CAP Headaches in the Proposed EU budget: The Commission’s Trilemma

The Common Agricultural Policy (CAP) has long been central to the EU farming sector. The per-hectare payments were introduced 20 years ago, to compensate farmers for the elimination of support prices that had led to overproduction, but also favored large holdings and were quickly capitalized in land prices. In recent years, the focus of CAP has shifted from income support to green objectives, which however has led to tensions¹ – due in part to the difficulty of defining and implementing broadly sustainable practices.  

As the Commission shapes its plan for the 2028-2034 budget, once again this policy has come under scrutiny – caught between tradition and reform. Can the proposed changes to the CAP find an equilibrium among budget efficiency, farmers’ consensus and sustainability? 

Budget shrinking 

The first objective that appears clear in the EU proposal is a long-run reduction in funding: the CAP will be reduced from its current €386.6 billion to just €300 billion after 2027². That is, over a 20% cut. As prices have increased by more than 20% in the meantime, this cut would imply a real-terms decline of 40%.  

At the same time, the Commission proposes folding the CAP into a more flexible, performance-oriented national framework with smaller direct payments, similar to the Next Generation EU scheme. However, direct payments hit farmers differently based on their size: although larger firms are able to attract more direct payments in absolute value, the incidence of these payments on total output and on value added is higher for smaller farms, which represent the majority represent the majority of holdings in the EU. This is because the median size of farms in the EU is much smaller than the mean. 

As a result, depending on what kinds of CAP pillars are targeted, these cuts could end up impacting either the larger or the more numerous farms – one way or another leading to possible discontent and implying non-trivial consequences for the green transition measures or rural cohesion functions that these payments support. 

Environmental concerns 

One of the most contentious issues in the proposed CAP reform is the increased flexibility granted to individual EU member states. While the reform allows member states to tailor CAP measures to their national agricultural needs and environmental contexts, the lack of organization could lead to a race to the bottom in environmental standards. Without firm EU-wide environmental standards, the reform could significantly set back efforts to tackle climate change and prevent biodiversity loss. 

As WWF notes³, two main risks lie in the lack of clarity on the political ambition. First, “without spending targets for environmental payments, the incentives for farmers to protect nature are likely to shrink.” Secondly, without clear accountability or performance indicators, there is a risk that unsustainable farming systems could be prioritized, leading to further environmental degradation. 

And once again, the size of the wallet matters. The EU’s green transition goals, such as reducing emissions from agriculture, supporting biodiversity, and achieving net-zero emissions by 2050, require substantial financial backing. The lack of a dedicated and adequately funded environmental pillar in the CAP reform might hinder the EU from achieving these ambitious objectives. 

Big policy, not so big farmers  

Another significant concern about the proposed CAP reform is the shift toward direct payment rules, where funding is allocated based on farmers’ achievement of specific targets. While this is intended to incentivize desirable practices, it may instead follow Member States’ preferences and ultimately end up hurting small and medium farmers.  

Increasing CAP access for smaller farmers is a necessary pillar for the Commission, especially in terms of consensus. According to Eurostat, about two thirds of farms are below 5 hectares in size and produce less than 8000 EUR of annual output:⁴ this amounts to almost 6 million small farm owners, the majority of whom produce even less than 2000 EUR. However, despite proposals of partial capping measures to support smaller farms,⁵ in a new target-and-milestone-based scheme, larger entities might still be better equipped to secure more funding – even when their practices aren’t genuinely sustainable.  

In the CAP’s goals, younger and new farmers require additional and dedicated financial assistance, incentivizing compliance with environmental regulations. However, the Commission has proposed the introduction of generic exemptions and simplifications, aiming to reduce controls and checks. This kind of careless deregulation would risk undermining the environmental safeguards rather than truly helping farmers transition to sustainable and future-proof farming practices that would benefit them in the medium and long run.⁶ 

New solutions or old contradictions? 

It might seem like sustainability and the small-farmer priorities of the CAP are at odds with each other: the implementation of truly sustainable practices requires accountability and monitoring, which would, however, favor larger actors better equipped to handle these hurdles.  

There are ways to reconcile the two. For instance, instead of continuing the focus on land area, the CAP reform could introduce incentives that prioritize small farmers in the shift towards more sustainable biodiversity-preserving farming practices – such as crop rotation, agroforestry, and organic farming – and a move from animal farming to plant-based consumption.  

These options, however, would require funding. It is more difficult to reconcile the consensus of small farmers with environmental advancements in a context of agricultural budget cuts. 

The Commission seems thus to be caught in a trilemma, having to reconcile scarcity of funding, sustainability goals and the consensus of small farms. Unless carefully implemented, the proposed changes – rather than resolving critical issues in European agriculture – risk further entrenching the problems of environmental degradation and inequity. To meet the EU’s climate and biodiversity goals, CAP must evolve into an ambitious policy that can support smaller farmers in the transition, all the while ensuring the implementation of effective environmental standards.