To answer this question it is essential first to state the objectives of the Common Agricultural Policy, as stated in Article 39 of the Treaty of Rome.
1) to increase agricultural productivity by promoting technical progress and by ensuring the rational development of agricultural production and the optimum utilisation of all factors of production in particular labour.
2) To ensure thereby a ‘fair’ standard of living for the agricultural community, in particular by increasing the individual earnings of persons engaged in agriculture.
3) to stabilize markets.
4) to provide certainty of supplies.
5) to ensure supplies to consumers at reasonable prices.
The second part of the essay looks at why such a policy was deemed necessary, and also how far politics can account for the consistent failure of the Community to deal with its problems. But the first part concerns why in economic terms the policy is fundamentally flawed.
The problems of the C.A.P. go deeper than economic theorising as to why the policy itself has created imbalances within the agricultural system. They are fundamental.
`Economic logic dictates agriculture to be a major contributor to economic development. This is true especially in the primary stages, whereby it releases resources to other sectors. By increasing its own productivity the labour force is free to move into other sectors where it can be more productive, namely industry. In addition to this increased productivity, and thus output, results in falling food prices raising living standards and thus profitability of non-agricultural sectors.
The reallocation of resources through greater productivity is achieved by earnings in the agricultural sector declining in relation to other sectors. Thus one can say there is a ‘natural’ tendency for agricultural populations to suffer relative poverty. Low earnings are a result of productivity in agriculture increasing more rapidly than the demand for food. If supply outpaces demand, prices have to fall to restore the balance. Further, if the aggregate agricultural income falls, average incomes can only be maintained if labour leaves the sector at a sufficiently high rate. This fact was recognised by the Mansholt plan of 1968, stating that the price support mechanism alone could not achieve the objectives of the policy. It proposed the modernisation of agriculture involving a greatly accelerated reduction in the number of farmers.
`Thus by preventing prices restoring the equilibrium in the agricultural produce market the C.A.P. has prolonged the existence of small uneconomic farms and generated expensive surpluses. Further, in aiming to raise farm incomes to approximate those in non-agricultural sectors the C.A.P. is attempting to reverse the tide of development, as also inefficient producers survive.
`A problem that was not really anticipated in the original C.A.P. outline was that of scientific advancement. The fundamental deficiencies have been exaggerated as scientific advancement has raised output to unprecedented levels. The C.A.P. with its guaranteed price levels meant E.C. farmers could produce without limit. High prices stimulated supplies but demand has not increased as much as the already well fed E.C. population. The consequence of this was rapidly expanding surpluses, and to prevent a collapse of food prices in the E.C. they were purchased and ‘dumped’ onto the world market. This problem has been tackled to some extent, at the Fontainbleau summit of 1984 a ‘Quota system’ was introduced on dairy products, reducing the milk
`lake and butter mountain dramatically.
Basically the deficiencies of the C.A.P. can be summarised in four main points. Firstly, there is a misallocation of resources within the E.C. resulting from protecting agriculture more generously than any other sector. Secondly, a misallocation of resources exists internationally, briefly much of the food produced in the E.C. could have been imported more cheaply. Along with this, the obviously protectionist stance of the C.A.P. could have provoked costly international trade wars, (this could still be the case with the E.C. and the U.S.A. still not in total agreement over the latest G.A.T.T. deal). Thirdly, it makes no sense to produce surpluses and sell these at a loss to other countries, (although this is now less of a problem.)
`And finally, there is a transfer of income from consumers to producers, which artificially high prices cause.
To understand the deficiencies of the C.A.P. we must also look to politics. But also the difficulties of altering a system such as this that has evolved into a complex web of administration once it is ‘up and running’. Throughout the 1970’s and 1980’s we saw a series of attempted reforms of the C.A.P., all making little progress. Even the 1992 MacSharry reforms, seen as a big step forward, may have little impact. Here one of the key elements is the removal of about 10% of E.C. farming land from production. But leaving aside the fact that it is notoriously difficult to tell if land is being farmed or not, farmers will always leave the least productive land fallow and then claim their subsidy for doing so.
More specific deficiencies of course also exist. The C.A.P. has failed to check the disparate income distribution within the community. In fact it has exacerbated it, benefitting the larger, richer producer in the more prosperous region versus the ‘peasant’, the people the policy was supposed to aid. This is because the system rewards farmers in proportion to output, i.e. size and wealth, as opposed to need. Incomes have not risen in relation to Community incomes. In 1989 a Commission paper stated,
“since 1978, under the pressure of the structural surpluses, producer prices have fallen in real terms, or at best held steady. As a consequence, the average real incomes of European farmers in 1988 was below the level of the mid-1970’s.”
But as stated the problems of the C.A.P. are more fundamental than this. The basic problem is that the policy as a whole attempts to defy the underlying forces of economic development. These inexorably cause agricultural prices and resource earnings to fall in relative terms, and in trying to reverse this tide the C.A.P. has induced a flood of surpluses.
`To answer the second part of the essay we need to examine why such a policy was deemed necessary, after all E.F.T.A. didn’t afford agriculture such protection.
`The Treaty of Rome was a delicate balance of national interests, and was crucial to the development of the E.E.C. Economic integration without agriculture stood no chance of success.
`The size of the agricultural sector in 1958 was approximately 20%, such a sizeable sector could not be ignored. The prospect for Free Trade in industrials was inviting for the West Germans, in particular access to the French market. So anything less than free trade in Agriculture would have been discriminatory to the relatively efficient French farmers. Further to this the low average wage in the sector was seen as socially unacceptable in the twentieth century. Christian Democratic parties have traditionally drawn their support from rural communities and being at the forefront of the formation of the E.E.C. it is clear they exerted influence.
But if we look at the position in 1990 we find only 6.6% of the E.C. workforce now employed in the agricultural sector, and agricultures contribution to the GDP of the E.C. now only accounts for 2.4%, why is it that agriculture still commands such a stage? And why has it been difficult for politics to remedy the situation?
Firstly if we look at the institutional framework where decisions could be made to remedy problems we find it cumbersome and inflexible. The Agricultural Council of Ministers operates a veto-system, and is very politicised.
“…crises management and compromise, rather than long-term rational planning are order of the day…”
Member states often take nationalistic stances, France, Eire and Denmark all notable beneficiaries of the C.A.P. often prefer to protect there own farmers and preserve the status quo. The MCA system has also been used by member states with national rather than Community interests in mind, and little regard for the economic rationale of a customs union.
One of the most important factors though has to be the effect of lobbying.
`This is on a Community level, with the Comite des Organisations Professionells Agricole’s, (the European Professional Farmers Association). The organisation is highly efficient and disproportionately influential vis a vis the size of the farming community. As stated the ‘rural’ vote is important to Christian Democratic parties, and parties of the Centre-Right. This is particularly so in France. These factors all help to perpetuate the C.A.P.
From current legislative elections in France will probably emerge a Centre-right government. The key actors here are Jacques Chirac (RPR) and Valery Giscard d’Estaing (UDF). Both have recently voiced their opposition to the latest G.A.T.T. deal.
“The GATT deal is null and void…….”, said Chirac.
Giscard even goes as far as suggesting a renegotiation of the C.A.P. reforms signed last May. This illustrates the difficulty in the Community maintaining a common position, to say nothing about actually negotiating one. And further complicates any reform negotiations of the C.A.P., which today need to be looked at on a more global level, i.e. within G.A.T.T.
Finally along with all the fundamental flaws and self-generated problems the C.A.P. is seen as a monument to the determination of politicians, especially in the early years of integration, to work together for a united Community. It has become a symbol of co-operation. ‘Fine tuning’ of the policy is permitted, but any attempt at a radical restructuring or abolition altogether would not be tolerated, and perhaps seen as a sign a defeatism. For these reasons politics has failed to remedy the situation.
As in most areas the concepts of politics and economics are intrinsically linked, this is also the case with the C.A.P. The ‘Farm Problem’ has economic and social dimensions. For many the C.A.P. is in direct defiance of all economic logic and against the long term interests of the Community. But against this low incomes in a ‘major’ sector of the economy are unacceptable in the twentieth century. Continued friction has and could continue to make the policy a major force for disintegration, as opposed to its original aims, to foster integration, being the first major policy. The C.A.P. has also been a major drain on the resources of the Community, at its peak accounting for over 80% of the budget. This has since fallen, and in 1992 accounted for 58.2%.8 The consequence of this has been few resources left to pursue other common policies, delaying the progression of the Community as a whole. But as we have seen the ‘social’ aspect of the ‘Farm Problem’ made some sort of policy necessary. This factor and those mentioned above have perpetuated the C.A.P. Politicians have been unable and unwilling to reform the complex bureaucratic web that is the C.A.P.
1: A Common Agricultural Policy for the 1990,s.Commission of the E.C. (1989) European Documentation, 5th ed.
`(page 54) Luxembourg; Office for Official Publications of the E.C.
2: The Common Agricultural Policy:Past, Present and Future. Brain E.Hill.
`Metheuen & Co. Ltd, London.
`(page 117) (1984)
3: The Economics of the Common Market. Dennis Swann.
`Penguin Books Ltd, London.
`(page 22) (1988)
4: New Vitality for the Countryside. Commission of the E.C. (1992a)
`(page 4) Luxembourg; Office for Official Publications of the E.C.
5: The European Community: Economic and Political Aspects. V.Lintner and S.Mazey.
`(page 107) (1991)
6: as ref: 3
`7: The Economist of March 20th 1993; volume 326; number 7803
8: Our Farming Future. Commission of the E.C. (1993)
`(page 23) Luxembourg; Office for Official Publications of the E.C.
1: “The Common Agricultural Policy: Past, Present and Future”
`Brain E. Hill
`Methuen & Co. Ltd, London.
2: “The Economics of the Common Market”
`Penguin Books Ltd, London.
3: “Politics and Policy of the E.C.”
`Clarendon Press, Oxford.