CAP Background

CAP In Foundation Treaty

The Treaty of Rome, the founding document of the European Economic Community, provided that there would be a common policy for agriculture.  It stated that the maintenance of differences in agricultural systems would lead to distortion of competition, would impede trade and produce differences in food costs and hence in the cost of living prejudicial to true economic integration.

When the EEC was founded in 1957, a large portion of the population in Europe was engaged in agriculture and had relatively low standards of living.  Food shortages and near-famine conditions were relatively recent phenomena.

The aim of the Common Agricultural Policy (CAP) was

• to increase agricultural productivity by promoting technical progress and the best use of labour;
• establish fair standards of living for the farming community;
• stabilise markets;
• guarantee regular food supplies;
• ensure reasonable prices for consumers.

Operation

The CAP was essentially protectionist and provided a backstop that farmers could obtain a fair price by selling into intervention. Intervention would provide a protective buffer against the market.The system of quotas and price supports was similar to that introduced in Ireland in the early 1930s and in many other countries but later scaled back.

The CAP mechanism worked by maintaining high internal prices providing tariffs on imports and support for exports.  Within its first 25 years, European Union was producing two to three times as much with two to three times fewer people and a considerably smaller area devoted to agriculture. The CAP also emphasised modernisation, development and intensification.  This reflected its origins in a time of food shortages.

By the mid-1980s, prices of agricultural products were between 50 percent and 90 percent higher than world prices.  Sugar farmers were paid five times world prices.

Ireland Joins EEC

When Ireland joined the EEC in 1973 an immediate and significant benefit was the availability of the common agricultural policy to Irish farmers.  Real farm incomes doubled in the 1970s.  There were guaranteed stable prices for cereals, beef and milk products. Dependence on the U.K. market was lessened.  Farm incomes and land prices rose.

Twenty-five percent of EU farms accounted for 80 percent of total production.  The reliance on price protection exacerbated existing inequalities.  Ten percent of EU farms disappeared between 1970 and 1987. In Ireland, larger scale farmers in wealthier areas were the principal beneficiaries of the Common Agricultural Policy.

Structural and Price Support

The agricultural funding was administered and distributed through the European Agricultural Guarantee and Guidance Fund.  This comprised the  guarantee funds which are the price support measures and the guidance funds which were structural measures.  The guarantee funds account for 95 percent of expenditure supported prices.

Structural measures operated on the basis of co-financing by states and were less popular.Less favoured areas funding comprised one-third of the total structural funding measures  Fifty-four percent of structural funding in Ireland went to a aid scheme termed “the Western Package.”

Price measures and structural measures benefited the larger producers. Most non-price structural measures were concentrated on young farmers.  The Farm Modernisation Scheme was made available to aspiring commercial farmers.

Criticisms

The CAP rewarded those who produced the most goods and did little for farmers on the margin. Two-thirds of all price aids were paid to 10 percent of farmers causing further inequality.  In Ireland 60 percent of support was going to 20 percent of farmers even by the early 2000s.

The growing cost of the CAP and the growing surpluses of intervention product made reform of the CAP inevitable by the early 1980s.  There was political dissatisfaction at the high cost of food and at high cost of storage.  By the mid-1980s, the CAP was absorbing 70 percent of the EEC’s budget.  In view of the relatively narrow sector benefited, the position was difficult to justify.

The CAP had an adverse effect on farmers in the developing world.  Their products were discriminated against.There was significant overproduction leading to consequent intervention and storage.

The policy paid scant regard to the environment and encouraged intensive, extensive production.  Preservation of the environment became a priority in the 1980s as the effect of many industrial and farming practices in terms of serious environmental harm caused was recognised.

The intensification of farming had led to increased dependence on chemicals and heavy farm machinery.  More aggressive farming methods led to undermining of animal welfare standards, the destruction of birds and animal habitats, water pollution, pesticide residues and soil erosion.

Pressure for Reform

In 1985, European Commission Green Paper proposed a separation of the prices objectives from those of farm income and rural development objectives. The first round of reform involved

• quotas being placed on agricultural products including milk;
• levies on all surplus production;
• funds going to disadvantaged areas in the form of headage payments;
• new measures to protect the environment
• enhanced farm retirement packages;
• incentives to encourage diversification.

The s first round of the reform was concerned intensively with reducing surplus production. The second round of changes was introduced by Ray MacSharry as EU Agriculture Commissioner and culminated in the 1992 CAP reform.

Limits were placed on production through policies such as set aside. A certain percentage of land could not be used from January to September. Outside of this period, it could only be used for grazing stock.  The primary purpose was to reduce production, but the effect may have been to increase intensification on remaining lands while the least productive land was set aside.

1992  Fundamental Reforms

The 1992 reforms set out the structure of the aid schemes, the amounts of monies and the condition.  Member states determined the terms and conditions of payment. Funding was provided for agri-environmental schemes in all states.  REPS is the Irish version. The proportion of expenditure on the guarantee side dropped to 50 percent by 1996.

Under the 1992 reforms, there were price decreases in key markets accompanied by compensation payments.  In relation to beef,  compensation was by way of a headage payment with a ceiling on livestock numbers and other conditions.  In wheat, compensation was related to acreage payments.

The accompanying rural development measures included

• early retirement provisions,
• agri-environmental measures;
• forestry measures.

Structural funds  provided for the adaptation of agricultural structures and modernisation of rural areas including:

• set up of young farmers;
• investment aid including diversification of farm production;
• marketing and processing of agricultural products;
• income support in mountain areas;
• environmentally friendly production methods.

More general rural development promotion provisions were made, including those relating to the improvement of rural infrastructure;

• agritourism and craft industries;
• land improvement;
• improved advisory services.

Pressure built up from the context of GATT negotiations.

1999 Reforms

New further price reductions were introduced.  Wheat was reduced by 15 percent, beef  by 20 percent milk by 15 percent. Further partial compensation payments were made with an  increased acreage payment for wheat and headage payments and a new premium for beef.  Partial compensation was introduced for milk producers with aid proportional to the quota size.

Environmental conditions were imposed as part of direct payments with details to be determined by member states.

Arable crops support was unified in a single scheme.  Mountain and less favoured areas aid were based on grazing acreage and no longer on headage. Environmental conditions applied.

States might reduce direct payments according to the social economic conditions of the farm.  This is so-called modulation. There were further provisions on adaptation and development in rural areas.

There were further regulations on rural development.  A menu of 22 measures was provided according to a number of objectives.  This was financed prior to modulation. Agri-environmental measures were the only mandatory provision.  They could be used to target farms with individual contracts and in favour of extensification of animal breeding and crop production with organic agriculture and ecological set-aside and landscape preservation.

2003 Programme

The 2003 programme provided for mandatory conditionality in relation to good farming and environmental practices and compliance with environmental food safety welfare and safety at work legislation in EU directive. All direct payments were decoupled and transferred into a single farm payment based on the historical records of aid and acreage.

There was mandatory modulation of direct payments beyond  €5,000 euro per year. A menu of  38 rural development measures was provided in accordance with four axis.  These were financed in part through modulation.

Provisions for the competitiveness of the agriculture sector included occasional training, set up of young farmers, early retirement, advisory services, modernisation aid, participation in qualitative schemes, and support for farmers’ organisation for product information and marketing.

Sustainable land management plans included compensation for farming in protected areas and the sustainable use of farmland.

Diversification of rural economy measures included  agri-tourism measures and training. Most export subsidies ended.