The Common Agricultural Policy (CAP) is a system of European Union agricultural subsidies which represents about 50%-70% of the EU's spending. These subsidies work by guaranteeing a minimum price to producers, which provides some economic certainty for EU farmers, thus ensuring the production of a certain quantity of agricultural goods.
Creation of the CAP
The creation of a common agricultural policy was proposed in 1960 by the European Commission. It followed the signature of the Treaty of Rome in 1958, which established the Common Market. The six member states were to be strongly affected by State intervention, in particular in regards to what was produced, intervention prices and farm structures. Some Members States, in particular France, and all farming professional organisations wanted to maintain strong state intervention in agriculture, however, some of the policies had to be transferred at the European Community level. In 1962, general orientations of the CAP were set, built upon three major principles:
- market unity
- Community preference
- financial solidarity
Since then, the CAP has been a central element in the European institutional system, and constitute part of the political and economical cement between the different members of the Community.
Instruments of the CAP
The CAP works through policy on markets and prices, based on common organisations of the market. It governs the production and market of agricultural products during the marketing year and by means of socio-structural policy. It coordinates farm structures' evolution and adaptation. The CAP also uses external trade policy and legislative harmonisation within the Community.
An obstacle to Community trade is the diversity of national laws regarding production or trade. Examples are the use of preservatives, coloring agents , hormones and disease control (e.g.during the foot and mouth disease outbreak in the United Kingdom, Ireland and the Netherlands). In spite of some harmonization, it is far from complete and some issues are still to be resolved.
The CAP is funded by the European Agricultural Guidance and Guarantee Fund (EAGGF) of the EU. Although CAP reform has steadily lowered its share, it has usually consumed at least half of the budget. In recent years, the biggest beneficiary of these subsidies has been France. Some of the strongest supporters in the face of calls for liberalisation of agricultural markets are French.
Objectives of the CAP
The initial objectives were set out in Article 39 of the Treaty of Rome:
- to increase productivity, by promoting technical progress and ensuring the optimum use of the factors of production, in particular labour;
- to ensure a fair standard of living for the agricultural Community;
- to stabilise markets;
- to secure availability of supplies;
- 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.
Sectors covered by the CAP
The common agricultural policy covers only some agricultural products, which are, by mutual agreement, subject to the organisation of the EU market:
- cereal, rice, potatoes
- dried fodder
- milk and milk products, wine, honey
- beef and veal, poultry meat and eggs, pig meat, sheep meat and goat meat
- fruit and vegetables
- peas, field beans
- sweet lupins
- olive oil
- seed flax
- fibre flax
- flowers and live plants
- animal feed stuffs
The coverage of products in the external trade regime (EU) is more extensive than the coverage of the CAP regime. This is to limit competition between a CAP product or any EU product with added-value produced from a CAP covered product with an external product (for example, litchi juice could potentially compete with orange juice) .
Some major critics of the Common Agricultural Policy are those that reject the idea of protectionism, either in theory, practice or both. Free market advocates are among those who disagree with the government intervention because, they say, a free market (one without such intervention) will allocate resources much more efficiently.
Criticism of the CAP also has united some supporters of globalization with the anti-globalisation movement in that it is argued that these subsidies, like those of other Western states, add to the problem of what is sometimes called Fortress Europe ; The West spends high amounts on agricultural subsidies every year, and this is sometimes viewed as a tax on poorer nations competing for the agricultural markets. As such, the OECD countries' total agricultural subsidies amount to more than the GDP of the whole of Africa, and according to a study by the Centre for the New Europe , the CAP indirectly kills 6,600 people in developing countries every day.
Moreover it is argued that in creating an oversupply of agricultural products which are then sold in the third-world and simultaneously preventing the third world from exporting its agricultural goods to the West, that the CAP increases third world poverty by putting third world farmers out of business. The average cow in the European Union makes more in subsidies than the average African person makes working.
Agricultural subsidies also maintain artificially high food prices throughout the EU. Some have suggested that Europeans pay about 25% higher prices for food than they would without the CAP, whereas the Timbro research institute has counted figures reaching over 80%. According to the World Bank Human Development Report 2003 in 2000 the average dairy cow in the EU receives $913 in subsidies, compared with an average of $8 per person in Sub-Saharan Africa. This subsidy is estimated to cost each EU citizen on average £16 per week
The CAP is disproportionately favourable to certain areas of the EU, notably France, Spain, and Portugal. These countries receive large amounts of money at the expense of other countries, especially Germany and the UK.
Many economists believe that the CAP is unsustainable in an enlarged EU. With the inclusion of ten additional countries on May 1, 2004 the demands on the CAP will increase dramatically (especially in the case of Poland which has two million smallhold farmers). However, reform of the programme has proven difficult because of political constraints, in the form of strong agricultural lobbies, in some member countries.
Reforming the CAP
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 more free agricultural markets. 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 aforestation.
Since the MacSharry reforms cereals are closer to the equilibrium level, there is greater transparency in costs of agricultural support and we are beginning to see ‘de-coupling’ income support from production support. However, administrative complexity required invites fraud, and the associated problems of the CAP are far from being corrected. This is especially since the expansion of the EU in 2004 doubled the EU agricultural population, and increased the agricultural land area by 50%.
The 2004 entrants into the EU do have immediate access to price support measures (export refunds, intervention buying). However direct payments will be phased in over 10 years (2004-2014), starting at 25% of what existing countries get. The 2004 entrants to the EU have access to a rural development fund (for early retirement, environmental issues, poorest areas, technical assistance) with a €5b budget.
The current areas that are issues of reform in EU agriculture are; Lowering prices, food safety and quality, and stability of farmers incomes. Other issues are environmental pollution, animal welfare, and finding alternative income opportunities for farmers, these issues however are the responsibility of the member states.
Last updated: 08-14-2005 06:48:49