31 October 2000 • Consequences of EU Eastern Enlargement on Austrian Agriculture • Matthias Schneider

The EU's eastern enlargement will mean both opportunities and risks for the agricultural sector in Austria. For most of the sectors of production analysed problems will, however, be greater than benefits. On balance, market share losses must be expected, which in turn will intensify the adjustment pressure exerted on farmers.

Most candidates for EU accession from Central and Eastern Europe are economically weak and considerably more agricultural in their character than Western Europe. Labour and fertile soil are more than ample and also cheap in the CEECs. The result is a high agricultural potential which, at present, is not fully exploited. Agricultural structures in the former communist countries vary substantially from those in the West. There is a large need to catch up in veterinary matters in terms of hygiene as well as plant and animal protection.

Accession of all ten candidates from Central and Eastern Europe would boost the EU's population and thus the number of its consumers by about 28 percent. Its agricultural potential would grow by at least 40 percent. Yet the combined economic potential and thus the financial base for its Common Agricultural Policy (CAP) would increase by just 41/2 percent.

Taking the Central and Eastern European countries under the CAP umbrella would translate into substantial benefits for them by way of higher prices and subsidies. Together with the major agricultural potential this furnishes the base for fears among Western European farmers that eastern enlargement could cause them to lose market share and be exposed to even greater pressure to adjust.

Austria's proximity to Eastern Europe makes it inevitable that its agriculture will be particularly affected by eastern enlargement. Difficult natural conditions in large parts of the country, small farm structures, high production costs, structural problems with regard to processing, inadequate horizontal cooperation and a glaring deficiency of vertical cooperation between farmers and those that process and market agricultural produce are factors which aggravate the position of Austrian farmers and make them vulnerable to international competition.

The situation differs between production sectors. Grain farmers must expect greater pressure in terms of supply and prices. Fruit growers and vintners should reap more benefits than suffer disadvantages from eastern enlargement, whereas vegetable planters and market gardeners are expected to be at a disadvantage, as will be operators in the animal, meat and dairy markets. The transformation countries in Central and Eastern Europe enjoy a large potential and low costs for their pig, cattle and dairy production. Once they have overcome the severe backlash caused by privatisation and restructurisation, they will be serious competitors against Western European suppliers. Thus, for the majority of sectors analysed, expected problems for the Austrian farmers outweigh prospective advantages – an assessment which holds true especially in the medium and long run. The local food industry, on the other hand, can expect to enjoy further benefits from eastern enlargement.

Loss of market share and price pressure have a pruning effect on agricultural income. This in turn accelerates migration and generally stimulates structural change in agriculture. Attempts to quantify these trends in more detail would be too risky at present, not least because of the many open issues. In the short to medium term, integration of the CEECs should have less decisive effects than Austria's accession to the EU in 1995; in the long term it will have a far more sustained impact on the development of the local agriculture than EU membership had.

Nevertheless the economic consequences of Eastern integration on Austrian agriculture are far from inevitable and invariable, but are amenable to (some degree of) forming. A favourable outcome from the enlargement negotiations, and promoting competitiveness and flexibility among the agricultural and food industry will strengthen the position of Austrian farmers. Economically and socially active rural regions facilitate the necessary adjustment processes.