EU Agriculture and Trade Policy in the Midst of Financial Turmoil


The ongoing government financial crisis in Greece has kept the European Union (EU) in the news lately as fears have grown that the crisis has already spread to Portugal and Spain and maybe Italy. U.S.-EU agricultural trade is somewhat unique in that much of the trade is in further processed products that are not affected much by short-term economic turmoil, but also are not essential consumption items. The EU is also preparing for changes in its Common Agriculture Policy (CAP) in 2013 and financial problems could influence policy options.

U.S. agricultural exports to the EU in calendar year 2009 totaled $7.46 billion with tree nuts the largest category at $1.28 billion followed by soybeans and products at $1.0 billion. Fruits, vegetables and juices were the third largest at $822 million and wine and beer at $386 million was the fourth largest. The top six items were rounded out by tobacco at $370 million and planting seeds at $287 million. Red meat exports were $239 million and poultry meat $146 million. Wheat was the largest grain export at $157 million.

Imports by the U.S. from the EU in 2009 were almost twice as large as exports at $13.44 billion. Beer and wine were the largest category at $4.21 billion, followed by essential oils (concentrated aroma compounds from plants) at $1.89 billion and cheese and other dairy products at $995 million. Fruits, vegetables and juices at $844 million were the fourth largest import followed by vegetable oils at $808 million and snack foods at $794 million. Red meat imports from the E.U. totaled $297 million. The Foreign Agriculture Service (FAS) of USDA currently projects U.S. imports from the EU for fiscal year 2010 (October 1, 2009 – September 30, 2010) at $14.0 billion and U.S. exports to the EU at $7.8 billion.

The worldwide economic slowdown has had an impact on EU exports with beer and wine exports to the U.S. in 2009 having a 20.6 percent decline from $4.95 billion in 2007 and $5.03 billion in 2008. Worldwide EU wine exports on a dollar value basis declined by 17 percent according to the U.S. Agricultural Attaché in the EU with the U.S accounting for 32 percent of the exports on a dollar value basis. France, Italy and Spain account for almost 80 percent of the EU wine production, and the EU accounts for almost two-thirds of the world’s wine production. The U.S. accounted for 12 percent of the wine imported into the EU in 2009.

While the EU is treated as one entity for trade purposes it is 27 individual countries with varied economic histories and time in the EU. Greece joined the EU in 1981. The original six members, Belgium, France, Italy, Luxembourg, the Netherlands and West Germany, created what is now the EU in 1957. Spain and Portugal joined in 1986. Eight countries that were part of the old Eastern European block joined in 2004 and another two joined in 2007. According to the World Fact Book from the CIA, the EU had 491.6 million people as of July 1, 2009 with a GDP on a purchasing power parity basis of $14.5 trillion in 2009 compared to the U.S. at $14.3 trillion.

The CAP applies to all countries and is the original program to be administered EU wide, but agricultural conditions vary greatly by country, particularly now with 27 countries. According to data on the website of the Economic Research Service of USDA, after the latest EU enlargement in 2007, the average farm size is now 34.1 acres with a range of 171 acres in the United Kingdom to 7.2 acres in Hungary. The average farm size in the pre-2004 EU-15 was also a relatively small 46.2 acres. The smallest farms are generally in the countries which are the least advanced in the non-agricultural economy. The CAP is viewed as a success for strengthening agriculture and assuring consumers of an adequate food supply in all of the EU countries, but also led to surpluses for many products that were exported at subsidized prices.

The CAP underwent a series of reforms beginning in 1992 to make it more market oriented to reduce surpluses and align it with trade policies of the former General Agreement on Tariff and Trade and since 1995 the World Trade Organization. The EU member states agreed in 2003 to limit the growth in CAP spending to one percent per year for 2007 through 2013. The members are now preparing to discuss what will be the budget parameters after 2013 and the underlying market policies. Under its everything-but-arms import policies the EU is committed to increased imports of agricultural products from developing countries, while tariffs limit access for developed countries like the U.S. Sanitary and phyto-sanitary rules restrict access for all importers. In the Doha Round of WTO trade policies negotiations the EU has agreed to eliminate export subsidies by 2013. While the talks remained stalled, any agreement is likely to include the subsidy ban.

Crafting new CAP policies that protect farm incomes while encouraging agricultural reforms in the new members of Eastern Europe and meeting the EU’s international obligations in a time of slow market growth and limited government revenue is a huge challenge. In the pre-2008 world of growing domestic and world markets and increasing government revenues, new policies built on the existing CAP structure may have been possible, but is not likely under the current economic conditions.

By the end of this year the European Commission will release a policy paper describing the different options for the CAP after 2013. Dacian Ciolos, recently appointed Commissioner for Agriculture and Rural Development, spoke to the European Parliament on the need for a public debate on the next CAP. He called for this debate not because he is opposed to continuing the CAP, but because he sees the political need to explain the role of the CAP beyond just farmers and how it can have a part in the “Europe 2020” strategy released by the Commission in early March in response to the economic crisis. Commissioner Ciolos said the need is to focus on the wider issues of the “forest” rather than technical details. He also acknowledged that the EU agriculture is not homogenous.

Integrating agricultural policy into the broader economic policy context is more challenging in the EU than in the U.S., Japan or other developed countries. How that is done in the EU between now and 2014 will impact agricultural trade for the U.S. and rest of the world.

Ross Korves

Ross Korves

Ross Korves served Truth about Trade & Technology, before it became Global Farmer Network, from 2004 – 2015 as the Economic and Trade Policy Analyst.

Researching and analyzing economic issues important to agricultural producers, Ross provided an intimate understanding regarding the interface of economic policy analysis and the political process.

Mr. Korves served the American Farm Bureau Federation as an Economist from 1980-2004. He served as Chief Economist from April 2001 through September 2003 and held the title of Senior Economist from September 2003 through August 2004.

Born and raised on a southern Illinois hog farm and educated at Southern Illinois University, Ross holds a Masters Degree in Agribusiness Economics. His studies and research expanded internationally through his work in Germany as a 1984 McCloy Agricultural Fellow and study travel to Japan in 1982, Zambia and Kenya in 1985 and Germany in 1987.

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