1. Deutschland Future policies for rural Europe 2013 and beyond – delivering sustainable rural land management in a changing Europe “Relationships with developing countries – the implications of CAP reform“ by Marita Wiggerthale

2. Deutschland Direction of new CAP „Reforms have focused mainly on increasing the competitiveness of agriculture by reducing support prices and compensating farmers by the introduction of direct aid payments.“ „Rural development is the key tool for the restructuring of the agriculture sector. Rural development can help promote competitiveness in the agricultural and food processing sectors“ (http://ec.europa.eu/agriculture/lisbon/index_en.htm)http://ec.europa.eu/agriculture/lisbon/index_en.htm

3. Deutschland Development implications of new CAP (1)DCs food processing jeopardised – EU promotion of exports of processed food (CAP reform in combination with trade policy) (2)Increasingly indirect dumping - improving price competitiveness with the help of subsidies (3)Damaging cross-sector effects - e.g. cereals/poultry (in combination with trade policy) (4)Rising Non-tariff barriers (food safety standards) (5)Preference erosion

4. Deutschland I.) DCs food processing jeopardised Agricultural raw materials at competitive prices (aligning internal prices to WM-prices): reduce support prices (e.g. sugar), enhance supply (e.g. milk), reduce production costs (e.g. investment aids, direct payments favouring productive farms) Export refunds: declining, but essential to bridge current price differences (335 mil Euro for PAPs in 2005) Direct aid payments: unequal distribution in favour of productive and big farms (in EU-15, 20% of beneficiaries receive around 80% of payments), compensation for price reductions Rural development programmes: investment aids in agricultural holdings and processing (e.g. France, 28% of the beneficiaries in the wine, fruits and vegetable sector stated an improvement of export competitiveness)

5. Deutschland I.) DCs food processing jeopardised (cont..) 67% of EU-Exports = high quality products

6. Deutschland I.) DCs food processing jeopardised (cont..) Example: EU- exports to ACP countries EU-exports of processed food to the ACP increased by 148% (1995-2002), of preparations of cereals 182% (1995-2004) ACP‘s share of total EU exports of processed food increased from 3,84% in 1995 to 6,36% in 2002, before falling back to 5,74% in 2004 (due to changed US$/euro exchange rate)  Likely closing off market opportunities for processing in ACP EU-tariffs on processed food higher tariffs for some processed food ranging from 0-427% Preferences/PAPs: all industrial components enjoy substantial preferential treatment, tariff reductions on agricultural components are limited (see WTO, TPR/EC 2007)

7. Deutschland II.) Increasingly indirect dumping Shift from product-specific subsidies/support to decoupled aid Alignment of internal prices to WM-prices reduces need to deploy export refunds Three pillars of dumping: export refunds, direct payments, investment aids  EU price competitiveness in future will no longer be dependent on the deployment of export refunds, but will be derived from the supply-side effects of direct payments, which allow prices to be reduced without affecting (much) the overall level of production, and markets to be cleared at world market price levels “indirect form of dumping”

8. Deutschland III.) Damaging cross-sector effects Price decreases in cereal sector since 1992 Animal feed costs account for up to 70% of production costs  contributed to the expansion of EU poultry-meat production and exports Since 1996 dramatic increase of EU poultry exports to Africa Poultry exports to ACP: 101.000 t (1996), 245.000 t (2004) Changes in consumer preferences in Europe, ban on the use of meat-and-bone meal as animal feed fuelled expansion of exports  serious impact on poultry sector (e.g. Cameroon, Ghana) Self-sufficiency in Ghana dropped from 85% in 1997 to 5% in 2006

9. Deutschland IV). Rising Non-tariff barriers Strict food safety standards (traceability, hygiene standards, food-and-feed-safety control measures etc.) High fixed costs involved for developing countries, high volumes of throughput required to reduce the unit costs of meeting new food safety standards CTA studies: SPS measures can represent 2%-10% of a company‘s export turnover (varies from company to company) Increased marginalisation of small farmers in developing countries Increased risk of closing of market opportunities: e.g. ACP exports, 155 border rejections by EU in 2004

10. Deutschland V). Preference erosion CAP reform, trade liberalisation (multi-lateral, bilateral) Income losses because of decreasing EU agricultural prices: Sugar: income losses to ACP-sugar-protocol suppliers of 429.9 mil Euro during four-year transitional period Rice: earnings of ACP exporters falling by 24% (2001-2004) Beef: prices paid to ACP exporters have fallen by 20-30% Fruit and Vegetables: downward pressure on prices expected following the recent reform; 18 African countries export fruit and vegetable products (aiming at diversification and decreasing dependence on tradition commodities) Source: agritrade (2007): CAP reform: Executive brief

11. Deutschland Conclusions Caution: Whenever there is a reform of the CAP one has to consider the effects on developing countries Policy changes needed: Elimination of export subsidies: the earlier the better Stop unfair distribution of direct payments Switch to targeted payments: social, environmental, animal welfare etc. Shift investment aids away from improving export competitiveness towards sustainable farming practices, local processing, regional marketing etc. Win-win-situation: the better targeted payments are towards extensive and environmental friendly farming, the more dumping and overproduction will be reduced Developing countries need to have the right and the policy space to protect themselves against (dumping) imports