The Common Agricultural Policy

The Common Agricultural Policy Impact on International Trade 29th November 2009 European Economic Integration, Institute of economic studies

Export subsidies

Impact on international trade • Lower export subsidies • Higher direct payments

Impact on international trade • EU prices closer to world prices • International agricultural trade liberalization • Fall in cereal prices by 50% • Fall in income of African countries, which were making profits on selling goods to Europe (under Lomé convention) • An increase in the export price competitiveness of basic EU food and agricultural exportsfor African countries

Further reforms • The Agenda 2000 • “multi-functionality” of farming activities • The reform in 2003 • A reduction in direct payments for bigger farms to finance the new rural development policy • CAP “Health Check“ 2008 • Increase of milk quotas, ...

„CAP vs. Africa“ case • African exporters seem to be sensitive to EU reforms • Pros and cons of CAP reforms (from African point of view) • Future prospects

Pros and Cons + — 2001: free access to the market granted to the least developed countries under „Everything Buts Arms“ initiative. Problem? – sugar,rice and bananas excluded After MacSharry reform, EU price reductions drove some African exporters out of the EU market Undermining of African markets by price-competitive EU goods (wheat) – „markets of last resort“ EU policy emphasis shift – „from quantity to quality“ • Large food surpluses exported to Africa as a food aid (before MacSharry) • Certain African (sugar) exporters profited from Lomé convention (€500 mil. in 99/2000)

Situation when Africa rejects to trade with EU Africa higher value food Qh PPF Ql lower value food

Trading situationRicardian model Africa EU QH QH PFT TT TT PA = CA PA = CA higher value food higher value food IFT CFT PPF CFT IFT PPF IA IA PFT Ql QH lower value food lower value food Africa has comparative advantage in producing lower value food

Future prospect • African exporters: • lower value food and agricultural products distributors • European exporters: • higher value food and agricultural products

Conclusion • Trend in reforms of CAP – lower direct payments • Decoupling: • ↑ economic prosperity • ↓ negative impacts on the environment • From import levy to direct subsidies – before and after Mac Sharry reform • Africa has to trade with lower value food

Thank you for your attention Petra Andrlíková Radovan Parrák

references • Institure for Agriculture and Trade Policy: The Common Agricultural Policy: A Brief Introduction, Prepared for the Global Dialogue Meeting (May 14 and 15, 2007, Washington, D.C.) • European Economic Policies:CommonAgricultural Policy; Laurent Weill: Université de Strasbourg, Charles University - Prague , April 2009 • Policy Notes 2009/7: The Impact of Common Agricultural Policy (CAP): Reformon Africa-EU Trade in Food and Agricultural Products • http://ec.europa.eu/budget/index_en.htm

The Common Agricultural Policy