monetary compensatory amounts

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monetary compensatory amounts (MCAs) or green money

the system used by the COMMON AGRICULTURAL POLICY of the EUROPEAN UNION to convert the common prices agreed for farm products into the national currencies of member countries outside the eurozone and to realign prices when the EXCHANGE RATES of those currencies change.

The Council of Ministers meets annually and fixes common prices for individual farm products, such as milk, beef, etc., for the coming year. These prices are converted into national currency values on the basis of prevailing exchange rates. Should, however, a member alter its exchange rate then the ‘common link’ is broken and its farm prices will either be more, or less, expensive than the other members’, depending upon whether its exchange rate has fallen or increased. To counter this, border taxes and subsidies on food IMPORTS and EXPORTS (monetary compensatory amounts) are deployed. For example, if the exchange rate rises (see APPRECIATION 1), the general effect is to cheapen food imports and make food exports more expensive. To ‘compensate’ for this movement, that is, to ensure ‘green money’ values and domestic farm incomes remain stable, then food imports are taxed and food exports are subsidized. In contrast, if the exchange rate falls (see DEPRECIATION 1), the general effect is to cheapen food exports and make food imports more expensive. To stabilize the situation, food imports are subsidized and food exports are taxed.

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