Why farmers in the New Member States love the CAP

Jerzy Wilkin of Warsaw University in a recent paper has summarised the agricultural experience in the New Member States (NMS) under the CAP since they joined the EU in 2004. One of the points he highlights is the change in attitudes among farmers to the EU particularly in Poland, the largest of the New Member States. Although ex ante studies had suggested significant gains to agriculture as a result of accession, farmers were generally fearful and negative towards membership prior to 2004. Three years later, the situation is transformed. The share of Polish farmers supporting Poland’s accession to the EU has risen from 23% in 1999, to 38% in 2002, to 66% in 2003 and to 72% in 2005.

According to Wilkin, farmers’ initial distrust of the EU was partly a result of painful experience with market reforms and the restructuring of agriculture during the period of post-communist transformation. It was also partly a result of asymmetrical trade changes during the 1990s which saw all the NMS except Hungary become net importers of agri-food products. The competitiveness of agriculture in the NMS was generally low because of underinvestment, low profitability and unfinished institutional reforms. The majority of farmers in the NMS were afraid that they could not face up to competition from EU-15 farmers after accession.

It was also partly a fear that farmers in the NMS would be treated as ‘second class’ participants in the CAP. The initial EU reluctance to extend direct payments to the NMS played an important role in building a negative attitude. There was considerable uncertainty about the conditions of membership right up to the conclusion of the negotiations in December 2002 on issues such as the size of direct payments, reference quantities, milk and sugar quotas, co-financing of agricultural and rural measures and the level of financial resources which the NMS would obtain. Wilkin also highlights the high transaction costs which had to be paid before entering the CAP, even if part of these costs could be recovered from the pre-accession funds PHARE and SAPARD.

Looking back on the initial experience of accession in Poland, Wilkin comments:

The beginnings were promising: relatively good adjustment to Community standards by Polish producers, general absorption of funds allocated to direct payments, extraordinary dynamics of exports to Community markets, growth of investments in agriculture and food economy and suchlike phenomena. Despite the fears expressed earlier, Poland’s accession to the EU did not prove traumatic to Polish farmers; small holdings were not eliminated, the Polish market was not flooded with foodstuffs from other EU MS, foreigners do not purchase agricultural land en masse and the Polish farmer had no grounds for feeling alien in the “European family”.

The main reason for the more positive attitude of farmers towards the EU is the dramatic rise in support payments. The unfavourable movement in the terms of trade for agriculture has not changed after accession, with agricultural input prices continuing to increase faster than output prices. In Poland, support for agriculture and rural development increased from PLN 5,080 million in 2003 to PLN 18.515 million in 2006, i.e. almost four times. The Polish Agency for Modernisation and Restructuring of Agriculture, which administers these payments, was impressively up to the task. 1.4 million Polish farmers operating on 90% of the cropland in the country benefited from payments already in the first year of membership. In the Czech Republic support for agriculture increased from average CZK18,008 billion in 1998-2003 to average CZK 30,129 billion in 2004-2005. In Hungary, administration was less satisfactory, and in 2005 just 210,000 farms out of a total of 660,000 benefited from direct payments, leading to demonstrations in Budapest as farmers expressed their dissatisfaction. Of course, one of the consequences of this massive increase in support has been rapidly rising land prices in most of the NMS with the apparent exception of the Czech Republic.

Incidentally, a noteworthy by-product of CAP payments in Poland has been an increase from 20% in the number of farmers who had bank accounts and used bank services in the late 1990s to over 90% of farmers by 2004, simply because possession of a bank account was necessary to receive the direct payment and other forms of CAP support.

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