Peeling tomato paste subsidies

The Common Market Organisation (CMO) for fruit and vegetable products is currently evaluated by the European Commission. The evaluation may lead to a reform of the CMO. One of the elements under debate is the production subsidy for processing tomatoes. The processing tomato sector is one of most heavily subsidized sectors in primary production of fruit and vegetables. The current production subsidy equals approximately 50% of producer turnover. This paper evaluates two possible reforms of the processing tomato supply chain: (1) an abolishment of the production subsidy and (2) a replacement of the production subsidy by area payments (decoupling). The evaluation focuses on the impact the reform may have on production and trade patterns of fruits and vegetables in Europe. On the basis of a simulation model, the paper argues that in the first scenario production will shift in the Mediterranean from processing tomatoes and extensive crop production in general towards fruit and fruit vegetables. The abolishment of the production subsidy will lead to a production shift in the direction in which Mediterranean countries have a comparative advantage. In the second scenario, Mediterranean production will remain stuck in extensive crop production: processing tomatoes, extensive vegetables and arable crops. In the first scenario, Mediterranean countries will crowd out North European fruit production. As a result, North European production shifts towards vegetable production. In the second scenario, the impact on North Europe is negligible.