Common Agricultural Policy

Common Agricultural Policy in Europe

EU Common Policies: Common Agricultural Policy (CAP): an Overview

The Common Agricultural Policy (CAP) has played a crucial role in European integration for many decades. The CAP was one of the first areas in which the Member States agreed to transfer sovereignty to the Community so that uniform, or at least harmonised, rules could be applied to this common policy.

A number of objectives were formulated when the CAP was put in place. Initially, the primary concern was to guarantee sufficient food for the whole population. The principal objective was therefore to increase agricultural productivity. Other objectives are derived from this initial imperative, such as guaranteeing an equitable standard of living for the agricultural population, stabilising markets and ensuring secure supplies of foodstuffs at reasonable prices for consumers.

The common market organisations for the main agricultural products were undoubtedly the most important tool used by the EU. This organisation of markets guaranteed producers a price higher than the price on the world market for their products. Import levies were introduced which protected producers against imports of cheaper competing products. When internal prices fell below a particular threshold, the market organisations had various instruments with which to intervene in the market and thus re-establish equilibrium. Against this background, the CAP rapidly achieved its objectives. At this point, its success was so impressive that it had to be adapted quickly to safeguard control of production in some sectors.

During the 1970s and 1980s, it became abundantly clear that the policy had become inappropriate to a situation where the European Economic Community had become a net exporter of a range of products. The infamous production surpluses, soaring budget expenditure and conflict with our trading partners were the result.

The EEC began to establish restrictions on quantity to limit supply, for instance, by introducing a quota system in the milk sector in 1984.

Due to a rise in the number of trade disputes, international pressure to continue with the CAP reform increased. It was therefore hardly surprising that the CAP was drastically reformed in the early 1990s, due in particular to negotiations within the World Trade Organisation (WTO, Uruguay Round). It was agreed at the WTO that export subsidies and internal aid had to be reduced, and that import duties had to be lowered. This approach was based on a reduction in guaranteed prices and on compensation for falling prices in the form of direct income support payments. The principal aim was to gradually align the prices adopted within the EU with the (lower) level of world prices.

The decision of the Berlin European Council (1999) on Agenda 2000 was a new and important stage in this process, against a background of liberalisation of world trade and enlargement of the Union.

In our prosperous 21st century Europe, affluent citizens need no longer worry about having sufficient food. However, they are extremely critical about the way their food is produced and pay close attention to the environment, food safety and quality as well as animal welfare.

The aim of Agenda 2000 was to continue to adapt the CAP to modern requirements. It reformulated and extended the established aims. The new challenges were to:

1) make European agriculture more market-oriented and sharpen its competitive edge;
2) enhance food safety and quality;
3) ensure stable agricultural incomes;
4) integrate protection of the environment and nature into agricultural policy;
5) develop the viability of rural areas;
6) simplify policy and reinforce decentralisation.

Rural development is currently confirmed as the CAP’s second pillar. There is no doubt that the reform paved the way for considerable progress. Agricultural markets in the Union are characterised by a better balance between supply and demand. The EU’s agricultural surpluses (butter, beef, cereals, etc.) have been consigned permanently to the past. Furthermore, the volume of export refunds was reduced from EUR 10 billion at the beginning of the 1990s to EUR 3.4 billion in 2002. All these developments represent a solid foundation on which to broaden negotiations with the WTO.

For all this, however, not all the objectives of the reform have been achieved. This is particularly true of the CAP’s capacity to meet the challenges of a modern society. Recent crises clearly reflect this situation, with consumers increasingly concerned about how foodstuffs are produced and about the support and aid allocated to agriculture. This social concern and the new WTO negotiations are the principal reasons for carrying out a new reform of the CAP.

The major features of the “new CAP” are the:

single payment per holding for EU farmers, irrespective of output. Limited coupling can be maintained to avoid production being abandoned;
subordination of this payment to compliance with environmental, food safety, animal and plant health and animal welfare standards, and the requirement to maintain all farmland in a satisfactory agricultural and environmental condition (“ecoconditionality”);
stronger rural development policy with increased financial resources characterised by new measures to promote the environment, quality and animal welfare, and to help farmers apply Community production standards;
reduction in direct payments (“modulation”) to large farms in order to finance the new rural development policy;
financial-discipline mechanism that seeks to guarantee compliance with the agricultural budget.

Introduction to Common Agricultural Policy

The Common Agricultural Policy (CAP) was established by the 1957 Rome treaty that created the European Economic Community. The policy reflected a belief in the economic value of agriculture. Memories of the economic hardships that followed the two world wars led the EEC founders to believe that member states should be able to feed their populations from their own resources.

The CAP was intended to stabilize agricultural markets, improve productivity, and ensure a fair deal for both farmers and consumers. It has three major elements: a single market for agricultural products with a system of common prices to producers across the EU; preference for EU producers through a common levy on all agricultural imports from abroad; and shared financial responsibility for guaranteeing prices.

From the beginning, the common prices set were based on political pressure from farmers and governments rather than market considerations. This led to massive overproduction. Prices remained artificially high, and all surpluses were bought by the EU and either stored, destroyed, or sold at very low prices on international markets. The costs became a huge burden. Even so, there were few internal critics, although the CAP consumed two-thirds of the EU budget in the early 1980s. The CAP was, however, unpopular overseas. Developing countries believed it hurt their own export agriculture, while the United States and other major food producers attacked the CAP’s protectionism, distortion of prices, and dumping of surplus produce on world markets.

Despite complaints, EU member states with strong farming interests were initially unwilling to accept the need for reform. The CAP was almost the only major common policy possessed by the EU, and consequently it was an important symbol of integration. Nonetheless, the EU did agree to reforms to the CAP in 1984 and 1988. These agreements, which imposed production quotas on some types of agriculture and reduced agricultural spending, were driven by a combination of external pressure and estimates that CAP costs would soon outstrip EU resources. A more radical revision was finalized in 1992. This revision switched EU spending from supporting artificially high agricultural prices to directly subsidizing farmers’ incomes. This involved cutting guaranteed prices to farmers, and the effect was a significant reduction in CAP costs and in the level of support given to farmers. By 2001 CAP expenditure had been reduced to 46 percent of the EU budget.

Still, the CAP remained the largest item in the EU budget and continued to provoke resentment among many EU citizens and other world producers. The commitment to the CAP as a symbol of integration may not guarantee its future, however, especially given the EU’s decision to accept members from Eastern Europe. The economies of these countries are more agricultural and less efficient than EU states. Without major reform, almost all CAP expenditure would be redirected to these states, which would be politically and economically impossible.

The European Commission attempted to address the future of CAP funding in Agenda 2000, a document detailing a strategy for enlargement. A wide-ranging reform program proposed by the commission sought to reduce payments to larger farms and to scale back market supports and export subsidies. But strong differences of opinion remained between the member states.

In 2002 the commission’s reform plans were largely abandoned, and a group of member states led by France effectively deferred a more radical overhaul. Instead, limits were placed on how much assistance new EU members could expect from the CAP, suggesting that for the foreseeable future there would be a two-tier pattern of funding favoring the older member states. Further limits were imposed in CAP reforms adopted in 2003 and 2004.” (1)

Description of Common Agricultural Policy (CAP)

The Concise Encyclopedia of the European Union describes common agricultural policy (cap) in the following terms: [1] The CAP is a protectionist system for supporting agriculture in the Eu (see more in this European encyclopedia). Established by the Treaty of Rome in 1958, it was for many years the only significant Community policy, accounting for over two-thirds of the budget, providing vast subsidies and substantially raising the cost of food to consumers. The CAP has enriched some farmers, saved others from poverty and ensured plentiful home-grown production; but at the same time it has served as an accomplice to fraud and has disrupted international markets through import levies, subsidised exports and the creation of unwanted surpluses disposed of by intermittent bouts of dumping.

In more recent times some reforms have been progressively brought about by financial constraints and pressure from the GATT. The effect has been to reduce the cost of the CAP to about half the Community budget and to make some inroads on surplus production. But many member states have a vested interest in resisting change and the reforms have fallen far short of a genuine liberalisation of agricultural trade (see more in this European encyclopedia). With the accession or approaching accessionof new countries, some, like Poland, poor and with large rural areas, others with Arctic or mountainous conditions, further modifications to the CAP are inevitable if the farm budget is not to run out of funds. As long, however, as the CAP is seen as a talisman of European integration and a battlefield of free traders against protectionists – and increasingly against environmentalists, too – it will continue to attract passionate controversy.

Origins (1958-73)

The five aims of the CAP as set out in the Treaty of Rome in 1957 were couched in elevated terms: increased productivity, a fair standard of living for the agricultural population, stabilised markets, regular supplies of food and reasonable prices for consumers. The underlying political reality was that France wanted to guarantee high prices to farmers in return for enlarging the markets in industrial goods for German manufacturers. Fear of social instability and vivid memories of food shortages increased the determination of the member states to create a prosperous farming community and to make Europeself-sufficient in staple items.

The CAP was to be based on three principles:

A single market in farm products, with common prices and free movement within the Community

Community preference, that is, a tariff system of import levies and export refunds on trade with non-members

Shared responsibility for costs.

The system was introduced progressively from 1962 to 1967 with a series of artificial ‘price regimes’ for different products, to be paid for by consumers. Imports would be penalised by duties, exports would be subsidised by refunds, known as ‘restitutions’.

In the context of these policies, the UK’s application to join the Common Marketwas both a threat and an opportunity. The opportunity lay in the fact that the UK was one of the world’s largest food importers; if it could be persuaded to switch suppliers, the EC would gain an additional paymaster and a new market. The threat lay in the UK’s predilection for free trade and cheap Commonwealth food. Charles de Gaulle’s vetoes of British entry in the 1960s had much to do with the UK’s initial unwillingness to abandon its Commonwealth trade links by agreeing to Community preference (see more in this European encyclopedia). The withdrawal of de Gaulle from the political scene and the concession by Prime Minister Edward Heath of most of the UK’s negotiating points (with the exception of some special arrangements for New Zealand and the Caribbean) brought this phase to a close, clearing the way for British entry, at a cost to the domestic consumer estimated over the years at around ,500 per year per family of four.

Mounting problems (early 1970s-late 1980s)

The need to restructure inefficient Continental agriculture had led to the 1968 Mansholt Plan, featuring import protection and compensation for job losses. A watered-down version of this plan was adopted by the EC in 1972 and funded by the European Agricultural Guidance and Guarantee Fund (known by its more pronounceable French initials, FEOGA). The resultant combination of improved productivity and generous guaranteed prices proved little short of disastrous to everyone except farmers left on the land. Agricultural incomes were sustained not by direct subsidies to struggling farmers but by unlimited intervention buying of any produce which could not be sold at a higher price on the open market. As a result, market discipline was virtually non-existent. By the early 1980s ‘wine lakes’, ‘butter mountains’ and large surpluses of dairy produce, cereals and sugar were accumulating.

To the cost of overpriced food was now added the cost to taxpayers of storing or disposing of unwanted stockpiles. The easy answer was dumping, through export refunds, gifts in aid or cut-price deals. Such action caused extensive international ill-will, as competing exporters were undercut and low-cost agricultural economies were hit by a flood of produce at prices which even they could not match.

The scale and complexity of FEOGA’s operations gave rise to growing scope for exploitation and fraud, which an expanding bureaucracy was unable to control and which there was little incentive for offending countries to expose (see more in this European encyclopedia). Public bewilderment was compounded by an artificial system of ‘green currencies’ and ‘monetary compensation amounts’, designed to make up for currency fluctuations and create the illusion that farmers were operating in a single European currency zone.

The accession to the EC of Greece in 1981 and Spain and Portugal in 1986; the impending round of GATT negotiations, at which trade agreements appeared sure to be conditional on some degree of agricultural liberalisation; and the spectre of the Community budget being stretched to breaking point – together these factors demanded reform. From 1983 onwards the Commissionand the member states wrestled with proposals to tackle over-production and limit subsidies, hampered for a while by the weakness of the dollar, which increased the gap between world prices and European prices. In 1988 a package of measures was agreed by the Council of Ministers, of which the principal elements were that the overall growth of CAP expenditure would be not more than 74% of the growth of the budget; that farmers would be paid not to farm (the notorious ‘set-aside’); that output quotas and levies on excess production would be extended (leading to an unseemly rush to swell the volumes on which the ceilings would be based); and that the Community’sstructural funds would be retargeted to include among their objectives the easing of agricultural reform and aid to rural areas.

Recent developments

The 1988 measures failed to address the radical changes which the British wished to see and which the USA and the Cairns Group of efficient agricultural countries, led by Argentina, Australia, Canada and New Zealand, considered essential to a healthy international market. The biggest stumbling blocks to progress were the antipathy of the French and German governments to any action which might jeopardise countryside prosperity and their fear of adding to unemployment, anxieties which were exacerbated by the disproportionate power of farm lobbies and rural voters in France and Bavaria. Moreover, the complexity of the CAP had given it a bureaucratic life of its own. It was the centrepiece of the EC. It favoured Denmark, Ireland and The Netherlands, among others, and it had provided such scope for abuse that negotiations over reform were invariably painful and protracted.

Nevertheless, some change continued to be eked out in response to budgetary pressures and the worldwide trend towards freer markets. In the early 1990s Commissioner MacSharry’s labyrinthine proposals to cut prices and surpluses by moving away from price guarantees towards direct income support narrowly averted the failure of the GATT Uruguay Round. In theory, the MacSharry proposals should in the long run reduce the cost of the CAP. But no provision has been made for the approaching accession of poor countries with large rural areas, including Poland, Hungary, the Czech Republic and Estonia – perhaps to be followed by others. These former communist states will, like East Germany, pose additional budget strains, which as the CAP is presently structured will cumulatively exceed the EU’s financing capacity.

At the turn of the century, the EU continued to shirk fundamental reform. Some modest cuts in intervention prices were agreed in 1999. The Commission’sAgenda 2000 paper remained on the table, with suggestions for integrating agricultural policy into a broader rural strategy. Environmental and health issues loomed larger, highlighted by genetically modified food and the ‘mad cow disease’ crisis over British beef. Many resented the fact that the CAP’s main beneficiaries tended to be not subsistence farmers but prosperous ‘barley barons’. Some called for a repatriation of agricultural policy, to enable individual countries to set their own priorities – a move that would strike at the heart of the Commission’s doctrine of centralisation. Cutting across these multifarious questions, the WTO was certain to make liberalisation of farm produce a central feature of the next global trade negotiating round.

Amid this catalogue of difficulties and shortcomings, it is fair to say that some of the original Treaty objectives have been achieved. Productivity has increased, with agricultural employment falling since 1958 from 20% of total Community-wide employment to an estimated 5%. Farmers’ incomes have risen and Europe is self-sufficient in temperate foodstuffs. It is the cost that has been inordinate, not only to taxpayers, consumers and the developing countries, but also to the moral standing of an EU which ought to be more sceptical of bureaucratic interference and less tolerant of corruption and waste.

Common Agricultural Policy and the European Union

Resources

See Also

  • FEOGA
  • CAP

Resources

Notas y References

    1. Based on the book “A Concise Encyclopedia of the European Union from Aachen to Zollverein”, by Rodney Leach

V?ase Tambi?n

Resources

Notes and References

    1. Information about Common Agricultural Policy in the Encarta Online Encyclopedia

Guide to Common Agricultural Policy

More Topics about the European Union

European Economic Area, European Union, European Union History (including European Union Early Cooperation, Benelux Customs Union, European Coal and Steel Community, European Economic Community, European Community, Expansion of the EC, Single European Act, Creation of the European Union, Treaty on European Union, Amsterdam Treaty, Treaty of Nice, Treaty of Lisbon, Monetary Union and EU Growing Accountability), EU Pillar System, EU Major Bodies Structure, European Commission, Council of the European Union, European Parliament, European Court of Justice, Court of Auditors, European Central Bank, Economic and Social Committee, Committee of the Regions, European Union Policies, Common Agricultural Policy, Common Fisheries Policy,

EU Economic Differences, European Regional Development Fund, European Social Fund, Cohesion Fund, European Investment Bank, European Monetary System, Economic and Monetary Union, EU International Relations, EU Expansion,

EU and Non-European Nations and European Union Future.

Definition of Common Agricultural Policy

In accordance with the work A Dictionary of Law, this is a description of Common Agricultural Policy : (Common Agricultural Policy, CAP)

The agricultural policy of the EU as set out in Articles 32-38 of the Treaty of Rome. The overall aims of the CAP are to increase agricultural productivity, ensure a fair standard of living for the agricultural community, stabilize markets, assure the availability of supplies, and ensure that supplies reach consumers at a reasonable price. The Treaty is supplemented by a wide range of EU directives in this field.

See also intervention.

Common Agricultural Policy History

Introduced in 1964, it was a controversial policy of agricultural subsidies that costs over 80% of the European Union (EU) budget. It has been criticised for sustaining inefficient farming methods and small-scale producers and producing huge surpluses

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