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Factor Analysis of Prices and Agricultural Production in the European Union

Popović Goran, Erić Ognjen and Bjelić Jelena
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Erić Ognjen: University of Banja Luka, Faculty of Economics, Bosnia and Herzegovina
Bjelić Jelena: Indirect Taxation Authority, Bosnia and Herzegovina

Economics, 2020, vol. 8, issue 1, 73-81

Abstract: Common agricultural policy (CAP) is a factor of development and cohesion of the European Union (EU) agriculture. The fundamentals of CAP were defined in the 1950s, when the Union was formed. Since then, CAP has been reforming and adapting to new circumstances. Treaty on the Functioning of the European Union defines the goals of CAP: stable (acceptable) prices of agricultural products, growth, productivity and technological progress in agriculture, growth in farmers’ income and supplying the common market. Factor analysis of the prices and production goals of CAP directly or indirectly involves the following variables: prices of agricultural and industrial products, indices of the prices of cereals, meat and milk, indices of the prices of agricultural products in France and Great Britain, agricultural GDP and EU GDP. The analysis results come down to 2 factors. The first – “internal factor” is a set of indicators homogenous in terms of greater impact of CAP on their trends (the prices of agricultural products in France, income from agriculture, the prices of agricultural products in EU and Great Britain and the milk price index). The second - “external factor” is made of general and global indicators (cereals prices, EU GDP and prices in industry). Factor analysis has confirmed high correlation of goals: production growth, productivity and technological progress in agriculture as well as “reasonable” prices in agriculture. The analysis shows high correlation between agricultural and industrial products, indices of the prices of cereals, meat and milk, indices of the prices of agricultural products in France and Great Britain, agriculture GDP and EU GDP (classified into internal and external factors). In general, the results of the factor analysis justify the existence of CAP, while the EU budget support brings wider social benefits.

Keywords: European Union; Common Agricultural Policy; agricultural products; agricultural prices; factor analysis (search for similar items in EconPapers)
JEL-codes: Q18 O52 C38 (search for similar items in EconPapers)
Date: 2020
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