Summary
Analysis of the external effects of the deployment of CAP financial tools from the German Institute for International and Security Affairs (SWP) has argued ‘overall, the production and price effects of the current CAP are negligible’. It maintains if the CAP were completely abolished this would lead to only a small decline in EU production. It argues effects of other policies are often wrongly attributed to the CAP. However the impact of the CAP on developing countries needs to be assessed in the context of the wider policies which are associated with the deployment of CAP financial instruments (e.g. EU trade, food safety policy and SPS control policies) and needs to be assessed at the country and product specific level not the overall level. The SWP analysis says nothing about the price level which would need to prevail to achieve a production neutral outcome to the abolition of the deployment of CAP financial tools. The SWP analysis however rightly stresses the importance of involving developing countries in assessments of the external effects of the CAP, so potentially affected actors themselves can express whether and how the CAP is detrimental to their development.
An analysis from the Stiftung Wissenschaft und Politik (SWP or German Institute for International and Security Affairs) has sought to address the question: do CAP supported European exports ‘promote poverty and food insecurity in developing countries’ by destroying local agro-food sector employment?
The analysis notes how the European Commission (EC) November 2017 Communication ‘Food and Agriculture of the Future’ committed to taking account of the international dimensions of the CAP (for a critique of this EC communication from an ACP perspective see companion epamonitoring.net article ‘EC Communication on CAP Reform Could Potentially Have Some Lessons for ACP Countries’, 18 December 2017).
Against this background the SWP analysis sets out three main effects which the CAP potentially has on developing countries via:
- the ‘export hinge’ – the impact of the EU’s role as the largest agricultural exporter on world market prices and prices in specific developing countries, which could undermine the position of local products;
- the ‘import hinge’ –the impact the ‘of required raw materials, such as animal feed, originating from developing countries’ could have on poverty and food security in developing countries;
- the ‘direct and indirect climate hinge’ – direct effects relate to the adverse effects of ‘the EU’s agricultural greenhouse gas emissions’ might have on harvests in tropical and subtropical regions; indirect effects relate to the climate effect of intensive raising of cattle in the EU which leads to ‘more animal husbandry than would be optimal in terms of the climate’ (1).
In its assessment of the export hinge the analysis notes how EU export subsidies have been abolished and goes on to review in summary form the impact of decoupled payments, greening payments coupled payments, safety net instruments and rural development programmes. The paper concludes: ‘overall, the production and price effects of the current CAP are negligible’ (1).
The analysis maintains ‘these effects are not determined by the overall size of the CAP budget but by its mostly production-neutral design’. The analysis cites research from the Joint Research Centre to the effect that ‘the complete abolition of the CAP would only lead to a slight decline in agricultural production’ (1).
The analysis of the development effects of import and climate hinges maintains ‘the consequences of European imports on development are often wrongly attributed (solely) to the CAP’. The analysis explores the external effects of the EU’s high dependence on imported animal feed in EU livestock production and the impact of EU biofuel policies, both of which, it is held, can destroy eco-systems and threaten local food security in developing countries (1).
Overall the analysis maintains the ‘damaging effects of today’s CAP on development only remain in a few areas such as voluntary coupled payments, the reduction of the milk quota, and through complex interactions with other policy areas’ (1).
The SWP analysis argues ‘current agricultural trade between the EU and developing countries is therefore determined less by the CAP than by policy-independent productivity levels and specializations’ (1).
The SWP analysis maintains addressing these external effects of the CAP can best be achieved through ‘development (infrastructure aid) and trade policy (protective tariffs)’. It is suggested ‘in order to link these different policy areas coherently with the CAP, the EU should use existing policy-impact assessment instruments’, with these being orientated towards promoting the SDGs (1).
Significantly the analysis argues ‘developing countries must be more closely involved in this process’, since ‘only then can the potentially affected actors themselves be able to properly express whether, and how, the CAP is detrimental to their development’ (1).
This suggests in an ACP context that issues related to the policy coherence of the CAP could usefully be taken up in the EU Delegate’s annual reports on the implementation of EU cooperation activities in individual developing countries.
The concerns around the effects of continued voluntary coupled support in the context of the abolition of production restraints in the sugar and dairy sectors were also highlighted in the February 2018 European Parliament analysis of ‘The impact of the Common Agricultural Policy on developing countries’ (2). This report expressed concerns about the external effects of
- ‘the reintroduction of coupled payments for some products under the VCS scheme’; and
- the ‘high protection levels for some products (i.e. animal products and sugar)’.
The EP Report highlighted how ‘coupled support exceeds 10 % of direct payments, providing direct incentives in some sectors (mainly beef and veal, dairy products, sheep and goat meat, protein crops, fruits and vegetables and sugar beet)’. It maintained this ‘creates distortions both in the internal EU market and externally, displacing production to some member states (MS) either from other MS or from third countries’ (2).
| Comment and Analysis The conclusion that ‘overall the production and price effects of the current CAP are negligible’ is accurate but misleading. The key issue for producers in individual ACP countries is the impact of the deployment of CAP policy tools and associated trade policy measures on individual sectors in individual countries, not the overall impact of the CAP across all agricultural products globally.Any assessment of the impact of the CAP therefore needs to look at trade outcomes in individual product markets in individual developing countries. In addition the production and trade impacts of the deployment of CAP financial tools need to be assessed in the context of the wider effects of EU agricultural trade, SPS and food safety policies, all of which form an integral part of the CAP regime. Thus in the poultry sector, where no direct financial assistance is extended to EU producers, while growing consumer demand in Africa has played a role the large scale expansion of EU exports of poultry parts to sub-Saharan African markets in the last 12 years, the specific pattern of this growth cannot be divorced from: a) the success of EU poultry sector import policies, which effectively manages (restricts) imports in ways which have enabled EU poultry producers to capture virtually all of the expansion of EU poultry meat consumption despite the price disadvantages EU producers face vis a vis other international poultry meat exporters (see box below and epamonitoring.net article, ‘Report highlights vulnerability of EU poultry sector to liberalisation of trade in poultry meat’, 5 September 2015); b) the disruption of EU poultry exports to the Russian market resulting initially from the introduction of import restrictions by the Russian authorities, but which culminated in a complete ban on imports in August 2014; c) the opening up and expansion of EU poultry meat import quotas from the Ukraine; d) the provisions of formal EU trade agreements which restrict both the use of non-tariff measures and prohibit tariff increases beyond applied tariff levels on imports of poultry meat from the EU even where these increases are within WTO bound ceilings (e.g. the EU-South Africa trade agreement); e) informal pressure on African governments not to use quantitative restrictions on poultry imports (despite the EU’s own extensive use of this policy tool) and the policy response of African governments to this pressure; f) the earlier introduction of the EU ban on feeding meat and bone meal to ruminants.
It is against this background that the different trends in the development of poultry production in Ghana, South Africa (production declines with factory and farm closures), Mozambique, Cameroon and Namibia (production increases and job creation) need to be seen. Similar issues arise in the dairy sector, in the light of the EU’s policy response to the 2007/08 milk price crisis. This saw the EU: · lift the quantitative ceiling on buying of skimmed milk powder into intervention stocks (where the establishment of 110,000 tonne ceiling had been seen as essential to ensuring intervention buying was solely a ‘safety net’ measure and not a permanent price support instrument); · the establishment and expansion of schemes to provide financial support to private storage of milk powders; · the introduction of a range of additional EU support measures at a cost of €500 million for EU dairy and the relaxation of rules on the provision of national support to distressed dairy farmers. Had the EC not removed the ceiling of 110,000 tonnes on the volume of milk powder which could be taken into public storage and expanded the budget and duration of assistance schemes for private storage of milk powder, it is unlikely EU dairy companies would have: a) invested as extensively as has been the case in the expansion of milk powder production capacity; b) undertaken such extensive programmes of research into new milk powder formulations suitable for emerging markets; c) launched such extensive programmes of joint ventures, acquisitions and direct investment in sub-Saharan African to capitalise on emerging African dairy sector demand. Against this background in a number of sectors, of which the foregoing poultry and dairy examples are merely illustrative, EU policy measures can be seen as important conditioning factors which influence private sector investment, production and trade decisions. This aspect of the CAP is so deeply entrenched that it is commonly ignored in analysing the external effects of the CAP. Yet in 2015 the pan-EU dairy company Arla in an assessment of its planned trade and investment initiatives in Senegal and Nigeria acknowledged the local concerns which arose over its import dependent trade and investment strategy. Arla acknowledged its trade and investment strategy could undermine initiatives to develop local milk-to-dairy supply chains and reduce the incentive for governments to support such initiatives. The impact assessment conducted for Arla concluded its investment model ‘might incentivise processers to use imported powdered milk, instead of sourcing locally, in the production of other dairy products’. Against this background Arla called for the promotion of multi-stakeholder dialogues locally and internationally to inform framework conditions for a balanced dairy sector development, including through promoting a ‘Code of Conduct for Responsible Corporate Trade and Investment in African Dairy Sector Development’ (3). This Arla proposal would appear to reinforce the suggestion in the SWP report on the need for dialogues with stakeholders in individual countries potentially affected by the trade consequences of the deployment of CAP related policy tools. Similarly the observations on the EU export trade in poultry meat would appear to reinforce the SWP papers observations on the importance of trade policy measures in dealing with the production effects and trade consequences of the CAP in its entirety. This will require a close eye to be kept on how in the coming years the EC seeks to interpret and apply the provisions of recently concluded economic partnership agreements with ACP countries. |
Source:
(1) SWP Comment, ‘Fair Play: The Recent Common Agricultural Policy and Its Limited Effect on Development’, May 2018
https://www.swp-berlin.org/fileadmin/contents/products/comments/2018C21_rff_bruentrup.pdf
(2) European Parliament Directorate General for External Policies, Policy Department, ‘The impact of the Common Agricultural Policy on developing countries’, February 2018
http://www.europarl.europa.eu/RegData/etudes/STUD/2018/603862/EXPO_STU%282018%29603862_EN.pdf
(3) Arla, ‘Assessment of human rights in Senegal’
http://www.mynewsdesk.com/arla-foods/documents/assessment-of-human-rights-in-senegal-48352