UNEP Country Project on Trade Liberalization in the Agriculture Sector and the Environment

1. UNEP Country Project on Trade Liberalization in the Agriculture Sector and the Environment The rice sector in Colombia 19 February 2003Geneva Project Leader: Néstor Gutiérrez Economic Research Director

2. Trade liberalization in the Colombian rice sector Background: semi-annual crops

3. Trade liberalization in the Colombian rice sector Background: semi-annual crops AGICULTURAL PRODUCTS TOTAL IMPORTS (TONS), 1991-2001 (Miles Tons) Crops 1991 2001* Cotton 0.6 61.0 Rice 0.4 321.8 Barley 130.8 212.8 Kidney Beans 11.1 31.6 Corn 8.1 1,759.7 Sorghum 0.9 1.4 Soy Beans 18.4 353.0 Wheat 646.3 1,245.1 TOTAL 816.6 3,986.4 * Preliminar Data Source: DNP-UDA. Rice Fedearroz

4. Trade liberalization in the Colombian rice sector % 140 120 100 80 60 40 20 0 Wheat Corn Pottatos Cassava Benneí Cotton Barley Sorghum Soy Beans Vegetables Kidney Beans Mechanized Rice Background: semi-annual crops COMPARISON OF PLANTED AREA, BY PRODUCT, 1990 = 100 1990 2001 SOURCE: SAC, CEGA,FEDEARROZ.

5. Trade liberalization in the Colombian rice sector Background: rice sector RICE HARVESTED AREA, COLOMBIA, 1990 - 2002 Source: FEDEARROZ

6. Trade liberalization in the Colombian rice sector Background: rice sector PADDY RICE REAL PRICE, COLOMBIA, 1989-2002 REAL PRICES of 1978 / Ton 1989 9.290 1990 7.959 1991 7.336 1992 6.889 5,824 1993 1994 6.785 - 38 % 1995 6.192 1996 6.270 1997 6.636 1998 7.042 5.946 1999 5.485 2000 6.331 2001 2002 5.741 Source: FEDEARROZ

7. Trade liberalization in the colombian rice sector Background • By the end of 1980’s, a unilateral openness process was held by Colombia before Uruguay Round. By the time, a free trade agreement was held with CAN countries • The rice sector had enough protection since 1994 • However, Colombian rice sector is a world price taker

8. Trade liberalization in the colombian rice sector COLOMBIA UNITED STATES THAILAND VIETNAM WHITE RICE MONTHLY PRICE, 1996 - 2003

9. Trade liberalization in the Colombian rice sector Project Approach and Process • RESPONSIBLE INSTITUTION • RICE GROWERS ASSOCIATION-FEDEARROZ • Steering Committee • Néstor Gutiérrez, project leader, Fedearroz • Edwin García – Researcher, Fedearroz • José Levis Barón – Researcher, Fedearroz • Jaime Jiménez – Int. Trade Director, Ministry of Agriculture • Héctor Martínez – Economist, IICA • Jairo Homez – Researcher, Ministry of Environment • Diego Herrera – Economist, Universidad del Rosario • Stakeholders Approach – Initial project presentation, first results discussion, final paper discussion. • The acceptance of this initiative has been fantastic for most of the Stakeholder participants because of the subject opportunity when it is a broad discussion on agriculture trade topics (WTO, ALCA, ATPA, CAN).

10. Trade liberalization in the Colombian rice sector Stakeholders Committee MINISTERIO DE AGRICULTURA JAIME JIMENEZ – Assesor DEPARTAMENTO NACIONAL DE PLANEACION OSCAR BALLESTEROS – Resource Department Chief UNIVERSIDAD DEL ROSARIO FERNANDO BARBERI – Graduate Course Dean - Expert in International Commerce - Trade Ministry Assesor DEPARTAMENTO ADMINISTRATIVO NACIONAL DE ESTADISTICAS (DANE) Alejandro Pelaez Director of Sistema de Información del Sector Agropecuario y Pesquero Colombiano (SISAC) Jaime Perez, SUBDIRECTOR BOLSA NACIONAL AGROPECUARIA NOHORA HELENA CRUZ – Technic Director MINISTERIO DEL MEDIO AMBIENTE JESUS E PEINADO – Environment Ministry Assesor MINISTERIO DE COMERCIO EXTERIOR ANA FABIOLA GUZMAN- Trade Ministry Assesor – Andean Integration CIVITAS DEI (ONG) ELIZABETH CALDERON Director MARTHA RODRIGUEZ – Assesor ASOCIACION DE USUARIOS DE LOS RIOS CHINA Y TOTARE (ONG) JUAN JOSE SIERRA – Principal member, Rice Producer COOPERATIVA DE SERVICIOS ESPECIALIZADOS PARA LOS ARROCEROS (SERVIARROZ) ALBERTO MEJIA – President, Rice Producer

11. Trade liberalization in the Colombian rice sector Stakeholders committee -2 CORPORACION COLOMBIANA DE INVESTIGACION AGROPECUARIA (CORPOICA) IRMA BAQUERO – Main Researcher from Programa Nacional de Estudios Socioeconómicos FRANCISCO ACEVEDO – Researcher Programa Nacional de Estudios Socioeconómicos FERNANDO CARDOZO FEDERACION NACIONAL DE ARROCEROS DE COLOMBIA (FEDEARROZ). RAFAEL HERNANDEZ LOZANO – CEO Fedearroz UNIVERSIDAD JAVERIANA LORENA PRIETO CRUZ Economics Faculty - Apprentice SOCIEDAD DE AGRICULTORES DE COLOMBIA (SAC) ALEJANDRO VELEZ – Trade Director DELSA MORENO – Agronomics Department Director ASOCIACION DE USUARIOS DEL RIO COELLO (USOCOELLO) (ONG) ESPINAL HENRY RAMIREZ – Management Assistant. YESID CASTRO – Andean Community Consultor – Trade FONDO LATINOAMERICANO DE ARROZ RIEGO - FLAR LUIS SANINT – Director INDUARROZ IVAN SOMBREDERO – Manager MOLIARROZ JORGE ENRIQUE CUBILLOS – Manager UNIVERSIDAD DE LOS LLANOS - UNILLANOS JORGE ENRIQUE MUÑOZ AGUILERAResearcher

12. Trade liberalization in the Colombian rice sector Project objectives • Enhance country understanding of multilateral trade impact on agriculture by product • Develop in-country methodologies to assess the environmental, economic and social impact of trade liberalization • Carry out integrated assessments of trade liberalization for the rice sector • Enhance coordination and knowledge of people working around agricultural trade issues • Develop policies to correct identified negative impacts of liberalized trade and maximize positive ones

13. Trade liberalization in the Colombian rice sector Development of In-country Methodology • Within the steering committee discussion the specific methodology was selected, in each specific topic • Ex-ante analysis, econometric models, and ex-post analysis were used • Indicators in socio-economics and environmental topics were implemented

14. Trade liberalization in the Colombian rice sector Methodology: Steps • First step was an ex-post analysis about last 10 years performance of agricultural sector response to trade liberalization • Second, analysis focused in the rice sector • Third, study of Colombian trade agreements • Fourth, socio-economic evaluation of their impact on rice sector, we used econometrics modeling (co integration, long term elasticities) • Fifth, study of environmental issues related with rice production • Sixth, evaluation of inputs and total factor productivity (Seemingly Unrelated Regressions and Törnqvist Indexes) • Seventh, ex-ante analysis to evaluate 3 scenarios

15. Trade liberalization in the Colombian rice sector Integrated Assessment of Impacts of Trade Liberalization and WTO AoA Trade liberalization had impact on rice socio-economic variables through the increase in imports, relative prices and developed countries subsidies. On the environment side, it affected in the use of low price inputs (seed) and more agrochemicals/ha

16. Trade liberalization in the colombian rice sector Environmental Impacts • It was necessary to increase mechanization and mono-culture to increase the planted rice area • Low prices induced the use of low quality seed and more contamination of fields. The use of herbicides and fungicides/ha increased. Besides, agrochemical productivity decreased, and total use of these products increased per hectare • Mono-culture means more fertilizer and herbicide/ha • The extensive use of agrochemicals damages not only environment but also human health

17. Trade liberalization in the colombian rice sector Social and Economic Impacts • Low agricultural prices induce decreases in agricultural income, planted area of semiannual crops, and production costs (total value/ha). They also increase unemployment and consumption of imported food

18. Trade liberalization in the colombian rice sector Valuation of the effects • Cost of trade liberalization: • Increase in Food Imports 388% (1990-2001) • Decrease in Area in Semiannual Crops 29% (1990-2001) • Rice real price decrease 38% (1989-2002) • Colombia Switched from net exporter to net rice importer (1990-2002) • Average imports of rice per year around 234,000 tn (1992-2002) • Increase on national unemployment rate 80% (1990-2002)

19. Policies to mitigate/eliminate negative impacts of trade liberalization To mitigate the impact of relative prices (wheat) on rice price, it is necessary to implement the same protection scheme of rice and the substitute products To mitigate impact of developed countries subsidies it is necessary to implement a tariff system in function of production cost for the exporter countries It is necessary to improve concluded agreements for a cleaner production between growers and industry, Environment and Agriculture Ministries and Associations It is important to implement a “Rice Sector Environmental Issues Guide” under responsibility of Environment Ministry and Fedearroz. Some engagements relating sustainability exist inside of Efficiency Agreement of Rice Agro industrial Productive Chain, it is necessary to accomplish them. Agriculture Ministry, Associations Trade liberalization in the colombian rice sector Development of Policy Package

20. Trade liberalization in the colombian rice sector Development of a policy package 2 • On the future irrigation projects the environmental component must be supervised by Environment Ministry • It is urgent to promote a diversification program on irrigated land to avoid mono-culture. Agriculture Ministry • It is mandatory to improve research in management practices to decrease the use of agrochemicals. Fedearroz • It is necessary to improve agrochemicals management practices. Fedearroz must implement training courses, at every level.

21. Trade liberalization in the colombian rice sector Project Experience • It was surprising to find in the substitute (wheat) prices the connection of the colombian rice sector with the world market • It was interesting to set a project to show the environmental impact of the rice activity and to know that we have enough legislation to protect the environment, but we do not have the enforce power to implement it • It was the first time economists, biologists, trade specialists, association´s leaders, producers and industry, meet together to discuss trade related issues on an specific crop. • During the discussion process we found the high relevance of environment issues on the last development on trade

22. Trade liberalization in the colombian rice sector Steps Forward • Evaluate three sceneries for the mean time: • Build 30.000 ha of irrigated area for rice + CAN agreement (free trade: Ecuador, Venezuela, Peru) • Build 30.000 ha of irrigated area for rice + 0 subsidies in the rice exporter countries • Build 30.000 ha of irrigated area for rice + ALCA agreement