Record EU agri food surplus highlights success of EU CAP reforms

EU agro-food exports continue to grow to new record levels driven by successful agricultural reforms and an increasingly ‘offensive’ trade policy. For certain EU products sub-Saharan African markets have become increasingly important. In the coming years ACP  governments will come under increased pressure to systematically remove all non-tariff barriers to EU agri-food exports. The EU largely imports unprocessed agricultural products from ACP countries, adds value meets domestic demand and re-exports higher value products to global markets. There is a fundamental in fundamental contradiction between the aspirations of ACP governments to structurally transform their agri-food sectors and EU objectives for expanding exports of value added food products.

While in 2015 the EU was already the world’s largest exporter of agri-food products (3), the latest EC figures show ‘agri-food exports from the European Union reached (a) record high in 2016…with total exports reaching 130.7 billion, up 1.7 billion on 2015’. At the same time ‘the value of EU agri-food imports went down 1.5 per cent to €112 billion’.  This saw ‘an increase of the EU agri-food trade surplus to 18.8 billion, up from €15.3 billion in 2015’ (1).

In 2016 the largest increases in EU agri-food exports were to the USA (up €1.26 billion) and China (up €1.06 billion (1). Only one ACP country was amongst the top 20 destinations for EU agri-food exports (South Africa, 19th) (2).

In 2016 agri-food exports accounted for 7.5% of total EU exports of goods, with the agri-food surplus being ‘a major contributor to the overall surplus of the European Union in merchandise trade, which stood at €39.3 billion in 2016’ (1).

The Russian ban on imports of agri-food products from the EU, introduced on the 7th August 2014 left EU exporters ‘looking for new market opportunities’ (3). For certain products such as poultry meat, sub-Saharan African markets proved particularly interesting. Whereas in 2009, when the Russia market took 20.3% of total EU poultry meat exports, sub-Saharan African markets as a whole took roughly the same amount (5).  However with the Russian Federation introducing controls on imports of poultry meat from the EU in 2010, EU exporters started looking elsewhere. When the Russian government banned agri-food imports from the EU in August 2014, the processes of re-directing EU poultry meat exports to other markets was well underway (4).

By 2016 EU exports of poultry meat to sub-Saharan African markets had more than tripled from 204,844 tonnes in 2009 to 674,931 tonnes in 2016, accounting for fully 47% of total EU poultry meat exports in 2016, with virtually no exports to Russia (4) (for more details see companion article, ‘Africa continues to grow as export destination EU poultry meat despite AI outbreaks’).

On the import side the main sources of EU imports are: Brazil; USA; Argentina; China; Switzerland; Turkey; Indonesia, Ukraine and Ivory Coast (2). The presence of Ivory Coast in the top ten is illustrative of the structure of the EU agri-food sector trade with ACP countries.  In 2015 the value of EU exports of confectionery, cocoa paste and powder exceeded the total value of EU imports of cocoa beans and powder and paste. This situation changed slightly in 2016 with the value of EU exports of confectionery, cocoa paste and powder growing 3.8%, but with a recovery of international cocoa prices, the value of imports growing 10.3% (2).

The EU’s agri-food trade with the Ivory Coast, as with many ACP countries, sees’ the EU importing agricultural raw materials which are then processed and subject to extensive value addition, before being re-exported across the globe. A similar situation arises in the coffee and tea sectors, where in 2015 the EU imported commodities valued at €532 million and exported value added coffee and tea products worth €789 million (as well as meeting Europe’s own extensive domestic demand for tea and coffee) (2).

It is this process of adding value to imported raw materials prior to re-exporting, which combined with domestic EU agricultural production, is generating a growing EU agri-food trade surplus.

According to analysis from Copenhagen Economics ‘this export performance has been driven mainly by EU agricultural policies, structural change and technological progress in the agri-food sector, as well as EU trade policies’ (3). It is maintained the focus of EU agricultural policy has ‘shifted towards enabling economic viability of the agricultural sector’ and catering ‘to the needs of a growing global population’.

Looking forward, with the EU market ‘relatively saturated’, the EC expects ‘90 per cent of the additional world demand for agri-food products over the next 10-15 years to be generated outside Europe’ (3).

Comment and Analysis
The analysis from Copenhagen Economics confirmed the success of the EU’s agricultural reforms and associated trade policies, which, within WTO rules, have successfully repositioned the EU agri-food sector in response to evolving patterns of global demand for agri-food products.The analysis also confirmed the growing importance of the agri-food sector to the EU’s overall merchandise trade balance (with the agri-food sector surplus accounting for over 50% of the EU’s total surplus in merchandise trade) and the importance of future export growth to the economic well-being of the EU’s agri-food sector.As implied in the Copenhagen Economics study, enhancing the capacity of EU agri-food enterprises to add value and develop export markets has been central to the EU agricultural policy reform process. It has long been recognised by the EC that far greater employment generation and value addition occur beyond the farm gate than occur on-farm. EU agricultural and trade policy measures since 1992 have thus been increasingly focussed on enhancing the competitiveness and export performance of EU food and drink enterprises, rather than simply meeting the needs for EU farmers.This policy focus on enhancing the competitiveness of EU agro-food product exports, so as to facilitate access to global markets, based on adding value to both domestic production and imported raw materials, is in certain respects in fundamental contradiction with the aspirations of ACP governments to structurally transform their agri-food sectors, so that more value and more employment is generated and retained locally in ACP countries.

This is particularly important in sub-Saharan Africa, where urbanisation, changing consumer tastes, strong recent economic growth and rapid population growth, is creating enormous demand for value added food and drink products.  This potentially creates considerable opportunities for the structural development of Africa agri-food sectors.

However, in recent years this expanding and changing pattern of sub-Saharan African food demand has been sucking-in imports, particularly from the EU.  Between 2009 and 2014 the value of EU agri-food exports to the ACP countries increased over three and half times faster than the value of EU agri-food imports from ACP countries (+72.2% compared to +20.7%). This saw the ACP’s agri-food sector trade surplus with the EU fall some 38.1% in 6 years. This is an acceleration of the trend underway since 2004, which between 2004 and 2014 saw the value of EU agri-food exports to ACP markets increase at an annual rate of 9.6%, compared to only a 3.8% annual increase in the value of ACP agri-food exports to the EU.

Evolution of ACP-EU Agri-food Sector trade 2009-2014 (million €) (5)

2009 2010 2011 2012 2013 2014 Growth 09-14
EU Imports 11,003 12,014 13,349 12,583 12,639 13,284 +20.7%
EU Exports 5,869 7,226 8,513 9,156 9,724 10,107 +72.2%
ACP trade surplus +5,134 +4,788 +4,836 +3,427 2,915 3,177 -38.1%

The collapse of oil prices and economic difficulties in key sub-Saharan African export markets such as South Africa, saw a slow-down in this underlying trend of growth in agri-food imports from the EU in 2015-16.  However this underlying trend in EU exports is likely re-emerge, once underlying agri-food sector demand growth trends in sub-Saharan Africa re-assert themselves.

In this context the observation that agreements which addressed both tariff and non-tariff barriers had ‘a higher positive impact than older and less ambitious agreements’, potentially carries important implications for ACP countries, since it implies the EC is likely to place a strong emphasis on full compliance with EPA provisions dealing with the elimination of non-tariff barriers to EU agri-food exports. This needs to be seen in the context of the extensive use of non-tariff measures as part of agri-food sector development programmes across a wide cross section of sub-Saharan African countries.

The observation that on the import side, new EU trade agreements largely replace ‘imports from other third countries’ should also be a matter of concern to ACP countries. Given the relatively low MFN tariff rates applied by the EU in non-agricultural sectors, it is largely with regard to agri-food products that these new EU trade agreements result in significant changes in tariff treatment of imported products. As a consequence these new trade agreements can increase competition for ACP suppliers, with imports from newly preferred countries replacing imports from ACP countries.  This serves to undermine the value of the longstanding traditional trade preferences ACP countries have enjoyed on the EU market since 1975.

(1), ‘EU Agri food Exports Reach Record High in 2016’, 24 February 2017
(2) EC, ‘Monitoring EU agri-food trade: Development until December 2016’
(3) Copenhagen Economics, ‘Impacts of EU Trade agreements on the agricultural sector’, 2016
(4) EC, Market Access Data Base, (Product: 0207; Partner country: All; Year: 2009-2016; EU member state: EU28)
(5) Data in the tables is drawn from:  EC, ‘Factsheets on EU28 agro-food trade with the world, various regions and individual countries’, available at, with data for 2009 taken from the earlier postings on this page.

Key words:           CAP Reform, Poultry
Area for Posting:  CAP Reform,  Poultry