Agricultural Economics in the EU

Tractor sprays the wheat

Agricultural economics is when agricultural producers apply economic methods to optimize decisions. It is a sector of economics that became popular at the beginning of the twentieth century when it dealt specifically with land usage, with a focus on maximizing crop yield at the same time as maintaining a good soil ecosystem. It has since expanded to become a much broader topic, overlapping with conventional economics so that it now influences agricultural environment and resources; risk and uncertainty; food and consumer economics; prices and incomes; market structures; trade and development; and technical change and human capital.

Farming issues

Agricultural economics includes research into the returns in agricultural production, as well as farmers' costs and supply responses. Economic theory applied to farm-level decisions can deal with risk and decision-making to develop crop insurance policies and helps farmers in developing countries to make choices about what technology to adapt to produce enough food for the growing population, taking into consideration global climate challenges such as water scarcity.

EU’s Common Agricultural Policy

Europe's agricultural sector is highly developed, with improvements in Central Europe's agriculture helped by the accession of Central European states to the EU which is helped by the Common Agricultural Policy (CAP). The CAP provides farmers with a minimum price for their products and subsidizes their exports, which increases competitiveness for their products at home and abroad. The CAP policy is controversial in global markets as it hampers free trade worldwide since protectionism sparks protectionism from other countries and creates trade blocs and in some cases, trade wars. Because of this protectionist policy, some people consider the CAP a violation of the concept of a fair-trade environment.

The CAP makes agricultural products from developing countries uncompetitive in Europe, which is an important export market from these countries, and in domestic markets too since European agricultural products are able to be sold on the market in developing countries because of the European agricultural subsidies. The CAP is also controversial because it causes overproduction and because it makes up 40 percent of the EU budget.

EU’s Common Fisheries Policy

The Common Fisheries Policy also has a number of rules, mostly in relation to quotas, which aim to protect the seas from overfishing. This has not been successful in all areas; for example, the number of codes has been falling in the North Sea which means there are shortages in both Canada and the United Kingdom. Strict fishing rules are the main reason why Norway and Iceland have stayed out of the European Union, and therefore the Common Fisheries Policy. Price guarantees and subsidizes work in the same way as agricultural subsidies work. The common fisheries policy has led to Bluefin tuna being under threat of extinction in the near future, with a knock-on effect of threatening their traditional, natural predators.

Agricultural Economics in the EU to 2030

The major EU agricultural commodity markets include arable crops, biofuels, meat, dairy products, olive oil, wine, peaches and nectarines, apples and tomatoes. The EU report “Agricultural outlook for markets and income 2018-2030” looks to the future of the EU’s agricultural economics.

In the EU, consumers are expected to become more demanding about the source, quality, and safety of food, particularly in relation to its impact on the environment and climate change. For producers, these new demands can often mean higher production costs, though also providing an opportunity to differentiate products and adding value at the same time as reducing negative climatic and environmental impacts.

It is expected that over the next decade, growth in local and organic food production will be significant to meet demand across the globe, not just in the EU. This creates both opportunities and pressures for EU imports and exports, which differs per product and target market.

EU cereals

EU cereal prices and production growth are expected to be stable, with a growth in the production of soya beans in domestic markets, since current production and costs are low. With the rise in the number of people moving to a diet less focused on animal proteins, other protein-rich crops will benefit from strong demand and a favorable policy environment. It is also projected that EU sugar consumption will decline, meaning the EU will continue to be a net sugar exporter.

EU livestock sector

The EU livestock sector is expected to continue to have steady growth in demand, with feed prices remaining at the same reasonable level. This could mean that the EU dairy sector may expand as demand increases not just in domestic markets, but more significantly in global markets, even though the price of dairy products can be volatile. Meat consumption is expected to stabilize before falling slightly. Poultry consumption and exports are expected to continue rising, though beef and pig-meat are expected to decrease.

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