Common Agricultural Policy (CAP) Introduction

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Common Agricultural Policy (CAP) Introduction

• INTRODUCTION
• Policies before EEC see handout
• eg. UK Deficiency Payment Scheme
• CAP principles
• community preference
• free trade
• shared financial responsibility
• refCAP1 Feb07

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• SEE EU BUDGET handout

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• Main objectives of CAP
• raise productivity
• fair standard of living for workers
• stabilise markets
• assure supplies
• reasonable prices for consumers
• Contradictory vague
• Problems in agriculture
• cobwebs inelasticity price instability

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Price support mechanism (original system)

• Varies with each product eg cereals
• Note other products differ
• Target price (P targ)
• Set by Commission
• Based on price in area of shortest supply

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Assumptions
P
S
Target price
Ptarg
Pe
Pw
World price
D
Q cereal
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• Threshold price (P th)
• Aim ensure imports cereal not flood into EU
• Variable levy(VL)
• Pth minus lowest world price
• Calculated daily .
• VL raised if Pw fell vv
• Revenue source..

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Transport storage
P
S
Target price
Ptarg

Pth
Threshold price
Pw
World price
D
Q cereal
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Transport storage
P
S
Target price
Ptarg

Pth
Threshold price
Variable levy
Pw
World price
D
Q cereal
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• Intervention price (Pinv)
• Minimum price
• Given to producers whatever they do
• Set below Ptarg margin ..
• Pinv changes over season (as do other prices)
• Other .

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P
S
Target price
Ptarg

Pth
Threshold price
Pinv
VL
Pw
World price
D
Q cereal
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P
S
Target price
Ptarg

Pth
Threshold price
surplus
Pinv
VL
Pw
World price
D
Q cereal
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• Export subsidy(restitution)
• Pinv - Pw
• Influenced by several factors
• Rest of world

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P
S
Target price
Ptarg

Pth
Threshold price
Pinv
Export sub
VL
Pw
World price
D
Q cereal
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Intervention problems, incl

• Higher productivity worsens problem
• EU budget
• Rest of world
• WTO Doha Round .
• Externalities
• Fraud
• CAP- inequitable within EU
• Consumers , producers, agricultural incomes

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Green money (representative rates)

• Background
• Artificial ERs
• Collapse of Bretton Woods
• MCAs (1969)
• Switchover system (1984)
• Euro

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• See Italy CAP case study

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Conclusion upto 1984

• Some objectives achieved
• Expensive complex
• Reforms required will be considered in future,
  along with a consideration of the welfare
  implications