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Impact on International Trade 29th November 2009 European Economic Integration, Institute of economic studies T HE C OMMON A GRICULTURAL P OLICY.

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Presentation on theme: "Impact on International Trade 29th November 2009 European Economic Integration, Institute of economic studies T HE C OMMON A GRICULTURAL P OLICY."— Presentation transcript:

1 Impact on International Trade 29th November 2009 European Economic Integration, Institute of economic studies T HE C OMMON A GRICULTURAL P OLICY

2 O UTLINE What is Common Agriculture Policy? Establishment Pressures to reform CAP CAP reforms over time IT consequences Africa & CAP

3 W HAT IS C OMMON A GRICULTURE P OLICY ? System of European Union agricultural subsidies and programs 42 % of the EU's budget and still decreasing Practices: Trade controls Price-support measures Income transfers Production subsidies Health regulations

4 EU BUDGET Source: EU budget 2009; Sustainable development and innovation at the core of the EU budget

5 ESTABLISHMENT after World War II - part of the Treaty of Rome (signed in 1957, came into force in 1958) 1962: went into effect – 4 BASIC PRINCIPLES: A unified market for the free movement of agricultural products in the European Union Financial solidarity Community preference Parity and productivity

6 P RESSURES TO REFORM CAP Budgetary pressures Pressures from consumers External pressures Environmental pressures

7 CAP REFORMS OVER TIME Introduction of milk quotas in 1984 Mac Sharry reform in 1992 The Agenda 2000 The 2003 reform CAP Health Check 2008

8 IMPORT TARRIF EFFECT

9 MILK PRODUCTION & CONSUMPTION BEFORE THE QUOTAS

10 S ITUATION BEFORE THE MILK QUOTAS EU was exporter of diary products Subsidization of diary farmers (per produced output) motivated farmers to produce more. Overproduction led to export subsidies and consequently to dumping. Results: Producer surplus= a+b+c Consumer surplus= -(a+b) Gov. Revenue = -(b+c+d+f+g+h) + High storage costs (not depicted) Export subsidy case

11 I NTRODUCTION OF MILK QUOTAS IN 1984 Total guaranteed quantity: the quota of each country The references quantities: the producers and/or purchasers quotas The milk tax: Taxes if producers exceed their reference quota - (superlevy)

12 I MPACT ON INTERNATIONAL TRADE End of overproduction of diary products Reduction of the production from million tons in 1984 to 96 million tons in 1992 Thus decrease in EU diary export as result of abolishment of large production subsidies (=export subsidies) Side-effect – higher import of cows for beef (especially from Brazil) Decrease in storage costs

13 M AC S HARRY REFORM IN 1992 Pressures from other agricultural exporting countries From price support to income support The beginning of direct payments compensation for the decrease of the price support New subsidies to farmers for good environmental practices Set-aside land

14 E XPORT SUBSIDIES

15 I MPACT ON INTERNATIONAL TRADE Lower export subsidies Higher direct payments

16 I MPACT ON INTERNATIONAL TRADE EU prices closer to world prices International agricultural trade liberalization Fall in cereal prices by 50% Fall in income of African countries, which were making profits on selling goods to Europe (under Lomé convention) An increase in the export price competitiveness of basic EU food and agricultural exports for African countries

17 F URTHER REFORMS The Agenda 2000 multi-functionality of farming activities The reform in 2003 A reduction in direct payments for bigger farms to finance the new rural development policy CAP Health Check 2008 Increase of milk quotas,...

18 CAP VS. A FRICA CASE African exporters seem to be sensitive to EU reforms Pros and cons of CAP reforms (from African point of view) Future prospects

19 P ROS AND C ONS + Large food surpluses exported to Africa as a food aid (before Mac Sharry) Certain African (sugar) exporters profited from Lomé convention (500 mil. in 99/2000) 2001: free access to the market granted to the least developed countries under Everything Buts Arms initiative. Problem? – sugar, rice and bananas excluded After Mac Sharry reform, EU price reductions drove some African exporters out of the EU market Undermining of African markets by price-competitive EU goods (wheat) – markets of last resort EU policy emphasis shift – from quantity to quality

20 lower value food higher value food QlQl QhQh PPF S ITUATION WHEN A FRICA REJECTS TO TRADE WITH EU Africa

21 T RADING SITUATION R ICARDIAN MODEL Africa has comparative advantage in producing lower value food lower value food higher value food AfricaEU higher value food lower value food PPF IAIA I FT TT QlQl QHQH QHQH QHQH I FT IAIA P A = C A P FT C FT P A = C A P FT C FT

22 F UTURE PROSPECT African exporters: lower value food and agricultural products distributors European exporters: higher value food and agricultural products

23 C ONCLUSION Trend in reforms of CAP – lower direct payments Decoupling: economic prosperity negative impacts on the environment From import levy to direct subsidies – before and after Mac Sharry reform Africa has to trade with lower value food

24 Petra Andrlíková Radovan Parrák

25 REFERENCES Institure for Agriculture and Trade Policy: The Common Agricultural Policy: A Brief Introduction, Prepared for the Global Dialogue Meeting (May 14 and 15, 2007, Washington, D.C.) European Economic Policies: Common Agricultural Policy; Laurent Weill: Université de Strasbourg, Charles University - Prague, April 2009 Policy Notes 2009/7: The Impact of Common Agricultural Policy (CAP): Reformon Africa-EU Trade in Food and Agricultural Products


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