EU farm subsidy model will not withstand Ukraine’s accession — Rabobank

Ukraine’s accession to the European Union will make reform of the Common Agricultural Policy (CAP) inevitable. The current support model, in which a large share of payments is linked to hectares, is not capable of smoothly absorbing Ukraine given the scale of its agricultural land. This is stated in a RaboResearch/Rabobank study titled What if Ukraine joins the EU?

Analysts note that Ukraine’s accession would increase the EU’s agricultural area by about 25%. This would place additional pressure on the CAP budget, which currently stands at around €55 billion per year, with a significant share distributed as direct area-based payments.

Rabobank outlines three possible CAP adjustment scenarios. The first is increasing the CAP budget by an estimated €7.6–13.4 billion annually, although this is considered unlikely. The second is tightening eligibility criteria for subsidies, which could exclude some farmers from payments. The third is reducing per-hectare payments for all farmers, which would hit Baltic and Eastern European countries the hardest.

The bank expects that transitional mechanisms will likely be introduced for Ukraine, such as a phased access to direct payments. However, this would only delay rather than resolve the financial impact of EU enlargement.

It is also noted that CAP allows partial redistribution of support from larger to smaller farms. Given the presence of large agroholdings in Ukraine, similar mechanisms are likely to be applied to the Ukrainian agricultural sector as well.

Beyond CAP, Ukraine’s accession would also affect the EU cohesion policy budget. Ukraine would become eligible for substantial funding from these programs, which account for roughly one-third of the EU budget. Estimates suggest Ukraine could receive 10–16% of the current seven-year EU budget, equivalent to €126–186 billion.

Analysts add that the EU budget as a whole would likely need to increase by around 10–25% after enlargement, which could face resistance from member states advocating strict fiscal discipline.

Tags: Ukraine, subsidies, EU