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The Common Agricultural Policy

What you need to know about the past, present and future of this legislative landmark

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Last updated in January 2012

- History of the CAP
- MacSharry Reforms
- Agenda 2000
- A future CAP

History of the CAP

The European Union's Common Agricultural Policy (CAP) has its roots in 1950s western Europe, where agriculture had been crippled by the war, severely compromising food supplies. The emphasis of the early CAP was on encouraging agricultural productivity so that consumers had a stable supply of affordable food and to ensure that Europe had a viable agricultural sector.

The first CAP came into force in 1962 with five founding aims:

  1. To increase productivity
  2. A provide a fair standard of living to farmers
  3. To stabilise markets
  4. To provide regular food supplies
  5. To ensure reasonable prices for consumers

The UK was outside the CAP until it joined the European Economic Community (EEC) in 1973. Policy in the UK was set until then by the 1947 Agriculture Act, which established guaranteed prices for most farm products and deficiency payments that made up the difference between the guaranteed price and the market price. The guaranteed price was agreed annually by the government and the National Farmers Union.

Full accession to the CAP by the UK in 1979 brought the expectation of substantially higher support prices to British agriculture and higher prices for consumers. At the same time, world commodity prices escalated leading to a significant increase in investment and agricultural intensification, which became manifest during the 1980s.

Arguably the CAP was very successful in meeting its original aims but the consequences were a high budgetary cost, almost permanent surpluses of the main farm products, distortion of world markets, adverse impacts on the environment and high prices for consumers.

Many changes to the CAP were made during the 1980s to constrain production, including the introduction of milk quotas in 1983.

In the UK, high cereal prices encouraged farmers to convert traditional areas of livestock grazing to cereals production and led to an 'agriculture vs conservation' controversy at Halvergate Marshes where the Broads were being drained and ploughed. The year of 1986 marked a turning point in domestic policy and led to new environmental measures and land management agreements that have increasingly shaped the CAP ever since.

MacSharry Reforms

The first truly radical attempt to reform the CAP came in 1992 with the MacSharry reforms. Ray MacSharry, the EU's Agriculture Commissioner at the time, sought to decouple funding from production and take account of the preservation of rural communities, the countryside and the environment. Agreement on the reforms coincided with the Uruguay Round of the General Agreement on Tariffs and Trade (GATT).

The most important element of the MacSharry plan, with regards to GATT, was the proposal to substitute a certain amount of domestic price support with direct payments to farmers for lower prices. These direct payments were contingent on farmers reducing the area of land under agricultural production – a policy known as ‘set-aside’.

In the first year of the scheme farmers had to set aside a minimum of 15% of their cropped farmland for the harvest year of 1993. By the year 2000 the figure had dropped to 10%. In 2007, following significant rises in grain prices across Europe, the EU decided that for harvest 2008, the set-aside rate would be zero.

In 2006 there were approximately 500,000 hectares of land in set-aside, representing an area of countryside about 70km by 70km – approximately twice the size of the area enclosed by the M25 around London.

Agenda 2000

The 1999 Berlin Council reformed the CAP further, under Agenda 2000. These reforms, which came into effect in 2003, replaced production subsidies with a scheme of direct payments linked to a set of ‘cross-compliance’ measures. A budget was set by the EU for these measures up to 2013.

In 2008, EU agriculture ministers reached an agreement on the Health Check of the Common Agricultural Policy. Among a range of measures, the agreement abolished arable set-aside, increased milk quotas gradually leading up to their abolition in 2015, and converted market intervention into a genuine safety net.

The most fundamental element of this new CAP was the ‘single farm payment’, which replaced production subsidies. Based on a farm's area measured in hectares, it was known generally as Pillar 1. At the same time a new rural development policy was created aimed at environmental and economic improvements – known generally as Pillar 2.

The chart below shows that payments made under the CAP are now higher than before the Agenda 2000 reforms and that payments are now almost wholly ‘decoupled’ from production. Payments not linked to production are dominated by the single farm payment (80%) and payments made under agri-environment schemes (15%).

Direct payments to UK farmers

direct payments to UK farmers

Source: Agriculture in the UK 2010 (Defra)

The current phase of the CAP has been dominated by EU enlargement, particularly the accession countries with large agricultural sectors, resulting in the need to further control costs. There is also an ongoing debate over production controls for milk and the failure of UK authorities to make timely single farm payments.

A future CAP

The next phase of the CAP for the period after 2013 is now being decided by EU member states. The Commission recognises that the challenges faced by agriculture towards 2020 include:

  • High price volatility and a slowdown in factor productivity growth (land, fertiliser and labour, for example)
  • The environmental impacts of agricultural intensification in some areas and abandonment in others
  • Meeting the bio-diversity and greenhouse gas targets adopted by the EU

The main policy objectives proposed for CAP reform are:

  • Improving the functioning of the advisory system and creating networks for knowledge creation and transfer
  • Encouraging pro-competitive joint action among farmers to foster efficient use of resources, product development and marketing
  • Providing incentives to use risk management instruments
  • Increasing areas providing environmental and climate action benefits
  • Re-balancing direct payment support to better reflect income objectives and environmental performance
  • Reducing disparities in direct payment support levels between member states and farmers

The European Commission has presented three policy scenario proposals to be discussed by member states. More detailed briefing papers are available, including:

Agriculture policy is the most integrated of all EU policies and still takes a large share of the EU budget – 34% over the period from 2007 to 2013. The CAP of the future, however it turns out, will need to reflect the economic realities facing member states as well food security, climate change and green growth priorities. It may bear little resemblance to the proposals initiated by the Commission.

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