Common Agricultural Policy [print sheet]
Last updated: 22/08/08

The Common Agricultural Policy (CAP) is one of the most controversial European Union policies. It initially sought to increase agricultural productivity in the EU and secure availability of food supplies during the Cold War. Its aims have now changed and instead it tries to protect agriculture throughout the EU by controlling prices and levels of production and by subsidising the rural lifestyle in order to safeguard the countryside. Several attempts have been made to reform the CAP. However, there has been only limited success in reducing its cost. It has been a cause of controversy not only because of its huge cost as a proportion of the EU budget, but also because it is seen as an unfair way of protecting European agriculture from overseas competition when farming contributes relatively little to EU GDP.

The CAP was created in 1957 under the Treaty of Rome and started operating in 1962. The first attempt to reform the CAP came in 1992 with the MacSharry Reforms; a further reform was brought forward in 2000, however neither made a significant difference to the level of subsidies paid to farmers. EU Farm Ministers agreed to further changes on 26 June 2003, which are being phased-in between 2005 and 2012. Since 2005 farmers are no longer subsidised, but instead receive a lump-sum called the Single Farm Payment (SFP) and are encouraged to produce in response to consumer demand. Instead of payments being made to control how much farmers produce, they are paid for their role as guardians of the countryside.

In May 2008 the Commission conducted a major review of the CAP to try to make it more efficient. Its proposals included: reducing SFPs to large farms and increasing the amount of funds transferred to the Rural Development budget. From April 2009 all recipients of SFPs will be made public. Further proposals include subsidising farmers who grow crops for biofuels (considered more environmentally friendly than fossil fuels) and abolishing the 'set aside' scheme, which paid farmers to leave a part of their land unfarmed to prevent over-production. Environmental groups have criticised ending the 'set aside' scheme claiming it will endanger wildlife in unfarmed areas.

The CAP is a form of protectionism designed to defend European producers from cheaper products outside the EU. This was once done by subsidising agricultural produce but is now achieved by the EU deterring imports from outside the EU with a system of import tariffs and simultaneously subsidising farmers through the Single Farm Payment. If surplus food is produced then the EU intervenes in the market either by subsidising export of the product at below cost price; by storing it, creating the EU food mountains; selling it later; or destroying it. Such exports are generally dumped on poor countries, especially in Africa. The CAP also seeks to control production by setting quotas on how much a farmer can produce then paying them not to produce more.

• The CAP budget for 2008 is €54 billion. The cost of the CAP represents 47.5% of the annual EU budget. The cost to Britain is around £7 billion per year.
• Nearly three-quarters of EU farmers have an income under £5,000 per year (although some only farm on a part-time basis).
• Under SFP farmers receive around £230 per hectare as long as they meet standards on the environment, food quality and animal welfare.

For

• The EU must look after its farmers because they help protect the countryside.
• The free market is unstable. Without intervention prices would fluctuate and farmers would not be able to respond to consumer demand.

Against

• Resources are best allocated through a free market: CAP makes food more expensive in the EU than it need be.
• The CAP increases poverty in poor countries by competing unfairly with local farmers.
• The CAP demands far too high a budgetary contribution to support only a small minority of EU businesses

'The CAP cost British consumers £6.7bn in 1998 and taxpayers footed a further £3.4bn to fund the scheme. The total was equivalent to £3.30 per person per week in Britain, or £250 per year for every man, woman and child…' - Elliott Morley, Agriculture Minister, 1999

'Agricultural output is not measured only in cereals or beef but also in the landscape and the environment'. Franz Fischler, EU Agriculture Commissioner 1999-2004

'The way to build lasting economic growth [in Africa]… is for Europe to end the CAP.' Sir Digby Jones, former Chairman, CBI