Its going to be a turbulent year for the EU with Greece going broke, the UK looking to opt out and immigrants arriving by the thousands.

The economic down turn of recent years exposed fundamental problems and unsustainable trends in many European countries. It also made clear just how interdependent the EU’s economies are.

Over the past decade, Member States have experienced divergent economic trends, which have, exacerbated competitiveness gaps and led to macro-economic imbalances within the EU.

The question now is are we looking at stronger political union or a repatriation of powers to National Sovereign Nations within the EU.  

One way or the other the EU needs to look beyond the current crisis.

The EU is already under pressure from competitors and demographic change.

Any reforms within the Members seems to take for ever to implement.

Take for instance the reforms to the Common Agricultural Policy (CAP) which was one of the original pillars of the European Community, comprising France, Germany, Italy, Netherlands, Belgium and Luxembourg. In negotiations on the creation of a Common Market, France insisted on a system of agricultural subsidies as its price for agreeing to free trade in industrial goods.

The treaty of Rome set out its basic principle and objectives:

1. To increase productivity, by promoting technical progress and ensuring the optimum use of the factors of production, in particular labour.
2. To ensure a fair standard of living for the agricultural Community.
3. To stabilise markets.
4. To secure availability of supplies.
5. To provide consumers with food at reasonable prices.

Those objectives were written in 1958 and have never been amended.

The main purposes of EU agriculture should be:

• Provision of a safe, healthy choice of food, at transparent and affordable prices.

• Ensuring sustainable use of the land.

• Activities that sustain rural communities and the countryside.

So what is the Common Agricultural Policy (CAP)?

For more than twenty years, starting in 1992, the CAP has been through successive reforms. In June 2013 ministers reached a deal with Euro MPs and the European Commission, though the reform package has not yet been agreed in full.

The CAP began operating in 1962, with the Community intervening to buy farm output when the market price fell below an agreed target level. In 1970, when food production was heavily subsidised, it accounted for 87% of the budget.

The CAP has been steadily falling as a proportion of the total EU budget for many years.

The plan then was that total spending should peak in 2008/9 and then decline until 2013, when the next major revision was due. In 2013 the budget for direct farm payments (subsidies) and rural development – the twin “pillars” of the CAP – was 57.5bn euros (£49bn), out of a total EU budget of 132.8bn euros (that is 43% of the total).

Owing to the way in which the common agricultural policy has developed and to the use of ‘historical references’, the level of aid may vary considerably from one farm to another, from one member country to another or from one region to another.

Today’s CAP is more market-oriented.

Under the new CAP, farmers still receive direct income payments to maintain income stability, but the link to production has been severed. In addition, farmers have to respect environmental, food safety, phytosanitary and animal welfare standards.

For the EU’s new member states, in Central and Eastern Europe, direct payments to farmers are being phased in gradually.

France is – and always has been – the largest recipient of CAP funds (20% of the total in 2006), with Spain, Germany, Italy and the UK all also receiving significant amounts (two-thirds of the total between these five countries). Although getting smaller absolute amounts, Greece and Ireland receive the largest per capita payments.

France is the biggest agricultural producer, accounting for some 18% of EU farm output.

France receives around €11 billion each year from the EU in agricultural support, but very little of it actually goes to those who do the farming.

With over 500,000 recipients of EU farming subsidies in France, over 80% of the funds actually goes to large industrial food processing businesses and charitable organisations. The largest recipient is the chicken production conglomerate Doux, who received a whopping €62.8 million in aid between October 2007 and October 2008. In the year 2008 the group had a turnover of nearly €2 billion.

The average annual subsidy per farm is about 12,200 euros (£10,374). About 80% of farm aid goes to about a quarter of EU farmers – those with the largest holdings. Major beneficiaries include rich landowners such as the British royal family and European aristocrats with big inherited estates.

The CAP does not cover commercial forestry.

The Commission proposed to cap at 300,000 euros the total subsidy a large farm could receive – but that appears unlikely to get into the final deal.

Across the whole EU, it is the bigger farmers who are the greatest beneficiaries, with 20% of farmers estimated to receive 74% of funding.

The idea was to combat large payments going to aristocratic landowners and wealthy agri-businesses, but it ran up against powerful lobby groups.

To day the CAP costs each EU citizen around 30 euro cents a day. CAP expenditure actually makes up less than 1% of all public expenditure in all the EU’s member countries. In addition to the direct cost, it is estimated that European consumers pay approximately €50 bn more in higher food costs.

Over 77% of the EU’s territory is classified as rural (47% is farm land and 30% forest) and is home to around half its population (farming communities and other residents). Europe has 12 million farmers and an average farm size of about 15 hectares (by way of comparison, the US has 2 million farmers and an average farm size of 180 hectares). The eastward enlargement increased the EU’s agricultural land by 40% and added seven million farmers to the existing six million.

Agriculture is a sector which is supported almost exclusively at European level, unlike most other sectors, which are governed by national policies.

Supporting farmers’ incomes ensures that food continues to be produced throughout the EU and pays for the provision of public benefits which have no market value: environmental protection, animal welfare, safe, high-quality food, etc.

The EU already funds numerous programmes that can be channeled towards these goals. For example, between 2007 and 2013, over €50bn is available for R&D projects, over €3bn for competitiveness and innovation and nearly €7bn for lifelong learning. This is all in addition to €277bn worth of regional funding for the same period through the Structural Funds.

As climate change makes itself ever more felt, the cost of sustainable farming can only continue to rise.

The EU budget is in turn mainly financed out of its ‘own resources’: customs duties, levies, VAT and resources based on member countries’ gross national income (GNI). The CAP represents over 40% of EU budget expenditure and is the most expensive of EU policies.

Regional aid – known as “cohesion” funds – is the next biggest item in the EU budget, getting 47bn euros.

The CAP budget for Rural Development (which seeks to safeguard the vitality of the countryside) 2014-20 for all 28 member countries will total €95 billion (at current prices).

The last reform was implemented in 1994

Today, the Budget amounts to €150bn (£117bn), which is paid for by the 28 members of the EU, and is also used to pay administration costs incurred by Brussels, such as salaries.

Farm subsidies are expected to account for around 38pc of the EU budget between 2014 and 2020, or around €363bn of the €960bn total.

A total of €8.7bn was spent last year in administration costs alone, although the European Commission highlights in its Myths and Facts FAQ, that this amounts to less than 6pc of the total budget.

However, the CAP continues to face a number of challenges, particularly in addressing biodiversity decline, water pollution, soil degradation, accelerating climate change and the steady growth in demand for food, fuel and energy.

Here are the Challenges:

• How to make the Single Payment Scheme more effective, efficient and simple by continuing the move to full decoupling..
• How to adapt market support instruments originally designed for six, to a larger system of twenty-seven states in a more globalised world.
• How to master challenges in areas such as climate change, biodiversity and water management and adapt to new risks and opportunities.

The questions are:

• Why do we need a European Common Agricultural Policy?
• What are society’s objectives for agriculture in all its diversity?
• Why should we reform the CAP and how can we make it meet society’s expectations?
• What tools do we need for tomorrow’s CAP?

The answers are:

The European Union needs a common EU policy to ensure a level playing field within the EU, guaranteeing fair competition conditions. To maintain diversified farming systems across Europe.

• To insure that no GMOs or pesticides are used. To ensure EU agriculture respect the environment. Give greater importance to non-market items, such as environment, quality and health standards, sustainability.

•  To Respond to the effects of climate change. To Protect the environment and biodiversity, conserve the countryside, sustain the rural economy and preserve/create rural jobs, mitigate climate change. To decrease its impact on global warming and maintain biodiversity, water resources etc.

•  To take into account the various higher expectations from consumers, for example with regard to the origin of foodstuffs, guarantees of quality etc.

•  To Strengthen the competitiveness of European agriculture. To Transform market intervention into a modern risk- and crisis-management tool. To Recognize that the market cannot (or will not) pay for the provision of public goods and benefits. This is where public action has to offset market failure.

•  To Ensure better coordination with other EU policies applying to rural areas.To Bear in mind that the correct payment to farmers for the delivery of public goods and services will be a key element in a reformed CAP. To Rethink the structure of the two support pillars and clarify the relationship between them; make adequate resources available for successful rural development. To Create fair competition conditions between domestic and imported products.

• To Provide employment in rural areas. To Implement a fairer CAP – fairer to small farmers, to less-favoured regions, to new member states.
• To Avoid damaging the economies or food production capacities of developing countries; help in the fight against world hunger.
•  To giving more importance to innovation and dissemination of research.
•  To link agricultural production, and farmers’ compensation, more closely to the delivery of public goods such as environmental services.
  • To Introduce transparency along the food chain, with a greater say for producers.

Industrial agriculture should have little place in the CAP, its support being more appropriately directed to more deserving recipients.

Serious questions are being raised about the reasons for the current levels of spending, the efficiency and the extent to which it provides genuine EU added-value. In recent years, farms’ energy bills have increased by 223% and the price of fertilisers by 163%. Agricultural prices have increased by 50% on average.

It must take a strategic approach to CAP reform. Go for total, not partial, solutions taking account of CAP challenges on the one hand and the interplay between the CAP and other internal and external EU policies on the other hand.

Can any of this be done?

The EU has no shortage of crises on its borders and beyond.

It is hard to see that EU will succeed in galvanizing European governments into a more coherent policy. EU states will certainly not be willing to increase the overall size of the budget, it is clear that it will have to dedicate a much smaller share of the budget to the CAP. The budget cannot keep increasing in the midst of an economic crisis.

Keeping EU farm spending level until 2020 is impossible and there are suggesting that EU funding for issues such as research and development provide better EU added-value.

Believe it or not, the thing that could change farming isn’t the climate or a new piece of equipment. A microbe in the soil could be the key to helping farmers grow more crops.

Only 5.4% of EU’s population works on farms, and the farming sector is responsible for 1.6% of the GDP of the EU (2005). The number of European farmers is decreasing every year by 2%. Additionally, most Europeans live in cities, towns, and suburbs, not rural areas. However, their opponents argue that the subsidies are crucial to preserve the rural environment, and that some EU member states would have aided their farmers, anyway.