Does the EU spend 40% of its budget on farm subsidies?

22 November 2012



"Agriculture makes up just 1.5% of the production of the European Union. So it cannot be right that almost 40% of the EU budget is still spent on the CAP [Common Agricultural Policy]."

Ed Miliband, speech to CBI's Annual Conference, 19 November 2012

Speaking to business leaders about his vision for the nation's economy, Ed Miliband insisted that it was in Britain's economic interests to remain in the European Union. But at the same time he argued that it was time for those who want Britain to remain in the EU to admit that it is an institution in need of reform.

The Labour Leader is not the first or only person to argue that while the EU spends a vast proportion of its revenue on its Common Agricultural Policy (CAP) - some €58 billion euros in 2011 - it is not getting value for money. According to Ed Miliband, agriculture is responsible for only 1.5% of European GDP.

What is the CAP?

The Common Agricultural Policy has been designed to "to improve agricultural productivity, so that consumers have a stable supply of affordable food" and "to ensure that EU farmers can make a reasonable living". In order to achieve this, the EU has subsidised the agricultural sector since 1962 to compensate for falling incomes, a depleted workforce and an influx of goods from foreign markets.

Ed Miliband is on the money when he says that the CAP accounts for 40% of European budget. The European Commission for Agriculture and Rural Development confirms this figure. But back in the 1980s, the CAP accounted for an even greater proportion of EU expenditure.

At the time, EU farmers were producing a vast surplus of certain agricultural products - the so-called "food mountains". Over the years, the CAP has been reformed so that its budget represents a smaller percentage of EU spend.

It's important to note that while the CAP makes payments to farmers and regulates the agricultural markets (the European Agricultural Guarantee Fund or EAGF), it also finances rural development programmes (through the European Agricultural Fund for Rural Development or EAFRD).  So it's not simply a question of paying farmers to milk their cows; the CAP also subsidises the upkeep of European farmland and the surrounding countryside. To offer some idea of the scale of this task, around half of the EU's land is farmed.

But the CAP does not only support those farmers who grow food; it also provides assistance to farmers who cultivate cotton and tobacco. The CAP remains an economic initiative. While they won't feed a hungry continent, these crops will support the survival of rural communities.

How much does agriculture contribute to GDP?

According to Ed Miliband, agriculture is "responsible for only 1.5% of European GDP". We've contacted DEFRA and the Labour Party but so far we've not been able to obtain his source for this statistic.

However, according to Eurostat, the website for official EU statistics, agriculture is responsible for 1.7% of European output (2010 figures). The CIA's World Factbook puts the number at 1.8%. These estimates seem to be broadly in line with Mr Miliband's figure.

But let's dig a little deeper. The Eurostat figure is a calculation of Gross Value Added (GVA). This is a useful measure of the amount of economic value associated with a specific activity - in this case, farming, forestry, hunting and fishing. However, it does not take into account the value that's added further up the line. There will be jobs and a certain economic ouput associated with processing wheat, selling leather or transporting tins of sardines between a factory and a supermarket. It would be reasonable to assume that agriculture as a sector, supported by the CAP, stimulates other areas of the economy.

Since 2000, there has been a fall of 0.6% in the sector's contribution to overall GDP. Meanwhile, other sectors - such as business and financial services - have become more important to the European economy.

So does this mean that the CAP is poor value for money, as Ed Miliband suggests? There have been calls for the CAP to be reformed and the EU is currently consulting on how best to achieve this. Yet it might be useful to consider how else we estimate the worth of the agricultural sector - not only its contribution to economic output, but also its role in putting food on the table and supporting the survival of rural communities.

Nevertheless, Ed Miliband's numbers show that there's a considerable difference between how much the EU spends on agriculture and the economic ouput of the sector - in other words, how much we put in compared to what we get out. However, as we've shown, we need to be careful about what measure we use to estimate the value of a particular part of the economy.

What's more, those who defend the CAP might argue that to look at the raw numbers is to tell only one side of the story.


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