The EU’s CAP and the likely impact of a Doha Agreement

1. The EU’s CAP and the likely impact of a Doha Agreement Lecture 24. Economics of Food Markets Alan Matthews

2. 2500 Rural development 2000 Rural development payments 1500 WTO reduced protection € million Market returns 1000 Decoupling 500 Premia and arable aid 0 Why focus on Doha?Composition of operating surplus in agriculture

3. Export Subsidies • January 2003: EU initially offered to reduce aggregate expenditure limits by 45% • but in 2001/02 only used 35% of entitlement • In July 2004 Framework Agreement, EU signed up conditionally to full elimination • Importance of ‘credible date to be agreed’ • Blair has called for end by 2010 • It may be that policy change will eliminate the commodity export surplus: but what about Non-Annex I goods, i.e. the food industry?

4. Domestic support – EU situation 2001 (before Mid-Term Review)

5. Market accessEffect on tariff cut on beef price

6. Market accessEffect on tariff cut on beef price

7. Market accessEffect of tariff cuts on butter prices, €/tonne

8. Market accessEffect of tariff cuts on SMP prices, €/tonne

9. Effect of tariff cuts on white sugar price

10. Export Subsidies • January 2003: EU initially offered to reduce aggregate expenditure limits by 45% • but in 2001/02 only used 35% of entitlement • In July 2004 Framework Agreement, EU signed up conditionally to full elimination • Hong Kong 2005 agreed to end date of 2013, with substantial progress in early years • Only important now for dairy and sugar exports, but implications for Non-Annex I goods, i.e. the food industry?

12. The EU’s AVEs (ad valorem equivalents of specific rates), excluding sugar Note many of the highest tariffs are actually on processed foods (e.g. yogurt, whey) rather than bulk commodities

13. Comparison of EU banded offer with Swiss 60 formula

14. Market accessEffect on tariff cut on beef price

15. Market accessEffect on tariff cut on beef price

16. Market accessEffect of tariff cuts on butter prices, €/tonne

17. Market accessEffect of tariff cuts on SMP prices, €/tonne

18. Effect of tariff cuts on white sugar price

19. Domestic support - EU situation 2001 (end Uruguay Round, before Mid-Term Review)

20. Fischler reforms (EU15): • Switch 90%? of existing blue box expenditure into the green box • Shift €4.2 billion (cotton, tobacco, etc.) from amber to blue/green • Milk reforms strip €1.9 billion from amber box, and add (dairy premium) €0.4 billion to blue/green • Sugar reforms strip €3.5 billion from amber box, and add €1.3 billion to blue/green (EU15 income support) • Rice, fruit and vegetables…..

21. Commitments on blue and amber boxes: • EU will make the biggest AMS cuts under the tiered formula– could afford up to 70% • Blue box limited to 5% of value of agricultural production • achievable, provided most of the Single Payment is in the green box • Overall limit on all trade-distorting support (80% of base entitlement): achievable for EU15 • Product specific AMS limits

22. Source: Kutas, G. EU Negotiating Room in Domestic Support after the 2003 CAP Reform and Enlargement

23. Source: Kutas, G. EU Negotiating Room in Domestic Support after the 2003 CAP Reform and Enlargement

24. Source: Kutas, G. EU Negotiating Room in Domestic Support after the 2003 CAP Reform and Enlargement

25. Does the Single Payment fit in the green box? • Restrictions on fruit and vegetables: see Upland Cotton • Annex 2, 6(d): ‘The amount of such payments in any given year shall not be related to, or based on, the factors of production employed in any year after the base period’ • But an annual claim on farmland in agricultural production or kept in good environmental condition

26. Rural development WTO reduced protection Decoupling Future challenges for Irish agriculture