The Impact of EU Export Subsidy Elimination on World Markets

1

• The Impact of EU Export Subsidy Elimination on
  World Markets

Susan E. Leetmaa
2

• Tools the EU could use to limit or eliminate
  subsidzed exports

• Production controls
• Build stocks
• Reducing support prices and increasing direct
  payments to compensate producers for the price
  decline

3

• Analysis of EU export subsidy elimination

• We use the ERS/ESIM model linear,
  time-dependent, CES, partial equilibrium.
• Commodities wheat, barley, corn, other coarse
  grains, oilseeds and their products, beef, pork,
  and poultry.
• These account for over 50 of EU expenditures on
  export subsidies and 75 of the volume of
  subsidized exports.
• Strong and weak Euro are compared

4

• What we analyze

• We reduce internal price until either. . .
• Supply equals demand, so the EU will not export,
  or
• until EU prices equal world prices, so that no
  subsidy is required for export.

5

• Euro stronger than US dollar, Arable Crops

• The EU would have exportable surpluses of all
  grains.
• Grain prices would fall from a common internal
  price under the CAP to different world prices for
  all grains.
• EU wheat production would increase at the expense
  of all other grains.
• EU wheat exports would increase
• Barley and rye feeding would increase, wheat
  feeding would decrease
• Oilseed area would increase slightly

6
EU and world grain prices
7

• Euro stronger than US dollar, Meats

• EU would continue to be noncompetitive in beef
  export markets
• domestic price decline would decrease production,
  eliminating need for exports prior to EU price
  reaching world price.
• Pork and poultry exports would increase, aided by
  declining feed costs

8

• Euro/dollar parity

• A weaker Euro would help EU achieve export
  subsidy elimination
• Wheat production and export results would be more
  profound
• Less of an impact on livestock sector, as
  producers are less responsive to price changes.
• Beef still uncompetitive
• Pork and poultry exports would only increase
  slightly over stronger Euro exports.

9

• Impact on World Markets

• Minimal impact on most sectors
• Wheat most affected, as increased EU exports
  would lower world prices, reducing U.S.
  production and increasing consumption, reducing
  exports.
• Reduction in EU livestock exports would increase
  world prices, increasing U.S. production and
  exports
• largest gains in beef and slight increase in pork

10
Strengths and weaknesses of ESIM

• Strengths Explicit EU policies, very complete
  feed sector, hence good at projecting production
  and consumption and estimating volume
  restriction.
• Weaknesses ESIM is a net trade model (either
  exports of imports are fixed), therefore we can
  not measure the impact on wheat imports, which
  would change significantly if EU prices fell to
  world prices. No Dairy!

11
(No Transcript)
12
Other

• Also, we can not accurately model value
  restriction, as model prices for many commodities
  are model market clearing prices, not necessarily
  EU market prices for the commodities (product of
  fixed stocks).