1 The Fruit and Vegetables Import Regime : Import Regime : The Entry Price System Principles, Issues and Impacts Charlotte Emlinger Institut Agronomique Méditerranéen de Montpellier/UMR MOISA Emmanuelle Chevassus Lozza Institut National de la Recherche Agronomique Nantes/LERECO May, 2 nd 2007 Bruxelles EUMED AGPOL Restricted dissemination

2 The Entry Price System Outline of the talk Introduction 1. Principles and motivation 2. Theoretical impacts of the Entry Price System on Imports 3. Four main issues to be discussed in the perspective of the removal of the Entry Price System

3 The level of protection depends on the import price of the product on the European market : the so-called «entry price» Objectives of the system: –To limit competition from the RoW –To guarantee a certain level of price in the EU market –To avoid the transmission of world market fluctuations Introduction : The Entry Price System (EPS)

4 Only 15 products are concerned : Tomatoes, Cucumbers, Artichokes, Courgettes Oranges, Mandarines, Clementines, Lemons Apples, Pears, Grapes Apricots, Cherries, Peaches, Plums (Also fruit juice : Oranges, Grapes)  But : A High share in European production, especially for southern EU countries: % of total EU F&V production - 82% for Italy, 80 % for Greece, 72% for Spain and 76 % for France A high share in F&V European consumption : 48,3% Few products are concerned but they are important for the EU

5 A high share in Fruit and Vegetables European Trade EU imports 47,91% EU exports 42,70% FAO COMTRADE 2004 Few products are concerned, but they are important for the EU High share of intra-EU trade for these F&V: 80% of Imports come from the EU (66% for other Fruit and Vegetables) The major extra-EU suppliers of these products are: - Mediterranean Countries (27.3%) : tomatoes, citrus ( «Entry price products» represent 55% of their F&V production) - South American Countries (29%) : citrus, apples ( «Entry price products» represent 22% of their F&V production)

6 1.Principles and motivations of the system

7 Maximum Specific duty SPE Max (€/kg) 1.1. Principles of the Entry Price System (EPS) Specific duty SPE (€/kg) Ad Valorem Duty t (%) (t*P E ) 2. 92% P trig <P E <P trig PEPE 3. P E <92% P trig PEPE PEPE 1. P trig <P E Trigger price PEPE 92% Trigger Price

8 according to objectives of protection : - Seasonal protection of high perishable products ( Apricots, Cherries, Peaches, Plums) - Protection of most expensive production (greenhouse) ( Tomatoes, Courgettes, Cucumbers and Artichokes) - Off season Protection (Apples, Pears, Lemons) - In Season Protection ( Grapes, Oranges, Clementines, Mandarines) according to trade patterns: Off/In Season competition Low/High share of extra-EU trade  Necessity of a « product by product » approach in the discussion about removal of EPS 1.2. Different cases among the products

9 Cherries: competition between EU and extra Suppliers on a brief periode Extra EU Imports Intra EU Imports Trigger Price Ad valorem Duty Grapes : off season trade  Also for Apricots, Peaches and Plums (but less extra-EU imports) - Higher ad valorem duties during period of production  Also for Oranges, Clementines and Mandarines (but less extra-EU imports ) EPS applied only during European production

10 Extra EU Imports Intra EU Imports Trigger Price Ad valorem Duty - Competition between EU and extra-EU suppliers during this period -Higher ad valorem duty in summer  Also for Cucumbers (but less extra-EU imports) and Courgettes -Low seasonality of intra EU import - Higher trigger price when Extra- EU import  Also for Lemons and Pears EPS applied the whole year Apples: Lower trigger price during EU production Tomatoes: Higher trigger price in winter and spring

11 Reduction or removal of ad valorem duty Preferential Trigger Price for some countries, products and months : Morocco : Tomatoes, Cucumbers, Artichokes, Courgettes Clementines, Oranges Israël: Oranges Egypt: Oranges Cyprus (before 2004): Oranges But only inside Quotas The maximum specific duty never changes 1.3. Preferences granted by trade agreements

12 2. Theoretical impacts of the Entry Price System on Imports

13 d3d3 P trig If P E ≥P trig : PEPE d2d2 If P E ≤ 92%P trig : 92%P trig If 92%P trig ≤P E ≤ P trig : avec Q P 0 d1d1 European Excess demand :

14 d2d2 92%P trig d3d3 P trig Q P 0 d1d1 European Excess demand : (price in the EU Market=f(Q)) European Import Demand if EPS: (import price=f(Q))  Discontinuity of the European Import demand function : « Break » when P E =92%P trig PEPE

15 What if the Impact of EPS on Imports? a. If P E ≥Ptrig P E1 *t d2d2 92%P trig d3d3 P trig Q P 0 d1d1 P E1 Q1Q1 P1P1 Imports if EPS = Imports if ad valorem duties only =Q 1 With : P E1 = import price P 1 = final price on EU market Q’ 1 Import if free trade =Q’ 1 With : P E1 = import and final price

16 P E2 *t + SPE d2d2 92%P trig d3d3 P trig Q P 0 d1d1 P E2 P2P2 Q2Q2 Imports if EPS = Q 2 With : P E2 = import price P 2 = final price on EU market Q’ 2 Imports if free trade = Q’ 2 With : P E2 = import and final price What if the Impact of EPS on Imports? b. 92%P trig ≤P E ≤ P trig

17 92%P trig P trig Q’ 2 P’’ 2 P E2 P E2 *t + SPE P2P2 Q2Q2 Q’’ 2 d1d1 d2d2 d3d3 Q P 0 Imports if ad valorem duties only = Q’’ 2 With : P E2 = import price P’’ 2 = Final price on EU market What if the Impact of EPS on Imports? b. 92%Ptrig≤PE ≤ Ptrig

18 P E3 *t + SPE max Q3Q3 P E3 P3P3 Imports if EPS = Q 3 With : P E3 = import price P 3 = final price on EU market Q’ 3 Imports if free trade = Q’ 3 With : P E3 = import price and final price Q’’ 3 P’’ 3 Imports if ad valorem duties only = Q’’ 3 With : P E3 =import price P’’ 3 =final price d2d2 92%P trig d3d3 P trig Q P 0 d1d1 What if the Impact of EPS on Imports? c. PE ≤ 92%Ptrig

19 What are the impacts of EPS on Imports?  Discontinuity of the Import demand Function  Below 92 % of the trigger price, imports are suddenly reduced  The application of the Maximum Specific Duty SPE Max can make the level of duty prohibitive  To sell products on the European market with a price lower than the trigger price, the import price (i.e. production price + transportation costs) has to be very low

20 Example of Tomatoes PEPE Ad Valorem Duty Specific Duty Import Price (P E ) P P trig Import price €/100kg

21 Impact of Preferential Entry Price: example of Tomatoes MFN Trigger Price Moroccan Trigger price january Tomatoes €/100kg Moroccan Production Costs Turkish Production Costs No Duties SPE Max  Existence of a rent for exporters ?

22 3. Four main issues to be discussed in the perspective of the removal of the EPS

23 Four questions raises: - EPS Effectiveness : does the system work? - EPS Relevance: is the system useful? - EPS Efficiency : are the objectives achieved at a reasonable cost? - Preferential margin of Preferential EPS: to what extent countries that benefit from preferential trigger price are advantaged?  On going work: comments and discussion are wellcome ! Main Issues to be discussed in the perspective of the removal of EPS

24 1. We compare import price with trigger price :  the system is effective if import price are higher than the trigger price 2. We compare the EU supply price with the trigger price :  the system is effective if internal prices are above trigger price Two ideas :

25 - We use the Standard Import Value as a proxy for import price after paying the specific dutiesStandard Import Value - We count the number of occurences where SIV<P trig  Important variation of SIV among years, months and suppliers  Frequency of occurrences [SIV<P trig ] depends on products, months and years 1. Trigger price and SIVcomparison 1. Trigger price and SIV comparison 1995 to 2005

26 4 groups of products may be distinguished: - no SIV<P trig : Peaches, Mandarines, Courgettes, Grapes - few « crisis » for some year, suppliers or month : Apples (China, Poland, Hungary), Pears (China), Oranges (Turkey, Cuba, Brasil), Cherries (Bulgaria, Romania, 96), Apricots (96) - several cases of SIV<P trig : Artichokes (winter 03-06), Lemons (june july 03,04), Cuncumbers ( march april 03-06), Clementines (december 97-06) - the EPS doesn’t seem to work : Plums and Tomatoes 1. Trigger price and SIVcomparison 1. Trigger price and SIV comparison 1995 to 2005

27 Example of Peaches: SIV Above Trigger Prices 0,00 50,00 100,00 150,00 200,00 250,00 Trigger price MFN SIV €/100kg

28 Example of Apples : some problematic origins €/100kg

29 Example of Artichokes : Problems since €/100kg

30 Example of Tomatoes : lot of SIV<Trigger Price €/100kg 2004

31 How SIV<P trig is possible ?  Clearing Methods (SIV, Deduction or FOB Method)?  Does SIV represent market prices?  Difference of quality/price inside consignement? T1T1 T2T2 SIV The application of EPS and the use of SIV leads to SIV higher than the trigger price at T 2 P trig 92% P trig T3T3

32 0,00 100,00 200,00 300,00 400,00 500,00 600,00 15-juin oct-9511-mars-9724-juil-9806-déc-9919-avr-0101-sept-0214-janv-0428-mai-0510-oct-06 Trigger price SIV Turkey €/100kg Case of Turkish Cherries : high SIV Case of Turkish Cherries : high SIV  Have EPS impact on the quality of the exchanged product?

33 South West Price Loire price Wholesaler price Trigger price Apples 0 0,2 0,4 0,6 0,8 1 1,2 1,4 1,6 Septembre Octobre NovembreDécembre Janvier Février Mars Avril Mai Juin €/kg 0 0,5 1 1,5 2 2, Plums €/kg Week 2.Comparison between P trig and EU supply prices Does EPS guarantee a high level of internal prices? For Most of products, EU supply prices are above the Trigger price: Price guarantee for producers 2004 French cotation SNM

34 Cucumbers 2004 South West Price Loire price Wholesaler price Trigger price chateaurenart €/kg 2.Comparison between P trig and EU supply prices Does EPS limit competition ? Supply price <P trig isolation from international Competition : Few extra EU imports for this product

35 Conclusion What is efficiency / what is relevance? How to measure them? Discussion about impacts of a removal of EPS, studies to carry on : - Comparison of production costs between EU and extra EU suppliers (+ transportation costs, logistic…) - Measure of European sensitivity: location of production area of « entry price products » - Calculation of preferential margin : possible erosion of preferences

36 Conclusion Question of quality of products :  different issues of removal of trigger prices Entry Price System may also be an important administrative burden and may limit the access to the EU market for new exporters  Hard to estimate

37 SIV : « official » price calculated each day by the commission Wholesalers- Retailers Price Level Importers – Wholesalers Price Level Exporters – Importers Price Level SIV Prices sent by members states Wholesaler margin : 9% Handling Charges 0,7245€/100kg Importers Margin : 8% ou 15% Transport and Insurance costs 4.12€/100kg Weighted by representative market within the country 5€/100kg ad valorem duties Weighted by countries

38 d2d2 92%P trig d3d3 P trig Q P 0 d1d1