Polish Agriculture and
the European Union
(written as a briefing paper addressed from the Agriculture Ministry
to the Prime Minister)
Part III: Policy Options
for Poland and the EU
Despite
the many issues and obstacles it presents to both sides of the negotiating
table, Poland’s agricultural sector is a problem that must be dealt with.
At this stage, this government and the people of Poland have too much invested
in joining the European Union in the near future to let agriculture issues
derail negotiations over membership. For the EU, there far too much
credibility and political capital tied up in bringing the strongest candidates
for membership into the Union to stall membership. On a more optimistic
note, Poland’s agricultural sector is a problem that can be dealt with.
Concessions must be made and tough measures must be taken by both sides,
but with intelligent policy decisions the road to full membership and economic
integration can be cleared.
The most
basic steps towards solving the problems in Poland’s agricultural sector
have to do with the structure of the farms themselves. Our ministry
has already set out on an ambitious, wide-ranging program of reform and
investment in the agricultural sector that promises to bring significant
results. Begun this summer, the still-evolving plan has three main
elements – pushing for the consolidation of more farms to make it easier
for Polish farmers to take advantage of modern farming methods, improving
rural education and infrastructure standards and finally providing subsidies
and tariff protection for Polish farmers while negotiations are underway.
The first
element of the plan attacks the problem of efficiency at its root.
Over the next decade, we must push our farmers towards consolidation, preparing
them for competition on the world market by increasing the number of large
farms. This summer’s plan hopes to begin this process through offering
incentives and early retirement pension packages to those who wish to leave
the sector by selling their land to neighbors looking to create larger
operations. Analysts say that this type of program, along with attrition,
will probably serve to cut the 500,000 farmers who rely on the land by
half. The proportion of our population engaged in agriculture could
drop to a fifth of what it is today, approaching the levels of western
Europe, within two decades.
Aside
from improving the efficiency of the farms themselves, consolidating will
also strengthen our position in negotiations over the CAP. Looking
to stake out a negotiating position, the EU seems to have seized on the
size issue, insisting that only the largest and most modern Polish farms
will qualify for subsidies if the CAP is extended east. Aside
from the obvious benefits to the sector, the best way to encourage the
EU to restructure the CAP may be to present them with as many farms that
meet their standards as possible.
The second
part of the plan is intended to provide alternatives for those whose livelihood
now relies entirely on farming. We hope to achieve this by improving
infrastructure and rural education standards, creating an environment conducive
to job growth in tourism and other areas. Improved education will
help raise the quality of life in rural areas, but it is a long term goal.
In the
nearer term, improvements to infrastructure are critical. Aside from
pressing concerns that remain outside the portfolio of this ministry, like
developing roads and communications to help farmers get their products
to market faster, there are investments that must be made to bring the
sector up to EU standards.
The most
important investments are improvements to processing facilities.
An EU report on Poland’s progress towards accession points out that “much
remains to be done to reach EU standards especially in basic processing
such as slaughterhouses, liquid milk treatment and grain milling.”
The ministry should encourage growth and modernization in these auxiliary
industries through privatization, lending programs and the like.
The most
important route to growth is foreign investment, which will bring expertise
and equipment and give Western companies straightforward geographical incentives
to deal with local producers. Because of the decentralized, small-scale
structure of Poland’s processing industries, and the slow pace of privatization
in this sector, it has been particularly hard to draw foreign investment;
by contrast, Hungary and the Czech Republic managed to privatize their
equivalent industries fairly easily. Promoting development
in this sector will also bring us closer to meeting the many health and
environmental requirements of the EU’s acquis communitaire.
The third
element of the plan is the part the European Union has expressed the most
opposition to. Responding to the realities our farmers face in competing
with the EU, we plan to provide direct market intervention in the form
of subsidies to Polish farmers and higher tariffs on imports. Polish
farms now operate under one of European agriculture’s lowest subsidy rates
-- less than half EU levels, which puts them at a significant disadvantage
when it comes to competing with the EU. Compounding their disadvantage
is our very low tariff regime.
Production
subsidies are a step we should take with deep reservations. As the
extreme inefficiencies created by the CAP demonstrate, subsidies are a
slippery slope; once farmers begin recieving them it is hard to scale payments
back. The strong political and popular pressure the farm lobby has
demonstrated in recent months – including several violent protests earlier
this fall – may make subsidies a political necessity, and as time goes
on the likelihood is farmers will feel entitled to more.
A further
danger is that we may spend scarce resources on the wrong industries.
Spending heavily from a small state budget and limited pre-accession EU
funds to prop up prices in sectors that might later be subjected to a drop
in prices on the world market or a drop in the CAP support prices after
accession would be a waste. However, it is difficult to predict these
prices with certainty.
As these
concerns demonstrate, any subsidies should be offered on a limited, temporary
basis until Poland’s farmers either become part of the EU and its agricultural
subsidy system, achieving a level of parity with west European farmers
through participation in the CAP, or until the CAP is reformed to a degree
where Poland is competing on a level field with EU exports.
Even
without political pressure from our farm lobby, the need for some sort
of support is evident. The EU’s actions have put our government and
agricultural sector in an impossible position. To qualify for entry,
the EU is insisting that the sector be modernized and brought up to the
level of western Europe in terms of its ability to compete. At the
same time, it is pursuing policies guaranteed to further weaken the sector
– flooding an already depressed market with highly subsidized goods, insisting
that Poland keep tariff and other barriers to EU goods low and threatening
not to extend an unreformed CAP eastward. Some sort of subsidies,
accompanied by the consolidation and modernization programs mentioned above
and rural development programs, may be the only way to get the farm sector
through this difficult transition.
A close
counterpart to any subsidies will be adjustments to our tariff regimes,
which are some of the lowest in Europe. Earlier this fall the ministry
drafted plans to raise tariffs on some agricultural goods by up to nine
times. The EU’s European Commission has said these increases would
violate the spirit of the Europe Agreement, which regulates trade and lays
out a gradual trade liberalization scheme. The tariff rates would
still be within the maximums we have agreed to as World Trade Organization
members, and wouldn’t violate the letter of the Europe Agreement.
Furthermore, setting higher rates as we enter accession negotiations would
give us a useful bargaining tool while improving our trade deficit and
helping farmers in the short-term.
When
making these recommendations, we must consider the cost. A plan drafted
by the ministry last week – a very optimistic one – proposes $2.53 billion
in direct payments to farmers each year until the hoped-for entry date
of 2003, along with $6.3 billion over the next 3 years in modernization
funds. This plan, opposed by the financially conservative elements
the coalition government, makes several large assumptions. The biggest
is that despite strong hints to the contrary Poland’s farms will be able
to take advantage of CAP benefits immediately on the hoped-for entry in
2003; the projected EU budget for 2000-2006 makes no provisions for additional
nations in the CAP budget. The second assumption is that the accession
negotiations will be completed in time for a 2003 entry date, and the third
is that three years of heavy spending will be enough to get the agricultural
sector ready for EU entry.
The alternative
to this proposal is to negotiate a rapid entry with a delayed transition
period for agriculture, excepting it from the trade liberalization that
would accompany accession in the hopes that it would be able to reform
itself if given more time. This is perhaps the most likely solution.
Looking at the history of the EU, similar transition periods were negotiated
for Spain and Portugal. The transitions, gave both sides a chance
to adjust their structures to better harmonize. For Polish farmers,
the important distinction is that any transition periods should come after
membership. Once Poland is a part of the EU, the export policies
of the CAP-subsidized European farms, which right now amount to dumping,
could be regulated. One method is by segmenting the EU’s internal
market (which Poland would be a part of) and slowly harmonizing prices.
No matter what, a compromise
will have to be reached in the next few months, as subsidies are critical
to the agriculture sector’s near-term survival but there is not enough
money in the budget or in the pre-accession funds provided by the EU to
fund such a significant increase in spending.
While
considering the policy options available to us, we must also keep in mind
the positions of our counterparts at the negotiating table. The most
important by far is the likelihood of CAP reform. Regardless of the
EU’s moves towards reforming the CAP, we must not let our drive to enter
the EU come at the expense of the farm sector, and that means rejecting
bargains that include Poland but shut its farms out of any EU subsidy arrangements.
Truly
reforming the CAP is at once the most important and least likely courses
of action the EU could possibly take over the next decade. Much has
been made of a very modest agreement earlier this year to cut price supports
for beef, dairy and grain producers operating under the CAP by 15 - 20%
over the next few years. Other reforms, many largely superficial
– reorganizing the distribution of aid payments, simplifying rules and
shifting responsibility for subsidies back to the governments of member
states – indicate some progress, but still leave the EU’s high market barriers
to Polish exports in place.
As we
and the EU both know, reform must go far deeper. The problem lies
in the politically sensitive nature of the agricultural sector, which is
bound to resist any such reforms at the level of member states’ national
governments. Further, the poor results of last week’s World Trade
Organization (WTO) talks makes a serious round of global trade negotiations
in the near future unlikely. Without global pressure, the EU has
no reason to undertake substantial reforms in the short term; in the long
term, the additional surpluses created by the entry of Poland an our Central
European neighbors may force their hand: “the combination of problems posed
by the integration of the Central and East European countries is very likely
to prompt the EU to reform its policies, including adjustments in present
support schemes with more focus on direct income support as well as rural
development. ... this plan should in fact be the medium term strategy of
the EU.”
In the
face of a long wait for true CAP reform, our best policy is to push the
EU to move as fast as possible on the question of membership while negotiating
a longer transition for agriculture, which could remain segmented from
the larger market once we are part of the EU. The key is to gain
greater access to the EU funds that we need to modernize the agricultural
sector and halt the virtual dumping of CAP-subsidized imports that are
crushing our farmers in the short term.
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