Impact on International Trade 29th November 2009 European Economic Integration, Institute of economic studies T HE C OMMON A GRICULTURAL P OLICY

E XPORT SUBSIDIES

I MPACT ON INTERNATIONAL TRADE  Lower export subsidies  Higher direct payments

I MPACT ON INTERNATIONAL TRADE  EU prices closer to world prices  International agricultural trade liberalization  Fall in cereal prices by 50%  Fall in income of African countries, which were making profits on selling goods to Europe (under Lomé convention)  An increase in the export price competitiveness of basic EU food and agricultural exports for African countries

F URTHER REFORMS  The Agenda 2000  “multi-functionality” of farming activities  The reform in 2003  A reduction in direct payments for bigger farms to finance the new rural development policy  CAP “Health Check“ 2008  Increase of milk quotas,...

„CAP VS. A FRICA “ CASE  African exporters seem to be sensitive to EU reforms  Pros and cons of CAP reforms (from African point of view)  Future prospects

P ROS AND C ONS +  Large food surpluses exported to Africa as a food aid (before Mac Sharry)  Certain African (sugar) exporters profited from Lomé convention (€500 mil. in 99/2000) —  2001: free access to the market granted to the least developed countries under „Everything Buts Arms“ initiative. Problem? – sugar, rice and bananas excluded  After Mac Sharry reform, EU price reductions drove some African exporters out of the EU market  Undermining of African markets by price-competitive EU goods (wheat) – „markets of last resort“  EU policy emphasis shift – „from quantity to quality“

lower value food higher value food QlQl QhQh PPF S ITUATION WHEN A FRICA REJECTS TO TRADE WITH EU Africa

T RADING SITUATION R ICARDIAN MODEL  Africa has comparative advantage in producing lower value food lower value food higher value food AfricaEU higher value food lower value food PPF IAIA I FT TT QlQl QHQH QHQH QHQH I FT IAIA P A = C A P FT C FT P A = C A P FT C FT

F UTURE PROSPECT  African exporters:  lower value food and agricultural products distributors  European exporters:  higher value food and agricultural products

C ONCLUSION  Trend in reforms of CAP – lower direct payments  Decoupling:  ↑ economic prosperity  ↓ negative impacts on the environment  From import levy to direct subsidies – before and after Mac Sharry reform  Africa has to trade with lower value food

Petra Andrlíková Radovan Parrák

REFERENCES  Institure for Agriculture and Trade Policy: The Common Agricultural Policy: A Brief Introduction, Prepared for the Global Dialogue Meeting (May 14 and 15, 2007, Washington, D.C.)  European Economic Policies: Common Agricultural Policy; Laurent Weill: Université de Strasbourg, Charles University - Prague, April 2009  Policy Notes 2009/7: The Impact of Common Agricultural Policy (CAP): Reformon Africa-EU Trade in Food and Agricultural Products 