Importance of compensatory and structural payments for Slovenian milk production

Abstract

Significant level of market-price support measures for milk production is a reality of European agricultural policy. However, simultaneously with reduction of support to agriculture, various types of budget support measures are becoming increasingly important to compensate declined farmers’ incomes. It has not yet been decided whether also the candidate countries are going to participate in these support schemes. The paper aims at an assessment of the impact of direct payments and structural support measures on Slovenian milk market. Their effects on incomes of dairy farmers as well as on producers’, consumers’ and taxpayers’ welfare are analysed. Policy Analysis Matrix (PAM) in combination with Agricultural Policy Analysis Simulator (APAS) methodology has been applied for simulation of different policy scenarios’ effects on these important economic indicators. Analysis of different levels of CAP measures is carried out for the period after accession. Results obtained show extreme importance of both direct payments and structural support measures for all indicators under investigation and therefore argue for their complete implementation. In the case of Slovenian accession before next reform of Common market organisation for milk, structural mechanisms have higher impact, but increasing importance of direct payments is foreseen after 2005/06. Absence of one or another leads to stagnation of Slovenian milk production, which due to its low competitiveness has no good prospects also under optimistic scenarios. In the case of appropriate pre-accession agricultural policy strategy, satisfactory outcome of accession negotiations seems to be more realistic.