The Disappearing Budget Constraint on EU Agricultural Policy
JEL Classification F13
Alan Matthews
Department of Economics, Trinity College, Dublin 2, Ireland
Abstract
Concern over budgetary costs has been the traditional driving
force behind changes to the EU's Common Agricultural Policy. While the recent
MacSharry reform of this policy was more related to external pressures arising
from the need to reach an agreement on agriculture in the GATT Uruguay Round,
many expect the budgetary constraint to re-emerge towards the end of this
decade, particularly in the light of the impending accession of a number of
Central and Eastern European countries (CEECs). This paper argues that it is
unlikely that there will be any budgetary need to further reform Europe's
agricultural policy to accommodate the CEECs. Using a simple forecasting model
of the FEOGA Guarantee budget, the paper demonstrates that, under a range of
plausible assumptions for the key variables affecting the resources available
for agricultural expenditure and the amount of that expenditure, a significant
positive margin will emerge between the agricultural guideline and the cost of
EU agricultural policy by the beginning of the next decade. While the budget
constraint may disappear, however, both external and internal factors such as
concern about agriculture's impact on the environment will remain as pressures
for further CAP reform.