|
| Background |
| The basic principles on which the
Common Agricultural Policy (CAP) was built were set out in the Treaty of Rome which was
signed by the 6 original Member States of the European Community in March 1957. |
| The CAP was created at a time
when Europe was in deficit for most food products and its mechanisms were devised to meet
this situation. However when it was drawn up the agricultural situation in the founding
states differed very widely from one country to another. The natural and economic
circumstances and the relative importance of agriculture varied considerably from the
North of Europe to the South. In addition, some countries had developed free trade
systems, others were fiercely protectionist. This diversity, which was destined to
increase with the enlargement of the Community, did not deter the authors of the Treaty of
Rome from creating a CAP. |
|
| Objectives |
| Article 39 of the Treaty of
Rome lays down the underlying objectives of the CAP. These are: |
- to increase agricultural productivity by promoting technical
progress and ensuring the rational development of agricultural production;
- thus securing a fair standard of living for the agricultural
community;
- to ensure a secure supply of food at stable and reasonable
prices to consumers.
|
| With these objectives in mind,
the first outlines of a common policy were agreed at a conference of the 6 EC Member
States in July 1958, known as the Stresa conference. This conference added some details to
the objectives set out in the Treaty. Among other points, the conference participants
decided on 4 further principles: |
- a common pricing system should be set up with farmers in all
countries receiving the same returns for their agricultural output. This was achieved by a
gradual alignment of farm prices in the 6 Member States, which had varied
considerably from country to country prior to the CAP's existence;
- prices would be fixed above the world market level. This was
because production costs were and still are above those in other major producing
countries. Thus was born the so-called "dual pricing" system, whereby internal
EC farm prices are maintained at above the world level. This is done by means of a
3 fold system involving direct central intervention in the market where necessary; a
system of variable levies to prevent imported goods undercutting EC production; and export
refunds which allow traders to sell on the world market without making a loss in
comparison with the domestic market;
- the structure of the Community's agricultural industry
should be reshaped to make the EC's food production more competitive, although without
undermining the traditional character of the European family farm;
- there should be a common financing system for the CAP. Under
this principle, which still operates today, all countries contribute to a central market
support fund, called the European Agricultural Guarantee and Guidance Fund or EAGGF. All
market support is paid for centrally out of this fund, with budgetary allocations allotted
for each commodity sector. Cash is paid out to Member States regardless of the level of
that country's contribution to the budget.
|
|
| Achievements of the CAP |
| The objectives of the CAP, to a
degree, have been met in that enormous increases in production have secured food supplies
and the consumer can choose from a varied range of goods at reasonable and stable prices.
However the price of technical progress and of the very success of the CAP has been the
formation of huge surpluses which have forced the Community to change the orientation of
the policy in recent years. (Annex 1 explains how the CAP
operates). |
|
| Reforms of the CAP |
| The European Commission
recognised that radical reforms were necessary in order to redress the problems of
ever-increasing expenditure and declining farm incomes, the build up and cost of storing
surplus food stocks and damage to the environment caused by intensive farming methods. A
further factor was the tensions which the Community's farm support policy caused in terms
of the EC's external trade relations. Various measures have been adopted since the
mid-1980s to address these problems e.g. set-aside, production and expenditure quotas
on certain products and co-responsibility levies on others. However these proved
inadequate to control the expansion of support expenditure and resulted in the development
by Ray MacSharry, the Agriculture Commissioner between 1989 and 1992, of a new set of
much more radical CAP reform proposals (the MacSharry proposals). The basic principles
were outlined in a "Reflections Paper" dated February 1991. These were further
refined and set out in the paper entitled "The Development and Future of the Common
Agricultural Policy" dated 9 July 1991. In addition to seeking market balance
through reductions in institutional prices, the reforms sought to direct support to those
in greatest need, to protect the family farm, to promote rural development and to preserve
the environment. |
|
| UK responses to reform proposals |
| While the UK welcomed the
Commission's recognition that fundamental changes were needed to the CAP, it had major
reservations about key aspects of the proposals. These were that: |
- the bias of support systems in favour of very small
producers would reduce the efficiency and competitiveness of Community agriculture and
this, together with the concentration on key northern commodities, would discriminate
between Member States;
- since very small producers were unlikely to be viable
without continuing support, a long term escalation of costs could occur;
- compulsory supply controls, such as those proposed for
arable crops and sheep, would reduce the influence of market forces;
- the proposals were thus likely to lead to an increase in
budgetary costs in both the short and long term, and to distortion of market forces;
- the proposals did not go far enough in integrating
agricultural and environmental objectives.
|
|
| CAP reform settlement |
| After many months of negotiations
measures to reform the CAP were formally adopted by the Agriculture Council in Brussels on
30 June 1992. The agreement (see Annex 2 for details) is a much watered down
version of the original MacSharry proposals. Main elements of the package were significant
cuts in support prices, moving them closer to world prices, together with compensation
payments to farmers. The role of market intervention was reduced and there was a
commitment to pursue environmental protection requirements as an integral part of the CAP. |
|
| Advantages of the new measures: UK |
| The main advantages of the new reform package
for the UK were: lower prices to consumers; lower production and therefore a reduction of
surpluses; a positive contribution to the Uruguay Round General Agreement on Tariffs and
Trade negotiations which were concluded in December 1993; the avoidance of new
discrimination against UK producers; growing recognition of environmental objectives; and
consistency with the EC Agricultural Expenditure Guideline. |
|
| The
Future |
| As indicated in paragraph 3, the CAP has to a degree been a
success in that its objectives of increasing agricultural production and ensuring security
of supply have been achieved. The Community is now more than self-sufficient in nearly all
major agricultural products and the displays in shops show a wide variety of goods
produced throughout the Community which are available at reasonable prices to consumers.
Over the years the relative importance of the CAP for the Community has diminished in that
the EC's regional and social policies have taken over some of its responsibilities for
rural development. The CAP has therefore to respond to new circumstances and priorities. |
|
| Further reform - Agenda 2000 |
| Looking to the turn of the century, events
such as the enlargement of the EU and next round of World Trade Organisations (formerly
GATT) negotiations require further reform of the CAP to take place. Application of the
current arrangements to the Central and Eastern European Countries which wish to join the
EU would be prohibitively expensive and would increase the prospect of growing surpluses,
given the production potential of these countries. The WTO talks, which are planned to
commence in 1999, will aim to further liberalise trade in agricultural commodities. The
process was started in the GATT Uruguay Round and the strong indication are that further
reductions in CAP support will be called for by other countries who are major agricultural
exporters. |
| To take account of these and other medium to
longer term developments (e.g. expanding agricultural markets abroad due to population
growth and rising disposable incomes), the European Commission published a number of
papers on 16 July 1997 under the banner Agenda 2000 setting out the framework in key
policy areas for the millennium. The Commission followed this up on 18 March 1998 by
publishing draft legislation. The main CAP reform proposals cover 5 areas i.e. beef and
veal, milk and milk products, arable crops, rural development and horizontal regulations |
| - see Annex 3 for an
extract from the Commission’s press release of 18 March 1998. |
| In essence, these involve; |
- a reduction of 30% in beef intervention prices to be
achieved over the 3 years 2000, 2001 and 2002, with compensation payments made on the
lines of the direct payments agreed in 1992. National "envelope" which would
allow Member States to target an element of aid at priority sectors.
- a cut in support prices in the dairy sector by 15% over 4
years from 1 July 2000 and a limited increase in quota held. The retention of the milk
quota regime and extended from 2000 to 2006. A new dairy cow premium introduced as
compensation for the price cuts. National "envelope" also available.
- a cut in cereals intervention by 20% in 2000 with partial
compensation flat-rate area aid for arable crops and set-aside. Compulsory set-aside would
be abolished and voluntary set-aside continue. Member States would have flexibility to
subject area aid for crops and set-aside to environmental conditions.
- agri-environmental and rural development to be brought
together with structural measures such as Hill Livestock Compensatory Allowances within a
single legal framework. Greater emphasis would be placed on targeted agri-environmental
schemes.
- establishing annual EU payment ceilings per farm covering
all commodity-related payments. Producers would be able to claim up to 100,000 ECU without
penalties. Above this level subsidies would be capped. Also a requirement that Members
States attach environmental conditions to direct payments (i.e. cross compliance).
|
| The CAP reform proposals go very much in the
direction the Government has been advocating. Consumers could save over £1 billion from
the cuts in support prices. The reduction in price support in the beef and cereals sectors
is a welcome continuation of the process started in 1992. The environment would benefit
from a number of measures, notably the increased emphasis on an integrated rural
development policy. Farmers in turn would benefit from the move towards a more sustainable
and market-led policy. |
| There are some elements, however, that the
Government finds less satisfactory and will need to be addressed in negotiations. While
the general proposals for addressing rural policy lack detail, they look innovative and
offer possibilities for directing support to rural areas. The down side of the proposals
are that the compensation payments look to be too generous, there is no proposal to make
farm payments degressive or decoupled from production. In the dairy sector, the proposal
to reduce the milk price by 15% is insufficient to enable milk quotas to be removed. And,
although the proposed increase in quota is welcome, it is not distributed fairly amongst
Member States. The Government has also declared its opposition to an EU-wide ceiling on
the amount of direct payments which an individual producer can receive. Because of the
UK’s large average farm size, this proposal would hit the UK disproportionately. |
| Elsewhere, there is uncertainty about how the
proposals would work in practice. This includes the proposal to create "national
envelopes" in the beef and dairy regimes within which Member States would have
certain discretion on targeting subsidies. |
| The UK believe the proposals are a useful step
in this latest attempt to reform the CAP, but against the background of hostility which
most Member States have towards radical change of the CAP, negotiations on the proposals
are likely to be lengthy and difficult. The proposals will undoubtedly change and develop
over the coming months as negotiations progress. |
| From the Scottish perspective, our LFA
livestock producers benefit significantly from CAP resources. Given the difficult
conditions which they farm in and the lack of options open to them to generate other
sources of income, without subsidy many of our hill and upland units would not be
economically viable. The position of such producers will therefore need to be taken fully
into account as negotiations progress to determine the shape of the CAP for the new
millennium and further expansion of the EU. |
Scottish Office
Agriculture, Environment and Fisheries Department
Division E, Branch 1
Pentland House
47 Robb's Loan
Edinburgh
EH14 1TY
Ext 6369, 6194 or 6367 for general
enquiries
August 1998 |
