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

Summary/Abstract: Annually the Common Agricultural Policy (CAP) provides support to the farming sectoramounting to more than EUR 50 billion in the EU, of which direct payments (DPs) takearound 70%. DPs are often argued to be granted unfairly to large farms. In this paperwe analyse implications and the political economy of DP capping in Slovakia in the contextof the ongoing negations about the future CAP reform. The simulation results for Slovakiashow that if the 2018 Commission proposal was approved it would lead to losses of EUR190.1 million (68% of total DPs) to large farms when labour costs are not subtracted. Theselosses would decrease to only EUR 12.2 million (4.4% of total DPs) when the labour costsare subtracted. Further, the results show that potentially affected large farms in Slovakiashow lower performance and lower compliance with the agricultural policy objectivesthan farms unaffected by the DP capping. Similar to the past CAP reforms, the positionof Slovakia against DP capping is expected to be maintained also in future, which could beexplained by three main factors: the productivity argument, the political economy argumentlinked to the lobby pressure from large farms and low economic distortions caused by DPs.

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