The total EU budget in 2010 was €123 billion. Just under half of this (€58 billion) was spent on supporting agriculture. The programme of support – the Common Agricultural Policy (CAP) – has changed over the years. For a start, despite its being a large proportion of the EU budget, this proportion has actually been falling. In 1980, the CAP accounted for 69% of the EU budget; in 1990 it was 60%; in 2000 it was 52%; in 2010 it was 47%.
The types of support have also changed. The main method in the past was effectively to set minimum prices for various foodstuffs and for Intervention Boards to buy up any surpluses that arose from such prices being above the market equilibrium. Massive food ‘mountains’ resulted. Sometimes these surpluses were dumped on the world market; sometimes they were thrown away; sometimes they were simply kept in storage. Export subsidies and import levies (taxes) were also used to reduce surpluses. This, of course, was highly damaging to farmers in many countries outside the EU, especially in various primary exporting developing countries.
Reforms have taken place in recent years. The most important has been to replace high intervention prices with direct payments to farmers unrelated to current output. Whilst such payments still provide a substantial outgoing from the EU budget, being unrelated to current output, they do not encourage farmers to produce more and thus do not generate surpluses. Prices in most cases are allowed to be determined by the market.
The EU has just announced further reforms. These include:
• Capping total CAP spending at current levels until 2020
• Capping the total payment to any one farm to €300,000
• Relating subsidies to acreage rather than previous output
• Making 30% of the direct payments dependent on farmers meeting environmental criteria.
The following videos and articles examine the proposals and assess their likely benefits, their likely drawbacks and their likelihood of being implemented.
Videos
EU plans to reform Common Agricultural Policy for farmers BBC News, Jeremy Cooke (12/10/11)
EU unveils controversial agricultural reforms Euronews (12/10/11)
Towards a new Common Agricultural Policy Euronews (14/10/11)
Queen to lose out in shake up of Europe’s farm payments Channel 4 News (12/10/11)
Cautious welcome for EU agriculture policy shake-up STV News (12/10/11)
CAP reform proposals YouTube, Dacian Cioloş, European Commissioner for Agriculture and Rural Development (in French with English subtitles) (12/10/11)
Articles
EU farm chief: CAP plans represent profound reform Reuters, Charlie Dunmore (12/10/11)
UK to dismiss Common Agricultural Policy reforms as inadequate Guardian, David Gow (11/10/11)
EU Farm Policy Debate Pits Top Receiver France Against U.K. Bloomberg Businessweek, Rudy Ruitenberg (12/10/11)
EU plans CAP reforms for ‘greener’ farm subsidies BBC News (12/10/11)
Common Agriculture Policy farm subsidy plan unveiled BBC News (12/10/11)
Q&A: Reform of EU farm policy BBC News (12/10/11)
CAP reform: Shepherd and steward of the land BBC News, Jeremy Cooke (12/10/11)
EU agriculture policy ‘still hurting farmers in developing countries’ Guardian: Poverty Matters blog, Mark Tran (11/10/11)
EU aid to farmers to continue over next decade Financial Times, Joshua Chaffin (12/10/11)
EU publications
CAP Reform – an explanation of the main elements Europa Press Release (12/10/11)
The European Commission proposes a new partnership between Europe and the farmers European Commission Press Release (12/10/11)
EU farm policy after 2013: Commission proposals welcomed with reservations European Parliament Press Release (12/10/11)
Legal proposals for the CAP after 2013 European Commission: Agriculture and Rural Development (12/10/11)
Questions
- Explain why the old system of price support under the CAP led to food surpluses. Use a diagram to illustrate your analysis.
- What is the significance of price elasticity of demand and supply in determining the size of these surpluses?
- What reforms have been introduced to the CAP in recent years? What effects have these had?
- Explain the new proposals for the CAP after 2013.
- What are the likely benefits of these proposals?
- What are the likely drawbacks of the proposals?
The government has been under a lot of pressure to tackle the culture of binge drinking. Figures for 2006/7 show that the cost to the NHS of binge drinking was £2.7 billion per year. In response, MPs are calling for a change in government policy towards the alcohol industry, arguing that at present the drinks industry has more control over policy than health experts. So what can be done?
In a report published in early January 2010, the House of Commons Health Select Committee proposed a minimum price per unit of alcohol, tighter controls on advertising and mandatory labelling. A minimum price, the Committee argued, would reduce demand by heavy drinkers who are looking for cheap alcohol. At present, many supermarkets have promotions that involve selling cider and beer at below cost, allowing people to ‘pre-load’ cheaply at home before going out drinking. The report suggested that a minimum price of alcohol of 50p per unit would save more than 3000 lives per year and a minimum price of 40p per unit would save 1100 lives.
Dr. Richard Taylor, an independent MP and member of the Commons Health Select Committee, said:
“The evidence we took showed that minimum pricing was the most effective way forward and at the moment you can sometimes buy beer cheaper than water. Our message is that the price would be put up but only by a little for moderate drinkers. Surely that is a sacrifice to pay for the good health of young people.”
However, those opposed to setting a minimum price per unit of alcohol argue that it would be unfair on moderate drinkers, that it wouldn’t work and that it could even be illegal. Instead, they argue that that government intervention needs to be smarter. It should not target everyone, but solely those groups consuming the most alcohol. The British Beer and Pub Association suggests that 10% of the population consumes 44% of all alcohol.
It appears that the government won’t be following Scotland’s minimum price on alcohol, but will instead impose bans on all-you-can-drink deals and introduce compulsory identity checks. However, supermarket deals don’t appear to have been targeted. Successive governments have failed to tackle this problem sufficiently, but with an election approaching, will this be a proposal that is promoted?
Raise alcohol price to save lives, MPs argue Telegraph, Rebecca Smith (8/1/10)
Commons committee backs minimum alcohol pricing BBC News (8/1/10)
Campagain to tackle cut price alchol The Arran Banner (8/1/10)
Wyre Forest MP calls for alcohol minimum pricing The Shuttle (8/1/10)
Should 50p be minimum price for a unit of alcohol? Have your say BBC News (8/1/10)
BBPA: minimum price would be ineffective Morning Advertiser, Ewan Turney (8/1/10)
Cost of binge drinking doubles for the NHS rises to £2.7 billion Mirror, James Lyons (2/1/10)
Bring in 50p minimum price for alcohol, MPs urge Guardian, Toby Helm (3/1/10)
All-you-can-drink pub offers facing ban BBC News (19/1/10)
Too much of the hard stuff: what alcohol costs the NHS THE NHS Confederation, Issue 193 January 2010
Minimum pricing for alcohol essential, says Health Committee Marketing Week, David Burrows (8/1/10)
Minimum alcohol pricing ‘will affect the poor’ BBC News, Kevin Barron and Gavin Partington debate (8/1/10)
Questions
- How is the equilibrium price of alcohol determined?
- Illustrate and explain the effects of the imposition of a minimum price.
- To what extent is a minimum price likely to be effective? How is elasticity likely to play a role in the effectiveness of such a policy?
- Why could the introduction of a minimum price on alcohol be illegal and contravene European competition law?
- What are the arguments for and against a minimum price on alcohol? Explain how and why some people will gain and others will lose.
- How would a minimum price on alcohol affect government spending? Would more investment in prevention lead to a lower cost to the NHS? Explain your answer.
- Why might bans on all-you-can-drink deals be ineffective?
Price controls – limiting the price of goods through government intervention in a market – have fallen out of fashion to a great extent as an economic policy tool in the past couple of decades, but they may be making a comeback in Argentina, Russia and China according to the article below from Slate magazine.
Cry for me Argentina (and Russia and China) MSN Slate (30/10/07)
Questions
| 1. |
Using supply and demand diagrams as appropriate, illustrate the ways in which price controls have been used to influence prices in Argentina and Russia and China. |
| 2. |
Examine the reasons why the Argentinean government has chosen to implement price controls for energy. |
| 3. |
Discuss the likely effectiveness of price controls in combating inflation in Russia, China and Argentina. |
The national minimum wage will rise again in October 2007 by about 3% from £5.35 to £5.52. However, the Work Foundation has warned that the effectiveness of the minimum wage may be at its limits and that further rises in its level may not have the desired impact in terms of addressing inequality. The articles and press release below consider these issues.
Minimum wage up to £5.52 per year BBC News Online (7/3/07)
National minimum wage at the limits of its effectiveness The Work Foundation – press release (6/3/07)
Warning over minimum wage level BBC News Online (6/3/07)
Questions
| 1. |
Using diagrams as appropriate, illustrate the likely impact on the UK labour market of the proposed increase in the national minimum wage from October 2007. |
| 2. |
Assess the arguments given by the Work Foundation that the minimum wage is reaching the limits of its effectiveness. |
| 3. |
Evaluate two methods other than a national minimum wage for reducing levels of both relative and absolute poverty. |
A recent report from the Office of Fair Trading has argued that the NHS may be paying up to £500m too much for branded medicines for drugs companies and has recommended reforms to the system. The Pharmaceutical Price Regulation Scheme (PPRS) sets a cap on the profits that any drug company can earn on branded medicines from the NHS and the OFT is recommending changes to the system. They argued that there are “a number of drugs where prices are significantly out of line with patient benefits”.
NHS ‘spending £500m a year too much on drugs’ Guardian (20/2/07)
NHS paying too much for drugs BBC News Online (20/2/07)
Drugs giants to be told to ‘cut prices for NHS’ Times Online (20/2/07)
NHS ‘overspending by millions’ on drugs Telegraph (20/2/07)
Drugs price fixing scheme costs health service millions, says OFT Guardian (20/2/07)
Drugs buddies Guardian – comment is free blog (20/2/07)
Prescribing prices BBC News Online – Robert Peston blog (20/2/07)
Questions
| 1. |
Explain the way in which prices for branded drugs are determined. |
| 2. |
Assess the extent to which the PPRS represents a price-fixing scheme. |
| 3. |
Discuss the policies that the government could put in place to implement the OFT recommendations. |