How to integrate Ukrainian agriculture into Europe: lessons from the latest enlargement

Ukraine area is 603,550 km 2. It and is the second largest country in Europe behind the Russian Federation, ahead of France (551.695 km²), Spain (506,030 km²) and almost twice as large as Germany (357,592 km²), just to compare with the 3 current Member States that receive the most from the Common Agricultural Policy (CAP): 

• France, about 9.3 billion euros
• Spain, about 6.8 billion
• Germany about 6.1 billion

According to the calculations of the European think thank Bruegel, the agricultural cost of Ukraine's accession, if we were to maintain the CAP as we know it today, could exceed 12.1 billion euros. The total annual cost could reach 20 billion Euros, mainly considering the cohesion policy (4.6 billion Euros).

This is potentially an annual cost that the current Member States do not seem willing to assume, almost 0.13% of the European Gross Domestic Product (GDP), a figure to be compared with the size of the current total budget of the European Union, just under 1% of GDP.

Learning from the previous enlargement

How did the European Union manage to digest the Big Bang of Eastern enlargement in the first decade of this century? I think we can learn a lot from this process and from the answers that where given to the fears of the “old” Member States at the time.

In this article, we will focus solely on the budgetary aspects. Obviously, there are other aspects to consider in order to explain how the enlargement was carried out, factors that we have already highlighted in previous publications. In Europe, there is never a simple, one-size-fits-all explanation.

To take only 2 examples, it is obvious that a transitional period was needed for agriculture and the economy of these countries to adapt to the new context. It is also well-known that, by decoupling agricultural support, the Commission wanted to adopt an offensive attitude in the international negotiations that were then underway at the World Trade Organisation.

But here and now we will focus on the fears and issues relating to the European budget.

Fear number 1: the immediate budgetary explosion. The answer was given with an 8-year transitional period during which direct payment came into effect progressively, starting at 25% in the first year. 

Fear number 2: an initial budgetary explosion. The latest available data were used to calculate the budget that would be due to each new member. It made sense not to use the totally outdated data on the production structure of the Soviet era, but the most recent data corresponded to the period of transition (and productive disorganization) from real socialism to sometimes wild capitalism. The result was so negative for the “new” Member States that we had to update the data during the negotiation process.

This largely explains the low level of aid per hectare in these Member States and their current demands for “convergence” of these average levels between member States.

Fear number 3: A delayed budgetary explosion. The productive potential of those countries was blocked by the bureaucratic state socialism that they suffered for decades and damaged by the aforementioned political transition.

It was to be expected that, enjoying European funds and a stable agricultural policy, this productive potential would be mobilized, as has happened.

Without changes to the CAP, this legitimate and expected development would lead to an increase in total agricultural expenditure (if sufficient funds were available) or a shift of agricultural expenditure from the “old” Member States to the “new” ones, if budgetary constraints existed. 

This was a cause of great concern for the finance authorities of the “old” Member States, who could be faced with a budgetary explosion or, alternatively, a decrease in the agricultural budgetary return.

The Decoupling has been the found solution through the calculation of a “national envelope” for each Member State, based on historical expenditure.

Fear number 4: the need to hurry. These changes to the CAP should be implemented before the formal accession of the “newcomers”, since they would then have sufficient power to block these decisions. The last regulation of the “Fischler reform”, modestly called the “mid-term review”, was published in the Official Journal of the European Union on 30 April 2004 and enlargement took place on 1 May, the following day.

Do not forget that the new Member States have to accept the Community “acquis” at its fullest level on the day of their accession.

Lessons for Ukraine

Some useful lessons can be drawn from the above description to make possible the new enlargement.

The first seems obvious: a transitional period is needed so that, in this case too, Ukrainian agriculture and economy can integrate into the new European context.

The second is that the changes into the CAP have to be implemented before its formal accession.

The third is that these changes should limit the budgetary impact of Ukraine's accession. Ukraine is a large agricultural country, already competitive on world markets, particularly in cereals and oilseeds, and has great production potential in intensive livestock sectors such as pigs and poultry.

The adhesion of the “new” member States made possible the decoupling, against the opinion of the majority of the Ministers of Agriculture but with the support of the Ministers of Finance who easily convinced the Head of States and Government in the Berlin Summit.

Ukraine's accession should serve, despite the foreseeable opposition of many Ministers of Agriculture but again under pressure from the Ministers of Finance, to significantly and compulsorily limit the amount of direct aid per farm, which is a clear and simple way to limit the budgetary drain that enlargement would represent.

Agricultural support has to be concentrated in the “middle class farming to family farmers who need it most to make the agroecological transition possible. Green agricultura has to be profitable not only for the environment and the animal welfare but, firstly, for the farmers themselves.

What better pretext to make possible what is necessary politically that to blame Ukraine for the regulatory change?