Research & Policy Briefs From the World Bank Malaysia Hub No. 5, January 2017 Measurement and Patterns of World Agribusiness Trade Fabian Mendez-Ramos and Nina Paustian This brief highlights the importance of the agribusiness sector as a pillar for development. It provides a framework to measure internationally traded agribusiness and discusses some patterns of world agribusiness trade in recent decades. The share of traded agribusiness goods in world trade has remained fairly constant, while the value of world agribusiness trade has increased significantly. To account for the diversity within the agribusiness sector, it distinguishes between primary and manufacturing traded agribusiness. To proxy the degree of sophistication of the agribusiness trade, it considers the ratio of manufacturing to primary traded agribusiness goods. Whereas the share of primary agribusiness imports in total imports is small, manufacturing agribusiness imports play a more significant role, especially in low-income countries. Primary agribusiness exports are still a major component of total exports of goods in low-income economies. Linking Agriculture and Agribusiness Agribusiness and Traded Agribusiness: Some Definitions In recent years, the interest in agriculture has reignited, mainly driven by In general terms, agribusiness can be understood as the collective a new understanding that growth of the agricultural sector can play a business activities performed “from farm to fork” (Konig, Da Silva and major role in overall growth and poverty reduction—both directly and Mhlanga 2013). However, agribusiness is an evolving term that has been through its linkages with the manufacturing and services sectors expanded and complemented with a variety of names, such as agroin- (Barrett, Carter and Timmer 2010). While the size of economic growth is dustrialization (Cook and Chaddad 2000) and agriceuticals (Goldberg important for alleviating poverty, its sectoral composition significantly 1999). These definitions share an emphasis on the interdependence of affects the extent of poverty reduction. Evidence shows that growth in the various sectors of the agri-food supply chain (Ng and Siebert 2009). sectors intensive in unskilled labor, such as agriculture and manufactur- The pioneers of the agribusiness concept, John H. Davis and Ray A. ing, particularly contributes to reducing poverty (Loayza and Raddatz Goldberg, define agribusiness as “the total sum of all operations involved 2010). Growth in these sectors can be fostered through a dynamic in the manufacture and distribution of farm supplies; production agribusiness sector that efficiently links farmers and consumers (World operations on the farms; and the storage, processing, and distribution of Bank 2007). farm commodities and items made from them” (Davis and Goldberg Historically, trade in processed agricultural and food products has 1957). Agribusiness can therefore be defined as a set of economic been concentrated in a relatively small number of high-income econo- activities in which the agricultural sector overlaps with the manufactur- mies, while developing countries have exported mainly homogenous, ing, services, and other economic sectors (see shaded green area in unprocessed agricultural products (World Bank 2007). This analysis figure 1). shows the increasing importance of agribusiness trade flows across countries in all income groups—particularly in low-income economies. Traded agribusiness products rely on services, such as transport While the role of agriculture in the structural transformation and services, financial services, and communication services, and involve at progress of economies has been extensively studied, this brief least basic manufacturing or processing steps, such as simple treatment underlines the significance of agribusiness trade as a pillar for develop- and/or packaging of the good, supported by other sectors such as water ment. and electricity. Because every good or product requires different inputs and follows a different production process, it involves the different This brief contributes to the recent debate on the importance of sectors to different extents. Therefore, traded agribusiness is a subset of agribusiness trade in three ways. First, using the national accounting the green area defined as agribusiness in figure 1. It lies close to the structure, it establishes a framework to depict the agribusiness sector intersection of all sectors, but cannot be exactly determined, given its and its intersection with trade. Second, it measures international links with other activities of the economy. Given constraints in data agribusiness trade flows from 1990 to 2014, using a set of 184 countries structure, this analysis studies only a share of traded agribusiness. It at all income levels. Third, it presents stylized facts of agribusiness trade considers the agribusiness goods included in the United Nations (UN) patterns over time, across income aggregations and by product catego- Comtrade database. Therefore, the estimates of agribusiness trade flows ries. To illustrate the framework, the agribusiness trade flows of two should be considered as a lower bound. upper-middle-income countries, Malaysia and Mexico, are compared (box 1). To account for the heterogeneity of the agribusiness sector, this Figure 1. The Links Between Agribusiness and Internationally Figure 2. The Value of Agribusiness Trade Has Steadily Risen, Traded Agribusiness While Its Share in Total World Trade Has Been Fairly Constant Since 1990 3000 20 Billions of 2010 U.S. dollars Percent of world trade Agriculture 2400 15 1800 10 Internationally 1200 traded agribusiness Manufacturing Services 5 600 0 0 1990 1995 2000 2005 2010 2015 Others (mining, gas, water, electricity, construction, etc.) Manufacturing agribusiness trade (value, left scale) Primary agribusiness trade (value, left scale) Manufacturing agribusiness trade share (percent, right scale) Agribusiness Primary agribusiness trade share (percent, right scale) Source: World Bank staff. Source: COMTRADE, World Development Indicators, and World Bank staff estimates. Note: Trade is defined as the sum of exports and imports. Observations are annual from 1990 to 2014. Affiliation: Mendez Ramos: Development Research Group, the World Bank; Paustian: Global Indicators Group, the World Bank. Acknowledgment: Norman Loayza contributed to this research policy brief. Objective and disclaimer: Research & Policy Briefs synthesize existing research and data to shed light on a useful and interesting question for policy debate. Research & Policy Briefs carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions are entirely those of the authors. They do not necessarily represent the views of the World Bank Group, its Executive Directors, or the governments they represent. Global Knowledge & Research Hub in Malaysia Measurement and Patterns of World Agribusiness Trade Figure 3. As Income Increases, Countries Decrease the Ratio of The Growing Sophistication of Agribusiness Trade as Manufacturing to Primary Agribusiness Imports, but Increase Income Levels Rise the Ratio for Exports Over the last 100 years more robust methods and tools to foster more b. Exports efficient operations within the agribusiness sector have been developed a. Imports 20 20 (King, et al. 2010). The expansion and modernization of agribusiness operations typically stimulate productivity, process and product innova- Ratio of manufacturing to primary Ratio of manufacturing to primary tion, and ancillary services for domestic and export activities that foster 16 16 competitiveness and stronger backward and forward linkages within the agribusiness imports agribusiness exports agro-food system (World Bank 2003). This analysis considers the ratio of 12 12 manufacturing to primary agribusiness trade as proxy for the sophistica- tion of the agribusiness trade. More sophisticated economies tend to export more manufacturing agribusiness than primary agribusiness 8 8 goods. In contrast, less sophisticated economies tend to import more manufacturing than primary agribusiness goods, given their economic and capacity constraints. Figure 3 illustrates this pattern: as their income 4 4 increases, countries tend to decrease imports of manufacturing agribusi- ness goods and increase their exports of manufacturing agribusiness 0 0 goods, relative to primary agribusiness imports and exports, respectively. 5 7 9 11 5 7 9 11 GDP per capita in 2014, GDP per capita in 2014, The shares of manufacturing and primary agribusiness in total natural logarithm natural logarithm exports and imports across country income groups show some patterns 1990–2014 median Quadratic fit Ratio = 1 (figure 4). Overall, from 1990 to 2014, the share of manufacturing agribusiness in exports and imports has been greater than the share of Source: COMTRADE, World Development Indicators, and World Bank staff primary agribusiness goods. This is consistent across export and import estimates. shares in high-income and middle-income countries, and imports shares Note: GDP per capita, exports, and imports are in constant 2010 U.S. dollars. The in low-income countries. Primary agribusiness exports have played an median values of the ratios are estimated from annual country observations from 1990 to 2014. important role in the low-income economies, greatly exceeding their export shares of manufacturing agribusiness. Figure 4 also displays that as countries increase their income, the trade balance of both manufac- analysis distinguishes between primary and manufacturing agribusiness turing and primary agribusiness narrows. products. This categorization highlights the relevance as well as the differences in trade flows. Agribusiness products are classified using the Despite the recent decreasing trend, manufacturing agribusiness Standard Industrial Classification (SIC) system. Primary agribusiness shares in total imports have consistently been smaller in high-income includes three subcategories: 1) agriculture; 2) livestock; and 3) forestry. and middle-income countries than in low-income countries (figure 4, Manufacturing agribusiness encompasses ten, more heterogeneous, panel a). These manufacturing agribusiness import shares in middle- subcategories: 1) canned; 2) cereals; 3) drinks; 4) leather; 5) meat; 6) income countries have been slightly lower than in high-income countries oils; 7) paper; 8) tobacco; 9) wood; and 10) other. since the mid-2000s. The share of manufacturing agribusiness exports in total exports has been more uniform among income groups, averaging 15.8 percent for high-income countries, 16 percent for middle-income Agribusiness Trade Around the World countries, and 15.5 percent for low-income countries from 1990 to 2014. Primary and manufacturing agribusiness trade has expanded substan- With respect to primary agribusiness, export shares have been lower tially around the world in the past few decades. Using a set of 184 in high-income countries than in the other two income country groups countries (62 high-income countries, 96 middle-income countries, and (figure 4, panel b). Low-income countries are characterized by the fact 26 low-income countries), the estimates in this analysis proxy lower that even though their primary agribusiness share in total exports shows bounds for global primary and manufacturing agribusiness trade a decreasing trend over time, their average export shares remain large: volumes. From 1990 to 2014, primary agribusiness trade grew from $195 57 percent in 1990 and 31 percent in 2014. Shares of primary agribusi- billion to $963 billion of constant 2010 U.S. dollars, while manufacturing ness imports were mostly consistent across the three income groups, agribusiness trade soared from $498 billion to $2,812 billion (figure 2). ranging from 5 to 6 percent from 1990 to 2014. Primary agribusiness trade therefore rose at an annual average rate of 6.9 percent, while manufacturing agribusiness trade increased annually Primary and manufacturing agribusiness goods might be partial by 7.5 percent. substitutes in low-income countries. Developing countries have the incentive to export and import more for a variety of reasons, such as to While growth rates for primary and manufacturing agribusiness have grow faster (Dollar and Kraay 2003). In addition, low-income countries been high, the primary and manufacturing agribusiness shares in total have the economic motivation to import agricultural products, given low trade have been mostly stable over the 1990–2014 period. The shares in productivity levels in local production sectors (Lagakos and Waugh 2013, total trade shrank by only one percentage point, from 6 to 5 percent, in the Gollin, Lagakos and Waugh 2014). Furthermore, many low-income case of primary agribusiness, and by two percentage points, from 16 to 14 economies struggle with food security concerns; basic and cheap agricul- percent, in the case of manufacturing agribusiness. Consistent with the tural imports can augment supplies and reduce food vulnerabilities. stages of structural transformation (see clark 1951, Lewis 1954, Timmer 2009), the small decrease in trade shares of agribusiness goods might be Despite the strong reasons to import, evidence suggests that associated with the long-term decline of value added in agriculture. developing countries are not making full use of the trade channel; Figure 4. The Share of Manufacturing Agribusiness in Total Exports and Imports Has Fluctuated Across Income Groups, with Exports of Primary Agribusiness Declining the Most in Low-Income Countries a. Manufacturing agribusiness b. Primary agribusiness Low-income Middle-income High-income Low-income Middle-income High-income countries countries countries countries countries countries 70 70 70 70 70 70 60 60 60 60 60 60 Percent of exports (or imports) Percent of exports (or imports) Percent of exports (or imports) Percent of exports (or imports) Percent of exports (or imports) Percent of exports (or imports) in middle-income countries in middle-income countries in high-income countries in high-income countries in low-income countries in low-income countries 50 50 50 50 50 50 40 40 40 40 40 40 30 30 30 30 30 30 20 20 20 20 20 20 10 10 10 10 10 10 0 0 0 0 0 0 1990 1995 2000 2005 2010 2015 1990 1995 2000 2005 2010 2015 1990 1995 2000 2005 2010 2015 1990 1995 2000 2005 2010 2015 1990 1995 2000 2005 2010 2015 1990 1995 2000 2005 2010 2015 Exports Imports Source: COMTRADE, World Development Indicators, and World Bank staff estimates. Note: Income aggregations are based on the September 2016 definitions of the World Development Indicators. Observations are annual from 1990 to 2014. 2 Research & Policy Brief No.5 Figure 5. Trade of Manufacturing Agribusiness Has Expanded Faster Than Primary Agribusiness, Especially in Low-Income Countries in Recent Decades Billions of 2010 U.S. dollars a. Imports 1990 2014 b. Exports 1990 2014 Source: COMTRADE, World Development Indicators, and World Bank staff estimates. Note: P = primary agribusiness. M = manufacturing agribusiness. Stacked aggregated import and export values for 1990 and 2014. Income aggregations are based on the September 2016 definitions of the World Development Indicators. The corresponding SIC codes for the subcategories of primary and manufacturing agribusiness are available upon request. The subcategory "other" includes pesticides, farm machinery and equipment, food products machinery, gum and wood chemicals, botanicals, fertilizers, paper and woodworking machinery. instead, they are constrained in importing primary agricultural products growth rates of imports and exports of all subcategories have been because of supply restrictions and high trade costs (Tombe 2015). Across positive. These growth rates across varieties of agribusiness subcatego- income groups and even in low-income countries, this analysis shows ries indicate a consistent expansion of the sector, in keeping with the that shares of primary agribusiness imports have been low in recent aggregate global trend, and demonstrate that all the subcategories are decades (figure 4, panel b). In addition, low-income countries have the part of the impressive agribusiness trade expansion. highest shares of manufacturing agribusiness imports across income groups. Some substitution effect of goods might be a partial explanation The expansion of primary and manufacturing agribusiness has been of the high import shares of manufacturing agribusiness and the low uneven across subcategories and income groups. For instance, on import shares of primary agribusiness in low-income countries (figure 4, average and across income groups, growth rates in primary and panels a and b). The share of manufacturing agribusiness imports manufacturing agribusiness imports and exports are higher in accounts for almost 25 percent of their total imports in low-income low-income countries than in high-income countries or middle-income countries on average in the 1990–2014 period. Despite existing trade countries, and lowest in high-income countries. Nine subcategories of constraints, the high shares of both primary agribusiness exports and agribusiness imports (livestock, agriculture, wood, tobacco, oils, meat, manufacturing agribusiness imports in low-income countries indicate drinks, cereals and canned products) and five subcategories of agribusi- some level of integration with regional or global trade frameworks. ness exports (tobacco, oils, meat, cereals, and others) have increased at annual average growth rates of more than 15 percentage points in The Changing Composition of International Agribusiness low-income countries. Trade Conclusion The increasing importance of the agribusiness trade sector for growth and poverty reduction is associated with the evolution and expansion of This brief presents a framework to categorize primary and manufactur- agricultural goods and farm related activities. The structural transforma- ing agribusiness goods and to quantify their respective international tion of the agricultural sector is characterized by improvements in trade flows. The empirical results show that the world trade values for productivity, the change in composition of produced goods from low primary and manufacturing agribusiness increased significantly from value and low risk to high value and high risk, and the increased integra- 1990 to 2014, while their share in total world trade has remained mostly tion of the agricultural sector into regional and global markets stable. As income rises, the ratio of manufacturing to primary agribusi- (Divanbeigi, Paustian and Loayza 2016). This development generates ness imports decreases, while for exports, the ratio increases. demand for agribusiness products in nonagricultural sectors, particularly Trade structures vary significantly across country income groups. For for fertilizers, transportation, commercial services, and machinery instance, the trade balance of both manufacturing and primary agribusi- (Timmer 1988). ness narrows as countries increase their incomes. In addition, export Despite the structural transformation, agricultural outputs–and their shares of primary agribusiness are much lower in high-income countries trade–continue to rise in absolute value (Timmer 2009). To illustrate the than in low- and middle-income economies. Finally, on average, rising of agribusiness trade, figure 5 presents values of subcategories of observed growth rates of subcategories of primary and manufacturing primary and manufacturing agribusiness for imports and exports across traded agribusiness are higher in low-income countries than in other income groups for 1990 and 2014. Across all income classifications, the income groups. 3 Measurement and Patterns of World Agribusiness Trade Figure B1.1. Trade of Agribusiness with High and Non-High-Income Countries Has Increased Sharply in Malaysia and Mexico, Largely Driven by Manufacturing Agribusiness Since 1990 Billions of 2010 U.S. dollars a. Malaysia, primary agribusiness b. Mexico, primary agribusiness c. Malaysia, manufacturing agribusiness d. Mexico, manufacturing agribusiness High-income countries Non-high-income countries High-income countries Non-high-income countries High-income countries Non-high-income countries High-income countries Non-high-income countries 40 40 40 40 40 40 40 40 30 30 30 30 30 30 30 30 20 20 20 20 20 20 20 20 10 10 10 10 10 10 10 10 0 0 0 0 0 0 0 0 90 98 06 14 90 98 06 14 90 98 06 14 90 98 06 14 90 98 06 14 90 98 06 14 90 98 06 14 90 98 06 14 19 19 20 20 19 19 20 20 19 19 20 20 19 19 20 20 19 19 20 20 19 19 20 20 19 19 20 20 19 19 20 20 Trade Exports Imports Source: COMTRADE, World Development Indicators, and World Bank staff estimates. Note: Trade is defined as the sum of exports and imports. Income aggregations are based on the September 2016 definitions of the World Development Indicators. Box 1. Diverging Agribusiness Trade Structures in Malaysia exports more than seven-fold, from $2.2 billion to $15.7 billion. Mexican primary agribusiness imports tripled from $3.2 billion to $9.9 billion, and Mexico from 1990 to 2014 while manufacturing agribusiness imports more than quadrupled from Following the framework presented in this brief, agribusiness trade flows $7.2 billion to $30.2 billion. in Malaysia and Mexico have increased substantially from 1990 to 2014, While both countries have increased their imports and exports consistent with global trends. Malaysia expanded its global primary and globally and across regions, their trade structures have diverged in some manufacturing agribusiness trade from $12.4 billion in 1990 to $51 aspects. Whereas Mexico has run a deficit in the agribusiness trade, billion in 2014 (figure B1.1, panel a and c). While primary agribusiness Malaysia has enjoyed a surplus. In 2014, Malaysia had a much higher exports increased slightly from $2.2 to $2.9 billion, manufacturing amount of manufacturing agribusiness exports ($25.8 billion) than agribusiness exports nearly quadrupled from $6.5 to $25.8 billion. Mexico ($15.7 billion). These levels are especially impressive considering Similarly, while primary agribusiness imports grew from $1.6 to $6.9, that in 2014 Malaysia’s GDP ($314 billion) and population (30 million) manufacturing agribusiness imports increased more than seven-fold were much smaller than Mexico’s GDP ($1,178 billion) and population from $2.1 to $15.3 billion. (125 million). Finally, both countries have pursued different paths in diversifying their trade partners (figure B1.2). While Mexico’s main In the same period, Mexico more than quadrupled its global primary and manufacturing agribusiness trade partners have been agribusiness trade from $16.6 billion to $66.8 billion (figure B1.1, panel b high-income countries (especially in North America), Malaysia has and d). Mexico nearly tripled its primary agribusiness exports from $4.0 expanded with a more balanced and diversified trade partner structure billion to $11 billion and increased its manufacturing agribusiness across regions and income groups. Figure B1.2. Malaysia and Mexico Have Followed Different Agribusiness Trade Diversification Paths Billions of 2010 U.S. dollars a. 1990 b. 2000 c. 2014 75 75 75 66.8 60 60 60 51.0 45 45 42.7 45 30 30 21.5 30 16.6 15 12.4 15 15 0 0 0 Malaysia Mexico Malaysia Mexico Malaysia Mexico High-income countries East Asia and Pacific Europe and Central Asia Latin America and Caribbean Middle East and North Africa South Asia Sub-Saharan Africa Source: COMTRADE, World Development Indicators, and World Bank staff estimates. Note: Trade is defined as the sum of exports and imports. Income aggregations are based on the September 2016 definitions of the World Development indicators. Only non-high-income countries are included into the regional groups: East Asia and Pacific, Europe and Central Asia, Latin America and Caribbean, Middle East and North Africa, South Asia, Sub-Saharan Africa. References Barrett, C. B., M. R. Carter, and C. P. Timmer. 2010. "A Century-Long Perspective on Agricultural Lagakos, D., and M. 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