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Adding value, adding power

30 November 2001

The EU is now the developing world's most important agricultural trade partner. It imports more agricultural products from the developing world than the US, Japan, Canada, Australia and New Zealand combined, and it ranks a close second to the US in terms of agricultural exports of value added food products (not bulk agricultural products).
While favourable exchange rates have helped, the expansion of EU value added agricultural exports has been primarily driven by successive waves of CAP reform, involving the shift from price support to direct aid. This has reduced the need for WTO constrained export refunds. Commissioner Fischler pointed out how "in 1992 our domestic support price for wheat was 47% above the level of world market, and public intervention had to sustain this level. Today our wheat price is at or even below the world market level, and no public intervention or even export subsidies are required." These lower prices have expanded domestic demand for cereals (up 40%) and made cereal exports more competitive and less dependent on export subsidies. This has also fed into lower feed costs and hence lower prices for pork and poultry meat. "As a consequence, the share of unsubsidized pork and poultry exports has increased impressively, representing today almost three-quarters of their respective exports (up from less than 10% before 1992)." Reform since 1992 has also resulted in a 35% decline in the support price for beef.

Editorial comment

In his speech in Bologna on October 30th 2001, Commissioner Fischler slipped between referring to the new forms of CAP support as "less trade distorting" and "non-trade distorting". Speaking in Doha the phrase "unduly trade distorting" was used. This verbal sleight of tongue is vital to the whole issue of the external effects of CAP reform. If new forms of aid are truly "non-trade distorting" then agriculture based ACP economies have little to fear. However if they are simply "less trade distorting" then there are major causes for concern. What is "less trade distorting"? What is not "unduly trade distorting"? Is it simply forms of support which give EU agricultural and value added food products a competitive edge on third country markets, but not so blatantly as to provoke howls of protest and countervailing action?
EU value added food products have expanded massively since the Uruguay Round agreement (up 117% in the first four years), driven by an opening up of third country markets, the cheapening of basic agricultural raw materials in the EU (as a result of CAP reform) and the continued provision of export refunds to bridge the narrowing gap. This expansion of EU value added food product exports potentially poses a major threat to the development of value added food product industries in ACP countries. While the ACP is not a major market for these EU value added food product exports, even relatively small flows of these products (in EU terms) can have a significant disruptive effect on local value added food product industries in ACP countries.


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