Costs of compliance with EU regulations and competitiveness of the EU dairy sector

The introduction of cross-compliancemechanism in the European Union with its 2003 CAP-reformmight affect the costs of production and thuscompetitiveness of the EU. Little evidence is available toasses the costs of compliance with regulations and it implicationfor trade. In this study a farm level competitivenessanalysis of the impacts of the Nitrate Directiveand the Identification & registration Directive focuseson the dairy sector in Germany, France, Italy, Netherlandsand UK (within EU), and the US and New Zealand(outside EU). The findings from this study are integratedinto a trade analysis which assesses the impact ofcompliance costs on competitiveness of the various tradingnations in global trade. Representative farm studieswere used as a basis for the cost increase calculations.Best-estimates of compliance are used from the existingliterature and expert judgements. The negative impactof these measures (for nitrates, and animal identificationand registration) on EU imports and exports are lessthan 3 percent. If a smaller increase in compliance takesplace, these already relatively small trade impacts willbe further diminished. When the standards for nitratepollution taken by the US and New Zealand are takeninto account along with full compliance assumption inall countries analysed, this would only slightly improvethe EU exports. The trade impacts obtained when nochanges are assumed to happen in key competitor countriescan thus be argued as providing the upper bound ofthe likely trade impacts.