The Common Agricultural Policy

Question 1

Structure of EC Agriculture

Answer 1

Developed MS: little GDP contribution (2.5-3%)
Least-developed MS: higher GDP contribution (10-20%)

-> Reason: Productivity growth difference between industry/agriculture

Question 2

Rationale for agricultural policy

Answer 2

• instability of agricultural markets
• food security
• structural falling behind of farm incomes
• maintenance of the rural population
• environmental and landscape benefits

Question 3

Old CAP - Mansholt Measures (1968)

Answer 3

Affecting the structure of production:

• reduction of number of persons employed
• create farms of adequate economic dimensions

Adjusting supply more closely to demand:

• reduce area of cultivated land
• improve information to market parties, impose stricter discipline on producers, concentration of supply
• cautious price policy

In case of poorest farmers: provide personal assistance NOT tied to volume of production or employment

Question 4

Old CAP’s Price Support System

Answer 4

Guarantee prices (at high social costs, including consumption distortion)

(deficiency payments would be more efficient, only resulting in tax and production distortions (no consumption)); direct income support would have been even without any welfare loss

Question 5

Problems of old agricultural price policy

Answer 5

• growing overproduction and intervention overload leading to growing budget costs (90% of EU budget in 1969)
• inefficiency of CAP price policy (high transactions costs)
• inequality of CAP price policy (large farmers benefit at expense of low income consumers)
• environmental costs of the CAP price policy (higher prices encouraged intensification and greater input use)

Question 6

Unintended consequences of old CAP

Answer 6

• EU budget problems
• farm income problem (uneven payments, 75% of benefits were paid to 14% of farmers)
• disposal problems
• dumping and international objections
• negative environmental consequences
• concerns for developing countries

Question 7

EU’s new, simpler CAP

Answer 7

1) support prices lowered to the world price level
2) farmers compensated for the lower prices with ‘decoupled direct payments’
3) new linking of the payments to social concerns (environment, animal welfare, rural development)

Question 8

CAP reforms

Answer 8

Several attempts, latest one from 2021

-> slowly fixing old negative consequences (reducing of payments, orientation towards world market, making it ‘greener’)

Question 9

Two pillar structure of today’s CAP

Answer 9

• First Pillar: direct payments and market intervention

- Second Pillar: rural development

Question 10

Success of CAP reforms?

Answer 10

• EU spending for CAP has fallen steadily
• reorientation of spending away from wasteful subsidisation (excess amounts of food)
• second pillar receives increasing funds for ecological and sustainable purposes

Question 11

Remaining problems

Answer 11

• social inequality
• farmers only get appr. half of the CAP’s support (rest to land-owners)
• relative decline infarm incomes in EU15 (whereas increase in CEE)