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

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

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

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Reform objectives

• Objectives of the FV CMOs reform according the
  Consultation document
• better distribution of the value along the chain
• to increase FV consumption
• to make the CMOs consistent with the reformed
  CAP
• to reduce income instability due to market
  crises
• to improve the environmental sustainability of
  FV production in the EU.

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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 FV
  CMOs within the process of CAP reform

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The fresh FV 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.

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The effects of EU fresh FV support system (1)
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The effects of EU fresh FV support system (2)
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The effects of EU fresh FV support system (3)
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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).

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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).

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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.
• Processed tomatoes are consumed around the
  world, with high figures in Europe, Africa e
  Middle East, America.
• Tomato industry in the three main producing
  countries is 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.

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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.

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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.

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Key issues of changes to the CMOs within the
process of CAP reform

• An important point in the reform design is the
  integration of FV subsidies in the SFP
  (decoupling).
• Actually within the CAP
• only processed FV get production subsidies
• fresh FV do not receive subsidies
• FV area is not eligible for SFP rights unless
  Member States adopted the regionalization of the
  decoupling.
• The inclusion of tomato (and other processing
  FV) subsidies in the SFP has to afford
• the eligibility to the SFP on FV area
• the restructuring of FV processing industry.

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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.

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• 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 wouldnt
• give the benefits of the regime simplification
• avoid structural adjustment processes.

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Share of the EU on trade of processed tomato
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Share of the EU on world production of processing
tomato
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Utilizzazione della produzione di pomodoro da
industria nei paesi dell'UE