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Common Agricultural Policy (CAP) Introduction

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 ref:CAP1 Feb07. SEE EU BUDGET handout. Main objectives of CAP raise productivity

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Common Agricultural Policy (CAP) Introduction

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  1. 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 ref:CAP1 Feb07

  2. SEE EU BUDGET handout

  3. 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

  4. 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

  5. * Assumptions P S Target price Ptarg Pe Pw World price * D Q cereal

  6. 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……..

  7. * Transport & storage P S Target price Ptarg * Pth Threshold price Pw World price D Q cereal

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

  9. Intervention price (Pinv) • Minimum price • Given to producers whatever they do • Set below Ptarg: margin …….. • Pinv changes over season (as do other prices) • Other …….

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

  11. P S Target price Ptarg * Pth Threshold price surplus Pinv VL Pw World price D Q cereal

  12. Export subsidy(restitution) • Pinv - Pw • Influenced by several factors • Rest of world

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

  14. 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

  15. Green money (representative rates) • Background • Artificial ERs • Collapse of Bretton Woods • MCAs (1969) • Switchover system (1984) • Euro

  16. See Italy CAP case study

  17. Conclusion upto 1984 • Some objectives achieved • Expensive & complex • Reforms required… will be considered in future, along with a consideration of the welfare implications

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