The value-added agricultural processing proposals for free economic pilot zones have proved to be very controversial, not least because of the impact they will have on the domestic agriculture sector. These concerns are primarily born of the following five main points.
First, there are, inevitably, to be trade-offs, but in Taiwan their exact nature is as yet unclear.
The government has conceded that establishing value-added agricultural processing within the zones would have a certain impact on the domestic farming sector and therefore supports the setting up of a fund to offset losses incurred by farmers as a result of importing farming goods.
The questions on everyone’s lips are exactly which products are to be affected, to what degree the authorities anticipate they will be affected and what concrete measures are to be introduced to address this impact.
However, the government has consistently sought to evade providing answers to these questions. As to the potential advantages of the proposals to domestic farmers, there is nothing in writing to stipulate that plants within the zones have to use a given proportion of domestically produced agricultural goods when processing their own products and this is of little help for Taiwanese farmers.
Second, the threat to the Made in Taiwan (MIT) brand remains.
The recent scandal over expired meat being supplied by Shanghai Husi Food Co in China once again demonstrates the importance of labeling and identifying ingredients sourced from overseas suppliers.
However, the relevant authorities have made clear their reluctance to adopt more stringent regulations on plants operating within the pilot zones, saying that if the regulations applying to plants within the zones turn out to be more severe than those applying to plants outside, this would run counter to the core spirit of the zones, that of liberalization.
In the interests of ensuring consumers’ rights and of protecting the image of the MIT brand, it would be fine to label the source of ingredients to differentiate them from those using domestically sourced ingredients.
In the US, for example, the country of origin of ingredients is to be included on the label and similar regulations exist in South Korea.
Since regulations already exist here in Taiwan stating that the source of imported beef is to be identified on the label shows that it is not a case of the government not being able to do this; it is more a case of its not wanting to.
Third, government competence has been called into question.
There is much that goes on within the confines of the pilot zones subject to the government flexing its regulatory muscles, such as the stipulation that processed goods are for export only and cannot find their way onto the domestic market; food safety and disease control regulations involving imported agricultural ingredients, and stipulations on whether products made within the pilot zones can carry the MIT brand.
Unfortunately, the government’s record on rice quality, labeling of rice noodles and maintaining stable prices for agricultural goods has not been ideal and much needs to be done before the public can trust the government in this regard.
Fourth, profit allocation in the current model is far from ideal.
In order to increase the competitiveness of the domestic farming sector, the government has concentrated on promoting the value of the MIT brand, first through the quality of the ingredients — using the concept of “superior ingredients” so second and third tier companies can create even higher “added value” — and then by distributing the profits among farmers actually growing the crops to increase their income.
The plan was to employ an integrated model that could be represented by the so-called “smiling curve,” the upturns on either end of the curve — where the profit margins are larger — being quality seed or seedling production on one side and end-product branding on the other, with the dip in the center being the farmers growing the crops.
However, the better approach would be to do away with that dip and bring it higher on the graph so the line resembles more of a straight line.
Why should the farmers be faced with lower margins while the big companies reap all the rewards?
Finally, the inclusion of value-added agricultural processing in the pilot zones is, in itself, problematic. Agriculture has always been one of the more sensitive sectors in international trade negotiations.
For example, countries like Japan and South Korea have taken a very protectionist stance during free-trade negotiations when it comes to their own agricultural sectors and do not make concessions lightly.
Since Taiwan has yet to enter any actual regional economic trade cooperation talks, agricultural has automatically been included in the pilot zones, but this also automatically discounts it as a potential negotiating chip for any future free-trade talks with other countries.
Lee Wu-chung is a professor of agricultural economics.
Translated by Paul Cooper
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