AN INTERNATIONAL TRADE PERSPECTIVE ON LIVESTOCK AND THE ENVIRONMENT ALEXANDER MCCALLA, CEES DE HAAN Director and Livestock Adviser, respectively, Agriculture and Natural Resource Department, World Bank

Introduction

About 150 million tons, or about one third of internationally traded agricultural commodities are livestock products or livestock feed. This international trade flow contains over 3 million tons plant nutrients, which are often shipped from nutrient deficit areas to already nutrient surplus areas, and have therefore potentially strong environmental effects. Depletion of soil fertility on one side of the globe, and nutrient loading at the other, both affecting land, water and bio-diversity, can be the results. The projected strong growth in the demand for livestock products (de Haan, et al., 1997), as a result of growing populations, rising incomes and rapid urbanization, as well as the increasing global trade liberalization under the recent World Trade Agreement, will affect the direction and scope of these environmental effects.

This paper will review this livestock-global trade-environment interaction. It will first provide an overview of the role of feed and livestock products in international trade, then provide indications, how the recent World Trade Agreement might affect international trade patterns, and infer, how, in turn, the changing trade regimes and patterns might affect the impact of livestock on the environment, and what needs to be done next. Finally, the paper will make some suggestions on what could be the outcome of this Conference.

The role of livestock in international trade.

Every year, about 15 million tons meat and 10 million tons milk and milk products, or about 9–10 percent of the global production of each of these commodities, are internationally traded. For meat, the main exporters are in the developed world, with Oceania, N. America and W. Europe all showing a positive trade balance of about 2 million tons in 1995. The main importers are in Asia, which doubled its net meat imports to 3.2 million tons since 1985 and in East and Central Europe, which changed from a small surplus situation in 1989 to a net importer of about 2 million tons in 1995. For milk and milk products the situation is quite similar, with the main streams from W. Europe, Australia and New Zealand to Asia and Latin America. Especially the meat trade is booming, as meat exports grew over the last ten years at the rate of about 6 percent per year. International milk trade is less ebullient, as it grew at about 3 percent per year over that period.

The trade in feeds is even more important. Over 80 million tons course grains (mainly for livestock feed), 40 million tons oilseed meal and 10 million tons cassava chips are internationally traded every year. Table 1 provides trends regarding the exports of the key feed ingredients, meat and milk and demonstrates the increase in export from the developed to the developing world.

The changing trade regimes and their effects on global livestock trade.

The Agreement under the Uruguay Round of Multilateral Trade Negotiations (UR), concluded on April 15, 1994, is the beginning of agricultural liberalization, establishing a new set of trade rules for the sector. Earlier trade negotiations under the General Agreement of Tariffs and Trade (GATT) provided protection through ordinary tariffs, variable levies and non-transparent quantitative restrictions. The UR is probably the most sweeping effort at trade liberalization, as it seeks (Valdes and McCalla, 1996):

1. the liberalization of market access through the conversion of all non-tariff barriers (quantitative restrictions) to tariffs and binding of all those tariffs. The UR Agreement also stipulates the reduction of tariffs on average by 36 percent for developed countries and 24 percent for the developed countries, with a minimum of 15 percent for developed countries and 10 percent for developing countries. This will probably produce the most significant impact of UR;

2. the reduction of domestic support (input subsidies and price support) by 20 percent for the developed countries, and 13 percent for the developed countries, with the exception of the so-called “green box” policies (i.e. support for environmental beneficial technologies)

3. the reduction of outlays for export subsidies (“dumping”) by again 36 and 24 percent for respectively the developed and developing countries and the reduction of the volume of subsidized exports by respectively 21 and 14 percent.

Developed countries have a period of 6 years (till 2000), developing countries have four years more to fulfill these commitments.

In parallel, a special agreement on Sanitary and Phytosanitary measures (SPS) was concluded, which reaffirms the right for countries to set their own health standards, although to be based on “sound scientific evidence” and not to be used as disguised trade restrictions.

While this might look not overly drastic in terms of real reduction of protection levels, FAO (1997) has calculated that for the agricultural sector, this means that at the end of the Round, the aggregate domestic support will be reduced from US $ 198 billion per year to US $ 162 billion, and export promotion will be cut from US $ 21 billion to US $ 14 billion. However, viewed against a past history of both increasing protection and growing export subsidies, it is still a highly significant change.

The expected impacts of the Uruguay Round.

Prices and volumes.

The effects of the Uruguay Round will probably be rather modest. While decreasing protection and dumping will change some trade patterns, all projections show that it would not significantly affect the overall volume of trade in feed and livestock products, and indeed of most other agricultural commodities. Also, the effect on prices will be rather small. While initially it was thought that price increases would be stronger for livestock feed (coarse grains), than for livestock products, and that UR would therefore encourage grass based production, FAO (1997) now estimates that during the nineties, the increase in world market prices because of UR would be in the order of 4–7 percent for feed, 8–9 percent for bovine and poultry meat and 10–12 percent for pork and mutton, and would therefore have little effect on the type of production system.

In addition, local production in the developing countries would be less hampered by the dumping of frozen meat, milk powder and butter oil, as has affected local production in Africa and South Asia. For example, from the mid-eighties till the mid nineties, Sahelian producers have been hurt by imports into the West African coastal areas of frozen meat from the EU, subsidized at the rate of about US $ 2,000 per ton. This caused in Cote d'Ivoire, that the import of low-quality beef increased from about 5,000 tons per year in the eighties to over 25,000 tons in the early nineties, causing the market share of the Sahelian producers to drop from 86 to 73 percent (Chartier et al, 1996). A reduction of export subsidies, as agreed under UR, would reduce such dumping.

Geographical distribution

The main effect might be a certain redirection of the geographical pattern of global feed and livestock products flows, and especially between the developed and developing world. Western Europe would export less milk and meat, whereas Asia would, because of its massive increase in demand as a result of population, income and urban growth on the one hand, and the removal of import restrictions on the other, import more feed, meat and milk. It is not completely clear, which regions would benefit most from the UR changes and be in the position to satisfy the increased demand. Some of the more obvious possible trends are as follows. For milk, which can best be produced in regions with high quality pasture, temperate climates and significant capital investments, the obvious first candidates for increasing production will be New Zealand and Australia, as the world's most efficient producers. However, all grazing areas in New Zealand are already used, and water constraints will seriously affect the expansion possibilities for intensive dairying in Australia. The temperate zones of the Americas, i.e., the US, and southern cone of South America with long pasture growing periods could well be the main sources of future growth in milk. There are also possibilities for expansion in some Central European countries, if and when they can muster the necessary capital and skills for the required processing capacity. This growth will be supplemented by pockets of opportunities for temperate highlands, such as in East Africa and in areas, where dairy production is completely integrated in the cultural fabric of the society, such as India and Pakistan. For beef and small ruminant meat, the more extensive grazing areas of the Americas, i.e., the United States, Latin America, and Oceania would supply most of the deficits, but increased “niche” opportunities might arise for regions such as the Sahel, which would be in a better competitive position for the West African Coastal markets, and East Africa, which might improve its competitiveness in the Middle Eastern markets.

While milk, beef and mutton come from mainly land-based production, intensive pork and poultry production is less land dependent, and can be expected to locate near the consumer. A relocation of intensive production to the developing world can therefore be expected. This move of intensive pig and poultry production to the developing world is facilitated by much lower shipping costs of grain compared to frozen meat. Maritime grain transport costs is only about 10 percent of the cost of shipping frozen meat, and, with feed conversions of 3– 4 kg feed per kg gain for poultry and pigs, it is more economical to transport grain than frozen broilers or pork (Table 2).

Source: Cunningham (1992)

It can therefore be expected that intensive production would grow in regions with increasing demand, i.e. that the fast past growth in Latin America (Brazil) and East Asia (Thailand, Indonesia, China) would continue. Production in the latter areas, would also be less hindered by competition from the European Union. For feedlot production of beef, with a feed conversion of 8, there is little geographic advantage, and differential application of environmental regulation might be the key factor deciding where future growth will be.

The harmonization and standardization of the sanitary and phytosanitary regulations under UR is also becoming increasingly important. The recent development of Foot and Mouth disease free zones in South America, which already has opened export markets in the US for Uruguay is one of the main examples. Many of the recent trade discussions on livestock products, for example between the US and the EU, have focused also on sanitary regulations. While the UR specifically stipulates the contrary, sanitary regulations may also increasingly be used as a non-tariff barrier, as disease threats are used as pre-texts to protect local industries from global competition.

¹ Data from 1984, but the ratio between grain and frozen meat most likely has not significantly changed since then.

The effects of the UR on livestock-environment interactions.

General principles

First of all, because of regional differences in resource endowments, it is difficult to generalize. Regional differences in land quality and water availability might completely change the impact of, for example, intensification of the pig sector, from a positive contribution to improve soil fertility in nutrient deficit areas to nutrient loading in already saturated soils. In addition, livestock-environment linkages are still poorly understood, and therefore difficult to predict, even within a specific eco-system. Some likely positive and negative impacts of UR on livestock-environment interactions are provided below.

Positive effects of UR on livestock-environment interactions

In general, the removal of trade distortions can be expected to increase the efficiency of resource use, and therefore have a positive effect on the environment. It will stimulate production in those areas, which ecologically and economically are the best suited for that type of production, and therefore lead to a more efficient resource use. More specifically:

• The reduction of dumping of meat in SSA has increased livestock off-take from the pastoral areas, and thus decreased, at least temporarily, the grazing pressure from degraded areas of these semi-arid tropics. A case-study also presented in this conference (Moll and Heerink, 1997) showed that reduction of the export subsidy and the devaluation of the CFA revived the export from the Sahel countries, and - at least temporarily - increased offtake and therefore grazing pressure;

• Similarly, the decreased support for the beef industry in Latin America, has reduced some (although not all) of the pressure from ranch encroachment in the tropical rainforests of that area (Kaimonitz 1995);

• Also, the increased opportunities for smallholder dairy production, for example in Kenya and India, might have a positive environmental effect, as the regular revenues from dairy production are being used, for example in the Kenya area of Machachos, for resource conservation (English et al, 1993); and

• The redirection of global nutrient flows, in principle might have far-reaching effects, although, for the short term, the effects will still be limited. First, the trend towards more intensive production in the developing world might further reduce the strong nutrient outflows of many developing countries. Local intensification redresses these nutrient flows, and allows better nutrient cycles. For example, improved opportunities for Sahelian meat might reduce the outflow of soil nutrients from oilseed by-products, such as ground nut and cotton seed meal. Second, the drop in production in the EU, together with the introduction of stricter environmental regulations, might reduce nutrient loading there. Already, total nitrogen surplus in the OECD countries is declining, although at a level between 80 and 300 kg per ha per year, it is still substantial (OECD, 1996). To put it into perspective, the OECD surplus would provide 100 kg Nitrogen per ha for the total cropped area of sub-Saharan Africa.

Some negative effects of UR

Increased globalization of livestock trade would also have negative effects. For example:

• The intensification of livestock production in the developing world might put a much greater pressure on the environment than in the developed world, where regulatory frameworks and institutions are stronger. The significant pollution from intensive livestock production and processing enterprises around the major urban centers of Asia and Latin America, is just one of the clear symptoms of that trend; and

• The more liberal movement of domestic animal genetic material and intensification puts growing pressure on local breeds. Valuable local genotypes are being lost daily, because of the pressure that exotic breeds put on local breeds. While the reduction of input subsides and protection under UR might reduce some of the current bias against the use of local breeds, the need for uniform genotypes in the industrial production system, might still lead to considerable genetic erosion.

Differences in valuation

This brings us to a final, and key point in the discussion on international trade and environmental issues. Because income levels determine to a large extent the values that society places on environmental goods, there are differences between the developing and the developed world in the stringency with which environmental regulations are applied and enforced. The degree of enforcement of the “polluter pays” principle differs therefore significantly between nations, and hence the competitiveness of their producers in the world market. This in turn, leads to increased demands for “a level playing field” from developed country producers.

The introduction of international standards could address these competitive differences, but is greatly hindered, again, by the differences between countries and regions in resource endowment and valuation of the environment. Furthermore, harmonization of environmental regulations can give countries a pretext to deny access, just as in the case of sanitary regulations, especially by raising arbitrarily regulatory access to entry. Moreover, an international drive to achieve consensus on environmental standards could also lead to the lowest common standard to be adopted as the applicable one. A multi-pronged approach, differentiating between developing and developed countries in the enforcement of standards, but at the same time promoting market incentives in raising them (for example by introducing also for developing countries eco-labeling of meat), seems to be the most appropriate strategy.

Follow-up actions

Thus, much remains to be done. First, we need to establish much clearer and better quantified linkages between economic policy changes and resource use, to improve decision making. To be able to do so, we need to improve the quality of our data bases on livestock-environment interactions. Second, we need to create a much greater awareness among policy makers of these interactions, and alert them to the many instruments, which are available to induce environmentally friendlier technologies. And last, but not least, we must start with the implementation of those policies and technologies, which we already know. This conference will provide quite an inventory of such instruments, and they should be translated in on-the ground action.

The role of this Conference in sustainable livestock production

This conference on livestock and the environment has a number of exciting aspects, of which two merit especial mentioning. First, because the focus of the meeting, livestock production has often been made the scapegoat for several negative environmental effects. Desertification, deforestation, ground and surface water pollution, and global warming have all been heavily attributed to livestock production and processing. As a result, international support for livestock development has declined. However, by the year 2020 livestock production might be the most important agricultural sector in terms of value of production and the sector can therefore not be neglected. A concerted effort in identifying the policies, which induce technologies mitigating the negative and enhancing the positive effects, is therefore critical. It is not livestock per se, but human behavior through demand for the goods and services that livestock provide, and through socio-economic policies, that define the effect of livestock on the natural resource base. Livestock-environment interactions fall in the domain of national and international externalities, and a renewed impulse is therefore warranted, to ensure that this significant increase in production does not irreparably damage the global resource base.

Second, by being sponsored by 12 bilateral or multi-lateral institutions, and by being attended by a good blend of livestock technicians and environmentalists, by project implementors and policy makers, and by representatives of the developing and the developed worlds, you have some excellent opportunities for rapid adoption of the concepts. And this mix is necessary. If the above-mentioned demand projections are correct, there is a strong need for a shift in paradigm, on the one hand by the livestock technicians, who will have to shift from a production perspective to a resource conservation outlook, and by the environmentalists, who have to accept that livestock development will be an expanding force in global land use, and will have to be integrated in resource conservation strategies. Let this conference be an important step in that direction.

References.

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de Haan, C., Steinfeld, H. and Blackburn, H. (1997). Livestock & the Environment: Finding a Balance. WRENmedia, Suffolk, U.K.

English, J., Tiffen, M. and Mortimore, M. (1993). Land Resource Management in the Machakos District, Kenya 1930–1990. World Bank Environment Paper 5. World Bank, Washington D.C.

FAO (1997). Impact of the Uruguay Trade Round on Agriculture. Commodities and Trade Division. Rome. http:/faofsOa.fao.org/waicent/faoinfo/economic/uround.htm

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Valdes, A. and A.F. McCalla (1996). The Uruguay Round and agricultural policies in developing countries and economies in transistion. Food Policy Vol 21 pp. 419–431.