8. Common Agricultural Policy Flashcards
What is the importance of agricultural policy - how much does it account towards UK and EU budget?
Fundamental for history of EU integration and the EU and UK budget
UK (2020) - £928bn - £5.87bn agricutlure, fishing and forestry
EU - about 40% or 420bn euros
Agricultural sector contributes to large part of GHG emissions - needs coordination to tackle climate chnage
- Carbon in soil released as CO2. Microbes also create GHGs when coming into contact with fertilisers
- 5 gigatons of CO2 come from cattle every year
What is CAP?
EU’s agricultural policy:
- Agricultural subsidies + taxes on imports + export subsidies
- Created late 50s after food shortages
- About 40% EU budget
- Important reforms happened in 2015
CAP accounts for £49bn - 43% of the EU budget
- In 1970 it counted for 87% of the EU budget
How is the budget spent?
- Direct income support - payments/subsidies to owners - 70% budget
- Rural development - help farmers modernise farms, become more competitive - 20% budget
- Market support - for eaxmple losses if bad weather - 10% budget
What are some examples of CAP policies?
Sugar:
- Pays £38 per ton of sugar produced - 5x world market price
- 200% tariff on sugar cane from non EU countries
- EU farmers can sell sugar cheaper than competitors, Europe leading exporter of sugar
Other country subsidies:
- US cotton
- Japan rice (500% tariff)
What is the importance of the cotton industry in landlocked African States? How is this undermined?
Mali - Employs 40% population - 2.5m people
Niger - high potential, limited by foreign subsidies, barriers to efficient export
Chad - Sector employs 40% of population; most farms owned by families of 5-6 people
Uganda - provides primary source of income for 250,000 low income households
CAR - Brings $18m annually, provides employment to 900,000
Burkina Faso - Comprises 40% exports, 2m people employed
US cotton subsidies undermine this, makes them less competitive
What was the impact of Brexit on the beef market?
If a country wished to buy £100 worth of steak, would have to pay:
(£)77.4% T bone
(£)62.2% Rump
(£)83.8% Skirt
(£)68.5% Chuck and Brisket
Why do governments intervene in agriculture - think of efficiency and equity
Efficiency (market failure)
Market structure:
- Large foreign firms could control prices
- Large supermarket chains exert monopsony power and push prices down
Externalities:
- Protect rural communities and rural environment
Uncertainty:
- Provdies Europe with food security. Food is a strategic good.
Equity (income distribution goods)
- The market would not generate a fair distribution of icnomes - many farmers who work hard and bear risks have low incomes
What was the price war?
British farmers forced to pay costs of price wars - relationship with supermarkets ‘impossible’, demand saw costs rise 30% so hard for suppliers to profit
What is the importance of argiculture in European countries?
Romania and Bulgaria over 3%
Spain, Poland, Lithuania, Portugal, Slovakia, Estonia, Latvia - 2-3%
Germany, Norway, Ireland - 1-2%
UK, Sweden, Slovenia, Denmark, Netherland - less than 0.5%
What countries have the most/least CAP allocations?
France - 10.5bn
Germany - 7.4bn
Spain - 7.5bn
UK - 4.2bn
Malta, Luxembourg, Cyprus - <1bn
Estonia/Slovenia - 2bn
What is the effect of an export subsidy?
(graphedd on page 2)
Export increases price that home exporters receive, from Pw to Pw+s
Supply is S2 - supply increases
- Tariffs to foreign imports make that home consumers pay higher price
- Supply is D2 - decrease in demand
Exports with subsidy S2 - D2
The EU counts as a large country. An increase in supply will mean world prices are likely to fall
Terms of trade: extra deadweight loss
What were the goals when CAP began? How did it work?
Started 1962 as agreement between France and Germany due to importance of the agricultural sector
Goals:
- Increase in agricultural productivity
- Ensure a fair standard of living for farmers
- Stabilise the market: guarantees supply and reasonable prices
How did it work?
- Import tax on foreign foods: no imports allowed below price threshold
- Parity prices: guarantee a minimum price (price floor). EU will buy at this price
- Export subsidies: stocks (surplus) are stored and exported with subsidies
