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The Common Agricultural Policy (CAP) is an integral part of the agreements that established the European Community (EC). The CAP is based on three fundamental principles: free trade within the Community based on common prices, preference for Community produce in Community markets, and joint financial responsibility.
The aim of the EU Common Agricultural Policy is to provide farmers with a reasonable standard of living, to furnish consumers with quality food at fair prices and to preserve EU rural heritage and environment.
Established in 1962 when the founding members of the EU were emerging from more than a decade of food shortages, the Common Agricultural Policy began by subsidizing production of basic farm products in the interests of self-sufficiency and securing enough food. This policy, however, resulted in almost permanent surpluses of a number of products.
Fundamental reforms of the CAP, begun 1992 with the latest round in 2003, have radically transformed and reduced the levels of support offered to EU farmers at a time when the number of EU farms has steadily increased with EU enlargement. Subsidies on quantities produced have largely been replaced by payments to farmers to guarantee that they receive a decent income and are linked to compliance with broader objectives. These include environmental standards, food safety and the health of animals and plants. Farmers are also expected to keep their land in good condition in order to preserve traditional rural landscapes, birds and other wildlife.
Moving from support for products to support for farmers leads to fairer world trade, since support for the farmers who need it most reduces the risk that trade will be distorted by EU export subsidies for additional production. This has prepared the EU for the Doha Round of international trade liberalization (World Trade Organization – WTO) talks, where the EU has offered to eliminate export subsidies altogether by 2013. However, even without further liberalization, the EU is already the world's largest importer of food and the biggest market for Third World foodstuffs.
The main instruments of CAP are the direct payments and market support to farmers (1st pillar of CAP) and the policy for development of rural areas (2nd pillar of CAP).