The impact of the CAP reform and exchange rates on Slovak agriculture

Abstract

This paper uses a dynamic, partial equilibrium econometric model to analyze the impact of the 2003 CAP reform and changes of exchange rate on agricultural markets and agricultural incomes in Slovakia. We evaluate three scenarios: 1) baseline scenario with no change in agricultural policies (Single Area Payment Scheme and top-ups are assumed until 2015), 2) CAP reform scenario with full decoupling from 2007 and with modulation from 2013, and 3) exchange rate scenario. In the baseline scenario, production increases. Consumption increases with some exceptions (like pork). Agricultural income rises significantly in the baseline scenario. The full decoupling has a minor impact on agricultural markets relative to the baseline. Weak Euro would lead to higher prices and higher production but lower consumption. Change in the exchange rate causes substitution in consumption of certain commodities due to the relative price changes.