A system of direct compensation payments to farmers as a means of reconciling short-run to long-run interests

Abstract

The paper is written to answer two questions. First, should a system of direct compensation payments be introduced for the improvement of the EEC's Common Agricultural Policy? Second, how to define the DCP-system in order to make its principle practicable in a way which makes it on the one hand acceptable to those who are farming from the beginning of the system as well as for those entering later on, and on the other hand acceptable to the other part of the population and to the governments concerned. It appears from the analysis of the first question that the purpose of the present market and price policy has to be changed fundamentally. What it should do is to ensure a level of producer prices for basic agricultural products which is consistent with a situation of equilibrium concerning a rehabilitated world market, instead of trying, as at present, to ensure prices for farm products which as far as practicable result in a reasonable degree of income parity for agriculture in its present form. Newly designed market and price regulations should therefore create within the member countries of the Common Market prices for agricultural products being equal to ‘normalized’ prices of a future world market which would not be distorted by overprotection of national or ‘common’ markets. The as yet unknown price level is thought to be approximated adequately by reducing the present level of EEC prices for basic farm products by about 20%. One of the functions of the direct compensation payments will be to provide for the immediate loss of income evolving from such a reduction in agricultural prices. The analysis of the second question shows that it is possible to design an adequate system of direct compensation payments. Adequate, because it reconciles the interest of the present and the coming farmers to the interest of society at large concerning food supply, environmental values and costs both. The DCP-system will not give rise to insuperable exchequer problems. It provides ample time for a reorientation of agriculture according to the patterns of comparative advantages within the Commom Market as well as in the world at large.