UK GOVERNMENT EXPENDITURE—IMPLICATIONS OF CHANGES IN AGRICULTURAL OUTPUT UNDER THE COMMON AGRICULTURAL POLICY

The change in government expenditure which accompanies change in agricultural land use and output is an important parameter in current policy decisions. This change is estimated in this paper using a simple accounting model which recognises the diversity of support schemes in operation and the interaction between them. Use of the model is illustrated by estimating the effects of changes in beef, sheepmeat and cereals output under alternative assumptions about market conditions, yield levels and land classes affected. The paper concludes by discussing other ways in which the model might be used.     

THE COMMON AGRICULTURAL POLICY: THE IMPLICATIONS FOR ITALIAN AGRICULTURE

The relative importance of Italian agriculture in the EC, both in terms of net value added and of employment, has never been matched by a comparable impact on the CAP policymaking process. Mediterranean agricultural products in particular have been less favoured by the overwhelming common policy instrument of product price support, which has also a negative impact on the economy as a whole. The most relevant effects of the CAP are reviewed: the impact on resource allocation, including international income transfers, and the effects on the environment, as well as the effects on interpersonal income distribution. An evaluation of CAP is then made from different points of view: the likely perspective of present Italian farmers, a national perspective and an overall perspective, including the interests of non EC countries and future generations. Lower and more balanced price support, together with higher concern for structural and environmental policies especially in less favoured areas, are advocated.     

A MODEL OF THE COMMON AGRICULTURAL POLICY

Several efforts have been made since 1980 to estimate the costs and benefits of the European Community's Common Agricultural Policy (CAP). This paper summarises the approach and method adopted in developing one such effort, which aims to provide results at country, commodity and interest group level both for the CAP as a whole, and for changes in it. Economic analysis of the effects of price changes in the CAP is carried out with the use of direct and crossprice elasticities of supply and demand for sixteen major commodities, using base levels of production, consumption, and gross trade flows in each member state, along with rest-of-world data. A number of CAP instruments, such as subsidies, levies, quotas and ‘green’ exchange rates, are built into the calculations and can be varied, along with support prices, to produce new situations in domestic markets and in world price levels. Both financial (budgetary) and welfare (economic surplus) effects of such exogenous price changes can be calculated. Certain policy changes, such as a move to ‘free’ markets, involve endogenous calculation of equilibrium prices. Trend projections subject to a priori constraints are used to produce results for years beyond the extent of data currently available. The types of model run commonly carried out are discussed, along with several strategic judgments that became necessary in carrying out the research. Finally, questions concerning the future development and use of the model are addressed.     

THE COMBINATION OF AGRICULTURAL OUTPUT AND INPUT PRICE INDICES

Measures of agricultural incomes, and of the industry's productivity, are often derived by combining measures of the aggregate values and volumes of the industry's outputs and inputs. Combinations of price indices are less common but some have been published by Eurostat and are described in this paper. They are of two basic forms, one indicating the net effect of changes in output prices and input prices on the industry's value added and the other indicating changes in the industry's terms of trade. The paper examines the role, construction and interpretation of these measures and offers some cautions about their interpretation in the context of CAP reform.     

THE ELASTICITY OF AGGREGATE AUSTRALIAN AGRICULTURAL SUPPLY: ESTIMATES AND POLICY IMPLICATIONS

Annual time series data for the period 1950-51 through 1975-76 are used to estimate the price elasticity of aggregate Australian agricultural supply using two methods. The short-run elasticity is estimated to be highly inelastic but it has been increasing through time. The preferred estimate of the long-run elasticity is in the relatively inelastic range and it has also been increasing through time. Some implications of these results for intersectoral resource flows and compensatory assistance, the cost-price squeeze, the effects of the mineral boom and monetary policy are discussed.     

IMPACTS OF THE COMMON AGRICULTURAL POLICY ON INTERNATIONAL WHEAT PRICES

The emergence of the EC as a major exporter of cereals in the 1980s and the escalation of international agricultural trade confrontations emphasize the importance of understanding the effects of EC policy actions. Several important features of the EC wheat market are incorporated in an analytical and empirical model including imperfect substitutability in demand between imports and domestic supplies, the simultaneous import and export of wheat by the EC, the distinct impact of threshold versus intervention policy prices, MCAs, and the imperfect transmission between market and intervention prices. Results indicate that EC policies have a smaller impact on world price than found in previous studies.     

THE REPRESENTATION OF RISK IN ECONOMETRIC MODELS OF SUPPLY: SOME OBSERVATIONS

The high correlation between many of the measures used to represent risk in econometric models of supply is demonstrated. A case is made for a very simple measure, the moving range, to be used to represent risk in these models.     

ESTIMATION OF SOCIAL WELFARE WEIGHTS IN AGRICULTURAL POLICY: THE CASE OF GREEK COTTON

This paper provides a welfare analysis of the Greek cotton market and obtains an estimate of the distributional weights implicit in the postulated welfare function of agricultural policy makers. The estimate of that weight depends, as might be expected, on the elasticity of supply and the difference between the support price and the market price. For the period covered, the welfare of Greek cotton producers was weighted about ten per cent more than that of taxpayers.     

THE NORTHFIELD REPORT: STRUCTURAL POLICY AND AGRICULTURAL EFFICIENCY

A brief review of the Northfield Report on the Acquisition and Occupancy of Agricultural Land emphasises its general acceptance of the existing situation. An opportunity has been missed to develop more far reaching conclusions in respect of a policy area where scope for national initiative within the EEC remains. Although the Committee took an efficient agriculture as a principal objective its definition is not discussed and the only factual evidence quoted is the analysis by Britton and Hill based on the Farm Management Survey. The appropriateness of this is questioned and some alternatives are suggested. The Britton/Hill analysis does not give particular support for the Committee's advocacy of a family-based farm structure. The Committee sees value in a let sector but expects its decline to continue. Nationalisation of agricultural land as the most direct route back to tenancy is rejected. Yet there is a need for the continuity of ownership to avoid leakages through capital taxes and family transfers. Nationalisation may be infeasible and in its absence, an alternative would be to positively discourage continuing owner occupation and over time to develop an effective land tax to recover support costs.     

THE IAC'S APPROACH TO AGRICULTURAL POLICY*

The main recommendations contained in the IAC's reports on rural references are outlined. The Commission's reasoning on four issues that are widely viewed as important to the formulation of rural policy is examined. The four issues are: assistance to industry; terms of trade; uncertainty and instability; and adjustment policy. Criticisms are made of the IAC's argument on these issues, and some inconsistencies between reports are indicated. It is concluded that the IAC has made a valuable contribution to the discussion of rural policy in Australia even though its recommendations are sometimes sounder than the argument offered to support them.     

THE POLITICAL ECONOMY OF AGRICULTURAL POLICY REFORM IN THE EUROPEAN COMMUNITY AND AUSTRALIA

A political-economy framework is used to explore the differences which have been observed in the pace of agricultural policy reform in the European Community and in Australia. In this framework, policy-making is endogenous in comparison with its exogenous position in applied welfare economics. It is shown that the institutional aspects of the policy process, the power of the farming lobby, and the economic philosophy of governments are important determinants of the extent of income re-distribution and of moves towards the use of more efficient instruments of income redistribution. It is argued that the degree to which politicians are captured by the farming lobby, and the extent to which they support transparency in policy-making, determine whether fundamental reforms are feasible. From this analysis, it is concluded that the pace of reform of the Common Agricultural Policy will continue to lag behind that in Australia.     

INPUT-OUTPUT FORECASTING OF REGIONAL AGRICULTURAL POLICY IMPACTS

Input-output coefficients and multipliers based upon them are increasingly being used to evaluate the impact of changes in agricultural policies, yet there are a number of specific difficulties with regard to their use in this context. This paper articulates various criticisms which can be made, and tests their validity by comparing multiplier forecasts with out-turns from a series of eight input-output tables describing the Welsh agricultural sector. The predictive performance deteriorates rapidly as the time between base matrix and forecast year increases; more attention needs to be paid to the forecasting of final demand, spill-over effects into other sectors, and the functional relationship between labour input and gross output.     

ASSESSING SOME EFFECTS OF INFLATION ON THE AGRICULTURAL SECTOR*

The time pattern of effects of inflation on prices received, prices paid, asset returns, and real incomes of different members of the agricultural sector is described. In the long run it is argued that inflation will have very small, if any, effects on relative prices or real incomes. For the short run, which may be several years, it is likely that some prices will rise more slowly than others and cause income losses. Included in the group of losers are producers of export products.     

THE AUSTRALIAN AGRICULTURAL ECONOMICS PROFESSION: AN APPRAISAL OF SOME CURRENT TRENDS*

Using the results of the first part of their 1994 membership survey, Ahmadi-Esfahani and Brakey (1996) examined the structure, conduct and performance of the Australian Agricultural and Resource Economics Society qualitatively. This paper extends that analysis by appraising some current trends in the Australian agricultural economics profession quantitatively. It concentrates on the second part of the survey to address a number of fundamental questions. A comparison of the US and Australian agricultural economics professions is made. The implications of the analysis for the product mix of the Society are explored.