Cross compliance and competitiveness of the European beef and pig sector

Abstract

Beef and pig production are important sectors affected by the cross-compliance policy. Full compliance with SMRs and GAECs generates costs and benefits which may have an impact on the competitiveness of these sectors on the world market. Compliance with the Nitrate Directive, animal identification and registration requirements and animal welfare standards can give rise to non-negligible cost of production increases at individual farm level and at sector level. Additional costs can be relevant either due to a low degree of compliance or by significant adjustments costs at farm level. Full compliance generates a level playing field between Member States of the EU, as some countries have to face higher additional costs than others, which are be attributed to differences in degree of compliance. This paper first presents evidence of additional costs at individual farm level due to full compliance. Then for beef and pork a methodology has been developed in order to calculate sector cost impacts following an upcsaling procedure for each of the analysed directives. Simulations with the GTAP model have enabled an assessment of the trade effect of compliance with standards and the impact on the external competitiveness of the EU beef and pork production. In some policy fields covered by cross-compliance important trade partners such as Canada, USA and New Zealand have implemented policies similar to the EU. In these three countries comparable standards to those in the EU were identified and the level and cost of compliance have been assessed. The pig sector will be affected most by a unilateral compliance with standards in the EU, in particular as the Nitrate Directive is concerned. Within the EU pig production costs will rise by 0.545 %. Imports may increase by 4% and exports may fall by 3%. However full application of the Clean Water Act in the US, which contains similar obligations to the Nitrate Directive, generates a significant sector cost increase (1,08%) which may counterbalance the loss of competitiveness of EU pork production towards the US. Compliance with the mandatory animal welfare standards has only minor cost implications and has negligible effects on external competitiveness of the EU both because of a high degree of compliance and relatively low adjustment costs at farm level. Finally, in many EU member states the degree of compliance of beef farms with the animal registration and identification directives is below 100%. Additional costs for full compliance within the EU have been estimated at 0.455%, which may cause an increase of beef imports of 2.21% and a decline of exports of ¿2.12%. This loss in competitiveness of the EU will further favour the position of Brazil on the world beef market. At the other hand significant benefits are obtained in food security of EU beef