CAP 2014-2020: an impact assessment of the proposed direct payments system in Hungary

Popp, József – Papp, Gergely – Kovács, Máté – Potori, Norbert

Keywords: CAP 2014-2020, direct payments, impact assessment, general equilibrium model, Hungary.

The proposal published by the European Commission on 12 October 2011 on the future reform of the direct payments scheme is acceptable to Hungary. It includes appropriate measures to support the aims of the Hungarian agricultural policy. The relatively favourable position of Hungary in terms of the resources originating from the first pillar would not deteriorate.
The results of our modelling work suggest that the proposed changes in EU direct payments alone would have no significant impact on the real indicators and the production structure of Hungarian agriculture. The volume of income would decrease slightly while the capping of direct payments and the application of the Small Farmers Scheme would reallocate EUR 32.6 million (i.e. 2.5 per cent of first pillar resources) per annum to the smallest farms. The proposed progressive reduction and capping of direct payments would only affect, even in an extreme case, 181 farms and would mean a withdrawal of no more than EUR 10.6 million in total. In fact the amount reallocated from large farms to the financing of innovative projects would evidently be smaller.
The essential element of the reform is the linking of 30 per cent of direct payments to practices beneficial for the climate and the environment. Our calculations show that the creation of an ecological focus area of 7 per cent would lead to an income decrease of less than EUR 20 per hectare in the case of 80 per cent of farms affected by the regulation (i.e. 4.37 million hectares of agricultural land in 2010), while the compensatory payment per unit could reach EUR 80. Regarding the proposal on crop diversification, where the arable land of the farmer covers more than 3 hectares we would recommend that the European Commission be urged to increase the upper limit to at least 10 hectares. Furthermore, we recommend that Hungary should support the idea of setting the upper limit of the area per farms of young farmers eligible for first pillar compensatory payments much higher than 25 hectares. We suggest that national reserve be not limited to 3 per cent of the basic payment envelope but may even be raised to 5 per cent of the total of direct payments, otherwise the scope for increasing the value of payment entitlements in areas where circumstances so justify will be very narrow.

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