A Development Perspective
on EU Common Agricultural
Policy Reform
Alan Matthews
Trinity College Dublin, Ireland
21 February 2008
Agricultural policy as a source of
policy incoherence
• EU agricultural policy (the Common
Agricultural Policy or CAP) has
traditionally been seen as damaging to
developing countries
• Market access barriers and export
subsidies make it more difficult for
developing countries to pursue their own
agricultural development strategies
Agricultural policy an example of
policy incoherence?
• Oxfam
– The Great EU sugar scam: how Europe's sugar
regime is devastating livelihoods in the developing
world (2002)
– Milking the CAP: How Europe's dairy regime is
devastating livelihoods in the developing world (2002)
– Stop the Dumping! How EU agricultural subsidies are
damaging livelihoods in the developing world (2002)
– Dumping on the World: how EU sugar policies hurt
poor countries (2004)
A Member State and DG AGRI
perspective
“Moreover, charges that the CAP is damaging
developing countries' ability to trade are not
correct. The EU is by far the largest importer of
agricultural products from developing countries,
importing goods to the value of about €35bn at
zero or very low tariff, compared with €18bn for
the US. The EU imports more from developing
countries than the US, Canada, Australia and
New Zealand combined. It absorbs about 85
per cent of Africa's agricultural exports and 45
per cent of Latin America's.”
- The Irish Prime Minister Bertie Ahern, Financial
Times 26 September 2005
What would be implications of CAP
reform for developing countries?
• Growing sense that agricultural trade
liberalisation by developed countries may
not make as substantial a contribution to
policy coherence as was first thought
• Growing awareness that the effects are
likely to be high differentiated both by
commodity, by policy instrument and by
region
The CAP is changing….
• Support prices for EU farmers have been
reduced…
• … replaced by direct payments
• …and greater emphasis on environmental and
rural development payments
• Expenditure on export subsidies has been falling
• Preferential access has been improved,
particularly for the least developed countries
under the Everything But Arms scheme
Changing EU farm support
EU agricultural tariff barriers
Tariffs applied by →
EU25
US
Asia
developed
Cairns
developed
-
5.8
22.2
15.7
US
16.2
-
28.9
5.1
Mediterranean
7.3
4.0
14.1
3.7
Sub Saharan
Africa
6.7
3.0
12.0
0.7
Cairns developing
18.3
3.8
24.0
5.9
China
13.5
5.1
21.7
8.7
South Asia
14.4
1.8
33.7
1.8
Rest of World
15.1
2.1
17.4
2.6
Average
16.7
4.7
22.5
10.8
Applied to ↓
EU25
Summary
• «Fortress Europe»
– Very high bound tariffs on key commodities
– But very large set of preferences
– As a result, protection is very uneven across
countries willing to export to the EU
– Tariffs, including tariff escalation, are not a
serious problem for LDCs or ACP countries
(but non tariff issues)
– They are a problem for Asian and South
American and transition countries
CAP reform – complex effects
Country winners
Country losers
Protection
Net importers
Low income
countries
High income
resource exporters
Agric exporters
Preferences
Preference
beneficiaries
Exporters
experiencing trade
diversion
But now… dramatic changes in
world food markets
• Recent years have seen a sharp increase
in real food prices, with particularly large
jumps in recent months for some
commodities.
• Commodity market developments likely to
dwarf CAP reform effects for developing
countries
• Energy policy effects (promotion of
biofuels) likely to dwarf CAP reform effects
Source: FAO World Agriculture: Towards 2015/2030
Food security – a major issue
• Food vs fuel – an old debate
– During the 1970s – should we stop eating meat to
make more grain available for poor people?
– During the 2000s – should we stop driving cars to
make more grain available for poor people
• Concern that rising food prices will make it more
difficult for the poor to purchase food
• There are lots of good reasons why it might be
good to eat less meat or drive less often, but
would it actually contribute to reduced hunger?
Food security impacts
• UN Special Rapporteur on the Right to
Food
– Biofuels “a crime against humanity”
– has called for 5-year moratorium on increased
biofuel production
• But income effects from energy crop
cultivation can potentially offset the shortterm negative impacts on poor consumers
Who are the poor in developing
countries?
• 80% of food-insecure people are in rural areas
– 50% are small farmers
– 20% are landless farm workers
– 10% are pastoralists, fishermen or forest gatherers
• Energising the economic viability of rural areas
through agriculture has significant potential to
reduce poverty and hunger
• Poverty multiplier of agricultural-led growth far
higher than for other forms of growth (minerals,
industry)
Food security concerns
• Higher food prices raise the expenditure
requirements of the poor, but they also
contribute to higher incomes and more
jobs for food producers
• Potential now exists to reverse the
decades-long neglect of agricultural and
rural development in many developing
countries
But winners and losers…
• Between countries
– If food prices move in tandem with energy
prices, then countries gain or lose depending
on whether they are net energy exporters
and/or net food exporters
– Many least developed countries are BOTH
net food AND energy importers
– FAO has warned of much higher import bills
of Net Food Importing Developing Countries
Winners and losers…
• Within countries
– Only 50% of the food insecure are small
farmers
– Other 50% are potentially food purchasers
– Need to take on board interests of the urban
poor plus other marginalised groups
– Need to assess the gender impact of rising
food prices on division of labour and intrahousehold distribution
Ensuring poor families benefit
• Role for public policy
– Resource and land rights of vulnerable groups and
protected forests are often weak
– Encouraging contract farming and outgrower
schemes
– Improving infrastructure, transportation, market
coordination, investment in research
– Promoting competition in the marketing chain to
ensure that higher prices really do reach the poor
– Trade certification schemes (biofuels)
Key messages
• There will be winners and losers from further
CAP reform among developed countries
• Not an argument for stalling reform…the
importance of the EU leading by example
• What must be done to turn losers into winners
and to ensure that the winners really win?
• An expanded policy coherence agenda requires
coordinated aid as well as trade as well as
appropriate developing country responses