The Common agricultural policy (CAP) was established many years ago. However, since its establishment, it has undergone modifications to suit changing priorities concerning agricultural production. The policy aimed at increasing agricultural production in EU especially in during the cold war. However, the current priorities of the CAP have changed since the policy currently aims at protecting agriculture in the entire of Europe through control of prices and levels of production. Moreover, the policy enhances distribution of produced agricultural output in order to safeguard the countryside. On the negative side, CAP has been the source of controversy because of its huge cost as a proportion of the budget of the EU and because it is perceived as an unfair means, through which European nations protect the EU agriculture from the international competition.
History of the Common Agricultural Policy (CAP)
The Common Agricultural Policy (CAP) was established in 1957 under the Rome treaty and its full operation was realized in 1962 when the EU member began implanting it. Attempts to reform the CAP began in 1992 with the MacSharry reforms with further reforms being realized in 2000. Despite the changes, there were minimal alterations to the subsidies that are paid to farmers in Europe. The policy postulates that farmers be paid for being guardians in the countryside. It may begin by offering quantity discount to any customer purchasing goods equal or above a given value.
The review of the CAP was done in 2008 and the aim was to increase its efficiency through propositions that included reduction of single farm payments that were made to large farms in EU. The amount of funds that were being used for the payments were proposed to be used developing the countryside through the establishment of a budget for rural development. In addition, the changes proposed subsidy to farmers producing crops that are used for biofuels, which are considered to more environmental friendly than normal crops. The policy reforms further proposes a set aside scheme in which farmers are compensated for setting aside part of their farming land to remain idle so that overproduction of farm output can be avoided. There were criticisms on the funds that were set aside for the development of rural countryside as the opponents who included environmental groups argued that wildlife would be endangered through allowing wildlife to operate on unfarmed lands.
Despite the pending renewal, speculations are many and they include speculation that there may a shift in CAP spending with more funds being spent on increased innovation in the agricultural sector, climate and clean energy (European Commission 4). There have been many proposals that proposed changes to be made in the CAP so that there is inclusion of a section that promotes the establishment of a scheme to insure farmers using payment set aside from the CAP.
Working of the CAP
According to McCormick (56), the policy executed its mandate through subsidy given to agricultural produce. However, the policy is now implemented through the implementation of import tariffs that deter importation of agricultural products from outside the EU. Moreover, subsidies are provided to farmers through the single farm payment scheme so that the EU farmers can produce farm output that meets the existing market demand. The surplus is stored by the governments so that they sold later to recover the cost of production. The market for the surplus goods is mainly in developing countries. The other form of control for agricultural production by the CAP is through establishment of Quotas on the level of output that the farmers can produce. The farmers are paid not to produce more than what has been stipulated (McCormick 65).
The budget of CAP for the 2010 financial period was €43.8bn while the budget for the 2011 period was 3% less than that of 2010. The implementation of the policy on agriculture in EU has increased costs since the UK incurs about £10bn every year; the funds that are spend on food prices, regulations and indirect costs. European Commission (5) notes that majority of farmers in EU earn less than 5,000 every year. These incomes in the agricultural sector represent only 50% of the incomes that employees in other sectors earn. Despite the efforts of the CAP, farming output declined by 25% between 2000 and 2010. The CAP is strongly supported by all EU members because it helps the EU to protect its countryside. It is argued that free market is characterized by instability with price of commodities fluctuating thereby leaving farmers selling products at a low price and incurring losses. Despite the benefits of the CAP, many people who do not support the policy argue that resources are best allocated through the free market. Therefore, restriction of the market could result in increased food, which leaves consumers paying higher prices for food than expected. The CAP increase poverty in the EU member countries since it causes unfair competition. In addition, the budget is too high and it supports only a small minority of UE farm producers.
Monopolies are corporations that have established themselves as the only producer or supplier of given goods and services in a given economic sector. They differ from perfect competition because under perfect competition, may firms exist in the industry and no firm is able to set its own price. A monopoly could be inefficient since it sets its own price at which it supplies the products in the market. The firm sets a high price while limiting the total output that it supplies in the industry thereby reducing the consumer surplus. Monopolies are not only known for inefficiencies. They are known for earning abnormal profits that could be used in technological development. In addition, monopoly power is beneficial in innovation since such firms are dominant in their sectors in the industry and they focus on innovation. Examples include dominant firms in various industries such as GlaxoSmithKline, Toyota and Microsoft.
The CAP has undergone modifications to suit changing priorities concerning agricultural production. The policy aimed at increasing agricultural production in EU especially in during the cold war. The policy reforms further proposes a set aside scheme in which farmers are compensated for setting aside part of their farming land to remain idle so that overproduction of farm output can be avoided. The CAP provides protection of the EU farmers against the increased competition and exploitation from external farm produce. On the negative side, CAP has been the source of controversy because of its huge cost as a proportion of the budget of the EU and because it is perceived as an unfair means through which European nations protect the EU agriculture from the international competition.
European Commission. The Common Agricultural Policy: A partnership between Europe and Farmers. 2012.
McCormick, John. European Union Politics. London: Palgrave Macmillan. 2011. Print.