Common Agricultural Policy - Objectives

Objectives

Sectors covered by the CAP
The common agricultural policy price intervention covers only certain agricultural products:

• cereal, rice, potatoes
• oil
• dried fodder
• milk and milk products, wine, honey
• beef and veal, poultry meat and eggs, pig meat, sheep / lamb meat and goat meat
• sugar
• fruit and vegetables
• cotton
• peas, field beans
• sweet lupins
• olives
• seed flax
• silkworms
• fibre flax
• hemp
• tobacco
• hops
• seeds
• flowers and live plants
• animal feed stuffs

The coverage of products in the external trade regime is more extensive than the coverage of the CAP regime. This is to limit competition between EU products and alternative external goods (for example, lychee juice could potentially compete with orange juice).

The initial objectives were set out in Article 39 of the Treaty of Rome:

1. to increase productivity, by promoting technical progress and ensuring the optimum use of the factors of production, in particular labour;
2. to ensure a fair standard of living for the agricultural Community;
3. to stabilise markets;
4. to secure availability of supplies;
5. to provide consumers with food at reasonable prices.

The CAP recognised the need to take account of the social structure of agriculture and of the structural and natural disparities between the various agricultural regions and to effect the appropriate adjustments by degrees.

CAP is an integrated system of measures which works by maintaining commodity price levels within the EU and by subsidising production. There are a number of mechanisms:

• Import levies are applied to specified goods imported into the EU. These are set at a level to raise the World market price up to the EU target price. The target price is chosen as the maximum desirable price for those goods within the EU.
• Import quotas are used as a means of restricting the amount of food being imported into the EU. Some non member countries have negotiated quotas which allow them to sell particular goods within the EU without tariffs. This notably applies to countries which had a traditional trade link with a member country.
• An internal intervention price is set. If the internal market price falls below the intervention level then the EU will buy up goods to raise the price to the intervention level. The intervention price is set lower than the target price. The internal market price can only vary in the range between the intervention price and target price.
• Direct subsidies are paid to farmers. This was originally intended to encourage farmers to choose to grow those crops attracting subsidies and maintain home-grown supplies. Subsidies were generally paid on the area of land growing a particular crop, rather than on the total amount of crop produced. Reforms implemented from 2005 are phasing out specific subsidies in favour of flat-rate payments based only on the area of land in cultivation, and for adopting environmentally beneficial farming methods. The change is intended to give farmers more freedom to choose for themselves those crops most in demand and reduce the economic incentive to overproduce.
• Production quotas and 'set-aside' payments were introduced in an effort to prevent overproduction of some foods (for example, milk, grain, wine) that attracted subsidies well in excess of market prices. The need to store and dispose of excess produce was wasteful of resources and brought the CAP into disrepute. A secondary market evolved, especially in the sale of milk quotas, whilst some farmers made imaginative use of 'set-aside', for example, setting aside land which was difficult to farm. Currently set-aside has been suspended, subject to further decision about its future, following rising prices for some commodities and increasing interest in growing biofuels.

The change in subsidies is intended to be completed by 2011, but individual governments have some freedom to decide how the new scheme will be introduced. The UK government has decided to run a dual system of subsidies in England, each year transferring a larger proportion of the total payment to the new scheme. Payments under the old scheme were frozen at their levels averaged over 2002–2003 and reduce each subsequent year. This allows farmers in England a period where their income is maintained, but which they can use to change farm practices to accord with the new regime. Other governments have chosen to wait, and change the system in one go at the latest possible time. Governments also have limited discretion to continue to direct a small proportion of the total subsidy to support specific crops. Alterations to the qualifying rules meant that many small landowners became eligible to apply for grants and the Rural Payments Agency in England received double the previous number of applications (110,000).

The CAP also aims to promote legislative harmonisation within the Community. Differing laws in member countries can create problems for anyone seeking to trade between countries. Examples are regulations on permitted preservatives or food colouring, labelling regulations, use of hormones or other drugs in livestock intended for human consumption and disease control, animal welfare regulations. The process of removing all hidden legislative barriers to trade is still incomplete.

The European Agricultural Guidance and Guarantee Fund (EAGGF) of the EU, which used to fund the CAP has been replaced in 2007 with the European Agricultural Guarantee Fund (EAGF) and the European Agricultural Fund for Rural Development (EAFRD). CAP reform has steadily lowered its share of the EU budget but it still accounts for nearly half of the EU expenditure. France is the biggest beneficiary of the policy by around 20%, followed by Germany and Spain (~13% each), Italy (~11%) and the UK (~9%).