USDA Highlights EU’s Continued Use of Protectionist Tools in the Agro-Food Sector

Summary
USDA highlights the EU’s continued use of protectionist trade tools in its agro-food sector. This boosts EU export competitiveness, which can harm ACP agricultural sectors (e.g. dairy and poultry sector development). EU practices contrasts sharply with EU policy prescriptions in an EPA context. This calls for the flexible interpretation and application of EPA commitments given the overriding importance of agriculture to livelihoods in many ACP countries.

In January 2017 the USDA posted an analysis highlighting the EU’s continued use of protectionist measures in its agro-food sector trade with its major trading partners. This remains the case despite the major overhaul of the EU’s agricultural support regime which has been underway since 1992. The USDA analysis notes how at its heart, the CAP aimed at ‘isolating the European internal market from the world market’, thereby ‘stimulating domestic production by guaranteeing profitable domestic prices’.

The USDA analysis notes how despite reforms implemented since 1992 the EU’s ‘market protection and trade policy tools remained intact, with the exception of exports subsidies, which were ended in 2013’. It highlights how throughout the the ‘EU has upheld its strong protection of the internal market through high tariffs and restrictive TRQs’. It notes this system of protection ‘keeps EU internal prices above world market prices’. (1)

USDA also highlights the EU’s ‘Inward Processing system which exempts EU importers from paying import duties when the imported product is re-exported again after further processing’. This it is held ‘provides EU processors access to raw materials at world market prices at times when EU prices are higher’, thereby maintaining the competitiveness of EU food processors on global markets. (1)

According to the USDA analysis the ‘established trade policy tools…actively disadvantage agricultural imports into the European market particularly high value products’. It concludes ‘as a result EU agricultural imports remain focussed on commodities and other agricultural primary products’. Overall the USDA describes the EU’s agricultural import policy as ‘restrictive’. (1)

Sources:
(1) USDA GAIN, ‘EU Market Protection Suppressed Agricultural Imports’, GAIN Report Number E17005, 11 January 2017
https://gain.fas.usda.gov/Recent%20GAIN%20Publications/EU%20Market%20Protection%20Suppresses%20Agricultural%20Imports%20and%20Limits%20Grow_Brussels%20USEU_EU-28_1-11-2017.pdf
(2) LEI Wageningen UR, ‘Competitiveness of the EU poultry meat sector’, LEI Report 2013-068, December 2013,
http://www.avec-poultry.eu/system/files/archive/new-structure/avec/Communication/Study%20final%20version.pdf
(3) Agra CEAS Consulting, Evaluation of the Common Market Organisation (CMOs) for Pigmeat, Poultrymeat and Eggs, Contract 30-CE-0009330/00-422134/CC/November 2005
http://ec.europa.eu/agriculture/sites/agriculture/files/evaluation/market-and-income-reports/2005/pig-poultry-eggs/fullrep_en.pdf

Comment and Analysis
While the USDA report focuses on US-EU agro-food sector trade, the reality is the EU continues to maintain a highly protectionist agro-food sector trade policy in relations with all its major agro-food sector trade partners (none of which are ACP members).

This EU policy practice contrasts sharply with the EU’s policy advocacy vis a vis ACP governments, where the EC continues to call for the systematic removal of all non-tariff barriers to EU agro-food exports, in a context where for many ACP EPA signatories the EU is their major agro-food sector trade partner.

There is a need to bridge this gulf between EU agricultural trade policy practice and EU agricultural trade policy advocacy in its relations with ACP countries.

This is particularly important in ACP countries where the agro-food sector is central to livelihood opportunities for major parts of the population.

This calls for the flexible and responsible application of commitments entered into under the various EU-ACP economic partnership agreements. In implementing these agreements priority has to be accorded to the structural development of ACP agro-food sectors and the associated promotion of local job creation and value addition.

In addition as the USDA report points out, the EU remains committed to insulating EU agricultural producers from the worst effects of global market instability, within a framework of market deregulation and managed moves towards agricultural trade liberalisation. This insulation of EU producers from the worst effects of global market instability, has been central to the design of EU agricultural support policy reforms.

The policy measures adopted and retained as part of this reform of EU agricultural support programmes (decoupled direct aid payments, coupled support payments, safety net measures and the managed EU trade regime), can have important external trade effects which impact directly on ACP countries.

This is the case in the poultry sector, where the EU’s protective and highly managed trade regime, means EU poultry producers has been able to expand in response to rising EU demand for poultry meat, despite having a far higher cost structure than their major international competitors (see boxed text). This expansion of the EU poultry sector has fuelled the massive growth in EU exports of poultry parts to Sub-Saharan African markets, which has been underway in the last decade.

The AVEC Report on EU Poultry Sector Competitiveness
According to a study commissioned by the Association of Poultry Processors and Poultry Trade (AVEC), on the competitiveness of the EU poultry meat sector, the total production costs in Argentina, Brazil, Ukraine, the USA, Thailand and Russia are 71%, 72%, 77%, 80%, 84% and 92% of average EU production costs. (2)

As the EU poultry sector has acknowledged, without the protective poultry sector trade regime, which restricts imports to within agreed quota levels, the European poultry sector would rapidly be restricted to the supply of niche markets. This would then see a dramatic decline in EU exports of poultry meat parts to Sub-Saharan African countries.

Current EU poultry sector trade flows are closing off opportunities for the structural development of poultry feed supply chains in African countries. Feed supply chains which potentially can create huge market opportunities for African smallholder grain producers and hence provide an important stimulus to local rural development.

Impact of the EU Poultry Sector Trade Regime: An Industry View
According to EU poultry producers, the high tariffs and system of import quotas applied are essential to ensure a ‘level playing’ for EU poultry producers. A 2005 evaluation of the EU poultry regime argued import tariffs play a ‘vital role in restricting the volume of imports into the EU from third countries’. Estimates in 2005 suggested import tariffs maintained prices between 11.5% and 13.1% higher and production between 7% and 13.3% higher, than would be the case in the absence of tariff protection (this varies, depending on world market price levels). According to EU poultry industry representatives, ‘in the absence of import tariffs…the EU market would rapidly be influenced by imported products, with EU producers increasingly restricted to supplying niche markets’. (3)

In the dairy sector EU safeguard measures and coupled support payments played a similar role, in sustaining the expansion of EU milk production, and driving a massive expansion of EU skimmed milk powder exports (48%), despite the collapse of global dairy prices. The accumulation of EU stocks of milk powder which has continued to overhang global markets, has made a unique contribution to the extended depression of global dairy market prices and the uncertain nature of the current recovery. These development have placed pressure on efforts in Sub-Saharan Africa to develop local milk-to-dairy supply chains.

Key words: CAP, Poultry, Dairy

Area for Posting: CAP, Poultry, Dairy, West African EPA, Southern Africa EPA, Eastern Africa EPA, Central Africa EPA, Caribbean EPA