Cost of compliance with the aquis communautaire in the Hungarian dairy sector

The implementation and enforcement of the acquis communautaire is a precondition for joining the European Union (EU). However, there is only little information on the compliance costs in the acceding countries. In this paper, the investment needs and annual costs of compliance with the part of the acquis communautaire relevant for the dairy sector is assessed at different stages of the agri-food chain in Hungary. The assessment is mainly based on a classification of farms and processors according to their level of compliance with EU standards concerning milk hygiene in 2000/01 and calculations of necessary investments in buildings, milking and cooling facilities and delivery trucks. The raw milk quality in Hungary has steadily improved since the early 1990's. In 1999, 78 % of the milk delivered to processors was in compliance with EU standards. Based on the farm structure in the reference period, the further necessary modernisation requires investments of 82 million euro causing annual compliance costs of 9 million euro or 0.1 up to 4.3 cent per litre milk. This is equivalent to 0.6 % up to 17.9 % of the average farm gate price for milk in 2000. For modernising the milk collection centres, 25 million euro are needed, and for the delivery trucks between 12 million euro and 17 million euro. Depending on the size of the milk processor and the current level of compliance, the annual compliance costs are estimated to be low, ranging from negligible 0.02 cent per litre up to 0.7 cent per litre. Based on these findings there is only limited need for the government to support the further modernisation of milk processors. State support is more relevant at the farm level. Since 68 % of the total investment needs estimated at farm level are accounted for by farms with less than 5 cows, agricultural policy should support these farmers either to considerably increase their herd size or to cease production.