The Common Agricultural Policy (CAP)

2. All cereals have showed the greatest relative decline in intervention stocks between 1985/6 and 1988/9.

1. EC producer prices might be higher than world market prices because firstly, due to the tariffs placed on imported agricultural products. This therefore pushed away these producers, and allowed EU farmers to push up their prices in the domestic market. 

There was also a high intervention price. A minimum fixed price that farmers had to sell their products at.

3.  Some countries, outside the EC may have suffered from the CAP because agriculture may have been a part of their economy. With the CAP in place it drove out competition from outside and hence, a big part of economic growth is lost. The countries unemployment levels will raise as well because all farmers are know out of work.

Some countries may have also benefited from the CAP, as they would not know have to pay tax on their agricultural production. In addition, they would be able to sell off their land domestically for use of for EU farmers to use and receive additional income from the trade.

3. Price support can help achieve the objectives of the CAP, because the target price set is high enough to make domestic production profitable. Hence, producers a maintaining a reasonable, if not higher standard of living.

In addition, an intervention price will be introduced, the intervention price is similar to that of the target price, but is a price which the CAP would be ready to come into the market and buy any surpluses in production by producers.

If this intervention price was above the equilibrium price (the point where demand equals supply) then it will encourage an increase in European production.

However, the target price is very high, which therefore, does not fulfil one of the objectives set out by the CAP. The objective states that consumer prices are maintained at a reasonable price, the target price set is no reasonable and therefore a large amount of consumers’ income is spent on these goods and services.