An increase in productivity in European agri-food sectors has a small negative impact on the economic performance ofthe food processing industries in other regions. As presented in the figure 8.4 full liberalisation will have a significant negative impact on European milk processing. The share in food industries' value added continues to decline under this scenario. In the other countries, however, this share increases. In Australia and New Zealand the contribution to total national income is even higher compared to the initial situation. 8.7 Employment in milk processing industries The impact of different policy scenarios on employment is described in the table 8.5. The decline in the contribution ofthe European food processing industries to total GDP under Full Liberalisation is also mirrored by the development of employment in the European milk processing industries. Full Liberalisation will lead to a decline in sectoral employment by around 3.2% in EU milk processing. Employment in the other regions or countries increases under the Liberalisation scenario reform between 7.2% in the Rest of Asia and almost 44% in Australia/New Zealand. In these countries employment in milk processing increases, which is also reflected in an increase in the sectoral shares in total GDP, see figure 8.7. However, due to factor substitution the increase in labour employment leads also to an increase in capital use and capital is partly substituted by labour. However, in theEUthe opposite development is the case. Here labour in dairy industries is substituted by capital. Enhanced growth in sectoral productivity in primary milk production and dairy processing are modelled under the scenarios HPDairy and HPMilk. Both will lead to a small decline in employment. However, the impact of productivity on employment is rather small compared to the consequences of trade liberalisation modelled under the scenario Full Lib. The main reason for the moderate impact of different assumptions on productivity growth in European agriculture and food processing industries can be explained by the limited economy-wide relevance ofthe food processing sector in total and especially for thedairy sector. Changes in sectoral productivity growth will have an impact on the output level but almost no impact on the economy-wide factor markets. Therefore, different growth rates of productivity in food processing and primary agriculture have only little impact on the level of factor prices. 85
86 Table 8.5 Impact of policy scenarios on sectoral employment under different Scenarios in Milk Processing Industries, for 2015 (Base = 100) EU Nafta Brazil China Aus/ NewZeald Rest of Asia Base 100.00 100.00 100.00 100.00 100.00 100.00 Quota 100.91 99.81 99.90 98.94 96.76 99.18 Lib 96.80 96.91 99.69 93.67 143.92 107.16 HPDairy 95.78 96.44 99.47 92.17 138.44 105.57 HPMilk 96.10 96.68 99.64 95.85 140.19 115.98 EqualGR 105.79 98.50 101.78 97.95 141.71 104.72 8.8 Sectoral Income in food processing industries Figures 8.5 to 8.9 illustrate the composition and the development ofthe value added in food processing industries in theEU, the NAFTA region, Brazil, Australia and New Zealand and China. All values are in USDm. presented for the initial year 2001 and ofthe final year ofthe projection period which is 2015. Under the scenarios with enhanced productivity growth rates in the European dairy farming and processing theEU value added in the European food processing sector gain in total terms. The strongest effect in terms of total sectoral income, however, is due to the macro-economic drivers, i.e. population and income growth. Under the final EqualGR scenario income ofEU food processing strongly increases due to the improved demand ofdairy products at global level. In all other regions the expansion of European food processing industries has a small negative impact. However, under full liberalisation in the European dairyindustry total value added in food processing industries remains relatively constant in theEU while it expands especially in Australia and New Zealand.