Darnell Smith, Food and Agricultural Policy Research Institute, (515) 294-2390
Brian Meyer, Agriculture Information, (515) 294-0706
PROPOSED EU POLICIES MAY MEAN MORE COMPETITION FOR U.S. FARMERS
AMES -- Proposed changes in the European Union's agricultural policies would mean more competition in export markets for U.S. farmers, causing net farm income to decline by $1.4 billion per year, according to the Food and Agricultural Policy Research Institute (FAPRI).
According to a preliminary FAPRI report on the European Union's proposed "Agenda 2000," the reforms would likely result in an increase in European exports of wheat and other agricultural products. "More competition from Europe would challenge the U.S. position in world markets and could affect U.S.-EU trade relations," said Darnell Smith, an Iowa State University researcher and managing director of FAPRI.
FAPRI, a joint institution of ISU and the University of Missouri, analyzes major agricultural issues for Congress and other decision- makers around the world.
The FAPRI report indicates that U.S. wheat exports and wheat prices could each be reduced by about 6 percent if the proposed reforms are fully implemented. U.S. corn and soybean prices could fall by 1 to 2 percent, and livestock prices by less than 1 percent.
Smith stressed that the results are tentative because a number of assumptions were made about how the reforms would be implemented. Debate on Agenda 2000 continues, and it is likely that changes will be made before a final proposal is adopted by EU member states.
The proposed reforms include a number of changes to EU crop and livestock policies. After the year 2000, support prices for grains, beef and dairy products would be reduced, but compensation payments to farmers would increase. The reforms would also make it less likely that the EU would rely on compulsory set-aside programs to reduce grain supplies.
"Without compulsory set-asides, EU grain production would increase," Smith said. "When the United States ended set-aside authority in the 1996 Farm Bill, our production responded accordingly. Also, reduced intervention prices mean that domestic grain prices in Europe could fall to levels likely to prevail in world markets."
If domestic grain prices fall to world market levels, European exports would not require explicit export subsidies, and so would not be restricted by World Trade Organization limits on subsidized exports. "With increased production and no effective limitations on exports, the bottom line is that EU wheat exports would increase," Smith said.
In contrast to the grain situation, changes in EU beef and dairy policies may have only a limited impact on U.S. agriculture. The FAPRI report indicates European consumers would benefit from lower prices for beef and dairy products, but prices are unlikely to fall enough to make the European Union competitive in world markets without the use of export subsidies.
Under the Agenda 2000 reforms, grain and oilseed producers receive the same payment regardless of whether they plant soft wheat, barley or rapeseed. The European Commission argues that the oilseed planting limitations imposed by the Blair House agreement between the European Union and the United States would not be binding if oilseed-specific payments are replaced by payments that apply uniformly across all crops.
"If the Blair House limits on oilseed area are removed, we estimate that EU oilseed production would increase," Smith said. "However, we expect the increase in wheat area resulting from the reform package to be larger than the increase in oilseed area."
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