CAP

Farm Reform

a. CAP system of farm support has been contentious issue for years
b. The Common Agricultural Policy is regarded by some as one of the EU’s most successful policies, and by others as a scandalous waste of money.
c. EU spends about £34bn annually on the CAP; about 88% of it in direct aid. The rest is market price support - public purchases to protect farmers from a drop in world prices. 7.7bn euros is spent on rural development.
d. 20% of CAP funds go to France; the UK gets 9% of total EU farm support
e. New EU member states began receiving CAP subsidies in 2004, but at only 25% of the rate they are paid to the older member states.
f. Many attempts at reform over the years
g. CAP is crucial and controversial in terms of EU’s trading relationships with many developing countries
h. For the UK farming accounts for less than 1% of GDP (by value added)
i. Share of GDP is higher for new EU members e.g. Bulgaria and Poland
Past failures of CAP (this is government failure in action!)

1. Production inefficiency and surplus: Intervention prices encouraged excess production which led to a misallocation of scarce resources.
2. Big business ‘factory farming’ has led to problems with food safety and animal welfare and has contributed to deforestation / reliance on imports of cheap soya
3. Huge financial cost for the EU Budget - still > 40% of total spending – subsidies that could have been better spent elsewhere
4. Damage to the environment as farmers searched for higher production yields
5. Consumer welfare hit by higher food prices (trade diversion) regressive effect on lower income families where food is a higher % of total spending
6. Damage to export industries of many LDCs – e.g. dumping / EU export subsidies
7. Many farm support programmes benefited larger scale wealthier farmers most


Key reforms
1. Set-aside: Designed initially to reduce surpluses and protect the environment
2. Decoupling: A single farm payment independent from production
3. Reductions in guaranteed prices (e.g. 36% cut in guaranteed price for sugar) and an end to intervention buffer-stock schemes for products such as butter
4. Farm income payments conditional on EU farmers meeting agreed standards of environmental care, food safety & animal welfare (known as cross compliance).
5. Reduction in payments to bigger farms (known as “modulation” and “digression”) to help transfer funds to EU rural development programmes
6. Incentives to encourage farmers to switch towards organic farming
7. Incentives for farmers to move away from food production and diversify
8. Move to allow food prices to be set by global forces of supply and demand.

Source: www.tutor2u.net