EC common agricultural policy and the world trade in feed grain: a multi-region nonspatial price equilibrium analysis

Since the adoption of the Common Agricultural Policy in 1962, the members of the European Economic Community have protected their common borders against the importation of certain agricultural commodities. Heavy variable levies and high guaranteed producer prices have triggered rise in market prices followed by a rise in grain production in EC countries. Therefore, the number one grain importing region of the 1960s has transformed into a major grain exporting region of the 1980s. These developments led to many objections from the grain exporting countries, followed by bilateral and multilateral negotiations, with little if any success;The general concern of this study is the impact of alternative less protective EC feed grain policies, on the prices and quantities traded by the major trading partners in the world feed grain market. The feed grain market is chosen primarily because the EC has turned into a net exporter of feed grains, only in the mid-1980s. Besides, the wheat market with the longest standing problem of surplus production has been extensively covered by other studies;This study analyzes several scenarios, each of which adopts one of the following policies: nominal or real threshold prices are kept constant, the policy prices are gradually reduced, producers are subsidized while the import market is kept free, and, finally, the protection rates in feed grain and soybean markets are harmonized. The estimation period covers the years 1968-1982, while the policy impacts are simulated until 1989;In conclusion, the policy changes studied here are not suggested to cause a significant development in the imports of the importing regions. On the export side, the most extreme of the policy changes analyzed in the study appears to increase U.S. exports only by five percent, while only one of the other exporting countries' export increases by as much as 20 percent.