FACTOR ANALYSIS OF PRICES AND AGRICULTURAL PRODUCTION IN THE EUROPEAN UNION

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.