1 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 Series on Pesticides and Biocides Report of the 12th Expert Group on Biopesticides Seminar on Problem Formulation for the risk assessment of biopesticides PUBE Photo credits:Cover Billion Photos OECD 2024 Attribution 4.0 International(CC BY 4.0)This work is made available under the Creative Commons Attribution 4.0 International licence.By using this work,you accept to be bound by the terms of this licence (https:/creativecommons.org/licenses/by/4.0/).Attribution you must cite the work.Translations you must cite the original work,identify changes to the original and add the following text:In the event of any discrepancy between the original work and the translation,only the text of original work should be considered valid.Adaptations you must cite the original work and add the following text:This is an adaptation of an original work by the OECD.The opinions expressed and arguments employed in this adaptation should not be reported as representing the official views of the OECD or of its Member countries.Third-party material the licence does not apply to third-party material in the work.If using such material,you are responsible for obtaining permission from the third party and for any claims of infringement.You must not use the OECD logo,visual identity or cover image without express permission or suggest the OECD endorses your use of the work.Any dispute arising under this licence shall be settled by arbitration in accordance with the Permanent Court of Arbitration(PCA)Arbitration Rules 2012.The seat of arbitration shall be Paris(France).The number of arbitrators shall be one.Please cite this publication as:OECD(2024),Report of the 12th Expert Group on Biopesticides Seminar on Problem Formulation for the risk assessment of biopesticides,OECD Series on Pesticides and Biocides,OECD Publishing,Paris.3 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 About the OECD The Organisation for Economic Co-operation and Development(OECD)is an intergovernmental organisation in which representatives of 38 countries in North and South America,Europe and the Asia and Pacific region,as well as the European Union,meet to co-ordinate and harmonise policies,discuss issues of mutual concern,and work together to respond to international problems.Most of the OECDs work is carried out by more than 200 specialised committees and working groups composed of member country delegates.Observers from several Partner countries and from interested international organisations attend many of the OECDs workshops and other meetings.Committees and working groups are served by the OECD Secretariat,located in Paris,France,which is organised into directorates and divisions.The Environment,Health and Safety Division publishes free-of-charge documents in twelve different series:Testing and Assessment;Good Laboratory Practice and Compliance Monitoring;Pesticides;Biocides;Risk Management;Harmonisation of Regulatory Oversight in Biotechnology;Safety of Novel Foods and Feeds;Chemical Accidents;Pollutant Release and Transfer Registers;Emission Scenario Documents;Safety of Manufactured Nanomaterials;and Adverse Outcome Pathways.More information about the Environment,Health and Safety Programme and EHS publications is available on the OECDs World Wide Web site(https:/www.oecd.org/en/topics/chemical-safety-and-biosafety.html).This publication was developed in the IOMC context.The contents do not necessarily reflect the views or stated policies of individual IOMC Participating Organizations.The Inter-Organisation Programme for the Sound Management of Chemicals(IOMC)was established in 1995 following recommendations made by the 1992 UN Conference on Environment and Development to strengthen co-operation and increase international co-ordination in the field of chemical safety.The Participating Organisations are FAO,ILO,UNDP,UNEP,UNIDO,UNITAR,WHO,World Bank,Basel,Rotterdam and Stockholm Conventions and OECD.The purpose of the IOMC is to promote co-ordination of the policies and activities pursued by the Participating Organisations,jointly or separately,to achieve the sound management of chemicals in relation to human health and the environment.4 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 Foreword This report summarises the discussion and outcomes of an OECD Expert Group on BioPesticides(EGBP)seminar on Problem Formulation for the Risk Assessment of Biopesticides.This one-day seminar was held on 26 February 2024,before the annual meeting of the EGBP,a sub-group of the OECD Working Party on Pesticides(WPP).The seminar was the twelfth in a series of EGBP(formerly the BioPesticides Steering Group,BPSG)seminars focusing on biopesticide-related issues of interest to OECD governments and other stakeholders.Shannon Borges(US EPA),chair of the EGBP,chaired the seminar.A total of one hundred-eight experts from nineteen OECD member countries,the European Commission,the Business and Industry Advisory Committee to the OECD(BIAC),the International Biocontrol Manufacturers Association(IBMA),and research institutes/universities participated in the Seminar.The complete list of participants can be found in Annex C.The primary objective of the seminar was to facilitate the exchange of information on the experiences of the OECD countries and relevant stakeholders in the area of Problem Formulation for risk assessments of biopesticides.Biological pesticides involve microbials,pheromones and other semiochemicals,plant extracts(botanicals),and invertebrates as biological control agents.The seminar was also an opportunity to identify critical issues and challenges in applying Problem Formulation and initiate a dialogue about the further steps for OECD countries and key stakeholders in OECD and non-OECD countries to address the identified issues.5 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 Table of contents About the OECD 3 Foreword 4 1 Introduction 7 Participants 7 Purpose and Scope of the Seminar 7 Structure of the Seminar 9 2 Abstracts and summary of presentations 11 Session 1:Introduction to the topic:Problem Formulation in Risk Assessment 12 Problem Formulation:History,Principles and for Biopesticides Risk Assessment 12 Session 2:Stakeholders Experience and Perspectives 15 Problem Formulation as an Ecological Testing and Assessment Tool for Microbial Pesticides-Industry Perspective 15 Session 3:Governments Experience and Perspectives 17 Canadian Perspective on Problem Formulation for Biopesticides 17 Problem Formulation for Environmental Risk Assessment 19 Problem Formulation Finnish Case study 21 The US Perspective on Problem Formulation for Biopesticides 23 APVMAs outcome-focussed approach to data requirements to support registration decisions for biopesticides 25 Session 4:Additional considerations 27 How to identify and Quantify Mixtures:What is Essential to Know for Risk Assessment 27 Indicators of Pathogenicity:Informing Decisions on the Need for in vivo Testing for Microbials 29 Additional Considerations for Pesticide Formulations Containing Microbial Pesticides 32 Industry Contribution on the Assessment of Innovative Biochemicals 33 Presentation Slides 37 3 Summary of Discussions,Ideas and Recommendations for Possible Future Work 38 Summary of the presentations 38 Summary of the break-out groups discussions 38 Recommendations for future EGBP activities 41 Annex A.Programme of the 12th Expert Group on BioPesticides Seminar on“Problem Formulation for the risk assessment of biopesticides 43 Introduction 43 Problem Formulation in Risk Assessment 43 6 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 Stakeholders Experience and Perspectives 43 Government Experience and Perspectives 44 Additional Considerations 44 Annex B.Break out Group Questions and Examples 46 Annex C.Participants list 48 7 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 This report presents the results and recommendations of an OECD Seminar on Problem Formulation for the Risk Assessment of Biopesticides.It aims to provide an overview of the issues associated with this topic from the perspective of research,industry,and regulatory experts and provide input to the potential future development of recommendations for possible further OECD work.The seminar focused on promoting a dialogue on Problem Formulation for the Risk Assessment of Biopesticides and initiating a process to make recommendations for improvements by exchanging information on governments or organisations experiences and challenges in this area.“Problem Formulation for the risk assessment of biopesticides was selected as the topic of this Seminar based on discussions in the 2023 EGBP meeting.The topic was presented and discussed at the OECD Conference in Innovating Microbial Pesticides Testing in September 2022.One of the proposed projects that resulted from the conference discussions aims to develop a Guidance document to determine when an alternative to an in vivo test could be used to satisfy a data requirement and what supporting information is needed.At the 2023 EGBP meeting,it was proposed that this Guidance should be considered a Problem Formulation document and that the Seminar for 2024 will contribute to the outline and content of the project.Participants People attending the OECD Seminar included:members of the OECD Working Party on Pesticides(WPP)and Expert Group on BioPesticides(EGBP);invited experts from key stakeholder groups such as the pesticide industry and manufacturers of biopesticides(BIAC and IBMA);invited experts from research institutes(academia),and regulators,risk assessors and evaluators from governmental or intergovernmental bodies.Purpose and Scope of the Seminar This Seminar was an excellent opportunity to exchange information on experiences that OECD countries and relevant stakeholders have in the area of Problem Formulation for risk assessments.-Risk assessment of biopesticides is inherently more complex than risk assessment of conventional chemical substances:many biopesticides are multi-compound substances,and for microbial substances,it is not possible to follow a quantitative approach as for chemicals.-A risk assessment should determine foreseeable risks.Therefore,an approach is needed to determine which risks are foreseeable(and to assess these risks).For conventional chemical 1 Introduction 8 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 substances,quantitative thresholds can typically be applied to identify which hazards may lead to foreseeable risks.It is necessary to consider a different approach in the risk assessment for biopesticides,for which Problem Formulation could be helpful in identifying relevant areas of risks to be assessed.-Regulators in different geographical areas have implemented different approaches for biopesticides,ranging from the case-by-case,outcome-driven assessment in Australia,to the EU framework with an elaborate set of data requirements and evaluation criteria.Whatever the format of the regulations,for all geographical areas,there is a need for more Guidance on how to determine the foreseeable risks for biopesticides(-Problem Formulation Guidance).-Problem Formulation should be the first step in the risk assessment,which helps to focus the assessment on the relevant areas.In a way,it is a scoping assessment to determine the areas of the assessment which need the most attention.In doing so,certain areas of the risk assessment can be either waived or identified for deeper assessment on the basis of available information regarding,for example,the identity,the natural occurrence,and the mode of action.With this approach,data requirements can be simplified,animal testing can be saved,the work of risk assessors can become lighter,and regulatory costs for placing biopesticides on the market can be cut.By applying Problem Formulation,the assessment will follow a need-to-know approach rather than a nice-to-know approach,as the relevance of the data requirements for the specific substance,product,and use will be determined.Only the areas for which potential risks have been foreseen via Problem Formulation(e.g.,human health,specific non-target organisms)would need further data,which could include in vivo tests.-Guidance on Problem Formulation is needed to determine:What information is already available and how that information can best be used to determine foreseeable risks(e.g.,information about natural exposure to humans and/or non-target organisms)For which areas of the risk assessment more information is needed both to determine if experimental data is needed and if so which data is needed(and thereby,which tests).-Providing Guidance on Problem Formulation will:Increase the efficiency of risk assessments in all geographical areas.Increase harmonisation between geographical areas(e.g.,based on the new EU framework,animal studies for human health will often not be required but will likely still be asked for by the US.Harmonising in which cases animal studies are needed will,therefore,reduce the need for these studies and make it easier for applicants to use the same dossier for different geographies.)Potentially increase harmonisation between regulatory frameworks(e.g.,food additives,biostimulants).-Problem Formulation is successfully applied in the EU regulation of GMOs,and interest from other frameworks,including Plant Protection Products(PPP),is gaining.-In order to successfully apply Problem Formulation in the risk assessment of biopesticides,hands-on,practical Guidance on Problem Formulation of the separate aspects of the risk assessment is needed.Examples of these separate aspects include:Assessment of complex mixtures(e.g.,botanicals:which of the components is relevant for the risk assessment and efficacy);9 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 Assessment of metabolites produced by microbial pest control agents(MPCA),e.g.,in which cases is the in situ production of metabolites relevant for the risk assessment,in which cases is an assessment of the technical grade active ingredient TGAI sufficient?);Human health(e.g.,pathogenicity and infectivity for MPCAs);Environmental Risk Assessment(ERA)(e.g.,pathogenicity and metabolites for MPCA,natural exposure to natural substances).The main objectives of this EGBP Seminar on Problem Formulation included:to exchange information between regulators,scientists,researchers and other stakeholders.to learn about other regulatory frameworks where Problem Formulation is successfully applied to biological entities and substances.to exchange information on OECD countries current activities in the area of Problem Formulation.to discuss the potential role of Problem Formulation in the risk assessment of biopesticides;identify key principles of Problem Formulation for risk assessment and risk management.identify the challenges when conducting Problem Formulation in the RA and possible ways of managing them.identify a small set of areas in the risk assessment of biopesticides for which Problem Formulation is most needed and determine how Problem Formulation can be implemented.to work on the outlines for a Problem Formulation Guidance for these selected areas(also linking to the Guidance document on which test is needed for the risk assessment of MPCA).to suggest and discuss further steps for OECD countries and key stakeholders in OECD and non-OECD countries to harmonise the risk assessment of biopesticides by using Problem Formulation.Structure of the Seminar The Seminar programme is provided in Annex A.Invited speakers included:International experts in this field;Government representatives;and Representatives from industry and research institutes.Presentations were grouped into the following four sessions:Introduction to the topic:Problem Formulation in Risk Assessment Stakeholders experience and perspectives Government experience and perspectives Additional Considerations 10 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 There was a short discussion after each set of presentations and a more general discussion the next day at the EGBP meeting.Break-out groups were formed to discuss the different steps of Problem Formulation and inform the proposed project on developing a Guidance document to determine when an in vivo test would or would not be needed.11 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 2 Abstracts and summary of presentations 12 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 Session 1:Introduction to the topic:Problem Formulation in Risk Assessment Problem Formulation:History,Principles and for Biopesticides Risk Assessment by Anne STEENBERGH(Ctgb,The Netherlands)and Boet GLANDORF(Independent Expert,The Netherlands)The risk assessment of biopesticides such as microbial pest control agents(MPCA)follows a different approach compared to the assessment of chemical active substances.In contrast to relying on quantitative guideline studies and exposure modelling,the risk assessment for biopesticides,and for MPCA in particular,is case-by-case and based on a qualitative approach.While such a case-by-case approach is a prerequisite for biopesticides,it often leads to questions and uncertainties about the data requirements and the outcome of the risk assessment.Problem Formulation is a methodology that can be used to tailor the risk assessment to the individual biopesticide in a structured and transparent way.Problem Formulation is used to scope the risk assessment,to determine if the available information is sufficient for the risk assessment and,if not,which data is needed.In this presentation,we provide a brief introduction to Problem Formulation,and describe its building blocks(pathways to harm,risk hypotheses and analysis plans).This introduction is based on experience with the risk assessment of genetically modified organisms,for which Problem Formulation is already explicitly used in the EU.We also present a first outline of how Problem Formulation could be incorporated into the risk assessment of biopesticides and describe the prerequisites to do so.Anne STEENBERGH opened the seminar by reminding the participants that the seminar aims to address one of the Innovative Testing of Microbial Pesticides conference recommendations,which is frequently referenced as the overarching guidance document.The conference proceedings contain information about Problem Formulation,and ongoing work includes developing a paper for a peer-reviewed journal special issue stemming from the conference.Work on Problem Formulation is also part of a Dutch Working Group that involves various institutions such as the Dutch Institute for Public Health and the Environment,Utrecht University,and the Netherlands Institute of Ecology.Compared to chemical risk assessment that involves hazard characterisation and exposure assessment,leading to quantitative risk assessment,Anne STEENBERGH noted the challenges in risk assessment of biopesticides,like the absence of defined and agreed toxicity thresholds,as well as the evaluation of a variety of biopesticide types,such as microorganisms and complex mixtures,for example,plant extracts.Biopesticide evaluation is more demanding than that of conventional pesticides because it encompasses 13 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 additional considerations such as pathogenicity testing and in situ metabolite generation.The absence of defined thresholds and the lack of exposure models that account for population dynamics renders biopesticide risk assessment qualitative most of the time rather than quantitative.She clarified that Problem Formulation,which could be part of the overarching Guidance document suggested at the 2022 conference,can assist in structuring risk assessment for biopesticides by identifying data needs and transparently clarifying protection goals.She pointed out the differences between decision trees and the Problem formulation approach,which lies in the flexibility of the latter.Decision trees have been explored as a solution but face challenges in accommodating diverse biopesticides and their properties.She described the difficulty of finding the proper order of questions in decision trees and making them applicable to all microorganisms or plant extracts.Problem formulation provides a structured,yet flexible,way of tackling these difficulties.In contrast to decision trees,this approach is based on causal pathways to harm.This allows hypotheses and analysis plans to be derived for individual biopesticides,making the risk assessment tailored and adaptable to the characteristics of each biopesticide.Then,Anne STEENBERGH highlighted that the Problem Formulation could be seen as a scoping assessment that could help increase the mutual acceptance of data for biopesticides beyond test guideline studies use,compared to the case-by-case approach currently applied.Problem Formulation can help determine whether information is sufficient and which data is needed.Boet GLANDORF provided the historical context and discussed Problem Formulation for genetically modified organisms(GMOs),which is used to identify protection goals and plausible pathways to harm.She gave the example of Bt maise modified to produce Cry toxin risk assessment,which focused on assessing potential effects on butterflies.The example demonstrated how each step in the pathway to harm could be scrutinised and tested,contributing to a more robust approach to risk assessment.She explained that multiple pathways lead to one specific harm,and several pathways occur through a specific mechanism.She closed her part by emphasising that a good starting point is to identify all these pathways to harm,select the most plausible ones,and highlight the value of Problem Formulation as a transparent approach.Anne STEENBERGH outlined a conceptual framework for risk assessment of microorganism effects on arthropod populations,involving exposure,infection,and population-level impacts.She proposed a hypothesis-driven risk assessment approach for evaluating pathways to potential harm tailored to microbial pesticides.Then,she highlighted the need for more flexible environmental risk assessment approaches to accommodate new scenarios.She touched upon legal provisions for waiving studies and using Problem Formulation-driven assessments to expedite microbial pesticide approval,particularly the ones defined as low-risk.She acknowledged that although there is regulatory experience with this type of risk-based approach,having a formal Guidance might facilitate international uptake and harmonisation across OECD countries.In terms of the Guidance outline,she discussed the inclusion of protection goals and problem formulation building blocks,like risk hypotheses,analysis plans,and pathways to harm.She closed by summarising the advantages of the Problem Formulation Approach,which include:1)resulting in fewer data gaps due to its tailored nature,providing a more precise analysis plan,2)making it easier to understand,and 3)ensuring transparency,allowing stakeholders and risk assessors to understand the rationale behind pathway considerations.The clarifying questions underscored the need to incorporate Problem Formulation early in the assessment process,ideally during registrants dossier preparation.Furthermore,the dialogue explored the value of pre-submission meetings for preliminary discussions between authorities and applicants.However,it was noted that having Guidance would ensure that both applicants and assessors understand how to apply Problem Formulation.14 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 It was clarified that an EFSA Guidance describes the framework for the GM plants safety assessment,but there are no detailed instructions or consensus on how to apply Problem Formulation.The risk assessment for GMOs is based on comparative analysis.More specifically,their risk assessment process weighs the effects of GMOs against non-genetically modified organisms and takes natural variation into consideration.Dialogue highlighted challenges and opportunities in the use of data from field studies because they can be variable and difficult to interpret.Depending on the particular risk assessment questions and the complexity of the biopesticide under testing,field studies may be preferable in some cases instead of higher-tier assessments.15 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 Session 2:Stakeholders Experience and Perspectives Problem Formulation as an Ecological Testing and Assessment Tool for Microbial Pesticides-Industry Perspective Lisa ORTEGO(Bayer,United States)Problem Formulation is a tool used for scope testing and assessment commonly used for chemical risk analysis.It is useful to frame the key issues in a risk assessment that need to be addressed.Problem Formulations and their related conceptual diagrams can range from simple to complex depending on the parameters that require evaluation in the assessment.While this tool is commonly used for chemicals and conventional pesticides,it has utility beyond these materials.This presentation will highlight the use of Problem Formulation concepts for scoping testing and assessment of microbial pest control agents(MPCAs).The unique features of MPCAs will also be discussed in the context of a Problem Formulation.The use of this approach to frame appropriate testing/information gathering in an MPCA early screening program will be highlighted.Lisa ORTEGO acknowledged her co-author,Hank Krueger,and expressed appreciation for the opportunity to speak on behalf of Crop Life International.She mentioned that while her presentation mainly refers to microbial biopesticides,the concepts discussed,once adapted,may also apply to other types of biopesticides.The presenter described Problem Formulation as a process for creating a roadmap to identify questions,necessary information,and methods for obtaining that information.This roadmap can then guide any necessary testing to generate data and advance with the assessment process.While such an approach seems iterative,it is considered a pragmatic way to allow adjustments in the process depending on the data and questions in hand.Lisa ORTEGO acknowledged challenges and logistical constraints in regulatory frameworks across OECD countries but suggested applying decision trees to interrogate the iterative nature of Problem Formulation.Moving on to discuss specific Microbial Pest Control Agents(MPCA)considerations in Problem Formulation,Lisa ORTEGO highlighted the abundance of literature on wild types compared to strains of microorganisms used as biopesticides and the need for guidance on the relevance of these kinds of information sources to risk assessment.Other considerations listed by the speaker that are relevant to the safety evaluation of MPCAs include pathogenicity,toxicity,and production of clinically relevant antibiotics or antibiotic resistance markers.In terms of exposure assessment,it was noted that although is considered challenging it is equally important.Initial steps would involve considering the optimal environmental conditions MPCAs 16 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 survival and growth.It was noted that evaluating MPCAs as mixtures is challenging,leading to questions about whether to test and assess the actual microorganism or all the additional or part of the components of a mixture.However,performing component-based assessment for MPCAs may pose insurmountable challenges.Lisa ORTEGO stressed the importance of bioinformatics in understanding genetic relationships between MPCAs under evaluation and harmful or harmless microorganisms.She emphasised that Guidance is needed to provide information on the genetic similarity threshold to allow standardised use in risk assessment across OECD countries.She provided an example of a conceptual model for chemical pesticides and discussed its application in assessing MPCAs.She outlined her companys internal safety assessment process for MPCA candidates,focusing on literature search,genomic analysis,and initial filtering based on pathogenicity and antibiotic properties.MPCAs use pattern(s)clearly define the exposure pathways and facilitate the development of an assessment plan,taking at the same time into consideration available testing methodology,pathogenicity criteria and bioinformatics.The talk concluded with a forward-looking perspective on the usefulness of Problem Formulation not only in guiding internal assessments but also in facilitating pre-submission discussions with regulators.Follow up discussion raised the question of whether the whole genome sequencing(WGS)method used by the company to assess bee pathogenicity is applicable to all microorganisms or if it is used only for certain microorganisms.It was explained by the speaker that American foulbrood is a well studied disease,and the genetic sequences linked to its pathogenicity are well-described.Incorporating these gene sequences in the routine genomic analysis is advantageous,especially when dealing with closely related bacteria to the ones that cause the disease.17 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 Session 3:Governments Experience and Perspectives Canadian Perspective on Problem Formulation for Biopesticides Emma BABIJ(PMRA,Health Canada,Ottawa,Canada)Problem formulation is a concept referred to in Health Canadas decision-making frameworks and is inherent in the regulation of biopesticides in Canada.If an active ingredient is determined to be eligible for consideration as a semiochemical,non-conventional chemical,or microbial pesticide,and therefore addressed under the associated PMRA guidance documents,then the data requirements,associated fees,and timelines are reduced compared with conventional chemical pesticides.Health and Environment data requirements for biopesticides are tiered,with progression dependent on results of lower-tier testing.The data required for risk assessment are guided by the proposed use pattern and properties of a product.PMRA takes a weight of evidence approach to risk assessments,often relying on a mixture of test data on the product to be registered and scientific waiver rationales that may be based on various lines of evidence,including published literature,animal studies,and in vitro studies.Additionally,Health Canada supports the reduction of unnecessary animal testing where scientifically justified,and is an active participant in various international activities of this nature.Only biopesticides with a database that fulfils all scientific requirements or have acceptable scientific waiver rationales are permitted to progress within the evaluation process and reach the registration decision stage.Pre-submission consultations with PMRA are strongly encouraged for applicants to obtain a list of data requirements tailored to the active ingredient and associated end-use product.Emma BABIJ started by acknowledging the contributions of her colleague,Emily Hopwood,in preparing this presentation.The presentation was structured to cover the following key points:1)Health Canadas approach to Problem Formulation,2)Biopesticide Regulatory Landscape in Canada,and 3)Examples and Applications of Problem Formulation.She mentioned Health Canadas Framework for decision-making,which refers to Problem Formulation and highlighted their relevance to the seminar.She explained that many aspects of these documents are considered when tailoring data requirements and assessing the submitted and collected information to evaluate biopesticides.Section two of the Framework document discusses how to identify the issues and their context,which provides direction and focus for the risk assessment.Issues might be identified proactively,such as for premarket submissions,or reactively.For example,post-market responses to information flagged,such as incident reports.The Framework 18 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 highlights the importance of using a broad perspective,considering various information across the different streams while maintaining our focus on health and safety.She emphasised the importance of understanding the issues and using an integrated and evidence-based approach for decision-making.Emma BABIJ provided high-level information about the biopesticide regulatory landscape in Canada,focusing on the protection of Human Health and Environment streams.She mentioned the flexibility applied by the Pest Management Regulatory Agency(PMRA)when considering and applying data requirements for biopesticides.The PMRA Framework for Risk assessment document,which also focuses on the theme of authentic identification of the issue and its context,details the PMRA science-based approach to assessing pesticides,considering hazards and the level of exposure to fully characterise risk.Risk under the Pest Control Products Act is acceptable if there is reasonable certainty that no harm to human health,future generations or the environment will result from exposure to or use of the product.The speaker provided examples to illustrate how Problem Formulation is applied to regulate biopesticides in Canada,covering pheromones,non-conventional chemicals,and microbial pesticides that are not only restricted to agricultural use and referred to relevant Guidance Documents.PMRA takes a weight-of-evidence approach to risk assessments,often relying on a mix of test data on the product to be registered and waiver rationales that may be based on different lines of evidence.Only products that fulfil all scientific requirements or have acceptable scientific waiver rationales can progress within the evaluation process and reach the decision stage.The presentation emphasised the tiered approach to risk assessment used by PMRA,which is a form of Problem Formulation.This approach involves progressively more extensive testing depending on the potential risks identified at the earlier tier(s).She explained that the adverse effects of concern for an active ingredient are not always known,and the tiered approach is not designed to screen for all potential adverse effects.However,with this approach,screening at lower tiers with definitive testing at higher tiers helps weigh what is known about the active ingredient with what is unknown.It facilitates the initiation of a reasonable first step to risk assessment.Emma BABIJ noted that most biopesticides are registered in Canada with only a tier-one database,meaning higher-tier data is not usually triggered.Animal toxicity testing currently plays a critical role in assessing human health and environmental risks in higher tiers.Health Canadas mission to reduce unnecessary animal testing and efforts to consider validated new approach methodologies(NAMs)wherever possible in their assessments were highlighted.She expressed interest in contributing to the EGBP project on the guidance document determining when an in vivo study would be required,as well as the following work on exploring the NAM feasibility for microbials.The presentation concluded with specific examples demonstrating how the proposed use pattern(s)and properties of a product could guide data requirements for risk assessment.For example,if only greenhouse use is proposed,waivers could apply for wild birds and fish for microbials.Similarly,if a test substance is not viable in water,this could form the basis for a rationale to waive aquatic non-target organism testing.On the other hand,if a microbial is a known producer of a certain metabolite of toxicological concern,then analysis would be required.Depending on the likelihood of exposure,repeated dose study by the relevant route of exposure may be needed.Hazard flags in the literature might also guide a higher-tier toxicology study.19 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 Problem Formulation for Environmental Risk Assessment Monica Garcia AGUILAR(European Commission)The Guidance to provide justifications as referred in point 1.5 of the Introduction of the Annexes of Regulations(EU)No 283/2013 and No 284/2013:Problem formulation for environmental risk assessment was developed by the European Commission together with Member States in the context of Regulation(EC)No 1107/20091-the European pesticides legislation.It builds on the outcome of a workshop held with Member States and stakeholders in February 20202,which indicated that some plant protection product uses may lead to lower environmental effects when comparing to a standard scenario of applying conventional chemical pesticide with a conventional sprayer on field crops.The Guidance document was consulted with Member States and stakeholders who also provided 23 case studies as part of the consultation.The document was endorsed by the Standing Committee on Plants,Animals,Food and Feed in January 2024.The document provides harmonised guidance to implement point 1.5 of the introduction of the European Data Requirements3,a provision that allows to justify the absence of studies in cases where experimental data would not be necessary owing to the nature of the active substance or the representative uses of the plant protection product containing it(in other words,the“need to know”approach).The document provides a method to conduct problem formulation on the basis of a concrete scenario and as a first step of a risk assessment,to determine which data requirements set in Regulations(EU)No 283/2013 and No 284/20133 would not be necessary for the Environmental Risk Assessment(ERA).For instance,for products containing microorganisms,pheromones,botanicals,plant extracts,and application methods like indoor uses(e.g.,permanent greenhouses or storage rooms)precision application techniques,localised applications(e.g.,burrows),or drip irrigation,it may be justified that some data requirements do not need to be submitted.A fit for purpose risk assessment driven by a“need to know approach”and based on a transparent problem formulation step is expected to lead to a faster placing on the market of low hazard substances(e.g.,biopesticides)1 https:/eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:02009R1107-20221121 2https:/food.ec.europa.eu/document/download/f466cf50-dad7-46f3-b6cd-472a54cf13fb_en?filename=pesticides_auth-ppp_workshop_20200204_reprt.pdf 3 EUR-Lex-32013R0283-EN-EUR-Lex(europa.eu)and EUR-Lex-32013R0284-EN-EUR-Lex(europa.eu)20 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 and low exposure uses,contributing to the reduction of use and risk of chemical plant protection products in Europe.Monica Garcia AGUILAR focused her presentation on the January 2024 endorsed Guidance Document on Problem Formulation for environmental risk assessment by the Standing Committee on Plants,Animals,Food and Feed Phytopharmaceuticals,Legislation section in the European Union.She mentioned that the Guidance development process captured expert input from various government members of different European Member States and stakeholders.The document provides harmonised guidance to implement a provision on the European Regulation that allows for justifying the absence of studies in cases where experimental data would not be necessary owing to the nature of the active substance or the representative uses of the plant protection product containing it(in other words,the“need to know”approach).The document provides a method to conduct Problem Formulation on the basis of a concrete scenario and,as a first step of a risk assessment,to determine which data requirements would not be necessary for the Environmental Risk Assessment(ERA).She explained that it applies to scenarios for which environmental impacts are expected to be low when compared with a chemical substance applied in a conventional manner in the open field.For instance,for products containing microorganisms,pheromones,botanicals,plant extracts,and application methods like indoor uses(e.g.,permanent greenhouses or storage rooms),precision application techniques,localised applications(e.g.,burrows),or drip irrigation,may be justified that some data requirements do not need to be submitted.She emphasised the importance of understanding how different plant protection products impact the environment in different ways depending on their intrinsic properties.Similarly,understanding how innovation,such as precision application techniques,fits into ERA is an important consideration.The speaker highlighted that during the last years,innovation has been present in different dossiers of active substances and that these scientific developments have to be also incorporated in the EU regulatory science,for instance,by providing a more flexible framework to accommodate diverse scenarios when performing ERA.A clear example of how regulatory science has evolved is the new regulations on microorganisms adopted in the EU in 2022.These regulations are based on the specific biological properties of micro-organisms and they reflect the latest scientific developments in the field.The document includes case studies where Problem Formulation was conducted using the approach developed in the Guidance.The EU Guidance Document contains a template that can guide applicants to in conducting problem formulation by providing necessary information during the pre-submission meetings to justify the exclusion of studies for ERA.The discussion progressed on the use of available test guidelines to test the current species listed in the EU data requirements and whether other non-standard tests could be considered for performing the test.According to the presenter,the current test species represent typical organisms of a functional group(e.g.,arthropods that act as predators or parasitoids to pests)for which standardised ecotoxicological test protocols are available.However,non-international harmonised methods can be used to perform tests required in the EU data requirements for which non-agreed text guidelines exist.A significant point of discussion centred on the different nature of the risk of pesticides,which is triggered by the use pattern(s),in other words by the different exposure.It was stressed that there is a need for having data to provide justifications in the template as regards specific application methods that can reduce the exposure.The speaker acknowledged that the use of the information provided by the case studies 21 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 should be limited because it had not been peer-reviewed,but that it served to improve the document.She explained that the document could be amended in the future when more knowledge is available.Furthermore,the dialogue explored the next steps foreseen for the implementation of the Guidance.The presenter expressed her confidence in the gradual implementation of the Guidance by applicants,Rapporteur Member States,and EFSA during the peer review of the substances.Participants inquired about successful cases using the Problem Formulation approach.The response indicated that due to the recent endorsement,this Guidance has yet to be used for the dossiers of active substances.However,she remarked that during the last years,there have been examples of dossiers where certain ecotoxicological studies were excluded due to the nature of the substance or the representative use and that this accepted during the peer review.Information was provided about an ongoing EFSA project focused on developing criteria for risk assessment methods for low-concern active substances.The presenter explained that this project would consider the EU Guidance Document and the case studies.The project aims to establish criteria for justifying the exclusion of studies,explore alternative testing methods,and develop a stepwise approach for the risk assessment starting from Problem Formulation.Problem Formulation Finnish Case study Sari AUTIO,(Finnish Safety and Chemicals Agency,Tukes,Finland)Finland tested the problem formulation scheme for environmental risk assessment developed by the Working group on environmental relevant topics in the context of Regulation(EC)No 1107/2009,led by the EU Commission DG Sante.Dossier of one active substance,for which Finland acts as the EU RMS,was used in this case study.Although,in principle,this exercise should be performed before sending the dossier,it was actually done in a retrospective manner,because by the time of the case study,Finland already had received the full dossier and all required information was available.The information provided by the applicant in the List of Endpoints of this active substance was used as the source of information.In order to ensure the data protection of studies owned by the applicant,the data was sanitised for the purpose of this case study.Therefore,in the template no exact endpoint values are given.In reality,the applicant should fulfil the template before the pre-submission meeting to discuss its outcomes with the RMS and EFSA.The purpose of this specific case study was to test the applicability of the problem formulation scheme for identifying the most critical points for the environmental risk assessment of a chemical active substance.The active substance explored was a chemical herbicide with a very low application rate to be used in two outdoor application scenarios.High water solubility and high mobility in soil characterised the critical endpoints of the active substance.Two different application scenarios were considered,one for 22 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 pre-emergence application on bare soil,and another for broadcast application on established grassland.Five relevant ecosystem services are considered in problem formulation.Based on likely exposure of those ecosystem services,none of them could be excluded from the environmental risk assessment,and thus a full data package is required for the active substance.All aspects of the risk assessment should be conducted.However,the exercise revealed well the critical areas,where risk mitigation is necessary to ensure safe use.Following conclusions could be drawn from this case study.For outdoor uses of a chemical active substance,the problem formulation template is not selective enough to exclude any parts of the ERA.Instead,the problem formulation template can be used to focus on areas,where risk mitigation is necessary.In this case study,risk mitigation measures are available,applicable,and necessary to ensure safe uses of this active substance.Appropriate risk mitigation measures could be for instance timing of the application,spot wise application,drift reducing nozzles,buffer zones.Next,Finland has recommended that the authorisation holders of urea should use this template for their intention to create a dossier for root rot control as stump application in forest loggings in the Northern EU,while urea was recently only approved as a low-risk active substance for attractant use in olive cultivation in the Southern EU.To illustrate how the Guidance can be used to provide justifications,as referred to in point 1.5 of the Introduction of the Annexes of Regulations(EU)No 283/2013 and No 284/2013:Problem formulation for environmental risk assessment,Sari AUTIO presented a case study.The case study deals with a conventional chemical herbicide.However,the speaker explained that this example is relevant to the biopesticide seminar as similar considerations might apply when evaluating them for potential environmental risks.A chemical herbicide with a low application rate was selected for the case that considered two distinct outdoor application scenarios.Sari AUTIO clarified that this is a retrospective analysis and that her agency already had the complete data package required to conduct a full environmental risk assessment.Using this chemical,including the necessary data and information relevant to this chemical application pattern(s),she noted,could test the applicability of the Problem Formulation template found in the Guidance and identify critical points for the environmental risk assessment.The chemicals properties,particularly its high mobility in soil matrices,could not allow for waiving any soil-relevant testing.She discussed that the evaluation of data raised concerns about potential groundwater contamination.This information and data prompted the evaluator to propose mitigation measures,like adjusting application frequency and timing to minimise the groundwater risk contamination or establishing grassland with high crop interception to reduce the risk of chemical leaching and protect the soil organisms.Risk mitigation measures like buffer zones from aquatic filtering plants were proposed to protect aquatic organisms in freshwater ecosystems.Sari AUTIO also assessed through the case study and discussed the potential impact of the chemical examined in the case study on non-target organisms and ecosystem services,including pollinators.The evaluation concluded that while risks exist for non-target organisms,they are considered acceptable with appropriate mitigation measures like adjusting application frequency and timing and applying drift-reducing 23 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 nozzles and buffer zones.In conclusion,the speaker emphasised that by having the template as a guide,all the relevant ecosystem services were considered during the environmental assessment,permitting the proposal of tailored mitigation measures and avoiding unnecessary testing.Additionally,she recommended using the Problem Formulation template of the EU Guidance for similar assessments,mentioning the intention of her agency to recommend its application for urea authorisation holders in Finland,a substance that is under evaluation.The discussion revolved around the value of a Problem Formulation step in chemical active substance assessment,where sophisticated exposure models exist.It was noted that while exposure models provide valuable data,applying Problem Formulation approaches allows for the identification of potential risks and areas requiring mitigation measures,mainly when dealing with substances with low application rates.The speaker highlighted that Problem Formulation directs focus towards specific areas that need attention much earlier in the risk assessment process and facilitates better risk management decision-making.The US Perspective on Problem Formulation for Biopesticides Shannon BORGES(Environmental Protection Agency,EPA,Washington DC,United States)Problem formulation provides the foundation upon which risk assessment is based.It begins with a planning dialogue between risk managers and risk assessors,in which pertinent information and protection goals are discussed and a preliminary scope of the assessment is determined.Risk assessors then examine the available information,evaluate the nature of the problem,select assessment endpoints,and develop a conceptual model and analysis plan.For biopesticides,product identity is key to problem formulation,since it identifies the active ingredient and its defining characteristics,and can also highlight uncertainties that need to be addressed.Based on this information,much of the data needs can be identified.Use patters for the biopesticide product,the formulation,and application methods can help to define exposure routes and discern opportunities for mitigation.Hazard data are also key for biopesticide problem formulations,since often exposure cannot be determined quantitatively.By considering these three facets of biopesticide data,asking questions,and reiterating any steps as needed,a strong analysis can be developed for biopesticide risk assessment that produces informed risk management decisions.Shannon BORGES provided an overview of Problem Formulation in the context of assessing biopesticides from the perspective of the United States Environmental Protection Agency(US EPA).She introduced Problem Formulation as a tool in the risk assessment process for biopesticides.While there are no specific guidelines available for Problem Formulation for biopesticides,many of the concepts that exist for other types of pesticides are also applicable to biopesticides.24 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 In general,Problem Formulation facilitates the framing of the analysis by introducing questions to better guide the risk assessment.For a biopesticide under evaluation,the first question to be addressed involves determining if the actual biopesticide is novel or similar to other substances that were assessed and understanding potential differences or similarities.Then,she highlighted the necessity of additional steps,particularly accessing and evaluating existing knowledge in databases and scientific literature about the active ingredient,its characteristics and potential hazards that can address data gaps and formulate any follow-up questions in the risk assessment process.Detailed product analysis,including the identification of the active ingredient,its composition,physical-chemical properties,and mode of action,is considered to identify the active ingredient and its characteristics under Problem Formulation.This information assists in defining data needs and sets the scope behind the analysis of the data.She highlighted the complex nature of the biopesticides and why product identity information is important for new active ingredients to flag uncertainties that need further investigation,which is informative towards the Problem Formulation.For microbial pesticides,some important information(e.g.,relatedness to microorganisms that are toxic or pathogenic to humans or non-target organisms,the typical environment in which that microorganism is found,and conditions that may limit growth or the presence in the environment or within a non-target organism or human,potential production of secondary metabolites of concern,etc.)emerge from knowledge about the microorganisms taxonomy and the certainty behind this.She discussed challenging cases of new species entering the registration process with unknown classifications that,in addition,lack scientific support data.In these cases,bioinformatics can be used to identify sequence similarities to other well-studied species and flag any concerns related to pathogenicity or secondary metabolite production.She highlighted the importance of having access to information related to the proposed use patterns,application methods and equipment,and potential routes of exposure,including the types of crops,areas of application,formulation types(e.g.granule,spray,powder diluted in water,etc.),to determine the scope of exposure assessment.Shannon BORGES highlighted the importance of knowing the geographic extent of exposure,particularly in the US,to guide endangered species assessments.She also mentioned that quantitatively establishing exposure for microorganisms based on models is challenging because they are alive,and their population size is influenced by numerous biotic and abiotic factors.Assessing biopesticide hazards relies on a tiered testing system that is built around testing gradually to cover even the worst-case scenario.Assessing potential hazards associated with the biopesticide involves examining available data on toxicity,in combination with exposure levels,to determine the degree of risk.Mitigation measures to reduce the risk,like adjusting application rates of biopesticides,can be proposed.However,she pointed out the challenging aspects of this approach in relation to the efficacy of the products.Finally,she described the process of identifying data gaps and uncertainties in the data provided by the registrants and,the available knowledge evaluation as informative toward the Problem Formulation approach as it increases the understanding about what additional studies or information may be needed to advance the risk assessment.Shannon BORGES acknowledged the challenges related to limited resources and the uncertainties underlying the current approaches and emphasised the importance of working on a Problem Formulation framework for biopesticides that promotes international collaboration and harmonisation.She concluded that the US EPA applies problem formulation to structure and guide the risk assessment process for biopesticides to make informed decisions and ensure environmental and human safety,but there are opportunities to advance and harmonise the approach.Following a question,Shannon BORGES acknowledged the importance of Problem Formulation in establishing a robust risk analysis and arriving at management decisions and suggested that guidance might be beneficial.The guidance will contribute to a structured approach to facilitate asking the right questions.She emphasised that reaching a consensus and harmonising the Problem Formulation process will only guarantee its effectiveness as an approach.25 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 Another point raised was whether Problem Formulation could be expanded and made applicable to the assessment of biopesticides as products or if it is limited to the active ingredient,particularly those containing microorganisms.The discussion highlighted the importance of directing the focus of the risk assessment to formulation constituents,if necessary,when evidence suggests links to adverse effects.However,the speaker recognised that resource constraints may not permit a comprehensive assessment of products,which is usually limited to acute testing for labelling purposes.APVMAs outcome-focussed approach to data requirements to support registration decisions for biopesticides Maria TRAINER(Australian Pesticides and Veterinary Medicines Authority,APVMA,Australia)The Australian Pesticides and Veterinary Medicines Authority(APVMA)is the statutory authority responsible for the regulation of agvet chemicals up to the point of sale.There are legislated requirements that the APVMA must be satisfied that all actives and products are safe for humans,including through the consumption of residues in food and for the environment,are effective when used in accordance with label directions,and do not unduly prejudice trade between Australia and places outside Australia.Labels for chemical products must contain adequate instructions to use the products safely.The APVMA takes a risk-based approach to regulation and has limited prescriptive requirements for how these criteria can be met.We seek to ensure data packages and arguments are adequate to address the statutory criteria,taking into consideration both the underlying toxicity,and the likely exposure resulting from use in accordance with the label instructions.To facilitate this flexibility,our risk assessment process typically begins at the pre-application assistance stage where potential applicants are encouraged to discuss proposed data packages prior to submitting,or even preparing,an application.During this process,APVMA technical experts use an informal problem formulation approach to determine the required assessments for both conventional and biological pesticides to ensure satisfaction in relation to the statutory criteria as well as an appropriate and proportionate regulatory response.Maria TRAINER began by highlighting the similarity between Australias legislative requirements for pesticides and those of other regulatory jurisdictions.She then focused her talk on those aspects of the Australian approach that are unique,specifically the outcome-focussed approach that provides the Agency with considerable discretion in determining how their legislative criteria can be met.Of note,she mentioned that the number of registered biopesticides available in Australia is low,emphasising that no new microbial 26 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 active ingredients have been authorised in the past two years.Maria TRAINER encouraged discussions and engagement with industry stakeholders to better understand potential barriers to registering microbial pesticides in Australia and develop strategies to address them.First,she provided background information on the Australian Pesticides and Veterinary Medicines Authority(APVMA),the statutory authority responsible for registering agricultural and veterinary medicine products and their active constituents in Australia up to the point of retail sale.She highlighted that the APVMA is a risk-based,outcome-focused regulatory authority and presented the legislative framework under which it operates.The legislation describes the statutory criteria that must be satisfied(specifically,safety,efficacy,trade,and labelling)and grants the Agency considerable discretion in determining how those legislative criteria can be met.By focussing on outcomes,the APVMA does not have prescriptive lists of data requirements that must be fulfilled.Instead,they take a case-by-case approach that is driven by the properties of the substances in question and tailor the data requirements to facilitate identification and assessment of the potential risks posed by those substances specifically.To that end,the Agencys evaluations cover environmental and human health safety,efficacy,crop safety,residue safety,trade and labelling.She noted that the legislation does not make any distinction between different categories of agricultural plant protection products and does not differentiate between conventional chemical pesticides and biologicals.She acknowledged that an international Guidance document on how to perform Problem Formulation could be helpful in reducing some of the uncertainty on registrants perception of the registration process.Next,Maria TRAINER discussed Australias assessment process,which is based on risk considerations and may rely on previous assessments or international evaluations to reduce unnecessary testing.She pointed out that the same level of assessment applies to any pesticide product,whether conventional or biological and only through the quantification of exposure or characterisation of hazards can a product be considered low risk.She discussed the four categories of biological agricultural protection products and how each attracts different levels of evaluation.She reiterated that APVMA evaluators must ensure that products meet the various risk assessment areas or statutory criteria.For example,the evaluation process for a pheromone product that is sealed in a device is mainly focused on environmental assessment,manufacturing safety,and efficacy evaluation unless refilling of the device is possible or the substance is totally new to Australia.She highlighted that Australias biosecurity rules mean that the importation of microbial pesticides is cleared through the biosecurity importation process,which is not handled by the APVMA.In addition,the unique nature of Australias environment can add a layer of complexity to environmental and efficacy evaluations of microbial pesticides that would make alignment with an internationally harmonised approach challenging.The speaker then introduced the pre-application assistance program.This is a fee-for-service program(although the costs can be offset against any future application)that allows applicants to initiate a dialogue and receive written input on data requirements,waivers,timeframes,and fees at any point in the research and development process of a biopesticide.She emphasised the programs value in improving registrants dossier submission quality and providing information about upcoming submissions.In response to a question,the speaker confirmed the usefulness of the pre-application assistance program in better understanding the Agencys upcoming workload.In addition,it was highlighted that these pre-meetings offer an opportunity for junior risk assessors and risk managers to engage in Problem Formulation discussions and contribute to a training environment.27 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 Session 4:Additional considerations How to identify and Quantify Mixtures:What is Essential to Know for Risk Assessment Korinna WEND(BfR,German Federal Institute for Risk Assessment,Berlin Germany)Plant protection measures are necessary to prevent pests and diseases from attacking and destroying crop plants and to meet consumer demands for safe and affordable agricultural produce.Farmers are looking for more environmentally friendly alternatives.Biopesticides should be considered as sustainable solution and may include macroorganisms,natural compounds and microorganisms.Microbial pesticides are the most widely used and studied class of biopesticides.For regulatory purposes,the data requirements from the EU and the US are resented for microorganism as active substance and for plant protection products containing microorganisms as active ingredient.In both,the EU and the US,the 3-R principles are applied by getting toxicological information first by medical data,second by weight of evidence approach and last by toxicological studies.The toxicological information can be obtained by Integrated Approaches to Testing and Assessment,New Approach Methodologies,the Acute Toxicity Estimate according to Regulation(EC)No 1272/2008,in vitro studies and in vivo studies.Considering the precautionary sentence for labelling products containing microorganisms as active ingredient a German proposal is presented.The proposal includes two options for the label by differentiating between“may have the potential”and“may cause”skin and/or respiratory sensitization.Furthermore,four options for the scientific document were proposed by distinguishing between“may have the potential”and“may cause”skin and/or respiratory sensitization and then further differentiate the latter one by describing the evidence:from animal studies,from human observations or from both.The proposed consequences are the exclusion from low risk of the microorganism and the product,when clear evidence is available.For further evaluation of products containing microorganisms as active substance,the toxicological profile of the co-formulants has to be assessed.The proposed EFSA approach from September 2023 is presented.The EFSA approach includes checking of the components added to the formulation(s),assess the data submitted by the applicant,list the information from legal framework and evaluate the toxicological profile.The list from legal framework includes various data base to get information for 28 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 evaluation,e.g.,ECHA,Pesticide active substance,Cosmetic ingredient,food additive,feed additive,etc.As last point of the talk,the recently submitted publication“Microbial pesticides challenges and future perspectives for testing and safety assessment with respect to human health”is named.The publication describes a comprehensive overview article about microbial pesticide regulation processes,data requirements and challenges with the data requirements and challenges of the current guidelines and test methods.The authors suggest to consider NAM strategies for microbial products.Korinna WEND compared the European Union(EU)and the United States(US)data requirements for formulations.Both regulations address medical data,the weight of evidence approach,and toxicological studies(in vivo/in vitro).The presentation covered the data requirements,including acute oral/dermal/inhalation toxicity,dermal and eye irritation,and dermal sensitisation,under the six-pack set in the EU and the equivalent data requirements in the US.She emphasised which endpoints can be addressed by in vitro testing or alternative approaches such as integrated approaches to testing and assessment(IATA),especially for formulations containing microbial active substances.The speaker discussed Problem Formulation and Toxicological Studies,stating that various studies and strategies are applicable to formulations containing either chemical or microbial active substances.She highlighted experiences showing no significant influence related to the nature of active substance in in vivo studies.The presenter proposed moving towards in vitro studies and New Approach Methodologies(NAMs)but questioned their applicability to microbial pesticides with respect to the solubility of testing items,their interference with the detection methods and their standardisation using relevant negative and positive controls.Then,Korinna WEND discussed the Acute Toxicity Estimate(ATE)calculation method,questioning its applicability for predicting acute toxicity for microbial pesticide formulations.She mentioned a comparison of results from in vivo studies and ATE calculations for chemical pesticides and the methods discrepancies and proposed the need for improved calculation tools.The presentation suggested differentiating precautionary sentences for labelling based on evidence of sensitising properties for microbial pesticides.The speaker made available a German proposal using may have the potential for formulations with no sensitising properties and may cause for those with evidence of sensitisation.She highlighted that this proposal aligns with the European Classification,Labelling and Packaging(CLP)approach,although microbials are excluded from this regulation.Korinna WEND mentioned EFSAs proposal for assessing the toxicological profile of co-formulants in formulations containing chemical active substances,which will also be necessary for microbial formulations.She discussed the importance of gathering information from various legal frameworks,even outside the EU,for the toxicological evaluation of co-formulants and highlighted EFSAs four-step approach.The presentation highlighted a recent publication that provides an overview of microbial pesticides with respect to human health safety assessment.She acknowledged the collaborative effort of the working group and expressed gratitude for the internal reviewers who contributed to the publications success.It was clarified that the proposed modification to precautionary sentences in labelling applies to the same strain.Korinna WEND elaborated that while the four sentences are documented in scientific literature,the 29 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 differentiation proposed for labelling is not yet in place.Concerns were expressed about overcrowding labels with excessive information,and suggestions were made for simplifying it by only including two sentences related to potential harm.Indicators of Pathogenicity:Informing Decisions on the Need for in vivo Testing for Microbials Leah ZORRILLA(Bayer,United States)and Sara LAMPERTI(Corteva,Italy)Leah ZORRILLA:Human safety assessments for biopesticides should be focused on specific strategies suited to the unique characteristics of the test material and not use irrelevant testing strategies by default for small molecules or proteins.In order to establish criteria on how to address human safety areas of potential concern,the following questions need to be addressed:1)Is the natural substance a potential human pathogen?2)Is the natural substance capable of causing infection?3)Does the natural substance have toxic or genotoxic properties?4)Does the natural substance have the capability to produce clinically relevant antibiotics or contain clinically relevant antibiotic resistance markers?In order to evaluate these questions,we must consider using new approach methodologies(NAMs)or whole genome sequencing(WGS)where possible to avoid unnecessary animal studies and outdated testing strategies,which includes limiting the number of pathogenicity studies required to prioritizing the relevant route of administration based on human exposure.Currently,we are able to gain relevant and reliable information in the public literature on many common microorganisms.This information can be used to help identify what types of information could be required for regulatory purposes.In addition,the most critical data to assess toxicological needs is the WGS information which can address secondary metabolites of potential toxicological concern.This data can significantly reduce the need for animal studies(i.e.absence of sequences to known pathogens,toxicants,clinically relevant antibiotics etc.).Pathogenicity and acute toxicity studies could also be considered to be required on an as needed basis,as the pathogenicity studies are usually confirmatory that no evidence of disease or infection occurs(due to the WGS data).NAMs for the acute“6-pack“studies can also be considered as there are no validated test methods to evaluate skin sensitisation;and there are opportunities to explore alternative testing for eye and skin irritation.In summary,problem formulation for human health risk assessments of biopesticides need to consider the current guideline studies may not be the 30 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 “gold-standard“used to evaluate for microbial pesticides.Understanding the potential secondary metabolites,via WGS,could be an opportunity to focus on direct assessments of microorganisms.Building and validation of a database containing sequences with potential hazards and genomic actors of concern need to be developed,consistently updated,and widely available.In addition,validation efforts of NAMs for microbials could support eliminating testing requirements if successful.Critical to these efforts is global harmonisation of testing strategies to reduce the number of in vivo tests to accurately predict potential human hazards.Leah ZORRILLA discussed Problem Formulation considerations for human health safety assessments of biopesticides.She emphasised the overall goal of establishing a globally harmonised strategy for evaluating biopesticides within her company and ensuring consistency across regions.The speaker proposes four key points:1)Tailored Strategies to the unique characteristics of Biopesticides,2)Establishing Specific Criteria on what to address,3)Limiting Pathogenicity Studies,and 4)Utilising Advanced Techniques and Databases.She emphasised the need to define clear criteria for Problem Formulation from a human safety perspective.This includes identifying potential hazards such as human pathogenicity,infectivity,toxicity,genotoxicity,and the production of relevant antibiotics or clinically relevant antibiotic resistance markers.New approach methodologies(NAMs)and techniques such as whole genome sequencing(WGS)were suggested for exploring potential future reduction in reliance on animal testing.Leah ZORRILLA suggested limiting the number of pathogenicity studies,questioning the necessity of conducting all four routes of administration in some regions.Selective confirmatory animal studies based on literature reviews and WGS data may suffice in many cases.She suggested leveraging advanced techniques like WGS to identify potential risks early in research and development with respect to pathogenicity and secondary metabolite production.She stressed the need to understand secondary metabolites better and suggested building and validating databases similar to the allergen database for proteins.Additionally,she mentioned the opportunity to validate non-animal skin and eye irritation methods for microbial pesticides.She expressed the opinion that the generation of data for microbial human health safety assessments should be guided by the foreseeable risks of these products.The current pathogenicity,infectivity and toxicity might not identify all the questions that need to be answered.She closed by highlighting the availability of tools beyond animal studies,the necessity of building and validating databases containing sequences of genomic actors and the importance of global harmonisation to reduce unnecessary in vivo testing.Sara LAMPERTI:As part of the safety evaluation of microbial biopesticide,Whole Genome Sequence(WGS)plays a key role.WGS is a process to determine the complete DNA sequence of an organisms genome,using high-throughput sequencing technologies.It provides a comprehensive view of an organisms genetic makeup.Relevant methods used for WGS analysis are:Next-generation sequencing(NGS):short read(most common);Single-Molecule Real-Time(SMRT)31 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 sequencing:Long reads(better choice),Nanopore sequencing:Long reads and portable.WGS is used to identify microorganism at strain level,to confirm the absence of known genes involved in pathogenicity(cluster toxins),to develop a phylogenetic tree(showing the strain is phylogenetically away from pathogenic strains),to identify antimicrobial resistance(AMR)genes;and to explore genome to predict secondary metabolites or exclude the metabolites of potential concern.The effectiveness of WGS is obviously related to the availability of correctly annotated sequence information in the relevant databases.Whole genome sequence can be very effective to inform the risk assessment helping the evaluation of the safety of microorganism and their registrability with a significant reduction of animal use.Sara LAMPERTI continued the presentation by expanding on the potential use of WGS in risk assessment,as a technology that has the potential to determine the complete DNA sequence of an organisms genome and presented the most common methods applied,such as next-generation sequencing(NGS)and single-molecule real-time(SMRT)sequencing.She pointed out SMRTs benefits in decreasing the level of errors in the interpretation of the genome.As a technology,WGS has its advantages,limitations and uncertainties.Limitations exist with sequence information in databases rather than with the actual technique that must still be overcome in relation to correct annotations.However,she highlighted WGS as having advantages as a process for companies to understand the potential registrability of a strain well in advance before performing any animal testing,for example,related to pathogenicity.Sara LAMPERTI discussed the use of WGS and listed the following applications:1)identifying microorganisms at strain level;2)confirming the absence of genes related to pathogenicity;3)building phylogenetic trees for certain strains and species;4)identifying antimicrobial resistance genes,especially for bacteria;and 5)predicting potential secondary metabolite production of concern.By applying this approach,she finally illustrated through an example how WGS data can help evaluate the potential production of specific secondary metabolites of concern in a microorganism by comparing gene sequences between a target strain,the fungus strain under evaluation and a group of toxigenic strains that is considered as a positive control group for toxin production.During the Q&A session,it was clarified that there is a need to understand first the applicability of the WGS on a case-by-case basis,as data is not always available in databases before starting to talk about using WGS as a replacement for the existing standardised protocols.A comparison of WGS results with existing in vivo studies can also help to build confidence,and preliminary analysis,at least for some microorganisms,seems promising.For the moment,this technique is used to inform companies internal assessments to guide what additional information might be needed for the registration processes,but there are opportunities to be used within a Problem Formulation context recognising the associated uncertainties.The Group was reminded about the outcome of the EGBP Seminar on Bioinformatics,where the WGS was recognised as a valuable tool for targeted testing in the context of a Problem Formulation based risk assessment.Dialogue highlighted challenges regarding understanding the presence and location(chromosome vs plasmid)of antibiotic resistance markers within microorganisms,the 32 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 transferability of traits such as antibiotic resistance and secondary metabolites,and the opportunities to develop more tools and pipelines in relation to open-access databases.Additional Considerations for Pesticide Formulations Containing Microbial Pesticides Erik JANUS(Vive Crop Protection,Canada)The paradigm shift to Next Generation Risk Assessment(NGRA)is not a question of“if?,”but a question of“when?”There are many efforts around the globe to institute and accelerate this paradigm shift and for the regulation of microbial crop protection products in Europe,the application of NGRA is still in its infancy.The rejection of the European Sustainable Use Regulation in 2023 has increased the urgency of establishing predictable and transparent systems for Microbial Biocontrol Agents(MBCAs)and NGRA hold great promise as a flexible yet protective regulatory approach.The success of NGRA is closely linked to the magnitude of effort devoted to Tiers 0/1 of Problem Formulation,which has an expanded role in the new approach to risk assessment.The unique and special challenges that microbial active ingredients and formulations pose to regulators shall be reviewed.Erik JANUS started by acknowledging the previous speakers contributions,which set the stage.The topic presented arose from discussions within the International Biocontrol Manufacturers Association(IBMA)regarding next-generation risk assessment(NGRA)for regulating microbial pesticides.The presentation focused on Problem Formulation within the context of NGRA.Erik JANUS explained that NGRA maintains the same level of protection based on protection goals but expands the role of Problem Formulation.NGRA allows the capturing and highlighting of uncertainty and also provides flexibility as it is not a checkbox exercise but rather an approach towards understanding what information might not exist and how it might be collected.Building on this foundation,Erik JANUS presented the tiers of NGRA,starting with Tier 0,which involves the collection of existing relevant information,including application pattern(s),application rates,target pests and potential co-application with conventional pesticides.It also includes identifying genetic sequences,potential contaminants or secondary metabolites,and existing hazard information,including information on analogues,closely related organisms and other germane data that could be used for reading across and bridging.At this tier,identification of appropriate test methods,their limitations and analysis of data gaps takes place.Tier 0 allows for the starting of some predictions regarding toxicity and exposure that can support either exposure-based waivers or could lead to the next stage,which is the generation of hypotheses on how and what data would be needed to complete the risk assessment in the context of integrating approaches to testing and assessment(IATA).He shared a few examples where NGRA was applied to conventional chemical products and shared links to some interesting publications.Tier 1 covers weight-of-evidence approaches to assessing various data streams and determining appropriate test methods.The presentation stressed the importance of understanding the microbes 33 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 characteristics,mode of action,potential to colonise in the wild,beneficial effects,environmental impact,and manufacturing methods.WGS and other advanced tools like omics were considered to be informative for these types of assessments.Hazard information,including literature surveys,in vitro and in vivo data,and compatibility with other pesticides,can be used for product characterisation and understanding findings in test systems.Generating hypotheses for data needs covering various endpoints in risk assessment was emphasised,along with the importance of scientific exchange,confidence-building in new methods,and harmonisation of methods and data requirements.He closed by referring to NGRA efforts taking place in the EU under the Partnership for the Assessment of Risks from Chemicals(PARC)and from industry scientists and research consortiums.Industry Contribution on the Assessment of Innovative Biochemicals Rosa CRIOLLO(EMEA Regulatory Team Lead Biologics FMC Crop Life Europe/Crop Life International)and Emmanuelle BONNERIS(IBMA Chair of Natural Substances Professional Group)Rosa CRIOLLO:CropLife Europe drafted a Biochemicals contribution document(hereafter CLE Biochemical contribution document),with the objective to identify and to propose a suitable data package to address EU Regulatory framework for innovative biochemicals in the EU.Lessons learnt from Regulations(EU)No 283/2013 and No 284/2013,and knowledge from other regulatory bodies addressing the human health and environmental safety of any novel technology have been considered in this document.The CLE Biochemical contribution document considers addressing justifications as referred to 1.5 of the introduction of the Annexes of Regulations(EU)No 283/2013 and No 284/2013(not necessary owing to the nature of the plant protection product or its proposed uses,or it is not scientifically necessary).Where applicable,this document makes use of approaches developed under guidance documents such as SANTE/12815/2014 rev.5.2 and SANCO/11470/2012 rev.8.The following draft case studies are in discussion under CLE technical commenting:Case study 1-Dead cells,Case study 2-Metabolites from micro-organisms(purified),Case study 3-Peptide(s)-based Plant Protection Product(PPP),including antibodies&enzymes,Case study 4-RNA-based active substances,Other cases,under development.The CLE Biochemical contribution document describes how an applicant may prepare a dossier for the assessment under the“need to know”principle,in the context of an approval or renewal the approval of a biochemical active substance.It considers different but precisely defined technologies,defining data requirements to cover a wide range of novel technologies biopesticides.The CLE approach focuses on identifying what studies(data package)would be the most suitable scientific data to address biochemical pesticides(common and specific)input from 34 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 expert teams familiar with Regulations(EU)No 283/2013 and No 284/2013 was established.Based on feedback from EU COM BioPP WG in Nov-22,with the aim to collect,and to communicate aggregated figures to the EU COM and Member States to encourage development of a fit for purpose regulatory framework for“Biochemicals”,CLE launched a SURVEY on biochemicals in EU(Dec-23 to Mar-24).The anonymous survey of 6 questions attempts to map out the potential number and type of biochemicals(e.g.,proteins,enzymes,RNA,etc.)that could enter in the EU market in the coming years.CLE members have shared the link to this survey with other companies/trade associations to invite them to complete the survey.The survey is publicly available and managed by a third-party legal firm.CLE considers this Contribution document can be a valuable starting point in the development of a regulatory framework for Biochemicals with the goal to have a fit for purpose data requirements in Europe for novel biopesticides,as already in place in other OECD countries.Can OECD support the EU COM BioPPP WG in the development of technical guidance documents addressing the absence of EU technical data requirements for novel biopesticides?The presentation consisted of two parts.The first part focused on the efforts of CropLife Europe to propose a regulatory framework for registering innovative biopesticides in the EU,covering primarily biochemical products.emphasised the need for a regulatory framework in order to introduce innovative plant protection products to the European market.CropLife Europe has a dedicated team,the biopesticides expert group,tasked to work on collaborative projects relevant to the subject.One of the projects aims to address the lack of regulatory definition for biochemical pesticides in Europe by compiling examples of biochemicals registered as plant protection products in different OECD countries.Rosa CRIOLLO outlined the objectives of the draft biochemical contribution document.She emphasised the proposal for a suite of data requirements in the document that align with regulatory standards present in Europe while considering the unique characteristics of biochemicals and providing flexibility.The document takes into consideration lessons learned from the registration of these innovative biopesticides in other jurisdictions and the experience built with the European registration processes related to biopesticides by identifying suitable risk assessment considerations.The presenter mentioned an already placed early engagement with the EU Commission Biopesticide Working Group and the launch of a survey to gather industry input on the approximate number of biopesticide submissions in Europe expected in the coming years.Rosa CRIOLLO discussed the challenges of drafting a regulatory framework for innovative biopesticides,which proposes a tiered approach,recognising the need for flexibility to accommodate diverse technologies.She stressed the importance of assessing the safety of these products and following a Problem Formulation approach while recognising the challenges of predicting future submissions and technological advancements.The presentation offered insights into the ongoing work relevant to the development of case studies and the preparation of a suit of data requirements to answer questions authorities might have,highlighting the collaborative efforts between industry members.She invited the 35 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 participants to consider the draft biochemical contribution document in the development of a regulatory framework that provides clarity or in the preparation of the overarching document.Rosa CRIOLLO and Emmanuelle BONNERIS:While data requirements are the same for all active substances falling under the scope of Regulation(EC)1107/2009,it is acknowledged in Regulations(EU)No 283/2013 and 284/2013 that some of the data requirements may not be needed if adequately justified,as indicated in the respective introductions in their Annexes(point 1.5);and this point of the regulation may be applied to biopesticides with relevant data requirements requested to support registration dossiers.Specific EU Guidance Documents have been developed for plant extracts/botanical active substances,semiochemicals,and micro-organisms,but they cannot apply to all categories of biochemicals such as peptides,for instance.In this context,CropLife Europe(CLE)and the International Biocontrol Manufacturers Association(IBMA)decided to develop specific tools to address data requirements suitable for novel technologies.These will be presented at this Seminar on“Problem formulation for the risk assessment of biopesticides”:The“Data decision Tree”was developed by IBMA,to support the regulatory evaluation process by highlighting the relevant potential risk areas for natural substances.The Decision tree is published and forms one of the background documents for the seminar and the Natural Substances Decision Tree including 3 case studies was presented in DG SANTEs Biopesticides Working Group(6 June 2023).The“Scientific Contribution Document”was developed by CLE,with the objective to identify what data and risk assessments requirements are suitable for those technologies.CLE presented its contribution document in one of the DG SANTEs Biopesticides Working Group in Nov-22 and in Nov.23.Both initiatives under the need to know principle should be considered as the starting point for further development of specific guidance documents addressing the specific technologies.From the IBMA survey of 26 member companies completed in March 2023,9 peptides both identical to nature(5)or modified(4)were communicated as ready for submission in the EU between 2023 and 2028.At the end of 2023,Crop Life Europe(CLE)launched an anonymous survey of six questions to map out the potential number and types of new biochemicals(e.g.,proteins,enzymes,dsRNA,etc.)that could enter in the EU market in the coming years.The objective of this survey is to communicate aggregated figures to the EU Commission and Member States soon for focused guidance documents and regulatory data requirements developments.To demonstrate the value of their contribution in this reflection,CLE and IBMA 36 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 also decided to run a case study exercise,the case study“Peptides based technology”from the CLE document being run via the IBMA Decision Tree to explore applicability of the decision tree to highlight the relevant potential risk areas for peptides.From this exercise,CLE and IBMA consider these complementary tools that together could provide a good starting point for authorities to develop further guidance documents on peptides and novel technologies.In the second part of the presentation,the focus shifted to a joint initiative between CropLife Europe and IBMA regarding peptide-based plant protection products introduced by Rosa CRIOLLO.Then,Emmanuelle BONNERIS discussed the development of a data decision tree that was already published in June 2023 to identify potential risks associated with natural substances used in plant protection and its implementation for peptides that are in the pipeline.The intention of the decision tree was explained to be used for preparatory meetings between registrants and authorities.The proposed decision tree is a flowchart with five branches,which cover identification,characterisation,analysis of the effects on humans,residues and environmental fate behaviour and effects on non-target organisms.The idea is to go through a succession of questions and focus on relevant risk areas to address by testing after discussing with the authorities.She described how this framework guides the assessment of specific technologies,such as peptides,and facilitates discussions with regulatory authorities.Using the peptide case study,Emmanuelle BONNERIS walked the participants through the various steps of the decision tree that are linked to data information sources,noting that it is based on the need-to-know principles.Overall,the two presenters concluded that for innovative biopesticides,there is a need for a harmonised regulatory framework that takes into consideration ongoing regulatory and research initiatives on Problem Formulation.They emphasised industrys engagement with regulatory agencies in this dialogue and outlined efforts in developing decision trees and case studies to ensure the safety and compliance of new technologies relevant to biopesticides with regulations and to facilitate the way these products are brought to the market.37 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 Presentation Slides All presentation slides can be found online at Seminar on Problem Formulation for the Risk Assessment of Biopesticides-OECD 38 REPORT OF THE 12TH EXPERT GROUP ON BIOPESTICIDES SEMINAR ON PROBLEM FORMULATION FOR THE RISK ASSESSMENT OF BIOPESTICIDES OECD 2024 Summary of the presentations The seminar stemmed from a previous CRP-sponsored event on Innovating Microbial Pesticide Testing,which identified the need for an overarching guidance document to determine when in vivo tests are necessary ENV/CBC/MONO(2023)10.Problem Formulation,a common practice in pesticide risk assessment,was highlighted as an approach for addressing uncertainties in data requirements for biopesticides.The seminar featured presentations from various perspectives,including industry,regulatory bodies,and academia.Topics included the history and principles of Problem Formulation,industry perspectives with respect to Problem Formulation and how it is applied internally for microbial pesticides,regulatory approaches(Australia,Canada,European Commission,US),and specific case studies.Challenges unique to biopesticides were discussed,such as the lack of standardised in vitro testing methods and the complexity of microbial mixtures.Other considerations included the use of Whole Genome Sequencing(WGS)to minimise animal testing,understanding exposure patterns,and the importance of product identity and active ingredients in Problem Formulation.The seminar explored innovative risk assessment approaches,such as the NGRA(Next Generation Risk Assessment)currently discussed for conventional chemical pesticide assessments.Furthermore,the presentations covered industry approaches for assessing biochemicals,and decision trees for guiding risk assessment processes.Overall,the seminar provided an overview of the challenges,considerations,and potential solutions in harmonising Problem Formulation for biopesticide risk assessment.It emphasised the need for collaboration and discussion to develop Problem Formulation guidance for biopesticides.Summary of the break-out groups discussions Participants engaged in breakout groups to address specific topics.Following the presentations,the seminar participants were split into four groups,and they addressed the questions using examples listed in Annex B.Breakout group 1:harmonising the case-by-case approach for the risk assessment:The first group discussed harmonising Problem Formulations for biopesticide risk assessment.It identified critical harmonisation elements that included the products nature,mode of action(MOA),us
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Prepared by Macro and Green Finance Lab,National School of Development at Peking University;Climate Bonds Initiative;and United Nations Development Programme(UNDP)Financing the climate transition in Chinas agri-food systems:toward net zero,resilience and justiceFinancing the climate transition in Chinas agri-food systems 2Dr MA Jun Director,Macro and Green Finance Lab,National School of Development,Peking UniversityPresident,Institute of Finance and SustainabilityChairman,Green Finance Committee,China Society for Finance and BankingThe climate transition of our agri-food system is of paramount importance for the sustainable development of China.As a developing country with a population of over 1.4 billion people,China attaches great importance to food security and sustainable agricultural development.However,the practices of many firms and small farmers in the agri-food sector in China have yet to fully align with the decarbonisation and climate-resilient goals.Meanwhile,due to the large number of smallholders in Chinas agri-food sector and their relatively high climate-related exposure and vulnerability,it is critical to ensure this climate transition is just and inclusive.Finance can play a pivotal role in promoting a just and inclusive climate transition.With Chinas ongoing efforts to develop transition finance in accordance with the G20 Transition Finance Framework,and the inclusion of agriculture as one of the focal sectors,agri-food corporates and financial institutions will be provided with clearer standards and guidance to operate climate mitigation and adaptation projects.We also expect financial and fiscal incentive policies to catalyse more private capital into agri-food climate transition activities,by reducing related costs and risks.We believe that just transition considerations should be incorporated into other pillars of the transition finance eco-system,including standards,information disclosure,financial instruments,and incentive policies.Efforts should also be made to explore an integrated approach towards using transition finance,supply chain finance and blended finance instruments in the agri-food industry.ForewordSean KidneyCEO,Climate Bonds InitiativeIn a world grappling with the severe impacts of climate change,the role of finance in steering the transition towards a more sustainable future cannot be overstated.The urgent need for transition is especially evident in the agri-food sector.Revolutionising agri-food systems not only addresses the challenges of climate change,but also acts as a safeguard for food security and nutrition for present and future generations.Thus,there is great urgency to get finance flowing into the agri-food sector and speed up the transition to more sustainable practices.China has already shown dedication and commitment to sustainable development,taking proactive measures to speed up the transition.This includes the development of the NDRCs low-carbon transition catalogue,and the development of a transition taxonomy by the Peoples Bank of China.Furthermore,local governments have established regional transition standards,demonstrating proactive and innovative steps towards a greener future.With these outstanding achievements in the climate finance market,China holds the experience,and immense potential to redirect capital flows towards sustainable agriculture,whilst building more resilient food systems.This report identifies investment opportunities and hotspots in the agri-food system that can accelerate Chinas transition and support the achievement of its climate goals.It offers guidance on how transition finance can catalyse entity transitions and unlock greater private capital to foster the sustainable evolution of Chinas agri-food system.By directing capital towards climate transition activities and leveraging the power of transition bonds in the agriculture sector,we can mobilise the resources needed to catalyse transformative change,build net-zero and resilient food systems,and enable a just transition.Ms.Beate TrankmannResident Representative,UNDP ChinaAs the global community tackles the escalating impacts of climate change,the call for a whole-of-society transition becomes increasingly urgent.The agri-food system,not only a cornerstone of lives and livelihoods but also responsible for nearly one-third of global greenhouse gas emissions,stands at the forefront of this challenge.This report,a collaborative effort with Climate Bonds and the Macro and Green Finance Lab at Peking University,delves deep into the financing mechanisms essential for catalysing the transition of Chinas agri-food system towards net-zero emissions,resilience,and inclusivity.Bridging the sectors financing gap is not only a financial challenge but also a profound opportunity to correct pathways,and a shift to a sustainable socio-economic model where people and nature coexist in harmony.This report also underscores the critical need for a just and inclusive transition.Our research illustrates how targeted financial instruments and policy incentives are crucial to enhance the adoption of sustainable practices,particularly among more vulnerable players such as smallholders.These are often the stakeholders most vulnerable to climate impacts yet vital for the food security of billions of people.The low-carbon and just transition of the agri-food system can contribute to several sustainable development goals(SDGs).To this point,the report provides valuable ideas for policymakers,industry leaders,financial market practitioners,development agencies,and stakeholders in the ecosystem for collective action which aims at leveraging financial innovation reshaping the agri-food sector and unlocking significant potential in advance of the 2030 Agenda for Sustainable Development.We extend our gratitude to all the partners and experts who contributed to this report,offering both domestic and global perspectives.As we move forward,UNDP is committed to translating these insights into actionable strategies that support sustainable development and equitable growth,ensuring that no one is left behind in our journey towards a sustainable future.Financing the climate transition in Chinas agri-food systems 3Executive SummaryThe urgency of Chinas agri-food system to transition towards net zero and climate resilience is unquestionable.Agri-food systems are responsible for about 21%-37%of global total GHG emissions but also face considerable climate risks which make them a critical factor in both climate change mitigation and adaptation efforts.Furthermore,aligning the climate transition of the agri-food system with the Sustainable Development Goals(SDGs)is crucial to ensure justice and inclusivity especially given the role of the sector as a major employer in rural areas.China,as a major producer and consumer of agricultural products and food and a country feeding 1.4 billion people,ought to prioritise a just and inclusive agri-food system climate transition.Significant funding gaps exist to facilitate this transition.Only 4.3%of global climate finance(approximately USD28.5bn in 2020)is allocated to agri-food systems,which is only one-seventh of that required to transition the sector.While climate finance for the agri-food sector mostly comes from fiscal funds and development finance institutions,mobilising significant private capital is imperative to bridge the financing gap.However,the agri-food sector faces multiple financing constraints,andChinas current policy schemes on green and inclusive finance are incompatible with the climate transition needs of the agri-food system,calling for further policy coordination and financial innovation.Considering the numerous small-and micro-sized entities(farmers,SMEs,etc.,)within the agri-food system,financial instruments supporting its climate transition must also address the needs of SMEs and small market players to avoid exacerbating social inequalities and ensure a broader sharing of the benefits of climate transition.Transition finance has a critical role to play in mobilising private capital to support a just and inclusive climate transition of Chinas agri-food system.Despite the efforts by Chinas financial regulator to establish Chinas transition finance system and to prioritise agriculture in the transition agenda,innovation in transition finance instruments for agri-food systems remain nascent.Currently,these transition finance instruments are primarily in the loan and bond market,while instruments like private equity venture capital IS private equity,insurance,carbon credit finance,blended finance,and supply chain finance also show potential.Notably,large agri-food companies need to take a leadership role to mobilise and support their suppliers and more SMEs in this transition(Chapter 2.3).Several factors hinder the financing of the climate transition of Chinas agri-food system,which is impeded by insufficient climate-related information disclosure,the lack of credible transition plans,omission of scope 3 emission reduction by agri-food entities,and inadequate policy incentives.Better coordination across existing financial,fiscal,and industrial policies can further realise the potential of finance supporting Chinas agri-food climate transition and aligning it with the SDGs.This report makes the following policy recommendations to tackle the identified obstacles:1.Regulators should enhance climate-related information disclosure in the agri-food sector by establishing agri-food GHG emission accounting standards,information disclosure requirements,and monitoring system;2.Regulators should guide and support agri-food entities in developing credible transition plans with clear regulatory requirements and technical assistance;3.Governments should establish an enabling policy environment and strengthen policy incentives by a)establishing transition finance incentive policies focusing on the transition of agri-food supply chains,b)creating synergies between transition finance and inclusive finance policies,c)tilting existing agriculture supportive policies towards agri-food climate transition activities;and d)enhancing the governments role as agri-food bond issuer.Acronyms and Abbreviations CCER Chinese certified emission reductionDFI Development finance institutionGHG Greenhouse gasMDB Multilateral development bankPE Private equitySDG Sustainable development goalSLB Sustainability-linked bondSLL Sustainability-linked loanSME Small-and medium-sized enterpriseUoP Use of proceedsVC Venture capitalVCM Voluntary carbon marketContentsForeword 2Executive Summary 31.The imperative transition of Chinas agri-food system 42.Financial instruments and their role in the agri-food systems climate transition 63.Releasing finance for Chinas agri-food systems climate transition 124.Conclusions 16Financing the climate transition in Chinas agri-food systems 41.The imperative climate transition of Chinas agri-food systems Developing an agri-food system that can withstand the ramifications of climate change is crucial to ensuring food security.As a key producer and consumer of agricultural products with a substantial population,China must urgently transition its agri-food system to net zero and be climate resilient to limit the impacts of global warming.The agri-food system plays a vital role in both mitigating and adapting to climate change.It contributes about one-third of global greenhouse gas(GHG)emissions.1 At the same time,the agri-food system faces considerable exposure and vulnerability to the impacts of climate change,necessitating urgent improvements in its adaptation and resilience to climate-driven events.Moreover,considering the close connection between the agri-food system and multiple UN Sustainable Development Goals(SDGs),along with its impact on the worlds most vulnerable populations,ensuring a just transition for the sector is crucial.1.1 The role of the agri-food system in climate change mitigationThe terms food system and agri-food system are often used interchangeably.According to the Food and Agriculture Organisations(FAO)definition,the food system encompasses all participants and their related activities in producing,storing,processing,distributing,consuming,and disposing of food products from crop cultivation,livestock,and fisheries.2 According to the IPCC,217%of global greenhouse gas(GHG)emissions are attributable to agri-food systems;arising from agriculture and land use,storage,transport,packaging,processing,retail,and consumption.3 Notably,methane emissions from rice cultivation,enteric fermentation in animals,manure management,and nitrous oxide emissions from using nitrogen fertilisers in agriculture are a particularly significant source of GHG emissions globally.4 In 2019,Chinas GHG emissions from the agri-food system exceeded 1.9 Gt CO2e,making it the largest food-related emitter in the world.5,6 China is responsible for one-tenth of global food emissions while feeding 18%of the worlds population.However,Chinas per capita emissions from food are expected to rise with increased demand in the future.Given growing global demand for food and materials,including bioenergy,GHG emissions from agri-food systems are projected to rise 30%to 40%by 2050 if unchecked.7 All things considered,this increase would contribute to worsening of climate change globally,including growth in the number of climate change-induced disasters,deaths,and diminished social stability as food systems and wider societies struggle to cope with unpredictable and extreme weather events.Notably,the agri-food system also has significant potential for mitigating climate change.Research indicates that by enhancing food systems and adopting low-emission and carbon sequestration practices,emissions from the agri-food sector could be reduced from the current level to-2.0 CO2e per year without relying on carbon offsets,while meeting the growing demand for food.8,9 With the increased focus on emission reduction policies,GHG emissions from Chinas agri-food system could be reduced by 70%by 2060,potentially dropping to 651 million tonnes of CO2e.10 Climate transition in the agri-food system can effectively support lowering GHG emissions and support the transition towards a more sustainable food system.This can be achieved through the adoption of sustainable agricultural practices,such as improved soil management,sustainable livestock systems,agroforestry,renewable energy utilisation,enhanced land carbon sequestration,dietary changes,and technological innovation.1.2 The need for climate change adaptation in the agri-food systemThe agri-food system is also particularly vulnerable to the impacts of climate change.Frequent and intense weather events like floods and droughts,shifts in temperature and rainfall patterns,and increased occurrences of plant diseases and pests,can drastically disrupt crop yields and threaten food supply stability.Similarly,extreme weather events and temperature fluctuations can lead to outbreaks of livestock diseases and reduced production.Studies have found that climate change causes around one-third of the variability in global crop yields.11 Without adequate adaptation measures,climate change could reduce global food production by 5-30%by 2050 compared to current levels.12 Extreme weather events can also damage the infrastructure of the agri-food supply chain,such as warehouses and transportation networks,leading to disruption in food supply and market price volatility.Between 2008 and 2018,China experienced agricultural losses totalling CNY976bn(USD145bn)due to extreme weather.13This uncertainty in the market and agricultural productivity can pose a threat to food security both in China and worldwide.Notably,vulnerable groups,including low-income communities already struggling with food scarcity and small and micro-farmers,are disproportionately affected by decreases in food production and price instability caused by climate change,frequently leading to unplanned migration to urban centres in search of work.Therefore,developing an agri-food system that can withstand current and future climate change impacts is crucial,strengthening resilience and minimising losses to ensure food security.The Global Commission on Adaptation has identified food systems as a priority area for urgent action on climate change adaptation,emphasising the necessity of supporting small-scale and micro-farmers in maintaining and improving their livelihoods while safeguarding food security.14Financing the climate transition in Chinas agri-food systems 51.3 A just and inclusive transition The agri-food system touches multiple vulnerable populations,including farmers,small and micro-entities,and women.Due to limited adaptation capacity,these groups face heightened exposure to the impacts of climate risks,such as floods and droughts that can harm crops and reduce yields,with limited capacity to adapt,hence making them more susceptible to adverse impacts.It is paramount to ensure that the climate transition of the agri-food system is inclusive and equitable for these groups to avoid exacerbating social inequalities.While there is no internationally agreed-upon definition or scope for a just transition,both in agriculture and more broadly,several studies and initiatives have sought to clarify the concept and establish criteria.These efforts include the Guidelines for a Just Transition Towards Environmentally Sustainable Economies and Societies for All,the Principles for Just Food System Transitions and the Just Transition Principles and Criteria for Food Systems and Beyond.15,16,17 These guidelines underscore the relevance of the agri-food system to various SDGs.The climate transition of the agri-food system must prioritise mitigation and adaptation actions but also safeguard vulnerable groups,prevent the exacerbation of inequalities,strive to reduce existing disparities,ensure food security,eradicate hunger,enhance public health,generate fair employment opportunities,and promote gender equality(as shown in Figure 1-1).While Chinese policy documents do not current include a clear definition of the term just transition,China did support the establishment of the UNFCCC Work Programme on Just Transition Pathways,agreed at COP27.18 There are also some existing initiatives in China that share common ground with the principle of just transition,such as inclusive finance,rural revitalisation,and common prosperity,which support smallholders in the agri-food sector.However,agriculture and food security is another critical component of just transition in the agri-food sector,which China has identified as a key priority in its National Climate Change Adaptation Strategy 2035.This commits to establish pilot projects to evaluate technologies for agriculture adaptation and climate-smart agriculture,as well as climate-friendly low-carbon agricultural product certification.Figure 1-1:Climate transition of the agri-food system is linked to multiple UN SDGs1.4 Governance and policy framework for the climate transition of agri-food systemsHistorically,global efforts to combat climate change have predominantly targeted sectors such as energy,transportation,and construction,often overlooking the significance of the agri-food system.However,this situation has begun to shift in recent years.Initiatives such as the 2021 Glasgow Leaders Declaration on Forests and Land Use,which pledged to halt and reverse forest loss and land degradation,and the 2023 UAE Declaration on Sustainable Agriculture,Resilient Food Systems,and Climate Action at COP28,which garnered support from 70%of the worlds food-producing countries,point to a growing recognition of the pivotal role of the agri-food system in addressing climate change.These developments underscore a positive shift towards prioritising and acknowledging the importance of the agri-food system in the global climate agenda.Agri-food system GHG emissions are predominantly non-CO2 gases,mainly methane.19 Methane is a short-lived but very powerful pollutant and climate-forcing gas.Therefore,cutting methane emissions has dual benefits in mitigating climate change and improving air quality.Methane abatement is now starting to emerge as a political priority for action.For example,the U.S.-China Joint Glasgow Declaration on Enhancing Climate Action in the 2020s highlights the urgency of reducing methane emissions and specifies incentives and programmes to decrease agricultural methane emissions.Against this backdrop,the Chinese government is refining its policy framework to address climate change in the agri-food system.This includes prioritising climate change responses in macro-strategic plans such as the National Plan for Sustainable Development of Agriculture(20152030)and the 14th Five-Year National Agriculture Green Development Plan.Additionally,specific implementation pathways and supportive policies have been developed.20,21 The National Climate Change Adaptation Strategy 2035 identifies agriculture and food security as a primary focus area to enhance the climate change adaptability of economic and social systems,outlining strategies and action plans to improve the climate resilience of the agri-food system.Finally,China has undertaken efforts through its Action Plan on Methane Emissions Control,which prioritises work on rice cultivation practices,enhancing manure management,and reducing methane emissions from livestock ruminants.22 Climate transition of agri-food systemSource:Macro and Green Finance Lab,National School of Development,Peking University and Climate BondsFinancing the climate transition in Chinas agri-food systems 62.Financial instruments and their role in the agri-food systems climate transition2.1 The financing gap for the agri-food system climate transition It is estimated that food systems will require USD350bn per year globally until 2030 to meet climate mitigation and adaptation targets,yet a substantial funding gap persists.23 Currently,the climate transition of the agri-food system currently relies heavily on public funds,primarily in the form of grants and debt instruments,and faces a considerable funding gap globally.Research by the Climate Policy Initiative(CPI)indicates that only 4.3%of global climate finance,approximately USD28.5bn,is allocated to the agri-food system,which is only one-seventh of the estimated financial needs for climate transition in this sector(based on conservative estimates by the Food and Land Use Coalition).24 At present,climate finance for the agri-food system primarily stems from development finance institutions and governments,with limited involvement from commercial capital.This is the case both in China and globally.The main financing instruments include subsidies,grants,and debt financing at market-based interest rates,whereas equity financing instruments constitute a minor portion(as shown in Figure 2-1).A core part of the agri-food system transition is climate adaptation,for which estimates of the financing required vary considerably.A UNEP study reveals that developing countries will require USD387bn annually for adaptation by 2030,with agriculture being one of the sectors with the highest funding requirements(around 20%).However,the available funding for climate adaptation in developing countries is lagging and currently amounts to only a tenth of the required amount,resulting in a substantial funding gap.25 This is despite the fact that the enhancement of agricultural adaptation and resilience can yield considerable environmental,social,and economic benefits.According to the Global Commission on Adaptation,investing USD1.8tn in climate-smart agriculture and technologies could save approximately USD7.1tn in environmental,social,and economic value by avoiding climate change-related losses.262.2 Transition finance is crucial to bridge the financing gap Private capital can bridge the financing gap in the agri-food system transition referenced above but the sector faces unique financing challenges and increased costs,which require targeted financial innovations.Such challenges include long investment cycles,high environmental and climate risks,deferred returns on investment,and high uncertainty.A survey of 131 modern agricultural entities in China revealed that the average cost of financing was 7.38%in 2023,which is 37 basis points(bps)above the national average recorded by the Peoples Bank of China.27 These comparatively high financing costs can hamper motivation and efforts directed towards climate action.Meanwhile,the transition needs of the agri-food system are incompatible with Chinas current policy schemes for green finance and inclusive finance.The current inclusive finance system does not include climate change considerations,with some policies and products still supporting agricultural activities that hinder efforts to mitigate climate change.Meanwhile,green financing tends to prioritise pure green activities,leaving most emission-reducing or climate-resilient agri-food activities uncovered.This underscores the necessity to incorporate climate considerations into the inclusive finance system and broaden the inclusivity of the green finance system.Data source:Climate Policy Initiative(2023)Figure 2-1:Global climate finance supporting agri-food system(2019/2020)Project Level:Total,USD28.5bnFinancial instrumentsDevelopment finance institutions,USD12.5bnGovernments,USD9.5bnCommercial Finance institutions,USD1.6bnMultinational Corporations,USD0.94bnPhilanthropic Organisation,USD0.49bnDebt,USD12.7bnProject-level Equity,USD0.9bnCompany-levelVenture Capital,USD2.3bnOthers Grants USD10.8bnFinancing the climate transition in Chinas agri-food systems 7Transition finance has the potential to bridge these gaps.The G20 Transition Finance Framework defines transition finance as financial services supporting the whole-economy transition,in the context of the SDGs,towards lower and net-zero emissions and climate resilience,in a way aligned with the goals of the Paris Agreement.28 It employs five pillars to channel private capital into transitional economic activities,emphasising transition effects and justice at the same time(see Figure 2-2).Unlike green finance,which supports activities already deemed green,transition finance aims to fund entities and projects that are not yet fully green but have a clear transition plan demonstrating their commitment and ability to transition to net zero.The Chinese government is working on a framework for transition finance,with agriculture as a key focus sector.The Peoples Bank of China(PBoC)is spearheading the development of national transition finance standards,including agriculture and other pivotal sectors like coal and electricity,building materials,and steel.Additionally,several local governments have introduced region-specific transition finance guidelines.For instance,the Chongqing Transition Finance Support Project Catalogue(2023 Edition)incorporates agricultural low-carbon production among its supported fields.29 Leveraging these standards,the PBoC,in collaboration with a selection of local authorities,is implementing a range of specific policies to incentivise transition finance.These include structural monetary policy tools(targeted relending and rediscounting facilities for banks),interest rate subsidies and guarantees for transition-related loans and bonds,reimbursement for transition-related certification costs,subsidies for transition-related insurance premiums,and tax cuts for transitioning entities.30 These measures aim to mitigate the financing and certification costs associated with agri-food climate initiatives,enhance transition benefits,and encourage agri-food producers to embark on climate transition efforts,as well as increase the expected investment returns.Such supportive policies and schemes will provide a clear framework for agri-food entities to undertake a credible transition which in turn will facilitate the application of transition financing tools.With clear standards of agricultural transition project and agricultural transition entity,agricultural projects with significant emission reduction effects and agricultural entities with credible transition plans can get concessional funding and risk-sharing through transition loans,bonds,and insurance which are supported by the above-mentioned policy incentives.2.3 Financial instruments to support climate transition of agri-food systems With Chinas transition finance policy framework under development,market participants have already been exploring funding opportunities through instruments such as sustainability-linked bonds(SLBs)and sustainability-linked loans(SLLs).Private equity/venture capital(PE/VC),insurance,and carbon finance products can play an important role in supporting the climate transition of the agri-food system.Blended finance and supply chain finance solutions can also contribute to supporting an inclusive and Figure 2-2:Five pillars of the G20 Transition Finance FrameworkJust TransitionIncentive PoliciesInformation DisclosureFinancial InstrumentsDefinition Standardsjust transition of Chinas agri-food system if they are integrated with transition finance.With numerous small-and micro-entities in the agri-food system,large-and medium-sized corporates provide a fulcrum for transition finance.Therefore,loans and bonds should be designed to incentivise large-and medium-sized corporates to transition their supply chains towards net zero and climate resilience.Currently,financial instruments supporting the climate transition of Chinas agri-food system are in a very preliminary stage,lacking in diversity,scale,and maturity.Progress requires tackling these bottlenecks and implementing targeted transition finance practices at scale.Two main structures in transition debt financing tools are:1.Use of Proceeds(UoP)instruments:UoP debt mandates proceeds to be used for financing social or green activities,and it can support non-financial corporates and sovereigns in financing their shift towards sustainable production or procurement and a just transition.2.Performance-linked instruments:SLBs and SLLs where cost of capital is linked to key performance indicators(KPIs)achieving predefined sustainability performance targets(SPTs).These instruments can be used by a broad range of entities,in particular,those lacking the required assets to support UoP borrowing.2.3.1 Green,transition,and sustainability-linked loansSLLs have started to proliferate in the Chinese market starting with the traditional high-carbon industries such as energy,steel,and cement.However,several large companies in the agri-food industry have also begun exploring SLLs(see Case 2-1)and tried to set scientifically credible KPIs and SPTs aligned with the Paris Agreements climate goals and non-climate SDGs.31,32Although case 2-1 demonstrates how large-and medium-sized companies can use SLLs to decarbonise their scope 1 and scope 2 emissions,they can be used by these companies in scope 3 emission reduction within their value chains which contribute a substantial portion of their GHG emissions,sometimes exceeding 90%.33 To enable a complete and effective transition across agri-food systems,large-and medium-sized agri-food companies should incorporate sustainable supply chain management practices into the KPIs and SPTs of their SLLs,assisting smaller entities within their supply chains to reduce emissions and enhance climate resilience.Source:G20 Sustainable Finance Working Group(2022)Financing the climate transition in Chinas agri-food systems 82.3.2 Green,transition,and sustainability-linked bondsIn 2023,Climate Bonds reported USD160bn green,social,and sustainability(GSS)bonds with UoP earmarked for sustainable financing frameworks that include agriculture or fishery projects,out of USD871.9bn in total.Large and medium-sized agri-food entities can mobilise the local,regional,or global bond market to secure private capital investment.In 2023 China was the largest source of green bonds,with a volume of USD131bn(CNY940bn)originating from the country.34 Most originated from sovereign and government-backed entities and 41 green,social and sustainability bonds earmarked UoP to support initiatives within land use,including land remediation,reforestation,sustainable agriculture and food security.Chinese agri-food entities have yet to deploy SLBs.Figure 2-1 shows a breakdown of the use of proceeds on land use in China.In addition to these existing channels of GSS bonds,the transition bond market is at an early stage of development,with only a few leading agri-food entities beginning to explore the issuance of SLBs or transition bonds at the global level.By 2023,only USD6.2bn in cumulative volumes from issuers operating in the agri-food sector were identified in SLBs,of which Climate Bonds classified USD3.6bn as fully aligned with the Climate Bonds Standard.35SLBs and sustainability bonds can be leveraged to support a just transition within the agri-food system.Sustainability bonds are designed to encompass UoP to support a mixture of social and environmental project categories,while SLBs could select SPTs linked to decarbonisation and social KPIs highlighted in the transition plan of the issuer.Greenfood,a Swedish food company,for instance,successfully issued an SLB worth SEK1.05bn(USD0.097bn)in 2021.The bonds KPIs were linked to reducing scope 1 and 2 emissions,setting Science Based Targets initiative(SBTi)goals,and decreasing food waste.36 In the context of China,although the National Association of Financial Market Institutional Investors(NAFMII)and the Shanghai Stock Exchange have released guidelines related to SLBs and low-carbon transition bonds,market practices remain exploratory and primarily focused on high-carbon sectors such as energy,steel,and chemicals.To date,no Chinese agri-food entities have issued transition bonds or SLBs.However,the upcoming introduction of Chinas agricultural transition finance standard by PBoC,and associated incentive policies,are expected to incentivise transition finance market development among agri-food entities and financial institutions.Governments can help to attract crowding-in through sovereign GSS bonds.Over the past few years,an increasing number of national or regional governments have raised funds for sustainable development and climate transition in agriculture sector by issuing targeted sovereign and government bonds to grow the market.(Case 2-2)In 2023,Germany priced aligned sovereign green bonds amounting to EUR17.3bn(USD18.8bn)which included the largest allocation to agriculture among the sovereign GSS debt issuers.Germany is the second largest issuer of sovereign GSS debt and between 2020 and 2023,it had priced cumulative volume of EUR55.8bn(USD62.5bn).Up to 40%of Germanys 2023 UoP(EUR6.9bn/USD7.5bn)is earmarked for Land Use expenditures,supporting the development of forests,and organic and environmentally friendly farming practices.Its framework describes the Case 2-1:Muyuan Foods Co.,Ltd.51Case 2-2:Cultivating change:Germanys green bond strategy for climate resilient agricultureeligible expenditures as low-carbon farming and grants that could be used for research and carbon storage.According to ISS ESGs SDG assessment,Germanys proceeds towards Agriculture,Forestry,Natural Landscapes and Biodiversity contribute to SDGs 13 and 15.53 Germanys financing of agriculture is a model for other governments to follow,as sovereign nations can provide long-term financing to target the preservation of their land and the development of sustainable agriculture infrastructures.Moreover,sovereign green bonds can support grassroots-directed financing to facilitate more engagement across stakeholders in agriculture supply chains.In March 2021,Standard Chartered published its Sustainable Trade Finance Proposition which built the Loan Market Association(LMA)s SLL Principles into its trade-financing framework.This initiative encourages clients to improve disclosure,reporting,and definition of use,while meeting their ESG goals.The financial products involve supply chain finance,invoice finance,receivables services,bonds,guarantees,and letters of credit,which are all aimed at supporting more sustainable global supply chain activities.Muyuan Foods Co.,Ltd.(Muyuan)is one of Chinas largest agri-food enterprises headquartered in Nanyang City,Henan Province.In 2023,the company outlined a phased green and low-carbon action plan while setting its GHG emission reduction targets.52Leveraging the Groups sustainable trade finance framework,in May 2023,Standard Chartered Bank(China)Limited(Standard Chartered,China)provided Henan Muyuan Grain Trading Co.,Ltd.(Muyuan Grain Trading),a subsidiary of Muyuan,with its first sustainability-linked invoice financing loan.This loan aims to support Muyuan Grain Tradings procurement of raw materials and other operational needs.The SLL specifies installed photovoltaics capacity and carbon dioxide emissions per kilogram of pork production as key KPIs.The loans interest rate is linked to Muyuans performance in these areas,incentivising the companys low-carbon transition through financial mechanisms.Source:Climate Bonds databaseFigure 2-1:Chinese GSS deals with Land Use UoP have cumulative volume of USD6.7bnSocial 6 Sustainability 4Mainland China 23Local Gov-ernment 1Non-Financial Corporate 1China Hong Kong 18Financial Corporate 7Sovereign 18Government-backed entity 9Green 31Labels Number of issuersIssuance location Number of issuersIssuer type Number of issuersDevelopment Bank 5 UoP in total(USD bn):6.695 Number of Issuance:41Financing the climate transition in Chinas agri-food systems 92.3.3 Private equity and venture capital fundsAgri-food technology(agri-food tech)is a crucial contributor to achieving climate resilience in the sector,which requires substantial initial investment in R&D,entails long payback periods,and carries high technological and market risks.Agri-food tech entities are predominantly small and micro-entities with asset-light models,often lacking suitable collateral for debt financing tools such as loans and bonds.However,they are well-suited for equity investment and financing channels such as private equity(PE)and venture capital(VC)funds,which have a comparatively high Source:Intellecap(2023)54tolerance for risk,based on the potential for achieving relatively high returns.Such funds have longer investment horizons,and are therefore able to focus on the future growth potential of invested entities.According to AgFunders Global Agri-food Tech Investment Report,global agri-food tech investments totalled USD29.6bn in 2022,down 44%year-on-year which is largely in line with global VC marketsdespite a worldwide investment downturn caused by the pandemic,investments in climate-related segments continued to rise,emerging as the most focused area for investors in the agri-food tech sector.37 In China,PE and VC funds invested about CNY14 bn in the agri-food sector in 2023,of which agri-tech and associated services were the second largest recipient(15%)after food&beverage(39%).38Critical areas of agri-food tech contributing to climate change mitigation include decarbonising inputs,transitioning to renewable energy sources,improving waste management,enhancing energy efficiency,and implementing intelligent agriculture practices.Moreover,technologies such as remote sensing,drones,the Internet of Things(IoT),and artificial intelligence can monitor GHG emissions within agricultural supply chains.Agri-food tech can also contribute to the development and management of agricultural carbon credit projects(Figure 2-3).39Figure 2-3:Agricultural technologies for the climate transitionIntroductionTechnical efficiencyFeasibilityCarbon reduction benefitsTechnology maturitySocial benefitsFeasibility in low-and middle-income countriesSkills require-mentsEconomic feasibilityDecarbonisation of inputsTechnologies for low-or zero-carbon agricultural and livestock inputs,including the production of organic/biobased fertilisers,controlled-release fertilisers,biochar,low-carbon pesticides,and feed additivesRenewable Energy Technologies for substituting fossil energy sources in energy-intensive areas such as irrigation,mechanisation,livestock ventilation and aeration,and aquacultureWaste ManagementTechnologies for reducing GHG emissions from farm and livestock waste management,including microbial decomposition,biodegradation,nitrification,and urease inhibitorsEnergy Efficiency Technologies for optimising the use of fossil fuels upstream and downstream,including smart water controllers,energy-efficient pumps,small-scale farm cooling tanks,low-energy dryers,and automated sorting systemsSmart AgricultureLeveraging Agriculture 4.0 technologies(such as remote sensing,IoT,machine learning)to optimise resource use efficiency.This includes digital technologies for managing agriculture,livestock,and aquaculture,as well as reducing emissions through decreased use of fertilisers,feed,and agricultural chemicalsCarbon AccountingUtilising remote sensing,artificial intelligence,and IoT sensing technologies to monitor GHG emissions across the entire agricultural supply chainCarbon CreditsDeveloping and managing agricultural carbon credit projects using remote sensing,artificial intelligence,drones,etc.LowMediumHighFinancing the climate transition in Chinas agri-food systems 10The digitisation of Chinas agri-food sector remains relatively nascent compared to developed countries,with investment volume in agri-food technologies reaching just USD1.3bn in 2022.40 Nonetheless,progress has been made.Technology companies specialising in agricultural drones,agricultural IoT,and digital management systems for intelligent farms,which contribute to climate change mitigation efforts in the agri-food sector,are emerging in China.41 For example,XAG,a Chinese agri-tech company,introduced its first plant protection drones in 2015.By integrating intelligent agricultural equipments with an advanced smart agriculture management system,farms utilising XAG technologies can significantly enhance the efficiency of chemical fertilisers,pesticides,and water usage,as well as reducing fossil fuel and electricity consumption,consequently mitigating GHG emissions by 22%in total compared with a business as usual(BAU)scenario.38 These ventures have garnered attention and support from private equity and venture capital firms.2.3.4 Insurance for transitionThe agri-food sector is susceptible to a multitude of environmental and climate risks.Insurance products can provide risk-sharing mechanisms for various stakeholders within the agri-food sector,serving as essential tools to support sustainable investment.Green insurance has broad potential in this sector,encompassing environmental liability insurance for agricultural non-point source pollution,weather index insurance,cropland fertility insurance,forestry carbon sink index(price)insurance,grassland insurance,and ecological ranger insurance.42Beyond the physical climate risks,43 entities in the agri-food sector also encounter climate transition risks.These risks stem from new government regulatory policies and higher standards for emission reduction and carbon sequestration,uncertainties regarding technological advancements in these areas,and growing consumer preferences for climate-friendly products.Furthermore,given the dynamic and intricate nature of the transition,there is a high degree of uncertainty,posing risks of transition-washing for both financial institutions and consumers.Despite the fact that agricultural weather index insurance offers farmers and agribusinesses a means to mitigate the physical risks associated with climate,there are opportunities for innovation in insurance products to address climate transition risks of the agri-food system.44 For instance,given the high uncertainty inherent in R&D for agri-food tech,targeted insurance products such as R&D liability insurance,R&D equipment insurance,patent insurance,and project investment loss insurance would support agri-food tech entities and agri-food firms in their climate-focused R&D endeavours,facilitating the necessary financing.Agri-food entities and farmers contend with uncertainties throughout their climate transition journey,including policy,technology,and market dynamics.Insurance products tailored to address these uncertainties can alleviate the anxieties of agri-food entities and farmers as they navigate their climate transition efforts.Combining transition insurance with transition loans through bank-insurance collaboration can further help agri-food entities secure financing while mitigating the risk of perceived transition washing.Currently,transition insurance is still at a nascent stage with practitioners exploring key areas.The Green Insurance Classification Guidelines have incorporated innovative insurance products such as green Low-Carbon Technology Insurance,Low-Carbon Transition Insurance,Ecological Cultivation Insurance,Green Livestock Insurance,Green Fisheries Insurance,and Carbon Sink Insurance.452.3.5 Carbon financeCarbon financial products are financial instruments or investment vehicles for emission reduction or carbon sink activities,based on carbon allowances or carbon credits.There are three categories of carbon financial products:461.Financing instruments,such as carbon bonds,carbon asset collateral financing,and carbon asset repurchases;2.Trading instruments,such as carbon forwards,carbon futures,and carbon options;3.Supporting instruments,such as carbon indices,carbon insurance,and carbon funds.Agricultural emission reduction and carbon sequestration cover a spectrum of practices,including soil carbon sequestration,optimising fertiliser usage,mitigating animal methane emissions,and utilising biomass energy;all offering avenues for generating carbon credits.Before the suspension of Chinas carbon crediting mechanism known as China Certified Emission Reduction(CCER)in 2017,its methodologies embraced agriculture-related projects such as repurposing waste crop residue,reducing emissions from ruminants,implementing conservation tillage practices to curtail emissions and enhance sinks,as well as managing animal manure for biogas production and utilisation.In March 2023,the Ministry of Ecology and Environment(MEE)launched a public call for methodology proposals for voluntary GHG emission reduction projects,encompassing agricultural interventions within its scope.In January 2024,the MEE issued four new methodologies and restarted accreditation of new projects among which agriculture-related projects was not initially included.However,it is likely that additional CCER methodologies will be forthcoming,with potential for the agriculture sector to access this high-potential market.In order to realise this opportunity,further work is required to ensure the design of rigorous methodologies for project development and verification that address concerns such as data deficiencies and additionality.47 The launch of the national carbon trading system and the reinstatement of the CCER market has opened up significant opportunities for agriculture within the carbon credit arena.As a result,agricultural stakeholders may have the chance to utilise carbon credits obtained from emission reduction and carbon sequestration initiatives to access various carbon financial products.These products can broaden financing avenues,lower financing expenses,mitigate transition risks,and amplify transition advantages.Financing the climate transition in Chinas agri-food systems 112.3.6 Blended financeBlended finance refers to the use of concessional catalytic capital to mobilise additional capital towards sustainability,climate,and/or social targets.Concessional(public or philanthropic)finance is provided at below-market rates or as a grant.Commercial finance is provided at market rates,requiring positive risk-adjusted returns.While mostly private investment,commercial finance can also be provided by public investors.Blended finance is a structuring approach that enables private investment in development opportunities,increasing availability of financing without increasing cost of capital.Agri-food climate transition investment opportunities often have extended payback periods,diminished risk-adjusted financial returns,and heightened exposure to policy and technological uncertainties.Therefore,they may require risk-sharing or return-enhancing strategies to attract commercial finance.Concessional finance can improve the risk-return profile of agri-food climate transition investments through concessional investments,guarantees,insurance,grants,and technical assistance.This enhanced risk-return profile renders these investments more attractive to commercial finance(Table 2-2).Blended finance can enhance the risk-return profile of agri-food climate transition projects and attract a broader range of investors.Blended finance structures could be applied to address both mitigation and adaptation needs across agricultural inputs,farm production efficiency,agro-processing,and agro-forestry.48 49In China,even though the term blended finance is relatively new,related practices do exist and provide a good foundation for China to utilise this innovative mechanism in climate finance.Associated examples include the projects on rural revitalisation and green agricultural development supported by concessional loans from China Case 2-3:Rabobanks sustainability-linked supply chain finance programme with Coca-Cola55Coca-Cola has set goals to reduce its full value chain GHG emissions by 30%by 2030 from 2019 levels,and to achieve net-zero emissions across the value chain by 2040.Over 90%of Coca-Colas full value chain emissions originate from its supply chain.To reach its net-zero goal,Coca-Cola requires its suppliers to undertake three emission reduction actions:(1)set and get certified for SBTi targets by 2023;(2)switch to 100%renewable electricity by 2023;(3)disclose carbon footprint data to Coca-Cola.KPIs are set based on suppliers ESG scores.Building on this framework,Coca-Cola and Rabobank launched the first sustainability-linked supply chain finance programme in the global beverage industry in 2022.The programme is designed to support Coca-Colas suppliers in accelerating their climate actions.Within this programme,the financing rates offered to Coca-Cola suppliers for supply chain finance services reference sustainable KPIs,which include the three specified emission reduction actions and ESG scores.Suppliers can access more favourable financing rates if they meet predetermined sustainable KPI targets.Development Bank and Agricultural Development Bank,further mobilising commercial-rate social capital.Additionally,China has been engaging with international development finance institutions to mobilise private capital for sustainable development,with some several cases in the agri-food sector.For example,in 2020,the World Bank provided a 25-year concessional loan to support Henan Green Agriculture Fund,aiming to mobilise private capital into green agriculture investments in Henan Province.50 However,climate blended finance practices in China remain limited,and will not take off without policy support and better market awareness.2.3.7 Supply chain financeTransition finance instruments,such as transition loans/bonds and SLLs/SLBs,predominantly serve large-and medium-sized entities,given the prerequisites.Such prerequisites typically encompass meeting basic credit conditions and demonstrating climate transition planning,capacity,and information disclosure which can be a challenge for most small-and micro-sized entities(such as farmers and SMEs)within the agri-food system.In this case,integrating supply chain finance mechanisms with transition finance allows large-and medium-sized entities to assist smaller entities along their value chains for climate transition efforts.Supply chain finance mechanisms lean on the creditworthiness of key entities within the supply chain to offer credit enhancements and direct financing services to smaller entities.In Chinas agri-food sector,these supply chain finance instruments primarily take the form of accounts receivable financing.Banks can offer preferential funding directly to small and micro-entities operating within the supply chains of large agri-food entities.These entities are either actively involved in climate transition initiatives or exhibit commendable transition performance(see Case 2-3).Table 2-2:Blended finance instruments and toolsTypeToolRole of developmental(public)financeEquity investmentMezzanine financing (e.g.,first loss tranche)Quasi-equity(convertible bonds,convertible preferred shares)Improves the risk-return profile for commercial finance by prioritising loss absorption or subordinating profit entitlementDebt investmentInterest-free loansImpact bonds56Subordinated loansEnhances the risk-return profile for commercial finance by reducing financial returns or taking on more risk through subordinationGuaranteesCredit guaranteesSubsidised yield/market/price insurance(e.g.,weather index insurance,minimum volume insurance,hedging instruments)Reduces investment risk for commercial finance through credit guarantees or subsidised insuranceCombining innovative insurance tools can specifically guard against physical climate risks,climate transition risks,and transition washing risks,facilitating the mobilisation of commercial capital for debt/equity investmentsAssistance/GrantTechnical support/capacity buildingPerformance/results-based grantsBoosts the risk-return profile for commercial finance by providing free technical support/capacity building or grants based on climate transition performanceSource:Adapted from Convergence Blended Finance(2024)57Financing the climate transition in Chinas agri-food systems 123.Releasing finance for Chinas agri-food systems climate transition Large-and medium-sized companies in the agri-food sector are the pivotal players in transition finance for transitioning Chinas agri-food system.Despite the emergence of innovative practices in the market,the uptake of transition loans/SLLs for agri-food entities in China remains limited.Furthermore,other financial instruments,such as transition bonds,insurance,blended finance,and supply chain finance,have yet to be implemented in the agri-food sector.Several factors contribute to this,including a general lack of climate-related information disclosure by agri-food entities,the absence of credible transition plans(including sustainable supply chain management),and insufficient policy incentives.3.1 Disclosure of agri-food emissions can enhance accountability and measurement of progress Financial institutions require comprehensive information regarding GHG emissions,transition actions,and their efficacy to accurately assess agri-food entity performance in their transition or active transformation(i.e.,with high potential for future sustainability).Therefore,disclosure of credible and detailed climate-related information by agri-food entities can enhance accountability and provide confidence to financial institutions for transition financing.Based on data from 2023,disparities were uncovered in the ESG disclosures of agri-food companies listed on A-share/H-share markets in China.58,59,60 Only 77 out of 187 A-share listed agri-food corporates(41%)produced ESG or social responsibility reports,with only seven disclosing GHG emission-related indicators and targets.In contrast,among the 104 H-share listed agri-food corporates,63(61%)produced ESG or social responsibility reports,with the majority(59)disclosing GHG emission-related indicators and targets(Figure 3-1).Comparatively,while agri-food listed companies show slightly better performance in publishing ESG reports than A-share listed companies overall,the proportion disclosing GHG data is lower than the A-share average(Figure 3-2).This suggests that agri-food companies are lagging other industries in climate information disclosure,with regulatory policies leading to less adequate disclosure by mainland Chinas agri-food companies compared to those in developed markets like Hong Kong.Addressing inadequate climate-related information disclosure by Chinese agri-food companies requires the following:1.Setting out an agreed agri-food GHG accounting methodology to establish a common benchmark.Contrary to sectors such as electricity,industry,transportation,and construction,where GHG emissions are predominantly from industrial processes,the agri-food systems emissions arise from biological processes,which are dispersed and non-standardised.This complexity makes GHG accounting in agri-food systems particularly challenging,with methodologies and technical standards still under development.Reference models and guidelines already exist,such as the IPCC Guidelines for National GHG Inventories,the GHG Protocol Agricultural Guidance,and the FAO-GLEAM,as well as several domestic standards for agricultural sub-sectors.These methodologies need to be simplified or tailored to Chinas context to enhance their market application in China,addressing issues such as unapplicable accounting parameters and incomplete sets of indicators.612.Defining corporate emission boundaries.For agri-food companies,GHG accounting requires not only activity-based methodologies but also a clear delineation of emission boundaries,a challenge due to the multifaceted nature of agri-food business activities and complex supply chains.Key considerations include whether to include scope 3 emissions,emissions from indirect suppliers,and emissions due to land use changes.3.Data availability and accuracy.Accurate GHG emission data is vital for setting climate transition goals.However,obtaining accurate data is challenging,especially for emission sources like methane from soil and gases from agricultural inputs.Consequently,collecting such data from dispersed upstream and downstream agri-food entities is complex.Enhancing local agri-food emission factor databases can benefit accurate emission accounting.4.Clear pathways for emission reduction.Several guidelines and initiatives offer valuable references for emission reduction pathways in the agri-food sector,such as the Forest,Land and Agriculture Science-Based Target Setting Guidance,the Accountability Framework Initiative,and the Agricultural Sector Roadmap to 1.5C,jointly proposed by bulk commodity companies.During COP28,FAO released a global roadmap and a three-year strategic plan for climate transformation in the agri-food system,which provides a vital reference for achieving the 1.5C targets while ensuring food security globally.Despite the complexity of emissions in the agri-food system,the world is finding consensus on emission reduction pathways,which is essential for agri-food entities in formulating their mitigation strategies and transition plans.Figure 3-1:ESG reporting and GHG indicator disclosure of agri-food entities in A/H share marketsSource:Compiled by the research team based on the Wind database Figure 3-2:ESG reporting and GHG indicator disclosure by agri-food companies and others in the A-share marketSource:Compiled by the research team based on the Wind database;ESG Development Report of Chinese Listed Companies(2023)H-Share agri-food companiesA-Share agri-food companiesESG reports with disclosed GHG indicatorsESG reports with disclosed GHG indicatorsESG reports without disclosed GHG indicatorsESG reports without disclosed GHG indicatorsESG reports not produced/publishedESG reports not produced/published577%4%49Yf7%4Y%All A-Share companiesA-Share agri-food companiesFinancing the climate transition in Chinas agri-food systems 135.Motivating agri-food companies to disclose.While industrial authorities and financial regulators have not yet mandated climate-related information disclosure for agri-food companies,there are opportunities to foster positive incentives.On the one hand,industrial authorities and financial regulators can gradually establish mandatory climate-related information disclosure requirements and provide specific guidelines.On the other hand,financial institutions could introduce transition financial products and services offering preferential support to agri-food entities with robust climate transition performance and encourage transparency.The absence of climate-related information disclosure by agri-food companies results in significant information asymmetries among financial institutions,regulators,the public,and agri-food companies.Financial institutions struggle to identify agri-food companies with transition ambitions and capabilities,hindering their ability to provide transition finance support.Meanwhile,the proliferation of green food products with labels such as carbon neutral,net zero,or climate-friendly exacerbates the issue,as the lack of standardised climate information disclosure and inadequate regulation leads to widespread greenwashing and transition washing in the agri-food sector.Therefore,credible information disclosure is a necessity for ensuring the orderly development of sustainable investment and financing markets within the agri-food sector.Recommendation 1:Enhance climate-related information disclosureThe Ministry of Agriculture and Rural Affairs(MARA)should enhance the GHG accounting standards of the agri-food sector and establish relevant statistics and monitoring systems,and then collaborate with financial regulators to align the agri-food sectors climate transition pathways with transition finance standards.Given the exposure and vulnerability of the agri-food sector to climate change,transition finance standards should encompass both mitigation and adaptation.Regulators should also improve the regulatory requirements for climate-related information disclosure of agri-food entities,especially the largest companies.Regions could mandate big agri-food companies to certify their disclosed climate information to enhance transparency and credibility.Local governments could offer subsidy incentives and disclosure frameworks and develop sub-national pilots for encouraging agri-food entities to undertake climate information certification and reporting.3.2 Credible entity-level transition plans can support agri-food entities to seize opportunities and mitigate transition-washing risksWhether at the project or entity level,transition finance requires credible transition plans from financing entities to ensure substantial carbon emission reduction benefits and mitigate the risk of transition washing.Globally,several organisations and governmental bodies have taken the lead in developing guidelines for transition plans to assist companies in crafting credible transition strategies.In 2020,Climate Bonds outlined five principles for credible transition and five characteristics of a credible corporate transition(Figure 3-3),along with the publication of Transition Financing for Transitioning Companies and Agri-food Transition Principles Discussion Paper.The Climate Bonds Standard V4.0 has expanded its certification scope to encompass sustainable linkages and entity-level transitions,aiding companies in developing credible low-carbon transition plans aligned with the goals of the Paris Agreement.Similarly,the UKs HM Treasury established the Transition Plan Taskforce(TPT)and released the final disclosure framework in October 2023.This framework includes five dimensions and 19 sub-elements and intends to provide sector-specific metrics and targets for 40 sub-industries.62 The transition finance standards being developed by the PBoC are also expected to mandate transition financing entities to establish credible transition plans.These plans must cover short-,medium-,and long-term transition goals,transition pathways,investment and financing plans,governance mechanisms,fair transition assessments and measures,and information disclosure.Although a few companies have initiated the formulation of climate transition goals and plans(refer to Case 3-1),most Chinese agri-food companies have yet to establish credible climate transition plans,partly due to the lack of policy guidance after transition plans.This absence has become a major barrier to obtaining transition finance support from banks and investors.The main reasons are:(1)Agri-food entities lack sufficient motivation for the climate transition,as profitable business models for the transition are not yet clear to them,coupled with a lack of policy incentives;(2)There is no common understanding of the framework and requirements of a credible climate transition planning for the Chinese market;(3)There is a lack of clear guidelines and requirements in regulatory policies for developing transition plans;(4)Agri-food entities have insufficient knowledge of transition finance instruments and their requirements for financing entities,leading to a lack of motivation to develop transition plans;(5)There is a lack of awareness and capacity for sustainable supply chain management within agri-food entities(refer to Box 3-1.).Figure 3.Five Hallmarks of a Credibly Transitioning Company1.Paris-aligned targets Select sector-specific transition pathway aligned with Paris Agreement goals Company-specific KPIs that align as early as possible with that pathway Science based,address scope 1,2&3 emissions and address short,medium and long term5.External reportinga.External reporting and independent verification on the KPIs and strategy to deliver (per Hallmarks 1 and 2)b.Annual reporting of independently verified progress in terms of action taken and performance against targets (per Hallmarks 3 and 4)2.Robust Plans Set the strategy and plan to deliver on those KPIs Prepare associated financing plan detailed cost estimates and expected sources of funding Put in place necessary governance frameworks to enact change3.Implementation action Capital expenditure,operating expenditure Other actions detailed in the strategy4.Internal reporting Track performance Re-evaluate and recalibrate KPIs as neededFinancing the climate transition in Chinas agri-food systems 14Case 3-1:Exploration of climate transition plans and actions by Chinese dairy companies Mengniu DairyMengniu Dairy(Mengniu)is one of the major players in Chinas dairy industry.As a midstream enterprise in the dairy value chain,the majority of Mengnius carbon emissions across the entire value chain originate from the raw milk supply side.Approximately half of Mengnius upstream raw milk supply is sourced from its own subsidiaries,either wholly owned or with equity participation,while the other half is procured from independent smaller farms.In 2022,Mengniu formulated its GREEN Sustainability Strategy and set a climate target of peaking carbon emission before 2030 and achieving carbon neutrality before 2050.66In establishing its climate targets,Mengniu carried out a carbon inventory to identify and assess the climate risks and opportunities facing the company,as well as their impact on the companys operations and finances.Based on the five hallmarks of credible transition proposed by the CBI,the research team conducted a benchmarking analysis of Mengnius climate transition plans and actions(as shown in Table 3-1).Mengnius exploration in setting climate transition goals,plans,and practices serves as a valuable example for Chinese agri-food entities,yet there remains ample room for improvement.For instance,in terms of transition goals,Mengniu could utilise guidelines such as the SBTi FLAG to formulate ambitious climate goals and scientifically sound transition pathways.67Furthermore,Mengniu should not limit its efforts to Scope 1 and 2 carbon reduction targets but should also extend and specify its scope 3 carbon reduction objectives.This could involve enhancing energy efficiency in scope 3 activities,increasing the share of renewable energy in these activities,conducting comprehensive emission inventory analyses for scope 3 activities,implementing systematic carbon measurement,and reporting mechanisms,and setting more stringent requirements for supply chain emission reductions.Additionally,Mengniu should intensify its efforts in managing and providing technical support for emission reductions at upstream small farms.Mengniu has set the goal of peaking carbon emissions before 2030 and achieving carbon neutrality before 2050,in support of the 1.5C of the Paris Agreement.To realise this,the company has established phased targets to drive emission reduction efforts across all segments of the entire value chain,aiming to reduce its product carbon footprint year by year.Mengniu has developed comprehensive,value-chain-wide transition strategies,plans,and pathways based on its sustainable development strategic objectives.These include establishing GHG management plans,carbon inventories for the entire industry chain,and identifying climate risks and opportunities.The company has also outlined 15 key initiatives across six dimensions:production,raw milk,packaging,transportation,products,and carbon offsetting.These initiatives define clear emission reduction pathways and facilitate systematic carbon reduction actions across the entire industry chain.For instance,Mengniu has committed to reducing carbon emissions by 1 million tonnes in upstream pastures,improving the health of 1 million mu of soil,and transitioning to green factories by 2030.68,69By strengthening management of the entire industry chain,Mengniu is advancing its net-zero transition and zero deforestation efforts through enhancing efficiency,optimising energy use,and collaborating with supply chain partners.The company has devised and implemented green solutions and emission reduction measures across various stages,including feed production,dairy farming,manure management,packaging,and transportation.Additionally,Mengniu has put in place traceability and certification controls for soft commodities at risk of deforestation,including paper,palm oil,and soybeans.For scope 1 and scope 2 GHG emissions,Mengniu is reducing its carbon footprint by optimising efficiency of energy use.In Qujing,Yunnan Province,the company has established the first zero-carbon factory in Chinas dairy industry,which has received both international and domestic certification.For scope 3 GHG emissions,Mengniu collaborates with partners to promote carbon reduction practices throughout the value chain.Recognising that GHG emissions from the raw milk stage are a major source of the companys value chain emissions,Mengniu has implemented carbon management plans for upstream farms.These plans include adjusting feed composition and structure,managing and optimising herd structure,improving manure management,and enhancing farm energy efficiency.The company also provides carbon reduction support to farms.Mengniu has developed the Mengniu Forest Protection Policy and is progressively implementing zero deforestation traceability in its supply chain to further clarify deforestation risks and develop countermeasures.Mengnius Modern Farming and COFCO International agreed in November 2023 to purchase 50,000 tonnes of zero-deforestation Brazilian soybeans annually.This agreement marks the first Brazilian soybean order in China with an explicit zero-deforestation clause.Mengniu has put in place robust internal oversight and external reporting measures,establishing a corporate governance structure for dual-carbon issues.The company has organised a sustainability governance system that spans 24 top-level departments,from the decision-making level to the executive level,to clearly define each levels responsibilities for overseeing and managing dual-carbon issues.Since 2020,Mengniu has been publishing sustainability/ESG reports in accordance with the HKEXs Environmental,Social,and Governance Reporting Guide and the Global Reporting Initiative(GRI)Standards.Source:Mengnius ESG reports and interviews.70 Table 3-1:Summary of Mengnius climate transition effortsClimate TargetsDetailed PlanPractical ActionInternal Oversight and External ReportingFinancing the climate transition in Chinas agri-food systems 15Financial regulators,such as PBoC,should establish clear requirements for entities to develop credible transition plans for getting concessional transition funding.Transition plans of big agri-food companies should be comprehensive,including short-,medium-,and long-term transition goals,transition pathways,investment and financing plans,governance,and just transition assessments and corresponding measures(sector-specific suggestions for the transition plans of big agri-food companies are in Box 3-2).3.3 An enabling policy environment can create the right incentives for agri-food systems climate transition The agri-food sector faces challenges due to its extended investment cycles,narrow profit margins,and high exposure to climate-related risks.Attracting capital becomes difficult without policies that incentivise higher returns or mitigate risks for agri-food transition activities.However,current policy incentives for agri-food transition activities need to be revised.Firstly,both green finance and inclusive finance policies need to provide more support for the agri-food climate transition.One the one hand,as current definitions for green finance mandate that projects meet the criteria or taxonomy of being 100%pure green,this is leaving many agri-food climate transition activities ineligible for incentive policies such as refinancing tools,interest subsidies,grants,and guarantees.On the other hand,existing inclusive finance incentive policies target the agricultural sector as one of the key areas but are not aligned with SDGs yet.For instance,the PBoCs re-lending facilities for agriculture and SMEs,as well as the central governments special funds for inclusive financial development(which are used to provide interest subsidies on loans for agriculture and SMEs,fee reduction subsidies for agricultural services by government financing guarantee institutions,capital supplementation,and risk compensation)do not consider the environmental or climate impact of their target groups.This oversight excludes agri-food entities actively addressing climate change from targeted support and may even inadvertently support activities with adverse environmental/climate impact,undermining sustainability objectives.Recommendation 2:Support the development of credible transition plans Agri-food sector authorities such as the Ministry of Agriculture and Rural Affairs(MARA)and other relevant agencies should promote and support the development of credible transition plans by large and medium-sized agri-food companies by establishing clear regulatory requirements and providing technical assistance on methodologies regarding transition pathways and sustainable supply chain management.Considering the cross-border nature of agri-food supply chains,the MARA should also cooperate with its foreign counterparts to facilitate the harmonisation of agri-food sustainable supply chain standards across borders.On one hand,it is crucial for medium-and large-sized agri-food companies to lead and support their supply chain partners in collaborative efforts for climate transition in order to achieve a just transition in the agri-food system.On the other hand,as environmental and climate risks in agri-food supply chains become more apparent,investors face challenges in assessing the risk to their portfolios from companies that cannot trace their production sources.This,in turn,diminishes their willingness to invest in such agri-food companies.Therefore,the establishment of sustainable supply chain management systems should be integral to the credible transition plans of medium-sized and large agri-food companies,which is essential for securing transition finance support.Box 3-1.Deforestation risk along agri-food supply chains In particular,the risk of deforestation in agri-food supply chains has become a topic of international concern.Deforestation is a significant source of scope 3 emissions for many agri-food companies and also leads to other adverse impacts,such as biodiversity loss.The EU Deforestation Regulation,which will come into effect on 30 December 2024,is set to have profound implications for the governance of global commodity supply chains.It imposes stricter demands on traceability and transparency in agri-food supply chains,making deforestation risk a key compliance issue for agri-food companies and investors,especially those engaged in international markets.However,the incentives for agri-food companies to build traceability systems are hindered by challenges such as the complexity of the agri-food system,information security,the cost of system construction and maintenance,and the difficulty of coordinating and mobilising supplier participation.This generally results in low transparency among suppliers,particularly when they are from different regions or countries because the absence of unified sustainability standards and certification systems increases the difficulty for agri-food companies to collaborate with them.This lack of standards,regulations,and incentive policies for sustainable supply chain management in the agri-food sector in China has led to insufficient policy guidance,lack of awareness,and a disincentive for agri-food companies to engage in sustainable supply chain management.Box 3-2.Sector-specific recommendations for the transition plans of big agri-food companiesCredible transition plans of agri-food companies are essential for finance to support the climate transition of the agri-food sector.Regulators,in cooperation with research institutions and professional service companies,should provide guidance on a transition plan framework for agri-food companies.Considering the importance of both mitigation and adaptation,and the essential role of supply chain management in the agri-food sector,specific recommendations for the transition plans of big agri-food companies are as follows:1.Agri-food companies should heighten their awareness of climate adaptation,assess their needs for enhancing climate resilience,and incorporate necessary targets and related arrangements into their transition plans;2.As the core entities in the supply chains,big agri-food companies should integrate value-chain emissions reduction and enhancement of climate resilience into their overall transition goals and pathways,and actively implement sustainable supply chain management;3.Agri-food companies should analyse the connection between their climate transition activities and non-climate SDGs,identifying material issues such as food security,supply chain deforestation risks,farmers welfare,gender equality,and biodiversity,which should be integrated into their transition plans;4.Agri-food companies should be advised to incorporate transition financing arrangements into their transition plans,with financing terms(such as interest rates)linked to sustainability performance regarding not only climate transition indicators but also non-climate SDG indicators with significant relevance.Financing the climate transition in Chinas agri-food systems 164.Conclusions Without adequate financing,China is unlikely to see a just and inclusive climate transition in the agri-food sector.While public financing plays an important role,both climate change mitigation and climate change adaptation in the agri-food sector require the mobilisation of private capital to close the existing transition financing gap.This report has highlighted some of the barriers that exist for the mobilisation of private capital,including a lack of climate-related data transparency and credible transition plans for agri-food companies,as well as insufficient policy incentives.The report then proposes corresponding recommendations to overcome those barriers,including:Recommendation 1:Enhance climate-related information disclosure of Chinas agri-food systems.Recommendation 2:Support the development of credible transition plans for medium and large agri-food entities.Recommendation 3:Create an enabling policy environment,by focusing on a)establishing transition finance incentive policies focusing on the transition of agri-food supply chains;b)creating synergies between transition finance and inclusive finance policies;c)tilting existing agriculture supportive policies towards agri-food climate transition activities;and d)enhancing the governments role as agri-food bond issuer.Secondly,fiscal policies supporting agriculture(such as agricultural subsidies)must be aligned with climate objectives.A UN study revealed that approximately 86%of the global annual agricultural subsidies,totalling around USD540bn,still back activities that negatively impact the environment.63 These subsidies often include support for fertilisers and pesticides,which can exacerbate GHG emissions and soil degradation.In China,agricultural subsidy policies have undergone recent reforms to prioritise environmentally friendly and ecologically sustainable practices over sheer production increases.However,current agricultural subsidies for green and ecological initiatives remain fragmented,insufficient in overall allocation,and lack integration with climate targets.Between 2004 and 2015,China witnessed a twelvefold increase in direct agricultural subsidies,a sevenfold rise in subsidies for agricultural insurance premiums,and a notable surge of nearly 15 times in price support subsidies.However,agroecological compensation subsidies experienced the slowest growth,increasing by only 9.8%over 11 years.64 Additionally,Chinas agricultural subsidies should offer more support for agricultural emission reduction technologies or the enhancement of agricultural climate resilience.Thirdly,publicly-funded de-risking tools to support agriculture(such as government-backed agricultural credit guarantees and national financing guarantee funds)need to incorporate climate transition factors.Given the unique risks associated with the agricultural sector,the government must introduce risk-sharing mechanisms for related entities.Agricultural producers are particularly exposed and vulnerable to climate change,and many small-and micro-sized entities need more awareness,knowledge,and capacity to address climate-related challenges.Without appropriate risk-sharing and credit-enhancement mechanisms,they face heightened susceptibility to climate risks and may encounter difficulties securing financing for transition initiatives.Chinas National Agricultural Credit Guarantee System and the National Financing Guarantee Fund are pivotal policy financial instruments for risk-sharing in agricultural finance.However,they have yet to incorporate climate considerations.Consequently,agri-food climate transition activities need help to access adequate risk-sharing and credit enhancement,posing a hurdle in overcoming financing bottlenecks.Recommendation 3:Create an enabling policy environment3.a.Establish transition finance incentive policies focusing on the transition of agri-food supply chains.Existing structural monetary policy tools include transition refinancing,interest rate subsidies,subsidies for transition insurance premiums,financing guarantees,and inclusion in the evaluation framework for financial institutions.If amended to support the agri-food transition,such tools could create incentives for large-and medium-sized agri-food companies to transition their value-chain.For example,discounted lending conditioned on sustainable supply chain management performance can encourage improvement in the transition of agri-food companies.3.b.Create synergies between transition finance and inclusive finance policies.Leveraging existing inclusive finance policies in China by incorporating climate transition factors can maximise policy synergies.This involves directing support towards agri-food transition entities and projects while gradually phasing out support for those not aligned with climate transition goals.3.c.Tilt existing agriculture supportive policies towards agri-food climate transition activities.Directing agricultural subsidies and financing guarantee policies towards climate transition activities can help align government support with sustainability and climate goals.65 This entails focusing subsidies on activities that facilitate climate change mitigation and adaptation while gradually reducing support for activities that do not align with climate transition objectives.For example,the central government can incorporate climate transition factors into its performance evaluation framework for provincial agricultural financing guarantee work,such as the number of supported transition projects,entities,and loan amounts,and then link related performance to rewards and subsidies for local governments.3.d.Enhance the governments role as agri-food bond issuer.As a significant issuer of agricultural bonds,the government should further utilise its role by issuing transition sovereign bonds or local government bonds.These bonds should target agri-food transition activities with strong public attributes but potentially weaker commercial viability,such as scientific and technological research and development for agri-food climate transition or providing subsidies for agri-food climate transition activities.The issuance of government transition bonds can also serve as a policy signal,catalysing more private capital into supporting the climate transition of Chinas agri-food sector.In most cases,China will be able to rely on its existing policy frameworks for the agri-food sector and financial system,to further develop,enhance,and adapt them to better support the financing of the climate transition in the agri-food sector.As the largest agri-food-related emitter in the world,Chinas efforts in mitigating its agri-food GHG emissions will contribute to achieving its own climate objectives,and make a positive contribution at a global level.By transitioning its agri-food sector,making it more climate-friendly,resilient,and inclusive,China can also promote social equity and share the benefits of climate transition with more people.Financing the climate transition in Chinas agri-food systems 17We thank the following experts for their support and invaluable insights for this research:Minpeng Chen,Le Dong,Jingjuan Fan,Shimeng Gao,Changtong Huang,Shuqin Jin,Xing Lan,Ailun Lin,Di Lin,Xinzhen Li,Yuan Yuan,Mingzhe Zhang,Yun Zhu,Shuling Rao.Editorial support:Caroline Harrison,Stephanie EdghillDesign:Godfrey Design,Joel MilstedEndnotes1.IPCC.“Summary for 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System.Washington,D.C.:International Food Policy Research Institute.https:/doi.org/10.2499/9780896294165.26.Kisa Mfalila,Matteo Marchisio,IFAD.Promoting sustainable agrifood systems to combat climate changeR,2021.27.WANG Jipeng,XIAO Qin,LI Jianping.Financing of new agricultural management subjects:Dilemma,causes and countermeasures-survey based on 131 comprehensive agricultural development industrialization development loan subsidy projectsJ.Agricultural Economic Issues,2018(02):71-77.28 G20 Sustainable Finance Working Group.2022 G20 Sustainable Finance ReportR.Nov 2022.29 Notice on the issuance of the“Chongqing Transition Finance Support Project Catalogue(2023 Edition),March 202330.Council on Economic Policies.Chinas Structural Monetary Policy Tools:Objectives,Limitations,Unintended Consequences.2023.31.If the SPT(Sustainability Performance Target)for the specified period is achieved,the interest rate will be reduced;conversely,if the SPT is not achieved,the interest rate will be increased.32.For example,greenhouse gas emissions per unit of production or value of production.33.Circular Tree.Scope 3 Emissions:Better Understanding and Tackling the Hidden Impact on Climate Change.March 2024.34.Climate Bonds Initiative.2023 China Sustainable Debt Market Report,2024.35.Transition in Action:Agri-food,2024,Climate Bonds Initiative36.The corresponding SPTs are:(1)Reduce Scope 1 and 2 emissions by 55%from the 2020 baseline;(2)Set science-based carbon targets and obtain SBTi certification;(3)Reduce food waste by 20%from the 2019 baseline.37.AgFund.Global AgriFoodTech Investment Report 2023R.38.A.G.Capital.Annual report of Chinas agri-food investment 2023R.February 2024.39.Intellecap.Net zero in agriculture:role of technologiesR.August 2023.40.AgFund.Global AgriFoodTech Investment Report 2023R.41.XAG Technology,BCG.The Road to Carbon Neutrality in Agriculture.2022.42.Rural Finance Times.Green Insurance Opens New Horizons for Agricultural Insurance Development EB/OL.December 2022.43.Risks related to the physical impacts of climate change.Physical risks resulting from climate change can be event driven(acute)or longer-term shifts(chronic)in climate patterns.44.Risks related to the transition to a lower-carbon economy.Transition risks include policy and legal risks,technology risk,market risk,and reputation risk.45.Insurance As sociation of China.Green Insurance Classification Guidelines(2023 Edition).2023.46.China Securities Regulatory Commission.Carbon Financial Products(JR/T 0244-2022).47.Additionality of carbon credit means that the greenhouse gas(GHG)emission reductions or removals from the mitigation activity shall be additional,i.e.,they would not have occurred in the absence of the incentive created by carbon credit revenues.48.Convergence.State of blended finance 2023-Climate EditionR.2023.49.OECD.Making blended finance work for agri-SMEsR.May 2021.50.World Bank Group.China:Developing Green Finance in AgricultureEB/OL.March 2020.51.Snowball.Standard Chartered China Provides Muyuan with Its First Sustainability-Linked Invoice Financing Loan EB/OL.May 2023.52.Muyuan Foods Co.,Ltd.2022 Muyuan Foods Green and Low carbon Action Report.2023.53.ISS Corporate Solutions.Sustainability Quality of the Issuer and the Green German Federal Securities(Grne Bundeswertpapiere)Second Party Opinion.2020.54.Intellecap.Net zero in agriculture:role of technologiesR.August 2023.55.Coca-Cola Europacific Partners.Coca-Cola Europacific Partners establishes sustainability-linked Supply Chain Finance Programme with Rabobank EB/OL.Sep 2022.56.Impact bonds are outcome-based contracts that incorporate the use of private funding from investors to cover the upfront capital required for a provider to set up and deliver a service.The service is set out to achieve measurable outcomes established by the commissioning authority(or outcome payer)and the investor is repaid only if these outcomes are achieved.57.Convergence.State of Blended Finance 2024R.May 2024.58.Wind Data.59.China Association for Public Companies(CAPCO).Report on ESG Development of Listed Companies in China(2023).2023.60.In China,the A/H share market refers to a dual-listing system for Chinese companies,allowing companies to issue shares on both the mainland Chinese stock exchanges(A-shares)and the Hong Kong Stock Exchange(H-shares).The mainland Chinese stock exchanges include the Shanghai Stock Exchange,the Shenzhen Stock Exchange,and the Beijing Stock Exchange.61.Jin Shuqin,Lin Yu,Niu Kunyu.Driving Green Transformation in Agriculture through Low-Carbon Initiatives:Characteristics and Emission Reduction Pathways of Chinas Agricultural Carbon Emissions J.Reform,2021(05):29-37.62.Fundamentals,implementation strategy,engagement strategy,metrics and targets,and governance.63.Food and Agriculture organisation of the United Nations.The State of the Worlds Forests 2022 R.64.CAU News.Wu Weihua Advocates for Accelerating the Reform of the Agricultural Subsidy Policy System EB/OL.2017.65.China Institute for Rural Studies,Tsinghua University.Adjustments to Subsidy Policies for Promoting the Sustainable Transformation of Chinas Agricultural and Food Systems R.June 2022.66.2022 Mengniu Dairy Sustainable Development(ESG)Report.67.SBTi FLAG is the guideline released by the Science-Based Targets initiative on how to set emissions reduction targets for activities along their value chain that involve forestry,land use and agriculture.68.China has national standard on evaluation of green factories and publishes a list of green factories every year.69.China Interview Network.Mengniu CEO Announces Latest Green Goals,Dairy Industrys First“Zero Deforestation”Soy Order Implemented EB/OL,2023.70.The case data comes from Mengniu Groups public information and offline interviews.Public information link:https:/ information contained in this communication does not constitute investment advice in any form and the Climate Bonds Initiative is not an investment adviser.Any reference to a financial organisation or debt instrument or investment product is for information purposes only.Links to external websites are for information purposes only.The Climate Bonds Initiative accepts no responsibility for content on external websites.Climate Bonds Initiative is not endorsing,recommending,or advising on the financial merits or otherwise of any debt instrument or investment product and no information within this communication should be taken as such,nor should any information in this communication be relied upon in making any investment decision.Certification under the Climate Bond Standard only reflects the climate attributes of the use of proceeds of a designated debt instrument.It does not reflect the credit worthiness of the designated debt instrument,nor its compliance with national or international laws.A decision to invest in anything is solely yours.The Climate Bonds Initiative accepts no liability of any kind,for any investment an individual or organisation makes,nor for any investment made by third parties on behalf of an individual or organisation,based in whole or in part on any information contained within this,or any other Climate Bonds Initiative public communication.Published by Climate Bonds Initiative,October 2024 Prepared by Macro and Green Finance Lab,National School of Development at Peking University;Climate Bonds Initiative;and United Nations Development Programme(UNDP)AuthorsMacro and Green Finance Lab,National School of Development,Peking University:Danqing Shao,Jingyi Zhang,Xiaobei HeClimate Bonds Initiative:Shaoxin Li,Wenhong XieAcknowledgementsWe thank Ms.Yali Wang and Ms.Violante di Canossa from the United Nations Development Programme for co-developing the research framework with the authors,for overseeing the quality assurance,and for their inputs to the report drafting and editing process.The designations and the presentation of the materials used in this publication,including their respective citations,tables and bibliography,do not imply the expression of any opinion whatsoever on the part of the United Nations concerning the legal status of any country,territory,city or area or of its authorities,or concerning the delimitation of its frontiers or boundaries.The views expressed in this publication are those of the author(s)and do not necessarily reflect the views or policies of the United Nations(UN)and the United Nations Development Programme(UNDP).The research team has made its best efforts to ensure the accuracy of the data and information included in this publication,but does not guarantee that the information and suggestions will be free from change and assumes no liability or responsibility for any consequence of their use.
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Trade,Agriculture,and Development:Meeting Global Challenges to Commonwealth CountriesMICHAEL G.PLUMMER JOHNS HOPKINS UNIVERSITY,SAIS EUROPEHINRICH-IMD SUSTAINABLE TRADE INDEX DEEP DIVE2HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.The author would like to thank Chuin Wei Yap(Hinrich Foundation)and Brendan Vickers,Salamat Ali,and Kyle De Klerk(Commonwealth Secretariat)for their invaluable input and excellent comments at all phases of this project.Any views expressed are those of the author and do not necessarily represent those of the Commonwealth Secretariat.Acknowledgments3HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.3ContentsI.INTRODUCTION4II.COMMONWEALTH AGRICULTURAL TRADE IN THE7 CONTEXT OF GLOBAL CHALLENGESA.Commonwealth food trade at a glance7 B.Agricultural trade,poverty,risk,and climate change16III.THE IMPORTANCE OF TRADE POLICY IN PROMOTING18 DEVELOPMENT AND POVERTY REDUCTIONIV.ORIGINS AND TOOLS OF AGRICULTURAL PROTECTION20 A.The political economy of protectionism20 B.Types of policy instruments applied in agriculture:A brief review22C.Climate-related issues:CBAM and beyond23V.AGRICULTURAL TRADE LIBERALIZATION:EMPIRICAL ASSESSMENTS24 A.Regional trade agreements:Case studies of CPTPP,RCEP,and AfCFTA27 B.Commodity-leveleffectsofliberalization:Newestimates34VI.POLICY IMPLICATIONS:TOWARD BETTER COOPERATION38 IN AGRICULTURERESEARCHER BIO:MICHAEL G.PLUMMER 41ENDNOTES 42REFERENCES 45APPENDICES 494HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.Raising agricultural productivity,promoting easy access to nutritious food,and facilitating trade in agricultural commodities in a sustainable way are essential to advancing global living standards and well-being.This point is sometimes missed in developed countries,where spending on food tends to account for only about a tenth of household expenditures1 and plentiful supplies are taken for granted.But it is painfully obvious in low-income economies,where pursuing food security can be a constant struggle.Moreover,addressing agricultural challenges needs to be a worldwide priority,as they are at the core of contemporary systemic problems:poverty,insecurity,inequality,climatechange,evengeopoliticalconflict.Global problems require global solutions;economic cooperation,particularly in agriculture,needs to be at the top of the global policy agenda.Alas,itisnot.Thequarter-centurythatprecededthe2007-2008globalfinancialcrisiswascharacterizedbyrisinginternationalintegrationpropelledbyconcertedreductions in cross-border barriers to trade and investment.Today,however,the environment for economic cooperation is complicated by both positive and negative trends.On the positive side,recently established“mega-regional”trade groupings are breaking new ground particularly in terms of South-Southcooperation,withthepotentialtostimulatesignificantglobaltradeandinvestmentinaninclusiveway.NotableexamplesaretheAfricanContinentalFreeTrade Area(AfCFTA),which brings together 55 countries of the African Union and officiallycommencedin2021;theRegionalComprehensiveEconomicPartnership(RCEP)agreement,ineffectsince2022andspanning15mostlydevelopingeconomies in East Asia;and the Comprehensive and Progressive Agreement for Trans-PacificPartnership(CPTPP),madeupof11openeconomiesintheAsia-Pacificregion with a twelfth,the United Kingdom(UK),joining in 2023.2 In addition,global environmental cooperation,such as via the Conference of Parties(COP)of the UnitedNationsFrameworkConventiononClimateChangethemostrecentofwhich,COP28,washeldinDecember2023hasmadeprogressinpersuadingcountriestodevelopseriouspathstonetzeroemissions,committingtothephasingoutoffossilfuelsandincreasinginternationaleffortstopromotepracticalclimate solutions.3 Such agreements show that concerted,comprehensive global effortsarefeasible.Unfortunately,other forces are pulling the world in the opposite direction,with cooperation ostensibly breaking down in some areas and friction and outright conflictemerginginothers.MultilateraltradecooperationundertheWorldTradeOrganization(WTO)hasbeenstruggling;thelastattemptata“singleundertaking”oftradeandinvestmentliberalization,theDohaDevelopmentAgenda,waslaunchedinNovember2001undertheauspicesoftheWTO.4 It reached an impasse in 2015,and even the WTOs dispute settlement Appellate Body has been in limbo since 2016.A stopgap Multi-Party Interim Appeal Arbitration Arrangement(MPIA)is in place but includes only 27 WTO parties(including the European Union)and excludes key members such as the United States.5 The WTOs 13th Ministerial Conference in March 2024 had some positive outcomes,though was generally regardedashavingachievedindifferentresultsoverall.Itfailedtomakeprogressinsome key areas,such as public stockholding for food security purposes,enhanced I.IntroductionAddressing agricultural challenges needs to be a worldwide priority,as they are at the core of contemporary systemic problems:poverty,insecurity,inequality,climate change,even geopoliticalconflict.5HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.disciplines on agricultural export restrictions,and rules on digital trade.Eighty-two WTO members in July 2024 released a“stabilised text”on e-commerce,but it remains doubtful if this“plurilateral”deal will survive the WTO gauntlet(Elms 2024;Ungphakorn 2024).Agriculture has proved over the years to be a particularly difficultsectortoliberalize.Evenmoreominously,inthepastfewyearstradeconflicthasreachedlevelsnot experienced since the 1930s.And while COP has made progress,the most difficultroadslieahead:theParisAgreementof1995stressestheneedtokeepthe rise in global temperatures to less than 1.5C above pre-industrial levels and it isworrisomethatwecouldreachthatlevelverysoon.TheNationalAeronauticsandSpaceAdministration(NASA)6 estimates that global temperatures have alreadyrisenby1.1CandtheWorldMeteorologicalOrganization7 assigns an 80%probability that the increase will reach 1.5C for at least one year over the 2024-2028 period.In addition,some governments are backtracking on commitments.Climate change is especially relevant to agriculture.It is a major contributor to climatechange;theFoodandAgricultureOrganizationoftheUnitedNations(FAO 2022)estimates that in 2018,agriculture and related land-use accounted for 17%of global greenhouse gas(GHG)emissions.The sector has also been severely impacted by climate change,a process that is expected to get exponentially worse as global temperatures rise,hurting in particular the poorest and most vulnerable countries where agriculture is the main economic activity of households.Poverty levelshavedecreasedsignificantlywitheconomicreformsandglobalintegrationthat began in the 1980s;for example,the percentage of individuals living in absolute poverty fell from 43%in 1981 to 9%in 2022,8 but climate change could reverse this trend.The World Bank(2021)estimates that climate change could increase the number of individuals in poverty by 68-135 million by 2030,mostly Climate change will hurt in particular the poorest and most vulnerable countries where agriculture is the main economic activity of households.(Photo source:Swathi Sridharan|Flickr).INTRODUCTIONAgriculture and related land-use accounted for 17%of global greenhouse gas emissions.The sector has also been severely impacted by climate change,hurting in particular the poorest and most vulnerable countries where agriculture is the main economic activity of households.6HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.6in Sub-Saharan Africa and South Asia,the worlds poorest regions.It also has a negativeeffectoninequality;Dang,etal.(2023)estimatesthatatemperatureincrease of 1lsius increases not only poverty by 9.1%but also the Gini inequalityindexby0.8%.Goals1and2ofthe17UNSustainableDevelopmentGoals(SDGs)commit the international community to end poverty and create a world free of hunger,respectively,by 2030.Climate change works against them both,as well as most of the other SDGs.Hence,understanding the critical role of agriculture in addressing the multifaceted challenges facing Commonwealth countries,particularly those that are most vulnerable,andfindingnewmeansofadvancingsolutionsareessential.Thegoalofthispaperistoanalyzehowinternationaltradeingeneralandagriculturetradeinparticularcanbemobilizedtomeetthesechallengesandofferpolicyrecommendations to support agricultural trade toward these ends.Therestofthepaperisorganizedasfollows.SectionIIbeginswithanoverviewoftrends in Commonwealth agricultural trade at the regional and subregional levels and considers key challenges facing development in member states,including issues related to poverty,food security,and climate change.Section III focuses on the potential of trade policy to reduce poverty,improve food security,and promote economic development,followed in Section IV by analysis of why and how agricultural trade has been inhibited by various policy instruments.Section Vsurveysempiricalestimatesofthepotentialbenefitsofagriculturaltradeliberalizationbasedonthesubjectsextantliterature,includingquantitativeworkon the implications of emerging mega-regional agreements,as well as adding somefreshinsightsvianewestimatesofthepotentialbenefitsofagriculturaltradeliberalizationattheproductlevelforCommonwealthcountries.Ingeneral,thestudyfindsstrongsupportforthepremisethattradeinagriculture is essential to address many of the economic and social goals of the Commonwealth,such as increasing economic welfare,reducing poverty,enhancing food security,and addressing climate change challenges,and,thus,will be a powerful tool in achieving many of the SDGs.INTRODUCTIONUnderstanding the critical role of agriculture in addressing the multifaceted challenges facing Commonwealth countries,particularly those that are most vulnerable,and findingnewmeansofadvancingsolutions are essential.7HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.7International trade in agriculture boosts consumer welfare by allowing access to a greater variety of food products for consumers at a lower price.It improves domesticsupplyviamoreefficientinputsforagriculturalproductionalongthevalue chain and new technologies.Countries that are not well-endowed with efficientagriculture-relatedendowmentsbenefitthroughimports,andagriculturalexports can gain by selling goods abroad at a higher price and exploiting economiesofscale.Aglobalmarketoffersgreaterincentivesforinvestmentsin food-related research and,hence,higher productivity growth.For example,Farrokhi and Pelligrina(2023)9 uses a multi-country general equilibrium model that highlights the importance of trade in improving technology through two channels:(1)adoption of new technologies through agricultural inputs;and(2)cropspecializationtotakeadvantageoftheinternationalmarketplace,findingthatboth have been equally important in increasing welfare.The study also estimatesthat agricultural productivity from input growth across borders leads to largepositivewelfareeffects.TheseresultsareconsistentwiththeeconometricworkbyStoneandShepard(2011),whichusesfirm-leveldatatoshowthatimportedinputshaveastrongandstatisticallysignificanteffecton“totalfactorproductivity”(TFP)and innovation in the food and beverages sector(as well as others).Martin(2017)underscoresthatinternationaltradeliberalizationimprovesfoodsecurityinanumber of ways,including by:(1)taking advantage of gains from divergent factorendowments across countries,for example,land-abundant countries exchangingtheirmoreefficientagriculturalexportswithland-scarcecountries;(2)increasingproductionefficiencyinagriculture;(3)augmentingdietarydiversity;and(4)improving access to food.Trade has been a perennial link and conduit for cooperation across the Commonwealthnationsandhascontributedsignificantlytotheeconomicsuccessof its members.10Foodtradehasbeenavitalpartofthisprocess.Thissectionfirstunpacks Commonwealth food trade and then considers the role it plays in helping the association face contemporary challenges.A.Commonwealth food trade at a glanceParticularly for its lower-income members,food trade is critical to the food security of Commonwealth countries,several of which are among the most food-insecure in the world,and in achieving SDG Goal 2(Ali 2022).Fostering stable,healthyanddynamicfoodmarketsdeserves,therefore,tobeprioritizedby policymakers in setting not only domestic policy but also international trade and cooperation initiatives.To begin,it is useful to assess recent trends in Commonwealthfoodtradeflows.Theapproach,ofcourse,isstylized;additionalperspectives can be found in Zhuawu,et al.(2020),Vickers,et al.(2020),and Ali(2022).Table 1 breaks down Commonwealth food trade at aggregate and subgroup levels.11Itoffersanideaofthevaryingdegreesofdependencyonagriculturaltrade across the Commonwealth for net food importers and exporters.Overall,Commonwealth food trade is in surplus;food imports came to US$224 billion and exports to US$263 billion in 2022,with the latter exceeding the former Trade has been a perennial link and conduit for cooperation across the Commonwealth nations and has contributedsignificantlytotheeconomic success of its members.Food trade has been a vital part of this process.II.Commonwealth agricultural tradein the context of global challenges8HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.8by about 17%of total imports.Food exports constitute 7.8%of the regions total merchandise exports,which is higher than the global norm(6.8%),and 5.8%of imports,which is slightly lower(6.1%).The intra-Commonwealth share oftotalfoodimports(exports)comestoaboutone-fourth(one-fifth);hence,Commonwealth countries in the aggregate rely on external sources for about three-fourthsoftheirimportsandfour-fifthsoftheirexports.Still,thedevelopingmembers are more dependent on intra-Commonwealth trade,particularly Small IslandDevelopingStates(SIDSs)inthePacificwhosource82%oftheirimportsfrom the Commonwealth.Developing members dominate intra-Commonwealth trade with an almost three-fourths share of the regions imports and more than two-thirds of its exports.COMMONWEALTH AGRICULTURAL TRADE IN THE CONTEXT OF GLOBAL CHALLENGESNotes:Calculations are as follows:“%total”is share of food imports(exports)in total imports(exports);“%from(to)CW”is the share of food imports(exports)from(to)Commonwealth countries in total trade;and“share of intra-CW(%)”is the share of food imports(exports)in total Commonwealth intra-regional imports(exports).Source:UNCTADStat,CommonwealthSecretariat.Table 1 Food exports and imports of Commonwealth economies by group,2022IMPORTS(VALUE,US$MILLION,AND SHARE(%)EXPORTS(VALUES,US$MILLION,AND SHARE(%)Region/CountryTotal merchandiseFoodTotal merchandiseFoodValue%totalfrom CW(US$m)%from CWShare of intra-CW(%)Value%totalto CW(US$m)%to CWShare of intra-CW(%)World25,699,9741,558,522 6.1278,668 17.924,917,5621,549,212 6.2228,65214.8-All Common-wealth3,865,350 224,3045.853,02123.63,392,529263,263 7.849,35218.7OF WHICHDeveloped1,791,228107,993 6.013,64012.625.71,597,416145,201 9.11573210.831.9Developing2,074,122116,312 5.639,38133.974.31,795,113118,062 6.633,62028.568.1BY REGIONAfrica335,33429,0208.711,133 38.421.0289,11823,6518.28,62636.517.5Asia1,687,13481,9934.925,91431.648.91,446,81490,8806.323,55525.947.7Caribbean&Americas623,87639,0646.33,4458.86.5638,07362,9239.93,4935.67.1Caribbean SIDS40,3273,5248.788525.11.739,0401,1673.047941.01.0Europe844,27155,1396.5 4,9839.09.4540,59915,8892.91,4259.02.9Pacific374,73419,0885.17,54639.514.2477,926 69,920 14.6 12,253 17.524.8Pacific SIDS11,3261,77415.71,44981.72.720,1402,364 11.796040.61.9VULNERABLE GROUPSLDCs(14)156,31716,86910.88,45950.116.0106,3115,2875.02,13540.44.3SIDS(24)63,1427,17711.42,83839.55.462,5054,4967.21,68837.63.4Small States(33)116,69712,67710.95,24241.49.9111,1847,1826.52,83139.45.7The intra-Commonwealth share of total food imports(exports)comes to aboutone-fourth(one-fifth);hence,Commonwealth countries in the aggregate rely on external sources for about three-fourths of their imports andfour-fifthsoftheirexports.9HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.Given the economic diversity across the Commonwealth,analysis at the subgroup level is more informative.Table 1 shows that the developed members make up somewhat less than half of total Commonwealth food imports but over half of its exports,leading to a US$39 billion food trade surplus that constitutes 95%of the combined regional total surplus in food trade,whereas developing countrieshaveasmalldeficit.Atthesubregionallevel,foodtradedeficitsaccruefor Commonwealth members in Europe and Africa,and trade surpluses are in evidenceinAsiaandespeciallyPacificCommonwealthmembers.TheCaribbeanandtheAmericassubregiontonosmalldegreeduetoCanadianmembership-isinsurplus,butCommonwealthLeastDevelopedCountries(LDCs)ranasignificantdeficitofUS$12billion,orovertwo-thirds(69%)oftotalimportsofthatsubgroup.TheSIDSalsoranadeficitequivalenttoabouttwo-thirdsofitstotalimports,exceptforPacificSIDSwhichconsistentlyranafoodsurplus.Figures1-6offermoredetailatthesub-grouplevelforthe2000-2022timeperiod.Figure 1 shows that developed Commonwealth members essentially had balanced food trade until 2009,after which their exports grew at a faster pace than imports with an especially strong uptick after 2020.Exports and imports declinedsignificantlyduringtheglobalfinancialcrisisbutsincethengrowthhasbeen healthy,particularly during the Covid-19 pandemic years.The same might be said of developing-country food trade(Figure 2)but with more balanced growth inimportsandexportsaftertheglobalfinancialcrisis.Yet,therelativestabilityofdeveloping-countryfoodtrademasksregionaldifferences:Africanfoodexports(Figure3)havebeenflatoverthepastdecadeandtheregionhashadadeficitsince 2015,whereas Asian food trade(Figure 4)has been continually in surplus,and food exports have been especially strong over the past few years.Caribbean SIDS exportsandimportshavebeenfairlystablewithatradedeficitthathasnarrowedoverthepastfewyears(Figure5)and,asnoted,PacificSIDShavecontinuallyregistered a strong trade surplus over the period(Figure 6).COMMONWEALTH AGRICULTURAL TRADE IN THE CONTEXT OF GLOBAL CHALLENGESThe developed members make up somewhat less than half of total Commonwealth food imports but over half of its exports,leading to a US$39 billion food trade surplus that constitutes 95%of the combined regional total surplus in food trade,whereas developing countries have a smalldeficit.10HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.10COMMONWEALTH AGRICULTURAL TRADE IN THE CONTEXT OF GLOBAL CHALLENGESSource:UNCTADStat,CommonwealthSecretariatFigure 1 Commonwealth developed food trade(US$billion)160140120100806040200-2020002011200120122002201320032014200420152005201620062017200720182008201920092020201020212022Trade balanceImportsExportsUS$billionSource:UNCTADStat,CommonwealthSecretariatFigure 2 Commonwealth developing food trade(US$billion)10080604020-2020002011200120122002201320032014200420152005201620062017200720182008201920092020201020212022Trade balanceImportsExports0US$billion12011HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.11COMMONWEALTH AGRICULTURAL TRADE IN THE CONTEXT OF GLOBAL CHALLENGESSource:UNCTADStat,CommonwealthSecretariatFigure 3 Commonwealth Africa food trade(US$billion)403020100-2020002011200120122002201320032014200420152005201620062017200720182008201920092020201020212022Trade balanceImportsExports-10US$billionSource:UNCTADStat,CommonwealthSecretariatFigure 4 Commonwealth Asia food trade(US$billion)506070809040302010-1020002011200120122002201320032014200420152005201620062017200720182008201920092020201020212022Trade balanceImportsExports0US$billion10012HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.12COMMONWEALTH AGRICULTURAL TRADE IN THE CONTEXT OF GLOBAL CHALLENGESSource:UNCTADStat,CommonwealthSecretariatFigure 5 Commonwealth Caribbean SIDS food trade(US$billion)86420-2-620002011200120122002201320032014200420152005201620062017200720182008201920092020201020212022Trade balanceImportsExports-4US$billionSource:UNCTADStat,CommonwealthSecretariatFigure 6 Commonwealth Pacific SIDS food trade(US$billion)2.01.51.00.50.020002011200120122002201320032014200420152005201620062017200720182008201920092020201020212022Trade balanceImportsExportsUS$billion2.513HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.13To better grasp the importance of food trade in the Commonwealth,Figures 7 and 8 separate Commonwealth member countries into net food exporters and importers,respectively,at the country level,and identify the share of food exports(imports)in total country trade in 2022,with countries ranked according to their exposure to food trade.Figure 7 shows that 16 Commonwealth members are netexportersofwhichonlythreeareLDCs(Malawi,TanzaniaandtheSolomonIslands).Food exports constitute a majority of total trade for the island states ofSeychelles(69%),Belize(62%),andNewZealand(59%).Canada,Australia,India,and Malaysia register among the lowest shares at one-tenth or less of totalexportsbutgiventhesizeoftheirtradeinnominaltermstheyarethelargest exporters in the Commonwealth.12 More important from a food security perspective are the net food importers listed in Figure 8,of which there are 40.Ofthetoptennetfoodimporters,halfareLDCsandfouroutoftheotherfiveareSIDSs.13 The share of food in total trade is highest in The Gambia and Rwanda,both LDCs,at 34%and 29%of total imports respectively.COMMONWEALTH AGRICULTURAL TRADE IN THE CONTEXT OF GLOBAL CHALLENGESSource:UNCTADStat,CommonwealthSecretariatFigure 7 Share of food in merchandise exports of net food exporters,2022(%)Share02030405060708018.716.162.558.627.025.220.418.110.510.710.310.08.78.269.39.310.5SeychellesBelizeNew ZealandMalawiSolomon IslandsEswatiniTanzaniaNamibiaGhanaNauruPapua New GuineaCanadaAustraliaIndiaMalaysiaSouth Africa14HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.14COMMONWEALTH AGRICULTURAL TRADE IN THE CONTEXT OF GLOBAL CHALLENGESSource:UNCTADStat,CommonwealthSecretariatFigure 8 Share of food in merchandise imports for net food importers,2022(%)Share101520253035St Vincent and the GrenadinesSri LankaLesothoTrinidad and TobagoPakistanTongaBarbadosGrenadaNigeriaKiribatiSamoaBangladeshSierra LeoneMozambiqueGabonSt Kitts and NevisMaldivesDominicaJamaicaBotswanaCameroonMaltaKenyaUgandaBrunei DarussalamTuvaluSingaporeFijiUnited Kingdom St LuciaBahamasTogoMauritiusGuyanaZambiaAntigua and BarbudaVanuatuCyprus34.429.823.515.923.415.322.415.120.415.020.314.718.713.818.212.617.711.616.810.910.810.79.710.79.56.510.59.56.310.47.95.710.26.64.96.64.74.14.12.3The GambiaRwanda15HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.15Finally,Commonwealth food trade at the commodity level is shown in Figure 9(exports)and Figure 10(imports)for 2022.Edible Oils and Oilseeds,Cereals,and Prepared Foods make up the top three export categories,accounting for about 50%of total food exports.Imports are more concentrated than exports:the topthreeimports,i.e.,Vegetables,FruitsandNuts;EdibleOilsandOilseeds;andPrepared Foods,make up 59%of the total.COMMONWEALTH AGRICULTURAL TRADE IN THE CONTEXT OF GLOBAL CHALLENGESSource:UNCTADStat,CommonwealthSecretariatFigure 9 Composition of food exports of Commonwealth countries,2022(%)0.05.010.015.020.025.018.5CerealsConfectionary13.9Prepared foods13.1Vegetables,fruits,and nuts12.9Meat9.17.2SeafoodEggs and dairy6.119.2Edible oils and oil seedsShare%Source:UNCTADStat,CommonwealthSecretariatFigure 10 Composition of food imports in Commonwealth countries,2022(%)0.05.010.015.020.025.021.0Edible oils and oil seedsCereals16.6Prepared foods10.1Confectionary9.1Meat8.77.5SeafoodEggs and dairy4.822.2Vegetables,fruits,and nutsShareHINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.16B.Agricultural trade,poverty,risk,and climate changeInternational trade in agriculture serves as a powerful vehicle to reduce poverty andenhancefoodsecurity.AccomplishingSDGs1and2wouldbedifficultwithout such trade.According to OECD-FAO(2022),around 20-25%of the worlds consumed calories originate from traded food products.Fifty-nine countries in AfricaandAsiaandthePacificarenetfood-importingdevelopingeconomies,many of which are low-income and rely on international trade in agriculture to mitigatetheeffectsofpovertyandenhancefoodsecurity.14 Food trade supports humanitarian activities of the World Food Programme,whose assistance reached 152 million people in over 120 economically fragile countries and territories in 2023.15Inadditiontothesedirecteffects,onthesupplyside,internationaltradeimprovesfoodsecuritybyincreasingaccesstovitalinputslikefertilizers,pesticides,and seeds,and facilitates access to useful production technologies.Growthinagricultureismoreeffectiveinreducingpovertythangrowthinothersectorsandthepoorestbenefitthemostfromagriculturalgrowth(Christiaensenand Martin 2018).As stressed in WTO,16 trade has been responsible for bringing hundreds of millions of people out of absolute poverty and improving living standards throughout the world.Agriculture has played a catalytic role in this trade-abetted process.For example,when the reform process began in China in 1978 with the“Four Modernizations,”agriculturalreformwasapriority,and,withtheadoptionoftheHousehold Responsibility System to replace collective farming,TFP in agricultural grew by 55%from 1979 to 1984(Carter,et al.2003),eventually bringing 800 million Chinese out of poverty.17 Stakes are particularly high for small,low-income Commonwealth members.Togetherwithhighlevelsofpoverty,theirsizetendstomakethemmoredependent on international trade in general and for food in particular(for example,Table 1,Appendix 1 and Figure 7).Hence,they are more vulnerable to international shocks.Food products account for approximately 11%of total imports of the 14 LDCs and 33 Small States of the Commonwealth(Table 1 and Appendix 1).Even in middle-income Pakistan,almost 70%of the population is directly or indirectly engaged in agricultural production,18 and the share of food imports in its total imports was 16%in 2023 and,in the past,has been as high as 30%.19Therefore,geopoliticalconflict,suchastheRussianwaronUkraine,periodsofinternational food price spikes(for instance,over the 2008-14 period20),and cycles of increases in agricultural protection through,for example,export restrictions tendtoaffectsignificantlythesevulnerablelow-incomeandsmallstatesmost.In fact,reactive trade policy is often behind these shocks:rapid increases in food prices can trigger increases in export taxes and other restrictions by agricultural exporting countries to keep domestic prices low and/or raise government revenue,thereby restricting supply to international markets.Large importing countries have an incentive to lower trade-related taxes to keep their domestic prices down,thereby increasing international demand.The result of a decrease in supply and increase in demand is a vicious cycle of price increases in the international food marketplace.21 In addition,trade plays a critical role in meeting what is arguably the greatest threat to agriculture in developing countries,as well as the most salient global challengeofourtime:climatechange.DevelopingcountriesarealreadysufferingGeopoliticalconflict,suchastheRussian war on Ukraine,periods of international food price spikes,and cycles of increases in agricultural protection through,for example,export restrictionstendtoaffectsignificantlyvulnerable low-income and small states most.COMMONWEALTH AGRICULTURAL TRADE IN THE CONTEXT OF GLOBAL CHALLENGES17HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.17disproportionately more from climate change impacts,even while advanced economies contribute far more to global emissions.Without considerable carbon reductions,the world will not be able to meet the climate goals adopted in the Paris Agreement.Trade is an important contributor to greenhouse gases,given that production and transport of traded goods accounts for 20-30%of total greenhouse gas(GHG)emissions,with about three-fourths of these trade-relatedemissionsduetoenergyandtransportation(WTO2021).Nevertheless,trade also can be an important part of the solution through,for example:trade in environmental goods and services,including to help cope with climate-induced shocks;trade-related investment in green sectors;technology transfer in green sectorsandthedisseminationof“bestpractices”;andincentivizinginvestmentsin low-carbon technologies by increasing scale(Kim,et al.,2023).WTO(2023)offersasetof“TradePolicyToolsforClimateAction,”withonecategoryfocusingspecificallyonfoodandagriculture.Itstresseshowtradecanimprovethefunctioning of markets for food and agriculture while reducing carbon emissions byeasinginternationaltradeingreenproductsviatradeliberalization,reformingdomesticsubsidies,andamelioratingdomesticpoliciesthatproduceinefficientoutcomes.It references the Organisation for Economic Co-operation and Developments work(OECD 2023)estimating that,over 2020-2022,US$630 billion annually was spent on average to support individual agricultural producers,which itsuggestscouldbe“repurposed”tofinanceclimateadaptationandmitigation.Further,countries open to international trade have a greater capacity to adjust to climatechange.TheWTOfindsapositiverelationshipbetweenclimate-changeadaptivity and trade openness(WTO 2022).ADB(2023a)delineates three key policyoptionstosupportthetransitiontonetzero:(1)reformpriceincentivesthrough carbon pricing and reduce climate-damaging subsidies such as for fossil fuels and agriculture;(2)use regulations and incentives to elicit low-carbon responsesandfunddecarbonization;and(3)ensureenvironmentalpoliciesarefair,equitable,and inclusive.Unfortunately,the Paris Agreement and the current commitmentsreflectedinexistingNationallyDeterminedContribution(NDC)plans do not generally highlight the role of trade and trade policy.The literature on howclimatechangeaffectscompetitivenessofcountriesinagricultureisrelativelylarge,mostly applied on a country basis,and generally underscores its importance in agriculture.One cross-country study is by Costinot et al.(2016),which uses an extensivemicro-leveldatabaseforeachof10cropscultivatedover1.7millionfieldstoshowthatclimatechangewouldhaveasignificanteffectonagricultureaswellas reducing global GDP.International agreements can mitigate these problems,create greater certainty,reducevulnerabilities,anddecreasefoodinsecurity.Nevertheless,asnotedinthe next section,concerted economic cooperation in agriculture tends to be complicatedanddifficult.COMMONWEALTH AGRICULTURAL TRADE IN THE CONTEXT OF GLOBAL CHALLENGESFurther,countries open to international trade have a greater capacity to adjust toclimatechange.TheWTOfindsapositive relationship between climate-change adaptivity and trade openness.18HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.18Modern trade theory,beginning with Adam Smith and David Ricardo in the 19th century,makes a strong case for open international trade.Early theories focused onhowfreetradeallowscountriestospecializeinwhattheydobestrelativeto the rest of the world(the countrys“comparative advantage”)and,via free exchangeofexportsandimports,providesforthemostefficientinternationalallocation of resources,from which all participating countries gain relative to“autarky”(that is,no trade).More recent theories add to these“static”(i.e.,price-generated)efficiencyeffectslonger-term“dynamic”gainsfromtrade,suchasincreased incentives to invest in technology,technology upgrading through international interchange,and economies of scale.Moreover,there are positive knock-oneffectsofanopentraderegime,forexample,enhancedcompetitionandgreaterflowsofinwardforeigndirectinvestment(FDI),whichincreaseslocalemployment,wages,andtechnologytransferfromforeignfirmstothelocaleconomy,through the training and skill-upgrading of workers,better management andorganizationalprocesses,andnewproductiontechniques.Accesstoalargervariety of heterogeneous goods for consumers improves consumer welfare and offersforlocalfirmscheapersourcesofinputsandamorediverseselection,thereby improving productivity.Paul Krugmans“new trade theory”(Krugman 1979)identifiesadditionalwelfare-enhancingbenefitstomoderntradetheorybyaddingimperfect competition,increasing returns to scale,and product variety.All of these supply-sideanddemand-sidebenefitsarerelevanttotheagriculturalsector,aswell as manufacturing and services.Empirically,more open trade regimes have generally performed better than closed policyenvironmentsinthedevelopmentprocess.Ofcourse,isolatingtheeffectsoftradepolicywithinageneralpolicyreformprogramcanbedifficultbecauseof its interconnectedness with other economic policies.Trade policy is unlikely to succeed in spurring growth and development if it is not part of a supportive policy package.In addition,measuring“openness”is not always straightforward(RodriguezandRodrik1999)anditissometimesdifficulttodistinguishcausalityfrom correlations.Still,the economic literature is replete with studies suggesting that this is the case,including highly cited works such as Dollar(1992),Sachs and Warner(1995),Krueger(1998),Stiglitz(1998),andOECD(1998).A prima facie“macro”evaluation would also support this conclusion.At the regional level,East Asia has been particularly successful in spurring economic growth through outward-oriented development strategies and market-friendly policies.The region is highly diverse in terms of its historical,ethnic,political,and social background,and its scope and speed of economic reforms have varied.But all economies22haveembracedtradeliberalizationaspartoftheirdevelopmentstrategies,attimesincontrasttootherregions,andtogreateffect.Tradeasa percentage of gross domestic product(GDP),which is one metric by which internationalizationcanbemeasured,almostdoubledfrom31%in1974to61%in2023inEastAsiaandthePacific,whiletheregionspercapitaincomegrewremarkably from US$612 to US$12,928 over that same period,growth rates that are much higher than other regions like South Asia,Latin America,and Africa,where liberalizationtookplaceatamuchslowerpace.23III.The importance of trade policyin promoting development andpoverty reductionMore open trade regimes have generally performed better than closed policy environments in the development process.Of course,isolatingtheeffectsoftradepolicywithin a general policy reform programcanbedifficultbecauseofits interconnectedness with other economic policies.19HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.19Country-specificexamplesarealsoinstructive.ChinainNortheastAsiaandVietnaminSoutheastAsiaofferparticularlyinterestingexperiencesbecausetheyboth emerged from a policy stance of quasi-autarky to deep integration with theglobalmarketplaceinashortperiodoftime.BeforetheFourModernizationsin 1978 mentioned above,Chinas trade-to-GDP ratio was 9%and its per capita income was less than US$200;by 2023,its trade-to-GDP had more than tripled in importance to 37%and per capita income was 63 times higher at US$12,614,while average global per capita incomes grew by about six-fold over the same period.The poverty headcount ratio in China was 72%in 1990 but had plummeted to 0.1%by 2023.24 Trade policy reform was an essential part of the vector of policy changes that unleashed the potential of the Chinese economy.It now competes with OECD countries in many high-tech sectors where technology is critical,from green-economy production of electric vehicles and solar panels to the digital economy.The Vietnamese experience is no less impressive.From the launch of its doi moi economic reform program in 1986 until 2022,the share of trade in its GDP rose from 23%to 184%,per capita GDP from US$430 to US$4,179,and the poverty count fell from 45%in 199225 to 1%in 2022.Vietnam should reach the upper-middle income threshold of US$4,465 in 2025 and has become a critical link in many manufacturing supply chains.Compare these examples to Argentina,a countrythatespoused“import-substitutionindustrialization”inthe1950sthroughthe 1980s and has gone back-and-forth between outward-and inward-oriented approaches ever since.Its trade-to-GDP varied between 10%-20%and per capita GDP stagnated until its(IMF-imposed)economic reforms in the early 1990s,after whichtrade-to-GDProsesignificantly(untilthe1998-2002depressionanditsongoing peso crisis).Moreover,a number of studies have established the link between trade and povertyreduction.Aninfluentialsurveyofthese,undertakenbyAlanWintersandcolleagues(Winters,et al.2004),concludes that,consistent with trade theory,empiricalinvestigationstendtoverifythattradeliberalizationleadstopovertyreduction and,in any event,out of the more than 400 studies surveyed,there wasnoevidencethattradeincreasespoverty.Manyofthepositiveeffectsthattradehasonpovertycanbetracedtoitseffectsontheagriculturalsector.Thedegreeofeffectivenessoftradeliberalizationis,however,afunctionofthepolicyenvironmentinwhichtradeisbeingliberalizedanditsinstitutionalcontext.Tradeliberalization,includinginagriculturalgoods,hasbeenpursuedtosomedegree by most Commonwealth member countries,but the trade regimes differsignificantlyacrosscountriesandsubregions.Singaporebeganitstradeliberalizationprograminthe1960sandsoonbecamethemostopeneconomyintheworld,withessentiallyzerotariffsonallgoods.26Averagetariffsinthedeveloped Commonwealth members is around 3%.27 This is far lower than averagetariffsindevelopingCommonwealthmembercountriesand,perhapsmoreimportantly,thestandarddeviationoftariffstendstobemuchhigher.Thistremendousdiversityoftheregionmakesitdifficulttooffergeneralrecommendations on trade policy that would apply to all Commonwealth countries.28 But the positive experiences of outward-oriented Commonwealth countries and other economies underscore the advantages of integrating into the international marketplace,particularly in agriculture,whereas noted above trade can reduce poverty,improve food security,and help cope with the many challenges of climate change.THE IMPORTANCE OF TRADE POLICY IN PROMOTING DEVELOPMENT AND POVERTY REDUCTION Tradeliberalization,includinginagricultural goods,has been pursued to some degree by most Commonwealth member countries,but the trade regimesdiffersignificantlyacrosscountries and subregions.20HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.20Yet,iftradehasthecapacityforsuchapositiveeffectonkeyeconomicandsocialissues,and even as a means to reduce(at least at the margin)geopolitical friction byraisingthecostofconflict,whyhavecountriesrarelyembracedfreetrade?Tradebarriershadbeenfallingsignificantlyuntiltheglobalfinancialcrisis,butthey have been rising again.Kose and Muladic(2024)note that growth in trade in goods and services almost came to a halt in 2023,rising only by 0.2%,the slowest in a half-century outside global recessions,at the same time that trade restrictions aresurgingandthenumberoftrade-liberalizingregionaltradeagreements(RTAs)has been falling.Agricultural trade has always been constrained by a variety of barriers and is threatened by this trend.In this section,instruments of protection inagriculturearediscussed,butfirstitgivesabriefreviewofthereasonswhyfreetradeisoftenadifficultsell,particularlypolitically.Last,environmental-relatedpolicy is considered,with the example of the EUs Carbon Border Adjustment Mechanism(CBAM),whichwentintoeffectin2023andthroughwhichbordertaxes will begin to apply in 2026.A.The political economy of protectionismMost basically,international trade relies on structural adjustment to increase efficiencyviatheinternationalmarketplace.Thismayleadtosignificantgainsinefficiency,growthanddevelopment,butstructuralchangerequiressomesectorsto contract while others expand.Trade is not unique in this regard;for example,thedigitaleconomyhascreatednewplatformsthatarefarmoreefficientthanwhat previously existed but it has rendered obsolete some business lines,leading tosignificantjobcontractions(forexample,onlinestreamingserviceshavedecimatedvideostores).Thedifference,however,ispolitical:itisdifficulttoresisttheriseintechnologythoughsomearenowtryingtodothatagainstartificialintelligence(AI)butitismucheasiertoopposetrade,particularlyinthecontextof nationalist policies.In short,the process of structural change creates winners and losers and,with it,changes political dynamics,often in favor of protectionism.Inaddition,theunequalgainstoeconomicactorsbehindefficiency-enhancingtradeliberalizationcanleadtoresistance,asstressedinthe“politicaleconomyofprotectionism”literature(forexample,Krueger1996).Benefitsoftradearespreadthroughout the economy,especially for consumers,whereas the costs tend to be concentrated geographically.Political resistance to trade,therefore,is often easier tomobilizethansupportforit.While trade reduces poverty,it may also exacerbate inequality,particularly in higher-income economies.The comparative advantage of developed countries tends to be in skills-,technology-,and capital-intensive sectors;through trade,these expand and,with them,higher wages go to better-skilled workers and owners of technology and capital,who tend to be at the higher end of the income distribution.Theoppositeeffect,however,resultsincomparativelydisadvantagedsectors,that is,traditional industries requiring less skills and expertise,where wages fall.The result is a worsening distribution of income and political opposition to trade in developed countries.By the same logic,however,the income distribution in developing countries should improve due to trade,ceteris paribus.IV.Origins and tools ofagricultural protectionThe process of structural change creates winners and losers and,with it,changes political dynamics,often in favor of protectionism.21HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.21It is also the case that a country does not choose its comparative-advantage industries;the global market does that.For a variety of public-policy/political reasons,a government may wish to support globally uncompetitive industries.For example,the government of a relatively labor abundant country may wish to have comparative advantage in high-tech industries but its actual comparative advantage will likely lie elsewhere.It may choose to protect the industry anyway.Notethatinthelongrun,acountrycanchangeitscomparativeadvantage;Japan was famous for exporting inexpensive low-tech manufactures in the 1950s and 1960s but,after years of investments in productivity and human and physical capital,its exports now tend to be among the most sophisticated in the world,withitstopfiveexportsallinthesectorsofautomobilesandadvancedelectronics.29 But for a number of reasons a government may have incentives to try to expedite the development of a sector for its own purposes.The same would also apply to governments who believe that a sector is necessary for purposes of national defense,strategic competition,and so forth.Protection comes at a cost but the government is willing to pay it.There do exist,however,“economic”arguments for protectionism,in the sense that short-run protection can actually improve the performance of the economy.The most popular of these is the“infant industry”argument,in which market failuresindevelopingeconomies,suchasfinance-relatedbottlenecksor“learningby doing”,prevent a comparative-advantage industry from developing.Short-run protection might allow the infant to develop and thrive,after which the government can withdraw the protection.However,the infant-industry argument has generated mixed results as an industrial policy.While there are recorded successes,there are also many failures since:(1)the government tends to have tochooseifanindustryhasthepotentialtobecompetitive,anditisdifficultforthem to do so ex ante,particularly when government leaders may be motivated ORIGINS AND TOOLS OF AGRICULTURAL PROTECTIONAgriculture presents a separate set of additional considerations to the non-economic arguments for protection due to its importance in meeting the most basic needs of a countrys population.(Photo source:NeilPalmer/CIAT|Flick).Short-run protection might allow the infant to develop and thrive,after which the government can withdraw the protection.However,the infant-industry argument has generated mixed results as an industrial policy.22HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.22byfactorsotherthanefficiencywhenapplyingprotection;and(2)giventheprotectionaccordedanindigenousfirm,ithasanincentivetoperpetuatethetariff,that is,infant industries have a tendency to not grow up.30Sometimesadministrativeactions,likecountervailingduties,whichoffsetforeigngovernmentsubsidies,andanti-dumpingduties,whicharedesignedtooffset“dumping”sellingexportsatapricethatislowerthanthedomesticpriceoftheexportingcountryarereferredtoaseconomicallyjustified“protection”.However,administrative duties are accepted as legitimate in that they correct for a foreign price distortion and,hence,are at least in theory designed to support the market rather than work against it.B.Types of policy instruments applied in agriculture:A brief reviewAgriculture presents a separate set of additional considerations to the above(non-economic)arguments for protection.This is due to agricultures importance in meeting the most basic needs of a countrys population.First,it is useful to delineate the types of trade policy instruments that are used inagriculture,whichmightbeclassifiedas“direct”protection,thatis,instrumentsdirectlyappliedtoexportsandimports;and“indirect”protection,whichaffectinternational trade but are applied to domestic production.31 Common direct instrumentsinclude:(1)tariffs,whichcanbeappliedasapercentageofprice(“advalorem”tariff)butmayalsotaketheformofafixedvalue,or“specific”tariff.The advaloremtariffisbyfarthemostcommonformoftariff;(2)quantitativerestrictions,such as import quotas and export quotas(also known as“voluntary exportrestraints)whichdefinesasetquantityofimportsorexports;(3)tariffrate quotas(TRQ),which allow for a set quantity of imports at a preferential rate,afterwhichthe“normal”(i.e.,most-favored-nation,orMFN)ratewouldapply;and(4)Sanitary and Phytosanitary(SPS)measures,which are necessary to make sure that agricultural imports meet at least minimal safety standards for domestic consumption.This might lead to prohibition of imports from some suppliers(as well as costly bureaucracy).A country may also wish to put in place policies to ensure food security;and(5)export taxes,which are usually used to raise government revenue and keep domestic prices low,and export subsidies,which benefitdomesticproducersand/orraiseforeignmarketsharebutatthecosttodomestic taxpayers and higher prices.Indirectsupportmeasureswouldinclude:(1)commodityprograms,whichofferdomestic price and income support programs for farmers,such as under the EUs CommonAgriculturalPolicy.Thesetendtoincludeproduct-specificsupport,directpayments to producers,supply controls,and various border measures(CRS 2021);(2)marketing support;and(3)input subsidies and tax exemptions.Many of these arguments have a strong logic to them but can be abused.Take,for example,the historical protection of Japanese beef.When pressed for arguments as to why foreign beef was excluded from the Japanese market,the Japanese Agriculture Minister,Tsutomu Hata,famously argued that it was because Japanese physiology was unique.32 A more contentious issue concerns imports of food thatcontaingeneticallymodifiedorganisms(GMOs).Thesearehighlyrestrictedparticularly in the EU but are used fairly widely elsewhere,especially in the United States,Brazil,Argentina,India,andCanada.Whilestillcontroversialandsubjecttoscientificevaluation,theFAOsupportstheviewthatapprovedGMcropsaresafeORIGINS AND TOOLS OF AGRICULTURAL PROTECTIONIt is useful to delineate the types of trade policy instruments that are used in agriculture,which might be classifiedas“direct”protection,thatis,instruments directly applied to exports and imports;and“indirect”protection,whichaffectinternationaltradebutareapplied to domestic production.23HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.23ORIGINS AND TOOLS OF AGRICULTURAL PROTECTIONandhavemanyeconomicbenefits,withmorethan17millionfarmersplantingGMcrops in 29 countries.33C.Climate-related issues:CBAM and beyondWiththetransitiontonetzeroGHGemissions,countrieshavebeenputtinginplace a variety of incentives and disincentives to green the economy.An important instrumentinthisprocessistheuseofcarbontaxes,whichendeavortointernalizethe negative externalities associated with GHG emissions.However,in the absence of a global system of taxing carbon,a carbon tax in one economy or economic space can put domestic production at a disadvantage and,indeed,could lead to“carbon leakage,”in which case production moves to countries with weaker(or no)climate-related disincentives.Such a result would nullify the original intention of thecarbontaxaswellashurtlocalemployment.Thisproblemhasbeenrecognizedfor many years.The Carbon Border Adjustment Mechanism(CBAM),one component of the EU Green Deal,aims to prevent carbon leakage from happening.It imposes a levy on carbon-intensive products in six sectors that are imported intotheEU:ironandsteel,cement,fertilizers,aluminum,electricity,andhydrogen.TheadjustmentisbasicallydeterminedasthedifferencebetweentheEUpriceoncarbon and the price of carbon in the exporting country.This new regulation will encourage the EUs trading partners to establish carbon pricing strategies of their own.But some governments,particularly in developing countries,fear that this not only raises costs(not the least of which being bureaucratic)but could eventually be used as a new instrument of protection against developing economies.Economic estimates(including by the European Commission34)suggest that the impact of CBAM on other countries will be limited,particularly with only six sectorscovered.Noagriculturalsectorsareincluded,althoughotheraspectsoftheEUGreenDealdoaffectagriculture.35 However,these sectors could be expanded and,giventhatLDCsandmanymiddle-incomecountrieshaveloworzerotaxesoncarbon,theeffectmaybemuchlargeronthemovertime.Moreover,itispossiblethat other major export markets for Commonwealth countries will adopt their own carbon taxes.The United States,for example,is already considering it.Eicke et al.(2021)envisions a larger scope for the risks inherent in a countrys capacity to meet the demands of the CBAM.The study argues that smaller developing countries face higher related risks compared to larger emerging economies.Smaller developing countries tend to be more exposed to CBAM implementation due to their limited statistical capacity and less-developed climate targets.The CBAM,one component of the EU Green Deal,aims to prevent carbon leakage from happening.It imposes a levy on carbon-intensive products in six sectors that are imported into the EU:ironandsteel,cement,fertilizers,aluminum,electricity,and hydrogen.24HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.24Theaboveanalysissuggeststhatagriculturaltradeliberalizationholdsgreatpotential in achieving many social objectives,albeit together with costs.How large these gains and losses would be is a critical question that has been addressed by many studies over the years.Hertel(2006),for example,gives an extensive reviewoftheempiricalliteratureontheeffectsofagriculturaltradeliberalizationon poverty and concludes that it can have major positive impacts,although the ultimate extent of poverty reduction depends on a host of variables,from the quality of infrastructure to elasticities of demand and supply.OECD(2002)estimatesthequantitativeeffectsofagriculturaltradeliberalizationinOECDcountries,withafocusontariffsandtariff-ratequotas,andalsoanticipatesrelativelylargeeffectsusingitsnew(atthetime)Aglinkmodel.Inanearlierstudyfor the World Bank,Goldin and Knudsen(1990)produced a large report on the globalimplicationsofagriculturaltradeliberalizationfordevelopingcountries,providing input into the Uruguay Round negotiations which concluded in 1995.Below,we consider related empirical work,with a special focus on the case studiesoftheCPTPP,RCEP,andtheAfCFTA,andoffernewproduct-levelanalysisusing a matching technique.Acommonapproachtoestimatingtheaggregateeffectsofpolicyinnovations,asinthecaseoftariffliberalizationorthecreationofRTAs,isthroughCGEmodels(see Box 1 for a brief explanation of how these models work).CGE models have many advantages,including their ability to generate consistent,empirically tractable,economy-wideeffectsofchangesinpoliciesonkeyvariablessuchas,inter alia,economic welfare,trade,structural change at the sectoral level,and labormarkets,includingeffectsonwages,employmentbyskill,andevengender,depending on the data available.Anticipating changes in these variables is critical toeffectivepolicymaking.Onedrawback,however,isthatdatalimitationspresentin existing available databases preclude detailed product-level analysis and often exclude smaller countries and regions.This is why,as discussed below,in this study weuseapartialequilibriumtogaugepotentialtradeeffectsattheproductlevelfor all Commonwealth countries in Section V(c).AnexampleofaninfluentialCGEmodelfocusingonagricultureisBeckman(2021),whichusesonetoestimatetheeffectsoftwosetsofpolicyscenarios:(1)theliberalizationoftariffsonagriculturalproducts;and(2)theimplicationsofthe WTO Trade Facilitation Agreement36onagriculture.Thepaperfindsthattheremovalofagriculturaltariffsgloballywouldincreaseinternationaltradeby11.1%relative to the baseline.Exports and imports rise for all regions except the EU,and all agricultural sectors see a rise in trade with the exception of live animals.Rice,beef,and other meats have the largest increases in trade,as they are the most protected globally.The rise in global welfare(US$56 billion)per annum is approximately equal to 2%of world agricultural production.It is useful to note these gains are large because they denote a permanentgaininefficiency,ratherthan one-time increase.Most regions in the model experience a drop in the price ofagriculturalcommodities,whichthestudyemphasizeswillhelpimprovefoodsecurity.V.Agricultural trade liberalization:Empirical assessmentsTheremovalofagriculturaltariffsglobally would increase international trade by 11.1%.The rise in global welfare(US$56 billion)per annum is approximately equal to 2%of world agricultural production.25HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.25BOX 1Computable General Equilibrium(CGE)models:The basics*CGEmodelshavealongtraditionofanalyzinginternationaltradeissues.AtypicalCGE model of international trade consists of multiple countries that trade with each other;each country contains multiple industries which are linked through aninput-outputstructure.Eacheconomygenerallyhasthreeagents:firms,consumers,and the government.Firms produce output,which is purchased by consumersandthegovernment.Firmsmaximizeprofitsandusemarketpricesin deciding how much output to produce and with which inputs.Consumers in each country are often modeled with reference to a representative household.Therepresentativehouseholdmaximizesautilityfunctionwhichisdefinedovertheconsumptionoffinalgoodsfromeachindustry.Consumersareendowedwithcapital,land,labor,and other factors of production.Based on market prices,they supply their factors and receive income in return.In a CGE model,the government administersonlymarket-relatedpolicies,suchastaxes,subsidies,tradetariffs,and quotas(if applicable)and policy variables often enter exogenously into CGE models.The market-clearing conditions in CGE models determine prices of all goods and factors.Mostarecomparative-staticinnature,thatis,consumersandfirmsmakeoptimal decisions based on current price signals,with no role for forward-looking expectations.When an external shock or policy change,such as a free trade area ofliberalizationoftariffbarriers,isintroducedintoastaticCGEmodel,pricesand quantities adjust to clear all markets,and the model produces a new state of general equilibrium.However,as there is no explicit time dimension in a static CGE model,it neither provides results on how the economy adjusts to the new equilibrium nor stipulates how long it takes to reach the new equilibrium.To track the adjustment path requires a dynamic CGE model,which explicitly traces each variablethroughtime.Indynamicmodelsconsumersandfirmsoptimizetheirdecisions intra-and inter-temporally,and the resulting equilibrium provides a set of prices that clears markets over a time path.TheArmingtonassumptionofnationalproductdifferentiationispopularinCGE models because it enables the model to match observed trade realities in a tractable way.However,its shortcoming is also obvious:The Armington specificationhastheeffectoflockinginpre-existingtradepatternsandpreventsa model from generating large changes in trade in sectors with little or no trade,leadingtoresultsreferredtoasthe“stuckonzerotrade”problem.UndertheAGRICULTURAL TRADE LIBERALIZATION:EMPIRICAL ASSESSMENTS 26HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.26Armingtonspecification,ifacountrysimportsofagivenproductfromanothercountryarezeroinitially,theywillalwaysbezero,evenaftersignificantreductionsof trade barriers.Thus,in Armington-type CGE models,the trade patterns are largelydeterminedbyfixed-tasteparameters,buttheseparametersarenotexplained by the model.Inspired by the theoretical and empirical advances in international trade theory over the past four decades,some trade-focused CGE models have gone beyond theArmingtonspecificationtomodeltradebehaviormorerealistically.TheCGEmodelswithmonopolisticcompetitionandfirm-levelproductdifferentiationappeared in the 1980s,soon after Krugman(1979)developed the“new trade theory”modeltorationalizeintra-industrytradewiththeDixit-Stiglitz(1977)love-of-varietyspecification.Inmorerecentyears,theriseofheterogeneous-firmtradetheoryhasledtotheintroductionoffirmheterogeneityintoCGEmodels.37InthemodelsofMelitz(2003)and Bernard et al.(2003),each industry is populated by a continuum offirms,insteadofarepresentativefirm.Thesefirmsaredifferentiatedbythevarietiestheyproduceandtheirproductivity.Inadditiontofixedproductioncosts,therearealsofixedcostsandvariable(iceberg)costsassociatedwithexportingactivities.Afirmentersexportmarketsifandonlyifthenetprofitsgeneratedfromitsexportstoagivencountryaresufficienttocoverthefixedexportingcosts.Thus,zero-cut-offprofitconditionsdefinetheproductivitythresholdsforafirmsentryintoexportsmarkets.Typically,thecombinationoffixedexportcostsandvariable export costs ensures that the exporting productivity threshold is higher thanforproductionforthedomesticmarket,i.e.,onlyasmallfractionoffirmswithhigh productivity sell to foreign markets.*Based on Petri,Plummer,and Zhai(2021)AGRICULTURAL TRADE LIBERALIZATION:EMPIRICAL ASSESSMENTS Under the WTO Trade Facilitation Agreement simulation,the study estimates gains in agricultural trade at 7.3%relative to the baseline.This is somewhat less thanunderthetariffliberalizationscenariobutstillsolid.AllregionsgainexceptArgentina.Inparticular,itfindsthatlow-andmiddle-incomeregionsexperiencethelargestexportgainsduetothemoreefficientclearanceofagriculturalproducts through customs.InanotherstudyfocusedonAfricaandtwocrops,maizeandrice,SungeandNgepah(2020)useacommonmodelemployedinproductivityanalysis38 and estimate that reducing trade distortions in agriculture,coupled with better governance,substantially increases TFP growth.27HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.27A.Regional trade agreements:Case studies of CPTPP,RCEP,and AfCFTARegional Trade Agreements(RTAs),especially Free Trade Areas(FTAs),are trade partnershipsinwhichtwoormorecountriesagreetoliberalizetradeamongthemselves.While such a preferential approach contradicts the concept of non-discriminationand“most-favoured-nation”(MFN)treatmentespousedbytheWTO,theyarepermittedbyWTOrules(andtheGeneralAgreementonTariffsandTrade,or GATT,before it)under certain conditions(Article XXIV),including:(1)substantiallyallgoodsmustbeincludedintheagreement;(2)tariffshavetobereducedtozero;(3)theagreementhastobeimplementedinareasonableamountoftime(within10years);(4)averagetariffsonnon-partnercountriescannotrise,that is,an RTA cannot be used to increase protection against third countries;and(5)theymustbenotifiedtotheGATT/WTO.39 As of August 2024,369 RTAs were in force,compared to 83 in 2000 and 28 in 1990.40 With the end of the Doha Development Agenda negotiations in 2015 and the failure to bring forward an ambitious new“single undertaking”under the auspices of the WTO,RTAs have becomethemostvibrantsourceofconcertedtradeliberalizationinternationally,particularly in the Global South.TheeconomiceffectsofRTAsareambiguousa prioriintermsofefficiencybecausetheyleadtobothpositiveandnegativeeffects,withtheformerstemmingfromtheusualgainsfromtrade(thatis,contractionoflessefficientdomesticproductioninfavorofmoreefficientpartner-countryproduction,aprocessknown as“trade creation”)and the latter due to preferential treatment for partnercountriesthatmightbelessefficientthannon-partners(“tradediversion”).The majority of the empirical literature would suggest that most RTAs tend to generate net positive gains but success depends on many factors,including the economic structures and trade patterns of the integrating economies,scope or comprehensiveness of trade policies covered,and the“depth”of integration.41 A surveyofthetheoreticaleffectsofRTAsaswellasmodelsusedtoestimatetheireffectsempiricallycanbefoundinPlummer,etal.(2010).TheOECD(2015)reportoffersausefulsurveyoftheeffectsofRTAsonagriculture.Itanalyzes53agreementsandfindsthatRTAsamongdevelopingcountriesarethemosteffectiveatliberalizingtariffs,withtheshareofduty-freetarifflinesintheseRTAs rising from on average 28%to 92%,compared to 68%to 87%for developed-developingcountryagreements.Nevertheless,theRTAssurveyedcontinuetobecharacterizedbyproductexemptionsandnon-tariffbarrierssuchastariff-ratequotas(TRQs)in agriculture.Four key agricultural goods,namely dairy,sugar,cereals,andmeat,continuetofacesignificantprotectionafterRTAsandtariffsare only eliminated in a few instances.Moreover,Rules of Origin(RoO)42 tend to be stricter in agriculture than in other sectors.Export subsidies are prohibited in over half of the agreements,and also about half mention domestic agricultural subsidies,but actual reductions in trade barriers are rare.Rather,the RTAs usually just feature references to WTO processes.Most RTAs prohibit export restrictions between member-states except as permitted under the GATT/WTO.Very little is done with respect to SPS measures,which is surprising given their importance in agricultural trade.TheOECD(2015)reportalsooffersasurveyofempiricalstudiesoftheeffectsonagriculturaltradeoftheseRTAsandconcludesthatpreferentialtariffreductionsdo,indeed,have a substantial impact on agricultural exports and imports,both intermsoftheireffectsonexistingtradeflowsandindevelopingtradeinnewcommodities.For example,agricultural goods that receive margins of preference AGRICULTURAL TRADE LIBERALIZATION:EMPIRICAL ASSESSMENTS RTAs among developing countries are themosteffectiveatliberalizingtariffs,withtheshareofduty-freetarifflinesin these RTAs rising from on average 28%to 92%,compared to 68%to 87%for developed-developing country agreements.28HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.28of 5-10%increase trade on average by 10%and,where margins of preference exceed 10%,trade increases on average by 48%.The large increase in the number of RTAs in recent years tends to include agreements that are relatively small in terms of membership.Bilateral RTAs makeupalargemajority.Assuch,theycanberelativelyinefficientandproducewhathasbeenreferredtoasa“spaghettibowl”effect,thatis,abureaucraticallycumbersomesetofoverlappingbilateralFTAsthatmayhavelimitedutilizationrates because of the small number of participants and,often,limited scope.The solution to this problem has been the emergence of modern“mega-regional”agreements to include many economies and expanded coverage,three of which have entered into force over the past few years:the CPTPP,RCEP,and AfCFTA,noted in Section I.These mega-regional trade groupings are particularly relevant to the economic prospects of the Commonwealth nations,due to not only their important implications for the global economy but especially the fact that Commonwealth members play key roles in each of these groupings.The CPTPP is composed of 12 economies with the recent accession of the UK and of these,seven are Commonwealth members:Australia,Brunei Darussalam,Canada,Malaysia,NewZealand,andSingapore,inadditiontotheUK.ExceptforCanadaandtheUK,thesearealsothefiveCommonwealthmembersofRCEP.43 In addition,two of the existing four RCEP applicant economies,i.e.,Bangladesh and Sri Lanka,are Commonwealth countries,with of course the as-yet remote possibility of India returning to the negotiating table at some point.All 21 African Commonwealth countries are members of the AfCFTA.I.Asia-Pacific:RCEP and CPTPPTheCPTPPisacutting-edgeFTAthatemergedfromthe12-memberTrans-PacificPartnership(TPP)agreement when the United States,the country that had spearheaded TPP negotiations and signed it in 2016,withdrew from the agreement at the outset of the Trump administration.The agreement has been called a 21st century“gold standard”agreement,complete with an almost total phasing out oftariffsandcomprehensivereductionsinnon-tariffbarriers(NTBs),modernchapters imposing disciplines on state-owned enterprises,investment facilitation,ambitious coverage of services trade,e-commerce,and labor and environmental chapters.44 When the United States pulled out of the TPP,the remaining countries decidedtomoveforwardwiththesameagreementexceptforafewitemsallUSprioritiesthatwouldbe“suspended,”inhopesthattheUnitedStateswouldeventuallyreturn,anditwasre-namedtheCPTPP.ItwentintoeffectinDecember2018,enlarged to include the UK in 2023(to enter into force in 2024),and has six economies in the queue for additional membership:China,Taiwan,Costa Rica,Ecuador,Uruguay,and Ukraine,with others such as South Korea,Indonesia,and the Philippines expressing a strong interest in applying.TheRCEPagreementbegannegotiationsinNovember2012with16negotiatingpartnersthetenASEANcountriesandthesixcountrieswithanFTAinplacewithASEAN,i.e.,Australia,China,Japan,NewZealand,SouthKorea,andIndiaandwentintoeffectinNovember2020withoutIndia,whichhadwithdrawnin 2019.The RCEP agreement is far less comprehensive than the CPTPP,in part because of the considerable diversity of its membership,which includes low-income,middle-income and high-income economies,with a large range of economic structures.It also has several economies waiting to join.In addition to the two Commonwealth countries,Bangladesh and Sri Lanka,Hong Kong and Chile have applied.AGRICULTURAL TRADE LIBERALIZATION:EMPIRICAL ASSESSMENTS Malaysia,Canada,Singapore,and AustraliabenefitthemostamongCommonwealth countries in the CPTPP and,in fact,are among the biggest winners in the grouping,whereas the effectsofRCEPonCommonwealthcountries are much smaller.India loses due to trade diversion in both agreements.29HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.29TheeconomiceffectsofCPTPPandRCEPhavebeenstudiedextensively,mostfrequently via a CGE model.45Togiveanideaofthesizeoftheeconomiceffectsofthese agreements on income and trade,the results of a study by the author and co-authors Peter Petri and Cyn-Young Park are given in Tables 2 and 3(adopted from Park,et al.,2021).Commonwealth countries that are included in the database and for which there are estimates are highlighted in the tables.Table 2 anticipates that both agreements will generate positive gains,to the tune of US$263 billion and US$188 billion,for RCEP and CPTPP,respectively.Though each estimate is smallrelativetobaselineincome,thegainsaresignificantinthatbarrierstotradeamong the CPTPP economies were already low and RCEP economies had in place alargenetworkofFTAs,withtheexceptionofNortheastAsia.Malaysia,Canada,Singapore,andAustraliabenefitthemostamongCommonwealthcountriesinthe CPTPP and,in fact,are among the biggest winners in the grouping,whereas theeffectsofRCEPonCommonwealthcountriesaremuchsmaller.Indialosesduetotradediversioninbothagreements.Table3showsthattradeeffectsaresignificantlylargerthantheincomeeffectsgiventhattheformertendstodrivethe latter:exports rise by US$496 billion and US$312 billion under RCEP and CPTPP,respectively,almostdoubletheincomeeffects.AGRICULTURAL TRADE LIBERALIZATION:EMPIRICAL ASSESSMENTS Notes:Commonwealth countries in bold.CPTPP=ComprehensiveandProgressiveAgreementforTrans-PacificPartnership.RCEP=RegionalComprehensiveEconomicPartnership.Resultsareexpressedaschanges relative to the baseline.Results are obtained via a CGE model.See Box 1 and Park,et.al.(2021)for details.Source:Park,Cyn-Young,PeterA.Petri,andMichaelG.Plummer,2021.“TheEconomicsofConflictandCooperationintheAsia-Pacific:RCEP,CPTPP,andtheUS-ChinaTradeWar,”EastAsianEconomicReview,Vol.25,No.3,September,pp.233-272.Table 2 Income effects of CPTPP and RCEP2030 income(US$million)Incremental income change (US$billion)Incremental income change(%)CPTPPRCEPCPTPPRCEPAMERICAS39,5696030.150.01Canada2,7172610.960.02United States25,754-40-0.010.00ASIA50,659912340.180.46Brunei Darussalam31103.010.53China27,839-14127-0.050.46India5,487-5-7-0.09-0.13Malaysia6752974.361.03Singapore4851503.140.05OCEANIA2,8541920.650.08Australia2,5901520.580.06New Zealand26441 1.380.28REST OF THE WORLD40,72019240.050.06Africa(Sub-Sahara)4,068010.000.01WORLD133,8011882630.140.2030HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.30II.African Continental Free Trade Area(AfCFTA)Africa has long hosted RTAs of various degrees of scope and depth,including the East African Community,the Economic Community of West African States,the Common Market for Eastern and Southern Africa,the Southern African Customs Union,the Southern African Development Community,and the Economic and Monetary Union of Central Africa.46Nevertheless,intra-regionaltradecontinuesto be low;as a percentage of total trade,it was only 13.7%in 2022,down from 14.5%in 2021.47Thiscomparestoabout59%inAsiaandthePacific.48 The AfCFTA is designed to change that.It was created under the auspices of the African Union,inparttocontributetoeffortstoachievetheregionsSustainableDevelopmentGoals,especially Goal 8 to“promote sustained,inclusive and sustainable economic growth,full and productive employment,and decent work for all.”Twenty of the AfCTAs 55 members are Commonwealth nations.Using a CGE model that takes advantage of labor-related data,Plummer,et al.(2024)estimatesthewelfare,trade,sectoralchange,andemploymenteffectsof the AfCTA.49Table4summarizestheprojectedeffectsonwelfareandtradeAGRICULTURAL TRADE LIBERALIZATION:EMPIRICAL ASSESSMENTS Notes:Commonwealth countries in bold.CPTPP=ComprehensiveandProgressiveAgreementforTrans-PacificPartnership.RCEP=RegionalComprehensiveEconomicPartnership.Resultsareexpressedaschanges relative to the baseline.Results are expressed as changes relative to the baseline.Results are obtained via a CGE model.See Box 1 and Park,et.al.(2021)for details.Source:Park,Cyn-Young,PeterA.Petri,andMichaelG.Plummer,2021.“TheEconomicsofConflictandCooperationintheAsia-Pacific:RCEP,CPTPP,andtheUS-ChinaTradeWar,”EastAsianEconomicReview,Vol.25,No.3,September,pp.233-272.Table 3 Export effects of CPTPP and RCEP2030 Exports(US$million)Incremental Exports(US$billion)Percent Export Change (%)CPTPPRCEPCPTPPRCEPAMERICAS7,06878-41.1-0.1Canada83540-14.8-0.1United States3,906-8-2-0.2-0.1ASIA12,9051874961.43.8Brunei Darussalam16103.60.6China4,976-6234-0.14.7India1,360-3-5-0.2-0.4Malaysia49145129.32.5Singapore47030-26.4-0.5OCEANIA6732944.30.6Australia5892434.00.6New Zealand84515.91.2REST OF THE WORLD15,5031900.10.0Africa(Sub-Sahara)883110.10.1WORLD36,1493124960.91.431HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.31for countries covered in the model,including 13 Commonwealth countries(highlighted),with results presented as changes relative to the baseline.Overall,itfindsthattheAfCFTAshouldincreaseContinentalwelfareby3.2%onanannualbasis,whichissignificantlylargerthantheanticipatedeffectsoftheCPTPPandRCEP.The gains in income derive mainly from a substantial increase in trade:exports and imports are estimated to increase by approximately 14%,or more than four times the increase in welfare.Of the Commonwealth countries,Togo experiences the largest income gains relative to baseline GDP(11%)and Ghana the most in absolute terms,with a gain of US$9.5 billion.But export gains are especially impressive for some Commonwealth members:Zambia(US$34 billion),Kenya(US$32 billion),and Togo(US$30 billion)are estimated to gain the most innominalterms,butbenefitsarefairlywidespread,witheightoutofthe13Commonwealth countries experiencing a rise in exports of more than US$20 billion.Changes in sectoral employment are presented in Table 5,where agriculture and Commonwealth countries are highlighted.Clearly the AfCFTA will have beneficialeffectonemploymentoverall,butespeciallyinagriculture.Agriculturalemployment expands in all Commonwealth members with the exceptions of Botswana,which experiences a small(2,000)contraction,and Mauritius,a country where employment changes very little.Agricultural employment gains are particularlynotableinTanzaniaandKenya,whererespectively1.022millionand449,000 new jobs are created.50In short,RTAs,particularly mega-regional agreements,have the potential to increaseeconomicefficiency,welfare,trade,andemploymentsubstantially.Theseagreements were very complicated to negotiate given divergent economic(and other)interests,but in the end the anticipated potential gains via economic cooperationweresufficienttocompletetheagreements.AGRICULTURAL TRADE LIBERALIZATION:EMPIRICAL ASSESSMENTS AfCFTA should increase Continental welfare by 3.2%on an annual basis,whichissignificantlylargerthantheanticipatedeffectsoftheCPTPPandRCEP.The gains in income derive mainly from a substantial increase in trade.32HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.32AGRICULTURAL TRADE LIBERALIZATION:EMPIRICAL ASSESSMENTS Notes:Commonwealth countries in bold.Results are obtained via a CGE model.derived using a CGE model.For details,see Box 1 and Plummer,et.al.(2024).Source:Plummer,MichaelandZhai,FanandXIE,Jie,ProsperitythroughDeeperIntegrationinAfrica?Welfare,TradeandLaborEffectsoftheAfricanContinentalFreetradeAreaandtheBeltandRoadInitiative,2024.AvailableatSSRN:https:/ 4 Welfare and trade impacts of the African Continental Free-trade Area(EV,relative to baseline,2033)US$billion,2014 prices%of baseline GDPTradeUS$billion,2014AfCFTAAfCFTAExportsImportsAFCFTA ECONOMIES146.93.213.613.9Egypt11.21.410.89.6Morocco6.83.314.512.5Tunisia3.04.616.614.7Benin0.61.616.210.0Burkina Faso2.87.529.838.0Cameroon1.52.025.818.4Cte dIvoire10.79.859.359.6Ghana9.58.621.721.0Guinea2.310.827.428.9Nigeria5.20.62.74.8Senegal4.98.540.230.5Togo1.411.329.523.8Rest of Central Africa 5.87.74.76.8Ethiopia3.31.311.710.5Kenya8.34.531.723.9Madagascar0.51.98.18.2Malawi0.74.519.219.4Mauritius0.83.711.39.6Mozambique 2.14.213.914.7Rwanda1.86.624.723.7Tanzania8.26.024.622.7Uganda3.54.428.232.7Zambia4.512.034.038.1Zimbabwe 1.78.432.827.0Botswana2.16.78.115.1Namibia2.211.437.030.3South Africa 21.75.217.420.9Rest of Africa 19.82.37.57.3World108.50.10.40.433HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.33Notes:Commonwealth countries highlighted in orange.Results are obtained via a CGE model.derived using a CGE model.For details,see Box 1 and Plummer,et.al.(2024).Source:Plummer,Michael and Zhai,FanandXIE,Jie,ProsperitythroughDeeperIntegrationinAfrica?Welfare,TradeandLaborEffectsoftheAfricanContinentalFree-tradeAreaandtheBeltandRoadInitiative,2024.Table 5 Effects of African Continental Free-trade Area on sectoral total employment(change from baseline,000 workers,2033)BWABFACIVEGYETHGHAKENAgriculture-4122183-1584320449Mining160-12-1-40-11-4Processed food-4-601427624840Textiles&apparel2-21510162-16Wood and paper products-1-446778-713Chemicals0-121920-74457Energy-intensive manufacturing-12212214-30Other manufactures0-16-220117014Construction8813844265648Utilities011111611Trade113742977998209249Transportation73331-181918-9Communication010000-2Financial services-1-2-4-22-30Other private services447-2-141124748Public services10-9-5248972MUSNAMSENTGOTZAUGAZMBAgriculture02282351,022375121Mining0410-4-72-724Processed food052629544-29Textiles&apparel1-21712671-12-5Wood and paper products10-2721-35-16-17Chemicals003145-415Energy-intensive manufacturing01152-31033Other manufactures11172028-19-8Construction111359774987Utilities0-2906110Trade01529817534763293Transportation1245141714619Communication000-1101Financial services0140-6-6-1Other private services01932-6832-472Public services014-318182334HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.34B.Commodity-level effects of liberalization:New estimatesPolicymakerstendtobemoreinterestedindisaggregatedeffectsofpolicyinnovationsthaneconomy-wideanalysisbecauseproduct-basedanalysisoffersmoreinsightintocostsandbenefitsfromasocialperspective.Ifatradeagreementis estimated to increase economic welfare,that is useful information.But what if thegainsareskewedtowardjustonesectorandothersexperiencenetlosses?For example,what if capital-intensive manufacturing gains but labor-intensive manufacturingandagriculturelose?Fromadistributionalpointofview,thatcouldbeproblematic.CGEmodelsofferusefulinformationabouttheeffectsofchangesin trade policy on the economy and sectoral change in the aggregate,but from a policypointofviewitwouldbeusefultoconsidereffectsattheproductlevelaswell.InordertogiveabetterideaofthepotentialeffectsoftariffliberalizationinagricultureonallCommonwealthcountries,thissubsectionconsiderstheeffectsoftradeliberalizationatthefour-digitHSlevel.51Itexaminesthelikelyeffectsoftariffliberalizationthroughtwoapproaches:(1)theproduct-levelimplicationsofagriculturaltariffliberalizationofthemainmarketsoftheCommonwealthontheexportsofCSs;and(2)theproduct-leveleffectsoftradeliberalizationofimportsinlocalCommonwealthmembermarkets.Thefirstgivesanotionofhowtheglobal marketplace could support exports from Commonwealth countries and the secondhowpriorityliberalizationofimportslocallymighthelpfoodsecurity.Theapproach is based on a fairly commonly used“partial equilibrium”methodology developed in Kreinin and Plummer(1992).I.Agricultural exports to main Commonwealth marketsTable 6 shows the top 10 agricultural exports of Commonwealth countries(ranked byvalue)attheproductleveltofivekeyCommonwealthexportmarkets,thatis,the EU,the United States,UK,China,and Japan(the top 50 exports are included in Appendix 2)for the year 2022.It includes the value of the Commonwealths commodity exports,share of those exports in total agricultural exports,and the appliedtariffinthedestinationmarkets.52 A few observations:The United States is the largest market for these agricultural exports at US$57 billion,followed by the EUatUS$43billion.TariffsfacingCommonwealthexportersinthesemarketsvaryconsiderably.Atleasthalfofthetoptenexportstoeachmarketenterstarifffree,withtheexceptionoftheJapanesemarket,whereonlyfouritemsentertariff-free.Buttariffscanbehighoncertaincommodities.Amongthetop10exportstotheUnitedStates,thecountryappliesnon-zerotariffsonlyonMeatofBovineAnimalsFreshandMeatofBovineAnimalsFrozen,whicharetaxedatahigh17.8%,the highest on any of the top 50 agricultural exports to that market.These productsalsofacethehighesttariffsintheJapanesemarketandatmorethandouble the US rates(38.5%for both).Crustaceans are taxed at the highest rate intheUKmarket(10.9%),andasimilarleveloftariffsonCrustaceansandCitrusFruit(10.3%and 10.8%,respectively)are applied in the EU market among top 10 Commonwealth exports.AGRICULTURAL TRADE LIBERALIZATION:EMPIRICAL ASSESSMENTS The United States is the largest market for these agricultural exports at US$57 billion,followed by the EU at US$43 billion.TariffsfacingCommonwealthexporters in these markets vary considerably.35HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.35Table 6 Top 10 Commonwealth agricultural exports to selected markets and levels of protection,2021E.JapanHS4 codeProduct descriptionUS$millions%total exportsApplied MFNTotal15,492.31001205Rape,colzaseeds1,952.412.600.01001Wheat and meslin1,463.79.450.00202Meatofbovine,frozen1,088.67.0338.50203Meat of swine955.66.172.20201Meat of bovine,fresh836.55.4038.51511Palm oil691.44.460.00306Crustaceans621.94.013.30406Cheese and curd547.03.5331.81701Cane or beet sugar524.23.380.00304Fishfillets435.32.814.3A.European UionHS4 codeProduct descriptionUS$millions%total exportsApplied MFNTotal43,422.41001205Rape,colzaseeds3,656.88.420.01511Palm oil2,680.46.170.00306Crustaceans1,851.14.2610.30204Meat of sheep/goats1,603.43.690.02106Food prep1,354.63.120.01001Wheat and meslin1,242.42.860.01801Cocoa beans1,189.02.740.01518Animal/veg fats1,164.72.680.01604Prep/preservedfish1,144.12.630.00806Grapes1,124.72.597.7C.United KingdomHS4 codeProduct descriptionUS$millions%total exportsApplied MFNTotal5,235.91000204Meat of sheep/goats352.26.730.01518Animal/veg fats,oil336.96.430.01511Palm oil308.85.900.01006Rice271.85.190.01001Wheat and meslin268.85.130.00806Grapes241.34.616.00306Crustaceans228.54.3610.91604Prep/preservedfish222.54.250.00805Citrus fruit207.63.9710.81005Maize(corn)176.53.370.0D.ChinaHS4 codeProduct descriptionUS$millions%total exportsApplied MFNTotal36,461.71000402Milk3,588.09.8410.01001Wheat and meslin2,891.47.930.00202Meatofbovine,frozen2,620.47.1916.30306Crustaceans2,511.46.896.20204Meat of bovine,fresh2,006.05.5017.01511Palm oil 1,875.65.140.01901Malt extract1,731.94.750.01205Rape,colzaseeds1,506.84.130.02106Foodprepnotspecified1,334.43.660.01006Rice1,232.43.380.0B.United StatesHS4 codeProduct descriptionUS$millions%total exportsApplied MFNTotal57,207.81002106Food prep5,618.89.820.01905Bread,pastry,etc.4,934.48.630.00306Crustaceans4,585.48.020.61514Rape,colza,mustdoil3,884.26.790.00201Meat of bovine,fresh2,937.65.1417.81806Chocolate prep1,981.33.460.02004Vegetables prep1,788.63.130.00204Meat of sheep/goats1,639.22.870.00202Meatofbovine,frozen1,601.22.8017.80302Fish;fresh or chilled1,181.92.070.6Note:ProductcodesareHS2017.AppliedMFNtariffsarecalcuatedasthesimpleaverageoftariffsatsix-digitHSlevel.Source:WITS,WTO-IDB,Commonwealth Secretariat36HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.36Two caveats need to be kept in mind regarding the above analysis.First,there is anendogeneityproblem:highertariffsleadtolowerexportsceteris paribus,and vice versa,and this no doubt distorts the picture somewhat.For example,Japan hasappliedinthepastatariffof778%onriceimports.53 Rice exports by some Commonwealth countries are competitive,as seen from the fact that it was a top 10 export to Japans regional neighbor,China.But it is no mystery why rice exports are not found in the top 50 agricultural exports to Japan.Second,the only data onprotectionthatareusedhereconcerntariffsbut,asnotedinSectionIV,therearemanyotherinstrumentsthatcanbemobilizedtodeterimports,particularlyinagriculture.Hence,theappliedtariffsusedhereshouldbeconsideredaminimumlevel of protection.II.Agricultural imports of net food-importing Commonwealth marketsTable 7 aggregates the top 50 imports at the four-digit HS product level of 37 net food-importing Commonwealth countries.It includes the value of imports summed across all countries,share of each product in total imports of this subregion,andtheappliedMFNtariffoneachitem,averagedfromthesix-digitHSlevel and across countries.As the variance in protection across net food importing Commonwealth members could hardly be greater,with some free-trade countries likeBruneiandSingaporeandothersinAfricawithhightariffs,generalizationscanbedifficult.Still,itisnoteworthythattarifflevelstendtobehigh:theaveragetariffonimportsvaluedatmorethanUS$1billion,constitutingfullytwo-thirdsoftotalsubregionalimports,is14%.Reductionsinthesetariffscouldboostfoodconsumptionconsiderablyinsomeeconomiesaswellasbenefithouseholdexpenditures in general.54Tarifflevelsinthe10netfoodimportingCommonwealthcountries that are also LDCs tend to be higher than average,and these countries couldgainthemostintermsoffoodsecuritythroughtariffliberalization.55Howmuchwouldimportsincreasewithtariffliberalization?Priceelasticitiesofimportdemandarenotoriouslydifficulttoestimate,astheyvaryconsiderablyacross countries and commodities.However,Fally and Sayre(2018)undertakes a meta-analysis of the large literature on price elasticity of demand estimates for commodities and calculates that,in general,these estimates tend to vary between negative 0.1 and 0.5,suggesting considerable potential for increasing import demandwithtariffreductions,evenifcommoditydemandtendstobesomewhatprice-inelastic.In addition to the caveats mentioned with respect to the analysis of protection inmainexportmarkets,itisimportanttostressthatimporttariffrevenuecansometimesbeanimportantsourceofgovernmentrevenue.Tradeliberalization,therefore,maycauseafiscalchallenge.Yet,therearemanyotherformsofpotential indirect revenue sources that governments can tap that can make up for anylostrevenueduetoliberalization.Inanyevent,giventhedistortionscausedbyimporttariffsthatdivergeacrossproducts,thetariff-revenueargumentcouldbesolvedviaanacross-the-boardtariffthatwouldincreasegovernmentrevenuewithout causing production and consumption distortions.AGRICULTURAL TRADE LIBERALIZATION:EMPIRICAL ASSESSMENTS Theaveragetariffonimportsvaluedat more than US$1 billion,constituting fully two-thirds of total subregional imports,is 14%.Reductions in these tariffscouldboostfoodconsumptionconsiderably in some economies as wellasbenefithouseholdexpendituresin general.37HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.37AGRICULTURAL TRADE LIBERALIZATION:EMPIRICAL ASSESSMENTS Table 7 Top 50 product imports from Commonwealth net food importing countries and applied protection,2022Note:ProductcodesareHS2017.AppliedMFNtariffsarecalcuatedasthesimpleaverageoftariffsatsix-digitHSlevel.Source:WITS,WTO-IDB,Commonwealth SecretariatHS4 codeProduct descriptionUS$millions%total importsApplied MFNHS4 codeProduct descriptionUS$millions%total importsApplied MFNTotal53,706.3100Contd1511 Palm oil 8,576.3 15.9717.9 0407Birds eggs 381.2 0.7119.31001 Wheat5,454.3 10.163.1 0406 Cheese,curd 377.3 0.7017.51701 Sugar 3,036.1 5.6525.2 0203 Meat of swine 373.6 0.7029.31006 Rice 2,876.1 5.3612.4 1902 Pasta 347.50.6521.01201 Soya beans 2,170.4 4.047.1 1602 Prep meat 342.7 0.6426.30402 Milk,concentrated1,853.7 3.4519.6 1101 Wheatflour327.4 0.6120.71507 Soya-bean oil 1,782.6 3.3224.7 1702 Sugars 326.00.6110.02106 Food prep 1,756.6 3.2712.9 0805 Citrus fruit 305.1 0.5724.50713 Vegetables 1,625.4 3.0312.2 2008 Fruit,nuts 298.1 0.5619.30303 Fish;frozen1,461.8 2.7218.5 2009 Fruit juices 293.6 0.5524.21005 Maize(corn)1,337.2 2.498.3 1605 Crustaceans 272.6 0.5117.51518 Animal/veg oils 1,158.1 2.1611.8 0306 Crust in shell 269.1 0.5019.51901 Malt extract 1,156.7 2.1511.4 1107 Malt 267.90.504.20207 Meat of poultry 1,077.2 2.0124.0 1516 Animal/veg fats 263.2 0.4921.61905 Bread,pastry 721.7 1.3422.3 1704 Sugar conf 263.0 0.4924.02103 Sauces and prep 607.8 1.1319.5 0305 Fish,dried 243.1 0.4515.41205 Rape/colzaseed572.1 1.077.7 1801 Cocoa beans 239.3 0.457.10703 Onions,shallots 535.6 1.0021.2 0204 Meat sheep/goat 234.2 0.4419.01502 Fats bovine,etc 519.3 0.976.5 0105 Poultry,live 229.4 0.4312.51604 Preparedfish490.7 0.9116.9 0401 Milk,raw225.6 0.4224.71806 Chocolate 453.4 0.8422.8 2101 Extracts 219.30.4119.81517 Margarine 439.2 0.8219.2 0304 Fishfillets215.0 0.4022.30202 Meatbovine,frozen419.3 0.7821.0 0405 Butter,other fats 214.1 0.40 16.80808 Apples,pears 402.9 0.7520.8 1512 Sun-flowerseed198.6 0.3722.42004 Veg preparations 398.4 0.7419.4 0701 Potatoes 196.0 0.3614.338HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.38Thisstudyhasunderscoredthepotentialbenefitsoftradeingeneralandagricultural trade in particular in achieving salient economic and social goals of the Commonwealth nations,including increasing economic welfare,reducing poverty,enhancing food security,and addressing climate change challenges.Agricultural trade is an important tool to attain the Sustainable Development Goals,particularly Goal 1 and Goal 2.This conclusion is strongly supported by economic analysis and quantitative modeling.Nevertheless,agricultureisthesectorthatfacesthemostintractableobstaclestointernationalexchange,viadirectinstrumentssuchastariffs,quantitativerestrictions,SPS,and technical barriers to trade(TBT),as well as indirect measures such as commodity programs and domestic subsidy programs.Some of these restrictions are understandable from the perspective of risk and social priorities;others are more political in nature.All tend to be costly.Given the potential benefitsfromagriculturaltradeliberalizationparticularlyforthemostvulnerableCommonwealthcountries,findingthemostefficientpathstofacilitateasmuchaspossiblethefreeflowofagriculturalproductsneedstobeapriority.Thiswillrequire economic reform at the domestic level but also through international cooperation at various levels.AgriculturaltradeliberalizationhasbeenaperennialissueattheWTOand,beforeit,the GATT,and considerable progress has been made in certain areas.But the sensitive nature of agricultural trade particularly in the 21st century has limited the gains thus far that could be achieved through multilateral cooperation.For example,little was accomplished on agricultural issues at the 13th Ministerial in March 2024,with the failure to reach any breakthroughs on the agriculture agenda,includingonharmfulfisheriessubsidiesandpublicstockholdingforfoodsecurity purposes.Still,there is a will to move forward;in July 2024 the Chair of theWTOsagriculturalnegotiationsencouragedmemberstoboosttheireffortsto“reinvigorate”talks in the fall.56 More progress has been made through RTAs.This study has underscored the benefitsoftheseagreementsinliberalizingtradeincludinginagriculture,especially with regard to the new mega-regional trade agreements in the Asia-PacificandAfricathatincludemanyCommonwealthmembers.However,asnotedin the OECD(2015)survey,RTAs continue to feature product exemptions and non-tariffbarrierssuchasTRQsinagriculture.Thestudyunderscoresthatmuchcanbeimprovedintheseagreements.Itoffersausefulsetofrecommendationsregardingagriculture that could help guide RTAs and cross-border economic cooperation more generally,namely:Productexemptionsandtariff-ratequotasshouldbelimited;AgreementsshouldharmonizeROOsandkeepthemsimple(theyareoftenthe most complicated in agriculture);They should prohibit export subsidies and related policies;They should prohibit export restrictions,except on a temporary basis to meet critical shortages of food;VI.Policy implications:Toward bettercooperation in agricultureAgriculturaltradeliberalizationhasbeen a perennial issue at the WTO and,before it,the GATT,and considerable progress has been made in certain areas.But the sensitive nature of agricultural trade particularly in the 21st century has limited the gains thus far that could be achieved through multilateral cooperation.39HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.39 Agreements should limit special agricultural safeguards and,when included,they should contain“sunset clauses”;SPSprinciplesshouldbetransparent,harmonizedasmuchaspossibleconsistent with international standards,and feature equivalence in testing across members and non-members;and Agreementsshouldincludetechnicalassistanceandfinancialsupportforpartners who need it,and there should be greater coverage and roles for technical working groups to promote collaboration on standards and regulations.In any event,new momentum is required if Commonwealth countries are to reap thepotentialbenefitsoffreerglobaltradeinagriculture.Duetothenatureofpan-Commonwealth cooperation and the diversity of its membership,a formal agreementlikeanRTAwouldbedifficulttoenvision.Still,itwouldbepossibleto devise informal rules,disciplines,and support measures to spur agricultural trade among Commonwealth countries as well as with non-member states.The principles noted above would no doubt serve as useful input into related discussions.Moreover,the process of improving the agricultural trade-related performance of lower-income Commonwealth countries in particular could be supported through cooperation with developed countries within and outside the Commonwealth,which tend to be the most important markets for Commonwealth exporters andsourcesofimports.SectionV(c)notedthattariffscanbehighincertaincommodities,and reducing direct and indirect barriers to Commonwealth tradecouldsignificantlybenefitparticularlythepooresthouseholdsintheCommonwealth.POLICY IMPLICATIONS:TOWARD BETTER COOPERATION IN AGRICULTUREThe process of improving the agricultural trade-related performance of lower-income Commonwealth countries in particular could be supported through cooperation with developed countries within and outsidetheCommonwealth.(Photosource:USEmbassyNewZealand|Flickr).Due to the nature of pan-Commonwealth cooperation and the diversity of its membership,a formal agreement like an RTA would bedifficulttoenvision.Still,itwouldbe possible to devise informal rules,disciplines,and support measures to spur agricultural trade among Commonwealth countries as well as with non-member states.40HINRICH FOUNDATION REPORT TRADE,AGRICULTURE,AND DEVELOPMENT:MEETING GLOBAL CHALLENGES TO COMMONWEALTH COUNTRIESCopyright 2024 Hinrich Foundation Limited and Commonwealth Secretariat.All Rights Reserved.40POLICY IMPLICATIONS:TOWARD BETTER COOPERATION IN AGRICULTUREButinorderforLDCstobenefitfromamoreopenandfreeinternationalmarketplace,bottlenecks to trade must be overcome.Implementation of the WTOTradeFacilitationAgreementwillyieldstrongbenefitsinthisregard,asanticipated by Beckman(2021)and others.In addition to policy support and fewer restrictions on the exports of LDCs,investment in both hard and soft trade-related infrastructureneedstobeapriority.Seekingfinancialresourcestohelplow-income economies overcome trade-related infrastructural constraints is in many ways a sine qua nontomaximizebenefitsfromtheinternationalmarketplace.These resources could come from a variety of sources,including multilateral andregionaldevelopmentbanks,officialdevelopmentassistanceprograms,and private-sector partnerships.Indeed,the Aid for Trade Initiative,which was launchedattheHongKongWTOMi
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