Potential impact of the CAP Single Area Payment on the structural change in Slovakia

The implementation of the latest CAP review in the EU New Member States (NMS) represents not only a change in the form of payments (from fully coupled to partially decoupled payments) but also an increase in the level of payments received by farmers. It is expected that farm restructuring in the NMS will be accelerated as greater payments, given with no obligation to produce, might allow those farmers who are willing to exit the farming sector to get the required funds to do so. If so, this might also give those farmers willing to increase the size of their farm more opportunities to expand. However, the transition to a market economy in these countries being still quite recent, the conditions under which the policy is implemented present some specificity as markets are likely to be less than perfect. The objective of the paper is to understand what impact the change in policy will have in one of the NMS, namely Slovakia, taking into account the impact of some potential market imperfections. This question is considered by assessing commercial individual farmers' willingness to increase their scale of farming. The investigation focuses on land only, and will be based on the intention of Slovak farmers to alter the land area they intend to farm in the future, in the context of continuing pre-accession policy (fully coupled support) and the Single Area Payment Scheme (SAPS, partially decoupled support). The determinants of the willingness to expand are estimated under different policy scenarios, as well as the determinants of a change in willingness to expand across scenarios. The analysis reveals that the determinants of the willingness to expand differ under coupled and decoupled policy as in particular the level of human capital does not seem to matter under SAPS. However, the introduction of SAPS might not greatly influence farm restructuring in Slovakia. Due to a less than perfect land market, farmers will have increased incentives to expand their farm and increased incentives to remain in farming. This means that farmers, despite their willingness to grow, might not be able to do so as land supplied by exiting individual farmers is unlikely to increase. However, the future supply of land also depends on the dynamism of other types of farms such as corporate farms.