Accession of the Czech Republic, Hungary and Poland to the European union: Impacts on agricultural markets

We used a world agricultural multimarket model to analyse the consequences of EU enlargement to include the Czech Republic, Hungary and Poland. We produced a market outlook up to 2010 for two enlargement scenarios, which were based on different assumptions regarding the restrictions on grain and dairy production in the acceding countries. In both scenarios, accession of the three CEECs would lead to a permanent but moderate decrease in EU prices for most of the commodities. For the three acceding CEECs, domestic prices of many commodities would increase dramatically. Their final consumption of agricultural products would decrease in most instances, while production would rise. The first important conclusion emerging from our investigation is an unpalatable one: food prices faced by consumers would increase in the acceding countries. Higher domestic prices in the CEECs would reduce exports of most commodities to non-union countries - a case of trade diversion. Consequently, excess supplies would be placed in stocks or exported to the original 15 member countries. Exports from third countries to the CEECs are also impacted but the magnitude of the diversion is moderate for grains and almost negligible for meat products. The impact of enlargement on world agricultural markets is limited as a result. In sum, trade effects are mostly within the enlarged Union. The imposition of supply management mechanisms in the dairy and grain sectors would be necessary to reduce the anticipated build up of surpluses in the new member states. For example, under the first scenario, which assumed that the dairy quotas are set at the levels requested by the CEECs, a dairy glut occurs in Hungary and the Czech Republic. Supply constraints would contain these build-ups but would also limit the ability of the new members to take advantage of the expanded market. The projected increase in inventory and CAP outlays for crop area payments in our simulations make it clear that either further changes in the CAP will be necessary with enlargement or that CEECs will have to accede under unfavourable terms to contain the potential output expansion.