COULD THE RADICAL CHANGES OF DIRECT PAYMENTS POLICY DESTROY AGRICULTURAL MARKETS IN THE EU NEW MEMBER STATES

Abstract

The form and scope of direct payments under the Common Agricultural Policy are controversial for several reasons: high budgetary costs, unfair distribution between old and new Member States and weak argumentation of payments; consequently, they will have to be redefined for the period 2013-2020 and this calls for a need for policy impact assessment. The paper presents an analysis of the impact of different direct payments policy scenarios on the agricultural markets of the ten new EU Member States (NMS). The study is based on the AGMEMOD (AGricultural MEmber states MODelling) EU-27 dynamic econometric partial equilibrium models. The Baseline Scenario assumes that from 2013 on, the Single Area Payment Scheme would continue, dairy quotas would be abolished and some other policy instrument changes would take place as agreed in the 2008 Health Check policy conclusions. Preservation of the current policy would lead to further growth in production of most agricultural markets, resulting from accelerated technological development and the opportunities provided by the EU common market. The only exceptions are dairy and beef sectors, where NMS would face a drop in competitiveness. The Scenario Abolish implies total abolishment of the Pillar I direct supports and according to the Reduced EU-Wide Flat Rate Payments Scenario, payments at the entire EU area would be made more uniform, but would be – owing to the expected overall reduction of budgetary funds for Pillar I of CAP – at a substantially lower level. According to the model simulations, reducing the level of payments or their abolishing would not result in any dramatic medium-term changes on agricultural markets in NMS by 2020, which could serve as an argument for the future CAP reforms.