1. 1 Cal-Med Consortium Workshop Domestic Policies and Mediterranean Products Washington - December 7 and 8, 2006 Domestic Policy Reform in the EU: What is Ahead for Fruit and Vegetables? Antonio Cioffi University of Naples

2. 2 Introduction The process of reform of the CMOs of fresh and processed F&V started with documents by the main EU institutional bodies. At the moment a CMO reform proposal for F&V has not yet published. In May 2006 the Commission published a Consultation document toward the reform of fresh and processing F&V sectors, which addressed the main problems and identified the reform objectives.

3. 3 Reform objectives Objectives of the F&V CMOs reform according the Consultation document:  better distribution of the value along the chain;  to increase F&V consumption;  to make the CMOs consistent with the reformed CAP;  to reduce income instability due to market crises;  to improve the environmental sustainability of F&V production in the EU.

4. 4 Outline The presentation will discuss:  the support system of fresh and processed fruit and vegetables after the 2000 CMO reform  internal and external effects of the CMO for fresh fruit and vegetables  internal and external effects of the CMO for processing tomato  key issues related to possible changes in the F&V CMOs within the process of CAP reform

5. 5 The fresh F&V support system within the EU After the 1996 reform the CMO is based on: POs (co-financed by EAGGF and producers) as the main instrument for intervention on the internal market; External protection through tariffs: –for the most important products also entry prices and maximum tariff equivalent; –preferential trade agreements. Export subsidies for the most important products. External protection in a net importer generates market transfers to producers.

6. 6 The effects of EU fresh F&V support system (1)

7. 7 The effects of EU fresh F&V support system (2)

8. 8 The effects of EU fresh F&V support system (3)

9. 9 The processing tomato support system within the EU The 2000 CMO reform: established a 34.5 €/t production subsidy paid through POs; abolished processing tomato minimum price and quota rights assigned to processing industry; introduced an 8.25 million t ceiling to processing tomato subsidy (of which: Italy 4.35 t, Spain 1.24 t); national ceilings can be re-distributed among EU producing countries. Export subsidies to canned tomato in cans larger than 3kg within a 42,477 t ceiling. 14.4% tariff unless preferential agreement and the duty drawback regime (TPA).

10. 10 The effects of 2000 CMO reform The abolishment of quotas contributed to: –push towards restructuring of the tomato industry. –improvement of the ability of the tomato industry to diversify production. Better relationships within the tomato industry because of the increased role of POs. Strong increase in processing tomato production expecially in Spain (and Portugal), and in Italy, due to yield increases. Increase of EAGGF budget expenditure from 280 Million euro in year 2000 to 395 Million euro in 2005. Lower farm gate prices for processing tomato Increased EU shares of the world trade (notwithstanding the evaluation of Euro and the TPA regime. Preferences seem to have played a minor role).world trade TPA regime

11. 11 The processing tomato industry in the main producing countries Processing tomato world production is mainly located in the US, EU (Italy and Spain), China, Turkey.world production Processed tomatoes are consumed around the world, with high figures in Europe, Africa e Middle East, America.consumed Tomato industry in the three main producing countries is highly diversified: highly diversified China is export oriented US self sufficient and domestic market oriented EU is involved both in production for the domestic market and trade. US and China industries have lower production costs than EU. EU competitiveness depends on the support.production costs

12. 12 The distributive effects of the CMO Processing tomato production costs vary according to farm size. Given current prices, no farm could cover the costs without the subsidy. Land rents for processing tomato are rather high (1,500-2,000 €/Ha in Piacenza province and 1,500 €/Ha in Foggia). Innovations in harvesting substituted labor with capital. However this innovation has not been spread uniformly. Labor supply is highly elastic and wages are low in the South. After the 2000 CMO reform processing tomato industry benefited from lower tomato prices. However, the economic performance of tomato industry shows only limited increase in profitability, mostly due to better financial management. Among the gainers there are the large scale retailing chains (LSR) that are the main marketing channel. Private LSR labels are widely diffused.

13. 13 The distributive effects (2) Also POs can be inluded among the beneficiaries. For many of them the activity is limited to: Intermediation between tomato producers and processing industry; distribution of subsidy among tomato producers.

14. 14 Key issues of changes to the CMOs within the process of CAP reform An important point in the reform design is the integration of F&V subsidies in the SFP (decoupling). Actually within the CAP: -only processed F&V get production subsidies; -fresh F&V do not receive subsidies; -F&V area is not eligible for SFP rights unless Member States adopted the regionalization of the decoupling. The inclusion of tomato (and other processing F&V) subsidies in the SFP has to afford: -the eligibility to the SFP on F&V area; -the restructuring of F&V processing industry.

15. 15 Possible effects of decoupling in the EU tomato industry Decoupling should induce an increase in processing tomato and processed tomato prices. Small farms might find not profitable to continue tomato production. Sunk costs (higher in small farms) could slow down their exit Land rent should decrease (however not enough to compensate for the lower revenues). Effects on the price of other factors (i.e. labor) should be negligible. Higher costs might push less efficient processors out of business (mainly in the canned tomato industry). This might cause lower employment in sensitive areas of Spain and Southern Italy. Reduced incentives for farmers to join POs might have negative effects on vertical coordination within the industry.

16. 16 Final remarks Decoupling of processing tomatoes seems unavoidable: -farming systems producing tomatoes often are also involved in crops already decoupled (sugar beet, cereals, oil seeds); -WTO consistency. Decoupling would: -accelerate the structural adjustment processes in the whole industry that probably need to be guided; -increase the difference between farmers with/without SFP rights. Partial decoupling wouldn’t: -give the benefits of the regime simplification; -avoid structural adjustment processes.

17. 17 Share of the EU on trade of processed tomato

18. 18 Share of the EU on world production of processing tomato

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26. 26 Utilizzazione della produzione di pomodoro da industria nei paesi dell'UE