Common Agricultural Policy (CAP) Introduction INTRODUCTION zPolicies before EEC – see handout yeg. UK Deficiency Payment Scheme zCAP principles ycommunity.

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Presentation transcript:

Common Agricultural Policy (CAP) Introduction INTRODUCTION zPolicies before EEC – see handout yeg. UK Deficiency Payment Scheme zCAP principles ycommunity preference yfree trade yshared financial responsibility ref:CAP1 Feb07

zSEE EU BUDGET handout

zMain objectives of CAP yraise productivity yfair standard of living for workers ystabilise markets yassure supplies yreasonable prices for consumers zContradictory & vague zProblems in agriculture ycobwebs & inelasticity; price instability

Price support mechanism (original system) zVaries with each product eg cereals yNote: other products differ zTarget price (P targ) ySet by Commission yBased on price in area of shortest supply

P Q cereal D S Pw P targ World price * Target price * Assumptions Pe

zThreshold price (P th) yAim: ensure imports cereal not flood into EU zVariable levy(VL) yPth minus lowest world price yCalculated daily ……. yVL raised if Pw fell & vv yRevenue source……..

P Q cereal D S Pw P targ World price Target price Pth Threshold price * * Transport & storage

P Q cereal D S Pw P targ World price Target price Pth Threshold price * * Transport & storage Variable levy

zIntervention price (Pinv) yMinimum price yGiven to producers whatever they do ySet below Ptarg: margin …….. yPinv changes over season (as do other prices) yOther …….

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

P Q cereal D S Pw P targ World price Target price Pth Threshold price * VL Pinv surplus

zExport subsidy(restitution) yPinv - Pw yInfluenced by several factors yRest of world

P Q cereal D S Pw P targ World price Target price Pth Threshold price * VL Pinv Export sub

Intervention & problems, incl zHigher productivity worsens problem… yEU budget zRest of world yWTO Doha Round ………. zExternalities zFraud zCAP- inequitable within EU yConsumers, producers, agricultural incomes

Green money (representative rates) zBackground zArtificial ERs zCollapse of Bretton Woods zMCAs (1969) zSwitchover system (1984) zEuro

zSee Italy CAP case study

Conclusion upto 1984 zSome objectives achieved zExpensive & complex zReforms required… will be considered in future, along with a consideration of the welfare implications

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