Agriculture has been at the heart of the European Union since its foundation. This reflects the post-war food security requirement and the strong political influence of France in the 1950s and 1960s with its large agricultural sector, relative to Germany.
Agricultural competence is restated in the Treaty on the functioning of the European Union. The Treaties set out the objectives of the Common Agricultural Policy
- to increase agricultural, productivity by promoting technical progress and by ensuring the rational development of agricultural production and the optimum utilisation of the factors of production including in particular labour;
- thus to ensure a fair standard of living for the agricultural community in particular by increasing the individual earnings of persons engaged in agriculture;
- to stabilise markets.
- to assure the availability of supplies;
- to ensure the supplies reach consumers at reasonable prices.
The policy must take account of the overarching principles expressed in the Treaties in relation to the protection of the environments, sustainable development, and respect for animal welfare.
The provisions on agriculture came into force in 1962. The main feature was price support, with high tariffs on imports. Market support policies sought to control markets for agricultural products to insulate them from world prices and to maintain agricultural prices significantly above world levels.
The CAP does not extend to the EEA/EFTA countries. There are some provisions in those agreements regarding trade in agriculture, reflecting the particular arrangements with the countries concerned.
Competence in agriculture in the United Kingdom is largely devolved to the administrations in Scotland, Wales, and Northern Ireland. They are responsible for implementing the CAP and the particular measures and rules contemplated under the various EU frameworks.
Unsurprisingly, the market support mechanisms led to overproduction in certain products leading to the notorious wine lake and butter mountain and other surpluses. This eventually caused a budgetary crisis and mounting pressure from some states in the 1980s, in particular, the United Kingdom.
International trade in agriculture must be consistent with international law and in particular with World Trade Organisation rules. Originally, agriculture was largely excluded from the GATT (WTO predecessor)provision. However, the slow-moving liberalisation if international trade in agriculture at the WTO level, has caused changes to the structure of ET supports for agriculture.
The EU has entered bilateral agreements with provisions in relation to agricultural trade. The EU grants duty-free quota-free access to its markets for products from the least developed countries. It has also entered regional partnerships with over 70 developing ACP states giving agricultural exports preferential access to the EU in accordance with WTO rules which permit preferences for less-developed countries.
The Uruguay Round of negotiations under the General Agreement on Tariffs and Trade in the early 1990s, ultimately included provisions requiring that most trade-distorting supports in agriculture would be shifted away from price support, export subsidies and quotas.
The so-called McSharry reforms changed the balance of the Common Agricultural Policy from price support to direct payments to farmers. Under the original reform measures, supports were linked to or coupled with production. They included in particular headage payments for livestock and arable aid payment. Ultimately markets were still distorted and there was significant overproduction.
The market support arrangements have remained in place at all time but now apply to a narrower range of products. In 2007, a single common market organisation measure replaced 21 specific organisation measures. The intervention and price support levels are now minimal such that the price support elements have gone from approximately 95 percent of all support to be approximately 5% percent.
Direct Payments & Rural Development Measures
The single payment was introduced in 2005 to 2007 as a decoupled direct payment unlinked to production. States were given a measure of discretion as to its implementation. In Ireland, it was generally based on the amount of support received in the reference years 2002 to 2004.
States were given a discretion as to basing payment on historic payments or a flat rate per hectare. Different administrations have different approaches. England adopted a hybrid transition to flat-rate payments from a historical basis with flat rate by 2012. Ireland seeks to go to a flat rate by 2020.
In each case, the farmer is obliged to comply with compliance requirements in order to receive the full payment. The farmer must have the relevant land in use and must comply with good agricultural and environmental practices. These are the so-called cross compliance requirements.
The CAP has been criticised as irrational in terms of how funds are raised and how they are distributed. It is distributed primarily on the basis of historic entitlement. It is argued not to provide value for money. It is argued that the environmental and public good aspects represent poor value for money. It is argued that money might be better spent in other ways with more direct support for the environment, wildlife and public health.
An increasing share of Common Agricultural Policy funds is devoted to other rural development measures. Pillar one comprises the direct support payments. Pillar two comprises rural development and environmental measures. These are drawn together in a single framework. Agriculture resources are made available from the EU budget to each state on a matching basis for multi-annual periods of seven years.
The United States reformed its agricultural policies by the Farm Act, 2014. It moved away from direct and replaces it with cyclical payments and insurance. Environmental payments are an important element Payments are made to take land out of production. The reformed agricultural policy in 2012 sought to shift from reactive income support to protecting producers from severe market effects and natural disasters.
Canadian agricultural support consists of various layers of subsidised risk management tools for farmers such as income insurance and subsidised savings.