European community grain and meat policies: effects on international prices, trade and welfare

The extent to which policies in the EC reduce the level and increase the instability of international prices of grain and meat is estimated using a dynamic, stochastic, multicommodity simulation model. The results suggest that the EC is responsible for most of the instability in world grain and meat prices that is caused by policies of developed market economies. It is also responsible for more than half of the international price-depressing effects of those countries' policies. The trade and welfare effects of EC protection for the EC and for other major trading countries are also estimated from the model. Should real grain and meat prices within the EC be maintained through the 1980s, the results suggest that export surpluses will continue to grow. This scenario is compared with one in which real EC prices fall by 2% annually through the 1980s. In the latter case, the problem of export surpluses and hence the EC's budgetary problem are substantially reduced. The budgetary problem could also disappear for wheat if a producer levy is applied, but in such a case exports may still increase. Also estimated are the effects of retaliation by the United States in the form of a subsidy on its wheat exports. The adverse effects of such retaliation are much less for the EC than for the United States and are likely to be insufficient to force EC policy reform. Moreover, in per capita terms Canada and Australia are affected much more than the EC