9.2 CAP: operation and commentary

The following price support system for EU agricultural products still applies in most EU countries, as most EU countries have not yet switched over the Single Farm Payment Scheme (SFPS):

• Community Preference: common tariffs on imported products.
• Subsidies on exports to non-EU countries.
• A system of guaranteed prices, frequently above world prices. There are 4 different mechanisms, depending on the product involved:
• About 70% of products (including major cereals, beef and sheep-meat) enjoy support prices which carry either a permanent or conditional price of sale. When market prices fall below a certain, guaranteed, level and other conditions are fulfilled, the intervention authorities buy up any produce offered to them, stock it and eventually resell it according to EU rules.
• About 20% of produce (including pigs and poultry) are protected only by measures to prevent low price imports from outside the EU.
• Direct subsidies of one kind or another apply to most other products. In, for example, the case of oil seeds a deficiency payment bridges the difference between the world market price and the price guaranteed to the producer.
• Flat-rate aid according to hectares planted or quantity produced covers less than 1% of production (e.g. hops).

Two other key operational aspects of CAP are:

• Free internal trade: a single market for farm goods - i.e. free movement throughout the EU at common prices.
• Common financial responsibility: with the costs paid from a common fund to which all members contributed and implemented through the European Agricultural Guidance and Guarantee Fund (EAGGF or FEOGA).

CAP has been a policy of enduring controversy. The main criticisms are:

• It is expensive. The CAP takes a large share of the EU budget. Nevertheless this has dropped from a peak of nearly 70% in the 1970s to about 45% in the recent past and around 35% for the period 2007-13. The EU taxpayers support farmers.
• It is also, allegedly, notoriously prone to fraudulent claims.
• It is protectionist and discriminates against non-EU agricultural exporters. It distorts trade and this was one of the major issues during the Uruguay round of trade talks and the current Doha round.
• By maintaining EU prices higher than world prices it is regressive and discriminates against less well off families within the EU.

RL, February 2007