True for a large majority of developed and developing countries across a wide range of products, the share of processed products showed a clear upward trend throughout the 1990s, rising from 42 per cent in 1990-91 to 48 per cent of global agricultural trade in 2001-2002.
"The empirical evidence of a shift from unprocessed to more processed agricultural products is consistent with a well-known trend in world trade - the shift to an increased share of manufacturers at the expense of primary products," write the WTO economists.
According to the report, two factors favour the expansion of processed goods over unprocessed goods. First, processed goods have a larger potential for intra-industry trade and offer more possibilities for product differentiation than unprocessed goods. Cocoa-producing countries will not see much bilateral trade in cocoa beans, for example, while chocolate-bar/snack producing countries can exchange their products, satisfying a broad variety of different tastes.
Second, the potential to increase value added for a given consumer food product is, in general, far larger than for unprocessed foods. As per capita income levels increase, consumers appreciate a larger variety of similar products and increasingly buy goods with a brand label. In developed countries, the trend to smaller household size and an increase in participation by women in the labour force strengthens consumption trends towards more processed food at the expense of unprocessed food.
Having identified a global trend towards an increased share of processed goods in agricultural trade, the WTO questions whether all regions and countries shared in this development. For the trade body, the general answer to this question is 'affirmative', with some noticeable exceptions. About three quarters of the countries for which data were available in the UN Comtrade database recorded an increase in the share of processed goods in their agricultural trade between 1990-91 and 2001-02. This observation holds for both exports and imports.
At the country level, there was a marked increase in the share of processed products in total agricultural exports for the 14 major global exporters - countries with exports of agricultural products exceeding $6 billion in 2000, with the exception of Brazil and Chile.
Identifying potential markets for food makers, the report states that the largest shifts to more processed agricultural products was observed in Asian developing countries - China, Indonesia, Malaysia and Thailand. Marked increases were also seen in Canada and Mexico.
The share of processed trade in agricultural exports in 2001-02 appears not to be as strongly related to income levels as one might have expected. Lower income countries such as Bolivia and Peru have a higher share of processed goods in their agricultural exports than New Zealand. While there is no strong overall link in the sample between income levels and the share of processed agricultural products, it appears that all countries with a very low share of processed goods in their agricultural exports (15 per cent or less) are low or low middle-income countries (Cameroon, Ethiopia, Honduras, Pakistan, Sri Lanka, Uganda and Zimbabwe).
On the import side the trend toward a higher share of processed goods is even more striking. One notable exception to the general trend on the import side is China. The country's agricultural imports recorded an average annual increase of 9 per cent in the 1990s, the highest rate among the major agricultural importers. China's imports of unprocessed goods surged ahead of processed products over the entire period.
There was a strong increase in the share of processed products in China's agricultural imports up to 1996 followed by a marked decrease thereafter. Among the unprocessed products, import increases were particularly strong in oilseeds and wood (reporting tenfold and fourfold increases respectively between 1992 and 2001). The sharp rise in imports of oilseeds (unprocessed goods) went together with a sharp decline in imports of vegetable oils (a processed good) since 1997, which contributed significantly to the declining trend for processed goods at the end of the 1990s.
In light of ongoing talks on the balance of trade across developing and developed countries the WTO mentioned that the report did not touch upon the possible influence of trade or other policies on structural shifts in agricultural trade.
"Interesting questions arise, such as what these statistical results reveal about the effects of tariff escalation. Further research is needed to address such issues," said the WTO.
After the failed fifth ministerial conference in Cancun, Mexico last year, the next attempt at global trade agreements will occur in July 2005 at the sixth ministerial conference.