business economic policy international europe house believes eu should abandon

The costs of starting and maintaining business in agriculture vary among European countries as well – the costs of additional materials can be much cheaper in for example Poland than in France. The costs of life vary among European countries as well. Subsidies which are sufficient for Polish farmers to live a decent life are simply not enough for French one. If one of the reasons behind this policy is to preserve traditional ways of life, then part of the role is to keep farmers out of relative poverty as well.  Also the current reform of CAP address these issues – the conditions for all countries should converge in the next years as there is a change replacing the Single Payment Scheme with a basic payment scheme. [1] It is a matter of setting the system right – not giving up on it altogether. Even for farmers in discriminated countries, it is far better that they receive some benefits than no benefits at all.  [1] European Commission, ‘establishing rules for direct payments to farmers under support schemes within the framework of the common agricultural policy’, Europa.eu, 19 October 2011,  p.7

It is unfair to new members of EU  Not only are the largest recipients of CAP western countries – France, Spain and Germany - also the payments per hectare of arable lands differ significantly between new and old members of EU. The new members of EU with their economies often struggling and more dependent on agriculture (as is the case of Poland, Bulgaria or Romania) need more monetary support compared to their western counterparts to produce food of same quality and be competitive in EU market. However, the payments for hectare of land vary from 500€ in Greece to less than 100 € in Latvia. [1] These different conditions undermine the EU’s ethos of fairness and equality of countries.  [1] EurActive, ‘Eastern EU states call for ‘bolder, speedier’ farm reforms’, 14 July 2011,

Developing countries often face a problem when the local people simply cannot afford food (for example as a result of drought or floods destroying local crops) – thus giving them food for greatly reduced price helps a lot of people to survive at day to day basis. Even for farmers they are unlikely to grow the full range of crops so benefit from being able to obtain cheap foodstuffs. These countries can also if they wish control their import tariffs to ensure that the price of European food is comparable to local one – it is not that they are entirely helpless. The local producers have other benefits given by European Union – reduced taxation on exported agricultural products and development help – which help to compensate for these possible detrimental effects. Even without these programs, EU is still the biggest importer of foodstuff from the developing world by a big margin – therefore in balance the developing countries still receive more than lose by these seldom exports from EU.

CAP is costly and unfair to other industries  Currently CAP costs the European Union approx. 40% of its whole budget. However, this money is used to provide subsidies for industry that only employs less than 5 % of workforce and creates less than 2 % of GDP. [1] We can easily assume that nearly half of EU’s budget can be used more effectively and can, instead, be used to support other, more potential industries which can boost the currently sluggish economic growth. Moreover, the subsidies for European farmers are so high they can contribute up to 90 % of farmers’ pre-tax income. [2] No other industry has such privileges – when European coal and iron industry became uncompetitive and needed to be slimmed down, the European union did not subsidise the industry to such degree even though such action could have saved thousands of jobs.  [1] Charlemagne, ‘Milking the budget’, The Economist, 22 November 2012,   [2] The Economist, ‘Europe’s farm follies’, 8 December 2005,

The importance of agricultural industry cannot be valued on the merit of how much percent of GDP it creates. It is one of the industries that are vital for the society as whole – without food the society cannot properly function. In the case of complicated world we are now living in food security – the ability to be self-sufficient in producing food at least to some degree – is important. Also agriculture is not the only industry which is subsidised – the subsidies to other industries such as coal and steel come directly from member states’ budget and not EU’s. Thus for example Germany subsidizes car production by about $1300 per vehicle. [1] The 40% figure is therefore deceptively high as it is the only industry through which subsidies go through the EU budget rather than individual member states.  [1] Davison, Remy, ‘Far from pole on car subsidy grid’, Business Spectator, 26 July 2013,

Even the larger companies can have difficulties in a market in which their consumers, the supermarkets, have so much power over prices. The result is often that supermarkets buy their produce at below the cost of production – as is happening with milk in the UK where it costs 30p per litre to produce but they are only being paid 25p per litre. [1] The costs of producing food in Europe even with mechanisation can be high because of the expensive workforce, and smaller farms on average than in the US. Therefore subsidies to larger companies are needed to keep even larger farmers in business. Often the larger companies involve smaller producers who produce the original, unique specialties and enjoy the stability of larger firm. It is hard to say that support of these companies is not useful.  [1] BBC News, ‘Q&amp;A: Milk prices row and how the system works’, 23 July 2012,

It harms the economies of developing world  The current model of CAP results in major oversupply of food and beverages. In 2008 the stockpiles of cereals rising to 717 810 tons while the surplus of wine was about 2.3 million hectolitres. [1] This excess of supply is then often sold to developing countries for prices so low that the local producers cannot cope with them. The low prices of European food can be attributed to the higher efficiency of producing food because of use of advanced technologies as well as the CAP. Agriculture makes a small fraction of GDP in Europe, but in developing countries of Africa or Asia it is entirely different with large numbers dependent on much smaller plots of land. Hence, the consequences of CAP and high production in the EU can be the rise of unemployment and decline of self-sufficiency of these affected countries.  [1] Castle, Stephen, ‘EU’s butter mountain is back’, The New York Times, 2 February 2009,

It doesn’t serve its purpose (subsidies to larger farmers)  The CAP as originally proposed was aimed to support small, local, family farmers which have difficulties with sustaining their business in competitive environment. The conference in Stresa in 1958 that helped define CAP’s objectives stated “Given the importance of family structures in European agriculture… all means should be taken in order to strengthen the economic and competitive capacity of the family enterprise.” [1] However, the current model of CAP gives direct payments to farmers according to area of their farms. That means that the major recipients of CAP are actually the biggest players in agricultural industry. According to Economist, 80 % of the subsidies go to 20 % of the richest farmers. [2] Therefore, the money is spent to support large companies and wealthy landowners who could easily compete in EU market even without such abhorrent support from EU taxpayers.  [1] Knudsen, Ann-Christina, ‘Romanticising Europe? Rural Images in European Union Policies’, Kontur, no.12, 2005,  p.52  [2] The Economist, ‘Europe’s farm follies’, 8 December 2005,

The standards of quality can and are checked for imports. Only food, produced without potentially harmful agents and in a certain way, can be sold on European market. The fact that food was not produced in EU does not mean that food is of lower quality, or that there are fewer checks to ensure their quality. In a recent years there were many cases when the food produced in EU was not what it should be – horse meat scandal in 2013 [1] or scandals in Poland with rotten meat. [2] The CAP and EU are not enough to ascertain the quality of produced food and therefore it is unreasonable to follow this argument.  [1] Meikle, James, and McDonald, Henry, ‘Cameron tells supermarkets: horsemeat burger scandal unacceptable’, theguardian.com, 16 January 2013,   [2] UPI, ‘Europe’s food scandals multiply’, 8 March 2013,

In the current interconnected world it is hard to imagine a situation when the EU will be unable to buy enough food for its citizens on the global market. Countries of the EU are among the richest in the world and have enough soft power to negotiate favourable terms of trade from developing countries in nearly any situation. [1] Even if the subsidies created by CAP were abandoned, the agricultural industry will hardly be decimated. The numbers of farmers may decline, there would be consolidation into bigger farms, however there always will be markets where European food will be sold – due its regional specifics, high quality or simply patriotism, when people buy food produced in their own country to support it.  [1] Zahrnt, Valentin, ‘Food Security and the EU’s Common Agricultural Policy: Facts against fears’, Ecipe Working paper, No. 1, 2011,

It protects rural communities  People in EU are hard to convince that staying in rural areas and working as a farmer is a viable life choice. The profit is often low, the starting costs are high and work is hard. The income of a farmer is usually around half of the average wage in a given country and the number of these farmers fell by 20% in the last decade. [1] By having CAP we have an additional incentive for the people to stay in villages. The direct payments help the people with the starting of business, subsidies helps them to sell their goods at reasonable prices. The process of urbanisation is at least slowed and that, by extend, helps to preserve traditional culture of such communities and thus diversity of European culture itself.  [1] Murphy, Caitriona, ‘Number of EU farms drops 20pc’, Independent, 29 November 2011,

CAP protects the quality of the food in EU  The role of CAP is to produce food at affordable prices while maintaining its quality. By having policies which favour agriculture in Europe it is easier to control the quality of the food, maintain it and also support the diversity of the food produced in EU. [1] The goods imported from developing countries are often not produced under such scrutiny as are those in EU. In EU the quality standards of production are one of the highest – the hygiene, the amount of additives in products – all these are set and controlled by the EU. The result of it is that European citizens eat healthy food of high quality which is still affordable – mainly due to subsidies and payments obtained via CAP.  [1] European Commission, ‘The Common Agricultural Policy A partnership between Europe and Farmers’, 2012,

CAP maintains European food security  The subsidies to agriculture are important for maintaining self-sufficiency to enable Europe to feed its own citizens. In the world of fluctuating markets, global climate change, commodity crisis such in 2008, the state intervention is even more important because that means that the needed goods can become unavailable. Without EU’s help the prices can fluctuate wildly which can be of concern mainly for poorer parts of EU, where the major part of household spending is still food and non-alcoholic beverages. To prevent this kind of situations only the continent-wide policy can be an effective measure. The markets of other countries can compensate losses from others and vice versa. The result of a secure supply of affordable food has been that the amount an average EU household devotes to food has halved since 1960. [1]  [1] European Commission, ‘CAP – how much does it cons’ ‘Food Prices’, ec.europa.eu,

We can see from continuous decline of farms in Europe that the CAP has been ineffective in creating enough incentive for people to stay in villages and farms. And it is doubtful if even the reform of CAP can change this situation. In the last 40 years CAP was reformed in one way or another however the declining trend has still continued. It is reasonable to assume that leaving the agricultural sector without state interventions (which are basically CAP) will eventually result in some sort of stable equilibrium emerging with farmers who can make money from farming, or other activities remaining without subsidy.