CROSS COMPLIANCE AND COMPETITIVENESS OF THE EUROPEAN BEEF AND PIG SECTOR

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 animpact on the competitiveness of these sectors on the world market. Compliance with theNitrate Directive, animal identification and registration requirements and animal welfarestandards can give rise to non-negligible cost of production increases at individual farm leveland at sector level. Additional costs can be relevant either due to a low degree of complianceor by significant adjustments costs at farm level. Full compliance generates a level playingfield between Member States of the EU, as some countries have to face higher additionalcosts 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 tofull compliance. Then for beef and pork a methodology has been developed in order tocalculate sector cost impacts following an upcsaling procedure for each of the analyseddirectives. Simulations with the GTAP model have enabled an assessment of the trade effectof compliance with standards and the impact on the external competitiveness of the EU beefand pork production.In some policy fields covered by cross-compliance important trade partners such asCanada, USA and New Zealand have implemented policies similar to the EU. In these threecountries comparable standards to those in the EU were identified and the level and cost ofcompliance have been assessed. The pig sector will be affected most by a unilateralcompliance 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% andexports may fall by 3%. However full application of the Clean Water Act in the US, whichcontains similar obligations to the Nitrate Directive, generates a significant sector costincrease (1,08%) which may counterbalance the loss of competitiveness of EU porkproduction towards the US.Compliance with the mandatory animal welfare standards has only minor costimplications and has negligible effects on external competitiveness of the EU both because ofa 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 theanimal registration and identification directives is below 100%. Additional costs for fullcompliance within the EU have been estimated at 0.455%, which may cause an increase ofbeef imports of 2.21% and a decline of exports of –2.12%. This loss in competitiveness of theEU will further favour the position of Brazil on the world beef market. At the other handsignificant benefits are obtained in food security of EU beef.