he growth of agricultural trade has important implications for the Asia-Pacific region. Although the contribution of agriculture to gross domestic product (GDP) is decreasing, a significant proportion of the GDP of the developing countries in the region still comes from agriculture. Moreover, agricultural supply chains employ millions of people in the region and there is a growing demand for high-value food products. Agriculture has an important role in promoting food and nutrition security as well as reducing poverty and it is well recognized that improved intraregional trade in agricultural and food products can strengthen this role.
The Asia-Pacific region is both a major consumer and producer of agricultural products. Trade of agricultural products is increasing. Some of the major drivers of agricultural trade growth are the increasing population, dietary changes, increased incomes, rise in commodity prices and demand for high-value food products. However, there is significant potential for further growth in agricultural trade as the costs of trade in agricultural goods are much higher than those for manufacturing goods. According to the ESCAP-World Bank Trade Cost Database, the comprehensive trade costs (excluding tariffs) for agricultural goods for Asia-Pacific countries remained almost unchanged during the 2000-2005 and 2006-2011 periods when trading with Japan, a major trading partner (ESCAP, 2012). However, these were much higher, compared with the average trade costs of manufacturing goods during 2006-2011.
Challenges for facilitating agricultural trade in the region
n general, trade in agricultural goods is much more difficult than in case of non-agricultural goods. A key issue is perishability as agricultural goods are sensitive to time and temperature. Delays in trade processes negatively impact quality while improper handling, storage and transportation can also reduce quality and value. An entire consignment can be wasted for these reasons. Trade procedures for agricultural products are more demanding such as the requirement of Sanitary and Phytosanitary (SPS) certification and additional quality inspection certificates (e.g. fumigation). These increase the time and cost involved in trade. Another bottleneck is the poor capacity for meeting product standards (more details in the 'Product standards' section below) and frequent variation in the standards. The situation is often aggravated by the need to comply with private standards. The unavailability of trade finance and infrastructure issues like poor border facilities also act as barriers to trade. These significant challenges to trade facilitation in agriculture impact trade competitiveness. They are described in detail below.
As mentioned above, trade processes for agricultural products are more complex than for non-agricultural products and require additional documents such as SPS certificates, fumigation certificates and export quota clearances. This often means obtaining different authorizations, submitting additional paperwork and following tedious customs procedures, resulting in duplication of the information to be submitted and visits to additional agencies. Trade transactions become more complicated and delayed even before the shipment of the product. For example, it takes between 19 and 23 days to complete one rice export transaction in Myanmar with 20 stakeholders involved in the entire process1. As many developing countries in the region depend on staple agricultural food commodity imports, importing procedures for agricultural products are equally important and need due attention from policymakers. Analysis of various reports suggests that the import processes for agricultural commodities take between two to three weeks to complete.
The emergence of new and stricter standards for agro-products poses a serious challenge for developing countries in the Asia-Pacific region. Ensuring compliance with product standards for international agricultural trade is a complex topic encompassing institutions, infrastructure, logistics and administrative issues.
Standards can generally be categorized into public standards and private standards. Public mandatory standards are legally binding and can be termed as regulations. The SPS agreements and Technical Barriers to Trade (TBT) measures are technical regulations governed by the World Trade Organization (WTO). During 1995-2010, 12,975 TBT and 11,622 SPS notifications were submitted by WTO member countries2. A significant portion of these relate to agricultural products and were submitted by major agricultural product importing countries and emerging economies. Most European countries and emerging Asian economies like China require agricultural imports to strictly conform to these standards. Based on 2000-2001 data, the World Bank (2005) estimated the value of agro-products rejected at borders (Table 1) to be $1.8 billion for developing countries, including middle- and low-income countries, and China. This is 47 per cent of the value of agro-products rejected at borders worldwide. Private or voluntary standards are developed by private bodies ranging from large retailers and private sector coalitions to non-governmental initiatives like Fairtrade (www.fairtrade.net). Some private standards are so widely followed that they are comparable to public mandatory standards. A good example is GlobalGAP (www.globalgap.org).
Product competitiveness depends significantly on reliable, fast and efficient supply-chain systems. Trade transactions in such a supply chain depend on the efficiency of logistics systems and the robustness of infrastructure. In a fiercely competitive export market, the global economic crisis and reduced demand have forced exporters to increase productivity and reduce costs. For agro-products, logistics are particularly critical due to their perishability, and sensitivity to temperature and time. Agro-products or ingredients for processed goods contain vitamins, minerals and other nutrients which must retain their value for the consumer. Hence, it is important to follow practices and adopt measures critical to maintaining international standards. Generally, logistics performances have been described as being contingent upon infrastructure and transportation as well as services and border procedures (World Bank, 2010). Trade-related infrastructure facilitates both movement of goods and exchange of trade information. It includes multimodal (road, air and water) transportation networks, suitable vehicles, air/sea/land port facilities, warehouse facilities, and information technology and telecommunication facilities. Logistics services can be provided by both public and private entities. Private logistics service providers often offer the entire service of transporting goods from the factory gate to customers. Clearing and forwarding agents, and port management authorities are other service providers. Border procedures involve many agencies including customs, veterinary, plant quarantine and health agencies. Inadequate coordination among these agencies is a major bottleneck to the movement of goods across borders. This implies that many components of trade logistics are beyond the control of the trader such as conditions of transport networks or goods-handling time at the port. According to an International Finance Corporation (IFC) report, wastage caused by poor transportation and logistics was estimated at $13 billion per year in India (IFC, 2010).
Trade finance is better understood in the context of a trade development strategy. It is a major element of trade facilitation and often overlooked as only a 'support service'. It is, however, more than a 'support service'. Failure to obtain financing for production or import of the raw material needed for producing the export product, or at any other stage of the agricultural supply chain, may hinder trade. Establishing a trade finance infrastructure is a prerequisite for a robust trade finance system. This, in turn, requires the development of relevant laws and establishment of institutions to support international trade which can also address needs such as (i) capital provision to firms engaged in international trade, (ii) support services to manage risk involved in international trade, and (iii) international payment mechanisms (ESCAP and ITC, 2005). It is reported that trade finance has been growing at about 11 per cent annually over the last two decades (ibid.). However, agro-trade financing has not responded to the growing demand of trade in perishable food products.
It is particularly difficult to obtain financing for agro-products given the risk of spoilage due to poor post-harvest handling, poor storage facilities and, thus, a reduction of product value. The global credit crunch has contributed to price volatility, affecting many importing countries and made financing even more challenging. Weather conditions, seasonality of production and varied product quality are major risk factors for lenders.
Facilitating international trade of agricultural goods is linked to improvements in the business environment, regulations and logistics services for the domestic agriculture sector, among other factors. It can have a positive effect on improving production practices and quality standards, and help build strong support services in logistics and finance. There is a growing need to enable smallholders to be more integrated in international supply chains to reap the benefits of trade facilitation and increased agricultural trade.
(References will be made available upon request)
1 Business Process Analysis Study for Myanmar (draft), to be published in February 2014..
2 WTO Document G/TBT/29, 8 March 2011 and G/SPS/GEN/804/Rev.3, 7 October 2010