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One State, One World

Butter Mountains: The EU’s Common Agricultural Policy

The EU’s Common Agricultural Policy was designed to combat food shortages after WWII, but it still accounts for almost half of the European Union’s budget.

25 pounds of butter

Photo: tamdotcom (Flickr)

The original Common Agricultural Policy created artificially high prices, which in turn led to oversupply and so-called “butter mountains” and “lakes of milk.”

The EU’s Common Agricultural Policy was originally designed to combat food shortages after World War Two.  Since then, farming has declined and now makes up less than 3% of the EU’s total GDP. Nevertheless, the Policy accounts for almost half the European Union’s budget, making it the EU’s biggest expenditure.

The Common Agricultural Policy (CAP) provides European farmers with subsidies. Many of these subsidies took the form of price support: guarantees to farmers that the EU would buy their crops at a minimum price.  This was meant to provide security to farmers; however, this original policy created artificially high prices, which in turn led to oversupply and so-called “butter mountains” and “lakes of milk.”

In addition to subsidies for farmers, the Policy also included high import tariffs, which limit European demand for foreign agricultural products. This aspect of the original policy was criticized as a barrier to free trade.

Recent reforms to the Common Agricultural Policy have reduced the surpluses created by price supports, and the twenty-seven European Union members are now the largest importer of agriculture products in the world.

According to WiserTrade.org, in 2010 Indiana agricultural exports to the EU totaled $106 million, making the EU the third leading destination for Indiana agricultural exports, after Canada and Mexico.

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This episode of One State One World is produced in partnership with the EU Center at Indiana University.

Read more about the European Union on the EU Center’s blog, Across the Pond.