Decision Tree of the Roadmap For Agricultural Liberalization in The Euro-Mediterranean Zone

FEM31-03 | Décembre 2007

Titre

« Decision Tree of the Roadmap For Agricultural Liberalization in The Euro-Mediterranean Zone »

Par

Alejandro Lorca and Rafael de Arce, Agreem-UAM, Spain

Contributeurs

Galatasaray University, Department of Economics, Turkey ; Instituto de Predicción Económica Lawrence R. Klein. Spain ; Universidad Nacional de Educación a Distancia (UNED) Spain ; Centro Superior de Investigaciones Científicas (CSIC) Spain

Note :

: In the case of Israel the vectors of Modernization, and Lebanon, the vectors of Development haven't been estimated because there is not enough information about their component indicators.

Résumé :

The EU Ministers of Foreign Affairs granted in The Hague (November 2004) the development of a Road Map for the liberalization of agricultural trade between the EU and the Mediterranean Partner Countries (MPC’s), including its non-commercial aspects (rural development, quality policies, improvement of productivity, institutional reforms, etc.). The adoption of a Road Map is related to the logic of the European Neighbourhood Policy (ENP), and implies that the adopted measures must be negotiated with the MPC’s. Its aim is to achieve a bigger participation of MPC’s in the European Single Market.In fact, it implies a Euro-Mediterranean Agricultural Pact, as the AGREEM (2002, 2003) and FEMISE (2003) have been proposing for years. The FEMISE report (2003) on agricultural trade liberalization incorporated an important part of the AGREEM proposals, adopting a broad vision of the problem and bringing up alternative scénarios for Euro-Mediterranean agricultural trade liberalization. As the EU Ministers of Foreign Affairs recognised in The Hague, any Euro-Mediterranean Agricultural Pact must combine an asymmetric and reciprocal trade liberalization, as well as accompanying measures in order to modernise the agricultural sector of the MPC’s. These accompanying measures should be included in the Action Plans and be monitored by the ENP, so to face the competition with European producers in continental agriculture. The framework of limited inclusion of agricultural trade in the EMFTA changed after the launching of the ENP, which implies a much broader perspective than a FTA.For sure, full participation of MPC’s in an agricultural ESM is not politically nor economically feasible in the short-medium run. Let’s consider the political economy effect of a more open EU-MPC’s agricultural trade in the latter group of countries. With unrestricted and fully reciprocal agricultural trade liberalization, the winners will be agricultural exporters of Mediterranean products and urban consumers, while the losers will be traditional agricultural producers and rural population in general (we could include migrants working in the EU Mediterranean agricultural sector, who will be forced to return to their home countries or to move to different activities). So, full reciprocal liberalization does not seem advisable. On the contrary, asymmetrical liberalization complemented with, or made conditional to, rural development programs, can minimize the losses of rural population and traditional agricultural producers, while preserving winners support (FEMISE, 2003).This research pretend to analyse the consistency of agricultural policy measures as presented in ENP Action Plans with the priorities that a comprehensive and integral Road Map for agricultural liberalization in the Mediterranean should consider. In offers a new methodology that can easily be applied in the identification of reform priorities for different countries in different policy and institutional areas. Our conclusions point to the fact that agricultural reform and accompanying measures are not being taken into account in an operative manner in the ENP Action Plans, while they are according to our results high priority issues when compared with mere trade liberalization and facilitation measures. Furthermore, the results obtained by the methodology used in this research are reinforced by the Turkish case study presented in chapter 3. The main conclusions of the study are summarized following its chapter structure in the remaining of this executive summary.1. The Road Map for Euro-Mediterranean Agricultural Trade Liberalization and the European Neighbourhood PolicyWith the only exception of the FEMISE (2003) paper on agricultural liberalization, there have not been to date much, if any, discussion on the implications of ENP on agriculture. As we have seen, agricultural trade inclusion in the EMFTA has certainly been limited. So, completion of EMFTA by introducing agricultural trade would be the first step towards MPC’s gradual participation in the agricultural chapter of the ESM. There may be some ambiguities in the Commission’s proposal of ?obtaining a stake in the EU’s Internal Market?, but the means to achieve such a stake are clearly defined: legislative convergence towards EU’s acquis communautaire. This is why we have conceptualised the ENP for MPC’s as a policy agenda aiming at the europeanisation of MPC’s formal economic institutions, and insisted that including agriculture in a sensible way is essential for the sustainability and completeness of the EMFTA (Escribano, 2006).However, not every part of the relevant agricultural acquis communautaire needs to be adopted. In fact, agriculture is not included even in the European Economic Area (EEA). So, the stake in the ESM will clearly not automatically include free access to EU agricultural markets, a central issue for many MPC’s. However, trade liberalization (asymmetric, gradual and reciprocal) and legislative approximation in standards is not sufficient to achieve integration of Euro-Mediterranean agricultural markets. Supporting measures are also important in order to prepare MPC’s agriculture to face increasing competition from EU producers in continental products, and to unleash MPC’s export potential in Mediterranean agriculture. These measures should be designed to foster modernization of the agricultural sector in MPC’s, and require the reform of agricultural policies and institutions. These reforms should face the low productivity levels in traditional agriculture, but also bottlenecks in MPC’s export agriculture related to supply infrastructures.All of these dimensions (trade liberalization, legislative approximation in standards, agricultural reforms and rural development) are included in most ENP Action Plans with MPC’s. However, agricultural measures identified and proposed in the Action Plans are fragmentary and biased towards trade facilitation. As happens with other areas of the Action Plans, they provide vaguely defined ?wish lists’ which monitoring and implementation are not well specified, and where progress is difficult to asses. They do not form a coherent framework for agricultural reform in MPC’s, nor a clear and well specified strategy towards the integration of MPC’s and EU’s agricultural sectors.ENP Action Plans for Mediterranean countries include four kind of measures related to agriculture. Most are focused on trade issues, like agricultural trade liberalization and technical regulations and standards. By contrast, wider agricultural policy reform is only contemplated in the Lebanese and Moroccan Action Plans. Rural development is decoupled from agriculture to be considered as a ?regional’ issue, and it appears superficially in ENP Action Plans more like a mantra than as a concrete and well defined strategy. To achieve its objectives, Action Plans contemplates some loosely specified trade reforms for countries like Jordan, Lebanon and Morocco. For the rest of the countries these reforms are not even mentioned. The Moroccan and the Lebanese Action Plans are the only ones that link trade liberalization with agricultural policy reform and rural development.Perhaps the better defined path of reform is found in the Moroccan Action Plan, but in practice, the commercial elements continue to be the central ones, and there are no significant innovations on the rural development or the agricultural policy reform fronts. So, concerning agricultural policy reform and rural development as necessary accompanying measures to the agricultural deepening of the FTA, the commitments by the Action Plans are scarce. In most cases, Action Plans include an impressive list of policy reforms, but they do not mention how to achieve these reforms, how to finance it, or what are the priorities and its timing.One of the main set of measures concerning agricultural trade included in the ENP Action Plans refers to Sanitary and Phyto-Sanitary (SPS) issues. The shared objective is ?to promote food safety and facilitate trade?. In order to attain these goals, they mention the need to work towards full implementation of the WTO agreement on the application of the SPS measures and an active participation in relevant international bodies (OIE, IPPC, Codex Alimentarius). They also call for a gradual legislative approximation towards the principles of the EU legislation on SPS, food and animal traceability and hygiene. They consider as well strengthening regulation to prevent the placing on the market of unauthorized substances, including plant protection products, and ensure the monitoring of residues of these substances. However, there are also country-specific measures.As can be seen, the best specified measures are directly related to facilitate agricultural trade by the completion of the EMFTA in agricultural matters, and its deepening by including the convergence of MPC’s technical regulations towards the Community acquis. References to rural development or agricultural policy reform are scarce, with the only exception of Lebanon and Morocco. So, the agricultural coverage of the Action Plans is far from incorporating the elements of the proposed Euro-Mediterranean Agricultural Pact or mentioned as the principles of the Rabat Road Map. The ENP Action Plans do not establish a coherent and comprehensive agricultural strategy, on which needed trade promotion issues are not complemented by concrete action towards the modernisation of MPC’s agricultural sectors, nor by agreed policy reform measures.2. Qualitative Aspects of the Turkish Experience on the Adaptation of Agricultural and Agro-Industrial AcquisThe aim of this part of the research is to obtain some possible implications of adopting the EU acquis in agriculture by third Mediterranean Countries from the Turkish experience. As regarding Turkey’s position in this framework, one of its significant experiences is the implementation of a strong reform program for restructuring agricultural policies. This program provides a transition from the traditional agriculture scheme to the modern structure of farming with rural policy development. Turkey’s Agricultural Reform Implementation Programme (ARIP) was designed to increase the efficiency of the sector and economy at large, thereby helping it meet one of the most basic pre-conditions set down by the EU: efficiency, competitiveness and sustainability in a unified agricultural market.ARIP, as a whole, established a framework for implementation of a modern, a market oriented agricultural policy in Turkey by abolition of administered prices and of input and credit subsidies, restructuring of agricultural state-owned enterprises and agricultural sales cooperatives, and also introducing of the direct income support scheme. Concerning market integration in Turkey, complying with the CAP support regime first started with the cereal sector. All price and trade distorting support policies were abolished and a nationwide Direct Income Support (DIS) scheme was adopted. Payments were on a hectare basis. There has been a downward trend in the cereal area since 2000.Concerning farm structure, in Turkey, family owned farm is the basic unit of agricultural production, and family members provide most of the farm labour. The fragmented farmland in consequence of the heritage law, have a very negative effect on the agricultural productivity and quality. These characteristics are broadly shared with the MPC’s. The large farmers benefit more from the support policies than the smaller farmers.  Consequently, the lack of economy of scale on the farming structure makes clear that poorer farming could not resists to the strong competition coming from the EU internal market in which average farm size is 5 time bigger than domestic farms. The full elimination of internal support or sharp decrease on input subsidies would cause important losses of welfare to these subsistence ( self-sufficient ) farming. A special rural project has to be developed for attempting to an average optimal farming size in the country. Similarly, problem remains and needs to be encountered by the future rural policy scheme and it is familiar to some MPCs.As regard the rural development policy for reducing poverty in rural areas, a framework for the existing and prospective Agriculture and Rural Development Policies is laid down in several development plans. They focus on resolving rural problems of human resources, inefficient development and maintenance of physical, social and cultural infrastructure, high rate of hidden unemployment, insufficient diversification of agricultural and non?agricultural income generating activities, a high rate of dependence on agricultural subsistence and also low income level and relatively low quality of life for rural population and migration. It is obvious that from a political economy perspective, rural development can be considered as a ?public good? and the necessary institutional mechanism has to be set up also in MPCs in order to provide it. In fact, the future of the small farms and their competitiveness in the potential single market need to be considered locally in MPCs.As regard the export performance in the highly competitive single European market, Turkey must follow and fulfil all requirements made by the European Commission on the food quality policy. On this issue, many projects and programmes have been implemented in Turkey since 2000. Food exporters of MPCs have to meet all these standards and their products have to be fully in compliance with marking, labelling, certification, compliance regulations and market requirements of the EU internal market.As regard to the institutional reforms, Turkey is in a continuous progress in adapting the EU’s institutional framework to bring Turkey’s formal institutions and institutional bodies closer into line with EU’s acquis communautaire. As regards the agricultural and food sectors, progress in adopting legislation and formal rules need to be accompanied by the enforcement capacity. This is also a crucial issue for MPCs, which emphasized to by EU to improve their domestic food market.3. Analysis of Relative Similarity between the Structure of Exports of the Mediterranean Countries and the European Union (ISREE)As we have shown above, the Road Map for agricultural liberalization mainly consists on two vectors: trade liberalization and trade facilitation measures. In order to analyse the consequences of an eventual process of agricultural liberalization between the European Union and the Mediterranean Partner Countries, and to develop a useful tool for establishing an operative and comprehensive negotiation procedure, it is essential to observe the similarity of the exports among the two regions. A bigger similarity in the structure of agricultural exports between the European Union and each one of the MPC’s reveals, to some extent, a higher degree of potential competition. So it is relevant to obtain a mechanism that allows policy-makers to draw a detailed ?agricultural competition map’ of countries within the Euro-mediterranean region.With the aim of overcoming the shortcomings of existing indicators, we recur to a new approach carried out by the application of a Cluster analysis. In our view, this technique could be helpful in deepening policy-makers’ insight on the characteristics of Euro-mediterranean agricultural trade when contemplating any agricultural trade liberalization process. The contribution of our analysis is the construction of a quantitative index of relative exposure for each MPC’s vis-à-vis each EU member state, and with the rest of the MPC’s. In this regard, we find it a useful instrument in order to identify paths to be explored by agricultural negotiations on the trade facilitation and liberalization domain in the context of a Road Map for agricultural liberalization. It can be applied not only to identify items to prioritise in a liberalizing agenda, but also sectors and sub-sectors to be tackled by any institutional or productive support, either by the EU or the MPC’s concerned.This index presents some advantages regarding those developed by others authors in regard to our research:-       It takes into account a multivariate structure as for products and countries.-       It doesn’t present results of difficult or confused interpretation.-       It is an starting point to discriminate among the most outstanding country-to-country relationships when beginning processes of agricultural trade liberalization (or of any other type) between the EU and other countries.It is a useful indicator for helping the policy-makers in assessing the positive and adverse effects in a liberalization process that concerns different states with very different agricultural structures, endowing him with an easy to interpret tool to frame necessarily asymmetric negotiations, in the North-South commercial concessions dimension, as well as in eventual North-North compensatory measures, such the one proposed in the Agricultural Euro-Mediterranean Pact (Lorca et al., 2006).Our results point out to some relevant conclusions in the formulation of a Road Map for agricultural trade liberalization:

  • In a country-by-country basis, the competition picture arising from the ISREE shows that for certain countries, like Morocco or Tunisia, negotiations affects a smaller number of EU countries, making probably easy to conduct better focused agricultural trade liberalization negotiations; for Egypt and Algeria negotiations should be even easier, but for most Mashrek countries, as well as for Turkey, the multiplicity of countries affected make negotiations prospects more complex.
  • From a regional perspective, developing a Road Map with Maghreb countries  including a sub-regional dimension seems easier than for the Mashrek. The Turkish situation looks rather unique and would be much better approached in the Custom Union context.

 

4. Quantification of countries’ characteristics in the design of a specific « Road Map For Agricultural Trade Liberalization» With the aim of generating a comparable quantitative framework to establish different « Road Maps»  for each one of the MPC’s, we have considered the following aspects:

  • To determine a group of « fundamental vectors»  to analyse the previous situation of each country.
  • To gather the set of available indicators to measure these vectors.
  • To generate our own indicators (factors) for each one of the vectors, trying that each one of them is represented by the minimum possible variables and, at the same time, it captures the maximum available information applying factorial analysis.
  • To establish a interpretation guide for the generated factors.
  • To analyse the similarities and dissimilarities among each country and in the whole region.
  • To carry out a brief individual synthesis analysis concerning each country’s situation regarding these indicators, generating an useful record to determine which matters are to be prioritised.

 

The analysis’ final goal is to provide a classification methodology particularized for each country depending on some objective characteristics, derived from its relative situation regarding a set of indicators that summarise all the working variables. The final result is summarized by the following table:

High-priority

(0 ? 25)

High-medium priority

(26 ? 50)

Medium-low priority

(51 ? 75)

Low priority

(76 ? 100)

Algeria

Resources for production

External food dependence

Economic activity performance

Water resources

Index of Democracy

Exchange rate:% 2000-2006

Exchange rate: variation coefficient 2000-06

Available agricultural resources

Wealth

Use of Transport Means

Agricultural Exports Level

Transport means

Household-agricultural water use

State support to agriculture

Agricultural Obtained production

Road infrastructure

Tariff Protection

Human capital

Use of available agricultural resources

Agricultural Exploitation Size more than 20 Hc (%)

Level of Wealth distribution

Machinery

Industry water use

Bureaucratic obstacles

Egypt

Available agricultural resources

Agricultural Exploitation Size more than 20 Hc (%)

Water resources

Wealth

Performance of Economic Activities

Obtained production

Index of Democracy

Tariff protection

Road infrastructure

External food dependence

Means of transport

Bureaucratic obstacles

Industry water use

Human capital

Exchange rate:% 2000-2006

Agricultural Exports Level

Exchange rate: variation coefficient 2000-2006

Household-agricultural water use

Use of available Agricultural resources

Resources for production

Machinery

State support to agriculture

Use of Transport Means

Wealth distribution level

Israel

Water resources

Use of available agricultural resources

Bureaucratic obstacles

Agricultural Exports Level

Household-agricultural water use

Tariff Protection

Use of Transport Means

Exchange rate:% 2000-2006

Exchange rate: variation coefficient 2000-06

Transport means

State support to agriculture

Available agricultural resources

Industry water use

 

Human capital

Road infrastructure

Wealth

Economic activity performance

Index of Democracy

Jordan

Tariff protection

Means of transport

Exchange rate: variation coefficient 2000-2006

Water Resources

Wealth

Available agricultural resources

Exchange rate:% cto. 2000-2006

Index of Democracy

State support to agriculture

Road infrastructure

Resources for the production

Industry water use

Bureaucratic obstacles

Household-agricultural water use

Agricultural Exploitation size more than 20 Hc (%)

Performance of Economic Activities

Wealth distribution level

External food dependence

Use of Transport Means

Machinery

Obtained production

Agricultural Exports Level

Human capital

Lebanon

Household-agricultural water use

Industry water use

Machinery

State support to agriculture

Exchange rate: variation coefficient 2000-2006

Agricultural Exploitation Size more than 20 Hc (%)

Use of available Agricultural resources

Exchange rate:%. 2000-2006

Performance of Economic Activities

Means of transport

Bureaucratic obstacles

Use of Transport Means

Road infrastructure

Water resources

Resources for production

Obtained production

Index of Democracy

Agricultural Exports Level

Available agricultural resources

External food dependence

Tariff protection

Morocco

Road infrastructure

Human capital

Exchange rate:%. 2000-2006

Wealth distribution level

Index of Democracy

Use of Transport Means

Obtained production

Wealth

Resources for production

Industry water use

Water resources

Performance of Economic Activities

Agricultural Exploitation Size more than 20 Hc (%)

Means of transport

Bureaucratic obstacles

Exchange rate: variation coefficient 2000-2006

Agricultural Exports Level

State support to agriculture

Machinery

Tariff protection

Available agricultural resources

Use of available Agricultural resources

Household-agricultural water use

External food dependence

Tunisia

Use of Transport Means

Wealth distribution level

Index of Democracy

Resources for production

Water resources

Exchange rate:% 2000-2006

Bureaucratic obstacles

Road infrastructure

Means of transport

Exchange rate: variation coefficient 2000-2006

Wealth

Industry water use

Obtained production

Agricultural Exports Level

Machinery

Performance of Economic Activities

Use of available Agricultural resources

External food dependence

Human capital

Household-agricultural water use

Tariff protection

State support to agriculture

Available agricultural resources

Agricultural Exploitation Size more than 20 Hc (%)

Turkey

Agricultural Obtained production

Wealth

Wealth Distribution Level

Resources for production

Use of Transport Means

Road infrastructure

Machinery

Tariff Protection

Bureaucratic obstacles

Agricultural Exploitation size more than 20 Hc (%)

Economic activity performance

Household-agricultural water use

Agricultural Exports Level

Index of Democracy

Industry water use

Use of available agricultural resources

External food dependence

Available agricultural resources

State support to agriculture

Human capital

Water resources

Transport means

Exchange rate: variation coefficient 2000-06

Exchange rate:% 2000-2006

 

Note: In the case of Israel the vectors of Modernization, and Lebanon, the vectors of Development haven’t been estimated because there is not enough information about their component indicators.In the previous table it is shown to what degree it is needed taking corrective measures in each concrete vector for each country. These results point then to the setting of a first priority agenda in order to design a specific « Road Map.»  We want to stress again that this research goal is not to offer a specific design of such a Road Map, but rather proposing a methodology in order to built policy-consistent Road Maps. Sure, a relatively good situation in the southern Mediterranean context does not means that no policy reforms are needed, but to some extent it signals the path to prioritise issues.However, from the table below we can obtain relevant insights in the general patterns of a Road Map that fits the needs of the different involved countries, and try to compare our conclusions with the ENP Action Plans approach. There are some horizontal priorities for all the countries that are clearly underestimated by Action Plans, like the water resources issue, which should be considered as a priority in any integral approach to Euro-Mediterranean agriculture, with the only exception of Turkey. However, within the water resources issue, the situation also clearly differs between countries for which agricultural water use is a priority (Algeria, Israel, Jordan and Lebanon) or not (the rest of countries). Another almost generalised issue, with few exceptions (Israel, Lebanon, Turkey), is the lack of democracy, also mentioned in ENP Country Reports, which we assume does not allow agricultural sector actors to transfer its policy preferences into their governments.The level of obtained production is shown to be an almost common priority, too. With the exception of Israel and Jordan, the rest of the countries have problems in this respect. Concerning low productivity, mechanization would be a priority for Lebanon, Tunisia and Turkey. Another common trait is the shortcomings in the transportation system. All countries, except Israel, need to prioritise its transport infrastructures , another issue that is not mentioned in Action Plans when dealing with the agricultural sector reforms. Exchange rate stability also seems a priority for all countries with the only exception of Egypt.But most priorities are country-specific and call for a more detailed level of negotiations. For instance, concerning tariff reduction, a significant part of any Euro-Mediterranean Agricultural Pact, our results point out that it won’t be a priority for countries such as Lebanon, Morocco or Tunisia, whilst it should be a high priority for the rest of the countries. External food dependency will be a priority only for Egypt and Algeria. Export promotion seems an issue to be prioritised in Algeria, Morocco and Tunisia, relative to the rest of the countries. Concerning agricultural resources, it is a priority for most countries, with the exception of Lebanon, Morocco, Tunisia and Turkey. Reducing state support to agriculture, mainly subsidies, is a priority for most countries, including Israel, with the only exception of Egypt, Tunisia and Turkey.So, the picture offered by our results highlights that trade-related issues are not such a high priority issue in several MPC’s when compared with other non-trade related aspects. In the previous chapter of this research we have shown that different degrees of competition exposure existis within the Euro-Mediterranean area, then making it difficult to achieve a regional, or sub-regional, Road Map; only the Morocco-Tunisia couple could be interesting in exploring a joint dynamic. When adding the policy dimension, we confirm that no consistent policy framework can emerge that fits MPC’s as a whole.This case-by-case approach, on the contrary, fits well the ENP framework. But our results points to the fact that ENP Action Plan priorities are not fully consistent either with the MPC’s agricultural situation. Sure, trade liberalization and trade facilitation measures are important, and MPC’s need them. But issues such as water resources, transport infrastructure, state support to agriculture, food dependency or low production levels are almost absent in the ENP documents (at less in an operative manner), that tend to focus on trade-related issues.These results reassess the significance of non-trade, accompanying issues in any Road Map for agricultural trade liberalization. It also raises some doubts about the viability of a regional approach for the implementation of such a Road Map. Finally, it shows that ENP Action Plans do not adopt a truly country-specific approach when dealing with agriculture, and that there is much more room for fostering agricultural policy reform with a better prioritisation pattern.