Eu Common Agricultural Policy Economics Essay


Common Agricultural Policy ( CAP ) aims to supply husbandmans with sensible criterion of life and consumers with quality nutrient at sensible monetary values ( EU CAP, 2010 ) .CAP has been in topographic point for more than 40 old ages and it represents a apparently high part of the EU budget. CAP plays an of import function in the EU because of the extended use of land under farming and forestry. However, CAP has been a topic of major unfavorable judgment. CAP has resulted in inauspicious effects on the non-EU manufacturers. CAP was successful in accomplishing its initial purposes but due to originating issues it has undergone several reforms and requires farther reforms.

History of EU engagement

After the wars in 1950 ‘s, there was a terrible diminution in the agricultural production in Europe. Following the constitution of Common Market with the Treaty of Rome in 1957, EU Commission proposed the Common Agricultural Policy ( CAP ) in 1962 to heighten the nutrient productiveness and to guarantee a sustainable agricultural sector in Europe. CAP is based on three rules “ market integrity, community penchant and fiscal solidarity ” ( ENA, 2010 ) . It provided husbandmans with guaranteed monetary values and protection against competition. CAP has played a major function in prolonging the agricultural sector. After 1980 ‘s, EU had to cover with lasting excesss which led to high budgetary costs and deformation of markets ( EU CAP, 2010 ) . MacSharry reforms of 1992 have imposed production bounds on assorted merchandises and encouraged a free market in the agricultural sector. These reforms have increased transparence in the agricultural costs and brought the monetary values to equilibrium ( EU CAP, 2010 ) . With the Agenda 2000 reform, CAP was partitioned into agricultural production support and rural development ( Civitas, 2010 ) . This led to debut of several rural enterprises alongside the agro-environment strategies to reconstitute the farms and better the production. After the 2003 reform, husbandmans received Single Farm Payment ( SFP ) and their production became majorly demand driven. In 2008, a major reappraisal of CAP was undertaken and the new proposals are to cut down SFPs, to increase rural development, to promote environment friendly attacks and to get rid of the set aside schemes. CAP ‘s reclamation is due in 2013 and the reforms seem to concentrate on invention, clime and energy ( Civitas, 2010 ) .

Legal Basis for the EU engagement ( Legislation )

The chief purpose of CAP is to advance fight in farming and development in rural countries. Regulation plays a major function in the direction of the assorted steps undertaken by CAP and ensures a sustainable agricultural sector ( EU Legislation ) .

A individual legal model governs the CAP support through European Agricultural Guarantee Fund ( EAGF ) and European Agricultural Fund for Rural Development ( EAFRD ) . EAGF and EAFRD work in a similar manner. Commission pays EAGF financess to member provinces in the signifier of monthly reimbursements. EAGF is presented in the parliament every month and it continuously monitored and evaluated. EAFRD pays money to rural developmental programmes as per the Council Regulations ( EC ) 1698/2005. EAFRD ‘s budget committednesss are made one time every twelvemonth under the Community statute law bounds. Respective developmental programmes provide necessary certification to the Commission over the monitoring and rating of the support. Commission ensures a sound fiscal direction via a two phase clearance procedure ( Council Regulation, 2005 ) .

Regulations due to competition policy are applicable to agricultural sector. This is due to the international force per unit area on agribusiness and the turning consensus that it can non be exempt from the anti-trust statute law ( Council Regulation, 2006 ) . Commission aimed to make individual common market organisation for all agricultural merchandises. In add-on information steps aim to explicate, implement and raise public consciousness of CAP.


The cardinal stakeholders in CAP are remunerators, receivers, governmental histrions and dreamers ( Reform the CAP, 2010 ) . The remunerators pay for the monetary value of CAP and they include consumers, concerns, revenue enhancement remunerators and H2O users. The receivers are the people who get the money from the CAP and they include nutrient manufacturers and the land proprietors. The dreamers are the people who do non hold any material involvement in the CAP but would contend for the better environmental public presentation, better intervention of animate beings, development of just trade etc. Governmental histrions include the tribunal of hearers who checks the CAP activity, EU committee and the parliament who show duty in managing CAP and member provinces that negotiate for their portion in the CAP.

Role of EU establishments

Fundss of the CAP are jointly managed by the members of the province and Commission ( ENA 2010 ) . Regulations define the conditions under which Commission is responsible for and clarifies the duties of member States. Member provinces can recognize and retreat accreditation from paying bureaus and organizing organic structures. Member provinces besides create the organic structures to pull off, proctor and control inorder to protect the fiscal demands of the community. Member provinces along with the committee are responsible for the EAGF fundss covering with the ordinance of agribusiness markets, payments to the husbandmans, refunds for exports to non-eu states, restructuring costs and informational steps ( Council Regulation, 2005 ) . The EAGF fundss covering with the community ‘s part to specific veterinary steps, publicity of farm green goods, usage of familial resources, running farm accounting and study systems and piscaries markets are wholly managed by the committee. EAFRD outgo is managed jointly by the committee and member provinces ( Council Regulation, 2005 ) . Member provinces must maintain the committee good informed for the effectual fund direction. Commission organises independent audits to reexamine the member states activity.

Relative Competence of member provinces

CAP represents about 40-50 % of the EU ‘s disbursement. The top three economic systems in the axis are Germany, UK and France ( ENA 2010 ) . States like France, Spain and Portugal have big agricultural sectors. Naturally they receive more money through CAP. Other states receive better inputs in other sectors. Germany makes the largest part. And Netherlands makes largest part per individual. The largest donees per capita are Greece and Ireland.

UK would hold been the largest subscriber but due to UK rebate it is non and France, Italy & A ; Spain pay major portion of the discount. France has big agricultural land. It receives 13 % of entire CAP more than UK. This is a net benefit of 6.37 billion euros compared to UK ( Zahrnt, 2009 ) . If there was no discount, UK would be paying for the inefficient Gallic agribusiness. France is the biggest donee. However, France pays a net payment to EU budget and so can non be seen as having subsidy. Other new members receive really little sums of subsidy.

Looking at the discretional envelopes and public good envelopes for the 2013 allotments, states with strongly subsidized merchandises like Greece, Malta, Cyprus, Netherlands, Belgium, Denmark suffer great losingss as their earlier portion exceeds its portion in agricultural countries. High income states like Austria, Luxembourg, Finland, Sweden and UK improve their places ( Zahrnt, 2009 ) .

International trade

EU is considered as a universe leader for the production of several merchandises. EU is besides a major importer for different agricultural merchandises from other states ( EU CAP, 2010 ) . EU plays a major function in WTO and has extended trade dealingss with trade blocks and developing states. It has bilateral trade understandings with 3rd universe states, free trade understandings with neighbouring states and extended dealingss with South American states. Of the developed states, EU is the lone 1 that grants discriminatory entree to its markets for other states. EU is committed to the “ Doha Developmental Agenda ” ( DDA ) which aims to liberalize trade and enhance development ( OECD, 2001 ) . This forces CAP reforms to cut down trade-distorting agricultural patterns.

Effectiveness of Policy Making to day of the month

CAP has led to heighten nutrient production, nutrient security and farm incomes from 1960 ‘s. Later excesss affected the farm gate monetary values. So, several policy steps were used to restrict the production of excess ( EU CAP, 2010 ) . Gradually these steps were able to cut down the excesss. Reforms introduced in 1990 ‘s have managed to cut down the export subsidies and at the same clip increase the exports. EU is still a net importer. Using steps such as clear labelling regulations, works and wellness public assistance, control of pesticide residues etc, CAP has helped EU to keep high quality nutrient production and guarantee consumers of nutrient safety. In add-on, CAP successfully provides aid to rural communities in many ways.


CAP has been capable of unfavorable judgment from a long clip. Critics argue that this sector contributes to merely 1.6 % of GDP and covers merely a little part of the EU population. The subsidies CAP enforce consequence in unjust competition ( Civitas, 2010 ) . Many critics reject this thought of protectionism. The CAP mandated demand for certain merchandises is higher than the demand in the free market, ensuing in inordinate supply. Resources used in agribusiness could be diverted to other productive operations. By adding import duties for merchandises from developing states, CAP is curtailing the concern within the states ( OECD, 2001 ) . CAP ‘s monetary value intercession creates unnaturally high nutrient monetary values in EU. As the monetary values are falling in existent footings, merchandises make less than their cost of production ensuing in loses in the farm gates. Though CAP purposes to profit the little graduated table husbandmans, in world it rewards merely big graduated table husbandmans. Farmers who produce more get more subsidies. Reforms have linked the size of the farms to subsidies ( Bureau, 2008 ) . Yet net incomes are to the big scale operations. CAP has besides allowed indiscriminate usage of fertilizers presenting serious environmental concerns. Many economic experts doubt the sustainability of CAP in the hypertrophied EU. Current reforms are seeking to turn to these issues.

Decisions and Future Directions of policy development ( CAP 2020 )

A scope of positions have been expressed by assorted stakeholders involved in CAP for position quo to abolition of income support and limitation of disbursement to environmental public goods. R & A ; D seems to be the new precedence of future CAP ( IEEP, 2009 ) . Further, the EU seems to spread out conveying in many other states and their agricultural conditions. There is a decrease of policy differentiations between old and new members. Current steps in CAP are non wholly tailored to these fortunes and new attacks may be required to cover with it. The argument over the factors impacting the universe markets makes the monetary value degrees uncertain in the hereafter ( IEEP, 2009 ) . The CAP design needs to be ready for a scope of state of affairss. Current trends predict a lessening in single land retentions and an addition in the development of big regional specializations for nutrient production. This pressurises the demand for cultural landscapes, little graduated table farming systems and many traditional public goods. CAP should besides take to turn to the facets of land direction, H2O direction and biodiversity owing to impact of clime alteration ( Bureau, 2008 ) . The complications of environment and clime docket will include international trade dimension. This requires CAP to work in manus with other policies. Owing to all these altering demands, there will decidedly be a necessity of redistribution of budget considerations and major reforms.