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.

The current EU budget framework covers the period 2007 -20013. In October 2011, the European Commission published proposals for a reform of the CAP post 2013 – i.e. for the Financial Perspective 2014-2020.

The Commission stated that in line with other policy initiatives, the reformed CAP would "make a decisive contribution to Europe 2020" in that it would "fight against climate change, support employment and growth, promote innovation and enhance both the economic and ecological competitiveness of agriculture."

In December 2011, Defra published a 'Discussion Paper on CAP Reform post 2013' inviting views on the Commission's proposals from (English) farmers, environmental groups, rural communities, non-governmental organisations and other interested parties.

The consultation period was set to begin on 12 December 2011 and close on 5 March 2012.
 

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 - whom 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.

The European Commission's proposed reform of the CAP published in October 2011 attracted some controversy.

The ten key points of the reform identified by the Commission were:

Better targeted income support in order to stimulate growth and employment
Tools to address crisis management which are more responsive and better suited to meet new economic challenges
A Green Payment for preserving long-term productivity and ecosystems
Additional investment in research and innovation
A more competitive and balanced food chain
Encouraging agri-environmental initiatives
Facilitating the establishment of young farmers
Stimulating rural employment and entrepreneurship
Better addressing fragile areas
Simpler and more efficient CAP

The UK government stated that it believed the Commission had identified the right challenges facing farming in the future, "particularly the need to increase food production to feed a growing world population and at the same time reduce environmental impact", but that their proposals "fall short of meeting them."

Defra said that ministers would be "participating actively" in discussions about the proposals which were being negotiated through the Agriculture Council and simultaneously by the European Paliament.
 

Statistics

The EU budget is organised under seven year frameworks (‘Financial Perspectives’), the current one runs from 2007-2013. Reform of the CAP now means preparing a CAP for the Financial Perspective 2014-2020 (‘post 2013’).
The CAP represents over 40% of EU budget expenditure and is the most expensive of EU policies.
The Commission’s proposal is far above a genuine real freeze to the budget. Overall, it would result in an additional 100 billion euros (2011 prices) of spend across the MFF, costing the UK an extra 10 billion pounds / £1.4 bn per year compared to a real freeze from the 2011 actual budget.
The Commission also proposes to shift an additional 15 billion euros off budget

Source: Defra - 2011
 

Quotes

"The European Commission's proposals for a reform of the CAP after 2013 aim to strengthen the competitiveness and the sustainability of agriculture and maintain its presence in all regions, in order to guarantee European citizens healthy and quality food production, to preserve the environment and to help develop rural areas."

The European Commission - October 2011

“We’re pleased that the European Commission has at least listened to the message from the UK that the CAP has to do more to help the environment, and that its budget cannot keep increasing in the midst of an economic crisis.
“But while some of the Commission’s rhetoric is right, overall we’re disappointed and the proposals as they stand could actually take us backwards."

Environment Secretary Caroline Spelman – October 2011