This essay deals with the question, whether the Common Agricultural Policy (=CAP) learned from its past experience and its mistakes.
This raises the subquestions if the new system improved in comparison to the old system and if fundamental changes happened. To answer these questions, firstly the CAP will be defined shortly, its historical development and data related to it will be analysed.
Secondly, the economic instruments behind the measures of the CAP will be explained to understand the logic of the development and its consequences. Thirdly, possible solutions are pointed out and a short conclusion sums up the main points and refers again to the main question.
The Common Agricultural Policy, short CAP, is a set of policies with the original main objective of raising farm incomes in the European Union (=EU). Other basic goals have been the creation of a common policy to secure the provision of food at reasonable prices, the stabilization of agricultural markets and to support the efficiency of agriculture.
Nowadays the objectives enlarged to the preservation of natural resources, environment, animal welfare and the support of the rural development. The regulation of the policy, directives and financing through the multiannual financial framework, is set by the EU and today the CAP amounts for nearly 40% of the EU budget.
Table of Contents
1 Introduction
2 Historical development
3 Economic instruments
4 Possible solutions
5 Conclusion
Objectives and Topics
The objective of this essay is to analyze whether the Common Agricultural Policy (CAP) has successfully learned from past experiences and mistakes, specifically focusing on whether the system has improved and if fundamental changes have occurred.
- The historical evolution of the European Common Agricultural Policy.
- Economic mechanisms and instruments underlying agricultural support.
- The impact of price floors and supply-side shifts on the agricultural market.
- Evaluation of reform measures and their effectiveness regarding ecological and economic goals.
Excerpt from the book
3 Economic instruments
The economic instrument of the so-called ‘price floors’ is the most important instrument to be understood. Setting a tariff T in form of a consumption tax for consumers and a subsidy for producers is a way of artificially rising the existing world market price P^W and increasing the farmers’ income, the difference between the tax and the subsidy even created a tariff revenue for the state. The difference between the consumption C_f and the production Z_f had to be imported (see appendix, figure 1).
But the problem of price supports shows in the supply curves of small and large farms. As small farms have higher marginal cost at any level of output, their efficiency will never be as high as the one of large farms. So essentially the price floor just supports large farms through their higher efficiency and lower costs because the subsidies are proportionally tied to the level of production (see appendix, figure 2).
The green revolution caused general lower marginal cost what shifted the supply curve. As the production Z’ went beyond the consumption C, the surplus created a negative tariff in form of export subventions to pay and to cushion the low dumping prices abroad (see appendix, figure 3).
This changed through the price cuts with compensation, so the price floor was lowered to the world price or rather eliminated to allow the free-market price and the compensation was paid through direct payments decoupled from the production level. The ‘reduced’ price increased the consumption C’ but lowered the production Z’ so that export and dumping was not necessary anymore (see appendix, figure 4).
Summary of Chapters
1 Introduction: This chapter outlines the research objective regarding the effectiveness of the CAP and details the methodology used for the analysis.
2 Historical development: This section provides an overview of the CAP's milestones since the 1950s, detailing the transition from supply-oriented policies to current sustainability-focused measures.
3 Economic instruments: This chapter analyzes the mechanisms of price floors, subsidies, and supply curves, explaining how they influence market outcomes and farm efficiency.
4 Possible solutions: This part discusses potential policy adjustments, focusing on balancing ecological and economic goals and enhancing the fairness and transparency of payments.
5 Conclusion: The final chapter summarizes that while the CAP has improved through incremental changes, fundamental systemic transformation remains a challenge.
Keywords
Common Agricultural Policy, CAP, European Union, price floors, agricultural subsidies, green revolution, direct payments, farm income, market regulation, supply curves, ecological standards, agricultural reform, sustainability, trade conflicts, smallholder farms.
Frequently Asked Questions
What is the primary subject of this essay?
The essay explores the effectiveness of the Common Agricultural Policy (CAP) in the European Union, analyzing its historical development and whether it has successfully addressed past mistakes.
What are the central themes discussed in this work?
The core themes include the historical milestones of the CAP, the economic logic behind agricultural subsidies, the impact of market interventions, and the shift towards more sustainable agricultural practices.
What is the primary research goal of this paper?
The paper aims to evaluate if the current CAP system has genuinely improved through reform and if significant fundamental changes have taken place compared to previous iterations.
Which scientific methodology is employed?
The author employs a comparative analysis of historical policy milestones combined with an economic assessment of policy instruments like price floors and their subsequent market impacts.
What topics are covered in the main body of the work?
The main body covers the historical progression from the 1950s to the present, a detailed economic breakdown of subsidy mechanisms, and a discussion on potential future policy solutions for a fairer agricultural system.
Which keywords characterize this work best?
Key terms include Common Agricultural Policy (CAP), agricultural subsidies, price floors, market regulation, and farm income distribution.
How does the 'price floor' mechanism affect different sizes of farms?
The author argues that price floors disproportionately benefit large farms, as they possess lower marginal costs and higher efficiency, whereas small farms struggle to compete under the same subsidy structures.
What is the significance of the 'green revolution' in the context of the CAP?
The green revolution lowered production costs and increased supply, which eventually led to surplus production in the EU, forcing the implementation of new policies to manage exports and dumping prices.
How did the 2003 reform change the nature of direct payments?
The 2003 reform was a pivotal shift, as it 'decoupled' payments from production levels, aiming to reduce the negative market distortions caused by traditional price support mechanisms.
- Arbeit zitieren
- Anonym (Autor:in), 2018, The Common Agricultural Policy (CAP): Did the CAP learn from its past experience and its mistakes?, München, GRIN Verlag, https://www.grin.com/document/1129928
