What Issues Arise in Relations with Developing Countries From the EU’s 2020 CAP Reform Proposals?

· this will tend to ‘depress world market prices, reduce export opportunities for net exporters and to increase import competition for net  importers’ – an effect most clearly apparent in the EU dairy sector;

· while ‘protectionist instruments can be different – high import tariffs,  disproportionate  sanitary  standards, subsidies paid on agricultural exports, or direct payments coupled to production… the  consequences  for  the  level  of  world  market prices are the same’;

·  ‘some agricultural policy instruments designed to stabilise domestic market prices can have the effect of destabilising world market prices, adding to their damaging effects on food production in the rest of the world’ – an effect most noticeable in an ACP context in regard to skimmed milk powder prices, which has a major bearing on the functioning of domestic ACP milk-to-dairy supply chains.

–          The Structural Development Implications of the EU’s New Approach
In terms of the EU’s general policy approach to agro-food sector issues which is seeking to ‘move beyond traditional forms of development co-operation support’ the question arises as to whether this would be focused on the integration of African economies into the global marketing and investment strategies of EU agro-food sector companies or whether it would focus on  harnessing the power of EU agro-food sector enterprises  in support of the structural transformation of African agro-food sectors.

While these two objectives need not be mutually exclusive, in certain sectors there is a clear contradiction within current patterns of EU trade and investment. For example, in the dairy sector it is unclear how existing patterns of EU trade and investment are contributing to the structural development of African milk-to-dairy supply chains. Indeed, the primary driving force behind these trade and investment flows appears to be competition for dairy market share in Africa between EU exporters, in the context of a need to dispose of surplus EU milk production (in the form of various types of milk powders), so as not to further undermine EU milk prices to the detriment to EU milk producers.  This is strongly linked to the farmer owned cooperative model of dairy sector development which plays such an important role in major EU milk producing countries.

Just how in the long term existing patterns of EU dairy sector engagement are to expand and structurally develop milk-to-dairy supply chains in Africa is an issue to be left to the distant future (mid 2030s) when growing global demand and production constraints in Europe will give rise to rising milk prices and require a rethinking of existing EU corporate trade and investment engagement models in African dairy sector development.

This is an important issue since  supporting the structural development of African agro-food sectors in meeting rapidly growing African demand for more and better food products, so that more wealth and more employment is created in African economies would appear to be essential to addressing the job creation and income earning opportunities challenge increasingly faced in Africa.

–          Implications of the Move to More Efficient Delivery Tools
More broadly in regard to specific CAP reforms which it is claimed reduce the impact of EU policies on developing countries; a key element to bear in mind is that the reformed EU support instruments are now far more efficient, with better targeting and less ‘leakage’.  As a consequence the EU now secures more distortion for each € of agricultural support deployed.

For example reduced market interventions are being achieved through the consolidation of emergency intervention support measures under a centralized tool. This reduces the overall level of financing required for market management tools on an annual basis. Yet the multiannual flexibility in resource deployment which the system provides ensures sufficient funds are available to respond to market emergencies when they arise. This includes through far more permissive rules for the deployment of national aids alongside EU funding in response to emergency situations.

Similarly, while the levels of coupled support, which is seen as more trade distorting, have been reduced,  the market effects of the deployment of coupled support cannot be divorced from the provision of decoupled payments which are also provided. The market effects of the deployment of more limited coupled support are amplified by the decoupled support which is also available.

–           SPS Controls an Integral Part of the CAP
Turning to the use of SPS measures as a form of protection, concerns have been raised over how legitimate SPS concerns are operationalised in practice. These range from a failure of the EU to respond to requests for the regionalisation of SPS controls for sheep and beef meat exports from Namibia, to the application of controls for the fungal infection Citrus Black Spot, in context where international scientific opinion holds that trade in citrus fruit cannot be a vector for the transmission of this fungal infection to EU citrus orchards.

While EU import controls have been particularly stringent for livestock products over many years phytosanitary controls for plant products are now becoming increasingly strict with this potentially carrying important commercial implications for LDCs and smaller ACP plant exporting countries (see epamonitoring.net articles, ‘Stricter Risk Assessments under New EU Plant Health Regulation Could Hinder ACP Exports’, 29 April 2019 and ‘New EU Plant Health Regulation on Non-European Fruit Fly Could Put Squeeze on Smaller ACP Mango Exporters’, 25 April 2019).

The application of increasingly strict EU phytosanitary controls have different implications depending on the size of the exporting sector and the structure of agricultural production. For small scale producers they can create increasingly serious commercial barriers and can mean that the only way to maintain exports (if at all) is to work in close association with large scale EU based companies, most commonly through partnerships or acquisitions.

The EU’s increasingly complex phytosanitary regulations are playing an important role in the structure of agro-food sector development, particularly in African ACP countries. This is not always consistent with national agro-food sector development objectives and can require government policy interventions to get national development efforts back on track.

–          The Specific Effects of Particular Policy Tools
While it be argued the ‘availability of cheap EU commodity products (milk powder, poultry meat, onions) on local markets’ is a product of patterns of consumer preferences in Europe and not as a result of the deployment of CAP support instruments, this neglects the impact of the wider CAP policies and the specific sector effects of some CAP support instruments.

Thus in the poultry sector it largely ignores the profound effects of the EU’s highly protective, carefully managed poultry meat import regime. By limiting access for more competitive poultry meat exporters through a system of tariff rate quotas (TRQs) the EU’s managed poultry meat trade regime has sustained a rapid growth in EU poultry meat production in recent years. This rapid growth in EU poultry meat production has given rise to corresponding increase in poultry parts, exports of which are increasingly focussed on African markets (see epamonitoring.net articles, ‘Growing African Demand Fuelling Poultry Meat Imports with EU Likely to Continue to Play Major Role’, 12 November 2018 and ‘Declining Prices of Dark Meat Intensify Competition for African Poultry Producers’, 1 February 2018). This trade often takes place at extremely low prices, with this largely being determined by the cost of alternative methods of disposal and shipping costs. In this context tariffs can prove singularly ineffective in curbing the rapid increase in imports from the EU.

The analysis also neglects the impact of intervention buying and support for private storage instruments on patterns of milk utilisation and corporate investment by EU dairy sector enterprises. Since 2008 in response to market crisis situation and trade disruptions the EU has repeatedly used these two policy tools to ease pressures on the EU milk market.  This has given rise to huge levels of EU skimmed milk powder stocks which for many years has overhung global markets and depressed global skimmed milk powder prices.

What is more the availability of these support measures has not only seen increased investment in milk powder production capacity but also corporate take overs and joint venture investments aimed at positioning EU companies to exploit growing African demand for dairy products. These investments in Africa have largely been focussed on the establishment of distribution channels for repackaged milk powder products and simple reconstituted dairy products based on imports of various forms of milk powders from the EU (skimmed milk powder, whole milk powder, and increasingly fat filled milk powder and speciality milk powder products).

This has profoundly impacted on the commercial context for the implementation of ACP programmes for the development of local milk-to-dairy supply chains (see epamonitoring.net articles, ‘FC WAMCO Dairy Development Programme Expands Amidst Continued Import Dependence’, 9 July 2018 and ‘Ageing EU SMP Intervention Stocks See EU SMP Prices Discounted’, 6 July 2019).

–          The Trade Policy Dimension of the CAP
In looking at the impact of the CAP on developing countries there is a need to take on board the effects of CAP and CAP related instruments in their totality. This includes CAP support instruments, CAP related trade policy measures and CAP related SPS and food safety controls.

While the analysis suggests developing  countries  faced  with  import  competition from EU suppliers should use tariff measure to  protect  domestic  producers, the hard reality is that as a result of the provisions of EU trade agreements the scope for the use of both tariff and certainly non-tariff measures to protect local producers threatened by low costs exports from the EU is increasingly constrained (see epamonitoring.net articles, ‘Will South Africa’s introduction of poultry safeguard duties by challenged by the EC? 23 February 2017 and ‘EC rejects SAPA allegations of dumping of poultry parts’, 8 June 2017).

Traditionally ACP/LDC governments have made greater use of trade policy tools to protect domestic producers than the domestic support measures which the Mathews report suggests should be more extensively used. It is the use of these non-tariff trade policy measures which will be increasingly constrained by the provisions of the EU’s economic partnership agreements should they be fully applied.

This is a matter of concern in countries such as Namibia, which has made use of quantitative controls on imports linked to local sourcing requirements to expand the share of local production of vegetables from 5% to nearly 50% of national consumption, with minimal food price inflations effects. These tools continue to be actively used even in the context of the Southern African Customs Union (4). What is more similar tools have been used in Namibia to sustain a local dairy sector and promote the establishment of a local poultry industry (see epamonitoring.net article, ‘Namibia’s Retail Sector Charter and the Strengthening of Local Supply Chains’, 24 March 2017).

The trade effects of implementation of CAP policy tools on developing countries can thus not be divorced from wider EU trade policy initiatives.

–          Ensuring National Policy Sovereignty
While the analysis correct identifies how some ‘importing countries welcome the low-cost imports as an important addition to the domestic food supply’, this is essentially an issue of national policy choice and should not be constrained by the provisions of EU trade agreements. These trade agreements were often signed on to without any clear understanding of the implications they would carry in areas where EU policies were in the process of undergoing fundamental reforms (e.g. in the dairy and sugar sector).

It is essential that within the EU’s emphasis on policy support as part of its integrated approach to supporting agro-food sector development in ACP countries, the sovereignty of national decision making on agricultural trade policies be respected. This is particularly the case in a context where managed trade arrangements are an integral part of the EU’s own agricultural policies, for example in the poultry sugar, dairy and rice sectors.

A final point to note is in regard to how the EU defines non or minimal trade distorting effects. Given the relative size of the EU and individual ACP economies this issue of the trade distorting effects of CAP policy tools needs to be defined with reference to individual countries and products, not in global macro-economic terms. Against this background ACP governments need to retain the right to determine their own trade policy response to perceived distortions in full sovereignty (see epamonitoring.net article, ‘Analysis of the CAPs’ Poverty and Employment Effects in Developing Countries Needs to be Country and Sector Specific’, 7 June 2018).