Prague Economic Papers 2020, 29(6):625-648 | DOI: 10.18267/j.pep.753

Why Cannot Direct Payments Be Capped in Slovakia? A Political Economy Perspective

Jan Pokrivčáka,b, Marián Tótha, Pavel Ciaianc, Martin Bušíkd, Andrej Svorenčíke
a Slovak University of Agriculture in Nitra, Faculty of Economics and Management. Nitra, Slovakia
b Faculty of Economics, University of West Bohemia, Pilsen, Czechia
c European Commission, Joint Research Centre (JRC), Seville, Spain
d Institute of Agriculture Policy, Ministry of Agriculture and Rural Development of the Slovak Republic, Bratislava, Slovakia
e University of Mannheim, Department of Economics, Mannheim, Germany

Annually the Common Agricultural Policy (CAP) provides support to the farming sector amounting to more than EUR 50 billion in the EU, of which direct payments (DPs) take around 70%. DPs are often argued to be granted unfairly to large farms. In this paper we analyse implications and the political economy of DP capping in Slovakia in the context of the ongoing negations about the future CAP reform. The simulation results for Slovakia show that if the 2018 Commission proposal was approved it would lead to losses of EUR 190.1 million (68% of total DPs) to large farms when labour costs are not subtracted. These losses would decrease to only EUR 12.2 million (4.4% of total DPs) when the labour costs are subtracted. Further, the results show that potentially affected large farms in Slovakia show lower performance and lower compliance with the agricultural policy objectives than farms unaffected by the DP capping. Similar to the past CAP reforms, the position of Slovakia against DP capping is expected to be maintained also in future, which could be explained by three main factors: the productivity argument, the political economy argument linked to the lobby pressure from large farms and low economic distortions caused by DPs.

Keywords: CAP, direct payments, capping, political economy, large farms, Slovakia
JEL classification: D31, Q18

Received: June 27, 2019; Revised: February 10, 2020; Accepted: May 7, 2020; Prepublished online: June 29, 2020; Published: November 27, 2020  Show citation

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Pokrivčák, J., Tóth, M., Ciaian, P., Bušík, M., & Svorenčík, A. (2020). Why Cannot Direct Payments Be Capped in Slovakia? A Political Economy Perspective. Prague Economic Papers, 29(6), 625-648. doi: 10.18267/j.pep.753
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