Environmental and Economic Effects of a Fall in Cereal Prices in the EU Internal Market: the Case of Denmark

Reform of the EuropeanCommon Agricultural Policy (the CAP) willreduce cereal prices in the Internal Marketwhile simultaneously increasing direct supportto farmers (Agenda 2000). This paper examinesthe possible effects of liberalisation of theCAP by modelling the effects of a 10 per centreduction in cereal prices combined withcompensation to farmers. We applied anintegrated modelling system suitable forestimating both the economic and environmentalconsequences of agricultural and environmentalpolicy measures and calculated the effects of a10 per cent fall in cereal prices on nitrogenloading of the Danish marine waters, on privateconsumption, GDP, the balance of payments, andemployment. The results indicate that pricereductions do not have significant effects onnitrogen loading relative to the 50 per centreduction target, since a 10 per cent reductionin cereal prices only leads to a 2.4 per centreduction in loading. Copyright Kluwer Academic Publishers 2001agricultural policy, environmental economics, environmental effects, integrated modelling, nitrogen loading,