Operational effects of the Common Agricultural Policy from a Hungarian perspective

Mizik, Tamás

Keywords: Common Agricultural Policy, reference yield, standard output, national envelope, Q10, Q18

The Common Agricultural Policy (CAP) is one of the first common policies of the European Union (EU) and it still has significant share of the common budget. The initial and unchanged objectives laid down in the Treaty of Rome were so successful that they led to even greater problems. Therefore, almost the last 50 years were dedicated to problem solving through different reforms of the CAP.
The CAP payments provided unimaginable amounts of funding to the new member states. Direct payments have crucial importance and have resulted/result in constant concentration pressure at the farm level when they were tied to production. However, this high dependence on payments leads to no intention to change the support system both at farm and decision maker levels. On the other hand, new challenges and objectives (e.g. combatting climate change, risk management, income stabilisation) require redistribution of the EU’s and CAP’s budget as well. The ‘Brexit effect’ should also be taken into account (lower common budget versus higher contribution of the member states) as the UK is the second-largest net contributor to the EU budget.
As regards the future of the CAP, on the one hand a decrease in funding is expected (4% in real terms according to the latest communication of the Commission) and on the other hand more elements (e.g. speeding up convergence, enhanced conditionality or capping) are pointing towards lower competitiveness (EC, 2018b). But Farm Structure Surveys show that production and growth are derived from the large farms. Their share in Hungary is above the EU average, therefore their dependence on funding (especially on direct payments) claims for instant and significant increases in competitiveness. However, the effect of capping will be appreciably lowered by the sum of personnel costs or by dividing farms in the last case. Overall, increases in efficiency and competitiveness become a key area and a proper production structure can significantly contribute to them.

Full article