Future policies for rural Europe 2013 and beyond – delivering sustainable rural land management in a changing Europe “Relationships with developing countries – the implications of CAP reform“

by Marita Wiggerthale Deutschland

Direction of new CAP



„Reforms have focused mainly on increasing the competitiveness of agriculture by reducing support prices and compensating farmers by the introduction of direct aid payments.“



„Rural development is the key tool for the restructuring of the agriculture sector. Rural development can help promote competitiveness in the agricultural and food processing sectors“

( http://ec.europa.eu/agriculture/lisbon/index_en.htm

)

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Development implications of new CAP

(1) DCs food processing jeopardised –

EU promotion of exports of processed food (CAP reform in combination with trade policy)

(2) Increasingly indirect dumping -

improving price competitiveness with the help of subsidies

(3) Damaging cross-sector effects

- e.g. cereals/poultry (in combination with trade policy)

(4) Rising Non-tariff barriers

(food safety standards)

(5) Preference erosion Deutschland

I.) DCs food processing jeopardised

 

Export refunds

: declining, but essential to bridge current price differences (335 mil Euro for PAPs in 2005) 

Agricultural raw materials at competitive prices

(aligning internal prices to WM-prices): reduce support prices (e.g. sugar), enhance supply (e.g. milk), reduce production costs (e.g. investment aids, direct payments favouring productive farms)

Direct aid payments

: unequal distribution in favour of productive and big farms (in EU-15, 20% of beneficiaries receive around 80% of payments), compensation for price reductions 

Rural development programmes

: investment aids in agricultural holdings and processing (e.g. France, 28% of the beneficiaries in the wine, fruits and vegetable sector stated an improvement of export competitiveness)

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I.) DCs food processing jeopardised (cont..)

67% of EU-Exports = high quality products Deutschland

I.) DCs food processing jeopardised (cont..)

Example: EU- exports to ACP countries

 EU-exports of processed food to the ACP increased by 148% (1995-2002), of preparations of cereals 182% (1995-2004)  ACP‘s share of total EU exports of processed food increased from 3,84% in 1995 to 6,36% in 2002, before falling back to 5,74% in 2004 (due to changed US$/euro exchange rate)  Likely closing off market opportunities for processing in ACP

EU-tariffs on processed food

  higher tariffs for some processed food ranging from 0-427% Preferences/PAPs: all industrial components enjoy substantial preferential treatment, tariff reductions on agricultural components are limited (see WTO, TPR/EC 2007)

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II.) Increasingly indirect dumping

 

Shift from product-specific subsidies/support Alignment of internal prices to WM-prices

deploy export refunds to decoupled aid reduces need to 

Three pillars of dumping:

investment aids export refunds, direct payments, 

EU price competitiveness

in future will no longer be dependent on the deployment of export refunds, but will be derived from the supply-side effects of direct payments, which allow prices to be reduced without affecting (much) the overall level of production, and markets to be cleared at world market price levels  “indirect form of dumping”

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III.) Damaging cross-sector effects

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Price decreases in cereal sector

since 1992

Animal feed costs account for up to 70% of production costs

 contributed to the expansion of EU poultry-meat production and exports   

Since 1996 dramatic increase of EU poultry exports

to Africa Poultry exports to ACP: 101.000 t (1996), 245.000 t (2004) Changes in consumer preferences in Europe, ban on the use of meat-and-bone meal as animal feed fuelled expansion of exports 

serious impact on poultry sector

(e.g. Cameroon, Ghana) 

Self-sufficiency in Ghana dropped from 85% in 1997 to 5% in 2006 Deutschland

IV). Rising Non-tariff barriers

   CTA studies:

SPS measures can represent 2%-10%

of a company‘s export turnover (varies from company to company) 

High fixed costs involved for developing countries

, high volumes of throughput required to reduce the unit costs of meeting new food safety standards Increased

countries marginalisation of small farmers in developing



Strict food safety standards

(traceability, hygiene standards, food-and-feed-safety control measures etc.) Increased risk of

closing of market opportunities

exports, 155 border rejections by EU in 2004 : e.g. ACP

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V). Preference erosion

 

CAP reform, trade liberalisation

(multi-lateral, bilateral)

Income losses

because of decreasing EU agricultural prices: 

Sugar

: income losses to ACP-sugar-protocol suppliers of 429.9 mil Euro during four-year transitional period 

Rice

: earnings of ACP exporters falling by 24% (2001-2004) 

Beef

: prices paid to ACP exporters have fallen by 20-30% 

Fruit and Vegetables:

downward pressure on prices expected following the recent reform; 18 African countries export fruit and vegetable products (aiming at diversification and decreasing dependence on tradition commodities) Source: agritrade (2007): CAP reform: Executive brief

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Conclusions

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Caution:

Whenever there is a reform of the CAP one has to consider the effects on developing countries 

Policy changes needed:

      Elimination of

export subsidies:

the earlier the better Stop unfair distribution of

direct payments

Switch to

targeted payments

: social, environmental, animal welfare etc.

Shift

investment aids

away from improving export competitiveness towards sustainable farming practices, local processing, regional marketing etc.

Win-win-situation

be reduced : the better targeted payments are towards extensive and environmental friendly farming, the more dumping and overproduction will Developing countries need to have the

right and the policy space to protect themselves against (dumping) imports Deutschland