Common Agricultural Policy
The Common Agricultural Policy (CAP) was proposed by the European Commission in 1960, three years after the signing of the Treaty of Rome, and adopted by the Council in 1962. The objectives of the CAP, set out in Article 39 of the Treaty of Rome, were:
- To increase agricultural productivity by promoting technical progress and ensuring the optimum use of the factors of production, in particular labor;
- To ensure a “fair standard of living” for farmers;
- To stabilize markets;
- To assure availability of supplies;
- To ensure reasonable prices for consumers.
The CAP initially addressed these objectives by moving towards self-sufficiency and food security through subsidizing of basic foodstuffs production.
By the 1980s, this policy led to institutionalized surpluses of the major farm commodities, some of which were exported with expensive subsidies, others were stored or disposed of within the EU at considerable cost. Therefore, the CAP became progressively unpopular with consumers and taxpayers. Recognizing this, the Council introduced budgetary guidelines that set a maximum ceiling for the CAP budget. A limit was set on quantities guaranteed to receive support and a new policy was developed to encourage rural and less favored areas.
In 1992, the “MacSharry reform” began the shift from support of agricultural production through prices to producer support through income. Direct payments were introduced in order to compensate farmers for the decrease of the price support. At the same time, the reform required farmers to set-aside a portion of their arable land as a supply side market management tool. The Agenda 2000 and 2003 CAP reforms deepened this strategy by encouraging farming decisions to be more influenced by market signals. The direct payments aim to guarantee farmers a reasonable income, and are often linked to compliance with broader objectives including standards on food safety, animal and plant health, animal welfare and the preservation of traditional rural landscapes. In January 2009, the Council adopted a mid-term review, commonly known as “The Health Check,” of the 2003 reform. The Health Check was the first part of the European Commission’s “one vision, two steps” approach to the CAP. The second step entailed a further examination to be implemented after the 2013 financial perspectives.
The CAP after 2013
The last Common Agriculture Policy (2014-2020) was agreed in 2013 and was implemented in 2015 after a transitional year. It brought major changes in payments to farmers, payments for environmentally friendly-farming, and the elimination of sugar and milk production quotas. It also included a new safeguard allowing the Commission to take emergency measures to respond to general market disturbances. One of the most far-reaching changes comes from tying direct payments to environmentally beneficial activities, called “greening.”
Greening was introduced under the 2013 CAP reform ostensibly because market prices do not reflect the effort involved in providing the public goods associated with meeting environment and climate goals. Since their application in 2015, the greening measures have been the subject of significant criticism for their administrative complexity from environmental organizations and some Members of the European Parliament (MEPs) alike. MEP Paul Brannen (Socialist and Democrat (S&D) Group) asserted that “We are not at all satisfied with how the CAP reform came out in the end…Today’s agriculture of the EU is not in any way sustainable. The CAP’s rural development provisions lag behind direct payments – and this should be changed…” In response, Agriculture and Rural Affairs Commissioner Phil Hogan said that he would very seriously look at proposing reforms in 2017, although the Commission is only obliged by the 2014 – 2020 CAP “Horizontal” Regulation 1306/2013 to undertake a comprehensive evaluation of the performance of the CAP by December, 2018, with a second report required by December 2021.
Euro 144 billion in payments are made from the total EU budget in 2016, some Euro 58 billion or 40 percent of which is allocated to the CAP. Euro 44 billion or 77 percent of the CAP is spent on direct payments to the farmer under Pillar 1 of the CAP, with Euro 14 billion or 23 percent being spent on rural development policy under Pillar 2. The greening measures of the CAP account for Euro 13 billion or 30 percent of direct payments under Pillar 1. Greening aims to make the direct payment system more environmentally friendly. Farmers receiving area based direct payments are obliged to make use of various practices that benefit the environment and the climate. These practices include dedicating 5 percent of arable land to “ecologically beneficial elements”, termed “ecological focus areas (EFAs)”. Farmers must also follow rules ensuring crop diversification and the maintenance of permanent grassland.
The Multi-annual Financial Framework (MFF) sets maximum, annual limits on the amount of money that may be spent for the EU budget in its entirety and on various headings within that budget, including the CAP. The current MFF Regulation fixes the maximum ceilings for the EU and CAP budgets until 2020 and the European Commission is expected to present a proposal for a new MFF in May, 2018. It is likely that the CAP budget will be put under pressure as the new MFF will have to address the impact of the UK leaving the EU (Brexit) coupled with the need to fund additional tasks including border defense, research and development and artificial intelligence. Brexit is likely to result in an income gap of some Euro 14 billion each year.
Simplification of the CAP
The EU Commissioner for Agriculture and Rural Development, Phil Hogan, has made simplification of the CAP a top EU priority. In particular, he wants to focus on areas where improvements could be made to the implementation of CAP policies.
The latest CAP reform improved the regulatory environment for the farming sector. However, this was the first time that reform was carried out under the ordinary legislative procedure, where the Council co-legislates with the European Parliament. Due to this change and the extent of the reform, it was a complicated process. This is especially true for certain areas, such as the ‘greening’ of farm payments – through the introduction of environmentally sound farming practices, such as crop diversification, and maintaining ecologically rich landscape features and a minimum area of permanent grassland.
As a result, the EU institutions now want to look through what has been agreed and see where improvements can be made in the short or medium term and also what can be done better next time. Initially, the exercise will mostly focus on the delegated and implementing acts – those acts which help to put in place the detailed rules needed to implement the reformed CAP.
A simpler framework for all actors in the CAP should increase competitiveness in the EU’s agricultural sector. Simplifying CAP regulation will also save time and reduce costs for the farmers, economic operators and public authorities who have to comply with or manage the CAP.
More information on the European Commission’s actions on simplification can be found here.
The CAP post-2020
On November 29, 2017, the European Commission presented a Communication setting out ideas on the future of the food and farming. Proposals contained in the Communication focus on simplification, value for money, outlining priority areas notably tackling climate change and preserving the environment, and allowing greater flexibility in implementation of the policy to encourage more effective results.
On June 1, 2018, the European Commission published its legislative proposals for the CAP-post 2020. Notably, these proposals cut direct subsidies paid to farmers in most Member States but increase them in the Baltic countries and other Eastern Member States. The Commission also increased the share of support targeting smaller farms. The proposals cut rural development program funds. It is likely that European Council and Parliament will debate these proposals over the next 12 – 24 months. More information on the proposals can be found in the GAIN Report “CAP Reform proposals criticized by EU farmers and Member States“.