The Common Agricultural Policy (CAP) is the agricultural policy of the European Commission. It implements a system of agricultural subsidies, risk management instruments and other programmes. Along with the Common Fisheries Policy, the CAP is the main policy governing food production in the EU.
The CAP was introduced in 1962 and has since then undergone several changes to reduce the EEC budget cost (from 73% in 1985, to 37% in 2017) and consider rural development in its aims. It has however, been criticised on the grounds of its cost, and its environmental and humanitarian effects.
Overview
The CAP is often explained 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.The Economics of Europe – Dennis Swann (p. 232) The CAP has always been a difficult area of EU policy to reform; it is a problem that began in the 1960s and one that has continued to the present, albeit less severely. Changes to the CAP are proposed by the European Commission, after a public consultation, which then sends its proposals to the Council and to the European Parliament. Both the Council and the European Parliament have to agree to any changes. The Parliament was involved in the process of change for the first time in 2013. The involvement of the Parliament, which represents the citizens, increases the democratic legitimacy of the CAP. Outside Brussels proper, the impact of the powerful farming lobby has been a factor in determining EU agricultural policy since the earliest days of integration.
In recent times change has been more forthcoming because of external trade demands and intrusion in agricultural 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 Denmark (and formerly the UK) is fed in part by the CAP, which Eurosceptics consider detrimental to their economies.
Proponents claim that the CAP is beneficial to Europe as it protects the rural way of life although it is recognised that it affects world poverty. The policy has evolved significantly since it was introduced in 1962, on the legal foundation established by the Treaty of Rome (1957). Substantial reforms over the years have moved the CAP away from a production-oriented policy.
CAP has been divided into two pillars: Agricultural production support and common organisation of markets (Pillar I, known otherwise earlier as the agricultural guarantee section) Rural development policy (Pillar II, the agricultural structural policy pillar, known earlier as the agricultural guidance section).
Accordingly, the European Agricultural Guidance and Guarantee Fund (EAGGF) of the EU, which initially used to fund the CAP as a whole, has been replaced in 2007 with two separate funds, one for each of the two pillars: the European Agricultural Guarantee Fund (EAGF) and the European Agricultural Fund for Rural Development (EAFRD, a structural fund).
CAP reforms have steadily lowered its share in the EU budget: in 1980 it accounted for more than 70% of the EU expenditure while in 2021 it accounted for less than 25%.CAP expenditure in the total EU expenditure In 2019 France was the biggest beneficiary of the policy by 17.3%, followed by Spain with 12.4% and Germany (11.2%), Italy (10.4%), Poland (8.1%) and the UK (7.2%). The 2003 reform introduced the Single Payment Scheme (SPS) or as it is known as well the Single Farm Payment (SFP). The most recent reform was made in 2013 by Commissioner Dacian Cioloș and applies for the period 2014 to 2020.
Since 1970, a separate Common Fisheries Policy (CFP) has been in place for the EU fisheries and fish market, with its own separate structural policy fund established as a spin-off from the EAGGF in 1993 (currently operating under the name European Maritime, Fisheries and Aquaculture Fund or EMFAF), while the fish market interventions have remained financed from the European Agricultural Guarantee Fund.
Agricultural production support and common organisation of markets (Pillar I) This part of CAP is financed from the European Agricultural Guarantee Fund (EAGF). 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). Farmers have to respect environmental, food safety, phytosanitary and animal welfare standards. This is a penalty measure: if farmers do not respect these standards, their payment will be reduced.
The direct aids and market related expenditure made up 31% of the total EU budget in 2010. Together with 11% for Rural Development, the total CAP budget took 42% of the total EU budget The CAP budget shrank relatively from 75% in 1984 to 37% of the total EU budget in 2017.
Intervention mechanisms diminished significantly, for instance the Commission only intervened on: common wheat, butter, and skimmed milk powder. The Health Check of the CAP agreed in November 2008 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 abolished arable set-aside, increased milk quotas gradually leading up to their abolition in 2015, and converted market intervention into a genuine safety net. Ministers also agreed to increase modulation, whereby direct payments to farmers were reduced and the money transferred to the Rural Development Fund.
Milk quotas expired in April 2015. To prepare the dairy farmers for this transition, a 'soft landing' was ensured by increasing quotas by one per cent every year between 2009–10 and 2013–14. For Italy, the 5 per cent increase was introduced immediately in 2009–10. In 2009–10 and 2010–11, farmers who exceed their milk quotas by more than 6 per cent had to pay a levy 50 per cent higher than the normal penalty.
Production and market sectors covered by the CAP The common agricultural policy price intervention covers only certain agricultural products: cereal, rice, potatoes and flour cooking oil energy crops, vegetable oil fuel, biodiesel, bioethanol animal feed stuffs and dried fodder milk and milk products (such as condensed milk, powder milk, butter, cheese, whey, buttermilk, cream, yoghurt, kefir) grapes, wine, vinegar, cider honey beef and veal, poultry meat and eggs, pig meat, sheep / lamb meat and goat meat sugar fruit and vegetables (including cultivated mushrooms) cotton peas, chickpea, lentil, field beans, soybean sweet lupins olives flax seeds flax fibers silkworms hemp tobacco hops seeds animal semen, egg cells and embryos flowers and live plants
Fish, molluscs and crustaceans are covered by the separate Common Fisheries Policy.
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).
Objectives The objectives, set out in Article 39 of the Treaty on the Functioning of the European Union, are as follows: to increase productivity, by promoting technical progress and ensuring the optimum use of the factors of production, in particular labor; 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.
CAP is an integrated system of measures that works by maintaining commodity price levels within the EU and by subsidizing 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 allowing them to sell particular goods within the EU without tariffs. This notably applies to countries that 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, while some farmers made imaginative use of 'set-aside', for example, setting aside land that 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 bio-fuels.
The change in subsidies was intended to be completed by 2011, but individual governments had some freedom to decide how the new scheme would be introduced. The UK government decided to run a dual system of subsidies in England, 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 reduced each subsequent year. This allowed farmers in England a period where their income was maintained, but which they could use to change farm practices in accord with the new regime. Other governments chose to wait, and change the system in one go at the latest possible time. Governments also had 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 England 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.
Rural development policy (structural policy, Pillar II)