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FAPRI: EU reforms 'modest' impact

Stenholm, ranking minority member of the House Agriculture Committee and a farmer on the Texas High Plains, had requested the study of the impact of the EU reforms of Common Agricultural Policy adopted in June.

By coincidence, the report was released as U.S. trade negotiators and their counterparts from other nations are assembling for a ministerial conference aimed at restarting the Doha Round of WTO negotiations in Cancun, Mexico.

The report, prepared by economists at the University of Missouri and Iowa State University, found that the changes would result in minor changes in "supply, consumption, trade, and prices" for many commodities now being traded between nations.

"For example, EU exports of wheat and coarse grains would fall by about 1 million metric tons," said Pat Westhoff, international trade analyst at MU FAPRI in Columbia, Mo. "Resulting adjustments in both EU and world prices of wheat and corn would be less than 1 percent."

The major change in the CAP reform was a switch from government direct payments tied to production of grain, oilseeds, cattle, sheep, and milk, to a "single farm payment." That payment would not be tied to current production of any commodity on the farm.

The CAP reform features bring the EU agricultural policy into closer alignment with the decoupling of government payments from production levels as the United States has done in its 1996 and 2002 farm bills, Westhoff said.

An overall analysis of the EU reforms is made more difficult by the flexibility provided to individual member states to maintain some proportion of their current farm program payments that are more directly tied to production.

In light of the complexities, the FAPRI economists offer two scenarios in their computer analysis of the possible changes. The "MOST scenario" assumes that all countries choose the maximum possible level of decoupling and concentrate government funding in the single farm payment.

The "LEAST scenario" assumes the minimum permissible decoupling and maintaining as many currently coupled payments as the compromise reforms allow.

It is not known which option each country will choose, so the final impact of the decoupling will likely fall between the extremes, Westhoff said.

The EU Common Agricultural Policy reforms would have the largest impact on the commodities where direct government payments are now most closely tied to production, according to the report.

The FAPRI scenarios examine changes in commodity production through 2012. Under the MOST scenario, EU cattle producers would reduce herds enough to reduce beef production 4 percent, relative to maintaining current policies, by 2012.

On the crops side, the reforms have only a small impact on major cereals and oilseeds. However, acreages of durum wheat and rye would be reduced because of larger policy changes for those commodities.

Under the World Trade Organization rules, farm payments are sorted into three boxes: Amber box, which is most trade distorting; blue box, which can be somewhat distorting; and green box, with little likely impact on trade.

Under the EU reforms, most producer supports currently in the blue box are shifted to the green box. However, the reforms have only a small impact on amber box support, Westhoff said.

The report to Stenholm comes as U.S. trade negotiators prepare to meet with their counterparts in the WTO at Cancun, Mexico. The latest round of ongoing negotiations opens Thursday (Sept. 11). The WTO, formerly known as GATT, develops rules guiding international trade and arbitrates trade disputes.

The trade negotiators were to have a working agreement by March 31. However, that deadline was missed and the countries will meet with many major questions unresolved, Westhoff said. Other trade issues will be put on the back burner until farm trade issues are resolved.

The 15-page report will be available on the MU FAPRI website at after it is delivered to Rep. Stenholm. Duane Dailey is a writer for the University of Missouri.


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