Summary
A WUR report suggests the EU egg sector would face serious competitiveness challenges from imports without continued high levels of tariff protection. While this is justified on the basis of the high regulatory standards applied in the EU, even in the absence of higher EU regulatory standards major 3rd country egg exporters would still enjoy significant cost advantages. The contradiction between the EU’s continued use of a combination of high tariffs and quantitative restrictions on imports to regulate the EU egg market and the EU’s inclusion of provisions in trade agreements with ACP countries which seek to ban the use of quantitative restriction on imports from the EU needs to be recognised and addressed through continuing to flexibly interpret and enforce such commitments in trade with ACP countries. ACP governments need to be allowed to continue to use a range of trade policy tools in trade with the EU (including quantitative restrictions) where patterns of EU exports threaten national sector development strategies and aspirations.
A recent study from Wageningen University & Research (WUR) on the competitiveness of the EU egg sector has argued that ‘reducing import levies on shell eggs and egg powder from non-EU countries threatens the competitiveness of Europe’s egg industry’. It is argued EU environmental, food safety, and animal welfare standards raise costs for European egg producers to such an extent that the removal of tariff protection would make EU egg production non-competitive (1).
For example the EC’s 2012 regulation banning battery-caged egg production now requires EU egg producers to ‘provide each laying hen with at least 750cm² of space’. This is seen as ‘financially demanding’ since competing 3rd country egg producers can house their hens with cage space of 350 to 400cms per hen, twice the density of EU producers (1). This needs to be seen in a context where major 3rd country egg producers also have a significant advantage in terms of feed costs and the efficiency gains arising from larger production units.
It is argued that in general, ‘non-EU countries do not have, or have limited legislation on environmental protection, food safety, and animal welfare’ (although it is acknowledged that in the USA it is claimed that national regulations are ‘equivalent to those in the EU’). Third country regulations on animal health and welfare are seen as being particularly weak, while environmental regulation are seen as singularly absent in many competing 3rd countries (2).
Overall EU legislation is seen as increasing EU ‘egg production costs by an estimated 16% at farm level’ (i.e. 84% of costs are generated by basic production costs and 16% by EU regulatory requirements). In contrast less stringent regulations in the US, Ukraine, Argentina, and India generate significantly lower egg production costs. Compared to EU production costs of €0.88 per kg of eggs production costs are 24% cheaper in the USA, 22% cheaper in the Ukraine, 14% cheaper in Argentina and 11% cheaper in India (1).
A similar situation prevails for whole egg powder, where compared to average EU costs, US production costs are 21% lower while costs in Ukraine are 20% lower and 13% lower in both Argentina and India. In addition since ‘the cost of transportation in powder is low, the offer price of whole egg powder from third countries is relatively low’ (1).
Against this background it is held EU egg producers simply ‘can’t compete with countries like Argentina, the US, and Ukraine’, in the absence of continued tariff protection (1).
Currently ‘import levies and quotas on shell eggs and egg powder from non-EU countries protect against large volumes of imports from third countries’. In this policy context ‘the difference in production cost is no problem because the EU is protecting the market with these import levies’. On this basis it is argued fresh eggs and powder eggs should continue to be excluded from any future EU bilateral trade agreements, in order to protect domestic EU egg producers (1).
The report maintains under a ‘scenario with 50% lower import levies’ competition for EU producers would increase considerably since ‘Ukraine and the US already offer whole egg powder at a lower price than the EU’. Under a worst case scenario ‘whereby no import levies are charged and a 10% lower exchange rate is available for non-EU currency…all non-EU countries would be “very cheap” suppliers of whole egg powder to Europe’, with offer prices ‘as low as 18% (Argentina, India), to even 27% (Ukraine) below the average EU level’. Such agreements it is argued would ‘ultimately weaken the position of Europe’s egg industry’ (1).
| The EU Egg Trade Regime The EU trade regime for the import of eggs from third countries involves a combination of import levies and tariff rate quotas. The basic import levy for fresh eggs is 0.30 euro per kg and 1.37 euro per kg of whole egg powder. In the GATT agreement of 1995 a reduction of import tariffs for a maximum quantity of eggs and egg products was agreed. Later bi-lateral agreements were made with Mexico, Ukraine, Canada and Japan, with these providing quota restricted reduced tariff access and, in some cases, duty free quota restricted access Wageningen University & Research, ‘Competitiveness of the EU egg sector, base year 2017’, February 2019 |
The report highlights how despite these competitiveness constraints which the EU egg sector faces the ‘EU is an important player in the international trade of eggs and egg products’, with in 2017 EU28 egg and egg product exports being valued at €221 million compared to imports valued at only € 31 million. This was down 43% on the recent peak export value of €385 million in 2015, when EU egg and egg exports were over 11.6 times the value of EU egg imports and nearly 15 times the volume of EU egg imports.
Import and export of eggs of the EU in volume (1,000 tonnes egg equivalent) and value (€ millions)
| 2013 | 2014 | 2015 | 2016 | 2017 | |
| Export volume | 220 | 233 | 281 | 247 | 209 |
| Export value | 266 | 278 | 385 | 283 | 221 |
| Import volume | 20 | 14 | 19 | 17 | 22 |
| Import value | 29 | 22 | 33 | 30 | 31 |
Source: European Commission (2018).
This would appear to highlight how effective the EU trade regime in supporting EU egg producers, not only in serving the domestic EU market but also winning overseas markets for the EU egg industry.
| Comment and Analysis Significantly the report highlights how the threat posed to the fresh egg sector is relatively low for overseas trade partners (but not Ukraine). The real threat is held to lie in the trade in egg powder which is used extensively in the food manufacturing sector to make sauces, bakery products, or mayonnaise. Here the low transportation costs and long shelf life (up to a year) means any reduction or removal of tariffs would pose a serious threat indeed, since EU egg producers could end up losing a whole market component (food manufacturing) to imports.Yet the EU retains high MFN tariffs for both fresh eggs and dried powdered eggs. The EU uses a combination of tariffs and quantitative restrictions (tariff rate quotas) to manage the egg market to the benefit of EU egg producers. While advocating agro-food sector trade liberalisation in trade with ACP trade partners, the EU consistently retains tariff and non-tariff quantitative restriction based forms of protection for EU producers, where this proves necessary. In the past efforts have been made to justify this on the higher costs generated by stricter EU regulations, but with closer examination of the data showing that even in the absence of higher EU standards EU producers would still not be price competitive. A consideration, of the figures in the 2017 report by Wageningen University & Research for the European poultry producers association (AVEC) on the international competitiveness of the EU poultry sector revealed EU tariff protection cannot be justified on the basis of higher EU standards, which are small relative to the differences in price competitiveness between EU and major third country poultry exporters. This study showed higher EU standards accounted for only a 5 cent per kg difference in costs, whereas an average EU producer had a cost disadvantage of between 25.84 cents per kg and 45.6 cents per kg. As this earlier study highlighted the better price competitiveness of the main poultry meat exporting nations was linked to the accessibility of lower priced animal feed rather than different regulatory standard (see companion epamonitioring.net article, ‘Report highlights vulnerability of EU poultry sector to liberalisation of trade in poultry meat’, 5 September 2017). This is also the case in the egg sector, where feed costs and economies of scale advantages are similarly enjoyed by the EU’s major 3rd country competitors. Given the scale of EU egg exports, existing EU trade policy in the egg sector would appear to go beyond simply protecting the EU market and would appear to be actively encouraging exports, with only periodic AI outbreak related SPS restrictions on imports of eggs from the EU imposing significant limit on the growth of EU egg exports. Thus we find that in the three years between 2013 and 2015 the volume of EU egg exports grew 27.7%, while the value grew by 44.7%, a phenomenal rate of growth. There would appear to be a certain irony in the fact that while using trade policy tools to continue to protect EU producers from more competitive third country exporters, the EC should be insisting that ACP governments desist from the use of such trade policy tools in their own efforts to foster the expansion of their own domestic agricultural sectors. This is a contradiction in the EU’s policy approach which needs to be highlighted in all discussions on the interpretation and application of the provisions of EU trade agreements with ACP countries which seek to place restrictions on the use by ACP governments of quantitative controls on imports from the EU in sensitive agro-food products sectors. |
Sources:
(1) foodnavigator.com, ‘Comparing eggs with eggs: How competitive is Europe with the rest of the world?’, 3 June 2019
https://www.foodnavigator.com/Article/2019/06/03/Comparing-eggs-with-eggs-How-competitive-is-Europe-with-the-rest-of-the-world
(2) Wageningen University & Research, ‘Competitiveness of the EU egg sector, base year 2017’, February 2019
https://library.wur.nl/WebQuery/wurpubs/fulltext/469616