1

Cal-Med Consortium Workshop

Domestic Policies and Mediterranean

Products

Washington - December 7 and 8, 2006

Domestic Policy Reform in the EU: What is Ahead for

Fruit and Vegetables?

Antonio Cioffi

University of Naples

2

Introduction

The process of reform of the CMOs of fresh and processed F&V started with documents by the main EU institutional bodies.

At the moment a CMO reform proposal for F&V has not yet published.

In May 2006 the Commission published a Consultation document toward the reform of fresh and processing F&V sectors, which addressed the main problems and identified the reform objectives.

3

Reform objectives

Objectives of the F&V CMOs reform according the Consultation document:

better distribution of the value along the chain; to increase F&V consumption; to make the CMOs consistent with the reformed

CAP; to reduce income instability due to market

crises; to improve the environmental sustainability of

F&V production in the EU.

4

Outline

The presentation will discuss:

the support system of fresh and processed fruit and vegetables after the 2000 CMO reform

internal and external effects of the CMO for fresh fruit and vegetables

internal and external effects of the CMO for processing tomato

key issues related to possible changes in the F&V CMOs within the process of CAP reform

5

The fresh F&V support system within the EU

After the 1996 reform the CMO is based on: • POs (co-financed by EAGGF and producers) as the

main instrument for intervention on the internal market;

• External protection through tariffs:– for the most important products also entry prices and

maximum tariff equivalent; – preferential trade agreements.

• Export subsidies for the most important products.

External protection in a net importer generates market transfers to producers.

6

The effects of EU fresh F&V support system (1)

Market support estimated using export prices

1993-94 1997-98 1993-94 1997-98

Tomatoes -39.8 4.7 -225 28

Oranges 139.2 134.1 772 805

Lemons 151.0 146.7 220 515Table grape 144.1 275.2 265 778

Apples 106.1 46.3 998 396

Peaches 78.7 227.4 331 725

Total 2360 3247

Unit-MPS MPS

€ per ton Millions €

7

The effects of EU fresh F&V support system (2)

1993-94 1997-98 1993-94 1997-98

Tomatoes 54.3 20.5 344 149Oranges 132.8 52.5 754 301Lemons 163.0 48.1 228 80Table grape 58.4 24.5 110 51Apples 96.6 28.8 928 256Peaches 60.4 26.6 261 87

Total 2625 925

Market support estimated using unit export subsidies

€ per ton Millions €

Unit-MPS MPS

8

The effects of EU fresh F&V support system (3)

PSE in the EU (million €)

PSE %PSE PSE %PSE PSE %PSE

Wheat 10717 46 9933 44 12855 56Corn 2181 34 2396 35 2578 44Other grains 8450 58 8141 55 9446 68Rice 267 27 208 21 303 29Oil seeds 2872 48 3153 49 3260 49Sugar 1806 38 1828 36 1855 46Milk 19908 53 18994 50 21378 57Beef and veal 18341 53 19192 55 20815 62Sheep meat 5546 65 5769 64 5287 65

Fresh F&V (A) 3616 24 3095 21 3591 23Fresh F&V (B) 1228 8 1202 10 796 7

Source: OECD (1999) and our estimations

1996-98 1997 1998

9

The processing tomato support system within the EU

The 2000 CMO reform:• established a 34.5 €/t production subsidy paid

through POs;• abolished processing tomato minimum price and quota

rights assigned to processing industry;• introduced an 8.25 million t ceiling to processing

tomato subsidy (of which: Italy 4.35 t, Spain 1.24 t);• national ceilings can be re-distributed among EU

producing countries.

Export subsidies to canned tomato in cans larger than 3kg within a 42,477 t ceiling.

14.4% tariff unless preferential agreement and the duty drawback regime (TPA).

10

The effects of 2000 CMO reform

• The abolishment of quotas contributed to:– push towards restructuring of the tomato industry. – improvement of the ability of the tomato industry to

diversify production.• Better relationships within the tomato industry because

of the increased role of POs. • Strong increase in processing tomato production

expecially in Spain (and Portugal), and in Italy, due to yield increases.

• Increase of EAGGF budget expenditure from 280 Million euro in year 2000 to 395 Million euro in 2005.

• Lower farm gate prices for processing tomato • Increased EU shares of the world trade

(notwithstanding the evaluation of Euro and the TPA regime. Preferences seem to have played a minor role).

11

The processing tomato industry in the main producing countries

Processing tomato world production is mainly located in the US, EU (Italy and Spain), China, Turkey.

Processed tomatoes are consumed around the world, with high figures in Europe, Africa e Middle East, America.

Tomato industry in the three main producing countries is highly diversified:

• China is export oriented• US self sufficient and domestic market oriented• EU is involved both in production for the domestic

market and trade.

US and China industries have lower production costs than EU. EU competitiveness depends on the support.

12

The distributive effects of the CMOProcessing tomato production costs vary according to farm size. Given current prices, no farm could cover the costs without the subsidy.

Land rents for processing tomato are rather high (1,500-2,000 €/Ha in Piacenza province and 1,500 €/Ha in Foggia).

Innovations in harvesting substituted labor with capital. However this innovation has not been spread uniformly. Labor supply is highly elastic and wages are low in the South.

After the 2000 CMO reform processing tomato industry benefited from lower tomato prices. However, the economic performance of tomato industry shows only limited increase in profitability, mostly due to better financial management.

Among the gainers there are the large scale retailing chains (LSR) that are the main marketing channel. Private LSR labels are widely diffused.

13

The distributive effects (2)

Also POs can be inluded among the beneficiaries. For many of them the activity is limited to:

Intermediation between tomato producers and processing industry;

distribution of subsidy among tomato producers.

14

Key issues of changes to the CMOs within the process of CAP reform

An important point in the reform design is the integration of F&V subsidies in the SFP (decoupling).Actually within the CAP:

- only processed F&V get production subsidies;- fresh F&V do not receive subsidies; - F&V area is not eligible for SFP rights unless Member

States adopted the regionalization of the decoupling.

The inclusion of tomato (and other processing F&V) subsidies in the SFP has to afford:

- the eligibility to the SFP on F&V area;- the restructuring of F&V processing industry.

15

Possible effects of decoupling in the EU tomato industry

Decoupling should induce an increase in processing tomato and processed tomato prices.

Small farms might find not profitable to continue tomato production.

Sunk costs (higher in small farms) could slow down their exit

Land rent should decrease (however not enough to compensate for the lower revenues).

Effects on the price of other factors (i.e. labor) should be negligible.

Higher costs might push less efficient processors out of business (mainly in the canned tomato industry).

This might cause lower employment in sensitive areas of Spain and Southern Italy.

Reduced incentives for farmers to join POs might have negative effects on vertical coordination within the industry.

16

Final remarks

Decoupling of processing tomatoes seems unavoidable:

- farming systems producing tomatoes often are also involved in crops already decoupled (sugar beet, cereals, oil seeds);

- WTO consistency.

Decoupling would:- accelerate the structural adjustment processes in the

whole industry that probably need to be guided;- increase the difference between farmers with/without

SFP rights.

Partial decoupling wouldn’t:- give the benefits of the regime simplification;- avoid structural adjustment processes.

17

Share of the EU on trade of processed tomato

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

%UE exp (total) %UE imp (total) %UE exp (peeled)

%UE imp (peeled) %UE exp (paste) %UE imp (paste)

18

Share of the EU on world production of processing tomato

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

1997 1998 1999 2000 2001 2002 2003 2004 2005

% tomato production % tomato for paste

% tomato for peeling % other processed tomato

19

Quantity produced of processing tomato 2004-05 (000 t)

2004 2005 media 2004/05

Spain 2,200 2,850 2,525France 221 157 189Greece 1,200 850 1,025Italy 6,400 5,300 5,850Portugal 1,180 1,000 1,090Tunisia 743 735 739Turkey 1,750 1,626 1,688California 10,589 8,706 9,648US 11,076 9,256 10,166Canada 590 590 590China 4,200 2,800 3,500Brasil 1,399 1,100 1,249Chile 720 756 738Argentina 405 360 383Australia 320 317 319World 34,680 29,836 32,258

Source: Tomato news

20

Pop° 2002 per-capita Total % (X 1 000) (kg) (1000 TM) world

Total EU-25 453,772 17.3 7,859 29.1%Other Europe 310,065 6.4 1,983 7.4%Total Europe 763,837 12.9 9,842 36.5%Africa & ME 160,949 14.4 2,325 8.6%Asia Pacific 2,964,506 0.8 2,269 8.4%

US, Canada, Mexico 424,274 25.8 10,927 40.5%South America 332,528 4.9 1,613 6.0%

Northern emisphere 4,104,196 6.0 24,778 90.9%Southern Emisphere 541,898 4.1 2,198 8.1%

TOTAL 4,646,094 5.8 26,976Source: Tomato news

2002/2003

Word consumption of processing tomato

21

EU US China

Tomato production (000 t) 10441 9256 2800Acreage (Ha) 155980 114649 58600Yield (t/Ha) 67 81 48Tomato for paste (000 t) 6248 7668 2800Tomato for canning (000 t) 1653 1588 -Tonato for other products (000 t) 2540 - -Tomato farms > 10000 350°° -Processing industries 291 18°° 25P-c consmption (kg)° 19 33 -Imports (000 $) 112190 21801 1121Esports (000 $) 503978 127787 307551Balance (000 $) 391788 105987 306430Normalized balance 0.64 0.71 0.99° 2002/2003 for the EU.°° California

The tomato industry in the EU, US and China (year 2005)

22

Country RegionPrices at the

processing plant gate

TransportationPrices at the

farm gate

US California 62 6 56Italy Napoli 94 18 76Italy Piacenza 70 6 64Spain Extermadura 66 3 63China Xinjang 34 2 31

Year 2003/04, US $

Source: Tomato news

Prices at the plant gate, transportion costs and prices at the farm gate

23

Share % of TPA on EU trade of processed tomato

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Total Imports Total Exports Imports of paste Exports of paste

24

EU TPA imports for country (000 €)

0

10000

20000

30000

40000

50000

60000

70000

80000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Mexico

Iran

Cile

Jordania

Turchia

Stati Uniti

Cina

25

EU TPA exports for country (000 €)

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Congo

Angola

Russia

Libia

Ghana

nigeria

Benin

26

Utilizzazione della produzione di pomodoro da industria nei paesi dell'UE

1997 1998 1999 2000 2001 2002 2003 2004° 2005°

Spagna

concentrati 712000 826875 1090714 967505 1074982 1234265 1368721 1724976 2234629

pelati 117000 147729 159743 118076 78212 57391 62254 78458 101638

altri 162000 207737 253896 233345 319030 296020 314664 396566 513733

Francia

concentrati 219471 248705 278942 244663 247365 186426 187490 186290 126207

pelati 25068 28101 29663 23160 8600 9686 12940 1370 1615

altri 41461 51216 53809 46146 52800 44712 42306 33739 29604

Grecia

concentrati 1133779 1199376 1181810 1005326 887000 789449 897496 1083084 773500

pelati 14081 15833 14797 11529 10400 3683 6061 5938 4250

altri 35009 46554 49015 45586 42000 68114 80803 98570 72250

Italia

concentrati 1836346 2185694 2403153 2199714 2042000 1669293 2013495 2368000 1908000

pelati 1006970 1224555 1295767 1255917 817000 1145512 1334008 1600000 1537000

altri 822026 1073671 1315330 1389725 1940000 1513465 1968936 2432000 1855000

Portogallo

concentrati 760747 952735 956775 821750 887000 784217 830755 1134303 961274

pelati 188 996 4462 2659 4900 0 6549 8942 7578

altri 10770 34182 35289 30247 24700 17804 26919 36755 31148