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Credit crisis highlights need for global trade reform

17 December 2008

ACCORDING to the Westpac-NFF Commodity Index this month world prices for agricultural commodities fell a further 2.2% in November – on the back of a 1.3% drop in October – as the global economy continues its slump.

While agricultural commodities remain buoyant, the credit squeeze has taken hold across most sectors precipitating major declines in world trade. Australian farmers fear other nations may be tempted to reinstate protectionist policies as ‘knee-jerk’ reactions to the uncertainty.

“The credit crisis has provided a wake-up call for the importance of global trade reform,” Westpac Senior Agribusiness Economist Andrew Hanlan noted. “The sharp fall in exports is hurting economies around the world – a stark reminder that no one wins from a reduction in trade.

“One positive from the crisis is that the World Trade Organisation (WTO) has increased pressure on countries to finalise negotiations in the Doha Round. It is also notable that the Westpac-NFF Commodity Index, which measures commodity prices in Aussie dollar terms, is only down 3.4% over the year – reflecting the ‘insulation’ from the lower currency.”

National Farmers’ Federation (NFF) Vice-President Charles Burke agrees: “With the globe’s population growing by 100 million people a year, and world food production falling, now is not the time to be slipping back into out-dated protectionist dogma.

“Now those very policies that have failed time and time again could plunge the world deeper into chaos. It is now, during this time of economic uncertainty, that those countries still dragging the chain on trade liberalization must break the shackles of their misguided and petty self-interest.

“Average tariffs for agricultural goods are already more than three times higher than for non-agricultural goods. At the same time, antiquated and anti-competitive domestic support policies among many of our global trading partners have brought on, and exacerbated, the food shortage.

“This must be the catalyst for world leaders to bring the WTO’s Doha Round of trade reform to a productive and worthwhile end. Both the APEC and G20 forums have already recognised the major benefits free trade plays in ensuring markets operate uninhibited. In the face of the global food shortage, existing trade barriers have actually forced the world’s farmers to produce less food... it’s a bizarre result.”

Over November, the Westpac-NFF Commodity Index fell 2.2%. The Index is now 3.4% down on year-ago levels. Commodities experiencing decreases were cotton (-12.4%), dairy (-9.7%), barley (-4.1%), wool (-3.3%) and wheat (-1.6%). These falls out-weighed a sharp rise in sugar (up 6.8%) and small increases in beef (0.3%) and canola (0.2%).

[ENDS]

The Westpac-NFF Commodity Index is weighted according to the value of Australian agricultural exports and includes only rural commodities – unlike other price indices that are overshadowed by oil, mineral and energy prices. It provides daily movements based on prices of Australia’s eight key farm exports – barley, beef, canola, cotton, dairy, sugar, wheat and wool – in both $US and $A.

Media Enquiries: Brett Heffernan on (02) 6273 3855 or 0408 448 250.

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