AGRICULTURAL OUTLOOK                                        October 23, 2000
November 2000, ERS-AO-276
               Approved by the World Agricultural Outlook Board
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CONTENTS

BRIEFS
Livestock, Dairy, & Poultry: Growth in Broiler Production Likely
to Slow in 2001 Specialty Crops: 2000/01 U.S. Apple Crop to Rise, Prices 
Likely to Fall

COMMODITY SPOTLIGHT
Stalking Celery
Rice Prices Remain Low Despite Smaller U.S. Supplies

WORLD AG & TRADE
India Relaxes Restraints on Agricultural Imports

RESEARCH & TECHNOLOGY
Agricultural Genetic Resources: Building Blocks for Future Crops

SPECIAL ARTICLE
Five Years of Tariff-Rate Quotas--A Status Report


IN THIS ISSUE

Tariff-Rate Quotas--A Status Report
When the next round of World Trade Organization agricultural
trade negotiations gets under way in earnest next year in Geneva,
tariff-rate quotas (TRQ's) are likely to emerge among items to be
negotiated. A TRQ is a two-tiered tariff allowing a limited
volume--the "quota"--to be imported at a lower rate, with imports
above the quota subject to the higher tariff. Over 1,300 TRQ's
are applied to agricultural products, and many limit trade on key
or politically sensitive commodities.
Two issues to be resolved are TRQ liberalization and
administration. Liberalization concerns changing the tariff and
quota levels of existing TRQ's. Questions about liberalization
are likely to revolve around whether minimum-access levels
(within quota) should be expanded and whether and how to reduce
tariffs. TRQ administration relates to how an importing country
allocates the right to import at the in-quota tariff rate. For
example, should quotas be allocated based on past market share or
potential share? David Skully (202) 694-5236;
dskully@ers.usda.gov
     
India Relaxes Restraints on Agricultural Imports
India is slowly opening its doors to the world market. Since
1997, the world's second-most populous country has been removing
many licensing and quota restrictions on agricultural and other
imports--restrictions that had virtually banned private importing
and kept the level of agricultural imports at a miniscule
fraction of the domestic market. On the minus side, India has put
in place several new high tariffs that will blunt some of the
trade potential and leave immediate prospects for agricultural
imports somewhat uncertain. Nevertheless, as its government
liberalizes trade policies, India emerges as a potentially large
market for agricultural and consumer products. With incomes
rising, and given the government's general support for
globalizing the country's economy, India should be a growing
market over the long run. Anwarul Hoque (202) 694-5222;
ahoque@ers.usda.gov
     
Stalking Celery
Celery has nutritional properties and versatility that have made
it a relatively steady item in the grocery cart. U.S. consumers
used 1.8 billion pounds of celery in 1999, continuing a steady,
flat trend in per capita celery use over the past four decades--
about 7 pounds per year on average. The U.S. celery industry is
relatively small, with 378 farms reporting celery production in
1997. California, Florida, Michigan, and Texas account for most
of the nation's celery crop, which averaged $236 million annually
during 1997-99. In the 1990's, exports accounted for an average
12 percent per year of celery supplies. Canada, China/Hong Kong,
and Taiwan were the largest markets, purchasing 70, 15, and 7
percent of U.S. fresh-celery exports. Gary Lucier (202) 694-5253;
glucier@ers.usda.gov
  

U.S. Rice Prices Low Despite Smaller Supplies

U.S. rice prices were the lowest in nearly 7 years at the start
of the August-July 2000/01 market year, despite a projected dip
in supplies from last season. Although prices have risen slightly
since July, the 2000/01 U.S. season-average farm price is
projected at $5.75 to $6.25 per hundredweight (cwt), the lowest
since 1992/93. The main factor preventing U.S. prices from rising
is the extremely low level of prices on the international market-
-largely the result of an abundance of exportable supplies
worldwide and bumper crops in most major importing countries.
Nathan W. Childs (202) 694-5292; nchilds@ers.usda.gov

Agricultural Genetic Resources for Future Crops
Agricultural genetic resources are living matter used by plant
breeders to develop or enhance desirable traits in crops, such as
high yields, resistance to disease, drought tolerance, and
heightened nutritional value. Genetic improvements from plant
breeding account for half the crop yield increases over the past
six decades. But continuing evolution of diseases and other pests
presents a threat that can quickly undo the gains. Breeders need
continually to incorporate diverse germplasm, drawing on wild and
adapted sources, to find specific traits, including resistance to
diseases.

Gene banks hold more than 6 million unique samples of crop
varieties at sites around the world. In the U.S., most
agricultural genetic resources are preserved by removing genetic
material from its natural environment for long-term conservation.
Given the limited incentives for private firms to hold sufficient
levels of all types of germplasm, a strong set of publicly held
genetic resources is a major asset in meeting society's goals.
Kelly Day-Rubenstein (202) 694-5515; kday@ers.usda.gov

BRIEFS
Livestock, Dairy, & Poultry: Growth in Broiler Production Likely
to Slow in 2001

After relatively strong production increases in most of the
1990's, the U.S. broiler industry is attempting to slow its rate
of expansion. U.S. broiler production over the first 8 months of
2000 totaled 20.5 billion pounds, only 3 percent higher than the
previous year. Total production in 2000 is projected to increase
3 percent over 1999, and production growth should remain slow in
2001 as rising export demand levels out. The outlook for broiler
parts prices hinges on whether production increases do in fact
remain moderate.

Behind the slowdown are depressed prices for most broiler parts,
prompted by the steep decline in exports to Russia after
devaluation of the ruble in August 1998. During the first half of
1998, exports accounted for 19 percent of total U.S. production,
with Russia the largest market. Until the ruble devaluation,
broiler exports had proceeded at a record pace and prices of most
parts had been fairly strong. After devaluation, exports fell
dramatically, and prices for most parts declined.

Leg quarters are the largest component of Russian imports. In the
U.S. Northeast, prices for leg quarters reached a 1998 peak in
August, at almost 36 cents a pound. By December, the drop in
exports to Russia sent these prices plunging to 18 cents, a 50-
percent decline. Prices for other broiler parts followed a
similar pattern. Prices for thighs fell about one-third between
those months.

Before the drop in the Russian market, processors had been
increasing flocks in anticipation of growing domestic demand and
higher exports. These efforts boosted production 6.7 percent in
1999. This increase in production, coupled with only a 4-percent
increase in exports, depressed prices for both light and dark
meat products throughout 1999. Also, most of the export growth
was due to a jump of almost 25 percent in shipments to China,
whose imports impact prices less than those of Russia (see
below).

In 2000, the export picture became one of the bright spots for
the broiler industry, with shipments forecast to increase 7
percent. After several years of slow or little growth due to
economic upheavals in a number of importing countries, most major
broiler markets have boosted imports considerably. (The major
U.S. markets are Russia, Mexico, and China/Hong Kong, which
together accounted for 65 percent of U.S. broiler exports in the
first half of the year.) Between the beginning of August and the
end of September, prices of most broiler parts increased
substantially. For example, prices for leg quarters rose
approximately 7 cents a pound to 28 cents as sales to Russia
increased.

Export demand has increased because the economies of Russia and
Mexico have both gained from rising world oil prices. Broiler
shipments to Russia have also benefited from recent changes in
import tariffs. Tariff rates on all poultry products have been
equalized, with broiler tariffs dropping slightly and tariff
rates for turkey and other poultry products rising. During the
first half of 2000, total shipments to Russia totaled 1.016
billion pounds, a 49-percent increase over 1999. (This figure
includes broiler exports going through Latvia and Estonia, almost
all of which eventually end up in Russia.) Although efforts are
underway to rebuild the Russian poultry sector, domestic
production is still below earlier levels, and demand for U.S.
products is strong.

Broiler shipments to Mexico have grown steadily since recovering
from the 1996 downturn resulting from devaluation of the peso. By
1999, exports had risen to just under 300 million pounds, making
Mexico the third-largest U.S. market. This year, the Mexican
economy is benefiting not only from higher oil prices but also
from an apparently smooth transition of power following July
elections that will bring an unprecedented change in political
leadership. These conditions have led to a 20-percent increase in
broiler exports to Mexico over the first 7 months of 2000.
Exports are expected to remain strong for the remainder of 2000
and into 2001.

The Chinese market also has continued to expand over the last
several years. Shipments to China/Hong Kong totaled 1.383 billion
pounds in 1999, an increase of 26 percent from the previous year.

During the first 7 months of 2000, shipments totaled 929 million
pounds, an increase of 16 percent. The rate of exports to
China/Hong Kong is expected to slow in the remainder of 2000, but
China/Hong Kong is expected to remain a strong growth market into
next year.

While growth in exports to the China/Hong Kong market has
benefited the U.S. broiler industry, the trend has not
strengthened prices as dramatically as it would in other markets.
The reason lies in the composition of products shipped to
China/Hong Kong. In 1999, 23 percent of all broiler products
exported there (322 million pounds) consisted of chicken feet.
Without this market, almost all of these parts would go to
renderers for eventual use in pet foods. These exports represent
a definite gain to broiler processors, but their absence from the
domestic market does not affect prices for broiler parts
traditionally consumed in the U.S.

With strong exports to the three largest markets and a number of
smaller markets, including Korea and Singapore, U.S. broiler
exports surged to over 3 billion pounds in the first 7 months of
2000, up over 20 percent from the previous year. While the pace
of export growth is expected to slow during the rest of 2000, the
year's total should reach a record 5.2 billion pounds.

Slower overall growth is expected in 2001 as shipments level out.
Larger shipments to Russia are likely, but declining shipments
through Latvia and Estonia will probably offset most of the
increase.
David Harvey (202) 694-5177
djharvey@ers.usda.gov

BRIEFS
Specialty Crops: 2000/01 U.S. Apple Crop to Rise, Prices Likely
to Fall

U.S. apple orchards will grow more apples this year, and
consumers across the country will likely eat more apples and pay
slightly less for them. According to USDA forecasts, U.S. apple
production is 10.7 billion pounds in 2000, up 1 percent from 1999
although 8 percent below 1998's record. Most western states will
produce more apples than last year, and the increase should
outweigh declines anticipated in central and eastern states.
While the larger crop should cause fresh apple prices to drop in
2000/01, they probably will not fall far, because of reduced
competition from a smaller pear crop this autumn.

An ample apple supply, combined with slightly lower prices,
should increase consumption of U.S. apples--particularly fresh
apples--both at home and abroad in 2000/01. U.S. per capita
consumption of fresh apples will be up about 1 percent from the
18.8 pounds consumers averaged last year.

Weather conditions lie behind much of this year's anticipated
difference in apple production between the west and the east.
Given the west's favorable weather, USDA expects apple growers in
every western state but California to produce a considerably
larger crop than last year's--up 14 percent, to 7.0 billion
pounds for the region. Washington, where apples are the state
fruit, grows more than half the country's crop--the state is the
largest supplier to both U.S. and export markets. This year's
Washington apples should be of excellent quality and size, and
output should measure 5.7 billion pounds, 14 percent higher than
1999's. (California's bearing acreage has declined the last two
years, and some apple-growing areas were affected by erratic
weather this year.)

In the east and central states, freeze damage, poor pollination
conditions, hail, and fire blight problems hurt the crop in most
apple-growing regions. Production is expected to fall in several
major producing states: Michigan (down 26 percent), New York (19
percent), Pennsylvania (5 percent), Virginia (6 percent), and
West Virginia (38 percent).

The larger crop in Washington alone can be expected to lower the
price of fresh apples this year--in July through September 2000,
U.S. growers received an average 19.7 cents per pound, compared
with 20.2 cents during the same period in 1999. In addition, the
state's crop is reported to be maturing 5 days earlier than
normal, and stocks from 1999 appear large. Depending on how
quickly the industry moves these 1999-crop apples out of cold
storage, the early-maturing crop in Washington could lower fresh
apple prices further.

Another result of higher production is that the U.S. will
probably import fewer and export more fresh apples this season,
the reverse of the 1999/2000 season when U.S. production dipped.
Imports from August 1999 through July of this year were up 10
percent over the previous year's, to 377.5 million pounds.
Shipments increased from Canada and New Zealand but declined from
Chile as poor spring weather reduced the crop there. These three
countries supplied 92 percent of U.S. fresh apple imports.

U.S. fresh apple exports should receive an extra boost from the
combination of Washington's good-quality crop and USDA's Market
Access Program, which provides funds to promote apple exports.
Partly because of lower U.S. production, exports in 1999/2000
decreased 21 percent from a year earlier, to 1.2 billion pounds,
slipping in all major markets except Mexico and Indonesia, with
Mexico surpassing Taiwan as the top destination for U.S. fresh
apples.

Japan, although still a minor market, imported 46 percent more
U.S. apples in 1999/2000 than the previous year. The increase is
partly because the Japanese market for the first time admitted
U.S. Fuji apples, having previously limited its U.S. imports to
Red Delicious and Golden Delicious varieties.

In the processed-apple market in 2000, growers can expect higher
prices as a result of reduced supplies from the central and
eastern U.S., whose output is geared mostly to this market. Also
likely to push prices up is the expected drop in concentrated
apple juice imports from China, which in recent years has flooded
the U.S. market. Imports of concentrated apple juice from China
currently face a 52-percent anti-dumping duty levied because the
concentrate was being sold in the U.S. market at unfairly low
prices.
Agnes Perez (202) 694-5255
Acperez@ers.usda.gov

COMMODITY SPOTLIGHT
Stalking Celery

American poet Ogden Nash composed a short ode to celery that sums
up two of its key
characteristics:

Celery, raw
Develops the jaw,
But celery, stewed,
Is more quietly chewed.

The distinctive crunch of a fresh rib of celery is a hallmark of
this vegetable, widely considered a salad item. But it can also
be transformed into a subtle but flavorful ingredient in a
variety of dishes from chow meins to stews and gumbos.

Although not a major plate vegetable, celery has nutritional
properties and versatility that have made it a relatively steady
item in the grocery cart. Two medium-sized celery ribs have just
20 calories yet provide 15 percent of the RDA for vitamin C and 8
percent of the recommended dietary fiber. The popularity of
salads and salad bars and the introduction of prepackaged fresh-
cut products over the past decade may have helped to raise the
profile of celery among consumers.

U.S. Production
Heads West

Although European settlers brought celery to America in the
1600's, the U.S. commercial celery industry did not take hold
until the latter 1800's, when Dutch farmers in Michigan began
marketing the crop. The industry spread south to Florida and then
west to California, where it is concentrated today.

The U.S. celery industry is relatively small, with 378 farms
reporting celery production in the 1997 Census of Agriculture--
unchanged since 1987 but one-third less than in 1978. California,
Florida, Michigan, and Texas account for most of the nation's
celery crop, which had an average annual farm value of $236
million during 1997-99.

In California, the number of farms reporting celery acreage (175
in 1997) rose over the past decade, while the numbers declined in
most other states. California now accounts for about 86 percent
of national celery production (ERS estimate)--up from 75 percent
in 1990 and 64 percent in 1980. Celery contributed $218 million
to California's farm cash receipts during 1997-99--ninth among
all vegetable crops in the state.

California produces celery year-round, with output concentrated
in the central and south coastal valleys, where the climate is
mild. The counties of Ventura (43 percent of state production),
Monterey (34 percent), and Santa Barbara (13 percent) account for
most of the state's celery output. Although the bulk of
California's celery enters the fresh market (including fresh-cut
products such as celery sticks), frozen and dehydrated celery
items are also sold.

The celery industry in Florida has been in decline over the past
20 years as competitive pressures and weather setbacks forced out
a number of growers. According to the 1997 Census of Agriculture,
Florida harvested 4,115 acres in 1997--half the area of 1992 and
one-third the celery acreage recorded in the 1978 Census. This
reduction in Florida and larger supplies from California led the
Florida industry in 1998 to discontinue its marketing order for
Florida celery, which, among other things, authorized mandatory
inspection, grade, size, pack, and container and flow-to-market
regulations. Despite the trend, Florida remains the second-
leading producer of celery in the nation, with an estimated 8
percent of the country's output. Florida's season runs January
though April, and the state's crop is grown largely in the
Everglades area of Palm Beach County.

Michigan is the third-ranking producer of celery in the U.S.,
harvesting an average 2,133 acres during 1997-99. Although the
number of Michigan celery growers has declined by half since
1982, the longrun trend (1950-99) in harvested acreage has been
flat. According to information from Michigan State University,
about 75 percent of the state's celery crop is packed for the
fresh market, 60 percent of that as standard-sized celery packs
and 15 percent as celery hearts. The other 25 percent of
Michigan's celery goes into products such as soup, juice, and
frozen foods. Although acreage is spread among several counties,
the leaders are Ottawa (17 percent), Allegan (15 percent), and
Muskegon (13 percent); 60 percent of the acreage is in the
southwestern part of the state. Michigan ships celery July
through October.

Like Florida, Texas celery acreage has trended down over the past
decade. During the 1990's, California shippers had an advantage
over Texas and Florida growers because of lesser freeze risks and
because transportation costs were low. Celery acreage is now one-
third the level of the late 1980's with just 600 acres remaining.
The majority is located in the fertile Rio Grande Valley with
most shipments January through March.

U.S. Since 1970's
A Net Exporter

The U.S. was historically and continues to be a net exporter of
celery. In 1999, exports of fresh-market celery totaled $43
million, while imports were valued at $9 million. During the
1990's, an average 12 percent of celery supplies was exported
annually--a steady upward trend from 11 percent during the 1980's
and 8 percent during the 1970's. In 1999, Canada, China/Hong
Kong, and Taiwan were the largest importers of U.S. celery,
accounting for 70, 15, and 7 percent of fresh-celery exports. The
U.S. is the leading foreign supplier of celery to these countries
and ships celery to them year-round, with some seasonal variation
in volume.

Steady, ample supplies from a relatively efficient domestic
industry keep prices low and limit opportunities for imports of
fresh celery. Despite this, U.S. import volumes have been
trending upward since the late 1980's. In the 1990's, fresh
imports accounted for 3 percent of celery consumption, up from 1
percent in the 1980's; fresh-celery imports doubled between 1989
and 1999. Ninety percent of the fresh celery imported by the U.S.
comes from Mexico, most entering the country during the winter
months. The U.S. also spends $2 to $3 million annually to import
dried celery stalks, with the bulk coming from Chile and China.

Domestic Demand Constant

U.S. consumers used 1.8 billion pounds of celery in 1999.
Although consumption fell during the last half of the 1990's,
average per capita use of celery has remained relatively flat
over the past four decades. Despite the recent drop, celery use
averaged 7.1 pounds per person during the 1990's--the same amount
recorded in the 1980's and just below the 7.2-pound average
calculated for both the 1960's and 1970's. Looking further back,
per capita use peaked at 9.1 pounds in 1946 before dropping to
7.9 pounds the following year.

Fresh-market celery shipments stay fairly constant throughout the
year, except for a seasonal peak during November and December.
The holiday season heralds the peak of celery use in the U.S., as
celery appears on party platters, with vegetable dips, and in
turkey stuffing. In the 1990's, January-to-October monthly celery
shipments each generally amounted to 7 to 8 percent of the annual
total, with the lowest volume shipped in August (7 percent).
However, reflecting the Thanksgiving holiday, volume rose to
nearly 12 percent in November, then fell off slightly to 9
percent in December. December celery shipments were even higher
in the 1980's (about 10 percent of the annual total), possibly
reflecting changes from decade to decade in the main holiday
dishes served in that month.

Celery sells largely in fresh form (including fresh-cut diced and
in sticks), with smaller amounts canned, frozen, and dehydrated.
According to USDA's 1994-96 Continuing Survey of Food Intakes by
Individuals, fresh celery, like most other foods, is consumed
largely at home (76 percent). This reflects the wide variety of
uses for celery at home--for example, as an ingredient and
flavoring agent in main-course recipes, a component of green
salads and of sandwich salad spreads, a dipping vegetable for
parties, and a convenient snack item.

In the away-from-home market, U.S. consumers most often eat
celery in standard "white tablecloth" restaurants (14 percent).
Celery shippers have been able to carve only a small niche in the
expanding fast-food market, which is responsible for only 4
percent of celery consumption. Consumers eat more than 90 percent
of processed celery products in items like soup and dehydrated
and frozen products at home.

Who Eats Celery?

According to regional breakdowns of data from USDA's Continuing
Survey of Food Intakes by Individuals, 1994-96, southerners (in a
16-state southern region defined by the Census Bureau) eat
proportionately less fresh-market celery than consumers in all
other areas of the country. This may reflect food preferences
along racial/ethnic lines, as 53 percent of Blacks (non-Hispanic)
live in the South, and Blacks are the only major racial group to
consume less celery in proportion to their numbers in the
population. Specifically, while Blacks account for close to 13
percent of the population, they accounted for only 8 percent of
the fresh celery consumed nationwide. Whites, non-white
Hispanics, and others (largely Asians) each consumed more fresh-
market celery than their respective proportions of the
population. Northeasterners consume about half of the national
total of processed celery products.

The wealthiest consumers appear to prefer celery more than other
socio-economic groups. Households with incomes at least 3.5 times
greater than the poverty level (the cutoff point for food stamp
eligibility is 130 percent of the poverty level) represent 39
percent of the U.S. population but account for 47 percent of
fresh celery consumption. This was the only defined income class
whose use proportionally outweighed their population percentage.
The 19 percent of the population who earn the lowest incomes
consumed just 15 percent. For processed celery products, middle-
income consumers accounted for the greatest share of use (63
percent); both upper and lower income groups ate proportionally
less of these.

Men eat more celery than do women--53 percent of the total. This
may be explained largely by the overall higher caloric intake of
men. In proportion to their population shares, both men and women
over the age of 60 are strong consumers of celery. Middle-aged
men and women also consume more celery than their share of the
population. And in what may come as surprising news to some, men
between the ages of 20 and 39 also eat proportionately more
celery than their share of the population; women in the same age
group eat slightly less.

Relative to other age groups, men and women under the age of 20
eat little celery. People in this age group account for nearly 30
percent of the population yet reported consuming only 17 percent
of the fresh celery. Given the steady nature of celery use over
the past several decades, this could reflect a normal maturation
of tastes and preferences that favors celery consumption as
people age. An alternative scenario suggests that celery use may
decline as the current population ages.

Price Trend Is Flat

Although prices for celery can fluctuate widely (largely due to
weather variations), the trend in celery prices during the 1990's
was relatively flat. Between 1990 and 1999, nominal f.o.b.
shipping point prices trended upward by just 1 cent per month.
(F.o.b.--free-on-board--prices include no delivery charge to move
the product and load it onto a carrier at a particular point
during shipping.) Unlike more storable commodities such as
potatoes, fresh-market celery exhibits weak seasonal price
variation that reflects relatively consistent domestic marketing
throughout most of the year. Celery prices also followed
pronounced 3-year cycles in the 1990's, which may reflect
recurring weather patterns.

Like many vegetables, the proportion of the retail value of
celery accounted for by the shipping-point price has been in a
slow but steady decline. During 1995-99, growers and shippers
received about 25 percent of the retail value. This was down from
26 percent during 1990-94, 27 percent during 1985-89, and 28
percent during 1980-84. Although a number of factors probably
account for this trend, one explanation may be that farm prices
are rising more slowly because productivity is growing faster (as
efficiency increases) in the farm sector than in the retail
sector.

From Waldorf salad to chow mein, celery's versatility is clear.
Celery is also well known as a convenient, low-calorie,
nutritious food. Combined, these characteristics have resulted in
steady long-term demand that has proven celery to be a staple
vegetable in American households.
Gary Lucier (202) 694-5253 and Biing-Hwan Lin (202) 694-5458
glucier@ers.usda.gov
blin@ers.usda.gov

COMMODITY SPOTLIGHT BOX
Celery Culture

Celery seed is very small and light; a pound of some varieties
contains more than 1 million seeds. The small seed size makes
successful field planting difficult. To assure consistent stands,
virtually all commercial celery is started in greenhouses, grown
indoors for 10 weeks, and then transplanted. Because each
greenhouse-grown plant costs about 2 cents and an acre of celery
may contain 40,000 to 50,000 plants, the "seed" cost to establish
an acre of celery can be as high as $1,000. Total costs of
production likely exceed $4,000 per acre.

Celery is a cool-season crop that exhibits fairly uniform growth-
-a characteristic that allows growers to harvest fields with one
pass. Field packing of fresh-market celery (as opposed to cutting
and then hauling it to a shed for trimming, sorting, and packing)
is the predominant and most efficient harvest method today.
Celery destined for processing can be mechanically harvested.

COMMODITY SPOTLIGHT BOX
Celery Root

Native to the Mediterranean region and the Middle East, celery
has been around for more than 3,000 years. Used in ancient times
at first for ceremonial garnishes and medicinal purposes, celery
eventually gained favor with Greeks and Romans as a food-
flavoring agent. Celery is a prominent member of the parsley
family, along with carrots, anise, and parsnips. Although
commercial celery is grown as an annual plant, it is biennial
(grows vegetation the first year and fruits and dies during the
second). Native celery can be found growing in the wild in damp
or marshy areas in the Mediterranean region and in the Caucasus
in western Asia.

Modern celery is an improved version of the plant cultivated in
Europe during the 18th century. Today's celery is larger, more
succulent, and less stringy than its ancestors. Most celery grown
in the U.S. is a variant of the Pascal (green) type. Wild celery,
called smallage and not found in the U.S., is prized for its seed
that is marketed as celery seed, a popular flavoring agent and
herbal remedy. The essential oil of celery seed contains several
components currently under study for their medicinal properties.

A stalk of celery (sometimes called a head) consists of several
individual fleshy leaf stems or ribs called petioles. "Celery
hearts" are created by trimming off the outer ribs of a stalk,
leaving the tender inner ribs. All portions of a celery stalk are
edible, with the leaves and knobby tops useful for flavoring
soups and stews.

Like white asparagus, white (blanched) celery is preferred in
some European countries. (Blanching, which makes older varieties
more palatable, is accomplished in the field before harvest by
wrapping, covering, or shading the stalks to exclude light and
force them to turn white.) In fact, during the early 1900's,
white celery was in vogue in the U.S., and not until the 1940's
did green celery become the industry standard. In some European
countries today, either the golden (self-blanching) types are
grown or green celery is blanched. For example, most celery
consumed in the United Kingdom is white, and white celery is also
favored in Italy. Other novelties in the celery world include
varieties with pink or red stalks.

Celery root, also known as celeriac, is largely a specialty
vegetable in the U.S. but enjoys a wider following in northern
Europe. Celeriac does not originate from the same plant as fresh-
market celery but belongs to another group.


COMMODITY SPOTLIGHT
Rice Prices Remain Low Despite Smaller U.S. Supplies

Rice prices in the U.S. were the lowest in nearly 7 years at the
start of the August-July 2000/01 market year. While prices have
risen slightly since July, they are still below levels reported
in April. The 2000/01 U.S. season-average farm price is projected
at $5.75 to $6.25 per hundredweight (cwt), the lowest since
1992/93.

The price weakness coincides with production and total supply
levels that are below year-earlier records, with ending stocks
expected to dip as well. Extremely low prices on the
international market are the main factor preventing U.S. prices
from rising.

The export price for Thai 100-percent grade B--similar to U.S.
southern long grain milled rice--averaged $185 per ton in
September, the lowest in nearly 14 years. An abundance of
exportable supplies worldwide and the absence of any significant
production shortfall in a major importing country (except for
Iran) are behind the weak international prices. Thai prices
strengthened in early October due partly to weather problems in
South and Southeast Asia, but have weakened again.

Because the U.S. exports around 40 percent of its rice crop, U.S.
prices are sensitive to conditions in the international market.
The U.S. is a reliable exporter of high-quality rice, accounting
for about 12 percent of global exports, and is typically the
third- or fourth-largest exporter. However, the U.S. faces stiff
competition in global markets from low-cost Asian rice exporters.
If U.S. prices rise relative to international levels, the U.S.
price difference over major competitors widens, diminishing U.S.
prospects in global markets.

U.S. Rice Prices
Have Dropped Substantially

U.S. prices for rough (unmilled) rice almost steadily declined
from early 1999 through July 2000, a result of large supplies in
the U.S. and weaker prices in international markets. In 1995/96
and 1996/97, U.S. prices were supported by lower U.S. supplies
and strong international prices. Despite the Asian financial
crisis that began in the summer of 1997, U.S. rough rice prices
remained strong through the first half of 1998/99. This was due
largely to record shipments of rough rice to South America in
response to El Nino crop damage in the region.

Strong rice prices combined with declining prices for competing
crops brought substantial expansion in U.S. rice plantings from
1997 through 1999. By 1999, U.S. rice plantings exceeded 3.5
million acres, the second largest on record. When 1999 planting
intentions were announced in March, U.S. prices began a major
decline. From March 1999 to March 2000, the monthly average cash
price dropped $3.11 per cwt to $5.82. By July 2000, the monthly
cash price for all rice was only $5.47 per cwt, the lowest since
September 1993. Prices have strengthened slightly since then,
reaching $5.66 per cwt by mid-September.

The price decline was most severe for long grain rice. However,
in late summer, prices for long grain rice began to rise due to
tight supplies of high-quality rice prior to the main harvest in
the Delta, and to projections for a smaller crop in 2000/01. Long
grain prices continued to strengthen in September and early
October due to several large food aid purchases and farmers
delaying selling rice. Some farmers have been reluctant to market
their rice in the face of uncertainty about the size of the 2000
U.S. crop and events in international markets. Prices for medium
grain rice, grown mostly in California, remained relatively high
throughout 1999/2000 due to tight supplies, a result of several
years of weak production in California in the late 1990's.

Prices for milled rice, the primary form of rice traded globally,
have declined as well. While record U.S. rough rice exports to
Latin America supported farm prices in 1997 and 1998, prices for
U.S. milled rice started to decline in the summer of 1997 when
Asian currencies collapsed. However, impacts of the 1997/98 El
Nino in Southeast Asia supported international prices throughout
1998 as Indonesia and the Philippines made record purchases. This
limited the drop in U.S. prices even though the U.S. was not a
major supplier to either country.

By early 1999, the price-supporting effects of the 1997/1998 El
Nino faded, causing Asian prices to spiral downward. To remain
competitive, U.S. prices had to decline as well. From January
1999 to January 2000, prices for southern long grain milled rice
dropped 25 percent to $287 per ton. By late May, prices had
dropped to $248 per ton, the lowest since the summer of 1987. A
tightening of U.S. supplies prior to the 2000 harvest, followed
by several food aid purchases in September and October have
raised prices for U.S. long grain rice. By mid-October, price
quotes for U.S. long grain milled rice had climbed to $276 per
ton, the highest since April 2000.

In contrast to long grain milled rice, prices for California
medium grain milled rice rose during 1998/99 and declined only
slightly in 1999/2000, even with a larger California crop. By mid-
summer 2000, prices for California medium grain rice began to
drop more sharply on expectations of a record harvest. In late
September, prices had fallen to $375 per ton, $66 below levels
reported in mid-July.

U.S. Supplies Drop
From 1999/2000 Record.

The U.S. is the only major rice exporting country expecting a
tight supply situation by the end of the 2000/01 (August-July)
market year. By July 31, 2001, ending stocks are projected at
27.1 projected to drop almost 16 percent to 13 million cwt, the
lowest since 1995/96. The stocks-to-use ratio is projected at 9.2
percent, the second lowest on record since supply and use were
first reported by grain type in 1982/83.

The U.S. long grain crop is projected to drop 14 percent in
2000/01 to 130 million cwt, the smallest since 1997/98. Although
beginning stocks were 11 percent larger than a year earlier,
total long grain supplies are projected to drop almost 11 percent
to 155 million cwt.

Long grain plantings dropped more than 17 percent from last
season's record to 2.26 million acres, the smallest since
1996/97. The area contraction was driven largely by a sharp
decline in prices. Between January 1999 and January 2000, price
quotes for U.S. long grain rice dropped more than 40 percent to
less than $5.50 per cwt. The completion of Brazil's record 1998
purchases, declining global prices, and a record 1999 U.S. long
grain crop were responsible.

Total use of long grain rice is projected to drop 10 percent to
142 million cwt, with both exports and domestic use down
substantially from a year earlier. In fact, U.S. long grain
exports are projected to be the lowest since 1996/97, a result of
smaller supplies and intense price competition with Asian
exporters. In the domestic market, both brewers and some food
processors will likely shift from long to medium grain rice due
to changes in relative prices.

Medium/Short Grain Market
Faces Bearish Outlook

In contrast to the long grain market, the combined medium/short
grain rice market is not confronting tight supplies. In fact,
total supplies are projected to rise 16 percent to more than 73
million cwt, the largest since 1994/95. An increase of more than
50 percent in beginning stocks and a 14-percent jump in
production to 61.7 million cwt are responsible for the larger
supplies.

Combined medium/short grain plantings are estimated at 850,000
acres this year, up more than 6 percent from a year earlier and
the largest since 1994/95. In California--where medium grain
accounts for more than 95 percent of rice acreage--rice plantings
are the largest since 1981 and projected to produce a record
harvest. Medium grain prices, especially in California, were
relatively strong at planting, a major factor in the area
expansion. Medium grain prices had been supported for several
years by tight million cwt, down nearly 2 percent from a year
earlier. This results in a stocks-to-use ratio of 13.3 percent,
just fractionally above a year earlier.

U.S. production is well below the record crop of a year earlier.
In 2000, U.S. rice plantings dropped 12 percent to 3.1 million
acres, the lowest since 1996/97. The area contraction was driven
largely by low rice prices at planting time, especially prices
for long grain rice, which accounts for more than 70 percent of
U.S. rice area and was responsible for almost all of the
reduction. In addition, problems stemming from salt-water
intrusion caused by early season drought likely contributed to
less rice acreage in Louisiana. Short grain acreage--about 1
percent of total plantings--is also down. Medium grain plantings,
making up more than one-fourth of U.S. rice acreage, actually
rose, with California accounting for the bulk of the increase.

Although average yield is projected at a record 6,230 pounds per
acre, total U.S. production is projected to drop 7 percent to
192.2 million cwt. As a result, even with beginning stocks up 25
percent from a year earlier to 27.5 million cwt, total U.S. rice
supplies are projected to drop more than 3 percent from the
1999/2000 record to 230 million cwt, virtually the same as
1994/95, the second-largest crop on record.

Total use is projected to drop by 4 percent--to 203 million cwt.
Exports, projected to fall 9 percent to 80 million cwt, will
account for all of the decline. Milled rice shipments, where the
U.S. faces its strongest competition from Asian exporters, are
expected to account for almost all of the reduction. Exports of
rough rice are expected to remain virtually unchanged. None of
the Asian exporters ships rough rice, although Argentina and
Uruguay export rough rice within Latin America.

In contrast to exports, domestic use is projected to increase
fractionally to a record 122.9 million cwt. The domestic market
is much less sensitive to price changes than the international
market. Domestic buyers demand high-quality rice meeting tight
specifications for appearance, consistency, and degree of
milling, as well as taste and cooking attributes. This is true
for all domestic uses--direct food use, beer, processed foods,
and pet food.

Few other suppliers can meet these standards, a major reason
Asian exporters have not established a larger presence in the
U.S. market. Except for high-quality aromatic rices from
Thailand, India, and Pakistan, the U.S. imports very little Asian
rice.

For the past 20 years, the domestic market has grown steadily and
has made up a larger share of total use. In 2000/01 the domestic
market is expected to account for more than 60 percent of total
use, in contrast to 1980/81 when exports accounted for almost 60
percent of total use.

.With Long Grain Stocks
The Tightest Since 1995/96

The U.S. long grain market is projected to face an extremely
tight supply situation by the end of the 2000/01 market year, due
primarily to this season's smaller crop. Ending stocks of long
grain rice are projected to drop almost 16 percent to 13 million
cwt, the lowest since 1995/96. The stocks-to-use ratio is
projected at 9.2 percent, the second lowest on record since
supply and use were first reported by grain type in 1982/83.

The U.S. long grain crop is projected to drop 14 percent in
2000/01 to 130 million cwt, the smallest since 1997/98. Although
beginning stocks were 11 percent larger than a year earlier,
total long grain supplies are projected to drop almost 11 percent
to 155 million cwt.

Long grain plantings dropped more than 17 percent from last
season's record to 2.26 million acres, the smallest since
1996/97. The area contraction was driven largely by a sharp
decline in prices. Between January 1999 and January 2000, price
quotes for U.S. long grain rice dropped more than 40 percent to
less than $5.50 per cwt. The completion of Brazil's record 1998
purchases, declining global prices, and a record 1999 U.S. long
grain crop were responsible.

Total use of long grain rice is projected to drop 10 percent to
142 million cwt, with both exports and domestic use down
substantially from a year earlier. In fact, U.S. long grain
exports are projected to be the lowest since 1996/97, a result of
smaller supplies and intense price competition with Asian
exporters. In the domestic market, both brewers and some food
processors will likely shift from long to medium grain rice due
to changes in relative prices.

Medium/Short Grain Market
Faces Bearish Outlook

In contrast to the long grain market, the combined medium/short
grain rice market is not confronting tight supplies. In fact,
total supplies are projected to rise 16 percent to more than 73
million cwt, the largest since 1994/95. An increase of more than
50 percent in beginning stocks and a 14-percent jump in
production to 61.7 million cwt are responsible for the larger
supplies.

Combined medium/short grain plantings are estimated at 850,000
acres this year, up more than 6 percent from a year earlier and
the largest since 1994/95. In California--where medium grain
accounts for more than 95 percent of rice acreage--rice plantings
are the largest since 1981 and projected to produce a record
harvest. Medium grain prices, especially in California, were
relatively strong at planting, a major factor in the area
expansion. Medium grain prices had been supported for several
years by tight supplies, a result of weather problems for several
years in California and declining acreage in the South in 1997
and 1998. Medium grain plantings in the South--about 10 percent
of the region's rice acreage--are up slightly this year following
an increase of more than 20 percent in 1999.

Total medium/short grain use is projected to rise 15 percent to
almost 61 million cwt. The domestic market accounts for nearly
all of the growth as some processors are expected to shift from
long to medium grain. Cereal makers and brewers can shift between
rice from California and from the South as relative prices
change. Exports are projected to expand fractionally.

Given expectations of substantially larger supplies, farm prices
for medium grain rice are likely to be lower this year. So far,
there has been little buying of the 2000 medium grain crop grown
in California. However, prices for California milled rice began
dropping in late July in anticipation of a record medium grain
crop this year. Prices are currently quoted at $375 per ton, down
from $441 at planting time. California medium grain rice
typically sells at a premium to southern long grain rice.

Supplies Abundant in
Major Exporting Countries.

Tight U.S. supplies, especially for long grain rice, are not
expected to significantly boost U.S. prices, primarily because
international prices are extremely low. By late September, with
abundant supplies in exporting countries and modest import
growth, international prices were the lowest since January 1987.
Prices rose in early October due to problems stemming from severe
flooding in South and Southeast Asia and a large sale of Thai
rice to South Korea. Since then, however, prices have contracted
somewhat on an absence of major new sales. The U.S. price
differential over Thai prices had been widening since June, and
was more than $80 per ton in mid-October, the largest since early
November 1999.

With a few exceptions, none of the major rice exporters or
importers is experiencing a crop shortfall this year. Global
production is projected to drop more than 1 percent from the year-
earlier record, resulting in an almost 7-percent drop in global
ending stocks. But China, which accounts for most of the
contraction in both production and stocks, has more than adequate
supplies to meet domestic needs and remain a major exporter.

Major exporters of indica rice are Thailand, Vietnam, China, the
U.S. (southern long grain), India, and Pakistan (see AO December
1999 for a discussion of rice types). Indica accounts for nearly
80 percent of global rice trade, and these top six exporters
account for more than 80 percent of global rice shipments. Except
for Pakistan--which is experiencing a shortage of irrigation
water--and the U.S., the major exporters are forecast to ship
more rice in 2001. Pakistan's exports are projected to drop
slightly, and U.S. exports are projected to be flat.

The severe flooding that occurred in parts of South and Southeast
Asia is reported to have caused some crop damage in Thailand and
Vietnam, although reduction of their exports is not expected in
2000 or 2001. Cambodia and Laos also experienced severe flooding,
reducing 2000/01 production.

Parts of Bangladesh (a major importer) and eastern India have
experienced severe flooding as well, but it is too early to
assess any crop damage to these two countries. Rice farmers in
these two areas can harvest up to 3 crops a year. Thus, damage to
one crop can often be offset by larger production from the
following crop.

Argentina and Uruguay, also exporters of indica, are projected to
produce smaller crops in 2000/01. Nevertheless, both will have
more than enough rice to supply virtually all the import needs of
Brazil, which purchases the bulk of their exports. However, in
some years when supplies were inadequate in Argentina and
Uruguay, the U.S. has supplied a large share of Brazil's imports.

Among japonica exporters--Australia, Egypt, the European Union,
China, and the U.S.--supplies are more than adequate to meet
expected global import needs. Japonica rice (including California
medium grain) accounts for about 12 percent of global rice trade.
Aromatic rices-- primarily Thai jasmine and basmati from India
and Pakistan--and glutinous rice--mostly from Southeast Asia--
account for the remainder of global rice trade.

.As Major Importers
Harvest Bumper Crops

Supplies are abundant in the major importing countries as well.
The world's largest rice importers are Indonesia, Iran, the
Philippines, Nigeria, Brazil, Bangladesh, Iraq, Saudi Arabia,
Japan, Malaysia, and Senegal. Except for Japan, these countries
import mostly indica rice. Among them, only Iran is suffering
from a production shortfall that is pushing imports higher in
both 2000 and 2001. Record or near-record crops are projected for
Indonesia, the Philippines, Bangladesh, and Malaysia. Nigeria's
crop, although not a record, is the largest in several years.

Even with bumper crops in several major importing countries,
global import demand is projected to rise in 2001. Total global
imports are projected to rise nearly 10 percent in 2001 to 24.6
million tons. However, trade remains well below the 1998 record
of more than 27.3 million tons.

Indonesia, the world's largest rice importing country, accounts
for the bulk of the expansion, with imports projected to rise
from 2 million tons this year to 3 million in 2001. With stagnant
production, Indonesia cannot meet growing domestic demand. The
Philippines is also projected to import more rice in 2001, a
result of growing demand and fractionally smaller production.
Bangladesh's imports are projected higher in 2001 even with a
near-record 2000/01 crop. However, import levels for these three
top buyers remain below their 1998 records.

Imports are projected higher for Saudi Arabia, which does not
grow rice, as well as for Nigeria and Senegal. Growing imports in
these countries are largely the result of rising populations and
higher incomes. In contrast, Brazil's imports are projected to be
flat in 2000 due to large supplies resulting from bumper crops in
1998/99 and 1999/2000.

Little trade growth is projected in the japonica market. Imports
in Japan--the largest importer of japonica rice--are driven by
World Trade Organization (WTO) requirements and are not expected
to exceed minimum access levels. South Korea, Turkey, and Jordan
also import japonica rice. Like Japan, South Korea's imports are
driven by WTO requirements and are not expected to exceed minimum
access levels. Small but steady import growth is projected for
the eastern Mediterranean.
Nathan W. Childs (202) 694-5292
nchilds@ers.usda.gov

WORLD AGRICULTURE & TRADE
India Relaxes Restraints on Agricultural Imports

After years of isolation, India has slowly begun opening its
doors to the world market. In a major policy shift, the second
largest country in the world has been removing many licensing and
quota restrictions on agricultural imports since 1997. Although
India is replacing quotas with high tariffs, by dismantling many
trade barriers the country is moving incrementally toward open
trade and greater integration with the global market.

As its government liberalizes trade policies, India emerges as a
potentially large market for agricultural and consumer products.
Its population, which has surpassed a billion, is growing by 1.9
percent a year, and its gross domestic product of more than $370
billion, Asia's third largest, is increasing at an average 6.5
percent. Rising population, higher incomes, and changing tastes
and preferences are today creating a greater demand for food that
in the past has been supplied by India's own agriculture.

The country's agricultural sector has both expanded and
diversified in the past few decades. For example, during the post-
green revolution period, India's cereal production grew faster
than the country's population, although other crops grew less
rapidly. Despite growth of the farm sector, domestic production
alone cannot support the country's total food needs. Restrictive
trade policies have until recently kept India's agriculture under
tight rein and insulated it from outside competition. Now, to
meet domestic demand and to adhere to trade agreements, the
country must join the world market--thus the recent agricultural
trade policy changes.

The Government's Goal:
A Self-Sufficient Agriculture

India is a net exporter of agricultural products. In 1991, before
the government instituted major economic and trade policy
reforms, agricultural exports stood at $3.2 billion, and
agricultural imports at $0.8 billion. With trade liberalization,
exports rose to $6.7 billion by 1999, and imports to $3.3
billion.

India's agricultural production has grown at an annual average
rate of 2.9 percent in the last four decades. The country now
stands among the leading producers of many crops, including rice,
wheat, coarse grains, cotton, and pulse crops (seeds of legumes
such as peas and beans). It is self-sufficient in cereal
production and ranks high among producers of oil meals, fruits
and vegetables, tea, spices, and cashew nuts. Its cattle herd is
the largest in the world, and its milk production the highest.
India exports rice, oil meals, tea, coffee, cashew nuts, and
spices. It currently imports edible oils, pulse crops, cashew and
other nuts, spices, wool, hides, and skins. In years of low
production, it also occasionally imports wheat, oilseeds, sugar,
and cotton.

With self-sufficiency as its goal, the Indian government for many
years all but controlled the country's agriculture by subsidizing
and regulating the domestic market. A sizable part of the
government's budget went to subsidies for production inputs, such
as irrigation, power, and fertilizer, and to significant
investments in agricultural research, extension, and
infrastructure. The government regulated agricultural markets,
encouraged farmers' production with price supports, and bought
their major food crops at supported prices. A public distribution
system (PDS) sells government-procured food grain stocks to
consumers at subsidized prices.

In the area of trade, India restricted imports and subsidized
exports. Tariffs, quotas, import licensing, and state monopolies
became the mainstays of trade policies that virtually banned
private importing, including the importing of agricultural
products. Restrictive trade policies were so pervasive that about
11,000 products, including all food and consumer items, were
controlled by some import barrier other than tariffs. The upshot
was that importing any consumer product was effectively
prohibited, and only state-owned agencies could import any
products at all. Because of the trade restrictions, the level of
agricultural imports remained miniscule compared with the size of
the domestic market.

While restricting imports, the government encouraged exports for
some commodities. Among the incentives were subsidies, tax
exemptions, and licenses granted for importing necessary
intermediate products (e.g., restricted raw materials and
components).

Trade Restrictions Loosened

India had taken some steps to liberalize its trade policies in
the 1980's, and the process gathered steam with the economic
reforms of the 1990's. In 1991, the government set in motion
sweeping policy changes that abolished import licensing for all
but about 3,000 products. Products that still required licenses
or quotas went on a negative import list that specified which
items were banned or restricted, and which could be traded by
state agencies but not by private traders (see sidebar). On this
list went agricultural and consumer products whose import had
been restricted--essentially all of them.

Between 1991 and 1997, the Indian government removed import
quotas from about 15 percent of agricultural products on the
negative import list. At that point, about 80 percent of
internationally traded agricultural and livestock products were
still restricted imports, appearing under about 1,000 tariff line
items on the list.

The U.S. and other trade partners pressed India to remove all
quota restrictions on agricultural and consumer products and in
1997 brought the matter to the World Trade Organization (WTO) for
resolution. With pressure building, India moved more quickly to
take products off the negative list. Since 1997, it has freed 620
agricultural products and, after the WTO's ruling that India
should conform to WTO obligations, it agreed to free the
remaining 377 tariff line items by 2001. This year it has so far
removed restrictions on 228 of these items. When the remaining
149 tariff line items come off the list in 2001, India's
agricultural and consumer product imports will be free of quotas.

The 228 items freed of tariffs in 2000 include processed and
semiprocessed agricultural products. Items that can be imported
now are seafood and fish products; meat and meat products (except
poultry); milk and dairy products; fresh and processed fruits and
vegetables; flour, grit, and meal of wheat, rice, and coarse
grains; nuts and spices; and coffee, tea, frozen fruit juices,
tobacco, and salt.

The 150 restricted items scheduled to come off the list in 2001
are agricultural and consumer products in high demand in India,
among them food grains, poultry, fish, dairy products,
vegetables, fruits, certain spices, and processed and
semiprocessed meat.

As trade restrictions were relaxed, private traders were allowed
to import some bulk agricultural products that used to be
imported only through the state trading agencies--cotton, sugar,
oilseeds, and vegetable oils. About 34 bulk agricultural
products, such as rice, wheat, coarse grains, cinnamon, cloves,
coconut oil, and oil cake--items that represent about 45 percent
of India's total agricultural production--continue to be imported
only by state agencies. India considers these "sensitive"
products and intends to maintain strong import control over them
for as long as possible.

Agricultural Import
Prospects Mixed

Despite the removal of longtime restrictions, India's
agricultural imports will probably not mushroom in the short run.
The level of imports will depend on demand for a product and on
its price in India. The intent of the government as it replaces
quotas with tariffs is to raise prices on imports to dampen
consumer demand for them. As a result, import demand for products
widely produced in and exported by India will indeed be limited;
these include shrimp, prawns, mushrooms, coffee, and tea. Demand
for imported products with limited (or no) existing local markets
or not produced in India, such as kiwi fruit, stuffed pasta, and
dried asparagus, should be greater. For some agricultural
commodities, domestic prices remain lower than import prices in
most years. Removing import restrictions, even without imposing
tariffs, would not induce the import of these commodities.

Because most of India's 1 billion people have low incomes,
domestic demand today is mainly for basic, low-priced foodstuffs.
Removing import restrictions would, by and large, benefit this
group by making basic foods available from the world market at
competitive prices. India's growing middle-income group, however,
estimated at around 250 million people, offers a viable nascent
market for processed and semiprocessed foods, drinks, and upscale
consumer-ready food products; as income increases, tastes and
preferences change.

Consumer-oriented imports have risen since the lifting of
restrictions, and the increase is expected to continue, even to
accelerate. Among consumer goods, nonmeat food products have
better import prospects than meat products because most of
India's population is vegetarian. For the same reason, processed
and semiprocessed vegetables, fruits, and dairy products have
high import potential, as do such items as soft drinks, and
prepared cereals. High demand for almonds, nuts, and dry fruits
will increase the country's imports with the removal of quotas.

Among meat and meat products, poultry has general appeal and
strong import potential. However, poultry remains under quota
until 2001, and tariffs on poultry meat have been hiked from 35
percent to 100 percent to discourage a surge of imports. Many
seafood products will continue to have limited import potential,
as India is an exporter of marine products. Import prospects for
tea and coffee are also limited, because India grows and exports
these products.

Among bulk agricultural products, pulses, coarse grains,
oilseeds, and vegetable oils have the highest import potential.
Pulses are a staple of the Indian diet, particularly for
vegetarians. Although India is the world's largest producer of
pulses, to meet the increasing demand for that food, it is also
the largest importer, consistently importing 600,000-800,000 tons
a year. Prospects are high for large pulse crop imports, but they
are sensitive to prices.

India is self-sufficient in wheat and rice and even exports these
grains in small quantities. Domestic production of coarse grains,
particularly of corn, has remained limited, however. Corn demand
has been rising with the rapid expansion of the poultry and
starch industries. So while imports of coarse grains are still
restricted, an exception was made recently for corn imports.
India has now agreed to a tariff-rate quota (TRQ) of 350,000 tons
of corn in the first year (2000), rising to 500,000 tons in the
fourth year, at a rate of 15 percent (applied to quantities up to
the quota limit). The new bound tariff rate (i.e., allowable
maximum) on corn imports over the quota limit has been set at 60
percent.

India produces 26 million tons of oilseed annually, most of which
is crushed for edible oils. But the country's demand for edible
oils is so great that India imports more than 4 million tons
every year--mostly palm oil, but also soybean and sunflower oils.
Sustained income and population growth will continue to drive up
import demand for all three edible oils. In contrast, oilseed
imports are expected to remain sluggish due to high tariffs,
phytosanitary regulations, and the lower, highly competitive
prices of imported edible oils.

India has reemerged as a net importer of cotton since trade
liberalization. It now imports specialty medium- and long-staple
cotton, and the potential for greater cotton imports remains
high.

U.S. Exports to Expand

U.S. exports of agricultural products to India averaged $165
million annually in the last 5 years, which amounted to a 3- to 5-
percent share of India's agricultural imports. U.S. exports are
expected to increase substantially after quotas are removed in
2001.

Major U.S. agricultural exports to India are coarse grains,
cotton, pulses, edible oils, fruits and nuts, and hides and
skins. U.S. exports of corn, soybean oil, and sunflower oil are
slowly rising since removal of import restrictions, and these
have strong growth potential. U.S. dried peas have found an
expanding market in India, where their quality makes them
preferable to domestic varieties.

The best niche-market prospects for U.S. exports are processed
foods and consumer-oriented products. In the last few years,
exports of consumer-oriented products have risen sharply,
surpassing bulk products. U.S. exports of almonds, dried fruits
and nuts, dairy products, breakfast cereals, and processed fruits
and vegetables are increasing. As India opens its market to
consumer-ready processed foods and drinks, U.S. exporters are
likely to acquire a larger share of that market, offering a
variety of products that Indian consumers want. Because Indian
consumers generally are very price-conscious, a rise in U.S.
exports will depend on price as well as on the availability of a
suitable variety of products.

New Tariffs Will Limit
Consumer Demand

By replacing quotas with high tariffs, India's government
indicates that its promotion of free trade is not without
restraint. In fact, it has imposed high tariffs on products
removed from quota restrictions specifically to reduce
consumption of imported products and to protect the domestic
industry from effects of the world market's competitive prices.
WTO rules permit tariff setting, as long as applied (actual)
tariff rates do not surpass bound rates. India's applied rates
are mostly lower than the bound tariffs.

Moreover, India recently negotiated changes in its tariff
bindings of some products under WTO rules (in Article XXVIII of
the Uruguay Round Agreement). According to a 1999 U.S.-India
Agreement, bound rates have been increased on 15 agricultural
products, including powdered milk, rice, corn, sorghum, millet,
spelt, rapeseed oil, and grapes. In return, India has lowered
bound rates on 23 items, including dairy products, citrus fruits,
fresh and dried fruit, sunflower and olive oil, dried peas,
orange juice, potato preparations, and wool.

India is now imposing tariffs up to their allowable maximum for
imported agricultural and consumer goods to protect domestic
production. The recently announced peak tariff rate is 35
percent, plus a 3.5-percent surcharge and a 4-percent special
duty on items from which import quotas have been removed. In
addition, countervailing duties ranging from 16 to 32 percent are
imposed on some products. Basic tariffs have been raised on
poultry (100 percent), vegetable oils (25 to 45 percent), dairy
(15 percent), and tea and coffee (35 percent). India has recently
imposed maximum tariffs on imports of rice (80 percent), corn (15
percent in-quota rate, 60 percent over TRQ limit), and powdered
milk (15 percent in-quota rate, 60 percent over TRQ limit of
10,000 tons). Together, these duties significantly raise the
import prices of many agricultural products.

Among other protective options India is considering are
antidumping measures for products that enter India at prices
below the "normal" value in the exporting country, as well as
renewed quota restrictions. In addition, under WTO rules (Article
XIX), a country, in accordance with its legislature, can adopt
safeguard measures by imposing quantitative restrictions on
products of an injured industry for a temporary period of 4
years, extendable to 10 years if the industry needs more time to
adjust.

India today stands at a crossroads with regard to liberalizing
its agricultural trade. While the government has largely done
away with licensing, it has put in place several new protective
policies that reflect caution about allowing open trade. These
and further protective measures the government is considering
would blunt some of the trade potential introduced by removal of
quotas. The immediate prospect for agricultural imports is
somewhat uncertain. But with incomes rising and given the
government's general support for globalizing the country's
economy, over the long run India should be a growing market for
food and consumer-ready products.
Anwarul Hoque (202) 694-5222
ahoque@ers.usda.gov

WORLD AGRICULTURE & TRADE BOX
India's Changing Trade Restrictions

For almost half a century, India maintained one of the most
complex and restrictive trade regimes in the world. It imposed a
system of high tariffs and stiff nontariff barriers such as
licensing, quotas, and state trading that became increasingly
complex over the years and virtually closed off the country from
the world market.

In its 1991 economic reform, India's government made some drastic
changes in trade policy that abolished import licensing for all
but 3,000 products, including all agricultural products and
consumer goods, which were placed on the so-called negative list.
Severe quantitative restrictions on these items prevented their
import without license from the government.

Depending on how restricted their import was, items on the
negative list fell into one of three categories: nonpermissible,
restricted, and state monopoly. The banned, or nonpermissible,
list contained only a few products prohibited on grounds of
religious and cultural sensitivity (for instance, tallow, fat,
and oils of animal origin). Bulk agricultural commodities (among
them, grains, edible oils, oilseeds, and sugar) went on the state
monopoly list--they could be imported only by the state's trading
monopolies, which controlled where they went. All other products-
-those that could be imported within quota limits and with
government license--made up the restricted list. Another limited
permissible group of items, the Special Import License (SIL)
list, was created later as a slightly freer variation of the
restricted list. Most food and all consumer-oriented products
other than those on the state monopoly list appeared on either
the restricted list or the SIL list, among them fresh, chilled,
processed, and semi-processed foods, seeds, fruits, and
vegetables. From time to time, products were freed for import by
moving them from the negative list to the Open General License
(OGL) list. The OGL products still required licenses but could be
imported in any numbers.
India's right to apply import restrictions dates from 1949. As a
developing country with low foreign exchange reserves, India
obtained an exception from the General Agreement on Tariffs and
Trade (GATT) that allowed its government to set such
restrictions, on grounds of balance-of-payments (BOP) provisions
of the GATT's Article XVIIIB. Those provisions allow a member
country whose BOP difficulties arise mainly from efforts to
expand its internal market and its trade to resort to
quantitative import restrictions. Since imposing import
restrictions in 1957, India had always claimed the BOP exception
rule and had opposed any outside pressure to remove the
restrictions.

With the Uruguay Round Agreement (URA) signed in 1995, India was
obligated as a signatory to remove quantitative restrictions from
all products, including agricultural and consumer goods, as such
restrictions were prohibited by Article XI of the GATT 1947 and
the URA 1994. India nonetheless continued to maintain the
restrictions, again claiming exception under Article XVIIIB of
the GATT. India's BOP position, however, had changed considerably
since the 1991 economic reform. Its foreign exchange reserves had
progressively increased, from $1 billion in 1990 to $25 billion
in 1997. The U.S. and other trade partners complained to WTO that
India could no longer justifiably claim a BOP exception under
Article XVIIIB, and that by continuing the quota restriction, the
country was violating Article XI of the GATT. When the U.S.
pressed India bilaterally to remove its quantitative
restrictions, it found India still reluctant to do so. In 1997,
the U.S. set in motion the dispute resolution mechanism of the
WTO.

The Dispute Settlement Body, as well as the Appellate Body of the
WTO, ruled that India was not justified in maintaining import
quotas on BOP grounds and that it should bring restrictive import
measures into conformity with its WTO member obligations. In
accordance with the ruling, India negotiated with the U.S.
bilaterally, which led to an agreement in 1999-- India would
remove all quotas, in two phases, by 2001. Since India had
already removed quotas from about 1,285 tariff lines, 1,429
remained as of December 1999. India agreed to free 714 tariff
lines in the first phase on April 1, 2000 (implemented), and the
rest by April 1, 2001.



RESEARCH & TECHNOLOGY
Agricultural Genetic Resources: Building Blocks for Future Crops

Agricultural genetic resources--living matter used by plant
breeders to develop or enhance desirable traits in crops such as
high yields, resistance to disease, and drought tolerance--play a
critical role in agricultural production. Genetic improvements
from plant breeding account for half the crop yield increases
over the past six decades. But continuing evolution of diseases
and other pests presents a threat that can quickly undo the
gains. Infusions by plant breeders of genetic resources from the
wide array of wild and improved plant species found around the
world helps maintain and extend the plant characteristics that
advance agricultural productivity.

Diverse Genetic Resources
Can Improve Cultivated Crops

All agricultural crops descend from wild or weedy ancestors, many
of which are still found today. Selecting desirable plants to
cultivate began early in human history, and as plants were
domesticated for agricultural production, they evolved and were
improved by farmers over many generations--before the use of
modern breeding techniques. These farmer-improved crop varieties
are called landraces. Landraces continue to be grown in some
parts of the world, and they are generally very diverse because
they are adapted to specific environments.

Plant breeding in the modern sense is a relatively new
development. Early in the 20th century, modern breeding
techniques were developed that relied on the planned crossing of
distinct parent plants to facilitate selection of specific
desirable traits. At the same time, the disciplines of genetic
science and statistics were emerging. Germplasm (genetic
material) that has been improved by plant breeding is generally
referred to as "modern" germplasm. Modern germplasm includes
genetic material in cultivars (varieties) used by farmers, as
well as "breeder lines" modified by plant breeders for use in
creating new cultivars.

For different types of crops, breeders have developed elite
germplasm and selected traits that improved yields, resistance to
disease and stress, quality, and other production
characteristics. Some of the yield gains from genetic
improvements have arisen because of "pure" yield traits, or
traits that increase yields in ideal growing environments. Yield
gains also result from plants' improved ability to use inputs--
e.g., fertilizer and water.

Breeding for resistance--which includes tolerance--has become a
primary goal of plant breeders. Resistance traits make plants
less vulnerable to pathogens, thereby increasing the level and
consistency of crop yields. Because diseases and other pests
evolve over time, breeders need continually to incorporate new
and diverse germplasm, sometimes drawing on wild relatives and
landraces to find specific traits. New varieties are resistant
for an average of 5 years, although it generally takes 8-11 years
to breed new varieties. Breeders also work on developing
varieties that can tolerate nonbiological stresses such as
drought. Nonbiological stresses can also change over time,
although generally less rapidly than diseases and other pests.

Among the desirable characteristics developed by breeding to
enhance crop production efficiency are rapid and simultaneous
development during the germination, flowering, and maturation
stages, as well as uniform height for easier mechanical
harvesting. Varieties of a commodity may also be bred for end-use
characteristics--e.g., oranges for processing into juice or for
the fresh produce market. Breeding for quality traits also has
produced high-oil corn, as well as wheat with improved gluten and
golden rice with heightened levels of vitamin A.

The overall genetic diversity of crop varieties that farmers
choose to grow can affect the severity of outcome of a disease or
other pest infestation. Genetic uniformity does not necessarily
mean that a variety is more vulnerable to diseases and other
pests. Modern varieties often are bred for superior resistance,
hence their popularity. Nonetheless, as diseases and other pests
evolve to overcome host-plant resistance, genetic uniformity
increases the likelihood that a particular pest mutation, by
having a larger susceptible area, will be an evolutionary
success. With a larger crop base for an evolved disease or other
pest to successfully attack, the potential severity of losses is
greater and could even reach epidemic levels.

Although defining and measuring on-field genetic diversity is
difficult, many scientists believe that modern breeding
techniques have narrowed the genetic base of cropped varieties as
increasing percent ages of total production are devoted to more
genetically uniform products. For example, the U. S. Southern
corn blight of 1970--which caused a 15-percent yield loss
nationwide--was associated with a gene that was susceptible to a
new strain of blight. Because the gene was closely linked to the
male sterility gene broadly used in the majority of corn hybrids,
its presence made genetically similar hybrids vulnerable.

In the past, farmers as a group often grew many different
varieties of a crop in a given geographic area. Today, farmers
often grow similar varieties in a given region, but the
characteristics of the planted crops change more rapidly over
time. Breeders have succeeded in overcoming and mitigating
outbreaks of disease or other pests by using the genetic
diversity held in gene pools to create new varieties as
resistance develops. This kind of genetic diversity (temporal
diversity) is found in the succession of varieties that are used
across time (e.g., growing seasons) rather than within a given
space (spatial diversity).

Storing Germplasm
To Protect Biodiversity

In the U.S., most agricultural genetic resources are preserved ex
situ, by removing genetic material from its normal environment
for long-term conservation. Botanical gardens, zoos, and gene
banks are examples of ex situ biological conservation strategies.
Gene banks hold large stores of germplasm, with more than 6
million accessions--or unique samples of crop varieties--at sites
around the world. Nevertheless, samples of only a small fraction
of the world's plant genetic resources have been collected thus
far.

Ex situ conservation includes collection of samples, storage of
seeds under controlled conditions, and periodic regeneration
(planting and growing the seed to maturity) in order to maintain
seed viability. Some plant varieties lose their varietal identity
when propagated as seed, so they may need to be kept as living
plants, a more costly process that requires additional land and
labor.

Germplasm is held by public institutions, private companies, and
individuals. In the U.S., the National Plant Germplasm System
(NPGS), administered by USDA's Agricultural Research Service, is
the primary public-sector institution involved in the effort to
secure and utilize germplasm. The NPGS--which collects, develops,
and distributes genetic materials--includes centralized
facilities as well as a number of collections throughout the
country.

Long-term seed storage is the function of the National Seed
Storage Laboratory, a high-security NPGS facility that maintains
the base collection and backup seed samples for germplasm found
in other NPGS facilities. The NPGS maintains close ties with the
State Agricultural Experiment Stations, and many of the NPGS
facilities are located on or near Land Grant Universities, which
facilitates research use of NPGS germplasm. The National Clonal
Germplasm Repositories keep germplasm of vegetatively propagated
crops.

The NPGS includes collections for more than 85 crop commodities.
For each crop, the NPGS seeks both breadth and depth by
collecting three types of germplasm: modern, landraces, and wild
and weedy relatives. Curators and breeders want all three types
of germplasm in a collection. Landraces and wild and weedy
relatives often have unique resistance or quality traits, though
they can be difficult to incorporate into a modern, high-yielding
variety, while modern material may be less exotic but is
generally easier to use. The NPGS collections also contain
genetic stocks--i.e., mutations, variations, and oddities that
are used in genetic research, and sometimes in plant breeding.

Germplasm management includes collection, preservation,
characterization and evaluation, and enhancement. Collection
involves gathering germplasm from the field, the wild, or from
other gene banks. Preserving germplasm includes general
maintenance of germplasm and the use and development of
technology to improve the preservation process. Characterization
includes cataloging and studying the general make-up of the
species. Evaluation involves examining germplasm for traits that
are affected by the environment, such as temperature tolerance or
pest resistance, and for traits that are relatively independent
of the environment, such as size or taste. Enhancement involves
using germplasm to create superior crops through breeding.

Genebank managers, together with breeders, allocate resources
among these five activities. Each activity has benefits, as well
as costs. For example, collecting germplasm allows samples to be
used in the future, so that the option to use potentially scarce
genetic resources could remain open if the samples are
sufficiently well-preserved. Evaluation activities provide
breeders with needed information about traits. Accurate
characterization and evaluation data directs breeders' efforts in
their search for traits in germplasm. Enhancement activities are
needed for germplasm to translate into benefits related to
agricultural production.

The NPGS is one of the world's largest collectors and
distributors of germplasm. The germplasm management and
enhancement system has yielded considerable economic benefits for
U.S. and world agriculture by contributing to increased
productivity and greater production.

Most economic studies have focused on benefits embodied in
returns to the final products of the germplasm enhancement
process--i.e., new crop varieties. Because these benefits arise
from a combination of activities, economists have started to
examine the components leading to germplasm enhancement. For
example, new economic methods have assessed the optimal size of
germplasm collections. Other work has estimated the optimal
numbers of accessions scientists need to search in order to
locate given characteristics. Thus far, economic studies
generally find that the benefits associated with additional
genebank accessions far outweigh their collection, preservation,
and search costs, even in large collections that are not used
frequently.

However, it takes time to realize some of these benefits, which
helps explain why private-sector germplasm managers have
different goals than public-sector managers. Private-sector
germplasm collections are focused on activities that enable their
breeders to produce successful new varieties.

In the early days of modern plant breeding, private companies did
little plant breeding. Instead, they generally commercialized
seed varieties created by public-sector breeders. The development
of hybrid varieties spurred private companies' interest in
varietal development because hybridization offered a natural form
of intellectual property protection. Hybrid seed loses
considerable genetic purity and yield potential when replanted.
Legal mechanisms for protecting varieties and biological
inventions have provided further incentives for private breeding
activity.

Currently, private-sector breeders outnumber public-sector
breeders, and private seed companies now have substantial
collections of germplasm. Privately funded germplasm banks place
a high priority on germplasm enhancement, in contrast to publicly
funded organizations whose goals are more diverse. Private
collections generally focus on breeders' working collections of
elite germplasm used in the breeding process. Private incentives
to collect and maintain a collection for long-term use are small,
because economic returns may not be realized until far into the
future.

Many forms of germplasm have limited appropriability--i.e., they
cannot be protected from use by others because they can be easily
reproduced for breeding purposes--and therefore they have little
commercial value. The NPGS focuses on germplasm that may be
needed by both public and private breeders well into the future.
The NPGS has amassed a significant collection of exotic germplasm
that, while sometimes difficult and time-consuming to use, can be
a crucial source of traits, particularly resistance traits. The
NPGS also retains accessions for national security purposes, so
that the U.S. has an adequate supply of breeding material,
regardless of global political developments.

These accomplishments notwithstanding, the present gene bank
system is not without limitations. Gene banks hold relatively few
wild relatives of today's domesticated varieties. And many gene
banks may not be receiving adequate funding to fulfill their
mission. According to a report by the General Accounting Office,
the NPGS lacks sufficient funding to complete evaluation and
documentation and to perform necessary backups and regeneration
of seed accessions.

Biotechnology and Demand
For Genetic Resources

The advent of biotechnology, specifically genetic engineering,
has launched speculation about the effects of the new techniques
on the demand for genetic resources. One goal of genetic
engineering is to simplify the process of incorporating desired
traits into new varieties, making it easier to use the beneficial
characteristics of landraces and wild relatives of agricultural
crops. Genetic engineering also can be used to incorporate traits
from disparate species. For example, one line of research
explores preventing frost damage in plants by utilizing flounder
genes.

On the frontier of biotechnology research are efforts to increase
breeders' access to genetic material in a plant. Within their
DNA, organisms may carry genetic materials that are not actively
expressed as traits, although those genes may be of interest to
crop breeders. In the future, scientists may be able to determine
how these unexpressed genes operate, and to make use of them in
the breeding of new varieties.

Thus far, however, it appears that biotechnology has not
significantly changed the process of plant breeding. To date,
most genetically engineered varieties have incorporated one or
two specific traits, such as insect resistance from the Bacillus
thuringiensis (Bt) gene or herbicide tolerance. An important
benefit from biotechnology is the increased speed with which
breeders can develop new varieties. New technologies can be used
by breeders to better understand the composition of germplasm
used in breeding, whether genetically engineered or
conventionally bred. And various molecular biology techniques
offer a means of incorporating exotic and diverse germplasm.

Biotechnology can improve breeders' ability to find, select, and
incorporate resistance, yield, and quality traits from genetic
material that would be difficult or impossible to use with purely
conventional techniques. But even the most sophisticated
techniques cannot manufacture genetic material; they can only
increase the efficiency with which breeders use germplasm from
conventional sources. Therefore, the general expectation is that
use of biotechnology will likely increase the demand for
germplasm, at least in the foreseeable future.

Genetic Resources to Meet
Diverse Goals

The agricultural sector faces increased expectations regarding
the quality and quantity of food supplies, as rising world
populations--mostly in relatively poor areas--and increasing
incomes raise demand for agricultural products. Farmers must be
economically efficient to remain in business, especially when
commodity prices weaken or costs rise. At the same time, some
natural predators of agricultural pests are in decline, and there
is demand for enhanced environmental amenities--especially
decreased use of toxic agricultural chemicals--as well as
limitations to agricultural land expansion. Continuing
improvements through plant breeding--especially adding traits
that enhance yields and add resistance to disease or other pests-
-can help meet these challenges.

Uncertainty about specific resources that plant breeders will
need for improving future agricultural production motivates
genetic resource managers--especially in the public sector--to
collect and accumulate a broad range of germplasm. Even though
some conserved crop genetic resources may be used rarely today,
it is likely the option to use them will be exercised in the
future based on known probabilities of their use in combating
diseases and other pests. The quest to increase agricultural
production while preserving natural resources may further
farmers' reliance on new crop varieties over time. Both factors
suggest that breeders' demand for diverse agricultural resources
may increase.

Economic research is underway to help genebank managers and
breeders direct and distribute their resources. In cooperation
with other institutions, USDA's Economic Research Service is
working to analyze and quantify demand from both public and
private users for biodiversity stored in public crop germplasm
collections. Other research explores returns to various germplasm
activities and alternatives for collecting diverse types of
germplasm. Economic information can help managers make decisions
about the allocation of effort among acquisition, assessment,
maintenance and enhancement activities related to genetic
material, so that genebank managers can get the highest benefit
from their resources.

Genetic resources are critical inputs for the agricultural
production system. Without continued genetic enhancement that
relies on diverse germplasm from wild and improved sources,
impressive gains in agricultural yields would soon prove
unsustainable. Given the limited incentives for private firms to
hold sufficient levels of all types of germplasm, a strong set of
publicly held genetic resources is a major asset in meeting
society's goals.
Kelly Day-Rubenstein (202) 694-5515
kday@ers.usda.gov


SPECIAL ARTICLE
Five Years of Tariff-Rate Quotas--A Status Report

When the next round of World Trade Organization (WTO)
agricultural trade negotiations gets under way in earnest next
year in Geneva, the issue of tariff-rate quotas, or TRQ's, will
likely emerge in headlines and discussions. There are now over
1,300 TRQ's applied to agricultural products, and many limit
trade on key or politically sensitive commodities.

Liberalizing TRQ's worldwide can mean big opportunities for
exporters and consumers, but it can also mean big adjustments for
producers who benefit from TRQ protection. With the stakes high
on both sides, there is considerable potential for serious
disagreement.

What Are Tariff-Rate Quotas?

A TRQ is, simply, a two-tiered tariff. A limited volume--the
"quota"--can be imported at the lower tariff, and imports in
excess of the quota volume are charged the higher tariff.

TRQ's have existed for a long time, but their use has never been
as widespread or important as standard import quotas and tariffs.
The first one reportedly was a Belgian TRQ placed on cast iron
from Luxembourg in 1839. TRQ's were briefly popular in Europe at
the start of the global depression of the 1930's, but the
severity of the crisis caused most TRQ's to be converted to
simple quotas limiting the volume of permissible imports. By
1937, Switzerland was the only nation employing TRQ's on a wide
scale, and after World War II, these TRQ's were abandoned for
other trade barriers. In 1995, after more than 150 years of
obscurity, over 1,300 TRQ's suddenly appeared, all for
agricultural products (see sidebar). What brought this about?

One of the achievements of the last round of multilateral trade
negotiations--the Uruguay Round in 1986-94, which created the
World Trade Organization (WTO)--was the Agreement on Agriculture.
While agriculture had been included in each of the previous
rounds, it was not until the Uruguay Round that real progress was
made in bringing new international discipline to trade and
domestic policies related to agriculture and negotiating overall
reductions in barriers to agricultural trade. Among its rules and
disciplines, the Agreement on Agriculture includes a provision
requiring the abolition of all "quantitative restrictions"--bans
and quotas--on agricultural imports. But the provision allows
members to convert existing quotas and bans into TRQ's. While
this might seem contradictory, a TRQ, from a legal point of view,
is not considered a quantitative restriction because it does not
limit the quantity that may be imported. One may always import
more by paying the higher, over-quota tariff. However, if a
country sets the over-quota tariff high enough to deter importers
from purchasing beyond the in-quota volume, a TRQ has the effect
of a quota.

At first glance, replacing quantitative restrictions with TRQ's
does not appear to be a major accomplishment. But the Agreement
on Agriculture includes a requirement that countries allow
"minimum market access" for importation of commodities previously
limited by quantitative restrictions as well as TRQ's to maintain
access levels above the minimum market access levels. The general
rule for "minimum market access" levels is that countries must
provide the opportunity to import at the low-tariff rate a
quantity equal to 3 percent of their domestic consumption of the
commodity during 1986-88--the "base period" for the Agreement on
Agriculture. These "minimum access TRQ's" became effective in
1995 and were increased by equal steps to reach 5 percent of base-
period consumption in 2000.

TRQ's replacing quotas already set higher than minimum access
quantities were not required to increase over time. For example,
the U.S. imports far more than 5 percent of its 1986-88 domestic
consumption of sugar; thus the in-quota volume of the U.S. sugar
TRQ was not required to increase. The U.S. quota for peanuts,
however, restricted imports to less than the minimum access
quantity, so the peanut TRQ has expanded each year and now stands
at 5 percent of 1986-88 consumption.

The provision that allowed TRQ's to replace former quantitative
restrictions was critical to bringing the Uruguay Round to a
successful conclusion. It allowed the transformation of quotas
and other measures to be addressed for the first time, by
providing incremental reform and increased market access. There
was general recognition that the TRQ's would need to be addressed
again in future multilateral agricultural trade negotiations. New
negotiations are here, and member countries are proposing ways to
resolve many of these issues.

TRQ Negotiation Issues:
Liberalization & Administration

Two kinds of TRQ issues must be addressed: TRQ liberalization and
TRQ administration. Liberalization concerns changing the tariff
and quota components of existing TRQ's. TRQ administration
relates to how the importing country allocates the right to
import at the in-quota, or lower, tariff rate. Proposals are
under consideration to reduce in-quota and over-quota tariffs and
to expand in-quota volumes. Questions about liberalization are
likely to revolve around how and how much to reduce tariffs or
increase TRQ access; whether certain types of TRQ's require
special attention; and whether minimum-access TRQ's should be
expanded.

Reducing certain prohibitive over-quota tariffs has the greatest
potential for liberalizing trade. For example, over-quota tariffs
for butter, a highly protected commodity, are often in the triple
digits, compared with the average 3.9 percent tariff levied by
developed countries on manufactured goods. Aggressive reduction
of over-quota tariffs would allow over-quota imports to become
economically viable.

Over-quota imports are not subject to in-quota administration
rules, and thus are not limited to selected suppliers or
restricted to narrow product specifications or end-uses. They
provide greater market access and exert economic pressure for
more transparent administration of in-quota imports and for
adjustment in domestic markets as competing products are
imported.

TRQ administration is likely to be an equally difficult issue.
The General Agreement on Tariffs and Trade (GATT)--the
international agreement that was incorporated into the WTO--has
governed the administration of quantitative restrictions since
1947. Although these rules, still in effect, were drafted with
quotas in mind, they also apply to TRQ's. The administration of
over 1,300 new TRQ's since 1995 has resulted in widely varying
interpretation of the rules, and this large gray area has led to
a wide variety of disputes, some discussed below. Many WTO
members are now proposing clarifications of existing rules or
adoption of new disciplines.

TRQ administration is, basically, rationing. If demand for
imports exceeds the volume allowed at the in-quota tariff, then
the right to import at this level can be worth a great deal of
money. A trader bringing in product under the first tier (in-
quota rate) can buy at the world price, pay the low tariff, then
sell at the higher--often much higher--domestic price.
Opportunities for a guaranteed profit tend to attract more
applicants (traders) than opportunities, so some method of
allocating among applicants is required.

The World Trade Organization identifies seven principal methods
of TRQ administration. Member nations must notify WTO about how
they administer the TRQ's in their tariff schedules. In 1999
almost half the TRQ's notified were not enforced. Rather, all
imports were allowed at the in-quota tariff--the applied tariff
method. The over-quota tariff may be re-applied at will, however.
Of the TRQ's enforced, license on demand and first-come, first-
served are the two most common means of allocating access at the
in-quota tariff. Less common methods are auctioning and
allocations based on market shares in some earlier period--the
'historical' method. Different allocation methods may lead to the
same volume of in-quota imports but very different exporter
market shares. Trade disputes can emerge over how the in-quota
pie is sliced.

The common-sense notion of mandating minimum market access is
that domestic consumers would then have at least a limited
opportunity to choose between domestic products and imported
products. Such competition would expand consumer choice, reduce
domestic prices, however slightly, as supplies expand, and
perhaps cause the domestic industry to begin to adjust to
international market forces. This is a generous and broad
interpretation of market access--the spirit of the law. But
countries "forced" to open their markets can minimize the impact
of imports while meeting the letter of the law, and many have
been very creative in this endeavor.

Insulating Domestic Markets
& Biasing Trade Flows

The minimum access provisions under the Agreement on Agriculture
were anticipated to have their greatest impact in markets that
had been insulated from international trade, but this has not
happened in several cases. For example, prior to 1995, Japan had
maintained a complete ban on rice imports; the Agreement on
Agriculture requires that it allow minimum market access (in-
quota amounts) to rice exporters. Though Japan has followed the
letter of the law and imported the required minimum amounts,
Japanese consumers have eaten very few kernels of foreign rice. A
large proportion of the imported rice remains in storage and is
not available to domestic buyers; most of the remainder is
channeled to processors for production of rice wine and rice
cakes. Very little imported japonica rice, such as that produced
in California, can be found on supermarket shelves in direct
competition with domestic Japanese rice (AO April 1999).

In South Korea, the rice TRQ is limited to brown rice. The TRQ is
filled by accepting the lowest priced tenders, with little regard
to quality. The imported brown rice is then strictly channeled to
processors because the government imposes substantial fines for
diverting rice into higher valued end uses. Hungary employs the
same technique with its beef TRQ--all in-quota beef imports are
restricted to processing use. In each case, the government denies
the domestic consumer direct access to the imported products.

To minimize the impact on the domestic market, Japan and South
Korea directly control the processes though which rice imports
are procured. However, there are other means of managing in-quota
imports that can bias, intentionally or inadvertently, the market
shares of competing suppliers.

For example, Poland in 1999, issued permits to traders for
importing within its wheat TRQ; the maximum quantity allowed per
permit was 5,000 tons. In early 2000, this maximum was reduced to
1,500 tons and its validity limited to 1 month from the date of
issue. The small permit quantity and short delivery window
favored rail shipments from the EU and neighboring Central
Europe, and effectively prohibited imports by ship from
Argentina, Australia, Canada, or the U.S. In part because of a
poor harvest this summer, the permit volume has recently been
increased to 25,000 tons and the delivery window raised to 2
months.

Additional regulations can also bias the kind of product that can
be imported in-quota. In 1997, the U.S. initiated a complaint
against Canada's fluid milk TRQ. Canada officially allows the
annual import of 64,500 tons of fluid milk at the in-quota rate
of 7.53 percent; over-quota imports face a 241.3-percent tariff.
Canada's tariff schedule notes that "This quantity represents the
estimated annual cross-border purchases imported by Canadian
consumers." Canada administers the TRQ by not administering it:
It allows individual Canadian residents to enter Canada with
fluid milk for their personal use as long as no more than Can$20
of fluid milk enters in a single shopping trip. There are no
permits or licenses, the in-quota tariff is not charged, and no
record is kept of the volume of fluid milk imports.

The U.S. complaint to the WTO argued that restricting imports to
less than Can$20 per shipment discriminates against, and in
effect prohibits, commercial shipments of fluid milk. The WTO
dispute panel determined that Canada's $20 limitation is
inconsistent with Canada's WTO minimum access commitments.
However, it also determined that Canada is not obliged to allow
bulk shipments of fluid milk to satisfy the in-quota volume of
the TRQ. So, Canada can still restrict in-quota imports to fluid
milk for personal use, but it can no longer limit them to less
than $20 Canadian per entry.

The domestic purchase requirement is another questionable TRQ
licensing provision that unnecessarily inhibits imports. Under
such a provision, an importer must purchase a certain amount of
domestically produced product in order to import a specified
amount of the product. For example, Venezuela requires evidence
of domestic purchase before it will issue a license for in-quota
dairy product imports; Switzerland has domestic purchase
requirements for some dairy products, shell eggs, seed potatoes,
cut flowers, and various types of fresh fruit and live animals;
and Colombia has 33 TRQ's with domestic purchase requirements,
primarily for grains and oilseeds and their processed by-
products.

What Can Be Done
About TRQ's?

Because most existing TRQ's were first imposed in 1995, the
implementation period for the Agreement on Agriculture
(1995-2000) can be viewed as a trial period for TRQ's. Trade
negotiators are returning to the table with over 5 years of
experience in administering their own TRQ's and/or contending
with those of their trading partners. Many of the problems, such
of those discussed in this article, are widely recognized, and
preliminary negotiation proposals indicate a general interest in
addressing them.

Negotiations can create new policies or strengthen existing
disciplines for liberalization and administration. New policies
on liberalization and administration may prove difficult to
introduce, but much can be accomplished by enforcing or
clarifying existing ones. Observers will likely witness some of
both in the upcoming WTO agricultural negotiations.
David Skully (202) 694-5236
dskully@ers.usda.gov

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