A Development Perspective on EU Common Agricultural Policy Reform

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A Development Perspective on EU Common
Agricultural Policy Reform

• Alan Matthews
• Trinity College Dublin, Ireland
• 21 February 2008

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Agricultural policy as a source of policy
incoherence

• EU agricultural policy (the Common Agricultural
  Policy or CAP) has traditionally been seen as
  damaging to developing countries
• Market access barriers and export subsidies make
  it more difficult for developing countries to
  pursue their own agricultural development
  strategies

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Agricultural policy an example of policy
incoherence?

• Oxfam
• The Great EU sugar scam how Europe's sugar
  regime is devastating livelihoods in the
  developing world (2002)
• Milking the CAP How Europe's dairy regime is
  devastating livelihoods in the developing world
  (2002)
• Stop the Dumping! How EU agricultural subsidies
  are damaging livelihoods in the developing world
  (2002)
• Dumping on the World how EU sugar policies hurt
  poor countries (2004)

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A Member State and DG AGRI perspective

• Moreover, charges that the CAP is damaging
  developing countries' ability to trade are not
  correct. The EU is by far the largest importer of
  agricultural products from developing countries,
  importing goods to the value of about 35bn at
  zero or very low tariff, compared with 18bn for
  the US. The EU imports more from developing
  countries than the US, Canada, Australia and New
  Zealand combined. It absorbs about 85 per cent of
  Africa's agricultural exports and 45 per cent of
  Latin America's.
• - The Irish Prime Minister Bertie Ahern,
  Financial Times 26 September 2005

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What would be implications of CAP reform for
developing countries?

• Growing sense that agricultural trade
  liberalisation by developed countries may not
  make as substantial a contribution to policy
  coherence as was first thought
• Growing awareness that the effects are likely to
  be high differentiated both by commodity, by
  policy instrument and by region

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The CAP is changing.

• Support prices for EU farmers have been reduced
• replaced by direct payments
• and greater emphasis on environmental and rural
  development payments
• Expenditure on export subsidies has been falling
• Preferential access has been improved,
  particularly for the least developed countries
  under the Everything But Arms scheme

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Changing EU farm support
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EU agricultural tariff barriers
Tariffs applied by ? EU25 US Asia developed Cairns developed
Applied to ?
EU25 - 5.8 22.2 15.7
US 16.2 - 28.9 5.1
Mediterranean 7.3 4.0 14.1 3.7
Sub Saharan Africa 6.7 3.0 12.0 0.7
Cairns developing 18.3 3.8 24.0 5.9
China 13.5 5.1 21.7 8.7
South Asia 14.4 1.8 33.7 1.8
Rest of World 15.1 2.1 17.4 2.6
Average 16.7 4.7 22.5 10.8
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Summary

• Fortress Europe
• Very high bound tariffs on key commodities
• But very large set of preferences
• As a result, protection is very uneven across
  countries willing to export to the EU
• Tariffs, including tariff escalation, are not a
  serious problem for LDCs or ACP countries (but
  non tariff issues)
• They are a problem for Asian and South American
  and transition countries

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CAP reform complex effects
Country winners Country losers
Protection Net importers Low income countries High income resource exporters Agric exporters
Preferences Preference beneficiaries Exporters experiencing trade diversion
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But now dramatic changes in world food markets

• Recent years have seen a sharp increase in real
  food prices, with particularly large jumps in
  recent months for some commodities.
• Commodity market developments likely to dwarf CAP
  reform effects for developing countries
• Energy policy effects (promotion of biofuels)
  likely to dwarf CAP reform effects

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Source FAO World Agriculture Towards 2015/2030
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Food security a major issue

• Food vs fuel an old debate
• During the 1970s should we stop eating meat to
  make more grain available for poor people?
• During the 2000s should we stop driving cars to
  make more grain available for poor people
• Concern that rising food prices will make it more
  difficult for the poor to purchase food
• There are lots of good reasons why it might be
  good to eat less meat or drive less often, but
  would it actually contribute to reduced hunger?

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Food security impacts

• UN Special Rapporteur on the Right to Food
• Biofuels a crime against humanity
• has called for 5-year moratorium on increased
  biofuel production
• But income effects from energy crop cultivation
  can potentially offset the short-term negative
  impacts on poor consumers

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Who are the poor in developing countries?

• 80 of food-insecure people are in rural areas
• 50 are small farmers
• 20 are landless farm workers
• 10 are pastoralists, fishermen or forest
  gatherers
• Energising the economic viability of rural areas
  through agriculture has significant potential to
  reduce poverty and hunger
• Poverty multiplier of agricultural-led growth far
  higher than for other forms of growth (minerals,
  industry)

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Food security concerns

• Higher food prices raise the expenditure
  requirements of the poor, but they also
  contribute to higher incomes and more jobs for
  food producers
• Potential now exists to reverse the decades-long
  neglect of agricultural and rural development in
  many developing countries

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But winners and losers

• Between countries
• If food prices move in tandem with energy prices,
  then countries gain or lose depending on whether
  they are net energy exporters and/or net food
  exporters
• Many least developed countries are BOTH net food
  AND energy importers
• FAO has warned of much higher import bills of Net
  Food Importing Developing Countries

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Winners and losers

• Within countries
• Only 50 of the food insecure are small farmers
• Other 50 are potentially food purchasers
• Need to take on board interests of the urban poor
  plus other marginalised groups
• Need to assess the gender impact of rising food
  prices on division of labour and intra-household
  distribution

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Ensuring poor families benefit

• Role for public policy
• Resource and land rights of vulnerable groups and
  protected forests are often weak
• Encouraging contract farming and outgrower
  schemes
• Improving infrastructure, transportation, market
  coordination, investment in research
• Promoting competition in the marketing chain to
  ensure that higher prices really do reach the
  poor
• Trade certification schemes (biofuels)

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Key messages

• There will be winners and losers from further CAP
  reform among developed countries
• Not an argument for stalling reformthe
  importance of the EU leading by example
• What must be done to turn losers into winners and
  to ensure that the winners really win?
• An expanded policy coherence agenda requires
  coordinated aid as well as trade as well as
  appropriate developing country responses