Background last update:6 Aug 2012

CAP: Sorting the facts from fiction

The Common Agriculture Policy (CAP) has played a major role in developing agriculture in Europe. Butter mountains and milk and wine lakes, meat piles and wheat stores, they all have disappeared and a vibrant farming sector across the EU has been developed. Still there are many misunderstandings about the CAP.

The Common Agricultural Policy (CAP) is one of the key European Union policies and one of the building blocks on which the EU was built. Much has been said and written about the CAP over the years, some of it true and some of it false. Historical intervention schemes created surplus stocks of many agricultural products, but these have disappeared and the CAP has been reformed many times.
(Image right: A romanian shepherd
with his herd. he is one of the 3 million Romanian farmers in the EU-27 who are nearly subsistent)
Today it is a modern policy, where farmers are more competitive and are free to respond to market signals, where the incentive to overproduce has disappeared, where farm support is contingent on the respect of tough environmental, animal welfare and food quality standards and where coherence with policies for development and trade has greatly increased. Still there are misconceptions, which will be explained in the following paragraphs.
Too expensive
Can it be justified to spend more than 40% of the EUbudget on a sector that accounts for just 1.6% of Gross domestic Product (GDP) and employs only 5% of the working population? This question is too simplistic and misleading. The CAP is the only policy funded totally from the EU budget. European spending replaces national spending. That is why it accounts for such a large proportion of the EU budget. Other policies cost much more, but are paid for out of national treasuries. Ten years ago, 0.61% of the EU's GDP went to the farmers. That figure currently stands at 0.43%, and in another ten years, it will be down to around 0.3%. If we take into account all public budgets, the CAP is about 1% of public spending in the EU. If there were no CAP, individual Member States would still subsidise their farmers. This could lead to subsidy competition, would require intensified management under state aid rules and could potentially result in higher overall spending.
Farming for subsidies
A popular caricature of CAP is that it encourages overproduction of unwanted commodities, but this bears no relation to the reality of the CAP in 2008. Reforms to the CAP began in 1992, and intensified with the reforms of 2003, which cut the link between subsidies and production. Farmers can now become true entrepreneurs; produce what the market and consumers want, look for profitable new markets and exploit new niches. They no longer have to “farm for subsidies”, producing food for which there is no market. Farmers now receive an income support payment which is not linked to production. However, beneficiaries have to fulfil environmental, animal welfare and food quality standards. If they don't, their payments are cut. The new CAP is much more trade-friendly, as 90% of the direct payments are classed by the WTO as non-trade-distorting. The Health Check of the CAP, currently being debated in Council, is not about fundamental reform. It is about streamlining and improving the policy in the light of experience, freeing EU farmers to respond to increasing demand and meeting new challenges like climate change. This is a separate exercise to the midterm review of the Financial Perspectives, which will look at spending priorities after 2013.
Encouraging intensive farming?
It is a misunderstanding that CAP encourages intensive farming and is bad for the environment. If we got rid of the CAP tomorrow, farmers in the most competitive areas would adapt by intensifying their production, whereas in less competitive areas farming would cease and with it the many environment and landscape-related features associated with land use. The CAP in fact rewards extensive production systems. Farm payments are no longer linked to production, but to the respect of so-called Cross Compliance rules, whereby the farmer has to guarantee strict environmental, animal welfare and food quality standards. If he does not, his aid is reduced. There is aplace in the model for small, medium and large farms (up to a limit, see box). The increasing importance of the Rural Development policy also highlights the way in which the CAP is positive for the environment. At least a quarter of Rural Development spending must go towards environmental projects, while other RD projects also enhance quality of life in rural regions or the economic viability of farming activities.
No money for non-farmers
Only persons carrying out an agricultural activity have access to the Single Payment Scheme, and only agricultural land may be used to activate payments. Where there is no agricultural production, the land must be maintained in good agricultural and environmental condition. It is not possible to receive an EU farm subsidy for a golf course or a leisure club or a railway.

In the Health Check, it is proposed to give Member States the power if they so wish, to withhold direct payments from recipients who are not real “farmers”.
Dismantling CAP
The 'neo-liberal' European Commission is dismantling the CAP is a saying often heard. On the contrary, the Commission is engaged in modernising, streamlining and simplifying the CAP. Through decoupled payments, farmers are given a certain level of financial security. At the same time, they are free to respond to market signals. The market instruments  (such as public intervention) are now used to act like a real safety net without blocking normal market signals.

And through the Rural Development policy, the EU have been helping farms to restructure, and have been caring for the environment and nurturing dynamic rural areas. “It is certainly not the time to abolish the CAP, as some have suggested. The market has a very important role  to play, but left to itself, it will not care for our landscapes or respond to other public demands. And if we strip farming of all defences against occasional crises, we gamble with our food supply”, the Commission states in a memo. The Commission says the EU needs to erect new barriers to imports to guarantee sufficient supplies and protect its farmers. “Food security is of course extremely important. But we want to maintain a healthy two-way trade. We are the world's biggest exporter and importer of agricultural products. Our competitive advantage is in the provision of high-value processed foods”, it said. It is clear that Europe cannot compete
with the likes of Brazil on bulk commodities and nor should it try.
The EU's overall aim is to do everything it can to strengthen the position of European farmers and food companies, but also look at the overall interests. The agricultural EU-leaders see huge opportunities to increase exports of high quality foods to expanding markets such as China and India. “Therefore, it is not in our interests to become a fortress. If we erect new barriers, so will our trade partners. 'Community preference' can only be used in accordance with our international obligations. Protecting our farmers and ensuring community preference can also be done through income support, by giving farmers a basic safety net to allow them to take the decisions they have to take to compete on the market,” the memo reads.

No-one knows who gets what money
The Commission says it is fully committed to transparency of CAP recipients. “This is taxpayers' money and they have the right to know where it goes.” Full transparency will be compulsory from 2009. The publication will be done by the Member States. Also the allegation that CAP export subsidies destroy farmers' livelihoods in developing countries is a misunderstanding that is difficult to erase.
It is true that, in the past, the EU used to overproduce commodities at high prices and then export them with the help of generous export subsidies. But times have changed: 15 years ago, the EU spent €10 billion a year on export subsidies. In 2009, the budget is maximised at €350 million. The main destinations concerned by export subsidies are the Mediterranean Basin and the rest of Europe. Only a minimal proportion of subsidised goods find their way to Africa. There are no export refunds for cereals, rice, dairy products or fruit and vegetables. Export subsidies will be phased out entirely by 2013. In November 2007 the EU reintroduced export subsidies on exports of pig carcases, cuts and bellies, which was a temporary solution to solve an acute market crisis in Europe. Of this, only 8,000 tonnes has gone to the whole of Africa. No other agricultural products are eligible for export subsidies, in contrary to rumours about chicken or tinned tomatoes.
Industrial tariffs vs. agriculture tariffs
In the Doha Round, the EU has offered to phase out all export subsidies from 2013, cut trade-distorting domestic farm subsidies by 70% and reduce its average farm tariff by more than half.
The highest tariffs would fall by at least 60%. This offer allowed the agricultural chapter of the negotiations to progress well. But the Doha Round of negotiations stalled because of problems elsewhere, particularly in the failure thus far to find any sort of balance between what is on offer in agriculture and what is on offer on industrial tariffs.
The Commission does not want to sacrifice the CAP to get a deal in the Doha Round. The Commission has said clearly throughout the process that there will be no deal unless it is a balanced deal. That means balanced within agriculture and balanced   between agriculture and other parts of the negotiation, in particular industrial tariffs. Even within agriculture,
the EU needs to see more engagement from its trading partners. For example, the US needs to be prepared to make significant cuts in their trade-distorting domestic subsidy system.

No benefits for small farmers
Within the Health Check of the CAP proposals were introduced to limit the subsidies paid to Europe's largest, wealthiest and most competitive farmers. Less attention, however, is given to the plan to introduce lower limits, at a level of €250 per year, which would have adverse consequences for Europe's poorest farmers and shepherds.
Due to the introduction of single farm payments and the enlargement of the EU into central and Eastern Europe, the number of very small farms claiming subsidies from the CAP has dramatically increased. The Commission argues that these small beneficiaries also have other economic activities. The implication is that it is just part-time or hobby farmers who have entitlements of less than €250 per year. But some parts of Europe have a large number of subsistence or near-subsistence farmers. In the EU-27 there are an estimated 6.66 million subsistence farms, of which 3 million in Romania and 1.39 million in Poland, 0.5 million in Hungary and 0.4 million in Bulgaria alone. Subsistence farms are defined as less than 1 ESU (European Size Unit). 1 ESU roughly corresponds to either 1.3 hectares of cereals, or 1 dairy cow, or 25 ewes, or equivalent combinations of these. The Commission does admit that “lower limits could be criticised in some member states as an unfair treatment of small farmers.”

The irony is that for these small traditional farmers the CAP is inaccessible and irrelevant. EU food safety regulations restrict how they can sell their traditional, hand-made products but they get precious little from the EU's subsidy system.
Source: Feed Tech magazine: Volume 12. No. 8

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