Farm output set to rise dramatically in new EU states post-CAP reforms

Agri-food companies can capitalise on farm output increases in new EU member states once CAP reforms are introduced in Jan 2014, according to a new Rabobank report.

The latest Rabobank Food and Agribusiness Research report suggests that Poland, Bulgaria, Romania, and other new entrant states will be among the most dynamic European markets in the next five to 10 years, as farmers seek to boost productivity to counteract the eroding positive effects of the CAP.

Rabobank analyst Harry Smit said: “The potential to increase agricultural production in the new member states is enormous. Yield gaps — the difference between the technically feasible yield and the actual average yield — in the new member states are large compared to the old member states. Therefore, in the coming years, farmers in the new member states can be expected to utilise this potential and increase productivity, and thus production, to maintain an acceptable income.”

Reforms to the CAP will see income support in the form of direct payments continue to be phased in in the new member states, although the increments will not be as significant as when direct payments were first introduced.

This, coupled with fixed rising costs, caused by an acceleration in asset appreciation — for example, land prices in Poland almost tripled in the period 2004 to 2012 — will increase farmers’ urgency to boost production to meet their income needs, and could lead to widespread consolidation of farms in new member states.

The report cites a 2012 land price of €6,000/ha for Poland, noting that this elevated price would be a factor in urging Polish farmers to increase output to retain or improve upon current profit margins. The average Irish price for farm land is about €10,000/ha.

The report also notes that the potential to increase agricultural production in the new member states is “enormous”.

It says the new member states’ yield gaps are very large compared to the older member states.

Rabo’s analysts expect farmers in the new member states to better utilise this potential to increase their production. Again, their goal will be income protection.

Mr Smit and his Rabo report co-authors note that the speed of production growth will vary from country to country because direct payments are set to rise by different levels in different countries. For instance, in Bulgaria and Romania, payments will increase by over 50% while the Czech Republic, Hungary and Slovenia will see rises of less than 10%.

There will also be differences between sectors. Arable farming should see rapid growth while beef production is set to remain static. The report analyses markets for grain and oilseed, animal protein, and dairy and looks at input costs. “In the old member states, where yield gaps are much lower, changes in the CAP are expected to have little impact on agricultural production,” says Mr Smit.

“With the exception of sugar, market management remains unchanged and European support prices remain below world market prices.

“However, individual farm incomes could be seriously affected, due to the redistribution effects of moving towards more uniform direct payments per hectare, with the most significant decline in income support being felt by farmers with historically high production per hectare, such as dairy farmers.”