The European Economic Community (EEC) came into existence in January 1958, after being established by the six founding members under the Treaty of Rome. The original six member countries of the EEC (now known as the European Union, or EU) were Belgium, France, Italy, Luxembourg, the Netherlands, and what was then known as West Germany. A few years later, in 1963, the EEC member countries agreed to support its farmers and ranchers on a system-wide basis, an approach that became known as the Common Agricultural Policy or CAP.
The stated objectives of the original CAP were:
• support farmers and improve agricultural productivity, ensuring a stable supply of affordable food;
• safeguard European Union farmers to make a reasonable living;
• help tackle climate change and the sustainable management of natural resources;
• maintain rural areas and landscapes across the EU;
• keep the rural economy alive by promoting jobs in farming, agri-food industries and associated sectors.
Financial support for farmers was to be paid for out of the community’s common budget and not individual member countries’ budgets, and the system was characterized by tariff preferences which favored goods from other member countries at the expense of imported food products. Farmers were given income support to ensure parity with other sectors of the economy, and to encourage increased agricultural production to improve the region’s food security status.
Five of the original six member countries were significant net importers of food and agricultural products in the early 1960’s (the Netherlands being the only exception), as was the European region as a whole. The community, which became the European Union (EU) in 1993, now includes 27 member countries, having added many Eastern European countries in the past two decades after the Iron Curtain collapsed with the destruction of the Berlin Wall in 1989. The United Kingdom formally left the EU in 2020 after the Brexit referendum vote passed in 2016. According to data maintained by the UN’s Food and Agriculture Organization (FAO), the EU had an $80 billion agricultural trade surplus as of 2021.
As membership in the community expanded and the numbers of farmers receiving support increased in both number and total output, the EEC looked for ways to reduce the budgetary cost of the CAP. The first such step occurred in 1984, when quotas were imposed on European dairy production. A quota amount was assigned to each country, which then allocated it to all dairy farmers in each country. A tax was imposed on farmers exceeding their reference quota.
In 1992, the EU adopted the so-called McSharry reforms to the CAP, which converted a considerable portion of the financial support for EU farmers from price support for cereals and meats, which resulted in higher prices for EU consumers, to direct payments for farmers producing those commodities. The so-called intervention prices, which were support prices at which designated commodities (mainly cereal crops such as wheat and barley) would be purchased by the EU, were lowered to close to world market-clearing levels. This step reduced the accumulation of stocks and the budgetary cost for the EU to store excess commodities and/or subsidize exports. Area set-asides were also imposed on farmers to remain eligible for CAP support.
In 2003, further reforms were implemented as the direct payments created 11 years earlier were decoupled from current production and price levels, in keeping with requirements to allow ‘green box’ support for farmers without restrictions under WTO rules adopted under the Uruguay Round. However, some member countries opted to maintain partial coupling of payments to production levels up. Some of the funding previously dispensed as direct payments was redirected to provide support for adoption of conservation practices on farmland.
To clarifying budeting, the EU formally established two distinct pots of funding under the CAP in 2007, Pillar 1, which is devoted to agricultural production support, and Pillar 2, which designates its funds for ‘rural development’ defined broadly, to include enhancing environmental activities, addressing agricultural competitiveness, and mitigating rural poverty.
Further CAP reforms in 2013 sought to tie direct payments more explicitly to farmers engaging in beneficial environmental activities, a process that came to be known as ‘greening’. Under the new rules, farmers receiving area based direct payments are required to make use of various practices that benefit the environment and the climate. These practices include dedicating 5 percent of arable land to “ecologically beneficial elements”, termed “ecological focus areas (EFAs)”, such as pollinator habitat or buffer areas. Farmers must also follow rules ensuring crop diversification and the maintenance of permanent grassland. Member countries also had to converge on providing a single set payment for farmers per hectare–previously, they had been allowed some latitude to offer differing rates.
A renewed CAP reform process was initiated in 2017, which took effect in December 2021. It has been dubbed the European Green Deal, and requires member countries to demonstrate more ambition in addressing environmental objectives and addressing the needs of small and medium-sized farming operations. It will also devote more resources to supporting young farmers and improving the gender balance of agriculture in EU member countries.
Although not formally part of its 2003 CAP reforms, the EU also established a target in that year of incorporating biofuels as 5.75 percent of their transport fuel supply by the end of 2010. That target level was increased to 10 percent in a 2009 energy and climate change package, but biofuels produced with edible feedstocks (such as cornstarch and palm oil) were not eligible to be used to meet the requirement, as those products were seen as posing a high risk for inducing cultivation of previously uncropped lands globally. This action was intended to discourage use of such biofuels in the EU, but not ban them. As of February 2023, the German government was considering a phased-in ban of all such crop-based products, to be fully in place by 2030.
