European Economic IntegrationMetropolitan University PragueMartin Kolmhofer2011/2012

Common Agricultural Policy (CAP)

• Massively complex, massively expensive policy.

• Hard to understand without seeing how it developed.

• The Common Agricultural Policy (CAP) accounts for about half of the EU's budget but it used to account for much more.

http://www.youtube.com/watch?v=vu1PYTqupec

The European Agricultural sector is one of the most productive in the world.Used to be different: 50 years ago food needed to be imported

EEC Treaty, signed in Rome in 1957, brings together France, Germany, Italy and the Benelux countries

In 1958, the delegations of the Six meet in Stresa, Italy, to discuss the introduction of a common agricultural policy (CAP)

1. Increase agricultural productivity2. Ensure supplies of food

3. provide an adequate income to farmers

Objectives

• The need to ensure adequate supplies of food at reasonable prices.

• The need to provide an adequate income to farmers.

• The need to increase agricultural productivity.

• (France made it a condition of its participation in the EEC that agricultural policy be a joint pillar alongside the common market in industrial goods)

1962: European Agricultural Guidance and Guarantee Fund is set up to guarantee minimum price for farmers

Common External Tariff

In the 60s and 70s: CAP amounts for 70% of EC budget„Butter mountains, milk lakes...“ – cost of administrating surplus

1973: Margareth Thatcher „I want my money back“ (UK Rebate because CAP benefits the UK much less than other countries as it has a relatively small farming sector)

1986 Spain and Portugal (big agricultural countries) join the EC

Pressure for CAP reform in the 1990s

• Budgetary pressures• Reunification of Germany• The need to stabilize democracy and

capitalism in the states of Central and Eastern Europe

MacSharry Reform 1992

• To separate income support from production

• …by using direct payments to producers to compensate them for loss of income, without increasing agricultural production as price supports did. This measure was accompanied by lower cereal and beef prices. The reforms were intended to restructure the sector by encouraging farmers to take land out of cultivation and to shift people out of agricultural jobs. Environmental elements were also introduced to encourage sustainable farming practices.

• Main effect:• …to reduce the 'food mountains' that the EU had accumulated.

Agenda 2000 reforms

• Decreasing price levels• Decoupling direct payments to farmers from

production• Linking payments to social and economic

objectives (environmental stewardship, foods safety, animal welfare)

After enlargements of 2004 and 2007: two different types of agriculture

Distribution of farm sizes in the EU

• is very unequal: ranking farms from large to small, the 7% largest farms account for about half the land, while the 50% smallest farms account for only 7% of that land.

’Simplified Approach’ used to calculate agricultural support to the new member states

• New member states receive a flat-rate decoupled payment based on farm size, starting at 25% of the average rate for the existing EU member states

Who tends to benefit most from the CAP?

• 70% of the CAP payments tend to go to 25% of the largest and wealthiest farms.

• Large producers received more CAP payments than small producers because the CAP had been based upon output.

• Example: One of the main beneficiaries of CAP subsidies in the UK after de-coupling is the Queen