1. The EU’s CAP and the likely impact of a Doha Agreement
Lecture 24.
Economics of Food Markets
Alan Matthews

2. Why focus on Doha? Composition of operating surplus in agriculture
Premia and arable
aid
Market returns
Rural development
payments
500
1000
1500
2000
2500
€ million
Decoupling
WTO reduced protection

3. Export Subsidies
January 2003: EU initially offered to reduce aggregate expenditure limits by 45%
but in 2001/02 only used 35% of entitlement
In July 2004 Framework Agreement, EU signed up conditionally to full elimination
Importance of ‘credible date to be agreed’
Blair has called for end by 2010
It may be that policy change will eliminate the commodity export surplus: but what about Non-Annex I goods, i.e. the food industry?

4. Domestic support – EU situation 2001 (before Mid-Term Review)
Amber Box
US dollars
Bound AMS
65,383
Market Price Support
25,085
Direct Payments
12,117
less De Minimis
411
Current AMS
36,791
Degree of AMS Overhang
44%
Blue Box
$ Millions
21,262
% Value of Agricultural Production 7%
Green Box
19,452
Overall Distorting Support (ODS)
Bound ODS
87,056
Current ODS
58,464
Degree of ODS Overhang
33%

5. Market access Effect on tariff cut on beef price
EU support price (basic intervention price)
€2,224
Estimated world market price
€1,200
Current EU import tariff
€1,922
Possible tariff cut which does not impact on EU market price (tariff overhang)
40%

6. Market access Effect on tariff cut on beef price
EU market price
€2,700
Estimated world market price
€1,200
Current EU import tariff
€1,922
Possible tariff cut which does not impact on EU market price (tariff overhang)
16%

7. Market access Effect of tariff cuts on butter prices, €/tonne
Unfavourable world market
Favourable world market
EU market price (2008)
€2,247
Estimated world market price
1,170
1,575
Current EU import tariff
1,896
Possible tariff cut which does not impact on EU market price (tariff overhang )
36%
54%

8. Market access Effect of tariff cuts on SMP prices, €/tonne
Unfavourable world market
Favourable world market
EU market price (2008)
1,782
Estimated world market price
1,650
1,800
Current EU import tariff
1,118
Possible tariff cut which does not impact on EU market price (tariff overhang )
55%
64%

9. Effect of tariff cuts on white sugar price
EU support price (based on Commission July 2005 reform proposal)
€386
Estimated world market price
€210
Current EU import tariff
€419
Possible tariff cut which does not impact on EU market price (tariff overhang )
63%