Agricultural Policy in the European Union and the USA Dissertation

Abstract

Aim

The thesis focuses on the agricultural policies of the European Union (EU) and the United States (US) in an effort to show how the respective policies differ or are similar and to what extent. The position of this thesis on the EU and the US, particularly in the light of the political implications on policy-making in the Agricultural Sectors is that both the EU’s Common Agricultural Policy (CAP) and the US’ Farm Bills need some internal adjustments to adapt them to meet the demands of the 21^st century’s agricultural environment.

Methodology

To come up with a working conclusion of the policy under study, the thesis uses the existing body of literature as the methodology to outline the CAP and the US’ Farm Bills. This thesis compares policies in the European Union (EU) and the United States (US).

Justification of comparing US and EU

The two economic and political unions are nearly each other’s most loyal clients and rivals simultaneously. Therefore, they form a good combination for this study because of their obvious incompatibilities or differences in policies. The inference is derived from the understanding of how these different and rival blocs manage to trade so well with each other.

Findings

Both the EU and the US are guilty of using state intervention to protect farmers’ interests in the light of international competition. State intervention takes various forms including service provision, which features the provision of certain ‘public’ goods and services primarily by the state. An example of such a public good is the reserved agricultural products such as those used to produce bio fuels. Intervention can also take the form of regulation whereby a state or government establishes and / or develops property rights to set up policies that discourage free market policies. The third variety of intervention takes the form of taxation, which usually targets investors who seek ventures aimed at compensating bearers or who produce negative externalities. There are both theoretical and practical controversies concerning state intervention (particularly that which counter ‘free market’ regulatory policies) as the answer to managing market failure.

Conclusion

The research findings are best explained by the moderate theory of public choice, which posits that the cost of state intervention far supersedes the costs created by market failure. Market failure is the primary justification for state intervention. In other words, each time federal or state governments interfere with the market they cite market failure as the reason for such usually – more – costly society measures applied to regulate the market. Proponents of the public choice theory posit that state intervention measures mostly end up draining taxpayers’ resources for the benefit of a few special interest groups, culminating in political instability, which in turn breeds socio-economic malfunctioning.

Introduction

Context and Background to the Study

This study hinges on two critical concepts. They include the General Agreement on Tariff and Trade (GATT) agreement and the rounds of negotiations that eventually culminated in the creation of the World Trade Organisation (WTO), which institutionalised world trade and provided a forum for renegotiations concerning multilateral trade agreements among member states (Tancu, 2010, p. 12). The second concept is the political and socio-economic environment that has formed the watershed in the development of both the European Union and United States’ agricultural policies. When the WWII left the world struggling to recover both politically and socio-economically, the members of the international fraternity determined the need for an international overseer of world trade (Tancu, 2010, p. 10).

Initially, this role was taken up by the GATT agreement, but as the political and socio-economic context that had advised the initial structure of GATT evolved, so did the agreement in a round of negotiations. Of particular relevance to this thesis is the Uruguay Round of agreements held in 1994. This was because it marked the unification of agricultural policy and the formation of the WTO in 1995 (Tancu, 2010, p. 21). The agreements on agriculture had the theme of reduced tariffs and non-tariff barriers to trade as well as state interference in the agricultural market, which had led to the failure of the GATT agreement as a regulatory instrument.

The primary cause of this failure of GATT was the permissiveness of the instrument in terms of lax subsidy provisions due to contracting states’ customised policies that catered for their national interests. In allowing this lack of uniformity, GATT opened a Pandora’s Box for the respective states to institutionalise unsustainable policies. This led to discord and the agricultural sectors of most contracting partners suffered greatly, save for the European Union (EU) and the United States (US) (Tancu, 2010, p. 33). Subsequently, over the past two decades, more variables have come into play in the agricultural policy section such as sustainability of the environment and the use of bio fuels. These being new developments, it is imperative that the EU and the US agricultural policies be reviewed to study how they respectively handle matters in their jurisdictions and by so doing introduce these insights into the public domain for all other interested parties to review and consider for adoption.

Research Aims and Questions

This study seeks to analyse and draw comparisons between the distinct characteristics of agricultural policies in the European Union and in the United States of America. These two provide many opportunities for exploration concerning agricultural policies among the developed nations primarily because standing together, the EU and the US make up for 60 percent of government-imposed agricultural-sector controls among the developed nations throughout the world (Bernstein et al, 2011, p. 67). However, when explored separately, these two territories have very distinct characteristics, which distinction forms the foundational premise of this dissertation, in that, how is it possible for the two opposites to simultaneously, although separately perform so well in the world in terms of policy reporting and adherence.

Is it that each union’s policy (EU or US’ policies) is an acceptably applicable policy alternative or is the success of the respective jurisdictions’ policies dependent on their coexistence. After answering this question, it becomes easier to determine the relationship between the EU and US agricultural policies and the reason for policy success at both individual and partner levels. Among the differences that set apart the US and the EU are their currencies, whereby Europeans use the Euro while Americans use the Dollar. The rate of exchange of the Dollar against the Euro fluctuates and it is therefore difficult to predict their relationship except within a wide range. Consequently, tracking commodities or infrastructure costs could be impeded by exchange rate fluctuations. This reduces the predictability of balance of payment measures taken by the respective governments and administration to ensure equitable distribution of resources across the board (Blandford et al, 2011).

The second matter that requires special consideration is the respective budgetary constraints that accost each respective bloc. Budgetary stringencies are a poignant matter in decision formulation by policymakers in any jurisdiction. If the funding that has accumulated or been set aside for specific use by the agricultural sector falls short of the stakeholders’ expectations or need, this deficiency will reflect in the quality of the outcomes of the policies (Blandford, & Orden 2011, p. 99).

In this analysis, the term European Union or EU will be used in general to refer to the member states of the European Union convention, including Romania, Bulgaria, and Croatia, which are the latest additions to the EU28. The United States, on the other hand, will refer to the federal sanctity of the United States of America as opposed to the expected distinction between various states, except in instances where such specificity is deemed necessary.

When reviewing any agricultural sector’s policy status, whether for purposes of scouring for faults or for constructive improvement reasons, it is critical to know what methodology is preferred by the policymakers at hand in order to distinguish preference. In most instances, policy makers will go one of two ways, either to favour rural or local economic development, or to prefer product or commodity development or promotion, which is often enhanced by factoring in farmers’ income and providing for a flexible safety net to cover the same (Baumol & Oates 1988, p. 213). Consequently, irrespective of the motivation or circumstances surrounding any policymaking, these two options are the traditional resort points for policy makers in the EU and in the US.

Finally, the average plot size for a farm in the United States is 418 acres compared with the smaller average of 22 hectares in the European Union. This parameter gives an initial understanding of the value of output experienced by each union, specifically 214.76 billion Euros for the United States and 304 billion Euros of the European Union (Blandford et al, 2011, p. 4). Similarities between the EU and US agricultural policies are minimal and they include the orientation towards a free market for agricultural products that is similar to other industries’ commodities and an inclination towards more sustainable agricultural practices.

The following questions shall form the guiding principles for the research conducted in this dissertation.

1. What is the primary composition of the EU and the US agricultural policies in terms of strengths and weaknesses; and
2. How effective are the respective policies based on their comparison in the light of the objectives that guided their formulation?

Research Methods

This research project is aimed at reaching a solution for international traders in the agricultural sector based on the mechanisms that have been tried and tested as evidenced by the harmonious relations between the United States and the European Union. To achieve this goal, the thesis looks at the latter as a bloc of nations rather than picking on particular members for comparative purposes. The research will majorly be conducted via literature review, which means that the methodology is qualitative although quantitative research will be applied in the analysis of data culminating in mixed research. The theoretical background of this research is discussed in subsequent section. Notably, the research gravitates around policy considerations as opposed to any other variable as being the most likely cause of this mutuality between the United States and the European Union.

The published literature research concerning the agricultural policy sector is immense. However, in this dissertation the aim is simply to compare and contrast the agricultural policies and their effectiveness of the United States and the European Union. Consequently, that will form the bulk of the literature review. Additionally, the research will extend to theoretical considerations concerning policy formulation and sustenance. It will also review data on the various methodologies that are applicable in the analysis of collected data as well as the formation of conclusions.

The research was primarily conducted through the collection and analysis of documented research. As a research methodology, review of documentation is particularly popular when investigating the genesis and evolution of a concept. In this dissertation, the primary agenda was the comparison of agricultural sector policies of the United States and the European Union. This required the researcher to delve deep into the annals of history to trace the roots that establish the foundation of the respective policies of both the European Union and the United States. Subsequently, the researcher could then trace a path through history spanning the evolution of the policies up to the twenty first century (Timothy 2007).

This required a thorough review of voluminous literature to sift out irrelevances and remain with the most appropriate data on this topic. Additionally, as the research developed, the researcher found out new sub topics that were complimentary to the main topic, for instance bio fuels policies, and incorporated them into the dissertation. One of the advantages of review of documentation or secondary research is that the data is already existent and thus chances of biased findings are greatly reduced as the researcher compares a large number of findings for authentication purposes. When conducting interviews and other surveys for data collection, respondents’ responses can never be free of bias and so an individual researcher’s findings would be inherently flawed. When reviewing documentation from other research, the level of bias is minimised and the accuracy of the documentation is greater than in the former scenario.

However, this method of research has its own shortcomings and one of them is the occasional irrelevance of data collected. In the present dissertation, the researcher began with an initial 300 allegedly relevant articles but in the end, only 85 were specifically applicable in the study. This meant that there was a lot of time and other resources wasted in reading through the 215 articles that were not used in the dissertation. Another shortcoming is the possibility of incompleteness of the data in the research. Since this dissertation was on comparisons between the EU and US policies, most of the available data dated back to 2012. Only six articles were done in 2013. Even among these, none had been done after March. Consequently, the researcher had to update most of these research findings as statistics have changed over the past half year. The result was a comprehensive presentation of the research design, methodology, process and results.

This dissertation is primarily based on the findings of a literature review and, since in the field of agricultural policy the databank is very extensive, comprehensive and precise analysis of the information acquired. The procedure for data collection was very elaborate. The researcher went into the World Wide Web and keyed in the terms, “AGRICULTURAL POLICIES IN THE UNITED STATES AND IN THE EUROPEAN UNION.” This yielded 144,000,000 results. Therefore, the next action was to open through the first 300 PDF documents available to scan their content and gauge their relevance. At this point, it became apparent that most of the data available was either superficial or inaccurate.

For example, some sources had only half-page content, and specifically the abstract, meaning that the study could not rely on it in deriving the required content of this paper. Other sources addressed narrowly the required content since their major goal was not the one suggested by the entered terms. This caused the researcher to look into other more reliable sources, namely EBCOHOST and EMERALD. Eventually, there were 150 relevant documents found and so the study began. Carefully to follow the outline stipulated from the outset, the researcher conducted a thorough review of the available research taking care to make comprehensive notes on the information collected about both US and the EU agricultural policies. The study considered theoretical information that forms the background during policy consideration and the political element in the formulation of agricultural policy. This culminated in a manuscript of 80 pages, which was then compiled and typed out.

The analysis of the results was by simple comparison of the information collected between the United States and the European Union. This yielded a close correlation in the evolution of agricultural policies between the two unions while also indicating distinctive differences that will appear in the findings, with a further discussion in the results section. Finally, based on the analysis of the information collected, the researcher draws conclusions concerning the nature and distinctions of agricultural policies in both blocs.

Outline and Justification of research methods

Secondary research

Secondary research is that body of research findings, results, discussions and analysis that has already been collected in previous studies related to the current topic under review by the researcher. In this dissertation, the primary methodology in application was the secondary analysis of qualitative data, which refers to the use of existing research results to answer research questions that differ from those which were addressed in the referential research (Long-Sutehall, Sque, & Addington-Hall 2010, p. 341). This type of research has primarily been used in social and health studies to expose sensitive data, as well as in policy review studies to trace the genesis and evolution of policies. It was the preferred mode of study in the current dissertation because, first, it is both inexpensive and timesaving as compared to a full-blown field research that requires extensive budgets to accommodate data collection and travel expenses. This is especially significant when considered from the point of view of short deadlines for under and post graduate students’ dissertations. Secondly, it qualifies to be an avenue that offers prospects of creating a new perspective, therefore, giving weight to already existing spheres of knowledge. Finally, the available published research findings on EU and US agricultural policies are many and are more than adequate for the purposes of writing this thesis.

Comparative Method

The matter of agricultural policy considerations in the United States and the European Union has significant implications and denotations to the international players in the agricultural sector. As such, comparison as a modality of enhancing understanding is indispensable (Mills et al., 2006, p. 622). The main justification for this method of study is the pursuit of similarities and variance between social entities and the reason why one may be doing this can vary. However, in this dissertation, the researcher’s purpose for seeking out similarities and variances between the EU and the US agricultural policies was driven by a need to understand and compare the status of their respective agricultural policies.

It is relevant to point this out because, as noted above, the objective of the study is to compare the agricultural policies of the United States and the European Union. Subsequently, one of the determinants of policy success shall be the effectiveness of the policy in the respective jurisdiction either EU or US based on the universally acknowledged elements of agricultural prowess. With this in mind, it will be necessary to conduct a brief survey of the several relevant indicative variables, such as the political climate in both the European Union and the United States, particularly with regard to succession of office and the change of policy (Commission of the European Communities (CEC) 1991). Now, it is noteworthy that the researcher postulates that the European Union is far better placed to enact and implement policies more effectively than the United States, whose governance keeps changing with each election term.

The researcher presumes that the Farm Bill is a wholesome policy as far as the intentions of the policy makers at the time of its creation are concerned, as is the CAP. A second assumption held by the researcher is that whichever of the two policies that has so far yielded optimum results in as far as the achievement of the desired goals intended by the policymakers is superior to the rival regulation. This means that one of the considerations in this dissertation’s application of a measuring gauge to determine the efficiency of the respective agricultural policies is the primary objective outlined by the policy makers during the creation of the policy. However, the researcher also incorporates the success enjoyed by either bloc as per the universal principles of agricultural prowess. The latter gauge will be applied by providing a comprehensive view of ideal agricultural conditions and the requisite policies for the establishment of such a condition.

In the light of this comparison, a thorough analysis of the symbiosis of these two agricultural systems will reveal possible solutions to some of the problems that afflict other trading partners as far as agriculture is concerned. The analysis will thereby grant justification to this research, which is aimed at discovering a solution for international trading partners that are currently impeded from furthering healthy trade due to barriers and other obstacles that make trading across borders unappealing. Additionally, such an analysis will point out the various weaknesses in both the US and the EU policies and conclude with a suggestion of possible solutions that would be useful and effective in elevating the standard of policy making across the board.

United States Agricultural Policy

The origin of the United States’ policy concerning agriculture was during the Great Depression of the late 1930s. At that time, close to 20 percent of Americans were rural dwellers subsisting on agriculture for a living. This explains why the original objective of the policy was to support commodity prices and rural incomes. Since those early days, the United States and the European Union have been trading partners. Having learnt from the Great Depression, and participating only towards the end in the WWII, the United States was better equipped to deal with the food shortages that plagued the post war world and she exported her produce throughout the globe. The European countries were some of her biggest destinations especially in the late 1940s and early 1950s (U.S. Department of Agriculture, Economic Research Service 2001, p. 1). However, soon enough, the European Union and the majority of the world pieced together their internal affairs aided by technological advancements and government support for their agricultural sectors, mostly taking the form of price regulations.

Consequently, in the 1960s, the United States found herself lacking several prospective buyers of her produce and this culminated in the accumulation of stocks in the United States, which in turn affected her economy as the prices decreased due to surplus (Dorward et al. 2004, p. 614). The US farm policy changed reactively to incorporate supply management. Some of the measures that were taken to manage the excessive supplies included the institution of food aid or donation programs both internally and abroad, and monumental acreage planting restrictions. The other aspect is demographic in nature and is demonstrated by the average farm sizes.. In the US, 7.3million farms are used for economic exploitation as opposed to less than 2.2 million farms in the EU (Blandford et al, 2011, p. 3). Additionally, farming in the US is more strictly regulated with restrictions dictating planting and location. For instance, farmers in the EU can readily diversify their products by changing their crops and livestock to accommodate fruit and flowers.

In the1970s, there was a global economic and commodity price crisis. Strategies were put in place to solve this by hiking the prices of commodities in a bid to settle farmers’ discontent (Swinbank, & Josling 2012, p. 12). Noting that the United States had put in place supply management measures, at this stage of history, she did not have enough in store for her own consumption and so she had to source from abroad (Heather, & Muller 2006, para. 1). There was a global reduction in grains and oilseed stocks, which yielded a sharp price hike in global prices of commodities and made agricultural support by governments or states a necessity. This market failure required to be addressed (Heniff 2010, p. 1).

The effectiveness of any state intervention measures heavily relies upon the status of the political environment of such a government because it forms the background to which policymakers rely while creating regulatory policies. To explain this concept further, policy-makers under duress note that good policies formed by a good democratic government are an inadequate public good not enjoyed by most citizens. The cause of this inadequacy is the ignorance of the majority of voters concerning their rights and obligations, as well as the level of acumen they should require of their elected representatives. Additionally, the effectiveness of any formulated policy is further curtailed by the duration of policy makers’ terms, which public choice theorists posit are too short to effect the formulation and implementation of any effective policy (Barnard, Whittaker, Westenbarger, & Ahearn 1997, p. 1644).

Since the policy only lives as long as the term of the instituting policy makers, and new legislators upon taking office often immediately overhaul or amend the policy, regulations do not have the chance to become effective. When policy-making becomes politically based, the respective sectors of the economy initially targeted by such policies are bound to suffer. However, the researcher also warns of the danger of making this assumption despite the frequent government changes in the United States. Some policies such as those governing agriculture do not automatically change with each successive government because some administrations may be more politically ethical relative to others, hence maintaining the budding policies to allow then grow to a healthy legislation.

This can be illustrated by the Obama Administration’s failure to review the Farm Bills while in office. The third reason why the cost of the government’s failures surpass those associated with market failures according to public choice theorists, is that special interest groups in society specifically lobby for interests that are only beneficial to them. Among the major theoretical contributors to the concept of government failure are authors like George Stigler, who wrote about what harm private interests can do to regulations; Olson, who points out the coasters in collective action; and Ann Krueger who wrote on the Compensation – seeking tendencies depicted by most bureaucrats (Koning 2006, p. 1).

The United States reacted by instituting commodity price targets that were directly proportional to the cost of production. This meant that they had a self-inflating effect on the income generated to farmers according to the costs invested in production (Fan, & Rao, 2003, p. 466). In return, this facilitated the institution of support outlays and concomitant agricultural output free from the variations of market conditions. Consequently, the 1980s were a repeat of history with the accumulation of stocks due to generous price and income supports (CRS 2007, p. 1). It was alarming that most of these stocks were state-owned. The result was the significant reduction in commodity prices and the increase of budgetary pressures for reform, which quadrupled financial subsidies.

In 1985, the US Farm Bill (99-198), was enacted. Now, it is important to note that the nature of this farm bill, known in full as the Omnibus Farm Bill is transitory. This means that every five to seven years, legislators are required to comprehensively review the status of farming in the United States, then proceed to make amendments to the farm bill, which continues to subsist across various administrations (Blandford et al, 2011). The US farm bills are an elaborate instrument that so far have managed to sustain her agricultural sector through various tough situations, but only barely. Presently, the debates racking the country over the issue of ethanol regulations, safety net provisions, direct payment equitability, and other farm bill related matters are clear evidence of the precarious nature of this policy. Additionally, the fact that the policy is still a bill in transition (i.e. not a law) gives it a quality of temporariness, which attracts a lax attitude in adherence to its dictates. Added to the fact that the government of the United States is democratic, meaning that each succession may mean a radical change to the existing policies, the farm bill is at best a very volatile regulation that requires a semblance of permanence, which quality it can emulate from the EU CAP policy.

In 1985, the US Farm Bill provided for a reduction of the Commodity Credit Corporation’s (CCC) price support loan rates; the inactivation through freezing of income support target prices, and program yields that were used in the calculation of acreage payments. It also provided for special marketing plans for rice and cotton to come out of the traditional mentality of ‘public’ goods, which were being primarily owned and controlled by the government. The 1990 Farm Bill (P. L. 101-624) was responsible for reducing the amount of land that had been initially allocated for the income support payments (Blandford, Josling, & Bureau, September 2011, p. 10). The 1996 Farm Bill (P. L. 104 – 127) was the first in the history of farm bills that was actually aimed at the orientation of the agricultural sector towards a more liberalised and less government-controlled sector. This was in line with the 1994 Uruguay Round Agreement on Agriculture (Blandford, & Josling 2011, p. 45).

That agreement had been signed by most of the member states of the World Health Organisation (WTO) and they pledged to reduce and eventually completely eradicate government or state control on agriculture. In fact, the result was that the member states pledged to reduce domestic supports, the use of export subsidies, and to improve the access to their markets through tariff reduction and lax border control measures (U.S. Department of Agriculture, Economic Research Service 2001). Therefore, the 1996 Farm Bill was the embodiment of the liberalisation of the agriculture policy spirit. It provided for the elimination of acreage reduction programs, (ARPS); planting restrictions, which had required farmers in specific regions or with specific plot sizes to plant specifically state mandated crops (Dennis, 2007). It also eliminated those grain reserves that were under the ownership of individual farmers. Supported by the state, it replaced target –plan deficiency payment plans with direct payments. Finally, it incorporated other major crops into the special marketing loan provisions that were initially only available for rice and cotton production since the 1985 farm bill.

In 2000, at the onset of the Doha Round of Negotiations launched at Qatar by the ministerial segments of the WTO, the objectives of the participating states were clearly outlined as follows:

• Orchestrating substantial improvements in market access
• Gradual reduction of export subsidies that would eventually culminate in the overall phasing out of the same by the member states
• Substantially reducing domestic agricultural support that had the effect of distorting trade

Subsequently, negotiations ensued and the respective countries began to work together to formulate workable policies. The respective participants in the WTO negotiations set deadlines and attended various conferences concluding in the formulation of more than 45 different resolutions. Each was challenged to come up with proposals for creating a better-unified agricultural policy. However, as is the nature of such negotiations, it was often difficult to come to a consensus and so most of the resolutions passed were scarcely adopted. The deadlines were delayed and it became prudent for the respective member states to come up with individual frameworks that would sustain trade amongst them in the meantime as a placeholder until the WTO came up with a unified framework.

The United States and the European Union were to work together to come up with a framework. It is interesting that up to date, this framework is has not been completed. Presently, the United States farm groups are at loggerheads with the parties from the EU with whom they are supposed to be negotiating. This is because despite the passage of several decades since the initial European Union-triggered imbalance of the global agricultural sector by intervention policies that caused it to nearly implode, the EU still seems to have a level of disregard for the sustainability of its domestic policies viewed against the backdrop of other market players.

This is evident in the EU imposed ban on imports from the United States and other trading partners under the guise of compliance with a protectionism principle that is aimed at consumer protection. This principle has empowered the European Union to bar any imports from the US or other sources on the basis of them being genetically modified products or hormone-induced. The US and the other marginalized trade partners feel that the EU is just acting to reduce their market share in Europe in a bid to protect domestic farmers. This is influencing negatively on negotiations for pro-market access agreements. The solution lies with the conformity of the EU to global friendly agricultural policies, because that would ensure equitable formulation of domestic policies within the EU, which would be reflected in the overall agricultural policy directing the EU, which is the CAP. However, the WTO lacks a mechanism to enforce any of its resolutions except perhaps for declaring sanctions against the deviant state and this may not be possible or prudent in the EU’s case because it is a key player in the balance of world trade.

Thus, it is evident that, over the last two decades, the United States has moved from the initial trend in policy making, which was primarily aimed at promoting trade distorting practices, especially commodity price and income support, towards an orientation to less distorting support of non-commodities. These include rural development, which includes infrastructure, community projects and business development and even bio energy, and farmland conservation or “agri-environmental” programs (Bureau, & Louis-Pascal2009). Consequently, the level of US domestic support for such liberalised ventures had shot up to 88 percent by 2008.

Theoretical Perspective

It is apparent that agriculture has an economic aspect and this is a major consideration in policy formation. Apart from being the bane of a bloc’s existence in terms of feeding the citizens, it provides an avenue for trade to export products to partners that do not produce similar agricultural goods. Consequently, it is imperative to discuss agricultural policy, at least to a minimal level, in relation to the economic implications and justifications of the same, and hence the inclusion of economic theory in the thesis.

Market failure occurs when the procedures applied during production or resource allocation yield an inadequate reflection of costs or benefits in the prices of goods and services and consequently to less – than – effective macroeconomic decision making by economic agents or imperfect competition in case of sub-optimal market structures (Blandford, & Josling 2011, p. 45). Manifestations of market failures include public goods, which are immune to market price mechanisms because they are non – rival or non – exclusive. Non – rivalry refers to the impossibility of depleting the supply for some consumers simply by increasing the supply to others and so, in a way, they are inexhaustible by natural free market mechanisms. Non – exclusivity refers to the fact that the private sector has no mandate to ban the consumption of such goods or services thus changing consumption patterns (Caldwell 2004, p. 23). Another example of a market failure is the persistence of entry barriers, which maintain some industries at infancy by restricting the entrance of competition due to factors such as the requirement for high investment (DFID 2004, p. 790).

In case of such market failures, the state, following the doctrine of paternalism will intervene by applying certain economic tools to regulate the market and attempt to return it to normalcy. The use of ‘attempt’ in the previous sentence is calculated because in fact, it is impossible for the government to return the market to exactly the same position as it was prior to the failure. In the majority of circumstances, the economy will have shrunk slightly as manifested by the increase in the number of unemployed persons or the level of interest rates (American Farmland Trust 2002). Additionally, during the process of intervention, prices usually take a leap up or down, depending on the type of shock that has caused the market failure. Although this change may just be temporary (where ‘temporary’ does not necessarily mean that they will resume in a short while but that eventually they will resume), the result is never the same as the starting point. Therefore, market failures are a primary justification for state intervention in a bid to restore economic efficiency and correct markets’ functionality.

The formulation of policies aimed at the regulation of agricultural practices at both state and federal levels is a representation of state intervention in market regulation. State intervention is largely frowned upon in most economic forums because the overall view held by the majority of market analysts is that state intervention does more harm than good in a market that is apparently in need of regulation. Of course, those that hold this view are the major proponents of the ‘laisez faire’ doctrine or free markets and they have a lining of Marxism lacing their arguments (International Food & Agricultural Trade Policy Council 2011). It is important to note here that the agricultural sector is not like most traditional markets wherein state intervention can so easily be dispensed with because the adverse effects of the opposite of state intervention are more poignantly felt by all in the society due to the nature of the sector and the overall dependency on the same (Dennis 2007). Currently in the United States, the agricultural debate is centred on the matter of the ‘safety net’. The definition of this term is controversial but the Obama Administration has pointed out that it has to do with the contingency allowance set apart for use upon the occurrence of bad weather or poor prices.

These two adversities are likely to create problems for farmers; therefore, the government has set aside a fund to ensure that in case of their occurrence, farmers are cushioned against the harsh effects of the same. Farmers are speculating that the safety net will come in handy when there are unforeseen price reductions for commodities leading to a replication of the Great Depression. This would mean that the safety net is likely to be in application for longer than the aforementioned temporary or transitory period. A justification for such an argument is the recent price reductions that rocked the nation between 1998 and 2002. As observed above, the United States has put in place measures to conserve and preserve working lands, which were initially arable land used for crop production. The way they go about achieving this conservation objective is by reforestation, conversion into wetlands and grasslands depending on the initial geography and demographical characteristics of the land. Consequently, lack of state intervention does not have a very strong case when it comes to the agricultural sector.

However, it is also noteworthy that despite this perceived ‘necessity’ of state intervention in the regulation of the agricultural sector to keep it from sinking, much to the detriment of the society as a whole, a more pressing need to carefully consider the procedural manner of or, better yet, the alternative avenues to state intervention. One such consideration yields ‘parastatal -ism’ as an option to state monopoly concerning traditionally labelled ‘public’ goods and services (American Farmland Trust 2002). The United States’ policy environment is highly dependent upon the political climate of the country. The United States is proving to be more reactive than proactive in terms of policy enforcement especially in the light of terrorist development.

Concerning the United States Farm Bills, constant reviewing is an indication of political influence that may be detrimental to the integrity of the Bills. With each successive government, it is unwise to keep changing the Bill because it would render the growth and development of policies less likely as it is advisable to allow adequate time for a policy to adjust to the political environment and begin to take its intended effect. This position reveals why the Obama administration is commendable in terms of having extended the validity of the Farm Bill that had been reformed in 2008 and was meant to expire by early June 2011, to September 2013 (Blandford, Josling, & Bureau 2011, p. 23). This extension was allowed by the House of Representatives and the Senate in order to allow time to carry on with debates regarding the validity of the Bill.

On the United States’ farm bills, two matters stand out, the first being the safety net program. Currently, there is a lot of stipulation concerning how the safety net funds will be disbursed. Various groups have diverse opinions concerning the way the matter can be approached. Some farmers posit that the safety net programme ought to cover both the ramifications of bad weather and sudden price reductions. The effect of such an interpretation is that the fund would have a very wide array of possible situations that would justify its disbursement and defeat its original purpose. To avoid this trap, the researcher posits that the fund be divided into two endowments. One should deal with disaster relief, and this would include all climate-related eventualities. The other part of the fund would deal with economic market failures.. However, in so doing, the fund should be formulated such that it is well protected from any eventualities such as price reductions, and farmers should be required to contribute to it regularly.

Secondly, the farmers themselves need to improve their financial situation by entering into systemic business plans that are aimed at ensuring that they are covered in case of such eventualities. Such plans should be very comprehensive and an example of the components needed to ensure their applicability is the provision of insurance programs and pension schemes among other services. The purpose of the 1994 World Trade Organisation Agreement on Agriculture was to abolish state intervention into the agricultural market and in effect making the agricultural sector similar to other industries in terms of regulation. However, these agreements worked to reduce market intervention but they left the agricultural system handicapped to handle its own affairs since it had become accustomed to spoon-feeding by the state (Bernstein et al, 2011, p. 72. To counter this, it is prudent to ensure that farmers become self-reliant as a sector. To achieve this, some of the possible means applicable include the institution of individual farm income stabilisation accounts (FISA) (Schnepf, & Hanrahan 2011, p. 66). These would be instrumental in the creation of parastatals so that there is a level of cooperation between the state and individual farmers.

However, it is unsafe to assume that all the United States’ policies are reactive but for those on emerging matters (Josling 2008, p.40). On that note, the new research that is available throughout the world on the functioning of market systems suggests a new way of doing things. In this new research, the issue of macroeconomic coordination processes that are an economic phenomenon suggests that perhaps the way to deal with crises caused by market failure is not to intervene as the government or state, through traditional means of either financial or monetary policies (inherently faulted). Rather, the best way is to look into other more sustainable means of correction (Heather, & Muller 2006, Para. 2).

One such alternative is the use of parastatals, which are both government-owned and individually owned. In the agricultural sector, there are those products and services that the government will usually endeavour to regulate such as the meat and pyrethrum production. Such produce thus become ‘public goods’ in light of the state control vested in the same and when this happens, the rest of the population is in fact discouraged from producing them. Consequently, the state maintains some sort of monopoly over these and this is an unproductive type of state control. Failure under such a system is inevitable because the primary producer is the state and corruption will soon tear such a system to the ground (Swinbank, & Josling 2012, p. 23). A good example of such an eventuality is China, which is currently battling corruption within her links and gaining success at a discouragingly slow momentum due to how deeply entrenched the vice is. To avoid such a fate as China, it would be prudent to diversify production and encourage external investors from the private sectors as well as NGOs.

In the United States, the government has already started branching out of the traditional public goods and services mentality and has embraced the idea of parastatals in quite a number of sectors including energy production and supply as well as transportation (European Commision 2011). However, concerning agriculture, this monopoly is still apparent in the favourable treatment of some produce than others, such as particular cereals or livestock brands. Whereas it would be very imprudent to require that all the sub sectors within the agricultural sector comply receive equal funding or support considering the difference in productivity and produce across the board, it wise to consider just which sectors require how much support with regard to the updated research on productivity and sustainability.

For instance, the agricultural practices that are known to be productive of high levels of renewable energies are a worthy investment for support by the government or state because this would be doubly profitable (National Academy of Sciences 2009). That comprises of a majority of the cereal producers and other related fields such as livestock production, which is productive of biogas or biomass. The United states, agricultural policy programmes affect various segments or targets including the producers, the consumers, and the agricultural sector in general. It does this by proffering direct and indirect support (Schoonover, & Muller 2006). For instance, there is a federal agricultural support policy that provides commodity and price support, agricultural trade and marketing, and consumer food assistance, which is in the form of welfare programs such as food stamps. The congressional Budget office postulates a likely amount of $ 8.3 billion to be spent each year during the life of the 2008 Farm Bill (FY2008 – FY2012) and $6.9 billion per annum between FY2011 andFY2015 (Krissoff et al, 1996, p. 738). However, it is noteworthy that the amounts anticipated for the period between 2011 and2015 are likely to be higher because of the increment of the quotas that are eligible for welfare programs as well as due to the adverse economic conditions besetting the nation.

Concerning the conservation, rural development, and nutritional field as specific sectors targeted in the policy reform since 2008, it is noteworthy that since the institution of the 1985 bill, the United States has been attempting to encourage farmers to adopt and implement agricultural policies that are sustainable to the environment (Kydd, & Dorward 2001, p. 471). The USDA is the key driver for sustainability and it emphasises on land retirement and easement programs. This refers to the practice of converting crop production lands or formerly arable lands into forest reserves, grasslands or wetlands depending on the original type of geography before agriculture began to be practiced on the land. Such lands are referred to as ‘working lands’. Additionally, in the 2008 farm bill, there are provisions for bio energy production. This means that the ethanol production that has both provided for and threatened the United states economy is provided for, although the integrity of these provisions are largely a matter of controversial debates among various interest groups (Yano et al, 2011).

Concerning the welfare program, known commonly as stamps, Title IV of the 2008 Farm Bill (110 – 246) provides for several domestic food and nutrition and commodity distribution programs such as the Supplemental Nutritional Assistance Program, SNAP that was formally known as food stamps. The estimated costs for the support of these programs by the CBO is $ 37.8 billion per annum although as noted above, these figures are likely to change due to economic conditions and increased eligibility (OECD 2012). Finally, the rural development, conservation and nutrition programs are not as dynamic as the commodity price and income support programs because they seem rather harmless or benign or simply meritorious depending on what point of view one has, either social or political. For this reason, they rarely change as often as the more dynamic commodity price and income support programs.

The Farming Lobby in the United States

The history of state support for agriculture goes many years back. It is only understandable that it would be difficult to disrupt it at once. This would cause more harm than good. In light of the new sustainability developments with matters such as bio fuels and animal rights coming up, it is becoming apparent that the state alone is not the only determinant in the shape and content of respective agricultural policies. With the advent of various favours being extended by the government to farmers of particular state-approved products, the public has voiced its rejection of this tendency repeatedly because the common citizens are forces to sustain the cost of such favours either through taxation or through hiked prices. As has been indicated above, such state intervention is detrimental to the overall economy of the nation and gives root to instability on many fronts, including the political and socio-economic. Moreover, it has an adverse effect on agriculture as it makes it appear as an unsustainable entity in comparison to the other sectors of the economy that do not require similar spoon feeding tactics by the state. However, the most convincing argument so far is the fact that the economic statistics just do not add up anymore. Current economic trends such as budgetary constraints render such favouritism imprudent, unsustainable and impossible.

European Union Agricultural Policy

It is important to note that with the European Union, agricultural policy has been developed at both national and supranational levels. That is to say that the final EU policy for agriculture, which is in the Common Agricultural Policy post 2013 is in consideration for both the regional and the respective national regulation of agriculture for respective member states (Commission of the European Communities (CEC) 1991). Considering that the composite members of the European Union features various legally, economically, socially, and politically distinct states, it is safe to indicate that the harmony depicted by the final regulatory legislation over agriculture is truly stunning. The EU policy on agriculture is a sect oral public policy that looks into issues that fall outside the jurisdiction or reach or ambit of free market mechanisms. However, it was not always peachy and it still needs further attention but the Common Agricultural Policy, (hereinafter referred to as CAP) has its roots in the early 1960s (Josling 2008, p. 43). Immediately after the WWII, the impact of the lack of a stable agricultural sector was especially apparent in the starvation that accosted Europe. These extreme conditions triggered the pursuit of a lasting solution in the agricultural policy sector.

Whereas the agricultural sector was still a significant force in the economy as evidenced by its great capacity to employ, the brunt of starvation during the war was still a fresh wound and the respective legislators felt the need to institutionalise agricultural policies for future safety. This was the genesis of CAP. CAP receives its backing from the Treaty of Rome’s development of common market systems, particularly for the six member states of the European Economic Community (EEC), namely Belgium, France, Republic of Federal Germany, Lisbon, Italy and Netherlands (European Commission 2010). The primary objectives of this common market included economic and social integration as well as promotional of sustainable economic development among others. In 1993, the EEC split into the European Union and the European Community. 1992 marked the genesis of the change or reform associated with agriculture in the European Union. The trend began to shift from a general pattern of supporting cereal and key livestock farming via state intervention through state intervention. State intervention would usually take the form of price regulation and export subsidies (Duffy et al, 1994, p. 322).

However, with the policy shift, the European Union began to focus on direct payments to farmers that were made independent and irrespective of the current produce or output. The effect of this inclination by the European Union has been to appease the farmers in terms of stability of income. The way this worse is better understood if reviewed with the background of pre-1992. As indicated in the history of the formation of EU policies. The journey of policy review has been rather lengthy and it began with a unified approach by the founders of the EEC to integrate trade and economies in the region. At this level, through the Treaty of Rome, which as will be indicated later became incorporated into the Treaty of Lisbon, which in turn granted perpetual validity to the Common Agricultural Policy, had a two-faced effect on the international arena and the regional bloc that defined the EEC (Ellis, & Biggs 2001, p. 440).

The first of these impacts was the increased economic productivity of the region. This was primarily accomplished by means of price regulations, which were engendered to ensure that the exports from the European Union were more expensive. In other words, a price hike was orchestrated (Ferrer & Kaditi 2010). Additionally, the support for agriculture increased suddenly especially in light of policy regulations that were favourable to agricultural success. Consequently, farmers, who were initially marginalised and their dominance in the European Union threatened despite the clearly noted importance of agriculture began to enjoy good incomes that further boosted their morale and production as well as productivity increased.

However, the reaction at the international arena was not so positive. Key trading partners of the European Union began to drop out and find substitutes for products that were initially primarily of a European Union origin. Those that remained in trade reduced their share capacity in terms of investments in the European Union and the European Union became some sort of international Trade pariah. This would have been bearable if only it had not extended to other sectors of trade that were non – agricultural. However, with the unprecedented results being recorded by the agricultural sector, other industries and sectors in the EU had also followed suit and increased their prices overnight for no apparent reason (European Commision 2011). The result was a minor international inflation and as those go, the joy enjoyed by the EU was short lived. As partners continued to pull out, affronted rivals and competitors began to pay in like by hiking the prices of raw products. Consequently, the cost of production in the European Union shot up (International Food & Agricultural Trade Policy Council 2011). This meant that the only available solutions for the European Union were to cut down on their prices and mend fences with their trading partners, or maintain the high prices and risk destabilising the global economy as other suppliers and producers throughout the world hiked their own prices to cope with the inflation.

Being the paragon of ethic that it is, the EU buckled and lowered her prices across the Board. This gave a semblance of cooperation and the rest of her trading partners followed suit as well. The international players had been appeased. However, the farmers would soon become discontent yet again especially in light of the freshly enjoyed economic profits of the inflation that were now cut down and as these factors work, the new level was far below the previous levels of input. This created a dangerous situation in the European Union where agriculture hangs in the balance and at a high risk of being sabotaged by irate farmers. Clearly, something needed to put in place (Grindle, & Thomas 1991, p. 78). Thus, in 1992, the reforms on CAP were a welcome relief.

For instance, CAP has governed the European Union since the late 1960s whereas the United States has been under the Farm Bills that officially came into being in 1985. Secondly, the European Union additionally relies on legislation from the Common External Tariff whereas the United States is singly loyal to its Farm Bills statute, with minimal references to related environmental legislations that are clearly not part of the farm bills. With the EU, the CAP forms the definitive policy on agriculture in Europe and any other related policies are incorporated as an addendum to the same, case in point being the 1992 MacSharry Reforms and the Agenda 2000 and 2003 Reforms (Schnepf, & Hanrahan 2011 p. 3).

Considering the European Union’s inability to balance between the international arena and her domestic arena, the new reforms were both genius and costly. However, they are a clear indication that there can indeed be an alternative to state intervention as the perceived only option when faced with market failure. The near-collapse of the European Union’s economy is also a clear indication that state intervention is not necessarily as peachy as one may easily assume.

One of the key changes that heralded this new era of policy reform was the substitution of market intervention to regulate prices by a support for direct domestic payments and export subsidies. What this means is that whereas initially the agricultural arena of the EEC was in the form of a market system that regularly suffered state intervention, it now became different in that the farmers would be paid directly by the government regardless of the season’s output or of the farmers’ yield (Krissoff et al, 1996, p. 38). This meant that the effects of global changes in price that were often detrimental to farmers’ income and morale were now cushioned by the various governments as these would swallow up any rapids in the global economy and provide the farers with a regular dependable income that was reasonably fair. This appeased the farmers as the reliability of the state was reinstated and so agriculture picked up again. Concerning the wisdom behind this kind of arrangement in terms of the governments’ capacity to absorb the losses, that aspect was managed by the fact that the global agricultural market was a free market that would straighten out any market failures over time and without need for intervention, usually towards economic growth. Consequently, this provided some sort of an umbrella cover for the respective governments concerning long-term stability.

Historically, the European Union has recorded greater agricultural support in the form of government intervention into agricultural markets relative to the United States (Ackrill, & Kay 2004, p. 2). Of course it is relevant to define agricultural support and so with regard to the rural development and nutritional assistance, the World Trade Organisation, WTO indicates in its notification data that between 2006 and 2007, the European union’s governmental support totalled $119.7 billon per annum while the United states’ recorded a support of $ 82.6 billion. This translates into a ratio of 1.4: 1 (Reichert, 2006, p.16). Concerning market-distorting genres of direct farm subsidies, the European Union recorded $ 36.9 billion worth of support while the United States recorded a paltry $10.1 billion worth of support. Although both unions had smaller levels of support, the European Union’s support still outshined the United States’ at a ratio of 3.6: 1 (Mullarkey et al, 2001, p. 87).

Finally, concerning non-monetary support, which is where policies orient in the form of trade barriers and border measures, the OECD reports that in 2009, the European Union was the greatest reporter of government support in a survey conducted to gauge the levels of agricultural support among developed countries (OECD 2012). The European Union accounted for close to half of its governmental support, at 48 percent, which amounts to $ 120.8 billion. On the other hand, the United States only reported accounting for 12 percent, which translates to $ 30.66 in outlays (Reichert 2006). The European Union and the United states are the world’s largest stockholders although this has not always been the case (Barnard et al., 1997, p. 1644). Consequently, they seem to have similar policies concerning the agricultural sector especially for commodity price and income supports, direct payments to farmers, the control of supplies, and border control.

The use of sustainable energy or renewable energy has been encouraged for a while now throughout the globe. However, recorded and institutionalised efforts to promote the use of renewable energy in the European Union date back to 1997. Prior to 1997, ethanol production was limited to the quantities generated as a by-product of agricultural practice. However, after 1997, the European Union has actively set out to set out the procedure and mandate for protocols to be followed by farmers and other industrial sectors for the promotion and sustenance of renewable energies (Thurston 2005). Close to the dawn of 2000 the European Union passed a mandate that required a replication up of the proportion of renewable fuels used in the home states from a cumulative six percent to another level within a decade. In 2003, the European Union Bio Fuels Directive came to birth and alongside this policy, the European Union Strategy for Bio Fuels

However, real change concerning Bio Fuels policy was earmarked by the introduction of the Climate Change Package, in 2009. This package comprised of a number of regulation suggestions including the Directive for Renewable Energy (RED) in 2009 (Potter 1998). RED is primarily responsible for the development of a regional (across the European Union bloc) obligatory target of 10 percent of transport energy coming from renewable sources by 2020 (European Commision 2011). This has been a very elaborate plan and respective member states are expected to comply or face sanctions from the ECJ for non-compliance. Most of the member states in a devolutionary bid have passed domestic legislation to ensure that these directives are complied with. For instance, in the United Kingdom, the domestic legislation in support for electricity energy suppliers requires the suppliers to source at least 10 percent of their total energy from renewable energy (IATP 2009). Failure to comply with this specific regulation culminates in the payment of a fine ‘pay out’ that is a percentage of the total revenue earned from the electricity (Dennis 2007). The sanction that is imposed is usually borne by the consumers and soon enough, discontent consumers will shift to ‘fairer’ electricity suppliers, thus causing a loss of market for the suppliers who fail to comply with the established energy requirements.

In France, a related tax is specifically levied on gasoline. The policy requires that gasoline suppliers mix it with a certain percentage of renewable energy before supply to make it more sustainable to the environment. This is because when gasoline is mixed with certain energy types, it combusts sustainably, breaking down into elements that do not pollute the environment (Keeney, & Muller 2006). Those that fail to comply with this regulation pay the price of taxation, which they would normally pass on to consumers, who would eventually shift their loyalty to more affordable, more sustainable suppliers. In the end, compliance is the more prudent option.

Moreover, RED makes provision for 20 percent of all energy fuels being sourced from renewable energy by 2020 (Ferrer, & Kaditi 2010). This goal would be a 12 percent increment from the eight percent level that was reported in 2009 as the amount of total renewable energy that is used in the EEC. These policies are directly linked to agriculture because the production of this energy is usually through agricultural practice with the renewable energies being a mere by-product of such processes. Consequently, in the policy enactment it would be imperative that the legislators provide incentives for the production of farm produce that is associated with renewable energy sources. However, with CAP, the policy makers have used the direct payments and export subsidies to increase the payment quotas of those farmers’ whose produce offers renewable energy as a by-products and so that is a viable alternative of an incentive.

Two points come across concerning bio fuels Policy. One is that it came up in the spirit of compliance to the Common Agricultural Policy objective of creating a sustainable environment (Keeney, & Muller 2006). The objectives are further outlined in the next portion of this chapter. However, it is worth noting that at its incorporation into the Treaty of Lisbon, the CAP objectives clearly included the sustainability of the environment. At the time, it was not so clear that the way to go about the fulfilment of this objective was through Bio Fuels, but with the lapse of time, Bio Fuels were preferable alternatives to non – renewable fuels. Thus, their support began (Swinbank & Josling 2012, p. 45). The second issue that comes up with that review is the fact that in this particular instance, the European Union is using taxation as a deterrent to prevent non – compliance.

With regard to market systems, and specifically common market systems such as the European Union, market failures are inevitable. As mentioned earlier in this paper, in the event of market failure, state intervention is usually viewed as the better option or rather the solution with the aim of ending up with a regulated or balanced market (Jean-Christophe, & Witzke 2010). However, as already discussed, state intervention is not without its own flaws. Flaws are numerous but the one that is by far the most destructive is the destabilisation of the economy following external intervention into free market systems. This destabilisation is usually the result of a cyclic perpetuity of market failures, which cyclic motions are caused by the impossibility of sustainability of the policy objectives (Bureau & Louis-Pascal 2009).

At the time of the formation of the Common Agricultural Policies, this incompatibility of clauses was one of the major concerns of the founders. The objectives of CAP at its formation included: the enhancement of sustainable economic development, economic cohesiveness, an improvement of the standard of living within the European Union and Improvement of the relations among member countries (Krueger 1990, p. 19). The Bio Fuels are in response to the fulfilment of the first objective. Chapter 93 of the Common Agricultural Policies Convention provides for objectives such as increased productivity, and secure availability of supplies. It also takes care of the provision of reasonable prices for food to ease consumers’ burden in light of the post – depression era; a stabilisation of the common markets, and the promotion or assurance of a higher, fairer, living standard (Blandford et al, 2011, p. 36).

The established principles that CAP was supposed to bring to success included market unification, which has been achieved commendably, priority of the community, which is the justification for the initial method of salvaging agriculture in the European Union, namely through price hikes without any regard to for other economic participants. Therefore, it is safe to say that this particular principle may have been done away with. In the very least, it may have been watered down or amended to include the ethical requirement of ‘clean hands’ (Orden et al, 2011, p. 17). The equitable principle of clean hands requires that whoever goes to a forum of adjudication for settlement of a dispute (the initiator) bear clean hands or that such a claimant ought not to have instigated the slight. This was not the case with the EU agricultural policy, which was the trigger of negative responses from other market participants. Subsequently, the EU did not have a viable claim for resolution.

Now that the agricultural sector has since been secured, what is the next step? To continue in the same line of action would continue to yield similar results as have been harvested for the past 40 years (U.S. Department of Agriculture, Economic Research Service 2000). It is the position of this paper that, the European Union’s CAP, without taking into consideration the facts surrounding the United States, is in need of in – house changes to adapt it to the global age as well as the agricultural demands of the billions of human beings populating the earth in the twenty first century. All other factors are constant; it would lead to hostility from other market participants. However, all other factors are not constant and it is interesting that while in their present dynamic state, the CAP seems to be surviving the socio-economic as well as political storms of the world.

Concerning the price hike saga, which, interestingly, was also in time for the joinder of the United Kingdom to the European Union in 1973, the EU did not have clean hands. This jeopardised future claims that the EU may have been required to make to protect the integrity and sustainability of its member’s economies. Consequently, the search for a different alternative to appease the farmers was definitely prudent in the bigger picture. The final principle envisaged in the CAP is financial solidarity and this has so far been achieved to the satisfaction of the policy makers’ vision (Thurston 2005).

Under scrutiny, the above objectives expose a specific vulnerability, which is incompatibility if they were to be followed up simultaneously. Take for instance the reasonable prices of goods and the stability of markets. It is not possible for one to achieve both of these noble goals simultaneously using the same tools, in this case, state intervention. If one regulates the prices at state level, there will be consequences, which will include the changes in the levels of interest rates as well as employment and this automatically destabilise the economy. The same for the regulation of market stability, this cannot be done without tampering with prices, usually adversely (Bureau, & Louis-Pascal 2009, p.30).

Consequently, and in light of these inherent incompatibilities of the proposed policy but still in consideration for the fact that it was expedient that a support system be established for the agricultural sector, the European Court of Justice, (ECJ) granted an advisory opinion on this state of affairs (Josling 2008, p. 41). The ECJ noted that despite the fact that it was necessary that legislation be uniform or inherently sustainable, there was a more pressing need for agricultural sector reform and so this made it possible for the CAP regulation to subsist despite its shortcomings (Wiggerthale 2005). However, since the incorporation of the Treaty of Rome and subsequent listing in the Treaty of Lisbon, the CAP has seen close to four decades, during which time it has fulfilled about 70 percent of its intended objectives. At this point, it is important to ask ourselves whether it is actually more prudent to go about fulfilling the objectives as it has for the past 40 years especially considering that the justification for procrastination of symmetry in the legal instrument was the need to secure the agricultural sector.

Currently, the problem that is being faced by the European Union with regard to policy considerations is the escalation of budgetary costs. The budgetary costs that are necessary for the sustenance of the proposed reforms make the proposed CAP incompatible with the established standards for sustainable policies. This is because the regional bloc currently lacks any conclusive means of making a substantial financial contribution for the implementation stage of new policies. As an organ, the European Union is toothless having no say concerning the members’ compliance, except for the charter. This makes it difficult to sustain any policies passed at EU level and hinges on the voluntary cooperation of members for the fulfilment of enacted policies for the EU (International Food & Agricultural Trade Policy Council 2011). On the members’ level, they counter this problem by transferring the budgetary costs to the consumers and taxpayers, who in return react by civil actions such as strikes’ boycotts, demonstrations or outright violence including vandalism to government property in the event of extreme measures. Such reactions are detrimental to the motivational base of the legislators who in their opinion, and rightfully so, these policies are supposed to be for the benefit of the public.

Consequently, the question is, “How does the EU solve the crisis that is ‘budgetary costs’?”. This issue is not a new phenomenon for the European Union. In fact, during the circa 1973 price hikes, the state intervention that had taken the form of authorising these price hikes was in reaction to the market failure that had resulted in escalated budgetary costs. Consequently, since this is a second occurrence in history, the answer should not be automatic state intervention. Instead, those involved should look into other possibilities of attaining market balance and so far, policy reform presents the most viable option

The public choice theorists’ position is that more often than not, government intervention leads to capitalism. This is a viable example of the possible turn out of events if state intervention is left to run rampant. Capitalism, with a hint of materialism postulates that in a society where a few people in power clutch onto the available resources, the rich will always get richer as the poor get poorer. This is true especially with regard to the European Union under which most of the members, with the exception of Germany and a few others are out rightly capitalistic (Ferrer & Kaditi 2010).

The effect of such a socio – political and economic background is that those in power, which forms the bulk of the policy makers, will always pass legislation that is favourable to them and those whose interests they hold dear. However, there is a distinction between the European Union and the United states with regard to the politics of the ruling government. The European Union has independent countries each with unique political make-ups as opposed to the United States whose independent states are more of provinces than countries with only one president, meaning that the political system across the borders is highly meshed and the level of assimilation is rather high.

Farming Lobby

The trend with the European Union’s farming lobby has taken an interesting turn over the past decade. There seems to be a private awareness among the members of the European Union of the lack of sustainability of the current CAP provisions concerning the preferential treatment of farmers and specific agricultural products. Since these parties foresee the inability of the CAP to support such intervention as has been the trend for the better part of the last century’s end, the CAP compositors are now initiating governments into provision of other favours to transition from farmers requiring CAP to provide protection for their products. An example is in the preferential treatment accorded to agriculture-based products as opposed to chemical based competitors.

The European Union continues in its self-preservation tactics that caused an imbalance in global agricultural markets back on the 1970s. This is evidences by their clinging onto protectionism as a justification for limiting imports from the United States and other places. The EU justifies its actions by citing its laws against importing any genetically modified products from the United States or any other country as well as its abhorrence for hormone-induced beef products.

This position is justifiable to the countries that form part of the European Union because most of them are adherents to animal rights legislation, which openly frowns upon some production practices. However, the actual intention of the European Union in restricting imports could be the need to protect local farmers and their products. This is especially because much as there animal rights legislations in the respective countries, among the members of the EU bloc, imports and exports are rarely limited on the same basis as they are when they originate from external sources.

Policy Comparison and Conclusion

Concerning policy considerations as far as the United States and the European Union are concerned, it is important to note that both jurisdictions are viewed as blocs for the purposes of this paper. The United States is one nation that comprises of a myriad of states, each with respective state governments. However, the United States government runs at the federal level to unify all these respective states under unilateral regulations. One of these regulations involves agriculture. On the other hand, the European Union consists of independent states that have come together specifically for economic integration, with the addendum of political and minimum social integration (Baumol, & Oates 1988). Consequently, this lack of foundational congruence during the formation of the European Union was a major factor for consideration when discussing the policy embraced by the EU concerning agriculture.

The European Union policy, Common Agricultural Policy (CAP) is similar in many ways to the United States, Farm Bills. First, both policies are entrenched and they have amended their clauses to conform to the requirements of the Uruguay Round Agricultural Agreement signed by WTO member states. Secondly, both policies are supportive of market liberalisation, and move away from state or government intervention tendencies (IATP, 2007). This is a reflection of a willingness to cooperate with the global environment in terms of shifting from the trend of market interference. In fact, the idea of the Uruguay Round Agricultural Agreement was to make the agricultural sector as similar as possible to the other industrial sectors. Looking into both the United States Policy and the European Union Policy, both blocs have embraced this idea. Evidence of this cooperation is in the inclination of both the United States and the European Union to eradicate commodity price and income support.

This attention has instead been shifted to the alternative non – commodity sectors of rural development, energy production, infrastructural development, conservation and nutrition, food aid, and horticulture among others (Ong’wen, & Wright 2007). However, there are poignant differences that distinguish the European Union policy from the United States’ policy and key among these is caused by the nature of the union. The European Union is a union of several member states, which came to birth as the European Economic Commission, EEC pursuant to the Treaty of Rome in 1958. On the onset, there were only six members but as of 2012, this membership had reached 35 (Monke, 2010, p. 29). It is noteworthy that each respective country signing up to the European Union does not change her political or legal institutions, but simply signs the charter agreeing to be bound by the European Union’s regulations, in return for the enjoyment of financial and political benefits that come from integration. This is not the case with the United States, which is one nation with many states. It has one president and so any conventions or treaties that are entered into by the president of the United States or any regulations or policies that are made at congress are binding to all the states (Manor 1999 , p. 32). Although each state may come up with policies that are complementary to the federal law, they cannot afford to remove themselves from the federal law, as this would be unconstitutional.

With the European Union, there is a respect for domestic legislations of member states except in cases of extreme non – conformity. In case of non-compliance, the only action that can be taken by the European Union is sanctioning the deviant member (CRS, 2007, p. 28). With this legal background mind, it is safe to point out that the nature of the United States’ farm bills is perpetual. In other words, it is an ever-changing bill that is revisited every five or so years to determine the best and most comprehensive way forward concerning the agricultural sector. This is similar to some level, to the CAP of the European Union as that is a law that forms part of the establishing convention of the European Union and thus it is unlikely to change completely and more likely to do so gradually.

However, in the United States, given the political background of the United States, the governmental structure keeps changing each term and the successive administration is free to undo the former administration’s work out of spite and to the detriment of the country’s economy and agricultural sector. An example is the Obama administration, which has since extended the life span of the 2008 Farm Bill to September 2013 whereas it had been intended to last until June of 2012 (Blandford et al, 2011, p. 33). In case the Obama administration had not been re-elected, the successive government may have gone either way in light of the current controversies concerning ethanol production and supply. The short term nature of succession is toxic to the development of long lasting and benefitting legislation and is one of the reasons why the United States’ agricultural sector is lagging behind the European Union’s agricultural sector despite the United States having more arable land and technological to propel agriculture.

The European Union’s CAP has been in place since 1905 as the principal course of action in governing the agricultural sector of Western Europe. However, it has attracted a lot of controversy both internally and externally due to its tendency to siphon all the financial reserves of the union thus raising questions on distribution and budgeting. External concerns have been raised due to the tendency of the EU agricultural policy to “protect her domestic markets from overseas competition as well as its tendency to cause overproduction” (Peterson et al. 2009, p. 4). However, the Common Agricultural Policy managed to subsist for more than three decades in its apparently flawed status and only in 1992 did the reforms on the policy take root. However, the product of the CAP reforms is a stunning specimen that would be unrecognisable to the initiators of the CAP legislation.

The United States’ Farm policies came into being close to eight decades ago as temporary solution providers to the crisis caused by the Great Depression and the Dust Bowl in the 1930s. Consequently, the foundational basis of US agricultural basis was price support for commodities that were categorised under ‘program’ crops. This was as opposed to ‘specialty crops’ which did not enjoy the same support from the government. Another form of support was governmental intervention into the agricultural markets of the day (Public Citizen 2006). These foundational principles of the US agricultural policy are still in existence up to date but for a bit of toning down and refinement. For instance, the price support still exists in part, with the major portion of it having been overthrown by direct payments. Although livestock production had not hitherto suffered excessive state intervention, the policy changes through the years updated this status through tariff reduction. Another change that has contributed to the aforementioned refinement is the abandonment of restrictions in production and state intervention into the agricultural markets (Purgał 2012, p. 23).

In the EU, direct payments were introduced post 1992, specifically in 1994 after the signing of the Uruguay Round Agricultural Agreements that required signatories to withdraw supports and minimise on state intervention into the agricultural markets. Another noteworthy factor regarding the CAP is the impartial allocation of direct disbursement. Whereas the CAP regulations allow individual nations a wide berth for flexibility in determining how they will adjust their systems to direct payments, there still exists a divide in the actual implementation of this policy. Some nations have responded by immediately cutting out the payments to the standards that they can comfortably accommodate such as Denmark whereas others are allowing a transitory adjustment, such as Germany (Richardson et al, 2008, p. 16). Both way, in the end, the payments will reduce in quantity to reflect the capacity of respective member states, and this will have achieved the much-desired equitability in distribution of direct payments. The past contention was the fact that the standard of payment was uniform across the European Union and this was irrespective of the type of crop (Orden et al, 2011, p. 67). However, by elevating the threshold required to be eligible and making payments in terms of per hectare arrangements fits the bill and is more equitable

With the maturity of the concept of environmental sustainability, the agricultural sector is increasingly being looked into for solutions to correct the damage done and prevent further damage to the biodiversity. Among the key policies being addressed on either side of the Atlantic is the introduction of bio fuel policies to work in tandem with traditional farm policies. In the United States, congress has mandated the integration of renewable and fossil fuels. The renewable in question is an alcohol, which is formed from corn. To facilitate the implementation of this policy, the government has put in place various incentives, including tax credits and protection of the domestic market from imports to encourage local ethanol production. Whereas this is a noble cause in terms of salvaging the environment, it is still subject to much criticism due to the implication it has on food stocks. Since the corn producers are receiving very attractive subsidies in producing corn for ethanol generation, this is likely to have an adverse effect on food prices (Sachs et al, 2007). They use of corn for feed stock in ethanol production jeopardises American consumers’ prices for food and the 2008 Farm Bill does not provide for correctional provisions for this phenomenon. The Bill, which was supposed to be reviewed and updated in June of 2012, was not thus reviewed and debates are still ongoing as to the best way forward after the Obama Administration postponed review for September 2013 (IATP 2009).

Bio Fuels policy is a part of the considerations when making agricultural policies now especially in the light of sustainability in agriculture, which is the theme of most developments. Taking the farm bills for instance, 97% of new changes (post 2008) have had to do with sustainable agriculture i.e. looking to incorporate bio fuel production in an effort to balance it with free markets and animal rights in lieu with ‘choosy’ potential trade partners e.g. EU and Asia. In Europe, the applicable bio fuel is biodiesel, which is manufactured from extracts of domestic oilseeds such as rapeseeds. Additionally, the European Union has various international tree plantations for specific production of tree oils such as palm oil. These bio fuel promotion projects are also mandatorily incorporated into law to ensure uniform application and just cause. The concern concerning food stocks and prices is less felt in Europe because the vegetable oils that are harnessed domestically are scarcely used by the indigenous population. However, the Maghreb and the Middle East withstand the worst of this shortage in vegetable oils, as the prices are exorbitant in their markets whereas initially the imports were reasonably priced (Thurston 2005).

The EU’s CAP has a provision known as the ‘Second Pillar’, which provides for the enabling clauses of using bio fuels (liquid fuels) and biomass to meet the established standard of 10 percent of the transportation fuel being from renewable sources (U.S. Department of Agriculture, Economic Research Service 2000, p. 2). A key matter in need of resolution is the method of accountability that should be adopted by the European Union in the accounting for ILUC or Indirect Land Use Changes. This is in reference to the determination of what bio fuel production is sustainable by the budget. The objective and measuring instrument is the amount of carbon emission that is associated with the production of such fuels.

The EU’s CAP was last reviewed in 2003. It is currently undergoing a review to change some of the primary provisions in order to update the CAP to the current global standards. A key issue under review is the budgetary provisions. It is noteworthy that the CAP budget has maintained stability over the past three decades. In 1991, it was 50 billion Euros and in 2007, it was still around the same amount (Wiggerthale 2005). This is interesting especially in view of the fact that there have since been (as from 1994), several reviews in terms of policies that have impacted on the budgetary allocations such as the shift from price support to direct payments, the reduction of export subsidies and the changes in public intervention.

The stability in costs is evidence of a sense of acceptance and success of the CAP policy within the European Union. However, it should not be taken at surface level because respective policies intrinsic to the CAP policy have changed dramatically. Statistically, the direct payments increased from 10 billion Euros to 36 billion Euros in 2008. The market intervention through price supported amounted to a paltry four billion Euros from the 1991 figure of 23 billion Euros. The export subsidies reduced to one billion Euros from 13 billion Euros and the rural development projects amounted to nine billion Euros from a minimum of five billion Euros in 1991 (Timothy, 2007). Therefore, it is apparent that this stabilisation in the budgetary allocations in fact conceals the actual changes that have occurs within the EU policy environment. This could be construed to imply that the initial allocators of the 50 billion Euros as the CAP budget were on track and had an idea of how to go about achieving the policy requirements of CAP. It is one the stronger arguments, besides the one on CAP acceptability for the success of the EU policy as far as agriculture is concerned.

However, with the present political climate, there is an apparent inclination by the policy makers to make a phenomenal change to the budgetary allocations of the EU that could easily topple the delicate equilibrium that has subsisted for more than three decades. This is in the form of devolution. The current legislators are posting that the respective member states of the European Union contribute towards the budgetary requirements to run national policies. This translates to a reduction for incentives available to support some programmes and projects.

The First Pillar projects presently receive 100% support from the European Union. This pillar deals with matters of direct payments, subsidies and price-related incomes (National Academy of Sciences 2009). However, the second pillar, which encompasses the provision of sustainable agricultural practices and services, is to be primarily sponsored by national governments. This section of CAP deals with the production and use of bio-ethanol and other biomasses and bio fuels. The reason that has been given for requiring state sponsorship is the fact that the national governments are the implementers of EU policies through adoption or ratification of agreements passed at EU level domestically. However, it is obvious that the effect of this arrangement will be the favouring of the programs and projects of the first pillar over those of the second pillar much to the detriment of the environment. Consequently, it is apparent that both the European Union’s CAP and the United States’ Farm Bills are in need of modification concerning the implications of using food stocks as feed stocks for renewable energy production.

A similarity between the European Union and the United States policy is in the regulation of bio fuels (USDA 2011). With the European Union, Bio Fuel regulation does form part of the CAP but at the second pillar level, which is secondary in priority to other agricultural sector concerns. With the US Farm Bills, the Bio Fuel regulation is not stipulated outright. Indeed, since the 1985 farm bill environmental sustainability has been of primary importance in the agricultural sector policy regulation. However, specific provisions regulating the specific mechanisms incorporated in the production and distribution of bio fuels does not exist in the CAP in its current format. Such information is contained in other environment related regulations. The same holds true for the United States’ farm bills. The 2008 Bill, which is yet to be reviewed and ratified by September 2013, does not contain elaborate bio fuels provisions.

This gap in policy formulation concerning the agricultural policy is detrimental in more than one ways. First off, it means that the respective states in the case of the US and the respective nations in terms of the EU have room to manoeuvre and get away with environmentally unsustainable policies (U.S. Farm Bill and the EU Common Agriculture Policy at Crossroads A Global Dialogue on U.S., Canadian and EU Agriculture policies 2007). This is because they have been given the mandate to incorporate sustainability policies for their respective governments but no standard has been established at a federal or bloc level to direct their respective adoptions. Moreover, whereas previously the environmental policies were the primary regulators of bio fuel production in both regions, the contribution of the agricultural sector can no longer be underestimated. The agricultural sector is responsible for the production of corn, which is used in the production of ethanol; it is also responsible for producing oilseeds that are used to produce biodiesel in the European Union (USDA , 2011, p. 14). Additionally, it is responsible for the production of mitigating products that can counter or reverse the mal effects of the GHG emissions already made and that continue to be made into the ecosystem. Consequently, it is becoming apparent that the agricultural sector needs to be a primary decision maker in the formulation of regulations related to biodiversity.

Consumers throughout the world, but especially in Europe and the United States are becoming more production-specific. They care about how the product came to be, meaning that their primary concern is the providence and / or the ethical requirements that guide and dictate production procedure and organizational conduct. Such concern is expressed in the form of a preference for organic food products or the overt concern about animal welfare (Mullarkey et al, 2001, p. 13). They are also concerned about the environmental implications of water usage, air and soil pollution and so farmers and legislators alike are under a lot of pressure to promote sustainability.

Consequently, in the United States, the nature of debating is shifting especially as concerns the negotiations and discussions between politicians and farmers. Whereas throughout history the main concern lodged by farmers has been the income that is incumbent from their production, of late, this has changed. Now farmers are complaining over the excessive supervision that is being conducted on their techniques and processes by agencies such as the United States Environmental Protection Agency, (EPA). Their cause of disagreement is that such a body is not event party to the implementation or formulation or implementation of agricultural sector policies yet they have strict codes of conduct that farmer are being required to comply with. Such complaints have met a deaf ear from the government because it has indeed become apparent that farmers’ techniques and methods require both supervision and direction from environmental experts. This is because they deal directly with the ecosystem and therein lays any possible avenue for the salvation of the environment and for agriculture’s contribution to the fight against global warming (U.S. Department of Agriculture, Economic Research Service, July 2000., p. 2).

An example of a justification for such strict oversight is the results of recent research conducted on the economic repercussions of the reduction in the population of bees, which play a vital role in pollination and other critical animals such as bats. Seed dispersal, is deteriorating due to near extinction of various critical players in the bio diversity. Another crucial factor in with regards to considerations for the agricultural policy environments is the climatic changes that are rocking the world. With the melting of the polar ice caps as a clear indication that all is not well in terms of climatic balance, it is necessary to prepare for all eventualities. The best way to guarantee preparation would be through the enactment of relevant and adequate agricultural policy. With this in mind, recent environmental policies have incorporated agricultural procedures and techniques in various provisions with the aim of reducing GHG emissions and mitigating any other sources’ emissions via agricultural sustainability. Although such measures are still at their budding stages, it is apparent that they will be instrumental in protecting the environment while simultaneously ensuring the running of sustainable agricultural programs throughout the bloc. Such measures would assist in the contribution that the agricultural sector is customised to make in the war against global warming.

They would also assist in the overthrowing of the fossil fuels monopoly by instituting renewable fuels as a viable alternative. This would be in appreciation of the worth of yield and woodland as carbon elements. The political environment of agricultural policies is influenced by the global prices of commodities. Over the past three decades, the trend has been negative concerning availing incentives for political reform geared towards better agricultural support. However, with the strong demands hailing from emerging countries and the deceleration of the growth of production by developing countries, it is possible that in the near future, the political arena throughout the globe will be fertile for the formulation of productive policies. Additionally, most of the farmers that had initially signed up their lands as working lands in the United States program that works on reforestation and restoration into grasslands and wetlands of sections that were formerly agricultural lands are looking to withdraw from these contracts.

This is because of the lucrative subsidies and other incentives that have been offered up by the government to encourage the production of ethanol from corn as a renewable fuel. More pressure is actually expected from this group of farmers especially if it is determined that ethanol can be produced from cellulosic by products (IATP 2009; Ferrer, & Kaditi 2010). This is because in such a case, the farmers will require their marginal lands to promote such production. Other factors that affect the policy environment concerning agriculture include price hikes, such as those experienced between 2007 and 2008 as well as in 2012. These acted as wake up calls and caused alarm over food security throughout the globe. In return, various policies have been considered and are ready for enactment to protect against possible results are less favourable for policy development.

Parastatals encourage ensure government checking. To elaborate that point, in the absence of such parastatals, the government is free to monopolise the agricultural sector by either restricting the production of particular products or by requiring the production of the same. Since the government is in power, there is nothing to hinder it from passing regulations to control the production of various crops or livestock. The policies governing the agricultural sectors in both the European Union and the United States have both similarities and differences. Fundamentally, the policies are similar in that both are aligned towards the abolishment of market intervention by the state or the EU regime. However, the means through which this end is achieved vary across the Atlantic. In the United States, price support still exists to a certain level although the government is working towards eliminating it, while in the European Union; price support has been completely eradicated with the exception of specific commodities, especially in dairy production.

Secondly, the CAP is more elaborate than the US Farm Bills in terms of making provisions for specific regulation of sub sectors. The bio fuel policies are a manifestation of this distinction as the European Union comes off as being better organised in the production of its bio fuels. Evidence of this phenomenon is found in the fact that Europe’s inhabitants are not suffering any food shortages due to the harnessing of vegetable oils for bio diesel and external parties such as Maghreb and the Middle East feel the effect. On the other hand, in the United States, corn production has become controversial, as there lacks an elaborate policy on how to separate food stocks from feed stocks (Bureau, & Louis-Pascal, 2009, p. 34). Consequently, food prices are shooting up as farmer priorities based on renewable energy incentives such as tax credits are shifting to feedstock production. This is s noble cause concerning sustainability but the folly is in the lack of regulatory measures to ensure food security.

As noted in various segments of this paper, the agricultural sectors in the United States and in the European Union are inherently different and they have unique malfunctioning points (Ferrer, & Kaditi 2010). The European Union’s agricultural sector is currently suffering from budgetary costs, as is the United States’ agricultural sector. However, both have differing causes for this malfunctioning and so both require different treatments.

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