Disadvantages of the CAP Price Support scheme
1. Food Surpluses:
Higher Prices encouraged extra supply, this resulted in a surplus of food. The EU had to buy this surplus. This is very inefficient and expensive.
- In 1995 Agriculture cost 40 billion Euros or 58% of the budget
2. High Prices:
To increase incomes of farmers, consumers have to pay higher prices.
This is allocatively inefficient and also increase inequality because low income groups pay a higher % of their income on food
3. Farmers in other countries face lower incomes.
- Firstly the excess food supplies were dumped onto world markets. This caused prices to fall and lower revenues.
- Secondly the EU bought less imports because of the variable import levy’s Therefore demand fell from D1 to D2.
The combined effect was to reduce farmers welfare in both the US and the developing world.
4. Trade Negotiations
The CAP has been a major stumbling block during trade negotiations at both GATT and later under the WTO. The US has retaliated against EU exports in response to the high degree of protection given to agriculture
5. Environmental Problems
The incentives of the CAP encouraged farmers to increase output with the use of artificial fertilizers and pesticides causing problems for the environment.
6. Inefficiency
Subsidizing farmers through higher product prices is an inefficient method because it penalises the consumer with higher prices. Also it means large farmers will benefit the most. They have received more than they need but small farmers are still struggling e.g. hill farmers with a low number of sheep
Minimum prices remove the disciplines of the market and encourage inefficiency
Despite these problems it has proved difficult to reform CAP because of political pressures
Essays and Revision Notes On Common Agricultural Policy CAP
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