Establishment of the Common Agricultural Policy (CAP) was the price exacted by France from all other countries involved in the formation of the Common Market, to buy off the powerful French agricultural interests of the time. To protect French agriculture, France insisted on a regime being established, paid for out of the central Common Market budget, designed to keep prices for agricultural products at high levels, whatever happened to food production costs elsewhere in the world. The objective was to avoid unrest among the then relatively large French farming community. At huge cost, the flight from the land in France was indeed marginally slowed down, though now only just over 4% of all French workers are on the land. The long term outcome was to saddle what is now the European Union with a hugely expensive, wasteful and corrupt farming subsidy system which has so many vested interests which benefit from it in key positions that it continually defies radical reform.
The costs of the CAP are enormous. The direct costs to the EU budget represent about 44% of its total outlays, amounting to over 40bn Euros in 2003. This money is spent on a combination of subsidies to producers, storage costs for surplus foods, more subsidies when excess stocks are sold off on world markets and administrative costs. From the point of view of consumers, however, the costs are even higher. This is because the consumer also has to pay the difference between world and CAP costs of food, and the gap between them is often enormous. Indeed, for years CAP agricultural prices have been on average about 40% higher than world prices. As a consequence, studies have estimated that the extra amount which has to be paid out by the average family of four people for food in the EU to be about £20 per week, or £1,000 per year. There are also huge costs outside the EU to farmers, especially in Third World countries, who are debarred from trading in food with the EU. All these costs arise essentially as the result of deliberate policies to distort prices to far above the levels they need to be to feed everyone, instead of obtaining supplies from wherever they can be grown most economically. There have also been heavy environmental costs.
There is indeed a massive problem with misappropriation of funds within the CAP system. The difference between market prices and those artificially created by the CAP provides endless opportunities for bogus claims and corrupt submissions for subsidies. Countries in southern Europe have been particularly prone to fraud of this sort. Reports have indicated vast acreages of non-existent olive trees in Greece, for example, all of which have entailed heavy subsidy payments for food production which never took place. One of the major reasons for the EU commission favouring the establishment of the euro was to avoid the enormous problems involved in keeping agricultural prices artificially the same in Member States when their currencies fluctuated against each other. Because artificial prices meant that food cost different amounts in neighbouring countries a flourishing food smuggling industry was the inevitable result.
Perhaps even more serious than the damage done to the consumer and the environment within the boundaries of the EU has been the impact that both the CAP and the CFP have had on the Third World, particularly among some of the very poor countries in Africa. Their economies urgently need to trade their way into greater prosperity and food exports provide one of their major opportunities to raise productivity and living standards. At the same time, because their production costs are so much lower than those in the EU, there would be major benefits to the EU consumer. The highly protectionist CAP stops such trade occurring at huge cost to developing countries, estimated at about $20bn per annum - twice Kenya's entire GDP. Meanwhile, EU fishing fleets, having fished out British waters, are now increasingly extending their activities into areas of the ocean previously belonging exclusively to Third World countries, putting local fishermen out of business. Indeed, the intransigence of EU negotiators over agricultural protectionism and the dumping of food surpluses on world markets was largely responsible for the break up of the recent Doha round of trade negotiations, on the successful outcome of which so much of the future prosperity of Third World countries depends.
Why is the CAP not reformed out of existence if it is so expensive, so damaging and unjustifiable on any rational grounds? The answer is that there are powerful interests with a lot to lose, at least in the short term, if the CAP were to be abolished. First, there are the major agribusinesses, who are the main beneficiaries from CAP subsidies. Some of the sums they receive are staggering, often running into hundreds of thousands of pounds paid annually to already extremely rich landowners. Second, there are still large numbers of small scale often part-time farmers in the EU, providing pivotal votes in elections, who are adamantly opposed to giving up the generous subsidies which they enjoy. Third, there are major national interests involved. France, in particular, still gains substantially through the CAP budget from farming subsidies, while other major beneficiaries are Denmark, Portugal, Spain, Italy and Greece. There are also large numbers of farmers in Accession Countries, particularly Poland, who do not want to see the CAP abolished. As a result, all attempts radically to reform the CAP so far have failed. Nor is there any realistic prospect of any significant improvements before 2013, as a result of agreements which have already been made to defer any significant changes in its structure at least until then.
If the CAP is a disgrace to the EU, the Common Fisheries Policy (CFP) is even worse. The CFP was cobbled together just before Britain joined the Common Market for no other reason than to extract an extra benefit for the then existing Member States from Britain, as a result of the desperation of the Heath government of the time to secure membership. The outcome was that all EU countries - including landlocked states such as Austria - now have the right to fish in what were formerly British waters, because they have become a resource to be used in common by all EU countries. As a result of a combination of more fraud, weak and ineffective supervision, unfair subsidy regimes biased heavily against Britain, and the consequent massive over-fishing which the CFP encouraged, the once proud British fishing industry is in ruins and the ecology of British fishing waters is a major disaster. All efforts made by British ministers to reform the CFP, to make it less disadvantageous to British interests and more sustainable on an environmental basis, have been foiled. The contrast between the abject failure of the CFP and the successful conservation policies pursued by Norway and Iceland - both outside the EU - could not be more marked.
As with so much else to do with the EU, Britain is in a different position than nearly all other Member States on agriculture and thus, whereas at least there are some compensating benefits from the CAP to most other countries in the EU, for Britain there are none. A smaller proportion of the British work force works on the land than in any other EU country and agriculture makes up a correspondingly smaller proportion of our GDP. As a result, a smaller share of our economy benefits from EU agricultural subsidies than in other Member States. We are less self sufficient in food than most other Member States, which is why we do so badly from the EU agricultural subsidy system. We also lose out on the system of contributions which finances the CAP. This happens because higher than average food imports into Britain mean that we pay more than a proportional amount of the levies, import duties and VAT contributions which finance the EU budget. The CAP is thus a major component of the complex of reasons why we pay so much more into the EU budget than we get back out of it. In total, for every £100 we pay in, we only receive about £53 back and the CAP regime is responsible for much of this discrepancy.
Is there any way in which Britain, in all these circumstances, can do anything effective about either the CAP or the CFP? Sadly, there appears to be very little prospect of any effective action being taken. Furthermore, once the new proposed Constitution is in place - if this ever happens - the position will be even worse, as more of our capacity to withstand major elements of the EU ways of working become eroded away by Qualified Majority Voting. This will make it even more difficult to put together a coalition bent on serious reform. The sad fact is that there is a large majority in the EU in favour of continuing with the CAP and the CFP, no matter how damaging they may be to British interests, to the Third World, to the consumer and the environment. It is hardly surprising, therefore, that the CAP and CFP both contribute significantly to increasing scepticism in Britain as to whether membership of the EU as a whole is really worth while at all.