The final objective of government intervention is the attainment of the 'common good' for society as a whole. Government are supposed to intervene in market economies mainly in order to offset market failures. However governments themselves often fail to maximise the common good, especially when private interests prevail. In the decision-making process of the CAP agricultural lobbies play a predominant role, without any substantial counterpart lobbying to defend the interest of society as a whole. Although, according to common sense, food surpluses and related budgetary costs (export subsidies, food storage, etc.) would disappear if public price support were dismantled, this elementary solution to the most important problems raised by the CAP was never fully accepted. The cost of the CAP, mainly due to the agricultural price and farm revenue support, amounts to almost 50% of the EU budget, paid by taxpayers. Moreover, according to OECD estimates, an almost similar invisible transfer of income to agricultural producers is borne by consumers paying higher market prices. Consequently, although agriculture accounts only for 1.7% of the Community GDP, the cost of the CAP as big as the total EU budget. The performance of sectoral economic policies is usually appraised on the grounds of three sub-objectives better specifying the broad dimensions of social well-being: economic efficiency, social equity and environmental sustainability. The effects on economic efficiency are manifestly negative. Domestic market prices are distorted among farm products, capital and labour resources are retained in agriculture while their productivity for society as a whole would be much larger in other industries. If at least the CAP were consistent with structural adjustment in the long term then, sooner or later, the problem would be solved and the present waste of economic resources terminated. Unfortunately this is not the case as present distortions in market prices generate distorted investments. In terms of social equity, higher food prices act as a regressive tax on food burdening proportionally more worse-off households who spend a much larger share of their family budget on food than better-off households. On the other hand better-off farmers producing larger amounts of commodities whose price is supported get a much larger share of the benefits. As a result income disparities among citizens are increased. In terms of environmental sustainability the impact of farm price support is mixed. On the one hand higher farm prices stimulate the use of polluting inputs such as fertilisers and pesticides. On the other hand price support is likely to prevent serious problems in terms of depopulation or reduced environmental standards in some marginal regions. However these positive effects are circumscribed to specific areas and could be attained in a much more effective way by specific agri-environmental and agri-regional policy measures. According to the recent document of the Commission Agenda 2000, the very nature of the CAP will not be substantially changed before 20006. The worse aspects of the CAP in EU-15 will be reduced to a certain extent, but this positive impact on European social well-being is likely to be largely offset by the negative impact on new Member Countries which will have to accept the acquis communautaire in agricultural policy. In the Amsterdam Treaty a strong 'horizontal clause' is instituted by which Community Consumer Policy should also monitor the other EU policies both at Community and national level in order to protect consumer interests. Up to now the noxious effects of the agricultural price support policy could be cast to farm lobbies and to ill-informed policy makers, however in the future the Consumer Policy will be co-responsible for the reduction of social welfare generated by the CAP as well as by other sectoral policies.

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Proceedings of the Sixth Joint Conference on Agriculture, Food, and the Environment, August 31 - September 2, 1998, Minneapolis, Minnesota

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