Author: JEAN-CHRISTOPHE BUREAU. Intereconomics, Volume 47, Number 6, November/December 2012
Thursday 7 March 2013, by Carlos San Juan
The Common Agricultural Policy (CAP) is now more than fifty years old. The initial objectives included fostering agricultural productivity, ensuring a fair standard of living to farmers and securing food availability. These objectives have, in practice, been complemented by new ones, in particular in the environmental area, reflecting societal demands that have emerged in recent decades.
The historical CAP relied on market management. From the early 1960s to the 1990s, most of the agricultural sectors were subject to administratively set prices, requiring that EU authorities purchase excess production. With the growth in production resulting from frequent increases in institutional prices and a high rate of technical change that lowered costs, managing surplus became the main problem in the 1980s. The budget devoted to storage expanded rapidly. The EU subsidised the disposal of excess production abroad, another source of large budget expenditure as well as of world market distortions that triggered international disputes and retaliations. This intervention system reached its limits when the pork and poultry sector fed animals with cheaper import substitutes to cereals, while the EU taxpayer had to buy and subsidise the export of domestic wheat and barley which were no longer consumed locally. Eventually, the budgetary problems became so critical that the EU Commission convinced the Council to pass a drastic reform in 1992. The lowering of intervention prices in 1993 was the first of a continuous flow of reforms that led to the progressive dismantling of the intervention system and the end of the export subsidies. Farmers were compensated via direct payments. Further reforms led to the removal after the mid-2000s of almost all links between the lump sum direct payments granted to farmers and production. Today, an intervention system exists only for bread wheat and dairy products, with strict limitations on the quantities eligible and a price so low that it has been inactive for almost a decade in the case of wheat. With the exception of border tariffs - which remain high in the dairy, beef and sugar sectors - the entire EU farm support policy is now based on direct payments, decoupled from production and subject to cross-compliance, i.e. to respect for conditions regarding the environment, animal welfare and worker safety.
Overall, the Commission proposal does not address the most fundamental caveats of the CAP, i.e. the unwanted effects of the direct payments and the lack of targeting of the budget on public goods. However, it firmly maintains the direction that was taken by the EU in the early 1990s, i.e. a move towards direct payments, which are a more efficient way to transfer income to producers than market management, and a reduction of distortions on international markets. It is a sound proposal that economists should not dismiss, and it is in any case a sound basis from which the Council and the Parliament can start.
The harshest critics of the proposal should consider the political environment and the fact that the outcome of the CAP reform process is likely to be even more remote from what they expect. The Council remains a place where petty domestic interests (such as the juste retour concept, i.e. defending policies that maximise the net budgetary return to the member state) still play a major role. The EP is the playing field of a variety of vested interests, in particular of lobbies that still defend some of the most cost-inefficient policies that the CAP has experienced. Political realism made it difficult for the Commission to propose more ambitious reforms of the system of direct payments, which currently represent the bulk, if not all, of farmers’ net incomes in some sectors. And the widespread feeling that the EU has already done a lot and that it makes little sense to comply with a reform process that neither the emerging countries nor the United States seem to care about are not incentives to accelerate the reform process.
One way of looking at the Commission proposal is perhaps not to lament its lack of ambition but to acknowledge that it has managed to keep most of the bad ideas proposed for a CAP reform out of the agenda.