Common Agricultural Policy - Assignment Example

Common Agricultural Policy (Name) (Course) (Institution) (Instructor’s names) (Date) 2. Write a piece about the EU’s common agricultural policy (CAP). What are the main objectives of CAP? Outline its main components. Explain in detail the economics of CAP using the appropriate models. What are the effects of CAP on prices, quantities and welfare? Introduction Agricultural policy of Europe is influenced at European Union level by the various authorities of member states and run by member states. The introduction of the Common Agricultural Policy (CAP) was meant to control, regulate and thus boost agricultural activities in the region (Financial Management in the European Union, n.d). The Common Agricultural Policy (CAP) is a procedure of European Union agricultural programmes and subsidies. CAP puts together a direct subsidy payment for land and crops which may be farmed with price support systems, including import quotas and tariffs for selected products imported to the EU, guarantee minimum prices. The primary aim of CAP is to provide farmers with a reasonable living standard while ensuring consumers get quality food at reasonable prices as well as preserve rural culture. Functions of Agriculture in EU The agriculture culture in Europe is expected to fulfill various functions. These functions are the focus of the Common Agricultural Policy in the European Union (European Commission, 2009). To understand the role of CAP, there is need to focus on the key functions of agriculture in Europe. Food security Food security is the first role of European agriculture which is to supply food. Studies have shown that, food security issue is a critical one and need to be addressed as it may be aggravated by increased water scarcity and global climate change. The prospect to deal with this issue relies upon a functioning farming industry, a maintained production capacity and a stable trade relations system (European Commission, 2009). Farmers in Europe face the challenge of providing food in an open market when they are expected to offer competitive prices and at the same time respond to societal standards regarding high quality products, high food safety levels, animal welfare and green farming practices. Hence, the functioning of an economically sustainable agricultural sector in European Union is depends on increasing farmer’s capacity for adjusting to new markets situations and responding to new technological and economic opportunities. Land management Agriculture in Europe is well established in the entire region. It is the major land use and farming is the key element in shaping the visual landscapes of the rural areas. Agriculture has helped in shaping the rural landscape with woodlands, water basins thus forming stable platform for business enterprises (European Commission, 2009). Viable rural areas In the rural areas, agriculture is the main element which influences other driving forces such as environmental, economic and social development. Varying farming practices shapes the rural image and the entire EU rural regions. Agriculture offers employment for the rural community, income, and lead to integration of opportunities and technological development as well as environmental sustainability (European Commission, 2009). Global markets competitiveness Agricultural sector has become more market oriented and less protection through bilateral and multilateral trade liberalization which adds to the competitive pressure. Globalization and trade liberalization may be accompanied by greater market instability which brings about new challenges for farmers and the entire food sector such as the need to swiftly adapt to market signals and to manage integral risks (European Commission, 2009). Responding to climate change The impacts of climate change highly affect agriculture. Climate change will enhance market volatility by altering production patterns and economic disparities between rural areas (European Commission, 2009). Objectives of CAP CAP’s objectives were stipulated in article 39 of the Treaty of Rome as stipulated in Patterson, (1997). These objectives include; To boost productivity by promoting technical progress and making sure the maximum use of the determinants of production, in labor To ensure better living standards for farmers and the farming community as a whole; farmers revenue can easily reduce as a result of variation in supply conditions. In addition, demand for food is inelastic thus an increase in supply can result to a decline in revenues. Consequently, the farming industry has been experiencing lower incomes, leading to relative poverty within state economies. This is because of the foods have a low income elasticity of demand. Thus, farmers do not reap more from rising incomes as people do not increase the quantity of food that they buy. To stabilize markets; farm produce are affected by various factors such as diseases and adverse weather conditions. These can wipe out farmers income and make them unable to farm again, hence the need for CAP subsidies and incentives. To provide consumers with food at fair prices; this is due to the fact that agricultural products are essential and basic to everyone and thus the government ought to intervene to prevent prices from going too high. To secure supplies availability and reduce dependency on imports; CAP through the various member states of the EU ensures that food supplies are stable to avoid shortages, given that food is an essential need. CAP knows the need to take stock of the social structure of agriculture and the natural and structural differences between the varying agricultural regions and to effect the proper adjustments by degree (Patterson, 1997). CAP as a multifaceted system of actions which works by controlling commodity price range and by subsidizing production applies various mechanisms to achieve its objectives; Import levies are imposed to certain goods imported into the EU. These are put at a level to increase the global market price up to the EU target level. The target price is settled as the optimum desirable price for goods within the EU. To restrict the quantity of food entering the EU region, import quotas are applied. Some non-member states have negotiated quotas which permit them to sell certain foods within the EU minus tariffs. This is only applicable for countries which formerly had trade links with a member state. There is a set internal intervention price. If the internal market price is lower than the intervention level, the EU will buy goods to boost the price to the intervention level. The intervention price is lowly placed than the target price. Direct subsidizations are paid to farmers. This was initially meant to encourage farmers to choose to farm those crops which attract subsidies and maintain local produced supplies. Subsidies were paid to the area of land producing the specified crops rather than on the quantity of production. However, reforms introduced in 2005 are eradicating specific subsidies in favor of uniform payments based only on the size of land under cultivation and for adapting environmental friendly farming approaches. This seeks to give farmers the freedom to choose the crops cultivate in regard to demand, hence reduce economic incentive to overproduce. To avoid overproduction of some farm produce that attracted subsidies well in surplus of market prices, set aside payments and production quotas were introduced. The need to dispose and store surplus produce was uneconomical which exposed CAP to disrepute (Bruno, 2007). Improvements in farm productivity and incentives that CAP presented resulted to a major upsurge in food production from the 1960s to date. Dramatic improvements in production and self-sufficiency degrees were realized. Consequently, farm income increased significantly as some farmers resigned from farming business while other farms amalgamated (European Commission Agriculture and Rural development, n.d). In an effort to improve its efficiency and achieve its initial objectives, CAP has undergone various reforms. For instance, in Agenda 2000 reforms were realized in an effort to improve its operations. In these reforms, funds are directed towards nature conservancy, encouraging organic farming as well as introducing young farmers. CAP also ensures food safety as well as animal health and welfare. CAP realizes that, European Union consumers want safe and healthy foods. To achieve this, CAP has placed some regulations to ensure animal health and welfare as well as food safety is upheld as required. Besides, ensuring food safety and animal health and welfare is not only a policy issue for CAP, in fact, CAP offers farmers with incentives to enhance their performance in food safety and high animal health and wellbeing (European Commission Agriculture and Rural development, n.d). Even though, abiding to these regulations, by applying the principles of cross compliance, is beneficial to the entire society, it may imply considerable expenses on farmers, hence, financial boost is availed to assist farmers make advances in these aspects under the scope of rural development. CAP Reforms According to economists, CAP reforms should take a more variant direction. The main reform should be through abolishing all target prices for all items which would help lower consumer prices, eliminate food surpluses, make it less costly for the European Union as they would not be required to purchase the food, help reduce excessive supply, thus discourage exhaustive farming and thus improve the environment, and finally help trade negotiations since EU would not be required to impose different import levy and thus farmers in other nations would be better off (Ackrill, 2000). Conclusion CAP is a major economic regulator in the European Union. Its establishment was aimed at ensuring that the EU has sufficient food supplies which are affordable to consumers. CAP has since its establishment undergone various reforms. It has achieved various objectives such as price regulations through various mechanisms, securing food supplies, achieve quality food supplies, maintain appropriate animal welfare as well as observe environmental concerns in regard to agricultural activities. These achievements have been in line with the reforms of CAP that are still being realized. References Ackrill, R. 2000, The Common Agricultural Policy. Sheffield: Sheffield Academic Press. Bruno, W. 2007, Set-aside subsidy halted to cut grain prices. The Daily Telegraph (London). Retrieved 06 October 2012. European Commission Agriculture and Rural development, The Common Agricultural Policy Explained, available http://ec.europa.eu/agriculture/publi/capexplained/cap_en.pdf retrieved October 8, 2012. European Commission, 2009, Why do we need a common agricultural policy? Discussion paper by dg agriculture and rural development. Available http://ec.europa.eu/agriculture/cap-post-2013/reports/why_en.pdf retrieved October 5, 2012 Financial Management in the European Union. Nao.org.uk. Retrieved 6 October 2012. Patterson, L. 1997, Agricultural Policy Reform in the European Community: A Three-Level Game Analysis. International Organization 51 (1): 135–165. Read More