Distributional impacts of common agricultural policy adoption by Romania
The Common Agricultural Policy (CAP) of the European Union (EU) leads to higher prices for agricultural products than under free market conditions. Therefore, the agricultural sector of a large country such as Romania plays a major role in EU accession negotiations. In particular, the implementation of the CAP has different impacts on different socio-economic groups. This study estimates, for the first time for Romania, the distributional impacts of the implementation of the CAP on different groups of agricultural producers and food consumers. Part of the research focuses on the assessment and analysis of the economic welfare (real income) effects of policy-induced price changes on seven groups of agricultural producers, using the traditional Marshallian approach of changes in producer surplus, and assuming an immediate accession of Romania to the EU. The application of CAP price support implies an estimated annual producer welfare gain of about Euro 800 million, or 2.4 per cent of Romanian GDP in 1999. Disaggregating the results by farm type, the large commercial state farming companies receive most of this benefit. Addition of direct payments to farmers at 25 per cent of the EU-15 rate increases the aggregate producer welfare gain to about 4 per cent of Romanian GDP, and substantially increases benefits to small independent household farms. Consumer welfare effects are analysed using a 10-fold breakdown of Romanian households and the Slutsky Compensating Variation approach. Estimates suggest that, if the current CAP results in an average increase of 10 per cent in all Romanian food prices, the lowest-income groups (i.e. urban and rural unemployed households, and urban pensioner households) will be the most affected, with their cost of living rising by up to 6.7 per cent. The estimation of gains or losses for each type of farm, and of income adjustments for each type of Romanian household, as a result of CAP adoption may assist Romanian policy makers in their debate over the agricultural and social strategies during the pre-accession period.