The EU

1
The EUs CAP and the likely impact of a Doha
Agreement

• Lecture 24.
• Economics of Food Markets
• Alan Matthews

2
Why focus on Doha?Composition of operating
surplus in agriculture
3
Export Subsidies

• January 2003 EU initially offered to reduce
  aggregate expenditure limits by 45
• but in 2001/02 only used 35 of entitlement
• In July 2004 Framework Agreement, EU signed up
  conditionally to full elimination
• Importance of credible date to be agreed
• Blair has called for end by 2010
• It may be that policy change will eliminate the
  commodity export surplus but what about
  Non-Annex I goods, i.e. the food industry?

4
Domestic support EU situation 2001 (before
Mid-Term Review)
Amber Box US dollars
Bound AMS 65,383
Market Price Support 25,085
Direct Payments 12,117
less De Minimis 411
Current AMS 36,791
Degree of AMS Overhang 44
Blue Box
Millions 21,262
Value of Agricultural Production 7
Green Box 19,452
Overall Distorting Support (ODS)
Bound ODS 87,056
Current ODS 58,464
Degree of ODS Overhang 33
5
Market accessEffect on tariff cut on beef price
EU support price (basic intervention price) 2,224
Estimated world market price 1,200
Current EU import tariff 1,922
Possible tariff cut which does not impact on EU market price (tariff overhang) 40
6
Market accessEffect on tariff cut on beef price
EU market price 2,700
Estimated world market price 1,200
Current EU import tariff 1,922
Possible tariff cut which does not impact on EU market price (tariff overhang) 16
7
Market accessEffect of tariff cuts on butter
prices, /tonne
Unfavourable world market Favourable world market
EU market price (2008) 2,247 2,247
Estimated world market price 1,170 1,575
Current EU import tariff 1,896 1,896
Possible tariff cut which does not impact on EU market price (tariff overhang ) 36 54
8
Market accessEffect of tariff cuts on SMP
prices, /tonne
Unfavourable world market Favourable world market
EU market price (2008) 1,782 1,782
Estimated world market price 1,650 1,800
Current EU import tariff 1,118 1,118
Possible tariff cut which does not impact on EU market price (tariff overhang ) 55 64
9
Effect of tariff cuts on white sugar price
EU support price (based on Commission July 2005 reform proposal) 386
Estimated world market price 210
Current EU import tariff 419
Possible tariff cut which does not impact on EU market price (tariff overhang ) 63
10
Export Subsidies

• January 2003 EU initially offered to reduce
  aggregate expenditure limits by 45
• but in 2001/02 only used 35 of entitlement
• In July 2004 Framework Agreement, EU signed up
  conditionally to full elimination
• Hong Kong 2005 agreed to end date of 2013, with
  substantial progress in early years
• Only important now for dairy and sugar exports,
  but implications for Non-Annex I goods, i.e. the
  food industry?

11
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12
The EUs AVEs (ad valorem equivalents of specific
rates), excluding sugar
Note many of the highest tariffs are actually on
processed foods (e.g. yogurt, whey) rather than
bulk commodities
13
Comparison of EU banded offer with Swiss 60
formula
14
Market accessEffect on tariff cut on beef price
EU support price (basic intervention price) 2,224
Estimated world market price 1,200
Current EU import tariff 1,922
Possible tariff cut which does not impact on EU market price (tariff overhang) 40
15
Market accessEffect on tariff cut on beef price
EU market price 2,700
Estimated world market price 1,200
Current EU import tariff 1,922
Possible tariff cut which does not impact on EU market price (tariff overhang) 16
16
Market accessEffect of tariff cuts on butter
prices, /tonne
Unfavourable world market Favourable world market
EU market price (2008) 2,247 2,247
Estimated world market price 1,170 1,575
Current EU import tariff 1,896 1,896
Possible tariff cut which does not impact on EU market price (tariff overhang ) 36 54
17
Market accessEffect of tariff cuts on SMP
prices, /tonne
Unfavourable world market Favourable world market
EU market price (2008) 1,782 1,782
Estimated world market price 1,650 1,800
Current EU import tariff 1,118 1,118
Possible tariff cut which does not impact on EU market price (tariff overhang ) 55 64
18
Effect of tariff cuts on white sugar price
EU support price (based on Commission July 2005 reform proposal) 386
Estimated world market price 210
Current EU import tariff 419
Possible tariff cut which does not impact on EU market price (tariff overhang ) 63
19
Domestic support - EU situation 2001 (end Uruguay
Round, before Mid-Term Review)
Amber Box US dollars
Bound AMS 65,383
Market Price Support 25,085
Direct Payments 12,117
less De Minimis 411
Current AMS 36,791
Degree of AMS Overhang 44
Blue Box
Millions 21,262
Value of Agricultural Production 7
Green Box 19,452
Overall Distorting Support (ODS)
Bound ODS 87,056
Current ODS 58,464
Degree of ODS Overhang 33
20
Fischler reforms (EU15)

• Switch 90? of existing blue box expenditure into
  the green box
• Shift 4.2 billion (cotton, tobacco, etc.) from
  amber to blue/green
• Milk reforms strip 1.9 billion from amber box,
  and add (dairy premium) 0.4 billion to
  blue/green
• Sugar reforms strip 3.5 billion from amber box,
  and add 1.3 billion to blue/green (EU15 income
  support)
• Rice, fruit and vegetables..

21
Commitments on blue and amber boxes

• EU will make the biggest AMS cuts under the
  tiered formula could afford up to 70
• Blue box limited to 5 of value of agricultural
  production
• achievable, provided most of the Single Payment
  is in the green box
• Overall limit on all trade-distorting support
  (80 of base entitlement) achievable for EU15
• Product specific AMS limits

22
Source Kutas, G. EU Negotiating Room in
Domestic Support after the 2003 CAP Reform and
Enlargement
23
Source Kutas, G. EU Negotiating Room in
Domestic Support after the 2003 CAP Reform and
Enlargement
24
Source Kutas, G. EU Negotiating Room in
Domestic Support after the 2003 CAP Reform and
Enlargement
25
Does the Single Payment fit in the green box?

• Restrictions on fruit and vegetables see Upland
  Cotton
• Annex 2, 6(d) The amount of such payments in
  any given year shall not be related to, or based
  on, the factors of production employed in any
  year after the base period
• But an annual claim on farmland in agricultural
  production or kept in good environmental condition

26
Future challenges for Irish agriculture