The CAP is a system of European Union agricultural subsidies which represents about 44% of the EU's spending (€43bn scheduled spend for 2005). These subsidies work by guaranteeing a minimum price to producers and by direct payment of a subsidy for crops planted. This provides some economic certainty for EU farmers and production of a certain quantity of agricultural goods.
Beginnings: The six member states individually strongly intervened in their agricultural sectors, in particular with regard to what was produced, maintaining prices for goods and how farming was organised. This intervention posed an obstacle to free trade in goods while the rules continued to differ from state to state, since freedom of trade would interfere with the intervention policies. Maintaining strong state intervention in agriculture could only be achieved if policies were harmonised and transferred to the European Community level. The CAP was introduced in 1962.
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.
- 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 stabilise markets;
- to secure availability of supplies;
- to provide consumers with food at reasonable prices.
How the CAP works
The CAP is an integrated system of measures which works by maintaining price levels within the EU and by subsidising production. There are three principal mechanisms:
- Import Tariffs 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.
- 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.
- Subsidies are paid to farmers growing particular crops. This was 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. Current reforms of the system now underway are phasing out specific crop subsidies in favour of flat-rate subsidies based only on the area of land in cultivation, and in return for adopting environmentally beneficial farming methods. This will reduce, but not eliminate, the economic incentive to overproduce.
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 coloring agents in foods, labelling regulations, use of hormones or other drugs in livestock intended for human consumption and disease control (e.g. during the foot and mouth disease outbreak in the United Kingdom, Ireland and the Netherlands), animal welfare regulations. The process of removing all hidden legislative barriers to trade is…