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

Tariffs applied by →EU25USAsia developed Cairns developed Applied to ↓ EU US Mediterranean Sub Saharan Africa Cairns developing China South Asia Rest of World Average EU agricultural tariff barriers

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 winnersCountry losers ProtectionNet importers Low income countries High income resource exporters Agric exporters PreferencesPreference 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 short- term 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 intra- household 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