Romania and CAP Reform

The first part of this article presents a general overview of the current situation in the Romanian agriculture emphasizing its extreme polarisation and the importance of this sector for the economy. In the second part the emphasis falls on CAP reform. The authors seek to evaluate how the Romanian agriculture has evolved since integration and to estimate the impact of future CAP reforms on this sector. The paper presents the estimated impact of CAP reform on market measures, direct payments and rural development. The formulation of certain simplified scenarios of possible CAP reform provides the necessary benchmarks for a brief analysis of the effects upon consumers’ and producers’ welfare, as well as upon the rural area in general. Based on a simplified model, under some specific hypotheses, the net welfare effect due to the price changes for the selected products is positive in both reform scenarios, yet greater in the case of the radical reform. Regarding direct payments, the authors’ opinion is that for the large farms, some of them operating on thousands of hectares, cannot contribute to the objective of supporting farmers’ incomes. Reform measures will bring in Romania’s case a good operation of agricultural markets and the market orientation of farms, which will result in agricultural incomes based mainly upon the sale of agricultural products rather than upon subsidies or social allocations. As the key-problem of Romanian rural areas is poor infrastructure and the generalized poverty, the solution for the modernization of rural areas seems to be their “urbanization”, through investments in infrastructure, development of community services and a move away from farming to other economic sectors. In order to achieve this, the state has to mobilize internal and external resources for rural development rather than for agriculture. This implies a greater allocation of resources to Pillar II.