___________________
*In English only/En anglais seulement/En inglés solamente.WORLD TRADE ORGANIZATION
ORGANISATION MONDIALE DU COMMERCE
ORGANIZACIÓN MUNDIAL DEL COMERCIOG/AG/GEN/56
11 December 2002
(02-6852)
Committee on Agriculture Original:  English/
anglais/
inglés
ANNUAL MONITORING EXERCISE IN RESPECT OF THE FOLLOW-UP TO
THE MINISTERIAL DECISION ON MEASURES CONCERNING THE POSSIBLE
NEGATIVE EFFECTS OF THE REFORM PROGRAMME ON LEAST-DEVELOPED
AND NET FOOD-IMPORTING DEVELOPING COUNTRIES
Attached are copies of statements* made by the representatives of the Food and Agriculture
Organization (FAO), the International Monetary Fund (IMF) and the World Bank at the meeting of the
Committee on Agriculture on 21 November 2002 (Agenda Item Part II.A(ii) refers).
Comité de l'agriculture
EXERCICE ANNUEL DE SURVEILLANCE DE LA SUITE DONNÉE À LA DÉCISION
MINISTÉRIELLE SUR LES MESURES CONCERNANT LES EFFETS NÉGATIFS
POSSIBLES DU PROGRAMME DE RÉFORME SUR LES PAYS LES MOINS
AVANCÉS ET LES PAYS EN DÉVELOPPEMENT IMPORTATEURS
NETS DE PRODUITS ALIMENTAIRES
On trouvera ci-joint la copie de s déclarations* faites par les représentants de l'Organisation des
Nations Unies pour l'alimentation et l'agriculture (F AO), du Fonds monétaire international (FMI) et de la
Banque mondiale à la réunion du Comité de l'ag riculture du 21 novembre 2002 (point A(ii) de la
deuxième partie de l'ordre du jour).
Comité de Agricultura
EJERCICIO ANUAL DE VIGILANCIA DEL SEGUIMIENTO DE LA DECISIÓN
MINISTERIAL SOBRE MEDIDAS RELATIVAS A LOS POSIBLES
EFECTOS NEGATIVOS DEL PROGRAMA DE REFORMA EN
LOS PAÍSES MENOS ADELANTADOS Y EN LOS PAÍSES
EN DESARROLLO IMPORTADORES NETOS
DE PRODUCTOS ALIMENTICIOS
A continuación se adjuntan copias de las declar aciones* formuladas por los representantes de
la Organización de las Naciones Unidas para la  Agricultura y la Alimentación (FAO), el Fondo
Monetario Internacional (FMI) y el Banco Mundial en la reunión del Comité de Agricultura celebrada
el día 21 de noviembre de 2002 (véase el punto A(ii) de la Parte II del orden del día).G/AG/GEN/56
Page 2
STATEMENT BY THE REPRESENTATIVE OF THE FOOD
AND AGRICULTURE ORGANIZATION (FAO)
This Statement provides a brief overview of FAO's assessment of developments in the global
cereal supply and demand balance and, in particular, on trends in cereal import bills of the Least-Developed Countries (LDCs) and the Net-Food Impor ting Developing Countries (NFIDCs).  It also
reports briefly on some technical assistance activities of FAO of interest to the Committee.
World supply/demand situation for cereals
The global supply and demand balance for cereals in the current marketing season (2002/03) is
somewhat tighter than in the previous season, given the sharp decrease in world cereal output in 2002.
The most pronounced production declines are expected  in North America and Australia due to drought.
As a result, stocks of major exporters are expected to drop sharply in 2003 and global cereal stocks
would decline for a fourth year in succession.  Another important factor is developments in China,
where, following a period of large stocks, the Government is pursuing downsizing strategies,
underlying its commitment to market reform.  This season's ending cereal stocks in China are expected
to be at least 42 million tons lower than in the previous year and as much as 150 million tons smallerthan only four years ago.
 World Cereal Market:
 From Abundance to Tightness?
1700175018001850190019502000
92 94 96 98 '00 '02Cerea l production is a gain falling below
utilization,...
Uti lization
production
   Falling grain production in 2002
0300600900
92 94 96 98 '00 '02``wheat
million tonnes
03006009001200
92 94 96 98 '00 '02coarse grains
mi llion tonne s
 
-60-40-200204060
ChinaRest of the W orldSharp fall in world cereal stocks -
partly driven by China . . .
0200400600800
1999 2000 2001 2002 2003
Whea t Coarse Grains Rice1997 1998 1999 2000 2001 2002 2003World Cereal Stocks
mil lion tonnesRecent Annual Variations of 
World Stocks
million tonnes Share of wheat stocks held by major
exporters falls
20 %22% 22%
20 % 20%
16% 16 %
13 %22%
1986-95
average1996 1997 1998 1999 2000 2001 2002 2003
forec astG/AG/GEN/56
Page 3
World cereal prices
The tighter exportable grain supplies in traditional exporting countries have fuelled a price
increase for grains on international markets since the start of the current marketing season.  December
2002 futures for wheat are about 33 per cent above the corresponding period last year and those ofmaize are about 18 per cent higher.  For rice, large supplies in major exporting countries continue to
keep prices under downward pressure.
Upward price pressure on grain markets has, to some extent, been mitigated by large
exportable supplies in a number of non-traditional exporting countries coupled with reduced world
import demand for feed use, while food consumption of cereals is likely to keep pace with population
growth at the global level.
 
050100150200250300
96/97 97/98 98/99 99/00 2000/01 2001/02 2002/03 f
Wheat Coarse Grains RiceCereal trade remains flat, wheat
even declining this season
millio n tonnes
 December 2002 futures well above
last year
90100110120130140150160
J FMA MJ J A S ONWheat futures
US$/ton ne
2001/2002708090100110120
JF M A M JJAS O NMaize futures
US$/ tonne
20 01 /2002CBOT December 2001CBOT Dec ember 2002 CBOT December 2002
CBOT December 200 1
Global cereal food aid
Total cereal food aid shipments in 2002/03 (July/June) are forecast to remain close to last
season's volume of about 10 million tons, despite generally higher prices and reduced supplies,
especially among the leading donor countries.  Globally, 38 countries are confronted with food
emergencies and need food assistance.  The situation in Africa is particularly alarming with millions ofpeople suffering from severe hunger due to lack of access to food.  Of the 38 countries currently
facing serious food shortages and emergency situations, the overwhelming majority are in the LDC
and NFIDC category.
Cereal import bills of LDCs and the NFIDCs
The combined cereal import bill of the LDCs and the NFIDCs is forecast at about
US$7.8 billion in 2002/03, up by 23.4 per cent from 2001/02.  This represents a change in direction
from the last 3-4 years when cereal import bills of LDCs/NFIDCs hovered around US$6 billion.  The
increase in their cereal import bill in 2002/03 would be due to both quantity and price factors.  The
volume of their cereal imports is forecast to increase by some 1.2 million tons, or 2.4 per cent.  But the
main factor is the increase in the world prices of the grains imported by these countries.  Wheat pricesfor the July to October 2002 period averaged some 37 per cent higher than the average of the 2001/02
marketing year.
Export subsidies and credits appear to be of limited importance to LDCs and NFIDCs during
the current season.  The largest exporter, USA, is not subsidizing its grain exports and EU is exportingwheat with little or no restitutions.  Also, other major grain exporters, such as Canada and Australia,
have fewer reasons to resort to credits to promote sales this season, in view of particularly tightG/AG/GEN/56
Page 4
supplies due to reduced production.  In fact, the Canadian Wheat Board withdrew from the world
market for few months because of supply constraints.
Cereal food aid shipments to LDCs/NFIDCs in 2002/03 are expected to remain at best at the
level they reached during 2001/02.  Food aid continues to be a very important source of supply forLDCs for which it accounts for about 30 per cent of their total cereal imports, very close to the level of
the early 1990s.  In the case of the NFIDCs, food aid is much less important, accounting for only 4 per
cent of their total cereal imports, which is considerably less than ten years ago.
Cereal import bills - US$ million
0200040006000800010000
1993/94 1995/96 1997/98 1999/00 2001/02LDCs NFIDCsTotal cereal imports (LDCs+NFIDCs) - 1000 
tons
0100002000030000400005000060000
1993/94 1995/96 1997/98 1999/00 2001/02
Comm. Im ports Food aid
Overall, over the last 10 years, there is evidence of greater prioritisation in the delivery of food
aid to the LDCs.  Their share in the total global food aid shipments (cereal and non-cereal
commodities) has increased from 37.2 per cent (average 1992-95) to 40.3 per cent (average 1996-01).The opposite appears to be the case for the NFIDCs.  Their share in the total global food aid shipments
has declined from about 14.6 per cent to 9.4 per cent during the same period.
Another important change has been in the use of food aid.  The share of total food aid
accounted for by emergencies has increased from some 31.5 per cent (average 1992-95) to 40.6 percent (average 1996-01).  At the same time, programme food aid declined from some 50.4 per cent to
35.7 per cent over the same period.  The increased need of food aid for emergency situations reduces
the role that this resource can play in assisting countries facing short-term difficulties in financing food
imports.
Share of food aid in total cereal imports 
(%)
0510152025303540
1993/94 1995/96 1997/98 1999/00 2001/02
LDCs NFIDCsPer unit cost of imports - US$/ton
050100150200250
1993/94 1995/96 1997/98 1999/00 2001/02
Cost of im ports Wheat priceG/AG/GEN/56
Page 5
Total food aid deliveries - 1000 tons
040008000120001600020000
1992 1994 1996 1998 2000Cereals Non cerealsTotal food aid use 
0%20%40%60%80%100%
1992 1994 1996 1998 2000Emergency Project Programme
Destination of total food aid - 1000 tons
040008000120001600020000
1992 1994 1996 1998 2000LDCs NFIDCs OtherShare in total food aid
0%20%40%60%80%100%
1992 1994 1996 1998 2000
LDCs NFIDCs Other
FAO's trade-related technical assistance
FAO continues to give priority to trade-related assistance at the Regional and Sub-Regional
levels and through country specific activities.  Such assistance in Agriculture, Fisheries and Forestryincludes normative as well as operational field activities with a direct impact on supply-side
constraints
1.
During 1999-2001, FAO implemented an Umbrella Programme  on trade-related capacity
building, with a focus on strengthening the participation of developing and transition countries inmultilateral trade negotiations through a deeper understanding of those WTO Agreements that affect
agriculture, fisheries and forestry, notably the Agreement on Agriculture, the SPS and TBT
Agreements and the TRIPS Agreement.  A total of 850 officials from 151 countries were reached
under this programme.  In addition, substantive reference materials were developed and disseminated.
The programme was funded largely through extra-budgetary support from a number of membercountries, but also from FAO's regular budget, and was implemented with the participation of other
agencies, notably WTO, UNCTAD, the World Bank, regional organizations and academic institutions.
A second phase of this programme (
Umbrella II)  is now under consideration by donors.  Umbrella II
assistance covers both (i) immediate support to member countries for the multilateral negotiations; and
                                                     
1 For LDCs, in the period 1992-2000, the value of field projects totalled some US$849 million, or 31 percent of
FAO’s total Field Programme.  They covered a wide range of technical fields in agriculture, forestry and fisheries, and
responded to a wide range of needs, including trade-related assistance, emergency relief and agricultural rehabilitation,
practical assistance to government programmes for food security, and sustainable agriculture and rural development.  In theyear 2000 alone, more than 700 field projects, with a total budget value of US$423 million, were ongoing in 46 of the then48 LDCs .G/AG/GEN/56
Page 6
(ii) capacity building of institutions and human resources so as to enhance capacities over the medium
term to take advantage of trading opportunities.
Increasingly, our Member countries are requesting assistance to strengthen their physical and
institutional trade-related capacities.  FAO responds to such needs within available resources, butdemand exceeds our capacity to provide such assist ance, especially when it involves the creation of
physical capacity, e.g. laboratories for testing on quality standards.  Substantial additional resources
would be needed for this type of assistance.
FAO has been working closely with the other relevant institutions (World Bank, OIE, FAO,
WHO and WTO) on the newly created 
Standards and Trade Development Facility  (STDF) to
strengthen collaboration between these institutions in SPS-related activities, including through thedevelopment of joint institutional projects, and provision of STDF funding in developing countries.
Grants made by the STDF will include as a primary overall objective the strengthening of developing
countries in meeting the standards for market access of food and other agricultural commodities.
Another important FAO activity in removing supply-side constrains is the 
Special
Programme for Food Security  (SPFS).  This aims at rapid increases in productivity and food
production in Low Income Food Deficit Countries (LIFDCs)2, which is the FAO category of
vulnerable countries that includes all LDCs and several NFIDCs.  Transfer of relevant technology and
experience is promoted under this programme, particularly through a South-South cooperation
scheme.  Under this scheme, more advanced developing nations send experts and technicians to workdirectly with their counterparts and farmers in other developing countries.
FAO's assistance is
 funded from its regular programme and in partnership with bilateral
donors, multilateral institutions, other organizations of the United Nations system, as well as with the
private sector and civil society.
In addition to these field activities, FAO's assistance includes analytical support to countries to
be better prepared to engage in the on-going negotiations on agriculture .  Some of this assistance is
of a continuing nature as part of FAO's regular programme activities, and some is ad hoc, addressing
immediate urgent needs as they arise.  In this connection, FAO held several Roundtables in Geneva
over the period of the last two years, which responded to needs for analytical work on issues under
discussion at the Special Sessions of the CoA.  Among the issues that were addressed was theMarrakesh Decision.  This substantive involvement by FAO will continue during the present exercise
of exploring different modalities of an ex ante financing mechanism under the Revolving Fund
proposal.
                                                     
2 By February 2002, the SPFS was in operation in 67 LIFDCs (38 in Africa, 18 in Asia and the Pacific, 9 in Latin
America and the Caribbean, and two in Eastern Europe) while projects had been formulated or were in formulation for
17 others.  The Programme has had notable success in identifying constraints and in introducing improved technologies to
enhance agricultural production in the countries concerned.G/AG/GEN/56
Page 7
Table 1.  Cereal imports of LDCs and NFIDCs (199 3/94 to 2002/03) - Information as of November 2002
1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03
estimate f'cas t
Import Bill (US $ million)
LDCs 1365 2147 2495 2051 2500 2244 1782 1884 1910 2267
NFIDCs 3725 4459 6142 5607 5223 4605 4011 4463 4406 5533
LDCs & NFIDCs 5090 6606 8637 7658 7723 6849 5792 6347 6316 7800
% change over 1993/94-1994/95 -13.0 13.0 47.7 30.9 32.1 17.1 -1.0 8.5 8.0 33.4
Total volume imported (000
tons)
LDCs 11764 14068 13296 11907 15517 17130 16021 15854 15396 15853
NFIDCs 28127 28390 28426 30213 34082 35574 32444 34697 33856 34568
LDCs & NFIDCs 39891 42458 41722 42120 49599 52704 48464 50550 49252 50421
% change over 1993/94-1994/95 -3.1 3.1 1.3 2.3 20.5 28.0 17.7 22.8 19.6 22.5
Food aid (000 tons)
LDCs 3970 4344 3313 2699 2863 4006 4139 4247 4691 4691
% of total imports 33.7 30.9 24.9 22.7 18.4 23.4 25.8 26.8 30.5 29.6
NFIDCs 2053 1434 835 610 749 887 990 1212 1338 1338
% of total imports 7.3 5.1 2.9 2.0 2.2 2.5 3.1 3.5 4.0 3.9
LDCs & NFIDCs 6023 5778 4149 3309 3611 4893 5129 5459 6029 6029
% of total imports 15.1 13.6 9.9 7.9 7.3 9.3 10.6 10.8 12.2 12.0
Commercial imports (000 tons)
LDCs 7794 9724 9983 9207 12654 13124 11882 11606 10704 11161
NFIDCs 26074 26956 27590 29603 33333 34687 31454 33485 32518 33230
LDCs & NFIDCs 33868 36680 37574 38811 45987 47811 43335 45091 43223 44392
% change over 1993/94-1994/95 -4.0 4.0 6.5 10.0 30.4 35.5 22.9 27.8 22.5 25.8
Per unit import cost  (US $/ton)3/
LDCs 116.0 152.6 187.6 172.2 161.1 131.0 111.2 118.8 124.0 143.0
NFIDCs 132.4 157.1 216.1 185.6 153.3 129.5 123.6 128.6 130.1 160.1
LDCs & NFIDCs 127.6 155.6 207.0 181.8 155.7 130.0 119.5 125.6 128.2 154.7
% change over 1993/94-1994/95 -9.9 9.9 46.2 28.4 10.0 -8.2 -15.6 -11.3 -9.4 9.3
Wheat export price (US $/ton)
US no.2 hard winter 143 157 216 181 142 120 112 128 127 1754
% change over 1993/94-1994/95 -4.7 4.7 43.6 20.6 -5.4 -20.3 -25.3 -14.6 -15.6 16.7
Source:  FAO.
                                                     
3 Based on per unit cost of total imports.
4 Average July-October 2002.G/AG/GEN/56
Page 8
Table 2.  Food aid deliveries (cereals in grain equivalent)
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Global food aid deliveries (000 tons)
Cereals 13,459 15,413 11,089 8,865 6,256 6,485 7,363 13,327 9,844 9,499
Non cereals 1,843 1,921 1,837 1,338 972 836 1,012 1,658 1,494 1,513Total 15,302 17,334 12,926 10,203 7,228 7,322 8,375 14,986 11,339 11,012
LDCs (000 tons)
Cereals 5,978 4,112 4,929 3,622 2,910 3,188 3,376 4,271 4,056 4,285Non cereals 504 528 577 497 433 330 306 335 450 374Total 6,481 4,639 5,506 4,120 3,343 3,518 3,681 4,606 4,506 4,659
LDCs share (%)
Cereals 44.4 26.7         44.5 40.9 46.5 49.2 45.8 32.0 41.2 45.1Non cereals 27.3 27.5         31.4 37.2 44.5 39.4 30.2 20.2 30.1 24.7Total 42.4 26.8         42.6 40.4 46.2 48.0 44.0 30.7 39.7 42.3
NFIDCs (000 tons)
Cereals 2,612 2,155 1,624 915 577 606 458 1,143 859 882Non cereals  281 252 171 105 130 131 205 121 174 401Total 2,893 2,407 1,795 1,020 708 737 663 1,264 1,033 1,283
NFIDCs share (%)
Cereals 19.4 14.0 14.6 10.3 9.2 9.3 6.2 8.6 8.7 9.3Non cereals 15.3 13.1 9.3 7.8 13.4 15.7 20.3 7.3 11.6 26.5Total 18.9 13.9 13.9 10.0 9.8 10.1 7.9 8.4 9.1 11.7
Use of total food aid (000 tons)
Emergency 5,033 4,257 4,553 3,697 2,662 3,265 2,984 4,557 5,483 5,510Project 2,570 2,506 2,718 2,314 1,706 2,282 2,513 2,345 2,677 2,779Programme 7,699 10,571 5,656 4,192 2,860 1,774 2,878 8,084 3,178 2,723
Source:  Based on data provided by WFP/INTERFAIS.G/AG/GEN/56
Page 9
STATEMENT BY THE REPRESENTATIVE OF THE
INTERNATIONAL MONETARY FUND (IMF)
The IMF is a regular participant in the Committee's annual monitoring exercise of the
Marrakesh Ministerial Decision regarding Least -Developed and Net-food Importing Developing
Countries.  Today, I will focus my statement on three issues of particular importance to this group of
countries:  recent economic developments and their impact on NFIDCs, the  Fund staff's assessment of
world food price developments and outlook, and Fund resources available to meet the needs of these
countries and their use.
NFIDCs in the world economic context
After a strong start to the year, prospects for the global economy have clearly deteriorated in
recent months.  Macroeconomic indicators became weaker, financial markets grew volatile, and
geopolitical uncertainties increased. Nevertheless, undue pessimism is not warranted.  Owing to a
strong policy response in a number of advanced countries and the resilience of the global financialsystem, the Fund expects recovery to continue.  The world economic growth projection for 2002
remains unchanged since the publication of the September 2002 World Economic Outlook at 2.8 per
cent and 3.7 per cent for 2003 (Table 1), although the weight of downside risks has increased, given
the absence of clear evidence to date of a robust recovery in the major industrial countries.
The outlook for developing countries becomes increasingly diverse, depending on export
patterns, exposure to international financial markets, and domestic political uncertainties.  In general,
their policies seem to remain consistent with maintaining macroeconomic and financial stability.
Growth outlook for developing countries for 2002 is 4.2 per cent and for 2003, 5.2 per cent.
Projected growth in NFIDCs, however, is lower—2.8 and 4.4 per cent for 2002 and 2003,
respectively, held back mainly by inadequate in vestment and high average inflation, which for
NFIDCS is projected at about 8.2 per cent for this year, compared to 5.6 per cent for developing
countries as a whole.  Overall, growth in most developing countries is still well below the level needed
to achieve the enduring reduction in poverty called for under the Millennium Development Goals.
Further progress on trade liberalization will be an important factor for future growth.
Industrial country barriers impose significant costs on the developing world, but developing countries'
own trade barriers impose even bigger costs on their economies.  NFIDCs' trade is projected to grow
somewhat faster than that of advanced economies, although still slower than trade of developing
countries as a group.  The volume of NFIDCs' imports is projected to increase by 2.1 per cent this
year, which is lower than for all developing countries, while their export volume will grow by 3.1 percent, broadly in line with developing countries as a whole.
Food market developments and outlook
Turning to developments in food prices – in recent months, prices for most agricultural
commodities have experienced a recovery. After reaching its lowest level since 1985-86 in October
last year, the IMF overall index of non-fuel commodity prices started showing a slow recovery in
November 2001.  By October 2002 the index was 15 per cent above the its value in October 2001
(Charts 1-3).  Overall food prices increased by 22 per cent, cereal prices by 41 per cent and beverages
by 38 per cent, in dollar terms.G/AG/GEN/56
Page 10
On specific food items:
• Cocoa prices skyrocketed by 103 per cent, driven by supply concerns, due to an early
downward revision to crop forecasts by suppliers, and political upheaval in Côted'Ivoire.
• Cereal price rises of 41 per cent, with 54 per cent for wheat, and an above-average rate
for maize as well, reflect the extensive drought affecting the cereal-producing regionsof the United States, Canada, and Australia.
• Coffee prices increased by 62 per cent, driven mainly by Vietnam, the world's second
largest producer, forecasting a reduced crop for the coming year.  The increase is also
based on expectations of weather-related problems affecting the crop in Brazil, asdrought has been persistent in the coffee-producing areas.  Large existing inventories,
however, will continue to exert downward pressure on prices.
• Palm oil prices increased by 43 per cent and coconut oil and soybean oil by 38 per
cent.
For 2003, the IMF projects food prices to increase by 9.3 per cent.  Within that category,
cereal prices would rise by 14 per cent.
Recent Fund research shows that, as a result of liberalization in trade in agriculture and the
removal of agricultural support, world prices would rise for all agricultural commodities.  As some
NFIDCs are large net exporters of cotton, rice, sugar, and beef, they would gain from liberalization of
trade in these commodities.  However, liberalization would also mean NFIDCs having to pay more forimports of wheat, maize, and milk.
Fund assistance and its use
The Fund provides assistance to its members, including least -developed and net-food
importing countries, through three key channels: financial support, technical assistance, and policy
advice.  Out of the array of seven financial facilities currently available to our members, three are of
particular importance for NFIDCs:
• Poverty Reduction and Growth Facility (PRGF) .  Loans under the PRGF are based on
a Poverty Reduction Strategy Paper (PRSP), which is prepared by the country in
cooperation with civil society and other development partners, particularly the World
Bank.  The interest rate levied on PRGF loans is only 0.5 per cent, and loans are
repaid over a period of 5½-10 years.  Currently, 25 LDCs and four NFIDCs are
drawing on Fund financial resources under the PRGF.
• Stand-By Arrangements (SBA) .  The SBA is designed to address short-term balance-
of-payments problems.  The length of an SBA is typically 12–18 months, withrepayment normally expected within 2¼–4 years.  Currently, two NFIDCs are drawing
on Fund financial resources under the SBA.
• Compensatory Financing Facility (CFF) .  The CFF was established to assist countries
experiencing either a sudden shortfall in export earnings or an increase in the cost of
cereal imports caused by fluctuating world commodity prices.  It is not a concessional
facility; the financial terms are the same as those applying to the SBA.  This facility
has not been used since 1997.G/AG/GEN/56
Page 11
The IMF regularly reviews its existing financial instruments and their modalities and stands
ready to adjust and adapt them as  necessary in the light of new developments.  A review of the CFF is
expected to be concluded in 2003.  However, at the present juncture, the Executive Board,
representing the entire Fund membership, considers that the existing financial facilities continue to besufficiently adequate to respond to the current needs of the membership.
Attachments (2)
Table 1—Overview of  World Economic Outlook Projections
Charts—Selected world food price developmentsG/AG/GEN/56
Page 12
Table 1.1. Overview of the World Economic Outlook  Projections
(Annual percent change unless otherwise noted)
Difference from April
Current Projections 2002 Projections1/
2000 2001 2002 2003 2002 2003
World output 4.7 2.2 2.8 3.7 -- -0.3
Advanced economies 3.8 0.8 1.7 2.5 -- -0.5
  Major advanced economies 3.4 0.6 1.4 2.3 -0.1 -0.5
    United States 3.8 0.3 2.2 2.6 -0.1 -0.8
    Japan 2.4 -0.3 -0.5 1.1 0.5 0.3
    Germany 2.9 0.6 0.5 2.0 -0.4 -0.7
    France 4.2 1.8 1.2 2.3 -0.2 -0.7
    Italy 2.9 1.8 0.7 2.3 -0.7 -0.6
    United Kingdom 3.1 1.9 1.7 2.4 -0.3 -0.4
    Canada 4.5 1.5 3.4 3.4 0.9 -0.2
  Other advanced economies 5.3 1.6 2.6 3.3 0.1 -0.4
Memorandum
European Union 3.5 1.6 1.1 2.3 -0.4 -0.6
  Euro area 3.5 1.5 0.9 2.3 -0.5 -0.6
Newly industrialized Asian economies 8.5 0.8 4.7 4.9 1.1 -0.2
Developing countries 5.7 3.9 4.2 5.2 -0.1 -0.3
  Net Food Importing Countries 5/ 4.0 3.7 2.8 4.4 -0.8 --
  Purely Net Food Importing Countries 6/ 3.8 3.0 1.9 4.0 -0.7 --
  Africa 3.0 3.5 3.1 4.2 -0.3 --
  Developing Asia 6.7 5.6 6.1 6.3 0.2 -0.1
    China 8.0 7.3 7.5 7.2 0.5 -0.2
    India 5.4 4.1 5.0 5.7 -0.5 -0.1
    ASEAN-4 2/ 5.1 2.6 3.6 4.2 0.3 0.1
  Middle East and Turkey3/ 6.1 1.5 3.6 4.7 0.3 0.2
  Western Hemisphere 4.0 0.6 -0.6 3.0 -1.3 -0.7
    Brazil 4.4 1.5 1.5 3.0 -1.0 -0.5
Countries in transition 6.6 5.0 3.9 4.5 -- 0.1
  Central and eastern Europe 3.8 3.0 2.7 3.8 -0.3 -0.2
  Commonwealth of Independent
    States and Mongolia 8.4 6.3 4.6 4.9 0.1 0.3
    Russia 9.0 5.0 4.4 4.9 -- --
    Excluding Russia 6.9 8.9 5.2 4.9 0.5 0.8
Memorandum
World growth based on market
    exchange rates 3.9 1.1 1.7 2.8 -0.1 -0.4
World trade volume (goods and services) 12.6 -0.1 2.1 6.1 -0.4 -0.5
Imports
  Advanced economies 11.8 -1.3 1.7 6.2 -0.4 -0.4
  Developing countries 15.9 1.6 3.8 7.1 -2.6 -0.6
    Net Food Importing Countries 5.2 4.6 2.3 6.1 -1.4 1.3
    Purely Net Food Importing Countries 5.7 4.1 0.5 6.4 -3.6 1.1
  Countries in transition 13.4 11.7 6.9 8.0 -1.1 0.3
Exports
  Advanced economies 12.0 -1.1 1.2 5.4 0.3 -0.9
  Developing countries 15.0 2.6 3.2 6.5 -1.6 -0.5
    Net Food Importing  Countries 8.6 2.3 3.1 6.1 -0.2 0.1
    Purely Net Food Importing  Countries 14.7 5.9 5.3 6.2 -0.9 0.2
  Countries in transition 14.7 5.9 5.3 6.2 0.1 0.1
Commodity prices (U.S. dollars)
Oil4/ 57.0 -14.0 0.5 -0.8 5.8 3.5
Nonfuel (average based on world
   commodity export weights) 1.8 -5.4 4.2 5.7 4.3 -1.5G/AG/GEN/56
Page 13
Difference from April
Current Projections 2002 Projections1/
2000 2001 2002 2003 2002 2003
Consumer prices
Advanced economies 2.3 2.2 1.4 1.7 0.1 -0.1
0Developing countries 6.1 5.7 5.6 6.0 -0.2 0.9
  Net Food Importing Countries 13.1 10.3 8.2 8.1 0.2 1.2
  Purely Net Food Importing Countries 6.1 5.1 6.1 6.8 -0.1 0.6
Countries in transition 20.2 15.9 11.3 8.8 0.5 0.1
Six-month London interbank
  offered rate (LIBOR, percent)
On U.S. dollar deposits 6.6 3.7 2.1 3.2 -0.8 -1.3
On Japanese yen deposits 0.3 0.2 0.1 0.1 -- --
On euro deposits 4.6 4.1 3.4 3.8 -0.3 -0.8
Note: Real effective exchange rates are as sumed to remain constant at the levels prevailing during 19 July-16 August
2002.
1/ Using updated purchasing-power-parity (PPP) weights, summarized in the Statistical Appendix, Table A.
2/ Includes Indonesia, Malaysia, the Philippines, and Thailand.
3/ Includes Malta.
4/ Simple average of spot prices of U.K. Brent, Dubai, and West Texas Intermediate crude oil.  The average price of oil
in U.S. dollars a barrel was $24.28 in 2001;  the assumed price is $24.40 in 2002, and $24.20 in 2003.
5/ 49 LDCs+21 NFIDCs.
6/ 21 NFIDCs.G/AG/GEN/56
Page 14Chart 1.  Indices of Non-Fuel Commodities, Cereals, Wheat and Maize, January 1996 - October 2002
405060708090100110120130140
Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02Non-Fuel Commodities index
Wheat; U.S. number 1 HRW, fob Gulf of Mexico
Maize; U.S. number 2 yellow, fob Gulf of Mexico
Cereals index of Wheat, maize, and nominal price quote riceJanuary 1996 = 100G/AG/GEN/56
Page 15Chart 2.  Indices of Non-Fuel Commodities, Cocoa, Coffee and Cotton, January 1996 - October 2002
30507090110130150170190
Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02Non-Fuel Commodities  index
Coffee, Average of Arabica, Other Milds, and Robusta
Cotton , Liver pool Index A , cif Liver pool
Cocoa , ICO price, cif U.S. & Euro pean portsJanuary 1996 = 100G/AG/GEN/56
Page 16
Chart 3.  Year-on-Year Percent Changes of Select Commodities, October 2002
-14%-11%-11%-11%10%12%13%15%16%19%23%38%41%43%48%54%69%101%103%
62%
38%
33%
27%
21%
18%
17%
15%
13%13%
-11%
-16%
-40% -20% 0% 20% 40% 60% 80% 100% 120%BeefOregon LogsLeadTeaTinOther Milds CoffeeFishmealHard SawnMalaysian LogsSoybeansCottonCoconut OilPalm OilWheatFine WoolCocoa
Note:  Commodities selected by month based on an absolute per cent change of 10 per cent.
Source:  IMF Staff.-G/AG/GEN/56
Page 17
Statement by the Representative of the World Bank to the Annual Monitoring Exercise in
Respect of the Follow up to the Ministerial Decision on Measures Concerning the Possible
Negative Effects of the Reform Programme of  Least-Developed and Net Food Importing
Developing Countries
This statement considers the objective of food security, which is the principal concern
underlying the Marrakech Net Food-Importing Developing Country Decision.  It first looks at several
conceptual levels of "food security" and examines how they have been or might be affected by
multilateral trade reforms.  It next examines more concretely and empirically the question of whether
and to what extent the Uruguay Round Agreement on Agriculture (URAA) had the effect -- as some
allege -- of reducing the food security of some least-developed and net food importing countries by
structurally raising the cost of food imports.  The statement finally considers what alternatives mightbe useful to reduce vulnerability to shocks that threaten food security, whether the shocks originate
from trade policy reforms or other sources.  In particular, it considers whether there are ways in which
trade rules can be developed to offset the possible harmful defects, especially in developing countries;
or whether there are additional international actions that can be taken (either in the context of the
WTO negotiations or elsewhere) that would contribute to greater achievement of food security.
Whose Food Security?
Among all the "non-trade concerns," the issue of food security is by far the most frequently
mentioned.  This is especially true of developing countries, but a significant number of developed
countries also mention it.1
Food security can be addressed at several levels: food security of the individual or family,
national food security, and international food security.
Individual and Family Food Security
Although the issue is not often framed in this way, the most important level at which long-
term structural food insecurity occurs is the household.2  This point was most effectively made in the
Nobel prize winning work by Amartya Sen on Poverty and Famines.   Hundreds of millions of
individuals, largely in developing countries, lack food security.  The fundamental cause of this is
poverty, that is, inadequate buying power.  There are ample supplies of food in global markets to feed
the poor, and a well-established trading system to ensure that it gets to areas where there is need.  If
the poor had sufficient incomes or other means to access food, this would translate into effectivedemand, and food insecurity would not be a problem except in certain transitory situations, discussed
later in the statement.
Poverty in urban areas is due to scarcity of employment opportunities, and lack of human
capital to earn an income sufficient to purchase an adequate diet. In rural areas, which still account forthe bulk of employment in most developing countries, it is the lack of productive resources, poor
technology, and inadequate infrastructure, coupled with marginal land that often suffers from
inadequate rainfall and other natural disasters.  Civil strife, ethnic violence, and corrupt or ineffective
public institutions sometimes compound these problems.  Moreover, in many cases  government
policies exacerbate poverty in rural areas by holding down internal prices of food and agriculturalproducts via the use of state trading enterprises (STEs), export taxes, and overvalued exchange rates.
Seen in this light, long-term structural food insecurity exists primarily because of a lack of
purchasing power by the poor - rather than a supply shortage - and must be addressed by raising
incomes or other means that directly affect the access of poor people to food.  Global tradenegotiations can affect food security in two ways.  First, if the agreements result in a structural supply
shift which increased the average price of food, this could increase the long-term incidence of foodG/AG/GEN/56
Page 18
insecurity by causing more of the poor to be unable to purchase an adequate supply of food or to do so
only at the cost of diverting so much of their in come into food that they have inadequate income
remaining to meet their other basic needs.  Such a structural supply shift could also increase food
insecurity by increasing the budgetary requirement of any government or privately-funded safety net
programs that provide food to the needy.  This possibility is discussed later in the submission .
The second channel through which the negotiations could affect food security is through their
effect on the policies and conditions that alleviate poverty, that is, policies aimed at economic
development - especially rural development - and targeted programs of poverty alleviation to increase
the buying power of those most at risk.  The questi on that must therefore be answered is whether the
URAA or further reforms that are likely in the new trade negotiations tend to inhibit or encourage
these kinds of policies.
Substantial evidence shows the potentially positive effects of liberalization on rural
development and economic growth.  Reform policies that remove both the support and the protection
that distort international agricultural markets will encourage national policies that encourage growth.
This is true for two reasons.
First, most of the major distortions in world agricultural markets arising from protection and
support occur in developed countries.  This has two adverse impacts on developing countries.  For
food exporting developing countries, access to markets is limited, and the prices of their products in
international markets are depressed by unfair competition from developed-country export practices.At the same time, developing countries that are not food exporters face international price signals that
undervalue their internal production and may provide serious disincentives for necessary investment
in their agricultural development.  Moreover, these international policies that adversely affect markets
unwittingly support the flawed policies of developing countries that tax, rather than support, their
agricultural sectors.  While there is good evidence that the URAA did not have as large an impact indisciplining the use of these policies as intended, one result of successful negotiations will be to
reform these policies of developed countries, which will certainly improve incomes in rural areas in
the developing countries.
Second, careful examination of the kinds of policies disciplined by the URAA, and likely to
be further disciplined in the new round, suggests that the new agreement is not likely to discourage
these countries from adopting policies that would foster rural development and poverty reduction.The kinds of policies that are constrained by the URAA are export subsidies, certain kinds of
domestic support and market access barriers.
As for export subsidies, the URAA prevents developing countries that did not declare the use
of such subsidies during the base period from introducing them in the future.  However, exportsubsidies are basically a policy that makes food available to foreigners at a lower price than to a
country's own population.  It is hard, therefore, to see how this would be an optimal development
policy in poor developing countries.  In addition, the fiscal cost of significant subsidies is beyond the
budget envelope of most developing country governments. T he case against using export subsidies is
strengthened  by the fact that expenditures on export infrastructure and internal transport costs - whichhave many benefits in addition to lowering export costs - are exempt from export subsidy limits for
developing countries.
Likewise, constraints placed on domestic subsidies to agriculture do not inhibit sound rural
development policies in developing countries.  Of the three categories of domestic subsidies definedin the URAA, Green Box subsidies are those considered not to distort trade.  They include domestic
food aid and spending on general agricultural services including research, education, and payments to
producers not tied to current production.  At present, there are no limits to the expenditures that can be
made in the Green Box category, although certain countries have called for some limits to the level ofG/AG/GEN/56
Page 19
decoupled direct payments that can be made to farmers.  However, even if such limits were adopted,
they should not reduce the policy options of developing countries, which generally do not use direct
payments to producers because they are both expensive and difficult to administer, especially among
poorly educated small farmers. Possible changes to subsidies in the Blue Box, which are distortionary
policies that also limit production, are even less relevant. It is difficult to imagine that developingcountries facing food supply constraints would adopt such production-control policies that rewarded
producers for limiting production.
The remaining category of trade-distorting subsidies is that classified in the URAA as the so-
called Amber Box.  These are commodity-specific subsidies that support internal prices, are paid on
the basis of prices, subsidize commodity-specific inputs, and otherwise distort the incentives to
produce and consume specific products.  These in general are not  appropriate policies for ruraldevelopment.  They are also very poor tools for poverty alleviation, since payments are proportional
to output or input use and therefore are greatest for large farmers and leave out the poorest (landless
laborers) entirely.
Apart from the fact that these are not good policies for rural development and poverty
alleviation, there are good reasons to believe that developing countries have not been constrained in
their use of Amber Box measures.  Countries were required to declare the level of Amber Box
subsidies they were using during the base period and were required to reduce their aggregate
expenditures on subsidies in this category by the end of the URAA implementation period.  As it
turned out, developing countries had few Amber Box subsidies to declare.  The small number ofdeveloping countries that were giving some subsidies classified as Amber Box did not have to make
reductions as large as those required of developed countries, and were allowed to make their cuts over
a longer period.  In addition, a 
de minimis  exemption was included that exempted product-specific
support by developing countries if it did not exceed 10 per cent of the value of total agricultural
production (compared with five per cent of the value of production for developing countries).
It is sometimes asserted that tariffs are preferable to domestic support as a way of
encouraging agricultural sector growth in developing countries, since developing countries cannot
afford the kinds of subsidies given to farmers in developed countries.  The argument usually proceeds
that the URAA did not leave developing countries sufficient flexibility in this regard.  However, it is
not clear that poor consumers in these countries can "afford" to pay higher prices any more than the
governments can "afford" to pay farmers directly.  Li ke subsidies, and for the same reasons, tariffs are
a poor and untargeted policy for rural development and poverty alleviation.  In any case, tariffs also
were not much disciplined by the URAA because of the "water" (the large margin between the bound
and applied rates) in developing country tariffs.
In summary, it is difficult to make a case that the URAA rules on domestic subsidies impose
constraints on the ability of developing countries to push forward with policies and programs that will
promote agricultural growth, improve agricultural incomes, and thus contribute to a significant
increase in food security at the personal and family level, especially in rural areas.
The overall effects of the URAA on food security policies are summarized in the table below.
This takes types of food security policies identified in World Bank research (column 1), identifies the
part of the URAA's architecture that is most relevant to their feasibility (column 2), and then specifies
the provisions in the URAA that may be used to support such policies, distinguishing between those
most and least used by developing countries.
In the new round, a number of developing countries have suggested that a Development Box
be established. While this might be necessary or desirable, clear evidence is needed on what a
Development Box could include that is not permitted under the present Green Box rules, inG/AG/GEN/56
Page 20
combination with the higher de minimis  rules and other special and differential treatment given to
developing countries by the URAA.
Stronger arguments may exist for revisiting the rules on notification of existing subsidies by
developing countries, and for developing rules that would prevent the unintended imposition of real
limits on policies by domestic inflation and currency fluctuations, outside the sphere of agriculturalpolicy.  But the major implication  for negotiations of this view of structural food security – that it is
mainly a household level issue - is that  food security concerns are best addressed through a focus on
assuring that Green Box measures and targeted poverty programs are not constrained.
National Food Security
Most discussions of food security are focused on food security at the national level, not at the
individual level.  Food security at the national level is the ability of a country to enable the population
of the country on average to maintain a reasonable level of consumption.  This approach to food
security is not focused on internal income distribution or individual food security.  What is often
obscured by looking at food security in this way is that under normal circumstances - barring war,
natural disasters, artificial barriers to trade, and macroeconomic or trade disruptions sufficientlysevere to impede imports - if individual households have adequate purchasing power, national food
security follows automatically.
Households can of course purchase food of either domestic or foreign origin.  However, there
is a tendency for governments, especially in countries with large populations, to believe that they canonly achieve food security in the national sense by maintaining a high degree of self-sufficiency in all
of the basic foodstuffs.  The argument is that the demands of their populations are so great that food
imports are in some sense more costly than domestic production.  While the rationale is seldom madeTable 1 Effects of the URAA on Food Security Policies.
URAA provisions available to developing
countriesFood security
policiesRelated WTO trade
policy area
Widely used Not widely usedURAA effect
Input credits and
subsidies; capital
expenditure inagriculture;food aid,public stockholding,
food price
stabilization and
subsidiesDomestic subsidies SDT exemptions from
cuts in agricultural
investment and inputsubsidies for poor
farmers
10% de minimis
exemption
Least-developed
countries exempt from
any cutsGreen Box
Substantial base AMSLimited
All policies involving
government
expenditure; exportdevelopment;protection to domestic
farmersTariffs High bound rates
containing ‘water’
Lower (for
developing) and zero
(for least developed)tariff cutting
obligationsSSGs
TRQsLimited
Labor-intensive public
works and targeted
feeding programs;
food stampsExport subsidies Food aid exempt from
developed country
reduction
commitmentsLimited but relatively
important for
vulnerable states incontext of food aid
cutbackG/AG/GEN/56
Page 21
explicit, this line of thinking could have two possible bases.  One is that the shadow value (social
value) of foreign exchange is higher than its market value.  This was undoubtedly true in many
countries in the past, when currency controls and high protection caused major  exchange rate  over-
valuation, but is not an issue in the overwhelming majority of countries today.  A second possible
rationale is that the elasticity of supply of basic foodstuffs is higher in these countries with largepopulations than it is in the major food-exporting countries.  Many developing countries with large
populations have however already extended agricultural production to less favorable areas, and often
have less flexible infrastructure and support to expand agricultural output.  It is clear that for these
countries, the pursuit of food security via self-sufficiency will be an expensive route to food security.
Frequently, increases in self-sufficiency resulting from protection are, in any event, illusory.  The
dramatic reduction in  Japan's imports of agricultural products resulting from its high protection for
rice and wheat and meat merely shifts much of its import dependence from primary agriculturalproducts to fertilizers, energy and feedgrains.
Governments hoping to achieve food security via self-sufficiency generally want to maintain
high border protection and high internal prices to encourage increased domestic output.  This,
however, has some adverse impacts on food security of at least some groups.
First, the consumers of the country pay a consistently higher price for their food products,
which undermines the food security of the poor by reducing purchasing power.  This acts as a harshly
regressive tax, since the portion of income spent on food is inversely related to income, so poorer
consumers tend to be those hardest hit by the higher prices.  This is especially troubling in light ofevidence that there may be a shift in poverty to urban areas (Haddad, et al.; Garrett and Ruehl), and
that the poorest of the poor in rural areas are landless laborers.  Neither the urban poor nor landless
laborers derive any benefit from higher food prices, so clearly their structural food security is
adversely affected by such policies.
Secondly, even many members of the farming community may be hurt or at best not be
helped by artificially high food prices.  The poorest farmers in the developing world are subsistence
farmers, and these by definition have no marketable surplus and so do not benefit from higher prices.
Farmers in the commercial sector who are in a position to grow the staples may benefit in the short
run.  But even they may lose out from protection of these crops in the long run because of the
disincentives this creates for diversifying into non-traditional exports, which may be a better road to
escape from poverty (Christiaensen, et. al.;  Kherallah, et. al.).  Diversion of resources from exportproduction also reduces the long-term foreign exchange earning capacity of the country and thereby
undermines its structural capacity to import food and other products.  And finally, supporting the
agricultural sector in this way (i.e., trade protection) diverts attention from methods of support that in
the long run could be more productive.  Simulations in a CGE world model by IFPRI (Diaz-Bonilla et
al. 2002) of the alternative of raising cereal tariffs by half in different groups of developing countries(mostly net food importers), versus transforming the mainly implicit and privately-collected tax on
consumption in the first scenario into an equivalent explicit tax, and investing that money in
agricultural research, found the latter to be enormously more beneficial in increasing employment,
income, and consumption in general, including, particularly, food.
While it is clear that policies aiming to increase self-sufficiency are in many ways
counterproductive to the goal of structural food security, other justifications for policies to increase
self-sufficiency are based on more short-term concerns - disruptions to trade from hostile actions of
other countries or from barriers to exports imposed by the exporting countries themselves in times of
international shortages or high prices.  Such concerns tend to be exaggerated;  serious trade disruptionwould require concerted action by a large number of competitive exporters, which is most unlikely.
The effects of temporary disruptions could also be mitigated through other measures – stockpiling of
reserves, for example - that would be much less costly  than efforts to achieve self-sufficiency.  But in
any case, the preoccupation with self-sufficiency has diverted attention from the question of how theG/AG/GEN/56
Page 22
trading system could be used to prevent these problems.  Too little attention has been paid to the
obligations of food-exporting countries to make supplies available to all food-importing countries
without export restrictions, taxes or other discriminatory policies.  This issue has been raised in the
context of the current negotiations, and its resolution could give some comfort to countries concerned
about disruptions and therefore make them more amenable to shifting their focus away from self-sufficiency.
More attention should also be given to the special problems of developing countries that may
have difficulties in meeting their food import bills because of unusual increases in import
requirements or because of increases in agricultural  commodity prices, either cyclical or longer-term
structural.  This latter issue underlies the Marrakech Decision on "Measures Concerning the Possible
Negative Effects of the Reform Program on Least-Developed and Net Food-Importing DevelopingCountries," discussed later in this paper.  The implementation - or lack thereof - of this decision has
increased the concern of many developing countries, and may drive their policies even further in the
direction of expensive attempts at national food self-sufficiency.  However, it is not  clear that WTO
agricultural negotiations are the forum in which to address this issue in a definitive way.  The WTO is
neither a multilateral financial institution nor an international development assistance agency.Attempts to address the problem within the context of the WTO are likely to lead to frustration and/or
further problems with implementation of agreements falling outside the WTO's purview.
Finally, while not a food security issue per se, the related argument that cyclically low
commodity prices or import surges can damage the relatively fragile agricultural structure indeveloping countries may have some weight.  A relevant issue would be whether such a mechanism
should be available only to developing countries in the name of food security, or on a broader basis.
International Food Security
The concept of international food security is rarely if ever discussed, yet it may be the most
important element of national food security.
International food security merely means that th at the aggregate supply of food produced in
the world is adequate to provide sufficient calories to feed the world population at levels consistent
with their demands.  Whenever agricultural commodity prices rise substantially, as they do
periodically, there is concern about the ability of the world's agricultural producers and the resourcesthey command to continue to meet world demand at constant or declining real prices.  Land and water
resources available for agricultural production are finite.  However, the output  capacity from those
resources has been steadily increasing by the development and adoption of new technology, greater
investment, and improved human resources.
Global food security depends upon the continued increase in the efficiency with which global
agricultural resources are used, upon continued market incentives to develop and adopt improved
technology, and upon continued public investments in the necessary institutions to support continued
sustained agricultural growth. Further reduction of the major distortions in agricultural markets can
undoubtedly make a significant contribution to the continued achievement of global food security intwo ways.  First, it will encourage distribution of production among countries based on true
comparative advantage. Second, barriers that inhibit the  spread of new technologies can significantly
reduce global food security in the long term, and these barriers to technology diffusion should be
dismantled by  successful negotiations.
Aftermath of the URAA: the Marrakech Decision
The Decision on "Measures Concerning the Possible Negative Effects of the Reform Program
on Least-Developed and Net Food-Importing Developing Countries" was adopted by the MinisterialG/AG/GEN/56
Page 23
conference in Marrakech in 1994 that concluded the Uruguay Round.  It was intended to respond to
fears of the least-developed countries (LDCs), as well as of a number of other developing countries
that are net importers of food (NFIDCs), that subsidy cuts imposed on their food suppliers by the
URAA reforms would have the effect of raising the price of their food imports.  The requirements of
the Marrakech Decision focus on regular review of food aid commitments and flows, the adoption ofguidelines to ensure that food aid is given in grant form or on appropriate concessional terms and
technical assistance.  Motivated particularly by a spike in grain prices during the mid-1990s, there was
a proposal by 16 LDCs and NFIDC's for establishment of a revolving fund to help meet short-term
difficulties in financing normal levels of commercial imports, which was intended to fulfill the terms
of the Marrakech Decision.  The proposal would establish a counter-cyclical subsidy mechanism
whereby food and financial aid are automatically triggered by commodity price increases due to
agricultural trade liberalization agreed under the Uruguay Round.  In this context, it is useful toexamine retrospectively  the evidence on the effects of the URAA on world food prices.  Research
into the real and potential effects of trade liberalization on world grain prices leads to five important
conclusions in this regard.
Cereal Import Prices for NFIDCs and LDCs Ha ve Not Risen Significantly During the 1990s
The proposal for a revolving fund was based on the contention that NFIDCs and LDCs are
facing much higher cereal import prices following the URAA, and that these higher prices are due to
the agreement.  The basis of this is a comparison of cereal import prices during 1993-94 with
1995-96, and the attribution of the change to the Agreement. Cereal prices were low during 1993-94and high during 1995-96, as the graph below shows.  However, prices have declined since 1996 and
average import prices are now below the levels of 1993-94 for the Least Developed Countries and
slightly above for the Low Income Food Deficit Countries.
The Evidence Does Not Support the Argument That  Cereal Prices Rose During 1995-96 Because Of
The URAA
Cereal prices rose in 1995 and 1996 primarily because of low world grain stocks which
followed from a 3.2 per cent decline in world production in 1995/96 (see Figure 1).  Because of a poor
US harvest, cereal stock relative to use fell to an unusually low level at the end of the 1995/96
marketing year (13.4 per cent compared to an averag e of 18.8 per cent in the previous five years).
High fertilizer prices and strong economic growth during that period contributed to the sharp priceincreases.  Stock levels recovered in 1996 and continued to increase though 1998, driving world
cereal prices lower.  The URAA was not directly related to the price increases during 1995 and 1996,
nor the price declines since.  The fact that grain import bills in some countries continue to be higher
despite the price declines is another indicator that trade liberalization is not the cause.
It is, of course, possible that the URAA increased food prices relative to what they would
have been in its absence, even though they fell relative to past levels.  That is, it may be true that
without the URAA, prices would have fallen further than they in fact did.  This is plausible, but even
by this standard of comparison, price "increases" attributable to the URAA are estimated to be quite
small.  One estimate suggests that enough liberalization was achieved in wheat, for example, to raiseestimated world wheat prices by only 3.8 per cent.
 3  By contrast, the same study estimated that the
prices of coarse grains and sugar would rise by only around 2 percent, and dairy products by a little
over one per cent.  For a number of other agricultural commodities, including rice and cotton, it
estimates that there was so little overall liberalization that prices would actually fall relative to the
prices of manufactures exports.
One reason for this limited impact on food prices is that the URAA did not achieve a great
deal of agricultural liberalization.  While it achieved an enormous amount in terms of establishingG/AG/GEN/56
Page 24
rules, the liberalization that it achieved was much less than the target cuts in protection included in the
agreement.
Real Cereal Prices Have Shown a Strong Secular Declining Trend
Primarily because of the tremendous increase in productivity and yields in the past decades,
the long-run prices of cereals (at least wheat and rice) have shown a downward trend.  Real prices of
cereals are near the lowest levels in decades as shown in Figure 2.
Prices are Unlikely to Increase in the Near Term
The failure of the Uruguay Round to achieve substantial agricultural liberalization implies
that much is left to be done, so a successful current round of negotiations could potentially achieve a
great deal of liberalization, which in turn could potentially raise world agricultural prices.  Yet the
impact is likely to be felt only gradually and in the medium term.  The round itself is scheduled to be
concluded only in 2005, and it appears likely that any significant steps in sensitive areas such as
agriculture would be phased in over an even longer period.  Other structural supply and demandshifters are also at work, the net impact of which is difficult to predict.  But judging from the
experience of the last decades, it would appear likely that these will operate to depress price.  In
addition, to the extent that trade barriers have been reduced or will be reduced in the future, this
implies reduced world price variability and therefore better ability to plan and to hedge against price
hikes.  The World Bank's report 
Global Economic Prospects 2003 , which will be released on
December 10th, 2002, will contain an Appendix on  Global Commodity Price Prospects and price
projections for agricultural, energy, and metals and minerals primary commodity prices to 2015.  The
report will be available at  www.worldbank.org/prospects.
Research Suggests that Multilateral Trade Liberalization Produces Benefits to Net Food Importing
Countries That in Some Cases Offset The Costs From Higher Food Prices
Two World Bank studies that examined the impacts of Uruguay Round liberalization on least
developed and net food importing countries focused on the impacts of Round-induced changes in
external prices on these countries.4  Both studies divided the impacts of changes in world prices into
two components-terms of trade effects, and distortion impacts.  The terms of trade impacts of
liberalization are well known, and have frequently featured in policy discussions, but the distortionimpacts have only received attention in a small number of studies,
5 none of which focused on the least
developed and net food importing countries.
The terms of trade impacts resulting from changes in world prices are relatively
straightforward.  They are the impacts of changes in world prices on the costs of net food imports, orthe benefits obtained from net exports.  For a net importer, an increase in prices will raise costs, with
the size of the additional cost depending upon the level of imports.  For a net exporter, an increase in
prices will increase returns, with the magnitude of the benefits depending upon the level of net
exports.  The distortion impacts are more complex, because they depend on the nature of an entire
array of policy distortions in the economy.  They arise from the impact of changes in world prices onthe extent to which countries undertake activities that are worth less (or more) than their true costs.  If,
for example, a country has an export tax on a particular commodity, the resulting depressed domestic
prices will lead producers to produce less of the good than is socially optimal, and consumers to
consume more than is socially optimal.  Both increases in production and reductions in consumption
of such a good will make the country better off.  A rise in the world price of this export good will,assuming it is passed on to the domestic market, lead to such a net gain.  An increase in the import bill
(caused, for example, by an increase in impor t prices) may contribute to an exchange rate
depreciation, which will have the same kind of effect in the market for this export, tending to offset
the adverse terms of trade effect for the country from the higher import prices.G/AG/GEN/56
Page 25
A key finding of the two studies is that the distortion impacts, which have typically been
ignored in the past, can be extremely important in the least developed and net food-importing
countries.  One of the studies, which covers a wide range of low income and net food-importing
countries, shows that in a number of cases, including Bangladesh, Egypt, and Tanzania, the distortioneffects operated in the opposite direction to the terms of trade impacts, and converted an apparent
negative impact of the URAA into a substantially larger gain.
6  The distortion impacts are extremely
complex, however, and sometimes worked against the country.  In India, for example, the distortion
impacts were negative, primarily because the world prices of some of its taxed commodities, such as
rice and cotton, were estimated to fall.  These price declines reduced India's output of these
commodities, which was already too low because of the use of export restrictions.  On the other hand,
in Kenya and Zimbabwe, the distortion effects greatly reinforced an initial gain from the changedterms of trade.
Overall, the results of these studies suggest that the policy-related impacts increased the gains
from the Uruguay Round package to most low-income and net food-importing countries.  However,
the impacts in any future liberalization will clearly depend upon the specific nature of the agriculturalpolicies used in the country, and on the impacts on world prices of the liberalization package.
The overall conclusion from the above five points, taken together, is that any substantial
increase in international agricultural prices that could potentially result from the international
agreements:  (a) has not occurred yet;  (b) is probably a number of years away;  and (c) could well beoffset by other economic factors at work in the mean time.  Furthermore, any losses to net food
importing countries would not be uniform across countries, and may be partially or completely offset
in individual countries by other gains from the overall agreement.
Measures to Ameliorate the Impact of Shocks That Threaten Food Security
Apart from the long-term structural food security issues on which previous sections of this
paper have been focused, transitory food insecurity at the household level can arise because of shocks
on either the demand or supply side, or both.  Wars, political disturbances, economic crises, or natural
disasters may temporarily disrupt the income-earning capacity of the population (demand side), as
well as productive capacity and commercial channels for delivering food (supply side).  Short-term
but dramatic spikes in international food prices may also disrupt import channels by exhausting thelines of credit of importers.  In the section belo w, we examine the existing and potential mechanisms
for dealing with this kind of shock.
Multilateral Trade Reform
Protection in the industrial countries, and increasingly in developing countries, insulates
domestic prices from world prices.  This may be helpful to reducing domestic price volatility,
although this is not necessarily the case.  In China, for instance, state trading arrangements have been
found to result in domestic prices that are more volatile than international prices.  Unless interventions
are undertaken very carefully, this is likely, since shocks to the world market as a whole tend toaverage out  and be much less severe than those in individual markets.
To the extent that trade barriers are successful in insulating domestic markets from world
markets, they reduce the ability of these markets to  help stabilize world markets.  With integrated
markets, a reduction in global supply causes demand to increase in all markets and supply to contract,helping to overcome the impact of the reduction in supply.  By contrast, when major markets are
insulated from world markets - as they are by variable-levy type measures such as EU grain policies -
these markets cannot play their role in stabilizing the world market.  The rest of the world market
must shoulder the burden of dealing with shocks to supply and demand, and this increases instabilityG/AG/GEN/56
Page 26
in world prices.  Historically, industrial country support policies were accompanied by high public
stockholding, which did help stabilize prices, but the major developed country producers, such as the
EU and the US, have cut back on these public stocks in recent years.
Reforms that reduce the price-insulating impact s of trade policies would help reduce the
variability of world prices. Analysis by Anderson and Tyers (1992) suggests that the resulting
reduction in the variability of world prices would be very substantial.  Reductions in protection of the
type that might be achieved under the Doha Development Agenda could have play a major role in
reducing variations in world prices.
World Bank and IMF Facilities
The IMF's Compensatory Financing Facility (CFF) is the only international mechanism that is
specifically designed to help alleviate adverse effects of  certain commodities' price movements that
result in balance of payments difficulties.  This facility was only used by 4 countries in the period
1993 - 1999.  A number of developing countries have noted that the CFF has several shortcomings,7
including limited commodity coverage (the only import commodities that are eligible are grains),
perceived requirements of "policy conditionality," and lack of concessionality in terms.  With respect
to the latter point, it is worth noting that the terms are almost certainly better than commercial terms,
though not as good as those of the IMF's concessional facilities.  Perhaps a more telling criticism in
the context of a discussion of food security is that the loan is taken by the government, and without
some additional internal distribution mechanism, the benefits may not be shared with the individualswithin the country whose food security is put at risk by the high food prices.  This may then require
that the government rely on direct distribution to needy individuals, which interferes with the
development of efficient private marketing channels.  Nonetheless, use of the facility could at a
minimum reduce the magnitude of the disruption of imports, and increase the aggregate supply of
food in the country.
Most of the World Bank's lending and non-lending services are aimed at the root cause of
long-term food insecurity -- poverty.  Some investment projects are also aimed at improving trade and
distribution facilities, or improving a country's trade finance infrastructure, thereby reducing
vulnerability to disruptions of imports.  The World Bank has no facilities that are specifically
designed to help countries cope with price shocks, as is the CFF, but does have several instruments to
provide urgent assistance when a country is struck by an emergency that seriously dislocates itseconomy and calls for a quick response.  Several species of emergency loans, as well as adjustment
loans, work by quickly disbursing funds to the government's budget, thereby making foreign
exchange available for additional imports.  This mech anism shares most of  the shortcomings and the
advantages of the CFF, though the trigger is not intended to be price movements.
Commodity Price Risk Management Measures
A wide range of instruments is now available commercially to protect against price
movements in the short term.  Options can be used by economic agents with large exposure to risk
from price movements either to lock in a specific price, or to insure that price will not be greater thana specified level or not be lower than a specified level.  These could be readily used by large
purchasers of foodstuffs, either private-sector commercial importers or government agents (food
corporations or state-owned enterprises).  They could also be used by governments to insulate safety
nets from budgetary crises arising from food price increases.  That is, a government agency which
knows that its expenditures will increase when food prices rise (either because it provides food in-kind and must procure the higher-priced food itself, or because it must give higher income support to
the poor) can purchase options that would pay out when import prices increase beyond a certain level.
This would then insure that it would have the budgetary resources required, without creating anG/AG/GEN/56
Page 27
unanticipated fiscal burden on the government.  The price insurance would protect against short-term
fluctuations in price, but not against long-term downward trends.
The International Task Force on Commodity Price Risk Management (ITF), with its
secretariat in the World Bank, is currently piloting  mechanisms to provide commodity price insurance
to smallholder farms in developing countries and this could possibly be extended to consumers in
food importing countries as well.  This insurance scheme, while varied in its specific application by
country, is focused on adapting the commodity price risk management tools available on international
markets to provide a form of price insurance to producers (and consumers in the case of insuring
import prices).  he World Bank has also developed instruments to support the development of crop
yield insurance, and has one operational pilot project in Morocco, with others under preparation.
Commodity Swaps
The World Bank began offering commodity swaps in 1999, to help clients address
commodity price risk. World Bank members whose debt-servicing capacity is heavily exposed to
specific commodities may benefit from financial terms that link the debt-servicing costs of their loansfrom the World Bank to movements in the price of a specific commodity or basket of commodities.
Managing the risks associated with commodity prices is a major challenge for many developing
countries, but most commodity-dependent countries have inadequate access to risk-hedging
instruments.  It was to address this need that the World Bank began offering commodity swaps on a
pilot basis to borrowers with a demonstrated need to reduce exposure to commodity price changes.Such swaps are individually negotiated transactions to exchange two sets of cash flows at certain
dates in the future, where one set of cash flows is linked to the market price of a commodity or index
and the other is a pre-agreed fixed cash flow or a cash flow based on a floating or fixed rate of
interest.  Hedges could be structured to reduce commodity price-related risks for both producers and
consumers of energy, mineral and agricultural products.
Food Aid and Subsidized Credit
Food aid is often the response of the international community to disruptions of domestic
supply in developing countries.  While food aid has served a valuable function in cases of disasters
when normal supply channels are disrupted, it has in many cases had undesirable and unintended
consequences.  In general, food aid provides significant quantities that have a potentially large impacton the local market price.  While an increase in supply will lower the market price, even if it is sold at
"market prices," this effect of distorting the market is often magnified by the fact that in the event, the
distribution is free or actual sales prices are far below local prices.  This tends to depress prices for
local producers, lowering their incomes, reducing incentives for production, and thereby increasing
the country's future reliance on food imports.  In addition, the price reductions created by food aiddistort seasonal (inter-harvest) price movements and discourage the development of private storage
facilities.  Finally, food aid is in many cases distributed through governmental channels, thereby
undermining private sector development in marketing infrastructure.  While such adverse effects may
on specific occasions be acceptable costs to pay for mitigating or avoiding famine, these should be
evaluated on a case-by-case basis.
Many of these same shortcomings are true of subsidized credit for food imports (including
export credit from the exporting countries): the subsidized imports depress farmers' prices and
discourage production;  if not done on a purely commercial basis, they can be timed poorly (e.g., in
conformity with the requirements of the export credit agency, not with the demands in the importingcountry) and thereby distort seasonal price movements; and they are often channeled through
government agents, undermining private sector market development.G/AG/GEN/56
Page 28
Both food donations and concessional credit programs also obscure the real value of the grant
element involved and run counter to the principle of transparency.  If a grant is justified, the grant
should be transparent and not disguised through an unknown grant element embedded in in-kind food
aid or subsidized interest rates.
New Approaches to Handling Short-Term Threats to Food Security
Two other mechanisms have been proposed to meet the concerns addressed in the Marrakech
Decision, but not yet implemented, to deal with short-term food supply disruptions.  These could be
useful in meeting these concerns in the new round:
Food Vouchers
One proposal that would not entail several of the shortcomings of direct food aid is to
establish a system to distribute food vouchers to the needy when food prices increase.8  T h e s e
vouchers could be redeemed through normal commercial import and distribution channels and so
would not undermine private sector development.  They would also operate to increase demand, notsupply, so they would not distort domestic prices for either producers or consumers.  The difficulty in
this is that it requires a system for identifying target recipients and distributing the vouchers to them.
However, this is not unique to this scheme.  Any compensatory mechanism that does not identify
those most in need will  have very high cost relative to the benefits it provides to the poor.  Many
countries already have at least some existing mechanisms that could be adapted for this.  Experiencewith similar programs of food stamps or other income support mechanisms is accumulating as more
countries begin to use them as part of their safety net programs.  Since there is significant lead time
before any structural price increases would be felt from the new round of trade negotiations, there is
some time to install such programs in countries which may be vulnerable.
An Ex Ante Fund for Trade Finance
Sudden increases in international food prices may disrupt imports if this causes the demand
for trade finance to exceed the credit av ailable to the importers in the country.9  One way of dealing
with this would be to establish a fund to make available to importers guarantees that would enable
them to access the necessary financing.  The availability of these guarantees would be triggered by
objective criteria - agreed in advance - that are outside the control of the governments. (Granting
access based on an increase in the import bill for food would reward poor economic policies - e.g.,
food subsidies or macroeconomic mismanagement - which could trigger a sharp increase in food
imports).  An example of such an objective  trigger would be that some indicator of world wheat
prices rises above a specified level or objective warning indicators of famine.  In such cases,
importers could access the guarantees up to an established limit.G/AG/GEN/56
Page 29
Figure 14.1 Cereal Import Costs
050100150200250300
1990 1992 1994 1996 1998 2000
Source:  FAOSTAT and World Bank  US$
per
TonLeast Developed
Low Income
World
Table 2
Average Cereal Prices ($/ton) 1993-94 1995-96Price Difference
95-96 vs 93-94 1997-1999Price Difference
97-99 vs 93-94
Low-Income Food Deficit 175.3 229.5 30.9 193.0 10.1
Least Developed C ountries 224.9 252.1 12.1 203.0 -9.7
Developing C ountries 180.6 229.7 27.1 181.3 0.3
Trade Weighted Cereal Price FOB 137.1 184.4 34.5 125.7 -8.3
Source:  
Figure 14.2 World Grain Stocks and Prices,1990-2002
0200400600800
1990 1992 1994 1996 1998 2000 2002
Source:  USDA and World Bank  Million Tons
050100150200250US $ per Tons
Stocks PricesStocks
PricesG/AG/GEN/56
Page 30
Figure 14.3 Real World Grain Prices, 1960-2002
0100200300400500
1960 1970 1980 1990 2000Source: World Bank  Constant 1995 $'s /TonG/AG/GEN/56
Page 31
                                                     
Notes
1.  Diaz-Bonilla, et. al. has a good discussion of the va rious submissions to the WTO on this subject by both
developed and developing countries.
2.  Some analysts distinguish between household and individual food security, but this distinction has little
relevance for a discussion of trade policy.
3. Goldin and van der Mensbrugghe (1996, p169).
4. Anderson 1998; Ingco 1997. These studies were undertaken using a relatively simple numerical model
designed so that it could be applied to countries where data availability is limited. These models would allow theevaluation of the impacts on least developed countries of different world price changes resulting from futureliberalization proposals.
5. Such as Anderson and Tyers (1993), Tyers and Falvey (1989), and Alston and Martin (1995).
6. See Ingco 1997, p16, Scenario II.
7. For a more detailed discussion, see WTO,  2002.
8. See WTO, 2002, Annex 8, Submission by the World Bank.
9. See WTO 2002, Annex 7, Submission by UNCTAD
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19 (1): 1-24, January 1992.
Anderson, K. and R. Tyers, "More on welfare gains to developing countries from liberalising world food trade", Journal of
Agricultural Economics  44 (2):189-204, May 1993.
Diaz-Bonilla, E., Diao, and S. Robinson. 2002. "Thinking Inside the Boxes: Food Security in the WTO Negotiations."
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