As already mentioned for the development of export shares, the Full Liberalisation scenario also leads to a decline in the Balassa Index value for European dairy industries. Higher productivity growth rates at European dairy farm and processing level partly compensates for the loss in competitiveness under the Full Liberalisation scenario. Consequently, enhanced productivity growth in European dairy sectors will improve the competitiveness of European food products on world markets. Under Full Liberalisation, the European food industries show a decline in specialisation for dairy products. These results mirror the decline of Europe's food export share in total world food exports as described in figure 8.3. 8.6 Economic performance ofdairy industries The dynamic of income growth in different regional is significantly affected by growth in productivity. Different assumptions on sectoral productivity growth rates as analysed under the scenarios HPDairy and HPMilk have only a marginal impact on total GDP. Therefore, the impact of alternative dairy policy options is negligible for the overall economy. However, policy options in the European milk sector are projected to have a strong impact at sectoral level. The scenario Lib reveals the consequences of trade liberalisation in thedairy sector which also contributes significantly to the sectoral contribution ofthe sector to the national GDP and employment. Because structural change also occurs under the Base scenario the results presented in the figure 8.4 should be compared to the results ofthe base scenario. Brazil, China and the Rest of Asia region are those regions with the highest increase in national income under the baseline. Growing economies are also characterised by severe changes in the structure ofthe total economy with a decline in primary sectors such as agriculture and an increase in high-tech industries and services. Internal competition for resources, intermediate inputs and production factors, amongst different industries at national level can be described by the growth in real value added of a specific industry in the total industry. To illustrate the contribution ofthe food industry to total income the following figure 9.4 illustrates the development ofthe share ofthedairy processing industries value added in total national value added. The quantitative results of this study indicate that in the near future in theEU, like other industrialised countries presented in this analysis, the contribution ofdairy industries continues to fall and share of activities, e.g. services continues to increase. To assess these results it should be stated that these projections reflect the long-term effect ofthe policy reforms analysed here. Regions 83
84 with high shares of agriculture and industries may be vulnerable to this process with regard to employment and income growth, as the structural change process is often characterised by adjustment processes and related costs. It takes time for people to adjust their skills, for industries to grow, etc. Even in Brazil sectoral share in value added will tend to decline. Food industries in these countries can participate only partly in high income growth. This development is due to the fact that income elasticity for services and manufactures are higher than for agricultural and food products. Figure 8.4 Development ofdairy industries' value added shares (% of regional value added) in selected regions under different scenarios for 2015 0.9% 0.8% 0.7% 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0.0% EU Nafta Brazil China Rest of Asia Australia New Zealand Initial Base Quota Lib HPDairy HPMilk EqualGR Rest of world The other policy scenarios indicate that this development is independent from the assumptions of productivity growth rates. In all scenarios, the contribution of food processing is less than under the base scenario. However, an enhanced growth rate in productivity in primary agriculture and/or food processing can partially compensate for the decline value added share ofthe food processing. An increase in milk supply under the Quota scenario will lead to a higher level of value added ofthedairy sector. An enhanced productivity in agriculture and milk processing industries (HPDairy and HPMilk) and the full liberalisation, however, will lower the contribution of European dairy industries to total GDP.