All member countries contribute to the CAP, but not all receive payments from it. In the case of Spain, for example, contributions amount to around €4.7 billion, but it receives back a total of €6.4 billion – a net gain from the CAP of €1.7 billion each year or a hefty €6,235 to every Spanish farm worker.

So, what’s it all about? Why do we have a CAP? And what does the CAP mean to Spain?

Like many things that subsequently grow like topsy, the CAP started out with the seemingly noble intentions set out in the 1960s Treaty of Rome when the European Union (then the Common Market) was born. A centre-piece of the Treaty of Rome, the CAP, had the following policy objectives:

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To increase productivity
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To guarantee an equitable standard of living to the agricultural population
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To assure supplies to the consumer at moderate prices
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To stabilize the markets
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To guarantee the security of supplies

In order to achieve these ends, what it meant in practice was the creation of an elaborately protectionist system of agricultural production in which Europe would insulate itself from the world food markets and set in motion a complex system of intervention managed from the centre. Prices for European agricultural products became fixed by the Ministers of Agriculture, by way of elaborate “target prices” for each commodity. The target price was shadowed by a slightly lower “intervention price”. If the law of supply and demand determined that the actual price should fall below this level, then the Commission itself would start purchasing that commodity at the intervention price. The intervention price, therefore, was a minimum guaranteed price for farmers. All these operations had to be financed and the finance would have to be also common.

The aim of setting high prices of course was to attempt to maintain the standard of living of the farming population, preventing them falling behind the level of incomes in other sectors of the economy. Previously this had been achieved merely at the national level – with the CAP this policy was Europeanized. What was in fact achieved was that incomes in agriculture continued to grow – no small feat in a period of accelerated industrialisation and urbanisation. However because incomes in the other sectors grew even faster, in fact the gap continued to widen at least for the large majority of farmers.

The CAP set into being a complex machinery of intervention prices, subsidies, and rebates. The farming associations of the respective member states were necessarily called upon to implement these policies. They became executives of the Community besides being executives of national policies. The Europeanization of protection bolstered the power of the agricultural interest groups and strengthened their claim on the resources of consumers and taxpayers.
The result was an agricultural legacy from which Europe is still trying to recover. Despite more or less continuous attempts to reform the CAP – attempts which started almost from the date of its inception and continue to this day – the legacy is with us still.

The legacy is characterized by: massive over-production – since guaranteed prices bore no relation to demand. If prices are set at a high level and the guarantees extended by the CAP are unrelated to output, that provides a strong stimulus for farmers to maximise output. Because yields were also increasing, this led to an inevitable, massive overproduction.

The problem of surpluses also began to emerge, notably of wheat, butter (mainly out of surplus milk production) and beef. Surpluses had to be stored – which was very costly – or eventually sold at a loss on third markets.
The increasing cost of those accumulated surpluses was one of the major impetuses for reform of the CAP. Further spurs to reform came from exporters to the EU who angered in the face of quotas, levies, tariffs in agricultural trade, at a time when they sought to promote open trade and further liberalisation. Non-EU producers were further antagonised by the EU dumping its agricultural surpluses on world markets at distorted prices.

It was the sheer cost of the CAP, however, that made its reform essential. By the 1980s, the CAP was consuming nearly a half of the entire European budget. The current round of reform is enshrined in the so-called Lisbon Strategy, launched by the European Commission on 2 February 2005 and designed to enhance “strong economic performance” with “the sustainable use of natural resources”.

Although the CAP’s drain on the European budget has been reduced from nearly a half, it will still soak up two-thirds of it and the fact remains that European farmers are still highly subsidy dependant and a large proportion of the funds goes to better off farmers. 46% of the total aid goes to arable farmers, most of whom are relatively prosperous. Most worryingly of all, perhaps, given the agricultural dependence of the relevant economies, the CAP has not been reformed sufficiently to take account of the likely consequences of eastern enlargement.

What is it about the Spanish agricultural economy, then, that makes it worth the €1.7 billion each year in net hand-outs from the CAP? Does Europe get good value for money from the €6,235 it effectively still donates each year to every Spanish farm worker?

The simple facts do not paint the picture of a modern agricultural economy worth such an investment. Although in terms of land area, Spain is one of the largest countries of Western Europe, a large part of the country is semi-arid, with temperatures that range from extremely cold in the winter to scorching hot in the summer. Rainfall is frequently inadequate and tends to be concentrated into two generally brief periods during the year. Summer droughts occur often.

The country covers some 50.5 million hectares of land, 20.6 million hectares of which (about 40 percent) are suitable for cultivation. However, the soil is generally a poor quality, and only about 10 percent of the land can be considered excellent. In addition, the roughness of the terrain has been an obstacle to agricultural mechanization and to other technological improvements. Furthermore, years of neglect have created a serious land erosion problem, most notably in the dry plains of Castilla-La Mancha.

At the time of Spain’s accession to the EU in the mid-1980s, the country’s agriculture was more or less self-sufficient, especially in years of good harvest, and practically every year there were sizeable surpluses of Spain’s traditional products of olive oil, citrus fruits and wine. In these products, good harvests allowed sufficient surpluses for export – enough to make Spain the third-largest food exporter in the EU. Although Spain had to import grain for animal fodder when harvests were poor to average, it remained largely a net exporter of agricultural products.

Even so, accession to the EU gave the country the opportunity to benefit from a generous CAP and the protectionism it afforded agricultural producers. In other words, accession to the EU meant that Spanish farmers would also enjoy guaranteed intervention prices for unlimited quantities of eligible agricultural products. EU authorities would purchase, at the intervention price, unlimited excess products meeting minimum quality requirements that cannot be sold on the market.

In many areas of Spain, as in other rural parts of the EU, this represented too good an opportunity to miss. The result was that areas which would otherwise be uneconomic for agricultural cultivation were given intervention prices that were an effective licence to print money.

In Spain’s case, the incentive was even greater, thanks to massive investments in the infrastructure of the agrarian economy also made possible by handouts from Brussels.
Even before accession to the EU, Spain had embarked on its first major river diversion scheme in the 1960s by linking the River Tagus in the west and centre-west to the River Segura in the south-east, thereby transferring (west to east) 600 million cubic metres of water each year.

Thanks to this, and the subsequent incentives afforded by the agricultural protectionism of EU membership, Castilla saw a considerable expansion of maize-growing in the regions along the River Tagus (La Mancha and Meseta). Maize requires a lot of water and to irrigate the 150,000 hectares of maize currently under cultivation there, it is necessary not only to pump water from the Tagus, but also to draw an increasing volume of water from underground wells. At the same time, however, the irrigated areas of Murcia – watered not only by the River Segura, but also that diverted from the Tagus – have expanded considerably.
As a result, therefore, both La Mancha and Murcia have developed agricultural economies growing crops such as maize, alfalfa, potatoes and beans, all of which require copious volumes of water (in La Mancha, for example, to produce just one kilo of maize requires one cubic metre of water). In other words, without EU subsidies it would make little sense to continue growing such crops in a Mediterranean climate.

The example helps to show how the CAP effectively distorts the free play of market forces in agricultural production. This leads to distorted prices, inefficient markets and the diversion of European funds and resources into economically and rationally unsuitable areas of production. Reform has been high on the CAP’s agenda since its inception in 1962. But even the present round of reforms seems unlikely to undo the mindset that has so long encouraged the jealously guarded protectionism of European agriculture.