EU Common Agricultural Policy - Impacts on Trade with Africa and African Agricultural Development
Creators: name: Kornher, Lukas
name: Von Braun, Joachim
name: Kornher, Lukas
name: Von Braun, Joachim
Publisher: name: Unknown
Year: 2020
Subjects: subject: Agricultural and Food Policy
subject: International Development
subject: International Relations/Trade
subject: post-2020 CAP
subject: agricultural development in Africa
subject: EU-Africa trade

description: Motivations and Aims of the Study This study is prompted by the pending further development of the Common Agricultural Policy (CAP) after 2020 and the consideration that, in the context of this potential change of EU agricultural policy, greater emphasis should be laid on African development, besides environmental, climate, health and distributional aspects. The aim of this study is to shed light on the impacts of European agricultural and trade policies on agricultural development in Africa, and the coherence of EU policies with development policy objectives. The consequences of Coronavirus controlling attempts that include border closures and market shut downs in both Europe and Africa have highlighted the key role of trade and market policies for development. The decision to establish the African Continental Free Trade Area (AfCFTA) provides another important reason to revisit EU – Africa trade policy relations in the important fields of food and agriculture. With a total volume of 400 billion euros for the 7-year budget period, which currently represents about 36% of the total budget (EU28), CAP spending is the largest expenditure item in the EU budget. Total EU development expenditures for Africa amount to about one-tenth of that, and the share for agricultural development and food security is only about 2% of the EU agricultural budget. In view of the goal to establish coherence between the agricultural and development policy of the EU, and in view of the high risks for food security in Africa due to the economic consequences of COVID-19, this budget imbalance must not be ignored. Moreover, Africa's opportunities and problems are becoming increasingly relevant for the EU, future EU policy should be examined whether they benefits Africa's agricultural development. This includes investment in sustainable agricultural productivity, infrastructure, and institutions that are conducive to trade. Common Agricultural Policy post-2020 On June 1, 2018, the European Commission presented the draft legislation on the future of the CAP for the period after 2020. It provides for a small reduction in the total volume of agricultural subsidies for its now 27 Member States. The proposal is based on higher ambitions with regard to environmental protection and climate change through mandatory ecological programs and an enhanced linkage of direct payments to the greening rules. A stronger environmental orientation is also considered very likely among the experts interviewed for this study. However, the draft also envisages changing the green architecture of the CAP and giving Member States greater freedom in achieving the targets set out in national strategic plans. This flexibility could lead to an increase in the use of coupled subsidies in some Member States, which in turn would increase export surpluses for some agricultural products. This could lead to renewed incoherence with agricultural development policy. Effects of European agricultural and trade policy in Africa Trade policy: In its present form, the CAP continues to promote food exports. In 2018, wheat (€3.3 billion), meat (€1 billion), dairy products (€1.7 billion) and processed food (€6 billion) were the main EU exports to Africa. Among these goods, the share of Africa’s imports from the EU ranges from 25% (meat) to 44% (dairy products). In the current debate on CAP adjustments, effects on developing countries have so far played a minor role, although the EU describes coherence with its development policy objectives as an important element of its policy. There is widespread agreement that, in the past, coupled subsidy payments, export refunds, and direct market interventions have made a major contribution to increasing agricultural production in the EU and have led to the EU’s increased export surplus. Low-priced food imports have weakened the agricultural sectors of African countries in the long-term and hindered the development of competitive agricultural production. These earlier effects cannot be corrected in the quickly because agricultural productivity depends on long standing favorable framework conditions and long-term investments in innovation. Regulatory framework: Although African raw agricultural material exports to the EU are largely free of duties under various agreements, processed products are only free of duties if it can be ruled out under the "country of origin" principle that components of the final good were imported from a third country. The proof of origin requires a list of the production stages and ingredients as well as their origin. This condition often makes it difficult for African exporters to export processed agricultural products to Europe, hindering the creation of regional value chains. De-bureaucratized regulations (supported by advice from development cooperation) should create flexibility if the majority of the ingredients originate from the partner country or the respective regional economic zone. Social and hygiene standards for goods imported into the EU are necessary but must be transparent. According to EU regulations, social standards must comply with the principles of the International Labour Organization (ILO). However, currently, these are not implemented consistently. It would be helpful if the EU provided more support to improve standards in Africa; otherwise, the export potential of African countries cannot be fully exploited. This should also include capacity strengthening in Africa to check the adherence to health standards of EU food products exported to Africa. Effects of direct payments: Direct payments to EU farmers continue to account for up to 50% of total farm income in the EU. As shown by the model simulations, a reduction in direct payments is not expected to have a significant impact on food production in Africa in the short-term because the decline in imports from the EU will largely be offset by imports from other world regions. In the long term, however, this could be different, as European agricultural enterprises may partly be kept in production locations by the direct payments where they would not be able to survive without these subsidies. Furthermore, the direct payments allow investment decisions that increase the productivity of variable production factors. The current EU agricultural subsidy policy hampers the development of African agriculture much less than it did before export subsidies and coupled subsidy payments were largely abolished. Meat case study: African countries on average import around 20% of meat products, a quarter of which come from the EU. Poultry accounts for the majority of African meat imports, with poultry parts accounting for three-quarters of African poultry imports from the EU. However, the European poultry sector benefits little from subsidy payments and European producer prices are relatively high in international comparison. The low export prices of poultry parts are a result of the low demand for these products in Europe and not a consequence of the CAP. This also means that a reduction of EU poultry exports through political measures (and the associated higher prices) would primarily burden consumers in Africa. Dairy products case study: Many countries in North and West Africa are heavily dependent on milk powder imports, some of which exceed domestic production multiple times. The CAP has far-reaching impact in the dairy market. Following the abolition of the milk quota, European milk production has continued to increase, although low European producer prices are supposed to reduce the incentive to do so. However, dairy farms in the EU still benefit from income support. Direct payments, as well as coupled subsidies (in some Member States), provide incentives for investing in productivity-enhancing technologies, and in this way positively affect milk production. In addition, the EU provides a safeguarding against price risks through support purchases of milk powder,1 which are re-supplied to the market below world market prices. On the other hand, in some African countries, the (proportional) production costs are lower than in European countries. At present, however, these African countries are not able to meet the rapidly growing demand for milk products on the continent. Investments in local value chains and improved infrastructure would increase African productivity and intra-African trade could gain in importance. Effects of CAP environmental orientation: According to the expert consultation carried out for this study, a stronger environmental and climate orientation of the CAP, which takes into account the indirect effects of intensive agriculture on the environment and climate, would have a dampening effect on European agricultural exports to Africa. In the model simulation, the implementation of the European Nitrate Regulation leads to a reduction in livestock farming and alters European meat production. As a result, European exports (especially of pork) to Africa would decrease by 33-52%, and European exports of dairy products by about 5-7%. However, this reduction in European exports would probably be mainly absorbed by other exporters, resulting in largely unchanged African meat consumption. Preliminary conclusions on CAP reform and trade policy with Africa i) The increased return to coupled subsidy payments and support prices now being considered in some EU countries, as already begun in 2013, is inconsistent with the objectives of the EU’s 1 Between January 2018 and June 2019, 380,000 tonnes of milk powder were sold from the intervention stock, which is about 50% of the 2018 export volume to Africa. development policy and should, therefore, be limited. Otherwise, there is a risk of increased unfair competition with Africa. ii) The more targeted linking of agricultural subsidies to environmental and climate regulations increases the costs of agricultural production in the EU, especially in livestock farming, and could be expected to reduce the EU's production and export surpluses. This would create local incentives in Africa to invest in domestic agriculture. iii) Extensive open market access to the EU for African agricultural products, in particular also processed food, without tariff escalation, shall be facilitated. Concession of result-oriented, long transition periods, and trade policies allowing for the protection of African agriculture (i.e. granting further scope to protect key agricultural industries beyond 2035) before African markets are fully opened shall be considered. iv) In a future strategic EU – Africa trade agreement adapted to AfCFTA, trade preferences should be transferred to such an agreement. In addition, "Aid for Trade" programs should be maintained regardless of the FTAs. v) New opportunities for direct digital trade in agricultural and food products from Africa should be facilitated, promoted and increased to create value addition in processed products (cocoa, tea, coffee) in decentralized rural areas. vi) Appropriate quality, health, environmental and social standards of agricultural and food products traded in and with Africa should be developed further together with African partners. Employment effects should be taken into account. The EU should provide support on improving these standards in Africa, e.g. through "Aid for Trade" programs, as African export potential would otherwise not be fully exploited. vii) Simplification of origin rules (supported through consultation with trading partners) should provide scope for flexibility, provided the majority of the ingredients originate in the partner country or regional economic area.