Europe: INTERNATIONAL AGRICULTURE AND TRADE  -- SUMMARY
October 1999, ERS-WRS-99-2                               October 21, 1999
            Approved by the World Agricultural Outlook Board
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This SUMMARY is published by the Economic Research Service, U.S. Department 
of Agriculture, Washington, DC 20036-5831.  The complete text of The EU's Common
Agricultural Policy: Pressures Change: INTERNATIONAL AGRICULTURE & TRADE will be
available electronically about 2 weeks following this summary release.
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Agenda 2000 Lays Groundwork for EU Enlargement and WTO
Negotiations but Pressures on the CAP Still Abound 

In March 1999 the European Union adopted a reform package--Agenda
2000- that attempts to smooth the process of EU enlargement,
ensures that the EU meets its commitments to the Uruguay Round
Agreement on Agriculture, and eases the pressures on the CAP
budget. In undertaking these reforms, the EU has established its
position for the upcoming round of World Trade Organization (WTO)
negotiations on agriculture. However, there are domestic market
imbalances, WTO constraints, EU enlargement costs, consumer
concerns, and CAP budget guidelines, which combine to form
continuing pressures on the CAP. Agenda 2000 calls for a review
of the reforms; analysis in this report supports the view that
further reforms will be needed to address market imbalances.

Agenda 2000 is not the first attempt to reform the CAP.  Some of
the features of the reforms, notably lowering of prices and
direct payments to farmers to offset some of their losses, are
extensions of the reforms of 1992. Unlike previous reforms,
however, Agenda 2000 attempts to maintain the CAP budget at its
present level in real terms for the next 7 years.  Analysis
presented in this report suggests that in spite of Agenda 2000,
high stock levels of several commodities are likely to accumulate
because of continued high yields, little or no growth in domestic
consumption, WTO constraints on exports, and EU enlargement to
the East.

Analysis shows that EU enlargement to include the Central and
Eastern European countries (CEEC) of Hungary, Poland, Estonia,
Slovenia, and the Czech Republic in 2002 could bring additional
budget pressures on the CAP.  Enlargement could also exacerbate
the surplus problem for some commodities, particularly beef,
pork, and rye. But many experts do not believe that these
countries will be ready for EU accession until 2006 or later. 
Furthermore, the acceding countries will likely have difficulty
adopting a very large number of EU rules and regulations required
to meet minimum quality standards, hence production response to
higher prices suggested by the analysis represent the upper
bounds.

Agenda 2000 does alleviate the WTO constraint on exports for some
commodities. With a lower government purchase price for wheat and
expected higher world wheat prices, the EU is forecast to export
wheat without subsidy starting as early as 2002. Lower grain
prices will also allow the EU to marginally increase pork,
poultry, and egg exports without subsidy. EU enlargement could
also allow an EU-18 or EU-20 to become more competitive in world
markets for beef, pork, and coarse grains but only if the CEEC
can successfully adopt all EU legislation and narrow quality
differentials by 2002.  Implementation by the acceding countries
of EU measures demanded by consumers and environmentalists may
also restrict their imports of food and agricultural goods.

EU consumer and environmentalists' concerns have resulted in
measures that could lead to trade disputes in the future. EU
concerns with food safety have been heightened by "mad cow"
disease, and, with pressures from political activists and
consumers, the European Commission has enacted legislation
(labeling products containing genetically engineered material,
for example) that has disrupted U.S. exports to the EU.  Delays
in approving genetically engineered crops have significantly
slowed U.S. corn exports to the EU and threaten U.S. exports of
soybeans and soybean products.  EU consumers are also concerned
about the process of food production and have directed their
attention to animal welfare issues.  The EU recently passed
legislation stipulating a minimum space per laying hen that will
be phased in over the next few years. The EU Commission has
indicated that animal welfare issues should be addressed in the
next round of WTO negotiations.
      
On the whole, the analysis shows that internal market forces, EU
enlargement, and upcoming WTO negotiations all put pressure on
the CAP largely by undermining its reliance on export subsidies
to rid itself of surplus. Until these pressures force significant
changes on the CAP, it will continue to depress world markets as
Agenda 2000 does not substantially reduce incentives to produce
and export agricultural commodities. 

Printed copies of The EU's Common Agricultural Policy: Pressures
for Change will be available in about 3 weeks.  For more
information, contact David Kelch (202) 694-5151.  The full report
also will be available electronically via the ERS web site at
www.econ.ag.gov.

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