Agricultural Trade

agriculture policy brief

Agricultural Trade and Domestic Policy Reform: Better Together

January 2019

gricultural and food sectors are closely connected with other sectors, both within countries A and across borders in global value chains. ountries can enhance the competitiveness of their agro-food sectors through more open trade C policies and reducing the impacts of non-tariff measures that raise trade costs. reater gains can be realised through widespread multilateral reforms, and preferential and G regional trade agreements that encompass countries at all stages of development.

What’s the issue?

Agricultural and food markets have changed a lot over the past two decades. Today, domestic and international agro-food markets are more closely integrated than ever before. Overall agro-food tariffs have fallen and many countries have reduced their use of trade-distorting producer support. Trade in agro-food products has grown strongly, including between emerging and developing countries, which have increased in importance as both suppliers and consumers of agro-food products.

food sectors are more closely connected with other sectors of the economy, both within countries and across borders in global value chains (GVCs). Within these GVCs, the activities and inputs used to produce primary products, and those that transform them into food, clothing and other products are spread over several countries. These linkages play an important role in driving agro-food sector development, spreading innovation and enhancing the competitiveness of sectors in both global and domestic value chains.

Increasing trade growth has coincided with deeper integration of the world food system. The agricultural and Figure 1. Developments in agricultural markets and policies since 2001 (percent change) 2001-2014/16

1990-2000

Production

Prices (food)

Trade

Tariffs (% point)

OECD PSE (% point) -15

-10

-5

0 % change

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5

10

gricultural Trade and Domestic Policy A Reform: Better Together Domestic support measures continue to constrain further integration of agro-food markets While international agro-food markets have evolved, most countries continue to support their agriculture sector through measures that distort trade. By reducing trade volumes, these measures have significant negative effects on the welfare of consumers and the competitiveness and resilience of the agriculture sector, as well as global food security. While many trade and domestic support policies aim to increase food production, much evidence suggests that they fail to achieve this goal and that global production would be higher without such support.

Other measures that affect the flow of agro-food products across borders can also reduce trade. Non-tariff measures (NTMs) – laws, regulations and requirements such as sanitary and phyto-sanitary measures, technical barriers to trade, and customs procedures – can increase trade costs. While many of these measures are implemented with consumers’ health and the environment in mind, they are not always based on scientific evidence.

Trade and agricultural support measures that restrict or increase the cost of trade harm countries’ own economies as well as those of trading partners. Protectionist policies reduce sector growth and export competitiveness by increasing the cost of inputs, and can constrain participation in global value chains. Globally, around 24% of agro-food export value comes from imported inputs: services and industrial inputs (for example, machinery and fertiliser), but also agro-food products, such as feedstuffs and products for further processing. Overall, obstacles to trade increase the production costs in GVCs and unnecessarily increase the price to consumers.

•P rovide an enabling environment and promote agricultural productivity growth, as this can enhance the competitiveness of agro-food exports and participation in GVCs. This includes appropriate investments in transport infrastructure, education and innovation.

Importantly, the gains from reform are greatest when all countries act together through widespread multilateral reforms, and through preferential and regional trade agreements. This includes agreements that lock in actual liberalisation (such as by binding applied tariffs) and advance co-operation on trade-related regulatory issues that influence the gains from agro-food trade.

Further reading • OECD (2019), “The changing landscape of agricultural markets and trade: prospects for future reforms”, OECD Food, Agriculture and Fisheries Papers, No. 118, OECD Publishing, Paris, https:// doi.org/10.1787/7dec9074-en • OECD (2016), Evolving Agricultural Policies and Markets: Implications for Multilateral Trade Reform, OECD Publishing Paris, http://dx.doi. org/10.1787/9789264264991-en

What should policy makers do?

In addition to pursuing more open trade policies and reducing the impacts of measures that raise trade costs, policymakers could enhance these gains by: • Reduce agricultural support and barriers to access markets that distort trade, such as tariffs. Those protectionist policies reduce sector growth and export competitiveness by increasing the cost of inputs, and can constrain sector participation in GVCs. • Ensure that NTMs are appropriate, transparent, sciencebased, and do not overly restrict trade. International regulatory co-operation can help countries to reduce the trade costs of differences in domestic regulations – without compromising the societal goals that motivate their use.

• Reduce barriers to services trade. Services form an important part of value added in agro-food exports and in the final product, and ensure that GVCs operate efficiently.

www.oecd.org/agriculture

tad.contact@oecd.org

@OECDagriculture