Summary
EU agri-food exports continued to grow in 2017 (+5.1%), re-confirming the EU as the leading global agri-food trader, with a surplus of €21.5 billion. The EU also maintains a large trade surplus with LDCs (equivalent to 46% of the value of agri-food imports from LDCs). While the EC asserts that following the implementation of CAP reforms ‘EU exports of agri-food products to developing countries are simply a response to supply and demand’, the deployment EU agricultural support tools and trade policy measures continue to have an important bearing on the structure of EU production and patterns of exports to ACP countries, particularly in the dairy, poultry meat and increasingly the sugar sector. While the EU is committed to policy dialogues with ACP governments to strengthen the contribution of the agri-food sector to rural and wider national development, this dialogue will continue to be one-sided unless the EU acknowledges the impact which the deployment of EU policy tools continues to have on patterns of EU exports which can undermine prospects for the structural development of key agri-food sectors. In Africa in particular patterns of EU private sector investment are needed which support rather than hold back the integrated structural development of agri-food sectors so growing African demand for high quality, high value food can increasingly be met from domestic integrated agri-food sector activities.
EU Domestic Production and the Role of Exports
According to the EC ‘agriculture and the food related industries and services together provide almost 44 million jobs in the EU, including regular work for 22 million people within the agricultural sector itself’, with the food processing chain accounting for ‘7.5% of employment and 3.7% of total value added in the EU’ (1). In 2017 EU agricultural output rose 5.2%.
In 2017 EU agri-food exports increased 5.1% to reach €138 billion. With imports of €117 billion, this generated an agri-food sector trade surplus of €20.5 billion, up 9% compared to 2016. This reaffirmed the EU’s position as the world’s leading agro-food trader, a position it has held since 2013. This occurred despite a collapse of EU wheat exports in 2017 on the back of constrained EU production (1).
It has been noted how the ‘share of exports in production value is continuously increasing, both for agri primary products and for products from the food industry, with a share of 12.3% and 10.5% in 2016’. This is up from a mere 7.7% and 6.7% respectively in 2008.
As Agricultural Commissioner Hogan acknowledges ‘the success of agricultural trade is clearly linked to reforms of the CAP that allow EU producers to be competitive on international markets’. In particular it is highlighted how ‘the major CAP reforms in the dairy and sugar sectors in the last three years have positioned EU producers in these sectors to better compete on international markets’. In 2017 EU sugar exports rose 43% in value and 59% in volume. This was seen by the EC as a ‘tangible reflection of the way the increased market orientation of the CAP positions EU producers to compete on international markets’.
The success of EU agri-food exporters was also attributed to the achievements of EU trade negotiators in opening up 3rd country markets to EU exports, with further progress being made in 2017 in concluding and implementing trade agreements and opening new negotiations (1).
Growing global demand for food is seen as presenting major opportunities for EU exporters, with the safety and quality of EU produced agri-food products being a major selling point internationally. There are seen as being particular opportunities in African markets for EU agri-food exporters.
Approximately half of EU agri-food exports are value added processed food and drink products, with this contrasting sharply both with the pattern of other major agri-food exporters (like the USA) whose exports are more dominated by primary commodities.
The focus on value added food product exports accounts for the strong geographical concentration of EU exports on advanced developed economies, with the top 5 EU export destinations being: the USA (16%), China (8.7%), Switzerland (6%), Russia (4.7%) and Japan (4.6%), which collectively account for 40% of EU agri-food exports.
| Impact of EU FTAs on Agri-Food Exports
According to an assessment commissioned by the EC of specific bilateral trade agreements released in February 2017: ‘the trade agreements with Mexico, South Korea and Switzerland have increased EU agri-food exports to these countries by more than EUR 1 billion and raised value added in the agri-food sector by EUR 600 million. The increased exports have supported almost 20,000 jobs in the agri-food sector, of which 13 700 jobs are in primary agriculture. The findings stress the importance of activities that allow EU exporters to expand trade within the existing agreements, such as promotion and information actions and resolving Sanitary and Phytosanitary (SPS) barriers’. EC, ‘Impacts of EU trade agreements on the agricultural sector:’ December 2016 |
Threats to EU agri-food exports identified include:
- ‘increasingly protectionist policy approaches in some important economies’;
- ‘more frequent trade disputes’
- ‘trade disturbances linked to the decision of the United Kingdom to leave the EU’.
EU Agri-food Processing Industries and Imports
The pattern of EU agri-food sector imports is quite different from the EU’s export trade. EU agri-food imports are dominated by basic agricultural commodities, with final products representing only 17% of EU agri-food imports.
For the EU the main sources of agri-food imports are Brazil, the US, Argentina, Ukraine and China. The share of Brazil and US declined in 2017, while the share of the Ukraine increased, largely on the back of the stimulus to mutual trade in agri-food products provided by the new EU-Ukraine FTA. The share of other major suppliers remained fairly constant in 2017, with the exception of Indonesia and India, where the value of imports grew 28% and 22.9% respectively.
In 2017 imports of tropical fruit which already topped the ranking of EU import products ‘saw a further increase of import values due to strong demand in particular for bananas’. Indeed bananas accounted for €0.4 billion of the total of €0.7 billion in EU imports in the tropical fruit product category.
EU import trends of particular relevance to the ACP highlighted in the review of EU agri-food sector trade in 2017 included:
- the 16% decline in the value of cocoa imports in 2017 (- €0.781 billion) with this being attributable to international price declines;
- the 17% decline in the volume of EU beet and cane sugar
It is significant that imports such as cocoa, sugar and coffee then provide the basis for a huge EU export trade in value added products to OECD and other major developing country markets
The Role of LDCs in EU Agri-food Trade
A special section of the report was devoted to EU trade with Least Developed Countries (LDCs) which represents a small majority of ACP countries. The EC analysis highlights how:
- ‘the EU remains by far the top importer of agri-food products from least developed countries’, with EU imports of agri-food products from LDCs increasing 3.3% in 2017 reaching € 3.5 billion;
- the value of EU agri-food imports from LDCs exceeds the combined value of ‘the other top world importers US, China, Japan, Russia and Canada’ which together import only €3 billion;
- ‘the EU sources 3% of its total imports in agri-food products from LDCs’, while ‘the average of the individual countries of the Big 5 is around 1%’;
- EU imports from LDCs are largely commodities (48.5%) and other primary products (19.8%), with processed agricultural products accounting for less than 2% and non-edible products making up 29.9%;
- ‘the EU continues to be the main supplier of LDCs with agri-food products’, absorbing some €5.1 billion in EU agri-food exports, with the main EU export categories being ‘infant food, wheat, milk powders and whey, food preparations, poultry meat, and raw hides and skins’.
The EC asserts ‘without export refunds and market distorting support on the internal market, EU exports of agri-food products to developing countries are simply a response to supply and demand.’ It is argued that ‘due to rapid population growth and urbanisation, demand greatly outstrips supply in many developing countries and they are not able to satisfy the nutritional needs of their populations, in terms of quantity as well as quality, without imports’
The EC analysis recognizes the crucial role which agriculture and rural development has in meeting the sustainable development goals (SDGs), with the sector being seen as making an ‘important contribution to economic growth, social stability and sustainable use of natural resources’ as well as employment creation.
In Africa, for example it is acknowledges agriculture ‘employs 65% to 75% of the labour force’, with agriculture being ‘the main source of income for some 90% of the African rural population’. It is further acknowledged that ‘given the demographic trend in Africa, the challenge to create the massive number of job opportunities for young Africans coming into the labour market is immense: there is a need for 18 million jobs per year, while currently only 3 million new jobs per year are created’.
It is maintained there is an ‘imperative need to modernise African agriculture in order to address these significant structural issues, making it easier for local companies to grow and develop’. Agricultural development it is held ‘could help to reduce the region’s reliance on imports of certain products as well as to absorb the rapidly increasing workforce’. It is maintained the EU is ‘strongly invested in fostering relationships with developing countries, in particular in Africa….that assists them in advancing their agriculture and rural potential, and in encouraging responsible private investment in African markets’. This includes through the conduct of policy dialogues
| Comment and Analysis The evolving structure of the EU’s agri-food sector export trade demonstrates not only the scope for the structural development of agri-food sector supply chains but also the role which public policy choices and interventions can play in promoting this structural transformation. Increasingly the EU is a source of high value high quality food products produced on the basis of both domestic agricultural production and imported raw materials. The EU’s value added agri-food processing activities make a major contribution to employment creation and GDP. The EU agri-food industry is however increasingly dependent on expanding international market opportunities for EU agri-food exporters, while the import trade is central to the EU’s value added agri-food processing sector. The dominant role the EU plays in the coffee export trade to fellow OECD countries and its central role in global chocolate and confectionary industry supply chains illustrates just how effective EU policies have been in positioning EU agri-food sector enterprises to capitalize on increasingly liberalized global agri-food sector markets. It is this structural development of agri-food supply chains which many African governments aspire to, particularly in the face of rapidly expanding African demand for quality food products. However herein lies a tension with the EU for international markets are increasingly central to the future economic well-being of the EU agri-food industry (with exports now accounting for 12.3% of the value of agricultural primary products and 10.5% of the value of the products of the food industry in 2016; compared to a mere 7.7% and 6.7% respectively in 2008). This underlying tension needs to be recognized and addressed. What is more while the success of EU agricultural exporters is clearly linked to the fundamental reform of EU agricultural support instruments, the dynamic innovation and investment strategies of EU based agri-food sector companies and the quality and safety record the EU has cultivated globally, this is by no means the whole story. EU agricultural support policies and trade measures also play a major role in the ability of EU exporters to compete on price on global markets. This is particularly the case for undifferentiated bulk product exports such as poultry meat, milk-powders and now increasingly sugar. These are all export products where ACP markets have taken on or are taking on increasing significance (see companion epamonitoring.net articles: ‘EU Poultry Meat Exports to Sub-Saharan Africa Down Only Marginally in 2017 Despite South African AI Based Import Restrictions’, 21 March 2018; ‘Strong Expansion of EU Fat Filled Milk Powder Exports to West African Markets Resumes’, 19 April 2018; ‘French Exporters Lead The Charge for African Sugar Markets’, 3 May 2018). Against this background the EC’s assertion that the trade consequences of the abolition of EU sugar production quota is a ‘tangible reflection of the way the increased market orientation of the CAP positions the EU producers to compete on international markets’ is accurate but only tells half the story. The abolition of production quotas lifted the ceiling on the amount of sugar which could be produced in the EU in the context of: a) he continuation of decoupled payments to all EU farmers which helps defer a substantial level of overhead costs of all forms of EU agricultural production; b) a continuation of ‘coupled’ support payments to around 50% of EU sugar beet farmers to ensure they could sustain national sugar production in the new market context created by the abolition of national sugar production ceilings; c) the continuation of a highly managed sugar import regime which continues to impose high import duties on imports outside of specific defined import quota arrangements. Together these policy measures have ensured that more and more of the EU’s own domestic sugar consumption needs are met from EU beet production and that ‘surplus’ sugar can be sold on world markets at marginal cost, given overhead costs are covered by a combination of support payments and the higher prices sustained by continued trade protection of the EU sugar sector. The trade outcomes this gives rise to can scarcely be categorized as a product of the normal functioning of the forces of supply and demand. From an ACP perspective the issue is not the importance of ACP markets to overall EU agri-food exports, but the impact which particular patterns of EU agri-food exports have on individual countries in individual sectors. This is not to under-estimate the importance of ACP markets to EU exporters in certain sector (e.g. for poultry meat exports and fat filled milk powder exports), but rather to highlight the limitations of considering the issues arising at an aggregated level. The EU import side of the ACP-EU agri-trade relationship is becoming equally fraught. For example we find the growth in EU banana consumption is being driven by the twin effects of rising incomes and demand in eastern Europe and lower prices arising from reduced import duties on higher volumes of $ bananas as a result of the implementation of EU trade agreements. Traditional ACP banana suppliers are largely being excluded from this growth trends. Indeed, in 2017, for the first time since the reform of the EU’s banana import regime, a significant dent was made in the share of ACP bananas in total EU banana imports (2), with the ACP share falling to 19% from an average of 21.7% over the period from 2012 to 2014 and 21.5% in 2016. ACP exporters are also rapidly losing market share in the EU sugar sector as major import markets such as the UK are increasingly served by expanded domestic UK sugar production and sugar production in other EU27 member states (see epamonitoring.net article ‘EU Sugar Quota Abolition Begins to Eat at ACP/LDC Export Volumes and Earnings’, 10 May 2018). ACP agri-food export earnings to the EU are also profoundly affected by the volatility of international commodity prices (e.g. for cocoa and coffee) over which ACP producers have no influence. Indeed, in the cocoa sector expanding domestic production only seems to reduce net earnings as prices fall. this is not a problem faced by EU value added food product exports produced form these basic commodities where product differentiation, (including trading on the single origin chocolate and coffee products sourced from individual ACP countries ) seem to yield increasingly higher incomes for EU exporters. Taking imports and exports of agri-food product together it is noteworthy that while the EU is the largest importer of agri-good products from least developed countries the EU still maintains a huge trade agri-food sector trade surplus, amounting to €1.6 billion in its agri-food sector trade with LDCs (in 2017 the EU imported €3.5 billion in agro-food products but exported €5.1 billion). This characteristic of the EU’s agri-food sector trade with LDCs is also a growing feature of the EU’s agri-food sector trade with ACP regions. Across ACP regions traditional agri-food sector trade surpluses in trade with the EU rapidly disappearing as the EU agri-food sector becomes increasingly globally orientated. This raises serious issues related to the nature of the ACP-EU policy dialogue needed if the structural transformation of ACP agri-food sectors is to be supported in ways which create jobs and expanded income earning opportunities in ACP countries, particularly in Africa. This is a particularly important issue at the current stage in EU-ACP relations given the political imperative in Europe to effectively get to grips with migration pressures, which are throwing up populist challenges to the European project. Reconciling Europe’s agri-food sector export interests in African markets with African aspirations for the structural transformation of national and regional agri-food sectors, so that more and more remunerative jobs and income earning opportunities are created locally through meting rapidly expanding African demand for high quality, safe food products is likely to be one of the most critical challenges faced in the coming years in EU-ACP relations. This is likely to require a re-think of Europe’s current pattern of export driven trade and investment relations with African countries and the wider ACP group. |
Source
(1) EC, ‘Agri-food trade in 2017: another record year for EU agri-food trade’, MAP 2018-1
https://ec.europa.eu/info/sites/info/files/food-farming-fisheries/news/documents/agricultural-trade-report_map2018-1_en.pdf
(2) EC, ‘Banana Supply in the EU’, DGAGRI-G.2, March 2018
https://ec.europa.eu/agriculture/sites/agriculture/files/fruit-and-vegetables/product-reports/bananas/statistics/supply_en.pdf