Providing Environmental Public Goods under the Common Agricultural Policy as a Cure for Market Failure (original) (raw)
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PAYMENTS FOR PUBLIC GOODS UNDER THE COMMON AGRICULTURAL POLICY VERSUS MARKET FAILURES
In the reality of the marketplace, a situation often arises where an economic surplus (rent) achieved by agricultural producers is partly taken over by related non-agricultural sectors. In this sense the category of economic rent embraces market failures related to such factors as price flexibility, and thus represents an effect of the misallocation of resources in the agricultural sector. The question therefore arises of whether there exists a developmental model of agriculture in which such market failures would be reduced. Apparently the only coherent response to this need is action taken under the paradigm of sustainable agriculture. This type of model for the sector's functioning is supported by the objectives of the European Union's Common Agricultural Policy (CAP), including through support for the supply of public goods in rural areas. This article addresses the question of whether CAP payments for public goods are a desirable systemic solution serving to reduce market failures. It is hypothesised that the financing of activity relating to the supply of public goods lessens the negative impact of the " market treadmill " , since it reduces the unexpected outflows of economic surplus away from farms, caused by agricultural prices. To verify the hypothesis, a panel regression analysis was performed on three sets: the EU-15 countries, the EU-12 countries, and – within Poland – subsectors of farms from six standard output classes. The analysis covered the years 2004–2012. The results of the computations provided confirmation of the hypothesis. It may be stated that an increase in the level of payments for public goods, as a percentage of total subsidies to agriculture, leads on average to a reduction in the drainage of economic rents through prices. It was also found that the financing of public goods under the CAP is more effective in reducing market failures in the EU-15 countries than in the EU-12.
Common Financing for Agricultural Policy Budgetary Questions
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Can we agree fully with the statement, that “agricultural spending is a major distorting factor in the EU economy and a distinct obstacle to the Lisbon agenda’s implementation”? (Gros, 2008) Is it without question that Europe’s agriculture is in position to become sustainable and competitive without certain kind of common policy with no Community financing? Is it unambiguous in every respect, that the challenges facing the sector – globalization, trade liberalization, climate change, water management, Lisbon process, enlargement, changing preferences – could be answered at national level utilizing exclusively national financial sources? The answers to these questions are complex. So the purpose of the paper is multiple: - Exploration of factors justifying community level intervention. – Could be applied the bottom line of the “decentralization theorem” to budgetary questions and needs of the agricultural policy? According to our hypothesis the answer is considered yes. - Assessing p...
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Abstract- In the paper the impact of macroeconomic determinants on the number and value of agricultural investment preferential credits in Poland is examined. This kinds of determinants are of an exogenous character and they cannot be controlled by individual farm. They are related to economic growth, price level changes, monetary policy, inflation, changes in foreign trade conditions. The econometric analysis showed that macroeconomic environment influenced farmers ’ credit decisions at number and value of taken credits. The statistically significant variables in the case of these measures were the index of price relations of sold agricultural products to goods and services purchased by private farms (“price gap”), interest rate of central bank and real interest rate paid by farmers. Somewhat surprisingly, neither rate of GDP growth nor real effective exchange rate affected the scope of credits. In the case of GDP rate, the result can suggest that farmers expectations does not depe...
Sustainability
Willard Cochrane was the first to introduce the notion that farmers are on a market treadmill, which, in spite of their constant efforts to improve productivity, wears away any profits that might result. Therefore, the essence of the treadmill is that agricultural income does not grow in line with the increase in productivity. Although reasons of this phenomenon are economic in nature, it has caused a serious social problem, i.e., the relative deprivation of farmers’ income. Solving this problem is crucial for ensuring sustainable farming in its social dimension. The aim of the article was, firstly, to answer the question to what extent the concept of the market treadmill in agriculture is still valid for European countries; and secondly, to develop a sectoral model of agricultural income that would test whether the Common Agricultural Policy (CAP) has been successfully struggling with the Cochrane’s treadmill. The authors carried out panel research in a group of 25 countries over t...
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As a consequence of the negotiations for a new agricultural policy of the EU the multifunctionality of agricultural production has come into new prominence in the public. The philosophy that subsidies for the agricultural sector should be calculated not only by agricultural market production but also according to agricultural noncommodity production like e.g. the conservation of the countryside, makes it
Technological and Economic Development of Economy
There is a consensus that farmers are subject to farm price-cost squeeze (PCS) when commodity prices fall and costs of production rise long-term. Willard Cochrane was the first to examine this phenomenon, introducing the notion that farmers are on a market treadmill. PCS is still a principle economic problem in agriculture touching farms in all over the world. It results from flexible prices but also from monopsony structures where recipients of commodities seize the opportunity of suboptimal pricing. Many studies indicate increasing retail farm price spreads but this lacks empirical studies on the effects of different types of subsidies on PCS. This work attempted to model EU Common Agricultural Policy (CAP) impact on PCS using the Constant Elasticity of Substitution (CES) production function, specified as in most CGE models. However, the authors tested the assumption of flexible prices reacting to changes in productivity. This approach is novel, while supported with an input-outpu...