Feed grains imports and pricing in the European Economic Community

The E.E.C. has played an important role in the world feed grains' trade over the past two decades. Some argue that without the E.E.C. Common Agricultural Policy (CAP), the volume of E.E.C. feed grains' imports from non-member countries would have been even larger. One of the most important elements of the CAP is the "target price" towards which the common E.E.C. market price should tend and which is supposed to provide a fair return to the producers;The main objective of this study is to develop an economic rationale for past E.E.C. decisions on feed grains' target prices. A simultaneous model with four equations is used to explain the factors that influence the level of target prices. Other endogenous variables in the model are the size of livestock inventory in the E.E.C., the E.E.C.'s quantity of feed grains' imports from the rest of the world, and feed grains' world prices. Only the six original E.E.C. member countries are included and they are treated as one large country. To estimate the model, ordinary least squares and two stage least squares methods of estimation are applied considering the presence and the absence of autoregressive errors, and using crop year base data from 1962/63 to 1978/79. Despite the data limitations, the model explains much of the variation in the target price of feed grains and other endogenous variables in the system. For the target price equation, significant coefficients (significantly different from zero at 1% or 5% levels) were found for livestock inventory, world price of feed grains, manioc consumption by the Community, and lagged price of inputs used in feed grains' production.