The Disappearing Budget Constraint on EU Agricultural Policy

JEL Classification F13

Alan Matthews

Department of Economics, Trinity College, Dublin 2, Ireland


Concern over budgetary costs has been the traditional driving force behind changes to the EU's Common Agricultural Policy. While the recent MacSharry reform of this policy was more related to external pressures arising from the need to reach an agreement on agriculture in the GATT Uruguay Round, many expect the budgetary constraint to re-emerge towards the end of this decade, particularly in the light of the impending accession of a number of Central and Eastern European countries (CEECs). This paper argues that it is unlikely that there will be any budgetary need to further reform Europe's agricultural policy to accommodate the CEECs. Using a simple forecasting model of the FEOGA Guarantee budget, the paper demonstrates that, under a range of plausible assumptions for the key variables affecting the resources available for agricultural expenditure and the amount of that expenditure, a significant positive margin will emerge between the agricultural guideline and the cost of EU agricultural policy by the beginning of the next decade. While the budget constraint may disappear, however, both external and internal factors such as concern about agriculture's impact on the environment will remain as pressures for further CAP reform.