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The Common Agricultural Policy a series of measures regulating agriculture in the EU agriculture is supported because of the instability of agricultural prices in a free market and because agriculture is such a strategic industry Objectives of CAP To improve agricultural efficiency To ensure a fair standard of living for those who work in agriculture To stabilise the agricultural market To ensure enough food is produced in the EU To ensure affordable consumer prices Measures taken under CAP Price support(more later) Production subsidies (money for producing food) Investment grants Direct income payments (unrelated to production i.e. for being a farmer) Conservation measures Health regulations Price support The CAP sets prices for agricultural product above the world equilibrium price. This leads to excess supply than would otherwise be produced and consumer prices higher than would be expected in a free market. CAP buys up any surplus and stores or destroys or exports at low subsidised prices the excess. In addition a tariff (import tax) is imposed on any foods from outside of the EU. Disadvantages Food is more expensive than it might otherwise be Disincentive to for farmers to become more efficient Distorts the signalling effect of the price mechanism An opportunity cost exists with tax spent on subsidies and storage rather than something else The tariff makes it difficult for developing countries to export into the EU Why have CAP? A standard pan EU policy rather than individual member state policies towards agriculture Leads to employment particularly in areas with high % of agricultural workers In effect makes marginal land viable and therefore protects the environment Encourages investment in the long run. Critisms of the CAP Expensive to operate Reduces competitive pressures Small and inefficient farmers survive Diversification is not encouraged Leads to higher prices and taxes for the public Unfair competition for developing countries Misallocation of resources (allocative efficiency isn’t as great as it could be) Can damage environment where land is turned over for agriculture rather than left for wildlife Reforming CAP Internal pressures form countries with efficient agriculture and from consumers has placed pressure for the EU to reform. Enlargement of EU with countries with high % of agricultural workers and inefficient farming places an increasing strain on EU budget The World Trade Organisation (WTO) wants the EU to open up markets so that developing countries can compete on a more level playing field. Reforms · The support prices were reduced · Moved emphasis of CAP away in part from subsidies to farmers to direct income payments To qualify farmers had to set at least 15% of arable land aside (to fallow land) Grants given to convert arable land to forestry, recreational use or for ecological purposes (these measures led to some degree of corruption) 1999 Reforms these reforms reduced agricultural prices but increased direct income payments to farmers this led to a reduced burden on consumers of food towards an increased burden to taxpayers Benefit was that a more equitable distribution of resources within the EU made EU agriculture more open to competition Agenda 2000 Reforms Under concern about enlargement support prices were again reduced and greater emphasis put on direct income payments and environmental objectives |