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Basic Paper Conference: Forum 2: Globalisation: Basic Paper In the past, the global allocation of livestock production has been heavily influenced by agricultural trade policy. This is particularly true for the dairy sector. The European Union holds a share of more than one third of total world exports, but almost all of these exports are being subsidised by the EU taxpayers. Import restrictions help milk producers in the EU, the US and in many other countries to limit the imports of dairy products from low cost producers abroad, thus raising domestic milk prices. In the beef sector, the situation is not much different, and even in the pork and poultry business there is some degree of trade policy interference. In the future, however, the trends of the past will probably not continue. The coming WTO negotiations will lead to a further liberalisation of agricultural trade policy, and over the years the possibilities for national governments to protect their farmers against international competition will be more and more diminished. What will be the outcome? Up to now, quite diverging hypotheses about the "after liberalisation scenario" have been put forward. Some arguments support the view that a far-reaching liberalisation of agricultural trade might lead to a substantial global re-allocation of livestock production. Examples are: - There is clear historical evidence that the United Kingdom - before entering into the EU in 1973 - imported a substantial share of its dairy product consumption from New Zealand. Isn�t it reasonable to assume that in a liberalisation scenario the former division of labour between New Zealand and the UK would be re-established? And what would prevent New Zealand exporters from establishing markets in other EU member states? - International comparisons show that low cost producers in the southern hemisphere (New Zealand, Australia, Argentina, Uruguay) have a clear cost advantage (for dairy production more than 50 % of total costs) against the EU and North America, the main reason being the very favourable climatic conditions. It may be (but has not been analysed) that especially in South America it is rather easy to multiply the output of low cost products. - For less perishable goods (e.g. butter, milk powder, meat), transportation costs from the south to the north appear to be much lower than the differences in cost of production. Technical progess in food technology will further foster the possibilities for long-distance transport of food. - The globalisation of the food industry (especially through foreign direct investment) will generate the possibility that the latest technological progress in food processing and marketing can be transferred very quickly around the globe. Hence, comparative advantages of northern hemisphere countries - if there are any - will diminish. Counter arguments support the view that the re-allocation of livestock production will be much less significant. Such arguments are, for example: - There is strong empirical evidence that despite many years of foreign tourism and exposure to international media, local patterns of consumption remain entrenched, and consumers show a considerable preference for domestic food. This creates a certain advantage for local suppliers. - In many countries, consumers are concerned about the impact of modern production, processing and transportation patterns on animal welfare and on product safety. There is high pressure to improve traceability and transparency within the production chain, and local suppliers may find it easier to fulfil these requirements than competitors from overseas. - Due to technical progress in agriculture (e.g. automatic milking systems), production costs will considerably decline. Hence, the importance of raw materials in total costs of manufactured value added foods will further diminish, and the processing firms may consider other location factors (e.g. population density, legal framework) more important than access to cheap raw materials. - International transport costs are very low at the moment, but in the longer run they should reflect the costs of transport. Higher transport costs would favour the allocation of livestock production closer to population centres. From these selected arguments we can conclude: There is the possibility of a substantial re-allocation of livestock production. It is not correct to forecast the future on the basis of past trends. However, the direction in which the re-allocation develops is open to question. Many more arguments could be brought forward and have to be collected in the course of the internet conference. Examples: Will SPS and TBT agreements have a major impact on the future allocation of livestock production? Will different attitudes with regard to animal welfare play a role? To what extent will countries� differing tastes be important? To what extend will countries be allowed to limit imports of products on environmental and/or food safety grounds? Moreover, it is necessary to come to a better understanding on the relative importance of the single determinants, which are clearly contradictory to one other. This will be done by assembling the scientific results that are available in the various regions of the world. In addition, however, it will also be important to invite representatives of the global players to give their views on the future allocation of livestock production around the globe. Bruce Traill Folkhard Isermeyer |