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Lesson 6: The Common Agricultural Policy

Author: Carlos San Juan Mesonada

Friday 17 November 2023, by Carlos San Juan

Common Agricultural Policy and reforms

Compulsory readings

L-6 CAP A presentation about the Common Agricultural Policy of the EU. Downloadable bellow.

CAP reform alternatives

by Carlos San Juan Mesonada. November 2021

Objectives of the common agricultural policy

Commission 2024

Created in 1962, the Common Agricultural Policy (CAP) is one of the oldest common policies and was created to ensure the supply of food and ensure the income of farmers. Its objectives are:

1) Support farmers and improve agricultural productivity by ensuring a stable supply of affordable food;

2) Guarantee farmers in the European Union a reasonable standard of living;

3) Contribute to the fight against climate change and the sustainable management of natural resources;

4) Preserve landscapes and rural areas throughout the EU;

5) Keep the rural economy alive, promoting employment in agriculture, agri-food industries and associated sectors.

The CAP is a common policy for all EU countries. It is managed and financed at European level using resources from the EU budget.

The CAP in practice

Agriculture differs from most other sectors for the following reasons:

1.-LOW FARMERS INCOME: the income of farmers, despite the importance of food production, is around 40% lower than that of workers in other sectors;

2.-VOLATILITY OF SUPPLY: agriculture depends more on climate and meteorological conditions than many other sectors;

3.-DELAY IN RESPONSE TO DEMAND: there is an inevitable lapse between consumer demand and the moment when the farmer can satisfy it: it takes time, for example, to grow more wheat or produce more milk.

In addition to ensuring profitability, farmers must work in a sustainable and environmentally friendly way, preserving our soils and our biodiversity.

Economic uncertainty and the environmental impact of agriculture explain the role of the public sector in the sector.

CAP measures are:

1.-income support through direct payments that guarantee income stability and remunerate farmers for practicing environmentally-friendly agriculture and for providing public services that markets do not usually reward, such as care from the field;

2.-market measures to address difficult situations in the markets, such as sudden collapses in demand due to health alarms or price drops due to an excessive supply in the market;

3.-rural development measures consisting of national and regional programs to meet the specific needs and challenges of rural areas.

The CAP is financed through two funds included in the EU budget:

1.-the European Agricultural Guarantee Fund (EAGF), which offers direct aid and finances market measures;

2.-the European Agricultural Fund for Rural Development (EAFRD), which finances rural development.

Each country in the European Union manages CAP payments and publishes beneficiary data in accordance with EU regulations on transparency.

Expost-Evaluation of the OECD about the CAP budget

(Source: Agricultural Policy Monitoring and Evaluation: The EU OECD 2020 and Agricultural Policy Monitoring and Evaluation 2021. OECD. 2021.


Much policy activity in 2020 focused on ensuring that the food and agricultural sectors could cope with the impacts of COVID-19. A raft of measures was implemented on this front at the EU-level, including flexibility under the Common Agricultural Policy (CAP), exceptional market measures, and direct support to farmers and rural areas.

The labour market supply measures try ensure the arrival of the critical workers for seasonal task and farm labour (see Labor)

At the national level, various initiatives were introduced that targeted the functioning of food supply chains.

In this framework, Member States responded with their own policy packages, targeting the most affected sectors. In particular, spending on state aid initiatives under the Temporary State Aid Framework soared in 2020 and early 2021, with 22 countries implementing sector-specific aid packages totalling nearly EUR 6.2 billion (USD 7.1 billion), equivalent to more than 11% of CAP expenditure in 2020.

The European Union also released the Recovery Plan for Europe, a long-term recovery initiative from the COVID-19 emergency. In particular, the Next Generation EU initiative under this plan will fund some activities for the agricultural sector to support Member States in recovering, repairing and emerging stronger from the crisis.

Other policy initiatives were either released or came closer to completion in 2020. In particular, on 27 November, the European Parliament and the Council agreed on transitional rules for the CAP in 2021-22 (based on the principal of continuity of the current CAP) while negotiations continue on CAP reform.

In addition, in May, the European Commission released more details about proposed Green Deal initiatives most relevant to the agricultural sector. Specifically, the Farm to Fork and Biodiversity strategies seek to halt biodiversity loss in Europe, transform EU food systems into global standards for competitive sustainability, protect human and planetary health, and safeguard the livelihoods of all actors in the food value chain.

The Farm to Fork Strategy outlines a 27-point action plan covering four primary policy domains:

(1) ensuring sustainable food production;

(2) stimulating sustainable food processing, and wholesale, retail, hospitality and food service practices;

(3) promoting sustainable food consumption and facilitating the shift towards healthy, sustainable diets; and

(4) reducing food loss and waste. The strategy includes several agriculture-specific targets, including reducing chemical pesticide use by 50%, reducing nutrient loss by at least 50% and increasing the share of farmland under organic farming to at least 25%.

The Biodiversity Strategy is a long-term plan to protect nature, reverse the degradation of ecosystems and build resilience to future threats. It also contains agriculture-specific targets, including reversing the decline of pollinators and establishing biodiversity-rich landscape features on at least 10% of farmland.


On 31 December 2020, the United Kingdom left the EU Single Market and Customs Union, ending the free movement of people, goods and services.

The draft EU-UK Trade and Cooperation Agreement agreed on 24 December 2020 lays down the rules governing trade and movement between the two.

Of relevance to agriculture, the trade component of the agreement includes duty and quota free imports on all goods that comply with rules of origin provisions.

Producer support in the European Union

Producer support in the European Union, measured by the Producer Support Estimate (PSE), is close to the OECD average. After falling from the 1990s through the early 2000s, support to producers in the European Union as a share of gross farm receipts stabilised at around 19% since 2010, compared to 18% for all OECD members.

Overall levels of market price support declined in 2019, as the gap between domestic and world prices narrowed for some of the most protected products.

Figure 11.1. European Union: Development of support to agriculture

Policies Support for agriculture

Support to agriculture in the European Union has declined gradually since the 1990s. Support to producers as a share of gross farm receipts (%PSE) has stabilised at around 19% since 2010.

Table 11.1. European Union: Estimates of support to agriculture

Although support in the form of price distortions has been reduced substantially, trade protection measures (including import and export licensing, Tariff Rate Quotas (TRQs) and special safeguards) remain in effect for a number of sectors.

Overall levels of market price support declined, as the gap between domestic and world prices narrowed for some of the most protected products.

Support in the form of price distortions declined substantially over time. In 2018-20, market price support (MPS) accounted for 18% of support to producers, down from 46% in 2000-02.

Production distortions from payments have also declined since the early 2000s and most payments today do not require production. Payments not requiring production accounted for 41% of support on average in 2017-19.

Production distortions from payments have also declined since the early 2000s and most payments today do not require production. Payments not requiring production accounted for 41% of support on average in 2017-19.

Figure 11.2. European Union: Drivers of the change in PSE, 2019 to 2020

Most support to producers comes from budgetary support “largely in the form of direct payments. Production distortions from these payments declined since the early 2000s. As of 2020, nearly half of budgetary support is decoupled from production; one third is based on current production and 18% is based on input use.

Figure 11.3. European Union: Transfer to specific commodities (SCT), 2018-20

Moreover, nearly 60% of payments to producers are contingent on mandatory environmental constraints, and an additional 14% of payments to producers come from voluntary agri-environmental schemes with conditions beyond the mandatory requirements.

Expenditures for general services to the sector (GSSE) in 2018-20 averaged 10.4% of total support, or 4.7% of agricultural value-added a slight increase compared to 2000-02 but still below the OECD average. While the relative importance of GSSE is largely unchanged over the past two decades, the composition of GSSE expenditures has shifted. Expenditures on agricultural knowledge and innovation systems continued to predominate, as their share of total expenditures grew 12 percentage points to 54% in 2018-20.

Expenditures on marketing and promotion also rose (now responsible for 22% of GSSE), while support for development and maintenance of infrastructure and public stockholding both declined.

Total support to the sector declined in relative terms over the past twenty years. In 2018-20, total support was estimated at 0.6% of GDP, compared to 1.0% in 2000-02.

However, the composition of GSSE has evolved. Agricultural knowledge and innovation accounts for 56% of the GSSE, up from 42% in 2000-02.

Expenditures for both infrastructure and public stockholding have declined over the period, falling respectively from 27% and 15% in 2000-02 to 15% and 1% in 2017-19.

The new CAP agreement 2023-27

The Commission and the European Parliament reached and agreement (on 25 June 2021) to approve a new CAP to be implemented from January 2023 after a long dispute about the size of the budget.

A fairer CAP

(Source: Commission, 2021.)

For the first time, the CAP will include social conditionality, meaning that CAP beneficiaries will have to respect elements of European social and labour law to receive CAP funds.

Redistribution of income support will be mandatory. Member States will redistribute at least 10% to the benefit of smaller farms, and must describe in their strategic plan how they plan to do this.

Support for young farmers will have a new mandatory minimum level of 3% of Member States’ budgets for CAP income support to young farmers (farmers up to 40). This could cover income support, investment or start-up aid for young farmers.

A greener CAP

According to the OECD (2021), more payments are contingent upon environmental compliance more than 60% of payments to producers are conditional on mandatory environmental constraints, and an additional 14% of payments to producers come from voluntary agri-environmental schemes with conditions that go beyond the mandatory requirements.

The new CAP will support the transition towards more sustainable agriculture with increased ambition for climate, environment, and animal welfare. This will enable implementation through the National Strategic Plans in line with the Green Deal and its Farm to Fork and Biodiversity strategies. It also introduces new tools that, combined with the new way of working, will enable a more efficient and better-targeted environmental, climate and animal welfare performance:

Consistency with the European Green Deal: The new CAP will fully integrate EU environmental and climate legislation. CAP Plans will contribute to the targets of the Farm to Fork and Biodiversity Strategies, and will be updated to take into account the changes in the climate and environmental legislation from the European Green Deal.

Conditionality: the minimum requirements CAP beneficiaries have to comply with to receive support are now more ambitious. For example, on every farm at least 3% of arable land will be dedicated to biodiversity and non-productive elements, with a possibility to receive a support via ecoschemes to achieve 7%.

All wetlands and peatlands will be protected. Ecoschemes will be mandatory for Member States to offer. This new voluntary instrument will reward farmers for implementing climate and environmentally-friendly practices (organic farming, agroecology, integrated pest management, etc.) as well as animal welfare improvements.

Member States must allocate at least 25% of their income support budget to ecoschemes, a total of 48 billion of the direct payments budget.

At least 35% of rural development funds will be allocated to agri-environment commitments, which promote environmental, climate and animal welfare practices.

The CAP budget must contribute significantly to the Union’s overall climate spending. To ensure a realistic and robust calculation, by 2025 the Commission will propose a new, differentiated approach that moves beyond the existing methods.

A more flexible CAP

The new CAP introduces a new way of working, where each Member State will draft a national CAP strategic plan describing how the CAP objectives as well as and Green Deal objectives as described in the Farm to Fork and Biodiversity Strategies will be achieved.

In addition, the new CAP focuses on performance thanks to:

1.-Simpler rules at EU level.

2.-An annual performance report to be submitted by Member States to the Commission from 2024 onward, complemented by an annual review meeting.

3.-The Commission will review the performance of the CAP strategic plans in 2025 and 2027, to be followed up, when necessary, by a request for action to Member States by the Commission.

4.-A set of common indicators to monitor the implementation of the CAP and assess the performance of CAP strategic plans.

A new agricultural reserve will be introduced to fund market measures in times of crises, with an annual budget of at least EUR 450 million.

Next steps

The new CAP, covering three regulations (Horizontal, Strategic Plan and Common Market Organisation regulations), has to be formally approved by the European Parliament and adopted by the Council before it can enter into force.

As for the CAP strategic plans, Member States have until the 31 December 2021 to submit their draft plans. The Commission will then have six months to assess and approve the plans, which will then enter into force beginning of 2023.


The agrarian policy is being criticized from different points of view that usually include reform proposals for the budgetary horizon 2021-2027. In particular, within the EconPol consortium, a series of working documents have been presented (Heinemann, F. 2017 / 01a, Heinemann, F. 2017 / 01b) in which it is about cementing proposals to redistribute the 400 billion budgeted in the current expenditure of the CAP to finance other social policies in the 2020 horizon.

In fact, these proposals, as already explained in the initial report, have had a first effect on the agrarian budget proposal that the Commission sent to the Council of Agriculture Ministers, since it contained a reduction in the budgeted expenditure for the CAP of between 6 and 10 per cent from the previous budgetary perspectives.

2.1.1 Proposal of May 2018 of the Commission on the 2021-2027 budget

On June 1, 2018, the European Commission presented the legislative proposals on the future of the Common Agricultural Policy (CAP) that had advanced in May 2018.

The legislative proposals aim to adapt the CAP to the future as explained by the Commission itself.

1.-a Regulation on strategic CAP plans

2.-a single Regulation on the common organization of the markets (CMO)

3.-a horizontal regulation on financing, management and monitoring of the CAP

In response to the critics that the CAP expend money without asking for monitoring the achievement of certain objectives the Commission established the requirement that every Member State should establish measurable objectives in the national strategic plan.

The Commission proposal (June 18, 2018) it stresses that a CAP strategic plan must be prepared for each Member State

a.- each plan would specify how the Member State would use CAP funding to meet those needs, including the instruments it would use, and establishing its own specific objectives

b.- each strategic plan of the CAP would require the prior approval of the Commission to ensure its consistency with the objectives of the entire EU

c.- each year, the countries would present a report of results to the Commission to indicate how they have progressed towards the established objectives in relation to the expected results.

Complementary readings

To see the Commission full text CAP future 2020. Commission, 2018

i) Reading: About the 2014-2020 budget

The changing nature of agricultural and rural expenditure

Author: Albert Massot, European Parliament. 2014

A. General overview

The share of the European Union budget accounted for by agricultural spending has been steadily declining in recent years. Whereas the CAP represented 66% of the Community budget in the early 1980s, it accounts for just 37.8% of it in 2014-2020

Since 1992, the date of the first significant overhaul of the CAP and the explosion in the volume of direct aid, agricultural expenditure has remained stable in real terms, other than in 1996 and 1997 (as a result of the BSE crisis and the accession of three new Member States). Between 1990 and 2020, therefore, the budgetary cost of the CAP, when set against EU gross national income (GNI), will have decreased from 0.54% to an expected 0.34%

B. Allocation by expenditure category and by sector

91% of expenditure under the first pillar (EUR 44.3 billion in 2012) (5.2.10, table V, column 1) consists of direct aid to farmers (EUR 40.8 billion). The sharp increase in direct aid since 1992 has resulted in a corresponding fall in other EAGGF Guarantee Section/EAGF expenditure: export subsidies account for just 0.3% (EUR 146.79 million) of the total budget and the cost of other intervention measures (storage, measures to restructure the sugar industry, promotion and information actions, and veterinary and phytosanitary measures) amounts to just EUR 3.8 billion (8.5% of the total).

The three sectors which used to receive most funding under the EAGGF Guarantee Section were arable crops (cereals, oilseeds, and protein crops), beef, and milk products. After the 2003 reform (5.2.3 and 5.2.5) and the resulting decoupling of aid from production, the top expenditure item was payments to farms (82.5% of the EAGF total in 2012), followed by direct aid linked to production (8.6%) (5.2.4).

C. Distribution by country and by type of farm

As shown in Table V, column 1, relating to the financial year 2012 (5.2.10), the largest EAGF recipient is France (16.8%), followed by Spain (12.1%), Germany (11.6%), and Italy (10.6%).

As far as the EAFRD is concerned, however, Poland is the top recipient (12.8%), followed by Germany (9.7%), Spain (9.7%), and Romania (9.3%).

It should be noted that the new Member States (EU-12) have had little influence on the EAGF (16.3%), given that direct payments are gradually being aligned. However, they are already receiving a significant share of EAFRD funding (37.9%), in accordance with the priority being given to the modernisation of their agricultural facilities and the development of their rural areas.

Illustrating the uneven distribution of CAP direct aid at farm level:

Illustrating the uneven distribution of CAP direct aid at farm level: 79.73% of CAP beneficiaries in the EU-27 received less than EUR 5 000 in annual payments in 2012, giving an aggregate amount equivalent to 15.5% of the total direct aid paid out under the EAGF.

By contrast, a very small percentage of farms (126 460 out of a total of 7.5 million, i.e. 1.68%) each receives more than EUR 50 000, giving an aggregate amount equivalent to EUR 12.87 billion (31.48% of the total direct aid paid out in 2012). Countries with a higher percentage of large farms (or firms) which receive money under the CAP are Denmark, France, the Czech Republic, the United Kingdom and Slovakia.

This state of affairs obviously calls into question the legitimacy of CAP aid when set against the values espoused by European society as a whole.

The main changes to the Commission proposal presented in May 2018 can be summarized as follows:

II. News in the draft of budgets 2021-2027 according to the proposal of the Commission of May of 2018 Commission, 2018

i. Modulation of direct aids and a maximum ceiling per farm is introduced

ii. It allows farmers and rural communities to submit eligible R & D projects. A specific item is included to finance R & D

iii. The use of Big Data and new management and control technologies are encouraged, for example, to monitor crop rotation so that compliance with the objectives necessary to receive direct payments can be verified

iv. The digitization of rural life is favoured

v. An EU platform will be developed to achieve effective management of agricultural risks.

2. The possibility of national co-financing of direct aid to farmers is opened

This proposal was rejected initially by the Ministers of Agriculture and the Commission is pending to submit a new re-prepared budget that will be negotiated again in the Council of Ministers. In the meeting of the Board of 15/10/2018, the "strategic plans of the CAP" were discussed. Initially, the budget 2021-2027 includes 365 thousand million euros and allows the MS to transfer up to 15% of the direct payments to rural development programs. In addition, MS can transfer an additional 15% from pillar 1 to pillar 2 for environmental measures and mitigation of the effects of climate change without co-financing. 9 CAP objectives are indicated for the whole EU, but greater flexibility is introduced so that national governments can choose the most appropriate tools to achieve these objectives. Each MS must present a Strategic Plan that must be approved by the Commission. Subsequently, each EM must submit a Compliance Report of the Strategic Plan that shows the progress made according to a series of specific results indicators. The Commission will review these compliance plans and take the appropriate actions in view of the results. Modulation

Direct payments will be reduced from EUR 60,000 and will be limited if they exceed EUR 100,000 per operation.

However, it seems that these limits do not refer to the value of production but to the margin of exploitation once labour costs have been discounted. This way of calculating the modulation of the aid in principle would be less penalizing for the farms that generate employment. However, it can raise a competitive barrier for export agriculture if inputs are not included in the calculation of operating margins.

In export-oriented Mediterranean agriculture, more intermediate inputs are generally used per unit of product than in continental agriculture, so if the calculation of the operating margin for the purpose of modulating direct aids does not include intermediate inputs, it is automatically generated a bias in favour of continental agriculture. In addition, most of the Spanish exports (fruit and vegetables, olive oil, wine, ...) are produced in irrigated agriculture (also intensive inputs per unit of product). For this type of crops, not only direct aid but irrigation costs that include both water and energy are key. For this reason, a specific section is dedicated to the analysis of water taxation regulations for irrigation since it is a key factor for international competitiveness.

The EconPol proposals have also been included in other measures because specific budgetary quotas are reserved, in addition to the young farmers, for environmental and agro-climatic actions. The latter should receive at least 30% of the national rural development funds and the Commission expects that 40% of the total budget of the CAP will contribute to the financing of mitigating measures for climate change.

In general terms, what is appreciated are less and less subtle movements to include more and more funds specific to other policies (environmental, innovation and social) within the CAP heading. But above all, what is most relevant from the point of view of the political economy of the reforms of the CAP is that it has gone from discussing how much the budget would grow to see how the budget cuts are distributed. These cuts initially could be between 6 and 10% globally.

See the full text in the:

ii) Readings:

To understand the CAP elaboration process see Financing of the CAP Massot, 2018

For the ex-post evaluation of the CAP levels of protection see: OECD (2021), Agricultural Policy Monitoring and Evaluation 2021: Addressing the Challenges Facing Food Systems, OECD Publishing, Paris,

Attached documents

  • L-6 CAP (PDF - 468.1 kb)
    Presentation about the Common Agricultural Policy of the EU
  • CAP 2023 (Zip - 460.9 kb)
    Presentation about the critics of the CAP after 2020 including OECD, 2023 report highlights and the Action needed for the EU Common Agricultural Policy to address sustainability challenges

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