- increase agricultural productivity by promoting techical progress and optimizing factors of production
- ensure a fair standard of living for the agricultural community
- stabilize markets
- assure availability of supplies
- ensure reasonable prices for the consumers.
Financing CAP took over 90 % of the yearly EU budget. The budget was divided into support (export subsidies, intervention storage) and guidance (less favourable areas -subsidies, environmental subsidies, investment subsidies).
Pricing system was developed during the 60s. Common target prices were agreed upon, starting with wheat in 1967. The governments of each EU country bought excess products from the producest for a specific intervention price. Producer price, the price gained by the producer by selling their product, varied between the target prices and the intervention price. The world market price was a lot lower than the prices within EU, so import tariffs were set to make it more difficult for other countries to get into the EU markets.
In 1968 the agricultural commissioner Sicco Mansholt demanded the intervention prices are lowered and farms have to grow in size to be competitive. He feared that the current price system would lead to overproduction, since everything produced was also bought. His ideas received heavy resistance from other politicians and farmers.
In 1972 only a fraction of Mansholt's plan was implemented. Mansholt called it "consensus politics overrun economic rationale”. A year later, in 1973, the EU grew for the first time, when Great Britain, Denmark and Ireland joined it. Ireland and Norther England had infertile, rough farm lands, for which a new subsidy was formed: the Less Favourable Areas subsidy (LFA). The number of farmers grew, farms grew in size, and became more productive. As Mansholt had feared, this resulted in overproduction. EU had changed from a heavy importer into a net exporter of agricultural products.
In the 80s the EU expanded when Greece joined in 1981, and Spain and Portugal in 1986.
Limitations to production were set to decrease the overproduction. Milk quota was introduced in 1984and producer co-operation levies were set for sugar and grains. Farmers with over 92 hectares of farmland had to lay 10 % of it fallow. Governments bought some of the overproduce to stores and the rest was exported, but both required vast sums of money as intervention prices and export subsidies.
The EU was producing too much, it's expenses were growing and the negotiations to free agricultural trade were heating up. Agricultural commissioner Ray MacSharry started a reform, which became known as the MacSharry-reform. The price for wheat was decreased 35 % during 1993-1995, but new subsidies compensated the entire economical loss for farmers. Countries with largest yields (largest losses due to the price cut) received the largest subsidies: In 1999, The Netherlands received over 350 euros / ha and Belgium 340 euros/ha, while Spain got only 140 euros/ha. 20 % of all the farmers ended up receiving 80 % of the subsidies.
EU expanded again in 1995 when Finland, Sweden and Austria joined it. It was agreed that new member nations can use their own natinal budget to support their agriculture - this was not allowed in old member countries. A new reform, Agenda 2000, was being planned for 2000-2006.
Agenda 2000 was to separate developing the countryside from developing agriculture, and to emphasize environmental issues. Agenda 2000 aimed at improving competitiveness by decreasing prices, ensuring the quality and safety of food and quaranteeing a fair income for farmers. Prices were decreased 15 % for wheat, 20 % for beef and 15 % for milk. Milk quota and the requirement to set aside farmland remained. The price cuts caused monetary losses to farmers, but this time they were only partially compensated with subsidies.
Agenda 2000 was noticeably more difficult to set up than the previous reforms, because EU had expanded very much. The member countries had many differences, and there was great variance in:
- importance of agriculture
- structure of agriculture (farm sizes, crops grown, products produced)
- importance of sustainability vs intensive production
- importing vs exporting agricultural products
- amount of money paid/received from EU