The Common Agricultural Policy (CAP) is the European Union’s agricultural policy. Its main objectives are to ensure a fair standard of living for farmers, to provide a stable and safe food supply at affordable prices for consumers and to achieve a balanced development of rural areas throughout the EU. Given the changes to the constitution of the EU, the CAP has had to change accordingly to accommodate an ever-changing European Union.
The Common Agricultural Policy (CAP) was established with a view to lay the foundations for a common market in agricultural goods which required a common agricultural policy. To reach agreement on the essential features of such a policy required a willingness by each country to protect not only its own less efficient farmers but also the less efficient farmers in the partner countries as well. The more efficient countries in agricultural production, France and the Netherlands, wanted to speed up the elimination of internal customs barriers on foodstuffs, while the least efficient, Italy and Germany, wanted to slow down the dismantling of internal tariffs in agriculture until a common agricultural policy was agreed on. It was not until 1962 that the CAP came into practice, despite the urgency for prompt agreement on agricultural policy expressed in Article 40 of the Treaty of Rome. The CAP was supposed to enable the member states to achieve the five objectives for agriculture that they had enunciated in Article 39 of the same treaty.
- to increase agricultural productivity by promoting technical progress and the optimum use of production factors;
- to ensure a fair standard of living to the agricultural community by increasing its per capita income;
- to stabilize markets;
- to assure the availability of supplies; and
- to ensure reasonable consumer prices.
During the July 1958 Stresa Conference the fundamental principles of the CAP were laid down by the participating farmers’ federations and the delegations of the six member states. In June 1960 the Commission submitted its proposals, and in December 1960 the Council adopted three principles, namely that:
- A single market was to be established, with the free flow of goods and the harmonisation of prices and exchange rates;
- Community preference was extended to European farmers in the form of price supports and export subsidies, but foreign trade would not be eliminated;
- Joint financial responsibility would be accepted by all members through the creation of a common agricultural fund called the European Agricultural Guidance and Guarantee Fund (EAGGF).
In view of the fact that by 1980 the EEC was exporting more foodstuffs than it was importing, it is clear that the goal of agricultural self-sufficiency has been successfully reached. Over the course of the 1980s the EEC increased its net exports to the extent that traditional exporting nations such as the United States, Canada, and Argentina put considerable pressure on the Community to ease certain features of its policy. By the mid-1980s, the EEC-10’s share of Organisation for Economic Co-operation and Development (OECD) agricultural exports had risen to 56% from 45% in the late 1960s, while its share of OECD agricultural imports had fallen to 55% from 60% over the same 20-year period. At the same time, the US share of OECD agricultural exports had fallen from25% to 20%, while its share of imports had remained at about 19%.
It is clear that the success of the EU in achieving agricultural self-sufficiency over the years has been due to the price supports and market interventions of the CAP, rather than the increased membership to include countries with large agricultural sectors.
The CAP agreed on by the EEC-6 in 1962 was essentially a price support scheme, in which target prices would be set for each supported commodity that were the same across the entire Community. If the target price was met in each country then there was no impediment to letting the commodity be traded freely among the partner countries.
The CAP actually uses three types of market interventions:
- support prices, which cover about two-thirds of all CAP products.
- external protection which covers about a quarter of all products
- a special or flat-rate aid for certain products that keeps domestic prices low but supplements farmers’ incomes.
Since the MacSharry reforms, and the EU agreement to the Uruguay Round of Agricultural Adjustment (URAA) in 1995, the CAP has moved toward “aid to producers” under a variety of names that reflect the diversity of agricultural interests within the EU of the twenty-first century.
Direct aid to producers “decouples” aid payments to farmers from any direct connection to market variables. Moreover, because they are justified for diverse reasons by the member countries (such as protecting the environment from nitrate runoffs, afforestation, the upkeep of rural attractions, compensating for less favoured areas, retraining for alternative occupations, and taking early retirement, just to name some of the current categories of aid), member countries are allowed to complement EU expenditures up to certain limits.
The European Commission has argued that it is necessary to reduce, and gradually eliminate, the target levels for price supports. But political resistance by the farmers in all countries, justifiably fearful of the effect of falling prices on their ability to service the debt incurred to mechanise and modernise their operations, has repeatedly stalled efforts to reduce, much less eliminate, price supports and the export subsidies that finance them.
The response of the Commission has been to maintain subsidies at constant levels, while gradually redirecting them away from the large, highly productive farms to smaller, less productive farmers deserving of support for reasons other than achieving self-sufficiency or maintaining an export surplus, but by “recoupling” subsidies to favour larger farms, such as making subsidies depend on the area that had been under cultivation, or the size of the herd in the case of livestock, this has not been achieved. In an effort to close off these obvious loopholes, the Commission has set limits on the size of herds, areas of cultivation, and amount of inputs that it would subsidise for any given farm through “modulation”.