The common agricultural policy (CAP) dates back to the Treaty of Rome and still captures the greatest share of the EU budget. It has undergone substantial reform since the early 1990s, reflecting changing societal demands and political priorities. DG ECFIN assists the European Commission's work in this reform process with a view to aligning the CAP with overall economic policy priorities.
The objectives of a common agricultural policy were set out in the founding Treaty of Rome in 1957. At that time, the share of agriculture in GDP and employment was considerably higher than today, and the post-war experience of food shortages was still a strong memory. Consequently, the main objectives were to ensure a fair standard of living for the agricultural community and to assure the availability of food supplies at reasonable prices. These objectives also reflected existing national support schemes in the different Member States that had to be harmonised to create a common agricultural market. ‘Common market organisations’ for agricultural products were established that aimed to protect European farmers from international competition and support internal prices by intervention purchases or subsidised exports.
Over time, this approach of raising farmers' incomes by supporting agricultural prices resulted in oversupply and a near collapse of the EU budget in the 1980s. It was clearly inefficient in achieving its objectives. The CAP has also been criticised for exerting pressure on international prices of agricultural commodities, thus adversely affecting farm household incomes, in particular in developing countries.
The persistent problems around the CAP and multilateral negotiations on reducing barriers to international agricultural trade triggered a major policy change in the early 1990s that continues today. Price support has been gradually replaced by direct payments to farmers, which are now largely paid irrespective of what the farmers grow. This has contributed to more market orientation in agriculture, improved efficiency of income support, less trade distortion and more predictable EU budget expenditure.
In addition to the so-called ‘first pillar’ of the CAP – providing agricultural market and income support – a broader rural development policy has been created and strengthened as a ‘second pillar’. This supports structural change and competitiveness in agriculture, the provision of public goods, notably agri-environmental goods, and initiatives to develop rural areas beyond the farm sector.
However, the objectives of CAP reform have not yet been fully achieved. There are still outstanding issues: parts of the earlier market and price-support system are still in place, and not all direct payments to farmers are decoupled from production. Furthermore, the level of EU agricultural expenditure has remained largely unaffected.
DG ECFIN assists the Directorate-General for Agriculture (DG AGRI) in addressing these outstanding issues. One aim is to better align the CAP with wider economic policy objectives and the renewed Lisbon Agenda for growth and jobs. Key issues are: further reducing distortions and misallocations on agricultural markets; enhancing competitiveness of the European farm and food sector; and designing agricultural policies that achieve their objectives, such as providing public goods at least cost.
Other key aspects of DG ECFIN activity are contributing to a coherent and effective framework for rural development policies and including agricultural budget expenditure in ‘quality of public finance’ considerations.
DG ECFIN also assists other Commission services in estimating the potential effects of their policies, such as those related to renewable energies and climate change, on land use, incomes or jobs in agriculture.