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History of the Common Agricultural Policy (CAP)

, by Allan Malheiro

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© Michael Gäbler/Wikimedia Commons
Representing 1.4% of the European GDP and 4% of European employment, agriculture is often regarded as a relatively small economic sector in the European Union. However, it has a specific importance in the EU because food production is the basis of all economic activity (and so, has an impact far more important than its actual share of the European GDP) and because the European Union has an important competency on agricultural matters. The Common Agricultural Policy (CAP) has always been its first expense item since its creation in 1962 and it has always kept the same goals, ensuring an affordable and stable food production as well as maintaining fair revenues for farmers. However, this stability does not mean that the CAP stayed the same since its creation: on the contrary, it faced many challenges which led to its revision numerous times.

The birth of the CAP : between successes and difficulties

During the post-war period, European countries suffered from relatively low food production, low incomes for their farmers and different national farming policies which led to competition between countries. After the founding of the European Economic Community (ECC) in 1957, addressing these issues was seen as an important goal. Which is why in 1962, the European states created the Common Agricultural Policy to ensure plentiful and affordable food for Europeans. This CAP was based on a mechanism of floor price: a minimum price for food production was guaranteed to farmers. This policy obliged the European Economic Community to intervene on the agricultural market : to maintain stable floor prices for farmers, it bought all food surpluses farmers did not succeed to sell. Because of these food buyings, Europe quickly spent a lot on the CAP and accumulated food. Some agricultural products like the cereals were stocked (in 1991, 25 million tons of cereals were stocked by the ECC, costing a lot in terms of maintenance) and others were exported but with high subsidies. In 1991, 30% of the CAP budget was dedicated to export subsidies, leading to absurd situations : for instance, for each butter exported to the USSR, Europe was losing money because of these subsidies. Finally, some agricultural products like fruits and legumes were simply destroyed because it was difficult to stock or export them. Although Europe tried to find solutions to these problems, for instance by giving free food to modest families, they did not succeed and in 1969, the CAP represented 80% of the EU budget, leading to criticisms accusing it of waste of public money. Some farmers were even producing surpluses for purchase by the European Economic Community. Non-European countries were also accusing the CAP of giving unfair advantages to European agriculture by heavily taxing foreign agricultural products and subsidizing local products and many criticized the fact many american products were exempted from taxation. To address these issues, some reforms were proposed like the Mansholt Plan (named after the then EU Commissioner for Agriculture) in 1970 which advocated for the creation of big farms to improve the cost-effectiveness of agriculture, increased agricultural protectionism and limited aids to small and unprofitable farms. However, due to criticism, its proposals were diluted. The other reforms (limitation of agricultural spendings, introduction of production quotas to avoid surpluses, reduction of floor prices,...), despite some achievements, did not succeed in reducing the cost of the CAP.

The era of reforms

Despite the waste of public money, the CAP from 1962 to 1992 succeeded in avoiding a major crisis during the transition from an agricultural economy to an industrial economy and boosting productivity with the Green revolution. 1992 marked a turning point for the Common Agricultural Policy: the MacSharry reform (named after the then EU Commissioner for Agriculture) led to an important reduction of floor prices in exchange for direct financial help for farmers, thus creating our current CAP. This reform succeeded in making the CAP less expensive and more efficient: a few years later, it fell to 50% of the EU budget compared to 80% in 1969 (during its peak). The Agenda 2000 reforms also contributed to the creation of the modern CAP architecture. In addition to direct help to farmers (first pillar, 80% of the spendings), it implemented a second pillar (20% of the spendings) composed of help for rural innovation, agricultural projects, culture diversification and new challenges (ecology, adaptation to climate change…). In 2003, the EU improved the second pillar by giving financial aids to farmers who respected the environment and these aids have since increased.

A need for more reforms?

Although many problems were tackled by previous reforms of the CAP, some problems stay. The main one is the distribution of financial aid : in 2003, according to an OECD study, only 50% of the CAP spendings went to farmers (the rest went to landowners or to buy material). In 2016, the situation was still problematic with 20% of recipients having 85% of subsidies. For instance, large landowners such as the Queen of England or Saudi princes benefited from the Common Agricultural Policy’s financial support. Even some politicians benefited from this system (like the former Dutch Minister of Agriculture Cees Veerman who earnt 190 000€ in 2005 thanks to the CAP or some friends of Viktor Orban who benefited from the privatization of Hungary’s public lands) and opposed reforms. Ecological reforms are also increasingly asked by NGOs. Internationally, there are also criticisms of the CAP as an European protectionism preventing some countries from accessing the European market and subsidizing cheap European production. The new CAP for 2023 to 2027 (the CAP is elaborated by the Commission with the Parliament and voted by the Council for 4 years) tries to tackle these issues : ecologically, the spendings destined to support eco-friendly agricultures were increased but some NGOs find it insufficient and criticized the fact aids to maintain organic productions were not present. To avoid the fact a minority of farmers received a majority of fundings, a diminution of subsidies from 60000€ per farmer upwards and a capping of 100000€ per farmer were proposed by the Commission to the member states, but some countries such as France refused to implement it. However, CAP spending was reduced again, which sparked protests among farmers. Despite legitimate criticisms for its lack of ecological aids, the dependence of farmers on these aids or the inequality of its distribution, the CAP is progressively becoming greener and fairer and its usefulness is no longer contested as it was in the 1970s or 1980s. In 2020, in a survey commanded by the European Commission, 80% of Europeans thought the CAP is fulfilling its goal in securing a stable supply of food for the EU, 65% thought it is ensuring reasonable prices for consumers and 63% thought it is protecting the environment and tackling climate change, showing that, despite the historical challenges of modifying the CAP, many European think it fulfills its 3 main goals.
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