The EC has published an evaluation of the impact since 2003 of CAP reform measures in the cereals sector (cereals, oil crops and protein crops). The analysis acknowledges the complexities faced in determining policy impacts and the growing influence of other EU policies on the cereals sector (e.g. biofuel policy).
The evaluation describes the cereals sector policy measures both pre- and post-reform. It concludes that CAP reforms have “radically altered” patterns of cereals sector support. Post-reform, the main support measure is the single decoupled farm payment, and intervention buying is now solely a safety-net measure and no longer supports EU market prices. The evaluation notes that, in the face of increased price volatility, processors, traders and producers are “using price risk management instruments more”.
Since 2003, the area under cereals has fallen by 4%, and the area under protein crops by 25%, while the area under oil crops has increased by 25%, largely in response to EU biofuel policy developments. In this period there was also a significant “expansion in German silage maize output for biogas” (now 11% of the entire German utilised agricultural area) and an unexpected “increase in the use of zero grazing in dairy farming”. Overall, the report finds that reforms have “promoted the EU’s comparative advantage in common wheat output”.
Despite the fall in the area under cereals, yield improvements mean that the EU’s “level of self-sufficiency [for cereals] as a whole increased from 104.3% to 106.8%”, with durum wheat “the only cereal with a consistent supply deficit”.
The analysis maintains that reforms have resulted in “a clear cost reduction” to the EU budget, although “the nominal value of coupled plus decoupled aids per hectare barely changed from pre- to post- reform years.” However, higher world market prices led to higher producer incomes over the period 2007–10 for most cereal farmers, compared to 2000–03. The report maintains that EU patterns of cereals production now respond less to EU support measures and more to international price signals.
Nevertheless, it is noted that, despite relatively high global commodity prices, “there are still member states in which [cereals, oilseed and protein] producers, on average, would have earned very low incomes if coupled and decoupled aids had not been provided.”
Post-reform, the EU cereals trade regime consists of “a variable import duty system and tariff-rate quotas (TRQs) designed to protect the internal market from lower-priced world market imports”. Export refunds have not been used in the cereals sector since 2006, but the right to deploy such policy tools is retained in case market circumstances should require their use.
The analysis notes that “the decision not to offer export refunds helped to overcome the constraints on subsidised exports under the WTO, and this generated a rise in the share of EU net exports in total world cereals exports between 2000-03 and 2007-10.” Indeed, “the EU share in total world exports of wheat and flour rose from 5.2% to 7.7% from pre- to post-reform.” Significantly, “the EU maintained or raised its share of imports in most traditional regional export markets that are relatively close to the EU... mainly in North and Sub-Saharan Africa and the Near East.”
The analysis in the evaluation prepared for the EC implies that coupled payments help to sustain EU cereals production at higher levels than would be the case without this support. This is assisted by the highly protective tariff regime maintained in the cereals sector.
The EU maintains variable import duties for six clearly defined categories of cereals, with the duty set at “the difference between 155% of the EU intervention price and a representative import (c.i.f.) price at the port of Rotterdam”. The EU also has in place TRQs for:
- medium quality wheat;
- malting barley;
- durum and high-quality wheat.
There is also an inward processing relief scheme for use in products to be exported. These tools are explicitly intended to protect EU markets from lower-priced world market imports.
A number of observations arise that are of relevance to the use of similar policy tools in ACP countries:
- ACP governments would appear to be constrained in using a system of variable levies to protect domestic markets by the ‘standstill’ provisions included in many interim EPAs. Similarly, ACP governments would be constrained by current interim EPA provisions on quantitative restrictions from using similar TRQs to manage agricultural markets, as is the practice in the EU cereals sector.
- The findings need to be seen in the context of the EU’s growing role in the global cereals trade, including flour exports, and the EU’s export focus on Sub-Saharan African markets. The analysis in the evaluation implicitly raises issues of the cross-subsidisation of EU cereals sector exports, as a result of the import management tools applied by the EU and the systems of farm support in place.