the common agricultural policy

The Common Agricultural Policy

( c ) J.A Kigozi, 2012GSIS. Korea Univ

Presentation outline

• History and Principles of CAP• Common Market Organizations (CMOs)• Financing CAP• CAP shocks• External Pressure• CAP Reforms• New emerging issues

( c ) J.A Kigozi, 2013

History and Principles

• Article 39 of the Rome Treaty laid down objectives of CAP but came into force in 1962

• The principles were,– Market Unity– Community preference– Financial solidarity

• Common Market Organizations (CMOs)• Reasons? (free trade, erect barriers to the

outside world and protect farmers’ revenue)


CMO Complementary Tools

• Guaranteed price– Vulnerability to natural disasters and dependence

on climatic conditions made public intervention necessary to guarantee descent living conditions for farmers.

– Prices were not determined by forces of dd and ss but rather fixed centrally

– What was the effect of such a system?– Was it a political compromise??????


CMO cont.

• Public intervention system– Was to be adopted if there would be excessive

internal supply that would lead to lower prices (Buffer stocks)

– What is the ultimate truth about this system?• Variable levies at the Community’s border– Just incase prices fixed within the EC were higher than

the imports– Produce could only be allowed in the Community only

if its price was or above the fixed EC price– Trade diversion??


Financing the CAP

• A fund to cover CAP financing was established (EAGGF)

• Comprised of 2 parts• Guarantee; costs involved with market system

like export refunds• Guidance; for funding structural policies• Proportion of the budget on agriculture has

decreased especially since 1980s from 65.1% in 1986 to 42.3% in 2004


Need for CAP Reforms

• CAP shifted from its initial objectives in 1970s (food mountains, wine lakes)

• CAP became more costly to operate• Deterred development of other priorities

hence a major concern for European policy makers and the need for a reform was inevitable


CAP Shocks

• 1970s and 1980s– Guaranteed ceilings (for crops in 1981, milk

quotas in 1984, MGQs for cereals in 1987-8– Guaranteed high prices

• What was the effect of this?• 1990s; Cutting Institutional prices to restore

role of market forces


External Pressure

• 1986; GATT ‘Uruguay Round’ opened and for the first time, negotiations included agriculture.

• Main players were USA and the Cairns group (14 major agricultural exporters) and were on the offensive

• To U.S, CAP was a system which allowed European farmers to eschew competition with rest of the world, thereby creating trade distortions for producers in the non EU countries– They took a decision not to negotiate on other aspects of the

Round until the agricultural issue was resolved


CAP Reforms• Commission delivered its radical CAP reform proposal to the Agricultural

Council in Feb 1991• Issues:

– Partly replace system of price support with system of direct support to farmers or individual direct payments

– Sliding scale of competition (size of farm)• Agreed by the Council in May 1992• Not so much a hustle for German e.g. had important interests in non-

agricultural part of the negotiations


Buying time?• Although political decision to reform the CAP was taken by

the Heads of States, negotiations on precisely how the reform would be implemented took place in the Agricultural Council over a period of 18 months

• Further CAP reform in 1999


Food for thought!• In your opinion, which is the best way to reform CAP?• My opinion: Discard CAP completely• Why?

• 'The way to build lasting economic growth [in Africa] is for Europe to end the CAP.' Sir Digby Jones, former Chairman, CBI


New emerging Issues• Since 2000, there is the Rural Development Policy, also known as the

"second pillar" of the CAP. • The 2003 CAP reform involved a major strengthening of rural development

policy by reducing direct payments for bigger farms and transferring the funds into rural development measures (modulation).

• European strategic guidelines for rural development were set out in February 2006. • Rural Development policy was strengthened to help rural areas respond to

economic, social and environmental issues of the 21st century.• Rural Development policy for the period 2007-2013 will be based on 3

themes or axis ,11% of the total EU budget is today allocated among these three main areas,



Experience of the Leader Community Initiative, aims at implementing localstrategies for rural development through local public-private partnerships.

First axis• Focuses on improving the competitiveness of

the farm and forestry sector through;– support for restructuring, – Development and innovation.


Second Axis• Concerns the improvement of the environment and the countryside

through;– Support for land management– Helping to fight climate change. Such projects could for example concern preserving water quality,

sustainable land management, planting trees to prevent erosion and floods.


Third Axis• Concerns improving the quality of life in rural areas and encouraging

diversification of economic activity. • The policy also provides support to the Leader rural development

methodology, under which Local Action Groups design and carry out local development strategies for their area.

• Member States distribute "second pillar" funds through Rural Development Programme actions.


CAP Arguments

• The EU must look after its farmers because they help protect the countryside. (?)

• The free market is unstable. Without intervention prices would fluctuate and farmers would not be able to respond to consumer demand. (?)


Against• Resources are best allocated through a free market: CAP

makes food more expensive in the EU than it need be. • The CAP increases poverty in poor countries by competing

unfairly with local farmers. (Dumping)• The CAP demands far too high a budgetary contribution to

support only a small minority of EU businesses. • Processing farmers' CAP payments is expensive (in 2009, the

average cost of processing an SFP claim in the UK was £742, even for payouts as small as £5).


Conclusion• CAP is one of the most controversial European Union policies. It

initially sought to increase agricultural productivity in the EU and secure availability of food supplies during the Cold War.

• Its aims have now changed to protecting agriculture throughout the EU by controlling prices and levels of production and by subsidizing the rural lifestyle in order to safeguard the countryside.

• Several attempts have been made to reform the CAP. However, there has been only limited success in reducing its cost. It has been a cause of controversy not only because of its huge cost as a proportion of the EU budget, but also because it is seen as an unfair way of protecting European agriculture from overseas competition when farming contributes relatively little to EU GDP.


EU should discard CAP for a better Tomorrow

Thank you for agreeing with me.( c ) J.A Kigozi, 2013

the common agricultural policy

Documents

inevitable c j

farmers revenue c j

role of market forces

common agricultural

market system

objectives of cap

cap financing

cap reformscommission