Instrument

Description

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Instrument

Purchase guarantees at fixed minimum prices ("conventional intervention")

Description

The state guarantees that it will purchase certain agricultural products (intervention purchase) set minimum prices (intervention prices) and then store them in public or private storage facilities. This combination of instruments is referred to as ‘conventional intervention’.

The agricultural products in store are either marketed nationally at a later time, exported (often with the aid of export subsidies) or processed (see product-related processing subsidies). These products can also be used for purposes such as school milk programmes, e. g. in the event of a seasonal or temporary surplus in certain agricultural products.

Requirements

  • A properly functioning country-wide administration and monitoring system with access to the relevant information and sufficient technical and human capacities for its design, implementation and monitoring
  • State intervention agency to buy the products
  • Clear and coherent political strategy and targets for policy-makers and public authorities
  • Close cooperation and knowledge sharing with farmers' organisations
  • Compatible regional and world trade law (WTO conformity)
  • Regulated and legally protected payment structures
  • Open-access to all farms, regardless of size and location
  • Regulatory framework
  • Constant market surveying and forecasting
  • Logistics and storage facilities
  • Skilled / specialised personnel to man the respective institutions / provide the respective services

Possible Negative Effects

  • Market distortion
  • Higher prices for consumers and processors
  • Excessively high prices and overproduction lead to undesirable effects
  • Pressure on the domestic agri-food sector if prices are fixed too low
  • Risk of high government expenditure
  • Risk of smuggling if national (minimum) price is higher than market prices in neighbouring country
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This page was last edited on 18 June 2020 | 18:31 (CEST)
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