Competitiveness of the EU dairy industry

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Competitiveness of the EU dairy industry

ates in the other regions and sectors are as high as under the Base Scenario.

The higher productivity growth will reduce costs in production in Europe relative

to other competitors on world markets. In the scenario HPDairy and HPMilk enhanced

productivity growth is assumed to take place at dairy farm and at dairy

processing level. Under this scenario European export shares in world market

will increase significantly.

Full liberalisation, which also includes full market access for foreign competitors

on European dairy markets, will lead to a dramatic drop in the export share

of EU agri-food products in total food exports. Under this Lib scenario all domestic

support to farmers is also withdrawn, e.g. phasing out of coupled and

decoupled direct payment. This cut in agricultural support together with full

trade liberalisation will lead to a reduced agricultural output and an increased

domestic consumption in agri-food products as a consequence of declining food

prices. This effect also contributes to the decline in food exports.

In relative terms Brazil and Australia and New Zealand benefit most under

the liberalisation scenario with an increase in the food export share of 3% and

8%, respectively (figure 8.3). The changes in agricultural policies are also reflected

in the specialisation level in different commodities amongst the trading

partners. Here the Balassa Index shows the share of a product in total national

exports relative to the share of all exports of this product in the sum of world

exports. A value larger than 1 indicates a relative specialisation for that commodity.

The changes in the Balassa Index under different scenarios are presented

in the following table 8.4.

Compared to the Baseline scenario the Balassa Index values show very little

changes under the policy scenario for the non-dairy products, which can be expected

due to the fact that policies for these products remains unchanged. For

dairy products, however, the abolition of the milk quota (Quota) shows the

strongest change in the Balassa Index values. The increase in dairy products reflects

the increase in milk production in the EU as a consequence of the abolition

of the milk quota regime which is modelled under this scenario.

Australia and New Zealand and the Nafta region show an increase in specialisation

in the meat sector under the Quota scenario. Also the specialisation

in dairy production in Australia and New Zealand continues under this scenario.

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