EPIC Publishing Updates: The European Union Explained Chapter 11: the Common Agriculture Policy
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Andreas Staab. The European Union Explained.
Institutions, Actors, Global Impact.
Indiana University Press. 2013
Update Chapter 11: The Common Agricultural Policy
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This update integrates developments surrounding the 2013 reform, as well as the agenda for CAP 2023 - 2027
From its conception in 1950s the Common Agricultural Policy was a cornerstone of European integration, yet it has always been severely criticized. At first glance it seems odd that a programme providing for only 1.3 percent of the EU's GDP and employing only 4.2 percent of its workforce should swallow up a third of its budget. Ever since 1962, when for the first time there was free trade in practically all agricultural products across the European Community, the CAP has been censured for being a uniquely wasteful bureaucratic way of supporting agriculture, and for being managed based on endless negotiations between national ministers who themselves are subject to fierce lobbying. Critics point out that this system, which gives direct subsidies to farmers and sets artificially high prices, shields farmers from market discipline and prevents products from selling more cheaply at world-market prices. Eurosceptics have a great deal of ammunition here in depicting the EU as an overly bureaucratic and inefficient exercise; indeed, the CAP even appears unnecessary in view of the economic insignificance of European agriculture in the twenty-first century. Yet every EU citizen supports it, either directly or indirectly--directly through EU payments to farmers and indirectly by paying food prices that in the past were up to 40 percent above the world-market level. So, a fundamental question is why the EU's founding fathers decided to support what appears to be institutionalized madness. The key issues in this controversy revolve around the following questions: 1. What are the CAP's key structural design faults? 2. Who are the CAP losers and beneficiaries? 3. Why has the progress of CAP reform been so slow? 4. What challenges did the 2004/2007 enlargement pose for the CAP? 5. Should the organization of agriculture be left to the member states and not to the EU?6. How have environmental challenges, such as global warming affected the regulation of food production in the EU?
Reasons for Organizing Agriculture
The challenges facing agriculture and food production in the 21st century stand in marked contrast to 1962, when the CAP first started operating. Back then, Europe had just come out of the immediate post-war era, and issues such as assuring a stable supply of food and increasing productivity were high on the agenda of policy makers. Nowadays agriculture has taken on a much more global dimension. With an ever-increasing world population, food production needs to double by 2015 in order to keep up with growing demand. Meat consumption is set to increase substantially given the rising living standards in developing economies, which poses a dramatic threat to the planet’s ecological balance, as cattle breeding consumes vast amounts of water, takes up a sizeable chunk of arable land and substantially raises greenhouse gases. Furthermore, climate change and global warming carry the dangers of deteriorating soil, reduced water quality and the loss of biodiversity. And a sub-standard regulation of food production and consumption has already sparked an obesity crisis (in particular in the United States and in the UK) which could ultimately overstretch public health services. It seems that now more than ever, agriculture represents one of the vital areas of public policy. There are profound reasons why agriculture requires the support of governmental intervention and governmental authorities--whether at the national or EU level. First, without any financial support, many farmers might be forced to sell their farms and ultimately move to towns and cities, leaving their land either idle or to be taken over by bigger farms. Europe would then witness the transformation of its countryside along American lines, with acre upon acre of identical crops farmed by big agri-businesses stretching toward the horizon. The diverse European landscape would become a distant memory. Second, agricultural production predominantly takes place in rural areas, where it is quite often one of the few employment opportunities. Without local jobs available, people would either have to commute, considerably impacting the environment, or move altogether to more urban areas with serious consequences for the economic and social livelihood of smaller communities. Schools and shops would then have to close, and a village might turn into a dormitory for the retired or for second-home owners. Third, farmers are also land managers. As part of their daily business, they keep pests and animal population under control. Without farmers, governments would have to employ park rangers to keep the land in a manageable condition. Fourth, in contrast to any industrial sector, the production of many agricultural commodities is subject to forces beyond human control such as droughts, earthquakes, floods, and pests. Obviously agricultural production is difficult to plan or predict under these randomly occurring natural circumstances. In 1952 the Dutch Minister of Agriculture Sicco Mansholt stated that the principle of economic liberalism (by which he meant the forces of supply and demand) may be suitable for industrial sectors of the economy, but it cannot be applied to farming. Fifth, agricultural products have low-income elasticity of demand. A company such as Apple, for instance, can constantly reinvent its product line by convincing us to adjust our daily routines to integrate a computer tablet or the latest edition of a smart phone. Farmers have limited opportunity to expand their product line. Simply put, a consumer can buy a TV set for the living room, and another for the bedroom, but one is not inclined to eat two meals instead of one at dinnertime. As general prosperity levels rise, consumers spend smaller proportions of their income on agricultural products, and so farm incomes tend to lag behind the incomes of those working in the industrial sector.
Prior to the signing of the Treaty of Rome in 1957, a number of EU-specific political conditions favoured the adoption of an agricultural policy. First, in the early 1950s some 25 percent of the total workforce of the original six member states was employed in agriculture. In Italy the figure was close to 40 percent, and in France 26 percent. Although in West Germany it was only around 20 percent, farmers represented a major constituency of the ruling Christian Democrats. An agricultural policy therefore had a much larger impact on the lives of Europeans than it has today. Second, except for Luxembourg, the original member states already had a system of farm-price support. Especially in France, West Germany, and Italy, most farmers were small holders and required subsidized prizes to maintain an acceptable level of income. But against the backdrop of the establishment of a European Single Market in 1957, a unified and streamlined agricultural market simply became a necessity. The third reason for adopting an agricultural policy was the insistence of the French government, which was prepared to help get the European project off the ground only if a strong and durable system of support for prices and farm incomes was developed. France regarded the CAP as a powerful counterweight to West Germany's perceived industrial dominance within the Community. If Germany, with its strong export-oriented manufacturing industry, was to benefit from the free movement of goods, the French farmers ought to benefit from a European agricultural policy.
Table 11.1. Objectives of the CAP
• To increase agricultural productivity• To ensure a fair standard of living for farmers • To stabilize markets• To assure food supplies• To provide consumers with food at reasonable prices
Source: Article 39, Treaty of Rome, 1957.
Prior to the signing of the Treaty of Rome in 1957, a number of EU-specific political conditions favoured the adoption of an agricultural policy. First, in the early 1950s some 25 percent of the total workforce of the original six member states was employed in agriculture. In Italy the figure was close to 40 percent, and in France 26 percent. Although in West Germany it was only around 20 percent, farmers represented a major constituency of the ruling Christian Democrats. An agricultural policy therefore had a much larger impact on the lives of Europeans than it has today. Second, except for Luxembourg, the original member states already had a system of farm-price support. Especially in France, West Germany, and Italy, most farmers were small holders and required subsidized prizes to maintain an acceptable level of income. But against the backdrop of the establishment of a European Single Market in 1957, a unified and streamlined agricultural market simply became a necessity. The third reason for adopting an agricultural policy was the insistence of the French government, which was prepared to help get the European project off the ground only if a strong and durable system of support for prices and farm incomes was developed. France regarded the CAP as a powerful counterweight to West Germany's perceived industrial dominance within the Community. If Germany, with its strong export-oriented manufacturing industry, was to benefit from the free movement of goods, the French farmers ought to benefit from a European agricultural policy.
Table 11.1. Objectives of the CAP
• To increase agricultural productivity• To ensure a fair standard of living for farmers • To stabilize markets• To assure food supplies• To provide consumers with food at reasonable prices
Source: Article 39, Treaty of Rome, 1957.
How does the CAP work?
Based on these political, structural, and welfare ideological points, the original six member states spelled out the objectives for the CAP in Article 39 of the Treaty of Rome; the goal was to increase agricultural productivity, ensure a fair standard of living for farmers, stabilize markets, assure food supplies, and provide consumers with food at reasonable prices (see Table 10.1). On close inspection, two of these goals contradict each other. A fair standard of living for farmers clashes with the objective of providing reasonable prices for consumers. Because farmers receive a substantial portion of their income through food prices, the higher the prices, the higher their standard of living.
As a system of indirect income support for farmers, the CAP functions by separating the European Union's internal market from the world market through three distinct measures:1. A unified market: the free movement of agricultural products across all borders within the EU2. Community preference: EU products are preferred over imports from non-EU countries3. Financial solidarity: the CAP is exclusively funded from the EU budget, and national governments are not allowed to subsidize farmers' income.
Even better for European agriculture, every product is guaranteed a price higher than the world-market price that is set annually by the Council of Agriculture Ministers through unanimous voting. The EU also buys any crop surpluses from European farmers, and it imposes a duty on non-EU producers to bring the prices of their products from the (lower) world-market level to the (higher) EU level. In return, EU producers receive an export subsidy that brings the cost of their products down from their (higher) EU standard to the (lower) world-market standard (see Table 11.2). This organizational structure requires the member states to set up agencies that pay farmers for their products, and also to buy food surpluses. Member states forward the amount of their CAP expenses every month to the Commission for reimbursement. The budget of the CAP is organised into two pillars. Pillar 1, also referred to as the European Agriculture Guarantee Fund (EAGF) is by far the larger of the two with around three quarters of allocated CAP money and offers direct payment to farmers, as well as export subsidies. Pillar 2, the European Agriculture Fund for Rural Development (EAFRD) targets specific measures, such as biodiversity, organic farming, or conservation.
Table 11.2. The Pricing System of the CAP
• Target price: guarantees EU farmers a minimum price for every product.• Intervention price: the price at which CAP agencies buy off surplus products (the same as the target price)• Entry price: the price that EU importers have to pay (higher than the target price)• Levy: the duty on EU imports, which raises them to the level of the target price • Refund: given to EU exporters in order to bridge the gap between high EU prices and lower world-market prices.
As a system of indirect income support for farmers, the CAP functions by separating the European Union's internal market from the world market through three distinct measures:1. A unified market: the free movement of agricultural products across all borders within the EU2. Community preference: EU products are preferred over imports from non-EU countries3. Financial solidarity: the CAP is exclusively funded from the EU budget, and national governments are not allowed to subsidize farmers' income.
Even better for European agriculture, every product is guaranteed a price higher than the world-market price that is set annually by the Council of Agriculture Ministers through unanimous voting. The EU also buys any crop surpluses from European farmers, and it imposes a duty on non-EU producers to bring the prices of their products from the (lower) world-market level to the (higher) EU level. In return, EU producers receive an export subsidy that brings the cost of their products down from their (higher) EU standard to the (lower) world-market standard (see Table 11.2). This organizational structure requires the member states to set up agencies that pay farmers for their products, and also to buy food surpluses. Member states forward the amount of their CAP expenses every month to the Commission for reimbursement. The budget of the CAP is organised into two pillars. Pillar 1, also referred to as the European Agriculture Guarantee Fund (EAGF) is by far the larger of the two with around three quarters of allocated CAP money and offers direct payment to farmers, as well as export subsidies. Pillar 2, the European Agriculture Fund for Rural Development (EAFRD) targets specific measures, such as biodiversity, organic farming, or conservation.
Table 11.2. The Pricing System of the CAP
• Target price: guarantees EU farmers a minimum price for every product.• Intervention price: the price at which CAP agencies buy off surplus products (the same as the target price)• Entry price: the price that EU importers have to pay (higher than the target price)• Levy: the duty on EU imports, which raises them to the level of the target price • Refund: given to EU exporters in order to bridge the gap between high EU prices and lower world-market prices.
The Structural Shortcomings of the CAP System
The most obvious problem here is that guaranteed prices bear no relation to demand, and they encourage overproduction. The more the farmers produce, the more the EU will buy from them. Indeed, between 1973 and 1988 the price guarantees stimulated agricultural production at a rate beyond what the European market could absorb. This led to the problem of having to store the surpluses, some of which are perishable and need refrigeration, thus adding another burden to the taxpayer. A further unwanted effect of the CAP is that in attempting to support small, often family-owned farms, the system does exactly the opposite: because the CAP rewards are based on quantity, the greatest beneficiaries are big farmers who have the finances to invest in new technology and equipment. The environment, too, suffered, since farmers, in order to produce more, have the incentive to use pesticides and artificial fertilizers. Finally, the preference of EU produced food imposes protectionist measures - import taxes and quotas on non-EU farmers - that conflict with the trend toward global free trade, competition, and market liberalization, while export price supports distort world prices, undercut non-EU farmers, and lead to trade disputes and serious disadvantages for developing economies. Admittedly the EU gives much of its surplus as humanitarian assistance to crisis-ridden areas. In 2021, total global food aid totalled just over 5 billion$, with the EU’s share at around 40 percent. Although this may be laudable, the CAP still denies producers from developing countries access to rich European markets. Even worse, the dumping of overproduction on Third World markets robs local farmers of the incentive to be self-sufficient and to find their market niche. Picking up an EU food parcel from the aid agency seems much easier than carving out a meagre existence by working one's land.In the 1970s the increasing financial burden of the CAP left the EU facing the prospect of bankruptcy. With unlimited market guarantees and increased productivity, and prompted by technical progress, expenses grew as high as around 70 percent of the EU's budget by 1984. Overproduction reached obscene proportions. In the early 1990s, for example, the EU of twelve member states produced 20 percent more food than it could consume, resulting in the infamous wine lakes and the butter and sugar mountains. Clearly something had to be done (see Table 11.3).
Table 11.3. The Shortcomings of the CAP
• Overproduction• Storage• Big farms benefit more than small farms• Environmental damage• Trade protectionism• Disincentive for farmers from the developing world to become self-sustainable.
Table 11.3. The Shortcomings of the CAP
• Overproduction• Storage• Big farms benefit more than small farms• Environmental damage• Trade protectionism• Disincentive for farmers from the developing world to become self-sustainable.
Attempts to Reform the CAP
Given the fundamental problems of the CAP, politicians had a number of options for remedying the growing concerns. These included: 1. Reduce food prices for consumers 2. Establish production ceilings to lessen overproduction 3. Create land set-aside programs to reduce production 4. Direct payments to poorer farmers to satisfy welfare considerations 5. Set a maximum ceiling of financial support for richer farms 6. Establish environmental standards 7. Allow non-EU farmers access to EU markets and limit export subsidies for EU farmers
Every reform idea used a combination of these solutions to different effect. As a first serious attempt, the European Community introduced the so-called Stabilizer Reform Package of 1988. Initial negotiations were complicated by two opposing fundamental conceptions on how agriculture should be managed. On one side, Britain and Denmark argued for budgetary adjustments, production ceilings, and a producer's tax to help defray the cost of storage and export subsidies. On the other side, Belgium, France, Germany, and the Mediterranean countries emphasized the socio-cultural necessity of supporting agriculture to maintain the livelihood of rural communities, and argued for continued price support at current levels, with producers suffering only marginal penalties for exceeding their production ceilings. A number of reforms were finally adopted in 1988 (see Table 11.5), but none addressed the basic flaws in the CAP. Germany funded a compromise by paying an extra 5 billion ECU to the EC budget over the next five years (ECU refers to the European Currency Unit, a basket of European currencies that was used as a means of settlement between European central banks). Production ceilings were set for all major crops, and price penalties were imposed on producers who exceeded the ceilings. Unfortunately, the ceilings were established at relatively high levels, and the fines were low. Member states were also asked to introduce a land set-aside program, as well as early retirement schemes. However, the major problems remained: developments on the world market still did not necessarily influence EC farmers' decisions; the reforms completely ignored the problem of overproductivity; the introduction of environmental standards was not achieved; and the income gap between the highly productive minority of large agricultural producers and the economically less efficient but socially important majority of small-business farmers continued to widen.
More radical steps were needed, and these came with the 1992 MacSharry Reform Package, named after the Irish Agricultural Commissioner Ray MacSharry. By the 1990s, with the proposal of a single currency and the development of the Single Market taking centre stage in European politics, the CAP, to some degree, had lost its meaning as one of the vital cornerstones of European integration. Market intervention as practiced in the CAP was an anachronism for a community that advocated the free movement of goods, services, capital, and labour. By the 1990s, moreover, the contribution of the agricultural sector to the GDP and to overall employment had dropped significantly since the 1950s.
Table 11.5. Key Attempts to Reform the CAP
• Stabilizer Reform Package (1988)• MacSharry Reform Package (1992)• Agenda 2000 (1997)• Fischler Reform (2003) • Cioloş Reform (2013)• CAP 2023 - 2027
MacSharry was appalled by the levels of overproduction still afflicting European agriculture. In 1992, the EU generated an excess of 20 million tonnes of cereal, 1 million tonnes of dairy produce and 750,000 tonnes of beef. He attempted to solve this problem by implementing a widespread reduction in prices. For example, the intervention price for cereals dropped by 29 percent, for beef by 15 percent, and for butter by 5 percent. Land set-aside programmes were also on the agenda with large-scale farmers being asked to reduce their arable land by 15 percent. MacSharry also established a programme that subsidized farmers for up to twenty years if they set aside land with the specific aim to protect the environment. The result was a massive increase in the cost of the CAP, a consequence of the land set-aside subsidies, but also of the increased direct payments which were now handed to all farmers to the tune of 207 ECU per hectare. MacSharry argued, however, that in the long run the reduced use of agricultural land would lead to significant savings. More important, the new CAP represented a major shift from a policy of non-transparent consumer subsidies (through higher prices in supermarkets) to one of transparent taxpayer subsidies (through direct payments to farmers). Thus, the CAP was now more open to regular public scrutiny and evaluation. MacSharry's reforms also enabled the EU to come to an agreement in the General Agreement on Tariffs and Trade (GATT) rounds. After an agricultural Cold War between the U.S. and the EU that stalled negotiations for seven years, the Uruguay Round finally came to an end in December 1993. The new GATT covered all farm products and further reduced the EU's subsidies to its farmers. Although the GATT certainly did not force the EU to open its agricultural markets to the world, and particularly to developing countries, it nonetheless represented a much-needed step in the right direction.
The reforms of the early 1990s, however, could not guarantee a stable CAP in the face of continued technical progress and rising productivity. EU members were well aware that drastic reforms were needed to avoid a further budget crisis and to maintain Europe's political legitimacy before increasingly dissatisfied taxpayers. More important, with the countries of Central and Eastern Europe applying for EU membership, a radical overhaul of the CAP seemed appropriate. The Commission argued that the entry of the candidate countries would at least double the agricultural land and the number of people working in agriculture and would also burden the CAP with an additional 15 billion Euros, an increase of 40 percent. Responding to this challenge, the Commission, in 1997, published its Agenda 2000, proposing reforms that continued down the path taken by MacSharry with higher standards for food safety and the environment, as well as a further reduction in prices, for instance for cereals (minus 20 percent) and beef (minus 30 percent). The Commission intended to establish a program that would create alternative sources of income for farmers, with the clear aim of reducing the number of CAP recipients. In any case, the Commission estimated that the total costs for the CAP would rise by 6 billion Euros per year. Not surprisingly, the Agenda 2000 was therefore hotly debated at the Berlin summit in March 1999. In a diplomatic tour de force, French President Jacques Chirac, who had always been responsive to his own domestic agricultural lobby, managed to convince the fourteen other heads of government that enlargement to Central and Eastern Europe remained a remote prospect and so immediate action was not required. Hence reform of the CAP was delayed until negotiations with the candidate countries had reached a more mature state; a decision many commentators judged to be short-sighted. Specifically a more widespread cut in prices hardly materialised. In the end, the member states could only agree on a milk price reduction of 15 percent (to become effective in 2005). Beef prices were reduced by 20 percent (instead of the proposed 30 percent), and the price of cereals was reduced by a mere 7.5 percent. As a minor concession, the new CAP included long overdue standards for food safety and the environment. The summit also agreed to increase direct aid payments, either per hectare or per head of cattle. This meant that at least the annual budget stayed at approximately the same level of 42.3 billion Euros. But the package also meant that further drastic reforms were needed to prepare the CAP for enlargement. The summit acknowledged this by asking the Commission to return with another proposal in 2002. Government leaders found it difficult to confront their agricultural constituencies with the bitter truth that they ought to get used to a future of reduced subsidies and lower guaranteed prices. In the end the Berlin summit reached a compromise that failed in its attempt to please taxpayers and finance ministers, on one side, and the powerful agricultural lobby, on the other.
A further point of controversy was the reform of the World Trade Organization (WTO). The Seattle meeting in 1999 dramatically displayed the ideological differences between countries concerning the global market. Many EU trading partners--particularly the U.S. and Australia--demanded the complete elimination of export subsidies. In return, the EU pointed to other, less transparent forms of subsidies such as tax breaks, which the U.S. delegation tried not to mention. The EU also wanted full recognition of the multifunctional role of agriculture, with such objectives as environmental preservation, landscape conservation, and food safety. In Seattle the Agriculture Commissioner Franz Fischler and the Trade Commissioner Pascal Lamy at least offered special trade concessions, such as tariff-free access for the least-developed states. Nonetheless, negotiations stalled at the follow-up meetings in Doha (2001) and in Cancun (2002). Fischler managed to reignite the debate in December 2002, with a detailed proposal for the next WTO round where the EU argued for a worldwide cut in trade-distorting subsidies by 55 percent and for lowering export refunds by an average of 45 percent complemented by a reduction of import tariffs by an average of 36 percent. The centrepiece of his plan was to allow goods from the poorest countries to enter the industrialized world duty-free. However, Fischler continued to insist on the socio-cultural and environmental objectives of the European agricultural model, arguing that measures supporting such standards ought to be exempt from the reduction commitments. He also took a parting shot at the United States by pointing out the need to address export credit systems and shipping food aid merely to dump surpluses in order to keep up prices. The proposal undoubtedly had some highly progressive elements, but the establishment of these unquestionably more favourable conditions for developing countries depended largely on the ability of First World competitors to settle their differences.
Regarding enlargement to the countries of Central and Eastern Europe, the Commission dutifully presented two key proposals on how to rejuvenate the CAP. In January 2002 DG Agriculture outlined its plans on how to integrate twelve new member states, which would increase the number of farmers in the EU by 70 percent (see Table 10.6). The key was the gradual introduction of direct payments, but, in reality, this meant that, in 2004, farmers in the accession countries would receive only 25 percent of the financial aid given to their counterparts in Western Europe, with the amount gradually rising to 100 percent by 2013. Fischler argued that a full introduction of EU payments would reduce the incentive for badly needed structural reforms in the farming sectors of Central and Eastern Europe. Clearly the EU did not want to create a dependency culture, but it had to face the criticism that it was trying to establish a two-tier system, with accession farmers treated as second-class citizens. In return, Fischler argued that the new EU farmers would benefit from increased rural development measures; 80 percent of which would be covered by the EU budget, including early retirement, afforestation, technical assistance, and environmental programmes. He also envisioned the retraining of farmers for other professions to be financed by the EU’s Cohesion Policy (see chapter 11). To further sweeten his reform, Fischler also offered the government of the accession countries the chance for national top-ups (a measure with existing EU members were not permitted to pursue) in order to match these countries’ agricultural spending levels prior to joining the EU.
To the Commission's delight, the European summit in Copenhagen in December 2002 fully accepted Fischler's ideas, which then became the legal basis for organizing agriculture in the post-accession era. The summit also determined the exact amount of money the new member states could expect, rising from 9.9 billion Euros in 2004 to 14.9 billion Euros in 2006. This meant that Poland - the largest of the accession countries - would secure a transfer of 1 billion Euros from the EU's Structural Funds. For all new entrants the financial package increased by 408 million Euros. In the end the costs related to enlargement rose to a total of around 37 billion Euros between 2004 and 2006. The existing member states therefore avoided an increase in their contributions to the EU budget, which to this day is just a fraction over one percent of their GNP. Instead, enlargement was financed from existing funds.
Fischler's intention to shake up the CAP did not stop with enlargement or the WTO. In July 2002 he proposed further radical steps for the internal reform of the CAP, with a plan that de-coupled subsidies from the amount that farmers produced. The Commission also proposed a new system, “cross-compliance," which set conditions for the granting of subsidies: farmers had to follow highly specific guidelines for upholding environmental, animal welfare, and hygienic standards, and for preserving the countryside. Hence Fischler's objective was to address, once and for all, the embarrassing anachronism of the traditional price support scheme that allowed 20 percent of EU farmers to receive 80 percent of CAP money. The member states approved the Commission's idea and this new regime was implemented by mid-2003, with a more detailed list of compliance factors agreed upon at the European Council meeting in June 2005. But farmers unions across Europe were highly critical of the cross-compliance system. Although most agreed that the old price support system was outdated and needed drastic reform, the new system, they felt, imposed a heavy bureaucratic burden with its numerous, detailed rules, for example, specifying the type of taps allowed for milk tanks, and that oil tanks had to be blue and diesel tanks green.
As the next step in the EU's long attempt to change its most costly budget item, the so-called revision clause called upon the Commission to outline reform ideas before the new financial perspective of 2014 - 2020 entered the negotiation phase. As such, the EU agriculture ministers, in 2008, agreed on a "health check" with the aim of simplifying the CAP in order to push further environmental and biodiversity standards while also allocating an additional 90 million Euros to farmers in Central and Eastern Europe. The health check abolished the requirements to set aside ten percent of arable land. Quantitative restrictions on milk production came to an end in 2015. Hence, with overproduction now less of an issue, farmers were again allowed to maximise their production potential. In addition, the amount spent on direct aid was reduced. Instead, all farmers who received more than 5,000 Euros in direct aid had their payments reduced by five percent, with the money being transferred to the Rural Development budget.
Every reform idea used a combination of these solutions to different effect. As a first serious attempt, the European Community introduced the so-called Stabilizer Reform Package of 1988. Initial negotiations were complicated by two opposing fundamental conceptions on how agriculture should be managed. On one side, Britain and Denmark argued for budgetary adjustments, production ceilings, and a producer's tax to help defray the cost of storage and export subsidies. On the other side, Belgium, France, Germany, and the Mediterranean countries emphasized the socio-cultural necessity of supporting agriculture to maintain the livelihood of rural communities, and argued for continued price support at current levels, with producers suffering only marginal penalties for exceeding their production ceilings. A number of reforms were finally adopted in 1988 (see Table 11.5), but none addressed the basic flaws in the CAP. Germany funded a compromise by paying an extra 5 billion ECU to the EC budget over the next five years (ECU refers to the European Currency Unit, a basket of European currencies that was used as a means of settlement between European central banks). Production ceilings were set for all major crops, and price penalties were imposed on producers who exceeded the ceilings. Unfortunately, the ceilings were established at relatively high levels, and the fines were low. Member states were also asked to introduce a land set-aside program, as well as early retirement schemes. However, the major problems remained: developments on the world market still did not necessarily influence EC farmers' decisions; the reforms completely ignored the problem of overproductivity; the introduction of environmental standards was not achieved; and the income gap between the highly productive minority of large agricultural producers and the economically less efficient but socially important majority of small-business farmers continued to widen.
More radical steps were needed, and these came with the 1992 MacSharry Reform Package, named after the Irish Agricultural Commissioner Ray MacSharry. By the 1990s, with the proposal of a single currency and the development of the Single Market taking centre stage in European politics, the CAP, to some degree, had lost its meaning as one of the vital cornerstones of European integration. Market intervention as practiced in the CAP was an anachronism for a community that advocated the free movement of goods, services, capital, and labour. By the 1990s, moreover, the contribution of the agricultural sector to the GDP and to overall employment had dropped significantly since the 1950s.
Table 11.5. Key Attempts to Reform the CAP
• Stabilizer Reform Package (1988)• MacSharry Reform Package (1992)• Agenda 2000 (1997)• Fischler Reform (2003) • Cioloş Reform (2013)• CAP 2023 - 2027
MacSharry was appalled by the levels of overproduction still afflicting European agriculture. In 1992, the EU generated an excess of 20 million tonnes of cereal, 1 million tonnes of dairy produce and 750,000 tonnes of beef. He attempted to solve this problem by implementing a widespread reduction in prices. For example, the intervention price for cereals dropped by 29 percent, for beef by 15 percent, and for butter by 5 percent. Land set-aside programmes were also on the agenda with large-scale farmers being asked to reduce their arable land by 15 percent. MacSharry also established a programme that subsidized farmers for up to twenty years if they set aside land with the specific aim to protect the environment. The result was a massive increase in the cost of the CAP, a consequence of the land set-aside subsidies, but also of the increased direct payments which were now handed to all farmers to the tune of 207 ECU per hectare. MacSharry argued, however, that in the long run the reduced use of agricultural land would lead to significant savings. More important, the new CAP represented a major shift from a policy of non-transparent consumer subsidies (through higher prices in supermarkets) to one of transparent taxpayer subsidies (through direct payments to farmers). Thus, the CAP was now more open to regular public scrutiny and evaluation. MacSharry's reforms also enabled the EU to come to an agreement in the General Agreement on Tariffs and Trade (GATT) rounds. After an agricultural Cold War between the U.S. and the EU that stalled negotiations for seven years, the Uruguay Round finally came to an end in December 1993. The new GATT covered all farm products and further reduced the EU's subsidies to its farmers. Although the GATT certainly did not force the EU to open its agricultural markets to the world, and particularly to developing countries, it nonetheless represented a much-needed step in the right direction.
The reforms of the early 1990s, however, could not guarantee a stable CAP in the face of continued technical progress and rising productivity. EU members were well aware that drastic reforms were needed to avoid a further budget crisis and to maintain Europe's political legitimacy before increasingly dissatisfied taxpayers. More important, with the countries of Central and Eastern Europe applying for EU membership, a radical overhaul of the CAP seemed appropriate. The Commission argued that the entry of the candidate countries would at least double the agricultural land and the number of people working in agriculture and would also burden the CAP with an additional 15 billion Euros, an increase of 40 percent. Responding to this challenge, the Commission, in 1997, published its Agenda 2000, proposing reforms that continued down the path taken by MacSharry with higher standards for food safety and the environment, as well as a further reduction in prices, for instance for cereals (minus 20 percent) and beef (minus 30 percent). The Commission intended to establish a program that would create alternative sources of income for farmers, with the clear aim of reducing the number of CAP recipients. In any case, the Commission estimated that the total costs for the CAP would rise by 6 billion Euros per year. Not surprisingly, the Agenda 2000 was therefore hotly debated at the Berlin summit in March 1999. In a diplomatic tour de force, French President Jacques Chirac, who had always been responsive to his own domestic agricultural lobby, managed to convince the fourteen other heads of government that enlargement to Central and Eastern Europe remained a remote prospect and so immediate action was not required. Hence reform of the CAP was delayed until negotiations with the candidate countries had reached a more mature state; a decision many commentators judged to be short-sighted. Specifically a more widespread cut in prices hardly materialised. In the end, the member states could only agree on a milk price reduction of 15 percent (to become effective in 2005). Beef prices were reduced by 20 percent (instead of the proposed 30 percent), and the price of cereals was reduced by a mere 7.5 percent. As a minor concession, the new CAP included long overdue standards for food safety and the environment. The summit also agreed to increase direct aid payments, either per hectare or per head of cattle. This meant that at least the annual budget stayed at approximately the same level of 42.3 billion Euros. But the package also meant that further drastic reforms were needed to prepare the CAP for enlargement. The summit acknowledged this by asking the Commission to return with another proposal in 2002. Government leaders found it difficult to confront their agricultural constituencies with the bitter truth that they ought to get used to a future of reduced subsidies and lower guaranteed prices. In the end the Berlin summit reached a compromise that failed in its attempt to please taxpayers and finance ministers, on one side, and the powerful agricultural lobby, on the other.
A further point of controversy was the reform of the World Trade Organization (WTO). The Seattle meeting in 1999 dramatically displayed the ideological differences between countries concerning the global market. Many EU trading partners--particularly the U.S. and Australia--demanded the complete elimination of export subsidies. In return, the EU pointed to other, less transparent forms of subsidies such as tax breaks, which the U.S. delegation tried not to mention. The EU also wanted full recognition of the multifunctional role of agriculture, with such objectives as environmental preservation, landscape conservation, and food safety. In Seattle the Agriculture Commissioner Franz Fischler and the Trade Commissioner Pascal Lamy at least offered special trade concessions, such as tariff-free access for the least-developed states. Nonetheless, negotiations stalled at the follow-up meetings in Doha (2001) and in Cancun (2002). Fischler managed to reignite the debate in December 2002, with a detailed proposal for the next WTO round where the EU argued for a worldwide cut in trade-distorting subsidies by 55 percent and for lowering export refunds by an average of 45 percent complemented by a reduction of import tariffs by an average of 36 percent. The centrepiece of his plan was to allow goods from the poorest countries to enter the industrialized world duty-free. However, Fischler continued to insist on the socio-cultural and environmental objectives of the European agricultural model, arguing that measures supporting such standards ought to be exempt from the reduction commitments. He also took a parting shot at the United States by pointing out the need to address export credit systems and shipping food aid merely to dump surpluses in order to keep up prices. The proposal undoubtedly had some highly progressive elements, but the establishment of these unquestionably more favourable conditions for developing countries depended largely on the ability of First World competitors to settle their differences.
Regarding enlargement to the countries of Central and Eastern Europe, the Commission dutifully presented two key proposals on how to rejuvenate the CAP. In January 2002 DG Agriculture outlined its plans on how to integrate twelve new member states, which would increase the number of farmers in the EU by 70 percent (see Table 10.6). The key was the gradual introduction of direct payments, but, in reality, this meant that, in 2004, farmers in the accession countries would receive only 25 percent of the financial aid given to their counterparts in Western Europe, with the amount gradually rising to 100 percent by 2013. Fischler argued that a full introduction of EU payments would reduce the incentive for badly needed structural reforms in the farming sectors of Central and Eastern Europe. Clearly the EU did not want to create a dependency culture, but it had to face the criticism that it was trying to establish a two-tier system, with accession farmers treated as second-class citizens. In return, Fischler argued that the new EU farmers would benefit from increased rural development measures; 80 percent of which would be covered by the EU budget, including early retirement, afforestation, technical assistance, and environmental programmes. He also envisioned the retraining of farmers for other professions to be financed by the EU’s Cohesion Policy (see chapter 11). To further sweeten his reform, Fischler also offered the government of the accession countries the chance for national top-ups (a measure with existing EU members were not permitted to pursue) in order to match these countries’ agricultural spending levels prior to joining the EU.
To the Commission's delight, the European summit in Copenhagen in December 2002 fully accepted Fischler's ideas, which then became the legal basis for organizing agriculture in the post-accession era. The summit also determined the exact amount of money the new member states could expect, rising from 9.9 billion Euros in 2004 to 14.9 billion Euros in 2006. This meant that Poland - the largest of the accession countries - would secure a transfer of 1 billion Euros from the EU's Structural Funds. For all new entrants the financial package increased by 408 million Euros. In the end the costs related to enlargement rose to a total of around 37 billion Euros between 2004 and 2006. The existing member states therefore avoided an increase in their contributions to the EU budget, which to this day is just a fraction over one percent of their GNP. Instead, enlargement was financed from existing funds.
Fischler's intention to shake up the CAP did not stop with enlargement or the WTO. In July 2002 he proposed further radical steps for the internal reform of the CAP, with a plan that de-coupled subsidies from the amount that farmers produced. The Commission also proposed a new system, “cross-compliance," which set conditions for the granting of subsidies: farmers had to follow highly specific guidelines for upholding environmental, animal welfare, and hygienic standards, and for preserving the countryside. Hence Fischler's objective was to address, once and for all, the embarrassing anachronism of the traditional price support scheme that allowed 20 percent of EU farmers to receive 80 percent of CAP money. The member states approved the Commission's idea and this new regime was implemented by mid-2003, with a more detailed list of compliance factors agreed upon at the European Council meeting in June 2005. But farmers unions across Europe were highly critical of the cross-compliance system. Although most agreed that the old price support system was outdated and needed drastic reform, the new system, they felt, imposed a heavy bureaucratic burden with its numerous, detailed rules, for example, specifying the type of taps allowed for milk tanks, and that oil tanks had to be blue and diesel tanks green.
As the next step in the EU's long attempt to change its most costly budget item, the so-called revision clause called upon the Commission to outline reform ideas before the new financial perspective of 2014 - 2020 entered the negotiation phase. As such, the EU agriculture ministers, in 2008, agreed on a "health check" with the aim of simplifying the CAP in order to push further environmental and biodiversity standards while also allocating an additional 90 million Euros to farmers in Central and Eastern Europe. The health check abolished the requirements to set aside ten percent of arable land. Quantitative restrictions on milk production came to an end in 2015. Hence, with overproduction now less of an issue, farmers were again allowed to maximise their production potential. In addition, the amount spent on direct aid was reduced. Instead, all farmers who received more than 5,000 Euros in direct aid had their payments reduced by five percent, with the money being transferred to the Rural Development budget.
The Cioloş Reform (2013)
It took the European Union two years to negotiate a final settlement for a much-needed next reform, which was finally agreed upon in June 2013. Based on the Lisbon Treaty of 2007, the European Parliament (EP) for the first time was instrumental in negotiations under the so-called ‘ordinary legislative procedure’. Some commentators blamed the EP for this rather slow progress, and indeed the staggering amount of forty rounds of negotiations gave rise to the notion that the parliament had found it difficult to handle its new responsibility as a co-legislator, and instead was often mired in a deadlock over conflicting positions from the members of parliament’s divergent constituencies. Agriculture Commissioner Dacian Cioloş also did not help matters with his baffling array of proposals and policy options. In the end though, a deal was struck just in time before the new seven-year budget of 2014 – 2020 entered into force. One also has to emphasise that despite these protected negotiations, the subsequent deal was still preferable to the previous modus operandi, in which a limited number of key national officials had hammered out an agreement without much public consultation. Absurdly long it may have taken, but the process of agreeing to a new CAP with the instrumental involvement of the EP had undoubtedly given a boost to democratic standards in the EU.
The main changes to the way agriculture was organised included a move towards a greener CAP, where farmers were asked to increase biodiversity by growing at least three crops (with the largest crop not allowed to exceed more than 70 per cent), whilst also being required to establish so called ‘environmental focus areas’ (EFA) with hedges, trees, or biotopes. These were complemented by rural development measures, such as financial support for organic farming. With regards to direct payments, each farmer now received at least sixty per cent of the national or regional average. Incentives for young farmers were also on the agenda. Only a third of EU farmers were over the age of forty, which prompted the EU to set aside a rather paltry 1,250 Euros per year for farmers in that age bracket. Not surprisingly, opinions on the reforms were divided. Some member states including Denmark and the UK had for years argued for more market liberalisation and less price interventions. Cioloş at least partially achieved this, since sugar quotas were abolished by 2017 and financial support for establishing new vineyards ceased to exist from 2016 onwards. On the other hand, the EU imposed standardised rules to foster biodiversity with the aim of establishing a more ecologically minded landscape. While this was laudable, it undoubtedly made the CAP even more bureaucratic. Moreover, environmentalists were furious with the EP given the broad range of exemptions to the flagship reform measure on a greener agriculture. As such, small farms with less than ten hectares (which accounted for thirty per cent of all EU farms) did not have to abide by the crop diversification rule. And farms with less than 15 hectares did not have to establish ecological focus areas at all. Of course, these exemptions greatly undermined a more widespread ecological impact. To sum up, the reform package addressed a number of severe shortcomings. The direct payment system now seemed fairer and important environmental rules were established. However, the fundamental nature of the CAP changed very little. It was still the biggest EU budget item with bureaucratic burdens surrounding farming not easing, and farmers still being shielded to some extent from market forces (see Table 11.7.). Hence, the 2013 reform did not result in a rethink on how farming could be best organised. Instead, it was a continuation of previous practises, which resulted in a tweaking, but not a reshaping of the CAP.
The main changes to the way agriculture was organised included a move towards a greener CAP, where farmers were asked to increase biodiversity by growing at least three crops (with the largest crop not allowed to exceed more than 70 per cent), whilst also being required to establish so called ‘environmental focus areas’ (EFA) with hedges, trees, or biotopes. These were complemented by rural development measures, such as financial support for organic farming. With regards to direct payments, each farmer now received at least sixty per cent of the national or regional average. Incentives for young farmers were also on the agenda. Only a third of EU farmers were over the age of forty, which prompted the EU to set aside a rather paltry 1,250 Euros per year for farmers in that age bracket. Not surprisingly, opinions on the reforms were divided. Some member states including Denmark and the UK had for years argued for more market liberalisation and less price interventions. Cioloş at least partially achieved this, since sugar quotas were abolished by 2017 and financial support for establishing new vineyards ceased to exist from 2016 onwards. On the other hand, the EU imposed standardised rules to foster biodiversity with the aim of establishing a more ecologically minded landscape. While this was laudable, it undoubtedly made the CAP even more bureaucratic. Moreover, environmentalists were furious with the EP given the broad range of exemptions to the flagship reform measure on a greener agriculture. As such, small farms with less than ten hectares (which accounted for thirty per cent of all EU farms) did not have to abide by the crop diversification rule. And farms with less than 15 hectares did not have to establish ecological focus areas at all. Of course, these exemptions greatly undermined a more widespread ecological impact. To sum up, the reform package addressed a number of severe shortcomings. The direct payment system now seemed fairer and important environmental rules were established. However, the fundamental nature of the CAP changed very little. It was still the biggest EU budget item with bureaucratic burdens surrounding farming not easing, and farmers still being shielded to some extent from market forces (see Table 11.7.). Hence, the 2013 reform did not result in a rethink on how farming could be best organised. Instead, it was a continuation of previous practises, which resulted in a tweaking, but not a reshaping of the CAP.
The CAP Reform 2023 - 2027
More sweeping reforms were inevitable. By the time the new Commission under President Ursula von der Leyen took office by the end of 2019, Europe was about to become a vastly different place. The UK – arguably the most ardent critic of a supranational agricultural policy – left the union in January 2020. A couple of weeks later, the continent was in the grip of the Covid pandemic, and after a series of floods, warm winters and brutally hot summers, European citizens and their political leaders needed little reminding that climate change (and thus the production of food) might force people to radically alter existing practises and behavioural norms. In Germany, long-time chancellor Angela Merkel retired from front-line politics in 2021, to be replaced by a coalition whose agricultural minister was a member of the Green Party. But also in other parts of Europe, environmental issues became lucrative political capital once more, and a window of opportunity opened up for a CAP reform along more ecologically sustainable lines.
As such, the new CAP reform, which entered into force in January 2023 aimed for a greener and more sustainable future for farmers by embedding the policy into the EU’s Green Deal which aimed to establish Europe as the first climate-neutral continent with net-zero emissions of greenhouse gases by 2050. As such, the agricultural sector was expected to reduce the use of pesticides by 50 percent, fertilisers by 20 percent, animal antibiotics by 50 percent, with the numbers of organic farms to increase by a quarter, and a targeted rise of so-called ‘high diversity landscapes by ten percent. One third of the massive Next Generation EU Recovery Plan – which came in at 1.8 trillion Euro for the financial perspective 2021-27 – was set aside to achieve these goals. In its ‘Farm-to-Fork Strategy’ the new CAP also explicitly addressed food production systems, which accounted for one third of global greenhouse gases, consumed large amounts of natural resources, whilst also often threatening biodiversity, not to mention the public health impacts of over or under nutrition. A ‘Biodiversity Strategy’ aimed to reverse the degradation of eco systems, which ought to be on the path towards recovery by 2030.
Apart from these ecological and environmental aspirations, the new CAP also mentioned more targeted support for smaller farms, which represented a continuation of the agenda of the Cioloş reforms. But the ten targets listed in Table 10.8. neatly summarise the invigorated aim for placing the environment at the centre of Europe’s agricultural system. Another ground-breaking element of the reform package were so-called national strategic plans, which enabled member states to finetune their respective agricultural agenda in line with national prerogatives, as long as those plans supported the ten targets. Hence, the Commission set out the general direction of European agriculture, with the specific approach on how to reach those targets identified by each member states. It put an end to the CAP’s previous one-size-fits-all approach.The whole reform package came in at 387 billion Euros for the 7-year budget cycle running from 2021-27, with 291.1 billion Euros earmarked for Pillar 1 (direct payments to farmers, and export subsidies) and 95.5 billion Euros reserved for Pillar 2 (rural development, environmental measures). This meant that for the first time, agriculture was no longer the biggest expenditure item; an accolade now held by the cohesion policy. While for the previous budget cycle of 2014 – 2020, the CAP swallowed up 37 per cent of EU finances, it was now just under 30 per cent. Some key measures included: • 40 percent of the CAP budget is climate relevant. • 3 per cent of each farm has to be dedicated to biodiversity. • 25 per cent of the CAP budget for direct payments is to be allocated to eco schemes.• 35% of rural development funds are designed to support climate initiatives, biodiversity, environment, and animal welfare. • National governments have to give at least 3 percent of direct payments to young farmers, and at least 10 percent of direct payments to small and medium sized farms.
The explicit focus on such grave concerns as biodiversity, climate change, and sustainability was undoubtedly laudable, and once more placed the European Union above many public entities when it comes to environmental protection. Yet, the fundamental ingredient of EU agriculture - public money being handed out per farmed acre - was still largely untouched. A taste of what might arise in future reform negotiations was presented by Germanys’ Agriculture Minister, Cem Őzdemir. The prominent member of the Green Party argued that public subsidies ought to be linked to services that benefit society as a whole, including climate, health, or any environmental measures. Őzdemir therefore referred to a logic that first appeared to some extent in the system of cross compliance (introduced by Franz Fischler in 2003), which saw a partial de-coupling of public subsidies from food production in preference over land management. This was also an approach picked up by Brexit Britain in its post-CAP reforms. But Germany’s idea were not embraced by everyone. Agriculture commissioner Janusz Wojciechowski instantly stated that ‘the CAP should be, first of all, a budget for farmers.’ Hence, the traditional cornerstone of EU agriculture might just remained unchanged: public financial support for food producing farmers.
Apart from these ecological and environmental aspirations, the new CAP also mentioned more targeted support for smaller farms, which represented a continuation of the agenda of the Cioloş reforms. But the ten targets listed in Table 10.8. neatly summarise the invigorated aim for placing the environment at the centre of Europe’s agricultural system. Another ground-breaking element of the reform package were so-called national strategic plans, which enabled member states to finetune their respective agricultural agenda in line with national prerogatives, as long as those plans supported the ten targets. Hence, the Commission set out the general direction of European agriculture, with the specific approach on how to reach those targets identified by each member states. It put an end to the CAP’s previous one-size-fits-all approach.The whole reform package came in at 387 billion Euros for the 7-year budget cycle running from 2021-27, with 291.1 billion Euros earmarked for Pillar 1 (direct payments to farmers, and export subsidies) and 95.5 billion Euros reserved for Pillar 2 (rural development, environmental measures). This meant that for the first time, agriculture was no longer the biggest expenditure item; an accolade now held by the cohesion policy. While for the previous budget cycle of 2014 – 2020, the CAP swallowed up 37 per cent of EU finances, it was now just under 30 per cent. Some key measures included: • 40 percent of the CAP budget is climate relevant. • 3 per cent of each farm has to be dedicated to biodiversity. • 25 per cent of the CAP budget for direct payments is to be allocated to eco schemes.• 35% of rural development funds are designed to support climate initiatives, biodiversity, environment, and animal welfare. • National governments have to give at least 3 percent of direct payments to young farmers, and at least 10 percent of direct payments to small and medium sized farms.
The explicit focus on such grave concerns as biodiversity, climate change, and sustainability was undoubtedly laudable, and once more placed the European Union above many public entities when it comes to environmental protection. Yet, the fundamental ingredient of EU agriculture - public money being handed out per farmed acre - was still largely untouched. A taste of what might arise in future reform negotiations was presented by Germanys’ Agriculture Minister, Cem Őzdemir. The prominent member of the Green Party argued that public subsidies ought to be linked to services that benefit society as a whole, including climate, health, or any environmental measures. Őzdemir therefore referred to a logic that first appeared to some extent in the system of cross compliance (introduced by Franz Fischler in 2003), which saw a partial de-coupling of public subsidies from food production in preference over land management. This was also an approach picked up by Brexit Britain in its post-CAP reforms. But Germany’s idea were not embraced by everyone. Agriculture commissioner Janusz Wojciechowski instantly stated that ‘the CAP should be, first of all, a budget for farmers.’ Hence, the traditional cornerstone of EU agriculture might just remained unchanged: public financial support for food producing farmers.
Why Is the CAP So Difficult to Reform?
Given the costs of supporting agriculture in the EU, as well as the high level of bureaucracy and the limited economic contribution that agriculture makes to the Union's prosperity, were all the reforms radical enough? Some analysts believe that the CAP should be abolished, but politics can never be as straightforward as this. The political reality is that a number of factors continue to guarantee the existence of some form of supranational support for agriculture. First, it is difficult to turn proposals into political action because of the number of actors now involved in the so-called ordinary legislative procedure, which since 2009 offers a prominent role to the European Parliament alongside the Council of Ministers. Most often political compromises result in watered-down versions of the original proposals. Second, the agricultural sector, although small, continues to have a disproportionately powerful influence on domestic politics. Despite the decreasing workforce and agricultural share of the overall GDP, almost no member state government can ignore agricultural welfare. Third, the clash of interests, as set out in the objectives of the CAP in the Treaty of Rome, has never been properly addressed. What is at stake? Agricultural welfare or low consumer prices? So far, the EU has tried to maintain an acceptable standard of living for an ever-decreasing number of farmers, with consumers and taxpayers footing the bill. A proper equilibrium satisfactory to both sides is almost impossible to obtain. Fourth, the agricultural sector is very well organized both at the national and European levels, and the umbrella pressure group COPA (Committee of Professional Agricultural Organization) is a particularly powerful and determined player in EU politics. Fifth, the reality is that the CAP has now been in existence for more than sixty years, and at least two generations of farmers have become accustomed to subsidies. To break this dependency is indeed a formidable task.
One fundamental question remains. Have the recent reform efforts been sufficient to make the CAP fit for the twenty-first century? Back in the 1950s, when the CAP was first conceived, member states were just emerging from a decade of food shortages as a result of World War II. But ensuring food supplies and increasing agricultural productivity among EU farms are much less pressing issues now as evidenced by the fact that the EU has gradually become the world's largest food importer. Hence, although the CAP 2023-2027 has strong environmental and economical undercurrents, the overall objectives of the CAP as outlined in the Treaty of Rome are outdated, and bizarrely so. The EU tried to adjust to new challenges and developments by establishing an increasingly complex agri-environmental agenda and by opening up to global food trade. On the other hand, despite cuts, the CAP still accounts for a significant chunk of the EU budget which continues to be an anachronism given the low GDP and employment shares of the sector. In some areas in north-western Europe, agriculture has virtually lost its economic relevance. Instead, in parts of Spain, France, and Italy, we have seen the emergence of life-style farmers who quit their stressful office jobs and retired to the countryside to look after the odd sheep or olive tree. But agriculture continues to be much more relevant for newer member states (such as Romania, Bulgaria, and Poland) and indeed for some of the candidate countries (Turkey and North Macedonia). Hence the CAP still has an important role to fulfil in the ambitious plan to reunite a once divided continent and to spread acceptable standards of living across the whole of Europe. Agriculture still matters, and as long as this is the case, calls for a re-nationalization of financial support and regulations seem premature. Above all, agriculture happens in rural and thus quite often in economically struggling areas. It therefore would make sense to view agricultural public policy from a spatial, and not a sectoral perspective. It is a geographical area that requires financial support. Granted, farmers ought to benefit from any such support mechanism, but so could other businesses, from manufacturing to services that are after all, located in an area that might struggle to compete within the EU’s Single Market. Hence, one might want to consider embedding the CAP as part of a wider cohesion strategy that also encompasses policies designed to improve rural development, infrastructure, transport, or education in a holistic, and not a policy-sectoral fashion.
One fundamental question remains. Have the recent reform efforts been sufficient to make the CAP fit for the twenty-first century? Back in the 1950s, when the CAP was first conceived, member states were just emerging from a decade of food shortages as a result of World War II. But ensuring food supplies and increasing agricultural productivity among EU farms are much less pressing issues now as evidenced by the fact that the EU has gradually become the world's largest food importer. Hence, although the CAP 2023-2027 has strong environmental and economical undercurrents, the overall objectives of the CAP as outlined in the Treaty of Rome are outdated, and bizarrely so. The EU tried to adjust to new challenges and developments by establishing an increasingly complex agri-environmental agenda and by opening up to global food trade. On the other hand, despite cuts, the CAP still accounts for a significant chunk of the EU budget which continues to be an anachronism given the low GDP and employment shares of the sector. In some areas in north-western Europe, agriculture has virtually lost its economic relevance. Instead, in parts of Spain, France, and Italy, we have seen the emergence of life-style farmers who quit their stressful office jobs and retired to the countryside to look after the odd sheep or olive tree. But agriculture continues to be much more relevant for newer member states (such as Romania, Bulgaria, and Poland) and indeed for some of the candidate countries (Turkey and North Macedonia). Hence the CAP still has an important role to fulfil in the ambitious plan to reunite a once divided continent and to spread acceptable standards of living across the whole of Europe. Agriculture still matters, and as long as this is the case, calls for a re-nationalization of financial support and regulations seem premature. Above all, agriculture happens in rural and thus quite often in economically struggling areas. It therefore would make sense to view agricultural public policy from a spatial, and not a sectoral perspective. It is a geographical area that requires financial support. Granted, farmers ought to benefit from any such support mechanism, but so could other businesses, from manufacturing to services that are after all, located in an area that might struggle to compete within the EU’s Single Market. Hence, one might want to consider embedding the CAP as part of a wider cohesion strategy that also encompasses policies designed to improve rural development, infrastructure, transport, or education in a holistic, and not a policy-sectoral fashion.
Notes:
As a general rule, all decisions on prices are based on unanimous consensus, although de jure, the Council’s decision on agricultural measures is by qualified voting.
For a detailed discussion on the shortcomings of the CAP, see H. Wallace, M.A. Pollack, C. Roederer-Rynning, A.Young, Policy Making the the European Union (Oxford: University Press, 2020), chapter 8.
In that period, for example, production grew by 2% per annum, whereas the EU consumer purchased only an additional 0.5% of agricultural products.
A telling example was the case of the Duke of Westminster, who owns prime real estate in central London and also runs a 1,280 acre farm in northwest England. In 2004, with an estimated fortune of 6.4 billion Euros, the duke received a subsidy of 425,000 Euros from the EU budget.
See: www.data.oecd.org/oda/food-aid.htm. Accessed in May 2023.
In 1994 for instance, agriculture contributed less than 1% to the overall GDP in Luxembourg, Germany, and the UK. The share in France was 2%, and Greece had the rate at 7.5% (Figures are according to Eurostat).
One hectare equals 100 square metres or around 900 square feet.
Price supports were reduced by 20% from the 1986 – 88 figures, and export subsidies were gradually decreased by 36% by 2000.
Specifically, the Fischler plan argued for a further reduction in price support. Farmers would now receive a flat rate of direct support based on their previous income, which should be reduced by 20% between 2004 and 2009. Also, under cross-compliance, farmers would receive direct support once they met environmental and food safety standards, with a maximum financial aid of 300,000 Euros.
This rate increased even further to ten percent in 2012. An additional cut of 4% was made on payments to affluent farmers who received more than 300,000 Euros. The Rural Development budget could be used by poorer member states (i.e. those countries with less than 75% of the EU’s average GDP) to address such objectives as climate change, renewable energy, water management, or biodiversity.
For more information see also: https://agriculture.ec.europa.eu/common-agricultural-policy/cap-overview/cap-2023-27_en. Accessed in June 2023.
See https://www.euractiv.com/section/agriculture-food/news/berlin-gears-up-to-leave-its-mark-on-future-eu-farm-funds/. Accessed in June 2023.
A group of experts (Sapir Report 2003) appointed by Commission President Romano Prodi (1999 – 2004) argued that the CAP should be wound down and re-nationalised.