cap reform and diets

CAP and DietsHow 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

How healthy is the EU Diet?

1. How healthy is the EU Diet?

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


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


http://www.fao.org/docrep/005/ac911e/ac911e00.htm

http://www.fao.org/docrep/005/ac911e/ac911e00.htm

How healthy is the EU diet?

Are EU diets converging and how to

measure convergence?

The Consumption Similarity Index (CSI)

442

1

,2

11

i k

ik

j

ij

kjCal

Cal

Cal

CalCSI

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.

Towards an increasingly homogenous EU Diet?

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

How the CAP affects food prices

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

Food value chain in the EUEU-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

bil

lio

n U

S$

19

96

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

How elastic is food demand?

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

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.

How important is the CAP?

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

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

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


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?

How have CAP reforms changed

its impacts – wrt to a broad

definition of a healthy diet?

A healthy diet and the CAP

Physical health

Mental healthEnvironmental

health

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


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


goods?


low vertical

transmission; bad

consumer subsidies

Lower taxes, lower

consumer subsidies


1980s 2000s 2010s

1. Market

interventions

Coupled to

production

Increasingly

decoupled from

production, 2008:


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


goods?


low vertical

transmission; bad

consumer subsidies

Lower taxes, lower

consumer subsidies

Practically no consumer

taxation left, unrestricted

isoglucose, positive

consumer subsidies (F&V)


1980s 2000s 2010s ?2020s?

1. Market

interventions

Coupled to

production

Increasingly

decoupled from

production, 2008:


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


goods?


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?

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?

Thanks

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


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)

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)

cap reform and diets

Education