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common agricultural policy

Page history last edited by PBworks 13 years, 10 months ago



European Common Ag. Policy


The original intent of the agriculture policy was to help local farmers in the European Union whenever the price of their goods fell below a certain level (with subsidies).  It did not start as an export subsidy , however (although it turned out to be one.  The original intent was just to help protect local farmers from going out of business.  In order to protect the farmers, and to make sure that Europe didnt get flooded with cheap imports (because artificially high price in Europe might attract massive amounts of Imports), so they put in place large import tariffs to make sure that didnt happen.   These import tariffs were designed to offset the difference in prices between the new European prices, and the world prices, and to make sure that the European market didnt get flooded.


The problem is that the protectionism led to conditions where European farmers could earn excess profits, with very little foreign competition...and so, they overproduced.  So much so that they had massive stock piles of food, much more than what Europeans were demanding to eat.  So, what was Europe to do with all of this excess food?  Well, they wanted to export it...but, becasue the prices were artificially too high (as a result of their subsidies), then they had a problem that the food wouldnt sell on the world markets.  So the solution was to then to have government subsidize a cutting of prices, and dumping all of that excess food on the world markets. 


Europe, which would naturally be a net importer of food, became a massive exporter.   In order to avoid massive growth in stockpiling of excess foods, Europe was forced to an export subsidy program on a massive scale.   In order for Europe to get the world to purchase ther over-priced food, the governments turn around and subsidize the cost to bring it back down to world prices.  In effect this means that Europe first subsidizes the price to the farmers to make sure they get a good price, then they set up import tariffs to make sure imports would stay out, then they sold the excess supply on the world markets by subsidizing local producers.  What a mess!


The costs of running this system are huge.  It represents about 44% of the EU's budget (€43 billion scheduled spending for 2005).   This cost does not include the indirect costs paid by consumers in Europe that are forced to pay above market prices for food, nor the costs on poor countries as their farmers are forced to compete with heavily subsidized Europan agriculture.  see Development issues



How do these subsidies compare to those of the USA?

In 2002, the EU paid almost $50 billion in export subsidies to farmers.  This equals about 35% of farm output, a rate twice as high as in the USA.








Info from Wikipedia:


The Common Agricultural Policy (CAP) is a system of European Union agricultural subsidies and programmes. 


The CAP guarantees a minimum price to producers, imposes import tariffs and quotas on certain goods from outside the EU and provides a direct subsidy payment for cultivated land. Reforms of the system are currently underway, including a phased transfer of subsidy to land stewardship rather than specific crop production from 2005 to 2012. Detailed implementation of the scheme varies in different member countries of the EU, but a Single Payment Scheme for direct farm payments is being introduced in the UK.


Until 1992 the agriculture expenditure of the European Union represented nearly 61% of the EU's budget. By 2013, the share of traditional CAP spending will have almost halved (32%), following a decrease in real terms in the current financing period. In contrast, the amounts for the EU's Regional Policy represented 17% of the EU budget in 1988. They will more than double to reach almost 36% in 2013.


The aim of the common agricultural policy (CAP) is to provide farmers with a reasonable standard of living, consumers with quality food at fair prices and to preserve rural heritage. The policy has evolved to meet society’s changing needs, so that food safety, preservation of the environment, value for money and agriculture as a source of crops to convert to fuel have acquired steadily growing importance.


Sectors covered by the CAP


The common agricultural policy price intervention covers only certain agricultural products:

The coverage of products in the external trade regime is more extensive than the coverage of the CAP regime. This is to limit competition between EU products and alternative external goods (for example, lychee juice could potentially compete with orange juice).









Criticism of the CAP

The CAP has been roundly criticised by many diverse interests since its inception. Criticism has been wide-ranging, and even the European Commission has long been persuaded of the numerous defects of the policy. In May of 2007, Sweden became the first EU country to take the position that all EU farm subsidies should be abolished (except those related to environmental protection) [11].





Criticism of the CAP has united some supporters of globalisation with the anti-globalisation movement in that it is argued that these subsidies, like those of the USA and other Western states, add to the problem of what is sometimes called Fortress Europe; the West spends high amounts on agricultural subsidies every year, which amounts to unfair competition. The OECD countries' total agricultural subsidies amount to more than the GDP of the whole of Africa.

Moreover, it is argued that in creating an oversupply of agricultural products which are then sold in the Third World and simultaneously preventing the Third World from exporting its agricultural goods to the West, the CAP increases Third World poverty by putting Third World farmers out of business. According to the Human Development Report 2003 in 2000 the average dairy cow in the EU received $913 in subsidies, compared with an average of $8 per person in Sub-Saharan Africa.





Artificially high food prices - a historical misconception.

In the past, CAP price intervention might have been justifiably blamed for creating artificially high food prices throughout the EU. The recent move away from intervention buying, and the reduction in export subsidies, has changed the situation. Although the new decoupled payments were aimed at environmental measures, many farmers have found that without these payments their businesses would not be able to survive. With food prices dropping over the past thirty years in real terms, many products have been making less than their cost of production when sold at the farm gate.

On the other hand, high import tariffs (estimated at 18-28%) have the effect of keeping prices high by restricting competition by non-EU producers.




Hurting smaller farms

Although most policy makers in Europe agree that they want to promote "family farms" and smaller scale production, the CAP in fact rewards larger producers. Because the CAP has traditionally rewarded farmers who produce more, larger farms have benefited much more from subsidies than smaller farms. For example, a farm with 1000 hectares, earning one hundred extra euros per hectare will make 100,000 extra euros, while a 10 hectare farm will only make an extra 1000 euros, disregarding economies of scale. As a result most CAP subsidies have made their way to large scale farmers. Since the 2003 reforms subsidies have been linked to the size of farms, so this is not so true any more. So while subsidies allow small farms to exist, they funnel most profits to larger scale operations.




Environmental problems

A common view is that the CAP has traditionally promoted a large expansion in agricultural production. At the same time it has allowed farmers to employ unecological ways of increasing production, such as the indiscriminate use of fertilizers and pesticides, with serious environmental consequences. However a total re-focusing of the payment scheme in 2004 now puts the environment at the centre of farming policy. This forces strict limits on the amount of nitrogenous fertilisers which can be used in vulnerable areas. Strict environmental requirements must also be observed to maintain any subsidy payments.






Equity among member states


Some countries in the EU have larger agricultural sectors than others, notably France, Spain, and Portugal, and consequently receive more money under the CAP. Other countries receive more benefit from different areas of the EU budget. Overall, certain countries make net contributions, notably Germany (the largest contribution overall) and the Netherlands (the biggest contribution per person), but also the UK and France. The largest per capita beneficiaries are Greece and Ireland.


France has a slightly lower GDP than the UK, and its higher population means that it earns slightly less per person compared to the UK. Germany has a GDP approximately 25% higher than either France or the UK, but per capita income is comparable to the other two countries. France now makes a net payment into the EU budget, so it can not be said that it receives a subsidy from any other country. However, France remains the #1 beneficiary of the CAP, while the new member states receive only small financial aid.




UK rebate and the CAP

The UK would have been contributing more money to the EU than any other EU member state, except that Margaret Thatcher's government successfully negotiated a special annual UK rebate in 1984. Without the rebate the UK was the largest contributor despite being the third poorest member state. Due to the way the rebate is funded, France pays the largest share of the rebate (31%), followed by Italy (24%) and Spain (14%). ([5] [6] [7])

The discrepancy in CAP funding is a cause of some consternation in the UK. As of 2004, France received 13% of total CAP funds more than the UK (see diagram). This is a net benefit to France of €6.37 billion, compared to the UK.[8] This is largely a reflection of the fact that France has more than double the land area of the UK. In comparison, the UK budget rebate for 2005 is scheduled to be approx €5.5 billion. [9]. The popular view in the UK (as, for example, set forth in the tabloid press) is that if the UK rebate were reduced with no change to the CAP, then the UK would be paying money to keep an inefficient French farming sector in business - to many British people, this would be seen as grossly unfair. French motives for generating arguments about "solidarity" and "selfishness" are therefore seen as extremely self-serving.





If the rebate were removed without changes to the CAP then the UK would pay a net contribution of 14 times that of the French (In 2005 EU budget terms). The UK would make a net contribution of €8.25 billion compared to the current contribution of €2.75 billion, versus a current French net contribution of €0.59 billion.

In December 2005 the UK agreed to give up approximately 20% of the rebate for the period 2007-2013, on condition that the funds did not contribute to CAP payments, were matched by other countries' contributions and were only for the new member states. Spending on the CAP remained fixed, as had previously been agreed. Overall, this reduced the proportion of the budget spent on the CAP. It was agreed that the European Commission should conduct a full review of all EU spending. [10][11]




CAP financing set up to benefit France?

Some critics allege that the CAP has been of special benefit to France, which has a large agricultural sector. It is widely acknowledged that the CAP was initially of particular importance to France, as it has a large agricultural sector. However, many other European countries have benefited from CAP subsidies, especially those which also have large agricultural sectors. The CAP is not particularly designed to benefit France, and farmers' associations across the union have supported it (for example, the German government's reliance on agricultural swing votes has made the CAP of particular political importance to Germany).

In their book, The great deception: can the European Union survive?, Christopher Booker and Richard North argue that the fundamental reason that France's President De Gaulle kept Britain out of the EEC during the 1960s was his concern to have the financial arrangement for the Common Agricultural Policy established first. De Gaulle's party depended heavily on rural support (25% of the French were dependent on agriculture, a percentage far higher than that of any other EEC country) but France could no longer afford the lavish subsidies it paid to its farmers. Accordingly, the French had to come up with a way to get other nations to contribute to French agricultural subsidies. The CAP represented to France not a solution to any foodstuff crisis (shortages had been gone for years, and surpluses were already reaching extreme heights), but a solution to its own inability to pay subsidies to its farmers.


According to Booker and North, De Gaulle manipulated the EEC to get them to underwrite the high subsidies for French farmers. Once the CAP funding was settled, British membership of the EEC became in the French national interest, and De Gaulle's veto was abandoned. As a condition of its membership, Britain cut her imports of cheap food from around the world and replaced them with more expensive French products and other continental products. At the same time, the levies that it paid on foodstuffs it imported from outside the EEC were automatically transferred to Brussels to subsidise French and other EEC farmers.

Other theories are even more conspiratorial, and argue that the CAP was implemented in order to both create "Fortress Europe" (a political and economic bloc which would be able to compete with, in particular, the US) and provide a means whereby West Germany could effectively pay "reparations" (similar to those paid following Word War I) to France in return for being accepted back into the Western European and international communities. However, there is little evidence to support the idea that the CAP represents a modern-day mechanism for Germany to make reparations to France, particularly in the context of a vastly expanded EU where France is a net contributor to the EU budget.




CAP as a form of State intervention

Some major critics of the Common Agricultural Policy reject the idea of protectionism, either in theory, practice or both. Free market advocates are among those who disagree with any type of government intervention because, they say, a free market without interference will allocate resources more efficiently. The setting of 'artificial' prices inevitably leads to distortions in production, with over-production being the usual result. The creation of Grain Mountains, where huge stores of unwanted grain were bought directly from farmers at prices set by the CAP well in excess of the market is one example. Subsidies allowed many small, outdated, or inefficient farms to continue to operate which would not otherwise be viable. A straightforward economic model would suggest that it would be better to allow the market to find its own price levels, and for uneconomic farming to cease. Resources used in farming would then be switched to more productive operations.




Economic sustainability

Many economists believe that the CAP is unsustainable in an enlarged EU. The inclusion of ten additional countries on May 1, 2004 has obliged the EU to take measure to limit CAP expenditure. Poland is the largest new member and has two million smallhold farmers. It is significantly larger than any of the other new members, but taken together the new states represent a significant increase in recipients under the CAP. Even before expansion, the CAP consumed a very large proportion of the EU's budget, upward of 90% in the late 1980s.[citation needed] Considering that a small proportion of the population, and relatively small proportion of the GDP comes from farms, many considered this expense excessive.




How many people benefit?

Critics argue that too few Europeans benefit. Only 5% of EU's population works on farms, and the farming sector is responsible for less than 3% of the GDP of the EU. The number of European farmers is decreasing every year by 2%. Critics also argue that these subsidies are unfair, because the governments of African countries don't subsidise any farmers. Additionally, most Europeans live in cities, not rural areas. However, their opponents argue that the subsidies are crucial to preserve the rural environment, and that some EU member states would have aided their farmers, anyway, causing the reinstatement of trade customs fees. The latter argument is false, however, due to WTO rules.



See also



External links

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