The European Union is taking steps towards a fundamental overhaul of its Common Agricultural Policy, that is, a policy that accounts for over 40% of its annual budget and is mostly devoted to direct payments to farmers.
The question looming is whether the EU can afford to devote 40% of its budget on 7% or less of its population, especially if it cannot make the case of multiplier effects on positive effects for the environment, social cohesion, and rural development.
In the 1970s CAP represented just under 90% of EU expenditure. Cuts in the 1990s were driven by the expansion of agricultural land by 40% and the farming population by over 6 million that came with enlargement in Eastern Europe.
Direct payments to farmers still make up just under 50% of farmers’ income. However, production has gradually been decoupled from subsidies, placing a bigger emphasis on production standards, including animal welfare and high-quality food.
Following a 2013 deal between the European Commission and the European Parliament, the political intention has been to move towards environmental sustainability and to attract young people. The EU is proposing a €300,000 cap of subsidy per farm, but that is a policy likely to be rejected by the farming lobby.
Focusing on subsidizing land ownership rather than production output leads to less intensive farming and could rebalance the divergence of subsidies between east and west. France is historically the biggest CAP beneficiary, receiving 17% of payouts, followed by Spain (13%), Germany (12%), and Italy (11%).
The political objective of the reforms would be to reduce payouts to bigger farms by at least 30%, a sum that can be redistributed to encourage smaller scale farming. In this respect, the EU is encouraging greater targeting of expenditure by limiting the kinds of land use that can be subsidized, creating a negative list for airports, sports clubs, and trains.
Beyond direct payments to farmers, the EU is currently allocating 25% of its agricultural budget on rural development designed to allow farmers to diversify their income and facilitate environmental sustainability of farming.