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December 2003

Key events for EPAs, December 2003

20 May 2004

There are lessons for the ACP in the EU's negotiations with Morocco and Mercusur. West African countries have urged the importance of improving competitiveness before free trade with Europe is introduced. A Traidcraft review has raised some key questions about the EU's approach to the negotiations.

Key events CAP reform, December 2003

20 May 2004

A new report has spelt out some of the consequences of CAP reform under the present model. A high-level report has recommended amongst other things a reduction in CAP expenditures to one-tenth of current levels. Commissioner Fischler has clarified the fundamentals of CAP reform. The dry summer has reduced cereals output and allowed a reduced agricultural budget.

Key events WTO agreement on agriculture, December 2003

20 May 2004

The Commission has defended the 'blue box' although only the EU now uses it. EC and World Bank reviews of Cancun have been published and the World Bank has also produced a report highly critical of the EU's and the USA's direct payments procedures as trade distorting, contrary to the case maintained by the EC. The imminent expiry of the 'peace clause' has prompted attempts to renew it.

Key events beef sector, December 2003

20 May 2004

There have been record non-preferential EU beef imports, and EU intervention stocks have reached a post-BSE low level. The USDA reports emerging opportunities on the EU market for developing-country exporters.

Key events cereals sector, December 2003

20 May 2004

Set-aside is to be reduced following the reduced crop in the dry summer.

Key events sugar sector, December 2003

20 May 2004

A number of reports on the sugar industry, the background to reform and other analyses have been published. One conclusion is that sharp price falls in Europe seem to be inevitable, with losses for ACP exporters, although the European sugar industry has made a strong case for the 'fixed quota' option for reform which the EC seems to have rejected.

Lessons for the ACP from the EU-Mercusor trade negotiations

20 May 2004

The final phase of the EU's trade negotiations
 with the Mercusor group of Latin American developing countries began
 on November 12th 2003. The agreement is scheduled to cover market
 access on goods and services, government procurement and investments,
 as well as rules and disciplines in these areas and other issues
 such as sanitary and phytosanitary measures, agreement on wines
 and spirits, competition and intellectual property. The detailed
 schedule of meetings agreed will culminate in a ministerial level
 meeting in October 2004. These negotiations began in June 1999 and
 have since been through ten rounds of negotiations. The EU is Mercusor's
 main trading partner, accounting for 25% of the bloc's trade, with
 the EU absorbing around half of Mercusor's exports of agricultural
 products. Total trade between the EU and Mercusor amounted to around
 €40 billion in 2002.

Editorial comment

The details of the various areas under the agreement could provide
 ACP countries with a clearer indication of what the EU is likely
 to seek under the EPA negotiations in areas such as government procurement,
 investment, competition policy, intellectual property rights and
 trade in services.

West Africa emphasises the importance of improving competitiveness

20 May 2004

The final communiqué of the fourth
 ECOWAS-EU ministerial meeting highlighted the emphasis placed by
 ECOWAS on 'the need for support to improve competitiveness', against
 the background of the opening of the EU-West Africa EPA negotiations.

Editorial comment

Just how the EU will effectively measures to enhance the competitiveness
 of West African enterprises in the run up to the establishment of
 a free-trade area between the EU and West Africa remains to be seen.
 For ACP countries raised competitiveness is seen as a necessary
 precondition for the introduction of free trade with the EU. For
 the EU on the other hand the introduction of free trade is seen
 as an important instrument for promoting the improved competitiveness
 of ACP enterprises. This issue of sequencing is becoming an issue
 of critical concern, given the long lead times associated with the
 deployment of EDF resources.

Traidcraft review of EPA negotiations

20 May 2004

A report entitled 'Economic Partnership
 Agreements: the EU's new trade battleground' was published by Traidcraft
 in September 2003. It raises two key questions:

  • will the EU approach 'be characterised by
     increased determination and aggression' or 'increased respect
     for developing country negotiators'?
  • will alliances formed in the run up to Cancun
     hold together under the pressure of regionally based EPA negotiations,
     through which the EU seeks to promote its underlying trade agenda?

The report argues that ACP governments will
 need to balance concessions in the WTO with how they deploy their
 negotiating capital bilaterally, pointing out that commitments made
 in one forum may become a 'floor rather than a ceiling from which
 further concessions are then sought'.
Other points that the report highlights are:

  • the EU is pushing hard in EPA negotiations
     on issues rejected in Cancun;
  • the EU's 'twin-track approach further stretches
     the negotiating capacity of developing countries who have yet
     another forum in which to defend their interests'.
  • the EU's unwillingness to address substantive
     issues of concern to ACP governments during phase 1 talks, particularly
     with regard to agricultural issues and the need for a modification
     of WTO rules to allow the flexibility needed to accommodate the
     needs of ACP countries.
  • in many areas, on the contrary, the EU is
     pushing for 'WTO+' arrangements in the EPA negotiations.

The paper goes on to review a range of non-agricultural
 issues discussed in the negotiations including: trade in services;
 intellectual property rights; investment; public procurement; trade
 facilitation and competition policy. The report concludes by criticising
 the EU's 'WTO+' approach in areas where the ACP are clearly unwilling
 to make commitments and calls on the EU to:

  • initiate independent sustainability assessments;
  • address the substantive issues of concern
     raised by ACP countries;
  • make alternative arrangements for non-least
     developed ACP countries which may not feel in a position to sign
     up to EPAs.

Editorial comment

This report provides a popular review of the EPA debate with reference
 to the issues discussed at the WTO and demonstrates how the EPA
 negotiations are an integral part of a single integrated EU trade-policy
 agenda.

FAPRI analysis of CAP reform

20 May 2004

 An assessment of the impact of the agreed
 CAP-reform measures on EU trade and production was published by
 FAPRI (the Food and Agricultural Policy Research Institute, Missouri)
 in September 2003, following its commissioning by a member of the
 US Senate. The analysis is complicated by the degree of flexibility
 allowed to EU members states in implementing the agreed reforms.
 To address this, two scenarios are explored: a 'MOST' scenario,
 where EU member states choose the maximum level of decoupling and
 a 'LEAST' scenario where they choose the minimum level of decoupling
 allowed.
The major findings were as follows:

  • for major commodities, the reforms would
     have modest impacts on supply, consumption, trade and prices;
  • for the commodities where current payment
     programmes are most closely tied to production, the reforms could
     have larger impacts, for example reducing EU beef production by
     4% by 2012 compared to what it would have been under a continuation
     of current policies;
  • reforms will allow the EU to shift much of
     its internal support for producers from the WTO 'blue box' to
     the 'green box';
  • as a result of reform EU support in the 'blue
     box' will be reduced to less than 5% of the value of production,
     a level consistent with the recent joint EU-US negotiating proposal;
  • projected EU 'amber support' would be less
     than 50% of the negotiated Uruguay ceiling.

The analysis is however very sensitive to changes
 in the exchange rate of the euro against the US dollar, and its
 conclusions need to be judged in this light.
In terms of WTO disciplines the paper notes
 that the EU's single farm payment scheme is 'structured to fit the
 current definition of green box income support'. The reforms agreed
 will bring about 'a dramatic reduction in blue box spending'. Under
 the LEAST scenario 'blue box spending falls to €7 billion annually
 by 2007'. Under the MOST scenario 'blue box spending is reduced
 to €0.4 billion annually after 2004. The paper notes that 'under
 both scenarios, annual amber box spending falls slightly, to about
 32 billion euro. Projected levels of amber box support under both
 reform scenarios 'are approximately 52% below the current WTO limit'.
 What is more 'the projected level of blue box support even under
 the LEAST scenario, is below the limit of 5% of the value of production
 suggested in the recent EU-US joint proposal'. This implies that
 'the European Union could negotiate a sizeable reduction in amber
 spending limits, abide by new limits on blue box spending and still
 maintain the policy structure just approved'.

Editorial comment

It should be borne in mind that the changes in production noted
 in the report are calculated not with reference to current levels
 of production but to the production which would arise over the period
 2007-2012 were existing policies to be continued. The value of current
 WTO disciplines on 'amber support' is illustrated by the fact that
 EU 'amber box' expenditures could almost double from those that
 will prevail under the reform scenario, and still remain within
 WTO disciplines.

The EU agricultural budget is revised

20 May 2004

The EU Agricultural Budget for 2004 has
 been reduced by €1 billion in the light of the reduced need
 for export refunds for cereals following the summer drought, which
 has reduced EU cereal production. This leaves the EU with a contingency
 reserve of €4.3 billion.

Editorial comment

Savings of this order of magnitude could make reform of the EU sugar
 regime financially easier. With the euro strong against the US dollar,
 payments for export refunds on sugar have had to increase, strengthening
 the need for sugar-sector reform.

Fischler spells out the fundamentals of CAP reform

20 May 2004

Addressing the International Forum on Agriculture
 and Food in Cernobbio on October 25th 2003, Agriculture Commission
 Franz Fischler highlighted how through CAP reform the EU has 'chosen
 to increase the efficiency of direct payments'. He noted that this
 has 'improved the competitive position of EU farmers' and strengthened
 the EU's position in international negotiations. He maintained that
 the EU will continue to rein in trade-distorting aspects of its
 policy, and will continue to make its agricultural policy more market
 oriented and sustainable. However, the policy will still require
 continued support, albeit more efficiently and effectively targeted.
Commissioner Fischler went on to review the
 background to the reform of the tobacco, olive and cotton regimes.
 He noted that the Commission was keenly aware of how production
 of these products was concentrated on holdings which are often located
 in areas which are lagging economically. This reality had been incorporated
 into the Commission's proposals for reform.

Editorial comment

Commissioner Fischler sees no contradiction between the increased
 price competitiveness of EU production which CAP reform will bring
 about and the needs of ACP countries to deepen agricultural processing
 so they can move up the value chain and reduce their dependence
 on basic commodity markets.
Significantly the Commission in its approach
 to tobacco, olive and cotton-sector reform recognised that where
 production was concentrated in more disadvantaged regions special
 treatment would be required. This principle could usefully be applied
 to EU agricultural trade with ACP countries in the context of ongoing
 EPA negotiations.

Radical revision of the CAP is recommended by experts

20 May 2004

 A high-level group of independent experts
 especially commissioned by EU President Romano Prodi to look into
 the EU's economic performance in terms of stability, cohesion and
 growth, has recommended amongst other things a reduction in CAP
 expenditures to one-tenth of current levels. This recommendation
 was supported by four observations:

  • the size and cumbersome nature of the CAP
     budget has made the development of other activities difficult,
     without reining in agricultural expenditures;
  • the CAP is now more about distributing resources
     to a specific group rather than an allocative policy promoting
     efficiency and production;
  • enlargement will make a single policy less
     and less appropriate;
  • the current CAP is incompatible with the
     Lisbon goals of ensuring value for money, growth and convergence
     in EU economies.

A spokesperson for President Prodi made it clear
 that the views expressed were those of independent experts and did
 not represent an official opinion. Commission officials have also
 distanced themselves from the report's finding in the agricultural
 sphere.

Editorial comment

 Given the radical nature of the recommendations from the independent
 group of experts it should come as no surprise that the Commission
 has distanced itself from the recommendations on agriculture. However,
 the recommendations are indicative of the growing impatience with
 the CAP and will strengthen the hand of the Commission in pushing
 through its current set of reform proposals.

Reform of the hops sector

20 May 2004

On September 30th 2003 the European Commission
 put forward proposals for the reform of the EU hop regime. The Commission
 is proposing a substantial delinking of hop support from production
 by transferring it to the decoupled single farm payment scheme.
 Member states, however, will be able to opt for total or partial
 decoupling, with the possibility of maintaining a maximum of 25%
 of aid linked to production, so as to accommodate the needs of particular
 regions.
The Commission's proposals for reform are based
 on the report of an assessment of the situation in the hop sector
 which maintained that future policy should meet three key criteria:
 it should maintain the viability of production, ensure economic
 conditions favourable to production and accommodate the market trend.
 As in other sectors the reform will provide 'aid equivalent to the
 present aid' but through 'a more efficient and direct transfer of
 the support'.
The Commission's assessment outlines the current
 system, which is based on:

  • a certification procedure;
  • a forward contract system;
  • rules for recognition and promotion of producer
     groups;
  • rules for trade with third countries.

The hop sector accounts for only €12.5
 million of EU agricultural expenditures, with hops being cultivated
 on 22,000 hectares of land. Production is concentrated in Germany
 (80%), with the hop sector shrinking as yields improve, beer-making
 technology changes, and consumer tastes evolve. The EU is the world's
 leading hop producer, accounting for 40% of production, and is a
 major exporter of hops, with imports around half the level of exports.

Editorial comment

Once again the commitment to providing 'aid equivalent to the present
 aid' shows the extent to which the EU intends to continue to support
 EU producers, even in minor crops.

The Commission defends the 'blue box'

20 May 2004

Speaking at the 7th Churchill Conference
 in Zurich on September 25th 2003, the Agriculture Commissioner Franz
 Fischler launched a vigorous defence of the 'blue box', maintaining
 that the EU was 'resolute in our position regarding the so called
 'blue box': it should not be negotiated, further reduced, or phased
 out in the future. It is what has enabled the EU to reform its agricultural
 policy up to now, and it is what will enable us to keep our policy
 moving in the right direction in the future as well'. He continued
 'we cannot accept that reforms that have clearly moved in a direction
 that is fully compatible with the WTO objective to reduce all forms
 of trade-distorting support be penalised in these negotiations by
 compromising on this category of support'.Speaking at the 7th Churchill Conference
 in Zurich on September 25th 2003, the Agriculture Commissioner Franz
 Fischler launched a vigorous defence of the 'blue box', maintaining
 that the EU was 'resolute in our position regarding the so called
 'blue box': it should not be negotiated, further reduced, or phased
 out in the future. It is what has enabled the EU to reform its agricultural
 policy up to now, and it is what will enable us to keep our policy
 moving in the right direction in the future as well'. He continued
 'we cannot accept that reforms that have clearly moved in a direction
 that is fully compatible with the WTO objective to reduce all forms
 of trade-distorting support be penalised in these negotiations by
 compromising on this category of support'.

Editorial comment

This would appear to reduce the room for manoeuvre in the WTO agricultural
 negotiations, since it is now only the EU which has recourse to
 'blue box' measures.

The World Bank reviews Cancun

20 May 2004

The September World Bank paper 'Cancun:
 Crisis or Catharsis' sets out the importance of a successful conclusion
 to the Doha Development Round to developing countries, and reviews:
 the coalitions which formed in Cancun around agricultural issues;
 the debate on the 'Singapore issues' and the positions adopted;
 and the implications of the failure of Cancun. In this latter regard
 it highlights:

  • how Cancun illustrated that 'realising the
     promise of trade reforms through reciprocal bargaining is a major
     challenge', with successful negotiations requiring an agenda that
     is seen to be relevant to the needs and objectives of all parties;
  • how 'developing countries are playing an
     ever more pro-active role in the WTO', with the larger developing
     countries demonstrating that they can put together and sustain
     negotiating alliances, even though national interests may differ;
  • how 'the reciprocity dynamics of the WTO
     negotiating process requires that developing countries offer 'enough'
     to OECD countries to induce them to take on the interests that
     benefit from trade protection'; within developing countries the
     main thing they have to offer is greater market opening;
  • how 'there is significant scope to harness
     the traditional WTO reciprocity dynamics to move forward on market
     access in goods and services;
  • how 'research and capacity-building made
     a difference in enhancing the knowledge of the issues on the table
     and informing positions';
  • how 'Cancun suggests that much more work
     is needed to integrate development considerations into the trade
     policy process and to mobilise resources for trade related investments
     and reforms';
  • how Cancun raises 'questions regarding the
     governance and procedures of the WTO'.

In terms of the way forward the paper suggests
 a removal of investment and competition policy from the negotiating
 table, since this would enable a focus on issues which matter more
 to developing countries, namely 'removing trade-distorting policies
 that hurt the poor disproportionately'. However the quid pro quo
 for this would need to be that governments in the South, particularly
 middle-income countries, accept the need to lower trade barriers.

Editorial comment

The EU maintains that it is committed to implementing agricultural
 policy changes which reduce trade distortions if not wholly eliminate
 them (the shift from price support to decoupled direct aid payments).
 However there are those in the developing world who believe that
 these policy changes simply improve the efficiency of trade distortions.
 The levels of both production and trade that are being generated
 are much higher than would be the case at the prices ruling within
 the EU in the absence of the direct aid payments being made from
 the EU budget. Unless this basic divergence of views is reconciled
 it is difficult to see how the debate on removing trade-distorting
 policies in the agricultural sector can be taken forward.
In addition the priority accorded to removing
 trade-distorting policies would appear to be a double-edged sword
 for ACP countries. For example, removing trade distortions in the
 sugar sector (through the measures currently being discussed within
 the EU) will lead to large revenue losses for ACP exporters (equivalent
 to about €303 million under one scenario explored in the recent
 Commission staff working paper), with no guarantee that they will
 benefit from any consequent improvement in the world market price.

The World Bank concludes that direct payments distort trade

20 May 2004

A recent World Bank 'Trade Note' has reviewed
 the WTO approach to the disciplining of domestic agricultural-support
 programmes and found that some countries have exploited loopholes
 in order to meet their WTO obligations. It notes that 'domestic
 subsidies to farmers have increased substantially since 1986-88,
 but that there has been a switch of support towards the green box',
 which is exempt from WTO disciplines. 'There is evidence that high
 levels of direct payments to farmers for some programs in the green
 box … [like those in the USA and the EU] do in fact distort
 trade'. It concludes that the Uruguay Round Agricultural Agreement
 'has not reduced trade-distorting domestic-support measures in many
 instances'
The paper seeks to:

  • review the level, composition and trends
     in domestic support;
  • outline the problems with current disciplines
     on domestic support;
  • provide a synopsis of issues confronting
     negotiators and the options available for making more effective
     disciplines on trade-distorting support.

It also notes that production-related subsidies
 are notoriously inefficient in transferring income to farmers with
 only around a quarter of support finding its way into farmers' pockets,
 and then mainly larger rather than smaller farmers. According to
 a recent study '7% of crop farmers in France received 77% of all
 direct payments'. Significantly the paper notes that 'the objective
 of decoupling subsidies is to increase farm income without distorting
 current or future production', but it raises some serious questions
 as to 'how effective the green box or so called 'decoupled' payments
 have been in meeting this objective'.

Editorial comment

The inefficiencies of production support in transferring income
 to farmers means that direct aid payment schemes represent a much
 more efficient way of supporting farm incomes and hence sustaining
 agricultural activities. From this perspective the question arises:
 has the EU basically found through CAP reform a way of getting more
 trade distortion per euro of agricultural suppor "till the reforms
 strengthen the export competitiveness of EU agricultural producers
 and food processors at less expense to European tax payer "sf this
 is the main outcome, then the existing process of CAP reform would
 appear to offer few benefits to ACP agriculture-based economies.

Lamy offers some further reflections on Cancun

20 May 2004

In a speech to the European Institute
 in Washington on November 4th 2003 EU Trade Commissioner Pascal
 Lamy reflected on the causes of the failure of the Cancun WTO Ministerial.
 He noted that the G90 - the ACP countries, together with other LDCs
 - may not have felt that they had 'a large enough stake in these
 negotiations to want them to succeed'. He recognised their concern
 over the process of preference erosion on the EU market, saying
 that 'we clearly have to address this concern, or the development
 round simply will not succeed'.
This followed statements to a conference of
 the Journal of Common Market Studies where Commissioner Lamy highlighted
 African concerns that 'they had relatively little to gain and relatively
 much to lose in terms of their preferences, in a successful, multilateral
 market-opening outcome.

Editorial comment

 How the EU intends to address the issue of preference erosion is
 clearly a critical factor for the ACP in their approach both to
 WTO and EPA negotiations. It remains to be seen what of substance
 the EC will come up with to address this issue. To date for example,
 the Commission has shown little inclination to explore the concept
 of 'compensatory trade measures' as a vehicle for addressing the
 decline in the value of ACP trade preferences arising as a consequence
 of CAP reform. Were the EU to substantially develop and apply this
 concept under existing Cotonou Agreement mechanisms, ACP and LDC
 fears over preference erosion at the WTO level could begin to diminish.

Re-launching the agricultural negotiations

20 May 2004

 Informal talks were convened to re-launch
 agricultural negotiations in the WTO on October 29th 2003. The meeting
 was described as a positive step. However it remains to be seen
 what text will provide the basis for further discussions. Although
 the Chair, Perez de Castillo, maintained that no one had rejected
 outright the idea of using the second revised draft Cancun declaration
 (the 'Derbez text'), India clearly prefers a hybrid approach involving
 various positive elements from different texts. The Chair is now
 trying to come up with a revised text which builds on common ground.
The EU for its part remains in 'reflection mode',
 preferring to listen rather than take a lead, and the Commission
 has remained conspicuously silent in Geneva. This passive stance
 seems designed to stimulate others to take initiatives. The ICTSD
 however reports tension between the Commission and EU member states
 at the lack of a more active initiative form the Commission.
At the Journal of Common Market Studies conference
 on October 28th 2003, Commissioner Lamy spoke of the concessions
 that the EU had made on agriculture in Cancun, emphasising that
 the EU had 'accepted, for the first time, the elimination of export
 subsidies on products of interest for developing countries', and
 that so-called 'blue box' subsidies, even though less trade distorting
 than some, should be capped.

Editorial comment

This acceptance by Commissioner Lamy of a capping of 'blue box'
 support sits uneasily with Commissioner Fischler's spirited defence
 of the blue box in Zurich on September 26th 2003 when he stated
 that 'it should not be negotiated, further reduced, or phased out
 in the future'.

Expiry of the 'peace clause'

20 May 2004

There is now controversy over when the
 so-called 'peace clause' (Article 13 of the Agreement on Agriculture)
 will lapse. Developing countries assume that the nine-year period
 specified in the Uruguay Agreement will end on January 1st 2004.
 The EU and the USA however consider that it may not lapse until
 mid 2004 or even, for some products, until October 2004, since this
 corresponds with nine years after notification to the WTO of the
 measures concerned. For the EU the renewal of the 'peace clause'
 is seen as a precondition for any continuation of WTO negotiations,
 whereas for most developing country governments this is a non-starter,
 unless substantial concessions are made in exchange.

Editorial comment

 The question of the peace clause is central to the issue of negotiating
 leverage. Without a renewal of the peace clause the EU would find
 its agricultural regime open to challenge at the WTO on several
 fronts. Should a renewal be agreed prior to the negotiation of a
 new agreement on agriculture, pressure on the EU to move beyond
 the reforms already agreed as part of the on-going process of CAP
 reform will be reduced. However for
 the ACP a rash of new challenges to the CAP could lead to a range
 of hasty changes, which might disregard the interests of ACP countries.

EU GSP regulation is extended

20 May 2004

A Commission proposal for a regulation
 to extend the existing GSP scheme until the end of 2005 was tabled
 on October 29th 2003. This measure is intended to provide space
 for the formulation of a more comprehensive ten-year GSP regulation
 once the outcome of WTO negotiations is known. While the regulation
 has in large part been rolled over, a number of modifications have
 been made.
The first modification relates to the extension
 of the scope of 'graduation'. Countries and sectors of countries'
 economies can be graduated out of GSP preferences where they have
 gained a degree of competitiveness which means that they no longer
 require the preferences. The new regulation excludes smaller countries
 which account for less than 1% of imports into the Community from
 the graduation provisions. This means that the graduation principle
 will only apply to larger exporters.
The second modification relates to the exclusion
 of certain countries with a higher level of development from the
 EU GSP scheme, and strengthened provisions for the suspension of
 the scheme for countries in the case of fraud or unfair social or
 trade practices.
The third modification relates to the retention
 of special GSP arrangements for certain countries in the context
 of the fight against drugs. There is currently a challenge to this
 aspect of the GSP regime in the WTO which could well succeed, requiring
 modification of this aspect of the WTO regime.
The fourth modification relates to the withdrawal
 of proposed changes to GSP treatment for individual countries under
 'graduation' from formal publication in the official journal.

Editorial comment

 From an ACP perspective the most significant feature of the extension
 of the GSP regulation is the move towards greater differentiation
 within the EU's GSP scheme. This could create space for the establishment
 within the future ten-year GSP regulation of arrangements for non-LDC
 ACP countries which ensures that those which feel unable to enter
 into EPAs with the EU do not lose the duty-free access which has
 supported the development of their exports to the EU under the Cotonou
 Agreement and the earlier Lomé Conventions. Political pressure
 will however need to be exerted on the EU to ensure that such an
 outcome is brought about within the future ten-year framework regulation
 for the EU GSP scheme.

There are record non-preferential EU beef imports

20 May 2004

A record volume of beef and veal imports
 into the EU outside of special preferential arrangements has been
 reported by Meat and Livestock Australia. In 2002/03 the EU imported
 61,615 tonnes of beef at full duty, some 27% above 2001/2002 levels.
 The most important markets for this beef were Germany, the UK and
 the Netherlands.

Editorial comment

This suggest that there is considerable scope for ACP beef exporters
 to fully utilise their existing quotas and pick up the new markets
 arising from Zimbabwe's current exclusion from the market. However,
 in order to be able to do this the rules of origin on beef products
 may well need to be relaxed in order to allow greater cumulation
 with neighbouring non-ACP beef producers.

EU intervention stocks reach post-BSE low

20 May 2004

Continued sales of EU beef from intervention
 stocks, with only some 20,005 tonnes in cold stores by early August
 2003, are reported in another article in Meat and Livestock Australia.
 These stocks were expected to be cleared by the end of September
 2003. This compares to record levels in stock of 252,000 tonnes
 in 2001. However, there is also some 60,870 tonnes of 'special purchase
 scheme' beef in cold stores, with this being sold off only after
 intervention stocks have been cleared.

Editorial comment

This situation could create new market opportunities for ACP suppliers
 in the EU market. Indeed, it is likely to be a contributing factor
 to the predicted rise in EU beef prices over the coming years.

USDA reports emerging opportunities on EU market

20 May 2004

The USDA Foreign Agricultural Service
 review of the EU livestock market for 2003 reports that the EU could
 be on the verge of becoming a net beef importer for the first time
 as consumption increases and competitively priced beef imports are
 finding their way onto the EU market. The report also sees the EU
 market as being on the verge of significant changes resulting from
 farmers' reaction to the mid-term review, the Russian tariff-rate
 quota announcement and the imminent accession of ten new member
 states.

Set-aside is to be reduced

20 May 2004

The EC announced in November that in the
 light of the drought in 2003 and the low level of world cereals
 stocks, the land to be set aside from production would be reduced
 from 10% to 5% in the cereals sector. This was felt to be necessary
 since a poor harvest in 2004 could expose the EU market to potentially
 serious risks. This is expected to lead to the production of an
 additional 7 million tonnes of cereals in the EU in 2004.

Editorial comment

While a poor harvest could expose the EU market to serious risks,
 a good harvest could see the EU's role as a significant cereals
 exporter restored.

A report on the internal background to reform is released

20 May 2004

The European Commission released a document
 describing the common organisation of the market in sugar in September
 2003. It provides a comprehensive review of how the EU sugar regime
 works, and contains a number of highly interesting observations.
The twin objectives of the sugar regime are
 defined as being to 'ensure a fair income to Community producers
 and self-supply of the Community market'. With reference to the
 ACP quota it noted that it 'opened the Community market to cane
 sugar and guaranteed the Community price to the countries in question'.
 Since 1995 there have been limitations on export refunds as a result
 of agreements in the Uruguay Round and these limits have required
 the EU to reduce internal production quotas as imports from the
 Balkans have increased. The risk for the future highlighted in the
 paper is of an increasing supply from third countries profiting
 from preferential arrangements, with a consequent progressive reduction
 in EU production. The current sugar regime is scheduled to end on
 June 30th 2006.
The initial system of 'A' and 'B' quotas was
 intended to correspond with domestic needs ('A') and export potential
 ('B'), but 'B' quotas came to be accepted as an integral part of
 production for the internal market. 'C' production then emerged
 as production reoriented towards international market opportunities.
 The initial concept of 'A' and 'B' quotas has however been applied
 in setting the sugar quotas for new EU member states.
Against this background production quotas for
 the EU -25 will be 17.4 million tonnes, with a projected production
 of around 20 million tonnes and total internal EU consumption of
 16 million tonnes; in recent years average EU sugar exports have
 been around 5.2 million tonnes.
The price guaranteed to ACP suppliers is €523.70
 per tonne for raw sugar and €646.50 per tonne for white sugar,
 which corresponds with the 'derived' intervention price in the UK.
The recent opening of the EU market to Balkan
 sugar has been subject to extensive abuse, with extensive 'Carouselling'
 occurring (EU sugar being first exported with export refunds and
 then re-imported). Export refunds are now no longer paid on sugar
 exported to the Balkans to try to address this problem. However,
 cane sugar has also been found in consignments imported form the
 Balkans, even though there is no cane-sugar production in the Balkans.

Editorial comment

 Any reform of the EU sugar regime is likely to aim at upholding
 the twin policy objectives of ensuring 'a fair income to Community
 producers and self supply of the Community market'. This suggests
 that the 'full liberalisation' option is not likely to be favoured
 since it would undermine both of these key policy objectives.
The emphasis on guaranteeing the Community
 price to the countries in question implies that any price reductions
 on the EU market will automatically be passed on to ACP suppliers.
 This is why the 'fall in price' option poses such a threat to ACP
 sugar interests. The description of the purpose of the 'A' and 'B'
 quota system suggests that the Commission may well be willing to
 look at the progressive phasing out of the 'B' quota. This however
 would leave 'C' production untouched. In recent years 'C' production
 has been equivalent to fully 24% of total EU production, reaching
 3,777, 000 tonnes in 2000. On average EU 'C' sugar production has
 doubled since 1995 when WTO limits on export refunds on sugar exports
 came into effect.
Combining the information on prices currently
 offered to ACP producers and the quotas allocated to ACP suppliers
 with the proposed price reductions under the 'fall in price' scenario
 set out in the Commission staff working paper on options for sugar-sector
 reform allows a calculation to be made of the income losses different
 ACP countries would suffer under a 'fall in price' reform scenario.

Country Sugar protocol quota (tonnes) Current earnings in euros (at €523.70/t) Earnings after stage 1 reform (at €435.0/t) Earnings after stage 2 reform (at €290/t)
Belize 40,349 21,130,771 17,551,815 11,701,210
Congo 10,186 5,334,408 4,430,910 2,953,940
Côte d'Ivoire 10,186 5,334,408 4,430,910 2,953,940
Fiji 165,348 86,592,747 71,926,380 47,950,920
Guyana 159,410 83,483,017 69,343,350 46,228,900
Jamaica 118,696 62,161,095 51,632,760 34,421,840
Kenya 0 0 0 0
Barbados 50,312 26,348,394 21,885,720 14,590,480
Madagascar 10,760 5,635,012 4,680,600 3,120,400
Malawi 20,824 10,905,528 9,058,440 6,038,960
Mauritius 491,031 257,152,935 213,598,485 142,398,990
Uganda 0 0 0 0
St Kitts & Nevis 15,591 8,165,007 6,782,085 4,521,390
Surinam 0 0 0 0
Swaziland 117,845 61,715,426 51,262,575 34,175,050
Tanzania 10,186 5,334,408 4,430,910 2,953,940
Trinidad & Tobago 43,751 22,912,398 19,031,685 12,687,790
Zambia 0 0 0 0
Zimbabwe 30,225 15,828,832 13,147,875 8,765,250

Commission analysis of the international sugar situation

20 May 2004

In September 2003 the European Commission
 released a document describing the international situation in the
 sugar market. This document provides a comprehensive review of the
 international context in which the EU is reviewing its options for
 sugar-sector reform. Sugar is only moderately important within EU
 agriculture, accounting for 1.4% of the utilised agricultural area,
 between 1.6 and 1.8% of EU agricultural output; between 2% and 3.5%
 of agri-food product exports and providing a livelihood for 230,000
 farms. Sugar beet however accounts for only 10% of the land use
 on these holdings on average, although farmers achieve a better
 income from sugar beet than from most other crops. EU production
 varies between 15 million and 18 million tonnes refined equivalent.
 With EU enlargement the area under sugar within the EU is likely
 to increase by 30% and sugar production by 15%. However, certain
 EU member states and some regions, are more dependent on sugar than
 others. Germany and France account for more than half the EU-15
 sugar production, and Italy and the UK about 8% each. The EU is
 a net exporter of sugar, with exports amounting to around 5.3 million
 tonnes and imports to 1.8 million tonnes, making it a 'key player
 on the world sugar markets'.
The paper notes that the EU accounts for 13%
 of world production, 12% of world consumption, 15% of global exports
 and 5% of global imports. Since 1996 Brazil and Indian have competed
 with the EU as the world's leading sugar producer, and Brazil now
 dominates global exports with around a quarter of the market, while
 the EU has fallen to second place. The global sugar trade represents
 about 30% of world production which means that international prices
 are very important to low-cost sugar exporters.
Since 1995 these sugar prices have been on a
 downward trend, which is largely accounted for by the excess stocks
 now being held which are equivalent to about a half of global consumption.
 Within this trend there is considerable price volatility, arising
 from inflexibility in production, the close link between sugar prices
 and world oil prices and the concentration of sugar exports on a
 limited number of countries, with Brazil, the EU, Australia, Thailand
 and Cuba accounting for 70% of world exports. White sugar prices
 are less prone to volatility then raw sugar prices.
The OECD's 2003 Agricultural Outlook forecast
 international sugar prices for 2008/09 at around €172 per tonne
 a 13% decline on the average over the period 1997/98-2001/02. This
 poor market situation is predicated on 'increasing sugar supplies
 and exports from low-cost producers as well as continuing high support
 and protection in many OECD countries'.

Editorial comment

 The different relative importance of sugar to ACP economies compared
 to sugar's place within EU agriculture is well illustrated by the
 situation of Swaziland, where it accounts for 65% of income generated
 in the agricultural sector, the vast majority of export earnings
 and provides the basis for a major component of manufacturing value
 added.
The EU's position on global markets needs
 to be seen in the context of EU prices that are three times the
 world market price, and average production costs that are about
 twice the world market price. The EU's major position in the global
 sugar trade is therefore something of an anomaly.
This is a result of the EU sugar regime which
 means that EU production is not dependent on the international price
 of sugar. Indeed, 'C' production which has to be exported without
 export refunds has reached unprecedented high levels despite the
 low international sugar prices of recent years.
If international prices are to recover and
 provide some insulation against the income losses ACP states will
 face as a result of EU sugar-sector reform then the EU is going
 to have to design reforms in ways which bring about an end to EU
 'C' sugar exports. This should ease the international market situation
 somewhat and support the price.
Given the lower volatility of white sugar
 prices, low-cost ACP producers may find certain advantages could
 be gained by increasing their production and developing regional
 markets for white sugar. This however will require the formulation
 of trade regimes which prevent low-priced EU refined white sugar
 from dominating these markets. EU sugar-sector reform could even
 create opportunities for white sugar exports in certain regions
 of the world such as north Africa and the Middle East.

Sugar-sector reform may lead to a sharp fall in price

20 May 2004

Speaking at the first European Parliamentary
Symposium Commissioner Fischler picked up again on the issue of
sugar-sector reform. He emphasised that 'reform of the sugar regime
must bridge the gap between domestic and world prices, and support
will have to be decoupled from production'. It will also need to
offer 'a fair deal and secure future' for all EU-25 farmers.

Editorial comment

If this is the basis of the Commission's approach to sugar-sector
reform it rules out the maintenance of the 'status quo' option,
the 'full liberalisation' option and the 'fixed quota' option. This
leaves only the 'fall in price' option as the basis for EU sugar-sector
reform.

USDA summary analysis of EU sugar-sector reform options

20 May 2004

Reflecting on the release of the Commission
 staff working paper on the sugar sector the United States Department
 of Agriculture's Foreign Agricultural Service maintains that the
 document is intended to 'test reactions to reforming the EU sugar
 regime, without yet specifying concrete proposals'. This FAS report
 notes three reasons put forward by the Commission for reforming
 the sugar regime now:

  • the increasing market orientation of the
     CAP;
  • the potential market imbalances which will
     be created by full duty-free access for LDC sugar exports from
     2009;
  • the potential outcome of the WTO challenge
     to the EU sugar regime.

The report argues that the Commission's presentation
 of the options indicates that 'the Commission is clearly thinking
 along the lines of price cuts, income compensation and removing
 the quota system' but 'it is unlikely that any reform package can
 be finalised and approved before the end of 2004'. This suggests
 that 'the new sugar regime, should agreement be reached, is likely
 to enter into force in 2006'. This however assumes that 'the new
 European Parliament, the new Agriculture Commissioner who will replace
 Fischler in 2005 as well as the ten new member state governments,
 are all amenable'. The current sugar regime ends in mid-2006, although the EU Council can temporarily extend it should this prove necessary.

Editorial comment

This analysis indicates the timeframe within which ACP sugar exporters
 will need to get to grips with the challenges posed by EU sugar-sector
 reform.

USDA semi-annual review of EU sugar regime

20 May 2004

According to the USDA FAS semi-annual
 review of the EU sugar regime, released on October 15th 2003, in
 2003/04 EU 'A' and 'B' quota sugar production was reduced by 215,000
 metric tonnes to 13.44 million metric tonnes, in order to meet WTO
 export-subsidy constraints. In comparison, the quota was reduced
 by 862,475 metric tonnes in 2002/2003. The difficulties this could
 otherwise have created were eased by the hot and dry summer which
 reduced estimated sugar production to 16.86 million metric tonnes,
 an 8% reduction from the 18.4 million tonnes produced in 2002/2003,
 mostly as a result of the 7% drop in area planted to sugar beet.
 According to the USDA in 'Spain, Italy and France output fell 22%,
 27% and 10% respectively, due to a combination of reduced area planted
 to sugar beet as well as poor yields'.
EU export forecasts for 2003/2004 were reduced
 by 0.5 million tonnes to 4.9 million tonnes. EU export subsidies
 as of September 12th 2003 were approximately €431/tonne for
 raw sugar and €476/tonne for white sugar. According to the
 USDA 'in 2001/2002, just under €1.5 billion (€1.493bn)
 were used to subsidise the export of 3.488 million tonnes of sugar
 at an average rate of €428/tonne (averaged across all types
 of sugar export refunds). For 2002/2003, provisional figures show
 3.133 million tonnes of sugar exported with the benefit of export
 subsidies at an average subsidy of €467/tonne, giving a total
 expenditure on sugar export subsidies of €1,463 million. In
 terms of imports for 2003/04, the maximum supply needs of EU refineries
 were reduced by 2,392 tonnes to 1,774,074 tonnes white sugar equivalent.
Formal proposals for sugar-sector reform are
 expected during the first half of 2004. The USDA analysis maintains
 that it is unlikely that any reform package can be finalised and
 approved before the end of 2004. This suggests that 'the new sugar
 regime, should agreement be reached, is likely to enter into force
 in 2006'.

Editorial comment

With difficult weather conditions reducing EU sugar production and
 a gradual reduction of 'A' and 'B' quotas underway, decisions on
 sugar-sector reform could become slightly easier.

SKIL sugar-sector review

20 May 2004

The SKIL sugar-sector review for October
 2003 contains items on: the EU discussion paper on sugar-sector
 reform; developments around the Mumias facility in Kenya; and Asian
 Development Bank assistance to the Fiji sugar sector.

USDA review of the Brazilian sugar sector

20 May 2004

In October 2003 the USDA released a profile
 of the Brazilian sugar sector, noting that: Brazil is one of the
 most cost-efficient producers of sugar (costs of 5 to 5.5 US cents
 per lb in the centre-south region) making it the world's leading
 sugar exporter; sugar accounts for 2% of Brazil's GNP, 17% of agricultural
 production; and provides employment to over 1 million people. Overall
 the sugar sector provides better returns to farmers than other crops.
 In the 1990s Brazil liberalised the sugar sector. This resulted
 in a winnowing out of inefficient producers and structural restructuring
 and consolidation. It also saw a doubling of Brazilian sugar production.
 Brazil no longer directly subsidises the production of sugar. Brazilian
 sugar production however is unpredictable. 2000 and 2001 saw low
 levels of production, while 2002 and 2003 saw record harvests.
Brazil is also one of the world's largest consumers
 of sugar with capita consumption growing from 49.9 kg per capita
 in 1991 to 57 kg per capita by the end of the decade. Some 45% of
 sugar consumption in Brazil is via value-added food products (compared
 to 70% in the EU and 30% in southern Africa).
Brazil exports between 45% and 55% of its sugar
 production, averaging 13.3 million tonnes in the last three years
 (the second largest exporter, the EU, is reported by USDA as exporting
 about 6 million tonnes). Brazil exports raw sugar, mainly to Russia,
 Egypt, Iran and the United Arab Emirates and refined sugar to Egypt,
 Nigeria, India, Sri Lanka and Yemen.
The paper notes the links between Brazilian
 sugar exports and the use of sugar to produce ethanol as a additive
 to petrol for motor vehicles, with currently a 50/50 split, although
 it appears to be being used increasingly for the manufacture of
 sugar. The ratio of usage however varies according to a complex
 set of factors including: the world oil price and the international
 sugar price; currency exchange rates the efficiency of producing
 sugar and ethanol. The introduction of new flex-fuel engines (which
 can run on both oil and ethanol) could increase market uncertainties.
 The increased popularity of flex-fuel cars and high oil prices could
 theoretically result in all of Brazil's current sugar production
 being used to power a fleet of 5 million cars. Alternatively, low
 oil prices could lead to Brazilian sugar production swamping the
 world market.

Editorial comment

It should be noted that while the EU complains about the growing
 level of Brazilian sugar exports this is based on the low cost of
 sugar production in Brazil. In contrast the EU is a major sugar
 exporter despite its exceptionally high average production costs.
 The USDA report shows Brazil as already established as a supplier
 to Middle East and north African markets, those which could be most
 affected by EU sugar-sector reform, and where new opportunities
 could emerge as EU sugar exports contract. This suggest that new
 market opportunities for African ACP sugar suppliers in these markets
 could be limited by the trade relationships which Brazil has already
 established.
The volatility of Brazilian production and
 the unpredictability of Brazilian supplies of sugar onto the world
 market will be a major factor in EU sugar-sector reform.

First discussion of sugar-sector reform

20 May 2004

In presenting the options for sugar-sector
 reform to the EU agricultural ministers at the November Council
 meeting Commissioner Fischler argued that in the light of the wider
 process of CAP reform the current sugar regime was 'hardly sustainable'.
 He explained that in the light of the EU's existing commitments
 'preferential imports will rise and export possibilities will be
 limited' and hence 'a reduction of EU exports and import tariffs
 is unavoidable'. Commissioner Fischler argued that a swift decision
 was need, since the current regime expires in 2006. The Council
 instructed the special committee on agriculture to examine in detail
 the options for sugar-sector reform.

Editorial comment

The debate on sugar-sector reform is likely to be extensive with
 no real movement being likely until the end of 2004 or the beginning
 of 2005.

Finnish report highlights how ACP will lose out from EU sugar reform

20 May 2004

A research report by Finnish Researchers
  highlights how 'reform of the EU sugar regime will affect not only
  EU member states and candidates, but also countries that are associated
  with the EU through the preferential, regional and multilateral
  trade agreement', most notably ACP and LDC sugar exporters, who
  would be major losers. Larger agricultural exporters such Brazil,
  Thailand, Australia and even South Africa would be the only countries
  to benefit from full liberalisation of the EU sugar regime. The
  report suggests that in ACP countries 'the rural population will
  incur the bulk of the burden of structural change', which will work
  against the EU's commitment to the UN's Millennium Development Goals
  of reducing poverty and hunger.

Editorial comment

The report highlight the hard reality which will confront ACP sugar-exporting
  countries under any formula for sugar reform which is currently
  being actively considered by the Commission.

Divergent stakeholder views on sugar-sector reform

20 May 2004

 At the end of September the industry federation
 representing EU chocolate, biscuit and confectionary manufacturers
 (CAOBISCO), welcomed the Commission's communication on reform of
 the EU sugar regime, arguing that 'the sugar regime is long overdue
 for reform'. It describes the current regime as 'economically disastrous'.
 The fact that EU sugar users, both direct consumers and industrial
 consumers pay three and half times the world market price was described
 as 'simply unsustainable'.
In contrast, the industry body representing
 sugar millers (CEFS), called for more attention to be given to the
 'fixed quota' option when looking at options for reform. CEFS maintains
 that since 1968 the sugar regime has 'played an important role in
 ensuring sustainable and high quality sugar production and in providing
 employment in rural areas throughout the EU'. It argues that 'it
 is essential that any reform of the Sugar CMO is not carried out
 at the expense of the livelihoods of European and developing-country
 producers'.
Like the Commission it sees the 'liberalisation
 option' as 'completely untenable'. However CEFS disagrees with the
 Commission's favoured 'fall in price' option, claiming it is likely
 to have 'irreversible adverse consequences for sugar production'
 in more EU regions than foreseen in the Commission analysis. It
 also notes that it would be liable to 'cause irreparable damage
 to the sugar industries of our traditional suppliers among the ACP
 countries'. CEFS describes the 'fall in price' option as essentially
 a de facto 'liberalisation' option. On this basis the CEFS strongly
 advocates a reassessment of the 'fixed quotas' option.

Editorial comment

The strong support for reform of COABISCO highlights the importance
 of sugar-sector reform to the development of the value-added food-processing
 industry in the EU. EU policy is increasingly focussing on this
 area.

Cotton-sector reform is explained

20 May 2004

Addressing the 'International Forum on
 Agriculture and Food' in Cernobbio on October 25th 2003, Commission
 Fischler outlined the basis for the Commission's cotton-sector reform
 proposals. He explained how in the cotton sector part of the current
 support would be incorporated into the single farm payment scheme
 with the rest being transferred into a new production aid, distributed
 on a per hectare basis. This new approach would further reduce the
 trade-distorting impact of EU cotton-sector support, which was already
 negligible.
Addressing EU Agricultural Ministers in October
 2003, Commissioner Fischler assured member states that with 40%
 of the payments still coupled, 60% decoupled and revenue coming
 from cotton cultivation, the gross margin to EU cotton farmers would
 still compare well to those from alternative crops.
Commission proposals for reform of the cotton
 regime were also set out in some detail at the Commission-convened
 seminar on cotton-sector reform which took place in Brussels on
 November 11th 2003.

Editorial comment

The Commissioner's explanation makes clear the extent to which a
 reformed CAP is intended to maintain current levels of EU production
 through means which are more WTO compatible. Reining back EU production
 which expanded dramatically on the basis of past patterns of support
 is simply not on the EU's agenda.

The EU makes further commitments on animal transport

20 May 2004

On October 30th 2003 the European Commission
 took further steps to strengthen international agreements on the
 treatment of animals during transportation with a proposal to sign
 the revised European convention for the protection of animals during
 international transport. This convention lays down the general conditions
 for transporting animals, and sets out special conditions for the
 transport of animals by road, air, sea and rail.
The convention aims to encourage animals to
 be slaughtered in the country of origin rather than being transported
 internationally prior to slaughter. It also aims to define who is
 responsible for what.

Commodity dependence and poverty

20 May 2004

The European Commission released a staff
working paper on commodity dependence and poverty in developing
countries in August 2003. From its analysis it is apparent that
the problem of agricultural commodity dependency is primarily a
problem which afflicts ACP countries. For two commodities - coffee
and cotton - dependent African countries are all LDCs with a low
human development index. Similarly for cocoa the main dependent
countries are LDCs or low-income countries. The paper acknowledges
that 'lower export prices mean reduced farm incomes, lower agricultural
wages or even unemployment', which then feeds into a cycle of low
investment and stagnant productivity. 'Lower export incomes also
have an effect on government revenues' which 'means reduced budgetary
resources for poverty -reducing activities such as health and education'.
It notes that falls in export earnings also affect the balance of
payments, putting pressure on debt servicing.
The paper reviews the challenges faced and outlines
'a set of actions that could be taken by these countries at the
national and international level, to address these issues in the
longer term'. The key challenges identified include: 'long term
declining price trends; short term volatility; international market
concentration and integration; market reforms in producing countries
and the over-dependence on traditional primary commodities, such
as coffee, cocoa, cotton, bananas and sugar'.
In response to long-term declining prices the
paper recommends that steps be taken to increase competitiveness,
profit margins and the share of consumer prices that goes to producers.
It does not favour the revival of international commodity agreements,
maintaining that the 'conditions are not in place that would allow
such schemes to be successful'.
On market concentration it calls for more reflection
on 'how to balance the economic powers of large multinational and
small producers in developing countries, whilst retaining incentive
to improve flows of FDI', but makes no proposals. On domestic market
reforms it argues for close collaboration between government and
producer organisations including a 'more active role for governments'
so as to create an enabling environment for the domestic private
sector.
The paper notes the challenge of diversification
and highlights 'the lack of trade-related capacity in many developing
countries' as a major hurdle. It emphasises the importance of developing
production for local and regional markets as an important vehicle
for diversification. Overall the paper argues that 'commodity-dependent
countries need to analyse their own situation and devise more proactive
strategies to address the crises facing their key economic sectors.
An important component of this, it is argued, is to analyse the
'potential international constraints to the development of their
commodity sectors' and to argue their case for change in appropriate
fora.

Editorial comment

Singularly absent from the Commission paper were any proposals for
the re-establishment of a coherent EU response to the consequences
of commodity price declines. This is a remarkable oversight given
the singular failure of the new FLEX instrument, which replaced
the old STABEX scheme. While reference is made to stabilisation
funds which sought to stabilise prices by means of buffer-stock
intervention, little reference is made to the role that STABEX transfers
played in financing these mechanisms in certain ACP countries.
Significantly, while the commodities looked
at include sugar and cotton, in analysing declining price trends
little reference is made to the impact of EU sugar-sector policies
since 1970 on declining world market prices, or the impact of US
cotton-sector policies on declining cotton prices. Indeed, the only
reference to cotton, sugar and rice is when the paper observes somewhat
obscurely that 'most large international actors could intensify
their efforts to promote policy coherence'.
Given the concentration of market power in
the hands of the coffee roasters, where four coffee roasters dominate
the global market, the EU could use its existing competition legislation
to ascertain the extent to which these four companies abuse their
dominant market position in relation to coffee growers. This could
act as a useful basis for promoting the objective of ensuring that
coffee producers get an increased proportion of the final sale value
of the finished product.
Ironically, diversification in some countries
(Zambia, Mozambique, Ethiopia) is compounding the problems of existing
producers (e.g. in the sugar sector). In addition some areas of
diversification to serve regional markets (e.g. Ugandan production
of wheat) run into the problem of market distortions generated by
agricultural support programmes of OECD countries. What is more,
efforts to diversify (e.g. citrus production in Swaziland) can be
undermined by the harmonisation of EU sanitary and phytosanitary
measures, which increase non-tariff obstacles to trade and the risks
associated with exporting to the EU market. The Commission paper
observes that 'a key condition for success is that the market targeted
by diversification must be a growing and dynamic one'. However if
it is a growing and dynamic market it is likely to be targeted by
established OECD producers and other commodity-dependent developing
countries who are seeking to diversify, leading to over supply and
declining prices (e.g. the emerging trend in the cut-flower sector).
Regarding the question of moving up the value
chain, the paper notes that 'smaller commodity-producing countries
are at a comparative disadvantage to enter into processing', since
increasingly strict and sophisticated market requirements are faced
which require large scale investment and high volumes of throughput.
The refusal to consider a revival of international
commodity agreements on the grounds that the 'conditions are not
in place that would allow such schemes to be successful' assumes
that the conditions cannot be created. This is challenged in a new
book jointly published by the CTA and Zed Press, Stolen Fruit, by
Peter Robbins, who argues that on the contrary there are provisions
within the WTO itself, currently being followed up under the leadership
of Kenya, that would allow price interventions in cases like coffee
which have seen a fall in real prices to a seventh of their 1980
value.

Olive-sector reform is explained

20 May 2004

Addressing the 'International Forum on
 Agriculture and Food' in Cernobbio on 25th October 2003, Commission
 Fischler outlined the basis for the Commission's olive-sector reform
 proposals. Demand for olives and olive oil is expanding (in part
 due to EU-supported promotion campaigns), and about one-third of
 all EU farmers involved in the sector. Commissioner Fischler maintained
 that the reforms had been designed against this background with
 40% of the current production-linked payments being retained but
 no longer linked to production per se but rather to the maintenance
 of olive groves, given their importance to the environment. These
 reforms would make the sector more market-oriented, reinforce the
 competitive position of EU producers and continue to ensure that
 the sector plays its environmental role.
Commission proposals for reform of the olive
 sector were also set out in some detail at the Commission-convened
 seminar on olive-sector reform which took place in Brussels on November
 11th 2003.

Editorial comment

The Commissioner's explanation makes clear the extent to which a
 reformed CAP is intended to maintain current levels of EU production
 through means which are more WTO compatible. Reining back EU production
 which expanded dramatically on the basis of past patterns of support
 is simply not on the EU's agenda.

USDA report on the EU poultry sector

20 May 2004

In September 2003 the USDA Foreign Agricultural
 Service released its annual review of the EU poultry sector. According
 to this report the EU poultry market is now stable after recovery
 from the avian flu outbreak. Export refunds were introduced for
 turkey meat to all destinations except the USA and Estonia, but
 there were no changes to export refunds for other poultry meat.
Changes in the market are expected in response
 to 'the January 2003 announcement by Russia of its tariff-rate quota,
 which is expected to limit imports of beef, pork and poultry' and
 in the longer term the implementation of the CAP mid-term review
 proposals and EU enlargement.

Editorial comment

The Russian decision to limit imports of beef, poultry and pork
 through a TRQ system could leave considerable volumes of EU poultry
 meat looking for new markets. The impact this could have on ACP
 poultry sectors, particularly in west and central Africa will be
 determined by the extent to which these markets can directly replace
 former Russian markets. Already in west Africa there are growing
 complaints over increased EU poultry exports, which have arisen
 on the back of EU cereals-sector reform (which has substantially
 reduced EU poultry production costs). The openness of many west
 African and central African markets to poultry meat exports from
 the EU may spell severe problems for local poultry producers in
 a context of reduced EU exports to Russia.

Tobacco reform is explained

20 May 2004

Addressing the International Forum on
 Agriculture and Food in Cernobbio on October 25th 2003, Commissioner
 Fischler outlined the basis for the Commission's tobacco-sector
 reform proposals. He noted that for 66% of tobacco holdings in Italy
 'current support will simply be transferred to the single farm payment
 and maintained at 100%' and that for a further 23% benefits will
 be maintained at 80% of current levels under the single farm payment
 scheme. According to Commissioner Fischler this means that 'family
 employment, which represents some 80% of the total workforce in
 the tobacco sector, will continue to benefit from public support'.
 It will allow farmers to continue to produce tobacco or to diversify
 into other sectors which may be more profitable. He maintained that
 it would not lead to land abandonment. The restructuring funds provided
 will also be made available for retraining of farmers, the creation
 of new rural employment opportunities and even early-retirement
 schemes. Commissioner Fischler maintained that the overall aim of
 the reform process was 'the phasing-out of tobacco subsidies, while
 putting in place measures to develop alternative sources of income
 and economic activity for tobacco growers'.
Commission proposals for reform of the tobacco
 sector were also set out in some detail at the Commission-convened
 seminar on tobacco-sector reform which took place in Brussels on
 November 10th 2003.

Editorial comment

The Commissioner's explanation makes clear the extent to which a
 reformed CAP is intended to maintain current levels of EU production
 through means which are more WTO compatible. Reining back EU production
 which expanded dramatically on the basis of past patterns of support
 is simply not on the EU's agenda.

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