Economic vs. Non-Economic Determinants of Diversification and Specialisation in Agriculture

2. Policy Background

The Common Agricultural Policy (CAP) corresponds to a system of policy programmes and subsidies that the European Union applies to the agricultural sector. It has its roots in the Treaty of Rome signed in 1957 and its objective was to offer special treatment to the agricultural sector given the relative poverty of a large proportion of farmers in comparison with other sectors. In particular, this treatment included/aimed at the adoption of a long term policy of development based on the establishment of protective and administered prices. The general argument used to support the use of these prices was that food security had to be ensured by providing a minimum acceptable income to farmers in order to avoid the scarcity of food suffered by Europe during the Second World War (Gardner, 1996).

Throughout the years the CAP has been criticised for different reasons. Firstly, the associated costs of traditional policy programmes included in the CAP were very high (Gardner, 2001). Secondly, the application of these policies produced strong distorting effects on the economy (Marsh & Swanney, 1980). Finally, environmentalists argued that the application of CAP policies negatively affected the environment (Brassley, 1997).