FOREIGN AGRICULTURAL SERVICE
U.S. MISSION TO THE EUROPEAN UNION

Last update:  August 25, 2010

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 Common Agricultural Policy (CAP)

Origins of the CAP  | The CAP after 2013 | CAP Health Check | CAP Reform Agreement | Single CMO | Reports |  Links

Origins of the CAP

The Common Agricultural Policy (CAP) was proposed by the European Commission in 1960 further to the signing of the Treaty of Rome in 1957. The initial objectives of the CAP were set out in Article 39 of the Treaty as being:

- to increase agricultural productivity by promoting technical progress and ensuring the optimum use of the factors of production, in particular labor;
- to ensure a ‘fair standard of living’ for farmers;
- to stabilize markets;
- to assure availability of supplies;
- to ensure reasonable prices for consumers. 

Within this framework, the CAP began by subsidizing production of basic foodstuffs in the interests of self-sufficiency and food security. By the Agenda 2000 and the 2003 reforms of the CAP, the EU sought to allow farming decisions to be more influenced by market signals through replacing subsidies on quantities with direct payments. These payments aim to guarantee farmers a reasonable income, and are often linked to compliance with broader objectives including standards on food safety, animal and plant health, animal welfare and the preservation of traditional rural landscapes. The European Commission’s ‘one vision, two steps’ approach to the CAP implies a first step being a ‘health check’ or mid-term review (adopted in January 2009) of the system, and a second step of a further examination to be implemented after the 2013 financial perspectives.

 The CAP is the EU’s most fully integrated policy, and takes a large share of the EU budget. Nevertheless, this has fallen from a peak of almost 70 percent of the EU budget in the 1970s to 34.9 percent of the budget during the 2007 – 2013 period, reflecting a shift of some agricultural spending into rural development, which will take 9.7 percent of the budget over the same period.

The CAP after 2013

In 2005, the EU budget was set for the 2007 to 2013 financial perspective. The CAP is due to be reformed by 2013.

On April 12, 2010, Commissioner for Agriculture and Rural Development, Dacian Cioloş, launched a public debate on the future of the CAP after 2013. Contributions to the debate were accepted until June 2010 and the European Commission organized a conference on the public debate in July 2010. The Commission’s executive summary of the conclusions drawn from the debate note:

‘... a number of themes emerged which have considerable support from the wide range of contributors. These themes represent the middle ground among respondents. Some would want to go further; others less far. From the submissions, we have identified 12 directions to be followed. The EU should:

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- Take a strategic approach to CAP reform. Go for total, not partial, solutions taking account of CAP challenges on the one hand and the interplay between the CAP and other internal and external EU policies on the other hand;

-     - Ensure that the CAP guarantees food security for the EU, using a number of tools to achieve this aim;

-     - Continue to push the competitive and potentially competitive sectors of European agriculture towards operating in a market context, giving more importance to innovation and dissemination of research;

-     - Transform market intervention into a modern risk- and crisis-management tool;

-     - Recognize that the market cannot (or will not) pay for the provision of public goods and benefits. This is where public action has to offset market failure;

-     - Bear in mind that the correct payment to farmers for the delivery of public goods and services will be a key element in a reformed CAP;

-     - Protect the environment and biodiversity, conserve the countryside, sustain the rural economy and preserve/create rural jobs, mitigate climate change;

-     - Rethink the structure of the two support pillars and clarify the relationship between them; make adequate resources available for successful rural development;

-    - Implement a fairer CAP – fairer to small farmers, to less-favored regions, to new member states;

-     - Introduce transparency along the food chain, with a greater say for producers;

-     - Create fair competition conditions between domestic and imported products;

-     - Avoid damaging the economies or food production capacities of developing countries; help in the fight against world hunger’.

The Commission aims to develop a Communication on the CAP reform concept by the end of 2010. The Communication will be used to stimulate formal public consultation for around six months. In July 2011, the Commission is scheduled to put forward formal legislative proposals for post-2013 CAP as part of a more comprehensive package on post-2013 financial perspectives for 2014 to 2020.
 
Commissioner Ciolos has asserted that:

- there should be no reversal of past reforms;
- export refunds are not the best tool for the future;
- competitiveness must be improved to enable the market to play its role;
- social, economic and environmental aspects of agriculture impacting society at a local level should not be threatened.

The CAP reform is subject to co-decision between the Council and the Parliament.


CAP Health Check

EU Agriculture Ministers reached a political agreement on the Health Check of the CAP at the Agriculture Council meeting of November 18-20, 2008 and adopted it at the Council of January 14, 2009.  The European Commission noted that the CAP Health Check exercise was to pursue three main objectives: 1) improve the single payment scheme, 2) modernize agricultural market management tools, and 3) respond to the new challenges of climate change, bioenergy production, water management and the preservation of biodiversity. 

The principal elements of the CAP Health Check were as follows:

Grains:

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Abolition of set-aside: the requirement for arable farmers to leave 10 percent of their land fallow is to be abolished with effect from MY 2008/09. It is interesting to note that it is the set-aside mechanism that has been abolished as opposed to the rate of set-aside being set at 0 percent. This implies that set-aside is no longer to be considered as a supply-side management tool. In practice, the area of land liberated from the set-aside obligations is likely to amount to between 1.2 and 1.6 million ha (given a theoretical available area of some 4 million ha, a maximum of 40 percent of which could return to crops the remainder being marginal land).
 
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Intervention mechanisms: intervention is to be set at 0 for durum wheat (with effect from MY 2009/10), rice (with effect from MY 2009/10), barley and sorghum (with effect from MY 2010/11). For soft wheat, intervention purchases will be possible during the intervention period from November 1 to May 31 at a price of €101.31 per MT up to 3 million MT. Beyond that, intervention buying-in will be made via bids under a tender system (with effect from MY 2010/11). Monthly increments will also cease from July 2010. Although not part of the Health Check exercise, it should be recalled that intervention for corn (maize) is to be phased out from MY 2009/10 onwards (via the setting of a 0 threshold), having been subject to a ceiling of 1.5 million MT in MY 2007/08 and a subsequent ceiling of 700,000 MT in MY 2008/09 (as previously reported in GAIN E47046). As such, although thresholds are to be set at 0 for durum wheat, rice, barley and sorghum, the intervention mechanism for these products will be maintained as a market management instrument as is the case for corn.   

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Decoupling of support: aid for arable crops, durum wheat and hops will be decoupled on January 1, 2010. Decoupling of aid for the processing of dried fodder will take place on April 1, 2012. The Commission will draw up a report by December 31, 2012 on the progress of the Health Check particularly with regards to progress towards decoupling.
 

Dairy
 

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Soft Landing of Dairy Quota: Ministers agreed to the Commission’s original proposal of five consecutive 1 percent quota increases from 2009 to 2013, before the expiration of the dairy quota regime in 2015.  Italy will be allowed to front-load its five annual increases as one single 5 percent increase in 2009/10.  However, for the quota years 2009/10 and 2010/11, the super-levy rate will be increased to 150 percent of the standard rate for any producers who produce over 6 percent more than their quota (as a deterrent against Italy abusing of its front-loading privilege and still widely producing over its milk quota).
 
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Dairy intervention and Private Storage Aid: Ministers further rejected reforms to the intervention system for butter and skimmed milk powder.  Buying-in of butter and skimmed milk powder (SMP) will continue at fixed intervention prices during the intervention period from March 1 to August 31 up to a maximum quantity of 30,000 MT of butter and 109,000 MT of SMP.  The tool of Private Storage Aids (PSA) for butter is also maintained.  The tools of disposal aid for using SMP in feed and in casein/caseinate production are maintained but the system is changed such that the Commission will now decide on opening these instruments on the basis of market prices.  The PSA for cheese, as well as the aid schemes for the use of butter in pastries and ice cream and for direct consumption are to be abolished.
 
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Fat Coefficient: Adjustments to the butterfat coefficients through Management Committee decisions have also been accepted.
 
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Aid for Least Favored Areas: While no new money is being provided for a Milk Fund, as requested by Germany, the agreement nevertheless provides that a reserve of 0.5 percent of the national envelope is maintained to help dairy farmers in Least Favored Areas (LFAs) under the Rural Development program, instead of through the new Article 68.  This money would be sourced from the unused amounts from the national envelopes.

Additional Modulation

Before the Health Check, all farmers receiving more than €5,000 in direct aid have their payments reduced by 5 percent, and the money is transferred into the Rural Development budget. This rate will be increased to 10 percent by 2012.  An additional reduction of 4 percent will be made on payments above €300,000 per year.  The funding obtained this way may be used by Member States to reinforce programs concerning climate change, renewable energy, water management, biodiversity, innovation linked to these points and for accompanying measures in the dairy sector. This transferred money will be co-financed by the EU at a rate of 75 percent and 90 percent in convergence regions where average GDP is lower.

Cross Compliance

One of the aims of the Health Check was to simplify the cross compliance rules (whereby farmers are obliged to respect environmental standards, animal welfare and food quality standards, non-respect of the rules resulting in cuts in their support) without diminishing their scope. Considerable criticism of the way cross compliance has been applied is soon to be published in a Report from the Court of Auditors.  The institute for European Environmental Policy has pointed out that the cross compliance requirements are actually no stricter than already existing requirements by the EU and Member State laws.  

Despite the criticism there was no serious discussion over the cross compliance issue, although the Council and the Commission declared that “the work will continue with the objective of obtaining further simplification for farmers as well as national administrations regarding the application of requirements on cross compliance“.

The list of legislative texts setting conditions for payment of the full amount of Community aids was adapted during the meeting.

One aspect of the cross compliance system is Good Agricultural and Environmental Condition (GAEC). It was decided that GAEC standards including:

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 retention of terraces,

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standards for crop rotation,

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appropriate machinery use,
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minimum livestock stocking rates or/and appropriate regimes,
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establishments and/or retention of habitats,
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prohibition of the grubbing up of olive trees,
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maintenance of olive groves and vines in good vegetative condition,

shall be optional except where a Member State had defined for such a standard a minimum for GAEC before January 1, 2009, or where rules addressing the standard are applied in the Member State in accordance with national provisions.

A full summary of the measures is also available on the European Commission DG Agriculture website.

 

CAP Reform Agreement

In September 2003, the Agriculture Council formally adopted the legal texts of the June 2003 CAP Reform agreement.  The regulations on CAP reform were published in Official Journal L 27 of October 21, 2003.  Reforms were introduced starting in 2004, though Member States had the option to delay implementing some of the decoupling measures until 2008.

 

The essence of the reform was a shift from subsidies based on production to subsidies that are decoupled from production.  Fully decoupled payments were aimed to shift a large part of EU farm payments from the WTO Blue box (trade distorting, allowed within limits) to the Green box (non-trade distorting). 

 

The key elements of the reform can be divided into four categories:
 

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The Single Farm Payment (decoupling)
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Horizontal Measures (cross compliance, modulation, financial discipline)
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Rural Development Policy
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Market Measures

 

Legislation

 

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Council Regulation 1782/2003: Horizontal rules (single farm payment, set-aside, modulation, etc.)
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Council Regulation 1783/2003: Rural Development
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Council Regulation 1784/2003: Cereals
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Council Regulation 1785/2003: Rice
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Council Regulation 1786/2003: Dried Fodder
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Council Regulation 1787/2003: Milk (CMO)
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Council Regulation 1788/2003: Milk (levy)
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Council Regulation 1290/2005: financing of the CAP
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Council Regulation 378/2007: voluntary modulation of direct payments

 

Implementing Regulations

 

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Commission Regulation 795/2004: Single Farm Payment
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Commission Regulation 796/2004: Cross-Compliance & Modulation
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Commission Regulation 1973/2004: Direct Support Schemes
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Commission Regulation 570/2005 establishes budgetary ceilings for direct payments

  

 

SINGLE CMO

 

Council Regulation 1234/2007 establishes a single common market organization (CMO) for all agricultural products and is viewed as an essential element of the Commission’s strategy to simplify the CAP.  This regulation enters into force on July 1, 2008, and replaces 21 existing CMOs.  It combines and harmonizes as far as possible the different Council acts in areas of market policy covering rules on intervention, private storage, marketing and quality standards, import and export rules, safeguard measures, competition, state aid and the reporting of data.  Council Regulation 1234/2007 has been amended by Council Regulation 361/2008 to incorporate the policy changes agreed in the context of the CMO reforms for fruit and vegetables.
 

Reports

Changes in European Land Use as a result of CAP and EU enlargements Report Categories (GAIN report E49027):  The way land is used in the European Union has changed over time. This has mainly occurred as a result of reforms to the CAP, as well as from markets adjusting to EU enlargements. Environmental concerns and their consequential agricultural policy choices have further impacted land use. This influence will only increase when future policies to deal with climate change will be decided.


EU-27 | EU Member States reach political agreement on CAP Health Check (GAIN report E48134): EU Agriculture Ministers reached a political agreement on the Health Check of the CAP at the Agriculture Council meeting of November 18 – 20, 2008. The text of the Agreement will appear as an 'A' point (without discussion) on the agenda of a forthcoming Council meeting. This report highlights some of the principal elements of the Agreement. spacer
 

EU-27 | European Commission publishes legislative proposals on Health Check of CAP (GAIN report E48058): On Tuesday, 20 May, the European Commission published its legislative proposals for the CAP Reform. The proposals will be sent to the Council and the European Parliament with the intention that agreement is reached in November during the French Presidency of the EU. The policy would then apply from 2009/10. spacer

European Commission publishes "health check" of the CAP (GAIN report E47100): On Tuesday, November 20 the European Commission published its 'Communication from the Commission to the Council and the European Parliament preparing for the 'Health Check' of the CAP reform'. The Communication is designed to initiate a wide-ranging six-month consultation, after which the Commission intends to develop legislative proposals. It is hoped that those proposals will be adopted by the Council by the end of 2008 to come into effect immediately after adoption.spacer

Council of the European Union approves proposal creating a single Common Market Organization (GAIN report E47048): The EU Council of agricultural ministers has backed the Commission's proposal to replace the existing 21 Common Market Organizations (CMOs) with a single CMO for all agricultural products. This is viewed as being an essential element of the Commission's strategy to simplify the CAP. Under the plan, the entire CAP will eventually be covered by four main Council acts, namely those on the single CMO, the direct aid regime, rural development and the financing of the CAP. spacer

European Union Rural Development Policy: Overview of Modulation (GAIN report E47034): The following report gives a brief overview of how the European Union concept of Modulation works. As a result of the 2003 CAP Reform the European Union mandates Compulsory Modulation of 5 percent of Direct Payments for 2007. In addition to Compulsory Modulation the EU recently granted individual Member States the ability to voluntarily modulate additional Direct Aid spending. Compulsorily Modulated funds are spent on Rural Development programs with additional co-financing coming from individual Member States. Voluntary modulation does not require co-financing. Recently, EU Agriculture Commissioner Fischer Boel has signaled the desire to increase the compulsory rate past the current 5 percent limit However, the European Commission has stated that this will not occur before 2013.

 Archive of FAS reports

 

 

Links

bullet "Is cross-compliance an effective policy?" (European Court of Auditors Report - February 2009)
bullet Beneficiaries of CAP payments (European Commission - DG Agriculture)
bullet CAP Reform (European Commission - DG Agriculture)
bullet Commission publishes indicative figures on the distribution of direct farm aid in 2005 (European Commission - DG Agriculture - March 2007)
bullet CAP Reform: Commission proposes to simplify agricultural state aid rules and facilitate crisis support (European Commission press release - Feb. 2006)
 

 

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