The Common Agricultural Policy of the European Union - Essay Example

THE COMMON AGRICULTURAL POLICY OF THE EUROPEAN UNION By Location Introduction The EU unified approaches to pricing seemed determined to deliver the best measures to ensure that farmers to the member states were not threatened by the problems of reduced and overproduction of their produces. EU members conformed to the call for a unified pricing approach since it was serviceable to curbing the threats of overproduction, underproduction, and undervaluation of the products presented in the markets (Boyes & Melvin 2008, p. 52). The following discussion seeks to assert on demand and supply practices, and further to intensify on a critical evaluation study of the EU policy. Question 1 The demand of a product rises whenever its supply dwindles and it is likely that the demand will decrease on increased supply of the product in question. For the EU CAP policy, the establishment of a “minimum price” for the entire member states to embrace is a realistic approach to the reduction of uncertainty for the member countries. The use of a minimum price approach affects the EU’s demand and supply practices for agricultural goods. The implications of a minimum price approach are that the supply of the agricultural products presented by different farmers from different countries to the union will increase according to every slight increment in demand. The obvious reason to the positive elasticity whereby the price remains constant is that the farmers will not be competing to produce and exploit the market rather than produce and sell in accordance to the level of demand. The graph ascertains that the demand and supply curves are likely to show positive congruence to the law of demand since the union’s minimum price is a constraint to over or underproduction of agricultural products during the high and the law seasons. Further, the EU consumers shall be contented of the availability of supply despite the seasonal changes hence they will not increase their marginal consumption patterns. The use of price quotas in the EU is abundant solutions to ensure that the agricultural market within the member states conform to the ideal needs of the organisation. Certainly, the imposed quotas restrain the prevalence of overproduction since the farmers acknowledge that the governments that make the EU do not seek to bar growth in output but rather target to ensure that the markets are adequately supplied with reduced rates of scarcity and over production (Armstrong 2008, p. 8). The union use of subsidies and incentives to discourage the cultivation of the use and application of tariffs and quotas in the EU engage the produce to a system of production with conformity to the necessary quantity requirements and economic influences amongst the member states. Further, the EU executes total and partial suspension plans for the production of different products that it perceives as economic threats. Question 2 Statistical reviews indicate that the EU common agricultural policy is aimed at influencing the domestic GDP in each of the countries’ population. Certainly, the perceptions are that the policy shall deliver the required necessary measures to curb the prevalence of ill pricing approaches that farmers from different countries within the union may impose upon their products. The policies are most salient to enable the union to grow profusely as the rough the implementation of quotas and products’ price moderation enable the farmers to relevant incomes from their produces while still enabling the consumers to exchange a certain evaluated amount of money for a specific product quantity. The policy restrains the extensive usage of land on agricultural production and offers subsidies to farmers to desist from the production of various farm products since overproduction may result to increased supply. With the limited levels of demand for such products, the union’s member states are likely to witness increased wastage of the surplus commodity and the farmers will accrue little or no profits (Boyes & Melvin 2008, p. 53). The member states realized the use of the common agricultural policy would lead to the execution of equated market practices, as all European farmers will be capable of presenting their products to the market with uniformed products’ prices for every category (Beatty & Scott 2005, p. 98). Such a policy is also of value to the growth and nurturing of market unity since every country perceives that they are exercising similar measures and not a certain economy is trying to exploit its exporting or importing markets by setting prices at an increased level. The policies measures are vital to the growth of financial solidarity amongst the member states since the EU commission’s decisions concerning the CAP are made through the voting exercises conducted within the summit members. Research statistics assert that the EU has continuously been evaluating the CAP policy to ensure that the farming practices serve to guarantee food security and economic growth. The importance of the policy to the member states is the equated market approaches and similar pricing approaches despite the level of demand and supply in the individual countries. Considerably, the current policy conforms to the needs of the majority EU nations, but the problems remains that the products’ quotas imposed by the CAP policy through the assertion of incentives and subsidies serve to influence the need for the maximum exploitation of resources through the maximization of land use by the large-scale farmers. With products such as olive being subsidized per every tree of production, Spain’s farmers have continually engaged in the maximum exploitation of the advantage a factor that bars the desired effects of the policy. After the negotiations about the multiannual framework, the CAP was perceived as having drawn the member states to a long-term solutions since every economy would be cap able of monitoring its internal and external farming practices and the level of demand (Great Britain 2005, p. 16). The knowledge accrued was that overproduction and overexploitation of the resources and the markets could result to high levels of inflation in the member states. After the commission was knowledgeable that the use of taxation approaches for the importation of agricultural products for its markets did not work up to the desired levels, the commission engaged the member states into a period of reviewing and establishing reforms to the commission. Eventually, the policy was capable of influencing the markets positively, a factor that revamped and resuscitated the markets profusely. The commission set aside a financial budget of EU€44 billion, the total sum was devolved to ensuring that the market grew profoundly and profitably and farmers would be capable of accruing their necessary profits without exploiting the markets since the products’ prices would be subsidized to sell at the minimum price level (Fisher et al 2008, p. 133). Upon asserting such a sum of money, the commission evaluated and indicated that 5% of the total budget set aside for the CAP policy was to enable the Guarantee Section of FEOGA achieve its objectives in ensuring ethical farming approaches for the benefit of the union’s economic sustainability (Beatty & Scott 2005, p. 102). Further, the funding would benefit the Agricultural Guarantee and Guidance Fund in delivering the subsidies and incentives to the farmers and controlling the large-scale producers to conform to the policies set aside to monitor food security and farming practices. Since the 1990s, the EU spent 70% and 45% of its total budget in 1984 and 2005 on the CAP in order to ensure sustainable economic growth through guaranteed food security (Economic and Social Commission for Western Asia 2007, p. 52). The commission asserts that the use of €44 billion was the benefit of the economy since it would ensure sustainability in the production of bread wheat, butter, and other products that are rarely consumed but are vital to the consumer population (Armstrong 2008, p. 8). The commission indicates that the budget shall enable the member states to curb the threat of economic crisis as a set budget of €3.5 billion for the storage of the commonly used food products such as wheat, sugar, and beef. Further, the budget would also address the security of flax, butter, and bacon among others. Until the present, the policy has not achieved stringent and accurate resolutions in ensuring food security. Question 3 Political The ideological stand taken by a state may be socialism, capitalism, a mixture of these two, or of another very different form. The ideological aspects of many countries have been transforming in the recent pasts such as the communist USSR’s fall and preference for market-led ideologies and policies (Beatty & Scott 2005, p. 118). The same trend has been observed in Africa with countries dumping their central leanings and opting for economies that are market-led. Stability also affects any market, not just the agricultural one in that variations in regimes, civil divisions, and violence reduce the suitability of an environment supportive for business (Gibson and Vermeulen 2003, p. 65). This is evident in countries such as Somalia and Yugoslavia where investors shy off due to their histories of constant unrest (Boyes & Melvin 2008, p. 57). Another crucial element is international relations in the sense that with the improving relationships worldwide, and with the mediating bodies such as the EU and NATO, the aspect of “foreignness” is gradually wearing out, and fostering agricultural exports and imports. Finally, there are the incentives provided by a country as a measure of promoting investment within it. When a government provides optimum conditions such as free ports, tax breaks or zones of enterprise, agricultural investors are likelier to be attracted. The graph below indicates that the demand for products extends outwards to the left upon the political identification of opportunities in the market (Armstrong 2008, p. 18). The graphical representation reveals that such a business environment has the required strengths to attract and establish profound business structures. Economic The global economic growth has been on a positive constant upwards trend from the onset of the 1990’s especially in developing countries. This growth in turn results to rapid increase in populations and as such, the agricultural sector is faced with an expanding demand for supplying food to the meet the growth (Boyes & Melvin 2008, p. 59). Again, the recent decades have seen the world’s average income rates surge upwards meaning more people can afford food while others decide to vary their diets from just staple food and incorporate more dairy products, meats and other “luxurious” products which results in growth in the demand of agricultural produce (Beatty & Scott 2005, p. 118). Investment or accumulation of physical capital has the potential to influence international/agricultural trade. For instance, a country that invests in its infrastructure can lead to reduction of trade costs hence an increase in the capacity of supply (Devlin 2010, p. 45). Concisely, the investment in infrastructure or non-infrastructure capital by a country greatly determines its comparative advantage in the larger regional or international trade context (Daft & Marcic, 2013, p. 62). The graphical representation below reveals the market olds different products are consumed differently at different prices. Arguably, financial products are charged highly in the economy of the country compared to consumables. Social The most dominant social factor affecting agricultural markets is change in lifestyle. The changes are two-way in that some are negative and others positive. Key of these is the encouragement by nutritionists to feed healthy, and on sustainable diets. The “feed healthy” calls for integration of more natural fruit, vegetable, and overall agricultural produce in the daily diets. While this promotes the consumption, thus demand of natural produce, it also hinders the enterprise strategy of some (Great Britain 2005, p. 98). This is because some nutritionists discourage continued consumption of meat [animal proteins] as they are connected with development of disorders arising from cholesterol accumulation in the body (Armstrong 2008, p. 24). As such, the sales of proteins that are all animal products risk slowing down once people get accustomed to this message. Again, the issue of farm practices is going viral especially with the onset of Genetically Modified crops, which have become a controversial topic; some claiming they are harmful while others see nothing wrong with them (Boyes & Melvin 2008, p. 62). As such, if a certain region or country believes that a certain producer practices harmful or unacceptable methods of production, trade between them might fail. The following graph indicates that whenever the business environment social aspects change in favor of the business society. The demand reveals that social demand for products is likely to increase positively and present a situation of the ideal equilibrium in the environment. Technological With technology going viral in the 21st century, agriculture has not been spared the resulting effects. First, the issue of Genomic Technology in horticulture and agriculture though controversial, has boosted the supply [production] of the commodities faster and in improved breeds at fairer rates. The Genomic Technology incorporates cloning, genotypes, grafting and other biotechnological procedures to come up with products that adapt to different geographic locations or which resist disease (Daft & Marcic, 2013, p. 78). While this boosts output, it may also be a hindering factor in that owing to the fear of the unknown, monopolistic policies, and lack of proper public insight into the issue, some markets may shy off from importing from such producers. Again, the use of IT and improved farm inputs has invaded the sector, in which case the producers with such implements tend to make more from the trade (Boyes & Melvin 2008, p. 70). It is for this reason that governments are being encouraged to sensitive farmers on embracing technological advancements in horticulture and agriculture because the trends and standards being set are not achievable without the said technologies. This does not leave the fact that even marketing and transactions are nowadays conducted virtually (Freudenburg & Gramling 2011, p.90). This means that the better equipped a party is, the higher their chances of influencing the global agricultural market. Technological changes are seen in the next graph as influential to the new equilibrium with the influences extending to affect the demand and supply aspects of the products (Gido & Clements 2012, p. 14). Prices of products seem to increase upon every technological innovation while the demand for the new products increases by two units. Legal The legal frameworks in place regulate import and export controls, antitrust, trademarks, patents, taxes, distribution of equity, and import control amongst others. The most common bodies concerned with legislation of international law include the FCN, which gives trading rights protection and prevents double taxation, the ISO, which is mandated with regulating standards, the IMF which deals with trade restrictions and dumping, and the IATA which covers air travel and transport (Druskat and Wolff 2004, p. 89). Collectively, the legal environment caters for; product decisions which checks for chemical, physical, safety, warranty, and labeling of items (Daft & Marcic, 2013, p. 84). Pricing decisions which regulate prices, tax, and value added systems; market research which evaluates storage, collection, and data transmission; promotion which regulates codes of advert conduct, sales promotion strategies, and product restrictions; and finally distribution which caters for insurance and [physical] distribution (Gibney, 2005, p. 90). The following demand curve denotes that the legal environment may establish challenges to the demand and supply curves. The implementation of regulations may force people to increase their marginal and the average consumption of products. Environmental One of the major contributors to agricultural development, especially the market context, is climate change. The climate change has resulted from man’s practices and is in turn affecting food production. In areas that depend on rain to practice agriculture, the failure of rains or sudden change of rain patterns means that production is hampered. There is either low quality produce, insufficient for marketing, or there is no food at all. This in turn affects the global markets in that lack of enough commodity leads to increase in commodity prices, or some markets have nothing to sell at all, thus dropping out (Devlin 2010, p. 55). The same trend occurs with environmental crises such as floods, volcanoes or earthquakes when they damage agricultural areas leading to extensive losses thus interruptions in the food production chain. These combined; there is less to put in the markets, thus sharp increases in prices, or with inadequate stocks, some enterprises drop out of the international market, thus the retarded development trends (Daft & Marcic, 2013, p. 86). The graph indicates that environmental changes impose threats and opportunities to the demand and supply curves. Conclusion The study indicates that the EU seems to establilsh economic growth from ascertaining that the agricultural policies deliver beneficial resolutions to the market segments within the member states. Arguably, the policy is precise to the evaluation and achievement of its goals centred in economic sustainability, growth, and competence against other trade organizations (Druskat and Wolff 2004, p. 99). However the policy has spurred criticisms since people perceive that the EU is not doing enough to contain its production capacities to conform with its demand levels thus; it dumps its extra products to the weak African, Asian, and Caribbean economies. Bibliography Armstrong, M 2008, How to be an even better manager: a complete A-Z of proven techniques & essential skills, London, Kogan Page. Beatty, CA& Scott, BA2005, Building smart teams, roadmap to high performance, Thousand Oaks, CA, Sage. Boyes, W& Melvin, M2008,Macroeconomics, Boston, Houghton Mifflin Co. 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