1 i-sim CZ i-sim PL i-sim HU i-sim Simulating Policy Effects of EU Accession on Hungarian Agriculture Idara Policy Simulation Model (i-sim)

2 i-sim CZ i-sim PL i-sim HU i-sim - Sector Model -Partial Equilibrium -Comparative-Static - Elasticity driven Model Characteristics

3 Consistent Data Base Base Year Reproduction Reference Run (Base Line) Scenario Runs Modelling Procedure

4 i-sim Reference Run Base Year 1998 i-sim Data Base A Elasticity Matrix e i,j Results Reference Run 2006 Gross Production Activity Revenue Consumption Net Trade Activity Level Political Variables Base Year Yield Estimates for 2006 World Market Prices for 2006 Inflation Rate Exogenous Parameters Exchange Rate Estimate 2006 Behavioural Equations

5 i-sim Simulation Run Base Year 1998 i-sim Data Base A Behavioural Equations Elasticity Matrix e i,j Results Scenario Run 2006 Gross Production Activity Revenue Consumption Net Trade Activity Level Political Variables Base Year Yield Estimates for 2006 World Market Prices for 2006 Inflation Rate Exogenous Parameters Exchange Rate Estimate 2006

6 i-sim Scenario Analysis Results Scenario Run 2006 Gross Production Activity Revenue Consumption Net Trade Activity Level Results Reference Run 2006 Gross Production Activity Revenue Consumption Net Trade Activity Level X%

7 i-sim Scenario Results Sectoral Income 1.Production Value and Gross Value Added increased after accession 2.Model shows not much differences in plant and general inputs, but higher fodder input in CEEC scenario 3.Highest GVAM in CEEC scenario mainly caused by quota level (milk,sugb)

8 i-sim Scenario Results Production Structure I Share of animal production on Agricultural Production Value will increase in 1SHU most, because of restrictive milk quotas and lower premia for cattle

9 i-sim Scenario Results Production Structure II Only very limited changes in Land allocation between Scenarios: Slight increase in Cereals and Oilseeds due to Direct Payments Drastic Changes in Animal Production: - CAP favours Beef and Milk Production - Higher price level and quotas set incentives for Dairy Production - High market pressure on Pork and Poultry Production (lower EU price level) and removal of national subsidies

10 i-sim Scenario Results Quota Effects: MILK Gross Production is determined by Quota, binding restriction! Rising yields in combination with Quota restriction leads to lower Activity Level than without quotas

11 i-sim Scenario Results Quota Effects: MILK Revenues (EURO/hd) rise in both scenarios relative to the reference situation (no accession), but due to quota restriction, activity levels and gross production go down in 1SHU (EU proposal)

12 i-sim Scenario Results Direct Payments: Soft Wheat Revenues and Production value rise due to Premia and higher EU price level Revenues are higher than in reference situation for all scenarios Activity levels remain almost unchanged due to higher revenue increases in other crop activites (Oilseeds)

13 i-sim Scenario Results EU Market Pressure: Pork Pork production is reduced due to internal market pressure (low EU-15 Prices) No differences between the scenarios

14 i-sim Scenario Results EU Market Pressure: Poultry Market pressure on poultry production not as drastic as on pork Activity level increases around 5% compared with reference

15 Conclusions from a Hungarian Perspective Sectoral income is rising after accession Production structure changes mostly for the animal activities away from pork and poultry to milk and beef Production Activities that gain from accession: Beef, milk (revenues only), cereals, oil seeds, potatoes, sugar beet (revenues only) Production Activities that get under pressure after accession: Pork, (poultry) Quotas significantly hinder competitiveness and necessary structural changes For the products with the sharpest market pressure there are no direct payments (Pork, poultry) Compromise proposal achieves similar level of production with lower costs to EU Budget => advantage for negotiations

16 Policy Implications Form political alliance to abandon quotas Use national envelopes for policies that support structural changes Use rural development measures to increase alternative employment opportunities Pressure on agriculture will rise with quality competition from EU-15 Further investigate regional effects Quotas and ceilings are more important than Direct Payments Maximise flexibility in measures so that competitiveness and structural change can be improved/supported Think cross-sectoral, since serious welfare effects on other sectors if allocation is misdirected. Short Term (Negotiations) Mid Term (Post-Accession)

17 Core Equations REV = Revenues YLD = Yields PP = Producer Price M = Fixed Processing Margin PW = World Market Price PTE = Domestic Market Price POLP = Political Variables per Product LVL = Activity Levels POLA = Pol. Var / Activtiy PI = Input Prices PRD = Gross Production INP = Demand for Inputs (Feed and non Feed) LNK = Uses linked to production

18 Input Demand (non feed) INP = Input Demand SPI = Input demand shifter REVS = Revenues IREV = Input elasticities wrt Activity Revenues PP =Producer Prices IP = Input elasticities wrt own prices PP = Producer Price PACT = Production Activity

19 Input Demand (feed) INP = Input Demand SPI = Input demand shifter REVS = Revenues FLVL = Feed elasticities wrt Activity Revenues PP =Producer Prices FP = feed elasticities wrt own prices PP = Producer Price PACT = Production Activity