Josef Schmidhuber, FAO Expert consultation on trade and nutrition 15-16 November 2016, FAO Headquarters, Rome http://www.fao.org/economic/est/est-events-new/tradenutrition/en/

1. CAP and Diets
How 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

2. How healthy is the EU Diet?

3. 1. How healthy is the EU Diet?

4. 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
1. How healthy is the EU Diet?

5. 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
1. How healthy is the EU Diet?
http://www.fao.org/docrep/005/ac911e/ac911e00.htm

6. How healthy is the EU Diet?

7. How healthy is the EU Diet?

8. How healthy is the EU Diet?

9. How healthy is the EU diet?

10. How healthy is the EU Diet?

11. How healthy is the EU Diet?

12. Are EU diets converging and how to
measure convergence?
The Consumption Similarity Index (CSI)








 
442
1
,
2
1
1
i k
ik
j
ij
kj
Cal
Cal
Cal
Cal
CSI
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.

13. Towards an increasingly homogenous EU Diet?

14. 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

15. How the CAP affects food prices

16. 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

17. Food value chain in the EU
EU-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
billionUS$1996
Value of consumption at world prices, primary products =US$ 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

18. How elastic is food demand?

19. 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

20. 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.

21. How important is the CAP?

22. 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

23. 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

24. 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
Source: own calculations (JS) based OECD

25. 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?

26. How have CAP reforms changed
its impacts – wrt to a broad
definition of a healthy diet?

27. A healthy diet and the CAP
Physical health
Mental health
Environmental
health

28. 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

29. Changing CAP and changing instruments
(main commodities only)
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
3. Provision of nutritional
goods?
High price taxes. but
low vertical
transmission; bad
consumer subsidies
Lower taxes, lower
consumer subsidies

30. Changing CAP and changing instruments
(main commodities only)
1980s 2000s 2010s
1. Market
interventions
Coupled to
production
Increasingly
decoupled from
production, 2008:
CAP “health check”
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
3. Provision of nutritional
goods?
High price taxes. but
low vertical
transmission; bad
consumer subsidies
Lower taxes, lower
consumer subsidies
Practically no consumer
taxation left, unrestricted
isoglucose, positive
consumer subsidies (F&V)

31. Changing CAP and changing instruments
(main commodities only)
1980s 2000s 2010s ?2020s?
1. Market
interventions
Coupled to
production
Increasingly
decoupled from
production, 2008:
CAP “health check”
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
3. Provision of nutritional
goods?
High price taxes. but
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?

32. 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?

33. Thanks

34. 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
Source: own calculations (JS) based OECD

35. 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)

36. 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)