WORLD TRADE ORGANIZATION  
ORGANISATION MONDIALE DU COMMERCE  
ORGANIZACIÓN MUNDIAL DEL COMERCIO  G/AG/GEN/68 
24 January 2005 
 (05-0271) 
Committee on Agriculture Original:   English/ 
                 anglais/                  inglés 
 
ANNUAL MONITORING EXERCISE IN RESPECT OF THE FOLLOW-UP TO 
THE MINISTERIAL DECISION ON MEASURES CONCERNING THE POSSIBLE 
NEGATIVE EFFECTS OF THE REFORM PROGRAMME ON LEAST-DEVELOPED 
AND NET FOOD-IMPORTING DEVELOPING COUNTRIES 
 
 Attached are copies of contributions* made by  the representatives of the Food and Agriculture 
Organization (FAO), the International Grains Coun cil (IGC), the International Monetary Fund (IMF), 
the UN Conference on Trade and Development (UNCTAD), the World Bank and the World Food 
Programme (WFP) at the meeting of the Comm ittee on Agriculture on 18 November 2004 (Agenda 
Item Part II.B refers). 
 
 Comité de l'agriculture  
 
EXERCICE ANNUEL DE SURVEILLANCE DE LA SUITE DONNÉE À LA DÉCISION 
MINISTÉRIELLE SUR LES MESURES CO NCERNANT LES EFFETS NÉGATIFS 
POSSIBLES DU PROGRAMME DE RÉFORME SUR LES PAYS LES MOINS 
AVANCÉS ET LES PAYS EN DÉVELOPPEMENT IMPORTATEURS 
NETS DE PRODUITS ALIMENTAIRES 
 
 On trouvera ci-joint la copie des contributions* faites par les représenta nts de l'Organisation des 
Nations Unies pour l'alimentation et l'agriculture (FAO ), du Conseil internationa l des céréales (CIC), du 
Fonds monétaire international (FMI), de la Confér ence des Nations Unies sur le commerce et le 
développement (CNUCED), de la Banque mondiale et du Programme alimentaire mondial (PAM) à la 
réunion du Comité de l'agriculture du 18 novembre 2004 (voir point B de la deuxième partie de l'ordre 
du jour). 
 
 
Comité de Agricultura  
 
EJERCICIO ANUAL DE VIGILANCIA DEL SEGUIMIENTO DE LA DECISIÓN 
MINISTERIAL SOBRE MEDIDAS RELATIVAS A LOS POSIBLES 
EFECTOS NEGATIVOS DEL PROGRAMA DE REFORMA EN 
LOS PAÍSES MENOS ADELANTADOS Y EN LOS PAÍSES 
EN DESARROLLO IMPORTADORES NETOS 
DE PRODUCTOS ALIMENTICIOS 
 
 A continuación se adjuntan copias de las cont ribuciones* formuladas por los representantes 
de la Organización de las Naciones Unidas para la Agricultura y la Alimentación (FAO), el Consejo 
Internacional de los Cereales (CIC), el Fondo Moneta rio Internacional (FMI), la Conferencia de las 
Naciones Unidas sobre Comercio y Desarrollo (UNC TAD), el Banco Mundial y el Programa Mundial 
de Alimentos (PMA) en la reunión del Comité de Agricultura celebrada el  día 18 de noviembre de 
2004 (véase el punto B de la Parte II del orden del día). 
                                                      
* In English only/En anglais seulement/En inglés solamente. G/AG/GEN/68 
Page 2  
 
 1700175018001850190019502000
1994 1 996 1 998 2000 2002 2004World Cereal Production and Utilization
(1 994-2004)million tonnes
ProductionUtilization
forecastSTATEMENT BY THE REPRESENTATIVE OF THE FOOD  
AND AGRICULTURE ORGANIZATION (FAO) 
 
  FAO has been reporting annually to the Committ ee on developments in world cereal markets 
and on trends in cereal import bills of the LDCs a nd the NFIDCs.  This Statement provides an update 
of the current cereal situation based on the latest in formation available to FAO.  It also reports on 
recent FAO activities and programmes in relation to NFIDC/LDC food problems.   
 
World supply/demand situation for cereals 
 
 Latest indications point to a 
significant increase in global cereal production in 2004, which is expected to rise 
by more than 5 per cent from the previous 
year.  A large part of the increase comes from 
wheat production, which is forecast to expand strongest, by 9.5 per cent, well above the average of the past five years.  A sharp recovery in Europe's wheat output, after the 2003 drought, and a rebound in Asia would 
more than offset reductions in wheat 
production in the United States and Australia.  For coarse grains, this year's record maize crop in the United States combined with a recovery in Europe is expected to drive up 
global production level by more than 3 per cent.  Also rice  production is likely to increase sharply in 
2004, up 4 per cent, mostly supported by higher anticipated output in China, where the Government has launched several measures to revers e the falling trend in production.  
  World cereal utilization  in 2004/05 is forecast to expand by 1.4 per cent from the previous 
season and to reach about the same level as production.   Among the various uses of cereals, feed and 
industrial usages are likely to grow fastest, raising the total use to above the long-term trend for the 
second consecutive season.  By contrast, food consum ption of cereals is likely to grow at a much 
slower pace and remain below their long-term trends, in part due to a continuing decline in per caput 
cereal food consumption in China.  Based on the current production and utilization forecasts, global 
cereal stocks  are anticipated to decline by only 5 milli on tonnes, representing the smallest year-on-
year decline in five years.  Another fall in cereal  inventories in China, the main factor behind 
consecutive declines in world cereal stock levels in re cent years, is likely to be repeated also this 
season, but the reduction is expected to be smallest since 2000.   World cereal trade  is forecast at 228 million tonnes in 2004/05, down significantly from the 
previous season in spite of strong surge in wheat purchases by China.  Imports are likely to decline 
significantly in Europe, as a result of production recovery in several countries, and in the Islamic 
Republic of Iran, traditionally among the world's larg est wheat importers, in view of another bumper 
crop.  International cereal prices  mostly weakened in recent months, driven by more favourable 
supply prospects and generally weaker import demand.  
  G/AG/GEN/68 
 Page 3 
 
 
 05101520253035
LDC NFIDCShare of food aid in total cereal imports 
percentage
93/94 95/96 97/98 99/00 01 /02 03/04 04/05
f'cast0102030405060
Commercial Imports Food AidTotal cereal imports in LDC and NFIDC 
million tonnes
93/94 95/96 97/98 99/00 01 /02 03/04 04/05
f'castWheat
 ( U.S. No.2 Hard Winter, Gulf)
12 013 515 016 518 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2003 2004US $/tonneMaize
(U.S. No. 2 Yellow, Gulf)
9010 011012 013 014 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecUS $/tonne
2003 2004
  
 
    
Cereal food aid 
  Tackling food shortages, especially when they are sudden or unexpected, underscores the 
importance of external assistance, food aid in par ticular.  Based on the latest information from WPF, 
food aid shipments in the form of cereals (which represents the bulk of all food aid) reached 7.6 million tonnes in 2003/04 (July/June), down 1.6 million tonnes from 2002/03.  The decline was mostly associated with lower shipments of wheat as food aid to Ethiopia, Afghanistan, Bangladesh, 
India, Iraq and Democratic Republic of Korea.  
 
 According to FAO, as many as 35 countries face  acute food shortages and require immediate 
food aid assistance, including 24 countries in Afri ca as well as 5 countries each in Asia and Latin 
America, and one also in Europe.  Most Count ries facing food emergency problems are among the 
LDC and NFIDC categories.  Cer eal food aid shipments to LDCs and NFIDCs in 2004/05 are also 
expected to remain similar to 2003/04.  Food aid c ontinues to be a very important source of supply for 
LDCs for which it accounts for almost 20% of their total cereal imports.  In the case of the NFIDCs, 
however, food aid in cereals is less important, accounting for just 1% of their total cereal imports and down considerably from earlier years.  G/AG/GEN/68 
Page 4  
 
 0246810
LDC NFIDCCereal import bill
US$ billion
93/94 95/96 97/98 99/00 01 /02 03/04 04/05
f'cast As of October 2004, confirmed contribution by the donor community to WFP for 2003 
reached roughly US$2.6 billion, the highest on record.  Of this total, contributions to Emergency 
Operations (EMOPS) reached US$1.4 billion.  Support for Protracted Relief and Recovery Operations 
(PRROs) remained high, at more than US $0.8 billion;  US$240 million were provided for 
Development projects.  In addition, over US $1 billion was provided bilaterally and included 
contributions to Iraq under the Security Counc il Resolution 986 "Oil For Food" Agreement.  
 
 
Cereal import bills of LDCs and the NFIDCs 
  The combined cereal import bill of the 
LDCs and the NFIDCs for 2004/05 is currently forecast to approach US$9 billion, up slightly from 2002/03 and highest since 1995/96.  Apart from international cereal prices and freight rates, 
which are seen to remain high although more 
subdued than in 2003/04, this increase is mostly driven by the anticipated rise in import volume.  At roughly 52 million tonnes, imports by the LDC and NFIDCs countries in 2004/05 would be over 3 million tonnes more than in the previous season.  
Imports of cereals are likely to increase in several 
countries, especially in Bangladesh, Egypt, Ethiopia, Pakistan, Peru, Malawi, and Tunisia.   
 FAO's trade-related technical assistance 
 
 The Marrakesh Decision on LDCs and NFIDCs provides for action through four response mechanisms:  food aid;  short-term financing of nor mal levels of commercial inputs;  favourable terms 
for agricultural export credits;  technical and financ ial assistance to improve agriculture productivity 
and infrastructures - although none has been specifically operationalized.  FAO has been exploring 
various ways and means for implementing the second mechanism foreseen in the Marrakesh decision.  
In this context, FAO has proposed (jointly with UNCTAD) the setting up of a multilateral facility with functions similar to those of some bilate ral export credit guarantee schemes, to provide credit 
insurance and guarantees for the food imports of LDCs and NFIDCs.  The recent FAO publication 
"Financing Normal Levels of Commercial Imports of Basic Foodstuffs in the context of the Marrakesh 
Decision on least-developed and net food-importing developing countries" , articulates these ideas. 
 
FAO has also being exploring ways for food dependent NFIDCs, and LDCs to insure the high 
cost of their cereal imports arising from infrequent prices spikes.  In this context FAO has initiated a 
set of studies aimed at exploring the possibility of insuring against the high cost of cereal imports by using commercially available risk management inst ruments in organized exchanges.  A study on 
wheat has already been completed
1, and one on maize is currently unde r way.  Initial results suggest 
that if such countries had insured consistently in th e past against the price spikes of the wheat market, 
by hedging in organized exchanges, they would have  reduced their overall wheat import bills, even if 
they had paid market prices for the risk management  instruments.  Furthermore, the joint insurance of 
                                                      
  1 Alexander Sarris, Piero Conforti, and Adam Prakash, "The Use of Futures and Options to Insure 
Wheat Import Price Risks by Low Income Food Deficit Countries",  paper presented at the Symposium on the 
"State of Research and Future Directions in Agricu ltural Commodity Markets and Trade", organized by the 
Commodities and Trade Division of FAO, held in Rome, 15-16 December 2003.  G/AG/GEN/68 
 Page 5 
 
 
 several wheat dependent  NFIDCs, and LDCs, was f ound to be cheaper than individual insurance. 
While more analysis is needed and is under way, the results suggest that the idea of using market 
instruments to provide insurance against excessive fo od import bills due to price spikes is viable and 
affordable.  FAO is available and willing to expand  on these ideas for the benefit of WTO members.  
 
It should also be noted that the WTO July Framework text provides that "Members will 
ensure that the disciplines on export credits, export credit guarantees or insurance programs to be agreed will make appropriate provision for differen tial treatment in favour of least-developed and net 
food-importing developing countries as provided fo r in paragraph 4 of the Decision on Measures 
Concerning the Possible Negative Effects of the Reform Programme on Le ast-Developed and Net 
Food-Importing Developing Countries".  And that "In exceptional circumstances, which cannot be 
adequately covered by food aid, commercial export credits or preferential international financing 
facilities, ad hoc temporary financ ing arrangements relating to exports  to developing countries may be 
agreed by Members.  Such agreements must not  have the effect of undermining commitments 
undertaken by Members in paragraph 18 above, and will be based on criteria and consultation 
procedures to be established."  FAO is of course w illing to assist in developing along with others any 
of these ideas.  G/AG/GEN/68 
Page 6  
 
 Cereal imports of LDCs and NFIDCs (1993/94 to 2004/05) - Information as of  September 2004
1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05
estimate f'cast
Import Bill (US $ million)
LDCs 1493 2310 2532 2185 2641 2302 1971 1988 2361 3083 3120 3196
NFIDCs 3633 4431 6261 5639 5271 4619 3962 4368 4361 5193 5641 5711
LDCs & NFIDCs 5125 6742 8793 7823 7912 6921 5933 6356 6722 8276 8761 8907
% change over 1993/94-1994/95 -13.6 13.6 48. 2 31.8 33.3 16.6 0.0 7.1 13.3 39.5 47.6 50.1
Total volume imported (000 tonnes)
LDCs 12063 14610 13450 12535 15952 17007 16858 16234 17438 20898 17278 18439
NFIDCs 27787 28135 28969 30363 34259 35899 32167 34016 33068 32640 30970 33158
LDCs & NFIDCs 39850 42745 42420 42898 50211 52906 49025 50250 50506 53538 48249 51598
% change over 1993/94-1994/95 -3.5 3.5 2.7 3.9 21.6 28.1 18.7 21.7 22.3 29.6 16.8 24.9
Food aid (000 tonnes)
LDCs 3427 4222 3214 2534 2501 3550 3709 3998 2931 3903 3595 3595
% of total imports 28.4 28.9 23.9 20.2 15.7 20.9 22.0 24.6 16.8 18.7 20.8 19.5
NFIDCs 2321 1431 846 590 610 1050 944 1198 949 614 367 367% of total imports 8.4 5.1 2.9 1.9 1.8 2.9 2.9 3.5 2.9 1.9 1.2 1.1
LDCs & NFIDCs 5748 5653 4059 3123 3111 4600 4654 5196 3880 4517 3963 3963
% of total imports 14.4 13.2 9.6 7.3 6.2 8.7 9.5 10.3 7.7 8.4 8.2 7.7
Commercial imports (000 tonnes)
LDCs 8636 10388 10237 10001 13451 13457 13149 12236 14507 16995 13683 14844
NFIDCs 25466 26704 28124 29773 33649 34849 31222 32818 32118 32026 30603 32791
LDCs & NFIDCs 34102 37092 38360 39775 47100 48306 44371 45054 46626 49021 44286 47635
% change over 1993/94-1994/95 -4.2 4.2 7.8 11.7 32.3 35.7 24.6 26.6 31.0 37.7 24.4 33.8
Per unit import cost  (US $/tonne) 
1/
LDCs 123.7 158.1 188.2 174.3 165.5 135. 4 116.9 122.5 135.4 147.5 180.6 173.3
NFIDCs 130.7 157.5 216.1 185.7 153.9 128. 7 123.2 128.4 131.9 159.1 182.1 172.2
LDCs & NFIDCs 128.6 157.7 207.3 182.4 157. 6 130.8 121.0 126.5 133.1 154.6 181.6 172.6
% change over 1993/94-1994/95 -10.2 10.2 44. 8 27.4 10.1 -8.6 -15.5 -11.7 -7.0 8.0 26.8 20.6
Wheat export price (US $/tonne)
US no.2 hard winter 143 157 216 181 142 120 112 128 127 161 161 1522/
% change over 1993/94-1994/95 -4.7 4.7 43. 6 20.6 -5.4 -20.3 -25.3 -14.6 -15.6 6.8 7.0 1.0
Wheat ocean freight rates (US $/tonne)
From U.S. Gulf ports to:
Egypt 15.1 18.7 16.8 12.8 11.7 9 .3 13.7 15.0 15.0 16.7 37.0 44.02/
Bangadesh 21.5 23.8 21.7 20.0 20.2 18. 8 18.5 18.3 18.5 22.5 48.5 49.02/
Rotterdam 10.4 15.3 13.0 11.0 9.6 9.4 12.6 13.1 11.0 12.5 28.3 31.32/
Totals computed from unrounded data
1/ Based on per unit cost of total imports 
2/ Average July-September
Source: FAO  
  G/AG/GEN/68 
 Page 7 
 
 
  
CONTRIBUTION BY THE REPRESENTATIVE OF THE  
INTERNATIONAL GRAINS COUNCIL FUND (IGC) 
 
 
 In the period since the 2003 WTO monitori ng of the Marrakesh NFIDC Decision, world 
wheat and coarse grains markets have remained  adequately supplied to meet the commercial 
requirements of developing countries.  In particul ar, a record global wheat crop of over 615 million 
tonnes in 2004 will allow some replenishment of stocks, especially in exporting countries, placing 
downward pressure on prices.  Larger than expected  northern hemisphere coarse grains and oilseeds 
harvests added to the weaker market tone towards the end of 2004. 
  Good grain crops in Latin America, in much of Africa and in Asia limited the commercial 
import requirements of developing countries, coinci ding with significantly reduced needs in Europe 
and the CIS.  To some extent, a greater domestic grain availability in several developing countries 
helped to offset the burden of spiralling ocean fre ight costs.  While easing during the course of 2004, 
freight rates have rema ined well above-average. 
  As to food aid shipments, including rice and non-grain products, the total provided by members of the Food Aid Convention in 2003/04 (July/June) is estimated at close to 9m tonnes.  This was somewhat below the previous year's figure of 9.6m tonnes, but again significantly above the 
combined  minimum annual commitment under the Convention. 
  In June 2004, members of the Food Aid Committee decided to undertake a renegotiation of 
the FAC 1999 with the aim of bringing into effect a Convention which is a "more effective instrument 
to provide food to those identified needs when food aid is the most appropriate response."  It is the 
intention of FAC members to take account of  the outcome of the WTO Doha negotiation. 
  At a Working Group meeting on 18 and 19 October 2004, FAC members discussed several 
key aspects of a new Convention, focusing especially  on ways to improve the assessment of food aid 
needs in recipient countries.  They received the FA O and WFP views.  They were also briefed on the 
relevant aspects of the Doha negotiations by th e WTO observer.  The FAC Working Group will meet 
again on 29 November 2004. G/AG/GEN/68 
Page 8  
 
 STATEMENT BY THE REPRESENTATIVE OF THE  
INTERNATIONAL MONETARY FUND (IMF) 
 
  The International Monetary Fund (IMF) welc omes this new opportunity to update the 
Committee on initiatives taken by the IMF at both the global and country level in favour of least-
developed countries (LDCs) and net food-importing developing countries (NFIDCs).  As before, I 
would like to briefly place these initiatives in the context of the NFIDCs' recent economic 
performance and also of developments in primary commodity markets.  I. R
ECENT ECONOMIC DEVELOPMENTS IN NFIDC S AND PRIMARY COMMODITY MARKETS  
 
 According to the latest World Economic Outlook  (WEO), recent economic data and market 
indicators suggest that the global economic recovery remains solid in spite of some recent moderation, 
and has broadened to all regions.  Among industrial countries, the pick-up in growth that began in 
mid-2003 continues to be led by the United States, while overall growth in emerging markets and 
developing countries is expected to be particular ly buoyant in 2004.  Rising energy prices do not 
appear to have had a major impact on global growth  and inflation so far, but further volatility poses 
risks to the outlook.  As output growth in the United States returns closer to its trend rate in 2005, and 
with growth moderating somewhat in other regions , including emerging Asia, global growth in 2005 
is expected to be somewhat lower, although still strong by historical standards (Table 1 of the 
Attachment).  In light of this strong global e nvironment, economic prospects for NFIDCs in 2005 
continue to be favorable, following a strong supportive environment in 2004.    In 2004, GDP growth in NFIDCs is projected to rise to 5.4 per cent compared to an 
overall GDP growth of 6.6 per cent for emerging markets and developing countries as a whole, 
reflecting an increase in NFIDCs' exports of goods  and services by 8.2 per cent in volume terms.  
 
 In 2005, GDP growth in NFIDCs is expected  to rise further to 5.6 per cent, reflecting 
continued strong exports a nd rising domestic demand .  NFIDCs' trade is projected to grow 
somewhat faster than that of advanced economies,  but somewhat below that of emerging markets and 
developing countries as a whole.  The volume of NFIDCs' imports is projected to increase by 10 per 
cent, with export volume expected to grow by 8 pe r cent.  Inflation in NFIDCs is expected to 
moderate somewhat from the 9.4 per cent rise in 2004.  
 However, overall growth in most developi ng countries, particularly NFIDCs, will 
remain well below the level needed to achiev e the enduring reduction in poverty called for 
under the Millennium Development Goals (MDGs).   It will be no surprise to this audience that 
further progress on trade liberalization will be an im portant factor for future growth.  Industrial 
country barriers impose significant costs on the devel oping world, but developing countries' own trade 
barriers impose even greater costs on their economies.    
 Turning to food prices, after peaking in the earlier part of 2004 and reaching levels not 
seen since 1997, the IMF index of non-fuel commodities has eased recently  owing in part to 
moderate declines in food and cereal prices.  As of October 2004, the non-fuel commodities index 
remains 12 per cent above its value in October 2003.  Despite recent developments, food prices have 
increased by nearly 5 per cent and cereal prices by almost 1 per cent since October 2003.  
 In terms of specific items in the index: 
 
• Notwithstanding their robust performance in late-2003 and early-2004, cereal prices  
have decreased recently, owing mainly to favo urable wheat, maize and barley harvests.   G/AG/GEN/68 
 Page 9 
 
 
 In contrast, rice prices  continue to rise - reportedly on news of strong Chinese demand 
and drought in Thailand. 
• For most of 2004, cocoa prices  have been very volatile, albeit without a discernible trend.  
Unfavorable weather conditions in cocoa- producing regions and increased violence in 
Côte d'Ivoire have threatened the availab ility of supplies, thereby adding to increased 
volatility. 
• Cotton prices  have fallen by 28 per cent since October 2003.  This decline is largely due 
to record levels of production and the expect ation of reduced imports from China.  The 
potential for a sizable global inventory build -up going forward is also putting downward 
pressure on cotton prices. 
• Prices of coffee beans  in October 2004 reached their highest levels since 2000, recording 
a 17 per cent year-on-year increase, prim arily owing to reduced production.  Crop 
production in 2003/04 declined to the lowest level since 1998/99, mainly due to a sharp 
decrease in the Arabica harvest.  The price of Arabica beans increased by 28 per cent 
since October 2003.  In contrast, Robusta bean prices decreased by 15 per cent.  
• Soybean prices  have fallen by 21 per cent relativ e to October 2003, mainly due to a 
significant increase in global production.  
• For 2005, non-fuel commodity prices  are projected to ease by 3.9 per cent relative to 
average 2004 levels.  Within this category, food prices and cereal prices are both expected to decline by 6 per cent. 
II. I
MF INITIATIVES IN FAVOUR OF LDC S AND NFIDC S AT THE GLOBAL POLICY LEVEL  
 At the global policy level, the IMF has been a firm and consistent advocate of open trade  
as an engine for economic growth and a higher st andard of living.  For developing countries, 
especially the less developed, closer integration into the world trading system can bring immense 
benefits − a message that the IMF has sought to expound to all its members. 
 
 The IMF remains committed to supportin g the work of the Doha Round, and to 
encouraging its members to bring the Round to a successful conclusion .  In the months following 
Cancún, the Fund repeatedly urged its members to  rise above entrenched negotiating positions and 
create the necessary conditions for a successful Round.  The joint Bank-Fund letter to Heads of State, 
which was sent on 11 November 2003, reiterated the fundamental point that, far from being a 
"concession", trade liberalization was a key step in  promoting opportunity and productivity for any 
society that adopted it.  Fund management has been assiduous in publicly addressing the skeptics of 
free trade by reiterating the fundamental lesson that free trade creates rapid sustainable growth, raises 
living standards, and reduces poverty.1  At the Annual Meetings in Washington in September, the 
world's Finance and Development Ministers emph asized that an open and inclusive multilateral 
trading system is central to global growth a nd economic development, especially for developing 
countries.  They welcomed the "July Package" and ur ged all parties to work to ward concrete advances 
in liberalizing trade, strengthening multilateral trad e rules, and reducing trade-distorting subsidies, 
notably in agriculture.  They also  supported the IMF's continued role in advocating trade liberalization 
and assisting members in this regard.  
 
                                                      
1 See Deputy Managing Director Krueger’s May 2004 address to the Graduate Institute of International 
Studies in Geneva at http://www.imf.org/external/np/speeches/2004/051804a.htm   G/AG/GEN/68 
Page 10  
 
  A second key message that the IMF has labou red to convey is that trade liberalization 
must be embraced by all countries .  The Fund has actively sought to demonstrate the distortionary 
effects of agricultural subsidies, for example am ong OECD countries, with a particular emphasis on 
the largest markets.  Quotas and other non-tariff barriers on such key commodities as rice, sugar, 
wheat, beef and dairy products imply millions of dol lars in lost income for developing countries each 
year.  The Fund will continue to highlight such costs, but equal emphasis will also be placed on 
developing countries.  The empirical work to date clearly illustrates that the bulk of gains from trade liberalization, including through an ambitious D oha Round, would accrue to developing countries 
given that barriers to trade by and among these count ries are often higher than in their more developed 
counterparts.  As noted by the IMF's Managing Director in his remarks to the October General 
Council meeting on Coherence, an excessive focus by  developing countries on rights could lead to 
self-exclusion – undermining the consensus need ed for achieving the ambitious objectives of the 
Doha Development Agenda.
2 
 
 The IMF has also taken concrete actions to bolster its moral support for greater trade 
liberalization  under the Doha Development Agenda.  We hope that the Trade Integration Mechanism 
(TIM), first introduced during the Cancún Minister ial, will help reassure those countries concerned 
about the short-term costs of trade liberalizati on.  It was developed as a solution for addressing 
vulnerabilities stemming from, for example, preferen ce erosion or food terms-of-trade shocks, but 
without damaging the opportunities afforded by multilat eral trade liberalization for the membership as 
a whole.  The mechanism is directed at the possibl e balance of payments impact of liberalization by 
other  countries, agreed in the context of the WTO or implemented unilaterally on a non-
discriminatory basis.  Other actions of note include  an increased emphasis on the potential impact of 
preference erosion on member countries – particularly  those vulnerable to terms of trade shocks.  The 
IMF also stands ready to work with the WTO and other key institutions on issues related to trade 
facilitation, and to consult on economies wh ere cotton is of vital importance.  
 
III. IMF  INITIATIVES IN FAVOUR OF LDC S AND NFIDC S AT THE COUNTRY LEVEL  
The IMF also works to address country-specific issues in areas of concern to the LDCs and 
NFIDCs by providing assistance through three key channels:  surv eillance, technical assistance, and 
financial support.  
 
 Last year I discussed the role played by the IMF in providing countries with macroeconomic 
policy advice on how to prepare for shocks and how to respond once a shock hits.  This included 
helping countries devise policies to respond to s hocks, e.g., selecting an appropriate mix of 
adjustment and financing.  IMF surveillance can al so play an important catalytic role by alerting 
donors when a country may have unfilled needs for financing, particularly in the case of "silent 
crises", such as commodity price shocks.   Let me today elaborate on the IMF's  financial support to LDCs and NFIDCs.  While IMF 
services and lending are available to all members, low-income countries are particularly vulnerable to exogenous shocks, such as natural disasters, terms- of-trade shocks, and conflicts or crises in 
neighboring countries.  They have a higher incide nce of shocks compared to other developing 
countries and as a result tend to suffer greater dama ge relative to GDP.  Furthermore, the severity, 
duration and reversibility of shocks are often difficu lt to predict.  Out of the array of financial 
facilities currently available to our members, three are of potential importance to NFIDCs: 
 
• Poverty Reduction and Growth Facility  (PRGF). Loans under the PRGF have an 
interest rate of 0.5 per cent  and are based on the country-owned Poverty Reduction 
Strategy Paper (PRSP).  PRGF arrangements support a three-year economic programme 
                                                     
 
2 See Managing Director de Rato’s October 2004  remarks at the WTO General Council on Coherence 
at http://www.imf.org/external/np/speeches/2004/102204.htm    G/AG/GEN/68 
 Page 11 
 
 
 and can be augmented with add itional financial resources in th e event of an unanticipated 
shock.  Currently, 25 NFIDCs and 21 LDCs  are drawing on Fund financial resources 
under the PRGF.  
• Stand-By Arrangements  (SBA).  Purchases under an SBA are not concessional and are 
designed to address short-term balance-of-payments problems.  Currently, three NFIDCs 
have an SBA in place. 
• Compensatory Financing Facility  (CFF).  The CFF is intended to assist countries 
experiencing a balance of payments need due to a temporary shortfall in export earnings 
or an increase in the cost of cereal imports .  The non-concessional terms of this facility 
make it less well-suited to low-income NFIDCs  and may explain why it has not been used 
since it was last modified in 2000.  A recen t review of the CFF concluded that the CFF 
will be retained in its current form to give the facility extra time to prove its usefulness. 
 The TIM , as described earlier, is applicable in the context of PRGF and SBA arrangements.  
The TIM allows for augmented IMF lending, within the existing facilities, in the case of balance-of-
payments shortfalls resulting from other countri es' trade liberalization measures.  One NFIDC 
(Bangladesh) has utilized the TIM thus far.  In  July, the IMF's Executive Board approved an 
augmentation of Bangladesh's PRGF programme to  address balance-of-payments pressures stemming 
from the forthcoming expiry of textiles quotas.  Other countries have indicated an interest in the TIM. 
 
Let me conclude that, in the period ahead, wo rk will continue on the financing and modalities 
of the Fund's engagement with low-income memb ers, including instruments to help members face 
shocks.  This work aims to address the particular challenge faced by cotton producers in Africa or similar challenges faced by other commodities producers with systemic implications for 
macroeconomic performance.   
 
   G/AG/GEN/68 
Page 12  
 
  
Table 1. Overview of the World Economic Outlook  Projections  
(Annual percent change unless otherwise noted)       
            
       Difference from April 
    Current Projections  2004 Projections 1 
  2002 2003 2004 2005  2004 2005 
                
World output  3.0 3.9 5.0 4.3  0.3 -0.1 
Advanced economies  1.6 2.1 3.6 2.9  0.2 -0.2 
Other emerging market a nd developing countries 4.8 6.1 6.6 5.9  0.5 -- 
  Net Food Importing Countries 2  3.4 3.7 5.4 5.6  0.2 -- 
  Purely Net Food Importing Countries 3  2.3 3.4 5.0 4.7  0.5 0.1 
  Africa  3.5 4.3 4.5 5.4  0.3 -- 
  Developing Asia  6.6 7.7 7.6 6.9  0.2 -0.1 
    China  8.3 9.1 9.0 7.5  0.5 -0.5 
    India  5.0 7.2 6.4 6.7  -0.4 0.6 
    ASEAN-4 4  4.3 5.1 5.5 5.4  -- -0.1 
  Middle East   4.3 6.0 5.1 4.8  1.0 -0.1 
  Western Hemisphere  -0.1 1.8 4.6 3.6  0.7 -- 
    Brazil  1.9 -0.2 4.0 3.5  0.5 -- 
         
  Central and eastern Europe  4.4 4.5 5.5 4.8  1.0 0.3 
  Commonwealth of Independent          
    States 5  5.4 7.8 8.0 6.6  2.0 1.4 
    Russia  4.7 7.3 7.3 6.6  1.3 1.4 
    Excluding Russia  7.0 9.0 9.6 6.5  3.7 1.5 
         
Memorandum         
World growth based on market         
    exchange rates  1.7 2.7 4.1 3.4  0.3 -0.1 
         
World trade volume (goods and services)  3.3 5.1 8.8 7.2  2.0 0.7 
Imports         
  Advanced economies  2.6 3.7 7.6 5.6  1.9 0.2 
Other emerging market a nd developing countries 6.0 11.1 12.8 11.9  2.6 2.4 
    Net Food Importing Countries  -1.8 0.5 8.3 10.0  -0.3 1.5 
    Purely Net Food Importing Countries  -3.9 0.9 9.0 7.7  2.4 0.6 
Exports         
  Advanced economies  2.2 2.6 8.1 6.3  1.8 0.2 
Other emerging market a nd developing countries 6.6 10.9 10.8 10.6  2.7 1.9 
    Net Food Importing  Countries  2.0 1.4 8.2 8.0  1.7 1.0 
    Purely Net Food Importing  Countries  1.2 1.8 6.8 4.7  1.6 -- 
         
Commodity prices (U.S. dollars)         
Oil 6  2.5 15.8 28.9 --  25.1 10.0 
Nonfuel (average based on world          
   commodity export weights)  0.6 7.1 16.8 -3.9  9.2 -3.1 
         
Consumer prices         
Advanced economies  1.5 1.8 2.1 2.1  0.4 0.4 
Other emerging market a nd developing countries 6.0 6.1 6.0 5.5  0.3 0.5 
  Net Food Importing Countries  8.7 9.6 9.4 8.3  1.5 1.5 
  Purely Net Food Importing Countries  5.1 6.3 7.6 6.9  1.0 0.9 
         
Six-month London interbank          
  offered rate (LIBOR, percent)         
On U.S. dollar deposits  1.9 1.2 1.6 3.4  0.3 -0.1 
On Japanese yen deposits  0.1 0.1 0.1 0.3  -- -0.1 
On euro deposits  3.3 2.3 2.2 2.8  0.1 0.2 
                
         
  Note : Real effective exchange rates are assumed to remain cons tant at the levels prevailing during July 7-August 4, 2004.  
   1Using updated purchasing-power-parity (PPP) weights, summarized in  the Statistical Appendix, Table A of the September issue of the 
World Economic Outlook. 
   2 Afghanistan, I.S.of, Cuba, Eritrea, Liberia,  Martinique, Soma lia, 'Timor-Leste, Dem. Rep. of', and Tuvalu are not included in  the 
aggregation due to insufficie nt data. 43 LDCs + 25 NFIDCs 
   3 24 NFIDCs. Cuba is not included in the aggregation.  
   4Includes Indonesia, Malaysia, th e Philippines, and Thailand. 
   5Mongolia, which is not a member of the Commonwealth of Independent  States, is included in this group for reasons of geography a nd 
similarities in economic  structure.  
  G/AG/GEN/68
 Page 13Chart 2.  Indices of Non-Fuel Commodities, Cocoa, Coffee and Cotton, January 1997 - October 2004
20406080100120140
Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04Non-Fuel Primary Commodities
Coffee index of Other milds and robusta
Index of Cotton, Liverpool Index A, cif Liverpool
Index of Cocoa, ICO price, cif U.S. & European ports1997 = 100 
 G/AG/GEN/68 
Page 14 Chart 1.  Indices of Non-Fuel Commodities, Cereals, Wheat and Maize, January 1997 - October 2004
20406080100120140
Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04Non-Fuel Primary Commodities
Index of Wheat; U.S. number 1 HRW, fob Gulf of Mexico
Index of Maize; U.S. number 2 yellow, fob Gulf of Mexico
Cereals index of Wheat, maize, and nominal price quote rice1997 = 100 G/AG/GEN/68 
 Page 15 
 
 
 Chart 3.  Year-on-Year Percent Changes of Select Commodities, October 2004
-21%-16%-15%-12%-11%-10%10%14%19%22%24%31%38%39%47%51%59%62%68%76%100%
73%
63%
56%
38%
30%
28%
24%
21%
21%
19%
11%11%
-20%
-28%
-40% -20% 0% 20% 40% 60% 80% 100% 120%CottonSoybeansSoybean MealCoarse, WoolRobusta CoffeePalm OilSoybean OilMaize (corn)OrangesPoultrySawn, HardwoodSunflower OilZincIron OreRussian Natural Gas, EuropeBeefIndonesian Natural Gas, JapanAluminumRiceOther Milds CoffeeNickelCoconut OilAmerican Natural Gas, U.S.Pork (swine meat)Dubai OilSugar, WorldBananasCopperLeadUraniumSouth African CoalBrent OilTinWest Texas Intermediate, OilAustralian Coal
Note: Commodities selected by month based on an absolute percent change of 10%.
Source: IMF Staff-G/AG/GEN/68 
Page 16  
 
 CONTRIBUTION BY THE REPRESENTATIVE OF 
THE UNITED NATIONS CONFERENCE ON TRADE AND  
DEVELOPMENT (UNCTAD) 
 
  At the Doha Ministerial Conference later in  2001, Ministers decided that an inter-agency 
panel of financial and commodity experts be estab lished to explore ways and means for improving 
access by LDCs and NFIDCs to multilateral progr ams and facilities to assist with short-term 
difficulties in financing normal levels of comme rcial imports of basic foodstuffs, as well as the 
concept and feasibility of the proposal for the establishment of a revolving fund. 
 UNCTAD played an active role in this inter-a gency panel.  The panel's report described a 
sustainable and relatively low-cost mechanism build ing on market mechanisms to help NFIDCs and 
LDCs to overcome short-term difficulties in fina ncing food imports.  Following its publication, 
UNCTAD was approached by these countries to assist in elaborating financing structures, particularly short-term finance, which would improve food secur ity conditions.  Financial support of FAO made it 
possible to do this work.  A research-based study  was prepared, which focused on the impact of 
liberalization on these countries' access to food import finance.  While UNCTAD has worked on 
commodity finance for more than a decade, particul arly focusing on innovative financing mechanisms 
and ways these could be applied in developing coun tries, this was a new phase in that it involves 
establishing a regional financial structure.   
 In the study "Financing Normal Levels of Commercial Imports of Basic Foodstuffs", which 
we conducted in cooperation with  FAO, we propose a new revolving financing facility for food 
imports to help LDCs and NFIDCs in dealing w ith import shocks, and ensuring continuous flow of 
food imports at reasonable interest rates.   
 As it is building on existing practices in the ar eas of international trade and finance, this 
structure is familiar to food buye rs, banks and food supp liers, who would have little difficulty in 
utilizing it.  It involves establishing a small Internat ional Secretariat that would allow for financing 
food imports when needed, rather than compensati ng balance of payment losses.  This will be done 
through disbursing food credit to beneficiary countries through national windows.  
 In this context, instead of keeping funds in  non-utilized accounts, the international community 
could, when certain objective market triggers (e.g., world price levels) are breached, provide 
guarantees (as opposed to finance).  These guarantees w ould enable the financing facility to have an 
AAA rating, which would enable it to mobilize f unds from international markets at the lowest 
possible costs. 
 This revolving fund is a dormant one, until certain  triggers relating to one of two factors are 
breached: 
• higher world market prices for food; 
• a shift from food imports on preferential terms or from food aid, to commercial food imports. 
 The Secretariat is mandated with the task of  monitoring developments influencing these two 
factors, and establishing the baseline for mobilizing and providing funds for re levant countries.  For 
instance, world market prices for food are available on a real-time basis.  Although it would require technical discussions, it should not be difficult to est ablish, for each country, a baseline price index, 
and monitor the changes in these indexes.  Data on preferential food imports and food aid are also 
available on a reasonably timely basis (donors tend to  programme such schemes), and a reduction of 
the volume of food available under such schemes can be determined in advance.  Such data is already 
gathered by international organizations (in partic ular, the FAO and the International Grains Council), 
so it would not be necessary to construct an expensive new monitoring system.  G/AG/GEN/68 
 Page 17 
 
 
 
 
 
 The structure of the proposed facility also reflect s the fact that the majo r concern in finance is 
not to find clients interested in borrowing, but to secure reimbursement.  It is assumed that a similar 
concern applies to donor countries, which make funds available or provide loan guarantees.  Thus, the 
structure would require the involvement of local counterparts (i.e. Government, local bank and the 
borrower), which will reduce the risk of loan defau lt.  At the national level, the government would 
have to give a sovereign guarantee that any sums  borrowed under the facility would be reimbursed.  
The local banks and the importer are also expected to  participate by pooling in limited percentages of 
credit.  It would then be appropriate for Centra l Banks to host the national windows, which in turn 
would work with interested local banks.   
 As long as the above-mentioned triggers are not activated, the financial facilities remain 
dormant.  Once triggered, there should be a clear process to enable traders to obtain the necessary 
funds.  As shown in the next figure, the first step  is for the international secretariat to advise the 
countries on the activation of the triggers, and that now, a credit line of a certain amount is available 
for food imports, and will remain ava ilable for a limited number of months. G/AG/GEN/68 
Page 18  
 
 
 
 
 The proposal that we came up with is a ma rket-friendly mechanism with limited financial 
implications for the donors and beneficiary countri es, and streamlined bureaucratic procedures (in 
practice, the technical management of the fund ca n be outsourced to an investment bank or an 
insurance company).  This  issue may form the focus future di scussions at the WTO, and we stand 
ready to provide our technical expertise to those who require it.   
 The study is available on FAO website: 
http://www.fao.org/documents/show_cdr.asp ?url_file=/DOCREP/006/ Y5109E/y5109e0b.htm  G/AG/GEN/68 
 Page 19 
 
 
 CONTRIBUTION BY THE REPRESENTATIVE OF THE  
WORLD BANK 
 
  The Marrakesh Ministerial Decision was intende d to enhance the food security of net food-
importing and least-developed countries in the even t that the Uruguay Round agreement should cause 
a structural increase in the price of food imports for consumers in these countries.  In previous monitoring exercises, this Committe e has discussed some mechanisms  that would have the objective 
of ensuring access to adequate resources to finance food imports in periods of high world food prices.  
These mechanisms were aimed at mitigating negativ e effects of food price spikes (i.e., temporary 
periods of extraordinarily high prices) more than at long-term structural price increases in world 
prices of the type that might occur following su ccessful global liberalization.  If anything, the 
evidence suggests that successful liberalization would substantiall y reduce the variability of world 
prices, and hence the probability of spikes per se
1 (Tyers and Anderson 1992). 
 
 In last year's exercise, the submission of the World Bank provided some comments on these 
proposals, and outlined how the Bank's programme of enhanced assistance announced at the Cancún 
Ministerial Meeting might be used to help count ries address adverse effects from food price shocks. 
  In the year since the last monitoring exercise, the Doha negotiations have made some progress, but food security concerns have continued to be a major preoccupation of the developing 
countries.  To a large extent, this concern has been  reflected in negotiating positions calling for more 
flexibility for developing countries (or some sub-set thereof) to maintain high tariffs or otherwise 
restrict food imports in order to raise domestic prices, thereby protecting producers and increasing the 
country's degree of food self-sufficiency.  The current submission first addresses this concern and suggests how this discussion could be channelled in more constructive directions.  It then briefly 
reviews developments in world grain markets since th e last submission, and the implications for food 
security.  
The concept of food security and special pr oducts could be re-defined to recognize that 
structural food security is generally reduced, not enhanced, by trade barriers to food imports.  
Food insecurity (apart from some emergency situations) comes mainly from insufficient 
purchasing power of the poor.  It is difficult to find an example of a country in which many of the 
poor have been lifted out of pove rty, but continued to suffer from food insecurity because of lack of 
availability of food products.  But conversely, there are prominent cases of countries which have achieved food self-sufficiency at a national level – a nd even held large surplus stocks - while large 
numbers of the poor have continued to go hungry.  It follows that food insecurity must be attacked 
mainly by poverty reduction, not by increasing domestic food production. 
This is not to say that agricultural produc tivity-enhancing measures do not contribute to 
reduction of food insecurity;  clearly they do.  But they do so not
 through increasing the degree of 
national self-sufficiency in food, but rather throug h other channels:  (1) They increase food production 
at the global level, which enhances the access to f ood of poor consumers worldwide by reducing its 
price in world markets.  Because of the relatively open  nature of the global trading system, this occurs 
regardless of the country in which the productivity improvement occurs.  (Of course, the lower price 
may hurt poor producers to the extent that they do not benefit from the productivity improvements.)  
At this point in time, and into the foreseeable fu ture, global supplies are likely to be sufficient to 
adequately feed the world.  (See section "Grain s Market Update" below.)  (2) They increase 
profitability and raise incomes of the rural poor.  This effect occurs whether the increases in 
productivity are in food or non-food crops.  (3) Th ey may increase the demand for rural labor.  This 
                                                      
1 Tyers, R. and K. Anderson (eds.) 1992.  Disarray in World Food Markets: A Quantitative 
Assessment , Oxford: Cambridge University Press. G/AG/GEN/68 
Page 20  
 
 effect varies depending on relative labour intensity of production.  Some evidence from countries that 
have been successful in poverty alleviation throug h agricultural development indicates that often 
export crops (and particularly associated processing industries) are very labour-intensive
2.  (4) In 
cases where food products are totally self-consumed, improved productivity increases food consumption of the producer.  (5) Where food crops are not tradable (internationally or across regions 
in the country), increased production lowers loca l prices and enhances the access of poor net 
consumers.  In the last two cases, the measures to  enhance production cannot (by definition) be trade 
policy and its impact on output prices. 
The ways in which trade policy 
can affect the structural food security of the poor in 
developing countries are primarily three:  First, global trade liberalization may cause a structural 
increase in global food prices, thereby reducing the abilit y of the poor to buy sufficient food.  This is 
the major concern to be addressed by the current exercise, and is a legitimate long-term issue, 
although its importance is often exa ggerated.  Any structural effects will be realized only gradually, as 
the agreements reached in the round are implemente d, giving ample adjustment time.  In addition, 
there will be a reduction in volatility of world pr ices, so both producers and consumers can manage 
risks better.  Nevertheless, this is an issue th at should be taken up in the negotiations, with the 
objective of finding ways to help the poor deal with higher prices.3   
Second, trade liberalization (multilateral or unilateral) may increase the purchasing power of 
the poor by raising incomes in both agricultural and non-agricultural sectors.  Liberalization from 
successful negotiations would lift millions out of poverty, greatly improving food security. 
Third, trade policy at the national level may in crease or reduce the price of food, affecting 
poor producers and consumers in opposite ways. 
Unfortunately, rather than focusing on the first two linkages with the global trading system, 
the concept of food security has been used in the Doha negotiati ons primarily to suggest that 
developing countries should be allowed to maintain  high barriers to imports of food products as a 
means of increasing national production, under the rubr ic of "special products" or as a component of 
the "development box." 
This kind of policy is likely to have only very limited short-term benefits to farmers – and to 
be counterproductive to the objective of long-run structural food security  - for a number of reasons: 
• The benefit of the protection of food crops to the rural poor is less than it might appear 
because the poorest are (in many countries) la ndless and are therefore harmed in their 
capacity as net consumers, and the next poor est class are generally self-sufficient (non-
commercial) producers, who neither gain nor lose.   Of course, to the extent that the rural 
landless rely for employment on commercial food crop production, ra ising food prices 
benefits them as laborers if output price increases raise rural wages.4   
 
• Raising prices via tariffs on food has a one-o ff impact on farm incomes, but to raise 
farmers' incomes on a sustainable basis, it is n ecessary either to raise the returns to labor 
in other sectors, or their productivity in agri culture itself.  To reduce the gap between 
farm and non-farm incomes permanently requires measures that facilitate faster out-
                                                      
2 See, for example, A. Valdes and W. Foster, “The  Positive Externalities of Chilean Agriculture:  the 
Significance of Its Growth and Export Orientation”, case study synthesis in the FAO Roles of Agriculture 
Project http://www.fao.org/es/esa/roa. 
3 While this has not been an urgent issue, given that the URAA did not lead to sweeping liberalization, 
it may become more pressing if th e Doha round succeeds in doing so. 
4 This is not to say that such support increases th e aggregate demand for labor, since it also reduces 
employment in other industries.  The net effect is not obvious.  G/AG/GEN/68 
 Page 21 
 
 
 migration from agriculture, such as more eff ective investments in rural education and 
infrastructure.   
 
• Raising domestic food prices imposes a regressi ve tax, undermining the food security of 
urban and rural consumers.  The cost of pr otectionism to poor consumers is higher for 
food than for many other products, since the poor spend disproportionately on food. 
 
• By discouraging export production, it reduces foreign exchange earning capacity of the 
country and undermines its structural cap acity to import food and other products. 
 
• When pursued by many developing countries, it results in high barriers to South-South 
trade.  Table 1 indicates that developing countries have tariff structures in agriculture 
and food products that are on average higher and more escalated than those of 
developed countries, although for primary products the industrial countries provide 
much more protection through direct subsid ies and non-tariff measures (mainly tariff-
rate quotas). 
 
• It encourages farmers to continue to plan t low-value food crops instead of diversifying 
into high-value nontraditional exports, which is a better road to escape from poverty.5  
 
• Protection via trade policy is often viewed by policy-makers as a substitute for methods 
of support for agriculture that have been pr oven to be much more productive, such as 
increased spending on rural education, infr astructure, or research and extension, and 
from investments in domestic food distribution systems to improve their ability to quickly and efficiently respond to food needs in times of emergency
6.  
 
• In the Doha negotiations, it diverts attention from the question of how the disciplines in 
the global trading system could be used to (1) make all consumers more food secure by 
disciplining the practice of export taxation or controls by food-exporting countries in 
periods of high world prices (Figure 1 indi cates how food export controls have been 
used in periods of global food price spikes.);  and (2) discipline abuse of food aid, which has at times made developing countries dumping grounds for surplus production of rich countries in periods of global gluts, ther eby undermining food production and marketing 
channels (Figure 2).  It would be useful to focus more attention on these legitimate food 
security issues in the negotiations. 
  There are of course legitimate concerns over s hort-term disruptions to supply, from either 
manmade or natural disasters.  But the effects of temporary disruptions could be mitigated through 
other measures - stockpiling of moderate reserves,  improving distribution ch annels, reforming food 
aid - that would be much less costly than effort s to increase self-sufficien cy.  And, as suggested 
above, to the extent that disruptions to supply can  result from exports being restrained by exporting 
countries, developing countries might use some of their negotiating capital at the WTO to seek disciplines on such actions by the major exporting countries.  
                                                     
 
5 See World Bank, 2003 ( Reaching the Rural Poor ), pp. 48- 50 for a discussion of export vs. food crop 
production. 
6 The increased effectiveness of investment versus trade protection is quantified in E. Diaz-Bonilla, X. 
Diao, and S. Robinson, "Thinking Inside the Boxes:  Protection and Investments in the Development and Food 
Security Boxes", contributed paper to international co nference "Agricultural Polic y Reform and the WTO:  
Where are We Headed?"  Capri, 23-26 June 2003. G/AG/GEN/68 
Page 22  
 
  In some cases, it may be necessary to provide temporary protection for producers of import-
substitute crops (with no special prio rity to food crops) in periods of extraordinarily low world prices 
by some kind of safety net or safeguard measure.  Ideally, this would be done by direct payments not 
linked to production or input decisions, but realistica lly in most poor countries it is more likely to 
involve an increase in the import tariff, which shoul d be time-bound and moderate in magnitude.  This 
will at least minimize the anti-export bias inherent in  such protection.  But such safeguard measures 
would be available even if tariffs were bound at lo w levels, so this kind of  emergency situation does 
not constitute a rationale for high tariff bindings. 
 
 It is worth noting that the kind of relatively neutral trade policy advocated here, with no or 
modest protection for import substitutes to minimize  the anti-export bias, does not mean that food 
production will suffer.  In many countries, farmers traditionally follow a mixed-cropping strategy, and 
production of cash crops generates in come which improves their ability to buy modern inputs for their 
food production.  There is therefore a strong positiv e empirical correlation between cash crop income 
and food production.  This relations hip is stronger in poorer countries where the off farm income is 
more limited.  Figure 3 shows the relationship fo r a group of low-income countries over the past two 
decades.   
Grain Markets Update:  Supplies are relativel y abundant, stocks are re-built, so there is 
unlikely to be a price spike in the near term  
World grain ending-stocks have declined sharpl y from the levels of the mid-1980s and this 
has led to concerns of many importing countries a bout the adequacy of world food supplies.  The 
declines were due to policy changes in the United States in the mid-1980s, the European Union during 
the early 1990s, and in China in the mid-1990s.  As shown in Figure 4, the level of ending-stocks has 
remained roughly constant since about 1990 for the world (excluding China) and for major grain 
exporting countries.
7  However, China's grain stocks continue to decline and this h as led to declines in 
world grain ending-stocks.  
 World grain production is projected to increase by about 7.5 per cent in the 2004/05 crop year 
in response to higher grain prices last year a nd improved growing conditions following several years 
of drought in various regions.  This  is the largest year-to-year incr ease in world grain production in 26 
years, and is due mostly to a 6.3 per cent incr ease in yields despite higher fertilizer prices.  
Consumption is projected to increase by only 2.0 pe r cent in 2004/05, which will lead to a rebuilding 
of grain stocks.  Major exporters' stocks are pr ojected to increase by 38 per cent and world grain 
stocks, excluding China, are projected to increase by 19 per cent.  However, China's grain stocks 
continued to decrease due to policy changes and that will offset much of the increase in the stocks of 
the rest of the world.  The world ending-year stocks  to use percentage is projected to be 17.8 per cent 
at the end of the current crop year, which is well below the average of recent years because of the 
policy changes in China.  The production increases ar e concentrated in wheat and maize, which are 
projected to increase by 11.6 and 10.5 per cent, respectively, while rice production is expected to 
increase 2.5 per cent.  Grain price movements re flect the greater increase in wheat and maize 
production, relative to rice (Figure 5).  
 
Conclusions 
 
 A major goal of policy at the national and global  levels is to alleviate hunger, malnutrition, 
and food insecurity.  The internationa l trading system can play a key role  in achieving this objective.  
As demonstrated in this note, the world has ample supplies of grains, and a well-developed 
infrastructure to transport these supplies where there is demand.  The best wa y to harness the trading 
system to reduce food insecurity is to focus on raisin g incomes of the poor so that they have effective 
                                                     
 
7 The United States, European Union, Canada, Australia and Argentina which account for about 80 per 
cent of world grain exports.   G/AG/GEN/68 
 Page 23 
 
 
 demand, and to lower barriers to  trade in foodstu ffs so as to maximize the purchasing power of their 
limited incomes.  This calls for a shift in focus of the discussions on food security in the negotiations.  
The negotiations can make a contribution to food security if all countries agree to lower protection rates in these products, and to impose disciplines on export barriers as well.  
Table 1. Tariff Rate Escalation in Agriculture 
 Raw Intermediate Final Average Percentage of 
lines covered 
QUAD 6.3 9.6 15.2 11.2 85.5 
     Canada 1.6 4.0 7.5 4.7 71.8 
     Japan 4.6 10.2 16.0 10.9 84.8 
     US 6.0 7.6 13.1 10.3 99.5 
     EU 13.2 16 .6 24.3 19.0 85.9 
Large Middle Income Countries*  15.0 15.2 23.2 18.0 99.6 
Other Middle Income Countries* 19.2 21.0 31.5 24.8 88.9 
Lower Income Countries* 24 .6 32.6 51.1 38.6 96.7 
Source : Global Economic Prospects and the Developing Countries 2003, World Bank, using data from WTO 
Integrated Database 
 
 
Figure 1: Food Aid can be Export Subsidies in Disguise  : Aid volume is highest when least needed, when 
world prices are low, and vice versa  
US Wheat Food Aid volume versus Prices  
02468
1970 1975 1980 1985 1990 1995 2000
Source: USDA and World Bank Food Aid Million Tons
050100150200250
Price US$ / Ton
Total Aid US FOB PriceG/AG/GEN/68 
Page 24  
 
 Figure 2:  Wheat prices and export restrictions 
 
 
  
Figure 3:  Production Growth Rate, 1980- 2000
Food vs. Non-Food  
Low  Income Countries  with Agr/GDP > 20%
-101234567
-5 0 5 10 15 20 Non-Food Food 
Y = 2.13 + 0.22 X 
              ( t =3.66)         R2 = 0.46
 
 0100200300400
Jan-70
Jan-72
Jan-74
Jan-76
Jan-78
Jan-80
Jan-82Jan-84
Jan-86
Jan-88
Jan-90
Jan-92Jan-94
Jan-96
Jan-98
Jan-00
Jan-02
Jan-04US fob Price in $/Ton
Prices Export RestrictionsU.S. Embargos Export Tax EU & Russia G/AG/GEN/68 
 Page 25 
 
 
 Figure 4. Grain stocks, 1980-2004 
 
 
0100200300400500600
1980 1985 1990 1995 2000Million Tons
World World Ex China Major Exporters 
 
 
Source : USDA, Grain: World Markets and Trade, October 2004. 
 
Figure 5. World Grain Prices, Monthly, January 2000-October 2004 
  
050100150200250300
Jan-
00Jul-
00Jan-
01Jul-
01Jan-
02Jul-
02Jan-
03Jul-
03Jan-
04Jul-
04US$s per Ton
Wheat Rice Maize 
 
 
 Source : World Bank. 
 
 G/AG/GEN/68 
Page 26  
 
 CONTRIBUTION BY THE REPRESENTATIVE OF THE  
WORLD FOOD PROGRAMME 
 
 
Background 
 The key elements in the Marrakech Minister ial Decision related to WFP's operations are 
embodied in the three areas of agreement outlined und er paragraph 3 of the Decision.  The paragraph 
refers to the establishment of a mechanism to en sure minimum impact by the reform programme on 
the availability of sufficient fo od aid to least-developed countries (LDCs) and net food-importing 
developing countries (NFIDCs)8.  The three key elements are: 
 
• the need to review the level of food aid co mmitments sufficient to meet the legitimate 
needs of the developing countries during the reform programme; 
• the need to ensure that basic food stuffs ar e provided to LDCs and NFIDCs in fully grant 
form and or on appropriate concessional terms;  and 
• the need to give full consideration to technical and financial assistance to improve 
agricultural productivity and infrastructure in LDCs and NFIDCs. 
 
Global and WFP Food Aid Deliveries 1990-2003 
 
 Before reviewing trends in global food aid, it is worth highlighting one critical distinction 
between programme and project food aid.  Historically, programme food aid has been provided 
bilaterally, often as balance-of-payments support, and may be sold on the open market.  Often the 
objective of such transfers has b een more economic than nutritiona l and has thus attracted more 
criticism for disrupting local food markets and di splacing commercial imports.  Unlike programme 
food aid, project food aid is targeted to a ddress verified nutritional needs in targeted  vulnerable 
populations.  School feeding and supplementary feeding for malnourished children provide the 
classical examples of the targeted nature of project food aid.  This aspect makes food the essence of 
project food aid as opposed to the resource transfer  in programme food aid.  Therefore much of what 
has been criticised in food aid of being disruptive to food markets and creating disincentives to local 
production, relates to programme f ood aid with its characteristics of  being untargeted and monetized 
for budgetary support purposes. 
 In general, the trend of global food aid de liveries between 1990 and 2003 has been declining 
apart from the two peaks in 1992/93 and 1999.  The peaks correspond to the emergency food deliveries in response to Southern Africa drought and the high programme food aid deliveries to 
Eastern Europe and the Common Wealth of Indepe ndent States (CIS) in both periods.  Since 1999 
global food aid deliveries have continuously decr eased to reach 10.2 million tonnes in 2003.  The 
2003 deliveries would have been significantly lower ha d it not been the emergencies in Iraq, Ethiopia 
and Southern Africa.  Against th is global trend, WFP's food aid during the same period has increased 
from 2.0 million tonnes in 1990 to  5.9 million tonnes in 2003 accounting for 15% and 58% of global 
food aid deliveries respectively (Chart 1). 
 
                                                     
 
8LDCs plus Barbados, Botswana, Côte d'Ivoire, Cuba, Dominica, Dominican Republic, Egypt, Gabon, 
Honduras, Jamaica, Jordan, Kenya, Ma uritius, Morocco, Namibia, Pakistan, Peru, Saint Kitts and Nevis, Saint 
Lucia, Saint Vincent and the Grenadines, Senegal, Sri Lanka, Trinidad and Tobago, Tunisia and Venezuela .  G/AG/GEN/68 
 Page 27 
 
 
 Chart 1: Global and WFP Food Aid Flows, 1990-2003
02468101214161820
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Global Food Aid Deliveries WFP Food Aid ShipmentsMillion Tons
Source: WFP/INTERFAIS, 2004
 
 
WFP's Assistance to LDCs and LIFDCs 
 Policies governing resource allocation of WFP food aid in development activities state that 
"WFP will allocate at least 50% of its developmen t resources to LDCs and at least 90% to low-
income food-deficit countries (LIFDCs)9.  Up to 10% of resources will remain available to meet either 
additional needs of these countries or the special needs of non-LIFDCs".  In its operations, WFP 
maintains its focus on the policy goals to ensure th at food aid resources are delivered where they are 
needed most and they create a maximum impact (Table 1).  The table demonstrates that WFP's 
targeting is not only limited to the geographical leve l but also goes into details to focus on the most 
vulnerable groups i.e. women and children.  
                                                      
9 LIFDCs are 83 including: All LD Cs plus China, India, Indonesia, Korea Democratic Republic of, 
Mongolia, Pakistan, Philippines, Sri Lanka, Albania, Ar menia, Azerbaijan, Belarus, Bosnia & Herzegovina, 
Georgia, Kyrgyzstan, Macedonia FYR,  Tajikistan, Turkmenistan, Uzbeki stan, Cuba, Ecuador, Honduras, 
Nicaragua, Egypt, Iraq, Morocco, Syria, Papua New Guinea, Cameroon, Congo Republic of, Cote d’Ivoire, 
Ghana, Kenya, Nigeria and Swaziland. G/AG/GEN/68 
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Table 1:  WFP's Development Resource Allocation, 2002-2003 
 2002 2003 
 Planned Actual Planned Actual 
Total Beneficiaries 30 Million 14 Million 30 Million 16 Million 
Women & Children 75% 86% 75% 86% 
Expenditures in: LDCs 50% (at least) 66% 50% (at least) 71% 
 LIFDCs 90% 96% 90% 99% 
 Others 10% (max) 4% 10% (max) 1% 
Source :  WFP, 2004 
 
 WFP delivers its entire food aid to beneficiary countries on a full grant basis and is consistent 
with the Marrakesh Ministerial Decision on ensuri ng that basic food stuffs are provided to poor 
countries in full grant form and or on appropriate terms.  WFP only delivers emergency and project 
food aid used in emergencies, protracted relief and recovery operations and in development projects in 
proportions depicted in Chart 2. 
 
107015822031 19682751
23194026
548635482589939813
9211373
949
6801019783803650630
586521
1118927598
1995 1996 1997 1998 1999 2000 2001 2002 2003Chart 2: WFP Food Aid Shipments by Category (Thousand Tons)
Emergency
OperationsProtracted Relief & 
Recovery OperationsDevelopment
Source: WFP Statistics, 2004
 
 
 The use of WFP food aid is targeted to vul nerable needy groups based on verified needs 
assessments.  Through this approach WFP is able to reach and deliver food to the neediest groups that 
are often unable to adequately cover their househol d food requirements.  Food aid is thus delivered 
(among other purposes) to complement the country 's food production and commercial food imports in 
addressing food insecurity. 
  G/AG/GEN/68 
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 Food Aid, Markets and Trade 
 WFP's policy commits the use of food aid to only where it has a comparative advantage and 
where food aid does not negatively impact on local f ood production and marketing systems.  From the 
global perspective, cereal food aid deliveries (which  constitute over 86% of total food aid) to low-
income food deficit countries in the past 9 years have  only constituted an average 9.6% of their total 
cereal imports.  This indicates the minimal impact of food aid on international food markets and 
displacing regular commercial food transactions.  Ho wever, it is imperative to assess the impact on 
national cereal production and markets where fo od aid may constitute a significant share of 
marketable surplus. 
 As shown in Figure 1 below, comparing the tr end of world wheat prices with global food aid 
flows, there is a negative correlation between worl d wheat prices and food aid flows.  As prices 
increase and stocks are depleted, food aid deliveries appear to decline reflecting the fixed monetary allocation of food aid.  The world wheat prices howev er do not appear to be significantly impacting 
on the food aid shipments by WFP.  The trend for WFP food aid shipments has relatively increased 
where as the global trend has decreased (Chart 1) .  The relative increase in WFP food aid shipments 
can be attributed to donors' increase in food aid provided for emergencies. 
-5-
 
 
 For the net food-importing developing countries and those receiving food aid, the negative 
correlation between world wheat prices and food aid deliveries implies a double negative impact on 
their economies.  Such countries face a higher cereal  import bill from increased world cereal prices 
and concurrently  a fall in food aid deliveries that could have supplemented their commercial food 
imports to reduce food insecurity.  
 G/AG/GEN/68 
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 Promoting Human Development and Production  Capacities for Long-Term Food Security 
 Hunger continues to block the poor's prospects to invest and ultimately escape from the 
poverty trap until they are helped with the problem of  bridging consumption gaps.  Therefore, in its 
efforts to promote social and economic developmen t and facilitate investment in poorer areas and 
their populations, WFP uses food aid to influence the trade-offs that a poor food-insecure household 
makes by linking consumption and investment in wa ys that help the household or community in a 
longer term. 
 Food aid plays the role of enabling marginalised , food insecure people to participate in socio-
economic development.  Food is ther efore one form of assistance that  meets one of th e basic needs of 
poor families, who spend over 65 per cent of thei r income on food and is essential to health, growth 
and productivity.  The poor tend to devote most of their meagre resources to meeting immediate basic 
food needs and are thereby hindered from investing in  asset creation that reduces their risk to future 
shocks that lead to hunger and food insecurity. 
 WFP uses food aid to assist national governments provide food-based safety nets to 
vulnerable groups, thereby contributing to freeing up of the poor's resources and reducing their risk-
taking in making long-term investments that improve their food security and enhance their socio-
economic development. 
 Supplementary feeding, school feeding, and Food-for-Work (FFW) and Food-for-Asset 
(FFA) activities are some of the programmes that  WFP implements in the context of hunger and 
poverty reduction strategies, comprising initiatives for expanded access to social services by the poor 
and for labour income growth.  Supplementary feeding programmes and school feeding provide a 
direct transfer of food to a targeted household or individual whereas FFA & FFW programmes have 
long been used to build physical and human capa city and protect households against decline in 
purchasing power that often accompanies drought,  unemployment, famine and other adverse 
conditions. 
 With food aid, WFP supports school feeding programmes, which encourage school enrolment 
and regular attendance on top of providing nutritious f ood to the children.  Due to this impact, school 
feeding provides a critical and low-cost input into  human capacity building leading to a sustainable 
benefit of a long-term improvement in workfor ce productivity expected from a better educated 
population. 
 Given the devastating impact that the HIV/AI DS pandemic is making on food production and 
rural development in general, WFP is using food aid to bridge the consumption gap suffered by 
affected individuals and households as the pandemic has taken the lives of 7 million farmers in Africa 
alone.  Food aid is also applied to supplement the me dical treatment of the vi ctims, who have special 
nutritional requirements.  Currently WFP has HIV/AI DS related interventions in 41 LIFDCs countries 
and a strong operational presence in 22 of the 25 countries hardest hit by the disease.  
 Food and nutrition programmes have a vital role to play in the development of marginalised 
rural areas where the majority of the poor live.  Ad equate nutrition is the firs t line of defence in the 
battle against diseases as bodies need good nutrition to fight off infection, regain strength and live productively. 
 Malnutrition is an important de terminant of mortality;  therefore WFP's food aid interventions 
play an important part in saving lives through thei r impact on the nutrition and health of affected 
populations.  WFP's nutrition programming has now b een strengthened to pay more attention to 
underlying causes of malnutrition and seek to build links with longer term development activities.  
WFP is currently allocating about 20% of annual development and 11% of emergency resources to 
mother-and-child health and nutrition (MCHN)  interventions in over 28 countries.  G/AG/GEN/68 
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  It should be noted that WFP uses project food  aid to support numerous development activities 
that contribute to the beneficiary countries' long- term food security.  The trend however for project 
food aid has stagnated over the years and limited project food aid resources significantly hamper 
WFP's interventions in long-term food security activities. 
 
WFP Food Aid Purchases in Local and Regional Markets 
 
 In its effort to support the development of  local and regional food markets as one of the 
strategies for long-term food security, WFP is incr easing its local and regional food purchases for use 
in beneficiary countries and other countries of th e region when economically feasible (Chart 4).  In 
2000 WFP purchased 1.7 million MT of food wort h USD329.7 million of which 785,000 MT worth 
USD149.1 million were purchased from developing c ountries (including economies in transition).  In 
2003 the amount of food aid purchased by WFP in creased to 2.7 million MT worth USD634.2 million 
of which about 2 million MT worth USD443.6 milli on were purchased in developing countries.  
 With donor commitment and efficient impl ementation, local and regional food purchasing 
initiatives especially in LDCs can significantly stimulate agricultural/food production, develop 
markets and enhance socio-econom ic development in rural marg inalised and predominantly 
agricultural economies.  One example is the link with the transport sector.  For food commodity 
deliveries and related services to beneficiaries, WFP spent USD403 million in 2001 and USD308 million in 2002 of which USD162 million and USD200 million respectively accrued to local 
transport service providers in developing countries (i ncluding economies in transition).  In this way 
WFP directly generates business for the local transport sectors. 
Chart 4: WFP Local Food Purchases in Developing Countries
0100200300400500600700
2000 2001 2002 2003Total WFP Food Purchases
Purchases in Developing Countries (Including economies in transition and emerging markets)Million US$
45.2%67.6%71.4%69.9%
Source: WFP Statistics, 2004
 
 G/AG/GEN/68 
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 Concluding Remarks 
 Poverty and hunger continue to affect over 840  million people worldwide, contributing to 
suffering, death, inequality and social and economi c exclusion.  Although there has been some 
progress in poverty reduction over the last decade,  the results are unevenly distributed and hunger 
itself outside China is on the rise again.  The HIV/ AIDS pandemic is worsening the situation with its 
devastating effect on the economic prospects for ma ny countries, particularly in Africa and South 
Asia. 
 To achieve the millennium development goal (MDG) of cutting the proportion of people 
suffering from hunger in half by 2015, there is an urgent need to mobilize global support to accelerate 
the current low annual  rate of reduction of hunger and poverty.  Toward this end, investing in and 
adopting agricultural productivity enhancing tec hnologies, improving access to social and economic 
infrastructure, promoting pro-poor investment, c oncluding negotiations for fair trade and ensuring 
adequate availability of food aid based on verifiab le needs for targeted f ood insecure households 
would constitute a holistic approach to achieving the MDG1.  The Marrakesh Decision is an added 
reminder for ensuring the availability of food resour ces to LDCs and NFIDCs, who are also the target 
of the MDGs. 
 
 The World Food Programme is committed to  fighting hunger and poverty along with its 
partners, beneficiary countries and donors. 
 
__________