EU Agricultural Domestic Support: Overview and Comparison with the United States

The European Union (EU) is one of the United States’ chief agricultural trading partners and a major competitor in world markets. Historically, the United States and the EU have provided significant government support for their agricultural sectors. Significant structural differences in their respective farm sectors have helped to shape differences in their farm policy. The United States has double the farmland base than that of the EU(over 1 billion acres versus 418 million acres, respectively). The EU has five times as many farms, at 10.6 million with an average size of 39 acres, compared with 2 million U.S. farms averaging 485 acres. As a result, EU outlays per acre appear much larger than in the United States, whereas U.S. outlays per farm appear much larger. The EU’s small size of farm holdings, substantially larger number of farms relative to the United States, and larger share of rural population (27% versus 18%) have all played a role in forming EU farm policy as compared with the United States.

In the United States, federal farm policy traditionally has focused on price and/or income support programs concentrated on row crops, including grains, oilseeds, and cotton, as well as sugar and dairy. In contrast, the EU—under its Common Agricultural Policy (CAP)—provides extensive support to a broader range of farm and food products, including livestock products and fresh and processed fruits and vegetables. The EU tends to have a stronger rural development emphasis and allows frequent exemptions for identifiably small farming units from certain cross compliance restrictions and payment limitations.

Since the mid-1990s, both regions have reoriented their domestic agricultural policy toward less-market-distorting policies in response to internal budget pressures and international trade commitments. By 2013, the EU had grown to 28 European countries with 508 million people—including the economically poorer countries of Eastern Europe where agriculture remains an important part of the economy. EU policymakers faced pressures to reform domestic agricultural policy due to this steady growth. In January 2020, the United Kingdom—the second largest net contributor to the EU budget—withdrew from the EU, leaving 27 countries(EU-27) with roughly 450 million people and somewhat reduced budgetary resources.

Large-scale ad hoc payments made by the United States during 2018 and 2019 in response to trade disputes, and in 2020 in response to food chain disruptions associated with the Coronavirus Disease 2019 (COVID-19) pandemic, could result in substantial increases in U.S. domestic support notifications—particularly market-distorting-type outlays—to the WTO starting in 2018. In contrast, the European Commission’s proposed CAP reforms for 2021-2027 emphasize sustainable agricultural production that supports greater biodiversity while addressing environmental and climate concerns. Details on implementation, measurement, and enforcement have yet to be finalized, and the potential for effectively achieving the environmental and climate goals have yet to be demonstrated. The CAP reform proposals—if implemented—would appear likely to increase the share of CAP outlays to less-market-distorting programs (i.e., green box programs) at the expense of OTDS outlays.

Because the United States and the EU figure prominently in the development and use of global agricultural policy, information comparing their farm support programs may be of interest to Congress as the United States considers reauthorization of the domestic farm bill by 2023 and engages in international trade negotiations.   Purchase on Amazon