1

The Fruit and VegetablesThe Fruit and Vegetables Import Regime :Import Regime :

The Entry Price SystemThe Entry Price System

Principles, Issues and ImpactsPrinciples, Issues and Impacts

Charlotte EmlingerInstitut Agronomique Méditerranéen de Montpellier/UMR MOISA

Emmanuelle Chevassus LozzaInstitut National de la Recherche Agronomique Nantes/LERECO

May, 2nd 2007Bruxelles

EUMED AGPOL

Restricted dissemination

2

The Entry Price SystemThe Entry Price System Outline of the talkOutline of the talk

Introduction

1. Principles and motivation

2. Theoretical impacts of the Entry Price System

on Imports

3. Four main issues to be discussed in the

perspective of the removal of the Entry Price

System

3

• The level of protection depends on the import price of the

product on the European market : the so-called «entry price»

• Objectives of the system:

– To limit competition from the RoW

– To guarantee a certain level of price in the EU market

– To avoid the transmission of world market fluctuations

Introduction : Introduction : The Entry Price System (EPS)The Entry Price System (EPS)

4

• Only 15 products are concerned :

Tomatoes, Cucumbers, Artichokes, Courgettes

Oranges, Mandarines, Clementines, Lemons

Apples, Pears, Grapes

Apricots, Cherries, Peaches, Plums

(Also fruit juice : Oranges, Grapes)

But : • A High share in European production, especially for southern

EU countries:

- 69.7% of total EU F&V production

- 82% for Italy, 80 % for Greece, 72% for Spain and 76 % for France

• A high share in F&V European consumption : 48,3%

Few products are concernedFew products are concerned but they are important for the EU but they are important for the EU

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• A high share in Fruit and Vegetables European Trade

EU imports 47,91%

EU exports 42,70%

FAO 2003-2004 - COMTRADE 2004

Few products are concerned, Few products are concerned, but they are important for the EUbut they are important for the EU

• High share of intra-EU trade for these F&V:80% of Imports come from the EU (66% for other Fruit and Vegetables)

•The major extra-EU suppliers of these products are:- Mediterranean Countries (27.3%) : tomatoes, citrus

( «Entry price products» represent 55% of their F&V production)

- South American Countries (29%) : citrus, apples( «Entry price products» represent 22% of their F&V production)

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1.1. Principles and Principles and motivations motivations

of the systemof the system

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Maximum Specific duty

SPEMax

(€/kg)

1.1. Principles of the Entry Price System (EPS)1.1. Principles of the Entry Price System (EPS)

Specific dutySPE (€/kg)

Ad Valorem Duty t (%)

(t*PE)

2. 92% Ptrig <PE<Ptrig

PE

3.

PE <92% Ptrig

PE

PE

1. Ptrig <PE

Trigger price

PE

92% Trigger Price

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• according to objectives of protection :- Seasonal protection of high perishable products

(Apricots, Cherries, Peaches, Plums)- Protection of most expensive production (greenhouse)

(Tomatoes, Courgettes, Cucumbers and Artichokes)- Off season Protection

(Apples, Pears, Lemons)- In Season Protection

(Grapes, Oranges, Clementines, Mandarines)

• according to trade patterns:Off/In Season competitionLow/High share of extra-EU trade

Necessity of a « product by product » approach in the discussion about removal of EPS

1.2. Different cases among the products1.2. Different cases among the products

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Cherries: competition between EU and extra Suppliers on a brief periode

0

10000

20000

30000

40000

50000

60000

70000

80000

1 2 3 4 5 6 7 8 9 10 11 12

0

20

40

60

80

100

120

140

160

Extra EU Imports

Intra EU Imports

Trigger Price

Ad valorem Duty

Grapes : off season trade

0

20000

40000

60000

80000

100000

120000

140000

1 2 3 4 5 6 7 8 9 10 11 12

0

10

20

30

40

50

60

Also for Apricots, Peaches and Plums (but less extra-EU imports)

- Higher ad valorem duties during period of production

Also for Oranges, Clementines and Mandarines (but less extra-EU imports)

EPS applied only during European production

10Extra EU Imports

Intra EU Imports

Trigger Price

Ad valorem Duty

- Competition between EU and extra-EU suppliers during this period

-Higher ad valorem duty in summer

Also for Cucumbers (but less extra-EU imports) and Courgettes

-Low seasonality of intra EU import

- Higher trigger price when Extra-EU import

Also for Lemons and Pears

EPS applied the whole year

0

50000

100000

150000

200000

250000

1 2 3 4 5 6 7 8 9 10 11 12

0

20

40

60

80

100

120

Apples: Lower trigger price during EU production

0

20000

40000

60000

80000

100000

120000

140000

160000

1 2 3 4 5 6 7 8 9 10 11 12

0

10

20

30

40

50

60

Tomatoes: Higher trigger price in winter and spring

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• Reduction or removal of ad valorem duty

• Preferential Trigger Price for some countries, products and months :

Morocco : Tomatoes, Cucumbers, Artichokes, Courgettes

Clementines, Oranges

Israël: Oranges

Egypt: Oranges

Cyprus (before 2004): Oranges

But only inside Quotas

• The maximum specific duty never changes

1.3. Preferences granted by trade agreements1.3. Preferences granted by trade agreements

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2. Theoretical impacts of 2. Theoretical impacts of the the

Entry Price SystemEntry Price Systemon Importson Imports

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d3

Ptrig

If PE≥Ptrig : EPtP )1(

)1()1( tQ

tPE

PE

d2

If PE ≤ 92%Ptrig :

MaxE SPEPtP )1(

)1(

)(

)1( t

SPEQ

tP MaxE

92%Ptrig

If 92%Ptrig≤PE ≤ Ptrig :

SPEPtP E )1(

)( Etrig PPSPE

t

PQ

tP trigE

)(

avec

Q

P

0

d1

European Excess demand : QP

14

d2

)1(

)(

)1( t

SPEQ

tP MaxE

92%Ptrig t

PQ

tP trigE

)(

d3

Ptrig

)1()1( tQ

tPE

Q

P

0

d1

European Excess demand : (price in the EU Market=f(Q))

QP

European Import Demand if EPS:(import price=f(Q))

Discontinuity of the European Import demand function :« Break » when PE=92%Ptrig

PE

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What if the Impact of EPS on Imports? a. If PE≥Ptrig

PE1*t

d2

92%Ptrig

d3

Ptrig

Q

P

0

d1

PE1

Q1

P1

Imports if EPS =Imports if ad valorem duties only =Q1

With :PE1 = import priceP1 = final price on EU market

Q’1

Import if free trade =Q’1With :

PE1 = import and final price

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PE2*t + SPE

d2

92%Ptrig

d3

Ptrig

Q

P

0

d1

PE2

P2

Q2

Imports if EPS = Q2

With :PE2 = import priceP2 = final price on EU market

Q’2

Imports if free trade = Q’2With :

PE2 = import and final price

What if the Impact of EPS on Imports? b. 92%Ptrig≤PE ≤ Ptrig

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92%Ptrig

Ptrig

Q’2

P’’2

PE2

PE2*t + SPE

P2

Q2 Q’’2

d1

d2

d3

Q

P

0

Imports if ad valorem duties only = Q’’2With :

PE2 = import price P’’2 = Final price on EU market

What if the Impact of EPS on Imports? b. 92%Ptrig≤PE ≤ Ptrig

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PE3*t + SPEmax

Q3

PE3

P3

Imports if EPS = Q3

With :PE3 = import priceP3 = final price on EU market

Q’3

Imports if free trade = Q’3With :

PE3 = import price and final price

Q’’3

P’’3

Imports if ad valorem duties only = Q’’3With :

PE3 =import price P’’3 =final priced2

92%Ptrig

d3

Ptrig

Q

P

0

d1

What if the Impact of EPS on Imports? c. PE ≤ 92%Ptrig

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What are the impacts of EPS on Imports?What are the impacts of EPS on Imports?

Discontinuity of the Import demand Function

Below 92 % of the trigger price, imports are suddenly reduced

The application of the Maximum Specific Duty SPEMax can

make the level of duty prohibitive

To sell products on the European market with a price lower than the trigger price, the import price (i.e. production price + transportation costs) has to be very low

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Example of TomatoesExample of Tomatoes

PE

Ad Valorem Duty Specific DutyImport Price (PE)

P

Ptrig

Import price

0

20

40

60

80

100

120

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

€/100kg

€/10

0kg

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Impact of Preferential Entry Price: example of TomatoesImpact of Preferential Entry Price: example of Tomatoes

MFN Trigger Price

0.461

0.424

MoroccanTrigger price

january Tomatoes

0.846

0.778

€/100kg

0.65

0.55

Moroccan Production

Costs

TurkishProduction

Costs

No Duties

SPEMax

Existence of a rent for exporters ?

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3. Four main issues 3. Four main issues to be discussed to be discussed

in the perspective in the perspective of the removal of the removal

of the EPSof the EPS

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• Four questions raises:

- EPS Effectiveness : does the system work?

- EPS Relevance: is the system useful?

- EPS Efficiency : are the objectives achieved at a reasonable cost?

- Preferential margin of Preferential EPS: to what extent countries that benefit from preferential trigger price are advantaged?

On going work: comments and discussion are wellcome !On going work: comments and discussion are wellcome !

Main Issues to be discussed Main Issues to be discussed in the perspective of the removal of EPSin the perspective of the removal of EPS

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1. We compare import price with trigger price :

the system is effective if import price are higher than

the trigger price

2. We compare the EU supply price with the trigger price :

the system is effective if internal prices are above

trigger price

Two ideas :Two ideas :

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- We use the Standard Import Value as a proxy for import price

after paying the specific duties

- We count the number of occurences where SIV<Ptrig

Important variation of SIV among years, months and

suppliers

Frequency of occurrences [SIV<Ptrig] depends on

products, months and years

1. Trigger price and SIV1. Trigger price and SIV comparison comparison 1995 to 2005

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4 groups of products may be distinguished:

- no SIV<Ptrig :

Peaches, Mandarines, Courgettes, Grapes

- few « crisis » for some year, suppliers or month :

Apples (China, Poland, Hungary), Pears (China), Oranges (Turkey, Cuba, Brasil), Cherries (Bulgaria, Romania, 96), Apricots (96)

- several cases of SIV<Ptrig: Artichokes (winter 03-06), Lemons (june july 03,04), Cuncumbers ( march april 03-06), Clementines (december 97-06)

- the EPS doesn’t seem to work :

Plums and Tomatoes

1. Trigger price and SIV1. Trigger price and SIV comparison comparison 1995 to 2005

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Example of Peaches: SIV Above Trigger PricesExample of Peaches: SIV Above Trigger Prices

0,00

50,00

100,00

150,00

200,00

250,00

Trigger price

MFN SIV

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

€/100kg

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Example of Apples : some problematic originsExample of Apples : some problematic origins

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

€/100kg

0

50

100

150

200

250

300

SIV Autralia

SIV China

SIV NewZealand

SIV Poland

TriggerPrice

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Example of Artichokes : Problems since 2002Example of Artichokes : Problems since 2002

0,00

100,00

200,00

300,00

400,00

500,00

600,00

Trigger price

SIV MFN

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

€/100kg

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Example of Tomatoes : lot of SIV<Trigger PriceExample of Tomatoes : lot of SIV<Trigger Price

0,00

50,00

100,00

150,00

200,00

250,00

300,00

Trigger Price

SIV MFN

SIV Israël

SIV Morocco

SIV Turkey

1 2 3 4 5 6 7 8 9 10 11 12

€/100kg 2004

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How How SIV<PSIV<Ptrigtrig isis possible ?possible ?

Clearing Methods (SIV, Deduction or FOB Method)?

Does SIV represent market prices?

Difference of quality/price inside consignement?

T1 T2

SIVThe application of EPS

and the use of SIV leads to SIV higher than

the trigger price at T2

Ptrig

92% Ptrig

T3

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0,00

100,00

200,00

300,00

400,00

500,00

600,00

15-juin-94 28-oct-95 11-mars-97 24-juil-98 06-déc-99 19-avr-01 01-sept-02 14-janv-04 28-mai-05 10-oct-06

Trigger price

SIV Turkey

€/100kg

Case of Turkish Cherries : high SIV Case of Turkish Cherries : high SIV

Have EPS impact on the quality of the exchanged product?

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South West Price

Loire price

Wholesaler price

Trigger price

Apples

0

0,2

0,4

0,6

0,8

1

1,2

1,4

1,6

Septe

mbr

e

Octobr

e

Novem

bre

Décem

bre

Janv

ier

Févrie

r

Mar

sAvr

ilM

aiJu

in

€/kg

0

0,5

1

1,5

2

2,5

30 31 32 33 34 35 36 37 38 39 40

Plums

€/kg

Week

2.Comparison between P2.Comparison between Ptrigtrig and EU supply prices and EU supply prices

Does EPS guarantee a high level of internal prices?Does EPS guarantee a high level of internal prices?

For Most of products, EU supply prices are

above the Trigger price:Price guarantee for

producers

2004 French cotation SNM

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Cucumbers 2004

0

0,2

0,4

0,6

0,8

1

1,2

1,4

Janv

ier

Févrie

rM

ars

Avril

Mai

Juin

Juille

t

Août

Septe

mbr

e

octo

bre

nove

mbr

e

déce

mbr

e

South West Price

Loire price

Wholesaler price

Trigger price

chateaurenart

€/kg

2.Comparison between P2.Comparison between Ptrigtrig and EU supply prices and EU supply prices

Does EPS limit competition ? Does EPS limit competition ?

Supply price <Ptrig

isolation from international Competition :

Few extra EU imports for this product

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ConclusionConclusion

• What is efficiency / what is relevance?

How to measure them?

• Discussion about impacts of a removal of EPS, studies to

carry on :

- Comparison of production costs between EU and extra EU suppliers (+

transportation costs, logistic…)

- Measure of European sensitivity: location of production area of « entry

price products  »

- Calculation of preferential margin : possible erosion of preferences

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ConclusionConclusion

• Question of quality of products :

different issues of removal of trigger prices

• Entry Price System may also be an important administrative

burden and may limit the access to the EU market for new

exporters

Hard to estimate

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SIV : « official » price calculated each day by the SIV : « official » price calculated each day by the commissioncommission

Wholesalers- RetailersPrice Level

Importers – WholesalersPrice Level

Exporters – ImportersPrice Level

SIVPrices sent by members states

Wholesaler margin : 9%Handling Charges 0,7245€/100kg

Importers Margin : 8% ou 15%Transport and Insurance costs 4.12€/100kg

Weighted by representative market within the country

5€/100kgad valorem dutiesWeighted by countries

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d2

92%Ptrig

d3

Ptrig

Q

P

0

d1