Nova workboard

a blog from young economists at Nova SBE

Is the Common Agricultural Policy beneficial or prejudicial?

The Common Agricultural Policy (CAP) is the largest common policy and accounts for 40% of the European Union (EU) budget. It is a system from which the European institutions distribute subsidies and manage the Europe rural world. This project was created by EU in 1962 with the objective of managing the total production of food in EU. It started after the Second World War when the European farmers needed to improve their production and sell it. The CAP was the solution found because it brought one great incentive to ours farmers to boost their production. Now, the CAP has been reinvented and it cares about other causes than only manage the European food production. This blog post has the objective to discuss the problems and the benefits of the CAP.

To boost the European agricultural production, they deliver subsidies to farmers but these subsidies provoke the creation of a surplus production. If the EU had left this by itself, the supply of food would increase and the food price would decrease, while the demand would remain constant, which would imply one negative profit for almost all of the farmers. In order to handle with this problem the EU implemented one subsidies system and trade tariffs to allow the farmers to export their surplus at the world price, and to increase the prices of the foreign goods. Otherwise the agricultural products imported from the other regions would be less expensive than ours, so our agricultural products would be out of the market.

According to the European Commission data the agricultural sector is only responsible for 6% of the EU GDP (Gross Domestic Product). We can argue that this is a waste of monetary resources, because it is just responsible for a small share of the EU GDP and because the farmers who benefit with that are a few compared with the European population (12 million at full-time job, European Commission data), 80% of the total budget of the CAP goes to only 25% of the farmers, who are from the richest European countries.

We can say that the CAP is also good. It is due to the protection it gives to the rural communities, the environment and the food management in all EU countries, trying to guarantee the existence of good food at good prices in all of them at any time. This way the CAP gives us the security of the variance of food prices and certifies that farmers have one certain monthly income. It also provides the subsistence of the traditional food and ways to work the land, so it preserves the traditions of the rural communities. The quality of the products is other important issue for the CAP. At the beginning the CAP only looked at the quantity of food, but now the CAP also looks at the quality and the biological ways to produce food.

Economy is about trade-offs. If by one side we have such things that can cause damage to the consumer, on the other we can have very beneficial ones. If one consumer gives more importance to the price, then the CAP will harm him just because he can pay a smaller price, the world price, if the CAP does not exists. So for him this is a way to spend resources that can be better placed anywhere else. But if the consumer prefers to pay more for a qualified local product, he thinks that the CAP is not a waste of resources, so the CAP will benefit him.

Finally we can argue that the policies have to care about the median consumers because these consumers represent the majority of the European population. So they have to manage the CAP in the way that it cares about our agriculture in order to minimize the bad things and maximize the good ones, trying to understand where we, the Europeans, are good enough to compete in the global market and supporting us where we are not good enough giving specialized information and providing good technical support. This way we maximize the consumer’s welfare.

José Sousa
No 707

Advertisements

Author: studentnovasbe

Master student in Nova Sbe

Comments are closed.