PART II. HOW DOES THE CAP ASSIST FARMERS IN EUROPE?
The
Treaty of Rome in
1957
established the general objectives of a common agricultural
policy for its members and the
Stresa Conference in
1958
set forth the principles of the programme. However, the specific
instruments needed to implement the programme were established
later. These were the community fund to finance the common
agricultural policy, known as the
European Agricultural Guidance
and Guarantee Fund or EAGGF, and the regulatory
provisions, known as common
organisations of the market, or COMs. They were
approved in
1960,
and the CAP came into force in
1962.
In
1964,
the EAGGF was divided into two sections, the
Guarantee Section and
the Guidance Section.
A. Financial Solidarity: A Basic Principle of the Community
Financial solidarity means that the costs associated with the
CAP are paid by the European Community as a whole, and not by
individual member states.
Article
34
of
the Treaty of Rome established the funding mechanism for the
CAP, known as the European
Agricultural Guidance and Guarantee Fund. The EAGGF's
resources are provided jointly by the member states irrespective
of who will benefit most from the expenditure on agriculture. In
practice, Germany and the United Kingdom have provided
substantially more funds to the CAP than were returned to
farmers in those countries, while Ireland and the Mediterranean
countries of Spain, Portugal and Greece have been net
beneficiaries of the programme.
The
EAGGF is a part of the general Community budget, the financing
of which is essentially determined by the economic performance
of the member states. This financial solidarity between rich and
less rich member states is one of the Community's basic
principles. It is a prerequisite for a greater degree of
economic and social balance within the Community - an aim which
is coming to play an ever greater role in agricultural policy.
In addition to national financial contributions to the Community
budget, revenue is also derived from customs duties levied by
the Community on imports from non-EU countries. Funding the CAP
has been the biggest single item in the Community budget and is
thus a constant focus of debate when the Council and the
European Parliament make decisions about the Community budget.
Total
agricultural expenditure and its allocation among the various
products and measures are decided upon by the Council of
Ministers and the European Parliament under the general
budgetary procedure. These procedures were strengthened under
the inter-institutional agreement of
29
October
1993
agreed by the European Parliament, Council and Commission, the
purpose of which is to implement budgetary discipline and to
improve the functioning of the annual budgetary procedure and
co-operation between the institutions on budgetary matters. This
agreement renewed the European Council (Heads of State) accord
on budgetary discipline of February
1988
which provided for a ceiling on agricultural expenditure, so as
to link it to trends in the gross domestic product of the
European Union.
Control of agricultural expenditures is therefore a key
objective of EU policy. As a proportion of the total EU budget,
the CAP is on a downward trend - from
70%
of the total EU budget in
1980
to around
48%
in
1995.
Each year, a preliminary draft budget from the Commission states
expected requirements. All new decisions and proposals which
form part of farm policy are examined as to their financial
implications, but it is not always possible to avoid a gap
between appropriations voted and actual requirements. Production
trends in the Community, world market prices and exchange rates
cannot be forecast precisely.
Spending on the price and market policy is called
compulsory expenditure.
The Community has to make available the resources necessary for
ensuring the operation of the common agricultural policy. Thus
the continuity of agricultural policy is ensured. The EAGGF
provides a stable framework, making possible the long-term
realization of the Community's farm policy.
The Guarantee Section: Financing the Policy on Markets and
Prices
The
European Agricultural Guidance and Guarantee Fund comprises two
parts. The Guarantee Section finances Community expenditure
under the policy on prices and markets, including CAP reform
compensatory payments and the accompanying measures. By far the
greater part of EAGGF expenditure goes on the
Guarantee Section -
about
90%
in
1995
- about half being spent on direct payments to farmers. As a
result of the CAP reforms, the Guarantee Section has had to fund
other measures, such as the set-aside provisions, income support
and environmental protection. Agenda
2000
transferred support for structural and some rural development
measures to the Guarantee Section as well.
The Guidance Section: Financing the Structures Policy
The
Guidance Section
contains the Community resources allocated to the structures
policy, such as aids for the modernization of holdings, the
installation of young farmers, aids for processing and
marketing, diversification and so on. Together with the European
Regional Fund and the European Social Fund, it also finances
rural development actions. Planning and execution of these
measures is fairly decentralized, in co-operation with the
individual member states or regions, and the principle of
co-financing applies. About
10%
of the total farm budget is allocated to the Guidance Section.
B. Common Organisations of the Market (COMs)
Article
34
of the Treaty of Rome called for the establishment of
common organisations of the
market, which are sets of regulations covering
individual agricultural products, that apply to all member
states. The COMs replaced the national market organisations,
which were in existence when the EU was formed, or when new
states joined the union. The intent of the market organisations
was to create a mechanism to achieve the objectives of the
Common Agricultural Policy, i.e. to stabilise markets, to
provide a fair standard of living for farmers, and to increase
agricultural productivity.
The
Common Organisations of the Market are set up at the highest
level of the EU. They are proposed by the European Commission
and approved by the Council of the European Union. Once a COM is
approved, the EC sets up the implementing mechanisms, assisted
by a committee.
The
COMs regulate the production and marketing of about
90%
of all agricultural products in the European Community –
including cereals, pig meat, eggs, poultry meat, fruits and
vegetables, bananas, wine, milk products, beef and veal, rice,
oils and fats (including olive oil and oil plants), sugar,
flowers, dry fodder, processed fruits and vegetables, tobacco,
flax and hemp, hops, seeds, sheep meat, goat meat and other
products. (There are currently no COMs for potatoes or alcohol.)
Depending on the product, the COM may consist of common rules on
competition, compulsory co-ordination of the various national
market organisations, and/or a European market organisation.
They set forth the socio-structural policy coordinating the
process of adapting farm structures. They may cover production
techniques, farm sizes, training for farmers and other matters.
COMs are set up for each product and run for each marketing
year.
Operation of the Market Organisations
The
tasks of the market organisations are to fix single prices for
agricultural products on all European markets, grant aid to
producers or operators in the sector, establish mechanisms to
control production and organise trade with non-member countries.
Farmers are encouraged to form producer organisations. Other
provisions regulate state aids for these products and relations
between the member states and the Commission.
As
indicated, COMs vary according to the product. Based on a single
market, they guarantee prices for more than
60%
of agricultural output. COMs featuring EU intervention to buy up
surplus production, and external protection against lower-priced
imports cover products such as cereals, rice, sugar, milk and
milk products, beef and veal. Other COM regimes include:
-
prices support and direct aids (cereals, durum wheat, olive
oil),
-
only direct aids (oilseeds, flax, hemp and cotton),
-
import protection and export assistance (poultry and eggs) and
-
regimes which provide only import protection (some fruit and
vegetables).
Control of Prices
The
European Council, acting by a qualified majority on a proposal
by the Commission after consulting Parliament, fixes three
different hypothetical prices for products at the beginning of
each marketing year: the indicative price, the threshold price
and the intervention price. Marketing years begin on different
dates depending on the product and last for twelve months. The
three price levels are explained below:
-
the
indicative price
(also referred to as the basic price or guide price) is the
price at which the EU authorities believe that transactions
should take place. Although it is artificial, the indicative
price is close to the price which the products would normally
command on the Community market.
-
the
threshold price
is the minimum price at which imported products may be sold.
It is higher than the intervention price and encourages
Community economic operators to buy within the Community, so
respecting the principle of Community preference.
-
the
intervention price
is the guaranteed price below which an intervention body
designated by the member states buys in and stores the
quantities produced. In order not to burden the Community
budget, the Council encourages private storage by granting a
premium to producers who store products themselves. Since the
1992
reform, higher direct payments are made to farmers in some
sectors to offset lower guaranteed prices.
The
Types of Aid and Premiums Granted
Aid
is granted in the form of area payments, production aid, aid to
encourage livestock-farming and compensatory payments. Financial
assistance may also be provided for the marketing of production,
to increase competitiveness and for the establishment and
operation of groups of producers or operators in the agri-foodstuffs
sector. Aid may also encourage the abandonment of certain types
of production or the conversion of land and/or holdings. Market
support measures are adopted if animal diseases break out.
Controlling Production
Systems of quotas and national guaranteed quantities permit the
control of agricultural production and the limitation of surplus
production and storage. The setting aside of land and the
allocation of compensatory payments also prevent
over-production.
Quotas
are the maximum production quantities allocated to farmers.
Over-production results in financial penalties.
The
national guaranteed quantities
allocated to the Member States are maximum production
quantities. If they are exceeded, producers must pay a
co-responsibility levy. The intervention price for the following
marketing year is then reduced.
Set-aside
and diversification into non-food
products are intended to take
agricultural land out of cultivation or diversify production
(production of raw materials for biomass fuels for example) in
exchange for financial compensation.
Compensatory payments
top up farmers' incomes and are granted on the basis of the
number of animals and/or the area cultivated.
Trade
with Non-member
Countries
Trade
with non-member countries involves imports of products into the
Community and exports of Community products to other countries.
Adjustments have been adopted to encourage the export of
processed products.
Imports
Importers may be asked to produce an import licence and to pay
an import levy. If the Community market is severely disturbed,
the Commission has the power to take safeguard measures.
Import licences
are issued by the competent authorities of the member states
after a security has been deposited. The security is returned to
the importer after he demonstrates that he has fulfilled his
obligations.
A
single levy system
on entry into the European Union has been introduced for most
products to ensure that import prices are not less than those in
the Community. Some products are simply subject to the rates
laid down in the common customs tariff while others are exempt.
There are also mixed systems. Taxes having an effect equivalent
to customs duties and quantitative restrictions on imports or
measures having an equivalent effect are prohibited in trade
with non-member countries.
As a
result of the Union's international commitments in the World
Trade Organisation or its relations with non-member countries or
groups of countries, the import of certain products may be
subject to quotas or preferential tariffs may be granted on
imports. Imported products are partially or completely exempted
from all customs duties. Tariff quotas, which fix the quantity
of products subject to exceptional arrangements, may be granted
using the first come/first served method, simultaneous
examination, traditional operators/new operators or other
non-discriminatory methods.
Safeguard measures
as severe as the suspension of imports may be taken if there is
a danger that the Community market will be seriously disrupted
by imports or, in certain cases, exports. The Council, acting by
a majority on a proposal from the Commission and after
consulting Parliament, establishes the general rules on the
safeguard measures, which the member states may take.
Exports
Community producers who export to the rest of the world may
receive EU refunds that subsidise European exports so that their
prices are brought to the level of world prices. In principle,
the amount of the refund is always the same but it may vary
depending on the destination of the product or economic
conditions. The issue of an export licence may also be made a
condition for receiving a refund.
Processing
The
EU may prohibit the use of both inward and outward processing
arrangements. In inward processing, a product imported from a
non-member country may be processed in the EU without payment of
customs duties provided that it is re-exported. Outward
processing involves goods that are temporarily exported to a
non-member country for processing prior to re-import without a
levy.
Producer Organisations
Farm producers
are encouraged to join together on a voluntary basis in
producers' organisations so that can make best use of the
resources allocated to them and achieve the objectives of the
market organisations (improved productivity and marketing and
greater attention to the environment). The EC provides financial
incentives for the establishment of such organisations.
Classification of the Market Organisations
There
are four types of market organisations, as summarized in the
table below. Some organisations involve mechanisms for
production premiums and intervention, others use a simple
intervention system, some merely provide production aid or just
provide the products concerned with customs protection.
|
Types of market organisations: |
Products covered: |
|
Intervention and production aids |
Milk and milk products (from
2005),
beef and veal, rice, olive oil, cereals, sheep meat, oils
and fats, raisins |
|
Intervention |
Sugar, milk and milk products, wine, pig meat, fresh fruit
and vegetables |
|
Production aid |
Flax and hemp, dried fodder, processed products based on
fruit and vegetables, tobacco, hops, seeds, goat meat,
bananas |
|
Customs protection |
Poultry meat, eggs, other fats, live plants and flowers,
products for which there is no market organisation
|
C. STATE AID UNDER THE CAP
Although the funding of the Common Agricultural Policy comes
from the European Union, payments to producers are made by the
relevant national agencies of the member states. CAP funds flow
from the EU according to annual budget allocations to each
member state. Each country in turn has established its own
internal procedures for implementing the provisions of the CAP
and distributing the subsidies to their farmers. State aid is
governed by Article
87
of the EC Treaty and EC Regulations. The common market
organisations (CMOs) for each product provide for the
application of the state rules of Articles
87
through
89
of the Treaty to each product.
In
1999,
the
Εuropean
Commission adopted comprehensive, new Community Guidelines
governing State aid in the agricultural sector that became
effective on January
1,
2000.
These guidelines take into account new developments in
agricultural policy and especially of the need to improve and
promote the quality of agricultural products while preserving
the environment and the traditional heritage in the countryside.
All
State aid for the agricultural sector must be compatible with
the Community's common agricultural and rural development
policies and with the Community's international obligations, in
particular the WTO Agreement on Agriculture. State aid, which
interferes with the mechanisms of the common organisations of
the market, is prohibited. Furthermore, in accordance with the
principles laid down by the Court of Justice, State aid must
make a real contribution to the development of certain economic
activities or certain regions. State aid, which is simply
intended to improve the financial situation of the recipient,
without any counterpart from the beneficiary, cannot be
considered compatible with the EC Treaty. |
