The Fruit and Vegetables Import Regime : The Entry Price System Principles, Issues and Impacts

1. May, 2nd 2007 Bruxelles The Fruit and Vegetables Import Regime : The Entry Price System Principles, Issues and Impacts Charlotte Emlinger Institut Agronomique Méditerranéen de Montpellier/UMR MOISA EmmanuelleChevassus Lozza Institut National de la Recherche Agronomique Nantes/LERECO Restricted dissemination EUMED AGPOL

2. The Entry Price SystemOutline of the talk Introduction 1. Principles and motivation 2. Theoretical impacts of the Entry Price System on Imports 3. Four main issues to be discussed in the perspective of the removal of the Entry Price System

3. Introduction : The Entry Price System (EPS) • The level of protection depends on the import price of the product on the European market : the so-called «entry price» • Objectives of the system: • To limit competition from the RoW • To guarantee a certain level of price in the EU market • To avoid the transmission of world market fluctuations

4. Few products are concerned but they are important for the EU • Only 15 products are concerned : Tomatoes, Cucumbers, Artichokes, Courgettes Oranges, Mandarines, Clementines, Lemons Apples, Pears, Grapes Apricots, Cherries, Peaches, Plums (Also fruit juice : Oranges, Grapes)  But : • A High share in European production, especially for southern EU countries: -69.7% of total EU F&V production - 82% for Italy, 80 % for Greece, 72% for Spain and 76 % for France • A high share in F&V European consumption : 48,3%

5. Few products are concerned, but they are important for the EU • Ahigh share in Fruit and Vegetables European Trade EU imports 47,91% EU exports 42,70% • High share of intra-EU trade for these F&V: • 80% of Imports come from the EU (66% for other Fruit and Vegetables) • The major extra-EU suppliers of these products are: • - Mediterranean Countries (27.3%) : tomatoes, citrus • ( «Entry price products» represent 55% of their F&V production) • - South American Countries (29%) : citrus, apples • ( «Entry price products» represent 22% of their F&V production) FAO 2003-2004 - COMTRADE 2004

6. Principles and motivations of the system

7. Ad Valorem Duty t (%) (t*PE) PE PE Trigger price PE 92% Trigger Price PE 3. PE <92% Ptrig 2. 92% Ptrig<PE<Ptrig 1. Ptrig <PE 1.1. Principles of the Entry Price System (EPS) Maximum Specific duty SPEMax (€/kg) Specific duty SPE (€/kg)

8. 1.2. Different cases among the products • according to objectivesofprotection : - Seasonal protection of high perishable products (Apricots, Cherries, Peaches, Plums) - Protection of most expensive production (greenhouse) (Tomatoes, Courgettes, Cucumbers and Artichokes) - Off season Protection (Apples, Pears, Lemons) - In Season Protection (Grapes, Oranges, Clementines, Mandarines) • according to trade patterns: Off/In Season competition Low/High share of extra-EU trade Necessity of a « product by product » approach in the discussion about removal of EPS

9. 80000 160 70000 140 60000 120 50000 100 40000 80 30000 60 20000 40 10000 20 0 0 1 2 3 4 5 6 7 8 9 10 11 12 140000 60 120000 50 100000 40 80000 30 60000 20 40000 10 20000 0 0 1 2 3 4 5 6 7 8 9 10 11 12 Extra EU Imports Trigger Price Intra EU Imports Ad valorem Duty EPS applied only during European production Cherries: competition between EU and extra Suppliers on a brief periode  Also for Apricots, Peaches and Plums (but less extra-EU imports) Grapes : off season trade - Higher ad valorem duties during period of production  Also for Oranges, Clementines and Mandarines (but less extra-EU imports)

10. 250000 120 100 200000 80 150000 60 100000 40 50000 20 0 0 1 2 3 4 5 6 7 8 9 10 11 12 160000 60 140000 50 120000 40 100000 80000 30 60000 20 40000 10 20000 0 0 1 2 3 4 5 6 7 8 9 10 11 12 Extra EU Imports Trigger Price Intra EU Imports Ad valorem Duty EPS applied the whole year Tomatoes: Higher trigger price in winter and spring • -Competition between EU and extra-EU suppliers during this period • Higher ad valorem duty in summer •  Also for Cucumbers (but less extra-EU imports) and Courgettes Apples: Lower trigger price during EU production • -Low seasonality of intra EU import • Higher trigger price when Extra-EU import •  Also for Lemons and Pears

11. 1.3. Preferences granted by trade agreements • Reduction or removal of ad valorem duty • Preferential Trigger Price for some countries, products and months : Morocco : Tomatoes, Cucumbers, Artichokes, Courgettes Clementines, Oranges Israël: Oranges Egypt: Oranges Cyprus (before 2004): Oranges But only inside Quotas • The maximum specific duty never changes

12. 2. Theoretical impacts of the Entry Price Systemon Imports

13. European Excess demand : P If PE≥Ptrig : d1 PE If 92%Ptrig≤PE ≤ Ptrig : Ptrig avec 92%Ptrig If PE ≤ 92%Ptrig : d3 d2 0 Q

14. European Excess demand : (price in the EU Market=f(Q)) P d1 European Import Demand if EPS: (import price=f(Q)) PE Ptrig 92%Ptrig d3  Discontinuity of the European Import demand function : « Break » when PE=92%Ptrig d2 0 Q

15. P d1 Imports if EPS = Imports if ad valorem dutiesonly =Q1 With : PE1 = import price P1 = final price on EU market P1 PE1*t PE1 Import if free trade =Q’1 With : PE1 = import and final price Ptrig 92%Ptrig d3 d2 0 Q’1 Q1 Q What if the Impact of EPS on Imports? a. If PE≥Ptrig

16. P d1 Imports if EPS = Q2 With : PE2 = import price P2 = final price on EU market P2 PE2*t + SPE Ptrig PE2 92%Ptrig Imports if free trade = Q’2 With : PE2 = import and final price d3 d2 0 Q2 Q’2 Q What if the Impact of EPS on Imports? b. 92%Ptrig≤PE ≤ Ptrig

17. What if the Impact of EPS on Imports? b. 92%Ptrig≤PE ≤ Ptrig P Imports if ad valorem duties only = Q’’2 With : PE2 =import price P’’2 = Final price on EU market d1 P2 P’’2 PE2*t + SPE Ptrig PE2 92%Ptrig d3 d2 0 Q2 Q’’2 Q’2 Q

18. P Imports if EPS = Q3 With : PE3 = import price P3 = final price on EU market d1 Imports if free trade = Q’3 With : PE3 = import price and final price P3 Ptrig PE3*t + SPEmax 92%Ptrig P’’3 PE3 Imports if ad valorem duties only = Q’’3 With : PE3 =import price P’’3 =final price d3 d2 0 Q’3 Q3 Q’’3 Q What if the Impact of EPS on Imports? c. PE ≤ 92%Ptrig

19. What are the impacts of EPS on Imports? • Discontinuity of the Import demand Function • Below 92 % of the trigger price, imports are suddenly reduced • The application of the Maximum Specific Duty SPEMax can make the level of duty prohibitive  To sell products on the European market with a price lower than the trigger price, the import price (i.e. production price + transportation costs) has to be very low

20. Import Price (PE) Ad Valorem Duty Specific Duty Example of Tomatoes 120 100 Ptrig 80 P €/100kg 60 40 20 Import price 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 €/100kg PE

21. january Tomatoes SPEMax €/100kg No Duties 0.846 0.778 0.65 Turkish Production Costs Moroccan Trigger price 0.55 Moroccan Production Costs 0.461 0.424 Impact of Preferential Entry Price: example of Tomatoes MFN Trigger Price  Existence of a rent for exporters ?

22. 3. Four main issues to be discussed in the perspective of the removal of the EPS

23. Main Issues to be discussed in the perspective of the removal of EPS • Four questions raises: - EPS Effectiveness : does the system work? - EPS Relevance: is the system useful? - EPS Efficiency : are the objectives achieved at a reasonable cost? - Preferential margin of Preferential EPS: to what extent countries that benefit from preferential trigger price are advantaged? • On going work: comments and discussion are wellcome !

24. Two ideas : 1. We compare import price with trigger price :  the system is effective if import price are higher than the trigger price 2. We compare the EUsupply price with the trigger price :  the system is effective if internal prices are above trigger price

25. 1. Trigger price and SIVcomparison 1995 to 2005 - We use the Standard Import Valueas a proxy for import price after paying the specific duties - We count the number of occurenceswhere SIV<Ptrig Important variation of SIV among years, months and suppliers  Frequency of occurrences [SIV<Ptrig] depends on products, months and years

26. 1. Trigger price and SIVcomparison 1995 to 2005 4groups of products may be distinguished: - no SIV<Ptrig: Peaches, Mandarines, Courgettes, Grapes - few « crisis » for some year, suppliers or month : Apples (China, Poland, Hungary), Pears (China), Oranges (Turkey, Cuba, Brasil), Cherries (Bulgaria, Romania, 96), Apricots (96) - several cases of SIV<Ptrig: Artichokes (winter 03-06), Lemons (june july 03,04), Cuncumbers ( march april 03-06), Clementines (december 97-06) - the EPS doesn’t seem to work: Plums and Tomatoes

27. Trigger price MFN SIV 1995 1996 1997 1998 1999 2000 2001 2002 2004 2005 2003 Example of Peaches: SIV Above Trigger Prices €/100kg 250,00 200,00 150,00 100,00 50,00 0,00

28. 1995 1996 1997 1998 1999 2000 2001 2002 2004 2005 2003 Example of Apples : some problematic origins €/100kg

29. 1995 1996 1997 1998 1999 2000 2001 2002 2004 2005 2003 Example of Artichokes : Problems since 2002 €/100kg

30. 1 2 3 4 5 6 7 8 10 11 9 12 Example of Tomatoes : lot of SIV<Trigger Price 2004 €/100kg

31. Ptrig 92% Ptrig SIV T3 T1 T2 How SIV<Ptrigispossible ? The application of EPS and the use of SIV leads to SIV higher than the trigger price at T2  Clearing Methods (SIV, Deduction or FOB Method)?  Does SIV represent market prices?  Difference of quality/price inside consignement?

32. Trigger price SIV Turkey Case of Turkish Cherries : high SIV €/100kg 600,00 500,00 400,00 300,00 200,00 100,00 0,00 15-juin-94 28-oct-95 11-mars-97 24-juil-98 06-déc-99 19-avr-01 01-sept-02 14-janv-04 28-mai-05 10-oct-06 • Have EPS impact on the quality of the exchanged product?

33. Apples 1,6 €/kg 1,4 1,2 1 0,8 South West Price 0,6 0,4 Loire price 0,2 0 Wholesaler price Mai Juin Avril Mars Février Janvier Octobre Novembre Décembre Septembre Trigger price Plums 2,5 €/kg 2 1,5 1 0,5 0 30 31 32 33 34 35 36 37 38 39 40 Week 2.Comparison between Ptrig and EU supply prices Does EPS guarantee a high level of internal prices? For Most of products, EU supply prices are above the Trigger price: Price guarantee for producers 2004 French cotation SNM

34. 1,4 1,2 1 0,8 0,6 0,4 0,2 0 Mai Juin Avril Juillet Mars Août Janvier Février octobre décembre Septembre novembre chateaurenart South West Price Loire price Wholesaler price Trigger price 2.Comparison between Ptrig and EU supply prices Does EPS limit competition ? €/kg Cucumbers 2004 Supply price <Ptrig isolation from international Competition : Few extra EU imports for this product

35. Conclusion • What is efficiency / what is relevance? How to measure them? • Discussion about impacts of a removal of EPS, studies to carry on : - Comparison of production costs between EU and extra EU suppliers (+ transportation costs, logistic…) - Measure of European sensitivity: location of production area of « entry price products  » - Calculation of preferential margin : possible erosion of preferences

36. Conclusion • Question of quality of products :  different issues of removal of trigger prices • Entry Price System may also be an important administrative burden and may limit the access to the EU market for new exporters  Hard to estimate

37. SIV : « official » price calculated each day by the commission Wholesalers- Retailers Price Level Wholesaler margin : 9% Handling Charges 0,7245€/100kg Importers – Wholesalers Price Level Importers Margin : 8% ou 15% Transport and Insurance costs 4.12€/100kg Exporters – Importers Price Level Weighted by representative market within the country SIV Prices sent by members states • 5€/100kg • ad valorem duties • Weighted by countries

38. P d1 Ptrig 92%Ptrig d3 d2 0 Q