The impact of EU agriculture on the world

Addressing the Second International Conference on Globalisation at the University of Leuven on November 20th 2002 Agriculture Commissioner Franz Fischler acknowledged that 'the CAP still contains more protectionist elements than it should'. However, he expressed the belief that 'its support has become far less trade distorting over the years', but agreed that 'There is a need for further reform of the CAP in order to make it more acceptable to our society and further reduce trade distortions. Recently, the Chief Economist of the World Bank said that the mid-term review was dead. To paraphrase Mark Twain: The news of its death is premature. I can tell you: the reform process is not over yet. There is still a lot of work to do. We also need to deal with dairy and sugar, the two sectors where the absence of reform clearly constrains our negotiating margins in the Doha Round and stains the image of the CAP.' The Commissioner warned that further reform would not be easy, pointing out that the EU Summit in Copenhagen had set a ceiling on CAP expenditures up to 2013, which would actually mean 'a reduction in real terms'. This will require a reallocation of funds from existing areas to new areas, making the formulation of future reform proposals highly controversial. He rejected the contention that European agricultural subsidies are driving their poorest competitors out of the market, maintaining that: apart from sugar and rice, few developing countries produce temperate agricultural products; market protectionism among developing countries is a far more important hindrance to their competitiveness; developing country manufacturing exports have dramatically increased from 1980 from 25% to over 80% of their total exports. He also maintained that the EU is losing market share internationally across a range of agricultural products and that this declining EU global position is scarcely consistent with increased dumping. Finally, Commissioner Fischler pointed out that the EU is the largest importer of agricultural products from the developing world, importing more than the USA, Japan, Canada and Australia combined, with the EU taking more than two-thirds of Africa's global exports. He closed by pointing out that the complete elimination of EU price- and income-support would primarily benefit other developed economies and more competitive developing country exporters such as Brazil, while preferred partners in Africa would lose out as a result of declining EU prices. Comment: From an ACP perspective the figures cited by Commissioner Fischler on the level of developing country exports are seen to be highly misleading. Agriculture continues to account for 36% of ACP exports to the EU, with mineral products accounting for a similar percentage (depending on basic commodity prices and the €/US$ exchange rate). For ACP countries manufactured goods (as popularly understood) continue to account for a relatively small percentage of total exports to the EU. Agriculture- related issues are thus of paramount importance to ACP countries. EU trade policy towards ACP countries therefore needs to be based on the recognition that the actual proportion of manufactured exports is below 30% of the total. The claimed share of 80% derives from a quite different collection of so-called 'developing countries' that even includes Slovenia and Malta, whose situation bears little relationship to the trade reality confronting most ACP countries. Turning to the issue of the EU's market share and the impact of CAP reform on 'dumping', while it is indeed true that in a number of major products the EU is losing market share internationally it is important to look at the reasons behind this. First, with the end of the Cold War the scale of international trade has expanded considerably and a decline in the EU's relative market share was to be expected. Second, the EU is increasingly exporting value-added food products internationally rather than basic agricultural products, and such products now account for a majority of EU food exports. The EU's share of basic agricultural product markets has thus declined. Third, in a number of areas EU production and exports are constrained by WTO agreed ceilings on export refunds, and by internally agreed production quotas. As global trade has expanded, the EU has been unable to participate fully in this expansion and consequently its market share has fallen. Fourth, in key products more cost competitive third-country producers have greatly expanded their production and exports eroding the EU's market share (Australia and New Zealand in the case of dairy products, Brazil in the case of sugar). However the process of CAP reform is designed to address this problem. As the EU's recent report 'Prospects for Agricultural Markets' (http://europa.eu.int/comm/agriculture/publi/caprep/prospects2002/update.pdf) highlights, EU cereals production continues to expand, with production levels in 2009 projected to be 24.4 % higher than the peak in the pre-reform period. In addition as a result of reforms the EU is now able to export wheat without the need for any export subsidies. Had the Euro not appreciated around 10% against the US $ in the last year, the volume of unsubsidised EU wheat exports would be increasing even faster. The impact of CAP reform on other sectors such as the poultry sector is even more dramatic, where as a result of decreases in feed costs, EU poultry exports have been able to increased 150% since the pre-reform period, creating problems for small-scale poultry producers in many African countries. It is developments in these sectors which point the way in which the external trade effects of the CAP are moving.Addressing the Second International Conference on..