Common agricultural policy
What is the common agricultural policy?
The key objectives of the common agricultural policy (CAP), as enshrined in the EU treaties, are to:
• Increase agricultural productivity thus to ensure a fair standard of living for agricultural producers
• Stabilise markets
• Assure availability of supplies
• Ensure reasonable prices to consumers
In fact, with countries outside the EU generally able to produce agricultural products at far lower prices than member states - either because of the enormous size and the scale of their industries (eg the USA, Canada) or because of lower standards (eg the developing world) - the EU is largely keeping prices up.
The price support system dominates the CAP debate, mainly because of its expense. It comprises:
• A target price: a price at which it is hoped farmers will be able to obtain on the open market
• A threshold price: the price to which imports are raised when world prices are lower than EU prices
• A guaranteed or intervention price: the price at which the Commission will take surplus product off the market by stepping in and buying it up
Some 90 per cent of EU produce is protected in some way by the CAP, with some 70 per cent in receipt of support prices.
Background
Agriculture, and the CAP, is the area where European integration has arguably proceeded further than any other.
Agriculture has been at the heart of the EU project since the very outset, and its privileged position is widely viewed as part of a 'deal' between France and Germany. Concerned that it would lose out in a common free market in industrial products, France demanded a common market for agricultural products that did not open up competition, but rather protected its farmers from it. The deal was popular at the time, due to food market instabilities, the disproportionate influence of food prices on inflation and a need to maintain domestic food industries for political reasons.
The CAP was established in 1957.
By the 1980s, the CAP's financial incentives for food production and investment led to massive overproduction, forcing the EU to accumulate notional 'butter mountains' and 'wine lakes' by buying up surplus produce to maintain prices. In addition, the focus on production and the use of chemicals and heavy machinery led to concerns about environmental degradation.
There were also frequent accusations of CAP corruption and fraud, and in the early 1980s, the cost of CAP was seen as threatening to destabilise the whole community.
The McSharry reforms of 1992 went a long way to replacing guaranteed prices with a new system of direct payments of compensation to farmers if prices fell below a certain level. The McSharry reforms also offered compensation for farmers who pursued environmentally friendly practices.
The 1999 Berlin Council reformed the CAP further, under Agenda 2000. These reforms, which came into effect in March 2003, replaced production subsidies with a scheme of direct payments linked directly to compliance with a set of standards on food safety, animal rights and environmental concerns. The most fundamental new element is the new 'Single Farm Payment' that replaces the vast array of existing direct payment schemes. The key thrust of the reforms has therefore been to break the link between subsidies and production, so that farmers produce for the market and not to gain financial support.
100 per cent decoupling was to be in place by 2005 - except for in France, which was given until 2007.
The UK receives relatively little money from the CAP, because of its smaller agricultural sector. As a result, in 1984, Margaret Thatcher secured a substantial rebate for the UK on its EU budget contribution.
However, at the time the rebate was agreed Britain was one of the poorer members of the EU; today it is one of the wealthiest and it has been argued that it is unfair for the UK to continue receiving a rebate when other less well off EU members do not.
In June 2005 Prime Minister Tony Blair in an address to the EU Parliament indicated that the UK may be willing to renegotiate the rebate. However he warned: "Any change must take account of the legitimate needs of farming communities and happen over time." He added: "We cannot agree a new financial perspective that does not at least set out a process that leads to a more rational Budget; and this must allow such a Budget to shape the second half of that perspective up to 2013."
In September 2007 a consultation process was launched by the European Commission on the Budget Review to be proposed in 2008/9. All interested parties at local, regional, national and European levels were invited to participate.
And in May 2008 proposals were put forward to modernise and simplify the CAP in an attempt by the EU to mitigate the effects of global food prices.
Controversies
The CAP has been criticised for its large budget and for supporting inefficient agricultural practices. The 1990s reforms are accused of so far having done little to reduce its cost, and of leaving agricultural prices unnecessarily high at the expense of the consumer.
By encouraging overproduction, the CAP forced the EU to buy up surplus produce, which it then sold on cheaply in the developing world - undercutting local producers and damaging local economies. 'Dumping' of this sort, combined with high external tariffs for food imports, led to considerable international criticism of the CAP, notably at the Doha World Trade Organisation talks in 2003.
Attempts to reduce overproduction by paying farmers to 'set aside' land are thought to have mitigated but not eliminated the problem. Set aside also risked colouring the public's perception of farmers - who the public thought were being paid to do nothing.
Furthermore, by encouraging farm 'modernisation', the CAP was blamed for environmental damage caused by the increase of agricultural chemicals and intensive farming methods. Some have blamed the CAP for the practices that led to a series of food safety scares during the 1980s and 1990s, chief among them being BSE.
It was also claimed that the distribution of funds under the CAP was unfair - with some 20 per cent of farms, primarily the larger ones, receiving 70 per cent of the subsidies.
There have also been reports of CAP fraud in some member states, where levels of diligence to prevent fraud reflect different levels of effectiveness from different member states' agriculture ministries.
EU enlargement poses a serious challenge to the CAP: the economies of some of the accession states which joined in 2004 - notably the largest, Poland - are heavily agrarian. The massive cost of including these new states in prevailing CAP terms led to France and Germany developing a deal to freeze CAP spending between 2006 and 2013, and phasing in payments to the new members, in 2002. The accession states were outraged, and successfully secured additional payments, in spite of the Berlin Council's commitment to stabilise CAP spending.
However, the CAP has contributed to an improvement in European agricultural efficiency by promoting modernisation and rationalisation. Average agricultural incomes have risen roughly in line with other sectors, markets have been stablised, and the EU has been rendered virtually self-sufficient in all foodstuffs that its climate permits to be cultivated.
Statistics
Under the Rural Development policy, which is an integrated part of the CAP, the European Union will make 88.3 billion euro available for rural development projects in the 27 member states in the period between 2007-2013. A minimum of 25% must be spent on projects that support land management and improve the environment.
Source: European Commission, 2008.
EU 27 real agricultural income per worker rose by 5.4% in 2007 after increasing by 3.3% in 2006.
This growth in EU27 real agricultural income in 2007 was itself the result of:
- an increase in output of agriculture at basic prices in real terms (+4.3%);
- a rise in input costs (+5.8%) and a slight decrease in depreciation (-0.3%), in real terms;
- a decrease in the real value of subsidies net of taxes (-2.8%).
Source: Eurostat, March 2008.
Quotes
"The Health Check should shift the emphasis of the CAP even more towards protecting the environment…… We want to see more funding diverted from production subsidies towards targeted measures which will improve our landscape and biodiversity.
"The Health Check must also phase out all the price support measures which have kept consumer prices high and the export subsidies which have undermined farmers in developing countries."
Environment Secretary Hilary Benn commenting on the new CAP 'Health Check', the next stage of CAP reform, which aims to further break the link between direct payments and production and thus allow farmers to follow market signals to the greatest possible extent. - May 2008
"It is all about freeing our farmers to meet growing demand and respond quickly to what the market is telling them. It also aims to simplify, streamline and modernise the CAP and give our farmers the tools to handle the new challenges they face, such as climate change."
Mariann Fischer Boel, EU farming commissioner, commenting on the new CAP 'Health Check', May 2008.