9.1 The Common Agricultural Policy (CAP): a brief history

(I) Early history

The EU's agricultural policy was first defined in the Treaty of Rome (1957). The CAP was launched in 1962 and was the first common EEC policy implemented. CAP's broad aims were:

To increase agricultural productivity.
To ensure a fair standard of living for the agricultural population.
To stabilise markets.
To guarantee reasonable prices.
To ensure reasonable prices in supplies to consumers.

By the early 1980s wine lakes, butter mountains and large surpluses of non-butter dairy produce, cereals and sugar were accumulating. In 1988 there was a package of reforms, including the notorious "set aside" (where farmers were funded to take land out of production), intended to control spending and tackle over-production. They were partly successful.

(II) The 1990s reforms

The first radical attempt to reform CAP came in 1992 with the MacSharry Reforms, which were part of GATT's Uruguay Round of trade talks (which finished in 1993). The MacSharry reforms sought to decouple funding from production and, therefore, increase direct income support. They, arguably, narrowly averted the failure of the Uruguay round. As well as the de-coupling, the principal elements were:

The cutback of EU agricultural prices.
Compensation of farmers for loss of income.
Protection of the environment.

The other major development of the 1990s related to the preparations for the enlargement, encompassing large agricultural countries such as Poland.

The Berlin summit (March 1999) broadly agreed to the Agenda 2000 report on the preparations for enlargement, which covered agricultural reforms. It also emphasised the need for a shift to "green-tinged" rural development at the expense of farm product price support. The Berlin summit also agreed the SAPARD (Special Assistance Programme for Agriculture and Rural Development) to assist the CEECs in preparation for EU membership.

The Agenda 2000 reforms included:

The reinforcement of competitiveness for agricultural commodities.
The promotion of a fair and decent standard of living for farmers.
The creation of substitute jobs for farmers.
The formation of a new policy for rural development, which became the second pillar of CAP.
The integration of more environmental and structural considerations into CAP.
The improvement of food safety and quality.
The simplification of agricultural legislation.

In summary, CAP's objectives were modified in the 1990s to take account of, in particular, non-production considerations. The modifications included:

The preservation of rural communities, the countryside and the environment.
The maintenance of good international trading relations as part of the GATT Uruguay trade agreement.
The avoidance of the build-up of food mountains.

(III) The 2000s

By the early 2000s it was clear that further serious reforms were needed to cope with both enlargement and the Doha WTO round.

In June 2003 EU farm ministers agreed reforms to the system for paying subsidies to farmers. Under the deal, most of the production-linked subsidies would be abolished ("de-coupled"). The changes in support, arguably the most significant since the beginning of CAP, are planned to be phased in over the period 2005 to 2012. Whether the changes occur as planned is, however, open to doubt. The UK switched to the Single Farm Payment Scheme (SFPS) in 2005.

The main terms of the 2003 deal were:

Farmers, in most cases, would receive a Single Farm Payment (SFP), rather than a graded amount of money in line with the amount of food produced. Initial plans which completely severed the links between output and subsidies were, however, abandoned in order to get an agreement from all countries. Individual countries would be able to keep producer subsidies if there was a risk that the new system would lead to the land being abandoned.
The Single Farm Payment Scheme would initially apply to the main market sectors, including cereals, meat and milk
The prices at which the EU would intervene to support farmers were to be cut in key sectors, including milk powder and butter.
Countries like the UK, which wanted to press ahead with more radical reform, would be allowed to do so.
Direct payments for bigger farms ("modulation") would be cut to finance the new rural development policy, promoting the environment and animal welfare.
The SPS would be linked to the respect of environmental, food safety, animal and plant health and animal welfare standards, as well as the requirement to keep all farmland in good agricultural and environmental condition ("cross compliance").
The deal effectively would mean that the way farmers would be subsidised would vary greatly from country to country. This shift would not save taxpayers any money in the short term, as the cash saved on food subsidies would be redistributed as rewards for taking good care of the environment.
A "financial discipline" mechanism to prevent spending exceeding the ceiling would be imposed.
For most of the new member countries the "Single Area Payment Scheme" (SAPS) will apply initially. The SAPS involves uniform per-hectare entitlements which are granted, within any one region, from regional financial envelopes.

RL, February 2007