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close this bookBriefs for Food, Agriculture, and the Environment - 2020 Vision : Brief 1 - 64 (IFPRI)
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View the document2020 BRIEF 1 - AUGUST 1994: ECONOMIC GROWTH AND DEVELOPMENT
View the document2020 BRIEF 2 - AUGUST 1994: WORLD SUPPLY AND DEMAND PROJECTIONS FOR CEREALS, 2020
View the document2020 BRIEF 3 - AUGUST 1994: WORLD PRODUCTION OF CEREALS, 1966-90
View the document2020 BRIEF 4 - AUGUST 1994: SUSTAINABLE FARMING: A POLITICAL GEOGRAPHY
View the document2020 BRIEF 5 - OCTOBER 1994: WORLD POPULATION PROJECTIONS, 2020
View the document2020 BRIEF 6 - OCTOBER 1994: MALNUTRITION AND FOOD INSECURITY PROJECTIONS, 2020
View the document2020 BRIEF 7 - OCTOBER 1994: AGRICULTURAL GROWTH AS A KEY TO POVERTY ALLEVIATION
View the document2020 BRIEF 8 - OCTOBER 1994: CONSERVATION AND ENHANCEMENT OF NATURAL RESOURCES
View the document2020 BRIEF 9 - FEBRUARY 1995: THE ROLE OF AGRICULTURE IN SAVING THE RAIN FOREST
View the document2020 BRIEF 10 - FEBRUARY 1995: A TIME OF PLENTY, A WORLD OF NEED: THE ROLE OF FOOD AID IN 2020
View the document2020 BRIEF 11 - FEBRUARY 1995: MANAGING AGRICULTURAL INTENSIFICATION
View the document2020 BRIEF 12 - FEBRUARY 1995: TRADE LIBERALIZATION AND REGIONAL INTEGRATION: IMPLICATIONS FOR 2020
View the document2020 BRIEF 13 - APRIL 1995: THE POTENTIAL OF TECHNOLOGY TO MEET WORLD FOOD NEEDS IN 2020
View the document2020 BRIEF 14 - APRIL 1995: AN ECOREGIONAL PERSPECTIVE ON MALNUTRITION
View the document2020 BRIEF 15 - APRIL 1995: AGRICULTURAL GROWTH IS THE KEY TO POVERTY ALLEVIATION IN LOW-INCOME DEVELOPING COUNTRIES
View the document2020 BRIEF 16 - APRIL 1995: DECLINING ASSISTANCE TO DEVELOPING-COUNTRY AGRICULTURE: CHANGE OF PARADIGM?
View the document2020 BRIEF 17 - MAY 1995: GENERATING FOOD SECURITY IN THE YEAR 2020: WOMEN AS PRODUCERS, GATEKEEPERS, AND SHOCK ABSORBERS
View the document2020 BRIEF 18 - MAY 1995: BIOPHYSICAL LIMITS TO GLOBAL FOOD PRODUCTION
View the document2020 BRIEF 19 - MAY 1995: CAUSES OF HUNGER
View the document2020 BRIEF 20 - MAY 1995: CHINA AND THE FUTURE GLOBAL FOOD SITUATION
View the document2020 BRIEF 21 - JUNE 1995: DEALING WITH WATER SCARCITY IN THE NEXT CENTURY
View the document2020 BRIEF 22 - JUNE 1995: THE RIGHT TO FOOD: WIDELY ACKNOWLEDGED AND POORLY PROTECTED
View the document2020 BRIEF 23 - JUNE 1995: CEREALS PROSPECTS IN INDIA TO 2020: IMPLICATIONS FOR POLICY
View the document2020 BRIEF 24 - JUNE 1995: REVAMPING AGRICULTURAL R&D
View the document2020 BRIEF 25 - AUGUST 1995: MORE THAN FOOD IS NEEDED TO ACHIEVE GOOD NUTRITION BY 2020
View the document2020 BRIEF 26 - AUGUST 1995: PERSPECTIVES ON EUROPEAN AGRICULTURE IN 2020
View the document2020 BRIEF 27 - AUGUST 1995: NONDEGRADING LAND USE STRATEGIES FOR TROPICAL HILLSIDES
View the document2020 BRIEF 28 - AUGUST 1995: EMPLOYMENT PROGRAMS FOR FOOD SECURITY IN SUB-SAHARAN AFRICA
View the document2020 BRIEF 29 - AUGUST 1995: POVERTY, FOOD SECURITY, AND THE ENVIRONMENT
View the document2020 BRIEF 30 - JANUARY 1996: RISING FOOD PRICES AND FALLING GRAIN STOCKS: SHORT-RUN BLIPS OR NEW TRENDS?
View the document2020 BRIEF 31 - APRIL 1996: MIDDLE EAST WATER CONFLICTS AND DIRECTIONS FOR CONFLICT RESOLUTION
View the document2020 BRIEF 32 - APRIL 1996: THE TRANSITION IN THE CONTRIBUTION OF LIVING AQUATIC RESOURCES TO FOOD SECURITY
View the document2020 BRIEF 33 - JUNE 1996: MANAGING RESOURCES FOR SUSTAINABLE AGRICULTURE IN SOUTH ASIA
View the document2020 BRIEF 34 - JUNE 1996: IMPLEMENTING THE URUGUAY ROUND: INCREASED FOOD PRICE STABILITY BY 2020?
View the document2020 BRIEF 35 - JULY 1996: SOCIOPOLITICAL EFFECTS OF NEW BIOTECHNOLOGIES IN DEVELOPING COUNTRIES
View the document2020 BRIEF 36 - OCTOBER 1996: RUSSIA'S FOOD ECONOMY IN TRANSITION: WHAT DO REFORMS MEAN FOR THE LONG-TERM OUTLOOK?
View the document2020 BRIEF 37 - OCTOBER 1996: UNCOMMON OPPORTUNITIES FOR ACHIEVING SUSTAINABLE FOOD AND NUTRITION SECURITY - An Agenda for Science and Public Policy
View the document2020 BRIEF 38 - OCTOBER 1996: WORLD TRENDS IN FERTILIZER USE AND PROJECTIONS TO 2020
View the document2020 BRIEF 39 - OCTOBER 1996: REDUCING POVERTY AND PROTECTING THE ENVIRONMENT: THE OVERLOOKED POTENTIAL OF LESS-FAVORED LANDS
View the document2020 BRIEF 40 - OCTOBER 1996: POLICIES TO PROMOTE ENVIRONMENTALLY SUSTAINABLE FERTILIZER USE AND SUPPLY TO 2020
View the document2020 BRIEF 41 - DECEMBER 1996: STRUCTURAL CHANGES IN THE DEMAND FOR FOOD IN ASIA
View the document2020 BRIEF 42 - MARCH 1997: AFRICA'S CHANGING AGRICULTURAL DEVELOPMENT STRATEGIES
View the document2020 BRIEF 43 - JUNE 1997: THE POTENTIAL IMPACT OF AIDS ON POPULATION AND ECONOMIC GROWTH RATES
View the document2020 BRIEF 44 - JUNE 1997: LAND DEGRADATION IN THE DEVELOPING WORLD: ISSUES AND POLICY OPTIONS FOR 2020
View the document2020 BRIEF 45 - JUNE 1997: AGRICULTURE, TECHNOLOGICAL CHANGE, AND THE ENVIRONMENT IN LATIN AMERICA: A 2020 PERSPECTIVE
View the document2020 BRIEF 46 - JUNE 1997: AGRICULTURE, TRADE, AND REGIONALISM IN SOUTH ASIA
View the document2020 BRIEF 47 - AUGUST 1997: THE NONFARM SECTOR AND RURAL DEVELOPMENT: REVIEW OF ISSUES AND EVIDENCE
View the document2020 BRIEF 48 - FEBRUARY 1998: CHALLENGES TO THE 2020 VISION FOR LATIN AMERICA: FOOD AND AGRICULTURE SINCE 1970
View the document2020 BRIEF 49 - APRIL 1998: NUTRITION SECURITY IN URBAN AREAS OF LATIN AMERICA
View the document2020 BRIEF 50 - JUNE 1998: FOOD FROM PEACE: BREAKING THE LINKS BETWEEN CONFLICT AND HUNGER
View the document2020 BRIEF 51 - JULY 1998: TECHNOLOGICAL OPPORTUNITIES FOR SUSTAINING WHEAT PRODUCTIVITY GROWTH TOWARD 2020
View the document2020 BRIEF 52 - SEPTEMBER 1998: PEST MANAGEMENT AND FOOD PRODUCTION: LOOKING TO THE FUTURE
View the document2020 BRIEF 53 - OCTOBER 1998: POPULATION GROWTH AND POLICY OPTIONS IN THE DEVELOPING WORLD
View the document2020 BRIEF 54 - OCTOBER 1998: FOSTERING GLOBAL WELL-BEING: A NEW PARADIGM TO REVITALIZE AGRICULTURAL AND RURAL DEVELOPMENT
View the document2020 BRIEF 55 - OCTOBER 1998: THE POTENTIAL OF AGROECOLOGY TO COMBAT HUNGER IN THE DEVELOPING WORLD
View the document2020 RESUMEN No. 56 - OCTUBRE DE 1998: AYUDA A LA AGRICULTURA EN LOS PAÍSES EN DESARROLLO: INVERSIONES EN LA REDUCCIÓN DE LA POBREZA Y NUEVAS OPORTUNIDADES DE EXPORTACIÓN
View the document2020 BRIEF 57 - OCTOBER 1998: ECONOMIC CRISIS IN ASIA: A FUTURE OF DIMINISHING GROWTH AND INCREASING POVERTY?
View the document2020 BRIEF 58 - FEBRUARY 1999: SOIL DEGRADATION: A THREAT TO DEVELOPING-COUNTRY FOOD SECURITY BY 20207
View the document2020 BRIEF 59 - MARCH 1999: AGRICULTURAL GROWTH, POVERTY ALLEVIATION, AND ENVIRONMENTAL SUSTAINABILITY: HAVING IT ALL
View the document2020 BRIEF 60 - MAY 1999: CRITICAL CHOICES FOR CHINA'S AGRICULTURAL POLICY
View the document2020 BRIEF 61 - MAY 1999: LIVESTOCK TO 2020: THE NEXT FOOD REVOLUTION
View the document2020 BRIEF 62 - OCTOBER 1999: NUTRIENT DEPLETION IN THE AGRICULTURAL SOILS OF AFRICA
View the document2020 BRIEF 63 - NOVEMBER 1999: PROSPECTS FOR INDIA'S CEREAL SUPPLY AND DEMAND TO 2020
View the document2020 BRIEF 64 - FEBRUARY 2000: OVERCOMING CHILD MALNUTRITION IN DEVELOPING COUNTRIES: PAST ACHIEVEMENTS AND FUTURE CHOICES
View the document2020 BRIEF 65 - MARCH 2000: COMBINING INTERNAL AND EXTERNAL INPUTS FOR SUSTAINABLE INTENSIFICATION

2020 BRIEF 26 - AUGUST 1995: PERSPECTIVES ON EUROPEAN AGRICULTURE IN 2020

C. Folmer, M. A. Keyzer, M. D. Merbis, H. J. J. Stolwijk, and P. J. J. Veenendaal

C. Folmer and H.J.J. Stolwijk conduct research at the Central Planning Bureau, The Hague; P.J.J. Veenendaal at the Agricultural Economics Research Institute, The Hague; and M.A. Keyzer and M.D. Merbis at the Centre for World Food Studies, Amsterdam.

Earlier 2020 briefs identified annual growth rates for world population of 1.7 percent per year based on United Nations projections and per capita income growth in low- and middle-income economies of 2.9 percent as the major driving forces for growth in agricultural demand. These growth rates would probably result in a food demand increase of 2.5-3.0 percent, which should then be matched by agricultural production. Over the period 1970-90, production grew 2.3 percent annually, but most experts agree that major efforts will be needed to sustain a growth rate of about 2 percent in the future. Though most of this production growth will be realized within the regions, some food will have to be imported, and international trade will play an increasingly important role. Drawing on a recent study of European Union (EU) agriculture, this brief focuses on the EU-12 members in 1994 and discusses the consequences of possible further reforms of the EU's Common Agricultural Policy (CAP) on its agriculture and its potential as an agricultural exporter.

THE EU AND CAP REFORM

Boosted by high support prices, EU agriculture is dynamic and productive. The EU is now a net exporter of cereals, meat, and milk products. This achievement comes with two problems: first, surpluses can only be deposed of by using export subsidies, leading to confrontations with other exporters; second, the high internal prices adopted by the EU to subsidize its exports and to support its farmers have led to steadily rising agricultural outlays in the budget. These pressures led to a reform of the CAP in 1992, which then paved the way for the General Agreement on Tariffs and Trade (GATT). This new policy environment will change the position of the EU on the world market and open new opportunities.

The EU is already a major player on world food markets. It is a large importer of coffee, tea, cacao, oilseeds, tropical fruits, and feedstuffs. Exports mainly consist of temperate products such as dairy, wheat, meat, and horticultural products. EU agriculture is characterized by high productivity per farmer and per hectare, and by high internal prices that are realized through high rates of protection on exports. Rates of protection on agricultural imports are virtually prohibitive, except on tropical products, fats and oils, and animal feeds such as protein feeds (cakes) and carbohydrates (corn gluten and cassava, for example). Tables 1 and 2 illustrate the EU's international role.

These shares shifted somewhat during the 1980s, with the production share decreasing slightly, except for a few policy-induced changes such as an increase in oilseeds. The main explanation for the decrease is the policy to reduce production in EU member states through production quotas. Because cereals, sugar, and bovine meat surpluses could be exported, thanks to substantial subsidies, the EU's shares in world trade rose slightly. For dairy products, where production quotas were reduced on several occasions, export shares fell a few percent.

In 1992 the EU adopted a major CAP reform, enabling it to successfully conclude the GATT agreement in 1994. The EU's future role on the world market will again greatly depend on the CAP, which could in principle develop in one of two almost diametrically opposite directions: either toward free trade or toward interventionism.

Liberalization

From 1996 on, under the free-trade scenario, the current trend toward liberalization set in motion by the 1992 reform is expected to continue. It assumes that support prices will gradually decrease, while farmers' incomes will be maintained via compensation payments linked to land area operated and to the livestock numbers of each farm. Production quotas are expected to remain tight and set-aside programs effective. The scenario projects that EU consumers will face some net welfare gains (lower prices compensate for the increase in taxes, resulting in annual per capita gains of about US$20). It projects that until 2005 there will be no expansion in EU exports, with the possible exception of bovine meat. Beyond 2005, however, as internal support prices fall to world market levels, production controls will become unnecessary and the set-asides can be abolished. Under modest assumptions about the increase in productivity, it becomes possible to prevent farm incomes from falling over time, while compensation payments are being phased out. By then, the EU will have become a competitive agricultural exporter, primarily of wheat, dairy products, and bovine meat.

Table 1 - Share of EU-12 in world production, 1990

Commodity

World

EU-12

Share


(million metric tons)

(percent)

Wheat

601.7

80.2

13.3

Coarse grains

848.0

78.1

9.2

Oilseeds

250.3

10.4

4.2

Sugar

110.8

17.3

15.6

Milk

477.6

109.4

22.9

Bovine meat

51.6

7.7

14.9

Pork

69.9

13.4

19.2

Poultry meat

39.9

6.3

15.9

Source: C, Folmer et al. 1995. The common agricultural policy beyond the MacSharry reform. Amsterdam: North Holland.

Table 2 - Share of EU-12 in world trade, 1989

Commodity

Imports

Exports


(percent)

Cereals

3.1

15.0

Oilseeds

44.3

0.2

Sugar

6.9

17.8

Butter

8.8

43.7

Cheese

13.1

49.3

Bovine meat

6.6

23.9

Pork

4.0

23.5

Poultry meat

5.6

23.8

Eggs

9.3

30.4

Source: C. Folmer et al. 1995. The common agricultural policy beyond the MacSharry reform. Amsterdam: North Holland.

As a variant, a scenario with faster and more rigorous liberalization was developed. In this scenario, farm supports would be decoupled fully from production levels (land and livestock numbers) and temporary lump-sum payments would prevent a drastic restructuring of the agriculture sector. It appears that consumers would benefit somewhat more (about US$40 per capita), and exports could grow faster because production controls would be abolished earlier. Net cereal exports would double by 2005 and reach 30 million metric tons.

Intervention

Alternatively, the intervention scenario assumes that the [major trading blocs will return to protectionist strategies. The EU would then retrench to a regime of high internal prices to support farm incomes and use additional supply controls to limit subsidized exports. This scenario undeniably has some clear advantages: it avoids the direct payments that are needed for decoupled support, and since the reduction of support improves the competitiveness of EU-produced grains relative to imported protein feeds and carbohydrates, more farmers will raise their livestock on locally grown feeds. Intermediate demand for cereals will increase by 1.5 percent per year, while intermediate demand for cereal substitutes is expected to fall by 1 percent per year. This so-called rebalancing process is expected to ease environmental pressures. There will be some welfare losses for European consumers - about US$45 per capita per year. Yet the welfare loss inflicted on foreign consumers cannot be ignored, nor the important loss of the intensive livestock sector, which will face high feed prices.

Overall, the CAP is expected to evolve in the direction of free trade. In the baseline scenario, agricultural prices of the EU would fall gradually to world market levels and production quotas would be relaxed. Thus, the transition to free-trade conditions would be smooth and made easier by temporary compensation payments to farmers. Due to demand pressures and the limited scope for expanding agricultural production around the world, the fall in world market prices would be much slower than in the 1980s, making it easier for EU agriculture to conform to these prices. By 2020, as a result of growth in productivity, a reduction in the farm population from 18 million farmers now to less than 10 million in 2020, and increased farm size, the sector will be able to survive without protection. Moreover, since consumer demand will almost stagnate in the EU due to the lack of population growth and satiation of the consumer, exports are expected to grow significantly.

Three commodity groups account for most of this expansion (Table 3). The rebalancing process will enable the EU to become self-sufficient in feedgrains, while the exportable surplus of wheat will more than double in the period 2005-2020.

In the variant where the EU liberalizes faster, these exports are already attained by the year 2010.

Table 3 - The EU's exports in 2020

Commodity

1995

2020

Net Change


(million metric tons)

(percent)

Wheat

14.6

35.2

20.6

Coarse grains

5.6

-4.4

-10.0

Fats and oils

-4.6

-6.4

-1.8

Butter

0.1

0.7

0.6

Other dairy products

7.9

26.5

18.6

Bovine meat

0.2

4.1

3.9

Source: C. Folmer et al. 1995. The common agricultural policy beyond the MacSharry reform. Amsterdam: North Holland.

LONG-TERM AVAILABILITY OF LAND AND LABOR IS UNCERTAIN

The main uncertainty regarding the long-term future of EU agriculture relates less to prices than to factor availability. First, the farm population is aging more rapidly than the nonfarm population: a significant number of young farmers choose to leave agriculture or are forced to so do by economic conditions. While this process facilitates the restructuring of the sector, it is not clear when this outmigration will end and whether, by 2020, a sufficient number of farmers will remain to till the land.

Second, the availability of sufficient agricultural land should not be taken for granted. So far agriculture has largely been the most profitable use of rural land. Legal regulations in effect in most member countries make it difficult to convert agricultural land to any other use. This may change when lower price and income supports are decoupled from land (which is not now the case under the CAP), making it rewarding to use land for parks, camping, infrastructure, or real estate development. The EU would then quickly lose its place as a wheat exporter. For example, if the agricultural area is 10 percent lower in 2020 than in the baseline scenario, the EU will become a net cereal importer. Considering the uncertainty about long-term food availability, the EU would be well advised to protect the productivity of its land resources and ensure that a significant part of nonagricultural land can readily be reconverted to agricultural use if the need arises.

THE FUTURE OF EUROPEAN AGRICULTURE

The right policies can lift the pressures on the CAP and lead gradually to a competitive European agriculture. International markets for cereals, dairy products, and meat are expected to grow substantially in the future, and will provide a fair playing ground for European exporters. The budgetary pressure of the CAP will be released when the regime of high support prices is replaced by social and income policy. In addition, policies are needed to preserve the productivity and availability of agricultural land and labor.