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Tariffs

EU tariffs on agricultural products average 18% – over four times more than charges on other goods. All EU tariffs greater than 100% relate to agricultural products, with isoglucose hit hardest by a staggering 604% duty.

Tariffs distort markets

The main problem is that tariffs distort the market signals that could guide an efficient allocation of the economy’s resources. Without tariffs, the EU would produce fewer agricultural goods and more manufactured goods and services. It would thus profit more from the international specialization of production by focusing on those high-value-added segments where it enjoys a comparative advantage.

In addition, the difference in tariffs across agricultural products distorts farm production. European farmers grow those products that are heavily protected and not those in which they are internationally competitive. This table shows the dispersion of (WTO-bound) agricultural tariffs in the EU. While 1569 products receive less than 20% protection, 149 receive more than 75%.

Tariffs harm (poor) consumers

EU agricultural policies have increased agricultural prices by 12% in 2008, transferring € 36 billion from consumers to producers. This is particularly damaging to low-income households that spend a relatively high proportion of their income on food. According to Eurostat, food, beverages and tobacco constitute 25% of the expenditures of the quintile (20%) of EU households with the lowest income, whereas this share is at only 15% for the quintile with the highest incomes. Therefore, poor consumers foot a disproportional share of the bill.

Tariffs hurt (poor) farmers abroad

The tariffs levied around the globe lower worldwide demand for imports and thus world market prices of agricultural products. On one hand, this is desirable because most of the poorest households in developing countries consume more food than they produce. On the other, it harms poor farmers and also hired workers. Since farming needs much unqualified labor, lesser agricultural production deteriorates wages for unskilled workers in the entire economy. In the balance, EU agricultural tariffs probably exacerbate global poverty.

Tariffs undermine world market stability

Agricultural markets are inherently volatile. Isolating the European market from external shocks may look like a good idea. But domestic prices tend to be even more volatile than those on world markets which pool risks – a good harvest in Kazakhstan or the US can balance a bad season in Europe. By weakening the price transmission from the relatively stable world market, tariffs may actually increase price volatility in the EU. In any case, EU agricultural tariffs are irresponsible towards the rest of the world. They are often levied as fixed amount per kilo, which means that they become more restrictive when prices fall and less so during high-price periods. As a result, global demand shrinks in periods of abundant supply, and vice versa. World markets therefore become less efficient buffers against domestic price shocks and stronger sources of disturbance. This primarily harms the poor in developing countries.

EU tariffs impede trade liberalization throughout the world

Resistance by the EU to cut its agricultural tariffs has repeatedly blocked progress in the WTO’s Doha negotiations. In addition, developing countries point to EU protectionism in agriculture to justify their barriers against imports of manufactured goods and services. Removal of EU agricultural tariffs would thus be an important contribution to a more liberal world trading system, delivering great benefits not only to the EU but also in the fight against global poverty.