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the common agricultural policy
In 1960 the EEC set up the Common Agricultural Policy (CAP).
The aims of the CAP were to:
> increase agricultural productivity within member states
> ensure a fair standard of living for farmers
> stabilise agricultural markets within and between member states
> ensure reasonable consumer prices
> maintain employment in agricultural areas
These aims replaced existing national agriculture policies and often caused conflict between member states. Several mechanisms were established through which the policy operates:
> Import tariffs are applied to specific goods imported into the EU. These are set at a level to raise world market prices up to the EU target price. The target prise is chosen as the maximum desirable price for those products within the EU. For example, in 2004 the EU set new import tariffs for rice. Brown rice was put up to 65 euros per tonne and milled rice to 175 euros per tonne. Import tariffs for basmati rice from India and Pakistan were set to zero.
> Quotas are used to reduce production from one country or area. Internally, they are used in an attempt to reduce certain types of production. Quotas were introduced for milk production in the early 1980s but although this reduced the amount produced, it was still more than the market required. Further restrictions were placed on the dairy industry in 1992 and 1999 when quotas were reduced. An example of external tariffs concerned banana production. In the late 1990s, the EU was accused by Ecuador, Guatemala and Honduras of operating a quota and tariff system that discriminated against them in favour of higher cost producers in former European colonies in the Caribbean and Pacific. The protesters were joined by the USA, which claimed that the EU system was unfair trading and took retaliatory action by imposing tariffs on certain European produce. The World Trade Organisation (WTO) supported the protesters and ordered the EU to drop the restrictions. The EU eventually backed down and opened its markets fully to Latin American producers/ It tried to reimpose quotas in 2005, which the WTO again ruled to be illegal. One result of this action has been the demise of some West Indian banana producers.
> Intervention prices are set. These are guaranteed prices for each commodity. If the internal market price falls below the intervention level, the EU buys up produce to raise the price to the intervention level. The internal market price can vary only within the range between the intervention price and the target price.
> Subsidies are paid to farmers growing particular crops. This policy was intended to encourage farmers to grow certain crops, therefore maintaining home-grown supplies. Subsidies are usually paid on the amount of land growing the crop rather than on crop yields. Later reforms have phased out specific crop subsidies in favour of payments based on the total amount of land in cultivation and the adoption of environmentally beneficial farming methods. This will reduce further, but not eliminate, the economic incentive to overproduce.
The aims of the CAP were to:
> increase agricultural productivity within member states
> ensure a fair standard of living for farmers
> stabilise agricultural markets within and between member states
> ensure reasonable consumer prices
> maintain employment in agricultural areas
These aims replaced existing national agriculture policies and often caused conflict between member states. Several mechanisms were established through which the policy operates:
> Import tariffs are applied to specific goods imported into the EU. These are set at a level to raise world market prices up to the EU target price. The target prise is chosen as the maximum desirable price for those products within the EU. For example, in 2004 the EU set new import tariffs for rice. Brown rice was put up to 65 euros per tonne and milled rice to 175 euros per tonne. Import tariffs for basmati rice from India and Pakistan were set to zero.
> Quotas are used to reduce production from one country or area. Internally, they are used in an attempt to reduce certain types of production. Quotas were introduced for milk production in the early 1980s but although this reduced the amount produced, it was still more than the market required. Further restrictions were placed on the dairy industry in 1992 and 1999 when quotas were reduced. An example of external tariffs concerned banana production. In the late 1990s, the EU was accused by Ecuador, Guatemala and Honduras of operating a quota and tariff system that discriminated against them in favour of higher cost producers in former European colonies in the Caribbean and Pacific. The protesters were joined by the USA, which claimed that the EU system was unfair trading and took retaliatory action by imposing tariffs on certain European produce. The World Trade Organisation (WTO) supported the protesters and ordered the EU to drop the restrictions. The EU eventually backed down and opened its markets fully to Latin American producers/ It tried to reimpose quotas in 2005, which the WTO again ruled to be illegal. One result of this action has been the demise of some West Indian banana producers.
> Intervention prices are set. These are guaranteed prices for each commodity. If the internal market price falls below the intervention level, the EU buys up produce to raise the price to the intervention level. The internal market price can vary only within the range between the intervention price and the target price.
> Subsidies are paid to farmers growing particular crops. This policy was intended to encourage farmers to grow certain crops, therefore maintaining home-grown supplies. Subsidies are usually paid on the amount of land growing the crop rather than on crop yields. Later reforms have phased out specific crop subsidies in favour of payments based on the total amount of land in cultivation and the adoption of environmentally beneficial farming methods. This will reduce further, but not eliminate, the economic incentive to overproduce.
CONSEQUENCES OF THE cAP
CAP led to intensification, concentration and specialisation. Intensification is the rising level of inputs and outputs from the land as farmers increased their standards of living (or margins of profitability). The inputs included fertilisers, animal feed, fuel and machinery. The increased levels of outputs were typified of beef and butter 'mountains' and 'wine lakes'. Concentration is the process whereby production of particular products has become confined to particular areas, regions or farms. Specialisation is related to concentration and refers to the proportion of total output of a farm, region or country accounted for by a particular product. For example, wheat has become more concentrated in France and the UK as farmers have specialised in it.
Agriculture provides only 5% of the EU's total income, but at one time 70% of its budget went on supporting farmers. The net gainers from the CAP were countries such as France and those in southern Europe with smaller, less efficient farms. The net losers tended to be those countries with a smaller agricultural sector but with efficient farms, such as the UK. By the mid-1980s it was accepted that the CAP had brought great benefits, such as close to self-sufficiency in food production, but it had also caused problems:
> Overproduction - Price guarantees based on tonnage led to massive overproduction. Over the last 40 years, these surplus products have included cereals, butter, beef, apples, oranges, tobacco and wine.
> Environmental damage - Price guarantees encouraged farmers to extend the area of cultivation. Wetlands and woodlands were 'reclaimed' for agriculture and hedgerows removed to allow more efficient use of machinery. Even poor quality land was brought into cultivation. Meanwhile, farmers intensified production. In the lowlands, they used more fertilisers; in the uplands, they increased stocking densities. The environmental impact was disastrous: a loss of habitat and wildlife, changes to the cultural landscape and pollution of water supplies.
> Food prices - The huge costs of subsidising the farming industry have meant higher prices for consumers.
> Free trade - The EU countries belong to the World Trade Organisation (WTO), which encourages the expansion of free trade. Relations between the EU and its global neighbours, such as the USA, Australia and New Zealand, have been strained by its protective import levies. Export subsidies have also made some EU foodstuffs artificially cheap on world markets.
> Inequality - The guarantee prices of the CAP favoured the large, prosperous farmers more than medium to small scale farmers thus increasing the income gap between core and more marginal farming regions in the EU. Many smaller farmers were forced to leave the land and migrate to urban areas.
Agriculture provides only 5% of the EU's total income, but at one time 70% of its budget went on supporting farmers. The net gainers from the CAP were countries such as France and those in southern Europe with smaller, less efficient farms. The net losers tended to be those countries with a smaller agricultural sector but with efficient farms, such as the UK. By the mid-1980s it was accepted that the CAP had brought great benefits, such as close to self-sufficiency in food production, but it had also caused problems:
> Overproduction - Price guarantees based on tonnage led to massive overproduction. Over the last 40 years, these surplus products have included cereals, butter, beef, apples, oranges, tobacco and wine.
> Environmental damage - Price guarantees encouraged farmers to extend the area of cultivation. Wetlands and woodlands were 'reclaimed' for agriculture and hedgerows removed to allow more efficient use of machinery. Even poor quality land was brought into cultivation. Meanwhile, farmers intensified production. In the lowlands, they used more fertilisers; in the uplands, they increased stocking densities. The environmental impact was disastrous: a loss of habitat and wildlife, changes to the cultural landscape and pollution of water supplies.
> Food prices - The huge costs of subsidising the farming industry have meant higher prices for consumers.
> Free trade - The EU countries belong to the World Trade Organisation (WTO), which encourages the expansion of free trade. Relations between the EU and its global neighbours, such as the USA, Australia and New Zealand, have been strained by its protective import levies. Export subsidies have also made some EU foodstuffs artificially cheap on world markets.
> Inequality - The guarantee prices of the CAP favoured the large, prosperous farmers more than medium to small scale farmers thus increasing the income gap between core and more marginal farming regions in the EU. Many smaller farmers were forced to leave the land and migrate to urban areas.
CAP REFORM
In 1992 radical reforms to the system were introduced:
> the support for cereals, beef and sheep was reduced
> quotas were introduced, particularly in dairy farming
> there were to be more set-aside policies
> environmentally sensitive farming was to be encouraged, decreasing the use of fertilisers and pesticides
> early retirement plans for farmers aged 55 and above were implemented
Although surpluses fell dramatically through the mid-1990s, several member governments were not happy with the way in which the CAP operated. Germany, which was the CAP's main paymaster, was particularly anxious to reduce its net contributions. There was also a problem of accommodating the agricultural economies of the countries of central and eastern Europe that were lining up to join the EU.
Germany and the UK were aware that the CAP could not sustain this level of funding without financial problems. There was a move to curb open ended production based subsidies in order to prevent the collapse of the CAP. The other major factor driving reform was the need for the EU to comply with World Trade Organisation (WTO) requirements to work towards freer trade in food commodities. Import tariffs and export subsidies were cut and European farms were forced to rely more on world prices. Consumers in Europe benefited from cheaper food and the environment benefited from a shift in emphasis from agricultural production to rural stewardship.
These reforms, which were agreed in March 1999, did not go as far as many people wanted. Some member states votes to reduce the level of changes, claiming that the effect on their agriculture and farming communities would be too great. In 2002 a new plan was put forward by the European Commission to switch funds gradually from intensive production to schemes that promote rural life, safer food, animal welfare and a greener environment. Farmers will no longer be subsidised on the basis of crop area or head of livestock, ending the incentive that leads to over-production. No farming operation will receive more than £200,000 per year, ending the anomaly in which 80% of CAP funds go to big farmers while the smallest producers receive nothing.
These plans were adopted by EU farm ministers in June 2003. The new CAP is geared towards consumers and tax payers, but gives EU farmers the freedom to produce what the market wants. In applying the new regulations in the UK in early 2005, the Department for Environment Food and Rural Affairs (DEFRA) website informed farmers that:
'the CAP reform will simplify arrangements for subsidy payments by replacing eleven major CAP payment schemes with one new single payment. Farmers will have greater freedom to farm to the demands of the market, as subsidies will be decoupled from production. At the same time, environmentally friendly practices will be better acknowledged and rewarded.'
Support from both national governments and the EU has included grants for farmers for a whole range of schemes. The table below shows the schemes that were available to UK farmers between 1987 and 2000.
> the support for cereals, beef and sheep was reduced
> quotas were introduced, particularly in dairy farming
> there were to be more set-aside policies
> environmentally sensitive farming was to be encouraged, decreasing the use of fertilisers and pesticides
> early retirement plans for farmers aged 55 and above were implemented
Although surpluses fell dramatically through the mid-1990s, several member governments were not happy with the way in which the CAP operated. Germany, which was the CAP's main paymaster, was particularly anxious to reduce its net contributions. There was also a problem of accommodating the agricultural economies of the countries of central and eastern Europe that were lining up to join the EU.
Germany and the UK were aware that the CAP could not sustain this level of funding without financial problems. There was a move to curb open ended production based subsidies in order to prevent the collapse of the CAP. The other major factor driving reform was the need for the EU to comply with World Trade Organisation (WTO) requirements to work towards freer trade in food commodities. Import tariffs and export subsidies were cut and European farms were forced to rely more on world prices. Consumers in Europe benefited from cheaper food and the environment benefited from a shift in emphasis from agricultural production to rural stewardship.
These reforms, which were agreed in March 1999, did not go as far as many people wanted. Some member states votes to reduce the level of changes, claiming that the effect on their agriculture and farming communities would be too great. In 2002 a new plan was put forward by the European Commission to switch funds gradually from intensive production to schemes that promote rural life, safer food, animal welfare and a greener environment. Farmers will no longer be subsidised on the basis of crop area or head of livestock, ending the incentive that leads to over-production. No farming operation will receive more than £200,000 per year, ending the anomaly in which 80% of CAP funds go to big farmers while the smallest producers receive nothing.
These plans were adopted by EU farm ministers in June 2003. The new CAP is geared towards consumers and tax payers, but gives EU farmers the freedom to produce what the market wants. In applying the new regulations in the UK in early 2005, the Department for Environment Food and Rural Affairs (DEFRA) website informed farmers that:
'the CAP reform will simplify arrangements for subsidy payments by replacing eleven major CAP payment schemes with one new single payment. Farmers will have greater freedom to farm to the demands of the market, as subsidies will be decoupled from production. At the same time, environmentally friendly practices will be better acknowledged and rewarded.'
Support from both national governments and the EU has included grants for farmers for a whole range of schemes. The table below shows the schemes that were available to UK farmers between 1987 and 2000.
THE CAP AFTER 2013
> After a wide ranging public debate the European Commission presented, in 2010, a communication on "The CAP towards 2020", which outlines options for the future CAP.
> CAP is the most expensive scheme in the EU - accounting for more than 40% of its annual budget - and one of the most controversial.
> In June 2013 ministers reached a deal with Euro MPs and the European Commission.
> The Commission's original goal was to shift rewards away from intensive farming to more sustainable practices - but environmentalists say that ambition has been watered down. There is also a drive to create more of a "level playing field", to give young people an incentive to get involved in an industry dominated by older farmers and traditional vested interests.
The following video takes a closer look at these recent CAP reforms in the UK.
> CAP is the most expensive scheme in the EU - accounting for more than 40% of its annual budget - and one of the most controversial.
> In June 2013 ministers reached a deal with Euro MPs and the European Commission.
> The Commission's original goal was to shift rewards away from intensive farming to more sustainable practices - but environmentalists say that ambition has been watered down. There is also a drive to create more of a "level playing field", to give young people an incentive to get involved in an industry dominated by older farmers and traditional vested interests.
The following video takes a closer look at these recent CAP reforms in the UK.
CAP activity
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