IMPLICATIONS OF POSSIBLE CHANGES IN THE EU
COMMON AGRICULTURAL POLICY FOR THE AGRI-FOOD SECTOR
IN CENTRAL EUROPEAN COUNTRIES
Antonio MD Nucifora
Queen Elizabeth House
University of Oxford
United Kingdom
ABSTRACT
The study looks at the impact of possible
strategies for EU agricultural policy change on CEECs in the light
of the accession of these countries to the European Union. Different
strategies are evaluated using a simple static partial equilibrium
model. The model provides us with an estimate of the economic
costs and benefits of the alternative policy options; these results
are then discussed taking into account the specific problems of
the agri-food sector in CEE countries. The results of the study
underline the advantages of a reform involving the removal of
production related support in the EU, cushioned by temporary,
digressive fully decoupled compensation and slowly replaced by
complementary environmental and socio-structural policies. This
would remove the serious distortions in EU agriculture and allow
environmental, social and regional objectives to be addressed
in a more targeted way. For the Central and East European countries
such a reform would ease the path to accession and foster the
development of a dynamic agri-food sector by allowing funds to
be re-directed for modernization and restructuring.
1. Introduction
Potentially the most important aspect
of their accession to the European Union for the Central and Eastern
European countries (CEECs) is the set of agricultural policies
which they would adopt as a result of EU membership. This is both
because of the key importance of the agriculture in these countries
(Anderson and Tyers 1993a; Tyers 1994) and because of the particular
prominence of agricultural policies in the European Union. In
the EU, however, the need for further agricultural policy reforms
has recently begun to be discussed. Clearly, a different set
of agricultural policies would have different implications for
the CEECs economies. In particular, the costs of adopting the
present CAP have already been indicated by several studies (Buckwell
et al. 1995, Tangermann et al. 1995,
Tarditi et al. 1995). More recently, the Commission has
indicated in its White Paper on accession its own favoured strategy
for agricultural reform in view of the Eastern enlargement (Commission
1995). However, most studies have focused on analyzing the impact
of such policy changes on the EU, and no analysis of the implications
of different policies for the CEECs economies has been presented.
This paper intends to provide an initial attempt to consider and
quantify the economic costs and benefits of such different policies
for the CEECs by using a simple static partial equilibrium model.
Its intention is to underline the implications of different policies
for the downstream and upstream sectors, as well as for the wider
economy, of these countries.
In section 2 the Commission's White
Paper on integrating the CEECs is discussed briefly; in section
3 the policy options available for the future are discussed; in
section 4 the model is introduced and in section 5 there is a
discussion of the results.
2. The Commission's White Paper on integrating the
CEECs into the CAP
In the white paper on integrating
the CEECs into the CAP presented in December 1995, the Commission
makes explicit what it sees as the best strategy for CEECs accession
to the EU. After highlighting the need for change in European
agricultural policies the Commission's White Paper goes on to
illustrate the different possible strategies and concludes that
"among the different possible options, the Commission clearly
favours developing the approach that was started successfully
with the 1992 reform. This implies a reduced reliance on price
support, compensated where necessary by direct payments, whatever
their concrete form may be. Furthermore, it implies a better
integration between market policies, rural development and environmental
policies".
The strategy paper also calls for
a special fund to be set up to help the CEECs prepare for EU membership
through infrastructure improvement and sector restructuring.
It is recognized in the Paper that, although farm policy is an
important element in the decision over accession of the CEECs,
structural policy is the key issue. CEE countries are recognized
to be less in need of a high level of price and income support,
than of targeted assistance for restructuring, modernization and
diversification in agriculture and in the downstream sectors.
However, although the notion that
extending the current CAP is neither feasible nor desirable and
that structural policy is the key issue for CEECs' agricultural
sectors seems to have been accepted by the Commission, no clear
strategy has been indicated and no commitments have been made
to facilitate the development of a healthy and dynamic agricultural
sector in the CEECs.
For instance, the Paper does not explain
how its new approach for an "integrated rural policy"
would be funded, although it suggests the need for additional
finance. Also, the inappropriateness of extending agricultural
production quotas to the expanding CEECs is not considered. Furthermore,
no detailed discussion of the issue of compensatory payments for
set-aside and price cuts is presented, in spite of the fact that
they too represent an obstacle to enlargement. In the Paper we
only find a firm rejection of the idea of phasing out market support
and bringing in decoupled and digressive direct income payments
on the grounds that this "radical" type of reform, though
"appealing from an economist's point of view", would
entail high "social and environmental risks". Finally,
although the need for an explicit an active structural policy
in favour of the CEECs agricultural and processing industries
is recognized, no explicit funding policies are identified.
It is, therefore, unclear how the
Commission intends to go about extending the CAP to CEE countries
and this is highlighted by the vague and at least partially inconsistent
nature of current proposals; one can predict that this will translate
into an attempt to accommodate the new entrants within the existing
framework, in spite of its well known deficiencies and of its
inappropriateness for the economies in transition.
3. Agricultural policy options
for the European Union
From the brief discussion of the previous
section it appears that the policy options open to the EU lie
between the three following possibilities: a persistence of the
'Status Quo' situation, a minimal reform of the CAP following
the lines of the White Paper, and a more comprehensive reform
of the CAP. We now move on to discuss in more detail the characteristics
of each of these three options.
3.1 Option A: Maintaining the "Status
Quo"
This involves an attempt to extend
the CAP as it is to the CEE countries. The "Status
Quo" option sees the Commission, who will
no doubt encounter strong pressure from farm lobbies, play down
the importance of the warnings of the need for change and continue
the process of slowly extending, in as far as is necessary (mainly
because of international GATT/WTO obligation), the present CAP
to other major commodities.
The problems with this approach are
well known and several have been emphasized in the White Paper
itself. Firstly, the MacSharry reforms have not solved the budgetary
problems of the CAP; total expenditure has had to increase in
real terms as the burden previously borne by consumers has moved
onto the government; on top of this, farmers have been overcompensated
for price cuts. From several studies it appears that the budget
costs of extending the present CAP to the CEE countries would
be too cumbersome for the EU budget, considerably exceeding the
financial guideline.
Secondly, there is the issue of compensatory
payments. Extending these compensations to the CEE countries
is just as unfeasible, from a financial point of view, as is extending
the current levels of price support. On the other hand, although
the compensatory payments to EU farmers are to some extent decoupled
from production (Josling 1993, p.98), they are not fully decoupled.
Therefore, compensatory payments either will have to be entirely
decoupled from the production process, so that they can be maintained
for EU farmers only, or else they will have to be (considerably)
reduced in size so as to allow their extension to CEECs farmers
as well. Here we implicitly adopt the former solution on the
grounds that it would not be politically easy to reduce these
payments in order to share them with East-European farmers; however,
the solution to decouple payments fully in order to keep them
exclusively for EU-15 farmers (on the grounds that CEECs' farmers
are not suffering a reduction in prices so that they need not
to be compensated) opens serious equity issues and cannot be considered
as permanent.
A further problem with the present
CAP is that the policy of setting aside land (which is needed
in the EU because compensatory payments are not fully decoupled),
has strong negative implications for land use; for instance, in
1993 it consigned around 12% (3.7 out of 30.4 mio hectares in
EU-12 in 1993) of land previously used for cereal production to
forced inactivity. In other words, such a policy recognizes the
existence of a land surplus under cereal production, but does
not encourage a better allocation, freezing the status
quo rather than fostering change. Such a policy
cannot, however, be pursued indefinitely. The results of a recent
study suggest that by 2010 there will be up to 5.4 mio hectares
of land surplus to agricultural production in EU-9 only (Nucifora
1995a, p. 247), without accounting for the area which is already
effectively in surplus (Buckwell 1986, p. 9; Wibberley 1983, pp.
17-34).
Clearly, the above issues render the
current CAP policy unsustainable in the long run as a means to
preserve farmers' incomes while leaving markets undistorted.
In fact, as yields continue to increase and the price of agricultural
products continues to decline, it will become increasingly unacceptable
to set more and more land aside and to compensate farmers for
further price cuts in order to preserve their income; such a policy
would soon become overwhelmingly costly in budgetary, efficiency
and environmental terms, even leaving aside the issue of CEECs
accession.
Further, extending the present CAP
to CEE countries would raise more immediate problems with the
current GATT/WTO constraints agreed by these countries; in fact,
many CEE countries would exceed both their AMS and subsidized
export constraints if they adopted a CAP-like type of policy;
the latter holds especially for the Czech and Slovak Republics
and for Hungary who have set their GATT constraints in national
currencies (OECD 1995).
In practice, extending the "Status
Quo" CAP would soon turn out to be "an
impasse" (Commission 1995). However, this option offers
the advantage to avoid political turmoil, and arguably, it avoids
a high level of social and environmental disruption. Therefore,
it is quite possible that the council of agricultural ministers
will attempt to ignore these issues, introducing only minimal
adjustments to the CAP as they become strictly unavoidable to
meet international or budgetary limitations.
In our model we introduced the following
policy changes for this option (as discussed later, the model
focuses on cereals, beef and dairies only):
a) there is no change in commodity
cereal and beef prices in the EU; the same level of support prices
is extended to the CEECs;
b) the extension of milk quotas to
CEE countries, with quotas for these countries set at 1989 output
levels;
c) the continuation of decoupled compensation
payments in the EU to compensate for price cuts; though these
are not applied to CEECs;
d) the extension of other types of
non-price-related support to the level provided to EU farmers
for all new CEEC members.
3.2 Option B: Progressively extending the MacSharry
Reform - "White
Paper scenario"
Under this "minimal
reform-White Paper" scenario, the Commission
would again play down the need for long term reform, partly giving
in to the pressure exercised by the agricultural producers' lobbies.
The Commission would, however, attempt to move in the direction
of the White Paper by extending in as far as is possible the reform
of the CAP to all other major commodities, with set-aside and
reductions in price support and compensating farmers for the loss
of income.
The CEECs policy makers would therefore
have to refer to a set of policies only partially different from
the present ones, in spite of the fact that these have been classified
as "RED BOX" or "non-exempt from reduction commitments"
in the recent GATT treaty. Policies would include prices close
to (ultimately reaching) world price levels for most products,
a system of production quotas for milk and sugar, and all other
standard CAP product-specific policies.
In particular, we introduced the following
policy changes in our model:
a) a reduction in commodity cereal
and beef prices to world price levels in both the EU and the CEECs;
b) the extension of milk quotas to
CEE Countries, with quotas for these countries set at 1989 output
levels;
c) the continuation of decoupled compensation
payments in the EU to compensate for price cuts; though these
are not applied to CEECs;
d) the extension of other types of
non-price-related support to the level provided to EU farmers
for all new CEE members.
This reform option would offer the
advantage to decrease price support levels, to avoid overwhelming
political resistance in the EU and, arguably, to avoid the "social
and environmental risks" discussed in the White Paper; however,
it also does not deal with some of the issues left open in the
White Paper such as the appropriateness of extending production
quotas to CEE countries and the problem of compensatory payments.
Production quotas have given rise to a rigid and unfair system
in the EU and they are all the more inappropriate for the CEECs
which are by definition in a state of transition and which are
supposed to be developing their comparative advantage in agriculture.
Further, these policies also fail
to address the specific need for structural adjustment and modernization
of CEECs' agricultural sectors. The present structural problems
in the CEECs will prevent these countries from flooding the EU
with agricultural products for at least several years; problems
persist with unresolved land ownership issues, use of low quality
inputs (notably seeds) and inefficiencies in the downstream sectors.
As a result, in recent years the agro-food balance has been developing
in favour of the EU moving from a deficit in 1992 to an increasing
surplus in 1993-94; this is in spite of the fact that all countries
operating under association agreements increased their exports
to the EU in 1994.
The rate of structural reform will
depend, however, on the extent of privatization and on the emergence
of functioning land markets, which so far have been hindered by
the delay in most countries of the definitive settlement of property
rights. A return to profitability of farming does to a large
extent also depend on a competitive downstream sector, as well
as on a reorganization of the farm sector itself. The EU should,
therefore, aim at helping the CEECs to complete land privatization
and to build up food processing and marketing.
3.3 Option C: Completing the reform - "Comprehensive
Reform scenario"
Under the "comprehensive
reform" scenario we envisage the solution
of the issues left unresolved by the current proposals presented
in the White Paper. Again, price support would be progressively
reduced to reach world price levels, and EU farmers would receive
compensation for such reductions. These compensations would be
fully decoupled. Similarly, production quotas for milk and sugar
would be scrapped and farmers would receive the relevant decoupled
compensation.
However, unlike in option B, these
payments to the EU farmers would be progressively phased out.
It would be possible to do this following a type of progressive
phasing such as that proposed by Tracy (1995) or it would be possible
to adopt the bond hypothesis advocated by Tangermann et
al. (1990). Clearly, this option would imply a
considerable one-off budgetary expenditure, particularly in the
case of a once-and-for-all disbursement of compensatory payments
to farmers via a system of redeemable bonds.
Money diverted from compensatory payments
would eventually be redirected towards GREEN BOX structural measures
which are "exempt from the reduction commitments" under
the GATT treaty.
Total expenditure on agriculture would
not, therefore, be reduced. Its amount would still be dictated
by the financial guideline, accounting for the contribution of
the new members. All expenditure on agriculture would now be
concentrated on structural measures and on measures for a diversified
rural development (environment, local crafts, agro-tourism and
others) in line with the idea of an "integrated rural policy"
presented in the White Paper; decoupled income support would be
available to less favourable areas and would take the form of
a social payment, rather than being camouflaged as an agricultural
policy measure.
Although very appealing from an economist's
point of view, and in spite of presenting no reductions in total
agricultural expenditure, this option may be considered to be
politically untenable. However, it offers the advantage of dealing
with all matters left open by the Commission's proposals. It
resolves the equity issues associated with compensating EU farmers
only. It solves the ridiculous proposal of introducing production
quotas in the CEE countries. Finally, it also solves the problem
of ensuring adequate financing for a comprehensive well funded
program of structural measures.
In the "comprehensive reform"
scenario we introduce the following policy changes:
a) a reduction in commodity cereal
and beef prices to world price levels in both the EU and the CEECs;
b) the elimination of the milk quotas
system in the EU with a reduction in the price of milk to the
world level;
c) the ultimate phasing out of decoupled
compensation payments in the EU to compensate for price cuts;
d) the introduction of additional
expenditure in Green Box structural measures;
e) the extension of other types of
non-price-related support to the level provided to EU farmers
for all new CEECs members.
4. The Model
The countries analyzed in the model
include the four Visegrad countries, namely the Czech Republic,
Hungary, Poland and the Slovak Republic, plus Slovenia. The choice
of these countries was somewhat arbitrary in that it was carried
out according to the simple criteria that they have the highest
income out of all candidates for membership and that their economies
have all began to show signs of recovery.
The commodities chosen for analysis
in the model are cereals, beef and veal, and milk. These were
chosen on the dual grounds that they represent a large share of
total agricultural production in all selected CEECs and that they
currently enjoy a high level of price support in the EU. Other
major CEECs commodities, such as pigmeat, fruit and vegetables
and potatoes, were not covered because of the limited extent of
CAP intervention on these markets.
The starting point for our analysis
are the sets of agricultural policies implemented by the various
CEE governments and by the EU in agricultural commodity markets
in 1994. Costs and benefits of possible policy changes are confronted
with those of present agricultural policies. All costs and benefits
are calculated using world prices as reference prices.
The model itself is a simple static
partial equilibrium model with three commodities and seven countries
or country blocks including the EU-15 and the Rest of the World
(RoW). The base year is 1994. Two runs are made for each option
scenario. The first run uses 1994 prices; the second run allows
for the exceptionally high level of agricultural prices in 1994
and sets initial world prices 20% below 1994 levels. In each
scenario the relevant policy changes are introduced and the resulting
allocative effects are analyzed. The elasticity parameters have
been taken from a study by Tyers (1994).
An arbitrary allowance for the effect of agricultural expenditure on the sector's productivity is built into the model; it is assumed that each 0.1% of GDP spent on agriculture brings about a 1% increase in productivity, rising to 1.5% in the case of structural expenditure in the EU and 2% in the case of structural expenditure in the CEECs. In turn this is fed into the model as an equivalent increase in total agricultural production with respect to the base situation. The model also allows for expenditure on structural policies to reduce the inefficiencies in the downstream sector directly; it is assumed that every 0.1% of GDP spent on structural policies would reduce handling margins by 10% of their initial level. These differences in the effect of structural policies on the efficiency of the agricultural sector in the EU and CEECs aim to take into account the exceptionally high present levels of downstream inefficiencies observed in the CEECs, and account for the fast gains available from structural policies in CEE countries as a result of these inefficiencies.
5. Results and policy implications
Given the above assumptions the model
was run to give results for each of the three separate policy
scenarios. For each scenario two runs were carried out with world
prices at 1994 and at 20% below 1994 to account for the exceptionally
high current level of agricultural prices. The results of
the model and the implications of each policy option for the CEECs
are presented below.
The results of the model under the
"Status Quo" scenario (Option
A), the "Minimal Reform-White Paper" Scenario
(Option B), and the "Comprehensive Reform" Scenario
(Option C), are summarized in table 1 below for prices at 1994
and in table 2 below for prices 20% below 1994. Results are discussed
in the following sub-sections.
Implications for the level of prices
At present, there exists a wide gap
between farm gate prices for agricultural products in the EU and
in the CEECs. Looking at 1994 prices one can see that with the
exception of wheat in Slovenia and pork in Poland, all price ratios
are smaller than 100% (Table 3). More generally CEECs agricultural
prices only amount to about 50% of the respective EU price, or
even less.
Besides differences in price support,
the current price wedge can be attributed to two other factors.
Firstly, lower prices can partially be explained by the still
considerable differences in product quality and standards between
the EU and the CEECs. These differences are larger for milk,
beef and other meat products and they are less important for Hungary
and Slovenia where quality standards are already relatively high.
Secondly, inefficiencies in the food
industry and insufficient or lacking wholesale markets seem to
be another reason for lower producer prices. At present, the
food industry in most CEE countries is characterized by severe
overcapacity, increasing input costs, low labour productivity,
outdated processing facilities (except in Hungary where foreign
investment has helped the creation of new plants) and a lack
of market orientation by the management. This situation underlines
the current overall stagnation of these industries and, as a result,
a lower demand for home produced agricultural products. In addition
to these inefficiencies, the market situation in the food industry
and in the distribution systems often tends to be characterized
by a situation of near-monopsony, with few buyers who have the
power to keep down producers' prices.
In fact, very often producer prices
in these countries lie not only below the EU prices but quite
frequently below the respective world market prices. This, however,
does not imply that agriculture is discriminated against by state
intervention. Very often the great inefficiencies that exist
in the food industry and the marketing system of these countries
result in a doubling of the internal prices on the way to the
border (Hartmann 1996; OECD, 1994).
Given the present wedge, an extension
of the CAP in its present state to the CEE countries would clearly
imply a sharp increase in protection levels in the CEECs. Producer
and consumer prices in the CEECs would rise dramatically, reaching
over 100% increases for some of the products; this would constitute
a sharp rise in producer incentives for most agricultural commodities
in the CEECs (except non-ruminant meat products which are less
strongly supported in the EU than in the CEECs and other products
which are not strongly supported under the CAP). Such a substantial
increase in prices received by farmers is bound to have serious
implications on the agricultural sector and the wider economy.
However, it follows from the preceding
discussion that the impact of such an increase in prices (and
thus in production incentives) would be reduced if the CEECs are
not successful in increasing the quality of their agricultural
products and in reducing the inefficiency of their food industry
and wholesale markets. In particular, the CEE countries might
suddenly lose their price advantage against western European products,
while exposing their weakness in quality standards and their inefficiency
in processing and distributing agri-food products to western European
competition.
Implications for the level of agricultural
output
The model used in this study is not
sophisticated enough to give a reliable account of all the factors
concerning inefficiencies in the distribution system and in the
food industry which might reduce the output response to a price
increase. However, the results of the model suggest that the
"Status Quo" option will induce
only a moderate rise in the supply of the three commodities as
a response to the strong increase in prices. The rise in supply
is stronger in the case of beef, which is also the most price
responsive commodity. For milk and cereals the rise in supply
is stronger under the other two options, particularly under option
C. Under options B and C, the accession would take place at (near)
world price levels, thus avoiding strong price shocks to CEECs'
economies. Overall, the model thus confirms that production levels
in the CEECs do not respond too well to the rise in prices, partly
as a result of the implications for demand, and that they are
much more responsive to expenditure on structural policies as
is indicated by the results under option C.
Implications for the demand for
food
The results of the model also confirm
the substantial reduction in demand resulting from the sharp increase
in prices under option A. Under Option B the negative impact
on milk demand is still quite strong, while demand for wheat rises
substantially. Over all, food demand has the best response under
option C. In particular, under option C, demand for wheat rises
considerably while neither beef nor milk demand decrease substantially;
this ensures a more balanced diet for a larger part of the population.
Implications for the trade balance
The agricultural trade balance improves
under option A. However, this takes place largely at the expense
of domestic demand and only partly as a result of the supply rise.
On the other hand, the more modest increase in net exports under
option C takes place without the need for export subsidies and
without the disruption of domestic demand.
Implications on welfare
As is well known market support policies
which directly modify relative market prices, such as the CAP
of the EU, alter the mechanisms which regulate the allocation
of resources in the economy, and which provide a reference for
private investment and a means to evaluating the effectiveness
of public expenditure in general. These distortions drain resources
out of the non-agricultural sectors in favour of the agricultural
sector, and impose additional cost to consumers, not only by raising
food prices, but also by inflicting a sub-optimal allocation of
resources and demands.
An estimate of the welfare costs of
these alternative policy options is provided by the model. Welfare
costs generally rise quite considerably for all CEE countries
under the "Status Quo" scenario
(Option A), while they remain very low under the more comprehensive
reform scenario (Option C). Welfare costs under the White Paper
scenario (Option B) increase somewhat in between. In terms of
GNP these costs range from a minimum of 0.74% of GNP for Slovenia
to a maximum of 2.41% of GNP for Poland respectively under option
A, and from a minimum 0.15% of GNP for Poland to a maximum of
0.61% of GNP for the Slovak Republic respectively under option
C. In the case of Poland, therefore, as high as 2% of GNP can
be lost depending on the agricultural policies which will be adopted
by the EU in the near future. Overall, for all CEE countries
welfare cost are smaller under option C.
For world prices 20% below 1994 levels
welfare costs are similarly high. They range from a minimum
of 1.1% of GNP for Slovenia to a maximum of 2.4%of GNP for Poland
respectively under option A, and from a minimum 0.06% of GNP for
Poland to a maximum of 0.56% of GNP for Slovenia respectively
under option C.
An examination of the welfare losses
as a percentage of total expenditure on agriculture provides a
measure of the level of transfer efficiency. Under option A transferring
one ECU to farmers costs society between 1.4 to 1.9 ECUs, for
the Czech Republic and Slovenia respectively; transferring one
ECU to farmers under option B costs society between 1.4 to 1.7
ECUs, respectively; finally, under option C transferring one ECU
to farmers costs society between 1.03 to 1.2 ECUs. Transfer efficiency
thus improves dramatically across the different scenarios moving
from a 150-200% cost of transfers under option A to almost complete
efficiency under the comprehensive reform scenario. The results
are essentially the same for world prices 20% below 1994 levels.
Implications for input prices
In addition, it should be noted that
EU integration will also lead to an increase in input prices,
which also lie at present far below the respective EU prices.
Thus, only a part of the considerable transfer of economic resources
from taxpayers and consumers to farmers actually reaches the farmers
hands. A portion of the higher revenues generated by price support
policies, would be in part capitalized into higher land values
resulting in higher rents which benefit the land owner, who may
not work or live on the farm. This problem, however, is more
important in western European countries where it is common for
farmers not to own the land they cultivate; in the CEECs land
reform has generally distributed the land to those who undertake
to farm it (Csaki 1994, 1995).
The balance, which is not capitalized
into higher land values, would flow to non agricultural firms
selling input at artificially induced higher prices. In the case
of the CEECs this may be looked upon as an advantage of price
support, in that it allows the upstream industries to share the
benefits of agricultural support. However, this would also have
the effect of allowing such firms to remain less efficient and
therefore uncompetitive on the world markets.
Implications for the adjustment
of the agricultural sector
Price support would also slow down
the process of structural adjustment of the agricultural sector;
by allowing many inefficient firms to survive in the sector, price
support would obstruct the process of enlargement and consolidation
of the most successful farms. Similarly, the increase in land
prices associated with capitalized rents from a more profitable
agriculture would represent a further barrier to structural adjustment
in the agricultural sector; it would slow down the process of
buying and selling of land, and the entry and exit of firms/farmers
in the agricultural industry. Furthermore, as an addition to
the increase in land prices, the introduction of constraints on
the use of arable land (set-aside) and on the levels of production
(notably for milk and sugar), implies that the present CAP would
impose a rigid structure on the CEECs agricultural sector, slowing
down change and discouraging structural adjustment. The inappropriateness
of such a system to the economies in transition should go without
saying.
In addition, the artificial rise in input prices and land rents associated with price support would further render the sector artificially uncompetitive on a world level. Higher farm gate prices would also mean higher input prices for the processing industry which, as discussed, is already in great difficulties. Once again, it appears that price support policies would offset the natural comparative advantage of CEE countries in the agro-food sector.
The other important point to note
here regards the reductions in handling margins; given the assumptions
discussed above concerning the effects of government expenditure
on structural measures, handling margins (and differences in products'
quality) diminish only marginally under both the A and B options,
whilst they decrease considerably more under option C, where margins
begin to approach EU levels. We have seen how this is of particular
relevance to CEE countries because of the exceptionally high current
levels of inefficiency in their downstream sectors which currently
offset their extremely low production costs.
Budgetary costs
The budgetary costs of CEEC-5 accession
under the current CAP (no reform) are estimated by the model at
14.8 bio ECU. Budgetary costs of accession under option B (minimal
reform) are 9.6 bio ECU and rise to 17.1 bio ECU under option
C, reflecting the reallocation of funds previously used to compensate
EU-15 farmers towards Green Box measures for the enlarged Union.
For world prices 20% below 1994 levels, these costs are considerably
higher at 16.6 bio ECU under option A, 10.5 bio ECU under option
B and 20.0 bio ECU under option C.
Agricultural expenditure in terms
of GNP varies from 6.5% to 13% of GNP (Slovak Republic and Poland
respectively) under an extension of the current CAP, from 2% to
10% of GNP (Slovak Republic and Poland respectively) under the
White Paper reform scenario, and from 11% to 18% of GNP (Slovak
Republic and Hungary respectively) under the more comprehensive
reform scenario.
Agricultural expenditure is therefore
lower on average under the White Paper reform scenario. Clearly,
under the present system these expenditures would be financed
via the Community budget. However, one should also consider that
under option A there is likely to be a pre-accession period where
CEE countries would be expected to adjust their prices to those
in the EU. The costs of such an operation would be extremely
heavy for these countries (6.5 to 13% of GNP). Also, the level
of expenditure estimated under option C assumes that all money
previously spent on compensating EU farmers is now redirected
to community-wide structural and modernization plans. Much of
this money would now accrue to CEE countries. It is more likely
that money spent on compensations would in part be withdrawn from
the agricultural budget; this is because compensatory payments
would constitute a one-off/short-term measure, beyond which expenditure
would be expected to resume its normal path as dictated by the
financial guidelines. Community expenditure under option C would
therefore be in line with expenditure under option A.
Implications for the overall economy
As far as the rest of the economy
is concerned, we know from models of agricultural trade that the
presence of the CAP means higher agricultural production by 8
to 9%, but lower overall GNP growth by 0.5 to 4% (Goldin and Knudsen
1990; Nucifora 1995b). Our (partial equilibrium) model behaves
along the same lines, suggesting that under option A, agricultural
supply rises slightly and demand falls sharply; the sudden introduction
of the price rise and the importance of food in the overall expenditure
of the households would lead to a strong fall in demand for other
sectors; as a result overall economic growth would certainly be
slower.
Implications for income distribution
Although the budgetary costs of price
support are generally considerable, the largest burden is still
borne by the consumer. This burden is equivalent to an income-regressive
tax on food. As we know, lower income people spend a higher proportion
of their income on food (Engel's Law). Therefore, raising food
prices has a more than proportional effect on the budget of poor
people, hence the regressive nature of agricultural price support.
Therefore, higher food prices generally raise inequality; however,
this is not the case in those countries where the tax system takes
into account and offsets the income-regressive nature of higher
food prices.
This issue is particularly relevant
to the CEE countries, as on average 36% of total household expenditures
are devoted to food in these countries (Table 4). In Romania
this figure is as high as 60%; once again, these are only average
numbers. Thus, besides the increase in inequality induced by
raising food prices, extending the high price level of the EU
to these countries might have dangerous implications for the food
security level of the poorest people in the CEECs.
Further, it is very difficult to orient
price support to targeted groups; as a result farmers tend to
benefit in proportion to the size of their production. Under
option A the result is, therefore, a more uneven income distribution
amongst both producers and consumers.
Social implications
The social implications of these reforms
are difficult to predict and evaluate. It seems reasonable to
expect farmers to leave rural areas unless they are paid compensation
at a level which maintains their economic incentives to stay in
the countryside. The experience of the EU, however, indicates
that it is better to provide incentives for economic restructuring
and diversification of rural areas than simply price support for
agricultural production; this would induce farmers to earn a livelihood
for themselves and to provide useful services to the community,
rather than encouraging them to depend passively on public funds.
Therefore, it appears that from a social point of view, our more
comprehensive type of reform, which includes adequate funding
for diversification of rural activities, is preferable.
International implications
International considerations are also
important. Trade barriers and subsidization have distorted world
markets and undermined developing countries' agriculture while
contributing to the instability of commodity prices and adding
a politically induced uncertainty in world markets. The internal
protectionist policies of the EU and other developed countries
have therefore had a strong impact on other countries' agriculture;
this has often been a cause of tension in diplomatic and economic
relations with these countries. More recently, with the Uruguay
Round of GATT negotiation, there has been a clear move away from
protectionist agricultural policies. It seems strange that CEECs
countries should decide to increase their level of protectionism
only to be forced to reduce it once again in a few years time
when the GATT/WTO negotiations resume.
Environmental implications
The effects of either option A or
B would be damaging to the environment. Higher prices would lead
to increased intensity of cultivation, increased use of pesticides,
and generally less environmentally friendly farming methods.
It seems advisable to discourage western European methods of highly
intensive farming in Eastern Europe. A set of policies such as
those implemented under the more comprehensive reform scenario
(Option C) would provide the right incentives to encourage farmers
to preserve the environment directly and to avoid the desertion
of rural areas by fostering alternative economic activities.
Future cuts in support prices, under
option A, would have even stronger environmental implications
because of the negative effects of the introduction of set-aside.
The introduction of set-aside, however, ultimately depends on
whether future compensatory payments will be fully decoupled.
6. Conclusions
Overall, offering CEECs farmers the
same agricultural product prices as for EU farmers is therefore
not highly desirable at present. In fact, CAP like policies would
introduce substantial welfare losses and would increase income
inequality. Further, these policies would have a negative impact
on the agricultural sector of the CEECs.
It may be argued that in as far as
the CEECs are concerned, the above mentioned distributional, efficiency
and welfare costs of introducing price support policies ought
to be weighted against the value of the financial transfers which
would take place from the EU to the CEECs as a result of the extension
of the CAP. Rough estimates of such transfers are provided from
the levels agricultural expenditure/budgetary costs presented
above. On average such transfers are in the region 5% of GNP
under option B and 9% of GNP under options A and C. From our results,
however, it is quite clear that the gains of such transfers are
maximized when these transfers are received in the form of structural
policies and policies for the modernization of the agri-food sector.
Under options B and C the price levels
in the CEECs are not raised (except for products under quota in
option B, i.e. milk), thus avoiding equity issues associated with
higher food prices and welfare issues associated with price distortion.
A transfer of resources still takes place, but this has the advantage
of not penalizing the poor. Further, the efficiency of these
direct transfers is now much higher. Almost none of the transfer
is lost in welfare costs. Distributional benefits could be further
increased under option C, by using at least part of the money
not spent on price policies to support directly the income of
poor farmers and to foster the agricultural development of particularly
poor regions via suitable structural and modernization programs
Further, one should not forget that
raising food prices is equivalent to imposing a tax on consumption
to support the farmers. In the Common Agricultural Policy of the
EU, only less than one third of all price support is accounted
for by budgetary expenditure; the largest share of the costs is
borne by the consumers; this cost implicitly falls on each individual
country.
There are further implications of
these policies. Since food expenditure in the CEECs occupies
a high level of total consumers expenditure, the increase in food
prices implied by the CAP may turn out to be equivalent to a prohibitive
tax on disposable income. On the production side agricultural
and food industries do not appear to be ready to respond dynamically
to a sharp increase in incentives. Consequently, one could witness
a situation where the sudden increase in agricultural prices could
have a very negative impact on aggregate demand and, as a result,
on the supply of non agricultural goods, while failing to have
a positive impact on agricultural supply; overall this would lead
to an increase in imports mainly from the EU. Effectively, something
similar has already been happening in the past few years.
Further, these policies would hinder
any improvement in the modernization and competitiveness of the
agricultural sector and its upstream and downstream sectors by
allowing inefficient firms to survive and to avoid adjustment.
Besides obstructing a much needed rationalization of the food
processing and distribution systems, and besides having a strong
negative impact on domestic and particularly export demand for
these products, such an increase in output prices is likely to
translate into an increase in factor prices and land rents; this
would further render the agricultural and agro-processing sectors
less competitive on the world markets. The combined result of
the above would work against the dynamic growth of CEECs agricultural
sectors.
Thus, besides the economic, distributional
and efficiency costs, it appears that the comprehensive effect
of introducing agricultural market price support in the CEE countries,
such as is envisaged in option A, would have a negative impact
on the agricultural sector of these economies. It would reduce
the sector's competitiveness, and it would directly hinder structural
adjustment and modernization. The introduction of quotas, as
under options A and B, also impedes the development of the sector
and a fast adjustment of its structures. On the contrary a set
of policies such as those envisaged in option C would accelerate
the elimination of the inefficiencies present in the food processing
and distribution systems, thus rendering the sector highly competitive
on the world markets.
In conclusion, we know that the CAP
is an expensive and inefficient policy which fails adequately
to meet its many conflicting objectives. The external pressures
of GATT and enlargement are certain to force policy adjustment
within the next few years and the traditional approaches to the
reform of the CAP cannot fully overcome these problems. Moreover
they would seriously constrain, or discriminate against, CEECs'
agriculture, preventing it from exploiting its potential comparative
advantage. This study has shown that a reform involving the removal
of production related support, cushioned by temporary, digressive
fully decoupled compensation and slowly replaced by complementary
environmental and socio-structural policies, would remove the
serious distortions in EU agriculture, enable the Union to participate
in the growth of world trade and allow social and regional objectives
to be addressed directly. For the CEECs, such a reform would
ease the path to accession, allow funds to be directed for modernization
and restructuring and ultimately facilitate the emergence of dynamic
agricultural sectors capable of making a major contribution to
the economies of the CEECs and to an enlarged European Union.
1.
We note that were the EU prices at the world level at the time
of accession there would be no overproduction to justify set-aside
being applied to CEC countries.
2. These measures are described
in detail in Annex 2 of the GATT agreement of Marrakesh.
3. In the rest of the paper
we refer to these countries as CEEC-5. Other countries also applying
for membership are Bulgaria, Romania, Estonia, Latvia and Lithuania
(CEEC-10).
4. In this study key elasticities
of demand and supply for Eastern Europe were drawn from compendia
such as Sullivan et al (1992) and the work
of the regional specialists at the USDA Economic Research Service,
supplied personally. Where authoritative estimates of such parameters
were unavailable, values were adopted from the databases for like
agricultural economies elsewhere in Europe and Asia. These values
were then modified for consistency with the patterns of production
and expenditure in Eastern Europe.
5. This effect has not been
proved true in the literature due to the early existence of agricultural
protectionism in most countries, which has not given the chance
to test for the impact of the introduction of agricultural support
on productivity growth. Economic theory, however, tells us this
is what we should expect; given the marginally higher returns
to agriculture it can be expected the rates of return on research
in the sector should also be higher, thus inducing extra research
and innovation in that sector.
6. This is done by initially
running a simulation where agricultural markets settle at prices
20% below 1994 levels; the results of this simulation provide
the new reference scenario from which to analyze the policy changes.
7. For the EU there are
substantial gains in consumer surplus as we move from the reference
scenario to option B, and more in moving to option C. Likewise,
producer surplus is dramatically reduced. It is worth emphasizing,
however, that producer surplus does not reflect here the overall
welfare impact for farmers; in particular, it neglects that vast
sums of money have been redirected towards Green Box measures
and does not reflect the potential value of these structural and
environmental support measures to farm incomes.
8. For easy comparison,
the whole CAP spending for 1992, 1993 and 1994 was 35.2, 38.4
and 39.5 bio ECU, respectively. The estimate of total budget
costs of extending the present CAP to CEE countries presented
in this study is in line with the various estimates which have
been presented in the literature; these vary from as low as 3.7
bio ECU (Brenton and Gros 1993) to 40.5 bio ECU (Anderson and
Tyers 1993b) (see in this respect the studies cited in Buckwell
et al. (1995, p. 57) and Tarditi et al. (1995, p.38)). More recent
estimates have concentrated in the 10-20 bio ECU range (Slater
and Atkinson 1996; Munch 1996; EU Commission 1995).
The estimates provided
in this study should, however, be taken with caution for the reasons
below. Estimates of total budget and welfare costs are derived
by assuming that the share of CAP expenditure on cereals, beef
and milk (which are the products considered in the model) will
stay the same as in 1994. However, the shift from price support
to direct payments under the MacSharry reform has meant that the
budgetary cost of support for cereals has increased more than
proportionally in recent years; this leads to underestimate the
total costs of the reform scenarios as expenditure on other products
would now increase more than proportionally. Secondly, these
shares are particularly inappropriate to estimate costs in CEE
countries as they are not reflective of the composition of total
agricultural output in those countries; this leads to overestimate
total costs as the products covered in this study are marginally
more important for CEECs than is the case for the EU-15. It follows
that these estimates can be compared only approximately with estimates
from other studies.
9. Ultimately this depends
on the individual country's taxation policies.
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Table 1: Reference Scenario, Option A, Option
B and Option C, at 1994 World Prices
| unit | Reference Scenario | Option A | |||||||||||||||
| Handling margins: Cereals | % | 31.6% | 60.6% | 2.7% | 49.0% | 86.2% | 6.5% | 0.0% | 0.0% | 28.0% | 49.0% | 2.1% | 45.9% | 85.3% | 1.6% | 0.0% | 0.0% |
| Handling margins: Beef | % | 20.4% | 49.7% | 39.6% | 29.1% | 23.5% | 22.9% | 0.0% | 0.0% | 17.8% | 46.7% | 29.4% | 27.5% | 22.8% | 3.5% | 0.0% | 0.0% |
| Handling margins: Milk | % | 22.0% | 10.2% | 49.5% | 20.6% | 25.0% | 9.2% | 0.0% | 0.0% | 19.9% | 9.6% | 35.7% | 20.1% | 24.6% | 2.0% | 0.0% | 0.0% |
| Average Border Protection Rate | % | 3.4% | 17.4% | -27.9% | 3.4% | 52.6% | 40.4% | 0.0% | 0.0% | 33.6% | 26.7% | 43.7% | 27.7% | 71.4% | 42.5% | 0.0% | 0.0% |
| Price Distorting Support Expenditure | (MioEcu) | 66.2 | 269.5 | 70.7 | 17.6 | 11.0 | 5158.7 | 0.0 | 0.0 | 626.1 | 668.1 | 3079.5 | 237.2 | 58.7 | 2923.9 | -0.0 | 0.0 |
| Producer Surplus | (MioEcu) | -207.3 | -260.8 | -1683.0 | -120.1 | 110.4 | 27769.8 | -7940.7 | -9775.1 | 875.6 | 824.4 | 2707.9 | 340.3 | 127.6 | 28294.0 | -16080.3 | -20279.4 |
| Consumer Surplus | (MioEcu) | 170.1 | 219.3 | 1222.7 | 110.3 | -151.0 | -28879.6 | 7872.2 | 9775.1 | -580.3 | -605.7 | -1397.1 | -243.9 | -141.6 | -28879.7 | 16235.9 | 20279.4 |
| Economic Welfare Impact | (MioEcu) | -103.4 | -311.0 | -531.0 | -27.4 | -51.6 | -6268.6 | -68.5 | 0.0 | -330.8 | -449.3 | -1768.7 | -140.8 | -72.7 | -3509.6 | 155.6 | 0.0 |
| CAP-wide Economic Welfare Impact | (MioEcu) | -257.0 | -773.1 | -1320.0 | -68.0 | -128.2 | -15581.8 | -822.3 | -1116.9 | -4396.5 | -349.9 | -180.8 | -8723.8 | ||||
| Total budget expenditure | (MioEcu) | 142.1 | 360.5 | 1800.2 | 238.2 | 34.5 | 15897.4 | 0.0 | 0.0 | 806.6 | 841.8 | 3906.2 | 309.4 | 82.1 | 27644.6 | 0.0 | 0.0 |
| CAP-wide Total Budget Expenditure | (MioEcu) | 353.3 | 896.2 | 4474.8 | 592.1 | 85.7 | 39516.2 | 2005.0 | 2092.4 | 9709.8 | 769.2 | 204.2 | 68716.4 | ||||
| CAP Expenditure as a % of 1993 GNP | % | 1.3% | 2.8% | 6.1% | 6.8% | 0.9% | 0.7% | 7.5% | 6.4% | 13.2% | 8.8% | 2.1% | 1.2% | ||||
| Welfare Costs as a % of 1993 GNP | % | -0.4% | -1.0% | -0.7% | -0.3% | -0.5% | -0.3% | -1.2% | -1.4% | -2.4% | -1.6% | -0.7% | -0.1% | ||||
| Cost of Transferring 1 ECU to Farmers | 1.7 | 1.9 | 1.3 | 1.1 | 2.5 | 1.4 | 1.4 | 1.5 | 1.5 | 1.5 | 1.9 | 1.1 | |||||
| unit | Option B | Option C | |||||||||||||||
| Handling margins: Cereals | % | 28.2% | 49.9% | 2.1% | 46.1% | 85.3% | 1.7% | 0.0% | 0.0% | 5.6% | 6.1% | 0.2% | 11.4% | 63.9% | 0.0% | 0.0% | 0.0% |
| Handling margins: Beef | % | 18.2% | 47.2% | 30.7% | 27.8% | 22.9% | 3.7% | 0.0% | 0.0% | 6.6% | 27.0% | 6.9% | 16.0% | 16.8% | 0.3% | 0.0% | 0.0% |
| Handling margins: Milk | % | 19.8% | 9.5% | 35.3% | 20.1% | 24.6% | 1.9% | 0.0% | 0.0% | 5.0% | 3.4% | 3.5% | 10.8% | 16.1% | 0.0% | 0.0% | 0.0% |
| Average Border Protection Rate | % | 33.4% | 7.4% | 24.7% | 39.4% | 52.5% | 24.6% | -0.0% | 0.0% | -1.9% | -2.0% | 0.0% | -3.8% | 21.3% | 0.0% | 0.0% | -0.0% |
| Price Distorting Support Expenditure | (MioEcu) | 338.8 | 137.0 | 2404.1 | 64.2 | 86.0 | 2441.0 | -0.0 | 0.0 | 36.6 | 64.9 | 89.7 | 50.6 | 41.7 | 15.0 | 0.0 | 0.0 |
| Producer Surplus | (MioEcu) | 369.5 | 214.2 | 1440.6 | 91.5 | 64.3 | 13397.7 | -8860.5 | -12256.1 | -18.6 | -20.2 | -57.9 | -8.4 | -2.5 | -540.8 | -2957.5 | -3607.0 |
| Consumer Surplus | (MioEcu) | -222.1 | -207.8 | -501.1 | -88.3 | -52.0 | -12858.0 | 9149.5 | 12256.1 | 13.7 | 14.3 | 40.8 | 6.0 | 3.1 | 604.1 | 2924.2 | 3607.0 |
| Economic Welfare Impact | (MioEcu) | -191.4 | -130.5 | -1464.7 | -61.0 | -73.7 | -1901.3 | 289.0 | -0.0 | -41.5 | -70.8 | -106.8 | -53.0 | -41.1 | 48.3 | -33.3 | 0.0 |
| CAP-wide Economic Welfare Impact | (MioEcu) | -475.8 | -324.3 | -3640.8 | -151.6 | -183.3 | -4726.0 | -103.2 | -176.1 | -265.4 | -131.7 | -102.1 | 120.0 | ||||
| Total budget expenditure | (MioEcu) | 477.7 | 246.2 | 2923.9 | 113.6 | 110.5 | 26939.9 | 0.0 | 0.0 | 1204.8 | 1436.0 | 3393.8 | 641.7 | 194.5 | 31124.5 | 0.0 | 0.0 |
| CAP-wide Total Budget Expenditure | (MioEcu) | 1187.4 | 611.9 | 7267.9 | 282.4 | 274.6 | 66964.7 | 2994.8 | 3569.4 | 8436.1 | 1595.1 | 483.5 | 77366.3 | ||||
| CAP Expenditure as a % of 1993 GNP | % | 4.4% | 1.9% | 9.9% | 3.2% | 2.8% | 1.1% | 11.2% | 11.0% | 11.5% | 18.3% | 4.9% | 1.3% | ||||
| Welfare Costs as a % of 1993 GNP | % | -0.7% | -0.4% | -2.0% | -0.7% | -0.8% | -0.0% | -0.2% | -0.2% | -0.1% | -0.6% | -0.4% | 0.0% | ||||
| Cost of Transferring 1 ECU to Farmers | 1.4 | 1.5 | 1.5 | 1.5 | 1.7 | 1.1 | 1.0 | 1.0 | 1.0 | 1.1 | 1.2 | 1.0 |
Table 2: Reference Scenario, Option A, Option
B and Option C, at Prices 20% below 1994 World Prices
| unit | Reference Scenario | Option A | |||||||||||||||||||||||||||||||||
| Handling margins: Cereals | % | 31.3% | 60.0% | 12.0% | 49.1% | 132.7% | 6.3% | 0.0% | 0.0% | 27.7% | 48.4% | 9.3% | 45.9% | 131.4% | 1.5% | 0.0% | 0.0% | ||||||||||||||||||
| Handling margins: Beef | % | 20.1% | 37.0% | 24.5% | 29.9% | 54.4% | 23.1% | 0.0% | 0.0% | 17.2% | 34.6% | 17.7% | 28.0% | 52.7% | 3.5% | 0.0% | 0.0% | ||||||||||||||||||
| Handling margins: Milk | % | 22.9% | 12.7% | 36.7% | 0.5% | 17.9% | 9.3% | 0.0% | 0.0% | 20.7% | 11.9% | 26.4% | 0.5% | 17.6% | 2.0% | 0.0% | 0.0% | ||||||||||||||||||
| Average Border Protection Rate | % | 18.3% | 33.3% | -15.3% | 16.9% | 91.0% | 66.8% | 0.0% | 0.0% | 61.7% | 54.8% | 74.1% | 55.6% | 114.8% | 70.4% | -0.0% | 0.0% | ||||||||||||||||||
| Price Distorting Support Expenditure | (MioEcu) | 77.1 | 274.6 | 338.9 | 21.0 | 12.3 | 5842.2 | 0.0 | 0.0 | 808.0 | 761.7 | 3308.9 | 294.6 | 81.3 | 4457.2 | 0.0 | 0.0 | ||||||||||||||||||
| Producer Surplus | (MioEcu) | 122.0 | 73.1 | -597.6 | 15.0 | 156.9 | 38179.5 | -10809.1 | -13192.9 | 1229.9 | 1177.2 | 3752.2 | 482.7 | 178.8 | 39141.4 | -17942.8 | -22312.0 | ||||||||||||||||||
| Consumer Surplus | (MioEcu) | -113.0 | -84.9 | 379.0 | -14.3 | -213.6 | -41018.1 | 10617.7 | 13192.9 | -863.3 | -907.8 | -2238.4 | -368.2 | -204.0 | -41018.2 | 17949.9 | 22312.1 | ||||||||||||||||||
| Economic Welfare Impact | (MioEcu) | -68.1 | -286.3 | -557.5 | -20.3 | -69.0 | -8680.8 | -191.4 | 0.0 | -441.3 | -492.4 | -1795.2 | -180.1 | -106.5 | -6334.0 | 7.2 | 0.1 | ||||||||||||||||||
| CAP-wide Economic Welfare Impact | (MioEcu) | -169.2 | -711.7 | -1385.9 | -50.5 | -171.5 | -21578.0 | -1097.1 | -1223.9 | -4462.3 | -447.7 | -264.8 | -15744.4 | ||||||||||||||||||||||
| Total budget expenditure | (MioEcu) | 173.8 | 365.5 | 2081.8 | 241.8 | 44.0 | 16689.0 | 0.0 | 0.0 | 1013.4 | 948.1 | 4250.4 | 375.4 | 108.3 | 29610.8 | 0.0 | 0.0 | ||||||||||||||||||
| CAP-wide Total Budget Expenditure | (MioEcu) | 432.1 | 908.4 | 5174.7 | 601.1 | 109.3 | 41484.1 | 0.0 | 0.0 | 2518.9 | 2356.7 | 10565.4 | 933.0 | 269.3 | 73603.9 | 0.0 | 0.0 | ||||||||||||||||||
| CAP Expenditure as a % of 1993 GNP | % | 1.6% | 2.8% | 7.1% | 6.9% | 1.1% | 0.7% | 9.4% | 7.3% | 14.4% | 10.7% | 2.7% | 1.2% | ||||||||||||||||||||||
| Welfare Costs as a % of 1993 GNP | % | -0.3% | -0.9% | -0.8% | -0.2% | -0.7% | -0.4% | -1.7% | -1.5% | -2.4% | -2.1% | -1.1% | -0.3% | ||||||||||||||||||||||
| Cost of Transferring 1 ECU to Farmers | 1.4 | 1.8 | 1.3 | 1.1 | 2.6 | 1.5 | 1.4 | 1.5 | 1.4 | 1.5 | 2.0 | 1.2 | |||||||||||||||||||||||
| unit | Option B | Option C | |||||||||||||||||||||||||||||||||
| Handling margins: Cereals | % | 27.9% | 49.8% | 9.3% | 46.2% | 131.3% | 1.7% | 0.0% | 0.0% | 5.4% | 5.6% | 0.9% | 10.3% | 96.0% | 0.0% | 0.0% | 0.0% | ||||||||||||||||||
| Handling margins: Beef | % | 17.9% | 35.2% | 18.9% | 28.5% | 53.1% | 3.7% | 0.0% | 0.0% | 6.3% | 19.9% | 4.1% | 16.0% | 38.6% | 0.3% | 0.0% | 0.0% | ||||||||||||||||||
| Handling margins: Milk | % | 20.6% | 11.8% | 25.9% | 0.5% | 17.6% | 1.9% | 0.0% | 0.0% | 5.2% | 4.2% | 2.5% | 0.3% | 11.6% | 0.0% | 0.0% | 0.0% | ||||||||||||||||||
| Average Border Protection Rate | % | 49.2% | 56.5% | 43.0% | 55.3% | 83.6% | 40.4% | -0.0% | 0.0% | -1.8% | -1.9% | 0.3% | -3.4% | 32.0% | 0.0% | 0.0% | 0.0% | ||||||||||||||||||
| Price Distorting Support Expenditure | (MioEcu) | 445.3 | 113.0 | 2613.3 | 75.1 | 121.2 | 4206.1 | -0.0 | 0.0 | 24.1 | 42.2 | 35.4 | 36.9 | 55.3 | 18.7 | -0.0 | 0.0 | ||||||||||||||||||
| Producer Surplus | (MioEcu) | 512.4 | 299.3 | 1962.1 | 126.8 | 88.5 | 18454.4 | -10251.8 | -13933.2 | -15.6 | -17.9 | -47.1 | -7.8 | -2.1 | -436.4 | -2820.4 | -3349.1 | ||||||||||||||||||
| Consumer Surplus | (MioEcu) | -308.9 | -283.9 | -779.3 | -123.1 | -71.4 | -17526.3 | 10531.5 | 13933.2 | 12.8 | 13.5 | 39.0 | 5.7 | 2.9 | 541.4 | 2731.9 | 3349.1 | ||||||||||||||||||
| Economic Welfare Impact | (MioEcu) | -241.8 | -97.6 | -1430.5 | -71.4 | -104.1 | -3278.0 | 279.7 | -0.0 | -26.9 | -46.6 | -43.5 | -39.0 | -54.5 | 86.3 | -88.5 | 0.0 | ||||||||||||||||||
| CAP-wide Economic Welfare Impact | (MioEcu) | -601.1 | -242.6 | -3555.7 | -177.6 | -258.8 | -8148.1 | -66.8 | -115.8 | -108.2 | -97.0 | -135.4 | 214.6 | ||||||||||||||||||||||
| Total budget expenditure | (MioEcu) | 595.2 | 217.8 | 3157.0 | 125.7 | 149.6 | 29073.0 | 0.0 | 0.0 | 1230.4 | 1497.3 | 3659.3 | 686.6 | 215.1 | 30787.2 | 0.0 | 0.0 | ||||||||||||||||||
| CAP-wide Total Budget Expenditure | (MioEcu) | 1479.5 | 541.5 | 7847.3 | 312.4 | 372.0 | 72266.9 | 0.0 | 0.0 | 3058.4 | 3721.8 | 9096.0 | 1706.8 | 534.7 | 76527.9 | 0.0 | 0.0 | ||||||||||||||||||
| CAP Expenditure as a % of 1993 GNP | % | 5.5% | 1.7% | 10.7% | 3.6% | 3.8% | 1.2% | 11.5% | 11.5% | 12.4% | 19.6% | 5.5% | 1.3% | ||||||||||||||||||||||
| Welfare Costs as a % of 1993 GNP | % | -0.91% | -0.30% | -1.95% | -0.82% | -1.06% | -0.14% | -0.10% | -0.14% | -0.06% | -0.45% | -0.56% | 0.00% | ||||||||||||||||||||||
| Cost of Transferring 1 ECU to Farmers | 1.4 | 1.4 | 1.5 | 1.6 | 1.7 | 1.1 | 1.0 | 1.0 | 1.0 | 1.1 | 1.3 | 1.0 | |||||||||||||||||||||||
Table 3: Agricultural Producer Prices in CEE Countries Relative
to the Respective Prices in the EU-15 (1994)
| Czech Republic | ||||||
| Hungary | ||||||
| Poland | ||||||
| Slovak Republic | ||||||
| Slovenia | ||||||
| Romania | ||||||
| Bulgaria | ||||||
| Lithuania | ||||||
| Latvia | ||||||
| Estonia | ||||||
| EU-15 | ||||||
| Source: Own calculations based on European Commission (ed.) (1995) Agricultural Situation and Prospects in the Central and Eastern European Countries. Summary Report. Brussels. | ||||||
| Table 4: Food Expenditure as % of Total Household Expenditure | ||||||
| Czech Republic | ||||||
| Hungary | ||||||
| Poland | ||||||
| Slovak Republic | ||||||
| Slovenia | ||||||
| CEEC-5 | ||||||
| Romania | ||||||
| Bulgaria | ||||||
| Lithuania | ||||||
| Latvia | ||||||
| Estonia | ||||||
| CEEC-10 | ||||||
| EU-15 | ||||||
| Source: Hartmann, 1996 | ||||||