The Contradictions of the CAP

The Common Agricultural Policy has been introduced in a technological era ensuring high yields. With the introduction of high price subsidies, the producers have raised agricultural cultivation according to their likeness. There has not been a single country in the world being able to accomplish its promise given to farmers on price subsidies, when there was a shift in agriculture to a high standard of technology. It is also true that the Common Agricultural Policy has been originally based on stable European yields but the

“Green Revolution” in the 1960s even reached the peasantry of the third world countries, not to mention the skilled farmers of the EU.

The agricultural policy of the EU has encouraged farmers to produce increasingly higher production-surpluses and the surpluses could have been sold to the third world countries just with export subsidies. This attitude has caused significant conflicts in the international trade between the EU and the other agricultural exporter countries (especially the USA), which has tolerated the CAP’s market-distorting activity less and less ( the price depression of the world market prices, the ruthless grant competition and the open or hidden protectionist measures hindering import). All of these facts have impeded the removal of commercial obstacles in agriculture, which led to the negotiations of the Uruguay Round under the GATT in 1986 (Kiss, 2002).

The high intervention prices-paid for the farmers in the EU- has resulted an expensive overproduction and within the agricultural sector the income differences have largely increased, because eighty percent of agricultural subsidies-similarly to the USA–have been received and are received also at present by the largest and most productive farms. This way, the CAP’s programmes on agricultural subsidies have not proved to be efficient in order to maintain small farms. Most of the holdings have a relatively small size, they produce only few commodities to the market and therefore they have received/receive low price subsidies.

This is the reason why, the EU’s agricultural policy has to be judged not on the basis of the period following the Second World War but according to the requirements concerning the 21^st century.

The Common Agricultural Policy has not prevented the exodus of farmers from agriculture; high price subsidies have favoured the most productive holdings with a high technological level, which have gradually bought up the small holdings being not able to exploit the advantages of technical development and intensive cultivation.

In modern societies, the number of farmers and their rate related to the number of all employed people are defined more and more by the income opportunities out of agriculture. The number of people living in the country or on farms depends on rural life-style and on the value of local connections. Mainly those farmers leave agriculture who are the most skilled ones and find attractive jobs outside of the agricultural sector. Those farms, which offer economical possibilities for a shorter period and with a lower standard of living than urban workplaces are left by agricultural growers by all means.

The farmers of the EU have relentlessly confronted with the liberalisation of the agricultural trade. It must be noted that the agricultural growers, of those developed countries having relatively high agricultural subsidies, (like the USA, Canada and Japan) have also objected the liberalisation of agricultural trade, but their political resistance-compared to the farmers of the EU- has been a lot weaker. The CAP’s reform in 1992 can be linked to the decisions of the GATT started in 1986 at the Uruguay Round, which aimed to reduce agricultural subsidies (internal and export supports) in a great extent. Since the reform of the CAP in 1992, the majority of agricultural subsidies have been used for supporting directly the farmers’ income instead of guarantying the prices, storing overproductions and subventing exports. To curb internal growing has been achieved with encouraging set-asides and with the reduction of interventional prices. (Szabó, 2001).

The Common Agricultural Policy has not helped nature and environmental protection either because high price subsidies have led to the rapid development of larger holdings. The intensification of growing has resulted of course serious environmental damage. The CAP’s subsidies on environmental protection-besides external cultivation, nature-and landscape-conservation and environmental care-extend also to the utilization of the previous agricultural areas for a non- agrarian purpose, like: culture, sports and recreation, which serves directly the income support of small lands. (Halmai, 2002). This is not really appealing for large farms growing to the market, whose interests have been originally represented by the CAP because it hinders the formation of larger holdings and restrains the improvement concerning the efficiency of cultivating factors. Besides all of these, it can be observed that the traditional dwelling-houses of the farms will be left behind and rural settlements can be depopulated. The question can come up at what expenses have been successful or not successful to make farmers stay on their lands.

It has just become clear in the recent years that the rising population of the world means actually a smaller challenge than it had been expected earlier by many people. To satisfy the demand growth of the third world countries for protein (meat, milk and egg) can be regarded a much greater task, mainly in Asia. If in the EU, extensive agricultural growing meant the environmental model of the 21^st century, then- in spite of Europe’s excellent agricultural conditions- in the other parts of the world the destruction of rain forests would continue in order to obtain production areas only suitable for extensive agricultural cultivation.

European environmentalists are often criticised that they do not take the problem of global environment protection into consideration and they only deal with the preservation of the own rural landscape. There are many who raise the attention to the fact that free trade can destroy Asian small farms. Although, the world has enough good quality production areas in order to satisfy the food- requirement of the population. Asian small farms

can also increase growing quickly if the new industries and services- similarly to Europe- will absorb the unnecessary agricultural workforce.

The EU strives for preserving and enhancing natural resources in the 21^st century, which goes hand in hand with greater responsibility on the fields of agricultural growing and environmental management. However, the experiences of the Common Agricultural Policy show that nature-and landscape protection cannot be successful with the recent subvention policy. On the other hand, productive farms do not give such a picturesque view, which would justify receiving a large amount of public money in order to preserve the rural landscape. The market of organic products is too small at present for realising more serious extra incomes. Globally, the share of organic products in food supply means 1%, in the EU it amounts to 3% and according to forecasts in the next decades it can only grow to maximum 20%.

The productive large farms in the EU contribute to satisfy the world’s rising food requirements, they play an important role in the life of rural regions and from the respect of environment protection, they serve the saving of tropical rain forests (because the increasing food supply-in an indirect way-reduces the grubbing of rain forests for the purpose of agricultural cultivation). The future of large productive farms in the EU as well depends on the further liberalisation of the agricultural trade. The support of small holdings within the frame of rural development policy does not threaten the liberalisation of agricultural trade because these are direct subsidies intended for landscape protection and for non-agrarian purposes like: relaxation, entertainment and sport in case of some specified areas.

In spite of high agricultural support the desired rural landscape could not have been achieved in the EU. The direct income compensation contributes to the maintenance of the landscape and it can stimulate landscaping as well. Although, it is worth mentioning that the formation of a spectacular landscape belongs rather to the category of life-quality and not to global environment protection. Organic farming also contributes to landscaping and it means an important service for those customers who acknowledge the higher expenses of the workforce in the prices of organic products. However, the support of land preserving programmes has to be judged with caution. These programmes mainly help the regions to retain their population because they have disadvantageous growing conditions but are rich in natural beauties and traditions. In spite of the fact that landscape protection is not really a task belonging to agricultural policy it can be inserted into the structure of land use policy (Avery, 1997).

The Agenda 2000 has treated the increased support of the rural areas with priority. It is an issue of consideration what can be achieved under the expression of rural development with reasonable supports. It has to be remarked that it has not been successful to accomplish serious results with rural development policy globally either (the result can be compared to foreign aid programmes).It is a noble aim striving to strengthen agricultural areas to be able to retain their population but this cannot hinder-just slow down-the exodus of rural inhabitants into towns. This process is also inexorable even in the USA having the most developed rural infrastructure in the world (see; the differences of per-unit earnings and the possibilities and facilities for spending free time in towns and villages etc.). This does not mean that there is no need for rural development but we have to stay on the ground of reality concerning possibilities and expectable results.

In the EU, productive farms are the most affected concerning the future tendency of land prices. The straight consequence of agricultural subsidies is higher land prices because with the guarantee of incomes, the risk will be lower and the value of lands go up. In the EU, the high agricultural support has been embedded into the land price and it has resulted

almost unaffordable land prices. If we compare the land prices of different countries, huge differences can be seen. The decrease of the land prices also means that the mortgage value of agricultural mortgages goes down as well; however the amount of loan payments remains unchanged (Table 4.2.). This is the reason why during the reforms of agricultural policy, it has been an important aim as well to achieve that the decrease of land prices should happen gradually. (For example: supporting with a descending pace)

In Australia and Canada, production areas receive little rainfall and population density is low, therefore relatively low land prices have been created. In New-Zealand—due to the greater dairy product export to Asian countries–recently, there has been an increase in land prices. On the other hand, agricultural areas in Japan are very scarce; therefore the prices at the land market are very high (Table 4.1.). Besides the above listed facts, land prices in different countries are mainly influenced by subsidies. The liberalisation of agricultural trade means that presumably land prices will rise in Argentina but in Japan and in the EU they will fall (the European market because of its geographic proximity- is a large outlet from agricultural produces–– however with the liberalisation of agricultural trade the land prices will be still higher in the EU than for example in Argentina.

Table 4.2. The price of agricultural land in certain countries (in the 1990s)

Country USD/hectare

Japan 250 000

Netherlands 23 500

Germany 19 800

New-Zealand (grazing lands) 16 100

United Kingdom 11 400

The USA 6 200

Australia 4 200

Canada 3 000

Argentina 2 100

Source: Knight-Frank Property Management. United Kingdom (1996)

In the EU, the price of agricultural areas in hectares (arable lands in some member countries) showed great differences in 2009 as well. Traditionally, land prices were the highest in the Netherlands, where it has exceeded the amount of 47 thousand euros per hectare. The land price in Sweden amounted to just a fragment of this (3.7 thousand euros/hectare) but in France we can speak also about relatively cheap land prices. (5 thousand euros/hectare). Land prices have risen in every Member State between 2000 and 2009 (there are not figures available for all member countries). In Denmark, Sweden, Spain and Belgium there has been a significant increase in the price. (Table 4.3.).

In the EU as well, in order to outweigh descending land prices, farms are compensated as the consequence of the withdrawal of supports having applied in the past. (CAP reform 1992; Agenda 2000; CAP reform 2003; Health Check 2008). However, in practice we can see rising land prices, therefore the treatment of the transition- between the previous high price subsidies and the future export-oriented policies- needs a rational approach, in spite of the fact that farmers had to give up a lot of allowances. The problem can be solved in a policy context

but without compensation, agricultural producers oppose any legal and policy-based changes.

The given (temporary) support, in order to compensate descending land prices, appears to be relevant; however, the practice shows a different picture, therefore the reduction of subsidies seems to be appropriate for the sake of liberalising agricultural trade further.

Table 4.3. Land price tendencies in the EU (2009)

Member States Land price(euro/hectare)

2000 2009

Belgium 21 069 27 190

Denmark 10 330 25 919

Germany 9 081 8 909

Lithuania 294 971

Spain 7 292 10 465

France 3 613 5 130

Ireland 12 816 16 230

Italy 13 653 -

Luxemburg 15 195 20 000

the Netherlands 35 713 47 051

Czech Republic 1 555 2 249

Slovakia 895 1 256

Finland 3 932 6 855

Sweden 1 898 3 747

England 11668 12 441

Source: Land prices and rents. Statistical and economic information 2012, Eurostat, Luxemburg,

4.4.Direct Supports Under the Agenda 2000 (standard system)