Price Support at Any Price? Costs and Benefits of Alternative Agricultural Policies for Poland

Abstract

The author argues that Poland must choose an agricultural policy that promotes efficiency, structural change, and adjustment to the new market environment and eventual membership in the European Union. That policy must take into account both the needs of, and the financial constraints on, Polish agriculture. Results of simulation experiments performed with the use of the computable general equilibrium model of the Polish economy suggest that Common Agricultural Policy-type price supports are not the most efficient agricultural policy for Poland. The author discusses alternative policies and scenarios. Rather than discuss whether the relationship between farmers' incomes and average Polish wages is fair, the author analyzes whether medium- and long-term development trends in the Polish economy may cause this relationship to deteriorate, and what policies will counteract those trends. Rapid growth in the nonagricultural sectors combined with real appreciation of domestic currency (caused either through good current account performance or significant capital inflows) may jeopardize farmers' relative income position. And such developments are probable if positive projections for economic development and membership in the European Union are realized. The agricultural sector can defend its relative income only by becoming more efficient. Price supports improve farmers' relative income but at a high cost to taxpayers and consumers and to macroeconomic efficiency. To meet these costs, Poland must put in place firm quantity controls. But the author thinks that the best strategy would be to avoid price supports until the moment of joining the European Union's Common Agricultural Policy. In the interim, policies aimed at reducing farm employment seem most appropriate. The author discusses two such policies: encouraging older farmers to retire and promoting jobs in rural areas. He also proposes two feasible scenarios for integrating Polish agriculture with that of the European Union by 2005-10.