The Impact of EU Export
Subsidy Elimination on
World Markets
Susan E. Leetmaa
Tools the EU could use to limit
or eliminate subsidzed exports
Production controls
 Build stocks
 Reducing support prices and increasing
direct payments to compensate producers
for the price decline

Analysis of EU export
subsidy elimination
We use the ERS/ESIM model: linear, timedependent, CES, partial equilibrium.
 Commodities: wheat, barley, corn, other
coarse grains, oilseeds and their products,
beef, pork, and poultry.

–

These account for over 50% of EU
expenditures on export subsidies and 75% of
the volume of subsidized exports.
Strong and weak Euro are compared
What we analyze

We reduce internal price until either. . .
 Supply equals demand, so the EU will
not export, or
 until EU prices equal world prices, so
that no subsidy is required for export.
Euro stronger than US dollar,
Arable Crops
The EU would have exportable surpluses
of all grains.
 Grain prices would fall from a common
internal price under the CAP to different
world prices for all grains.
 EU wheat production would increase at the
expense of all other grains.

EU wheat exports would increase
– Barley and rye feeding would increase, wheat
feeding would decrease
–

Oilseed area would increase slightly
EU and world grain prices
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Corn
Other Coarse Grains
Barley
Wheat
EU Grains @ Baseline
EU Grains @ parity
Euro stronger than US dollar,
Meats

EU would continue to be noncompetitive
in beef export markets
–

domestic price decline would decrease
production, eliminating need for exports prior
to EU price reaching world price.
Pork and poultry exports would increase,
aided by declining feed costs
Euro/dollar parity
A weaker Euro would help EU achieve
export subsidy elimination
 Wheat production and export results
would be more profound
 Less of an impact on livestock sector, as
producers are less responsive to price
changes.

Beef still uncompetitive
– Pork and poultry exports would only increase
slightly over stronger Euro exports.
–
Impact on World Markets
Minimal impact on most sectors
 Wheat most affected, as increased EU
exports would lower world prices,
reducing U.S. production and increasing
consumption, reducing exports.
 Reduction in EU livestock exports would
increase world prices, increasing U.S.
production and exports

–
largest gains in beef and slight increase in
pork
Strengths and weaknesses of ESIM
• Strengths: Explicit EU policies, very complete feed
sector, hence good at projecting production and
consumption and estimating volume restriction.
• Weaknesses: ESIM is a net trade model (either exports
of imports are fixed), therefore we can not measure the
impact on wheat imports, which would change
significantly if EU prices fell to world prices. No
Dairy!
Other
• Also, we can not accurately model value
restriction, as model prices for many
commodities are model market clearing prices,
not necessarily EU market prices for the
commodities (product of fixed stocks).