CAPRI WP 6: CAPRI, Eu-Med Agpol 3rd meeting, 18th-19th May 2006 Montpellier Contributions to EU-Med Agpol Based on the CAPRI modeling System overview, progress in the first two years and outlook Lucie Weissleder Franziska Junker Wolfgang Britz Institute for Agricultural Policy, Bonn CAPRI Common Agricultural Policy Regional Impact

CAPRI WP 6: CAPRI, Eu-Med Agpol 3rd meeting, 18th-19th May 2006 Montpellier Outline The team in Bonn Short overview on WP6 Reminder: What is CAPRI ? Outlay of the scenario Preliminary results Next steps

CAPRI WP 6: CAPRI, Eu-Med Agpol 3rd meeting, 18th-19th May 2006 Montpellier The team in Bonn Institute of Agricultural Policy, University Bonn: Lucie Weissleder, phD student (new in team) Franziska Junker, phD student Wolfgang Britz –Specializing on policy impact analysis based on quantitative models –Long-standing relations to DG-AGRI –Co-ordinates the activities around the CAPRI modeling systems –Engaged in sister project dealing with EU  MercoSur liberalization

CAPRI WP 6: CAPRI, Eu-Med Agpol 3rd meeting, 18th-19th May 2006 Montpellier What is WP6 Quantify possible changes in European and Mediterranean production, imports, and exports of important commodities –Using models CAPRI for the EU TASM for Turkey CGE for Morocco –Deliverables are three reports analyzing results of the models => WP7 & WP8: e.g. D24 Quantitative Assessment of EU-Mediterranean Trade Liberalization Using the CAPRI Modeling System (month, 30, Report, Public)

CAPRI WP 6: CAPRI, Eu-Med Agpol 3rd meeting, 18th-19th May 2006 Montpellier What is CAPRI ? Common Agricultural Policy Regionalised Impact Model, combination of: Regionalized/farm type supply models for EU27 and a global, spatial market model for main agricultural products Developed and funded mainly by DG-RSRCH funds Implemented and applied by DG-AGRI

CAPRI WP 6: CAPRI, Eu-Med Agpol 3rd meeting, 18th-19th May 2006 Montpellier Characteristics CAPRI trade model Globally closed, spatial model (bilateral trade flows) based on the Armington assumption 40 primary and secondary agr.products Direct modelisation of intervention stock changes, subsidized exports and bi-lateral tariffs and preferential trade agreements (TRQs) Regular well-behaved functions => welfare analysis Comprises first stage processing (oil seeds, dairy) Fat and protein balances/prices for EU dairy industry Synthetic model: behavioral parameters are taken from literature, not estimated About equations and variables

CAPRI WP 6: CAPRI, Eu-Med Agpol 3rd meeting, 18th-19th May 2006 Montpellier Work done in year one and two Mediterranean extensions –Market model now features individual Mediterranean countries –Mediterranean products are now endogenous in supply and market part –CMOs for Mediterranean products included in model Tariff data base completely rehauled Preliminary runs for EU-Med liberalization

CAPRI WP 6: CAPRI, Eu-Med Agpol 3rd meeting, 18th-19th May 2006 Montpellier Split up „Med country block“ Own behavioral equations in trade model for: Morocco Tunesia Algeria Egypt Turkey Israel Morocco and Turkey as own trade blocks (new), Tunesia, Algeria, Egypt and Israel aggregated in a remaining “Med” block

CAPRI WP 6: CAPRI, Eu-Med Agpol 3rd meeting, 18th-19th May 2006 Montpellier Mediterranean products Supply and market model now features additionally as endogenous products: –Tomatoes –Apples, pears and peaches –Citrus fruits –Table grapes –Other fruits –Potatoes –Other vegetables –Olive oil –Wine In total some 40 products EU Entry Price System

CAPRI WP 6: CAPRI, Eu-Med Agpol 3rd meeting, 18th-19th May 2006 Montpellier Policy data for Mediterranean products EU entry price system, partially depending on trading partner and/or TRQ, integrated in model: –Tariff is difference between cif + ad valorem tariff and entry prices between 92% and 98% of “trigger price” –Above, the WTO bound rate for the specific tariff is applied –Fudged using a non-symmetric variant of a sigmoid function –Unresolved issue: seasonality –But still: allows a rather direct modeling of the trade liberalization scenarios Remaining tariffs stem from AMAD and CMOs

CAPRI WP 6: CAPRI, Eu-Med Agpol 3rd meeting, 18th-19th May 2006 Montpellier Definitions of scenarios Baseline: business as usual, implementation of the EU-Med agreements, implementation of MTR, no WTO-lib, no sugar market reform Two countervailing scenarios: –Full EU  Med liberalization (quota and duty free access for all products, not only fruits & vegs) –Partial EU  Med liberalization according to D17 (plus own scenario writing for Turkey) Later additionally: WTO, with the two Med-Lib scenarios as countervailing ones

CAPRI WP 6: CAPRI, Eu-Med Agpol 3rd meeting, 18th-19th May 2006 Montpellier Major results: Full liberalization I Overall very limited impact for EU25 Welfare losses for EU (-0.5 Bio €) Distributional effects: –Gains for consumers (+1.8 Bio €) –Losses for agricultural produces (-1 Bio €), -250 Mio € both for Spain and Italy, -150 Mio € France, -90 Mio € for each Germany and Greece –Loss of tariff revenues (-1.4 Bio €) most probably over estimated due to the option to use “standard import unit values”) The tariff losses could hence turn the picture

CAPRI WP 6: CAPRI, Eu-Med Agpol 3rd meeting, 18th-19th May 2006 Montpellier Major results: Full liberalization II Morocco: –Welfare gains of (+225 Mio €), almost entirely from fruits & vegs –Farmers win (+650 Mio €): biggest gains in other fruits (+180 Mio €, t), other vegetable (+122 Mio €, no change in quantities, cross price effects?) and tomatoes (+97 Mio €, t) –consumer loose (-360 Mio €  mainly from fruits & vegs, not offset by gains in cereals), tariff revenues drop –Increase in cereal imports of t and sugar t –Increase in fruits & veg exports of almost +1 Mio t

CAPRI WP 6: CAPRI, Eu-Med Agpol 3rd meeting, 18th-19th May 2006 Montpellier Major results: Full liberalization III Turkey: –welfare gains for Turkey (+735 Mio €), almost entirely in fruits & vegs (+660 Mio €) –losses for consumer (-1.8 Bio €, mainly from fruits & vegs) –offset by gains for producers (+3 Mio €) –quantity responses dominated by changes in sugar exports to the EU (Price in Turkey at 460 €/t ???) … and reduced domestic demand for fruits & vegs, which is exported to the EU –shift in fruits & vegs into „other fruits“ –will TASM help?

CAPRI WP 6: CAPRI, Eu-Med Agpol 3rd meeting, 18th-19th May 2006 Montpellier Major results: Full liberalization IV Rest of the Mediterranean (Tunisia, Egypt, Israel): –Almost no change in total welfare (+150 Mio €) –gains of producers (+2.1 Bio €) –leveled out by losses of consumer (-1.8 Bio €) and reduced tariff revenues –Increased export to a larger extent provoked by reduced domestic consumption (???) –Tomatoes, other vegetable and table olive production shrinks, fruit sector expands

CAPRI WP 6: CAPRI, Eu-Med Agpol 3rd meeting, 18th-19th May 2006 Montpellier Partial EU  Med liberalization I Expanded quotas for Med countries: –Morocco: Expansion of tomatoes ( t) and Citrus ( t) TRQs –Turkey: Expansion of TRQs for cheese (+700t), new quotas for table grapes (+350t) and potatoes (+2.500t) –Med block: Expansion of TRQs for tomatoes ( t; in reality allocated to Israel), potatoes ( t; in reality expansion of t for Egypt and t for Israel), doubling for other vegetables ( t), citrus ( t)

CAPRI WP 6: CAPRI, Eu-Med Agpol 3rd meeting, 18th-19th May 2006 Montpellier Partial EU  Med liberalization II Expanded preferences for EU: –Turkey TRQ expansion: beef (+4.100t) skimmed milk powder (+1.000t), butter (+700t), cheese (+1.000t) wheat ( t), oats (+5.100t) –Exact scenario definition for other Med countries still open, for simplicity, all TRQ quantities expanded by 50%

CAPRI WP 6: CAPRI, Eu-Med Agpol 3rd meeting, 18th-19th May 2006 Montpellier Major results: Partial liberalization I EU: –-25 Mio € welfare losses, -80 Mio € producers, +50 Mio € consumers – t import increase for fruit and vegetables –Import substitution: imports from the Americas ( t, mainly citrus) replaced by imports from Mediterranean countries –Biggest EU market price changes observed in tomatoes -2.8% and table grapes -2% –Impacts on farmers income: biggest percentage change in Portugal with -0.13% loss in income Biggest absolute changes in Spain (-20 Mio €) and Italy (-15 Mio €)

CAPRI WP 6: CAPRI, Eu-Med Agpol 3rd meeting, 18th-19th May 2006 Montpellier Major results: Partial liberalization II Small changes, as to be expected –Morocco: does not completely use the new trade preferences for tomatoes ( t), but fills additional citrus quota ( t) +55 Mio € welfare, +150 Mio agricultural sector, -100 Mio consumer –No change for Turkey (neither in the production structure nor in the welfare analysis) –Med Countries: New tomatoes ( t) and citrus (60.000t) quotas are completely filled other vegetables quota overfilled already in baseline, TRQ increases hence raise rents not quantities Agricultural increase by 30 Mio €, -30 Mio € consumer

CAPRI WP 6: CAPRI, Eu-Med Agpol 3rd meeting, 18th-19th May 2006 Montpellier Conclusions Changes in results to earlier runs, generally lower impacts as complexity of EU border protection and preferences is better represented Compared to what is stake in the WTO, the current proposals for EU-MED liberalisation will change almost nothing for EU agriculture as a whole Even limited impacts in those markets where the liberalization occurs (Tomatoes etc.): –Supply response from Med to low?  integration of TASM/MOR-CGE results, integration of WP5 findings –Price/quantity framework in the reference run

CAPRI WP 6: CAPRI, Eu-Med Agpol 3rd meeting, 18th-19th May 2006 Montpellier Thanks for your attention !