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13.07.2010 Studies
 
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  • The costs of compliance with EU standards

The costs of compliance with EU standards

Jongeneel et al. (2007) and Jongeneel et al. (2008)

The costs of compliance with strict EU standards are often mentioned as a justification for the Single Farm Payment. But studies show that the extra costs for EU producers are on average very low. If any compensatory payments are justified, they should be targeted at farms that do indeed incur high compliance costs.

Jongeneel et al. (2007) compare legal standards for agricultural production in the EU with those of key competitors. They find that the EU has somewhat stricter standards than Canada and New Zealand and substantially stricter standards than the US. Production intensity and population density are also lower in these countries, so less demanding standards better correspond to their needs.

Jongeneel et al. (2008) (see also Bezlepkina et al. (2008) and De Roest et al. (2008)) quantify the (dis) advantages for EU farmers arising from differences in standards, paying special attention to the Nitrate Directive and the identification and registration of animals, the areas which generally give rise to the greatest costs.

For EU dairy production, the Nitrate Directive is estimated to increase production costs by 0.1% to 0.6%, while compliance with identification and registration standards for cows is estimated to increase costs by less than 0.15%. The costs of full compliance by all EU farmers with nitrate and identification and registration standards are calculated to reduce EU dairy exports by less than 1%. This loss shrinks to 0.1% if the compliance costs of producers in the US, Canada and New Zealand are taken into account. The allowance of bST hormones in the US – which is forbidden in the EU – is estimated to reduce EU dairy exports by 2.4%.

For EU beef production, the Nitrate Directive is estimated to increase production costs by 0.01%, while compliance with identification and registration standards for beef is estimated to increase costs by 0.45% (in the EU-15 only). The costs of full compliance by all EU farmers with the nitrate and the identification and registration standards are calculated to reduce EU beef exports by 2.7%.

For EU pig production, the Nitrate Directive is estimated to increase production costs by 0.55% and animal welfare legislation is estimated to add another 0.11% to production costs. This is less than the 1.08% cost increase incurred by US pig producers for full compliance with the Clean Water Act. As a result, relatively undemanding EU standards raise EU pig exports by 1.85%.

For EU cereals production, compliance costs are below 1%. For fruits, vegetables and olives, compliance costs vary significantly from farm to farm. In some cases, compliance with EU standards actually increases farm income.

In sum, these in-depth studies do not support claims that EU farmers face significant disadvantages as a result of strict EU standards. Restrictions on GMOs and animal welfare regulations may create greater disadvantages in the future. However, this could only justify targeted payments approximately in line with actual extra costs, not the Single Farm Payment, which provides income support across the board.

If farm federations argue that they suffer substantial disadvantages, they are likely to miss out some of the complexities in measuring compliance costs:

  • Standards vary across EU member states and within member states (Natura 2000, Nitrate Vulnerable Zones etc).
  • Private standards imposed by the food industry and retailers may require the same or even more costly measures. It is thus unclear what share of compliance costs should be attributed to legal standards.
  • Farmers are very differently affected according to their production systems, size of farm, agronomical conditions etc. In addition, not all farmers comply with all regulations.
  • Compliance costs fall over time as farmers learn and adjust through investments, changed practices or relocation (e.g. intensive livestock rearing leaving Nitrate Vulnerable Zones).
  • Regulations interact with each other, so that one cannot sum up the compliance costs associated with each individual regulation to arrive at an overall compliance cost.
  • Money spent by one farmer in complying with EU regulations may result in gains for another farmer (e.g. when rights to spread manure are bought).
  • The economic benefits of compliance accruing directly to the farmer (e.g. by preventing erosion) need to be subtracted from gross compliance costs.

Less dilligent cost estimates than the two studies cited above, undertaken under the 6th EU research framework program, can easily produce exaggerated figures.

Sources:

  • Jongeneel, R., F.M. Brouwer, M. Farmer, R. Müssner, de K. Roest, X. Poux, G. Fox, A. Meister, Z. Karaczun, J. Winsten, and C. Ortega. 2007. Compliance with mandatory standards in agriculture: A comparative approach of the EU vis-à-vis the United States, Canada and New Zealand.
  • Jongeneel, R.A., I. Bezlepkina, F.M. Brouwer, L.H. Aramyan, K. Dillen, and M. Farmer. 2008. Facilitating the CAP reform: Compliance and competitiveness of European agriculture
  • Bezlepkina, V., R. Jongeneel, F. Brouwer, K. Dillen, A. Meister, J. Winsten, K. De Roest, and M. Demont. 2008. Costs of compliance with EU regulations and competitiveness of the EU dairy sector: Paper presented at the EAAE International Congress, August 26-29, 2008, Ghent.
  • De Roest, Kees, Roel Jongeneel, Koen Dillen, and Jonathan Winsten. 2008. Cross compliance and competitiveness of the European beef and pig sector.