Digital image: the slide represents the difference of temperature between 13h universal time and 1h universal time on agricultural plots in the Beauce region of France (large differences in yellow). © INRA, Paul BOISSARD

Research for the future of the CAP

Key to understanding: CAP Terminology

The European Union, like most industrialised countries – the United States and Japan, for example – and numerous developing countries, provides support for its agricultural sector.  In the aftermath of World War II, the CAP originated as an instrument for food policy as well as agriculture, to sufficiently develop agricultural production to meet internal demand.

Trends in the amounts of different types of CAP aid. © Commission européenne – DG Agri
Trends in the amounts of different types of CAP aid © Commission européenne – DG Agri

1960-1990: the “original" CAP

The CAP was originally composed of three main instruments: intervention, export subsidies and import tariffs. Intervention guaranteed stable prices to farmers higher than those practiced worldwide (2.5 times higher in the case of grains, for example, in 1987). These guaranteed high prices were an incentive to farmers to produce more. However the animal feed industry progressively moved away from expensive European grains towards other, often imported, raw materials. Surpluses of grains, as well as milk powder, butter and beef purchased by community bodies to maintain prices, gradually accumulated. Exporting these surpluses outside Europe on world markets required export subsidies and created a vicious circle: exported goods brought down prices and increased export subsidies in equal proportion, sending the CAP budget through the roof.  The distorting effects of these subsidies on world markets were vehemently denounced by other countries, as were protectionist measures such as tariffs to limit agricultural imports in Europe.

 1990s: a new logic

In the 1990s, the European Commission launched a reform process which continues today  and has followed a consistent goal: a gradual shift from pricing mechanisms to direct payments.
Through this approach, guaranteed institutional prices have fallen to match world prices and public intervention mechanisms (purchasing, storing and export subsidies) are subject to stricter rules. To alleviate the financial impact of lower institutional prices, farmers receive direct payments. These were initially coupled with a specific category of production – calculated per hectare, head of livestock, or ton of milk, for example. Payments were progressively disassociated from specific agricultural production categories to limit incentives to produce. Known as “decoupling”, this principle was a 2003 reform measure: farmers receive a lump sum payment per holding under the Single Payment Scheme which is independent of production. 2003 reform also established the principle of “cross compliance”: to receive this aid, farmers must comply with certain environmental, health and animal welfare standards (about 20 directives). Farmers can also decide not to produce but must maintain land in “good agricultural and environmental condition”.

Agenda 2000: environmental concerns

Since 1999, a growing proportion of direct payments (first pillar) have been transferred to a second pillar now focused on three key areas:  competitiveness (risk management and structural adaptation), the environment (pollution control, etc.) and rural development and planning. 2003 reform enhanced the second pillar by allowing an additional transfer of direct aid known as “modulation”.
The CAP has become progressively complex and diversified with the introduction of subsidiarity, a principle which provides Member States leeway in the application of EU regulations, and with the inclusion in 2004 of twelve new Member States with very different agricultural systems.