CAP Price Support

The Common Agricultural Policy

The Common Agricultural Policy consumes a large part of the EU budget, through the  European Agricultural Guidance and Guarantee Fund (EAGGF). The Guarantee element finances the expenditure on market organisation and rural development measures.  The Guidance element finances other rural development expenditures.

The fund is administered by the Commission and by member states.  Institutions within states are designated for the administration of the CAP on behalf of the Commission. Paying agencies are approved, which deal with claims, compliance with rules, ensure payments are fully an effectively recorded, and where necessary, that documentation is procured. The states must account to the Commission for their authorities and payment agencies that administer the CAP.

The resources required to fund the CAP is made available to the member states by the Commission by means of advances.  The Commission reimburses the expenditure incurred by the states.  The states forward account for their expenditures to the Commission with proof regarding its accuracy and completeness.  The Commission presents a report on the administration of the fund to the Council and the Parliament in each year.  The fund is financed from the European Union’s own resources by way of contributions from member states and VAT.

The rules of competition apply to agriculture but with modifications.  They do not apply to agreements and practices that are an integral part of the market organisation that are necessary for obtaining the objectives of the Common Agricultural Policy. They do not apply to agreements between farmers and farmers’ associations provided they do not include an obligation to charge identical prices, exclude competition or jeopardise the objectives of the CAP.

The European Commission can take emergency measures against market disturbance caused by significant price fluctuations or when there are threats thereof. It may also take action to deal with the market impact of measures taken to combat the spread of animal diseases or serious market disturbances caused by a loss of consumer confidence as a result of public, animal or plant health and disease risks. In case of major market disruptions, the reserve for crises provides additional support to finance these measures.

Reform of the CAP

The Common Agricultural Policy has been progressively reformed since the early 1990s.  Price supports have been reduced with the substitution of direct aid for farmers.  This has culminated in the single farm payment provision in 2005.

There were formerly a number of separate regulations dealing with the common organisation of markets in various agricultural products.  Most of these have been amalgamated into a smaller number of regulations.

The common market organisation regulation covers 21 markets.  They provide a single framework governing the domestic market and trade with outside the EU.  They govern public intervention in the market.

There are provisions for public intervention, where products are purchased and stored by EU governments or their agencies until their disposal, and aid granted for the storage of products by private sector organisations.

A reference price is fixed by specified certain methods.  The intervention price is specified in relation to the reference price.  Prices are specified for cereals, beef and veal, milk, butter, skimmed milk powder, pig meat, cereals, paddy rice, rice and raw sugar. The EU may purchase products where their price falls below the intervention level. Disposals of products from intervention must ensure market stability and equal treatment of buyers.

Private storage aids are provided for certain products such as cream, cheese, and butter.  It is also possible for other products.

National production quotas are fixed for sugar and formerly for milk.  States then distribute these quotas products between undertakings.  Regulations specify the method of transferring quotas between undertakings and the management of surplus production.

The EU may establish standards for the marketing of products. In certain sectors, producer organisations may be established subject to compliance with certain conditions.

The system of milk quotas expired on 31 March 2015 and sugar quotas ended in 2017, allowing EU producers to be more competitive both domestically and globally.

The system of vine planting rights expired at the end of 2015. A system to authorise new plantings applies from 2016 until 2030, which provides for an increase in the planted area of up to 1% per year.

Imports and Exports

Import and export licences are generally required to support the price levels.  Import licenses are required for most products including cereals, sugar, bananas, live plants, beef and veal, pig meat, sheep meat, goat meat, poultry meat, milk products, eggs and agricultural ethane, ethyl, alcohol.  Import duties apply in the Customs Tariff.  Quotas are managed by the Commission and administered so as to avoid discrimination. The Commission may take steps to restrict imports in the interest of the market organisation

Export licences are required for products, in particular, cereal, rice, sugar, beef, veal, pig meat, sheep meat, goat meat, poultry meat, milk, milk products, eggs and agricultural ethyl, alcohol sector.

Exports may be supported by export refunds which cover the difference between global and EU prices.  This may differ depending on the destination.  They are adjusted regularly in light of community and global market developments.

The EU may take other measures through the Guarantee Fund.  They may, for example, involve meeting part of state expenditure in respect of program such as for animal disease, and measures to encourage adjustment in the supply market.

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