Common Agricultural Policy
Launched in 1962, the European Union's Common Agricultural Policy is designed to ensure the availability of food supplies at reasonable prices within the EU and to guarantee farmers' income. About 44 billion euros is spent annually on the CAP, about 40 percent of the EU's budget. Until 2003 it operated through a system of price supports involving the purchase of farm products if market prices fell below certain levels, along with a system of import tariffs and export subsidies. This system offered no incentives to curb surplus production. Reforms introduced in 2003 have led to most subsidies being paid independently of the volume of production.
See also: http://ec.europa.eu/agriculture/publi/capexplained/cap_en.pdf