Box 3-1. Case Study: The future of soybean in danger? Soybean was first domesticated in China almost five thousand years ago. The legendary Emperor Shennong (which literally means the Emperor of Magic Agriculture) made soybeans the only legume of his five life-sustaining grains. Millennia of cultivation have produced an enormous range of varieties, as well as the vast body of indigenous knowledge associated with it.
Prior to 1995 China enjoyed a long history of exporting soy. During WTO negotiations, China made huge concessions in the agricultural sector cutting the tariff for soy imports to 3%. Since then, soy imports have soared. In 2003, soy imports reached 20.74 million tonnes (doubling within three years), and China became the world's biggest soy importer. In 2005, soy imports equaled 26.5 million tonnes, 1.6 times of domestic production. Most of the imports are GM soy from the US, Brazil and Argentina. Conversely, in the mid-1990s, China exported more than 1 million tonnes of non-GM soybeans per year to South Korea and Japan. In recent years, the export has steadily dropped to 200-300 thousand tonnes per year, partly because buyers are concerned about genetic contamination by the GM imports.
Needless to say, the massive import surge and declining export has a huge negative impact on domestic producers. Heilongjiang, the Northeast province of China, produces about 40% of the country's soybeans. About 20 million small farmers used to grow soybeans. According to a news report in September 2006, the soybean price in Heilongjiang dropped to 28 cents per kilogram in 2005. This was below the production cost even if the labor cost was not counted. Consequently, in 2006, the province saw the area of cultivated soybean shrink by 25%. Millions of soybean farmers scrambled to switch to other crops, or simply abandoned the land to join the huge population of migrants in a desperate search for jobs.
Another big loser is the future of the soybean: with the rapid and massive bankruptcy of huge number of small growers, the incredible biodiversity of soy varieties accumulated over millennia and the indigenous knowledge associated with it is dying out as well. manufacturing exports, where developing countries, particularly those of Asia, have substantially increased their share of world manufacturing exports.
What accounts for the high share of developed/industrial countries in agricultural exports and the relatively low share of developing Asia? A much commented upon factor is that of high subsidies and tariffs for agricultural products. The combination of tariffs (border protection) and direct subsidies were 44.9% of farm gate prices in 2000-02 (Aksoy, 2005). This support was down from 62.5% in 1986-88, but still very high. Among OECD countries, only Australia and New Zealand, had low levels of total support, which went down from 10.6% in 1986-88 to just 3.6% in 2000-02. In contrast to the OECD countries, developing countries as a |
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whole reduced average agricultural tariff rate from 30% in 1990 to 18% in 2000 (Aksoy, 2005).
Developing countries, in particular LDCs, are exempt from reducing the so-called de minimis support. The important problem here is that developing countries' budgetary positions do not allow them to reach even the allowed de minimis support.
It is necessary to first consider the nature of the world food market. Here we take the example of rice, since rice is of critical importance to food security in most of the countries studied. The world rice market is neither deep nor very competitive (Tabor et al., 2002). The rice market is less dominated by import demand from Asia than it was two decades ago—Asia accounted for two-thirds of global rice demand in the 1970s, but this figure has come down to a third in the late-1990s. The number of traders in the rice market has increased and there are now numerous small traders, involved in what is called smuggling, but is better regarded as unofficial trade. But world rice prices at below $150 per tonne are dominated by the major exporters. All of which use various forms of support to subsidize rice exports. The USA provides the largest subsidy to rice export, $143 per tonne of paddy (Wailes and Durand-Morat, 2005) or about $530 per tonne of exports, if all of the subsidy were attributed to exports (Tabor et al., 2002).
The major Asian exporting countries also subsidize rice exports. Thailand provides loans at subsidized rates; Vietnam provides credit subsides, while India allowed exporters to buy rice at subsidized prices supposed to be for below the poverty line (BPL) households. Consequently, although the exporters are also lower cost producers than the importers, competition between exporters is "less on productivity gains and more on the degree to which domestic markets are protected and exports subsidized" (Tabor et al., 2002).
Vietnam is said to have the lowest rice production costs in the world (UNEP, 2005). This has allowed it to enter the market for rice exports in medium to low qualities of rice. Over the 1990s Vietnam's rice exports have grown at 13% in quantity and at least 12% in value terms (UNEP, 2005). In response to the low export prices of rice, some of the major rice exporters, like Thailand and Vietnam, have proposed the formation of a cartel. This has been rejected by India, which has continued to undercut its rivals in the low end of the market (mainly Pakistan and Vietnam) by selling highly subsidized rice.
Subsidies to exports mean that global rice prices are not a good guide to marginal costs in supplying world rice requirements. This is the first reason why domestic food production cannot be determined by pure global price-based decisions. International rice prices would have to be revised upwards and domestic rice production would then also be higher than that which would be dictated at existing international rice prices.
In China, for instance, sugar prices were higher than world market prices. With the news that China would join the WTO, sugar and sugarcane prices began to fall. Sugarcane prices fell from Y 230 per tonne in 2003 to just Y 170 per tonne in 2004, bankrupting small producers (Oxfam, 2003). An option is to allow import duties, equal to the extent of subsidy paid by OECD countries and for as long as these subsidies, in whatever form they are given, continue to be in place. |