GREATER TRADE LIBERALISATION NEEDED BEFORE SIGNIFICANT RISE IN WORLD WHEAT PRICES
Financial Times (London) / January 7, 2000 / By PETER MONTAGNON
Farm trade reform under China's World Trade Organisation accession agreement is likely to have only a modest impact on the world grain and oilseed market.
This is unless it is accompanied by deeper reform of domestic regulation of internal food distribution, according to an internal paper by the Organisation for Economic Co-operation and Development.
Under its WTO agreement with the US, China is committed to cut import tariffs, reform quotas and open up the domestic market to private traders.
However, the OECD study, which is a discussion document for a meeting of farm experts in Paris later this month, says the impact could be limited because state trading enterprises will still dominate food distribution. Their control of wheat mills and most feed mills in China may hamper the growth of private trade and imports.
Far-reaching reform at this downstream level as well as abolishing all quotas would make a meaningful impact on trade flows and prices.
The study says China's cereal imports could expand by 26m tonnes to 40m by 2005 and the international wheat price could increase by Dollars 20.91 a tonnne. But this would depend on boosting growth through WTO membership, complete liberalisation of foreign trade including an end to all quotas, and domestic market reform.
If all WTO conditions are met and internal policy is reformed, there would be a 10m tonne increase in grain imports and the wheat price would be Dollars 10.67 a tonne higher.
But if China implements only the reforms set out in its WTO agreement and does not carry out further domestic reform, total grain imports would increase by only about 2m tonnes and the international wheat price would be just Dollars 1.88 higher by the middle of the decade.
A similar pattern emerges in the oilseed sector where full liberalisation would raise oilseed imports by 5.49m tonnes and the international price by Dollars 41.39 a tonne compared with increased imports of 550,000 tonnes and a higher price of Dollars 3.27 if the WTO conditions are met.
Rather than continue to pursue policies based on import substitution, China should use the opportunity to carry out deeper reform of its farm sector, including a shift towards more labour intensive production of vegetables, the study suggests. This would produce "a win-win" situation with environmental benefits, less use of water and fertilisers and economic gains, the study says.
However, even full-scale reform will be of little comfort to rice producers. According to the OECD model, rice imports will grow only marginally under any combination of policy change due to structural changes in demand.
Also, the study warns that non-trade constraints such as poor transport infrastructure could impede grain imports.
Copyright 2000 The Financial Times Limited:
