Agricultural Trade Costs in Asia and the Pacific: Patterns, Compositions and Determinants (TIID Working Paper Series 2/12)

Working paper25 Nov 2012

Agriculture remains the backbone of most Asia-Pacific developing economies and approximately 50% of the Asian working population is employed in the agricultural sector. In view of the export potential of agricultural products in the region, it is urgent to reduce trade costs in this sector, particularly since they are typically twice as high as those for manufactured goods. Agricultural trade costs within each of the different Asian subregions and country groups are not found to differ sharply, particularly when tariff costs are excluded. Indeed, while agricultural tariffs are less than 5% in most subregions, they remain high between South Asian countries (SAARC) as well as between East and Northeast Asian countries (ENEA). Agricultural trade costs appear to have fallen within and between most subregions and country groups examined between 2003 and 2009, although improvements in trade costs appear to have been slower in Asian subregions than in developed country groups (EU and NAFTA). The trade cost regression analyses and variance decomposition exercise reveal that, when a wide range of countries are considered in the analysis, geographic distance is the single most important factor accounting for differences in trade costs between country pairs, followed by maritime logistics performance, and ease of getting credit. Access to and use of ICT in partner countries and tariff rates of partner countries are also found to account for a significant but a small and similar share of agricultural trade cost variations across countries. Interestingly, when the analysis is focused only on trade costs between ASEAN and OECD countries, the importance of geographic distance and tariff costs in explaining trade cost differences across countries vanish while the importance of both maritime logistics services and non-tariff measures such as SPS/TBT requirements become the key determinants. These results clearly suggest a need for many individual Asian developing countries to enhance maritime and other international logistics services while further building capacity to comply with non-tariff measures.