INTERNATIONAL AGRICULTURE AND TRADE (EUROPE)--SUMMARY January 17, 1997 Approved by the World Agricultural Outlook Board ----------------------------------------------------------------------------- Note: This report was scheduled for release on December 18, 1996. ----------------------------------------------------------------------------- This SUMMARY is published by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20005-4788. The complete text of INTERNATIONAL AGRICULTURE is available 2-3 working days following release of this summary. ----------------------------------------------------------------------------- EU's Eastern Enlargement Holds Promise and Uncertainty for U.S. Agricultural Exports The prospective eastern enlargement of the European Union (EU) could add as many as 100 million new consumers to the EU's single market and double the number of farmers, having profound effects on global and U.S. agricultural trade. USDA analysis indicates that enlargement will increase agricultural output in Central and Eastern Europe (CEE), particularly in the livestock sector, creating increased demand for feedstuffs and opportunities for additional U.S. corn and oilseed exports. The CEE countries will continue to be an important region for U.S. agriculture, as it is an expanding market for U.S. farm exports and a strong magnet for U.S. investment. Ten CEE countries, including the Baltic states, have applied for membership in the European Union and have signed Association Agreements with the EU.1/ The Agreements provide a framework for preparing the CEEs for eventual membership, but have had mixed success in expanding CEE-EU trade because of EU protectionism. Since 1992, the EU has had a growing agricultural trade surplus with the CEEs. ------ 1/ The ten countries are Hungary, Poland, Romania, Bulgaria, the Czech Republic, Slovakia, Estonia, Latvia, Lithuania, and Slovenia. ------ The CEE countries will benefit from EU membership through unrestricted access to EU markets and higher producer prices for CEE farmers. However, membership will not be without cost. Higher budgets will be required to support CEE agriculture at current EU prices and completely open borders will increase competition with Western Europe's agro-food sector. Considerable restructuring of the CEE agricultural sector is required for successful integration into the EU. The challenges remaining for the CEEs include improvement of farm productivity, the completion of privatization of state farms and agro-industry, the simplification of intervention practices, training in agribusiness and quality control, and programs to encourage rural development and structural adjustment. The EU has taken a multi-pronged approach in its preparations for enlargement. It has funded an extensive program of technical assistance for the CEE region, designing projects to improve agricultural structures and market mechanisms, food production, processing and distribution, and infrastructure. The 1996 EU Intergovernmental Conference is addressing institutional preparations for enlargement and the question of reinforcing political union. The CEE countries are required to adopt all EU legislation immediately upon becoming EU members. This involves also setting up structures necessary to make the legislation effective. In the agricultural sector, these measures will affect a wide range of activities in the production and processing industries. The European Commission has examined different scenarios on the economic implications of enlargement, including the implications for the CEE and EU farm sectors. The favored approach would continue the reform efforts begun in 1992 in an effort to improve EU agricultural competitiveness. USDA also conducted preliminary analysis on the impact of accession, using two scenarios: one where the current Common Agricultural Policy (CAP) applies to CEE, and another where farmers in the enlarged EU-19 (the Czech Republic, Poland, Hungary, and Slovakia are generally considered the leading candidates for early EU entry) face world prices. Large increases in CEE production could lead to lower world prices, dampening CEE production gains slightly. The results reveal that the agricultural economies of both the EU-15 and the CEE countries are likely to experience major adjustments. The EU-19 will become an even larger wheat exporter, while potentially importing more corn. Meat production will shift somewhat from the EU-15 to CEE. The EU-19 will continue to have some exportable surpluses of pork and poultry. Prospects for U.S. agricultural exports to the region are favorable in the near term, particularly for high-value products. Exports of bulk commodities, particularly grains, have declined since 1990 and fluctuate from year to year. Opportunities for increased U.S. trade with the CEE countries will likely be affected by government intervention, increased protection, and stiff competition from the EU. High tariffs, adopted by CEEs in the Uruguay Round Agreements, will also limit market access. As EU members, the CEE countries will adopt EU veterinary, sanitary, and phytosanitary standards. Whatever restrictions on trade exist between the current EU-15 and its trading partners will then also apply to the new member countries. EU enlargement could lead to higher protection against goods from the United States and other non-EU countries. Under current CAP policies, surpluses of many agricultural products would likely develop in the region. The surpluses would be harmful to U.S. agricultural exports to CEE, and could also mean increased competition for U.S. exports in third-country markets. However, rising income growth resulting from EU membership should increase overall demand for agricultural products, and U.S. exports could rise as total exports to the region expand. U.S. exports of oilseeds, oilseed products, and some feeds may benefit as the livestock sector expands. An expanding and modernizing farm sector may also raise demand for U.S. agricultural inputs. As demand expands in the CEE countries, U.S. businesses may find opportunities for investing in upstream sectors such as fertilizers and agricultural machinery, and in downstream sectors such as food processing and distribution. However, investment opportunities may be tempered by political and economic instability in the region and competition from Western Europe. Despite this uncertain environment, the opportunities are greatest for investors who move quickly to capitalize on existing opportunities, establish an early commercial presence, and begin developing consumer loyalty. Printed copies of Europe International Agriculture and Trade Report will be available in about 2 weeks. Please address questions concerning this report or its interpretation to the ERS Information Center, 202-219-0515, or e-mail service@econ.ag.gov. END_OF_FILE