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Digital image: the slide represents the difference of temperature between 13h universal time and 1h universal time on agricultural plots in the Beauce region of France (large differences in yellow). © INRA, Paul BOISSARD

Research for the future of the CAP

The CAP and world trade

The CAP has an influence on international markets for agricultural products. As such, it must be compatible with WTO rules. The task of INRA is twofold: to study the future of the CAP with current and future WTO trade rules in mind, and to understand the links between trade and development.

Cattle in Ethiopia. © INRA
Cattle in Ethiopia © INRA

The definitive inclusion of agriculture in both the liberalisation process and the creation of the WTO is the outcome of the 1994 Marrakech Agreement which concluded the Uruguay Round of negotiations. Since then, all trade – agricultural and otherwise – is subject to rules based on three areas:  domestic support, export competition and market access. A new round of talks began in Doha in 2001 which is still underway. On the table are limits on coupled aid and market support aid, the elimination of export subsidies by 2013, and a significant reduction of the highest import tariffs, which could increase imports in Europe.

Measuring the effects of a future agreement

Researchers at INRA Rennes developed an international agricultural trade model to assess the impact of proposals for European agriculture (EU-15). European corn, sheep meat, beef and poultry would be the markets most heavily affected by an increase in imports. Extensive beef production (based on suckler cow herds) faces particularly stiff competition from countries like Brazil; this despite the numerous environmental benefits of this sector, which relies on grazing. Similarly, European exports of sugar, meat, poultry, dairy products and barley would suffer without export subsidies. Farming incomes and added value would drop and many jobs would disappear within the sector. As the authors point out, however, results are based on several uncontrollable factors including changing world prices, exchange rates and eating habits in China.

With respect to domestic support, Jean-Christophe Bureau and Jean-Pierre Butault have shown that the EU could tolerate a 70% decrease in coupled aid levels without considerable changes to the CAP. Any further decrease, however, could prevent the EU from supporting a specific sector in the event of a major crisis. One of Europe’s biggest challenges is to defend the legitimacy of decoupled aid, sometimes accused of distorting markets despite opposite claims.

Effects on developing countries

In partnership with the CEPII (1), INRA developed MIRAGE-AGRI, a mathematical model of international trade capable of quantifying the effects of a future WTO agreement by looking at tariff preferences and on the import tariffs actually being implemented. This model, used by the European Commission in trade negotiations, highlights a negative effect of agricultural trade liberalisation on development in developing countries: by lowering import tariffs worldwide, the agreement would reduce the preferential margin granted to the poorest countries for their exports in order to compete with other developing and industrialised countries.

Overall, the MIRAGE-AGRI model indicates that effects vary greatly depending on the country. Generally, Cairns Group countries would see their exports increase the most, at the expense of Europe and of countries granted preferential tariff treatment. Australia and Brazil would increase exports to African markets, the Caribbean and Andean States. Sub-Saharan Africa and Mediterranean countries would be worse off: by paying more for food, consumers would lose more than producers would gain. In contrast, several Asian and South American countries would benefit from liberalisation. In its statutes, the WTO recognizes the importance of more flexible rules for developing countries. For the moment, however, the trade organisation does not distinguish clearly enough between developing countries to satisfy Doha Round development goals. In addition to the predictive capabilities it presents, modelling can be used to design a preference system that creates a strong link between trade expansion and development.

Glossary:
Tariff preferences: Europe applies lower import tariffs on the world’s poorest countries. This allows the 49 Least Developed Countries (LDC) to export all their agricultural production to Europe without tariffs or quotas.
Cairns Group countries: A coalition of 19 agricultural exporting developing and developed countries in which the agricultural sector is largely unsubsidised (e.g. Brazil, Argentina, Canada, Australia, South Africa).

(1) CEPII: The French Centre for Research and Studies on the World Economy, Paris

Contact(s)
Scientific contact(s):

Associated Division(s):
Social Sciences, Agriculture and Food, Rural Development and Environment.
Associated Centre(s):
Versailles-Grignon, Grand Est - Nancy