EU Agricultural Policy

The Common Agricultural Policy was introduced in the early 1960s, following a time when Western Europe’s agriculture had been heavily damaged by years of war and food supplies could not be guaranteed. At the time, primary agriculture accounted for one-third of employment and 20% of GDP in the six founding members of the EU.

The emphasis of the early CAP was on encouraging better agricultural productivity so that consumers had a stable supply of affordable food and ensure that the EU had a viable agricultural sector.  The CAP was very successful in meeting its objective and the EU became increasingly self-sufficient during the 1980s. However, in many ways the CAP was a victim of its own success. With the combined effect of high and stable prices and rapid technological change bringing real production costs down, agricultural production grew faster than consumption. Disposal of surpluses on the domestic market or on third markets required high budgetary costs and distorted some world markets.

Major reforms have significantly changed the CAP since 1992. The first major reform began the process of shifting farm support from prices to direct payments. Further changes took place in 1995 to accommodate the CAP to the new disciplines of the WTO Agreement on Agriculture which entered into force in that year. The Agenda 2000 programme from 1999 designed to prepare the CAP for EU enlargement to include the ten countries of Central and Eastern Europe continued the process of lowering support prices with farmers receiving compensation in the form of higher coupled farm payments..

The next step was the Fischler reform implemented as the Mid Term Review in June 2003. It substituted decoupled payments to farmers for the previously coupled payments. It was followed by a series of individual commodity market reforms which adapted support mechanisms for these commodities to the Fischler principles. The CAP Health Check in 2007 consolidated this process as well as slicing off additional funds for rural development measures.

Successive Reforms of the Common Agricultural Policy

The MacSharry Reform

EU Commissioner for Agriculture Ray MacSharry proposed the first major CAP reform in 1992 which was implemented in 1994. For the first time, support prices for a number of major commodities were reduced. Farmers were compensated for the resulting loss of income by increasing direct payments. This has been the model for all subsequent CAP reforms.

The core of the MacSharry reform was a cut of 30% in the cereal intervention prices, phased in over three years, together with smaller cuts in the institutional prices for beef and butter. These support price reductions were compensated by a per hectare payment in the case of cereals, and increased premium payments for beef cows and cattle. The 1992 reform introduced a set-aside scheme in the arable sector which allowed the Commission to curtail the arable area and gain control of surpluses in that sector. The reform also included three accompanying measures, including an early retirement scheme, an agri-environment scheme and a scheme for afforestation, designed to reduce production capacity and to improve the structure of farming.

Agenda 2000 reform

The Agenda 2000 reform agreed in March 1999 was prompted by the need to prepare the CAP for the future enlargement of the EU to include the countries of Central and Eastern Europe. It included a reformulation of the aims of agricultural policy, to give greater emphasis to environmental policy objectives and the multifunctional role of the European model of farming. It further reduced support prices for cereals and beef and for the first time reduced support prices for dairy products.

The Agenda 2000 package also introduced the idea of an integrated rural development policy as a second pillar of the CAP. This brought together the accompanying measures of the MacSharry reform plus compensatory allowances under the less favoured areas measure, as well as rural development measures previously financed by the FEOGA Guidance Fund, into a single Rural Development Regulation. The Agreement also established tight budgetary limits on EU agricultural spending in the context of the EU’s medium-term financial framework.

The Fischler Reform

The Agenda 2000 agreement covered the 2000-2006 period, but mandated a mid-term review in 2003. The Mid-Term Review proposed by Franz Fischler as Commissioner for Agriculture and Rural Development and agreed by the Luxembourg Council of Agricultural Ministers in June 2003 had three main elements:

• Decoupling: The bundling of all production-linked payments into a single farm payment to be paid to farmers on the basis of their historic entitlements and linked to land rather than production. Eligibility for payments is subject to cross-compliance with a variety of EU environmental, animal welfare and food safety standards.
• Sectoral Reforms: Continuation of reductions in support prices with changes to the market regimes for problem commodities such as durum wheat, rice and rye.
• Modulation: This means the transfer of money between CAP objectives: Up to 5% of the value of the single farm payment to larger farmers was ‘modulated’ and transferred to rural development measures. A financial discipline mechanism was agreed whereby payments can be further reduced to ensure that overall CAP expenditure payments on market and income support remains within budgetary objectives.

Further reforms were agreed in April 2004 with respect to a number of Mediterranean products (cotton, olive oil, tobacco), for sugar in 2006, .

The CAP Health Check

In 2007, the Commission adopted the CAP Health Check. While not seen as a major reform, the Health Check was an effort to continue to streamline and modernise the CAP. The Commission itself remarked that the Health Check proposals ‘do not constitute a fundamental reform, but prepare EU agriculture to adapt better to a rapidly changing environment.’ The Health Check sought to address three main policy areas:

• How to make the Single Payment Scheme more effective, efficient and simple by continuing the move to full decoupling..
• How to adapt market support instruments originally designed for six, to a larger system of twenty-seven states in a more globalised world.
• How to master challenges in areas such as climate change, biodiversity and water management and adapt to new risks and opportunities.

Overall the Health Check introduced a number of positive developments to the CAP, tightens up outstanding issues from the Mid-Term Review and continues the move towards full decoupling.

Today’s CAP is more market-oriented. Under the new CAP, farmers still receive direct income payments to maintain income stability, but the link to production has been severed. In addition, farmers have to respect environmental, food safety, phytosanitary and animal welfare standards.

However, the CAP continues to face a number of challenges, particularly in addressing biodiversity decline, water pollution, soil degradation, accelerating climate change and the steady growth in demand for food, fuel and energy.

Links:

Website of the European Commission Directorate-General for Agriculture and Rural Development
Access to policy information, statistical sources and legislative instruments for EU agricultural policy

OECD Producer and Consumer Support Estimate database for the EU
There is a link on this page to an Excel file providing the raw data for the calculation of the PSE and CSE support indicators for the EU

Resources:

Bureau, J.and Matthews, A., EU Agricultural Policy: What Developing Countries Need to Know (PDF), IIIS Discussion Paper No.91, 2005
This paper describes the EU’s Common Agricultural Policy and its reforms, as well as its impact on developing countries.

DG for Agriculture and Rural Development, The CAP in perspective: from market intervention to policy innovation (PDF), Agricultural Policy Perspecives, Brief No. 1, 2009.
Provides a succinct overview of the key features of European agriculture including the changing nature of the CAP and the strengthened role of rural development, and agri-environmental measures

Anderson, K. and Josling, T., The EU's Common Agricultural Policy at Fifty: an International Perspective (PDF), Policy Insight No. 13, Centre for European Policy Research, 2007.
Presents estimates of the changing level of support to EU farmers using a new dataset constructed as part of the World Bank Agricultural Distortions project.