Abstract
THIS PAPER DISCUSSES in somewhat theoretical terms the probable primary effects of a change in the exchange rate of the currency of any country in the European Economic Community on the level of prices, production, and trade of agricultural commodities within the EEC, in the absence of official measures especially designed to prevent or mitigate such effects. 2 A distinction is drawn between de facto changes in the exchange rate that may arise when countries cease to observe the established limits around parity and de jure changes in the exchange rate when the official parity itself is altered. Discussion in the paper is further limited to cases where the currency of one or more of the EEC countries appreciates in terms of all other currencies. Such cases are of interest in view of the recent floating of several EEC currencies, resulting in an appreciation in relation to their official parity in terms of the common EEC unit of account.
THIS PAPER DISCUSSES in somewhat theoretical terms the probable primary effects of a change in the exchange rate of the currency of any country in the European Economic Community on the level of prices, production, and trade of agricultural commodities within the EEC, in the absence of official measures especially designed to prevent or mitigate such effects. 2 A distinction is drawn between de facto changes in the exchange rate that may arise when countries cease to observe the established limits around parity and de jure changes in the exchange rate when the official parity itself is altered. Discussion in the paper is further limited to cases where the currency of one or more of the EEC countries appreciates in terms of all other currencies. Such cases are of interest in view of the recent floating of several EEC currencies, resulting in an appreciation in relation to their official parity in terms of the common EEC unit of account.
The analysis in this paper is based on the concept of aggregate EEC demand and supply curves for a particular agricultural commodity. Demand is defined as the sum of demand from all EEC countries, including that of official intervention agencies. 3 Supply is defined as the sum of supply from all EEC farmers, plus imports from other countries outside the EEC. The summation which leads to determination of the aggregate EEC demand and supply curves requires that the demand and supply schedules of all individual EEC countries and of the rest of the world need to be expressed in terms of a common currency unit on the basis of market exchange rates. Therefore, it follows that a change in the exchange rate of any EEC currency (or of any currency in the rest of the world) will normally produce a shift in the aggregate EEC demand and supply curves, even though the demand and supply schedule of each individual country in terms of its own currency is assumed to remain unchanged. In due time, of course, a change in the exchange rate of any currency may produce changes in relative prices of competing and complementary goods and in the level and distribution of incomes and may thus eventually affect the position of each country’s own demand and supply curves for every agricultural commodity. These secondary effects of exchange rate changes are not considered in detail in this paper, but their probable importance in qualifying the conclusions of the analysis is assessed in general terms.
Aims and principles of the common agricultural policy
The principal short-term aims of the Common Agricultural Policy of the EEC are: (1) to integrate the national markets of the member countries into a single Community-wide market for each agricultural commodity; and (2) to ensure a satisfactory standard of living for the agricultural population in all EEC member countries. The first objective is achieved by the elimination of tariffs and other barriers to inter-Community trade of agricultural products. The second is attained partly by the imposition of levies on imports from nonmember countries to reduce competition from abroad. The calculation of the levies to be applied on imports from nonmember countries involves three steps for each agricultural commodity: (1) the EEC Council of Ministers determines a basic target or indicative price toward which the market price should tend; (2) the Council fixes a threshold price, or minimum duty-paid price at which imports from nonmember countries can enter the EEC, which is lower than the target price by the cost of transportation between the port of entry and the market centers; and (3) the EEC Commission calculates the import levy on a day-to-day basis as the difference between the threshold price and the world price for the commodity in question. When the world price falls, the levy is increased—and vice versa. The practical significance of these regulations is that imports from nonmember countries can only be offered in the EEC market centers at the relevant target price or above.
The reduction and even the complete elimination of competition from nonmember countries through the imposition of import levies is not sufficient, in itself, to ensure a satisfactory level of prices for agricultural products. For this reason, the support of farm incomes within the Community is supplemented by the determination by the EEC Council of a basic intervention price for each product, which is generally 5 to 10 per cent lower than the corresponding target price. If in the face of rising domestic supply or declining domestic demand, the market price shows a tendency to fall below the intervention price, competent agencies that have been established in all EEC member countries step into the market and absorb all the residual supply. 4
It can be said, then, that the effect of the Common Agricultural Policy of the EEC is to set a range for the market price. The target price determines the upper limit and the intervention price the lower limit of this range. A distinction is made in this paper in regard to the following cases:
Case A: Market price is equal to the target price. This occurs when the domestic supply of EEC countries falls short of their domestic demand or is just sufficient to meet it. Market prices cannot rise above target prices, since imports are brought in to supplement domestic supply.
Case B: Market price is equal to the intervention price. This occurs when the intervention price is sufficiently high to convert the EEC as a whole, though not necessarily each individual country, to a self-sufficient or even a surplus area.
Case C: Market price settles somewhere between the target and the intervention price.
An example of the demand and supply curves for each of the above cases is shown in Chart 1. Prices are measured along the vertical axis, while quantities are measured along the horizontal axis. Each point along the nonhorizontal section of the EEC demand curve (DD) represents the sum of the quantities “autonomously” demanded in each member country at the price corresponding to that point. At the level of the official intervention price (P0), this autonomous demand is superseded by the “demand” of the intervention agencies (which, in principle, is unlimited). Total EEC demand thus becomes perfectly elastic at that point. Similarly, each point along the nonhorizontal section of the supply curve (SS) shows the sum of the quantities that can be supplied by domestic producers in each member country at the price corresponding to that point. Beyond the level of the target price, the domestic EEC supply is supplemented by a potential supply from the rest of the world and this can be assumed to be perfectly elastic. It may be argued that, because of the importance in size of the Community, an increase in EEC demand for any agricultural commodity that cannot be met from domestic sources of supply would lead to a rise in the world price of that commodity. However, even if this is the case, it can be expected that such a rise in the world price will normally be compensated for by a reduction in the levy on imports into EEC countries from nonmember countries, so that the price paid by the EEC consumer will not change substantially.
The Determination of Prices of Agricultural Commodities in the EEC
Citation: IMF Staff Papers 1972, 002; 10.5089/9781451947373.024.A006
The Determination of Prices of Agricultural Commodities in the EEC
Citation: IMF Staff Papers 1972, 002; 10.5089/9781451947373.024.A006
The Determination of Prices of Agricultural Commodities in the EEC
Citation: IMF Staff Papers 1972, 002; 10.5089/9781451947373.024.A006
Effects of a de facto appreciation of any ecc currency on the market price
In the case of a de facto appreciation of any EEC currency, involving no change in official parities, adjustments in the market price may be mitigated or altogether prevented because intervention prices under the Common Agricultural Policy regulations are defined in terms of official rates of exchange.
Let us take Germany, for example, as an EEC country which appreciates its currency through a de facto revaluation of the deutsche mark. This implies a downward shift of the demand and supply curves of the other EEC member countries, because any given price in terms of other EEC currencies, as well as the quantity demanded or supplied in association with it, will correspond to a lower price in terms of the deutsche mark. This downward shift is proportional to the amount by which the deutsche mark appreciates in the exchange market. However, since the total EEC demand and supply schedules include Germany’s own demand and supply, which do not change in terms of deutsche mark, the shift in the nonhorizontal portions of the aggregate EEC demand and supply curves expressed in deutsche mark will be less than proportional to the appreciation of the deutsche mark. 5 Furthermore, the effective offer price of imports from nonmember countries will decline in proportion to the change in the exchange rate of the deutsche mark, because such imports can enter Germany through other EEC countries at a de facto lower price in terms of deutsche mark. Finally, the horizontal portion of the EEC demand curve will not shift at all, because the intervention price in Germany is related to the unchanged official parity vis-à-vis the EEC unit of account, rather than to the fluctuating market rate of exchange of the deutsche mark, and therefore does not change. Chart 2 shows the changes in EEC demand and supply conditions, expressed in terms of the deutsche mark, resulting from a de facto appreciation of the deutsche mark.
Effects of a De Facto Appreciation of the Deutsche Mark on Prices of Agricultural Commodities in Germany
Citation: IMF Staff Papers 1972, 002; 10.5089/9781451947373.024.A006
Effects of a De Facto Appreciation of the Deutsche Mark on Prices of Agricultural Commodities in Germany
Citation: IMF Staff Papers 1972, 002; 10.5089/9781451947373.024.A006
Effects of a De Facto Appreciation of the Deutsche Mark on Prices of Agricultural Commodities in Germany
Citation: IMF Staff Papers 1972, 002; 10.5089/9781451947373.024.A006
How does the appreciation of the deutsche mark affect another EEC member country, say France, which does not revalue its currency? The de facto appreciation of the deutsche mark implies an upward shift of the demand and supply curves of Germany because any given price in terms of deutsche mark (and the quantity demanded or supplied by Germany in association with it) will correspond to a higher price in terms of the French franc. This upward shift will be proportional to the change in the market rate of exchange of the deutsche mark, but since Germany’s own demand and supply curves account for only a part of the overall EEC demand and supply, the shift in terms of French francs will be less than proportional to the de facto appreciation of the deutsche mark. However, it should be noted that the horizontal portion of the EEC demand curve, representing the demand of the intervention agencies, will shift upward fully in proportion to the appreciation of the deutsche mark. While the price at which the French intervention agencies must step in to support the market does not change, French producers have the option of shipping their produce to Germany and selling it to the German intervention agencies at a de facto higher price in terms of French francs. Finally, the horizontal portion of the supply curve, representing the offer price of imports from non-member countries to France, does not change. The protection to French producers against competition from nonmember countries remains the same as in the original situation. Chart 3 shows the changes in EEC demand and supply curves expressed in French francs as a result of the appreciation of the deutsche mark.
Effects of a De Facto Appreciation of the Deutsche Mark on Prices of Agricultural Commodities in France
Citation: IMF Staff Papers 1972, 002; 10.5089/9781451947373.024.A006
Effects of a De Facto Appreciation of the Deutsche Mark on Prices of Agricultural Commodities in France
Citation: IMF Staff Papers 1972, 002; 10.5089/9781451947373.024.A006
Effects of a De Facto Appreciation of the Deutsche Mark on Prices of Agricultural Commodities in France
Citation: IMF Staff Papers 1972, 002; 10.5089/9781451947373.024.A006
As shown in the accompanying charts, the effect of the de facto revaluation of the deutsche mark on domestic market prices of agricultural commodities in the individual EEC countries depends on the level of these prices in the original situation. Prices will, in general, fall less in Germany and rise more in France the closer the original market price to the intervention price. Thus, for commodities falling under Case A, the price in Germany will fall in proportion to the effective revaluation of the deutsche mark and the price in France will remain unchanged. For commodities falling under Case B, the price in Germany will not change but the price in France will increase proportionately to the change in the exchange rate of the deutsche mark. Finally, for commodities falling under Case C, the price will fall in Germany and rise in France—but less than in proportion to the appreciation of the deutsche mark.
In no case can the price fall in Germany or rise in France by more than in proportion to the effective revaluation of the deutsche mark; in all cases the ratio of the new national prices will be equal to the market rate of exchange between the respective national currencies, rather than to the official rate of exchange. Thus, while at first sight the above analysis may create the impression that the free floating of the deutsche mark leads to two different “common market” prices for each commodity, in fact the divergence applies only when the non-realistic official rate of exchange is used as a basis of comparison. In terms of the market rate of exchange there will still be a single “common market” price.
Effects of a de facto appreciation of any eec currency on production and trade in the eec
As a general rule, the total quantity absorbed in the EEC (either by private consumers for final use in the EEC or by the intervention agencies) will increase, remain unchanged, or decline as the new supply price of the original equilibrium quantity is lower than, equal to, or higher than the new demand price of the original equilibrium quantity. For example, in Germany, for commodities falling under Case A, the supply price of the original equilibrium quantity in terms of deutsche mark will fall in proportion to the revaluation, while the demand price will usually fall by less than the revaluation. Since the demand and supply prices are by definition equal in the original equilibrium, the new demand price will usually be higher than the new supply price and the equilibrium quantity will increase. Furthermore, since in Case A the price always falls in Germany, absorption in that country will normally increase and production will normally decline. Thus, the income of German farmers will generally go down, not only because of the price fall but also because of a decline in production. Finally, since in Case A the price in France does not change, the appreciation of the deutsche mark will have no direct or indirect effect on the incomes of French farmers. All the benefit from the increase in consumption and the reduction in output in Germany will accrue to the farmers of the nonmember countries.
For commodities falling under Case B, the demand price of the original equilibrium quantity does not change in terms of deutsche mark, while the supply price falls. Thus, the new supply price will again be lower than the new demand price, and the equilibrium quantity will therefore increase. Since the market price will not change in Germany, the output of German farmers will not be affected and their total income will remain intact. In France, on the other hand, the market price will increase and the output of French farmers will increase in turn. Autonomous demand in France will normally decline, but total demand at the new higher price will be unlimited because of the intervention obligations of the German intervention agencies. So long as the deutsche mark does not revalue by more than the original difference between the intervention and target prices, the benefit from the increase in total EEC absorption will accrue exclusively to farmers of the EEC countries that did not revalue their currencies.
For commodities falling under Case C, total EEC absorption will rise if Germany accounted at the original equilibrium point for a larger proportion of EEC demand than of EEC supply. In that case the EEC demand curve will shift downward by less than the EEC supply curve, and the new intersection point will lie to the right of the original one. In all other cases the outcome is uncertain; it will depend not only on the proportions mentioned above but also on the closeness of the original market price and the intervention price. In general, the closer these two prices were in the original equilibrium, the smaller is the probability that the equilibrium quantity will decline. Whatever the change in total EEC absorption, supply will normally fall in Germany, where the price declines, and will increase in France, where the price rises.
Thus far, it has been implicitly assumed that the deutsche mark does not appreciate in the free market by more than the original discrepancy between the intervention and the target price. It should be obvious that, if this occurs, the application of the Common Agricultural Policy of the EEC becomes practically impossible because the effective offer price of imports from nonmember countries to Germany will be lower than the guarantee price. If no corrective measures were adopted in this case, the German intervention agencies would be flooded with commodities imported not only from other EEC countries but also from the rest of the world.
To sum up, the rigidity of the intervention price in Germany, which is associated with a de facto revaluation of the deutsche mark but not, as will be shown below, with a change in its official parity, has two important consequences. First, it limits the possibility of income losses accruing to German farmers only to cases where the original market price is above the intervention price. Even in such cases the amount of income losses accruing to German farmers will most likely be less than in the case of an outright revaluation because the effective floor of the market price is higher in a de facto than in a de jure revaluation. The second and by far the most important consequence of the rigidity of the German intervention price is that it leads to an effective divergence between this price and the corresponding price obtaining in other EEC countries.
When the changes in EEC demand and supply conditions associated with the revaluation of the deutsche mark are such that the new market price settles at the level of the German intervention price, this divergence will usually give rise to arbitrage of agricultural commodities from the rest of the EEC to Germany. Such arbitrage constitutes an obvious distortion of intra-Community trade, imposes a disproportionately large burden on the German intervention agencies, and poses a real threat to the smooth functioning of the Common Agricultural Policy of the EEC. In view of the above considerations, the EEC Council in May 1971 authorized that all member countries which permit commercial transactions to be conducted at exchange rates exceeding the official parity of their currency by more than 1 per cent might impose tariffs on all imports and might grant subsidies to all exports of agricultural commodities in proportion to the percentage by which their currencies appreciate in the exchange market. A similar authorization was given to Germany at the time of the November 1969 floating of the deutsche mark. These compensatory import tariffs and export subsidies, which were subject to periodic revisions in order to bring them in line with movements in the exchange rates, roughly offset shifts of the demand and supply curves that would have otherwise occurred and thus prevented any significant changes in agricultural prices and incomes in individual EEC countries. This solution, however, involved two important deviations from the basic principles of the Common Agricultural Policy: (1) in terms of the market rates of exchange, there was no longer a single Community-wide price for each agricultural product; and (2) intra-Community trade was again subject to barriers.
The system of compensatory import levies and export subsidies was continued after the December 1971 currency realignment.
The amounts of these levies and subsidies applied by Germany and the Benelux countries were increased to reflect the further appreciation of their respective currencies vis-à-vis the U.S. dollar, implied by the realignment. Moreover, France and Italy, the currencies of which had not previously deviated significantly from their effective parity relationships with the U.S. dollar, introduced compensatory borderline measures for the first time. On the other hand, the amount of compensatory levies and subsidies was reduced when the devaluation of the U.S. dollar became official on May 8, 1972. This, however, did not imply any decline in the effective protection which the agricultural sector of the EEC enjoys against imports from nonmember countries because with the devaluation of the U.S. dollar against the EEC unit of account the common external levies were automatically increased. 6
The system of compensatory import levies and export subsidies will have to be revised when the EEC countries formally establish new par values for their currencies. The revision which is currently suggested includes the following provisions. The EEC countries will temporarily be divided in two zones. The first zone will include Germany and the Benelux countries. The second will comprise France and Italy. Target and intervention prices in terms of EEC units of account will be increased for countries in the first zone by 2.76 per cent, which is the rate of appreciation of the currencies of the Benelux countries, and will remain unchanged for countries in the second zone. Appropriate borderline measures will be introduced by countries in the first zone to prevent the emergence of arbitrage in agricultural commodities and to maintain the level of farm incomes in all countries. In addition, Germany, which has in fact revalued its currency by more than 2.76 per cent will be authorized to compensate its farmers for income losses resulting thereof by granting to them subsidies, probably in the form of reductions in taxes on value added paid by them. The discrepancy in prices between the two zones will be gradually diminished and eventually eliminated whereby a unified market for each agricultural commodity throughout the Community will be re-established.
Effects of a de jure appreciation of any eec currency
In contrast to what happens in the case of a de facto appreciation of the deutsche mark, an outright upward change in the official parity of any EEC currency, for example the deutsche mark, implies that (1) in terms of deutsche mark, both portions of the EEC demand curve will shift downward, the shift of the horizontal part being proportional to the change in the official parity of the deutsche mark, and (2) in terms of any other EEC currency, the horizontal portion of the EEC demand curve will not change (see Charts 4 and 5). As a result, market prices will invariably fall in Germany, irrespective of their original level, while they will rise in the other EEC countries, except in Case A, where they are already at their highest possible level. Income losses incurred by German farmers will be higher than in the case of a de facto revaluation, but the national intervention prices will be compatible with each other and will therefore give rise to no trade-distorting arbitrage of commodities between member countries.
Effects of a De Jure Revaluation of the Deutsche Mark on Prices of Agricultural Commodities in Germany
Citation: IMF Staff Papers 1972, 002; 10.5089/9781451947373.024.A006
Effects of a De Jure Revaluation of the Deutsche Mark on Prices of Agricultural Commodities in Germany
Citation: IMF Staff Papers 1972, 002; 10.5089/9781451947373.024.A006
Effects of a De Jure Revaluation of the Deutsche Mark on Prices of Agricultural Commodities in Germany
Citation: IMF Staff Papers 1972, 002; 10.5089/9781451947373.024.A006
Effects of a De Jure Revaluation of the Deutsche Mark on Prices of Agricultural Commodities in France
Citation: IMF Staff Papers 1972, 002; 10.5089/9781451947373.024.A006
Effects of a De Jure Revaluation of the Deutsche Mark on Prices of Agricultural Commodities in France
Citation: IMF Staff Papers 1972, 002; 10.5089/9781451947373.024.A006
Effects of a De Jure Revaluation of the Deutsche Mark on Prices of Agricultural Commodities in France
Citation: IMF Staff Papers 1972, 002; 10.5089/9781451947373.024.A006
Secondary effects of exchange rate changes on eec agricultural prices
The conclusions reached thus far were obtained on the basis of a partial equilibrium analysis, which made no allowance for possible changes resulting from the change in the exchange rate itself in demand and supply conditions of agricultural commodities in the individual EEC countries. The possibility for such changes is very broad and can only be usefully analyzed in the context of a general equilibrium model that would take into account interrelationships between the agricultural sector of each EEC country and all other sectors of each economy, as well as influences stemming from changes in the rest of the world. Such an ambitious undertaking is clearly beyond the scope of this study. Only an attempt may be made here to outline the probable importance of secondary shifts of EEC demand and supply curves for agricultural products as they result from changes in prices and income within the EEC agricultural sector.
Shifts due to changes in the level or distribution of total eec agricultural incomes
For commodities falling under Case A, the income of producers will fall in the country appreciating its currency (Germany, for example) and remain unchanged in the rest of the EEC; hence, the income of all EEC farmers producing such commodities will fall. For commodities falling under Case B, the opposite is true, while for Case C commodities, the outcome is uncertain. It is thus impossible to determine a priori whether total agricultural income in the whole EEC area will rise or fall or remain unchanged. If it rises, the total EEC demand for any agricultural commodity is likely to increase and this may somewhat check the tendency of prices to fall in Germany. This tendency, is, on the other hand, likely to be reinforced if total EEC agricultural income falls. However, agricultural income in all EEC countries accounts for a small proportion of national income, so that secondary shifts in EEC demand curves due to changes in agricultural income are likely to be unimportant.
Shifts due to changes in relative eec prices of competing agricultural commodities
If two agricultural commodities with a high degree of substitutability with each other fall under different categories of goods in the A,B,C classification, a change in the exchange rate of any EEC currency may lead to pronounced changes in the relative price of these two commodities. This would tend to shift overall demand toward whichever commodity becomes relatively cheap. For example, suppose that corn and wheat are close substitutes and that the original price of corn is equal to its intervention price (Case B), while that of wheat is equal to the target price (Case A). In these circumstances, the price of wheat in Germany will tend to fall in proportion to the change in the exchange rate of the deutsche mark, while the price of corn will remain unchanged. As a result, aggregate EEC demand will shift from corn to wheat. However, as can be easily seen in Chart 2, the increase in the overall demand for wheat cannot prevent or mitigate the decline in its market price that follows the parity change. On the other hand, the reduction in the overall demand for corn may have a dampening effect on its price, though in this example it will not occur because it is assumed that the price is already at its lower possible level. To sum up, one could say that the possibility of substitution between commodities, the prices of which are affected in differing ways by the appreciation of any EEC currency, would seem to intensify (but probably only slightly) the price-reducing effect of this appreciation on the level of agricultural prices of the country appreciating its currency.
Shifts due to changes in the costs of production of agricultural products
Some agricultural products enter as inputs in the production of other agricultural products, so that changes in the price of the former will induce shifts in the supply curves of the latter. In the case of the EEC country appreciating its currency, the domestic price of such inputs can either go down or remain unchanged; hence, its own supply curves for agricultural products can either shift to the right or remain unchanged. However, for the other EEC countries, the domestic price of these inputs can either increase or remain unchanged; hence, their own supply curves can either shift to the left or not change at all. Thus, the overall EEC supply curves, which are only relevant for the determination of prices, can in principle move in any direction and no useful generalizations are possible. However, secondary shifts in EEC supply curves due to changes in the cost structure of production of agricultural commodities are unlikely to be so important as to completely offset the primary effects of exchange rate changes, with which this paper is principally concerned.
Conclusions
The analysis in this paper has attempted to demonstrate how appreciation of any EEC currency affects the demand and supply of agricultural commodities in the country appreciating its currency and in other countries. It discusses the tendencies and their results in light of the Common Agricultural Policy of the EEC.
It was concluded that in the case of a de jure revaluation of any EEC currency, the application of the Common Agricultural Policy would make no difference either to the revaluing country or to the rest of the EEC, in the sense that adjustments in the price as well as the level of production and trade of agricultural commodities resulting from the parity change would be similar to those that can be expected for commodities for which no common EEC regulations exist (e.g., industrial products). However, in the case of a de facto appreciation of any EEC currency involving no change in official parities, such adjustments may be mitigated or altogether prevented because of the fact that intervention prices are defined under Common Agricultural Policy regulations in terms of official rates of exchange and are therefore inflexible in the downward direction.
In particular, when the original market price for any agricultural product is equal to the intervention price, the market price will not fall in the country appreciating its currency, and thus no substitution of imports for domestic production will ensue. By contrast, when the original market price is above the intervention price, price and production adjustments in the country appreciating its currency will normally take place, but the existence of an inflexible guarantee price may limit their scope. As for the other EEC countries, the market price (and hence, production) will not increase at all when the original market price is equal to the target price. In all other cases, market prices and production will normally increase. Apart from its effects on the scope of price and production adjustments, however, the rigidity of the intervention price in the appreciating country has another more important consequence: it leads to an effective divergence between the intervention prices of the national intervention agencies of the country appreciating its currency, on the one hand, and of all other EEC countries, on the other hand. This divergence may set in motion arbitrage of agricultural commodities between the rest of the EEC and the country appreciating its currency, thus distorting the smooth functioning of the Common Agricultural Policy of the EEC.
Some secondary effects of the exchange rate changes on prices of agricultural commodities in the EEC have been only briefly considered in this paper. It was tentatively concluded that such secondary effects are unlikely to fully offset the primary effects of exchange rate changes on agricultural prices in the EEC and that in some cases they may even reinforce them.
It should be noted that, in the wake of the recent floating of several EEC currencies after May 1971, the EEC Council has adopted a decision whereby the governments of the countries concerned were authorized to levy special duties on all imports and grant special subsidies to all exports of agricultural commodities, roughly proportional to the de facto appreciation of their currencies relative to the U.S. dollar. With the introduction of these measures changes in domestic prices of agricultural products such as would otherwise have occurred in response to the de facto changes in the exchange rates of the EEC currencies are avoided. In addition, the income level of the agricultural population of the countries appreciating their currencies is fully maintained. On the other hand, the principle of a single price throughout the Community for each agricultural commodity is abandoned, and intra-Community trade in agricultural commodities is no longer absolutely free.
Effets des modifications des taux de change au sein de la CEE sur les prix, la production et le commerce des produits agricoles dans la Communauté
Résumé
L’auteur examine les effets probables des modifications des taux de change sur le niveau des prix, la production et le commerce des produits agricoles dans la Communauté économique européenne antérieurement à la mise en oeuvre des mesures officielles spécifiquement conçues pour arrêter ou atténuer ces effets. Il s’efforce, en particulier, de montrer dans quelle mesure les ajustements de prix, de production et de commerce, qui sont censés se produire à la suite d’une modification des taux de change, se trouvent annihilés par la rigidité de la politique agricole commune de la CEE.
Pour les besoins de l’analyse, l’auteur présente la forme probable de la courbe de la demande et de l’offre globales dans la CEE (voir graphique 1); il discute ensuite les changements possibles des coordonnées de ces courbes, à la suite des modifications des taux de change (voir graphiques 2 à 5). Il conclut que, dans les cas comportant une modification de la parité officielle de toute monnaie de la CEE (modification de jure du taux de change), la politique agricole commune de la CEE ne limite aucunement l’étendue possible des ajustements en matière de prix, de production et de commerce. Dans le cas, cependant, d’une modification de facto du taux de change d’une monnaie de la CEE sans modification de sa parité officielle, ces ajustements peuvent être circonscrits ou même contrebalancés à cause de l’inélasticité des prix d’intervention de la CEE, ce qui tient au fait que, dans le cadre des règlements de la politique agricole commune, les prix d’intervention sont déterminés sur la base de l’unité de compte européenne (UCE) et convertis ensuite dans les monnaies nationales au taux de change officiel plutôt qu’à celui du marché. L’auteur montre, en particulier, que dans un pays de la CEE revalorisant sa monnaie, le prix d’un produit agricole donné augmentera d’autant moins que le prix du marché original est proche du prix d’intervention officiel, d’où le corollaire que dans le domaine de la production et du commerce les ajustements seront plus réduits.
En dehors de ses effets sur l’ampleur des ajustements de prix, de production et de commerce, la rigidité même du prix d’intervention, dans le pays de la CEE qui revalorise sa monnaie, exerce en fin de compte un effet très perturbant sur le fonctionnement de la politique agricole commune de la CEE, en ce qu’elle crée une divergence effective entre le prix d’intervention dans le pays de la CEE dont la monnaie est revalorisée et celui des autres pays de la CEE. Cette divergence risque de susciter un arbitrage considérable et inopportun des produits agricoles entre les divers pays de la CEE.
Efectos de las modificaciones de los tipos de cambio de las monedas de los países de la Comunidad Económica Europea en los precios, la producción y el comercio de productos agrícolas de la Comunidad
Resumen
En este artículo se examinan los probables efectos de las modificaciones de los tipos de cambio en los precios, la producción y el comercio de productos agrícolas en la Comunidad Económica Europea (CEE), si no se aplican medidas oficiales expresamente concebidas para evitarlos o reducirlos. En particular, se trata de determinar el grado en que las inflexibilidades inherentes de la Política Agrícola Común de la CEE eliminan los ajustes de los precios, la producción y el comercio que normalmente cabe esperar tras una modificación de los tipos de cambio.
A los efectos del presente análisis, se determina la forma probable de las curvas de la demanda y de la oferta agregadas de la CEE (véase el Gráfico 1), para estudiar después sus posibles traslaciones a consecuencia de modificaciones de los tipos de cambio (véanse los Gráficos 2 a 5). Se llega a la conclusión de que cuando se trata de una modificación de la paridad oficial de una moneda de la CEE (modificación de jure del tipo de cambio), la Política Agrícola Común no limita en modo alguno el posible alcance de los ajustes de los precios, la producción y el comercio. Ahora bien, cuando se trata de una variación de facto del tipo de cambio de una moneda de la CEE sin modificación de su paridad oficial, la rigidez de los precios de intervención de la CEE puede reducir o impedir totalmente estos ajustes, ya que, en virtud de disposiciones de la Política Agrícola Común, los precios se determinan en función de la unidad de cuenta de la CEE y luego se convierten en monedas nacionales al tipo de cambio oficial, en vez de al tipo de mercado. En particular, se demuestra que en un país de la CEE que revalue su moneda, el precio de un producto agrícola determinado aumentará menos—y, por ende, serán más pequeños los ajustes de la producción y el comercio—cuanto más se aproxime el precio original de mercado al precio oficial de intervención.
Aparte de sus efectos en el alcance de los ajustes de los precios, la producción y el comercio, la rigidez del precio de intervención del país de la Comunidad cuya moneda se revalue puede tener consecuencias muy perturbadoras en el funcionamiento de la Política Agrícola Común de la CEE, en vista de que produce una diferencia efectiva entre el precio de intervención en el país que revalúa su moneda, por una parte, y el precio de intervención en los demás países de la CEE, por otra. Esta divergencia puede iniciar un considerable y poco conveniente arbitraje de productos agrícolas entre los distintos países de la Comunidad Económica Europea.
Mr. Vittas, economist in the Central European Division of the European Department, has studied economics at the Athens School of Economics, the University of Manchester, and the University College, London.
The author is grateful to Mr. M. Fiorini, a summer trainee at the Fund when this paper was prepared, for many useful comments and suggestions.
Such measures were introduced following the appreciation of the deutsche mark in November 1969 and the appreciation of the deutsche mark and of the guilder in early 1971.
It is assumed, for simplicity, that for each agricultural commodity produced in the EEC, the demand for exports to nonmember countries is perfectly elastic, but at a price level lower than the corresponding EEC intervention price. This implies that foreign demand is superseded by the “demand” of the EEC intervention agencies and thus does not play any direct role in the determination of market prices within the EEC. Relaxation of this assumption, which seems somewhat realistic for the majority of the EEC agricultural commodities, would not materially alter the conclusions of the analysis presented in this paper.
Only the basic features of the Common Agricultural Policy of the EEC are presented here. It should be noted that for a few agricultural commodities the EEC has not yet adopted a common policy, while for a few others it has provided no minimum guarantee price. For such commodities, the analysis in this paper does not apply. A detailed account of EEC regulations for individual commodities can be found in The European Community’s Common Agricultural Policy: Implications for U.S. Trade, published by the U.S. Department of Agriculture, Economic Research Service, October 1969.
In the extreme case in which Germany may account for the whole of the EEC demand and supply schedules, the latter will not shift at all. This and other extreme cases which require qualification are of no practical importance and are therefore ignored in this paper.
For each agricultural product the common external import levy of the EEC is equal to the difference between the threshold price and the world price, both measured in EEC units of account. With the devaluation of the U.S. dollar, a given world price in terms of U.S. dollars corresponds to a lower price in terms of EEC units of account. Since the threshold price does not change, the common external levy automatically increases.
