3134 0.009 0.218 0 0 0.002 0.001 0.003 0.048 0.005 0.170 0.001 0

TOBACCO MANUFACTURES 3140 0.366 0.537 0.002 0.001 0 0.000 0.137 0.046 0.228 0.490 0.001 0

SOURCE: KARKET PENETRATION PROJECT.

- 13 -

14. Cocoa products are an example where the developing countries havebeen able to benefit from a lowering of trade barriers on processed products.However, the difference in the performance of developing countries exportingto the United States and to the EC is somewhat surprising. In 1975, under theLome Convention (which includes all African cocoa producers), the EC madecocoa powder, cocoa butter and cocoa paste duty free. Previously, only thecocoa beans imports were duty free. In the United States imports of cocoapaste have been duty free, while the MFN rates on cocoa butter and cocoapowder were 3.0% and 0.8% respectively prior to the Tokyo Round of the MTN.These rates will be reduced to zero as an outcome of the Tokyo Round. GSPsuppliers have enjoyed zero duties on butter and powder since 1976. 1/ Giventhat the EC and the United States have essentially moved to duty free entryfor cocoa products (paste, powder and butter) since the mid-1970s, anexpansion in imports of these processed products and a decline in imports ofcocoa beans would be expected. As the reduction in tariffs was larger in theEC than in the United States and as the EC reduction related to a specificgroup of countries, notably in West Africa, it was to be expected that themove to processed cocoa products would have been greater in respect of importsin the EC and that the African cocoa producing countries may have expandedprocessing more than other developing countries. The data in Tables 6 and 7show in fact that import penetration has expanded more in the US than in theEC--growing by 21% p.a. in the United States and by 6.1% p.a. in the EC. Over80% of this increase went to Latin American countries--notably Brazil, thesecond largest cocoa producer next to the Ivory Coast. Imports of cocoabutter, paste and powder into the United States are almost as large as importsinto the EC. Therefore, it is obvious that Latin American countries haveincreased their exports of these products much faster than West African cocoaproducers.

B. Basic Agricultural Exports

15. In Table 9 the share of developing country exports in total indus-trial country consumption is shown to have fallen substantially for sugar,beef and veal and maize. The penetration ratio of tobacco has risen verysignificantly. Developing country sugar exports to both the EC and the UnitedStates fell absolutely between 1970 and 1980; however, the decline of exportsto the United States has been most important, with total exports falling byover 1 million tons (Tables 9 and 10). Japan, on the other hand, has increasedthe participation of developing country sugar exporters-increasing the levelof their imports by about 50%. We discuss the experience of these fourcommodities in detail below.

1/ If, however, imports of butter or powder from a single country in any yearexceed US$25 million (in 1976--increased annually in relation to theirGNP) or 50% of US imports of that product, whichever is the lower, theymust pay the full MFN duty the following year. In 1979 imports of bothbutter and powder from the Ivory Coast and Brazil exceeded this ceiling.

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(i) Sugar

16. Sugar is an important developing country export whose production andexport earnings have been adversely affected by protection against imports inthe major industrial countries as well as by protection in the USSR and EastEuropean countries. In recent years the US and Japan have been importing 40-50% and 70-75%, respectively, of their consumption requirements in the face ofimport controls and price support programs for domestic producers. Within theEC, however, the price supports and import controls have been instrumental inpromoting the EC to the position of being a net exporter, when previously itwas a net importer.

17. Sugar imports into the United States have been subject to country-specific quotas, which have been particularly severe with respect to refinedsugar. Because of the nature of the trade restraint the developing countryproducers which have had access to the US market (largely the Philippines andCentral American and Caribbean countries) have received a price premium overand above the free market price, which has served to reduce their incentive tolobby for freer access. However, with an increasing share of the industrialsweetener market (beverages, canned food, ice creams, bakery products) beingtaken by sugar substitutes--in particular High Fructose Corn Syrup (HFCS)--theprospects for developing country exports to the United States are poor. In1970 HFCS sales in the United States were 60,000 tons and by 1980 they hadgrown to 2.1 million tons. By 1985 consumption of HFCS in the United Statescould reach 4 million tons. Consumption of HFCS is also growing quickly inJapan and the EC. This added source of competition for sugar producers in theEC, United States and Japan will give impetus to their demands for protectionfrom sugar imports as they cannot get protection from domestic production ofsugar substitutes such as HFCS. Ironically, protection of the sugar industry,especially in the US market, has been an important factor in fostering thegrowth of substitute sweeteners. Now that they are established, HFCS producerswill support sugar producers' demands for protection against imports, ascontrols on sugar imports protect manufacturers of sugar substitutes as wellas producers of sugar.

18. Sugar consumption in Japan is artificially restrained and prices toproducers are raised by the imposition of import duties to bring the price ofimports to predetermined consumer prices. Despite this protection Japanremains the second largest importer of sugar in the free market. The level ofimport penetration remains high because the agricultural subsidy system hasnot encouraged a higher level of self-sufficiency in sugar due to competitionfrom other crops which also receive artificially increased prices.

19. In the EC self-sufficiency has been attained by artificiallyincreased producer prices which are supported by variable import levies intro-duced in 1968 under the Common Agricultural Policy (CAP). The variable importlevies make the domestic market virtually impenetrable to imports. The onlyexceptions to this restraint on sugar imports are: (a) drawback provisions forimports of sugar which are reexported after processing; (b) the import quota

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provided for certain African, Caribbean and Pacific countries under the LomeConvention; and (c) production in the French Overseas Departments (Guadeloupe,Martinique, Reunion) which comes under the domestic EC production quota. Since1977 the EC has been a net exporter selling into third-country markets atprices subsidized under CAP, to the detriment of other sugar-producingcountries.

(ii) Beef and Veal

20. From Tables 9 and 10 it can be seen that developing country beef andveal imports to the industrial countries fell over the period 1970 to 1980from 2.3% to less than 1% of total consumption--falling absolutely by 60%.This decrease was primarily due to the absolute decline of developing countryexports to the EC. The future of beef exports for the developing countrieslooks grim for some years into the future. In the longer run, the growth ofincomes in the presently fast growing developing countries, and the ensuinggrowth in the demand for 'meat, should lead to much larger markets for beef andveal and other red and white meats in the developing countries themselves. Atthe moment, however, the industrial countries are the major consumers of beefand exports to the major importers or potential importers among them areseverely constrained. The North American beef import market is large, but itis restricted by quotas and voluntary export restraint to Australia and NewZealand and the Central American beef producers. Other developing country beefproducers are not allowed into these markets because of the incidence of foot-and-mouth and other disease. However, even in the possible event of the elimi-nation of foot-and-mouth disease in the more likely areas of Argentina andUruguay, unless United States and Canadian policy changes, entry of any newexporters would have to be at the expense of existing exporters.

21. The major depressing factor on the development of beef exports fromthe developing countries has been the operation of the CAP and the expansionof the EC. Not only has the expansion of the EC placed what were importantmarkets for the major developing country beef exporters (Argentina, Uruguayand Yugoslavia) within the EC, but the operation of the CAP has led to expan-sion of beef production within the EC so that now the EC is self-sufficient in

beef production and is subsidizing exports into third country markets at theexpense of other exporters. This process will continue with the entry ofGreece and the likely entry of Spain and Portugal, which have all been impor-tant export markets for the major developing country exporters.

22. Imports into other quickly growing beef markets such as Japan andKorea are also sharply constrained by restrictions (both trade and sanitation)which favor their highly inefficient domestic producers, and the likelihood ofimports growing quickly is small. The residual, free world market is thus verysmall and is presently dominaced on the demand side by the USSR, which has inthe past been an opportunistic participant depending on the performance of itsgrains and meat sectors. Recently, however, the USSR has signed a long-termbeef agreement with Argentina, signaling greater stability in its meatimports.

TABLE 9: IMPORT PENETRATION OF BASIC AGRICULTURAL EXPORTS OF DEVELOPING COUNTRIESIN INDUSTRIAL COUNTRIES AND THE EUROPEAN COMMUNITY

ALL INDUSTRIAL COUNTRIES EUROPEAN COMMUNITY----- _---- -- --- -- ----- ----_- ---- _ --__- -------- ----- --__ - --- _------ ---- ------- _ -_- - _-- ---- - - -- - -----_- - _ - _---- -----

APPARENT DEVELOPING IMPORT APPARENT DEVELOPING IMPORTCOMMODITY SITC CODE CONSUMPTION COUNTRIES IMPORTS PENETRATION RATIO CONSUMPTION COUNTRIES IMPORTS PENETRATION RATIO

1970 1980 1970 1980 1970 1980 1970 1980 1970 1980 1970 1980

-------------…(o000 TONS)…-------------- -------()------- ------------(000 TONS)S-------------- -------()-------

SUGAR 0611 + 0612 141,143 169,250 11,068 6,556 7.8 3.9 60,156 81,331 1,900 1,613 3.2 2.0

TOBACCO 121 1,649 1,769 348 535 21.1 30.2 543 632 201 317 37.0 50.2

BEEF AND VEAL 0111 19,603 20,561 453 176 2.3 0.9 6,294 6,532 322 85 5.1 1.3

WHEAT 041 67,279 86,629 633 118 0.9 0.1 40,078 49,121 624 93 1.6 0.2

RICE 042 19,352 16,591 270 321 1.4 1.9 1,000 1,161 205 276 20.5 23.8

MAIZE 044 125,443 152,426 6,345 2,061 5.1 1.4 23,812 25,863 4,454 839 18.7 3.2

TOMATOES 0544 12,464 15,971 658 758 5.3 4.7 5,132 6,957 285 391 5.6 5.6

SOURCE: FAO AND UN TRADE TAPES.

TABLE 10: IMPORT PENETRATION OF BASIC AGRICULTURAL EXPORTS OF DEVELOPING COUNTRIES IN THE UNITED STATES AND JAPAN- -- - - --- -- -- - --- - - -- - -- -- --- --- - - --- -- ---- -- --- ----- -- -- --- --- - ----_ _- - -- -- --_ _- --- --- -- --- - ---- -- --- --- -- -- --- --- - - --- --- - --- ---- - --- -- ---- -- -- -_ _

UNITED STATES JAPAN

APPARENT DEVELOPING IDPORT APPARENT DEVELOPING IMPORTCOMMODITY SITC CODE CONSUMPTION COUNTRIES IMPORTS PENETRATION RATIO CONSUMPTION COUNTRIES IMPORTS PENETRATION RATIO1970 1980 1970 1980 1970 1980 1970 1980 1970 1980 1970 1980-------------------------------------------------------------------__--------__------------------------------------------------------------------__-----

-------------('000 TONS)…-------------- ------- ------------…('000 TONS)- ------------ -------(X)-------

SUGAR 0611 + 0612 50,458 49,809 4,541 3,485 9.0 7.0 7,370 8,001 778 1,208 10.6 15.1TOBACCO 121 730 713 97 163 13.3 22.9 187 234 12 23 6.4 9.8BEEF AND VEAL 0111 10,621 10,580 106 81 1.0 0.8 301 540 0 1 0 0.2WHEAT 041 19,383 28,741 0 2 0 0 5,158 6,265 0 0 0 0RICE 042 2,081 3,528 0 2 0 0.1 15,971 11,514 17 12 0.1 0.1MAIZE 044 91,146 105,726 0 0 0 0 6,050 12,833 1,578 1,153 26.1 9.0TOMATOES 0544 5,669 6,928 292 295 5.2 4.3 792 1,026 N.A. N.A. N.A. N.A.

SOURCE: FAO AND UN TRADE TAPES.

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(iii) Tobacco

23. The import penetration ratio of tobacco from developing countriesincreased from 21% to 30% for all industrial countries over the period 1970 to1980, with substantial increases in the pentration ratio in the EC and the US.In absolute terms most of the increase in imports from the developing coun-tries went to the EC where the share of the developing countries in totalapparent consumption grew to 50% in 1980--up from 37% in 1970. While develop-ing country imports and their penetration ratio increased substantially in theUnited States, total consumption of tobacco declined in the United States overthe observation period. Tobacco was one of the commodities for which the ACPcountries received preferential treatment in the Lome Convention. The reduc-tion in import duties into the EC has obviously benefited ACP tobacco expor-ters such as Malawi, which in the 1970s was the fastest growing tobaccoexporter among the developing countries.

24. Tobacco consumption in the industrialized countries has been increas-ing annually at about 17% since 1970 while production in these countries hasbeen increasing at less than 0.5% per annum. It is obvious that tobacco pro-duction in the major industrial country producer, the United States, which hasbeen on a declining trend since 1960 of about 0.5% p.a., has lost its competi-tive edge, especially to quickly growing developing country producers such asMalawi, Yugoslavia, Dominican Republic and Korea. If tobacco consumption con-tinues to grow in the industrial countries at near historic rates (in spite ofconcerns about health and high levels of consumption taxation), the prospectsfor developing country exports are bright. However, the decline in consumptionin the United States may be a sign of things to come. This decline reflectshealth concerns which have resulted in reduced smoking levels as well asreduced tobacco content in cigarettes. Offsetting this development is therapid increase in tobacco consumption in developing countries.

(iv) Fresh Vegetables

25. Tomatoes are the only fresh vegetable which can be isolated jointlywithin the FAO production data and the UN trade data; however, they are animportant component of the total vegetable market and are important fordeveloping country exporters adjacent to the European and North Americanmarkets. The consumption of tomatoes in the industrial countries has grown at2.5% p.a. between 1970 and 1980; however, the developing country exports havenot grown as fast (only 1.4% p.a.) so their import penetration ratio hasfallen from 5.3% to 4.7%. This decline has been wholly due to the failure ofdeveloping country exports to the United States to expand. These exports arein effect tomatoes grown across the Mexican border solely for export to theUriited States and Canada. This trade has been the subject of recent anti-dumping action in the United States, but the findings by the United Statesauthorities were in favor of the Mexican exporters.

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26. Imports into the EC maintained their penetration ratio in the period1970 to 1980. However, this trade with Southern European and North Africandeveloping countries is likely to be of long-term concern because of the pro-posed southward expansion of the EC. Greece, Portugal and Spain have accountedfor about 17% of fresh fruit imports into the EC, 24% of dried fruit imports,11% of processed fruit imports, 13% of fresh vegetable imports and 16% of pro-cessed vegetable imports--where these percentages are calculated on the basisof EC imports which include intra-EC trade. Greece, Portugal and Spain arecompetitive with the North African and Mediterranean countries for the off-season fruit and vegetables market in EC. Under the protection of CAP prices,the production of fruit and vegetables in these new EC countries will belikely to expand. Exports of fruit and vegetables from Greece, Portugal andSpain which would otherwise have gone to other markets will be directed (atleast to a large extent), to the EC. The overall result will be a reduction inthe total international market available for developing countries.

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III. CONCLUSION

27. Concern has been expressed about the increase in the degree of pro-tectionism in the industrial countries in the 1970s and the impact of this onexports of developing countries. Studies of the impact of protection levels inindustrial countries on manufactured exports from developing countries haveshown that despite some increases in protection, developing countries as awhole were able to increase their level of penetration of industrial countrymarkets at a healthy average rate of 8% per annum between 1970 and 1979. Thereliance by developing countries on primary agricultural exports has dimi-nished because of this growth in manufactures; however, agricultural exportsare still important--especially for the low income, oil-importing countries.Further, the industrial countries remain important importers of these pro-ducts. Therefore, the threat or existence of higher trade barriers toagricultural exports is of major concern.

28. We have not attempted to assess in detail whether agricultural pro-tection levels have changed in the industrial countries. This is almost impos-sible--particularly if non-tariff barriers are to be taken into account. Norhave we attempted to establish any empirical relationship between changes inprotection and changes in import penetration in the industrial markets. Wehave measured changes in import penetration ratios for both processed andbasic agricultural products in industrial country markets during the 1970s.Some of the major changes observed are related to known changes in protectionlevels and the prospects for developing country exports of these products arediscussed in the light of likely future developments.

29. Among the basic agricultural commodities attention is focussed onfour products, sugar, beef and veal, tobacco and fresh vegetables. These arebasic commodities in which the developing countries are important exportersand against which there is substantial protection. Many other basic agricul-tural exports from developing countries, especially from those in tropicalclimates, do not have close substitutes in the industrial countries (which arelocated mainly in temperate regions) and are therefore not discriminatedagainst in raw materials form. However, they are discriminated against inprocessed form. This can be analyzed looking at changes in import penetrationratios of manufactured exports in the food, beverage and tobacco category.

30. The import penetration ratios for both sugar and beef and veal havefallen substantially. Imports of beef and veal now comprise less than 1% ofapparent consumption in industrial countries. This is a result both of sanita-tion regulations against countries with particular animal diseases and compre-hensive protection against beef and veal imports in all the industrialcountries. Increases in exports from developing countries now depend primarilyon markets in the USSR and in fast growing countries in the Middle East, Asiaand Africa. Little change can be expected in this situation.

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31. Despite the decline in market penetration, sugar is still a veryimportant export to industrial countries. However, the prospects for sugarexports from developing countries to industrial countries are bleak. The majorindustrial countries have highly protected sugarbeet or sugarcane producers.Moreover, they are under severe competitive pressure from domestic productionof sugar substitutes. Up to three-quarters of the sweetener market is forindustrial use, of which the sugar substitutes (such as HFCS) could capturetwo-thirds or more. This can only lead to demands for higher protectionagainst sugar imports.

32. Developing country tobacco imports have done surprisingly well in theindustrial markets, particularly in the EC. The preferential trading arrange-ment for tobacco exports from ACP countries under the Loma Convention seems tobe the important factor in this result. Prospects for tobacco exports aregood, with consumption in developing countries growing and with production inthe major industrial country producer, the United States, likely to continueto increase only slowly or even to fall.

33. The import penetration ratio of fresh tomatoes has fallen slightly.This trade is largely between the contiguous countries of Mexico and theUnited States and Canada and between North African and Mediterranean countriesand the EC countries. This fresh vegetable trade has been under pressure fromproducer interest groups in both the United States and the EC. In the future,the likely accession of Portugal and Spain could mean even greater pressuresfor protection within the EC as the production of the new entrants expandsunder the stimulus of the CAP.

34. Developing countries have been able to increase their import penetra-tion in processed agricultural products (ISIC 31, manufactures of Food,Beverages and Tobacco) in industrial countries only slightly. They have beennowhere near as successful as with other manufactured exports. 1/ Growth intheir share of total consumption has been faster in the United States than inthe EC, which is surprising given the stimulus provided by the Loma Conventionto a large group of developing countries. Their share of the Japanese marketin these products declined over the period 1970 to 1980.

35. Of the product groups included in ISIC 31 the share of only twoincreased significantly--cocoa, chocolate and ,sugar confectionary and canningand preserving of fruits and vegetables. There was no serious deterioration inthe share of any of the products--apart perhaps from refined sugar for whichthe data show a large loss in their share in the US market.

36. The Latin American countries gained most by far from increased pene-tration of the US market. On the other hand, developing countries exporting tothe EC, particularly the Loma countries--did not do as well as might have beenexpected, especially in areas such as cocoa products where tariff levels havebeen reduced significantly. This result raises the question of whether thedeveloping countries concerned have provided an appropriate economic environ-ment for the expansion of processed exports.

1/ Hughes and Waelbroeck, op. cit.

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