The major findings of the MTR impact studies
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CTA. 2003. The major findings of the MTR impact studies. Agritrade, February 2003. CTA, Wageningen, The Netherlands.
Permanent link to this item: http://hdl.handle.net/10568/52419
In its executive summary to its report on 'Impact Assessment of the Mid-term...
"In its executive summary to its report on 'Impact Assessment of the Mid-term Review Proposals on Agricultural Markets and Farm Incomes 2004-2009' the European Commission highlights that the mid-term review proposals would lead to: a reduction in the area under cereals by around 2.5%; a constraining of cereal production; lower production and higher domestic prices for cereals; a 25% decline in cereals stocks; a decline in beef production, with increased slaughtering in the short term, followed by declining production and higher prices; a decline in area under silage as a result of declining beef production; a decline in EU beef exports by around 100,000 tonnes; trends in poultry and pig meat production which rise when beef prices rise and fall when beef prices decline. The commission maintains that the MTR proposals will provide greater flexibility and more market orientation to farmers, while guaranteeing a stable income. The distinct impression is created of declining EU cereals production as a result of the mid-term review. This was certainly the conclusion of the Reuters reporter Jeremy Smith in his report of January 10th based on advanced leaking of the main conclusions of the studies when he wrote: 'EU cereals production was also expected to decline as a result of de-coupling and the cut in support prices'. This is an understandable conclusion to draw when the Commission Report on 'Agricultural Markets and Revenues in the EU15 and in the EU-25 using the ESIM Model' in its executive summary states: 'The proposed MTR measures on EU-15 markets would reduce overall cereals production in 2006 from 218 million tonnes in baseline to 210.8 million tonnes in market'. This report further highlights that: rye prices would be significantly lower in the EU-15; barley prices would be between €95-100/tonne; wheat prices will stay above current intervention prices. It is maintained that the application of the 'dynamic modulation' concept would have only limited effects on production, although it would shift production towards higher yielding crops such as soft wheat and maize, which would lead to an increase of 0.9 million tonnes in these crops with the implementation of dynamic modulation. Modulation would however have larger effects in the beef sector, because under the current regime production specific premiums make up a larger proportion of farm revenues. Production would contract in response to the elimination of these premia. Beef production is estimated to be 200,000 tonnes lower with reform than without reform. De-coupling would make production of less competitive cereals such as rye, hard wheat and barley less attractive. In the beef sector de-coupling would lead to a drop in production of 5.7% compared to the no reform scenario, while prices would increase 6.7%. Similar trends would dominate in the EU-25. Using structural models of the EU and world markets FAPRI sought to simulate the impact of the MTR proposals compared to a continuation of existing policies in 2004 and 2009. The key findings are that: for most major commodities the MTR proposals would result in a modest reduction in EU production; it would lead to sharp reductions in marginal production incentives in the livestock sector and significant reductions in cattle and sheep stocks; the major changes for rice and rye would lead to large reductions in market price and carry-over stocks; reduction intervention stocks would lead to small reductions in EU barley prices; EU soft wheat prices would be supported at above intervention price levels by world market prices and the proposed reforms would thus have little effect; after a short transition period the MTR proposals would reduce EU net exports of most other commodities and as a consequence there would be a slight increase in world market prices for a number of commodities. Two other studies, ('Mid-term Review Proposal Impact Analysis with the CAPRI Modelling System' and 'Impact Analysis of the European Commission's Proposal Under the Mid-term Review of the CAP using the CAPSIM model'), using different models, with slight variations, broadly support the findings outlined above. The report by the Centre for World Food Studies (Amsterdam) 'CAP Reform Proposal of the Mid-term Review: De-coupling with Strings Attached' points out that: the current proposals are primarily designed to solve 'the problems in the rye and rice regimes, where substantial surpluses are currently building up'; introduce changes in the way aid is given towards a more de-coupled system. Overall it argues that the new system will establish 'rights to subsidised production, with subsidy rates that are to a large extent harmonised across eligible crops'. Comment: The Commission's presentations of these studies major findings are in certain areas somewhat misleading. The key points to note in this regard are that: the reduction in cereals production is not in comparison to current production levels but in comparison with the baseline scenario which assumes a continuation of current policies until 2009; the figures are for cereals as a whole, with individual products having somewhat different trends, depending on the study. Thus if one disaggregates the effects of cereals-sector reform and looks at individual products in comparison to current levels of production a rather different impression of the direction of EU production under the mid-term review proposals is obtained. Looking at the figures contained in the FAPRI study for example in comparison to the current levels of EU production as set out in the June 2002 edition of the European Commission's 'Prospects for Agricultural Markets 2002-2009' one reaches the following conclusions in the cereals sectors: an 11.3% increase in soft wheat production by 2009 compared to 2002; a 3.2% increase in maize production by 2009 compared to 2002; a 6.2% increase in barley production by 2009 compared to 2002; a 4.6% increase in durum wheat production by 2009 compared to 2002; a 20.1% increase in rice production by 2009 compared to 2002. Only in the rye sector is there a decline in EU production (by 13%) by 2009 compared to 2002. In the livestock sector looking at the figures contained in the FAPRI study for example in comparison to the current levels of EU production as set out in the June 2002 edition of the European Commission's 'Prospects for Agricultural Markets 2002-2009' one reaches the following conclusions: a decline in beef production of 7.4% by 2009 compared to 2002; an increase in pork production of 2.2% by 2009 compared to 2002; a decline in poultry meat production of 0.8% by 2009 compared to 2002. This would be accompanied by the following effects on exports: a decline in beef exports of 14.3% by 2009 compared to 2002; an increase in pork exports of 22.5% by 2009 compared to 2002; an increase of 9.8% in poultry meat exports by 2009 compared to 2002. It should be noted that trends in the pig and poultry sectors are related to developments in the beef sector, with higher beef prices stimulating pig and poultry consumption and lower beef prices leading to a contraction of domestic consumption.