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Eastern Europe: EU May Be Forced To Reform Agriculture Policies

Washington, 23 October 1996 (RFE/RL) -- The nations of Central and Eastern Europe could force the radical reform of the European Union's (EU's) controversial agricultural policies in the next few years, says a senior U.S. agriculture department official.

The EU's rules on farms and food production, known as the CAP, or Community Agricultural Policies, are considered strongly protectionist while providing unusually high levels of income guarantees to West European farmers.

The CAP stands in strong contrast to the push in Central and Eastern Europe to open up agricultural markets to free trade. In fact, the CAP has been the primary mechanism keeping a great deal of farm produce from Central and Eastern Europe out of the European Union.

But James Schroeder, deputy U.S. undersecretary of agriculture for foreign services, , says the move to eventually bring these nations into the EU may be the mechanism that changes the CAP to a much more market-oriented approach.

"Maybe the Central/East European countries can teach the EU something about market orientation," Schroeder told a conference in Washington Tuesday sponsored by the Agriculture department's Economic Research Service.

Schroeder says the nations transforming from communism to capitalism have learned "they can be competitive without a lot of government intervention and subsidies and there are opportunities for these countries to exploit their advantages."

In fact, he says, agriculture in such countries as Poland, Romania and Slovakia has been "in the doldrums" for several years because they are denied access to their natural market -- the European Union.

But as the EU prepares to expand eastward, it has not fully recognized the size and strength of agriculture in Central and East Europe, and what that would cost the EU if it leaves the CAP unchanged when these nations join in a few years.

"Membership of the large agricultural producing countries of Central/East Europe would appear to create serious problems for the CAP in its current form," says Schroeder.

Michel Debattise, the principal Agroindustry specialist in the World Bank's Department for Europe and Central Asia, agrees. He says most people do not realize just how significant agriculture is in each of these countries compared to West Europe.

While farm production accounts for well below 10 percent of gross domestic product (GDP) in most West European nations, it approaches 30 percent in Central European nations, such as Romania and Poland.

Interestingly, Debattise says, agriculture in the Central/East European nations have about half the level of protection given to EU farmers, and receive less than 40 percent of the public financial support afforded by the EU. Using a producer subsidy equivalent index created by the OECD (Organization for Economic Development), Debattise says that while the EU gives farmers a 49 percent level of support, farmers in the Czech Republic receive 19 percent --- and that is falling -- while farmers in Hungary get a bit more, 20 percent and in Poland 21 percent.

The U.S. Agriculture Department's Schroeder says that while it would be "extremely costly" for the EU to bring these countries into the community under present CAP support and guarantee policies, it would also hurt the transforming countries themselves.

"Policies focusing on price support and border protection will slow the structural changes needed to develop efficient production and distribution systems," he said.

A further downside would be that entry into the union under current EU policies would "significantly expand agricultural production in the EU," probably adding to EU surpluses in grains and livestock products, Schroeder says, a result the United States and other agricultural exporting nations would not welcome.

Actually, he says, the effect could be even worse for West European farmers because farms in Central and East Europe are larger than the EU average and will likely remain so, even as more collective farms are subdivided in the privatization process.

"This will give them stronger economies of scale and a resulting competitive advantage over many of the smaller EU farms," he says.

Enlargement of the EU to the East -- a concept strongly supported by the United States, says Schroeder -- and the changes that will accompany it, including reforms in the CAP, will "no doubt have a profound effect" on all world trade patterns. So while everyone focuses on the adjustments the nations in transformation will have to make, the real "burden of transformation" may in fact fall on the EU to make it a more market oriented community.

Ten countries from the region have signed agreements on their desire to join the EU: Poland, Hungary, Bulgaria, the Czech Republic, Estonia, Latvia, Lithuania, Romania, Slovenia and Slovakia.