Introduction

This chapter looks at the European Union's (EU) Common Agricultural Policy (CAP) in the light of the current food crisis. It does so against the common prejudice that the CAP has been a major factor in contributing to global food imbalances and the creation of a truly global agricultural market.

The charges laid against the CAP are numerous. From an economic viewpoint they can be distilled down to the concept of distortion of markets. In particular, the economists argue that by protecting the domestic EU market in favour of local production and by subsidising the export of surplus production, the EU has distorted the global food market and undermined the rational allocation of resources for the production and distribution of food. Some economists argue further that the continuing subsidisation of the domestic farm sector, even where the subsidies are not linked to production, exaggerates these distortions even further. From an EU budgetary point of view the argument is made that agriculture has received a disproportionate amount of state resources.

It is accepted politico-economic theory that, from a market perspective, any distortion will have negative impacts on those who do not benefit from the distortion. In addition, the distortions can lead to unforeseen consequences. This second observation is particularly true of the CAP which, by the late 1970s, had become so successful that the EU needed to export the surpluses created by it at prices distorted by subsidies. But does this mean that the current CAP must be scrapped?