Introduction and Overview

From the earliest days of agricultural protection in Western Europe, the central objective of government policy has been to maintain farm prices on the domestic market above the level set by the price of imports. For many decades, the simple import tariff was the main protective instrument employed. The variable import levy — a sophisticated variant of the tariff — was the cornerstone of the protective commodity regimes established by the Common Agricultural Policy (CAP) in the 1960s. A threshold price was set in relation to an internal ‘target’ price and a variable levy equal to the difference between the threshold price and the lower world price was imposed on imports. Exports, not very important at that time, benefited from a variable export subsidy (restitution) equal to the difference between the market price in the Community and the selling price on the world market. Intervention buying put a floor to the market, at the intervention price. The system proved to be remarkably resilient for many years but mainly budgetary pressures eventually led to reductions in real support prices and to limits being placed on the guarantees. The central problem was that aggregate supply, influenced by autonomous technological innovation and maintained by high support prices, grew rapidly and faster than consumption, whose growth rate was limited by a low income elasticity and low population growth.