How EC 1992 and reforms of the common agricultural policy would affect developing countries'grain trade

The European Community (EC) grain exports increased significantly over the last three decades. The EC's Project 1992 will abolish internal trade barriers to facilitate the movement of goods, persons, services, and capital between member countries. One aspect of the program is elimination of border taxes and subsidies (called MCAs) on agricultural commodities. Coupled with internal pressures to reduce agricultural budget expenditures, the EC-1992 program has affected agricultural policy by weakening the role of the price intervention system. Baseline projections indicate that total EC10 grain production will continue to increase as average yields increase 2% to 2.5% a year. Eliminating MCAs and continuing stabilizers (scenario 1) would slightly increase grain production above baseline as member countries'exchange rate policies adjust. Total EC10 grain production will increase 2% a year over baseline in 1995-2000, but eliminating the CAP and returning to a pre-CAP growth path for yields (scenario 2) would produce a decline in grain production below baseline in 2000. Under scenario 1, developing countries'net import costs for grains fall slightly and imports rise. By 2000, the cost of grain imports for all developing countries fall US$153 (constant 1985 dollars). Asian and Middle Eastern countries save the most. Under scenario 2, the return to historical yields increases developing countries'cost for grain imports by an estimated US$906 million.