A study published by the European Commission (EC) today concludes that membership of the European Union will significantly improve the prospects for farmers in the candidate countries, without creating major market imbalances for an enlarged Union.

Four different policy scenarios ("no enlargement", "introduction of the Common Agricultural Policy (CAP) without direct payments", "CAP with direct payments", and "Candidate Country Negotiating Position") were considered in the study entitled Analysis of the Impact on Agricultural Markets and Incomes of EU Enlargement to the CEECs.

The simulation shows that even under the most pessimistic restructuring scenarios, EU accession will have positive effects on the income of farmers in the candidate countries.

The report also underscores the EC's view that immediately paying 100% of direct payments would create significant social distortions and inequalities and would hamper the necessary restructuring, given that farmers' income in the candidate countries could more than double. The study underscores that these positive effects of EU membership can only be reaped if the necessary restructuring to meet EU production standards will be made.

According to the report, even the application of EU market measures such as intervention with zero direct payments is likely to generate an increase in farm income of around 30% for the eight Central and Eastern European candidate countries (all CEECs except Bulgaria and Romania) in 2007.

Increases would be particularly significant in the Czech Republic (+60%), Latvia (+59%), Estonia (+55%), Slovakia (+45%) and Poland (+35%). The application of 100% direct payments on the basis of recent reference periods would triple this effect (income +89%), while accepting the candidate countries negotiating positions would quadruple the positive income effect (+123%).

Commenting on these findings, Commissioner Fischler said, "The conclusions are clear. Being in is better than being out.

"EU membership will bring significant benefits to the farmers from the candidate countries. But this study also sends a plain message. There is not such thing as a blank cheque. In order to reap the benefits of EU membership the candidate countries have to meet EU production standards. To achieve this, they have to make the necessary efforts to restructure, especially in the livestock sector. This is why we have proposed reinforced rural development with targeted measures such as support for semi-subsistence farms.

"Prospects for staying outside the EU are poor, particularly for the beef and dairy sector. This study backs the Commission's strategy. It is obvious that with our proposals for direct payments (25%-30%-35% from 2004 to 2006) the situation for farmers in all candidate countries will be more favourable than remaining outside the Union. This study shows that a certain amount of direct payments is necessary to stabilise incomes. But a low level of direct aid support is enough to ensure that all CEECs experience positive income effects as a result of enlargement.

"On the other hand, the report makes clear that 100% direct aids would lead to a situation where an average Hungarian or Czech farmer would all of a sudden receive more than double the average national wage. This would undermine incentives towards labour restructuring in countries with small farm structures and would create social distortions and inequalities."

The conclusions of the study

1. Poor prospects for farmers in the CEECs outside the EU

Without EU membership, output (value of production) in the eight CEECs seeking to join in 2004 (CEEC-8) is likely to increase only slightly in the crops sector and continue to contract in the livestock sector if the countries are outside the EU in 2007.

In the crops sector the highest growth would be seen in Slovakia (+6%), while in Lithuania crop output would contract (3%). The picture is far more pessimistic for livestock production with all countries except for Slovenia and, to a lesser extent, the Czech Republic experiencing a contraction in output. This is particularly marked in the Baltics and Hungary. As a result, income for CEEC-8 is expected to contract by 4% on average compared to 2002. The only exceptions to the generalised fall in income are in Slovenia, and to a less extent the Czech Republic. Both Poland and Hungary are close to the average.

Whether candidate countries will be able to fully reap the benefits of the EU will depend on their ability to meetthe existing body of EU law (acquis) and produce to EU standards in the livestock sector, particularly in those countries with a large semi-subsistence sector. The study does not foresee these problems in the crop sector.

The EC has foreseen measures in its proposals to ensure that candidate countries can achieve these benefits by 2007 through restructuring aid under rural development and a specific measure to help the semi-subsistence sector move to full commercial standards. This necessary restructuring would be far more painful outside the EU, without access to targeted rural development programmes and structural funds programmes.

2. A low level of direct aid support is enough to ensure that all CEECs experience positive income effects as a result of enlargement

The application of 100% direct payments on the basis of recent reference periods triples the effect on income (+89%) compared to price policy alone, while the candidate countries negotiating positions quadruples the effect (+123%).

In all cases, the situation of the candidate countries under the EC's proposals (25%-30%-35%) are more favourable than remaining outside the Union, even in the most pessimistic restructuring scenarios.

Accession therefore leads to favourable income increases in the CEEC-8 particularly when examined in the light of national wage structures.

3. 100% direct aids lead to very strong income effects, which could undermine incentives towards labour restructuring and create social distortions and inequalities

Without EU accession, an average farm of 20 hectares in the CEEC-8 generates income in the form of added value worth the equivalent of 1.2 national wages compared to 0.9 in the EU-15.

Accession without direct payments would bring an increase in the income of a 20-hectare farm by 50% (from an amount worth roughly 1.2 wages to 1.8 wages after accession)

Full direct payments based on recent reference periods increases incomes by 117% (to the equivalent 2.6 average annual gross wages)

With 100% direct payments based on the requests of the CEECs income increases roughly by 150% (from 1.2 wages to 3 national wages compared to the non-accession scenario).

At such high levels of direct payments, it would be favourable for production factors, i.e. labour, to stay in agriculture instead of seeking employment outside agriculture. In many countries, direct payments at this level could also create significant social distortions and inequalities.

4. CEEC farmers can grow and be competitive in the single market

Even without direct payments for the candidate countries the study anticipates an increase in cereal production, leading to increased surpluses. The effects on beef and dairy production are also positive, but not enough to cause a significant increase on current production levels. This is a clear indication of the ability to compete within the Single Market.

Only pork production is expected to decline, highlighting this sector as one with relative competitiveness. Growth in poultry production following rapid investment is likely to meet expanding demand in new markets. Such a development path would be possible for the most dynamic parts of the pigmeat sector.

Integration into the Single Market will provoke a certain specialisation of agricultural production into crop production in the CEECs and livestock production in the EU-15.

5. Enlargement will not create major market imbalances for an enlarged Union

In the crop sector, surpluses of wheat should not cause a major problem since EU wheat will be competitive on world markets. The maize surplus of the CEECs could be entirely absorbed by the EU-15. Only rye and other grains (mainly oats) could have difficulties finding outlets on world markets.

For livestock, beef markets in the EU-25 will be manageable, if no major change in consumer preferences occur. Provided that quotas are based on recent reference periods, there will not be major disturbances of EU dairy markets after accession.

It should be noted that additional positive income effects coming from the enhanced rural development measures proposed by the Commission are not reflected in these simulations.

To read the full study on DG Agriculture's website, click here.