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EUROPEAN COMMUNITY & AGRICULTURAL REFORM.
Term Paper ID:23079
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Essay Subject:
Argues for reform of EU's Common Agricultural Policy to standardize equilibrium price & eliminate market inequalities.... More...
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8 Pages / 1800 Words
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Paper Abstract:
Argues for reform of EU's Common Agricultural Policy to standardize equilibrium price & eliminate market inequalities.
Paper Introduction:
The European Community needs a policy for agriculture to standardize the method of establishing an equilibrium price for agricultural commodities. Countries choose not to allow free-market pricing of agricultural commodities in order to ensure what the country perceives is a greater public good in the form of farm employment which remains stabilized, to increases in production, preservation of the country's agricultural heritage. The problem is that attempts to regulate the price of any commodity, arrives at a price schedule which is not efficient. This is the case with the prices set by the European Community on farm produce.
Inequalities exist in any market where the price paid by the consumer does not equal the cost of the producer to produce the item. Inequalities may also exist if their is substantial public
Text of the Paper:
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Dumping , as it iscommonly called, refers to the undercutting of a commodities world price toeliminate a surplus. The efficiency of the market would increase under this type of areform. 48. Implementing a policy of direct supports can easethe transition into a full free market economy in the agricultural sector.The fear that the French farmers have that they will be ruined by fallingprices is possible. 21. As the result of dumping, the countriesof the European Union are paying higher prices for food and forgoing otherpossible goods which they would purchase if resources were allocatedproperly.[11] The CAP does not permit the flow of low priced internationalfood products into its countries. The French people are strongly tied to the notionthat they are an agrarian people. [11]"Dumped Upon," The Economist, 323 (4 April 1992), p. At the present time, under the provisions of CAP, the EuropeanCommunity would be financially hindered by their admittance. "Rethinking the European Union II: Sweden and the CAP." The World Today. It isnot wise to be a politician in France and upset the farm lobby. Onesixth of all voters in France have ties to the agricultural sector. 21-24."Trouble in the Cabbage Patch." The Economist 337 (18 November 1995). Thisis the case with the prices set by the European Community on farm produce. 54. 14 (Survey). Free market trade should improve the standard of living in Europe aswell. [17]"The two Europes," p. 14 (Survey). Common Agricultural Policy reform is overdue for the European Union.Opening the agricultural markets to free trade is a primary consideration.The need to switch from price support for market prices to directcompensation for producers is one step on the way. Over time, decreasing the amount of goods thatproducers receive direct subsidies for will lower the budget for farmsubsidies. [12]"Dumped Upon," p.14 ( Survey). [3]"France: Pitchforked," The Economist, 325 (28 November 1992), p.56. 47. [18]"Better Than Aid," The Economist, 327 (1 May 1993), p. The European Community has beenknown to drive other countries from exporting farm products into thirdmarkets as well.[13]This was the case when the European Community soldboneless beef to the Middle East for between 5 dollars and 6 dollars aton, compared to the world market price of 3 dollars a ton at thetime.[14] This has the effect of eliminating cost efficient producers offarm products in countries which do not belong to the European Communityand do not have access to subsidies. Noone individual is able to bear the cost of the environmental degradation.The over-use of chemicals, and the use of marginal land for fields with lowproductivity both contribute to the environmental cost by increasing thelevel of pollution.[1 ] Further inefficiencies develop when France attempts to rid itself ofthe surplus agricultural products it has acquired. [1 ]Margareta Winberg, "Rethinking the European Union II: Sweden andthe CAP," The World Today, July 1995, p. These inputs could have beenused for other product which the consumer might have preferred. The French government wants to support the labor force. The farmer is willing to plant more crops than thecommunity is willing to absorb at his cost of production. 47. The European Union then dumps subsidizedgoods onto the international market depressing the international farmproducts' price. The increased production of farm products has associated publiccosts. The agricultural section of the economy of France accounts for fourpercent of France's GDP.[7] France agricultural exports account for 16percent of all of France's exports. It is expected that between 2 , and 3 , farms willvanish from France.[8] Other farms will become specialty producers who aremore concerned with quality than with price.[9] Efficiency will beimproved through the closing of farms. 21 (Survey).Winberg, Margareta. [15]"Trouble in the Cabbage Patch," The Economist 337 (18 November1995), p. Dumping implies extreme levels of misallocation ofresources for both the country which is doing the dumping and the countrywhich receives the dumped goods. 56. 14-15 (Survey)."Europe: French farmers against the world." The Economist. The current policy advocated subsidies which causeinefficiencies in the global marketplace for farm related goods.Decreasing the amount of subsidies that farmers receive will remove theincentive to over produce. In France, the farmers comprise only about 5 percent of the laborforce.[1] This small percentage of the labor force represents for thecountry their heritage. [2]"Europe: French farmers against the world," The Economist, 328 (11September 1993), p. [21]"CAP Reform: E. [6]"Europe," p. Countries choose not to allow free-market pricing ofagricultural commodities in order to ensure what the country perceives is agreater public good in the form of farm employment which remainsstabilized, to increases in production, preservation of the country'sagricultural heritage. [5]"French Farmers," p. All they allowed was for anincrease of 1 percent a year on exports to the European union nations.[17] The most recent of these treaties, written for Bulgaria and Romania, areless generous than the first round of treaties. Some of these countries can be found in Eastern Europe. The increase in production required an increase in the use ofchemical fertiliser, water, land, and labor. Some will be disappearingbefore the end of the century. 323 (4 April 1992). The European Community should derivebenefit from lower food prices, lower taxes (subsidies no longer being paidto farmers), and the benefits derived from helping their neighboringCentral European countries.[19] The farmers of the European Union wouldhave a net loss due to this proposal but the European Community would havea net gain which would more than offset the farmers' loss. This should result from the Law of Comparative Advantage and fromreaching a state of equilibrium. Inequalities exist in any market where the price paid by the consumerdoes not equal the cost of the producer to produce the item. Overhauls Agricultural Policy," Economics 318(July/August 1992), p. The French agricultural community givesan identity to the French people.[2] This identity is a public good. Thequestion is not will some farmers be put out of business, but will theremaining farmers be i a better position to supply the world's demands forfarm products at an equilibrium price. [19]"Better than Aid," p. 133-135.----------------------- [1]"French Farmers: Trouble in the Fields of Elysium," The Economist,324 (19 September 1995), p. The European Community needs a policy for agriculture to standardizethe method of establishing an equilibrium price for agriculturalcommodities. [7]"Europe," p. The trend has already begun in that direction. Producers need to haveproduction controls initiated to rectify the past over-production of farmgoods an to force the farmers to realize that over-production of goods willno longer be rewarded with subsidies.[21] Common Agricultural Policy needs to be reformed along the lines of afree trade policy. A majorreason for the farm sectors prevalent place in the French economy is thelevel of subsidy the European Union and France gives to its farmers. A better solution to acquiring agricultural price equilibrium betweenthe European Union and Central Europe would be to float the farm productprices on the free market. Many of theEastern European countries would like to be allowed to join the EuropeanCommunity. A loweringof the quality of the environment also results which is a public cost. 324 (19 September 1995). Since the193 's, the percentage of french people living and farming the land for aliving has decreased from 5 percent to about 6 percent.[3] Thistranslates into a job loss. This will happen regardless of whether theEuropean Community opens its borders to free trade in agriculturalproducts. 56-57."French Farmers: Trouble in the Fields of Elysium." The Economist. European farmerswould lose approximately 3 billion pounds; at the same time EuropeanCommunity taxpayers and consumers should gain 4.7 billion pounds.[2 ] Thismeans that their is a net increase in the standard of living of 1.7billion pounds. Since 197 , there have been 1 million farmjobs lost. 55. This is a significant proportion. 135. The fear of the French farmers is real. The highly subsidized internal prices for farm products coupled withthe import barriers to international competition have squeezed manycountries' farmers from the international market.[12] The EuropeanUnion's policy of dumping agricultural products on the international markethas resulted in unfair competition for them against countries which do notprovide subsidies for exported product. 56. This would give the Central and EasternEuropean countries access to western hard currency.[18] Hard foreigncurrency would raise the standard of living and allow the countries tomodernize their production factories. [4]"France: Pitchforked," p. Inequalitiesmay also exist if their is substantial public benefit or public costassociated with the production of the item. 24. 47-48."France: Pitchforked." The Economist. Either of these actions alone would distort the point ofequilibrium for agricultural products together they create a greatdisparity between the natural equilibrium and what is actually witnessed. The consumers are not willing to purchase theavailable supply of agricultural products at the artifically highgovernment set price. [9]Reginald Dale, "France's Feisty Farmers," Economics 332,(December/January 1993-94), p. A largeportion of these countries have economies based on agricultural products.Subsidies currently consume about one-half of the European Union's budget.Admitting Eastern European countries into the union with full membershipwould mean extending the subsidies to the agricultural products of EasternEurope; this would be cost prohibitive. Ithas intrinsic value for France. The European Community entered into "European Agreements" whichspecified free trade for most industrial products with tariffs allowed forspecified time periods for sensitive products. This creates an inefficiency in the marketplace. July 1995. 21 (Survey). The problem is that attempts to regulate the priceof any commodity, arrives at a price schedule which is not efficient. 11."Dumped Upon." The Economist. BibliographyDale, Reginald. An estimated expansion in the costof subsidies, if Central Europe was granted full membership, was completedin Brussels and calculated at an increase of one-third. 56. 11. 56. 15.----------------------- 1 Currently, the CommonAgricultural Policy (CAP) has contained within it both public goods andpublic costs. The gain andlosses associated with this plan have been calculated. As a public good its price is not includedin the direct cost of French agricultural products. The public goods and public costs, which are includedimplicitly and explicitly manipulated through the CAP, can be shown clearlyby the situation found in France. "France's Feisty Farmers." Economics 332 (December/January 1993-94). The governmentby supporting the higher prices paid to the farmer encourages the farmer toincrease his production. Production will be reduced and the natural market equilibriumwill become established. Before the end of the 199 's another 2 , to 4 , farms areexpected to be out of business.[4] The farmer, in France, has not had anincrease in real income since 197 .[5] During this same period, non-farmincomes rose approximately 5 percent in France. 325 (28 November 1992). These agreements did notgrant free trade on agricultural products. [15] To combat the problem of granting full membership to Central Europeannations the European Community will grant them "associate membership".[16]This does not place the country in a position to receive subsidies on farmproducts. C. 22. [8]"French Farmers," p. [14]"Dumped Upon," p, 14 (Survey). [2 ]"Better than Aid, p. Even more important, agriculturaltrade would tie the Central European economies into the world trade system. Therefore a surplus develops. Thesubsidies, which are tied to production, raise the price of farm productsfor the farmers. [13]"Dumped Upon," p. Inefficiencies in the marketplace distort the value of the product.In this case, the subsidy distorts the point of equilibrium where cost andprice are equal. The number of farms has decreased from 1.6 million to less than9 , . [16]"The two Europes: Poor Relations," The Economist, 327 (1 May1993), p. Theoretically, this could be used to offset the farmersloss. 328 (11 September 1993). This is true despite thefact that productivity quadrupled in the last four decades.[6] France is asocialist country and as such does not like to see unemployed workers.Continuing to keep the labor force working is a public good which is notcounted in the cost of production of farm products.
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