Trade Adjustment Costs in Developing Countries: - World Bank ...

Compensation Payments in EU Agriculture 365kets of sugar, beef, dairy, wine, cereals, and oilseeds. Table 24.2 gives an overviewof the main instruments used for the implementation of the CAP in different agriculturalproductions.Intervention prices were set considerably above market prices. For some commodities,such as butter and white sugar, EU prices were four times the price onthe world market, but also for other commodities EU prices largely exceededworld market prices. Table 24.3 gives the differences between the EU price andthe world market price for selected commodities in 1967–68. This price structureresulted in a large increase in agricultural production. Between 1973 and 1988,the volume of agricultural production increased by 2 per cent per annum whereasinternal consumption increased only by 5 per cent. This resulted already at theend of the 1970s in a high degree of self sufficiency (Figure 24.2) and the EUshifted from a net import to a net export position in agricultural and food products.In combination, these contributed to rapidly growing budgetary expenditures(for market intervention, storage, export subsidies, and so on) anddistortions of international markets. Both resulted in pressures for reforms. Thesereforms and also the future of the CAP are still dominated by the early outline ofthe CAP, not only in terms of dealing with the surplus production and the environmentalproblems caused by intensive farming practices, but also regardingfarmers’ attitudes towards price policy (Fennell 1997).Reforms of the CAP were proposed soon after its introduction. As early as 1968,Commissioner Mansholt proposed a plan to accelerate structural change in theagricultural sector. The main proposals in the plan were to implement monetaryincentives to encourage about half of the farming population to leave the sectorTable 24.3: Prices for Certain Agricultural Products in the EU Compared to theWorld Market Price Level in 1967–1968 aEU Common price World market price (1) as a percentageECU/ 100kg (1) ECU/ 100kg (2) c of (2)Soft wheat 10.7 5.8 185Hard wheat b 16.1 8.1 200Husked rice 18.0 15.3 117Barley 9.1 5.7 160Maize 9.0 5.6 160White sugar 22.3 5.1 438Beef 68.0 38.8 175Pig meat 56.7 38.6 147Poultry meat 72.3 55.0 131Eggs 51.1 38.7 132Butter 187.4 47.2 397Olive oil 115.6 69.8 166Oilseeds 20.2 10.1 200areference price differs for various productsb including direct production aidscwholesale entry priceSource: Fennell 1997