In the wake of an increasingly globalized economy, one that has seen the emergence of large trade blocs and common markets, the nations of the world have been competitively forced into becoming more economically integrated year after year. In light of hundreds of years of consumer theory, this would almost certainly lead one to a conclusion of necessarily lower prices and more efficient production on almost all products. However, as is the case in many nations, the European Union (EU) has succeeded in creating an artificial market for agricultural products through the use of a Common Agricultural Policy (CAP). It is the focus of this analysis to outline the framework of the Common Agricultural Policy of the European Union, analyze strictly the negative effects it creates on welfare, and exhibit such effects through the examination of one nation's (United Kingdom) struggle with the Common Agricultural Policy. In light of the CAP, the controversy of government intervention has also have been a major issue. Should the governments of the EU interfere with the agricultural market to help it's own economy, and what would Adam Smith think of this? With disregard for the invisible hand,

The CAP has had a long history of reform, and is nowhere near perfect. The first attempt at reform came just ten years after its implementation. In 1968, the Mansholt Plan was put into effect in an attempt to reduce the number of people in the agriculture business and to promote more efficient means of agricultural production. In 1972, the extensive food surpluses were targeted through the creation of structural measures designed to modernize European agriculture. This attempt at reform is generally regarded as a failure because many of the problems it tried to fix were still left unchecked. In 1983, a publication was released entitled, The Green Paper, which sought to balance the ongoing disparities between supply and demand through improvements in production. In 1988, the European Council agreed on various reform measures. The most important was the "agricultural expenditure guideline," which limited the percentage of CAP expenditure in the overall budget. In 1991-92!

The question at hand is how the policy, which is seen as an economic benefit for the European Union's agriculture sector, is, in reality, stymieing growth and the efficient allocation of resources. There have been a number of negative effects on the European Union countries. First and foremost, the Common Agricultural Policy has kept agricultural prices in the member countries above world market prices. "The CAP has encouraged production of certain products to the extent that net importers of these products have become net exporters" (Rosenblatt 9). Also, the CAP has contributed to large agricultural net export or stock-building by the European community. This has contributed to the CAP hindering the economies of the EU member countries. Higher food prices, which the CAP causes, and which fall hardest on the least well off, hinder economic development and reduce international competitiveness and EU employment. Consumers lose twice under this policy since they have to pay higher prices for their good and pay taxes to subsidize the agricultural sector.

Smith would see this policy as a monopoly and that the government is controlling private people in what direction to employ capital and labor. This type of policy is, to Smith, in just about every case useless or hurtful to economic flow of capital and labor. The CAP is doing exactly what Smith believes it would do, hurt the economy; since Europe cannot produce agricultural products cheaply, it subsidizes them and in turn deteriorates the economy. Smith quotes a great maxim in his book that fits perfectly for this situation, "It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy" (Smith Book IV, Chapter 2). Europe is producing goods that cost them more if they bought them abroad. Europe does not have a comparative advantage over other countries in all agricultural products and would find it to their advantage to purchase these products from countries.

The abolishment of the Common Agricultural Policy within the European Union would raise the welfare of a higher percentage of citizenry than that which its embracement does. The European Union, as many international factors may, feels a strong propensity to maintain what appears to be a formidable agriculture industry in the name of such principles as continental pride, national security, and political agendas. However, in the long run, such blatant supports to an industry should be ample evidence of its failure to survive at the government demanded level, and should implore policymakers and citizens alike to simply remove the handcuff from the invisible hand.

, the future of the CAP was addressed through what has been called, "the MacSharry Reforms." The key aspects of the reforms included the cutback of agricultural prices to make the products more competitive, compensation for farmers that incurred a loss in income, and environmental protection. "The re

Some common words found in the essay are:
IV Chapter, European Union, Agricultural Policy, European Union's, CAP CAP, Adam Smith, CAP Article, CAP EU, Fund EAGGF, Economic Union, european union, agricultural policy, common agricultural policy, common agricultural, agricultural products, invisible hand, european union's, smith book, book iv, smith book iv, iv chapter, book iv chapter, chapter 2, iv chapter 2, agricultural policy european,
Approximate Word count = 3995
Approximate Pages = 16 (250 words per page double spaced)