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Gillespie: Foundations of Economics 2e

Common Agricultural Policy (CAP)

The Common Agricultural Policy (CAP) is a central part of the European Union. Its objectives according to the Treaty of Rome in 1957 are to:
  •   Increase productivity in the agricultural sector
  •   To stabilise agricultural markets
  •   To provide food at reasonable prices
  •   To ensure the availability of food

The CAP began operating in 1962 buying up food when the price fell below a set target level. This soon led to beef and butter mountains. The CAP also involved taxes on imported agricultural goods. The effect of minimum prices and protectionism against foreign farmers has led to very high food prices in Europe and this has created pressure for reform. Up until 1992 the scheme focused on price support. The more farmers produced the more they received. From 1992 onwards there was a move to separate payments from production. Farmers were now paid for set aside land i.e. for setting aside land rather than producing on it. In 1995, the EU also started paying rural development aid, designed to diversify the rural economy and make farms more competitive. Additional reforms in 2003 and 2004 further "decoupled" subsidies from production levels and linked payments to food safety, animal welfare, and environmental standards. Three areas - sugar, wine, fruit and vegetables - have yet to be reformed. Further reform of the dairy sector is planned after 2014.
In 2005 the CAP has accounted for 46% of the EU budget though this proportion had been falling for several years. Most of the CAP money goes to the biggest farmers - large agribusinesses and big landowners. The sugar company Tate and Lyle was the biggest recipient of CAP funds in the UK in 2005, earning in £127m (186m euro). It has been calculated that 80% of the funds go to just 20% of EU farmers, while at the other end of the scale, 40% of farmers share just 8% of the funds.

With regards to the benefits of the CAP only 5% of EU citizens - 10 million people - work in agriculture, and the sector generates just 1.6% of EU GDP. However it is claimed that CAP is necessary as:
  •   it guarantees the survival of rural areas and communities - where more than half of EU citizens live
  •   it maintains the look of the countryside and a way of life
  •   many farms would be unprofitable if EU subsidies were withdrawn.