Making agri-food trade more environmentally sustainable, or sustaining the policy fog by making more trade-relevant policies? A note on F2F, Green Deal, ETS, and CBAM

Mari Carlson & Bodo Steiner | January 25, 2023

Green Deal and F2F strategy are clear about the EU’s willingness to promote sustainable agri-food sector globally through its external policies, including international cooperation and trade policy. The work is ambiguously based on cooperation with partners and in different international foras, but it has a strong autonomous perspective – better known as open strategic autonomy, also visible in the EU’s trade policy strategy. Both Green Deal and F2F make strong references to restricting market access for goods that are not produced according to EU’s environmental (or other) standards. It also points out a need to avoid outsourcing of unsustainable practices to third countries and to restrict importing such products into the EU market. Despite this is nothing new that the EU is requiring countries to comply with some of its relevant agri-food standards, this time the tone is more severe.

The first concrete autonomous measure linked to environmental sustainability in agri-food trade was the mandatory due diligence on deforestation free supply chains, which I wrote here last time. Since environmental sustainability is only one side of the coin, you should also check the one on social sustainability, hence forced labour. It is no wonder why some of the EU’s trading partners are a bit concerned. Such new measures are intending to regulate the way products are produced meaning that to gain access to the EU market, products must be produced according to the EU regulation. This is not an easy task particularly for developing country trade partners. It also certainly raises questions what is yet to come? Maybe an obligatory environmental footprint scheme? A carbon border adjustment measure on selected agri-food products?

If you try to make sense of what Green Deal says about sustainable agri-food trade, you will end up reading the Farm-to-Fork Strategy. While reading that, you realize that you need to consider a myriad of other strategies and sectoral policies from the Common Agricultural Policy to biodiversity, climate law, circular economy, forestry, carbon markets, transportation, competition rules, trade policy, and a comprehensive list of others. These will all be affected by the Green Deal, and they will, in one way or another influence EU’s international agri-food trade. However, it is impossible to say in just a few sentences what environmentally sustainable agri-food trade is, according to the EU. It includes all the stages in the value chain, not just farming and processing, which explains the necessary interdisciplinary view needed to understand ‘environmentally sustainable agri-food trade’. Another thing is to make agricultural production itself environmentally sustainable, so how much trade policy can do? At least agri-food value chains have typically become more global, which increases the role of trade policies in regulating traded goods and increases the need for government policies that focus on facilitating participation in global value chains, so as to facilitate added value creation.  

Yet unlikely implemented any time soon, discussion exists about extending carbon pricing to agricultural sector (e.g. here, and here), mostly concluding its infeasibility, inefficiency, and a high risk of carbon leakage without carbon border measures. Note also that agricultural emissions are not only carbon emissions; 31 per cent of human-caused GHG emissions, originate from the world’s agri-food systems, and the FAO calculated that cattle generate up to two-thirds of the greenhouse gases from livestock, and are the world’s fifth largest source of methane. However, New Zealand has recently published a plan for pricing its emissions on agricultural sector which will showcase other countries how such a mechanism would work. It is to be seen, how New Zealand copes with the carbon leakage. And so, why was I raising this issue of carbon border measures before? While F2F makes no references in adopting such measures for agriculture, the Green Deal put forward the Carbon Border Adjustment Measure (CBAM) for some industrial goods. Before its publication and even after, some concerns among the agri-food sector were heard whether the product coverage could be extended to agri-food products. In its current form this is not the case, and we only find indirect linkages to agricultural sector through some inputs such as certain fertilizers, which are subject to the mechanism. This of course includes the potential for price increases and in some cases concerns regarding availability of fertilizers in the EU market, but again, it does not directly target agri-food trade. The CBAM is actually linked to the revision of the EU ETS as a mechanism to gradually replace the free allowances system, to prevent ETS induced carbon leakage for those sectors already subject to the EU ETS. There is lots of misunderstanding and misinterpretation available on the CBAM but building the link through the ETS free allowances hopefully makes its purpose clearer.

Lastly, I would like to consider one more initiative meaningful for making agri-food trade more environmentally sustainable, which is perhaps not talked about enough. Probably one of the largest packages in the Green Deal is the revision of the EU’s Emissions Trading System. This reform will have far-reaching impacts on many value chains and their trade through transportation. This is because the ETS 1) is strengthened in the aviation sector, 2) will be extended to shipping sector, and 3) an own ETS is to be established to cover emissions from fuels used in buildings and road transport. This will inevitably increase transportation costs within, into and from the EU market. We hope for a quick green transition in the transportation sector – otherwise we might end up having unsustainable agri-food trade at least in economic terms. But is hope enough in the face of increasing trade-relevant policy-fog?

Mari Carlson is the co-coordinator for the MATS project. She is also a doctoral researcher in the doctoral programme in Sustainable Use of Renewable Natural Resources at the University of Helsinki. Her research combines trade policy, environmental sustainability, and agriculture.

Bodo Steiner is the coordinator for the MATS project. He is professor of Food Economics & Business Management, head of the research group Management & Organizations For Sustainable Food Systems, deputy director at the Department of Economics and Management, University of Helsinki. See his comprehensive list of publications, projects, activities, and much more here.