Common Agricultural Policy Analysis - Essay Example

Common Agricultural Policy Common Agricultural Policy (CAP) refers to system of agricultural subsidies and programs that has been embraced by the European Union. The system represents about 62 percent of the overall budget of the European Union. In 2006, the system accounted for 49.8 billion euros, up from 48.5 billion euros in 2005. In terms of operation, the CAP combines a direct funding for crops and land that may also be cultivated with the help of price support system and may also include import tariffs, a guarantee of minimum prices, and the fixing of quotas on a number of goods that comes from outside of the European Union. Currently, there are reforms that are being instituted with a view to reducing control on imports, as well as the transfer of subsidy to land stewardship, as opposed to a specified production of crops. In addition, the implementation of this scheme usually varies among the various member countries of the European Union. Up until 1992, the European Union share on agricultural expenditure amounted to 49 percent of the union's budget. It has thus far been projected that come the year 2013, the traditional share spending of CAP will have reduced by half, to 32 percent. It has further been opined that the cause behind this reduction shall be as a result of a reduction in real terms in the present financial period. Conversely, the amount spent by the European Union on regional policy, and which in 1988 represented 17 percent of the EIU budget, will by 2013 be more than double, to stand at 36 percent. The Common Agricultural Policy hopes to provide reasonable living standards to farmers the one hand, while also ensuring that consumers receives high quality food at prices that are fair (Richardson 2000). In addition, the CAP hopes to preserve rural heritage. Has the CAP been implemented well Although some critics have regarded the CAP as a project whose sole intent is a waste of money, still there is a majority of others who views it as the most successful policies of the European Union. In recent years, there have been a series of reforms that have been carried out, and the most significant of all has been the single payment method scheme. Introduced in 2003, the scheme was intended to help break the farm aid-production link (Richardson 2000). As opposed to the paying of farmers so that they can produce more, the payment made by the European Union are conditional; as long as the farmers are able to meet animal welfare and environmental standards. Additionally, the farmers are also supposed to ensure that their land is kept in a good condition always. Thus far, the CAP has recognized a need to take into consideration the agricultural social structure, as well as the natural disparities among various agricultural regions. Through the maintenance of the levels of commodity prices, the integrated measures of the CAP ensure that production of commodities in the European Union is subsidized. To achieve this, the cap uses a number of mechanisms: First, import levies are charged to specific goods that are imported from outside the European Union. Such levies are often set at such a level as to aid in the raising of world market prices to reach the target price of the European Union. Secondly, the CAP uses import quotas as a means of restricting the quantity food that is to be imported into the European Union. Then, such prices of the foods are usually set with a view to raising the world market prices so at to reach the targets fro the European Union. Such a target price is often chosen to become the maximum price that can be desired for such goods within the co9nfuines of the European Union. Thirdly, the import quotas are also used as a way of restricting the amount of food that can be imported into the European Union. To this end, there are some countries who are non-members of the European Union that have been able to negotiate for quotas that enables them sell specific products within the EU minus the tariffs. Finally, there is also an internal intervention price that is usually set. It then follows that should the internal market price fall below that of the intervention, then the European Union is forced to buy goods with a view to raising the intervention level (Richardson 2000). As a rule, the intervention price will always be below the target price, and the variance in the internal market price shall always be between that for the intervention, and the target price. Its criticisms Ever since its inception, the CAP has received criticism from divergent interest groups. Sweden, in May 2007, became the first country in the European Union to assert argue that all farm subsidies to European Union member countries, with the exception of those that have a relationship with the protection of the environment, be abolished. Anti-development Both the globalization and the anti-globalization movements have been united in the criticizing of the CAP, on grounds that these subsidies, just like those offered by the United States, and other western nations, lead to the fortress Europe problem. This is used in reference to the action by the west spending a loft of financial resources on agricultural subsidies each year, thus leading to unfair competition. At the same time, it has also been opined that when an oversupply of agricultural; products have been created, and these are later on sold to the third world, this tends to simultaneously prevent those countries located in the third world from exporting their agricultural produce to the western countries. As such, the Cap tends to increase the level of poverty in the third world countries, when they put farmers put of business. The total agricultural subsidies to the economic co-operation and development organization (OECD) are more than the financial assistance normally received by the developing countries from the official OECD members. On an annual basis, farmers in the OECD countries received a total of $ 280 billion in 2004, compared to an official development assistance of $ 80 billion. According to analysts form OECD countries, a 50 percent reduction on subsidies and tariffs would lead to an additional $ 26 billion of the annual world income. This translates to well over 4 dollars per year for every person globally. A 2003 human development report indicates that by the yare 2000, an average dairy cow in the European union was receiving well over $ 913 in terms of subsides, where as the average person in sub-Saharan Africa could only manage a partly $ 8 every year (Richardson 2000). Artificially high food prices Through out the European Union, the CAP has received numerous criticisms in that it helps create artificially high food prices. Conversely, import tariffs are estimated to be at an all time high of 18-28 percent, and these in turn tend to maintain the prices of food high by way of restricting any competition from producers who are not members of the European Union. Recently, there has resulted a move away from subsides for specific crops, intervention buying, and a reduction in export subsides. These moves have somehow changed the situation. Despite this new decoupled payment being aimed at environmental measures, it is now dawning on many farmers that in the absence of these payments, the survival of their businesses becomes challenged. For the last thirty years, food prices have been dropping in real terms. Nevertheless, a majority of the producers are unable to break-even at the farm gate price. Hurting smaller farms Despite an agreement by a majority of the policy makers in Europe on the promotion of family farms, as well as smaller scale production, it has been proposed that the CAP in fact does rewards in a greater way, the larger producers (Richardson 2000). Traditionally, the CAP has been rewarding those farmers that produce more, and this has meant that the larger farmers have always benefited more that their smaller scale counterparts. For instance, if a 1000 hectares farm were to earn 100 extra euros, for each hectare, it would make in total 100,000 extra euros. On the other hand, a small farm of 10 hectares can only make 1,000 extra euros, thus totally disregarding the economies of scale. Due to this, a majority of CAP subsidies have since found their way to those farmers who operate in large scale. Ever since the inception of the 2003 reforms in the CAP agreement, there has resulted a linkage of subsidies on the basis of the farm size. In effect, subsides will normally allow for the existence of small farms, but they largely funnel a majority of the profits to those farmers operating on a large scale. Environmental problems It is a commonly held view that traditionally, the CAP has been promoting agricultural production expansions, while at the same time also allowing the use of uneconomical ways that are geared towards the increasing of production. Such would include the indiscriminate use of such inputs as insecticides and fertilizers, and which in turn have serious and far-reaching environmental consequences. Nevertheless, following the 2004 payment scheme total re-focusing, the environment has now received the center-stage of the farming policy. In essence, strict limits have been forced on the amount of nitrogenous fertilizers to be used for those areas that are quite vulnerable. For the maintenance of subsidy payments, strict environmental requirements become necessary. Equity among member states In the European Union, some of the member countries such as Spain, France, and Portugal have agricultural larger agricultural sectors that their counterparts, and so they also tend to receive more funding under the CAP arrangement. Additionally, some other countries will also receive more benefits from varying areas of the budget of the European Union. This means that overall; there are certain countries that make a larger net contribution than others (especially Germany and the Netherlands). On the other hand, the largest beneficiaries' per capita nations are Ireland and Greece. The slightly lower GDP of France in comparison to that of the UK, coupled with its greater population, means that the country receives less per individual when compared with the UK. On the other hand, Germany, with its 25 percent higher GDP that both France and the UK, nevertheless has a lower income that the two countries. The implication here then is that France not only makes a net payment towards the budget of the European Union, but has also remained the highest CAP beneficiary, with newer member states only receiving a small fraction of the financial aid. Agricultural policy of the United States The US agricultural policy has historically been seen to favor farmers, largely of their tendencies by the farmers to have at their disposal favorable and proportionate government representation. Thus, the United States then tends to grant more power to individual inhabitants residing in the rural areas. As such, the farmers tend to be left with a disproportionate amount of powers until such a time as when the re-appointment has been completed (Johnson & Hou 1993). In addition, the USDA tends to finance a majority of the agricultural policy research. it is the believe of some economists that such a move will normally create an environment that allows for the persistence of government incentive, given that the USDA may not fund a research that is bound to criticize the activities that it has undertaken. Conclusion Save for rhetoric, the attitude shared by both the European Union and the United States regarding farming and its societal role is almost similar. Due to this, there is a rapid convergence of the policies. The only valid rationale behind the use of different instruments between the CAP and the American agricultural system with regard to traditions, history, geography, and the mentalities between the European Union and the united states. Even the existence of trade irritants across the Atlantic, and which accounts for a partly 2 percent of the bilateral trade of both the US and the EU, cannot overshadow the shared commitment and goals for the development and maintenance of rural agriculture in the two continents. Works cited Johnson, David, and Hou, CHI-Ming. Agricultural policy and U.S. - Taiwan trade. Chicago: AEI Press, 1993. Available at http://www.aei.org/books/bookID.5,filter.all/book_detail.asp Retrieved November 17, 2008. Richardson, John. "EU agricultural policies and implications for agro-biotechnology" The journal for agro-biotechnology management and economics. 3.2 (2000). Available at:http://www.agbioforum.org/v3n23/v3n23a02-richardson.htm Retrieved November 17, 2008. Read More