A recent policy brief attempts to estimate the benefits to the EU of eliminating the CAP. This assessment was conducted using recent (2007) data on the CAP in a general equilibrium framework, in order to capture the economy-wide effects of reallocating resources across the economy—one of the major sources of benefits to eliminating the CAP.

Eliminating the CAP is projected to improve the allocation of resources among the various sectors of the economy, and thus increases the EU’s production potential (its GDP) by nearly 40 billion euros. The economic welfare of the EU as measured by gross domestic public and private consumption and investment is projected to be nearly 18 billion euros larger without the CAP. The bulk of this aggregate effect would occur in the EU15.

The main results from this study call for the following remarks:

• given the structure of assistance and the structure of the farm and food sectors in the various parts of the EU, assistance is strongest for farm and food activities in the EU15—hence to the detriment of agriculture in the NMS. However, the phasing-in of direct payments in the NMS will change this, at the costs of maintaining a large, and in some parts inefficient, farm and food sector in the NMS.
• despite some ‘decoupling’, CAP assistance still biases production toward products and activities that benefit from strong assistance, either through direct payments or through border protection. This is to the detriment of other parts of the economy—not only manufacturing and services, but also forestry and non-supported farm and food activities (such as fruit and vegetable) which compete for land and do not benefit from assistance, as well as non-farm rural activities.
• the costs of misallocating resources within the EU because of the CAP was in the order of 38 billion euros in 2007.This was compensated in part by strong gains to the EU generated by the CAP policies that increased the price of its (non-agricultural) exports and decreased the price of its agricultural imports. These strong price changes contributed some € 20 billion to the EU—at the expense of other economies in the world, mostly developing or least developed economies which protect much less than the EU their farm sector.
• some parts of the farm sector (those non-supported) are likely to expand if direct payments are eliminated. For instance, this is probably the case for a wide range of the fruit and vegetable sector.
• last but not least, eliminating the CAP could lead to an elimination of other farm policies around the world such as the US Farm Bill. In such a case, eliminating the CAP should be credited with the additional benefit of increasing market access for EU farmers. The benefits of such a strategy were not assessed in this paper. But they are likely to be substantial, adding to the large efficiency gains measured here.

Related Working Papers of Interest

Costa, C., Osborne, M., Zhang, X.G., Boulanger, P. and Jomini, P. 2009, Modelling the Effects of the EU Common Agricultural Policy, Productivity Commission Staff Working Paper, Melbourne, October.

Jomini, P., Boulanger, P., Zhang, X., Costa C. and Osborne, M. 2009. The common agricultural policy and the French, EU and global economies. GEM Working Paper, October.