INTERNATIONAL AGRICULTURE AND TRADE February 5, 1996 Approved by the World Agricultural Outlook Board ----------------------------------------------------------------------------- INTERNATIONAL AGRICULTURE AND TRADE Situation and Outlook is published four times a year by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20005-4788. WRS-95-4. Please note that this release contains only the text of INTERNATIONAL AGRICULTURE AND TRADE--tables and graphics are not included. Subcriptions to the printed version of this report are available from the ERS-NASS order desk. Call, toll-free, 1-800-999-6779 and ask for stock #WRS, $20/year. ERS-NASS accepts MasterCard and Visa. ----------------------------------------------------------------------------- Economics Editors Elizabeth Jones Linda Scott (202) 219-0619 Contributors Nancy Cochrane Elizabeth Jones Mary Lisa Madell Mary Anne Normile Linda Scott Timothy Smith Technical Editor Diane Decker Data/Graphics Coordinator Timothy Smith Cover Photo Tom Block Approved by the World Agricultural Outlook Board. Summary released December 15, 1995. Summaries and report text may be accessed electronically. For details, call (202) 219-0515. The United States Department of Agriculture (USDA) prohibits discrimination in its programs on the basis of race, color, national origin, sex, religion, age, disability, political beliefs and marital or familial status. (Not all prohibited bases apply to all programs). Persons with disabilities who require alternative means for communication of program information (braille, large print, audiotape, etc.) should contact the USDA Office of Communications at (202) 720-2791. To file a complaint, write the Secretary of Agriculture, U.S. Department of Agriculture, Washington, D.C., 20250, or call (202) 720-7327 (voice) or (202) 720-1127 (TDD). USDA is an equal opportunity employer. International Agriculture and Trade Report Europe Situation and Outlook Series Contents Summary Oilseeds, Feeds, and Fodder Lead U.S. Export Surge in 1995 HVP's Dominate U.S. Exports to the EU High Value Products Find New Markets in Central and Eastern Europe Grain Output To Expand in 1996, But Markets Tight in the Near Term Higher Oilseed Plantings Expected To Follow Near-Record Crop Prices Rebound as Surging Beef Exports Deplete EU Stocks EU Pork and Poultry Exports Face Uruguay Round Agreement Limits Fruit and Vegetable Proposal Gives New Life to Producers' Groups Central and Eastern Europe: Over the Hump at Last? Glossary List of Appendix Tables Acknowledgments Appreciation is extended to the U.S. Counselors and staffs of the Foreign Agricultural Service in Europe and the OICD Scientific and Technical Cooperation and International Research Programs for assistance in ERS's research program. The authors wish to thank Jaime Castaneda, Joel Greene, Robert Koopman, Leland Southard, Fred Surls, and Carolyn Whitton of the Economic Research Service; Gerald Bange, James Matthews, James Nix, Jerry Rector, and David Stallings of the World Agricultural Outlook Board; Merritt Chesley, Michael Fay, Aileen Mannix, Robert Riemenschneider, John Reynolds, Alan Riffkin, Richard Schroeter, and others in the Foreign Agricultural Service for their reviews; Joyce Bailey, Diane Decker, and Vic Phillips for editorial and design assistance. Appreciation is extended to the Delegation of the European Communities, Washington, D.C. for providing useful information for this report. Weights and Measures The metric system of weights and measures is used in this report. The following are conversions to the U.S. system of weights and measures. 1 hectare (ha) = 2.47109 acres 1 kilogram (kg) = 2.204622 pounds 1 liter = 1.0567 quarts 1 metric tons of liquid milk = 971 liters 1 metric ton (mt) = 2,204.622 pounds 1 metric ton = 1.102311 short tons 1 metric ton of wheat = 36.7437 bushels 1 metric ton of corn = 39.368 bushels 1 metric ton of barley = 45.9296 bushels The December 1995 exchange rate of $1.30 per ECU is used in this report. Summary EU Remains Growing Market for U.S. High-Value Products U.S. agricultural exports to the European Union (EU) are expected to rise 3.4 percent in fiscal 1996 to $8.7 billion, due mainly to higher oilseed prices and expanding sales of horticultural products. During October 1994/September 1995, U.S. agricultural exports to the EU were valued at $8.4 billion, compared with $6.8 billion a year earlier. U.S. farm imports from the EU in fiscal 1996 are expected to remain unchanged from the previous year at $5.8 billion. Beverages, including wine and malt beverages, accounted for more than one-quarter of U.S. agricultural imports from the region in fiscal 1995, followed by dairy products (mainly cheese and casein), grains and feeds--including biscuits, wafers, and pasta--and vegetables and preparations. U.S. high-value exports to the EU accounted for a record share of U.S. agricultural exports to the EU-12 in calendar year 1994. Strong growth in consumer foodstuffs and declining export values for bulk commodities due to increased foreign competition and declining grain prices, were largely responsible for the growing importance of high-value product trade. Exports of corn gluten feed have consistently been the largest single high-value export to the EU. However, the EU is also a growth market for U.S. fruits, vegetables, wine, and tree nuts, with the export value of these products growing by almost half over the last 5 years. Continued income growth in the EU, trade concessions under the Uruguay Round (UR) Agreement on Agriculture, and a low U.S. dollar compared with major EU currencies should help sustain strong demand for U.S. high-value products in 1996 and beyond. U.S. exports of high-value products to Central and Eastern Europe (CEE) have doubled in the last 5 years and many sectors should continue to grow as consumer purchasing power improves and market access widens under the UR accords. In 1995, exports of feeds and fodders, fruit, fruit juices, vegetables, and chocolate will achieve 10-year highs, while nuts and oil cake and oil meals will reach post-transition highs. However, the eventual accession of CEE countries to the European Union will likely hamper U.S. exports as the principle of "community preference" drives out non-EU goods. EU grain production is expected to expand in 1996 largely because the set-aside rate has been lowered in response to tight supplies. The EU began the 1995/96 marketing year by suspending export subsidies for wheat, and placed an export tax on wheat in early December. Unsubsidized wheat exports have kept EU wheat on the world market, but the EU is not expected to exceed its export subsidy limits set under the Uruguay Round Agreement on Agriculture. Oilseed production rose in 1995 despite reduced total area, led by a sharp increase in rapeseed area and yields. Oilseed area and production are expected to increase in 1996 as Spain recovers from a drought-reduced 1995 crop and as the set-aside rate is reduced from 12 to 10 percent. Producers also will be less wary of incurring large payment cuts, because no penalties under the Blair House Agreement were assessed this year. Higher prices, cyclical factors, and booming export demand have increased beef and veal production for the first time since 1991. Resurgent exports to Russia and the Middle East have depleted stocks, prompting speculation that the beef intervention system would be suspended by the end of the year. The long-term downward trend in consumption continues, attributed to lower prices for competing meats and lingering consumer uncertainty due to health concerns. A small increase in production is again expected in 1996, as slaughter numbers increase and carcass weights rise. Higher prices failed to boost pork production in 1995 as hot summer weather slowed growth rates and reduced the number of pigs available for slaughter. Poultry production grew slowly in 1995, and is forecast to decline in 1996. Uncertainty is facing future EU pigmeat and poultry exports as UR limits on subsidized exports take hold and U.S. competition stiffens in East Asian and Japanese markets for pork and in Central and Eastern Europe and Russia for poultry. The EU released its reform proposal for the fruits and vegetable sector, the latest in a series of reforms to the EU Common Agricultural Policy that began in 1992. The proposal is a modest one that would reduce payments to farmers to withdraw surplus production from the market while strengthening the role of producer organizations. The EU's extensive system of import barriers, export refunds, and processing subsidies would remain largely intact, with adjustments for UR implementation. Grain and oilseed production increased significantly in Central and Eastern Europe in 1995, largely the result of good weather. Livestock inventories are also showing signs of recovery. If further transition toward a market economy can be realized, the region has good potential to generate large surpluses of raw agricultural commodities, especially grains and livestock products. Such surpluses are likely to have significant implications for the region's eventual integration into the EU and for the future of U.S. trade with the region. Oilseeds, Feeds, and Fodder Lead U.S. Export Surge in 1995 U.S. exports of grains and feeds and oilseeds to the EU increased strongly in fiscal 1995. In fiscal 1996, oilseed exports are expected to decline, while rice exports are projected to rise and corn and corn gluten feed remain about unchanged from fiscal 1995. U.S. imports of agricultural products from the EU dropped in volume terms in fiscal 1995, but posted some increases in value terms. The value of the U.S. dollar relative to European currencies will strongly influence imports in fiscal 1996. [Mary Lisa Madell] U.S. agricultural exports to the 15 countries of the European Union (EU) increased strongly in fiscal 1995, led by substantial growth in sales of oilseeds and feeds and fodders (table 1.1 and 1.2). U.S. agricultural imports from the EU rose in value terms, but the increase largely reflected a weak U.S. dollar, rather than increased volume. Most major categories of U.S. imports from the EU registered declines. The EU was the United States' largest supplier of agricultural imports in fiscal 1995, and was its largest supplier of high-value agricultural products (HVP's). U.S. HVP imports from the EU include meat, primarily pork, dairy products, vegetables, wine and beer. High-value products account for most U.S. agricultural imports from the EU, from which the United States buys very few bulk commodities. In addition, the EU is the United States' main competitor in HVP exports (see "HVPs Dominate U.S. Exports to the EU," elsewhere in this report). U.S. Oilseed and Feed Exports Strong in Fiscal 1995 U.S. agricultural exports to the EU increased more than 24 percent from a year earlier in fiscal 1995, largely on the strength of surging exports of feeds and fodders and oilseeds. Exports of feeds and fodders increased nearly 28 percent in value terms (more than 33 percent in volume), and oilseed sales grew more than 58 percent. The increase in oilseed exports was concentrated in higher soybean sales (up nearly 51 percent), but sales of soybean meal and vegetable oils also increased. U.S. exports of oilseed products and feeds and fodders benefited from strong grain prices inside the EU. U.S. exports of pulses, tobacco, cotton, and rice also rose. Only a few categories showed decreases. Both pork and beef exports slowed compared with fiscal 1994, but poultry exports increased. Wheat flour exports also declined but this is a relatively minor category that shows very large swings from year to year. U.S. Agricultural Imports from the EU U.S. agricultural imports from the EU reflected the relative weakness of the U.S. dollar, which makes imports from the EU more expensive. Beef and pork imports dropped in both value and volume terms, but many other volume declines were hidden by increased import value. For example, imports of fruit juices, while increasing about 8 percent in value terms declined close to 14 percent in volume terms. Imports of EU grains and feeds, olives, and oilseeds and products showed a similar development. Some traditional U.S. imports from the EU increased in fiscal 1995. Chief among them were wine and malt beverages, the largest single category in value terms. Gains for these imports were larger in value than in volume terms. Imports of pasta and noodles, and biscuits and wafers also increased. Lower U.S. Oilseed Exports to the EU Expected for Fiscal 1996 U.S. soybean exports will face increased competition from other oilseeds in fiscal 1996. The EU produced a near-record 1995 oilseed crop led by higher rapeseed production. A large part of the expanded rapeseed production was due to an increase in industrial rapeseed. Rapeseed for industrial uses does not compete directly with soybeans, but meal from industrial oilseeds competes with soybean meal. A large reduction in Spanish sunflowerseed production will boost EU sunflowerseed imports. Nevertheless, total U.S. oilseed exports to the EU will be slightly lower, with soybean exports down, and sunflowerseed sales up. EU use of soybean meal is expected to remain largely unchanged, as meal prices increase but remain competitive with high grain prices. Soybean meal will face increased competition from rapeseed and sunflowerseed meals from higher EU domestic crush. EU demand for soybean meal will be met more through meal imports and slightly less by domestic crush of (mostly) imported soybeans. Fiscal 1996 U.S. exports of grains and feeds to the EU will remain close to 1994/95's level of roughly $2.0 billion. Rice exports are expected to increase and corn exports should remain strong as EU corn supplies are still low because of the Spanish drought. U.S. exports of high quality wheat to the EU should benefit from the EU's new method of calculating import protection. Under the variable levy system that was eliminated beginning July 1, 1995, high value wheat exports faced a very large levy that was calculated based on the lowest available wheat price. Now, the levy is calculated based on reference prices for wheat of high, medium, and low quality. Current high world prices have resulted in a zero levy for high quality wheat. U.S. corn exports to the EU were high during fiscal 1995 because of continued drought in Spain that reduced internal supplies. Also, the EU switched the implementation of the reduced levy for Spanish corn from a calendar year to a crop year. This effectively pushed almost 2 years of U.S. corn sales into one year. Spanish corn yields for the 1995 harvest were considerably improved over the previous year, but the barley and wheat crops were cut dramatically. Although the EU has shipped large supplies of intervention barley and rye stocks from Germany and the United Kingdom, the supplies have not been sufficient to offset the reduced crops in Spain. U.S. rice exports are expected to register a further increase in 1996, despite the increase in protection levels in Finland, Austria, and Sweden because of accession. U.S. sales of non-grain feeds to the EU are expected to drop in quantity in fiscal 1996, although corn gluten feed and meal should again be tight. While EU market prices for wheat and corn are currently well above intervention price levels, grains may become more competitive with imported non-grain feeds later in the marketing year. The value of U.S. beef and veal exports to the European Union will remain constant or fall slightly in fiscal 1996. U.S. beef exports to the EU-15 declined 1.4 percent in fiscal 1995, to approximately $27.5million, due to the EU's continuing import ban on beef from hormone-treated cattle and, specifically, the extension of this ban to Austria. Before accession to the EU, Austria had a high quality beef (HQB) quota with the United States of 1,000 tons. Beginning in 1995, U.S. beef exports to Austria became subject to the EU hormone ban, and dropped more than 90 percent to less than $500,000 (see "Prices Rebound as Surging Beef Exports Deplete EU Stocks" elsewhere in this report). U.S. poultry exports to the EU are projected to remain constant in fiscal 1996, as excess domestic supplies will likely meet demand. The volume of U.S. poultry exports to the EU increased 12 percent in fiscal 1995 to $3.7 million, with the greatest rise in turkeymeat and prepared meats. Exports of turkeymeat rose 22 percent in value to $10.7 million in fiscal 1995, with the largest share going to Germany. Opportunities for additional U.S. pork exports will be limited in 1996, as EU internal supplies continue to be abundant and consumption remains stable. The EU will again be a growth market for U.S. horticultural products in fiscal 1996. Total horticultural products trade could exceed $1.5 billion, largely due to continued growth in processed commodities. Orange juice, wine, tree nuts (almonds and walnuts) and dried fruit (mostly prunes and raisins) are expected to lead horticultural exports to the region. However, growth is also expected in several smaller niche markets, including canned sweet corn, fresh green asparagus, and some fresh deciduous fruits. References USDA, Economic Research Service. Outlook for U.S. Agricultural Exports. November 30, 1995. USDA, Economic Research Service. Foreign Agricultural Trade of the United States database, 1995. BEGIN BOX EU Rivals U.S. as HVP Exporter [BOX] The EU is both a major supplier of high value agricultural products to the United States and a major HVP competitor with the United States in other world markets. According to United Nations data, 8 of the 10 leading HVP exporters are EU countries (including intra-EU trade). Most of the EU's agricultural exports are destined for other EU countries, where they do not face any trade barriers. By contrast, U.S. exports face substantial barriers in the EU market. The EU also provides stiff competition for HVP's on the world market. Many EU agricultural and processed products benefit from well-established internationally known product images and often have special regional designations. Examples include cheeses such as Brie, Camembert, Gouda, and Stilton, quality wines, and processed products such as Belgian chocolate and Italian pastas. EU high-value product exports have also benefited from export subsidies and a protected internal market. However, the characteristics of its HVP's also allow the EU to compete on non- price factors. Uruguay Round Agreement Will Affect Future High-Value Product Exports The Uruguay Round (UR) Agreement on Agriculture has its greatest impact on bulk agricultural products, but will also affect EU high-value product exports. The UR agreement limits expenditures on domestic support, so the EU is prohibited from further expanding production through domestic subsidies. The agreement also imposes quantity and value limits on export subsidies for cheese, meats, wine, fruits and vegetables, and value limits on processed product exports. Cheese: The UR export subsidy commitments significantly reduce the EU's subsidized cheese exports from current levels. The EU currently exports some cheese, chiefly soft cheeses, without export subsidies (about 70,000 tons out of nearly 500,000 total). Unsubsidized cheese exports are expected to grow, but total cheese exports will nonetheless be constrained by the UR limits. Beef: At current and expected world prices, the EU cannot export beef without the benefit of export subsidies. Therefore, the UR agreement reduces EU beef exports below what would be expected without the agreement. Pork and poultry: The EU currently relies on export subsidies for its pork and poultry exports. The UR limits on subsidies will constrain exports of both. The EU is expected to make unsubsidized exports of some high-priced cuts of pork to traditional markets in Asia, and some poultry to the Middle East. Wine: The EU subsidized exports of lower quality wines, but the higher quality wines, comparable to U.S. wines, do not receive subsidies. However, they do benefit from well-funded national promotional campaigns. High quality wines account for about 30 percent of EU wine output, but between 40 and 60 percent of extra-EU exports for the major producers such as France, Italy, and Germany. The UR limits should not affect the production or export of these higher quality wines. Fruits and vegetables: UR commitments apply to fresh fruits and vegetables (aggregated) and to processed fruits and vegetables. The EU's export subsidies on apples, for example, have had a measurable impact on the world market. The EU could target particular fresh or processed fruits and vegetables to benefit from export subsidies. This could lessen the benefit of export subsidy commitments for the United States. Processed products: The UR agreement places a limit only on export subsidy expenditures for processed products. The expenditure limits imply a 48-percent reduction in current spending. At the end of the UR implementation period in 2000/2001 the EU can still spend nearly $500 million per year subsidizing processed products. Under the agreement, the per unit subsidy on an agricultural component of a processed product cannot be larger than on the bulk agricultural product itself. That is, the subsidy on the wheat incorporated in a processed product such as cookies cannot be larger than the subsidy for bulk exports of wheat. The UR limits apply only to subsidized exports. Some EU high-value product exports are currently exported without subsidies, and will face no limits under the UR agreement. For example, some soft cheese and all high quality wines are exported without the benefit of subsidies. This trade could even expand as the EU adjusts to the limits imposed on products that require export subsidies. EU policies could encourage producers to shift production toward those products that do not require subsidies for exports. In addition to direct export subsidies, EU and member state funding is used to promote high-value product exports. The EU funds market promotion activities for citrus fruits and some other high-value products. Market promotion programs operate in the individual member states, usually as quasi-governmental or private trade organizations. The EU only rarely provides agricultural export credit packages or guarantees out of its general budget. Most national export credit programs apply to medium- or long-term credits, while agricultural exports are covered by short-term credits. Some EU member states have export credit programs that support agricultural products, but generally through insurance. Currently, there are no internationally agreed upon disciplines on the use of export credits for agricultural products. However, the UR agreement commits countries to develop internationally agreed upon disciplines to govern export credits, guarantees, and insurance. The UR agreement will limit the EU's ability to use export subsidies to enhance its HVP exports. Because the export subsidy limits are commodity-specific, the EU cannot rearrange its export subsidy funding to favor HVP exports. Despite the limits, the EU will remain a major HVP exporter, supplying the U.S. market and competing with U.S. high-value products in third markets. Important marketing activities that promote HVP exports are not limited by the UR agreement. Also, the EU can export some HVP's without subsidies and many EU products have internationally recognized product images that allow them to compete on non-price factors. [Mary Lisa Madell] END OF BOX HVP's Dominate U.S. Exports to the EU High-value products accounted for a record 58 percent of total U.S. agricultural exports to the EU in 1994. Strong growth in horticultural product exports, especially nuts, wine and fruit juice led HVP sales to the region while the export value of bulk commodities declined for the third year in a row. [Linda A. Scott] High-value products (HVP's) are increasingly important in U.S.-EU agricultural trade. 1/ U.S. high-value exports to the European Union stabilized at an average $3.9 billion during calendar years 1993-94 after climbing steadily during the late 1980's. HVP's accounted for 58 percent of total U.S. agricultural export value to the region, compared with 34 percent a decade ago (figure 2.1). Since 1985, exports of value-added agricultural commodities have grown 3.5 percent per year compared with a 3 percent annual decline in bulk commodity sales. High levels of import protection and increased foreign competition for bulk commodities, and declining grain prices that reduced bulk export value were largely responsible for the changing commodity shares. Although difficult to quantify, the promotion of high value products by U.S. trade associations, with the help of export promotion initiatives such as the Market Promotion Program, also may have contributed to higher export values for selected commodities (table 2.1). 2/ 1/ The "EU" refers to membership in the European Union prior to January 1, 1995 and includes Belgium, Luxembourg, Denmark, France, Ireland, Italy, Germany, Greece, the Netherlands, Portugal, Spain, and the United Kingdom. 2/ Export promotion programs such as the Market Promotion Program and Foreign Market Development Program help eligible non-profit trade organizations and private firms finance educational activities about U.S. agricultural commodities. The educational activities include media advertising and point of purchase information, for potential foreign consumers and marketers. About 75 percent of the $222 million average funding for these programs in 1989-93 was designated for high value products with more than 30 percent targeted to Western Europe. Horticultural products, including fruits, vegetables, tree nuts, and wine, have typically received the largest share of M.P. funds. Growth in Consumer Food Exports Outpaces Intermediate Commodities Besides a shift in total trade toward value-added commodities, the composition of trade within the high-value products group has also changed. The term "high-value product" commonly refers to agricultural commodities to which value has been added during processing, storage, transportation or special handling. In this study, the term refers to all agricultural commodities except bulk food and feed grains, oilseeds, pulses, cotton, and tobacco. Further dividing high-value exports into the two product categories identified by the USDA's Foreign Agricultural Service--consumer food products (meat, fruits and vegetables, breakfast cereals, snack foods) and intermediate goods (farm and factory inputs including animal feeds and wheat flour), helps to measure the changing direction of trade within this diverse set of commodities. An important intermediate product, corn gluten feed, has consistently been the largest single high-value export to the EU, accounting for 17 percent of total high-value product trade in 1993-94. However, strong growth in horticultural exports and declining sales of other intermediate commodities, including live animals, hides and skins, and oilseed meals, especially soybean meals, has caused a shift in trade toward consumer foodstuffs. Between calendar years 1988-89 and 1993-94, consumer-ready food products jumped from one-third to nearly one-half of total high-value product trade. Despite the increased importance of high-value products in total U.S.-EU trade, the growing markets of Canada, Asia, and Latin America are capturing a larger share of U.S. value-added exports. The EU is a mature market for processed food products with ample internal supplies of a wide range of foodstuffs. Bilateral disputes involving non-tariff trade barriers such as the EU import ban on hormone-treated beef, have restricted access to the EU high-value product market. In 1994, the EU share of U.S. high- value sales worldwide reached an all-time low of 15 percent after declining steadily from 28 percent in the early 1980's. However, the EU continues to be the largest U.S. market for a diverse set of high-value commodities, including corn by-products -- 86 percent ($668 million), almonds -- 54 percent ($385 million), walnuts -- 56 percent ($82 million), horsemeat -- 95 percent ($65 million), and wool and mohair -- 68 percent ($25 million). Tree Nuts and Dried Fruit Are Leading Horticultural Exports The EU is a dynamic market for U.S. fruits, vegetables, wine, and tree nuts, despite substantial trade barriers that constrain imports (figure 2.2). The export value of U.S. horticultural exports to the region grew 54 percent during the past 5 years to $1.4 billion, making this set of commodities the single largest U.S. high-value export to the region in 1993-94. Almonds, raisins, walnuts, prunes, and orange juice, were the dominant products in this market, comprising half of all horticultural sales to the region during the past 2 years. Fruit juices, fresh berries, wine, frozen potatoes, and other vegetable products were the fastest growing individual exports, nearly doubling from 6 to 12 percent of total high-value trade during the 1990's. Although the growth in frozen potato exports was due mainly to weather-related production shortfalls in the EU, the rising export value of the other commodities was more indicative of structural changes in market conditions. For example, a doubling of wine sales to the EU, the world's largest wine exporter, has been due largely to increased supermarket volume and growing wine consumption in the United Kingdom and Germany, plus the creation of an important new market in France where the Paris Disney complex has become Europe's largest importer of U.S. wines. 3/ 3/ "European Union Imports of Horticultural Products in 1993," World Horticultural Trade and U.S. Export Opportunities, USDA Foreign Agricultural Service, April 1995. Although the United States is the leading third-country supplier of horticultural products to the EU, a diverse climate and high levels of producer support guarantee an ample and high quality internal supply of most commodities. In the past, an extensive system of minimum import prices, countervailing duties, import licensing restrictions, variable levies and high seasonal tariffs for most fresh and dried fruits, vegetables, and tree nuts hindered U.S. horticultural product exports to the region. U.S. export opportunities in the market were generally limited to periods of EU production shortages or to commodities with a significant advantage in quality or uniqueness of product. In 1994, the EU accounted for less than 20 percent of total U.S. horticultural export value. Trade concessions under the Uruguay Round accords are expected to have a mixed impact on U.S. export opportunities in the European horticultural market. For example, the agreement requires that the EU replace non-tariff trade barriers such as variable levies and countervailing duties with bound tariffs. However, for most fresh commodities, including tomatoes, cucumbers, globe artichokes, oranges, and lemons, the bound tariffs have been set high enough to defend producers and little net increase in imports is anticipated. On the other hand, the EU agreement to reduce tariffs by 36 to 50 percent over 6 years on several horticultural products important to U.S. exporters including fresh asparagus, shelled and roasted almonds, shelled and in-shell walnuts, grapes, apples, single strength orange juice, potato chips, and canned sweet corn, could improve export opportunities for those foods. Additionally, a mandated reduction in EU export subsidies, particularly for deciduous fruits such as apples, may improve U.S. competitiveness in global markets. Corn Gluten Feed Leads High-Value Grain and Feed Exports U.S. exports of high-value grain and feed grain products were valued at $1.1 billion in 1993-94 and accounted for just over one quarter of total high value exports to the region (figure 2.3). Sales were dominated by corn gluten feed that comprised nearly two-thirds of the total, but other grain products, including pet foods and grain-based snack products such as corn chips, represented a small, but growing share of the market. Because corn gluten feed enters the EU market duty-free, its relative importance has grown compared to bulk feed grains such as corn and barley that are subject to high levels of import protection. Surplus internal production made the EU a declining world market for U.S. value-added grain exports, with shipments to the region stagnating during the 1990's while U.S. exports of these products worldwide rose 50 percent. EU Import Ban on Hormone-Treated Beef Has Cut U.S. Beef Exports During the 1990's, U.S. animal product's share of high-value exports to the EU fell from 21 to 16 percent. A total EU ban on imports of hormone-treated beef, variety meats, and live cattle reduced U.S. exports of these commodities by more than half to $35 million between 1988-89 and 1993-94. The import ban was the single largest factor behind the sharp 17-percent decline in the value of all animal product exports to the region during the past 5 years. Declining beef and cattle sales further reduced the EU's relative importance in total U.S. animal product exports from 12 to 8 percent. Strong growth in exports of chicken and turkey parts caused a sharp increase in U.S. poultry meat sales to the region during the 1990's. However, large internal supplies and high levels of import protection meant that the EU was a small market for U.S. exports of both poultry and dairy products, accounting for less than 5 percent of total U.S. sales worldwide. The EU Is a Shrinking Market for Oilseed Products Plummeting exports of soybean meal, due to increased foreign competition and rapid growth in domestic oilseed production, have sharply reduced the importance of oilseed products in U.S.-EU high-value product trade over the past decade. Oilseed products' share of total high-value exports fell from 26 percent in the early 1980's to 8 percent in 1994. Growing sales of corn oil cake led to a modest recovery in total oilseed product exports during the 1990's. However, oilseed product shipments dropped below $300 million again in 1994 and were less than 30 percent of the export value of processed oilseeds a decade ago. Higher set-asides for oilseeds mandated under the Blair House Agreement, that will constrain internal production over the long term, mean that any future increases in EU oilseed product demand will need to be supplied by imports. However, U.S. exporters will not necessarily benefit from such new market opportunities because of continued competition from other world suppliers, particularly in South America. Declining oil meal and oil cake exports were largely responsible for a 50-percent reduction in the share of U.S. oilseed products exports going to the EU during the 1990's. The EU received an average of 13 percent of U.S. oilseed products exports during the 1990's compared with 36 percent a decade ago. Additionally, oilseed products exports to the region dropped by nearly two-thirds compared with a four fold increase in global U.S. sales of processed oilseeds. Worldwide, U.S. growth was due primarily to rising sales of vegetable oils that are of minor importance in the well-supplied EU market. Seeds and Non-Juice Beverages Led U.S. Exports of Tropical and Other Agricultural Products Tropical and other agricultural products include a diverse set of agricultural commodities ranging from field and garden seeds and essential oils to soft drinks, sugar, and beer. Other agricultural products dominated this group with exports growing 45 percent during the past 15 years to $381 million. Sales were led by field and garden seeds, which comprised 5 percent of total high-value trade in 1993-94. Non-juice beverages, including beer and soft drinks, were the fastest growing products, rising more than three fold to $28 million. The EU was the destination for about one-third of U.S. tropical and other exports in 1993-94. New Members Reducing Their Imports of Meat and Fresh Vegetables The three new members of the European Union--Sweden, Finland, and Austria--were a $192- million market for U.S. high-value products in calendar years 1993-94. Although this represented about 5 percent of the $3.9 billion worth of agricultural exports shipped to the EU-12 during this period, the total value may be understated because many U.S. agricultural exports to these countries are transshipped through Germany. High-value products accounted for a greater share of total U.S. agricultural trade with the former EFTA countries then with the EU as a whole and the composition of imports was more heavily weighted toward consumer food products such as nuts, dried fruit and red meat. In the past, the former EFTA countries have maintained high levels of import protection for bulk products. Trade data are not yet available for these countries' first full year of membership in the EU that began January 1, 1995. However, data for the first 8 months of 1995 show that U.S. high-value exports to the region are down 6 percent from last year with some noticeable changes in the composition of trade, especially in meat and horticultural products. An extension of the EU ban on hormone-treated beef has reduced U.S. meat exports to the three countries nearly 80 percent from $9.7 million or 8 percent of high-value product trade during January-August 1994 to less than $2 million for the first 8 months of 1995. Exports of oilcake and meal have fallen by more than half as have sales of fruit juice and fresh vegetables. The adoption of higher EU import barriers for horticultural products and increased duty-free supplies from other EU countries may be largely responsible for the noticeable reduction in selected fruit and vegetable imports. However, high U.S. vegetable prices in 1995 may have also contributed to a short-term reduction in U.S. shipments of fresh vegetables to these markets. The elimination of trade barriers for other EU suppliers has been largely responsible for declining oilseed product sales to the region, despite reduced tariffs for third country imports mandated under the WTO. On the other hand, lower tariffs for feed grain products resulting from harmonization with the EU have been largely responsible for a 48 percent increase in U.S. exports of these commodities to the region since last year. As the former EFTA countries become fully integrated into the EU they are likely to comprise a declining share of U.S. exports of meat and some horticultural products. However, the new EU members will continue as a small market for selected specialty foods, including tree nuts, prepared vegetable products, pet foods, snack foods, and wine. EU High-Value Imports Continue To Rise Data for the first 8 months of 1995 for the EU-12 suggest a positive outlook for high-value product trade. Compared with a year earlier high-value exports are up 17 percent to $2.9 billion. A continuation of this trend for the remainder of the year would push high-value product exports to a record $4.6 billion for 1995. Growth has been particularly strong in canned and frozen vegetables, oilcake and meal, and non-juice beverages, while the export value of fresh vegetables, feed grain products, live animals, and other dairy products has declined by at least 20 percent. Over the medium term, continued income growth in the EU, trade concessions under the Uruguay Round agreement, and a low U.S. dollar compared with major EU currencies should continue to fuel demand for a large variety of U.S. high-value products. U.S. products have a good reputation for quality in the EU market and horticultural products, along with snack and pet foods, should represent the largest opportunities for U.S. exporters. However, because internal supplies of most commodities are ample and of high quality, continued growth will also depend on the ability of U.S. suppliers to meet EU standards for size, quality, packaging, labeling, and other marketing services. References Ackerman, Karen. "Market Development Programs Help Expand U.S. High-Value Agricultural Exports," Food Review, USDA, Economic Research Service, Vol. 17, No.3, September-October 1994. AgraEurope, Ltd., London. AgraEurope. Various issues. Greene, Joel. "High-Value Food Products Boost Agricultural Exports," Food Review, USDA, Economic Research Service, Vol. 17, No.3, September-October 1994. USDA, Economic Research Service. "Analysis of Horticultural Trade in the European Market -- Implications for the Near East." unpublished manuscript. October, 1993. USDA, Foreign Agricultural Service, Trade and Economic Analysis Division. BICO (Bulk, Intermediate and Consumer Oriented) report. 1995. USDA, Foreign Agricultural Service. "European Union Imports of Horticultural Products in 1993." World Horticultural Trade and U.S. Export Opportunities. FHORT 4-95. April 1995. USDA, Economic Research Service. Foreign Agricultural Trade of the United States (FATUS) database. 1995. High Value Products Find New Markets in Central and Eastern Europe Despite generally stagnant growth in total U.S. agricultural exports to Central and Eastern Europe, exports of high-value products have doubled since 1989, from one-third to two-thirds of total exports. However, this overall upward trend masks widely divergent performances in individual sectors, products, and countries. The increase was led by booming exports of poultry products, with Poland as the largest and most dynamic market. [Timothy J. Smith] The end of communism in Eastern Europe caused tremendous disruption to the region's economies. Beginning in 1989 and 1990, the countries of Central and Eastern Europe (CEE) 4/ began reform programs to make their socialist economies more modern and market-oriented. Price controls were relaxed, resulting in much higher consumer food prices, while producer subsidies were dramatically reduced or eliminated, causing many enterprises to go bankrupt. The collapse of the CMEA (Council on Mutual Economic Assistance, or Comecon) eliminated many traditional export markets and sources of cheap imports, and most countries quickly incurred large trade deficits with developed countries as the demand for western goods far outstripped export capacity. Most new CEE trade was with the European Union, but the United States and other countries have also seen a substantial increase in trade with the region. 1/ CEE countries are: Albania, Bulgaria, Czech & Slovak Republics, Hungary, Poland, Romania, and the former Yugoslav republics (Bosnia-Hercegovina, Croatia, Macedonia, Serbia-Montenegro, and Slovenia). U.S. HVP Exports Have Doubled Since 1989 Despite generally stagnant growth in total agricultural exports to Central and Eastern Europe, U.S. exports of high-value products (HVP's) have doubled from the pre-transition period. High-value products 5/ comprised one-third of total U.S. agricultural exports to the region in 1989, and now account for two-thirds (figure 3.1). The average annual growth rate for this period was 15 percent. However, this overall upward trend masks widely divergent performances in individual sectors, products, and countries. Furthermore, despite the rapid growth of U.S. HVP exports to Central and Eastern Europe, the market remains small, equaling only 1 percent of total U.S. HVP exports (table 3.1). 5/ High-value products include consumer-ready and intermediate goods that have been processed or require special handling. For a more detailed definition of high-value products see "High-value products grow as a share of U.S.- EU trade, elsewhere in this report. In the last pre-transition years (1987-89), U.S. high-value exports to the region averaged $125 million annually. This figure doubled to more than $250 million in 1993 before falling slightly in 1994. Yet not every sector benefitted equally from the new trading environment. The biggest beneficiary was clearly the U.S. poultry sector, which boomed from $1 million in exports to nearly $80 million between 1989 and 1994. Poultry products alone accounted for two-thirds of the overall increase in HVP exports. Other key gainers were the dairy sector (although U.S. dairy exports were also strong during the mid-1980's), and wheat flour donated as food aid. However, large increases in these products were partially offset by sharp declines in other sectors. Hides and skins, oilmeals and oilcakes, and processed feed grain products suffered the biggest declines. Together, these three products comprised more than 80 percent of HVP exports in 1989. By 1994, however, their combined share was a mere 16 percent. Poultry Products Drive HVP Export Growth The livestock sector represents the single most important component of U.S. high-value exports to Central and Eastern Europe (figure 3.2). Trade in animal products ($133 million in 1994) regularly surpasses 50 percent of total high-value exports and comprises 20 to 25 percent of overall U.S. agricultural exports to the region. As the most rapidly expanding export sector to the region, poultry products increased their share from less than 1 percent to 35 percent of HVP exports between 1989 and 1994. Exports to Poland largely accounted for the rise. What few exports there were before 1990 were dominated by trade in live birds. However, after a modest increase, exports of live poultry dipped, reaching a 5-year low in 1994. Poultry meat exports, on the other hand, experienced a meteoric rise, and far out valued live bird exports by 1992. The value of poultry meat exports quadrupled from $8 million to $37 million between 1990 and 1992, then doubled again to nearly $77 million in 1994. Since 1992, two-thirds of poultry exports have gone to Poland, with another 25 percent going to Romania. The rapid growth in U.S. poultry exports is attributable to the decline of the Hungarian poultry industry, the region's traditional supplier, which was decimated by a sharp increase in input prices and the collapse of traditional export markets. Exports of hides and skins, formerly the biggest component of U.S. high-value exports (65 percent in 1989), have fallen sharply, as markets have opened to Western leather goods (thus reducing demand for domestic leather) and traditional export markets for Polish and Romanian leather products have collapsed. U.S. hides and skins exports to the region dropped from $81 million in 1989 to less than $10 million in 1993, although the sector partially recovered in 1994. What remains of the hides and skins trade is mostly bound for former Yugoslavia. Declining Feed Use Reduces U.S. Oilmeal and Oilcake Exports The significant decline in CEE livestock herds has had far-reaching effects on the overall agricultural economy. U.S. exports of both oilmeal/oilcake and feed grain products have fallen off, reflecting diminishing feed demand in the CEE livestock sector. Oilcake and oilmeal exports declined by two-thirds in value since 1989. Before the transition, oilseed products were the second leading HVP export to the region, making up 25 to 40 percent of U.S. HVP exports between 1985 and 1988. However, after 1989 the relative importance of oilseed products diminished and the structure of exports began to change. Oilseed products now claim merely one-tenth of the HVP export market. Pre-transition trade was dominated by oilcake and oilmeal exports to Hungary and Yugoslavia for feed use. However, from 1989 to 1994, vegetable oil exports increased from almost nil to about $14 million, mostly in food aid to Albania and the former Yugoslavia. This increase drove vegetable oil exports ahead of oilcake and oilmeal exports for the first time in 1994. Feed grain products also declined significantly, with 1994 exports down more than $11 million (75 percent) from the 1987-89 average, although huge shipments to Poland drove exports up in 1990 and 1993. Exports of high-value grain products as a whole have increased, however, because of a dramatic increase in wheat flour exports from nil in 1988 to $36 million in 1994. However, nearly all the wheat flour has been shipped as food aid to former Yugoslav republics and Albania, and thus is not a viable indicator of future commercial market trends. Horticultural Product Exports Stabilized Following Transition Exports of fruit, nuts, and wine showed the same broad pattern of increasing substantially during the first year of transition (1990), then declining and stabilizing. Exports of fruits reached nearly $1 million in 1990 but have since stabilized at roughly $600,000 per year, with dried fruits as the preferred variety. Nuts showed the same trend, peaking at $2.7 million in 1990 before declining and stabilizing at about $700,000. Wine exports peaked in 1991 at nearly $750,000, but have since sloped downward. U.S. vegetable exports remain insignificant, despite modest growth; the trend since 1989 has been a shift from canned to frozen vegetables. Poland is the dominant market for fruit, wine, and vegetables, while nut exports show a more varied distribution pattern. These sharp increases are due to the collapse of domestic horticultural production and the sudden availability of U.S. products in the wake of trade liberalization. Exports of sugar and tropical products have experienced modest growth since 1989, peaking in 1992 and 1993 on the strength of sugar exports to Bulgaria and tea exports to Poland. Sugar and tropical exports fell back to pre-transition levels in 1994, although they represent a more diversified range of products, as coffee, cocoa, and tea have all grown substantially. Beverages likewise peaked in 1992 at more than $3 million in exports after a particularly large shipment to Romania. Exports to Poland and the Former Yugoslavia Show Biggest Growth Performance of U.S. HVP exports to Central and Eastern Europe has also varied geographically. Poland and the former Yugoslavia, which together accounted for less than half of high-value exports in 1989, comprised two-thirds of the market by 1994, with exports to both countries increasing nearly $45 million. High-value exports to Poland have grown an average of 30 percent a year since 1989, driven primarily by livestock products, with poultry products alone now accounting for over half of total U.S. agricultural exports and two-thirds of U.S. HVP exports to the region. Poland and Hungary have the region's highest percentage of high-value products as a share of total agricultural imports, averaging around 80 percent during 1992-94. In the former Yugoslavia, annual growth in U.S. high-value exports averaged about 50 percent during 1989-94. However, in contrast with Poland, where the increase was in commercial exports, export growth to the former Yugoslavia was dominated by food aid. The only 2 years that exports to the former Yugoslavia surpassed the pre-transition average (1987-89) were years with large food aid shipments (1992 and 1994). The biggest exports were wheat flour ($36 million in 1994), dairy products ($10 million) and vegetable oils ($7 million). These three sectors alone accounted for 80 percent of high-value exports to the former Yugoslavia in 1994. The large high-value food aid shipments also drove the former Yugoslavia's HVP percentage to more than 60 percent of total U.S. agricultural exports. Prior to 1989, the ratio was never more than one-third. Despite spectacular regional growth, some CEE countries witnessed declining imports of U.S. high-value products. In Romania, for example, high-value product imports from the U.S. were $18 million or 33 percent lower in 1994 than in 1988. In 1988 and 1989, Romania was the region's largest outlet for U.S. high-value goods (44 percent of the region), dominated by hides and skins for Romanian tanneries. However, by 1993 this share had dipped to 12 percent, reflecting the collapse of hides and skins exports and Romania's slower growth compared with other CEE countries. Furthermore, Romania has the lowest proportion of high-value products to overall agricultural imports in the region (about 35 percent). U.S. HVP exports to the Czech and Slovak Republics, Hungary, Bulgaria, and Albania together made up only 16 percent of the CEE market in 1994. Exports to former Czechoslovakia dipped after 1989, but started a recovery in 1991 and are now back to the pre-transition level of about $15 million. Hungary has seen a general upward trend in U.S. high-value imports, although they are still only one-third of their mid-1980's peak of $30 million. Bulgaria remains a largely insignificant market, generally averaging less than $5 million in U.S. high-value imports, while Albania witnessed the largest relative growth, from no trade in 1989 to $20 million (10 percent of the region) in 1992, before falling back to $10 million in 1994. In both 1992 and 1993, exports to Albania ranked above former Czechoslovakia, Hungary, and Bulgaria, although these were mostly in food aid. Steady Growth Expected as Economies Improve Preliminary USDA figures for calendar year 1995 suggest that U.S. exports of feeds and fodders, fruit, fruit juices, vegetables, and chocolate to Central and Eastern Europe will achieve 10-year highs, while nuts and oilcakes and oilmeals will reach post-transition highs. Only the animal hides and skins sector is expected to experience a significant decline in exports in 1995. Overall, the percentage of HVP exports to total agricultural exports should increase for the fifth straight year. The outlook for continued growth in high-value exports is mixed. HVP exports to the region have doubled in the last five years and many sectors should continue to grow as the purchasing power of Central and Eastern Europeans improves and market access widens under the Uruguay Round Agreement. Poultry exports, which have been the primary force behind HVP export growth, should continue to grow in the short term as incomes rise and U.S. producers maintain their comparative advantage. In the long term, however, the region's poultry sectors (particularly in Hungary) should recover and U.S. exports will decline. The eventual accession of CEE countries to the European Union will further hamper U.S. exports as the principle of "community preference" drives out non-EU goods. Another strength is the diversified U.S. export profile compared with pre-transition years. Although a few major commodities still dominate HVP exports to the region, the overall breakdown is more differentiated, reflecting rising incomes and the opening of economies to western goods. This diversification should render overall U.S. HVP exports less sensitive to shocks in one or two key commodities. References Agra Europe, Ltd. Agra Europe. Various issues. Agra Europe, Ltd. East Europe Agriculture and Food Monthly. Various issues. USDA, Economic Research Service. Foreign Agricultural Trade of the United States (FATUS), database. 1995 Grain Output To Expand in 1996, But Markets Tight in the Near Term EU grain production is expected to expand in 1996, largely because the set-aside rate has been reduced in response to tight supplies. The EU began the 1995/96 marketing year by suspending export subsidies for wheat, and placed an export tax on wheat in early December. Unsubsidized wheat exports have kept EU wheat on the world market, but the EU is not expected to exceed its export subsidy limits set under the Uruguay Round agreement [Mary Lisa Madell]. European winter grain plantings for the 1996/97 marketing year proceeded without major weather complications. Plantings are expected to be up because of a lower set-aside rate. A 10-percent rate will apply for both the rotational and non-rotational set-asides (see Glossary for definitions). The EU Commission has estimated that an additional 1.6 million hectares could be planted to arable crops because of the lower rate. Given the limitations on oilseeds area imposed by the Blair House Agreement, and generally unfavorable margins for protein crops, most of the additional area is expected to be planted to grains. Spain, where a 3-year drought has drastically cut grain output, received some much needed precipitation in the late fall and early winter. Producers may be sufficiently encouraged to increase grain plantings. The reduction in the set-aside rate will affect average yields as well. Generally, land placed in the non-rotational set-aside is the least productive land. When some of this area is planted again, it may produce less than average yields. Also, farmers may not have anticipated being able to bring this area back into production and the land may have weed or nutrient problems that would make it less productive. However, under the rotational set-aside, farmers withdraw their worst land first. By now, the fourth time that they set aside, they will be withdrawing their better land. A lower set-aside rate on this less marginal land will moderate any tendency to decrease yields. If it is assumed that most of the land brought back into production is planted to grains, and to wheat in particular, and that yields will be comparable to the 1995 harvest, total grain output could increase between 7 and 8 million tons. The increase would be even larger if better weather in Spain expands wheat and barley plantings there. Tight Wheat Supplies Dictate EU Grain Policy Current tight wheat supplies and resulting higher prices are the dominant factors behind EU grain policy developments. The lower set-aside rate for the 1996/97 marketing year is designed to increase supplies and contain internal prices. The basic (rotational) set-aside rate was cut from 12 to 10 percent. The rate for non-rotational and combination set-aside (both rotational and non-rotational) was reduced even further, from 17 to 10 percent (and from 13 to 10 percent in the United Kingdom and Denmark). As originally designed, the non-rotational set-aside requires a higher rate than the rotational rate, so that the production-limiting effects of both types will be the same. The significant reduction in the non-rotational rate should encourage more farmers to choose this option. At the beginning of 1995/96, intervention wheat stocks had largely been eliminated. Sales of intervention barley to Spain have kept stocks low, leaving only rye stocks at relatively high intervention levels. The reduction in intervention stocks shows the tightness in most EU grain markets, particularly for wheat. Under CAP reform, grain production has dropped because of the set-aside, and lower prices have encouraged higher feed use. Supplies on the market have been limited, even in the immediate post-harvest period. Farmers have opted to hold onto their grain in anticipation of higher market prices or for use as feed on-farm. The reduction of grain prices under CAP reform was key in increasing feed use of grains. With market prices significantly above intervention levels, EU livestock producers are pressuring the Commission to force prices down. Grain feeding will be influenced by prices for non-grain feeds. Many of these, such as corn gluten feed, are imported, and the Commission cannot directly affect their prices. Current world prices for non-grain feeds are high, and recent exchange rate movements have further increased them in EU markets. Should this situation persist, grain feeding would not decline, but livestock production would face very high feed costs. The impact of the set-aside has not been uniform across grains. Rye area has actually expanded, although from a small base. Rye has become popular because it is not an input-intensive crop, and because currently available hybrids offer good, predictable yields. Producers have removed more barley area to meet their set-aside requirement, while wheat area has not fallen as much. Yet the demand for wheat as feed has grown more than for barley, as farmers view it as a superior feed. Market Prices for Grains Continue High Like last year, EU wheat prices began the 1995/96 marketing year above the intervention price (figure 4.1). In the United Kingdom, Ireland, and Italy, market prices have been higher than a year earlier. The Commission is quite concerned that prices above intervention levels will discourage feed use (figures 4.2 and 4.3). At the beginning of last year, the Commission released large quantities of wheat on the internal market in an effort to bring prices down. With virtually no wheat in intervention stores this year, the Commission opted to suspend tenders for export subsidies for wheat from late July to mid-November. Exports have nevertheless continued because of unsubsidized wheat sales to third markets. In fact, EU wheat export license authorizations through late December were slightly below the level for the same period last year. Export licences for 5 million tons of wheat and 2.3 million tons of wheat flour were issued by the week ending December 20. The strong pace of export sales and slow sales off the farm have kept market prices high. On December 7, the EU imposed an export tax on wheat for the first time since 1974, because of very high prices in the world market. The tax was set at 25 ECU's per ton. The tax is a further measure to help the Community keep wheat on the internal market. In this environment, the EU will find it difficult to rebuild its intervention stocks substantially. Uruguay Round Limits Not a Problem in 1995/96 Despite continued wheat exports, total EU wheat exports are not expected to reach the limits imposed on subsidized exports in the World Trade Organization (WTO). For the first year of the Uruguay Round implementation, which began July 1, 1995, the EU is allowed to subsidize up to 19.1 million tons of wheat and wheat flour. However, total exports for the year are currently forecast at only 16.5 million tons. Unsubsidized exports are not subject to the limit. According to the Uruguay Round agreement, quantities unfilled in one year cannot be taken up in a later year. As of late December, coarse grain exports are down compared to the same period last season. Barley export licenses, at 1.2 million tons, were less than 30 percent of the quantity issued last year. Malt export licenses were down 20 percent. Advance fixing of malt export refunds for malt was suspended temporarily in late October, decreasing the appeal of the export market. By contrast, export licenses for over 1.1 million tons of rye were issued, compared with 700,200 tons last year. Most of these are for bread rye in German intervention stores. The Commission appears to want to use exports to hold down intervention stocks of rye. References Agra Europe, Ltd. Agra Europe. London. Various issues. European Commission. The Agricultural Situation in the Community, 1994 Report. Brussels. 1994. Home Grown Cereals Authority. Weekly Digest and Weekly Bulletin. London. Various issues. Alfred C. Toepfer International GmbH. Toefer International Market Review. Hamburg. Various issues. USDA, Foreign Agricultural Service. Export Markets for U.S. Grain and Products. Various issues. USDA, Foreign Agricultural Service. World Grain Situation and Outlook. Various issues. Zentrale Markt- und Preisberichtstelle, GmbH. Bonn. Various periodical market reports. Higher Oilseed Plantings Expected To Follow Near-Record Crop Oilseed production rose in 1995 as higher yields offset lower area. Industrial oilseed area continued to grow. Oilseed area and output are expected to rise again in 1996 with a further reduction in the set-aside rate and as Spain recovers from a drought-reduced 1995 crop. Oilseed imports are expected to be down in 1995/96 due to larger domestic supplies. High prices for oilseed products are expected to push crush to record levels, yet high grain prices will continue to make oilseed meal attractive. [Mary Anne Normile] EU oilseed production rose in 1995 despite reduced area. Production of the three major oilseeds (rapeseed, sunflowerseed, and soybeans) is estimated at 12.8 million tons, up 0.5 million tons from 1994. Total oilseed production, which includes linseed and other minor oilseeds, will likely exceed 13 million tons. EU oilseed area for the three major oilseeds fell in 1995 from about 6 million hectares to 5.6 million in response to cuts in the oilseed compensation payment for some producers triggered by 1994/95 overplanting and due to a sharp reduction in Spanish sunflowerseed area. Area fell even though the set-aside was reduced from 15 percent to 12 percent, thereby increasing the acreage that could be planted to oilseeds without triggering penalties. The rise in oilseed production was led by a sharp increase in production of rapeseed, as area rose from 2.8 million hectares in 1994 to 2.88 million, and strikingly higher yields (2.95 tons per hectare, up from 2.57 in the previous year). Area and production of both sunflowerseed and soybeans declined in 1995. Sunflowerseed output was down by an estimated 714,000 tons because of the drought-induced collapse of Spain's crop and lower production in France. Soybean area has never fully recovered in Italy, the EU's main producer, where it fell following the 1992 revision to the oilseed regime that eliminated support to double-cropped soybeans. Blair House Agreement Will Continue To Limit Oilseed Area Area planted to the three major oilseeds is limited under the terms of the Blair House Agreement. In 1995, the oilseed area receiving compensation payments under the EU's oilseed support regime was limited to 4.824 million hectares (table 5.1). This figure reflects a set-aside rate of 12 percent for the 1995 crop and the additional oilseed base area resulting from the recent EU enlargement 6/ Lower area planted and the reduction in the set-aside rate put EU oilseed area eligible for compensation payments below the Blair House limit. EU-12 oilseed area exceeded the limit in 1994/95, resulting in cuts in oilseed payments of 10 percent or more to producers in countries where significant overplanting occurred (Ireland, Germany, and the UK, and Spain and Portugal for non-sunflowerseed oilseeds). 6/ Under the terms of the Blair House Agreement, the entry of Austria, Finland, and Sweden into the EU raised the oilseed base area to 5.482 million hectares from 5.128 for the EU-12. The base area is reduced by the arable crops set-aside rate or 10 percent, whichever is higher, to produce the oilseed area ceiling. Producers in Germany, Spain, and the UK responded to cuts in their direct payments by reducing 1995 oilseed area. Large payment cuts (18 percent) were levied on German producers because of overplanting last year. Consequently, the fear of incurring the larger penalties that would result from a second straight year of overplanting led German producers to plant other crops. French oilseed area rose mainly on the strength of higher rapeseed planting, especially industrial rapeseed grown on set-aside. French oilseed producers incurred small payment cuts (4 percent) last year, and were encouraged by French government policies to plant industrial oilseeds. In Spain, once the EU's largest producer of sunflowerseed, area has fallen off dramatically since the early 1990's, in response to reductions in support and the effects of a long-term drought. In addition, some Spanish sunflower plantings were abandoned this year because of extremely low yields. The EU's three new members--Austria, Finland, Sweden--accounted for 366,000 hectares of oilseeds, most of which was planted to rapeseed. The official estimate of set-aside area planted to oilseeds for industrial use is not yet available. However, it is believed to have risen to 900-950,000 hectares, up from 600,000 in 1994/95, despite the lower set-aside requirement (a higher set-aside requirement results in an increase in set-aside land eligible for the industrial crop program). Under the CAP's arable crops scheme, producers may plant certain crops, including oilseeds for non-food use, on set-aside land. This area qualifies as set-aside under the arable crops scheme, and the producer is paid the set-aside premium for this acreage in addition to any proceeds from sale of the crop. Industrial oilseed production continues to flourish in the EU as outlets for industrial seed expand with the development of biodiesel processing capacity and with favorable tax treatment and other national policies that encourage use of agricultural products for fuel. The final industrial oilseed area could approach the Blair House limit of 1 million tons in soybean meal equivalent for oilseeds planted on set-aside. The EU has not yet fully implemented measures to ensure that the limit is not exceeded. Because of the large 1995 crop, oilseed imports, excluding intra-trade, may be down slightly in 1995/96. Soybeans are expected to decline slightly (from 15.1 to 14.8 million tons), rapeseed imports, excluding intra-trade, will likely decline more sharply due to higher domestic supplies, while imports of sunflowerseed will expand (from 2.0 to 2.5 million tons) due to the short EU crop. Continued Output Growth Forecast for 1996 Oilseed area and production will likely increase in 1996, as the set-aside rate has been lowered to 10 percent. Producers will also be less wary of incurring large payment cuts, because no penalties were assessed this year. Under the terms of the Blair House Agreement, penalties for overplanting oilseeds in consecutive years are cumulative, but payments are restored to their base level in a year when the limit is not exceeded. Oilseed crush is anticipated to be record high at nearly 29 million tons, generating record production of oilseed meal. High prices for vegetable oils and protein meals are keeping crush margins high and raising crush demand for oilseeds. Meal consumption is forecast to reach record levels in 1995/96, with consumption of oilseed meals up about 250,000 tons from last year. Soybean meal use is expected to decline very slightly as it is replaced by increased supplies of rapeseed meal from EU production and sunflowerseed meal from increased crush of domestic and imported seed. High grain prices continue to make oilseed meal attractive to feed compounders, although the imposition of export taxes on wheat and barley will lower prices of these grains within the EU, which will expand the use of grain for feed. Imports of soybean meal are expected to decline slightly as a result. Production of vegetable oil is also expected to reach a record. Oil consumption will be higher, due in large part to increased industrial use of oils for production of biodiesel. Rapeseed oil use is projected to expand more than 30 percent due to biodiesel production. References AgraEurope, Ltd. Agra Europe. London. Various issues. USDA, Foreign Agricultural Service. Oilseeds: World Markets and Trade. Various issues. Prices Rebound as Surging Beef Exports Deplete EU Stocks A surge of beef exports in 1995 has almost completely depleted intervention stocks and reversed the downward trend in market prices. However, beef consumption continues to fall in the face of lingering health concerns and lower prices for competing meats. [Timothy J. Smith] After several years of decline, beef and veal production in the European Union edged upward in 1995. Production for the EU-15 is estimated at 8.1 million tons for 1995, up 1 percent from the previous year and the first production gain since 1991. The increase is due mainly to cyclical factors and higher prices stemming from booming export demand, particularly in the Middle East and Russia. Growth in output was stagnant in most member states, with France and the United Kingdom accounting for most of the overall increase. Export Surge Depletes Intervention Stores Adult bovine cattle prices in the European Union shot up 10 percent in 1995 in response to a tighter market and disappearing surpluses. Intervention stocks plummeted from more than 1 million tons in 1992 to about 10,000 in mid-1995, prompting speculation that the EU beef intervention system would be suspended by the end of the year, as surpluses are eliminated. Over 3 million tons of EU beef have been exported since 1992, much of it from intervention stocks, at a cost of 4.5 billion ECU ($5.8 billion) to European taxpayers. Beef has not been bought into intervention since May 1993, while stocks were sold very rapidly. The regulation defining the maximum carcass weight for intervention beef may be annulled. The European Court of Justice ruled that the Commission exceeded its authority when it introduced the measure in 1993. Ireland and France argued successfully that such a measure could only be approved by the Council of Ministers. If the slaughterweight limit is annulled, the Council of Ministers will likely replace it with similar legislation. Ireland remains the biggest beef exporter, supplying roughly one- third of total EU exports. The largest market is still Egypt (228,000 tons). Sales to Russia, however, grew sharply in 1995 in response to economic development and Moscow's new emphasis on hard currency trading. British beef exports rebounded after London persuaded more Middle Eastern countries to remove their BSE (bovine spongiform encephalopathy, or "mad cow disease") restrictions on UK beef. The restrictions went up in 1989 in the wake of the BSE epidemic. In 1994/95, Cyprus and Tunisia lifted their restrictions, and Jordan was expected to follow suit. Meanwhile, Egypt agreed to accept boneless beef under certain conditions, although it still prohibits imports of bone-in beef and live cattle. The UK is relying on increased exports to prevent national oversupply if and when EU beef production increases in the next 2 to 3 years. In mid- 1995, two-thirds of EU intervention stocks were held in Britain. This year's surge in EU beef exports to third countries led the Commission to cut export restitutions by 7.5 percent on live cattle and 5 percent on carcass beef, causing producers in Ireland to complain about possible instability and reduced producer confidence. The Commission is also taking steps to prevent traders from stockpiling unused export licenses for increased security. The Commission implored exporters to use up their export licenses before applying for new ones, and threatened to suspend issuing licenses altogether. There is a continuing budgetary problem as long as exports require subsidization. The cost of export restitutions (subsidies) averages 1.1 billion ECU ($1.4 billion) per year, while intervention purchases and the payment of suckler cow and beef special premia cost over 3 billion ECU ($3.9 billion). While EU exports of live cattle have surged, imports, primarily from Central and Eastern Europe (CEE), have fallen sharply due to policy changes, disease outbreaks, and declining herd sizes in the CEE countries. Italy is the EU's biggest live cattle importer, while Germany leads in fresh beef imports. Declining Consumption Contributes to Beef Surpluses The main concern in the EU beef and veal sector continues to be the long-term downward trend in consumption, which has fallen from 25 kg to 21 kg per capita since 1985. Consumption is falling as quickly as production - resulting in an average annual surplus of 300,000 to 400,000 tons. The decline in beef consumption is attributed to lower prices for competing meats (especially poultry) and lingering health and welfare concerns (figure 6.1). An important effect of both CAP reform and the Uruguay Round is to alter the competitive relationship between the major meats. The expected reduction in feed grain prices will reduce input costs and stimulate growth in the pork and poultry sectors to the detriment of beef and veal producers. Public concerns about animal welfare issues have fueled a movement to regulate live animal transshipments, to mandate labeling of certain livestock products, and to abolish the use of veal crates. Veal production and consumption are both down 10 percent from last year and the major producers - France and the Netherlands - are anticipating further declines due to difficulties in obtaining calves from the UK. EU Enlargement Will Have Minimal Effect on Beef and Veal Sector The accession of Austria, Finland, and Sweden to the European Union (effective January 1, 1995) will have a minimal impact on the EU beef and veal sector as a whole. The new members will add only 6 percent to production and 5 percent to consumption. Significant disruptions are already affecting the Finnish market, however. Prices have fallen dramatically in Finland and producers are enjoying a surge of exports to EU markets, particularly Sweden. Sweden and Austria will experience a smoother transition, having already adjusted most of their markets and policies to EU norms prior to accession. Of the three new members, Austria is the largest beef and veal producer, at more than 200,000 tons per year, but ranks only ninth in the EU. Austria and Finland are net exporters, while Sweden has traditionally been an importer. Enlargement will, however, have a significant effect on U.S. exports to Austria, as the new members apply the EU's continuing ban on beef from hormone-treated cattle. Prior to accession to the EU, Austria had a high quality beef (HQB) quota with the United States of 1,000 tons. Beginning in 1995, U.S. beef exports to Austria were subject to the EU hormone ban, and dropped more than 90 percent to less than $500,000. Other factors restricting U.S. beef exports are recovering EU production due to cyclical factors and declining demand driven by the downward trend in consumption. Agricultural Commissioner Franz Fischler proposed a reassessment of the EU hormone ban affecting U.S. meat. He said a reassessment was required because new substances are now available, new scientific evidence must be considered, and public perceptions must be readdressed. Under the Uruguay Round Sanitary and Phytosanitary (SPS) Measures, countries may impose trade controls "to protect human, animal or plant life or health," if the measures are based on scientific evidence and are not discriminatory. The U.S. asserts that the EU hormone ban is not based on science. A public forum was held on the issue in late November, at which European scientists concluded that the growth hormones posed no health risks. Developments in the dairy sector have a significant effect on beef and veal markets due to the large proportion of beef produced from dairy cows. The number of dairy cows is declining throughout the EU. Dairy herds have slowly declined because productivity gains have to be offset to keep production under the maximum amount allowed under the milk quota scheme. Southern Europe, where milk yields are 20 percent below the EU average, has the biggest scope for productivity gains. These are often achieved by eliminating small farms with low yields. The major exception is in France, where farmers apparently prefer to enlarge herd sizes rather than increase productivity. The pressure of milk quotas in reducing cow numbers has a direct impact on the supply of cattle going for finishing, thus limiting growth in the beef/veal sector. Small Rise in Production Forecast for 1996 Slaughter numbers are expected to remain constant in 1996, while the trend of increasing carcass weights continues, resulting in a very modest increase in production. Uruguay Round commitments are unlikely to affect trade in the near term. Imports from Central and Eastern Europe are increasing due to association agreements with the European Union which have lowered trade barriers and increased consumer purchasing power. EU export limits under the Uruguay Round Agreement are not likely to affect trade for several years now that surpluses have been depleted. However, beef exports will decline by about 15 percent in 1996, reflecting the depletion of intervention stocks. Ireland and France will suffer the greatest reductions. Imports are expected to be unchanged from the 1995 level. U.S. exports to the EU will increase significantly only if the EU lifts its ban on hormone-treated beef. References Agra Europe, Ltd. Agra Europe. London. Various issues. Agra Europe, Ltd. CAP Monitor. London. European Commission. The Agricultural Situation in the Community. Brussels. Various years. Sloyan, Mick. Outlook for Meat and Livestock. London: UK Meat and Livestock Commission, February 1995. USDA, Foreign Agricultural Service. Livestock and Poultry: World Markets and Trade. October 1995. USDA, Foreign Agricultural Service. Agricultural Attache Reports. Various reports. EU Pork and Poultry Exports Face Uruguay Round Limits Despite higher prices in 1995, pork production and consumption remained nearly unchanged from 1994. Growth in poultry production and consumption slowed. Pork and poultry exports are likely to decline as Uruguay Round limits take hold, export subsidies fall, and marginal producers fall out of the market. [Elizabeth Jones] EU-15 pigmeat production is forecast at 15.2 million tons in 1995, just short of 1994's 15.32 million. Production was affected by hot weather during the summer in most pig producing countries, which slowed growth rates and reduced the number of pigs available for slaughter beginning in November and running through January or February. However, supplies are expected to remain abundant. Pork production is expected to remain unchanged in 1996. Pork Production Declines in 1995 Pork production continued to fall in Germany in 1995 due to a drop in hog inventories and outbreaks of hog cholera (figure 7.1). Imports of slaughtered hogs increased in 1995 with further increases expected in 1996, as the Dutch and Danish ship more hogs to Germany. Production continues to fall in the Netherlands due to prolonged low prices. France increased pork production in 1995, with the goal of becoming a leading EU pork producer and a larger EU exporter. EU-15 pork consumption remained stable at 14.2 million tons in 1995 and is expected to fall slightly in 1996. Per capita consumption is stable or rising in most EU countries (figure 7.2). However, in Germany per capita consumption declined in 1994 and 1995 due to a slight rise in price and scares about hog cholera and meat hygiene. The BSE scare on beef and the program to eradicate classical swine fever reduced beef and pigmeat consumption, as the disease became linked with meat eating. In 1995, Germany accounted for 27 percent of total EU pork consumption. Between 1993 and 1995, German pork consumption declined 3.8 percent, or 1 percent of total EU consumption, a significant amount. EU-15 herd numbers dropped 1.5 percent in 1995 to 116.3 million pigs, returning to 1993 levels. Herd sizes declined in Germany-- the largest EU pig producer (5 percent), Portugal (9 percent), Greece (4 percent), and Italy (4 percent), and are expected to continue declining until first-quarter 1996. EU herd numbers are expected to decline slightly in 1996 to 115.4 million. German herds dropped as outbreaks of hog cholera from April 1993 to March 1995 forced large scale slaughter. Hog inventories are expected to drop in 1996 due to reduced sow stocks, falling prices, and increased imports from Denmark and the Netherlands. German hog production and marketing are less efficient and profitable than that of its neighbors. Herds expanded in France, Spain, and Ireland. France and Spain have increased inventories by taking advantage of cheaper grain prices and available land. Dutch hog inventories will remain unchanged, as producers struggle to resolve several potentially production-limiting problems. With CAP reform and the fall in grain prices, the Dutch have lost some of their competitive edge of low feed costs compared with producers in grain-producing countries, who can now provide feed rations on a cost-effective basis. Secondly, Dutch production, long characterized by intensive rearing practices and densely populated animal inventories, now finds itself constrained by a lack of sufficient land to dispose of animal manure. Pigmeat Prices Climb in 1995 EU pigmeat prices, boosted by private storage aids and declining production, returned to 1990-92 levels in 1995, after remaining low throughout 1994. The Commission granted private storage aids beginning in February for pig carcases to boost prices, thereby increasing the market value of pork. Some 70,000 tons of meat were temporarily stored in refrigerated warehouses for 3 months. Prices slowly climbed during the first 10 months of 1995, reaching a high of 152 ECU ($197) per 100 kg in August. A temporary surge in Japanese demand drove slaughter pig prices up in Denmark, France, and the Netherlands during autumn 1995. Wholesale bacon prices jumped 40 percent. The average pork price in France increased again in 1995, after declining 27 percent in 1993. In the Netherlands, pork prices increased more, when compared with increases in beef or poultry prices, but still remained low. Low market prices in Germany drove profit margins down for producers, resulting in lower production and increased imports. Subsidized Exports To Fall as Competition Stiffens The EU pork market is largely dependent on exports to third countries. In 1995, the EU-15 is forecast to export approximately 736,000 tons of pigmeat, slightly less than in 1994. While exports are projected to rise slightly in 1996, they are not likely to increase significantly in the future due to the Uruguay Round (UR) agreements. Most of this trade is exported with subsidies. Under the UR, the EU committed to reduce the volume of subsidized exports beginning in 1995 from 477,000 tons to 388,000 tons by the year 2000. Export subsidies will be reduced in value from $210.3 million in 1995 to $143.2 million in 2000. Denmark, the largest EU exporter, faces increasingly stiff competition from the United States in its East Asian and Japanese markets. Japan is presently the EU's largest single-country export market. EU exports of pigmeat to Japan are characteristically a high-value product shipped without the aid of export subsides, and therefore, were not included as part of the EU's UR commitment. In 1994, Denmark sold 133,000 tons of pigmeat to Japan, while the Netherlands sold 3,000 tons, and France sold 400 tons. Although demand for pigmeat in Hong Kong, Taiwan, South Korea, and Southeast Asian countries has increased, other trade is diminishing. For example, Danish exports to Japan dropped 6 percent from a year earlier in 1994, and 8 percent in the first 6 months of 1995. As external markets shrink, these exports will likely turn to Europe, depressing prices and profitability. Other important export markets have included the United States, Russia, and Eastern Europe, specifically Poland. Exports to Russia and Poland are generally of lower quality, such as luncheon meat and salamis. Opportunities for continued or expanded trade with Russia are very uncertain, as previous exports were aided by special subsidies. In 1998 the pig cycle is expected to peak, potentially resulting in large pork surpluses. Pork, which was previously exported with subsides, will likely remain on the internal market. The profitability of the pigmeat sector will depend upon a significant reduction in production costs, specifically for feed grains, as producers attempt to clear the market without export subsidies. For many producers, the recent declines in grain prices have not reduced production costs to levels where pork production remains profitable. As the volume of subsidized exports declines, to meet the UR agreement, marginal producers are likely to fall out of production. Whether the EU will eliminate or reduce the value of refunds on high-value products while maintaining or increasing refunds at full levels for lower-valued products remains uncertain. Poultry Production and Consumption Rises Slowing EU-15 poultry production increased 2 percent in 1995 to 7.5 million tons, with production up slightly in France, the leading EU producer, the Netherlands, Spain, Italy, and the UK. Although growth in production is slowing in France, poultrymeat production is expected to rise 3 percent in 1995. EU poultry production is forecast to decline 1 percent in 1996, mainly due to production declines forecast for France and Italy. EU-15 poultrymeat consumption rose 2.3 percent in 1995 to 6.9 million tons. Consumption is forecast to rise slightly in 1996. Per capita poultry consumption rose in 1995 but is expected to decline slightly in 1996, with the largest decline forecast for Italy. Broiler meat consumption continued to rise in 1995, maintaining its position as the most popular poultrymeat in the EU at 67 percent of total consumption. Turkey consumption was unable to keep pace with production in 1995, a shift from recent years in which both have soared. As a result, producer and wholesale prices fell sharply. France, the Netherlands, Italy, and the UK are the main turkey producers in the EU. France accounted for 41 percent of EU turkeymeat production in 1995, up slightly from 1994. Although turkey hatchings in France increased 9.2 percent during the first 7 months of 1995, the rate of growth has slowed. Hatchings are also up in Italy and the UK. However, increased hatchings may not lead to higher production, as hot summer weather reduced slaughter weights. Exports were equal to 31 percent of EU turkeymeat production in 1994, of which approximately two-thirds went to other EU countries. France is the leading exporter of turkeymeat, increasingly exporting a greater share of its surplus. Germany is the biggest EU importer of turkeymeat, principally importing from France. Poultrymeat Exports Continue To Rise in 1995 EU exports of poultrymeat are forecast to rise 2.5 percent in 1995 to 783,000 tons, with broilermeat representing the large share. France and the Netherlands are the leading EU exporters. Dutch exports of broilermeat and turkeymeat rose almost 25 percent in the first half of 1995, with exports principally going to Russia, and lesser amounts to Hong Kong, China, Singapore, Africa, Ukraine, and the Baltic States. French poultry exports increased 19 percent from January to June 1995, with half the exports going to destinations within the EU. French sales of broilermeat to third countries picked up in 1995, while turkey exports dropped below 1994 levels. Poultrymeat exports are forecast to rise 7.6 percent in 1996, as the EU seeks to maintain its markets in the Middle East and the former Soviet Union. EU poultrymeat imports rose 7 percent in 1995, with Germany, the Netherlands, and the UK as major importers. French imports rose 10 percent in 1995, with broilermeat increasing 18 percent, turkey rising 64 percent, and ducks rising 6 percent. EU imports are forecast to rise 3.8 percent in 1996, reflecting a 3.3-percent rise in broiler meat and a 2.6-percent rise in turkeymeat. Poultry Market Faces Uruguay Round Agreement Limits The EU poultrymeat sector, particularly for chicken and turkey exports, is facing a serious market situation as UR limits on the volume and value of subsidized exports began to take effect in 1995. Rapid expansion in the poultrymeat sector was fueled by the availability of export refunds during the first half of the 1990s. The EU poultry industry is unable to compete on the world market without export refunds unless production costs fall significantly. So far, grain prices have not declined sufficiently to reduce feed prices. Feed costs represent 60- 70 percent of the total cost of poultry production. As the limits on subsidized exports take hold, poultrymeat surpluses previously exported with the aid of subsidies will likely be returned to the internal market, depressing prices and producer returns. Duck and guinea fowl, while not directly affected by the UR agreements, will suffer as competition from other meats in the EU picks up. Under the UR agreements, the EU committed to reduce exports of poultrymeat to 290,000 tons by the year 2000, a reduction of 37 percent from 1994 levels. In budgetary terms, the EU agreed to reduce expenditures 36 percent from the base years, 1986-90, by the year 2000. However, given the rapid growth in exports in recent years, by the year 2000 this cut will reflect a 61-percent reduction in expenditures from 1994. During the 1990's, poultrymeat production and exports greatly expanded, with the largest growth in France and the Federal Republic of Germany. Total German exports increased 29 percent from 74,00 tons in 1991 to 96,000 tons in 1994, some of which may have been re-exports from other EU countries. Over this period, French extra-exports increased 75 percent, while production grew 11 percent and consumption grew only 4 percent. Danish production increased 25 percent, with extra-EU exports increasing 43 percent. Over that period, despite competitive pricing with other EU meats, EU consumption of poultrymeat increased only 2 percent, with exports, supported by EU subsidies, absorbing production surpluses. With WTO limits, the EU will no longer have an outlet for increased production, unless it can greatly expand unsubsidized exports. Not only are WTO limits a problem, but the EU may be losing a share of the world poultry market as competition from third countries picks up, particularly from the United States. French exports to the Middle East have felt the pressure since mid-1994 as domestic production within the region increases and competition stiffens. U.S. competition is also being felt in Central and Eastern Europe and the former Soviet Union. So far, EU production has not adjusted to this changing export market. Given present feed costs, further expansion of the EU poultrymeat industry will likely be limited to production that can be exported without subsidies. References Agra Europe, Ltd. AgraEurope. London. Various issues. USDA, Foreign Agricultural Service. Livestock and Poultry: World Markets and Trade. October 1995. USDA, Foreign Agricultural Service. Agricultural Attache Reports. Various reports. Fruit and Vegetable Proposal Gives New Life to Producer Groups A new proposal to reform the EU fruit and vegetable sector would reduce payments to farmers to withdraw surplus production from the market while strengthening the role of producer organizations. The EU's extensive system trading regime for fruits and vegetables would remain largely intact . [Linda A. Scott] A new proposal to reform the Common Market Organization for fruits and vegetables was adopted by the EU College of Commissioners on October 4, 1995. The proposal, which has yet to be ratified by the Council of Ministers or EU Parliament, is the latest in a series of reforms to the EU Common Agricultural Policy that began in 1992 for most other commodity sectors. Overall, the proposal is a modest one that largely maintains the current regime of export refunds, processing subsidies, and trade barriers while reallocating public expenditures from the short-term disposal of market surpluses to long-term market development (see "HVPs Dominate U.S. Exports to the EU" in this report). The Commission's central objectives under the proposal are twofold; to increase the sector's capacity to respond to changing global and domestic market conditions by strengthening producer organizations and to reduce surplus production and budgetary outlays by lowering producer price supports channeled through the withdrawal system. Commodity Withdrawals Will Decline Under Proposal Under current policy, the primary mechanism to support fruit and vegetable producers is the maintenance of a floor price under which farmers are paid to withdraw produce from the market during periods of surplus. Unlike regimes for other commodities, the support price is set well below market levels and acts largely as a safety net to insulate the market from sharp fluctuations in supply, although the low support price has not discouraged some farmers from growing produce primarily for withdrawal payments. An estimated 2.5 million tons of the 14 commodities covered by the system were withdrawn from the market in 1993/94 and withdrawals accounted for about one-third of total EU expenditures for fruit and vegetable intervention (figure 8.1). The system is operated by producers' organizations in member states, many of which exist primarily to manage withdrawal payments. Farmers must be members of a producer group to participate in the program. Besides its significant budgetary drain, the withdrawal system has been criticized for encouraging abuse by allowing farmers to produce poor quality produce solely for intervention and for threatening the environment with large quantities of waste produce (figure 8.2). Although in theory, the surplus commodities are disposed of through hospitals and charities or used for animal feed, in practice, logistical and cost constraints typically result in their large-scale destruction. Environmental groups have recently expressed concerns that the substantial quantities of rotting produce typically generated by the withdrawal regime, 60 percent of the total on average, has polluted water supplies and provided breeding grounds for harmful insects. Withdrawal Expenditures Will Drop by Half or More The reform proposal would change the current support system by gradually reducing the prices that farmers receive for withdrawn produce while limiting the quantity of surplus produce that could be offered for compensation. Withdrawal expenditures would decline 60 percent to 128 million ECU ($166 million) between 1996 and 2001 with the price adjustments phased in gradually over the 5-year reform period. Withdrawal prices would be set at the lowest average 1995/96 price in the first year following the agreement and cut 15 percent by 2001. Withdrawal payments would be further reduced by placing a ceiling on the maximum quantity of marketed produce that may be offered for withdrawal from 50 percent of the total quantity of a product traded by an organization in the second year of the agreement to 10 percent by 2001. For example, an organization that markets 100,000 tons of fresh apples in a given year would be limited to annual withdrawals of 50,000 tons in 1997 and 10,000 tons by the end of the reform period (figure 8.3). Expanded Role Proposed for Producer Organizations Although the proposed reforms would generate substantial budgetary savings through declining price supports, larger payments to producers' groups would make the overall proposal largely budget neutral. Producers' organizations, which currently receive no state support beyond withdrawal payments, would see their funding rise to 257 million ECU ($334 million) in 2001. The new funds would be used to create long-term market development programs by farmers' groups, including sustainable production practices, production planning, consumer promotions, and increased production of organic produce. Half an organization's operating budget would be self-financed through a levy on marketed production, while the other half would come from public matching funds up to a limit of 50 percent of total expenditures. The Commission would finance 80 percent of the matching funds, while 20 percent would come from member states. Producer organizations that operate across state lines would receive 60 percent of their funding from appropriated monies. Although the funds are intended primarily for marketing purposes, to ease the transition to lower price supports, up to 40 percent of a producer's organization's operating budget may be used for withdrawals during the first year of the reform with the percentage declining to 10 percent by 2001. Producers' organizations would be further empowered by a new rule that would bind nonmembers to an organization's marketing rules if two-thirds or more of the producers in an area join the group. Processing subsidies would be limited to those processors who have contracts with recognized producer organizations. New Quality Standards Will Be Put in Place The Commission hopes to further improve the efficiency of the marketing system by mandating the adoption of United Nations' quality standards for fruits and vegetables. The standards are close to those already in place in the Union and would apply to all marketed commodities except those destined for farmers' markets, processing, packaging, or storage. An oversight board, consisting of inspectors from both the Commission and member states, would be created to ensure compliance with the new regime. Taken together, the economic implications of the proposal are expected to be modest. While considerable cost savings and environmental improvements are likely to be realized by reducing withdrawal payments, increased Commission and state funding for producer groups and generous subsidies for fruit and vegetable processors would continue to burden taxpayers with large budgetary expenditures. The proposal would do little to reduce export refunds as most of the produce currently withdrawn is typically of poor quality and ineligible for export restitution. Furthermore, with the withdrawal price set far below the market average, the proposed reforms are unlikely to have a noticeable impact on retail prices. In fact, because the proposal would leave the EU's restrictive trading regime intact, limited market access for competitive imports will continue to maintain consumer prices well above world levels. References Agra Europe, Ltd. Agra Europe. London. Various issues. Agra Europe, Ltd. Cap Monitor. London. 1994. USDA, Foreign Agricultural Service. Agricultural Attache Reports. Various reports. Central and Eastern Europe: Over the Hump at Last? The agricultural sectors of Central and Eastern Europe enjoyed a very good year in 1995, largely the result of good weather. Grain and oilseed production were up significantly, and the livestock sectors are showing signs of recovery. Nevertheless, the region's transition to a market economy is still far from complete. With further progress toward market reform, the region has the potential to generate even larger surpluses of raw agricultural products, which will have significant implications both for eventual EU enlargement and for U.S. trade with the region. [Nancy Cochrane] Five years after the beginning of their transition to a market economy, most of the countries of Central and Eastern Europe (CEE) are already showing signs of recovery, and the rest can be expected to turn around their economies in the next year or two. All but the former Yugoslav Republics have seen a return to positive GDP growth, inflation is down, and the currencies are becoming more stable. Despite a very good year for the agricultural sectors of the CEE's, agriculture continued to face the same problems that have persisted since 1989. Agricultural income continues to lag behind that of other sectors. In many countries the sector is still burdened by inefficient, highly indebted state enterprises. Yet the fact that the sector performed so well in 1995 despite these lingering problems suggests a significant potential for further growth once some of these problems are resolved. Macroeconomic Scenario: Region Returns to Positive Growth In 1995 all the CEE's but some former Yugoslav Republics returned to positive GDP growth. For many of these countries, this marks the second year of positive growth. Real per capita GDP growth reached about 5 percent in Poland and was between 2 and 4 percent in Hungary, Romania, and most other CEE's. Bulgaria, which has been the last to turn its economy around, managed about a 2-percent increase in 1995. Growth has been highest in Albania--7 percent in 1994 and 6 percent in 1995. However, this is from the lowest base. Inflation has been falling in all the countries except the former Yugoslav Republics. Czech inflation is already approaching single digits, down to about 10 percent in 1994; inflation in Poland and Hungary has been falling steadily, and Romania's inflation fell to about 80 percent in 1994 from triple digits in previous years. Bulgaria's inflation rose to more than 122 percent in 1994, but has been falling rapidly during 1995 and is projected to fall in coming years. Inflation continues high in some former Yugoslav Republics; the exception is Slovenia, whose inflation rate fell below 20 percent in 1995. Trade Policy Changes Reflect Uruguay Round Commitments Through 1995 the CEE's continued their tendency toward increasingly protectionist policies. All the CEE's have revamped their policies to comply with their Uruguay Round (UR) commitments: reducing export subsidies, eliminating variable levies, and replacing non-tariff barriers with a transparent system of tariffs. However, these moves have not necessarily improved access for U.S. products. The CEE UR commitments allow them to bind their tariffs at very high levels, and typically UR-inconsistent barriers have been replaced with high tariffs. For example, Romania's minimum import price for poultry has been replaced with a 145 percent tariff. Some countries, however, have experienced difficulties complying with their commitments on export subsidies. In particular, the Hungarian Government allocated 35 billion forints ($282 million) for export subsidies in 1995, which is 50 percent over their UR commitment. The Hungarians maintained that the error resulted from miscalculation of subsidies granted during the base period under the former Comecon agreements. They also argue that they should be given an allowance for the depreciation of the forint. The Czechs too were in danger of exceeding their export subsidy commitment, but were saved by high world grain prices in 1995, which eliminated the need to subsidize exports. All the CEE's have signed Association Agreements with the EU, although these agreements are presently being renegotiated to comply with the WTO. The Central Europe Free Trade Agreement (CEFTA) also went into effect this year. According to this agreement, the five CEFTA countries (Poland, Hungary, the Czech Republic, Slovakia and Slovenia) will cut tariffs on products from other CEFTA countries by 50 percent as of the beginning of 1996 and will eliminate most barriers to intra-CEFTA trade by 1998. Crop Output Climbs Throughout Region Agricultural performance throughout the region was significantly improved in 1995/96 over recent years. Grain production, in particular was the highest since the beginning of the transition (figure 9.1). More important, the precipitous decline in livestock inventories that began in 1990 may finally be ending. Hog and poultry numbers were up in several countries, and there are signs that cattle numbers will soon stabilize. The improvement in the crop sector is mainly due to better weather. Agricultural performance probably does not yet reflect any productivity gains realized through successful market reform. Inefficiencies, surplus labor, and high costs still exist in the state sector and it is still difficult to obtain capital for much needed improvements. Furthermore, land redistribution is still in progress, and land markets have not yet developed. Some obstacles still facing agriculture include: Lack of short- and long-term capital. Nominal interest rates are still near 60 percent or higher, and while real interest rates are low, they are prohibitive for most agricultural producers. Those who do wish to borrow find that banks are reluctant to lend to them. Because of the high indebtedness of many agricultural enterprises, banks regard agriculture as a poor credit risk. Furthermore, because land ownership rights are still unclear in many countries, producers cannot offer their land as collateral. Slow pace of land reform. Bulgaria and Romania are the two countries that have undertaken to break up cooperative farms and redistribute the land on a massive scale to former owners. Romania essentially completed the process 3 years ago, but even now only 50 percent of the new land owners have received permanent title to their land. The reprivatization of land in Bulgaria began in 1992, but as of July 1995 only 45 percent of the land had been restituted. Frustrated by the slow progress, Parliament passed a series of amendments to the Land Law that would have given cooperatives first right of refusal on any land offered for sale. These amendments were struck down by the Supreme Court, but uncertainty surrounding the process is now greater than ever, and progress has virtually halted. In both Bulgaria and Romania, uncertainty over long-term ownership rights to the land has had a disruptive effect on agriculture, making it difficult to make long-term investment decisions. These problems are less acute in other countries. In Hungary, Slovakia, and the Czech Republic, most claims from former land owners have been settled, and most new land owners have chosen to lease their land to cooperatives. Thus, large scale farming continues to dominate in these countries. But in Poland, the problem of fragmented farm structure continues. The problem will be resolved only when off-farm employment opportunities improve, so that more marginal farmers will be encouraged to give up farming and sell their land. Good Weather and Better Yields Drive CEE Grain Production The grain harvest for the six CEE's is expected to reach 87 million tons in 1995/96. Production is up in every country except Bulgaria. Total area is not much changed from the previous year; the production increase is due almost entirely to better yields. The yield increases are mainly the result of better weather--input use is still down substantially from that of the 1980's. The six CEE's are projected to have a net exportable surplus of over 5 million tons in 1995/96, but actual exports could be smaller (figure 9.2). With world wheat prices greater than $150 per ton, markets should be available for as much as these countries can export. However, the movement of exports out of these countries is severely constrained by inadequate port facilities, high transport costs, and generally poor infrastructure. Hungary, for example, being land locked, is dependent on the ports of Rijeka, Croatia and Constanza, Romania to ship grain. Railcars carrying grain to Rijeka have been held up because of continuing hostilities in the former Yugoslavia. The grain that Hungary can ship through Constanza is limited by Romanian grain exports. Agricultural authorities in many CEE's were taken off guard by the sudden surge in world wheat prices. Romania actually benefited from this unexpected development. The Ministry had set a minimum price that was well above world levels; the price stimulus and good weather resulted in a substantial surplus, which the state grain company, Romcereal, was forced to hold at considerable cost. The cost of this wheat was so high that the Romanians anticipated difficulties in exporting it without subsidies. With the recent rise in wheat prices, the Romanians have now found markets for much of their surplus wheat. But in other countries the failure to anticipate the surge in world prices, plus the miscalculation of domestic supplies, have caused some chaos in domestic markets and prompted officials to restrict grain exports. In Bulgaria, despite an export tax of $55 per ton, wheat exports began to flow out at such a rate (reaching 550,000 tons or more between July and October) that authorities once again became frightened of a domestic shortage. Consequently, on October 6, 1995, the government imposed a new ban on grain exports (the previous ban was in effect from March 1993 to December 1994.) The Hungarian government has also temporarily suspended wheat exports following a downward revision in the official estimate of the 1995 wheat crop. Following the announcement of the reduced estimate, traders rushed to purchase supplies to fill export contracts, and officials began to fear a domestic shortage. In both countries, and in other CEE's as well, world prices are still not fully transmitted to the domestic market. At the beginning of the marketing year domestic prices in many CEE's were close to world levels, but the rapid surge in world prices left domestic prices considerably below world levels, creating opportunities for huge profits among exporters. Available information suggests a small increase in 1995 fall plantings of wheat in Bulgaria, Hungary, Romania, and Poland, as producers have been encouraged by the current high world prices. However, reports suggest a shortage of high quality seed in Bulgaria and Hungary, and some sowing in Bulgaria has been later than optimal. Thus, potential increases in wheat area may be constrained. Larger Sunflower and Rapeseed Crops Offset Declining Soybean Production The three major oilseeds grown in the CEE's are soybeans, sunflowerseed, and rapeseed. Rapeseed is grown mainly in Poland, the Czech Republic, and Slovakia; sunflowerseed production is largest in Bulgaria, Romania, and Hungary, while in the past most soybeans came from Romania and Yugoslavia. The region has always been a net importer of oilseeds and meals. In 1995/96 production of sunflowerseed and rapeseed was up considerably from the previous year. All three major producers saw increases in sunflowerseed output. Bulgaria's production reached 650,000 tons, up from 550,000 tons last year, and exports are expected to reach 220,000 tons, despite an export tax of $200 per ton. Romania's production reached 945,000 tons, up from 767,000, while Hungary's production rose from 650,000 tons to 800,000. All three countries will realize substantial increases in exports of both seed and oil this year. Soybean production in recent years has been less than half the level of the 1980's and rose only slightly in 1995. In the past the only two significant producers of soybeans, Romania and Yugoslavia, each produced about 300,000 tons per year. Since the transition, soybean production has plummeted in all countries, but for different reasons. In Yugoslavia, the decline was due to the civil war, and production can be expected to recover in Serbia and Croatia once the war ends. However, Romania and Bulgaria never had very good growing conditions. Yields were barely one ton per hectare, and soybeans were cultivated only because the central planners said they should be. With the demise of central planning, growers have lost interest in cultivating soybeans, and it is unlikely that this will change. Livestock Inventories Continue To Decline The rapid decline in animal inventories that has occurred since the transition is finally showing signs of turning around. This is particularly true of hogs and poultry, less true of cattle. Hog numbers have risen significantly in Poland and Romania and are likely to stabilize in Hungary by early 1996. Poultry numbers are beginning to rise in many countries. The two basic reasons for this short term recovery are: 1) More plentiful grain supplies mean lower domestic grain prices and lower feed costs, and hog and poultry producers have responded quickly. 2) Throughout the transition period, the number of animals in the private sector has steadily increased. Until now, the steep contraction of the state sector has meant a net decline in livestock numbers. However, by now a significant majority of the animals are in private hands, and private herds are generally increasing at a fast enough rate to compensate for continuing declines in the state sector. The hog sectors of the CEE's have responded most rapidly to this situation. Hog numbers were up in 1995 in Poland and Romania and are projected to rise further by January 1996. They are expected to stabilize in Hungary. In Bulgaria, however, hog numbers continue to decline precipitously, falling 16 percent from January 1994 to January 1995, and are likely to fall by a similar amount by January 1996. The reason is that, in contrast to many CEE's, most hogs in Bulgaria are still kept on state-owned livestock complexes. Many of these complexes are highly indebted and cannot afford proper feed, medicines, or other inputs. The Ministry of Agriculture announced in 1993 an aggressive campaign to privatize the state enterprises under its control, but progress has been very limited. The main problem is a lack of interest among potential purchasers of these enterprises. In 1996 cattle numbers are expected to stabilize in Poland and Romania, but continue to decline in other countries. Cattle throughout the region are dual purpose, and decisions to expand or draw down herds are driven mainly by supply and demand in the dairy market. Beef is largely a byproduct. The dairy sector is still adjusting market conditions. Dairy plants, still largely state-owned, are technologically out of date and are often ill-suited to purchasing from thousands of small scale private milk producers. The high production costs of these plants force them to offer low purchase prices to producers. Thus, producers seek other channels for marketing their milk, and in some countries 60 percent or more of the milk is sold through private channels with very little quality control. U.S. Exports to CEE's Still Down; Long Term Improvements Expected U.S. exports to the CEE's during Fiscal 1995 reached $306 million, down slightly from the previous year, but still well below levels of the late 1980's. Exports of oilseeds and oilseed products grew, but trade in grain and animal products declined. Exports are projected to rise to $400 million in fiscal 96. However, significant long-term increases in U.S. exports will depend on developing new markets for high-value products and negotiating more favorable tariff treatment for some of the more promising high-valued exports. Roughly one third of U.S. exports in the last 2 years have been animal products. Of that, slightly over half has been poultry meat--mainly leg quarters. Leg quarters have a comparative advantage because of their low cost, and because Central Europeans prefer dark meat. But in 1995 poultry meat exports have been adversely affected by high import barriers put in place by Poland and Romania. Poland imposed a variable levy, while Romania set a minimum import price that made U.S. poultry prohibitively expensive on the domestic market. In compliance with their Uruguay Round commitments, both countries have replaced these barriers with tariffs, but the tariffs are currently very high. U.S. grain exports in fiscal 1995 were down about a third from the previous year and are likely to remain at that low level in fiscal 1996 due to the improved CEE grain harvest. Exports of wheat flour will continue as food aid to the former Yugoslav Republics, but commercial sales of wheat will be minimal, the primary customers being Poland and the former Yugoslavia. Poland is expected to import about 200,000 tons of corn. Fiscal 1995 U.S. exports of oilseeds and oilmeal were almost twice those of a year earlier. The largest customers of U.S. soybean meal were the Czech and Slovak Republics, which together imported 63,000 tons between October and August of fiscal 1995. Other customers were Hungary and the former Yugoslav Republics. Two thirds of U.S. soybean exports went to Romania, with most of the remainder going to the former Yugoslav Republics. Exports of both soybeans and soymeal are expected to increase during fiscal 1996 due to increased hog and poultry numbers in the region. These exports should continue to grow in coming years, as the livestock sectors in these countries begin to recover. Looking to the Future It is significant that CEE agriculture enjoyed a good year even though the transition to a fully functioning market economy is not complete. One can only conclude that when expected productivity gains are eventually realized, the region has the potential to generate large surpluses of raw agricultural products, especially grains and livestock products. This longer-term outlook has significant implications both for the region's eventual integration into the EU and for the future of U.S. trade with the region. Additional output of products already in surplus in the EU will intensify pressure for CAP reform. The United States will no longer be able to count on the CEE's as markets for bulk agricultural products and will need to seek out markets for new products in the region. During the 1980's the United States shipped large amounts of grain and oilseeds to the CEE's to support an overextended livestock sector. Demand for these products has plummeted with the downward adjustment in livestock numbers and reduced consumer demand for meat. While CEE livestock sectors should see some recovery in the coming decade, they are unlikely to soon return to levels of the 1980's. The smaller livestock sector, improved feeding efficiency, and increased domestic grain production mean a permanent contraction of the market for U.S. grain. Exports of oilseeds and products should rise slowly throughout the decade, but may not exceed the levels of the late 1980's. U.S. poultry meat exports have the potential to expand if more favorable tariff treatment can be negotiated. Exports of cotton and cattle hides could expand if the region's textile and leather goods industries recover. The biggest unknown, however, is whether the United States can capture part of the expanding market for consumer-ready processed foods. With the rise in consumer income, increased demand for these products is already evident. This demand will certainly rise further, but the United States will need to compete with Western Europe and, eventually, domestic food processors for this market. References AgraEurope, Ltd. East Europe Agriculture and Food Monthly. Various issues. DRI/McGraw-Hill and PlanEcon. World Monthly Reports: Albania, Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovakia, Slovenia. Lexington, MA. July 1995. USDA, Foreign Agricultural Service. Agricultural Attache Reports. Various reports. Glossary of Terms Arable base area. The total area eligible to receive compensatory payments, equal to the average of area planted to grains, oilseeds, or protein crops in 1989, 1990, and 1991, plus land enrolled in either the 5- or 1-year set-aside program during those years. Exceeding the arable base area results in penalties in the form of a reduction in farmers' eligible acreage and an additional, uncompensated set-aside in the following year. Arable crops regime. The CAP program that covers cereals (excluding rice), oilseeds (rapeseed, sunflowerseed, soybeans, and linseed), and protein crops (field peas, beans, and sweet lupins). Support is provided through a combination of intervention purchases (grains) and per-hectare payments to producers. Association Agreement. An agreement between the EU and a non-member country that conveys associate status on the non-member country. These agreements, like those between the EU and several CEE countries, generally offer bilateral trade concessions in the form of tariff reductions or import quotas. Association agreements are seen as the first step toward eventual EU membership. Blair House Agreement. An agreement reached between the United States and the European Union in 1992 on the negotiations on agriculture in the Uruguay Round. The agreement also included changes to the EU oilseed regime that resolved a bilateral dispute over EU oilseed subsidies. Central and Eastern European (CEE) countries. CEE countries are: Albania, Bulgaria, Czech Republic, Slovak Republic, Hungary, Poland, Romania, and the former Yugoslav republics (Bosnia-Hercegovina, Croatia, Macedonia, Serbia-Montenegro, and Slovenia). Common Agricultural Policy (CAP). The unified farm policy applied by EU members. The CAP deals with agricultural prices, structural improvements to agriculture, and internal and external agricultural trade. In 1993, a series of changes to the support regimes for arable crops, dairy, beef, sheepmeat, and tobacco were adopted that are referred to as CAP Reform. Compensatory payments. Per-hectare payments made to producers of arable crops to compensate for the loss of income caused by the reduction of support prices. Council of Ministers. A governing body of the European Union, consisting of ministers from each of the EU member countries for the policy area in question. The Council of Agricultural Ministers has the final say on agricultural policy for the EU. European Commission. The administrative body of the European Union, responsible for implementing EU regulations. In agriculture, the Commission has responsibility for administering commodity market organizations through the market management committees. European Free Trade Area (EFTA). A free trade area for industrial goods formed in 1960. Current EFTA members are Iceland, Norway, Switzerland, and Liechtenstein. European Union (EU). An economic customs union with 15 member countries (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom). Austria, Finland, and Sweden are the newest members, having joined the EU in 1995. General Agreement on Tariffs and Trade (GATT). An agreement negotiated among countries to increase international trade by reducing tariffs and other trade barriers. In 1995, 115 countries were contracting parties to the GATT. The name also refers to the organization located in Geneva that administered the agreement and provided a forum for trade negotiations and settlement of trade disputes. That organization has been superseded by the World Trade Organization. Intervention. The EU supports the price of several commodities (including grains, beef, and dairy products) by purchasing commodities at a fixed, or intervention, price and holding them for later sale on the domestic or export market. These sales are referred to as intervention purchases, and the stocks that are amassed as a result are intervention stocks. Rotational and non-rotational set-aside. Rotational set-aside requires that land set aside be rotated as a way of ensuring that set-aside is not concentrated on the least productive land. Prior to 1996/97, farmers could opt for non-rotational set-aside, but had to set aside a higher percentage of their land (17 percent compared to 12 percent for rotational set-aside in 1995/96). Rotational and non-rotational set-aside rates were unified at 10 percent for marketing year 1996/97. Set-aside. A mechanism for limiting supply by removing agricultural land from production. In the EU, large producers must set aside part of their arable crops area in order to qualify for compensatory payments. Producers receive a payment, called the set-aside premium, for each acre set aside. The set-aside rate is set by the Agricultural Council. Uruguay Round: The round of multilateral trade negotiations from 1986 to 1993 that was initiated with an agreement among GATT contracting parties at Punta Del Este, Uruguay. The Uruguay Round targeted "new areas," including agriculture, services, and intellectual property, for more comprehensive treatment than in past rounds. The Uruguay Round was concluded with the signing of the Uruguay Round Agreement in December 1993. World Trade Organization (WTO). An organization, established during the Uruguay Round of multilateral negotiations, that includes the GATT structure and extends it to new areas, like agriculture, not adequately covered in the past. WTO's functions are similar to those of the GATT. List of Appendix Tables 1. EU agricultural spending by commodity and economic type 2. EU agricultural policy prices, 1991/92-1995/96 3. Supply and use of wheat in Europe, 1993-95 4. Supply and use of corn in Europe, 1993-95 5. Supply and use of barley in Europe, 1993-95 6. Supply and use of oats in Europe, 1993-95 7. Supply and use of total grains in Europe, 1993-95 8. Supply and use of rapeseed in Europe, 1993-95 9. Supply and use of sunflowerseed in Europe, 1993-95 10. Supply and use of soybeans in Europe, 1993-95 11. Supply and use of total oilseeds in Europe, 1993-95 12. Supply and use of beef and veal in Europe, 1993-95 13. Supply and use of pork in Europe, 1993-95 14. Supply and use of poultry in Europe, 1993-95 15. Supply and use of butter in Europe, 1993-95 16. Supply and use of cheese in Europe, 1993-95 17. Supply and use of fluid milk in Europe, 1993-95 END-END-END