First Experiences with the Common Agricultural Policy

In the agricultural sector, first experiences with the Common Agricultural Policy (CAP) broadly confirm earlier expectations. Agricultural producer prices have fallen significantly: grain by about one-half, beef by around 10 and pork by 20 percent, milk by roughly one-third. Import competition from the EU as a consequence of market opening has so far been limited, according to the information available. Severe market disturbances have not occurred, making it unnecessary to invoke article 146a of the Accession Act providing for a protection clause within the first five years of membership. An important reason for the relatively small rise in imports from the EU and the absence of market disruptions have been the partly pre-emptive cuts in sales prices for some "critical" commodities by Austrian producers, below the level of potential competitors from the EU. Major examples are milk and dairy products, flour, but also meat. Over the medium term, however, higher imports and thus losses of domestic market shares to EU competitors are to some extent unavoidable; they would give no reason for concern even from the domestic suppliers' point of view, as long as they are matched by higher exports. As for agricultural exports, the abolition of former restrictions in key areas has so far not led to a substantial boost for Austrian farmers – on the contrary: the fall of the old export promotion system brought to the forefront a number of important competitive weaknesses of domestic producers, such as high costs and insufficient adjustment to new market trends and consumer preferences, which had previously been masked by export and other subsidies. Consumers have so far benefited only partially, and often less than expected, from lower agricultural prices. Food and beverage prices fell by nearly 2 percent, on average, as a consequence of EU accession (between October 1994 and March 1995), according to a survey carried out by the Statistical Office in connection with calculations for the consumer price index. The lower agricultural prices and the resulting cost advantages for commodity inputs would have suggested a drop in food prices twice that amount.