This is determined by the officials and is influenced by several factors (world prices, amount of excess supply, expected trends) and is generally calculated as the difference between the EU intervention price (P2) and the world price (Pw). Fig.1 CAP product prices


The “green money”

The various agricultural support prices were fixed by the Council in units of account. For each Member country, there was a “green rate” at which the support prices were translated into national prices. Green rates are needed for administrative convenience, the problem coming from the volatile bilateral exchange rates. This implies that if a member country devalues/revalues its currency, its farm prices expressed in terms of the national currency would rise/fall.
The “monetary compensatory amounts” (MCA) is the system of border taxes and subsidies to compensate for changes in relative prices of agricultural products across member countries from devaluations/revaluations.
But since the Euro became the single currency for almost all Member States, green rates have not been needed any more. But it’s still important for the European countries that not use the single currency.

Financing the CAP

The Common Agricultural Policy (CAP) is funded by an EU central fund called the European Agricultural Guidance and Guarantee Fund or EAGGF. When the CAP was first introduced it was expected that the revenues collected from extra import duties imposed on non-CAP members would be sufficient to fund the EAGGF. However a rapid rise in agricultural output has led to a reduction in EC imports and therefore to a reduction in receipts and therefore revenues from imports. The cost of the CAP has increased far beyond expectation and of the EU’s $72 billion budget 48% was required solely to fund the CAP whilst agricultural imports make up a deficit of just 2.4%. The Common Agricultural Policy is a very expensive form of protection; more expensive than was ever initially envisaged. The high cost of the CAP has led to member countries being required to make a contribution to the EAGGF and so in effect it is the members themselves that are funding the CAP through their own contributions to the EAGGF.


GAINS AND LOSSES

Positive aspects

The CAP succeeded in reaching its initial goals: it encouraged both production and productivity, stabilized the markets, secured supplies and protected farmers from fluctuations in world markets.
Indeed, the production really grew due to the genetic progress, the improvements of the farming and management methods, and the assurance of outlets at profitable prices. The CAP has been an important instrument for national and regional land use development.