CAP: Sorting the facts from fiction

24-10-2008 | |
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

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
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
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
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
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
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

limits, at a level of €250 per
year, which would have adverse consequences for Europe’s poorest farmers and

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.

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