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Section 1 of the present paper describes the main policy instruments characterising the Common Agricultural Policy (CAP) and Italy's position within the EEC as far as the agricultural sector is concerned. The figures presented show an overall and substantial weakness in Italian agriculture. Italy's chances of reducing its foreign trade deficit in agricultural commodities are certainly weakened by concern at Community level about discouraging agricultural production in order to deal with increasing surpluses and the growing pressure of agricultural expenses on the Community budget. Such concern is reflected in the policy initiatives with which policy makers have attempted to restore a certain degree of inelasticity in the agricultural product demand function as well as in the recently introduced set-aside programme. As far as the relationship between CAP and the environment is concerned (section 2), it is emphasised that at the time when CAP goals were established environmental issues were extremely marginal, and it is only very recently that this view has begun to change. The emphasis recently placed in official statements on the need for reorienting agricultural policy in order to improve the allocation of natural resources within the sector is to be welcomed. However, there is a risk that the emphasis placed on environmental issues is merely a 'cosmetic' for covering over other objectives, and in any case one can justifiably wonder whether European policymakers have yet learned from past experience about the risks of ineffectiveness and inefficiency inherent in an approach which applies a limited number of policy instruments in order to deal with a plurality of objectives. In revising the CAP, agricultural policy-makers should be aware that they face a number of 'second-best theorem' problems. Caution in designing new policy instruments is called for by the simultaneous presence of different types of distortions, suggesting that there is no single panacea for improving resource allocation within European agriculture, and that there is a need for articulated policy revision, taking account of the differences in agricultural structures and environmental conditions in Europe.


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