The founding fathers of the European Economic Community were well aware of the need to include the agricultural markets of the Member States in the future common market. But they were also aware that the common agricultural market could not simply be achieved by abolishing the barriers to free movement and introducing common competition rules, as in the sectors of industry and the services [see section 6.2]. Actually, Article 38 of the Treaty on the functioning of the EU (ex Article 32 TEC) states in its first paragraph that the Union shall define and implement a common agriculture and fisheries policy, while specifying in paragraph 4 that the operation and development of the internal market in agricultural products must be accompanied by the establishment of a common agricultural policy.
There are several reasons why agriculture was afforded "special treatment". The most important is that due to the very nature of agriculture, which is at the mercy of weather conditions, crop and livestock diseases and many other factors which often elude human control and make it very difficult to ensure a perfect balance between agricultural output and the demand for foodstuffs. In addition, demand has very pronounced social and political characteristics. Governments are obliged to ensure that demand for basic commodities is satisfied at all times and at reasonable prices. The original Community was far from self-sufficient in foodstuffs and conditions on the world market provided no justification for the unilateral opening up of markets. Consequently, if food security was to be guaranteed at stable prices, the Community had to organise its own agriculture. This was quite reasonable, since the agricultural output of the different Member States was complementary. Northern Europe could supply cereals, dairy products and meat, whereas Southern Europe could specialise in fruit and vegetables, citrus fruit and wines.
However, the diversity of the agricultural sector of the six founding Member States, which increased with each enlargement of the European Community/Union, generated difficulties for the unification of their agricultural markets, providing further justification for an interventionist agricultural policy. Different natural, structural, social and trade conditions, the prominence of agriculture in the national economy and different farming traditions led to the use in each European State of agricultural policy instruments which diverged considerably as to their application scope and magnitude. The common policy therefore had to not only align structurally different agricultural systems, but also to iron out tenaciously held privileges resulting from the interplay of national political institutions: State monopolies or similar regulations, price guarantees, farm income aid, export subsidies, direct or indirect import restrictions, customs protection and so on. A new agricultural policy stepping in the shoes of the national ones had to be defined. The complexity of the latter created the need for the blending of national policies into one common agricultural policy.
One could ask why organise agricultural markets at all? The answer is that the agricultural markets of the Member States were already organised in various ways at national level. Indeed, almost all states in the world intervene in one way or another to ensure the income of their farmers and stable supply for their consumers. The only difference is that the system of intervention varies from one to the other. They can however be divided into two main categories: direct income aid systems for farmers, which existed in the United Kingdom before its entry to the Community and was called deficiency payments; and the system of price support on the internal market combined with external protection, the system chosen for the bulk of the original EEC's agricultural production.
The system of support for agricultural prices was thought, at the time, to be better adapted to the interests of the original Community. In effect, under the alternative direct income aid system, agricultural products are imported at world prices, generally low when they are in ample supply, and the income of national farmers topped up by a subsidy from the budget. This system is better adapted to countries which are almost self-sufficient in agricultural products and/or where farmers are not very numerous. If the original EEC countries, which were not yet self-sufficient in agricultural products and had a large number of farmers, were to begin purchasing openly on the world market, initially lower world prices would drive out of work many European farmers and, then, as soon as demand would exceed supply, world prices would escalate and cause important price increases and even penury of certain foodstuffs for low-income consumers.
Under the system of price support, on the other hand, in order to provide national farmers with sufficient income, internal prices which are higher than the world prices for agricultural products are practised and the difference is compensated by import levies or customs duties and by export refunds (subsidies) [Regulation 612/2009]. The higher prices stimulate agricultural output and productivity. They also tend to guarantee self-sufficiency in basic agricultural products and foodstuffs, which is another point in their favour. If they are set too high they can naturally lead to production surpluses, which is a negative point, but which results more from the manner in which the system is applied than from the system itself. Inasmuch, however, as agricultural prices determine farmer income, it is socio-politically very difficult for Agricultural Ministers within the Council to cut these prices, even if the Commission, in its pricing proposals, provides them with arguments in favour of reducing surplus production through prices [see section 4.3]. These same Ministers are, however, conscious of their own failings, since they periodically accept to revise the system through a CAP reform [see section 21.2.2].
As will be seen in the nest section, the CAP was reformed four times in forty years, blending gradually the systems of price and income support. Thus, after its major reforms, in 1999 and 2003, the European model of agriculture is based on competitive, multifunctional and sustainable farming. This means that European agriculture is broadening its horizons, since farmers also perform a range of additional tasks, notably in the fields of environment and countryside conservation. As a result of their high population density and geographical differentiation, European countries must produce these services in addition to actual farm produce itself. The EU cannot afford to confine nature and the environment to some reserves. Therefore, agriculture must also be maintained in less-favoured areas as well. Since it is not developed in a vacuum, however, the European model of agriculture has to prove its worth, both internally in addressing issues such as market development, rural development, satisfactory farm incomes and environmental protection, and externally, in facing the challenges of an enlarged Union and heightened competition inside the World Trade Organisation [see section 23.4].