SAARC and ASEAN Regional Trade: Status and Opportunities for Ensuring Food Security

Pramod K. Joshi and Devesh Roy

The lead author is the director for South Asia of the International Food Policy Research Institute.

Contents
Abbreviations ................................................................................................................................ ii Executive Summary ...................................................................................................................... 1 Background................................................................................................................................... 2 SAARC and ASEAN ..................................................................................................................... 2 SAARC Food Security Efforts ....................................................................................................... 2 SAARC Food Bank .................................................................................................................... 3 SAARC Seed Bank.................................................................................................................... 3 SAARC and ASEAN Trade ........................................................................................................... 4 Existing and Potential Areas of Cooperation ................................................................................. 6 Conclusion .................................................................................................................................... 7 References ................................................................................................................................... 8

Figures Figure 1: Rice Exports of India to SAARC and ASEAN Countries ................................................. 5 Figure 2: Rice Imports of ASEAN Countries within Southeast Asia ............................................... 6

Abbreviations
ADB AFTA ASEAN FAO FAOSAT IFPRI Lao PDR PRC R&D SAARC SAFTA Asian Development Bank ASEAN Free Trade Area Association of Southeast Asian Nations Food and Agriculture Organization of the United Nations Food and Agriculture Organization of the United Nations Statistics Division International Food Policy Research Institute Lao Peoples Democratic Republic Peoples Republic of China research and development South Asian Association for Regional Cooperation South Asian Free Trade Area

Unless otherwise noted, $ refers to US dollars in this paper.

Executive Summary
Rice is the most important staple food in Asia. The region produced around 460 million tons of rice in 2011, exporting nearly 24 million tons while importing about 14 million tons. South Asia and Southeast Asia are the core hubs of global rice production and trade, accounting for about 60% of total production and almost 93% of total exports. The major rice-exporting countries are India and Pakistan from South Asia, and Thailand, Viet Nam, and Myanmar, in that order, from Southeast Asia. The major rice-importing countries are Bangladesh, Nepal, and Sri Lanka from South Asia, and Indonesia, Malaysia, and the Philippines from Southeast Asia. There is little rice trade between South Asian and Southeast Asian countries due to the varying quality of rice and consumer preferences. However, as global food production and markets are more adversely impacted by climate change and price volatility, greater cooperation in rice trade may arise in the next years. This paper examines the prospects for regional arrangements between South Asia and Southeast Asia, highlighting the existing cooperation between and within the South Asian Association for Regional Cooperation (SAARC) and the Association of Southeast Asian Nations (ASEAN), and identifying potential areas for further cooperation to address food security issues.1 Both regions have existing agreements for promoting trade within their areas, such as the South Asian Free Trade Area (SAFTA) and the ASEAN Free Trade Area (AFTA). Unfortunately, there are no regional-level trade agreements at the moment between SAARC and ASEAN. However, some SAARC member countries such as India have bilateral trade agreements with ASEAN, which include the ASEANIndia Free Trade Area. As a result of this agreement, overall trade between India and ASEAN increased from $30.7 billion in 20062007 to $45.34 billion in 20082009, with $70 billion projected for 2012. Also, there is an India ASEAN Green Fund to promote the agriculture sector and research and development. There are also opportunities for Bangladesh to actively engage with ASEAN countries in trade. However, trade flow has notably been very low within the South Asian region compared to the higher level of trade among ASEAN countries. Rising food prices and uncertainty are adversely affecting most of the poor food-importing countries in South Asia and Southeast Asia. On a country level, lessons may be learned from India, which was able to control the prices of food grains (especially rice and wheat) in 2008 and 2011 through its domestic and trade policies. On a regional level, ASEAN countries can draw lessons from the SAARC Food Bank with respect to meeting food demands under disaster conditions and other climate-driven uncertainties.

This consultants report was prepared for the Second ASEAN Rice Trade Forum on 45 June 2013 in Yogyakarta, Indonesia. The Asian Development Bank provided technical assistance under TA-REG 7495: Support for the Association of Southeast Asian Nations Plus Three Integrated Food Security Framework, with financing from the Japan Fund for Poverty Reduction. The lead author, Pramod K. Joshi, is the director for South Asia of the International Food Policy Research Institute (IFPRI), and Devesh Roy is Research Fellow at the Markets, Trade and Institutions Division, IFPRI. This report does not necessarily reflect the views of ADB or the Government concerned, or the institutions at which the consultant works, and ADB and the Government and these institutions cannot be held liable for its contents.

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Background
South Asia and Southeast Asia are strategically important in view of their role in global food production and trade. Both regions have made concerted efforts in ensuring food security and reducing poverty. While Southeast Asia is much ahead in reducing poverty, South Asia is more food secure but way behind in lowering the level of poverty. This paper reviews the status of regional cooperation within and between South Asia and Southeast Asia to ensure food security, reduce poverty, and promote trade. It highlights existing areas of cooperation within and between these two important regions, and identifies potential areas for cooperation. Both regions have established forums for promoting intraregional cooperationthe South Asian Association for Regional Cooperation (SAARC) and the Association of Southeast Asian Nations (ASEAN). The paper is based on data collated from the Statistics Division (FAOSAT) of the Food and Agriculture Organization of the United Nations (FAO) from 1980 to 2010 (FAO 2013). Various documents relating to SAARC and ASEAN on food security and trade related issues were also reviewed.

SAARC and ASEAN

SAARC was established in 1985 to promote the economic, technological, social, and cultural development of South Asia, emphasizing collective self-reliance (SAARC 2013). Its initial members were Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka, followed by Afghanistan in 2007. The SAARC forum also has nine observer countriesAustralia, the Peoples Republic of China (PRC), the European Union, Iran, Japan, Republic of Korea, Mauritius, Myanmar, and the United States of America. Similarly, ASEAN is a geopolitical and economic organization that is composed of ten countries in Southeast Asia. It was initially formed in 1967 by Indonesia, Malaysia, the Philippines, Singapore, and Thailand. Other countries later joined the groupBrunei Darussalam, Cambodia, the Lao Peoples Democratic Republic (Lao PDR), Myanmar, and Viet Nam (ASEAN 2013). The ASEANs objectives include accelerating the economic growth, social progress, and cultural development of its member nations; protection of regional peace and stability; and providing opportunities for member nations to discuss differences peacefully. Following a process that began in 1997, the ASEAN Plus Three was formed to facilitate coordination between ASEAN and the three East Asian nations of the PRC, Japan, and the Republic of Korea. Both SAARC and ASEAN are specifically engaged in strengthening cooperation toward improving food security, reducing poverty, and promoting intraregional and interregional trade.

SAARC Food Security Efforts

The SAARC countries have the largest number of poor people in the world, with more than onethird of the global poor living in South Asia. To alleviate poverty through the improvement of food security, SAARC has initiated, among others, two major programsthe SAARC Food Bank and the SAARC Seed Bank.

SAARC and ASEAN Regional Trade: Status and Opportunities for Ensuring Food Security | 3

SAARC Food Bank The South Asian region is prone to various kinds of natural calamities such as droughts, floods, tsunamis, and earthquakes. The establishment of the SAARC Food Bank was approved in 2007 to provide food to member countries during such emergencies by developing a reserve of food grains. It supplements national efforts to provide food security to the people of the region. The specific objectives of the SAARC Food Bank are (i) to serve as a regional food security reserve for the SAARC member countries during food shortages and emergencies; (ii) to provide regional support to national food security efforts; and (iii) to foster intercountry partnerships to solve regional food shortages through collective action. For the food bank, each member country will maintain a reserve of food grains consisting of either wheat or rice, or a combination of both. A reserve of food grains (rice and wheat) of 486,000 tons has already been established. Each member country has committed to contribute to the food bank. India contributes about 63% of the total commitment of all member countries, doubling its contribution from 153,200 tons in 2007 to 306,400 tons in 2012. This has been possible because India is the largest food-producing country in the South Asian region. The country has also accumulated a huge buffer stock of rice and wheat, which it intends to share with member countries during emergencies. The locations of maintaining the food reserves have been identified and the procedures of withdrawal and replacement have also been finalized. SAARC Seed Bank Quality seed is the most critical for enhancing agricultural production. For South Asia, accessing seeds of good quality and improved variety has been a chronic problem. The region also experiences low seed replacement rate, one of the major constraints in increasing crop yields. To overcome such problems, the SAARC forum established the SAARC Seed Bank in 2011 with the following objectives: (i) to provide regional support for national seed security efforts and thus address regional seed shortages through collective actions; (ii) to increase the seed replacement rate; (iii) to act as a regional seed security reserve for the SAARC member states; and (iv) to make available quality seeds, seed exchanges, and plant genetic resources and to share best practices, technologies, and techniques among SAARC member countries to produce quality seeds. The regional seed bank is based in Sri Lanka. To establish the seed bank, member countries have agreed to contribute the minimum of 1% of their total seed requirements. These initiatives, however, have yet to fully meet its objectives. To strengthen the SAARC Seed Bank, several programs have been initiated to enhance the capacity of member countries on seed production, processing, and storage. This will also help member countries to follow common approaches for the production of improved seed varieties. Similarly, the grain reserve for the SAARC Food Bank will grow as the food grain production of all the SAARC member countries increases.

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ASEAN has also developed a common grain reserve although it needs to initiate a program for the exchange of quality seeds to increase agricultural production. In July 2012, the ASEAN Plus Three Emergency Rice Reserves (APTERR) Agreement entered into force following its signing in October 2011. The agreement establishes a permanent mechanism to ensure food security by setting aside rice stocks to meet food emergencies in the ASEAN region. The history of APTERR dates back to the 1979 ASEAN Food Security Reserve Agreement that was followed by the 2001 East Asian Emergency Rice Reserves establishing earmarked and stockpiled emergency rice reserves (Briones 2012).

SAARC and ASEAN Trade

ASEAN countries are more pro-active in the global trade of agricultural commodities than SAARC countries. This is evident in the import and export figures of agricultural commodities in the two regions, which show that ASEAN countries are taking more advantage of global prices and opportunities than SAARC countries. In 2010, the share of SAARC countries in the global export of agricultural commodities was 2.97% and ASEAN countries, 9.64%. Exports from ASEAN countries reached $104 billion, more than three times that of SAARC countries, which was only $32 billion. In the global import of agricultural commodities, the share of SAARC countries was 3.02% in 2010 ($32 billion) and ASEAN countries, 5.49% ($61 billion). This indicates that SAARC has a trade deficit in agricultural commodities while ASEAN is a trade surplus region. In 2010, the trade deficit of SAARC countries was about $1.33 billion while the trade surplus of ASEAN countries was $43 billion. The exportimport ratio of agricultural commodities in SAARC countries was less than 1 and those of ASEAN countries, more than 1. Among SAARC countries, only India had a trade surplus in agriculture of about $9.52 billion in 2010. To promote trade, both regions have initiated trade liberalization programs and their own free trade agreements. SAARC countries signed the South Asian Free Trade Agreement (SAFTA) in 2004, which was enforced in 2006. ASEAN countries signed the agreement for the ASEAN Free Trade Area (AFTA) in 1992 when ASEAN had only six member states. The main objectives of SAFTA are to (i) promote competition in the free trade area, (ii) promote trade by reducing tariff and barriers, and give special preference to the least developed countries, and (iii) build transparency and integrity among nations. In contrast, AFTA is more focused on specific goals: (i) to increase ASEANs competitive edge as a production base in the world market through the elimination within ASEAN of tariffs and non-tariff barriers, and (ii) to attract more foreign direct investments to ASEAN. The trade within SAARC countries has increased slowly, from $69,000 in 2006 to $342 million in 2012, with a peak of $663 million in 2010. India accounted for 65% and Bangladesh, 27%, of intraregional trade, which totaled 92% of all external trade within the region. Unfortunately, the SAARC intraregional trade is very meagera mere 2% of total external trade. This is because a number of commodities fall under the sensitive list that are out of the purview of the free trade agreement. In contrast, intra-ASEAN trade is consistently increasing, from $81.98 billion in 1993 to 25% of total external trade in 2010 (Sinha 2010). Singapore had the largest share in intraregional trade with 39.5%, followed by Malaysia, 24.2%; Thailand, 15.6%; Indonesia, 9.5%; and the Philippines, 5.7%. The target of SAFTA is to bring down the tariffs of listed commodities to 20% by 2007 and to zero level by 2012 for the developing countries of India, Pakistan, and Sri Lanka. For the least developed countries of Afghanistan, Bangladesh, Maldives, and Nepal, a provision of an

SAARC and ASEAN Regional Trade: Status and Opportunities for Ensuring Food Security | 5

additional 3 years until 2015 intends to reduce tariffs to zero level. However, developing SAARC countries have been very tardy in bringing down tariffs to zero level. On the other hand, AFTA has made significant progress in lowering tariff rates through the Common Effective Preferential Tariff (CEPT) scheme. More than 99% commodities are in the inclusion list and the tariff range has been brought down to 0%5% by Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore, and Thailand, while Cambodia, the Lao PDR, Myanmar, and Viet Nam have reduced tariffs to the 0%5% range for almost 80% of their commodities. Rice is the most important staple food in Asia. The region produced around 460 million tons during 2011, with South Asian and Southeast Asian countries accounting for almost 60% of global rice output. Asian countries have exported nearly 24 million tons of rice and imported about 14 million tons, with almost 93% of rice exports coming from South Asia and Southeast Asia. Both regions are the core hubs of global rice production and trade. In 2010, ASEAN countries accounted for about 49% of total global rice exports and SAARC countries, 20%. The major rice-exporting countries are India and Pakistan from South Asia, and Thailand, Viet Nam, and Myanmar, in that order, from Southeast Asia. Both regions, however, do not import much rice. In 2010, the share of ASEAN countries in total global rice imports was 14% and SAARC countries, only 3%. The major rice-importing countries are Bangladesh, Nepal, and Sri Lanka from South Asia, and Indonesia, Malaysia, and the Philippines from Southeast Asia. India is the largest rice exporter to SAARC and ASEAN countries but the volume of its exports is highly volatile and meager (Figure 1). Among ASEAN countries, the level of trade is higher compared to SAARC countries. Indonesia, Malaysia, the Philippines, and Singapore source their rice exports mostly from Thailand and Viet Nam (Figure 2).
Figure 1: Rice Exports of India to SAARC and ASEAN Countries (000 tons)

Source: FAO (2013).

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Figure 2: Rice Imports of ASEAN Countries within Southeast Asia (000 tons)

Source: FAO (2013).

There is little rice trade between South Asian and Southeast Asian countries due to differences in rice quality and consumer tastes or preferences. But as global food production and markets become more affected by climate change and price volatility, more cooperation in rice trade may take place in the next years.

Existing and Potential Areas of Cooperation

Unfortunately, there are no regional level trade agreements between SAARC and ASEAN. However, different countries have some bilateral trade agreements such as India that has a separate free trade agreement with ASEAN. As a result of this free trade agreement, overall trade between India and ASEAN increased from $30.7 billion in 20062007 to $45.34 billion in 20082009, with $70 billion expected for 2012. In addition, there is the IndiaASEAN Green Fund to promote the growth of the agriculture sector and research and development (R&D). There are also opportunities for Bangladesh to actively engage with ASEAN countries in trade. Three areas are important for future regional cooperation: (i) R&D, (ii) information and knowledge sharing, and (iii) agricultural trade. In R&D, joint research programs and the exchange of researchers in frontier areas such as biotechnology, nanotechnology, and biosafety may be initiated. In the area of agricultural trade, ASEAN countries are exporting palm oil, rubber, and rice to different South Asian countries. On the other hand, ASEAN countries are importing rice, wheat, milk, cotton lint, soybean, and soybean cake from South Asian countries. It is expected that the trade of these commodities will grow as demand grows. Most of the South Asian countries are short of edible oil and import palm oil that is cheaper than soybean, corn oil, or canola oil. There is limited scope of palm cultivation in South Asian countries. Similarly, rubber is being imported by most of the South Asian countries, as their production is limited to meet domestic demand. For ASEAN countries, it is cheaper to import milk, cotton lint, soybean, and soybean cake from

SAARC and ASEAN Regional Trade: Status and Opportunities for Ensuring Food Security | 7

South Asian countries. Joint efforts are needed to promote the production and trade of these commodities. Attention to food safety issues is also important to promote increased trade among South Asian and Southeast Asian countries.

Conclusion
In summary, regional cooperation is very weak between SAARC and ASEAN countries but opportunities exist to expand interregional cooperation in various areas. Both regions can learn from each other to improve food security and trade. For example, ASEAN may start programs similar to the SAARC Food Bank and SAARC Seed Bank to enhance food security among its member countries. To be able to meet demands during food crises, ASEAN countries may also further develop a food reserve similar to that of India, although not in quite a massive scale. To build buffer stocks, it is necessary to build the requisite infrastructure, especially logistics support and warehousing facilities. Business-friendly policies will attract the private sector to invest in warehouse development. Alternatively, publicprivate partnership may be developed by clearly delineating responsibilities for procurement, stocking, and distribution of food grains. SAARC countries can also learn from ASEAN countries about increasing agricultural productivity. ASEAN countries have very impressively raised the productivity of important crops, especially of rice. South Asian countries need to adopt policies, delivery institutions, and extension approaches for increasing the productivity of agricultural crops. While there is no dearth of improved technologies in South Asian countries, there is a lack of extension services, input delivery, and policy support. Infrastructure that will improve backend linkages and strengthen forward linkages is necessary for increasing agricultural production. More specifically, this requires expanding irrigated area, improving land, enhancing transport, developing markets, and increasing road connectivity. Both regions have existing regional free trade agreements for promoting trade within their borders, such as SAFTA in South Asia and AFTA in Southeast Asia. It has been noted, however, that AFTA has been more effective than SAFTA. The trade between the two regions is very low. There is a need to identify and analyze the constraints that pose obstacles to increasing the level of trade between ASEAN and SAARC countries. Both regions may also identify commodities for promoting trade for their mutual benefit. The basket of commodities for trade needs to be expanded, which may include livestock, fish, and horticultural commodities in addition to traditionally traded commodities such as rice, palm oil, rubber, soybean, soybean cake, and milk. There is a need to assess the competitiveness of different agricultural commodities from the ASEAN and SAARC perspective to promote interregional trade.

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References
Association of Southeast Asian Nations (ASEAN). 2013. Association of Southeast Asian Nations. Jakarta, Indonesia. http://www.asean.org/asean/about-asean Briones, R. M., with A. Durand-Morat, E. J. Wailes, and E. C. Chavez. 2012. Climate Change and Price Volatility: Can We Count on the ASEAN Plus Three Emergency Rice Reserve? ADB Sustainable Development Working Paper Series. No. 24. Manila: Asian Development Bank. Food and Agriculture Organization of the United Nations (FAO). 2013. FAOSTAT. The Statistics Division of FAO, Rome. http://faostat.foa.org Sinha, T. 2010. ASEAN and SAARC: Intra-regional trade forum. Institute of Peace and Conflict Studies, New Delhi. http://www.ipcs.org/article/southeast-asia/asean-and-saarc-intraregional-trade-forums-3136.html South Asian Association for Regional Cooperation (SAARC). 2013. SAARC Charter. SAARC, Kathmandu, Nepal. http://saarc-sec.org/SAARC-Chaarter/5/