Stated Aims of CAP
- To Increase Productivity
- To Increase Farm’s incomes
- To Stabilize markets
- To assure the availability of supplies
- To ensure reasonable prices for consumers
- The most important is the second aim of increasing farm incomes
Why Subsidise Agriculture?
- Declining income of farmers.
With increased income in the economy the proportion spent on agriculture is low. The YED of food is low. Therefore farmers lose out during economic growth.
- Positive Externalities of farming.
If farmers go out of business, rural communities will suffer. This could also have consequences for the environment and tourism
- Fluctuating prices
PED and PES for agricultural commodities are low therefore, prices can fluctuate significantly, causing problems for farmers and consumers
Farmers subject to unpredictable shocks such as disease and bad weather
Price Support in the CAP
This CAP policy involves a system of “Target Prices” and “Variable Import levy”
- Import Tariffs on Cheap Imports
- Guaranteeing Minimum Prices for Farmers – Buying Surplus if necessary