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CAP Reform in a Nutshell

The Problem

  • EU agricultural tariffs and subsidies distort the economy. European agriculture is not aligned with its comparative advantage, but skewed in favor of those products that receive disproportional protection. Worse, support to agriculture acts like an invisible tax on the manufacturing and service sectors.
  • The CAP harms EU trade interests. It discredits the free-trade argument and serves as a pretext for maintaining barriers to trade in agriculture, manufacturing and services.
  • The CAP is socially unfair. Poor farmers benefit little from the CAP. 20% of recipients reap roughly 80% of the direct income support. More generally, social policies should be targeted at the poor and not at farmers or any other sector.
  • The CAP has a weak environmental record. Only a tiny fraction of its budget is spent on efficient agri-environmental payments, while environmentally harmful farming practices, such as drainage of wetlands, are still subsidized.
  • The CAP undermines global food security and the fight against poverty. The EU subsidizes exports which disrupt production abroad. Furthermore, investing in agricultural research and development, especially if adapted to developing country needs, is much more effective than subsidizing European farm income and production.
  • The CAP is a burden on European integration. It creates an image of a bureaucratic, non-transparent, and ill-managed EU. It wastes resources that could, if employed more wisely, convince European citizens of the benefits of integration. It nurtures a culture of national egoism that stymies rational, efficiency-oriented decision-making on EU expenditures and budget financing.

The Opportunity

  • There is a good chance that the CAP will be revolutionized after 2013 when a new long-term EU budget comes into force. The economic crisis has left a heavy burden on public budgets, strengthening the hand of finance ministers.
  • The ecological crisis requires substantial shifts from wasteful handouts to programs that preserve the climate, biodiversity, soils, and water.
  • The long-term trend of increasing agricultural prices and incomes weakens the case for income-supporting subsidies that do not promote the provision of public goods.

The Solution

  • European money should only be spent on European public goods. If agricultural policies do not have positive effects that spill across national borders, they should be fully financed by the member states that are in a better position than the EU to pursue local preferences with financial responsibility.
  • The focus of the CAP should be on environmental objectives, such as biodiversity protection, climate change mitigation and responsible water management.
  • Accordingly, the CAP budget should be significantly reduced. The first pillar of the CAP should be progressively abolished and many policies under the second pillar should be removed.
  • EU oversight of national farm policies should be strengthened to avoid subsidy payments that distort competition or hurt the environment.