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Factor Analysis of Prices and Agricultural Production in the European Union

Author

Listed:
  • Popović Goran
  • Erić Ognjen

    (University of Banja Luka, Faculty of Economics, Bosnia and Herzegovina)

  • Bjelić Jelena

    (Indirect Taxation Authority, Bosnia and Herzegovina)

Abstract

Common agricultural policy (CAP) is a factor of development and cohesion of the European Union (EU) agriculture. The fundamentals of CAP were defined in the 1950s, when the Union was formed. Since then, CAP has been reforming and adapting to new circumstances. Treaty on the Functioning of the European Union defines the goals of CAP: stable (acceptable) prices of agricultural products, growth, productivity and technological progress in agriculture, growth in farmers’ income and supplying the common market. Factor analysis of the prices and production goals of CAP directly or indirectly involves the following variables: prices of agricultural and industrial products, indices of the prices of cereals, meat and milk, indices of the prices of agricultural products in France and Great Britain, agricultural GDP and EU GDP. The analysis results come down to 2 factors. The first – “internal factor” is a set of indicators homogenous in terms of greater impact of CAP on their trends (the prices of agricultural products in France, income from agriculture, the prices of agricultural products in EU and Great Britain and the milk price index). The second - “external factor” is made of general and global indicators (cereals prices, EU GDP and prices in industry). Factor analysis has confirmed high correlation of goals: production growth, productivity and technological progress in agriculture as well as “reasonable” prices in agriculture. The analysis shows high correlation between agricultural and industrial products, indices of the prices of cereals, meat and milk, indices of the prices of agricultural products in France and Great Britain, agriculture GDP and EU GDP (classified into internal and external factors). In general, the results of the factor analysis justify the existence of CAP, while the EU budget support brings wider social benefits.

Suggested Citation

  • Popović Goran & Erić Ognjen & Bjelić Jelena, 2020. "Factor Analysis of Prices and Agricultural Production in the European Union," Economics, Sciendo, vol. 8(1), pages 73-81, June.
    • Handle: RePEc:vrs:econom:v:8:y:2020:i:1:p:73-81:n:1
    DOI: 10.2478/eoik-2020-0001
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    References listed on IDEAS

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    More about this item

    Keywords

    European Union; Common Agricultural Policy; agricultural products; agricultural prices; factor analysis;
    All these keywords.

    JEL classification:

    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis

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