Costs of compliance with EU regulations and competitiveness of the EU dairy sector

The introduction of cross-compliance mechanism in the European Union with its 2003 CAP-reform might affect the costs of production and thus competitiveness of the EU. Little evidence is available to asses the costs of compliance with regulations and it implication for trade. In this study a farm level competitiveness analysis of the impacts of the Nitrate Directive and the Identification & registration Directive focuses on the dairy sector in Germany, France, Italy, Netherlands and UK (within EU), and the US and New Zealand (outside EU). The findings from this study are integrated into a trade analysis which assesses the impact of compliance costs on competitiveness of the various trading nations in global trade. Representative farm studies were used as a basis for the cost increase calculations. Best-estimates of compliance are used from the existing literature and expert judgements. The negative impact of these measures (for nitrates, and animal identification and registration) on EU imports and exports are less than 3 percent. If a smaller increase in compliance takes place, these already relatively small trade impacts will be further diminished. When the standards for nitrate pollution taken by the US and New Zealand are taken into account along with full compliance assumption in all countries analysed, this would only slightly improve the EU exports. The trade impacts obtained when no changes are assumed to happen in key competitor countries can thus be argued as providing the upper bound of the likely trade impacts.