DANISH AGRICULTURE AND THE COMMON AGRICULTURAL POLICY OF THE EC

In spite of the net transfer of resources to Denmark under the mechanisms of the Common Agricultural Policy (CAP), it is indicated that due to the inherent inefficient resource allocation of this policy there is no welfare improvement as compared to a global liberalization. For a number of products the reform of the CAP leads to price reductions well beyond the requirements of a GATT-agreement. However, the factor-tied compensations reduce the potential improvements in resource allocation. By maintaining an intervention price for grain slightly above the international price, the EC has created a double cumbersome support system demanding huge administrative ressources. Furthermore, retaining the intervention system may in relation to GATT give problems with respect to subsidized exports.