Common agricultural policy

The Common Agricultural Policy (CAP) is the agricultural policy of the European Union. It implements a system of agricultural subsidies and other programmes. It was introduced in 1962 and has since then undergone several changes to reduce the EEC budget cost (from 73% in 1985 to 37% in 2017) and consider rural development in its aims. It has, however, been criticised on the grounds of its cost and its environmental and humanitarian effects.

Overview

The CAP is often explained as the result of a political compromise between France and Germany: German industry would have access to the French market; in exchange, Germany would help pay for France's farmers. The CAP has always been a difficult area of EU policy to reform; it is a problem that began in the 1960s and one that has continued to the present, albeit less severely. Changes to the CAP are proposed by the European Commission, after a public consultation, which then sends its proposals to the Council and to the European Parliament. Both the Council and the European Parliament have to agree to any changes. The Parliament was involved in the process of change for the first time in 2013. The involvement of the Parliament, which represents the citizens, increases the democratic legitimacy of the CAP. Outside Brussels proper, the farming lobby power has been a factor in determining EU agricultural policy since the earliest days of integration.

In recent times change has been more forthcoming because of external trade demands and intrusion in agricultural affairs by other parts of the EU policy framework, such as consumer advocate working groups and the environmental departments of the Union. In addition, Euroscepticism in states such as the UK and Denmark is fed in part by the CAP, which Eurosceptics consider detrimental to their economies.

Proponents claim that the CAP is an exceptional economic sector as it protects the "rural way of life" although it is recognized that it affects world poverty.
The policy has evolved significantly since it was created by the Treaty of Rome (1957). Substantial reforms over the years have moved the CAP away from a production-oriented policy.

CAP has been divided into two 'pillars':
* Agricultural production support and common organisation of markets (I pillar, known otherwise earlier as the 'agricultural guarantee' section)
* Rural development policy (II pillar, otherwise the 'agricultural structural policy' pillar, known earlier as the 'agricultural guidance' section).

Accordingly, the European Agricultural Guidance and Guarantee Fund (EAGGF) of the EU, which initially used to fund the CAP as a whole, has been replaced in 2007 with two separate funds, one for each of the two pillars:
* the European Agricultural Guarantee Fund (EAGF) and
* the European Agricultural Fund for Rural Development (EAFRD, a structural fund).

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%). The 2003 reform introduced the Single Payment Scheme (SPS) or as it is known as well the Single Farm Payment (SFP). The most recent reform was made in 2013 by Commissioner Dacian Ciolos and applies for the period 2014 to 2020.

Since 1970, a separate Common Fisheries Policy (CFP) has been in place for the EU fisheries and fish market, with its own separate structural policy fund established as a spin-off from the EAGGF in 1993 (currently operating under the name European Maritime, Fisheries and Aquaculture Fund or EMFAF), while the fish market interventions have remained financed from the European Agricultural Guarantee Fund.

Agricultural production support and common organisation of markets (I pillar)

This part of CAP is financed from the European Agricultural Guarantee Fund (EAGF). Each country can choose if the payment will be established at the farm level or at the regional level. Farmers receiving the SFP have the flexibility to produce any commodity on their land except fruit, vegetables and table potatoes. In addition, they are obliged to keep their land in good agricultural and environmental condition (cross-compliance). Farmers have to respect environmental, food safety, phytosanitary and animal welfare standards. This is a penalty measure: if farmers do not respect these standards, their payment will be reduced.

The direct aids and market related expenditure made up 31% of the total EU budget in 2010. Together with 11% for Rural Development, the total CAP budget took 42% of the total EU budget The CAP budget shrank relatively from 75% in 1984 to 37% of the total EU budget in 2017.

Intervention mechanisms diminished significantly, for instance the Commission only intervened on: common wheat, butter, and skimmed milk powder. The Health Check of the CAP agreed in November 2008 added on a number of measures to help the farmers to respond better to signals from the markets and to face new challenges. 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. Ministers also agreed to increase modulation, whereby direct payments to farmers were reduced and the money transferred to the Rural Development Fund.

Milk quotas expired in April 2015. To prepare the dairy farmers for this transition, a 'soft landing' was ensured by increasing quotas by one per cent every year between 2009–10 and 2013–14. For Italy, the 5 per cent increase was introduced immediately in 2009–10. In 2009–10 and 2010–11, farmers who exceed their milk quotas by more than 6 per cent had to pay a levy 50 per cent higher than the normal penalty.

Production and market sectors covered by the CAP

The common agricultural policy price intervention covers only certain agricultural products:
* cereal, rice, potatoes and flour
* cooking oil
* energy crops, vegetable oil fuel, biodiesel, bioethanol
* animal feed stuffs and dried fodder
* milk and milk products (such as condensed milk, powder milk, butter, cheese, whey, buttermilk, cream, yoghurt, kefir)
* grapes, wine, vinegar, cider
* honey
* beef and veal, poultry meat and eggs, pig meat, sheep / lamb meat and goat meat
* sugar
* fruit and vegetables (including cultivated mushrooms)
* cotton
* peas, chickpea, lentil, field beans, soybean
* sweet lupins
* olives
* flax seeds
* flax fibres
* silkworms
* hemp
* tobacco
* hops
* seeds
* animal semen, egg cells and embryos
* flowers and live plants

Fish, molluscs and crustaceans are covered by the separate Common Fisheries Policy.

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).

Objectives

The objectives, set out in Article 39 of the Treaty on the Functioning of the European Union, are as follows:
# to increase productivity, by promoting technical progress and ensuring the optimum use of the factors of production, in particular labour;
# to ensure a fair standard of living for the agricultural Community;
# to stabilize markets;
# to secure availability of supplies;
# to provide consumers with food at reasonable prices.

The CAP recognized 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 that 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 allowing them to sell particular goods within the EU without tariffs. This notably applies to countries that 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, while some farmers made imaginative use of 'set-aside', for example, setting aside land that 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 bio-fuels.

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.

Rural development policy (structural policy, II pillar)

Since 2000, the "second pillar" of the CAP, the EU rural development policy has been in effect, financed since 2007 from the European Agricultural Fund for Rural Development, one of the five European Structural and Investment Funds. This policy aims to promote the economic, social and environmental development of the countryside. Its budget, 11% of the total EU budget, has been allocated along three axes. The first axis focuses on improving the competitiveness of the farm and forestry sector through support for restructuring, development and innovation. The second one concerns the improvement of the environment and the countryside through support for land management as well as helping to fight climate change. Such projects could for example concern preserving water quality, sustainable land management, planting trees to prevent erosion and floods. The third axis concerns improving the quality of life in rural areas and encouraging diversification of economic activity. The policy also provided support to the Leader rural development methodology, under which Local Action Groups designed and carried out local development strategies for their area. Member States distribute "second pillar" funds through actions of national and regional rural development programmes.

Rural development, the second pillar of CAP, is a vitally important policy area in the European Union. It works to improve aspects of the economic, environmental and social situation of the EU's rural areas. Rural regions cover 57% of the EU territory and 24% of the EU population. Together with intermediate regions they comprise 91% of the EU territory and 59% of the total EU population. Across the EU, the dimensions of the rural-urban territorial vary – from countries with an explicitly defined rural character (such as Ireland, Sweden, Finland, etc.) to Member States that tend to be more urbanised (such as the Benelux countries, Malta).

The policy works essentially through seven-year rural development programmes (RDPs) – which operate at either national or regional level. These are funded from the EU budget, national/regional budgets and private sources. Rural Development policy targets rural areas as a whole, with a focus on ensuring the competitiveness of farms and forestry, delivering sustainable management of natural resources and climate action as well as create growth and jobs in rural areas.

Budget

Rural development policy is financed by three categories of funding:
* public money from the EU budget – i.e. from the EAFRD
* public money from national/regional budgets – depending on whether the programme is national or regional
* private money – in some cases, beneficiaries have to provide some funding themselves (from their own resources, a bank loan etc.)

The expected total public spending (EU + national + regional) on rural development policy in the period between 2014–2020 is EUR 161 billion.

Rural development objectives and priorities 2014–2020

The three objectives and overall purpose of the CAP include:
* fostering the competitiveness of agriculture;
* ensuring the sustainable management of natural resources, and climate action;
* achieving a balanced territorial development of rural economies and communities, including the creation and maintenance of employment.

However, in practical terms RDPs are drawn up with reference to six more specific priorities, which are further divided into more detailed focus areas.

# Knowledge transfer & innovation in agriculture, forestry & rural areas
# Farm viability / competitiveness, sustainable management of forests
# Food chain organisation, animal welfare, risk management in agriculture
# Ecosystems related to agriculture and forestry
# Resource efficiency, low-carbon / climate-resilient economy
# Social inclusion, poverty reduction, economic development

National and regional rural development programmes

There is a total of 118 Rural Development Programmes(RDP) in the EU. In most Member States there is a national programme which covers the entire territory but in some countries there are several programmes, most often linked to regions: France (30), Spain(22), Italy(23), Germany(15), Portugal(3), United Kingdom(4), Belgium(2), Finland(2).

Designing rural development programmes

A given RDP links the priorities of rural development policy to the situation on its territory via a SWOT analysis.
The RDP then sets out a selection of measures drawn from the Rural Development Regulation to address the priorities in the appropriate way.

A measure is essentially a set of one types of activity, project, investment etc. which may be funded within a RDP to achieve the priorities of rural development policy.

For example, the measure Investments in physical assets as set out in the Rural Development Regulation allows support for:
* Investments in farms to improve their performance;
* Investments in processing and marketing (i.e. not necessarily only for farmers);
* Investments in farm- or forest-level infrastructure; and
* "Non-productive" (i.e. primarily environmental) investments. Measure descriptions in the EU Rural Development Regulation give information of varying detail (according to the measure) about who is potentially eligible for support, what sorts of activity etc. can be supported, and whether there are limits on how much support may be offered.

MS follow the rules for a given measure but, within this framework, still enjoy considerable flexibility about how they use it. For example, a MS might choose to make the measure Investments in physical assets available in its RDP, but only with regard to environmental investments.

Use of targets

In explaining how it will use the various measures together to address the priorities / focus areas of rural development policy within its RDP, the MS / region set various targets against these.
The nature of the target varies according to the focus area. For example, against focus area 5A – Increasing efficiency in water use by agriculture – the standard target indicator is the percentage of the Irrigation area in the programme area which is expected to switch to more efficient irrigation equipment as a result of rural development support.

Development, approval and amendments

A MS / region draws up its RDP in close consultation with a wide range of interested parties, including bodies representing Civil society

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