Financing of the CAP

For many years, the common agricultural policy (CAP) was financed from a single fund, the European Agricultural Guidance and Guarantee Fund (EAGGF), which on 1 January 2007 was replaced by the European Agricultural Guarantee Fund (EAGF) and the European Agricultural Fund for Rural Development (EAFRD).

Legal basis

Article 40(3) of the Treaty on the Functioning of the European Union (TFEU);

Regulation (EU) No 1306/2013 and Regulation (EU, Euratom) No 1311/2013 (OJ L 347, 20.12.2013).

Development of the financial framework for agriculture

Established in January 1962, the CAP was at that time implemented through the European Agricultural Guidance and Guarantee Fund (EAGGF). In 1964, the EAGGF was split into two sections, the Guarantee Section and the Guidance Section, which were governed by different rules.

  • The Guarantee Section, by far the larger of the two, was intended to fund expenditure stemming from the application of market and price policies. That expenditure was always unpredictable and the funding available was therefore adjusted by means of amending budgets to bring it into line with real requirements. As a general rule, the EAGGF Guarantee Section financed market intervention measures in full.
  • The Guidance Section helped to finance operations involving structural policy and the development of rural areas. Unlike the EAGGF Guarantee Section, the EAGGF Guidance Section was based on the principle of cofinancing.

From 1988, in an effort to curb the increase in CAP spending, the funds available were made subject to strict budgetary discipline following the introduction of a multiannual agricultural guideline (Decision 88/377/EC, supplemented by the Interinstitutional Agreement of 22 June 1988, under the Delors I Package) (1.4.3).

Following the Treaty of Maastricht and the Edinburgh European Council (December 1992), the financial framework was overhauled (Delors II Package). The 1988 interinstitutional agreement was superseded by a new agreement on budgetary discipline for the 1993-1999 period (OJ C 331, 7.12.1993). Decision 88/377/EC was superseded by Decision 94/729/EC (OJ L 293, 12.11.1994), which confirmed the principle that financial discipline would apply to all common policies. Agenda 2000 (3.2.3) extended the agricultural guideline under the financial perspective for the 2000-2006 period (OJ C 172, 18.6.1999). The financing arrangements for the CAP were laid down in new Regulation (EC) No 1258/1999 (OJ L 160, 26.6.1999, p. 103).

The 2007-2013 Multiannual Financial Framework was approved in 2006 (OJ C 139, 14.6.2006) (1.4.3). Its heading 2, ‘Preservation and management of natural resources’, covered the budget for agriculture and rural development, the environment, and fisheries (EUR 413 billion at current prices, equivalent to 42.3% of total commitment appropriations for the EU-27). The preparatory discussions on the Multiannual Financial Framework for the 2007-2013 period also included a review of the CAP financing arrangements.

  • Regulation (EC) No 1290/2005 (OJ L 209, 11.8.2005, p. 1) created two European agricultural funds, namely the European Agricultural Guarantee Fund (EAGF), and the European Agricultural Fund for Rural Development (EAFRD). The EAGF finances or sometimes cofinances, together with the Member States, common organisation of the market (CMO) expenditure (3.2.4); direct support to farms (3.2.5); the Union’s contribution to initiatives to provide information about and to promote agricultural products on the internal market and in third countries; and the Community share of the cost of veterinary measures and the collection and use of genetic resources, among other items of ad hoc expenditure.
  • Regulation (EC) No 1290/2005 was accompanied by Regulation (EC) No 1698/2005 (OJ L 277, 21.10.2005) on support for rural development through the EAFRD, to take account of the financial and programming characteristics of the second pillar of the CAP (3.2.6). The EAFRD cofinances measures to improve competitiveness in the agricultural and forestry sectors, agro-environmental measures, and measures to improve the quality of life in rural areas and encourage the diversification of the rural economy and local capacity-building (Leader Initiative) (3.2.6).

The Guarantee Section had always been classified as compulsory expenditure under the Community budget, i.e. expenditure resulting directly from the Treaty or acts adopted pursuant thereto. Conversely, all EAGGF Guidance Section expenditure was classified as non-compulsory. Until the entry into force of the Treaty of Lisbon (3.2.1), the Council, the senior arm of the EU’s budgetary authority, traditionally had the last word on compulsory expenditure under the annual budget procedure. On the other hand, the European Parliament held decision-making power in respect of non-compulsory expenditure, subject to a maximum rate of increase calculated by the Commission on the basis of economic parameters. Under the TFEU (3.2.1), this distinction was done away with, and the two arms of the budgetary authority (the European Parliament and the Council) now take joint decisions on all agricultural expenditure.

As regards the 2014-2020 period, on 19 November 2013 [in resolutions P7_TA(2013)0455 and P7_TA(2013)0456, OJ C 436, 24.11.2016], the European Parliament endorsed the regulation on the new multiannual financial framework [Regulation (EU, Euratom) No 1311/2013, OJ L 347, 20.12.2013] and the Interinstitutional Agreement on sound financial management (OJ C 373, 20.12.2013). In addition, Regulations (EC) Nos 1290/2005 and 1698/2005, which were repealed in the 2013 reform, were replaced by Regulation (EU) No 1306/2013 on the financing, management and monitoring of the common agricultural policy and by Regulation (EU) No 1305/2013 on support for rural development by the EAFRD (OJ L 347, 20.12.2013).

The new multiannual financial framework establishes a total budget for the heading ‘Preservation and management of natural resources’ (including the CAP) of EUR 373.17 billion, at 2011 prices, accounting for 38.9% of total commitment appropriations for the EU-28. The regulation of agricultural markets and direct payments account for 28.9% of total planned commitments (3.2.10, table I, line B). In addition, rural development measures account for 8.8% of the total (3.2.10, table I, line C). Accordingly, the projected agricultural and rural development budget for 2020 stands at EUR 49 billion, equivalent to 34.9% of the total, which is below the percentage allocated to the CAP at the start of the period covered by the financial perspective (40.5% in 2014) (3.2.10, table I, line D).

The multiannual financial framework for agriculture was revised in 2015, following transfers between the two pillars of the CAP agreed on by the Member States [Implementing Regulation (EU) No 2015/141 (OJ L 24, 30.1.2015)]. The table below shows the proportions of CAP funding accounted for by the CMO, direct payments and rural development.

CAP BUDGET 2014-2020 (EU-28) Total 2014-2020 (EUR billion at current prices) %
a) Assigned revenue
b) Crisis reserve
A) TOTAL CMO [(a) + (b)]
19 002
(4 704)
+3 155
17 453
c) Transfers to pillar 2
d) Transfers to DP
e) NET TRANSFERS [(c) + (d)]
f) Crisis reserve
B) TOTAL DP [(e) + (f)]
298 438
(7 369)
+3 359
(4 010)
(3 155)
291 273
TOTAL PILLAR 1 [(A) + (B)] 308 726 75.6%
g) Net balance in favour of pillar 2
95 577
+4 010
99 587
TOTAL CAP 2014-2020 [(A) + b) + C)] 408 313 100%

The changing nature of agricultural and rural expenditure

A. Overview

The EU budget for 2020 contains a total of EUR 168.68 billion in commitment appropriations. Direct payments account for 24% of appropriations (EUR 40.6 billion), rural development measures for 8.7% (EUR 14.6 billion) and other expenditure for 1.7%. In total, the CAP accounts for 34.5% of the 2020 EU budget (EUR 58.12 billion).

The share of the European Union budget accounted for by agricultural spending has been steadily declining in recent years. Whereas the CAP represented 66% of the Community budget in the early 1980s, it accounts for just 37.8% of it in the 2014-2020 period. Since 1992, when there was the first significant overhaul of the CAP and an explosion in the volume of direct aid, agricultural expenditure has remained stable in real terms apart from in 1996 and 1997 (as a result of the BSE crisis and the accession of three new Member States). Between 1990 and 2020, therefore, the budgetary cost of the CAP, when set against EU gross national income, will have decreased from 0.54% to an expected 0.34%.

B. Allocation by expenditure category and by sector

93.5% of the expenditure under the first pillar (EUR 44.3 billion according to the last financial report published for 2018) consists of direct aid to farmers (EUR 41.5 billion) (3.2.10, table V, column 1(a) and (b)). The sharp increase in direct aid since 1992 has resulted in a corresponding fall in other EAGGF Guarantee Section/EAGF expenditure: export subsidies were eliminated in 2018, and the other market intervention measures (storage, promotion and information actions, and school distribution programmes) amounted to just EUR 2.7 billion (6.1 % of the total) (3.2.4, Table 1).

C. Distribution by country and by type of farm

As shown in table V, relating to the financial year 2018 (3.2.10), the largest CAP recipient is France (16.9%), followed by Spain (12.1%), Germany (10.8%) and Italy (9.5%). As far as the EAFRD is concerned, however, France and Romania are the top recipients (14.1% and 9.4% respectively of actual payments in 2018), followed by Germany (9.1%) and Italy (8.6%). It should be noted that the new Member States (EU-13) account for a relatively small proportion of EAGF spending (22.5% in 2018). However, they are already receiving a significant share of EAFRD funding (32.3%) in accordance with the priority being given to the modernisation of agricultural facilities and the development of rural areas.

Table V, column 2 (3.2.10) also illustrates the uneven distribution of CAP direct aid at farm level: 75.2% of CAP beneficiaries in the EU-28 received less than EUR 5 000 in annual payments in 2018, giving an aggregate amount equivalent to 15.7% of the total direct aid paid out under the EAGF. By contrast, a very small percentage of farms (121 713 out of a total of 6.37 million, i.e. 1.9%) each receive more than EUR 50 000, giving an aggregate amount equivalent to EUR 12.8 billion (30.8% of the total direct aid paid out in 2016). Countries with a higher percentage of large farms (or firms) which receive money under the CAP are Denmark, France, the Czech Republic, the United Kingdom and Slovakia. This situation poses problems of legitimacy of aid in the light of the principles applied to all citizens (tax progressivity, fight against inequality).

The role of the European Parliament

The 1988, 1993, 1999, and 2006 interinstitutional agreements gave the European Parliament a greater say on compulsory expenditure. The lengthy negotiations on the regulation laying down the financial framework for 2014-2020 resulted in a political agreement at the end of June 2013, and this was adopted by the two arms of the budgetary authority in November 2013. Exercising the influence it had acquired because of the need for plenary to give its consent, Parliament managed to amend the European Council’s agreement in principle of 7-8 February 2013. Among the changes secured were: increased flexibility in the management of budget headings, augmenting of the Budget Unit, the immediate use by Member States of outstanding appropriations from the 2013 budget and the improvement of appropriations allocated under Heading 1 (competitiveness) [resolutions P7_TA(2013)0455 and P7_TA(2013)0456]. After the last trilogues in September 2013, the Committee on Agriculture and Rural Development made improvements to some of the financial aspects of the new CAP. These changes enabled Parliament, on 20 November 2013, to give the go-ahead to all of the regulatory texts [resolutions P7_TA(2013)0490 to P7_TA(2013)0494, OJ C 436, 24.11.2016]. The five new regulations were published on 20 December 2013 (OJ L 347, 20.12.2013). The proposal for a multiannual financial framework post-2020 (without the United Kingdom) was presented on 2 May 2018 (3.2.9 and 3.2.10).


Albert Massot