Impact on EU agriculture of Falconer’s draft modalities

1. Impact on EU agriculture of Falconer’s draft modalities DG for Agriculture and Rural Development European Commission

2. Measuring the impact of Falconer’s proposal… • … by using of the OECD Aglink model… • Partial equilibrium, large country and product coverage • Model available to co-operators • But weak for trade simulations • … and improved its EU trade component • Replacing exogenous imports with import equations • Developing import equations for high and low quality for beef and poultry

3. Description of the model used • The OECD AGLINK model… • Partial equilibrium • Models explicitly 14 countries/regions, mainly in the OECD area • Covers the majority of products of temperate climate

4. Description of the model used • … and the FAO COSIMO component… • Adding 32 developing countries • Planning to cover more products, mainly tropical • ... result in a large model of world agriculture • 7380 equations provide results for production, consumption, imports , exports, domestic and world market prices • Results are provided for each year of the projection period (2005-2014), allowing for adjustment path

5. Scenario 1: The EU’s offer of October 2005 • Export competition • export subsidies to be phased-out • Domestic support • 70 % cuts for EU, 60 % cuts for US in AMS and total support • 80 % cut in de minimis • new blue box disciplines to come from disciplines in support price gap • 5% ceiling part of the framework agreement as recognition of reform • Market access • thresholds at 30/60/90, cuts at 35/45/50/60 • flexibility in lower band, formula for TRQ expansion, Deviation for SePs: 50% (mid-point of EU sliding scale)

6. Scenario 2: Falconer’s proposal of 8 February 2008 • Export competition • export subsidies to be phased-out • Domestic support • 70 % AMS cuts for EU, 60 % cuts for US • 80% OTDS cut for EU, 70% cut for the US • 50 % cut in de minimis • new blue box disciplines and cap • Market access • thresholds at 20/50/75, middle range cuts at 50/57.5/63.5/69.5 • SePs: deviation of 2/3rd, 4% of partially allocated DC

7. Scenario 3: G20 full proposal • Export competition • export subsidies to be phased-out • Domestic support (not included) • 80 % AMS cuts for EU, 70 % cuts for US • 80% OTDS cut for EU, 75% cut for the US • D.m.: same as overall • new blue box disciplines, cap and reduction • Market access • thresholds at 20/50/75, cuts at 45/55/65/75 • SePs: deviation of 30%, 6% of DC of full sector

8. Caveats of analysis • Domestic support • positive impact from US domestic support commitments on cereals, cotton and oilseeds missing • Export subsidies • positive impact from STE, export credit and food aid disciplines on cereals and dairy missing • Market access • full tariff cut scenario will affect all players and markets, which means substantial potential gains for EU exports

9. Impact on EU imports

10. Impact on EU imports

11. Impact on EU exports (cereals)

12. Impact on EU exports (meats)

13. Impact on EU exports

14. Impact on EU prices (cereals)

15. Impact on EU prices (meats)

16. Impact on EU prices (dairy)

17. Impact on EU production (cereals)

18. Impact on EU production (meats)

19. Impact on EU production (dairy)

20. Conclusions • Overall impact of Falconer’s proposal not significantly different from EU’s offer; • New medium-term projections for prices and exchange rate will play a key role; • Impact underestimates EU’s potential gains stemming from increased MA for EU products.