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CAP reform and diets

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Josef Schmidhuber, FAO
Expert consultation on trade and nutrition
15-16 November 2016, FAO Headquarters, Rome
http://www.fao.org/economic/est/est-events-new/tradenutrition/en/

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CAP reform and diets

  1. 1. CAP and Diets How and to what extent does the Common Agricultural Policy affect food consumption patterns in the EU? Informal expert consultation on trade and nutrition Rome 15-16 November 2016 Josef Schmidhuber EST
  2. 2. How healthy is the EU Diet?
  3. 3. 1. How healthy is the EU Diet?
  4. 4. Dietary Intake Ranges (1) (as a share of total energy intake) Dietary Factor Recommendations (WHO/FAO) Total Fat 15 - 30% Polyunsaturated FA 6-10 % Saturated FA <10 % Trans FA <1 % Total Carbohydrate 55 – 75 % Free sugars* <10 % Protein 10 - 15% * “Free sugars” refers to all monosaccharides and disaccharides added to foods, plus sugars naturally present in honey, syrups and fruit juices 1. How healthy is the EU Diet?
  5. 5. Dietary Intake Ranges (2) (in g or mg/person/day) Dietary Factor FAO/WHO Recommendations Cholesterol < 300 mg/day Sodium chloride (sodium) <5 g/day (<2 g/day) Fruits and vegetables > 400 g per day Total dietary fiber/Non-starch polysaccharides (NSP) (>25 g, or 20g/d of NSP) from whole grain cereals, fruits, and vegetables 1. How healthy is the EU Diet? http://www.fao.org/docrep/005/ac911e/ac911e00.htm
  6. 6. How healthy is the EU Diet?
  7. 7. How healthy is the EU Diet?
  8. 8. How healthy is the EU Diet?
  9. 9. How healthy is the EU diet?
  10. 10. How healthy is the EU Diet?
  11. 11. How healthy is the EU Diet?
  12. 12. Are EU diets converging and how to measure convergence? The Consumption Similarity Index (CSI)           442 1 , 2 1 1 i k ik j ij kj Cal Cal Cal Cal CSI where i=1 to 442 food items of FAO’s SUA data base; Calij and Calik are the calories from individual products i in country k and j; Calj and Calk is the total calorie availability per person in country j and k.
  13. 13. Towards an increasingly homogenous EU Diet?
  14. 14. Summary of EU dietary changes  Rapid increase in animal products, but growing saturation  Rapid increase in saturated fats, cholesterol.  High overall levels of fats as a share of dietary energy.  Increase in sugar availability, but growing saturation.  Dietary fibre still low, F&V supply rising, but large country-specific differences  n6/n3 ratio: widening  Overall convergence, but likely driven by economic integration, income growth, etc. not by CAP
  15. 15. How the CAP affects food prices
  16. 16. Low vertical price transmission T T Pborder Pmarket Pmarket+T Pconsumer Pincentive Pconsumer+T PSE-M PSE-R 100 150 200 250 300 350 400 450 PSE-M/CSE-M PSE-R/CSE-R Pborder Pmarket Pincentive Pmarket-2 Pconsumer Pconsumer-2 T T M1 = M2 +34$=20% +34$=10% Source: Schmidhuber and Britz, 2002 US$/t
  17. 17. Food value chain in the EU EU-15, 1996, 1.25 €/$ x-rate (Data based on OECD and World Bank, own calculations) 0 200 400 600 800 1000 1200 1400 Year=1996 billionUS$1996 Value of consumption at world prices, primary products =US$ 139 billion CAP - CSE tax on consumption = US$ 48 billion Margin/value added for marketing, processing, etc = US$ 780 billion Value of final food expenditure = US$ 1014 billion Vertical price transmission – the empirical evidence
  18. 18. How elastic is food demand?
  19. 19. TAX Food tax on inelastic and elastic demand Price Quantity c a Demand Supply Q*Q** TAX Price Quantity Demand Supply Q*Q** P2 P1 P1 P2 Inelastic demand Elastic demand
  20. 20. CAP and food taxes: some pros and cons – Higher farm prices are an ineffective means to change final consumer prices (low vertical price transmission). – Low price elasticities for food demand make food taxes in general ineffective in reducing consumption, particularly ineffective when levied on primary products (CAP). – Regressive on consumers with high calorie needs. – Untargeted, unfair: all consumers bear the price of higher food prices while only the obese/overweight cause the external costs (violates the “polluter pays principle”). + Food taxes can be effective, where there are healthy substitutes (e.g. low-sugar soft drinks); + Nudging: high elasticity of substitution would require only a small tax on unhealthy food of a small subsidy on the healthy food. + But low elasticities mean high tax revenues which could be used for nutrition education, prevention, and other measures. + Part of a policy mix, but not a stand-alone measure.
  21. 21. How important is the CAP?
  22. 22. Price tax effect of the CAP by Commodity (main commodities only) 1986-88 2000-2002 2013-15 Total (million €) Total (million €) Total (million €) Milk 21,037 14,265 94 Beef 9,943 9,182 7,035 Wheat 6,043 194 1,836 Sugar 2,582 2,847 1,028 Eggs 1,681 240 (62) Poultry 963 2,345 1,582 Potatoes 619 530 1,079 Rice 378 109 - Pork (279) 3,111 34 Other MPS commodities 13,094 2,168 2,184 MPS commodities, total 56,061 34,991 14,810 Non-MPS commodities 18,729 12,735 5,113 Total 74,790 47,726 19,923 Source: own calculations (JS) based OECD
  23. 23. Domestic-to-international price distortions EU prices to international prices (ratios) Internal distortions of relative prices (relative to EU wheat prices) 1986-88 2000-02 2013-15 1986-88 2000-02 2013-15 Wheat 1.86 0.72 0.99 1 1 1 Rice 2.50 1.17 0.92 1.3 1.6 0.9 Sugar 3.35 2.63 1.36 1.8 3.7 1.4 Milk 4.55 1.63 0.99 2.4 2.3 1.0 Beef 2.07 2.16 1.38 1.1 3.0 1.4 Pig meat 1.13 1.14 0.97 0.6 1.6 1.0 Poultry 1.46 1.40 1.12 0.8 1.9 1.1 Sheep 2.70 1.38 1.02 1.5 1.9 1.0 Eggs 1.64 1.05 1.00 0.9 1.5 1.0 The CAP no longer distorts relative prices – neither vis-à-vis world markets nor internally
  24. 24. Consumer subsidies through the CAP Transfers from EU Taxpayers to EU consumers (million Euros) 1986-88 2000-02 2013-15 million Euros Total 4515 3843 1040 Cereals 244 29 0 Oilseeds 32 0 0 Sugar -236 -241 0 Milk and butter 1940 1095 70 Olive oil 469 26 0 Cotton 434 803 0 Fruits and vegetables, total 704 803 969 of which to schools, deprived, … 139 260 447 Other 928 1328 1 Source: own calculations (JS) based OECD
  25. 25. From the old to the new CAP – The CAP is a tax on consumers, not a subsidy. – Nutritional “bads” (sugar, butter, beef) were particularly highly taxed. – Rapid decline in MPS, hence in implicit consumer taxes. – Initially, some but very limited consumer subsidies for nutritional “bads”. + No more distortions in relative prices, neither internally nor vis-a- vis world markets. + Decline in consumer subsidies for nutritional “bads” (butter, school milk) + Increase in consumer subsidies for nutritional goods (F&V for schools, disadvantaged). + Coupling subsidies to the provision of environmental goods: cross compliance. 1. Old Cap: Consumer taxes, but ineffective; limited subsidies 2. Current CAP: Low or no taxation, cross compliance with the provision of environmental goods 3. Future CAP: Cross-compliance to the provision nutritional goods?
  26. 26. How have CAP reforms changed its impacts – wrt to a broad definition of a healthy diet?
  27. 27. A healthy diet and the CAP Physical health Mental health Environmental health
  28. 28. Changing CAP and changing instruments (main commodities only) 1980s 1. Market interventions Coupled to production MPS support = consumer taxes (in million €) 1986-88 56,061 Consumer subsidies (in million €) 4,515 2. Provision of environmental goods Subsidies produce environmental bads 3. Provision of nutritional goods? High price taxes. but low vertical transmission; bad consumer subsidies
  29. 29. Changing CAP and changing instruments (main commodities only) 1980s 2000s 1. Market interventions Coupled to production Increasingly decoupled from production, 2008: CAP “health check” MPS support = consumer taxes (in million €) 1986-88 56,061 2000-02 34,991 Consumer subsidies (in million €) 4,515 3,843 2. Provision of environmental goods Subsidies produce environmental bads Increasingly environmentally- friendly 3. Provision of nutritional goods? High price taxes. but low vertical transmission; bad consumer subsidies Lower taxes, lower consumer subsidies
  30. 30. Changing CAP and changing instruments (main commodities only) 1980s 2000s 2010s 1. Market interventions Coupled to production Increasingly decoupled from production, 2008: CAP “health check” Increasingly coupled to environmental goods, cross compliance MPS support = consumer taxes (in million €) 1986-88 56,061 2000-02 34,991 2013-15 14,810 Consumer subsidies (in million €) 4,515 3,843 1,040 2. Provision of environmental goods Subsidies produce environmental bads Increasingly environmentally- friendly 2013: food security and safety, climate, water, animal welfare/health, territorial balance, etc. biofuels 3. Provision of nutritional goods? High price taxes. but low vertical transmission; bad consumer subsidies Lower taxes, lower consumer subsidies Practically no consumer taxation left, unrestricted isoglucose, positive consumer subsidies (F&V)
  31. 31. Changing CAP and changing instruments (main commodities only) 1980s 2000s 2010s ?2020s? 1. Market interventions Coupled to production Increasingly decoupled from production, 2008: CAP “health check” Increasingly coupled to environmental goods, cross compliance Coupled to the provision of nutritional and environmental goods MPS support = consumer taxes (in million €) 1986-88 56,061 2000-02 34,991 2013-15 14,810 Direct consumer taxes for nutritional “bads”? Consumer subsidies (in million €) 4,515 3,843 1,040 Targeted consumer subsidies for nutritional goods? 2. Provision of environmental goods Subsidies produce environmental “bads” Increasingly environmentally- friendly 2013: food security and safety, climate, water, animal welfare/health, territorial balance, etc. Biofuels 2020: subsidies to ensure food safety, water safety, food security globally, AMRs 3. Provision of nutritional goods? High price taxes. but low vertical transmission; bad consumer subsidies Lower taxes, lower consumer subsidies Practically no consumer taxation left, unrestricted isoglucose, positive consumer subsidies (F&V) Subsidies to ensure nutritional goods, targeted schemes to increase F&V production, consumer subsidies. Direct taxes on nutritional “bads” (sugar, saturated fats), Future CAP: Subsidies to be coupled to nutritional goods? In cross-compliance with nutritional goals?
  32. 32. Emerging questions 1. If healthy diets are a multi-dimensional concept (health/environment), what is the trade-off between health concerns/policies and environmental/concerns and policies? 2. Where are the co-benefits, win-win situations? 3. If there is a justification for environmental intervention, is there also a justification for nutritional/health interventions? (beyond food safety and AMRs) 4. Can/should ag. and trade policies pursue nutritional goals? ICN-2 (Tinbergen principle). 5. How did the CAP and various CAP reforms affect diets outside the EU?
  33. 33. Thanks
  34. 34. CAP Consumer subsidies for milk 1986-88 2000-02 2013-15 (million Euros) Milk and butter, total 1940 1095 70 Other measures relating to butterfat 283 454 0 School milk 175 77 69 Aid for SMP for use as feed for calves 751 246 0 Aid for liquid skimmed milk for use as feed for calves 90 0 0 Aid for liquid skimmed milk for use as feed for animals other than calves 89 0 0 Aid for skimmed milk processed into casein 552 258 0 Other Aid (milk) 0 60 1 Source: own calculations (JS) based OECD
  35. 35. Biofuels, EU policies and nutrition 1. The basic facts – Food vs Fuel: direct link to food (security) – RED: 2020, the EU aims to have 10% of the transport fuel of every EU country come from renewable sources such as biofuels; – RED revisions: 7% cap – EU 80% biodiesel, 20% bioethanol – Rapeseed oil, but growing imports of soybean and palm oil – Waste oils less than 10% – Still subsidized use, albeit to a lower extent 2. The basic impacts • Palm oil use: less saturated fats, but carbon footprint • Waste oil, no nutritional impacts • Edible tallow, choice white grease, lard, poultry fat: positive impact on nutrition (but mainly in the US)
  36. 36. Conclusions and outlook 1. EU diets have become increasingly unhealthy, the quality of the Mediterranean Diet is gradually deteriorating. 2. The CAP has gone through a series of reforms, all changed its impacts on nutrition in principle 3. As the CAP provided price support to producers, it imposed a net tax on food consumption. 4. As a tax on primary consumption, the demand curbing effects of the CAP remain limited; CAP effects are to be seen against: (i) low vertical price transmission; (ii) high margins for processing and marketing; and (iii) low demand elasticities. 5. Taxes on final consumption can be more effective, but only where healthy substitutes exist. 6. Cap reforms reduced the taxation element, possibly inducing somewhat higher consumption of sugar, beef and butter (against a counterfactual) 7. Cap reforms gradually decoupled support to production and coupled payments to environmental services (cross compliance, 2 pillar system)

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