© PT SUCOFINDO (PERSERO)

Simulation on Trade Policy

Implementation for Coffee in Timor-Leste

ATPSM (Agricultural Trade Policy Simulation Models)

Training Syllabus :

1. Coffee World Trade

- coffee production and consumption

- coffee price

2. Trade Policy And Trade Liberalization

3. Simulation On Trade Policy

Implementation For Coffee in Timor-

Leste using ATPSM

Coffee is an important primary commodity. With over 500 billion cups consumed every year, coffee is one of the world's most popular beverages. Worldwide, 25 million small producers rely on coffee for a living. For instance, in Brazil alone, where almost a third of all the world's coffee is produced, over 5 million people are employed in the cultivation and harvesting of over 3 billion coffee plants; it is a much more labour-intensive culture than alternative cultures of the same regions as sugar cane or cattle, as it is not subject to automation and requires constant attention.

Culture and History of Coffee

The fact that the coffee cherry is represented on the country’s new 50 cent coin gives some indication of the importance of coffee in Timor-Leste.

Coffee is grown throughout the republic, concentrated in Ermera, Liquica, Ainaro, and Aileu districts. The majority of the crop is grown for export trade, although it is a popular local drink.

Growers sell coffee either as the red cherry, parchment, or final green bean, as little roasting is undertaken within Timor-Leste.

In the complex and wrenching reconstruction process on the scale of Timor-Leste, there is enormous variation in how aid and development projects are enacted.

In the coffee industry, some NGO-style organisations work with East Timorese communities while other ventures are purely commercial in nature.

COFFEE MARKET AND DEVELOPMENT

The National Cooperative Business Association of the USA (NCBA) is the current implementing agency for a USAID project to develop coffee in Timor-Leste, a project established well before the 1999 independence vote.

NCBA is, as it boasts, the largest private sector enterprise in Timor-Leste: by 2003 there were 16 primary rural organic cooperatives, more than 500 farmer groups and 19,584 farm family participants on 25,858 registered blocks of land

NCBA operations do not cover all of the estimated 200,000 people estimated to be partially dependent on coffee (Pomeroy 2001).

Nevertheless, NCBA’s ambition is to expand throughout the nation (NCBA 2003).

MAJOR ISSUE FACING THE COFFEE SECTOR

Poor plantation management

Variable quality of coffee produced

Poor industry coordination and development

Marketing constraints and fluctuation coffee

prices.

Inadequate training, extension and

information services.

r : cultivation of Coffee robusta

m : cultivation of Coffee robusta and Coffee arabica.

a : cultivation of Coffee arabica.

Production of Coffee

Production in

exporting countries

World

Consumption

Per capita consumption in

selected importing countries Retail prices of roasted coffee in

selected importing countries

WORLD PRICE (US cent/lb)

Annual

ICO

Composite

Price

Colombian Mild

Arabicas

Other Mild

Arabicas

Brazilian

Naturals Robustas

1998

108.95

142.83

135.23

121.81 82.67

1999

85.71

116.45

103.90

88.84 67.53

2000

64.24

102.60

87.07

79.86 41.41

2001

45.59

72.05

62.28

50.70 27.54

2002

47.74

64.90

61.52

45.23 30.01

2003

51.90

65.33

64.20

50.31 36.95

2004

62.15

81.44

80.47

68.97 35.99

2005

89.36

115.73

114.86

102.29 50.55

2006

95.75

116.80

114.40

103.92 67.55

2007

107.68

125.57

123.55

111.79 86.60

2008

126.76

143.60

141.95

129.52 108.88

WORLD PRICE (US cent/lb)

-

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

ICO composite price 

   Colombian Mild

ArabicasOther Mild Arabicas

Brazilian Naturals

Robustas

WORLD PRICE (US cent/lb)

INDICATOR PRICES

Procedures to be followed on the New York

Market

Procedures to be followed on the German

Market

Procedures to be followed on the French

Market

Procedures for the calculation of daily group

and composite indicator prices

TRADE POLICY

Tariff

Tariff Rate Quota

Non Tariff Barrier

Quota

Domestic Support

Export Subsidy

TBT-SPs

TRADE LIBERALIZATION

MFN – Most Favoured Nation

NT - National Treatment

Tpr - Transparency

Agreement on Agriculture (AoA)

Market Acces

Domestic support

Export subsidy

Trade Negotiation Rounds

Year Place/name Main Subject Countries

1947 Geneva Tariff 12

1949 Annecy Tariff 13

1951 Torquay Tariff 38

1956 Geneva Tariff 26

1960-1961 Geneva (Dillon Rounds) Tariff 26

1964-1967 Geneva (Kennedy Rounds) Tariff and antidumping measures 62

1973-1979 Geneva (Tokyo Rounds) Tariff, Non Tariff Measures Frameworks

Agreements (NTBs)

102

1986-1994 Geneva ( Uruguay Rounds) Tariff, Non Tariff Measures, rules, services, IPR,

dispute, settlements, textiles, agriculture, creations

of WTO

123

2001-2008 Doha Developments

Agenda

Agriculture and services 144

TRADE LIBERALIZATION

The Uruguay Round Agreement on

Agriculture Led to Tariffication of

many Non-tariff Barriers & Reduction

Tarrifs

• Reductions of 36 per cent

from bound tariff rates (with a

minimum of 15 per cent on

each tariff line),

• Additional reduction

commitments on domestic

support (20 per cent)

• Export subsidies (21 per cent

in export volumes and 36 per

cent in expenditure) to be

implemented over six years.

DEVELOVED COUNTRY

IMPLEMENTED OVER

6 YEARS

DEVELOPING COUNTRIES

AGREED TO COMMITMENTS AT

TWO THIRDS OF THESE LEVELS

IMPLEMENTED OVER

10 YEARS

WTO NEGOTIATIONS ON AGRICULTURE

MARKET ACCESS,

DOMESTIC SUPPORT,

EXPORT SUBSIDY,

SPECIAL AND DIFFERENTIAL TREATMENT FOR DC

NON-TRADE CONCERNS.

• The post-UR tariff profile of many developed countries in particular is

characterized by relatively high tariffs

• Bound tariffs are also high in many developing country markets which will

affect negatively other developing countries as intra-developing country

trade is high and growing.

• The UR did not reduce tariffs significantly

• Tariff Rate Quotas (TRQs) including access to quotas and rules of

administration.

DOHA ROUND DEVELOPMENT

TRADE LIBERALIZATION

Modalities are being debated in order to

reach a negotiated agreement

Trade policy instruments and it is often not

a simple task to quantify their impacts

Model results are often criticized for not

being accurate to the extent desired

DOHA ROUND

DEVELOPMENT

TRADE LIBERALIZATION

SCENARIO LIBERALIZATION

JOINT PAPER

US – EU PROPOSAL

ALTERNATIVE

INTERNAL EKSTERNAL

• Capital

• Agro-input

• On Farm Technology

• Post harvest Technology

• Distribution

• Labor

• Supply Chains Management

COMPETITIVENESS

Non Trade Concern

Food Security

Food Soveiregnity

Rural Development

TRADE LIBERALIZATION

GATTS – UR - AoA

Free trade MFN,NT,Tpr

- Market Acces

- R. Domestic Support

- R. Export Subsidies

FREE TRADE

VS

FAIR TRADE

URAA

US PROPOSAL

EU PROPOSAL Agricultural Trade Policy

Scenario

Production &

Productivity

QUANTITIY

QUALITY

CONTINUITY

IMPROVEMENT

Developing Country SP , SSM

ECONOMICS IMPACT :

- VOLUME CHANGES IN C, M, X

- TRADE VALUE CHANGES

- WELFARE CHANGES- PRODUCER & CONSUMER

SURPLUS & NET GOV REVENUE

- PRICE CHANGES- WORLD MARKET, CONSUMER

AND FARM

QUANTITATIVE ASSESSMENTS

MODALITIES

- JOINT PAPER US - EU

PROPOSALS

- ALTERNATIVE PROPOSALS

TRADE LIBERALIZATION

TRADE

LIBERALIZATIONS

Data Processing

ATPSM

WTO - AoA Market Acces

Domestic Support

Export Subsidies

COFFEE

Scenario 1 Scenario 2 Scenario 3

Analiysis Study TRADE POLICY

RECOMENDATIONS

Analysis 3

Supply

Demand

Commodity Price

Analysis 2

Supply

Demand

Commodity Price

Analysis 1

Supply

Demand

Commodity Price

A T P S M

Agricultural Trade Policy Simulation Model

Comparative-Static

Deterministic

Partial equilibrium for agriculture product

Multi commodity 36 commodities

160 countries plus EU25 plus RoW.

(42 are LDCs, 99 RDCs and 20 DDs)

A T P S M

Reduction of out-of-quota tariffs

Reduction of in-quota tariffs

Expansion of TRQ volumes

Reduction of domestic subsidies

Reduction of export subsidies.

Limitations

- No independent behaviour for domestic prices

- No other domestic policies besides the Amber

Box subsidies.

- Agricultural commodities are assumed to be

homogeneous and so there is perfect

substitution among goods produced in

different countries

- Model does not account for the possibility of

countries exerting market power

- Comparative static model

- No income variable in the model.

ALL COMMODITIES ARE ASSUMED

TO BE TRADABLE (1)

Limitations

TARIFF LINE LEVEL CUTS

ATPSM DOES NOT ACCOUNT FOR PREFERENTIAL

ACCESS AND TRADE DIVERSION

QUOTA RENTS ARE DISTRIBUTED IN

PROPORTION TO TRADE FLOWS.

BILATERAL TRADE ISSUES (NON-SPATIAL)

(2)

(3)

(4)

NEGOTIATING MODALITIES AND

SIMULATION SCENARIOS

THE MODALITIES

SCENARIO SIMULATED

MARKET ACCESS

DOMESTIC SUPPORT

EXPORT SUBSIDIES

US PROPOSAL

EU PROPOSAL

ALTERNATIVE PROPOSAL

DATA SOURCES

FAOSTAT (Supply and Utilization Accounts and Trade Domain data) The quantities of production, consumption, export and imports

AMAD (Agricultural Market Access Data Base) In-quota Tariffs, Out Quota Tariffs and Global Quotas

UNCTAD COMTRADE Source for Bilateral Trade Flows

ATPSM OUTPUT

COMMODITY PRICES

PRODUCTION

CONSUMER

SURPLUS

PRODUCER

SURPLUS

WELFARE

TARIFF

REVENUE

QUOTA RENTS

CONSUMPTION EXPORT IMPORT

MODALITIES

SCENARIO ATPSM

Terima Kasih

© 2007 All Rights Reserved SUCOFINDO