Common Agricultural Policy (CAP) Free essay! Download now
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Common Agricultural Policy (CAP)
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| Words: 3164 | Submitted: 06-Dec-2012
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DescriptionLooking at the impact of abandoning the CAP in Europe
Based on the existing literature, assess the likely impact of abandoning the Common Agricultural Policy (CAP) in Europe on (a) agricultural producers in Europe, (b) consumers in Europe, (c) agricultural producers in developing countries and (d) consumers in developing countries. Use your findings to explain why agricultural protection in the West causes so much debate in international trade negotiations.
Created under the treaty of Rome in 1962, the European Union agreed to provide farmers or producers with a number of subsidies, and guaranteed a high floor price. This was an incentive for the farmers to produce larger crops more frequently.
Under article 39 from the treaty of Rome, there were a number of main objectives, including; ensuring the availability of food, and doing so at affordable prices, to ensure fair living standards for the agricultural community. Also, the EU wanted the CAP to increase productivity and stabilise the markets.
The European Union uses a number of policies to help protect their agricultural sector and to ensure their producers can maintain a good standard of living from producing goods with a small profit margin.
When the CAP began, it did not start as an export subsidy but an effort to guarantee high prices to European farmers by having the EU buy their agricultural products whenever their prices fell below the minimum levels of support that was guaranteed.
The EU had to consider that this would draw in large quantities of imports, so; they introduced tariffs that made the substantial difference between European and world prices. What they did not foresee was the agricultural farmers producing more goods than the consumers were willing to buy. This resulted in huge storage costs for the European Union to stock the excess. By 1985 over three quarters of a million tons of beef where stored, 1.2 million tons of butter and over 12million tons of wheat.
To deal with this matter, the EU introduced a policy to subsidise exports which disposed of the excess goods. Figure one shows the model of the Common agricultural policy.
When looking at this model we can see it could be confused with the export subsidies model, the only difference that we have to make between the two models, is that Europe would be an importer under free trade.
As seen in figure one, the support price set is not only above the world price but also higher than the supply and demand equilibrium and according to Krugman, the estimated welfare cost to the consumers of the EU exceeds 21.5 billion Euros.
However, the main purpose of the CAP is to encourage producers to consider the advancements in technology and production techniques, such as solar panels or windmills, along ...
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