ASEAN and the EC: Trade in Tropical Agricultural Products 9789814377201

Citation preview

The Institute of Southeast Asian Studies was established as an autonomous organization in May 1968. It is a regional research centre for scholars and other specialists concerned with modern Southeast Asia, particularly the multi-faceted problems of stability and security, economic development, and political and social change. The Institute is governed by a twenty-two-member Board of Trustees comprising nominees from the Singapore Government, the National University of Singapore, the various Chambers of Commerce, and professional and civic organizations. A ten-man Executive Committee oversees day-to-day operations; it is chaired by the Director, the Institute's chief academic and administrative officer. The ASEAN Economic Research Unit is an integral part of the Institute, coming under the overall supervision of the Director who is also the Chairman of its Management Committee. The Unit was formed in 1979 in response to the need to deepen understanding of economic change and political developments in ASEAN. The day-to-day operations of the Unit are the responsibility of the Co-ordinator. A Regional Advisory Committee, consisting of a senior economist from each of the ASEAN countries, guides the work of the Unit.

ASEAN AND THE EC Trade in Tropical Agricultural Products

Edited by Rolf J. Langhammer Kiel Institute of World Economics

Hans Christoph Rieger South Asia Institute of Heidelberg University

ASEAN Economic Research Unit Institute of Southeast Asian Studies

Published by Institute of Southeast Asian Studies Heng Mui Keng Terrace Pasir Panjang Singapore 0511

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Institute of Southeast Asian Studies.

© 1988 Institute of Southeast Asian Studies The responsibility for facts and opinions expressed in this publication rests exclusively with the authors and their interpretations do not ner:essarily reflect the views or the policy of the Institute or its supporters. Cataloguing in Publication Data

ASEAN and the EC trade in tropical agricultural products / edited by Rolf J. Langhammer and Hans Christoph Rieger. 1. Produce trade -- ASEAN. 2. Produce trade -- Government policy --European Economic Community. 3. European Economic Community-- Commercial policy. 4. Tariff preferences -- European Economic Community. 5. ASEAN --Commerce-- European Economic Community. 6. European Economic Community --Commerce -- ASEAN. I. Langhammer, Rolf J. II. Rieger, Hans Christoph. Ill. Institute of Southeast Asian Studies. ASEAN Economic Research Unit. HF1592.5 E8C74T2 1988 ISBN 9971-988-81-X Printed in Singapore by Chong Moh Offset Printing Pte Ltd

CONTENTS

List of Tables v Contributors ix Acknowledgement Preface xiii

xi 1

I

Agricultural Diversification in ASEAN Chaiwat Konjing

II

EC Trade Policies in Tropical Agricultural Products Ingeborg Menzler-Hokkanen

III

Processed Agricultural Products: Issues for Negotiation between ASEAN and the EC Claro L. Nieva and Gerardo Ma. A. Faigal

IV

Agricultural Protection in Europe: Its Impact on Developing Countries 129 Jean-Marc Burniaux and jean Waelbroeck

V

Do the ACP Trade Preferences Discriminate against ASEAN Agricultural Products? 1 SS Rolf]. Langhammer

60

116

LIST OF TABLES

1-1

Agricultural Population in ASEAN and the World, 1980

4

1-2

Shares of Economic Sectors in Gross Domestic Product in ASEAN, 1979

4

Principal Tropical Crops Produced in ASEAN (excluding Singapore), by Order of Planted Area, 1980

6

Harvested Areas of Major Tropical Crops in ASEAN (excluding Singapore), 1967-70, 1971-75, and 1976-80 Averages

9

Production of Major Tropical Crops in ASEAN (excluding Singapore), 1967-70, 1971-75, and 1976-80 Averages

10

Yield of Major Tropical Crops in ASEAN (excluding Singapore), 1967-70, 1971-75, and 1976-80 Averages

11

Animal Production in ASEAN, 1967-70, 1971-75, and 1976-80 Averages

12

Annual Growth Rate of Harvested Area, Production, and Yield of Major Tropical Crops in Indonesia, 1971-75 and 1976-80 Averages

14

Annual Growth Rate of Harvested Area, Production, and Yield of Major Crops in Malaysia, 1971-75 and 1976-80 Averages

16

1-10 Annual Growth Rate of Harvested Area, Production, and Yield of Major Tropical Crops in the Philippines, 1967-80

19

1-3 1-4

1-5

1-6

1-7 1-8

1-9

Vl

List of Tables

1-11 Annual Growth Rate of Harvested Area, Production, and Yield of Major Tropical Crops in Thailand, 196 7-80

21

1-12 Principal Agricultural Exports of Individual ASEAN Countries, 1964, 1971-75, and 1976-80 Averages

24

1-13 Indonesia: Percentage Distribution of Principal Agricultural Exports, by Destination, 1971-75 and 1976-80 Averages

25

1-14 Indonesia: Percentage Shares of Export Values of Principal Commodities, by Destination, 1971-75 and 1976-80 Averages

27

1-15 Malaysia: Percentage Distribution of Principal Agricultural Exports, by Destination, 1971-75 and 1976-80 Averages

29

I-16 Malaysia: Percentage Shares of Export Values of Principal Commodities, by Destination, 1971-75 and 1976-80 Averages

30

1-17 Philippines: Percentage Distribution of Principal Agricultural Exports, by Destination, 19 71-7 5 and 1976-80 Averages

32

1-18 Philippines: Percentage Shares of Export Values of Principal Commodities, by Destination, 1971-75 and 1976-80 Averages

34

1-19 Singapore: Percentage Shares of Export Values of Natural Rubber and Veneer Plywood, by Destination, 1971-75 and 1976-80 Averages

36

1-20 Thailand: Percentage Distribution of Principal Agricultural Exports, by Destination, 1971-75 and 1976-80 Averages

38

11-1 11-2

EC Imports from Individual ASEAN Countries, 1965-80, All Goods and Foodstuffs

64

Intra-ASEAN Distribution of Food Exports to the EC Market

67

List of Tables vn 11-3 II-4 11-5

II-6 11-7 11-8

EC Food Imports from Third Countries and ASEAN, 1965, 1970, 1975, and 1980

70

ASEAN Share of EC Total Imports of Various Agricultural Products, 1972-80

74

GSP for Vegetable Oils and Fats and Their Relevance for ASEAN Countries, 1975-82

76

Tokyo Round Concessions of the EC in Major Tropical Products

86

GSP for Spices and Their Relevance for ASEAN Countries, 1975-82

90

GSP for Tea, Cocoa, and Coffee and Their Relevance for ASEAN Countries, 197 5-82

94

AII-1 Price Adjustment Levies for Rice and Broken Rice of the EC

110

AII-2 Products Covered by the STABEX System of the Lome Conventions

111

III-1 ASEAN Exports to the EC, 1981

119

III-2 ASEAN Exports of Processed Agricultural Products to Each EC Country, 1981

121

IV-1

136

Rural-Urban Parity in Europe

IV-2 Agricultural Production Structure in Europe, 1995

140

IV-3 Agricultural Protection Rates in Europe

141

IV-4 Agricultural World Price Trends

142

IV-5 Free Agricultural Trade in Europe in a Context of Decreasing World Agricultural Prices

144

IV-6 Free Agricultural Trade in Europe in a Context of Decreasing Agricultural World Prices and Without Balance of Payment Constraints

148

viii List of Tables IV-7 Increasing Agricultural World Price Scenario

150

V-1 Major EC Nine Agricultural Imports from the ASEAN and ACP Countries, 1974 and 1980

158

V-2 Degree of Similarity between the Agricultural Exports of the ASEAN and ACP Countries to the EC Nine, 1974 and 1980

162

V-3 Weighted Average Preference Margins of ACP Agricultural Exports vis-a-vis Competing ASEAN Products in the EC Nine Markets, 1974 and 1978

164

V-4 Average EC Import Unit Value Ratios between Major Agricultural Imports from ACP Countries and Individual ASEAN Countries, 1974 and 1980

166

V-5 Changes in Price Ratios of ACP and ASEAN Agricultural Exports to the EC between 1974 and 1980

166

V-6 Percentage Shares of the EC Nine GSP Agricultural Imports from ASEAN Receiving GSP Treatment, 1980

168

V-7 Instabilities of Quantities and Prices of the EC Nine Imports from the ACP States and Major ASEAN Suppliers in Tropical Agricultural Products, 1975-79

173

V-8 Shares of Commonwealth ASEAN, Other ASEAN, and Yaounde Associates in Selected U.K. Agricultural Imports from Developing Countries

176

CONTRIBUTORS

Jean-Marc Bumiaux is Researcher at the Free University of Brussels. Chaiwat Konjing, Ph.D., is Head of the Department of Agricultural Economics, Kasetsart University, Thailand. Gerardo Ma. A. Faigal is Market Research Executive at the Integrated Information Pte. Ltd., a subsidiary of the Telecommunications Authority of Singapore. Rolf J. Langhammer, Ph.D., is Research Division Chief at the Kiel Institute of World Economics. Ingeborg Menzler-Hokkanen is Researcher at the Swedish School of Economics and Business Administration of Helsinki. Claro L. Nieva is Assistant Project Manager at the United Industrial Corporation Ltd., Singapore. Jean Waelbroeck, Ph.D., is Professor at the Free University of Brussels.

ACKNOWLEDGEMENT

The research leading to the reports in this volume as well as the publication of the volume itself have been supported by grants from the Konrad Adenauer Foundation, Federal Republic of Germany. The support is gratefully acknowledged.

PREFACE

Of ten people living and working in the ASEAN countries, six are engaged in the agricultural sector. A substantial proportion of what they produce is exported to the countries of the European Community (EC). For the EC, on the other hand, ASEAN imports are hardly significant, and where they· become so, as in the case of Thai tapioca exports, it is usually as a by-product of the highly interventionist Common Agricultural Policy {CAP) and as an irritant leading to th(; introduction of protective measures, such as the so-called voluntary export restraints (VERs). The CAP of the EC is a classic case of a sectoral subsidization of income leading into an impasse, from which it is difficult to return because of strong vested interests. The fact that European consumers have to pay ever increasing amounts for the production, accumulation, storage, and eventual dissipation of agricultural products, might be tolerated as an idiosyncracy to be borne by them alone. But the existence of the CAP has large adverse effects on third countries, and thus on the producers and consumers in the ASEAN countries too. It is this relationship that is addressed in the current volume. The intention is to provide background material for further studies and discussion of specific issues in the trade of tropical agricultural products, particularly within the framework of closer co-operation between ASEAN and the EC. Five contributions have been included. First, Chaiwat Konjing, a Thai agricultural economist, presents a comprehensive background picture of the agricultural sector in the ASEAN countries, particularly highlighting the diversification of production and export markets that has taken place in the last decade. Then Ingeborg MenzlerHokkanen, an economist now working at the University of Helsinki,

XIV

Preface

presents the CAP of the EC and focuses on EC trade policies in tropical agricultural products. The importance of the two Lome Conventions with the countries of Subsaharan Africa, the Carribean and the Pacific {ACP countries) is highlighted. By providing preferences to them, ASEAN countries are, by definition, discriminated against. Claro Nieva and Gerardo Faigal of the Center for Research and Communication, Manila, Philippines, examine ASEAN's exports of processed agricultural products to the EC from the perspective of improving access to European markets. They argue for a pragmatic policy of mutual co-operation within the terms of the existing co-operation agreement between the two blocs. In the contribution by Jean-Marc Bumiaux and Jean Waelbroeck, both at the Free University of Brussels, Belgium, a simulation model of rural-urban and North-South effects of EC protectionism in the CAP is presented. The model RUNS clearly shows that the Corrmunity's agricultural policy affects not only Europeans themselves but also other countries, especially those producing tropical agricultural products. Rolf J. Langhammer, a senior economist at the Kiel Institute of World Economics, then analyses the export pattern and performance of ASEAN and the ACP countries in the EC market. This is done in order to assess the impact of ACP preferences on ASEAN agricultural exports in competing items. He comes to the conclusion that, up to now, the ACP preferences have failed to give the ACP countries a distinct competitive edge over ASEAN. In fact, ASEAN countries have generally done comparatively well on the EC market because their general economic policy framework is much more outwardoriented than that of the ACP countries. ASEAN-EC trade relations in tropical agricultural products need to be improved. If further co-operation succeeds in bringing this about, ASEAN-EC trade relations could well become an example of non-preferential trade relations between developed and developing countries in a system of uniform rules of non-discrimination and equal treatment. 19 July 1987

Rolf J. Langhammer Kiel Institute of World Economics Hans Christoph Rieger Heidelberg University

I AGRICULTURAL DIVERSIFICATION IN ASEAN

Chaiwat Konjing

Introduction The diversification of national or regional agricultural production promises to play an important role in the economic development of ASEAN. The heavy dependence on a small handful of key agricultural crops can lead to many problems. In food-deficit developing countries, rapid population growth and the threat of food shortages have led to greatly increased emphasis on the production of basic food grains. In food-surplus developing countries, the vul nerabi 1ity of exports of key commodities to price fluctuations have led to efforts to diversify agricultural production and exports, in order to stabilize foreign exchange earnings and overall economic development. In general, diversification in agricultural production involves a movement away from a monoculture system of production to the production of other crops which are needed both for domestic consumption and for exports. For instance, Thailand's agricultural diversification has seen the production of more export-oriented commodities, whi 1e Indonesia and the Philippines have made efforts towards self-sufficiency and increas-ed exports. Commodity-wise, the crops considered for diversification programmes vary from nation to nation but generally tend to include horticultural crops, animals, and animal products. For example, in Thailand, where the main crop is rice,

2 Chaiwat Konjing production has diversified to include rubber, maize, In Indonesia, however, rice and cassava, sugar, and kenaf. maize production have replaced grain imports, while oil palm and coffee have been selected to diversify the production of mainly rubber and timber for export. Conceptually, diversification can be approached at two levels-- at the national or regional level on the one hand, and at the level of individual farm operations on the other. In general, the problems encountered are simi 1ar at both levels. Given the existing data of ASEAN agriculture, however, the problem is more evident at the national or regional level than at the individual farm level. The basis for the discussion in the present study is the diversification at the national and regional levels of ASEAN. Attention is given to a careful analysis, at the national level, of the production expansion in response to the export potential of major agricultural commodities of ASEAN. The central objective of the present study is to explore and analyse the diversification pattern of agricultural production in the ASEAN region with particular emphasis on the response to export market opportunities. The specific objectives of the study are: 1. to identify the pattern of agricultural diversification in ASEAN, with special emphasis on the production response to export opportunities in the world market; 2. to review the commercial agricultural policies of the ASEAN countries in relation to tropical agriculture in response to export opportunities in international markets. The data used in the analysis are on an annual basis and cover the period 1967-80. They are extracted from various publications such as the FAO Production Yearbook, the FAO Trade Yearbook, the U.N. Annual Statistical Papers, Series D, and the national statistical publications as well

Agricultural Diversification in ASEAN 3 as the agricultural policy documents of the respective ASEAN countries.

ASEAN Agricultural Econo~ With the exception of Singapore, the ASEAN countries are agri cul tura 1 economies in the sense that the share of the agricultural sector in total production, employment, and foreign exchange earnings is the largest of all sectors. In 1980 the total agricultural labour force constituted up to 75.37 per cent in Thailand, 58.9 per cent in Indonesia, 47 per cent in Malaysia, 1 and 46 per cent in the Philippines (Table I-1). The share of agriculture in gross domestic product (GOP) in 1979 ranged from 26 per cent in Thailand to 30 per cent in Indonesia (Table I-2). Agricultural exports a1so accounted for the highest percentage in tota 1 foreign exchange earnings -- that is, 60 per cent for Thailand, 49 per cent for the Philippines, 43 per cent for Malaysia, and 40 per cent for Indonesia. 2 In terms of agricultural land, the ASEAN countries in 1979/80 crop year farmed a total area of 47.93 million hectares, of which 37.99 per cent was in Thailand, 30.6 per cent in Indonesia, 24.7 per cent in the Philippines, 6.7 per cent in Malaysia, and 0.01 per cent in Singapore. Food and agricultural production in ASEAN has been increasing rapidly since 1972, but food production increased faster in Thailand than in other ASEAN countries. Figure I-1 provides an overview of these developments in the period 1968-80. Table I-3 shows crop production by planted area in the ASEAN countries. In Indonesia and Thailand, agricultural production was concentrated mainly on rice, maize, rubber, and cassava, while the Phi 1i ppi nes concentrated on rice, maize, coconuts, and sugar-cane. In Malaysia, production concentrated on perennial crops such as rubber and oil palm,

4 Chaiwat Konjing

TABLE 1-1 Agricultural Population In ASEAN and the World, 1980 Population (millions)

Country Total I ndonesl a Mal11ysia Philippines Sing11pore Thailand World

Note:

Economically Active Population (mi II ions)

Agriculture

Total

Agriculture

151.89 13.64 50.99 2.39 47.67

89.40 6.39 23.34 0.05 35.93

(58 .86) (46 .85) (45.77) (2.09)

..... ::(

1:1>

.....

"'

0 :3

1967-70

1971-75

c....

.....

1976-80

::s

Crop

'(Q

Rice Beans Cassava Sugar-cane Tobacco I eaves Maize Groundnuts (in shell) Palm oil Rubber Coconuts

n.a.

Area

Production

Yield

Area

Production

Yield

Area

8.92 n .a. 6.75 n .a. 2.78 2.12 22.22 n.a. n.a. n.a.

12.18 0 -9.35 n.a. -11.11 5.79 5.56 4.07 8.89 21.50

4.47

2.16 13.23 10.00 21.88 16.70 8.29 30.83 n.a. n.a. n .a.

2.79 47.50 20.87 10.97 87.50 6.83 119.09 34.32 3.90 63.58

1.08 27.71 16.02 n .a. 16.21 29.63 49.19 n.a.

3.24 82.14 11.06 17.38 -4.36 7.10 -3.57

n .a. n .a.

n.a. n.a.

n.Z~.

-8.48 n .a. -14.68 0.40 -1.96 n.a. n .a. n.a.

Data not avai Iable.

SOURCE:

Computed from data in FAO, Production Yearbook, 1967-80.

n.a.

Production 3.95 20.81 5.07 3.10 -3.83 -8.57 -11 .01 26.90 0.16 11.85

Yield 5.3 -20.65 -1.17 n .a. 9.88 17.49 -9.67 n .a. n .a. n.a.

Agricultural Diversification in ASEAN 17 expansion and yield improvement together led to a surge in production volume (Table 1-9). Other crops which showed a high and increasing rate of growth in annual production included beans, sugar-cane, cassava, and coconuts. Those with declining rates of growth during the most recent period, 1976-80, were maize, tobacco, and groundnuts, all of which accounted for relatively small percentages of total cultivated area. In fact, Malaysia's agriculture is dominated by the perennial crops, rubber and oil palm. The adoption of oil palm has been for export diversification away from rubber; while the expansion in rice and animal feed grains has been for import substitution or for home consumption. Since the expansion in rice production is limited by geographical conditions in Malaysia, agricultural diversification will have to be oriented towards perennial crops and their supplements, namely, cocoa, coffee, and pepper. Oi versification across the crop-1 i vestock enterprises in Malaysia has been at a very low scale, since the livestock industry is still small, less advanced, and run by different farm traditions of different ethnic groups. However, the emergence of a modern pig and poultry farming system s i nee the 1ate 1960s offers cons i derab 1e potentia 1 for the expansion and diversification of Malaysia's agriculture away from the perennial crops. In general, overall agricultural diversification in Malaysia has progressed steadily, as witnessed by successively declining concentration ratio coefficients of production, from 50.3 during 1967-70 to 45.5 and 43.9 during 1971-75 and 1976-80, respectively (Table 1-5). Philippines The principal crops in the Philippines by rank of planted area in 1980 were rice, maize, coconuts, sugar-cane, fruits, and roots and tubers. The cultivation of rice, maize, and

18 Chaiwat Konjing coconuts together occupied up to 85 per cent of the total cultivated area of about 11.811 million hectares. Fruit trees and sugar-cane, on the other hand, accounted for about 8 per cent of total cultivated land, the rest (3 per cent) being accounted for by miscellaneous crops and 1i vestock. In fact, the Philippines does not have more land for crop expansion. The expansion of agricultural production will have to rely on more intensive land use or yield improvement. This is particularly the case for rice. Although the cultivated area reached its peak in the period 1971-75, production vollllle continued to increase because of a comparable increase in yield. The rate of increase in rice production was 5.8 per cent per year during 1967-70. It gradually declined to 5.3 and 3.6 per cent during 1971-75 and 1976-80, respectively (Table 1-10). The growth rate of rice yield also declined during 1971-75, but improved considerably during the period 1976-80. Maize production in the Philippines during 1976-80 averaged 2.98 million tons compared to the 1.7 million tons during 1967-80, a substantial increase over the ten-year period. The rate of increase during the first half of the 1970s was 7.3 per cent per year. The rate declined to 3.9 per cent per year during the second half of the 1970s The increase in maize production in the (Table 1-10). Philippines is attributable to a rapid rate of area expansion. Cassava, beans, and groundnuts also showed favourable rates of increase in both area and production volume during the second half of the 1970s, that is, 41.6 per cent per year for cassava, 23.0 per cent for beans, and 9.6 per cent for groundnuts. The production of other crops such as coconuts, sugar-cane, soya beans, and tobacco, however, showed variable and partly negative growth rates over the same period. For rubber, the rate of increase in production was constant over the 1970s. With respect to livestock production, the Philippines

TABLE 1-10 An niHil Growth Rate of Harvested Aree, Product Ion, end Yield of Mejor Troplcel Crops In the Philippines, 1967-80 (In percentages per ennum) 1967-70

1971-75

1976-80

Crop Area

Production

Yield

Area

Production

Yield

Area

Production

Yield

I~ -s

.....

0

Rice Maize Sugar-cane Cassava Tobacco Ieaves Beans Groundnuts

z:

.... N

22

Chaiwat Konjing

The rate of growth of rice production during three successive periods over 1967-80 was rather stable -- at 5.6 per cent per year (Table I-11). Similarly, the growth rate of the harvested area was also stable, at around 3 per cent per year. While the production growth rate of rice remained constant, the production of the other crops such as maize, cassava, sugar-cane, and sorghum increased more rapidly through area expansion. For natural rubber, the growth rate of production was also stable over the periods 1971-75 and 1976-80. Crops which showed a decline in importance in terms of production and harvested area included groundn uts, and jute and kenaf, most of which have been replaced by beans and cassava. Thailand's agriculture since the late 1960s has experienced diversification away from rice, rubber, and jute and kenaf to cash crops that offer greater market potential. In particular, maize, sorgh1.111, and cassava are increasingly grown for export. This crop diversification is expressed by the computed concentration ratio index of both harvested area and production. The concentration ratio coefficient of harvested area declined from 79.4 per cent during 1967-70 to 69.2 and 69.5 per cent during 1970-71 and 1971-80, respectively. Similarly, the concentration ratio coefficient of production volume also declined from 60 to around 53 per cent, suggesting rather rapid progress in crop diversification (Tables 1-4 and 1-5). The livestock industry in Thailand has also been diversified, following developments in the production of feed-stuff. The most advanced sector of Thailand's livestock industry is poultry, followed by pigs. In the case of cattle, the production level recovered during 1976-80, after a continuous decline in the previous periods (Table I-7). Overall, however, the livestock industry in Thailand showed a considerable improvement during 1976-80 compared to previous periods.

Agricultural Diversification in ASEAN

23

ASEAN Major Agricultural Exports As mentioned earlier, ASEAN

are

rice,

the major agricultural

maize,

rubber,

exports

cassava products,

of

sugar,

copra. coffee, palm oil, and timber-- all in primary form. The main market outlets of these export conmodities vary from commodity to commodity and from nation to nation. However, the markets of most agricultural exports of ASEAN are concentrated within Asia. gained

greater

access

to

Only a few commodities have the

European

markets.

To

i 11 ustrate the different commodity markets. the exports of individual member countries of ASEAN are discussed below: Indonesia Since the early 1970s the foreign trade picture of Indonesia has changed significantly. Following the world-wide increases

in

petrolel.lll

prices,

Indonesia's

exports

of

primary commodities have been predominantly influenced by its exports of petrol el.lll products.

The role of natural

rubber in foreign trade dropped drastically from 38.25 per cent of total export values in 1964 to 7.8 and 5.8 per cent in 1971-75 and 1976-80,

respectively.

Exports of other

crops, particularly coffee, pepper, and palm oil, followed the same pattern (Table I-12). During

1976-80,

Indonesia's

agricultural

exports

further declined in importance as prices and export volume of petroleum products increased. Despite this development, however, rubber exports still led the other conmodities on the list. By destination, the markets outside Asia and the EC accounted

for the major part of total export volume of

rubber, followed by Asia and the EC.

While market shares

remained the same over the periods 1971-75 and 1976-80, Asia's market share of exports increased substantially from 32.6 to 46.6 per cent over the two periods. The share of the EC market, on the other hand, declined drastically from

Principii I

TABLE 1-12 Exports of lndlvldulll ASEAN Countries, 1964, 1971-75, and 1976-80 Aver~~ges (As percentages of tot11l export va I ues)

Agrlcultur~~l

1964 Indonesia Rubber Coffee Timber Pepper Palm oil Tobacco

38.25 32.0 n.a. n.a. n.a.

1971-75

7.8 2.0 7.0** 2.7 2.2 0.1

1976-80

5.8 3.8 n.a. 0.4 1.4 0.4

Mala~sla

Rubber Saw logs Palm oil Coconut oil Pepper

41 .3 6.0 2.4 n.a. n .a.

27.7 10.6 10.0 0.7 0.4

20.8 8.4 10.1 0.4 0.9

1 .a

4.2 9.9 7.2 15.2 0.9 7.4 1.2

Phlll~~lnes

Copra Sugar Logs and timber Coconut oil Tobacco Frults*a a Shrimps and prawns

21.4 19.9 19.3 8.1 n.a.

23.4 13.2 10.6 1.3 n.a.

n.a.

Stnsa~ore

Rubber Plywood Vegetable oil

28.1 n .a. 1 .5

15.1 1.6 n.a.

9.9 1.4

Thai Iand Rice Rubber Maize Cassava Jute and kenaf Sugar Tobacco Mungbeans Shrimps

35.6 16.7 11.2 5.3 4.0 1.7 0.6 0.7 0.6

15.9 10.5 11.4 7.9 7.4 2.7 1 .1 1.0 1.8

15.1 9.9 5.9 11.4 5.8 0.4 1.2 1.4 2.0

n.a.

*

Bananas, pineapples. 1975 data. n.a. Data not !lVIII l11ble. - Nil or none. a Source Is Ministry of Agriculture, Philippines.

**

SOURCE:

For 1964, John Wong, ASEAN Economics In Perspective (Hong Kong: The M11cmlll an Press, Ltd.>; for 1979, 1971-80, computed t rom U.N., Annual Statistical Pa~ers, Series D: Commodlt~ Trade Statistics, 1971-80.

Agricultural Diversification in ASEAN 25

Indonesia:

TABLE 1-13 Percentage Distribution of Principal Agricultural Exporrs, by Destination, 1971-75 and 1976-80 Averages (As percentages of total export volume) 1976-80

1971-75 Commodity

Rubber and gums Coffee Palm oll Tobacco Pepper Palm Nut and kenaf Kernel oll Copra and Its by-products

Asia*

EC

Others

Asia*

EC

Others

32,6 12,5 21,8 2,6 31.0

21,2 38,2 85,4 24.2

46,2 49,3 55,5 12,0 44,8

46,6 15,0 36,3 2,8 23,4

7,1 45,6 42.8 71,6 35,1

46,3 39,4 20,9 25,6 41,5

72,8 14,0

25,9 15,8

1,3 70,2

83,3 12,9

16,7 25,2

61,9

37,6

57.5

4,9

92,3

22,7

7.7

* Including ASEAN. None or n II.

-

SOURCE:

Computed from data In U.N., Annual Statistical Papers, Series D: Commodity Trade Statistics, 1970-80,

21.2 per cent during 1971-75 to 7.1 per cent during 1976-80 (Table I-13). For coffee, the Asian share of Indonesia's exports increased slightly from an average of 12.5 per cent during 1971-75 to 15.0 per cent during 1976-80. In addition, the share of the EC market also increased considerably, while that of other markets in the rest of the world declined. In particular, coffee exports to the EC market over the period 1976-80 showed considerable progress, indicating that coffee exports from Indonesia have been diverted from the Asian to the EC markets. Exports of palm oil over the periods 1971-75 and 1976-80 have also been diverted from other markets to the EC market. As a consequence, the share of the EC market in Indonesia's palm oil exports increased from 22.7 per cent

26 Chaiwat Konjing during 1971-75 to 42.8 per cent during 1976-80. Similarly, the Asian market also gained a higher share of Indonesia's palm oil exports, that is, from 21.8 to 36.3 per cent, and became the second largest market outlet during the second half of the 1970s. For pepper, the market share over the periods 1971-75 and 1976-80 witnessed a switch from the Asian and other markets to the EC market. Copra and its by-products, on the other hand, tended to be concentrated more on the Asian market. Overall, the export diversification of Indonesia's tropical conmoditi es over the periods 1971-75 and 1976-80 has been increasing. This is reflected by a declining concentration ratio coefficient of the percentage share of export values from 61.3 to 59.6 per cent (Table I-14). Region-wise, the diversification of Indonesia's tropical exports in the Asian and ASEAN markets has been progressing, as reflected by export concentration ratio coefficients which declined from 92.9 and 76.8 per cent during 1971-75 to 87.6 and 71.4 per cent, respectively, during 1976-80. On the other hand, in the EC market, the export concentration ratio increased from 46.7 to 59.1 per cent over the two periods, suggesting that Indonesia's tropical exports to the EC market were concentrated on fewer commodities. The same argument holds for exports to other markets in the rest of world, although the degree of increased concentration was less than in the EC market. Malaysia The traditional exports of Malaysia are rubber, timber, fishery products, palm oil, coconut oil, and pepper. Over the period 1971-75 and 1976-80, the percentage share in value terms of rubber exports in total export earnings declined successively while palm oil increasingly gained importance in Malaysia's exports (Table I-12). The share of sawn logs and timber in total exports also declined over the

Indonesia:

TABLE 1-14 Percentage Shares of Export Values of Principal Commodities, by Destination, 197i-75 and 1976-80 Averages i976-80

1971-75 Commodity ASEAN

Asia*

EC

Others

All Markets

ASEAN

Asia*

EC

Others

All Markets

Rubber and gums Coffee and substitutes Palm oi I Tobacco, unmanufactured Pepper and pimento Palm Nut and kernel Kernel oil Copra and copra excluding flour, meal, etc.

39.23 0.73 0.49 0.12 1.03

6.68 0.35 1.40 0.02 0.17

15.0 10.70 10.86 8.96 2.70

8.65 3.35 1.95 o. 12 1.04

7.85 1.97 2.24 0.69 0.61

19.30 1.93 0.17

4.14 0.89 0.83 0.01 0.11

6.02 24.31 8.60 4.06 2.28

9.95 4.78 0.97 0.26 0.56

5.77 3.79 1.44 0.38 0.41

0.48

0.15 0.03

0.47 0.27

0.04 0.37

o. 14 0.15

0.23

0.06 0.01

0.09 0.17

-

-

0.11

0.04 0.05

0.19

o.1o

1.13

0.03

0.15

0.02

Ginl ratio

92.9

* Including ASEAN. None or nil.

-

SOURCE:

As for Table 1-13.

76.8

46.7

61.4

61.3

0.50

-

87.6

71.4

59.1

65.4

59.6

28

Chaiwat Konjing

same periods. The export share of coconut oi 1 showed a slight decline while that of pepper increased. In general, the distribution of Malaysia's tropical exports over the periods 1971-75 and 1976-80 seemed to be more stable than that of Indonesia. In the case of rubber, the export share of the Asian market remained about the same over the two periods. The share of the EC market, on the other hand, increased slightly from 20.6 per cent during 1971-75 to 23.3 per cent during 1976-80; while that of other markets in the rest of the world declined by the same magnitude (Table I-15). The export distribution of palm oil is exceptional, however. During the period 1971-75, markets outside Asia and the EC accounted for 50.2 per cent of Malaysia's exports of palm oil. Asia ranked second and the EC market ranked third. During 1976-80, however, the Asian· market accounted for the largest share, at 52.1 per cent. The EC market Other markets in the share increased to 30.3 per cent. rest of the world had their share reduced to 17.6 per cent, suggesting that Malaysia's palm oil exports had been diverted from the markets in the rest of the world to the Asian and the EC rna rkets, which together absorbed up to 82.4 per cent of tot a1 Ma 1ays ian pa 1m oil exports during 1976-80.

The Malaysian export distribution pattern of pepper also suggested that markets in Asia constituted the most important market outlet. Their share increased from 87.8 per cent during 1971-75 to 91.2 per cent during 1976-80. The EC market formed only a minor share, declining from 9.8 to 6.6 per cent over the two periods. Malaysia's pepper exports have been heavily concentrated in the Asian markets. With regard to coconut oil, the Asian market also proved to be the most significant and promising, with a share of 65.6 per cent of total exports during 1976-80. The EC market absorbed only 11-12 per cent over the periods

Agricultural Diversification in ASEAN 29

Malaysia:

TABLE 1-15 Percentage Distribution of Principal Agricultural Exports, by Destination, 1971-75 and 1976-80 Averages (As percentages of total export volume> 1971-75

1976-80

CO!Mlod Jty

Rubber and gums Sawn veneer logs Palm oil Palm Kernel oll Nut and kernel Pepper Coconut oil Copra and Its by-products

-

Asia

EC

Others

Asia

EC

Others

39,8 99,1 30,7

20,6 0,3 19.1

39,6 0,5 50,2

40,6 99,5 52,1

23,3 0,3 30,3

36,1 0,2 17,6

6,7 43,8 87,8 55,0

45,2 27,6 9,8 11,2

48,1 28,6 2,4 33,8

13,1 100 91,2 65,6

41,1

45,8

6,6 12,4

2,2 22,0

74,93

0,02

25,05

Nil or none,

SOURCE:

Computed from data In Table 1-16.

1971-75 and 1976-80. Based on the concentration coefficients given in Table 1-16, Malaysia's agricultural exports overall have been less In other words, concentrated on a few comnoditi es. agricultural exports increased both in volume and in the number of export items. The concentration coefficient declined from 62.0 per cent during 1971-75 to 58.7 per cent during 1976-80. By market region, Malaysia's agricultural exports to ASEAN, the EC, and other markets in the rest of the world have not been diversified, while those to other Asian markets showed progress in diversification, that is, a concentration ratio declining from 59.6 to 55.4 per cent. The conclusion therefore is that the diversification of Malaysia's overall agricultural exports has been the result of export diversification in the Asian markets, particularly markets outside the ASEAN region.

Malaysia:

TABLE 1-16 Shares of Export Values of Principal Commodities, by Destination, 1971-75 and 1976-80 Averages

Percen~age

1976-80

1971-75 Corrmodity ASEAN

Asia*

EC

Others

All Markets

ASEAN

Asia*

EC

Others

AII Markets

Rubber and gums Sawn veneer logs Palm oi I Palm Kernel oi I Nut and kernel Pepper and pimento Coconut oi I Copra and copra excluding flour, meal, etc.

28.25 8.98

20.37 20.21 8.37

31.03 0.30 14.85

36.90 0.26 9.60

27.74 10.59 10.01

26.69 1.60 9.31

15.39 15.60 10.28

26.09 0.14 15.34

27.82 0.08 6.24

20.8i 8.44 10.13

0.25 0.10 3.60 0.87

0.13 0.05 0.49 0.57

2.67 0.05 0.71 0.64

1.71 0.05 0.11 0.88

1.09 0.05 0.43 0.67

0.45 0.02 3.51 0.57

0.29 0.01 1.42 0.42

2.63 0 0.38 0.28

2.06 0 0.07 0.33

1.21 0.004 0.85 0.37

0

0

0

0

0

0.98

0.38

0.0002

0.26

0.27

Gini ratio

65.9

59.6

68.7

77 .I

62.0

* Including ASEAN. SOURCE:

As tor Table 1-13.

3.63

66.2

55.4

67.7

77.6

58.7

Agricultural Diversification in ASEAN

31

Philippines The major agricultural exports of the Philippines by order of percentage share in total export earnings during 1976-80 were coconut oil, sugar, fruits, logs and timber, copra, and shrimps. During 1971-75, however, sugar ranked first, followed by logs and timber, coconut oil, copra, and tobacco (Table I-12). Logs and timber, the traditional exports of the Philippines, declined in importance, while coconut oil and sugar alternated as leading Philippine agricultural exports. The distribution of exports according to market destinations of major commodities are shown in Table I-17. For coconut oi 1, the export share of the Asian market over the periods 1971-75 and 1976-80 declined drastically from 42.9 to 15.1 per cent. That of other markets outside the EC, on the other hand, increased substantially from 46.2 to67.7 per cent. The share of the EC market also increased considerably over the two periods. Consequently, most of the coconut oi 1 exports from the Phi 1i ppi nes were concentrated increasingly on markets in the rest of the world and in the EC. In the case of Philippine sugar exports, the largest markets have been those outside Asia and the EC, which absorbed, on average, about 65 per cent of total sugar exports during 1976-80. The export to Asia formed the second largest, with an average share of 24.8 per cent during 1971-75 and 32.9 per cent during 1976-80. The EC market absorbed only a small part of the total sugar export, with a share ranging from 2.3 to 1.8 per cent over the two periods. In general, Philippine sugar exports over the periods studied had been diverted somewhat from markets in the rest of the world to the Asian market. The export of sawn 1ogs over the periods 1971-75 and 1976-80 were highly concentrated in the Asian market, although the percentage share of exports decreased slightly

32 Chaiwat Konjing

Philippines:

TABLE 1-17 Percentage Distribution of Principal Agricultural Exports, by Destination, 1971-75 and 1976-80 Averages (As percentages of total export volume> 1971-75

1976-80

Commodity

Coconut oil Sugar Lumber, shaped Sawn veneer logs Copra and Its by-products Tobacco Abaca

Asia*

EC

Others

Asia*

EC

Others

42.9 24.8 30.3 96.2

10.9 2.3 18.1 3.2

46.2 72.9 51.6 0.6

12.1 32.9 17.7 88.9

20.2 1.8 53.8 9.8

67.7 65.3 28.5 1.3

9.\ 19.7 30.5

62.5 28.7 5.2

28.4 51.6 64.3

25.0 6.0

54.8 70.0

20.2 24.0

* Including ASEAN. SOURCE:

As for Table 1-13.

over the two periods. The EC market, following a decrease in exports to the Asian market, increased its share in total sawn logs export from 3.2 per cent during 1971-75 to 9.8 per cent during 1976-80. The main market of the Philippines for copra was the EC, with a share of 62.5 per cent during 1971-75, decreasing to 54.8 per cent during 1976-80. The share of the Asian market increased substantially, while that of other markets in the rest of the world declined from 28.4 to 20.2 per cent over the two periods. Thus copra exports have been diverted from the rest of the world to the Asian market. With regard to tobacco, its export share to the EC market increased considerably. At the same time, its export share to the Asian market and the rest of the world decreased by about the same magnitude, indicating an increasing export diversion of tobacco from markets in Asia and the rest of the world to the EC market.

Agricultural Diversification in ASEAN

33

Overall, the diversification of the Philippines' tropical exports over the 1970s did not show much progress. The export concentration ratio, commodity-wise, remained at about 51 per cent (Table 1-18). By market region, only the Asian and EC markets showed some degree of progress in the diversification of Philippine exports. In the ASEAN market, on the other hand, exports tended to be more concentrated as reflected by the increase of the export concentration ratio coefficient from 58.1 per cent during 1971-75 to 76.1 per cent during 1976-80. Markets in the rest of the world, which formed the largest market share of the Philippines' coconut oil and sugar, maintained a concentration ratio of about 64.0 per cent over the two periods. In sum, Philippine exports of tropical commodities during the last decade showed some diversification in the Asian and EC markets, while in the ASEAN market exports tended to be more concentrated. Exports to other markets in the rest of the world continued to maintain a high degree of concentration. Singapore Although Singapore does not produce most tropical products, it actively engages in the international trade of them, largely through import and re-export. From available trade statistics of Singapore, however, only trade in rubber and plywood is included in this report. The major markets of rubber exports from Singapore during the periods 1971-75 and 1976-80 were countries outside the Asian and EC markets, which absorbed a share of 54.1 per cent of rubber exports during 1976-80. Both the Asian and EC markets had about the same share of Singapore's rubber exports over the same period, that is, 22 and 24 per cent, respectively. Compared with exports during 1971-75, the share of rubber exports from Singapore increased in the Asian and EC markets, while that to other markets in the rest of the world declined.

TABLE 1-18 Philippines: PercentBge Shares of Export Values of Principal CoMModities, by Destination, 1971-75 end 1976-80 Averages 1976-80

1971-75

Comnodlty

Coconut oil Sugar Lumber, shaped Sawn veneer logs Copra and copra excluding flour, meal, etc. Tobacco, unmanufactured Abaca Gini ratio

* Including ASEAN. SOURCE:

As for Table 1-13.

ASEAN

Asia*

EC

others

6.06 7.79 0 2.37

2.02 13.76 6.45 25.70

14.07 10.54 2.56 3.49

18.40 36.98 1.50 0.18

0 1 .44 0

1.75 0.48 0.56

38.33 3.04 1.79

5.11 1.72 1.42

58.1

59.1

57.6

63.9

ASEAN

Asia*

EC

Others

AII Markets

10.61 23.38 1.26 11.89

20.17 5.30 0.48 0.07

5.46 7.69 1.17 9.51

17.60 0.67 9.27 2.22

22.67 15.93 1.95 0.13

15.18 9.88 3.06 4.09

7.83 1.34 1.08

1.03 0.41 0

1.14 0.36 0.35

17.56 1.96 0.84

0.94 o.8o 0.62

4.21 0.86 0.56

All Markets

51.3

76.1

52.6

53.3

64.6

51.0

Agricultural Diversification in ASEAN 35 With regard to plywood, the major markets were those outside Asia and the EC. Over the periods 1971-75 and 1976-80, Singapore's overall agricultural exports showed a slight increase in diversification. While exports to the EC and other markets maintained the same degree of concentration, Asian as well as ASEAN markets of Singapore's exports showed considerable In the ASEAN market, the progress in diversification. export concentration ratio dec rea sed from 80.3 to 77 .1 per cent while in other Asian markets it declined from 89.0 to 83.0 per cent over the two periods (Table 1-19). Thailand As a producing and net exporting country of major food and agricultural commodities in the region, Thailand has wider experience than other ASEAN countries in this export trade. Rice has been Thailand's traditional export crop, accounting for 35.6 per cent of total export earnings in 1964. The share of rice, however, dropped to 16 per cent during 1971-75 and continued to maintain this level over the period Similarly, the share of rubber 1976-80 (Table 1-12). exports also declined gradually from about 17 per cent in 1964 to 10 per cent over the periods 1971-75 and 1976-80. The importance of maize and sugar in total exports dropped drastically from the 1973-75 level during the period The export shares of cassava, mungbeans, and 1976-80. shrimps, however, increased over the period 1971-75 to 1976-80 while that of jute and kenaf remained stable over the same period. Overall, the leading agricultural exports of Thailand in recent years are still rice, followed by cassava, rubber, maize, jute and kenaf, shrimps, mungbeans, and tobacco. The role of sugar in Thailand's export trade was small and declining.

Singapore:

TABLE 1-19 Percentage Shares of Export Values of Natur-al Rubber and Veneer Plywood, by Destination, 1971-75 and 1976-80 Aver-ages 1976-80

1971-75 Commodity

Rubber and gums Veneer, plywood, etc. Ginl ratio

* Including ASEAN. SOURCE:

As tor Table 1-13.

ASEAN

Asia*

EC

Others

0.50 0.15

6.2 0.83

20.23 4.30

26.13 1.66

15.10 1.60

84.3

94.2

90.9

80.3

89.0

All Markets

ASEAN

Asia*

EC

Others

All Markets

0.28 0.11

4.27 1.03

17.13 4.34

16.01 0.83

9.86 1.38

82.3

95.2

77.1

82.9

88.9

Agricultural Diversification in ASEAN

37

In terms of market share, rice exports to the Asian market declined from 78.8 per cent during 1971-75 to 67.1 per cent during 1976-80. Exports to other markets increased from 18.9 to 30.7 per cent over the same period (Table I-20). Rice exports to EC markets, however, continued to maintain about the same percentage share. This suggests that Thai 1and's rice exports were being directed more to markets in the rest of the world than to the Asian and EC markets. In the case of cassava products, exports to the EC market, which accounted for more than 90 per cent of total exports, showed a very favourable trend over the 1971-75 and 1976-80 periods. Cassava exports to Asia and the rest of the world, however, showed a declining market share. In fact, the EC market has been the single largest market for Thailand's cassava products. The EC market has induced a very rapid expansion in cassava production in Thailand. The picture for rubber exports contrasts sharply with that for cassava. Asian markets absorbed about 83.4 per cent of total rubber exports, while the EC's share was only 2.3 per cent during 1976-80. The increasing importance of the Asian market has resulted in a decline in the importance of the EC markets. The Asian market also figured significantly in absorbing Thailand's maize exports, its share increasing from 81.6 to 83.8 per cent over the periods 1971-75 and 1976-80. The export share of the EC market, on the other hand, had been negl i gi b1e and remained unchanged over the two periods. As for sugar export, the Asian market absorbed the largest share, followed by other markets in the rest of the world. The export share of the Asian market showed a considerable increase, that is, from 75.1 per cent during 1971-75 to 81.9 per cent during 1976-80, while that of other markets outside the EC declined from 21.4 per cent to 17.1 per cent over the same period. The share of the EC market

38 Chaiwat Konjing

Thailand:

TABLE 1-20 Percentage Distribution of Principal Agricultural Exports, by Destination, 1971-75 and 1976-80 Averages (As percentages of total export volume) 1971-75

1976-80

C0111110d Ity

Rice Cassava products Rubber and gums Maize Sugar Shrimps Mung beans Tobacco Sorghum Jute and kenaf

Asia*

EC

Others

Asia*

EC

Others

78.8 8.2 81.6 95.7 75.1 59.9 89.3 30.5 97.3 39.9

2.3 88.9 5.8 0.2 3.5 2.4 3.9 48.8

18.9 2.9 12.6 4.1 21.4 37.7 6.8 20.7 2.7 38.2

67.1 3.8 83.8 92.1 81.9 74.4 92.1 26.9 97.3 32.2

2.2 94.9 2.3 0.2 1.0 7.4 4.5 49.4

30.7 1.3 13.9 7.7 17.1 18.2 3.4 23.7 2.7 59.8

21.9

8.o

- None. * Including ASEAN. SOURCE:

As tor Table 1-13.

also declined, from 3.5 to 1.0 per cent. Again, the most important market for Thai sugar export has been the Asian market. The exports of mungbeans and sorghum were also highly concentrated in the Asian market, with export shares of 92.1 and 97.3 per cent, respectively. For jute and kenaf, however, the share of the Asian market declined, while that of the other markets gained, from 38.2 to 59.8 per cent over the periods 1971-75 and 1976-80 (Table I-20). In the EC market, jute and kenaf exports showed a substantial decrease in percentage share from 21.9 to 8.0 per cent over the two periods, which suggests no export potential for jute and kenaf in this market outlet. In the case of export markets for shrimps, the Asian and EC markets were still the most significant. The share of exports to the Asian market increased from 59.9 to 74.4 per cent over the periods 1971-75 and 1976-80. The export

Agricultural Diversification in ASEAN 39 share of the EC market also increased, from 2.4 to 7.4 per cent, while that of other markets in the rest of the world declined from 37.7 to 17.1 per cent over the same period. The EC market share of Thailand's tobacco exports, at 49 per cent, is the highest, followed by the Asian and other markets in the rest of the world. The market shares for Thailand's tobacco were rather stable in all export regions. In sum, Thailand's agricultural exports during the last decade had been growing at a very high annual rate. Rice exports still constituted the most important item, although the share of rice declined while that of non-rice crops, particularly cassava products, mungbeans, and shrimps, increased rapidly. In recent years, the diversification of Thailand's agricultural exports has been towards maize, cassava, mungbeans, shrimps, and tobacco, while rice and rubber remain the most important exports. The importance of sugar in total exports declined substantially. Market diversion as well as market diversification also varied from co11111odity to c011111odity. Rice markets became diverted more from Asia to the rest of the world. Similarly, cassava exports increasingly concentrated on the EC while mungbeans and shrimps increased in importance in both the EC and Asian markets. For maize, sugar, and rubber, the Asian markets are the most important. However, jute and kenaf have been facing severe declines in market opportunities in all regions. Overall, however, Thailand has experienced a lower degree of export concentration than the other countries in ASEAN. The overall export concentration ratio was computed to be 43.1 per cent for 1976-80, compared with 59.6 per cent for Indonesia, 58.7 for Malaysia, and 51.0 per cent for the Philippines. During the 1970s, the degree of concentration of Thailand's agricultural exports remained fairly stable.

40 Chaiwat Konjing However, region-wise, exports to specific markets tended to be more or less diversified. In particular, the export concentration was more pronounced in the EC market than in other market regions. The export concentration ratio increased over the period 1971-75 to 1976-80, suggesting that Thailand's export of agricultural products to the EC market was becoming dependent on fewer important items. This change, of course, was influenced by the common agricultural policy (CAP) in the EC.

Linkage Effect of Export Diversification To substantiate the arguments and conclusions of the previous section, a simple statistical analysis of the relationship between the variation of the production and exports of the major colliTiodi ties in question over time was carried out for Indonesia, Malaysia, the Philippines, and Thailand, using time series data for the period 1971-80. The specified relationship simply indicates the response of the production of the colliTiodi ty in question to changes in either its export volume or its price. The results of the analysis are summarized below: Indonesia The results of the analysis of the Indonesian case indicate the following: (1) With regard to rubber, the current-year production responded well to exports in the same year: that is, about 82 per cent of the annual variation of rubber production was influenced by annual variation of rubber exports. The computed response coefficient of 0.58 suggests that 1 per cent increase in rubber exports was followed by 0.58 per cent increase in rubber production. (2) With regard to palm oil, production was stimulated by the export price rather than the export volume. (3) With regard to tobacco, production did not show any significant response to

Agricultural Diversification in ASEAN

41

export opportunities. For other crops, the estimate of production-export 1i nkage could not be made because of the shortage of either production or export data. Malaysia In the case of Malaysia, the results of the analysis indicate that the production of the most important crops, namely, rubber and palm oil, responded well to export opportunities in both the current and past year periods. In particular, the production of rubber was found to be closely correlated with the preceding year's exports, that is, 58 per cent of the variation in production was influenced by exports of the preceding year. With regard to palm oi 1, the export price in the current year provided strong incentives to palm oil production. That is, about 92 per cent of palm oil production was determined by current-year export prices. Philippines Because of limited data, the analysis of the Philippine case could not cover as many crops as desired. However, the results of the analysis suggest that sugar-cane production responded quite well to market incentives, particularly the export price, that is, about 59 per cent of variation in production was explained by the previous year's export price of sugar. The response coefficient was estimated to be 0.21, indicating that 1 per cent increase in sugar price would lead to 0.21 per cent increase in sugar-cane production. For other crops, such as coconuts and tobacco, annual production was found to be less related to export opportunities.

This could be because of incomplete data.

Thailand The analysis of the Thai case also confirms the view that

42

Chaiwat Konjing

most crops

produced

in Thailand have

responded well

to

export opportunities. The production of crops that highly correlated with exports included rubber, cassava products, maize, and sugar-cane. In fact, current rice production exhibits a relatively close relationship to rice exports of the preceding year. Among the crops included in the analysis, cassava production showed the highest response (1.03 to changes in cassava exports), followed by rubber (0.90). rice (0.78), sugar-cane (0.68), maize (0.60), and jute and kenaf (0 .40).

Commercial Agricultural Policies in ASEAN Since its inception in 1963, ASEAN has regarded the food and agricultural problems in the region as a matter of great concern. However, no commercial agricultural policies common to the whole regi an have been spelled out. At the national level some agricultural and commercial policies have been adopted and implemented internally. The greatest concerns from the regional point of view include the vulnerability to food shortages arising from low farm productivity, the problem of malnutrition, and unstable world markets. For food security and market stabi 1i zati on purposes, the areas of common agri cul tura 1 policies at the time being can be summarized as follows: 1. policy to enhance food security; 2. policy to increase income and nutrition of small producers and farm workers; 3. policy to increase the production of food and agriculture for self-sufficiency and export; 4. regional trade policies with regard to agricultural products with a view to improving the balance of payments of individual member countries and to

Agricultural Diversification in ASEAN

43

stabilizing intra-regional trade among member countries; 5. policy to improve capital formation and agricultural credits in the farm sector; 6. policy to promote farmers' collective bargaining power. Among these policies, the policies to enhance regional food security and regional trade have been adopted since 1977 through ASEAN food security reserves and special trade preference (tariff reduction) programmes for certain commodities traded among member countries. The food and agricultural policies adopted by individual ASEAN member countries, however, vary both with regard to objectives and implementation. The major policies adopted in the individual ASEAN countries are discussed below: Indonesia Indonesia's basic agricultural pol icy has undergone a significant change since 1969, the start of the first five-year national development plan. According to Birowo and Sayuti (1982), the basic agricultural policy currently adopted aims to direct capabilities towards (1) increasing food production to meet self-sufficiency in foodstuffs; (2) improving farmers' income and standard of living; (3) providing employment opportunities for the rural population through the promotion of industrial development; (4) increasing exports and reducing agricultural imports; (5) increasing the production of agro-industrial raw materials; (6) utilizing and conserving natural resources; and (7) supporting rural development in harmony with regional development objectives. The agricultural policies and programmes in Indonesia since 1969 have primarily been concerned with the following problem areas: (1) food production; (2) export earnings;

44 Chaiwat Konjing (3) population~ and (4) the development of small farmers. Above all, Indonesian agricultural development programmes are aimed at solving food and unemployment problems. The strategies used to increase food production include intensification programmes, extensification programmes, diversification programmes, and rehabilitation or The rice intensification transmigration programmes. programme (BIMAS) launched in the 1960s initiated the introduction and application of modern technology with the support of policy packages such as input pricing and subsidies, agricultural credit, and output marketing. The programmes proved successful and led to a rapid increase in rice production, so that self-sufficiency was attained. Under the extensification programmes, emphasis has been given to (1) increasing the area of cultivation of some food crops; (2) expanding the cultivation of high-yielding grass for livestock feeds~ and (3) the rehabilitation and reafforestation of critical land. The programmes on diversification, on the other hand, aimed at improving agricultural practices through the vertical and horizontal integration of farm businesses. Apart from specific agricultural production policy, the developments in related areas have also been included in the current five-year national development plan of They include the development of marketing Indonesia. stocks, food distribution scheme, and the government price support scheme for strategic commodities such as rice, with a view to stabilizing consumer prices and farmer incomes. Other related policies include the development of land transportation from the farm areas to sea ports~ the development of transportation facilities for the special shipment of livestock, timber, and estate produce, especially palm oil.

Agricultural Diversification in ASEAN 45 Malaysia Malaysia's agricultural policy was most explicitly stated in the First Malaysia Plan (1966-70), its first five-year development plan. The Plan set aside for agriculture about 25 per cent of the entire M$1.5 billion approved for public expenditure. The agricultural sector was also expected to benefit from the 34 per cent of the budget allocated for transportation, utilities, and communication (USAID 1967). Since rubber has been the country's top earner of foreign exchange, the First Malaysia Plan set first priority on the strengthening of the competitive position of rubber by lowering production costs. It subsidized the planting of hi gher-yi el ding rubber trees and at the same time sought to reduce the nation's dependence on rubber by pushing for the diversification of crops. The emphasis of the Plan was on oil palm and pineapples. The policy direction of Malaysia's agriculture has been the same in successive national development plans. The agricultural policies under the Fourth Malaysia Plan (1) increase in aim to achieve the following goals: farmers' income and productivity in agriculture; (2) the strengthening and expansion of the export subsector through forward and backward 1i nkages with the deve 1opment of the manufacturing sector; and (3) near self-sufficiency in major food commodities. Associated with these policy goals, the sectoral policies, programmes, and projects are geared to assist farmers and fishermen in less developed areas. The agricultural programmes in the Fourth Malaysia Plan also continue to meet the overall objectives of the New Economic Policy. In particular, emphasis is given to the co-ordinated and integrated development of the agricultural sector to ensure efficiency as we 11 as to enab 1e the rura 1 people to enjoy the basic infrastructure and essential

46

Chaiwat Konjing

support services previously not available. programme implementations include the following: 1.

The

major

Drainage and Irrigation To meet the objective of self-sufficiency in rice, drainage

and

constructed increase provided

i rri gati on for

double

facilities cropping

are

of

being

paddy

to

production. Similar facilities were for the diversification of cropping

patterns and the intensification of land use. 2.

Integrated Agricultural Development Projects Several new projects including settlement schemes for paddy cultivation have been started.

Mixed

cropping and diversified farm activities as well as intensified land use are the main strategy for the integrated development projects. Similarly, with respect to the crop diversification programme, the promotion

of

local

fruits

and other commercial

crops are supported by subsidies.

The growing of

pepper has also been encouraged to sustain the production and export of this commodity through new planting of 8,300 hectares during 1981-85. 3.

Replanting Programmes The rep 1anti ng programmes of rubber, coconut, and pineapples have been set up in the Fourth Malaysia Plan

with

a

view

smallholders. replanted

to

increasing

About 8,300

during

1981-85,

the

hectares

income are

involving

of

being 27,000

sma 11 holders. 4.

Other Programmes These include (a) the input subsidy programmes for rubber, paddy, fruits, coconuts, and pineapples;

Agricultural Diversification in ASEAN

47

(b) the subsidy on agricultural credits; (c) the restructuring of rubber export duties and the implementation of a rubber stockpile scheme; and (d) the construction of agricultural infrastructure such as rural roads, land reform as well as land consolidation prograllllles, and the construction of harbours. Philippines The ultimate aims of the Philippine agricultural policies are to increase and diversify agricultural production to raise farmers' income, to increase farm and rural employment, to increase the agricultural contribution to the domestic and export econo~. and to improve the quality of diet of all Filipinos (Tan et al. 1982). These aims were reflected by the agricultural policies and programmes implemented during 1965-80, which started with the elimination of the agricultural stagnation and poverty that entangled the agricultural population for years. Following this, the policy planners in the Philippines have assigned high priority to increasing the productivity of the primitive agricultural sector. For instance, the first major measure passed in 1966 by the Congress reflected the concern of the Administration over the low harvests, particularly that of rice. In fact, the measure sought to stimulate farmers to increase rice production by raising the floor price for government purchase of paddy. In practice, the policy has been successful: the Philippines has reached self-sufficiency in rice. In particular, the export of some rice surplus has continued to increase since 1978. Apart from programmes to boost rice harvests, a sizeable share of expenditure -- 43 per cent during 1967-70 -- was a 11 ocated to benefit the rura 1 econo~ through the improvement of highways and railroads, rural electrification, river control, and colllllunity development projects.

48 Chaiwat Konjing Land reform programmes have also been given high priority during 1965-70. The Land Authority Capital Programme aimed to convert 75 per cent of the 400,000 share tenants on 1 million hectares of rice land to a leaseholder status by 1970. Another phase of land reform during 1965-70 aimed to purchase 91,000 hectares from 1arge estates for distribution to 30,000 leaseholders. During 1970-75, the target was a procurement of another 100,000 hectares for 34,000 leaseholders. Associated with the land reform programmes, two credit programmes were initiated and funded by foreign loans. Short-term credits were provided for the purchase of fertilizers and pesticides; medium-term credits were for the purchase of irrigation pumps, small tractors, and modern farm implements. Besides, the duty on the import of small tractors was reduced by 50 per cent. In the foreign trade sector, government policy to support agricultural production was reinforced by foreign trade regulations. For example, tariffs were adjusted to protect domestic industries which processed agricultural In particular, since 1965, the tariff on all products. wheat flour was raised successively, while the tariff on cigarette imports was reduced by 100 per cent to make duty-paying imports more competitive with smuggled cigarettes. Overa 11, the Phi 1i ppi ne agri c ul tura 1 policies and programmes for accelerated agricultural development were directed at alleviating agricultural poverty and providing a more balanced diet. The strategies adopted were oriented towards reaching the small and poor farmers, in order to raise their productive potential and thus to provide the basis for a sustained rise in income. Thailand Farm productivity in Thailand has generally been below the world average. Consequently, the goals of Thailand's

Agricultural Diversification in ASEAN 49 agricultural policy are to increase productivity, develop rural areas, conserve natural resources, and diversify farm production. The policy is oriented towards free export trade, a growing awareness of the importance of the farmers, and the need to increase export earnings. Since the start of a series of national five-year development plans, the agricultural development programmes and projects in various fields of agriculture have received high priority. During the First and Second Plan periods (1961-71), the investment on irrigation and basic infrastructure, particularly rural roads, was heavily emphasized. In the Third Plan (1972-76), the major agricultural development progranmes aimed to accelerate crop production and agricultural diversification. During the Fourth Plan period (1977-81), further structural improvement within the agricultural sector continued, with emphasis on income distribution, intensification of land use, and diversification of livestock and coastal fisheries. Policies to increase farm productivity were implemented through land development programmes at the farm level, irrigation projects, agricultural research and extension, mass multiplication of new and improved seed technology, expansion of agricultural credit, and the establishment of agro-economic zones. During the 1960s and 1970s the growth in overall agricultural production was satisfactory, while productivity was still at a relatively low level. In an attempt to raise farm incomes, the government started the price guarantee through a government purchase programme in 1966. The progranme was strengthened during the Third Plan of economic development when prices and exports of several conmodities were depressed. Again, in the Fourth Plan, the price guarantee programme was extended to corn, soya beans, sugar-cane, and cotton. The Pub 1i c Warehouse Organization of the Ministry of Commerce, and the Market Organization for Farmers of the Ministry of

50

Chaiwat Konjing

Agriculture and Co-operatives, have been assigned to manage these programmes. The price progra11111es for rice and other commodities take effect when market prices fall bel ow the government guarantee level. In practice, however, due to limited funds, the government price programmes often failed to raise the farm-gate price level. For most crops, foreign demand kept prices higher than the government guarantee prices. In addition to the output price scheme, the input price subsidy programme was also adopted, mainly for rice. Rice farmers belonging to the Farmers' Association received subsidies on the transportation costs of the purchased fertilizers. Farmers who received 1 oans from the Bank for Agriculture and Agricultural Co-operatives were also subsidized with lower interest rates. In addition, private commercial interest

banks have also been required to provide lowloans

to farmers

up to 13 per cent of

total

deposits. Furthermore, farmers who have access to public i rri gati on faci 1i ties can uti 1i ze the irrigated water free of charge. In the co11111ercial

sector there is no discrimination

against trading partners from the free world or from the socialist bloc. Some quantitative export controls that once However, app 1i ed to rice and rna i ze have now been 1if ted. export taxes are still enforced for rice and sugar, with a view to stabilizing domestic prices. It has been argued by many economists that, because of the

national

market

stabilization

policy,

agricultural

diversification has been successfully accelerated.

The case

of the rice export premium is a good example of this argument. The policy of keeping the rice price low domestically through export taxes and quotas has encouraged the production of more profitable alternative cash crops. Maize, cassava, and other upland crops are some of such crops that have been widely adopted.

In the case of maize

Agricultural Diversification in ASEAN

51

and cassava in particular, the expansion of production has been induced by favourable foreign demand, although they are subject to different market environments. Initially. maize exports were directed mainly to Japan, where the demand for maize and other animal feedgrains has been high To protect the local feed industry, the and increasing. Government of Thailand enforced bilateral trade agreements with Japan, specifying quotas and a fixed export price basis. When this national stabilization policy was later found to have a negative effect on maize producers, the government decided to terminate the agreement. The case of cassava or manioc is different in that manioc exports operated entirely on a free trade basis. Export expansion to the EC market is entirely due to increasing demand. However, EC protectionist policies have now limited cassava imports. The Thai Government reacted to this policy by encouraging farmers to shift their cassava production to other crops. Efforts to replace cassava with rubber and other drought-resistant crops are under way. At the same time some measures are being implemented to keep cassava exports in line with in policies ref'l ects maintaining the free fact, the growth of

EC requirements. This flexibility the Thai Government's attitude in enterprise system in Thailand. In Thailand's agricultural economy is

fundamentally based on an open-economy concept and the policy of a free trade system. Another example of such efforts can be seen in its Fifth Five-Year Plan (1982-87), in which the policy and progra11111es in agriculture are directed towards (1) further restructuring

agricultural

production

from

extensive

to

intensive land use; (2) constructing market infrastructure to increase farmers' bargaining power in the marketing of farm products; (3) forming the land holding system; (4) strengthening monetary policy to support governmental

52 Chaiwat Konjing policy on agricultural credits; and (5) consolidating and re-insti tuti onal izing farmers' associations and co-operatives into a single system of management. To meet the above objectives, various measures have been taken, ranging from the provision of technical assistance to the economic restructuring of the marketing system. Measures to promote agricultural diversification have also been given high priority. The new development of Thailand's agricultural policy in the Fifth Plan is that the agricultural sector is classified into two broad catego'ri es, namely the advanced zone and the less advanced or subsistence zone. The non-agricultural private sector is encouraged to share the development efforts through various commercial programmes in the advanced areas which have high potential for commercial investment. The public sector, on the other hand, will continue with output price guarantees and input price subsidies only in the less advanced areas and at the small, less efficient farm level.

Implications for EC-ASEAN Economic Relations Experience of agricultural diversification has been different, both in degree and direction, in each ASEAN However, two common problems now face member country. ASEAN agriculture. The first is that of low productivity in agricultural production. The second is the problem of market uncertainty and vul nerabi 1ity to externally induced fluctuations. The former seems to pose a constraint to the prosperity of the ASEAN community. Low agricultural productivity has led to the problem of insecurity in food supply, malnutrition, and inefficient, small-scale farm production. The ASEAN region has deficits in modern farm inputs and technology, while these are abundant in the EC. EC-ASEAN economic co-operation should therefore give

Agricultural Diversification in ASEAN 53 priority to the transfer of technology from the EC to ASEAN. This would not only help improve the productive efficiency of small farmers but would also generate food surplus and industrial raw materials for export to the EC and other regions in the world. The second area of economic co-operation between the EC and ASEAN is in trade arrangements. The ASEAN region, given its resource base, will not be able to produce a large surplus in food and agriculture, and its exports of most tropical commodities would not alter the world market situation significantly. Experience reveals that tropical exports from most ASEAN member countries to the EC market showed a high and increasing concentration index, suggesting that ASEAN exports to the EC market are As a increasingly dependent on fewer export items. consequence, export diversion from the EC to the Asian market and the rest of the world has taken place. Closer co-operation in trade arrangements could lead to special selective trade preferences for ASEAN. To allow better market access to ASEAN would improve the purchasing power of the ASEAN people and hence expand the market for EC products, particularly of farm inputs. In the absence of such an arrangement, the EC-ASEAN economic relationship could hardly be improved or strengthened. Closer economic co-operation will not sacrifice the EC's industries. The EC has many industries in which it has a comparative advantage, but it should relinquish those in which ASEAN has a greater comparative advantage.

Summary and Conclusions The ASEAN region is still predominantly agricultural, although the share of the agricultural sector in gross national product has declined over the last decade. The

54

Chaiwat Konjing

continuous growth of agricultural production, either through intensive or extensive land use in ASEAN, reflects a desire to achieve self-sufficiency in food and an attempt to increase or stabilize foreign exchange earnings through export expansion and diversification. The experience of ASEAN countries during 1971-80 indicates that agricultural production in each of the member countries except Singapore increased considerably at a high annual rate. The rate of increase, however, varied from convnodi ty to commodity and from nation to nation. With greater efforts towards increasing food production, some ASEAN food-importing countries, such as the Philippines, have achieved self-sufficiency in rice, while Malaysia and Indonesia have been c 1ose to the self-sufficiency 1eve 1 • Of course, a drive to self-sufficiency in basic foods could slow down the rate of diversification towards other cash crops. Unlike the other ASEAN countries, Thailand produces a surplus in food and exports it. Agricultural production in Thailand ranges from basic food grains to other highvalued crops, most of which are export-oriented. Based on the production and trade data of the ASEAN countries for 1971-80, the direction of crop diversification in Indonesia, Malaysia, and the Philippines has been towards self-sufficiency in food grains, particularly rice. In Thailand, however, the diversification has been away from rice and rubber and towards more cash crops, such as maize, cassava, beans, poultry, and coastal fisheries. In addition to basic food crops, the divers ifi cation towards other cash crops in each member country has been along the same traditional lines. For instance, in Malaysia, the crops which were adopted to diversify from rubber included oil palm, cocoa, coffee, fruits, and pepper, all of which are of the perennial type or perennial s upp 1ements. The divers i fi cation of export crops in Indonesia is also similar. In the Philippines, however,

Agricultural Diversification in ASEAN

55

export crops have diversified from coconuts to include sugar and fruits, such as bananas and pi neapp 1es, whi 1e rice production has been increased for self-sufficiency and Thailand's export diversification import substitution. changed from time to time, following changes in the world However, its principal exports still market situation. comprise mostly annual upland crops. With regard to market outlet, export diversion as well as diversification also varies from commodity to commodity. In Indonesia, for instance, exports of rubber and pepper have been diverted from the traditional markets, the EC, and other markets in the rest of the world, to the Asian market, while those of palm oil and coffee have been diverted from the Asian to the EC markets. The market for Malaysia•s rubber export has diversified, with the inclusion of the EC market to the Asian markets. Palm oi 1 has been diverted from the rest of the world to the Asian and EC markets. Philippine agricultural exports, however, did not show much diversification in markets, as exports of particular commodities were concentrated in particular markets or regions. Exports of copra were heavily concentrated in the EC and the rest of the world; sugar exports were mainly concentrated in Asia.

Exports of coconut oil, which were

previously concentrated in Asia and other non-EC markets, tended to favour the EC markets in recent years. In Thailand, rice is exported mainly to the traditional markets, particularly in Asia, but in recent years rice export to the rest of the world has increased. Markets for Thai rubber exports shifted from the EC market and the rest of the world to that in Asia; whi 1e the export of cassava products became increasingly concentrated in the EC. Other exports such as mung beans and shrimps a 1so inc rea sed in importance both in the EC and Asian markets.

Jute and kenaf

exports, however, declined drastically in all markets during

1971-80.

56

Chaiwat Konjing The variation in degree of agricultural diversification

in the ASEAN countries reflects not only the variation in geographical conditions but also the market situation as well as policy orientation towards corrrnercial agriculture. A review of the agricultural policies of the ASEAN countries indicates that a key feature of the agricultural goal of most ASEAN countries is increased self-sufficiency in the production of foodstuffs. Another goal is the expanded production of raw materials for the local industry and for export. Plans to achieve production targets include more capital input, improved technology and cultivation practices, the opening up of new land area, and the supplying of more irrigation water. Increased price incentives to farmers and improved marketing importance and are only

facilities are secondary in limited to some strategic food

crops, particularly rice. Under the existing economic and social structure of ASEAN, however, agricultural diversification is now under way and will be increasing in importance in overall economic development in the near future. The conclusions of this study can be Sl111111arized as follows: ( 1) Among the ASEAN countries, Thai 1and has experienced greater agricultural diversification, and this has

stimulated

the

rapid

rate

of

growth

of

aggregate

agricultural output. (2) In subsistence economies or the food-deficit countries of ASEAN, agricultural diversification results in a greater variety of items being produced for domestic consumption, for import substitution, and even for export. ( 3) In an exchange economy with close 1i nkages in the world market, such as Thai land, rapid agricultural diversification occurred as producers responded to the varied needs of the world market and traditional domestic requirements. (4) High-valued products and processed food are increasingly exported to more advanced countries such as the EC. This development suggests a tendency for export

Agricultural Diversification in ASEAN 57 to shift from either basic primary commodities to processed ones, or from basic primary exports to high-valued items. (5) Based on Thailand's experience, agricultural diversification associated with flexible economic structure has reduced susceptibility to declining terms of trade. In fact, the emergence of agricultural diversification from the ASEAN experience has been the result of a more efficient use of existing resources induced by market incentives rather than because of efforts to manipulate the markets. It represents truly impressive gains at both the level of economic activity and the expansion and stabilization of export earnings. The policy recommendations on EC-ASEAN economic relations are that co-operative efforts should be strengthened to sup port productivity improvement to achieve self-sufficiency in the ASEAN region. In addition, trade policy in agriculture between the EC and ASEAN should be revised to allow for greater trade in commodities. In fact, ASEAN is badly in need of modern agricultural inputs and technology which the EC could supply. At the same time, cheaper semi-processed food and agricultural raw materials from ASEAN could benefit both the industrial sector and consumers in the EC.

NOTES

The shere declined to 40 per cent in 1981, 2

Bureeu of Plenning, Ministry of Agriculture, Indonesia,

3

The Phtltpplnes has some surplus rice for export tn certain years but, In general, the Pht llpplnes Is stt I I at self-sufficiency level,

4

Concentration can be calculated by the coefficient:

G

~ IOOJ~Cl)

2

58 Chaiwat Konjing where G = concentration coefficient, x1 = the acreage or production of crop I, and X = total acreage or production. A rising level of concentration, and thus a decl lnlng level of diversification, would be expressed by a rising coefficient, and vice versa. I am grateful tor a comnent by Dr Rolf J. Langhammer of the Klel Institute of World Economics, West Germany. 5

The poverty I I ne accordIng to the Wor Id Bank's defInItIon Is the earning level (at 1976/76 prices) of 150 baht/month/person In rural areas and 200 baht/month/person In urban areas,

REFERENCES Bangkok Bank. Bangkok Bank Monthly Review 13, no. 11 (November 1972>. Bank of Thai land. Monthly Bulletin.

1980-81,

Biworo, A.T. and Sayutl Yahya. "Identification of Issues and Problems of Greater Importance to Agricultural Development In Indonesia". Report submitted to the ASEAN Agricultural Development Planning Center, Bangkok, June 1982. Brown, Lester R. Agricultural Diversification and Economic Development In Thailand: A Case Study. USDA Foreign Agricultural Economic Report, no. B. Washington, March 1963. Chalwat Konjlng. "Urban-Rural Interface and Terms of Trade for Agriculture In Thailand". Paper presented at the Fourth Biennial Meeting of Agricultural Economics Society of Southeast Asia, Singapore, 3-7 November 1981, FAO. Production Yearbook. FAO.

Trade Yearbook.

1967-80.

1967-80,

Malaysia, Ministry of Agriculture. 1981. Malaysia, Ministry of Finance.

Statistical Handbook, Agriculture.

Economic Report, 1981/82. October 1981.

Malaysia, Office of Prime Minister. March 1981.

Fourth Malaysia Plan, 1981-1985.

Selvaderal, S. Agriculture In Peninsular Malaysia. Agriculture, 1979.

Malaysia:

Ministry of

Tan, Eleanora E., c. Rosacla, and R.D. Rosario. "Identification of Issues and Problems of Greater Importance to Agricultural Development In the Philippines". Report submitted to the ASEAN Agricultural Development Planning Center, Bangkok, June 1982.

Agricultural Diversification in ASEAN 59 Thailand, Department of Customs.

Foreign Statistics of Thailand.

Thailand, Ministry of Agriculture and Statistics of Thal land. 1967-80.

1967-80.

Agrlcu ltura I

Co-operatives.

Thailand, NESDB. Thailand's Fifth Five-Year National Economic and Social Development Plan, l982-l987. October 198l. Tongchal Petcharatana and staff. "Agrlcu ltura I Polley and Programs History of Thailand, 1960-1980". Report submitted to ASEAN Agricultural Development Planning Center, Bangkok, July 1982. U.N.

Annual Statistical Papers, Series D: 1971-80.

U.N.

Monthly Bu I let 1n of Stat! stl cs, 1981.

COI!IIlodlty Trade Statistics.

USAID. Agricultural Polley In the Far East and Oceania. Agricultural Report, no. 37. November 1967.

ERS Foreign

USDA, International Agricultural Development Services. The Dlverslflcatton of Agricultural Production In Less Developed Nations. August 1968. Wong, John. ASEAN Economics In Perspective. Ltd., 1979. World Bank. World Development Report. 1980 and 1981.

Hong Kong:

Washington, D.C.:

Macmi I I an Press,

The World Bank,

II EC TRADE POLICIES IN TROPICAL AGRICULTURAL PRODUCTS

Ingeborg Menzler-Hokkanen

Introduction The initial intention of the Colllllon Agricultural Policy (CAP) of the European Community (EC) was to promote European integration. In general the CAP was designed to achieve three major goals: domestic price stability, solvency of the farm sector, and security of adequate supply. To achieve the principal aims of the CAP, a system of protectionist devices and protection aids had been developed. In order to insulate domestic prices from fluctuating world market prices, a plethora of market regulations, including schemes for internal price support, production subsidies, and external protection measures came into being, effectively preventing countries outside from enjoying free access to the Common Market. These instruments for stabilizing internal agricultural prices at a high level have a decisive effect on international markets. The EC, which represents one of the world's largest markets for raw materials and agricultural and industrial products, has a considerable influence on the structure of world agricultural trade. However, no other comparable area or economic entity -- with the exception of Japan -- is as dependent on imports from the Third World as the EC is. Along with the rising level of agricultural protectionism of developed countries and despite the efforts

EC Trade Policies in Tropical Agricultural Products 61 of the various GATT tariff-cutting rounds to maintain the principle of non-discrimination, requests for trade preferences for specific countries or country-groups have increased. The EC especially has been the target of the criticism that its highly protectionist agricultural policies and its export subsidies for EC agricultural products are harmful to the hopes of economic development of Third World countries. EC officials often cite the large volume of EC agricultural imports, to demonstrate the openness of the Community. But this consists, however, of about 35 per cent of products which either cannot be produced in the Common Market for climatic reasons (such as tea, cocoa, some fruits, and vegetables) or which could be produced only at prohibitively high costs (as in the case of soya beans). Animal fodder, oil-seeds, oils, and fats account for another 25 per cent of agricultural imports. As these are products used in industry and agricultural processing, they ensure the international competitiveness of the finished products (Tetsch 1980), that is, they raise the effective protection rate of the finished products. In all other farm products the Community either is self-sufficient or is even producing surpluses. Agricultural trade flows therefore seem to be less determined by comparative advantage of agricultural production than by trade policies. Since its creation, the EC has entered into a number of different kinds of trade agreements with deve 1oping countries by virtue of which EC imports from the latter receive preferential treatment. Among such agreements are those with the former colonial territories of the EC member states (the First and Second Yaounde Agreements, the Arusha Agreement, the Lome Conventions), the association agreements with Mediterranean states (Turkey, Cyprus, and Malta), and the preferential trade and co-operation agreements with Mediterranean states (Spain, Israel, Eqypt, Jordan, Lebanon, Syria, Algeria, Morocco, and Tunisia). Since the Lome I and

62 I ngeborg Menzl er-Hokkanen II Conventions, even products covered by the CAP tariffs, for example, sugar and beef, are subject to trade agreements. Apart from these so-called special preferences, a generalized system of preferences (GSP) in favour of imports from developing countries was put into operation by the EC on 1 July 1971. For developing countries as a whole, and specifically for trade between the EC and ASEAN in tropical agricultural products, the Lome Conventions and the GSP are of greatest importance. This paper attempts to assess the effect of EC agricultural policies concerning certain tropical products, particularly with regard to trade between the EC and ASEAN. The first part analyses trade relations between the EC and ASEAN, with special attention to the role of tropical agricultural products exported to the Co11111on Market. Next is a review of the EC co11111on agricultural policies in tropi ca 1 agri c ul tura 1 products during the 1970s, and an analysis of the trade agreements relevant to ASEAN. The final part discusses the effects of the CAP on trade between the EC and ASEAN, using tapioca as an example.

EC-ASEAN Trade Relations In order to illustrate the importance of EC imports from the ASEAN region as a whole and from individual ASEAN countries, this section deals with an analysis of the exports of individual ASEAN countries to the EC in respect of foodstuffs and all other goods. The analysis considers only EC imports from third countries and the corresponding share of these imports accounted for by ASEAN countries. Si nee Singapore was part of the Federation of Malaysia until 1965, data on Malaysia are included only for the years prior to that date. For the entire period investigated, the EC is considered to be that of the Nine, the expansion of the EC from the Six to

EC Trade Policies in Tropical Agricultural Products 63 the Nine being ignored. The two categories of imported and 1 exported goods analysed are "total trade" and "foodstuffs". The total volume of goods of all kinds imported by the EC from third countries has, in terms of value, increased greatly during the last twenty years. However, of these total EC imports from the rest of the world, only a relatively small proportion originated from ASEAN countries. In 1965 total imports from ASEAN countries made up 1.9 per cent of total extra-EC imports. By 1970 the absolute value of ASEAN exports to Common Market countries had increased by 19 per cent, but their share in imports decreased to about 1.5 per cent. During the next five years, exports to Europe increased by about 22 per cent annually, but their share in EC imports rose only to 1.8 per cent, thus again reaching the level of 1965. Thereafter, ASEAN exports to the Common Market experienced a rapid increase, covering about 2.33 per cent of total EC imports in 1980. With regard to foodstuffs, the development of ASEAN exports appears to be more dynamic than that for total goods. Although EC imports of foodstuffs from third countries fell behind the rapid increase of EC non-food imports, the ASEAN countries succeeded in boosting their foodstuff exports. Food imports from the ASEAN region rose from a 1.3 per cent share of the extra-EC food imports in 1965 to 1.8 per cent in 1970, and in 1975 their share of total imports had climbed to 3.6 per cent. By 1980 the ASEAN nations had managed to extend their foothold in the European food market to account for 5.44 per cent of extra-EC imports. The performance of individual ASEAN countries varied somewhat, however (Table II-1). Thailand's total exports to the EC maintained a relatively constant share of the market between 1965 and 1975 (about 0.25 per cent on the average). In 1980, however, its share of the EC market rose to 0.47 per cent. In that year Thailand accounted for about 20 per

64

lngeborg Menzler-Hokkanen TABLE 11-1 EC Imports from Individual ASEAN Countries, 1965-80, All Goods and Foodstuffs

Year

Percentage EC Imports of Total (million US$) Extra-EC Imports

Percentage of Total Imports from ASEAN Countrl es

Absolute Percentage Relative Increase (million US$) Increase

THAILAND All goods 1965 1970 1975 1980 Foodstuffs 1965 1970 1975 1980

116.7 140.4 413.8 1,749.7

0.27 0.21 0.27 0.47

14.23 14.15 15.20 20.07

21.7 273.4 1,335.9

18.3 194.7 322.8

42.1 63.1 253.3 879.4

0.42 0.56 1.34 2.59

31.7 31.05 37.50 47.65

21.0 273.4 626.1

50.0 194.7 247.2

MALAYSIA All goods 1965 1970 1975 1980 Foodstuffs 1965 1970 1975 1980

316.3 391.9 887.5 2,456.6

0.71 o.58 0.59 0.66

37.9 39.8 32.6 26.2

75.6 459.6 1,569.1

23.9 126.5 176.8

20.4 23.4 70.6 195.8

0.20 0.21 0.37 o.58

15.4 11.5 10.5 10.6

3.0 47.2 125.2

14.9 201.7 177.3

12.2 17.9 19.9

365.1 1,252.6

301 257.5

SINGAPORE All goods 1965 1970 1975 1980

121.3 486.4 1,739.0

0.18 0.32 0.46

EC Trade Policies in Tropical Agricultural Products

65

TABLE 11-1 (Continued)

Percentage EC Imports of Total (million US$) Extra-EC Imports

Year

Foodstuffs 1965 1970 1975 i980

14.3 25.4 5i.5

Percentage of Total Imports from ASEAN Countries

0.13 0.13 0.15

Absolute Percentage Increase Relative (million US$) Increase

7.0 3.8 3.0

11.1 26.1

77.6 102.8

INDONESIA All goods i965 1970 1975 1980 Foodstuffs 1965 1970 1975 1980

259.7 246.5 501.8 1,628.8

0.58 0.37 0.33 0.44

31.1 24.8 18.4 18.7

-13.2 255.3 1,227.0

-6.2 i03.6 224.6

52.i 74.7 206.7 502.0

0.52 0.66 1.09 1.48

39.2 36.8 30.6 27.2

22.6 132.0 295.3

43.4 176.7 142.9

PHILIPP I NES All goods 1965 1970 1975 1980 Foodstuffs 1965 1970 1975 1980

-

139.2 92.4 432.8 1, i44.7

0.31 0.14 0.29 0.31

i6.7 9.3 15.9 13.i

-46.8 340.4 711.9

-33.6 368.4 164.5

18.2 27.7 118.9 217.0

0.18 0.25 0.63 0.64

13.7 13.6 17.6 1i.8

9.5 9i.2 98.1

49.5 329.2 82.5

Not applicable.

SOURCE:

OECD, Statistics of Foreign Trade 2 Trade bl Comnoditles. Market Summaries: Exports 2 Imports, Series C

......

()"I

TABLE 11-5 GSP tor Vegetable Oils and Fa1's and Their Relevance tor ASEAN Countries, 1975-82

1975

CET

China wood and oltlclca

GSP Rate

0

3

oils, myrtle wax and Japan wax

a

1977

A

8

Argentina

China

c

CET

3

GSP Rate

A

Argentina

0

Brazil Paraguay

8

c

China

PISraguay Brazi I

Castor oil: Others

Brazi I

6

8

8

6

Brazi I lnd Ia Ecuador

4

2.5

Malaysia lndones I a Ivory Coast

15

2.5

Philippines

Paraguay India Other oils: For techn I ca I or Industrial uses, other than the manufacture of foodstuffs tor human consumption: Crude: Palm oil

Others, excluding II nseed ol I, ground nut ol I, sunflower seed oil, and colza oil For other uses, crude palm oil

Other o I Is so I I d , other than In lmmed I ate pack I ngs of a net capacity of 1 kg. or less: Crude: Palm kernel and coconut oil

Others: Palm kernel and coconut ol I Fatty acids; acid oils from ret I nl ng; tatty alcohols: Stearic acid Oleic acid Other fatty acids; acid oils from refining

4

2.5

5

2.5

Nigeria Malays! a

b

Ph I IIppi nes

-

6

4

Malays I a Ivory Coast lndonesl a

Malaysia Niger I a Zaire

10

154

6

4

Malaysia lndonesl a Ivory Coast

243

14

10

7

Malaysia Philippines Papua New Guinea

32

15

13

8 7

2 5

4.5

0

15

7

2 5

4.5

0

8

Argentina Sweden Philippines Peru

-

Malaysia Papua New Guinea

Malaysia Zaire

0

Papua New Guinea

Argentina Malaysia Brazil

Norway Czechoslovakia USA

1979

GET

GSP Rate

3

0

Argentina Paraguay

8

6

Brazil India Ecuador

4

2.5

Malaysia IndonesIa

5

2.5

6

4

Malaysia Indonesia Ivory Coast

10

7

Ph I II pp I nes Nigeria Malaysia

15

13

8

2

7

5

4.5

0

A

Ph I I I pp I nes Malaysia Sri Lanka

1981

GET

GSP Rate

China

3

0

Argentina Paraguay China

China

8

6

Brazil That land China

5

4

2.5

MalaysIa lndones Ia I vary Coast

98

5

2.5

Philippines Malaysia Papua New GuInea

271

6

4

Indonesia Malaysia Ivary Coast

96

10

7

Ph I II pp I nes Malaysia Nigeria

15

13

Phlllpplnes Papua New Guinea

8

2

B

-

-

c

Papua New Gut nea

Molaysto, Yugoslavia Peru

1982

USA

7

5

5

4.5

0

A

GET

GSP Rate

3

0

4

8

6

3

4

2.5

122

5

25

137

6

4

-

134

10

7

-

3

15

13

0

8

2

7

5

4.5

0

B

-

Singapore Norway

USA Malaysia Phi llpptnes Peru

c

10

Table 11-5 (Continued) 1977 CET

GSP Rate

Glycerol and glycerol I yes: Crude glycerol and g Iycerol I yes Others, I ncl ud I ng synthetic glycerol

For other uses, palm of I, not crude

8

Phl11pp1nes USA Indonesia Nigeria 6

Animal or vegetable ol Is and tats, wholly or partly hydrogenated or solidified or hardened by any other process, whether or not ret 1ned, but not further prepared In Immediate packlngs 20 of a net capacity of I kg. or less 17 Others

Fixed vegetable ol Is, for technical or I ndustr 1a I uses, not crude Others: Palm kernel and coconut oil

A

c

2

Japan

0

16

12

India

Nigeria

8

Ivory Coast

Suisse -

CET

GSP Rate

1.5

0

6

0

20

16

17

11

a

6.5

14

12

20

20

18

Fatty alcohols

8

8

6

Unwelghted average tarJffC

9.2

Other oils, solid, In Immediate packlngs of a net capacity of I kg. or less

14

A

Nigeria Malaysia Brazil

8

c

USA

Japan

Malaysia India

Canada

3

Fiji Papua New GuInea Ivory Coast Malaysia

-

6.9

Import value-weighted average tariff on EC-Imports from ASEAN under CET and GSP conditions

A= Three major GSP beneficiaries tor countries benefiting from at least equivalent special preferences. 8 = Major non-beneficiary. ~ = EC-Imports from ASEAN eligible tor GSP treatment (In ml Ilion EUAl. The GSP concessions which came Into force on 1 July 1975 have been considered. b 3.0 per cent tor palm kernel ol I.

3

1979 CET

GSP Rate

1.5

0

Nigeria Sri Lanka Ivory Coast

6

0

Sl ngapore

20

16

17

11

8

6.5

14

12

20

18

8

6

9.2 6.9

A

1981 B

c

USA

0

CET

GSP Rate

1.5

0

Argentina Sri Lanka Nigeria

6

0

Argent 1na

20

16

India

11

Malaysia USA Ph I II pp I nes India

Ph I II pp I nes USA

Malaysia India Ivory Coast

USA

7

17

Philippines Papua New Guinea

USA

3

8

9

14

12

20

18

Malaysia Indonesia

USA

1982

6.5

7,5

6

6.2

9,2

6,2

4.5

8,8

6,2

A

B

USA

Malaysia Philipp 1nes Ivory Coast

USA

c

CET

GSP Rate

0

1.5

0

0

6

0

20

16

28

17

11

0

8

97

14

12

20

18

6,5

7,3

6

7,3

6

c For products not Included In the GSP schane (marked by "-") the CET rate has been applied tor calculating the average GSP rate, Thus, the product coverage Is held d constant over the 1975-82 period. No trade data available, SOURCES:

Compl led from Eurostat, Analytlsche Oberslchten des AuBenhandels (NIMEXEl (Lu~anburg, various Issues); Official Journal of the European Communities Legislation, various Issues,

80

Ingeborg Menzler-Hokkanen

in spite of the Lome preferences (see Langhammer's paper in this volume). While production in African countries continues to stagnate, a boom is registered in Southeast Asia, led mainly by Malaysia and Indonesia. Furthermore, a few exporting countries have been ab 1e to increase their share of the world markets for palm kernels and palm kernel oils. The palm kernel oil market is presently strongly influenced by developments in Malaysia. In 1974 Malaysia stopped exporting palm kernels, and since then it has processed its entire kernel production itself. It is today the largest ASEAN exporter of palm kernel oil, 2 followed by Singapore and Indonesia. In 1980 Malaysia provided approximately 37 per cent of EC palm kernel oil imports. The total palm kernel oil exports of the ASEAN countries to the EC rose from about 25 per cent of the market in 1974 to 38 per cent in 1980. In 1980, more than 53 per cent of copra imports, 52 per cent of coconut imports, and roughly 74 per cent of coconut oil imports of the EC were purchased from ASEAN countries. ASEAN' s share in EC imports rose sharply from only 5 per cent in 1972 to about 45 per cent in 1975 and to nearly 74 per cent in 1980. The Philippines ranked highest among the ASEAN states, providing 71 per cent of total Common Market coconut oil imports, thus accounting for 97 per cent of ASEAN oi 1 exports to the EC. Until 1978 the EC purchased more than 80 per cent of its copra imports from the ASEAN countries, but between 1978 and 1980 this figure declined to just less than 53 per cent. Here again, the Philippines was the most important producer, accounting for over 84 per cent of EC imports in 1976, thus winning a notable share in EC imports. Later, however, the Philippine share of the market sank to a mere 32 per cent of ASEAN copra exports, accounting for 20.5 per cent of the Community's imports. ASEAN' s share of coconut exports to the EC increased from 35 per cent of total EC imports in 1972 to 52 per cent

EC Trade Policies in Tropical Agricultural Products

81

in 1980. The Philippines is the largest producer, accounting for about 94 per cent of ASEAN coconut exports to the EC in 1980. The EC

is

the

world's

leading

importer of cocoa,

i ncl udi ng cocoa beans (unprocessed) as well as processed products such as cocoa paste, cocoa butter, and cocoa powder.

The EC countries combined purchase ha 1f of world

cocoa production ( Eurostat 1982).

Si nee 1973 there have

been intentions to regulate the world cocoa trade by market interventions provided in the International Cocoa Agreement. However, of the ASEAN states, only the Philippines signed the International Cocoa Agreement:

Indonesia and Malaysia

are not members. EC cocoa imports from the ASEAN countries increased from only about 1 per cent of total imports in 1972 to approximately 4 per cent in 1980.

Malaysia

exported the most, providing about 83 per cent of ASEAN cocoa exports to the EC in 1980.

Second came Indonesia,

although its importance as a cocoa exporter has diminished drastically.

In 1972 it sti 11 accounted for about 81 per

cent of ASEAN cocoa exports to the Common Market, but by 1980 its share of exports declined to about 14 per cent. The ACP states pay no duties on exports to the EC of cocoa beans, cocoa paste, and unsweetened cocoa powder, according to the stipulations of the Lome Conventions, and are the main EC suppliers of cocoa.

In addition, least developed

countries benefiting from the GSP can export cocoa beans, cocoa bean shells, and other residues to the Community on a duty-free basis.

In the case of cocoa butter, the ASEAN

states increased their exports to the EC, taking nearly 5 per cent of the market in 1980 compared with just 0.2 per cent in 1972.

The largest exporters are Malaysia, Singapore,

and (since 1977) the Philippines.

Indonesia only began

exporting cocoa butter to the Community in 1978. Malaysia increased its share of ASEAN exports to the EC from 11 per cent in 1973 to approximately 43 per cent in 1980, while

82

Ingeborg Menzler-Hokkanen

Singapore • s share of exports diminished from 89 per cent in 1973 to 26 per cent in 1980. In 1979 the Common Market imported a total of 1.3 million metric tons of coffee, which was about a third of world total coffee production. The EC has been the largest importer of coffee since 1975, followed by the United States (Eurostat 1982). Malaysia, Singapore, and the Philippines are not members of the International Coffee Organization. These countries play a negligible part in the coffee trade compared with Indonesia, which stepped up its exports to the EC from 1.5 per cent of the EC imports in 1972 to almost 5 per cent in 1980, thus accounting for nearly 99 per cent of all ASEAN coffee exports to the EC. ASEAN tea exports to the EC, however, fell drastically from an 18 per cent share of the market in 1972 to just below 4 per cent in 1980. Indonesia, the largest ASEAN tea exporter, experienced a decrease in sales to the Community from approximately 15 per cent of total EC imports in 1972 to only about 4 per cent in 1980. In 1979/80 the Community supplied 98 per cent of its own rice demand (rice being produced by France, Greece, and 3 EC rice imports in 1978/79 amounted to 4.7 per Italy). cent of total world trade while rice exports accounted for 5.2 per cent of total world trade. The main suppliers outside the EC are the United States, Thailand, South America, and Surinam; and South America, Bunna, and Thailand for broken polished long-kernel

rice. Thailand•s exports of fully rice rose from 21 per cent of EC

imports in 1972 to account for 43.5 per cent and 56 per cent of total EC imports in 1979 and 1980, respectively. Thai exports average to 1ess climbed Thailand

of hulled 1ong-kerne 1 rice to the EC fe 11 of 10 per cent of total EC imports in 1972 than 1 per cent between 1975 and 1977, again to a level of 6 per cent in 1980.

from an and 1973 but then In 1980

accounted for 14 per cent of EC imports of broken

EC Trade Policies in Tropical Agricultural Products

83

rice. Rice and broken rice are subject to price adjustment levies (Appendix Table AII-1). In order to counteract the falling rice production in the Co11111unity, the intervention price on raw rice has been raised for the fiscal year 1982/83 by 10 per cent and the reference price by 8. 2 per cent (Kom [82] 10 endg.). Indonesia and the Philippines are the main exporters of llJllber (sawn wood). The two countries together accounted for 8.3 per cent of total EC wood imports in 1977. Before that year, their share of the EC market fluctuated between approximately 8 and 11 per cent, reaching a peak of 13 per cent in 1976. Furthermore, ASEAN countries claimed a considerable share of the EC market for canned pineapple (43 per cent in 1980). In 1972 and 1973 the Philippines was the largest exporter, and between 1974 and 1977 the lead was taken over by Malaysia, accounting for an average of 14 per cent of total EC imports. In 1978-80 Thailand provided nearly 17 per cent of all EC imports. With regard to other canned fruits, in 1980 ASEAN provided nearly 19 per cent of all EC imports. The main suppliers were Thailand, the Philippines, and Malaysia.

EC C01111ercial Trade Policy towards Tropical Agricultural Products in the 1970s The EC trade policy towards tropical agricultural products in the 1970s comprised a sophisticated network of: 1. tariffs to be negotiated within the GATT framework of the multilateral Tokyo Round trade negotiations (1973-79); 2.

various

"special"

non-reciprocal

and

hence

non-negotiable tariff concessions in favour of some developing country groups among which the 1975 ACP Agreement was the most important;

84

Ingeborg Menzler-Hokkanen 3.

"general" non-reciprocal tariff cuts and tariff exemptions for the Group of 77 countries within the GSP starting from 1971; 4. common quantitative restrictions, for instance, in the case of tapioca; 5. national quantitative restrictions or tariff quotas for individual products originating from individual suppliers to be regarded as remnants from the . t egra t•10n per1o . d ;4 pre-1n 6. internal fiscal duties on tropical products such as coffee and tea in some EC member countries; 7. tariff concessions in favour of the least developed countries. 5 The following analysis focuses on the two major elements of this policy, the Tokyo Round proposals and results as well as the GSP. Both aspects are discussed in general terms with regard to their consequences for exports from third country suppliers as well as in specific terms concerning their relevance for ASEAN countries. 6 A discussion of the provisions of the Lome Conventions for tropical agricultural products follows. Tokyo Round Proposals and Results In late 1976 the EC agreed on a package of trade concessions to non-ACP developing countries on tropical products within the Tokyo Round. The concessions came into force as early as 1 January 1977, in order to underline the Community's willingness to regard concessions on tropical products as a priority topic. With the exception of the United States, 7 all industrial countries behaved in this way. In addition to the following: 1. the extension of GSP coverage and improvement in preference margins; 2. the elimination of some quantitative restrictions on fatty acids and alcohols in France and Italy;

EC Trade Policies in Tropical Agricultural Products 85 3.

the agreement of Germany and Denmark not to raise their internal fiscal duties on coffee; the package principally comprised most favoured nation (MFN) tariff cuts for about twenty products, among which raw coffee, cocoa beans, tea, and some spices were the most important. Since the spices also enjoy preferential treatment under the GSP, the core of the Tokyo Round concessions shrinks to the three classical items: tea, coffee, and cocoa. Non-preferential tariff cuts on these products have two major consequences. Firstly, they contribute to eroding the ACP preferences, which comprise duty-free market access, as well as the equivalent preferences for those least developed countries outside the ACP group producing coffee and cocoa. Secondly, they do not discriminate against countries which are excluded from GSP preferences in tropical products. Thus, tea·produci ng countries such as the USSR or China before 1980 (that is, its pre-GSP period) could benefit from the tariff cut for one tea item, whereas the less important GSP preferential rate for the other tea item (packaging of less than 3 kg.) was denied to them. These two formal arguments should strictly be separated from the economic substance of the cuts. The cuts are expected to be low, firstly, because of the still existing internal excise taxes in some EC countries whose ad valorem incidence is much higher than the tariff (Table II-6). Secondly, because raw coffee and cocoa are mostly processed in industrialized countries, price fluctuations for the raw products are partly smoothed out and compensated for at the processing stage as well as at the wholesale and retail levels. Empirical evidence on the relation between import prices for the raw product and retail prices for the finished good in West Germany in 1960-77 suggests that only one-third of import price changes for coffee and only onefourth of import price changes for cocoa were transferred

Table 11-6 Tokyo ROUIId Concessions of the EC In Major Tropical Products

00

0'1

.....

Tea CCET 0902.90)a

Coffee Beans (0901.11)

Cocoa Beans (1801.11)

:::s

I~ 0

-s

Q

CET Tokyo Round concesslonal duty

9 0

7 5

5.4 3

I~_. N

(!)

b

Fiscal value of preferences for hypothetical reference year (In mill. EUA)

1977 1979 1981

33.6 19.5 19.6

49.5 42.6 44.1

4.1 3.5 2.5

7

I~ (!)

Share of ASEAN In the fiscal value of preferences (In per cent)

1977 1979 1981

Ad valorem Incidence of Internal excise taxes on t rop I ca I p roduct~ ( 1976, In per cent)

West Germany Italy Denmark

a

6.4 7.5 8.4

7.5 9.2 6.0

17.9 26.6 37.2

51.2 69.4 10.8

b Non-GSP Item: tea In packlngs of a net capacity exceeding 3 kg. Value of EC Imports from non-ACP developing countries multiplied by the preference margin (CET minus c concesslonal duty). Excise tax receipts In percentage of Import value. SOURCES:

As tor Table 11-5.

:::s

EC Trade Policies in Tropical Agricultural Products 87 to the consllller via the retail price (Langha111111er 1979). Since the only relevant level for measuring the price elasticity of import demand is the conslJiler price level, a reduction in import prices due to the Tokyo Round tariff reduction of 2 percentage points for coffee or even 9 percentage points for tea (Table II-6) will therefore not exert any downward pressure on the conslJiler price level. Furthermore, the price elasticity of import demand for the products is estimated to be rather 1ow -- -0.70 for tea, -0.42 for cocoa, and -0.26 for coffee (Singh et al. 1977). These three aspects -- the low raw coffee and cocoa content in the finished good, the 1ON ad valorem incidence of the tariffs compared with the excise taxes. and the 1ow price elasticities of demand -- reduce the significance of EC concessions for the core tropical products in the Tokyo Round negotiations for trade expansion. What remains to be discussed is the "aid transfer" aspect of the concessions, that is, the shift of the amount of tariff revenues forgone from the importing country to the exporter. Table II-6 indicates that, under the rigid asslJilption of tariff revenues accruing fully to the beneficiary exporters, which in concrete terms are the non-ACP countries, this aid transfer would have amounted to about 50 million European units of account (EUA) in 1977 or about US$63 million at the maximlJil for coffee, and 5 million EUA or about US$46 mi 11 ion for tea. Compared with the official aid flows, this tariff-induced transfer is of negligible

significance.

Brazil,

Colombia,

the Central

American coffee-producing countries, India, and Sri Lanka are the countries which would share this amount, rather than the ASEAN countries. The reason for the continual demand for such tariff cuts in spite of its low macro-economic impact is simple: they affect the profits of exporting and importing firms at the margin so that at the micro-economic level the concessions do matter.

88 Ingeborg Menzler-Hokkanen EC GSP Concessions for Tropical Agricultural Products EC GSP concessions for tropical agricultural products became signifant only in 1974/75 when the EC was confronted with the compensation demands of those developing countries which did not belong to the privileged ACP group to be established in 1975 and which additionally saw their traditional privileged access to the U.K. market (Commonwealth preferences) eroded after the U.K. accession to the EC. India, for instance, was one of these seriously affected countries for whose compensation the EC introduced a tariff quota for imports of Virginia flue-cured tobacco in 1974. Since this tariff quota also impaired the relative market access conditions for U.S. tobacco, this product is the exception to the rule that the GSP concessions in tropical agricultural products usually do not imply trade diversion, that is, a shift of EC import sources from non-beneficiaries to beneficiaries. Tropical unprocessed products are usually supplied only by developing countries which on the whole benefit from the GSP or alternatively from the ACP Agreement. Therefore, GSP concessions result mainly in reducing ACP preferences and simultaneously in raising the effective protection rate of the processing stages in the EC countries. The latter occurs if the ratio of tariffs on raw products to finished products increases because of GSP concessions either on the raw products only or because of 1arger tariff cuts on raw products than on the processed goods. Then the difference between the value-added at domestic prices and the value-added at world prices becomes larger, to the detriment of those developing countries which try to compete on world markets with processed agricultural products. Because of this, it is not surprising that a statistical breakdown on the development of GSP concessions for three major groups of tropical agricultural products since the mid-1970s (spices [Table II-7], vegetable oils [Table 11-5],

EG Trade Policies in Tropical Agricultural Products 89 and tea as well as coffee and cocoa products [Table 11-8]) does not contain any major non-beneficiaries competing with developing countries on the EG markets. Even in cases where some socialist countries appear to be negatively affected, the discrimination effect may be low if the products are not homogeneous even at a highly disaggregated level. The tables also illustrate a number of other points: 1. In accordance with the unilateral concession granted a priori in the Tokyo Round, the EG both extended the GSP coverage and improved the existing provisions in 1977 and later again in 1981/82, when the second decade of the GSP started with substantial changes in the provisions. 2. Full tariff exemptions were rarely applied, with reduced tariffs being offered instead. 3. Preference margins or, more accurately, tariff discounts. measured as the difference between the common external tariff (GET) and the reduced GSP rate, were only substantial (up to two-thirds of the initial GET) in the case of the less important trade flows in spices, and not in the case of the much larger trade flows in vegetable oils. 4. Some preferences proved to be redundant, since neither beneficiaries nor non-beneficiaries supplied the product concerned. 5. The ASEAN group was by far the predominant beneficiary of the scheme in vegetable oils, although a comparison of the unweighted average GET and import va 1ue-wei ghted GSP tariffs for ASEAN reveals that the tariff discount was smaller in the case of vegetab 1e oi 1s exported by ASEAN (about 2 percentage points) than the unweighted average tariff discount for all beneficiaries (3 percentage points). Furthermore, these preferences were not improved, except for two minor items.

TABLE 11-7 GSP tor Spices end Their Relevance tor ASEAN Countries, 1975-82

1975 CET

Cinnamon and cinnamon tree flowers Crushed or ground Others Nutmeg, mace, end cardamoms Neither crushed nor ground

Crushed or ground: Nutmeg Mace

GSP Rate

10

9 6

15

8

13

18 12.5

Pepper "PI per", net ther crushed nor ground, other than for the Industrial manufacture of essential ol Is

17

Bad tan seed, neither crushed nor ground

23

Seeds of fennel, coriander, cumin, caraway, juniper, others

5

A

1977 B

c

II

Sri Lanka China Indonesia

0

10 !! 8

lndones Ia Singapore Grenada

5

10

10

12

5

8

6

GSP Rate

CET

Malaysia Indonesia Brazil

Iran Poland Argent Ina Egypt

18

10

a

e

a a

Sri Lanke China indonesia

2

Indonesia Grenada

4

lndonesle Malaysia Brazi I

26

3 0 5

23

11

5

0

26

12

Other seeds, crushed or ground

10

10

0

20

20

4

25

5

25

Tunisia

c

5

26

Crushed or ground, other than curry powder

B

4

Bad I an seed, crushed or ground

Other spIces, including mixtures Neither crushed nor ground

A

Egypt Iran Argentina

Tun isla

Poland

1981

1979

CET

lOa

GSP Rate

8a

5 4

lOa

2

12a 8a

3 0

lOa

5

23

11

5

0

26

A

B

c

CET

GSP Rate

1982

c

CET

GSP Rate

Indonesia China Seychelles

2

10 8

2 2

IndonesIa Grenada SIngapore

5

10

0

12 8

0 0

10

4

23

7

5

0

A

B

8

3 3

10

0

12

0

8

0

10

5

Indonesia Brazil Malaysia

23

9

China

5

0

Yugoslavia Czecho- India slovokla Egypt

12

26

10

26

7

10

0

IDe

0

lOc

0

20

4

20c

3

Thailand India Mexico

20c

0

25

5

25c

4

Tunisia India

25c

3

10 Indonesia China Sri Lanka Seychelles IndonesIa Grenada

0

34

Maloysla Indonesia Brazil

India Egypt

Tunlslo

Poland

-

25

0

TABLE 11-7 (Continued) 1975 CET

Pepper, "Capsicum" and

GSP Rate

10

12

Pepper, others, crusched or ground

12,5

Cloves

15

Aniseed, neither crushed nor ground Thyme Neither crushed nor ground Crushed or ground

c

CET

GSP Rate

10

A

7

Pakistan

Spain

12,5

7

Spain

Comoros

15

12

0

5

Spain Egypt

5

14

Spain

14

Hungary

Tanzania Malagasy Republic Comoros Spain Egypt

17

14

Unwelghted average b rate for all Items

14,7

12,6

Import value-weighted average tariff on EC Imports from ASEAN under CET and GSP conditions

16,6

6,4

Turkey

14 13,3

6,4

10

4,6

c 0

Jamaica

12

17

B

Maroc Greece Hungary

Bay leaves

~or

B

Maroc Jamaica Greece

Pimenta 11 , neither crushed nor ground 11

Pepper, "Capsicum", crushed or ground

A

1977

A, B, and C, see Table I 1-5, A priori concesslonal duty within the Tokyo Round negotiations which came fully Into effect b (without staging) on 1 January 1980, See footnote c In Table I 1-5,

1981

1979 CET

GSP Rate

A

10

5

Maroc Yugoslavia Jama 1ca

12

7

Spain Pakistan

B

Hungary

12,5

15

12

5

0

14

CET

GSP Rate

0

10

5

Turkey Maroc Jamaica

-

12

5

Pakistan Chlna

12,5

5

Ch lna Pakistan

10

Spal n Egypt Turkey

5

0

Spain Maroc

14

11

17 14

17

14

c

15

Malagasy Republl c Comoros Tanzania

Turkey

1982 A

B

GSP Rate

0

10

5

12

5

12,5

4

Hungary

0

10

5

0

Maroc Spain

14

11

13

Spain

17

13

13

Turkey

14

13

6,4

13,3

s.o

10

5

10

5

Malagasy Republic Comoros Tanzania Tunlsla Spain Maroc

c d Binding rate conceded by the EC in the Tokyo Round negotiations. No trade data available.

As for Table 11-5,

CET

15

13,3

SOURCES:

c

13,3

4,3

Table 11-8 GSP for Tea, Cocoa, and Coffee and Their Relevance tor ASEAN Countries, 1975-82 1975 CET

Tea, In Immediate packaging of net capacity not exceed I ng :3 kg.

11.5

Cocoa paste

15

Cocoa butter"

12

Cocoa powder

16

Soluble coffeeb

18

GSP Rate 0

A

B

Sri Lanka India

China

9

15

CET

GSP Rate 0

B

Sri lanka India

China

12

8

Brazil Ghana Nigeria

16

11

Nigeria

Brazil

18

9

Brazil Colombia

Brazil Colombia El Salvador

13

10

Brazil Zaire Uganda

Br

0>

::::J I

3

0>

-s

n

~

Countries

Per Ceplta Food Consumption

GNP

Rea I Income Rural

Urben

Rural

0::1

Total Food Demand

s::: -s

::::J ...... 0>

Urban

s::: X

0>

II

Poor Asle Africa

+0.2 +0.3

o.o

+0.3 +0.2 +0.3

Non-ol I middle-Income Latl n America Southeast Asia Mediterranean

+3.1 +6.0 +4.8 -0.6

+0.7 +0.8 +0.3 +1.0

-0.4 -1.3

+1.2 +0.9 +1.8

-0.3 +0.1 -1.0

+0.4 +0.5 +0.3

+2.4 +5.0 +3.3 -0.9

+2.2 +1.7 +3.8 +3.4

+0.6 +2.1 +1.4 -1.5

+1.3 +1.8 +1.9 +0.1

o.o

I; ::::J

:E 0>

Cl> ....... 0"

-s

0 Cl>

n

7

West Germany

France

Italy

Bene I ux

U.K.

3 89 98 88 68 64

100

I rei and

Denmark

1980 Treatment of GSP-Recelvlng Imports (GSP tar! ff rate In parentheses)

INDONESIA 441500 020492 030343 090411 090813 150761

Plywood Frogs' legs Shrimps Pepper Nutmeg Palm oil, crude

14.6 5.9 3.6 15.0 3.5 106.3

84 79 86 93 83 72

30 39 75 97 100 75

77 69 95 94 15

2

76 70 60 71

-

-

-

67 82 94 91

96 -

85 100 4

95 69

35 100

68 100

-

-

Duty-free; ceiling Duty-free Reduced rate (6) Reduced rate (5) Duty-free Reduced rate (4)

MALAYSIA 441500 090411 150719 150726 150761 150763 150777 151051 160530

Plywood Pepper Crude palm ol I (I ndust rl a I use) Soya bean ol I Crude palm ol I (other uses> Other palm oil Palm kerne I oil Fatty acids Crustaceans

34.6 13.6 3.8

70 84 30

28 97 14

-

-

95 42

51

-

2 93 21

11.9 98.3

61 69

76 77

100 49

95 82

100 58

18.6 27.2 24.8 26.1

16 26 95 85

32 85 100 89

-

29 90

8

71 100 75

-

2 100 90

-

-

-

-

74

24

61

92 88 87 85

-

-

-

100 17

Duty-free; ceiling Reduced rate (5) Reduced rate (2.5) Reduced rate (2 .5) Reduced rate (4) Reduced rate ( 12) Reduced rate (7) Duty-free Reduced rate (6)

PHILIPPINES 441500 080171 150726 150777

Plywood Coconuts Soya bean oi I Palm kernel oi I

34.1 23.4 65.2 56.3

63 93 100 55

20 94 100 54

83 84 2

-

65 94

4 100 100 50

100 90 10

69 76

30 98

72

-

73

Duty-free; eel I I ng Reduced rate {6) Reduced rate {2.5) Reduced rated (7)

9 100 61

100 75 67

69

72 7 100

Duty-free; eel ling Reduced rate {15) Reduced rate {5)

30 64 31 100 96 74

89 91 90 90 90 79

-

-

-

-

SINGAPORE 441500 060357 090411

Plywood Flowers, flower buds Pepper

44.1 2.9 0.7

71 95 82

24 94 61

2 54 99

9 23 16

-

THAILAND 030343 030368 060307 060357 160520 160530

Shrimps Mo I I uses, frozen Flowers, } fresh flower buds other Crabs Other crustaceans

Unwe1ghted

b

average

Coefficient of variation

b

7.8 26.0 3.7 10.0 11.3 9.8

76 58 72 86 86 79

88 88 97 88 87 88

81 80 64 67 84 83

41 49 23 22 62 66

73.4

79.0

72.3

57.1

70.2

79.6

79.2

64.1

30.5

29.3

35.6

44.8

45.2

23.0

40.9

65.7

a bAs percentage of total EC countries' Imports from ASEAN countries in the Individual tariff Item. Excluding the eel ling product plywood. SOURCE:

Calculated from data provided by the Statistical Office of the European Communities.

-

100

-

10

6 100 100

Reduced Reduced Reduced Reduced Reduced Reduced

rate rate rate rate rate rate

{6) {5) ( 15) ( 15) {6.5) {6)

170 Rolf J. Langhammer with domestic processing and therefore experienced in using In addition, the homogeneity of the the GSP options. products and the fact that they are non-durables are likely to foster economies of scale in marketing and distribution, so that oligopolistic structures in the trading of tropical agricultural products may emerge. With respect to the application of the GSP, this would imply that the oligopolistic trading pattern in agricultural products contributes to the exploitation of the GSP options and consequently to the erosion of the ACP preferences. However, the relatively high coefficients of variation in Table V-6 reveal that large product-specific differences in the GSP exploitation exist, so that the above implication only holds for the average, rather than for each individual product. 16

Instabilities in ASEAN and ACP Agricultural Exports to the EC The preceding analyses did not support the hypothesis that ACP preferences notably hampered ASEAN agricultural exports to the EC. Apart from low trade overlaps and shrinking preference margins this outcome may perhaps additionally be explained by different degrees of instabilities in ASEAN and ACP agricultural exports to the EC. The argument on which this hypothesis is based runs as follows: Provided that 1. export instabilities in agricultural commodities are supply-determined rather than demand-induced, for example, caused by climatic shocks, plant diseases, or because of internal agricultural policy failures, 2. the supplier region affected by these shocks is the leading world exporter, then the supply-induced instabilities lead to an increase in the demand for products of other non-affected supp 1i ers, thus causing demand-induced instabilities for these

Discrimination against ASEAN Agriculture? 171 suppliers and consequently shifts in regional trade flows from the former to the latter group of suppliers. The question to be addressed here is whether these pre-conditions hold for one or several tropical commodities exported by both ASEAN and ACP s upp 1i e rs during the reference period and, if so, whether shifts from ACP suppliers to ASEAN exporters (Table V-1) and vice versa can be attributed to this instability aspect. To begin with, the question of leading supplier on the EC markets during the reference period can easily be tackled for the major products. For coffee it was still Latin America followed by the ACP group. Though increasing its market share, Indonesia still accounts for a level of only 15 per cent of the ACP exports (in terms of quantity). For sawlogs, the ACP group has increasingly been the leading supplier, whereas for simply worked wood, plywood, palm oil, copra, and rubber, ASEAN has been in the 1ead. During the reference period, the ACP group 1ost its market shares to ASEAN in simply worked wood, rubber, and palm oil, but gained in its share of copra. With regard to tea, neither the ACP nor the ASEAN group is the leading supplier, but the ACP group is the more important supplier, with an increased market share compared with ASEAN. The second question regarding which products are subject to supply- and demand-induced instabilities has not been satisfactorily settled up to now. For world production of coffee, cocoa, and palm oil, supply-induced instabilities exist, while for world production of rubber, demand-induced 17 instabilities have been found to prevai1. But these outcomes may not hold for small individual suppliers. They may face demand-induced instabilities, just as a large supplier is confronted with supply-induced instabilities. With respect to the problem of ASEAN and ACP trade flows to the EC, one may doubt whether an assessment of instabi 1iti es for these flows makes sense, si nee the EC

172

Rolf J. Langhammer

absorbs only part of the two regions' production of tropical agricultural products and this need not necessarily reflect instabilities in total exports.

Furthennore, our reference

period, which is detennined by the emergence of preferential trading between the EC Nine and third countries, may be too short to allow for empirically supported statements. Though aware of these caveats we have nevertheless tried to find some evidence for differentials in instabilities in the ASEAN and ACP trade flows based on deviations from threeyear moving averages (Table V-7). These estimates show that, for the majority of products for which notable inter18 group differentials in quantity instabilities could be detected, ASEAN exports fluctuated more strongly than competing ACP exports. This holds for the two wood items as well as for tea and crustaceans, whereas a reverse pattern emerged only for palm oil. The only product in this sample for which there has been confonnity in the various studies with regard to the prevalence of supply-induced instabilities is coffee, which to a large extent (50 per cent of the EC imports} is supplied by non-ACP and non-ASEAN sources. Thus, the i nstabil i ties of ACP coffee exports to the EC, which only slightly exceeded those of Indonesian exports during the refe renee period, hardly pennit the conclusion of causalities between the

Indonesian gain in market shares and supply-induced

instabilities of ACP coffee exports.

Instead, the supply-

induced instabilities of the Brazilian coffee exports have probably provoked abrupt EC demand shifts towards both suppliers, to which Indonesia responded more rapidly than the ACP, its competitors. With regard to the other products for which demandinduced instabilities seemingly dominate, the results for sawlogs, palm oil, and tea coincide in the sense that they suggest the combination of market share losses and high instabilities in the exports of the smaller supplier of the

TABLE V-7 a Instabilities of Quantities and Prlcgs of the EC Nine Imports from the ACP States and MaJor ASEAN Suppliers In Tropical Agricultural Products, 1975-79 c Quantities

Prices

d

Product

Coffee (NIMEXE 0901.11) Sawlogs, non-coniferous (SITC 242.31) Wood simply worked (SITC 243) Plywood (S ITC 63 1.2 1) Palm all (NIMEXE 1507 .61) Copra (NIMEXE 1201.42) Tea (NIMEXE 0902.90) Natura I Rubber