Common Agricultural Policy


Common Agricultural Policy
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The Common Agricultural Policy (CAP) is a system of European Union agricultural subsidies and programmes. It represents 48% of the EU's budget, €49.8 billion in 2006 (up from €48.5 billion in 2005).[1]

The CAP combines a direct subsidy payment for crops and land which may be cultivated with price support mechanisms, including guaranteed minimum prices, import tariffs and quotas on certain goods from outside the EU. Reforms of the system are currently underway reducing import controls and transferring subsidy to land stewardship rather than specific crop production (phased from 2004 to 2012). Detailed implementation of the scheme varies in different member countries of the EU.

Until 1992 the agriculture expenditure of the European Union represented nearly 48% of the EU's budget. By 2013, the share of traditional CAP spending is projected to decrease significantly to 32%, following a decrease in real terms in the current financing period. In contrast, the amounts for the EU's Regional Policy represented 17% of the EU budget in 1988. They will more than double to reach almost 36% in 2013.[2]

The aim of the common agricultural policy (CAP) is to provide farmers with a reasonable standard of living, consumers with quality food at fair prices and to preserve rural heritage. However, there has been considerable criticism of CAP.

Contents

Overview of the CAP

The creation of a common agricultural policy was proposed by the European Commission.[citation needed] It followed the signing of the Treaty of Rome in 1957, which established the Common Market. The six member states individually strongly intervened in their agricultural sectors, in particular with regard to what was produced, maintaining prices for goods and how farming was organised. This intervention posed an obstacle to free trade in goods while the rules continued to differ from state to state, since freedom of trade would interfere with the intervention policies. Some Member States, in particular France, and all farming professional organisations wanted to maintain strong state intervention in agriculture. This could therefore only be achieved if policies were harmonised and transferred to the European Community level. By 1962, three major principles had been established to guide the CAP: market unity, community preference and financial solidarity. Since then, the CAP has been a central element in the European institutional system.

The CAP is often explained[3] as the result of a political compromise between France and Germany: German industry would have access to the French market; in exchange, Germany would help pay for France's farmers. Germany is still the largest net contributor into the EU budget; however, as of 2005 France is also a net contributor and the more agriculture-focused Spain, Greece and Portugal are the biggest beneficiaries. Meanwhile particularly urbanised member states where agriculture compromises only a very small part of the economy such as the Netherlands and the United Kingdom are much smaller beneficiaries and the CAP is often unpopular with the national governments. Transitional rules apply to the newly admitted member states which limit the subsidies which they currently receive.

Objectives

Sectors covered by the CAP
The common agricultural policy price intervention covers only certain agricultural products:

The coverage of products in the external trade regime is more extensive than the coverage of the CAP regime. This is to limit competition between EU products and alternative external goods (for example, lychee juice could potentially compete with orange juice).[citation needed]

The initial objectives were set out in Article 33 of the Treaty of Rome:[4]

  1. to increase productivity, by promoting technical progress and ensuring the optimum use of the factors of production, in particular labour;
  2. to ensure a fair standard of living for the agricultural Community;
  3. to stabilise markets;
  4. to secure availability of supplies;
  5. to provide consumers with food at reasonable prices.

The CAP recognised the need to take account of the social structure of agriculture and of the structural and natural disparities between the various agricultural regions and to effect the appropriate adjustments by degrees.

CAP is an integrated system of measures which works by maintaining commodity price levels within the EU and by subsidising production. There are a number of mechanisms:

  • Import levies are applied to specified goods imported into the EU. These are set at a level to raise the World market price up to the EU target price. The target price is chosen as the maximum desirable price for those goods within the EU.
  • Import quotas are used as a means of restricting the amount of food being imported into the EU. Some non member countries have negotiated quotas which allow them to sell particular goods within the EU without tariffs. This notably applies to countries which had a traditional trade link with a member country.
  • An internal intervention price is set. If the internal market price falls below the intervention level then the EU will buy up goods to raise the price to the intervention level. The intervention price is set lower than the target price. The internal market price can only vary in the range between the intervention price and target price.
  • Direct subsidies are paid to farmers. This was originally intended to encourage farmers to choose to grow those crops attracting subsidies and maintain home-grown supplies. Subsidies were generally paid on the area of land growing a particular crop, rather than on the total amount of crop produced. Reforms implemented from 2005 are phasing out specific subsidies in favour of flat-rate payments based only on the area of land in cultivation, and for adopting environmentally beneficial farming methods. The change is intended to give farmers more freedom to choose for themselves those crops most in demand and reduce the economic incentive to overproduce.
  • Production quotas and 'set-aside' payments were introduced in an effort to prevent overproduction of some foods (for example, milk, grain, wine) that attracted subsidies well in excess of market prices. The need to store and dispose of excess produce was wasteful of resources and brought the CAP into disrepute. A secondary market evolved, especially in the sale of milk quotas, whilst some farmers made imaginative use of 'set-aside', for example, setting aside land which was difficult to farm. Currently set-aside has been suspended, subject to further decision about its future, following rising prices for some commodities and increasing interest in growing biofuels.[5]

The change in subsidies is intended to be completed by 2011, but individual governments have some freedom to decide how the new scheme will be introduced. The UK government has decided to run a dual system of subsidies, each year transferring a larger proportion of the total payment to the new scheme. Payments under the old scheme were frozen at their levels averaged over 2002–2003 and reduce each subsequent year. This allows farmers a period where their income is maintained, but which they can use to change farm practices to accord with the new regime. Other governments have chosen to wait, and change the system in one go at the latest possible time. Governments also have limited discretion to continue to direct a small proportion of the total subsidy to support specific crops. Alterations to the qualifying rules meant that many small landowners became eligible to apply for grants and the Rural Payments Agency in the UK received double the previous number of applications (110,000).

The CAP also aims to promote legislative harmonisation within the Community. Differing laws in member countries can create problems for anyone seeking to trade between countries. Examples are regulations on permitted preservatives or food coloring, labelling regulations, use of hormones or other drugs in livestock intended for human consumption and disease control, animal welfare regulations. The process of removing all hidden legislative barriers to trade is still incomplete.

CAP Farm spending by sector

The European Agricultural Guidance and Guarantee Fund (EAGGF) of the EU, which used to fund the CAP has been replaced in 2007 with the European Agricultural Guarantee Fund (EAGF) and the European Agricultural Fund for Rural Development (EAFRD). CAP reform has steadily lowered its share of the EU budget but it still accounts for nearly half of the EU expenditure. France is the biggest beneficiary of the policy by around 20%, followed by Germany and Spain (~13% each), Italy (~11%) and the UK (~9%).

The CAP today

The CAP today has been substantially reformed. The policy of today is very much different and evolved than when it was created by the Treaty of Rome (1957). The reforms over the years have moved the CAP away from a production-oriented policy. The 2003 reform has introduced the Single Payment Scheme (SPS) or as it is known as well the Single Farm Payment (SFP).

Each country can choose if the payment will be established at the farm level or at the regional level. Farmers receiving the SFP have the flexibility to produce any commodity on their land except fruit, vegetables and table potatoes. In addition, they are obliged to keep their land in good agricultural and environmental condition (cross-compliance).[6] Farmers have to respect environmental, food safety, phytosanitary and animal welfare standards. This is a penalty measure, if farmers won't respect these standards, their payment will be reduced. The direct aids and market related expenditure make up 31% of the total EU budget. The total CAP budget is 42% of the EU budget (31% -direct aid + 11% – Rural Development).[7] The CAP budget is constantly shrinking: from 71% in 1984 to an expected 33% in 2013.[8]

Market mechanisms: Intervention mechanisms have diminished significantly: the Commission intervenes only on: common wheat; butter and skimmed milk powder. The Health Check of the CAP agreed in November 2008 has added on a number of measures to help the farmers to respond better to signals from the markets and to face new challenges. Among a range of measures, the agreement abolishes arable set-aside, increases milk quotas gradually leading up to their abolition in 2015, and converts market intervention into a genuine safety net. Ministers also agreed to increase modulation, whereby direct payments to farmers are reduced and the money transferred to the Rural Development Fund.

Milk quotas will expire by April 2015. Therefore in order to prepare the dairy farmers for this transition, a 'soft landing' has been ensured by increasing quotas by one percent every year between 2009/10 and 2013/14. For Italy, the 5 percent increase will be introduced immediately in 2009/10. In 2009/10 and 2010/11, farmers who exceed their milk quotas by more than 6 percent will have to pay a levy 50 percent higher than the normal penalty.

Since 2000, there is the Rural Development Policy, known as well as the "second pillar" of the CAP. This policy aims to stir the economic, social and environmental development in the countryside. Its budget, 11% of the total EU budget is today allocated along three main areas, known as axis.[9] The first axis, focuses on improving the competitiveness of the farm and forestry sector through support for restructuring, development and innovation. The second one concerns the improvement of the environment and the countryside through support for land management as well as helping to fight climate change. Such projects could for example concern preserving water quality, sustainable land management, planting trees to prevent erosion and floods. The third axis concerns improving the quality of life in rural areas and encouraging diversification of economic activity. The policy also provides support to the Leader rural development methodology, under which Local Action Groups design and carry out local development strategies for their area. Member States distribute "second pillar" funds through Rural Development Programme actions.

The European Commission is now discussing the next reform of the CAP which will coincide with the next financial perspectives package, as from 2014. The Commissioner responsible for Agriculture and Rural Development Dacian Cioloş, has outlined seven major challenges which the future CAP needs to address: food production, globalisation, the environment, economic issues, a territorial approach, diversity and simplificaion[10]

History of the CAP

The common agricultural policy was born in the late 1950s and early 1960s when the founding members of the EC had just emerged from over a decade of severe food shortages during and after the Second World War. As part of building a common market, tariffs on agricultural products would have to be removed. However, due to the political clout of farmers, and the sensitivity of the issue, it would take many years before the CAP was fully implemented.

Beginnings of the CAP

The Treaty of Rome defined the general objectives of a common agricultural policy.[11] The principles of the common agricultural policy (CAP) were set out at the Stresa Conference in July 1958. In 1960, the CAP mechanisms were adopted by the six founding Member States and two years later, in 1962, the CAP came into force. The creation of a common agricultural policy was proposed in 1960 by the European Commission. It followed the signing of the Treaty of Rome in 1957, which established the Common Market. The six member states individually strongly intervened in their agricultural sectors, in particular with regard to what was produced, maintaining prices for goods and how farming was organised. This intervention posed an obstacle to free trade in goods while the rules continued to differ from state to state, since freedom of trade would interfere with the intervention policies. Some Member States, in particular France, and all farming professional organisations wanted to maintain strong state intervention in agriculture. This could therefore only be achieved if policies were harmonised and transferred to the European Community level.

By 1962, three principles had been established to guide the CAP: market unity, community preference and financial solidarity. Since then, the CAP has been a central element in the European institutional system.

Evolution and reform

The CAP has always been a difficult area of EU policy to reform; this is a problem that began in the 1960s and one that continues to the present day, albeit less severely.[citation needed] The Agricultural Council is the main decision-making body for CAP affairs. Above all, however, unanimity is needed for most serious CAP reform votes, resulting in rare and gradual change. Outside Brussels proper, the farming lobby's power has been a factor determining EU agricultural policy since the earliest days of integration.[citation needed] This lobby's power has decreased markedly since the 1980s.[citation needed]

In recent times change has been more forthcoming, due to external trade demands and intrusion in common agricultural policy affairs by other parts of the EU policy framework, such as consumer advocate working groups and the environmental departments of the Union. In addition Euroscepticism in states such as the UK and Denmark is fed in part by the CAP, which Eurosceptics consider detrimental to their economies.

Proponents claim that the CAP is an exceptional economic sector as protects the "rural way of life", although it is recognised that this has an impact on world poverty.[12]

Early attempts at reforms

The Mansholt Plan

The Mansholt Plan was a 1960s idea that sought to remove small farmers from the land and to consolidate farming into a larger, more efficient industry. Farming's special status, and above all the extremely powerful farming lobbies across the Continent saw the Plan disappear from the Union's objectives.[citation needed]

On 21 December 1968, Sicco Mansholt (European Commissioner for Agriculture), sent a memorandum to the Council of Ministers concerning agricultural reform in the European Community.[13][citation needed] This long-term plan, also known as the ‘1980 Agricultural Programme’ or the ‘Report of the Gaichel Group’, named after the village in Luxembourg where it had been prepared, laid the foundations for a new social and structural policy for European agriculture.

The Mansholt Plan noted the limits to a policy of price and market support. It predicted the imbalance that would occur in certain markets unless the Community undertook to reduce its land under cultivation by at least 5 million hectares. Mansholt also noted that the standard of living of farmers had not improved since the implementation of the CAP, despite an increase in production and permanent increases in Community expenditure. He therefore suggested that production methods should be reformed and modernised and that small farms, which were bound to disappear sooner or later, according to Community experts, should be increased in size. The aim of the Plan was to encourage nearly five million farmers to give up farming. That would make it possible to redistribute their land and increase the size of the remaining family farms. Farms were considered viable if they could guarantee for their owners an average annual income comparable to that of all the other workers in the region. In addition to vocational training measures, Mansholt also provided for welfare programmes to cover retraining and early retirement. Finally, he called on the Member States to limit direct aid to unprofitable farms.[citation needed]

Faced with the increasingly angry reaction of the agricultural community, Sicco Mansholt was soon forced to reduce the scope of some of his proposals. Ultimately, the Mansholt Plan was reduced to just three European directives which, in 1972, concerned the modernisation of agricultural holdings, the abandonment of farming and the training of farmers.

Between Mansholt and MacSharry

Hurt by the failure of Mansholt, would-be reformers were mostly absent throughout the 1970s, and reform proposals were few and far between. A system called "Agrimoney" was introduced as part of the fledgling EMU project, but was deemed a failure and did not stimulate further reforms.[citation needed]

The 1980s was the decade that saw the first true reforms of the CAP, foreshadowing further development from 1992 onwards. The influence of the farming bloc declined, and with it, reformers were emboldened. Environmentalists garnered great support in reforming the CAP, but it was financial matters that ultimately tipped the balance: due to huge overproduction the CAP was becoming expensive and wasteful.[citation needed] These factors combined saw the introduction of a quota on dairy production in 1984, and finally, in 1988, a ceiling on EU expenditure to farmers.[citation needed] However, the basis of the CAP remained in place, and not until 1992 did CAP reformers begin to work in earnest.

1992

In 1992, the MacSharry reforms (named after the European Commissioner for Agriculture, Ray MacSharry) were created to limit rising production, while at the same time adjusting to the trend toward a more free agricultural market. The reforms reduced levels of support by 29% for cereals and 15% for beef. They also created 'set-aside' payments to withdraw land from production, payments to limit stocking levels, and introduced measures to encourage retirement and a forestation.[citation needed]

Since the MacSharry reforms, cereal prices have been closer to the equilibrium level, there is greater transparency in costs of agricultural support and the 'de-coupling' of income support from production support has begun. However, the administrative complexity involved invites fraud, and the associated problems of the CAP are far from being corrected.[citation needed]

It is worth noting that one of the factors behind the 1992 reforms was the need to reach agreement with the EU's external trade partners at the Uruguay round of the General Agreement on Tariffs and Trade (GATT) talks with regards to agricultural subsidies.[14]

Modern reforms

The current areas that are issues of reform in EU agriculture are: lowering prices, ensuring food safety and quality, and guaranteeing stability of farmers' incomes. Other issues are environmental pollution, animal welfare, and finding alternative income opportunities for farmers. Some of these issues are the responsibility of the member states.

1999

The 'Agenda 2000' reforms divided the CAP into two 'Pillars': production support and rural development. Several rural development measures were introduced including diversification, setting up producer groups and support for young farmers. Agri-environment schemes became compulsory for every Member State (Dinan 2005: 367). The market support prices for cereals, milk and milk products and beef and veal were step-wise reduced while direct coupled payments to farmers were increased. Payments for major arable crops as cereals and oilseeds were harmonised.[15][who?]

European Commission Report (2003)

A 2003 report, commissioned by the European Commission, by a group of experts led by Belgian economist André Sapir stated that the budget structure was a “historical relic”.[16] The report suggested a reconsideration of EU policy, redirecting expenditure towards measures intended to increase wealth creation and cohesion of the EU. As a significant proportion of the budget is currently spent on agriculture, and there is little prospect of the budget being increased, this would necessitate reducing CAP expenditure. The report largely concerned itself discussing alternative measures more useful to the EU, rather than discussing the CAP, but it did also suggest that farm aid would be administered more effectively by member countries on an individual basis.

The report's findings were largely ignored. Instead, CAP spending was kept within the remit of the EU – and France led an effort to agree a fixed arrangement for CAP spending that would not be changed until 2012. This was made possible by advance agreement to this approach with Germany. It is this agreement that the UK currently wishes to see re-opened, both in their efforts to defend the UK position on the UK rebate and also given that the UK is in favour of lowering barriers to entry for third world agricultural exporters.[17]

Decoupling (2003)

On 26 June 2003, EU farm ministers adopted a fundamental reform of the CAP, based on "decoupling" subsidies from particular crops. (Though Member States may choose to maintain a limited amount of specific subsidy.) The new "single farm payments" are subject to "cross-compliance" conditions relating to environmental, food safety and animal welfare standards. Many of these were already either good practice recommendations or separate legal requirements regulating farm activities. The aim is to make more money available for environmental quality or animal welfare programmes.

Details of the UK scheme were still being decided at its introductory date of May 2005. Details of the scheme in each member country may be varied subject to outlines issued by the EU. In England the single payment scheme provides a single flat rate payment of around £230 per hectare for maintaining land in cultivatable condition. In Scotland payments are based on a historical basis and can vary widely. The new scheme allows for much wider non-production use of land which may still receive the environmental element of the support. Additional payments are available if land is managed in a prescribed environmental manner.

The overall EU and national budgets for subsidy have been capped. This will prevent a situation where the EU is required to spend more on the CAP than its limited budget has.

The reforms enter into force in 2004–2005. (Member States may apply for a transitional period delaying the reform in their country to 2007 and phasing in reforms up to 2012)[18]

Sugar regime reform (2005–2006)

One of the crops subsidised by the CAP is sugar produced from sugar beet; the EU is by far the largest sugar beet producer in the world, with annual production at 17 million metric tons. This compares to levels produced by Brazil and India, the two largest producers of sugar from sugar cane.[19]

Sugar was not included in the 1992 MacSherry reform, or in the 1999 Agenda 2000 decisions; sugar was also subject to a phase-in (to 2009) under the Everything But Arms trade deal giving market access to least developed countries. As of 21 February 2006, the EU has decided to reduce the guaranteed price of sugar by 36% over four years, starting in 2006. European production was projected to fall sharply. According to the EU, this is the first serious reform of sugar under the CAP for 40 years.[20][21] Under the Sugar Protocol to the Lome Convention, nineteen ACP countries export sugar to the EU,[22] and will be affected by price reductions on the EU market.

These proposals followed the WTO appellate body largely upholding on 28 April 2005 the initial decision against the EU sugar regime.[23]

An aim of this policy change is to allow easier and more profitable access to European markets for emerging economies. Critics, such as "EUPolitix", contend that this is not an altruistic move nor an idealistic shift from the EU, who are instead acting only in accordance with the wishes of the WTO, who supported challenges on sugar dumping by the EU from Australia, Thailand and Brazil. Another point of contention is that those countries who currently receive preferential treatment from EU member states – often due to colonial ties – as part of the ACP group may stand to lose out.[24]

Proposed direct subsidy limits (2007)

In the autumn of 2007 the European Commission was reported to be considering a proposal to limit subsidies to individual landowners and factory farms to around £300,000. Some factory farms and estates of rich people would be affected in the UK, as there are over 20 farms/estates which receive £500,000 or more from the EU.[25][26] Similar attempts have been unsuccessful in the past and were opposed in the UK by two strong lobbying organisations the Country Land and Business Association and the National Farmers Union. Germany, which has large collective farms still in operation in what was East Germany also vigorously opposed changes which were marketed as "reforms". The proposal was reportedly submitted for consultation with EU member states on 20 November 2007.[27]

The CAP post-2013

The reformed Common Agricultural Policy is due to come into force after 2013. The Commission launched the CAP reform process with an extensive public debate on the future of the Cap between April and June 2010, followed by a public conference in July 2010, with around 600 participants [28]. The purpose of the debate was to have different sectors of society taking part. “The Common Agricultural Policy is not just a matter for experts. It’s a policy for all Europeans”, said Commissioner Cioloş.[29].

Based on the wide-ranging public debate, on 18 November 2010, the Commission presented a Communication on "The CAP towards 2020" [30] The Communication Paper outlined three options for the future CAP and launched a consultation with other institutions and stakeholders. Over 500 contributions were received, 44% of which came from the farming and processing sector. These conctributions form an integral part of the Impact Assessment of the legal proposals. The impact assessment evaluates alternative scenarios for the evolution of the policy on the basis of extensive quantitative and qualitative analysis [31]

The CAP reform legislative proposals

On 12 October 2011 the Commission presented a set of legal proposals to reform the Common Agricultural Policy (CAP) after 2013.[32] It's stated aim is to guarantee European citizens healthy and quality food production, whilst preserving the environment. [33]

According to the proposal, the three broad objectives of the future CAP are: "Viable food production", "Sustainable management of natural resources" and " Balanced territorial development", which respond directly to the economic, environmental and territorial balance challenges identified in the Communication and which guide the proposed changes to the CAP instruments.[34]

New design of direct payments

Direct payments contribute to keeping farming in place throughout the EU territory by supporting and stabilising farmers' income, thereby ensuring the longer term economic viability of farms and making them less vulnerable to fluctuations in prices. They also provide basic public goods through their link with cross compliance. [35]

The legal proposals aim to move away from the different systems of the Single Payments Scheme in the EU-15 (which allows for historical references, or a payment per hectare, or a "hybrid" combination of the two) and the Single Area Payments Scheme (SAPS) in most of the EU-12, a new “Basic Payment Scheme” will apply after 2013. [36] This will be subject to “cross compliance” (respecting certain environmental, animal welfare & other rules), as at present, although there are various simplifications to the current requirement. It intends to reduce significantly the discrepancies between the levels of payments obtained between farmers, between regions and between Member States. All Member States will be obliged to move towards a uniform payment per hectare at national or regional level by the start of 2019. In line with the Commission proposals within the Multi-Annual Financial Framework, the national envelopes for direct payments will be adjusted so that those that receive less than 90% of the EU average payment per hectare will receive more. The gap between the amounts currently foreseen and 90% of the EU-27 average is reduced by one third.[37]

"Greening"

The legal proposals propose new concepts. Amongst them is the "greening" of direct payment. To strengthen the environmental sustainability of agriculture and enhance the efforts of farmers, the Commission is proposing to spend 30% of direct payments specifically for the improved use of natural resources. Farmers would be obliged to fulfil certain criteria such as crop diversification, maintenance of permanent pasture, the preservation of environmental reservoirs and landscapes.[38]

Young farmers

In order to attract the young ones (under 40 years) into the farming business, the Commission is proposing that the Basic Payment to new entrant Young Farmers should be topped up by an additional 25% for the first 5 years of installation.[39]

Small farmers

Any farmer wishing to participate in the Small Farmers Scheme will receive an annual payment fixed by the Member State of between 500 € and 1 000 €, regardless of the farm’s size. (The figure will either be linked to the average payment per beneficiary, or the national average payment per hectare for 3 ha.). Participants will face less stringent cross-compliance requirements, and be exempt from greening.[40]

Active farmers

This new definition is aimed to exclude payments to applicants who exercise no real or tangible agricultural activity on their land. The Commission is proposing that payments would not be granted to applicants whose CAP direct payments are less than 5% of total receipts from all non-agricultural activities This doesn't apply to farmers who receive less than 5 000 Euros in direct payments.[41]

"Capping"

The amount of support that any individual farm can receive will be limited to €300 000 per year. However, in order to take employment into account, the holding can deduct the costs of salaries in the previous year (including taxes & social security contributions) before these reductions are applied. The funds “saved” will be transferred to the Rural Development envelope in the given country.[42]

Cross compliance

All payments will continue to be linked to the respect of a number of baseline requirements relating to environment, animal welfare and plant & animal health standards. However, cross compliacnce will be greatly simplified.[43]

Why a CAP reform?

The CAP has successfully evolved over the years to meet the challenges; and the new reform will continue to evolve the policy and prepare it to better meet present and future challenges. The CAP is being reformed:

  • First, there is a need to respond to the economic, environmental and territorial challenges faced by agricultural and rural areas today and in the future, and in doing so to better align the CAP to the Europe 2020 strategy for smart, sustainable and inclusive growth.
  • Second, there is a need to make the policy more efficient and effective, as well as to further simplify it while maintaining sound financial management and controllability
  • Finally, CAP support should be made more equitable and balanced between Member States and farmers and better targeted at active farmers.

What are the next steps?

The Commission has put forward its legislative proposals on the 12 October 2011. Now the European Parliament and the Council, will debate the text. The approval of the different regulations and implementing acts is expected by the end of 2013. The CAP reform could come into force as from 1st January 2014.

For the first time both institutions (European Parliament and the Council) will decide on an equal footing on the new agriculture legislative package.

The Lisbon Treaty which came into force on the 1 December 2009, has extended the legislative powers of the EP. On Agricultural matters, now the European Parliament decides together with the Council in a procedure known as the co-decision procedure.

Criticism of the CAP

The CAP has been roundly criticised by many diverse interests since its inception. Criticism has been wide-ranging, and even the European Commission has long been persuaded of the numerous defects of the policy. In May 2007, Sweden became the first EU country to take the position that all EU farm subsidies should be abolished (except those related to environmental protection).[44]

Anti-development

Criticism of the CAP has united some supporters of neoliberal globalisation with the alter-globalisation movement in that it is argued that these subsidies, like those of the USA and other Western states, add to the problem of what is sometimes called Fortress Europe; the West spends high amounts on agricultural subsidies every year, which amounts to unfair competition.

Many developing countries are highly dependent on agriculture. The FAO finds that agriculture provides for the livelihood of 70% of the world's poorest people. As such, the subsidies in the CAP are charged with preventing developing countries from exporting agricultural produce to the EU on a level playing field. The WTO Doha Development Round, which intended to increase global development, has stalled due to the developed countries refusal to remove agricultural subsidies.

A review of post-2013 proposal by Prof. Alan Matthews underlines the lack of ambition in tackling the issue. "This CAP reform was not intended to address the trade barriers used to keep some EU market prices higher than world market levels. The EU has reduced the impact of these barriers for a number of developing countries through extending the scope of preferential access under various trade agreements, and a further reduction is being negotiated in the WTO Doha Round. Nonetheless, developing countries will be disappointed that the opportunity was not taken in this reform to set a final date for the ending of export subsidies. A more ambitious CAP reform, in which the targeting of direct payments was pursued more insistently and coupled payments were phased out, would also have a greater impact in removing the remaining distortions caused by the CAP to world markets." [45] In another study, Prof. Matthews showed how linking EU farm subsidies to goals such as environmental protection could help farmers in poor countries, although much depends on the size of the payments and how they are made.[46]

At the same time, however, the EU remains the world's biggest importer of farm products from developing countries. On average, over the period 2006–2008, the EU has imported € 53 billion worth of goods. This is more than the United States, Japan, Canada, Australia and New Zealand combined.[47] This is further encouraged by a preferential market access agreement for products from developing countries. Today, around 71% of the EU's agricultural imports originate from developing countries. The 'Everything But Arms' programme,[48] gives the world's 49 least-developed countries duty-free and quota-free access to the EU market. Under the Economic Partnership Agreements, countries from the African, Caribbean and Pacific group enjoy full duty-free and quota free access.[49]

Oversupply and its redistribution

To perpetuate the viability of European agriculture in its current state, the CAP-mandated demand for certain farm products is set at a high level compared with demand in the free market (see CAP as a form of State intervention). This leads to the European Union purchasing millions of tonnes of surplus output every year at the stated guaranteed market price, and storing this produce in large quantities (leading to what critics have called 'butter mountains' and 'milk lakes'), before selling the produce wholesale to developing nations.[50] In 2007 in response to a parliamentary written question the UK government revealed that over the preceding year the EU Public Stock had amassed "13,476,812 tonnes of cereal, rice, sugar and milk products and 3,529,002 hectolitres of alcohol/wine”, although the EU has claimed this level of oversupply is unlikely to be repeated. This point was actually proven in January 2009, where the EU had a store of 717,810 tonnes of cereals, 41,422 tonnes of sugar and a 2.3 million hectolitre 'wine lake', showing that the stocks had diminished dramatically.[50][51]

The food crisis in 2008, which saw the stocks empty out and the prices skyrocket, even introduced a popular demand for the introduction of emergency stocks of agricultural products in the EU, which would help stabilize prices both on the very volatile markets. In 2010, the European Commission announced its intention to sell out of its cereal stocks in order to stabilise the situation after a Russian grain export ban had stung world markets, sending wheat prices to two-year highs and sparked worries of a crisis in global food supplies that could spark widespread strains and protests.[52]

In fact, most countries in the world use stocks to keep prices more stable during bad harvest years when supply can't reach demand.[citation needed]

In 2010, the EU decided to use existing intervention stocks (cereals, milk powder and limited quantities of butter) for its "Food Aid for the Needy" scheme for 2011.[53] An estimated 13 million poor Europeans benefit from this scheme.

Parts of the EU stocks are exported with the use of export subsidies. It is argued that many African and Asian dairy, tomato and poultry farmers cannot keep up with cheap competition from Europe, thus their incomes can no longer provide for their families. At the same time, many urbanized families in the developing world benefit from the relatively cheaper products stemming from Europe.

For dairy products, export subsidies rose in 2009 after having been stopped in 2008. In 2009, the main recipients of dairy products that benefitted from export subsidies were: Russia, Saudi Arabia, Egypt and Nigeria.

According to the 2003 Human Development Report the average dairy cow in the year 2000 under the European Union received $913 in subsidies annually, whilst an average of $8 per human being was sent in aid to Sub-Saharan Africa. This may have been the situation ten years ago, as the 2003 report does state the fact that the Common Agricultural Policy has been thoroughly reformed over the last seven years. There is no such thing as a special subsidy for dairy cows in the CAP.

In 2005, the HDR described the CAP as "extravagant ... wreaking havoc in global sugar markets. However, this report was written before the EU sugar reform[54] took effect and its arguments are as such obsolete in 2010 where an increase in the world market price meant that world prices overtook the (much reduced after the recent sugar reform) EU reference price[55] As for sugar producers in the developing world, they now enjoy free access to the European market under the "Everything but Arms" agreement.

The 2005 HDR report also states "The basic problem to be addressed in the WTO negotiations on agriculture can be summarised in three words: rich country subsidies. In the last round of world trade negotiations rich countries promised to cut agricultural subsidies. Since then, they have increased them" an outcome hinted at in HDR 2003. Several reports from the latest negotiations in the WTO, however, contradict the theory of the 2005 HDR report. On 29 July 2008, the WTO negotiations in the Doha round finally collapsed because of differences between the US, India and China over agricultural trade.

Artificially high food prices

CAP price intervention has been criticised for creating artificially high food prices throughout the EU.[citation needed]. High import tariffs (estimated at 18–28%) have the effect of keeping prices high by restricting competition by non-EU producers. It is estimated that public support for farmers in OECD countries costs a family of four on average nearly 1,000 USD per year in higher prices and taxes.[56] It is true as well that the average EU household today spends 15% of its budget on food, compared to 30% in 1960.[57]

However there are several factors which cause food prices to rise, such as: climate change, energy, labour, transport, changing eating habits, amongst others. The price of food in supermarkets and shops has little to do with the CAP. For example, the price of cereals (which is subsidised very little by the CAP nowadays) is only 5% of the price of a loaf of bread (indeed, cereal prices have been falling for many years).[58]

The recent moves away from intervention buying, subsidies for specific crops, reductions in export subsidies, have changed the situation somewhat. In the past years intervention has been reduced or abolished in all sectors. After two decades of significant CAP reforms, farmers can now respond to market signals and increase production to react to the higher prices. Although the new decoupled payments were aimed at environmental measures, many farmers have found that without these payments their businesses would not be able to survive. With food prices dropping over the past thirty years in real terms, many products have been making less than their cost of production when sold at the farm gate.

Hurting smaller farms

Although most policy makers in Europe agree that they want to promote "family farms" and smaller scale production, the CAP in fact rewards larger producers. Because the CAP has traditionally rewarded farmers who produce more, larger farms have benefited much more from subsidies than smaller farms. For example, a farm with 1000 hectares, earning one hundred extra euro per hectare will make 100,000 extra euro, while a 10 hectare farm will only make an extra 1000 euro, disregarding economies of scale. As a result most CAP subsidies have made their way to large scale farmers.

Since the 2003 reforms subsidies have been linked to the size of farms, so farmers get same for a hectare of land regardless of how much land he owns. So while subsidies allow small farms to exist, large farms tend to get the larger share of the subsidies. With the 2008 Health Check of the CAP, a first step was taken towards limiting CAP payments to very large landowners.

The European Commissioner responsible for Agriculture and Rural Development Dacian Cioloş in his Public Hearing upon his nomination has showed his concern in small farms: "small holdings represent an important share, not only in the new Member States but also in South Europe". He has emphasised that a structural policy is needed "to modernise" small farms and to "develop existing opportunities in local markets", where there is "high demand for local products".[59]

Environmental problems

A common view is that the CAP has traditionally promoted a large expansion in agricultural production. At the same time it has allowed farmers to employ unecological ways of increasing production, such as the indiscriminate use of fertilisers and pesticides, with serious environmental consequences. However a total re-focusing of the payment scheme in 2004 now puts the environment at the centre of farming policy. By linking the payments to farmers to a number of strict environmental standards (amongst others) in the so-called cross compliance scheme, farmers will have to face cuts in their subsidy levels if they don’t meet the strict environmental requirements.

In 2010, the EU announced that 31% of the 5 billion euro that was earmarked the new (mainly environmental) challenges in agriculture would be spent on protecting and promoting biodiversity in the European countryside. This money is part of the EU rural development policy which is supporting agri-environmental projects throughout the 27 Member States.

In England, farmers have been lauded by the Royal Society for the Protection of Birds because the five most threatened bumblebees have made a comeback to the English nature due to the agri-environmental schemes.[60] In Germany, support for extensive farming and biotope management helps maintain habitat for rare species such as orchids and butterflies.[61] In Hungary, a special scheme was launched to protect the Great Bustard – the world’s largest flying bird, which needs areas with minimal disturbance and an abundant supply of insects to breed.[62] In Cyprus, agri-environment schemes support the maintenance of traditional trees and bushes which are a natural habitat for the island’s and likely to be of benefit to farmland birds in Cyprus[63]

Equity among member states

CAP 2004 beneficiaries

Some countries in the EU have larger agricultural sectors than others, notably France and Spain, and consequently receive more money under the CAP.[64] Countries such as the Netherlands and the United Kingdom have particularly urbanised populations and rely very little on agriculture as part of their economy (in the United Kingdom agriculture employs 1.6% of the total workforce and in the Netherlands 2.0%). Other countries receive more benefit from different areas of the EU budget. Overall, certain countries make net contributions, notably Germany (the largest contribution overall) and the Netherlands (the biggest contribution per person), but also the UK and France. The largest per capita beneficiaries are Greece and Ireland.

Cotton subsidies

In spite of these declarations, the EU Commission proposed the continuation of cotton subsidies, coupled to production.[65] The coupling of the subsidy means that they will continue to have significant trade-distoring effect, most notably on West African farmers who are unable to compete with subsidised cotton[66] The Communication on the future of the CAP does not mention the cotton sector. Nevertheless, the most trade-distorting subsidies to cotton production have already been eliminated in the 2004 reform. The current EU cotton production corresponds to 1% of global cotton production and its impact on the evolution of world market prices is therefore negligible. On the other hand,the EU is by far the largest provider of development assistance to cotton. In the framework of the EU-Africa Partnership on Cotton the EU has made available more than € 320 million. The EU market for cotton is already duty-free and quota-free and there are no export subsidies for cotton.

UK rebate and the CAP

The UK would have been contributing more money to the EU than any other EU member state, except that Margaret Thatcher's government negotiated a special annual UK rebate in 1984. Due to the way the rebate is funded, France pays the largest share of the rebate (31%), followed by Italy (24%) and Spain (14%).[67][68][69]

The discrepancy in CAP funding is a cause of some consternation in the UK. As of 2004, France received 13% of total CAP funds more than the UK (see diagram). This is a net benefit to France of €6.37 billion, compared to the UK.[70] This is largely a reflection of the fact that France has more than double the land area of the UK. In comparison, the UK budget rebate for 2005 is scheduled to be approx €5.5 billion.[71] The popular view in the UK (as, for example, set forth in the tabloid press) is that if the UK rebate were reduced with no change to the CAP, then the UK would be paying money to keep an inefficient French farming sector in business – to many people in the UK, this would be seen as "grossly unfair". French motives for generating arguments about "solidarity" and "selfishness" are therefore seen as extremely self-serving.

Percentage of EU farmland by country

If the rebate were removed without changes to the CAP then the UK would pay a net contribution of 14 times that of the French (In 2005 EU budget terms). The UK would make a net contribution of €8.25 billion compared to the current contribution of €2.75 billion, versus a current French net contribution of €0.59 billion.

In December 2005 the UK agreed to give up approximately 20% of the rebate for the period 2007–2013, on condition that the funds did not contribute to CAP payments, were matched by other countries' contributions and were only for the new member states. Spending on the CAP remained fixed, as had previously been agreed. Overall, this reduced the proportion of the budget spent on the CAP. It was agreed that the European Commission should conduct a full review of all EU spending.[72][73]

CAP as a form of state intervention

Some critics[who?] of the common agricultural policy reject the idea of protectionism, either in theory, practice or both. Free market advocates are among those who disagree with any type of government intervention because, they say, a free market without interference will allocate resources more efficiently.[citation needed] The setting of 'artificial' prices inevitably leads to distortions in production, with over-production being the usual result. The creation of Grain Mountains, where huge stores of unwanted grain were bought directly from farmers at prices set by the CAP well in excess of the market is one example. Subsidies allowed many small, outdated, or inefficient farms to continue to operate which would not otherwise be viable. A straightforward economic model would suggest that it would be better to allow the market to find its own price levels, and for uneconomic farming to cease.[citation needed] Resources used in farming would then be switched to a myriad of more productive operations, such as infrastructure, education or healthcare.[citation needed]

Economic sustainability

Many economists[who?] believe that the CAP is unsustainable in the enlarged EU. The inclusion of ten additional countries on 1 May 2004 has obliged the EU to take measure to limit CAP expenditure. Poland is the largest new member and has two million smallhold farmers. It is significantly larger than any of the other new members, but taken together the new states represent a significant increase in recipients under the CAP. Even before expansion, the CAP consumed a very large proportion of the EU's budget. Considering that a small proportion of the population, and relatively small proportion of the GDP comes from farms, many considered this expense excessive.

Experts such as Prof. Alan Matthews consider that new ‘greening’ measures in the EU’s proposed €418-billion post-2013 farm policy could lower the bloc’s agricultural production potential by raising farm input costs by €5 billion, or around 2 percent. [45]

How many people benefit?

Critics[74] argue that too few Europeans benefit. Only 5.4% of EU's population works on farms, and the farming sector is responsible for 1.6% of the GDP of the EU(2005).[75] The number of European farmers is decreasing every year by 2%. Additionally, most Europeans live in cities, towns and suburbs not rural areas. However, their opponents[who?] argue that the subsidies are crucial to preserve the rural environment, and that some EU member states would have aided their farmers, anyway.

The 2007-2008 world food price crisis has renewed calls for farm subsidies to be removed in light of evidence that farm subsidies contribute to rocketing food prices, which has a particularly detrimental impact on developing countries.[76]

See also

Other articles

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  • Common Agricultural Policy — ˌCommon Agriˌcultural ˈPolicy abbreviation CAP noun ECONOMICS FARMING in the European Union, a system of controlling the production and sale of farm produce, especially by paying government money to farmers to produce certain crops: • The… …   Financial and business terms

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  • Common Agricultural Policy — Common Ag|ri|cul|tu|ral Pol|i|cy, the the full name of the ↑cap …   Dictionary of contemporary English

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  • Common Agricultural Policy — (CAP)   Originally created with three main components: a single market for agricultural products, with common prices; a common external tariff (CET) on agricultural imports; and common financial responsibility. Its core is the guaranteed price… …   Glossary of the European Union and European Communities

  • Common Agricultural Policy — (CAP)    The CAP is a system of European Union (EU) agricultural subsidies. Its origins are to be found in an agreement made between France and West Germany during the drafting of the Treaty of Rome which provided for guaranteed markets for… …   Glossary of UK Government and Politics

  • Common Agricultural Policy — (also the CAP) the policy introduced in 1962 by the European Community, now the European Union, to protect European farmers. Under the system, farmers were paid even if they produced food that was not needed. Too much food was produced as a… …   Universalium

  • Common Agricultural Policy — Die Gemeinsame Agrarpolitik (GAP) ist ein Politikbereich der Europäischen Union. Sie beruht auf zwei sogenannten Säulen: den gemeinsamen Marktordnungen und der Entwicklung des ländlichen Raums. Zuständig für die Rechtsetzung im Bereich der GAP… …   Deutsch Wikipedia

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