Abolishing green rates : the effects on cereals, sugar, and oilseeds in West Germany

In 1987 the European Community began the ambitious task of forging a single market for goods and services across the national borders of its member states by 1992. Substantive reform of the Community's Common Agricultural Policy - necessary for the full integration of existing markets - has not yet been accomplished and has proven difficult to achieve. Creating a truly"common"agricultural policy in the European Community requires, at a minimum, eliminating price differences resulting from country- and commodity-specific exchange rates, known as"green rates."The authors discuss the various policy instruments that complicate the effects of these policy-determined price differences on crop production and the demand for inputs. They present a model that estimates the cross-commodity biases created by multiple policy instruments and that quantifies the effects of removing green-rate differentials in what was West Germany. The effects of price changes on domestic production are statistically significant in the model, although quantitatively small. This result suggests that eliminating green rates would lead primarily to a decline in farm income and a devaluation of fixed agricultural assets - which complicates the difficult task of attaining reform.